Royal Group Technologies 6K Current report | SEC 25 Aug 06

Exhibit 99.1

ROYAL GROUP TECHNOLOGIES LIMITED
UNAUDITED INTERIM CONSOLIDATED BALANCE SHEETS
(In thousands of Canadian dollars, except shares numbers and per share amounts)

	As at			As at
	June 30, 2006			December 31, 2005
	(unaudited)			(audited)

ASSETS
Current assets:
Accounts receivable (note 5)		304,442			228,584
Inventories (note 6)		355,985			346,887
Prepaid expenses		21,129			15,461
Current other receivables (note 3 c)		31,341			—
Current assets held for sale (note 3)		21,715			174,593

		734,612			765,525
Other receivables (note 3 d)		15,177			—
Property, plant and equipment (note 7)		941,173			981,037
Goodwill (note 8)		167,197			194,355
Other assets (note 9)		11,154			11,348
Long-lived assets held for sale (note 3)		23,122			83,988

		1,892,435			2,036,253


LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Bank indebtedness (note 10)		151,948			158,789
Accounts payable and accrued liabilities (note 11)		328,683			274,746
Term debt due within one year (note 12)		44,812			46,902
Current liabilities held for sale (note 3)		18,316			119,026

		543,759			599,463
Term debt (note 12)		244,778			250,721
Future income tax liabilities (note 18)		55,926			74,910
Minority interest		405			856
Shareholders’ equity:
Capital stock (note 13)		634,866			634,866
Contributed surplus (note 14)		7,178			8,020
Retained earnings		547,518			599,637
Currency translation adjustment		(141,995	)		(132,220	)

		1,047,567			1,110,303
Investigations (note 2)
Commitments and contingencies (notes 4, 21 and 22)
Plan of Arrangement with Georgia Gulf Corporation (note 25)
Subsequent events (note 26)

		1,892,435			2,036,253

See accompanying notes to consolidated financial statements.


On behalf of the Board:
“Lawrence Blanford”		“Robert Lamoureux”
Director, President and Chief Executive Officer		Director, Chairman of the Board
Lawrence Blanford		Robert Lamoureux

ROYAL GROUP TECHNOLOGIES LIMITED
UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands of Canadian dollars, except share numbers and per share amounts)

	3 months ended			3 months ended			6 months ended			6 months ended
	June 30, 2006			June 30, 2005			June 30, 2006			June 30, 2005
	(unaudited)			(unaudited)			(unaudited)			(unaudited)

Net sales		458,424			486,680			796,508			823,330
Cost of sales		336,976			358,872			606,720			616,201

Gross profit		121,448			127,808			189,788			207,129
Operating expenses (note 16)		103,391			87,714			197,331			174,840
Other items (note 17)		15,605			—			7,794			—

Operating earnings (loss)		2,452			40,094			(15,337	)		32,289
Interest and financing charges (note 18)		16,306			8,543			24,171			14,240

Earnings (loss) from continuing operations before income taxes and minority interest		(13,854	)		31,551			(39,508	)		18,049
Income tax expense (note 18)		26,523			7,987			19,912			4,537

Earnings (loss) from continuing operations before minority interest		(40,377	)		23,564			(59,420	)		13,512
Minority interest		2			(278	)		264			(291	)

Earnings (loss) from continuing operations		(40,375	)		23,286			(59,156	)		13,221

Discontinued operations, net of income taxes (note 3):
Loss from operations		(5,372	)		(4,703	)		(6,254	)		(6,033	)
Gain on sale of businesses and component parts		13,244			—			13,291			—

Earnings (loss) from discontinued operations		7,872			(4,703	)		7,037			(6,033	)

Net earnings (loss)		(32,503	)		18,583			(52,119	)		7,188

Earnings (loss) per share (note 15)
Basic earnings (loss) per common share from continuing operations		(0.43	)		0.25			(0.63	)		0.14
Basic earnings (loss) per common share		(0.35	)		0.20			(0.56	)		0.08
Diluted earnings (loss) per common share from continuing operations		(0.43	)		0.25			(0.63	)		0.14
Diluted earnings (loss) per common share		(0.35	)		0.20			(0.56	)		0.08

See accompanying notes to consolidated financial statements.

ROYAL GROUP TECHNOLOGIES LIMITED
UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(In thousands of Canadian dollars, except share numbers and per share amounts)

3 months ended

3 months ended

6 months ended

6 months ended

June 30, 2006

June 30, 2005

June 30, 2006

June 30, 2005

(unaudited)

(unaudited)

(unaudited)

(unaudited)

Retained earnings, beginning of period

580,021

867,384

599,637

878,779

Net earnings (loss)

(32,503

)

18,583

(52,119

)

7,188

Premium on conversion of multiple voting shares (note 13 c)

—

(8,700

)

—

(8,700

)

Retained earnings, end of period

547,518

877,267

547,518

877,267

See accompanying notes to consolidated financial statements.

ROYAL GROUP TECHNOLOGIES LIMITED
UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF CASHFLOW
(In thousands of Canadian dollars, except share numbers and per share amounts)

	3 months ended			3 months ended			6 months ended			6 months ended
	June 30, 2006			June 30, 2005			June 30, 2006			June 30, 2005
	(unaudited)			(unaudited)			(unaudited)			(unaudited)

Cash provided by (used in):
Operating activities:
Net earnings (loss)		(32,503	)		18,583			(52,119	)		7,188
Earnings (loss) from discontinued operations		7,872			(4,703	)		7,037			(6,033	)

Earnings (loss) from continuing operations		(40,375	)		23,286			(59,156	)		13,221
Items not affecting cash (bank indebtedness) of continuing operations (note 20)		37,729			34,194			47,788			63,917
Change in non-cash working capital (note 20)		(2,651	)		(2,798	)		(54,852	)		(120,127	)

		(5,297	)		54,682			(66,220	)		(42,989	)
Financing activities:
Repayment of term bank loan		—			—			—			(324,836	)
Repayment of term debt		(64	)		(71	)		(130	)		(141	)

		(64	)		(71	)		(130	)		(324,977	)
Investing activities:
Acquisition of property, plant and equipment		(21,054	)		(17,101	)		(33,465	)		(36,818	)
Proceeds from the sale of non-strategic assets		45,387			—			88,751			161
Change in investments		192			(229	)		(161	)		(145	)
Change in other assets		(358	)		(357	)		(658	)		(518	)
Change in minority interest		—			(1,600	)		—			(1,700	)

		24,167			(19,287	)		54,467			(39,020	)

Discontinued operations:
Operating activities		(751	)		(1,057	)		2,970			1,150
Investing activities		24,692			(1,678	)		48,190			(3,325	)

		23,941			(2,735	)		51,160			(2,175	)

Effect of foreign exchange rate on cash (bank indebtedness)		(1,503	)		276			(1,444	)		227

Increase (decrease) in cash		41,244			32,865			37,833			(408,934	)
Cash (bank indebtedness), beginning of period		(192,230	)		(329,711	)		(188,819	)		112,088

Cash (bank indebtedness), end of period		(150,986	)		(296,846	)		(150,986	)		(296,846	)

Consists of:
Cash (bank indebtedness) of continuing operations		(151,948	)		(296,846	)		(151,948	)		(296,846	)
Cash (bank indebtedness) of discontinued operations		962			—			962			—

Cash (bank indebtedness), end of period		(150,986	)		(296,846	)		(150,986	)		(296,846	)

Supplemental cash flow information:
Interest and financing charges paid:		8,458			5,365			11,918			9,317
Income taxes paid		1,879			2,287			3,646			4,573

See accompanying notes to consolidated financial statements.

ROYAL GROUP TECHNOLOGIES LIMITED
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of Canadian dollars, except share numbers and per share amounts)
The six months ended June 30, 2006 and 2005

Basis of Presentation

These interim unaudited consolidated financial statements include the accounts of Royal Group Technologies Limited, its subsidiaries and its proportionate share of its joint ventures (collectively “Royal Group” or “the Company”). All significant inter-company balances and transactions have been eliminated.

These interim unaudited consolidated financial statements are expressed in Canadian dollars and have been prepared in accordance with Canadian generally accepted accounting principles (“GAAP”) for interim financial statements. These financial statements are based upon accounting policies applied consistently with those used and described in the Company’s annual consolidated financial statements. These interim financial statements do not include all of the disclosures included in the annual financial statements, and therefore should be read in conjunction with the audited consolidated financial statements of the Company, including the notes thereto, for the year ended December 31, 2005 (the “2005 audited financial statements”).

The information furnished reflects all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results of continuing operations for the interim periods presented. The Company’s operating results of continuing operations are subject to fluctuations due to the seasonality of the North American renovation, remodeling and new construction markets. As such, the operating results of continuing operations for the three and six months ended June 30, 2006 are not necessarily indicative of the results expected for any succeeding quarter or for the fiscal year ending December 31, 2006. Historically, the Company’s highest revenue generating quarters have been the three months ended June 30 and September 30.

Certain prior period comparative figures have been reclassified to conform to current period presentation.

2.		Investigations

(a)		Background:

		The Board of Directors of the Company established a Special Committee in late December 2003 as a result of the Company being advised that the Ontario Securities Commission (the “Commission”) was conducting a regulatory investigation of the Company. The Special Committee was asked by the Board of Directors to conduct an independent inquiry into the principal subject matter of the investigation — being the transactions between the Company and Royal St. Kitts Beach Resort Limited (the “Resort”). The Resort ownership included the following directors or former directors or executive officers or former executive officers and their approximate percentage ownership: Vic De Zen, former Chairman, President, Chief Executive Officer and the controlling shareholder (59.9%), Douglas Dunsmuir, former President and Chief Executive Officer (5%), Ron Goegan, former Chief Financial Officer (0.02%) and Angelo Bitondo, President Custom Profiles, Outdoor Products and Royal Building Systems (0.01%). The latter two individuals divested of their ownership in December 2004. In addition, the following former non-executive employees of the Company and their approximate percentage ownership in the Resort were as follows: Fortunato Bordin (20%) and Domenic D’Amico (15%).

		The Special Committee consisted of three independent directors, at that time, who retained independent legal counsel who, in turn, retained forensic accountants to assist in the investigation. At the conclusion of the investigation based on information available to them, the Special Committee recommended that no further investigative actions were to be taken as of April 21, 2004.

		On October 15, 2004, the Company announced that the Commission provided the Company with a copy of a Production Order on October 12, 2004 that was issued on October 5, 2004 by a Justice in Ontario addressed to the Company’s lead bank. The Order, which related to the time period January 1, 1996 to July 30, 2004, required that certain documents be provided by such bank to the Royal Canadian Mounted Police (“RCMP”) in relation to four companies, Royal Building Systems, a subsidiary of the Company, the Resort and two other affiliates of the Resort.

		On October 18, 2004, the Company received a letter from the RCMP advising that the Company was a target of the RCMP’s investigation.

2.		Investigations (continued)

		On October 21, 2004, the Company announced that it expanded the Special Committee of its Board of Directors that was established in December 2003. The Special Committee was expanded to comprise all five of the independent directors of the Company at that time. The mandate of the Special Committee was also broadened to include all aspects of the investigations and inquiries by securities regulatory authorities and the RCMP and any similar or related investigations and inquiries that were commenced by these or other authorities, all news releases and other communications with the public and to make a determination with respect to the role within the Company of any individuals who were involved in the regulatory or law enforcement investigations and/or proceedings.

		On October 28, 2004, the Company announced that on October 27, 2004, it was provided with a copy of a second Production Order issued on October 25, 2004 by a Justice in Ontario addressed to the Company’s lead bank. The second Order, which related to the time period January 1, 1996 to October 25, 2004, required that certain documents were to be provided by the bank to the RCMP in relation to certain individuals and a number of entities, including the Company.

		Both Orders included allegations of actions contrary to the Criminal Code and included allegations of intent to defraud the shareholders and creditors of the Company and deceive the shareholders and others by circulating or publishing in a prospectus or statement or account, which, was known to be false and theft. The Orders collectively named the controlling shareholder and non-executive chairman of the Company, the president and chief executive officer and the chief financial officer at that time, and certain non-executive employees of the Company at that time and a former director of the Company.

		On November 8, 2004, the Company announced that the Special Committee of independent directors retained independent legal counsel and independent forensic accountants to assist it in the broadened mandate.

		On November 29, 2004, the Company announced that the Special Committee terminated for cause the president and chief executive officer and the chief financial officer. In addition, the chairman of the board, who was also the controlling shareholder, was dismissed. The Board of Directors appointed an interim president and chief executive officer and an interim chief financial officer, who were directors of the Company.

2.		Investigations (continued)

		In November 2004, the Special Committee notified the Securities and Exchange Commission (the “SEC”) regarding the Special Committee’s investigation.

		In March 2005, the Special Committee recommended an overall settlement with the controlling shareholder involving (i) the repayment to the Company by the controlling shareholder personally of the full amount of the gain earned by all interested parties ($6,500 plus interest of $2,200) on the sale of the Vaughan West Lands to the Company. In lieu of a cash repayment, the Company agreed to the conversion of multiple voting shares in the Company owned, directly or indirectly, by the controlling shareholder to common shares on a one-for-one basis which will be structured so that his shares will receive an increase in their adjusted cost base for tax purposes (at no cost to the Company or any of the shareholders) which will reduce his gain for tax purposes when he disposes of his shares, (ii) the repayment to the Company by the controlling shareholder of bonuses received in 2002 of $1,130, (iii) a non-compete covenant of the controlling shareholder that extends to December 18, 2006, (iv) a release by the controlling shareholder of all known claims against the Company and (v) the resignation of the controlling shareholder as a director of the Company (at the time of the shareholders’ approval of the conversion of his shares from multiple voting to single voting shares). In consideration of such settlement arrangements, the Company agreed to release the controlling shareholder from all known claims that the Company may have against him.

		On May 13, 2005, the Company announced its Board of Directors appointed a new president and chief executive officer to replace the interim president and chief executive officer.

		The conversion transaction and the settlement with the controlling shareholder received shareholder approval at the Annual and Special General Meeting that took place on May 25, 2005. On June 23, 2005, the Company filed the articles of amendment as approved by the shareholders on May 25, 2005 and the Company now has one class of voting common shares.

		On July 27, 2005, the Board of Directors appointed a new chief financial officer to replace the interim chief financial officer.

		The Company understands that the RCMP continues its previously announced investigation. The Commission is also continuing its investigation of the Company with respect to disclosure records, financial affairs and trading in the shares of the Company.

2.		Investigations (continued)

		On June 24, 2005, the SEC staff notified the Special Committee that the SEC staff is conducting a formal investigation related to the Company’s past accounting practices and disclosures, and that a subpoena would be forthcoming. On July 8, 2005, the Special Committee received written notification that the SEC had issued a Formal Order of Investigation styled, In the Matter of Royal Group Technologies (HO-09896). On July 27, 2005, the SEC served the Company with a subpoena requiring the production of documents relating to related party transactions (the “July Subpoena”). The Special Committee has produced to the SEC staff documents responsive to the July Subpoena.

		In October 2005, the Special Committee advised Commission staff, the RCMP and SEC staff of emails and documents authored by a former financial employee of the Company that relate to certain financial accounting and disclosure matters. The Company understands that the SEC staff made a referral to the U.S. Department of Justice, Criminal Division, in connection with those documents. Also in October 2005, the Audit Committee assumed responsibility for the Special Committee’s mandate and the Special Committee was dissolved. Independent forensic accountants were retained to investigate issues raised by these documents (the “Investigation”). The Investigation focuses on the period from 2000 to 2003.

		The Investigation to date has included a review of certain of the Company’s historical accounting records, available supporting documentation at the Company’s head office and email communications of various individuals during the period under review, as well as interviews with numerous current and former employees.

		The Investigation identified certain monthly and quarterly accounting and reporting issues of concern for the period under review, such as support for monthly sales growth announcements for certain months in 2001, whether month end closes were extended for a few days for certain months in 2000 and 2001, and certain quarterly journal entries for the period under review.

		The quarterly statements were not reviewed by the external auditors during this time period. Based on the Investigation to date, the Audit Committee has determined that further investigation should be made of these issues.

		The Investigation also identified entries of concern relating to the year end financial statements for the fiscal years 2000 to 2003. The Company has concluded that no restatement is required of year end financial statements for fiscal years 2000 to 2003. The auditors have not withdrawn their reports for the fiscal years 2000 to 2003. The Audit Committee has determined that no further action be taken in respect of these year end financial statements.

2.		Investigations (continued)

		The Investigation and the ongoing investigations by the Commission, RCMP and SEC could produce results that have a material impact on the Company and could result in further information being discovered that could require adjustments to the financial statements.

		The SEC has commented on the Company’s Form 40-F in respect of fiscal 2004, fiscal 2005 and its quarterly filings in 2005. The SEC has raised some comments related to the Company’s goodwill valuation and the full valuation allowance of the Company’s U.S future tax losses. The process of responding to SEC’s comments is ongoing but not yet complete and may require adjustments to the financial statements in respect of these matters.

(b)		Historical related party transactions:

		In the course of the Special Committee’s broadened investigation, the following historical related party transactions shown at the exchange amount were identified that were not previously disclosed in the financial statements prior to December 31, 2004:

	(i)		The Company purchased what has been called the “Vaughan West Lands” in 1998 for approximately $27,400. The Company purchased the Vaughan West Lands, approximately 185 acres in Woodbridge, Ontario, by acquiring a numbered company owned by the controlling shareholder and other individuals who were officers, employees of or associated with the Company. This numbered company had acquired the Vaughan West Lands for $20,900 shortly before they were sold to the Company.

	(ii)		The Company received a warrant for 200,000 shares of another public company, Premdor Inc. (now known as Masonite International Corporation) (“Masonite”). The Company obtained the warrant as partial consideration for the sale of a subsidiary to Masonite in early 2000. In early 2002, the Company exercised the warrant when Masonite’s shares were trading at approximately $21.75, which was $8.50 more than the exercise price (resulting in a gain of approximately $1,700). The Company’s exercise of the warrant was funded by the then five senior executives of the Company and one other individual who was then an employee of the Company. The employees deposited a total of $2,650 with the Company which funded the Company’s payment to Masonite to exercise the warrant. The shares obtained were then distributed by the Company to the six individuals. The warrant and the transfer of the shares to the individuals were not recorded in the accounting records of the Company. If the transaction had been recorded in the financial statements in fiscal 2002, a gain would have been realized as other income with an equal and offsetting amount recorded as an operating expense in the income statement.

Investigations (continued)

(iii)

The Company sold products and services to a company related to the controlling shareholder, as follows:



1998			150
1999			3,750
2000			9,620
2001			7,560
2002			11,460

	(iv)		During 1998 to 2003, the Company facilitated foreign currency exchange transactions at exchange rates available to the Company, and utilized Company bank accounts to transfer funds internationally on behalf of the controlling shareholder, a significant shareholder and certain executives in the amount of $95,000 at no cost to the Company.

	(v)		During 1997 to 2002, the Company managed the construction of four real estate developments for the controlling shareholder and family members. The Company paid invoices associated with these projects aggregating $21,100 and was reimbursed by these individuals.

	(vi)		During 2000 and 2002, the Company sold assets for $240 and $300, respectively, to companies related to the controlling shareholder.

	(vii)		From 1998 to 2002, the Company sold to family members of the controlling shareholder, parts and services for $290.

	(viii)		In 1997, the Company acquired Baron Metals Industries Inc., a company in which the controlling shareholder held a 17.7% interest, for $11,500.

	(ix)		In 1996, the Company acquired three businesses, Jovien Associates Limited, Royal King Electric Limited and La Pineta Limited, in which the controlling shareholder held a minority interest, for $2,900.

Investigations (continued)

	(x)		In 1999, the Company acquired 75% of Top Gun Electrical Supply Ltd., a company in which the controlling shareholder held a 40% interest, for $1,870.

	(xi)		In 1995, the Company purchased from the controlling shareholder and others their 50% interest in Hanmar Mechanical Services Inc. for $180.

	(xii)		In 1998, the Company purchased two parcels of real estate from the controlling shareholder for $2,900.

	(xiii)		In 1997, the Company purchased two parcels of real estate for $2,550 from a company in which a director of the Company was a shareholder through his holding company.

	(xiv)		The Company sold real estate to the controlling shareholders, as follows:



1994			220
1995			810
1996			90
2000			200

	(xv)		In 2003, the Company sold real estate for $350 to family members of the controlling shareholder, employees and a former employee.

	(xvi)		The Company sold real estate to a significant shareholder, as follows:



1995			110
1997			80

(xvii)

During 1999 to 2001, the Company entered into 9 joint land service agreements with companies related to the controlling shareholder and another company in which a director of the Company was a shareholder.

Assets Held for Sale including Discontinued Operations

The assets held for sale presented on the consolidated balance sheet are comprised of amounts with respect to operations which are discontinued (Note 3a)) and amounts with respect to assets held for sale (Note 3b)).

The following table summarizes the assets held for sale and related liabilities as at June 30, 2006:

Construction

Window covering

Reporting segments

products

Support

Total

Discontinued

Operations

Cash

962

—

962

Accounts receivable

9,610

530

—

10,215

Inventories

9,182

570

140

—

9,892

Prepaid expenses

560

—

646

Current assets held for sale

20,314

1,149

252

—

21,715

Property, plant and equipment

13,560

467

1,634

7,152

22,813

Investments

117

—

117

Goodwill

—

137

Other assets

—

Long-lived assets held for sale (1)

13,732

467

1,634

7,289

23,122

Accounts payable and accrued liabilities

17,150

371

—

17,602

Future income tax liabilities (assets)

(446

)

—

(561

)

1,028

Minority interest

693

—

693

Current liabilities held for sale

17,397

(190

)

1,028

18,316

Net assets (liabilities) held for sale

16,649

1,535

2,076

6,261

26,521


⁽¹⁾		There were several companies whose long-lived assets were not reclassified as current assets held for sale because, either (a) the proceeds of the sale will not be realized within a year of the date of the balance sheet or (b) the sale of the assets was not complete as of the date of the balance sheet.

Assets Held for Sale including Discontinued Operations (continued)

The following table summarizes the assets held for sale and related liabilities as at December 31, 2005:


				Window		Home
	Construction			covering		improvement								Construction
Reporting segments	products			products		products			Support			Total		products			Support		Total		Total
	Discontinued			Discontinued		Discontinued			Discontinued			Discontinued		Assets held			Assets held		Assets held
	Operations			Operations		Operations			Operations			Operations		for sale			for sale		for sale

Cash		2,160			—		—			5,506			7,666		—			—		—		7,666
Accounts receivable		12,329			26		13,784			6,643			32,782		13,558			—		13,558		46,340
Inventories		12,990			745		16,057			10,361			40,153		9,268			81		9.349		49,502
Prepaid expenses		390			35		86			249			760		172			11		183		943
Property, plant and equipment		—			—		—			6,417			6,417		—			62,843		62,843		69,260
Investments		—			—		—			1			1		—			—		—		1
Other assets		—			—		—			881			881		—			—		—		881

Current assets held for sale		27,869			806		29,927			30,058			88,660		22,998			62,935		85,933		174,593

Property, plant and equipment		19,734			405		30,172			2,561			52,872		1,170			20,753		21,923		74,795
Investments		153			—		(68	)		—			85		135			—		135		220
Goodwill		3,838			—		—			—			3,838		3,528			1,433		4,961		8,799
Other assets		169			—		—			—			169		5			—		5		174

Long-lived assets held for sale (1)		23,894			405		30,104			2,561			56,964		4,838			22,186		27,024		83,988

Bank indebtedness		—			—		30,383			7,313			37,696		—			—		—		37,696
Accounts payable and accrued liabilities		12,946			195		26,154			16,490			55,785		8,960			21		8,981		64,766
Term debt		—			—		—			1,110			1,110		6			—		6		1,116
Future income tax liabilities (assets)		(323	)		—		6,392			(4,512	)		1,557		(5	)		1,679		1,674		3,231
Minority interest		694			—		394			4,190			5,278		525			6,414		6,939		12,217

Current liabilities held for sale		13,317			195		63,323			24,591			101,426		9,486			8,114		17,600		119,026

Net assets (liabilities) held for sale		38,446			1,016		(3,292	)		8,028			44,198		18,350			77,007		95,357		139,555


⁽¹⁾		There were several companies whose long-lived assets were not reclassified as current assets held for sale because, either (a) the proceeds of the sale will not be realized within a year of the date of the balance sheet or (b) the sale of the assets was not complete as of the date of the balance sheet.

Assets Held for Sale including Discontinued Operations (continued)

a)		Discontinued operations:

		In July 2005, the Company announced that the Board of Directors had approved initiatives to divest certain non-core business units and non-performing operations as part of the Management Improvement Plan aimed at improving financial performance and refinancing the Company. Accordingly, the results of operations and financial position of certain non-core business units have been segregated and presented separately as discontinued operations and assets held for sale in the accompanying consolidated financial statements and related note disclosures.

		During the quarter ending March 31, 2006, the Company completed the sale of both Royal Alliance Inc. and Amut S.p.A., which were previously part of the Home improvement and Support segments, respectively. The Company recognized an aggregate loss of $6,027 (pre-tax). The total consideration was $34,991 of which, $24,000 was received on closing. The balance of the consideration of $10,991 was reduced in the quarter ending June 30, 2006 by repayments of $239. The outstanding balance of $10,752 is included in other receivables on the consolidated balance sheet.

		During the quarter ending June 30, 2006, the Company completed the sale of Baron Metal Industries, which was previously part of the Construction products segment and the sale of certain component parts, including equipment and excess inventory, of Royal Ecoproducts Co. which is part of the Support segment. In addition, the Company adjusted its valuation provision with respect to the investment in Royal Building Systems Mexico which is part of the Construction products segment. As a result, the Company recognized an aggregate gain of $16,977 (pre-tax). The total consideration was $29,347 of which $25,347 was received on closing. The balance of the consideration of $4,000 remains outstanding and is included in other receivables on the consolidated balance sheet.

		At June 30, 2006, the following non-core businesses continue to be classified as discontinued operations:

	(i)		Construction products:

			Royal Building Systems Argentina, Royal Building Systems Colombia, Royal Building Systems Mexico, Royal Building Systems Poland

	(ii)		Window covering products:

			Royal Window Coverings LTDA (Brasil) and Novo Europe B.V.

	(iii)		Support:

			Royal Ecoproducts Co.

Assets Held for Sale including Discontinued Operations (continued)

The following tables show revenue and net after-tax results from discontinued operations for the three months ended June 30, 2006 and June 30, 2005:

Gain (loss) on

sale of

Earnings (loss)

businesses or

Income tax

from operating

components

recovery

Earnings

Three months ended June 30, 2006

Revenue

activities

parts

(expense)

(loss)

Reporting segment:

Construction products

9,394

(2,573

)

16,285

(3,780

)

9,932

Home improvement products

—

Window covering products

1,835

—

(32

)

Support

2,119

(2,442

)

692

(369

)

(2,119

)

Intercompany eliminations

(3,023

)

—

10,325

(4,924

)

16,977

(4,181

)

7,872


							Gain (loss) on
							sale of
				Earnings (loss)			businesses or		Income tax
				from operating			components		recovery			Earnings
Three months ended June 30, 2005	Revenue			activities			parts		(expense)			(loss)

Reporting segment:
Construction products		23,486			(1,823	)		—		(597	)		(2,420	)
Home improvement products		24,078			(1,077	)		—		574			(503	)
Window covering products		2,003			118			—		(39	)		79
Support		18,090			(2,419	)		—		560			(1,859	)
Intercompany eliminations		(5,169	)		—			—		—			—

		62,488			(5,201	)		—		497			(4,703	)

Assets Held for Sale including Discontinued Operations (continued)

The following tables show revenue and net after-tax results from discontinued operations for the six months ended June 30, 2006 and June 30, 2005:

Gain (loss) on

sale of

Earnings (loss)

businesses or

Income tax

from operating

components

recovery

Earnings

Six months ended June 30, 2006

Revenue

activities

parts

(expense)

(loss)

Reporting segment:

Construction products

27,616

(2,293

)

16,285

(4,467

)

9,525

Home improvement products

2,004

)

(6,364

)

6,352

(14

)

Window covering products

3,855

140

—

(46

)

Support

5,445

(4,655

)

1,029

1,058

(2,568

)

Intercompany eliminations

(5,956

)

—

32,964

(6,810

)

10,950

2,897

7,037


							Gain (loss) on
							sale of
				Earnings (loss)			businesses or		Income tax
				from operating			components		recovery			Earnings
Six months ended June 30, 2005	Revenue			activities			parts		(expense)			(loss)

Reporting segment:
Construction products		41,696			(113	)		—		(1,081	)		(1,194	)
Home improvement products		52,636			(592	)		—		350			(242	)
Window covering products		3,844			232			—		(66	)		166
Support		26,793			(7,272	)		—		2,509			(4,763	)
Intercompany eliminations		(11,436	)		—			—		—			—

		113,533			(7,745	)		—		1,712			(6,033	)

Asset Held for Sale including Discontinued Operations (continued)

(b)		Assets held for sale:

		As part of the Company’s plan to divest certain non-core business units and non-performing operations at December 31, 2005, the Company had identified excess manufacturing real estate. The net assets related to these real estate properties have been identified, reclassified as assets held for sale and measured at the lower of cost or net realizable value.

		In addition, at December 31, 2005, the Company had identified certain other business units, which it intended to divest, but which did not qualify for reclassification as discontinued operations under the relevant accounting guidelines. Accordingly, the Company identified and reclassified their net assets as held for sale, which were measured at the lower of cost or net realizable value.

		During the first quarter of 2006, the Company completed the sale of Vinyltech Inc. together with a portion of the excess manufacturing real estate. The Company recognized an aggregate gain of $9,405, which is recorded in other items. The total consideration was $71,067, of which $42,727 was received on closing. The balance of the consideration of $28,341 remains outstanding and is included in current other receivables on the consolidated balance sheet.

		During the second quarter of 2006, the Company completed the sale of a distribution company and a portion of the excess manufacturing real estate. The Company recognized an aggregate gain of $12,221, which is recorded in other items. The total consideration was $45,693 of which $42,693 was received on closing. The balance of the consideration of $3,000 remains outstanding and is included in current other receivables on the consolidated balance sheet.

(c)		Current other receivables:

		Current other receivables consist of $28,341 in notes receivable and a $3,000 deferred payment. The Company received cash payment for all the outstanding balances in July 2006.

Asset Held for Sale including Discontinued Operations (continued)

(d)		Other Receivables

		Other receivables consist of $10,752 in non-interest bearing notes receivable due January 12, 2011 and $4,425 in notes receivable and deferred payments with repayment terms commencing in the fourth quarter of 2007 and continuing through 2010. The notes receivable of $4,000 relate to the dispositions noted in note 3(a). The remaining $425 relates to the proceeds on sale of an equity investment closed in the second quarter ending June 30, 2006 (see note 9). The notes receivable and deferred payments have been recorded at the amount which is the estimated collectable value.

Interest in Joint Ventures

The Company’s proportionate interest in joint ventures includes the following:


	As at		As at
	June 30, 2006		December 31, 2005

Assets:
Current assets		9,412		10,222
Property, plant and equipment		9,125		10,391
Other long-term assets		46		161

		18,583		20,774

Liabilities:
Current liabilities		5,723		5,929
Future income tax liabilities		1,295		1,381
Long-term liabilities		838		1,078

		7,856		8,388

Net assets		10,727		12,386

3 months ended

3 months ended

6 months ended

6 months ended

June 30, 2006

June 30, 2005

June 30, 2006

June 30, 2005

Net sales

11,460

12,105

20,689

21,592

Net earnings

487

1,272

936

1,760

3 months ended

3 months ended

6 months ended

6 months ended

June 30, 2006

June 30, 2005

June 30, 2006

June 30, 2005

Cash provided by (used in) operating activities

695

1,992

267

2,252

Acquisition of property, plant and equipment

273

394

194

The Company is contingently liable for the proportionate share of its joint venture partners’ liabilities but has recourse to the assets of the Joint Ventures.

Accounts Receivable


	As at			As at
	June 30, 2006			December 31, 2005

Trade		305,256			222,400
Allowance for doubtful accounts		(15,794	)		(19,512	)

		289,462			202,888
Income taxes and other		14,980			25,696

		304,442			228,584

Inventories


	As at		As at
	June 30, 2006		December 31, 2005

Raw materials and work in process		114,632		112,988
Finished goods		241,353		233,899

		355,985		346,887

Property, Plant and Equipment

Accumulated

As At June 30, 2006

Cost

amortization

Net book value

Land

66,457

—

66,457

Buildings

417,128

106,184

310,944

Plant equipment

927,092

459,885

467,207

Dies and moulds

223,423

161,265

62,158

Office and computer equipment and computer software

46,183

39,950

6,233

Aircraft and transport equipment

17,432

14,658

2,774

1,697,715

781,942

915,773

Assets under construction

25,400

—

25,400

1,723,115

781,942

941,173

Property, Plant and Equipment (continued)


			Accumulated
As At December 31, 2005	Cost		amortization		Net book value

Land		66,882		—		66,882
Buildings		418,881		100,797		318,084
Plant equipment		932,830		434,399		498,431
Dies and moulds		232,569		166,111		66,458
Office and computer equipment and computer software		43,089		37,275		5,814
Aircraft and transport equipment		17,554		14,560		2,994

		1,711,805		753,142		958,663
Assets under construction		22,374		—		22,374

		1,734,179		753,142		981,037

Total amortization expense for property, plant and equipment was $24,848 and $51,603 (2005 — $30,429 and $60,579) for the three months and six months, respectively.

Goodwill

In accordance with the CICA Handbook 3062 Goodwill and Other Intangible Assets, goodwill is tested for impairment annually or more frequently if events or changes in circumstances indicate that the fair value of a reporting unit may be below the carrying value of the same reporting unit. During the quarter ended June 30, 2006, the Company entered into a Plan of Arrangement with Georgia Gulf Corporation (“Georgia Gulf”) to acquire all of the common shares of the Company at $13.00 per share. As a result of this event, management compared the fair value of each of the reporting units with its carrying amount, including the goodwill allocated to the respective reporting unit. The fair value of the reporting units was calculated using discounted future cash flows. The calculation was performed in a manner consistent with the goodwill analysis conducted as of December 31, 2005, but was based upon updated data to June 30, 2006 including the cash payment contemplated under the Plan of Arrangement with Georgia Gulf. Management concluded that goodwill was impaired in three reporting units contained within two reporting segments, namely Home improvement products and Window covering products at June 30, 2006. As a result, the Company has recorded an impairment charge of $25,496 for the three months ended June 30, 2006, which is recorded in other items (note 17).

Goodwill (continued)

The changes in the carrying amount of goodwill for the Company’s reporting segments for the six months ended June 30, 2006 are as follows:


	Custom									Home			Window
	profiles &			Building			Construction			improvement			covering
	mouldings			products			products			products			products			Materials			Support			Total

Balance, December 31, 2005		109,328			20,248			20,342			13,887			11,824			9,400			9,326			194,355
Foreign exchange revaluation		(911	)		(169	)		(170	)		(116	)		(99	)		(78	)		(119	)		(1,662	)
Impairment loss		—			—			—			(13,771	)		(11,725	)		—			—			(25,496	)

Balance, June 30, 2006		108,417			20,079			20,172			—			—			9,322			9,207			167,197

The Company will continue to test for goodwill impairment on an annual basis in the fourth quarter of each year, and at any time if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. The fair values of the reporting units are calculated using discounted future cash flows, which contain assumptions regarding future operating performance. These assumptions include revenue growth rates, margin assumptions, discount rates and terminal rates. The Company regularly monitors the forecasted cash flows of its reporting units and any significant adverse changes in circumstances or assumptions would require the Company to test for goodwill impairment.

Other Assets


	As at		As at
	June 30, 2006		December 31, 2005

Patents, net of accumulated amortization of $7,211 (2005 — $7,522)		6,029		5,935
Deferred financing costs, net of accumulated amortization of $1,366 (2005 — $2,067)		972		1,089

		7,001		7,024
Investments		4,153		4,324

		11,154		11,348

Amortization expense for patents was $229 and $454 (2005 — $265 and $579) for the three months and six months, respectively. Amortization expense for deferred financing costs was $59 and $117 (2005 — $67 and $133) for the three months and six months, respectively.

Other Assets (continued)

Investments include the Company’s holdings in associated companies and other business ventures accounted for by the equity and cost methods. During the second quarter of 2006, the Company completed the sale of an equity investment. The Company recognized an aggregate gain of $411 (pre-tax), which is recorded in other items (note 17). The total consideration was $425, all of which is deferred and included in other receivables on the consolidated balance sheet.

Equity in loss of the investments was $70 and $401 (2005 — $912 and $1,086) for the three and six months, respectively.

10.

Bank indebtedness


	As at		As at
	June 30, 2006		December 31, 2005

Bank indebtedness		151,948		158,789

The Company entered into a credit agreement as of February 21, 2005 with a syndicate of three banks, which provides for a $312,500 committed, secured multi-currency revolving credit facility to be made available to the Company and certain of its U.S. subsidiaries. This credit facility contains provisions to reduce the available limit to reflect any asset dispositions other than accounts receivable and inventory. The credit agreement was subsequently amended to reduce the available limit of the credit facility by an amount equal to all divestiture proceeds in excess of $100,000. As a result, the available limit under the credit facility as at June 30, 2006 was $266,140. The credit facility may be used for general operating and corporate purposes, and was initially drawn to repay the term bank loan owed under a previous credit agreement dated as of August 1, 2000. The credit facility is secured by a pledge of substantially all the assets of the Company and its subsidiaries, and by upstream guarantees from various non-borrowing subsidiaries. Under the terms of the credit agreement, the Company is required to satisfy various financial and other covenants, including the maintenance of certain financial ratios. The Company was in compliance with these covenants as at June 30, 2006. The agreement was extended as of December 21, 2005, and matures December 31, 2006.

10.

Bank indebtedness (continued)

Borrowings under the credit agreement are available at the Company’s option by way of Canadian prime rate advances, base rate Canada advances, Canadian bankers acceptances, base rate U.S. advances, LIBOR Advances, or swingline advances, plus an interest rate margin, as well as by way of letters of credit.

In addition to the above, credit facilities totaling the equivalent of $27,283 (December 31, 2005 — $68,487) have been arranged with various local banks to assist certain of the Company’s international subsidiaries in funding their operations. The terms and conditions of these arrangements vary in accordance with local practices, and the Company has guaranteed repayment of a portion of the amounts drawn under certain of the facilities in the event of a default by the borrowing subsidiary. As of June 30, 2006, a total of $27,283 (December 31, 2005 — $41,881) was drawn under these facilities.

11.

Accounts Payable and Accrued Liabilities


	As at		As at
	June 30, 2006		December 31, 2005

Trade		149,654		174,329
Income taxes and other		179,029		100,417

		328,683		274,746

12.

Term debt


	As at		As at
	June 30, 2006		December 31, 2005

7.17% US$15 million Senior Unsecured Notes, Series A, due August 31, 2006		16,725		17,489
7.31% US$25 million Senior Unsecured Notes, Series B, due August 31, 2006		27,875		29,147
7.10% US$115 million Senior Unsecured Notes, Series D, due November 14, 2007		128,225		134,078
6.90% C$ Medium Term Notes due April 13, 2010		116,532		116,532
3.5% US$1.5 million Promissory Note, due May 22, 2007		233		377

		289,590		297,623
Less current portion		44,812		46,902

		244,778		250,721

Each of the Series A, Series B and Series D Senior Unsecured Notes is denominated in U.S. dollars and bears interest at the above rates, with interest payable quarterly in arrears. The Series A Notes require annual principal payments of U.S. $15,000 on August 31^st of each year commencing in 2002. The Series B and Series D balances outstanding are due in full on the dates shown.

The Medium Term Notes are denominated in Canadian dollars, are senior unsecured obligations of the Company, and bear interest at 6.90% payable semi-annually in arrears. Various subsidiaries of the Company guarantee repayment of amounts due pursuant to the Trust Indenture under which the Medium Term Notes were issued.

The 3.5% Promissory Note is denominated in U.S. dollars and is repayable in monthly principal and interest payments to effect a 10 year amortization. The obligation is secured by an irrevocable standby letter of credit.

Aggregate principal payments required over the next five years as follows:


2006			44,812
2007			128,246
2008			—
2009			—
2010			116,532

			289,590

ROYAL GROUP TECHNOLOGIES LIMITED

NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of Canadian dollars, except share numbers and per share amounts)
The six months ended June 30, 2006 and 2005

13.

Capital Stock

The Company’s authorized capital stock consists of the following:

(a)		Preferred shares:

		There is an unlimited number of authorized preferred shares without par value, issuable in series, with rights and terms of each series to be fixed by the Board of Directors prior to the issue of such series. No preferred shares are issued or outstanding.

(b)		Common shares (formerly subordinated voting shares):

		There is an unlimited number of common voting shares without par value. Each share is entitled to one vote per share at all meetings of shareholders and is entitled to dividends ranking junior to the preferred shares.

		There has been no issuance of common shares during the six months ended June 30, 2006.


	Shares		Amount

Balance, December 31, 2005 and June 30, 2006		93,444,502	$	634,866

(c)		Multiple voting common shares:

		As part of the Company’s overall settlement with its former controlling shareholder, as described in note 2 to the interim consolidated financial statements, the outstanding multiple voting shares that were directly or indirectly owned by the former controlling shareholder were converted on a one-for-one basis into subordinate voting shares during the second quarter ended June 30, 2005.

		Subsequently, the Company filed Articles of Amendment to remove the multiple voting shares and the subordinated voting shares as well as rights, privileges, restrictions and conditions attached thereto and replaced them with one class of voting shares.

ROYAL GROUP TECHNOLOGIES LIMITED

NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of Canadian dollars, except share numbers and per share amounts)
The six months ended June 30, 2006 and 2005

13.		Capital Stock (continued)

(d)		Stock option plan:

		The table below is a summary of the status of the Company’s stock option program.


				Weighted average
	Number of options			exercise price

Outstanding, January 1, 2006		3,192,828		$	26.50
Granted		20,000			9.84
Exercised		—			—
Cancelled/expired		(952,000	)		27.89

Outstanding, June 30, 2006		2,260,828		$	25.76

Exercisable, June 30, 2006		1,647,828		$	28.17

The fair value of each option granted is estimated on the grant date using the Black-Scholes option pricing model. During 2006, 20,000 (2005 — 150,000) stock options were granted with the following weighted average assumptions:


Assumptions	2006


Risk-free interest rate		3.9	%
Expected life	5.3 years
Expected volatility		52.4	%
Dividend yield		—



Weighted average fair value of options granted	$	4.98

These options are substantially exercisable as to half on or after three years from the date of issue, with the balance after six years from the date of issue and all options expire nine years after date of issue.

For the three months ended June 30, 2006 and June 30, 2005, the Company recorded a compensation expense for stock options of $115 and $49, respectively. For the six months ended June 30, 2006 and June 30, 2005, the Company recorded a compensation expense for stock options of $225 and $49, respectively.

ROYAL GROUP TECHNOLOGIES LIMITED
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of Canadian dollars, except share numbers and per share amounts)
The six months ended June 30, 2006 and 2005

13.		Capital Stock (continued)

(e)		Senior Management Incentive Plan (“SMIP”):

		The table below is a summary of the status of the Company’s SMIP.


	Number of RSU's

Outstanding, January 1, 2006		1,215,000
Granted		50,000
Exercised		—
Cancelled		(160,000	)

Outstanding, June 30, 2006		1,105,000

		For the three months ended June 30, 2006 and June 30, 2005, the Company recorded a compensation expense (recovery) for restricted share units (“RSUs”) of $(2,658) and $1,860, respectively. For the six months ended June 30, 2006 and June 30, 2005, the Company recorded a compensation expense (recovery) for RSUs of $(1,067) and $3,024, respectively. A compensation recovery for RSUs was recorded in the three months ended June 30, 2006 as it was determined that not all the achievement targets would be met.

(f)		Directors Deferred Stock Unit Plan (“DSUP”):

		The Company maintains a DSUP for the benefit of the members of the Board of Directors. There were 118,932 deferred stock units outstanding at June 30, 2006 with a total recorded value of $1,466. At December 31, 2005, there were 107,988 deferred stock units outstanding with a total value of $1,123.

		For the three months ended June 30, 2006 and June 30, 2005, the Company recorded a compensation expense for deferred stock units of $319 and $1,045 respectively. For the six months ended June 30, 2006 and June 30, 2005, the Company recorded a compensation expense for deferred stock units of $343 and $1,045 respectively.

14.		Contributed Surplus


	As at			As at
	June 30, 2006			December 31, 2005

Contributed surplus, beginning of period		8,020			3,703
SMIP compensation (note 13 e)		(1,067	)		5,148
Stock options		225			281
Exercise of RSUs under the Restricted Stock Unit Plan		—			(1,112	)

Contributed surplus, end of period		7,178			8,020

15.		Earnings (Loss) per Share

		Basic and diluted earnings (loss) per share have been calculated using the weighted average method. The maximum dilutive number of shares has been calculated using the treasury stock method:


	3 months ended June 30, 2006								3 months ended June 30, 2005
	Continuing			Discontinued					Continuing		Discontinued
	operations			operations		Total			operations		operations			Total

Basic and diluted earnings (loss) per share
Net earnings (loss)		(40,375	)		7,872		(32,503	)		23,286		(4,703	)		18,583
Basic earnings (loss) per share		(0.43	)		0.08		(0.35	)		0.25		(0.05	)		0.20
Diluted earnings (loss) per share		(0.43	)		0.08		(0.35	)		0.25		(0.05	)		0.20

Weighted average shares outstanding
Basic		93,444,502			93,444,502		93,444,502			93,444,500		93,444,500			93,444,500
Effect of dilutive securities		1,126,177			1,126,177		1,126,177			1,080,000		1,080,000			1,080,000

Diluted*		94,570,679			94,570,679		94,570,679			94,524,500		94,524,500			94,524,500

Excluded as anti-dilutive **		2,240,828			2,240,828		2,240,828			3,200,078		3,200,078			3,200,078


	6 months ended June 30, 2006								6 months ended June 30, 2005
	Continuing			Discontinued					Continuing		Discontinued
	operations			operations		Total			operations		operations			Total

Basic and diluted earnings (loss) per share
Net earnings (loss)		(59,156	)		7,037		(52,119	)		13,221		(6,033	)		7,188
Basic earnings (loss) per share		(0.63	)		0.07		(0.56	)		0.14		(0.06	)		0.08
Diluted earnings (loss) per share		(0.63	)		0.07		(0.56	)		0.14		(0.06	)		0.08

Weighted average shares outstanding
Basic		93,444,502			93,444,502		93,444,502			93,431,879		93,431,879			93,431,879
Effect of dilutive securities *		1,146,355			1,146,355		1,146,355			1,048,333		1,048,333			1,048,333

Diluted		94,590,857			94,590,857		94,590,857			94,480,212		94,480,212			94,480,212

Excluded as anti-dilutive **		2,240,828			2,240,828		2,240,828			3,200,078		3,200,078			3,200,078


*		Due to the net loss for both the three months and six months ended June 30, 2006, diluted loss per share has been calculated using the basic weighted average number of Common Shares outstanding, as the inclusion of any potential dilutive securities would be anti-dilutive.

**		Excluded from the calculation of diluted net loss per share because the exercise price of the stock options was greater than or equal to the average price of the Common Shares.

16.

Operating Expenses

3 months ended

3 months ended

6 months ended

6 months ended

June 30, 2006

June 30, 2005

June 30, 2006

June 30, 2005

Selling costs

24,190

26,877

48,417

50,810

Delivery and warehousing costs

32,106

36,810

60,557

68,186

General and administration costs

47,095

24,027

88,357

55,844

103,391

87,714

197,331

174,840

17.

Other items

3 months ended

3 months ended

6 months ended

6 months ended

June 30, 2006

June 30, 2005

June 30, 2006

June 30, 2005

Goodwill impairment

25,496

—

25,496

—

Gain on sale of real estate

(2,843

)

—

(14,038

)

—

Gain on sale of businesses

(9,748

)

—

(9,746

)

—

Restructuring costs

2,734

—

5,059

—

Other

(34

)

—

1,023

—

15,605

—

7,794

—

18.

Income Taxes

During the six-month period ended June 30, 2006, the Company recorded an income tax expense on its pre-tax loss reported under GAAP. The effective tax rate for the year to date was 50.4%, compared to 25.1% in 2005. The effective tax rate for the quarter was 191.5%, compared to the 25.7% in the previous quarter ended March 31, 2006 and 25.3% for fiscal 2005. The change in the income tax rate was substantially due to the impact of Quebec’s retroactive legislation resulting in a one time charge to current income tax expense of $30,700 and an interest charge of $8,624 which is recorded in interest and financing charges and the long term tax rate changes tabled in Bill-C13. On June 22, 2006 Bill—C13 received royal assent that introduced among other changes an increase in the general rate reduction from 7% to 7.5% effective on January 1, 2008 to 8% on January 1, 2009 and to 9% on January 1, 2010, to increase M&P deduction to mirror the general rate reduction and to eliminate the corporate surtax effective January 1, 2008. As a result of the rate changes, the Company’s Canadian future tax liability resulting from its long term timing differences was reduced by $8,958.

ROYAL GROUP TECHNOLOGIES LIMITED

NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of Canadian dollars, except share numbers and per share amounts)
The six months ended June 30, 2006 and 2005

19.

��

Segment Reporting Data

Operating segments are defined as components of an enterprise about which separate financial information is available and which, are evaluated regularly by senior financial decision-makers in allocating resources and assessing performance. The following table summarizes the segments on which the Company reports.


Reportable segments		Core product divisions

Custom profiles & mouldings		Custom Window Profiles and
		Interior & Exterior Mouldings
Building products		Exterior Cladding
Construction products		Pipe and Fittings and Building Systems
Home improvement products		Deck, Fence and Railing and Outdoor Storage
Window covering products		Window Coverings
Materials		Materials (Resins, Additives, PVC and Recycling)
Support		Real Estate

Performance is evaluated based on pre-tax earnings before amortization and interest.

Net sales by geographic region for three months ended June 30, 2006 were 59.9% (2005 — 61.5%) to the US, 38.4% (2005 — 36.9%) to Canada and 1.7% (2005 — 1.6%) to other markets. For the six months ended June 30, 2006, net sales by geographic region were 63.1% (2005 — 63.7%) to the US, 35.4% (2005 — 34.5%) to Canada and 1.5% (2005 — 1.8%) to other markets.

The following tables present financial information for the period as at June 30, 2006 and do not include amounts classified as assets held for sale. Segment information for assets held for sale is contained in note 3. The information for both the three months and six months ended June 30, 2006 is from continuing operations.

19.

Segment Reporting Data (continued)

The accounting policies for each of the segments are described in Note 1 of the audited consolidated financial statements for the year ended December 31, 2005. Inter-segment transactions are negotiated as if the transactions were to third parties, at market prices.

Custom

Home

Window

profiles &

Building

Construction

improvement

covering

3 months ended June 30, 2006

mouldings

products

Materials

Support

Total

Gross sales

196,817

95,422

81,346

55,238

30,489

122,013

19,893

601,218

Eliminations

10,255

(192

)

(242

)

352

143

113,137

19,341

142,794

Net sales

186,562

95,614

81,588

54,886

30,346

8,876

552

458,424

Gross profit

47,586

25,623

23,513

10,257

3,088

6,242

5,139

121,448

Pre-tax earnings before amortization and interest

30,541

4,279

5,897

(684

)

(4,255

)

3,838

3,518

43,134

Amortization charges

13,401

1,577

2,114

1,035

1,128

2,999

2,823

25,077

Acquisition of property, plant and equipment and goodwill

10,170

724

4,263

907

193

1,026

3,771

21,054

Goodwill

108,417

20,079

20,172

—

9,322

9,207

167,197

Total assets

556,748

225,903

272,076

125,484

102,498

195,641

369,248

1,847,598


	Custom						Home		Window
	profiles &		Building		Construction		improvement		covering
3 months ended June 30, 2005	mouldings		products		products		products		products			Materials		Support			Total

Gross sales		211,165		91,231		91,050		62,162		42,905			111,625		26,022			636,160
Eliminations		10,986		111		1,887		976		5,560			104,945		25,015			149,480

Net sales		200,179		91,120		89,163		61,186		37,345			6,680		1,007			486,680

Gross profit		55,473		21,110		18,734		9,421		7,344			12,999		2,727			127,808
Pre-tax earnings before amortization and interest		48,514		3,946		3,541		2,541		(3,755	)		11,964		4,036			70,787
Amortization charges		12,746		1,450		3,744		2,925		1,826			2,321		5,682			30,694
Acquisition of property, plant and equipment and goodwill		10,706		1,007		812		3,706		615			1,218		(963	)		17,101
Goodwill		115,266		21,404		25,342		19,498		12,609			10,193		10,067			214,379
Total assets		617,663		214,742		448,552		247,802		140,223			213,066		557,945			2,439,993

19.

Segment Reporting Data (continued)

Custom

Home

Window

profiles &

Building

Construction

improvement

covering

6 months ended June 30, 2006

mouldings

products

Materials

Support

Total

Gross sales

355,641

167,188

141,229

82,183

59,591

211,312

40,658

1,057,802

Eliminations

22,447

1,174

641

850

196,652

39,484

261,294

Net sales

333,194

167,142

140,055

81,542

58,741

14,660

1,174

796,508

Gross profit

77,186

40,893

35,663

10,951

6,023

9,391

9,681

189,788

Pre-tax earnings before amortization and interest

31,991

4,249

5,929

(926

)

(4,522

)

3,969

3,824

44,514

Amortization charges

23,400

2,999

6,086

4,043

2,860

5,633

7,036

52,057

Acquisition of property, plant and equipment and goodwill

19,396

1,862

5,647

1,698

458

1,967

2,437

33,465

Goodwill

108,417

20,079

20,172

—

9,322

9,207

167,197

Total assets

556,748

225,903

272,076

125,484

102,498

195,641

369,248

1,847,598


	Custom						Home		Window
	profiles &		Building		Construction		improvement		covering
6 months ended June 30, 2005	mouldings		products		products		products		products			Materials		Support		Total

Gross sales		363,839		152,788		153,258		96,857		84,519			200,939		50,526		1,102,726
Eliminations		21,104		111		4,665		2,339		13,549			189,186		48,442		279,396

Net sales		342,735		152,677		148,593		94,518		70,970			11,753		2,084		823,330

Gross profit		86,206		35,213		28,123		12,408		13,865			22,088		9,226		207,129
Pre-tax earnings before amortization and interest		66,173		4,000		1,023		1,358		(7,608	)		17,869		10,632		93,447
Amortization charges		25,155		2,775		7,134		5,636		3,451			5,109		11,898		61,158
Acquisition of property, plant and equipment and goodwill		20,003		2,909		2,915		7,028		945			2,062		956		36,818
Goodwill		115,266		21,404		25,342		19,498		12,609			10,193		10,067		214,379
Total assets		617,663		214,742		448,552		247,802		140,223			213,066		557,945		2,439,993

20.		Supplemental Cash Flow Information

(a)		Items not affecting cash (bank indebtedness) of continuing operations:


	3 months ended			3 months ended			6 months ended			6 months ended
	June 30, 2006			June 30, 2005			June 30, 2006			June 30, 2005

Gain on sale of businesses		(11,854	)		—			(22,231	)		—
Goodwill impairment		25,496			—			25,496			—
Amortization charges		25,077			30,694			52,057			61,158
Amortization of deferred financing costs		59			67			117			133
Future income taxes		(3,698	)		(1,762	)		(14,241	)		(8,309	)
Other		2,649			5,195			6,590			10,935

Cash provided		37,729			34,194			47,788			63,917

(b)

Change in non-cash working capital:


	3 months ended			3 months ended			6 months ended			6 months ended
	June 30, 2006			June 30, 2005			June 30, 2006			June 30, 2005

Accounts receivable		(73,992	)		(65,507	)		(91,662	)		(109,038	)
Inventories		17,961			36,364			(15,781	)		(14,333	)
Prepaid expenses		(7,914	)		(3,503	)		(7,981	)		(10,538	)
Accounts payable and accrued liabilities		61,294			29,848			60,572			13,782

Cash used		(2,651	)		(2,798	)		(54,852	)		(120,127	)

21.

Commitments

As noted in Note 21 of the 2005 audited consolidated financial statements, the Company has a long-term agreement with Westlake Vinyls Inc. (“Westlake”) for the annual purchase of up to 460 million pounds of vinyl chloride monomer. The agreement with Westlake had a pricing mechanism that was linked to data published in two industry trade magazines. On January 1, 2006, one of the trade magazines ceased publishing the pricing information. On April 7, 2006, the Company filed a Notice of Application seeking a court order declaring that this long-term agreement with Westlake is void and unenforceable. Subsequently, Westlake filed its own application seeking a determination that the supply agreement is valid. In efforts to resolve this dispute, the Company and Westlake entered into discussions aimed at arriving at a new mutually agreed pricing mechanism. Those discussions did not result in an agreement and the applications by the parties are now scheduled to be heard by the court in late October 2006.

22.

Contingencies

The Company and certain of its former officers and directors have been named as defendants in two shareholder lawsuits filed in the United States District Court for the Southern District of New York that seek class action status. The first complaint was filed on February 2, 2006. The second complaint was filed on February 3, 2006. Both of these actions purport to be brought on behalf of:

(a)		All United States citizens and entities that purchased or otherwise acquired the common stock of Royal Group on the New York Stock Exchange or the Toronto Stock Exchange; and

(b)		All foreign persons and entities that purchased or otherwise acquired the common stock of Royal Group on the New York Stock Exchange between February 24, 2000 and October 18, 2004.

Plaintiffs in both actions allege that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 by, among other things, failing to disclose certain related-party transactions. The complaints each seek certification of the putative class, unspecified damages, reasonable costs and attorneys’ fees, and other relief the court may deem appropriate.

On April 3, 2006, three putative class members moved to consolidate these two related actions, to be appointed joint Lead Plaintiffs and for approval of their counsel as Lead Counsel. On June 22, 2006, the Court orally granted this motion, which consolidated these two actions, named the three putative class members as Lead Plaintiffs, and approved their selection of Lead Counsel.

Lead Plaintiffs filed a consolidated amended complaint on July 24, 2006. Pursuant to the Court’s scheduling order, defendants’ motions to dismiss the consolidated amended complaint must be filed no later than September 22, 2006, and briefing of defendants’ motions to dismiss is to be completed no later than December 21, 2006.

The Company, certain of its former officers and certain of its former and current directors also have been named as defendants in a proposed shareholder class action lawsuit filed on February 24, 2006 in the Ontario Superior Court of Justice (the “Ontario Action”). The Ontario Action seeks to bring a class action on behalf of all persons who acquired securities of the Company from February 26, 1998 to October 18, 2004. It claims damages for oppression and negligent misrepresentation of $700,000, punitive damages of $300,000 as well as interest and costs. The Ontario Action alleges, among other things, that the Company failed to disclose certain related party transactions.

The Company is presently unable to determine whether these actions will have a material adverse effect on the business, results of operations, financial condition and liquidity of the Company and intends to defend itself vigorously in these actions.

22.

Contingencies (continued)

As noted in Note 22 of the 2005 audited consolidated financial statements, the Company has received a demand letter from U.S. counsel for an individual shareholder. It threatens a court application for leave to bring a derivative action on behalf of the Company against certain former officers of the Company in respect of related party transactions, as well as senior officers and directors of the Company since January 1998, if the Company itself does not commence the demanded action. The Company’s Audit Committee is in the process of reviewing the demand and will make a recommendation to the Board on how to proceed.

The Company is the subject of a criminal investigation being conducted by the Antitrust Division of the United States Department of Justice (“Department of Justice”). The investigation focuses on alleged price fixing in the window coverings industry. The Company recently reached an agreement in principle to resolve the matter with the Department of Justice for an amount the Company had previously accrued in its financial statements to settle the matter. The Company has not yet finalized an agreement with the Department of Justice.

The Company has also been contacted by counsel for a group of potential civil plaintiffs (direct purchasers) that have indicated their intention to commence civil litigation against the Company pertaining to the conduct that is the subject of the Department of Justice investigation. As of this report, no civil lawsuits have been filed.

The Company is also involved in various claims, legal proceedings, investigations and complaints arising in the course of business. Where the Company expects to incur a loss as a result of a claim, an estimate of the loss has been recorded as an expense. In all other cases, the Company cannot determine whether these claims, legal proceedings, investigations and complaints will, individually or collectively, have a material adverse effect on the business, results of operations and financial condition and liquidity of the Company. The Company is presently unable to determine whether these actions will have a material adverse effect on the business, results of operations, financial condition and liquidity of the Company.

23.

Related Party Transactions

Related party transactions with companies related to the former controlling shareholder totalled $50 and $108 (2005 — $69 and $132) for the three and six months ended June 30, respectively. Related party transactions principally between a non-wholly owned subsidiary and minority shareholders of this subsidiary totalled $379 and $1,199 (2005 — $1,941 and $3,359) for the three and six months ended June 30, respectively.

At June 30, 2006, there are accounts receivable from companies related to the former controlling shareholder of $15 (2005 — $32) and an account receivable from the former controlling shareholder of nil (2005 — $1,130). Payment of $1,130 was received in July 2005. At June 30, 2006, there are accounts receivable of $21 (2005 — $198) and accounts payable of $84 (2005 — $438) relating to other related parties.

These related party transactions were in the normal course of the Company’s business, and involved either the sale of products manufactured by the Company and sold at prices and terms consistent with those available to third parties, the recovery of costs incurred in respect of certain shared services or the purchase of other goods and services such as rent for premises.

24.

Significant Differences between Canadian and United States Generally Accepted Accounting Principles

These consolidated financial statements have been prepared in accordance with Canadian GAAP. In certain respects, U.S. GAAP differs from Canadian GAAP. The following is a summary of the effect of significant differences in GAAP on the consolidated financial statements:

(a)

Description of GAAP differences:

	(i)		Substantively enacted tax laws and rates:

			Canadian GAAP permits the recognition of the impact of substantively enacted changes in tax laws and rates on the measurement of future income tax assets and liabilities in the period those tax laws and rates have been substantively enacted. There were substantively enacted rates for the quarter ended June 30, 2006.

			U.S. GAAP does not recognize the concept of substantively enacted tax laws and rates and only allows recognition of the impact of a tax rate reduction on future income tax assets and liabilities once it is passed into a law.

24.

Significant Differences between Canadian and United States Generally Accepted Accounting Principles (continued)

	(ii)		Comprehensive income:

			The Financial Accounting Standards Board (“FASB”) in the United States issued Statement of Financial Accounting Standard (“SFAS”) No. 130, which establishes standards for reporting and display of comprehensive income and its components (revenue, expenses, gains and losses) in a full set of general purpose financial statements. SFAS No. 130 requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. Canadian GAAP has issued similar guidance effective for fiscal periods beginning on or after October 1, 2006.

	(iii)		Incorporated joint ventures:

			U.S. GAAP requires investments in incorporated joint ventures to be accounted for under the equity method, while under Canadian GAAP, the accounts of incorporated joint ventures are proportionately consolidated. However, under rules promulgated by the SEC, a foreign registrant may, subject to the provision of additional information, continue to follow proportional consolidation for purposes of registration and other filings notwithstanding the departure from U.S. GAAP. Consequently, the additional information regarding the Company’s interest in joint ventures is presented in note 4.

24.		Significant Differences between Canadian and United States Generally Accepted Accounting Principles (continued)

(b)		Net earnings (loss) in accordance with U.S. and Canadian GAAP


	3 months ended			3 months ended			6 months ended			6 months ended
	June 30, 2006			June 30, 2005			June 30, 2006			June 30, 2005

Net earnings (loss) in accordance with Canadian GAAP		(32,503	)		18,583			(52,119	)		7,188
Differences in GAAP increasing (decreasing) reported earnings:
Substantially enacted tax laws and rates		(8,958	)		—			(8,958	)		—

Net income (loss) under U.S. GAAP		(41,461	)		18,583			(61,077	)		7,188

Earnings (loss) under U.S. GAAP from continuing operations		(49,333	)		23,286			(68,114	)		13,221

Earnings (loss) under U.S. GAAP from discontinued operations		7,872			(4,703	)		7,037			(6,033	)

Net income (loss) under U.S. GAAP		(41,461	)		18,583			(61,077	)		7,188

Basic and diluted earnings (loss) per common share, under US GAAP, from:
Continuing operations		(0.52	)		0.25			(0.73	)		0.14
Discontinued operations, net of tax		0.08			(0.05	)		0.08			(0.06	)

Basic and diluted earnings (loss) per common share		(0.44	)		0.20			(0.65	)		0.08

(c)

Comprehensive income (loss) for U.S. GAAP purposes is determined as follows:


	3 months ended			3 months ended		6 months ended			6 months ended
	June 30, 2006			June 30, 2005		June 30, 2006			June 30, 2005

Net earnings (loss) in accordance with U.S. GAAP		(41,461	)		18,583		(61,077	)		7,188
Foreign currency translation adjustment		(11,652	)		3,650		(9,774	)		5,402

Comprehensive earnings (loss) based on U.S. GAAP		(53,113	)		22,233		(70,851	)		12,590

(d)

Shareholders’ equity in accordance with U.S. GAAP:


	As at			As at
	June 30, 2006			December 31, 2005

Shareholders’ equity in accordance with Canadian GAAP		1,047,567			1,110,303
Substantively enacted tax laws and rates		(8,958	)		—

Shareholders’ equity in accordance with U.S. GAAP		1,038,609			1,110,303

24.

Significant Differences between Canadian and United States Generally Accepted Accounting Principles (continued)

(e)

Effect on consolidated balance sheets and consolidated statements of earnings:

The application of U.S. GAAP would result in the following presentation of these captions on the consolidated balance sheets and consolidated statements of earnings:


	As at		As at
	June 30, 2006		December 31, 2005

Term debt		289,590		297,623
Net future income tax liabilities		64,884		74,910

3 months ended

3 months ended

6 months ended

6 months ended

June 30, 2006

June 30, 2005

June 30, 2006

June 30, 2005

Tax provision

35,481

7,987

28,870

4,537

Interest and financing charges

16,306

8,543

24,171

14,240

(f)

Other disclosures:

	(i)		Accounting for employee stock options:

			Prior to fiscal 2003, the Company, as permitted under SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”), accounted for stock options using the intrinsic value method and was required to disclose pro forma earnings and earnings per share information as if the Company had accounted for its employee stock options issued in 1995 and subsequent years under the fair value method.

			In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure” (“SFAS No. 148”). An amendment of FASB No. 123, SFAS No. 148 amended the transitional provisions of SFAS No. 123 for entities choosing to recognize stock-based compensation under the fair value-based method of SFAS No. 123, rather than electing to continue to follow the intrinsic value method. Under SFAS No. 148, the Company could have adopted the recommendations of SFAS No. 123 either (a) prospectively to awards granted or modified after the beginning of the year of adoption, (b) retroactively with restatement for awards granted or modified since January 1, 1995, or (c) prospectively to awards granted or modified since January 1, 1995. Effective October 1, 2002, the Company elected to expense employee stock-based compensation using the fair value method prospectively for all awards granted after October 1, 2002.

24.

Significant Differences between Canadian and United States Generally Accepted Accounting Principles (continued)

Had the Company applied the fair value-based method to all stock options outstanding at the date of adoption, the Company’s net earnings (loss) and earnings (loss) per share would have been reduced to the pro forma amounts indicated below:


	3 months ended			3 months ended			6 months ended			6 months ended
	June 30, 2006			June 30, 2005			June 30, 2006			June 30, 2005

Net earnings (loss) in accordance with U.S. GAAP		(41,461	)		18,583			(61,077	)		7,188
Pro forma stock-based compensation expense		(128	)		(136	)		(252	)		(272	)

Pro forma net earnings (loss)		(41,589	)		18,447			(61,329	)		6,916

Basic earnings (loss) per share:
As reported		(0.44	)		0.20			(0.65	)		0.08
Pro forma		(0.45	)		0.20			(0.66	)		0.07
Diluted earnings (loss) per share:
As reported		(0.44	)		0.20			(0.65	)		0.08
Pro forma		(0.45	)		0.20			(0.66	)		0.07

	(ii)		New accounting pronouncements:

			In May 2005, FASB issued SFAS No. 154, “Accounting Changes and Error Corrections” (“SFAS No. 154”). SFAS No. 154 replaces APB Opinion No. 20, “Accounting Changes” and SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements.” SFAS No. 154 requires that a voluntary change in an accounting principle be applied retrospectively with all prior period financial statements presented using the new accounting principle. SFAS No. 154 also requires that a change in method of depreciating or amortizing a long-lived non-financial asset be accounted for prospectively as a change in estimate, and correction of errors in previously issued financial statements should be termed a restatement. SFAS No. 154 is effective for accounting changes and correction of errors made in fiscal years beginning after December 15, 2005. The implementation of SFAS No. 154 has not had a material impact on the Company’s consolidated financial statements.

24.

Significant Differences between Canadian and United States Generally Accepted Accounting Principles (continued)

In June 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48 (“FIN 48), Accounting for Uncertainty in Income Taxes. This interpretation prescribes a recognition threshold and measurement attributable for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. At this time, the CICA has indicated that Canadian GAAP will not seek to conform to the exact guidance mandated in FIN 48. Therefore, future differences may exist between Canadian and U.S. GAAP for the accounting for uncertain tax positions. The Company is currently assessing the impact of FIN 48 on its results under U.S. GAAP.

25.

Plan of Arrangement with Georgia Gulf Corporation

On June 9, 2006, the Company entered into an Arrangement Agreement (“Arrangement”) with Georgia Gulf pursuant to which Georgia Gulf will acquire all of the common shares of Royal Group at a price of $13.00 (CAD) per share. The Company had been involved in a sale process since May 25, 2005, when its Board of Directors announced that it would open a data room and solicit bids from a broad group of potential acquirers. Royal Group’s Board of Directors acting on the unanimous recommendation of the special committee of independent directors for the previously announced sale process, unanimously approved the transaction and determined that the transaction was fair to the Company’s shareholders and was in the best interests of the company. The Board of Directors recommended that Royal Group shareholders vote in favour of the transaction.

On August 4, 2006, the shareholders of the Company voted and approved the Arrangement with Georgia Gulf and Georgia Gulf will acquire all the outstanding common shares. The Company expects the transaction will close in September 2006.

The Arrangement is conditional upon receipt of all approvals under the Competition Act (Canada), the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended from time to time, and the Investment Canada Act (Canada). The Company anticipates that the approvals will be received by the end of September 2006.

As a result of the shareholder approval of the Arrangement with Georgia Gulf, certain of the Company’s agreements contain change of control provisions that are enacted.

Management Incentive Plans

The Company has two management incentive plans that provide incentives to executives and other key employees of the Company:

(i)		Long-Term Incentive Plan — Cash Award

(ii)		Senior Management Incentive Plan — Restricted Share Units

25.

Plan of Arrangement with Georgia Gulf Corporation (continued)

These incentive plans provide for awards, in cash or restricted share units, as applicable, that vest at the end of three years if pre-determined corporate financial targets, as approved by the Company, are met. Upon the acquisition of common shares of the Company, which results in an acquirer beneficially owning in excess of 50% of the outstanding common shares of the Company, all of the outstanding awards will be subject to accelerated vesting, without regard to the conditions relating to financial performance.

The Long-Term Incentive Plan stipulates that thirty percent of the outstanding grants will accelerate and vest immediately upon a change in control of the Company. This will result in a payout of $9,738, of which $609 is currently accrued in the Company’s financial statements. The remaining unvested grants will be cancelled and forfeited and the Long-Term Incentive Plan will be terminated.

The Senior Management Incentive Plan stipulates that either thirty or fifty percent of the employee’s outstanding RSUs will accelerate and vest immediately upon a change in control of the Company. However, the Arrangement with Georgia Gulf, requires the Company to cancel all issued and outstanding RSUs immediately prior to the effective date of the change in control, whether vested or unvested in exchange for a cash payment equal to $13.00 per RSU. This will result in a payout of approximately $14,365, of which $6,630 is currently accrued in the Company’s Financial Statements. The Senior Management Incentive Plan will then be terminated.

ii.

Stock Option Plan

The Company maintains a stock option plan to allow management and key operating personnel to purchase common shares. The Arrangement with Georgia Gulf requires the Company to cancel all issued and outstanding options immediately prior to the effective date of the change in control, whether vested or unvested, in exchange for a cash payment to the option holder equal to the amount if any, by which $13.00 exceeds the exercise price payable under such option. This will result in 145,000 options qualifying for an aggregate cash payout of $300, which is not currently accrued in the Company’s financial statements. The remaining 2,116,000 options that did not qualify for the cash payment will be cancelled. The Stock Option Plan will then be terminated.

iii.

Employment Agreements

Certain executive officers have written employment agreements with the Company that require the Company to pay termination payments to such officers in the event of termination of employment following a change in control in the Company. No amount is currently accrued in the Company’s financial statements for these termination payments.

25.

Plan of Arrangement with Georgia Gulf Corporation (continued)

iv.

Term Debt and Bank Indebtedness

The Company’s debt agreements, including those related to its syndicated revolving credit facility, the Series A, Series B and Series D Senior Unsecured Notes, and the Medium Term Notes, include provisions under which the lenders may require repayment of the outstanding debt in the event of a change in control of the Company.

26.

Subsequent Events

In addition to the events related to the Arrangement with Georgia Gulf Corporation discussed in note 25, the following material events have occurred subsequent to June 30, 2006.

(a)

Restructuring Activity

On July 6, 2006, the Company completed the sale of Royal Building Systems Argentina. The assets and liabilities of the business was reclassified as held for sale at June 30, 2006 and December 31, 2005 and its financial results were segregated and presented separately as discontinued operations for both the three and six month periods ended June 30, 2006 and June 30, 2005.

(b)

Tech-Wood USA, LLC

On July 27 2006, the Company decided not to proceed further with the acquisition of Tech-Wood USA, LLC (“Tech-Wood”), a U.S. start-up company, which has a patented polymer and wood-fiber technology for manufacturing wood-polymer composite products such as decking, fencing, railing and other building materials. At June 30, 2006, the Company had deferred $1,235 in costs related to its investment in Tech-Wood.

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