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.

31

ELKCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

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

32

ELKCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

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

33

ELKCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY