**Exhibit
99.2**


Management’s
Discussion and Analysis
 from
the 2004 Annual Report to Shareholders







**MANAGEMENT’S
DISCUSSION & ANALYSIS**





**OVERVIEW**





Royal
Group Technologies Limited (“the Group”) is a vertically integrated manufacturer
of polymer-based home improvement, consumer and construction products. The Group
operates predominantly in the seasonal North American renovation, remodeling and
new construction segments of the marketplace and sales
are impacted by the amount of activity in these segments.  During
the past twelve months to December 31, 2004, renovation and remodeling activity
increased by 10% in the United States (US) and 7% in Canada. During the same
time period, new housing starts in the US rose by 5%, with starts in Canada up
by 6%.





The
Group’s sales,
net earnings and cash flow have historically been significantly different on a
by-quarter basis as compared to an annualized amount or rate.





**CHANGE
IN YEAR END**





The
Group changed its year end from September 30 to December 31. The change to a
calendar year basis is more consistent with its sales planning and business
reporting activities and programs. Accordingly, this Management’s Discussion and
Analysis (“discussion”) covers a fifteen month period from October 1, 2003 to
December 31, 2004, referred to as “fiscal 2004”. The twelve month fiscal period
ended September 30, 2003 is referred to as “fiscal 2003”. This discussion of
financial condition and results of operations compares fiscal 2004 with fiscal
2003. For illustrative purposes, we have included information for the twelve
month period ended December 31, 2004, referred to as “calendar 2004” and the
twelve month period ended December 31, 2003, referred to as “calendar 2003” to
provide a comparison of similar periods based on the new twelve month fiscal
year ending December 31.





**NON-GAAP
FINANCIAL MEASURES**





For the
purposes of the following discussion the terms “EBITDA” (earnings (loss) before
interest, taxes, depreciation, amortization and minority interest) and
“operating margin” are used interchangeably. EBITDA is not a recognized measure
under Canadian or US generally accepted accounting principles (GAAP). Management
believes that in addition to net earnings, EBITDA is a useful supplementary
measure as it provides investors with an indication of cash available for
distribution prior to debt service, capital





2




**MANAGEMENT’S
DISCUSSION & ANALYSIS**


expenditures,
income taxes and minority interest. Investors should be cautioned, however, that
EBITDA should not be construed as an alternative to (i) net earnings (loss)
determined in accordance with GAAP as an indicator of the Group’s performance or
(ii) cash flow from operating, investing and financing activities as a measure
of liquidity and cash flow. The Group’s method of calculating EBITDA may differ
from other companies and, accordingly, the Group’s EBITDA may not be comparable
to measures used by other companies.





“Free
cash flow” ( earnings
(loss) before minority interest adjusted for items not affecting cash, changes
in non-cash working capital items, less acquisition of property, plant and
equipment and change in investments) is not
a recognized measure under GAAP. It may not be comparable to similar measures
presented by other issuers. Management believes free cash flow to be an
important indicator of the financial performance of the Group because it shows
how much cash is available to repay debt and to reinvest in the
Group.





Net
funded debt (bank indebtedness net of cash **** plus
term bank loan and term debt) to total capitalization (aggregate of
shareholders’ equity, minority interest and net funded debt) ratio is not a
recognized measure under GAAP.





The
following charts provide calculations of EBITDA, free cash flow and net funded
debt to total capitalization, which are not reported within the body of the
financial statements:





3




**MANAGEMENT’S
DISCUSSION & ANALYSIS**


**15
      months**
    
    12
      months
    
    12
      months
    
    12
      months**ended**
    
    ended
    
    ended
    
    ended(in
      thousands of Canadian dollars, except percentages)
    
    **Dec.
      31/04**
    
    Sep.
      30/03
    
    Dec.
      31/04
    
    Dec.
      31/03(audited)
    
    (audited)
    
    (unaudited)
    
    (unaudited)Earnings
      (loss) before the undernoted
    
    **$**
    **126,778**
    
    $
    (14,007
    )
    $
    92,647
    
    $
    (15,731
    )Amortization
    
    
    **164,219**
    
    
    126,363
    
    
    132,983
    
    
    125,635EBITDA
    
    **$**
    **290,997**
    
    $
    112,356
    
    $
    225,630
    
    $
    109,904EBITDA
      as a percentage of net sales
    
    
    **12.5**
    **%**
    
    6.0
    %
    
    11.7
    %
    
    5.9
    %


**15
      months**
    
    12
      months
    
    12
      months
    
    12
      months**ended**
    
    ended
    
    ended
    
    ended(in
      thousands of Canadian dollars)
    
    **Dec.
      31/04**
    
    Sep.
      30/03
    
    Dec.
      31/04
    
    Dec.
      31/03(audited)
    
    (audited)
    
    (unaudited)
    
    (unaudited)Earnings
      (loss)
    
    **$**
    **36,849**
    
    $
    (58,211
    )
    $
    33,123
    
    $
    (70,422
    )Items
      not affecting cash
    
    
    **208,377**
    
    
    247,188
    
    
    147,601
    
    
    272,846Change
      in non-cash working capital
    
    
    **25,436**
    
    
    45,944
    
    
    15,426
    
    
    83,083Cash
      flow from operating activities
    
    
    **270,662**
    
    
    234,921
    
    
    196,150
    
    
    285,507Acquisition
      of property, plant and equipment
    
    
    **(99,725**
    **)**
    
    (93,533
    )
    
    (83,673
    )
    
    (83,894
    )Change
      in investments
    
    
    **(2,014**
    **)**
    
    -
    
    
    (2,014
    )
    
    -Minority
      interest
    
    
    **318**
    
    
    (2,025
    )
    
    1,072
    
    
    (3,057
    )Free
      cash flow
    
    **$**
    **169,241**
    
    $
    139,363
    
    $
    111,535
    
    $
    198,556


(in
      thousands of Canadian dollars, except percentages)
    
    **Dec.
      31/04**
    
    Sep.
      30/03
    
    Dec.
      31/04
    
    Dec.
      31/03(audited)
    
    (audited)
    
    (unaudited)
    
    (unaudited)Bank
      indebtedness
    
    **$**
    -
    
    $
    355,080
    
    $
    -
    
    $
    -Term
      bank loan
    
    
    **324,836**
    
    
    -
    
    
    324,836
    
    
    -Term
      debt
    
    
    **321,517**
    
    
    404,598
    
    
    321,517
    
    
    889,993Cash
    
    
    **(112,088**
    **)**
    
    -
    
    
    (112,088
    )
    
    (198,579
    )Net
      funded debt
    
    
    **534,265**
    
    
    759,678
    
    
    534,265
    
    
    691,414Minority
      interest
    
    
    **15,761**
    
    
    15,603
    
    
    15,761
    
    
    14,783Shareholders'
      equity
    
    
    **1,365,461**
    
    
    1,365,412
    
    
    1,365,461
    
    
    1,362,332Total
      capitalization
    
    **$**
    **1,915,487**
    
    $
    2,140,693
    
    $
    1,915,487
    
    $
    2,068,529Net
      funded debt as a percentage of total capitalization
    
    
    **27.9**
    **%**
    
    35.5
    %
    
    27.9
    %
    
    33.4
    %





**NEW
ACCOUNTING STANDARDS**





For
fiscal 2004, the Group adopted the accounting standard of the Canadian Institute
of Chartered Accountants’ (“CICA”) Handbook Section 3100, Asset Retirement
Obligations. This standard addresses the recognition and measurement of legal
obligations associated with the retirement of property, plant and equipment when
those obligations result from the acquisition, construction, development or
normal operation of the asset. The standard requires that the fair value of a
liability for an asset retirement obligation be recognized in the period in
which it is incurred if a reasonable estimate of fair value can be made. The
fair value is added to the carrying amount of the associated asset and is
amortized to earnings on the same basis as the associated asset. There is no
impact on the Group’s financial statements for fiscal 2004 as a result of the
adoption of this new standard. See Note 1(l) to the
Consolidated Financial Statements for
additional details of this new accounting guidance.





4





**MANAGEMENT’S
DISCUSSION & ANALYSIS**





The
Group adopted Accounting Guideline 14, Disclosure of Guarantees, issued by the
CICA in February 2003 for fiscal 2004. This guideline expands on previously
issued accounting guidance and requires additional disclosure by a guarantor in
its financial statements. This guideline defines a guarantee to be a contract
(including an indemnity) that contingently requires the Company to make payments
to the guaranteed party based on (i) changes in an underlying interest rate,
foreign exchange rate, equity or commodity instrument, index or other variable,
that is related to an asset, a liability or an equity security of the counter
party, (ii) failure of another party to perform under an obligating agreement or
(iii) failure of a third party to pay indebtedness when due. There is no impact
on the Group’s financial statements for fiscal 2004 as a result of the adoption
of this new standard. See Note 1(m) to the
Consolidated Financial Statements for
additional details of this new accounting guidance.





In
fiscal 2003, the Group adopted amended Section 1650 of the CICA Handbook
regarding Foreign Currency Translation. The amendments to this standard require
the elimination of the deferral and amortization of unrealized gains and losses
on non-current foreign exchange-denominated monetary assets and liabilities,
except to the extent that they meet specific criteria for hedge accounting. As
of the date of adoption of Section 1650, the Group had $4.2 million in deferred
foreign exchange losses on the consolidated balance sheet. This change was
applied retroactively with a restatement of fiscal 2002 results. Accordingly,
2002 net earnings increased by $1.9 million and the earnings of prior periods
were reduced by $6.1 million.





The
Group adopted the new recommendations of the CICA Handbook Section 3870,
Stock-Based Compensation and Other Stock-Based Payments for fiscal 2003. This
Section requires a fair-value based method of accounting be applied to all
stock-based payments. Effective October 1, 2002, the Group accounted for
employee stock options by measuring the compensation cost for options granted on
or after this date under the fair value-based method of accounting, using the
Black-Scholes option pricing model. As a result of applying this new standard,
after tax compensation expense for stock options issued after October 1, 2002 of
less than $0.1 million (2003 - $0.1 million) was recorded in fiscal 2004.
Additional details of this new accounting guidance are contained in Notes 1(j)
and 11 to the Consolidated Financial Statements.





5




**MANAGEMENT’S
DISCUSSION & ANALYSIS**





The
Group also adopted the recommendations of the CICA Handbook Section 3063,
Impairment of Long-Lived Assets for fiscal 2003. Section 3063 provides guidance
on recognizing, measuring and disclosing the impairment of long-lived assets.
The Group evaluated its operations and determined that the carrying amounts of
certain property, plant and equipment in its foreign operations may not be
recoverable and an impairment loss of $17.5 million (2003 - $23.4 million) was
recorded. Additional details of this new accounting guideline are contained in
Note 7 to the Consolidated Financial Statements.





The
Group also adopted the recommendations of the CICA Handbook Section 3475,
Disposal of Long-Lived Assets and Discontinued Operations for fiscal 2003.
Section 3475 provides guidance on recognizing, measuring, presenting and
disclosing long-lived assets to be disposed of and provides new criteria for
classifying assets as held for sale. During fiscal 2003, the Group evaluated
certain long-lived assets, including machinery and equipment and management
information systems, with the decision to reposition or abandon these assets. As
such, the Group wrote down these assets to their net realizable value and
recorded a charge of $33.6 million. Additional details of this accounting
guidance are contained in Note 7 to the Consolidated Financial
Statements.





**RESULTS
FROM OPERATIONS**





The
following discussion has been prepared by management and is a review of the
Group’s results of operations and financial position for the fifteen month
period ended December 31, 2004 (“fiscal 2004”) and twelve month fiscal periods
ended September 30, 2003 (“fiscal 2003”) and September 30, 2002 (“fiscal 2002”)
and are based upon Canadian GAAP. All dollar amounts are in Canadian dollars
unless specified otherwise. This discussion of the Group’s operations has been
derived from and should be read in conjunction with the Consolidated Financial
Statements and accompanying notes thereto appearing in this Annual Report. The
Group’s Statements of Earnings are presented below:





6





**MANAGEMENT’S
DISCUSSION & ANALYSIS**




**STATEMENTS
      OF EARNINGS**(in
      thousands of Canadian dollars, except per share
amounts)


**15
      months**
    
    12
      months
    
    12
      months
    
    12
      months
    
    12
      months**ended**
    
    ended
    
    ended
    
    ended
    
    ended**Dec.
      31/04**
    
    Sept.
      30/03
    
    Sept.
      30/02
    
    Dec.
      31/04
    
    Dec.
      31/03**(audited)**
    
    (audited)
    
    (audited)
    
    (unaudited)
    
    (unaudited)Net
      sales
    
    **$**
    **2,335,131**
    
    $
    1,885,397
    
    $
    1,915,230
    
    $
    1,920,749
    
    $
    1,878,467Cost
      of sales
    
    
    **1,735,389**
    
    
    1,497,277
    
    
    1,296,311
    
    
    1,439,576
    
    
    1,491,161Gross
      profit
    
    
    **599,742**
    
    
    388,120
    
    
    618,919
    
    
    481,173
    
    
    387,306Operating
      expenses
    
    
    **472,964**
    
    
    402,127
    
    
    376,669
    
    
    388,526
    
    
    403,037Earnings
      (loss) before the undernoted
    
    
    **126,778**
    
    
    (14,007
    )
    
    242,250
    
    
    92,647
    
    
    (15,731
    )Interest
      and financing charges
    
    
    **50,651**
    
    
    50,712
    
    
    52,225
    
    
    39,329
    
    
    48,892Earnings
      (loss) before income taxes and minority interest
    
    
    **76,127**
    
    
    (64,719
    )
    
    190,025
    
    
    53,318
    
    
    (64,623
    )Income
      taxes (recovery)
    
    
    **38,960**
    
    
    (4,483
    )
    
    55,675
    
    
    19,123
    
    
    8,856Earnings
      (loss) before minority interest
    
    
    **37,167**
    
    
    (60,236
    )
    
    134,350
    
    
    34,195
    
    
    (73,479
    )Minority
      interest
    
    
    **(318**
    **)**
    
    2,025
    
    
    (3,334
    )
    
    (1,072
    )
    
    3,057Net
      earnings (loss)
    
    **$**
    **36,849**
    
    $
    (58,211
    )
    $
    131,016
    
    $
    33,123
    
    $
    (70,422
    )Basic
      earnings (loss) per share
    
    **$**
    **0.39**
    
    $
    (0.62
    )
    $
    1.42
    
    $
    0.35
    
    $
    (0.76
    )Diluted
      earnings (loss) per share
    
    **$**
    **0.39**
    
    $
    (0.62
    )
    $
    1.40
    
    $
    0.35
    
    $
    (0.76
    )Weighted
      average number of shares (Basic)
    
    
    **93,342,490**
    
    
    93,219,925
    
    
    92,574,936
    
    
    93,352,973
    
    
    93,247,796Weighted
      average number of shares (Diluted)
    
    
    **94,763,312**
    
    
    93,219,925
    
    
    93,515,736
    
    
    94,773,795
    
    
    93,247,796





**15
MONTHS ENDED DECEMBER 31, 2004 AS COMPARED TO THE YEAR ENDED SEPTEMBER 30,
2003**





As a
result of the change in the Group’s fiscal year end to December 31, this
discussion will compare the fifteen month period ended December 31, 2004
(“fiscal 2004”) to the twelve month fiscal period ended September 30, 2003
(“fiscal 2003”). However, in order to provide readers with a meaningful analysis
of comparative results, the discussion for the most part compares the results
for the twelve month period ended December 31, 2004 (“calendar 2004”) with those
of the corresponding twelve month period ended December 31, 2003 (“calendar
2003”). The pro-forma results presented in the statement of earnings above for
calendar 2004 were compiled by subtracting the three months ended December 31,
2003 from the fifteen months ended December 31, 2004. The pro-forma results for
calendar 2003 were compiled by adding the three months ended December 31, 2003
to the twelve months ended September 30, 2003 and subtracting the three months
ended December 31, 2002.





7




**MANAGEMENT’S
DISCUSSION & ANALYSIS**
 ****
 **NET
SALES**





Net
sales for fiscal 2004 increased $450 million or 24% to $2,335 million from
$1,885 million in fiscal 2003. The increase in net sales is mainly due to the
difference in the length of the two fiscal periods. Net sales for calendar 2004
were $1,921 million, an increase of $42 million or 2% over $1,878 million for
calendar 2003. Net sales were negatively impacted by the strengthening of the
Canadian dollar vis-à-vis the US dollar. Approximately 58% of total net sales,
which were denominated in US dollars, were recorded at a lower exchange rate
this year versus the prior year. Using the same exchange rate in the calendar
2004 as in calendar 2003, net sales would have been $2,031 million, representing
an 8.1% increase. The increase was due to a combination of higher unit sales and
selling price increases in some sectors as well as market share gains and
introductions of new products or product line extensions. The estimated dollar
growth rates of the North American markets for the Group’s core product lines,
being vinyl window profiles, vinyl siding and fence, decking and railing, were
4.1%, 3.8% and 20.4% respectively.





The
following table summarizes net sales by product line for fiscal 2004, fiscal
2003, fiscal 2002, calendar 2004 and calendar 2003:




**Net
      Sales by Product Line**
    
    **15
      months**
    
    12
      months
    
    
    
    12
      months
    
    
    
    12
      months
    
    12
      months(in
      millions of Canadian dollars,
    
    **ended**
    
    ended
    
    %
      change
    
    ended
    
    %
      change
    
    ended
    
    ended
    
    %
      changeexcept
      percentages)
    
    **Dec.
      31/04**
    
    Sept.
      30/03
    
    04
      vs. 03
    
    Sept.
      30/02
    
    03
      vs. 02
    
    Dec.
      31/04
    
    Dec.
      31/03
    
    04
      vs. 03**(audited)**
    
    (audited)
    
    
    
    (audited)
    
    
    
    (unaudited)
    
    (unaudited)Products
      segment:Custom
      Profiles
    
    **$**
    **944**
    
    $
    732
    
    
    29
    %
    $
    715
    
    
    2
    %
    $
    760
    
    $
    739
    
    
    3
    %Exterior
      Claddings
    
    
    **410**
    
    
    325
    
    
    26
    %
    
    296
    
    
    10
    %
    
    335
    
    
    328
    
    
    2
    %Home
      Furnishings
    
    
    **298**
    
    
    285
    
    
    5
    %
    
    323
    
    
    -12
    %
    
    239
    
    
    269
    
    
    -11
    %Outdoor
      Products / RBS
    
    
    **275**
    
    
    242
    
    
    14
    %
    
    245
    
    
    -1
    %
    
    239
    
    
    248
    
    
    -4
    %Pipe
      / Fittings / Other Construction
    
    
    **365**
    
    
    265
    
    
    38
    %
    
    275
    
    
    -4
    %
    
    306
    
    
    264
    
    
    16
    %Eliminations
    
    
    **(48**
    **)**
    
    (27
    )
    
    78
    %
    
    (42
    )
    
    -36
    %
    
    (40
    )
    
    (29
    )
    
    38
    %**2,244**
    
    
    1,822
    
    
    23
    %
    
    1,812
    
    
    1
    %
    
    1,839
    
    
    1,819
    
    
    1
    %Support
      segment:Materials
    
    
    **589**
    
    
    448
    
    
    31
    %
    
    437
    
    
    3
    %
    
    474
    
    
    460
    
    
    3
    %Machinery
      & Tooling
    
    
    **102**
    
    
    61
    
    
    67
    %
    
    63
    
    
    -3
    %
    
    91
    
    
    59
    
    
    54
    %Services
    
    
    **97**
    
    
    91
    
    
    7
    %
    
    118
    
    
    -23
    %
    
    77
    
    
    90
    
    
    -14
    %Eliminations
    
    
    **(697**
    **)**
    
    (537
    )
    
    30
    %
    
    (515
    )
    
    4
    %
    
    (560
    )
    
    (550
    )
    
    2
    %**91**
    
    
    63
    
    
    44
    %
    
    103
    
    
    -39
    %
    
    82
    
    
    59
    
    
    39
    %**Net
      sales**
    
    **$**
    **2,335**
    
    $
    1,885
    
    
    24
    %
    $
    1,915
    
    
    -2
    %
    $
    1,921
    
    $
    1,878
    
    
    2
    %


****
 **Products
segment**
  Products
segment sales for calendar 2004 increased by 1% or $20 million to $1,839 million
from $1,819 million in calendar 2003. Custom Profiles sales grew by 3% to $760
million from $739 million. Exterior Claddings sales grew by 2% to $335 million
from $328 million. Home Furnishings declined 11% to $239





8


**MANAGEMENT’S
DISCUSSION & ANALYSIS**





million
from $269 million. This reflects the impact of our exit from certain US retail
programs and the final disposition of window covering inventories in the latter
part of fiscal 2003. Outdoor Products/RBS, which includes fencing, decking,
railings, patio furniture, sheds and Royal Building Systems, decreased 4% to
$239 million from $248 million. The decrease reflects declines in patio
furniture sales and to a lesser extent declines in the Royal Building Systems.
Offsetting this are increases in our sheds, fence, decking and railing business,
particularly in the US. Pipe/Fittings/Other Construction increased 16% to $306
million from $264 million, reflecting strong construction activity, unit selling
price increases as well as the continued progress made in our non-commodity pipe
and fittings market penetration.





**Support
segment**





Support
segment sales for calendar 2004, before eliminations, increased 5% to $642
million as compared to $609 million in calendar 2003. Sales of Materials grew 3%
to $474 million from $460 million. Higher raw material costs and increase in
material requirements due to the increased production demands of the Products
segment were offset by production difficulties and shortfalls in our resin
facilities, which resulted in the need to source additional resin from third
party suppliers. Sales in Machinery & Tooling grew 54% to $91 million from
$59 million as a result of the completion of several third party projects in our
Italian operations in the last quarter of fiscal 2004. Sales in the Services
category decreased 14% to $77 million from $90 million, largely on account of
lower rental income in real estate due to the sale of certain redundant assets
in fiscal 2003 and fiscal 2004 and lower charges relating to other services,
which are largely eliminated upon consolidation.





**Geographic
sales distribution**





During
fiscal 2004, foreign based sales and exports from Canadian operations were
$1,518 million or 65% of total sales as compared to $1,269 million or 67% in
fiscal 2003. For calendar 2004, foreign based sales and exports from Canadian
operations were $1,248 million or 65% of total sales as compared to $1,243
million or 66% in calendar 2003. Adjusting for the effects of foreign exchange,
primarily the US dollar, the geographic distribution of foreign based sales and
exports from Canadian operations was approximately 66% in both calendar 2004 and
calendar 2003. ****





9


**MANAGEMENT’S
DISCUSSION & ANALYSIS**





**OPERATING
MARGIN**





The
Group’s overall EBITDA for fiscal 2004 was $291 million, an increase of $179
million over $112 million in fiscal 2003. The increase in EBITDA is due in part
to the difference in the length of the two fiscal periods, but predominantly due
to higher non-cash charges recorded in fiscal 2003 as compared to the amounts
recorded in fiscal 2004. In addition, cost inefficiencies associated with
production curtailment in the latter part of fiscal 2003 also negatively
affected fiscal 2003 EBITDA. A total
of $158.2 million in non-cash charges were incurred in both fiscal 2003 and
calendar 2003. This included: $57.1 million related primarily to assets in
Argentina and those in the Philippines and Hawaii, as well as impairment charges
related to the repositioning of export and project activities; $33.7 million
related to the write-down of tangible assets, primarily inventories, promotional
material and accounts receivable, in connection with the decision to exit from
certain retail window covering programs in the US; $34.3 million in respect to
certain manufacturing assets and management information systems that were
repositioned or abandoned; $33.9 million related to inventory and accounts
receivable provisions; $2.5 million in costs associated with the review of
financial alternatives to enhance shareholder value; offset by a $3.3 million
recovery of executive bonuses. Included in fiscal 2004 and calendar 2004 was an
impairment charge of $17.5 million relating to the Company’s Mexican operations
and $3.0 million related to severance and retirement costs.





EBITDA
for calendar 2004 was $226 million, an increase of $116 million from $110
million in calendar 2003. The increase in EBITDA for calendar 2004 over calendar
2003 is also due to the factors noted above.





EBITDA
as a percentage of sales was 12.5% for fiscal 2004 as compared to 6.0% in fiscal
2003. After adjusting for the above noted charges of $20.5 million in fiscal
2004 and $158.2 million in fiscal 2003, EBITDA as a percentage of sales was
13.3% for fiscal 2004 and 14.3% for fiscal 2003. The decline in EBITDA as a
percentage of sales in fiscal 2004 is due to higher raw material costs, an
unfavourable change in exchange rates negatively impacting sales, non-cash
charges for stock-based compensation expense, a settlement of an intellectual
property legal dispute and expenses related to regulatory investigations, offset
to a lesser degree by certain product selling price increases, efficiency
improvements, gains on the sale of certain non-strategic assets and a pension
curtailment gain.





10





**MANAGEMENT’S
DISCUSSION & ANALYSIS**


EBITDA
as a percentage of sales was 11.7% for calendar 2004 as compared to 5.9% in
calendar 2003. After adjusting for the above noted charges of $20.5 million in
calendar 2004 and $158.2 million in calendar 2003, EBITDA as a percentage of
sales was 12.8% for calendar 2004 and 14.3% for calendar 2003. Higher raw
material costs, an unfavourable change in exchange rates negatively impacting
sales, non-cash charges for stock-based compensation expense, a settlement of an
intellectual property legal dispute and expenses related to regulatory
investigations, offset to a lesser degree by certain product selling price
increases, efficiency improvements, gains on the sale of certain redundant
assets and a pension curtailment gain, are again the primary reasons for the
decrease in EBITDA as a percentage of sales in calendar 2004.





Products
segment EBITDA for fiscal 2004 increased to $153.8 million from $17.4 million in
fiscal 2003. EBITDA as a percentage of sales in fiscal 2004 was 6.7% as compared
to 0.9% in fiscal 2003. Included in the Products segment EBITDA in fiscal 2004
was an impairment
charge of $17.5 million relating to the Group’s Mexican operations. Products
segment EBITDA in fiscal 2003
included $131.2 million of the $158.2 million of the non-cash charges noted in
the overall EBITDA discussion. Excluding
these charges, Products segment EBITDA is 7.4% of sales in fiscal 2004 as
compared to 8.0% in fiscal 2003. Higher raw material costs, an unfavourable
change in exchange rates negatively impacting sales and a settlement of an
intellectual property legal dispute are the primary reasons for the decrease in
EBITDA as a percent of sales in fiscal 2004.





Products
segment EBITDA for calendar 2004 increased to $118.2 million from $22.7 million
in calendar 2003. EBITDA as a percentage of sales in calendar 2004 was 6.3% as
compared to 1.2% in calendar 2003. Both calendar 2004 and calendar 2003 are
affected by the charges noted above. Excluding these charges, Products segment
EBITDA was 7.2% in calendar 2004 as compared to 8.3% in calendar 2003,
consistent with fiscal 2004 and 2003. Again, higher raw material costs, an
unfavourable change in exchange rates negatively impacting sales and a
settlement of an intellectual property legal dispute are the primary reasons for
the decrease in EBITDA as a percentage of sales in calendar 2004.




Support segment EBITDA for fiscal 2004 increased to
$137.2 million from $95.0 million in fiscal 2003. EBITDA as a percentage of
sales in fiscal 2004 increased to 17.4% from 15.8% in fiscal 2003. Included in





11


**MANAGEMENT’S
DISCUSSION & ANALYSIS**





the
Support segment EBITDA in fiscal 2004 was $3.0
million related to severance and retirement costs. Support
segment EBITDA in fiscal 2003
included $27.0 million of the $158.2 million of the non-cash charges noted in
the overall EBITDA discussion. Excluding
these charges, Support segment EBITDA was 17.8% in fiscal 2004 as compared to
20.3% in fiscal 2003. Higher raw material input costs incurred in our Materials
division is the primary reason for the decrease in EBITDA as a percentage of
sales in fiscal 2004 versus fiscal 2003. In addition, fiscal 2004 included $6.3
million in stock-based
compensation expense related
to the Restricted Stock Unit Plan (“RSUP”) and Senior Management Incentive Plan
(“SMIP”) implemented in fiscal 2004 and $3.6 million related to the regulatory
investigation costs. Offsetting these charges is a gain of $3.8 million from the
sale of certain redundant assets less $1.0 million on the write down of assets
held for sale to market value.





Support
segment EBITDA for calendar 2004 increased to $107.4 million from $87.2 million
in calendar 2003. EBITDA as a percentage of sales in calendar 2004 was 16.7% as
compared to 14.3% in calendar 2003. Both calendar 2004 and calendar 2003 are
affected by the charges noted above. Excluding these charges, Support segment
EBITDA was 17.2% in calendar 2004 as compared to 18.7% in calendar 2003. Higher
raw material input costs incurred in our Materials division is the primary
reason for the decrease in EBITDA as a percent of sales in calendar 2004 versus
calendar 2003. In addition, calendar 2004 included $6.3 million in stock-based
compensation expense related
to the RSUP and SMIP implemented in 2004 and $3.6 million related to the
regulatory investigation costs. Offsetting these charges is a gain of $3.8
million from the sale of certain redundant assets less $1.0 million on the write
down of assets held for sale to market value.





**COST
OF SALES AND OPERATING EXPENSES**





Raw
material costs for fiscal 2004 decreased to 48.4% of sales from 51.0% in fiscal
2003. Included in fiscal and calendar 2003 was $79 million in charges relating
primarily to the write down of inventories and promotional assets. Excluding
these charges recorded in fiscal 2003, raw material costs increased to 48.4% of
sales in fiscal 2004 from 46.8% in fiscal 2003. The increase in raw material
costs in fiscal 2004 is due to severe increases in the market cost of poly vinyl
chloride (PVC) resin and vinyl chloride monomer (VCM) in fiscal 2004, which more
than offset the improvement in costs due to the shifting in our product mix
towards Custom Profiles growth and increased sales in Fittings where our
material costs are lower. For calendar





12




**MANAGEMENT’S
DISCUSSION & ANALYSIS**





2004
raw material costs decreased to 49.4% of sales from 50.9% in calendar 2003,
consistent with fiscal 2004 versus fiscal 2003. Excluding the $79 million in
charges incurred in calendar 2003, raw material costs increased to 49.4% of
sales in calendar 2004 from 46.7% in calendar 2003. Again, the severe increases
in the market cost of poly vinyl chloride (PVC) resin and vinyl chloride monomer
(VCM) in fiscal 2004 are the primary reasons for the increase in raw material
costs in calendar 2004. During calendar 2004, raw material price increases
negatively impacted EBITDA by $84 million. The market price for PVC resin and
VCM increased by 9.7% and 15.1%, respectively, over the corresponding period in
the previous year. ****





Labour
expenses for fiscal 2004 increased marginally to 13.8% of sales from 13.6% in
fiscal 2003. For both calendar 2004 and 2003 labour expenses were 13.6% of
sales.





Other
manufacturing expenses decreased to 12.1 % of sales in fiscal 2004 from 14.8% in
fiscal 2003. Included in both fiscal and calendar 2004 was an impairment
charge of $17.5 million relating to the Group’s Mexican operations. Included
in both fiscal and calendar 2003 was approximately $54 million in charges
related to the impairment of certain property, plant and equipment in Argentina
as well as in respect of other manufacturing assets and management information systems that were repositioned
or abandoned .
Excluding these charges, other manufacturing expenses decrease marginally to
11.4% of sales in fiscal 2004 from 12.0% in fiscal 2003. For calendar 2004 and
2003, other manufacturing expenses were 12.0% and 14.9% of sales, respectively.
Excluding the charges noted above, other manufacturing expenses decreased to
11.0% of sales in calendar 2004 from 12.0% in calendar 2003. Higher depreciation
and utility costs have been offset by lower rents and various other costs. In
addition, the Group has continued to deal with existing operations and
capacities and maintains tight controls over capital expenditures. The Group
sold or leased out 337,000 square feet of manufacturing space, representing 3%
of overall space utilized by the Group. Further consolidation opportunities are
being evaluated in pursuit of further savings in other manufacturing expenses.
The Group does not anticipate that these costs as a percentage of sales will
change significantly from the current year.





Selling
and distribution costs decreased to 13.5% of sales in fiscal 2004 from 14.8% in
fiscal 2003. Included in both fiscal 2003 and calendar 2003 was $28 million in
non-cash charges related to accounts receivable





13




**MANAGEMENT’S
DISCUSSION & ANALYSIS**





provisions.
Excluding the charge in 2003, selling and distribution costs increased
marginally from 13.3% of sales in fiscal 2003 to 13.5% in fiscal 2004. Included
in fiscal 2004 was $3.9 million relating to the settlement of an intellectual
property legal dispute. For calendar 2004 and 2003 selling and distribution
costs as a percent of sales are 13.5% and 14.9% respectively, consistent with
fiscal 2004 and fiscal 2003. Excluding the charge in 2003, selling and
distribution costs increased marginally from 13.4% of sales in calendar 2003 to
13.5% in calendar 2004.





General
and administration expenses in fiscal 2004 increased to 6.8% of sales as
compared to 6.5% in fiscal 2003. Included in both fiscal 2003 and calendar 2003
was $3.3 million related to the recovery
of executive bonuses. Included in both fiscal and calendar 2004 was $3.0 million
related to severance and retirement costs. Excluding these charges, general and
administration expenses are 6.7% of sales for both fiscal 2004 and 2003.
Additional charges incurred in fiscal 2004 include $6.3 million in stock-based
compensation expense related
to the new RSUP and new SMIP implemented in fiscal 2004 and $3.6 million related
to the regulatory investigation costs. Offsetting these charges in both fiscal
2004 and calendar 2004 are gains of $2.8 million from the sale of certain
redundant assets and a $3.8 million pension curtailment gain. For calendar 2004
and 2003, general and administration expenses were 6.7% and 6.5% respectively,
consistent with fiscal 2004 and fiscal 2003. Excluding
the charges noted above, general and administration expenses were 6.6% and 6.7%
of sales, respectively, for calendar 2004 and 2003.





**AMORTIZATION
EXPENSE**





Amortization
expense for fiscal 2004 was $164.2 million or 7.0% of sales as compared to
$126.4 million or 6.7% of sales in fiscal 2003. The increase in amortization
expense of $37.8 million is due primarily to the difference in the length of the
two fiscal periods. For calendar 2004 amortization expense was $133.0 million or
6.9% of sales as compared to $125.6 million or 6.7% of sales for calendar 2003.
In the Products Segment, amortization as a percentage of sales was 5.1% for
fiscal 2004 as compared to 4.9% in fiscal 2003 and 5.0% for calendar 2004
compared to 4.8% for calendar 2003, consistent with fiscal 2004 versus fiscal
2003. Included in amortization expense in both fiscal 2004 and calendar 2004 is
a write-off of $1.0 million related to computer implementation costs no longer
being pursued. In addition, full year amortization on capital expenditures made
in the prior year have contributed to the increase. In the Support Segment,





14




**MANAGEMENT’S
DISCUSSION & ANALYSIS**





amortization
as a percentage of sales was 6.0% for fiscal 2004 as compared to 6.1% in fiscal
2003 and 6.0% for calendar 2004 as compared to 6.0% for calendar
2003.





**INTEREST
AND FINANCING CHARGES**





Interest
and financing charges for fiscal 2004 were $50.7 million as compared to $50.7
million for fiscal 2003, despite the fact that fiscal 2004 includes fifteen
months whereas fiscal 2003 includes twelve months. Interest and financing
charges for calendar 2004 decreased $9.6 million to $39.3 million from $48.9
million in calendar 2003. Interest and financing charges as a percentage of
sales in calendar 2004 was 2.0% as compared to 2.6% in calendar 2003. The
decrease in interest and financing charges reflects the lower level of funded
debt as well as the effect of the strengthening of the Canadian dollar on
interest payments on US denominated debt. The Group has paid down its term bank
loan by $175.2 million and paid off $57.5 million in term debt in fiscal 2004.





**INCOME
TAXES**





For
fiscal 2004, income tax expense as a percentage of earnings before taxes was
51.2%, as compared to an income tax recovery of 6.9% in fiscal 2003. Excluding
the effect of the $13.0 million non-cash charge to future income tax expense as
a result of the enacted changes in the Ontario provincial income tax rates,
non-deductible losses in foreign jurisdictions and non-deductible stock
compensation expense recorded in fiscal 2004, income tax expense as a percentage
of earnings before taxes was 34.1% for fiscal 2004.





For
calendar 2004, income tax expense as a percentage of earnings before taxes was
35.9%, as compared to an income tax expense of 13.7% in calendar 2003. Excluding
the effect of non-deductible losses in foreign jurisdictions and non-deductible
stock option compensation expense recorded in calendar 2004, income tax expense
as a percentage of earnings before tax was 29.7% for calendar 2004. Excluding
the effect of non-deductible losses in foreign jurisdictions and the $13.0
million non-cash charge to future income tax expense recorded in calendar 2003,
income tax recovery as a percentage of losses before tax was 27.0 **%** for calendar 2003.





The
Group’s overall effective income tax rate for fiscal 2005 is expected to be
between 29.0% and 31.0%.





15


****
 **MANAGEMENT’S
DISCUSSION & ANALYSIS**


****


**NET
EARNINGS (LOSS) AND EARNINGS (LOSS) PER SHARE**





Net
earnings for fiscal 2004 were $36.8 million, an increase of $95.0 million from a
loss of $58.2 million in fiscal 2003. In fiscal 2003, the Group recorded $158.2
million in non-cash charges, whereas in fiscal 2004 the Group recorded an
impairment charge of $17.5 million relating to the Group’s Mexican operations.
Basic and diluted earnings per share for fiscal 2004 was $0.39 as compared to a
loss of $0.62 per share in fiscal 2003.





Net
earnings for calendar 2004 were $33.1 million, an increase of $103.5 million
from a loss of $70.4 million in calendar 2003. The Group recorded $158.2
million in non-cash charges in calendar 2003, whereas in calendar 2004 the Group
recorded an impairment charge of $17.5 million relating to the Group’s Mexican
operations. Basic and diluted earnings per share for calendar 2004 was $0.35 as
compared to a loss of $0.76 in calendar 2003.





The
average number of shares outstanding for fiscal 2004 on a diluted basis was
approximately 94.8 million, 1.6 million higher than in fiscal 2003.





**OTHER
MATTERS**





**Investigations**





The Group established
a Special Committee in late December 2003
as a result of the Group being advised that the Ontario Securities Commission (“Commission”) was
conducting a regulatory investigation of the Group. 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 Group 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 current 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





16







**MANAGEMENT’S
DISCUSSION & ANALYSIS**
 addition, the following former
non-executive employees of the Group and their approximate percentage ownership
in the Resort are as follows: Fortunato Bordin (20%) and Domenic D'Amico (15%).


The S pecial
Committee consisted solely
of three independent directors, at that time, who retained independent legal
counsel who in turn retained independent 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 be taken as
of April 21, 2004.





On
October 15, 2004 the Group announced that the Commission provided the Group 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 Group's lead bank. The Order,
which relates to the time period January 1, 1996 to July 30, 2004, requires 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 Group, the Resort and two other affiliates of the Resort.





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





On
October 21, 2004, the Group 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
Group at that time. The mandate of the Special Committee was 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 may be 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 Group of any individuals who are currently involved in the
regulatory or law enforcement investigations and/or proceedings.


On October 28, 2004 the Group
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 Group's lead





17




**MANAGEMENT’S
DISCUSSION & ANALYSIS**
  bank.
The second Order, which relates to the time period January 1, 1996 to October
25, 2004, requires that certain documents be provided by the bank to the RCMP in
relation to certain individuals and a number of entities, including the
Group.





Both
Orders include allegations of actions contrary to the Criminal Code and include
allegations of intent to defraud the shareholders and creditors of the Group 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
Group, the president and chief executive officer and the chief financial officer
at that time, certain non-executive employees of the Group at that time and a
former officer of the Group.





On
November 8, 2004 the Group 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 Group 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 was dismissed. The Board appointed an
interim president and chief executive officer and an interim chief financial
officer, who were directors of the Company.





The
Group understands that the RCMP continues
its previously announced investigation . The
Commission has also indicated that it is investigating the Group with respect to
disclosure records, financial affairs and trading in the shares of the Group. In
addition, the Special Committee has been communicating with the Securities and
Exchange Commission (“SEC”) to keep the SEC advised of the progress of the
Special Committee’s work. As part of these investigations, the Group received
various requests for information and it has expressed its willingness to
cooperate with all regulators and law enforcement agencies in their
investigations.  These
investigations may produce results that have a material impact on the Group and
its previously reported financial statements.





18





**MANAGEMENT’S
DISCUSSION & ANALYSIS**


In
the course of the Group’s investigation, certain historical related party
transactions were identified that were not previously disclosed in the financial
statements. These transactions are detailed in Note 2(b) to the Consolidated
Financial Statements.





**Agreement
with the controlling shareholder**





At the
conclusion of its investigations, the Special Committee recommended an overall
settlement with the controlling shareholder involving (i) the repayment to the
Group by the controlling shareholder personally of the full amount of the gain
earned by all interested parties ($6.5 million plus interest of $2.2 million) on
the sale of the Vaughan West Lands to the Group. In lieu of a cash repayment,
the Group has agreed to the conversion of multiple voting shares in the Group
owned, directly of indirectly, by the controlling shareholder 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 Group or any of the
shareholders), which will reduce his gain for tax purposes when he disposes of
his shares, (ii) the repayment to the Group by the controlling shareholder of
bonuses received in 2002 of $1.13 million, (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 Group and (v) the
resignation of the controlling shareholder as a director of the Group (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 Group agreed to release the controlling shareholder from all
known claims that the Group may have against him.





The
conversion transaction and the settlement with the controlling shareholder are
both subject to shareholder approval at the upcoming Annual and Special General
Meeting on May 25, 2005.





**Class
action lawsuits**





The
Group and certain of its former officers and directors have been named as
defendants in two class action shareholder lawsuits filed in the United States
District Court for the Southern District of New York. The first complaint, filed
on December 14, 2004 and thereafter amended on January 4, 2005, purports to be
brought on behalf of all purchasers of the Groups’ common stock between February
9, 2000 and October 13, 2004. The second complaint, filed on December 17, 2004,
purports to be brought on behalf of all





19




**MANAGEMENT’S
DISCUSSION & ANALYSIS**





purchasers
of the Group’s publicly-traded securities between February 11, 1999 and October
13, 2004. Both actions purport to assert U.S. federal securities law violations,
principally alleging that the Group’s misrepresented its business performance
and engaged in various improprieties. The complaints each seek certification of
the putative class, unspecified damages, reasonable costs and attorneys' fees,
and other relief.





On
February 14, 2005, two putative class members separately moved for consolidation
of the two related actions, appointment as Lead Plaintiff, and approval of their
respective counsel as Lead Counsel. By order dated March 10, 2005, the court
consolidated the two cases within a single action and appointed lead plaintiffs
and their lead counsel. By order dated March 17, 2005, the court set a schedule
for the filing of a consolidated amended complaint and subsequent motions to
dismiss.





The
Group 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 Group, and intends to defend itself vigorously in
these actions.





**Criminal
investigation by the Antitrust Division of the United States Department of
Justice**


The
Group is the subject of a pending criminal investigation being conducted by the
Antitrust Division of the United States Department of Justice. The investigation
focuses on alleged price fixing in the window coverings industry. The Group is
cooperating with the Department of Justice and is attempting to negotiate a
resolution of the matter.




**LIQUIDITY
AND CAPITAL RESOURCES**





**CASH
FLOW**





In
fiscal 2004, the Group generated cash flow from operating activities of $270.7
million as compared to $234.9 million in fiscal 2003. Cash flow from operating
activities were used to finance capital expenditures of $99.7 million, repay
$175.2 million in the term bank loan and repay $57.5 million in term debt. In
addition, $31.9 million was generated from the sale of redundant assets,
including the sale of vacant land in the





20




**MANAGEMENT’S
DISCUSSION & ANALYSIS**





Woodbridge
area and the sale of buildings that were vacated and their operations
consolidated into other locations. As a result, the Group’s net bank
indebtedness position has decreased $142.4 million from $355.1 million at
September 30, 2003 to $212.7 million at December 31, 2004.





For
calendar 2004, the Group generated cash flow from operating activities of $196.2
million, a decrease of $89.3 million from $285.5 million in calendar 2003. Cash
flow from operating activities were used to finance capital expenditures of
$83.7 million, repay $175.2 million in the term bank loan and repay $53.2
million in term debt. In addition, $31.9 million was generated from the sale of
redundant assets. As a result, the Group’s net bank indebtedness position has
decreased $88.7 million from $301.4 million at December 31, 2003 to $212.7
million at December 31, 2004.





**WORKING
CAPITAL**





Working
capital was $228.2 million at December 31, 2004 as compared to $129.8 million at
September 30, 2003. Days accounts receivable outstanding has decreased to 52
days at December 31, 2004 from 55 days at September 30, 2003 but is comparable
to 51 days receivable at December 31, 2003. The current ratio has improved to
1.37 as compared to 1.20 at September 30, 2003. The current ratio at December
31, 2003 was 3.53. However, at December 31, 2003, the Group had termed out its
operating line such that $500 million was classified as long-term. Adjusting for
this back into current, working capital would have been $167.1 million and the
current ratio 1.22. The main reason for the improvement in working capital at
December 31, 2004 as compared to December 31, 2003 adjusted is the reduction in
the Group’s bank indebtedness and term bank loan.





Days
inventory on hand has remained constant at 117 days at December 31, 2004 as
compared to 117 days at September 30, 2003 and 117 days at December 31, 2003.
Inventory levels in dollar terms have increased over both September 30, 2003 and
December 31, 2003 due to significantly higher raw material prices. Management
continues to focus on improving production and inventory management practices in
an effort to lower the overall level of inventory on hand.








21
 ****
 **MANAGEMENT’S
DISCUSSION & ANALYSIS**


****


**CAPITAL
SPENDING**





Overall
capital spending including acquisitions, for fiscal 2004, fiscal 2003, calendar
2004 and calendar 2003 is summarized below:





**15
      months**
    
    12
      months
    
    12
      months
    
    12
      months**ended**
    
    ended
    
    ended
    
    ended**Dec
      31/04**
    
    Sep
      30/03
    
    Dec
      31/04
    
    Dec
      31/03(in
      $millions)
    
    **(audited)**
    
    (audited)
    
    (unaudited)
    
    (unaudited)Capital
      spending
    
    
    **99.7**
    
    
    93.5
    
    
    83.7
    
    
    83.9Acquisitions
    
    
    **-**
    
    
    4.5
    
    
    -
    
    
    4.5Total
      capital spending
    
    
    **99.7**
    
    
    98.0
    
    
    83.7
    
    
    88.4





For
fiscal 2004 capital expenditures were $99.7 million compared to $98.0 million
for fiscal 2003. Capital expenditures for calendar 2004 were $83.7 million
compared to $88.4 million for calendar 2003. For calendar 2004, approximately
$67.6 million was expended in the Products segment primarily for higher output
equipment and tooling, with the remaining $16.1 million expended in the Support
segment for added capacities in the Materials division and for corporate
information systems additions and improvements. During fiscal 2004, the Group
sold certain redundant assets to third parties for net proceeds of $31.9
million. The Group recorded a pre-tax gain of $3.8 million on the sale of these
assets.





**LONG
TERM DEBT AND FINANCIAL INSTRUMENTS**





During
fiscal 2004, the Group converted the debt drawn on its revolving, unsecured bank
credit facility to a non-revolving, non-amortizing term bank loan in the amount
of $500 million with a syndicate of banks. The Group has repaid $175.2 million
of this term bank loan during fiscal 2004, leaving $324.8 million drawn at
December 31, 2004. This balance has been classified as a term bank loan within
current liabilities since the amount of the term bank loan is repayable in full
on April 28, 2005. The bank credit facility is for working capital requirements,
acquisitions and capital expenditures.





As
described in Note 10 to the Consolidated Financial Statements, the Group
finalized a credit facility with three banks on March 24, 2005. It is a $340
million revolving credit facility with a secured portion and an unsecured
portion. The secured portion (which is $300 million until September 1, 2005 and
increases to $312.5 million on September 1, 2005) bears interest at prime plus
1% reducing to 0.5% on the conversion of





22




**MANAGEMENT’S
DISCUSSION & ANALYSIS**





the
multiple voting shares, or either LIBOR plus 2% or Banker’s Acceptance rate plus
2%, both of which reduce to 1.5% on the conversion of the multiple voting
shares. The standby fee on the secured portion of the credit facility is 0.4% on
the undrawn portion, reducing to 0.3% on the conversion of the multiple voting
shares. There are no additional utilization fees. This portion of the new credit
facility will be secured by substantially all of the Group’s assets in Canada
and the United States, although real property charges will only be registered
initially against certain properties located in Ontario, Canada.





Until
September 1, 2005, the additional $40 million ($37.5 million of which is
unsecured) is priced at prime plus 2% reducing to 1.5% on the conversion of the
multiple voting shares, or either LIBOR plus 3% or Banker’s Acceptance rate plus
3%, both of which reduce to 2.5% on the conversion of the multiple voting
shares. The unsecured portion expires on August 31, 2005. The standby fee on the
unsecured portion of the credit facility is 1.1% on the undrawn portion,
reducing to 1% on the conversion of the multiple voting shares.





On
September 1, 2005, the credit facility reduces to $312.5 million and the entire
amount is secured. The credit facility matures on April 30, 2006.





On
March 23, 2005, the Group signed a letter of intent for a separate unsecured
facility of up to $30 million at a higher rate than the bank facility. This
facility, which expires May 1, 2006, will provide added liquidity, although the
Group does not expect to draw down on it to any significant extent or for more
than a short period of time.





The net
funded debt to total capitalization ratio at December 31, 2004 was 27.9%,
compared to 35.5% at September 30, 2003 and 33.4% at December 31, 2003. Refer to
the chart
in Non-GAAP Financial Measures for a calculation of net funded debt to total
capitalization. The Group has continued to reduce its net funded debt through
the use of c ash
flow from operations and working capital reductions to
repay its bank credit facility and long-term debt.





At
December 31, 2004, the Group’s debt rating by Standard and Poors (S&P) was
BBB- with a Negative Outlook and a Credit Watch with negative implications. At
December 31, 2004 Dominion Bond Rating





23




**MANAGEMENT’S
DISCUSSION & ANALYSIS**





Services
(DBRS) debt rating was BBB (low) with a stable trend. In March 2005, DBRS
changed its’ rating to BBB (low) with a negative trend. The ratings agencies
have expressed concerns regarding the uncertainties surrounding the continuing
investigations.





Management
believes that the Group’s anticipated operating cash flow is sufficient to meet
its working capital and capital expenditure requirements, including the seasonal
nature thereof, for the foreseeable future. The Group’s other term debts have
maturities well staged over longer periods of time.





Finally,
the Group plans to develop a new strategic plan in 2005. This may involve added
emphasis on certain businesses and reduced emphasis on others, including
possible divestitures. In conjunction with the new strategic plan, the Group
expects to implement a new capital structure, which will provide substantial
additional liquidity.





**YEAR
ENDED SEPTEMBER 30, 2003 AS COMPARED TO THE YEAR ENDED SEPTEMBER 30,
2002**





**NET
SALES**





Consolidated
net sales for the year ended September 30, 2003 decreased 2% or $30 million to
$1,885 million, from sales of $1,915 million in 2002. Sales increases in Custom
Profiles and Exterior Claddings were offset by decreases in Home Furnishings,
Outdoor Products/RBS and Pipe/Fittings/Other Construction (which now includes
commercial doors).





Certain
product line sales figures for 2003 and 2002 have been reclassified to reflect
the current presentation of product line sales adopted in fiscal
2004.





Products
segment sales for the year ended September 30, 2003 increased $10 million to
$1,822 million, from $1,812 million in 2002. Exterior Claddings grew 10% while
Custom Profiles increased 2%. Both of these product categories were affected by
the decline in the exchange rate used to convert US dollar denominated sales.
Home furnishings sales decreased 12% or $38 million as a result of a decline in
Window





24




**MANAGEMENT’S
DISCUSSION & ANALYSIS**





Coverings
sales, which were impacted by the Group’s decision to exit certain of our window
covering businesses. Outdoor Products/RBS decreased marginally from $245 million
in 2002 to $242 million in 2003. Pipe/Fittings/Other Construction decreased 4%
or $10 million to $265 million from $275 million in 2002.





Support
segment sales for the year ended September 30, 2003, before eliminations,
decreased $18 million, or 3% to $600 million from $618 million in 2002. This
segment represents materials, machinery & tooling and services provided
predominately to the Products segment. The decrease in net sales was primarily
due to lower volumes of raw material sold as the Group reduced overall inventory
levels, lower volumes of transactions due to the completion of our industrial
complex in the Toronto area and related added capacity expansion in the prior
fiscal years and the sale of certain non-strategic business units in the latter
part of fiscal 2002.





During
fiscal 2003, foreign-based sales and exports from Canadian operations, decreased
to 67% of total sales from 71% in 2002.





**OPERATING
MARGIN**





EBITDA
was affected by certain non-cash charges recorded in fiscal 2003 as well as cost
inefficiencies associated with production curtailment in the latter part of
fiscal 2003. A total of $158.2 million in non-cash charges were incurred in
2003. This includes: $57.1 million relating primarily to assets in Argentina and
those in the Philippines and Hawaii, as well as impairment charges relating to
the repositioning of export and project activities; $33.7 million relating to
the write-down of tangible assets, primarily inventories, promotional material
and accounts receivable, in connection with the decision to exit from certain
retail window covering programs in the US; $34.3 million in respect to certain
manufacturing assets and management information systems that were repositioned
or abandoned; $33.9 million relating to inventory and accounts receivable
provisions; $2.5 million in costs associated with the review of financial
alternatives to enhance shareholder value; offset by a $3.3 million recovery of
bonus accruals relating to the executive compensation review of the CEO and
President. The Group’s overall operating margin for the year ended September 30,
2003 decreased $248.2 million or 68.8% to $112.4 million compared to $360.6
million in fiscal 2002. EBITDA as a percentage of sales decreased to 6.0% from
18.8% last year.





25


**MANAGEMENT’S
DISCUSSION & ANALYSIS**





Products
segment EBITDA for the year ended September 30, 2003 decreased $177 million or
91% to $17.4 million compared to $194.4 million last year. EBITDA as a
percentage of sales decreased to 0.9% from 10.5% last year. The decrease is
primarily due to $131.2 million in non-cash charges incurred in the current
fiscal year relating to the Products segment.





Support
segment EBITDA for the year ended September 30, 2003 decreased $71.1 million or
43% to $95 million from $166.1 million in 2002. EBITDA as a percentage of sales
decreased to 16.3% from 27% last year. This decrease is in part due to $27
million in non-cash charges incurred in the current fiscal year relating to the
Support segment.





**COST
OF SALES AND OPERATING EXPENSES**





Raw
material costs as a percentage of sales increased to 51.0% from 43.8% last year
due primarily to the average resin cost for the year being higher than the
previous year as well as the impact of the charges incurred relating to
inventory provisions. Included in 2003 was $79 million in charges relating
primarily to the write down of inventories and promotional assets. Excluding
these charges recorded in fiscal 2003, raw material costs increased to 46.8% of
sales in fiscal 2003 from 43.8% in fiscal 2002.





Labour
costs as a percentage of sales were 13.6% in both 2003 and 2002.





Other
manufacturing costs as a percentage of sales were 14.8% in 2003 as compared to
10.3% in 2002. Included in 2003 was approximately $54 million in charges.
Excluding these charges, other manufacturing costs increased to 12.0% of sales
in fiscal 2003 from 10.3% in fiscal 2002.





Selling
and distribution costs as a percentage of sales increased to 14.8% from 13.4%
due primarily to the impact of charges incurred relating to accounts receivable
provisions. General and administration costs as a percentage of sales increased
marginally to 6.5% from 6.3% last year.





26




**MANAGEMENT’S
DISCUSSION & ANALYSIS**





**AMORTIZATION
EXPENSE**





Amortization
expense as a percentage of sales was 6.7% compared to 6.2% experienced last
year. This expense increased to $126.4 million from $118.3 million due to the
capital expenditure program undertaken during the past two years. In the
Products segment, amortization expense as a percentage of sales was 4.8%
compared to 4.5% in 2002. Due to capacities added, this expense increased by
$6.0 million to $89.8 million from $83.8 million in 2002. In the Support segment
amortization expense, as a percentage of sales was 6.3%, greater than the 5.6%
experienced last year. Due to capacities added, this expense increased by $2.0
million to $36.5 million from $34.5 million.





**INTEREST
AND FINANCING CHARGES**





Interest
and financing charges decreased to $50.7 million from $52.2 million in 2002. As
a percentage of sales, these costs are consistent at 2.7% for both years.
Interest expense decreased by $1.5 million due to the Group’s effective interest
rates being lower than those experienced in 2002 and the overall lower level of
loan utilization for working capital and capital spending purposes. Capitalized
interest costs in fiscal 2003 were $2.3 million as compared to $3.6 million in
fiscal 2002





**INCOME
TAXES**





In
fiscal 2003, income tax recovery as a percentage of loss before income taxes was
6.9%, as compared to an expense of 29.3% for fiscal 2002.





**NET
EARNINGS (LOSS) AND EARNINGS (LOSS) PER SHARE**





A net
loss of $58.2 million was recorded in 2003, a decrease of $189.2 million from
$131.0 million net income last year. Diluted (loss) earnings per share for
fiscal 2003 was ($0.62) compared to $1.40 in fiscal 2002.





**RISKS
AND UNCERTAINTIES**





The
Group operates in many markets each of which involves various risks,
uncertainties and other factors affecting the Group specifically, its industry
or the markets generally. The Group’s future performance, achievements and
financial results could be affected by these factors, which in some cases have
affected,





27




**MANAGEMENT’S
DISCUSSION & ANALYSIS**





and
which in the future could affect, the Group’s actual results and could cause the
Group’s actual results for fiscal 2005 and beyond to differ materially from past
results and from those expressed in any forward-looking statements made by or on
behalf of the Group. These risks and uncertainties include the outcome of the
ongoing internal review and investigations by the Special Committee of the Board
of Directors; fluctuations in the level of renovation, remodelling and
construction activity; changes in the Group’s product costs and pricing; an
inability to achieve or delays in achieving savings related to cost reductions
or increases in revenues related to sales price increases; the sufficiency of
any restructuring activities, including the potential for higher actual costs to
be incurred in connection with any restructuring activities compared to the
estimated costs of such actions; the ability to recruit and retain qualified
employees; the level of the Group’s outstanding debt and current debt ratings;
the ability to meet the financial covenants of the Group’s credit facilities;
changes in the Group’s product mix; the growth rate of the markets in which the
Group’s products are sold; market acceptance and demand for the Group’s
products; changes in availability or prices for raw materials; pricing pressures
resulting from competition; difficulty in developing and introducing new
products; failure to penetrate new markets effectively; the effect on foreign
operations of currency fluctuations, tariffs, nationalization, exchange
controls, limitations on foreign investment in local business and other
political, economic and regulatory risks; difficulty in preserving proprietary
technology; adverse resolution of any litigation, investigations, administrative
and regulatory matters, intellectual property disputes or similar matters; and
changes in securities or environmental laws, rules and regulations and currency
risk exposure. Certain of these risks and uncertainties are described in more
detail below:





• The
Group’s business is substantially related to the North American renovation,
remodelling and construction markets, both residential and
industrial/commercial. Therefore, the demand for the products manufactured and
distributed by the Group is affected by changes in the general state of the
North American economy, including renovation and remodelling, new housing starts
and the level of construction activity in general.
 
 • The
price and availability of raw materials, and in particular PVC resin and VCM,
represents a substantial portion of the cost of manufacturing the Group’s
products. Historically, there have been fluctuations in these raw materials’
prices and in some instances price movements have been volatile and affected by
circumstances beyond the Group’s control. There can be no assurance that the
Group can pass on increases from normal market fluctuations in the price of PVC
resin, VCM and other raw materials to its





28





**MANAGEMENT’S
DISCUSSION & ANALYSIS**


customers
through increases in selling price, or otherwise absorb such costs increases
without significantly affecting its margins. In addition, the Group has
occasionally found certain raw materials to be in short supply. The Group could
experience materially adverse circumstances if the availability of either PVC or
VCM became restricted due to market conditions, or issues particular to the
Group.
 
 • As
discussed in Other Matters in this discussion and disclosed in Note 2(a) to the
Consolidated Financial Statements, the ongoing investigations may produce
results that have a material impact on the Group and its previously reported
financial results. It is important to note that neither of the two internal
investigations carried out in 2004 and 2005, have resulted in restatements of
the financial statements.
 
 • As discussed in Other Matters in this discussion and disclosed in Note 19 to the
Consolidated Financial Statements, the Group and certain of its former officers
and directors have been named as defendants in two class action shareholder
lawsuits filed in the United States District Court for the Southern District of
New York. The Group 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 Group, and intends to defend itself vigorously in
these actions.
 
 **•** **** As
discussed in Other Matters in this discussion and disclosed in Note 19 to the
Consolidated Financial Statements, the Group is the subject of a pending
criminal investigation being conducted by the Antitrust Division of the United
States Department of Justice. The investigation focuses on alleged price fixing
in the window coverings industry. The Group is cooperating with the Department
of Justice and is attempting to negotiate a resolution of the
matter.
 
 • As the Group carries out a significant portion of its activities in foreign
markets (primarily the US), it is exposed to the risk of foreign exchange
fluctuations. The Group attempts to minimize risks associated with currency
fluctuations through matching of the currency of debt financing and the currency
of certain raw material purchases, sales or asset acquisitions. This, however,
is not always economically practical and the Group may not be able to offset any
or all of its foreign market risks. While the Group has not entered into
significant market instruments with respect to foreign exchange hedging in the
past, it may, if deemed necessary, do so in a prudent fashion, in the
future. ****
 
 • The
Group faces a high level of competition in most product categories and
geographic regions. Low cost foreign competitors continue to be a threat to the
Group’s cost structure, particularly in its consumer product
  29
  
 **MANAGEMENT’S
DISCUSSION & ANALYSIS**





lines.
The Group attempts to minimize risks associated with this by striving to reduce
costs when feasible and/or offer enhanced customer services. In addition, the
Group may compete in some product categories and
regions with larger, better capitalized companies which may be better positioned
to respond to shifts in the marketplace.





**CRITICAL
ACCOUNTING POLICIES**





The
preparation of the Group’s consolidated financial statements in conformity with
generally accepted accounting principles requires management to make use of
certain estimates and assumptions that affect the reported amounts in the
consolidated financial statements and the accompanying notes. These estimates
and assumptions are based on management’s best knowledge of current events and
actions that the Group may undertake in the future. Actual results could differ
from those estimates. Estimates are used when accounting for items, the more
critical of which are: allowance for doubtful accounts receivable, inventory
obsolescence and income taxes.





**Allowance
for doubtful accounts**





In
order for management to establish the appropriate allowance for doubtful
accounts receivable, estimates are made with regards to general economic
conditions, interpreting customer aging trends and the probability of default by
individual customers. The failure to estimate correctly could result in bad
debts being either higher or lower than the determined provision as of the date
of the balance sheet.





**Inventory
obsolescence**





In
order for management to establish the appropriate provision for inventory,
certain judgements and estimates are made with regards to general economic
conditions, interpreting inventory turns, identifying slow moving inventory,
customer demand patterns and market acceptance of our products. The failure to
estimate correctly could result in inventory being either higher or lower than
the determined provision as of the date of the balance sheet.





30





**MANAGEMENT’S
DISCUSSION & ANALYSIS**


****


**Income
taxes**





In
order for management to establish the appropriate income tax asset and liability
valuation, estimates are made with regards to the realization of future tax
assets and increase of future tax liabilities. The ultimate realization of
future tax assets or assessments of future tax liabilities is dependent upon the
generation of future taxable income during the years in which those temporary
differences become deductible. The failure to estimate correctly could result in
some portion of the net income tax provision not being realized.







31