**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

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**FORM 10-K**
| **x** | ** ** | **ANNUAL REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE   SECURITIES EXCHANGE ACT OF 1934** |
|-------|------------|-------------------------------------------------------------------------------------------------------|

**For the fiscal year ended December 31,2005**

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

 

**Forthe transition period from                    to              **

**Commissionfile number 33-81808**

**BUILDING MATERIALS CORPORATION OF AMERICA**

(Exact name of registrantas specified in its charter)

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

 

**Registrant’s Telephone Number, Including Area Code:**(973) 628-3000

**Securities registered pursuant toSection 12(b) of the Act:** none

**Securities registered pursuant toSection 12(g) of the Act:** none

**See table of additionalregistrants below**

Indicate by check mark ifthe registrant is a well-known seasoned issuer, as defined in Rule 405 ofthe Securities Act. Yes o  No x

Indicate by check mark ifthe registrant is not required to file reports pursuant to Section 13 or Section 15(d) ofthe Act. Yes x  No o

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months(or for such shorter period that the registrant was required to file suchreports), and (2) has been subject to such filing requirements for thepast 90 days. Yes x  No o

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K is notcontained herein, and will not be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment tothis Form 10-K. x

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer. See definition of “accelerated filer and largeaccelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o     Acceleratedfiler o     Non-acceleratedfiler x

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

As of March 29, 2006,1,015,010 shares of Class A Common Stock, $.001 par value of BuildingMaterials Corporation of America were outstanding. There is no trading marketfor the common stock of Building Materials Corporation of America.

As of March 29, 2006, the additional registranthad the number of shares outstanding which is shown on the table below. Thereis no trading market for the common stock of the additional registrant. As of March 29,2006, no shares of the registrant or the additional registrant were held bynon-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** | ** ** | **Registration No./  I.R.S. Employer  Identification  Number** | ** ** | **Address, including   zip code and  telephone number,  including area code,  of registrant’s  principal executive office** | ** ** |
|------------------------------------------------------------------------------------------|------------|------------|------------|-----------------------------------------------------------------------------------------|------------|--------------------------------------|------------|--------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| Building Materials   Manufacturing Corporation                                           |       |       | Delaware   |                                                                                    |       |                                 | 10         |                                                                     |       | 333-69749-01/  22-3626208                                                                                                                                                          |       | 1361  Alps Road  Wayne, New Jersey 07470  (973) 628-3000 |   |
|                                                                                          |            |            |            |                                                                                         |            |                                      |            |                                                                          |            |                                                                                                                                                                                    |            |  |  |  |  |

 

 

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**BUILDING MATERIALS CORPORATION OF AMERICA**

**FORM 10-KFOR THE FISCAL YEAR ENDED DECEMBER 31, 2005**

**TABLEOF CONTENTS**

| **PART I**   |   |                                                                                                               |   |   |   |
|-------------------|--------|--------------------------------------------------------------------------------------------------------------------|--------|--------|--------|
| Item 1.           |   | Business                                                                                                           |   | 1      |   |
| Item  1A.         |   | Risk  Factors                                                                                                      |   | 7      |   |
| Item 1B.          |   | Unresolved Staff Comments                                                                                          |   | 14     |   |
| Item 2.           |   | Properties                                                                                                         |   | 15     |   |
| Item  3.          |   | Legal  Proceedings                                                                                                 |   | 16     |   |
| Item 4.           |   | Submission of Matters to a Vote of Security Holders                                                                |   | 20     |   |
| **PART II**  |   |                                                                                                               |   |   |   |
| Item 5.           |   | Market for Registrant’s Common Equity, Related  Stockholder Matters and Issuer Purchases of Equity Securities |   | 21     |   |
| Item 6.           |   | Selected Financial Data                                                                                            |   | 21     |   |
| Item 7.           |   | Management’s Discussion and Analysis of Financial  Condition and Results of   Operations                      |   | 21     |   |
| Item 7A.          |   | Quantitative and Qualitative Disclosures About Market  Risk                                                        |   | 21     |   |
| Item 8.           |   | Financial Statements and Supplementary Data                                                                        |   | 21     |   |
| Item 9.           |   | Changes in and Disagreements With Accountants on  Accounting and Financial Disclosure                              |   | 21     |   |
| Item 9A.          |   | Controls and Procedures                                                                                            |   | 21     |   |
| Item  9B.         |   | Other  Information                                                                                                 |   | 22     |   |
| **PART III** |   |                                                                                                               |   |   |   |
| Item 10.          |   | Directors and Executive Officers of the Registrant                                                                 |   | 22     |   |
| Item 11.          |   | Executive Compensation                                                                                             |   | 24     |   |
| Item 12.          |   | Security Ownership of Certain Beneficial Owners and  Management and Related Stockholder Matters                    |   | 27     |   |
| Item 13.          |   | Certain Relationships and Related Transactions                                                                     |   | 28     |   |
| Item 14.          |   | Principal Accountant Fees and Services                                                                             |   | 30     |   |
| **PART IV**  |   |                                                                                                               |   |   |   |
| Item 15.          |   | Exhibits and Financial Statement Schedules                                                                         |   | 31     |   |

 

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**PART I**

*The Business section and other parts of this annualreport on Form 10-K contain both historical and forward-lookingstatements that involve risks and uncertainties. Many of the forward-lookingstatements are located in “Management’s Discussion and Analysis of FinancialCondition and Results of Operations.” These forward-looking statements are only predictions and generally canbe identified by words such as “anticipates,” “expects,” “believes,” “intends,”“plans,” “predicts,” “foresees” and other related terms. Similarly, statementsthat describe our objectives, plans or goals are also forward-lookingstatements. Our operations are subject to certain risks and uncertainties thatcould cause actual results to differ materially from those contemplated by therelevant forward-looking statement. Forward-looking statements are notguarantees of future performance and our actual results may differsignificantly from the results discussed in the forward-looking statements. Theforward-looking statements included herein are made only as of the date of thisannual report on Form 10-K. We assume no obligation to revise orupdate any forward-looking statements for any reason, except as required bylaw.*

**Item 1.**   *Business.*

**General**

Building Materials Corporation of America or BMCA is aleading national manufacturer and marketer of a broad line of asphalt andpolymer based roofing products and accessories for the residential andcommercial roofing markets. We also manufacture specialty building products andaccessories for the professional and do-it-yourself remodeling and residentialconstruction industries. We were incorporated under the laws of Delaware in1994 and are a wholly-owned subsidiary of BMCA Holdings Corporation, which is awholly-owned subsidiary of G-I Holdings Inc. In 1994, we acquired the operatingassets and certain liabilities of GAF Building Materials Corporation, whosename has changed to G-I Holdings Inc. G-I Holdings Inc. is a wholly-ownedsubsidiary of G Holdings Inc. Samuel J. Heyman beneficially owns (as defined inRule 13d-3 of the Securities Exchange Act) approximately 99% of GHoldings Inc. We do business under the name “GAF Materials Corporation.”  Unless otherwise indicated by the context, “we,”“us,” “our” and “BMCA” refer to Building Materials Corporation of America andits consolidated subsidiaries.

To facilitate administrative efficiency, effective October 31,2000, GAF Corporation, our former indirect parent,  merged into its direct subsidiary, G-IHoldings Inc. G-I Holdings Inc. then merged into its direct subsidiary, GIndustries Corp., which in turn merged into its direct subsidiary, GAFFiberglass Corporation. In that merger, GAF Fiberglass Corporation changed itsname to GAF Corporation. Effective November 13, 2000, GAF Corporation,formerly known as GAF Fiberglass Corporation, merged into its directsubsidiary, GAF Building Materials Corporation, whose name was changed in themerger to G-I Holdings Inc. G-I Holdings Inc. is now our indirect parent andour direct parent is BMCA Holdings Corporation. We refer to G-I Holdings Inc.and any and all of its predecessor corporations, including GAF Corporation, G-IHoldings Inc., G Industries Corp., GAF Fiberglass Corporation and GAF BuildingMaterials Corporation in this report as “G-I Holdings.”

On January 5, 2001, G-I Holdings filed avoluntary petition for reorganization under Chapter 11 of the U.S. BankruptcyCode in the United States Bankruptcy Court for the District of New Jersey inNewark, New Jersey due to its asbestos-related bodily injury claims relating tothe inhalation of asbestos fiber. We refer to these claims in this report as “AsbestosClaims.”  G-I Holdings, the successor toGAF Corporation by merger, is a privately-held holding company and we are itsonly operating subsidiary. We are not included in the bankruptcy filing.

Our executive offices arelocated at 1361 Alps Road, Wayne, New Jersey 07470 and our telephone number is(973) 628-3000.

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**Residential Roofing**

We are a leading national manufacturer of a completeline of premium residential roofing products. Residential roofing product salesrepresented approximately 75%, 74% and 73% of our net sales in 2005, 2004 and2003, respectively. Our principal residential roofing products consist oflaminated and strip asphalt shingles. We have improved our sales mix ofresidential roofing products in recent years by increasing our emphasis onlaminated shingles and accessory products, which generally are sold at higherprices with more attractive profit margins than our standard strip shingleproducts. We believe, based on unit sales, that we are the largest manufacturerof residential roofing shingles in the United States. Statements contained inthis report as to our competitive position are based on industry informationwhich we believe is reliable.

Our two principal lines ofresidential roofing shingles are the Timberline® series and the Sovereign®series. We also produce a wide array of premium designer shingles.

*The Timberline®Series.*

The Timberline®series offers a premium architectural laminated product line that adds dramaticshadow lines, while adding depth and dimension and substantially improving theappearance of a roof. The series includes:

·       theTimberline® 30 shingle, a mid-weight architectural laminated shingle, which servesas an economical trade-up for consumers from a 3-tab shingle, with a 30-yearlimited warranty;

·       theTimberline® Select 40ä shingle, aheavyweight architectural laminated shingle with superior durability and a 40-yearlimited warranty; and

·       the Timberline® Ultra®shingle, a super-heavyweight architectural laminated shingle with the maximumdurability of the Timberline® series, with a lifetime limited warranty.

*The Sovereign®Series.*

The Sovereign®series includes:

·       theeconomical 3-tab Sentinel® shingle, with a 20-year limitedwarranty;

·       theRoyal Sovereign® shingle, a heavier 3-tab shingle, designed to capitalizeon the “middle market” for quality shingles, with a 25-year limitedwarranty; and

·       the Marquis® WeatherMax®shingle, a superior performing heavyweight 3-tab shingle, with a 30-yearlimited warranty.

*Premium DesignerShingles.*

Our premiumdesigner asphalt shingles include:

·       theSlateline® shingle, a designer strip shingle, which offers the appearance ofnatural slate at a fraction of the cost and reduces labor costs in installationbecause of its larger size, with a lifetime limited warranty;

·       theGrand SlateTM shingle, a super-heavyweight premium designer laminated shingle,which offers the appearance of natural slate at a fraction of the cost andreduces labor costs in installation because of its larger size, with a lifetimelimited warranty;

·       theGrand Sequoia® shingle, a premium designer laminated shingle, which offers arugged wood shake appearance and reduces labor costs in installation, with alifetime limited warranty;

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·       theGrand CanyonTM shingle, a premium designer laminated shingle, with theextra-thick rugged wood shake appearance, which reduces labor costs ininstallation, with a lifetime limited warranty;

·       theCountry Mansion® shingle, a premium designer laminated shingle, designed forhouses with a distinctive rich appearance, which reduces labor costs ininstallation because of its larger size, with a lifetime limited warranty;

·       theGrand TimberlineTM shingle, a premium architectural laminated shingle, which islarger than standard Timberline® shingles, and reduces labor costs ininstallation because of its larger size, with a lifetime limited warranty; and

·       theCamelotTM shingle, a super-heavyweight premium designer laminated shingle, whichoffers both natural beauty and uncompromising performance and reduces laborcosts in installation because of its larger size, with a lifetime limitedwarranty.

*Weather Stopper®Integrated Roofing SystemTM.  *In addition toshingles, we supply the major components necessary to install a completeroofing system. Our Weather Stopper® Integrated Roofing SystemTM begins withWeather Watch® and Stormguard® waterproof underlayments for eaves, valleys andflashings to protect against water seepage between the roof deck and theshingles caused by ice build-up and wind-driven rain. Our Weather Stopper®Integrated Roofing SystemTM also includes Shingle-Mate®, Leatherback®, andDeck-ArmorTM underlayments; Timbertex®, TimberCrestäand Pacific RidgeTM Hip and Ridge shingles, which are significantly thicker andlarger than standard hip and ridge shingles and provide dramatic accents to theslopes and planes of a finished roof; and the Cobra® and Master Flow® Ventseries, which provide attic ventilation.

**Commercial Roofing**

We manufacture a full line of modified bitumen andasphalt built-up roofing products, thermoplastic polyolefin products, liquidapplied membrane systems and roofing accessories for use in the application ofcommercial roofing systems. Commercial roofing represented approximately 21%,22% and 22% of our net sales in 2005, 2004 and 2003, respectively. We alsomarket, under the EverGuard® trademark, thermoplastic single-ply products. TheEverGuard® products address the important and growing single ply segment of thecommercial roofing market. The thermoplastic products offer building owners thereliability of heat-welded seams and ENERGYSTAR®qualified systems. The EverGuard® brand also includes FreedomTM self-adhered TPOmembranes, which feature faster installation without the need for hot asphalt,solvent-based adhesives, or torches. We believe, based on unit sales, that weare the largest manufacturer of both asphalt built-up roofing products andmodified bitumen products in the United States.

We manufacture fiberglass-based felts under the GAFGLAS® and Brai® trademarks, which aremade from asphalt impregnated glass fiber mat for use as a component in asphaltbuilt-up roofing systems. Most of our fiberglass based roofing systems areassembled on the roof by applying successive layers of roofing with asphalt andtopped, in some applications, with gravel or mineral surfaced sheets. Thermalinsulation may be applied beneath the membrane. We also manufacture basesheets, flashings and other roofing accessories for use in these systems; our TOPCOAT® roofing system, a liquid-appliedmembrane system designed to protect and waterproof existing roofing systems;and roof maintenance products. In addition, we market insulation products underthe EnergyGuardä brandname, whichincludes perlite and isocyanurate foam in addition to accessories, such as ventstacks, fasteners and cements and coatings. These products allow us to providecustomers with a complete roofing system and the ability to market and sellextended guarantees.

We sell modified bitumenproducts under the Ruberoid® and Brai® trademarks. Modified bitumen productsare used in new and re-roofing applications or in combination with glassmembranes in GAF 

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CompositeRoofTMsystems. These products consist of a roofing membrane utilizingpolymer-modified asphalt, which strengthens and increases flexibility and isreinforced with a polyester non-woven mat or a glass mat. Modified bitumensystems provide an alternative to conventional built-up roofing systems,including ease of installation and maintenance.

**SpecialtyBuilding Products and Accessories**

We manufacture and marketa variety of specialty building products and accessories for the professionaland do-it-yourself remodeling and residential construction industries.Specialty building products and accessories represented approximately 4%, 4%and 5% of our net sales in 2005, 2004 and 2003, respectively. These products primarilyconsist of residential attic ventilation systems and metal and fiberglass airdistribution products for the HVAC (heating, ventilating and air conditioning)industry.

**Marketing and Sales**

Our sales and marketing functions are designed to helpcustomers grow their business and provide better service while offeringproperty owners the best and safest choice from our product offerings. Webelieve we have one of the industry’s largest sales forces. We have a staff oftechnical professionals who work directly with architects, consultants,contractors and building owners providing support to our sales force,distributors, lumberyards and retailers. We sell our roofing and specialtybuilding products and accessories through our own sales force of approximately300 experienced, full-time employees and independent sales representativeslocated across the United States and Canada. A major portion of our roofingproduct sales are to wholesale distributors and retailers, who resell ourproducts to roofing contractors, builders and property owners. We believe thatthe wholesale distribution channel represents the principal distributionchannel for professionally installed asphalt roofing products. As a result, webelieve that our nationwide coverage has contributed to certain of our roofingproducts being among the most recognized and requested brands in the industry.

Our certified contractorprograms offer marketing and support services to a nationwide network ofresidential (Master Eliteâand Authorized) and commercial (Masterä, Master Selectä,Platinumä and Authorized) installers, as well asresidential homebuilders. We view these certified contractors and builders asan effective extension of our sales force, which promotes our products andsupport services (including enhanced warranty protection) directly to propertyowners, construction specifiers and architects.

**Significant Customers**

We sell our productsthrough multiple distribution channels with a strong presence in the wholesale,retail, manufactured housing and lumberyard distribution channels. No singlecustomer accounted for over 10% of our net sales in 2005, 2004 and 2003, exceptfor The Home Depot, Inc. and American Builders & ContractorsSupply Company, Inc.

**Raw Materials**

The major raw materials required for the manufactureof our roofing products are asphalt, mineral stabilizer, glass fiber, glassfiber mat, polyester mat and granules. Asphalt and mineral stabilizer areavailable from a large number of suppliers on substantially similar terms. Wecurrently have contracts with several of these suppliers and others areavailable as substitutes. In 2005, prices of most raw materials, other thanasphalt and other petroleum-based raw materials and energy, have beenrelatively stable, rising moderately with general industrial prices, while theincrease in the prices of asphalt and other petroleum-based raw materials weredriven mostly by continued high crude oil prices during 2005.

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During 2005, the cost of asphalt continued to be highrelative to historical levels which reflects in large part record high crudeoil prices. Due to the strength of our manufacturing operations which allows usto use many types of asphalt together with our ability to secure alternativesources of supply, we do not anticipate that any future disruption in thesupply of asphalt will have a material impact on future net sales, although noassurances can be provided in that regard.

To mitigate these and other petroleum-based costincreases, we announced and implemented multiple price increases during 2005. Wewill attempt to pass on future additional unexpected cost increases fromsuppliers as needed; however, no assurances can be provided that these priceincreases will be accepted in the marketplace.

The major raw materials required for the manufactureof our specialty building products and accessories are steel tubes, sheet metalproducts, aluminum, motors and cartons. These raw materials are commodity-typeproducts, the pricing for which is driven by supply and demand. Prices of otherraw materials used in the manufacture of specialty building products andaccessories are more closely tied to movements in inflation rates. All of theseraw materials are available from a large number of suppliers on substantiallysimilar terms.

Five of our roofing plants have easy access to deepwater ports thereby permitting delivery of asphalt by ship, the most economicalmeans of transport. Our Nashville, Tennessee plant manufactures a significantportion of our glass fiber requirements for use in our Chester, South Carolinaand Shafter, California plants, which manufacture glass fiber mat substrate.

During 2005, we purchasedall of our requirements for colored roofing granules and algae-resistantgranules from an affiliate, ISP Minerals Inc., a subsidiary of InternationalSpecialty Products Inc., under a long-term requirements contract. We refer toInternational Specialty Products Inc. and its subsidiaries as “ISP.”

**Backlog**

Our backlog is notsignificant and is not material to our overall operations.

**SeasonalVariations and Working Capital**

Sales of roofing andspecialty building products and accessories in the northern regions of theUnited States generally decline during the winter months due to adverse weatherconditions. Generally, our inventory practice includes increasing inventorylevels in the first and second quarters of each year in order to meet peakseason demand from June through November.

**Warranty Claims**

We provide certain limitedwarranties covering most of our residential roofing products for periodsgenerally ranging from 20 to 40 years, although certain of our product linesprovide for a lifetime limited warranty. Although terms of warranties vary, webelieve that our warranties generally are consistent with those offered by ourcompetitors with the exception of our unique “Golden Pledge” warranty.  We also offer certain limited warranties ofvarying duration covering most of our commercial roofing products. Most of ourspecialty building products and accessories carry limited warranties forperiods generally ranging from 5 to 10 years, with lifetime limited warrantieson certain products. We review the reserves established for estimated probablefuture warranty claims at least on a periodic basis.

**Competition**

The roofing products industry is highly competitiveand includes a number of national competitors. These competitors in theresidential roofing and accessories markets are Owens Corning, Tamko, Elkcorp 

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and CertainTeedCorporation, and in the commercial roofing market are Johns Manville, FirestoneBuilding Products and Carlisle Companies, Inc. In addition, there arenumerous regional competitors, principally in the commercial roofing market.

Competition is based largely upon products and servicequality, distribution capability, price and credit terms. We believe that weare well-positioned in the marketplace as a result of our broad product linesin both the residential and commercial markets, consistently high productquality, strong sales force and national distribution capabilities. As a resultof the growth in demand for premium laminated shingles, a number of roofingmanufacturers, including our company, have increased their laminated shingleproduction capacity in recent years. In that regard, to support our continuedpremium laminated shingle growth in the Northeast and Canadian markets, in May 2004,we acquired certain assets of a manufacturing facility located in Quakertown,Pennsylvania from Atlas Roofing Corporation. The Quakertown manufacturingfacility provides us with immediate production capacity to keep pace with thegrowing demand for our products in the North American markets, plus additionalcapacity expansion, as well as saturated felt products.

Our specialty buildingproducts and accessories business is highly competitive with numerouscompetitors due to the breadth of the product lines we market. Majorcompetitors include Gibraltar, Southwark Metal Manufacturing Co., Lomanco Inc.,Standex International Corp. and Hart & Cooley, Inc.

**Research and Development**

We primarily focus ourresearch and development activities on the development of new products, processimprovements and the testing of alternative raw materials and supplies. Ourresearch and development activities, dedicated to residential, commercial andfiberglass products, are located at technical centers in Wayne, New Jersey,Chester, South Carolina and Walpole, Massachusetts. Our research anddevelopment expenditures were approximately $9.4, $9.3 and $7.6 million in2005, 2004 and 2003, respectively.

**Intellectual Property**

We hold a number of patents, trademarks and licensesobtained over a number of years and expiring at various times consistent withour business needs. Generally, we seek statutory protection for strategic orfinancially important intellectual property, including patents, trademarks andlicenses developed in connection with our businesses. Certain intellectualproperty, where appropriate, is protected by contracts, licenses,confidentiality or other similar agreements.

We own numerous United States and foreign patents (andtheir respective counterparts), the more important of which cover thosetechnologies and inventions embodied in current products, or which are used inthe manufacture of those products. While we believe our patent portfolio isimportant to our business operations and in the aggregate constitutes a valuableasset, no single patent, or group of patents, is critical to the success of ourbusinesses. We also, from time to time, grant licenses under our patents andtechnology and receive licenses under the patents and technology of others.

In addition, we own numerous registered trademarks inthe United States and in many foreign countries that apply to our productofferings and businesses. Most works of authorship, such as computer programs,catalogs, product brochures and sales literature, carry appropriate noticesindicating our claim to copyright protection under United States law and whereappropriate, international treaties. See Item 3, “Legal Proceedings—OtherLitigation.”

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**Environmental Compliance**

Since 1970, federal, state and local authorities haveadopted and amended a wide variety of federal, state and local environmentallaws and regulations relating to environmental matters. The environmental lawsand regulations deal with air and water emissions or discharges into theenvironment, as well as the generation, storage, treatment, transportation anddisposal of solid and hazardous waste, and the remediation of any releases ofhazardous substances and materials to the environment. These laws andregulations affect us because of the nature of our operations and that of ourpredecessor and certain of the substances that are, or have been used, producedor discharged at our or its plants or at other locations. We made capital expendituresof approximately $0.6, $2.5 and $1.9 million in 2005, 2004 and 2003,respectively, relating to environmental compliance. These expenditures areincluded in additions to property, plant and equipment.

We believe that our manufacturing facilities comply inall material respects with applicable environmental laws and regulations, and,while we cannot predict whether more burdensome requirements will be adopted bygovernmental authorities in the future, nor can we predict with certaintyfuture capital expenditures or operating costs for environmental compliance, wedo not believe they will have a material effect on our business, liquidity,results of operations, cash flows, financial position or competitive position.

See Item 3, “LegalProceedings—Environmental Litigation.”

**Employees**

At December 31, 2005,we employed approximately 3,700 people worldwide, approximately 1,200 of whichwere subject to fourteen union contracts. The contracts are effective for threeto five year periods. During 2005 and through the first quarter of 2006, sevenlabor contracts expired and were renegotiated. We believe that our relationswith our employees and their unions are satisfactory.

**Other Information**

Any materials that we havefiled with the Securities and Exchange Commission may be read and copied by thepublic at the SEC’s Public Reference Room located at 450 Fifth Street,N.W., Washington, DC 20549 or by telephoning the SEC at 1-800-SEC-0330.These reports are also available electronically on the SEC’s EDGAR website atwww.sec.gov. Alternatively, if you wish to receive a paper copy of our reportsor any of the exhibits filed with or furnished to the SEC, they may be obtainedby writing to: the Corporate Secretary, Building Materials Corporation ofAmerica, 1361 Alps Road, Wayne, New Jersey 07470.

**Item 1A.**   *Risk Factors.*

**RisksRelated to Investing in our Securities**

**We may be forced to contribute assets to ourindirect parent to satisfy its bankruptcy creditors, potentially rendering usunable to pay principal and interest on our credit obligations.**

On January 5, 2001, our indirect parent, G-IHoldings Inc., filed a voluntary petition for reorganization under Chapter 11of the U.S. Bankruptcy Code due to its asbestos-related bodily injury claimsrelating to the inhalation of asbestos fiber. G-I Holdings, the successor toGAF Corporation by merger, is a privately-held holding company and we are itsonly operating subsidiary. Although we were not included in the bankruptcyfiling, the creditors’ committee in the G-I Holdings case petitioned tosubstantively consolidate us with G-I Holdings or cause us to file forbankruptcy protection. Although the petition was denied by the bankruptcy courton a preliminary basis, the committee is still seeking such relief. On July 7,2004, the creditors’ committee filed a claim challenging, as a fraudulentconveyance, the transactions entered into in connection with our formation in1994, which we refer to as the 1994 

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transaction, in which G-IHoldings caused to be transferred to us all of its roofing business and assetsand in which we assumed certain liabilities relating to those assets, includinga specified amount of asbestos liabilities. In addition, on July 7, 2004,the creditors’ committee (in the name of G-I Holdings), filed a claim againstholders of BMCA’s bank and bond debt outstanding in 2000, seeking to avoid theliens granted to them, based on the committee’s theory that the 1994transaction was a fraudulent conveyance. Claimants in the G-I Holdingsbankruptcy case may seek to file their asbestos-related bodily injury claimsagainst us or additional claims of the G-I Holdings estate under alternativearguments. In these actions, claimants generally do not specify damages andseek to hold BMCA directly liable for damages as would be established inunspecified future judicial proceedings arising out of asbestos-containingproducts for which G-I Holdings Inc. would be responsible. If we are notsuccessful defending against one or more such claims, we may be forced to filefor bankruptcy protection and/or contribute all or a substantial portion of ourassets to satisfy the claims of G-I Holdings’ creditors. Either of theseevents, or the substantive consolidation of G-I Holdings and BMCA, would weakenour operations and cause us to divert a material amount of our cash flow tosatisfy the asbestos claims of G-I Holdings, and may render us unable to payinterest or principal on our credit obligations, including our 8% Senior Notesdue 2007, our 8% Senior Notes due 2008, and our 7 3/4% Senior Notes due 2014. Werefer to these notes collectively as the “Senior Notes.”  See “Legal Proceedings.”

**There will be a change of control if ouroutstanding common stock is liquidated as a result of our parent company’sbankruptcy. If a change of control occurs, we may be unable to satisfy ourobligations under our Senior Secured Revolving Credit Facility, our SeniorNotes or other debt instruments.**

Even if we are not forced to file for bankruptcyprotection, contribute our assets to satisfy the claims of G-I Holdings’creditors or convey our assets to G-I Holdings, the bankruptcy courtadministering the G-I Holdings case may order the liquidation of theassets of G-I Holdings, which includes all of our outstanding common stock. Thetransfer of our capital stock could constitute a change of control under our$350 million Senior Secured Revolving Credit Facility, which we refer to as theSenior Secured Revolving Credit Facility and the indentures governing ourSenior Notes. A change of control is an event of default under our SeniorSecured Revolving Credit Facility, which would result in the acceleration ofall our borrowings thereunder. Any such acceleration would be an event ofdefault under our Senior Notes, pursuant to which payment under our SeniorNotes may be accelerated. If a change of control occurs, we may be unable tosatisfy our obligations under our Senior Secured Revolving Credit Facility, ourSenior Notes or other debt instruments.

In addition, theindentures relating to the Senior Notes provide that if a change of controloccurs, our noteholders will have the right to require us to repurchase theirnotes at a premium above the principal amount, plus any accrued and unpaidinterest to the repurchase date. Our Senior Secured Revolving Credit Facilitylimits us from repurchasing our Senior Notes. Any of our future creditfacilities or other obligations may contain similar restrictions. In the eventa change of control occurs at a time when we are effectively prohibited frompurchasing our Senior Notes, we could seek the consent of the lenders to offerto purchase our Senior Notes or could attempt to refinance the borrowings thatcontain the prohibition. If we do not obtain such consent or refinance suchborrowings, we will be prohibited from repurchasing our Senior Notes. Even ifwe are permitted to make a change of control offer, we may not have availablefunds sufficient to pay the change of control purchase price for any or all ofour Senior Notes that are delivered by holders for repurchase. Any failure torepurchase our Senior Notes, whether or not prohibited by our other debtinstruments, would constitute an event of default under the relevant indentures,which in turn would constitute a default under the Senior Secured RevolvingCredit Facility. If any of these events of default were to occur, we may beunable to pay the accelerated principal amount of and interest on our SeniorNotes and our noteholders will lose some or all of their investments.

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**Our substantial leverage could impair our abilityto fulfill our obligations under our Senior Notes and restrict our futureoperations.**

We have substantial outstanding debt and, as a result,significant debt service obligations. At December 31, 2005, we had totaloutstanding consolidated debt of $606.l million (including $52.8 million ofloans payable to our parent corporation). For the year ended December 31,2005 we had $62.3 million of interest expense. We anticipate funding theseobligations principally from our cash on hand, cash flow from operations and/orborrowings under our Senior Secured Revolving Credit Facility. Our substantialoutstanding debt has important consequences to our noteholders, including therisk that we may not generate sufficient cash flow from operations to payprincipal and interest on our debt, including our Senior Notes, or to invest inour businesses. We may not be able to satisfy our obligations, including thoseunder our Senior Notes, from our cash flow from operations and refinancings. Ifwe cannot, we might be able to raise cash to satisfy our obligations throughpotential sales of assets or equity. Our ability to do so, however, depends onour results of operations, market conditions, restrictions contained in ourSenior Secured Revolving Credit Facility and the indentures relating to ourSenior Notes and other factors. If we are unable to refinance debt or raisefunds though sales of assets or equity or otherwise, we may be unable to payprincipal of and interest on our Senior Notes potentially causing foreclosureby our creditors on our assets and potentially rendering us unable to continueas a going concern.

Our substantialleverage could have additional important consequences to our business,including:

·       limitingour ability to obtain additional financing on satisfactory terms to fund ourworking capital requirements, capital expenditures, debt service requirementsand other general corporate purposes;

·       reducingthe availability of our cash flow to fund our working capital requirements, capitalexpenditures, and other general corporate requirements because we will berequired to use a significant portion of our cash flow to service our debtobligations;

·       increasingour vulnerability to general economic downturns and adverse industry conditions;

·       increasingour exposure to interest rate increases because a portion of our borrowings isat variable interest rates; and

·       placingus at a competitive disadvantage to competitors that have less relative amountsof debt.

In addition, subject to covenants contained in ourSenior Secured Revolving Credit Facility and the indentures relating to ourSenior Notes, we may incur additional debt in the future. Under the mostrestrictive debt incurrence covenant of our debt instruments, which is theSenior Secured Revolving Credit Facility, we could incur additional debt ofapproximately $50.0 million as of December 31, 2005. This does not includeany availability under our Senior Secured Revolving Credit Facility, which was$254.7 million at December 31, 2005. To the extent we incur any additionaldebt, the risks discussed above will be intensified. Moreover, some of the debtwe may incur may be secured by first-priority liens in the collateral securingour Senior Notes, which would have priority over the rights of holders of theSenior Notes, with respect to the collateral. In a foreclosure, noteholderswill not have access to the collateral until the first priority obligations arefully repaid, and they may therefore lose some or all of their investment.

**The value of the collateral securing our SeniorNotes may not be sufficient to satisfy our obligation on our Senior Notes andthe collateral securing our Senior Notes may be diluted or reduced undercertain circumstances.**

The Senior Notes are secured by second-priority lienson substantially all of the assets of our company and our subsidiaries to theextent and for so long as such assets are used to secure borrowings under ourSenior Secured Revolving Credit Facility, including refinancings. Borrowingsunder our Senior Secured Revolving Credit Facility and certain otherobligations to the lenders and their affiliates permitted 

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thereunder are secured byfirst-priority liens on this collateral. As of December 31, 2005, we andour subsidiaries had $14.2 million of debt outstanding under industrialdevelopment revenue bonds, $17.0 million outstanding under our Senior SecuredRevolving Credit Facility, $254.7 million of availability under our SeniorSecured Revolving Credit Facility and $505.4 million of debt outstanding underour Senior Notes. Those industrial development revenue bonds are secured byletters of credit under our Senior Secured Revolving Credit Facility which are,like other borrowings under our credit facility, secured by first-priorityliens on the collateral. Our Senior Notes are secured by second-priority lienson the collateral. The collateral may also secure additional debt to the extentpermitted by our Senior Secured Revolving Credit Facility and the indenturesgoverning our Senior Notes. The value of the collateral may not be sufficientto repay our borrowings under our Senior Secured Revolving Credit Facility andour other secured obligations, including our Senior Notes. All of ouroutstanding borrowings under our Senior Secured Revolving Credit Facility andany other obligations secured by first-priority liens must be repaid in fullbefore any collateral is available to noteholders. Moreover, the priority withrespect to the collateral is shared equally by noteholders of all of ouroutstanding Senior Notes and any other senior debt that is secured bysecond-priority liens on the collateral. In addition, other parties may holdliens (including statutory liens), whether or not permitted by the indenturesgoverning our Senior Notes, which may entitle them to share in the value of thecollateral, and thereby reduce the proceeds available to satisfy theobligations under our Senior Notes.

As of December 31, 2005, the book value of thecollateral securing the Senior Notes was $990.5 million. No appraisal of thecollateral was made in 2005. The value of the collateral in the event ofliquidation may be less than book value and will depend upon market andeconomic conditions, the availability of buyers, the quantity of assets beingsold and the speed at which they are to be sold and other factors. By theirnature, portions of the collateral may be illiquid and may have no readilyascertainable market value. In addition, a significant portion of thecollateral includes assets that may only be usable, and thus retain value, aspart of our operating business. Accordingly, any such sale of the collateralseparate from the sale of certain operating businesses may not be feasible orof significant value.

**The collateral securing our Senior Notes may besubject to the exclusive control of the lenders under our Senior SecuredRevolving Credit Facility and the value of such collateral may therefore not beavailable to our noteholders.**

The lenders under our Senior Secured Revolving CreditFacility may release all or any portion of the collateral securing thatfacility and securing the Senior Notes in a number of circumstances without theconsent of the holders of our Senior Notes. In addition, if the creditfacilities are repaid in full and not refinanced with other secured debt, andcertain other conditions are satisfied, the liens securing the Senior Noteswill be released.

At any time our Senior Secured Revolving CreditFacility is outstanding, our senior lenders generally have the exclusive rightto exercise rights and remedies against the collateral, including the abilityto direct the commencement of enforcement proceedings. As a result, if therewere an event of default under the Senior Notes, the lenders under our SeniorSecured Revolving Credit Facility could decide not to foreclose on thecollateral, regardless of whether or not there is a default under the newcredit facilities. In such an event, the only remedy available to the holdersof the Senior Notes would be to sue for payment on the Senior Notes and the subsidiaryguarantees. The interests of our senior lenders and other creditors withfirst-priority liens on the collateral may differ from our noteholders and theywill have no control over the collateral following an event of default on theSenior Notes.

**Our creditors’ ability to foreclose upon and sellthe collateral is limited by applicable bankruptcy laws and the value of suchcollateral may therefore not be available to our noteholders.**

If a bankruptcy petition were filed by or against us,the ability of the collateral agent to exercise remedies against the collateralwould be automatically stayed pending bankruptcy court approval. The 

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United States BankruptcyCode permits a debtor to use collateral even though the debtor is in defaultunder applicable debt instruments, provided that the secured creditor is given “adequateprotection.”  The meaning of the term “adequateprotection” may vary according to the circumstances, but it is intended ingeneral to protect the value of the secured creditor’s interest in collateral. Inview of the lack of a precise definition of the term “adequate protection” andthe broad discretionary powers of a bankruptcy court, it is impossible topredict how long payments with respect to our Senior Notes could be delayedfollowing commencement of a bankruptcy case, whether or when the collateralagent could repossess or dispose of the collateral for the benefit of thesecured creditors, or whether and to what extent the holders of the SeniorNotes would receive any value for the Senior Notes.

**Our parent corporations are dependent upon ourcash flow to satisfy their obligations, including asbestos-related and taxliabilities, and they could cause us to make distributions to them that wouldreduce our liquidity or result in a change of control.**

G-I Holdings and BMCA Holdings Corporation, our parentcorporations, are dependent upon the cash flow of our company and their othersubsidiaries in order to satisfy their obligations, including asbestos relatedclaims and tax liabilities. In order to satisfy those obligations, thosecorporations might take various actions that would reduce our liquidity,including causing us to make distributions to our stockholders by means ofdividends or otherwise or causing us to make loans to them. Although our SeniorSecured Revolving Credit Facility and the indentures relating to our SeniorNotes restrict our ability to pay dividends or make distributions or loans toour parent companies, there are a number of exceptions to such restrictions. Ourparent corporations might also cause BMCA Holdings Corporation to sell ourcommon stock resulting in a change of control. Their creditors could also seekto cause our parent corporations to sell our common stock or take similaraction in order to satisfy liabilities owed to them. The only significant assetof our parent corporations is the stock of our company.

**We are severally liable for federal income taxliabilities of the G-I Holdings Inc. consolidated group.**

On September 15, 1997, a predecessor of G-IHoldings Inc. received a tax deficiency notice in the amount of $84.4 million(after taking into account the use of net operating losses and foreign taxcredits otherwise available for use in other years) in connection with theformation in 1990 of Rhône Poulenc Surfactants and Specialties, L.P., or thesurfactants partnership, a partnership in which GAF Fiberglass Corporation,another predecessor to G-I Holdings Inc., held an interest. This notice couldresult in G-I Holdings incurring liabilities significantly in excessof its deferred tax liability. If G-I Holdings is unsuccessful in challengingits tax deficiency notice and is unable to satisfy its tax obligations, itmight take the various actions described in the paragraph above. In addition,as a member of the G-I Holdings Inc. consolidated group for federal income taxpurposes, we are severally liable for the portion of any tax deficiency that isattributable to those taxable years of the G-I Holdings Inc. consolidated groupof which we are a member. G-I Holdings Inc. may not prevail in the surfactantspartnership matter. See “Legal Proceedings—Tax Claim Against G-I Holdings” and “CertainRelationships and Related Transactions—Tax Sharing Agreement.”

**Federal and state statutes allow courts, under specificcircumstances, to void the subsidiary guarantees and the second-priority lienssecuring the subsidiary guarantees.**

Our creditors or the creditors of the subsidiaryguarantors could challenge the subsidiary guarantees and the liens granted byour subsidiaries securing the Senior Notes as fraudulent conveyances or onother grounds. The creditors of our parent company, which could include thepreviously mentioned asbestos claimants under certain circumstances, couldchallenge the liens granted by our subsidiaries securing the subsidiaryguarantees as fraudulent conveyances, preferences or on other grounds. See “LegalProceedings.”  The delivery of thesubsidiary guarantees and the grant of the second-priority liens securing theSenior Notes and the subsidiary guarantees could be found to be a fraudulenttransfer and declared void if a court determines that: (1) the subsidiaryguarantee was delivered or the lien was granted with the 

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intent to hinder, delay ordefraud the subsidiary guarantor’s existing or future creditors, (2) thesubsidiary guarantor did not receive fair consideration for the delivery of theguarantee or the incurrence of the lien or (3) the subsidiary guarantorwas insolvent at the time it delivered the subsidiary guarantee or granted thelien or was rendered insolvent by such delivery or grant.

The measure ofinsolvency for purposes of these fraudulent transfer laws will vary dependingupon the law applied in any proceeding to determine whether a fraudulenttransfer has occurred. Generally, however, a subsidiary guarantor would beconsidered insolvent if:

·       thesum of its debts, including contingent liabilities, was greater than the fairsaleable value of all of its assets;

·       ifthe present fair saleable value of its assets was less than the amount thatwould be required to pay its probable liability on its existing debts,including contingent liabilities, as they become absolute and mature; or

·       itcould not pay its debts as they became due.

If a court declares the security interests in respectof the Senior Notes to be void, any claim asserted against us for amountspayable on the Senior Notes would be unsecured. If a court declares either thesubsidiary guarantees or the security interests in respect thereof to be void,or if the subsidiary guarantees must be limited or voided in accordance withtheir terms, any claim noteholders make against the subsidiary guarantors foramounts payable on the subsidiary guarantees would be unsecured or subordinatedto the debt and other liabilities of our subsidiary guarantors, including tradepayables.

**Restrictive covenants in our Senior SecuredRevolving Credit Facility and the indentures governing our Senior Notes mayprevent us from pursuing business activities that could otherwise improve ourresults of operations.**

The terms of ourSenior Secured Revolving Credit Facility and the indentures governing ourSenior Notes limit our ability and the ability of our subsidiaries to, amongother things:

·       incurdebt;

·       issuecapital stock of our subsidiaries;

·       makecertain payments and pay dividends;

·       createliens;

·       enterinto transactions with stockholders and affiliates;

·       enterinto restrictions affecting the ability of our subsidiaries to makedistributions, loans or advances to us or other subsidiaries;

·       sellcertain assets;

·       issueguarantees; and

·       mergeor consolidate with, or sell all or substantially all of our assets to, anotherperson.

Our Senior SecuredRevolving Credit Facility also limits the amount of capital expenditures we maymake and requires us to maintain certain financial ratios. Complying with theserestrictive covenants and financial ratios, as well as those that may becontained in any future debt agreements, may impair our ability to finance ourfuture operations or capital needs or to take advantage of other favorablebusiness opportunities. They may also limit our ability to pay interest orprincipal on our Senior Notes. Our ability to comply with these restrictivecovenants and financial ratios will depend on our future performance, which maybe affected by events beyond our control. Our failure to comply with any ofthese covenants or 

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restrictionswhen they apply will result in a default under the particular debt instrument,which could permit acceleration of the debt under the instrument and theacceleration of debt under our other debt instruments. If we default on ourcovenants, and our debt is thereafter accelerated, we may not have sufficientfunds available to make the required payments under our debt.

**Risks Related to our Business**

**Increased raw material and energy costs orshortages of raw materials could reduce our profitability.**

Our business relies on the availability of reasonablypriced raw materials that are used in the production of our products. Theavailability and prices of these materials may be influenced by a number ofdifferent factors, many of which are not within our control. Shortages of andprice increases for certain of these materials, including asphalt, some ofwhich are directly correlated to increases in the price of crude oil, haveoccurred from time to time and may occur in the future. Any significant priceincreases for our raw materials, or increases in energy costs, would reduce ourmargins to the extent we are unable to pass such price increases on to ourcustomers. Any significant changes in our suppliers of raw materials couldinvolve delays and costs that could significantly harm our business, financialcondition and results of operations. See “Business—Raw Materials.”

**We face significant competition in the markets weserve.**

The roofing products industry is highly competitive inmost product categories and geographic regions. Some of our competitors arecompanies or divisions or operating units of companies that have greaterfinancial and other resources than we do. Competition is based largely uponproducts and service quality, distribution capability and price. We compete forretail and wholesale business with both large national manufacturers andsmaller regional producers. In certain circumstances, due primarily to factorssuch as freight rates and customer preference for local brands, manufacturerswith better access to certain geographic markets may have a competitiveadvantage in such markets. In addition, should the roofing products industryexperience a prolonged period of excess capacity, it could result in downwardpricing pressure and intensified competition. Given these factors, we may notbe able to continue to compete successfully against existing or new competitors.Any such failure could dramatically reduce our cash flows and adversely affectour results of operations and financial condition. See “Business—Competition.”

**The loss of one or two large customers couldweaken our business and results of operations.**

During 2005, sales to The Home Depot and AmericanBuilders & Contractors Supply Company each represented more than 10%of our overall net sales. If we lose either or both of these customers or othersignificant customers, or experience extended delays or cancellations ofsignificant volume or a significant decline in the level of purchases fromeither or both of them or other significant customers, our net income coulddecline and our business, financial condition and results of operations couldbe significantly harmed.

**Increases in labor union organizing activity andwork stoppages at our facilities or the facilities of our suppliers couldweaken our financial performance.**

Our financial performance is affected by the availabilityof qualified manufacturing personnel. At December 31, 2005, approximately32% of our employees were represented by fourteen labor unions. Our business,financial condition and results of operations could suffer if a strike or othertype of conflict with personnel arises or if we become the subject of unionorganizing activity. Furthermore, some of our direct and indirect suppliershave unionized work forces. Strikes, work stoppages or slowdownsexperienced by these suppliers could result in slowdowns or closures offacilities where components of our products are manufactured. Any interruptionin the production or delivery of our products could reduce sales of ourproducts and increase our costs.

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**We are dependent on certain key personnel, theloss of whom could weaken our financial performance and prospects.**

Our continued success depends to a large extent uponthe continued services of our senior management and certain key employees. Oursenior executive management team has significant company and industryexperience. The senior operating team has an aggregate of over 75 years of workexperience with BMCA and has an extensive knowledge of our company, customers,competitors and the industry. This team has been instrumental in developing asuccessful business strategy, and achieving the recent improvements in ouroperating and financial performance. Members of our senior management may notcontinue in their current positions. The loss of the services of any of theseindividuals could result in reduced revenues and could weaken our financialperformance and our results of operations.

**Environmental laws and regulations could subjectus to significant future liabilities.**

Our manufacturing facilities are subject to extensiveand changing federal, state and local environmental laws and regulations. Theselaws and regulations pertain to air and water emissions or discharges into theenvironment, the generation, storage, treatment, transportation and disposal ofsolid and hazardous waste, and the remediation of any releases of hazardoussubstances and materials to the environment. We, together with other companies,are a party to a variety of proceedings and lawsuits involving environmentalmatters under the Comprehensive Environmental Response Compensation and LiabilityAct and similar state laws. In those proceedings and lawsuits, recovery issought for the cost of cleanup of contaminated sites or remedial obligationsare imposed. A number of those are in the early stages or have been dormant forprotracted periods. See “Legal Proceedings—Environmental Litigation.”  We believe that our manufacturing facilitiescomply in all material respects with applicable laws and regulations. Thediscovery of presently unknown environmental conditions, changes in scope orenforcement of environmental laws and regulations or their interpretation, orother unanticipated events will give rise to expenditures or liabilities thatmay weaken our business, financial condition or results of operations. See “LegalProceedings—Environmental Litigation.”

**Our controlling stockholder has the ability toelect our entire Board of Directors and can control the outcome of any mattersubmitted to our stockholders.**

We are an indirectsubsidiary of G-I Holdings Inc., which is 100% beneficially owned (as definedin Rule 13d-3 of the Securities Exchange Act of 1934) by Samuel J.Heyman. Mr. Heyman is a director of G-I Holdings and was namedour Acting Chief Executive Officer in October 2005. Accordingly, Mr. Heymanhas the ability to elect our entire Board of Directors and to determine theoutcome of any other matter submitted to our stockholders for approval,including, subject to the terms of the indentures relating to the Senior Notes,mergers, consolidations and the sale of all, or substantially all, of ourassets. Mr. Heyman may exercise his control over us according to intereststhat are different from the interests of our noteholders. See “SecurityOwnership of Certain Beneficial Owners and Management and Related StockholderMatters.”

**Item 1B.   *Unresolved Staff Comments.***

Not applicable.

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**Item 2.****                        *Properties.***

Our corporate headquarters and principal research anddevelopment laboratories are located at a 100-acre campus-like office andresearch park owned by a subsidiary of ISP, at 1361 Alps Road, Wayne, NewJersey 07470. We occupy our headquarters pursuant to our management agreementwith ISP. See Item 13, “Certain Relationships and Related Transactions—ManagementAgreement.”

We own or lease theprincipal real properties described below. Unless otherwise indicated, theproperties are owned in fee. In addition to the principal facilities listedbelow, we maintain sales offices and warehouses, substantially all of which arein leased premises under relatively short-term leases.

| **Location**    | ** ** | ** **                                                          | ** ** | **Facility** | ** ** | ** ** |
|-----------------|------------|---------------------------------------------------------------------|------------|--------------|------------|------------|
| Alabama         |       |                                                                |
| Mobile          |       | Plant, Warehouse*                                                   |
| California      |       |                                                                |
| Fontana         |       | Plant, Regional Sales Office                                        |
| Hollister       |       | Plant, Plant*                                                       |
| Ontario         |       | Warehouse*                                                          |
| Shafter         |       | Plant, Warehouse*                                                   |
| Stockton        |       | Plant, Plant, Warehouses*                                           |
| Florida         |       |                                                                |
| Tampa           |       | Plant, Regional Sales Office*                                       |
| Georgia         |       |                                                                |
| Cumming         |       | Plant                                                               |
| Savannah        |       | Plant                                                               |
| Indiana         |       |                                                                |
| Evansville      |       | Warehouse*                                                          |
| Mount Vernon    |       | Plant, Plant                                                        |
| Michigan City   |       | Plant, Warehouse*                                                   |
| Illinois        |       |                                                                |
| Romeoville      |       | Regional Sales Office*                                              |
| Maryland        |       |                                                                |
| Baltimore       |       | Plant, Warehouses*, Warehouse                                       |
| Massachusetts   |       |                                                                |
| Millis          |       | Plant, Warehouse*                                                   |
| Walpole         |       | Plant*, Research Center*                                            |
| Minnesota       |       |                                                                |
| Lakeville       |       | Warehouse*                                                          |
| Minneapolis     |       | Plant, Warehouse*, Warehouse                                        |
| New Jersey      |       |                                                                |
| Bridgewater     |       | Warehouse*                                                          |
| North Branch    |       | Plant                                                               |
| North Brunswick |       | Regional Sales Office*, Warehouses*                                 |
| Swedesboro      |       | Regional Sales Office*                                              |
| Wayne           |       | Headquarters*, Corporate Administrative Offices*,  Research Center* |
| North Carolina  |       |                                                                |
| Burgaw          |       | Plant                                                               |
| Goldsboro       |       | Plant, Warehouses*                                                  |
| Ohio            |       |                                                                |
| Wadsworth       |       | Plant*                                                              |
| Pennsylvania    |       |                                                                |
| Erie            |       | Plant, Warehouses*                                                  |
| Quakertown      |       | Plant                                                               |
| Wind Gap        |       | Plant                                                               |
| South Carolina  |       |                                                                |
| Chester         |       | Plant, Research Center                                              |
| Tennessee       |       |                                                                |
| Nashville       |       | Plant, Quality Control Center*                                      |
| Texas           |       |                                                                |
| Addison         |       | Regional Sales Office*                                              |
| Dallas          |       | Plant, Warehouses*, Warehouse                                       |
| Port Arthur     |       | Customer Service  Center                                            |

 

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*                    Leased Property

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In addition to theforegoing list, we have two manufacturing facilities in Port Arthur, Texas andAlbuquerque, New Mexico that are currently closed. We believe that our plantsand facilities, which are of varying ages and are of different construction types,have been satisfactorily maintained, are in good condition, are suitable fortheir respective operations and generally provide sufficient capacity to meetproduction requirements. Due to the seasonality of our business, our productionfacilities generally run at full capacity during the months necessary to meetour peak seasonal operating demands. Each plant has adequate transportationfacilities for both raw materials and finished products. In 2005, we madecapital expenditures and an acquisition of a manufacturing facility ofapproximately $61.0 million relating to property, plant and equipment.

**Item 3.****                        *Legal Proceedings.***

*AsbestosBodily Injury Claims.*   In connection withour formation, we contractually assumed and agreed to pay the first $204.4million of liabilities for asbestos-related bodily injury claims relating tothe inhalation of asbestos fiber (“Asbestos Claims”) of our indirect parent,G-I Holdings. As of March 30, 1997, we paid all of our assumedasbestos-related liabilities. In January 2001, G-I Holdings filed avoluntary petition for reorganization under Chapter 11 of the U.S. BankruptcyCode due to Asbestos Claims. Most Asbestos Claims do not specify the amount ofdamages sought. This Chapter 11 proceeding remains pending.

Claimants in the G-I Holdings’ bankruptcy, includingjudgment creditors, might seek to satisfy their claims by asking the bankruptcycourt to require the sale of G-I Holdings’ assets, including its holdings ofBMCA Holdings Corporation’s common stock and its indirect holdings of ourcommon stock. Such action could result in a change of control of our Company. Inaddition, those creditors may attempt to assert Asbestos Claims against ourCompany. Approximately 1,900 Asbestos Claims were filed against us prior to February 2,2001. We believe that we will not sustain any liability in connection withthese or any other Asbestos Claims. On February 2, 2001, the United StatesBankruptcy Court for the District of New Jersey issued a temporary restrainingorder enjoining any existing or future claimant from bringing or prosecuting anAsbestos Claim against us. By oral opinion on June 22, 2001, and writtenorder entered February 22, 2002, the court converted the temporaryrestraints into a preliminary injunction prohibiting the bringing orprosecution of any such Asbestos Claim against us. On February 7, 2001,G-I Holdings filed an action in the United States Bankruptcy Court for the Districtof New Jersey seeking a declaratory judgment that BMCA has no successorliability for Asbestos Claims against G-I Holdings and that it is not the alterego 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 BMCA seeking a declaration that BMCAhas successor liability for Asbestos Claims against G-I Holdings and that BMCAis the alter ego of G-I Holdings. On May 13, 2003, the United StatesDistrict Court for the District of New Jersey overseeing the G-I Holdings’Bankruptcy Court withdrew the reference of the BMCA Action from the BankruptcyCourt, and this matter will therefore be heard by the District Court. On July 26,2005, one party in the BMCA Action, the legal representative of future demandholders in the G-I bankruptcy was dismissed from the case. The District Courtoriginally scheduled this matter for trial beginning April 3, 2006 but dueto the retirement of the district judge, the trial has been adjourned withoutdate pending reassignment to a new judge. The BMCA Action continues against thecreditors’ committee in the G-I Holdings bankruptcy. It is not possible topredict the outcome of this litigation, although we believe our claims aremeritorious. While we cannot predict whether any additional Asbestos Claimswill be asserted against us or our assets, or the outcome of any litigationrelating to those claims, we believe that we have meritorious defenses to anyclaim that we have asbestos-related liability, although there can be noassurances in this regard.

*ActionsRelating to G-I Holdings’ Bankruptcy.*   On or about February 8,2001, the creditors’ committee established in G-I Holdings’ bankruptcy casefiled a complaint in the United States Bankruptcy Court, 

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District of New Jerseyagainst G-I Holdings and us. The complaint requests substantive consolidationof us with G-I Holdings or an order directing G-I Holdings to cause us to filefor bankruptcy protection. We and G-I Holdings intend to vigorously defend thelawsuit. The plaintiffs also filed for interim relief absent the granting oftheir requested relief described above. On March 21, 2001, the bankruptcycourt denied plaintiffs’ application for interim relief. In November 2002,the creditors’ committee, joined in by the legal representative of futuredemand holders, filed a motion for appointment of a trustee in the G-I Holdings’bankruptcy. In December 2002, the bankruptcy court denied the motion. Thecreditors’ committee appealed the ruling to the United States District Court,which denied the appeal on June 27, 2003. The creditors’ committeeappealed the denial to the Third Circuit Court of Appeals, which denied theappeal on September 24, 2004. The creditors’ committee filed a petitionwith the Third Circuit Court of Appeals for a rehearing of its denial of thecreditors’ committee’s appeal, which was denied by the court on October 26,2004.

On February 27, 2004, the creditors’ committee,joined in by the legal representative, filed a motion to modify the preliminaryinjunction and to seek authority by the bankruptcy court to avoid, on variousgrounds, certain liens granted in connection with the financing obtained by usin December 2000. G-I Holdings and we have opposed the motion, and ahearing on the motion was held by the bankruptcy court on March 29, 2004. Byopinion dated June 8, 2004, the court granted the motion in part anddenied it in part. On July 7, 2004, the creditors’ committee filed a claimchallenging, as a fraudulent conveyance, the transactions entered into inconnection with our formation in 1994, in which G-I Holdings caused to betransferred to our company all of its roofing business and assets and in whichwe assumed certain liabilities relating to those assets, including a specifiedamount of asbestos liabilities (the “1994 transaction”). In addition, on July 7,2004, the creditors’ committee filed a claim against holders of BMCA’s bank andbond debt outstanding in 2000, seeking to avoid the liens granted to them,based on the committee’s theory that the 1994 transaction was a fraudulentconveyance. On August 3, 2004, the creditors’ committee filed an amendedcomplaint adding the names of additional alleged bondholders. On July 20,2004, the creditors’ committee appealed the court’s decision, issued on June 8,2004, seeking the authority to file a lawsuit against the banks and bondholdersdiscussed above, challenging the liens granted to them in 2000 as a fraudulentconveyance and are appealing, among other things, certain adverse rulingsrelating to statute of limitation issues. G-I Holdings, the holders of our bankand bond debt and we have filed cross appeals. This appeal remains pendingbefore the District Court.

We believe that the claims of the creditors’ committeeare without merit. However, if we are not successful defending against one ormore of these claims, we may be forced to file for bankruptcy protection and/orcontribute all or a substantial portion of our assets to satisfy the claims ofG-I Holdings’ creditors. Either of these events, or the substantiveconsolidation of G-I Holdings and us, would weaken our operations and cause usto divert a material amount of our cash flow to satisfy the asbestos claims ofG-I Holdings, and may render us unable to pay interest or principal on ourcredit obligations.

*Asbestos-in-BuildingClaims.*   G-I Holdings hasalso been named as a co-defendant in asbestos-in-buildings cases for economicand property damage or other injuries based upon an alleged present or futureneed to remove asbestos containing materials from public and private buildings.We refer to the asbestos-in-building claims as the “Building Claims.” MostBuilding Claims do not seek to recover an amount of specific damages. Sincethese actions were first initiated approximately 20 years ago, G-I Holdings hasnot only successfully disposed of approximately 145 of these cases, but is aco-defendant in only three remaining lawsuits, one of which has been dormant. Theseactions have been stayed as to G-I Holdings pursuant to the G-I Holdings’bankruptcy case. No Building Claims have ever been filed directly against BMCA.We have not assumed any liabilities with respect to Building Claims, andbelieve we will not sustain any liability in connection with such claims.

*InsuranceMatters.*   In October 1983,G-I Holdings filed a lawsuit in Los Angeles, California Superior Court againstits past insurance carriers to obtain a judicial determination that thosecarriers were 

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obligated to defend andindemnify it for Building Claims. G-I Holdings is seeking declaratory relief aswell as compensatory damages. This action is presently in the pre-trialpleading stage. The parties have agreed to hold this action in abeyance pendingdevelopments in the Building Claims. Because this litigation is in early stagesand evidence and interpretations of important legal questions are presentlyunavailable, it is not possible to predict the future of this litigation.

In all the BuildingClaims, which are presently stayed as to G-I Holdings as a result of the G-I Holdings’bankruptcy filing, G-I Holdings’ defense costs have been paid by one of itsprimary carriers. While G-I Holdings expects that this primary carrier willcontinue to be obligated to defend and indemnify G-I Holdings, this primarycarrier has reserved its rights to later refuse to defend and indemnify G-IHoldings and to seek reimbursement for some or all of the fees paid to defendand resolve the Building Claims.

**Environmental Litigation**

We, together with other companies, are a party to avariety of proceedings and lawsuits involving environmental matters under theComprehensive Environmental Response Compensation and Liability Act, andsimilar state laws, in which recovery is sought for the cost of cleanup ofcontaminated sites or remedial obligations are imposed, a number of which arein the early stages or have been dormant for protracted periods. We refer tothese proceedings and lawsuits below as “Environmental Claims.”  Most of the Environmental Claims do not seekto recover an amount of specific damages.

In connection with our formation, we contractuallyassumed all environmental liabilities of G-I Holdings relating to existingplant sites and our business as then conducted. The estimates referred to belowreflect those environmental liabilities assumed by us and our otherenvironmental liabilities. The environmental liabilities of G-I Holdings thatwe did not assume relate primarily to closed manufacturing facilities. G-IHoldings estimates that, as of December 31, 2005, its liability in respectof the environmental liabilities of G-I Holdings not assumed by us wasapproximately $12.4 million, not accounting for any possible reduction ofliability as a result of the G-I Holdings’ bankruptcy, before insurancerecoveries reflected on its balance sheet of $9.8 million. We estimate ourliability as of December 31, 2005, in respect of assumed and otherenvironmental liabilities is $1.1 million, and expect insurance recoveries, asdiscussed below, of $1.3 million. Insurance recoveries reflected on thesebalance sheets relate to both past expenses and estimated future liabilities. Werefer to these recoveries below as “estimated recoveries.”

At most sites, we anticipate that liability will beapportioned among the companies found to be responsible for the presence ofhazardous substances at the site. Although it is difficult to predict theultimate resolution of these claims, based on our evaluation of the financialresponsibility of the parties involved and their insurers, relevant legalissues and cost sharing arrangements now in place, we estimate that ourliability in respect of all Environmental Claims, including certainenvironmental compliance expenses, will be as discussed above. While we cannotpredict whether adverse decisions or events can occur in the future, in theopinion of management, the resolution of such matters should not be material toour business, liquidity, results of operations, cash flows or financialposition. However, adverse decisions or events, particularly as to increases inremedial costs, discovery of new contamination, assertion of natural resourcedamages, and the liability and the financial responsibility of our insurers andof the other parties involved at each site and their insurers, could cause usto increase our estimate of our liability in respect of those matters. It isnot currently possible to estimate the amount or range of any additionalliability. For information relating to other environmental compliance expenses,see Item 1, “Business—Environmental Compliance.”

After considering the relevant legal issues and otherpertinent factors, we believe that it is probable that we will receive theestimated recoveries and the legal expenses incurred by G-I Holdings on our 

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behalf. We also believethat we are entitled to the estimated recoveries, although our insurers havenot affirmed a legal obligation under the policies to provide indemnity forthose claims.

In June 1997, G-I Holdings commenced litigationon behalf of itself and its predecessors, successors, subsidiaries and relatedcorporate entities in the Superior Court of New Jersey, Somerset County,seeking amounts substantially in excess of the estimated recoveries. Thisaction was removed to the United States Bankruptcy Court for the District ofNew Jersey in February 2001, in conjunction with the G-I Holdings’bankruptcy case. In November 2002, the parties agreed to have the actionremanded to the Superior Court of New Jersey, Somerset County where it ispending. While we believe that our claims are meritorious, there can be noassurance that we will prevail in our efforts to obtain amounts equal to, or inexcess of, the estimated recoveries.

We believe that we willnot sustain any liability for environmental liabilities of G-I Holdings otherthan those that we have contractually assumed or that relate to the operationsof our business. While we cannot predict whether any claims for non-assumedenvironmental liabilities will be asserted against us or our assets, or theoutcome of any litigation relative to those claims, we believe that we havemeritorious defenses to those claims.

**Other Litigation**

On or about April 29, 1996, an action wascommenced in the Circuit Court of Mobile County, Alabama against G-I Holdingson behalf of a purported nationwide class of purchasers of, or current ownersof, buildings with certain asphalt shingles manufactured by G-I Holdings andaffiliated entities. The action alleged, among other things, that thoseshingles were defective and sought unspecified damages on behalf of thepurported class. On September 25, 1998, we agreed to settle thislitigation on a national, class-wide basis for asphalt shingles manufacturedbetween January 1, 1973 and December 31, 1997. Following a fairnesshearing, the court granted final approval of the class-wide settlement in April 1999.Under the terms of the settlement, we will provide property owners whoseshingles were manufactured during this period and which suffer certain damagesduring the term of their original warranty period, and who file a qualifyingclaim, with an opportunity to receive certain limited benefits beyond thosealready provided in their existing warranty.

In October 1998, G-I Holdings brought suit in theSuperior Court of New Jersey - Middlesex County, on our behalf, against certainof its insurers for recovery of the defense costs in connection with the MobileCounty, Alabama class action and a declaration that the insurers are obligatedto provide indemnification for all damages paid pursuant to the settlement ofthis class action and for other damages. This action is pending.

On or about February 17,2004, litigation was commenced against us in the United States District Courtfor the Eastern District of Pennsylvania by CertainTeed Corporation, allegingpatent infringement in connection with certain of our products representingless than 5% of our net sales. No specific amount of damages was sought in thislitigation. The parties reached a mutual settlement agreement on January 12,2006 with respect to this matter, and the case was dismissed by the court.

*  *  *

The cases described aboveunder “Legal Proceedings—Asbestos-in-Building Claims,” “EnvironmentalLitigation” and “Other Litigation” generally do not seek specific amounts ofdamages, but rather seek all damages from whatever claims are asserted. Webelieve that the ultimate disposition of the cases, however, will not,individually or in the aggregate, have a material adverse effect on the Company’sliquidity, financial position or results of operations.

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**Tax Claim Against G-I Holdings**

On September 15,1997, G-I Holdings received a notice from the Internal Revenue Service or theIRS, of a deficiency in the amount of $84.4 million (after taking into accountthe use of net operating losses and foreign tax credits otherwise available foruse in later years) in connection with the formation in 1990 of Rhône-PoulencSurfactants and Specialties, L.P. or the surfactants partnership, a partnershipin which G-I Holdings held an interest. G-I Holdings has advised us that itbelieves that it will prevail in this tax matter arising out of the surfactantspartnership, although there can be no assurance in this regard. We believe thatthe ultimate disposition of this matter will not have a material adverse effecton our business, financial position or results of operations. On September 21,2001, the IRS filed a proof of claim with respect to such deficiency againstG-I Holdings in the G-I Holdings’ bankruptcy. If such proof of claim issustained, we and/or certain of our subsidiaries together with G-I Holdings andseveral current and former subsidiaries of G-I Holdings would be severallyliable for a portion of those taxes and interest. G-I Holdings has filed anobjection to the proof of claim. If the IRS were to prevail for the years inwhich we and/or certain of our subsidiaries were part of the G-I HoldingsGroup, we would be severally liable for approximately $40.0 million in taxesplus interest, although this calculation is subject to uncertainty dependingupon various factors including G-I Holdings’ ability to satisfy its taxliabilities and the application of tax credits and deductions.

**Item 4.****                        *Submission of Matters to a Vote of Security Holders*.**

Not applicable.

 

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**PART II**

**Item 5.****                        *Market for Registrant’s Common Equity, Related Stockholder Matters andIssuer Purchases of Equity Securities.***

All of our outstanding shares of Class A commonstock are owned by BMCA Holdings Corporation or BHC. Accordingly, there is nopublic trading market for our common stock.

In 2005 and 2004, wedeclared and paid cash dividends of $15.0 million respectively, in theaggregate, to our parent corporation. In 2003, we did not declare or paydividends to our parent corporation. See Item 7, “Management’s Discussion andAnalysis of Financial Condition and Results of Operations” and Note 13 to ourconsolidated financial statements included in this annual report on Form 10-Kfor information regarding restrictions on the payment of dividends set forth onpages F-2 to F-21 and pages F-45 to F-49,respectively. Any decision to pay dividends, and the timing and amount thereof,is dependent upon, among other things, our results of operations, financialcondition, cash requirements, prospects and other factors deemed relevant byour Board of Directors.

**Item 6*.****                        SelectedFinancial Data.*

See page F-22.

**Item 7.****                        *Management’s Discussion and Analysis of Financial Condition and Resultsof Operations.***

See page F-2.

**Item 7A.****                *Quantitative and Qualitative Disclosures About Market Risk.***

See “Management’sDiscussion and Analysis of Financial Condition and Results of Operations—Liquidityand Financial Condition—Market-Sensitive Instruments and Risk Management” on page F-21.

**Item 8.****                        *Financial Statements and Supplementary Data.***

See Index on page F-1and Financial Statements and Supplementary Data on pages F-2 to F-72.

**Item 9.****                        *Changes in and Disagreements With Accountants on Accounting andFinancial Disclosure.***

Not applicable.

**Item 9A.****                *Controls and Procedures.***

*DisclosureControls and Procedures:*   Our management, withthe participation of the Acting Chief Executive Officer and Chief FinancialOfficer, conducted an evaluation of the effectiveness of our disclosurecontrols 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“Exchange Act”)) as of the end of the period covered by this report. Based onthis evaluation, the Acting Chief Executive Officer and Chief Financial Officerhave concluded that, as of the end of such period, our disclosure controls andprocedures are effective in recording, processing, summarizing and reporting,on a timely basis, information required to be disclosed by us in the reportsfiled, furnished or submitted under the Exchange Act. Our Acting ChiefExecutive Officer and Chief Financial Officer also concluded that ourdisclosure controls and procedures are effective to ensure that informationrequired to be disclosed in the reports that we file or submit under theExchange Act is accumulated and communicated to our management, including ourActing Chief Executive Officer and Chief Financial Officer, to allow timelydecisions regarding required disclosures.

*Internal Control OverFinancial Reporting:*   There were no significantchanges in our internal control over financial reporting identified inmanagement’s evaluation during the fourth quarter of fiscal year 2005 

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that havematerially affected or are reasonably likely to materially affect our internalcontrol over financial reporting.

**Item 9B.****               *Other Information***

None.

**PART III**

**Item 10.****                 *Directors and Executive Officers of the Registrant.***

**ExecutiveOfficers of the Registrant**

Thefollowing are the name, age and respective positions of our directors and executiveofficers.

| **Name**           | ** ** | ** ** | ** ** | **Age**                                                                                       | ** ** | **Position** |
|--------------------|------------|------------|------------|-----------------------------------------------------------------------------------------------|------------|--------------|
| Samuel J. Heyman   |       | 67         |       | Acting Chief Executive  Officer                                                               |
| William W. Collins |       | 55         |       | Chief Executive Officer,  President and Director                                              |
| Robert B. Tafaro   |       | 55         |       | Chief Operating Officer,  Executive Vice President—Roofing Systems and Director          |
| John F. Rebele     |       | 51         |       | Senior Vice President,  Chief Financial Officer, Chief Administrative Officer and Director    |
| David A. Harrison  |       | 49         |       | Senior Vice  President-Marketing, Contractor Services and Corporate Development and  Director |
| Kenneth E. Walton  |       | 49         |       | Senior Vice  President-Operations and Director                                                |
| Susan B. Yoss      |       | 47         |       | Senior Vice President                                                                         |

 

Set forth below is a description of the backgrounds,including business experience over the past five years, for each of ourdirectors and executive officers. There are no family relationships that existbetween any of our directors or executive officers. Under our bylaws, ourofficers are elected by the Board of Directors and hold office until theirrespective successors are duly elected and qualified. As used in this section, “ISP”refers to International Specialty Products Inc. and its subsidiaries.

*SamuelJ. Heyman—*Mr. Heyman has been Acting ChiefExecutive Officer since October 2005, during Mr. Collins’ leave ofabsence. Mr. Heyman has also been a Director of G-I Holdings, acorporation that filed a voluntary petition for reorganization under Chapter 11of the U.S. Bankruptcy Code in January 2001, due to Asbestos Claims, whichis 100% beneficially owned by Mr. Heyman, for more than five years.Mr. Heyman has also been a Director and Chairman of the Board ofInternational Specialty Holdings Inc., an affiliate, since December 2001and of ISP since its formation. He is also the Chief Executive Officer, Managerand General Partner of a number of closely held real estate developmentcompanies and partnerships whose investments include commercial real estate anda portfolio of publicly traded securities.

*WilliamW. Collins—*Mr. Collins has been President, ChiefExecutive Officer and director of BMCA and some of our subsidiaries for morethan five years. Mr. Collins also has been a director of G-I Holdings, acorporation that filed a voluntary petition for reorganization under Chapter 11of the U.S. Bankruptcy Code in January 2001, due to Asbestos Claims. On September 20,2005, BMCA announced that Mr. Collins would take a six-month leave ofabsence beginning in October 2005.

*RobertB. Tafaro—*Mr. Tafaro has been a director of BMCAand some of our subsidiaries for more than five years and Chief OperatingOfficer since October 2005. He also has been Executive Vice President,Roofing Systems of BMCA and some of our subsidiaries since February 2005. Hewas previously Senior Vice President and General Manager—Roofing Systems Salesof BMCA and some of our 

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subsidiaries from October 2003to February 2005. He was Senior Vice President and General Manager—ResidentialSystems of BMCA and some of our subsidiaries from July 2000 to October 2003.

*JohnF. Rebele—*Mr. Rebele has been a director of BMCAsince January 2001 and of BMCA’s subsidiaries since March 2001. Healso has been Senior Vice President and Chief Financial Officer of BMCA andsome of our subsidiaries since December 2001 and Chief AdministrativeOfficer since April 2005. He was Vice President and Chief Financial Officerof the same companies from January 2001 to December 2001. He was VicePresident-Finance of BMCA and some of our subsidiaries from March 1998 to January 2001.

*DavidA. Harrison—*Mr. Harrison has been a director ofBMCA and some of our subsidiaries for more than five years. He also has beenSenior Vice President-Marketing, Contractor Services and Corporate Developmentof BMCA and some of our subsidiaries for more than five years. He has alsoserved as President of GAF Materials Corporation (Canada) for more than fiveyears.

*KennethE. Walton—*Mr. Walton has been a director of BMCAand some of our subsidiaries for more than five years. He also has been SeniorVice President-Operations of BMCA and some of our subsidiaries for more thanfive years.

*Susan B. Yoss—*Ms. Yosshas been Senior Vice President of BMCA and its subsidiaries since August 2001and was Senior Vice President and Treasurer of the same companies from July 1999to August 2001. For more than five years, she also has been Senior VicePresident, Chief Financial Officer and Treasurer of G-I Holdings, a corporationthat filed a voluntary petition for reorganization under Chapter 11 of the U.S.Bankruptcy Code in January 2001, due to Asbestos Claims. Ms. Yoss hasserved as Executive Vice President-Finance and Treasurer of ISP and some of itssubsidiaries for more than five years.

**Audit Committee Financial Expert**

We are not issuers ofsecurities as that term is defined in the Securities Exchange Act of 1934 anddo not have any securities listed on a national exchange or association. Basedon the foregoing, our Board of Directors does not, nor is it required to havean audit committee and therefore is not required to determine anyone to be anaudit committee financial expert. Our Board of Directors performs customaryaudit committee functions for us.

**Code of Ethics**

All of our employees, including our principalexecutive officer, principal financial officer, principal accounting officerand the persons performing similar functions, are required to abide by our codeof ethics and business conduct policies to ensure that our business isconducted in a consistently legal and ethical manner. We intend to disclose anychanges in or waivers from our code of ethics by filing a current report on Form 8-Kwith the Securities and Exchange Commission. We will provide to any person,without charge, upon request, a copy of our code of ethics by writing to: theCorporate Secretary, Building Materials Corporation of America, 1361 Alps Road,Wayne, New Jersey 07470.

 

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**Item 11.**                 *ExecutiveCompensation.*

**Summary Compensation Table**

The following table sets forth the cash and non-cashcompensation for each of the last three fiscal years awarded to or earned byour Acting Chief Executive Officer, Chief Executive Officer and the four othermost highly compensated executive officers as of December 31, 2005. Thesalaries and other compensation of Ms. Yoss for services provided by herto our company are paid by ISP in accordance with a management agreementbetween ISP and our company. See Note (7) to the table below and “CertainRelationships and Related Transactions.”

|                                            | ** ** | ** ** | ** ** | **Annual Compensation(7)** | ** ** | **Long-Term ** | ** ** | ** **            | ** ** |
|--------------------------------------------|------------|------------|------------|---------------------------------|------------|---------------------|------------|-----------------------|------------|
| ** **                                 | ** ** | ** ** | ** ** | ** **                      | ** ** | ** **          | ** ** | **Other Annual** | ** ** | **Compensation** | ** ** | **All Other** | ** ** |
| Name and Principal Position | ** ** | ** ** | ** ** | **Year**                        | ** ** | **Salary**          | ** ** | **Bonus(1)**          | ** ** | **Compensation** | ** ** | **LTIP Payouts** | ** ** | **Compensation** | ** ** |
| Samuel J. Heyman                           |       | 2005       |       | $                               | —     |                | $          | —                |       |   | $ | — |   |   |   | $ | — |   |   |   | $ | — |   |   |
| Acting Chief Executive                     |       |       |       |                            |       |                |       |                  |       |   |   |   |   |   |   |   |   |   |   |
| Officer(8)                                 |       |       |       |                            |       |                |       |                  |       |   |   |   |   |   |   |   |   |   |   |
| William W. Collins                         |       | 2005       |       | $                               | 343,858    |                | $          | 775,000               |       |   | $ | — |   |   |   | $ | 1,000,262 |   |   |   | $ | 25,346 | (2) |   |
| Chief Executive Officer                    |       | 2004       |       | 417,687                         |       | 775,000             |       |                  | —     |   |   |   | — |   |   |   | 19,683 | (2) |   |
| and President(8)                           |       | 2003       |       | 407,500                         |       | 775,000             |       |                  | —     |   |   |   | — |   |   |   | 21,562 | (2) |   |
| Robert B. Tafaro                           |       | 2005       |       | $                               | 359,271    |                | $          | 600,000               | (3)        |   | $ | — |   |   |   | $ | — |   |   |   | $ | 26,921 | (3) |   |
| Chief Operating Officer                    |       | 2004       |       | 324,450                         |       | 400,000             |       |                  | —     |   |   |   | — |   |   |   | 19,683 | (3) |   |
| and Executive Vice                         |       | 2003       |       | 288,083                         |       | 300,000             | (3)        |                  | —     |   |   |   | — |   |   |   | 21,562 | (3) |   |
| President, Roofing                         |       |       |       |                            |       |                |       |                  |       |   |   |   |   |   |   |   |   |   |   |
| Systems                                    |       |       |       |                            |       |                |       |                  |       |   |   |   |   |   |   |   |   |   |   |
| John F. Rebele                             |       | 2005       |       | $                               | 297,967    |                | $          | 300,000               |       |   | $ | — |   |   |   | $ | — |   |   |   | $ | 23,159 | (4) |   |
| Senior Vice President,                     |       | 2004       |       | 272,950                         |       | 300,000             |       |                  | —     |   |   |   | — |   |   |   | 18,179 | (4) |   |
| Chief Financial Officer                    |       | 2003       |       | 236,917                         |       | 245,000             | (4)        |                  | —     |   |   |   | — |   |   |   | 18,917 | (4) |   |
| and Chief  Administrative                  |       |       |       |                            |       |                |       |                  |       |   |   |   |   |   |   |   |   |   |   |
| Officer                                    |       |       |       |                            |       |                |       |                  |       |   |   |   |   |   |   |   |   |   |   |
| David A. Harrison                          |       | 2005       |       | $                               | 279,064    |                | $          | 200,000               |       |   | $ | — |   |   |   | $ | — |   |   |   | $ | 20,333 | (5) |   |
| Senior Vice President                      |       | 2004       |       | 268,331                         |       | 215,000             | (5)        |                  | —     |   |   |   | — |   |   |   | 18,179 | (5) |   |
| Marketing, Contractor                      |       | 2003       |       | 258,010                         |       | 155,000             |       |                  | —     |   |   |   | — |   |   |   | 19,260 | (5) |   |
| Services and Corporate                     |       |       |       |                            |       |                |       |                  |       |   |   |   |   |   |   |   |   |   |   |
| Development                                |       |       |       |                            |       |                |       |                  |       |   |   |   |   |   |   |   |   |   |   |
| Kenneth E. Walton                          |       | 2005       |       | $                               | 239,520    |                | $          | 165,000               |       |   | $ | — |   |   |   | $ | — |   |   |   | $ | 19,804 | (6) |   |
| Senior Vice President—                |       | 2004       |       | 230,308                         |       | 175,000             |       |                  | —     |   |   |   | — |   |   |   | 17,885 | (6) |   |
| Operations                                 |       | 2003       |       | 221,450                         |       | 150,000             | (6)        |                  | —     |   |   |   | — |   |   |   | 18,667 | (6) |   |
|                                            |            |            |            |                                 |            |                     |            |                       |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

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(1)          Bonus amounts arepayable pursuant to our Executive Incentive Compensation Program with theexception of Mr. Collins with respect to his bonus amount, which ispayable pursuant to the executive compensation plan.

(2)          Included in “All OtherCompensation” for Mr. Collins are: $15,200, $14,850 and $14,500representing our contribution under the 401(k) plan in 2005, 2004 and2003, respectively; $8,818, $3,192 and $4,902 for the premiums paid by us for alife insurance policy in 2005, 2004 and 2003, respectively; and $1,328, $1,641and $2,160 for the premiums paid by us for a long-term disability policy in2005, 2004 and 2003, respectively. The amount included in “LTIP Payouts” forMr. Collins represents the value received in connection with the exerciseof incentive units in 2005 under BMCA’s 2001 Long-Term Incentive Plan, which werefer to as the Plan. See “Long-Term Incentive Plan.”

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(3)          Included in “Bonus” forMr. Tafaro is $100,000 and $113,236 representing special bonus awards paidin 2005 and 2003, respectively. Included in “All Other Compensation” forMr. Tafaro are: $15,200, $14,850 and $14,500 representing our contributionunder the 401(k) plan in 2005, 2004 and 2003, respectively; $10,146,$3,192 and $4,902 for the premiums paid by us for a life insurance policy in 2005,2004 and 2003, respectively; and $1,575, $1,641 and $2,160 for the premiumspaid by us for a long-term disability policy in 2005, 2004 and 2003,respectively.

(4)          Included in “Bonus” forMr. Rebele is $87,337 representing a special bonus award paid in 2003.Included in “All Other Compensation” for Mr. Rebele are: $14,950, $14,600and $14,250 representing our contribution under the 401(k) plan in 2005,2004 and 2003, respectively; $6,634, $1,938 and $2,651 for the premiums paid byus for a life insurance policy in 2005, 2004 and 2003 respectively; and $1,575,$1,641 and $2,016 for the premiums paid by us for a long-term disability policyin 2005, 2004 and 2003, respectively.

(5)          Included in “Bonus” forMr. Harrison is $15,000 representing a special bonus award paid in 2004.Included in “All Other Compensation” for Mr. Harrison are: $14,950,$14,600 and $14,250 representing our contribution under the 401(k) plan in2005, 2004 and 2003, respectively; $3,808, $1,938 and $2,850 for the premiums paidby us for a life insurance policy in 2005, 2004 and 2003, respectively; and$1,575, $1,641 and $2,160 for the premiums paid by us for a long-termdisability policy in 2005, 2004 and 2003, respectively.

(6)          Included in “Bonus” forMr. Walton is $16,968 representing a special bonus award paid in 2003.Included in “All Other Compensation” for Mr. Walton are: $14,950, $14,600and $14,250 representing our contribution under the 401(k) plan in 2005,2004 and 2003, respectively; $3,279, $1,778 and $2,507 for the premiums paid byus for a life insurance policy in 2005, 2004 and 2003, respectively; and$1,575, $1,507 and $1,910 for the premiums paid by us for a long-termdisability policy in 2005, 2004 and 2003, respectively.

(7)          The salary and othercompensation of Ms. Yoss are paid by ISP pursuant to our managementagreement with ISP. No allocation of compensation for services to us is madepursuant to the management agreement, except that we reimbursed ISP $300,000,$300,000 and $300,000 for Ms. Yoss for 2005, 2004 and 2003, respectively,under the management agreement in respect of bonus amounts earned in connectionwith services performed by her for us during those years. In addition, wereimburse ISP, through payment of the management fees payable under themanagement agreement, for the estimated costs ISP incurs for providing theservices of this officer. See Item 13, “Certain Relationships and RelatedTransactions—Management Agreement.”

(8)          InOctober 2005, Mr. Collins took a six-month leave of absence, at whichtime Mr. Heyman assumed the position of Acting Chief Executive Officer.Mr. Heyman does not receive compensation for services rendered as ActingChief Executive Officer.

**Long-Term Incentive Plan**

The following table setsforth information on awards granted to the executive officers named in theSummary Compensation Table above during 2005 under our 2001 Long-Term IncentivePlan.

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**2001Long-Term Incentive Plan—Awards in 2005**

| ** **          | ** ** | **Date  of** | ** ** | **Number of  Shares, Units  or Other** | ** ** | **Performance or  Other Period  Until Maturation** | ** ** | **Estimated Future Payouts Under  Non-Stock Price-Based Plans** | ** ** |
|---------------------|------------|--------------|------------|-------------------------------------------------------|------------|-------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------|------------|
| **Name**            | ** ** | ** **   | ** ** | **Grant**                                             | ** ** | **Rights(1)**                                                     | ** ** | **or Payout(1)**                                                                    | ** ** | **Threshold ($)(2)** | ** ** | **Target ($)(3)** | ** ** | **Maximum ($)(3)** | ** ** |
| Samuel J. Heyman    |       |         | —     |                                                  |       |                                                              | —     |                                                                                     |       |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| William W.  Collins |       |         | 4/05       |                                                  |       |                                                              | 6,000      |                                                                                     |       |   | — |   |   |   | $ | 478.16 |   |   |   | — |   |   |   | — |   |   |
| Robert B. Tafaro    |       |         | 4/05       |                                                  |       |                                                              | 2,200      |                                                                                     |       |   | — |   |   |   | 478.16 |   |   |   | — |   |   |   | — |   |   |
| John F. Rebele      |       |         | 4/05       |                                                  |       |                                                              | 1,800      |                                                                                     |       |   | — |   |   |   | 478.16 |   |   |   | — |   |   |   | — |   |   |
| David A. Harrison   |       |         | 4/05       |                                                  |       |                                                              | 1,600      |                                                                                     |       |   | — |   |   |   | 478.16 |   |   |   | — |   |   |   | — |   |   |
| Kenneth E. Walton   |       |         | 4/05       |                                                  |       |                                                              | 1,600      |                                                                                     |       |   | — |   |   |   | 478.16 |   |   |   | — |   |   |   | — |   |   |
|                     |            |              |            |                                                       |            |                                                                   |            |                                                                                          |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

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(1)          Effective December 31,2000, we adopted our 2001 Long-Term Incentive Plan. The Plan provides long-termcompensation to employees and key management personnel based on BMCA’s bookvalue (as defined in the plan). Our 2001 Long-Term Incentive Plan authorizesthe grant of incentive units to eligible employees. Our 2001 Long-TermIncentive Plan is administered by a committee appointed by our board ofdirectors. The number of incentive units granted is determined by the committeein its sole discretion.   Generally,incentive units vest cumulatively, in 20% increments over five years, exceptthat incentive units granted in exchange for preferred stock options retain thevested status and vesting schedule of the options exchanged. The committee may,in its sole discretion, however, grant incentive units with any vestingschedule, other than that normally provided in the 2001 Long-Term IncentivePlan. Vesting will end upon the termination of an employee’s employment with usor any subsidiary for any reason. Incentive units generally are exercisable fora period of six years from the date of grant. If, after a change in control ofBMCA, (as defined) an employee’s employment is terminated by us for any reasonother than Good Cause (as defined), as a result of death or permanentdisability, or by the employee for Good Reason (as defined), all incentiveunits will become fully and immediately vested and payable in cash.

(2)          Set forth under the “Threshold”column is the initial value (as defined) per unit at which the respectiveincentive units were granted. The value of incentive units is determined at theend of each fiscal quarter based on our book value at that date less book valueas of the date of grant divided by 1,000,010 and is payable in cash uponexercise. Our 2001 Long-Term Incentive Plan was to terminate five years afterits effective date of December 2000, unless terminated sooner by thecommittee, however, in December 2005, the committee exercised its rightsto amend the Plan, and extended the term of the Plan through December 2007,which could result in future additional compensation expense. The committee, inits sole discretion, may grant incentive units with an Initial Value that isless than the Initial Value of such incentive units as normally determinedunder the 2001 Long-Term Incentive Plan.

(3)          Uponexercise of an incentive unit, a participant will receive in cash the excess,if any, of the value of such incentive unit as of the relevant valuation dateon or, in the event of an exercise between valuation dates, immediatelypreceding the exercise date, over the initial value of such incentive unit,subject to all appropriate withholdings. Accordingly, the dollar value offuture payouts is not readily ascertainable.

**Employment Security Agreements**

In June 2001, we entered into employment securityagreements with certain of our executive officers and key personnel, including Messrs. Collins,Tafaro, Rebele, Harrison and Walton, in an effort to retain these individualsas well as provide security to us and the executives and to provide forcontinuity of management in the event of a change in control. The agreementshave no expiration date, are supported by irrevocable letters of credit andprovide for a single-sum payment consisting of two to three times salary 

26

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and bonus and relatedbenefits if employment is terminated or a change in employment responsibilitiesoccurs within a thirty-six month period following the change in control event,as defined. At December 31, 2005, the aggregate value of the securityagreements related to the above named individuals was $7.7 million, whichexcludes the cost of medical benefits and any amounts due under the 2001Long-Term Incentive Plan.

A change in control, as defined in the agreements,would occur when (1) the Heyman Group (as described below) ceases to bethe beneficial owner, directly or indirectly, of a majority voting power of thevoting stock of BMCA, (2) the transfer or sale of a substantial portion ofthe property of BMCA in any transaction or series of transactions to any entityor entities other than an entity of which the Heyman Group owns at least 80% ofsuch entity’s capital stock or beneficial interest or (3) any person orentity, other than the Heyman Group, assumes, without the consent of the HeymanGroup, management responsibilities for the affairs of G-I Holdings or anysubsidiary thereof. The filing of the Chapter 11 case by G-I Holdings did notconstitute a change in control but a change in control could occur in thefuture depending on the outcome of the bankruptcy proceeding.

Under the agreements, the “HeymanGroup” means (1) Samuel J. Heyman, his heirs, administrators, executorsand entities of which a majority of the voting stock is owned by Samuel J.Heyman, his heirs, administrators or executors and (2) any entitycontrolled,  directly or indirectly, bySamuel J. Heyman or his heirs, administrators or executors. Also for purposesof this section, “beneficial ownership” shall be determined in accordance with Rule 13d-3under the Securities Exchange Act of 1934, as amended.

**Compensation of Directors**

Our directors do notreceive any additional compensation for their services as directors.

**CompensationCommittee Interlocks and Insider Participations**

We do not have a separatecompensation committee. Compensation policies are established by our board ofdirectors, each member of which is also one of our executive officers. See Item13, “Certain Relationships and Related Transactions.”

**Item 12.**                 *SecurityOwnership of Certain Beneficial Owners and Management and Related StockholderMatters.*

*SecuritiesAuthorized for Issuance Under Equity Compensation Plans*

Not Applicable.

*SecuritiesOwnership of Certain Beneficial Owners and Management*

As of March 29, 2006, 100% of our outstandingshares of Class A common stock were owned of record by BMCA HoldingsCorporation.

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Thefollowing table sets forth information with respect to the ownership of ourcommon stock, as of March 29, 2006, by each other person known to us toown beneficially more than 5% of the common stock outstanding on that date andby all of our directors and executive officers as a group.

| ** **                          | ** ** | ** **                                                                                    | ** ** | **Amount and**          | ** ** | ** **    | ** ** | ** **        | ** ** |
|-------------------------------------|------------|-----------------------------------------------------------------------------------------------|------------|------------------------------|------------|---------------|------------|-------------------|------------|
| ** **                          | ** ** | ** **                                                                                    | ** ** | **Nature of**           | ** ** | ** **    | ** ** | **Total**         | ** ** |
| ** **                          | ** ** | **Name and Address of**                                                        | ** ** | **Beneficial**               | ** ** | **Percent**   | ** ** | **Voting**        | ** ** |
| **Title of Class**        | ** ** | ** **                                                                                    | ** ** | **Beneficial Owner(1)** | ** ** | **Ownership** | ** ** | **of Class** | ** ** | **Power** | ** ** |
| Class A Common Stock |       | Samuel  J. Heyman                                                                             |       |                         | 1,015,010  | (2)           |       |              | 100.0      | % |   |   | 100.0 | % |   |
|                                |       | All directors and executive officers     as a group (7 persons) |       |                         | —     |          |       |              | —     |   |   |   | — |   |   |
|                                     |            |                                                                                               |            |                              |            |               |            |                   |            |  |  |  |  |  |  |  |  |

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(1)          The business address forMr. Heyman is 667 Madison Avenue New York, New York 10021.

(2)          Thenumber of shares shown as being beneficially owned (as defined in Rule 13d-3of the Exchange Act) by Mr. Heyman attributes ownership of the shares ofour common stock owned by BMCA Holdings Corporation, an indirect wholly-ownedsubsidiary of G Holdings, to Mr. Heyman. As of March 29, 2006, Mr. Heymanbeneficially owned (as defined in Rule 13d-3 of the Exchange Act)approximately 99% of the capital stock of G Holdings.

**Item 13.**                 *CertainRelationships and Related Transactions.*

**Management Agreement**

Pursuant to a management agreement, a subsidiary ofISP (of which Samuel J. Heyman beneficially owns, as defined in Rule 13d-3of the Exchange Act, approximately 100%), provides some general management,administrative, legal and facilities services to us, including the use of ourheadquarters in Wayne, New Jersey. We were charged approximately $5.8, $5.6 and$6.2 million in 2005, 2004 and 2003, respectively, for these services under themanagement agreement, inclusive of the services provided to G-I Holdings. Thesecharges consist of management fees and other reimbursable expenses attributableto us, or incurred by ISP for our benefit. They are based on an estimate of thecosts ISP incurs to provide those services. The amount payable to ISP formanagement fees as of December 31, 2005 and 2004 was $0.4 and $0.4million, respectively. The management agreement also provides that we areresponsible for providing management services to G-I Holdings and some of itssubsidiaries and that G-I Holdings pay to us a management fee for theseservices. The aggregate amount paid by G-I Holdings to us for services renderedunder the management agreement in 2005, 2004 and 2003 was approximately $0.8million in each of these years. We also allocate a portion of the management feespayable by us under the management agreement as lease payments for the use ofour headquarters. Some of our executive officers receive their compensationfrom ISP. ISP is indirectly reimbursed for this compensation through payment ofthe management fee and other reimbursable expenses payable under the managementagreement.

Due to the unique natureof the services provided under the management agreements, comparisons withthird party arrangements are difficult. However, we believe that the terms ofthe management agreement taken as a whole are no less favorable to us thancould be obtained from an unaffiliated third party.

**Certain Purchases**

We purchase all of ourcolored roofing granules and algae-resistant granules requirements under along-term requirements contract from ISP. We believe our long-term supplyrequirements contract with ISP, taken as a whole, is no less favorable to usthan could be obtained from an unaffiliated third party. In 2005, 2004 and2003, we purchased in the aggregate approximately $108.3, $98.2 and $77.7million of mineral products from ISP, respectively.

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**Tax Sharing Agreement**

We entered into a taxsharing agreement (the “Tax Sharing Agreement”) dated January 31, 1994 andlater amended on March 19, 2001, with G-I Holdings, with respect to thepayment of federal income taxes and related matters. During the term of the TaxSharing Agreement, which is effective for the period during which we or any ofour domestic subsidiaries is included in a consolidated federal income taxreturn for the G-I Holdings’ consolidated tax group, we are obligated to payG-I Holdings an amount equal to those federal income taxes we would haveincurred if we, on behalf of ourselves and our domestic subsidiaries, filed ourown federal income tax return. Unused tax attributes will carry forward for usein reducing amounts payable by us to G-I Holdings in future years, but cannotbe carried back. If we ever were to leave the G-I Holdings’ consolidated taxgroup, we would be required to pay to G-I Holdings the value of any taxattributes to which we would succeed under the consolidated return regulationsto the extent the tax attributes reduced the amounts otherwise payable by usunder the Tax Sharing Agreement. Under limited circumstances, the provisions ofthe Tax Sharing Agreement could result in us having a greater liability underthe agreement than we would have had if we and our domestic subsidiaries hadfiled our own separate federal income tax return. Under the Tax SharingAgreement, we and each of our domestic subsidiaries are responsible for anytaxes that would be payable by reason of any adjustment to the tax returns ofG-I Holdings or its subsidiaries for years prior to the adoption of the TaxSharing Agreement that relate to our business or assets or the business orassets of any of our domestic subsidiaries. Although, as a member of the G-IHoldings’ consolidated tax group, we are severally liable for certain federalincome tax liabilities of the G-I Holdings’ consolidated tax group, includingtax liabilities not related to our business, we should not have any liabilityother than liabilities arising from our operations and the operations of ourdomestic subsidiaries and tax liabilities for tax years pre-dating the TaxSharing Agreement that relate to our business or assets and the business orassets of any of our domestic subsidiaries. The Tax Sharing Agreement providesfor analogous principles to be applied to any consolidated, combined or unitarystate or local income taxes. Under the Tax Sharing Agreement, G-I Holdingsmakes all decisions with respect to all matters relating to taxes of the G-IHoldings’ consolidated tax group. The provisions of the Tax Sharing Agreementtake into account both the federal income taxes we would have incurred if we filedour own separate federal income tax return and the fact that we are a member ofthe G-I Holdings’ consolidated tax group for federal income tax purposes.

**Intercompany Borrowings**

We make loans to, andborrow from, our parent corporations from time to time at rates ranging from5.3% to 7.3% in 2005. During 2001 and on July 1, 2003 and December 29,2003, we loaned BMCA Holdings Corporation $2.5, $37.8 and $15.0 million,respectively, and on July 9, 2003 and December 29, 2003, BMCAHoldings Corporation loaned us $37.8 and $15.0 million, respectively. As of December 31,2005 and 2004, BMCA Holdings Corporation owed us $55.8 and $55.7 million,including interest of $0.6 and $0.4 million, respectively, and we owed BMCAHoldings Corporation $52.8 and $52.8 million, respectively. Interest income onour loans to BMCA Holdings Corporation amounted to $4.0, $2.9 and $1.0 millionin 2005, 2004 and 2003, respectively. Interest expense on our loans from BMCAHoldings Corporation amounted to $3.8, $2.8 and $0.9 million in 2005, 2004 and2003, respectively. Loans payable to/receivable from our parent corporation aredue on demand and provide each party with the right of offset of its relatedobligation to the other party and are subject to limitations as outlined in ourSenior Secured Revolving Credit Facility and our Senior Notes. Under the termsof our Senior Secured Revolving Credit Facility and the indentures governingour Senior Notes at December 31, 2005, we could repay demand loans to ourparent corporation amounting to $52.8 million, subject to certain conditions. Wealso make non-interest bearing advances to affiliates, of which no balance wasoutstanding at December 31, 2005. In addition, no loans were owed by us toother affiliates. See Note 17 to our consolidated financial statements includedin this annual report on Form 10-K.

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**Item 14.**                 *PrincipalAccountant Fees and Services.*

The following tablepresents fees for professional services rendered by our independent registeredpublic accounting firm, KPMG LLP, for the fiscal years ended December 31,2005 and 2004.

**Audit and Non-AuditFees**

| ** **             | ** ** | **2005** | ** ** | **2004** | ** ** |
|------------------------|------------|----------|------------|----------|------------|
| Audit Fees(1)          |       | $        | 400,000    |     | $          | 377,500 |   |
| Audit-Related  Fees(2) |       | 16,000   |       | 9,240    |       |
| Tax Fees(3)            |       | 27,500   |       | 25,000   |       |
| All Other Fees         |       | —   |       | —   |       |
| Total                  |       | $        | 443,500    |     | $          | 411,740 |   |

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(1)          Audit fees relate toprofessional services rendered by KPMG LLP in connection with the audit of ourannual financial statements, quarterly review of financial statements includedin our Forms 10-Q, and audit services provided in connection with otherstatutory and regulatory filings. In 2004, $178,000 relates to proceduresperformed in connection with the issuance of our $250 million 7 3/4% SeniorNotes due 2014.

(2)          Audit-related feesinclude professional services rendered by KPMG LLP related to the audit of ouremployee benefit plans.

(3)          Taxfees include professional services rendered by KPMG LLP in connection with taxcompliance. We do not engage KPMG LLP to perform personal tax services for ourexecutive officers.

**Policyon Pre-Approval of Audit and Non-Audit Services Performed by the IndependentAuditors**

Our Board of Directors approves, prior to theengagement, consistent with the Sarbanes-Oxley Act of 2002 and the requirementsof the Securities and Exchange Commission, any audit, audit-related and permittednon-audit services reasonably likely to be required by us from KPMG LLP duringthe coming fiscal year. The Board may delegate the approval of unanticipated(but otherwise permitted) non-audit services during the coming fiscal year toour principal financial officer (who is a member of the Board of Directors) or ourprincipal accounting officer as required.

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**PART IV**

**Item 15.**                 *Exhibits andFinancial Statement Schedules.*

The following documents are filed as part of thisreport:

(a)(1)  Financial Statements: See Index on page F-1.

(a)(2)  Financial Statement Schedules: See Indexon page F-1.

(a)(3)  Exhibits:

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**EXHIBIT INDEX**

| Exhibit    Number | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2.1                    |       | Reorganization Agreement, dated as of  December 31, 1998, by and among BMCA, Building Materials Manufacturing  Corporation and Building Materials Investment Corporation (incorporated by reference  to Exhibit 2.1 to BMCA’s Registration Statement on Form S-4  (Registration No. 333-69749) (the “2008 Notes S-4”)).                                                                                                                                                                        |
| 3.1                    |       | Amended and Restated  Certificate of Incorporation of BMCA (incorporated by reference to  Exhibit 3.1 to BMCA’s Form 10-K for the fiscal year ended  December 31, 1999).                                                                                                                                                                                                                                                                                                                                      |
| 3.2                    |       | By-laws of BMCA  (incorporated by reference to Exhibit 3.2 to BMCA’s Registration  Statement on Form S-4 (Registration No. 33-81808)) (the  “Deferred Coupon Note Registration Statement”).                                                                                                                                                                                                                                                                                                         |
| 3.3                    |       | Certificate of Incorporation  of Building Materials Manufacturing Corporation (incorporated by reference to  Exhibit 3.3 to BMCA’s Form 10-K for the fiscal year ended  December 31, 1998 (the “1998 10-K”)).                                                                                                                                                                                                                                                                                       |
| 3.4                    |       | By-laws of Building  Materials Manufacturing Corporation (incorporated by reference to  Exhibit 3.4 to the 1998 10-K).                                                                                                                                                                                                                                                                                                                                                                                                       |
| 3.5                    |       | Certificate of  Incorporation of Building Materials Investment Corporation (incorporated by  reference to Exhibit 3.5 to the 1998 10-K).                                                                                                                                                                                                                                                                                                                                                                                     |
| 3.6                    |       | By-laws of Building  Materials Investment Corporation (incorporated by reference to  Exhibit 3.6 to the 1998 10-K).                                                                                                                                                                                                                                                                                                                                                                                                          |
| 4.1                    |       | Indenture, dated as of  October 20, 1997, between BMCA and The Bank of New York, as trustee  (incorporated by reference to Exhibit 4.1 to BMCA’s Registration  Statement on Form S-4 (Registration No. 333-41531)).                                                                                                                                                                                                                                                                                      |
| 4.2                    |       | First Supplemental  Indenture, dated as of January 1, 1999, to Indenture dated as of  October 20, 1997 among BMCA, as issuer, Building Materials Manufacturing  Corporation, as co-obligor, and Building Materials Investment Corporation, as  guarantor, and The Bank of New York, as trustee (incorporated by reference to  Exhibit 10.8 to the 2008 Notes S-4).                                                                                                                                                 |
| 4.3                    |       | Second Supplemental  Indenture, dated as of December 4, 2000, to Indenture dated as of  October 20, 1997 among BMCA and Building Materials Manufacturing  Corporation, as issuers, Building Materials Investment Corporation, as  guarantor, the Additional Guarantors signatory thereto, as additional  guarantors, and The Bank of New York, as trustee (incorporated by reference  to Exhibit 4.7 to BMCA’s Form 10-K for the fiscal year ended  December 31, 2000 (the “2000 10-K”)). |
| 4.4                    |       | Indenture, dated as of  July 17, 1998, between BMCA and The Bank of New York, as trustee  (incorporated by reference to Exhibit 4.1 to BMCA’s Registration  Statement on Form S-4 (Registration No. 333-60633)).                                                                                                                                                                                                                                                                                         |
| 4.5                    |       | First Supplemental  Indenture, dated as of January 1, 1999, to Indenture dated as of  July 17, 1998 among BMCA, as issuer, Building Materials Manufacturing  Corporation and Building Materials Investment Corporation, as guarantors, and  The Bank of New York, as trustee (incorporated by reference to  Exhibit 10.9 to the 2008 Notes S-4).                                                                                                                                                                   |
| 4.6                    |       | Second Supplemental  Indenture, dated as of December 4, 2000, to Indenture dated as of  July 17, 1998 among BMCA, as issuer, Building Materials Manufacturing  Corporation and Building Materials Investment Corporation, as original  guarantors, the Additional Guarantors signatory thereto, as additional  guarantors, and The Bank of New York, as trustee (incorporated by reference  to Exhibit 4.9 to the 2000 10-K).                                                                                      |

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| 4.7  |   | Indenture, dated as of  December 3, 1998, between BMCA and The Bank of New York, as trustee  (incorporated by reference to Exhibit 4.1 to the 2008 Notes S-4).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 4.8  |   | First Supplemental Indenture dated as of  January 1, 1999 to Indenture dated as of December 3, 1998 among  BMCA, as issuer, Building Materials Manufacturing Corporation and Building  Materials Investment Corporation, as guarantors, and The Bank of New York, as  trustee (incorporated by reference to Exhibit 4.4 to the 2008 Notes S-4).                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 4.9  |   | Second Supplemental Indenture, dated as of  December 4, 2000, to Indenture dated as of December 3, 1998, among  BMCA, as issuer, Building Materials Manufacturing Corporation and Building  Materials Investment Corporation, as original guarantors, the Additional  Guarantors signatory thereto, as additional guarantors, and The Bank of New  York, as trustee (incorporated by reference to Exhibit 4.12 to the 2000  10-K).                                                                                                                                                                                                                                                                                                                                                                         |
| 4.10 |   | Indenture, dated as of July 26, 2004, among  BMCA, as issuer, BMCA Insulation Products Inc., BMCA Quakertown Inc.,  Building Materials Investment Corporation, Building Materials Manufacturing  Corporation, Ductwork Manufacturing Corporation, GAF Leatherback Corp., GAF  Materials Corporation (Canada), GAF Premium Products Inc., GAF Real Properties, Inc.,  GAFTECH Corporation, LL Building Products Inc., Pequannock Valley Claim  Service Company, Inc., South Ponca Realty Corp. and Wind Gap Real  Property Acquisition Corp., as guarantors, and Wilmington Trust Company as  trustee (incorporated by reference to Exhibit 4.10 to BMCA’s  Registration Statement on Form S-4 (Registration No. 333-119608)  (the “July 2004 Registration Statement”)). |
| 10.1 |   | Amended and Restated Management Agreement, dated as  of January 1, 1999, among GAF,   G-I Holdings Inc., G Industries Corp., Merick Inc., GAF Fiberglass  Corporation, ISP, GAF Building Materials Corporation, GAF Broadcasting  Company, Inc., BMCA and ISP Opco Holdings Inc. (incorporated by  reference to Exhibit 10.1 to the 1998 10-K).                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.2 |   | Amendment No. 1 to the Management Agreement,  dated as of January 1, 2000 (incorporated by reference to  Exhibit 10.2 to International Specialty Products Inc. annual report on  Form 10-K for the fiscal year ended December 31, 1999).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.3 |   | Amendment No. 2 to the Management Agreement, dated  as of January 1, 2001 (incorporated by reference to Exhibit 10.3 to  International Specialty Products Inc. annual report on Form 10-K  for the fiscal year ended December 31, 2000).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.4 |   | Amendment No. 3 to the Amended and Restated  Management Agreement, dated as of June 27, 2001, by and among G-I  Holdings Inc., Merick Inc., International Specialty Products Inc., ISP  Investco LLC, GAF Broadcasting Company, Inc., Building Materials  Corporation of America and ISP Management Company, Inc., as assignee of  ISP Chemco Inc. (incorporated by reference to Exhibit 10.7 to the ISP  Chemco Inc. Registration Statement on Form S-4 (Registration  No. 333-70144)).                                                                                                                                                                                                                                                                                               |
| 10.5 |   | Amendment No. 4 to the Amended and Restated  Management Agreement, dated as of January 1, 2002, by and among G-I  Holdings Inc., Merick Inc., International Specialty Products Inc., ISP  Investco LLC, GAF Broadcasting Company, Inc., Building Materials  Corporation of America and ISP Management Company, Inc. (incorporated by  reference to Exhibit 10.5 to BMCA’s Form 10-K for the fiscal  year ended December 31, 2001 (the “2001 10-K”)).                                                                                                                                                                                                                                                                                                                    |
| 10.6 |   | Amendment No. 5 to the Amended and Restated  Management Agreement, dated as of January 1, 2003, by and among G-I  Holdings Inc., Merick Inc., International Specialty Products Inc., ISP  Investco LLC, GAF Broadcasting Company, Inc., Building Materials  Corporation of America and ISP Management Company, Inc. (incorporated by  reference to Exhibit 10.1 to BMCA’s Form 10-Q for the  quarterly period ended March 30, 2003).                                                                                                                                                                                                                                                                                                                                              |

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| 10.7   |   | Amendment No. 6 to the Amended and Restated  Management Agreement, dated as of January 1, 2004, by and among G-I  Holdings Inc., Merick Inc., International Specialty Products Inc.,  International Specialty Holdings Inc., ISP Synthetic Elastomers LP, ISP Investco  LLC, GAF Broadcasting Company, Inc., BMCA and ISP Management  Company, Inc. as assignee of ISP Chemco, Inc. (incorporated by  reference to Exhibit 10.1 to BMCA’s Form 10-Q for the  quarterly period ended April 4, 2004).                                                                                                                               |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.8   |   | Amendment No. 7 to  the Amended and Restated Management Agreement, dated as of January 1,  2005, by and among G-I Holdings Inc., Merick Inc., International Specialty  Products Inc., International Specialty Holdings Inc., ISP Synthetic  Elastomers LP, ISP Investco LLC, GAF Broadcasting Company, Inc.,  Building Materials Corporation of America and ISP Management  Company, Inc. as assignee of ISP Chemco, Inc. (incorporated by  reference to Exhibit 10.1 to BMCA’s Form 10-Q for the  quarterly period ended July 3, 2005).                                                                                          |
| 10.9   |   | BMCA 2001 Long-Term  Incentive Plan (incorporated by reference to Exhibit 10.8 to the 2000 10-K).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.10  |   | Form of BMCA 2001  Long-Term Incentive Plan Incentive Unit Grant Agreement (incorporated by  reference to Exhibit 10.2 to BMCA’s Form 10-Q for the  quarterly period ended July 3, 2005).                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| *10.11 |   | First Amendment to the  BMCA 2001 Long Term Incentive Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.12  |   | Tax Sharing Agreement,  dated as of January 31, 1994, among GAF, G-I Holdings Inc. and BMCA  (incorporated by reference to Exhibit 10.6 to the Deferred Coupon Note  Registration Statement).                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.13  |   | Amendment to Tax Sharing  Agreement, dated as of March 19, 2001, between G-I Holdings and BMCA  (incorporated by reference to Exhibit 10.10 to the 2000 10-K).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 10.14  |   | Reorganization  Agreement, dated as of January 31, 1994, among GAF Building Materials  Corporation, G-I Holdings Inc. and BMCA (incorporated by reference to  Exhibit 10.9 to the Deferred Coupon Note Registration Statement).                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.15  |   | Credit Agreement, dated  as of July 9, 2003, by and among BMCA, the Initial Lenders, Initial  Issuing Bank and Swing Line Bank (as defined therein), Citicorp  USA, Inc., as collateral monitoring agent and administrative agent,  Citigroup Global Markets Inc., as lead arranger and book manager, Deutsche  Bank Securities Inc., as syndication agent and The CIT Group/Business  Credit, Inc., Congress Financial Corporation and JP Morgan Chase Bank as  co-documentation agents (the “Credit Agreement”) (incorporated by reference  to Exhibit 10.1 to BMCA’s Form 10-Q for the quarterly period  ended June 29, 2003). |
| 10.16  |   | First Amendment, dated  as of May 7, 2004, to the Credit Agreement dated as of July 9,  2003, among BMCA, the banks, financial institutions and other institutional  lenders party thereto and Citicorp USA, Inc., as administrative agent  for the Lenders (incorporated by reference to Exhibit 10.1 to BMCA’s  Form 10-Q for the quarterly period ended July 4, 2004).                                                                                                                                                                                                                                                                   |
| 10.17  |   | Second Amendment, dated  as of July 12, 2004, to the Credit Agreement dated as of July 9,  2003, among BMCA, the Grantors party thereto, the banks, financial  institutions and other institutional lenders party thereto and Citicorp  USA, Inc., as administrative agent for the Lenders (incorporated by  reference to Exhibit 10.14 to the July 2004 Registration  Statement).                                                                                                                                                                                                                                                                    |
| 10.18  |   | Third Amendment, dated  as of July 19, 2004, to the Credit Agreement dated as of July 9,  2003, among BMCA, the Grantors party thereto, the banks, financial  institutions and other institutional lenders party thereto and Citicorp  USA, Inc., as administrative agent for the Lenders (incorporated by  reference to Exhibit 10.15 to the July 2004 Registration  Statement).                                                                                                                                                                                                                                                                     |

34

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| 10.19 |   | Fourth Amendment, dated  as of November 9, 2004, among BMCA, the Grantors party thereto, the  banks, financial institutions and other institutional lenders party thereto  and Citicorp USA, Inc., as administrative agent for the Lenders  (incorporated by reference to Exhibit 10.16 to the July 2004  Registration Statement).                                                                 |
|-------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.20 |   | Employment Security  Agreement between BMCA and William W. Collins, effective May 2001  (incorporated by reference to Exhibit 10.22 to the 2001 10-K).                                                                                                                                                                                                                                                       |
| 10.21 |   | Employment Security  Agreement between BMCA and David A. Harrison, effective  June 2001(incorporated by reference to Exhibit 10.23 to the 2001 10-K).                                                                                                                                                                                                                                                        |
| 10.22 |   | Employment Security  Agreement between BMCA and Robert B. Tafaro, effective June 2001  (incorporated by reference to Exhibit 10.24 to the 2001 10-K).                                                                                                                                                                                                                                                        |
| 10.23 |   | Employment Security  Agreement between BMCA and Kenneth E. Walton, effective June 2001  (incorporated by reference to Exhibit 10.25 to the 2001 10-K).                                                                                                                                                                                                                                                       |
| 10.24 |   | Employment Security  Agreement between BMCA and John F. Rebele, effective  June 2001(incorporated by reference to Exhibit 10.26 to the 2001 10-K).                                                                                                                                                                                                                                                           |
| 10.25 |   | Amended and Restated  Collateral Agent Agreement, dated as of July 9, 2003, among BMCA, the  Subsidiary Parties thereto, Citicorp USA, Inc., as administrative agent,  Citibank, N.A., as collateral agent, and each Senior Note Trustee (as defined  therein) (the “Collateral Agent Agreement”) (incorporated by reference to  Exhibit 10.22 to the July 2004 Registration Statement). |
| 10.26 |   | First Amendment  to the Collateral Agent Agreement, dated as of July 12, 2004, among  BMCA, the Subsidiary Parties thereto, Citicorp USA, Inc., as  administrative agent, Citibank, N.A., as collateral agent, and each Senior  Note Trustee (as defined therein) (incorporated by reference to  Exhibit 10.23 to the July 2004 Registration Statement).                                           |
| 10.27 |   | Amended and  Restated Security Agreement, dated as of July 9, 2003, among BMCA, the  Grantors thereto and Citibank, N.A., as collateral agent (the “Security  Agreement”) (incorporated by reference to Exhibit 10.24 to the  July 2004 Registration Statement).                                                                                                                              |
| 10.28 |   | First Amendment  to the Security Agreement, dated as of August 22, 2003, among BMCA, the  Grantors thereto and Citibank, N.A., as collateral agent (incorporated by  reference to Exhibit 10.25 to the July 2004 Registration  Statement).                                                                                                                                                              |
| 10.29 |   | Second Amendment  to the Security Agreement, dated as of May 7, 2004, among BMCA, the  Grantors thereto and Citibank, N.A., as collateral agent (incorporated by  reference to Exhibit 10.26 to the July 2004 Registration  Statement).                                                                                                                                                                 |
| 10.30 |   | Third Amendment  to the Security Agreement, dated as of July 12, 2004, among BMCA, the  Grantors thereto and Citibank, N.A., as collateral agent (incorporated by  reference to Exhibit 10.27 to the July 2004 Registration  Statement).                                                                                                                                                                |
| *21   |   | Subsidiaries of  BMCA.                                                                                                                                                                                                                                                                                                                                                                                                 |
| *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 the Chief Executive Officer and Chief Financial Officer.                                                                                                                                                                                                                                                                                                                           |

----

*                    Filedherewith.

35

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**SIGNATURES**

Pursuantto the requirements of Section 13 or 15(d) of the Securities ExchangeAct of 1934, each registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized.

|                       | Building Materials Corporation of America    |               |                                     |
|----------------------------|----------------------------------------------|--------------------|------------------------------------------|
|                       | Building Materials Manufacturing Corporation |               |                                     |
| Date: March 29,  2006 | By:                                          | /s/ JOHN F. REBELE |                                     |   |
|                       |                                         | Name:              | John F. Rebele                           |   |   |
|                       |                                         | Title:             | Senior Vice President, Chief Financial   |   |   |
|                       |                                         |               | Officer and Chief Administrative Officer |   |   |

 

Pursuantto the requirements of the Securities Exchange Act of 1934, this report hasbeen signed below on  March 29, 2006by the following persons on behalf of each registrant and in the capacitiesindicated.

|                        | **Signature** | ** **                                       | ** ** |  | **Title** | ** ** |
|------------------------|---------------|--------------------------------------------------|------------|--|-----------|------------|
| /s/ SAMUEL J. HEYMAN   |          | Acting Chief  Executive Officer                  |
| Samuel  J. Heyman      |          | (Principal Executive  Officer)                   |
|                   |          | Chief Executive  Officer, President and Director |
| William  W. Collins    |          |                                             |
| /s/ JOHN F.  REBELE    |          | Senior Vice  President, Chief Financial Officer, |
| John  F. Rebele        |          | Chief Administrative  Officer and Director       |
|                   |          | (Principal Financial  Officer)                   |
| /s/ ROBERT B.  TAFARO  |          | Director                                         |
| Robert  B. Tafaro      |          |                                             |
| /s/ DAVID A.  HARRISON |          | Director                                         |
| David  A. Harrison     |          |                                             |
| /s/ KENNETH E.  WALTON |          | Director                                         |
| Kenneth  E. Walton     |          |                                             |
| /s/ JAMES T.  ESPOSITO |          | Vice President  and Controller                   |
| James T. Esposito      |          | (Principal Accounting  Officer)                  |

 

36

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**BUILDING MATERIALSCORPORATION OF AMERICAFORM 10-KINDEX TO MANAGEMENT’S DISCUSSION AND ANALYSIS, CONSOLIDATEDFINANCIAL STATEMENTS AND SCHEDULES**

|                                                                                                                   | ** ** | **Page**   | ** ** |
|-------------------------------------------------------------------------------------------------------------------|------------|------------|------------|
| Management’s  Discussion and Analysis of Financial Condition and Results of Operations                       |       | F-2        |       |
| Selected Financial Data                                                                                           |       | F-22       |       |
| Report of Independent Registered Public Accounting  Firm                                                          |       | F-23       |       |
| Consolidated Statements of Income for the three years  ended December 31, 2005                               |       | F-24       |       |
| Consolidated  Balance Sheets as of December 31, 2005 and 2004                                                |       | F-25       |       |
| Consolidated Statements of Cash Flows for the three  years ended December 31, 2005                      |       | F-26       |       |
| Consolidated Statements of Stockholders’ Equity  (Deficit) for the three years ended  December 31, 2005 |       | F-28       |       |
| Notes  to Consolidated Financial Statements                                                                       |       | F-29       |       |
| Supplementary  Data (Unaudited):                                                                                  |       |       |       |
| Quarterly Financial Data (Unaudited)                                                                              |       | F-72       |       |
| **SCHEDULES**                                                                                                     | ** ** | ** ** | ** ** |
| Consolidated  Financial Statement Schedule:                                                                       |       |       |       |
| Schedule II—Valuation and Qualifying Accounts                                                                |       | S-1        |       |

 

F-1

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**BUILDING MATERIALS CORPORATION OF AMERICA**

**MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL**

**CONDITION AND RESULTS OF OPERATIONS**

**Overview**

Building Materials Corporation of America or BMCA, asubsidiary of BMCA Holdings Corporation, was formed in January 1994 toacquire the operating assets and certain liabilities of GAF Building MaterialsCorporation, whose name was changed to G-I Holdings Inc., our indirect parent. G-IHoldings Inc. is a wholly-owned subsidiary of G Holdings Inc. See Note 1 to ourConsolidated Financial Statements. Unless otherwise indicated by the context, “we,”“us” and “our” refer to Building Materials Corporation of America and itsconsolidated subsidiaries.

To facilitate administrative efficiency, effective October 31,2000, GAF Corporation, the former indirect parent of BMCA, merged into itsdirect subsidiary, G-I Holdings Inc. G-I Holdings Inc. then merged into itsdirect subsidiary, G Industries Corp., which in turn merged into its directsubsidiary, GAF Fiberglass Corporation. In that merger, GAF FiberglassCorporation changed its name to GAF Corporation. Effective November 13,2000, GAF Corporation (formerly known as GAF Fiberglass Corporation) mergedinto its direct subsidiary, GAF Building Materials Corporation, whose name waschanged in the merger to G-I Holdings Inc. G-I Holdings Inc. is now an indirectparent of BMCA and BMCA’s direct parent is BMCA Holdings Corporation. Referencesherein to “G-I Holdings” mean G-I Holdings Inc. and any and all of itspredecessor corporations, including GAF Corporation, G-I Holdings Inc., GIndustries Corp., GAF Fiberglass Corporation and GAF Building MaterialsCorporation.

We are a leading national manufacturer and marketer ofa broad line of asphalt and polymer based roofing products and accessories forthe residential and commercial markets. We also manufacture specialty buildingproducts and accessories for the professional and do-it-yourself remodeling andresidential construction industries. We have twenty-seven strategically locatedmanufacturing facilities across the United States. Our manufacturing facilitiesinclude:  seventeen asphalt roofingmanufacturing facilities, two roofing accessory plants, one thermoplasticpolyolefin plant, one glass fiber manufacturing plant, two glass matmanufacturing plants, one fiber-cement shingle and siding plant, one liquidroofing membrane and adhesive plant, one injection molding attic ventilationplant and one attic ventilation and air distribution product plant.

Our products are marketedin three groups: residential roofing, commercial roofing and specialty buildingproducts and accessories.

*Residential Roofing*

We are a leading nationalmanufacturer of a complete line of residential roofing products. Our principallines of residential roofing shingles are the Timberline® series, theSovereign® series, as well as a wide array of premium designer shingles. Inrecent years, we have improved our sales mix of residential roofing products byincreasing our emphasis on laminated shingles and accessory products (theTimberline® series and premium designer shingles), which are generally sold athigher prices and more attractive profit margins than our standard stripshingle products. We believe, based on unit sales, that we are the largestmanufacturer of residential roofing shingles in the United States.

*Commercial Roofing*

We manufacture a full line of modified bitumen andasphalt built-up roofing products, thermoplastic polyolefin products, liquidapplied membrane systems and roofing accessories for use in the application ofcommercial roofing systems. We also market thermoplastic single-ply products,which address the 

F-2

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**BUILDING MATERIALS CORPORATION OF AMERICA MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL**

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

important and growingsingle-ply segment of the commercial roofing market. We believe, based on unitsales, that we are the largest manufacturer of both asphalt built-up roofingproducts and modified bitumen products in the United States.

We sell modified bitumen products under the Ruberoid®and Brai® trademarks. Modified bitumen products are used in new and re-roofingapplications or in combination with glass membranes in GAF CompositeRoofÔsystems. Modified bitumen systems provide an alternative to conventionalbuilt-up roofing systems, including ease of installation and maintenance.

Over the past five years, over 80% of industry salesof both residential and commercial roofing products were for re-roofing, asopposed to new construction. As a result, we believe our exposure and theroofing industry’s exposure to cyclical downturns in the new constructionmarket are substantially lower than for other building material manufacturers. Weexpect that demand for residential re-roofing will continue to increase as theexisting housing stock ages and as homeowners upgrade from standard striproofing shingles to premium laminated shingles for enhanced aesthetics anddurability. We also expect commerical roofing demand to rise as construction ofnew commerical facilities increases and existing buildings age.

Our business relies on the availability of reasonablypriced raw materials and energy for the production of our products. Shortagesof and price increases of these products, specifically asphalt, which iscorrelated to increases in the price of oil, have occurred from time to timeand may occur in the future. To mitigate the effect of the petroleum-based andother cost increases, we will attempt to pass on future unexpected costincreases from our suppliers as needed, although no assurances can be providedthat these price increases will be accepted in the marketplace.

Our net sales for 2005were $1,955.8 million, an increase of 10.3% from net sales of $1,773.4 millionin 2004. Our income before interest and income taxes increased by 6.9% in 2005to $160.6 million from $150.2 million in 2004. (See discussion on income beforeinterest and income taxes below.)

**Critical Accounting Policies**

The preparation of ourconsolidated financial statements in conformity with U.S. generally acceptedaccounting principles requires our management to make estimates and judgmentsthat affect the reported amounts of assets, liabilities, revenues and expenses,and related disclosure of contingent liabilities. On an on-going basis, weevaluate our estimates, including but not limited to those related to customerincentives, doubtful accounts, inventory valuation, product warranty claims,environmental liabilities, the carrying value of goodwill, the carrying valueof long-lived tangible and intangible assets, pensions and other postemploymentbenefits and contingent liabilities. We base our estimates on historicalexperience and on various other assumptions that are believed to be reasonableunder the circumstances, the results of which form the basis for makingjudgments about the carrying values of assets and liabilities. Actual resultsmay differ from these estimates under different assumptions or conditions. Inthe opinion of our management, the consolidated financial statements hereincontain all adjustments necessary to present fairly our financial position andour results of operations and cash flows for the periods presented. We do notanticipate any changes in management estimates that would have a materialimpact on our operations, liquidity or capital resources, subject to thematters discussed in Note 18 to Consolidated Financial Statements. We believethe following critical accounting policies are the most important to theportrayal of 

F-3

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**BUILDING MATERIALS CORPORATION OF AMERICA MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL**

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

ourfinancial condition and results of operations and require our management’s moresignificant judgments and estimates in the preparation of our consolidatedfinancial statements.

*Revenue Recognition*

Revenue is recognized atthe time products are shipped to the customer. Products are generally shippedFreight on Board, or FOB shipping point. Title and risk of loss passes to thecustomer at the time of shipment.

*Customer Incentives*

We maintain allowances forcustomer incentives and volume rebates resulting from promotional programs tocertain of our customers. The customer incentives and volume rebates arerecorded as a reduction in gross sales and reserves are recorded based oncustomers’ purchase levels of specific products and the promotional programsrelated to these products. Management evaluates customer performance againstthese incentives and volume rebate programs from time to time. If adjustmentsto our estimates are required, additional allowances or reductions to thecustomer incentive reserves would be recorded.

*Allowance forDoubtful Accounts*

We maintain allowances fordoubtful accounts for estimated losses resulting from the inability of ourcustomers to make required payments. Management continuously assesses thefinancial condition of our customers and the markets in which these customersparticipate and adjusts credit limits or the allowance for doubtful accountsbased on this periodic review, which includes a detailed analysis of financialstatements and performance against key financial performance metrics andhistorical financial information. If the financial condition of our customerswere to deteriorate, resulting in their inability to make payments, our abilityto collect on accounts could be negatively impacted, in which case additionalallowances may be required.

*Inventories*

Inventories are valued atthe lower of cost or market. The LIFO (last-in, first-out) method is utilizedto determine cost for asphalt-based products used to produce our products. Allother inventories are valued on the FIFO (first-in, first-out) method. Wereserve our inventories for estimated obsolescence or unmarketable inventoriesequal to the difference between the cost of inventories and their estimatedmarket value based upon assumptions related to future demand and marketconditions. If actual market conditions differ from those projected bymanagement, additional inventory adjustments may be required. Sales ofinventories and the resulting receivables are included in the increase inworking capital items in the consolidated statement of cash flows.

*Long-Lived AssetImpairment*

We follow the provisionsof Statement of Financial Accounting Standards (SFAS) No. 144, “Accountingfor the Impairment or Disposal of Long-Lived Assets” or SFAS No. 144. SFASNo. 144 addresses financial accounting and reporting for the impairment oflong-lived assets and for long-lived assets to be disposed of. For purposes ofrecognizing and measuring impairment of long-lived assets, we evaluate assetsof our associated facilities because this is the lowest level of independentcash flows 

F-4

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**BUILDING MATERIALS CORPORATION OF AMERICA MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL**

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

ascertainableto evaluate impairment. We review long-lived assets to be held and used forimpairment whenever events or changes in circumstances indicate that thecarrying amount of the assets may not be recoverable. For long-lived assets tobe held and used, an impairment exists when the carrying amount of the assetexceeds the estimated undiscounted cash flows. Any resulting impairment ismeasured based on the fair value of the related asset. Fair value is determinedbased on future projected demand and estimated discounted cash flows. See Note7 to Consolidated Financial Statements.

*Asset RetirementObligation*

We follow the provisionsof FASB Interpretation No. 47 “Accounting for Conditional Asset RetirementObligations,” which we refer to as FIN 47, which was issued in March 2005,by the Financial Accounting Standards Board, which we refer to as FASB. FIN 47clarifies how the term conditional asset retirement obligation is used in SFAS No. 143“Accounting for Asset Retirement Obligations,” which we refer to as SFAS No. 143.SFAS No. 143 applies to a legal obligation to perform an asset retirementactivity in which the timing and/or method of settlement are conditional on afuture event that may or may not be within the control of the entity. FIN 47clarifies that an entity is required to recognize a liability for the fairvalue of a conditional asset retirement obligation when incurred if theliability’s fair value can be reasonably estimated. FIN 47 is effective forfiscal years ending after December 15, 2005. We adopted FIN 47 duringthe fourth quarter of our fiscal year ended December 31, 2005 andperformed an asset retirement obligation analysis and noted that no conditionalasset retirement obligations existed.

*Goodwill*

In accordance with the provisions of Statement ofFinancial Accounting Standards No. 142, “Goodwill and Other IntangibleAssets” or SFAS No. 142, effective January 1, 2002, goodwill is nolonger amortized over its estimated useful life. However, goodwill is subjectto at least an annual assessment for impairment and more frequently ifcircumstances indicate a possible impairment. This assessment could result in amaterial future impairment charge.

We evaluated therecoverability of goodwill for our roofing products and specialty building productsand accessories reporting units. Our methodology included evaluations usingestimated future discounted cash flows, multiples of net sales and multiples ofearnings before interest, taxes, depreciation and the amortization of otherassets, or EBITDA. Our analysis was completed for each of the reporting unitsto which the goodwill relates. If the estimated range of fair values from themethodologies employed are less than the carrying amount of the relatedreporting unit, impairment losses for goodwill are charged to results ofoperations. In determining the estimated future discounted cash flows, weconsidered projected future levels of income, future business trends and marketand economic conditions. Our analysis related to multiples of net sales andEBITDA are based on related industry data. We adopted SFAS No. 142effective January 1, 2002 and prepared an impairment analysis at December 31,2005, 2004 and 2003 and noted no impairment existed. See Note 4 to ConsolidatedFinancial Statements.

*Product WarrantyClaims*

We provide certain limitedwarranties covering most of our residential roofing products for periodsgenerally ranging from 20 to 40 years, with lifetime limited warranties oncertain premium designer shingle products. We also offer certain limitedwarranties of varying duration covering most of our commercial roofing products.Most of our specialty building products and accessories carry limitedwarranties for 

F-5

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**BUILDING MATERIALS CORPORATION OF AMERICA MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL**

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

periodsgenerally ranging from 5 to 10 years, with lifetime limited warranties on certainproducts. The reserve for product warranty claims is estimated on the basis ofhistorical and projected claims activity, as well as other factors. Theaccuracy of the estimate of additional costs is dependent on both the numberand cost of future claims submitted during the warranty periods. We believethat the reserves established for estimated probable future product warrantyclaims are adequate. If actual claims differ from these estimates, adjustmentsto this reserve may be required.

*EnvironmentalLiabilities*

We accrue environmentalcosts when it is probable that we have incurred a liability and the expectedamount can be reasonably estimated and, review on an ongoing basis, ourestimated environmental liabilities reserve. The amount accrued reflects ourassumptions about remedial requirements at the contaminated site, the nature ofthe remedy, the outcome of discussions with regulatory agencies and otherpotential responsible parties at multi-party sites and the number and financialviability of other potentially responsible parties. Adverse decisions orevents, particularly as to increases in remedial costs, discovery of newcontamination, assertion of natural resource damages, and the liability and thefinancial responsibility of our insurers and of the other parties involved ateach site and their insurers, could cause us to increase our estimate ofliability in respect of those matters. It is not currently possible to estimatethe amount or range of any additional liability.

*Pension and Other PostemploymentBenefits*

We maintain defined benefit plans that provideeligible employees with retirement benefits. In addition, while we generally donot provide postretirement medical and life insurance benefits, we subsidizesuch life insurance benefits for certain employees and certain retirees. Thecosts and obligations related to these benefits reflect our assumptions relatedto general economic conditions (particularly interest rates), expected returnon plan assets and rate of compensation increases for employees. We set thediscount rate assumption annually for our retirement-related benefit plans atthe measurement dates to reflect the yield of high-quality fixed-income debtinstruments. The expected long-term rate of return on assets is derived from adetailed periodic study conducted by our actuaries and our financial management.The study includes a review of anticipated future long-term performance ofindividual asset categories. While the study gives appropriate consideration torecent plan performance and historical returns, the assumption is primarily along-term prospective rate. Our discount rate as of December 31, 2005 and2004 for determining projected benefit obligations was 5.75% and 6.0%,respectively. A 25 basis point increase or decrease in the discount rateassumption would result in a plus or minus $0.1 million impact on pensionexpense and a plus or minus $1.2 million impact on the projected benefitobligation. Our expected long-term rate of return on assets assumption for ourretirement plans was 9.5% in 2005 and 2004. In addition, a 25 basis pointincrease or decrease in the expected long-term rate of return on assetsassumption would result in a plus or minus $0.1 million impact on pensionexpense.

Projected health carebenefits additionally reflect our assumptions about health care cost trends. Thecost of providing plan benefits also depends on demographic assumptionsincluding retirements, mortality, turnover and plan participation. If actualexperience differs from these assumptions, the cost of providing these benefitscould increase or decrease.

F-6

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**BUILDING MATERIALS CORPORATION OF AMERICA MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL**

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

**Results of Operations**

Roofing product sales isour dominant business, typically accounting for approximately 95% of ourconsolidated net sales. The main drivers of our roofing business include:  the nation’s aging housing stock; existinghome sales; new home construction; larger new homes; increased home ownershiprates; and severe weather and energy concerns. Our roofing business is alsoaffected by raw material costs, including asphalt and other petroleum-based rawmaterials, energy, and transportation and distribution costs.

*2005 Compared with2004*

We recorded net income in 2005 of $61.0 millioncompared with net income of $54.9 million for 2004, representing an increase of11.1%. The increase in 2005 net income was primarily attributable to higherincome before interest and income taxes and slightly lower interest expense.

Net sales for 2005 were $1,955.8 million compared with$1,773.4 million in 2004, representing an increase of 10.3%. Higher net saleswere primarily due to higher average selling prices and higher unit volumes ofboth residential and commercial roofing products.

Income before interest and income taxes for 2005 was$160.7 million compared with $150.2 million in 2004, representing an increaseof 7.0%. Higher income before interest and income tax results in 2005 wereprimarily attributable to increased net sales of both residential andcommercial roofing products, primarily resulting from higher average sellingprices and higher unit volumes and a decline in other expense, net, partiallyoffset by higher raw material costs, including asphalt, higher energy costs andhigher selling, general and administrative expenses mostly due to higherdistribution costs, primarily resulting from higher sales volume and a rise infuel prices.

Interest expense decreasedto $62.3 million in 2005 from $62.7 million in 2004, primarily due to loweraverage borrowings, partially offset by a higher average interest rate.

**Business Segment Information**

*NetSales.**  *Netsales of roofing products for 2005 increased to $1,876.0 million from $1,695.0million for 2004, representing an increase of $181.0 million or 10.7%. Theincrease in net sales of roofing products was primarily attributable to higheraverage selling prices and, to a lesser extent, higher unit volumes. Roofingproduct net sales were favorably impacted by an increase in net sales ofpremium laminate shingles primarily due to higher average selling prices andhigher unit volumes. Net sales of specialty building products and accessoriesincreased by $1.4 million or 1.8% for 2005 to $79.8 million, compared to $78.4million for 2004.

F-7

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**BUILDING MATERIALS CORPORATION OF AMERICA**

**MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL**

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

*GrossMargin.**  *Ouroverall gross margin for 2005 increased to $596.2 million or 30.5% from $547.6million or 30.9% for 2004. The increase in our overall gross margin isprimarily attributable to an increase in net sales due to higher averageselling prices and an improved sales mix, partially offset by highermanufacturing costs.

*Income before Interest andIncome Taxes.**  *Incomebefore interest and income taxes for 2005 increased to $160.7 million or 8.2%of net sales, compared to $150.2 million or 8.5% of net sales for 2004. Theoverall increase in income before interest and income taxes for 2005 isprimarily attributable to higher net sales of roofing products driven by higheraverage selling prices and higher unit volumes and a decline in other expense,net, partially offset by higher raw material costs, including asphalt, higherenergy costs and higher selling, general and administrative expenses due tohigher distribution costs, primarily resulting from higher sales volume and arise in fuel costs.

*2004 Compared with2003*

We recorded net income in 2004 of $54.9 millioncompared with net income of $47.2 million for 2003, representing an increase of16.3%. The reported net income for 2003 included a $3.7 million after-tax gain($5.7 million pre-tax) from the sale of property in Ontario, California and a$2.4 million after-tax loss ($3.8 million pre-tax) from the write-down of theAlbuquerque, New Mexico manufacturing facility. See Notes 6 and 7 toConsolidated Financial Statements. The increase in 2004 net income wasprimarily the result of higher income before interest and income taxes,partially offset by higher interest expense.

Net sales for 2004 were $1,773.4 million compared with$1,607.8 million in 2003, representing an increase of 10.3%. Higher net salesin 2004 were primarily due to higher unit volumes and higher average sellingprices of premium residential and commercial roofing products.

Income before interest and income taxes for 2004 was$150.2 million compared with $130.4 million in 2003, representing an increaseof $19.8 million or 15.2%. Income before interest and income taxes for 2003included a $5.7 million pre-tax gain on the sale of property in Ontario,California and a $3.8 million pre-tax loss from the write-down of theAlbuquerque, New Mexico manufacturing facility. Higher income before interestand income tax results in 2004 were primarily attributable to an increase innet sales of residential and commercial roofing products, partially offset byhigher raw material costs, including asphalt and other petroleum-based rawmaterials, and higher selling, general and administrative expenses primarilydue to higher volume related distribution and selling costs, and highertransportation costs, principally due to a rise in fuel costs.

Interest expense increasedto $62.7 million in 2004 from $56.7 million in 2003, primarily due to higheraverage borrowings, partially offset by a lower average interest rate. Thehigher average borrowings in 2004 were primarily due to the issuance, in July 2004,of $200 million 73¤4%Senior Notes due 2014 and the issuance, in November 2004, of an additional$50 million 73¤4%Senior Notes due 2014, which we refer to collectively as the 2014 Notes,partially offset by the redemption of the $100 million 8 5/8% Senior Notes due2006, which we refer to as the 2006 Notes, and a reduction in the amountoutstanding under the $350 million Senior Secured Revolving Credit Facility. Inconnection with entering into these financing transactions, we recordedadditional interest expense of approximately $2.2 million, representing thewrite-off of the remaining deferred financing costs of the 2006 Notes, thepremium paid to exercise the call of the 2006 Notes and other interest relatedexpenses.

F-8

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**BUILDING MATERIALS CORPORATION OF AMERICA**

**MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL**

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

**Business Segment Information**

*NetSales.**  *Netsales of roofing products for 2004 increased to $1,695.0 million from $1,534.3million for 2003, representing an increase of $160.7 million or 10.5%. Theincrease in net sales of roofing products was primarily attributable to higherunit volumes and, to a lesser extent, higher average selling prices. Roofingproduct net sales were favorably impacted by an increase in net sales ofpremium laminate shingles primarily due to higher unit volumes and higheraverage selling prices. Net sales of specialty building products andaccessories increased by $4.9 million or 6.7% for 2004 to $78.4 million,compared to $73.5 million for 2003.

*GrossMargin.**  *Ouroverall gross margin for 2004 increased to $547.6 million or 30.9% from $473.6million or 29.5% for 2003. The increase in our gross margin percentage isprimarily attributable to an increase in net sales due to an improved sales mixand higher average selling prices, partially offset by slightly highermanufacturing costs.

*Income before Interest andIncome Taxes.**  *Incomebefore interest and income taxes for 2004 increased to $150.2 million or 8.5%of net sales, compared to $130.4 million or 8.1% of net sales for 2003. Incomebefore interest and income taxes for 2003 included a $5.7 million pre-tax gainon the sale of property in Ontario, California and a $3.8 million pre-tax lossfrom the write-down of the Albuquerque, New Mexico manufacturing facility. Theoverall increase in income before interest and income taxes for 2004 isprimarily attributable to higher net sales of roofing products driven by higherunit volumes and higher average selling prices, partially offset by higher rawmaterial costs, and higher selling, general and administrative expenses due tohigher volume related distribution and selling costs, and higher transportationcosts, principally due to a rise in fuel costs.

**Liquidity and Financial Condition**

*Cash Flows and CashPosition*

Sales of roofing products and specialty buildingproducts and accessories in the northern regions of the United States generallydecline in the late fall and winter months due to cold weather. In addition,adverse weather conditions can result in higher customer demand during our peakoperating season depending on the extent and severity of the damage from thesesevere weather conditions. Due to the seasonal demands of our business togetherwith extreme weather conditions, we generally have negative cash flows fromoperations during the first six months of our fiscal year. Our negative cashflows from operations are primarily driven by our cash invested in bothaccounts receivable and inventories to meet these seasonal operating demands. Generally,in the third and fourth quarters of our fiscal year, our cash flows fromoperations become positive each quarter, as our investment in inventories andaccounts receivable no longer continues to increase, as is customary in thefirst six months of our fiscal year. Our seasonal working capital needs,together with our debt service obligations, capital expenditure requirementsand other contracted arrangements, adversely impact our liquidity during thisperiod. We rely on our cash and cash equivalents on hand and our $350.0 millionSenior Secured Revolving Credit Facility due November 2006, which we referto as our Senior Secured Revolving Credit Facility, to support our overall cashflow requirements during these periods. We expect to continue to rely on our cashand cash equivalents on hand and external financings to maintain operationsover the short and long-term and to continue to have access to the financingmarkets, subject to the then prevailing market terms and conditions.

F-9

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**BUILDING MATERIALS CORPORATION OF AMERICA**

**MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL**

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

Net cash inflow from operating and investingactivities was $29.3 million during 2005, including $89.7 million of cashprovided by operations, $4.7 million of proceeds from the sale of assets,partially offset by the reinvestment of $65.1 million for capital programs andan acquisition of a manufacturing facility.

Cash invested in additional working capital totaled$29.5 million during 2005, reflecting an increase in total accounts receivableof $20.9 million, due to our increased operating performance, a $27.3 millionincrease in inventories to meet our seasonal operating demands and a $7.1million increase in other current assets primarily reflecting a payment to ourglass mat supplier in connection with a contract entered into in December 2005,partially offset by a $25.8 million increase in accounts payable and accruedliabilities. The net cash used for operating activities also included a $5.6million net decrease in the payable to related parties/parent corporations,primarily attributable to a $4.6 million net decrease in federal income taxespayable, pursuant to our Tax Sharing Agreement with our parent corporation anda $1.0 million increase in amounts due under our long-term granule supplyagreement with an affiliated company. In addition, cash used in operatingactivities also included an $8.5 million increase in other assets primarilyreflecting a payment to our glass fiber supplier in January 2005 inconnection with a requirements contract entered into in December 2004,coupled with a $2.3 million increase in other liabilities.

Net cash used in financingactivities totaled $151.9 million during 2005, including $553.0 million ofaggregate proceeds from the issuance of long-term debt, related to 2005cumulative borrowings under our Senior Secured Revolving Credit Facility. Financingactivities also included $688.9 million in aggregate repayments of long-termdebt, of which $536.0 million related to 2005 cumulative repayments under ourSenior Secured Revolving Credit Facility. In addition, repayments of long-termdebt included $150.0 million related to the redemption of our 73¤4%Senior Notes in July 2005, $2.5 million related to our Chester, SouthCarolina loan obligation, $0.1 million related to our 101¤2% MichiganCity, Indiana Note and $0.1 million related to our Shafter, CaliforniaIndustrial Development Revenue Bonds. In addition, financing activities alsoincluded $15.0 million in cash dividends paid to our parent corporation, $0.8million in financing fees and expenses and $0.2 million in distributions andloans to our parent corporation. The payments to our parent corporation areallowable under our Senior Secured Revolving Credit Facility and our 8% SeniorNotes due 2007, the 8% Senior Notes due 2008, and the 7 3¤4% Senior Notesdue 2014, which we refer to collectively as the Senior Notes.

*Debt Instruments,Financial Covenants and Restrictions*

At December 31, 2005, we had total outstandingconsolidated indebtedness of $606.1 million, including $52.8 million of demandloans payable to our parent corporation, of which $19.8 million matures priorto December 31, 2006, and stockholders’ equity of $43.0 million. Weanticipate funding these obligations principally from our cash and cashequivalents on hand, cash flow from operations and/or additional borrowingsunder our Senior Secured Revolving Credit Facility, which matures in November 2006.Although no assurances can be provided, we intend to refinance the SeniorSecured Revolving Credit Facility before its maturity date.

In August 1999, we entered into a $110 millionsecured revolving credit facility. In December 2000, we entered into anadditional $100 million secured revolving credit facility to be used for workingcapital purposes subject to certain restrictions. In December 2002, weconsolidated and restated both credit facilities into our $210 millionConsolidated and Restated Credit Agreement, which we refer to as the CreditAgreement. In connection with entering into the additional $100 million securedrevolving credit facility in December 2000, we also issued a $7 millionprecious metal note, which we refer to as the 

F-10

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**BUILDING MATERIALS CORPORATION OF AMERICA**

**MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL**

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

Precious Metal Note, whichbears interest rates similar to the Credit Agreement, to finance preciousmetals used in our manufacturing processes. The Credit Agreement, which wasinitially scheduled to mature in August 2003, was repaid and replaced in July 2003,with a new senior secured credit facility (see below).

In July 2003, we entered into a new $350 millionSenior Secured Revolving Credit Facility. The initial borrowings under ourSenior Secured Revolving Credit Facility were primarily used to repay amountsoutstanding under our Credit Agreement, to repay our $115 million AccountsReceivable Securitization Agreement due December 2004 and to repay our $7million Precious Metal Note due August 2003. The Senior Secured RevolvingCredit Facility has a final maturity date of November 15, 2006, subject tocertain conditions, is secured by a first priority lien on substantially all ofour assets and the assets of our subsidiaries and is guaranteed by all of ourcurrent and future subsidiaries. Availability under the Senior SecuredRevolving Credit Facility is based upon eligible Accounts Receivable,Inventory, and Property, Plant and Equipment (collectively the “Collateral”),as defined, in the Senior Secured Revolving Credit Facility and includes asub-limit for letters of credit of $100 million. The Senior Secured RevolvingCredit Facility bears interest at a floating rate based on the lenders’ BaseRate, the federal funds rate or the Eurodollar rate, each as defined in theSenior Secured Revolving Credit Facility. On May 7, 2004, we amended ourSenior Secured Revolving Credit Facility, which reduced the floating rate ofinterest as defined in the Senior Secured Revolving Credit Facility. On July 12,July 19, and November 5, 2004, the Senior Secured Revolving CreditFacility was further amended to allow for the issuance of our 2014 Notes (seebelow). The Senior Secured Revolving Credit Facility requires mandatoryrepayments of excess cash, as defined, on the tenth day of each month andcontains a material adverse change clause. We are also required to pay unusedcommitment fees associated with the Senior Secured Revolving Credit Facility. TheSenior Secured Revolving Credit Facility provides for optional and mandatoryreductions in the overall $350 million Senior Secured Revolving Credit Facilitycommitment, subject to certain conditions as defined in the Senior SecuredRevolving Credit Facility. In addition, the Senior Secured Revolving CreditFacility also provides for optional and mandatory prepayments of borrowingsoutstanding under the Senior Secured Revolving Credit Facility, subject tocertain conditions. Borrowings outstanding under the Senior Secured RevolvingCredit Facility, which are included in current maturities amounted to $17.0 and$0 million at December 31, 2005 and 2004, respectively.

Under the terms ofthe Senior Secured Revolving Credit Facility and the indentures governing ourSenior Notes, we are subject to certain financial covenants. These financialcovenants include, among others,

·       interestcoverage, as defined;

·       minimumconsolidated EBITDA (earnings before income taxes and extraordinary itemsincreased by interest expense, depreciation, goodwill and other amortization),as defined;

·       limitationson the amount of annual capital expenditures and indebtedness;

·       restrictionson restricted payments, including dividends and distributions to our parentcorporations and on incurring liens; and

·       restrictionson investments and other payments.

F-11

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**BUILDING MATERIALS CORPORATION OF AMERICA**

**MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL**

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

In addition, if a change of control as defined in theSenior Secured Revolving Credit Facility occurs, the Senior Secured RevolvingCredit Facility could be terminated and the loans under the Senior SecuredRevolving Credit Facility accelerated by the holders of that indebtedness. Ifthat event occurred, it would cause our outstanding Senior Notes to beaccelerated.

As of December 31, 2005, after giving effect tothe most restrictive of the aforementioned restrictions, we could not have paiddividends or made other restricted payments to our parent corporation. Inaddition, at December 31, 2005, we could repay demand loans to our parentcorporation amounting to $52.8 million, subject to certain conditions asoutlined in the Senior Secured Revolving Credit Facility and the indenturesgoverning our Senior Notes. In addition for the potential impact of theAsbestos-related Bodily Injury Claims on our results of operations, seeNote 5 to Consolidated Financial Statements.

As of December 31, 2005, we were in compliancewith all covenants under the Senior Secured Revolving Credit Facility and theindentures governing our Senior Notes.

In September 2003, we used proceeds from theSenior Secured Revolving Credit Facility to repay our outstanding 101¤2%Senior Notes at maturity, aggregating $35.0 million plus accrued interest.

In July 2004, we issued $200.0 million inaggregate principal amount of 73¤4% Senior Notesdue 2014, at 100.0% of the principal amount. The net proceeds from the issuanceof the 2014 Notes, after deducting initial purchasers’ discounts andcommissions and offering expenses were approximately $195.9 million. In August 2004,we exercised a call notice issued in July 2004 and used approximately$101.8 million of the net proceeds to redeem all of our issued and outstanding2006 Notes, including accrued and unpaid interest on such notes through thedate of redemption. In addition, we used the remaining net proceeds ofapproximately $94.1 million to reduce amounts outstanding under our SeniorSecured Revolving Credit Facility. The redemption price of the 2006 Notes was101.438% of the principal amount outstanding and the premium of approximately$1.4 million was recorded in interest expense in July 2004. In connectionwith the extinguishment of the 2006 Notes, we expensed the remaining deferredfinancing fees of approximately $0.7 million in July 2004 and includedthis amount in interest expense.

In November 2004, we issued an additional $50.0million in aggregate principal amount of our 2014 Notes. The additional 2014Notes were issued under an indenture dated July 2004, pursuant to which wepreviously issued our original $200.0 million of 73¤4% Senior Notesdue 2014. These additional 2014 Notes rank equally with and formed a part of asingle series with such original 2014 Notes and have the same terms andconditions. The net proceeds from the issuance of the additional 2014 Notes,after deducting the offering expenses and including the addition of theapplicable premium were approximately $50.6 million. We used the net proceedsfrom the additional 2014 Notes to reduce amounts outstanding under our SeniorSecured Revolving Credit Facility. The premium of approximately $0.9 million isincluded in long-term debt and will be amortized over the life of the 2014Notes.

Under the terms and conditions of the 2014 Notes, thenoteholders have the right under the indentures governing such notes to requireus to purchase the 2014 Notes at a price of 101% of the principal amountthereof, plus any accrued and unpaid interest, in the event of a change incontrol, as defined in the 2014 Notes. Upon the expiration of this right, wewould have the option to purchase the 2014 Notes at a purchase price equal to100% of the aggregate principal amount, plus the applicable premium, as definedin the 2014 Notes, together with any accrued and unpaid interest. We also havethe option to redeem some or all of the 2014 Notes beginning on August 1,2009 through August 1, 2012, at specified redemption premiums, as definedin the 2014 Notes.

F-12

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**BUILDING MATERIALS CORPORATION OF AMERICA**

**MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL**

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

Our Senior Notes are secured by a second-priority lienon the assets securing the Senior Secured Revolving Credit Facility for so longas the first-priority lien remains in effect, subject to certain limitedexceptions and have been guaranteed by our subsidiaries that guaranteed theSenior Secured Revolving Credit Facility. In connection with entering theSenior Secured Revolving Credit Facility, we entered into an Amended andRestated Security Agreement, which grants a security interest in the Collateralin favor of the collateral agent on behalf of the lenders under the SeniorSecured Revolving Credit Facility and the holders of our outstanding SeniorNotes. We also entered into an Amended and Restated Collateral Agent Agreement,which provides, among other things, that we maintain a lockbox and depositorycontrol agreement for the benefit of the secured parties and the sharing ofproceeds with respect to any foreclosure or other remedy in respect of theCollateral. As of December 31, 2005, the book value of the collateralsecuring the Senior Notes and the Senior Secured Revolving Credit Facility wasapproximately $990.5 million.

On July 15, 2005, we used cash and cashequivalents on hand and proceeds from our Senior Secured Revolving CreditFacility to redeem our 73¤4%Senior Notes due 2005 at maturity, aggregating $150.0 million plus accruedinterest of $2.9 million.

In December 1995, we consummated a $40.0 millionsale-leaseback of certain equipment located at our Chester, South Carolinaglass mat manufacturing facility, in a transaction accounted for as a capitallease. The lessor was granted a security interest in certain equipment at theChester facility. The lease term extended to December 2005, with an earlybuyout option in June 2003. In July 2003, we paid the early buyoutoption of $19.7 million. In addition, in July 2003, we entered into a new$19.7 million Secured Loan, which we refer to as the Chester Loan, with theproceeds being used to repay the $19.7 million obligation associated with theearly buyout option discussed above. The Chester Loan is secured by a solesecurity interest in the machinery and equipment, matures in 2010, requiresmonthly payments of principal and interest commencing in August 2003 andbears a fixed annual interest rate of 7.41%.

In December 2004, we redeemed our Nashville,Tennessee Industrial Development Revenue Bonds for $8.5 million. We have threeremaining industrial development revenue bond issues outstanding, which bearinterest at floating rates. Interest rates on the foregoing obligations rangedbetween 1.4% and 3.6% during 2005. Our industrial development revenue bonds aresecured by letters of credit under the Senior Secured Revolving CreditFacility.

See Note 13 toConsolidated Financial Statements for further information regarding our debtinstruments.

F-13

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**BUILDING MATERIALS CORPORATION OF AMERICA**

**MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL**

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

*IntercompanyTransactions*

We make loans to and borrow from, our parentcorporations from time to time at rates ranging from 5.3% to 7.3% in 2005. During2001 and on July 1, 2003 and December 29, 2003, we loaned BMCAHoldings Corporation $2.5, $37.8 and $15.0 million, respectively, and on July 9,2003 and December 29, 2003, BMCA Holdings Corporation loaned us $37.8 and$15.0 million, respectively. At December 31, 2005 and 2004, BMCA HoldingsCorporation owed us $55.8 and $55.7 million, including interest of $0.6 and$0.4 million, respectively, and we owed BMCA Holdings Corporation $52.8 and$52.8 million, respectively, with no unpaid interest. Interest income on ourloans to BMCA Holdings Corporation amounted to $4.0, $2.9 and $1.0 million in2005, 2004 and 2003, respectively. Interest expense on our loans from BMCAHoldings Corporation amounted to $3.8, $2.8 and $0.9 million in 2005, 2004 and2003, respectively. Loans payable to/receivable from our parent corporationsare due on demand and provide each party with the right to offset of itsrelated obligation to the other party and are subject to limitations asoutlined in our Senior Secured Revolving Credit Facility and our Senior Notes. Underthe terms of our Senior Secured Revolving Credit Facility and the indenturesgoverning our Senior Notes at December 31, 2005, we could repay demandloans to our parent corporation amounting to $52.8 million, subject to certainconditions.

We also make non-interest bearing advances toaffiliates, of which no amounts were outstanding at December 31, 2005. Inaddition, no loans were owed or other lending activities were entered into byus to other affiliates. See Note 17 to Consolidated Financial Statements.

On November 23, 2005 and December 29, 2005,we declared and paid cash dividends each amounting to $7.5 million,respectively, to our parent corporation. On February 25, 2004, April 21,2004 and December 30, 2004, we declared and paid cash dividends, eachamounting to $5.0 million, respectively, to our parent corporation.

During the years ended December 31, 2005 and December 31,2004 we paid $22.0 and $19.5 million, respectively, in federal income taxpayments to our parent corporation pursuant to a tax sharing agreement. Theseamounts are included in the change in net receivable from/payable to relatedparties/parent corporations in the consolidated statement of cash flows.

On January 5, 2001, G-I Holdings filed avoluntary petition for reorganization under Chapter 11 of the U.S. BankruptcyCode due to asbestos claims. See Item 3, “Legal Proceedings” for furtherinformation regarding asbestos-related matters. See Note 5 to ConsolidatedFinancial Statements.

Our parent corporations, G-I Holdings and BMCAHoldings Corporation, are essentially holding companies without independentbusinesses or operations. As a result, they are presently dependent upon theearnings and cash flows of their subsidiaries, principally our company, inorder to satisfy their obligations, including various tax and other claims andliabilities including tax liabilities relating to Rhône-Poulenc Surfactants &Specialties, L.P. (the “surfactants partnership”), a partnership in which G-IHoldings held an interest. We do not believe that the dependence of our parentcorporations on the cash flows of their subsidiaries should have a materialadverse effect on our operations, liquidity or capital resources. See Notes 5,9, 13, 17 and 18 to Consolidated Financial Statements.

In May 2003, we entered into a contract with ISPMinerals Inc., a subsidiary of International Specialty Products Inc., topurchase all of our colored roofing granules and algae-resistant granules undera long-term requirements contract. We refer to International Specialty ProductsInc. and its subsidiaries as ISP. In 2005, 2004 and 2003, we purchased in theaggregate approximately $108.3, $98.2 and $77.7 million, 

F-14

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**BUILDING MATERIALS CORPORATION OF AMERICA**

**MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL**

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

respectively, of mineralproducts from ISP. The amount payable to ISP at December 31, 2005 and 2004for such purchases was $11.4 and $12.7 million, respectively, and is includedin payable to related parties in the consolidated balance sheets. We believeour long-term supply requirements contract with ISP, taken as a whole, is noless favorable to us than could be obtained from an unaffiliated third party.

Pursuant to a management agreement, a subsidiary ofISP, provides certain general management, administrative, legal and facilitiesservices to us, including the use of our headquarters in Wayne, New Jersey. Chargesto us by ISP for these services under the management agreement, inclusive ofthe services provided to G-I Holdings, discussed below, aggregated $5.8, $5.6and $6.2 million for 2005, 2004 and 2003, respectively. These charges consistof management fees and other reimbursable expenses attributable to us, orincurred by ISP for the benefit of us. The amount payable to ISP for managementfees as of December 31, 2005 and 2004 was $0.4 and $0.4 million,respectively, and is included in payable to related parties in the consolidatedbalance sheets. The management agreement also provides that we are responsiblefor providing management services to G-I Holdings and certain of itssubsidiaries and that G-I Holdings pay to us a management fee for theseservices. The aggregate amount paid by G-I Holdings to us for services renderedunder the management agreement in 2005, 2004 and 2003 was approximately $0.8million in each of these years. We also allocate a portion of the managementfees payable by us under the management agreement as lease payments for the useof our headquarters. Some of our executive officers receive their compensationfrom ISP. ISP is indirectly reimbursed for this compensation through payment ofthe management fee and other reimbursable expenses payable under the managementagreement.

Included in current assetsas a tax receivable from parent corporation is $0.8 million at December 31,2005, representing amounts paid in excess of amounts due in 2005 to G-IHoldings under the Tax Sharing Agreement. Included in current liabilities as atax payable to parent corporation is $3.8 million at December 31, 2004,representing amounts due to G-I Holdings under the Tax Sharing Agreement. Includedin current assets as a tax receivable from parent corporation is $7.0 millionat December 31, 2003, representing amounts paid to G-I Holdings under theTax Sharing Agreement. See Note 9 to Consolidated Financial Statements.

*CapitalExpenditures*

We use capital resourcesto maintain existing facilities, expand our operations and make acquisitions. In2006, we expect to spend approximately $100.2 million on maintenance andcompliance and expansion capital. We expect to generate funding for our capitalprograms from results of operations and additional borrowings under our SeniorSecured Revolving Credit Facility.

*Acquisitions andProperty Dispositions*

In May 2004, we acquired certain assets of amanufacturing facility located in Quakertown, Pennsylvania from Atlas RoofingCorporation. The acquisition was accounted for under the purchase method ofaccounting. Accordingly, the purchase price was allocated to the fair value ofthe identifiable assets acquired, which consisted almost entirely of property,plant and equipment. The operating results of the Quakertown manufacturingfacility are included in our results of operations from the date of its acquisition.

In response to current market conditions, to betterservice shifting customer demand and to reduce costs, we closed or idled fourmanufacturing facilities in 2000 located in Monroe, Georgia; Port Arthur, 

F-15

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**BUILDING MATERIALS CORPORATION OF AMERICA**

**MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL**

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

Texas; Corvallis, Oregon;and Albuquerque, New Mexico. In December 2001, we sold the Corvallis,Oregon facility. The sale of this facility did not have a material impact onour results of operations. In December 2002, we sold the Monroe, Georgiafacility. The sale of this facility did not have a material impact on ourresults of operations. As market growth and customer demand improves, we mayreinstate production at one or both of the remaining two closed manufacturingfacilities in the future. The effect of closing these facilities was not materialto our results of operations.

In May 2003, we soldproperty in Ontario, California for cash proceeds of approximately $9.3million, which resulted in a pre-tax gain of approximately $5.7 million. In June 2005,we sold property in Houston, Texas for cash proceeds of approximately $4.1million, which approximated carrying value. See Note 6 to ConsolidatedFinancial Statements. 

*Asset Impairment*

In December 2003, we evaluated the manufacturingfacility assets located at our previously closed Albuquerque, New Mexicomanufacturing facility. Our evaluation included a review of the carrying valueof all assets and resulted in a pre-tax impairment loss of approximately $3.8million. See Note 7 to Consolidated Financial Statements.

As a result of theforegoing factors related to 2005, cash and cash equivalents decreased by$122.6 million during 2005 to $6.9 million.

*Economic Outlook*

We do not believe that inflation has had an effect onour results of operations during the past three years. However, we cannot assureyou that our business will not be affected by inflation in the future, or byincreases in the cost of energy and asphalt purchases used in our manufacturingprocess principally due to fluctuating oil prices.

During 2005, the cost of asphalt continued to be highrelative to historical levels, which reflects in large part record high crudeoil prices. Due to the strength of our manufacturing operations which allows usto use many types of asphalt together with our ability to secure alternativesources of supply, we do not anticipate that any future disruption in thesupply of asphalt will have a material impact on future net sales, although noassurances can be provided in that regard.

To mitigate these andother petroleum-based cost increases, we announced and implemented multipleprice increases during 2005. We will attempt to pass on future additionalunexpected cost increases from suppliers as needed; however, no assurances canbe provided that these price increases will be accepted in the marketplace.

F-16

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**BUILDING MATERIALS CORPORATION OF AMERICA**

**MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL**

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

*ContractualObligations and Commercial Commitments*

AtDecember 31, 2005, the table below summarizes our significant contractualobligations and commercial commitments.

| ** **                       | ** ** | **Payments Due by Period** | ** ** |
|----------------------------------|------------|-------------------------------------------|------------|
| **Contractual Obligations** | ** ** | ** **                                | ** ** | **Total** | ** ** | **Less  than  1 Year** | ** ** | **1-3  Years** | ** ** | **4-5  Years** | ** ** | **After  5Years** | ** ** |
| ** **                       | ** ** | **(Millions)**                            | ** ** |
| Long-term Debt                   |       | $                                         | 553.6      |   | $ | 19.9 |   | $ | 261.5 |   | $ | 12.4 |   | $ | 259.8 |   |
| Purchase  Obligations (1)        |       | 111.6                                     |       | 39.4 |   | 66.8 |   | 3.9 |   | 1.5 |   |
| Operating Leases                 |       | 83.2                                      |       | 22.8 |   | 34.4 |   | 26.0 |   | — |   |
| Fixed Interest  Expense          |       | 219.8                                     |       | 40.7 |   | 70.5 |   | 39.2 |   | 69.4 |   |
| Total                            |       | $                                         | 968.2      |   | $ | 122.8 |   | $ | 433.2 |   | $ | 81.5 |   | $ | 330.7 |   |
|                                  |            |                                           |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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(1)          We have entered intocertain contractual obligations primarily related to the purchase of raw materialsand the use of asphalt terminals at specific locations. Pricing under thesecontractual obligations is generally fixed; however, these contracts aresubject to certain conditions which allow for prices to be adjusted upward ordownward. Certain of these contracts also contain minimum annual purchaserequirements, which we expect will be met and we do not expect any losses underthese specific contracts.

We also have a management agreement with InternationalSpecialty Products Inc., which we refer to as the ISP Management Agreement, toprovide us with certain management services. The management fees payable underthe ISP Management Agreement are adjusted annually. Based on services providedto us in 2005 under the ISP Management Agreement, the aggregate amount payableto ISP under the ISP Management Agreement for 2006 inclusive of the servicesprovided to G-I Holdings, is not yet available and is estimated to beapproximately the same as the $5.8 million paid in 2005. For a furtherdiscussion on the ISP Management Agreement reference is made to Management’sDiscussion and Analysis of Financial Condition and Results of Operations,“Intercompany Transactions.”

We purchase all of our colored roofing granules andalgae-resistant granules under a long-term requirements contract with ISP. Theamount of mineral products purchased each year under the ISP contract is basedon current demand and is not subject to minimum purchase requirements. Sincethe total annual amount of mineral products expected to be purchased cannot bedetermined at this time, no amount is included in the above table related tothis contract. In 2005, 2004 and 2003, we purchased $108.3, $98.2 and $77.7million, respectively, of mineral products from ISP under this contract. 

At December 31,2005, we have contractual guarantees and commitments as follows:

| ** **                                            | ** ** | **Expiration per period** | ** ** |
|-------------------------------------------------------|------------|-------------------------------------|------------|
| **Contractual Guarantees  and Commitments** | ** ** | ** **                          | ** ** | **Total** | ** ** | **Less  than  1 Year** | ** ** | **1-3  Years** | ** ** | **4-5  Years** | ** ** | **After  5 Years** | ** ** |
| ** **                                            | ** ** | **(Millions)**                      | ** ** |
| Letters of Credit                                     |       | $                                   | 54.3       |   | $ | 54.3 |   | $ | — |   | $ | — |   | $ | — |   |
| Total                                                 |       | $                                   | 54.3       |   | $ | 54.3 |   | $ | — |   | $ | — |   | $ | — |   |
|                                                       |            |                                     |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

F-17

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**BUILDING MATERIALS CORPORATION OF AMERICA**

**MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)**

At December 31, 2005,letters of credit of $54.3 million, of which are all standby letters ofcredit,  are irrevocable obligations ofan issuing bank. These letters of credit are guaranteed by us.

*Other Obligations*

AtDecember 31, 2005, we have other obligations as follows:

| ** **                  | ** ** | **2005**       | ** ** | **2006**      | ** ** |
|-----------------------------|------------|----------------|------------|---------------|------------|
| ** **                  | ** ** | **Actual**     | ** ** | **Projected** | ** ** |
| **Other Obligations**  | ** ** | ** **     | ** ** | **Spending**  | ** ** | **Spending** | ** ** |
| ** **                  | ** ** | **(Millions)** | ** ** |
| Environmental  Matters      |       |           | $          | 0.6           |       |   |   | $ | 1.0 |   |   |
| Pension and Other  Benefits |       |           | 0.2        |          |       |   | 0.2 |   |   |
| Total                       |       |           | $          | 0.8           |       |   |   | $ | 1.2 |   |   |
|                             |            |                |            |               |            |  |  |  |  |  |  |  |  |

 

 

Our expenditures for environmental compliance capitalprojects were $0.6 and $2.5 million in 2005 and 2004, respectively. Weanticipate that environmental regulations will continue to be imposed on theroofing industry. Although we cannot predict with certainty environmental expendituresbeyond 2005, management believes the estimation in the table above is adequate.

Our policy for pension plans is to accumulate planassets that, over the long run, will approximate the present value of projectedbenefit obligations. In 2005 and 2004, we did not make any pensioncontributions. In 2006, based on current actuarial data, we do not expect tomake any pension contribution. Actual contributions in 2006 and future yearsmay vary based on a number of factors including prevailing interest rates andreturn on plan assets.

Spending associated withother benefit plans, primarily retiree medical and life insurance and long-termdisability, amounted to $0.2 million and $0.2 million in 2005 and 2004,respectively. We expect spending to continue at comparable levels in 2006.

*Available Sources of Liquidity*

At December 31,2005, we have available sources of liquidity, net of amounts used, as follows:

| ** **                                    | ** ** | **Expiration per period** | ** ** |
|-----------------------------------------------|------------|-------------------------------------|------------|
| **Available Sources  of Liquidity** | ** ** | ** **                          | ** ** | **Total** | ** ** | **Less than  1 Year** | ** ** | **1-3  Years** | ** ** | **4-5  Years** | ** ** | **After  5 Years** | ** ** |
| ** **                                    | ** ** | **(Millions)**                      | ** ** |
| Unused Lines of  Credit                       |       | $                                   | 254.7      |   |   | $ | 254.7 |   |   |   | $ | — |   |   |   | $ | — |   |   |   | $ | — |   |   |
| Total                                         |       | $                                   | 254.7      |   |   | $ | 254.7 |   |   |   | $ | — |   |   |   | $ | — |   |   |   | $ | — |   |   |
|                                               |            |                                     |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

We have a $350 millionSenior Secured Revolving Credit Facility, of which $54.3 million of letters ofcredit were utilized at December 31, 2005. Available sources of liquidityconsisted of $254.7 million of unused lines of credit at December 31,2005, subject to the borrowing base availability as defined in the SeniorSecured Revolving Credit Facility.

F-18

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**BUILDING MATERIALS CORPORATION OF AMERICA**

**MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)**

***Sale of Accounts Receivable***

In March 1993, we sold our trade accountsreceivable to a trust, without recourse, pursuant to an agreement, whichprovided for a maximum of $75.0 million in cash to be made available to usbased on Eligible Receivables, as defined, outstanding from time to time. In November 1996,we entered into new agreements, which provided for a maximum of $115.0 million,pursuant to which we sold the receivables to a special purpose subsidiary ofours, BMCA Receivables Corporation without recourse, which in turn sold themwithout recourse. In December 2001, this facility matured and $115.0million was repaid to settle previous amounts made available to us.

In December 2001, we entered into a new AccountsReceivable Securitization Agreement, which we refer to as the SecuritizationAgreement, under which we sold certain of our trade accounts receivable to BMCAReceivables Corporation, without recourse, which in turn sold them to a thirdparty, without recourse. The agreement provided for a maximum of $115.0 millionin cash to be made available to us based on the sale of Eligible Receivablesoutstanding from time to time. This agreement, initially scheduled to mature inDecember 2004, was subject to financial and other covenants including amaterial adverse change in business conditions, financial or otherwise and wasterminated in July 2003. With the termination of the SecuritizationAgreement we also repurchased our undivided interest in the associated receivables.In connection with the termination of the Securitization Agreement in July 2003,we repaid $115.0 million of amounts outstanding under such agreement. As aresult of the termination of the Securitization Agreement, accounts receivableand long-term debt at December 31, 2003 increased by approximately $105.4million as compared to prior year. We also liquidated BMCA ReceivablesCorporation effective August 2003. See Note 10 to Consolidated FinancialStatements.

BMCA ReceivablesCorporation was not a guarantor under our debt obligations. See Notes 12 and 19to Consolidated Financial Statements. The effective cost to us varied withLIBOR and is included in other expense, net and amounted to $0, $0 and $1.6million in 2005, 2004 and 2003, respectively.

***New Accounting Pronouncements***

In November 2004, theFASB issued SFAS No. 151 “Inventory Costs,” which we refer to as SFAS No. 151,which clarifies the accounting for abnormal amounts of idle facility expense,freight, handling costs and wasted material (spoilage). SFAS No. 151 amendsAccounting Research Bulletin, which we refer to as ARB No. 43, Chapter 4 “InventoryPricing,” which we refer to as ARB No. 43, and requires abnormal inventorycosts to be recognized as current period charges regardless of whether theymeet the “so abnormal” criterion outlined in ARB No. 43. SFAS No. 151also introduces the concept of “normal capacity” and requires the allocation offixed production overheads to inventory based on the normal capacity of theproduction facilities. Furthermore, SFAS No. 151 requires unallocatedoverheads be recognized as an expense in the period in which they are incurred.SFAS No. 151 is effective for costs occurring in fiscal years beginningafter June 15, 2005. As of January 1, 2006, we will adopt theprovisions of SFAS No. 151 and do not anticipate any material effect onour consolidated financial statements.

In December 2004, theFASB issued a revised SFAS No. 123 “Accounting for Stock-BasedCompensation,” which we refer to as SFAS No. 123(R) “Share-BasedPayments,” which will require compensation costs related to share-based paymenttransactions to be recognized in the financial statements. SFAS No. 123(R) establishesfair value as the measurement objective in accounting for share-based paymentarrangements and requires all entities to apply a fair-value-based measurementmethod in 

F-19

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**BUILDING MATERIALS CORPORATION OF AMERICA**

**MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)**

accountingfor share-based payment transactions with employees. SFAS No. 123(R) replacesthe original SFAS No. 123 and supersedes Accounting Principles Board,which we refer to as APB, Opinion No. 25, “Accounting for Stock Issued toEmployees.”  SFAS No. 123(R) becomeseffective beginning with the first annual reporting period after June 15,2005. As of December 31, 2005 we currently account for our 2001 Long-TermIncentive Plan under the accounting prescribed by FASB Interpretation No. 28,“Accounting for Stock Appreciation Rights and Other Variable Stock Option andAward Plans,” which we refer to as FIN 28. Since compensation expense relatedto our incentive units is currently included in our consolidated statements ofincome, we do not expect SFAS No. 123(R) to have an impact on ourconsolidated financial statements. We have adopted the additional disclosureprovisions of SFAS No. 123(R) as of December 31, 2005. See Notes2 and 15 to Consolidated Financial Statements.

In December 2004, theFASB issued SFAS No. 153 “Exchanges of Nonmonetary Assets,” which we referto as SFAS No. 153, which replaces the exception from fair valuemeasurement in APB Opinion No. 29 “Accounting for Nonmonetary Transactions,”for nonmonetary exchanges of similar productive assets. SFAS No. 153replaces this exception with a general exception from fair value measurementfor exchanges of nonmonetary assets that do not have commercial substance. Anonmonetary exchange has commercial substance if the future cash flows of theentity are expected to change significantly as a result of the exchange. SFAS No. 153is effective for nonmonetary asset exchanges occurring in fiscal reportingperiods beginning after June 15, 2005. As of January 1, 2006, we willadopt the provisions of SFAS No. 153 and do not anticipate any nonmonetaryasset exchanges.

In March 2005, theFASB issued FASB Staff Position, which we refer to as FSP, FIN 46(R)-5 “ImplicitVariable Interests Under FASB Interpretation No. 46(R), Consolidation ofVariable Interest Entities,” which we refer to as FSP FIN 46(R)-5. FSPFIN 46(R)-5 offers additional guidance to FIN 46(R) stating thatimplicit variable interests are implied financial interests in an entity thatchange in accordance with changes in the fair value of the entity’s net assets,exclusive of variable interests. FSP FIN 46(R)-5 is effective during acompany’s first reporting period after March 3, 2005. We adopted FSP FIN46(R)-5 during our second quarter ended July 3, 2005. At December 31,2005, we did not have any interests in variable interest entities; therefore,FSP FIN 46(R)-5 and FIN 46(R) did not have any impact on ourfinancial condition or results of operations.

In March 2005, theFASB issued FIN 47 “Accounting for Conditional Asset Retirement Obligations,”which clarifies how the term conditional asset retirement obligation is used inSFAS No. 143 “Accounting for Asset Retirement Obligations.”  SFAS No. 143 applies to a legalobligation to perform an asset retirement activity in which the timing and/ormethod of settlement are conditional on a future event that may or may not bewithin the control of the entity. FIN 47 clarifies that an entity is requiredto recognize a liability for the fair value of a conditional asset retirementobligation when incurred if the liability’s fair value can be reasonablyestimated. FIN 47 is effective for fiscal years ending after December 15,2005. We adopted FIN 47 during the fourth quarter of our fiscal year endedDecember 31, 2005 and performed an asset retirement obligation analysisand noted that no conditional asset retirement obligations existed.

In May 2005, the FASBissued SFAS No. 154, “Accounting Changes and Error Corrections,” which werefer to as SFAS No. 154, which eliminates the requirement of APB Opinion No. 20,“Accounting Changes,” to include the cumulative effect adjustment resultingfrom a change in an accounting principle in the income statement in the periodof change. SFAS No. 154 requires that a change in an accounting principleor reporting entity be retrospectively applied. Under retrospectiveapplication, SFAS No. 154 is applied as of the beginning of the firstaccounting period presented in the financial statements and the 

F-20

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**BUILDING MATERIALS CORPORATION OF AMERICA**

**MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)**

cumulativeeffect of the change is reflected in the carrying value of assets andliabilities as of the first period presented and the offsetting adjustments arerecorded to opening retained earnings. Each period presented is adjusted toreflect the period-specific effects of applying the change. Changes inaccounting estimate and corrections of errors continue to be accounted for inthe same manner as prior to the issuance of SFAS No. 154. SFAS No. 154is effective for accounting changes and corrections of errors made in fiscalyears beginning after December 15, 2005. As of January 1, 2006, wewill adopt the provisions of SFAS No. 154.

***Market-Sensitive Instruments andRisk Management***

Under the terms of the Senior Secured Revolving CreditFacility, we are only permitted to enter into investments in highly ratedcommercial paper, U.S. government backed securities, certain time deposits andhedging arrangements that protect against or mitigate the effect offluctuations in interest rates, foreign exchange rates or prices of commoditiesused in our business. At December 31, 2005 and 2004, we did not have anyhedging arrangements. See “Short-term Investments” caption included inNote 2 to Consolidated Financial Statements.

* * *

**Forward-looking Statements**

This annual report on Form 10-K containsboth historical and forward-looking statements. 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 and section21E of the Securities Exchange Act of 1934. These forward-looking statementsare only predictions and generally can be identified by use of statements thatinclude phrases 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 operationsare subject to certain risks and uncertainties that could cause actual resultsto differ materially from those contemplated by the relevant forward-lookingstatements. The forward-looking statements included herein are made only as ofthe date of this annual report on Form 10-K and we undertake noobligation to publicly update any forward-looking statements to reflect subsequentevents or circumstances. We cannot assure you that projected results or eventswill be achieved.

F-21

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**BUILDINGMATERIALS CORPORATION OF AMERICA**

**SELECTED FINANCIALDATA**

Thefollowing table presents our selected consolidated financial data. The selectedhistorical consolidated financial data for the five fiscal years ended December 31,2005, 2004, 2003, 2002 and 2001 are derived from our audited consolidatedfinancial statements.

| ** **                              | ** ** | **Year Ended December 31,** | ** ** |
|-----------------------------------------|------------|--------------------------------------------|------------|
| ** **                              | ** ** | **2005**                                   | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** |
| ** **                              | ** ** | **(Millions)**                             | ** ** |
| **Operating Data:**                     |       |                                       |       |   |   |   |   |   |   |   |   |
| Net sales                               |       | $                                          | 1,955.8    |   | $ | 1,773.4 |   | $ | 1,607.8 |   | $ | 1,360.7 |   | $ | 1,293.0 |   |
| Income before interest and income taxes |       | 160.6                                      |       | 150.2 |   | 130.4 | * | 105.9 | * | 90.6 | * |
| Interest expense                        |       | 62.3                                       |       | 62.7 |   | 56.7 |   | 55.0 |   | 60.8 |   |
| Income before income taxes              |       | 98.3                                       |       | 87.5 |   | 73.7 |   | 50.9 |   | 29.8 |   |
| Net income                              |       | 61.0                                       |       | 54.9 |   | 47.2 |   | 32.6 |   | 18.8 |   |
|                                         |            |                                            |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

----

*                    Incomebefore interest and income taxes for the year ended December 31, 2003includes a $5.7 million gain on the sale of assets and a $3.8 million loss onthe write-down of manufacturing facility assets. Income before interest andincome taxes for the years ended December 31, 2002 and 2001 includes $1.8and $0.7 million, respectively, from the loss on sale of assets.

| ** **                                 | ** ** | **December 31,** | ** ** |
|--------------------------------------------|------------|-----------------------|------------|
| ** **                                 | ** ** | **2005**              | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** |
| ** **                                 | ** ** | **(Millions)**        | ** ** |
| **Balance Sheet Data:**                    | ** ** | ** **            |       |   |   |   |   |   |   |   |   |
| Total working capital                      |       | $                     | 191.7      |   | $ | 157.7 |   | $ | 140.9 |   | $ | 105.7 |   | $ | 105.3 |   |
| Total assets                               |       | 1,004.3               |       | 1,065.5 |   | 808.0 |   | 763.0 |   | 727.0 |   |
| Long-term debt less current maturities     |       | 533.5                 |       | 536.0 |   | 545.7 |   | 545.8 |   | 599.9 |   |
| Total  stockholders’ equity (deficit) |       | 43.0                  |       | (2.7 | ) | (42.1 | ) | (31.1 | ) | (61.6 | ) |
|                                            |            |                       |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

| ** **                             | ** ** | **Year Ended December 31,** | ** ** |
|----------------------------------------|------------|--------------------------------------------|------------|
| ** **                             | ** ** | **2005**                                   | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** |
| ** **                             | ** ** | **(Millions)**                             | ** ** |
| **Other Data:**                        |       |                                       |       |   |   |   |   |   |   |   |   |
| Depreciation                           |       | $                                          | 45.1       |   | $ | 43.9 |   | $ | 39.4 |   | $ | 38.7 |   | $ | 37.2 |   |
| Goodwill amortization                  |       | —                                     |       | — |   | — |   | — |   | 2.0 |   |
| Software amortization                  |       | 2.7                                        |       | 2.2 |   | 2.1 |   | 2.0 |   | 1.8 |   |
| Capital  expenditures and acquisitions |       | 65.1                                       |       | 67.2 |   | 43.3 |   | 34.6 |   | 28.1 |   |
|                                        |            |                                            |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

F-22

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**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTINGFIRM**

The Board of Directors and StockholdersBuilding Materials Corporation of America:

We have audited the accompanying consolidated balancesheets of Building Materials Corporation of America and subsidiaries as of December 31,2005 and 2004, and the related consolidated statements of income, stockholders’equity (deficit) and cash flows for each of the years in the three-year periodended December 31, 2005. In connection with our audits of the consolidatedfinancial statements, we also have audited consolidated financial statementschedule II on page S-1. These consolidated financial statements andconsolidated financial statement schedule are the responsibility of the Company’smanagement. Our responsibility is to express an opinion on these consolidatedfinancial statements and consolidated financial statement schedule based on ouraudits.

We conducted our audits in accordance with thestandards of the Public Company Accounting Oversight Board (United States). Thosestandards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements. An audit also includesassessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statement presentation.We believe that our audits provide a reasonable basis for our opinion.

In ouropinion, the consolidated financial statements referred to above presentfairly, in all material respects, the financial position of Building MaterialsCorporation of America and subsidiaries as of December 31, 2005 and 2004,and the results of their operations and their cash flows for each of the yearsin the three-year period ended December 31, 2005, in conformity with U.S.generally accepted accounting principles. Also in our opinion, the relatedconsolidated financial statement schedule, when considered in relation to thebasic consolidated financial statements taken as a whole, presents fairly, inall material respects, the information set forth therein.

|  | KPMG LLP |
|--|----------|

 

Short Hills, New JerseyMarch 29, 2006

F-23

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**BUILDING MATERIALS CORPORATION OF AMERICA**

**CONSOLIDATEDSTATEMENTS OF INCOME**

| ** **                                          | ** ** | **Year Ended December 31,** | ** ** |
|-----------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                          | ** ** | **2005**                                   | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                                          | ** ** | **(Thousands)**                            | ** ** |
| Net sales                                           |       | $                                          | 1,955,785  |   | $ | 1,773,389 |   | $ | 1,607,778 |   |
| Costs and expenses, net:                            |       |                                       |       |   |   |   |   |
| Cost of products sold                               |       | 1,359,593                                  |       | 1,225,795 |   | 1,134,224 |   |
| Selling, general and administrative                 |       | 431,377                                    |       | 391,329 |   | 338,954 |   |
| Other expense, net                                  |       | 4,164                                      |       | 6,074 |   | 6,098 |   |
| Loss on write-down of manufacturing facility assets |       | —                                     |       | — |   | 3,822 |   |
| Gain on sale of assets                              |       | —                                     |       | — |   | (5,739 | ) |
| Total costs and expenses, net                       |       | 1,795,134                                  |       | 1,623,198 |   | 1,477,359 |   |
| Income before  interest and income taxes            |       | 160,651                                    |       | 150,191 |   | 130,419 |   |
| Interest expense                                    |       | (62,304                                    | )          | (62,707 | ) | (56,694 | ) |
| Income before  income taxes                         |       | 98,347                                     |       | 87,484 |   | 73,725 |   |
| Income tax  expense                                 |       | (37,357                                    | )          | (32,588 | ) | (26,541 | ) |
| Net income                                          |       | $                                          | 60,990     |   | $ | 54,896 |   | $ | 47,184 |   |

 

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

F-24

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**BUILDING MATERIALS CORPORATION OF AMERICACONSOLIDATED BALANCE SHEETS(Dollars in thousands, except per share amounts)**

| ** **                                                                                                                                    | ** ** | **December 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                                                                    | ** ** | **2005**              | ** ** | **2004** | ** ** |
| ** **                                                                                                                                    | ** ** | **(Thousands)**       | ** ** |
| **Assets**                                                                                                                                    |       |                  |       |   |   |
| Current Assets:                                                                                                                               |       |                  |       |   |   |
| Cash and cash equivalents                                                                                                                     |       | $                     | 6,882      |   | $ | 129,482 |   |
| Accounts receivable, trade, less allowance of $2,310  and $1,139, in 2005 and 2004, respectively                                              |       | 269,964               |       | 250,543 |   |
| Accounts receivable, other                                                                                                                    |       | 6,480                 |       | 3,826 |   |
| Tax receivable from parent corporation                                                                                                        |       | 804                   |       | — |   |
| Inventories, net                                                                                                                              |       | 202,698               |       | 174,914 |   |
| Deferred income tax assets, net                                                                                                               |       | 31,842                |       | 43,398 |   |
| Other current assets                                                                                                                          |       | 13,575                |       | 6,499 |   |
| Total Current Assets                                                                                                                          |       | 532,245               |       | 608,662 |   |
| Property, plant and equipment, net                                                                                                            |       | 374,397               |       | 364,514 |   |
| Goodwill, net of accumulated amortization of $16,370  in 2005 and 2004, respectively                                                          |       | 67,134                |       | 63,294 |   |
| Other noncurrent assets                                                                                                                       |       | 30,549                |       | 29,075 |   |
| Total Assets                                                                                                                                  |       | $                     | 1,004,325  |   | $ | 1,065,545 |   |
| **Liabilities  and Stockholders’ Equity (Deficit)**                                                                                      |       |                  |       |   |   |
| Current  Liabilities:                                                                                                                         |       |                  |       |   |   |
| Current maturities of long-term debt                                                                                                          |       | $                     | 19,768     |   | $ | 152,525 |   |
| Accounts payable                                                                                                                              |       | 124,921               |       | 120,337 |   |
| Payable to related parties                                                                                                                    |       | 12,087                |       | 16,900 |   |
| Loans payable to parent corporation                                                                                                           |       | 52,840                |       | 52,840 |   |
| Accrued liabilities                                                                                                                           |       | 115,985               |       | 93,467 |   |
| Reserve for product warranty claims                                                                                                           |       | 14,900                |       | 14,900 |   |
| Total Current Liabilities                                                                                                                     |       | 340,501               |       | 450,969 |   |
| Long-term debt less current maturities                                                                                                        |       | 533,467               |       | 535,952 |   |
| Reserve for product warranty claims                                                                                                           |       | 16,302                |       | 17,213 |   |
| Deferred income tax liabilities                                                                                                               |       | 49,416                |       | 44,773 |   |
| Other liabilities                                                                                                                             |       | 21,613                |       | 19,349 |   |
| Commitments  and Contingencies                                                                                                                |       |                  |       |   |   |
| 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; 0 shares issued and outstanding in 2005  and 2004 |       | —                |       | — |   |
| Loans receivable from parent corporation                                                                                                      |       | (55,840               | )          | (55,691 | ) |
| Retained earnings                                                                                                                             |       | 104,275               |       | 58,332 |   |
| Accumulated other comprehensive loss                                                                                                          |       | (5,410                | )          | (5,353 | ) |
| Total Stockholders’ Equity (Deficit)                                                                                                     |       | 43,026                |       | (2,711 | ) |
| Total Liabilities  and Stockholders’ Equity (Deficit)                                                                                    |       | $                     | 1,004,325  |   | $ | 1,065,545 |   |

 

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

F-25

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**BUILDING MATERIALS CORPORATION OF AMERICACONSOLIDATED STATEMENTSOF CASH FLOWS**

| ** **                                                                                   | ** ** | **Year Ended December 31,** | ** ** |
|----------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                                   | ** ** | **2005**                                   | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                                                                                   | ** ** | **(Thousands)**                            | ** ** |
| Cash and cash  equivalents, beginning of year                                                |       | $                                          | 129,482    |   | $ | 2,880 |   | $ | 96,173 |   |
| Cash provided by (used  in) operating activities:                                            |       |                                       |       |   |   |   |   |
| Net income                                                                                   |       | 60,990                                     |       | 54,896 |   | 47,184 |   |
| Adjustments to  reconcile net income to net cash provided by (used in) operating activities: |       |                                       |       |   |   |   |   |
| Loss on write-down of manufacturing facility assets                                          |       | —                                     |       | — |   | 3,822 |   |
| Gain on sale of assets                                                                       |       | —                                     |       | — |   | (5,739 | ) |
| Depreciation                                                                                 |       | 45,110                                     |       | 43,920 |   | 39,401 |   |
| Amortization                                                                                 |       | 2,687                                      |       | 2,237 |   | 2,096 |   |
| Deferred income taxes                                                                        |       | 16,232                                     |       | (904 | ) | 25,086 |   |
| Noncash interest charges, net                                                                |       | 5,485                                      |       | 6,432 |   | 5,326 |   |
| Increase in working capital items                                                            |       | (29,473                                    | )          | (42,892 | ) | (11,009 | ) |
| Increase (decrease) in long-term reserve for product  warranty claims                        |       | (911                                       | )          | 141 |   | (1,315 | ) |
| Repayments from repurchase of accounts receivable                                            |       | —                                     |       | — |   | (105,388 | ) |
| Increase in other assets                                                                     |       | (8,450                                     | )          | (4,992 | ) | (3,726 | ) |
| Increase in other liabilities                                                                |       | 2,305                                      |       | 26 |   | 1,486 |   |
| Change in net receivable from/payable to related  parties/parent corporations                |       | (5,617                                     | )          | 14,870 |   | (3,547 | ) |
| Other, net                                                                                   |       | 1,312                                      |       | 781 |   | 422 |   |
| Net cash provided  by (used in) operating activities                                         |       | 89,670                                     |       | 74,515 |   | (5,901 | ) |
| Cash provided by  (used in) investing activities:                                            |       |                                       |       |   |   |   |   |
| Capital expenditures and acquisition of  manufacturing facilities in 2005 and 2004           |       | (65,060                                    | )          | (67,184 | ) | (43,320 | ) |
| Proceeds from sale of assets                                                                 |       | 4,717                                      |       | — |   | 9,315 |   |
| Net cash used in  investing activities                                                       |       | (60,343                                    | )          | (67,184 | ) | (34,005 | ) |
| Cash provided by  (used in) financing activities:                                            |       |                                       |       |   |   |   |   |
| Proceeds from loans payable to parent corporation                                            |       | —                                     |       | — |   | 52,840 |   |
| Proceeds from issuance of long-term debt                                                     |       | 553,000                                    |       | 835,340 |   | 427,407 |   |
| Repayments of long-term debt                                                                 |       | (688,902                                   | )          | (695,706 | ) | (471,074 | ) |
| Distributions to parent corporation                                                          |       | (47                                        | )          | (260 | ) | (14 | ) |
| Dividends to parent corporation                                                              |       | (15,000                                    | )          | (15,000 | ) | — |   |
| Loans to parent corporation                                                                  |       | (149                                       | )          | (104 | ) | (52,939 | ) |
| Financing fees and expenses                                                                  |       | (829                                       | )          | (4,999 | ) | (9,607 | ) |
| Net cash provided  by (used in) financing activities                                         |       | (151,927                                   | )          | 119,271 |   | (53,387 | ) |
| Net change in  cash and cash equivalents                                                     |       | (122,600                                   | )          | 126,602 |   | (93,293 | ) |
| Cash and cash  equivalents, end of year                                                      |       | $                                          | 6,882      |   | $ | 129,482 |   | $ | 2,880 |   |

 

F-26

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**BUILDING MATERIALS CORPORATION OF AMERICA CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)**

| ** **                                                                                                                                               | ** ** | **Year Ended December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                                                                                               | ** ** | **2005**                                   | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                                                                                                                                               | ** ** | **(Thousands)**                            | ** ** |
| Supplemental Cash Flow  Information:                                                                                                                     |       |                                       |       |   |   |   |   |
| Effect on cash from  (increase) decrease in working capital items*:                                                                                      |       |                                       |       |   |   |   |   |
| Accounts receivable                                                                                                                                      |       | $                                          | (20,928    | ) | $ | (60,274 | ) | $ | (24,882 | ) |
| Inventories, net                                                                                                                                         |       | (27,274                                    | )          | (38,769 | ) | (16,478 | ) |
| Other current assets                                                                                                                                     |       | (7,071                                     | )          | (1,497 | ) | (1,459 | ) |
| Accounts payable                                                                                                                                         |       | 3,714                                      |       | 27,488 |   | 19,630 |   |
| Accrued liabilities                                                                                                                                      |       | 22,086                                     |       | 30,160 |   | 12,180 |   |
| Net effect on cash from increase in working capital  items                                                                                               |       | $                                          | (29,473    | ) | $ | (42,892 | ) | $ | (11,009 | ) |
| Cash paid during  the period for:                                                                                                                        |       |                                       |       |   |   |   |   |
| Interest (net of amount capitalized of $1,080,  $1,129 and $686 in 2005, 2004 and 2003, respectively)                                                    |       | $                                          | 56,226     |   | $ | 47,468 |   | $ | 52,371 |   |
| Income taxes  (including federal income taxes paid pursuant to a Tax Sharing Agreement of  $21,953, $19,465 and $0 in 2005, 2004 and 2003, respectively) |       | $                                          | 23,140     |   | $ | 20,477 |   | $ | 832 |   |

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*                    Workingcapital items exclude cash and cash equivalents, tax receivable from parentcorporation, deferred income tax assets, net, current maturities of long-termdebt, reserve for product warranty claims and net receivables and loansfrom/payable to related parties/parent corporations. In addition, the increasein receivables shown above for 2003 does not reflect the cash repayments fromthe repurchase of certain of the Company’s receivables (see Note 10 toConsolidated Financial Statements); such repayments are reflected in cash fromoperating activities.

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

F-27

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**BUILDING MATERIALS CORPORATION OF AMERICACONSOLIDATED STATEMENTSOF STOCKHOLDERS’ EQUITY (DEFICIT)**

| ** **                                                      | ** ** | **Capital  Stock and  Additional  Paid-in  Capital** | ** ** | **Loans  Receivable  From Parent  Corporation** | ** ** | **Retained  Earnings  (Accumulated  Deficit)** | ** ** | **Accumulated  Other  Comprehensive  Loss** | ** ** | **Comprehensive  Income (Loss)** | ** ** |
|-----------------------------------------------------------------|------------|-----------------------------------------------------------|------------|------------------------------------------------------|------------|------------------------------------------------|------------|---------------------------------------------|------------|---------------------------------------|------------|
| ** **                                                      | ** ** | **(Thousands)**                                           | ** ** |
| Balance,  December 31, 2002                                |       |                                                      | $          | 1                                                    |       |                                           |       | $                                           | (2,648     | )                                     |       |   | $ | (28,474 | ) |   |   | $ | — |   |   |   |   |   |   |
| Comprehensive  income (loss) year-ended December 31, 2003: |       |                                                      |       |                                                 |       |                                           |       |                                        |       |                                  |       |   |   |   |   |   |   |   |   |   |   |
| Net income                                                      |       |                                                      | —     |                                                 |       |                                           | —     |                                        |       |                                  | 47,184     |   |   |   | — |   |   |   | $ | 47,184 |   |   |
| Other  comprehensive loss, net of tax:                          |       |                                                      |       |                                                 |       |                                           |       |                                        |       |                                  |       |   |   |   |   |   |   |   |   |   |   |
| Minimum pension liability adjustment, net of tax of  $3,041     |       |                                                      | —     |                                                 |       |                                           | —     |                                        |       |                                  | —     |   |   |   | (5,178 | ) |   |   | (5,178 | ) |   |
| Comprehensive income                                            |       |                                                      |       |                                                 |       |                                           |       |                                        |       |                                  |       |   |   |   |   |   |   |   | $ | 42,006 |   |   |
| Distributions to parent corporation                             |       |                                                      | —     |                                                 |       |                                           | —     |                                        |       |                                  | (14        | ) |   |   | — |   |   |   |   |   |   |
| Loans to parent corporation                                     |       |                                                      | —     |                                                 |       |                                           | (52,939    | )                                           |       |                                  | —     |   |   |   | — |   |   |   |   |   |   |
| Balance,  December 31, 2003                                |       |                                                      | $          | 1                                                    |       |                                           |       | $                                           | (55,587    | )                                     |       |   | $ | 18,696 |   |   |   | $ | (5,178 | ) |   |   |   |   |   |
| Comprehensive  income (loss) year-ended December 31, 2004: |       |                                                      |       |                                                 |       |                                           |       |                                        |       |                                  |       |   |   |   |   |   |   |   |   |   |   |
| Net income                                                      |       |                                                      | —     |                                                 |       |                                           | —     |                                        |       |                                  | 54,896     |   |   |   | — |   |   |   | $ | 54,896 |   |   |
| Other  comprehensive loss, net of tax:                          |       |                                                      |       |                                                 |       |                                           |       |                                        |       |                                  |       |   |   |   |   |   |   |   |   |   |   |
| Minimum pension liability adjustment, net of tax of  $103       |       |                                                      | —     |                                                 |       |                                           | —     |                                        |       |                                  | —     |   |   |   | (175 | ) |   |   | (175 | ) |   |
| Comprehensive income                                            |       |                                                      |       |                                                 |       |                                           |       |                                        |       |                                  |       |   |   |   |   |   |   |   | $ | 54,721 |   |   |
| Distributions to parent corporation                             |       |                                                      | —     |                                                 |       |                                           | —     |                                        |       |                                  | (260       | ) |   |   | — |   |   |   |   |   |   |
| Dividends to parent corporation                                 |       |                                                      | —     |                                                 |       |                                           | —     |                                        |       |                                  | (15,000    | ) |   |   | — |   |   |   |   |   |   |
| Loan to parent corporation                                      |       |                                                      | —     |                                                 |       |                                           | (104       | )                                           |       |                                  | —     |   |   |   | — |   |   |   |   |   |   |
| Balance,  December 31, 2004                                |       |                                                      | $          | 1                                                    |       |                                           |       | $                                           | (55,691    | )                                     |       |   | $ | 58,332 |   |   |   | $ | (5,353 | ) |   |   |   |   |   |
| Comprehensive  income (loss) year-ended December 31, 2005: |       |                                                      |       |                                                 |       |                                           |       |                                        |       |                                  |       |   |   |   |   |   |   |   |   |   |   |
| Net income                                                      |       |                                                      | —     |                                                 |       |                                           | —     |                                        |       |                                  | 60,990     |   |   |   | — |   |   |   | $ | 60,990 |   |   |
| Other  comprehensive loss, net of tax:                          |       |                                                      |       |                                                 |       |                                           |       |                                        |       |                                  |       |   |   |   |   |   |   |   |   |   |   |
| Minimum pension liability adjustment, net of tax of  $33        |       |                                                      | —     |                                                 |       |                                           | —     |                                        |       |                                  | —     |   |   |   | (57 | ) |   |   | (57 | ) |   |
| Comprehensive income                                            |       |                                                      |       |                                                 |       |                                           |       |                                        |       |                                  |       |   |   |   |   |   |   |   | $ | 60,933 |   |   |
| Distributions to parent corporation                             |       |                                                      | —     |                                                 |       |                                           | —     |                                        |       |                                  | (47        | ) |   |   | — |   |   |   |   |   |   |
| Dividends to parent corporation                                 |       |                                                      | —     |                                                 |       |                                           | —     |                                        |       |                                  | (15,000    | ) |   |   | — |   |   |   |   |   |   |
| Loan to parent corporation                                      |       |                                                      | —     |                                                 |       |                                           | (149       | )                                           |       |                                  | —     |   |   |   | — |   |   |   |   |   |   |
| Balance,  December 31, 2005                                |       |                                                      | $          | 1                                                    |       |                                           |       | $                                           | (55,840    | )                                     |       |   | $ | 104,275 |   |   |   | $ | 5,410 |   |   |   |   |   |   |

 

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

F-28

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**BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**Note1.   Formation of the Company**

Building Materials Corporation of America (the “Company”)is a leading national manufacturer and marketer of a broad line of asphalt andpolymer based roofing products and accessories for the residential andcommercial roofing markets. The Company also manufactures and markets specialtybuilding products and accessories for the professional and do-it-yourselfremodeling and residential construction industries. See Note 16.

The Company was formed on January 31, 1994 and isa wholly-owned subsidiary of BMCA Holdings Corporation (“BHC”), which is awholly-owned subsidiary of G-I Holdings Inc.  G-I Holdings Inc. is a wholly-owned subsidiaryof G Holdings Inc.

To facilitate administrative efficiency, effective October 31,2000, GAF Corporation, the former indirect parent of the Company, merged intoits direct subsidiary, G-I Holdings Inc. G-I Holdings Inc. then merged into itsdirect subsidiary, G Industries Corp., which in turn merged into its directsubsidiary, GAF Fiberglass Corporation. In that merger, GAF FiberglassCorporation changed its name to GAF Corporation. Effective November 13,2000, GAF Corporation (formerly known as GAF Fiberglass Corporation), mergedinto its direct subsidiary, GAF Building Materials Corporation, whose name waschanged in the merger to G-I Holdings Inc. G-I Holdings Inc. is now an indirectparent of the Company and the Company’s direct parent is BHC. References belowto G-I Holdings means G-I Holdings Inc. and any and all of its predecessorcorporations, including GAF Corporation, G-I Holdings Inc., G Industries Corp.,GAF Fiberglass Corporation and GAF Building Materials Corporation.

Effective as of January 31,1994, G-I Holdings transferred to the Company all of its business and assets,other than three closed manufacturing facilities, certain deferred tax assetsand receivables from affiliates. The Company recorded the assets andliabilities related to such transfer at G-I Holdings’ historical costs. TheCompany contractually assumed all of G-I Holdings’ liabilities, except (i) allof G-I Holdings’ environmental liabilities, other than environmentalliabilities relating to the Company’s plant sites and its business asthen-conducted, (ii) all of G-I Holdings’ tax liabilities, other than taxliabilities arising from the operations or business of the Company and (iii) allof G-I Holdings’ asbestos-related liabilities, other than the first $204.4million of such liabilities (whether for indemnity or defense) relating tothen-pending asbestos-related bodily injury cases and previously settledasbestos-related bodily injury cases, which the Company contractually assumedand agreed to pay.

**Note 2.   Summary ofSignificant Accounting Policies**

*Principles ofConsolidation*

The consolidated financialstatements include the financial statements of the Company and its wholly-ownedsubsidiaries. All significant intercompany balances and transactions have beeneliminated in consolidation.

*Financial StatementEstimates*

The preparation of theCompany’s consolidated financial statements in conformity with U.S. generallyaccepted accounting principles requires the Company’s management to makecertain estimates and judgments that affect the reported amounts of assets,liabilities, revenues and expenses, and related disclosure of contingentliabilities. On an on-going basis the Company evaluates its estimates includingbut not limited to those related to doubtful accounts, inventory valuation,product warranty claims, 

F-29

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**BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**Note 2.**   Summary of Significant AccountingPolicies (Continued)

environmentalliabilities, the carrying value of goodwill, the carrying value of long-lived tangibleand intangible assets, pensions and other postemployment benefits andcontingent liabilities. The Company bases its estimates on historicalexperience and on various other assumptions that are believed to be reasonableunder the circumstances, the results of which form the basis for makingjudgments about the carrying values of assets and liabilities. Actual resultsmay differ from these estimates under different assumptions or conditions. Inthe opinion of management, the consolidated financial statements herein containall adjustments necessary to present fairly the financial position and theresults of operations and cash flows of the Company for the periods presented. TheCompany does not anticipate any changes in management estimates that would havea material impact on operations, liquidity or capital resources, subject to thematters discussed in Note 18.

*Cash and CashEquivalents*

Cash and cash equivalentsinclude cash on deposit and commercial paper purchased with original maturitiesof three months or less.

*Short-termInvestments*

Under our $350 millionSenior Secured Revolving Credit Facility (the “Senior Secured Revolving CreditFacility”) the Company is limited to entering into investments in highly ratedcommercial paper, U.S. government backed securities, certain time deposits andhedging arrangements that protect against or mitigate the effect offluctuations in interest rates, foreign exchange rates or prices of commoditiesused in the Company’s business. At December 31, 2005 and 2004 the Companydid not have any hedging arrangements.

*Accounts Receivable*

Trade accounts receivableare recorded at the invoiced amount and do not bear interest. The allowance fordoubtful accounts is the Company’s best estimate of the amount of credit lossesin the Company’s existing accounts receivable. The Company determines theallowance based on historical write-off experience, as well as customeroperating performance and payment practices. Consequently, an adverse change inthe financial condition of a particular customer could affect the Company’sestimate of its bad debts. The Company reviews its allowance for doubtfulaccounts periodically. Past due balances are reviewed individually forcollectibility. Account balances are charged off against the allowance afterall means of collection have been exhausted and the potential for recovery isconsidered remote. The Company does not have any off-balance sheet creditexposure related to its customers.

*Inventories*

Inventories are stated atthe lower of cost or market. The LIFO (last-in, first-out) method is utilizedto determine the cost for certain asphalt-based products used to produce theCompany’s products. All other inventories are valued on the FIFO (first-in,first-out) method. Sales of inventories and their resulting receivables areincluded in the increase in working capital items in the consolidated statementof cash flows.

F-30

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**BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**Note 2.**   Summary of Significant AccountingPolicies (Continued)

*Property, Plant andEquipment*

Property, plant andequipment is stated at cost less accumulated depreciation and amortization. Depreciationis computed on the straight-line method based on the estimated economic livesof the assets. The Company uses an economic life of 5 to 25 years for landimprovements, 10 to 40 years for buildings and building equipment and 3 to 20years for machinery and equipment, which includes furniture and fixtures. Repairsin excess of $5,000 are capitalized if the repair both extends the useful lifeof an asset beyond its original estimated useful life and adds to the value ofthe asset. Interest charges are capitalized during the period of constructionas part of the cost of property, plant and equipment. Interest capitalizedamounted to $1.1, $1.1 and $0.7 million for 2005, 2004 and 2003, respectively.

*Long-Lived AssetImpairment*

The Company follows theprovisions of Statement of Financial Accounting Standards (“SFAS”) No. 144,“Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS No. 144”).SFAS No. 144 addresses financial accounting and reporting for theimpairment of long-lived assets and for long-lived assets to be disposed of. Forpurposes of recognizing and measuring impairment of long-lived assets, theCompany evaluates assets of its facilities because this is the lowest level ofindependent cash flows ascertainable to evaluate impairment. The Companyreviews long-lived assets to be held and used for impairment whenever events orchanges in circumstances indicate that the carrying amount of the assets maynot be recoverable. For long-lived assets to be held and used, an impairmentexists when the carrying amount of the asset exceeds the estimated undiscountedcash flows. Any resulting impairment is measured based on the fair value of therelated asset. Fair value is determined based on future projected demand andestimated discounted cash flows. See Note 7.

*Asset RetirementObligation*

The Company follows theprovisions of Financial Accounting Standards Board (“FASB”) Interpretation No. 47“Accounting for Conditional Asset Retirement Obligations,” (“FIN 47”), whichwas issued in March 2005, by the FASB. FIN 47 clarifies how the termconditional asset retirement obligation is used in SFAS No. 143 “Accountingfor Asset Retirement Obligations” (“SFAS No. 143”). SFAS No. 143 appliesto a legal obligation to perform an asset retirement activity in which thetiming and/or method of settlement are conditional on a future event that mayor may not be within the control of the entity. FIN 47 clarifies that an entityis required to recognize a liability for the fair value of a conditional assetretirement obligation when incurred if the liability’s fair value can bereasonably estimated. FIN 47 is effective for fiscal years ending after December 15,2005. The Company adopted FIN 47 during the fourth quarter in its fiscal yearended December 31, 2005 and performed an asset retirement obligationanalysis and noted that no conditional asset retirement obligations existed.

*Goodwill*

Goodwill, whichprincipally arose from acquisitions and from the 1989 management-led buyout ofthe predecessor company, was being amortized on the straight-line method over aperiod of approximately 40 years prior to January 1, 2002. With theadoption of Statement of Financial Accounting Standards No. 142, “Goodwilland Other Intangible Assets,” effective as of January 1, 2002, goodwill isno longer subject to 

F-31

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**BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**Note 2.**   Summary of Significant AccountingPolicies (Continued)

amortizationover its estimated useful life. However, goodwill is subject to at least anannual assessment for impairment and more frequently if circumstances indicatea possible impairment. See Note 4.

*Debt Issuance Costs*

Unamortized financing feesand expenses of $11.9 and $16.2 million are included in other noncurrent assetsin the consolidated balance sheets at December 31, 2005 and 2004,respectively. Financing fees and expenses are amortized to interest expenseover the life of the related debt. In 2005, 2004 and 2003, the Companyamortized $5.1, $5.8 and $4.6 million, respectively, related to such expenses.

*SoftwareDevelopment Costs*

Purchased softwaredevelopment costs of $10.1 and $8.7 million, respectively, are included inother noncurrent assets in the consolidated balance sheets at December 31,2005 and 2004. These costs are amortized to expense over a 5 year period. In2005, 2004 and 2003, the Company amortized $2.7, $2.2 and $2.1 million, respectively,related to such costs.

*Revenue Recognition*

Revenue is recognized atthe time products are shipped to the customer. Products are generally shippedFreight on Board, or FOB shipping point. Title and risk of loss passes to thecustomer at the time of shipment.

*Shipping andHandling Costs*

Accrued freight costs of$14.4 and $13.9 million are included in accrued liabilities in the consolidatedbalance sheets at December 31, 2005 and 2004, respectively. Shipping andhandling costs are included in selling, general and administrative expenses andamounted to $177.9, $161.2 and $131.1 million in 2005, 2004 and 2003,respectively.

*Research andDevelopment*

Research and developmentexpenses, which are included in selling, general and administrative expenses,are charged to operations as incurred and amounted to $9.4, $9.3 and $7.6million in 2005, 2004 and 2003, respectively.

*Warranty Claims*

The Company provides certain limited warrantiescovering most of its residential roofing products for periods generally rangingfrom 20 to 40 years, with lifetime limited warranties on certain specialtyshingle products. The Company also offers certain limited warranties of varyingduration covering most of its commercial roofing products. Most of the Company’sspecialty building products and accessories carry limited warranties forperiods generally ranging from 5 to 10 years, with lifetime limited warrantieson certain products. Income from warranty contracts related to commercialroofing products is recognized over the life of the agreements, and is includedin the reserve for product warranty claims, net of the related costs of thewarranty, along with the administrative costs associated with monitoring andsettling claims each year. For 2005, 2004 and 2003, administrative costs forresidential roofing products amounted 

F-32

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**BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**Note 2.**   Summary of Significant AccountingPolicies (Continued)

to $0.5, $0.6 and $0.6 million,respectively. The reserve for product warranty claims is estimated on the basisof historical and projected claims activity, as well as other factors. Theaccuracy of the estimate of additional costs is dependent on both the numberand cost of future claims submitted during the warranty periods.  The Company believes that the reservesestablished for estimated probable future product warranty claims are adequate.

A settlement was reached in 1998 in a national classaction lawsuit related to a specific alleged product defect related to priorproduction processes, which provides customers who purchased asphalt shinglesmanufactured from 1973 through 1997 the right to receive certain limitedbenefits beyond those already provided in their existing product warranty.

In October 1998 G-I Holdings brought suit in theSuperior Court of New Jersey - Middlesex County, on our behalf, against certainof its insurers for recovery of the defense costs in connection with the classaction described above and a declaration that the insurers are obligated toprovide indemnification for all damages paid pursuant to the settlement of thisclass action and for other damages. As of December 31, 2005, this actionis pending.

In November 2002, the FASB issued FASBInterpretation No. 45, “Guarantor’s Accounting and Disclosure Requirementsfor Guarantees, Including Indirect Guarantees of Indebtedness of Others” (“FIN45”). FIN 45 clarifies the requirements for a guarantor’s accounting for anddisclosures of certain guarantees issued and outstanding. The provisions of FIN45 apply to guarantee contracts that contingently require the guarantor to makepayments (in cash, financial instruments, other assets, shares of stock orprovision of services) to the guaranteed party for guarantees such as:  a financial standby letter of credit; amarket value guarantee on either a financial or nonfinancial asset owned by theguaranteed party; and a guarantee of the collection of the scheduledcontractual cash flows from financial assets held by a special-purpose entity. FIN45 also applies to indemnification contracts and indirect guarantees ofindebtedness of others. The requirements of FIN 45 for the initial recognitionand measurement of the liability for a guarantor’s obligations are to beapplied only on a prospective basis to guarantees issued or modified after December 31,2002; however, the Company provides product warranties, which are only subjectto the disclosure requirements under FIN 45. The Company has adopted thedisclosure provisions of FIN 45.  (Seetable below.)

Thereserve for product warranty claims consists of the following:

| ** **                        | ** ** | **2005**        | ** ** | **2004** | ** ** |
|-----------------------------------|------------|-----------------|------------|----------|------------|
| ** **                        | ** ** | **(Thousands)** | ** ** |
| Balance,  January 1          |       | $               | 32,113     |     | $          | 31,972 |   |
| Charged to cost  of products sold |       | 22,880          |       | 23,239   |       |
| Payments/deductions               |       | (23,791         | )          | (23,098  | )          |
| Balance, December 31         |       | $               | 31,202     |     | $          | 32,113 |   |

 

*Income Taxes*

Income taxes are accounted for under the asset andliability method. Deferred tax assets and liabilities are recognized for thefuture tax consequences attributable to differences between the financialstatement carrying amounts of existing assets and liabilities and theirrespective tax bases and operating loss and tax credit carryforwards. Deferredtax assets and liabilities are measured using enacted tax rates expected to 

F-33

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**BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**Note 2.**   Summary of Significant AccountingPolicies (Continued)

apply to taxable income inthe years in which those temporary differences are expected to be recovered orsettled. The effect on deferred tax assets and liabilities of a change in taxrates is recognized in income in the period that includes the enactment date. TheCompany is party to a Tax Sharing Agreement. See Note 9.

In December 2004, theFASB issued FASB Staff Position 109-1 “Application of SFAS No. 109,Accounting for Income Taxes, related to the Tax Deductions Provided to U.S.Based Manufacturers by the American Jobs Creation Act of 2004” (“FSP FAS 109-1”).FSP FAS 109-1 provides guidance on the application of SFAS No. 109,which provides tax relief to U.S. domestic manufacturers. FSP FAS 109-1 guidanceallows for a tax deduction to be created under the Jobs Creation Act of 2004for a manufacturing entity which must be accounted for as a special deductionon qualified production activities, in accordance with SFAS No. 109 andnot a reduction in the effective tax rate. In addition, FSP FAS 109-1provides the special deduction for a manufacturing entity must be consideredwhen measuring deferred taxes when subject to graduated tax rates and assessingwhether a valuation allowance is necessary under SFAS No. 109. As of December 31,2004, the Company adopted FAS FSP 109-1 and noted there was no materialeffect on its 2005 and 2004 consolidated financial statements.

*EnvironmentalLiabilities*

The Company, together with other companies, is a partyto a variety of proceedings and lawsuits involving environmental matters underthe Comprehensive Environmental Response Compensation and Liability Act, andsimilar state laws, in which recovery is sought for the cost of cleanup ofcontaminated sites or remedial obligations are imposed, a number of which arein the early stages or have been dormant for protracted periods. The Companyrefers to these proceedings and lawsuits as “Environmental Claims.”

The Company accruesenvironmental costs when it is probable that it has incurred a liability andthe expected amount can be reasonably estimated and, reviews on an ongoingbasis, our estimated environmental liabilities reserve. The amount accruedreflects the Company’s assumptions about remedial requirements at the contaminatedsite, the nature of the remedy, the outcome of discussions with regulatoryagencies and other potential responsible parties at multi-party sites and thenumber and financial viability of other potentially responsible parties. Adversedecisions or events, particularly as to increases in remedial costs, discoveryof new contamination, assertion of natural resource damages, and the liabilityand the financial responsibility of the Company’s insurers and of the otherparties involved at each site and their insurers, could cause the Company toincrease its estimate of liability in respect of those matters. The Companyestimates that its liability as of December 31, 2005, in respect ofassumed and other environmental liabilities, is $1.1 million, and expectsinsurance recoveries of $1.3 million. Insurance recoveries relate to amountspreviously provided for in the consolidated balance sheets. The Company refersto these recoveries as “estimated recoveries.” The Company’s liability is reflected on an undiscounted basis. The grossenvironmental liability is included within accrued liabilities and otherliabilities, and the estimated recoveries are included within other noncurrentassets. It is not currently possible to estimate the amount or range of any additionalliabilities.

*Pension and OtherPostemployment Benefits*

The Company maintains defined benefit plans thatprovide eligible employees with retirement benefits. In addition, while theCompany generally does not provide postretirement medical and life 

F-34

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**BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**Note 2.**   Summary of Significant AccountingPolicies (Continued)

insurance benefits, itsubsidizes such life insurance benefits for certain employees and certainretirees. The costs and obligations related to these benefits reflect theCompany’s assumptions related to general economic conditions (particularlyinterest rates), expected return on plan assets and rate of compensationincreases for employees. The Company sets the discount rate assumption annuallyfor its retirement-related benefit plans at the measurement dates to reflectthe yield of high-quality fixed-income debt instruments. The expected long-termrate of return on assets is derived from a detailed periodic study conducted bythe Company’s actuaries and its financial management. The study includes areview of anticipated future long-term performance of individual assetcategories. While the study gives appropriate consideration to recent planperformance and historical returns, the assumption is primarily a long-termprospective rate. The Company’s discount rate as of December 31, 2005 and2004 for determining projected benefit obligations was 5.75% and 6.0%,respectively. A 25 basis point increase or decrease in the discount rateassumption would result in a plus or minus $0.1 million impact on pensionexpense and a plus or minus $1.2 million impact on the projected benefitobligation. The Company’s expected long-term rate of return on assetsassumption for its retirement plans was 9.5% in 2005 and 2004. In addition, a25 basis point increase or decrease in the expected long-term rate of return onassets assumption would result in a plus or minus $0.1 million impact onpension expense.

Projected health carebenefits additionally reflect the Company’s assumptions about health care costtrends. The cost of providing plan benefits also depends on demographicassumptions including retirements, mortality, turnover and plan participation. Ifactual experience differs from these assumptions, the cost of providing thesebenefits could increase or decrease.

*2001 Long-TermIncentive Plan*

In December 2004, theFASB issued a revised SFAS No. 123 “Accounting for Stock-BasedCompensation,” (“SFAS No. 123(R)”) “Share-Based Payments” which willrequire compensation costs related to share-based payment transactions to berecognized in the financial statements. SFAS No. 123(R) establishesfair value as the measurement objective in accounting for share-based paymentarrangements and requires all entities to apply a fair-value-based measurementmethod in accounting for share-based payment transactions with employees. SFAS No. 123(R) replacesthe original SFAS No. 123 and supersedes Accounting Principles Board (“APB”)Opinion No. 25, “Accounting for Stock Issued to Employees.”  The Company currently accounts for its unitsgranted to certain employees under the accounting prescribed by applying FASBInterpretation No. 28, “Accounting for Stock Appreciation Rights and OtherVariable Stock Option and Award Plans” (“FIN 28”), which requires an entity tomeasure compensation as the amount by which the Book Value (as defined in thePlan) of the incentive units covered by the grant exceeds the option price orvalue specified of such incentive units at the date of grant. Changes, eitherincreases or decreases, in the Book Value of those incentive units between thedate of grant and the measurement date result in a change in the measure ofcompensation for the right or award. The Company expects to continue to accountfor its long-term incentive units under the accounting prescribed by FIN 28,since the compensation expense related to the Company’s incentive units iscurrently included in its consolidated statements of income. The Company hasadopted the additional disclosure provisions of SFAS No. 123(R). TheCompany’s pro forma net income under SFAS No. 123(R) would have beenthe same as actual net income. See Note 15.

F-35

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**BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**Note 2.**   Summary of Significant Accounting Policies (Continued)

*Accumulated OtherComprehensive Income (Loss)*

Comprehensive income (loss) and its components inannual and interim consolidated financial statements include net income (loss),unrealized gains and losses from investments in available-for-sale securities,net of tax effect, and minimum pension liability adjustments, net of tax effect.The Company has disclosed comprehensive income (loss) in the consolidatedstatements of stockholders’ equity (deficit).

Changesin the components of accumulated other comprehensive loss for the years 2005,2004 and 2003 are as follows:

| ** **                                      | ** ** | **Minimum  Pension  Liability  Adjustment** | ** ** | **Accumulated  Other  Comprehensive  Loss** | ** ** |
|-------------------------------------------------|------------|---------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                      | ** ** | **(Thousands)**                             | ** ** |
| Balance,  December 31, 2002                |       |                                        | $          | —                                      |       |   |   | $ | — |   |   |
| Change for the  year 2003, net of tax of $3,041 |       |                                        | (5,178     | )                                           |       |   | (5,178 | ) |   |
| Balance,  December 31, 2003                |       |                                        | $          | (5,178                                      | )          |   |   | $ | (5,178 | ) |   |
| Change for the  year 2004, net of tax of $103   |       |                                        | (175       | )                                           |       |   | (175 | ) |   |
| Balance,  December 31, 2004                |       |                                        | $          | (5,353                                      | )          |   |   | $ | (5,353 | ) |   |
| Change for the  year 2005, net of tax of $33    |       |                                        | (57        | )                                           |       |   | (57 | ) |   |
| Balance, December 31,  2005                |       |                                        | $          | (5,410                                      | )          |   |   | $ | (5,410 | ) |   |

 

*Concentration ofCredit Risk*

Financial instrumentswhich potentially subject the Company to a concentration of credit riskprincipally consist of cash equivalents and trade receivables. The Companyplaces its temporary cash investments with highly rated U.S. Governmentinstruments, commercial paper of prime quality and certain time deposits. Toreduce credit risk, the Company performs periodic credit evaluations of itscustomers, but does not generally require advance payments or collateral.

*Reclassifications*

Certain reclassifications have been made to conform tocurrent year presentation.

**Note 3.   NewAccounting Pronouncements**

In November 2004, the FASB issued SFASNo. 151 “Inventory Costs” (“SFAS No. 151”) which clarifies theaccounting for abnormal amounts of idle facility expense, freight, handlingcosts, and wasted material (spoilage). SFAS No. 151 amends AccountingResearch Bulletin (“ARB”) No. 43, Chapter 4 “Inventory Pricing” (“ARBNo. 43”) and requires abnormal inventory costs to be recognized as currentperiod charges regardless of whether they meet the “so abnormal” criterionoutlined in ARB No. 43. SFAS No. 151 also introduces the concept of“normal capacity” and requires the allocation of fixed production overheads toinventory based on the normal capacity of the production facilities.Furthermore, SFAS No. 151 requires unallocated overheads be recognized asan expense in the period in which they are incurred. SFAS No. 151 iseffective for costs occurring in fiscal reporting years beginning afterJune 15, 2005. As of January 1, 2006 the Company will adopt theprovisions of SFAS No. 151 and does not anticipate any material effect onits consolidated financial statements.

F-36

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**BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**Note 3.   NewAccounting Pronouncements (Continued)**

In December 2004, the FASB issued a revised SFAS No. 123“Accounting for Stock-Based Compensation,” SFAS No. 123(R) “Share-BasedPayments” which will require compensation costs related to share-based paymenttransactions to be recognized in the financial statements. SFAS No. 123(R) establishesfair value as the measurement objective in accounting for share-based paymentarrangements and requires all entities to apply a fair-value-based measurementmethod in accounting for share-based payment transactions with employees. SFAS No. 123(R) replacesthe original SFAS No. 123 and supersedes APB Opinion No. 25, “Accountingfor Stock Issued to Employees.”  SFAS No. 123(R) becomeseffective beginning with the first interim or annual reporting period after June 15,2005. As of December 31, 2005, the Company currently accounts for its 2001Long-Term Incentive Plan under the accounting prescribed by FIN 28, “Accountingfor Stock Appreciation Rights and Other Variable Stock Option and Award Plans.”  Since compensation expense related to theCompany’s incentive units is currently included in its consolidated statementsof income, the Company does not expect SFAS No. 123(R) to have animpact on its consolidated financial statements. The Company adopted theadditional disclosure provisions of SFAS No. 123(R) as of December 31,2005. See Notes 2 and 15.

In December 2004, the FASB issued SFAS No. 153“Exchanges of Nonmonetary Assets” (“SFAS No. 153”) which replaces theexception from fair value measurement in APB Opinion No. 29 “Accountingfor Nonmonetary Transactions,” for nonmonetary exchanges of similar productiveassets. SFAS No. 153 replaces this exception with a general exception fromfair value measurement for exchanges of nonmonetary assets that do not havecommercial substance. A nonmonetary exchange has commercial substance if thefuture cash flows of the entity are expected to change significantly as aresult of the exchange. SFAS No. 153 is effective for nonmonetary assetexchanges occurring in fiscal reporting periods beginning after June 15,2005. As of January 1, 2006, the Company will adopt the provisions of SFASNo. 153 and does not anticipate any nonmonetary asset exchanges.

In March 2005, the FASB issued FASB StaffPosition (“FSP”) FIN 46(R)-5 “Implicit Variable Interests Under FASBInterpretation No. 46(R), Consolidation of Variable Interest Entities,” (“FSPFIN 46(R)-5”). FSP FIN 46(R)-5 offers additional guidance to FIN 46(R) statingthat implicit variable interests are implied financial interests in an entitythat change in accordance with changes in the fair value of the entity’s netassets, exclusive of variable interests. FSP FIN 46(R)-5 is effectiveduring a company’s first reporting period after March 3, 2005. The Companyadopted FSP FIN 46(R)-5 during its second quarter ended July 3, 2005.At December 31, 2005, the Company did not have any interests in variableinterest entities; therefore, FSP FIN 46(R)-5 and FIN 46(R) did nothave any impact on the Company’s financial condition or results of operations.

In March 2005, the FASB issued FIN 47 “Accountingfor Conditional Asset Retirement Obligations,” which clarifies how the termconditional asset retirement obligation is used in SFAS No. 143 “Accountingfor Asset Retirement Obligations.”  SFAS No. 143applies to a legal obligation to perform an asset retirement activity in whichthe timing and/or method of settlement are conditional on a future event thatmay or may not be within the control of the entity. FIN 47 clarifies that anentity is required to recognize a liability for the fair value of a conditionalasset retirement obligation when incurred if the liability’s fair value can bereasonably estimated. FIN 47 is effective for fiscal years ending after December 15,2005. The Company adopted FIN 47 during the fourth quarter in its fiscal yearended December 31, 2005 and performed an asset retirement obligationanalysis and noted that no conditional asset retirement obligations existed.

F-37

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**BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**Note 3.**   New Accounting Pronouncements(Continued)

In May 2005, the FASB issued SFAS No. 154, “AccountingChanges and Error Corrections” (“SFAS No. 154”), which eliminates therequirement of APB Opinion No. 20, “Accounting Changes,” to include thecumulative effect adjustment resulting from a change in an accounting principlein the income statement in the period of change. SFAS No. 154 requiresthat a change in an accounting principle or reporting entity be retrospectivelyapplied. Under retrospective application, SFAS No. 154 is applied as ofthe beginning of the first accounting period presented in the financialstatements and the cumulative effect of the change is reflected in the carryingvalue of assets and liabilities as of the first period presented and theoffsetting adjustments are recorded to opening retained earnings. Each periodpresented is adjusted to reflect the period-specific effects of applying thechange. Changes in accounting estimate and corrections of errors continue to beaccounted for in the same manner as prior to the issuance of SFAS No. 154.SFAS No. 154 is effective for accounting changes and corrections of errorsmade in fiscal years beginning after December 15, 2005. As of January 1,2006, the Company will adopt the provisions of SFAS No. 154.

**Note 4.   Goodwill**

Through December 31, 2001, the Company amortizedgoodwill on a straight-line basis over the expected useful lives of theunderlying assets. In accordance with the provisions of SFAS No. 142 (seeNote 2), “Goodwill and Other Intangible Assets,” effective January 1,2002, goodwill is no longer amortized over its estimated useful life. However,goodwill is subject to at least an annual assessment for impairment and morefrequently if circumstances indicate a possible impairment. This assessmentcould result in a material future impairment charge.

The Company evaluated the recoverability of goodwillfor its roofing products and specialty building products and accessoriesreporting units. The Company’s methodology included evaluations using estimatedfuture discounted cash flows, multiples of net sales and multiples of earningsbefore interest, taxes, depreciation and the amortization of other assets (“EBITDA”).The Company’s analysis was completed for each of the reporting units to which thegoodwill relates. If the estimated range of fair values from the methodologiesemployed are less than the carrying value of the related reporting unit,impairment losses for goodwill are charged to results of operations. Indetermining the estimated future discounted cash flows, the Company consideredprojected future levels of income, future business trends and market andeconomic conditions. The Company’s analysis related to multiples of net salesand EBITDA are based on related industry data. The Company adopted SFAS No. 142effective January 1, 2002 and prepared an impairment analysis at December 31,2005, 2004 and 2003 and noted no impairment existed.

The carrying amount ofgoodwill was $67.1, $63.3 and $63.3 million as of December 31, 2005, 2004and 2003. Such goodwill amounts to $59.5, $55.6 and $55.6 million for theroofing products reporting unit and $7.6, $7.7 and $7.7 million related to thespecialty building products and accessories reporting unit as of December 31,2005, 2004 and 2003, respectively. The increase in the carrying amount ofgoodwill is due to an acquisition in 2005 of an entity that manufacturers andsells roofing accessories.

**Note 5.   Asbestos-relatedBodily Injury Claims**

In connection with its formation, the Companycontractually assumed and agreed to pay the first $204.4 million of liabilitiesfor asbestos-related bodily injury claims relating to the inhalation ofasbestos fiber (“Asbestos Claims”) of its indirect parent, G-I Holdings. As of March 30,1997, the Company paid all of its assumed asbestos-related liabilities. In January 2001,G-I Holdings filed a voluntary petition for 

F-38

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**BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**Note 5.**   Asbestos-related BodilyInjury Claims (Continued)

reorganization underChapter 11 of the U.S. Bankruptcy Code due to Asbestos Claims. Most asbestosclaims do not specify the amount of damages sought. This Chapter 11 proceedingremains pending.

Claimants in the G-I Holdings’ bankruptcy, includingjudgment creditors, might seek to satisfy their claims by asking the bankruptcycourt to require the sale of G-I Holdings’ assets, including its holdings ofBMCA Holdings Corporation’s common stock and its indirect holdings of theCompany’s common stock. Such action could result in a change of control of theCompany. In addition, those creditors may attempt to assert Asbestos Claimsagainst the Company. Approximately 1,900 Asbestos Claims were filed against theCompany prior to February 2, 2001. The Company believes that it will notsustain any liability in connection with these or any other Asbestos Claims. OnFebruary 2, 2001, the United States Bankruptcy Court for the District ofNew Jersey issued a temporary restraining order enjoining any existing orfuture claimant from bringing or prosecuting an Asbestos Claim against theCompany. By oral opinion on June 22, 2001, and written order entered February 22, 2002, the courtconverted the temporary restraints into a preliminary injunction, prohibitingthe bringing or prosecution of any such Asbestos Claim against the Company. On February 7,2001, G-I Holdings filed an action in the United States Bankruptcy Court forthe District 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 thismatter, the Official Committee of Asbestos Claimants (the “creditors’ committee”),subsequently filed a counterclaim against BMCA seeking a declaration that BMCAhas successor liability for Asbestos Claims against G-I Holdings and that BMCAis the alter ego of G-I Holdings. On May 13, 2003 the United StatesDistrict Court for the District of New Jersey overseeing the G-I Holdings’Bankruptcy Court withdrew the reference of the BMCA Action from the BankruptcyCourt, and this matter will therefore be heard by the District Court. On July 26,2005, one party in the BMCA Action, the legal representative of future demandholders in the G-I bankruptcy, was dismissed from the case. The District Courtoriginally scheduled this matter for trial beginning April 3, 2006 but dueto the retirement of the district judge, the trial has been adjourned withoutdate pending reassignment to a new judge. The BMCA Action continues against thecreditors’ committee in the G-I Holdings bankruptcy. It is not possible topredict the outcome of this litigation, although the Company believes itsclaims are meritorious. While the Company cannot predict whether any additionalAsbestos Claims will be asserted against it or its assets, or the outcome ofany litigation relating to those claims, the Company believes that it hasmeritorious defenses to any claim that it has asbestos-related liability,although there can be no assurances in this regard.

On or about February 8, 2001, the creditors’committee established in G-I Holdings’ bankruptcy case filed a complaint in theUnited States Bankruptcy Court, District of New Jersey against G-I Holdings andthe Company. The complaint requests substantive consolidation of the Companywith G-I Holdings or an order directing G-I Holdings to cause the Company tofile for bankruptcy protection. The Company and G-I Holdings intend tovigorously defend the lawsuit. The plaintiffs also filed for interim reliefabsent the granting of their requested relief described above. On March 21,2001, the bankruptcy court denied plaintiffs’ application for interim relief. InNovember 2002, the creditors’ committee, joined in by the legalrepresentative of future demand holders, filed a motion for appointment of atrustee in the G-I Holdings’ bankruptcy. In December 2002, the bankruptcycourt denied the motion. The creditors’ committee appealed the ruling to theUnited States District Court, which denied the appeal on June 27, 2003. Thecreditors’ committee has appealed the denial to the Third Circuit Court ofAppeals, which denied the appeal on September 24, 2004. The creditors’committee filed a petition with the Third Circuit Court of 

F-39

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**BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**Note 5.**   Asbestos-related Bodily Injury Claims (Continued)

Appeals for a rehearing ofits denial of the creditors’ committee’s appeal, which was denied by the courton October 26, 2004.

On February 27, 2004, the creditors’ committee,joined in by the legal representative, filed a motion to modify the preliminaryinjunction and to seek authority by the bankruptcy court to avoid, on variousgrounds, certain liens granted in connection with the financing obtained by theCompany in December 2000. G-I Holdings and the Company have opposed themotion, and a hearing on the motion was held by the bankruptcy court on March 29,2004. By opinion dated June 8, 2004, the court granted the motion in partand denied it in part. On July 7, 2004, the creditors’ committee filed aclaim challenging, as a fraudulent conveyance, the transactions entered into inconnection with the Company’s formation in 1994, in which G-I Holdings causedto be transferred to the Company all of its roofing business and assets and inwhich the Company assumed certain liabilities relating to those assets,including a specified amount of asbestos liabilities (the “1994 transaction”). Inaddition, on July 7, 2004, the creditors’ committee filed a claim againstholders of the Company’s bank and bond debt outstanding in 2000, seeking toavoid the liens granted to them, based on the committee’s theory that the 1994transaction was a fraudulent conveyance. On August 3, 2004, the creditors’committee filed an amended complaint adding the names of additional allegedbondholders. On July 20, 2004, the creditors’ committee appealed the court’sdecision, issued on June 8, 2004, seeking the authority to file a lawsuitagainst the banks and bondholders discussed above, challenging the liensgranted to them in 2000 as a fraudulent conveyance and are appealing, amongother things, certain adverse rulings relating to statute of limitation issues.G-I Holdings, the holders of our bank and bond debt and we have filed crossappeals. This appeal remains pending before the District Court.

The Company believes that the claims of the creditors’committee are without merit. However, if the Company is not successfuldefending against one or more of these claims, the Company may be forced tofile for bankruptcy protection and/or contribute all or a substantial portionof its assets to satisfy the claims of G-I Holdings’ creditors. Either of theseevents, or the substantive consolidation of G-I Holdings and the Company, wouldweaken its operations and cause it to divert a material amount of its cash flowto satisfy the asbestos claims of G-I Holdings, and may render it unable to payinterest or principal on its credit obligations.

For a further discussionwith respect to the history of the foregoing litigation, and asbestos-relatedmatters and other litigation, see Notes 2, 9, 13 and 18.

**Note 6.   Acquisitionsand Property Dispositions**

In 2005, we sold property in Houston, Texas for cashproceeds of approximately $4.1 million, which approximated carrying value.

In May 2004, the Company acquired certain assetsof a manufacturing facility located in Quakertown, Pennsylvania from AtlasRoofing Corporation. The acquisition was accounted for under the purchasemethod of accounting. Accordingly, the purchase price was allocated to the fairvalue of the identifiable assets acquired, which consisted almost entirely ofproperty, plant and equipment. The operating results of the Quakertownmanufacturing facility are included in the Company’s results of operations fromthe date of its acquisition.

In May 2003, theCompany sold property in Ontario, California for cash proceeds of approximately$9.3 million, which resulted in a pre-tax gain of approximately $5.7 million.

F-40

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**BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**Note 7.   AssetImpairment**

In December 2003, theCompany evaluated all the assets located at its previously closed Albuquerque,New Mexico manufacturing facility. The Company’s evaluation included a reviewof the carrying value of all assets and resulted in the recording of a pre-taximpairment loss of $3.8 million, based on an estimate of the net realizablevalue of the assets. See Note 8.

**Note 8.   ManufacturingFacilities Shutdown**

In response to currentmarket conditions, to better service shifting customer demand and to reducecosts, the Company closed or idled four manufacturing facilities during 2000located in Monroe, Georgia; Port Arthur, Texas; Corvallis, Oregon; andAlbuquerque, New Mexico. The Company sold, in previous years, the Corvallis,Oregon and the Monroe, Georgia manufacturing facilities after their respectiveshutdown. See Note 7 for the write-down of Albuquerque, New Mexicomanufacturing facility assets in 2003. As market growth and customer demandimproves, the Company may reinstate production at one or both of the tworemaining manufacturing facilities in the future. The effect of closing thesefacilities was not material to the Company’s results of operations.

**Note 9.   Income Taxes(Expense) Benefit**

Incometax expense, which has been computed on a separate return basis, consists ofthe following:

| ** **            | ** ** | **Year Ended December 31,** | ** ** |
|-----------------------|------------|--------------------------------------------|------------|
| ** **            | ** ** | **2005**                                   | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **            | ** ** | **(Thousands)**                            | ** ** |
| Federal:              | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| Current               |       | $                                          | (17,324    | ) | $ | (30,334 | ) | $ | (3,207 | ) |
| Deferred              |       | (15,355                                    | )          | 489 |   | (22,587 | ) |
| Total federal         |       | (32,679                                    | )          | (29,845 | ) | (25,794 | ) |
| State and local:      |       |                                       |       |   |   |   |   |
| Current               |       | (3,801                                     | )          | (3,158 | ) | (1,156 | ) |
| Deferred              |       | (877                                       | )          | 415 |   | 409 |   |
| Total state and local |       | (4,678                                     | )          | (2,743 | ) | (747 | ) |
| Income tax expense    |       | $                                          | (37,357    | ) | $ | (32,588 | ) | $ | (26,541 | ) |

 

Thedifferences between the income tax expense computed by applying the statutoryFederal income tax rate to pre-tax income, and the income tax expense reflectedin the consolidated statements of income are as follows:

| ** **                                     | ** ** | **Year Ended December 31,** | ** ** |
|------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                     | ** ** | **2005**                                   | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                                     | ** ** | **(Thousands)**                            | ** ** |
| Statutory expense                              |       | $                                          | (34,421    | ) | $ | (30,619 | ) | $ | (25,804 | ) |
| Impact of:                                     |       |                                       |       |   |   |   |   |
| State and local taxes, net of Federal benefits |       | (3,041                                     | )          | (1,783 | ) | (486 | ) |
| Other, net                                     |       | 105                                        |       | (186 | ) | (251 | ) |
| Income tax expense                             |       | $                                          | (37,357    | ) | $ | (32,588 | ) | $ | (26,541 | ) |

 

F-41

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**BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**Note 9.**   Income Taxes (Expense) Benefit(Continued)

The components of the net deferred tax liabilities areas follows:

| ** **                                          | ** ** | **December 31,** | ** ** |
|-----------------------------------------------------|------------|-----------------------|------------|
| ** **                                          | ** ** | **2005**              | ** ** | **2004** | ** ** |
| ** **                                          | ** ** | **(Thousands)**       | ** ** |
| Deferred tax liabilities related to:                |       |                  |       |   |   |
| Property, plant and  equipment                      |       | $                     | (68,518    | ) | $ | (66,406 | ) |
| Other                                               |       | (266                  | )          | (707 | ) |
| Total deferred tax  liabilities                     |       | (68,784               | )          | (67,113 | ) |
| Deferred tax assets related to:                     |       |                  |       |   |   |
| Expenses not yet  deducted for tax purposes         |       | 51,210                |       | 65,738 |   |
| Total deferred tax  assets                          |       | 51,210                |       | 65,738 |   |
| Net deferred tax  liabilities                       |       | (17,574               | )          | (1,375 | ) |
| Deferred tax assets  reclassified to current assets |       | (31,842               | )          | (43,398 | ) |
| Noncurrent deferred tax liabilities                 |       | $                     | (49,416    | ) | $ | (44,773 | ) |

 

Based upon the level of historical taxable income andprojections for future taxable income over the period in which the Company’sdeferred tax assets are deductible, the Company believes that it is more likelythan not that the Company will receive the benefits of these deductibledifferences at December 31, 2005 and 2004.

As of December 31, 2005, the Company has includedon its consolidated balance sheet a tax receivable from parent corporation of$0.8 million, representing amounts paid in excess of amounts due in 2005 to G-IHoldings under the Tax Sharing Agreement (as defined below). As of December 31,2004, the Company has included on its consolidated balance sheet in currentliabilities a tax payable to parent corporation of $3.8 million, which isincluded in payable to related parties, representing amounts due to G-IHoldings under the Tax Sharing Agreement (as defined below). As of December 31,2003, the Company has included on its consolidated balance sheet a taxreceivable from parent corporation of $7.0 million, representing amounts paidto G-I Holdings under the Tax Sharing Agreement, which the Company appliedagainst 2004 tax sharing payments due to G-I Holdings.

The Company and its subsidiaries entered into a taxsharing agreement (the “Tax Sharing Agreement”) dated January 31, 1994 andlater amended on March 19, 2001, with G-I Holdings, with respect to thepayment of federal income taxes and related matters. During the term of the TaxSharing Agreement, which is effective for the period during which the Companyor any of its domestic subsidiaries is included in a consolidated federalincome tax return for the G-I Holdings’ consolidated tax group, the Company isobligated to pay G-I Holdings an amount equal to those federal income taxes itwould have incurred if the Company, on behalf of itself and its domesticsubsidiaries, filed its own federal income tax return. Unused tax attributeswill carry forward for use in reducing amounts payable by the Company to G-IHoldings in future years, but cannot be carried back. If the Company ever wereto leave the G-I Holdings’ consolidated tax group, it would be required to payto G-I Holdings the value of any tax attributes to which it would succeed underthe consolidated return regulations to the extent the tax attributes reducedthe amounts otherwise payable by the Company under the Tax Sharing Agreement. Underlimited circumstances, the provisions of the Tax Sharing Agreement could resultin the Company having a greater liability under the agreement than it wouldhave had if it and its domestic subsidiaries had 

F-42

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**BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**Note 9.**   Income Taxes (Expense) Benefit (Continued)

filed its own separatefederal income tax return. Under the Tax Sharing Agreement, the Company andeach of its domestic subsidiaries are responsible for any taxes that would bepayable by reason of any adjustment to the tax returns of G-I Holdings or itssubsidiaries for years prior to the adoption of the Tax Sharing Agreement thatrelate to the Company’s business or assets or the business or assets of any ofits domestic subsidiaries. Although, as a member of the G-I Holdings’consolidated tax group, the Company is severally liable for certain federalincome tax liabilities of the G-I Holdings’ consolidated tax group, includingtax liabilities not related to its business, the Company should have noliability other than liabilities arising from the Company’s operations and theoperations of its domestic subsidiaries and tax liabilities for tax yearspre-dating the Tax Sharing Agreement that relate to the Company’s business orassets and the business or assets of any of its domestic subsidiaries. The TaxSharing Agreement provides for analogous principles to be applied to anyconsolidated, combined or unitary state or local income taxes. Under the TaxSharing Agreement, G-I Holdings makes all decisions with respect to all mattersrelating to taxes of the G-I Holdings’ consolidated tax group. The provisionsof the Tax Sharing Agreement take into account both the federal income taxesthe Company would have incurred if it filed its own separate federal income taxreturn and the fact that the Company is a member of the G-I Holdings’consolidated tax group for federal income tax purposes.

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 “surfactants partnership”), apartnership in which G-I Holdings held an interest. G-I Holdings has advisedthe Company that it believes that it will prevail in this tax matter arisingout of the surfactants partnership, although there can be no assurance in thisregard. The Company believes that the ultimate disposition of this matter willnot have a material adverse effect on its business, financial position orresults of operations. On September 21, 2001, the IRS filed a proof ofclaim with respect to such deficiency against G-I Holdings in the G-I Holdings’bankruptcy. If such proof of claim is sustained, the Company and/or certain ofthe Company’s subsidiaries together with G-I Holdings and several current andformer subsidiaries of G-I Holdings would be severally liable for a portion ofthose taxes and interest. G-I Holdings has filed an objection to the proof ofclaim. If the IRS were to prevail for the years in which the Company and/orcertain of its subsidiaries were part of the G-I Holdings Group, the Companywould be severally 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 liabilities and the application of tax credits anddeductions.

**Note 10.   Sale ofAccounts Receivable**

In March 1993, the Company sold its tradeaccounts receivable (“receivables”) to a trust, without recourse, pursuant toan agreement which provided for a maximum of $75.0 million in cash to be madeavailable to the Company based on Eligible Receivables, as defined, outstandingfrom time to time. In November 1996, the Company entered into newagreements, which provided for a maximum of $115.0 million, pursuant to whichit sold the receivables to a special purpose subsidiary of the Company, BMCAReceivables Corporation, without recourse, which in turn sold them, withoutrecourse. In December 2001, this facility matured and $115.0 million wasrepaid to settle previous amounts made available to the Company.

F-43

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**BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**Note 10.**   Sale of Accounts Receivable (Continued)

In December 2001, the Company entered into a newAccounts Receivable Securitization Agreement (“the Securitization Agreement”)under which the Company sold certain of its trade accounts receivable to BMCAReceivables Corporation, without recourse, which in turn sold them to a thirdparty, without recourse. The Agreement provided for a maximum of $115.0 millionin cash to be made available to the Company based on the sale of EligibleReceivables outstanding from time to time. This agreement, initially scheduledto mature in December 2004, was subject to financial and other covenants,including a material adverse change in business conditions, financial orotherwise and was terminated in July 2003. With the termination of theSecuritization Agreement the Company also repurchased its undivided interest inthe associated receivables. In connection with the termination of theSecuritization Agreement in July 2003, the Company repaid $115.0 millionof amounts outstanding under such agreement. As a result of the termination ofthe Securitization Agreement, accounts receivable and long-term debt at December 31,2003 increased by approximately $105.4 million as compared to prior year. TheCompany also liquidated BMCA Receivables Corporation effective August 2003.

BMCA Receivables Corporation was not a guarantor underthe Company’s debt obligations. See Notes 13 and 19 to Consolidated FinancialStatements. The effective cost to the Company varied with LIBOR and is includedin other expense, net and amounted to $0, $0 and $1.6 million in 2005, 2004 and2003, respectively.

**Note 11.   Inventories**

AtDecember 31, 2005 and 2004, $37.9 and $33.4 million, respectively, ofinventories were valued using the LIFO method. Inventories consist of thefollowing:

| ** **                  | ** ** | **December 31,** | ** ** |
|-----------------------------|------------|-----------------------|------------|
| ** **                  | ** ** | **2005**              | ** ** | **2004** | ** ** |
| ** **                  | ** ** | **(Thousands)**       | ** ** |
| Finished goods              |       | $                     | 149,049    |   | $ | 119,649 |   |
| Work-in process             |       | 12,904                |       | 13,829 |   |
| Raw materials and  supplies |       | 56,413                |       | 50,237 |   |
| Total                       |       | 218,366               |       | 183,715 |   |
| Less LIFO reserve           |       | (15,668               | )          | (8,801 | ) |
| Inventories                 |       | $                     | 202,698    |   | $ | 174,914 |   |

 

**Note 12.   Property,Plant and Equipment**

Property, plant andequipment consists of the following:

| ** **                                      | ** ** | **December 31,** | ** ** |
|-------------------------------------------------|------------|-----------------------|------------|
| ** **                                      | ** ** | **2005**              | ** ** | **2004** | ** ** |
| ** **                                      | ** ** | **(Thousands)**       | ** ** |
| Land and land  improvements                     |       | $                     | 36,220     |   | $ | 36,015 |   |
| Buildings and building  equipment               |       | 94,689                |       | 95,769 |   |
| Machinery and equipment                         |       | 498,319               |       | 489,147 |   |
| Construction in progress                        |       | 42,714                |       | 16,938 |   |
| Total                                           |       | 671,942               |       | 637,869 |   |
| Less accumulated  depreciation and amortization |       | (297,545              | )          | (273,355 | ) |
| Property, plant and equipment, net              |       | $                     | 374,397    |   | $ | 364,514 |   |

 

See Note 13 regarding thedisposition of the Chester machinery and equipment capital lease in 2003.Depreciation expense for 2005, 2004 and 2003 was $45.1, $43.9 and $39.4million, respectively.

F-44

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**BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

 

**Note 13.   Long-TermDebt**

Long-termdebt consists of the following:

| ** **                                                                                  | ** ** | **December 31,** | ** ** |
|---------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                  | ** ** | **2005**              | ** ** | **2004** | ** ** |
| ** **                                                                                  | ** ** | **(Thousands)**       | ** ** |
| 7 3/4% Senior  Notes due 2005                                                               |       | $                     | —     |   | $ | 149,949 |   |
| 8% Senior Notes  due 2007                                                                   |       | 99,865                |       | 99,791 |   |
| 8% Senior Notes  due 2008                                                                   |       | 154,754               |       | 154,670 |   |
| 7 3/4% Senior  Notes due 2014                                                               |       | 250,770               |       | 250,859 |   |
| Borrowings under  the Senior Secured  Revolving Credit Facility                             |       | 17,000                |       | — |   |
| Industrial  development revenue bonds with various interest ratesand maturity dates to 2029 |       | 14,200                |       | 14,280 |   |
| Chester Loan                                                                                |       | 13,817                |       | 16,317 |   |
| Other notes  payable                                                                        |       | 2,829                 |       | 2,611 |   |
| Total                                                                                       |       | 553,235               |       | 688,477 |   |
| Less current  maturities                                                                    |       | (19,768               | )          | (152,525 | ) |
| Long-term debt less  current maturities                                                     |       | $                     | 533,467    |   | $ | 535,952 |   |

 

In December 1996, the Company issued $100 millionin aggregate principal amount of 8 5/8% Senior Notes due 2006 (the “2006 Notes”)at 99.502% of the principal amount. In October 1997, the Company issued$100 million in aggregate principal amount of 8% Senior Notes due 2007 (the “2007Notes”) at 99.254% of the principal amount. In July 1998, the Companyissued $150 million in aggregate principal amount of 7 3/4% Senior Notes due2005 (the “2005 Notes”) at 99.574% of the principal amount. In November 1998,the Company issued $155 million in aggregate principal amount of 8% SeniorNotes due 2008 (the “2008 Notes”) at 99.457% of the principal amount.

In July 2000, the Company issued $35 million inaggregate principal amount of 10 1⁄2% Senior Notes, due 2002 at 97.161% of theprincipal amount, the maturity date of which was extended to September 2003(the “2003 Notes”) in connection with the Company entering into a securedrevolving credit facility in December 2000 (see below). In September 2003,the Company used proceeds from the Senior Secured Revolving Credit Facility(see below) to repay these notes at maturity, aggregating $35 million plusaccrued interest of $0.7 million. The Company used the net proceeds from theissuance of the 2003 Notes to repay a $31.9 million bank term loan due 2004(the “Term Loan”) with the remaining net proceeds used for general corporatepurposes. In connection with the extinguishment of the term loan, unamortizeddeferred financing fees of approximately $0.5 million were included in interestexpense. The redemption price was 105.875% of the principal amount outstandingand the premium of approximately $2.1 million was included in interest expense.

Holders of the 2007 Notes and the 2008 Notes have theright under the indentures governing such notes to require the Company topurchase these senior notes at a price of 100% of the principal amount thereof,and the Company has the right to redeem these senior notes at a price of 100%of the principal amount thereof, plus, in each case, the Applicable Premium (asdefined therein), together with any accrued and unpaid interest, in the eventof a Change of Control (as defined therein).

F-45

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**BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**Note 13.**   Long-Term Debt(Continued)

In August 1999, the Company entered into a $110million secured revolving credit facility. In December 2000, the Companyentered into an additional $100 million secured revolving credit facility to beused for working capital purposes subject to certain restrictions. In December 2002,the Company consolidated and restated both credit facilities into its $210million Consolidated and Restated Credit Agreement (the “Credit Agreement”). Inconnection with entering into the additional $100 million secured revolvingcredit facility in December 2000, the Company also issued a precious metalnote (the “Precious Metal Note”), which bears interest rates similar to theCredit Agreement, to finance precious metals used in the Company’smanufacturing processes. The Credit Agreement, which was initially scheduled tomature in August 2003, was repaid and replaced in July 2003, with anew senior secured credit facility (see below). The terms of the CreditAgreement provided for a $210 million secured revolving credit facility, thefull amount of which was available for letters of credit, provided that totalborrowings and outstanding letters of credit did not exceed $210 million in theaggregate. The Credit Agreement had interest at a floating rate based on thelenders’ Base Rate, as defined, the federal funds rate or the Eurodollar rate.

In July 2003, the Company entered into a new $350million Senior Secured Revolving Credit Facility (the “Senior Secured RevolvingCredit Facility”). The initial borrowings under the Senior Secured RevolvingCredit Facility were primarily used to repay amounts outstanding under itsCredit Agreement, to repay the $115 million Accounts Receivable SecuritizationAgreement due December 2004 and to repay the $7 million Precious MetalNote due August 2003. The Senior Secured Revolving Credit Facility has afinal maturity date of November 15, 2006, subject to certain conditions,is secured by a first priority lien on substantially all of the Company’sassets and the assets of its subsidiaries and is guaranteed by all of theCompany’s current and future subsidiaries. Availability under the SeniorSecured Revolving Credit Facility is based upon eligible Accounts Receivable,Inventory, and Property, Plant and Equipment (collectively, the “Collateral”),as defined, in the Senior Secured Revolving Credit Facility and includes asub-limit for letters of credit of $100 million. The Senior Secured RevolvingCredit Facility bears interest at a floating rate based on the lenders’ BaseRate, the federal funds rate or the Eurodollar rate, each as defined in theSenior Secured Revolving Credit Facility. On May 7, 2004, the Companyamended its Senior Secured Revolving Credit Facility, which reduced thefloating rate of interest as defined in the Senior Secured Revolving CreditFacility. On July 12, July 19 and November 5, 2004, the SeniorSecured Revolving Credit Facility was further amended to allow for the issuanceof our 2014 Notes (see below). The Senior Secured Revolving Credit Facilityrequires mandatory repayments of excess cash, as defined, on the tenth day ofeach month and contains a material adverse change clause. The Company is alsorequired to pay unused commitment fees associated with the Senior SecuredRevolving Credit Facility. The Senior Secured Revolving Credit Facilityprovides for optional and mandatory reductions in the overall $350 millionSenior Secured Revolving Credit Facility commitment, subject to certainconditions as defined in the Senior Secured Revolving Credit Facility. Inaddition, the Senior Secured Revolving Credit Facility also provides foroptional and mandatory prepayments of borrowings outstanding under the SeniorSecured Revolving Credit Facility, subject to certain conditions. Borrowingsoutstanding under the Senior Secured Revolving Credit Facility, which areincluded in current maturities amounted to $17.0 and $0 million at December 31,2005 and 2004, respectively.

Under the terms of the Senior Secured Revolving CreditFacility and the indentures governing our 8% Senior Notes due 2007, our 8%Senior Notes due 2008 and our 7 3/4% Senior Notes due 2014 (see below)(collectively, the “Senior Notes”), the Company is subject to certain financialcovenants. These 

F-46

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**BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**Note 13.**   Long-Term Debt (Continued)

financial covenantsinclude, among others, interest coverage, as defined, minimum consolidatedEBITDA (earnings before income taxes and extraordinary items increased byinterest expense, depreciation, goodwill and other amortization), limitationson the amount of annual capital expenditures and indebtedness, restrictions onrestricted payments, including dividends and distributions to the Company’sparent corporations and on incurring liens, and restrictions on investments andother payments.

In addition, if a change of control as defined in theSenior Secured Revolving Credit Facility occurs, the Senior Secured RevolvingCredit Facility could be terminated and the loans under the Senior SecuredRevolving Credit Facility accelerated by the holders of that indebtedness. Ifthat event occurred it would cause the Company’s outstanding Senior Notes to beaccelerated. In addition, for the potential impact of the Asbestos-relatedBodily Injury Claims on the Company’s results of operations, see Note 5.

As of December 31, 2005, after giving effect tothe most restrictive of the aforementioned restrictions, the Company could nothave paid dividends or made other restricted payments to its parent corporation.In addition, at December 31, 2005, the Company could repay demand loans toits parent corporation amounting to $52.8 million, subject to certainconditions as outlined in the Senior Secured Revolving Credit Facility and theindentures governing the Company’s Senior Notes.

As of December 31, 2005, the Company was incompliance with all covenants under the Senior Secured Revolving CreditFacility, which matures in November 2006, and the indentures governing theSenior Notes. Although no assurances can be provided, the Company intends torefinance the Senior Secured Revolving Credit Facility before its maturitydate.

In July 2004, the Company issued $200.0 millionin aggregate principal amount of 7 3/4% Senior Notes due 2014 (the “2014 Notes”),at 100.0% of the principal amount. The net proceeds from the issuance of the2014 Notes, after deducting initial purchasers’ discounts and commissions andoffering expenses were approximately $195.9 million. In August 2004, theCompany exercised a call notice issued in July 2004 and used approximately$101.8 million of the net proceeds to redeem all of its issued and outstanding2006 Notes, including accrued and unpaid interest on such notes through thedate of redemption. In addition, the Company used the remaining net proceeds ofapproximately $94.1 million to reduce amounts outstanding under its SeniorSecured Revolving Credit Facility. The redemption price of the 2006 Notes was101.438% of the principal amount outstanding and the premium of approximately$1.4 million was recorded in interest expense in July 2004. In connectionwith the extinguishment of the 2006 Notes, the Company expensed the remainingdeferred financing fees of approximately $0.7 million in July 2004 andincluded this amount in interest expense.

In November 2004, the Company issued anadditional $50.0 million in aggregate principal amount of its 2014 Notes. Theadditional 2014 Notes were issued under an indenture dated July 26, 2004,pursuant to which the Company previously issued its original $200.0 million of7 3/4% Senior Notes due 2014. These additional 2014 Notes rank equally with andformed a part of a single series with such original 2014 Notes and have thesame terms and conditions. The net proceeds from the issuance of the additional2014 Notes, after deducting the offering expenses and including the addition ofthe applicable premium were approximately $50.6 million. The Company used thenet proceeds from the additional 2014 Notes to reduce amounts outstanding underits Senior Secured Revolving Credit Facility. The premium of approximately $0.9million is included in long-term debt and will be amortized over the life ofthe 2014 Notes.

F-47

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**BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**Note 13.**   Long-Term Debt (Continued)

Under the terms and conditions of the 2014 Notes, thenoteholders have the right under the indentures governing such notes to requirethe Company to purchase the 2014 Notes at a price of 101% of the principalamount thereof, plus any accrued and unpaid interest, in the event of a changein control, as defined in the Notes. Upon the expiration of this right, theCompany would have the option to purchase the 2014 Notes at a purchase priceequal to 100% of the aggregate principal amount, plus the applicable premium,as defined in the 2014 Notes, together with any accrued and unpaid interest. TheCompany also has the option to redeem some or all of the 2014 Notes beginningon August 1, 2009 at specified redemption premiums through August 1,2012, as defined in the 2014 Notes.

The Senior Notes are secured by a second-priority lienon the same assets securing the Senior Secured Revolving Credit Facility for solong as the first-priority lien remains in effect, subject to certain limitedexceptions and have been guaranteed by the subsidiaries that guaranteed theSenior Secured Revolving Credit Facility. In connection with thesetransactions, the Company entered into an Amended and Restated SecurityAgreement, which grants a security interest in the Collateral in favor of thecollateral agent on behalf of the lenders under the Senior Secured RevolvingCredit Facility and the holders of the Company’s outstanding Senior Notes. TheCompany also entered into an Amended and Restated Collateral Agent Agreement,which provides, among other things, that we maintain a lockbox and depositorycontrol agreement for the benefit of the secured parties and the sharing ofproceeds with respect to any foreclosure or other remedy in respect of theCollateral. As of December 31, 2005, the book value of the collateralsecuring the Senior Notes and the Senior Secured Revolving Credit Facility wasapproximately $990.5 million. The Company is also required to pay unusedcommitment fees associated with the Senior Secured Revolving Credit Facility,as well as the terminated Credit Agreement. For 2005, 2004 and 2003 these feesamounted to $1.2, $1.1 and $0.8 million, respectively.

On July 15, 2005, the Company used cash and cashequivalents on hand and proceeds from its Senior Secured Revolving CreditFacility to redeem its 7 3/4% Senior Notes due 2005 at maturity, aggregating$150.0 million plus accrued interest of $2.9 million.

In December 1995, the Company consummated a $40.0million sale-leaseback of certain equipment located at its Chester, SouthCarolina glass mat manufacturing facility, in a transaction accounted for as acapital lease. The lessor was granted a security interest in certain equipmentat the Chester facility. The lease terms extended to December 2005, withan early buyout option in June 2003. In July 2003, the Company paidthe early buyout option of $19.7 million. In addition, in July 2003, theCompany entered into a new $19.7 million Secured Loan (the “Chester Loan”),with the proceeds being used to repay the $19.7 million obligation associatedwith the early buyout option discussed above. The Chester Loan is secured by asole security interest in the machinery and equipment, matures in 2010,requires monthly payments of principal and interest commencing in August 2003and bears a fixed annual interest rate of 7.41%.

In December 1994, the Company consummated a $20.4million sale-leaseback of certain equipment located at its Baltimore, Marylandroofing facility, in a transaction accounted for as a capital lease. The lessorwas granted a security interest in the land, buildings and certain equipment atthe Baltimore facility. The lease term extended to December 2004, with anearly buyout option, which the Company exercised in October 2002 in theamount of $9.4 million.

In December 2004, the Company redeemed itsNashville, Tennessee Industrial Development Revenue Bonds for $8.5 million. TheCompany has three remaining industrial development revenue bond issues 

F-48

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**BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**Note 13.**   Long-Term Debt (Continued)

outstanding, which bearinterest at short-term floating rates. Interest rates on the foregoingobligations ranged between 1.4% and 3.6% during 2005. The Company’s industrialdevelopment revenue bonds are secured by letters of credit under the SeniorSecured Revolving Credit Facility.

TheCompany believes that the fair value of its non-public indebtednessapproximates the book value of such indebtedness, because the interest rates onsubstantially all such indebtedness are at floating short-term rates or thedebt has a relatively short maturity. With respect to the Company’s SeniorNotes, the Company has obtained estimates of the fair values from anindependent source believed to be reliable. The estimated fair values of theCompany’s Senior Notes at December 31, 2005 and 2004 are as follows:

| ** ** | ** ** | **December 31, 2005** | ** ** | **December 31, 2004** | ** ** |
|------------|------------|---------------------------------|------------|---------------------------------|------------|
| ** ** | ** ** | **Carrying Amount**        | ** ** | **Fair Value**             | ** ** | **Carrying Amount** | ** ** | **Fair Value** | ** ** |
| ** ** | ** ** | **(Thousands)**                 | ** ** |
| 2005 Notes |       |                            | $          | —                          |       |   | $ | — |   |   | $ | 149,949 |   |   | $ | 152,386 |   |
| 2007 Notes |       |                            | 99,865     |                            |       | 98,866 |   |   | 99,791 |   |   | 103,284 |   |
| 2008 Notes |       |                            | 154,754    |                            |       | 153,206 |   |   | 154,670 |   |   | 159,428 |   |
| 2014 Notes |       |                            | 250,770    |                            |       | 241,250 |   |   | 250,859 |   |   | 253,438 |   |
|            |            |                                 |            |                                 |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

Theaggregate maturities of long-term debt, including accretion of approximately$0.4 million, as of December 31, 2005 for the next five years andthereafter are as follows:

| ** ** | ** ** | **(Thousands)** | ** ** |
|------------|------------|-----------------|------------|
| 2006       |       |            | $          | 19,889 |   |   |
| 2007       |       |            | 103,136    |   |   |
| 2008       |       |            | 158,435    |   |   |
| 2009       |       |            | 10,094     |   |   |
| 2010       |       |            | 2,268      |   |   |
| Thereafter |       |            | 259,794    |   |   |

 

In the above table,maturities for the year 2006 include $17.0 million related to the SeniorSecured Revolving Credit Facility and $2.7 million related to the Chester Loan.Maturities for the year 2007 include $100.0 million related to the 2007 Notesand $2.9 million related to the Chester Loan. Maturities for the year 2008include $155.0 million related to the 2008 Notes and $3.1 million related tothe Chester Loan. Maturities for the year 2009 include $3.4 million related tothe Chester Loan and $6.3 million related to the Fontana, California IndustrialDevelopment Revenue Bonds. Maturities for the year 2010 include $1.8 millionrelated to the Chester Loan. Thereafter maturities include $250.3 millionrelated to the 2014 Notes, $7.4 million related to the Mount Vernon, Indianaand the Shafter, California Industrial Development Revenue Bonds and $2.1million related to the 10 1/2% Michigan City, Indiana Note.

**Note 14.   BenefitPlans**

Eligible, full-timeemployees of the Company are covered by various benefit plans, as describedbelow.

*DefinedContribution Plan*

The Company provides a defined contribution plan forcertain eligible salaried employees. The Company contributes up to 7% ofparticipants’ compensation and also contributes fixed amounts, ranging 

F-49

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**BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**Note 14.**   Benefit Plans (Continued)

from $50 to $750 per yeardepending on age, to the accounts of participants who are not covered by aCompany-provided postretirement medical benefit plan. The aggregatecontributions by the Company were $6.6, $6.2 and $5.9 million for 2005, 2004 and2003, respectively.

The Company provides adefined contribution plan for certain eligible hourly employees. The Companycontributes a discretionary matching contribution ranging between 0% and 100%of each participant’s eligible contributions each year up to a maximum range ofeither $500 to $1,500 or 4% to 6% of salary, whichever is greater, for eachparticipant, as defined. Certain participants also receive a contribution equalto 3.5% of their annual compensation regardless of whether the participantsparticipate in the plan. Such contributions were $0.8, $0.5 and $0.4 millionfor 2005, 2004 and 2003, respectively.

*Defined BenefitPlans*

The Company provides noncontributory defined benefitretirement plans for certain hourly and salaried employees (the “RetirementPlans”). Benefits under these plans are based on stated amounts for each yearof service. The Company’s funding policy is consistent with the minimum fundingrequirements of the Employee Retirement Income Security Act of 1974.

TheCompany’s net periodic pension cost for the Retirement Plans included thefollowing components:

| ** **                                       | ** ** | **Year Ended December 31,** | ** ** |
|--------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                       | ** ** | **2005**                                   | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                                       | ** ** | **(Thousands)**                            | ** ** |
| Service cost                                     |       | $                                          | 1,418      |   | $ | 1,350 |   | $ | 1,199 |   |
| Interest cost                                    |       | 1,990                                      |       | 1,906 |   | 1,809 |   |
| Expected return  on plan assets                  |       | (2,844                                     | )          | (2,665 | ) | (2,551 | ) |
| Amortization of  unrecognized prior service cost |       | 39                                         |       | 35 |   | 35 |   |
| Amortization of  net losses from earlier periods |       | 313                                        |       | 281 |   | 193 |   |
| Net periodic pension  cost (benefit)             |       | $                                          | 916        |   | $ | 907 |   | $ | 685 |   |

 

F-50

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**BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**Note 14.   BenefitPlans (Continued)**

Thefollowing tables set forth, for the years 2005 and 2004, reconciliations of thebeginning and ending balances of the benefit obligation, fair value of planassets, funded status and amounts recognized in the consolidated balance sheetsrelated to the Retirement Plans. The Company uses a December 31measurement date for its retirement plans.

| ** **                                                          | ** ** | **December 31,** | ** ** | ** ** |
|---------------------------------------------------------------------|------------|-----------------------|------------|------------|
| ** **                                                          | ** ** | **2005**              | ** ** | **2004**   | ** ** | ** ** |
| ** **                                                          | ** ** | **(Thousands)**       | ** ** | ** ** |
| Change in benefit  obligation:                                      |       |                  |       |       |   |   |
| Benefit obligation at beginning of year                             |       | $                     | (34,440    | )          | $ | (31,388 | ) |   |
| Service cost                                                        |       | (1,418                | )          | (1,350     | ) |   |
| Interest cost                                                       |       | (1,990                | )          | (1,906     | ) |   |
| Amendments                                                          |       | (44                   | )          | —     |   |   |
| Actuarial losses                                                    |       | (506                  | )          | (864       | ) |   |
| Benefits paid                                                       |       | 1,381                 |       | 1,068      |   |   |
| Benefit obligation at end of year                                   |       | $                     | (37,017    | )          | $ | (34,440 | ) |   |
| Change in plan  assets:                                             |       |                  |       |       |   |   |
| Fair value of plan assets at beginning of year                      |       | $                     | 30,583     |       | $ | 28,681 |   |   |
| Actual return on plan assets                                        |       | 2,947                 |       | 2,970      |   |   |
| Employer contributions                                              |       | —                |       | —     |   |   |
| Benefits paid                                                       |       | (1,381                | )          | (1,068     | ) |   |
| Fair value of plan assets at end of year                            |       | $                     | 32,149     |       | $ | 30,583 |   |   |
| Reconciliation of  funded status:                                   |       |                  |       |       |   |   |
| Funded status                                                       |       | $                     | (4,868     | )          | $ | (3,856 | ) |   |
| Unrecognized prior service cost                                     |       | 171                   |       | 165        |   |   |
| Unrecognized actuarial losses                                       |       | 8,587                 |       | 8,497      |   |   |
| Net prepaid benefit cost recognized in consolidated  balance sheets |       | $                     | 3,890      |       | $ | 4,806 |   |   |
| Amounts  recognized in consolidated balance sheets:                 |       |                  |       |       |   |   |
| Prepaid benefit cost                                                |       | $                     | —     |       | $ | — |   |   |
| Accrued minimum pension liability                                   |       | (4,868                | )          | (3,856     | ) |   |
| Intangible asset                                                    |       | 171                   |       | 165        |   |   |
| Accumulated other comprehensive loss                                |       | 8,587                 |       | 8,497      |   |   |
| Net amount recognized in consolidated balance sheets                |       | $                     | 3,890      |       | $ | 4,806 |   |   |
| Change in amounts  in other comprehensive loss                      |       |                  |       |       |   |   |
| Increase in additional minimum liability                            |       | $                     | 95         |       | $ | 242 |   |   |
| (Increase) decrease in intangible asset                             |       | (5                    | )          | 36         |   |   |
| Increase in other  comprehensive loss                               |       | $                     | 90         |       | $ | 278 |   |   |

 

The accumulated benefit obligation for all definedbenefit pension plans was $37.0 and $34.4 million at December 31, 2005 and2004, respectively.

F-51

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**BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**Note 14.**   Benefit Plans (Continued)

Information on actual and future expected benefitpayments related to the Retirement Plans follows:

| ** **                        | ** ** | **(Thousands)** | ** ** |
|-----------------------------------|------------|-----------------|------------|
| Actual benefit payments |       |            |       |   |   |
| 2003                              |       |            | $          | 824 |   |   |
| 2004                              |       |            | 1,068      |   |   |
| 2005                              |       |            | 1,380      |   |   |
| Future expected benefit payments  |       |            |       |   |   |
| 2006                              |       |            | $          | 1,412 |   |   |
| 2007                              |       |            | 1,620      |   |   |
| 2008                              |       |            | 1,775      |   |   |
| 2009                              |       |            | 1,914      |   |   |
| 2010                              |       |            | 2,063      |   |   |
| 2011 through 2015                 |       |            | 13,265     |   |   |

 

| ** **               | ** ** | **Year ended December 31,** | ** ** |
|--------------------------|------------|--------------------------------------------|------------|
| ** **               | ** ** | **2006  Expected**                         | ** ** | **2005  Actual** | ** ** | **2004  Actual** | ** ** | **2003  Actual** | ** ** |
| ** **               | ** ** | **(Thousands)**                            | ** ** |
| Employer  contributions: |       |                                       |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Required                 |       |                                       | $          | — |   |   |   | $ | — |   |   |   | $ | — |   |   |   | $ | — |   |   |
| Additional discretionary |       |                                       | —     |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Total                    |       |                                       | $          | — |   |   |   | $ | — |   |   |   | $ | — |   |   |   | $ | — |   |   |

 

Weighted-averageassumptions:

| ** **                                                                                         | ** ** | **December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                         | ** ** | **2005**              | ** ** | **2004** | ** ** |
| Discount rate:                                                                                     |       |                  |       |   |   |
| As of January 1 (for determining net periodic  pension cost for years ended December 31) |       | 6.00                  | %          | 6.25 | % |
| As of December 31 (for determining projected  benefit obligation at December 31)         |       | 5.75                  | %          | 6.00 | % |
| Expected return  on plan assets                                                                    |       | 9.50                  | %          | 9.50 | % |
| Rate of compensation  increase                                                                     |       | N/A                   |       | N/A |   |

 

F-52

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**BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**Note 14.**   Benefit Plans (Continued)

The following tablehighlights the sensitivity of the Company’s pension obligations and expense tochanges in assumptions related to the Retirement Plans:

| ** **                                           | ** ** | **Impact on  Pension  Expense** | ** ** | **Impact on  Projected Benefit  Obligation** | ** ** |
|------------------------------------------------------|------------|--------------------------------------|------------|--------------------------------------------------------|------------|
| ** **                                           | ** ** | **(Thousands)**                      | ** ** |
| Change in  Assumption:                               |       |                                 |       |                                                   |       |   |   |   |   |
| 25 basis point increase in discount rate             |       |                                 | -130.0     |                                                   |       |   | -1,200.0 |   |   |
| 25 basis point decrease in discount rate             |       |                                 | +130.0     |                                                   |       |   | +1,200.0 |   |   |
| 25 basis point increase in rate of return on assets  |       |                                 | -80.0      |                                                   |       |   | N/A |   |   |
| 25 basis point  decrease in rate of return on assets |       |                                 | +80.0      |                                                   |       |   | N/A |   |   |

 

The Company sets the discount rate assumption annuallyfor its retirement-related benefit plans at the measurement dates to reflectthe yield of high-quality fixed-income debt instruments. The expected long-termrate of return on assets is derived from a detailed periodic study conducted bythe Company’s actuaries and the Company’s financial management. The studyincludes a review of anticipated future long-term performance of individualasset categories. While the study gives appropriate consideration to recentplan performance and historical returns, the assumption is primarily along-term prospective rate. The Company’s expected long-term rate of return onassets assumption for the Retirement Plans was 9.5% in 2005 and 2004.

At December 31,2005 and 2004, the asset allocations for the Retirement Plans, by assetcategory, are as follows:

| ** **               | ** ** | **Plan Assets at December 31,** | ** ** |
|--------------------------|------------|-----------------------------------------------------|------------|
| ** **               | ** ** | **2006 Target %**                         | ** ** | **2005 Actual** | ** ** | **2004 Actual** | ** ** |
| Asset Category:          |       |                                                |       |   |   |   |   |   |   |   |   |   |   |
| Equity securities        |       |                                                | 25 - 45    | % |   |   | 37 | % |   |   | 28 | % |   |
| Fixed income  securities |       |                                                | 40 - 70    | % |   |   | 57 | % |   |   | 66 | % |   |
| Cash and  equivalents    |       |                                                | 0 - 10     | % |   |   | 3 | % |   |   | 5 | % |   |
| Other                    |       |                                                | 0 - 10     | % |   |   | 3 | % |   |   | 1 | % |   |
| Total                    |       |                                                |       |   |   |   | 100 | % |   |   | 100 | % |   |

 

With the assets in the Retirement Plans, the Companyinvests primarily in market-neutral absolute-return strategies which serve tominimize volatility while providing consistent positive returns and preservingcapital. These investments include both equity and fixed income securities andmay incorporate the use of options, futures and other financial instruments. Implementationof this policy involves investments with outside managers who have expertise inthese strategies.

The Company also providesa nonqualified defined benefit retirement plan for certain key employees. Expensefor this plan was not significant for 2005, 2004 and 2003. The liabilityrelated to this plan was $1.2 and $1.0 million at December 31, 2005 and2004, respectively, and is included within other liabilities.

F-53

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**BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**Note 14.**   Benefit Plans (Continued)

*PostretirementMedical and Life Insurance*

The Company generally does not provide postretirementmedical and life insurance benefits, although it subsidizes such benefits forcertain employees and certain retirees. Such subsidies were reduced or ended asof January 1, 1997. Effective March 1, 2005, the Company amended theplan eliminating postretirement medical benefits affecting all current andfuture retirees. The reduction of future retirees created a curtailment as theamendment significantly reduced the expected years of future services foractive plan participants. The curtailment also requires an acceleration of theprior service cost established prior to the amendment, which was treated as acurtailment gain of $0.1 million and is immediately recognized in income (seebelow).

F-54

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**BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**Note 14.   BenefitPlans (Continued)**

Netperiodic postretirement benefit cost included the following components:

| ** **                                       | ** ** | **Year Ended December 31,** | ** ** |
|--------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                       | ** ** | **2005**                                   | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                                       | ** ** | **(Thousands)**                            | ** ** |
| Service cost                                     |       | $                                          | 54         |   | $ | 157 |   | $ | 123 |   |
| Interest cost                                    |       | 168                                        |       | 291 |   | 307 |   |
| Amortization of  unrecognized prior service cost |       | (532                                       | )          | (95 | ) | (95 | ) |
| Curtailment gain                                 |       | (109                                       | )          | — |   | — |   |
| Amortization of  net gains from earlier periods  |       | (265                                       | )          | (258 | ) | (261 | ) |
| Net periodic  postretirement (benefit) cost      |       | $                                          | (684       | ) | $ | 95 |   | $ | 74 |   |

 

Thefollowing table sets forth, for the years 2005 and 2004, reconciliations of thebeginning and ending balances of the postretirement benefit obligation, fundedstatus and amounts recognized in the consolidated balance sheets related topostretirement medical and life insurance benefits. The Company uses a December 31measurement date for its postretirement medical and life insurance plan.

| ** **                                                                    | ** ** | **December 31,** | ** ** |
|-------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                    | ** ** | **2005**              | ** ** | **2004** | ** ** |
| ** **                                                                    | ** ** | **(Thousands)**       | ** ** |
| Change in benefit  obligation:                                                |       |                  |       |   |   |
| Benefit obligation at beginning of year                                       |       | $                     | (5,105     | ) | $ | (4,983 | ) |
| Service cost                                                                  |       | (54                   | )          | (157 | ) |
| Interest cost                                                                 |       | (168                  | )          | (291 | ) |
| Actuarial (losses) gains                                                      |       | (1,501                | )          | 167 |   |
| Plan amendment                                                                |       | 4,479                 |       | — |   |
| Benefits paid, net of participant contributions                               |       | 184                   |       | 159 |   |
| Benefit obligation at end of year                                             |       | $                     | (2,165     | ) | $ | (5,105 | ) |
| Change in plan assets:                                                        |       |                  |       |   |   |
| Fair value of plan assets at beginning of year                                |       | $                     | —     |   | $ | — |   |
| Employer contributions                                                        |       | 184                   |       | 159 |   |
| Participant contributions                                                     |       | 27                    |       | 81 |   |
| Benefits paid                                                                 |       | (211                  | )          | (240 | ) |
| Fair value of plan assets at end of year                                      |       | $                     | —     |   | $ | — |   |
| Reconciliation of  funded status:                                             |       |                  |       |   |   |
| Funded status                                                                 |       | $                     | (2,165     | ) | $ | (5,105 | ) |
| Unrecognized prior service cost                                               |       | (4,101                | )          | (264 | ) |
| Unrecognized actuarial gains                                                  |       | (3,068                | )          | (4,835 | ) |
| Net amount recognized in consolidated balance sheets  as accrued benefit cost |       | $                     | (9,334     | ) | $ | (10,204 | ) |

 

F-55

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**BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**Note 14.**   Benefit Plans (Continued)

The Company’spostretirement medical and life insurance plan is unfunded. Benefits are paidfrom the Company’s cash flows from operations as they are incurred. The Companyexpects to contribute approximately $0.2 million to the plan in 2006. Informationon actual and future expected benefit payments related to the postretirementmedical and life insurance plan follows:

| ** **                        | ** ** | **(Thousands)** | ** ** |
|-----------------------------------|------------|-----------------|------------|
| Actual benefit payments           |       |            |       |   |   |
| 2003                              |       |            | $          | 314 |   |   |
| 2004                              |       |            | 240        |   |   |
| 2005                              |       |            | 211        |   |   |
| Future expected  benefit payments |       |            |       |   |   |
| 2006                              |       |            | $          | 215 |   |   |
| 2007                              |       |            | 214        |   |   |
| 2008                              |       |            | 210        |   |   |
| 2009                              |       |            | 206        |   |   |
| 2010                              |       |            | 199        |   |   |
| 2011 through 2015                 |       |            | 876        |   |   |

 

For purposes of calculating the accumulatedpostretirement benefit obligation, the following assumptions were made. Retireesas of December 31, 2004 who were formerly salaried employees (with certainexceptions) were assumed to receive a Company subsidy of $700 to $1,000 peryear. For retirees over age 65, this subsidy may be replaced by participationin a managed care program. With respect to retirees who were formerly hourlyemployees, most such retirees are subject to a $5,000 per person lifetimemaximum benefit. Effective March 1, 2005, the Company amended the planeliminating postretirement retiree medical benefits affecting all current andfuture retirees.

Weighted-averageassumptions:

| ** **                                                                                         | ** ** | **December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                         | ** ** | **2005**              | ** ** | **2004** | ** ** |
| Discount rate:                                                                                     |       |                  |       |   |   |
| As of January 1 (for determining net periodic  benefit cost for years ended December 31) |       | 6.00                  | %          | 6.25 | % |
| As of  December 31 (for determining postretirement benefit obligation)                        |       | 5.75                  | %          | 6.00 | % |

 

F-56

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**BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**Note 14.**   Benefit Plans (Continued)

| ** **                                                                    | ** ** | **December 31,** | ** ** |
|-------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                    | ** ** | **2005**              | ** ** | **2004** | ** ** |
| Assumed health care cost  trend rates:                                        |       |                  |       |   |   |
| Retirees under  age 65:                                                       |       |                  |       |   |   |
| Health care cost trend rate assumed for next year                             |       | N/A                   |       | 8.5 | % |
| Rate to which the cost trend is assumed to decline  (the ultimate trend rate) |       | N/A                   |       | 5.0 | % |
| Year that the rate reaches the ultimate trend rate                            |       | N/A                   |       | 2012 |   |
| Retirees age 65  and older:                                                   |       |                  |       |   |   |
| Health care cost trend rate assumed for next year                             |       | N/A                   |       | 10.5 | % |
| Rate to which the cost trend is assumed to decline  (the ultimate trend rate) |       | N/A                   |       | 5.0 | % |
| Year that the  rate reaches the ultimate trend rate                           |       | N/A                   |       | 2016 |   |

 

Thehealth care cost trend rate assumption has an affect on the amounts reported. Aone-percentage point change in assumed health care cost trend rates would havethe following effects:

| ** **                                                                         | ** ** | **Year Ended  December 31,** | ** ** |
|------------------------------------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                                                         | ** ** | **2005**                               | ** ** | **2004** | ** ** |
| ** **                                                                         | ** ** | **(Thousands)**                        | ** ** |
| One-Percentage  Point Increase:                                                    |       |                                   |       |   |   |   |   |
| Increase in aggregate service and interest cost                                    |       | N/A                                    |       |   | $ | — |   |   |
| Increase in accumulated post retirement benefit  obligation as of December 31 |       | N/A                                    |       |   | 2 |   |   |
| One-Percentage  Point Decrease:                                                    |       |                                   |       |   |   |   |   |
| Decrease in aggregate service and interest cost                                    |       | N/A                                    |       |   | — |   |   |
| Decrease in  accumulated post retirement benefit obligation as of December 31 |       | N/A                                    |       |   | (1 | ) |   |
|                                                                                    |            |                                        |            |  |  |  |  |  |

 

**Note 15.   2001Long-Term Incentive Plan and Preferred Stock Option Plan**

On January 1, 1996, the Company established theBMCA Preferred Stock Option Plan (the “1996 Plan”) to issue options to certainemployees to purchase shares of redeemable convertible preferred stock (“PreferredStock”) of the Company, exercisable at a price of $100 per share. Each share ofPreferred Stock was convertible, at the holder’s option, into shares of commonstock of the Company at a formula price based on Book Value (as defined in theoption agreement) as of the date of grant. The options vested rateably overfive years and expired after nine years. Dividends would accrue on thePreferred Stock from the date of issuance at the rate of 6% per annum. ThePreferred Stock was redeemable, at the Company’s option, for a redemption priceequal to $100 per share plus accrued and unpaid dividends. The Preferred Stock,and common stock issuable upon conversion of Preferred Stock into common stock,was subject to repurchase by the Company under certain circumstances, at aprice equal to current Book Value (as defined in the option agreement). Theexercise price of the options to purchase Preferred Stock was equal to theestimated fair value per share of the Preferred Stock at the date of grant. Asof December 31, 2005, options to purchase 400,000 shares of PreferredStock remained available under the 1996 Plan. No options were granted in 2005,2004 and 2003.

F-57

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**BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**Note 15.**   2001 Long-Term Incentive Plan and Preferred Stock Option Plan (Continued)

Effective December 31, 2000, the Company adoptedthe 2001 Long-Term Incentive Plan, which allowed employees participating in the1996 Plan to also participate in the 2001 Long-Term Incentive Plan. During2001, all employees exchanged their preferred stock options for incentive planunits effective as of December 31, 2000. The 2001 Long-Term Incentive Planauthorizes the grant of incentive units (“Incentive Units”) to eligibleemployees. The 2001 Long-Term Incentive Plan is administered by a Committeeappointed by the Board of Directors. The number of Incentive Units granted isdetermined by the Committee in its sole discretion. Generally, Incentive Unitsvest cumulatively, in 20% increments over five years, except that IncentiveUnits granted in exchange for Preferred Stock Options retain the vested statusand vesting schedule of the options exchanged and the Committee, in its solediscretion, may issue options with any vesting schedule, other than normallyprovided in the 2001 Long-Term Incentive Plan. Incentive Units generally areexercisable for a period of six years from the date of grant. The value ofIncentive Units is determined at the end of each fiscal quarter based on BookValue (as defined in the plan) at that date less the Book Value as of the dateof grant divided by 1,000,010 and is payable in cash upon exercise. The 2001Long-Term Incentive Plan was to terminate five years after its effective dateof December 2000, unless terminated sooner by the Committee, however, in December 2005,the Committee exercised its right to amend the Plan and extended the term ofthe Plan through December 2007, which could result in future additionalcompensation expense. The Committee, in its sole discretion, may grantincentive units with an Initial Value that is less than the Initial Value ofsuch incentive units as normally determined under the 2001 Long-Term IncentivePlan. If, after a change in control of the Company, as defined, an employee’semployment is terminated by the Company for any reason other than Good Cause,as defined, as a result of death or permanent disability, or by the employeefor Good Reason, as defined, all incentive units will become fully andimmediately vested and payable in cash.

In 2001, employees exchanged an aggregate of 198,559stock options granted under the 1996 Plan (discussed above) for an aggregate of81,862 Incentive Units. At December 31, 2005, 2004 and 2003, 146,814,124,455 and 124,782 Incentive Units were outstanding. (See table below.)  Compensation expense for such Incentive Unitswas $9.8, $8.2 and $5.3 million in 2005, 2004 and 2003, respectively. At December 31,2005 and 2004, the 2001 Long Term Incentive Plan liability amounted to $26.0and $18.4 million respectively, and was included in accrued liabilities.

The following is a summary of activity for incentiveunits related to the 2001 Long-Term Incentive Plan:

| ** **                                      | ** ** | **Year Ended December 31,** | ** ** |
|-------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                      | ** ** | **2005**                                   | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                                      | ** ** | **(Thousands)**                            | ** ** |
| Incentive Units  outstanding, January 1,   |       | 124,455                                    |       | 124,782 |   | 108,674 |   |
| Granted                                         |       | 35,205                                     |       | 9,800 |   | 20,360 |   |
| Exercised                                       |       | (9,464                                     | )          | (5,594 | ) | (2,626 | ) |
| Forfeited                                       |       | (3,382                                     | )          | (4,533 | ) | (1,626 | ) |
| Incentive Units  outstanding, December 31, |       | 146,814                                    |       | 124,455 |   | 124,782 |   |

 

F-58

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**BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**Note 16.   Business Segment Information**

The Company is a leadingnational manufacturer and marketer of a broad line of asphalt and polymer basedroofing products and accessories for the residential and commercial roofingmarkets. The Company also manufactures and markets specialty building productsand accessories for the professional and do-it-yourself remodeling andresidential construction industries. The residential roofing product lineprimarily consists of premium laminated shingles, strip shingles, and certainspecialty shingles. Sales of residential roofing products in 2005, 2004 and2003 were $1,459.4, $1,310.3 and $1,181.4 million and represented approximately75%, 74% and 73%, respectively, of the Company’s net sales. The Company’scommercial roofing product line includes a full line of modified bitumen,asphalt built-up roofing, liquid applied membrane, thermoplastic, thermoplasticpolyolefin, insulation and roofing accessories. Sales of commercial roofingproducts and accessories in 2005, 2004 and 2003 were $416.6, $384.7 and $352.9million and represented approximately 21%, 22% and 22%, respectively, of theCompany’s net sales. Sales of the specialty building products and accessoriesproducts in 2005, 2004 and 2003 were $79.8, $78.4 and $73.5 million andrepresented approximately 4%, 4% and 5%, respectively, of the Company’s netsales.

The Company aggregates theresidential and commercial product lines into one operating segment since theyhave similar economic characteristics and are similar in each of the followingareas: (i) the nature of the products and services are similar in thatthey perform the same function - the protection and covering of residential andcommercial roofs; (ii) the nature of the production processes are similar;(iii) the type or class of customer for their products and services aresimilar; (iv) the residential and commercial products have the samedistribution channels, whereby the main customers are wholesalers ordistributors; and (v) regulatory requirements are generally the same forboth the residential and commercial product lines. The specialty buildingproducts and accessories products did not meet quantitative thresholds in 2005,2004 and 2003 to be considered as a reportable segment.

**Note 17.   Related Party Transactions**

Includedin the consolidated balance sheets are the following receivable (payable)balances with related parties, which arise from operating and financingtransactions between the Company and its affiliates:

| ** **                                                                                 | ** ** | **December 31,** | ** ** |
|--------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                 | ** ** | **2005**              | ** ** | **2004** | ** ** |
| ** **                                                                                 | ** ** | **(Thousands)**       | ** ** |
| Tax receivable  from parent corporation                                                    |       | $                     | 804        |   | $ | — |   |
| Payable to  related parties                                                                |       | $                     | (12,087    | ) | $ | (16,900 | ) |
| Loans payable to  parent corporation                                                       |       | $                     | (52,840    | ) | $ | (52,840 | ) |
| Loans receivable from  parent corporation, included in Stockholders’ Equity (Deficit) |       | $                     | 55,840     |   | $ | 55,691 |   |

 

The Company makes loansto, and borrows from, its parent corporations from time to time at ratesranging from 5.3% to 7.3% in 2005. During 2001 and on July 1, 2003 and December 29,2003, the Company loaned BMCA Holdings Corporation $2.5, $37.8 and $15.0million, respectively, and on July 9, 2003 and December 29, 2003,BMCA Holdings Corporation loaned the Company $37.8 and $15.0 million,respectively. As of December 31, 2005 and 2004, BMCA Holdings Corporationowed the Company $55.8 and $55.7 million, including interest of $0.6 and $0.4million, respectively, and the Company owed BMCA 

F-59

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**BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**Note 17.**   Related Party Transactions(Continued)

HoldingsCorporation $52.8 and $52.8 million, respectively, with no unpaid interestpayable to BMCA Holdings Corporation, respectively. Interest income on theCompany’s loans to BMCA Holdings Corporation amounted to $4.0, $2.9, and $1.0million in 2005, 2004 and 2003, respectively and is included in other expense,net. Interest expense on the Company’s loans from BMCA Holdings Corporationamounted to $3.8, $2.8 and $0.9 million in 2005, 2004 and 2003, respectively. Loanspayable to/receivable from any parent corporation are due on demand and provideeach party with the right of offset of its related obligation to the otherparty and are subject to limitations as outlined in the Senior SecuredRevolving Credit Facility and the Senior Notes. Under the terms of the SeniorSecured Revolving Credit Facility and the indentures governing the Company’sSenior Notes at December 31, 2005, the Company could repay demand loans toits parent corporation amounting to $52.8 million, subject to certainconditions. The Company also makes non-interest bearing advances to affiliates,of which no balance was outstanding as of December 31, 2005 and 2004. Inaddition, no loans were owed or other lending activities were entered into bythe Company to other affiliates.

As of December 31,2005, the Company has included on its consolidated balance sheet a taxreceivable from parent corporation of $0.8 million, representing amounts paidin excess of amounts due in 2005 to G-I Holdings under the Tax SharingAgreement. As of December 31, 2004, the Company has included on itsbalance sheet in current liabilities a tax payable to parent corporation of$3.8 million, representing amounts due to G-I Holdings under the Tax SharingAgreement (see below). As of December 31, 2003, the Company has includedon its balance sheet a tax receivable from parent corporation of $7.0 million,representing amounts paid to G-I Holdings under the Tax Sharing Agreement,which the Company applied against 2004 tax sharing payments due to G-I Holdings.See Notes 9 and 18.

On November 23, 2005and December 29, 2005 the Company declared and paid cash dividends, eachamounting to $7.5 million, respectively, to its parent corporation. On February 25,2004, April 21, 2004 and December 30, 2004, the Company declared andpaid cash dividends, each amounting to $5.0 million, respectively, to itsparent corporation.

During the years ended December 31,2005 and December 31, 2004, the Company paid $22.0 and $19.5 million,respectively, in federal income tax payments to its parent corporation pursuantto a Tax Sharing Agreement. These amounts are included in the change in netreceivable from/payable to related parties/parent corporations in theconsolidated statement of cash flows.

*Mineral Products:*   TheCompany and its subsidiaries purchase all of their colored roofing granules andalgae-resistant granules under a long-term requirements contract from ISPMinerals Inc., a subsidiary of International Specialty Products, Inc. (“ISP”).In 2005, 2004 and 2003, the Company and its subsidiaries purchased in theaggregate approximately $108.3, $98.2 and $77.7 million, respectively, ofmineral products from ISP. The amount payable to ISP at December 31, 2005and 2004 for such purchases was $11.4 and $12.7 million, respectively, and isincluded in payable to related parties in the consolidated balance sheets.

*Management Agreements:*   Pursuantto a management agreement, a subsidiary of ISP, provides certain generalmanagement, administrative, legal and facilities services to the Company,including the use of the Company’s headquarters in Wayne, New Jersey. Chargesto the Company by ISP for these services under the management agreement,inclusive of the services provided to G-I Holdings, discussed below, aggregated$5.8, $5.6 and $6.2 million for 2005, 2004 and 2003, respectively. Thesecharges consist of management fees and other reimbursable expenses attributableto the Company, or incurred by ISP for the 

F-60

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**BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**Note 17.**   Related Party Transactions (Continued)

benefit of theCompany. The amount payable to ISP for management fees as of December 31, 2005and 2004 was $0.4 and $0.4 million, respectively, and is included in payable torelated parties in the consolidated balance sheets. The management agreementalso provides that the Company is responsible for providing management servicesto G-I Holdings and certain of its subsidiaries and that G-I Holdings pay tothe Company a management fee for these services. The aggregate amount paid byG-I Holdings to the Company for services rendered under the managementagreement in 2005, 2004 and 2003 was approximately $0.8 million in each ofthese years. The Company also allocates a portion of the management feespayable by the Company under the management agreement as lease payments for theuse of the Company’s headquarters. Some of the Company’s executive officersreceive their compensation from ISP. ISP is indirectly reimbursed for thiscompensation through payment of the management fee and other reimbursableexpenses payable under the management agreement.

*Tax Sharing Agreement:*   SeeNote 9.

**Note 18.   Commitments and Contingencies**

The Company’s parentcorporations, G-I Holdings and BMCA Holdings Corporation, are essentiallyholding companies without independent business operations. G-I Holdings and BHCare presently dependent upon the earnings and cash flows of their subsidiaries,principally the Company, in order to satisfy their net obligations, includingvarious tax and other claims and liabilities (net of certain insurancereceivables), including tax liabilities relating to the surfactantspartnership. See Note 9. G-I Holdings has advised the Company that it expectsto obtain funds to satisfy G-I Holdings’ operating expenses from, among otherthings, distributions from subsidiaries (principally the Company). See Notes 5,9 and 17.

On January 5, 2001,G-I Holdings filed a voluntary petition for reorganization under Chapter 11 ofthe U.S. Bankruptcy Code due to Asbestos Claims. The Company is not included insuch bankruptcy filing. There are restrictions under the indentures relating tothe Senior Notes and the Senior Secured Revolving Credit Facility on paymentsby the Company to its parent corporations.

During the twelve monthsending December 31, 2006, the Company expects to make distributions and/oradvances to its parent corporations to satisfy the obligations discussed abovefor not more than the extent permitted by the Senior Secured Revolving CreditFacility and the Senior Notes. The Company does not believe that the dependenceof its parent corporations on the cash flows of their subsidiaries should havea material adverse effect on the operations, liquidity or capital resources ofthe Company. See Notes 5, 9, 13 and 17.

At December 31, 2005,the Company has outstanding letters of credit of approximately $54.3 million underthe Senior Secured Revolving Credit Facility, which includes approximately$11.7 million of standby letters of credit related to certain obligations ofG-I Holdings. See Note 5.

In June 2001, theCompany entered into employment security agreements with certain of itsexecutive officers and key personnel. The agreements have no expiration date,are supported by irrevocable letters of credit and provide for a single-sumpayment consisting of one to three times salary and bonus and related benefitsif employment is terminated or a change in employment responsibilities occurswithin a thirty-six month period following the change in control event, asdefined. At December 31, 2005 the aggregate value 

F-61

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**BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**Note 18.**   Commitments and Contingencies (Continued)

of theemployment security agreements was $9.5 million, which excludes the cost ofmedical benefits and any amounts due under the 2001 Long-Term Incentive Plan.

On or about February 17,2004, litigation was commenced against the Company in the United StatesDistrict Court for the Eastern District of Pennsylvania by CertainTeedCorporation, alleging patent infringement in connection with certain of theCompany’s products representing less than 5% of the Company’s net sales. Nospecific amount of damages was sought in the litigation. The parties reached amutual settlement agreement on January 12, 2006 with respect to thismatter, and the case was dismissed by the court.

In the ordinary course ofbusiness, the Company has several supply agreements that include minimum annualpurchase requirements. In the event these purchase requirements are not met,the Company may be required to make payments under these supply agreements.

The Company is a lesseeunder operating leases principally for warehouses, production machinery andequipment, and transportation and computer equipment. Rental expense onoperating leases was $37.2, $31.7 and $30.3 million for 2005, 2004 and 2003,respectively. Future minimum lease payments for properties which were heldunder long-term noncancellable leases as of December 31, 2005 were asfollows:

| ** **             | ** ** | **Operating   Leases** | ** ** |
|------------------------|------------|-----------------------------|------------|
| ** **             | ** ** | **(Thousands)**             | ** ** |
| 2006                   |       |                        | $          | 22,780 |   |   |
| 2007                   |       |                        | 19,009     |   |   |
| 2008                   |       |                        | 15,434     |   |   |
| 2009                   |       |                        | 13,618     |   |   |
| 2010                   |       |                        | 12,354     |   |   |
| Thereafter             |       |                        | —     |   |   |
| Total minimum payments |       |                        | $          | 83,195 |   |   |

 

Included in net sales in2005 were net sales to two customers of 17% and 12%, respectively, in 2004, 17%and 12%, respectively, and in 2003, 16% and 12%, respectively. No other customeraccounted for more than 10% of net sales in 2005, 2004 or 2003.

The Company includes inother expense, net certain legal fees related to its business. For 2005, 2004and 2003 the Company included $6.6, $7.0 and $4.9 million, respectively, oflegal fees in other expense, net.

**Note 19.   Guarantor Financial Information**

At December 31, 2005,all of the Company’s subsidiaries, each of which is wholly-owned by theCompany, are guarantors under the Company’s $350.0 million Senior SecuredRevolving Credit Facility and the indentures governing the Senior Notes. Theseguarantees are full, unconditional and joint and several. In addition, BuildingMaterials Manufacturing Corporation (“BMMC”), a wholly-owned subsidiary of theCompany, is a co-obligor on the 8% Senior Notes due 2007.

F-62

----

**BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**Note 19.**   Guarantor Financial Information (Continued)

The Company and BMMCentered into license agreements, effective January 1, 1999, for the rightto use intellectual property, including patents, trademarks, know-how, andfranchise rights owned by Building Materials Investment Corporation, awholly-owned subsidiary of the Company, for a license fee stated as apercentage of net sales. The license agreements are for a period of one yearand are subject to automatic renewal unless either party terminates with 60 dayswritten notice. Also, effective January 1, 1999, BMMC sells all finishedgoods to the Company at a manufacturing profit.

Presented below iscondensed consolidating financial information for the Company, the guarantorsubsidiaries and BMCA Receivables Corporation, the non-guarantor subsidiary. Thisfinancial information should be read in conjunction with the consolidatedfinancial statements and other notes related thereto. Separate financialstatements for the Company, the guarantor subsidiaries and the non-guarantorsubsidiary are not included herein, because the guarantees are full,unconditional and joint and several.

F-63

----

**BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**Note 19.   GuarantorFinancial Information (Continued)**

**Condensed ConsolidatingStatement of IncomeYear Ended December 31, 2005(Thousands)**

| ** **                                                                   | ** ** | **Parent  Company** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------------------------------|------------|---------------------|------------|-----------------------------|------------|------------------|------------|------------------|------------|
| Net sales                                                                    |       | $                   | 1,832,994  |                        | $          | 122,791          |       | $                | —     |   |   | $ | 1,955,785 |   |   |
| Intercompany net  sales                                                      |       | 2,109               |       | 1,196,727                   |       | (1,198,836       | )          |             | —     |   |   |
| Total net sales                                                              |       | 1,835,103           |       | 1,319,518                   |       | (1,198,836       | )          |             | 1,955,785  |   |   |
| Costs and  expenses, net:                                                    |       |                |       |                        |       |             |       |             |       |   |   |
| Cost of products sold                                                        |       | 1,391,969           |       | 1,166,460                   |       | (1,198,836       | )          |             | 1,359,593  |   |   |
| Selling, general and administrative                                          |       | 325,972             |       | 105,405                     |       | —           |       |             | 431,377    |   |   |
| Other (income) expense, net                                                  |       | 4,417               |       | (253                        | )          | —           |       |             | 4,164      |   |   |
| Intercompany licensing (income) expense, net                            |       | 73,404              |       | (73,404                     | )          | —           |       |             | —     |   |   |
| Transition service agreement (income) expense                                |       | 100                 |       | (100                        | )          | —           |       |             | —     |   |   |
| Total costs and expenses, net                                                |       | 1,795,862           |       | 1,198,108                   |       | (1,198,836       | )          |             | 1,795,134  |   |   |
| Income before equity in earnings of subsidiaries,  interest and income taxes |       | 39,241              |       | 121,410                     |       | —           |       |             | 160,651    |   |   |
| Equity in earnings of subsidiaries                                           |       | 64,548              |       | —                      |       | (64,548          | )          |             | —     |   |   |
| Interest expense                                                             |       | (44,978             | )          | (17,326                     | )          | —           |       |             | (62,304    | ) |   |
| Income before  income taxes                                                  |       | 58,811              |       | 104,084                     |       | (64,548          | )          |             | 98,347     |   |   |
| Income tax  (expense) benefit                                                |       | 2,179               |       | (39,536                     | )          | —           |       |             | (37,357    | ) |   |
| Net income                                                                   |       | $                   | 60,990     |                        | $          | 64,548           |       | $                | (64,548    | ) |   | $ | 60,990 |   |   |

 

F-64

----

**BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**Note 19.**   GuarantorFinancial Information (Continued)

**CondensedConsolidating Statement of IncomeYear Ended December 31, 2004(Thousands)**

| ** **                                                                   | ** ** | **Parent  Company** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------------------------------|------------|---------------------|------------|-----------------------------|------------|------------------|------------|------------------|------------|
| Net sales                                                                    |       | $                   | 1,659,987  |                        | $          | 113,402          |       | $                | —     |   |   | $ | 1,773,389 |   |   |
| Intercompany net  sales                                                      |       | 44,710              |       | 1,213,901                   |       | (1,258,611       | )          |             | —     |   |   |
| Total net sales                                                              |       | 1,704,697           |       | 1,327,303                   |       | (1,258,611       | )          |             | 1,773,389  |   |   |
| Costs and  expenses, net:                                                    |       |                |       |                        |       |             |       |             |       |   |   |
| Cost of products sold                                                        |       | 1,311,287           |       | 1,173,119                   |       | (1,258,611       | )          |             | 1,225,795  |   |   |
| Selling, general and administrative                                          |       | 299,845             |       | 91,484                      |       | —           |       |             | 391,329    |   |   |
| Other (income) expense, net                                                  |       | 6,338               |       | (264                        | )          | —           |       |             | 6,074      |   |   |
| Intercompany licensing (income) expense, net                            |       | 68,188              |       | (68,188                     | )          | —           |       |             | —     |   |   |
| Transition service agreement (income) expense                                |       | 100                 |       | (100                        | )          | —           |       |             | —     |   |   |
| Total costs and expenses, net                                                |       | 1,685,758           |       | 1,196,051                   |       | (1,258,611       | )          |             | 1,623,198  |   |   |
| Income before equity in earnings of subsidiaries, interest  and income taxes |       | 18,939              |       | 131,252                     |       | —           |       |             | 150,191    |   |   |
| Equity in earnings of subsidiaries                                           |       | 74,715              |       | —                      |       | (74,715          | )          |             | —     |   |   |
| Interest expense                                                             |       | (50,523             | )          | (12,184                     | )          | —           |       |             | (62,707    | ) |   |
| Income before  income taxes                                                  |       | 43,131              |       | 119,068                     |       | (74,715          | )          |             | 87,484     |   |   |
| Income tax  (expense) benefit                                                |       | 11,765              |       | (44,353                     | )          | —           |       |             | (32,588    | ) |   |
| Net income                                                                   |       | $                   | 54,896     |                        | $          | 74,715           |       | $                | (74,715    | ) |   | $ | 54,896 |   |   |

 

F-65

----

**BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**Note 19.**   GuarantorFinancial Information (Continued)

**CondensedConsolidating Statement of IncomeYear Ended December 31, 2003(Thousands)**

| ** **                                                                          | ** ** | **Parent  Company** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** |
|-------------------------------------------------------------------------------------|------------|---------------------|------------|-----------------------------|------------|------------------|------------|------------------|
| Net sales                                                                           |       | $                   | 1,496,474  |                        | $          | 111,304          |       | $                | — |   |   | $ | 1,607,778 |   |
| Intercompany net  sales                                                             |       | 84,443              |       | 1,106,126                   |       | (1,190,569       | )          |             | — |   |
| Total net sales                                                                     |       | 1,580,917           |       | 1,217,430                   |       | (1,190,569       | )          |             | 1,607,778 |   |
| Costs and  expenses, net:                                                           |       |                |       |                        |       |             |       |             |   |   |
| Cost of products sold                                                               |       | 1,250,902           |       | 1,073,891                   |       | (1,190,569       | )          |             | 1,134,224 |   |
| Selling, general and administrative                                                 |       | 262,167             |       | 76,787                      |       | —           |       |             | 338,954 |   |
| Other (income) expense, net                                                         |       | 6,388               |       | (290                        | )          | —           |       |             | 6,098 |   |
| Intercompany licensing (income) expense, net                                        |       | 63,237              |       | (63,237                     | )          | —           |       |             | — |   |
| Transition service agreement (income) expense                                  |       | 100                 |       | (100                        | )          | —           |       |             | — |   |
| Loss on write-down of manufacturing facility assets                                 |       | —              |       | 3,822                       |       | —           |       |             | 3,822 |   |
| Gain on sale of assets                                                              |       | —              |       | (5,739                      | )          | —           |       |             | (5,739 | ) |
| Total costs and expenses, net                                                       |       | 1,582,794           |       | 1,085,134                   |       | (1,190,569       | )          |             | 1,477,359 |   |
| Income (loss) before equity in earnings of subsidiaries,  interest and income taxes |       | (1,877              | )          | 132,296                     |       | —           |       |             | 130,419 |   |
| Equity in earnings of subsidiaries                                                  |       | 76,333              |       | —                      |       | (76,333          | )          |             | — |   |
| Interest expense                                                                    |       | (43,669             | )          | (13,025                     | )          | —           |       |             | (56,694 | ) |
| Income before  income taxes                                                         |       | 30,787              |       | 119,271                     |       | (76,333          | )          |             | 73,725 |   |
| Income tax  (expense) benefit                                                       |       | 16,397              |       | (42,938                     | )          | —           |       |             | (26,541 | ) |
| Net income                                                                          |       | $                   | 47,184     |                        | $          | 76,333           |       | $                | (76,333 | ) |   | $ | 47,184 |   |

 

F-66

----

**BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**Note19.   Guarantor Financial Information (Continued)**

**CondensedConsolidating Balance SheetDecember 31, 2005(Thousands)**

| ** **                                                 | ** ** | **Parent  Company** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------------|------------|---------------------|------------|-----------------------------|------------|------------------|------------|------------------|------------|
| **ASSETS**                                                 |       |                |       |                        |       |             |       |             |       |   |   |   |   |   |   |
| Current Assets:                                            |       |                |       |                        |       |             |       |             |       |   |   |   |   |   |   |
| Cash and cash equivalents                                  |       | $                   | 9          |                        |       | $                | 6,873      |             |       |   | $ | — |   |   |   | $ | 6,882 |   |   |
| Accounts receivable, trade, net                            |       | 250,519             |       |                        | 19,445     |             |       |             | —     |   |   |   | 269,964 |   |   |
| Accounts receivable, other                                 |       | 5,054               |       |                        | 1,426      |             |       |             | —     |   |   |   | 6,480 |   |   |
| Tax receivable from parent corporation                     |       | 804                 |       |                        | —     |             |       |             | —     |   |   |   | 804 |   |   |
| Inventories, net                                           |       | 140,136             |       |                        | 62,562     |             |       |             | —     |   |   |   | 202,698 |   |   |
| Deferred income tax assets, net                            |       | 31,842              |       |                        | —     |             |       |             | —     |   |   |   | 31,842 |   |   |
| Other current assets                                       |       | 7,015               |       |                        | 6,560      |             |       |             | —     |   |   |   | 13,575 |   |   |
| Total Current Assets                                       |       | 435,379             |       |                        | 96,866     |             |       |             | —     |   |   |   | 532,245 |   |   |
| Investment in subsidiaries                                 |       | 575,958             |       |                        | —     |             |       |             | (575,958   | ) |   |   | — |   |   |
| Intercompany  loans including accrued interest             |       | 185,148             |       |                        | (185,148   | )                |       |             | —     |   |   |   | — |   |   |
| Due from (to)  subsidiaries, net                           |       | (569,763            | )          |                        | 569,763    |             |       |             | —     |   |   |   | — |   |   |
| Property, plant  and equipment, net                        |       | 35,690              |       |                        | 338,707    |             |       |             | —     |   |   |   | 374,397 |   |   |
| Goodwill, net                                              |       | 40,080              |       |                        | 27,054     |             |       |             | —     |   |   |   | 67,134 |   |   |
| Other noncurrent  assets                                   |       | 9,798               |       |                        | 20,751     |             |       |             | —     |   |   |   | 30,549 |   |   |
| Total Assets                                               |       | $                   | 712,290    |                        |       | $                | 867,993    |             |       |   | $ | (575,958 | ) |   |   | $ | 1,004,325 |   |   |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY (DEFICIT)**   |       |                |       |                        |       |             |       |             |       |   |   |   |   |   |   |
| Current Liabilities:                                       |       |                |       |                        |       |             |       |             |       |   |   |   |   |   |   |
| Current maturities of long-term debt                       |       | $                   | 17,000     |                        |       | $                | 2,768      |             |       |   | $ | — |   |   |   | $ | 19,768 |   |   |
| Accounts payable                                           |       | 49,996              |       |                        | 74,925     |             |       |             | —     |   |   |   | 124,921 |   |   |
| Payable to related parties                                 |       | 6,885               |       |                        | 5,202      |             |       |             | —     |   |   |   | 12,087 |   |   |
| Loans payable to parent corporation                        |       | 52,840              |       |                        | —     |             |       |             | —     |   |   |   | 52,840 |   |   |
| Accrued liabilities                                        |       | 35,631              |       |                        | 80,354     |             |       |             | —     |   |   |   | 115,985 |   |   |
| Reserve for product warranty claims                        |       | 14,900              |       |                        | —     |             |       |             | —     |   |   |   | 14,900 |   |   |
| Total Current Liabilities                                  |       | 177,252             |       |                        | 163,249    |             |       |             | —     |   |   |   | 340,501 |   |   |
| Long-term debt less current maturities                     |       | 405,524             |       |                        | 127,943    |             |       |             | —     |   |   |   | 533,467 |   |   |
| Reserve for  product warranty claims                       |       | 15,642              |       |                        | 660        |             |       |             | —     |   |   |   | 16,302 |   |   |
| Deferred income  tax liabilities                           |       | 49,416              |       |                        | —     |             |       |             | —     |   |   |   | 49,416 |   |   |
| Other liabilities                                          |       | 21,430              |       |                        | 183        |             |       |             | —     |   |   |   | 21,613 |   |   |
| Total Liabilities                                          |       | 669,264             |       |                        | 292,035    |             |       |             | —     |   |   |   | 961,299 |   |   |
| Total Stockholders’ Equity (Deficit)                  |       | 43,026              |       |                        | 575,958    |             |       |             | (575,958   | ) |   |   | 43,026 |   |   |
| Total Liabilities and  Stockholders’ Equity (Deficit) |       | $                   | 712,290    |                        |       | $                | 867,993    |             |       |   | $ | (575,958 | ) |   |   | $ | 1,004,325 |   |   |

 

F-67

----

**BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**Note 19.   GuarantorFinancial Information (Continued)**

**CondensedConsolidating Balance SheetDecember 31, 2004(Thousands)**

| ** **                                                 | ** ** | **Parent  Company** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------------|------------|---------------------|------------|-----------------------------|------------|------------------|------------|------------------|------------|
| **ASSETS**                                                 |       |                |       |                        |       |             |       |             |       |   |   |   |   |   |   |
| Current Assets:                                            |       |                |       |                        |       |             |       |             |       |   |   |   |   |   |   |
| Cash and cash equivalents                                  |       | $                   | 12         |                        |       | $                | 129,470    |             |       |   | $ | — |   |   |   | $ | 129,482 |   |   |
| Accounts receivable, trade, net                            |       | 234,733             |       |                        | 15,810     |             |       |             | —     |   |   |   | 250,543 |   |   |
| Accounts receivable, other                                 |       | 2,630               |       |                        | 1,196      |             |       |             | —     |   |   |   | 3,826 |   |   |
| Tax receivable from parent corporation                     |       | —              |       |                        | —     |             |       |             | —     |   |   |   | — |   |   |
| Inventories, net                                           |       | 114,643             |       |                        | 60,271     |             |       |             | —     |   |   |   | 174,914 |   |   |
| Deferred income tax assets, net                            |       | 43,398              |       |                        | —     |             |       |             | —     |   |   |   | 43,398 |   |   |
| Other current assets                                       |       | 2,311               |       |                        | 4,188      |             |       |             | —     |   |   |   | 6,499 |   |   |
| Total Current Assets                                       |       | 397,727             |       |                        | 210,935    |             |       |             | —     |   |   |   | 608,662 |   |   |
| Investment in subsidiaries                                 |       | 556,410             |       |                        | —     |             |       |             | (556,410   | ) |   |   | — |   |   |
| Intercompany  loans including accrued interest             |       | 58,807              |       |                        | (58,807    | )                |       |             | —     |   |   |   | — |   |   |
| Due from (to)  subsidiaries, net                           |       | (309,854            | )          |                        | 309,854    |             |       |             | —     |   |   |   | — |   |   |
| Property, plant  and equipment, net                        |       | 41,356              |       |                        | 323,158    |             |       |             | —     |   |   |   | 364,514 |   |   |
| Goodwill, net                                              |       | 40,080              |       |                        | 23,214     |             |       |             | —     |   |   |   | 63,294 |   |   |
| Other noncurrent  assets                                   |       | 8,329               |       |                        | 20,746     |             |       |             | —     |   |   |   | 29,075 |   |   |
| Total Assets                                               |       | $                   | 792,855    |                        |       | $                | 829,100    |             |       |   | $ | (556,410 | ) |   |   | $ | 1,065,545 |   |   |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY (DEFICIT)**   |       |                |       |                        |       |             |       |             |       |   |   |   |   |   |   |
| Current Liabilities:                                       |       |                |       |                        |       |             |       |             |       |   |   |   |   |   |   |
| Current maturities of long-term debt                       |       | $                   | 149,949    |                        |       | $                | 2,576      |             |       |   | $ | — |   |   |   | $ | 152,525 |   |   |
| Accounts payable                                           |       | 53,216              |       |                        | 67,121     |             |       |             | —     |   |   |   | 120,337 |   |   |
| Payable to related parties, net                            |       | 6,625               |       |                        | 10,275     |             |       |             | —     |   |   |   | 16,900 |   |   |
| Loans payable to parent corporation                        |       | 52,840              |       |                        | —     |             |       |             | —     |   |   |   | 52,840 |   |   |
| Accrued liabilities                                        |       | 32,020              |       |                        | 61,447     |             |       |             | —     |   |   |   | 93,467 |   |   |
| Reserve for product warranty claims                        |       | 14,900              |       |                        | —     |             |       |             | —     |   |   |   | 14,900 |   |   |
| Total Current Liabilities                                  |       | 309,550             |       |                        | 141,419    |             |       |             | —     |   |   |   | 450,969 |   |   |
| Long-term debt less current maturities                     |       | 405,530             |       |                        | 130,422    |             |       |             | —     |   |   |   | 535,952 |   |   |
| Reserve for  product warranty claims                       |       | 16,553              |       |                        | 660        |             |       |             | —     |   |   |   | 17,213 |   |   |
| Deferred income  tax liabilities                           |       | 44,773              |       |                        | —     |             |       |             | —     |   |   |   | 44,773 |   |   |
| Other liabilities                                          |       | 19,160              |       |                        | 189        |             |       |             | —     |   |   |   | 19,349 |   |   |
| Total Liabilities                                          |       | 795,566             |       |                        | 272,690    |             |       |             | —     |   |   |   | 1,068,256 |   |   |
| Total Stockholders’ Equity (Deficit)                  |       | (2,711              | )          |                        | 556,410    |             |       |             | (556,410   | ) |   |   | (2,711 | ) |   |
| Total Liabilities and  Stockholders’ Equity (Deficit) |       | $                   | 792,855    |                        |       | $                | 829,100    |             |       |   | $ | (556,410 | ) |   |   | $ | 1,065,545 |   |   |

 

F-68

----

**BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**Note 19.   GuarantorFinancial Information (Continued)**

**CondensedConsolidating Statement of Cash FlowsYear Ended December 31, 2005(Thousands)**

| ** **                                                                                          | ** ** | **Parent  Company** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Consolidated** | ** ** |
|-----------------------------------------------------------------------------------------------------|------------|---------------------|------------|-----------------------------|------------|------------------|------------|
| Cash and cash  equivalents, beginning of year                                                       |       | $                   | 12         |                        |       | $                | 129,470    |   |   |   | $ | 129,482 |   |   |
| Cash provided by (used  in) operating activities:                                                   |       |                |       |                        |       |             |       |   |   |   |   |
| Net income (loss)                                                                                   |       | (3,558              | )          |                        | 64,548     |             |       |   | 60,990 |   |   |
| Adjustments to reconcile  net income (loss) to net cash provided by (used in) operating activities: |       |                |       |                        |       |             |       |   |   |   |   |
| Depreciation                                                                                        |       | 3,621               |       |                        | 41,489     |             |       |   | 45,110 |   |   |
| Amortization                                                                                        |       | —              |       |                        | 2,687      |             |       |   | 2,687 |   |   |
| Deferred income taxes                                                                               |       | 16,232              |       |                        | —     |             |       |   | 16,232 |   |   |
| Noncash interest charges, net                                                                       |       | 4,168               |       |                        | 1,317      |             |       |   | 5,485 |   |   |
| (Increase) decrease in working capital items                                                        |       | (48,015             | )          |                        | 18,542     |             |       |   | (29,473 | ) |   |
| Decrease in long-term reserve for product warranty  claims                                          |       | (911                | )          |                        | —     |             |       |   | (911 | ) |   |
| Increase in other assets                                                                            |       | (4,798              | )          |                        | (3,652     | )                |       |   | (8,450 | ) |   |
| Increase in other liabilities                                                                       |       | 2,215               |       |                        | 90         |             |       |   | 2,305 |   |   |
| Change in net receivable from/payable to related parties/parent  corporations                       |       | 178,024             |       |                        | (183,641   | )                |       |   | (5,617 | ) |   |
| Other, net                                                                                          |       | (63                 | )          |                        | 1,375      |             |       |   | 1,312 |   |   |
| Net cash provided  by (used in) operating activities                                                |       | 146,915             |       |                        | (57,245    | )                |       |   | 89,670 |   |   |
| Cash provided by  (used in) investing activities:                                                   |       |                |       |                        |       |             |       |   |   |   |   |
| Capital expenditures and acquisition of  manufacturing facility                                |       | (2,025              | )          |                        | (63,035    | )                |       |   | (65,060 | ) |   |
| Proceeds from sale of assets                                                                        |       | 4,132               |       |                        | 585        |             |       |   | 4,717 |   |   |
| Net cash provided  by (used in) investing activities                                                |       | 2,107               |       |                        | (62,450    | )                |       |   | (60,343 | ) |   |
| Cash provided by  (used in) financing activities:                                                   |       |                |       |                        |       |             |       |   |   |   |   |
| Proceeds from issuance of long-term debt                                                            |       | 553,000             |       |                        | —     |             |       |   | 553,000 |   |   |
| Repayments of long-term debt                                                                        |       | (686,000            | )          |                        | (2,902     | )                |       |   | (688,902 | ) |   |
| Distributions to parent corporation                                                                 |       | (47                 | )          |                        | —     |             |       |   | (47 | ) |   |
| Dividends to parent corporation                                                                     |       | (15,000             | )          |                        | —     |             |       |   | (15,000 | ) |   |
| Loan to parent corporation                                                                          |       | (149                | )          |                        | —     |             |       |   | (149 | ) |   |
| Financing fees and expenses                                                                         |       | (829                | )          |                        | —     |             |       |   | (829 | ) |   |
| Net cash used in  financing activities                                                              |       | (149,025            | )          |                        | (2,902     | )                |       |   | (151,927 | ) |   |
| Net change in  cash and cash equivalents                                                            |       | (3                  | )          |                        | (122,597   | )                |       |   | (122,600 | ) |   |
| Cash and cash  equivalents, end of year                                                             |       | $                   | 9          |                        |       | $                | 6,873      |   |   |   | $ | 6,882 |   |   |

 

F-69

----

**BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**Note 19.   GuarantorFinancial Information (Continued)**

**CondensedConsolidating Statement of Cash FlowsYear Ended December 31, 2004(Thousands)**

| ** **                                                                                          | ** ** | **Parent  Company** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Consolidated** | ** ** |
|-----------------------------------------------------------------------------------------------------|------------|---------------------|------------|-----------------------------|------------|------------------|------------|
| Cash and cash  equivalents, beginning of year                                                       |       | $                   | 8          |                        |       | $                | 2,872      |   |   |   | $ | 2,880 |   |   |
| Cash provided by (used  in) operating activities:                                                   |       |                |       |                        |       |             |       |   |   |   |   |
| Net income (loss)                                                                                   |       | (19,819             | )          |                        | 74,715     |             |       |   | 54,896 |   |   |
| Adjustments to reconcile  net income (loss) to net cash provided by (used in) operating activities: |       |                |       |                        |       |             |       |   |   |   |   |
| Depreciation                                                                                        |       | 3,749               |       |                        | 40,171     |             |       |   | 43,920 |   |   |
| Amortization                                                                                        |       | —              |       |                        | 2,237      |             |       |   | 2,237 |   |   |
| Deferred income taxes                                                                               |       | (904                | )          |                        | —     |             |       |   | (904 | ) |   |
| Noncash interest charges, net                                                                       |       | 5,034               |       |                        | 1,398      |             |       |   | 6,432 |   |   |
| (Increase) decrease in working capital items                                                        |       | (67,242             | )          |                        | 24,350     |             |       |   | (42,892 | ) |   |
| Increase (decrease) in long-term reserve for product  warranty claims                               |       | 146                 |       |                        | (5         | )                |       |   | 141 |   |   |
| (Increase) decrease in other assets                                                                 |       | 187                 |       |                        | (5,179     | )                |       |   | (4,992 | ) |   |
| Increase (decrease) in other liabilities                                                            |       | 37                  |       |                        | (11        | )                |       |   | 26 |   |   |
| Change in net receivable from/payable to related  parties/parent corporations                       |       | (24,176             | )          |                        | 39,046     |             |       |   | 14,870 |   |   |
| Other, net                                                                                          |       | (160                | )          |                        | 941        |             |       |   | 781 |   |   |
| Net cash provided  by (used in) operating activities                                                |       | (103,148            | )          |                        | 177,663    |             |       |   | 74,515 |   |   |
| Cash provided by  (used in) investing activities:                                                   |       |                |       |                        |       |             |       |   |   |   |   |
| Capital expenditures and acquisition of  manufacturing facility                                     |       | (27,360             | )          |                        | (39,824    | )                |       |   | (67,184 | ) |   |
| Net cash used in  investing activities                                                              |       | (27,360             | )          |                        | (39,824    | )                |       |   | (67,184 | ) |   |
| Cash provided by  (used in) financing activities:                                                   |       |                |       |                        |       |             |       |   |   |   |   |
| Proceeds from issuance of long-term debt                                                            |       | 835,340             |       |                        | —     |             |       |   | 835,340 |   |   |
| Repayments of long-term debt                                                                        |       | (684,465            | )          |                        | (11,241    | )                |       |   | (695,706 | ) |   |
| Distributions to parent corporation                                                                 |       | (260                | )          |                        | —     |             |       |   | (260 | ) |   |
| Dividends to parent corporation                                                                     |       | (15,000             | )          |                        | —     |             |       |   | (15,000 | ) |   |
| Loan to parent corporation                                                                          |       | (104                | )          |                        | —     |             |       |   | (104 | ) |   |
| Financing fees and expenses                                                                         |       | (4,999              | )          |                        | —     |             |       |   | (4,999 | ) |   |
| Net cash provided  by (used in) financing activities                                                |       | 130,512             |       |                        | (11,241    | )                |       |   | 119,271 |   |   |
| Net change in  cash and cash equivalents                                                            |       | 4                   |       |                        | 126,598    |             |       |   | 126,602 |   |   |
| Cash and cash  equivalents, end of year                                                             |       | $                   | 12         |                        |       | $                | 129,470    |   |   |   | $ | 129,482 |   |   |

 

F-70

----

**BUILDING MATERIALS CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**Note 19.**   GuarantorFinancial Information (Continued)

**Condensed Consolidating Statement of Cash FlowsYear Ended December 31, 2003(Thousands)**

| ** **                                                                                          | ** ** | **Parent  Company** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  Guarantor  Subsidiaries** | ** ** | **Consolidated** | ** ** |
|-----------------------------------------------------------------------------------------------------|------------|---------------------|------------|-----------------------------|------------|-----------------------------------|------------|------------------|------------|
| Cash and cash equivalents, beginning of year                                                        |       | $                   | 60         |                        |       | $                                 | 96,113     |             |       |   | $ | — |   |   |   | $ | 96,173 |   |   |
| Cash provided by (used  in) operating activities:                                                   |       |                |       |                        |       |                              |       |             |       |   |   |   |   |   |   |
| Net income (loss)                                                                                   |       | (29,149             | )          |                        | 76,333     |                              |       |             | —     |   |   |   | 47,184 |   |   |
| Adjustments to reconcile  net income (loss) to net cash provided by (used in) operating activities: |       |                |       |                        |       |                              |       |             |       |   |   |   |   |   |   |
| Loss on write-down of manufacturing assets                                                          |       | —              |       |                        | 3,822      |                              |       |             | —     |   |   |   | 3,822 |   |   |
| Gain on sale of assets                                                                              |       | —              |       |                        | (5,739     | )                                 |       |             | —     |   |   |   | (5,739 | ) |   |
| Depreciation                                                                                        |       | 2,714               |       |                        | 36,687     |                              |       |             | —     |   |   |   | 39,401 |   |   |
| Amortization                                                                                        |       | —              |       |                        | 2,096      |                              |       |             | —     |   |   |   | 2,096 |   |   |
| Deferred income taxes                                                                               |       | 25,086              |       |                        | —     |                              |       |             | —     |   |   |   | 25,086 |   |   |
| Noncash interest charges, net                                                                       |       | 3,900               |       |                        | 1,426      |                              |       |             | —     |   |   |   | 5,326 |   |   |
| (Increase) decrease in working capital items                                                        |       | (50,562             | )          |                        | 4,768      |                              |       |             | 34,785     |   |   |   | (11,009 | ) |   |
| Increase (decrease) in long-term reserve for product  warranty claims                               |       | (1,528              | )          |                        | 213        |                              |       |             | —     |   |   |   | (1,315 | ) |   |
| Repayments from repurchase of accounts receivable                                                   |       | (105,388            | )          |                        | —     |                              |       |             | —     |   |   |   | (105,388 | ) |   |
| Increase in other assets                                                                            |       | (775                | )          |                        | (2,951     | )                                 |       |             | —     |   |   |   | (3,726 | ) |   |
| Increase in other liabilities                                                                       |       | 1,485               |       |                        | 1          |                              |       |             | —     |   |   |   | 1,486 |   |   |
| Change in net receivable  from/payable to                                                           |       |                |       |                        |       |                              |       |             |       |   |   |   |   |   |   |
| related parties/parent corporations                                                                 |       | 206,087             |       |                        | (174,849   | )                                 |       |             | (34,785    | ) |   |   | (3,547 | ) |   |
| Other, net                                                                                          |       | (49                 | )          |                        | 471        |                              |       |             | —     |   |   |   | 422 |   |   |
| Net cash provided by (used in) operating activities                                            |       | 51,821              |       |                        | (57,722    | )                                 |       |             | —     |   |   |   | (5,901 | ) |   |
| Cash provided by (used  in) investing activities:                                                   |       |                |       |                        |       |                              |       |             |       |   |   |   |   |   |   |
| Capital expenditures                                                                                |       | (7,358              | )          |                        | (35,962    | )                                 |       |             | —     |   |   |   | (43,320 | ) |   |
| Proceeds from sale of assets                                                                        |       | —              |       |                        | 9,315      |                              |       |             | —     |   |   |   | 9,315 |   |   |
| Net cash used in investing activities                                                               |       | (7,358              | )          |                        | (26,647    | )                                 |       |             | —     |   |   |   | (34,005 | ) |   |
| Cash provided by (used  in) financing activities:                                                   |       |                |       |                        |       |                              |       |             |       |   |   |   |   |   |   |
| Proceeds from loan payable to parent corporation                                                    |       | 52,840              |       |                        | —     |                              |       |             | —     |   |   |   | 52,840 |   |   |
| Proceeds from issuance of long-term debt                                                            |       | 407,676             |       |                        | 19,731     |                              |       |             | —     |   |   |   | 427,407 |   |   |
| Repayments of long-term debt                                                                        |       | (442,676            | )          |                        | (28,398    | )                                 |       |             | —     |   |   |   | (471,074 | ) |   |
| Distributions to parent corporation                                                                 |       | (14                 | )          |                        | —     |                              |       |             | —     |   |   |   | (14 | ) |   |
| Loans to parent corporation                                                                         |       | (52,939             | )          |                        | —     |                              |       |             | —     |   |   |   | (52,939 | ) |   |
| Financing fees and expenses                                                                         |       | (9,402              | )          |                        | (205       | )                                 |       |             | —     |   |   |   | (9,607 | ) |   |
| Net cash used in financing activities                                                               |       | (44,515             | )          |                        | (8,872     | )                                 |       |             | —     |   |   |   | (53,387 | ) |   |
| Net change in cash and cash equivalents                                                             |       | (52                 | )          |                        | (93,241    | )                                 |       |             | —     |   |   |   | (93,293 | ) |   |
| Cash and cash  equivalents, end of year                                                             |       | $                   | 8          |                        |       | $                                 | 2,872      |             |       |   | $ | — |   |   |   | $ | 2,880 |   |   |

 

F-71

----

**BUILDING MATERIALS CORPORATION OF AMERICA**

**SUPPLEMENTARY DATA (UNAUDITED)**

**QuarterlyFinancial Data (Unaudited)**
|                                          | ** ** | **2005 by Quarter** | ** ** | ** **   | ** ** | **2004 by Quarter** | ** ** |
|------------------------------------------|------------|-------------------------------|------------|--------------|------------|-------------------------------|------------|
| ** **                               | ** ** | **First**                     | ** ** | **Second**   | ** ** | **Third**                     | ** ** | **Fourth** | ** ** | ** ** | ** ** | **First** | ** ** | **Second** | ** ** | **Third** | ** ** | **Fourth** | ** ** |
| ** **                               | ** ** | **(Millions)**                | ** ** |
| Net sales                                |       | $ 478.8                  |       | $ 497.6 |       | $ 496.4                  |       | $ 483.0 |   |   |   | $ 392.0 |   | $ 451.6 |   | $ 468.7 |   | $ 461.1 |   |
| Cost of products  sold                   |       | 335.7                         |       | 341.5        |       | 342.3                         |       | 340.1 |   |   |   | 274.0 |   | 306.7 |   | 319.5 |   | 325.6 |   |
| Gross profit                             |       | $ 143.1                  |       | $ 156.1 |       | $ 154.1                  |       | $ 142.9 |   |   |   | $ 118.0 |   | $ 144.9 |   | $ 149.2 |   | $ 135.5 |   |
| Income before  interest and income taxes |       | $ 36.8                   |       | $ 46.3  |       | $ 48.9                   |       | $ 28.6 |   |   |   | $ 31.1 |   | $ 44.5 |   | $ 45.4 |   | $ 29.2 |   |
| Interest expense                         |       | $ (16.1                  | )          | $ (16.4 | )          | $ (15.0                  | )          | $ (14.8 | ) |   |   | $ (14.2 | ) | $ (14.5 | ) | $ (18.2 | ) | $ (15.8 | ) |
| Income before  income taxes              |       | $ 20.7                   |       | $ 29.9  |       | $ 33.9                   |       | $ 13.8 |   |   |   | $ 16.9 |   | $ 30.0 |   | $ 27.2 |   | $ 13.4 |   |
| Income tax  expense                      |       | (7.9                          | )          | (11.3        | )          | (12.9                         | )          | (5.2 | ) |   |   | (6.3 | ) | (11.2 | ) | (10.1 | ) | (5.0 | ) |
| Net income                               |       | $ 12.8                   |       | $ 18.6  |       | $ 21.0                   |       | $    8.6 |   |   |   | $ 10.6 |   | $ 18.8 |   | $ 17.1 |   | $    8.4 |   |

 

F-72

----

**SCHEDULE II**

**BUILDING MATERIALS CORPORATION OF AMERICA**

**VALUATION AND QUALIFYING ACCOUNTS**

**Year Ended December 31,2005**
| Description                                                                  | ** ** | ** **      | ** ** | **Balance  January 1,  2005** | ** ** | **Charged to  Sales or  Expenses** | ** ** | **Deductions** | ** ** | **Other** | ** ** | **Balance  December  31,  2005** | ** ** |
|------------------------------------------------------------------------------|------------|-----------------|------------|------------------------------------|------------|----------------------------------------------|------------|----------------|------------|-----------|------------|--------------------------------------------|------------|
| ** **                                                                   | ** ** | **(Thousands)** | ** ** |
| Valuation and Qualifying  Accounts Deducted from Assets To Which They Apply: |       |            |       |                               |       |                                         |       |           |       |      |       |                                       |       |   |   |   |   |   |   |   |   |
| Allowance for doubtful accounts                                              |       |            | $          | 1,139                              |       |                                         |       | $              | 1,230      |      |       |                                       | $          | 59 | (b) |   |   | $ | — |   |   |   | $ | 2,310 |   |   |
| Allowance for discounts                                                      |       |            | 59,010     |                               |       |                                         | 266,215    | (a)            |       |      | 250,720    |                                       |       |   | — |   |   |   | 74,505 |   |   |
| Reserve for inventory market valuation                                       |       |            | 2,477      |                               |       |                                         | 3,870      |           |       |      | 1,591      |                                       |       |   | — |   |   |   | 4,756 |   |   |
| Reserve for  product warranty  claims                                        |       |            | 32,113     |                               |       |                                         | 22,880     |           |       |      | 23,791     |                                       |       |   | — |   |   |   | 31,202 |   |   |
|                                                                              |            |                 |            |                                    |            |                                              |            |                |            |           |            |                                            |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

**Year Ended December 31, 2004**
| Description                                                                  | ** ** | ** **      | ** ** | **Balance  January 1,  2004** | ** ** | **Charged to  Sales or  Expenses** | ** ** | **Deductions** | ** ** | **Other** | ** ** | **Balance  December 31,  2004** | ** ** |
|------------------------------------------------------------------------------|------------|-----------------|------------|------------------------------------|------------|----------------------------------------------|------------|----------------|------------|-----------|------------|--------------------------------------|------------|
| ** **                                                                   | ** ** | **(Thousands)** | ** ** |
| Valuation and Qualifying  Accounts Deducted from Assets To Which They Apply: |       |            |       |                               |       |                                         |       |           |       |      |       |                                 |       |   |   |   |   |   |   |   |   |
| Allowance for doubtful accounts                                              |       |            | $          | 1,363                              |       |                                         |       | $              | 605        |      |       |                                 | $          | 829 | (b) |   |   | $ | — |   |   |   | $ | 1,139 |   |   |
| Allowance for discounts                                                      |       |            | 51,452     |                               |       |                                         | 235,001    | (a)            |       |      | 227,443    |                                 |       |   | — |   |   |   | 59,010 |   |   |
| Reserve for inventory market valuation                                       |       |            | 2,415      |                               |       |                                         | 1,479      |           |       |      | 1,417      |                                 |       |   | — |   |   |   | 2,477 |   |   |
| Reserve for  product warranty   claims                                       |       |            | 31,972     |                               |       |                                         | 23,239     |           |       |      | 23,098     |                                 |       |   | — |   |   |   | 32,113 |   |   |
|                                                                              |            |                 |            |                                    |            |                                              |            |                |            |           |            |                                      |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

**Year Ended December 31, 2003**
| Description                                                                  | ** ** | ** **      | ** ** | **Balance  January 1,  2003** | ** ** | **Charged to  Sales or  Expenses** | ** ** | **Deductions** | ** ** | **Other** | ** ** | **Balance  December  31,  2003** | ** ** |
|------------------------------------------------------------------------------|------------|-----------------|------------|------------------------------------|------------|----------------------------------------------|------------|----------------|------------|-----------|------------|--------------------------------------------|------------|
| ** **                                                                   | ** ** | **(Thousands)** | ** ** |
| Valuation and Qualifying  Accounts Deducted from Assets To Which They Apply: |       |            |       |                               |       |                                         |       |           |       |      |       |                                       |       |   |   |   |   |   |   |   |   |
| Allowance for doubtful accounts                                              |       |            | $          | 1,484                              |       |                                         |       | $              | 703        |      |       |                                       | $          | 824 | (b) |   |   | $ | — |   |   |   | $ | 1,363 |   |   |
| Allowance for discounts                                                      |       |            | 37,153     |                               |       |                                         | 212,191    | (a)            |       |      | 197,892    |                                       |       |   | — |   |   |   | 51,452 |   |   |
| Reserve for inventory market valuation                                       |       |            | 2,538      |                               |       |                                         | 1,925      |           |       |      | 2,048      |                                       |       |   | — |   |   |   | 2,415 |   |   |
| Reserve for  product warranty  claims                                        |       |            | 33,287     |                               |       |                                         | 21,955     |           |       |      | 23,270     |                                       |       |   | — |   |   |   | 31,972 |   |   |
|                                                                              |            |                 |            |                                    |            |                                              |            |                |            |           |            |                                            |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

----

Notes:

(a)           Amountcharged to net sales.

(b)          Represents write-offs ofuncollectible accounts net of recoveries.

S-1

----