Overview

We are a leading, integrated North American manufacturer of two chemical product lines, chlorovinyls and aromatics, and a manufacturer of vinyl-based building and home improvement products. Our primary chlorovinyls products are chlorine, caustic soda, vinyl chloride monomer ("VCM"), vinyl resins and vinyl compounds, and our aromatics products are cumene, phenol and acetone. Our vinyl-based building and home improvement products, marketed under Royal Group brands, include window and door profiles, mouldings, siding, pipe and pipe fittings, and deck, fence and rail.

We have identified four reportable segments through which we conduct our operating activities: (i) chlorovinyls products; (ii) window and door profiles and mouldings products; (iii) outdoor building products; and (iv) aromatics products.

Results of Operations

    The following table sets forth our consolidated statement of operations data
for each of the three and nine month periods ended September 30, 2009 and 2008,
and the percentage of net sales of each line item for the periods presented.

                                     Three months ended                                  Nine months ended
Dollars in Millions     September 30, 2009        September 30, 2008        September 30, 2009        September 30, 2008
Net sales             $     556.3        100 %  $     818.6        100 %  $     1488.0       100 %  $    2,380.9     100.0 %
Cost of sales               472.6       85.0 %        756.5       92.4 %       1,313.9      88.3 %       2,217.7      93.1 %

Gross margin                 83.7       15.0 %         62.1        7.6 %         174.1      11.7 %         163.2       6.9 %
Selling, general
and administrative
expense                      46.9        8.4 %         44.1        5.4 %         129.7       8.7 %         130.4       5.5 %
Long-lived asset
impairment charges            4.1        0.8 %          2.5        0.3 %          20.4       1.4 %          18.7       0.8 %
Restructuring
(gain)costs, net             (5.9 )     (1.1 )%         1.2        0.2 %           5.9       0.4 %           8.8       0.4 %
Gain on sale of
assets                          -          - %            -          - %           0.1         - %         (27.3 )    (1.2 )%

Operating income
(loss)                       38.6        6.9 %         14.3        1.7 %          18.0       1.2 %          32.6       1.4 %
Gain on substantial
modification of
debt                            -          - %            -          - %         121.0       8.1 %             -         - %
Gain on debt
exchange                    400.8       72.1 %            -          - %         400.8      26.9 %             -         - %
Net interest
expense                     (30.7 )     (5.5 )%       (32.3 )     (4.0 )%       (107.2 )    (7.2 )%        (98.2 )    (4.1 )%
Foreign exchange
(loss) gain                     -          - %         (1.9 )     (0.2 )%         (0.9 )    (0.1 )%         (0.6 )     0.0 %
Benefit (provision)
for income taxes           (178.5 )    (32.1 )%         2.5       (0.3 )%       (156.2 )   (10.5 )%          7.2       0.3 %

Net (loss) income     $     230.2       41.4 %  $     (17.4 )     (2.1 )% $      275.5      18.5 %  $      (59.0 )    (2.5 )%

The following table sets forth certain financial data by reportable segment for the three and nine month periods ended September 30, 2009 and 2008, and the percentage of total net sales or gross margin by segment for each line item.

                                      Three months ended                                  Nine months ended
Dollars in Millions       September 30, 2009       September 30, 2008        September 30, 2009       September 30, 2008
Net sales
   Chlorovinyl
   products             $    229.1        41.2 % $    365.5        44.7 %  $      702.9      47.2 % $    1,108.5      46.6 %
   Window and door
   profiles and
   mouldings products         98.6        17.7 %      124.0        15.1 %         241.7      16.3 %        328.1      13.8 %
   Outdoor building
   products                  128.1        23.0 %      163.6        20.0 %         315.4      21.2 %        428.2      17.9 %
   Aromatic products         100.5        18.1 %      165.5        20.2 %         228.0      15.3 %        516.1      21.7 %

Total net sales         $    556.3       100.0 % $    818.6       100.0 %  $    1,488.0     100.0 % $    2,380.9     100.0 %

Gross margin
   Chlorovinyl
   products             $     33.1        14.5 % $     37.4        10.2 %  $       92.5      13.2 % $      107.5       9.7 %
   Window and door
   profiles and
   mouldings products         14.1        14.3 %       11.7         9.4 %          19.0       7.9 %         22.1       6.7 %
   Outdoor building
   products                   25.8        20.1 %       16.7        10.2 %          41.8      13.3 %         38.3       8.9 %
   Aromatic products          10.7        10.7 %       (3.6 )      (2.2 )%         20.8       9.1 %         (4.7 )    (0.9 )%

Total gross margin      $     83.7        15.0 % $     62.2         7.6 %  $      174.1      11.7 % $      163.2       6.9 %

Three Months Ended September 30, 2009 Compared With Three Months Ended September 30, 2008

Net Sales. For the three months ended September 30, 2009, net sales totaled $556.3 million, a decrease of 32 percent compared to $818.6 million for the same quarter last year. This decrease was primarily a result of a decrease in our overall sales price of 34 percent. Our overall average sales price decrease is largely a result of decreases in the prices of caustic soda and vinyl resins and all of our aromatics products and an unfavorable currency impact. Our overall sales volume increase of 5 percent is mainly attributable to an increase in export sales for caustic soda and vinyl resin. In addition, our production was higher this year as compared to last year as a result of the impact of hurricanes Gustav and Ike in the U.S. gulf coast region during the third quarter of 2008. Our sales volume increase was offset by a decrease in demand in North America for vinyl-based building materials, which, in turn, is attributable to the seasonally adjusted annual U.S housing starts rate decreasing 28 percent from September of 2008 to September of 2009.

Chlorovinyls segment net sales totaled $229.1 million for the three months ended September 30, 2009, a decrease of 37 percent compared to net sales of $365.5 million for the same period last year. Our overall average sales price decreased 46 percent while our sales volume increased 15 percent. Our overall average sales price decrease is primarily a result of decreases in the prices of caustic soda and vinyl resins of 84 percent and 37 percent, respectively. The caustic soda sales price decrease reflects an increase in supply resulting from the higher demand for its co-product chlorine and a decrease in demand due to the significant economic downturn effectively removing large segments of the demand for caustic through shutdowns and rate reductions by end users. The vinyl resins sales price decrease reflects lower prices for the feedstock ethylene and natural gas. Our overall chlorovinyls sales volume increased primarily as a result of the increase in our export sales volumes for caustic soda of 308 percent and vinyl resins of 51 percent. North American vinyl resin industry sales volume increased 1 percent as a result of the domestic sales volume decrease of 4 percent, primarily due to the decrease in U.S. housing and construction which was more than offset by an increase in exports of 38 percent. In addition, our production was higher this year as compared to last year as a result of hurricanes Gustav and Ike in the U.S. gulf coast region during the third quarter of 2008.

Window and door profiles and mouldings products segment net sales totaled $98.6 million for the three months ended September 30, 2009, a decrease of 20 percent (18 percent decrease on a constant currency basis) compared to $124.0 million for the same period last year. Our overall sales volumes decreased 17 percent. North American industry vinyl resin extruded window and doors profiles and mouldings sales volumes increased 4 percent in the same period, reflecting an increase in the remodeling market offsetting the decline in U.S. housing. We experienced an unfavorable currency impact on our sales in Canada resulting from the weakening of the Canadian dollar against the U.S. dollar. During the third quarter of 2009, our window and door profiles and mouldings segment generated about 55 percent of its revenue in the U.S. and the remainder in Canada.

Outdoor building products segment net sales totaled $128.1 million for the three months ended September 30, 2009, a decrease of 22 percent (19 percent decrease on a constant currency basis) compared to $163.6 million for the same period last year. Our overall sales volumes decreased 12 percent. North American vinyl resin pipe, siding, fence and decking industry sales volumes declined about 3 percent, reflecting the decline in U.S. housing. In addition, sales in the third quarter of 2008 included about $8.3 million related to the outdoor storage business, a business we divested in 2008. We experienced an unfavorable currency impact on our sales in Canada resulting from the weakening of the Canadian dollar against the U.S. dollar. During the third quarter of 2009, our outdoor building segment generated about 31 percent of its revenue in the U.S. and the remainder in Canada.

Aromatics segment net sales were $100.5 million for the three months ended September 30, 2009, a decrease of 39 percent compared to $165.5 million for the same period last year. Our overall average sales price decreased 31 percent as a result of decreases in the prices of cumene of 31 percent, phenol of 26 percent and acetone of 30 percent. The sales price decreases reflect lower costs for the feedstocks benzene and propylene. The North American phenol and acetone industry operating rate was approximately 57 percent for the third quarter of 2009, or down about 21 percent compared to the same period last year. The North American cumene industry operating rate was approximately 54 percent during the third quarter of 2009, or about 16 percent lower than the same period last year. During the first quarter of 2009, a competitor announced the idling of a 1 billion pound cumene plant, reducing North American cumene industry capacity by about 9 percent. Our overall aromatics sales volumes decreased 12 percent as a result of a decline in phenol of 36 percent and acetone of 11 percent. The phenol and acetone sales volume decrease is due to weak demand in North America caused primarily by the decline in the U.S. housing construction and automotive markets and reduced export sales. Our cumene sales volume increase of 8 percent reflects additional spot sales during the three months ended September 30, 2009.

Gross Margin. Total gross margin increased from 7.6 percent of sales for the three months ended September 30, 2008 to 15.0 percent of sales for the three months ended September 30, 2009. This $21.5 million increase is due to lower feedstock costs and natural gas costs and was partially offset by lower sales prices. Some of our primary raw materials and natural gas costs in our chemical segments normally track crude oil and natural gas industry prices. Crude oil and natural gas industry prices experienced decreases of 42 percent and 66 percent, respectively, from the third quarter of 2008 to the third quarter of 2009. We implemented several cost savings initiatives during 2008 and 2009 including the permanent closure of our 450 million pound vinyl resin plant in Sarnia, Ontario and our 500 million pound vinyl resin plant in Oklahoma City, Oklahoma, resulting in a number of cost reductions including a decrease in labor cost related to cost of sales of about $11.9 million in the third quarter of 2009 as compared to the third quarter of 2008.

Chlorovinyls segment gross margin increased from 10.2 percent of sales for the three months ended September 30, 2008 to 14.5 percent of sales for the three months ended September 30, 2009. This margin increase primarily reflects a decrease in our raw materials and natural gas costs and cost savings initiatives implemented during 2008 and 2009 partially offset by decreases in sales prices and volumes for most of our chlorovinyls products. Our overall raw materials and natural gas costs in the third quarter of 2009 decreased 51 percent compared to the same quarter of 2008. Our chlorovinyls operating rate increased

from about 69 percent for the third quarter of 2008 to about 82 percent for the third quarter of 2009. Our production was higher this year as compared to last year which was negatively impacted by hurricanes Gustav and Ike in the U.S. gulf coast region during the third quarter of 2008. Also during 2008, we reduced our cost structure with the permanent closure of the Sarnia, Ontario and Oklahoma City, Oklahoma vinyl resin manufacturing plants, which had a combined 950 million pound annualized capacity, and moved the production requirements of our customers to our other manufacturing locations.

Window and door profiles and mouldings segment gross margin increased from 9.4 percent of sales for the three months ended September 30, 2008 to 14.3 percent of sales for the three months ended September 30, 2009. This $2.4 million increase primarily reflects decreases in our raw materials costs and cost savings initiatives implemented during 2008 and 2009 partially offset by decreases in sales volumes. The industry price of vinyl resins, this segment's primary raw material, decreased from the third quarter of 2008 to the third quarter of 2009. We implemented several cost savings initiatives during 2008 and 2009. During 2008, we reduced our cost structure with the permanent closure of two window and door profile fabrication plants and moved the production requirements of our customers to our other manufacturing locations. In May 2009, we announced the permanent closure of two additional window and door profile fabrication plants and moved the production requirements of our customers to our other manufacturing locations. The window and door profiles and mouldings sales volume decrease is due to weak demand in North America reflecting the decline in the North American housing and construction markets.

Outdoor building products segment gross margin increased from 10.2 percent of sales for the three months ended September 30, 2008 to 20.1 percent of sales for the three months ended September 30, 2009. This $9.1 million increase primarily reflects decreases in our raw materials costs and cost savings initiatives implemented during 2008 and 2009 partially offset by decreases in sales volumes. The industry price of vinyl resins, this segment's primary raw material, decreased from the third quarter of 2008 to the third quarter of 2009. We implemented several cost savings initiatives during 2008 and 2009. During 2008, we reduced our cost structure with the permanent closure of one fabrication plant and moved the production requirements of our customers to our other manufacturing locations. In addition, we sold our outdoor storage buildings business during the first quarter of 2008, which also reduced our cost structure. The outdoor building products sales volume decrease is due to weak demand in North America reflecting the decline in the North American housing and construction markets.

Aromatics segment gross margin increased from negative 2.2 percent of sales for three months ended September 30, 2008 to 10.7 percent of sales for the three months ended September 30, 2009. This $14.3 million increase from the same quarter last year is due primarily to decreases in our raw materials costs which more than offset decreases in our sales prices and volumes for most of our aromatics products. In addition, our gross margin improvement was driven by raw material prices rising throughout the quarter resulting in an inventory holding gain. Overall raw material costs decreased 39 percent primarily as a result of decreases in benzene and propylene costs from the third quarter of 2008 to the third quarter of 2009. Our aromatics segment shares certain maintenance, utilities, environmental and service costs, as well as selling, general and administrative costs with our chlorovinyls segment. For the three months ended September 30, 2009 and 2008 there was $1.9 million and $2.1 million, respectively, of these shared costs allocated to our aromatics segment.

Selling, General and Administrative Expenses. Selling, general and administrative expenses totaled $46.9 million for the three months ended September 30, 2009, a 6 percent increase from the $44.1 million for the three months ended September 30, 2008. This $2.8 million increase primarily reflects an increase in our selling, general and administrative expenses in our chlorovinyls and aromatics segments collectively of $10.4 million, primarily as a result of an increase in our stock compensation expense of $8.3 million. This increase in stock compensation expense is primarily related to a July 27, 2009 stock grant in connection with the completion of our private exchange offers described in Note 9 of the Notes to the Condensed Consolidated Financial Statements. On the date of acceptance of notes in the exchange offers, pursuant to agreements with certain noteholders, restricted share units for 2,274,745 shares in the aggregate were

granted. We have also increased selling, general and administrative expenses by $1.2 million due to an increase in loan cost amortization and the discount on sale of interests in our trade receivables related to our new asset securitization agreement entered into on March 17, 2009 and $1.0 million related to our bonus program. As part of our cost savings initiatives, we have reduced selling, general and administrative costs in our window and door profiles and mouldings and outdoor building product segments, collectively, by $7.7 million, including a decrease in bad debt expense of $2.1 million, payroll related costs of $0.7 million and advertising, commission and promotional expense of $1.0 million, and our selling, general and administrative costs also reflect a favorable currency effect of about $0.8 million as the Canadian dollar weakened against the U.S. dollar during the three months ended September 30, 2009 compared to the same quarter in the prior year.

Long-lived asset impairment charges. In May 2009, we initiated plans to further consolidate two plants in our window and door profiles and mouldings products segment. In accordance with generally accepted accounting principles, we wrote down the plants' property, plant and equipment, resulting in a $4.1 million charge in the three months ended September 30, 2009. For the three months ended September 30, 2008, we wrote down property, plant and equipment of $2.5 million.

Restructuring (gain) costs, net. The net gain associated with the Fourth Quarter 2008 Restructuring Plan, the Outdoor Storage Plan and the 2009 Window and Door Consolidation Plan for the three months ended September 30, 2009 for severance and other exit costs totaled a credit of $5.9 million primarily due to the favorable settlement of a legal claim and the final wind up of our Canadian post retirement health and welfare and pension plans related to the shut down of the Sarnia, Ontario PVC manufacturing facility. For the three months ended September 30, 2008, we incurred severance, restructuring and other exit costs of $1.2 million; see Note 4 of the Notes to the Condensed Consolidated Financial Statements for further information on restructuring costs.

Interest Expense, Net. Interest expense, net decreased to $30.7 million for the three months ended September 30, 2009 from $32.3 million for the three months ended September 30, 2008. This decrease of $1.6 million was primarily attributable to lower overall debt balances due to the debt exchange completed during the three months ended September 30, 2009. See Note 9 of the Notes to the Condensed Consolidated Financial Statements for further information on the debt exchange.

Benefit (provision) for income taxes. The provision for income taxes was $178.5 million for the three months ended September 30, 2009, compared with the benefit for income taxes of $2.5 million for the three months ended September 30, 2008. The change in the provision for income taxes primarily resulted from a $428.6 million increase in the pre-tax income. Our effective income tax rate for the three months ended September 30, 2009 was 43.7 percent as compared to 12.5 percent for the three months ended September 30, 2008. The difference in the effective tax rate as compared to the U.S. statutory federal income tax rate in 2009 was primarily due to federal and state income tax credits, including credits earned from timely repayment of the Mississippi Industrial Development Bond, the benefit related to the Cancellation of Debt Income ("CODI") offset by the reduction of tax attributes as a result of the debt exchange and concurrent change in control of the company for tax purposes and the valuation allowance in Canada. The difference in the effective tax rate as compared to the U.S. statutory federal income tax rate in 2008 was primarily due to federal and state income tax credits, the reversal of the interest accrued on the Quebec Trust matter discussed below and the valuation allowance in Canada. As previously disclosed in Note 16 in the Notes to Consolidated Financial Statements in our Form 10-K for the year ended December 31, 2008 and as reissued in our September 2, 2009 Form 8-K, we are not recognizing a tax benefit for the net operating losses in Canada, as we have determined that we have not met the ASC topic 740, Accounting for Income Taxes, criteria to allow us to realize such benefits. See Note 16 of the Notes to these Condensed Consolidated Financial Statements for further information on income taxes.

Nine Months Ended September 30, 2009 Compared With Nine Months Ended September 30, 2008

Net Sales. For the nine months ended September 30, 2009, net sales totaled $1,488.0 million, a decrease of 38 percent compared to $2,380.9 million for the same period last year. This decrease was primarily a result of decreases in our overall sales price and volume of 31 percent and 10 percent, respectively. Our overall average sales price decrease is largely a result of decreases in the prices of vinyl resins and all of our aromatics products and an unfavorable currency impact. The sales price decreases reflect lower costs for our raw materials and natural gas. Our overall sales volume decrease is mainly attributable to a decrease in demand in North America for vinyl-based building materials, which, in turn, is attributable to the seasonally adjusted annual U.S housing starts rate decreasing 43 percent from the first nine months of 2008 compared to the first nine months of 2009.

Chlorovinyls segment net sales totaled $702.9 million for the nine months ended September 30, 2009, a decrease of 37 percent compared with net sales of $1,108.5 million for the same period last year. Our overall average sales price and volume decreased 34 percent and 4 percent, respectively. Our overall average sales price decrease is primarily a result of decreases in the prices of vinyl resins of 41 percent and caustic soda of 36 percent. The vinyl resins sales price decrease reflects lower prices for the feedstock ethylene and natural gas. This caustic soda decrease reflects an increase in caustic soda supply resulting from the higher demand for its co-product chlorine, a decrease in demand due to the significant economic downturn effectively removing large segments of the demand for caustic through shutdowns and rate reductions by end users and much higher than normal import volumes. Our overall chlorovinyls sales volume decreased primarily as a result of the decrease in our sales volume in North America for vinyl resins of 19 percent, vinyl compounds of 15 percent and caustic soda of 29 percent. Our North American sales volume decrease was offset by an increase in exports for vinyl resins of 85 percent and caustic soda of 92 percent. North American vinyl resin industry sales volume declined 9 percent as a result of the domestic sales volume decrease of 12 percent, primarily due to the decline in U.S. housing and construction offset by an increase in exports of 16 percent.

Window and door profiles and mouldings products segment net sales totaled $241.7 million for the nine months ended September 30, 2009, a decrease of 26 percent (21 percent decrease on a constant currency basis) compared to $328.1 million for the same period last year. Our overall sales volumes decreased 23 percent. North American industry wide vinyl resin extruded window and doors and mouldings sales volumes declined 12 percent in the same period, reflecting the decline in U.S. housing construction and remodeling. We experienced an unfavorable currency impact on our sales in Canada resulting from the weakening of the Canadian dollar against the U.S. dollar. During the first nine months of 2009, our window and door profiles and mouldings segment generated about 56 percent of its revenue in the U.S. and the remainder in Canada.

Outdoor building products segment net sales totaled $315.4 million for the nine months ended September 30, 2009, a decrease of 26 percent (20 percent decrease on a constant currency basis) compared to $428.2 million for the same period last year. Our overall sales volumes decreased 14 percent. North American vinyl resin pipe, siding, fence and decking industry sales volumes declined about 12 percent, reflecting the decline in U.S. housing construction and remodeling. In addition, sales in the first nine months of 2008 included about $25.8 million related to the outdoor storage business, a business we divested in 2008. We experienced an unfavorable currency impact on our sales in Canada resulting from the weakening of the Canadian dollar against the U.S. dollar. During the first nine months of 2009, our outdoor building products segment generated about 37 percent of its revenue in the U.S. and the remainder in Canada.

Aromatics segment net sales were $228.0 million for the nine months ended September 30, 2009, a decrease of 56 percent compared to $516.1 million for the first nine months of 2008. Our overall average sales prices decreased 45 percent as a result of decreases in the prices of cumene of 50 percent, phenol of 37 percent and acetone of 28 percent. The sales price decreases reflect lower costs for the feedstocks benzene and propylene. The North American phenol and acetone industry operating rate was

approximately 56 percent for the first nine months of 2009, or down about 15 percent compared with the same period last year. The North American cumene industry operating rate was approximately 58 percent during the first nine months of 2009, or about 11 percent lower than the same period last year. During the first quarter of 2009, a competitor announced the idling of a 1 billion pound cumene plant reducing North American cumene industry capacity by about 9 percent. Our overall aromatics sales volumes decreased 20 percent as a result of a decline in phenol of 52 percent and acetone of 53 percent. The phenol and acetone sales volume decrease is due to weak demand in North America caused primarily by the decline in the U.S. housing construction and automotive markets and reduced export sales. Our cumene sales volume increase of 22 percent reflects additional spot sales during the nine months ended September 30, 2009.

. . .