**UNITED STATES**

**SECURITIESAND EXCHANGE COMMISSION**

**WASHINGTON, D.C.  20549**

 

**FORM 10-Q**

 

**(****MarkOne)**

 

**x****          ****QUARTERLY REPORT PURSUANT TO SECTION 13OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For The Quarterly Period Ended****July 5,2009**

 

**OR**

 

**o****             ****TRANSITION REPORT PURSUANT TO SECTION 13OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**Commission File Number****33-81808**

 

**BUILDINGMATERIALS CORPORATION OF AMERICA**

(Exact name of registrant as specified in its charter)

 

| **Delaware**                             | ** ** | **22-3276290**      |
|------------------------------------------|------------|---------------------|
| (State or Other Jurisdiction of          |       | (IRS Employer       |
| Incorporation or Organization)           |       | Identification No.) |
| ** **                               | ** ** | ** **          |
| **1361 Alps Road, Wayne, New Jersey**    | ** ** | **07470**           |
| (Address of Principal Executive Offices) |       | (Zip Code)          |

 

**(973) 628-3000**

(Registrant’s telephone number, including area code)

 

**None**

(Former Name, Former Address and Former Fiscal Year,

if Changed Since Last Report)

 

SeeTable of Additional Registrants Below.

 

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days. Yes  x   No  o

 

Indicateby check mark whether the registrant has submitted electronically and posted onits corporate Web site, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 ofthis chapter) during the preceding 12 months (or for such shorter period thatthe registrant was required to submit and post such files).  Yes  o   No  o

 

Indicate by check mark whether the registrant is a largeaccelerated filer, an accelerated filer, a non-accelerated filer, or a smallerreporting company.  See definition of “largeaccelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2of the Exchange Act. (Check one):

 

| Large  accelerated filer  ̈                                      |   | Accelerated  filer  ̈        |
|----------------------------------------------------------------------|--------|----------------------------------|
| Non-accelerated filer x(Do not check if a smaller reporting company) |   | Smaller reporting company  ̈ |

 

Indicateby check mark whether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act).  Yes  o  No  x

 

Asof August 19, 2009, 1,015,010 shares of Class A Common Stock, $.001par value of the registrant were outstanding. There is no trading market for the common stock of the registrant.  As of August 19, 2009, the additionalregistrant had the number of shares outstanding which is shown on the tablebelow.  There is no trading market forthe common stock of the additional registrant. As of August 19, 2009, no shares of the registrant or theadditional registrant were held by non-affiliates.

 

 

 

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### **ADDITIONALREGISTRANTS**

 
| **Exact  name of registrant as  specified in its charter** | ** ** | **State or other  jurisdiction of  incorporation or organization** | ** ** | **No. of Shares  Outstanding** | ** ** | **Commission   File No./I.R.S.  Employer Identification No.** | ** ** | **Address, including zip code and  telephone number, including area  code, of registrant’s principal  executive offices** |
|------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|-------------------------------------|------------|---------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------|
| Building  Materials Manufacturing Corporation              |       | Delaware                                                           |       | 10                                  |       | 333-69749-01/  22-3626208                                     |       | 1361 Alps Road  Wayne, NJ 07470  (973) 628-3000                                                                                |

 

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**Part I- FINANCIAL INFORMATION**

**Item1 - FINANCIAL STATEMENTS**

 

**BUILDINGMATERIALS CORPORATION OF AMERICA**

 

**CONSOLIDATEDSTATEMENTS OF INCOME (Unaudited)**

**(Dollars in Thousands)**

 
| ** **                                      | ** ** | **Second Quarter Ended** | ** ** | **Six Months Ended** | ** ** |
|-------------------------------------------------|------------|--------------------------|------------|----------------------|------------|
| ** **                                      | ** ** | **July 5,**         | ** ** | **June 29,**    | ** ** | **July 5,** | ** ** | **June 29,** | ** ** |
| ** **                                      | ** ** | **2009**                 | ** ** | **2008**             | ** ** | **2009** | ** ** | **2008** | ** ** |
|                                            |       |                     |       |                 |       |   |   |   |   |
| Net sales                                       |       | $                        | 696,274    |                 | $          | 737,078 |   | $ | 1,357,094 |   | $ | 1,307,354 |   |
| Costs and expenses:                             |       |                     |       |                 |       |   |   |   |   |
|                                            |       |                     |       |                 |       |   |   |   |   |
| Cost of products sold                           |       | 442,047                  |       | 515,877              |       | 871,471 |   | 940,792 |   |
| Selling, general and administrative             |       | 95,521                   |       | 125,689              |       | 197,177 |   | 231,498 |   |
| Amortization of intangible assets               |       | 2,846                    |       | 2,847                |       | 5,693 |   | 5,693 |   |
| Restructuring and other expenses                |       | 6,963                    |       | 6,364                |       | 18,314 |   | 27,189 |   |
| Other (income) expense, net                     |       | (457                     | )          | 400                  |       | 755 |   | 1,408 |   |
| Total costs and expenses, net                   |       | 546,920                  |       | 651,177              |       | 1,093,410 |   | 1,206,580 |   |
| Income before interest expense and income taxes |       | 149,354                  |       | 85,901               |       | 263,684 |   | 100,774 |   |
| Interest expense                                |       | (37,680                  | )          | (39,997              | )          | (72,192 | ) | (79,862 | ) |
| Income before income taxes                      |       | 111,674                  |       | 45,904               |       | 191,492 |   | 20,912 |   |
| Income tax expense                              |       | (41,594                  | )          | (18,103              | )          | (69,435 | ) | (8,156 | ) |
| Net income                                      |       | $                        | 70,080     |                 | $          | 27,801 |   | $ | 122,057 |   | $ | 12,756 |   |

 

The accompanyingNotes to Consolidated Financial Statements are an integral part of thesestatements.

 

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**BUILDING MATERIALS CORPORATION OF AMERICA**

 

**CONSOLIDATED BALANCE SHEETS**

**(Dollars in thousands, except per share amounts)**

 
| ** **                                                                                                                               | ** ** | **July 5,** | ** ** | ** **            | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------|------------|-----------------------|------------|
| ** **                                                                                                                               | ** ** | **2009**         | ** ** | **December 31,** | ** ** |
| ** **                                                                                                                               | ** ** | **(Unaudited)**  | ** ** | **2008**              | ** ** |
| **ASSETS**                                                                                                                               |       |             |       |                  |       |
| Current  Assets:                                                                                                                         |       |             |       |                  |       |
| Cash  and cash equivalents                                                                                                               |       | $                | 55,268     |                  | $          | 37,037 |   |
| Accounts  receivable, trade, net                                                                                                         |       | 447,858          |       | 199,233               |       |
| Accounts  receivable, other                                                                                                              |       | 9,160            |       | 10,897                |       |
| Inventories,  net                                                                                                                        |       | 182,838          |       | 348,449               |       |
| Deferred  income tax assets                                                                                                              |       | 59,474           |       | 39,324                |       |
| Other  current assets                                                                                                                    |       | 12,924           |       | 17,072                |       |
| Total  Current Assets                                                                                                                    |       | 767,522          |       | 652,012               |       |
| Property,  plant and equipment, net                                                                                                      |       | 640,447          |       | 655,269               |       |
| Goodwill                                                                                                                                 |       | 653,921          |       | 653,644               |       |
| Intangible  assets, net                                                                                                                  |       | 190,557          |       | 196,250               |       |
| Income  tax receivable from parent corporation                                                                                           |       | —           |       | 8,400                 |       |
| Other  noncurrent assets                                                                                                                 |       | 113,227          |       | 114,739               |       |
| Total  Assets                                                                                                                            |       | $                | 2,365,674  |                  | $          | 2,280,314 |   |
|                                                                                                                                     |       |             |       |                  |       |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)**                                                                                  |       |             |       |                  |       |
| Current  Liabilities:                                                                                                                    |       |             |       |                  |       |
| Current  maturities of long-term debt                                                                                                    |       | $                | 20,938     |                  | $          | 20,596 |   |
| Accounts  payable                                                                                                                        |       | 90,879           |       | 156,030               |       |
| Payable  to related parties                                                                                                              |       | 51,530           |       | 21,153                |       |
| Loans  payable to parent corporation                                                                                                     |       | 52,840           |       | 52,840                |       |
| Accrued  liabilities                                                                                                                     |       | 195,186          |       | 134,341               |       |
| Product  warranty claims                                                                                                                 |       | 16,200           |       | 16,200                |       |
| Total  Current Liabilities                                                                                                               |       | 427,573          |       | 401,160               |       |
| Long-term  debt                                                                                                                          |       | 1,570,306        |       | 1,658,169             |       |
| Product  warranty claims                                                                                                                 |       | 43,668           |       | 28,765                |       |
| Deferred  income tax liabilities                                                                                                         |       | 90,874           |       | 73,103                |       |
| Other  liabilities                                                                                                                       |       | 196,456          |       | 198,973               |       |
| Commitments  and Contingencies — Note 13                                                                                            |       |             |       |                  |       |
| Stockholders’  Equity (Deficit):                                                                                                    |       |             |       |                  |       |
| Series A  Cumulative Redeemable Convertible Preferred Stock, $.01 par value per share;  400,000 shares authorized; no shares issued |       | —           |       | —                |       |
| Class A  Common Stock, $.001 par value per share; 1,300,000 shares authorized;  1,015,010 shares issued and outstanding             |       | 1                |       | 1                     |       |
| Class B  Common Stock, $.001 par value per share; 100,000 shares authorized; no shares  issued                                      |       | —           |       | —                |       |
| Loans  receivable from parent corporation                                                                                                |       | (56,388          | )          | (56,348               | )          |
| Retained  earnings                                                                                                                       |       | 139,422          |       | 27,372                |       |
| Accumulated  other comprehensive loss                                                                                                    |       | (46,238          | )          | (50,881               | )          |
| Total  Stockholders’ Equity (Deficit)                                                                                               |       | 36,797           |       | (79,856               | )          |
| Total  Liabilities and Stockholders’ Equity (Deficit)                                                                               |       | $                | 2,365,674  |                  | $          | 2,280,314 |   |

 

Theaccompanying Notes to Consolidated Financial Statements are an integral part ofthese statements.

 

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**BUILDINGMATERIALS CORPORATION OF AMERICA**

 

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS (Unaudited)**

**(Dollarsin Thousands)**

 
| ** **                                                                                    | ** ** | **Six Months Ended** | ** ** |
|-----------------------------------------------------------------------------------------------|------------|----------------------|------------|
| ** **                                                                                    | ** ** | **July 5,**     | ** ** | **June 29,** | ** ** |
| ** **                                                                                    | ** ** | **2009**             | ** ** | **2008** | ** ** |
| ** **                                                                                    | ** ** | ** **           | ** ** | ** ** | ** ** |
| Cash  and cash equivalents, beginning of period                                               |       | $                    | 37,037     |   | $ | 6,324 |   |
| Cash  provided by (used in) operating activities:                                             |       |                 |       |   |   |
| Net  income                                                                                   |       | 122,057              |       | 12,756 |   |
| Adjustments  to reconcile net income to net cash provided by (used in) operating  activities: |       |                 |       |   |   |
| Depreciation                                                                                  |       | 35,655               |       | 35,690 |   |
| Amortization  of intangible and other assets                                                  |       | 7,470                |       | 7,616 |   |
| Restructuring  and other expenses                                                             |       | 21,368               |       | 44,119 |   |
| Deferred  income taxes                                                                        |       | (5,225               | )          | 7,423 |   |
| Noncash  interest charges                                                                     |       | 10,411               |       | 4,505 |   |
| Increase  in working capital items                                                            |       | (100,015             | )          | (237,736 | ) |
| Increase  in product warranty claims                                                          |       | 14,903               |       | 2,304 |   |
| Increase  in other assets                                                                     |       | (3,859               | )          | (10,352 | ) |
| Increase  in other liabilities                                                                |       | 150                  |       | 3,252 |   |
| Increase  in net payable to related parties/parent corporations                               |       | 39,122               |       | 24,102 |   |
| Other,  net                                                                                   |       | (1,218               | )          | (6,728 | ) |
| Net  cash provided by (used in) operating activities                                          |       | 140,819              |       | (113,049 | ) |
| Cash  used in investing activities:                                                           |       |                 |       |   |   |
| Capital  expenditures                                                                         |       | (24,701              | )          | (18,790 | ) |
| Proceeds  from sale of assets                                                                 |       | —               |       | 6,651 |   |
| Net  cash used in investing activities                                                        |       | (24,701              | )          | (12,139 | ) |
| Cash  provided by (used in) financing activities:                                             |       |                 |       |   |   |
| Proceeds  from issuance of long-term debt                                                     |       | 293,000              |       | 531,000 |   |
| Repayments  of long-term debt                                                                 |       | (375,980             | )          | (285,508 | ) |
| Purchase  of industrial development revenue bond certificates issued by the Company           |       | —               |       | (4,800 | ) |
| Principal  repayments of capital leases                                                       |       | (4,660               | )          | (4,194 | ) |
| Distributions  to parent corporation                                                          |       | (7                   | )          | — |   |
| Dividends  to parent corporation                                                              |       | (10,000              | )          | — |   |
| Loan  to parent corporation                                                                   |       | (40                  | )          | (69 | ) |
| Financing  fees and expenses                                                                  |       | (200                 | )          | (576 | ) |
| Net  cash provided by (used in) financing activities                                          |       | (97,887              | )          | 235,853 |   |
| Net  change in cash and cash equivalents                                                      |       | 18,231               |       | 110,665 |   |
| Cash  and cash equivalents, end of period                                                     |       | $                    | 55,268     |   | $ | 116,989 |   |

 

The accompanying Notes toConsolidated Financial Statements are an integral part of these statements.

 

**(Continued on the following page)**

 

5

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**BUILDINGMATERIALS CORPORATION OF AMERICA**

 

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS (Unaudited) - (Continued)**

**(Dollarsin Thousands)**

 
| ** **                                                                                                                                 | ** ** | **Six Months Ended** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------|------------|
| ** **                                                                                                                                 | ** ** | **July 5,**     | ** ** | **June 29,** | ** ** |
| ** **                                                                                                                                 | ** ** | **2009**             | ** ** | **2008** | ** ** |
| Supplemental  Cash Flow Information:                                                                                                       |       |                 |       |   |   |
| Effect  on cash from changes in working capital items:                                                                                     |       |                 |       |   |   |
| Increase  in accounts receivable trade and accounts receivable other                                                                       |       | $                    | (246,888   | ) | $ | (303,996 | ) |
| Decrease  in income tax receivable                                                                                                         |       | —               |       | 11,837 |   |
| Decrease  in inventories, net                                                                                                              |       | 163,120              |       | 33,395 |   |
| (Increase)  decrease in other current assets                                                                                               |       | 4,148                |       | (8,517 | ) |
| Increase  (decrease) in accounts payable                                                                                                   |       | (65,151              | )          | 64,478 |   |
| Increase  in accrued liabilities                                                                                                           |       | 62,619               |       | 13,375 |   |
| Payments  for restructuring and other expenses                                                                                             |       | (17,863              | )          | (48,308 | ) |
| Net  effect on cash from increase in working capital items                                                                                 |       | $                    | (100,015   | ) | $ | (237,736 | ) |
|                                                                                                                                       |       |                 |       |   |   |
| Cash  paid during the period for:                                                                                                          |       |                 |       |   |   |
| Interest  (net of amount capitalized of $258 and $313 in 2009 and 2008, respectively)                                                      |       | $                    | 68,004     |   | $ | 75,320 |   |
|                                                                                                                                       |       |                 |       |   |   |
| Income  taxes (including Federal income taxes paid pursuant to a Tax Sharing  Agreement of $28,050 and $0 in 2009 and 2008, respectively*) |       | $                    | 29,363     |   | $ | 660 |   |

 

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* The amount paidfor income taxes in 2008 excluded an $11.8 million Federal income tax receiptrelated to Elk.

 

The accompanyingNotes to Consolidated Financial Statements are an integral part of thesestatements.

 

6

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**BUILDINGMATERIALS CORPORATION OF AMERICA**

 

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (Unaudited)**

 

**Note1.  Formation of the Company**

 

Building MaterialsCorporation of America (“BMCA” or the “Company”) was formed on January 31,1994 and is a wholly-owned subsidiary of BMCA Holdings Corporation (“BHC”),which is a wholly-owned subsidiary of G-I Holdings Inc. (“G-I Holdings”).  G-I Holdings is a wholly-owned subsidiary ofG Holdings Inc.  During the first quarterof 2007, BMCA acquired ElkCorp (“Elk”), a Dallas, Texas-based manufacturer ofroofing products and building materials, resulting in Elk becoming an indirectwholly-owned subsidiary of BMCA.

 

The consolidatedfinancial statements of the Company reflect, in the opinion of management, alladjustments necessary to present fairly the financial position of the Companyat July 5, 2009, and the results of its operations for the second quarterand six-month periods ended and its cash flows for the six-month periods ended July 5,2009 and June 29, 2008, respectively. All adjustments are of a normal recurring nature, except for therestructuring and other expenses recorded in the Company’s statements of incomefor the six-month periods ended July 5, 2009 and June 29, 2008,respectively.  See Note 3.  Net sales of roofing products and specialtybuilding products and accessories are generally seasonal in nature.  Accordingly, the results of operations andcash flows in the respective quarterly ended periods will vary depending on thetime of the year. These financial statements should be read in conjunction withthe annual audited financial statements and notes thereto included in theCompany’s Annual Report on Form 10-K for the fiscal year ended December 31,2008, which was filed with the Securities and Exchange Commission (the “SEC”)on March 31, 2009 (the “2008 Form 10-K”).

 

**Note2.  New Accounting Pronouncements**

 

In December 2007,the Financial Accounting Standards Board (“FASB”) issued Statement of FinancialAccounting Standards (“SFAS”) No. 141 (revised in 2007) “BusinessCombinations” (“SFAS No. 141R”), which provides revised guidance on how anacquiring company should recognize and measure the identifiable assetsacquired, liabilities assumed, any noncontrolling interests, and goodwillacquired in a business combination.  SFASNo. 141R also expands the required disclosures related to the nature andfinancial statement effects of business combinations and became effective on aprospective basis for business combinations completed in fiscal years beginningafter December 15, 2008.  TheCompany adopted the provisions of SFAS No. 141R during its first quarterbeginning January 1, 2009, and the adoption did not have any impact on theCompany’s consolidated financial statements. The effects of SFAS No. 141R on future reporting periods depend onthe nature and significance of the business combination.

 

In April 2009, theFASB issued FASB Staff Position (“FSP”) FAS No. 141(R)-1, “Accounting forAssets Acquired and Liabilities Assumed in a Business Combination That Arisefrom Contingencies” (“FSP FAS No. 141(R)-1”).  FSP FAS No. 141(R)-1 requires thatassets acquired and liabilities assumed in a business combination that arisefrom contingencies be recognized at fair

 

7

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**BUILDING MATERIALS CORPORATION OFAMERICA**

** **

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (Unaudited) – (Continued)**

 

**Note2.  New Accounting Pronouncements –(Continued)**

 

value if fair value canbe reasonably estimated.  If fair valuecannot be reasonably estimated, the assets or liabilities would generally berecognized in accordance with SFAS No. 5, “Accounting for Contingencies” (“SFASNo. 5”) and FASB Interpretation No. 14, “Reasonable Estimation of theAmount of a Loss”.  Furthermore, the FASBremoved the subsequent accounting guidance for assets and liabilities arisingfrom contingencies from SFAS No. 141(R). FSP FAS No. 141(R)-1 also eliminates the requirement to disclose anestimate of the range of possible outcomes of recognized contingencies at theacquisition date.  For unrecognizedcontingencies, the FASB requires that entities include only the disclosuresrequired by SFAS No. 5.  The Companyadopted FSP FAS No. 141(R)-1 during its second quarter ended July 5,2009, and the adoption did not have any impact on its consolidated financialstatements.  The effects of FSP FAS No. 141(R)-1on future reporting periods depend on the nature and significance of thebusiness combination.

 

In March 2008, theFASB issued SFAS No. 161, “Disclosures about Derivative Instruments andHedging Activities” (“SFAS No. 161”), which amends SFAS No. 133, “Accountingfor Derivative Instruments and Hedging Activities” (“SFAS No. 133”), andis intended to improve financial reporting related to derivative instrumentsand hedging activities by requiring enhanced disclosures to enable investors tobetter understand their effects on an entity’s financial position, financialperformance, and cash flows.  Theprovisions of SFAS No. 161 became effective on a prospective basis forfiscal years beginning on or after November 15, 2008.  The Company adopted the disclosure provisionsof SFAS No. 161 during its first quarter beginning January 1,2009.  Since SFAS No. 161 requiresonly disclosures, there was no impact on the Company’s consolidated financialstatements; however, refer to Note 7 for the required disclosures.

 

In April 2008, theFASB issued FSP FAS No. 142-3, “Determination of the Useful Life ofIntangible Assets” (“FSP FAS No. 142-3”), which amends the factors anentity should consider in developing renewal or extension assumptions used indetermining the useful life of recognized intangible assets under SFAS No. 142,“Goodwill and Other Intangible Assets”. This new guidance applies prospectively to intangible assets that areacquired individually or with a group of other assets in business combinationsand asset acquisitions.  FSP FAS No. 142-3became effective for financial statements issued for fiscal years and interimperiods beginning after December 15, 2008. The Company adopted the provisions of FSP FAS No. 142-3 during itsfirst quarter beginning January 1, 2009, and the adoption did not have anyimpact on its consolidated financial statements.

 

In December 2008,the FASB issued FSP FAS No. 132(R)-1, “Employers’ Disclosures aboutPostretirement Benefit Plan Assets” (“FSP FAS No. 132(R)-1”), whichprovides additional guidance on an employers’ disclosures about plan assets ofa defined benefit pension or other post retirement plan.  FSP FAS No. 132(R)-1 is effective forfinancial statements issued for fiscal

 

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**BUILDING MATERIALS CORPORATION OFAMERICA**

** **

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (Unaudited) – (Continued)**

 

**Note2.  New Accounting Pronouncements –(Continued)**

 

years ending after December 15,2009.  The Company will adopt theprovisions of FSP FAS No. 132(R)-1 for its fiscal year beginning January 1,2010, which will have no impact on the Company’s consolidated financialstatements; however will require additional disclosures in the financialstatements related to the assets held by its defined pension and postretirementplans.

 

In April 2009, theFASB issued FSP FAS No. 157-4, “Determining Fair Value When the Volume andLevel of Activity for the Asset or Liability Have Significantly Decreased andIdentifying Transactions That Are Not Orderly” (“FSP FAS No. 157-4”).  According to the guidance, if an entitydetermines that the level of activity for an asset or liability hassignificantly decreased and that a transaction is not orderly, further analysisof the transaction or quoted prices is required, and a significant adjustmentto the transaction or quoted prices may be deemed necessary to estimate thefair value in accordance with SFAS No. 157, “Fair Value Measurements” (“SFASNo. 157”).  FSP FAS No. 157-4is effective on a prospective basis for interim and annual periods ending afterJune 15, 2009.  The Company adoptedthe provisions of FSP FAS No. 157-4 for its second quarter ended July 5,2009, and the adoption did not have any impact on its consolidated financialstatements.

 

In April 2009, theFASB issued FSP FAS No. 107-1 and Accounting Principles Board 28-1 “InterimDisclosures about Fair Value of Financial Instruments” (“FSP FAS No. 107-1”).  FSP FAS No. 107-1 amends SFAS No. 107“Disclosures about Fair Value of Financial Instruments” by requiring an entityto provide disclosures about fair value measurements of financial instrumentsin interim financial information.  FSPFAS No. 107-1 is effective on a prospective basis for interim and annualperiods ending after June 15, 2009. The Company adopted the required disclosure provisions in its secondquarter ended July 5, 2009.  SinceFSP FAS No. 107-1 only requires additional disclosures, there was noimpact on the Company’s consolidated financial statements; however, refer toNote 8 for the required disclosures.

 

In May 2009, theFASB issued SFAS No. 165, “Subsequent Events” (“SFAS No. 165”), whichprovides guidance to establish general standards of accounting for anddisclosures of events that occur after the balance sheet date but beforefinancial statements are issued.  SFAS No. 165also requires entities to disclose the date through which subsequent eventswere evaluated as well as the rationale for why that date was selected.  SFAS No. 165 is effective for interimand annual periods ending after June 15, 2009, and accordingly, theCompany adopted SFAS No. 165 during its second quarter ended July 5,2009.  The Company evaluated subsequentevents through the time of filing its consolidated financial statements withthe SEC on August 19, 2009, and noted there was no impact on itsconsolidated financial statements.

 

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**BUILDINGMATERIALS CORPORATION OF AMERICA**

 

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)**

 

**Note2.  New Accounting Pronouncements –(Continued)**

 

In June 2009, theFASB issued SFAS No. 166, “Accounting for Transfers of Financial Assets —an amendment of FASB Statement No. 140” (“SFAS No. 166”), which is arevision to SFAS No. 140, “Accounting for Transfers and Servicing ofFinancial Assets and Extinguishments of Liabilities”.  SFAS No. 166 requires entities toprovide more detailed information about transfers of financial assets,including securitization transactions and risks related to transferredfinancial assets.  SFAS No. 166eliminates the concept of a “qualifying special-purpose entity,” changes therequirements for derecognizing financial assets, and requires additionaldisclosures.  The Company will adopt theprovisions of SFAS No. 166 during its first quarter beginning January 1,2010 and does not expect the adoption to have a material impact on itsconsolidated financial statements.

 

In June 2009, theFASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)”(“SFAS No. 167”), which is a revision to FASB Interpretation No. 46(R),“Consolidation of Variable Interest Entities”. SFAS No. 167 eliminates the quantitative approach previouslyrequired for determining the primary beneficiary of a variable interest entityand requires ongoing qualitative reassessments of whether an enterprise is theprimary beneficiary of a variable interest entity.  The Company will adopt the provisions of SFASNo. 167 during its first quarter beginning January 1, 2010.  The Company does not expect the adoption ofSFAS No. 167 to have a material impact on its consolidated financialstatements.

 

In June 2009, theFASB issued SFAS No. 168, “The FASB Accounting Standards CodificationTM and the Hierarchyof Generally Accepted Accounting Principles (“GAAP”), a replacement of FASBStatement No. 162” (“SFAS No. 168”). The FASB Accounting Standards Codification (“the Codification”), whichwas launched on July 1, 2009, became the single source of authoritativenongovernmental U.S. GAAP, superseding existing FASB, American Institute ofCertified Public Accountants (AICPA), Emerging Issues Task Force (EITF) andrelated literature.  The Codificationeliminates the GAAP hierarchy contained in SFAS No. 162 and establishesone level of authoritative GAAP.  Allother literature is considered non-authoritative.  SFAS No. 168 is effective for financialstatements issued for interim and annual periods ending after September 15,2009.  The Company will adopt the provisionsof SFAS No. 168 during its third quarter ending October 4, 2009.  There will be no change to the Company’sconsolidated financial statements due to the adoption of SFAS No. 168.

 

10

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**BUILDINGMATERIALS CORPORATION OF AMERICA**

 

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)**

 

**Note3.  Restructuring and Other Expenses**

 

The Company initiated arestructuring plan (the “2007 Restructuring Plan”), which it formulated inconnection with the Company’s acquisition of Elk.  The 2007 Restructuring Plan was created toeliminate cost redundancies recognized due to the acquisition of Elk and toreduce the Company’s overall cost structure. The 2007 Restructuring Plan has been fully implemented as of December 31,2008.  The Company accounts for itsrestructuring activities in accordance with SFAS No. 146, “Accounting forCosts Associated with Exit or Disposal Activities”, SFAS No. 144, “Accountingfor the Impairment or Disposal of Long-Lived Assets” and EITF No. 96-9 “Classificationof Inventory Markdowns and Other Costs Associated with Restructuring”.

 

*2008 Restructuring and OtherExpenses*

 

In connection with theacquisition of Elk, the Company identified $64.1 million of restructuring andother expenses in its fiscal year ended December 31, 2008, which included$14.2 million of plant closing expenses, $3.3 million in employee severancepayments and $46.6 million in integration-related expenses.  Integration-related expenses primarilyconsisted of $26.9 million of inventory write-downs, $6.1 million ofrestructuring-related sales discounts and $13.6 million of other integrationexpenses.

 

The Company recorded$73.2 million of the overall identified restructuring and other expenses in itsstatement of income during its fiscal year ended December 31, 2008, ofwhich $6.1 million was reflected as a reduction in net sales due torestructuring-related sales discounts, $26.9 million was charged to cost ofproducts sold and $40.2 million was charged to restructuring and otherexpenses.

 

*Six-Months Ended July 5,2009 Restructuring and Other Expenses*

 

In February 2009,the Company announced the temporary shutdown of two manufacturing facilities,one in Shafter, California and the other in Nashville, Tennessee as a result ofweaker demand.  As a result of theseactions and other charges related

 

11

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**BUILDINGMATERIALS CORPORATION OF AMERICA**

 

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)**

 

**Note 3.  Restructuring and Other Expenses –(Continued)**

 

to the acquisition ofElk, the Company identified an additional $21.2 million of restructuring andother expenses in its six months ended July 5, 2009, which included $15.0million of plant closing expenses, $1.3 million in employee severance paymentsand $4.9 million in integration-related expenses.  Integration-related expenses primarilyconsisted of $3.1 million of inventory write-downs and $1.8 million of otherintegration expenses.

 

The Company recorded$21.4 million of the overall restructuring and other expenses in its statementof income in the six-month period ended July 5, 2009, of which $3.1million was charged to cost of products sold and $18.3 million was charged torestructuring and other expenses.  TheCompany expects to incur the remaining $1.6 million of identified integrationand other expenses and make the remaining cash payments related to its accrualwhen they are required.

 

The table below detailsthe Company’s restructuring and other expense accruals and charges made againstthe accrual during its six months ended July 5, 2009:

 
| **Restructuring  and  Other Expenses**                                | ** ** | **Plant********Closing********Expenses** | ** ** | **Employee********Severance********Payments** | ** ** | **Integration********Expenses** | ** ** | **Total** | ** ** |
|-----------------------------------------------------------------------|------------|------------------------------------------|------------|-----------------------------------------------|------------|---------------------------------|------------|-----------|------------|
| ** **                                                            | ** ** | **(Thousands)**                          | ** ** |
|                                                                  |       |                                     |       |                                          |       |                            |       |      |       |
| Beginning  balance, as of December 31, 2008                      |       | $                                        | 3,452      |                                          | $          | —                          |       | $         | 5,205      |   | $ | 8,657 |   |
|                                                                  |       |                                     |       |                                          |       |                            |       |      |       |
| Current period costs,  net                                            |       | 15,053                                   |       | 1,262                                         |       | 5,053                           |       | 21,368    |       |
|                                                                  |       |                                     |       |                                          |       |                            |       |      |       |
| Cash payments                                                         |       | (11,853                                  | )          | (1,262                                        | )          | (4,748                          | )          | (17,863   | )          |
|                                                                  |       |                                     |       |                                          |       |                            |       |      |       |
| Amount charged to  property, plant and equipment for asset write-down |       | (2,882                                   | )          | —                                        |       | (387                            | )          | (3,269    | )          |
|                                                                  |       |                                     |       |                                          |       |                            |       |      |       |
| Amount charged to  write-off inventory                                |       | —                                   |       | —                                        |       | (1,219                          | )          | (1,219    | )          |
|                                                                  |       |                                     |       |                                          |       |                            |       |      |       |
| Non-cash items                                                        |       | —                                   |       | —                                        |       | (141                            | )          | (141      | )          |
| Ending balance, as of  July 5, 2009                              |       | $                                        | 3,770      |                                          | $          | —                          |       | $         | 3,763      |   | $ | 7,533 |   |

 

12

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**BUILDINGMATERIALS CORPORATION OF AMERICA**

 

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)**

 

**Note4.  Comprehensive Income**

 

The table belowreconciles the Company’s net income to comprehensive income for the secondquarter and six-month periods ended July 5, 2009 and June 29, 2008,respectively:

** **
| ** **                                                                                                                                                                                                                                                                         | ** ** | **Second Quarter Ended** | ** ** | **Six Months Ended** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|----------------------|------------|
| ** **                                                                                                                                                                                                                                                                         | ** ** | **July 5,**         | ** ** | **June 29,**    | ** ** | **July 5,** | ** ** | **June 29,** | ** ** |
| ** **                                                                                                                                                                                                                                                                         | ** ** | **2009**                 | ** ** | **2008**             | ** ** | **2009** | ** ** | **2008** | ** ** |
| ** **                                                                                                                                                                                                                                                                         | ** ** | **(Thousands)**          | ** ** |
| Net income                                                                                                                                                                                                                                                                         |       | $                        | 70,080     |                 | $          | 27,801 |   | $ | 122,057 |   | $ | 12,756 |   |
| Other comprehensive income, net of tax:                                                                                                                                                                                                                                            |       |                     |       |                 |       |   |   |   |   |
| Derivative fair value adjustment -interest rate swaps, net of  tax of ($2,748) and ($13,277) for thethree-month periods ended July 5, 2009 and  June 29, 2008, respectively,and ($2,701) and ($1,382) for thesix-month periods ended  July 5, 2009 and June 29, 2008, respectively |       | 4,483                    |       | 21,661               |       | 4,408 |   | 2,255 |   |
|                                                                                                                                                                                                                                                                               |       |                     |       |                 |       |   |   |   |   |
| Derivative fair value adjustment-treasury locks,  net of tax of ($72) and($72) for the three-month periods endedJuly 5, 2009 and June 29, 2008, respectively,  and ($144) and ($144) for the six-month periods ended July 5, 2009 and June 29,  2008, respectively                 |       | 118                      |       | 118                  |       | 235 |   | 235 |   |
| Comprehensive income                                                                                                                                                                                                                                                               |       | $                        | 74,681     |                 | $          | 49,580 |   | $ | 126,700 |   | $ | 15,246 |   |

 

**Note5.  Inventories**

 

Inventoriesconsisted of the following as of July 5, 2009 and December 31, 2008,respectively:

 
| ** **                 | ** ** | **July 5,** | ** ** | **December 31,** | ** ** |
|----------------------------|------------|------------------|------------|-----------------------|------------|
| ** **                 | ** ** | **2009**         | ** ** | **2008**              | ** ** |
| ** **                 | ** ** | **(Thousands)**  | ** ** |
| Finished goods             |       | $                | 147,266    |                  | $          | 271,373 |   |
| Work-in process            |       | 14,226           |       | 41,225                |       |
| Raw materials and supplies |       | 84,876           |       | 94,381                |       |
| Total                      |       | 246,368          |       | 406,979               |       |
| Less LIFO reserve          |       | (63,530          | )          | (58,530               | )          |
| Inventories, net           |       | $                | 182,838    |                  | $          | 348,449 |   |

 

13

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**BUILDINGMATERIALS CORPORATION OF AMERICA**

 

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)**

 

**Note6.  Long-Term Debt**

 

Long-term debt consistsof the following at July 5, 2009 and December 31, 2008:

 
| ** **                                                   | ** ** | **July 5,********2009** | ** ** | **December 31,********2008** | ** ** |
|--------------------------------------------------------------|------------|------------------------------|------------|-----------------------------------|------------|
| ** **                                                   | ** ** | **(Thousands)**              | ** ** |
|                                                         |       |                         |       |                              |       |
| 7 3/4% Senior Notes due 2014                                 |       | $                            | 250,456    |                              | $          | 250,500 |   |
| Borrowings under the Senior SecuredRevolving Credit Facility |       | —                       |       | 76,000                            |       |
| Term Loan                                                    |       | 950,897                      |       | 955,670                           |       |
| Junior Lien Term Loan                                        |       | 325,000                      |       | 325,000                           |       |
| Obligations under capital leases                             |       | 51,296                       |       | 55,956                            |       |
| Industrial development revenue bond                          |       | 2,730                        |       | 2,820                             |       |
| Chester Loan                                                 |       | 3,481                        |       | 5,126                             |       |
| Other notes payable                                          |       | 7,384                        |       | 7,693                             |       |
| Total                                                        |       | 1,591,244                    |       | 1,678,765                         |       |
| Less current maturities                                      |       | (20,938                      | )          | (20,596                           | )          |
| Long-term debt less current maturities                       |       | $                            | 1,570,306  |                              | $          | 1,658,169 |   |

 

As of July 5, 2009,the Company had total outstanding consolidated indebtedness of $1,644.1million, which included $52.8 million of demand loans to its parent corporationand $20.9 million that matures prior to the end of the second quarter of2010.  The Company anticipates funding theseobligations principally from its cash and cash equivalents on hand, cash flowfrom operations and/or borrowings under its $600.0 million Senior SecuredRevolving Credit Facility (the “Senior Secured Revolving Credit Facility”).

 

As of July 5, 2009,the Company was in compliance with all covenants under the Senior SecuredRevolving Credit Facility, the $975.0 million Term Loan Facility (the “TermLoan”), the $325.0 million Junior Lien Term Loan Facility (the “Junior LienTerm Loan” and collectively with the Senior Secured Revolving Credit Facilityand the Term Loan the “Senior Secured Credit Facilities”) and the indenturegoverning its 7 3/4% Senior Notes due 2014 (the “Senior Notes”).  As of July 5, 2009, the net book valueof the collateral securing the Senior Secured Revolving Credit FacilityCollateral (as defined in the Senior Secured Revolving Credit Facility) and theTerm Loan Collateral (as defined in the Term Loan) was $774.1 and $1,647.9million, respectively.

 

At July 5, 2009, theCompany had outstanding letters of credit of approximately $43.1 million, whichincluded approximately $10.6 million of standby letters of credit related tocertain obligations of G-I Holdings.

 

14

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**BUILDINGMATERIALS CORPORATION OF AMERICA**

 

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)**

 

**Note7.  Derivative and Hedging Transactions**

 

*Hedging Strategy*

 

The Company is exposed tothe impact of variable interest rate fluctuations on certain of its debtfinancings; however, the Company limits its variable interest rate exposurethrough the use of derivative instruments, which reduce the risk of interestrate fluctuations related to the Company’s debt.  As a result of the use of derivativeinstruments, the Company has exposure to the risk that its counterparties toderivative contracts will fail to meet their contractual obligations.  In order to mitigate its counterparty creditrisk, the Company enters into derivative contracts with selected majorfinancial institutions.  The Company’spolicies and procedures for mitigating counterparty credit risk on derivativetransactions include reviewing and establishing limits for credit exposure witheach financial institution and a continuous assessment of the creditworthinessof each counterparty.  The right ofset-off that exists under certain of these derivative contracts enables theCompany, subject to each derivative contract, to net amounts due to and fromthe counterparty reducing the maximum loss from credit risk in the event ofcounterparty default.

 

*InterestRate Swap Agreements*

 

In March 2007, theCompany entered into forward-starting interest rate swap agreements (“swaps”)with an effective date of April 23, 2007 and a maturity date of April 23,2012.  These swaps were initiated inorder to hedge the variable interest rate risk associated with the Company’sTerm Loan, and they are structured that the Company receives interest based onthe three-month Eurodollar rate (“LIBOR”) and pay interest on a fixed ratebasis.  In October 2007, the Companyentered into additional interest rate swaps related to its Term Loan with aneffective date of October 23, 2007 and a maturity date of October 23,2012 under similar terms.

 

On April 23, 2009,the Company exercised its option under its Term Loan to change the interestrate for its LIBOR advances from three-month to one-month LIBOR.  The Company continued to receive three-monthLIBOR and pay fixed rate interest under its swap agreements.  The election of one-month LIBOR on its TermLoan resulted in the Company de-designating its original swap hedgingrelationship and subsequently re-designating a new swap hedging relationshipfor its Term Loan.  As a result of theelection, the Company recognized a $1.1 million loss related to swapineffectiveness as a component of interest expense during the second quarterended July 5, 2009.  In addition, asa result of this election, the Company recognized $4.9 million of interestexpense due to the straight—line amortization of the unrealized lossesremaining in accumulated other comprehensive income/loss (“OCI”) at April 23,2009.  The remaining amount of unrealizedlosses at July 5, 2009 will be amortized over the remaining life of theoriginal swaps.

 

15

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**BUILDINGMATERIALS CORPORATION OF AMERICA**

 

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)**

 

**Note7.  Derivative and Hedging Transactions –(Continued)**

 

The Company continues toaccount for its new swap hedging relationship in accordance with SFAS No. 133,and as such its swaps are treated as cash flow hedges.  The Company swaps are measured each periodusing the hypothetical derivative method in accordance with SFAS No. 133,which requires the Company’s actual swaps liability to be recorded at fairvalue, and OCI to reflect the lesser of either the cumulative change in thefair value of the actual swap or the cumulative change in the fair value of thehypothetical swap (the “perfect swap”). In any given period, to the extent the cumulative change in the fairvalue of the actual swap is greater than the cumulative change in the fairvalue of the perfect swap, the difference would be recognized asineffectiveness as a component of interest expense in the Company’s statementof income.  As of July 5, 2009, dueto amortization, ineffectiveness and accrued swap interest, the Companyestimated that during the twelve months ending July 2010, approximately$36.0 million of unrealized losses will be reclassified from OCI and recognizedas a component of interest expense in its statement of income, subject tochanges in the LIBOR rate. 

 

The Company values itsinterest rate swap agreements based on SFAS No. 157 Level 2 inputs frommodel-derived valuations whose significant inputs are quoted LIBOR contracts,Eurodollar futures and on-the-run swap markets. SFAS No. 157 requires that the valuation of derivative assets andliabilities must take into account the parties’ nonperformance risk.  The Company discounted the value of itsderivative liabilities based on the credit spread for its debt as determined bythe market trading price.  See Note 8,Fair Value Measurements.

 

*TreasuryLock Agreements*

 

In July 2007, theCompany entered into treasury lock agreements (“treasury locks”) with amaturity date of July 31, 2012, as additional hedging instruments relatedto its Term Loan.  On October 30,2007, the Company settled its open treasury lock hedging positions, whichresulted in a pre-tax fair value loss and cash settlement of approximately $4.9million, which is being amortized into its statement of income over the life ofthe Term Loan pursuant to the requirements of SFAS No. 133.  During the second quarter ended July 5,2009 and June 29, 2008, the Company amortized $0.2 and $0.2 million,respectively, of the loss related to its treasury locks into interest expensein its statement of income and during its six-month periods ended July 5,2009 and June 29, 2008, the Company amortized $0.4 and $0.4 million,respectively.  The Company will amortize$0.8 million annually related to this loss through July 2012.

 

16

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**BUILDINGMATERIALS CORPORATION OF AMERICA**

 

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)**

 

**Note7.  Derivative and Hedging Transactions –(Continued)**

 

The following table setsforth the classification and fair values of the Company’s derivativeinstruments at July 5, 2009:

 

**FAIR VALUE OF DERIVATIVE INSTRUMENTS**

**(Millions)**

 
| **Description**                                                                | ** ** | **Balance Sheet Classification**    | ** ** | **Fair Value** | ** ** |
|--------------------------------------------------------------------------------|------------|-------------------------------------|------------|----------------|------------|
|                                                                           |       |                                |       |           |       |
| **Derivatives designated as hedging****instruments under SFAS  No. 133:** |       |                                |       |           |       |
|                                                                           |       |                                |       |           |       |
| Fixed-income  interest rate swap agreements                                    |       | Other non—current  liabilities |       | $              | 69.3       |   |
|                                                                                |            |                                     |            |                |            |  |

 

The amount included inOCI, net of tax, related to the Company’s derivative liability at July 5,2009 and December 31, 2008 was $39.3 and $43.7 million, respectively.

 

The following table setsforth the effect of the Company’s derivative instruments on financialperformance for the three months ended July 5, 2009:

 
| **Description**                                                        | ** ** | **Amount  of  Gain or  (Loss)  Recognized  in OCI on  Derivative  (Effective  Portion)** | ** ** | **Location  of  Gain or (Loss)  Reclassified  from OCI Into  Income  (Effective  Portion)** | ** **       | **Amount  of Gain  or (Loss)  Reclassified  from  Accumulated  OCI Into  Income  (Effective  Portion)** | ** ** | **Location  of  Gain or (Loss)  Recognized in  Income on  Derivative  (Ineffective  Portion)** | ** ** | **Amount  of Gain  or (Loss)  Recognized in  Income on  Derivative  (Ineffective  Portion)** | ** ** |
|------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------|------------------|---------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------|------------|
| ** **                                                             | ** ** | **(Millions)**                                                                           | ** ** |
| ** **                                                             |       |                                                                                     |       |                                                                                        |             |                                                                                                    |       |                                                                                           |       |                                                                                         |       |
| **Derivatives in SFAS  No. 133 Cash Flow Hedging Relationships:** |       |                                                                                     |       |                                                                                        |             |                                                                                                    |       |                                                                                           |       |                                                                                         |       |
|                                                                   |       |                                                                                     |       |                                                                                        |             |                                                                                                    |       |                                                                                           |       |                                                                                         |       |
| Fixed-income interest rateswap agreements                              |       | $                                                                                        | 4.5        |                                                                                        | Interest Expense |                                                                                                    | $          | (13.3                                                                                          | )          | InterestExpense                                                                              |       | $ | (1.1 | ) |
|                                                                   |       |                                                                                     |       |                                                                                        |             |                                                                                                    |       |                                                                                           |       |                                                                                         |       |
| Treasury lock contracts                                                |       | —                                                                                   |       | Interest Expense                                                                            |             | (0.2                                                                                                    | )          | —                                                                                         |       | —                                                                                       |       |
|                                                                        |            |                                                                                          |            |                                                                                             |                  |                                                                                                         |            |                                                                                                |            |                                                                                              |            |  |  |  |

 

17

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**BUILDINGMATERIALS CORPORATION OF AMERICA**

 

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)**

 

**Note7.  Derivative and Hedging Transactions –(Continued)**

 

The following table setsforth the effect of the Company’s derivative instruments on financial performancefor the six months ended July 5, 2009:

 
| **Description**                                                        | ** ** | **Amount  of Gain or  (Loss) Recognized  in OCI on  Derivative  (Effective  Portion)** | ** ** | **Location  of  Gain or (Loss)  Reclassified  from OCI Into  Income  (Effective  Portion)** | ** **       | **Amount  of Gain  or (Loss)  Reclassified  from  Accumulated  OCI Into  Income  (Effective  Portion)** | ** ** | **Location  of  Gain or (Loss)  Recognized in  Income on  Derivative  (Ineffective  Portion)** | ** ** | **Amount  of Gain  or (Loss)  Recognized in  Income on  Derivative  (Ineffective  Portion)** | ** ** |
|------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------|------------------|---------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------|------------|
| ** **                                                             | ** ** | **(Millions)**                                                                         | ** ** |
| ** **                                                             |       |                                                                                   |       |                                                                                        |             |                                                                                                    |       |                                                                                           |       |                                                                                         |       |
| **Derivatives in SFAS  No. 133 Cash Flow Hedging Relationships:** |       |                                                                                   |       |                                                                                        |             |                                                                                                    |       |                                                                                           |       |                                                                                         |       |
|                                                                   |       |                                                                                   |       |                                                                                        |             |                                                                                                    |       |                                                                                           |       |                                                                                         |       |
| Fixed-income interest rateswap agreements                              |       | $                                                                                      | 4.4        |                                                                                        | Interest Expense |                                                                                                    | $          | (20.5                                                                                          | )          | InterestExpense                                                                              |       | $ | (1.1 | ) |
|                                                                   |       |                                                                                   |       |                                                                                        |             |                                                                                                    |       |                                                                                           |       |                                                                                         |       |
| Treasury lock contracts                                                |       | —                                                                                 |       | Interest Expense                                                                            |             | (0.4                                                                                                    | )          | —                                                                                         |       | —                                                                                       |       |
|                                                                        |            |                                                                                        |            |                                                                                             |                  |                                                                                                         |            |                                                                                                |            |                                                                                              |            |  |  |  |

 

As of July 5, 2009,the Company did not have any derivatives not designated as hedging instrumentsaccording to SFAS No. 133.

 

**Note8.  Fair Value Measurements**

 

Financial instrumentsconsist mainly of cash and cash equivalents, accounts receivable, accountspayable, accrued liabilities, interest rate swaps, short and long-term debt andlease obligations.  The Company’sinterest rate swaps are recorded at fair value, while other financialinstruments in the Company’s consolidated balance sheet have carrying valuesthat approximate fair value.  In theabsence of quoted market prices, considerable judgment is required indeveloping estimates of fair value.  TheCompany’s estimates are based on historical experience and on various otherassumptions that are believed to be reasonable under the circumstances, theresults of which form the basis for making judgments about the carrying valuesof assets and liabilities.  Actualresults may differ from these estimates under different assumptions or conditions.  Estimates are not necessarily indicative ofthe amounts the Company could realize in a current market transaction.

 

18

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**BUILDINGMATERIALS CORPORATION OF AMERICA**

 

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)**

 

**Note8.  Fair Value Measurements – (Continued)**

 

The following tabledetails the carrying and fair values of the Company’s Term Loan, Junior LienTerm Loan and Senior Notes at July 5, 2009 and December 31,2008.  Fair values are based upon quotedmarket prices as follows:

 
| ** **             | ** ** | **July 5, 2009** | ** ** | **December 31, 2008** | ** ** |
|------------------------|------------|-----------------------|------------|----------------------------|------------|
| ** **             | ** ** | **Carrying Amount**   | ** ** | **Fair Value**             | ** ** | **Carrying Amount** | ** ** | **Fair Value** | ** ** |
| ** **             | ** ** | **(Thousands)**       | ** ** |
| Senior  Notes          |       | $                     | 250,456    |                       | $          | 222,500 |   | $ | 250,500 |   | $ | 155,000 |   |
| Term  Loan             |       | 950,897               |       | 839,167                    |       | 955,670 |   | 573,402 |   |
| Junior  Lien Term Loan |       | 325,000               |       | 261,625                    |       | 325,000 |   | 162,500 |   |
|                        |            |                       |            |                            |            |  |  |  |  |  |  |  |  |

 

The following table setsforth information regarding the Company’s financial instruments that aremeasured at fair value as of July 5, 2009, consistent with the fair valuehierarchy provision of SFAS No. 157:

 
| ** **                                  | ** ** | **Total  Measured at  Fair Value** | ** ** | **Quoted  Market  Prices  In Active  Markets for  Identical  Assets/  Liabilities  (Level 1)** | ** ** | **Significant  Other  Observable  Inputs  (Level 2)** | ** ** | **Significant  Unobservable  Inputs  (Level 3)** | ** ** |
|---------------------------------------------|------------|------------------------------------|------------|------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                  | ** ** | **(Millions)**                     | ** ** |
| Liabilities:                                |       |                               |       |                                                                                           |       |                                                  |       |                                             |       |
| Fixed-income  interest rate swap agreements |       | $                                  | 69.3       |                                                                                           | $          | —                                                |       | $                                                | 69.3       |   | $ | — |   |
| Total  liabilities                          |       | $                                  | 69.3       |                                                                                           | $          | —                                                |       | $                                                | 69.3       |   | $ | — |   |

 

During the first quarterof 2009, the Company adopted FSP FAS No. 157-2, “Partial Deferral to theEffective Date of Statement 157,” which deferred the application of SFAS No. 157for certain non-financial assets and non-financial liabilities.  Upon adoption, the Company did not have anynon-financial assets or liabilities that were recognized or measured at fairvalue on a recurring basis, therefore there was no impact on the Company’sresults of operations.

 

**Note9.  Warranty Claims**

 

The Company providescertain limited warranties covering most of its residential roofing productsfor periods generally ranging from 20 to 50 years, although certain productlines provide for a lifetime limited warranty. The Company also offers certain limited warranties of varying

 

19

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**BUILDINGMATERIALS CORPORATION OF AMERICA**

 

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)**

 

**Note9.  Warranty Claims – (Continued)**

 

duration covering most ofits commercial roofing products.  Most ofthe Company’s specialty building products and accessories carry limitedwarranties for periods generally ranging from 5 to 20 years, with lifetimelimited warranties on certain products. The accrual for product warranty claims consists of the following forthe second quarter and six-month periods ended July 5, 2009 and June 29,2008, respectively:

 
| ** **                        | ** ** | **Second Quarter Ended** | ** ** | **Six Months Ended** | ** ** |
|-----------------------------------|------------|--------------------------|------------|----------------------|------------|
| ** **                        | ** ** | **July 5,**         | ** ** | **June 29,**    | ** ** | **July 5,** | ** ** | **June 29,** | ** ** |
| ** **                        | ** ** | **2009**                 | ** ** | **2008**             | ** ** | **2009** | ** ** | **2008** | ** ** |
| ** **                        | ** ** | **(Thousands)**          | ** ** |
|                              |       |                     |       |                 |       |   |   |   |   |
| Beginning  balance                |       | $                        | 47,951     |                 | $          | 46,315 |   | $ | 44,965 |   | $ | 44,724 |   |
| Charged  to cost of products sold |       | 18,448                   |       | 5,134                |       | 25,955 |   | 9,899 |   |
| Payments/deductions               |       | (6,531                   | )          | (4,421               | )          | (11,052 | ) | (7,595 | ) |
| Ending  balance                   |       | $                        | 59,868     |                 | $          | 47,028 |   | $ | 59,868 |   | $ | 47,028 |   |

 

The Company offersextended warranty contracts on sales of its commercial roofing products.  The lives of these commercial warranties rangefrom 10 to 25 years.  In addition, theCompany offers enhanced warranties on certain of its residential roofingproducts.  These enhanced warranties arethe “Golden PledgeTM” and “Peace of MindTM” warranty programs.  All revenue for the sale of these warrantyprograms is deferred and amortized on a straight-line basis over the averagelife of these warranty programs, which is in accordance with the accounting prescribedby FASB Technical Bulletin No. 90-1 “Accounting for Separately PricedExtended Warranty and Product Maintenance Contracts.”  Incremental direct costs associated with theacquisition of the extended warranty contracts are capitalized and amortized ona straight-line basis over the average life of these warranty programs.  Current costs of services performed relatedto claims paid under these warranty programs are expensed as incurred.  The analysis of these warranty programs as ofJuly 5, 2009 indicated that deferred revenue is in excess of deferredcosts and accordingly, no loss was recognized. However, if the total expected costs of providing services under thesewarranty programs exceed deferred revenues less deferred costs, then a losswould be recognized.

 

At July 5, 2009 and June 29,2008, the Company had deferred revenue of $79.0 and $73.0 million, of which$10.9 and $8.6 million is included in other current liabilities and $68.1 and$64.4 million is included in other liabilities, respectively.  At July 5, 2009 and June 29, 2008,the Company also had deferred costs of $54.9 and $51.5 million, of which $7.2and $5.5 million is included in other current assets and $47.7 and $46.0million is included in other assets, respectively.

 

20

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**BUILDINGMATERIALS CORPORATION OF AMERICA**

 

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)**

 

**Note10.  Benefit Plans**

 

*DefinedBenefit Plans*

 

The Company provides anoncontributory defined benefit retirement plan for certain hourly and salariedemployees (the “Retirement Plan”). Benefits under this plan are based on stated amounts for each year ofservice.  The Company’s funding policy isconsistent with the minimum funding requirements of the Employee RetirementIncome Security Act of 1974.

 

The Company’s netperiodic pension cost for the Retirement Plan included the following componentsfor the second quarter and six-month periods ended July 5, 2009 and June 29,2008, respectively:

 
| ** **                                     | ** ** | **Second Quarter Ended** | ** ** | **Six Months Ended** | ** ** |
|------------------------------------------------|------------|--------------------------|------------|----------------------|------------|
| ** **                                     | ** ** | **July 5,**         | ** ** | **June 29,**    | ** ** | **July 5,** | ** ** | **June 29,** | ** ** |
| ** **                                     | ** ** | **2009**                 | ** ** | **2008**             | ** ** | **2009** | ** ** | **2008** | ** ** |
| ** **                                     | ** ** | **(Thousands)**          | ** ** |
|                                           |       |                     |       |                 |       |   |   |   |   |
| Service cost                                   |       | $                        | 351        |                 | $          | 430 |   | $ | 702 |   | $ | 860 |   |
| Interest cost                                  |       | 643                      |       | 610                  |       | 1,285 |   | 1,221 |   |
| Expected return on plan assets                 |       | (792                     | )          | (792                 | )          | (1,584 | ) | (1,584 | ) |
| Amortization of unrecognized priorservice cost |       | 2                        |       | 4                    |       | 4 |   | 7 |   |
| Amortization of net losses fromearlier periods |       | 179                      |       | 105                  |       | 359 |   | 210 |   |
| Net periodic pension cost                      |       | $                        | 383        |                 | $          | 357 |   | $ | 766 |   | $ | 714 |   |

 

As of July 5, 2009,the Company expected to make pension contributions of $4.2 million to theRetirement Plan in 2009, which is consistent with its expectations as of December 31,2008.  The Company made Retirement Plancontributions of $1.0 million during its first six months of 2009.

 

*PostretirementMedical and Life Insurance*

 

The Company generallydoes not provide postretirement medical and life insurance benefits, althoughit subsidizes such benefits for certain employees and retirees.  Such subsidies were reduced or ended as of January 1,1997.  Effective March 1, 2005, theCompany amended the plan to eliminate postretirement medical benefits for allcurrent and future retirees.

 

21

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**BUILDINGMATERIALS CORPORATION OF AMERICA**

 

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)**

 

**Note 10. Benefit Plans – (Continued)**

 

Net periodicpostretirement benefit included the following components for the second quarterand six-month periods ended July 5, 2009 and June 29, 2008,respectively:

 
| ** **                                     | ** ** | **Second Quarter Ended** | ** ** | **Six Months Ended** | ** ** |
|------------------------------------------------|------------|--------------------------|------------|----------------------|------------|
| ** **                                     | ** ** | **July 5,**         | ** ** | **June 29,**    | ** ** | **July 5,** | ** ** | **June 29,** | ** ** |
| ** **                                     | ** ** | **2009**                 | ** ** | **2008**             | ** ** | **2009** | ** ** | **2008** | ** ** |
| ** **                                     | ** ** | **(Thousands)**          | ** ** |
|                                           |       |                     |       |                 |       |   |   |   |   |
| Service cost                                   |       | $                        | 3          |                 | $          | 4 |   | $ | 5 |   | $ | 7 |   |
| Interest cost                                  |       | 27                       |       | 29                   |       | 55 |   | 58 |   |
| Amortization of unrecognized priorservice cost |       | (143                     | )          | (142                 | )          | (285 | ) | (285 | ) |
| Amortization of net gains fromearlier periods  |       | (53                      | )          | (57                  | )          | (106 | ) | (113 | ) |
| Net periodic postretirement benefit            |       | $                        | (166       | )                    | $          | (166 | ) | $ | (331 | ) | $ | (333 | ) |

 

As of July 5, 2009,the Company expected to make aggregate benefit claim payments of approximately$0.2 million during 2009, which are related to postretirement life insuranceexpenses. This is consistent with the Company’s expectations as of December 31,2008.

 

**Note 11.  2001 Long-Term Incentive Plan**

 

Incentive units grantedunder the 2001 Long-Term Incentive Plan (the “2001 LTIP”) are valued at BookValue (as defined in the 2001 LTIP) or the value of such incentive unitsspecified at the date of grant. Increases or decreases in the Book Value of those incentive units resultin a change in the measure of compensation for the award.  Compensation expense for the Company’sincentive units was $6.5 and $0.8 million for the second quarter ended July 5,2009 and June 29, 2008, respectively, and $13.4 and $1.2 million for thesix-month periods ended July 5, 2009 and June 29, 2008,respectively.  At July 5, 2009 and December 31,2008, the 2001 LTIP liability amounted to $24.7 and $12.9 million,respectively, and was included in accrued liabilities.

 

22

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**BUILDINGMATERIALS CORPORATION OF AMERICA**

 

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)**

 

**Note 11.  2001 Long-Term Incentive Plan – (Continued)**

 

Thefollowing is a summary of activity for incentive units related to the 2001LTIP:

 
| ** **                                        | ** ** | **Six Months Ended** | ** ** | **Year-to-Date**      | ** ** |
|---------------------------------------------------|------------|----------------------|------------|-----------------------|------------|
| ** **                                        | ** ** | **July 5,**     | ** ** | **December 31,** | ** ** |
| ** **                                        | ** ** | **2009**             | ** ** | **2008**              | ** ** |
| ** **                                        | ** ** | ** **           | ** ** | ** **            | ** ** |
| Incentive  Units outstanding, beginning of period |       | 90,468               |       | 99,120                |       |
| Granted                                           |       | 725                  |       | 17,375                |       |
| Exercised                                         |       | (5,910               | )          | (18,686               | )          |
| Forfeited                                         |       | (2,385               | )          | (7,341                | )          |
| Incentive  Units outstanding, end of period       |       | 82,898               |       | 90,468                |       |
| Vested  Units outstanding, end of period          |       | 45,462               |       | 33,702                |       |

 

Theinitial value of each of the 725 incentive units granted on January 1,2009 was $706.88.  The initial value ofeach of the 17,000 incentive units granted on January 1, 2008 was $592.01and the 375 incentive units granted on October 1, 2008 was $687.97.

 

**Note12.  Related Party Transactions**

 

TheCompany makes loans to, and borrows from, its parent corporations from time totime at prevailing market interest rates. As of July 5, 2009 and June 29, 2008, BMCA HoldingsCorporation owed the Company $56.4 and $56.3 million, including interest of$1.1 and $1.0 million, respectively, and the Company owed BMCA HoldingsCorporation $52.8 and $52.8 million, respectively, with no unpaidinterest.  Interest income on the Company’sloans to BMCA Holdings Corporation amounted to $0.6 and $0.8 million during thesecond quarter ended July 5, 2009 and June 29, 2008, respectively,and $1.2 and $1.8 million during the six-month periods ended July 5, 2009and June 29, 2008, respectively. Interest expense on the Company’s loans from BMCA Holdings Corporationamounted to $0.6 and $0.8 million during the second quarter ended July 5,2009 and June 29, 2008, respectively, and $1.1 and $1.8 million during thesix-month periods ended July 5, 2009 and June 29, 2008,respectively.  Loans payableto/receivable from its parent corporations are due on demand and provide eachparty with the right of offset of its related obligation to the other party andare subject to limitations as outlined in the Senior Secured Credit Facilitiesand the Senior Notes.  Under the terms ofthe Senior Secured Revolving Credit Facility and the indenture governing theCompany’s Senior Notes at July 5, 2009, the Company could repay demandloans to its parent corporation amounting to $52.8 million, subject to certainconditions.

 

23

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**BUILDINGMATERIALS CORPORATION OF AMERICA**

 

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)**

 

**Note12.  Related Party Transactions –(Continued)**

 

TheCompany has a management agreement (the “Management Agreement”) with ISPManagement Company, Inc., a subsidiary of International Specialty ProductsInc. (which, together with its subsidiaries, is referred to as “ISP”), anaffiliate, to provide the Company with certain management services.  Based on services provided to the Company in2009 under the Management Agreement, the aggregate amount payable to ISPManagement Company, Inc. under the Management Agreement for 2009,inclusive of the services provided to G-I Holdings, is not yet available;however, it is currently estimated to be similar to the $7.3 million paid in2008.  The Company does not expect anychanges to the Management Agreement to have a material impact on the Company’sresults of operations.

 

The Company and itssubsidiaries purchased a substantial portion of their headlap roofing granules,colored roofing granules and algae-resistant granules, on a purchase orderbasis, from ISP Minerals Inc. (“ISP Minerals”), an affiliate of BMCA andISP.  The amount of mineral productspurchased each year on this basis is based on current demand and is not subjectto minimum purchase requirements.  Forthe second quarter ended July 5, 2009 and June 29, 2008, the Companyand its subsidiaries purchased $12.0 and $12.3 million, respectively, ofroofing granules, and for the six-month periods ended July 5, 2009 and June 29,2008, the Company purchased $23.5 and $19.5 million, respectively, of roofinggranules under this arrangement.

 

In addition to thegranules products purchased by the Company, under the above-referenced purchaseorder basis the balance of its granules purchased from ISP Minerals is purchasedunder a contract expiring in 2013.  Theamount of mineral products purchased each year under the contract is based oncurrent demand and is not subject to minimum purchase requirements.  Under the contract, for the second quarterended July 5, 2009 and June 29, 2008, the Company purchased $13.9 and$22.8 million, respectively, of roofing granules, and for the six-month periodsended July 5, 2009 and June 29, 2008, the Company purchased $32.0 and$41.9 million of roofing granules, respectively.

 

InFebruary 2009 and March 2009, after giving effect to the mostrestrictive of the aforementioned debt covenant restrictions, the Companydeclared and paid cash dividends of $5.0 and $5.0 million, respectively, to itsparent corporation.

 

Includedin noncurrent assets as a tax receivable from parent corporation on the Company’sconsolidated balance sheet is $8.4 million at December 31, 2008,representing amounts paid in excess of amounts due to G-I Holdings with respectto 2006 under the Tax Sharing Agreement. The Company utilized the remaining receivable balance at December 31,2008 during its first quarter of 2009. Included in current liabilities as a payable to related parties on theCompany’s consolidated balance sheet at July 5, 2009 is $30.4 million,representing a tax payable due to G-I Holdings under the

 

24

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**BUILDINGMATERIALS CORPORATION OF AMERICA**

 

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)**

 

**Note12.  Related Party Transactions –(Continued)**

 

TaxSharing Agreement.  These amounts areincluded in the net payable to related parties/parent corporations in theconsolidated statements of cash flows.

 

**Note 13.**  **Contingencies**

 

In connection with itsformation, the Company contractually assumed and agreed to pay the first $204.4million of liabilities of its indirect parent, G-I Holdings, forasbestos-related bodily injury claims relating to the inhalation of asbestosfiber contained in products sold by G-I Holdings or its predecessors (“AsbestosClaims”).  As of March 30, 1997, theCompany paid all of its assumed liabilities for Asbestos Claims.  G-I Holdings has agreed to indemnify theCompany against any other existing or future Asbestos Claims if assertedagainst the Company.  In January 2001,G-I Holdings filed a voluntary petition for reorganization under Chapter 11 ofthe U.S. Bankruptcy Code due to Asbestos Claims.  Most Asbestos Claims do not specify theamount of damages sought, and the value of the Asbestos Claims asserted againstG-I Holdings is a contested issue in that bankruptcy, which remains pending.

 

Claimants in the G-IHoldings’ bankruptcy, including judgment creditors, might seek to satisfy theirclaims by asking the Bankruptcy Court to require the sale of G-I Holdings’assets, including its holdings of BMCA Holdings Corporation’s common stock andits indirect holdings of the Company’s common stock.  Such action could result in a change ofcontrol of the Company.  In addition,those creditors may attempt to assert Asbestos Claims against the Company.  (Approximately 1,900 Asbestos Claims werefiled against the Company prior to February 2, 2001.)  The Company believes that it will not sustainany liability in connection with these or any other Asbestos Claims.  On February 2, 2001, the United StatesBankruptcy Court for the District of New Jersey issued a temporaryrestraining order enjoining any existing or future claimant from bringing orprosecuting an Asbestos Claim against the Company.  By oral opinion on June 22, 2001, andwritten order entered February 22, 2002, the Bankruptcy Court convertedthe temporary restraints into a preliminary injunction prohibiting the bringingor prosecution of any such Asbestos Claims against the Company.

 

On February 7, 2001,G-I Holdings filed an action in the United States Bankruptcy Court for theDistrict of New Jersey seeking a declaratory judgment that BMCA has nosuccessor liability for Asbestos Claims against G-I Holdings and that it is notthe alter ego of G-I Holdings (the “BMCA Action”).  One of the parties to this matter, theOfficial Committee of Asbestos Claimants (the “creditors’ committee”),subsequently filed a counterclaim against the Company seeking a declarationthat BMCA has successor liability for Asbestos Claims against G-I Holdings andthat it is the alter ego of G-I Holdings. On May 13, 2003, the United States District Court for the Districtof New Jersey overseeing the G-I Holdings’ Bankruptcy Court withdrew thereference of the BMCA Action from the Bankruptcy Court.  By order dated May 30, 2008, theDistrict Court dismissed the BMCA Action

 

25

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**BUILDINGMATERIALS CORPORATION OF AMERICA**

 

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)**

 

**Note 13.**  **Contingencies – (Continued)**

 

without ruling on themerits of BMCA’s position that it has no successor liability for AsbestosClaims.  The District Court ruled that aFederal court declaratory judgment action was not the proper vehicle forresolving this issue.  The District Court’sruling did not affect the preliminary injunction enjoining the prosecution ofAsbestos Claims against BMCA, and the Company believes that it does not haveliability for Asbestos Claims. Nevertheless, it is not possible to predict the outcome of anysubsequent litigation regarding the continuation of the preliminary injunctionand/or prosecution of Asbestos Claims against the Company.

 

On or about February 8,2001, the creditors’ committee filed a complaint in the United StatesBankruptcy Court, District of New Jersey against G-I Holdings and theCompany.  The complaint requestssubstantive consolidation of BMCA with G-I Holdings or an order directing G-IHoldings to cause BMCA to file for bankruptcy protection.  The plaintiffs also filed for interim reliefabsent the granting of their requested relief described above.  On March 21, 2001, the Bankruptcy Courtdenied plaintiffs’ application for interim relief.  In November 2002, the creditors’committee, joined in by the legal representative of present and future holdersof asbestos-related claims, filed a motion for appointment of a trustee in theG-I Holdings’ bankruptcy.  In December 2002,the Bankruptcy Court denied the motion. The creditors’ committee appealed the ruling to the United StatesDistrict Court, which denied the appeal on June 27, 2003.  The creditors’ committee appealed the denialto the Third Circuit Court of Appeals, which denied the appeal on September 24,2004.  The creditors’ committee filed apetition with the Third Circuit Court of Appeals for a rehearing of its denialof the creditors’ committee’s appeal, which was denied by the Court of Appealson October 26, 2004.

 

On July 7, 2004, theBankruptcy Court entered an order authorizing the creditors’ committee tocommence an adversary proceeding against the Company and others challenging, asa fraudulent conveyance, certain transactions entered into in connection withthe Company’s formation in 1994, in which G-I Holdings caused to be transferredto the Company all of its roofing business and assets and in which the Companyassumed certain liabilities relating to those assets, including a specifiedamount of liabilities for Asbestos Claims (the “1994 transaction”).  The Bankruptcy Court also permitted thecreditors’ committee to pursue a claim against holders of the Company’s bankand bond debt outstanding in 2000, seeking recovery from them, based on thecreditors’ committee’s theory that the 1994 transaction was a fraudulentconveyance.  On July 20, 2004, thecreditors’ committee appealed certain aspects of the Bankruptcy Court’s order(and a June 8, 2004 decision upon which the order was based).  G-I Holdings, the holders of the Company’sbank and bond debt and BMCA cross-appealed. The District Court entered an order on June 21, 2006 affirming inpart and vacating in part the Bankruptcy Court’s July 7, 2004 order.  Among other things, the District Courtvacated that aspect of the Bankruptcy Court’s order authorizing the creditors’committee to pursue avoidance claims against the Company and the holders of theCompany’s bank

 

26

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**BUILDINGMATERIALS CORPORATION OF AMERICA**

 

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)**

 

**Note 13.**  **Contingencies – (Continued)**

 

and bond debt as of2000.  This issue has been remanded tothe Bankruptcy Court for further proceedings consistent with the District Court’sopinion.  By order dated August 22,2008, the Bankruptcy Court stayed this authorization proceeding and otheradversary proceedings effective upon the filing of a Joint Plan ofReorganization by G-I Holdings, the creditors’ committee and the legalrepresentative of present and future holders of asbestos-related claims.  The Company believes the creditors’ committee’savoidance claims are without merit and, in the event the stay is terminated,the Bankruptcy Court should not permit the creditors’ committee to pursue suchclaims against the Company and the holders of its bank and bond debt as of2000.

 

The Company has beenadvised by G-I Holdings that on August 12, 2008, G-I Holdings reached anagreement with the creditors’ committee and the legal representative of presentand future holders of asbestos-related claims to jointly file a plan ofreorganization with the Bankruptcy Court that will provide for settlement ofAsbestos Claims and all related litigation. The agreement is subject to a number of contingencies, but if thecontingencies are met and the reorganization plan is confirmed, all of theactions described above will be resolved. If the bankruptcy is not resolved, the Company and G-I Holdings intendto vigorously defend all litigations related thereto.  A Joint Plan of Reorganization of G-I Holdingswas filed with the Bankruptcy Court on August 21, 2008, and a FirstAmended Joint Plan of Reorganization of G-I Holdings was filed with theBankruptcy Court on October 30, 2008. G-I Holdings filed with the Bankruptcy Court a Second Amended Joint Planof Reorganization of G-I Holdings on December 3, 2008, a Third AmendedJoint Plan of Reorganization of G-I Holdings on July 2, 2009, and a FourthAmended Joint Plan of Reorganization of G-I Holdings on July 28, 2009.

 

If the reorganizationplan is not confirmed and the Company is not successful in defending againstone or more of the claims, it may be forced to file for bankruptcy protectionand/or contribute all or a substantial portion of its assets to satisfy theclaims of G-I Holdings’ creditors.  Eitherof these events, or the substantive consolidation of G-I Holdings and theCompany, would weaken its operations and cause it to divert a material amountof its cash flow to satisfy the Asbestos Claims of G-I Holdings and may renderit unable to pay interest or principal on its Senior Secured Credit Facilitiesand Senior Notes.

 

*Tax Claims Against G-I Holdings*

 

On September 15,1997, G-I Holdings received a notice from the Internal Revenue Service (the “IRS”)of a deficiency in the amount of $84.4 million (after taking into account theuse of net operating losses and foreign tax credits otherwise available for usein later years) in connection with the formation in 1990 of Rhône-PoulencSurfactants and Specialties, L.P. (the

 

27

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**BUILDINGMATERIALS CORPORATION OF AMERICA**

 

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)**

 

**Note 13.**  **Contingencies – (Continued)**

 

“surfactants partnership”),a partnership in which G-I Holdings held an interest.  On September 21, 2001, the IRS filed aproof of claim with respect to such deficiency against G-I Holdings in the G-IHoldings’ bankruptcy.  If such proof ofclaim is sustained for years in which the Company was part of the G-I Holdingstax group, the Company and/or certain of the Company’s subsidiaries togetherwith G-I Holdings and several current and former subsidiaries of G-I Holdingscould be severally liable for those taxes and interest.  G-I Holdings has filed an objection to theproof of claim, which is the subject of an adversary proceeding pending in theUnited States District Court for the District of New Jersey.  By opinion and order dated September 8,2006, the District Court ruled on the parties’ respective motions for PartialSummary Judgment, granting the government summary judgment on the issue of “adequatedisclosure” for statute of limitation purposes and denying G-I Holdings summaryjudgment on its other statute of limitations defense (finding material issuesof fact that must be tried).  If the IRSwere to prevail for the years in which the Company and/or certain of itssubsidiaries were not part of the G-I Holdings tax group, the Companynevertheless could be liable for approximately $40.0 million in taxes plusinterest, although this calculation is subject to uncertainty depending uponvarious factors including G-I Holdings’ ability to satisfy its tax liabilitiesand the application of tax credits and deductions.  In an opinion dated June 8, 2007, theDistrict Court decided that G-I Holdings cannot avail itself of the “bindingcontract” transitional relief with respect to the 1999 distribution of U.S.Treasury Bonds to G-I Holdings.  TheCompany believes that it will not be required to pay any incremental income taxto the Federal government with respect to this matter and that its ultimatedisposition will not have a material adverse effect on its business, financialposition or results of operations.

 

Fora further discussion with respect to the history of the foregoing litigation,and asbestos-related matters, see Notes 8, 9, 12, and 18 to the consolidatedfinancial statements contained in the Company’s 2008 Form 10-K.

 

*EnvironmentalLitigation*

 

TheCompany, together with other companies, is a party to a variety of proceedingsand lawsuits involving environmental matters under the U.S. ComprehensiveEnvironmental Response Compensation and Liability Act, and similar state laws,in which recovery is sought for the cost of cleanup of contaminated sites orremedial obligations are imposed, a number of which are in the early stages orhave been dormant for protracted periods. Most of these environmental claims do not seek to recover an amount ofspecific damages.  At most sites, the Company anticipatesthat liability will be apportioned among the companies found to be responsiblefor the presence of hazardous substances at the site.

 

28

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**BUILDINGMATERIALS CORPORATION OF AMERICA**

 

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)**

 

**Note 13.**  **Contingencies – (Continued)**

 

While the Company cannotpredict whether adverse decisions or events can occur in the future, theCompany believes that the ultimate disposition of such matters will not have amaterial adverse effect on the liquidity, results of operations, cash flows orfinancial position of the Company.

 

*OtherContingencies*

 

In the ordinary course ofbusiness, the Company has several supply agreements that include minimum annualpurchase requirements.  In the eventthese purchase requirements are not met, the Company may be required to makepayments under these supply agreements. There have been no material changes to these contracts in the first sixmonths of 2009.

 

**Note14.  Guarantor Financial Information**

 

At July 5, 2009, morethan one of the Company’s subsidiaries, each of which is wholly-owned by theCompany, were guarantors under the Company’s Senior Secured Credit Facilitiesand the indenture governing the Senior Notes. These guarantees are full, unconditional and joint and several.  In 2007, BMCA Acquisition Inc., the directparent of Elk, and Elk, as a result of its merger with BMCA Acquisition Sub,became co-obligors on the Senior Secured Credit Facilities.

 

Presented below iscondensed consolidating financial information for the Company, the co-obligorsubsidiary and the guarantor subsidiaries. This financial information should be read in conjunction with theconsolidated financial statements and other notes related thereto.  Separate financial statements for the Companyand the guarantor subsidiaries are not included herein, because the guaranteesare full, unconditional and joint and several.

 

29

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**BUILDINGMATERIALS CORPORATION OF AMERICA**

** **

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)**

 

**Note14.  Guarantor Financial Information —(Continued)**

 

**CondensedConsolidating Statement of Operations**

**SecondQuarter Ended July 5, 2009**

**(Thousands)**

**(Unaudited)**

 
| ** **                                                                                   | ** ** | **Parent**  | ** ** | **Co-Obligor** | ** ** | **Guarantor**    | ** ** | ** **       | ** ** | ** **       | ** ** |
|----------------------------------------------------------------------------------------------|------------|-------------|------------|----------------|------------|------------------|------------|------------------|------------|------------------|------------|
| ** **                                                                                   | ** ** | **Company** | ** ** | **Subsidiary** | ** ** | **Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|                                                                                         |       |        |       |           |       |             |       |             |       |             |       |
| Net  sales                                                                                   |       | $           | 668,459    |           | $          | 5,705            |       | $                | 22,110     |             | $          | — |   | $ | 696,274 |   |
| Intercompany  net sales                                                                      |       | —      |       | 134,174        |       | 1,013,985        |       | (1,148,159       | )          | —           |       |
| Total  net sales                                                                             |       | 668,459     |       | 139,879        |       | 1,036,095        |       | (1,148,159       | )          | 696,274          |       |
|                                                                                         |       |        |       |           |       |             |       |             |       |             |       |
| Costs  and expenses:                                                                         |       |        |       |           |       |             |       |             |       |             |       |
| Cost  of products sold                                                                       |       | 596,336     |       | 139,377        |       | 854,493          |       | (1,148,159       | )          | 442,047          |       |
| Selling,  general and administrative                                                         |       | 54,791      |       | 4,893          |       | 35,837           |       | —           |       | 95,521           |       |
| Amortization  of intangible assets                                                           |       | —      |       | 2,846          |       | —           |       | —           |       | 2,846            |       |
| Restructuring  and other expenses                                                            |       | —      |       | 1,201          |       | 5,762            |       | —           |       | 6,963            |       |
| Other  (income) expense, net                                                                 |       | (757        | )          | (176           | )          | 476              |       | —           |       | (457             | )          |
| Total  costs and expenses, net                                                               |       | 650,370     |       | 148,141        |       | 896,568          |       | (1,148,159       | )          | 546,920          |       |
|                                                                                         |       |        |       |           |       |             |       |             |       |             |       |
| Income  (loss) before equity in earnings of subsidiaries, interest expense and income  taxes |       | 18,089      |       | (8,262         | )          | 139,527          |       | —           |       | 149,354          |       |
|                                                                                         |       |        |       |           |       |             |       |             |       |             |       |
| Equity  in earnings of subsidiaries                                                          |       | 70,685      |       | —         |       | —           |       | (70,685          | )          | —           |       |
| Interest  expense                                                                            |       | (19,057     | )          | (8,527         | )          | (10,096          | )          | —           |       | (37,680          | )          |
| Income  (loss) before income taxes                                                           |       | 69,717      |       | (16,789        | )          | 129,431          |       | (70,685          | )          | 111,674          |       |
| Income  tax (expense) benefit                                                                |       | 363         |       | 6,280          |       | (48,237          | )          | —           |       | (41,594          | )          |
| Net  income (loss)                                                                           |       | $           | 70,080     |           | $          | (10,509          | )          | $                | 81,194     |             | $          | (70,685 | ) | $ | 70,080 |   |

 

30

----

 

**BUILDINGMATERIALS CORPORATION OF AMERICA**

** **

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)**

 

**Note14.  Guarantor Financial Information —(Continued)**

 

**CondensedConsolidating Statement of Operations**

**SecondQuarter Ended June 29, 2008**

**(Thousands)**

**(Unaudited)**

 
| ** **                                                                                   | ** ** | **Parent**  | ** ** | **Co-Obligor** | ** ** | **Guarantor**    | ** ** | ** **       | ** ** | ** **       | ** ** |
|----------------------------------------------------------------------------------------------|------------|-------------|------------|----------------|------------|------------------|------------|------------------|------------|------------------|------------|
| ** **                                                                                   | ** ** | **Company** | ** ** | **Subsidiary** | ** ** | **Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|                                                                                         |       |        |       |           |       |             |       |             |       |             |       |
| Net  sales                                                                                   |       | $           | 702,430    |           | $          | 11,297           |       | $                | 23,351     |             | $          | — |   | $ | 737,078 |   |
| Intercompany  net sales                                                                      |       | —      |       | 186,126        |       | 1,078,865        |       | (1,264,991       | )          | —           |       |
| Total  net sales                                                                             |       | 702,430     |       | 197,423        |       | 1,102,216        |       | (1,264,991       | )          | 737,078          |       |
|                                                                                         |       |        |       |           |       |             |       |             |       |             |       |
| Costs  and expenses:                                                                         |       |        |       |           |       |             |       |             |       |             |       |
| Cost  of products sold                                                                       |       | 610,324     |       | 196,432        |       | 974,112          |       | (1,264,991       | )          | 515,877          |       |
| Selling,  general and administrative                                                         |       | 74,096      |       | 9,224          |       | 42,369           |       | —           |       | 125,689          |       |
| Amortization  of intangible assets                                                           |       | —      |       | 2,847          |       | —           |       | —           |       | 2,847            |       |
| Restructuring  and other expenses                                                            |       | —      |       | 842            |       | 5,522            |       | —           |       | 6,364            |       |
| Other  (income) expense, net                                                                 |       | 64          |       | (1             | )          | 337              |       | —           |       | 400              |       |
| Total  costs and expenses, net                                                               |       | 684,484     |       | 209,344        |       | 1,022,340        |       | (1,264,991       | )          | 651,177          |       |
|                                                                                         |       |        |       |           |       |             |       |             |       |             |       |
| Income  (loss) before equity in earnings of subsidiaries, interest expense and income  taxes |       | 17,946      |       | (11,921        | )          | 79,876           |       | —           |       | 85,901           |       |
|                                                                                         |       |        |       |           |       |             |       |             |       |             |       |
| Equity  in earnings of subsidiaries                                                          |       | 31,957      |       | —         |       | —           |       | (31,957          | )          | —           |       |
| Interest  expense                                                                            |       | (24,599     | )          | (5,143         | )          | (10,255          | )          | —           |       | (39,997          | )          |
| Income  (loss) before income taxes                                                           |       | 25,304      |       | (17,064        | )          | 69,621           |       | (31,957          | )          | 45,904           |       |
| Income  tax (expense) benefit                                                                |       | 2,497       |       | 6,545          |       | (27,145          | )          | —           |       | (18,103          | )          |
| Net  income (loss)                                                                           |       | $           | 27,801     |           | $          | (10,519          | )          | $                | 42,476     |             | $          | (31,957 | ) | $ | 27,801 |   |

 

31

----

 

**BUILDINGMATERIALS CORPORATION OF AMERICA**

** **

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)**

 

**Note 14. Guarantor Financial Information— (Continued)**

 

**CondensedConsolidating Statement of Operations**

**SixMonths Ended July 5, 2009**

**(Thousands)**

**(Unaudited)**

** **
| ** **                                                                                 | ** ** | **Parent**  | ** ** | **Co-Obligor** | ** ** | **Guarantor**    | ** ** | ** **       | ** ** | ** **       | ** ** |
|--------------------------------------------------------------------------------------------|------------|-------------|------------|----------------|------------|------------------|------------|------------------|------------|------------------|------------|
| ** **                                                                                 | ** ** | **Company** | ** ** | **Subsidiary** | ** ** | **Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|                                                                                       |       |        |       |           |       |             |       |             |       |             |       |
| Net sales                                                                                  |       | $           | 1,307,009  |           | $          | 11,223           |       | $                | 38,862     |             | $          | — |   | $ | 1,357,094 |   |
| Intercompany net sales                                                                     |       | —      |       | 268,495        |       | 1,977,513        |       | (2,246,008       | )          | —           |       |
| Total net sales                                                                            |       | 1,307,009   |       | 279,718        |       | 2,016,375        |       | (2,246,008       | )          | 1,357,094        |       |
|                                                                                       |       |        |       |           |       |             |       |             |       |             |       |
| Costs and expenses:                                                                        |       |        |       |           |       |             |       |             |       |             |       |
| Costs of products sold                                                                     |       | 1,161,590   |       | 276,035        |       | 1,679,854        |       | (2,246,008       | )          | 871,471          |       |
| Selling, general andadministrative                                                         |       | 112,119     |       | 10,369         |       | 74,689           |       | —           |       | 197,177          |       |
| Amortization of intangible assets                                                          |       | —      |       | 5,693          |       | —           |       | —           |       | 5,693            |       |
| Restructuring and other expenses                                                           |       | —      |       | 2,001          |       | 16,313           |       | —           |       | 18,314           |       |
| Other (income) expense, net                                                                |       | (61         | )          | (168           | )          | 984              |       | —           |       | 755              |       |
| Total costs and expenses, net                                                              |       | 1,273,648   |       | 293,930        |       | 1,771,840        |       | (2,246,008       | )          | 1,093,410        |       |
|                                                                                       |       |        |       |           |       |             |       |             |       |             |       |
| Income (loss) before equity inearnings of subsidiaries,  interestexpense and  income taxes |       | 33,361      |       | (14,212        | )          | 244,535          |       | —           |       | 263,684          |       |
|                                                                                       |       |        |       |           |       |             |       |             |       |             |       |
| Equity in earnings of subsidiaries                                                         |       | 123,280     |       | —         |       | —           |       | (123,280         | )          | —           |       |
| Interest expense                                                                           |       | (35,280     | )          | (16,515        | )          | (20,397          | )          | —           |       | (72,192          | )          |
| Income (loss) before income taxes                                                          |       | 121,361     |       | (30,727        | )          | 224,138          |       | (123,280         | )          | 191,492          |       |
| Income tax (expense) benefit                                                               |       | 696         |       | 11,141         |       | (81,272          | )          | —           |       | (69,435          | )          |
| Net income (loss)                                                                          |       | $           | 122,057    |           | $          | (19,586          | )          | $                | 142,866    |             | $          | (123,280 | ) | $ | 122,057 |   |

 

32

----

 

**BUILDINGMATERIALS CORPORATION OF AMERICA**

** **

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)**

 

**Note 14.  Guarantor Financial Information — (Continued)**

 

**CondensedConsolidating Statement of Operations**

**SixMonths Ended June 29, 2008**

**(Thousands)**

**(Unaudited)**

 
| ** **                                                                                   | ** ** | **Parent**  | ** ** | **Co-Obligor** | ** ** | **Guarantor**    | ** ** | ** **       | ** ** | ** **       | ** ** |
|----------------------------------------------------------------------------------------------|------------|-------------|------------|----------------|------------|------------------|------------|------------------|------------|------------------|------------|
| ** **                                                                                   | ** ** | **Company** | ** ** | **Subsidiary** | ** ** | **Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|                                                                                         |       |        |       |           |       |             |       |             |       |             |       |
| Net  sales                                                                                   |       | $           | 1,248,382  |           | $          | 21,437           |       | $                | 37,535     |             | $          | — |   | $ | 1,307,354 |   |
| Intercompany  net sales                                                                      |       | —      |       | 337,293        |       | 1,945,659        |       | (2,282,952       | )          | —           |       |
| Total  net sales                                                                             |       | 1,248,382   |       | 358,730        |       | 1,983,194        |       | (2,282,952       | )          | 1,307,354        |       |
|                                                                                         |       |        |       |           |       |             |       |             |       |             |       |
| Costs  and expenses:                                                                         |       |        |       |           |       |             |       |             |       |             |       |
| Cost  of products sold                                                                       |       | 1,084,174   |       | 355,259        |       | 1,784,311        |       | (2,282,952       | )          | 940,792          |       |
| Selling,  general and administrative                                                         |       | 132,819     |       | 16,900         |       | 81,779           |       | —           |       | 231,498          |       |
| Amortization  of intangible assets                                                           |       | —      |       | 5,693          |       | —           |       | —           |       | 5,693            |       |
| Restructuring  and other expenses                                                            |       | —      |       | 2,424          |       | 24,765           |       | —           |       | 27,189           |       |
| Other  expense, net                                                                          |       | 683         |       | 59             |       | 666              |       | —           |       | 1,408            |       |
| Total  costs and expenses, net                                                               |       | 1,217,676   |       | 380,335        |       | 1,891,521        |       | (2,282,952       | )          | 1,206,580        |       |
|                                                                                         |       |        |       |           |       |             |       |             |       |             |       |
| Income  (loss) before equity in earnings of subsidiaries, interest expense and income  taxes |       | 30,706      |       | (21,605        | )          | 91,673           |       | —           |       | 100,774          |       |
|                                                                                         |       |        |       |           |       |             |       |             |       |             |       |
| Equity  in earnings of subsidiaries                                                          |       | 24,248      |       | —         |       | —           |       | (24,248          | )          | —           |       |
| Interest  expense                                                                            |       | (49,545     | )          | (9,199         | )          | (21,118          | )          | —           |       | (79,862          | )          |
| Income  (loss) before income taxes                                                           |       | 5,409       |       | (30,804        | )          | 70,555           |       | (24,248          | )          | 20,912           |       |
| Income  tax (expense) benefit                                                                |       | 7,347       |       | 12,014         |       | (27,517          | )          | —           |       | (8,156           | )          |
| Net  income (loss)                                                                           |       | $           | 12,756     |           | $          | (18,790          | )          | $                | 43,038     |             | $          | (24,248 | ) | $ | 12,756 |   |

 

33

----

 

**BUILDINGMATERIALS CORPORATION OF AMERICA**

** **

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)**

 

**Note14.  Guarantor Financial Information —(Continued)**

 

**CondensedConsolidating Balance Sheet**

**July 5,2009**

**(Thousands)**

**(Unaudited)**

 
| ** **                                       | ** ** | **Parent**  | ** ** | **Co-Obligor** | ** ** | **Guarantor**    | ** ** | ** **       | ** ** | ** **       | ** ** |
|--------------------------------------------------|------------|-------------|------------|----------------|------------|------------------|------------|------------------|------------|------------------|------------|
| ** **                                       | ** ** | **Company** | ** ** | **Subsidiary** | ** ** | **Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|                                             |       |        |       |           |       |             |       |             |       |             |       |
| **ASSETS**                                       |       |        |       |           |       |             |       |             |       |             |       |
| Current  Assets:                                 |       |        |       |           |       |             |       |             |       |             |       |
| Cash  and cash equivalents                       |       | $           | 55,023     |           | $          | 49               |       | $                | 196        |             | $          | — |   | $ | 55,268 |   |
| Accounts  receivable, trade, net                 |       | 428,634     |       | 4,649          |       | 14,575           |       | —           |       | 447,858          |       |
| Accounts  receivable, other                      |       | 3,136       |       | 69             |       | 5,955            |       | —           |       | 9,160            |       |
| Inventories,  net                                |       | —      |       | 50,565         |       | 132,273          |       | —           |       | 182,838          |       |
| Deferred  income tax assets                      |       | 59,474      |       | —         |       | —           |       | —           |       | 59,474           |       |
| Other  current assets                            |       | 7,625       |       | 856            |       | 4,443            |       | —           |       | 12,924           |       |
| Total  Current Assets                            |       | 553,892     |       | 56,188         |       | 157,442          |       | —           |       | 767,522          |       |
|                                             |       |        |       |           |       |             |       |             |       |             |       |
| Investment  in subsidiaries                      |       | 1,750,626   |       | —         |       | —           |       | (1,750,626       | )          | —           |       |
| Intercompany  loans including accrued interest   |       | 1,856,966   |       | (1,074,763     | )          | (782,203         | )          | —           |       | —           |       |
| Due  from/(to) subsidiaries, net                 |       | (2,269,465  | )          | 915,706        |       | 1,353,759        |       | —           |       | —           |       |
| Property,  plant and equipment, net              |       | —      |       | 267,460        |       | 372,987          |       | —           |       | 640,447          |       |
| Goodwill                                         |       | 59,323      |       | 589,127        |       | 5,471            |       | —           |       | 653,921          |       |
| Intangible  assets, net                          |       | —      |       | 190,557        |       | —           |       | —           |       | 190,557          |       |
| Other  noncurrent assets                         |       | 81,664      |       | 7,189          |       | 24,374           |       | —           |       | 113,227          |       |
| Total  Assets                                    |       | $           | 2,033,006  |           | $          | 951,464          |       | $                | 1,131,830  |             | $          | (1,750,626 | ) | $ | 2,365,674 |   |
|                                             |       |        |       |           |       |             |       |             |       |             |       |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**    |       |        |       |           |       |             |       |             |       |             |       |
| Current  Liabilities:                            |       |        |       |           |       |             |       |             |       |             |       |
| Current  maturities of long-term debt            |       | $           | 9,509      |           | $          | 604              |       | $                | 10,825     |             | $          | — |   | $ | 20,938 |   |
| Accounts  payable                                |       | —      |       | 22,954         |       | 67,925           |       | —           |       | 90,879           |       |
| Payable  to related parties                      |       | 31,310      |       | —         |       | 20,220           |       | —           |       | 51,530           |       |
| Loans  payable to parent corporation             |       | 52,840      |       | —         |       | —           |       | —           |       | 52,840           |       |
| Accrued  liabilities                             |       | 74,892      |       | 11,020         |       | 109,274          |       | —           |       | 195,186          |       |
| Product  warranty claims                         |       | 12,600      |       | 3,600          |       | —           |       | —           |       | 16,200           |       |
| Total  Current Liabilities                       |       | 181,151     |       | 38,178         |       | 208,244          |       | —           |       | 427,573          |       |
|                                             |       |        |       |           |       |             |       |             |       |             |       |
| Long-term  debt less current maturities          |       | 1,516,844   |       | 3,382          |       | 50,080           |       | —           |       | 1,570,306        |       |
| Product  warranty claims                         |       | 38,829      |       | 4,739          |       | 100              |       | —           |       | 43,668           |       |
| Deferred  income tax liabilities                 |       | 90,874      |       | —         |       | —           |       | —           |       | 90,874           |       |
| Other  liabilities                               |       | 168,511     |       | 8,198          |       | 19,747           |       | —           |       | 196,456          |       |
| Total  Liabilities                               |       | 1,996,209   |       | 54,497         |       | 278,171          |       | —           |       | 2,328,877        |       |
|                                             |       |        |       |           |       |             |       |             |       |             |       |
| Total  Stockholders’ Equity                 |       | 36,797      |       | 896,967        |       | 853,659          |       | (1,750,626       | )          | 36,797           |       |
| Total  Liabilities and Stockholders’ Equity |       | $           | 2,033,006  |           | $          | 951,464          |       | $                | 1,131,830  |             | $          | (1,750,626 | ) | $ | 2,365,674 |   |

 

34

----

 

**BUILDINGMATERIALS CORPORATION OF AMERICA**

 

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)**

 

**Note 14.  Guarantor Financial Information — (Continued)**

 

**Condensed Consolidating Balance Sheet**

**December 31,2008**

**(Thousands)**

** **
| ** **                                                 | ** ** | **Parent********Company** | ** ** | **Co-Obligor********Subsidiary** | ** ** | **Guarantor********Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------------|------------|---------------------------|------------|----------------------------------|------------|-----------------------------------|------------|------------------|------------|------------------|------------|
| ** **                                                 | ** ** | ** **                | ** ** | ** **                       | ** ** | ** **                        | ** ** | ** **       | ** ** | ** **       | ** ** |
| **ASSETS**                                                 |       |                      |       |                             |       |                              |       |             |       |             |       |
| Current  Assets:                                           |       |                      |       |                             |       |                              |       |             |       |             |       |
| Cash  and cash equivalents                                 |       | $                         | 36,722     |                             | $          | 65                                |       | $                | 250        |             | $          | — |   | $ | 37,037 |   |
| Accounts  receivable, trade, net                           |       | 189,245                   |       | 1,491                            |       | 8,497                             |       | —           |       | 199,233          |       |
| Accounts  receivable, other                                |       | 2,298                     |       | 727                              |       | 7,872                             |       | —           |       | 10,897           |       |
| Inventories,  net                                          |       | —                    |       | 90,999                           |       | 257,450                           |       | —           |       | 348,449          |       |
| Deferred  income tax assets                                |       | 39,324                    |       | —                           |       | —                            |       | —           |       | 39,324           |       |
| Other  current assets                                      |       | 7,894                     |       | 1,329                            |       | 7,849                             |       | —           |       | 17,072           |       |
| Total  Current Assets                                      |       | 275,483                   |       | 94,611                           |       | 281,918                           |       | —           |       | 652,012          |       |
|                                                       |       |                      |       |                             |       |                              |       |             |       |             |       |
| Investment  in subsidiaries                                |       | 1,627,346                 |       | —                           |       | —                            |       | (1,627,346       | )          | —           |       |
| Intercompany  loans including accrued interest             |       | 1,587,885                 |       | (867,963                         | )          | (719,922                          | )          | —           |       | —           |       |
| Due  from/to subsidiaries, net                             |       | (1,723,842                | )          | 670,948                          |       | 1,052,894                         |       | —           |       | —           |       |
| Property,  plant and equipment, net                        |       | —                    |       | 274,194                          |       | 381,075                           |       | —           |       | 655,269          |       |
| Goodwill                                                   |       | 59,323                    |       | 588,850                          |       | 5,471                             |       | —           |       | 653,644          |       |
| Intangible  assets, net                                    |       | —                    |       | 196,250                          |       | —                            |       | —           |       | 196,250          |       |
| Income  tax receivable from parent corporation             |       | 8,400                     |       | —                           |       | —                            |       | —           |       | 8,400            |       |
| Other  noncurrent assets                                   |       | 82,842                    |       | 7,487                            |       | 24,410                            |       | —           |       | 114,739          |       |
| Total  Assets                                              |       | $                         | 1,917,437  |                             | $          | 964,377                           |       | $                | 1,025,846  |             | $          | (1,627,346 | ) | $ | 2,280,314 |   |
|                                                       |       |                      |       |                             |       |                              |       |             |       |             |       |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)**    |       |                      |       |                             |       |                              |       |             |       |             |       |
| Current  Liabilities:                                      |       |                      |       |                             |       |                              |       |             |       |             |       |
| Current  maturities of long-term debt                      |       | $                         | 9,557      |                             | $          | 676                               |       | $                | 10,363     |             | $          | — |   | $ | 20,596 |   |
| Accounts  payable                                          |       | —                    |       | 18,400                           |       | 137,630                           |       | —           |       | 156,030          |       |
| Payable  to related parties                                |       | 1,225                     |       | —                           |       | 19,928                            |       | —           |       | 21,153           |       |
| Loans  payable to parent corporation                       |       | 52,840                    |       | —                           |       | —                            |       | —           |       | 52,840           |       |
| Accrued  liabilities                                       |       | 52,508                    |       | 12,953                           |       | 68,880                            |       | —           |       | 134,341          |       |
| Product  warranty claims                                   |       | 12,600                    |       | 3,600                            |       | —                            |       | —           |       | 16,200           |       |
| Total  Current Liabilities                                 |       | 128,730                   |       | 35,629                           |       | 236,801                           |       | —           |       | 401,160          |       |
|                                                       |       |                      |       |                             |       |                              |       |             |       |             |       |
| Long-term  debt less current maturities                    |       | 1,597,614                 |       | 3,647                            |       | 56,908                            |       | —           |       | 1,658,169        |       |
| Product  warranty claims                                   |       | 28,358                    |       | 307                              |       | 100                               |       | —           |       | 28,765           |       |
| Deferred  income tax liabilities                           |       | 73,103                    |       | —                           |       | —                            |       | —           |       | 73,103           |       |
| Other  liabilities                                         |       | 169,488                   |       | 8,242                            |       | 21,243                            |       | —           |       | 198,973          |       |
| Total  Liabilities                                         |       | 1,997,293                 |       | 47,825                           |       | 315,052                           |       | —           |       | 2,360,170        |       |
|                                                       |       |                      |       |                             |       |                              |       |             |       |             |       |
| Total  Stockholders’ Equity (Deficit)                 |       | (79,856                   | )          | 916,552                          |       | 710,794                           |       | (1,627,346       | )          | (79,856          | )          |
| Total  Liabilities and Stockholders’ Equity (Deficit) |       | $                         | 1,917,437  |                             | $          | 964,377                           |       | $                | 1,025,846  |             | $          | (1,627,346 | ) | $ | 2,280,314 |   |

 

35

----

 

**BUILDINGMATERIALS CORPORATION OF AMERICA**

** **

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)**

 

**Note14.  Guarantor Financial Information —(Continued)**

 

**CondensedConsolidating Statement of Cash Flows**

**SixMonths Ended July 5, 2009**

**(Thousands)**

**(Unaudited)**

 
| ** **                                                                                | ** ** | **Parent**  | ** ** | **Co-Obligor** | ** ** | **Guarantor**    | ** ** | ** **       | ** ** |
|-------------------------------------------------------------------------------------------|------------|-------------|------------|----------------|------------|------------------|------------|------------------|------------|
| ** **                                                                                | ** ** | **Company** | ** ** | **Subsidiary** | ** ** | **Subsidiaries** | ** ** | **Consolidated** | ** ** |
|                                                                                      |       |        |       |           |       |             |       |             |       |   |   |   |   |
| Cash  and cash equivalents, beginning of period                                           |       | $           | 36,722     |           | $          | 65               |       | $                | 250        |   | $ | 37,037 |   |
|                                                                                      |       |        |       |           |       |             |       |             |       |
| Cash  provided by operating activities:                                                   |       |        |       |           |       |             |       |             |       |
| Net  income (loss)                                                                        |       | (1,223      | )          | (19,586        | )          | 142,866          |       | 122,057          |       |
| Adjustments  to reconcile net income (loss) to net cash provided by operating activities: |       |        |       |           |       |             |       |             |       |
| Depreciation                                                                              |       | —      |       | 14,173         |       | 21,482           |       | 35,655           |       |
| Amortization  of intangible and other assets                                              |       | —      |       | 5,693          |       | 1,777            |       | 7,470            |       |
| Restructuring  and other expenses                                                         |       | —      |       | 3,278          |       | 18,090           |       | 21,368           |       |
| Deferred  income taxes                                                                    |       | (5,225      | )          | —         |       | —           |       | (5,225           | )          |
| Noncash  interest charges                                                                 |       | 9,473       |       | 542            |       | 396              |       | 10,411           |       |
| (Increase)  decrease in working capital items                                             |       | (217,574    | )          | 37,493         |       | 80,066           |       | (100,015         | )          |
| Increase  in product warranty claims                                                      |       | 10,471      |       | 4,432          |       | —           |       | 14,903           |       |
| (Increase)  decrease in other assets                                                      |       | (2,121      | )          | 164            |       | (1,902           | )          | (3,859           | )          |
| Increase  (decrease) in other liabilities                                                 |       | 149         |       | (44            | )          | 45               |       | 150              |       |
| Increase  (decrease) in net payable to related parties/parent corporations                |       | 315,372     |       | (37,958        | )          | (238,292         | )          | 39,122           |       |
| Other,  net                                                                               |       | (1          | )          | (58            | )          | (1,159           | )          | (1,218           | )          |
| Net  cash provided by operating activities                                                |       | 109,321     |       | 8,129          |       | 23,369           |       | 140,819          |       |
|                                                                                      |       |        |       |           |       |             |       |             |       |
| Cash  used in investing activities:                                                       |       |        |       |           |       |             |       |             |       |
| Capital  expenditures                                                                     |       | —      |       | (7,807         | )          | (16,894          | )          | (24,701          | )          |
| Net  cash used in investing activities                                                    |       | —      |       | (7,807         | )          | (16,894          | )          | (24,701          | )          |
|                                                                                      |       |        |       |           |       |             |       |             |       |
| Cash  used in financing activities:                                                       |       |        |       |           |       |             |       |             |       |
| Proceeds  from issuance of long-term debt                                                 |       | 293,000     |       | —         |       | —           |       | 293,000          |       |
| Repayments  of long-term debt                                                             |       | (373,773    | )          | (338           | )          | (1,869           | )          | (375,980         | )          |
| Principal  repayments of capital leases                                                   |       | —      |       | —         |       | (4,660           | )          | (4,660           | )          |
| Distributions  to parent corporation                                                      |       | (7          | )          | —         |       | —           |       | (7               | )          |
| Dividends  to parent corporation                                                          |       | (10,000     | )          | —         |       | —           |       | (10,000          | )          |
| Loan  to parent corporation                                                               |       | (40         | )          | —         |       | —           |       | (40              | )          |
| Financing  fees and expenses                                                              |       | (200        | )          | —         |       | —           |       | (200             | )          |
| Net  cash used in financing activities                                                    |       | (91,020     | )          | (338           | )          | (6,529           | )          | (97,887          | )          |
| Net  change in cash and cash equivalents                                                  |       | 18,301      |       | (16            | )          | (54              | )          | 18,231           |       |
| Cash  and cash equivalents, end of period                                                 |       | $           | 55,023     |           | $          | 49               |       | $                | 196        |   | $ | 55,268 |   |

 

36

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**BUILDINGMATERIALS CORPORATION OF AMERICA**

** **

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)**

 

**Note14.  Guarantor Financial Information —(Continued)**

 

**CondensedConsolidating Statement of Cash Flows**

**SixMonths Ended June 29, 2008**

**(Thousands)**

**(Unaudited)**

 
| ** **                                                                                           | ** ** | **Parent**  | ** ** | **Co-Obligor** | ** ** | **Guarantor**    | ** ** | ** **       | ** ** |
|------------------------------------------------------------------------------------------------------|------------|-------------|------------|----------------|------------|------------------|------------|------------------|------------|
| ** **                                                                                           | ** ** | **Company** | ** ** | **Subsidiary** | ** ** | **Subsidiaries** | ** ** | **Consolidated** | ** ** |
| Cash  and cash equivalents, beginning of period                                                      |       | $           | —     |           | $          | 1,936            |       | $                | 4,388      |   | $ | 6,324 |   |
| Cash  provided by (used in) operating activities:                                                    |       |        |       |           |       |             |       |             |       |
| Net  income (loss)                                                                                   |       | (11,492     | )          | (18,790        | )          | 43,038           |       | 12,756           |       |
| Adjustments  to reconcile net income (loss) to net cash provided by (used in) operating  activities: |       |        |       |           |       |             |       |             |       |
| Depreciation                                                                                         |       | —      |       | 13,836         |       | 21,854           |       | 35,690           |       |
| Amortization  of intangible and other assets                                                         |       | —      |       | 5,693          |       | 1,923            |       | 7,616            |       |
| Restructuring  and other expenses                                                                    |       | 2,813       |       | 9,587          |       | 31,719           |       | 44,119           |       |
| Deferred  income taxes                                                                               |       | 7,423       |       | —         |       | —           |       | 7,423            |       |
| Noncash  interest charges                                                                            |       | 3,595       |       | 599            |       | 311              |       | 4,505            |       |
| (Increase)  decrease in working capital items                                                        |       | (285,333    | )          | 33,312         |       | 14,285           |       | (237,736         | )          |
| Increase  in product warranty claims                                                                 |       | 2,106       |       | 198            |       | —           |       | 2,304            |       |
| (Increase)  decrease in other assets                                                                 |       | (4,658      | )          | 85             |       | (5,779           | )          | (10,352          | )          |
| Increase  in other liabilities                                                                       |       | 2,244       |       | 913            |       | 95               |       | 3,252            |       |
| Increase  (decrease) in net payable to related parties/parent corporations                           |       | 153,083     |       | (42,239        | )          | (86,742          | )          | 24,102           |       |
| Other,  net                                                                                          |       | —      |       | (124           | )          | (6,604           | )          | (6,728           | )          |
| Net  cash provided by (used in) operating activities                                                 |       | (130,219    | )          | 3,070          |       | 14,100           |       | (113,049         | )          |
| Cash  used in investing activities:                                                                  |       |        |       |           |       |             |       |             |       |
| Capital  expenditures                                                                                |       | —      |       | (4,501         | )          | (14,289          | )          | (18,790          | )          |
| Proceeds  from sale of assets                                                                        |       | —      |       | —         |       | 6,651            |       | 6,651            |       |
| Net  cash used in investing activities                                                               |       | —      |       | (4,501         | )          | (7,638           | )          | (12,139          | )          |
| Cash  provided by (used in) financing activities:                                                    |       |        |       |           |       |             |       |             |       |
| Proceeds  from issuance of long-term debt                                                            |       | 531,000     |       | —         |       | —           |       | 531,000          |       |
| Repayments  of long-term debt                                                                        |       | (283,488    | )          | (403           | )          | (1,617           | )          | (285,508         | )          |
| Purchase  of industrial development revenue bond certificates issued by the Company                  |       | —      |       | —         |       | (4,800           | )          | (4,800           | )          |
| Principal  repayments of capital leases                                                              |       | —      |       | —         |       | (4,194           | )          | (4,194           | )          |
| Loan  to parent corporation                                                                          |       | (69         | )          | —         |       | —           |       | (69              | )          |
| Financing  fees and expenses                                                                         |       | (576        | )          | —         |       | —           |       | (576             | )          |
| Net  cash provided by (used in) financing activities                                                 |       | 246,867     |       | (403           | )          | (10,611          | )          | 235,853          |       |
| Net  change in cash and cash equivalents                                                             |       | 116,648     |       | (1,834         | )          | (4,149           | )          | 110,665          |       |
| Cash  and cash equivalents, end of period                                                            |       | $           | 116,648    |           | $          | 102              |       | $                | 239        |   | $ | 116,989 |   |

 

37

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**BUILDINGMATERIALS CORPORATION OF AMERICA**

 

**Item 2.   MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL**

**CONDITION AND RESULTS OF OPERATIONS**

 

Weare a leading national manufacturer and marketer of a broad line of asphalt andpolymer-based roofing products and accessories for the residential andcommercial roofing markets.  During thefirst quarter of 2007, Building Materials Corporation of America, which werefer to as BMCA, acquired ElkCorp, which we refer to as Elk, a Dallas,Texas-based manufacturer of roofing products and building materials, resultingin Elk becoming an indirect wholly-owned subsidiary of BMCA.

 

Webelieve the Elk acquisition has strategically positioned us for growth in theroofing industry and building products market and has allowed us to build onour market leadership position and create comprehensive market-leading productofferings.  Our principal lines ofresidential roofing shingles are the Timberline® series, the Sovereign® series,Designer Lifetime Shingles and Specialty Shingles.  The Timberline series includes the TimberlinePrestique® 30 High Definition®, Timberline Natural ShadowTM, TimberlinePrestique 40, Timberline Prestique Lifetime and Timberline Prestique Grande®shingles.  Our designer lifetime shinglesinclude the Slateline®, Grand SlateTM, Grand Sequoia®, Grand CanyonTM, CountryMansion®, Capstone®, and Camelot® shingles. We sell specialty roofing products under the TruSlateTM product line,which offers a patented genuine slate roofing system.  We supply the major components necessary toinstall a complete roofing system from underlayments to attic ventilationproducts and accessories, under our Roof System Solution.  We have improved our sales mix of residentialroofing products by increasing our emphasis on laminated shingles and accessoryproducts (the Timberline series, Designer Lifetime Shingles and TruSlate), whichare generally sold at higher prices and more attractive profit margins than ourstandard strip shingle products (the Sovereign series).  Unless otherwise indicated by the context, “we,”“us,” and “our” refer to Building Materials Corporation of America and itsconsolidated subsidiaries.

 

**CriticalAccounting Policies**

 

There have been nosignificant changes to our Critical Accounting Policies during the six-monthperiod ended July 5, 2009.  For afurther discussion on our Critical Accounting Policies, reference is made toManagement’s Discussion and Analysis of Financial Condition and Results ofOperations, “Critical Accounting Policies” in our annual report on Form 10-Kfor the fiscal year ended December 31, 2008, which was filed with theSecurities and Exchange Commission, which we refer to as the SEC, on March 31,2009, which we refer to as the 2008 Form 10-K.

 

38

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**BUILDINGMATERIALS CORPORATION OF AMERICA**

 

**Item 2.   MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL**

**CONDITION AND RESULTS OF OPERATIONS – (Continued)**

 

**Resultsof Operations**

 

Roofingproducts sales is our dominant business, typically accounting for approximately95% of our consolidated net sales.  Themain drivers of our roofing business include: the nation’s aging housing stock;existing home sales; new home construction; larger new homes; home ownershiprates; and extreme weather and energy concerns. Our roofing business is also affected by raw material costs, includingasphalt and other petroleum-based raw materials, as well as energy, andtransportation and distribution costs.

 

*SecondQuarter 2009 Compared With*

*SecondQuarter 2008*

 

We recorded net income of $70.1 millionin the second quarter of 2009 compared to net income of $27.8 million in thesecond quarter of 2008.  Our reported netincome in the second quarter of 2009 included $5.9 million after-tax ($9.3million pre-tax) restructuring and other expenses, of which $1.4 millionafter-tax ($2.3 million pre-tax) was included in cost of products sold.  Our reported net income in the second quarterof 2008 included $9.8 million of after-tax ($16.1 million pre-tax)restructuring and other expenses, of which $1.0 million after-tax ($1.7 millionpre-tax) was included as a reduction in net sales and $4.9 million after-tax($8.0 million pre-tax) was included in cost of products sold.  Included in restructuring and other expensesfor the second quarter of 2008 and 2009 are plant closing expenses related tothe closure of several manufacturing facilities, integration-related costs andthe write-down of selected inventories. Excluding restructuring and other expenses, second quarter of 2009 netincome was $76.0 million compared to second quarter of 2008 net income of $37.6million.  The increase in reported netincome for the second quarter of 2009 was primarily attributable to higherincome before interest expense and income taxes and lower interest expense.

 

Net sales for the second quarter of 2009were $696.3 million compared to second quarter of 2008 net sales of $737.1million, which included $1.7 million of restructuring-related salesdiscounts.  Net sales in the secondquarter of 2009 were positively affected by higher average selling prices ofresidential roofing products, which were more than offset by lower unit volumesof residential and commercial roofing products.

 

Income before interest expense and incometaxes in the second quarter of 2009 was $149.4 million compared to incomebefore interest expense and income taxes of $85.9 million in the second quarterof 2008.  Our reported income beforeinterest expense and income taxes in the second quarter of 2009 included $9.3million of restructuring and other expenses, of which $2.3 million was includedin cost of products sold.  Our reportedincome before

 

39

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**BUILDINGMATERIALS CORPORATION OF AMERICA**

 

**Item 2.   MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL**

**CONDITION AND RESULTS OF OPERATIONS – (Continued)**

 

interestexpense and income taxes in the second quarter of 2008 included $16.1 millionof restructuring and other expenses, of which $1.7 million was included as areduction in net sales and $8.0 million was included in cost of productssold.  Excluding these items, secondquarter of 2009 income before interest expense and income taxes was $158.7million compared to second quarter of 2008 income before interest expense andincome taxes of $102.0 million.  Theincrease was primarily due to higher average selling prices of residentialroofing products, lower raw material costs, including asphalt and lowertransportation costs, which were partially offset by lower unit volumes ofresidential and commercial roofing products.

 

Interest expense in the second quarter of2009 decreased to $37.7 million compared to $40.0 million in the second quarterof 2008.  The decrease in the secondquarter of 2009 interest expense was primarily due to lower average borrowingsand a lower average interest rate.

 

*BusinessSegment Information*

 

*Net Sales. *Netsales of roofing products decreased to $666.2 million for the second quarter of2009 compared with $692.7 million for the second quarter of 2008, whichincluded $1.7 million of restructuring-related sales discounts.  Net sales of roofing products in the secondquarter of 2009 were positively affected by higher average selling prices ofresidential roofing products, which were more than offset by lower unit volumesof residential and commercial roofing products. Net sales of specialty building products and accessories decreased to$30.1 million for the second quarter of 2009 compared with $44.4 million forthe second quarter of 2008 due to continued softer new construction andremodeling demand.

 

*Gross Margin.* Our gross margin was $254.2 million or 36.5% of net sales for the secondquarter of 2009 compared with $216.1 million or 29.3% of net sales for thesecond quarter of 2008.  Included in ourgross margin for the second quarter of 2009 were $2.3 million of restructuringand other expenses, which was included in cost of products sold.  Included in our gross margin for the secondquarter of 2008 were $9.7 million of restructuring and other expenses, of which$1.7 million was included as a reduction in net sales and $8.0 million was includedin cost of products sold.  The increasein our gross margin is primarily due to higher average selling prices ofresidential roofing products, lower raw material costs, including asphalt,which were partially offset by lower unit volumes of residential and commercialroofing products.

 

*Six Months 2009 Compared With*

*SixMonths 2008*

 

We recorded net income of $122.1 millionin the first six months of 2009 compared to net income of $12.8 million in thefirst six months of 2008.  Our reportednet income in the first six months of 2009 included $13.6 million

 

40

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**BUILDINGMATERIALS CORPORATION OF AMERICA**

 

**Item 2.   MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL**

**CONDITION AND RESULTS OF OPERATIONS – (Continued)**

 

after-tax($21.4 million pre-tax) restructuring and other expenses, of which $1.9 millionafter-tax ($3.1 million pre-tax) was included in cost of products sold.  Our reported net income in the first sixmonths of 2008 included $26.9 million after-tax ($44.1 million pre-tax)restructuring and other expenses, of which $1.7 million after-tax ($2.8 millionpre-tax) was included as a reduction in net sales and $8.6 million after-tax($14.1 million pre-tax) was included in cost of products sold.  Included in restructuring and other expensesfor the first six months of 2008 and 2009 are plant closing expenses related tothe closure of several manufacturing facilities, integration-related costs andthe write-down of selected inventories. Excluding restructuring and other expenses, the first six months of 2009net income was $135.7 million compared to the first six months of 2008 netincome of $39.7 million.  The increase inreported net income for the first six months of 2009 was primarily attributableto higher income before interest expense and income taxes and lower interestexpense.

 

Net sales for the first six months of2009 were $1,357.1 million compared to the first six months of 2008 net salesof $1,307.4 million, which included $2.8 million of restructuring-related salesdiscounts.  The increase in net sales wasprimarily due to higher average selling prices of residential roofing products,which were partially offset by lower unit volumes of residential and commercialroofing products.

 

Income before interest expense and incometaxes in the first six months of 2009 was $263.7 million compared to incomebefore interest expense and income taxes of $100.8 million in the first sixmonths of 2008.  Our reported incomebefore interest expense and income taxes in the first six months of 2009 included$21.4 million of restructuring and other expenses, of which $3.1 million wasincluded in cost of products sold.  Ourreported income before interest expense and income taxes in the first sixmonths of 2008 included $44.1 million of restructuring and other expenses, ofwhich $2.8 million was included as a reduction in net sales and $14.1 millionwas included in cost of products sold. Excluding these items, the first six months of 2009 income beforeinterest expense and income taxes was $285.1 million compared to the first sixmonths of 2008 income before interest expense and income taxes of $144.9million.  The increase in the first sixmonths of 2009 income before interest expense and income taxes was primarily dueto higher average selling prices of residential roofing products, lower rawmaterial costs, including asphalt and lower transportation costs, which werepartially offset by lower unit volumes of residential and commercial roofingproducts.

 

Interest expense in the first six monthsof 2009 decreased to $72.2 million compared to $79.9 million in the first sixmonths of 2008.  The decrease in thefirst six months of 2009 interest expense was primarily due to lower averageborrowings and a lower average interest rate.

 

41

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**BUILDINGMATERIALS CORPORATION OF AMERICA**

 

**Item 2.   MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL**

**CONDITION AND RESULTS OF OPERATIONS – (Continued)**

 

*BusinessSegment Information*

 

*Net Sales. *Netsales of roofing products increased to $1,301.2 million for the first sixmonths of 2009 compared with $1,230.3 million for the first six months of 2008,which included $2.8 million of restructuring-related sales discounts.  The increase in the first six months of 2009net sales of roofing products was primarily due to higher average selling prices of residential roofing products,which were partially offset by lower unit volumes of residential and commercialroofing products.  Net sales of specialty building products andaccessories decreased to $55.9 million for the first six months of 2009compared with $77.1 million for the first six months of 2008 due to continuedsofter new construction and remodeling demand.

 

*Gross Margin*.  Our gross margin was $485.6 million or 35.8%of net sales for the first six months of 2009 compared with $361.5 million or27.7% of net sales for the first six months of 2008.  Included in our gross margin for the firstsix months of 2009 were $3.1 million of restructuring and other expenses, whichwas included in cost of products sold. Included in our gross margin for the first six months of 2008 were $16.9million of restructuring and other expenses, of which $2.8 million was includedas a reduction in net sales and $14.1 million was included in cost of productssold.  The increase in our gross marginis primarily due to higher average selling prices of residential roofingproducts, lower raw material costs, including asphalt, which were partiallyoffset by lower unit volumes of residential and commercial roofing products.

 

**Liquidityand Financial Condition**

 

*CashFlows and Cash Position*

 

Sales of roofing productsand specialty building products and accessories in the northern regions of theUnited States generally decline in the late fall and winter months due to coldweather.  In addition, extreme weatherconditions can result in higher customer demand during our peak operatingseason depending on the extent and severity of the damage from these extremeweather conditions.  Due to the seasonaldemands of our business, together with extreme weather conditions, we generallyhave negative cash flows from operations during the first six months of ourfiscal year, which are primarily driven by our cash invested in both accountsreceivable and inventories to meet these seasonal operating demands.  Generally, in the third and fourth quartersof our fiscal year, our cash flows from operations become positive for eachquarter, as our investment in inventories and accounts receivable no longercontinues to increase, as is customary in the first six months of our fiscalyear.  Our seasonal working capitalneeds, together with our debt service obligations, capital expenditurerequirements and other contracted arrangements, adversely impact our liquidityduring this period.  We rely on our cashand cash equivalents

 

42

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**BUILDINGMATERIALS CORPORATION OF AMERICA**

 

**Item 2.   MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL**

**CONDITION AND RESULTS OF OPERATIONS – (Continued)**

 

on hand and our $600.0million Senior Secured Revolving Credit Facility due February 2012, whichwe refer to as our Senior Secured Revolving Credit Facility (see Long-TermDebt), to support our overall cash flow requirements during these periods.  We expect to continue to rely on our cash andcash equivalents on hand and external financings to maintain operations overthe short and long-term and to continue to have access to the financingmarkets, subject to the then prevailing market terms and conditions.

 

Net cash inflow fromoperating and investing activities was $116.1 million during the first sixmonths of 2009, including $140.8 million of cash provided by operations,partially offset by the reinvestment of $24.7 million for capital programs.

 

Cash invested in additionalworking capital totaled $100.0 million during the first six months of 2009,reflecting an increase in total accounts receivable of $246.9 million, due tothe seasonality of our business, a $163.1 million decrease in inventoriesprimarily due to aggressive inventory management due to the current uncertain industrydemand including a continued weak housing environment, a $4.2 million decreasein other current assets, a $2.5 million net decrease in accounts payable andaccrued liabilities and $17.9 million in payments for restructuring and otherexpenses.  The net cash provided byoperating activities also included a $39.1 million net increase in the payableto related parties/parent corporations, primarily attributable to $67.2 millionin current Federal income taxes, which was partially offset by $28.1 million inFederal income taxes paid, pursuant to our Tax Sharing Agreement with ourparent corporation.  In addition, netcash provided by operating activities included $10.4 million of non-cashinterest charges, of which $6.0 million was attributable to amortizationexpense and ineffectiveness related to our swaps (see Derivative and HedgingTransactions below), and $21.4 million in restructuring and other expenses (seeRestructuring and Other Expenses below).

 

Net cash used infinancing activities totaled $97.9 million during the first six months of 2009,including $293.0 million of aggregate proceeds from the issuance of long-termdebt, related to the first six months of 2009 cumulative borrowings under ourSenior Secured Revolving Credit Facility. Financing activities also included $376.0 million in aggregaterepayments of long-term debt, of which $369.0 million related to the first sixmonths of 2009 cumulative repayments under our Senior Secured Revolving CreditFacility and $4.8 million related to our $975.0 million Term Loan Facility,which we refer to as the Term Loan.  Inaddition, financing activities included aggregate principal payments of $4.7million on our capital leases, $10.0 million of cash dividends paid to ourparent corporation, and $0.2 million in financing fees and expenses primarilyrelated to prior debt refinancings.

 

43

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**BUILDINGMATERIALS CORPORATION OF AMERICA**

 

**Item 2.   MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL**

**CONDITION AND RESULTS OF OPERATIONS – (Continued)**

 

*Restructuring and Other Expenses*

 

We initiated arestructuring plan, which we refer to as the 2007 Restructuring Plan, which weformulated in connection with the acquisition of Elk.  The 2007 Restructuring Plan was created toeliminate cost redundancies recognized due to the acquisition of Elk and toreduce our overall cost structure.  The2007 Restructuring Plan has been fully implemented as of December 31,2008.  We account for our restructuringactivities in accordance with SFAS No. 146, “Accounting for CostsAssociated with Exit or Disposal Activities”, SFAS No. 144, “Accountingfor the Impairment or Disposal of Long-Lived Assets” and Emerging Issues TaskForce No. 96-9 “Classification of Inventory Markdowns and Other CostsAssociated with Restructuring” (“EITF No. 96-9”).

 

*2008 Restructuring and OtherExpenses*

 

In connection with theacquisition of Elk, we identified $64.1 million of restructuring and otherexpenses in our fiscal year ended December 31, 2008, which included $14.2million of plant closing expenses, $3.3 million in employee severance paymentsand $46.6 million in integration-related expenses.  Integration-related expenses primarilyconsisted of $26.9 million of inventory write-downs, $6.1 million ofrestructuring-related sales discounts and $13.6 million of other integrationexpenses.

 

We recorded $73.2 millionof the overall identified restructuring and other expenses in our statement ofincome during our fiscal year ended December 31, 2008, of which $6.1million was reflected as a reduction in net sales due to restructuring-relatedsales discounts, $26.9 million was charged to cost of products sold and $40.2million was charged to restructuring and other expenses.

 

*Six-Months Ended July 5,2009 Restructuring and Other Expenses*

 

In February 2009, weannounced the temporary shutdown of two manufacturing facilities, one inShafter, California and the other in Nashville, Tennessee as a result of weakerdemand.  As a result of these actions andother charges related to the acquisition of Elk, we identified an additional$21.2 million of restructuring and other expenses during our six months ended July 5,2009, which included $15.0 million of plant closing expenses, $1.3 million inemployee severance payments and $4.9 million in integration-relatedexpenses.  Integration-related expensesprimarily consisted of $3.1 million of inventory write-downs and $1.8 millionof other integration expenses.

 

44

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**BUILDINGMATERIALS CORPORATION OF AMERICA**

 

**Item 2.   MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL**

**CONDITION AND RESULTS OF OPERATIONS – (Continued)**

 

We recorded $21.4 millionof the overall restructuring and other expenses in our statement of income duringour six-month period ended July 5, 2009, of which $3.1 million was chargedto cost of products sold and $18.3 million was charged to restructuring andother expenses.  We expect to incur theremaining $1.6 million of identified integration and other expenses and makethe remaining cash payments related to our accrual when they are required.

 

The table below detailsour restructuring and other expense accruals and charges made against theaccrual during our six months ended July 5, 2009:

 
| **Restructuring  and  Other Expenses**                                | ** ** | **Plant********Closing********Expenses** | ** **  | **Employee********Severance********Payments** | ** ** | **Integration********Expenses** | ** ** | **Total** | ** **  |
|-----------------------------------------------------------------------|------------|------------------------------------------|-------------|-----------------------------------------------|------------|---------------------------------|------------|-----------|-------------|
| ** **                                                            | ** ** | **(Thousands)**                          | ** **  |
|                                                                  |       |                                     |        |                                          |       |                            |       |      |        |
| Beginning  balance, as of December 31, 2008                      |       | $                                        |  3,452 |                                          | $          |  —                    |       | $         |  5,205 |   | $ |  8,657 |   |
| Current period costs,  net                                            |       | 15,053                                   |        | 1,262                                         |       | 5,053                           |       | 21,368    |        |
| Cash payments                                                         |       | (11,853                                  | )           | (1,262                                        | )          | (4,748                          | )          | (17,863   | )           |
| Amount charged to  property, plant and equipment for asset write-down |       | (2,882                                   | )           | —                                        |       | (387                            | )          | (3,269    | )           |
| Amount charged to  write-off inventory                                |       | —                                   |        | —                                        |       | (1,219                          | )          | (1,219    | )           |
| Non-cash items                                                        |       | —                                   |        | —                                        |       | (141                            | )          | (141      | )           |
| Ending balance, as of  July 5, 2009                              |       | $                                        |  3,770 |                                          | $          |  —                    |       | $         |  3,763 |   | $ |  7,533 |   |

 

45

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**BUILDINGMATERIALS CORPORATION OF AMERICA**

 

**Item 2.   MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL**

**CONDITION AND RESULTS OF OPERATIONS – (Continued)**

 

*Long-Term Debt*

 

Long-term debt consistsof the following at July 5, 2009 and December 31, 2008:

 
| ** **                                                   | ** ** | **July 5,********2009** | ** **      | **December 31,********2008** | ** ** |
|--------------------------------------------------------------|------------|------------------------------|-----------------|-----------------------------------|------------|
| ** **                                                   | ** ** | **(Thousands)**              | ** **      |
|                                                         |       |                         |            |                              |       |
| 7 3/4% Senior Notes due 2014                                 |       | $                            |  250,456   |                              | $          |  250,500 |   |
| Borrowings under the Senior SecuredRevolving Credit Facility |       | —                       |            | 76,000                            |       |
| Term Loan                                                    |       | 950,897                      |            | 955,670                           |       |
| Junior Lien Term Loan                                        |       | 325,000                      |            | 325,000                           |       |
| Obligations under capital leases                             |       | 51,296                       |            | 55,956                            |       |
| Industrial development revenue bond                          |       | 2,730                        |            | 2,820                             |       |
| Chester Loan                                                 |       | 3,481                        |            | 5,126                             |       |
| Other notes payable                                          |       | 7,384                        |            | 7,693                             |       |
| Total                                                        |       | 1,591,244                    |            | 1,678,765                         |       |
| Less current maturities                                      |       | (20,938                      | )               | (20,596                           | )          |
| Long-term debt less current maturities                       |       | $                            |  1,570,306 |                              | $          |  1,658,169 |   |

 

As of July 5, 2009,we had total outstanding consolidated indebtedness of $1,644.1 million, whichincluded $52.8 million of demand loans to our parent corporation and $20.9million that matures prior to the end of the second quarter of 2010.  We anticipate funding these obligationsprincipally from our cash and cash equivalents on hand, cash flow fromoperations and/or borrowings under our Senior Secured Revolving CreditFacility.

 

As of July 5, 2009,we were in compliance with all covenants under the Senior Secured RevolvingCredit Facility, the Term Loan, the $325.0 million Junior Lien Term LoanFacility, which we refer to as the Junior Lien Term Loan, and collectively withthe Senior Secured Revolving Credit Facility and the Term Loan we refer to asthe Senior Secured Credit Facilities; and the indenture governing our7 3/4% Senior Notes due 2014, which we refer to as the Senior Notes.  As of July 5, 2009, the net book valueof the collateral securing the Senior Secured Revolving Credit FacilityCollateral (as defined in the Senior Secured Revolving Credit Facility) and theTerm Loan Collateral (as defined in the Term Loan) was $774.1 and $1,647.9million, respectively.

 

At July 5, 2009, wehad outstanding letters of credit of approximately $43.1 million, whichincluded approximately $10.6 million of standby letters of credit related tocertain obligations of G-I Holdings.

 

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**BUILDINGMATERIALS CORPORATION OF AMERICA**

 

**Item 2.   MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL**

**CONDITION AND RESULTS OF OPERATIONS – (Continued)**

 

*Derivative and Hedging Transactions*

 

*Hedging Strategy*

 

We were exposed to theimpact of variable interest rate fluctuations on certain of our debtfinancings; however, we limit our variable interest rate exposure through theuse of derivative instruments, which reduce the risk of interest ratefluctuations related to our debt.  As aresult of the use of derivative instruments, we have exposure to the risk thatour counterparties to derivative contracts will fail to meet their contractualobligations.  In order to mitigate ourcounterparty credit risk, we enter into derivative contracts with selectedmajor financial institutions.  Ourpolicies and procedures for mitigating counterparty credit risk on derivativetransactions include reviewing and establishing limits for credit exposure witheach financial institution and a continuous assessment of the creditworthinessof each counterparty.  The right ofset-off that exists under certain of these derivative contracts enables us,subject to each derivative contract, to net amounts due to and from thecounterparty reducing the maximum loss from credit risk in the event ofcounterparty default.

 

*Interest Rate Swap Agreements*

 

In March 2007, weentered into forward-starting interest rate swap agreements, which we refer toas swaps, with an effective date of April 23, 2007 and a maturity date of April 23,2012.  These swaps were initiated inorder to hedge the variable interest rate risk associated with our Term Loan,and they are structured that we receive interest based on the three-month LIBORand pay interest on a fixed rate basis. In October 2007, we entered into additional interest rate swapsrelated to our Term Loan with an effective date of October 23, 2007 and amaturity date of October 23, 2012 under similar terms.

 

On April 23, 2009,we exercised our option under our Term Loan to change the interest rate for ourLIBOR advances from three-month to one-month LIBOR.  We continued to receive three-month LIBOR andpay fixed rate interest under our swap agreements.  The election of one-month LIBOR on our TermLoan resulted in de-designating our original swap hedging relationship andsubsequently re-designating a new swap hedging relationship for our Term Loan.  As a result of the election, we recognized a$1.1 million loss related to swap ineffectiveness as a component of interestexpense during our second quarter ended July 5, 2009.  In addition, as a result of this election, werecognized $4.9 million of interest expense due to the straight-line amortizationof the unrealized losses remaining in accumulated other comprehensiveincome/loss (“OCI”) at April 23, 2009. The remaining amount of unrealized losses at July 5, 2009 will beamortized over the life of the original swaps.

 

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**BUILDINGMATERIALS CORPORATION OF AMERICA**

 

**Item 2.   MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL**

**CONDITION AND RESULTS OF OPERATIONS – (Continued)**

 

We continue to accountfor our new swap hedging relationship in accordance with “Accounting forDerivative Instruments and Hedging Activities”, which we refer to as SFAS No. 133,and as such our swaps are treated as cash flow hedges.  Our swaps are measured each period using thehypothetical derivative method in accordance with SFAS No. 133, whichrequires our actual swaps liability to be recorded at fair value, and OCI toreflect the lesser of either the cumulative change in the fair value of theactual swap or the cumulative change in the fair value of the hypothetical swap(the “perfect swap”).  In any givenperiod, to the extent the cumulative change in the fair value of the actualswap is greater than the cumulative change in the fair value of the perfectswap, the difference would be recognized as ineffectiveness as a component ofinterest expense in our statement of income. See Note 7 to Consolidated Financial Statements for tabular disclosureof the fair value of our derivative liability at July 5, 2009 and theeffect of our derivative instruments on our operating results for the three andsix-month periods ended July 5, 2009, respectively.  As of July 5, 2009, due to amortization,ineffectiveness and accrued swap interest, we estimated that during the twelvemonths ending July 2010, approximately $36.0 million of unrealized losseswill be reclassified from OCI and recognized as a component of interest expensein our statement of income, subject to changes in the LIBOR rate.

 

We value our interestrate swap agreements based on SFAS No. 157 “Fair Value Measurements”,which we refer to as SFAS No. 157, Level 2 inputs from model-derivedvaluations whose significant inputs are quoted LIBOR contracts, Eurodollarfutures and on-the-run swap markets. SFAS No. 157 requires that the valuation of derivative assets andliabilities must take into account the parties’ nonperformance risk.  We discounted the value of our derivativeliabilities based on the credit spread for our debt as determined by the markettrading price.  See Fair Value Measurements.

 

*Treasury Lock Agreements*

 

In July 2007, weentered into treasury lock agreements, which we refer to as treasury locks,with a maturity date of July 31, 2012, as additional hedging instrumentsrelated to our Term Loan.  On October 30,2007, we settled our open treasury lock hedging positions, which resulted in apre-tax fair value loss and cash settlement of approximately $4.9 million,which is being amortized into our statement of income over the life of the TermLoan pursuant to the requirements of SFAS No. 133.  During our second quarter ended July 5,2009 and June 29, 2008, we amortized $0.2 and $0.2 million, respectively,of the loss related to our treasury locks into interest expense in ourstatement of income and during our six months ended July 5, 2009 and June 29,2008, we amortized $0.4 and $0.4 million, respectively.  We will amortize $0.8 million annuallyrelated to this loss through July 2012.

 

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**BUILDINGMATERIALS CORPORATION OF AMERICA**

 

**Item 2.   MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL**

**CONDITION AND RESULTS OF OPERATIONS – (Continued)**

 

*FairValue Measurements*

 

Financial instrumentsconsist mainly of cash and cash equivalents, accounts receivable, accountspayable, accrued liabilities, interest rate swaps, short and long-term debt andlease obligations.  Our interest rateswaps are recorded at fair value, while other financial instruments in ourconsolidated balance sheet have carrying values that approximate fair value.  In the absence of quoted market prices,considerable judgment is required in developing estimates of fair value.  Our estimates are based on historicalexperience and on various other assumptions that are believed to be reasonableunder the circumstances, the results of which form the basis for making judgmentsabout the carrying values of assets and liabilities.  Actual results may differ from theseestimates under different assumptions or conditions.  Estimates are not necessarily indicative ofthe amounts we could realize in a current market transaction.  See Note 8 to Consolidated FinancialStatements for additional disclosures of our fair value instruments.

 

During the first quarterof 2009, we adopted FSP FAS No. 157-2, “Partial Deferral to the EffectiveDate of Statement 157,” which deferred the application of SFAS No. 157 forcertain non-financial assets and non-financial liabilities.  Upon adoption, we did not have anynon-financial assets or liabilities that were recognized or measured at fairvalue on a recurring basis, therefore there was no impact on our results ofoperations.

 

*IntercompanyTransactions*

 

Wemake loans to, and borrow from, our parent corporations from time to time atprevailing market interest rates.  At July 5, 2009 and June 29,2008, BMCA Holdings Corporation owed us $56.4 and $56.3 million, includinginterest of $1.1 and $1.0 million, respectively, and we owed BMCA HoldingsCorporation $52.8 and $52.8 million, respectively, with no unpaidinterest.  Interest income on our loansto BMCA Holdings Corporation amounted to $0.6 and $0.8 million during thesecond quarter ended July 5, 2009 and June 29,2008, respectively, and $1.2 and $1.8 million during the six-month periodsended July 5, 2009 and June 29, 2008, respectively.  Interest expense on our loans from BMCAHoldings Corporation amounted to $0.6 and $0.8 million during the secondquarter ended July 5, 2009 and June 29,2008, respectively, and $1.1 and $1.8 million during the six-month periodsended July 5, 2009 and June 29, 2008. Loans payable to/receivable from our parent corporations are due ondemand and provide each party with the right of offset of its relatedobligation to the other party and are subject to limitations as outlined in theSenior Secured Credit Facilities and the Senior Notes.  Under the terms of the Senior SecuredRevolving Credit Facility and the indenture governing our Senior Notes at July 5, 2009, we could repaydemand loans to our parent corporation amounting to $52.8 million, subject tocertain conditions.

 

Wehave a management agreement, which we refer to as the Management Agreement,with ISP Management Company, Inc., a subsidiary of International SpecialtyProducts Inc., which, together with its subsidiaries, is referred

 

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**BUILDINGMATERIALS CORPORATION OF AMERICA**

 

**Item 2.   MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL**

**CONDITION AND RESULTS OF OPERATIONS – (Continued)**

 

toas ISP, an affiliate, to provide us with certain management services.

 

Basedon services provided to us in 2009 under the Management Agreement, theaggregate amount payable to ISP Management Company, Inc. under theManagement Agreement for 2009, inclusive of the services provided to G-IHoldings, is not yet available; however, it is currently estimated to besimilar to the $7.3 million paid in 2008. We do not expect any changes to the Management Agreement to have amaterial impact on our results of operations.

 

Weand our subsidiaries purchased a substantial portion of our headlap roofinggranules, colored roofing granules and algae-resistant granules, on a purchaseorder basis, from ISP Minerals Inc., which we refer to as ISP Minerals, anaffiliate of BMCA and of ISP.  The amountof mineral products purchased each year on this basis is based on currentdemand and is not subject to minimum purchase requirements.  For the second quarter ended July 5, 2009 and June 29,2008, we and our subsidiaries purchased $12.0 and $12.3 million, respectively,of roofing granules under this arrangement, and for the six-month periods endedJuly 5, 2009 and June 29, 2008, we and our subsidiaries purchased$23.5 and $19.5 million, respectively, of roofing granules under thisarrangement.

 

Inaddition to the granules products we purchased, under the above-referencedpurchase order basis the balance of our granules purchased from ISP Minerals ispurchased under a contract expiring in 2013. The amount of mineral products purchased each year under the contract isbased on current demand and is not subject to minimum purchase requirements.  Under the contract, for the second quarterended July 5, 2009 and June 29,2008, we purchased $13.9 and $22.8 million of roofing granules, respectively,and for the six-month periods ended July 5, 2009 and June 29, 2008,we purchased $32.0 and $41.9 million, respectively, of roofing granules.

 

InFebruary 2009 and March 2009, after giving effect to the mostrestrictive of the aforementioned debt covenant restrictions, we declared andpaid cash dividends of $5.0 and $5.0 million, respectively, to our parentcorporation.

 

Includedin noncurrent assets as a tax receivable from parent corporation on ourconsolidated balance sheet is $8.4 million at December 31, 2008,representing amounts paid in excess of amounts due to G-I Holdings with respectto 2006 under the Tax Sharing Agreement. We utilized the remaining receivable balance at December 31, 2008during our first quarter of 2009. Included in current liabilities as a payable to related parties on ourconsolidated balance sheet at July 5, 2009 is $30.4 million, which representsa tax payable due to G-I Holdings under the Tax Sharing Agreement.  These amounts are included in the net payableto related parties/parent corporations in our consolidated statements of cashflows.

 

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**BUILDINGMATERIALS CORPORATION OF AMERICA**

 

**Item 2.   MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL**

**CONDITION AND RESULTS OF OPERATIONS – (Continued)**

 

*Contingencies*

 

See Note 13 toConsolidated Financial Statements for information regarding contingencies.

 

*EconomicOutlook*

 

We do not believe thatinflation has had a material effect on our results of operations during thefirst six months of 2009. However, we cannot assure you that our business willnot be affected by inflation in the future, or by increases in the cost ofenergy and asphalt purchases used in our manufacturing process principally dueto fluctuating oil prices.

 

The prices of energy andcrude oil increased during the second quarter of 2009, including the price ofasphalt and other petroleum-based raw materials, as compared to the firstquarter of 2009.  For the first sixmonths of 2009, energy and crude oil prices have sharply declined over thefirst six months of 2008.  The decline inthe first six months of 2009 as compared to the first six months of 2008, wasprimarily due to, in our opinion, the current uncertain worldwide economicconditions, which has resulted in weaker demand.  The decline in crude oil prices caused amoderate decline in asphalt and other petroleum-based raw materials.  Due to the strength of our manufacturingoperations, which allows us to use many types of asphalt, together with ourability to secure alternative sources of supply, we do not anticipate that anypotential disruption in the supply of asphalt will have a material impact onfuture net sales, although no assurances can be provided in that regard.  We will attempt to pass on future costincreases from suppliers as needed; however, no assurances can be provided thatthese price increases will be accepted in the marketplace.

 

*ContractualObligations*

 

There have been nosignificant changes to our contractual obligations during the second quarterended July 5, 2009.  For a furtherdiscussion on our contractual obligations related to minimum purchaseobligations reference is made to Management’s Discussion and Analysis ofFinancial Condition and Results of Operations “Contractual Obligations” in our2008 Form 10-K.

 

*New Accounting Pronouncements*

 

See Note 2 toConsolidated Financial Statements for a discussion regarding accountingstandards adopted and not yet adopted during the six months ended July 5,2009.

 

* * *

 

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**BUILDINGMATERIALS CORPORATION OF AMERICA**

 

**Item 2.   MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL**

**CONDITION AND RESULTS OF OPERATIONS – (Continued)**

 

**Forward-lookingStatements**

 

This quarterlyreport on Form 10-Q contains both historical and forward-lookingstatements.  All statements other thanstatements of historical fact are, or may be deemed to be, forward-lookingstatements within the meaning of section 27A of the Securities Act of 1933, asamended and section 21E of the Securities Exchange Act of 1934.  These forward-looking statements are onlypredictions and generally can be identified by use of statements that includephrases such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “foresee”or other similar words or phrases. Similarly, statements that describe ourobjectives, plans or goals also are forward-looking statements.  Our operations are subject to certain risksand uncertainties that could cause actual results to differ materially fromthose contemplated by the relevant forward-looking statements.  The forward-looking statements includedherein are made only as of the date of this quarterly report on Form 10-Qand we undertake no obligation to publicly update any forward-lookingstatements to reflect subsequent events or circumstances.  We cannot assure you that projected resultsor events will be achieved.

 

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**BUILDINGMATERIALS CORPORATION OF AMERICA**

 

**Item3.  QUANTITATIVE AND QUALITATIVEDISCLOSURES ABOUT MARKET RISK**

 

Reference is made toManagement’s Discussion and Analysis of Financial Condition and Results ofOperations in the 2008 Form 10-K for a discussion of “Market-SensitiveInstruments and Risk Management.”  Therewere no material changes in such information as of July 5, 2009.  See Note 7 to Consolidated FinancialStatements.

 

**Item 4T.  CONTROLS AND PROCEDURES**

 

*DisclosureControls and Procedures*:  Our management, under thesupervision and with the participation of the Chief Executive Officer and ChiefFinancial Officer, conducted an evaluation of the effectiveness of ourdisclosure controls and procedures (as such term is defined in Rules 13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934, as amended (the “ExchangeAct”)) as of the end of the period covered by this report.  Based on this evaluation, the Chief ExecutiveOfficer and Chief Financial Officer have concluded that, as of the end of suchperiod, our disclosure controls and procedures are effective in recording,processing, summarizing and reporting, on a timely basis, information requiredto be disclosed by us in the reports filed, furnished or submitted under theExchange Act.  Our Chief ExecutiveOfficer and Chief Financial Officer also concluded that our disclosure controlsand procedures are effective to ensure that information required to bedisclosed in the reports that we file or submit under the Exchange Act isaccumulated and communicated to our management, including our Chief ExecutiveOfficer and Chief Financial Officer, to allow timely decisions regardingrequired disclosures.

 

*Changesin Internal Control over Financial Reporting*:  There were nosignificant changes in our internal control over financial reporting (as suchterm is defined in Rules 13a-15(f) and 15d-15(f) under theExchange Act) identified in management’s evaluation during the second quarterof fiscal year 2009 that have materially affected or are reasonablylikely to materially affect our internal control over financial reporting.

 

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**BUILDINGMATERIALS CORPORATION OF AMERICA**

 

**PART II**

 

**OTHER INFORMATION**

 

**Item 1.Legal Proceedings**

 

There were no materialchanges to the legal proceedings identified in the Annual Report on Form 10-Kfor the year ended December 31, 2008. See Note 13 to the consolidated financial statements in Part I.

 

**Item 6.Exhibits**

 
| **Exhibit** | ** ** | ** **                                                                                  |
|-------------|------------|---------------------------------------------------------------------------------------------|
| **Number**  | ** ** | **Description**                                                                             |
|        |       |                                                                                        |
| 31.1        |       | Rule 13a-14(a)/Rule 15d-14(a) Certification  of the Chief Executive Officer. |
|        |       |                                                                                        |
| 31.2        |       | Rule 13a-14(a)/Rule 15d-14(a) Certification  of the Chief Financial Officer. |
|        |       |                                                                                        |
| 32.1        |       | Section 1350  Certification of Chief Executive Officer and Chief Financial Officer.    |

 

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**SIGNATURES**

 

Pursuant to therequirements of Section 13 or 15(d) of the Securities Exchange Act of1934, each registrant has duly caused this report to be signed on its behalf bythe undersigned, thereunto duly authorized.

 

 
|   | BUILDING MATERIALS  CORPORATION OF AMERICA    |
|--------|-----------------------------------------------|
|   | BUILDING MATERIALS  MANUFACTURING CORPORATION |
|   |                                          |
|   |                                          |
| DATE:  | August 19, 2009                          |   | BY: | /s/ John F. Rebele |
|   |                                          | John F. Rebele |
|   |                                          | Senior Vice President, |
|   |                                          | Chief Financial Officer  and |
|   |                                          | Chief Administrative  Officer |
|   |                                          | (Principal Financial  Officer) |
|   |                                          |   |
|   |                                          |   |
| DATE:  | August 19, 2009                          |   | BY: | /s/ James T. Esposito |
|   |                                          | James T. Esposito |
|   |                                          | Vice President and  Controller |
|   |                                          | (Principal Accounting  Officer) |
|        |                                               |  |  |  |  |

 

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