Over the last five years, USG invested over $900 million to improve operations, built its distribution arm into a $2.5 billion business, generated $1.5 billion in cash, and emerged from Chapter 11 bankruptcy with a landmark agreement that preserved shareholder equity. In 2006, USG reported record sales of $5.8 billion despite challenges from a slowing housing market. USG is well positioned for continued success due to investments in production, a diverse product portfolio beyond wallboard, and the trust built with stakeholders during its restructuring.

1. Over the last five years,
we have invested more than $900 million
to improve our operations, built our
distribution arm into a $2.5 billion business,
generated $1.5 billion in cash and
emerged from Chapter 11 with a landmark
agreement that preserved equity for
our shareholders. But there’s one thing
we know for certain:
u s g c o r p o r at i o n 2 0 0 6 a n n u a l r e p o rt

3. “SucceSS iS never final.”
Winston Churchill

4. Dear Fellow ShareholDerS,
In 2006, we opened a new chapter in our centur y-long histor y. It brings
familiar challenges and new oppor tunities. We’re ready for both.
On June 20, 2006, we announced that we were emerging from our
asbestos-related Chapter 11 bankruptcy with our principles–and good
name –intact. We delivered on all of our commitments: A landmark
settlement–the first of its kind–preser ved our shareholders’ equity.
Creditors and lenders were repaid in full, with interest, and we funded
a $ 3.95 billion trust for asbestos claimants. We maintained outstanding
relationships with our customers and employees. We even emerged
William C. Foote
with an investment-grade credit rating, something vir tually unheard of
Chairman and Chief Executive Officer
in a situation like ours.
We could do the right things because we did things right. We communi-
cated for thrightly–and regularly–with ever yone who had a stake in the
outcome. In cour t, we fought hard to gain a fair hearing and to protect
our interests. While they were ultimately unsuccessful, our ef for ts to
help craf t a legislative solution to the asbestos crisis created a climate
that fostered a settlement. Our record-breaking per formance over the
last five years, which generated more than $1.5 billion in cash, provided
a good por tion of the money needed to fund an agreement. And when it
appeared that one could be reached, we seized the moment.
BuilDing our enterpriSe
We have not only resolved the issue of our legacy asbestos liability, once
and for all, we have exited Chapter 11 stronger and more resourceful
than ever before. Rather than stripping down the company’s assets,
brands and people –the sad course of many bankruptcies–we system-
atically built our enterprise. Over the past five years, we invested more
than $ 900 million to create the most advanced production facilities in our
industr y. We built our specialty distribution company into a $ 2.5 billion-
02

5. we Made a Difference
Chapter 11 was one of the toughest chal- At the same time, we worked equally hard For the first time ever in an asbestos
lenges USG has ever faced, but in many to pass national asbestos reform legisla- bankruptcy, shareholders retained their
ways it was also one of the most rewarding. tion that would create a better system for ownership and creditors were paid in full,
We never wavered from our commitment resolving asbestos claims. We founded the with interest. We met each of our goals.
to repay our creditors in full, protect our Asbestos Alliance, one of the two major We would not have accepted anything less.
shareholders’ investment and fairly com- business groups established to address the
pensate legitimate asbestos claimants. issue. We played a leading role in lobby- The experience illustrated the value of
Employee morale remained high, because ing for reform and in crafting the FAIR Act fighting aggressively and sticking to your
we were always fighting for our principles. legislation. Telling our story helped people principles. By doing so, we were able
And we emerged stronger than ever, understand that the system for handling to achieve an unprecedented result. We
with the asbestos issue behind us. asbestos litigation was broken and unfairly made a difference.
punished good companies.
From the beginning, our restructuring team
pursued two parallel paths. National asbestos legislation fell short–it
failed to advance in the Senate by a single
In court, our guiding principle was that we vote. But our efforts weren’t wasted. The
should only compensate people who were legislative process shined a spotlight on
hurt by our products. We never accepted the the failures of the current system, which
idea that we should be liable for the many has prompted judges and state legislatures
thousands of claims we received from people to correct many of the worst abuses. The
who had little or no contact with our products prospect of the FAIR Act passing, and our
or who showed no signs of illness. We insisted commitment to fight claims in court, helped
on the right to challenge the validity of the motivate plaintiffs to agree to a ground-
claims against us before the court determined breaking settlement.
how much we would be required to pay.
Stan Ferguson
Executive Vice President and General Counsel
03

6. exceptional from the Start
Our Chapter 11 was exceptional from the At the same time we were building the we can keep moving forward and continue
start. In most restructurings, it’s necessary value of the enterprise, we were working to create value for shareholders. We can
to repair both the company’s business model to quantify our asbestos liabilities through weather the cycles in our markets and
and its finances. litigation and legislation. And when all the invest in new opportunities, including
stars came into alignment, we were able acquisitions. The strengths that served us
Although the issues we faced were complex, to reach a settlement that our performance well during Chapter 11 set the stage for
our challenge was simpler, because the enabled us to finance. our success in the future.
underlying strength of our business was never
in doubt. In financial terms, we only had to fix Issuing equity with a rights offering was a
the right-hand side of the balance sheet. key step, since it assured that we wouldn’t
be financed exclusively with debt. Some
We earned our way out of Chapter 11. During finance professionals said it couldn’t be
the five years we were in bankruptcy, we done, but our rights offering and the back-
grew our sales by more than 50% and our stop agreement that assured it would be
operating profit grew from $90 million to funded enabled us to exit Chapter 11 with
almost $1 billion. We accumulated more than an investment-grade credit rating and a
$1.5 billion in cash, while we reinvested more strong balance sheet. So instead of strug-
than $900 million in the business. gling just to keep our heads above water,
Rick Fleming
Executive Vice President and Chief Financial Officer
04

7. dollar business with a growing network of locations across the countr y.
We introduced scores of innovative new products and processes that
help us win new sales and ser ve our customers more ef ficiently.
In 2006, we posted record sales of $ 5.8 billion and shipped a near-re-
cord 10.8 billion square feet of wallboard. Driven by strong same-store
sales, L&W Supply repor ted a 21% increase in sales and a 36% increase
in profits. Our worldwide ceilings business also repor ted solid gains in
sales and operating profit. Af ter accounting for charges and credits
associated with our Chapter 11 plan of reorganization, net earnings for
the year were $ 288 million, or $ 4.33 per diluted share.
FaMiliar ChallengeS
We have a lot to celebrate. But as a quotation from Winston Churchill
that I keep near my desk reminds me, “Success is never final.” At the
same time we emerged from Chapter 11, it became clear that the resi-
dential construction market was slowing rapidly, af ter years of strong
grow th. The drop in new home sales drove down both the demand for
wallboard and its price, and though signals are mixed, we cannot bank
on a rebound in the market any time soon.
Af ter dealing with the challenges of Chapter 11, we now face the chal-
lenge of a slowdown in a major market. But it is a challenge we have
dealt with before, and we’re prepared to do it again. In fact, we’ve
never been better equipped to succeed–at any point in the economic
cycle. And there are good reasons to think we can continue to extend
our leadership and build the enterprise.
the Full Story
First of all, it’s impor tant to k now that there’s more to us than wall-
board– or new housing.
05
#1 IN GYPSUM

8. 06

9. hIgh-vOLume, low-cost production
CReATeS A pLAn FOR ALL SeASOnS.
07
LOW COST. HIGH VALUE.
Strategic investments in high-volume, low-cost production enable USG to lead its markets at
every point in the economic cycle. Wallboard lines are running 40% faster than they did in 2001.

10. A brand name like Shee TROCK casts a big shadow, but wallboard is
only par t of our stor y. Our fastest-growing business, L&W Supply, is
now a $ 2.5 billion enterprise in its own right. Af ter several recent ac-
quisitions, it now operates 220 sales centers which ser ve contractors
and commercial customers in 36 states. In addition to selling approxi-
mately 12% of the total wallboard used nationwide, L&W also provides
a wide range of complementar y products such as joint compounds, as
well as other building materials like roofing and insulation. In fact, com-
plementar y and other non-wallboard products account for almost half
of L&W’s sales.
Our ceilings business ser ves the nonresidential construction market.
Demand for our products from new nonresidential construction is de-
termined by floor space for which contracts are signed. Af ter a moder-
ate increase in 2005, total floor space for which contracts were signed
increased 4% in 2006, with increased investments in the hotel, edu-
cation and of fice construction segments. Installation of our products
occurs whe n constr uction be gins, t y pic all y about a ye ar af te r the
contracts are signe d.
Other products help us gain a larger share of buildings and construc-
tion budgets. We’re also a leader in sur face treatments–including
the joint treatments used to finish wallboard installations, as well as
primers and plasters. Our per formance substrate business–including
DuROCK and FIBeROCK–puts us under floors and countertops, behind
tile walls and in other wet areas. Together, sur faces and substrates
represent $ 900 million of our sales.
We are not just walls, but finishes, floors, ceilings and roofs, and we
are not just new construction, but all construction, including remodel-
ing, which accounts for more than one-third of our total sales.
08 #1 IN JOINT COMPOUNDS

11. a Soft landing
Our first goal when we entered Chapter 11 When we realized we would have to file Our messages were open, candid and
was to achieve a soft landing. We wanted for Chapter 11, we established dedicated consistent. We never attempted to
to get through turbulent times, without communication channels with all of our minimize the risks. In fact, we explicitly
hurting our ability to take off again when audiences. Our top executives personally warned shareholders that they might
conditions were right. contacted scores of key stakeholders. We be wiped out. We never made promises
created a road show that helped explain that we couldn’t keep, and we always
We did it though communications, beginning the issue for our plant communities. Our took the high road. People trusted us,
almost two years before we declared bank- restructuring team developed good rela- and trusted what we had to say, so they
ruptcy. Although we are a Fortune 500 tionships with the committees formed to rallied to us, and they are still with
company with operations in virtually every represent shareholders, bondholders and us today.
state, we were not well known, and we creditors. We told our story in Washington
wanted to fix that. At the same time, we and to the editorial boards of local and I cannot think of another company whose
began to publicly address the issue of asbes- national media outlets. Close to 10,000 reputation was enhanced by Chapter
tos and the impact that the broken tor t of our employees took part in a grassroots 11, but we are more widely known–and
system had on people and businesses. letter-writing campaign urging senators respected–now than before. We have
We were setting the stage for what followed. to support the asbestos legislation. received a lot of attention for our extraor-
dinary success, and we should receive
just as much for what we are about to do.
With the opportunities we have created
and the trust we’ve earned, we are poised
to do remarkable things.
Marci Kaminsky
Senior Vice President, Communications
09

12. Many More good years
We took an uncharted path though Chapter joined the Office of the President. Our job These actions during bankruptcy pro-
11. We succeeded for two reasons. was to focus all of our energies on making duced record sales of $5.8 billion in
the best products, delivering the best service 2006. The actions we are taking today
The first was our integrity. Our honesty and and putting our arms around our customers. position us for accelerated growth. L&W
candor helped to build a tremendous well The goal was to create a currency that would is already the fastest-growing specialty
of support among customers, suppliers allow us to legislate or litigate a solution. dealer of its kind in the country–we plan
and employees. To show their solidarity, to keep it on the fast track. We also have
Business as usual also meant building, buy-
a number of customers actually increased exciting new growth initiatives underway
ing and nurturing the enterprise. We built new
their business with USG. in Canada, Mexico and other countries.
low-cost capacity and, with new marketing And we will continue to build new,
efforts like our NASCAR sponsorship, an even
The second reason we succeeded was that low-cost production facilities so we can
bigger presence in our market. We acquired
we managed our operations with a “business capitalize on the long-term growth in
more than 30 specialty building products
as usual” attitude. our market.
dealers, to add to L&W’s growing network.
We nurtured businesses like our plaster
It was critical for us to continue to support Our performance in Chapter 11 shows
business and our market-leading joint
our customers, invest in our businesses how much we can accomplish moving
treatment business to help improve their
and, most importantly, develop our people. forward. We have the best people, the
performance. A team of emerging managers
So early on we separated the organization best products and the best systems–
spearheaded a concerted effort to develop
into two offices. A dedicated team formed and the courage of our convictions.
new products and businesses. We improved
the Office of Restructuring and worked hard
our business practices and our ability to
to take care of our creditors, our share-
serve customers through moves like consoli-
holders and legitimate asbestos claimants.
dating our sales force and installing a new
Meanwhile, everyone in operations, sales,
enterprise-wide computer system.
manufacturing, marketing and distribution
Jim Metcalf
President and Chief Operating Officer
10

13. Expanding the range of products we of fer adds to our sales and to our USG consolidated revenues
by end use market
value. We are more diversif ied ; we are less reliant on a single prod-
uct or market.
Residential
Remodelling
(15%)
We enjoy other advantages too.
Non-Residential
New Residential
Remodelling
(45%)
(15%)
The investments we made over the past five years enable us to set
new standards of productivity. Almost half of our wallboard produc- New Non-Residential
(25%)
tion capacity is seven years old or less, and across our operations our
lines are working an average of 40% faster than they did just five years
ago. Other investments, including a new ship to carr y gypsum ore and For t y percent of total revenues are derived
from non-residential construction, such as
a new enterprise-wide computer system, suppor t the ver tical integra- schools, of fices, stores and hospitals.
tion that reduces friction in our supply chain and lowers our costs.
A Pl An For All SeASonS
As the industr y’s high-volume, low-cost producer we’re in the best
position at ever y point in the economic cycle –it’s what our CFO Rick
Fleming calls “a plan for all seasons.” During the good times we’ve
enjoyed recently, we had the capacity to meet high demand and prof-
itably ser ve our customers. As demand slows, lower costs enable us
to meet price competition, while still remaining profitable.
But we are not just meeting demand, we are working to create it. Over
the past three years, we spent more than $ 50 million on R & D. And
we are beginning to reap the rewards. Established in 2004, our New
11

14. We’Re expanding our sHare
OF BuILDIngS AnD COnSTRuCTIOn BuDgeTS.
12

15. 13
LOOKING UP.
USG’s global ceilings business serves the commercial construction market, including offices,
stores and hotels. Its products combine easy installation with outstanding acoustical perfor-
mance and distinctive designs.

16. Business ventures group has launched a number of new products.
examples include a new structural panel that dramatically simplifies
commercial flooring installations and a new paint finish being test-
marketed by The home Depot. An award-winning new joint compound
reduces the dust produced by sanding walls before painting. newly
launched Shee TROCK tools provide one more way to keep our name
in front of construction workers. At a plant in Tuscaloosa, Alabama,
our uSg Framing business designs, manufactures, delivers and installs
light-gauge steel framing systems that allow contractors to frame a
home in a single day.
We don’t expect the sales of any of these products to rival wallboard,
but they show that we are always prospecting for new ideas. We recog-
nize that to find a break through, you usually have to go and look for it.
We know what to do in challenging markets, because we’ve done it before.
Our senior management team–the same one that brought us through
Chapter 11– averages more than 20 years in the business. meanwhile,
the management training programs we have put in place over the past
five years help us build our bench and prepare for the future.
having seen how much they mattered when we were in Chapter 11,
we continue to work hard to instill strong, shared values. They include
safety. Although we experienced two serious accidents early in the year,
our overall performance once again exceeded industry standards. more
than three-quarters of our plants did not report a single lost-time injury.
14

17. accelerate our growth
We are also further improving our low-cost
We came out of Chapter 11 with stronger
position to ignite higher rates of growth.
operations. Now, in a changing market, we’ll
Our Breakthrough Technologies Team is
apply our strengths to accelerate our growth.
working to take large chunks out of our cost
In the near term, our markets will soften. structure, by challenging long-held assump-
So we will focus on getting the most out of tions about energy requirements and basis
our core businesses–wallboard, ceilings and weights. New advances could transform our
specialty distribution–because that’s the processes–and our prospects.
most efficient way to grow. While some say
Over the long term, our markets will continue
these businesses are mature, we think
to grow. We plan to grow in–and from–our
that new approaches and innovative ideas
core. Leveraging our leadership in joint
will open new opportunities.
compounds and composite substrates, we
For example, we are improving customer sat- are building new performance surfaces and
isfaction to increase our rate of growth. LinX, substrate businesses. We are developing
our new enterprise-wide computer system, new decorative finishes, structural substrates
will improve on-time deliveries, optimize our and framing. We’re applying everything we
network and create new opportunities to know about building science, formulated
collaborate with customers. finishes and continuous-panel technologies
to develop products that offer new features,
address new lifestyle trends and provide new
sources of growth.
Ed Bosowski
Executive Vice President and Chief Strategy Officer
President, USG International
15

18. all the opportunities
When it came to people, we had two priori- Morale stayed high. We were twice named Bankruptcy did not hurt our ability to
ties when we entered Chapter 11. First and one of the 25 best places to work in Chicago. attract excellent candidates from college
foremost, we needed to retain the talented Our employee retention rate, which was campuses and experienced professionals
people we already had. Second, we wanted already above average, actually went up the from other companies. Once we explained
to use our time in Chapter 11 time to attract first year we were in Chapter 11. our situation and described the opportuni-
new people and develop new leaders, so ties we offered, they saw a promising
Retention was important, but it wasn’t long
that when we emerged, we’d be prepared future here. Today, we believe our future
before we realized we also needed to deepen
to execute our plans for growth. is brighter than ever.
our bench and develop the additional tal-
ent needed to reach our growth objectives.
By almost any measure we succeeded.
We launched several intensive leadership
We gave employees a reason to stay with us: development programs for managers, and we
opportunity. We emphasized that Chapter 11 expanded educational and technical training
was a legal issue–it didn’t change the fact initiatives for all employees.
that the company had a bright future, or that
the people who stayed would have a great
opportunity to achieve their career goals. We
never cut back on training, campus recruiting
or other development programs, and we
took several steps to help employees with
work-life balance.
Brian Cook
Senior Vice President, Human Resources
16

19. As our safety per formance shows, we know what counts, and how to uSg Corp. sales vs.
industry wallboard shipments
achieve it. Our central goal is to continue to build the value of the en-
terprise – and reward our shareholders. historically, that’s what we’ve $ 5.8 bln
done, regardless of what happens in the marketplace. We have run our
uSG Sales
businesses profitably–in the troughs as well as at the peaks. And our caGr = 8.5%
total company sales–including our wallboard, distribution, ceilings and
36.2 bsf
other businesses–have outpaced the grow th of the wallboard market.
While total wallboard shipments have increased at a compound rate of
4.7% over the past 15 years, our total sales have grown at a compound
18.4 bsf
rate of 8.5% over the same period.
$1.7 bln industry Wallboard Shipments
caGr = 4.7%
new opportunitieS
So while no one can promise what the market will bring, I can promise
1991 – 2006
you that we will make the most of it. Over the shor t term, we are likely
industry wallboard shipments (bsf)
to face the twin challenges of reduced demand and increased supply,
uSG corp. sales (in billions of dollars)
but the long-term picture is promising. nor th America’s population is
Over the past 15 years, uSg sales (including
growing, and members of the large “echo-boom” generation are enter- wallboard, specialty distribution, ceilings and
other businesses) have grown more rapidly
ing their prime years for buying a home. One study predicts that over than u.S. industr y wallboard shipments.
the next 25 years, more than 100 billion square feet of new residential
l&w supply net sales
space will be needed. That’s more than the development seen in any and number of locations
2.5
250
other generation.
Of course, we’re not just waiting for an upturn.
200 2.0
We are resizing our operations to match our production to market
demand. As circumstances dictate, we will idle older lines to lower our 150 1.5
network costs, guided by sophisticated computer modeling that contin-
uously balances delivered cost, volume and market share. As of January
31, 2007, we reduced wallboard capacity utilization by more than two bil- 100 1.0
´02 ´03 ´04 ´05 ´06
lion square feet by cutting production schedules and overtime. In Janu-
net sales (in billions of dollars)
ary 2007, we also permanently closed older, high-cost production lines, number of locations
eliminating an additional 400 million square feet of annual capacity. L& W Supply is the largest u.S. building
materials distributor of its kind, with 220
locations in 36 states.
17
#1 IN DISTRIBUTION

20. 18

21. building our presence,
We’Re
OuR SALeS AnD OuR LeADeRShIp.
19
WE DELIVER.
USG’s fastest-growing business, L&W Supply Corporation, provides a wide range of products
and single-source service–including job-site delivery–to professional contractors. In 2006,
it added 28 new locations.

22. At the same time, however, we continue to pursue new oppor tunities,
recognizing that many of the best come at the trough of the market,
not the peak. That’s especially true for L&W. har vard university’s Joint
Center for housing Studies says that home improvement product dis-
tributors–a $ 325 billion industr y–are entering a period of consolida-
tion. We intend to lead it.
Our plans also include additional investments in production. Capital
investment projects totaling more than $ 500 million were under way at
the end of 2006, including new wallboard plants in pennsylvania, vir-
ginia and mexico, a new paper mill in michigan and a new 40,000-ton
ship to transpor t gypsum to our east Coast plants. Building new plants
when the immediate demand is uncer tain may seem like a gamble, but
the only way to meet our customers’ needs tomorrow is to begin to
build new facilities today. Just as the plants we built in the late 1990s
enabled us to generate substantial profits during the housing market
grow th of recent years, the plants we are building now will enable us to
do the same in the years to come.
Before then, we will have to work our way through uncer tain market
conditions, but af ter five years in Chapter 11, we know something
about managing in uncer tain times. We’ve proven we can meet great
challenges and do great things. And when I say “we,” I mean it. Our
success in Chapter 11 and our strength today are a tribute to ever yone
at uSg, from the boardroom to the board line. The past five years test-
ed all of us, no matter what our jobs or where we worked. Together, all
of us met the test, and all of us won. With a team like ours, we can look
ahead with confidence –and face the future with a smile.
William C. Foote
Chairman and Chief Executive Officer
20

23. The following graph and table compare the cumulative total stockholder return on our Common Stock with the Standard and poor’s 500 Index (the “S&P 500”),
the Dow Jones u.S. Construction and materials Index (the “DJuSCn”) and a peer group of companies in the building materials industry selected by us in the
past for purposes of comparison and described more fully below (the “Building Materials Group”), in each case assuming an initial investment of $100 and full divi-
dend reinvestment, for the five-year period ended December 31, 2006. We have included the cumulative stockholders returns for the DJuSCn in the graph this
year because we will be using that index for determining whether performance share goals are met. We will not use the Building materials group in future years as
industry consolidation has significantly reduced the number of companies in that group since we first began using it.
performance graph
1,200
1,100
uSG corporation
1,000
S & P 500
900
Building Materials Group
800
Dow Jones u.S. construction
700 & Materials index
600
500
400
300
200
100
0
´ 05
´ 01 ´ 02 ´ 03 ´ 04 ´ 06
Dec. 31, 2001 Dec. 31, 2002 Dec. 31, 2003 Dec. 31, 2004 Dec. 31, 2005 Dec. 31, 2006
$100 $148 $ 290 $704 $1,136 $1,121
uSG corporation
$100 $78 $100 $111 $117 $135
S & P 500
Building Materials
$100 $ 88 $120 $150 $144 $155
Group
$100 $ 87 $118 $155 $173 $ 203
DJuScn*
*Dow Jones u.S. construction & Materials index
All amounts rounded to the nearest dollar.
The Building materials group comprises the following 12 publicly traded companies in the building materials industr y for all periods reflected in the per formance
graph : Ameron International, Inc., Apogee enterprises, Inc., Armstrong holdings, Inc., Butler manufacturing Co. (through 20 03 ), Crane Co., elkcorp, Fluor Corp.,
International Aluminum Corp., masco Corp., Owens Corning, perini Corp., ppg Industries, Inc. and Thomas Industries, Inc. (through 20 04 ).
21

24. Business overview
Businesses Products and Services
gypsum United States Gypsum Company Manufactures and markets gypsum
CGC Inc. wallboard, joint treatments and tex-
USG Mexico S.A. de C.V. tures, cement board, gypsum fiber
panels, plaster, shaft wall systems
and industrial gypsum products
Ceilings USG Interiors, Inc. Manufactures and markets
USG International acoustical ceiling panels, ceiling
CGC Inc. suspension grid, specialty ceilings
and other building products
Distribution L&W Supply Corporation Specializes in delivering construc-
tion materials to job sites
22

25. Best-Known Brand Names Geographical Areas Served Customers
SHEE TROCK gypsum panels; United States, Canada, Mexico purchasers : specialty drywall
SHEE TROCK joint compounds; centers, distributors, hardware
DUROCK cement board; FIbEROCK cooperatives, buying groups,
gypsum fiber panels; SECUROCK home centers, mass merchandis-
roof board; LE V ELROCK floor ers; influencers : architects,
underlayment; H Y DROCA L gypsum specifiers, building owners;
cement; IMPERIAL building plasters; end users : contractors, builders,
and DIAMOND building plasters do-it-yourselfers
ASTRO, ECLIPSE and R A DA R United States, Canada, Mexico purchasers : specialty acoustical
ceiling panels; DONN DX, FINELINE and more than 125 other countries centers, distributors, hardware
and CENTRICITEE ceiling grid; in all parts of the world: North, cooperatives, home centers, con-
COMPäS SO suspension trim; Central and South America, the tractors; influencers : architects,
CURVAT U R A 3-D ceiling system; Caribbean, Europe, the Middle specifiers, interior designers,
GEOME TRI X ceiling panels; East, Asia, the Pacific Rim, Africa building owners, tenants, facility
TOPO 3-dimensional system; managers; end users : contrac-
and bILLO 3-dimensional panels tors, builders, do-it-yourselfers
United States purchasers and end users :
contractors, builders
23

26. BoarD oF DireCtorS Corporate oFFiCerS
Jose armario valerie B. Jarret t William c. foote Dominic Dannessa
(4) (1*, 4, 5, 6)
President, Latin America Chief Executive Officer, Chairman and Vice President;
McDonald’s Corporation The Habitat Company Chief Executive Officer Executive Vice President,
Manufacturing, building Systems
rober t l . Barnet t Steven f. leer James S. Metcalf
( 2*, 4, 5, 6) ( 3, 4)
Former Executive Chairman and President and Brendan J. Deely
Vice President, Chief Executive Officer, Chief Operating Officer Vice President; President
Motorola Corporation Arch Coal, Inc. and Chief Operating Officer,
edward M. Bosowski
L&W Supply Corporation
Executive Vice President
Keith a . Brown Mar vin e. lesser
( 2, 3, 4, 5, 6*) (1, 2, 4, 6)
President, Managing Partner, and Chief Strategy Officer; fareed a . K han
Chimera Corporation Sigma Partners, L.P. President, USG International Vice President;
Executive Vice President,
James c. cot ting John B. Schwemm Stanley l . ferguson
( 3, 4, 5, 6) (1, 2, 4, 6)
Sales and Marketing,
Former Chairman and Former Chairman and Executive Vice President
building Systems
Chief Executive Officer, Chief Executive Officer, and General Counsel
Navistar International R.R. Donnelley & Sons Company Karen l . leets
richard H. fleming
Corporation Vice President and Treasurer
Executive Vice President
Judith a. Sprieser (1, 2, 3*, 4)
Former Chief Executive Officer, and Chief Financial Officer
lawrence M. crutcher D. rick lowes
( 2, 3, 4*, 5)
Managing Director, Transora, Inc. Vice President and Controller
Brian J. cook
Veronis Suhler Stevenson
Senior Vice President, Peter K . Maitland
Committees of the board of Directors
Human Resources
William c. foote Vice President,
1 Compensation and Organization
Chairman and Compensation, benefits
Committee
Marcia S. Kaminsk y
Chief Executive Officer and Administration
2 Audit Committee
Senior Vice President,
3 Finance Committee
4 Governance Committee Communications
W. Douglas ford (1, 4, 5*, 6) Donald S. Mueller
5 Corporate Affairs Committee
Former Chief Executive, Vice President,
6 Governance-Nominating Subcommittee
Refining and Marketing, Research and
* Denotes Chair
bP Amoco p.l.c. Technology Innovation
David W. fox clarence B. Owen
( 1, 3, 4, 6 )
Former Chairman and Vice President and
Chief Executive Officer, Chief Technology Officer
Northern Trust Corporation and
ellis a . regenbogen
The Northern Trust Company
Corporate Secretary and
Associate General Counsel
24

27. form 10k

29. UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2006
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________.
Commission File Number 1-8864
USG CORPORATION
(Exact name of Registrant as Specified in its Charter)
Delaware 36-3329400
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
125 S. Franklin Street, Chicago, Illinois 60606-4678
(Address of Principal Executive Offices) (Zip Code)
Registrant’s Telephone Number, Including Area Code: (312) 606-4000
Securities Registered Pursuant to Section 12(b) of the Act:
Name of Exchange on
Title of Each Class Which Registered
New York Stock Exchange
Common Stock, $0.10 par value Chicago Stock Exchange
Preferred Stock Purchase Rights (subject to New York Stock Exchange
Rights Agreement dated December 21, 2006) Chicago Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act. Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the
Exchange Act. Yes No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
Large accelerated filer Accelerated filer Non-accelerated filer
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2)
Yes No
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12,
13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed
by a court. Yes No Not applicable. Although the registrant was involved in bankruptcy proceedings during the
preceding five years, it did not distribute securities under its confirmed plan of reorganization.
The aggregate market value of the registrant’s common stock held by non-affiliates based on the New York Stock
Exchange closing price as of June 30, 2006 (the last business day of the registrant’s most recently completed second
fiscal quarter) was approximately $2,882,045,000.
The number of shares of the registrant’s common stock outstanding as of January 31, 2007 was 89,865,616.
Documents Incorporated By Reference: Certain sections of USG Corporation’s definitive Proxy Statement for use in
connection with the 2007 annual meeting of stockholders, to be filed subsequently, are incorporated by reference into
Part III of this Form 10-K Report where indicated.

30. TABLE OF CONTENTS
Page
PART I
Item 1. Business............................................................................................................................................... 3
Item 1A. Risk Factors......................................................................................................................................... 8
Item 1B. Unresolved Staff Comments................................................................................................................ 13
Item 2. Properties ............................................................................................................................................ 14
Item 3. Legal Proceedings ............................................................................................................................... 15
Item 4. Submission of Matters to a Vote of Security Holders ......................................................................... 15
PART II
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities ......................................................................................................................... 16
Item 6. Selected Financial Data ....................................................................................................................... 17
Item 7. Management’s Discussion and Analysis of Results of Operations and Financial Condition............... 18
Item 7A. Quantitative and Qualitative Disclosures About Market Risks ........................................................... 34
Item 8. Financial Statements and Supplementary Data.................................................................................... 35
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.............. 63
Item 9A. Controls and Procedures...................................................................................................................... 63
Item 9B. Other Information................................................................................................................................ 65
PART III
Item 10. Directors, Executive Officers and Corporate Governance .................................................................. 65
Item 11. Executive Compensation ..................................................................................................................... 67
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters ........................................................................................................................ 67
Item 13. Certain Relationships and Related Transactions, and Director Independence .................................... 68
Item 14. Principal Accountant Fees and Services.............................................................................................. 68
PART IV
Item 15. Exhibits and Financial Statement Schedules ....................................................................................... 68
Signatures ................................................................................................................................................................. 73
2

31. PART I
Item 1. BUSINESS
in markets in which we compete.
In this annual report on Form 10-K, “USG,” “we,”
As part of the plan, the following important
“our” and “us” refer to USG Corporation, a
events have occurred:
Delaware corporation, and its subsidiaries included
in the consolidated financial statements, except as
• We created and funded a trust under Section
otherwise indicated or as the context otherwise
524(g) of the Bankruptcy Code for the payment
requires.
of asbestos personal injury claims against the
debtors. This trust is also referred to as the
General
Asbestos Trust or the Trust.
USG, through its subsidiaries, is a leading
manufacturer and distributor of building materials, • On the Effective Date, we paid $890 million to
producing a wide range of products for use in new the Asbestos Trust and issued to the Trust an
residential, new nonresidential, and repair and interest-bearing note in the amount of $10
remodel construction as well as products used in million, which we paid on December 21, 2006.
certain industrial processes.
In 1901, United States Gypsum Company, or • On December 21, 2006, we also paid $3.05
U.S. Gypsum, was incorporated. In 1984, USG billion to the Asbestos Trust. This additional
Corporation was incorporated in Delaware, and by a $3.05 billion payment was due because the plan
vote of stockholders on December 19, 1984, U.S. of reorganization required that we pay this
amount if the 109th Congress did not pass the
Gypsum became a wholly owned subsidiary of USG.
Effective January 1, 1985, the stockholders of U.S. Fairness in Asbestos Injury Resolution Act of
Gypsum became the stockholders of USG. 2005 or substantially similar legislation before
Congress adjourned. Because the 109th Congress
RESOLUTION OF USG’S REORGANIZATION PROCEEDINGS adjourned in December 2006 without passing
On June 25, 2001, USG Corporation and 10 of its this legislation, we made the $3.05 billion
United States subsidiaries, collectively referred to as payment to the Trust. As a result of this payment,
the debtors, filed voluntary petitions for we have fully funded the Trust and have no
reorganization under Chapter 11 of the United States further payment obligations to the Trust.
Bankruptcy Code in the United States Bankruptcy
Court for the District of Delaware. The Chapter 11 • The bankruptcy court entered a channeling
cases were consolidated as In re: USG Corporation et injunction which provides that all present and
al. (Case No. 01-2094). These cases did not include future asbestos personal injury claims against the
any of our non-U.S. subsidiaries or companies that debtors must be brought against the Trust and no
our subsidiary L&W Supply Corporation acquired one may bring such a claim against the debtor
after we filed the bankruptcy petitions. companies.
In the second quarter of 2006, the debtors
emerged from their Chapter 11 reorganization • Asbestos property damage claims against the
proceedings as a result of a plan of reorganization debtors are not part of the channeling injunction
that was confirmed by the bankruptcy court and the or the Asbestos Trust, which deal only with
United States District Court for the District of asbestos personal injury or related claims. We
Delaware. The plan became effective on June 20, have reached agreements to settle all remaining
2006, which is referred to in this report as the asbestos property damage claims asserted against
Effective Date. The plan achieved our goals of the debtors, with the exception of one small
resolving asbestos claims in a fair and equitable claim brought by a homeowner. In 2006, we paid
manner, protecting the long-term value of our approximately $99 million for asbestos property
businesses and maintaining our leadership positions damage claim settlements. The estimated cost of
3

32. OPERATING SEGMENTS
the unpaid settlements of the remaining asbestos
Our operations are organized into three operating
property damage claims, including associated
segments: North American Gypsum, Worldwide
legal fees, is approximately $48 million and is
Ceilings and Building Products Distribution, the net
included in accrued expenses.
sales of which accounted for approximately 53%,
11% and 36%, respectively, of our 2006 consolidated
• Pursuant to the plan of reorganization, allowed
net sales.
claims of all other creditors have been, or will be,
paid in full, with interest where agreed or
North American Gypsum
required.
BUSINESS
• In connection with the plan of reorganization, we North American Gypsum, which manufactures and
conducted an offering in which we issued to markets gypsum and related products in the United
stockholders as of June 30, 2006 the right to States, Canada and Mexico, includes U.S. Gypsum in
purchase, at $40.00 per share, one new share of the United States, the gypsum business of CGC Inc.,
our common stock for each share owned. This or CGC, in Canada, and USG Mexico, S.A. de C.V.,
offering is referred to as the Rights Offering. In or USG Mexico, in Mexico. U.S. Gypsum is the
connection with the Rights Offering, Berkshire largest manufacturer of gypsum wallboard in the
Hathaway Inc. agreed to purchase at that price all United States and accounted for approximately 30%
shares underlying any unexercised rights. We of total domestic gypsum wallboard sales in 2006.
received net proceeds of approximately $1.7 CGC is the largest manufacturer of gypsum wallboard
billion and issued 44.92 million new shares of in eastern Canada. USG Mexico is the largest
our common stock in connection with completion manufacturer of gypsum wallboard in Mexico.
of the Rights Offering in the third quarter of
2006. PRODUCTS
North American Gypsum’s products are used in a
The following subsidiaries were debtors in the variety of building applications to finish the interior
Chapter 11 proceedings: U.S. Gypsum; USG walls, ceilings and floors in residential, commercial
Interiors, Inc., or USG Interiors; USG Interiors and institutional construction and in certain industrial
International, Inc.; L&W Supply Corporation, or applications. These products provide aesthetic as well
L&W Supply; Beadex Manufacturing, LLC; B-R as sound-dampening, fire-retarding, abuse-resistance
Pipeline Company; La Mirada Products Co., Inc.; and moisture-control value. The majority of these
products are sold under the SHEETROCK® brand
Stocking Specialists, Inc.; USG Industries, Inc.; and
USG Pipeline Company. The plan of reorganization name. A line of joint compounds used for finishing
resolving the debtors’ asbestos personal injury wallboard joints is also sold under the
SHEETROCK® brand name. The DUROCK® line of
liabilities and the injunction channeling those
liabilities to the Trust do not include any of our non- cement board and accessories provides water-
U.S. subsidiaries, any companies that L&W Supply damage-resistant and fire-resistant assemblies for
acquired after we filed the bankruptcy petitions or both interior and exterior construction. The
FIBEROCK® line of gypsum fiber panels includes
any companies that we may acquire in the future.
Additional information about funding the plan of abuse-resistant wall panels and floor underlayment as
reorganization is included under “Liquidity and well as sheathing panels usable as a substrate for most
Capital Resources” in Management’s Discussion and exterior systems and as roof cover board sold under
the SECUROCK® brand name. The LEVELROCK®
Analysis of Results of Operations and Financial
Condition and in Note 3 to the Consolidated line of poured gypsum underlayments provides
Financial Statements. Additional information about surface leveling and enhanced sound performance for
the Rights Offering is included in Note 4 to the residential, commercial and multifamily installations.
Consolidated Financial Statements. Asbestos property We also produce a variety of construction plaster
damage claims are discussed in Note 19 to the products used to provide a custom finish for
Consolidated Financial Statements. residential and commercial interiors. Like
SHEETROCK® brand gypsum wallboard, these
4

33. products provide aesthetic, sound-dampening, fire- paper that is tailored to the specific needs of our
retarding and abuse-resistance value. Construction wallboard production processes. We augment our
plaster products are sold under the trade names RED paper needs through purchases from outside
TOP®, IMPERIAL® and DIAMOND®. We also suppliers. About 6% of our paper supply was
produce gypsum-based products for agricultural and purchased from outside suppliers during 2006.
industrial customers to use in a number of
applications, including soil conditioning, road repair, MARKETING AND DISTRIBUTION
fireproofing and ceramics. Our gypsum products are distributed through L&W
Supply, our wholly owned subsidiary, other specialty
wallboard distributors, building materials dealers,
MANUFACTURING
North American Gypsum manufactures products at 44 home improvement centers and other retailers, and
plants located throughout the United States, Canada contractors. Sales of gypsum products are seasonal in
and Mexico. the sense that sales are generally greater from spring
Gypsum rock is mined or quarried at 14 through the middle of autumn than during the
company-owned locations in North America. In 2006, remaining part of the year. Based on our estimates
these locations provided approximately 71% of the using publicly available data, internal surveys and
gypsum used by our plants in North America. Some gypsum wallboard shipment data from the Gypsum
of our manufacturing plants purchase or acquire Association, we estimate that during 2006:
synthetic gypsum and natural gypsum rock from
outside sources. Outside purchases or acquisitions • New residential construction generated about
accounted for 29% of the gypsum used in our plants 46% of total industry volume demand for
in 2006. As of December 31, 2006, our geologists gypsum wallboard;
estimated that our recoverable rock reserves are
sufficient for more than 21 years of operation based • Residential and nonresidential repair and
on our average annual production of crude gypsum remodel activity generated about 40% of volume
during the past five years of 9.9 million tons. Proven demand;
reserves contain approximately 210 million tons.
Additional reserves of approximately 157 million • New nonresidential construction generated about
tons are found on four properties not in operation. 9% of volume demand; and
About 24% of the gypsum used in our plants in
North America is synthetic gypsum, which is a • Other activities such as exports and temporary
byproduct of flue gas desulphurization carried out by construction generated the remaining 5% of
electric generation or industrial plants that burn coal volume demand.
as a fuel. The suppliers of this kind of gypsum are
primarily power companies, which are required to COMPETITION
operate scrubbing equipment for their coal-fired U.S. Gypsum accounts for approximately 30% of the
generating plants under federal environmental total gypsum wallboard sales in the United States. In
regulations. We have entered into a number of long- 2006, U.S. Gypsum shipped 10.8 billion square feet
term supply agreements to acquire synthetic gypsum. of wallboard. The Gypsum Association estimated that
We generally take possession of the gypsum at the U.S. industry shipments (including imports) in 2006
producer’s facility and transport it to our wallboard were 36.2 billion square feet, the second highest level
plants by ship, river barge, railcar or truck. The in history.
supply of synthetic gypsum continues to increase as Our competitors in the United States are:
more power generation plants are fitted with National Gypsum Company, BPB Gypsum Inc. and
desulphurization equipment. Eleven of our 24 BPB America Inc. (subsidiaries of Compagnie de
gypsum wallboard plants use some or all synthetic Saint-Gobain SA), Georgia-Pacific (a subsidiary of
gypsum in their operations. Koch Industries, Inc.), American Gypsum (a unit of
We own and operate seven paper mills located Eagle Materials Inc.), Temple-Inland Forest Products
across the United States. Vertical integration in paper Corporation, Lafarge North America, Inc., Federal
helps to ensure a continuous supply of high-quality Gypsum Company and PABCO Gypsum. Our
5

34. competitors in Canada include BPB Canada Inc. (a MARKETING AND DISTRIBUTION
subsidiary of Compagnie de Saint-Gobain SA), Worldwide Ceilings sells products primarily in
Georgia-Pacific (a subsidiary of Koch Industries, markets related to the construction and renovation of
Inc.), Lafarge North America, Inc. and Federal nonresidential buildings. Ceiling products are
Gypsum Company. Our major competitor in Mexico marketed and distributed through a network of
is Panel Rey, S.A. The principal methods of distributors, installation contractors, L&W Supply
competition are quality of products, service, pricing, locations and home improvement centers.
compatibility of systems and product design features.
COMPETITION
Our principal competitors in ceiling grid include
Worldwide Ceilings
WAVE (a joint venture between Armstrong World
Industries, Inc. and Worthington Industries) and
BUSINESS
Worldwide Ceilings, which manufactures and markets Chicago Metallic Corporation. Our principal global
interior systems products worldwide, includes USG competitors in acoustical ceiling tile include
Interiors, the international interior systems business Armstrong World Industries, Inc., OWA
managed as USG International, and the ceilings Faserplattenwerk GmbH (Odenwald), BPB America
business of CGC. We are a leading supplier of Inc. and BPB Canada Inc. (subsidiaries of Compagnie
interior ceilings products used primarily in de Saint-Gobain SA) and AMF Mineralplatten GmbH
commercial applications. We estimate that we are the Betriebs KG (owned by Gebr. Knauf
largest manufacturer of ceiling grid and the second- Verwaltungsgellschaft KG). Principal methods of
largest manufacturer/marketer of acoustical ceiling competition are quality of products, service, pricing,
tile in the world. compatibility of systems and product design features.
Building Products Distribution
PRODUCTS
Worldwide Ceilings manufactures ceiling tile in the
United States and ceiling grid in the United States, BUSINESS
Canada, Europe and the Asia-Pacific region. We Building Products Distribution consists of L&W
market both ceiling tile and ceiling grid in the United Supply, the leading specialty building products
States, Canada, Mexico, Europe, Latin America and distribution business in the United States. In 2006,
the Asia-Pacific region. Our integrated line of L&W Supply distributed approximately 12% of all
ceilings products provides qualities such as sound gypsum wallboard in the United States, including
absorption, fire retardation and convenient access to approximately 32% of U.S. Gypsum’s wallboard
the space above the ceiling for electrical and production.
mechanical systems, air distribution and maintenance.
USG Interiors’ significant trade names include the MARKETING AND DISTRIBUTION
AURATONE® and ACOUSTONE® brands of ceiling L&W Supply was organized in 1971. It is a
tile and the DONN®, DX®, FINELINE®, service-oriented business that stocks a wide range of
CENTRICITEE®, CURVATURA® and construction materials. It delivers less-than-truckload
COMPASSO® brands of ceiling grid. quantities of construction materials to job sites and
places them in areas where work is being done,
thereby reducing the need for handling by
MANUFACTURING
Worldwide Ceilings manufactures products at 17 contractors. L&W Supply specializes in the
plants located in North America, Europe and the distribution of gypsum wallboard (which accounted
Asia-Pacific region. Principal raw materials used to for 54% of its 2006 net sales), joint compound and
produce Worldwide Ceilings’ products include other gypsum products manufactured by U.S.
mineral fiber, steel, perlite, starch and high-pressure Gypsum and others. It also distributes products
laminates. We produce some of these raw materials manufactured by USG Interiors, such as acoustical
internally and obtain others from outside suppliers. ceiling tile and grid, as well as products of other
manufacturers, including drywall metal, insulation,
roofing products and accessories. L&W Supply leases
6

35. approximately 90% of its facilities from third parties. further enhancing the research team’s commitment to
Typical leases have terms of five years and include supporting our growth.
renewal options. We charge research and development
L&W Supply remains focused on opportunities expenditures to earnings as incurred. These
to profitably grow its specialty business as well as expenditures amounted to $20 million in 2006, $17
optimize asset utilization. L&W Supply increased the million in 2005 and $17 million in 2004.
number of its locations, largely through acquisitions,
to 220 in 36 states as of December 31, 2006, ENERGY
compared with 192 locations as of December 31, Our primary supplies of energy have been adequate,
2005 and 186 locations as of December 31, 2004. and we have not been required to curtail operations as
a result of insufficient supplies. Supplies are likely to
remain sufficient for our projected requirements.
COMPETITION
L&W Supply competes with a number of specialty Currently, we use energy price swap agreements to
wallboard distributors, lumber dealers, hardware hedge the cost of a substantial majority of purchased
stores, home improvement centers and acoustical natural gas. Generally, we have a substantial majority
ceiling tile distributors. Its competitors include of our anticipated purchases of natural gas over the
Gypsum Management Supply with locations in the next 12 months hedged; however, we review our
southern, central and western United States, KCG, positions regularly and make adjustments as market
Inc. in the southwestern and central United States, conditions warrant.
The Strober Organization, Inc. in the northeastern and
mid-Atlantic states, and Allied Building Products SIGNIFICANT CUSTOMER
Corporation in the northeastern, central and western On a worldwide basis, The Home Depot, Inc.
United States. Principal methods of competition are accounted for approximately 11% of our consolidated
location, service, range of products and pricing. net sales in each of 2006, 2005 and 2004.
Executive Officers of the Registrant OTHER
Because we fill orders upon receipt, no operating
See Part III, Item 10, Directors, Executive Officers segment has any significant order backlog.
and Corporate Governance - Executive Officers of None of our operating segments has any special
the Registrant (as of February 16, 2007). working capital requirements.
Loss of one or more of our patents or licenses
would not have a material impact on our business or
Other Information
our ability to continue operations.
No material part of any of our business is subject
RESEARCH AND DEVELOPMENT
We perform research and development at the USG to renegotiation of profits or termination of contracts
Research and Technology Innovation Center in or subcontracts at the election of the government.
Libertyville, Ill. Research team members provide All of our products regularly require
product support and new product development for our improvement to remain competitive. We also develop
operating units. With unique fire, acoustical, and produce comprehensive systems employing
structural and environmental testing capabilities, the several of our products. To maintain our high
research center can evaluate products and systems. standards and remain a leader in the building
Chemical analysis and materials characterization materials industry, we perform extensive research and
support product development and safety/quality development activities and make the necessary capital
assessment programs. Development activities can be expenditures to maintain production facilities in good
taken to an on-site pilot plant before being transferred operating condition.
to a full-size plant. We also conduct research at two In 2006, our average number of employees was
satellite locations where industrial designers and 14,700.
fabricators work on new ceiling grid concepts and See Note 17 to the Consolidated Financial
prototypes. In 2006, we formed a new exploratory Statements for financial information pertaining to
research group that gives special focus to innovation, operating and geographic segments and Item 1A, Risk
7

36. Factors, for information regarding the possible effects production capacity industry-wide, and we expect
that compliance with environmental laws and approximately 1 billion square feet of additional
regulations may have on our businesses and operating capacity, net of recent closures, to become
results. operational in the industry in 2007, with more new
capacity expected in 2008. Prolonged periods of
weak demand or excess supply in any of our
Available Information
businesses may have a material adverse effect on our
We maintain a website at www.usg.com and make revenues and margins and harm our business,
available at this website our annual report on Form financial condition and operating results.
10-K, quarterly reports on Form 10-Q, current reports The markets that we serve, including in particular
on Form 8-K and all amendments to those reports as the housing and construction-based markets, are
soon as reasonably practicable after they are affected by the movement of interest rates. Higher
electronically filed with or furnished to the Securities interest rates could have a material adverse effect on
and Exchange Commission, or SEC. If you wish to our business, financial condition and results of
receive a paper copy of any exhibit to our reports operations. Our business is also affected by a variety
filed with or furnished to the SEC, the exhibit may be of other factors beyond our control, including
obtained, upon payment of reasonable expenses, by employment levels, foreign currency exchange rates,
writing to: Corporate Secretary, USG Corporation, office vacancy rates, unforeseen inflationary
P.O. Box 6721, Chicago, IL 60680-6721. pressures and consumer confidence. Since our
operations occur in a variety of geographic markets,
our businesses are subject to the economic conditions
Item 1A. RISK FACTORS in each of these geographic markets. General
economic downturns or localized downturns in the
Our business, operations and financial condition are regions where we have operations may have a
subject to various risks and uncertainties. We have material adverse effect on our business, financial
described below significant factors that may condition and operating results.
adversely affect our business, operations, industry or
future financial performance. You should carefully The seasonal nature of our businesses may
consider these factors, together with all of the other materially and adversely affect the trading prices of
information in this annual report on Form 10-K and in our securities.
other documents that we file with the SEC, before
making any investment decision about our securities. A majority of our businesses are seasonal, with peak
Adverse developments or changes related to any of sales typically occurring from spring through the
the factors listed below could affect our business, middle of autumn. Quarterly results have varied
financial condition, results of operations and growth. significantly in the past and are likely to vary
significantly from quarter to quarter in the future.
Our businesses are cyclical in nature, and Those variations may materially and adversely affect
prolonged periods of weak demand or excess supply our financial performance and the trading prices of
may have a material adverse effect on our business, our securities.
financial condition and operating results.
We face competition in each of our operating
Our businesses are cyclical in nature and sensitive to segments. If we cannot successfully compete in the
changes in general economic conditions, including, in marketplace, our business, financial condition and
particular, conditions in the housing and operating results may be materially and adversely
construction-based markets. Prices for our products affected.
and services are affected by overall supply and
demand in the markets for our products and for our We face competition in each of our operating
competitors’ products. Market prices of building segments. Principal methods of competition include
products historically have been volatile and cyclical. quality of products, service, location, pricing,
There is currently significant excess wallboard compatibility of systems, range of products and
8

37. product design features. Actions of our competitors have difficulty identifying appropriate opportunities
could lead to lower pricing by us in an effort to or, if we do identify opportunities, we may not be
maintain market share. To achieve and/or maintain successful in completing transactions for a number of
leadership positions in key product categories, we reasons. Any transactions that we are able to identify
must continue to develop brand recognition and and complete may involve a number of risks,
loyalty, enhance product quality and performance and including:
develop our manufacturing and distribution
capabilities. • the diversion of management’s attention from our
We also compete through our use and existing businesses to integrate the operations and
improvement of information technology. In order to personnel of the acquired or combined business or
remain competitive, we need to provide customers joint venture;
with timely, accurate, easy-to-access information
about product availability, orders and delivery status • possible adverse effects on our operating results
using state-of-the-art systems. While we have during the integration process;
provided manual processes for short-term failures and
disaster recovery capability, a prolonged disruption of • failure of the acquired business to achieve expected
systems or other failure to meet customers’ operational objectives; and
expectations regarding the capabilities and reliability
of our systems may materially and adversely affect • our possible inability to achieve the intended
our operating results particularly during any objectives of the transaction.
prolonged period of disruption.
We intend to continue making investments in In addition, we may not be able to successfully or
research and development to develop new and profitably integrate, operate, maintain and manage
improved products and more efficient production our newly acquired operations or their employees.
methods. We need to continue to develop new We may not be able to maintain uniform standards,
products and improve our existing products and controls, procedures and policies, which may lead to
production efficiency in order to maintain our market operational inefficiencies. In addition, future
leadership position. Our failure to continue making acquisitions may result in dilutive issuances of equity
these investments could depress our revenues and securities or the incurrence of additional
adversely affect our operating results and market indebtedness.
share. In addition, there can be no assurance that
revenue from new products or enhancements will be If costs of key raw materials, energy or employee
sufficient to recover the research and development benefits increase, or the availability of key raw
expenses associated with their development. materials and energy decreases, our cost of products
sold will increase, and our operating results may be
We intend to pursue acquisitions, joint ventures and materially and adversely affected.
other transactions that complement or expand our
The cost and availability of raw materials and energy
businesses. We may not be able to complete
are critical to our operations. For example, we use
proposed transactions, and even if completed, the
substantial quantities of gypsum, wastepaper, mineral
transactions may involve a number of risks that may
fiber, steel, perlite, starch and high pressure
result in a material adverse effect on our business,
laminates. The cost of these items has been volatile,
financial condition and operating results.
and availability has sometimes been limited. We
We have recently completed a number of acquisitions obtain some of these materials from a limited number
of businesses that we believe will contribute to our of suppliers, which increases the risk of
future success. We intend to continue to pursue unavailability. Furthermore, we may not be able to
opportunities to buy other businesses or technologies pass increased raw materials prices on to our
that could complement, enhance or expand our customers if the market or existing agreements with
current businesses or product lines or that might our customers do not allow us to raise the prices of
otherwise offer us growth opportunities. We may our finished products. If price adjustments
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