ELKCORP - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR FISCAL YEAR ENDED JUNE 30, 2002 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.)

14643 DALLAS PARKWAY
SUITE 1000, WELLINGTON CENTRE
DALLAS, TEXAS 75254-8890
(Address of principal executive (Zip Code)
offices)

Registrant's telephone number, including area code: (972) 851-0500

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

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

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

The aggregate market value of common stock held by nonaffiliates as of
September 3, 2002, was $293,363,138. This amount is based on the closing price
of the Registrant's Common Stock on the New York Stock Exchange on September 3,
2002. Shares of stock held by directors and officers of the Registrant as well
as shares allocated to such persons under the Employee Stock Ownership Plan of
the Registrant were not included in the above computation; however, the
Registrant has made no determination that such entities are "Affiliates" within
the meaning of Rule 405 under the Securities Act of 1933, as amended.

As of the close of business on September 3, 2002, the Registrant had
19,461,458 shares of Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Certain portions of the Registrant's definitive proxy statement for the
annual meeting of stockholders to be held on October 29, 2002, are incorporated
by reference into certain Items of Part III hereof. Except for those portions
specifically incorporated herein by reference, such document shall not be deemed
to be filed with the Securities and Exchange Commission as part of this report.
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ELKCORP AND SUBSIDIARIES

For The Year Ended June 30, 2002

INDEX

PART I

ITEM 1. BUSINESS

Effective September 1, 2002, the registrant changed its name from Elcor
Corporation to ElkCorp (the company) to better identify itself with the Elk
brand name. ElkCorp, incorporated in 1965 as a Delaware corporation, is a
publicly held corporation headquartered in Dallas, Texas. Shares of the
company's common stock are traded on the New York Stock Exchange with the ticker
symbol - ELK. The company's primary web site is www.elkcorp.com.

The company is segregated and managed as two segments: Elk Premium
Building Products (Building Products) and Elk Technologies (Other,
Technologies).

LINES OF BUSINESS

BUILDING PRODUCTS

The company, through Elk Premium Building Products, Inc. and its
subsidiaries (collectively Elk), is engaged in the manufacture and sale of
premium laminated fiberglass asphalt shingles. Elk also manufactures and sells
coated and non-coated nonwoven fabrics used in asphalt shingles and other
applications in the building and construction, filtration, floor coverings and
other industries. Nonwoven fiberglass fabrics are used as a substrate for about
95% of asphalt shingles. The Building Products segment accounted for
approximately 91% of consolidated sales of the company in fiscal 2002 and 89% in
fiscal years 2001 and 2000.

Elk's premium laminated fiberglass asphalt shingle manufacturing plants
are located in (1) Tuscaloosa, Alabama, (2) Ennis, Texas, (3) Shafter,
California and (4) Myerstown, Pennsylvania. In June 2001, the Myerstown,
Pennsylvania plant was determined to have met its performance test level of
operations and placed in service. This new plant has total laminated shingle
capacity of about four million squares annually.

In August 2002, the company announced its plans to construct a second
shingle manufacturing line at its Tuscaloosa, Alabama roofing plant and install
certain infrastructure and material handling improvements designed to enhance
the overall efficiency of the expanded facility. The expansion is expected to be
completed in fiscal 2004 at a cost of approximately $77,000,000, and will
increase company-wide capacity by 27%.

The major products manufactured at Elk's roofing plants are premium
laminated fiberglass asphalt shingles. Six premium roofing products have either
a wood-shake or slate-like look: the Prestique(R) Gallery Collection(TM),
Prestique Plus High Definition(R), Prestique I High Definition, Prestique High
Definition, Raised Profile(TM), and Capstone(R).

The Prestique Gallery Collection was introduced in July 2001
featuring colors designed to reflect current trends in home exteriors. In fiscal
2002, Elk also introduced new premium landscape shingles: Domain(R), Domain
Winslow(TM) and Domain Ashford(TM) High Definition. These products are designed
to complement large-scale homes with bigger roofs.

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Also in fiscal 2002, Elk introduced the Peak Performance(TM) Contractor
program to reward top performing contractors for their brand loyalty and quality
of service.

Elk's roofing products are sold by employee sales personnel primarily
to roofing wholesale distributors, with delivery being made by contract carrier
or by customer vehicles from the manufacturing plants or warehouses. Elk's
products are distributed nationwide. The opening of the Myerstown, Pennsylvania
plant allowed Elk to become more competitive in the Northeast United States.
Premium laminated asphalt shingles, which represent Elk's target market, account
for approximately 50% of the residential sloped asphalt shingle roofing market.
Over 80% of all asphalt shingles are used in reroofing and remodeling and less
than 20% are used in new construction. Approximately 89% of roof replacements
are nondiscretionary and result from roof deterioration, age, leaks, or weather
damage. Appearance upgrades account for the remaining 11% of roof replacements.
For several years, the building materials distribution industry has consolidated
at a rapid pace with many smaller independent distributors being acquired by
emerging larger national building products distributors. The ten largest
Building Products customers typically account for approximately 40% to 50% of
annual consolidated sales. One customer, ABC Supply Co., Inc., the largest
roofing wholesale distributor in the United States, accounted for 17% of the
company's consolidated sales in fiscal 2002, 20% of consolidated sales in fiscal
2001, and 17% of consolidated sales in fiscal 2000.

The following table summarizes limited product warranty and limited
wind warranty for each product. Special application techniques are required for
limited wind warranties of up to 90 miles per hour (mph) and higher.

Elk also manufactures starter-strip products and the following premium
fiberglass asphalt hip and ridge products: Seal-a-Ridge(R), Z(R) and
RidgeCrest(TM) ridge brands.

Elk operates two nonwoven fiberglass fabric (or mat) lines that run in
parallel at its Ennis, Texas facility. Elk's nonwoven fiberglass roofing mat
facilities have the capacity to supply all of its internal fiberglass roofing
mat needs. However, certain Elk roofing plants may be supplied nonwoven
fiberglass roofing mats under exchange agreements with other manufacturers. Such
agreements benefit each party by reducing freight costs to the manufacturing
plants. In addition, roofing mats are sold by employee sales personnel to other
asphalt roofing products manufacturers. Nonwoven fabrics are also sold to
manufacturers of construction and industrial products who use such fabrics in
their products, and to distributors of industrial filtration products. Elk's
nonwoven fabrics are shipped by contract carrier to its other roofing plants and
to its customers' locations.

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In July 2001, Elk appointed a dedicated senior management team for its
Building Products related performance nonwoven fabrics business. Increased
management focus is intended to allow Elk to take advantage of its nonwoven
manufacturing capabilities by exploiting market opportunities for nonwoven
fiberglass mat outside of its traditional roofing market. This management change
also allows Elk to more fully develop the VersaShield(R) family of proprietary
coated nonwoven products in a number of identified key markets. The patented
technology of VersaShield gives Elk the ability to focus on market niches where
flame resistance, thermal and acoustical barriers, fabric chemical resistance
and blended base fibers can increase the value and performance characteristics
of certain products. These niches have direct application in building and
construction products, filtration, floor coverings and other related industries.
A semi-commercial pilot manufacturing line is now supplying limited quantities
of these products to initiate market development sales.

OTHER, TECHNOLOGIES

The Other, Technologies segment consists of the operations that are not
part of the Building Products segment. These dissimilar operations are combined
into one segment beginning in fiscal 2002, as none individually meet the
materiality criteria for separate segment reporting. Prior to fiscal 2002, the
Other, Technologies segment was shown as two separate segments: Electronics
Manufacturing Services and Industrial Products. The businesses aggregated
together as the Other, Technologies segment accounted for 9% of consolidated
sales of the company in fiscal 2002, and 11% of consolidated sales in fiscal
years 2001 and 2000.

The operations included as Other, Technologies are: (1) the operating
subsidiaries of Cybershield, Inc. (collectively Cybershield), which apply
precise conductive metal coatings to plastic components utilized in electronics
enclosures to control the electromagnetic and radio frequency emissions of such
devices, and to create circuitry and antennae for digital wireless cellular
phones, consumer electronics equipment, and various other industries; (2)
Chromium Corporation (Chromium), which is a leading provider of hard chrome and
other surface finishes for the railroad, marine and other industries; and (3)
Ortloff Engineers, LTD (Ortloff), a leading supplier of proprietary technologies
and related engineering services to the natural gas processing industry.

Cybershield is engaged in shielding plastic enclosures from
electromagnetic and radio frequency interference. Products include EMI/RFI
shielding, conductive gaskets, decorative paints, metal coatings and EXACT(TM)
metal patterning. Cybershield's markets include digital wireless cellular
phones, PDA's, telecommunications and consumer electronics equipment, bar
coding, computer, computer peripherals, aerospace, medical and electronic
equipment industries. Sales are generated by employee sales personnel, with
delivery being made primarily by contract carrier.

In fiscal 2001, Cybershield obtained an exclusive license, in the
consumer electronics business, to utilize a proprietary new EXACT process to
metalize complex patterns of electroless conductive metals with great precision
on three-dimensional plastic parts. This new technology is currently in the
development stage but management believes it has potential applications in
mobile telephone handsets and in a variety of other widely used electronic
devices that have not historically utilized Cybershield's services.

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In January 2002, Cybershield announced the consolidation of its
operations. The Canton, Georgia facility was closed and certain employees and
manufacturing equipment transferred to its Lufkin, Texas facility. The
consolidation was substantially completed prior to the end of fiscal 2002. As a
result of an exodus of United States and Latin America cellular handset
production to Asia, Cybershield's sales dropped significantly in the latter part
of fiscal 2002. In response, Cybershield has further reduced its costs beyond
the savings realized from the Canton, Georgia plant closure. Cybershield has
also formed marketing partnerships with key supply chain partners and has
developed a network of manufacturers' representatives to augment its internal
sales force. The company believes that these strategic moves should hasten the
process of diversifying Cybershield's revenue sources.

Chromium Corporation is a leader in plating proprietary finishes for
use in remanufacturing large diesel engine cylinder liners, pistons and valves
for the railroad and marine industries. Chromium has also introduced new wear
plate and tile products utilizing its proprietary Crodon(R) hard chrome finish.
These products are designed to extend the service life of steel machinery
components operating in abrasive environments for a number of industries.
Chromium is targeting 30% of its sales of these products by the end of fiscal
2003. Chromium's manufacturing operations are located in Cleveland, Ohio.

Another unit of the company, OEL, LTD, d/b/a Ortloff Engineers, LTD is
engaged in providing technology licensing and engineering support services and
in providing engineering consulting services to the oil and gas production, gas
processing and sulfur recovery industries. Ortloff licenses technology covered
by and related to patents owned by the company for use in new or redesigned
natural gas and refinery gas processing facilities, and utilizes technology
licensed from others and its own expertise in the performance of consulting and
engineering assignments. Ortloff continues to develop and patent improved
processes for natural gas processing. Moreover, Ortloff offers significant
expertise and other nonpatented technology associated with its processes that
are difficult for customers to obtain on a cost effective basis from others.
Ortloff has also been successful in expanding its markets into several parts of
the world beyond the Americas where natural gas deposits are being produced and
processed to generate products for sale in the world energy markets.

Patent license fees are calculated by standard formulas that take into
account both specific project criteria and market conditions, adjusted for
special conditions that exist in a project. Engineering consulting assignments
are performed under consulting services agreements at negotiated rates.

A new subsidiary, Elk Technologies, Inc., was recently formed to
develop and market fabrics featuring Elk's VersaShield fire retardant coatings
for use outside of traditional building products applications. Current areas of
emphasis include mattresses, upholstered furniture, curtains and bed clothing.
While these activities have not produced commercial sales to date, management
believes that potentially significant demand for products utilizing this
technology could result from trends toward more stringent flammability
requirements for mattresses and upholstered furniture. The company expects to
generate revenue from these products in fiscal 2003.

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INFORMATION AS TO INDUSTRY SEGMENTS

For financial information by company segments, see the table on page 49
of this Annual Report on Form 10-K.

COMPETITIVE CONDITIONS

BUILDING PRODUCTS

Even though the asphalt building products manufacturing business is
highly competitive, the company believes that Elk is a leading manufacturer of
premium laminated fiberglass asphalt shingles and nonwoven fabrics. Elk has been
able to compete successfully with its competitors, some of which are larger in
size and have greater financial resources. Elk's target market for asphalt
shingles sales is the premium laminated segment. The company is the only major
roofing manufacturer that entirely focuses on this segment of the sloped roof
market. Accordingly, the company believes this strategy provides it a
competitive advantage in developing and maintaining manufacturing efficiencies.
The company believes that many of its competitors have elective manufacturing
capacity, allowing them to manufacture either commodity shingles or premium
laminated shingles. Such elective capacity can affect the supply/demand balance
in the premium laminated sector, which can influence the prices Elk charges its
customers.

Elk is a "swing" supplier of nonwoven fiberglass mat. Other roofing
manufacturers generally utilize Elk to supplement their own internal mat
manufacturing capability.

There are a number of major national and regional manufacturers
marketing their products in a portion or all of the market areas served by the
company's plants. The company competes primarily on the basis of product
quality, design and service. Typically, the company is able to sell its building
products at higher prices than its competitors receive for similar type
products.

OTHER, TECHNOLOGIES

Cybershield is a North American provider of shielding solutions to the
digital wireless telecommunications industry, serving both the handset and
infrastructure segments of the industry. Cybershield has several competitors,
some of which are larger in size and have greater financial resources, serving
specific portions of Cybershield's markets. In fiscal 2002, most of the
worldwide cellular phone production shifted to Asia where the company has no
production facilities. Introduction of the EXACT proprietary process will be a
critical factor in Cybershield's ability to compete. The company competes
primarily on the basis of the breadth and quality of its product offering,
design and service.

The company believes that Chromium is a leading remanufacturer of
diesel engine cylinder liners and pistons for the railroad and marine
transportation industries and is the primary supplier of hard chrome plated
finishes for original equipment diesel engine cylinder liners to all of the
major domestic locomotive manufacturers. The company believes it has smaller

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competitors in the locomotive diesel engine cylinder liner remanufacturing
market. Chromium has achieved a leading position in these markets through
competition on the basis of product performance, quality, service and price. In
addition, technical innovations that enhance quality and performance are also
increasing the value-added content per unit produced.

The company believes that it holds significant state-of-the-art patents
covering some of the most competitive processes for the cryogenic processing of
refinery and natural gas streams to remove the higher value components, such as
ethane and propane, which are primarily used as petrochemical feedstocks. The
company further believes that Ortloff has widely recognized expertise in the
design and operation of facilities for natural gas and refinery gas processing
and sulfur recovery.

BACKLOG

Backlog was not significant, nor is it material, in the company's
operations.

RAW MATERIALS

BUILDING PRODUCTS

In the asphalt building products manufacturing businesses, the
significant raw materials are ceramic coated granules, asphalt, glass fibers,
resins and mineral filler. All of these materials are presently available from
several sources and are in adequate supply. Historically, the company has been
able to pass some of the higher raw material and transportation costs through to
the customer.

OTHER, TECHNOLOGIES

In Cybershield's shielding business, copper, nickel, paint and
gasketing materials are the significant raw materials. These materials are
presently available and in adequate supply.

In Chromium's business of hard chrome plating and remanufacturing
diesel engine cylinder liners, chromic acid is a significant raw material which
is presently available from a number of domestic suppliers. The company believes
these domestic suppliers obtain the ore for manufacturing chromic acid
principally from sources outside the United States, some of which may be subject
to political uncertainty. The company has been advised by its suppliers that
they maintain substantial inventories of chromic acid in order to minimize the
potential effects of foreign interruption in ore supply.

No raw materials are utilized in the company's engineering consulting
and technology licensing business.

PATENTS, LICENSES, FRANCHISES AND CONCESSIONS

The company or its subsidiaries hold certain patents, particularly in
its engineering consulting and licensing business, which are significant to its
operations. The company believes that it holds significant state-of-the-art
patents covering some of the most competitive processes for the cryogenic
processing of refinery and natural gas streams to remove the higher value

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components, such as ethane and propane, which are primarily used as
petrochemical feedstocks. However, the company does not believe that the loss of
any one of these patents or of any license, franchise or concession would have a
material adverse effect on the company's overall business operations.

ENVIRONMENTAL MATTERS

The company and its subsidiaries are subject to federal, state and
local requirements regulating the discharge of materials into the environment,
the handling and disposal of solid and hazardous wastes, and protection of the
public health and the environment generally (collectively, Environmental Laws).
Certain facilities of the company's subsidiaries ship waste products to various
waste management facilities for treatment or disposal. Governmental authorities
have the power to require compliance with these Environmental Laws, and
violators may be subject to civil or criminal penalties, injunctions or both.
Third parties may also have the right to sue for damages and/or to enforce
compliance and to require remediation of contamination. If there are releases or
if these facilities do not operate in accordance with Environmental Laws, or
their owners or operators become financially unstable or insolvent, the
company's subsidiaries are subject to potential liability.

The company and its subsidiaries are also subject to environmental laws
that impose liability for the costs of cleaning up contamination resulting from
past spills, disposal, and other releases of hazardous substances. In
particular, an entity may be subject to liability under the Federal
Comprehensive Environmental Response, Compensation and Liability Act (CERCLA or
Superfund) and similar state laws that impose liability -- without a showing of
fault, negligence, or regulatory violations -- for the generation,
transportation or disposal of hazardous substances that have caused or may
cause, environmental contamination. In addition, an entity could be liable for
cleanup of property it owns or operates even if it did not contribute to the
contamination of such property. From time to time, the company or its
subsidiaries may incur such remediation and related costs at the company-owned
plants and certain offsite locations.

Chromium has engaged in limited remediation activities at its former
plating operation, closed in 1999, at what is now Cybershield's Lufkin, Texas,
manufacturing facility. Soil sampling results from a pre-closing environmental
evaluation of the site indicated localized problems. Chromium has entered the
property into the Texas Voluntary Cleanup Program (VCP). Under this program, the
Texas Commission on Environmental Quality (TCEQ (f/k/a Texas Natural Resources
Conservation Commission, or TNRCC) reviews the voluntary cleanup plan the
applicant submits, and, when the work is complete, issues a certificate of
completion, evidencing clean up to levels protective of human health and the
environment and releasing prospective purchasers and lenders from liability to
the state. Properties entered into the VCP are protected from TNRCC enforcement
actions.

Chromium submitted a work plan, which the TCEQ recently approved, for a
supplemental groundwater and soil assessment at the facility. The plan was
designed to, among other things, further define the problems at the site.
Chromium is preparing to implement that plan. Once the investigation is
complete, Chromium intends to clean up the site under the VCP to a site specific
risk-based cleanup standard as prescribed by the Texas Risk Reduction Program.
Until Chromium has the results from its supplemental assessment and TCEQ
approval of a cleanup plan, it is unable to estimate remediation costs, which
may or may not be material.

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In addition to the aforementioned Chromium item, the company
anticipates that its subsidiaries will incur costs to comply with Environmental
Laws, including remediating any existing non-compliance with such laws and
achieving compliance with anticipated future standards for air emissions and
reduction of waste streams. Such subsidiaries expend funds to minimize the
discharge of materials into the environment and to comply with governmental
regulations relating to the protection of the environment. Other than possible
costs associated with the previously described Chromium matter, neither
expenditures nor other activities initiated to comply with environmental laws is
expected to have a material impact on the consolidated results of operations,
financial position or liquidity of the company.

PERSONS EMPLOYED

At June 30, 2002, the company and its subsidiaries had 1,141 employees.
Of this total, 858 were employed in the Building Products business segment, 245
were employed in Other, Technologies and 38 were employed at the corporate
office. The company believes that it has good relations with its employees.

EXTENDED PAYMENT TERMS

The company's Building Products business typically provides extended
payment terms to certain customers for some product shipments during the winter
and early spring months, with payment generally due during the summer months. As
of June 30, 2002, $8,608,000 in receivables relating to such shipments were
outstanding, all of which were due and collected in the first quarter of fiscal
2003.

SEASONAL BUSINESS

The company's Other, Technologies businesses are substantially
nonseasonal. The company's Building Products business is seasonal to the extent
that cold, wet or icy weather conditions during the late fall and winter months
in some of its marketing areas typically limit the installation of residential
building products which causes sales to be slower during such periods. Damage to
roofs from extreme weather such as severe wind, hurricanes and hail storms can
result in higher demand for periods up to eighteen to twenty-four months
depending upon the extent of roof damage. Working capital requirements and
related borrowings fluctuate during the year because of seasonality. Generally,
working capital requirements and borrowings are higher in the spring and summer
months, and lower in the fall and winter months.

ITEM 2. PROPERTIES

All significant facilities are owned by the company and its
subsidiaries and are not subject to any significant encumbrances.

BUILDING PRODUCTS

Asphalt building products are manufactured at plants located in
Tuscaloosa, Alabama, Ennis, Texas, Shafter, California and Myerstown,
Pennsylvania. Fiberglass roofing mat, nonwoven industrial, reinforcement and
filtration products are manufactured on two parallel

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production lines located in Ennis, Texas. Remote leased warehouse storage
locations are maintained in (1) Denver, Colorado, (2) Fridley, Minnesota, (3)
Plant City, Florida, (4) West Columbia, South Carolina, (5) Kansas City,
Missouri, and (6) Richmond, British Columbia, Canada.

Corporate headquarters and administrative offices for the Building
Products operations are located in the same leased facility as the company's
corporate offices in Dallas, Texas.

OTHER, TECHNOLOGIES

Cybershield's operating facilities are located in Lufkin, Texas.
Corporate headquarters and most administrative offices for Cybershield are
located at the same leased facility as the company's corporate offices in
Dallas, Texas. Some administrative offices are located in Lufkin, Texas. The
Canton, Georgia facility was closed in fiscal 2002 and is held for sale.

Chromium's operating facilities are located in Cleveland, Ohio.
Corporate headquarters and most administrative offices for Chromium are located
at the Cleveland, Ohio manufacturing facility. Some administrative offices are
located in the same leased facility as the company's corporate offices in
Dallas, Texas.

The Ortloff engineering and process licensing group is located in
leased offices in Midland, Texas.

CORPORATE OFFICES

The company's corporate headquarters is located in leased offices in
Dallas, Texas.

ITEM 3. LEGAL PROCEEDINGS

PURPORTED CLASS ACTION LITIGATION

In February 2000, Wedgewood Knolls Condominium Association filed a
purported class action in the United States District Court in Newark, New
Jersey, which as amended names two Elk subsidiaries. The purported nationwide
class would include purchasers or current owners of buildings with certain Elk
asphalt shingles installed between January 1, 1980 and present. The suit
alleges, among other things, that the shingles were uniformly defective. It
seeks various remedies including damages and reformation of the limited warranty
applicable to the shingles on behalf of the plaintiff and the purported class.
In late March 2002, the United States District Court for the District of New
Jersey issued its opinion denying the plaintiff's motion for class certification
in the Wedgewood Knolls lawsuit pending against Elk.

In June 2000, an individual homeowner filed a purported class action,
Lastih v. Elk Corporation of Alabama, in the Judicial District of Hartford,
Connecticut. The Lastih suit involves similar class allegations and claims to
those asserted in the Wedgewood Knolls suit described above.

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Elk has denied the claims asserted in both actions, and vigorously
defended them. Elk has reached an agreement in principle to settle with all
plaintiffs represented by the law firm prosecuting the Wedgewood Knolls and
Lastih cases, including without limitation Wedgewood Knolls Condominium
Association, Lastih and several other individual plaintiffs. The proposed
settlement would not be a class settlement and would not have a material adverse
effect on the company's consolidated results of operations, financial condition
or liquidity. The settlement is still subject to the negotiation and execution
of a definitive written settlement agreement.

PURPORTED PATENT INFRINGEMENT LITIGATION

On April 3, 2002, CertainTeed Corporation filed suit against the
company and two of its Elk affiliates in the United States District Court for
the Eastern District of Pennsylvania, Philadelphia, Pennsylvania for alleged
patent infringement. The suit, in essence, claims that Elk's Capstone shingle
infringes three CertainTeed patents, and seeks preliminary and permanent
injunctive relief, damages and attorneys fees. The case is in the early stages
of discovery. The company believes that the suit is meritless and intends to
vigorously defend it. It believes that the company and its named affiliates have
strong defenses to the suit, but the company cannot predict with certainty
whether the suit will have a material adverse effect on its consolidated results
of operations, financial position or liquidity.

OTHER

There are various other lawsuits and claims pending against the company
and its subsidiaries arising in the ordinary course of their businesses. In the
opinion of the company's management, based in part on advice of counsel, none of
these actions should have a material adverse effect on the company's
consolidated results of operations, financial position, or liquidity.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the
fourth quarter of the year ended June 30, 2002.

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EXECUTIVE OFFICERS OF THE COMPANY

Certain information concerning the company's executive officers is set
forth below:

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All of the executive officers except Mr. Karol and Mr. Beattie have
been employed by the company or its subsidiaries in responsible management
positions for more than the past five years. Mr. Nowak, Mr. Kiik and Mr. Fisher
were employed in responsible management positions at an ElkCorp subsidiary
company for more than the past five years.

On February 5, 2001, Mr. Karol was elected by the Board of Directors as
President and Chief Executive Officer of the company effective March 26, 2001.
On March 31, 2002, Mr. Karol was elected by the Board of Directors as Chairman
of the Board and Chief Executive Officer. From May 1991 until its purchase by
Beaulieu of America in December 1999, Mr. Karol served as Chief Executive
Officer of Pro Group Holdings, Inc., a privately owned manufacturer and
distributor of carpet products. From December 1999 until January 2001, Mr. Karol
was employed as President of the Brinkman Hard Surfaces Division of Beaulieu of
America. Mr. Karol has served on the company 's Board of Directors since
November 1998.

On March 27, 2000, Mr. Beattie was elected by the Board of Directors as
Vice President - Finance and Treasurer of the company. On October 23, 2001, Mr.
Beattie was elected as Vice President, Chief Financial Officer and Treasurer.
Effective May 1, 2002, Mr. Beattie was elected Senior Vice President, Chief
Financial Officer and Treasurer. Mr. Beattie was employed by Bank of America
from 1977 to 2000, most recently as a Managing Director of Banc of America
Securities LLC.

Officers are elected annually by the Board of Directors following the
Annual Meeting of Shareholders.

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PART II

ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

The principal market on which the company's common stock is traded is
the New York Stock Exchange. The company's common stock is also traded on the
Boston, Midwest and Philadelphia Stock Exchanges. There were 993 holders of
record and approximately 3,700 beneficial owners of the company's common stock
on September 3, 2002.

The quarterly dividend declared per share and the high and low sale
prices per share of the company's common stock for each quarter during fiscal
year 2002 and fiscal year 2001 are set forth in the following table:

Subject to the limitations discussed below, the company currently
intends to continue to pay quarterly dividends for the foreseeable future.
However, the final determination of the timing, amount and payment of dividends
on the common stock is at the discretion of the Board of Directors and will
depend on, among other things, the company's profitability, liquidity, financial
condition and capital requirements.

In September 1998, the company's Board of Directors authorized the
purchase of up to $10,000,000 of common stock from time to time on the open
market to be used for general corporate purposes. In August 2000, the Board of
Directors authorized the repurchase of up to an additional $10,000,000 of common
stock. As of June 30, 2002, 600,590 shares with a cumulative cost of $9,366,000
had been purchased from time to time under these authorizations.

Limitations affecting the future payment of dividends by the company
are imposed as a part of the company's revolving credit facility. At June 30,
2002, total cumulative dividends and stock repurchased since November 30, 2000
are subject to a $25,983,000 limitation during the term of the company's
$100,000,000 Revolving Credit Facility, which extends through November 30, 2005.
Actual expenditures for these items as of June 30, 2002 were $7,134,000.

Equity Compensation Plan Information for the company is presented in
Item 12 on page 55 of this Annual Report on Form 10-K.

13

ITEM 6. SELECTED FINANCIAL DATA

The following selected consolidated financial data for each of the five
years in the period ended June 30, 2002 have been derived from the audited
consolidated financial statements of the company. The selected consolidated
financial data set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements and notes thereto included elsewhere in
this report.

FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA

(1) Cumulative prior year impact of a change in accounting for the costs of
start-up activities.

(2) In fiscal 2002, the company changed its accounting for certain
previously issued employee stock options from the "fixed" to "variable"
method of accounting. Under "variable" accounting, income is charged
(or credited) during each accounting period to reflect any excess of
the market value of underlying shares over the exercise price of the
related options. Item includes $436,000 related to the cumulative
impact on prior years.

14

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

RESULTS OF OPERATIONS

OPERATING SEGMENTS

Effective September 1, 2002, the company changed its corporate name
from Elcor Corporation to ElkCorp to better identify itself with the Elk brand
name of its principal Building Products subsidiaries.

The company is segregated and managed as two segments: Elk Premium
Building Products (Building Products) and Elk Technologies (Other,
Technologies). The Building Products group consists of the various operating
subsidiaries of Elk Premium Building Products, Inc. (collectively Elk). These
companies manufacture (1) premium laminated fiberglass asphalt shingles and (2)
coated and non-coated nonwoven fabrics used in asphalt shingles and other
applications in the building and construction, filtration, floor coverings and
other industries. Building Products accounted for 91% of consolidated sales in
fiscal 2002.

The Other, Technologies segment consists of the operations that are not
part of the Building Products segment. These dissimilar operations are combined
into one segment beginning in fiscal 2002, as none individually meet the
materiality criteria for separate segment reporting. Prior to fiscal 2002, the
Other, Technologies segment was shown as two separate segments: Electronics
Manufacturing Services and Industrial Products. The businesses aggregated
together as the Other, Technologies segment accounted for 9% of consolidated
sales in fiscal 2002.

The operations included as Other, Technologies are (1) the operating
subsidiaries of Cybershield, Inc. (collectively Cybershield), which apply
precise conductive metal coatings to plastic components utilized in electronics
enclosures to control the electromagnetic and radio frequency emissions of such
devices, and to create circuitry and antennae for digital wireless cellular
phones, consumer electronics equipment, and various other industries; (2)
Chromium Corporation (Chromium), which is a leading provider of hard chrome and
other surface finishes for the railroad, marine and various other industries;
and (3) Ortloff Engineers, LTD (Ortloff), a leading supplier of proprietary
technologies and related engineering services to the natural gas processing
industry. A fourth operation, Elk Technologies, Inc., was recently incorporated
to develop and market fabrics featuring VersaShield fire retardant coatings for
use outside of traditional building products applications, including mattresses,
furniture, curtains and bed clothing. This business has not yet produced
commercial sales.

FISCAL 2002 COMPARED TO FISCAL 2001

OVERALL PERFORMANCE

During the fiscal year ended June 30, 2002, net income of $15,093,000
was 72% higher than $8,762,000 in fiscal 2001. Sales of $506,526,000 were 34%
higher in the current fiscal year compared to $379,156,000 in the prior fiscal
year. The significant increase in both sales and income in fiscal 2002 is
primarily attributable to significant improvements in operations in the

15

Building Products segment. The Other, Technologies segment also recorded higher
sales but, primarily due to consolidation of Cybershield's operations, recorded
a significant operating loss in fiscal 2002 compared to an operating profit in
fiscal 2001.

Consolidated operating income of $30,824,000 in fiscal 2002 was 78%
higher than $17,354,000 in the prior fiscal year. Operating income for fiscal
2002 was reduced by $6,034,000 of noncash stock option compensation, due to the
change in accounting for certain stock options from fixed awards with no
compensation expense to variable awards, which can result in periodic expense or
income. In fiscal 2002, the company determined that variable accounting is more
appropriate for such stock options. The impact of variable accounting in fiscal
2001 is not material. Based on a decline in the company's share price subsequent
to June 30, 2002 and actions taken by the Board of Directors to terminate the
feature of the 1998 Incentive Stock Option Plan that caused certain stock
options to be accounted for as variable awards, the company expects to record a
reversal of the majority of fiscal 2002 noncash stock option compensation in the
first quarter of fiscal 2003. Operating income for the current year also
included two other significant nonrecurring items: (1) a favorable cash
settlement with a vendor resulting in income of $5,625,000 and (2) plant closure
and related costs of $5,273,000. As a percentage of sales, operating income was
6.1% in fiscal 2002 (7.3% excluding noncash stock option compensation) compared
to 4.6% in fiscal 2001. Selling, general and administrative (SG&A) costs in
fiscal 2002 were significantly higher than in the prior fiscal year, due
primarily to overall higher sales levels, increased selling expenses related to
new product introductions, higher incentive compensation resulting from improved
performance and retirement expenses related to management succession. As a
percentage of sales, SG&A costs, excluding the nonrecurring vendor settlement,
were 12.8% of sales in fiscal 2002 compared to 12.7% in fiscal 2001.

Interest expense was $6,192,000 in fiscal 2002 compared to $3,494,000
in fiscal 2001. However, in fiscal 2001, the company capitalized $5,337,000 of
interest related to the construction of the Myerstown, Pennsylvania shingle
plant and other major projects. No interest cost was capitalized in fiscal 2002.
The average interest rate paid on indebtedness was 5.1% in fiscal 2002 compared
to 7.25% in fiscal 2001.

RESULTS OF BUSINESS SEGMENTS

Sales in the Building Products segment increased 37% to $459,673,000
for the year ended June 30, 2002 compared to $335,971,000 in fiscal 2001. The
significant increase in sales reflected a sharp rebound in shipments of premium
laminated asphalt shingles that began in the fourth quarter of fiscal 2001 and
continued throughout fiscal 2002, together with higher average selling prices in
fiscal 2002, which were 2.5% higher than in fiscal 2001.

Highly successful new products and warranty initiatives and a favorable
inventory position, combined with lower interest rates this year and storm
damage in the Midwest and Southwest United States, contributed to sharply higher
sales for this business segment. Building Products sales further benefited from
success in penetrating markets served by its new Myerstown, Pennsylvania roofing
plant, which met its performance test level of operations in the fourth quarter
of fiscal 2001. In fiscal 2001, shipments of laminated shingles were adversely
affected by weak economic conditions and harsh winter weather conditions in the
Northern United States and heavy winter and spring rains in many other parts of
the country.

16

Operating income for the Building Products segment increased 109% to
$53,325,000 in fiscal 2002 compared to $25,539,000 for the prior fiscal year.
Current year operating income included a $5,625,000 favorable vendor settlement.
The cash settlement represented a reimbursement of certain general and
administrative costs previously incurred by Elk. Excluding this nonrecurring
item, operating income increased to $47,700,000, an 87% increase over the
previous fiscal year. The increase in recurring operating income is primarily
the result of a significant increase in shipments of premium laminated
fiberglass shingles and performance nonwoven fabrics. Increased product sales
more than offset higher marketing costs and depreciation relating to the new
Myerstown, Pennsylvania roofing plant.

Fiscal 2002 Building Products sales benefited from a significant level
of severe weather related roof replacement activity that may not recur in fiscal
2003. Therefore, the company anticipates more moderate sales growth in fiscal
2003. However, operating profit is expected to grow at a significantly faster
rate than sales as the company moves closer to selling out in-place
manufacturing capacity. Operating profit margins for the Building Products
segment will also reflect the potential impact of changing raw material costs,
product pricing and sales mix. Although each of these variables is expected to
be under market pressure in fiscal 2003, management believes the company can
successfully manage the controllable factors.

Sales for the Other, Technologies segment increased 9% to $46,853,000
in fiscal 2002 compared to $43,089,000 in fiscal 2001. Cybershield's unit
volumes declined, but average selling prices were higher, primarily as a result
of an increased sales mix of units containing purchased plastic parts. Sales for
Chromium were also lower in fiscal 2002 compared to the prior fiscal year due to
lower unit volumes as railroads deferred maintenance expenditures. Ortloff sales
were higher in fiscal 2002 compared to the prior fiscal year due primarily to a
higher level of licensing and consulting fees from international gas processing
projects.

The Other, Technologies segment reported a $4,354,000 operating loss in
fiscal 2002 compared to $657,000 in operating income in fiscal 2001. The current
year operating loss includes $5,273,000 of nonrecurring costs relating to
consolidating Cybershield's operations. Fiscal 2001 included $750,000 of costs
relating to the consolidation of manufacturing operations and initial production
of products new to Chromium's Cleveland, Ohio plant.

Excluding these nonrecurring costs, operating income for the Other,
Technologies segment in fiscal 2002 would have been $919,000 compared to
$1,407,000 of operating income in fiscal 2001. The reduction in operating
results reflects lower unit volumes and related margins at Cybershield, costs
associated with the ramp of several new handset components and production
start-up inefficiencies during the early part of fiscal 2002 at Cybershield, and
lower unit volumes at Chromium. Despite these lower volumes, Chromium was able
to maintain profitability in fiscal 2002 due to cost reductions. Ortloff's
operating income was higher in fiscal 2002 than in fiscal 2001 due to higher
licensing and consulting fees.

Fiscal 2003 is expected to be a year of transition for both Cybershield
and Chromium. Both of their respective markets are under pressure and both must
diversify their revenue sources into new markets in order to realize success. At
both, management believes that organizations and strategies are in place to
accomplish the task.

17

Cybershield should see significantly lower sales as a result of an
exodus of U.S. and Latin American cellular handset production to Asia. In
response, Cybershield has further reduced its costs beyond the savings realized
from the Canton, Georgia plant closure. Cybershield has also formed marketing
partnerships with key supply chain partners and has developed a network of
manufacturers' representatives to augment its internal sales force. These
strategic moves should hasten the process of diversifying Cybershield's revenue
sources. Commercialization of the Exact metalization technology is also a key
factor for generating new sales. Management anticipates diminishing quarterly
losses as fiscal 2003 progresses.

Chromium is beginning to see good market reaction to its new wear plate
and tile products utilizing Chromium's proprietary CRODON hard chrome finish.
These products are designed to extend the service life of steel machinery
components operating in abrasive environments and have applications in a wide
variety of industries. Chromium is targeting 30% of its sales from these
products by the end of fiscal 2003. The company anticipates that Chromium will
be profitable in fiscal 2003.

A new subsidiary, Elk Technologies, Inc., was recently formed to
develop and market fabrics featuring Elk's VersaShield fire retardant coatings
for use outside of traditional building products applications. Current areas of
emphasis include mattresses, upholstered furniture, curtains and bed clothing.
While these activities have not produced commercial sales to date, management
believes that potentially significant demand for products utilizing this
technology could result from trends toward more stringent flammability
requirements for mattresses and upholstered furniture. The company plans to
generate revenue from these products in fiscal 2003.

During the past year, Ortloff was successful in marketing its
technology for use in new international natural gas development projects. The
outlook for 2003 is for Ortloff's continued success, primarily in international
projects.

FISCAL 2001 COMPARED TO FISCAL 2000

OVERALL PERFORMANCE

During the fiscal year ended June 30, 2001, net income of $8,762,000
was 71% lower than $29,932,000 in fiscal 2000. Sales of $379,156,000 were 4%
lower in fiscal 2001 compared to $395,198,000 in the prior year. The company's
two largest business segments, Building Products and Electronics Manufacturing
Services, each recorded lower sales and much lower operating income. The
Industrial Products segment was able to achieve increased sales in fiscal 2001
compared to fiscal 2000 and a significantly reduced operating loss. Consolidated
operating income of $17,354,000 in fiscal 2001 was 64% lower than $48,059,000 in
the prior fiscal year. As a percentage of sales, operating income was 4.6% in
fiscal 2001 compared to 12.2% in fiscal 2000. Selling, general and
administrative (SG&A) costs in fiscal 2001 were significantly higher than in
fiscal 2000 as a result of higher selling and marketing costs in the Building
Products segment, primarily relating to its new roofing manufacturing plant and
a new marketing campaign, together with higher depreciation at the corporate
office relating to its enterprise resource system. As a percentage of sales,
SG&A costs were 12.7% of sales in fiscal 2001 compared to 10.0% in the prior
year.

18

During the fiscal year ended June 30, 2000, the company recorded a
$1,292,000 gain from involuntary conversion as a result of payments received on
a property insurance claim in excess of the net book value of destroyed assets.
Interest expense was $3,494,000 in fiscal 2001 compared to $1,355,000 in the
prior fiscal year as a result of, among other things, increased working capital
requirements and higher overall interest rates in fiscal 2001 compared to fiscal
2000. The company capitalized $5,337,000 of interest in fiscal 2001 in
connection with the construction of its new Myerstown, Pennsylvania shingle
plant and other major projects. In fiscal 2000, $2,708,000 in interest costs
were capitalized.

RESULTS OF BUSINESS SEGMENTS

Sales for the Building Products segment of $335,971,000 for the fiscal
year ended June 30, 2001 were 4% lower than $350,319,000 in the prior fiscal
year. Lower sales were primarily the result of reduced shipments of nonwoven
fiberglass roofing mats. Demand for Elk's nonwoven fiberglass roofing mats,
which are primarily sold to other roofing manufacturers, was adversely affected
by weakened economic conditions that caused a decline in the total asphalt
shingle market in fiscal 2001. Because of weak economic conditions, the growth
rate for premium laminated shingles, which represents Elk's primary market, rose
less than 4% in fiscal 2001, compared to a 12% compounded annual growth rate for
the past five years. Harsh winter weather conditions in the Northern United
States and heavy winter and spring rains in many parts of the country
contributed to a decrease in demand for much of fiscal 2001 compared to the
record setting prior year. In addition, actions by competitors in the early part
of fiscal 2001 to increase their production of laminated shingles further
contributed to an excess supply of laminated shingles relative to demand,
thereby creating a weakened price environment. In the fourth quarter of fiscal
2001, the industry's year over year growth rate for premium laminated shingles
increased about 23%. Elk benefited from its decision to build inventories
throughout the winter and spring months in anticipation of potentially better
market conditions in the 2001 roofing season, which generally runs from March to
November in many of Elk's key market areas. The strong rebound in demand in the
final two months of fiscal 2001 allowed Elk to achieve slightly higher shipments
of premium laminated shingles for fiscal 2001 compared to fiscal 2000. Also,
improving industry balance between supply and demand near the end of fiscal 2001
allowed Elk to implement a small price increase effective in July 2001.

Operating income for the Building Products segment in fiscal 2001 of
$25,539,000 was 52% lower than the record level of $53,024,000 in the prior
fiscal year. Reduced sales of nonwoven fiberglass roofing mats reduced
year-over-year operating income by approximately $5,000,000. Average selling
prices for laminated shingles were also slightly lower in fiscal 2001 compared
to fiscal 2000. The company incurred approximately $8,000,000 in higher raw
material costs, particularly asphalt and glass fiber costs. Higher energy
expenses and costs relating to the development of significant new products, many
of which were introduced in fiscal 2002, further negatively impacted fiscal 2001
operating income compared to the prior fiscal year.

The new Myerstown, Pennsylvania roofing plant reduced operating profit
by approximately $7,000,000 in fiscal 2001. The Myerstown plant was also
indirectly responsible for increasing selling expenses by approximately
$3,000,000 as the company positioned itself to support higher shingle sales
relating to this new plant. Operating income in fiscal 2000 included $3,478,000
of income relating to the settlement of the company's business interruption
claim resulting from the fiscal 1999 nonwoven plant explosion.

19

Sales for the Electronics Manufacturing Services segment of $29,528,000
for the fiscal year ended June 30, 2001 were 12% lower than $33,420,000 in
fiscal 2000. Operating income for the Electronics Manufacturing Services Group
of $1,392,000 in fiscal 2001 compared to $4,904,000 in fiscal 2000. The severe
downturn in the telecommunications industry during fiscal 2001 sharply reduced
demand for digital cell phone models and telecom infrastructure equipment.
Comparative year to year sales and operating results were also negatively
affected by actions by a significant customer in the latter part of fiscal 2000
to establish a second source for some of its cellular handset shielding
requirements. Decreased operating income is primarily attributable to reduced
sales, higher costs incurred for initial production ramp-ups on new digital
wireless handset products, and costs associated with workforce reductions as
orders for many products were severely curtailed or cancelled.

Sales for the Industrial Products segment increased 20% in fiscal 2001
to $13,561,000 from $11,300,000 in the prior fiscal year. The operating loss for
the Industrial Products segment for fiscal 2001 was $735,000 compared to
$4,653,000 last year. Fiscal 2001 included an operating loss for July 2000
resulting principally from the consolidation of manufacturing operations and
initial production of products new to Chromium's Cleveland, Ohio plant.
Excluding the results of July 2000, Chromium generated an operating profit for
each month of fiscal 2001. Operating losses included about $750,000 in fiscal
2001 and $3,400,000 in fiscal 2000 of nonrecurring items relating to the
consolidation of Chromium's manufacturing operations. Revenues and operating
results for Ortloff's patent licensing and engineering consulting services were
lower in fiscal 2001 compared to the prior fiscal year.

LIQUIDITY AND CAPITAL RESOURCES

Cash flows from operating activities are generally the result of net
income, deferred taxes, depreciation and amortization, and changes in working
capital. In fiscal 2002, cash flows from operating activities were $27,661,000
compared to $10,406,000 in fiscal 2001 and $45,020,000 in fiscal 2000. The
increase in fiscal 2002, compared to fiscal 2001, was primarily the result of
higher net income and increased depreciation. Working capital, excluding cash
and cash equivalents, increased by $15,696,000 primarily due to higher trade
receivables.

Trade receivables at June 30, 2002, increased 29%, or $21,104,000,
compared to June 30, 2001 as a result of higher sales volumes and increased
deferred receivables. At June 30, 2002, deferred term receivables from
promotional programs to certain customers were $8,608,000 compared to $2,854,000
at June 30, 2001. Deferred receivables outstanding at June 30, 2002 are due in
the first quarter of fiscal 2003.

Lower inventories of premium laminated fiberglass shingles resulted
from demand exceeding manufacturing capacity throughout fiscal 2002, as the
Myerstown, Pennsylvania plant ramped its production rate to design capacity.
Inventory levels are expected to increase during the summer and fall roofing
season as a result of higher manufacturing rates and somewhat slower demand.

The current ratio was 3.3 to 1 at June 30, 2002 compared to 2.9 to 1 at
June 30, 2001. Historically, working capital requirements fluctuate during the
year because of seasonality in some market areas. Generally, working capital
requirements and related borrowings are higher in the spring and summer months,
and lower in the fall and winter months.

20

Cash flows from investing activities primarily reflect the company's
capital expenditure strategy. Net cash used for investing activities was
$10,637,000 in fiscal 2002, $38,416,000 in fiscal 2001 and $67,525,000 in fiscal
2000. After several years of expanding plant capacity aggressively, including
the Myerstown, Pennsylvania roofing plant, the company limited capital
expenditures in fiscal 2002 to focus primarily on improving productivity at
existing plants and extending production capacity for new products. Capital
expenditures in fiscal 2003 are currently planned to be approximately
$63,000,000, with about $59,000,000 of this total being expended in Building
Products. The company plans to invest approximately $77,000,000 over a two year
period to construct a second shingle manufacturing line at its Tuscaloosa,
Alabama roofing plant and install certain infrastructure and material handling
improvements designed to enhance the overall efficiency of the expanded
facility. Approximately $34,000,000 of the planned investment is projected to be
expended in fiscal 2003 and the remaining $43,000,000 to be incurred in fiscal
2004.

An additional $11,000,000 is planned in fiscal 2003 for productivity
enhancements at certain of its other roofing plants. Remaining Building Product
expenditures are for new warehouse sites and maintenance expenditures.

Cash flows from financing activities generally reflect changes in the
company's borrowings during the period, together with dividends paid on common
stock, treasury stock transactions and exercises of stock options. Net cash used
for financing activities was $4,716,000 in fiscal 2002, compared to funds
provided of $23,436,000 in fiscal 2001 and $23,021,000 in fiscal 2000. During
fiscal 2002, the company sold $120,000,000 in Senior Unsecured Notes in a
private placement transaction with a group of institutional investors. The
proceeds of the notes were used to repay indebtedness outstanding under the
company's existing Revolving Credit Facility. In conjunction with the sale of
these notes, the company reduced the total amount of its Revolving Credit
Facility from $175,000,000 to $100,000,000. There was no outstanding balance on
the Revolving Credit Facility at June 30, 2002.

The changes in the company's debt structure were made to extend the
maturity structure of the company's debt on favorable terms, increase the total
committed borrowing availability and better diversify the company's funding
sources. Long-term debt (net of cash and cash equivalents) represented 37.9% of
the $283,374,000 of invested capital (long-term debt, net of cash, plus
shareholders' equity) at June 30, 2002. The company has no off-balance sheet
arrangements or transactions with unconsolidated, limited purpose entities.

The company's Board of Directors has authorized the purchase of common
stock from time to time on the open market. As of June 30, 2002, the company has
repurchase authority of approximately $10,600,000 remaining.

21

The following table summarizes the company's future payments relating
to contractual obligations at June 30, 2002:

The only significant commercial commitment the company has at June 30,
2002 is its $100,000,000 Revolving Credit Facility, the term of which extends
through November 30, 2005.

The company's operations are subject to extensive federal, state and
local laws and regulations relating to environmental matters. Such laws and
regulations are frequently changed and could result in significantly increased
cost of compliance. Certain of the company's manufacturing operations utilize
hazardous materials in their production processes. As a result, the company
incurs costs for remediation activities off-site and at its facilities from time
to time. The company establishes and maintains reserves for such remediation
activities, when appropriate. Current reserves established for known or probable
remediation activities are not material to the company's financial position or
results of operations.

Management believes that current cash and cash equivalents, projected
cash flows from operations, and its existing restructured debt capacity should
be sufficient during fiscal 2003 and beyond to fund the Tuscaloosa, Alabama
plant expansion, other planned capital expenditures, working capital needs,
dividends, stock repurchases and other cash requirements.

CRITICAL ACCOUNTING POLICIES

The company's consolidated financial statements were prepared in
conformity with accounting principles generally accepted in the United States of
America. As such, management is required to make certain estimates, judgments
and assumptions it believes are reasonable based on the information available.
The accounting policies which management believes are the most critical to fully
understanding and evaluating the company's reported financial results include
the following:

Collectibility of Accounts Receivable -

The majority of the company's sales are in the Building Products
segment and its primary customers are building material distributors. Due to
consolidation in the industry, credit risk is concentrated. Ten customers
typically account for about 40% to 50% of consolidated sales. The company
evaluates the collectibility of accounts receivables based on a combination of
factors. The balance in the reserve for doubtful accounts is evaluated on an
ongoing basis based on such factors as customer's past payment history, length
of time the receivables are past due, the status of customer's financial
condition and ongoing credit evaluations.

22

Accruals for Loss Contingencies -

Contingencies, or uncertainties, by their nature, require management to
exercise judgment both in assessing the likelihood that a liability has been
incurred as well as in estimating the amount of loss. Key loss accruals for the
company include product warranties, litigation, environmental matters, and
self-insurance reserves. Accruals are established for loss contingencies when it
is probable that a liability has been incurred and the amount of loss can be
estimated reasonably. Accrual balances are reviewed and adjusted periodically
based on management's judgment of changes in specific facts and circumstances
for each loss accrual.

Inventories -

Inventories are stated at the lower of cost or market value. Cost is
determined by the first-in, first-out method. The company records adjustments to
the value of inventories based on various factors. For the Building Products
segment, adjustments may be made to inventory values based on the physical
condition (e.g. age and quality) of the inventories. For the Other, Technologies
segment companies, inventory adjustments are generally based upon the forecasted
plans to sell its products and the sales prices that are expected to be
realized. Inventories are adjusted to the lower of cost or market or written off
if unsaleable. These adjustments are estimates and can vary from actual
requirements if inventories deteriorate, become otherwise damaged or obsolete,
or if competitive conditions differ from expectations.

Revenue Recognition -

The company recognizes revenue in accordance with SEC Staff Accounting
Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB 101), as
amended. The company believes its revenue recognition policies are appropriate
and in accordance with generally accepted accounting principles and SAB 101. The
majority of sales are for manufactured products, where revenue is recognized at
the time products are shipped to customers. Such revenues, particularly in the
Building Products segment, are subject to returns, discounts, volume rebates and
other incentives, which are estimated and recorded based on sales activity and
historical trends. Differences in revenues could result if actual experience
differs from the historical trends used in management's estimates. Revenue
recognition for service revenues and license fees may be subject to judgment and
interpretation that the specific requirements of SAB 101 have been met.

Impairment of Long-Lived Assets -

Long-lived assets, primarily plant, property and equipment, are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amounts of any such assets may not be recoverable. If the
estimated sum of undiscounted cash flows is less than the carrying value of the
assets being reviewed, the company recognizes an impairment loss, measured as
the amount the carrying value exceeds the fair value of the assets. The estimate
of future cash flows is based upon, among other things, certain assumptions
about expected future operating performance. The company's estimate of
undiscounted cash flows may differ from actual cash flow due to, among other
things, changes in general economic conditions, industry conditions, customer
requirements, technology or the company's business model.

23

MARKET RISKS

In addition to the risks inherent in its operations, the company is
exposed to financial, market, political and economic risks. The following
discussion provides additional detail regarding the company's exposure to the
risks of changing commodity prices and interest rates. The company has no
significant foreign exchange risk. Derivatives are held as part of a formally
documented risk management program. Derivatives are held to mitigate
uncertainty, volatility or to cover underlying exposures. No derivatives are
held for trading purposes. The company has entered into derivative transactions
related to interest rate risk and its exposure to natural gas used in its
manufacturing plants, as summarized in the following paragraphs.

The company is required to purchase natural gas for use in its
manufacturing facilities. These purchases expose the company to the risk of
higher natural gas prices. To hedge this risk, the company has entered into
hedge transactions to fix the price on 50% of its projected natural gas usage
through October 2002. It is anticipated that similar hedging strategies will be
utilized in the future. The fair value of the hedges for natural gas was a gain
of approximately $50,000 ($31,000 net of tax) at June 30, 2002.

The company uses interest rate swaps to help maintain a reasonable
balance between fixed and floating rate debt. The company has entered into a
receive fixed, pay floating interest rate swap on $60,000,000, or 50% of its
outstanding debt at June 30, 2002. The fair value of this swap was a loss of
$282,000 at June 30, 2002. Based on outstanding debt at June 30, 2002, the
company's interest costs would increase or decrease $600,000 for each
theoretical 1% increase or decrease in the floating interest rate.

CREDIT RISK

The company is subject to credit risks applicable to cash and cash
equivalents and accounts receivable. Cash and cash equivalents are maintained at
financial institutions or in short-term investments with high credit quality.
Concentrations of credit risk with respect to accounts receivable primarily
relate to the large building material distributors that are the company's
primary customers. The company's largest customer accounted for 17% of
consolidated sales in fiscal 2002 and 20% in fiscal 2001. The company performs
ongoing credit evaluations of its customers' financial condition to determine
the need for an allowance for doubtful accounts. The company has not experienced
significant credit losses for many years. Concentration of credit risk with
respect to accounts receivable is limited to those customers to whom the company
makes significant sales.

INFLATION AND CHANGING PRICES

The company's primary financial statements are prepared in accordance
with accounting principles generally accepted in the United States of America
based on historical dollars. Accordingly, the financial statements do not
portray the effects of inflation. In recent years, inflation in the company's
key markets has been moderate. Cost controls and improving productivity
generally minimize the impact of inflation.

24

The costs of manufacturing, transportation and key raw materials,
including but not limited to ceramic-coated granules, asphalt, glass fibers,
resins and mineral filler, together with the company's ability to pass along
higher costs, are generally influenced by factors other than inflation. These
factors include general economic and industry conditions, supply and demand,
surpluses and shortages, and actions of key competitors.

FORWARD-LOOKING STATEMENTS

In an effort to give investors a well-rounded view of the company's
current condition and future opportunities, management's discussion and analysis
of the results of operations and financial condition and other sections of this
annual report contain "forward-looking statements" that involve risks and
uncertainties about its prospects for the future. The statements that are not
historical facts are forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. These statements usually are
accompanied by words such as "believe," "estimate," "project," "expect,"
"anticipate," "predict," "outlook," "plan," "potential," "could," "should,"
"may," or similar words that convey the uncertainty of future events or
outcomes. These statements are based on judgments the company believes are
reasonable; however, ElkCorp's actual results could differ materially from those
discussed in this report. Factors that could cause or contribute to such
differences could include, but are not limited to: changes in demand or prices,
changes in raw material or transportation costs, raw material or transportation
shortages, changes in economic conditions of the various markets the company
serves, changes in the amount and severity of inclement weather, actions of
competitors, new and planned facilities not meeting expected productivity rates
and projected financial results, and technological changes, together with other
risks detailed herein, as well as in the company's reports filed with the
Securities and Exchange Commission, including, but not limited to its Form 8-K
dated August 14, 2002.

Factors that could affect the company's future business and results
include the following:

1. The company's building products business is substantially
non-cyclical, but can be affected by weather, the availability
of financing, insurance claims paying practices, and general
economic conditions. In addition, the asphalt roofing products
manufacturing business is highly competitive. Actions of
competitors, including changes in pricing, or slowing demand
for asphalt roofing products due to general or industry
economic conditions or the amount of inclement weather could
result in decreased demand for the company's products, lower
prices received or reduced utilization of plant facilities.
Further, changes in building and insurance codes and other
standards from time to time can cause changes in demand, or
increases in costs that may not be passed through to
customers.

2. In the building products business, the significant raw
materials are ceramic-coated granules, asphalt, glass fibers,
resins and mineral filler. Increased costs of raw materials
can result in reduced margins, as can higher energy, trucking
and rail costs. Furthermore, temporary shortages or disruption
in supply of raw materials or transportation do result from
time to time from a variety of causes. Historically, the
company has been able to pass some of the higher raw material,
energy and transportation costs through to the customer.
Should the company be unable to

25

recover higher raw material, energy and/or transportation
costs from price increases of its products, or if the company
experiences temporary shortages or disruption of supply of raw
material or transportation, operating results could be
adversely affected and/or lower than projected.

3. The company has been involved in a significant expansion plan
over the past several years, including the construction of new
facilities and the expansion of existing facilities. Progress
in achieving anticipated operating efficiencies and financial
results is difficult to predict for new and expanded plant
facilities. If such progress is slower than anticipated, or if
demand for products produced at new or expanded plants does
not meet current expectations, operating results could be
adversely affected.

4. Certain facilities of the company's subsidiaries must utilize
hazardous materials in their production process. As a result,
the company could incur costs for remediation activities at
its facilities or off-site, and other related exposures from
time to time in excess of established reserves for such
activities.

5. The company's litigation is subject to inherent and
case-specific uncertainty. The outcome of such litigation
depends on numerous interrelated factors, many of which cannot
be predicted.

6. Although the company currently anticipates that most of its
needs for new capital in the near future will be met with
internally generated funds or borrowings under its available
credit facilities, significant increases in interest rates
could substantially affect its borrowing costs under its
existing loan facility, or its cost of alternative sources of
capital.

7. Each of the company's businesses, especially Cybershield's
business, is subject to the risks of technological changes and
competition that is based or technology improvement or labor
savings. These factors could affect the demand for or the
relative cost of the company's technology, products and
services, or the method and profitability of the method of
distribution or delivery of such technology, products and
services. In addition, the company's businesses each could
suffer significant setbacks in revenues and operating income
if it lost one or more of its largest customers, or if its
customers' plans and/or markets should change significantly.
Cybershield has lost substantial business as a result of most
cellular handset production moving to Asia where Cybershield
has no significant presence. Low labor costs make other
coating processes competitive with those Cybershield would
use. Cybershield's future viability may depend on the
successful commercialization of the EXACT process, or other
value added services, which are unproven as yet on a large
commercial scale.

8. Although the company insures itself against physical loss to
its manufacturing facilities, including business interruption
losses, natural or other disasters and accidents, including
but not limited to fire, earthquake, damaging winds, and
explosions, operating results could be adversely affected if
any of its manufacturing facilities became inoperable for an
extended period of time due to such events.

26

9. Each of the company's businesses is actively involved in the
development of new products, processes and services which are
expected to contribute to the company's ongoing long-term
growth and earnings. If such development activities are not
successful, market demand is less than expected, or the
company cannot provide the requisite financial and other
resources to successfully commercialize such developments, the
growth of future sales and earnings may be adversely affected.

Parties are cautioned not to rely on any such forward-looking beliefs
or judgments in making investment decisions.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

In addition to the risks inherent in its operations, the company is
exposed to financial, market, political and economic risks. The following
discussion provides additional detail regarding the company's exposure to the
risks of changing commodity prices and interest rates. The company has no
significant foreign exchange risk. Derivatives are held as part of a formally
documented risk management program. Derivatives are held to mitigate
uncertainty, volatility or to cover underlying exposures. No derivatives are
held for trading purposes. The company has entered into derivative transactions
related to interest rate risk and its exposure to natural gas used in its
manufacturing plants, as summarized in the following paragraphs.

The company is required to purchase natural gas for use in its
manufacturing facilities. These purchases expose the company to the risk of
higher natural gas prices. To hedge this risk, the company has entered into
hedge transactions to fix the price on 50% of its projected natural gas usage
through October 2002. It is anticipated that similar hedging strategies will be
utilized in the future. The fair value of the hedges for natural gas was a gain
of approximately $50,000 ($31,000 net of tax) at June 30, 2002.

The company uses interest rate swaps to help maintain a reasonable
balance between fixed and floating rate debt. The company has entered into a
receive fixed, pay floating interest rate swap on $60,000,000, or 50% of its
outstanding debt at June 30, 2002. The fair value of this swap was a loss of
$282,000 at June 30, 2002. Based on outstanding debt at June 30, 2002, the
company's interest costs would increase or decrease $600,000 for each
theoretical 1% increase or decrease in the floating interest rate.

27

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

Index to Financial Statements and Financial Statement Schedule

28

REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholders and Board of Directors of
ElkCorp (formerly Elcor Corporation)

In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, shareholders' equity and cash flows
present fairly, in all material respects, the financial position of ElkCorp
(formerly Elcor Corporation) and its subsidiaries at June 30, 2002, and the
results of their operations and their cash flows for the year ended June 30,
2002, in conformity with accounting principles generally accepted in the United
States of America. These financial statements are the responsibility of the
company's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP
- ----------------------------------
PricewaterhouseCoopers LLP

Dallas, Texas
August 16, 2002

29

INDEPENDENT AUDITORS' REPORT

To the Shareholders and Board of Directors,
Elcor Corporation

We have audited the accompanying consolidated balance sheets of Elcor
Corporation (a Delaware corporation) and subsidiaries as of June 30, 2001 and
the related consolidated statements of operations, shareholders' equity and cash
flows for each of the two years in the period ended June 30, 2001. These
financial statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Elcor Corporation and
subsidiaries as of June 30, 2001 and the results of their operations and their
cash flows for each of the two years in the period ended June 30, 2001, in
conformity with accounting principles generally accepted in the United States.

/s/ Arthur Andersen LLP
Arthur Andersen LLP

Dallas, Texas
August 13, 2001

This is a copy of the audit report previously issued by Arthur Andersen LLP for
the consolidated balance sheet as of June 30, 2001 and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
two years in the period ended June 30, 2001. This audit report has not been
reissued by Andersen in connection with this annual report. See Item 9 and
Exhibit 23.2 for further information.

30

ELKCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

================================================================================
The Summary of Significant Accounting Policies and Notes to Consolidated
Financial Statements are an integral part of these statements.

34

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS

Effective September 1, 2002, the company changed its corporate name
from Elcor Corporation to ElkCorp to better identify itself with the Elk brand
name of its principal Building Products subsidiaries.

The company is segregated and managed as two segments: Elk Premium
Building Products (Building Products) and Elk Technologies (Other,
Technologies). The Building Products group consists of the various operating
subsidiaries of Elk Premium Building Products, Inc. (collectively Elk). These
companies manufacture (1) premium laminated fiberglass asphalt shingles and (2)
coated and non-coated nonwoven fabrics used in asphalt shingles and other
applications in the building and construction, filtration, floor coverings and
other industries. Building Products accounted for 91% of consolidated sales in
fiscal 2002.

The Other, Technologies segment consists of the operations that are not
part of the Building Products segment. These dissimilar operations are combined
into one segment beginning in fiscal 2002, as none individually meet the
materiality criteria for separate segment reporting. Prior to fiscal 2002, the
Other, Technologies segment was shown as two separate segments: Electronics
Manufacturing Services and Industrial Products. The businesses aggregated
together as the Other, Technologies segment accounted for 9% of consolidated
sales in fiscal 2002.

The operations included as Other, Technologies are (1) the operating
subsidiaries of Cybershield, Inc. (collectively Cybershield), which apply
precise conductive metal coatings to plastic components utilized in electronics
enclosures to control the electromagnetic and radio frequency emissions of such
devices, and to create circuitry and antennae for digital wireless cellular
phones, consumer electronics equipment, and various other industries; (2)
Chromium Corporation (Chromium), which is a leading provider of hard chrome and
other surface finishes for the railroad, marine and various other industries;
and (3) Ortloff Engineers, LTD (Ortloff), a leading supplier of proprietary
technologies and related engineering services to the natural gas processing
industry. A fourth operation, Elk Technologies, Inc., was recently incorporated
to develop and market fabrics featuring VersaShield fire retardant coating for
use outside of traditional building products applications, including mattresses,
furniture, curtains and bed clothing. This business has not yet produced
commercial sales.

PRINCIPLES OF CONSOLIDATION / USE OF ESTIMATES

The consolidated financial statements include the accounts of the
company and all subsidiaries after elimination of significant intercompany
balances and transactions. The consolidated financial statements are prepared in
conformity with accounting principles generally accepted in the United States of
America and require management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements. They also affect
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ significantly from those estimates upon subsequent
resolution of the identified matters.

35

CASH AND CASH EQUIVALENTS

Cash equivalents are highly liquid investments purchased with an
original maturity of, or which are subject to redemption in, three months or
less.

CONCENTRATION OF CREDIT RISK

The majority of the company's sales are in the Building Products
segment, which accounted for 91% of consolidated sales in fiscal 2002. Its
primary customers are building materials distributors. For several years, the
building materials distribution industry has consolidated at a rapid pace with
many smaller independent distributors being acquired by larger national building
materials distributors. The ten largest Building Products customers typically
account for approximately 40% to 50% of annual consolidated sales. One customer
accounted for 17%, 20% and 17% of consolidated sales in fiscal years 2002, 2001
and 2000, respectively. The company performs ongoing credit evaluations and
maintains reserves for potential credit losses.

REVENUE RECOGNITION

Significant revenue recognition policies are as follows:

o Manufactured Products - Revenue is recognized at the time
products are shipped to customers. All risks and rewards of
ownership pass to the customer upon shipment. Damaged or
defective products may be returned for replacement or credit.
In Building Products, sales volume rebates or contractual
allowance payments are offered to customers based on their
level of sales activity. The effects of returns, discounts and
other incentives are estimated and recorded at the time of
shipment. Volume rebates and allowances are estimated and
recorded based on sales activity.

o Service Revenues - Service revenues and related expenses are
immaterial and are not disaggregated in the financial
statements. When services are provided, generally by companies
in Other, Technologies, revenue is recognized as services are
performed.

o License Fees - License fees are generally recognized by
Ortloff when a customer contracts for a nonexclusive license
to use the inventions covered by company patents. Licenses are
granted without term.

SHIPPING AND HANDLING COSTS

In accordance with Emerging Issues Task Force Issue 00-10, "Accounting
for Shipping and Handling Fees and Costs," freight costs for all reporting
periods are included in cost of goods sold.

36

INVENTORIES

Inventories are stated at the lower of cost (including direct
materials, labor, and applicable overhead) or market, using the first-in,
first-out (FIFO) method. Inventories were comprised of:

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are stated at cost. Major renewals and
improvements are capitalized, while maintenance and repairs are expensed when
incurred. Depreciation is computed over the estimated useful lives of
depreciable assets using the straight-line method. Useful lives for property and
equipment are as follows:

Buildings and improvements 10 - 40 years
Machinery and equipment 5 - 20 years
Computer equipment 3 - 6 years
Office furniture and equipment 5 - 12 years

During 2002, 2001 and 2000, the company recorded to expense
$17,869,000, $13,603,000 and $10,625,000, respectively, in depreciation expense.

The cost and accumulated depreciation for property, plant and equipment
sold, retired, or otherwise disposed of are relieved from the accounts, and
resulting gains or losses are reflected in income. Interest is capitalized in
connection with the construction of major projects. The capitalized interest is
recorded as part of the asset to which it relates and is amortized over the
asset's estimated useful life. In 2002, no interest was capitalized. In 2001 and
2000, $5,337,000 and $2,708,000 of interest cost was capitalized, respectively.

GOODWILL

Goodwill is amortized on a straight line basis over twenty years.
Unamortized goodwill at June 30, 2001 was $837,000. At June 30, 2002, all
unamortized goodwill had been written off in connection with the consolidation
of Cybershield's operations in March 2002.

37

LONG-LIVED ASSETS

The company assesses long-lived assets for impairment under Financial
Accounting Standards Board (FASB) Statement of Financial Accounting Standards
(SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." The carrying amount of long-lived assets,
including goodwill, is reviewed if facts and circumstances suggest that it may
be impaired. If this review indicates that long-lived assets will not be
recoverable, as determined based on the estimated undiscounted cash flows of the
long-lived assets over the remaining period of use, the carrying amount of the
long-lived assets is reduced to estimated fair value of the impaired assets. In
fiscal 2002, the company recorded a $3,360,000 impairment charge for the
writedown of long-lived assets at Cybershield's Canton, Georgia manufacturing
facility. The impairment charge is included as a component of cost of sales in
the accompanying statement of operations.

INCOME TAXES

Deferred income taxes are provided to reflect temporary differences
between the financial reporting basis and the tax basis of the company's assets
and liabilities using presently enacted tax rates.

SUPPLEMENTAL CASH FLOWS

Supplemental cash flow amounts were as follows:

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

Derivatives are held as part of a formally documented risk management
program. No derivatives are held for trading purposes. The company measures
hedge effectiveness by formally assessing, on a quarterly basis, the historical
and probable future high correlation of changes in the fair value or expected
future cash flows of the hedged item. The ineffective portions are recorded in
other income or expense in the current period.

In November 2001, the company adopted an Energy Risk Management Policy
and an Energy Committee was appointed to develop strategies to manage the
company's risks of adverse changes in the energy markets. The company has
entered into hedge transactions to set the price relating to approximately 50%
of its anticipated use of natural gas not subject to fixed rate contracts
through October 2002. For this cash flow hedge, the fair value of the derivative
was recorded on the balance sheet. The effective portion of the changes in the
fair value of this derivative is recorded in other comprehensive income and
reclassified to cost of sales in the period in which earnings are impacted by
the hedged items. At June 30, 2002, Accumulated Other Comprehensive Income was
made up of $50,000 ($31,000 net of tax) relating to the cash flow hedge of
natural gas usage.

38

The Board of Directors and company management determined that prudent
interest rate strategy is to maintain a debt mix that is balanced between fixed
rate debt and variable rate debt. In June 2002, the company entered into a
receive fixed, pay floating interest rate swap to effectively convert the
interest rate from fixed to floating on $60,000,000 of debt through 2012. For
this fair value hedge, both the fair value of the derivative and the underlying
hedged item are reported in the balance sheet. Changes in the fair value of the
derivative and the underlying hedged item offset and are recorded each period in
other income or expense, as applicable.

The company is exposed to credit loss in the event of nonperformance by
counterparties on the above instruments. Although nonperformance is possible,
the company does not anticipate nonperformance, as such contracts are, in
management's opinion, with creditworthy counterparties.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amount of the company's cash, cash equivalents, trade
receivables, accounts payable, long-term debt and derivative instruments
approximates fair value.

NEW ACCOUNTING STANDARDS

In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other
Intangible Assets." The company will adopt SFAS No. 142, effective July 1, 2002.
Subsequent to the adoption of SFAS No. 142, goodwill must be tested for
impairment annually and recorded goodwill is not amortized. At June 30, 2002,
the company had no unamortized goodwill or other significant intangible assets
covered by SFAS No. 142. The company does not believe the adoption of SFAS No.
142 will have a material impact on the company's financial position or results
of operations.

In June 2001, FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." This statement is effective for the company in fiscal
2004. SFAS No. 143 requires legal obligations associated with the retirement of
long-lived assets to be recognized at their fair value at the time that the
obligations are incurred. Upon initial recognition of a liability, that cost is
capitalized as part of the related long-lived asset and allocated to expense
over the useful life of the asset. Based on current circumstances, the company
does not believe the adoption of SFAS No. 143 will have a material impact on the
company's financial position or results of operations.

In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment and Disposal of Long-Lived Assets." This statement supersedes SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of" and the accounting and reporting provision of
Accounting Principles Board Opinion No. 30, "Reporting the Results of Operations
- - Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual, and Infrequently Occurring Events and Transactions."
SFAS No. 144 is effective for the Company on July 1, 2002. Based on current
circumstances, the company does not expect the impact of its adoption to be
material to its financial position or results of operations.

In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 requires companies to
recognize costs associated with exit or disposal activities when they are
incurred rather than at a date of a commitment to an exit or disposal plan. SFAS
No. 146 is to be applied prospectively to exit or disposal activities after
December 31, 2002. The company has no currently anticipated exit or disposal
activities.

39

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

EARNINGS PER SHARE

Basic earnings per share were computed by dividing net income by the
weighted average number of shares of common stock outstanding during the year.
The reconciliation of basic earnings per share to diluted earnings per share is
shown in the following table:

LONG-TERM DEBT

In June 2002, the company issued $120,000,000 of Senior Notes (Notes).
Of the Notes, $60,000,000 mature in fiscal 2009 and carry a coupon rate of
6.99%, and $60,000,000 mature in fiscal 2012 and carry a coupon rate of 7.49%.
Interest is payable semiannually on June 15 and December 15 of each year. The
proceeds from these borrowings were used to repay amounts outstanding under the
Revolving Credit Facility and for general corporate purposes.

In conjunction with the sale of the Notes, the company reduced its
Revolving Credit Facility (Facility) from $175,000,000 to $100,000,000 of
primary credit, including up to a maximum of $10,000,000 in letters of credit
through November 30, 2005. At June 30, 2002, letters of credit totaling
$2,584,000 were outstanding. Borrowings under the Facility bear interest at (1)
the lender's prime rate, or (2) at the company's option, a Eurodollar rate, in
each case plus specified basis points based on the company's leverage ratio, as
defined, at each quarter end. The Facility also provides for

40

a commitment fee on the average unused portion of the line. The commitment fee
rate is also determined by the company's leverage ratio. No borrowings were
outstanding on the Facility at June 30, 2002.

Both the Notes and the Facility require that the company maintain a
specified minimum consolidated net worth, and a maximum capitalization ratio,
based on defined terms. The Facility also contains a minimum fixed charge
coverage ratio and the Notes contain a minimum interest coverage ratio, also
based on defined terms. At June 30, 2002, the company was in compliance with all
requirements. Dividend payments and stock repurchases are also limited to
certain specified levels by the Facility agreement.

The company has no off-balance sheet arrangements or transactions with
unconsolidated, limited purpose entities.

SHAREHOLDERS' EQUITY

Authorized common stock, par value $1.00, is 100,000,000 shares, of
which 19,988,074 shares were issued at June 30, 2002. The Board of Directors is
authorized to issue up to 1,000,000 shares of preferred stock, without par
value, in one or more series and to determine the rights, preferences, and
restrictions applicable to each series. No preferred stock has been issued.

SHAREHOLDER RIGHTS PLAN

On May 26, 1998, the company's Board of Directors adopted a new
Shareholder Rights Plan which took effect when the existing rights plan expired
on July 8, 1998. Under the new plan, rights were constructively distributed as a
dividend at the rate of one right for each share of common stock of the company
held by the shareholders of record as of the close of business on July 8, 1998.
Until the occurrence of certain events, the rights are represented by and trade
in tandem with common stock. Each right will separate and entitle shareholders
to buy stock upon an occurrence of certain takeover or stock accumulation
events. Should any person or group (Related Person), other than certain bona
fide institutional investors to whom a 20% threshold applies, acquire beneficial
ownership of 15% or more of the company's common stock, all rights not held by
the Related Person become rights to purchase one one-hundredth of a share of
preferred stock for $110 or $110 of ElkCorp common stock at a 50% discount. If
after such an event the company merges, consolidates or engages in a similar
transaction in which it does not survive, each holder has a "flip over" right to
buy discounted stock in the surviving entity.

Under certain circumstances, the rights are redeemable at a price of
$0.01 per right. Further, upon defined stock accumulation events, the Board of
Directors has the option to exchange one share of common stock per right. The
rights will expire by their terms on July 8, 2008.

41

EMPLOYEE BENEFIT PLANS

The company's Incentive Stock Option Plan provides for the granting of
incentive and nonqualified stock options to directors, officers and key
employees of the company for purchase of the company's common stock.

Information relating to options is as follows:

The following table summarizes information about options outstanding at June 30,
2002:

At June 30, 2002, 2001 and 2000, options for 864,554, 508,857, and
339,239 shares were exercisable, respectively. A total of 665,006, 974,129, and
1,462,150 shares were reserved for future grants at June 30, 2002, 2001 and
2000, respectively.

Beginning in fiscal 1997, the company adopted the disclosure-only
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation." Pro forma
information regarding net income and income per share set forth below has been
determined as if the company had accounted for its stock options under the fair
value methodology prescribed by SFAS No. 123. The fair value of each option
grant is estimated on the date of grant using the Black-Scholes option-pricing
model with the following weighted-average assumptions for fiscal 2002, 2001 and
2000; dividend yields of 1.0%,

42

1.1%, and 0.7%; risk-free interest rates of 5.1%, 6.2%, and 6.3%; expected
market price volatility of .42, .432, and .421; and expected lives of options of
9.0 years. Based on this model, the weighted average fair value of stock options
granted in fiscal 2002, 2001 and 2000 was $11.94, $10.42 and $15.67,
respectively, per share.

Net income pro forma, includes an add back of $3,922,000 for the
after-tax effect of noncash stock option compensation recorded to expense in
fiscal 2002 using APB No. 25 methodology, net of $3,975,000 after-tax effect of
stock option expense calculated using SFAS No. 123 methodology. Pro forma
earnings per share, excluding only noncash stock option compensation, for fiscal
2002 was $19,015,000, or $.98 per share-basic and $.97 per share-diluted. The
pro forma amounts presented above may not be representative of the effects on
reported net income for future years.

The company's Employee Stock Ownership Plan (ESOP) became effective
January 1, 1981. Under the plan, the company contributes a percentage of each
participant's annual compensation into a trust, either as treasury stock
contributions or cash, which is then used to purchase ElkCorp common stock.
Employees vest 20% after one year of employment and 20% per year thereafter,
with the stock distributed at retirement, death, disability, or as authorized by
the Plan Administrative Committee. Effective January 1, 1990, the company
established an Employee Savings Plan under Internal Revenue Code section 401(k).
Under the 401(k) Plan, the company may contribute a percentage of each
participant's annual compensation into the 401(k) Plan to be invested among
various defined alternatives at the participants' direction. Vesting of company
contributions is in accordance with the same schedule as that of the ESOP. All
full-time employees, except those covered by plans established through
collective bargaining, are eligible for participation in the above plans after
meeting minimum service requirements.

Since 1998, the Board of Directors annually has authorized total
contributions of 5.0%, including forfeitures, of each participant's annual
compensation, as defined, split equally between the ESOP and 401(k) Plans. In
addition, the company contributes an additional $.50 for every $1.00 of employee
contributions into the 401(k) Plan limited to a maximum matching of 2% of an
employee's compensation. Total contributions charged to expense for these plans
were $3,140,000, $2,558,000 and $2,466,000, in 2002, 2001 and 2000,
respectively.

Under the company's Stock/Loan Plan, which became effective July 1,
1975, approximately 200 employees have been granted loans, based on a percentage
of their salaries and the performance of their operating units, for the purpose
of purchasing the company's common stock. Under the Stock/Loan Plan, a ratable
portion of the loans, which are unsecured, and any accrued interest are forgiven
and recognized as compensation expense over five years of continuing service
with the company. If employment is terminated for any reason except death,
disability or retirement, the balance of the loan becomes due and payable. Loans
outstanding at June 30, 2002 and 2001 totaling

43

$1,105,000 and $1,551,000, respectively, are included in other assets. As a
result of certain provisions of the Sarbanes - Oxley Act of 2002, no loans will
be granted to executive officers of ElkCorp subsequent to fiscal 2002.

NONCASH STOCK OPTION COMPENSATION

In prior periods, the company followed the "fixed" method of accounting
for all employee stock options under APB No. 25, "Accounting for Stock Issued to
Employees," and related interpretations, and the disclosure-only provisions of
SFAS No. 123, "Accounting for Stock-Based Compensation." Accordingly, no
compensation expense was recorded in prior periods with respect to the company's
stock option plan as options were granted with an exercise price equal to the
stock's fair market value at date of grant.

The company's 1998 Incentive Stock Option Plan contains a cashless
exercise provision that permits an optionee to relinquish vested options to the
company in exchange for common shares having a current market value equal to the
net exercised market value of the relinquished options. Under APB No. 25, the
aforementioned cashless relinquishment feature can potentially cause options
issued under the 1998 Plan to be considered stock appreciation rights ("SAR's")
in substance, if not in form, unless past experience and economic incentives
indicate that optionees are more likely to exercise, rather than relinquish, the
options. Under APB No. 25, SAR's are accounted for using "variable" accounting
whereby income is charged (or credited) during each accounting period to reflect
any excess of the market value of shares underlying vested SAR's, over the
exercise price of vested SAR's.

It was never the company's intention to issue SAR's under the 1998
Plan. Prior to March 2002, no optionee ever utilized the cashless relinquishment
alternative, and a total of only three optionees, none being executive officers
of the company, have ever utilized this exercise alternative. The company
believed that its prior use of "fixed" accounting for options outstanding under
the 1998 Plan was appropriate. However, in the current year the company
determined that options granted under the 1998 Plan should have been accounted
for using "variable" option accounting.

The retroactive application of "variable" option accounting would not
have a material effect on the company's cumulative net income since adoption of
the 1998 Plan. However, the use of "variable" option accounting significantly
decreased the company's pretax income for the fiscal year ending June 30, 2002,
as the company's share price increased significantly during fiscal 2002. The
retroactive application of "variable" accounting reduced cumulative pretax
income for all fiscal years prior to fiscal 2002 by $671,000. This amount has
been included in the $6,034,000 of pretax noncash stock option compensation
recorded for fiscal 2002. The impact of variable accounting on any full fiscal
year preceding fiscal 2002 was not material.

In keeping with the company's original intent, on August 13, 2002, the
Compensation Committee of the Board of Directors terminated the availability of
the relinquishment alternative under the 1998 Plan, thereby removing any
question regarding the appropriateness of "fixed" accounting for these employee
stock options after August 13, 2002. Based on this action, together with a
decline in the company's share price subsequent to June 30, 2002, the company
expects to record a reversal of fiscal 2002 noncash stock option compensation
expense of approximately $5,400,000 in the first quarter of fiscal 2003.
Thereafter, the company will again utilize the "fixed" method of stock option
accounting.

44

COMMITMENTS AND CONTINGENCIES

The company and its subsidiaries lease certain office space,
facilities, and equipment under operating leases, expiring on various dates
through 2007. Total rental expense was $2,912,000 in 2002, $2,436,000 in 2001,
and $1,787,000 in 2000. At June 30, 2002, future minimum rental commitments
under noncancellable operating leases, payable over the remaining lives of the
leases, are:

The company's subsidiaries provide certain warranties for their
products which are generally limited to being free from defects in materials or
manufacturing workmanship affecting performance or meeting specified
manufacturing and material specifications. During 2002, 2001 and 2000, the
company recorded to expense $2,769,000, $1,680,000 and $1,773,000, respectively,
in warranty claim settlements and reserves.

In February 2000, Wedgewood Knolls Condominium Association filed a
purported class action in the United States District Court in Newark, New Jersey
which, as amended, names two Elk subsidiaries. The purported nationwide class
would include purchasers or current owners of buildings with certain Elk asphalt
shingles installed between January 1, 1980 and present. The suit alleges, among
other things, that the shingles were uniformly defective. It seeks various
remedies including damages and reformation of the limited warranty applicable to
the shingles on behalf of the plaintiff and the purported class. In late March
2002, the United States District Court for the District of New Jersey issued its
opinion denying the plaintiff's motion for class certification in the Wedgewood
Knolls lawsuit pending against Elk.

In June 2000, an individual homeowner filed a purported class action,
Lastih v. Elk Corporation of Alabama, in the Judicial District of Hartford,
Connecticut. The Lastih suit involves similar class allegations and claims to
those asserted in the Wedgewood Knolls suit described above.

Elk has denied the claims asserted in both actions, and vigorously
defended them. Elk has reached an agreement in principle to settle with all
plaintiffs represented by the law firm prosecuting the Wedgewood Knolls and
Lastih cases, including without limitation Wedgewood Knolls Condominium
Association, Lastih and several other individual plaintiffs. The settlement
would not be a class settlement and would not have a material adverse effect on
the company's consolidated results of operations, financial condition or
liquidity. The settlement is still subject to the negotiation and execution of a
definitive written settlement agreement.

45

On April 3, 2002, CertainTeed Corporation filed suit in the United
States District Court for the Eastern District of Pennsylvania, Philadelphia,
Pennsylvania for alleged patent infringement against the company and two of its
Elk affiliates. The suit, in essence, claims that Elk's Capstone shingle
infringes three CertainTeed patents, and seeks preliminary and permanent
injunctive relief, damages and attorneys' fees. The case is in the early stages
of discovery. The company believes that the suit is meritless and intends to
vigorously defend it. It believes that the company and its named affiliates have
strong defenses to the suit, but the company cannot predict with certainty
whether the suit will have a material adverse effect on its consolidated results
of operations, financial position or liquidity.

The company and its subsidiaries are involved in various other legal
actions and claims, including claims arising in the ordinary course of business.
Based on advice from legal counsel, management believes such litigation and
claims will be resolved without material adverse effect on the consolidated
financial statements.

Chromium has engaged in limited remediation activities at its former
plating operation, closed in 1999, at what is now Cybershield's Lufkin, Texas
manufacturing facility. Soil sampling results from a pre-closing environmental
evaluation of the site indicated localized problems. Chromium has entered the
property into the Texas Voluntary Cleanup Program (VCP). Under this program, the
TCEQ reviews the voluntary cleanup plan the applicant submits, and, when the
work is complete, issues a certificate of completion, evidencing clean up to
levels protective of human health and the environment and releasing prospective
purchasers and lenders from liability to the state. Properties entered into the
VCP are protected from TCEQ enforcement actions.

Chromium submitted a work plan, which the TCEQ recently approved, for a
supplemental groundwater and soil assessment at the facility. The plan was
designed to, among other things, further define the problems at the site.
Chromium is preparing to implement that plan. Once the investigation is
complete, Chromium intends to clean up the site under the VCP to a site specific
risk-based cleanup standard as prescribed by the Texas Risk Reduction Program.
Until Chromium has the results from its supplemental assessment and TCEQ
approval of a cleanup plan, it is unable to estimate remediation costs, which
may or may not be material.

The company's operations are subject to extensive federal, state and
local laws and regulations relating to environmental matters. Other than the
possible costs associated with the previously described Chromium matter, the
company does not believe it will be required to expend amounts which will have a
material adverse effect on the company's consolidated financial position or
results of operations by reason of environmental laws and regulations. Such laws
and regulations are frequently changed and could result in significantly
increased cost of compliance. Further, certain of the company's manufacturing
operations utilize hazardous materials in their production processes. As a
result, the company incurs costs for remediation activities at its facilities
and off-site from time to time. The company establishes and maintains reserves
for such known remediation activities.

46

INVOLUNTARY CONVERSION

On September 15, 1998, the company experienced an explosion at its
nonwoven fiberglass roofing mat plant in Ennis, Texas. The company submitted
claims totaling $17,492,000 for property damage and business interruption. In
February 2000 the company reached final settlement with its insurance company.
In total, the company received insurance proceeds of $17,017,000 on the claim.
Assets with net book value of $3,990,000 were destroyed in the explosion and
were insured for replacement value. The company received replacement value
payments on the property claim in excess of the net book value of destroyed
assets in the amount of $1,292,000. This amount was recorded as a gain from
involuntary conversion in fiscal 2000.

NONRECURRING ITEMS

In fiscal 2002, the company reached a cash settlement relating to a
dispute with a vendor and the company recorded $5,625,000 of nonrecurring
income. The cash settlement primarily represented a reimbursement of costs
previously recorded to expense as selling, general and administrative costs.
This cash settlement is recorded as a reduction of selling, general and
administrative costs in fiscal 2002.

In fiscal 2002, the company's Cybershield subsidiary consolidated its
operations. Accordingly, the Georgia facility was closed, and certain employees
and manufacturing equipment transferred to Cybershield's Texas facility. In
fiscal 2002, the company recorded a nonrecurring charge of $5,273,000, including
noncash costs of $3,600,000 (primarily related to the impairment of property,
plant and equipment and goodwill, and an inventory writedown) and other costs of
$1,673,000 (primarily related to severance, relocation costs and the settlement
of a dispute with a customer concerning certain inventory produced at the
Georgia facility for that customer). All such costs were incurred prior to June
30, 2002. There are no material remaining actions to complete closure of the
facility. The charge is included as a component of cost of sales.

In fiscal 2000, all operations of Chromium Corporation's reciprocating
engine components business at the Lufkin, Texas facility were transferred to the
Cleveland, Ohio plant. Costs to relocate equipment and other consolidation items
of approximately $750,000 and $3,400,000 were incurred and recorded to cost of
sales in fiscal 2001 and 2000, respectively.

ACCRUED LIABILITIES

Accrued liabilities consist of the following:

47

INCOME TAXES

The company's effective tax rate was 39.0% in 2002, 37.3% in 2001, and
37.9% in 2000. The difference between the federal statutory tax rate and the
effective tax rate is reconciled as follows:

Components of the income tax provisions consist of the following:

The significant components of the company's deferred tax assets and liabilities
are summarized below:

48

FINANCIAL INFORMATION BY COMPANY SEGMENTS

49

QUARTERLY SUMMARY OF OPERATIONS

(Unaudited, $ in thousands, except per share amounts)

(1) In the third quarter 2002 financial statements, gross profit was
reduced by $4,851 of plant closure costs and related items pertaining
to closing Cybershield's Canton, Georgia facility.

(2) Net income as previously reported has been restated due to the change
in accounting for certain stock options from the fixed method to the
variable method. Following is a summary of the after-tax effect of this
change in accounting ($, in thousands) for all periods presented.

50

REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE

To the Board of Directors
of ElkCorp (formerly Elcor Corporation):

Our audit of the consolidated financial statements referred to in our report
dated August 16, 2002 appearing in the June 30, 2002 Annual Report on Form 10-K
of ElkCorp (formerly Elcor Corporation) also included an audit of the financial
statement schedule for the year ended June 30, 2002 listed in Item 15(a)(2) of
this Form 10-K. In our opinion, this financial statement schedule presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.

/s/ PricewaterhouseCoopers LLP
- ------------------------------------
PricewaterhouseCoopers LLP

Dallas, Texas
August 16, 2002

51

INDEPENDENT AUDITORS' REPORT
ON SUPPLEMENTAL SCHEDULES
DATED JUNE 30, 2001 AND JUNE 30, 2000(1)

To the Shareholders and Board of Directors of Elcor Corporation:

We have audited in accordance with auditing standards generally
accepted in the United States, the accompanying consolidated financial
statements of Elcor Corporation and have issued our report thereon dated August
13, 2001. Our audits were made for the purpose of forming an opinion on those
statements taken as a whole. The Supplemental Schedule II is the responsibility
of the company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth herein in relation to the basic financial statements taken as a
whole.

/s/ Arthur Andersen LLP
- --------------------------------
Arthur Andersen LLP

Dallas, Texas
August 13, 2001

(1) The company has not been able to obtain, after reasonable efforts, the
reissued report of Authur Andersen LLP related to the 2001 and 2000
financial statement schedule. Therefore, a copy of their previously
issued report is included. See Item 9 and Exhibit 23.2 for further
information.

52

ELKCORP AND SUBSIDIARIES
SCHEDULE II - CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JUNE 30, 2002, 2001, AND 2000

(DOLLARS IN THOUSANDS)

53

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

The company determined, for itself and on behalf of its subsidiaries,
to dismiss its independent auditors, Arthur Andersen LLP (Andersen) and to
engage the services of PricewaterhouseCoopers LLP (PwC) as its new independent
auditors. The change in auditors was approved by the audit committee of the
Board of Directors and the Board of Directors of the company and was effective
as of May 2, 2002. As a result, PwC audited the consolidated financial
statements of the company and its subsidiaries for the fiscal year ended June
30, 2002.

Andersen's reports on the company's consolidated financial statements
for the fiscal years ended June 30, 2001 and June 30, 2000, did not contain an
adverse opinion or disclaimer of opinion, nor were they qualified or modified as
to uncertainty, audit scope or accounting principles. During the fiscal years
ended June 30, 2001 and June 30, 2000, and through May 2, 2002 (the Relevant
Period), (1) there were no disagreements with Andersen on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure which, if not resolved to Andersen's satisfaction, would have
caused Andersen to make reference to the subject matter of the disagreement(s)
in connection with the company's consolidated financial statements for such
years; and (2) there were no reportable events as described in Item 304(a)(1)(v)
(Reportable Events) of the Commission's Regulation S-K.

The company has provided a copy of the foregoing statements to
Andersen. Attached as Exhibit 16 is a copy of Andersen's letter to the
Securities and Exchange Commission, dated May 2, 2002, stating its agreement
with such statements.

During the Relevant Period, neither the company nor anyone acting on
its behalf consulted with PwC regarding (1) the application of accounting
principles to a specified transaction, completed or proposed, or the type of
audit opinion that might be rendered on the company's consolidated financial
statements, or (2) any matters or reportable events as set forth in Items
304(a)(2)(i) and (ii) of Regulation S-K.

The company has been unable to obtain, after reasonable efforts, Arthur
Andersen's written consent to the company's incorporation by reference into its
registration statements of Arthur Andersen's audit report with respect to the
company's financial statements as of June 30, 2001 and 2000, and for the years
then ended. Under these circumstances, Rule 437a under the Securities Act of
1933 permits the company to file this Form 10-K without a written consent from
Arthur Andersen. As a result, however, Arthur Andersen will not have any
liability under Section 11(a) of the Securities Act for any untrue statements of
a material fact contained in the financial statements audited by Arthur Andersen
or any omissions of a material fact required to be stated therein. Accordingly,
you would be unable to assert a claim against Arthur Andersen under Section
11(a) of the Securities Act for any purchases of securities under the company's
registration statements made on or after the date of this Form 10-K. To the
extent provided in Section 11(b)(3)(C) of the Securities Act, however, other
persons who are liable under Section 11(a) of the Securties Act, including the
company's officers and directors, may still rely on Arthur Andersen's original
audit reports as being made by an expert for purposes of establishing a due
diligence defense under Section 11(b) of the Securities Act.

54

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

Information concerning the Directors of the company required by this
item is incorporated herein by reference to the material under the caption
"Election of Directors" on pages 7 through 9 of the company's Proxy Statement
dated September 20, 2002. Information concerning compliance with Section 16(a)
of the Securities and Exchange Act is incorporated herein by reference to the
material under the caption "Section 16(a) Beneficial Ownership Reporting
Compliance" on page 25 of the company's Proxy Statement dated September 20,
2002. Information concerning the Executive Officers of the company is contained
in Item 1 of this report under the caption "Executive Officers of the Company"
on pages 11 and 12 of this Annual Report on Form 10-K.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item is incorporated herein by
reference to the information under the caption "Executive Compensation" on pages
16 through 25 of the company's Proxy Statement dated September 20, 2002.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this item is incorporated herein by
reference to the information under the caption "ElkCorp Stock Ownership" and
"Equity Compensation Plan Information" on pages 2 through 4 and page 24,
respectively, of the company's Proxy Statement dated September 20, 2002. The
company is aware of no material change in the beneficial ownership of any
officer, director or beneficial owner of five percent or more of any class of
its voting stock since the date such information was provided for the Proxy
Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information required by this item is incorporated herein by reference
to the material under the caption "Stock/Loan Balances" on page 24 of the
company's Proxy Statement dated September 20, 2002.

ITEM 14. CONTROLS AND PROCEDURES

Not applicable.

55

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K

(A) 1. Financial Statements

The following financial statements of the company are set forth in Item
8 of this Annual Report on Form 10-K:

Report of Independent Accountants
Report of Previous Independent Accountants
Consolidated Balance Sheets at June 30, 2002, and 2001
Consolidated Statements of Operations for the years ended
June 30, 2002, 2001 and 2000
Consolidated Statements of Cash Flows for the years ended
June 30, 2002, 2001, and 2000
Consolidated Statements of Shareholders' Equity for the years
ended June 30, 2002, 2001, and 2000
Summary of Significant Accounting Policies
Notes to Consolidated Financial Statements

2. Financial Statement Schedule

Report of Independent Accountants
Report of Previous Independent Accountants
Schedule II - Consolidated Valuation and Qualifying Accounts

All other schedules are omitted because they are not required, are not
applicable, or the information is included in the financial statements or notes
thereto.

3. Executive Compensation Plans and Arrangements

The following is a list of all executive compensation plans and
arrangements required to be filed as an exhibit to this report:

1. Amended and Restated Elcor Corporation Employee Stock/Loan
Plan filed as Exhibit 10.2 hereto and incorporated by
reference to Exhibit 10.2 in the Registrant's Annual Report on
Form 10-K for the year ended June 30, 1998 (File No. 1-5341).

2. 1998 Amended and Restated Elcor Corporation Incentive Stock
Option Plan filed as Exhibit 10.3 hereto and incorporated by
reference to Appendix B in the Registrant's Proxy Statement
dated September 18, 1998 (File No. 1-5341).

3. Deferred Compensation Plan filed as Exhibit 10.4 hereto and
incorporated by reference to Exhibit 10.4 in the Registrant's
Annual Report on Form 10-K for the year ended June 30, 2000
(File No. 1-5341).

56

B. Reports on Form 8-K

The company filed four Forms 8-K in the fourth quarter of fiscal 2002 as
follows: On April 19, 2002, the company filed a Form 8-K relating to a press
release containing "forward-looking statements" about its prospects for the
future and certain other information concerning the company's disclosures under
Regulation F-D. On May 8, 2002, the company filed a Form 8-K regarding a change
in the company's Certifying Accountant. On June 12, 2002, a Form 8-K was filed
relating to a press release on the sale of $120,000,000 Senior Unsecured Notes.
On June 17, 2002, a Form 8-K was filed relating to a press release on the
company entering into an interest rate swap.

C. Exhibits

**3.1 The Restated Certificate of Incorporation of the company,
filed as Exhibit 3.1 to the company's Annual Report on Form
10-K for the year ended June 30, 1994 (File No. 1-5341).

**3.11 Certificate of Amendment to Certificate of Incorporation dated
December 2, 1998 (file No. 1-531).

**3.2 Amended and Restated Bylaws of the company, filed as Exhibit 3
to the company's Annual Report on Form 10-K for the year ended
June 30, 1981 and as Exhibit 3.2 to the company's Quarterly
Report on Form 10-Q for the quarter ended December 31, 1988
originally filed with the Securities and Exchange Commission
on February 11, 1989 (File No. 1-5341).

**4.1 Form of Rights Agreement dated as of July 7, 1998, between the
company and ChaseMellon Shareholder Services, L.L.C., as
Rights Agent, which includes as Exhibits A and B thereto the
Forms of Certificate of Designation, Preferences and Rights of
Series A Participating Preferred Stock, Rights Certificate,
filed as Exhibit 4.1 to the company's current Report on Form
8-K dated May 26, 1998 (File No. 1-5341).

**4.12 Credit Agreement dated as of November 30, 2000 among Elcor
Corporation, Bank of America, N.A., as Administrative Agent,
Swing Line Lender and L/C Issuer, Bank One, Texas, N.A., as
Documentation Agent, First Union National Bank, as Syndication
Agent, The Other Lenders Party Hereto, and Bank of America
Securties LLC, as Sole Lead Arranger and Sole Book Manager,
filed as Exhibit 4.12 in the company's Quarterly Report on
Form 10-Q for the quarter ended December 31, 2000 (File No.
1-5341).

**4.13 First Amendment to Credit Agreement dated as of March 31, 2001
among Elcor Corporation, Bank One, N.A., as Documentation
Agent, First Union National Bank, as Syndication Agent, and
Bank of America, N.A., as Administrative Agent, Swing Line
Lender and L/C Issuer, filed as Exhibit 4.13 in the company's
Quarterly Report on Form 10-Q for the quarter ended March 31,
2001 (File No. 1-5341).

57

**4.14 Note Purchase Agreement dated as of June 1, 2002 for the sale
of $120,000,000 Aggregate Principal Amount of Senior Notes as
filed as Exhibit 4.14 in the company's Form 8-K dated June 10,
2002 (File No. 1-5341).

**10.1 Form of Executive Agreement filed as Exhibit 10.1 in the
company's Annual Report on Form 10-K for the year ended June
30, 1998 (File No. 1-5341).

**10.2 Amended and Restated Elcor Corporation Employee Stock/Loan
Plan filed as Exhibit 10.2 in the company's Annual Report on
Form 10-K for the year ended June 30, 1998 (File No. 1-5341).

**10.3 1998 Amended and Restated Elcor Corporation Incentive Stock
Option Plan filed as Appendix B in the company's Proxy
Statement dated September 18, 1998 (File No. 1-5341).

**10.4 Deferred Compensation Plan filed as Exhibit 10.4 in the
company's Annual Report on Form 10-K for the year ended June
30, 2000 (File No. 1-5341).

*16 Arthur Andersen's Letter to the Commission dated May 2, 2002.

*21 Subsidiaries of the Company.

*23.1 Consent of Independent Accountants.

*23.2 Information Concerning Consent of Arthur Andersen LLP

*99.1 Certificate of the Chief Executive Officer of ElkCorp

*99.2 Certificate of the Chief Financial Officer of ElkCorp

- ----------
* Filed herewith.

** Incorporated by reference.

58

SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

ElkCorp

Date September 26, 2002 By /s/ Harold R. Beattie, Jr.
-------------------- ------------------------------------
Harold R. Beattie, Jr.
Senior Vice President,
Chief Financial Officer
and Treasurer

By /s/ Leonard R. Harral
------------------------------------
Leonard R. Harral
Vice President and Chief
Accounting Officer

59

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below in multiple counterparts by the following
persons on behalf of the company and in the capacities and on the date
indicated.

60

CERTIFICATIONS

I, Thomas D. Karol, certify that:

1. I have reviewed this annual report on Form 10-K of ElkCorp;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report; and

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the company as of, and for, the periods presented in this
annual report.

Date: September 26, 2002 By /s/ Thomas D. Karol
---------------------------------
Thomas D. Karol
Chief Executive Officer

I, Harold R. Beattie, Jr., certify that:

1. I have reviewed this annual report on Form 10-K of ElkCorp;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report; and

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the company as of, and for, the periods presented in this
annual report.

Date: September 26, 2002 By /s/ Harold R. Beattie, Jr.
---------------------------------
Harold R. Beattie, Jr.
Chief Financial Officer

61

EXHIBIT INDEX

**4.14 Note Purchase Agreement dated as of June 1, 2002 for the sale
of $120,000,000 Aggregate Principal Amount of Senior Notes as
filed as Exhibit 4.14 in the company's Form 8-K dated June 10,
2002 (File No. 1-5341).

**10.1 Form of Executive Agreement filed as Exhibit 10.1 in the
company's Annual Report on Form 10-K for the year ended June
30, 1998 (File No. 1-5341).

**10.2 Amended and Restated Elcor Corporation Employee Stock/Loan
Plan filed as Exhibit 10.2 in the company's Annual Report on
Form 10-K for the year ended June 30, 1998 (File No. 1-5341).

**10.3 1998 Amended and Restated Elcor Corporation Incentive Stock
Option Plan filed as Appendix B in the company's Proxy
Statement dated September 18, 1998 (File No. 1-5341).

**10.4 Deferred Compensation Plan filed as Exhibit 10.4 in the
company's Annual Report on Form 10-K for the year ended June
30, 2000 (File No. 1-5341).

*16 Arthur Andersen's Letter to the Commission dated May 2, 2002.

*21 Subsidiaries of the Company.

*23.1 Consent of Independent Accountants.

*23.2 Information Concerning Consent of Arthur Andersen LLP

*99.1 Certificate of the Chief Executive Officer of ElkCorp

*99.2 Certificate of the Chief Financial Officer of ElkCorp

- ----------
* Filed herewith.

** Incorporated by reference.