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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




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Form 10-K



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|  |  |                                                                                             
|- |  | --------------------------------------------------------------------------------------------
|þ |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR
    15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934
|  |  | For fiscal year ended June 30,
    2004                                                     
|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

(Exact name of Registrant as specified in its
charter)


|                                                                   |  |                                         
|------------------------------------------------------------------ |  | ----------------------------------------
|Delaware                                                           |  | 75-1217920                              
|(State or other jurisdiction of
    incorporation or organization) |  | (I.R.S. Employer
    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

Securities registered pursuant to
Section 12(b) of the Act:

|                                                                |  |                         
|--------------------------------------------------------------- |  | ------------------------
|                                                                |  | Name of Each Exchange on
|Title of Each Class                                             |  | Which Registered        
|                                                                |  |                         
|Common Stock Par Value $1 Per Share                             |  | New York Stock Exchange 
|Rights to Purchase Series A Preferred Stock                     |  | New York Stock Exchange 
|Securities registered pursuant to
    Section 12(g) of the Act:
|None                                                           
|                                                               
|(Title of Class)                                               

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 Exchange Act
Rule 12b-2).     Yes þ     No o

Indicate by check
mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of the Registrants
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this
Form 10-K or any amendment to this
Form 10-K.     o

The aggregate
market value of common stock held by nonaffiliates as of
December 31, 2003 (the last business day of the
Registrants most recently completed second quarter) was
$501,252,460. This amount is based on the closing price of the
Registrants Common Stock on the New York Stock Exchange on
December 31, 2003. Shares of stock held by directors and
officers of the Registrant as well as shares allocated to such
persons under the Employee Stock Ownership Plan of the
Registrant were not included in the above computation; however,
the Registrant has made no determination that such entities are
Affiliates within the meaning of Rule 405 under
the Securities Act of 1933, as amended.

As of the close of
business on August 31, 2004, the Registrant had
19,846,066 shares of Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Certain portions of
the Registrants definitive proxy statement for the annual
meeting of shareholders to be held on October 26, 2004, are
incorporated by reference into certain Items of Part III
hereof. Except for those portions specifically incorporated
herein by reference, such document shall not be deemed to be
filed with the Securities and Exchange Commission as part of
this report.



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ElkCorp and Subsidiaries Annual Report on Form 10-K For Fiscal Year Ended June 30, 2004 TABLE OF CONTENTS PagePart I.Item 1. Business
    
    
    1Item 2. Properties
    
    
    10Item 3. Legal Proceedings
    
    
    10Item 4. Submission of Matters to a Vote of Security Holders
    
    
    10Item 4A. Executive Officers of the Registrant
    
    
    11Part II.Item 5. Market for the Registrants Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    12Item 6. Selected Financial Data
    
    
    13Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14Item 7A. Quantitative and Qualitative Disclosures about Market Risk
    
    
    23Item 8. Financial Statements and Supplemental Data
    
    
    24Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    47Item 9A. Controls and Procedures
    
    
    47Item 9B.
Other Information
    
    
    47Part III.Item 10. Directors and Executive Officers of the Registrant
    
    
    47Item 11. Executive Compensation
    
    
    47Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
    
    
    47Item 13. Certain Relationships and Related Transactions
    
    
    47Item 14. Principal Accountant Fees and Services
    
    
    47Part IV.Item 15. Exhibits, Financial Statement Schedule, and Reports on Form 8-K
    
    
    48Signatures
    
    
    51Note Purchase AgreementSubsidiaries of The CompanyConsent of Independent Registered Public Accounting FirmCertification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906




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PART I 
 Item 1. Business General ElkCorp, which is referred to as we, our, the registrant, and the
company in this report, is a Delaware corporation incorporated in 1965, having
its principal executive offices in Dallas, Texas. Shares of ElkCorps common
stock are traded on the New York Stock Exchange under the ticker symbol  ELK. We maintain an Internet website at http://www.elkcorp.com. In the
Investor Relations section of the web site, we post the following filings as
soon as reasonably practicable after they are electronically filed with or
furnished to the Securities and Exchange Commission: annual report on Form
10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any
amendments to those reports filed or furnished pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934. All such filings on the Investor
Relations web page, which also includes Forms 3, 4 and 5 filed pursuant to
Section 16(a) of the Securities Exchange Act of 1934, are available to be
viewed on this page free of charge. Additionally, our key committee charters, corporate governance guidelines and code of business conduct and ethics are
available on our website and in print upon request. Information contained on the web site is
not part of this annual report on Form 10-K or our other filings with the
Securities and Exchange Commission. We assume no obligation to update or
revise any forward-looking statements in this annual report on Form 10-K,
whether as a result of new information, future events or otherwise. A copy of
this Form 10-K is available without charge upon written request to Investor
Relations, ElkCorp, 14911 Quorum Drive, Suite 600, Dallas, Texas 75254. Financial Information About Industry Segments Financial information by industry segment is presented in Part II.
Financial Statements and Supplemental Data on page 43 of this report. Building Products Through Elk Premium Building Products, Inc. and its subsidiaries
(collectively Elk), we are engaged in the manufacture of premium roofing
products, performance nonwoven fabrics and composite building products. The
Building Products segment is our primary business, accounting for 97%, 96% and
97% of consolidated sales in fiscal 2004, 2003 and 2002, respectively. Premium Roofing Products Roofing products are premium laminated fiberglass asphalt shingles and accessory
roofing products for steep slope applications. We manufacture these products
at plants located in (1) Ennis, Texas, (2) Shafter, California, (3) Myerstown,
Pennsylvania, and (4) Tuscaloosa, Alabama. In early fiscal 2003, we began
construction of a second roofing plant at the Tuscaloosa, Alabama facility.
Construction also included the installation of certain infrastructure and
material handling improvements designed to enhance the efficiency of the
overall Tuscaloosa facility. This new plant was completed ahead of schedule
and under budget. Construction and testing of the new facility was completed
in the quarter ended June 30, 2004 and placed in service on July 1,
2004. This new plant will increase company-wide capacity by approximately 25%. During fiscal 2004 we also completed significant production enhancements
at the other roofing plants. The most significant of these improvements was
the installation of additional packaging lines at the Shafter and Myerstown
plants. The major products manufactured at Elks roofing plants are premium
laminated fiberglass asphalt shingles. Premium roofing products have either a
wood-shake or slate-like look. Elks shingle product line includes: the
Prestique® Gallery Collection, Prestique Plus High Definition®, Prestique I
High Definition, Prestique High Definition, Prestique Raised Profile®,
Capstone®, Domain® Winslow, and Prestique
Grandé High Definition. The following table summarizes limited product warranty and limited wind
warranty for the first five years for each product. Special high-wind
application techniques are required for limited wind warranties of up to 90
miles per hour (mph) and higher. - 1 -




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Product
    
    Limited Warranty
    
    Limited Wind WarrantyDomain Winslow
    
    50 years
    
    up to 110 mphPrestique Gallery Collection
    
    50 years
    
    up to 110 mphPrestique Plus High Definition
    
    50 years
    
    up to 110 mphCapstone
    
    40 years
    
    up to 110 mphPrestique Grandé High Definition
    
    40 years
    
    up to 90 mphPrestique I High Definition
    
    40 years
    
    up to 90 mphPrestique High Definition
    
    30 years
    
    80 mphPrestique Raised Profile
    
    30 years
    
    70 mph
 Elk also offers starter-strip products, Seal-a-Ridge®, Z® Ridge,
RidgeCrest, Elk Highpoint hip and ridge products, a built-in Stainguard®
treatment in some areas of the country, roof accessory paint for vent flashings
and other accessories. Elks roofing products are sold by employee sales personnel primarily to
roofing wholesale distributors, with delivery being made by contract carrier or
by customer vehicles from the manufacturing plants or warehouses. Elks
products are distributed nationwide. Over the last five calendar years, the
laminated asphalt shingle segment has grown at a compound annual growth rate of
12.7%. Industry shipments of laminated asphalt shingles are expected to
continue to grow 7% to 10% annually. Over 80% of all asphalt shingles are used
in reroofing and remodeling and less than 20% are used in new construction. On
average, steep-sloped roofs are replaced every 18  19 years. Approximately
89% of roof replacements are nondiscretionary and result from roof
deterioration, age, leaks, or weather damage. Appearance upgrades account for
the remaining 11% of roof replacements. The ten largest Building Products
customers typically account for approximately 50% of annual consolidated sales.
One customer, ABC Supply Co., Inc., the largest roofing wholesale distributor
in the United States, accounted for 19% of our consolidated sales in fiscal
2004, 18% of consolidated sales in fiscal 2003, and 18% of consolidated sales
in fiscal 2002. Elks sales personnel devote considerable time and effort to the education
of roofing installation contractors regarding the superior appearance, quality
and ease of application of Elks roofing products. Elk believes that its
effort to develop brand loyalty among roofing installation contractors is an
important marketing activity, since the product recommendations of roofing
installation contractors often have a significant influence upon the roofing
product brand selections of homeowners. Elk has instituted the Peak
Performance Contractor Program to reward top performing contractors for their
brand loyalty and quality of service and has developed Elk Edge® seminars to
educate contractors and build their affinity for our products. Even though the premium roofing products manufacturing business is highly
competitive, we believe that Elk is a leading manufacturer of premium laminated
fiberglass asphalt shingles. Elk has been able to compete successfully with
its competitors, some of which are larger in size and have greater financial
resources. Elks target market for asphalt shingles sales is the laminated
segment which accounts for 60% of all asphalt shingles sales. We believe we
are the only major roofing manufacturer that entirely focuses on this segment
of the sloped roof market. Elks plants generally are among the most modern
and efficient plants in the industry. Accordingly, we believe this provides us
with a competitive advantage in developing and maintaining manufacturing
efficiencies. We believe that many of our competitors have elective
manufacturing capacity, allowing them to manufacture either commodity shingles
or premium laminated shingles. Such elective capacity can affect the
supply/demand balance in the premium laminated sector, which can influence the
prices Elk charges its customers. Performance Nonwoven Fabrics Elks performance nonwoven fabrics subsidiary is a leading manufacturer of
nonwoven fiberglass shingle substrates and other products utilizing coated and
non-coated nonwoven fabrics formed from fiberglass, polyester, cellulose and
blended base fibers. Non-coated nonwoven fabrics form the core substrate of
most residential asphalt shingles and commercial roofing membranes. Nonwoven
fiberglass fabrics provide strength and fire-resistance to these products.
Coated nonwoven fabrics have been developed by Elk for use in various building
product applications, including roofing underlayment products, facer products
and radiant barriers. Many of Elks coated nonwoven products utilize our
proprietary Versashield® fire barrier coatings. Performance nonwoven fabrics products are manufactured on two nonwoven
fabric (or mat) lines that run in parallel at Elks Ennis, Texas facility. - 2 -




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During fiscal 2004, the majority of nonwoven fabrics produced by Elk were
used in the manufacture of residential and commercial roofing and accessory
products, and, of those, approximately two-thirds were consumed internally in the
manufacture of Elks asphalt shingle and accessory roofing products. A smaller
amount of nonwoven fabrics produced by Elk were used for other direct
applications in building and construction, filtration, floor coverings and
other industries. We continually conduct ongoing research and development
activities targeted at expanding the market for our nonwoven fabrics manufacturing
capability. Elks nonwoven fiberglass roofing mat facilities have the capacity to
supply all of our internal fiberglass roofing mat needs. However, certain Elk
roofing plants may be supplied nonwoven fiberglass roofing mats under buy/sell
agreements of similar, but distinctly different, products with other
manufacturers. Such agreements benefit each party by reducing freight costs to
the manufacturing plants. These arrangements are generally not affected by
changing market conditions. Nonwoven fabrics are sold by Elk sales personnel
and shipped by contract carrier to its other roofing plants and to its
customers locations. In its nonwoven fabrics business, Elk successfully competes with other
manufacturers of nonwoven fabrics, some of which are larger in size and have
greater financial resources. Elk believes that the quality and properties of
its nonwoven fabrics make it a desirable supplier of nonwoven products to other
manufacturers. In fiscal 2004, most external shipments of nonwoven fabrics
were made to other manufacturers of asphalt shingles and commercial roofing
membranes. Many of these customers purchased nonwoven fabrics from Elk in
order to supplement their own internal nonwoven fabrics production capacity.
As a result, changing business conditions may result in a proportionately
larger change in Elks external nonwoven fabrics shipments than the
proportionate change in overall market demand. Composite Building Products Composite building products is a newly formed platform designed for
rapidly growing traditional markets for advanced composite technology (decking,
fencing, railing, building product structural components and accessories) and
the development of new high-end non-asphaltic roofing products. Composite wood
products are sold under the CrossTimbers name and marketed as an alternative
to treated wood. Composite building products are manufactured in Lenexa,
Kansas, sold by Elk sales personnel, and shipped by contract carrier. We are currently expanding and consolidating our capacity at the current Lenexa facility.
Additional capacity from this $22,000,000 investment in the composite building
products business is expected to be completed in December 2004. We believe that industry-wide sales of composite wood products currently
account for approximately 7% of the estimated potential market for wood used in
decking, fencing and railing applications. We anticipate that the high growth
potential of this emerging market may attract numerous competitors.
Competitors include companies focusing on traditional wood products and
companies offering wood alternative products. Some of these competitors are
larger in size and have greater financial resources than we do, but the market
currently is generally fragmented without dominant competitors. We believe
that our established building products distribution channels will enhance our
ability to compete successfully in this market. Raw Materials In the Building Products segment, the significant raw materials are
ceramic coated granules, asphalt, glass fibers, resins, mineral filler,
polypropylene and wood particles. All of these materials are presently
available from several sources and are in adequate supply. However, temporary
shortages or disruption in supply of raw materials do result from time to time
for a variety of causes. Asphalt costs can be significantly affected by trends
in oil prices and our cost of sales can vary as a result of changes in the
price and availability of asphalt. Historically, we have been able to pass
some of the higher raw material costs through to the customer. Transportation The majority of our building products are shipped by common carrier or by
customer vehicles from our manufacturing plants or warehouses. Shipping costs
are a significant component of cost of sales. Agreements with our common
carriers typically allow for surcharges as a result of increasing oil prices.
Further, carriers are subject to final rules issued in April 2003 by the U.S.
Department of Transportation which govern truck drivers hours of service and
have and will continue to impact our shipping costs. Historically, we have
been able to pass along some of our higher transportation costs through to the
customer, but there is no assurance of being able to do so in the future. - 3 -




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Backlog Backlog is not significant, nor is it material to our Building Products
businesses. Strategies We strive to be the brand of choice in every aspect of our Building
Products businesses. To accomplish this goal, we strive to develop and
manufacture premium products with consistent quality and provide excellent
service to our customers. The key objectives of the Building Products segment are summarized as
follows:  
    
    Utilize all existing roofing manufacturing capacity to fully
leverage the capital investments in place.
    
    Develop an overall strategy and positioning of our Brand
that further extends the Elk brand with our supply chain and extend
it to reach the consumer.
    
    Improve our shingle operational effectiveness and further
improve our raw material supply chain to achieve optimum cost.
    
    Utilize Elks existing nonwoven fabric capacity and develop
applications into the potential Specialty Fabrics platform in fire
retardants.
    
    Expand the composite lumber business as well as develop a 2nd
generation superior product.
    
    Acquire new building product platforms that can leverage the
Elk brand, complement the existing distribution channel or reinforce
and expand existing technology. Extended Payment Terms Our Building Products businesses typically provide extended payment terms to
certain customers for roofing products shipped during the late winter and early
spring months, with payment generally due during late spring or early summer.
As of June 30, 2004, $5,662,000 in receivables relating to such shipments were
outstanding, all of which are due in the first quarter of fiscal 2005. Seasonal Business Our Building Products businesses are seasonal to the extent that cold, wet
or icy weather conditions during the late fall and winter months in some of our
marketing areas typically limit the installation of residential building
products. This seasonality causes sales to be slower during such periods.
Damage to roofs from extreme weather such as severe wind, hurricanes and hail
storms can result in higher demand for periods up to eighteen to twenty-four
months depending upon the extent of roof damage. Working capital requirements
and related borrowings fluctuate during the year because of seasonality.
Generally, working capital requirements and borrowings are higher in the spring
and summer months, and lower in the fall and winter months. Other, Technologies Other, Technologies consists of our other operations. These dissimilar
operations are combined, as none individually meets the materiality criteria for
separate segment reporting. The businesses aggregated together as Other,
Technologies accounted for 3%, 4% and 3% of consolidated sales in fiscal 2004,
2003 and 2002, respectively. The operations included as Other, Technologies
are: (1) Ortloff Engineers, LTD (Ortloff), which provides proprietary
technologies and related engineering services to the natural gas processing
industry, (2) 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, and (3) Elk
Technologies, Inc. (Elk Technologies), 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. Elk Technologies has produced nominal commercial
sales to date. - 4 -




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Ortloff Ortloff is engaged in licensing proprietary technologies and providing
related engineering services to the natural gas processing industries, with
particular emphasis on the natural gas liquids (NGL) recovery, sulfur recovery,
and liquefied natural gas (LNG) segments. Ortloffs proprietary technologies
are used in a very significant number of turbo expander plant projects.
Ortloff licenses technology covered by and related to patents owned by ElkCorp
for use in new or redesigned natural gas and refinery gas processing
facilities, and utilizes technology licensed from others and its own expertise
in the performance of consulting and engineering assignments. In addition,
Ortloff offers significant expertise and other nonpatented technology
associated with its processes that are difficult for customers to obtain on a
cost effective basis from others. Ortloff has been successful in expanding its
markets into several parts of the world beyond the Americas where natural gas
deposits are being produced and processed to generate products for sale in the
world markets, and has entered into a Cooperative Marketing Agreement with UOP
LLC and a global technology license agreement with a major international energy
company to further leverage Ortloffs worldwide coverage. Ortloff has
initiated the first stages of a potential joint venture in China to allow
further international exposure to its technology in key Asian markets. ElkCorp holds certain patents, which are significant to Ortloffs
operations. We believe that ElkCorp holds significant state-of-the-art patents
covering some of the most competitive processes for the cryogenic processing of
refinery and natural gas streams to remove the higher value components, such as
ethane and propane, which are primarily used as petrochemical feedstocks. In
addition, Ortloff has developed technologies and filed applications for patents
covering processes for the production of LNG which it believes will provide
considerable efficiency improvements in and cost savings for the design and
construction of those facilities. However, we do not believe that the loss of
any one of these patents or of any license, franchise or concession would have
a material adverse effect on our overall business operations. We also believe
that Ortloff has widely recognized expertise in the design of facilities for
natural gas and refinery gas processing and sulfur recovery. Ortloff competes
with several larger international engineering firms with greater financial and
geographic resources and manpower. It has entered into cooperative marketing
and global licensing agreements with larger companies to better compete in
international projects. Patent license fees are calculated by standard formulas that take into
account both specific project capacity criteria and market conditions, adjusted
for special conditions that may exist in a project. Engineering consulting
assignments are performed under consulting services agreements at negotiated
rates. No raw materials are utilized in Ortloffs consulting and technology
licensing business. Chromium Chromium Corporation is a leader in plating proprietary finishes for use
in remanufacturing large diesel engine cylinder liners, pistons and valves for
the railroad and marine industries. Chromium also manufactures wear plate
products utilizing its proprietary CRODON® hard chrome finish. These wear
plate products are designed to extend the service life of steel machinery
components operating in abrasive environments for a number of industries,
including roofing manufacturing, mining and public utility industries. We believe that Chromium is a leading remanufacturer of diesel engine
cylinder liners and pistons for the railroad and marine transportation
industries and is the primary supplier of hard chrome plated finishes for
original equipment diesel engine cylinder liners to all of the major domestic
locomotive manufacturers. We believe it has smaller competitors in the
locomotive diesel engine cylinder liner market, but competes with larger,
better capitalized manufacturers in certain markets. Chromium has achieved a
leading position in remanufacturing markets through competition on the basis of
product performance, quality, service and price. In addition, technical
innovations that enhance quality and performance are also increasing the
value-added content per unit produced. In Chromiums business of hard chrome plating and remanufacturing diesel
engine cylinder liners, chromic acid is a significant raw material and is
presently available from a number of domestic suppliers. We believe these
domestic suppliers obtain the ore for manufacturing chromic acid principally
from sources outside the United States, some of which may be subject to
political uncertainty. We have been advised by our suppliers that they
maintain substantial inventories of chromic acid in order to minimize the
potential effects of foreign interruption in ore supply. - 5 -




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Elk Technologies Elk Technologies, Inc.s current areas of emphasis include fire retardant
fabrics for mattresses, upholstered furniture, curtains and bed clothing.
While these activities have produced nominal commercial sales to date, we
believe that potentially significant demand for products utilizing this
technology could result from trends toward more stringent flammability safety
laws and regulations for mattresses and upholstered furniture. Strategies Our objectives for each of the Other, Technologies companies are listed
below. While we intend to continue to position these companies for long-term
profitability, we also intend to explore the potential sale of Ortloff and
Chromium in fiscal 2005 to third parties whose operations are more synergistic,
so that we can focus on our Building Products platforms. Ortloff  
    
    Increase penetration of international markets through
the UOP Cooperative Marketing Agreement, and other global
licensing agreements in the cryogenic gas processing and sulfur
recovery technologies.
    
    Further penetrate the LNG markets.
    
    Continue to generate patent licensing and consulting revenue
and policing potential infringement of our patents.  Chromium  
    
    Continue to offer plating and finishing services for
pistons, valves and cylinder liners in existing locomotive and
marine markets.
    
    Market locomotive products through the extensive sales
network of the Electro-Motive Division of General Motors in
international and specific domestic markets.
    
    Grow sales of hard-chrome wear plates designed for use
in other industrial markets to 30% of Chromium's monthly sales. Elk Technologies  
    
    Penetrate the mattress, bedding and upholstered
furniture markets with fire retardant products. We believe the
potential market for mattresses is 40 million mattresses per
year. Up to three linear yards per mattress will likely be
required.
    
    Continue to develop fire retardant technology for other
markets. Discontinued Operations Cybershield, Inc., through subsidiaries (collectively Cybershield) has
been engaged in shielding plastic enclosures from electromagnetic and radio
frequency interference. Products include EMI/RFI shielding, conductive
gaskets, decorative paints, metal coatings and EXACT metal patterning.
Cybershields markets include digital cellular phones, PDAs,
telecommunications and consumer electronics equipment, bar coding, computer and
computer peripherals, aerospace, automotive, military and medical equipment. Prior to fiscal 2003, Cybershield was principally a North American
provider of shielding solutions to the digital wireless telecommunications
industry, serving both the handset and infrastructure segments of the industry.
In recent years, most worldwide cellular phone production has shifted to Asia
where Cybershield has no production facilities. Cybershield attempted to
implement strategies to diversify its customer base among a wide spectrum of
electronic device manufacturers serving the cellular, consumer, military,
automotive, medical equipment, aerospace and other industries and to utilize a
proprietary process (EXACT) to metalize complex patterns of electroless
conductive metals with great precision in three-dimensional plastic parts. In December 2003, we 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. Progress
towards replacing lost cellular revenue with revenue from other sources was
progressing slower than anticipated, and the profit contribution from new
commercial production of EXACT business was lower than contemplated.
Accordingly, the decision was made to discontinue Cybershield and to sell its
operations or its assets. We 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. - 6 -




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On August 10, 2004, we 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. Environmental Matters ElkCorp and its subsidiaries are subject to federal, state and local
requirements regulating the discharge of materials into the environment, the
handling and disposal of solid and hazardous wastes, and protection of the
public health and the environment generally (collectively, Environmental Laws).
Certain facilities of our subsidiaries ship waste products to various waste
management facilities for treatment or disposal. Governmental authorities have
the power to require compliance with these Environmental Laws, and violators
may be subject to civil or criminal penalties, injunctions or both. Third
parties may also have the right to sue for damages and/or to enforce compliance
and to require remediation of contamination. If there are releases or if these
facilities do not operate in accordance with Environmental Laws, or their
owners or operators become financially unstable or insolvent, our subsidiaries
are subject to potential liability. We and our subsidiaries, are also subject to environmental laws that
impose liability for the costs of cleaning up contamination resulting from past
spills, disposal, and other releases of hazardous substances. In particular,
an entity may be subject to liability under the Federal Comprehensive
Environmental Response, Compensation and Liability Act (CERCLA or Superfund)
and similar state laws that impose liability  without a showing of fault,
negligence, or regulatory violations  for the generation, transportation or
disposal of hazardous substances that have caused, or may cause, environmental
contamination. In addition, an entity could be liable for clean up of property
it owns or operates even if it did not contribute to the contamination of such
property. From time to time, we or our subsidiaries, may incur such
remediation and related costs at the company-owned plants and certain offsite
locations. Chromium has engaged in limited remediation activities at its former
plating operation, which is 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 plan 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 will now submit 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 cleanup standard
as prescribed by the Texas Risk Reduction Program. Until the significant actions that will be included in the RAP are
identified, the estimate of costs to remediate the site are not determinable,
nor can we determine at this point in time if it is reasonably possible that we
will incur material additional costs at the site. If a RAP similar to a plan
successfully used at another Chromium plant is approved by TCEQ, remediation
costs will be immaterial to our consolidated results of operations, financial
position and liquidity. However, other potential scenarios, none of which are
reasonably expected at this time, could potentially result in material costs to
us. We believe that sufficient information for establishing a reserve for this
environmental exposure in accordance with SFAS No. 5, Accounting for
Contingencies, may be available by the end of the first half of fiscal 2005,
and further anticipate that we may be in a position at that time to determine
if it is reasonably possible that we will incur material additional costs with
regard to this site. Our 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, we - 7 -




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do not believe we will be required to expend amounts which will have a material
adverse effect on our consolidated results of operations, financial position or
liquidity by reason of environmental laws and regulations. Such laws and
regulations are frequently changed and could result in significantly increased
cost of compliance. We anticipate that our subsidiaries will incur costs to
comply with Environmental Laws, including remediating any existing
non-compliance with such laws and achieving compliance with anticipated future
standards for air emissions and reduction of waste streams. Such subsidiaries
expend funds to minimize the discharge of materials into the environment and to
comply with governmental regulations relating to the protection of the
environment. Further, certain of our manufacturing operations utilize
hazardous materials in their production processes. As a result, we incur costs
for recycling or disposal of such materials and may incur costs for remediation
activities at our facilities and off-site from time to time. We establish and
maintain reserves for such known or probable remediation activities in
accordance with SFAS No. 5. Persons Employed At June 30, 2004, we and our subsidiaries had 1,148 employees. Of this
total, 859 were employed in the Building Products business segment, 101 were
employed in Other, Technologies, 15 were employed by Cybershield (which was
sold in August 2004), and 173 (including most sales personnel) were employed by
the corporate office. Included in these totals are 144 employees in Building
Products and 49 employees in Other, Technologies who were represented by labor
unions. We believe that we have good relations with our employees and the
labor unions. Risks Relating To The Company Competitive Conditions Our building products businesses are substantially non-cyclical, but can
be affected by weather, the availability of financing, insurance claims-paying
practices, and general economic conditions. In addition, the asphalt roofing
products manufacturing business is highly competitive. Actions of competitors,
including changes in pricing, or slowing demand for asphalt roofing products
due to general or industry economic conditions or the amount of inclement
weather could result in decreased demand for 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, from price increases of our products, operating results could be
adversely affected and/or lower than projected. Temporary Shortages or Disruptions Temporary shortages or disruption in supply of raw materials or
transportation do result from time to time from a variety of causes. If we
experience temporary shortages or disruption of supply of raw materials,
operating results could be adversely affected and/or 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. Construction of the new Tuscaloosa, Alabama facility was
completed in the fourth quarter of fiscal 2004. We expect that fixed operating
costs will increase approximately $14,000,000 annually as a result of this new
facility. However, we also believe that during fiscal 2005, higher asphalt
shingle sales resulting from growth in market demand and expanded manufacturing
capacity will offset these higher operating costs. Progress in achieving
anticipated operating efficiencies and financial results - 8 -




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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 adversely affected. 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 Our litigation is subject to inherent and case-specific uncertainty. The
outcome of such litigation depends on numerous interrelated factors, many of
which cannot be predicted. Higher Interest Rates We currently anticipate that most of our needs for new capital in
the near future will be met with internally generated funds, borrowings under
our available credit facilities, and funding from the sale of $50,000,000 in
Senior Notes scheduled to be closed in November 2004. Significant increases in
interest rates could substantially affect our borrowing costs or our cost of
alternative sources of capital. Technological Changes or Loss of Key Customers 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 the
method of distribution or delivery of such technology, products and services.
In addition, 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. 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 or other 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. - 9 -




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##### Table of Contents



Item 2. Properties All manufacturing facilities, except for composite building products
facilities in Lenexa, Kansas, are owned by ElkCorp and its subsidiaries and are
not subject to any significant encumbrances. Building Products Asphalt building products are manufactured at plants located in Ennis,
Texas; Shafter, California; Myerstown, Pennsylvania; and two adjacent plants in
Tuscaloosa, Alabama. Fiberglass roofing mat, nonwoven industrial,
reinforcement and filtration products are manufactured on two parallel
production lines located in Ennis, Texas. Remote leased warehouse storage
locations are maintained in (1) Denver, Colorado, (2) Plant City, Florida, (3)
Greenville, South Carolina, (4) Tacoma, Washington, and (5) Richmond, British
Columbia, Canada. Composite building products are manufactured at leased
facilities in Lenexa, Kansas. Corporate headquarters and administrative offices for the Building
Products operations are located in the same leased facility as our corporate
offices in Dallas, Texas. Other, Technologies The Ortloff engineering and process licensing group is located in leased
offices in Midland, Texas. Chromiums operating facilities are located in Cleveland, Ohio. Corporate
headquarters and most administrative offices for Chromium are located at the
same leased facility as our corporate offices in Dallas, Texas. Some
administrative offices are located at the Cleveland, Ohio manufacturing
facility. Elk Technologies operates out of administrative offices located at the same
leased facility as our corporate offices in Dallas, Texas, and utilizes the
services of the technology center located at our Ennis, Texas facility. Discontinued Operations Cybershields operating facility in Lufkin, Texas was sold on August 10,
2004. The Canton, Georgia facility was closed in fiscal 2002 and is held for
sale. Corporate Offices In August 2003, our corporate headquarters was relocated to 14911 Quorum
Drive, Suite 600, Dallas, Texas. The corporate headquarters is located in
leased offices. 
 Item 3. Legal Proceedings There are various lawsuits and claims pending against ElkCorp and its
subsidiaries arising in the ordinary course of their businesses. In the
opinion of management, based in part on advice of counsel, none of these
actions should have a material adverse effect on our consolidated results of
operations, financial position, or liquidity. 
 Item 4. Submission of Matters to a Vote of Security Holders No matters were submitted to a vote of security holders during the fourth
quarter of the year ended June 30, 2004. - 10 -




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##### Table of Contents



Item 4A. Executive Officers of the Registrant Certain information concerning our executive officers is set forth below: Period
    
    Age as ofServed
    
    Sept. 1,Name
    
    Title
    
    As Officer
    
    2004Thomas D. Karol
    
    Chairman of the Board and
Chief Executive Officer of
ElkCorp and each Building Products
subsidiary; Officer and Director of
all subsidiaries except one
    
    3 years
    
    
    46Richard A. Nowak
    
    President and Chief Operating
Officer of ElkCorp and each
Building Products subsidiary; Officer
and Director of all subsidiaries
except one
    
    3 years
    
    
    62David G. Sisler
    
    Senior Vice President, General
Counsel and Secretary of ElkCorp;
Officer of and Counsel to all
subsidiaries except one; Director
of one subsidiary
    
    9 years
    
    
    46James J. Waibel
    
    Senior Vice President,
Administration of ElkCorp
    
    10 years
    
    
    60Matti Kiik
    
    Senior Vice President, Research
and Development of ElkCorp
    
    3 years
    
    
    62Gregory J. Fisher
    
    Senior Vice President, Chief Financial Officer
and Controller of ElkCorp
    
    3 years
    
    
    54Leonard R. Harral
    
    Vice President, Chief Accounting Officer
and Treasurer of ElkCorp;
Director of one subsidiary
    
    10 years
    
    
    52Thomas W. Cave
    
    Vice President and Assistant Secretary
of ElkCorp
    
    12 years
    
    
    49
 All of the executive officers except Mr. Karol have been employed by
ElkCorp or its subsidiaries in responsible management positions for more than
the past five years. Mr. Nowak, Mr. Kiik and Mr. Fisher were employed in
responsible management positions at an ElkCorp subsidiary company for more than
the past five years. On February 5, 2001, Mr. Karol was elected by the Board of Directors as
President and Chief Executive Officer of ElkCorp effective March 26, 2001. On
March 31, 2002, Mr. Karol was elected by the Board of Directors as Chairman of
the Board and Chief Executive Officer. From May 1991 until its purchase by
Beaulieu of America in December 1999, Mr. Karol served as Chief Executive
Officer of Pro Group Holdings, Inc., a privately owned manufacturer and
distributor of carpet and flooring products. From December 1999 until January
2001, Mr. Karol was employed as President of the Brinkman Hard Surfaces
Division of Beaulieu of America. Mr. Karol has served on ElkCorps Board of
Directors since November 1998. Officers are elected annually by the Board of Directors following the
Annual Meeting of Shareholders. - 11 -




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##### Table of Contents



PART II 
 Item 5. Market for the Registrants Common Stock, Related Stockholder
Matters and Issuer Purchases of Equity Securities The principal market on which our common stock is traded is the New York
Stock Exchange. Our common stock is also traded on the Boston, Midwest and
Philadelphia Stock Exchanges. There were 947 holders of record and
approximately 4,600 beneficial owners of ElkCorps common stock on August 31,
2004. The quarterly dividend declared per share and the high and low sale prices
per share of our common stock for each quarter during fiscal year 2004 and
fiscal year 2003 are set forth in the following table: Period
    
    Dividend
    
    High
    
    LowFiscal 2004First Quarter
    
    $
    .05
    
    
    $
    26.54
    
    
    $
    21.80Second Quarter
    
    $
    .05
    
    
    $
    28.00
    
    
    $
    23.35Third Quarter
    
    $
    .05
    
    
    $
    30.00
    
    
    $
    26.11Fourth Quarter
    
    $
    .05
    
    
    $
    29.75
    
    
    $
    21.50Fiscal 2003First Quarter
    
    $
    .05
    
    
    $
    27.93
    
    
    $
    14.85Second Quarter
    
    $
    .05
    
    
    $
    18.60
    
    
    $
    14.60Third Quarter
    
    $
    .05
    
    
    $
    19.32
    
    
    $
    14.55Fourth Quarter
    
    $
    .05
    
    
    $
    22.60
    
    
    $
    18.63
 Subject to the limitations discussed below, we currently intend to
continue to pay quarterly dividends for the foreseeable future. However, the
final determination of the timing, amount and payment of dividends on our
common stock is at the discretion of the Board of Directors and will depend on,
among other things, our profitability, liquidity, financial condition and
capital requirements. Limitations affecting the future payment of dividends are imposed as a
part of our revolving credit facility. Total cumulative dividends and stock
repurchased since November 30, 2000 are subject to a formula limitation based
on cumulative consolidated net income during the term of our $125,000,000
Revolving Credit Facility, which extends through November 30, 2008. As of June
30, 2004, such limitation was $41,024,000 and actual cumulative expenditures
for these items were $14,972,000. Equity Compensation Plan Information for ElkCorp is presented in Part III,
Item 12 on page 47 of this Annual Report on Form 10-K. Issuer Purchase of Equity Securities for Quarter Ended June 30, 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 2)
    
    per Share
    
    Programs
    
    (Note 1)April, 2004
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    10,600,000May, 2004
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    10,600,000June, 2004
    
    
    25,009
    
    
    $
    27.71
    
    
    
    
    
    
    $
    10,600,000Total
    
    
    25,009
    
    
    $
    27.71
    
    
    
    
 - 12 -




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##### Table of Contents



(1)
    
    On September 28, 1998, the 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. No common stock was repurchased on the
open market in fiscal 2004, as 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.(2)
    
    As a result of participant diversification directives, the ElkCorp
ESOP accumulated a surplus of unallocated shares. In June 2004, we
purchased 25,009 shares from the ElkCorp ESOP. The dollar value of
this repurchase transaction is reflected in the statement of
shareholders equity but has no impact on previously announced
repurchase programs outlined in (1) above. 
 Item 6. Selected Financial Data The selected consolidated financial data set forth below should be read in
conjunction with Managements Discussion and Analysis of Financial Condition
and Results of Operations and the consolidated financial statements and notes
thereto included elsewhere in this report. FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA ($ In thousands, except per share data)
    
    Year Ended June 30,2004
    
    2003
    
    2002
    
    2001
    
    2000Sales
    
    $
    572,976
    
    
    $
    485,127
    
    
    $
    475,331
    
    
    $
    349,628
    
    
    $
    361,778Income (Loss):From continuing operations
    
    $
    31,670
    
    
    $
    24,803
    
    
    $
    19,959
    
    
    $
    7,857
    
    
    $
    26,744From discontinued operations
    
    
    (11,164
    )
    
    
    (703
    )
    
    
    (4,866
    )
    
    
    905
    
    
    
    3,188Net Income
    
    $
    20,506
    
    
    $
    24,100
    
    
    $
    15,093
    
    
    $
    8,762
    
    
    $
    29,932Income (Loss) Per Share  BasicFrom continuing operations
    
    $
    1.62
    
    
    $
    1.27
    
    
    $
    1.03
    
    
    $
    .40
    
    
    $
    1.37From discontinued operations
    
    
    (.57
    )
    
    
    (.03
    )
    
    
    (.25
    )
    
    
    .05
    
    
    
    .16Net Income
    
    $
    1.05
    
    
    $
    1.24
    
    
    $
    .78
    
    
    $
    .45
    
    
    $
    1.53Income (Loss) Per Share 
DilutedFrom continuing operations
    
    $
    1.59
    
    
    $
    1.27
    
    
    $
    1.02
    
    
    $
    .40
    
    
    $
    1.33From discontinued operations
    
    
    (.56
    )
    
    
    (.04
    )
    
    
    (.25
    )
    
    
    .05
    
    
    
    .16Net Income
    
    $
    1.03
    
    
    $
    1.23
    
    
    $
    .77
    
    
    $
    .45
    
    
    $
    1.49Total Assets
    
    $
    480,708
    
    
    $
    442,291
    
    
    $
    381,428
    
    
    $
    360,048
    
    
    $
    322,574Long-Term Debt
    
    $
    156,858
    
    
    $
    152,526
    
    
    $
    119,718
    
    
    $
    123,300
    
    
    $
    91,300Shareholders Equity
    
    $
    215,042
    
    
    $
    196,528
    
    
    $
    176,092
    
    
    $
    162,102
    
    
    $
    161,904Cash Dividends Per Share
    
    $
    .20
    
    
    $
    .20
    
    
    $
    .20
    
    
    $
    .20
    
    
    $
    .20
 - 13 -




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Item 7. Managements Discussion and Analysis of Financial Condition and
Results of Operations Results of Operations Executive Overview ElkCorp, through its subsidiaries, is a leading manufacturer of Elk
premium roofing and other building products. In addition, our subsidiaries
provide technologically advanced products and services to other industries. We
strive to be the brand of choice in each of our businesses. Building Products is our dominant business, accounting for 97% of
consolidated sales in fiscal 2004. Our Building Products segment consists of
Elk Premium Building Products, Inc. and its operating subsidiaries
(collectively Elk). These companies manufacture (1) premium laminated
fiberglass asphalt shingles, (2) coated and non-coated nonwoven fabrics used in
asphalt shingles and other applications in the building and construction,
filtration, floor coverings and other industries, and (3) nontoxic composite
wood decking, railing, marine dock and fencing products. The focus of these businesses is innovative product development,
manufacturing excellence and superior customer service. We target our roofing
products toward the steep-sloped roofing market. This market was favorable
again in fiscal 2004 as Elks shingle shipments increased 14.2% compared to
fiscal 2003 and average selling prices increased 2.8%. Higher raw material
costs, particularly asphalt, were a continuing concern throughout fiscal 2004,
but we were able to maintain improved margins of shingle pricing over raw
material costs during the year compared to the prior fiscal year. We
anticipate raw material and transportation costs to continue to increase
moderately in the near-term, but also believe these higher costs can be offset
by price increases implemented in late fiscal 2004 and announced for early
fiscal 2005. We expect that industry shipments of laminated asphalt shingles
will continue to grow 7% to 10% annually for the next several years and we are
taking steps to meet increasing demand for our products. A major initiative to
improve manufacturing capacity was accomplished in fiscal 2004, when we
completed a second shingle manufacturing plant at the Tuscaloosa, Alabama
facility ahead of schedule and under budget. This new plant will increase our
overall capacity by about 25%. We expect the start-up of this new facility to
negatively impact operating results in the early part of fiscal 2005, but
expect the new plant to contribute to our operating profit as fiscal 2005
progresses. We also completed capacity additions in fiscal 2004 at our
Shafter, California and Myerstown, Pennsylvania plants. Our key strategy in fiscal 2004 in performance nonwoven fabrics and
composite building products was to position these businesses as core growth
platforms. For performance nonwoven fabrics, our primary objectives were to
achieve higher capacity utilization and grow internal and external mat
shipments in line with growth in the roofing market. For composite building
products, our goal in fiscal 2004 was to attain profitable operations through
improved manufacturing results. This objective was achieved in the fourth
quarter of fiscal 2004 through the introduction of a new voided product line,
which reduced product weight without sacrificing strength, lowered raw material
content and allowed higher extrusion speeds. We intend to significantly
increase the composite building products line in fiscal 2005 with the
investment of approximately $22,000,000 to expand the capabilities of our
current composite lumber operations in Lenexa, Kansas. Start-up of this
expanded facility will negatively impact operating results initially, but is
expected to improve operating income in the second half of fiscal 2005. Our dissimilar businesses are combined and reported as Other,
Technologies, as none individually meet the materiality criteria for separate
segment reporting. These operations include (1) Ortloff Engineers, LTD
(Ortloff), which provides proprietary technologies and related engineering
services to the natural gas processing industry, (2) 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, 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. To date this business has produced a
nominal amount of commercial sales. Our primary objectives for these businesses in fiscal 2004 were to (1) position
Chromium and Ortloff for sustained long-term profitability and (2) become the
supplier of choice in selected consumer fire-barrier markets. We were
successful in fiscal 2004 in that Chromium and Ortloff were each profitable.
However, these companies do not fit into our focus on Building Products
platforms, and we are positioning them for sale in the next fiscal year. - 14 -




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We continue to be excited about the potential of our fire-barrier products.
This business is not yet generating significant revenues. However, in fiscal
2004, several additional bedding makers chose our technology for fire-resistant
mattresses. New open flame fire standards are expected to be adopted in the
state of California in January 2005 and national distribution of code-compliant
product is expected next fiscal year. In December 2003, we made the decision to discontinue Cybershield, Inc.
(Cybershield) and to sell Cybershield or its assets. A significant portion of
the current year loss for Cybershield relates to the write-down of assets to
estimated market value as a result of this decision. The Lufkin, Texas
facility and its operations were sold August 10, 2004. The idle Canton,
Georgia facility is currently held for sale. 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. Year Ended June 30,2004
    
    2003
    
    2002Sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    79.2
    
    
    
    79.9
    
    
    
    79.8Gross margin
    
    
    20.8
    
    
    
    20.1
    
    
    
    20.2Selling, general and administrative:Other selling, general and
administrative
    
    
    11.0
    
    
    
    11.8
    
    
    
    10.9Noncash stock option
compensation
    
    
    
    
    
    
    (1.1
    )
    
    
    1.2Income from operations
    
    
    9.8
    
    
    
    9.4
    
    
    
    8.1Interest expense, net
    
    
    1.0
    
    
    
    1.2
    
    
    
    1.3Income from continuing
operations before income taxes
    
    
    8.8
    
    
    
    8.2
    
    
    
    6.8Provision for income taxes
    
    
    3.3
    
    
    
    3.1
    
    
    
    2.6Income from continuing
operations
    
    
    5.5
    %
    
    
    5.1
    %
    
    
    4.2
    %
 Fiscal 2004 Compared to Fiscal 2003 Overall Performance Sales from continuing operations of $572,976,000 in fiscal 2004 were 18.1%
higher than $485,127,000 in fiscal 2003. During fiscal 2004, income from
continuing operations of $31,670,000 was 27.7% higher than $24,803,000 for the
prior year. Included in income from continuing operations last year was
$3,496,000 of benefit, net of tax, from the reversal of noncash stock option
compensation. Income from continuing operations in fiscal 2004 was 48.6%
higher than pro forma income from continuing operations of $21,307,000 in
fiscal 2003 (which excludes the $3,496,000 after tax stock option compensation
benefit in the prior year). For comparative purposes, management believes this
comparison is appropriate, since the fiscal 2003 benefit resulted solely from
changes in our stock price and not from operations. Consolidated income from operations of $55,908,000 in fiscal 2004 was
22.1% higher than $45,774,000 in fiscal 2003. Income from operations in the
prior year included a $5,378,000 pretax benefit as a result of the
aforementioned noncash stock option compensation. Consolidated operating
income from fiscal 2004 was 38.4% higher than pro forma consolidated operating
income from continuing operations of $40,396,000 (which excludes the $5,378,000
noncash stock option compensation benefit in the prior year). For comparative
purposes, management believes this comparison is appropriate, since the fiscal
2003 benefit resulted solely from changes in our stock price and not from
operations. - 15 -




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Cost of sales was 79.2% of sales in fiscal 2004 compared to 79.9% in
fiscal 2003. Higher asphalt and other raw material costs during much of fiscal
2004 were largely offset by better shingle pricing and increased shingle
production, which reduced per unit manufacturing costs. Other selling, general
and administrative (Other SG&A) costs in fiscal 2004 were 10.3% higher than in
the prior fiscal year, primarily as a result of increased business activity and
higher marketing expenses; however, as a percentage of sales, the relationship
between sales and other SG&A costs was better in the current year than in
fiscal 2003. Interest expense, net, was $5,311,000 in fiscal 2004 compared to
$5,977,000 in fiscal 2003. In fiscal 2004, interest expense of $3,079,000 was
capitalized related to the construction of an additional shingle plant in
Tuscaloosa, Alabama, and other significant capital projects. In fiscal 2003,
$995,000 of interest was capitalized. The average interest rate paid on
indebtedness was 5.0% in both fiscal 2004 and fiscal 2003. Our effective tax rate from continuing operations was 37.4% in fiscal 2004
and 37.7% in fiscal 2003. The decrease in the effective tax rate in fiscal
2004 is primarily due to state tax credits generated as a result of roofing
plant production improvement initiatives. In December 2003, we made the decision to exit Cybershields business.
Cybershields results for all periods presented are reported as discontinued
operations. Discontinued operations for fiscal 2004 included a $4,831,000
pretax loss from operations, combined with pretax, noncash write-downs of
$12,346,000 to reduce the book value of Cybershields assets to estimated
market value. In fiscal 2003, Cybershield reported a $1,081,000 pretax
operating loss, all from operating activities. Results of Business Segments Sales in the Building Products segment increased 19.4% to $557,576,000 in
fiscal 2004 compared to $467,002,000 in fiscal 2003. The significant
year-to-year increase in sales is primarily the result of an $81,042,000, or
18.6%, increase in premium roofing products sales. Compared to the same period
last year, unit shingle shipments increased 14.2%, with most regions of the
United States of America experiencing strong year-to-year growth. A
significant portion of the unit volume increase, particularly during the early
part of fiscal 2004, was attributable to strong roof replacement demand in
hail-damaged Texas markets. Average shingle pricing increased about 2.8%
compared to the year-ago period. In fiscal 2004, external sales of performance
nonwoven fabrics increased $2,247,000, or 7.3%, compared to last year.
Approximately two-thirds of roofing mat produced in both fiscal 2004 and fiscal
2003 was used for internal consumption. Internal sales of roofing mat are
eliminated in consolidation. Sales of composite building products were
$8,525,000 in fiscal 2004. We entered the composite wood business in the
second quarter of fiscal 2003 and reported $1,240,000 in sales last year. Operating income for the Building Products segment of $67,030,000 for
fiscal 2004 increased 46.0% compared to $45,901,000 achieved in fiscal 2003.
Operating income gains attributable to higher unit sales and pricing were
partially offset by increased manufacturing expenses, raw material price
increases, higher transportation costs and unusually high developmental costs
related to new product offerings in the roofing business. We also incurred an
operating loss of approximately $2,300,000 for the composite wood business
during fiscal 2004 compared to an approximate $2,700,000 operating loss in
fiscal 2003. The composite wood business achieved profitability in March 2004
and generated approximately $200,000 of operating profit in the fourth quarter
of fiscal 2004. The Other, Technologies companies reported combined sales of $15,400,000
in fiscal 2004 compared to $18,125,000 in fiscal 2003. Ortloff recognized
lower license fee and consulting income in fiscal 2004 compared to 2003.
License fees can vary significantly between reporting periods since this
business is largely project driven. Chromiums sales were 12.4% higher in
fiscal 2004 compared to 2003 as a result of increased demand for plating and
finishing services in existing locomotive and marine markets, combined with
increased hard-chrome wear plate sales. During the first quarter of fiscal
2004, Chromium and the Electro-Motive Division of General Motors (GM EMD)
signed a manufacturers representation agreement whereby GM EMD will promote
and market Chromiums reciprocating engine components through the extensive GM
EMD sales network in international and specific domestic markets. Elk
Technologies had a nominal level of sales of fire retardant mattress fabrics
during fiscal 2004. Other, Technologies companies had combined operating income of $2,462,000
in fiscal 2004, compared to $5,262,000 in fiscal 2003. Due to higher sales
activity levels, Chromium had an operating profit of approximately - 16 -




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$600,000 in fiscal year 2004 compared to incurring a small operating loss in
fiscal 2003. Ortloff had operating income of approximately $2,600,000 in
fiscal 2004, compared to approximately $5,800,000 operating income in fiscal
2003. Elk Technologies incurred approximately $700,000 in marketing and
development costs in fiscal 2004 compared to approximately $400,000 in fiscal
2003. Fiscal 2003 Compared to Fiscal 2002 Overall Performance During the fiscal year ended June 30, 2003, income from continuing
operations of $24,803,000 was 24.3% higher than $19,959,000 in fiscal 2002.
Sales from continuing operations of $485,127,000 were 2.1% higher in fiscal
2003 than sales of $475,331,000 in fiscal 2002. Consolidated operating income
from continuing operations of $45,774,000 in fiscal 2003 was 19.5% higher than
$38,310,000 in the prior fiscal year. Operating income for fiscal 2003
included a $5,378,000 benefit from the reversal of noncash stock option
compensation, compared to a $6,034,000 charge for this noncash item in fiscal
2002. In fiscal 2002, we changed our accounting for certain stock options from
fixed awards with no compensation expense to variable awards, which generally
results in periodic expense or income, as we determined that variable
accounting was more appropriate for such stock options. Pursuant to variable
option accounting, income is charged or credited during each accounting period
to reflect any excess or deficit of the market value of shares underlying
vested options, from the exercise price of vested options. Based on a decline
in our share price subsequent to June 30, 2002 and actions taken by the Board
of Directors to terminate the feature of the 1998 Incentive Stock Option Plan
that caused certain stock options to be accounted for as variable awards, we
recorded a reversal of the majority of fiscal 2002 noncash stock option
compensation in the first quarter of fiscal 2003. We now have no options
subject to variable stock option accounting. Accordingly, subsequent to the
quarter ended September 30, 2002, income was not affected by variable
accounting for stock options. Operating income from continuing operations in fiscal 2002 also included a
favorable settlement with a vendor resulting in $5,625,000 of income. As a
percentage of sales, operating income was 9.4% in fiscal 2003 compared to 8.1%
in fiscal 2002. Cost of sales were 79.9% of sales in fiscal 2003 compared to
79.8% in the prior fiscal year. The impact of higher asphalt costs in fiscal
2003 were partially offset by, among other things, lower unit manufacturing
costs and strict management of controllable expenses at our roofing plants.
Other selling, general and administrative (Other SG&A) costs in fiscal 2003
were $5,708,000 higher than in fiscal 2002. However, fiscal 2002 benefited
from a $5,625,000 vendor settlement. As a percentage of sales, Other SG&A
costs were 11.8% in fiscal 2003, compared to 10.9% in fiscal 2002. Interest expense, net was $5,977,000 in fiscal 2003 compared to $6,087,000
in fiscal 2002. In fiscal 2003, the company capitalized $995,000 of interest
related to the construction of an additional Tuscaloosa, Alabama shingle plant
and other significant capital projects. No interest cost was capitalized in
fiscal 2002. The average interest rate paid on indebtedness was 5.0% in fiscal
2003 compared to 5.1% in fiscal 2002. Our effective tax rate was 37.7% for fiscal 2003 compared to 38.1% for
fiscal 2002. The difference between years primarily relates to the impact of
noncash stock option compensation on the effective tax rate. Results of Business Segments Sales in the Building Products segment increased 1.6% to $467,002,000 for
the year ended June 30, 2003 compared to $459,673,000 in fiscal 2002. In
fiscal 2003, premium roofing sales, which represented 93.2% of Building
Products segment sales, increased 4.7% compared to fiscal 2002. Unit shingle
shipments in the last half of fiscal 2003 more than offset the impact of a
general slowing in the roofing market early in fiscal 2003. The increase in
demand for our premium roofing products was driven by strong roof replacement
demand in the Texas market as a result of widespread spring 2003 hail damage.
Roofing activity in the Northeast and Midwest areas of the United States was
hampered in the latter part of fiscal 2003 by persistent record rainfall from
April to mid-June 2003. For the year, unit shingle shipments in fiscal 2003
increased 3.7% over fiscal 2002. For the month of June 2003, unit shingle
shipments set a company record. Average selling prices for premium laminated asphalt shingles were about
3.0% higher in fiscal 2003 than in fiscal 2002, primarily as a result of
shingle price increases in the second half of fiscal 2003 to recover higher
asphalt costs and increases in other energy related costs. However, the
increases in unit sales and average selling prices were somewhat offset by a
sales mix weighted proportionately more to lower priced products. - 17 -




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In fiscal 2003, outside sales of performance nonwoven fabrics, which
represented 6.6% of Building Product sales, decreased 30.2% compared to fiscal
2002, primarily as a result of a weak commercial roofing market. Although
overall production of nonwoven fabrics was comparable in fiscal 2003 to the
prior fiscal year, in fiscal 2003 a much higher proportion of nonwoven fabric
production was consumed internally in our own manufacturing of shingle
products. Intercompany nonwoven fabrics sales are eliminated in consolidation.
Composite building products, which began operations in October 2002, accounted
for 0.2% of Building Products sales in fiscal 2003. Despite increased sales in fiscal 2003, operating income for the Building
Products segment of $45,901,000 was 13.9% lower compared to $53,325,000 in
fiscal 2002. Prior year operating income included a $5,625,000 favorable
vendor settlement. Asphalt costs in fiscal 2003 were $16,900,000 higher than
in the prior fiscal year. Approximately $7,900,000 of these higher asphalt
costs were offset by higher average sales per shingle unit. In the fourth
quarter of fiscal 2003, shingle inventories were repositioned into the Texas
market from other geographic areas to meet strong demand and to serve our Texas
market share. Higher freight transfer costs related to inventory repositioning
negatively impacted fiscal 2003 operating earnings by approximately $1,500,000. In fiscal 2003, delayed delivery and production inefficiencies related to
the start-up of newly installed composite building products equipment reduced
Building Products operating income for the year by approximately $2,700,000. The Other, Technologies companies reported combined sales of $18,125,000
in fiscal 2003 compared to $15,658,000 in fiscal 2002. Ortloff achieved a
56.6% increase in licensing revenues, primarily as a result of several key
international projects in fiscal 2003. Higher international licensing fees are
the result of our strategy of establishing cooperative marketing or licensing
arrangements with several key international suppliers of process technologies,
providing Ortloff with the opportunity to bid its technology packages on large
international projects that might not otherwise be available to it. Licensing
revenues can vary significantly between reporting periods since this business
is largely project driven. Chromium sales were lower in fiscal 2003 compared
to fiscal 2002 as a result of deferred maintenance expenditures by its railroad
customers. The Other, Technologies companies reported operating income of $5,262,000
in fiscal 2003, 68.0% higher than $3,132,000 in fiscal 2002. This increase was
primarily the result of higher technology licensing fees generated in fiscal
2003. Chromium reported an approximate $100,000 operating loss in fiscal 2003
compared to a modest operating profit in fiscal 2002. Start-up costs relating
to Elk Technologies, Inc. also reduced operating income in fiscal 2003 by
approximately $400,000. Fiscal 2003 and 2002 results have been restated for Cybershield, which
became a discontinued operation for accounting and reporting purposes in fiscal
2004. In fiscal 2003, Cybershield incurred an approximate $1,100,000 operating
loss compared to an approximate $7,500,000 operating loss in fiscal 2002. The
fiscal 2002 loss included $5,273,000 of plant closure costs relating to
Cybershields Canton, Georgia plant. Significantly reduced volumes in the
cellular handset business caused Cybershields sales to decline significantly
in fiscal 2003. Cellular handset production previously in the United States
and Latin America largely shifted to Asia where the company had no significant
operations. New Accounting Standards There are no new accounting pronouncements that have not been adopted
which impact the company. Financial Condition Overview Our liquidity needs generally arise principally from working capital
requirements, capital expenditures and payment of dividends. During the three
years ended June 30, 2004, we have relied primarily on internally generated
funds and proceeds from sales of Senior Unsecured Notes to finance our capital
expenditure 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. We generally use our Revolving
Credit Facility (Facility) to finance higher working capital requirements.
There were no borrowings under the Facility during the current fiscal year
until mid-March 2004. - 18 -




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During the spring months of 2004, our borrowings increased to about $46,000,000
before being reduced to $10,300,000 at June 30, 2004. Borrowing activity in
fiscal 2004 was representative of our expected seasonal liquidity trends and
requirements. Operating Activities We determine cash flows from operating activities primarily from income
from operations, deferred taxes, depreciation and amortization. Cash flows
also either increase or decrease by changes in working capital requirements.
In fiscal 2004, we generated cash flows of $50,540,000 from operating
activities, compared to $23,167,000 in fiscal 2003 and $26,999,000 in fiscal
2002. Our overall working capital level related to continuing operations at June
30, 2004 was not significantly different than it was at June 30, 2003,
increasing about $4,800,000. Trade receivables at June 30, 2004 were slightly
higher than at June 30, 2003 due to higher sales levels. 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 compared to $7,291,000 at June 30, 2003. Extended term receivables
outstanding at June 30, 2004 are due in the first quarter of fiscal 2005. At
June 30, 2004, inventories were $8,608,000 higher than at June 30, 2003. We
believe our inventories are being maintained at historically appropriate
levels. The current ratio was 3.2 to 1 at June 30, 2004 compared to 3.7 to 1
at June 30, 2003. Investing Activities Cash flows from investing activities primarily reflect our capital
expenditure strategy. Net cash used for investing activities was $63,631,000
in fiscal 2004, $51,883,000 in fiscal 2003 and $9,975,000 in fiscal 2002.
Approximately $40,000,000 of current year capital expenditures relate to the
construction of a second shingle manufacturing plant at the Tuscaloosa, Alabama
facility, including the installation of certain infrastructure and material
handling improvements designed to enhance the overall efficiency of the
expanded facility. Construction of the facility and testing of production
equipment has been completed and the plant was placed in service July 1, 2004.
Other significant capital expenditures in fiscal 2004 included approximately
$6,000,000 for productivity enhancement projects. We also invested
approximately $4,600,000 to upgrade certain key information technology
platforms, which are expected to be complete in the first half of fiscal 2005. In fiscal 2005, we are investing approximately $22,000,000 to expand the
capabilities of our composite lumber facility in Lenexa, Kansas. Additional
capacity from these investments is expected to be available in December 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 for the near-term. 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 provided by financing
activities was $8,308,000 in fiscal 2004, compared to $21,336,000 provided in
fiscal 2003 and $4,716,000 used in fiscal 2002. During fiscal 2004, we increased the primary credit available under our
Facility from $100,000,000 to $125,000,000 and extended its maturity to
November 30, 2008. In June 2004, we finalized an agreement to issue an
additional $50,000,000 in Senior Unsecured Notes in a private placement
transaction with a group of institutional investors. Closing on this agreement
was deferred until November 15, 2004, subject to our satisfaction of certain
conditions. These financing steps were initiated in a historically low
interest rate environment to provide funds for growth and expansion
initiatives, including possible acquisitions to extend our premium building
products line of business. At June 30, 2004, liquidity consisted of $273,000 of cash and $111,621,000
of available borrowings under the $125,000,000 committed Facility. The debt to
capital ratio (after deducting cash of $273,000 from $155,300,000 of principal
debt) was 41.9%. We have no off-balance sheet arrangements or transactions
with unconsolidated, limited purpose entities. - 19 -




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Our Board of Directors has authorized our repurchase of common stock from
time to time on the open market. As of June 30, 2004, we have repurchase
authority of approximately $10,600,000 remaining. We did not make any open
market purchases of common stock in fiscal 2004. Contractual Obligations The following table summarizes our future payments relating to contractual
obligations at June 30, 2004: (In thousands)Payments Due by PeriodLess than
    
    
    
    
    
    
    
    
    
    After 5Total
    
    1 year
    
    1  3 years
    
    4  5 years
    
    yearsContractual Obligations:Long-term Debt
    
    $
    155,300
    
    
    $
    
    
    
    $
    
    
    
    $
    95,300
    
    
    $
    60,000Operating Leases
    
    
    21,584
    
    
    
    2,736
    
    
    
    4,416
    
    
    
    3,352
    
    
    
    11,080Plant Construction Commitments
    
    
    9,842
    
    
    
    9,842
    
    
    
    
    
    
    
    
    
    
    
    Total Contractual Obligations
    
    $
    186,726
    
    
    $
    12,578
    
    
    $
    4,416
    
    
    $
    98,652
    
    
    $
    71,080
 In addition to the amounts reflected in the table, we will have an
incremental $50,000,000 of Senior Unsecured Notes, scheduled to be closed in
November 2004, that will be due after five years. Interest expense is not included in the above table as interest on
floating rate obligations cannot be reasonably estimated. Interest on fixed
interest rate obligations in place at June 30, 2004 is $5,356,500 per year
through fiscal 2009. As a result of an interest rate swap in July 2004,
$1,172,500 of annual interest will be converted from a fixed to floating rate
through July 2007. Interest payments on $50,000,000 of Senior Unsecured Notes
schedule to be closed in November 2004 will increase interest expense an
additional $3,140,000 per year. Our only other significant commercial commitment at June 30, 2004 is our
$125,000,000 Revolving Credit Facility, the term of which extends through
November 30, 2008. Environmental Our operations are subject to extensive federal, state and local laws and
regulations relating to environmental matters. Such laws and regulations are
frequently changed and could result in significantly increased cost of
compliance. Certain of our manufacturing operations utilize hazardous
materials in their production processes. As a result, we incur costs for
remediation activities off-site and at our facilities from time to time. We
establish and maintain reserves for such remediation activities, when
appropriate. Current reserves established for known or probable remediation
activities are not material to our financial position or results of operations. Critical Accounting Policies Our 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 which we believe are the most critical to fully understanding and
evaluating our reported financial results include the following. Collectibility of Accounts Receivable  The majority of our sales are in the Building Products segment and our
primary customers are building materials distributors. Due to consolidation in
the industry, credit risk is concentrated. Ten customers typically account for
approximately 50% of consolidated sales. We evaluate the collectibility of
accounts receivables based on a combination of factors. The balance in the
reserve for doubtful accounts is evaluated on an ongoing basis based on such
factors as customers past payment history, length of time the receivables are
past due, the status of customers financial condition and ongoing credit
evaluations. Accruals for Loss Contingencies  Contingencies, or uncertainties, by their nature, require management to
exercise judgment both in assessing the likelihood that a liability has been
incurred as well as in estimating the amount of loss. Accruals are established - 20 -




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for loss contingencies when it is probable that a liability has been incurred
and the amount of loss can be estimated reasonably. Accrual balances are
reviewed and adjusted periodically based on our judgment of changes in specific
facts and circumstances for each loss accrual. Key loss accruals for the company include:  
    
    Product warranties  Product warranties are estimated
and recorded based on factors such as an examination of known
defects for potential exposure, claims paid history, independent
data as to average length of time between asphalt roofing
replacements and average length of home ownership.
    
    Litigation  Litigation reserves are determined on a
case specific basis from evaluations by both management and
outside counsel as to any probable exposure from litigation
capable of reasonable estimation.
    
    Environmental exposure  Environmental exposure,
primarily related to Other, Technologies companies, is evaluated
by management and our environmental consultants when known or
anticipated exposure is identified and quantifiable.
    
    Self-insurance reserves  We partially insure ourself
against losses for both casualty and medical insurance. Reserves
are calculated and maintained based on historical experience and
specifically identified losses. Inventories  Inventories are stated at the lower of cost or market value. Cost is
determined by the first-in, first-out method. We record adjustments to the
value of inventories based on various factors. For the Building Products
segment, adjustments may be made to inventory values based on the physical
condition (e.g. age and quality) of the inventories. For the Other,
Technologies companies, inventory adjustments are generally based upon the
forecasted plans to sell their products and the sales prices that are expected
to be realized. Inventories are adjusted to the lower of cost or market or
written off if unsaleable. These adjustments are estimates and can vary from
actual requirements if inventories deteriorate, become otherwise damaged or
obsolete, or if competitive conditions differ from expectations. Revenue Recognition  We recognize revenue in accordance with SEC Staff Accounting Bulletin No.
101, Revenue Recognition in Financial Statements (SAB 101), as amended. The
majority of sales are for manufactured products, where revenue is recognized at
the time products are shipped to customers. Such revenues, particularly in the
Building Products segment, are subject to returns, discounts, volume rebates
and other incentives, which are estimated and recorded based on sales activity
and historical trends. Differences in revenues could result if actual
experience differs from the historical trends used in managements estimates. License revenue recognition is recorded when the following conditions are
all complete: (a) a customer contracts for the nonexclusive use of inventions
covered by our patents; (b) there are no remaining items relating to the
license contract that have to be accomplished; and (c) the license fee is
nonrefundable. Service revenues are recognized as they are performed. Revenue
recognition may be subject to judgment and interpretation that the specific
requirements of SAB 101 have been met. Impairment of Long-Lived Assets  Long-lived assets, primarily plant, property and equipment, are reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amounts of any such assets may not be recoverable. If the estimated
sum of undiscounted cash flows is less than the carrying value of the assets
being reviewed, we recognize an impairment loss, measured as the amount that
the carrying value exceeds the fair value of the assets. The estimate of
future cash flows is based upon, among other things, certain assumptions about
expected future operating performance. Our estimates of undiscounted cash
flows may differ from actual cash flow due to, among other things, changes in
general economic conditions, industry conditions, customer requirements,
technology or our business model. - 21 -




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Market Risks 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
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 June 30, 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 have entered into an interest rate swap to
effectively convert the interest rate from fixed to floating on $60,000,000 of
our outstanding debt at June 30, 2004. The fair value of this swap was
$1,558,000 at June 30, 2004. In July 2004, we entered into an additional
interest rate swap to effectively convert the interest rate from fixed to
floating on an additional $25,000,000 of our outstanding debt. Based on
outstanding debt at June 30, 2004, our annual interest costs would increase or
decrease $703,000 for each theoretical 1% increase or decrease in the floating
interest rate. After an additional $50,000,000 of Senior Unsecured Notes are
funded in November 2004, and after considering the additional interest rate
swap entered into in July 2004, our interest costs would increase or decrease
$953,000 annually for each theoretical 1% increase or decrease in the floating
rate. Credit Risk We are subject to credit risks applicable to cash and cash equivalents,
accounts receivable and derivative instruments. Cash and cash equivalents are
maintained at financial institutions or in short-term investments with high
credit quality. Concentrations of credit risk with respect to accounts
receivable primarily relate to the large building materials distributors that
are our primary customers. We perform ongoing credit evaluations of our
customers financial condition to determine the need for an allowance for
doubtful accounts. We have not experienced significant credit losses for many
years. Concentration of credit risk with respect to accounts receivable is
limited to those customers to whom we make significant sales. Our largest
customer accounted for 19% and 18% of consolidated sales in fiscal 2004 and
fiscal 2003, respectively. Derivative contracts are entered into with
counterparties who are, in our opinion, creditworthy counterparties. New Accounting Standards There are no new accounting pronouncements that have not been adopted
which impact us. Inflation and Changing Prices Our primary financial statements are prepared in accordance with
accounting principles generally accepted in the United States of America based
on historical dollars. Accordingly, the financial statements do not portray
the effects of inflation. In recent years, inflation in our key markets has
been moderate, and cost controls and improving productivity have generally
minimized the impact of inflation. The costs of manufacturing, transportation and key raw materials,
including but not limited to ceramic-coated granules, asphalt, glass fibers,
resins and mineral filler, together with our ability to pass along higher costs
are generally influenced by factors other than inflation. These factors
include general economic and industry conditions, supply and demand, surpluses
and shortages, and actions of key competitors. 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 the
results of operations and financial condition and other sections of this Form
10-K 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 - 22 -




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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. Factors that
could cause or contribute to such differences could include, but are not
limited to: changes in demand, prices, raw material costs, transportation
costs, changes in economic conditions of the various markets the company
serves, changes in the amount and severity of inclement weather, actions of
competitors, new and planned facilities not meeting expected productivity rates
and projected financial results, and technological changes, together with other
risks detailed herein. Refer to Risks Relating to the Company on pages 8
and 9 of this annual report on Form 10-K for a more detailed description
of these items. 
 Item 7A. 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
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 June 30, 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 have entered into an interest rate swap to
effectively convert the interest rate from fixed to floating on $60,000,000 of
our outstanding debt at June 30, 2004. The fair value of this swap was
$1,558,000 at June 30, 2004. In July 2004, we entered into an additional
interest rate swap to effectively convert the interest rate from fixed to
floating on an additional $25,000,000 of our outstanding debt. Based on
outstanding debt at June 30, 2004, our interest costs would increase or
decrease $703,000 for each theoretical 1% increase or decrease in the floating
interest rate. After an additional $50,000,000 of Senior Unsecured Notes are
funded in November 2004, and after considering the additional interest rate
swap entered into in July 2004, our interest costs will increase or decrease
$953,000 for each theoretical 1% increase or decrease in the floating rate. - 23 -




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##### Table of Contents



Item 8. Financial Statements and Supplemental Data Index to Financial Statements and Financial Statement Schedule PageFinancial Statements:Report of Independent Registered Public Accounting Firm
    
    
    25Consolidated Balance Sheets at June 30, 2004 and 2003
    
    
    26Consolidated Statements of Operations for the years ended
June 30, 2004, 2003, and 2002
    
    
    27Consolidated Statements of Cash Flows for the years ended
June 30, 2004, 2003, and 2002
    
    
    28Consolidated Statements of Shareholders Equity for the years
ended June 30, 2004, 2003, and 2002
    
    
    29Summary of Significant Accounting Policies
    
    
    30Notes to Consolidated Financial Statements
    
    
    36Financial Statement Schedules:Report of Independent Registered Public Accounting Firm
    
    
    45Schedule II - Consolidated Valuation and Qualifying Accounts
    
    
    46
 All other schedules are omitted because they are not required, are not applicable,
or the information is included in the financial statements or notes thereto. - 24 -




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and Board of Directors,
ElkCorp In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, shareholders equity and cash flows
present fairly, in all material respects, the financial position of ElkCorp and
subsidiaries at June 30, 2004 and 2003, and the results of their operations and
their cash flows for each of the three years in the period ended June 30, 2004,
in conformity with accounting principles generally accepted in the United
States of America. These financial statements are the responsibility of the
companys management. Our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion. /s/ PricewaterhouseCoopers LLP   Dallas, Texas
August 30, 2004 - 25 -




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##### Table of Contents



ELKCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS June 30,($ In thousands)
    
    2004
    
    2003AssetsCurrent AssetsCash and cash equivalents
    
    $
    273
    
    
    $
    5,056Trade receivables, less allowance of $605 and $935
    
    
    121,091
    
    
    
    118,252Inventories
    
    
    62,129
    
    
    
    53,521Prepaid expenses and other
    
    
    8,587
    
    
    
    6,689Deferred income taxes
    
    
    7,359
    
    
    
    2,808Discontinued operations
    
    
    5,096
    
    
    
    19,369Total current assets
    
    
    204,535
    
    
    
    205,695Property, Plant and Equipment, at CostLand
    
    
    5,171
    
    
    
    5,171Buildings
    
    
    84,612
    
    
    
    83,029Machinery and equipment
    
    
    234,368
    
    
    
    216,749Construction in progress
    
    
    80,592
    
    
    
    43,007404,743
    
    
    
    347,956Less - Accumulated depreciation
    
    
    (133,635
    )
    
    
    (121,694
    )Property, plant and equipment, net
    
    
    271,108
    
    
    
    226,262Other Assets
    
    
    5,065
    
    
    
    10,334$
    480,708
    
    
    $
    442,291Liabilities and Shareholders EquityCurrent LiabilitiesAccounts payable
    
    $
    37,247
    
    
    $
    35,369Accrued liabilities
    
    
    25,419
    
    
    
    18,958Discontinued operations
    
    
    531
    
    
    
    1,212Total current liabilities
    
    
    63,197
    
    
    
    55,539Long-Term Debt
    
    
    156,858
    
    
    
    152,526Deferred Income Taxes
    
    
    45,611
    
    
    
    37,698Commitments and Contingencies (See Note)Shareholders EquityCommon stock ($1 par, 19,988,078 shares issued)
    
    
    19,988
    
    
    
    19,988Paid-in capital
    
    
    57,852
    
    
    
    57,331Unearned compensation  unvested restricted stock
    
    
    (628
    )
    
    
    (385
    )Retained earnings
    
    
    143,540
    
    
    
    126,969220,752
    
    
    
    203,903Less - Treasury stock (288,220 and 451,185 shares at cost)
    
    
    (5,710
    )
    
    
    (7,375
    )Total shareholders equity
    
    
    215,042
    
    
    
    196,528$
    480,708
    
    
    $
    442,291
 The Summary of Significant Accounting Policies and Notes to Consolidated
Financial Statements are an integral part of these statements. - 26 -




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##### Table of Contents



ELKCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS Year Ended June 30,($ In thousands, except per share data)
    
    2004
    
    2003
    
    2002Sales
    
    $
    572,976
    
    
    $
    485,127
    
    
    $
    475,331Costs and ExpensesCost of goods sold
    
    
    453,816
    
    
    
    387,382
    
    
    
    379,346Selling, general and administrative:Other selling, general and administrative
    
    
    63,252
    
    
    
    57,349
    
    
    
    51,641Noncash stock option compensation (benefit)
    
    
    
    
    
    
    (5,378
    )
    
    
    6,034Income From Operations
    
    
    55,908
    
    
    
    45,774
    
    
    
    38,310Other Income (Expense)Interest expense
    
    
    (5,444
    )
    
    
    (6,184
    )
    
    
    (6,192
    )Other
    
    
    133
    
    
    
    207
    
    
    
    105Income from Continuing Operations Before Income Taxes
    
    
    50,597
    
    
    
    39,797
    
    
    
    32,223Provision for income taxes
    
    
    18,927
    
    
    
    14,994
    
    
    
    12,264Income from Continuing Operations
    
    
    31,670
    
    
    
    24,803
    
    
    
    19,959Loss from Discontinued Operations, Net of Income Tax
Benefits of $6,013, $378, and $2,620
    
    
    (11,164
    )
    
    
    (703
    )
    
    
    (4,866
    )Net Income
    
    $
    20,506
    
    
    $
    24,100
    
    
    $
    15,093Income (Loss) Per Common Share  BasicIncome from continuing operations
    
    $
    1.62
    
    
    $
    1.27
    
    
    $
    1.03Discontinued operations
    
    
    (.57
    )
    
    
    (.03
    )
    
    
    (.25
    )Net income per common share
    
    $
    1.05
    
    
    $
    1.24
    
    
    $
    .78Income (Loss) Per Common Share  DilutedIncome from continuing operations
    
    $
    1.59
    
    
    $
    1.27
    
    
    $
    1.02Discontinued operations
    
    
    (.56
    )
    
    
    (.04
    )
    
    
    (.25
    )Net income per common share
    
    $
    1.03
    
    
    $
    1.23
    
    
    $
    .77
 The Summary of Significant Accounting Policies and Notes to Consolidated
Financial Statements are an integral part of these statements. - 27 -




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##### Table of Contents



ELKCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended June 30,($ In thousands)
    
    2004
    
    2003
    
    2002Cash Flows From Operating ActivitiesIncome from continuing operations
    
    $
    31,670
    
    
    $
    24,803
    
    
    $
    19,959Adjustments to reconcile income from continuing operations to net
cash from continuing operating activities:Depreciation and amortization
    
    
    18,086
    
    
    
    17,295
    
    
    
    16,611Deferred income taxes
    
    
    3,362
    
    
    
    7,072
    
    
    
    5,183Changes in assets and liabilities, net of acquisition:Trade receivables
    
    
    (2,839
    )
    
    
    (26,188
    )
    
    
    (22,837
    )Inventories
    
    
    (8,608
    )
    
    
    (8,409
    )
    
    
    778Prepaid expenses and other
    
    
    (1,898
    )
    
    
    2,799
    
    
    
    (1,090
    )Accounts payable
    
    
    1,878
    
    
    
    9,450
    
    
    
    (9,619
    )Accrued liabilities
    
    
    6,461
    
    
    
    (4,927
    )
    
    
    14,433Net cash provided by continuing operations
    
    
    48,112
    
    
    
    21,895
    
    
    
    23,418Net cash provided by discontinued operations
    
    
    2,428
    
    
    
    1,272
    
    
    
    3,581Net cash provided by operating activities
    
    
    50,540
    
    
    
    23,167
    
    
    
    26,999Cash Flows From Investing ActivitiesAdditions to property, plant and equipment
    
    
    (62,950
    )
    
    
    (49,181
    )
    
    
    (10,701
    )Acquisition of business
    
    
    
    
    
    
    (2,224
    )
    
    
    Other, net
    
    
    (681
    )
    
    
    (478
    )
    
    
    726Net cash used for investing activities
    
    
    (63,631
    )
    
    
    (51,883
    )
    
    
    (9,975
    )Cash Flows From Financing ActivitiesProceeds from sale of Senior Notes
    
    
    
    
    
    
    25,000
    
    
    
    120,000Borrowings (repayments) on Revolving Credit
Facility, net
    
    
    10,300
    
    
    
    
    
    
    
    (123,300
    )Dividends paid on common stock
    
    
    (3,935
    )
    
    
    (3,903
    )
    
    
    (3,873
    )Exercises of stock options
    
    
    2,540
    
    
    
    231
    
    
    
    2,739Purchases of common stock from ESOP
    
    
    (693
    )
    
    
    
    
    
    
    Other
    
    
    96
    
    
    
    8
    
    
    
    (282
    )Net cash provided by (used for) financing activities
    
    
    8,308
    
    
    
    21,336
    
    
    
    (4,716
    )Net Increase (Decrease) in Cash and Cash Equivalents
    
    
    (4,783
    )
    
    
    (7,380
    )
    
    
    12,308Cash and Cash Equivalents at Beginning of Year
    
    
    5,056
    
    
    
    12,436
    
    
    
    128Cash and Cash Equivalents at End of Year
    
    $
    273
    
    
    $
    5,056
    
    
    $
    12,436
 The Summary of Significant Accounting Policies and Notes to Consolidated
Financial Statements are an integral part of these statements. - 28 -




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##### Table of Contents



ELKCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY AccumulatedOther
    
    TotalComprehensive
    
    Common
    
    Paid-in
    
    Retained
    
    Treasury
    
    Unearned
    
    Comprehensive
    
    Shareholders($ In thousands, except per share data)
    
    Income
    
    Stock
    
    Capital
    
    Earnings
    
    Stock
    
    Compensation
    
    Income
    
    EquityBalance, June 30, 2001
    
    
    
    
    
    $
    19,988
    
    
    $
    58,368
    
    
    $
    95,552
    
    
    $
    (11,806
    )
    
    $
    
    
    
    $
    
    
    
    $
    162,102Comprehensive Income:Net income
    
    $
    15,093
    
    
    
    
    
    
    
    
    
    
    
    15,093
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,093Unrealized gains on
derivatives, net of tax
    
    
    31
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31
    
    
    
    31Comprehensive income
    
    $
    15,124Exercises of stock options,
including tax benefit of $757
    
    
    
    
    
    
    
    
    
    
    51
    
    
    
    
    
    
    
    2,688
    
    
    
    
    
    
    
    
    
    
    
    2,739Dividends, $.20 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,873
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,873
    )Balance, June 30 2002
    
    
    
    
    
    
    19,988
    
    
    
    58,419
    
    
    
    106,772
    
    
    
    (9,118
    )
    
    
    
    
    
    
    31
    
    
    
    176,092Comprehensive income:Net income
    
    $
    24,100
    
    
    
    
    
    
    
    
    
    
    
    24,100
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,100Derivative transactions, net
of tax
    
    
    (31
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (31
    )
    
    
    (31
    )Comprehensive income
    
    $
    24,069Exercises of stock options,
including tax benefit of
$0
    
    
    
    
    
    
    
    
    
    
    (925
    )
    
    
    
    
    
    
    1,156
    
    
    
    
    
    
    
    
    
    
    
    231Restricted stock grants
    
    
    
    
    
    
    
    
    
    
    (163
    )
    
    
    
    
    
    
    587
    
    
    
    (424
    )
    
    
    Restricted stock vesting
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    39
    
    
    
    
    
    
    
    39Dividends, $.20 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,903
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,903
    )Balance, June 30, 2003
    
    
    
    
    
    
    19,988
    
    
    
    57,331
    
    
    
    126,969
    
    
    
    (7,375
    )
    
    
    (385
    )
    
    
    
    
    
    
    196,528Comprehensive income:Net income
    
    $
    20,506
    
    
    
    
    
    
    
    
    
    
    
    20,506
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,506Derivative transactions, net
of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Comprehensive income
    
    $
    20,506Exercises of stock options,
including tax benefit of $275
    
    
    
    
    
    
    
    
    
    
    352
    
    
    
    
    
    
    
    2,188
    
    
    
    
    
    
    
    
    
    
    
    2,540Restricted stock grants
    
    
    
    
    
    
    
    
    
    
    169
    
    
    
    
    
    
    
    170
    
    
    
    (339
    )
    
    
    
    
    
    
    Restricted stock vesting
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    96
    
    
    
    
    
    
    
    96Purchases of common stock
from ESOP
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (693
    )
    
    
    
    
    
    
    
    
    
    
    (693
    )Dividends, $.20 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,935
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,935
    )Balance, June 30, 2004
    
    
    
    
    
    $
    19,988
    
    
    $
    57,852
    
    
    $
    143,540
    
    
    $
    (5,710
    )
    
    $
    (628
    )
    
    $
    
    
    
    $
    215,042
 The Summary of Significant Accounting Policies and Notes to Consolidated
Financial Statements are an integral part of these statements. -29-




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##### Table of Contents



SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of Business The Building Products segment consists of Elk Premium Building Products,
Inc. and its operating subsidiaries (collectively Elk). These companies
manufacture (1) premium laminated fiberglass asphalt shingles, (2) coated and
non-coated nonwoven fabrics used in asphalt shingles and other applications in
the building and construction, filtration, floor coverings and other
industries, and (3) nontoxic composite wood decking, marine dock, and fencing
products. Building Products accounted for 97% of consolidated sales in fiscal
2004. Other, Technologies consists of the companys other operations. These
dissimilar operations are combined, as none individually meets the materiality
criteria for separate segment reporting. In fiscal 2003, operating profit from
Ortloff Engineers, LTD (Ortloff), which provides proprietary technologies and
related engineering services to the natural gas processing industry, exceeded
10% of consolidated operating profit. In accordance with Financial Accounting
Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No.
131, Disclosures about Segments of an Enterprise and Related Information,
this business was presented as a separate segment in fiscal 2003 because it
exceeded this quantitative threshold. However, this business has not
historically met the 10% reporting test, did not in fiscal 2004, nor will it
typically be expected to in the future. Accordingly, this business is included
in Other, Technologies in fiscal 2004. Prior periods have been restated to
include Ortloff in Other, Technologies in all periods presented. Other, Technologies also includes Chromium Corporation (Chromium), which
is a leading provider of hard chrome and other surface finishes designed to
extend the life of steel machinery components operating in abrasive
environments. An additional operation, Elk Technologies, Inc., develops and
markets fabrics featuring VersaShield® fire retardant coating designed for use
outside of traditional building products applications, including home
furnishings and other consumer products. This business has produced nominal
commercial sales to date. In December 2003, the company made the decision to discontinue
Cybershield, Inc. and its subsidiaries (Cybershield) and sell Cybershield or
its assets. Cybershield had previously been included in Other, Technologies
for segment reporting purposes. Prior periods have been restated to present
Cybershield as a discontinued operation in all periods presented. Principles of Consolidation / Use of Estimates The consolidated financial statements include the accounts of the company
and all subsidiaries after elimination of significant intercompany balances and
transactions. The consolidated financial statements are prepared in conformity
with accounting principles generally accepted in the United States of America
and require management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements. They also
affect the reported amounts of revenues and expenses during the reporting
period. Actual results could differ significantly from those estimates upon
subsequent resolution of the identified matters. Cash and Cash Equivalents Cash equivalents are highly liquid investments purchased with an original
maturity of, or which are subject to redemption in, three months or less.
There were no cash equivalents at June 30, 2004. Cash equivalents were
$5,000,000 at June 30, 2003. Concentration of Credit Risk The majority of the companys sales are in the Building Products segment,
which accounted for 97% of consolidated sales in fiscal 2004. The company
performs ongoing credit evaluations and maintains reserves for potential credit
losses. Its primary customers are building materials distributors. The ten
largest Building Products customers typically account for approximately 50% of
annual consolidated sales. One customer accounted for 19%, 18%, and 18% of
consolidated sales in fiscal years 2004, 2003 and 2002, respectively. -30-




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##### Table of Contents



Revenue Recognition Significant revenue recognition policies are as follows:  
    
    Manufactured Products  Revenue is recognized at the time
products are shipped to customers. All risks and rewards of
ownership pass to the customer upon shipment. In Building Products,
sales volume rebates or contractual allowance payments are offered to
customers based on their level of sales activity and regional,
competitive market conditions. The effects of returns, discounts and
other incentives are estimated and recorded at the time of shipment.
Volume rebates and allowances are estimated and recorded as a
reduction of sales.
    
    Service Revenues  Service revenues and related expenses are
immaterial and are not disaggregated in the financial statements.
When services are provided, generally by companies in Other,
Technologies, revenue is recognized as services are performed.
    
    License Fees  License fees are generally recognized when the
following conditions are all complete: (a) a customer contracts for
a nonexclusive license to use the inventions covered by company
patents; (b) there are no remaining items relating to the license
contract that have to be accomplished by the company; and (c) the
license fee is nonrefundable. Licenses are granted without term on
an individual project basis. Freight Costs Freight costs for all reporting periods are included in cost of goods
sold. Inventories Inventories are stated at the lower of cost (including materials, direct
labor, and applicable overhead) or market, using the first-in, first-out (FIFO)
method. The cost of raw materials inventories is reduced for volume rebates
from suppliers as applicable volume thresholds are met. Inventories are
comprised of: (In thousands)June 30,2004
    
    2003Raw Materials
    
    $
    12,169
    
    
    $
    8,826Work-In-Process
    
    
    160
    
    
    
    89Finished Goods
    
    
    49,800
    
    
    
    44,606$
    62,129
    
    
    $
    53,521
 Property, Plant and Equipment Property, plant and equipment are stated at cost. Major renewals and
improvements are capitalized, while maintenance and repairs are expensed when
incurred. Depreciation is computed over the estimated useful lives of
depreciable assets using the straight-line method. Useful lives for property
and equipment are as follows: Buildings and improvements
    
    10  40 yearsMachinery and equipment
    
    5  20 yearsComputer equipment
    
    3  6 yearsOffice furniture and equipment
    
    5  12 years
 During 2004, 2003 and 2002, the company recorded to expense $18,054,000,
$17,229,000, and $16,539,000, respectively, in depreciation expense. The cost and accumulated depreciation for property, plant and equipment
sold, retired, or otherwise disposed of are relieved from the accounts, and
resulting gains or losses are reflected in income. Interest is capitalized in
connection with the construction of major projects. The capitalized interest
is recorded as part of the asset to which it relates and is amortized over the
assets estimated useful life. In fiscal 2004 and 2003, $3,079,000 and
$995,000 of interest cost was capitalized, respectively. In 2002, no interest
cost was capitalized. -31-




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##### Table of Contents



Intangibles There is no recorded goodwill at June 30, 2004. Future goodwill and other
intangibles with indefinite useful lives, when recorded, will not be amortized
but will be tested at least annually for impairment. The cost of patents is
amortized over their useful lives. Patent amortization expense is immaterial. Advertising Costs Advertising costs are expensed as incurred. For fiscal years 2004, 2003
and 2002, advertising costs were $8,905,000, $7,057,000 and $8,180,000,
respectively. Long-Lived Assets Long-lived assets are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets is measured by comparing the carrying
amount of an asset to future undiscounted net cash flows expected to be
generated by the asset. These evaluations for impairment are significantly
impacted by estimates of revenues, costs and expenses and other factors. If
these assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of these assets exceeds the
fair value of the assets. Accounting for Stock-Based Compensation The company applies APB Opinion No. 25, Accounting for Stock Issued to
Employees, and its related interpretations to measure compensation expense for
stock-based compensation plans. Refer to the Noncash Stock Option Compensation
footnote for a detailed description of the companys application of APB No. 25.
If compensation cost for stock-based compensation plans had been determined
under SFAS No. 123, Accounting for Stock-Based Compensation, pro forma
earnings, stock option compensation expense, and basic and diluted earnings per
common share for the fiscal years ended June 30, 2004, 2003 and 2002,
respectively, assuming all options granted in 1996 and thereafter were valued
using the Black-Scholes model, would have been as follows (in thousands, except
per share amounts): (In thousands)Year Ended June 30,2004
    
    2003
    
    2002Net income:As reported
    
    $
    20,506
    
    
    $
    24,100
    
    
    $
    15,093Add: Stock-based employee
compensation expense included in
reported net income, net of
related tax effects
    
    
    
    
    
    
    (3,496
    )
    
    
    3,922Deduct: Total stock-based
compensation expense determined
under fair value based method
for all awards granted since
January 1, 1996, net of related
tax effects
    
    
    (2,519
    )
    
    
    (2,273
    )
    
    
    (3,975
    )Pro forma earnings
    
    $
    17,987
    
    
    $
    18,331
    
    
    $
    15,040Earnings per common share:Basic  as reported
    
    $
    1.05
    
    
    $
    1.24
    
    
    $
    .78Basic  pro forma
    
    $
    .92
    
    
    $
    .94
    
    
    $
    .78Diluted  as reported
    
    $
    1.03
    
    
    $
    1.23
    
    
    $
    .77Diluted  pro forma
    
    $
    .90
    
    
    $
    .94
    
    
    $
    .77
 -32-




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The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following
weighted-average assumptions for fiscal 2004, 2003 and 2002; dividend yields of
1.0%, 0.9%, and 1.0%; risk-free interest rates of 3.7%, 5.1%, and 5.1%;
expected market price volatility of .435, .489, and .42; and expected lives of
options of 9.0 years. Based on this model, the weighted average fair value of
stock options granted in fiscal 2004, 2003 and 2002 was $11.40, $15.52, and
$11.94, respectively, per share. Income Taxes Deferred income taxes are provided to reflect temporary differences
between the financial reporting basis and the tax basis of the companys assets
and liabilities using presently enacted tax rates. Supplemental Cash Flows Supplemental cash flow amounts were as follows: (In thousands)Year Ended June 30,2004
    
    2003
    
    2002Interest paid
    
    $
    8,250
    
    
    $
    7,256
    
    
    $
    5,961Income taxes paid
    
    $
    10,871
    
    
    $
    5,415
    
    
    $
    2,805
 Derivative Instruments and Hedging Activities Derivatives are held from time to time as part of a formally documented
risk management program. No derivatives are held for trading purposes. The
company measures hedge effectiveness by formally assessing, on a quarterly
basis, the historical and probable future high correlation of changes in the
fair value or expected future cash flows of the hedged item. The ineffective
portions are recorded in other income or expense in the current period. The company is required to purchase natural gas for use in its
manufacturing facilities. This purchase exposes the company to the risk of
higher natural gas prices. In November 2001, the company adopted an Energy
Risk Management Policy, and an Energy Committee was appointed to develop
strategies to manage the companys risks of adverse changes in the energy
markets. The company entered into hedge transactions to set the price relating
to approximately 50% of its anticipated use of natural gas not subject to fixed
rate contracts through October 2002. The company entered into a similar hedge
to fix the price on 50% of its projected natural gas usage from December 31,
2003 through April 30, 2004. For these cash flow hedges, the fair value of the
derivatives was recorded on the balance sheet. The effective portion of the
changes in the fair value of these derivatives was recorded in other
comprehensive income and reclassified to cost of sales in the period in which
earnings were impacted by the hedged items. The ineffective portion of the
changes in fair value of these derivatives was immaterial. There are no hedge
commitments on natural gas at June 30, 2004. However, it is anticipated that
hedging strategies will likely be utilized in the future. The Board of Directors and company management determined that prudent
interest rate strategy is to maintain a debt mix that is balanced between fixed
rate debt and variable rate debt. In June 2002, the company entered into an
interest rate swap to effectively convert the interest rate from fixed to
floating on $60,000,000 of debt through 2012. In July 2004, the company
entered into an additional interest rate swap to effectively convert the
interest rate from fixed to floating on $25,000,000 of debt through July 2007.
For these fair value hedges, both the fair value of the derivative and the
underlying hedged item are or will be reported in the balance sheet, as
applicable. Changes in the fair value of the derivative and the underlying
hedged item offset and are recorded each period in other income or expense, as
applicable. However, since both interest rate swaps are 100% effective, as
defined, there is no net effect on the companys results of operations from
marking the interest rate swap to market. The company is exposed to credit loss in the event of nonperformance by
counterparties on derivative instruments. Although nonperformance is possible,
the company does not anticipate nonperformance on the interest rate swaps, as
these contracts are, in managements opinion, with creditworthy counterparties. -33-




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Fair Value of Financial Instruments The carrying amounts of the companys cash, cash equivalents, trade
receivables, accounts payable, long-term debt and derivative instruments
approximate fair value. Accruals for Loss Contingencies Contingencies, or uncertainties, by their nature, require management to
exercise judgment both in assessing the likelihood that a liability has been
incurred as well as in estimating the amount of loss. Accruals are established
for loss contingencies when it is probable that a liability has been incurred
and the amount of loss can be estimated reasonably. Accrual balances are
reviewed and adjusted periodically based on managements judgment of changes in
specific facts and circumstances for each loss accrual. Key loss accruals for
the company include product warranties, litigation, environmental exposures and
self-insurance reserves. New Accounting Standards There are no new accounting pronouncements that have not been adopted
which impact the company. Discontinued Operations In December 2003, company management and the Board of Directors concluded
that the risk and prospects for future success of Cybershield did not justify
the additional investment of capital and other resources that would be required
to continue Cybershields operations. Progress towards replacing lost cellular
revenue with revenue from other sources was progressing slower than
anticipated, and the profit contribution from new commercial production of the
EXACT precision metallization process was lower than originally contemplated.
Accordingly, the decision was made to discontinue Cybershield and to sell its
operations or its assets. The company had previously decided to sell
Cybershields Canton, Georgia facility. Therefore, the Canton, Georgia
facility is included as a component of discontinued operations. As a result of
these actions, Cybershield is classified as a discontinued operation in the
Consolidated Financial Statements pursuant to SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. Cybershield had previously been
included in Other, Technologies for segment reporting purposes, and prior
periods have been restated to present Cybershield as a discontinued operation
in all periods presented. 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. During fiscal years 2004, 2003 and 2002, the company reported losses from
discontinued operations of $11,164,000, $703,000 and $4,866,000, net of tax,
respectively. Included in these losses are write-downs of Cybershields net
assets to estimated market value. In fiscal 2004, the pretax write-down of
assets of Cybershields Lufkin facility totaled $10,496,000. Pretax
write-downs of Cybershields Canton, Georgia assets were $1,850,000 in fiscal
2004 and $3,600,000 in fiscal 2002. The fiscal 2004 Canton write-down was a
result of market conditions and an updated fair market value analysis of the
facility performed by independent valuation experts. The fiscal 2002
write-down related to the impairment of property, plant and equipment and
goodwill, and an inventory write-down. In fiscal 2002, Cybershield recorded $1,673,000 in other costs related to
severance, relocation costs and the settlement of a dispute related to
operations at the Canton, Georgia facility. Net assets of discontinued operations at June 30, 2004 (in thousands) are
summarized as follows: Current Assets:Trade receivables
    
    $
    541Inventory
    
    
    354Long-lived assets held for sale, including the Canton, Georgia facility
    
    
    4,089Other
    
    
    1125,096Current Liabilities:Accounts payable and accrued liabilities
    
    
    531Net Assets
    
    $
    4,565
 -34-




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Summary operating results of discontinued operations are as follows: (In thousands)Year Ended June 30,2004
    
    2003
    
    2002Sales
    
    $
    8,167
    
    
    $
    21,019
    
    
    $
    31,195Cost of sales
    
    
    10,570
    
    
    
    19,197
    
    
    
    27,331Selling, general and administrative
    
    
    2,428
    
    
    
    2,903
    
    
    
    7,750Write-down of assets
    
    
    12,346
    
    
    
    
    
    
    
    3,600Operating loss
    
    
    (17,177
    )
    
    
    (1,081
    )
    
    
    (7,486
    )Income tax benefit
    
    
    (6,013
    )
    
    
    (378
    )
    
    
    (2,620
    )Loss from discontinued operations
    
    $
    (11,164
    )
    
    $
    (703
    )
    
    $
    (4,866
    )
 -35-




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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Earnings Per Share Basic earnings per share from continuing operations were computed by
dividing income from continuing operations by the weighted average number of
shares of common stock outstanding during the year. Dilutive earnings per
share include outstanding stock options and restricted shares. In accordance
with SFAS No. 128, Earnings Per Share, diluted earnings per share from
discontinued operations presented in the Consolidated Statements of Operations
were computed utilizing the same number of potential common shares used in
computing the diluted per share amount for income from continuing operations,
regardless of whether those amounts were anti-dilutive to their respective per
share amounts. The reconciliation of basic earnings per share from continuing
operations to diluted earnings per share from continuing operations is shown in
the following table: (In thousands, except per share data)Year Ended June 30,2004
    
    2003
    
    2002Income from continuing operations
    
    $
    31,670
    
    
    $
    24,803
    
    
    $
    19,959Denominator for basic earnings per share-weighted
average shares outstanding
    
    
    19,609
    
    
    
    19,481
    
    
    
    19,311Effect of dilutive securities:Restricted shares and employee stock options
    
    
    316
    
    
    
    119
    
    
    
    346Denominator for dilutive earnings per share  adjusted
weighted average shares and assumed issuance of
shares purchased under the incentive stock option
plan and vesting of restricted shares using the treasury
stock method
    
    
    19,925
    
    
    
    19,600
    
    
    
    19,657Basic earnings per share from continuing operations
    
    $
    1.62
    
    
    $
    1.27
    
    
    $
    1.03Diluted earnings per share from continuing operations
    
    $
    1.59
    
    
    $
    1.27
    
    
    $
    1.02Stock options excluded from computation of diluted
earnings per share due to anti-dilutive effect
    
    
    730,000
    
    
    
    1,413,000
    
    
    
    594,000
 Long-Term Debt (In thousands)June 30,2004
    
    2003Senior Notes
    
    $
    145,000
    
    
    $
    145,000Revolving Credit Facility
    
    
    10,300
    
    
    
    Fair value of interest rate swap
    
    
    1,558
    
    
    
    7,526$
    156,858
    
    
    $
    152,526
 In June 2002, the company issued $120,000,000 of Senior Notes (Notes) and
in March 2003, issued an incremental $25,000,000 in 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%, and $60,000,000 mature
in fiscal 2012 and carry a coupon rate of 7.49%. Interest is payable
semiannually on June 15 and December 15 of each year for $120,000,000 of Notes
and July 15 and January 15 of each year for $25,000,000 of Notes. In June
2004, the company executed an agreement to issue an additional $50,000,000 in
Notes scheduled to be closed, subject to the companys satisfaction of certain
conditions, on November 15, 2004. These new Notes mature in November 2014 and
carry a coupon rate of 6.28%. Interest on the new Note issuance will be
payable semiannually on May 15 and November 15 of each year. -36-




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In June 2002, the company entered into an interest rate swap to
effectively convert the interest rate from fixed to floating on $60,000,000 of
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 June 30, 2004, the fair value of the derivative was $1,558,000 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 and are recorded each period in other income or expense, as
applicable. 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 June 30, 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 June 30, 2004,
$10,300,000 of borrowings were outstanding on the Facility and $3,079,000 of
letters of credit were outstanding. Borrowings under the Facility bear
interest at (1) the lenders prime rate, or (2) at the companys option, a
Eurodollar rate, in each case plus specified basis points based on the
companys leverage ratio, as defined, at each quarter end. The Facility also
provides for a commitment fee on the average unused portion of the line and for
letters of credit issued under the Facility. The commitment fee rate and
letter of credit fee rate are also determined by the companys leverage ratio.
At June 30, 2004, the rate in effect for Eurodollar borrowings was the
Eurodollar rate plus 1.375%, the letter of credit rate was 1.375% and the
commitment fee rate was .375%. 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 June 30,
2004, the company was in compliance with all requirements. The company has no off-balance sheet arrangements or transactions with
unconsolidated, limited purpose entities. Shareholders Equity Authorized common stock, par value $1.00, is 100,000,000 shares, of which
19,988,078 shares were issued at June 30, 2004. The Board of Directors is
authorized to issue up to 1,000,000 shares of preferred stock, without par
value, in one or more series and to determine the rights, preferences, and
restrictions applicable to each series. No preferred stock has been issued. Shareholder Rights Plan On May 26, 1998, the companys Board of Directors adopted a new
Shareholder Rights Plan which took effect when the existing rights plan expired
on July 8, 1998. Under the new plan, rights were constructively distributed as
a dividend at the rate of one right for each share of common stock of the
company held by the shareholders of record as of the close of business on July
8, 1998. Until the occurrence of certain events, the rights are represented by
and trade in tandem with common stock. Each right will separate and entitle
shareholders to buy stock upon an occurrence of certain takeover or stock
accumulation events. Should any person or group (Related Person), other than
certain bona fide institutional investors to whom a 20% threshold applies,
acquire beneficial ownership of 15% or more of the companys common stock, all
rights not held by the Related Person become rights to purchase one
one-hundredth of a share of preferred stock for $110 or $110 of ElkCorp common
stock at a 50% discount. If after such an event the company merges,
consolidates or engages in a similar transaction in which it does not survive,
each holder has a flip over right to buy discounted stock in the surviving
entity. Under certain circumstances, the rights are redeemable at a price of $0.01
per right. Further, upon defined stock accumulation events, the Board of
Directors has the option to exchange one share of common stock per right. The
rights will expire by their terms on July 8, 2008. Acquisition On October 16, 2002, a newly formed, wholly owned subsidiary of the company
purchased substantially all of the assets of Advanced Composites Technologies,
L.L.C. (ACT), a start-up stage manufacturer of advanced composite building
products. The total purchase price was $2,224,000, plus contingent future
earn-out payments based upon the profitability -37-




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above certain thresholds of the newly formed subsidiary. For five years, the
contingent earn-out amount is unlimited in amount and is calculated using a
defined formula. The company is currently unable to estimate an amount for
maximum potential payment in the first five years. If in the first five years,
the total contingent earn-out payments are less than $12,725,000, the
obligation continues indefinitely based on the defined formula, limited
however, so that total contingent payments cannot exceed this amount. If in
the first five years the total earn-out payments exceed $12,725,000 the payment
obligation terminates at the end of such five year period and no further
payments are due. As of June 30, 2004, no earn-out payments have been earned
or paid. Existing cash resources were used to fund the acquisition. Assets
acquired included $180,000 in trade receivables, $228,000 in inventory, $79,000
in other current assets, $1,123,000 in property and equipment and $614,000 in
patents and other intangibles. The operating results attributable to the
acquired assets have been included in the companys consolidated financial
statements since the date of acquisition. ACTs sales were not significant in
its most recent fiscal year prior to acquisition. Product Warranties The company provides its customers 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 Other,
Technologies companies are not significant to their operations. Warranty
reserves are established based on known or probable claims, together with
historical experience factors. During 2004, 2003 and 2002, the company
recorded to expense $3,313,000, $2,853,000 and $2,769,000, respectively, in
warranty claim settlements and reserves. 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 2004 and 2003
were as follows: (In thousands)Year Ended June 30,2004
    
    2003Balance at beginning of year
    
    $
    2,675
    
    
    $
    2,395Amounts charged to expense
    
    
    3,313
    
    
    
    2,853Warranty settlements
    
    
    (2,885
    )
    
    
    (2,573
    )Balance at end of year
    
    $
    3,103
    
    
    $
    2,675
 Restricted Stock and Stock Options In October 2002, shareholders approved the 2002 ElkCorp Equity Incentive
Compensation Plan (Equity Incentive Compensation Plan), which provides for
grants of restricted stock to employees of the company. Grantees generally
have all rights of a shareholder except that unvested shares are held in
escrow. Restricted shares granted in fiscal 2004 and 2003 generally vest 20%
per year over a five-year restriction period. In fiscal 2004, 12,320
restricted shares were granted at market prices ranging from $24.14 to $29.67.
In fiscal 2003, 25,535 restricted shares were granted at market prices ranging
from $15.45 to $20.40. At grant date, the value of restricted stock is
reflected as unearned compensation in shareholders equity and is amortized
over the applicable restriction period. In fiscal 2004 and 2003, compensation
expense of $96,000 and $39,000 was recognized relating to restricted stock
awards, respectively. The companys Equity Incentive Compensation Plan also provides for the
granting of incentive and nonqualified stock options to directors, officers and
key employees of the company for purchase of the companys common stock. Stock
options are generally granted for a ten-year term. Options granted to officers
and key employees through fiscal 2004 generally vest ratably over five years.
Options granted to directors are fully vested at grant date. -38-




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Information relating to options is as follows: WeightedNumber
    
    Option Price
    
    Average Optionof Shares
    
    Range per Share
    
    Price per ShareOutstanding at June 30, 2001
    
    
    1,670,534
    
    
    $
    7.56 - $34.25
    
    
    $
    18.74Granted
    
    
    357,260
    
    
    $
    17.20 - $26.04
    
    
    $
    20.20Cancelled
    
    
    (48,137
    )
    
    $
    8.44 - $28.04
    
    
    $
    21.45Exercised
    
    
    (278,011
    )
    
    $
    8.33 - $19.94
    
    
    $
    11.47Outstanding at June 30, 2002
    
    
    1,701,646
    
    
    $
    7.56 - $34.25
    
    
    $
    20.16Granted
    
    
    362,450
    
    
    $
    15.45 - $27.93
    
    
    $
    27.16Cancelled
    
    
    (41,605
    )
    
    $
    19.94 - $27.93
    
    
    $
    21.22Exercised
    
    
    (23,480
    )
    
    $
    8.44 - $20.07
    
    
    $
    9.75Outstanding at June 30, 2003
    
    
    1,999,011
    
    
    $
    7.56 - $34.25
    
    
    $
    21.51Granted
    
    
    391,385
    
    
    $
    22.61 - $25.60
    
    
    $
    22.78Cancelled
    
    
    (24,596
    )
    
    $
    10.72 - $28.04
    
    
    $
    24.75Exercised
    
    
    (218,988
    )
    
    $
    8.33 - $28.04
    
    
    $
    15.20Outstanding at June 30, 2004
    
    
    2,146,812
    
    
    $
    7.56 - $34.25
    
    
    $
    22.35
 The following table summarizes information about options outstanding at
June 30, 2004: Options Outstanding
    
    Options ExercisableWeighted-AverageRange of Exercise
    
    Number
    
    Remaining
    
    Exercise
    
    
    
    
    
    Weighted AveragePrices
    
    Outstanding
    
    Contractual Life
    
    Price
    
    Number Exercisable
    
    Exercise Price$7.56  $19.99
    
    
    740,969
    
    
    5.22 yrs.
    
    $
    17.36
    
    
    
    588,392
    
    
    $
    17.02$20.00  $23.99
    
    
    668,419
    
    
    8.11 yrs.
    
    $
    21.62
    
    
    
    153,068
    
    
    $
    20.73$24.00  $34.25
    
    
    737,424
    
    
    6.53 yrs.
    
    $
    28.02
    
    
    
    434,664
    
    
    $
    28.03
 At June 30, 2004, 2003 and 2002, options for 1,176,124, 1,100,815, and
864,554 shares were exercisable, respectively. A total of 1,060,098,
1,463,803, and 665,006 shares were reserved for future grants of stock options
and restricted stock at June 30, 2004, 2003 and 2002, respectively. Employee Benefit Plans The companys Employee Stock Ownership Plan (ESOP) became effective
January 1, 1981. Under the plan, the company may contribute a percentage of
each participants annual compensation into a trust, either as treasury stock
contributions or cash, which is then used to purchase ElkCorp common stock.
Employees vest 20% after one year of employment and 20% per year thereafter,
with the stock distributed to a participant at retirement, death, disability,
or as authorized by the Plan Administrative Committee. Effective January 1,
1990, the company established an Employee Savings Plan under Internal Revenue
Code section 401(k). Under the 401(k) Plan, the company may contribute a
percentage of each participants annual compensation into the 401(k) Plan to be
invested among various defined alternatives at the participants direction.
Investment alternatives under the 401(k) Plan do not include ElkCorp common
stock. Vesting of company contributions is in accordance with the same
schedule as that of the ESOP. All full-time employees, except those covered by
plans established through collective bargaining, are eligible for participation
in the above plans after meeting minimum service requirements. Since 1998, the Board of Directors annually has authorized total
contributions of 5.0%, including forfeitures, of each participants annual
compensation, as defined, split equally between the ESOP and 401(k) Plans. In
addition, the company contributes an additional $.50 for every $1.00 of
employee contributions into the 401(k) Plan limited to a maximum matching
company contribution of 2% of an employees compensation. Total contributions
charged to expense for these plans were $3,811,000, $3,592,000, and $2,874,000,
in 2004, 2003 and 2002, respectively. -39-




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Under the companys Stock/Loan Plan, which became effective July 1, 1975,
approximately 200 employees have been granted loans, based on a percentage of
their salaries and the performance of their operating units, for the purpose of
purchasing the companys common stock. Under the Stock/Loan Plan, a ratable
portion of the loans, which are unsecured, and any accrued interest are
forgiven and recognized as compensation expense over five years of continuing
service with the company. If employment is terminated for any reason except
death, disability or retirement, the balance of the loan becomes due and
payable. Loans outstanding at June 30, 2004 and 2003 totaling $2,583,000 and
$2,005,000, respectively, are included in other assets. In compliance with
certain provisions of the Sarbanes  Oxley Act of 2002, no loans were granted
to executive officers of ElkCorp in either fiscal 2004 or 2003. In lieu of
stock loans, 12,320 and 25,535 shares of restricted stock were granted to
executive officers in fiscal 2004 and 2003, respectively. Noncash Stock Option Compensation The companys 1998 Incentive Stock Option Plan contained a cashless
exercise provision that permitted an optionee to relinquish vested options to
the company in exchange for common shares having a current market value equal
to the net exercised market value of the relinquished options. Under APB No.
25, the aforementioned cashless relinquishment feature can cause options issued
under the 1998 Plan to be considered stock appreciation rights (SARs) in
substance, if not in form, unless past experience and economic incentives
indicate that optionees are more likely to exercise, rather than relinquish,
the options. Under APB No. 25, SARs are accounted for using variable
accounting whereby income is charged (or credited) during each accounting
period to reflect any excess of the market value of shares underlying vested
SARs, over the exercise price of vested SARs. It was never the companys intention to issue SARs under the 1998 Plan.
Prior to March 2002, no optionee ever utilized the cashless relinquishment
alternative, and a total of only three optionees, none being executive officers
of the company, utilized this exercise alternative for nominal numbers of
shares. The company believed that its prior use of fixed accounting for
options outstanding under the 1998 Plan was appropriate. However, in fiscal
2002 the company determined that options granted under the 1998 Plan should
have been accounted for using variable option accounting. Noncash stock
compensation expense of $6,034,000 ($3,922,000 net of tax, or $.20 per diluted
share) was recorded in fiscal 2002. The impact of variable accounting on each
year prior to fiscal 2002 was not material. In keeping with the companys original intent, effective August 13, 2002,
the Compensation Committee of the Board of Directors terminated the
availability of the relinquishment alternative under the 1998 Plan, thereby
removing any question regarding the appropriateness of fixed accounting for
these employee stock options thereafter. Based on this action, together with a
decline in the companys share price subsequent to June 30, 2002, the company
recorded a reversal of fiscal 2002 noncash stock option compensation expense of
$5,378,000 ($3,496,000, net of tax, or $.18 per diluted share) in the first
quarter of fiscal 2003. Subsequent to August 13, 2002, the company is again
utilizing the fixed method of stock option accounting. Commitments and Contingencies The company and its subsidiaries lease certain office space, facilities,
and equipment under operating leases, expiring on various dates through 2017.
Total rental expense was $4,080,000 in 2004, $3,671,000 in 2003, and $2,869,000
in 2002. At June 30, 2004, future minimum rental commitments under
noncancelable operating leases, payable over the remaining lives of the leases,
are: (In thousands)
MinimumFiscal Year
    
    Rental Commitments2005
    
    $
    2,7362006
    
    
    2,4092007
    
    
    2,0072008
    
    
    1,7082009
    
    
    1,644Thereafter
    
    
    11,080Total
    
    $
    21,584
 In conjunction with the Lenexa, Kansas composite building products
expansion, the company has commitments for purchase orders and construction
contracts totaling $9,842,000 at June 30, 2004. -40-




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##### Table of Contents



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 plan 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 will now submit 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. Until the significant actions that will be included in the RAP are
identified, the estimate of costs to remediate the site are not determinable,
nor can the company determine at this point in time if it is reasonably
possible that it will incur material additional costs at the site. If a RAP
similar to a plan successfully used at another Chromium plant is approved by
TCEQ, remediation costs will be immaterial to the companys consolidated
results of operations, financial position and liquidity. However, other
scenarios, none of which are reasonably expected at this time, could
potentially result in material costs to the company. The company believes that
sufficient information for establishing a reserve for this environmental
exposure in accordance with SFAS No. 5, Accounting for Contingencies, may be
available by the end of the first half of fiscal 2005, and further anticipates
that it may be in a position at that time to determine if it is reasonably
possible that the company will incur material additional costs with regard to
this site. The companys operations are subject to extensive federal, state and local
laws and regulations relating to environmental matters. Other than the
possible costs associated with the previously described Chromium matter, the
company does not believe it will be required to expend amounts which will have
a material adverse effect on the companys consolidated financial position or
results of operations by reason of environmental laws and regulations. Such
laws and regulations are frequently changed and could result in significantly
increased cost of compliance. Further, certain of the companys manufacturing
operations utilize hazardous materials in their production processes. As a
result, the company incurs costs for recycling or disposal of such materials
and may incur costs for remediation activities at its facilities and off-site
from time to time. The company establishes and maintains reserves for such
known or probable remediation activities in accordance with SFAS No. 5. The company and its subsidiaries are involved in various other legal
proceedings and claims, including claims arising in the ordinary course of
business. Based on advice from legal counsel, management believes such
litigation and claims will be resolved without material adverse effect on the
consolidated financial statements. Settlement with Vendor In fiscal 2002, the company reached a cash settlement relating to a
dispute with a vendor and the company recorded $5,625,000 of nonrecurring
income. The cash settlement primarily represented a reimbursement of costs
previously recorded to expense as selling, general and administrative costs.
This cash settlement was recorded as a reduction of selling, general and
administrative costs in fiscal 2002. Accrued Liabilities Accrued liabilities consist of the following: (In thousands)June 30,2004
    
    2003Product warranty reserves
    
    $
    3,103
    
    
    $
    2,675Self-insurance reserves
    
    
    1,855
    
    
    
    1,488Compensation and employee benefits
    
    
    9,884
    
    
    
    5,241All other
    
    
    10,577
    
    
    
    9,554$
    25,419
    
    
    $
    18,958
 -41-




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##### Table of Contents



Income Taxes The companys effective tax rate was 37.4% in 2004, 37.7% in 2003, and
38.1% in 2002. The difference between the federal statutory tax rate and the
effective tax rate is reconciled as follows: Year Ended June 30,2004
    
    2003
    
    2002Federal statutory tax rate
    
    
    35.0
    %
    
    
    35.0
    %
    
    
    35.0
    %Change in tax rate resulting from:State income taxes, net of federal tax effect
    
    
    2.1
    %
    
    
    2.3
    %
    
    
    2.5
    %Miscellaneous items
    
    
    .3
    %
    
    
    .4
    %
    
    
    .6
    %37.4
    %
    
    
    37.7
    %
    
    
    38.1
    %
 Components of the income tax provisions consist of the following: (In thousands)Year Ended June 30,2004
    
    2003
    
    2002Federal:Current
    
    $
    6,516
    
    
    $
    7,698
    
    
    $
    6,281Deferred, net
    
    
    11,340
    
    
    
    6,382
    
    
    
    5,183State
    
    
    1,071
    
    
    
    914
    
    
    
    800$
    18,927
    
    
    $
    14,994
    
    
    $
    12,264
 The significant components of the companys deferred tax assets and liabilities
are summarized below: (In thousands)June 30,2004
    
    2003
    
    2002Deferred tax assets:Accrued liabilities, difference in
expense recognition
    
    $
    2,967
    
    
    $
    2,648
    
    
    $
    4,249Receivables, bad debt reserve
    
    
    314
    
    
    
    360
    
    
    
    257Inventories, difference in capitalization
    
    
    2,318
    
    
    
    1,179
    
    
    
    979Nonqualified deferred compensation plan
    
    
    679
    
    
    
    525
    
    
    
    262Asset impairment
    
    
    4,030
    
    
    
    861
    
    
    
    1,115Other
    
    
    88
    
    
    
    71
    
    
    
    10,396
    
    
    
    5,644
    
    
    
    6,862Deferred tax liabilities:Fixed assets, primarily depreciation method
differences and deferred testing costs
    
    
    (45,611
    )
    
    
    (38,412
    )
    
    
    (34,660
    )Deferred license fees
    
    
    (3,037
    )
    
    
    (2,122
    )
    
    
    Other
    
    
    
    
    
    
    
    
    
    
    (20
    )(48,648
    )
    
    
    (40,534
    )
    
    
    (34,680
    )Net deferred tax liability
    
    $
    (38,252
    )
    
    $
    (34,890
    )
    
    $
    (27,818
    )
 In August 2003, the Internal Revenue Service (IRS) completed audits of the
companys consolidated tax returns through fiscal 2001. A notice of proposed
adjustment disallowing the timing of certain deductions for tax years 1998
through 2001 was rendered in connection with these audits. In December 2003,
the company reached a tentative agreement with the local office of the IRS.
The tentative agreement had no impact on net income or earnings per share. The
deferred tax balance and income tax receivable were each reduced by
approximately $400,000 to reflect the tentative agreement. The tentative
agreement has been submitted to the Joint Committee of the IRS for final review
and approval. -42-




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##### Table of Contents



Financial Information By Company Segments (In thousands)Year Ended June 30,2004
    
    2003
    
    2002SalesBuilding Products
    
    $
    557,576
    
    
    $
    467,002
    
    
    $
    459,673Other, Technologies
    
    
    15,400
    
    
    
    18,125
    
    
    
    15,658Corporate
    
    
    
    
    
    
    
    
    
    
    $
    572,976
    
    
    $
    485,127
    
    
    $
    475,331Income from Continuing OperationsBuilding Products
    
    $
    67,030
    
    
    $
    45,901
    
    
    $
    53,325Other, Technologies
    
    
    2,462
    
    
    
    5,262
    
    
    
    3,132Corporate
    
    
    (13,584
    )
    
    
    (5,389
    )
    
    
    (18,147
    )55,908
    
    
    
    45,774
    
    
    
    38,310Other income
    
    
    133
    
    
    
    207
    
    
    
    105Interest expense
    
    
    (5,444
    )
    
    
    (6,184
    )
    
    
    (6,192
    )Income from continuing operations before income
taxes
    
    $
    50,597
    
    
    $
    39,797
    
    
    $
    32,223Identifiable AssetsBuilding Products
    
    $
    428,246
    
    
    $
    376,110
    
    
    $
    314,668Other, Technologies
    
    
    19,860
    
    
    
    18,773
    
    
    
    11,748Corporate
    
    
    27,506
    
    
    
    28,039
    
    
    
    32,588Discontinued Operations
    
    
    5,096
    
    
    
    19,369
    
    
    
    22,424$
    480,708
    
    
    $
    442,291
    
    
    $
    381,428Depreciation and AmortizationBuilding Products
    
    $
    14,635
    
    
    $
    13,738
    
    
    $
    13,239Other, Technologies
    
    
    718
    
    
    
    732
    
    
    
    670Corporate
    
    
    2,733
    
    
    
    2,825
    
    
    
    2,702$
    18,086
    
    
    $
    17,295
    
    
    $
    16,611Capital ExpendituresBuilding Products
    
    $
    55,879
    
    
    $
    47,528
    
    
    $
    9,161Other, Technologies
    
    
    326
    
    
    
    241
    
    
    
    1,149Corporate
    
    
    6,745
    
    
    
    1,412
    
    
    
    391$
    62,950
    
    
    $
    49,181
    
    
    $
    10,701
 Product Sales The following table summarizes sales from continuing operations by product
category, excluding intercompany sales: (In thousands)Year Ended June 30,2004
    
    2003
    
    2002Premium roofing
    
    $
    516,078
    
    
    $
    435,036
    
    
    $
    415,659Performance nonwoven fabrics
    
    
    32,973
    
    
    
    30,726
    
    
    
    44,014Composite building products
    
    
    8,525
    
    
    
    1,240
    
    
    
    Technology licensing and consulting fees
    
    
    6,934
    
    
    
    10,693
    
    
    
    6,829Hard chrome and other surface finishes
    
    
    8,339
    
    
    
    7,417
    
    
    
    8,829Other
    
    
    127
    
    
    
    15
    
    
    
    $
    572,976
    
    
    $
    485,127
    
    
    $
    475,331
 -43-




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##### Table of Contents



Quarterly Summary of Operations (Unaudited, in thousands, except per share amounts) First Quarter
    
    Second Quarter
    
    Third Quarter
    
    Fourth Quarter2004
    
    2003
    
    2004
    
    2003
    
    2004
    
    2003
    
    2004
    
    2003Sales
    
    $
    159,739
    
    
    $
    115,478
    
    
    $
    123,208
    
    
    $
    102,545
    
    
    $
    131,947
    
    
    $
    123,616
    
    
    $
    158,082
    
    
    $
    143,488Gross Profit
    
    
    33,148
    
    
    
    24,375
    
    
    
    27,258
    
    
    
    18,992
    
    
    
    26,615
    
    
    
    23,482
    
    
    
    32,139
    
    
    
    30,896Income from
Continuing
Operations
    
    
    10,057
    
    
    
    9,388
    
    
    
    7,014
    
    
    
    2,708
    
    
    
    6,247
    
    
    
    4,395
    
    
    
    8,352
    
    
    
    8,312Discontinued
Operations
    
    
    (920
    )
    
    
    (392
    )
    
    
    (7,857
    )
    
    
    108
    
    
    
    (2,189
    )
    
    
    67
    
    
    
    (198
    )
    
    
    (486
    )Net Income (Loss)
    
    
    9,137
    
    
    
    8,996
    
    
    
    (843
    )
    
    
    2,816
    
    
    
    4,058
    
    
    
    4,462
    
    
    
    8,154
    
    
    
    7,826Net Income (Loss) Per Share:Income from Continuing Operations Basic
    
    
    .51
    
    
    
    .48
    
    
    
    .36
    
    
    
    .14
    
    
    
    .32
    
    
    
    .23
    
    
    
    .42
    
    
    
    .43Diluted
    
    
    .51
    
    
    
    .48
    
    
    
    .35
    
    
    
    .14
    
    
    
    .31
    
    
    
    .23
    
    
    
    .42
    
    
    
    .42Discontinued Operations Basic
    
    
    (.04
    )
    
    
    (.02
    )
    
    
    (.40
    )
    
    
    
    
    
    
    (.11
    )
    
    
    
    
    
    
    (.01
    )
    
    
    (.03
    )Diluted
    
    
    (.05
    )
    
    
    (.02
    )
    
    
    (.39
    )
    
    
    
    
    
    
    (.11
    )
    
    
    
    
    
    
    (.01
    )
    
    
    (.02
    )Net Income (Loss) Basic
    
    
    .47
    
    
    
    .46
    
    
    
    (.04
    )
    
    
    .14
    
    
    
    .21
    
    
    
    .23
    
    
    
    .41
    
    
    
    .40Diluted
    
    
    .46
    
    
    
    .46
    
    
    
    (.04
    )
    
    
    .14
    
    
    
    .20
    
    
    
    .23
    
    
    
    .41
    
    
    
    .40
 -44-




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors
of ElkCorp: Our audits of the consolidated financial statements referred to in our report
dated August 30, 2004 appearing in the 2004 Annual Report on Form 10-K of
ElkCorp also included an audit of the financial statement schedule listed in
Item 15(a)(2) of this Form 10-K. In our opinion, this financial statement
schedule presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements. /s/ PricewaterhouseCoopers LLPPricewaterhouseCoopers LLP
 Dallas, Texas
August 30, 2004 -45-




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##### Table of Contents



ELKCORP AND SUBSIDIARIES
SCHEDULE II  CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED JUNE 30, 2004, 2003, AND 2002 ( Dollars in thousands)Column A
    
    Column B
    
    Column C
    
    Column D
    
    Column EAdditions
    
    DeductionsBalance at
    
    Charged to Costs
    
    
    
    
    
    For Purposes For Which
    
    Balance atDescription
    
    Beginning of Period
    
    and Expenses
    
    Other
    
    Reserves Were Created
    
    End of PeriodYear Ended
June 30, 2004CONSOLIDATED:Allowance for
doubtful accounts
    
    $
    935
    
    
    $
    83
    
    
    $
    (175
    )
    
    $
    (238
    )
    
    $
    605Allowance for
inventory
obsolescence
    
    $
    262
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    262Year Ended June 30, 2003CONSOLIDATED:Allowance for
doubtful accounts
    
    $
    690
    
    
    $
    282
    
    
    $
    
    
    
    $
    (37
    )
    
    $
    935Allowance for
inventory
obsolescence
    
    $
    126
    
    
    $
    136
    
    
    $
    
    
    
    $
    
    
    
    $
    262Year Ended June 30, 2002CONSOLIDATED:Allowance for
doubtful accounts
    
    $
    807
    
    
    $
    264
    
    
    $
    
    
    
    $
    (381
    )
    
    $
    690Allowance for
inventory
obsolescence
    
    $
    126
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    126
 -46-




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##### Table of Contents



Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure None. 
 Item 9A. 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 the our disclosure controls and procedures pursuant to Exchange Act
Rules 13a-15(e) and 15d-15(e) as of the end of the period covered by this
report. Based upon that evaluation, the Chief Executive Officer and the
Chief Financial Officer concluded that 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 ControlsThere have been no significant changes in our internal controls or in
other factors that could significantly affect these controls subsequent to
the date of the evaluation, including any corrective actions with regard
to significant deficiencies and material weaknesses. Item 9B. Other
Information None. 
 PART III 
 Item 10. Directors and Executive Officers of the Registrant Information concerning our Directors required by this item is incorporated
herein by reference to the material under the caption Election of Directors
of our Proxy Statement (Proxy Statement) for the October 26, 2004 Annual
Meeting of Shareholders to be filed with the Securities and Exchange
Commission. The Proxy Statement is incorporated herein by reference. Information concerning our Audit Committee and determination by the Board of
Directors that at least one member of the Audit Committee qualifies as an Audit Committee Financial Expert is incorporated by reference to the material
under the caption Audit Committee Report of the Proxy Statement.
Information concerning compliance with Section 16(a) of the Securities Exchange Act is incorporated herein by reference to the material under the
caption Section 16(a) Beneficial Ownership Reporting Compliance of the Proxy
Statement. Information concerning Executive Officers of ElkCorp is contained
in Item 1 of this report in Item 4A, under the caption Executive Officers of
ElkCorp of this Annual Report on Form 10-K. Information concerning our code
of ethics is incorporated herein by reference to the material under the caption
Code of Financial Ethics of the Proxy Statement. 
 Item 11. Executive Compensation The information required by this item is incorporated herein by reference
to the information under the caption Executive Compensation of the Proxy
Statement. 
 Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters The information required by this item is incorporated herein by reference
to the information under the caption ElkCorp Stock Ownership and Equity
Compensation Plan Information of the Proxy Statement. 
 Item 13. Certain Relationships and Related Transactions Information required by this item is incorporated herein by reference to
the material under the captions Compensation Committee Interlocks and Insider
Participation and Stock/Loan Balances of the Proxy Statement. 
 Item 14. Principal Accountant Fees and Services The information required by this item is incorporated herein by reference
to the information under the caption Audit Fees of the Proxy Statement. -47-




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##### Table of Contents



PART IV 
 Item 15. Exhibits, Financial Statement Schedule and Reports on Form 8-K (A) 1. Financial Statements The following financial statements of the company are set forth in Item 8
of this Annual Report on
Form 10-K: Report of Independent Registered Public Accounting FirmConsolidated Balance Sheets at June 30, 2004, and 2003Consolidated Statements of Operations for the years ended
June 30, 2004, 2003 and 2002Consolidated Statements of Cash Flows for the years ended
June 30, 2004, 2003, and 2002Consolidated Statements of Shareholders Equity for the years
ended June 30, 2004, 2003, and 2002Summary of Significant Accounting PoliciesNotes to Consolidated Financial Statements
 2. Financial Statement Schedules Report of Independent
Registered Public Accounting Firm
Schedule II  Consolidated Valuation and Qualifying Accounts All other schedules are omitted because they are not required, are not
applicable, or the information is included in the financial statements or notes
thereto. 3. Executive Compensation Plans and Arrangements The following is a list of all executive compensation plans and
arrangements required to be filed as an exhibit to this report:  1.
    
    Amended and Restated Elcor Corporation Employee Stock/Loan Plan
filed as Exhibit 10.2 hereto and incorporated by reference to Exhibit
10.2 in the Registrants Annual Report on Form 10-K for the year
ended June 30, 1998 (File No. 1-5341).2.
    
    2002 ElkCorp Equity Incentive Compensation Plan filed as
Exhibit 10.3 hereto and incorporated by reference to Appendix A in
the Registrants Proxy Statement dated September 20, 2002 (File
1-5341).3.
    
    Deferred Compensation Plan filed as Exhibit 10.4 hereto and
incorporated by reference to Exhibit 10.4 in the Registrants Annual
Report on Form 10-K for the year ended June 30, 2000 (File No.
1-5341). -48-




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##### Table of Contents



B. Reports on Form 8-K We filed two Forms 8-K in the fourth quarter of fiscal 2004 as follows:
On April 16, 2004, we filed a Form 8-K relating to a press release
containing our consolidated operating results and other financial information
for our third quarter of fiscal 2004. On June 17, 2004, we filed a Form 8-K
regarding updating our earnings outlook for the fourth quarter and fiscal year
2004. C. Exhibits **3.1
    
    The Restated Certificate of Incorporation of the company, filed as
Exhibit 3.1 to the companys Annual Report on Form 10-K for the
year ended June 30, 1994 (File No. 1-5341).**3.11
    
    Certificate of Amendment to Certificate of Incorporation dated
December 2, 1998 (file No. 1-5341).**3.2
    
    Bylaws of the company, as amended, filed as Exhibit 3.2 to the
companys Annual Report on Form 10-K for the year ended June 30,
2003 (File No. 1-5341).**4.1
    
    Form of Rights Agreement dated as of July 7, 1998, between the
company and ChaseMellon Shareholder Services, L.L.C., as Rights
Agent, which includes as Exhibits A and B thereto the Forms of
Certificate of Designation, Preferences and Rights of Series A
Participating Preferred Stock, Rights Certificate, filed as Exhibit
4.1 to the companys current Report on Form 8-K dated May 26, 1998
(File No. 1-5341).**4.12
    
    Credit Agreement dated as of November 30, 2000 among the company,
Bank of America, N.A., as Administrative Agent, Swing Line Lender
and L/C Issuer, Bank One, Texas, N.A., as Documentation Agent,
First Union National Bank, as Syndication Agent, The Other Lenders
Party Hereto, and Bank of America Securities LLC, as Sole Lead
Arranger and Sole Book Manager, filed as Exhibit 4.12 in the
companys Quarterly Report on Form 10-Q for the quarter ended
December 31, 2000 (File No. 1-5341).**4.13
    
    First Amendment to Credit Agreement dated as of March 31, 2001
among the company, Bank One, N.A., as Documentation Agent, First
Union National Bank, as Syndication Agent, and Bank of America,
N.A., as Administrative Agent, Swing Line Lender and L/C Issuer,
filed as Exhibit 4.13 in the companys Quarterly Report on Form
10-Q for the quarter ended March 31, 2001 (File No. 1-5341).**4.14
    
    Note Purchase Agreement dated as of June 1, 2002 for the sale of
$120,000,000 Aggregate Principal Amount of Senior Notes as filed as
Exhibit 4.14 in the companys Form 8-K dated June 10, 2002 (File
No. 1-5341).**4.15
    
    Note Purchase Agreement dated as of March 1, 2003 for the sale of
$25,000,000 Aggregate Principal Amount of Senior Notes, filed as
Exhibit 4.15 to the companys current Report on Form 8-K dated
March 18, 2003 (File No. 1-5341).**4.16
    
    Second Amendment to Credit Agreement dated as of June 5, 2002 among
the company, Bank One, N.A., as Documentation Agent, First Union
National Bank, as Syndication Agent, and Bank of America, N.A., as
Administrative Agent, Swing Line Lender and L/C Issuer filed as
Exhibit 4.16 in to the companys Quarterly Report on Form 10-Q in
the quarter ended March 31, 2003 (File No. 1-5341).**4.17
    
    Third Amendment to Credit Agreement dated as of February 20, 2003
among the company, Bank One, N.A., as Documentation Agent, Wachovia
Bank, N.A., as Syndication Agent, and Bank of America, N.A., as
Administrative Agent, Swing Line Lender and L/C Issuer filed as
Exhibit 4.17 in the companys Quarterly Report on Form 10-Q in the
quarter ended March 31, 2003 (File No. 1-5341).
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**4.18
    
    Fourth Amendment to Credit Agreement dated as of March 7, 2003
among the company, Bank One, N.A., as Documentation Agent, and Bank
of America, N.A., as Administrative Agent, Swing Line Lender and
L/C Issuer filed as Exhibit 4.18 in the companys Quarterly Report
on Form 10-Q in the quarter ended March 31, 2003 (File No. 1-5341).**4.19
    
    Fifth Amendment to Credit Agreement dated as of December 5, 2003
among the company, Bank One, N.A. as Documentation Agent, and Bank
of America, N.A., as Administrative Agent, Swing Line Lender and
L/C Issuer and other lenders, filed as Exhibit 4.19 in the
companys Quarterly Report on Form 10-Q in the quarter ended
December 31, 2003 (File No. 1-5341).*4.20
    
    Note Purchase Agreement dated as of June 15, 2004 for the sale of
$50,000,000 Aggregate Principal Amount of Senior Notes, filed
herewith.**10.1
    
    Form of Executive Agreement filed as Exhibit 10.1 in the companys
Annual Report on Form 10-K for the year ended June 30, 1998 (File
No. 1-5341).**10.2
    
    Amended and Restated Elcor Corporation Employee Stock/Loan Plan
filed as Exhibit 10.2 in the companys Annual Report on Form 10-K
for the year ended June 30, 1998 (File No. 1-5341).**10.3
    
    2002 ElkCorp Equity Incentive Compensation Plan filed as Appendix A
in the companys Proxy Statement dated September 20, 2002 (File
1-5341).**10.4
    
    Deferred Compensation Plan filed as Exhibit 10.4 in the companys
Annual Report on Form 10-K for the year ended June 30, 2000 (File
No. 1-5341).* 21
    
    Subsidiaries of the Registrant.* 23
    
    Consent of Independent Registered Public Accounting Firm.* 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.**
    
    Incorporated by reference.
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##### Table of Contents



SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) 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 September 10, 2004
    
    
    
    By
    
    /s/
    
    Gregory J. FisherGregory J. Fisher
Senior Vice President,
Chief Financial Officer
and ControllerBy
    
    /s/
    
    Leonard R. HarralLeonard R. Harral
Vice President, Chief
Accounting Officer
and Treasurer
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SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below in multiple counterparts by the following persons
on behalf of the Registrant and in the capacities and on the date indicated. Signature
    
    Title
    
    Date/s/ Thomas D. Karol

     Thomas D. Karol
    
    Chairman of the Board,
Chief Executive Officer
and Director
    
    September 10, 2004/s/ Richard A. Nowak

     Richard A. Nowak
    
    President, Chief Operating
Officer and Director
    
    September 10, 2004/s/ Gregory J. Fisher

     Gregory J. Fisher
    
    Senior Vice President, Chief
Financial Officer and
Controller
    
    September 10, 2004/s/ Leonard R. Harral

     Leonard R. Harral
    
    Vice President, Chief Accounting
Officer and Treasurer
    
    September 10, 2004/s/ James E. Hall

     James E. Hall
    
    Director
    
    September 10, 2004/s/ Dale V. Kesler
    
    Director
    
    September 10, 2004Dale V. Kesler/s/ Shauna R. King
    
    Director
    
    September 10, 2004Shauna R. King/s/ Michael L. McMahan
    
    Director
    
    September 10, 2004Michael L. McMahan/s/ David W. Quinn
    
    Director
    
    September 10, 2004David W. Quinn/s/ Harold K. Work
    
    Director
    
    September 10, 2004Harold K. Work
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INDEX TO EXHIBITS **3.1
    
    The Restated Certificate of Incorporation of the company, filed as
Exhibit 3.1 to the companys Annual Report on Form 10-K for the
year ended June 30, 1994 (File No. 1-5341).**3.11
    
    Certificate of Amendment to Certificate of Incorporation dated
December 2, 1998 (file No. 1-5341).**3.2
    
    Bylaws of the company, as amended, filed as Exhibit 3.2 to the
companys Annual Report on Form 10-K for the year ended June 30,
2003 (File No. 1-5341).**4.1
    
    Form of Rights Agreement dated as of July 7, 1998, between the
company and ChaseMellon Shareholder Services, L.L.C., as Rights
Agent, which includes as Exhibits A and B thereto the Forms of
Certificate of Designation, Preferences and Rights of Series A
Participating Preferred Stock, Rights Certificate, filed as Exhibit
4.1 to the companys current Report on Form 8-K dated May 26, 1998
(File No. 1-5341).**4.12
    
    Credit Agreement dated as of November 30, 2000 among the company,
Bank of America, N.A., as Administrative Agent, Swing Line Lender
and L/C Issuer, Bank One, Texas, N.A., as Documentation Agent,
First Union National Bank, as Syndication Agent, The Other Lenders
Party Hereto, and Bank of America Securities LLC, as Sole Lead
Arranger and Sole Book Manager, filed as Exhibit 4.12 in the
companys Quarterly Report on Form 10-Q for the quarter ended
December 31, 2000 (File No. 1-5341).**4.13
    
    First Amendment to Credit Agreement dated as of March 31, 2001
among the company, Bank One, N.A., as Documentation Agent, First
Union National Bank, as Syndication Agent, and Bank of America,
N.A., as Administrative Agent, Swing Line Lender and L/C Issuer,
filed as Exhibit 4.13 in the companys Quarterly Report on Form
10-Q for the quarter ended March 31, 2001 (File No. 1-5341).**4.14
    
    Note Purchase Agreement dated as of June 1, 2002 for the sale of
$120,000,000 Aggregate Principal Amount of Senior Notes as filed as
Exhibit 4.14 in the companys Form 8-K dated June 10, 2002 (File
No. 1-5341).**4.15
    
    Note Purchase Agreement dated as of March 1, 2003 for the sale of
$25,000,000 Aggregate Principal Amount of Senior Notes, filed as
Exhibit 4.15 to the companys current Report on Form 8-K dated
March 18, 2003 (File No. 1-5341).**4.16
    
    Second Amendment to Credit Agreement dated as of June 5, 2002 among
the company, Bank One, N.A., as Documentation Agent, First Union
National Bank, as Syndication Agent, and Bank of America, N.A., as
Administrative Agent, Swing Line Lender and L/C Issuer filed as
Exhibit 4.16 in to the companys Quarterly Report on Form 10-Q in
the quarter ended March 31, 2003 (File No. 1-5341).**4.17
    
    Third Amendment to Credit Agreement dated as of February 20, 2003
among the company, Bank One, N.A., as Documentation Agent, Wachovia
Bank, N.A., as Syndication Agent, and Bank of America, N.A., as
Administrative Agent, Swing Line Lender and L/C Issuer filed as
Exhibit 4.17 in the companys Quarterly Report on Form 10-Q in the
quarter ended March 31, 2003 (File No. 1-5341).**4.18
    
    Fourth Amendment to Credit Agreement dated as of March 7, 2003
among the company, Bank One, N.A., as Documentation Agent, and Bank
of America, N.A., as Administrative Agent, Swing Line Lender and
L/C Issuer filed as Exhibit 4.18 in the companys Quarterly Report
on Form 10-Q in the quarter ended March 31, 2003 (File No. 1-5341).
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**4.19
    
    Fifth Amendment to Credit Agreement dated as of December 5, 2003
among the company, Bank One, N.A. as Documentation Agent, and Bank
of America, N.A., as Administrative Agent, Swing Line Lender and
L/C Issuer and other lenders, filed as Exhibit 4.19 in the
companys Quarterly Report on Form 10-Q in the quarter ended
December 31, 2003 (File No. 1-5341).*4.20
    
    Note Purchase Agreement dated as of June 15, 2004 for the sale of
$50,000,000 Aggregate Principal Amount of Senior Notes, filed
herewith.**10.1
    
    Form of Executive Agreement filed as Exhibit 10.1 in the companys
Annual Report on Form 10-K for the year ended June 30, 1998 (File
No. 1-5341).**10.2
    
    Amended and Restated Elcor Corporation Employee Stock/Loan Plan
filed as Exhibit 10.2 in the companys Annual Report on Form 10-K
for the year ended June 30, 1998 (File No. 1-5341).**10.3
    
    2002 ElkCorp Equity Incentive Compensation Plan filed as Appendix A
in the companys Proxy Statement dated September 20, 2002 (File
1-5341).**10.4
    
    Deferred Compensation Plan filed as Exhibit 10.4 in the companys
Annual Report on Form 10-K for the year ended June 30, 2000 (File
No. 1-5341).* 21
    
    Subsidiaries of the Registrant.* 23
    
    Consent of Independent Registered Public Accounting Firm.* 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.**
    
    Incorporated by reference.
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