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  **SECURITIES AND EXCHANGE COMMISSION****Washington, D.C. 20549** **Form 10-K**   þ     **ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE    SECURITIES EXCHANGE ACT OF 1934**   **For fiscal year ended June 30, 2005** **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* *(I.R.S. Employer**incorporation or organization)* *Identification No.)* **14911 Quorum Drive, Suite 600,** **75254-1491****Dallas, Texas** *(Zip Code)**(Address of principal executive offices)*  **Registrant’s telephone number, including area code****(972)851-0500****Securities registered pursuant to Section 12(b) of theAct:**   **Title of Each Class** **Name of Each Exchange on 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) ofthe Act:****None***(Title of Class)*    Indicate by check mark whether the Registrant: (1) hasfiled all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that theRegistrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past90 days.     Yes þ          No o     Indicate by check mark if disclosure of delinquent filerspursuant to Item 405 of Regulation S-K is notcontained herein, and will not be contained, to the best of theRegistrant’s knowledge, in definitive proxy or informationstatements incorporated by reference in Part III of thisForm 10-K or any amendment to thisForm 10-K.     o     Indicate by check mark whether the Registrant is an acceleratedfiler (as defined in Exchange ActRule 12b-2).     Yes þ          No o     Indicate by check mark whether the registrant is a shell company(as defined in Rule 12b-2 of the ExchangeAct).     Yes o          No þ     The aggregate market value of common stock held by nonaffiliatesas of December 31, 2004 (the last business day of theRegistrant’s most recently completed second quarter) was$658,775,000. This amount is based on the closing price of theRegistrant’s Common Stock on the New York Stock Exchange onDecember 31, 2004. Shares of stock held by directors andofficers of the Registrant as well as shares allocated to suchpersons under the Employee Stock Ownership Plan of theRegistrant 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 underthe Securities Act of 1933, as amended.     As of the close of business on August 19, 2005, theRegistrant had 20,288,782 shares of Common Stock outstanding.**DOCUMENTS INCORPORATED BY REFERENCE**     Certain portions of the Registrant’s definitive proxystatement for the annual meeting of shareholders to be held onOctober 25, 2005, are incorporated by reference intocertain Items of Part III hereof. Except for those portionsspecifically incorporated herein by reference, such documentshall not be deemed to be filed with the Securities and ExchangeCommission as part of this report.  

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**ElkCorp and Subsidiaries****Annual Report on Form 10-K****For Fiscal Year Ended June 30, 2005****TABLE OF CONTENTS**       Page **Part I.**    Item 1. Business  1 Item 2. Properties  9 Item 3. Legal Proceedings  9 Item 4. Submission of Matters to a Vote of Security Holders  9 Item 4A. Executive Officers of the Registrant  10      **Part II.**         Item 5. Market for the Registrant’s Common Equity, Related Stockholder Mattersand Issuer Purchases of Equity Securities  11 Item 6. Selected Financial Data  12 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations  13 Item 7A. Quantitative and Qualitative Disclosures about Market Risk  22 Item 8. Financial Statements and Supplementary Data  23 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure  50 Item 9A. Controls and Procedures  50 Item 9B. Other Information  50      **Part III.**         Item 10. Directors and Executive Officers of the Registrant  51 Item 11. Executive Compensation  51 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters  51 Item 13. Certain Relationships and Related Transactions  51 Item 14. Principal Accountant Fees and Services  51      **Part IV.**         Item 15. Exhibits and Financial Statement Schedules  52      Signatures  56  6th Amendment to Credit Agreement 7th Amendment to Credit Agreement Asset Purchase Agreement Purchase Agreement Subsidiaries Consent of Grant Thornton LLP Consent of PricewaterhouseCoopers LLP Certification of CEO Pursuant to Section 302 Certification of CFO Pursuant to Section 302 Certification of CEO Pursuant to Section 906 Certification 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,” “the company” and “Elk” inthis report, is a Delaware corporation incorporated in 1965, having its principal executive officesin Dallas, Texas. Shares of ElkCorp’s common stock are traded on the New York Stock Exchange underthe ticker symbol – ELK.     We maintain an Internet website at http://www.elkcorp.com. In the Investor Relations sectionof the web site, we post the following filings as soon as reasonably practicable after they areelectronically filed with or furnished to the Securities and Exchange Commission: Annual Report onForm 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to thosereports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of1934. All such filings on the Investor Relations web page, which also includes Forms 3, 4 and 5filed pursuant to Section 16(a) of the Securities Exchange Act of 1934, are available to be viewedon the web page free of charge. Additionally, our key committee charters, corporate governanceguidelines and code of business conduct and ethics are available on our website and in print uponrequest. Information contained on the web site is not part of this Annual Report on Form 10-K orour other filings with the Securities and Exchange Commission. We assume no obligation to updateor revise any forward-looking statements in this Annual Report on Form 10-K, whether as a result ofnew information, future events or otherwise. A copy of this Form 10-K is available without chargeupon written request to Investor Relations, ElkCorp, 14911 Quorum Drive, Suite 600, Dallas, Texas75254.     In November 2004, our Chief Executive Officer executed the annual Section 303A.12 (a) CEOCertification required by the New York Stock Exchange (NYSE), certifying that he was not aware ofany violation of the NYSE’s corporate governance listing standards by ElkCorp. Our Chief ExecutiveOfficer and Chief Financial Officer have executed the required Sarbanes-Oxley Act of 2002 Section302 and 906 certifications on all fiscal 2005 Form 10-Qs, and the current certifications are filedas exhibits to this Annual Report on Form 10-K.**Financial Information About Industry Segments**     Financial information by industry segment is presented in Part II. Item 8. FinancialStatements and Supplementary Data on page 44 of this report. In the past year, we have intensifiedthe focus on our building products platforms, including selling or positioning for sale several ofthe various businesses that do not fit into this focus. Within the building products sector we nowhave two segments, Premium Roofing Products and Composite Building Products, a relatively newplatform. Although now reported as separate operating segments, products from both segments aremanufactured for and marketed primarily to the building products industry under the “Elk PremiumBuilding Products” brand name. Previously, these two segments were combined and reported as theBuilding Products segment. The prior period financial information about industry segments includedin this Annual Report on Form 10-K has been reclassified to reflect the change in our reporting ofbusiness segments. Products from both segments are sold primarily through the same wholesaledistribution channels and the ultimate “customers” for both segments are professional installationcontractors and homeowners. Together the two building products segments account for greater than95% of consolidated sales and operating profit. The various businesses that are not buildingproducts companies are combined and reported as Other, Technologies.**Premium Roofing Products**     We manufacture premium laminated fiberglass asphalt shingles and accessory roofing productsfor steep slope applications at plants located in (1) Ennis, Texas, (2) Shafter, California, (3)Myerstown, Pennsylvania, and (4) from two adjacent manufacturing facilities in Tuscaloosa, Alabama.Construction and testing of the newest Tuscaloosa, Alabama facility was completed in the latterpart of fiscal 2004 and placed in service at the beginning of fiscal 2005. This new plantincreased company-wide capacity by approximately 25%, and was completed ahead of schedule and underbudget.     The primary products manufactured at Elk’s roofing plants are premium laminated fiberglassasphalt shingles. Premium roofing products have either a wood-shake or slate-like look. Elk’sshingle product line includes: the Prestique® Gallery CollectionTM, Prestique Plus HighDefinition®, Prestique I High Definition, Prestique High Definition, Raised Profile®,Capstone®, Domain® Winslow® and Prestique GrandeTM High Definition. In fiscal 2005, we introducedElk Cool Color Series shingles, which are composed of highly reflective granules that slow heatbuild-up for a more
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energy efficient home. Elk has also recently begun offering Prestique XtraTM High Definition,an asphalt shingle that meets ULâ 2218 impact resistance standards and achieves aClass 4 insurance rating.     The following table summarizes limited product warranty and limited wind warranty for thefirst five years for each product. Special high-wind application techniques are required forlimited wind warranties of up to 90 miles per hour (mph) and higher.                   Standard Wind Extended WindProduct Limited Warranty Coverage CoverageDomain Winslow 50 years 80 mph 110 mphDomain Winslow Cool Color Series 50 years 80 mph 110 mphPrestique Gallery Collection 50 years 80 mph 110 mphPrestique Plus High Definition 50 years 80 mph 110 mphCapstone 40 years 80 mph 110 mphPrestique Grandé High Definition 40 years 80 mph 90 mphPrestique I High Definition 40 years 80 mph 90 mphPrestique Cool Color Series 40 years 80 mph 90 mphPrestique Xtra High Definition 40 years 80 mph 130 mphPrestique High Definition 30 years 80 mph Not ApplicableRaised Profile 30 years 70 mph Not Applicable     Elk also offers starter-strip products, Seal-a-Ridge®, Z® Ridge, RidgeCrestTM, HighpointTMhip and ridge products, a built-in StainGuard® treatment in some areas of the country, roofaccessory paint for vent flashings and other accessories.     Elk’s roofing products are sold by employee sales personnel primarily to roofing wholesaledistributors, with delivery being made by rail, contract carrier, or by customer vehicles from themanufacturing plants or warehouses. Elk’s roofing products are distributed nationwide. On ashort-term basis, demand for roofing products can be dictated by weather patterns, as it was formuch of fiscal 2005, when the Southeast United States experienced four major hurricanes. Evenwithout unusual weather events, longer-term industry growth rates have been very strong. Over thelast five calendar years, the laminated asphalt shingle segment has grown at a compound annualgrowth rate of 12%. Industry shipments of laminated asphalt shingles are expected to continue togrow 6% to 10% annually for the remainder of the decade. Over 80% of all asphalt shingles are usedin reroofing and remodeling and less than 20% are used in new construction. Approximately 70% ofhousing in the United States is over 20 years old, with the median age being approximately 32 yearsold. On average, steep-sloped roofs are replaced every 19 years. Approximately 89% of roofreplacements are nondiscretionary and result from roof deterioration, age, leaks, or weatherdamage. Appearance upgrades account for the remaining 11% of roof replacements. Our ten largestcustomers account for approximately 50% of annual consolidated sales. One customer, ABC SupplyCo., Inc., the largest roofing wholesale distributor in the United States, accounted for 19% of ourconsolidated sales in fiscal 2005, 19% of consolidated sales in fiscal 2004, and 18% ofconsolidated sales in fiscal 2003.     Elk’s sales personnel devote considerable time and effort to the education of roofinginstallation contractors regarding the superior appearance, quality and ease of application ofElk’s roofing products. Elk believes that its effort to develop brand loyalty among roofinginstallation contractors is a significant marketing strategy, since the product recommendations ofroofing installation contractors often have a significant influence upon the roofing product brandselections of homeowners. Elk has instituted the PeakPerformanceSMContractor Program to rewardtop performing contractors for their brand loyalty and quality of service.     Even though the premium shingle manufacturing business is highly competitive, we believe thatElk is a leading manufacturer of premium laminated fiberglass asphalt shingles. Elk has been ableto compete successfully with its competitors, some of which are larger in size and have greaterfinancial resources. Elk’s target market for asphalt shingle sales is the laminated segment whichaccounts for approximately 60% of all asphalt shingle sales. We believe we are the only majorroofing manufacturer that entirely focuses on this segment of the sloped roof market. Elk’s plantsgenerally are among the most modern and efficient plants in the industry. Accordingly, we believethis provides us with a competitive advantage in developing and maintaining manufacturingefficiencies. We believe that many of our competitors have elective manufacturing capacity,allowing them to manufacture either commodity shingles or premium laminated shingles. Suchelective capacity can affect the supply/demand balance in the premium laminated sector, which caninfluence the prices Elk charges its customers.
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     Also included in the Premium Roofing Products segment is our nonwoven fabrics operation.Elk’s nonwoven fabrics subsidiary is a leading manufacturer of nonwoven fiberglass shinglesubstrates and other products utilizing coated and uncoated nonwoven fabrics formed fromfiberglass, polyester, cellulose and blended base fibers. Uncoated nonwoven fabrics form the coresubstrate of most residential asphalt shingles and commercial roofing membranes. Nonwovenfiberglass fabrics provide strength and fire-resistance to these products. Coated nonwoven fabricshave been developed by Elk for use in various building product applications, including roofingunderlayment products, facer products and filtration products. Many of Elk’s coated nonwovenproducts utilize our proprietary VersaShield® fire barrier coatings. Nonwoven fabrics products aremanufactured on two nonwoven mat lines that run in parallel at Elk’s Ennis, Texas facility.     During fiscal 2005, the majority of nonwoven fabrics produced by Elk were used in themanufacture 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 andaccessory roofing products. A smaller amount of nonwoven fabrics produced by Elk were used forother direct applications in building and construction, filtration, floor coverings and otherindustries. Nonwoven fabrics not consumed internally are marketed to outside customers through ourSpecialty Fabric Technologies division. We conduct ongoing research and development activitiestargeted at expanding the market for our nonwoven fabrics manufacturing capability.     Elk’s nonwoven fiberglass roofing mat facilities have the capacity to supply all of ourinternal fiberglass roofing mat needs. However, certain Elk roofing plants may be suppliednonwoven 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 tothe manufacturing plants. These arrangements are generally not affected by changing marketconditions. Nonwoven fabrics are sold by Elk sales personnel and shipped by contract carrier toits other roofing plants and to its customers’ locations.     In its nonwoven fabrics business, Elk successfully competes with other manufacturers ofnonwoven fabrics, some of which are larger in size and have greater financial resources. Elkbelieves that the quality and properties of its nonwoven fabrics make it a desirable supplier ofnonwoven products to other manufacturers. In fiscal 2005, most external shipments of nonwovenfabrics were delivered to other manufacturers of asphalt shingles and commercial roofing membranes.Many of these customers purchased nonwoven fabrics from Elk in order to supplement their owninternal nonwoven fabrics production capacity. As a result, changing business conditions mayresult in a proportionately larger change in Elk’s external nonwoven fabrics shipments than theproportionate change in overall market demand.**Composite Building Products**     Composite Building Products is a newly formed platform designed for rapidly growing marketsusing advanced composite technology, including decking, railing, marine dock, fencing and other OEMproducts. Composite wood products are sold under the CrossTimbersTM name and marketed as analternative to treated wood. Unlike the products offered by many of our competitors, CrossTimberscontains no recycled polyethylene products, but consists of a combination of oak and polypropylene,which we believe provides performance advantages including strength, durability, lighter weight andless expansion or contraction, as compared to most other composite building products in themarketplace. Our current fence and decking products are primarily voided deck board products withembossed wood surfaces. Composite building products are manufactured in Lenexa, Kansas, sold byElk sales personnel, and shipped by contract carrier. Our composite building products generallyhave limited product warranties for a twenty-year period.     In fiscal 2005, we significantly expanded and consolidated our capacity at the current Lenexafacility. Expansion activities resulted in expenditures of approximately $23,900,000 in fiscal2005, primarily for eight new extruders and related equipment for raw material handling, storageand support infrastructure. In addition, in March 2005, we completed the acquisition of RailwayzInc. (Railwayz), a privately held composite railing company. Railwayz manufactures products underthe RailwaysTM brand name and manufactures products that complement our CrossTimbers deckingproducts. Our Railways product line includes the Traditional Series, a white product with aclassic wood look, and the Old World Series, available in five colors and decorative, wrought ironwork. Both product series are available with a new uni-ball connector that requires no drilling.These complementary products allow us to provide our distributors a more diverse decking andrailing product line that improves the speed of installation.     We believe that industry-wide sales of composite wood products currently account forapproximately 15% of the estimated potential market for wood used in decking, fencing and railingapplications. We anticipate that the high growth potential of this emerging market may attractnumerous competitors. Current competitors include companies focusing on traditional wood productsand companies offering wood alternative products. Some of these competitors are larger in size
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and have greater financial resources than we do. The current market is generally fragmented,although we believe one competitor may have more than a 30% market share. We believe that ourestablished building products distribution channels will enhance our ability to competesuccessfully in this market.**Specialty Fabric Technologies**     Specialty Fabric Technologies is a marketing division developed to create brand awareness andpromote increased sales of our nonwoven specialty fabrics products and VersaShield fire barriertechnology. This division focuses on marketing nonwoven fabrics to other roofing manufacturers andto high-growth markets, such as air filtration and carpet tile. Nonwoven specialty fabrics aremanufactured by our Ennis, Texas nonwoven fabrics subsidiary. As the majority of these sales areroofing related, the operating results of this portion of Specialty Fabric Technologies arereported in the Premium Roofing Products segment.     Firebarrier products, which include fire retardant fabrics for mattresses, bed clothesand upholstered furniture, are manufactured through our Elk Technologies, Inc. subsidiary. Whilethese activities are outside our focus on building products platforms, we believe that potentiallysignificant demand for products utilizing this technology could result from trends toward morestringent flammability safety laws and regulations for mattresses and upholstered furniture. Thisnew business has produced a limited amount of commercial sales to date. The operations of ElkTechnologies, Inc. are included in Other, Technologies for segment reporting purposes.**Chromium**     Chromium does not fit into our focus on building products platforms and has been positionedfor sale. However, if it is not sold, it will continue as one of our business platforms.Chromium’s operations are included in Other, Technologies for segment reporting purposes. Chromiumis a leader in plating proprietary finishes for use in remanufacturing large diesel engine cylinderliners, pistons and valves for the railroad and marine industries. Chromium also manufactures wearplate products utilizing its proprietary CRODON® hard chrome finish. These wear plate products aredesigned to extend the service life of steel machinery components operating in abrasiveenvironments for a number of industries, including roofing manufacturing, mining and public utilityindustries.     We believe that Chromium is a leading remanufacturer of diesel engine cylinder liners andpistons for the railroad and marine transportation industries and is the primary supplier of hardchrome plated finishes for original equipment diesel engine cylinder liners to the major domesticlocomotive manufacturers. We believe it has smaller competitors in the locomotive diesel enginecylinder liner market, but competes with larger, better capitalized manufacturers in certainmarkets. Chromium has achieved a leading position in remanufacturing markets through productperformance, quality, service and price. In addition, technical innovations that enhance qualityand performance are also increasing the value-added content per unit produced.**Discontinued Operations**     Cybershield, Inc., through subsidiaries (collectively Cybershield) was engaged in shieldingplastic enclosures from electromagnetic and radio frequency interference. In fiscal 2004, weconcluded that the risk and prospects for future success of Cybershield did not justify theadditional investment of capital and other resources required to continue Cybershield’s operations.Accordingly, the decision was made to discontinue Cybershield and to sell its operations or itsassets. We had previously decided to sell Cybershield’s Canton, Georgia facility. In the firstquarter of fiscal 2005, we sold substantially all assets of Cybershield, excluding the Canton,Georgia facility, to the Cybershield management group. In the third quarter of fiscal 2005, we soldthe Canton, Georgia facility and certain equipment to an unrelated party. The only remainingassets of the former Cybershield operation are immaterial amounts of equipment held for sale.     Ortloff Engineers, LTD (Ortloff) was engaged in licensing proprietary technologies andproviding related engineering services to the natural gas processing industries, with particularemphasis on the natural gas liquids recovery, sulfur recovery and liquefied natural gas segments.Although Ortloff had a long history of success and profitability, in fiscal 2005 we concluded thatit did not fit into our focus on building products platforms and it was positioned for sale. Inthe fourth quarter of fiscal 2005, Ortloff was sold to a financial buyer for cash. We will notparticipate in Ortloff’s management or ongoing operation in any manner, although we retained$4,400,000 in long-term license receivables, which the purchaser will collect on our behalf for aservice fee. In addition, we retained a portion of contingent license fees on certain projectsthat were in process at the date of sale. The maximum future benefit of contingent license fees isapproximately $2,100,000, although there is no assurance that any of these contingent fees willultimately be realized.
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**Raw Materials**     For our building products platforms, the significant raw materials are ceramic coatedgranules, asphalt, glass fibers, resins, mineral filler, polypropylene, wood particles and variousadditives for product preservation. All of these materials are presently available from severalsources and are in adequate supply. However, temporary shortages or disruption in supply of rawmaterials do result from time to time for a variety of reasons. Asphalt costs, which are asignificant cost component of our roofing products, can be materially affected by trends in crudeoil prices and our cost of sales can vary as a result of changes in the price and availability ofasphalt. With the surge in the price of crude oil in fiscal 2005, asphalt costs have reachedrecord levels. We have historically been able to pass some of the higher raw material costs throughto the customer, but there is no assurance of being able to do so in the future.     In Chromium’s business of hard chrome plating and remanufacturing diesel engine cylinderliners, chromic acid is a significant raw material and is presently available from a number ofdomestic suppliers. We believe these domestic suppliers obtain the ore for manufacturing chromicacid principally from sources outside the United States, some of which may be subject to politicaluncertainty. We believe our suppliers maintain substantial inventories of chromic acid in order tominimize the potential effects of foreign interruption in ore supply.**Transportation**     The majority of our building products are shipped by rail, common carrier, or by customervehicles from our manufacturing plants or warehouses. Shipping costs are a significant componentof cost of sales. Agreements with our common carriers typically allow for surcharges as a resultof increasing fuel prices. Further, carriers are subject to the rules issued by the U.S.Department of Transportation which govern truck drivers’ hours of service that have and willcontinue to impact our shipping costs. Historically, we have been able to pass along some of ourhigher transportation costs through to the customer, but there is no assurance of being able to doso in the future.**Backlog**     Our backlog is generally not significant (less than one month of sales), nor is it material toour building products platforms. However, at June 30, 2005, our roofing backlog in the Southeastand Northeast United States was larger than normal due to continuing demand as a result ofhurricane activity in these regions.**Patents**     We own a number of patents and trade secrets covering certain products and processes. Webelieve that the rights under our patents are important to our operations, but we do not considerany individual patent or group of patents related to a specific product or process to be materialto our total business.**Research and Development**     Our research activities are primarily conducted at a technology center in Ennis, Texas. Ourproduct development activities are conducted at the Ennis technology center and at each of ourplant locations. Research and development costs are expensed as incurred and included in cost ofsales. Expenses for research activities at the Ennis technology center were $3,348,000, $2,300,000and $1,649,000 in fiscal 2005, 2004 and 2003, respectively. Development costs at plant locationsare not separately identified.**Strategies**     We strive to be the brand of choice in every aspect of our building products platforms. Toaccomplish this goal, we strive to develop and manufacture premium products with consistent qualityand provide excellent service to our customers.
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The key objectives of the building products platforms are summarized as follows: **•** Strive to be the “Brand of Choice” to all of our customers.  **•** Improve raw material supply chain to achieve “best cost” in major raw materialcategories, including special emphasis on asphalt and granules.  **•** Improve yields and return on assets at all plants.  **•** Make infrastructure improvements, including developing systems and procedures tomanage shipping activities at an optimal level.  **•** Launch key/new and/or increase market penetration of recently introduced shingleproducts and increase emphasis on accessory roofing products.  **•** Continue to expand the composite products business and to develop products of thehighest quality consistent with Elk’s quality brand image.  **•** Acquire new building product platforms that can leverage the Elk brand, complementthe existing distribution channel or reinforce and expand existing technology.**Extended Payment Terms**     Our building products platforms typically provide extended payment terms to certain customersfor products shipped during the late winter and early spring months, with payment generally dueduring late spring or early summer. As of June 30, 2005, $2,810,000 in receivables relating tosuch shipments were outstanding. All such receivables are due in the first quarter of fiscal 2006.**Seasonal Business**     Except in years when unusual weather events disrupt normal cyclicality (as was the case infiscal 2005 due to four hurricanes in the Southeast United States), our building products platformsare seasonal to the extent that cold, wet or icy weather conditions during the late fall and wintermonths in some of our marketing areas typically limit the installation of residential buildingproducts. This seasonality causes sales to be generally slower during such periods. Damage toroofs from extreme weather such as severe wind, hurricanes and hail storms can result in higherdemand for periods up to eighteen to twenty-four months depending upon the extent of roof damage.Working capital requirements generally fluctuate during the year because of seasonality.Typically, working capital requirements and borrowings are higher in the spring and summer months,and lower in the fall and winter months. Related liquidity and/or borrowings increase or decreaseduring the year as a result of working capital fluctuations.**Environmental Matters**     ElkCorp and its subsidiaries are subject to federal, state and local requirements regulatingthe discharge of materials into the environment, the handling and disposal of solid and hazardouswastes, and protection of the public health and the environment generally (collectively,Environmental Laws). Certain facilities of our subsidiaries ship waste products to various wastemanagement facilities for treatment or disposal. Governmental authorities have the power torequire compliance with these Environmental Laws, and violators may be subject to civil or criminalpenalties, injunctions or both. Third parties may also have the right to sue for damages and/or toenforce compliance and to require remediation of contamination. If there are releases or if thesefacilities do not operate in accordance with Environmental Laws, or their owners or operatorsbecome 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 thecosts of cleaning up contamination resulting from past spills, disposal, and other releases ofhazardous substances. In particular, an entity may be subject to liability under the FederalComprehensive Environmental Response, Compensation and Liability Act (CERCLA or Superfund) andsimilar state laws that impose liability — without a showing of fault, negligence, or regulatoryviolations — for the generation, transportation or disposal of hazardous substances that havecaused, or may cause, environmental contamination. In addition, an entity could be liable forcleanup of property it owns or operates even if it did not contribute to the contamination of suchproperty. From time to time, we or our subsidiaries, may incur such remediation and related costsat the company-owned plants and certain offsite locations maintained by other parties.     Chromium has engaged in limited remediation activities at the site of its former platingoperation in Lufkin, Texas. Soil sampling results from a pre-closing environmental evaluation ofthe site indicated the necessity of localized cleanup. Chromium has entered the property into theTexas Voluntary Cleanup Program (VCP). Under this program, the Texas Commission on EnvironmentalQuality (TCEQ) reviews the voluntary clean-up plan the applicant submits, and,
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when the work is complete, issues a certificate of completion, evidencing cleanup to levelsprotective of human health and the environment and releasing prospective purchasers and lendersfrom liability to the state. Properties entered into the VCP are protected from TCEQ enforcementactions.     In fiscal 2004, Chromium completed a supplemental groundwater and soil assessment at theLufkin facility. The assessment further defined the horizontal and vertical extent of metals insoils, assessed the horizontal extent of metals in groundwater, and estimated the direction ofgroundwater movement. Chromium submitted its Affected Property Assessment Report (APAR) to theTCEQ. In June 2004, the TCEQ issued a letter accepting Chromium’s APAR in substantially allrespects, indicating that no further assessment of the extent of contamination was necessary.Chromium is finalizing a proposed Remedial Action Plan (RAP) to the TCEQ in which it will proposeactivities and engineering controls to clean up the site under the VCP to a site specificrisk-based clean-up standard as prescribed by the Texas Risk Reduction Program. The companybelieves that current findings indicate that remediation activities will be similar to a planutilized at another Chromium plant. This assessment, in conjunction with projections developed infinalizing the proposed RAP that are site specific, resulted in the company recording an accruedliability of $700,000 in fiscal 2005. Certain other scenarios, none of which are reasonablyexpected at this time, could potentially result in material costs to the company.     Our operations are subject to extensive Environmental Laws. Other than the possible costsassociated with the previously described Chromium matter, we do not believe we will be required toexpend amounts which will have a material adverse effect on our consolidated results of operations,financial position or liquidity. We establish and maintain reserves for such known or probableremediation activities in accordance with SFAS No. 5 and AICPA Statement of Position 96-1. Suchenvironmental laws are frequently changed and could result in significantly increased cost ofcompliance. We anticipate that our subsidiaries will incur costs to comply with EnvironmentalLaws, including remediating any existing non-compliance with such laws and achieving compliancewith anticipated future standards for air emissions and reduction of waste streams. Suchsubsidiaries expend funds to minimize the discharge of materials into the environment and to complywith governmental regulations relating to the protection of the environment. Further, certain ofour manufacturing operations utilize hazardous materials in their production processes. As aresult, we incur costs for recycling or disposal of such materials and may incur costs forremediation activities at our facilities and off-site from time to time.**Persons Employed**     At June 30, 2005, we and our subsidiaries had 1,194 employees. Of this total, 818 wereemployed in the Premium Roofing Products segment, 116 were employed in the Composite BuildingProducts segment, 87 were employed in the Other, Technologies segment, and 173 (including mostsales personnel) were employed by the corporate office. Included in these totals are 219 employeeswho are represented by labor unions. RGM Products, Inc., acquired by ElkCorp on August 25, 2005,has 383 employees, none of which are represented by labor unions. We believe that we have goodrelations with our employees and the labor unions.**Risks Relating To The Company**     **Competitive Conditions**     Our building products businesses can be affected by weather, the availability of customerand/or end-user financing, insurance claims-paying practices, and general economic conditions. Inaddition, our building products manufacturing businesses are highly competitive. Actions ofcompetitors, including changes in pricing, or slowing demand for asphalt roofing products due togeneral or industry economic conditions or the amount of inclement weather could result indecreased demand for our products, lower prices received or reduced utilization of plantfacilities. Further, changes in building and insurance codes and other standards from time to timecan cause changes in demand, challenges in meeting refined product specifications, or increases incosts 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-coatedgranules, asphalt, glass fibers, resins, mineral filler, polypropylene, wood particles and variousadditives for product preservation. Increased costs of raw materials can result in reducedmargins, as can higher energy, trucking and rail costs. Historically, we have been able to passsome of the higher raw material, energy and transportation costs through to the customer. Shouldwe be unable to recover higher raw material, energy and/or transportation costs, including highertrucking costs resulting from
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regulatory changes in the trucking industry, through price increases of our products, operatingresults could be adversely affected and/or lower than projected.     **Temporary Shortages or Disruptions**     Temporary shortages or disruptions in the supply of raw materials or the availability oftransportation do result from time to time from a variety of causes. If we experience temporaryshortages or disruptions in the supply of raw materials or the availability of transportation,operating results could be lower than projected.     **Productivity of New Facilities**     We have been involved in a significant expansion plan over the past several years, includingthe construction of new facilities and the expansion of existing facilities. Progress in achievinganticipated operating efficiencies and financial results is difficult to predict for new andexpanded plant facilities. If such progress is slower than anticipated, or if demand for productsproduced at new or expanded plants does not meet current expectations, operating results could belower than projected.  **Utilization of Hazardous Materials**     Certain facilities of our subsidiaries must utilize hazardous materials in their productionprocess. As a result, we could incur costs for remediation activities at our facilities oroff-site and other related exposures from time to time in excess of established reserves for suchactivities.  **Litigation and Claims**     We are involved in various legal proceedings and claims, including claims arising in theordinary course of business. Our litigation and claims are subject to inherent and case-specificuncertainty. The outcome of such litigation and claims depends on numerous interrelated factors,many of which cannot be predicted.     **Higher Interest Rates**     We currently anticipate that most of our needs for new capital in the near future will be metwith current amounts of cash, cash equivalents and short-term investments, internally generatedfunds and borrowings under our available credit facilities. Significant increases in interestrates could substantially affect our borrowing costs or our cost of alternative sources of capital.     **Loss of Key Customers**     The majority of our sales are in the Premium Roofing Products and Composite Building Productssegments, and our primary customers are building products distributors. The ten largest customersin these combined segments account for approximately 50% of annual consolidated sales and onecustomer accounts for 19% of consolidated sales. Our businesses each could suffer significantsetbacks in revenues and operating income if we lost one or more of our largest customers, or ifour customers’ plans and/or markets should change significantly.     **Physical Loss to Manufacturing Facilities**     Although we insure ourselves against physical loss to our manufacturing facilities, includingbusiness interruption losses, natural or other disasters and accidents, including but not limitedto fire, earthquake, damaging winds, explosions and other casualties, operating results could beadversely affected if any of our manufacturing facilities became inoperable for an extended periodof time due to these insured events or other non-insured events, including but not limited to actsof God, war or terrorism.     **Development of New Products**     Each of our businesses is actively involved in the development of new products, processes andservices which are expected to contribute to our ongoing long-term growth and earnings. Consumerproducts using VersaShield fire retardant coatings have produced a limited amount of commercialsales to date. Its market potential may be dependent on the stringency of federal and stateregulatory requirements, which are difficult to predict. Further, our composite building productsoperation is producing and selling a new generation of decking products. We believe that this newgeneration of
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products will allow this business to achieve sustained operating profitability. Our compositebuilding products operation is also developing products for use in various industrial applications.If such developmental activities are not successful, regulatory requirements are less stringentthan currently predicted, market demand is less than expected, we experience unanticipated productperformance issues or delays in achieving target product specifications, or we cannot provide therequisite financial and other resources to successfully commercialize such developments, the growthof future sales and earnings may be adversely affected.     **Technological Changes**     Each of our businesses is subject to the risks of technological changes and competition thatis based on technology improvement or labor savings. These factors could affect the demand for orthe relative cost of our technology, products and services, or the method and profitability ofdistribution or delivery of such technology, products and services.**Item 2. Properties**     All manufacturing facilities, except for our Composite Building Products facility in Lenexa,Kansas (which is leased), are owned by ElkCorp and its subsidiaries and are not subject to anysignificant encumbrances. Our corporate headquarters is located in leased offices at 14911 QuorumDrive, Suite 600, Dallas, Texas 75254.     Premium shingle products and accessories are manufactured at plants located in Ennis, Texas;Shafter, California; Myerstown, Pennsylvania; two adjacent plants in Tuscaloosa, Alabama; and sinceour August 25, 2005 acquisition of RGM Products, Inc., in Fresno, California. Fiberglass roofingmat, nonwoven industrial, reinforcement and filtration products are manufactured on two parallelproduction lines located in Ennis, Texas. Composite building products are manufactured at leasedfacilities in Lenexa, Kansas. As of June 30, 2005, remote leased warehouse storage locations weremaintained in (1) Denver, Colorado, (2) Plant City, Florida, (3) Greenville, South Carolina, (4)Tacoma, Washington, (5) Edgerton, Wisconsin, and (6) Richmond, British Columbia, Canada. Inaddition, some of our roofing plants lease storage space near their operating locations.     Corporate headquarters and administrative offices for Premium Roofing Products and CompositeBuilding Products operations are located in the same leased facility as our corporate offices inDallas, Texas.     Chromium’s operating facilities are located in Cleveland, Ohio. Corporate headquarters andadministrative offices for Chromium are located at the same leased facility as our corporateoffices in Dallas, Texas.     Elk Technologies operates out of administrative offices located at the same leased facility asour corporate offices in Dallas, Texas. It also maintains a leased storage warehouse location inVernon, California.     Cybershield’s operating facility in Lufkin, Texas was sold in the first quarter of fiscal2005. Its Canton, Georgia facility was sold in the third quarter of fiscal 2005. Ortloff’soperations, which were sold in the fourth quarter of fiscal 2005, were located in leased offices inMidland, Texas. We have no remaining properties for these discontinued operations.**Item 3. Legal Proceedings**     There are various lawsuits and claims pending against ElkCorp and its subsidiaries. In theopinion of management, based in part on advice of counsel, none of these actions should have amaterial adverse effect on our consolidated results of operations, financial position, orliquidity.**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 yearended June 30, 2005.
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**Item 4A. Executive Officers of the Registrant**     Certain information concerning our executive officers is set forth below:             Period Age as of    Served August 1,Name Title As Officer 2005Thomas D. Karol Chairman of the Board andChief Executive Officer ofElkCorp and each building productssubsidiary; Officer and Director ofall subsidiaries except one 4years  47         Richard A. Nowak President and Chief OperatingOfficer of ElkCorp and eachbuilding products subsidiary; Officerand Director of all subsidiariesexcept one 4years  63         David G. Sisler Senior Vice President, GeneralCounsel and Secretary of ElkCorp;Officer of and Counsel to allsubsidiaries except one; Directorof one subsidiary 10years  47         James J. Waibel Senior Vice President,Administration of ElkCorp 11years  61         Matti Kiik Senior Vice President, Researchand Development of ElkCorp 4years  63         Gregory J. Fisher Senior Vice President, Chief Financial Officerand Controller of ElkCorp 4years  54         Curt A. Barker Senior Vice President, Salesand Marketing of ElkCorp 1month  48         Leonard R. Harral Vice President, Chief Accounting Officerand Treasurer of ElkCorp;Director of one subsidiary 11years  53     All of the executive officers except Mr. Karol have been employed by ElkCorp or itssubsidiaries in responsible management positions for more than the past five years. Mr. Nowak, Mr.Kiik, Mr. Fisher and Mr. Barker were employed in responsible management positions at an ElkCorpsubsidiary company for more than the past five years.     On February 5, 2001, Mr. Karol was elected by the Board of Directors as President and ChiefExecutive Officer of ElkCorp effective March 26, 2001. On March 31, 2002, Mr. Karol was elected bythe Board of Directors as Chairman of the Board and Chief Executive Officer. From May 1991 untilits purchase by Beaulieu of America in December 1999, Mr. Karol served as Chief Executive Officerof Pro Group Holdings, Inc., a privately owned manufacturer and distributor of carpet and flooringproducts. From December 1999 until January 2001, Mr. Karol was employed as President of theBrinkman Hard Surfaces Division of Beaulieu of America. Mr. Karol has served on ElkCorp’s Board ofDirectors since November 1998.     Officers are elected annually by the Board of Directors following the Annual Meeting ofShareholders.
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**PART II**     **Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and IssuerPurchases of Equity Securities**     The principal market on which our common stock is traded is the New York Stock Exchange. Ourcommon stock is also traded on the Boston, Midwest and Philadelphia Stock Exchanges. There were913 holders of record and approximately 5,400 beneficial owners of ElkCorp’s common stock on July31, 2005.     The quarterly dividend declared per share and the high and low sale prices per share of ourcommon stock for each quarter during fiscal year 2005 and fiscal year 2004 are set forth in thefollowing table:             Period Dividend High LowFiscal 2005            First Quarter $.05  $28.22  $20.17 Second Quarter $.05  $35.00  $25.70 Third Quarter $.05  $41.30  $31.75 Fourth Quarter $.05  $39.00  $26.25 Fiscal 2004            First Quarter $.05  $26.54  $21.80 Second Quarter $.05  $28.00  $23.35 Third Quarter $.05  $30.00  $26.11 Fourth Quarter $.05  $29.75  $21.50      Subject to the limitations discussed below, we currently intend to continue to pay quarterlydividends for the foreseeable future. However, the final determination of the timing, amount andpayment of dividends on our common stock is at the discretion of the Board of Directors and willdepend on, among other things, our profitability, liquidity, financial condition and capitalrequirements.     Limitations affecting the future payment of dividends are imposed as a part of our revolvingcredit facility. Total cumulative dividends and stock repurchased since November 30, 2000 aresubject 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 30,2005, such limitation was $64,591,000 and actual cumulative expenditures for these items were$18,991,000.Issuer Purchases of Equity Securities for Quarter Ended June 30, 2005:                           Total Number of  Maximum Number (or   Total Number      Shares Purchased  Approximate Dollar Value) of   of Shares  Average  as Part of Publicly  Shares That May Yet be   Purchased  Price Paid  Announced Plans  Purchased Under the Plans or Period (Notes 1 & 2)  per Share  or Programs  Programs (Note 3) April, 2005  15,528  $36.88   —  $10,600,000 May, 2005  32,160  $35.32   —  $10,600,000 June, 2005  —   —   —  $10,600,000               Total  47,688  $35.76   —                   
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 (1) Includes repurchase of 1,245 shares from officers and employees in connection with stockoption exercises and repurchased restricted shares for income tax withholding payments. (2) As a result of participant diversification directives, the ElkCorp ESOP Trustaccumulates a surplus of unallocated shares from time to time. In the quarter endedJune 30, 2005, we purchased 46,443 shares from the ElkCorp ESOP Trust. The dollarvalue of this repurchase transaction is reflected in the consolidated statement ofshareholders’ equity but has no impact on previously announced repurchase programsoutlined in (3). (3) 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 generalcorporate purposes. On August 28, 2000, the Board of Directors authorized therepurchase of an additional $10,000,000 of common stock. No common stock wasrepurchased on the open market in fiscal 2005, and the most recent share repurchaseunder these authorizations was December 4, 2000. The authorizations did not specify anexpiration date. Purchases may be increased, decreased or discontinued by the Board ofDirectors at any time without prior notice.**Item 6. Selected Financial Data**     The selected consolidated financial data set forth below should be read in conjunction with“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and theconsolidated financial statements and notes thereto included elsewhere in this report.     **FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA**                       ($ In thousands, except per share data)  Year Ended June 30,   2005  2004  2003  2002  2001 Sales $761,719  $566,041  $474,434  $468,502  $347,425                 Income (Loss):                    From continuing operations $42,696  $30,066  $21,206  $18,050  $8,191 From discontinued operations  4,171   (9,560)  2,894   (2,957)  571                                      Net Income $46,867  $20,506  $24,100  $15,093  $8,762                                      Income(Loss) Per Share — Basic:                    From continuing operations $2.16  $1.53  $1.09  $.93  $.42 From discontinued operations  .21   (.48)  .15   (.15)  .03                                      Net Income Per Share — Basic $2.37  $1.05  $1.24  $.78  $.45                                      Income(Loss) Per Share —Diluted:                    From continuing operations $2.11  $1.51  $1.08  $.92  $.42 From discontinued operations  .20   (.48)  .15   (.15)  .03                                      Net Income Per Share — Diluted $2.31  $1.03  $1.23  $.77  $.45                 Total Assets $613,569  $480,708  $442,291  $381,428  $360,048                 Long-Term Debt $200,146  $156,858  $152,526  $119,718  $123,300                 Shareholders’ Equity $270,810  $215,042  $196,528  $176,092  $162,102                 Cash Dividends Per Share $.20  $.20  $.20  $.20  $.20                      In the first quarter of fiscal 2005, we sold our Cybershield business and in the fourthquarter of fiscal 2005, we sold our Ortloff business. Our Five-Year Summary of Selected FinancialData reflects these two businesses as discontinued operations.
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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 primarily a manufacturer of Elk premium roofing andcomposite building products. We strive to be the brand of choice in each of our businesses. Infiscal 2005, we intensified our focus on our building products platforms, including selling orpositioning for sale several of the businesses that do not fit into this focus. Additionally, onAugust 25, 2005, we acquired RGM Products, Inc., a privately-held manufacturer of high-profile hipand ridge and other roofing related products based in Fresno, California, for approximately$24,300,000 in cash and the assumption of approximately $10,700,000 of indebtedness. Thisacquisition enhances our current roofing accessories business and allows us to offer the broadestridge product line in the industry. RGM Products, Inc. posted 2004 revenues of approximately$57,000,000.     Within the building products sector we have two segments, Premium Roofing Products, whichmanufactures premium laminated fiberglass asphalt shingles and accessory products, coated anduncoated nonwoven fabrics used in asphalt shingles and other applications, and Composite BuildingProducts, a relatively new platform that manufactures composite wood decking, railing, marine dock,fencing and other OEM products. Although reported as separate operating segments, products fromboth segments are manufactured for and marketed primarily to the building products industry underthe “Elk Premium Building Products” brand name and meet most of the aggregation criteriaestablished by SFAS 131, “Disclosures about Segments of anEnterprise and Related Information.” Products from both segments are sold primarily through the same wholesaledistribution channels and the ultimate “customers” for both segments are professional installationcontractors and homeowners. Together these two building products segments account for greater than95% of consolidated sales and operating profit. Previously, these two segments were combined andreported as the Building Products segment. Prior period financialinformation has been reclassified toreflect the change in our reporting of business segments.     The focus of our businesses is innovative product development, manufacturing excellence andsuperior customer service. Fiscal 2005 was a year noteworthy for record demand for laminatedshingles, particularly in the Southeast region and certain other areas of the United States thatwere affected by four hurricanes in the summer and early fall of calendar year 2004. Higheroverall demand led to improved pricing in the majority of our markets throughout the country, butparticularly in the Southeast United States. Our shingle shipments increased 24% compared tofiscal 2004 and average selling prices increased 9%.     Higher transportation, energy and raw materials costs, particularly asphalt costs, presented asignificant challenge throughout fiscal 2005. As a result of improved selling prices, we were ableto maintain higher margins on shingle pricing over transportation, energy and raw material costs infiscal 2005 compared to the prior fiscal year. We expect a continuation of strong roofing demandin fiscal 2006, fueled by longer than anticipated hurricane demand for our roofing products inFlorida. Rising average selling prices should help to offset raw material, energy, andtransportation costs that are being affected by record price levels for crude oil.     We benefited significantly from the start-up of our new Tuscaloosa, Alabama facility at thebeginning of fiscal 2005. Even though the new plant increased our operating costs, productivitywas better than our expectations for this new facility for most of fiscal 2005. The plant achievedits initial rated capacity in the third quarter of fiscal 2005. At rated capacity, the newTuscaloosa plant increased our overall capacity by about 25%. We expect this facility to continueto improve its production capabilities in the future, but at a slower rate than we experienced infiscal 2005.     Our composite building products business was a challenge in fiscal 2005, resulting indisappointing financial results. Customer specification modifications, internal formulationchanges and refinements, inventory valuation adjustments and higher than expected costs associatedwith the ramp-up of this business platform all contributed to the current year loss in thisplatform. However, we believe in this new platform’s ability to meet its long-term goals, and wehave made enhancements to its management structure, invested in new capacity and finalized newagreements for our non-decking products. We believe these changes will position us to takeadvantage of significant potential growth opportunities in this business platform.     Our two dissimilar businesses are combined and reported as Other, Technologies, as neitherindividually meet the materiality criteria for separate segment reporting. These operationsinclude (1) Chromium Corporation (Chromium), which is a leading provider of hard chrome and othersurface finishes designed to extend the life of steel machinery components operating in abrasiveenvironments, and (2) Elk Technologies, Inc., which develops and markets fabrics
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featuring VersaShield fire retardant coatings designed for use outside of traditional buildingproducts applications, including bedding, home furnishings and other consumer products.     In fiscal 2004, we made the decision to discontinue Cybershield, Inc. (Cybershield) and tosell Cybershield or its assets. In the current fiscal year, we sold substantially all of theassets of Cybershield. Early in fiscal 2005, we concluded that Ortloff Engineers, LTD (Ortloff)and Chromium do not fit into our focus on building products platforms and positioned them for sale.In the fourth quarter of fiscal 2005, Ortloff was sold for cash to a financial buyer. Chromiumremains positioned for sale but will remain as one of our business platforms if it is not sold.**Performance Data**     The following table and subsequent discussion set forth performance data from our continuingoperations, expressed as a percentage of sales for the periods indicated. This data and theaccompanying discussion and analysis should be read in conjunction with the Consolidated FinancialStatements and Notes to Consolidated Financial Statements included elsewhere herein.               Year Ended June 30,   2005  2004  2003 Sales  100.0%  100.0%  100.0%Cost of sales  80.6   80.1   81.6           Gross margin  19.4   19.9   18.4 Selling, general and administrative  9.2   10.5   10.0           Operating income  10.2   9.4   8.4 Interest expense, net and other  1.3   0.9   1.2           Income from continuingoperations before income taxes  8.9   8.5   7.2 Provision for income taxes  3.3   3.2   2.7           Income from continuingoperations  5.6%  5.3%  4.5%          **Fiscal 2005 Compared to Fiscal 2004****Overall Performance**     Sales from continuing operations of $761,719,000 during the year ended June 30, 2005 were 34.6% higher than $566,041,000 in fiscal 2004. During the year ended June 30, 2005, operating incomefrom continuing operations of $77,848,000 was 45.9% higher than the $53,346,000 last year. Salesof premium roofing shingles and accessory products increased substantially in the current yearcompared to last year, due to a significant increase in shingle unit volume, which was aided byshipments from the new Tuscaloosa production facility, overall improvements in productionperformance, and higher average selling prices. The percentage of cost of sales to sales increasedto 80.6% in the year ended June 30, 2005 compared to 80.1% last year. A higher than expected lossat the Lenexa, Kansas composite building products operation was the primary factor in the overalllower gross margin during fiscal 2005. Selling, general and administrative (S,G&A) costs of$69,946,000 in fiscal 2005 were 17.6% higher than $59,482,000 last year due primarily to increasedselling expense and performance based compensation expense. However, due to substantially increasedbusiness activity and higher selling prices, S,G&A was only 9.2% of sales in fiscal 2005 comparedto 10.5% in fiscal 2004.     Interest expense was $10,571,000 in fiscal 2005 compared to $5,444,000 in fiscal 2004 dueprimarily to higher debt levels, increasing interest rates and less capitalized interest. For theyear ended June 30, 2005, $754,000 of interest was capitalized related to the expansion of theLenexa, Kansas facility and other significant capital projects. In fiscal 2004, $3,079,000 ofinterest was capitalized, much of which related to construction of the new roofing plant inTuscaloosa, Alabama, which is now in service. Increased interest rates on variable rate debtaccounted for an approximate $1,500,000 year-to-year increase in total interest cost. Averageborrowings, net of cash, cash equivalents and short-term investments, were approximately $8,300,000higher in fiscal 2005 compared to fiscal 2004. The average interest rate paid on indebtedness was5.8% in fiscal 2005 compared to 5.0% in fiscal 2004 as a result of higher variable interest ratesand an additional $50,000,000 in senior notes issued in November 2004 with a 6.28% fixed interestrate.
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     Our effective tax rate for income from continuing operations was 36.7% during fiscal 2005compared to 37.4% in fiscal 2004. The lower current year rate was primarily attributable to lowerstate income taxes resulting from state investment tax credits from expansion programs.     In fiscal 2004, we made the decision to exit Cybershield’s business. In fiscal 2005 bothCybershield and Ortloff were sold. Both Cybershield’s and Ortloff’s results for each periodpresented are reported as discontinued operations. In the year ended June 30, 2005, we reportedpretax income from discontinued operations of $6,811,000. In fiscal 2004, we reported a $14,615,000pretax loss from discontinued operations. The fiscal 2005 results included a $6,484,000 pretaxgain on the disposal of Ortloff. Fiscal 2004 results included $12,346,000 of write-downs ofCybershield’s net assets to estimated market value.**Results of Business Segments**     Sales in the Premium Roofing Products segment increased 33.4% to $732,674,000 in fiscal 2005compared to $549,052,000 last year. Compared to fiscal 2004, unit volume increased 24% in fiscal2005. Shingle demand was extremely high for most of fiscal 2005 as a result of increased orders inmost regions of the United States, led by the Southeast United States and other areas affected byfour hurricanes in the summer and early fall of calendar 2004. We were able to benefitsignificantly from increased production capacity related to the new Tuscaloosa, Alabama roofingplant and productivity enhancements at all of our roofing facilities. Average shingle prices inthe current year increased 9% compared to last year, primarily as a result of price increases thatwere consistent with industry trends. Approximately 30% of a price increase in June 2005 has beenrealized, and an additional 5%-7% price increase has been announced for September 1, 2005. Theseincreases, if realized, should help offset rising asphalt and transportation costs. In fiscal2005, external sales of performance nonwoven fabrics increased 24.5% to $41,037,000 compared to$32,974,000 last year, primarily as a result of sales of specialty fabrics products, such asroofing mat, facer and filtration products.     Operating income for the Premium Roofing Products segment of $107,690,000 for the year endedJune 30, 2005 increased 55.4% from $69,292,000 achieved in the prior fiscal year. This significantimprovement in operating income was primarily attributable to the aforementioned increases in unitvolume and average selling prices. We were able to improve margins on premium asphalt shingleproducts as a result of higher average sales prices despite continuing increases in asphalt,energy, and transportation costs. Asphalt costs increased approximately 9% in the year ended June30, 2005 from fiscal 2004. Transportation costs have also continued to increase and wereapproximately 16% higher in the current year than in the prior fiscal year. The new Tuscaloosa,Alabama roofing plant reached its initial rated capacity in the quarter ended March 31, 2005. Inthe fourth quarter of fiscal 2005, the new Tuscaloosa facility experienced lower than expectedvolume due to unanticipated machine maintenance. The rate of progress in production has slowed atthis plant as these maintenance issues are addressed. Also in the fourth quarter of fiscal 2005,we encountered a silo failure in the granule storage system at our Myerstown facility that reducedproduction to approximately 90% of capacity. The plant has been able to return to 100% capacitywhile repairs are being made, although there can be no assurance that this level of production willbe sustainable throughout the repair process. Various engineering refinements designed toeliminate the problem areas at the Myerstown and Tuscaloosa plants are scheduled for completionduring the first half of fiscal 2006.     Sales of our Composite Building Products segment increased to $19,425,000 in fiscal 2005compared to $8,524,000 in the prior fiscal year, as we continue to develop this business platformby improving and increasing our product line so that we are in a position to take advantage ofbetter demand as consumers become more aware of the benefits of composite lumber compared to wood.We incurred an $11,822,000 operating loss in our composite lumber business in fiscal 2005 comparedto a $2,262,000 operating loss for this business in the prior year. Approximately $3,900,000 ofthe current year loss was attributable to costs associated with inventory for products that did notmeet our current formulations and customer specifications. We believe we have alleviated many ofthe problems surrounding the formulation and specifications issues through management changes andprocess control improvements made in the latter part of fiscal 2005. Additional fiscal 2005 lossesof approximately $3,500,000 resulted from the expansion of operations at our new manufacturingfacility in Lenexa, Kansas. Other factors contributing to the higher than expected fiscal 2005 losswere longer than anticipated code approval in various areas of the country, a slower than expectedramp up of new production, higher than anticipated raw material costs, and slower than projectedinitiation of new products for non-decking markets. In fiscal 2005, our composite distributionbase increased more than 50% to approximately 100 distributors in the United States and Canada. Webelieve in this new platform’s ability to meet its long-term goals. The enhancements in themanagement structure, in combination with capacity additions and finalizing new agreements for ournon-decking products are expected to allow us to take advantage of significant growth opportunitiesin this business platform.
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     In March 2005, the composite building products subsidiary completed the acquisition ofRailwayz Inc. (Railwayz), a privately held composite railing company. Railwayz manufacturesrailing products that will complement our CrossTimbers decking products and allow us to offer ourdistributors a more diverse decking and railing product line. The total purchase price wasapproximately $1,625,000, plus contingent future earn-out payments based on revenues for the firstfive years after acquisition with a maximum potential payment of $375,000.     The Other, Technologies companies reported combined sales of $9,620,000 in fiscal 2005compared to $8,465,000 in fiscal 2004. Chromium’s sales were $9,209,000, or 10.4% higher in thecurrent year compared to $8,339,000 in fiscal 2004 period as a result of slightly higher demand forplating and finishing services in existing locomotive and marine markets. The Other, Technologiescompanies had a combined operating loss of $1,231,000 in fiscal 2005, compared to a $100,000operating loss last year. Chromium recorded an operating profit of $144,000 for the year ended June30, 2005, which included a $700,000 reserve for estimated environmental clean-up at its formerplating operation located in Lufkin, Texas and a $210,000 provision for bad debt expenses. Thisoperating profit compares to a $598,000 operating profit achieved last year. Elk Technologiesincurred an operating loss of $1,375,000 in the year ended June 30, 2005, compared to an operatingloss of $698,000 in the same period last year. The current year operating loss included $582,000in inventory write-downs.**Fiscal 2004 Compared to Fiscal 2003****Overall Performance**     Sales from continuing operations of $566,041,000 in fiscal 2004 were 19.3% higher than$474,434,000 in fiscal 2003. During fiscal 2004, income from continuing operations of $30,066,000was 41.8% higher than $21,206,000 for the prior fiscal year. Included in income from continuingoperations in fiscal 2003 was $3,496,000 of benefit, net of tax, from the reversal of noncash stockoption compensation. Consolidated operating income from continuing operations of $53,346,000 infiscal 2004 was 33.4% higher than $40,001,000 in fiscal 2003. Operating income from continuingoperations in fiscal 2003 included a $5,378,000 pretax benefit as a result of the aforementionednoncash stock option compensation.     Cost of sales was 80.1% of sales in fiscal 2004 compared to 81.6% in fiscal 2003. Higherasphalt and other raw material costs during much of fiscal 2004 were largely offset by bettershingle pricing and increased shingle production, which reduced per unit manufacturing costs.Selling, general and administrative (SG&A) costs in fiscal 2004 were 25.3% higher than in the priorfiscal year, primarily as a result of increased business activity and higher marketing expenses.As a percentage of sales, SG&A costs were 10.5% of sales in fiscal 2004 compared to 10.0% in fiscal2003.     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 anadditional shingle plant in Tuscaloosa, Alabama, and other significant capital projects. In fiscal2003, $995,000 of interest was capitalized. The average interest rate paid on indebtedness was5.0% in both fiscal 2004 and fiscal 2003.     Our effective tax rate from continuing operations was 37.4% in fiscal 2004 and 37.7% in fiscal2003. The decrease in the effective tax rate in fiscal 2004 is primarily due to state tax creditsgenerated as a result of roofing plant production improvement initiatives.     In December 2003, we made the decision to exit Cybershield’s business. Cybershield’s resultsfor all periods presented are reported as discontinued operations. Discontinued operations forfiscal 2004 included a $4,831,000 pretax loss from operations at Cybershield, combined with pretax, noncashwrite-downs of $12,346,000 to reduce the book value of Cybershield’s assets to estimated marketvalue. In fiscal 2003, Cybershield reported a $1,081,000 pretax operating loss, all from operatingactivities. Ortloff, which is also reported as a discontinuedoperation, had pretax income of approximately $2,600,000 in fiscal2004, compared to approximately $5,800,000 in fiscal 2003.**Results of Business Segments**     Sales in the Premium Roofing Products segment increased 17.9% to $549,052,000 in fiscal 2004compared to $465,762,000 in fiscal 2003. The significant year-to-year increase in sales isprimarily the result of an $81,042,000, or 18.6%, increase in sales of premium shingles andaccessory products. Compared to the same period in fiscal 2003, unit shingle shipments increased14.2%, with most regions of the United States experiencing strong year-to-year growth. Asignificant 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 shinglepricing increased about 2.8% compared to fiscal 2003. In fiscal 2004, external sales ofperformance nonwoven fabrics increased $2,248,000, or 7.3% to $32,974,000
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compared to $30,726,000 in fiscal 2003. Approximately two-thirds of roofing mat produced in bothfiscal 2004 and fiscal 2003 was used for internal consumption. Internal sales of roofing mat areeliminated in consolidation.     Operating income for the Premium Roofing Products segment of $69,292,000 for fiscal 2004increased 42.4% compared to $48,669,000 achieved in fiscal 2003. Operating income gainsattributable to higher unit sales and pricing were partially offset by increased manufacturingexpenses, raw material price increases, higher transportation costs and unusually highdevelopmental costs related to new product offerings in the roofing business.     Sales of Composite Building Products were $8,524,000 in fiscal 2004. We entered the CompositeBuilding Products business in the second quarter of fiscal 2003 and reported $1,240,000 in sales infiscal 2003. We incurred an operating loss of $2,262,000 for the Composite Building Productsbusiness during fiscal 2004 compared to a $2,768,000 operating loss in fiscal 2003.     The Other, Technologies companies reported combined sales of $8,465,000 in fiscal2004 compared to $7,432,000 in fiscal 2003. Chromium’s sales were 12.4% higher in fiscal 2004compared to fiscal 2003 as a result of increased demand for plating and finishing services inexisting locomotive and marine markets, combined with increased hard-chrome wear plate sales. ElkTechnologies had a nominal level of sales of fire retardant mattress fabrics during fiscal 2004.Other, Technologies companies had a combined operating loss of $100,000 in fiscal 2004, compared toan operating loss of $511,000 in fiscal 2003. The improvement was due primarily to higher salesactivity levels at Chromium which recorded an operating profit of $598,000 in fiscal year 2004compared to incurring a small operating loss in fiscal 2003.**Financial Condition****Overview**     Our liquidity needs generally arise principally from working capital requirements, capitalexpenditures, dividends, and interest payments. Our working capital requirements typicallyfluctuate 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 andwinter months. Due to unprecedented demand for roofing products caused by four hurricanes in theSoutheast United States in early fiscal 2005, our business was less seasonal this year than normal.During the three years ended June 30, 2005, we relied primarily on internally generated funds andproceeds from the sale of senior unsecured notes to finance our capital expenditure requirementsand other growth opportunities. We typically use our revolving credit facility (Facility) tofinance higher working capital requirements. Due to strong cash flow in fiscal 2005 and theissuance of an additional $50,000,000 in senior unsecured notes on November 15, 2004, we used theFacility sparingly in fiscal 2005, and did not borrow under the Facility in the second half of theyear. At June 30, 2005, we had $78,421,000 in cash, cash equivalents and short-term investmentsavailable to fund growth opportunities, capital expenditures and other cash requirements.Approximately $24,300,000 of available funds was utilized on August 25, 2005 in connection withthe acquisition of RGM Products, Inc.**Operating Activities**     We generate cash flows from operating activities primarily from income from operations, afterconsideration of deferred taxes, stock based compensation, stock option income tax benefits,depreciation and amortization. Cash flows from operating activities also either increase ordecrease by changes in working capital requirements. For the year ended June 30, 2005, wegenerated cash of $71,790,000 from operating activities, compared to $50,648,000 in fiscal 2004 and$23,072,000 in fiscal 2003.     Trade receivables at June 30, 2005 were $39,114,000 higher than at June 30, 2004 due primarilyto higher shipments of premium roofing products in the fourth quarter of the current fiscal yearcompared to the fourth quarter of fiscal 2004. In accordance with normal industry practices,extended payment terms are granted to certain customers for roofing products shipped during thelate winter and early spring months, with payments generally due during the spring and earlysummer. At June 30, 2005, receivables from customer programs with extended due dates were$2,810,000 compared to $5,662,000 at June 30, 2004. Extended term receivables outstanding at June30, 2005 are due in the first quarter of fiscal 2006. At June 30, 2005, manufactured inventorieswere $9,288,000 higher than at June 30, 2004. Much of the increase related to higher inventoriesat the new Tuscaloosa, Alabama facility, and at the composite building products business platformfrom increasing production capacity. Current liabilities were significantly higher in fiscal 2005,due primarily to cash management initiatives, increased compensation related accruals, andincreased business activities. The current ratio was 3.5 to 1 at June 30, 2005 compared to 3.2 to1 at June 30, 2004.
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**Investing Activities**     Cash flows from investing activities primarily reflect our capital expenditure strategy,together with activity relating to short-term investments. Net cash used for investing activitieswas $107,195,000 in fiscal 2005 compared to $63,368,000 in fiscal 2004, and $51,749,000 in fiscal2003. We purchased short-term investments (net of investment salesand redemptions of short-terminvestments) of $69,160,000 in fiscal 2005. These investments will be used to fund operations andgrowth opportunities, including acquisitions. Approximately $24,300,000 of these funds was used inour August 25, 2005, acquisition of RGM Products, Inc. Approximately $23,900,000 of fiscal 2005capital expenditures relate to the expansion of our composite building products facility in Lenexa,Kansas. As previously discussed, the new Tuscaloosa, Alabama, roofing plant was completed and placedin service at the beginning of fiscal 2005. We also invested approximately $1,200,000 in fiscal2005 relating to a major project to upgrade certain key information systems. This project wascompleted and the systems placed in service on November 1, 2004. Excluding major capacityinitiatives such as the Lenexa expansion, consolidated capital expenditures are generally expectedto be approximately $20,000,000 per year.**Financing Activities**     Cash flows from financing activities generally reflect changes in our borrowings, togetherwith dividends paid on common stock, and exercises of stock options. Net cash generated fromfinancing activities was $44,393,000 in fiscal 2005, compared to $7,937,000 in fiscal 2004, and$21,297,000 in fiscal 2003.     In November 2004, we closed an agreement to issue an additional $50,000,000 in seniorunsecured notes in a private placement transaction with a group of institutional investors. Thistransaction was initiated to provide funds for growth and expansion initiatives. We are continuingto evaluate possible acquisitions to extend our building products lines of business.     At June 30, 2005, liquidity consisted of $9,261,000 of cash and cash equivalents, $69,160,000of short-term investments, and $122,055,000 of available borrowings under the $125,000,000committed line of credit facility. At June 30, 2005, the debt to capital ratio (after deductingcash, cash equivalents and short-term investments of $78,421,000 from $195,683,000 of long-termprincipal debt) was 30.2%.     Our Board of Directors has authorized our repurchase of common stock from time to time on theopen market. As of June 30, 2005, we have repurchase authority of approximately $10,600,000remaining. We did not make any open market purchases of common stock in the year ended June 30,2005. All purchases of equity securities in fiscal 2005 related to repurchases in connection withstock option exercises and restricted shares, and from the ElkCorp ESOP Trust as a result ofparticipant diversification directives and account balance distributions.**Contractual Obligations**     The following table summarizes our future payments relating to contractual obligations at June30, 2005:                       (In thousands)   Payments Due by Period       Less than          After 5 Contractual Obligations: Total  1 year  1 – 3 years  4 – 5 years  years    Long-term Debt $195,000  $—  $  25,000  $  60,000  $110,000 Notes Payable, includingImputed Interest  1,146   417   729   —   — Interest on Fixed Rate Debt  42,911   7,334   14,668   10,302   10,607 Operating Leases  40,509   3,836   7,676   7,659   21,338    Total Contractual Obligations $279,566  $11,587  $  48,073  $  77,961  $141,945         At June 30, 2005, $85,000,000 of long-term debt was variable rate debt, at an average interestrate of 5.25%. Interest expense on variable rate debt is not included in the above table as itcannot be reasonably estimated.     Our only other significant commercial commitment at June 30, 2005 is our $125,000,000Revolving Credit Facility, the term of which extends through November 30, 2008. There was nooutstanding balance on this Facility at June 30, 2005.
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**Off-Balance Sheet Arrangements**     We have no off-balance sheet arrangements or transactions with unconsolidated, limited purposeentities.**Acquisition Subsequent to Year-End**     In August 2005, a subsidiary of the company acquired RGM Products, Inc. (RGM), a Fresno,California based privately-held manufacturer of ridge and roofing related products. RGM’s productsenhance the company’s roofing product accessory business and broaden its ridge product line. Thetotal purchase price was approximately $35,000,000. Existing cash resources of approximately $24,300,000 wereused to fund the acquisition and approximately $10,700,000 of long-term debt and capital lease obligations wereassumed.**Environmental**     Our operations are subject to extensive federal, state and local laws and regulations relatingto environmental matters. Such environmental laws are frequently changed and could result insignificantly increased cost of compliance. Certain of our manufacturing operations utilizehazardous materials in their production processes. As a result, we incur costs for remediationactivities off-site and at our facilities from time to time. We establish and maintain reservesfor such remediation activities, when appropriate. Current reserves established for known orprobable remediation activities are not material to our financial position or results ofoperations.**Critical Accounting Policies**     Our consolidated financial statements were prepared in conformity with accounting principlesgenerally accepted in the United States of America. As such, we are required to make certainestimates, 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 andevaluating our reported financial results include the following:Collectibility of Accounts Receivable –     The majority of our sales are in the Premium Roofing Products and Composite Building Productssegments and our primary customers in both segments are building products distributors. Due toconsolidation in the industry, credit risk is concentrated. Ten customers account forapproximately 50% of consolidated sales. The balance in the reserve for doubtful accounts isevaluated on an ongoing basis based on a combination of factors such as customers’ past paymenthistory, length of time the receivables are past due, the status of customers’ financial conditionand ongoing credit evaluations.Accruals for Loss Contingencies –     Contingencies, or uncertainties, by their nature, require management to exercise judgment bothin assessing the likelihood that a liability has been incurred as well as in estimating the amountof loss. Accruals are established for loss contingencies when it is probable that a liability hasbeen incurred and the amount of loss can be reasonably estimated. Accrual balances are reviewedand adjusted periodically based on our judgment of changes in specific facts and circumstances foreach loss accrual.     Key loss accruals for the company include: **•** Product warranties – Product warranties are estimated and recorded based onvarious factors such as an examination of submitted claims for potential exposure,claims paid history, independent data as to average length of time between asphaltroofing replacements and other factors.  **•** Litigation – Litigation reserves are determined on a case specific basis fromevaluations by both management and outside counsel as to any probable exposure fromlitigation capable of reasonable estimation.  **•** Environmental exposure – Environmental exposure, primarily related to Chromium,is evaluated by management and our environmental consultants when known oranticipated exposure is identified and quantifiable.
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 **•** Self-insurance reserves – We are partially insured against losses for bothcasualty and medical claims. Reserves are calculated and maintained based onhistorical experience and specifically identified losses.Inventories –     Inventories are stated at the lower of cost or market value. Cost is determined by thefirst-in, first-out method. We record adjustments to the value of inventories based on variousfactors. Adjustments may be made to inventory values based on the physical condition (e.g. age andquality) of the inventories. For the Other, Technologies            companies, inventoryadjustments are generally based upon the forecasted plans to sell their products and the salesprices that are expected to be realized. Inventories are adjusted to the lower of cost or marketor written off if unsaleable. These adjustments are estimates and can vary from actualrequirements if inventories deteriorate, become otherwise damaged or obsolete, or if competitiveconditions differ from expectations.Revenue Recognition –     We recognize revenue in accordance with SEC Staff Accounting Bulletin (SAB) No. 104, “RevenueRecognition”. The majority of sales are for manufactured products, where revenue is recognized atthe time products are shipped to customers. Such revenues are subject to returns, discounts,volume rebates and other incentives, which are estimated and recorded based on sales activity andhistorical trends. Differences in revenues could result if actual experience differs from thehistorical trends used in management’s estimates. Revenue recognition may be subject to judgmentand interpretation that the specific requirements of SAB 104 have been met.Impairment of Long-Lived Assets –     Long-lived assets, primarily plant, property and equipment, are reviewed for impairmentwhenever events or changes in circumstances indicate that the carrying amounts of any such assetsmay not be recoverable. If the estimated sum of undiscounted cash flows is less than the carryingvalue of the assets being reviewed, we recognize an impairment loss, measured as the amount thatthe carrying value exceeds the fair value of the assets. The estimate of future cash flows isbased 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 otherthings, changes in general economic conditions, industry conditions, customer requirements,technology or our business model.Stock-Based Compensation –     Included in our Stock-Based Compensation are Performance Stock Awards, which were granted forthe first time in fiscal 2005. Compensation expense for Performance Stock Awards is based on ourestimate of the number of shares that will be issued at the end of the performance period. Theestimated number of shares that will be issued and the related compensation expense will beadjusted periodically based on our judgment of facts, circumstances and forecasted performance.Upon the adoption of SFAS 123R “Share-Based Payments,” in fiscal 2006, discussed below under “NewAccounting Pronouncements,” variable accounting for performance stock will no longer be utilized.Rather, compensation expense will be determined based on the fair value of performance stock at thedate of grant.**New Accounting Standards**     In October 2004, the American Jobs Creation Act of 2004 (the Act) was signed into law. The Actprovides tax relief to U.S. domestic manufacturers. The Financial Accounting Standards Board (FASB)directed its staff to issue Financial Staff Position (FSP) FAS 109-1, “Application of FASBStatement No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified ProductionActivities Provided by the American Jobs Creation Act of 2004.” FSP FAS 109-1 states that amanufacturer’s deduction provided for under the Act should be accounted for as a special deductionin accordance with SFAS 109 and not as a tax rate reduction. The special deduction should beconsidered by a company in measuring deferred taxes when the company is subject to graduated taxrates, and assessing whether a valuation allowance is necessary as required by SFAS 109. Theadoption of this FSP did not have a material impact on our results of operations or financialposition for fiscal 2005. The company is currently evaluating the effect that the FSP will have onits financial position and results of operations in subsequent years and believes the effect of FSPFAS 109-1 will be to lower income tax expense beginning in fiscal 2006.     In November 2004, the FASB issued SFAS No. 151, “Inventory Costs”, an amendment of AccountingResearch Bulletin No. 43, “Inventory Pricing”. SFAS No. 151 requires all companies to recognize acurrent-period charge for abnormal amounts of idle facility expense, freight, handling costs andwasted materials. The statement also requires that
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the allocation of fixed production overhead to the costs of conversion be based on the normalcapacity of the production facilities. This new standard will be effective for the companybeginning in fiscal 2006. The company does not expect SFAS No. 151 to have a material impact on itsresults of operations or financial position.     During December 2004, the FASB issued SFAS No. 123 (Revised 2004), “Share-Based Payments”(SFAS 123R), which amends SFAS No. 123, “Accounting for Stock-Based Compensation” and SFAS 95,“Statement of Cash Flows.” SFAS 123R requires all companies to measure compensation cost for allshare-based payments (including employee stock options) at fair value, and will be effective forthe company beginning in fiscal 2006. This new standard may be adopted in one of two ways – themodified prospective transition method or the modified retrospective transition method. The companybelieves the effect of the adoption of SFAS 123R will result in higher compensation expense infiscal 2006. The current estimated cost of all elements of stock-based compensation, includingstock options, is $8,300,000 in fiscal 2006.**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 ourexposure to the risks of changing commodity prices and interest rates. We have no significantforeign exchange risk. Derivatives are held as part of a formally documented risk managementprogram. Derivatives are held to mitigate uncertainty, volatility or to cover underlyingexposures. No derivatives are held for trading purposes. We have entered into derivativetransactions related to interest rate risk and our exposure to fluctuating prices of natural gasused in our manufacturing plants, as summarized in the following paragraphs.     We are required to purchase natural gas for use in our manufacturing facilities. Thesepurchases expose us to the risk of higher natural gas prices. To hedge this risk, we may enterinto hedge transactions to fix the price on a portion of our projected natural gas usage. Therewere no natural gas hedge transactions in effect in fiscal 2005. However, it is anticipated thathedging strategies will likely be utilized in the future.     We use interest rate swaps to help maintain a reasonable balance between fixed and floatingrate debt. We have entered into two interest rate swaps to effectively convert the interest ratefrom fixed to floating on $85,000,000 of our outstanding debt at June 30, 2005. The net fair valueof these swaps was $4,463,000 at June 30, 2005. Based on outstanding debt at June 30, 2005, ourannual interest costs would increase or decrease $850,000 for each theoretical 1% increase ordecrease in the floating interest rate.**Credit Risk**     We are subject to credit risks applicable to cash, cash equivalents, short-term investments,accounts receivable and derivative instruments. Cash and cash equivalents are maintained atfinancial institutions or in short-term investments with high credit quality. Short-terminvestments are primarily in tax-exempt vehicles of high credit quality, including closed-endmunicipal bonds and variable rate demand notes issued by municipalities. Concentrations of creditrisk with respect to accounts receivable primarily relate to the large building productsdistributors that are our primary customers. We perform ongoing credit evaluations of ourcustomers’ financial condition to determine the need for an allowance for doubtful accounts. Wehave not experienced significant credit losses for many years. Concentration of credit risk withrespect to accounts receivable is limited to those customers to whom we make significant sales.Our largest customer accounted for 19% of consolidated sales in both fiscal 2005 and 2004.Derivative contracts are entered into with counterparties who are, in our opinion, creditworthycounterparties.**Inflation and Changing Prices**     Our primary financial statements are prepared in accordance with accounting principlesgenerally accepted in the United States of America based on historical dollars. Accordingly, thefinancial statements do not portray the effects of inflation. In recent years, inflation in ourkey markets has been moderate, and cost controls and improving productivity have generallyminimized the impact of inflation.     The costs of manufacturing, transportation and key raw materials, including but not limited toceramic coated granules, asphalt, glass fibers, resins, mineral filler, polypropylene, woodparticles and various additives for product preservation, together with our ability to pass alonghigher costs are generally influenced by factors other than inflation. These factors includegeneral economic and industry conditions, supply and demand, surpluses and shortages, and actionsof key competitors.
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**Forward-Looking Statements**     In an effort to give investors a well-rounded view of our current condition and futureopportunities, Management’s Discussion and Analysis of Financial Condition and Results ofOperations and other sections of this Form 10-K contain “forward-looking statements” that involverisks and uncertainties about our prospects for the future. The statements that are not historicalfacts are forward-looking statements within the meaning of the Private Securities Litigation ReformAct of 1995. These statements usually are accompanied by words such as “optimistic,” “vision,”“outlook,” “believe,” “estimate,” “potential,” “forecast,” “project,” “expect,” “anticipate,”“plan,” “predict,” “could,” “should,” “may,” “likely,” or similar words that convey the uncertaintyof 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 in suchforward-looking statements. Factors that could cause or contribute to such differences couldinclude, but are not limited to, changes in demand, prices, raw material costs, transportationcosts, changes in economic conditions of the various markets we serve, failure to achieve expectedefficiencies in new operations, changes in the amount and severity of inclement weather, acts ofGod, war or terrorism, together with other risks detailed herein. Refer to Risks Relating to theCompany on pages 7 through 9 of this Annual Report on Form 10-K for a more detailed description ofthese items. We undertake no obligation to update or revise publicly any forward-looking statementswhether as a result of new information or future events.**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 ourexposure to the risks of changing commodity prices and interest rates. We have no significantforeign exchange risk. Derivatives are held as part of a formally documented risk managementprogram. Derivatives are held to mitigate uncertainty, volatility or to cover underlyingexposures. No derivatives are held for trading purposes. We have entered into derivativetransactions related to interest rate risk and our exposure to fluctuating prices of natural gasused in our manufacturing plants, as summarized in the following paragraphs.     We are required to purchase natural gas for use in our manufacturing facilities. Thesepurchases expose us to the risk of higher natural gas prices. To hedge this risk, we may enterinto hedge transactions to fix the price on a portion of our projected natural gas usage. Thereare no natural gas hedge transactions in effect at June 30, 2005. However, it is anticipated thathedging strategies will likely be utilized in the future.     We use interest rate swaps to help maintain a reasonable balance between fixed and floatingrate debt. We have entered into two interest rate swaps to effectively convert the interest ratefrom fixed to floating on $85,000,000 of our outstanding debt at June 30, 2005. The net fair valueof these swaps was $4,463,000 at June 30, 2005. Based on outstanding debt at June 30, 2005, ourinterest costs would increase or decrease $850,000 for each theoretical 1% increase or decrease inthe floating interest rate.
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**Item 8. Financial Statements and Supplementary Data**Indexto Financial Statements and Financial Statement Schedules       Page Financial Statements:         Management’s Annual Report on Internal Control over Financial Reporting  24 Reports of Independent Registered Public Accounting Firms  25 Consolidated Balance Sheets at June 30, 2005 and 2004  28 Consolidated Statements of Operations for the years endedJune 30, 2005, 2004, and 2003  29 Consolidated Statements of Cash Flows for the years endedJune 30, 2005, 2004, and 2003  30 Consolidated Statements of Shareholders’ Equity for the yearsended June 30, 2005, 2004, and 2003  31 Summary of Significant Accounting Policies  32 Notes to Consolidated Financial Statements  37      Financial Statement Schedules:         Reports of Independent Registered Public Accounting Firms  47 Schedule II — Consolidated Valuation and Qualifying Accounts  49      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.
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**MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING**     Our management, including the Chief Executive Officer and Chief Financial Officer, isresponsible for establishing and maintaining adequate internal control over financial reporting asdefined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended. Our internalcontrol system is designed to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordance withgenerally accepted accounting principles. All internal control systems, no matter how welldesigned, have inherent limitations. A system of internal control may become inadequate over timebecause of changes in conditions, or deterioration in the degree of compliance with the policies orprocedures. Therefore, even those systems determined to be effective, can provide only reasonableassurance with respect to financial statement preparation and presentation.     Our management assessed the effectiveness of our internal control over financial reporting asof June 30, 2005 using the criteria set forth by the Committee of Sponsoring Organizations of theTreadway Commission (COSO) in Internal Control-Integrated Framework. Based on this assessment, ourmanagement concluded that, as of June 30, 2005, our internal control over financial reporting waseffective to provide reasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance with generally acceptedaccounting principles based on such criteria.     Grant Thornton LLP, our independent registered public accounting firm, has issued an auditreport on our assessment of internal control over financial reporting. Their report appears on page25./s/ElkCorp