**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

**FORM 10-K**

**x** ANNUALREPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934

**For the fiscal year ended December 31,2006**

**OR**

**o** TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934

**Forthe transition period from                  to**

**Commissionfile number 1-9753**

**GEORGIA GULF CORPORATION**

(Exact name of registrantas specified in its charter)
| **DELAWARE**(State or other jurisdiction of incorporation or organization)                                | ** ** | **58-1563799**(I.R.S. Employer Identification No.) |
|-----------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------|
| **115 Perimeter Center Place, Suite 460,  Atlanta, Georgia**(Address of principal executive offices) | ** ** | **30346**(Zip Code)                                |

 

Registrant’s telephonenumber, including area code: **(770) 395-4500**

Securitiesregistered pursuant to Section 12(b) of the Act:

|                               | **Title  of each class** | ** **                         |   | ** ** | **Name  of each exchange on which registered** | ** ** |
|-------------------------------|--------------------------|------------------------------------|--------|------------|------------------------------------------------|------------|
| Common Stock, $0.01 par value |                     | New York Stock Exchange, Inc. |

 

Securitiesregistered pursuant to Section 12(g) of the Act: **None**

Indicateby check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405of the Securities Act. Yes o   No x

Indicateby check mark if the registrant is not required to file reports pursuant to Section 13or Section 15(d) of the Act. Yes o   No x

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days. Yes x   No o

Indicateby check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K is not contained herein, and will not be contained, to the bestof the registrant’s knowledge, in definitive proxy or information statementsincorporated by reference in Part III of this Form 10-K or anyamendment to this Form 10-K. x

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, or a non-accelerated filer. See definition of “acceleratedfiler and large accelerated filer” in Rule 12b-2 of the ExchangeAct. (Check one):

Largeaccelerated filer x   Accelerated filer o   Non-accelerated filer o

Indicateby check mark whether the registrant is a shell company (as defined in Rule 12b-2of the Act). Yes o   No x

Aggregatemarket value of the common stock held by non-affiliates of the registrant,computed using the closing price on the New York Stock Exchange for theregistrant’s common stock on June 30, 2006 was $856,077,540.

Indicate the number of sharesoutstanding of the registrant’s common stock as of the latest practicable date.

|                                | **Class** | ** **        |   | ** ** | **Outstanding  at March 27, 2007** | ** ** |
|--------------------------------|-----------|-------------------|--------|------------|-----------------------------------------|------------|
| Common Stock,  $0.01 par value |      | 34,396,410 shares |

 

**DOCUMENTS INCORPORATED BYREFERENCE**

(To the Extent IndicatedHerein)

Proxy Statement for theAnnual Meeting of Stockholders to be held on May 15, 2007, in Part IIIof this Form 10-K.

 

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**TABLE OF CONTENTS**

**PART I**
| Item       | ** ** | ** **                                                                                                               | ** ** | **Page  Number** |
|------------|------------|--------------------------------------------------------------------------------------------------------------------------|------------|------------------|
| 1)         |       | Business                                                                                                                 |       |  1          |
| 1A)        |       | Risk Factors                                                                                                             |       | 12               |
| 1B)        |       | Unresolved Staff Comments                                                                                                |       | 22               |
| 2)         |       | Properties                                                                                                               |       | 22               |
| 3)         |       | Legal  Proceedings                                                                                                       |       | 24               |
| 4)         |       | Submission of Matters to a Vote of Security Holders                                                                      |       | 25               |
| ** ** |       | **PART II**                                                                                                         |       |             |
| 5)         |       | Market for Registrant’s Common Equity, Related  Stockholder Matters and Issuer Purchases of Equity Securities  |       | 26               |
| 6)         |       | Selected Financial Data                                                                                                  |       | 28               |
| 7)         |       | Management’s Discussion and Analysis of Financial  Condition and Results of   Operations                            |       | 30               |
| 7A)        |       | Quantitative and Qualitative Disclosures About Market  Risk                                                              |       | 49               |
| 8)         |       | Financial Statements and Supplementary Data                                                                              |       | 51               |
| 9)         |       | Changes in and Disagreements with Accountants on  Accounting and Financial   Disclosure                                  |       | 108              |
| 9A)        |       | Controls and Procedures                                                                                                  |       | 108              |
| 9B)        |       | Other  Information                                                                                                       |       | 111              |
| ** ** |       | **PART III**                                                                                                        |       |             |
| 10)        |       | Directors, Executive Officers, and Corporate  Governance                                                                 |       | 112              |
| 11)        |       | Executive Compensation                                                                                                   |       | 113              |
| 12)        |       | Security Ownership of Certain Beneficial Owners and  Management and Related Stockholder Matters           |       | 113              |
| 13)        |       | Certain Relationships and Related Transactions, and  Director Independence                                               |       | 113              |
| 14)        |       | Principal Accountant Fees and Services                                                                                   |       | 113              |
| ** ** |       | **PART IV**                                                                                                         |       |             |
| 15)        |       | Exhibits, Financial Statement Schedules                                                                                  |       | 114              |
|       |       | Signatures                                                                                                               |       | 119              |
|       |       | Certifications                                                                                                           |       |             |

 

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**PART I**

**Item 1.**                        BUSINESS.

**General**

Georgia Gulf Corporation is a leading North Americanmanufacturer and international marketer of two integrated chemical productlines, chlorovinyls and aromatics. Our primary chlorovinyls products arechlorine, caustic soda, vinyl chloride monomer (“VCM”), vinyl resins and vinylcompounds, and our aromatics products are cumene, phenol and acetone. On October 3,2006, we completed the acquisition of Royal Group Technologies Limited (“RoyalGroup”), a leading North American manufacturer and marketer of vinyl-basedbuilding and home improvement products. Royal Group’s core businesses nowconsist of five product lines:  (i) windowand door profiles; (ii) mouldings; (iii) siding; (iv) pipe andpipe fittings; and (v) deck, fence and rail and outdoor storage buildings.

The Royal Group acquisition furthered our chlorovinylsforward integration strategy by providing a growth platform that leveragesGeorgia Gulf’s vinyl resins and vinyl compounds formulation expertise, which wehave refined over the last 20 years, with Royal Group’s experience andinnovative product development. We believe the acquisition will allow us tostrengthen our competitive position through further penetration of Royal Group’smarkets thereby increasing long-term shareholder value.

Thefollowing chart illustrates our chlorovinyls and building and home improvementproducts integration.

**Segment Information**

Inconnection with the acquisition of Royal Group, we reassessed how we internallyreport our financial information. We have identified four reportable segmentsthrough which we conduct our operating activities: chlorovinyls; window anddoor profiles and mouldings products; outdoor building products; and aromatics.These four segments reflect the organization used by our management forpurposes of allocating resources and assessing performance. The chlorovinylssegment is a highly integrated chain of products, which includes chlorine,caustic soda, EDC, VCM and vinyl resins and compounds. Through the Royal Groupacquisition, we acquired additional vinyl resin, vinyl compound and compoundadditives manufacturing facilities. These manufacturing operations are verysimilar to our 

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legacy chlorovinyls manufacturing facilities. Therefore,we have aggregated these manufacturing operations with our chlorovinylsreportable segment. In addition, we acquired manufacturing facilities forvinyl-based building and home improvement products. Our vinyl-based buildingand home improvement products are marketed under the Royal Group brand names,and are managed within two reportable segments, window and door profiles andmouldings; and outdoor building products, which includes the manufacturing ofsiding,  pipe and pipe fittings, deck,fence, and rail and outdoor storage products. The aromatics segment includescumene and the co-products phenol and acetone.

| Reportable Segments                     | ** ** | ** **               | ** ** | **Key Products** |
|-----------------------------------------|------------|--------------------------|------------|------------------|
| Chlorovinyls                            |       | Chlorine/Caustic  Soda   |
|                                         |       | VCM                      |
|                                         |       | Vinyl  Resins            |
|                                         |       | Vinyl  Compounds         |
|                                         |       | Compound  Additives      |
| Window and Door Profiles  and Mouldings |       | Window and Door Profiles |
|                                    |       | Mouldings                |
| Outdoor Building Products               |       | Siding                   |
|                                         |       | Pipe  and Pipe Fittings  |
|                                         |       | Deck,  Fence and Rail    |
|                                         |       | Outdoor  Storage         |
| Aromatics                               |       | Cumene                   |
|                                    |       | Phenol/Acetone           |

 

For selected financialinformation concerning our four reportable segments and our domestic andinternational sales, see note 19 of the Notes to the Consolidated FinancialStatements included in Item 8.

**Dispositions ofAssets**

Since our acquisition of Royal Group, we have divestedcertain non-core operations and assets. In December 2006, we sold twoproperties in Woodbridge, Ontario. The first was a large warehouse andmanufacturing facility which was also used as a distribution center. The secondwas a manufacturing facility that was sold in connection with the sale of theassets of an injection moulding business. We also decided to discontinue ourU.S. and Canadian window coverings business. In connection with exiting thisbusiness in the U.S., in December 2006 we sold plants in Coral Springs,Florida and Houston, Texas. As part of our continuing program to exit non-corebusinesses, we sold Royal Group’s Polish operations in October 2006 andRoyal Group’s Chinese operations in December 2006.

Subsequent to December 31,2006, we have divested additional businesses and assets. In January 2007,we sold the operations of our captive trucking business to a largetransportation services company. Following this sale the purchaser has agreedto provide us with transportation services for our building products operations.Also, in January 2007, we sold certain additional assets of our U.S.window coverings operations and in February 2007, we sold certain assetsof our Canadian window coverings retail operations as well as certain assets ofour Mexican window coverings operations. Also in February 2007, we soldour interest in a joint venture in Colombia. In March 2007, we sold most of theremaining Canadian and U.S. window coverings assets and sold seven of our otherCanadian facilities, four of which we have agreed to leaseback on a long-termbasis.

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**Temporary PlantIdlings**

The phenol industrysuffered from industry-wide supply and demand imbalance primarily as a resultof capacity that was brought online in 1999 and 2000. Rather than continuerunning both of our phenol/acetone plants of our aromatics segment at lowercapacity utilization rates, management temporarily idled the Pasadena, Texasphenol/acetone plant in the second quarter of 2002. Subsequently, we have beenable to continue to meet all of our customers’ needs with phenol/acetoneproduction from our Plaquemine, Louisiana plant. We intend to restart thePasadena, Texas phenol/acetone plant when market conditions warrant. The netbook value of our idled Pasadena, Texas phenol/acetone plant equipment wasapproximately $1.2 million as of December 31, 2006, and is included inproperty, plant and equipment on our consolidated balance sheet. We estimate wewill incur costs of approximately $4.0 million to restart the plant.

**Products andMarkets**

***Chlorovinyls***

Thechlorovinyls segment is a highly integrated chain of products, which includeschlorine, caustic soda, VCM, vinyl resins and vinyl compounds. We have leadingmarket positions in our key chemicals products. In North America, we are thethird largest producer of VCM and vinyl resins, and the largest producer ofvinyl compounds. The following table shows our total annual productioncapacities as of December 31, 2006, in our chlorovinyls product line:

| **Product Line**   | ** ** | ** **          | ** ** | **Capacity** |
|--------------------|------------|---------------------|------------|--------------|
| Vinyl Compounds    |       | 2.2  billion pounds |
| Vinyl Resins       |       | 3.1  billion pounds |
| VCM                |       | 3.1  billion pounds |
| Caustic Soda       |       | 500,000  tons       |
| Chlorine           |       | 450,000  tons       |
| Compound Additives |       | 162 million pounds  |

 

*VinylCompounds and Compound Additives.  *Vinylcompounds are formulated to provide specific end-use properties that allow themto be processed directly into finished products. We produce flexible and rigidcompounds, which are used in many different applications, including wire andcable insulation and jacketing, electrical outlet boxes and pipe fittings,window and furniture profiles and food-grade and general-purpose bottles. Wealso supply chlorinated vinyl compounds, or CPVC, to the extrusion andinjection molding markets, mainly for production of hot water pipe and pipefittings.

We have four vinyl compound facilities as part of ourlegacy business located in Aberdeen, Gallman, Madison and Prairie, Mississippi.As a result of the Royal Group acquisition, we acquired vinyl compoundsmanufacturing facilities, in Bradford and Vaughan, Ontario and a compoundadditives manufacturing facility located in Vaughan, Ontario. Additionally,certain Royal Group extrusion plants contain compounding facilities. Totalcompound capacity added through the Royal Group acquisition is approximately1.2 billion pounds annually. Substantially all of the vinyl compounds producedby Royal Group are used internally in Royal Group’s extrusion operations. Theadditives plant produces lubricants and stabilizers used in the production ofcompounds as well as impact modifiers and process aids, which are part of thetypical compound formulations. Most additives are consumed internally.

*VinylResins.  *Vinyl resins are among the most widelyused plastics in the world today, and we supply numerous grades of vinyl resinsto a broad number of end-use markets. During 2006, 81 percent of legacy GeorgiaGulf’s vinyl resins production was sold to third parties who use our resins toformulate vinyl compounds which are then heated and shaped utilizing variousextrusion, calendaring and moulding processes to create finished products. In2006 the largest end-uses of our products were pipe and pipe 

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fittings and home sidingand windows with the remaining 19 percent of legacy vinyl resins usedinternally during 2006 in the manufacture of our vinyl compounds. Since theacquisition of Royal Group, this segment has included the operations of a vinylresins plant in Sarnia, Ontario. This plant has capacity to produce about 450million pounds of vinyl resins, all of which is consumed internally in ourbuilding and home improvement products operations.

*VCM.  *During2006 we used about 99 percent of our VCM production in the manufacture of ourvinyl resins in our legacy operations. VCM production not used internally issold to other vinyl resins producers in domestic and international markets. Asa result of the Royal Group acquisition, we are currently purchasing VCM tosupport vinyl resins production at the Sarnia plant.

*Chlor-alkali Products.  *Allof the chlorine we produce is used internally in the production of VCM. As aco-product of chlorine, caustic soda further diversifies our revenue base. Wesell substantially all of our caustic soda domestically and overseas tocustomers in numerous industries, with the pulp and paper, chemical and aluminaindustries constituting our largest markets. Other markets for our caustic sodainclude soap and detergents and the water treatment industries.

***Window and Door Profiles and Mouldings***

In our window and door profiles and mouldings segment,we currently operate 21 manufacturing facilities located in Canada and the U.S.In addition we operate distribution centers, some of which are co-located withmanufacturing plants, and three of which are free-standing facilities usedexclusively for mouldings. The window and door profiles and mouldings segmentconsists of extruded vinyl window and door profiles as well as interior andexterior mouldings, in which we have leading market positions.

*Windowand Door Profiles.**  *Ourwindow and door profiles products represent the largest portion of revenueswithin our building and home improvement products lines. We manufacture andextrude vinyl window profiles including frames, sashes, trim and othercomponents, as well as vinyl patio door components and fabricated patio doors,which are sold primarily to window and door fabricators. Our sales areprimarily to the custom segment of the vinyl window profile market with theprofile design customized to a window fabricator’s specific requirements. RoyalGroup also offers a series of innovative window profile systems, which are soldto multiple fabricators. One such product is a high wind impact resistantwindow profile system, known as Royal GuardTM, which was developed to meet thegrowing demand for wind impact resistant windows, particularly in southerncoastal areas of the United States.

*Mouldings.*   Wemanufacture and market extruded decorative mouldings and millwork. Ourdecorative trim products are used for interior mouldings, such as crown, baseand chair rail. For exterior mouldings, our products are used in applicationssuch as brick mouldings, and as components used in the fabrication of doors,windows and spas. This product line includes a series of offerings, such asbendable trim and paintable/stainable trim. One of our latest offeringsincludes a series of trim boards, know as Royal TrimBoardâ.These boards are intended as a lower maintenance alternative to wood products,in applications such as facia, soffit and window/door framing.

***Outdoor Building Products***

In our outdoor building products segment, ourcontinuing operations include 14 manufacturing facilities, which producesiding, pipe and pipe fittings, deck, fence and rail and outdoor storagebuildings. In addition, we operate distribution centers, some of which areco-located with manufacturing plants and 25 of which are free-standing facilities.

*Siding.**  *In our siding business, we manufacture vinyl sidingand we also offer a wide range of complementary accessories including vinylsoffit, aluminum soffit, fascia and trim and molded vent mounts and exteriorshutters. We have a broad product offering of vinyl siding styles and colors. Weoffer 

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ColorscapesTM, a premiumvinyl siding that includes rich, dark, color-fast shades as well asColorscapesTM WindLokTM system, which enables siding panels to withstand harshwind conditions. In addition, we offer Royal DuraPlankTM vinyl siding that isdesigned to simulate the look and feel of real wood.

*Pipeand Pipe Fittings.**  *Wemanufacture pipe and pipe fittings for the municipal and electrical markets, aswell as pipe for plumbing applications. Our municipal pipe and pipe fittingsproduct lines are used in potable water applications as well as for storm andsewer applications. Our plumbing lines are used in residential and industrialapplications to move storm and sanitary wastewater from the building to themunicipal sewer at the property line. This offering is primarily targeted atdrain, waste and vent applications. Electrical, pipe, conduit and fittings areavailable in a wide variety of sizes and configurations, to meet the needs ofboth commercial and residential applications.

In recent years, Royal Group has enhanced its pipe andpipe fittings product offering with a series of new products. During 2006,Royal Group introduced a municipal pipe joint restraining system thatsignificantly reduces labor required to restrain joints, known as BulldogTM.

*Deck,Fence and Rail.*   We manufacture vinyl deck, fenceand rail that is used for do-it-yourself (“D-I-Y”) andprofessionally installed segments of the market. Products directed at the D-I-Ysegment such as D-I-Y fencing are made in pre-built sections designed for quickand easy installation, and are sold through big-box home improvement retailstores. We offer many different fence styles for the professional installer. Wealso offer decorative columns and rail to complement our fence products. RoyalGroup’s deck, fence and rail product lines are positioned as alower-maintenance alternative to conventional wood and metal products.

*Outdoor Storage.**  *In our outdoor storage business, wemanufacture vinyl buildings that are primarily used for home improvement andstorage. These products are modular, easy to assemble, low-maintenance, outdoorstorage building kits, with extruded, interlocking, vinyl panels being theprimary component of the kits. These vinyl storage buildings are sold primarilythrough big-box home improvement retail stores in the United States and Canada.

***Aromatics***

The aromatics segment is also integrated and includescumene and the co-products phenol and acetone. We are the second largestworldwide producer of cumene.

Thefollowing table shows our total annual production capacities as ofDecember 31, 2006 in our aromatics product line:

| **Product Line** | ** ** | ** **          | ** ** | **Capacity** |
|------------------|------------|---------------------|------------|--------------|
| Phenol*          |       | 660  million pounds |
| Acetone*         |       | 408  million pounds |
| Cumene           |       | 1.8 billion pounds  |

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*                  Capacity includes our plant in Pasadena (160million pounds of phenol and 100 million pounds of acetone), which has beentemporarily idled.

*Cumene.*   Cumene is used as anintermediate to make phenol and acetone. About 51 percent of our cumene wasconsumed internally during 2006 to produce phenol and acetone. Cumeneproduction not used internally is sold to other phenol and acetonemanufacturers in domestic and international markets.

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*Phenol.  *Ourphenol is primarily sold to producers of phenolic resins and to manufacturersof engineering plastics. Phenolic resins are used as adhesives for woodproducts such as plywood and Oriented Strand Board, or OSB. Engineeringplastics are used in compact discs, digital video discs, automobiles, householdappliances, electronics and protective coating applications. We also sellphenol for use in insulation, electrical parts, oil additives andpharmaceuticals. In 2006 the majority of our phenol was sold to phenolic resinsmanufacturers.

*Acetone.**  *As a co-product of phenol, acetonefurther diversifies our revenue base. Acetone is a chemical used primarily inthe production of acrylic resins, engineering plastics and industrial solvents.We sell the majority of our acetone into the acrylic resins market, where it isused in the manufacture of various plastics and coatings used for signage,automotive parts, household appliances, paints and industrial coatings. Otheruses range from solvents for automotive and industrial applications topharmaceuticals and cosmetics.

**Production, RawMaterials and Facilities**

Our operations are highly vertically integrated as aresult of our production of some of the key raw materials and intermediatesused in the manufacture of our products. Our operational integration enhancesour control over production costs and capacity utilization rates, as comparedto our non-integrated competitors.

*ChemicalProducts.  *In our chlorovinyls product line, weproduce chlorine and its co-product caustic soda by electrolysis of salt brine.We produce VCM by reacting purchased ethylene with chlorine, which is bothproduced internally and purchased from third parties; our legacy internalproduction of VCM slightly exceeds our legacy internal demand requirements. Weproduce vinyl resins by polymerization of VCM in a batch reactor process. Weformulate our vinyl compounds by blending our vinyl resins with variousadditives such as plasticizers, impact modifiers, stabilizers and pigments,most of which are purchased. We also have the capacity to produce ethylenedichloride, an intermediate in the manufacture of VCM, for external sales. Inour aromatics product line, we produce cumene utilizing benzene and propylenepurchased from third parties. Cumene is then oxidized to produce cumenehydroperoxide, which is split into the co-products phenol and acetone.

The significant raw materials we purchase from thirdparties include ethylene, benzene, natural gas, refinery grade propylene (“propylene”),compound additives and chlorine. Since acquiring the vinyl resins plant inSarnia, we now also purchase VCM. The majority of our purchases of ethylene andchlorine are made under long-term supply agreements, and we purchase naturalgas, benzene and propylene in both the open market and under long-term contracts.We believe we have reliable sources of supply for our raw materials undernormal market conditions. We cannot, however, predict the likelihood or impactof any future raw material shortages. Any shortages could have a materialadverse impact on our results of operations.

*Plaquemine,Louisiana Facilities.  *Our operations at thesefacilities include the production of chlorine, caustic soda, VCM, vinyl resins,phenol and acetone. We have a long-term lease on a nearby salt dome withreserves in excess of twenty years from which we supply our salt brinerequirements. We use all of our chlorine production in the manufacture of VCMat this facility and we sell substantially all of our caustic soda productionexternally. All of the ethylene requirements for our VCM production aresupplied by pipeline. Most of our Plaquemine VCM production is consumed on-sitein our vinyl resins production or shipped to our other vinyl resins facilitieswith the remainder sold to third parties. We manufacture a significant portion ofour vinyl resins production at this facility. As part of a modernizationproject at this facility, we are increasing our vinyl resins productioncapacity by as much as 450 million pounds annually beginning in early 2008. See“Management’s Discussion and Analysis of Financial Condition and Results 

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of Operations—Liquidityand Capital Resources.”  Our cumenerequirements for the production of phenol and its co-product acetone areshipped from our Pasadena, Texas facility by dedicated barges.

Our 250-megawatt cogeneration facility suppliesall of the electricity and steam needs at our Plaquemine facilities. We alsoown an on-site air separation unit operated by a third party that provides allof the Plaquemine facility’s nitrogen and oxygen gas requirements.

*LakeCharles, Louisiana Facilities.  *We produce VCM atour Lake Charles, Louisiana facility and through our manufacturing jointventure, PHH Monomers, LLC, which is located in close proximity to our LakeCharles VCM facility. PHH Monomers is a joint venture with PPG Industries, Inc.that entitles us to 50 percent of the VCM production. Virtually all of thechlorine and ethylene needs of our Lake Charles VCM facility and PHH Monomersfacility are supplied by pipeline. VCM from these facilities supplies ourAberdeen, Mississippi and Oklahoma City, Oklahoma vinyl resins facilities. Onoccasion, a small portion of VCM produced at the Lake Charles facilities issold to third parties.

*Aberdeen,Mississippi, Oklahoma City, Oklahoma, and Sarnia, Ontario Facilities.  *Weproduce vinyl resins at our Aberdeen, Mississippi and Oklahoma City, Oklahomafacilities from VCM supplied by railcar from our various VCM facilities. Inaddition, the Aberdeen facility produces plasticizers, which are consumedinternally for flexible vinyl compound production. We produce vinyl resins atour Sarnia, Ontario facility from purchased VCM supplied by railcar.

*VinylCompounds Facilities.**  *Weoperate compound facilities in Aberdeen, Gallman, Madison and Prairie,Mississippi and Bradford and Vaughan, Ontario. We also produce vinyl compoundsin certain of our extrusion plants. All of these vinyl compound facilities aresupplied from our vinyl resins facilities by railcar, truck or in the case ofAberdeen, pipeline. Additionally, we produce some of our compound additives andpurchase the remainder from various sources at market prices.

*Pasadena,Texas Facilities.  *At our Pasadena, Texasfacilities we have the capability to produce cumene, phenol and acetone. Weproduce cumene utilizing purchased benzene and propylene. Our cumene facilityis integrated by pipeline with our phenol and acetone facility at Pasadena. Currently,due to the temporary idling of phenol and acetone production at Pasadena(discussed above), all of the cumene production at this facility is eithershipped to the Plaquemine phenol and acetone facility or sold to third parties.We purchase propylene and benzene at market prices from various suppliersdelivered by multiple transportation modes to our cumene facility. A portion ofthe benzene is supplied under contracts at market prices, and the propylene isprovided from numerous refineries at market prices. Based on current industrycapacity, we believe we have adequate access to benzene and propylene undernormal conditions.

*Buildingand Home Improvement Products.  *In our buildingand home improvement product lines, we produce vinyl window and door profiles,mouldings, siding, pipe and pipe fittings and outdoor products. The principalraw material we use in production is vinyl resin, which is blended with othercompound additives to form vinyl compounds, which are then extruded. We believechlorovinyls segment internal production of vinyl resins, compounds and mostcompound additives assures quality and facilitates efficient production. Additivesassist in processing vinyl resins efficiently and can be used to make theresulting product flexible or rigid, to add color or texture or other desiredproperties. For example, UV inhibitors may be added to protect an exteriorproduct from sun damage, which could cause fading.

Extrusion is a process by which vinyl compounds areheated until they melt and then forced through a uniquely shaped opening,referred to as a die, to form various shapes and thicknesses. For example, whenproducing decking, a slip resistant design may be etched onto the planks. Variationsin extrusion are used to give products other desired qualities. For example, inproducing mouldings, we use cellular extrusion, which involves the process ofencapsulating air bubbles in the vinyl extrusion, which reduces weight and cost.As the extruded product leaves the die, it is immediately cooled resulting inresolidification of the vinyl into a product matching the die pattern. Coolingis accomplished by using water and/or air.

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We also produce pipe fittings through injectionmolding. These products are produced by heating vinyl compounds until they meltand then injecting them under pressure into a hollow mold to create threedimensional parts.

*Facilities.**  *We operate numerous manufacturingfacilities in Canada and the U.S. to produce our building and home improvementproducts. Vinyl resins and vinyl compounds as well as compound additives fromthe plants operated by our chlorovinyls segment are supplied to our facilitiesby truck or rail. We also purchase additional additives from various sources atmarket prices. The other principal costs to produce these products iselectricity to power our facilities.

Operation of numerousmanufacturing facilities located strategically near customers, such as is thecase in our window and door profiles, facilitates marketing and customersupport and also minimizes transportation costs. Transportation costs limitsales of pipe from our facilities. Because our pipe plants are located inOntario and British Columbia, sales of our pipe are concentrated within thenortheastern and northwestern portions of Canada and the U.S. Our products aredelivered primarily by truck.

**Seasonality**

Operating income for allfour of our reportable segments is affected by the seasonality of theconstruction industry, which experiences its highest level of activity duringthe spring and summer months. Therefore, our second and third quarter operatingincome is typically the strongest. Our first and fourth quarter operatingincome usually reflects a decrease in construction activity due to colderweather and holidays.

**Inventory Practicesand Product Returns**

In our chlorovinyls business, by the nature of ourproducts, we do not maintain significant inventories and product returns areinsignificant.

As is typical for the industry, in our homeimprovement and building products business, we maintain stocks of inventoriesin most of our product lines. We generally build additional inventory inadvance of the peak construction season to assure product availability.

Generally, our homeimprovement and building products may be returned only if defective, other thanpipe and pipe fittings products, which generally may be returned as long assuch products are in resalable condition. However, in certain circumstances, wemay allow the return of products as a customer accommodation, such as in thecase of a change in product lines, in which case we generally receive arestocking fee.

**Sales and Marketing**

No single customer accounted for more than 10 percentof our consolidated revenues for the years ended December 31, 2006, 2005and 2004. In addition to our domestic sales, we export some of our products.

*ChemicalProducts.**  *Oursales and marketing program is aimed at supporting our existing customers andexpanding and diversifying our customer base. In our chemicals business, wehave a dedicated sales force organized by product line and region. In addition,we use distributors to market products to smaller customers. We have a productdevelopment and technical service staff that primarily supports our vinylresins and vinyl compounds businesses. This staff works closely with customersto qualify existing Georgia Gulf products for use by our customers.

*Buildingand Home Improvement Products.**  *In our building products business,sales and marketing activities vary by product line and distribution channel. Ourwindow and door profiles are primarily sold by 

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our dedicated sales forceand supported by marketing support activities that may include brochuredevelopment for window fabricators, technical advisory and design services forfabricators and advertising directed at installers suggesting that they lookfor windows fabricated with Royal Group profiles. Our mouldings products aredistributed primarily by our dedicated sales force to independent dealers,fabricators, distributors and home centers, who resell the products directly tobuilders, installers or homeowners. The majority of our vinyl siding andaccessories sales are in the United States, where products are distributedthrough independent building product distributors, who are solicited primarilyby Royal Group’s dedicated sales force. In Canada, vinyl siding and accessoriesare distributed through company-owned as well as independent building productdistributors. These distributors generally sell to professional buildingproduct installers in the United States and Canada. Sales of pipe and pipefittings are supported by solicitations byour employees of distributors (direct customers) as well assolicitations intended to encourage purchases from those distributors by endusers. The majority of pipe and pipe fitting sales occur in Canada, whereproducts are sold nationally through pipe distributors to contractors. In theUnited States, we sell our pipe fittings nationally but sell our pipe only inthe Northeast and Northwest due to close proximity to Canadian manufacturingplants and higher costs associated with shipping to other regions. Deck, fenceand rail products are sold through retail home improvement stores, and are alsosold to professionals through distributors. The sales force for these productsis primarily company employees. Recently, we moved sales of outdoor storagebuildings to the moulding sales force to leverage their significant experiencewith our retail home improvement customers. Royal Group engages in advertisingprograms primarily directed at trade professionals that are intended to developawareness and interest in its products. In addition, Royal Group displays itsproducts at a series of national and regional trade shows.

We believe significantcross-marketing opportunities exist between our building and home improvementproduct lines. To capitalize on this opportunity, the name Royal GroupTechnologies Limited was changed to Royal Group, Inc. on February 5,2007. We intend to use the simplified name to enhance brand awareness. Inaddition, we are adding the tag line, “Great Ideas Taking Shape”Ôto marketing materials, to emphasize Royal Group’s goal of creating, manufacturingand marketing innovative building and home improvement products.

**Competition**

We experience competition from numerous manufacturersin our chlorovinyls and aromatics businesses and our building and homeimprovement products businesses. Some of our competitors have substantiallygreater financial resources and are more highly diversified than us. We competeon a variety of factors including price, product quality, delivery andtechnical service.

In our chemicals business, we face competition fromnumerous manufacturers of chemicals and vinyl resins and compounds. In ourbuilding and home improvement products business, we face competition for eachof our products from other manufacturers of vinyl products as well as numerousmanufacturers of traditional materials. We believe that our vinyl building andhome improvement products are preferred by builders and homeowners because oftheir durability and ease of installation and maintenance as compared totraditional building materials. In the window and door profile market, we facecompetition from manufacturers of wood, aluminum and fiberglass products. Inthe siding market, we face competition from manufacturers of cement, brick,wood, stucco, stone, concrete and aluminum products. We face competition from manufacturersof wood and aluminum products in the outdoor storage market and manufacturersof concrete and metal products in the pipe and pipe fittings market. Similarly,we face competition from manufacturers of composite materials, wood and metalproducts in the deck, fence and rail markets. Over the past several years, thevinyl building products industry has been intensifying, with growth ratessubsiding in recent years in certain market sectors such as vinyl siding andvinyl window profiles. In addition, competition for certain price-sensitiveproducts from countries such as China is increasing.

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In all businesses, webelieve that we are well-positioned to compete as a result of integratedproduct lines and the operational efficiency of our plants and, in the case ofour chemical plants, the location of our facilities near major water and/orrail transportation terminals. We also believe that for many of our extrudedproducts, our ability to produce our dies internally is a competitive advantageover producers who must rely on third parties. For example, we believe ourability to produce our own dies generally results in our responding morequickly and efficiently to the customer.

**EnvironmentalRegulation**

Our operations are subject to increasingly stringentfederal, state and local laws and regulations relating to environmental quality.These regulations, which are enforced principally by the United StatesEnvironmental Protection Agency (“USEPA”) and comparable state agencies andCanadian federal and provincial agencies, govern the management of solidhazardous waste, emissions into the air and discharges into surface andunderground waters, and the manufacture of chemical substances.

In October 2004 the USEPA notified us that wehave been identified as a potentially responsible party (“PRP”) for a Superfundsite in Galveston, Texas. The site is a former industrial waste recycling,treatment and disposal facility. Over one thousand PRPs have been identified bythe USEPA. We contributed a relatively small proportion of the total amount ofwaste shipped to the site. In the notice, the USEPA informed us of the agency’swillingness to settle with us and other PRPs that contributed relatively smallproportions of the total quantity of waste shipped to the Superfund site. Webelieve that we can reach a settlement with the USEPA in this matter, andalthough there can be no assurance, we expect the amount of the settlement tobe less than $100,000.

Subsequent to the close of the fourth quarter of 2006,we voluntarily disclosed possible noncompliance with certain provisions of theToxic Substances Control Act (TSCA) to USEPA. While the penalties, if any, forsuch noncompliance may exceed $100,000, we believe our voluntary disclosureswill qualify us for substantially reduced penalties. In any event, we do notexpect that any penalties will have a material effect on our financialposition, results of operations, or cash flows.

There are several serious environmental issuesconcerning the VCM facility at Lake Charles, Louisiana we acquired from CONDEAVista Company (“CONDEA Vista” is now Sasol North America, Inc.) on November 12,1999. Substantial investigation of the groundwater at the site has beenconducted, and groundwater contamination was first identified in 1981. Groundwaterremediation through the installation of groundwater recovery wells began in1984. The site currently contains about 90 monitoring wells and 18recovery wells. Investigation to determine the full extent of the contaminationis ongoing. It is possible that offsite groundwater recovery will be required,in addition to groundwater monitoring. Soil remediation could also be required.

Investigations are currently underway by federalenvironmental authorities concerning contamination of an estuary near the LakeCharles VCM facility we acquired known as the Calcasieu Estuary. It is likelythat this estuary will be listed as a Superfund site and be the subject of anatural resource damage recovery claim. It is estimated that there are about200 PRPs associated with the estuary contamination. CONDEA Vista is includedamong these parties with respect to its Lake Charles facilities, including theVCM facility we acquired. The estimated cost for investigation and remediationof the estuary is unknown and could be quite costly. Also, Superfund statutesmay impose joint and several liability for the cost of investigations andremedial actions on any company that generated the waste, arranged for disposalof the waste, transported the waste to the disposal site, selected the disposalsite, or presently or formerly owned, leased or operated the disposal site or asite otherwise contaminated by hazardous substances. Any or all of theresponsible parties may be required to bear all of the costs of cleanupregardless of fault, legality of the original disposal or ownership of thedisposal site. Currently, we discharge our wastewater to CONDEA Vista, whichhas a permit to discharge treated wastewater into the estuary.

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CONDEA Vista has agreed to retain responsibility forsubstantially all environmental liabilities and remediation activity relatingto the vinyls business we acquired from it, including the Lake Charles, LouisianaVCM facility. For all matters of environmental contamination that werecurrently known at the time of acquisition (November 1999), we may make aclaim for indemnification at any time; for environmental matters that were thenunknown, we must generally make claims for indemnification before November 12,2009. Further, our agreement with CONDEA Vista provides that CONDEA Vista willbe subject to the presumption that all later discovered on-site environmentalcontamination arose before closing, and is therefore CONDEA Vista’sresponsibility; this presumption may only be rebutted if CONDEA Vista can showthat we caused the environmental contamination by a major, unaddressed release.

At our Lake Charles VCM facility, CONDEA Vista willcontinue to conduct the ongoing remediation at its expense until November 12,2009. After November 12, 2009, we will be responsible for remediationcosts up to about $150,000 of expense per year, as well as costs in any year inexcess of this annual amount up to an aggregate one-time amount of about $2.3million. In the first quarter of 2004, as part of our ongoing assessment of ourenvironmental contingencies, we determined these remediation costs to beprobable and estimable and therefore recorded a $2.7 million accrual to othernon-current liabilities.

As for employee and independent contractor exposureclaims, CONDEA Vista is responsible for exposures before November 12,2009, and we are responsible for exposures after November 12, 2009, on apro rata basis determined by years of employment or service before and after November 12,1999, by any claimant.

We believe that we are in material compliance with allcurrent environmental laws and regulations. We estimate that any expensesincurred in maintaining compliance with these requirements will not materiallyaffect earnings or cause us to exceed our level of anticipated capitalexpenditures. However, there can be no assurance that regulatory requirementswill not change, and it is not possible to accurately predict the aggregatecost of compliance resulting from any such changes.

Although we are not awareof any significant environmental liabilities associated with Royal Group,should any arise,  we would have no thirdparty indemnities for environmental liabilities including liabilities resultingfrom Royal Group’s operations prior to our acquisition of the company.

**Employees**

As of December 31, 2006, Georgia Gulf had 6,654full-time employees. We employ approximately 720 employees under collectivebargaining agreements that expire at various times from 2007 through 2012. Webelieve our relationships with our employees are good.

On October 3, 2006,Royal Group employed 7,098 people in its operations located throughout NorthAmerica and abroad. As of December 31, 2006, 5,617 people were employed byRoyal Group, representing a 1,481-person reduction in its workforce sincethe acquisition of Royal Group by Georgia Gulf, with about 990 attributable todivestitures and about 490 representing headcount reductions.

**AvailableInformation**

We make available free of charge on our website athttp://www.ggc.com our annual report on Form 10-K, quarterly reportson Form 10-Q, current reports on Form 8-K, and amendmentsto those reports filed or furnished pursuant to Section 13(a) of theSecurities Exchange Act of 1934 as soon as reasonably practicable after weelectronically file such materials with, or furnish them to, the Securities andExchange Commission (“SEC”).

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**Item 1A.**                RISKFACTORS.

**Risk Factors**

Our business and financialresults and condition may be adversely affected by risk factors describedbelow, as well as the other risks discussed in this Form 10-K.

***Our substantial level of indebtedness may limit ourcash flow available to invest in the ongoing needs of our business.***

As a result of thefinancing transactions in connection with the acquisition of Royal Group, wehave substantial indebtedness. At December 31, 2006, under our revolvingcredit facility we had a maximum borrowing capacity of $375.0 million, andnet of outstanding letters of credit for $99.7 million and current borrowingsof $25.9 million resulting in availability under the revolving credit facilityof $249.4 million. Our high level of indebtedness could have importantconsequences. For example, it could:

·       makeit more difficult for us to satisfy our obligations on the 9.5 percent, 10.75percent, and 7.125 percent notes;

·       makeit more difficult for us to satisfy our obligations under our senior securedcredit facility, exposing us to the risk of defaulting on our secured debt,which could result in a foreclosure on our assets, which, in turn, wouldnegatively affect our ability to operate as a going concern;

·       requireus to dedicate a substantial portion of our cash flow from operations tointerest and principal payments on our indebtedness, reducing the availabilityof our cash flow for other purposes, such as capital expenditures, acquisitionsand working capital;

·       limitour flexibility in planning for, or reacting to, changes in our business andthe industries in which we operate and will operate;

·       increaseour vulnerability to general adverse economic and industry conditions;

·       placeus at a disadvantage compared to our competitors that have less debt;

·       exposeus to fluctuations in the interest rate environment because the interest ratesof our  senior secured credit facilityare at variable rates; and

·       limit our ability to borrowadditional funds.

***We may not be able to generate sufficient cash toservice our indebtedness and we may be forced to take other actions to satisfyour payment obligations under our indebtedness, which may not be successful.***

We expect to obtain thefunds to pay our expenses, fund working capital and capital expenditures, andto pay the interest on our 9.5 percent, 10.75 percent, and 7.125 percent notes,our senior secured credit facility and our other debt from our cash flow fromour operations and from available borrowings under our senior secured creditfacility and from sales of assets. Our ability to meet our expenses thusdepends on our future performance, which will be affected by financial,business, economic and other factors. We will not be able to control many ofthese factors, such as economic conditions in the industry in which we operateand competitive pressures. Our cash flow may not be sufficient to allow us topay principal and interest on our debt and to meet our other obligations. If wedo not have sufficient funds, we may be required to refinance all or part ofour debt, sell assets or borrow additional amounts. We may not be able to do soon terms acceptable to us or at all. In addition, the terms of existing orfuture debt agreements, including our senior secured credit facility and theindentures relating to our notes, may restrict us from adopting any of thesealternatives. The failure to generate sufficient cash flow or to achieve suchalternatives could reduce the value of the notes and limit our ability to payprincipal of and interest on the notes.

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***Our senior secured credit facility and the indenturesfor our notes impose significant operating and financial restrictions, whichmay prevent us from capitalizing on business opportunities and taking someactions. However, despite these restrictions, we may still be able to incursubstantially more debt, which could exacerbate the risks associated with oursubstantial leverage.***

The terms of oursenior secured credit facility and the indentures for our notes imposesignificant operating and financial restrictions on us. These restrictionslimit our ability to, among other things:

·       incuradditional indebtedness;

·       incurliens;

·       makecapital expenditures;

·       makeinvestments and sell assets, including the stock of subsidiaries;

·       paydividends and make other distributions;

·       purchaseGeorgia Gulf stock;

·       engagein business activities unrelated to our current business;

·       enterinto transactions with affiliates; or

·       consolidate,merge or sell all or substantially all of our assets.

In addition, our senior secured credit facilityrequires us to maintain specified financial ratios. We cannot assure you thatthese covenants will not adversely affect our ability to finance our futureoperations or capital needs or to pursue available business opportunities. A breachof any of these covenants could result in a default in respect of the relatedindebtedness. We sought and obtained a waiver due to our failure to meet therequired interest coverage ratio at December 31, 2006. There can be noassurance that we will not breach these covenants in the future resulting in adefault. If a default occurs, the relevant lenders could elect to declare theindebtedness, together with accrued interest and other fees, to be due andpayable immediately and proceed against any collateral securing thatindebtedness. Also, any acceleration of indebtedness under our senior securedcredit facility will constitute a default under some of our other securedindebtedness.

Despite the limitation onour ability to incur additional indebtedness imposed by the terms of our seniorsecured credit facility and our indentures for our notes, these agreements donot prohibit us from incurring substantial indebtedness in the future, and wemay do so. If new debt is added to our current indebtedness levels, the risksrelated to our indebtedness, including the notes, could increase.

***The chemical industry is cyclical and volatile,experiencing alternating periods of tight supply and overcapacity, and thebuilding products industry is also cyclical. This cyclicality could adverselyimpact our capacity utilization and cause fluctuations in our results ofoperations.***

Our historical operating results for our chemicalbusinesses have tended to reflect the cyclical and volatile nature of thechemical industry. Historically, periods of tight supply have resulted inincreased prices and profit margins and have been followed by periods ofsubstantial capacity addition, resulting in oversupply and declining prices andprofit margins. A number of our chemical products are highly dependent onmarkets that are particularly cyclical, such as the construction, paper andpulp, and automotive markets. As a result of changes in demand for ourproducts, our operating rates and earnings fluctuate significantly, not onlyfrom year to year but also from quarter to quarter, depending on factors suchas feedstock costs, transportation costs, and supply and demand for the productproduced at the facility during that period. As a result, individual facilitiesmay operate below or above rated capacities in any period. We may idle afacility for an extended period of time because an oversupply of a certain 

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product or a lack ofdemand for that product makes production uneconomical. Facility shutdown andsubsequent restart expenses may adversely affect quarterly results when theseevents occur. In addition, a temporary shutdown may become permanent, resultingin a write-down or write-off of the related assets. Capacity expansions or theannouncement of these expansions have generally led to a decline in the pricingof our chemical products in the affected product line. We cannot assure thatfuture growth in product demand will be sufficient to utilize any additionalcapacity.

In addition, the buildingproducts industry is cyclical and is significantly affected by changes innational and local economic and other conditions such as employment levels,demographic trends, availability of financing, interest rates and consumerconfidence, which factors could negatively affect the demand for and pricing ofour building products. For example, if interest rates increase, the ability ofprospective buyers to finance purchases of home improvement products and investin new real estate could be adversely affected, which, in turn, could adverselyaffect our financial performance. Similarly, a prolonged recession affectingthe residential construction industry could also adversely impact our financialperformance.

***Natural gas, electricity, fuel and raw materialscosts, and other external factors beyond our control, as well as downturns inthe home repair and remodeling and new home sectors of the economy, can causewide fluctuations in our margins.***

The cost of our natural gas, electricity, fuel and rawmaterials, and other costs, may not correlate with changes in the prices wereceive for our products, either in the direction of the price change or inabsolute magnitude. Natural gas and raw materials costs represent a substantialpart of our manufacturing costs, and energy costs, in particular electricity andfuel, represent a component of the costs to manufacture building products. Mostof the raw materials we use are commodities and the price of each can fluctuatewidely for a variety of reasons, including changes in availability because ofmajor capacity additions or significant facility operating problems. Otherexternal factors beyond our control can cause volatility in raw materialsprices, demand for our products, product prices, sales volumes and margins.These factors include general economic conditions, the level of businessactivity in the industries that use our products, competitors’ actions,international events and circumstances, and governmental regulation in theUnited States and abroad. These factors can also magnify the impact of economiccycles on our business. While we attempt to pass through price increases inenergy costs and raw materials, we have been unsuccessful in doing so in somecircumstances in the past and there can be no assurance that we can do so inthe future.

Additionally, our buildingproducts business is impacted by changes in the North American home repair andremodeling sectors, as well as the new construction sector, which may besignificantly affected by changes in economic and other conditions such asgross domestic product levels, employment levels, demographic trends andconsumer confidence. These factors can lower the demand for and pricing of ourbuilding products, which could cause our net sales and net income to decrease.

***The industries in which we compete are highlycompetitive, with some of our competitors having greater financial and otherresources than we have; competition may adversely affect our results ofoperations.***

The commodity chemical industry is highly competitive.Many of our competitors are larger and have greater financial and otherresources and less debt than us. Moreover, barriers to entry, other thancapital availability, are low in most product segments of our commoditychemical business. Capacity additions or technological advances by existing orfuture competitors also create greater competition, particularly in pricing. Wecannot provide assurance that we will have access to the financing necessary toupgrade our facilities in response to technological advances or othercompetitive developments.

In addition, as a resultof our acquisition of Royal Group, we compete with other national andinternational manufacturers of vinyl-based building and home improvementproducts. Some of these 

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companiesare larger and have greater financial resources and less indebtedness than us.Accordingly, these competitors may be better able to withstand changes inconditions within the industries in which we operate and may have significantlygreater operating and financial flexibility than us. Some of these competitors,who compete with our building product lines, may also be able to compete moreaggressively in pricing and could take a greater share of sales and cause us tolose business from our customers. Many of our competitors have operated in thebuilding products industry for a long time. Our management has limitedexperience in the manufacturing or marketing of building products and thus, maybe at a competitive disadvantage. Additionally, our building products facecompetition from alternative materials: wood, metal, fiber cement and masonryin siding, and wood and aluminum in windows. An increase in competition fromother vinyl exterior building products manufacturers and alternative buildingmaterials could cause us to lose customers and lead to decreases in net sales.To the extent we lose customers in the renovation and remodeling markets, wemust market to the new construction market, which historically has experiencedmore fluctuations in demand.

***Extensive environmental, health and safety laws andregulations impact our operations and assets; compliance with these regulationscould adversely affect our results of operations.***

Our operations on and ownership of real property aresubject to extensive environmental, health and safety regulation, includinglaws and regulations related to air emissions, water discharges, waste disposaland remediation of contaminated sites, at both the national and local levels inthe U.S. As a result of our acquisition of Royal Group, we are subject to suchregulations in Canada as well. The nature of the chemical and building productsindustries exposes us to risks of liability under these laws and regulationsdue to the production, storage, use, transportation and sale of materials thatcan cause contamination or personal injury, including, in the case of commoditychemicals, potential releases into the environment. Environmental laws may havea significant effect on the costs of use, transportation and storage of rawmaterials and finished products, as well as the costs of the storage anddisposal of wastes. We have and must continue to incur operating and capitalcosts to comply with environmental laws and regulations. In addition, we mayincur substantial costs, including fines, damages, criminal or civil sanctionsand remediation costs, or experience interruptions in our operations forviolations arising under these laws.

Also, some environmental laws, such as the federalSuperfund statute, may impose joint and several liability for the cost ofinvestigations and remedial actions on any company that generated the waste,arranged for disposal of the waste, transported the waste to the disposal site,selected the disposal site, or presently or formerly owned, leased or operatedthe disposal site or a site otherwise contaminated by hazardous substances. Anyor all of the responsible parties may be required to bear all of the costs ofcleanup, regardless of fault, legality of the original disposal or ownership ofthe disposal site. A number of environmental liabilities have been associatedwith the facilities at Lake Charles, Louisiana that we acquired as part of theacquisition of the vinyls business of CONDEA Vista Company (“CONDEA Vista,”which is now known as Sasol North America, Inc.) and which may bedesignated as Superfund sites. Although CONDEA Vista retained financialresponsibility for certain environmental liabilities that relate to thefacilities that we acquired from it and that arose before the closing of ouracquisition of the vinyls business of CONDEA Vista in November 1999, wecannot assure you that CONDEA Vista will be able to satisfy its obligations inthis regard, particularly in light of the long period of time in whichenvironmental liabilities may arise under the environmental laws. If CONDEAVista fails to fulfill its obligation regarding their environmentalliabilities, then we could be held responsible. Furthermore, any environmentalliabilities relating to Royal Group will not have the benefit of any thirdparty indemnification, including liabilities resulting from Royal Group’soperations prior to our acquisition of the company.

Our policy is to accruecosts relating to environmental matters when it is probable that these costswill be required and can be reasonably estimated. However, estimated costs forfuture environmental compliance and remediation may be too low or we may not beable to quantify the potential costs. We 

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expectto be continually subjected to increasingly stringent environmental and healthand safety laws and regulations. It is difficult to predict the futureinterpretation and development of these laws and regulations or their impact onour future earnings and operations. We anticipate continued compliance willrequire increased capital expenditures and increased operating costs. Anyincrease in these costs could adversely affect our financial performance.

***Hazards associated with chemical manufacturing mayoccur, which would adversely affect our results of operations.***

Hazards associatedwith chemical manufacturing as well as building products manufacturing, and therelated use, storage and transportation of raw materials, products and wastesmay occur in our operations. These hazards could lead to an interruption orsuspension of operations and have an adverse effect on the productivity and profitabilityof a particular manufacturing facility or on Georgia Gulf as a whole. Thesehazards include:

·       pipelineand storage tank leaks and ruptures;

·       explosionsand fires;

·       inclementweather and natural disasters;

·       mechanicalfailure;

·       unscheduleddowntime;

·       labordifficulties;

·       transportationinterruptions;

·       remediationcomplications;

·       terroristacts; and

·       chemicalspills and other discharges or releases of toxic or hazardous substances orgases.

These hazards may causepersonal injury and loss of life, severe damage to or destruction of propertyand equipment, and environmental damage, any of which could lead to claims orliability under the environmental laws. Additionally, individuals could seekdamages for alleged personal injury or property damage due to exposure tochemicals at our facilities or to chemicals otherwise owned, controlled ormanufactured by us. We are also subject to present and future claims withrespect to workplace exposure, workers’ compensation and other matters.Although we maintain property, business interruption and casualty insurance ofthe types and in the amounts that we believe are customary for the industry, weare not fully insured against all potential hazards incident to our business.

***We face potential product liability claims relating tothe production and manufacture of building products.***

As a result of our acquisition of Royal Group, we areexposed to product liability risk and the risk of negative publicity if ourbuilding products do not meet customer expectations. Although we intend tomaintain insurance for products liability claims, the amount and scope of suchinsurance may not be adequate to cover a products liability claim that issuccessfully asserted against us. In addition, products liability insurancecould become more expensive and difficult to maintain and, in the future, maynot be available to us on commercially reasonable terms or at all. There can beno assurance that we will be able to obtain or maintain adequate insurancecoverage against possible products liability claims at commercially reasonablelevels, or at all.

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***We rely heavily on third party transportation, whichsubjects us to risks that we cannot control; these risks may adversely affectour operations.***

We rely heavily onrailroads and shipping companies to transport raw materials to themanufacturing facilities and to ship finished product to customers. Thesetransport operations are subject to various hazards, including extreme weatherconditions, work stoppages and operating hazards. If we are delayed orunable to ship finished product or unable to obtain raw materials as a resultof these transportation companies’ failure to operate properly, or if therewere significant changes in the cost of these services, we may not be able toarrange efficient alternatives and timely means to obtain raw materials or shipour goods, which could result in an adverse effect on our revenues and costs ofoperations.

***We rely on a limited number of outside suppliers forspecified feedstocks and services.***

We obtain a significantportion of our raw materials from a few key suppliers. If any of thesesuppliers is unable to meet its obligations under present supply agreements, wemay be forced to pay higher prices to obtain the necessary raw materials. Anyinterruption of supply or any price increase of raw materials could have an adverseeffect on our business and results of operations. In connection with ouracquisition of the vinyls business of CONDEA Vista in 1999, we entered intoagreements with CONDEA Vista to provide specified feedstocks for the LakeCharles facility. This facility is dependent upon CONDEA Vista’s infrastructurefor services such as wastewater and ground water treatment, site remediation,and fire water supply. Any failure of CONDEA Vista to perform its obligationsunder those agreements could adversely affect the operation of the affectedfacilities and our results of operations. The agreements relating to thesefeedstocks and services had initial terms of one to ten years. Most of theseagreements have been automatically renewed, but may be terminated by CONDEAVista after specified notice periods. If we were required to obtain analternate source for these feedstocks or services, we may not be able to obtainpricing on as favorable terms. Additionally, we may be forced to pay additionaltransportation costs or to invest in capital projects for pipelines oralternate facilities to accommodate railcar or other delivery or to replaceother services.

***Implementation of New ERP Information Systems***

We are highlydependent on our information systems infrastructure in order to process orders,track inventory, ship products in a timely manner, prepare invoices to ourcustomers and otherwise carry on our business in the ordinary course. Key tothe success of our strategy to drive greater productivity and cost savings was theimplementation of phase I in the first quarter of 2006 of a new multiple phaseERP information system. Additionally, when acquired, Royal Group was in theprocess of implementing new ERP systems. If we experience significant problemswith the implementation of these systems, the resulting disruption couldadversely affect our business, sales, results of operations and financialcondition. The transition to our new ERP systems involves numerous risks,including:

·       difficulties in integratingthe systems with our current operations;

·       potentialdelay in the processing of customer orders for shipment of products;

·       diversionof management’s attention away from normal daily business operations;

·       increaseddemand on our operations support personnel;

·       initialdependence on unfamiliar systems while training personnel in its use; and

·       increasedoperating expenses resulting from training, conversion and transition supportactivities.

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***We continue to pursue the disposition of certainassets of Royal Group and may pursue asset acquisitions, dispositions and jointventures, and other transactions that may impact our results of operations.***

We intend to continue topursue the disposition of certain assets of Royal Group and anticipate thatproceeds would be used to repay some of our indebtedness. However, we cannotassure you that we will be able to dispose of these assets at anticipatedprices, or at all, or that any such sale will occur during our anticipated timeframe. A failure to dispose of these assets would mean any indebtedness thatcould have been paid down would have to remain outstanding unless it could berepaid from funds generated from operations. In addition, we may engage inadditional business combinations, purchases or sales of assets, or contractual arrangementsor joint ventures. To the extent permitted under our senior secured creditfacility, our indentures and our other debt agreements, some of thesetransactions may be financed by additional borrowings by us. If the expectedefficiencies and synergies of the transactions are not fully realized, ourresults of operations could be adversely affected, at least in the short term,because of the costs associated with such transactions. Other transactions mayadvance future cash flows from some of our businesses, thereby yieldingincreased short-term liquidity, but consequently resulting in lower cash flowsfrom these operations over the longer term.

***Our participation in joint ventures exposes us torisks of shared control.***

We own a 50 percentinterest in a manufacturing joint venture, the remainder of which is controlledby PPG Industries, Inc., which also supplies chlorine to the facilityoperated by the joint venture. Additionally, our window and door profilesoperations have strategic joint venture arrangements with several customerswith respect to a number of extrusion lines. We may enter into additional jointventures in the future. The nature of a joint venture requires us to sharecontrol with unaffiliated third parties. If our joint venture partners do notfulfill their obligations, the affected joint venture may not be able tooperate according to its business plan. In that case, our operations may beadversely affected or we may be required to increase our level of commitment tothe joint venture. Also, differences in views among joint venture participantsmay result in delayed decisions or failure to agree on major issues. Anydifferences in our views or problems with respect to the operations of ourjoint ventures could have a material adverse effect on our business, financialcondition, results of operations or cash flows.

***Fluctuations in foreign currency exchange and interestrates could affect our consolidated financial results.***

We earn revenues, pay expenses, own assets and incurliabilities in countries using currencies other than the U.S. dollar,principally the Canadian dollar. Because our consolidated financial statementsare presented in U.S. dollars, we must translate revenues, income and expensesinto U.S. dollars at the average exchange rate during each reporting period, aswell as assets and liabilities into U.S. dollars at exchange rates in effect atthe end of each reporting period. Therefore, increases or decreases in thevalue of the U.S. dollar against other major currencies will affect our netrevenues, operating income and the value of balance sheet items denominated inforeign currencies. Because of the geographic diversity of our operations, as aresult of the acquisition of Royal Group, weaknesses in various currenciesmight occur in one or many of such currencies over time. We plan to usederivative financial instruments to further reduce our net exposure to currencyexchange rate fluctuations. However, we cannot assure you that fluctuations inforeign currency exchange rates, particularly the strengthening of the U.S.dollar against major currencies, would not materially affect our financialresults.

In addition, we areexposed to volatility in interest rates. When appropriate, we may usederivative financial instruments to reduce our exposure to interest rate risks.We cannot assure you, however, that our financial risk management program willbe successful in reducing the risks inherent in exposures to interest ratefluctuations.

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***We rely on a variety of intellectual property rightsfor our building products. Any threat to, or impairment of, these rights couldcause us to incur costs to defend these rights.***

As a manufacturer andmarketer of branded products, in our building products, we rely on trademarksand service marks to protect our brands. We have a significant number of issuedpatents for our technologies. These protections may not adequately safeguardour intellectual property and we may incur significant costs to defend theseintellectual property rights, which may harm our operating results. There is arisk that third parties, including our current competitors, will claim that ourproducts infringe on their intellectual property rights. These third partiesmay bring infringement claims against us or our customers. Regardless of itsmerit, an infringement claim against us could require significant managementtime and effort, result in costly litigation or cause product shipment delays.Further, any claims may require us to enter into royalty or licensingarrangements, which may not be obtainable on terms acceptable to us.

***Pending investigations of, and pending and threatenedlawsuits against, Royal Group could have a material adverse effect on ourbusiness, financial condition, results of operations and cash flows.***

Royal Group is currently under investigation by theRoyal Canadian Mounted Police (the “RCMP”), the Ontario Securities Commission(the “OSC”) and the SEC regarding its prior public disclosures, includingfinancial and accounting matters. The OSC is also conducting a regulatoryinvestigation of Royal Group, principally in connection with certain relatedparty transactions.

Royal Group and certain of its former officers andformer or current directors are named defendants in class actions brought byRoyal Group shareholders and additional suits have been threatened. These classaction complaints include allegations of non-disclosure of certain relatedparty transactions.

In October 2005, Royal Group advised OSC staff,the RCMP and SEC staff of emails and documents authored by a former financeemployee of Royal Group that relate to certain financial accounting anddisclosure matters. Royal Group understands that the SEC staff made a referralto the U.S. Department of Justice, Criminal Division, in connection withthose documents. The shareholders in the above-mentioned class action filed anamended complaint in connection with these emails.

Further, Royal Group is the subject of a criminalinvestigation being conducted by the Antitrust Division of the U.S. Departmentof Justice (the “Department of Justice”), which focuses on alleged price fixingin the window coverings industry. Royal Group has also been contacted bycounsel for a group of civil plaintiffs (direct purchasers) who have indicatedtheir intention to commence litigation against the company pertaining to thismatter.

Damages, liabilities andcosts Royal Group will incur in respect of each of the foregoinginvestigations, lawsuits or claims may exceed the amounts anticipated by us inrespect thereof, and to the extent they do, our financial condition, results ofoperations and cash flows, on a consolidated basis with Royal Group’s, will bematerially adversely affected.

***Our ability to comply with the requirements of Section 404of the Sarbanes-Oxley Act of 2002 is dependent upon our implementation ofeffective internal controls for Royal Group.***

Pursuant to Section 404 of the U.S. Sarbanes-Oxley Actof 2002 (the “Sarbanes-Oxley Act”), we are required to evaluate our internalcontrol over financial reporting and to provide an assessment of theeffectiveness of our internal control over financial reporting. Internalcontrol over financial reporting consists of procedures designed to providereasonable assurance that transactions are properly authorized, recorded andreported, and assets are safeguarded against unauthorized or improper use.Although Royal Group is not yet required to be a part of our assessment andreporting of the effectiveness of our internal control over financialreporting, management has assessed significant deficiencies in its financialreporting structure as of December 31, 2006, including an accountingfunction that lacks clear organization and 

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accountability,insufficient qualified accounting professionals, insufficient review andsupervision, and financial reporting systems that do not share a commonplatform and that require extensive manual interventions. In addition,management concluded that certain aspects of Royal Group’s historicaldisclosure controls and procedures need improvement, including the ability toproduce financial statements on a timely basis.

We must ensure effectiveinternal control over financial reporting for Royal Group’s operations and, inso doing, we may identify additional areas requiring improvements. As theaforementioned control issues are remedied or to the extent that internalcontrol weaknesses that require remediation are identified, we may be requiredto incur expenditures or costs that, if significant, could adversely affect ouroperating results. We have substantial effort ahead of us to complete theimprovements and required management assessment regarding Royal Group’sinternal control system and financial processes, information systems,assessment of control design, remediation of the deficiencies discussed above,and any other deficiencies that may arise out of this process. These effortsmay divert management’s attention from other business concerns, includingachieving cost savings and operational efficiencies, which could have amaterial adverse effect on our business, financial condition and results ofoperations. We cannot assure you that we will be able to complete the requiredmanagement assessment by our reporting deadline. An inability to complete anddocument this assessment could result in a scope limitation qualification or disclaimerby our auditors on their attestation of our internal control over financialreporting. In addition, if a material weakness were to be identified withrespect to our internal control over financial reporting, we would not be ableto conclude that our internal controls over financial reporting were effective,which could result in the inability of our external auditors to deliver anunqualified report, or any report, on our internal control over financialreporting. In the event that, due to the complexity of certain internal controlsystems, the procedures, certification and assessment required by Section 404of the Sarbanes-Oxley Act are not completed by the required deadline in respectof our 2007 fiscal year, or our Chief Executive Officer, Chief FinancialOfficer or independent registered public accounting firm determines that ourinternal control over financial reporting is not effective as defined under Section 404,our reputation, financial condition and the value of our securities could be adverselyaffected. Furthermore, ineffective internal control over financial reportingcould also cause investors to lose confidence in our reported financialinformation, which could have a negative effect on the trading price of oursecurities.

***We may have difficulties with our periodic reports asa result of the acquisition of Royal Group.***

Royal Group was late inreporting its 2005 annual and first quarter 2006 financial results. These latefilings were due to, among other things, the complexity of accounting fornumerous divestitures and write-downs related thereto, the segmentation offinancial results, the sale process and various regulatory investigationsdescribed above. Similar events could result in delays or inability to prepareand file our reports timely with the SEC. Further, because of our ongoingevaluation of assets and potential dispositions of excess or redundantfacilities, we may have future asset impairments, which could also delay ourfinancial reporting. This was further demonstrated by our having to file anextension under Rule 12b-25 for this annual report on Form 10-Kand missing that extended filing deadline.

***We may encounter difficulties in integrating RoyalGroup’s operations with our operations, which may result in our failure torealize expected cost savings and operational efficiencies and adversely affectour results of operations and cash flows.***

We cannot be sure that we will be able to integratesuccessfully Royal Group’s and our operations without substantial costs, delaysor other problems. The integration of any business we acquire, including RoyalGroup, may be disruptive to our business and may result in a significantdiversion of management attention and operational resources. Additionally, wemay suffer a loss of key employees, customers or 

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suppliers, loss ofrevenues, increases in costs or other difficulties. Further, there is noassurance that we will be able to achieve anticipated cost savings andoperational efficiencies in amounts anticipated or on our anticipatedtimetable. Further, management’s attention may be diverted by potentialdispositions.

As part of our strategy inacquiring Royal Group, we have identified opportunities to improveprofitability and reduce costs. We may not be able to fully implement ourbusiness strategies or realize, in whole or in part, the expected cost savingsor operational efficiencies from these strategies when expected, or at all.Furthermore, we may continue to incur significant one-time costs in connectionwith our integration of Royal Group’s operations with our existing business,including costs related to facility consolidation, headcount reduction,operational improvements, professional fees and related transactional expenses.We expect to incur one-time costs in connection with our anticipated annualcost savings and may achieve operational efficiencies.

**Forward-LookingStatements**

This Form 10-K and other communications tostockholders may contain “forward-looking statements” within the meaning of thePrivate Securities Litigation Reform Act of 1995. These statements relate to,among other things, our outlook for future periods, supply and demand, pricingtrends and market forces within the chemical industry, cost reductionstrategies and their results, planned capital expenditures, long-term objectivesof management and other statements of expectations concerning matters that arenot historical facts.

Predictions of future results contain a measure ofuncertainty. Actual results could differ materially due to various factors.Factors that could change forward-looking statements are, among others, thosecontained in the “Risk Factors” section above as well as changes in the generaleconomy, changes in demand for our products or increases in overall industrycapacity that could affect production volumes and/or pricing, changes and/orcyclicality in the industries to which our products are sold, availability andpricing of raw materials, technological changes affecting production,difficulty in plant operations and product transportation, governmental andenvironmental regulations and other unforeseen circumstances. A number of thesefactors are discussed in this Form 10-K and in our other periodicfilings with the Securities and Exchange Commission.

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**Item 1B.**               UNRESOLVED STAFFCOMMENTS.

None.

**Item 2.**                        PROPERTIES.

We believe current andadditional planned capacity will adequately meet anticipated demandrequirements.

**Chemical Production**

Thefollowing table sets forth the location of each chemical manufacturing facilitywe own, the products manufactured at each facility and the approximateproduction capacity of each, assuming normal plant operations, as of December 31,2006.

|                | ** ** | **Location**                     | ** ** | **Products**       | ** ** | **Annual Capacity**         |
|----------------|------------|----------------------------------|------------|--------------------|------------|-----------------------------|
| *Chlorovinyls* |       | Plaquemine, LA                   |       | Chlorine           |       | 450 thousand tons           |
|           |       | Plaquemine, LA                   |       | Caustic Soda       |       | 500 thousand tons           |
|           |       | Plaquemine, LA                   |       | VCM                |       | 1.6 billion pounds          |
|           |       | Lake Charles, LA (two locations) |       | VCM                |       | 1.5 billion pounds (1) |
|           |       | Plaquemine, LA                   |       | Vinyl Resins       |       | 1.2 billion pounds          |
|           |       | Aberdeen, MS                     |       | Vinyl Resins       |       | 1.0 billion pounds          |
|           |       | Oklahoma City, OK                |       | Vinyl Resins       |       | 500 million pounds          |
|           |       | Sarnia, ON                       |       | Vinyl Resins       |       | 450 million pounds          |
|           |       | Aberdeen, MS                     |       | Vinyl Compounds    |       | 135 million pounds          |
|           |       | Gallman, MS                      |       | Vinyl Compounds    |       | 500 million pounds          |
|           |       | Madison, MS                      |       | Vinyl Compounds    |       | 230 million pounds          |
|           |       | Prairie, MS                      |       | Vinyl Compounds    |       | 95 million pounds           |
| * *       |       | Bradford, ON                     |       | Vinyl Compounds    |       | 129 million pounds          |
|           |       | Vaughan, ON                      |       | Vinyl Compounds    |       | 300 million pounds          |
|           |       | Woodbridge, ON                   |       | Recycled Compounds |       | 70 million pounds           |
|           |       | Bradford, ON                     |       | Compound Additives |       | 140 million pounds          |
|           |       | Aberdeen, MS                     |       | Plasticizers       |       | 22 million pounds           |
| *Aromatics*    |       |                             |       |               |       |                        |
|           |       | Pasadena, TX                     |       | Cumene             |       | 1.8 billion pounds          |
|           |       | Plaquemine, LA                   |       | Phenol             |       | 500 million pounds          |
|           |       | Pasadena, TX                     |       | Phenol             |       | 160 million pounds (2) |
|           |       | Plaquemine, LA                   |       | Acetone            |       | 308 million pounds          |
|           |       | Pasadena, TX                     |       | Acetone            |       | 100 million pounds (2) |

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(1)          Reflects 100 percent ofthe production at our owned facility in Lake Charles and our 50 percent shareof PHH Monomers’ 1.15 billion pounds of total VCM capacity.

(2)          This phenol/acetoneplant is temporarily idled. See Item 1. Business.

As a result of the Royal Group acquisition, weacquired 1.2 billion pounds of vinyl compounds capacity. Included in thiscapacity are two standalone plants in Bradford and Vaughan, Ontario (seecapacities above) as well as 70 million pounds of recycled compounds capacity. Theremaining vinyl compounds capacity, an aggregate of 741 million pounds on anannual basis, is operated in conjunction with Royal Group extrusion facilities.

Our chemical manufacturingfacilities are located near major water and/or rail transportation terminals,facilitating efficient delivery of raw materials and prompt shipment offinished products. In 

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addition,our chemical operations have a fleet of about 4,082 railcars of which about 593are owned and the remainder leased pursuant to operating leases with varyingterms through the year 2014. The total lease expense for these railcars andother transportation equipment was approximately $18.3 million for 2006,  $17.9 million for 2005, and $17.4 million for2004.

**Home Improvementand Buildings Products**

Thefollowing table sets forth the location of each home improvement and buildingproducts manufacturing facility we own or lease and the principal productsmanufactured at each facility as of December 31, 2006.

|                                                         | ** ** | **Principal Products**                                                      | ** ** | **Location**                                                                                                                                                                      |
|---------------------------------------------------------|------------|-----------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| *Window  and Door Profiles and Mouldings Products* |       | Window and Door Profiles and Mouldings Products and Other  Custom Extrusion |       | Woodbridge, ON (7 plants)  Laval, PQ (3 plants—2 leased)  St. Laurent, PQ  St. Hubert, PQ  Boucherville, PQ*  McCarren, NV  Delmont, PA  Everett, WA  Winnipeg, MA |
| * *                                                |       | Cellular Vinyl Profiles, Trims and  Mouldings                               |       | Marion, VA (2 plants)  Bristol, TN Waco, TX* Woodbridge,  ON*                                                                                                                     |
| *Outdoor Building Products*                             |       | Vinyl Siding                                                                |       | Woodbridge, ON  Newbern, TN*                                                                                                                                                      |
| * *                                                |       | Aluminum Siding Accessories                                                 |       | Concord, ON  Ste. Foy, PQ*                                                                                                                                                        |
| * *                                                |       | Pipe and Pipe Fittings                                                      |       | Shelby Township, MISurrey, BC* Woodbridge, ON (4 plants) (1) Abbotsford, BC                                                                                             |
| * *                                                |       | Deck, Fence and Rail and  Outdoor Storage                                   |       | Woodbridge, ON  (2 plants)*  Milford, IN                                                                                                                                     |
| * *                                                |       | Royal Building Systems  (2)                                                 |       | Woodbridge, ON  Mexico  Colombia                                                                                                                                                  |

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*Leased        facility.

(1)          One of these plants hasceased operations since December 31, 2006.

(2)          All of these plants haveceased operations since December 31, 2006.

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Certain of the abovefacilities are also used as distribution centers. In addition, we operate anumber of distribution locations, most of which are leased, to serve our homeimprovement building products customers, primarily in Canada, which representeda total of about 740,000 square feet as at December 31, 2006.

**Other**

We lease office space for our principal executiveoffices in Atlanta, Georgia, and for information services in Baton Rouge,Louisiana. Additionally, space is leased for sales and marketing offices inHouston, Texas and for numerous storage terminals throughout the United Statesand also one storage terminal in the Netherlands.

Substantially all of ourfacilities are pledged as security under our senior secured credit facility.

**Item 3.**                        LEGAL PROCEEDINGS.

In October 2004 the United States EnvironmentalProtection Agency (“USEPA”) notified us that we have been identified as a PRPfor a Superfund site in Galveston, Texas. The site is a former industrial wasterecycling, treatment and disposal facility. Over one thousand PRPs have beenidentified by the USEPA. We contributed a relatively small proportion of thetotal amount of waste shipped to the site. In the notice, the USEPA informed usof the agency’s willingness to settle with us and other PRPs that contributedrelatively small proportions of the total quantity of waste shipped to theSuperfund site. We believe that we can reach a settlement with the USEPA inthis matter, and although there can be no assurance, we expect the amount ofthe settlement to be less than $100,000.

In August 2004 and January and February 2005,the USEPA conducted environmental investigations of our manufacturingfacilities in Aberdeen, Mississippi and Plaquemine, Louisiana, respectively. TheUSEPA has informed us that it has identified several “areas of concern,” andhas indicated that such areas of concern may, in its view, constituteviolations of applicable requirements, thus warranting monetary penalties andpossible injunctive relief. In lieu of pursuing such relief through itstraditional enforcement process, the USEPA has proposed that the parties enterinto negotiations in an effort to reach a global settlement of the areas ofconcern and that such a global settlement cover our manufacturing facilities atLake Charles, Louisiana and Oklahoma City, Oklahoma as well. During the secondquarter of 2006, we were informed by USEPA that its regional office responsiblefor Oklahoma and Louisiana desired to pursue resolution of these matters on aseparate track from the regional office responsible for Mississippi.

It is likely that any settlement, if achieved, willresult in the imposition of monetary penalties, capital expenditures forinstallation of environmental controls, and/or other relief. We do not know thetotal cost of monetary penalties, environmental projects, or other relief thatwould be imposed in any settlement or order. While we expect that such costswill exceed $100,000, we do not expect that such costs will have a materialeffect on our financial position, results of operations, or cash flows.

On October 3, 2006, we acquired Royal Group,which is subject to several pending investigations and pending and threatenedlawsuits, including the following:

Royal Group is currently under investigation by theRoyal Canadian Mounted Police (the “RCMP”), the Ontario Securities Commission(the “OSC”) and the SEC regarding its prior public disclosures, includingfinancial and accounting matters. The OSC is also conducting a regulatoryinvestigation of Royal Group, principally in connection with certain relatedparty transactions between Royal Group and Royal St. Kitts Beach ResortLimited, but also in connection with trading in Royal Group’s shares.

In October 2005, Royal Group advised the OSCstaff, the RCMP and the SEC staff of emails and documents authored by a formerfinance employee of Royal Group that relate to certain financial 

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accounting and disclosurematters. Royal Group understands that the SEC staff made a referral to theU.S. Department of Justice, Criminal Division, in connection with thosedocuments.

Royal Group and certain of its former officers andformer Board members are named defendants in two shareholder class actionlawsuits pending in the United States District Court for the Southern Districtof New York (instituted in December 2004) and the Ontario Superior Courtof Justice (instituted February 24, 2006) brought by Royal Groupshareholders and additional suits have been threatened. These cases have beenconsolidated as *In re Royal GroupTechnologies Securities Litigation*. These class actions includeallegations of non-disclosure of certain related party transactions and wereamended in connection with the matters described in the preceding paragraph.

Royal Group has entered into a stipulation and agreementof settlement with the lead and representative plaintiffs in the consolidatedcases after a mediation process among the parties. It is a condition to thesettlement that the U.S. and Canadian actions be settled contemporaneously. Underthe terms of the global settlement, subject to the approval of both the U.S.and Canadian courts, Royal Group will make a payment of C$9 million in cash (orU.S. dollars of $7.7 million based on the exchange rate as of December 31,2006), which will be paid into escrow within 5 business days of the executionof the stipulation and agreement. The settlement remains conditioned, amongother things, on receipt of all required court approvals. Although thesettlement agreement has been entered into among the parties, there can be noassurance at this time that all conditions to the agreement will be satisfied. Thesettlement contains no admission of wrongdoing by Royal Group or any of theother defendants.

Further, Royal Group is the subject of a criminalinvestigation being conducted by the Antitrust Division of the U.S. Departmentof Justice (the “Department of Justice”), which focuses on alleged price fixingin the window coverings industry. Royal Group has also been contacted bycounsel for a group of civil plaintiffs (direct purchasers) who have indicatedtheir intention to commence litigation against the company pertaining to thismatter.

There can be no assurance that the damages,liabilities and costs we will incur in respect of each of the foregoinginvestigations, lawsuits or claims related to Royal Group will not exceed theamounts anticipated by us in respect thereof, and to the extent they do, ourfinancial condition, results of operations and cash flows may be adverselyaffected in a material respect.

In addition, we aresubject to other claims and legal actions that may arise in the ordinary courseof business. Except as noted above, there are no material legal proceedingspending or known to be contemplated to which the company is party or to whichany of its property is subject.

**Item 4.**                        SUBMISSIONOF MATTERS TO A VOTE OF SECURITY HOLDERS.

No matters were submittedto a vote of security holders during the fourth quarter of 2006.

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**PART II**

**Item 5.**                        MARKET FORREGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OFEQUITY SECURITIES.

GeorgiaGulf Corporation’s common stock is listed on the New York Stock Exchange underthe symbol “GGC.”  At March 27,2007, there were 530 stockholders of record. The following table sets forth theNew York Stock Exchange high, low and closing stock prices and dividendpayments for Georgia Gulf’s common stock for the periods indicated.

| ** **          | ** **   | **High**     | ** **   | **Low**      | ** **   | **Close**    | ** **   | **Dividends** | ** **   |
|---------------------|--------------|--------------|--------------|--------------|--------------|--------------|--------------|---------------|--------------|
| ***2006***          | *** *** | *** *** | *** *** | *** *** | *** *** | *** *** | *** *** |          | *** *** | *** *** |   |
| **First  quarter**  | ** **   | **$**        | **34.65**    | ** **   | **$**        | **25.95**    | ** **   | **$**         | **25.99**    | ** ** | ** ** | **$** | **0.08** | *** *** | ** ** |
| **Second  quarter** | ** **   | **32.88**    | ** **   | **22.00**    | ** **   | **25.02**    | ** **   |          | **0.08**     | *** *** |   |
| **Third  quarter**  | ** **   | **30.05**    | ** **   | **22.40**    | ** **   | **27.42**    | ** **   |          | **0.08**     | *** *** |   |
| **Fourth  quarter** | ** **   | **28.65**    | ** **   | **18.36**    | ** **   | **19.31**    | ** **   |          | **0.08**     | *** *** |   |
| *2005*              | * *     | * *     | * *     | * *     | * *     | * *     | * *     |          | * *     | *** *** |   |
| First quarter       |         | $            | 55.90        |         | $            | 45.74        |         | $             | 45.98        |   |   | $ | 0.08 | *** *** |   |
| Second quarter      |         | 47.18        |         | 29.47        |         | 31.05        |         |          | 0.08         | *** *** |   |
| Third quarter       |         | 36.31        |         | 22.81        |         | 24.08        |         |          | 0.08         | *** *** |   |
| Fourth quarter      |         | 31.50        |         | 21.40        |         | 30.42        |         |          | 0.08         | *** *** |   |

 

We intend, from time totime, to pay cash dividends on our common stock as our board of directors deemsappropriate. Our ability to pay dividends may be limited by covenants in oursenior credit facility (see “Item 7. Management’s Discussion and Analysis ofFinancial Condition and Results of Operations—Liquidity and Capital Resources”).

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**PERFORMANCE GRAPH**

This graph below isa comparison of the five-year cumulative total return for us, Standard &Poor’s Smallcap 600 Index and Standard & Poor’s Chemical SmallcapIndex. Stock performances, including our stock performance, were calculatedusing the assumption that all dividends, including distributions of cash, werereinvested in common stock.

Pursuant to SEC rules, the foregoing “PerformanceGraph” section of this Annual Report on Form 10-K is not deemed “filed”with the SEC and shall not be deemed incorporated by reference in any filingunder the Securities Act of 1933 or the Securities Exchange Act of 1934.

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**Item6.**                        SELECTEDFINANCIAL DATA.

**Five-Year SelectedFinancial Data**

| **In Thousands, Except Per Share Data,**                             | ** ** | **Year Ended December 31,** | ** **    |
|-----------------------------------------------------------------------------------------------|------------|--------------------------------------------|---------------|
| **Percentages and Employees**                                                       | ** ** | ** **                                 | ** **    | **2006*** | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
| **Results of Operations:**                                                                    |       |                                       |          |   |   |   |   |   |   |   |   |
| Net sales                                                                                     | ** ** | **$**                                      | **2,427,843** |   | $ | 2,273,719 |   | $ | 2,206,239 |   | $ | 1,444,483 |   | $ | 1,230,751 |   |
| Cost of sales                                                                                 | ** ** | **2,152,571**                              |          | 2,049,510 |   | 1,955,095 |   | 1,319,094 |   | 1,086,746 |   |
| Selling, general  and administrative expenses                                                 | ** ** | **119,151**                                |          | 61,444 |   | 60,721 |   | 55,691 |   | 45,685 |   |
| Operating income                                                                              | ** ** | **156,121**                                |          | 162,765 |   | 190,423 |   | 69,698 |   | 98,320 |   |
| Interest expense                                                                              | ** ** | **(51,648**                                | **)**         | (20,527 | ) | (23,778 | ) | (38,195 | ) | (49,739 | ) |
| Loss on foreign  exchange derivative instruments and other                                    | ** ** | **(21,543**                                | **)**         | — |   | — |   | — |   | — |   |
| Cost related to  retirement of debt                                                      |       | —                                     |          | — |   | — |   | (13,816 | ) | — |   |
| Interest income                                                                               | ** ** | **369**                                    |          | 120 |   | 115 |   | 53 |   | 160 |   |
| Income from  continuing operations before  taxes                                              | ** ** | **83,299**                                 |          | 142,358 |   | 166,760 |   | 17,740 |   | 48,741 |   |
| Provision for  income taxes (1)                                                          | ** ** | **31,497**                                 |          | 46,855 |   | 60,868 |   | 5,245 |   | 17,546 |   |
| Income from  continuing operations                                                            | ** ** | **$**                                      | **51,802**    |   | $ | 95,503 |   | $ | 105,892 |   | $ | 12,495 |   | $ | 31,195 |   |
| Loss from  discontinued operations, net of tax                                                | ** ** | **(3,263**                                 | **)**         | — |   | — |   | — |   | — |   |
| Net income                                                                                    | ** ** | **$**                                      | **48,539**    |   | $ | 95,503 |   | $ | 105,892 |   | $ | 12,495 |   | $ | 31,195 |   |
| Basic earnings (loss) per  share:                                                             | ** ** | ** **                                 |          |   |   |   |   |   |   |   |   |
| Income from  continuing operations                                                            | ** ** | **$**                                      | **1.52**      |   | $ | 2.82 |   | $ | 3.21 |   | $ | 0.39 |   | $ | 0.98 |   |
| Loss from  discontinued operations                                                            | ** ** | **(0.10**                                  | **)**         | — |   | — |   | — |   | — |   |
| Net income                                                                                    | ** ** | **$**                                      | **1.42**      |   | $ | 2.82 |   | $ | 3.21 |   | $ | 0.39 |   | $ | 0.98 |   |
| Diluted earnings (loss)  per share:                                                           | ** ** | ** **                                 |          |   |   |   |   |   |   |   |   |
| Income from  continuing operations                                                            | ** ** | **$**                                      | **1.51**      |   | $ | 2.79 |   | $ | 3.17 |   | $ | 0.38 |   | $ | 0.97 |   |
| Loss from  discontinued operations                                                            | ** ** | **(0.10**                                  | **)**         | — |   | — |   | — |   | — |   |
| Net income                                                                                    | ** ** | **$**                                      | **1.41**      |   | $ | 2.79 |   | $ | 3.17 |   | $ | 0.38 |   | $ | 0.97 |   |
| Dividends per  common share                                                                   | ** ** | **0.32**                                   |          | 0.32 |   | 0.32 |   | 0.32 |   | 0.32 |   |
| **Financial Highlights:**                                                                     |       |                                       |          |   |   |   |   |   |   |   |   |
| Working capital                                                                               | ** ** | **$**                                      | **202,955**   |   | $ | 62,330 |   | $ | (69,358 | ) | $ | 65,742 |   | $ | 57,996 |   |
| Property, plant  and equipment, net                                                           | ** ** | **1,023,004**                              |          | 401,412 |   | 425,734 |   | 460,808 |   | 493,494 |   |
| Total assets                                                                                  | ** ** | **2,458,227**                              |          | 1,000,953 |   | 963,830 |   | 856,785 |   | 875,559 |   |
| Total debt                                                                                    | ** ** | **1,498,134**                              |          | 278,639 |   | 318,483 |   | 427,872 |   | 476,986 |   |
| Asset securitization                                                                          | ** ** | **128,000**                                |          | 141,000 |   | 165,000 |   | 100,000 |   | 75,000 |   |
| Net cash provided  by operating activities                                                    | ** ** | **250,577**                                |          | 71,145 |   | 135,967 |   | 85,077 |   | 168,246 |   |
| Depreciation and  amortization                                                                | ** ** | **85,019**                                 |          | 63,101 |   | 64,554 |   | 63,932 |   | 68,068 |   |
| Capital expenditures                                                                          | ** ** | **90,770**                                 |          | 32,044 |   | 23,441 |   | 24,046 |   | 17,471 |   |
| Maintenance  expenditures                                                                     | ** ** | **80,464**                                 |          | 79,584 |   | 79,750 |   | 67,131 |   | 64,049 |   |
| **Other Selected Data:**                                                                      |       |                                       |          |   |   |   |   |   |   |   |   |
| Earnings before  interest, taxes, depreciation and amortization (“EBITDA”) (2) | ** ** | **$**                                      | **215,272**   |   | $ | 224,469 |   | $ | 252,398 |   | $ | 130,534 |   | $ | 162,971 |   |
| Weighted average  shares outstanding—basic                                               | ** ** | **34,093**                                 |          | 33,867 |   | 32,965 |   | 32,267 |   | 31,988 |   |
| Weighted average  shares outstanding—diluted                                             | ** ** | **34,386**                                 |          | 34,193 |   | 33,439 |   | 32,502 |   | 32,193 |   |
| Common shares  outstanding                                                                    | ** ** | **34,390**                                 |          | 34,238 |   | 33,925 |   | 32,736 |   | 32,319 |   |
| Return on sales                                                                               | ** ** | **2.0**                                    | **%**         | 4.2 | % | 4.8 | % | 0.9 | % | 2.5 | % |
| Employees                                                                                     | ** ** | **6,654**                                  |          | 1,123 |   | 1,207 |   | 1,198 |   | 1,216 |   |
|                                                                                               |            |                                            |               |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

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*                    Includes Royal Group financial data as of December 31,2006 and from October 3, 2006 through December 31, 2006. Includesadditional cost of sales of $18.0 million as a result of valuing Royal Group’sinventory at fair value as of the date of acquisition in compliance withaccounting standards related to business combinations.

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(1)          Provision for income taxes for 2003 includes the effectof favorable settlement of tax audits.

(2)          EBITDA is commonly used by us and ourinvestors to measure our ability to service our indebtedness. EBITDA is not ameasurement of financial performance under generally accepted accounting principlesin the United States (“GAAP”) and should not be considered as an alternative tonet income as a measure of performance or to net cash flows provided byoperations as a measure of liquidity. In addition, our calculation of EBITDAmay be different from the calculation used by other companies and, therefore,comparability may be limited. For 2006, the write-off of deferred debt issuancecosts has been included as interest expense. We believe that the closest GAAPmeasure of financial performance to EBITDA is net cash provided by operatingactivities. The following is a reconciliation of EBITDA to net cash provided byoperating activities. Note that “Tax benefit related to stock plans” and “Stockbased compensation” are included in change in operating assets, liabilities andother.

| ** **                                        | ** ** | **Year Ended December 31,** | ** **  |
|---------------------------------------------------|------------|--------------------------------------------|-------------|
| **In Thousands**                             | ** ** | ** **                                 | ** **  | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
| EBITDA                                            | ** ** | **$**                                      | **215,272** |   | $ | 224,469 |   | $ | 252,398 |   | $ | 130,534 |   | $ | 162,971 |   |
| Interest expense, net                             | ** ** | **(51,279**                                | **)**       | (20,407 | ) | (23,663 | ) | (38,142 | ) | (49,579 | ) |
| Provision for income taxes                        | ** ** | **(31,497**                                | **)**       | (46,855 | ) | (60,868 | ) | (5,245 | ) | (17,546 | ) |
| Provision for deferred income taxes               | ** ** | **(21,189**                                | **)**       | (15,067 | ) | 3,686 |   | (6,344 | ) | 6,822 |   |
| Amortization of debt issuance costs               | ** ** | **2,242**                                  |        | 1,397 |   | 2,579 |   | 3,096 |   | 3,417 |   |
| Change in operating assets, liabilities and other | ** ** | **137,028**                                |        | (72,392 | ) | (38,165 | ) | 1,178 |   | 62,161 |   |
| Net cash provided  by operating activities        | ** ** | **$**                                      | **250,577** |   | $ | 71,145 |   | $ | 135,967 |   | $ | 85,077 |   | $ | 168,246 |   |
|                                                   |            |                                            |             |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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**Item7.**                        MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

***Acquisitionof Royal Group***

On October 3, 2006,we completed the acquisition of all of the outstanding common stock of RoyalGroup for a total purchase price, including assumed debt and debt retired inconjunction with the closing, of approximately $1.5 billion. The acquisitionwas financed entirely with new debt, including $500.0 million in aggregateprincipal amount of our unsecured 9.5 percent senior notes due 2014, $200.0million in aggregate principal amount of our unsecured 10.75 percent seniorsubordinated notes due 2016 and $800.0 million principal amount offloating interest rate term debt under our senior secured credit facility due2013.

**Royal Group Business Overview**

Royal Group, is a leadingNorth American manufacturer and marketer of vinyl-based building and homeimprovement products, which include vinyl window and door profiles, mouldings,vinyl siding, pipe and pipe fittings, deck, fence, rail, and outdoor storage.

As a result of the RoyalGroup acquisition, we are one of the leading vinyl-based building and homeimprovement companies in North America. The acquisition provides a growthplatform that leverages Georgia Gulf’s vinyl resins and compounds formulationexpertise, which we have refined over the last 20 years, with Royal Group’sexperience and innovative product development. We believe the acquisition willallow us to strengthen our competitive position through further penetration ofRoyal Group’s markets thereby increasing long-term shareholder value.

From October 3, 2006,through December 31, 2006, Royal Group generated revenue of $230.7 millionand contributed $14.2 million to gross margin even after recording additionalcost of sales of $18.0 million as a result of valuing Royal Group’s inventoryat fair value as of the date of acquisition in compliance with accountingstandards related to business combinations.

Additionally, from October 3,2006, through December 31, 2006 we have divested certain non-coreoperations and assets.  Thesetransactions include the sale of certain buildings, properties and equipmentfor approximately $106.5 million. In addition, the buyers assumed debt of $28.2million. Also in the fourth quarter of fiscal 2006, we initiated plans torestructure the operations of Royal Group to eliminate certain duplicativeactivities, focus our resources on operations with future growth opportunitiesand reduce our cost structure.  Inconnection with the restructuring plan, we incurred costs related totermination benefits for employee positions that were eliminated. We expect topay these termination costs by September 2007. Any costs incurred duringthis restructuring plan that will benefit future periods, such as relocation ofemployees, have been and will be expensed as incurred. Our estimate of employeetermination benefits of $35.3 million was recorded as part of the Royal Groupacquisition purchase price allocation. As of December 31, 2006, we hadpaid $12.5 million in termination benefits.

**Chemical Business Overview**

Our chemical business is aleading North American manufacturer and an international marketer of twointegrated chemical product lines, chlorovinyls and aromatics. Our primarychlorovinyls products include chlorine, caustic soda, vinyl chloride monomer (“VCM”),vinyl resins and vinyl compounds. For the year ended December 31, 2006, weconsumed all of our chlorine production in making VCM, consumed 5 percent ofour caustic soda production, consumed 99 percent of our VCM production inmanufacturing vinyl resins and used about 19 percent of our vinyl resins in themanufacture of vinyl compounds. The remainder of our caustic soda, VCM andvinyl resins and all of our vinyl compounds were sold to third parties. Ourprimary aromatic products include cumene, phenol and acetone. For the yearended December 31, 2006, approximately 49 percent of our cumene was soldto third parties with the remainder used internally to manufacture phenol andacetone. All of our phenol and acetone was sold to 

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thirdparties. Our products are used primarily by customers as raw materials tomanufacture a diverse range of products, which serve numerous consumer marketsfor durable and non-durable goods and construction.

Our chemical business, andthe chemical industry in general, is cyclical in nature and is affected bydomestic and, to a lesser extent, worldwide economic conditions. Cyclical priceswings, driven by changes in supply and demand, can lead to significant changesin our overall profitability. The demand for our chemicals tends to reflectfluctuations in downstream markets that are affected by consumer spending fordurable and non-durable goods as well as construction.

Global capacity alsomaterially affects the prices of chemical products. Generally, in periods ofhigh operating rates, prices rise, and as a result new capacity is announced.Since world-scale size plants are generally the most cost-competitive, newincreases in capacity tend to be on a large scale and are often undertaken byexisting industry participants. Usually, as new capacity is added, pricesdecline until increases in demand improve operating rates and the new capacityis absorbed, or in some instances, until less efficient producers withdraw fromthe market. As the additional supply is absorbed, operating rates rise, pricesincrease and the cycle repeats. As an example, significant phenol capacityadded in 1999 and 2000 was only absorbed enough by demand and plant closures toallow for improved industry margins in 2004.

Purchased raw materialsand natural gas costs account for the majority of our cost of sales and canalso have a material effect on our profitability and margins. Some of ourprimary raw materials, including ethylene, benzene and propylene, are crude oiland natural gas derivatives and therefore follow the oil and gas industry pricetrends. Chemical Market Associates, Incorporated (“CMAI”) reported annual U.S.industry prices for crude oil increased 17 percent and natural gas decreased 15percent, from 2005 to 2006. From 2004 to 2005, CMAI reported U.S. industryprices for crude oil and natural gas increased 36 percent and 35 percent,respectively.

In 2006 our chlorovinylssegment experienced decreased demand compared to 2005, primarily as a result ofa decrease in demand for vinyl resins and compounds. When comparing 2005 to2006, North American vinyl resins sales volume decreased about 3 percent as aresult of declines in most end-use markets due primarily to the North Americanhousing starts decline of 12 percent, according to American Chemical CouncilPlastics Industry Producers Statistics Group (“PIPS”). CMAI reported industryprice increases for our feedstock ethylene of 9 percent from 2005 to 2006,while chlorine and natural gas prices decreased about 5 percent and 15 percent,respectively, for the same time period. Operating rates averaged above90 percent for most of the year combined with increased ethylene costsenabled the industry to increase vinyl resins sales prices by 7 percent from2005 to 2006, according to Chemical Data Inc. (“CDI”).

Our aromatics segmentdemand also decreased in 2006 compared to 2005. According to CDI, NorthAmerican cumene industry operating rates decreased from about 82 percent in2005 to about 75 percent in 2006, primarily due to the restart of a 1 billionpound cumene plant late last year. Operating rates for phenol and acetoneremained in the low 80 percentiles for both 2005 and 2006. In addition, CDIreported that industry prices for our feedstocks benzene and propyleneincreased 12 percent and 14 percent, respectively, from 2005 to 2006. Increasedfeedstock costs enabled the industry to increase sales prices for phenol,acetone and cumene by 5 percent, 2 percent and 12 percent, respectively, from2005 to 2006, according to CDI.

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**Results of Operations**

Thefollowing table sets forth our consolidated statement of operations data foreach of the three years ended December 31, 2006, 2005 and 2004, and thepercentage of net sales of each line item for the years presented.

| ** **                                       | ** ** | **Year Ended December 31,** | ** **  |
|--------------------------------------------------|------------|--------------------------------------------|-------------|
| **Dollars in Millions**                | ** ** | ** **                                 | ** **  | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
| Net sales                                        | ** ** | **$**                                      | **2,427.8** | ** ** | **100.0** | **%** | $ | 2,273.7 |   | 100.0 | % | $ | 2,206.2 |   | 100.0 | % |
| Cost of sales                                    | ** ** | **2,152.5**                                | ** **  | **88.7** | **%** | 2,049.5 |   | 90.1 | % | 1,955.1 |   | 88.6 | % |
| Gross margin                                     | ** ** | **275.3**                                  | ** **  | **11.3** | **%** | 224.2 |   | 9.9 | % | 251.1 |   | 11.4 | % |
| Selling, general  and administrative expenses    | ** ** | **119.2**                                  | ** **  | **4.9** | **%** | 61.4 |   | 2.7 | % | 60.7 |   | 2.8 | % |
| Operating income  from continuing operations     | ** ** | **156.1**                                  | ** **  | **6.4** | **%** | 162.8 |   | 7.2 | % | 190.4 |   | 8.6 | % |
| Interest expense,  net                           | ** ** | **51.3**                                   | ** **  | **2.1** | **%** | 20.4 |   | 0.9 | % | 23.6 |   | 1.0 | % |
| Loss on foreign  exchange derivative instruments | ** ** | **21.5**                                   | ** **  | **0.9** | **%** | — |   | — |   | — |   | — |   |
| Provision for  income taxes                      | ** ** | **31.5**                                   | ** **  | **1.3** | **%** | 46.9 |   | 2.1 | % | 60.9 |   | 2.8 | % |
| Income from  continuing operations               | ** ** | **51.8**                                   | ** **  | **2.1** | **%** | 95.5 |   | 4.2 | % | 105.9 |   | 4.8 | % |
| Loss from  discontinued operations, net of tax   | ** ** | **3.3**                                    | ** **  | **0.1** | **%** | — |   | — | % | — |   | — | % |
| Net income                                       | ** ** | **$**                                      | **48.5**    | ** ** | **2.0** | **%** | $ | 95.5 |   | 4.2 | % | $ | 105.9 |   | 4.8 | % |
|                                                  |            |                                            |             |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

We have identified fourreportable segments through which we conduct our operating activities: (i) chlorovinyls;(ii) window and door profiles and mouldings products; (iii) outdoorbuilding products, and (iv) aromatics. These four segments reflect theorganization used by our management for internal reporting. The chlorovinylssegment is a highly integrated chain of products, which includes chlorine,caustic soda, VCM, vinyl resins, and vinyl compounds. Our vinyl-based buildingand home improvement products are marketed under the Royal Group brand names,and are managed within two reportable segments, (i) window and doorprofiles and mouldings products and (ii) outdoor building products, whichincludes siding, pipe and pipe fittings, deck, fence and rail products, andoutdoor storage buildings. The aromatics segment is also integrated andincludes the products cumene and the co-products phenol and acetone.

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Thefollowing table sets forth certain financial data by segment for the threeyears ended December 31, 2006, 2005 and 2004, and the percentage of total netsales or gross margin by segment for each line item.

| ** **                                      | ** ** | **Year Ended December 31,** | ** **  |
|-------------------------------------------------|------------|--------------------------------------------|-------------|
| **Dollars in Millions**               | ** ** | ** **                                 | ** **  | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
| Net sales                                       |       |                                       |        |   |   |   |   |   |   |   |   |   |   |
| Chlorovinyls                                    | ** ** | **$**                                      | **1,642.8** | ** ** | **67.7** | **%** | $ | 1,592.7 |   | 70.0 | % | $ | 1,452.4 |   | 65.8 | % |
| Window and door profiles and mouldings products | ** ** | **117.0**                                  | ** **  | **4.8** |   | — |   | — |   | — |   | — |   |
| Outdoor building products                       | ** ** | **108.9**                                  | ** **  | **4.5** |   | — |   | — |   | — |   | — |   |
| Aromatics                                       | ** ** | **559.1**                                  | ** **  | **23.0** | **%** | 681.0 |   | 30.0 | % | 753.8 |   | 34.2 | % |
| Total net sales                                 | ** ** | **$**                                      | **2,427.8** | ** ** | **100.0** | **%** | $ | 2,273.7 |   | 100.0 | % | $ | 2,206.2 |   | 100.0 | % |
| Gross margin                                    |       |                                       |        |   |   |   |   |   |   |   |   |   |   |
| Chlorovinyls                                    | ** ** | **$**                                      | **271.1**   | ** ** | **16.5** | **%** | $ | 229.9 |   | 14.4 | % | $ | 196.1 |   | 13.5 | % |
| Window and door profiles and mouldings products | ** ** | **9.3**                                    | ** **  | **7.9** | **%** | — |   | — | % | — |   | — | % |
| Outdoor building products                       | ** ** | **7.0**                                    | ** **  | **6.4** | **%** | — |   | — | % | — |   | — | % |
| Aromatics                                       | ** ** | **(12.1**                                  | **)**       | **(2.2** | **)%** | (5.7 | ) | (0.8 | )% | 55.0 |   | 7.3 | % |
| Total gross margin                              | ** ** | **$**                                      | **275.3**   | ** ** | **11.3** | **%** | $ | 224.2 |   | 9.9 | % | $ | 251.1 |   | 11.4 | % |
|                                                 |            |                                            |             |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

**Year Ended December 31,2006, Compared With Year Ended December 31, 2005**

*NetSales.**  *Forthe year ended December 31, 2006, net sales were $2.4 billion, an increaseof 7 percent compared with net sales of $2.3 billion for the same periodlast year. This increase was a result of the Royal Group acquisition on October 3,2006, which increased net sales by 10 percent more than offsetting the declinein net sales of 3 percent in our chemical business.

Our chemical business net sales decrease of 3 percentresulted from a decrease in overall sales volume of 3 percent from 2005 to2006. Our overall sales volume decrease for 2006 was mainly attributable todecreases in our cumene export and domestic sales volumes of 80 percent and 16percent, respectively, as a result of lower spot sales due to increased cumenecapacity coming on-line in late 2005. This decrease in sales volume was offsetpartially by increased production volume as our chloralkali plant operated atfull rates during 2006 as compared to 2005, during which we had planned andunplanned outages. We also had an overall average sales price increaseprimarily as a result of increases in the prices of vinyl resins and compounds,cumene, and phenol. Significantly increased chlorovinyls and aromaticsfeedstock prices enabled us to increase prices for most of our products in2006.

Chlorovinyls segment net sales totaled $1.64 billionfor the year ended December 31, 2006, an increase of 3 percent comparedwith net sales of $1.59 billion for the same period last year. Our overallchlorovinyls sales volumes were up 4 percent as a result of operating our chloralkali plant at full rates during2006 as compared to 2005, during which we had plannedand unplanned outages. Ourchlorovinyls operating rate was up slightly from about 85 percent for the yearof 2005 to about 86 percent in 2006. The rate in 2005 primarily reflectedplanned and unplanned outages in our chloralkali plant and thehurricane-related outages during the third and fourth quarters of 2005, whilethe 2006 operating rate primarily resulted from the vinyl resin and compoundsales volumes decreases of 5 percent from 2005 to 2006 as housing startsdeclined 12 percent. Our overall average sales prices decreased slightlydue to product mix as sales volume of our lower priced caustic soda increased29 percent. This decrease of our sales price more than offset increases in theprices of vinyl resins of 3 percent, vinyl compounds of 9 percent, and causticsoda of 7 percent. These vinyl resin and compound price increases reflecthigher costs for the feedstock ethylene and operating rates averaging above90 percent for most of the year. Our acquisition of Royal Group on October 3,2006 contributed $4.7 million of net sales to our chlorovinyls segment.

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Window and door profiles and mouldings products netsales totaled $117.0 million. The increase in this segment is a result of ouracquisition of Royal Group on October 3, 2006.

Outdoor building products net sales totaled $108.9million. The increase in this segment is a result of our acquisition of RoyalGroup on October 3, 2006.

Aromatics segment net sales were $559.1 million forthe year ended December 31, 2006, a decrease of 18 percent compared to$681.0 million for the year of 2005. This decrease was due to 23 percent lowersales volumes primarily reflecting decreases in cumene export and domesticsales volumes of 80 percent and 16 percent, respectively, as a result oflower spot sales due to increased cumene capacity in the industry. The NorthAmerican cumene industry operating rate was approximately 75 percent for 2006,or down about 7 percent from 2005, primarily due to the restart of a 1.1billion pound capacity manufacturing facility by a competitor in late 2005. TheNorth American phenol industry-operating rate was approximately 83 percent for2006, up slightly from 2005. Overall sales price increases of 6 percent wereprimarily the result of an increase in the price of cumene of 6 percent andphenol of 6 percent.

*GrossMargin.**  *Totalgross margin increased from 10 percent of sales for the year ended December 31,2005, to 11 percent of sales for the year ended December 31, 2006. This$51.0 million increase was due primarily to higher sales prices and lowernatural gas cost from our chemical business offsetting higher raw materialscosts and lower sales volumes. In addition, our mix of volume shifted to highermargin chlorovinyls products from lower margin aromatics products. The RoyalGroup acquisition on October 3, 2006 contributed $14.2 million to grossmargin even after recording additional cost of sales of $18.0 million as aresult of valuing Royal Group’s inventory at fair value as of the date ofacquisition in compliance with accounting standards related to businesscombinations. Some of our primary raw materials and natural gas costs in ourchlorovinyls and aromatics segments normally track crude oil and natural gasindustry prices. U.S. industry prices for crude oil increased 17 percent andnatural gas decreased 15 percent from 2005 to 2006.

Chlorovinyls segment gross margin increased from 14percent of sales for the year ended December 31, 2005, to 17 percent ofsales for the year ended December 31, 2006. This $41.2 millionincrease from the prior year primarily reflects higher sales prices and lowernatural gas cost offsetting higher raw materials costs and lower sales volumes.The Royal Group chlorovinyls operations negatively impacted our gross margin byapproximately $2.1 milion. Our overall raw materials prices increased4 percent in 2006 compared to 2005. Our chlorovinyls operating rate increasedfrom about 85 percent for 2005 to about 86 percent in 2006. The operating rate in 2005 primarily reflectedplanned and unplanned outages in our chloralkali plant and thehurricane-related outages during the third and fourth quarters of 2005, whilethe 2006 operating rate primarily resulted from the housing starts decline of12 percent in 2006 compared to 2005, which caused our vinyl resin and compoundsales volumes to decrease by 5 percent from 2005 to 2006.

Window and door profiles and mouldings products grossmargin totaled $9.3 million. The increase in this segment is a result of ouracquisition of Royal Group on October 3, 2006.

Outdoor building products net sales gross margintotaled $7.0 million. The increase in this segment is a result of our acquisitionof Royal Group on October 3, 2006.

Aromatics segment gross margin decreased from anegative 1 percent of sales for the year ended December 31, 2005, to anegative 2 percent of sales for the year ended December 31, 2006. This$6.4 million decrease from 2005 is due primarily to increased rawmaterials costs and lower sales and production volumes in 2006. Overall rawmaterials increased primarily as a result of increases in propylene and benzenecosts year over year. In addition, gross margins were impacted by a competitor’srestart of a 1.1 billion pound capacity cumene plant in late 2005, which drovedown industry operating rates from 82 percent in 2005 to 75 percent in2006.

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*Selling,General and Administrative Expenses.**  *Selling, general and administrativeexpenses totaled $119.2 million for the year ended December 31, 2006, anincrease of $57.8 million from $61.4 million for the year ended December 31,2005. This increase was largely due to $43.0 million of selling, general andadministrative expenses resulting from the Royal Group acquisition. The RoyalGroup expense includes non-recurring charges related to our acquisition ofRoyal Group resulting in $4.3 million of severance, legal and professionalfees, which did not meet the requirements for accrual as part of the purchaseprice allocation of Royal Group.

Our chemical business selling, general andadministrative expenses increased $14.7 million from the same period last year.This increase was due primarily to an increase in stock-based compensationexpense of $7.8 million primarily as a result of the adoption of a newaccounting pronouncement requiring all stock-based payments to employees to berecognized in the financial statements based on their fair values, an increasein franchise and other taxes of $3.9 million and an increase in the discount onsale of an interest in our trade receivables of $2.8 million due to an increasein the commercial paper rate during the year ended December 31, 2006, ascompared to the same period in 2005. The increases in selling, general andadministrative expenses were partially offset by a decrease in legal andprofessional fees of $3.6 million.

*Interest Expense, Net.**  *Interest expense, net increased to $51.3 millionfor the year ended December 31, 2006, from $20.4 million for the yearended December 31, 2005. This increase of $30.9 million wasattributable to the increased debt issued October 3, 2006 to fund theacquisition of the Royal Group offset partially by lower overall debt balancesearlier in 2006 as compared to 2005. In addition, in connection with ouracquisition of Royal Group on October 3, 2006, we expensed financingrelated costs of $5.3 million, which included a commitment fee of $2.3 millionfor our unused bridge loan and a write-off of unamortized debt issuance cost of$3.0 million from our old senior credit facility.

*Losson Foreign Exchange Derivative Instruments.**  *In June 2006, we entered intoCanadian dollar foreign currency forward contracts for a notional amount ofCAD$1.5 billion to effectively hedge the entire purchase price of Royal Group.Since this was a hedge of the foreign currency exchange risk of a businesscombination, we were not permitted to designate it as a cash flow hedge underthe provisions of Statement of Financial Accounting Standards, (“SFAS”) No. 133*, Accounting for Derivative Instruments and HedgingActivities*, as amended. Therefore we have recorded the change in thefair value of the derivative and the hedged item to earnings. During 2006, werecorded $21.5 million of realized losses related to these foreign currencyforward contracts.

*Provisionfor Income Taxes.**  *Theprovision for income taxes was $31.5 million for the year ended December 31,2006, compared with $46.9 million for the year ended December 31, 2005,primarily due to a decrease in pre-tax income from continuing operations of$59.1 million. Our effective tax rate from continuing operations increased from33 percent for 2005 to 37.7 percent for 2006 primarily due to differencesbetween U.S. and foreign tax rates and an increase in tax contingencies relatedto the Royal Group acquisition offset by the benefit of the domestic manufacturingdeduction and the benefit from the sale of a subsidiary.

*Loss from DiscontinuedOperations.**  *Subsequentto the Royal Group acquisition, we began to exit several of its businessesincluding its window coverings business. As of December 31, 2006 thesebusinesses qualified as discontinued operations under generally acceptedaccounting principles and incurred a net loss of approximately $3.3 million forthe period from October 3, 2006, to December 31, 2006.

**Year Ended December 31,2005, Compared With Year Ended December 31, 2004**

*NetSales.**  *Forthe year ended December 31, 2005, net sales were $2.3 billion, an increaseof 3 percent compared to $2.2 billion for the year ended December 31,2004 as a result of a 21 percent increase in sales prices partially offset by a15 percent decrease in sales volumes. Overall average sales 

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prices increased by 28percent in the chlorovinyls segment and 7 percent in the aromatics segment.Significantly increased feedstock costs enabled us to increase our salesprices. Our overall sales volume decrease of 15 percent from last year ismainly attributable to lower spot export sales during 2005, increased Asianphenol capacity during 2005, planned and unplanned plant outages in ourchloralkali plant during the second quarter of 2005 and hurricane-related plantoutages during the third and fourth quarters of 2005.

Chlorovinyls segment net sales totaled $1.6 billionfor 2005, an increase of 10 percent compared with net sales of $1.5 billion for2004. Our overall average sales prices increased by 28 percent, primarily as aresult of increases in the prices of vinyl resins of 19 percent, vinylcompounds of 17 percent and caustic soda of 140 percent. These vinyl resins andcompound price increases reflect higher prices for the feedstocks ethylene andchlorine during 2005. Our overall chlorovinyls sales volumes were down 14 percentfrom 2004 due to lower spot export sales during 2005, planned and unplannedplant outages in our chloralkali plant during the second quarter of 2005 andthe hurricane-related plant outages during the third and fourth quarters of2005.

Aromatics segment net sales were $681.0 million for2005, a decrease of 10 percent compared to $753.8 million for 2004. Thisdecrease was primarily due to a decrease in our overall aromatics sales volumesof 15 percent as a result of cumene, phenol and acetone sales volume decreasesof 9 percent, 26 percent and 18 percent, respectively. These decreaseswere due primarily to a 46 percent decrease in our phenol export salesvolumes from 2004 to 2005 as a result of increased Asian phenol capacity during2005 and a 25 percent decrease in our cumene domestic sales volumes as a resultof lower spot sales, which we had a higher level of during the third quarter of2004 due to a competitor’s unscheduled cumene plant outage. The North Americanphenol and acetone industry operating rates were all in the low eightypercentiles for 2005, or down about 10 percent from 2004. Our overall averageselling price increased as a result of increases in the prices of cumene of 12percent, phenol of 6 percent and acetone of 9 percent. These sales priceincreases reflect higher prices for the feedstocks benzene and propylene.

*GrossMargin.**  *Totalgross margin decreased from 11 percent of sales for the year ended December 31,2004, to 10 percent of sales for the year ended December 31, 2005. This$26.9 million decrease was due to higher raw materials costs and lower salesand production volumes outpacing higher sales prices. Some of our primary rawmaterials and natural gas costs normally track crude oil and natural gasindustry prices, which experienced increases of 36 percent and 35 percent,respectively, from 2004 to 2005.

Chlorovinyls segment gross margin increased slightlyfrom 13 percent of sales for the year ended December 31, 2004, to 14percent of sales for the year ended December 31, 2005. This $33.8 millionincrease primarily reflects increases in sales prices for all of our chlorovinylsproducts, which more than offset increases in our raw materials prices andlower sales and production volumes for all of our chlorovinyls products. Ouroverall raw materials and natural gas prices increased 31 percent compared to2004. Our chlorovinyls operating rate decreased from about 97 percent in 2004to about 85 percent in 2005 primarily as a result of planned and unplannedoutages in our chloralkali plants during the second quarter of 2005 and thehurricane-related outages during the third and fourth quarters of 2005.

Aromatics segment gross margin decreased from 7percent of sales for the year ended December 31, 2004, to negative 1percent of sales for the year ended December 31, 2005. This $60.7 milliondecrease is due primarily to the overall raw materials and energy priceincrease of 15 percent and lower sales and production volumes outpacing highersales prices in 2005. Our aromatics operating rate decreased from about 90percent for 2004 to about 65 percent for 2005 due primarily to increased Asianphenol capacity during 2005, lower spot sales, which we had a higher level ofduring the third quarter of 2004 due to a competitor’s unscheduled cumene plantoutage, and the hurricane-related outages during the third and fourth quartersof 2005.

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*Impactfrom Hurricanes Katrina and Rita on Third and Fourth Quarters.**  *The devastating hurricanesexperienced by the U.S. Gulf Coast region in the last weeks of August and September of2005 resulted in the disruption of our operations and minor property damage atour Louisiana, Mississippi and Texas facilities. Certain manufacturing plantswere shut down in an orderly manner just prior to the hurricanes and were downor running at reduced rates during the third and fourth quarters of 2005 as aresult of the hurricanes. As of October 19, 2005, all of our plants returned to near normal operations.The financial impact of these events resulted in charges of approximately $25.0million during the last half of 2005 involving repairs and maintenance costs,unabsorbed fixed costs and lost sales resulting from the hurricanes. In addition,based on current projections of costs related to the hurricanes, we believe itis unlikely that we will be able to recover any material amount under ourcommercial insurance policies.

*Selling,General and Administrative Expenses.**  *Selling, general and administrativeexpenses totaled $61.4 million for the year ended December 31, 2005, anincrease of $0.7 million from $60.7 million for the year ended December 31,2004. The increase was primarily due to an increase in bad debt expense of$1.2 million, an increase in legal and professional fees of $3.0 millionand an increase in the discount on sale of interests in our trade receivablesof $3.0 million due to more receivables being sold during the year ended December 31,2005, as compared to the year ended December 31, 2004. These increases inselling, general and administrative expenses were offset by the reversal of anallowance for a doubtful note receivable of $2.1 million originally recorded inthe fourth quarter of 2003 for a specific chlorovinyls customer, a decrease inprofit share incentive of $1.3 million and the reduction in executiveretirement bonus of $2.5 million related to the transfer of insurance cashsurrender values and the related tax withholdings for executives as part of thetermination of our split dollar life insurance plan in the third quarter of2004. The aromatics segment selling, general and administrative expensesremained relatively flat compared to the same period last year while thechlorovinyls segment selling, general and administrative expenses decreased dueto the reversal of an allowance for a doubtful note receivable of $2.1 millionin 2005.

*NetInterest Expense.**  *Netinterest expense decreased to $20.4 million for the year ended December 31,2005, from $23.6 million for the year ended December 31, 2004. Thisdecrease of $3.2 million was attributable to lower overall debt balancesduring 2005. During November 2005, we repaid all $100 million of oursenior secured 7.625 percent notes. We repaid the notes with borrowings underour revolving credit facility.

*Provision for IncomeTaxes.**  *Theprovision for income taxes was $46.9 million for the year ended December 31,2005, compared with $60.9 million for the year ended December 31, 2004.The decrease of $14.0 million in income taxes resulted from a $24.4 milliondecrease in pre-tax income and a 3.6 percent decrease in the effective tax ratewhen comparing periods. The decrease in the effective tax rate is due to theestimated tax deductions created by the American Jobs Creation Act of 2004, thefavorable impact from changes to the income apportionment rules of variousstates and the benefits of certain tax credits.

**Liquidity andCapital Resources**

On October 3,2006, we acquired Royal Group for $1.1 billion in cash and assumed debt of $374.9,net of cash acquired of $27.6 million. The acquisition was financed entirelywith new debt. We entered into a new senior credit facility and issued $500.0million of unsecured 9.5 percent senior notes due 2014 and $200.0 million ofunsecured 10.75 percent senior subordinated notes due 2016. The senior creditfacility includes a tranche B term loan of $800.0 million and  revolving credit facilities of up to$375.0 million. The net proceeds from these transactions were used to fundthe acquisition of Royal Group, replace our previously existing revolvingcredit facility, and pay related acquisition fees and debt issuance costs.

*OperatingActivities.**  *Forthe year ended December 31, 2006, we generated $254.7 million of cash flowfrom operating activities from continuing operations as compared with $71.1million during the year 

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ended December 31,2005. Major sources of cash flow in 2006 were net income from continuingoperations of $48.5 million, non-cash provisions of $85.0 million fordepreciation and amortization, which were offset in part by reductions of $21.2million for deferred income taxes and a reduction of $13.0 million in theinterests sold in our trade receivables in 2006 as a result of a decrease ineligible receivables under our securitization program. The increase in workingcapital was primarily attributable to the working capital purchased inconnection with the acquisition of the Royal Group.

For the year ended December 31, 2005, wegenerated $71.1 million of cash flow from operating activities as compared with$136.0 million during the year ended December 31, 2004. The decrease incash flow from operations of $64.9 million in 2005 from 2004 was due primarilyto a $79.0 million advance payment for a long-term raw materials supplycontract in 2005 and a reduction of $24.0 million in the interests sold in ourtrade receivables in 2005 as a result of a decrease in eligible receivablesunder our securitization program. The decrease in cash flows from operationswere offset partially by a $40.7 million decrease in trade receivables in 2005.The major sources of cash flow for 2005 were net income of $95.5 million,the $40.7 million decrease in receivables and the non-cash provision of $63.1million for depreciation and amortization. Total working capital at December 31,2005, was a surplus of $62.3 million versus a deficit of $69.4 million at December 31,2004. Significant changes in working capital for 2005 included a decrease intrade receivables and an increase in inventories and prepaid expenses. Thedecrease in trade receivables was primarily attributable to a sales volumedecrease offset partially by the reduction in the interests sold in our tradereceivables.

*InvestingActivities.**  *Netcash used in investing activities was $1.1 billion, $30.7 million and$23.4 million for the years ended December 31, 2006, 2005 and 2004,respectively, and was related primarily to the acquisition of Royal Group in2006 and reinvestment in equipment to improve our operating efficiencies in2005 and 2004. In addition to our acquisition of Royal Group and capitalexpenditures, we incurred maintenance expense for our production facilities of$80.5 million, $79.6 million and $79.8 million during the years ended December 31,2006, 2005, and 2004, respectively. We estimate total capital expenditures for2007 will be approximately $100.0 million, including approximately $43.0 millionto complete the vinyl resins modernization project at our Plaquemine, Louisianafacility. Upon completion of this project, we estimate that our vinyl resincapacity will increase approximately 450.0 million pounds annuallybeginning in 2008. This project is being funded through our revolving creditfacility and cash flows from operating activities.

*FinancingActivities.*   Cash provided in financingactivities was $825.0 million for the year ended December 31, 2006. On October 3,2006, in connection with the acquisition of Royal Group we entered into a newsenior credit facility and issued $500.0 million of unsecured 9.5 percentsenior notes due 2014 and $200.0 million of unsecured 10.75 percent seniorsubordinated notes due 2016. The senior credit facility includes a tranche Bterm loan of $800.0 million and revolving credit facilities of up to$375.0 million. The net proceeds from these transactions were used to fundthe acquisition of Royal Group, replace the previously existing revolvingcredit facility, and pay related debt issuance costs of $38.0 million. Oldrevolver debt issuance costs of $3.0 million were written-off in the fourthquarter of 2006 as we entered into a new revolver. Finance fees associated witha bridge financing related to the Royal Group acquisition of $2.3 million wereexpensed in the fourth quarter of 2006 as this bridge facility expired. Sincethe acquisition of Royal Group, we paid down debt of approximately $274.0million with approximately $135.0 million generated through consideration fromasset sales of certain non-core assets of Royal Group and approximately $139.0million generated through cash flow from operations. In addition to the $274million debt reduction, we reduced the amount of receivables sold under ouraccounts receivable securitization program by $34 million.

Cash used in financing activities was $47.3 millionand $93.4 million for the years ended December 31, 2005, 2004,respectively. The cash was primarily used to reduce total debt by $40.6 millionin 2005 and $110.1 million in 2004. The debt reduction in 2005 was funded bycash provided by operations while the 

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debt reduction in 2004consisted of $45.1 million from cash provided by operations and $65.0 millionfrom selling an additional interest in our trade receivables. Proceeds from theissuance of common stock were $22.0 million higher in 2004 than in 2005 due toa significant increase in the exercise of stock options during 2004.

On December 31, 2006, our balance sheet debtconsisted of a $648.4 million of term debt and $25.9 million of borrowingsunder our revolving credit facilities under our senior credit facility,$100.0 million of unsecured 7.125 percent senior notes due 2013, $500million of unsecured 9.5% senior notes due 2014, $200 million of unsecured10.75% senior subordinated notes due 2016, and $30.1 million in other debt. At December 31,2006, under our revolving credit facility we had a maximum borrowing capacityof $375.0 million, and, net of outstanding letters of credit for $99.7million and current borrowings of $25.9 million, and availability underthe revolving credit facility of $249.4 million. Over the next twelve months,assuming adequate cash flows, we expect to pay off the $32.4 million ofborrowings under our Senior Credit Facility, including $25.9 million onour revolver and $6.5 million of principal on our tranche B term loan. Therefore,we have classified this debt as current in our consolidated balance sheet. Debtunder the senior credit facility is secured by substantially all of our assets,including real and personal property, inventory, accounts receivable and otherintangibles.

We use interest rate swaps to fix our interest rate on$300.0 million of our variable rate LIBOR based term debt.  We would pay approximately $1.1 million tosettle these swaps if settlement occurred as of December 31, 2006.

*Covenantsand Restrictions.*   Under our senior creditfacility and the indentures related to the 7.125, 9.5, and 10.75 percent notes,we are subject to certain restrictive covenants, the most significant of whichrequire us to maintain certain financial ratios and limit our ability to paydividends, make investments, grant liens, sell our assets and engage in certainother activities. Our ability to meet these covenants, satisfy our debtobligations and pay principal and interest on our debt, fund working capital,and make anticipated capital expenditures will depend on our futureperformance, which is subject to general macroeconomic conditions and otherfactors, some of which are beyond our control. On March 14, 2007 weentered into an amendment to our senior secured credit facility, whichtemporarily waives our interest coverage ratio for the year ended December 31,2006, and through May 31, 2007. Management believes that based on currentand projected levels of operations and conditions in our markets, cash flowfrom operations, together with our cash and cash equivalents of $9.6 millionand the availability to borrow an additional $249.4 under the revolving creditfacility at December 31, 2006, will be adequate for the foreseeable futureto make required payments of principal and interest on our debt, meet certainrestrictive covenants that require us to maintain certain financial ratios, andfund our working capital and capital expenditure requirements. However, if ourexpectations regarding our business prove incorrect, we may not be able to meetcertain restrictive covenants and maintain compliance with certain financialratios. In that event, we would attempt to obtain waivers or covenant relieffrom our lenders. Although we have successfully negotiated covenant relief in thepast, there can be no assurance we can do so in the future. Giving effect tothe waiver described above we were in compliance with all necessary financialcovenants under our senior secured credit facility at December 31, 2006. Wedeclared annual dividends of $0.32 per share, or $11.0 million, $10.9 millionand $10.6 million during 2006, 2005 and 2004, respectively.

We conduct our business operations through our whollyowned subsidiaries as reflected in the consolidated financial statements. As weare essentially a holding company, we must rely on distributions, loans andother intercompany cash flows from our wholly owned subsidiaries to generatethe funds necessary to satisfy the repayment of our existing debt. Provisionsin the senior credit facility and the indentures related to the 7.125, 9.5, and10.75 percent notes limit payments of dividends, distributions, loans oradvances to us by our subsidiaries.

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*Off-BalanceSheet Arrangement.**  *Wehave an agreement pursuant to which we sell an undivided percentage ownershipinterest in a defined pool of our U.S. trade receivables on a revolving basisthrough a wholly owned subsidiary to a third party (the “Securitization”). OurSecuritization provides us one of our cheapest sources of funds and enables usto reduce our annual interest expense. The funded balance has the effect ofreducing accounts receivable and short-term liabilities by the same amount. Ascollections reduce accounts receivable included in the pool, we sell ownershipinterests in new receivables to bring the ownership interests sold up to amaximum of $165.0 million, as permitted by the Securitization. The balance inthe interest of receivables sold at December 31, 2006, 2005 and 2004, was$128.0 million, $141.0 million and $165.0 million, respectively.

Continued availability of the Securitization isconditioned upon compliance with covenants, related primarily to operation ofthe Securitization set forth in the related agreements. As of December 31,2006, we were in compliance with all such covenants. If the Securitizationagreement was terminated, we would not be required to repurchase previouslysold receivables, but would be prevented from selling additional receivables tothe third parties. In the event that the Securitization agreement wasterminated, we would have to source these funding requirements withavailability under our senior credit facility or obtain alternative financing.

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*Contractual Obligations.**  *Our aggregate future payments undercontractual obligations by category as of December 31, 2006, were asfollows:

| **In Millions**           | ** ** | ** ** | ** ** | **Total** | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** | **2010** | ** ** | **2011** | ** ** | **2012 and  thereafter** | ** ** |
|--------------------------------|------------|------------|------------|-----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|-------------------------------|------------|
| Contractual obligations:       |       |       |       |      |       |     |       |     |       |     |       |     |       |     |       |                          |       |
| Long-term  debt—principal |       | $          | 1,509      |      | $          | 7        |       | $        | 6          |     | $          | 23       |       | $        | 6          |                          | $          | 32 |   |   | $ | 1,435 |   |   |
| Long-term  debt—interest  |       | 936        |       | 128       |       | 127      |       | 126      |       | 125      |       | 124      |       |     | 306        |                          |       |
| Operating lease  obligations   |       | 86         |       | 27        |       | 19       |       | 15       |       | 9        |       | 5        |       |     | 11         |                          |       |
| Purchase  obligations          |       | 3,782      |       | 1,026     |       | 663      |       | 546      |       | 366      |       | 369      |       |     | 812        |                          |       |
| Asset retirement  obligations  |       | 11         |       | —    |       | —   |       | —   |       | —   |       | —   |       |     | 11         |                          |       |
| Other                          |       | 12         |       | 4         |       | 2        |       | 2        |       | 2        |       | 1        |       |     | 1          |                          |       |
| Total                          |       | $          | 6,336      |      | $          | 1,192    |       | $        | 817        |     | $          | 712      |       | $        | 508        |                          | $          | 531 |   |   | $ | 2,576 |   |   |

 

*Long-TermDebt.**  *Long-termdebt**includes principal andinterest payments based upon our interest rates as of December 31, 2006.Long-term debt obligations are listed based on when they are contractually due.Therefore the $25.9 million balance on our revolving credit facility that wehave classified as current on our consolidated balance sheet as ofDecember 31, 2006, is included in 2011.

*OperatingLease Obligations.*   We lease railcars, storageterminals, computer equipment, automobiles and warehouse and office space undernon-cancelable operating leases with varying maturities through the year 2014. We did not havesignificant capital lease obligations as of December 31, 2006.

*PurchaseObligations.**  *Purchaseobligations include agreements to purchase goods or services that areenforceable and legally binding and that specify all significant terms. We havecertain long-term raw material supply contracts and energy purchase agreementswith various terms extending through 2014. These commitments are designed toassure sources of supply for our normal requirements. Amounts are based upon contractual rawmaterial volumes and market rates as of December 31, 2006.

*Asset RetirementObligations.**  *Wehave acquired certain assets that are subject to certain legal obligations uponasset retirement (i.e. removal of hazardous waste, demolition, etc.). Weestimate the asset retirement obligations by capitalizing the present value ofsuch obligations based on a credit-adjusted risk-free rate, recording anequivalent liability, and depreciating the asset and accreting the liabilityover the estimated life of the obligation.

**Outlook**

The level of residential new construction andremodeling activity in the United States is one of the primary drivers ofdemand for vinyl resins, vinyl compounds, and building and home improvementproducts, which comprise the majority of our sales.  New housing starts in the United States areprojected to fall from 1.8 million in 2006 to 1.5 million in 2007. A marketstudy indicates that between 2005 and 2010 growth rates in home improvement andmaintenance spending will moderate from rates experienced in recent years. Theseprojections reflect current high levels of new home inventory, as well ashomeowners’ reluctance to spend money improving their homes with market valuesdeteriorating.

Vinyl resin is the largest volume product in ourchlorovinyls segment. CDI currently projects that North American industry operatingrates for vinyl resin will contract from 89 percent in 2006 to 84 percent in2007, which is expected to put downward pressure on prices for vinyl resin. Theprojected decline in operating rates reflects declining demand for vinyl resinsfor applications in the housing market, as well as significant new industrycapacity coming into production toward the end of the year. The cost ofethylene, which is a primary raw material in the production of vinyl resin, isexpected to decline in 2007, principally as a result of declining feedstockcosts. CDI currently projects that ethylene costs will decline by 15 percent in2007, compared to 2006.

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Independent projections of demand and supply levelsfor specific building and home improvement products are not published asfrequently or as readily available as they are for chemical products. However,it is expected that sales of our building and home improvement products in 2007will be impacted by the current downturn in home building and constructionactivity. Since acquiring Royal Group on October 3, 2006, we haveinitiated programs to penetrate new geographic markets and introduce newproducts, which are designed to help us mitigate soft market conditions. Weexpect these programs will begin to impact sales toward the end of 2007.

In addition, we have taken actions to realize synergyand improvement opportunities. We have divested a number of unprofitable,non-core businesses, leveraged the combined raw materials purchasing power ofthe two companies, consolidated manufacturing plants to improve efficiency, andbegun to utilize Georgia Gulf’s leading vinyl resins and vinyl compoundsformulation expertise. We intend to divest the remaining non-core businesses in2007. These actions are expected to help mitigate the impact of difficultmarket conditions.

We expect that 2007 willbe a challenging year for Georgia Gulf, given the significant downturn inconstruction activity and the additional debt service associated with theacquisition of Royal Group. Management remains focused on sales stimulation,cost and debt reduction programs.

See Item 1A. “Risk Factors—Forward-Looking Statements”

**Inflation**

The most significantcomponent of our cost of sales is raw materials, which include basic oil-basedcommodities and natural gas or derivatives thereof. The costs of raw materialsand natural gas are based primarily on market forces and have not beensignificantly affected by inflation. Inflation has not had a material impact onour sales or income from operations.

**New Accounting Pronouncements**

In February 2006, the Financial AccountingStandards Board (“FASB”) issued SFAS No. 155, *Accounting for Certain Hybrid Financial Instruments—an amendment ofFASB Statements No. 133 and 140*. SFAS No. 155 simplifiesaccounting for certain hybrid instruments currently governed by SFAS No. 133,*Accounting for Derivative Instruments andHedging Activities*, by allowing fair value remeasurement of hybridinstruments that contain an embedded derivative that otherwise would requirebifurcation. SFAS No. 155 also eliminates the guidance in SFAS No. 133Implementation Issue No. D1, *Applicationof Statement 133 to Beneficial Interests in Securitized Financial Assets*,which provides that such beneficial interests are not subject to SFAS No. 133.SFAS No. 155 amends SFAS No. 140, *Accountingfor Transfers and Servicing of Financial Assets and Extinguishments ofLiabilities—a Replacement of FASB Statement No. 125*, byeliminating the restriction on passive derivative instruments that a qualifyingspecial-purpose entity may hold. This statement is effective for financialinstruments acquired or issued by us after December 31, 2006. We do notexpect the adoption of SFAS No. 155 to have a material impact on ourconsolidated financial statements.

In March 2006, the FASB issued SFAS No. 156,*Accounting for Servicing of Financial Assets—anamendment of FASB Statement No. 140*. SFAS No. 156 requiresan entity to recognize a servicing asset or servicing liability each time itundertakes an obligation to service a financial asset by entering into aservicing contract in specific situations. Additionally, the servicing asset orservicing liability must be initially measured at fair value, if practicable. SFASNo. 156 is effective for fiscal years beginning after September 15,2006. We do not expect the adoption of SFAS No. 156 to have a materialimpact on our consolidated financial statements.

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In June 2006, the FASB issued Interpretation No. 48, *Accountingfor Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109Accounting For Income Taxes* (“FIN 48”). FIN 48 clarifies theaccounting for uncertainty in income taxes recognized in an entity’s financialstatements in accordance with FASB Statement No. 109 and prescribes arecognition threshold and measurement attribute for financial statementrecognition of tax positions taken or to be taken on a tax return. Additionally,FIN 48 provides guidance on derecognition, classification, interest andpenalties, accounting in interim periods, disclosure and transition. FIN 48 iseffective for fiscal years beginning after December 15, 2006, with earlyadoption permitted. We are currently evaluating the impact of FIN 48 on ourconsolidated financial statements.

In June 2006, the FASB ratified its consensus onEmerging Issue Task Force (“EITF”) Issue No. 06-3, *How Taxes Collected from Customers and Remitted to GovernmentalAuthorities Should Be Presented in the Income Statement (That Is, Gross versusNet Presentation)*. The scope of EITF Issue No. 06-3includes any tax assessed by a governmental authority that is imposedconcurrent with or subsequent to a revenue-producing transaction between aseller and a customer. For taxes within the scope of this issue that aresignificant in amount, the consensus requires the following disclosures: (i) theaccounting policy elected for these taxes and (ii) the amount of the taxesreflected gross in the income statement on an interim and annual basis for allperiods presented. The disclosure of those taxes can be done on an aggregatebasis. The consensus is effective for interim and annual periods beginningafter December 15, 2007. We are currently evaluating the impact, if any,of EITF Issue No. 06-3 on our financial position and results ofoperations. However, we do not believe the adoption of EITF Issue No. 06-3will have a material impact on our consolidated financial statements.

On September 7, 2006, the FASB’s EITF, reached aconsensus on EITF Issue No. 06-4, *Accounting for Deferred Compensation andPostretirement Benefit Aspects of Endorsement Split-Dollar Life InsuranceArrangements*, which requires the application of the provisions ofSFAS No. 106, Employers’ Accounting for Postretirement Benefits Other ThanPensions, to endorsement split-dollar life insurance arrangements. SFAS No. 106would require that we recognize a liability for the discounted future benefitobligation that we will have to pay upon the death of the underlying insuredemployee. An endorsement-type arrangement generally exists when we own andcontrol all incidents of ownership of the underlying policies. EITF Issue No. 06-4is effective for fiscal years beginning after December 15, 2006. We do notexpect the adoption of EITF Issue No. 06-4 to have a material impacton our consolidated financial statements.

On September 7, 2006 the EITF reached a consensuson EITF Issue No. 06-5 *Accounting for Purchasesof Life Insurance—Determining the Amount That Could Be Realized in AccordanceWith FASB Technical Bulletin No. 85-4*, which concludedthat a policyholder should consider other amounts included in the contractualterms of an insurance policy, in addition to cash surrender value, whendetermining the asset value that could be realized under the terms of theinsurance contract. These other amounts include: non-discretionary amounts(those items that are not contingent as of the balance sheet date) andtime-based amounts (i.e., deferred acquisition costs tax) that would beaccounted for on a present-value basis. Items that are “probable” to bereceived and/or subject to the insurance company’s intent to pay would not beincluded in asset value. In addition, the amount that could be realized shouldbe determined on an individual policy or certificate level. Amounts that wouldbe realized upon surrender of all policies or certificates would not beincluded when measuring assets. EITF Issue No. 06-5 is effective forfiscal years beginning after December 15, 2006 and would be recognizedthrough a cumulative-effect adjustment to retained earnings as of the beginningof the year of adoption for all life insurance contracts currently held. We donot believe the impact of adopting EITF Issue No. 06-5, will have amaterial impact on our consolidated financial statements.

In September 2006, the FASB issued SFAS No. 157,*Fair Value Measurements*. SFAS No. 157defines fair value, establishes a framework for measuring fair value ingenerally accepted accounting principles and expands disclosures about fairvalue measurements. SFAS No. 157 is effective for financial statements 

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issued for our fiscal yearbeginning January 1, 2008. We do not expect the adoption of SFAS No. 157to have a material impact on our consolidated financial statements.

In September 2006, the Securities and ExchangeCommission (SEC) issued Staff Accounting Bulletin (“SAB”) No. 108, *Considering the Effects of Prior Year Misstatementswhen Quantifying Misstatements in Current Year Financial Statements*,which provides interpretive guidance on the consideration of the effects ofprior year misstatements in quantifying current year misstatements for thepurpose of a materiality assessment. SAB No. 108 is effective for fiscalyears ending after November 15, 2006. Early application is encouraged, butnot required. We are required to adopt SAB No. 108 for our fiscal yearending December 31, 2006. The cumulative effect, if any, of applying theprovisions of SAB No. 108 will be reported as an adjustment tobeginning-of-year retained earnings. We have assessed the impact of adoptingthe guidance of evaluating prior year misstatements in quantifying current yearmisstatements and determined that it was not material to our consolidatedfinancial statements.

On September 29,2006, the FASB issued SFAS No. 158, *Employers’Accounting for Defined Benefit Pension and Other Postretirement Plans,*which amends SFAS No. 87 and SFAS No. 106 to require recognition ofthe funding status of pension and other postretirement benefit plans on thebalance sheet. Under SFAS No. 158, gains and losses, prior service costsand credits, and any remaining transition amounts under SFAS No. 87 andSFAS No. 106 that have not yet been recognized through net periodicbenefit cost will be recognized in accumulated other comprehensive income, netof tax effects, until they are amortized as a component of net periodic cost. SFASNo. 158 is effective for fiscal years ending after December 15, 2006.The incremental effect of adopting the balance sheet recognition provisions ofSFAS No. 158 as of December 31, 2006, is summarized below:

| **In Thousands**                     | ** ** | ** ** | ** ** | **Before  Adopting  SFAS No. 158** | ** ** | **Adjustments  to Adopt  SFAS No. 158** | ** ** | **After  Adopting  SFAS No. 158** | ** ** |
|-------------------------------------------|------------|------------|------------|----------------------------------------------|------------|--------------------------------------------------------|------------|---------------------------------------------|------------|
| Assets                                    |       |       |       |                                         |       |                                                   |       |                                        |       |   |   |   |   |
| Noncurrent benefit asset                  | ** ** | ** ** | **$**      | **23,223**                                   | ** ** | ** **                                             | ** ** | **$**                                       | **(4,990** | **)** | ** ** | ** ** | **$** | **18,233** | ** ** | ** ** |
| Intangible asset                          | ** ** | ** ** | **22**     | ** **                                   | ** ** | ** **                                             | **(22**    | **)**                                       | ** ** | ** ** | **—** | ** ** | ** ** |
| Deferred tax asset                        | ** ** | ** ** | **(99**    | **)**                                        | ** ** | ** **                                             | **(1,528** | **)**                                       | ** ** | ** ** | **(1,627** | **)** | ** ** |
| Liabilities                               | ** ** | ** ** | ** ** | ** **                                   | ** ** | ** **                                             | ** ** | ** **                                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| Current benefit liability                 | ** ** | ** ** | **—** | ** **                                   | ** ** | ** **                                             | **438**    | ** **                                  | ** ** | ** ** | **438** | ** ** | ** ** |
| Noncurrent benefit liability              | ** ** | ** ** | **9,035**  | ** **                                   | ** ** | ** **                                             | **(1,333** | **)**                                       | ** ** | ** ** | **7,702** | ** ** | ** ** |
| Shareholders’ equity                 | ** ** | ** ** | ** ** | ** **                                   | ** ** | ** **                                             | ** ** | ** **                                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Accumulated other comprehensive  loss** |       |       | **$**      | **(170**                                     | **)**      | ** **                                             | ** ** | **$**                                       | **(2,589** | **)** | ** ** | ** ** | **$** | **(2,759** | **)** | ** ** |

 

We have evaluated the potential impact of the PensionProtection Act, which was passed into law on August 17, 2006 on futureU.S. pension plan funding requirements based on current market conditions. ThePension Protection Act is not anticipated to have a material effect on thelevel of future funding requirements or our liquidity and capital resources.

In February 2007, theFASB issued SFAS No. 159, *The FairValue Option for Financial Assets and Financial Liabilities*. SFAS No. 159permits entities to choose to measure many financial instruments and certainother items at fair value that are not currently required to be measured atfair value. SFAS No. 159 is effective for fiscal years beginning after November 15,2007, with early adoption permitted provided the entity also elects to applythe provisions of SFAS No. 157. We have not decided if we will adopt SFAS No. 159early or if we will choose to measure any eligible financial assets andliabilities at fair value.

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**Critical AccountingPolicies and Estimates**

Critical accounting policies are those that areimportant to our financial condition and require management’s most difficult,subjective, or complex judgments. Different amounts would be reported underdifferent operating conditions or under alternative assumptions. We haveevaluated the accounting policies used in the preparation of the accompanyingconsolidated financial statements and related notes and believe those policiesto be reasonable and appropriate. See note 1 of the Notes to ConsolidatedFinancial Statements for a complete listing of our accounting policies. Webelieve the following to be our most critical accounting policies applied inthe preparation of our financial statements.

*Allowancefor Doubtful Accounts.**  *Inour determination of the allowance for doubtful accounts and consistent withour accounting policy, we estimate the amount of accounts receivable that webelieve are unlikely to be collected and we record an expense for that amount.Estimating this amount requires us to analyze the financial strength of ourcustomers. In our analysis, we combine the use of historical collectionexperience, our accounts receivable aged trial balance and specificcollectibility analysis. By its nature, such an estimate is highly subjective,and it is possible that the amount of accounts receivable that we are unable tocollect may be different than the amount initially estimated. Our allowance fordoubtful accounts on December 31, 2006 and 2005, was $16.1 million and$2.5 million, respectively. The $13.6 million increase is primarily due to theacquisition of Royal Group. No individual customers account for greater than 10 percentof our trade accounts receivables as of December 31, 2006 and 2005. To theextent the actual collectibility of our accounts receivable differs from ourestimated allowance by 10 percent, our net income would be higher or lower byapproximately $1.0 million, on an after-tax basis, depending on whether theactual collectibility was better or worse, respectively, than the estimatedallowance.

*Environmentaland Legal Accruals.  *In our determination of theestimates relating to ongoing environmental costs and legal proceedings (seenote 11 of the Notes to Consolidated Financial Statements), we consult with ouradvisors (consultants, engineers and attorneys). Such consultation provides uswith the information on which we base our judgments on these matters and underwhich we accrue an expense when it has been determined that it is probable thata liability has been incurred and the amount is reasonably estimable. While webelieve that the amounts recorded in the accompanying consolidated financialstatements related to these contingencies are based on the best estimates andjudgments available to us, the actual outcomes could differ from our estimates.To the extent that actual outcomes differ from our estimates by 10 percent, ournet income would be higher or lower by approximately $0.4 million, on anafter-tax basis, depending on whether the actual outcomes were better or worse,respectively, than the estimates.

*Valuationof Goodwill and Other Intangible Assets.**  *Goodwill is the excess of cost ofan acquired entity over the amounts specifically assigned to assets acquiredand liabilities assumed in purchase accounting for business combinations. Otheridentifiable intangible assets are intangible assets such as customer lists,trade names and technology that are identified during acquisitions. Ourcarrying value of our goodwill and indefinite lived intangible assets aretested for impairment annually on October 1 and are tested for impairmentbetween annual impairment tests if an event occurs or circumstances change thatwould indicate the carrying amounts may be impaired. Impairment testing forgoodwill and indefinite lived intangible assets is a two-step test performed ata reporting unit level. The initial step requires the carrying value of eachreporting unit to be compared with its estimated fair value. The second step toevaluate a reporting unit for impairment is only required if the carrying valueof the reporting unit exceeds the estimated fair value in the initial step. Weuse a discounted cash flow analysis approach to determine the estimated fairvalue of a reporting unit, which requires judgment and assumptions includingestimated future cash flows and discount rates. An impairment loss may berecognized when the carrying amount of the reporting unit’s net assets exceedsthe estimated fair value of the reporting unit. The estimated fair value ofeach of our reporting units exceeds the carrying value. Actual impairmentlosses incurred could vary significantly from amounts that we estimate ifdifferent assumptions or methods are used in the 

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estimate for fair value ofthe reporting units. A 10 percentreduction in estimated future cash flows used in our impairment test would notresult in any impairment being recognized.

*Valuationof Long-Lived Assets.**  *Our long-lived assets, such asproperty, plant, and equipment, are reviewed for impairment whenever events orchanges in circumstances indicate that the carrying amount of an asset may notbe recoverable, in accordance with SFAS No. 144, *Accounting for the Impairment or Disposal ofLong-Lived Assets.*Recoverability of assets to be held and used ismeasured by a comparison of the carrying amount of an asset to the estimatedundiscounted future cash flows expected to be generated by the asset. If thecarrying amount of an asset exceeds its estimated undiscounted future cashflows, an impairment charge is recognized for the amount by which the carryingamount of the asset exceeds the fair value of the asset. Our judgments regarding the existence ofimpairment indicators are based on legal factors, market conditions andassumptions for operational performance of our businesses. The assumptions usedto estimate our future undiscounted cash flows are predominately identifiedfrom our financial forecasts. Actual impairment losses incurred could varysignificantly from amounts that we estimate. Additionally, future events couldcause us to conclude that impairment indicators exist and that associatedlong-lived assets of our businesses are impaired.

We annually assess our idled Pasadena, Texas phenoland acetone plant assets for impairment, and we have noted no impairment todate.

*PensionLiabilities.**  *Accountingfor employee retirement plans involves estimating the cost of benefits that areto be provided in the future and attempting to match, for each employee, thatestimated cost to the period worked. To accomplish this, we make assumptionsabout discount rates, expected long-term rates of return on plan assets, salaryincreases, employee turnover and mortality rates, among others. We reevaluateall assumptions annually with our independent actuaries taking intoconsideration existing as well as forecasted economic conditions, and ourpolicy and strategy with regard to the plans. We believe our estimates, themost significant of which are stated below, to be reasonable.

The discount rate reflects the rate at which pensionbenefit obligations could be effectively settled. We determined our discountrate by matching the expected cash flows of our pension obligations to a yieldcurve generated from a broad portfolio of high-quality fixed rate debtinstruments. The discount rate assumption used for determining annual pensionexpense for our U.S. pension plans in 2006 was 5.75 percent. At December 31,2006, this rate was 6.00 percent for determining 2007 annual pension expensefor our U.S. pension plans. A 25 basis point increase in this discount ratewould decrease our annual pre-tax pension expense by $0.2 million whereas a 25basis point decrease in our discount rate would increase our annual pre-taxpension expense by $0.5 million. A 25 basis point increase or decrease in thediscount rate assumption for our foreign pension plan and other post retirementplans are not material.

The expected long-term rate of return on plan assetsassumption is based on historical and projected rates of return for current andplanned asset classes in the plan’s investment portfolio. Our weighted averageasset allocation as of December 31, 2006, is 76.6 percent equitysecurities, 20.5 percent debt securities, 1.4 percent real estate and 1.5percent other. Assumed projected rates of return for each of the plan’sprojected asset classes were selected by us after analyzing historicalexperience and future expectations of the returns and volatility of the variousasset classes. The expected long-term rate of return assumption used fordetermining annual pension expense for 2006 was 8.25 percent for our U.S.pension plans. At December 31, 2006, this rate was 8.00 percent fordetermining 2007 annual pension expense. A 25 basis point increase or decreasein the weighted average return on plan assets assumption would decrease orincrease our annual pre-tax pension expense by $0.2 million for our U.S.pension plans. A 25 basis point increase or decrease in the expected long-termrate of return assumption for our foreign pension plans is not material.

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On September 29, 2006, the FASB issued SFASNo.158, *Employers’ Accounting for DefinedBenefit Pension and Other Postretirement Plans*, which amends SFAS No. 87and SFAS No. 106 to require recognition of the funding status of pensionand other postretirement benefit plans on the balance sheet. Under SFAS No. 158,gains and losses, prior service costs and credits, and any remaining transitionamounts under SFAS No. 87 and SFAS No. 106 that have not yet beenrecognized through net periodic benefit cost will be recognized in accumulatedother comprehensive income, net of tax effects, until they are amortized as acomponent of net periodic cost. SFAS No. 158 is effective for fiscal yearsending after December 15, 2006. We adopted the balance sheet recognitionprovisions of SFAS No. 158 as of December 31, 2006, which reduced ourstockholders’ equity by approximately $2.6 million and did not affect ourresults of operations. See further details of the impact of adopting theprovision of SFAS No. 158 in note 15 of the Notes to ConsolidatedFinancial Statements.

*IncomeTaxes.**  *Incometaxes are accounted for under the asset and liability method. Deferred taxassets and liabilities are recognized for the future tax consequencesattributable to differences between the financial statement carrying amounts ofexisting assets and liabilities and their respective tax bases. Deferred taxassets and liabilities are measured using enacted tax rates expected to applyto taxable income in the years in which those temporary differences areexpected to be recovered or settled. The effect on deferred tax assets andliabilities of a change in tax rates is recognized in income in the period thatincludes the enactment date. At December 31, 2006 and 2005, we had a netdeferred tax liability balance of $57.8 million and $102.9 million,respectively.

In evaluating the ability to realize our deferred taxassets we rely principally on forecasted taxable income using historical andprojected future operating results and the reversal of existing temporarydifferences. At December 31, 2006 and 2005, we had deferred tax assets forstate tax credit carryforwards of $3.1 million and $4.3 million, respectively,which carryforward indefinitely. We believe we will achieve taxable income inthe related jurisdictions in order to realize the deferred tax assets for statetax credit carryforwards. In addition, at December 31, 2006 we haddeferred tax assets for net operating loss carryforwards in the U.S. and Canadaof $34.3 million and $36.0 million, respectively, of which we have a $4.6million valuation allowance to state these deferred tax assets at theirestimated realizable values.

We accrue for tax contingencies when it is probablethat a liability to a taxing authority has been incurred and the amount of thecontingency can be reasonably estimated, based on past experience. The taxcontingency reserve is adjusted for changes in circumstances and additionaluncertainties, such as significant amendments to existing tax law. At December 31,2006 and 2005, we had a tax contingency reserve of $88.3 million and $3.8million, respectively. Approximately $84.5 million of the tax contingencyreserves at December 31, 2006 relates to Royal Group, which was acquiredon October 3, 2006. See note 16 of the Notes to Consolidated FinancialStatements for further discussion regarding the Royal Group tax contingencyreserves. A 10 percent change in our assumptions used to develop our taxcontingency reserve would impact our effective tax rate and our results of operationsby approximately $8.8 million.

In June 2006 the FASB issued FIN 48. FIN 48clarifies the accounting for uncertainty in income taxes recognized in anentity’s financial statements in accordance with FASB Statement No. 109and prescribes a recognition threshold and measurement attribute for financialstatement recognition of tax positions taken or to be taken on a tax return. Additionally,FIN 48 provides guidance on derecognition, classification, interest andpenalties, accounting in interim periods, disclosure and transition. FIN 48 iseffective for fiscal years beginning after December 15, 2006, with earlyadoption permitted. We are currently evaluating the impact of FIN 48 on ourconsolidated financial statements.

*Stock-BasedCompensation.*   Effective January 1, 2006, weadopted SFAS  No. 123 (revised2004), *Share-Based Payment*, orSFAS No. 123R using the “modified prospective” method. Under the “modifiedprospective” method, compensation cost is recognized in the financialstatements beginning with the effective date, based on the requirements of SFASNo. 123R for all share-based payments granted after 

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that date, and based onthe requirements of SFAS No. 123 for all unvested awards granted prior tothe effective date of SFAS No. 123R. SFAS No. 123R requires allshare-based payments to employees and non-employee directors, including grantsof stock options, restricted and deferred stock units, restricted stock andemployee stock purchase rights, to be recognized in our financial statementsbased on their respective grant date fair values. Under SFAS No. 123R, thefair value of each share-based payment award is estimated on the date of grantusing an option-pricing model that meets certain requirements. We currently usethe Black-Scholes option-pricing model to estimate the fair value of ourshare-based payment awards. The Black-Scholes model meets the requirements ofSFAS  No. 123R; however, the fairvalues generated by the model may not be indicative of the actual fair valuesof our awards as it does not consider certain factors important to our awards,such as continued employment, periodic vesting requirements and limitedtransferability. The adoption of SFAS No. 123R had the impact of reducingour 2006 net income by approximately $4.4 million. In addition, SFAS No. 123Ralso requires the benefits of tax deductions in excess of recognizedcompensation cost to be reported as a financing cash flow, rather than as anoperating cash flow as required under previous accounting pronouncements. Thisrequirement reduced our net operating cash flows and increased our netfinancing cash flows in 2006 by $1.4 million.

Future stock-based compensation expense and unearnedstock-based compensation will increase to the extent that we grant additionalequity awards to employees or we assume unvested equity awards in connectionwith acquisitions. Had we adopted SFAS No. 123R in 2005 and 2004, themagnitude of the impact of that standard on our results of operations wouldhave approximated the impact of SFAS No. 123 assuming the application ofthe Black-Scholes option pricing model as described in the disclosure of proforma net income and pro forma net income per share in note 1 of the Notes toConsolidated Financial Statements. In addition, see note 14 of the Notes toConsolidated Financial Statements for further information on our stock-basedcompensation plans.

The determination of thefair value of share-based payment awards utilizing the Black-Scholes model isaffected by our stock price and a number of assumptions, including expectedvolatility, expected life, risk-free interest rate and expected dividends. Weuse the historical volatility for our stock, as we believe that historicalvolatility is more representative than implied volatility. The expected life ofthe awards is based on historical and other economic data trended into thefuture. The risk-free interest rate assumption is based on observed interestrates appropriate for the terms of our awards. The dividend yield assumption isbased on our historical dividend yield and expectation of future dividendpayouts. The fair value of our restricted and deferred stock units andrestricted stock are based on the fair market value of our stock on the date ofgrant. Forfeitures are estimated at the time of grant and revised, ifnecessary, in subsequent periods if actual forfeitures differ from thoseestimates. Stock-based compensation expense recognized in our financialstatements in 2006 and thereafter is based on awards that are ultimatelyexpected to vest. We evaluate the assumptions used to value our awards on aquarterly basis. If factors change and we employ different assumptions,stock-based compensation expense may differ significantly from what we haverecorded in the past. If there are any modifications or cancellations of theunderlying unvested securities, we may be required to accelerate, increase orcancel any remaining unearned stock-based compensation expense.

**Environmental**

Our operations are subject to increasingly stringentfederal, state, and local laws and regulations relating to environmentalquality. These regulations, which are enforced principally by the USEPA andcomparable state agencies, govern the management of solid hazardous waste,emissions into the air and discharges into surface and underground waters, andthe manufacture of chemical substances. Our Canadian operations are subject tosimilar laws and regulations.

We believe that we are in material compliance with allthe current environmental laws and regulations. We estimate that any expensesincurred in maintaining compliance with these requirements 

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will not materially affectearnings or cause us to exceed our level of anticipated capital expenditures.However, there can be no assurance that regulatory requirements will notchange, and therefore, it is not possible to accurately predict the aggregatecost of compliance resulting from any such changes.

See Item 1. Business, Item3. Legal Proceedings, and Item 8. Financial Statements and Supplementary Data,note 11 of the Notes to the Consolidated Financial Statements for additionalinformation related to environmental matters.

**Item 7A.**   QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

We are subject to certain market risks related tolong-term financing and related derivative financial instruments, foreigncurrency exchange rates and raw material commodity prices. These financialexposures are managed as an integral part of our risk management program, whichseeks to reduce the potentially adverse effect that the volatility of theinterest rate, exchange rate, raw material commodity and natural gas marketsmay have on our operating results. We do not engage in speculativetransactions, nor do we hold or issue financial instruments for tradingpurposes.

*Interest Rate Risk Management.**  *The following table is “forward-looking”information that provides information about our debt obligations and othersignificant financial instruments that are sensitive to changes in interestrates. Our policy is to manage interest rates through use of a combination offixed and floating rate debt instruments. At times, we may utilize interestrate swap agreements to help manage our interest rate risk. As of December 31,2006, we had interest rate swaps with notional amounts totaling $300.0 millionto fix the interest rate on $300.0 million of our variable London InterbankOffered Rate or LIBOR based term debt. As of December 31, 2005, we had nointerest rate swap agreements in place. We currently estimate that a 100 basispoint change in prevailing market interest rates or our variable rate debtwould impact our related annual pre-tax income by $5.2 million. The tablepresents principal cash flows and related weighted average interest rates byexpected maturity dates for the financial instruments.
|                                    | ** ** | **Principal (Notional) Amounts by Expected Maturity Date** | ** ** |
|------------------------------------|------------|------------------------------------------------------------------------------------------|------------|
| **Dollars in Thousands** | ** ** | ** **                                                                               | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** | **2010** | ** ** | **2011** | ** ** | **Thereafter** | ** ** | **Total** | ** ** | **Fair value  at 12/31/06** | ** ** |
| Financial  instruments:            |       |                                                                                     |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Fixed rate principal               |       | $                                                                                        | —     |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   |   | $ | 813,145 |   |   | $ | 813,145 |   |   | $ | 771,500 |   |   |
| Average interest rate              |       | —                                                                                   | %          | — | % | — | % | — | % | — | % |   | 9.47 | % |   | 9.47 | % |   |   |   |   |
| Variable rate principal            |       | $                                                                                        | 6,554      |   | $ | 6,395 |   | $ | 151,331 |   | $ | 6,268 |   | $ | 32,106 |   |   | $ | 616,715 |   |   | $ | 819,369 |   |   | $ | 819,369 |   |   |
| Average interest rate              |       | 7.35                                                                                     | %          | 7.35 | % | 5.80 | % | 7.35 | % | 7.35 | % |   | 7.35 | % |   | 6.91 | % |   |   |   |   |
| Interest rate swaps                |       | $                                                                                        | —     |   | $ | 225,000 |   | $ | 75,000 |   | $ | — |   | $ | — |   |   | $ | — |   |   | $ | 300,000 |   |   | $ | (1,148 | ) |   |
| Average interest rate              |       | —                                                                                   | %          | 5.19 | % | 5.32 | % | — | % | — | % |   | — | % |   | 5.22 | % |   |   |   |   |
|                                    |            |                                                                                          |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

*ForeignCurrency Exchange Risk Management.  *Ourinternational operations require active participation in foreign exchangemarkets. We may or may not enter into foreign exchange forward contracts andoptions, and cross-currency swaps to hedge various currency exposures or createdesired exposures. At December 31, 2006 and 2005, we had no forwardcontracts, options and cross-currency swaps to buy, sell or exchange foreigncurrencies.

*RawMaterials and Natural Gas Price Risk Management.**  *The availability and price of our rawmaterials and natural gas are subject to fluctuations due to unpredictablefactors in global supply and demand. To reduce price risk caused by marketfluctuations, from time to time, we may enter into forward swap contracts,which are generally less than one year in duration. We designate forward swapcontracts with financial counter-parties as cash flow hedges. Any outstandingcontracts are valued at market with the offset going to other comprehensiveincome, net of applicable income taxes, and any material hedge ineffectivenessis recognized in cost of goods sold. Any gain or loss is recognized in cost ofgoods sold in the same period or periods during which the hedged transactionaffects earnings. At December 31, 2006 and 2005, we had no raw material ornatural gas forward swap contracts outstanding.

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We also have other long-term supply contracts for rawmaterials, which are at prices not in excess of market, designed to assure asource of supply and not expected to be in excess of our normal manufacturingoperations requirements. Historically, we have taken physical delivery underthese contracts and we intend to take physical delivery in the future.Therefore, at inception we designate these contracts as normal purchaseagreements and account for them under the normal purchase provision of SFAS No. 133, *Accountingfor Derivative Instruments and Hedging Activities,*and relatedamendments.

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**Item 8.**   FINANCIALSTATEMENTS AND SUPPLEMENTARY DATA.

**Report ofIndependent Registered Public Accounting Firm**

To the Board of Directors and Stockholders of Georgia Gulf Corporation**Atlanta, Georgia

We have audited the accompanying consolidated balancesheets of Georgia Gulf Corporationand subsidiaries (the “Company”) as of December 31, 2006 and 2005, and therelated consolidated statements of income, stockholders’ equity, and cash flowsfor each of the three years in the period ended December 31, 2006. Our auditsalso included the financial statement schedule listed in the Index atItem 15. These financial statements and financial statement schedule arethe responsibility of the Company’s management. Our responsibility is toexpress an opinion on the financial statements and financial statement schedulebased on our audits.

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

In our opinion, such consolidated financial statementspresent fairly, in all material respects, the financial position of the Companyas of December 31, 2006 and 2005, and the results of its operations andits cash flows for each of the three years in the period ended December 31,2006, in conformity with accounting principles generally accepted in the UnitedStates of America. Also, in our opinion, such financial statement schedule,when considered in relation to the basic consolidated financial statementstaken as a whole, presents fairly, in all material respects, the informationset forth therein.

As described in Note 1, the Company adopted theprovisions of Statement of Financial Accounting Standards No. 123R*, Share-Based Payment*, on January 1,2006. As described in Note 2, the Company adopted the recognition anddisclosure provision of Statement of Financial Accounting Standards No. 158*Employers’ Accounting for Defined BenefitPension and Other Postretirement Plans*on December 31, 2006.

We have also audited, inaccordance with the standards of the Public Company Accounting Oversight Board(United States), the effectiveness of the Company’s internal control overfinancial reporting as of December 31, 2006, based on the criteriaestablished in *Internal Control—IntegratedFramework* issued by the Committee of Sponsoring Organizations of theTreadway Commission and our report dated March 30, 2007, expressed anunqualified opinion on management’s assessment of the effectiveness of theCompany’s internal control over financial reporting and an unqualified opinionon the effectiveness of the Company’s internal control over financialreporting.

/s/ DELOITTE &TOUCHE LLP

Atlanta, GeorgiaMarch 30, 2007

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**Georgia Gulf Corporation and SubsidiariesConsolidated Balance Sheets(In Thousands, Except Share Data)**

| ** **                                                                                                                                  | ** ** | **December 31,** | ** **    |
|---------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|---------------|
| ** **                                                                                                                                  | ** ** | **2006**              | ** **    | **2005** | ** ** |
| **Assets**                                                                                                                                  |       |                  |          |   |   |
| Cash and cash  equivalents                                                                                                                  | ** ** | **$**                 | **9,641**     |   | $ | 14,298 |   |
| Receivables, net  of allowance for doubtful accounts of $16,147 in 2006 and $2,457 in 2005                                                  | ** ** | **237,496**           |          | 116,123 |   |
| Inventories                                                                                                                                 | ** ** | **339,405**           |          | 195,628 |   |
| Prepaid expenses                                                                                                                            | ** ** | **29,577**            |          | 13,306 |   |
| Income tax  receivable                                                                                                                      | ** ** | **37,143**            |          | 2,070 |   |
| Deferred income  taxes                                                                                                                      | ** ** | **30,664**            |          | 5,091 |   |
| Current assets held-for-sale  and of discontinued operations                                                                                | ** ** | **11,080**            |          | — |   |
| Total current assets                                                                                                                        | ** ** | **695,006**           |          | 346,516 |   |
| Property, plant  and equipment, net                                                                                                         | ** ** | **1,023,004**         |          | 401,412 |   |
| Goodwill                                                                                                                                    | ** ** | **377,124**           |          | 77,720 |   |
| Intangible  assets, net                                                                                                                     | ** ** | **88,361**            |          | — |   |
| Other assets, net                                                                                                                           | ** ** | **204,813**           |          | 175,305 |   |
| Non-current  assets held for sale                                                                                                           | ** ** | **69,919**            |          | — |   |
| Total assets                                                                                                                                | ** ** | **$**                 | **2,458,227** |   | $ | 1,000,953 |   |
| **Liabilities and Stockholders’  Equity**                                                                                              | ** ** | ** **            |          |   |   |
| Current portion  of long-term debt                                                                                                          | ** ** | **$**                 | **32,495**    |   | $ | 49,300 |   |
| Accounts payable                                                                                                                            | ** ** | **215,282**           |          | 202,179 |   |
| Interest payable                                                                                                                            | ** ** | **21,290**            |          | 1,226 |   |
| Accrued  compensation                                                                                                                       | ** ** | **37,218**            |          | 14,986 |   |
| Income tax  reserve                                                                                                                         | ** ** | **88,338**            |          | 3,780 |   |
| Other accrued  liabilities                                                                                                                  | ** ** | **97,428**            |          | 12,715 |   |
| Total current liabilities                                                                                                                   | ** ** | **492,051**           |          | 284,186 |   |
| Long-term debt                                                                                                                              | ** ** | **1,465,639**         |          | 229,339 |   |
| Deferred income  taxes                                                                                                                      | ** ** | **88,476**            |          | 107,959 |   |
| Other non-current  liabilities                                                                                                              | ** ** | **18,538**            |          | 16,457 |   |
| Total liabilities                                                                                                                           | ** ** | **2,064,704**         |          | 637,941 |   |
| Commitments and  contingencies (note 11)                                                                                                    | ** ** | ** **            |          |   |   |
| Stockholders’ equity:                                                                                                                  | ** ** | ** **            |          |   |   |
| Preferred stock—$0.01 par value; 75,000,000 shares  authorized; no shares issued                                                       |       | —                |          | — |   |
| Common stock—$0.01 par value; 75,000,000 shares  authorized; shares issued and outstanding: 34,389,930 in 2006 and 34,237,653  in 2005 | ** ** | **344**               |          | 342 |   |
| Additional  paid-in capital                                                                                                                 | ** ** | **94,046**            |          | 81,782 |   |
| Unearned  compensation                                                                                                                      |       | —                |          | (5,377 | ) |
| Retained earnings                                                                                                                           | ** ** | **324,007**           |          | 286,464 |   |
| Accumulated other  comprehensive loss, net of tax                                                                                           | ** ** | **(24,874**           | **)**         | (199 | ) |
| Total stockholders’ equity                                                                                                             | ** ** | **393,523**           |          | 363,012 |   |
| Total liabilities  and stockholders’ equity                                                                                            | ** ** | **$**                 | **2,458,227** |   | $ | 1,000,953 |   |

 

See accompanying notes to consolidated financial statements.

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**Georgia Gulf Corporation and SubsidiariesConsolidated Statements of Income(In Thousands, Except Per Share Data)**

| ** **                                                 | ** ** | **Year Ended December 31,** | ** **    |
|------------------------------------------------------------|------------|--------------------------------------------|---------------|
| ** **                                                 | ** ** | **2006**                                   | ** **    | **2005** | ** ** | **2004** | ** ** |
| Net sales                                                  | ** ** | **$**                                      | **2,427,843** |   | $ | 2,273,719 |   | $ | 2,206,239 |   |
| Operating costs and  expenses:                             | ** ** | ** **                                 |          |   |   |   |   |
| Cost of sales                                              | ** ** | **2,152,571**                              |          | 2,049,510 |   | 1,955,095 |   |
| Selling, general and administrative expenses               | ** ** | **119,151**                                |          | 61,444 |   | 60,721 |   |
| Total operating costs and expenses                         | ** ** | **2,271,722**                              |          | 2,110,954 |   | 2,015,816 |   |
| Operating income                                           | ** ** | **156,121**                                |          | 162,765 |   | 190,423 |   |
| Other income (expense):                                    | ** ** | ** **                                 |          |   |   |   |   |
| Interest expense                                           | ** ** | **(51,648**                                | **)**         | (20,527 | ) | (23,778 | ) |
| Loss on foreign exchange derivative instruments and  other | ** ** | **(21,543**                                | **)**         | — |   | — |   |
| Interest income                                            | ** ** | **369**                                    |          | 120 |   | 115 |   |
| Income from  continuing operations before income taxes     | ** ** | **83,299**                                 |          | 142,358 |   | 166,760 |   |
| Provision for  income taxes                                | ** ** | **31,497**                                 |          | 46,855 |   | 60,868 |   |
| Income from  continuing operations                         | ** ** | **51,802**                                 |          | 95,503 |   | 105,892 |   |
| Loss from  discontinued operations, net of tax of $1,821   | ** ** | **(3,263**                                 | **)**         | — |   | — |   |
| Net income                                                 | ** ** | **$**                                      | **48,539**    |   | $ | 95,503 |   | $ | 105,892 |   |
| Earnings (loss) per  share:                                | ** ** | ** **                                 |          |   |   |   |   |
| Basic                                                      | ** ** | ** **                                 |          |   |   |   |   |
| Income from continuing operations                          | ** ** | **$**                                      | **1.52**      |   | $ | 2.82 |   | $ | 3.21 |   |
| Loss from discontinued operations                          | ** ** | **(0.10**                                  | **)**         | — |   | — |   |
| Net income                                                 | ** ** | **$**                                      | **1.42**      |   | $ | 2.82 |   | $ | 3.21 |   |
| Diluted                                                    | ** ** | ** **                                 |          |   |   |   |   |
| Income from continuing operations                          | ** ** | **$**                                      | **1.51**      |   | $ | 2.79 |   | $ | 3.17 |   |
| Loss from discontinued operations                          | ** ** | **(0.10**                                  | **)**         | — |   | — |   |
| Net income                                                 | ** ** | **$**                                      | **1.41**      |   | $ | 2.79 |   | $ | 3.17 |   |
| Weighted average  common shares—basic                 | ** ** | **34,093**                                 |          | 33,867 |   | 32,965 |   |
| Weighted average common  shares—diluted               | ** ** | **34,386**                                 |          | 34,193 |   | 33,439 |   |

 

See accompanying notes to consolidated financial statements.

53

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**Georgia Gulf Corporation and SubsidiariesConsolidated Statements of Stockholders’ Equity(In Thousands)**

| ** **                                                                                           | ** ** | **Common Stock** | ** ** | **Additional  Paid-In  Capital** | ** ** | **Unearned  Compensation** | ** ** | **Retained  Earnings** | ** ** | **Accumulated  Other  Comprehensive  Income (loss)** | ** ** | **Total  Stockholders’  Equity** | ** ** |
|------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|----------------------------------|------------|----------------------------|------------|------------------------|------------|-----------------------------------------------------------|------------|---------------------------------------|------------|
| **Shares**                                                                                           | ** ** | **Amount**            |
| Balance,  January 1, 2004                                                                       |       |                  | 32,736     |                             |       |                       | $          | 327                    |       |                                                      |       | $                                     | 32,133     |   |   |   | $ | (2,380 | ) |   |   | $ | 106,633 |   |   |   | $ | (274 | ) |   |   | $ | 136,439 |   |   |
| Comprehensive income:                                                                                |       |                  |       |                             |       |                       |       |                   |       |                                                      |       |                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net income                                                                                           |       |                  | —     |                             |       |                       | —     |                   |       |                                                      | —     |                                  |       |   | — |   |   |   | 105,892 |   |   |   | — |   |   |   | 105,892 |   |   |
| Unrealized gains  on derivative contracts, net of taxes of $122                                      |       |                  | —     |                             |       |                       | —     |                   |       |                                                      | —     |                                  |       |   | — |   |   |   | — |   |   |   | (204 | ) |   |   | (204 | ) |   |
| Minimum pension  liability adjustment, net of taxes of $179                                          |       |                  | —     |                             |       |                       | —     |                   |       |                                                      | —     |                                  |       |   | — |   |   |   | — |   |   |   | 319 |   |   |   | 319 |   |   |
| Total  comprehensive income                                                                          |       |                  |       |                             |       |                       |       |                   |       |                                                      |       |                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   | 106,007 |   |   |
| Employee stock  purchase and stock compensation plans, net of forfeitures                            |       |                  | 1,210      |                             |       |                       | 12         |                   |       |                                                      | 31,832     |                                  |       |   | (682 | ) |   |   | — |   |   |   | — |   |   |   | 31,162 |   |   |
| Retirement of  common stock                                                                          |       |                  | (21        | )                                |       |                       | —     |                   |       |                                                      | (602       | )                                     |       |   | — |   |   |   | — |   |   |   | — |   |   |   | (602 | ) |   |
| Tax benefit from  stock purchase and stock compensation plans                                        |       |                  | —     |                             |       |                       | —     |                   |       |                                                      | 5,912      |                                  |       |   | — |   |   |   | — |   |   |   | — |   |   |   | 5,912 |   |   |
| Dividends                                                                                            |       |                  | —     |                             |       |                       | —     |                   |       |                                                      | —     |                                  |       |   | — |   |   |   | (10,649 | ) |   |   | — |   |   |   | (10,649 | ) |   |
| Balance,  December 31, 2004                                                                     |       |                  | 33,925     |                             |       |                       | 339        |                   |       |                                                      | 69,275     |                                  |       |   | (3,062 | ) |   |   | 201,876 |   |   |   | (159 | ) |   |   | 268,269 |   |   |
| Comprehensive income:                                                                                |       |                  |       |                             |       |                       |       |                   |       |                                                      |       |                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net income                                                                                           |       |                  | —     |                             |       |                       | —     |                   |       |                                                      | —     |                                  |       |   | — |   |   |   | 95,503 |   |   |   | — |   |   |   | 95,503 |   |   |
| Minimum pension  liability adjustment, net of taxes of $24                                           |       |                  | —     |                             |       |                       | —     |                   |       |                                                      | —     |                                  |       |   | — |   |   |   | — |   |   |   | (40 | ) |   |   | (40 | ) |   |
| Total  comprehensive income                                                                          |       |                  |       |                             |       |                       |       |                   |       |                                                      |       |                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   | 95,463 |   |   |
| Employee stock  purchase and stock compensation plans, net of forfeitures                            |       |                  | 347        |                             |       |                       | 3          |                   |       |                                                      | 12,016     |                                  |       |   | (2,315 | ) |   |   | — |   |   |   | — |   |   |   | 9,704 |   |   |
| Retirement of  common stock                                                                          |       |                  | (34        | )                                |       |                       | —     |                   |       |                                                      | (1,681     | )                                     |       |   | — |   |   |   | — |   |   |   | — |   |   |   | (1,681 | ) |   |
| Tax benefit from  stock purchase and stock compensation plans                                        |       |                  | —     |                             |       |                       | —     |                   |       |                                                      | 2,172      |                                  |       |   | — |   |   |   | — |   |   |   | — |   |   |   | 2,172 |   |   |
| Dividends                                                                                            |       |                  | —     |                             |       |                       | —     |                   |       |                                                      | —     |                                  |       |   | — |   |   |   | (10,915 | ) |   |   | — |   |   |   | (10,915 | ) |   |
| Balance,  December 31, 2005                                                                     |       |                  | 34,238     |                             |       |                       | 342        |                   |       |                                                      | 81,782     |                                  |       |   | (5,377 | ) |   |   | 286,464 |   |   |   | (199 | ) |   |   | 363,012 |   |   |
| **Comprehensive income:**                                                                            | ** ** | ** **            | ** ** | ** **                       | ** ** | ** **                 | ** ** |                   | ** ** | ** **                                                | ** ** | ** **                            | ** ** | ** ** | ** ** |   | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Net  income**                                                                                      |       |                  | —     |                             |       |                       | —     |                   |       |                                                      | —     |                                  |       |   | — |   | ** ** | ** ** | **48,539** |   |   |   | — | ** ** | ** ** | ** ** | **48,539** | ** ** | ** ** |
| **Minimum  pension liability adjustment, net of taxes of   $17**                                     |       |                  | —     |                             |       |                       | —     |                   |       |                                                      | —     |                                  |       |   | — |   |   |   | — | ** ** | ** ** | ** ** | **29** | ** ** | ** ** | ** ** | **29** | ** ** | ** ** |
| **Foreign  currency translation adjustments, net of taxes of $12,098**                               |       |                  | —     |                             |       |                       | —     |                   |       |                                                      | —     |                                  |       |   | — |   |   |   | — | ** ** | ** ** | ** ** | **(21,390** | **)** | ** ** | ** ** | **(21,390** | **)** | ** ** |
| **Unrealized  loss on derivatives, net of tax of $417**                                              |       |                  | —     |                             |       |                       | —     |                   |       |                                                      | —     |                                  |       |   | — |   |   |   | — | ** ** | ** ** | ** ** | **(725** | **)** | ** ** | ** ** | **(725** | **)** | ** ** |
| **Total  comprehensive income**                                                                      | ** ** | ** **            | ** ** | ** **                       | ** ** | ** **                 | ** ** |                   | ** ** | ** **                                                | ** ** | ** **                            | ** ** | ** ** | ** ** |   | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **26,453** | ** ** | ** ** |
| **Adjustment  to initially apply SFAS No. 158, net of taxes of $1,736**                         |       |                  | —     |                             |       |                       | —     |                   |       |                                                      | —     |                                  |       |   | — |   |   |   | — | ** ** | ** ** | ** ** | **(2,589** | **)** | ** ** | ** ** | **(2,589** | **)** | ** ** |
| **Employee  stock purchase and stock compensation plans, net of forfeitures, net of tax  of $1,419** | ** ** | ** **            | **187**    | ** **                       | ** ** | ** **                 | **2**      |                   | ** ** | ** **                                                | **10,520** | ** **                            | ** ** | ** ** | **5,377** |   |   |   | — |   |   |   | — | ** ** | ** ** | ** ** | **15,899** | ** ** | ** ** |
| **Retirement  of common stock**                                                                      | ** ** | ** **            | **(35**    | **)**                            |       |                       | —     |                   | ** ** | ** **                                                | **(1,032** | **)**                                 |       |   | — |   |   |   | — |   |   |   | — | ** ** | ** ** | ** ** | **(1,032** | **)** | ** ** |
| **Tax  benefit from stock purchase and stock compensation   plans**                                  |       |                  | —     |                             |       |                       | —     |                   | ** ** | ** **                                                | **1,432**  |                                  |       |   | — |   |   |   | — |   |   |   | — | ** ** | ** ** | ** ** | **1,432** | ** ** | ** ** |
| **Dividends**                                                                                        |       |                  | —     |                             |       |                       | —     |                   |       |                                                      | —     |                                  |       |   | — |   | ** ** | ** ** | **(10,996** | **)** |   |   | — | ** ** | ** ** | ** ** | **(10,996** | **)** | ** ** |
| **Tax benefit  from transfer of subsidiary to parent**                                               |       |                  | —     |                             |       |                       | —     |                   | ** ** | ** **                                                | **1,344**  |                                  |       |   | — |   |   |   | — |   |   |   | — | ** ** | ** ** | ** ** | **1,344** | ** ** | ** ** |
| **Balance,  December 31, 2006**                                                                 | ** ** | ** **            | **34,390** | ** **                       | ** ** | ** **                 | **$**      | **344**                |       | ** **                                                | ** ** | **$**                                 | **94,046** | ** ** | ** ** | ** ** | **$** | **—** |   | ** ** | ** ** | **$** | **324,007** | ** ** | ** ** | ** ** | **$** | **(24,874** | **)** | ** ** | ** ** | **$** | **393,523** | ** ** | ** ** |

 

See accompanying notes to consolidated financial statements.

54

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**Georgia Gulf Corporation and SubsidiariesConsolidated Statements of Cash Flows(In Thousands)**

 

| ** **                                                                         | ** ** | **Year Ended December 31,** | ** ** |
|------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                         | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| Operating  activities:                                                             |       |                                       |       |   |   |   |   |
| Net income                                                                         | ** ** | **$**                                      | **48,539** |   | $ | 95,503 |   | $ | 105,892 |   |
| Adjustments  to reconcile net income to net cash provided by operating activities: |       |                                       |       |   |   |   |   |
| Depreciation and amortization                                                      | ** ** | **85,019**                                 |       | 63,101 |   | 64,554 |   |
| Deferred income taxes                                                              | ** ** | **(21,189**                                | **)**      | (15,067 | ) | 3,686 |   |
| Tax benefit related to stock plans                                                 |       | —                                     |       | 2,172 |   | 5,912 |   |
| Stock based compensation                                                           | ** ** | **12,704**                                 |       | 3,761 |   | 3,215 |   |
| Loss on foreign exchange contracts                                                 | ** ** | **20,843**                                 |       | — |   | — |   |
| Other non-cash items                                                               | ** ** | **8,100**                                  |       | 1,759 |   | 711 |   |
| Change in operating assets and liabilities, net of  effects from acquisitions:     |       |                                       |       |   |   |   |   |
| Receivables                                                                        | ** ** | **114,889**                                |       | 40,659 |   | (112,938 | ) |
| Securitization of trade receivables                                                | ** ** | **(13,000**                                | **)**      | (24,000 | ) | 65,000 |   |
| Inventories                                                                        | ** ** | **75,526**                                 |       | (9,315 | ) | (61,697 | ) |
| Prepaid expenses and other current assets                                          | ** ** | **2,605**                                  |       | (9,369 | ) | 1,857 |   |
| Accounts payable                                                                   | ** ** | **(84,556**                                | **)**      | (3,186 | ) | 69,685 |   |
| Interest payable                                                                   | ** ** | **20,019**                                 |       | (331 | ) | (255 | ) |
| Accrued income taxes                                                               | ** ** | **(19,335**                                | **)**      | 1,258 |   | — |   |
| Accrued compensation                                                               | ** ** | **(2,675**                                 | **)**      | (3,307 | ) | 3,235 |   |
| Other accrued liabilities                                                          | ** ** | **(20,836**                                | **)**      | 3,458 |   | 2,165 |   |
| Advance for long-term purchase contract                                            |       | —                                     |       | (79,000 | ) | — |   |
| Other                                                                              | ** ** | **28,073**                                 |       | 3,049 |   | (15,055 | ) |
| Net cash provided by operating activities from  continuing operations              | ** ** | **254,726**                                |       | 71,145 |   | 135,967 |   |
| Net cash used in operating activities from  discontinued operations                | ** ** | **(4,149**                                 | **)**      | — |   | — |   |
| Net cash provided by operating activities                                          | ** ** | **250,577**                                |       | 71,145 |   | 135,967 |   |
| Investing  activities:                                                             |       |                                       |       |   |   |   |   |
| Acquisition, net of cash acquired                                                  | ** ** | **(1,075,396**                             | **)**      | — |   | — |   |
| Settlement of foreign exchange contracts                                           | ** ** | **(20,843**                                | **)**      | — |   | — |   |
| Capital expenditures                                                               | ** ** | **(90,770**                                | **)**      | (32,044 | ) | (23,441 | ) |
| Proceeds from sale of property, plant and equipment                                | ** ** | **106,092**                                |       | 1,362 |   | — |   |
| Net cash used in investing activities                                              | ** ** | **(1,080,917**                             | **)**      | (30,682 | ) | (23,441 | ) |
| Financing  activities:                                                             |       |                                       |       |   |   |   |   |
| Net change in revolving line of credit                                             | ** ** | **(123,400**                               | **)**      | 59,400 |   | 89,900 |   |
| Long-term debt proceeds                                                            | ** ** | **1,493,543**                              |       | — |   | — |   |
| Long-term debt payments                                                            | ** ** | **(497,374**                               | **)**      | (100,000 | ) | (200,000 | ) |
| Fees paid for bridge financing                                                     | ** ** | **(2,325**                                 | **)**      | — |   | — |   |
| Fees paid to issue debt                                                            | ** ** | **(38,020**                                | **)**      | — |   | — |   |
| Proceeds from issuance of common stock                                             | ** ** | **3,194**                                  |       | 5,943 |   | 27,948 |   |
| Tax benefits from employee share-based exercises                                   | ** ** | **1,432**                                  |       | — |   | — |   |
| Purchase and retirement of common stock                                            | ** ** | **(1,032**                                 | **)**      | (1,681 | ) | (602 | ) |
| Dividends                                                                          | ** ** | **(10,996**                                | **)**      | (10,915 | ) | (10,649 | ) |
| Net cash used in financing activities                                              | ** ** | **825,022**                                |       | (47,253 | ) | (93,403 | ) |
| Effect of exchange rate changes on cash and cash equivalents                       | ** ** | **661**                                    | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net change in cash and cash equivalents                                            | ** ** | **(4,657**                                 | **)**      | (6,790 | ) | 19,123 |   |
| Cash and cash  equivalents at beginning of year                                    | ** ** | **14,298**                                 |       | 21,088 |   | 1,965 |   |
| Cash and cash  equivalents at end of year                                          | ** ** | **9,641**                                  |       | 14,298 |   | 21,088 |   |
|                                                                                    |            |                                            |            |  |  |  |  |  |  |  |

 

See accompanying notes to consolidated financial statements.

55

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**Georgia Gulf Corporation and Subsidiaries Notes to Consolidated Financial Statements**

**1.**   SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF BUSINESS

*Principlesof Consolidation.****  ******The consolidated financialstatements include the accounts of Georgia Gulf Corporation and its whollyowned subsidiaries. All significant intercompany balances and transactions havebeen eliminated in consolidation.***

*Natureof Operations.**  *Weare a leading North American manufacturer and an international marketer ofchlorovinyl and aromatics chemicals and vinyl-based building and homeimprovement products. Our chlorovinyl and aromatic chemicals products are soldfor further processing into a wide variety of end-use applications, includingplastic pipe and pipe fittings, siding and window frames, bonding agents forwood products, high-quality plastics, acrylic sheeting and coatings for wireand cable. Our vinyl-based building and home improvement products, marketedunder the Royal Group brands, primarily include window and door profiles,mouldings, siding, pipe and pipe fittings, deck, fence and rail products, and outdoorstorage buildings.

*Useof Estimates.**  *Managementis required to make estimates and assumptions that affect amounts reported inthe financial statements and accompanying notes prepared in conformity withaccounting principles generally accepted in the United States of America. Actualresults could differ from those estimates.

*Reclassifications.**  *Certain prior period balances havebeen reclassified to conform to the current year presentation.

*ForeignCurrency Translation and Transactions.**  *Our subsidiaries that operateoutside the United States use their local currency as the functional currency. Thefunctional currency is translated into U.S. dollars for balance sheet accountsusing the month end exchange rates in effect as of the balance sheet date and averageexchange rate for revenues and expenses for each respective period. Thetranslation adjustments are deferred as a separate component of stockholders’equity, within accumulated other comprehensive income (loss), net of tax whereapplicable. Gains or losses resulting from transactions denominated in foreigncurrencies are reported in the same financial statement captions as theunderlying transactions in the consolidated statements of income. We recordedlosses of $2.7 million in fiscal 2006. We had no significant foreign exchangelosses or gains for fiscal 2005 and 2004.

*Cashand Cash Equivalents.**  *Marketablesecurities that are highly liquid with an original maturity of three months orless are considered to be the equivalent of cash for purposes of financialstatement presentation.

*AccountsReceivable and Allowance for Doubtful Accounts.**  *We grant credit to customers undercredit terms that are customary in the industry and based on thecreditworthiness of the customer and generally do not require collateral. Wealso provide allowances for cash discounts and doubtful accounts based onhistorical collection experience, periodic evaluations of the aging of theaccounts receivable and specific collectibility analysis.

*RevenueRecognition.  *We recognize revenue in accordancewith generally accepted accounting principles as outlined in the Securities andExchange Commisions (“SEC’s”), Staff Accounting Bulletin (“SAB”) No. 104 “RevenueRecognition,” which requires that four basic criteria be met before revenue canbe recognized: (i) persuasive evidence of an arrangement exists; (ii) theprice is fixed or determinable; (iii) collectibility is reasonablyassured; and (iv) product delivery has occurred. We recognize revenue asproducts are shipped based on free on board or FOB terms when title passes tocustomers, and the customer takes ownership and assumes risk of loss.

56

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**Georgia Gulf Corporation and Subsidiaries Notes to Consolidated Financial Statements (Continued)**

**1.**   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NATURE OFBUSINESS (Continued)

*SalesIncentives.**  *Weoffer sales incentives, primarily in the form of volume rebates, slotting feesand advertising allowances to our customers, which are classified as a reductionof net sales and are calculated based on contractual terms of customercontracts.

*ShippingCosts.*   Allamounts billed to a customer in a sale transaction related to shipping areclassified as revenue. Shipping fees billed to customers and included in salesand cost of goods sold were $85.1 million in 2006, $78.7 million in 2005 and$71.8 million in 2004.

*AdvertisingCosts.**  *Advertisingcosts and promotion expenses generally relate to our vinyl-based building andhome improvement products marketed under the Royal Group brand names and arecharged to earnings during the period in which they are incurred. Advertisingand promotion expenses are included in selling, general and administrativeexpenses and were $3.8 million in 2006. There were no advertising and promotionexpenses in 2005 and 2004.

*Inventories.**  *Inventories are valued at the lowerof cost or market. Cost is determined using the first-in, first-out method forthe majority of inventory and the weighted average cost method for theremainder. Costs include raw materials, direct labor and manufacturing overhead.Market is based on current replacement cost for raw materials and supplies andon net realizable value for finished goods.

*Property, Plant andEquipment.**  *Property,plant and equipment are stated at cost. The property, plant and equipmentacquired in connection with the acquisition of Royal Group is stated at itsestimated fair value as of October 3, 2006 and is being depreciated overthe estimated useful lives. Maintenance and repairs are charged to expense asincurred, and major renewals and improvements are capitalized. Interest expenseattributable to funds used in financing the construction of major plant andequipment is capitalized. Interest expense capitalized during 2006, 2005 and2004, was $2.2 million,  $0.4 million,and $0.9 million, respectively. Depreciation is computed using thestraight-line method over the estimated useful lives of the assets.Depreciation expense totaled approximately $77.6 million, $57.6 million and$57.5 million, for the years ended December 31, 2006, 2005, and 2004,respectively.  The net book value of ouridled Pasadena, Texas phenol/acetone plant equipment was approximately $1.2million as of December 31, 2006, and is included in property, plant andequipment on our consolidated balance sheet. The estimated useful lives of theassets are as follows:

| Buildings                        |   | 27-30  years |   |
|----------------------------------|--------|--------------|--------|
| Land improvements                |   | 15  years    |   |
| Machinery and  equipment         |   | 3-15  years  |   |
| Dies and moulds                  |   | 4-6  years   |   |
| Office furniture  and equipment  |   | 3-10  years  |   |
| Computer equipment and  software |   | 3-5 years    |   |

 

*Asset RetirementObligation.**  *Weaccount for asset retirement obligations in accordance with Statement ofFinancial Accounting Standards (“SFAS”) No. 143, *Accounting for Asset Retirement Obligations*,which requires the fair value of a liability for an asset retirement obligationbe recognized in the period in which it is incurred and capitalized as part ofthe carrying amount of the long-lived asset. When a liability is initiallyrecorded, we capitalize the cost by increasing the carrying value of therelated long-lived asset. The liability is accreted to its future value eachperiod, and the capitalized cost is 

57

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**Georgia Gulf Corporation and Subsidiaries Notes to Consolidated Financial Statements (Continued)**

**1.**   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NATURE OFBUSINESS (Continued)

depreciated over theestimated useful life of the related asset. Upon settlement of the liability, again or loss is recorded.  We had $2.3and $1.9 million of asset retirement obligations recorded in other non-currentliabilities in the consolidated balance sheets as of December 31, 2006 and2005, respectively.

*OtherAssets.**  *Otherassets primarily consist of advances for long-term raw materials purchasecontracts (see note 11), our investment in joint ventures (see notes 8 and 12),unamortized debt issuance costs (see note 8) and prepaid pension costs (seenote 15). Advances for long-term raw materials purchase contracts are beingamortized as additional raw materials costs over the life of the relatedcontracts in proportion to raw materials delivery. Debt issuance costs arebeing amortized to interest expense using the effective interest rate andstraight-line methods over the term of the related debt instruments.

*Goodwilland Other Intangible Assets.**  *We account for our goodwill and other intangibleassets in accordance with SFAS No. 142 *Goodwilland Other Intangible Assets.*Goodwill is the excess of cost of anacquired entity over the amounts specifically assigned to assets acquired andliabilities assumed in purchase accounting for business combinations. Our otheridentifiable intangible assets are intangible assets such as customer lists,trade names and technology that were identified during acquisitions. We testthe carrying value of our goodwill and other intangible assets with indefinitelives for impairment on an annual basis on October 1. The carrying valuewill be tested for impairment between annual impairment tests if an eventoccurs or circumstances change that would indicate the carrying amount may beimpaired. Impairment testing for goodwill and other intangible assets is doneat a reporting unit level. An impairment loss may be recognized when thecarrying amount of the reporting unit’s net assets exceeds the estimated fairvalue of the reporting unit. Intangible assets with definite lives areamortized on a straight-line basis over their estimated useful lives. See note9 for a summary of goodwill and other intangible assets by reportable segment.

*Long-LivedAssets.**  *Our long-livedassets, such as property, plant, and equipment, are analyzed for impairmentwhenever events or changes in circumstances indicate that the carrying amountof an asset may not be recoverable. Recoverability of assets to be held andused is measured by a comparison of the carrying amount of an asset toestimated undiscounted future cash flows expected to be generated by the asset.If the carrying amount of an asset exceeds its estimated future cash flows, animpairment charge is recognized by the amount by which the carrying amount ofthe asset exceeds the estimated fair value of the asset. Assets to be disposedof would be recorded at the lower of the carrying amount or fair value lesscosts to sell and no longer depreciated.

*PensionPlans and Other Postretirement Benefit Plans.**  *We have defined contributionpension plans covering substantially all of our employees. In addition, we havethree defined benefit pensions plans and one postretirement benefit plan. Forthe defined benefit pension plans, the benefits are based on years of serviceand the employee’s compensation. Our policy on funding the defined benefitplans is to contribute an amount within the range of the minimum required andthe maximum tax-deductible contribution.

Accounting for employee retirement plans involvesestimating the cost of benefits that are to be provided in the future andattempting to match, for each employee, that estimated cost to the periodworked. To accomplish this, we make assumptions about discount rates, expectedlong-term rates of return on plan assets, salary increases and employeeturnover and mortality, among others. We reevaluate all assumptions annuallywith our independent actuaries taking into consideration existing as well asforecasted economic conditions, and our policy and strategy with regard to theplans.

58

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**Georgia Gulf Corporation and Subsidiaries Notes to Consolidated Financial Statements (Continued)**

**1.**   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NATURE OFBUSINESS (Continued)

*IncomeTaxes.**  *Incometaxes are accounted for under the asset and liability method. Deferred taxassets and liabilities are recognized for the future tax consequencesattributable to differences between the financial statement carrying amounts ofexisting assets and liabilities and their respective tax bases. Deferred taxassets and liabilities are measured using enacted tax rates expected to applyto taxable income in the years in which those temporary differences areexpected to be recovered or settled. The effect on deferred tax assets andliabilities of a change in tax rates is recognized in income in the period thatincludes the enactment date.

We accrue for tax contingencies when it is probablethat a liability to a taxing authority has been incurred and the amount of thecontingency can be reasonably estimated. The tax contingency reserve isadjusted for, among other things, changes in factors and circumstances, receiptof tax assessments, expiration of statute of limitations, interest, andsettlements and additional uncertainties.

*Self-InsuranceAccruals.*   We are self-insured up to certainlimits for costs associated with workers’ compensation and employee groupmedical coverage. Liabilities for insurance claims and reserves includeaccruals of estimated settlements for known claims, as well as accruals of estimatesof incurred but not reported claims. These accruals are included in othercurrent liabilities in the accompanying consolidated balance sheets. We alsouse information provided by independent consultants to assist in thedetermination of estimated accruals. In estimating these costs, we considerhistorical loss experience and make judgments about the expected levels ofcosts per claim.

*Warranty Costs.*   Weprovide a warranty for certain building and home improvement products againstdefects in material, performance and workmanship. We accrue for warranty claimsat the time of sale based on historical warranty claims experience. Prior tothe October 3, 2006, acquisition of Royal Group, we did not offer anywarranties. Warranty provisions and claims for the year ended December 31,2006, included in other accrued liabilities in the consolidated balance sheetswere as follows:

| **In Thousands**                                                          | ** ** | ** ** | ** ** | **2006**   | ** ** |
|--------------------------------------------------------------------------------|------------|------------|------------|------------|------------|
| January 1,  2006                                                          | ** ** | **$**      | **—** | ** ** |
| Estimated fair  value of warranty liability assumed in Royal Group acquisition | ** ** | **7,344**  | ** ** |
| Warranty  provisions                                                           | ** ** | **1,938**  | ** ** |
| Warranty claims                                                                | ** ** | **(1,618** | **)**      |
| December 31, 2006                                                         | ** ** | **$**      | **7,664**  | ** ** |

* *

*Derivative FinancialInstruments.**  *Derivatives that are not hedges must beadjusted to fair value through earnings in accordance with SFAS No. 133, *Accounting for Derivative Instruments and HedgingActivities and its related amendments*. If the derivative is a hedge,depending on the nature of the hedge, changes in its fair value are eitheroffset against the change in fair value of assets, liabilities, or firmcommitments through earnings or recognized in other comprehensive income untilthe hedged item is recognized in earnings. We engage in activities that exposeus to market risks, including the effects of changes in interest rates, foreigncurrency and changes in commodity prices. Financial exposures are managed as anintegral part of our risk management program, which seeks to reduce thepotentially adverse effect that the volatility of the interest rate, foreigncurrency, and commodity markets may have on operating results. We do not engagein speculative transactions nor do we hold or issue financial 

59

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**Georgia Gulf Corporation and Subsidiaries Notes to Consolidated Financial Statements (Continued)**

**1.**   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NATURE OFBUSINESS (Continued)

instruments for tradingpurposes. Long-term supply agreements that meet the appropriate criteria areaccounted for under the normal purchase provisions within SFAS No. 133 andits amendments.

We formally document all hedging instruments andhedging transactions, as well as our risk management objective and strategy forundertaking hedged transactions. This process includes linking all derivativesthat are designated as fair value and cash flow hedges to specific assets orliabilities on the consolidated balance sheet or to forecasted transactions. Wealso formally assess, both at inception and on an ongoing basis, whether thederivatives that are used in hedging transactions are highly effective inoffsetting changes in fair value or cash flows of hedged transactions. When itis determined that a derivative is not highly effective or the derivativeexpires or is sold, terminated, exercised, or discontinued because it isunlikely that a forecasted transaction will occur, we discontinue the use ofhedge accounting for that specific hedge instrument.

*Litigation.*   Inthe normal course of business, we are involved in legal proceedings. We accruea liability for such matters when it is probable that a material liability hasbeen incurred and the amount can be reasonably estimated. The accrual for alitigation loss contingency might include, for example, estimates of potentialdamages, outside legal fees and other directly related costs expected to beincurred.

*EnvironmentalExpenditures.**  *Environmentalexpenditures related to current operations or future revenues are expensed orcapitalized consistent with our capitalization policy. Expenditures that relateto an existing condition caused by past operations and that do not contributeto future revenues are expensed in the period incurred. Liabilities arerecognized when material environmental assessments or cleanups are probable andthe costs can be reasonably estimated.

*Comprehensive Loss.**  *Comprehensive loss includes foreigncurrency translation of assets and liabilities of foreign subsidiaries, effectsof exchange rate changes on intercompany balances of a long-term nature,derivative financial instruments designated as cash flow hedges, and minimumpension liabilities as required by SFAS No. 158. Amounts recorded inaccumulated other comprehensive loss, net of tax, on the ConsolidatedStatements of Shareholders’ Equity for the years ended December 31, 2006,2005, and 2004 are as follows: 

| ** **                                       | ** ** | **December 31,** | ** **                       |
|--------------------------------------------------|------------|-----------------------|----------------------------------|
| **In Thousands**                            | ** ** | ** **            | ** **                       | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
| Unrealized gains  on derivative contracts        | ** ** | **$**                 | **    (725** | **)** | $ |     — |   | $ |     — |   |
| Minimum pension  liability                       | ** ** | **(170**              | **)**                            | (199 | ) | (159 | ) |
| Adjustment to  initially apply SFAS No. 158 | ** ** | **(2,589**            | **)**                            |     — |   |     — |   |
| Currency  translation adjustment                 | ** ** | **(21,390**           | **)**                            |     — |   |     — |   |
| Accumulated other  comprehensive loss            | ** ** | **$**                 | **(24,874**                      | **)** | $ | (199 | ) | $ | (159 | ) |
|                                                  |            |                       |                                  |  |  |  |  |  |  |  |  |  |

 

*Stock-BasedCompensation.**  *OnJanuary 1, 2006, we adopted SFAS No. 123R, *Share Based Payment,* using the modified prospective methodof adoption. SFAS No. 123R requires all share-based payments to employees,including grants of employee stock options and shares purchased under an employeestock purchase plan (“ESPP”) to be recognized in the financial statements basedon their fair values.

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**Georgia Gulf Corporation and Subsidiaries Notes to Consolidated Financial Statements**

**1.**   SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF BUSINESS (Continued)

Upon our adoption of SFAS No. 123R, we beganrecording compensation cost related to the continued vesting of all stockoptions that were unvested as of January 1, 2006, as well as for all newstock option grants after our adoption date. The compensation cost to berecorded is based on the fair value at the grant date. The adoption of SFAS No. 123Rdid not have an effect on our recognition of compensation expense relating torestricted stock grants. SFAS No. 123R required the elimination ofunearned compensation (contra-equity account) related to earlier awards againstthe appropriate equity accounts, additional paid-in capital, in ourcircumstance. Prior to the adoption of SFAS No. 123R, cash flows resultingfrom the tax benefit related to stock-based compensation were presented inoperating activities in the statements of cash flows, along with other tax cashflows, in accordance with the provisions of Emerging Issues Task Force (“EITF”)Issue No. 00-15, *Classificationin the Statement of Cash Flows of the Income Tax Benefit Received by a Companyupon Exercise of a Nonqualified Employee Stock Option*. SFAS No. 123Rsuperseded EITF Issue No. 00-15, amended SFAS No. 95, *Statement of Cash Flows*, and requires taxbenefits relating to excess share-based compensation deductions to beprospectively presented in the statements of cash flows as a financing activitycash inflow.

As a result of adopting SFAS No. 123R on January 1,2006, our operating income and income before income taxes for the year ended December 31,2006, was reduced by $7.0 million. The impact of adopting SFAS No. 123Rfor the year ended December 31, 2006 reduced net income by approximately$4.4 million and basic and diluted earnings per share by $0.13. SFAS No. 123Ralso required us to change the statement of cash flow classification of certaintax benefits from share-based compensation deductions beginning on January 1,2006. As a result, we classified $1.4 million as cash from financing activitiesrather than cash from operating activities for 2006.

Prior to our adoption of SFAS No. 123R, weaccounted for our stock-based compensation plans in accordance withAccounting Principles Board (“APB”) Opinion No. 25, *Accounting for Stock Issued to Employees,*and complied with SFAS No. 123, *Accountingfor Stock-Based Compensation, as amended,* for disclosurepurposes. Under these provisions, no compensation was recognized for our stockoption plans or our ESPP. For SFAS No. 123 purposes, the fair value ofeach stock option and ESPP share for 2005 and 2004 has been estimated as of thedate of the grant using the Black-Scholes option-pricing model with thefollowing weighted average assumptions:

Forstock option grants:

| ** **               | ** ** | **Year ended December 31,** | ** ** |
|--------------------------|------------|--------------------------------------------|------------|
| ** **               | ** ** | **2005**                                   | ** ** | **2004** | ** ** |
| Assumptions:             |       |                                       |       |   |   |
| Risk-free  interest rate | ** ** | **3.97**                                   | **%**      | 4.00 | % |
| Expected life            | ** ** | **4.7 years**                              |       | 8.0 years |   |
| Expected  volatility     | ** ** | **39**                                     | **%**      | 40 | % |
| Expected dividend yield  | ** ** | **0.61**                                   | **%**      | 1.18 | % |

 

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**Georgia Gulf Corporation and Subsidiaries Notes to Consolidated Financial Statements (Continued)**

**1.**   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NATURE OFBUSINESS (Continued)

For stock purchase planrights:

| ** **               | ** ** | **Year ended December 31,** | ** ** |
|--------------------------|------------|--------------------------------------------|------------|
| ** **               | ** ** | **2005**                                   | ** ** | **2004** | ** ** |
| Assumptions:             |       |                                       |       |   |   |
| Risk-free  interest rate | ** ** | **2.75**                                   | **%**      | 1.29 | % |
| Expected life            | ** ** | **1.0 year**                               |       | 1.0 years |   |
| Expected  volatility     | ** ** | **33**                                     | **%**      | 29 | % |
| Expected dividend yield  | ** ** | **0.64**                                   | **%**      | 1.11 | % |

 

Hadcompensation expense been determined consistently with SFAS No. 123,additional compensation expense, net of tax, for 2005 and 2004 from stock options and ESPP shares would have been approximately $3.3 million and$2.5 million, respectively. Our net income and earnings per common sharewould have been the following pro forma amounts:

| ** **                                                       | ** ** | **Year ended December 31,** | ** ** |
|------------------------------------------------------------------|------------|--------------------------------------------|------------|
| **In thousands, except per share data** | ** ** | ** **                                 | ** ** | **2005** | ** ** | **2004** | ** ** |
| Net income, as  reported                                         | ** ** | **$**                                      | **95,503** |   | $ | 105,892 |   |
| Stock-based  compensation included in net income, as   reported  | ** ** | **2,567**                                  |       | 2,043 |   |
| Stock-based  compensation under SFAS No. 123                | ** ** | **(5,865**                                 | **)**      | (4,497 | ) |
| Pro forma net income                                             | ** ** | **92,205**                                 |       | 103,438 |   |
| Basic earnings per  share:                                       | ** ** | ** **                                 |       |   |   |
| As reported                                                      | ** ** | **$**                                      | **2.82**   |   | $ | 3.21 |   |
| Pro forma                                                        | ** ** | **2.72**                                   |       | 3.14 |   |
| Diluted earnings per  share:                                     | ** ** | ** **                                 |       |   |   |
| As reported                                                      | ** ** | **$**                                      | **2.79**   |   | $ | 3.17 |   |
| Pro forma                                                        | ** ** | **2.71**                                   |       | 3.11 |   |
|                                                                  |            |                                            |            |  |  |  |  |  |  |

 

In November 2005, the Financial AccountingStandards Board (“FASB”) issued FASB Staff Position (“FSP”) No. 123R-3,“Transition Election Related to Accounting for the Tax Effects of Share-BasedPayment Awards.” The FSP, which became effective in November 2005,required an entity to follow either the transition guidance for theadditional-paid-in-capital pool as prescribed in SFAS No. 123R or thealternative transition method described in the FSP. An entity that adopted SFASNo. 123R using the modified prospective application may make a one-timeelection to adopt the transition method described in the FSP, and may take upto one year from the later of its initial adoption of SFAS No. 123R or theeffective date of the FSP to evaluate the available transition alternatives andmake its one-time election. We adopted the alternative transition methodprovided in the FSP for calculating the tax effects of stock-based compensationunder SFAS No. 123R. See note 14 for disclosures related tostock-based compensation.

*Earnings Per Share.**  *We apply the provisions of SFAS No. 128,*Earnings per Share* (“EPS”), whichrequires companies to present basic EPS and diluted EPS. Basic EPS excludes dilutionand is computed by dividing income available to common stockholders by theweighted-average number of common shares outstanding for the period. DilutedEPS reflects the dilution that could occur if securities or other 

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**Georgia Gulf Corporation and Subsidiaries Notes to Consolidated Financial Statements (Continued)**

**1.**   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NATURE OFBUSINESS (Continued)

contracts to issue commonstock were exercised or converted into common stock or resulted in the issuanceof common stock that then shared in our earnings. Dilutive common stock optionsand ESPP rights are included in the diluted EPS calculation using the treasurystock method. Options to purchase 1,525 million shares of common stockoutstanding at December 31, 2006, were not included in the computation ofdiluted earnings per share, as the exercise prices of these options weregreater than the average market price of the common stock during these periods.Options to purchase 0.7 million shares of common stock outstanding at December 31,2005, were not included in the computation of diluted earnings per share, asthe exercise prices of these options were greater than the average market priceof the common stock during these periods. There were no such optionsoutstanding at December 31, 2004.

Computations of basic and diluted earnings per shareare presented in the following table:

| ** **                                                       | ** ** | **Year Ended December 31,** | ** ** |
|------------------------------------------------------------------|------------|--------------------------------------------|------------|
| **In Thousands, Except Per Share Data** | ** ** | ** **                                 | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
| Income from  continuing operations                               | ** ** | **$**                                      | **51,802** |   | $ | 95,503 |   | $ | 105,892 |   |
| Loss from  discontinued operations                               | ** ** | **(3,263**                                 | **)**      | — |   | — |   |
| Net income                                                       | ** ** | **$**                                      | **48,539** |   | $ | 95,503 |   | $ | 105,892 |   |
| Weighted average shares outstanding—basic                   | ** ** | **34,093**                                 |       | 33,867 |   | 32,965 |   |
| Plus incremental shares  from assumed conversions:               |       |                                       |       |   |   |   |   |
| Options and restricted stock awards                              | ** ** | **277**                                    |       | 298 |   | 435 |   |
| Employee stock purchase plan rights                              | ** ** | **16**                                     |       | 28 |   | 39 |   |
| Weighted average  shares outstanding—diluted                | ** ** | **34,386**                                 |       | 34,193 |   | 33,439 |   |
| Basic earnings  (loss) per share                                 | ** ** | ** **                                 |       |   |   |   |   |
| Earnings from continuing operations                              | ** ** | **$**                                      | **1.52**   |   | $ | 2.82 |   | $ | 3.21 |   |
| Loss from discontinued operations                                | ** ** | **(0.10**                                  | **)**      | — |   | — |   |
| Earnings per share                                               | ** ** | **$**                                      | **1.42**   |   | $ | 2.82 |   | $ | 3.21 |   |
| Diluted earnings  (loss) per share                               | ** ** | ** **                                 |       |   |   |   |   |
| Earnings from continuing operations                              | ** ** | **$**                                      | **1.51**   |   | $ | 2.79 |   | $ | 3.17 |   |
| Loss from discontinued operations                                | ** ** | **(0.10**                                  | **)**      | — |   | — |   |
| Earnings per  share                                              | ** ** | **$**                                      | **1.41**   |   | $ | 2.79 |   | $ | 3.17 |   |
|                                                                  |            |                                            |            |  |  |  |  |  |  |  |  |  |

 

**2. NEWACCOUNTING PRONOUNCEMENTS**

In February 2006,the FASB issued SFAS No. 155, *Accountingfor Certain Hybrid Financial Instruments—an amendment of FASB Statements No. 133and 140*. SFAS No. 155 simplifies accounting for certain hybridinstruments currently governed by SFAS No. 133, *Accounting for Derivative Instruments and Hedging Activities*,by allowing fair value remeasurement of hybrid instruments that contain anembedded derivative that otherwise would require bifurcation. SFAS No. 155also eliminates the guidance in SFAS No. 133 Implementation Issue No. D1,*Application of Statement 133 to BeneficialInterests in Securitized Financial Assets*, which provides that suchbeneficial interests are not subject to SFAS No. 133. SFAS No. 155amends SFAS No. 140, *Accounting forTransfers and Servicing of Financial Assets and Extinguishments of Liabilities*—*a Replacement of FASB Statement No. 125*,by eliminating the restriction on passive derivative instruments that aqualifying special-purpose entity may hold. This statement is effective forfinancial instruments acquired or issued by us after December 31, 2006. Wedo not expect the adoption of SFAS No. 155 to have a material impact onour consolidated financial statements.

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**Georgia Gulf Corporation and Subsidiaries Notes to Consolidated Financial Statements (Continued)**

**2. NEWACCOUNTING PRONOUNCEMENTS (Continued)**

In March 2006, the FASB issued SFAS No. 156,*Accounting for Servicing of Financial Assets—anamendment of FASB Statement No. 140*. SFAS No. 156 requiresan entity to recognize a servicing asset or servicing liability each time itundertakes an obligation to service a financial asset by entering into aservicing contract in specific situations. Additionally, the servicing asset orservicing liability must be initially measured at fair value, if practicable. SFASNo. 156 is effective for fiscal years beginning after September 15,2006. We do not expect the adoption of SFAS No. 156 to have a materialimpact on our consolidated financial statements.

In June 2006, the FASB issued Interpretation No. 48,*Accounting for Uncertainty in Income Taxes—aninterpretation of FASB Statement No. 109 Accounting For Income Taxes*(“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxesrecognized in an entity’s financial statements in accordance with FASBStatement No. 109 and prescribes a recognition threshold and measurementattribute for financial statement recognition of tax positions taken or to betaken on a tax return. Additionally, FIN 48 provides guidance on derecognition,classification, interest and penalties, accounting in interim periods,disclosure and transition. FIN 48 is effective for fiscal years beginning afterDecember 15, 2006, with early adoption permitted. We are currentlyevaluating the impact of FIN 48 on our consolidated financial statements.

In June 2006, the FASB ratified its consensus onEITF Issue No. 06-3, *How Taxes Collected fromCustomers and Remitted to Governmental Authorities Should Be Presented in theIncome Statement (That Is, Gross versus Net Presentation)*. The scopeof EITF Issue No. 06-3 includes any tax assessed by a governmentalauthority that is imposed concurrent with or subsequent to a revenue-producingtransaction between a seller and a customer. For taxes within the scope of thisissue that are significant in amount, the consensus requires the followingdisclosures: (i) the accounting policy elected for these taxes and (ii) theamount of the taxes reflected gross in the income statement on an interim andannual basis for all periods presented. The disclosure of those taxes can bedone on an aggregate basis. The consensus is effective for interim and annual periodsbeginning after December 15, 2006. We are currently evaluating the impact,if any, of EITF Issue No. 06-3 on our financial position and resultsof operations. However, we do not believe the adoption of EITF Issue No. 06-3will have a material impact on our consolidated financial statements.

On September 7, 2006, the EITF reached aconsensus on EITF Issue No. 06-4, *Accountingfor Deferred Compensation and Postretirement Benefit Aspects of EndorsementSplit-Dollar Life Insurance Arrangements*, which requires theapplication of the provisions of SFAS No. 106*,**Employers’ Accountingfor Postretirement Benefits Other Than Pensions,* to endorsementsplit-dollar life insurance arrangements. SFAS No. 106 would require thatwe to recognize a liability for the discounted future benefit obligation thatwe will have to pay upon the death of the underlying insured employee. Anendorsement-type arrangement generally exists when we own and control allincidents of ownership of the underlying policies. EITF Issue No. 06-4is effective for fiscal years beginning after December 15, 2007. We do notexpect the adoption of EITF Issue No. 06-4 to have a material impacton our consolidated financial statements.

On September 7, 2006 the EITF reached a consensuson EITF Issue No. 06-5 Accounting for Purchases of Life Insurance—Determiningthe Amount That Could Be Realized in Accordance With FASB Technical Bulletin No. 85-4,which concluded that a policyholder should consider other amounts included inthe contractual terms of an insurance policy, in addition to cash surrendervalue, when determining the asset value that could be realized under the termsof the insurance contract. These other amounts include: non-discretionaryamounts (those items that are not contingent as of the balance sheet date) andtime-based amounts (i.e., deferred acquisition costs tax) that would beaccounted for on a 

64

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**Georgia Gulf Corporation and Subsidiaries Notes to Consolidated Financial Statements (Continued)**

**2. NEWACCOUNTING PRONOUNCEMENTS (Continued)**

present-value basis. Items that are “probable” to bereceived and/or subject to the insurance company’s intent to pay would not beincluded in asset value. In addition, the amount that could be realized shouldbe determined on an individual policy or certificate level. Amounts that wouldbe realized upon surrender of all policies or certificates would not beincluded when measuring assets. EITF Issue No. 06-5 is effective forfiscal years beginning after December 15, 2006 and would be recognizedthrough a cumulative-effect adjustment to retained earnings as of the beginningof the year of adoption for all life insurance contracts currently held. We donot believe the impact of adopting EITF Issue No. 06-5, will have amaterial impact on our consolidated financial statements.

In September 2006,the FASB issued SFAS No. 157, *FairValue Measurements*. SFAS No. 157 defines fair value,establishes a framework for measuring fair value in generally acceptedaccounting principles and expands disclosures about fair value measurements. SFASNo. 157 is effective for our fiscal year beginning January 1, 2008. Wedo not expect the adoption of SFAS No. 157 to have a material impact onour consolidated financial statements.

In September 2006,the SEC issued SAB No. 108, *Consideringthe Effects of Prior Year Misstatements when Quantifying Misstatements inCurrent Year Financial Statements*, which provides interpretiveguidance on the consideration of the effects of prior year misstatements inquantifying current year misstatements for the purpose of a materialityassessment. SAB No. 108 is effective for fiscal years ending afterNovember 15, 2006. Early application is encouraged, but not required. Weare required to adopt SAB No. 108 for our fiscal year endingDecember 31, 2006. The cumulative effect, if any, of applying theprovisions of SAB No. 108 will be reported as an adjustment tobeginning-of-year retained earnings. We have adopted the guidance of evaluatingprior year misstatements in quantifying current year misstatements anddetermined that it was not material to our consolidated financial statements.

On September 29,2006, the FASB issued SFAS No. 158, *Employers’Accounting for Defined Benefit Pension and Other Postretirement Plans*,which amends SFAS No. 87 and SFAS No. 106 to require recognition ofthe funding status of pension and other postretirement benefit plans on thebalance sheet. Under SFAS No. 158, gains and losses, prior service costsand credits, and any remaining transition amounts under SFAS No. 87 andSFAS No. 106 that have not yet been recognized through net periodicbenefit cost will be recognized in accumulated other comprehensive income, netof tax effects, until they are amortized as a component of net periodic cost.SFAS No. 158 is effective for fiscal years ending after December 15,2006. The incremental effect of adopting the balance sheet recognitionprovisions of SFAS No. 158 as of December 31, 2006, is disclosed innote 15.

We have evaluated thepotential impact of the Pension Protection Act, which was passed into law onAugust 17, 2006 on future U.S. pension plan funding requirements based on currentmarket conditions. The Pension Protection Act is not anticipated to have amaterial effect on the level of future funding requirements or on our liquidityand capital resources.

In February 2007, the FASB issued SFASNo. 159, *The Fair Value Option forFinancial Assets and Financial Liabilities*. SFAS No. 159permits entities to choose to measure many financial instruments and certainother items at fair value that are not currently required to be measured atfair value. SFAS No. 159 is effective for fiscal years beginning afterNovember 15, 2007, with early adoption permitted provided the entity alsoelects to apply the provisions of SFAS No. 157. We have not decidedif we will adopt SFAS No. 159 early or if we will choose to measure anyeligible financial assets and liabilities at fair value.

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**Georgia Gulf Corporation and Subsidiaries Notes to Consolidated Financial Statements (Continued)**

**3. BUSINESS ACQUISITION,DIVESTITURES, DISCONTINUED OPERATIONS, AND ASSETS HELD-FOR-SALE**

*Acquisition.*   OnOctober 3, 2006, we completed the acquisition of Royal Group TechnologiesLimited, (“Royal Group”). Under the terms of the arrangement agreement, we acquiredall of the outstanding common stock of Royal Group for a total purchase price,including assumed liabilities and debt retired in conjunction with the closing,of approximately $1.5 billion consisting of approximately $1.1 billion of cashpaid for Royal Group common stock and assumed debt of $374.9 million, which was repaid in connection with theacquisition. The acquisition was financed with significant indebtedness,including $500 million in aggregate principal amount of 9.5 percent senior unsecurednotes due 2014 (the “Senior Notes”), $200.0 million in aggregate principalamount of 10.75 percent senior subordinated notes due 2016 (the “SeniorSubordinated Notes,” and together with the Senior Notes, the “New Notes”), anda new senior secured credit agreement that includes a tranche B term loan of$800.0 million and revolving credit facilities of up to $375.0 million (the “SeniorSecured Credit Facility”). See note 10 for a further description of the debtinstruments put in place to finance the acquisition of Royal Group.

In connection with Royal Group acquisition, wetransferred the ownership of the U.S. operations of Royal Group, Royal PlasticsGroup (U.S.A.) Limited, from a wholly owned Canadian subsidiary to a whollyowned U.S. subsidiary. A Canadian denominated note was forgiven in thistransaction, which resulted in a tax deductible foreign exchange loss. We haverecorded the tax benefit of $1.3 million to additional paid in capital in theaccompanying consolidated balance sheet.

The Royal Group acquisition furthered our chlorovinylsforward integration strategy by providing a growth platform that leveragesGeorgia Gulf’s vinyl resins and compounds formulation expertise, which we haverefined over the last 20 years, with Royal Group’s experience and innovativeproduct development. We believe the acquisition will allow us to strengthen ourcompetitive position through further penetration of Royal Group’s marketsthereby increasing long-term shareholder value.

The Royal Group acquisition was accounted for by thepurchase method and, accordingly, the results of operations and cash flowssince the October 3, 2006 acquisition date have been included in ourconsolidated results of operations and cash flows. The purchase price wasallocated to the assets acquired and liabilities assumed based upon theestimated fair values at the date of acquisition. The estimated fair values ofacquired assets and liabilities assumed were determined using accepted industryvaluation techniques specific to the applicable class of assets and liabilities.Assets held for sale were valued at estimated fair value less costs to sell. Estimatedfair values of assets held for sale were determined based on definite saleagreements. We recognized trade name intangible assets of $16.0 million,customer relationships intangible assets of $46.0 million and technologyintangible assets of $31.0 million as of October 3, 2006. The preliminaryexcess of the purchase price over the fair value of the net identifiable assetsacquired of approximately $312.1 million was recorded as goodwill.  See note 9 for disclosure of goodwill byreportable segment and for estimated useful lives of finite-lived intangibleassets.

In accordance with SFAS No. 142, *Goodwill and Other Intangible Assets*,goodwill recorded will not be amortized and is not deductible for tax purposes.Additionally, we determined that the trade name intangible asset has anindefinite useful life because it is expected to generate cash flowsindefinitely. Goodwill and the trade name intangible assets will be subject toannual impairment testing on our measurement date of October 1.

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**Georgia Gulf Corporation and Subsidiaries Notes to Consolidated Financial Statements (Continued)**

**3.BUSINESS ACQUISITION, DIVESTITURES, DISCONTINUED OPERATIONS, AND ASSETSHELD-FOR-SALE (Continued)**

The purchase priceallocation is preliminary subject to, among other things, the final valuationsof assets acquired and liabilities assumed, certain legal and taxcontingencies, and the valuation of property, plant and equipment, spare parts,finite and indefinite lived intangible assets, and assets held for sale anddiscontinued operations; and may be adjusted within twelve months of theclosing date of the acquisition. See notes 11 and 16 for further informationregarding these legal and tax contingencies, respectively. The following tablesummarizes the preliminary estimated fair values of the assets acquired andliabilities assumed at the date of acquisition, excluding cash acquired of $27.7million.

| **In Thousands**                                 | ** ** | ** ** | ** **  | **As of  October 3, 2006** | ** ** |
|-------------------------------------------------------|------------|------------|-------------|-------------------------------------------|------------|
| Current assets,  net of cash acquired                 | ** ** |       | **$**       | **478,311**                               | ** ** |   |
| Property, plant  and equipment                        | ** ** |       | **630,615** | ** **                                |       |
| Investments and  other assets                         | ** ** |       | **26,994**  | ** **                                |       |
| Goodwill                                              | ** ** |       | **312,085** | ** **                                |       |
| Identifiable  intangible assets—finite lived     | ** ** |       | **77,000**  | ** **                                |       |
| Identifiable  intangible assets—indefinite lived | ** ** |       | **16,000**  | ** **                                |       |
| Deferred taxes                                        | ** ** |       | **16,014**  | ** **                                |       |
| Net assets held  for sale                             | ** ** |       | **223,899** | ** **                                |       |
| Total assets acquired                                 | ** ** |       | **$**       | **1,780,918**                             | ** ** |   |
| Current  liabilities                                  | ** ** |       | **$**       | **330,592**                               | ** ** |   |
| Debt assumed*                                         | ** ** |       | **374,930** | ** **                                |       |
| Total liabilities assumed                             | ** ** |       | **705,522** | ** **                                |       |
| Net assets  acquired                                  | ** ** |       | **$**       | **1,075,396**                             | ** ** |   |

----

*This debt assumed wasretired subsequent to the acquisition of Royal Group.

Thefollowing unaudited pro forma financial information presents the combinedresults of our operations and those of Royal Group as if the acquisition hadoccurred at the beginning of fiscal year 2006 and 2005, after giving effect tocertain adjustments, including adjustments for depreciation based on theestimated fair value of property, plant and equipment, spare parts, and finiteand indefinite lived intangibile assets we acquired, fair valuing inventories,increased interest expense on debt related to the acquisition, and theamortization of definite lived intangibles. The pro forma financial informationdoes not necessarily reflect the results of operations that would have occurredhad we and Royal Group constituted a single entity during such periods. Thefollowing table discloses the pro forma results for the fiscal years ended December 31:

| **In Thousands, Except Per Share Data** | ** ** | ** ** | ** ** | **2006** | ** ** | **2005**  | ** ** | ** ** |
|------------------------------------------------------------------|------------|------------|------------|----------|------------|-----------|------------|------------|
| Net sales                                                        |       | $          | 3,376,320  |     | $          | 3,627,265 |       |       |
| Net loss                                                         |       | $          | (47,296    | )        | $          | (52,417   | )          |       |
| Basic and diluted loss  per share                                |       | $          | (1.46      | )        | $          | (1.55     | )          |       |

 

*Divestitures.**  *Following our acquisition of RoyalGroup, we have divested certain non-core operations and assets. Thesetransactions include the sale of certain buildings, properties and equipmentfor 

67

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**Georgia Gulf Corporation and Subsidiaries Notes to Consolidated Financial Statements (Continued)**

**3.BUSINESS ACQUISITION, DIVESTITURES, DISCONTINUED OPERATIONS, AND ASSETSHELD-FOR-SALE (Continued)**

approximately $96.0million. These transactions took place primarily during November 2006. Additionally,certain non-core foreign operations were sold for approximately $14.5 millionincluding the assumption by the buyer of $28.2 million of debt.

*DiscontinuedOperations-Outdoor Building Products Segment.**  *As part of our strategic plan forthe acquired Royal Group businesses, we decided to exit the certain non-corebusinesses included in our outdoor building products segment.

Theresults of all discontinued outdoor building products segment operations as of December 31,2006 are as follows: 

| **In Thousands**                          | ** ** | ** ** | ** ** | **December 31,  2006** | ** ** | ** ** |
|------------------------------------------------|------------|------------|------------|-----------------------------|------------|------------|
| Net sales                                      | ** ** |       | **$**      | **24,051**                  | ** ** |       | ** ** |
| Operating (loss)  from discontinued operations | ** ** |       | **(5,084** | **)**                       |       | ** ** |
| Benefit from  income taxes                     | ** ** |       | **1,821**  | ** **                  |       | ** ** |
| Total loss from  discontinued operations       | ** ** |       | **$**      | **(3,263**                  | **)**      |       | ** ** |

 

The assets of the discontinued operations in ouroutdoor building products segment as of December 31, 2006, consists of$11.1 million of inventory and $5.2 million of property, plant and equipment.

*Assets Held-For-Sale.**  *As part of our strategic plan, wealso decided to sell Royal Group’s transportation and logistics business. Inaddition, as part of this plan, we decided to sell excess real estate includingcertain land and buildings in Ontario, Canada. Accordingly, we have identifiedand reclassified net assets of these businesses and excess real estate, as heldfor sale at December 31, 2006. The assets of these operationsheld-for-sale as of December 31, 2006, consist of $64.7 million ofproperty, plant and equipment.

68

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**Georgia Gulf Corporation and Subsidiaries Notes to Consolidated Financial Statements (Continued)**

**4.  RESTRUCTURING ACTIVITIES**

In thefourth quarter of fiscal 2006, we initiated plans to restructure the operationsof Royal Group to eliminate certain duplicative activities, focus our resourceson operations with future growth opportunities and reduce our cost structure.  In connection with the restructuring plan, weincurred costs related to termination benefits for employee positions that wereeliminated. We expect to pay these termination benefits by September 2007.Any costs incurred during this restructuring plan that will benefit futureperiods, such as relocation of employees, have been and will be expensed asincurred. A summary of our restructuring activities by reportable segmentfollows:

| **In Thousands**                              | ** ** | ** ** | ** ** | **Balance at  December 31,  2005** | ** ** | **Royal Group  Acquisition at  October 3, 2006** | ** ** | **Cash  Payments** | ** ** | **Foreign  Currency  Translation  Adjustments** | ** ** | **Balance at  December 31,  2006** | ** ** |
|----------------------------------------------------|------------|------------|------------|----------------------------------------------|------------|----------------------------------------------------------------------|------------|--------------------|------------|-------------------------------------------------|------------|----------------------------------------------|------------|
| *Chlorovinyls*                                     |       |       |       |                                         |       |                                                                 |       |               |       |                                            |       |                                         |       |   |   |   |   |   |   |
| Involuntary termination benefits                   | ** ** | ** ** | **$**      | **—**                                   |       |                                                                 |       | $                  | 1,878      |                                            |       | $                                            | (339       | ) |   | $ | (71 | ) | ** ** | ** ** | **$** | **1,468** |   |   |
| *Window  and door profiles and mouldings products* | * *   | * *   | * *   |                                         |       |                                                                 |       |               | * *   | * *                                        | * *   |                                         |       |   | * * | * * | * * |   |   |
| Involuntary termination benefits                   | ** ** | ** ** | **—** |                                         |       |                                                                 | 5,844      |               |       | (2,329                                          | )          |                                         | (222       | ) | ** ** | ** ** | **3,293** |   |   |
| *Outdoor  building products*                       |       |       |       |                                         |       |                                                                 |       |               |       |                                            |       |                                         |       |   |   |   |   |   |   |
| Involuntary termination benefits                   | ** ** | ** ** | **—** |                                         |       |                                                                 | 15,016     |               |       | (3,728                                          | )          |                                         | (559       | ) | ** ** | ** ** | **10,729** |   |   |
| *Other,  including unallocated corporate*          |       |       |       |                                         |       |                                                                 |       |               |       |                                            |       |                                         |       |   |   |   |   |   |   |
| Involuntary termination benefits                   | ** ** | ** ** | **—** |                                         |       |                                                                 | 12,514     |               |       | (6,142                                          | )          |                                         | (475       | ) | ** ** | ** ** | **5,897** |   |   |
| Impact of foreign  exchange                        | ** ** | ** ** | **—** |                                         |       |                                                                 |       |               | ** ** | ** **                                      | ** ** |                                         |       |   | ** ** | ** ** | ** ** |   |   |
| Total                                              |       |       | **$**      | **—**                                   |       |                                                                 |       | $                  | 35,252     |                                            |       | $                                            | (12,538    | ) |   | $ | (1,327 | ) | ** ** | ** ** | **$** | **21,387** |   |   |

 

Pursuant to EITF Issue No. 95-3,“Recognition of Liabilities in Connection with a Purchase Business Combination,”involuntary termination costs related to the Royal Group acquisition have beenrecognized as a liability assumed as of the consummation date of theacquisition and included in the purchase price allocation.

**5. ACCOUNTS RECEIVABLESECURITIZATION**

We have an agreement pursuant to which we sell anundivided percentage ownership interest in a certain defined pool of our U. S.trade receivables on a revolving basis through a wholly owned subsidiary to twothird parties (the “Securitization”). As collections reduce accounts receivableincluded in the pool, we sell ownership interests in new receivables to bringthe ownership interests sold up to a maximum of $165.0 million, aspermitted by the Securitization. The Securitization was amended and restated onSeptember 18, 2006, to extend the agreement three years.

69

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**Georgia Gulf Corporation and Subsidiaries Notes to Consolidated Financial Statements (Continued)**

**5.**   ACCOUNTSRECEIVABLE SECURITIZATION(Continued)

In conjunction with the sale of receivables, werecorded losses of $8.4 million, $5.7 million, and $2.6 million for 2006,2005 and 2004, respectively, which are included as selling, general andadministrative expenses in the accompanying consolidated statements of income. Thelosses were determined by applying a discount factor, as prescribed under therelevant Securitization, to the monthly balance in the ownership interestssold.

At December 31, 2006,2005 and 2004, the uncollected balance of accounts receivable in the definedpool was approximately $219.4 million, $277.3 million and $288.4 million,respectively. We continue to service these receivables and maintain asubordinated interest in the receivables. We have not recorded a servicingasset or liability since the cost to service the receivables approximates theservicing income. The balance of receivables sold at December 31, 2006,2005 and 2004, was $128.0 million, $141.0 million and $165.0 million, respectively.Our Securitization has been accounted for as a sale in accordance with theprovisions of SFAS No. 140, *Accountingfor Transfers and Servicing of Financial Assets and Extinguishments ofLiabilities,* and therefore, the receivables sold are not included inthe debt and related accounts receivable accounts on our consolidated balancesheets. We continue to provide an allowance for doubtful accounts related tothese receivables based on our historical experience and aging of the accountsreceivable. At December 31, 2006, 2005 and 2004, we had a subordinatedinterest of approximately $91.4 million, $136.3 million and $123.4million, respectively, in the defined pool of receivables, which represents theexcess of receivables sold over the amount funded to us. The fair value of theretained interest approximates the carrying amount because of the short periodof time it takes for the portfolio to be liquidated. From December 31,2005, to December 31, 2006, we reduced the balance of receivables soldfrom $141.0 million to $128.0 million, which resulted in a net decrease of cashflow of $13.0 million. Comparatively, during 2005 we reduced the balance of receivables sold from $165.0 million to $141.0million at December 31, 2005, which resulted in a net decrease of cashflow of $24.0 million. During 2004 we had increased cash flow of $65.0 milliondue to increasing the capacity of the Securitization program.

**6.**   INVENTORIES

Themajor classes of inventories were as follows:

| ** **                  | ** ** | **December 31,** | ** **  |
|-----------------------------|------------|-----------------------|-------------|
| **In Thousands**       | ** ** | ** **            | ** **  | **2006** | ** ** | **2005** | ** ** |
| Raw materials and  supplies | ** ** | **$**                 | **139,301** |   | $ | 69,116 |   |
| Finished goods              | ** ** | **200,104**           |        | 126,512 |   |
| Inventories                 | ** ** | **$**                 | **339,405** |   | $ | 195,628 |   |
|                             |            |                       |             |  |  |  |  |  |  |

 

70

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**Georgia Gulf Corporation and Subsidiaries Notes to Consolidated Financial Statements (Continued)**

**7.**   PROPERTY,PLANT AND EQUIPMENT, NET

Property,plant and equipment consisted of the following:

| ** **                              | ** ** | **December 31,** | ** **    |
|-----------------------------------------|------------|-----------------------|---------------|
| **In Thousands**                   | ** ** | ** **            | ** **    | **2006** | ** ** | **2005** | ** ** |
| Machinery and  equipment                | ** ** | **$**                 | **1,278,589** |   | $ | 951,649 |   |
| Land and land  improvements             | ** ** | **143,376**           |          | 27,034 |   |
| Buildings                               | ** ** | **209,023**           |          | 31,897 |   |
| Construction-in-progress                | ** ** | **89,438**            |          | 26,498 |   |
| Property, plant  and equipment, at cost | ** ** | **1,720,426**         |          |   1,037,078 |   |
| Accumulated  depreciation               | ** ** | **697,422**           |          | 635,666 |   |
| Property, plant and  equipment, net     | ** ** | **$**                 | **1,023,004** |   | $ | 401,412 |   |
|                                         |            |                       |               |  |  |  |  |  |  |

 

**8.**   OTHERASSETS, NET

Otherassets, net of accumulated amortization, consisted of the following:

| ** **                                 | ** ** | **December 31,** | ** **  |
|--------------------------------------------|------------|-----------------------|-------------|
| **In Thousands**                      | ** ** | ** **            | ** **  | **2006** | ** ** | **2005** | ** ** |
| Advances for  long-term purchase contracts | ** ** | **$**                 | **107,220** |   | $ | 112,920 |   |
| Investment in  joint ventures              | ** ** | **29,236**            |        | 20,138 |   |
| Debt issuance  costs, net                  | ** ** | **38,240**            |        | 5,516 |   |
| Prepaid pension  costs                     | ** ** | **16,136**            |        | 21,041 |   |
| Long-term  receivables                     | ** ** | **7,931**             |        | — |   |
| Other                                      | ** ** | **6,050**             |        | 15,690 |   |
| Total other assets, net                    | ** ** | **$**                 | **204,813** |   | $ | 175,305 |   |
|                                            |            |                       |             |  |  |  |  |  |  |

 

In connection with financing the acquisition of Royal Group,we incurred $38.0 million of debt issuance costs. Debt issuance costs amortizedas interest expense during 2006, 2005 and 2004 were $2.2 million, $1.4million, and $2.6 million, respectively. The reduction in our prepaidpension costs was primarily due to the adoption of SFAS No. 158. See note15 for further information regarding the adoption of SFAS No. 158. Inaddition, Royal Group has $7.9 million of long-term receivables primarilyrelating to certain divestitures that took place during 2005 and 2006.

During 2005 we enteredinto a long-term raw materials supply contract, which required a $79.0 millionadvance payment and has been classified in advances for long-term purchasecontracts.

**9.**   GOODWILLAND OTHER INTANGIBLE ASSETS

On October 1, 2006, we performed our annualimpairment tests for goodwill and as a result of this impairment analysis wedetermined that no goodwill impairment existed.

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**Georgia Gulf Corporation and Subsidiaries Notes to Consolidated Financial Statements (Continued)**

**9.**   GOODWILL AND OTHER INTANGIBLE ASSETS (Continued)

On October 3, 2006,in connection with the Royal Group acquisition we recognized total goodwill of$312.1 million and indefinite-lived intangible assets of $16.0 million. Thefollowing table shows changes in the carrying amount of goodwill and indefinite-livedintangible assets for the year ended December 31, 2006, by reportablesegment. 

| **In Thousands**                                                     | ** ** | ** ** | ** ** | **Chlorovinyls** | ** ** | **Aromatics** | ** ** | **Window and Door**

**Profiles and**

**Mouldings**

**Products** | ** ** | **Outdoor**

**Building**

**Products** | ** ** | **Total** | ** ** |    |
|---------------------------------------------------------------------------|------------|------------|------------|------------------|------------|---------------|------------|-----------------------------------------------------------------------------------|------------|-----------------------------------------|------------|-----------|------------|---------|
| Goodwill at  December 31, 2005                                       |       |       | $          | 77,720           |       |          |       | $                                                                                 | —     |                                    |       |      | $          | —  |   |   | $ | — |   | $ | 77,720 |   |
| Goodwill related  to acquisition of Royal Group                           |       |       | 149,300    |             |       |          | —     |                                                                              |       |                                    | 141,985    |      |       | 20,800  |   | 312,085 |   |
| Foreign currency  translation adjustment                                  |       |       | (5,663     | )                |       |          | —     |                                                                              |       |                                    | (6,229     | )         |       | (789    | ) | (12,681 | ) |
| Goodwill at  December 31, 2006                                       |       |       | $          | 221,357          |       |          |       | $                                                                                 | —     |                                    |       |      | $          | 135,756 |   |   | $ | 20,011 |   | $ | 377,124 |   |
| Indefinite-lived  intangible assets at December 31, 2005             |       |       | $          | —           |       |          |       | $                                                                                 | —     |                                    |       |      | $          | —  |   |   | $ | — |   | $ | — |   |
| Indefinite-lived  intangible assets related to acquisition of Royal Group |       |       | 1,000      |             |       |          | —     |                                                                              |       |                                    | 13,000     |      |       | 2,000   |   | 16,000 |   |
| Foreign currency  translation adjustment                                  |       |       | (38        | )                |       |          | —     |                                                                              |       |                                    | (493       | )         |       | (76     | ) | (607 | ) |
| Indefinite-lived  intangible assets at December 31, 2006             |       |       | $          | 962              |       |          |       | $                                                                                 | —     |                                    |       |      | $          | 12,507  |   |   | $ | 1,924 |   | $ | 15,393 |   |

 

72

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**Georgia Gulf Corporation and Subsidiaries Notes to Consolidated Financial Statements (Continued)**

**9.**   GOODWILL AND OTHER INTANGIBLE ASSETS (Continued)

In addition, in connectionwith the Royal Group acquisition on October 3, 2006 we acquired thefollowing finite-lived intangible assets by reportable segment.

| **In Thousands**                                         | ** ** | ** ** | ** ** | **Chlorovinyls** | ** ** | **Window and Door**

**Profiles and**

**Mouldings**

**Products** | ** ** | **Outdoor**

**Building**

**Products** | ** ** | **Total** | ** ** |
|---------------------------------------------------------------|------------|------------|------------|------------------|------------|-----------------------------------------------------------------------------------|------------|-----------------------------------------|------------|-----------|------------|
| Finite-lived intangible  assets at December 31, 2006     |       |       |       |             |       |                                                                              |       |                                    |       |      |       |   |   |
| Gross Carrying Amount  for finite-lived intangible assets:    |       |       |       |             |       |                                                                              |       |                                    |       |      |       |   |   |
| Customer relationships                                        |       |       | $          | 1,000            |       |                                                                              |       | 34,000                                  |       |      | 11,000     |   | $ | 46,000 |   |
| Technology                                                    |       |       | —     |             |       |                                                                              | 31,000     |                                    |       | —    |       | 31,000 |   |
| Total                                                         |       |       | 1,000      |             |       |                                                                              | 65,000     |                                    |       | 11,000    |       | 77,000 |   |
| Accumulated Amortization  for finite-lived intangible assets: |       |       |       |             |       |                                                                              |       |                                    |       |      |       |   |   |
| Customer relationships                                        |       |       | (14        | )                |       |                                                                              | (472       | )                                       |       | (153      | )          | (639 | ) |
| Technology                                                    |       |       | —     |             |       |                                                                              | (517       | )                                       |       | —    |       | (517 | ) |
| Total                                                         |       |       | (14        | )                |       |                                                                              | (971       | )                                       |       | (153      | )          | (1,156 | ) |
| Foreign currency translation  adjustment:                     |       |       |       |             |       |                                                                              |       |                                    |       |      |       |   |   |
| Customer relationships                                        |       |       | (37        | )                |       |                                                                              | (2,428     | )                                       |       | (411      | )          | (2,876 | ) |
| Technology                                                    |       |       | —     |             |       |                                                                              | —     |                                    |       | —    |       | — |   |
| Total                                                         |       |       | (37        | )                |       |                                                                              | (2,428     | )                                       |       | (411      | )          | (2,876 | ) |
| Net Carrying Amount for  finite-lived intangible assets:      |       |       |       |             |       |                                                                              |       |                                    |       |      |       |   |   |
| Customer relationships                                        |       |       | 949        |             |       |                                                                              | 31,100     |                                    |       | 10,436    |       | 42,485 |   |
| Technology                                                    |       |       | —     |             |       |                                                                              | 30,483     |                                    |       | —    |       | 30,483 |   |
| Total                                                         |       |       | $          | 949              |       |                                                                              |       | $                                       | 61,583     |      |       | $ | 10,436 |   | $ | 72,968 |   |
|                                                               |            |            |            |                  |            |                                                                                   |            |                                         |            |           |            |  |  |  |  |  |  |  |  |

 

The average estimateduseful life for the customer relationships and technology are 18 years, and 12 years,respectively. Amortization expense for the finite-lived intangible assets was$1.2 million in 2006. There were no finite lived intangible assets at December 31,2005 or 2004 and accordingly no related amortization expense. Total estimatedamortization expense for the next five fiscal years will be approximately $4.6million per year.

73

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**Georgia Gulf Corporation and Subsidiaries Notes to Consolidated Financial Statements (Continued)**

**10.**   LONG-TERMDEBT

Long-termdebt consisted of the following:

| ** **                                                                        | ** ** | **December 31,** | ** ** | ** ** |
|-----------------------------------------------------------------------------------|------------|-----------------------|------------|------------|
| **In Thousands**                                                             | ** ** | ** **            | ** ** | **2006**   | ** ** | **2005** | ** ** | ** ** |
| Senior credit  facility:                                                          | ** ** | ** **            |       |       |   |   |
| Revolving credit facility replaced October 3,  2006                          | ** ** | **$**                 | **—** |       | $ | 149,300 |   |   |
| Revolving credit facility expires 2011                                            | ** ** | **25,900**            |       | —     |   |   |
| Term loan B due 2013                                                              | ** ** | **648,375**           | **(1)**    | —     |   |   |
| 7.125% senior  notes due 2013                                                     | ** ** | **100,000**           | ** ** | 100,000    |   |   |
| 9.5% senior notes  due 2014, net of unamortized discount of $3,409                | ** ** | **496,591**           | **(2)**    | —     |   |   |
| 10.75% senior  subordinated notes due 2016, net of unamortized discount of $2,972 | ** ** | **197,028**           | **(3)**    | —     |   |   |
| Other                                                                             | ** ** | **30,240**            |       | 29,339     |   |   |
| Total debt                                                                        | ** ** | **1,498,134**         |       | 278,639    |   |   |
| Less current portion                                                              | ** ** | **32,495**            |       | 49,300     |   |   |
| Long-term debt                                                                    | ** ** | **$1,465,639**        |       | $          | 229,339 |   |   |
|                                                                                   |            |                       |            |            |  |  |  |  |  |  |

----

(1)          The term loan requires repaymentsat a rate of 1.00 percent of the original principal amount thereof per annum ona quarterly basis for the first six years of the term of the loan, with thebalance paid in full from equal quarterly installments in the seventh year.

(2)          The 9.5 percent SeniorNotes were issued with a discount of approximately $3.5 million to yield 9.625 percent.The discount will be accreted over the term of the notes up to the principalamount of $500.0 million using the effective interest method.

(3)          The 10.75 percent SeniorSubordinated Notes were issued with a discount of approximately $3.0 millionto yield 11.0 percent. The discount will be accreted over the term of the notesup to the principal amount of $200.0 million using the effective interestmethod.

On December 3, 2003, we issued $100.0 million inprincipal amount of our unsecured 7.125 percent senior notes, which are due December 15,2013. The proceeds of the notes were used to retire other notes. Interest onthese notes is payable June 15 and December 15 of each year. On orafter December 15, 2008, we may redeem the notes in whole or in part,initially at 103.563 percent of their principal amount, and thereafter atprices declining annually to 100 percent on or after December 15, 2011.

On October 17, 2005, we entered into an amendedand restated credit agreement amending the senior credit agreement dated as of November 12,1999, as amended on November 23, 2004, and December 3, 2003. Theamendment increased our revolving credit commitment from $170.0 million to$240.0 million.

On November 15, 2005, we repaid $100.0 million of7.625 percent secured notes with proceeds from availability under our seniorcredit facility.

The Royal Group acquisition was financed with significantindebtedness, including $500.0 million in aggregate principal amount of SeniorNotes, $200.0 million in aggregate principal amount of Senior SubordinatedNotes, and a new Senior Secured Credit Facility that includes a tranche B termloan of 

74

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**Georgia Gulf Corporation and Subsidiaries Notes to Consolidated Financial Statements (Continued)**

**10.**   LONG-TERM DEBT (Continued)

$800.0 million andrevolving credit facilities of up to $375.0 million. We also assumed debt fromRoyal Group’s China operations of $28.2 million.

Interest on the Senior Notes is payable on April 15and October 15 beginning April 15, 2007 at an annual rate of 9.5percent. Interest on the Senior Subordinated Notes is payable on April 15and October 15 beginning April 15, 2007 at an annual rate of 10.75percent. The Senior Notes and Senior Subordinated Notes were issued atdiscounts to yield of 9.625 percent and 11.0 percent, respectively, under theeffective interest method. The Senior Notes and Senior Subordinated Notescontain certain restrictive covenants including restrictions on debtincurrence, granting of liens, dividends, acquisitions and investments.

On October 3, 2006, we entered into the SeniorSecured Credit Facility provided by a syndicate of banks and other financialinstitutions. The Senior Secured Credit Facility replaced our previouslyexisting senior credit facility, for which we wrote-off  $3.0 million in deferred loan costs during2006.  The Senior Secured Credit Facilityprovides for a term loan of $800.0 million, all of which was borrowed on October 3,2006. The Senior Secured Credit Facility also provides for $375.0 millionof revolving credit facilities. The commitments under the revolving creditfacilities expire on October 3, 2011. The term loan facility will matureon October 3, 2013. The term loan will amortize at a rate of 1.00 percentof the original principal amount thereafter per annum on a quarterly basis forthe first six years of the term of the loan, with the balance paid in full fromequal quarterly installments in the seventh year. Based on this amortizationschedule, the term loan will be reduced by approximately $6.5 million in 2007.

The interest rate for the Senior Secured CreditFacility is the adjusted U.S. London Interbank Offered Rate or LIBOR, plus 2.0percent per annum or the administrative agent bank’s annual base rate (“ABR”)plus 1.0 percent per annum, and following delivery of financial information forthe quarter ended December 31, 2006, the applicable margin for the loansunder the revolving credit facilities will be set at a per annum ratedetermined by reference to a pricing grid based on our total leverage ratio. Atour discretion, the Senior Secured Credit Facility provides for us to borrowusing the U.S. Prime Rate.  The facilitycommitment fee at December 31, 2006 was 0.5% of the unused amount. For 2006, 2005 and 2004 the average interest ratesfor the revolving credit facility were 4.47 percent, 4.58 percent and 4.56percent, respectively. The interest rate for the revolving credit facility asof December 31, 2006, was 9.25 percent. The interest rate on the term loanas of December 31, 2006, was 7.35 percent.

The Senior Secured Credit Facility contains customaryaffirmative and negative covenants, including restrictions on debt incurrence,granting of liens, dividends, acquisitions and investments. In addition, theSenior Secured Credit Facility contains financial covenants requiringcompliance with both a minimum interest coverage ratio and a maximum leverageratio. On March 14, 2007, we entered into an amendment to our Senior SecuredCredit Facility, which temporarily waives our interest coverage ratio for theyear ended December 31, 2006, and through May 31, 2007. Thesecovenants are subject to customary exceptions and step-downs. The SeniorSecured Credit Facility also contains customary events of default. Debt underthe Senior Secured Credit Facility is secured by substantially all of ourassets, including real and personal property, inventory, accounts receivableand other intangibles.

From October 3, 2006 to December 31, 2006,we were able to reduce the tranche B term loan by $151.6 million. Debt wasfurther reduced by the sale of RBS China, which resulted in the elimination ofthe RBS China debt of $28.2 million. These reductions in debt were slightlyoffset by an increase in borrowings under the revolving credit facilities of$25.9 million.

75

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**Georgia Gulf Corporation and Subsidiaries Notes to Consolidated Financial Statements (Continued)**

**10.**   LONG-TERMDEBT (Continued)

Under the Senior Secured Credit Facility and theindentures related to the 7.125 percent, 9.50 percent and 10.75 percent notes,we are subject to certain restrictive covenants, the most significant of whichrequire us to maintain certain financial ratios and limit our ability to paydividends, make investments, grant liens, sell our assets and engage in certainother activities. Giving effect to the waiver described above, we were incompliance with all necessary financial covenants under our Senior SecuredCredit Facility at December 31, 2006.

Scheduled maturities oflong-term debt outstanding at December 31, 2006, are $6.6 million in 2007,$6.4 million in 2008, $23.4 million in 2009, $6.3 million in 2010, $32.1million in 2011, and $1,434.6 million thereafter. However, of our long-termdebt, $25.9 million was additionally classified as current as a result of ourability and intent to repay such amount of our revolving credit facility in thenext year. Cash payments for interest during the years ended December 31,2006, 2005, and 2004, were $23.1 million, $19.1 million, and $21.6million, respectively.

**11.**   COMMITMENTSAND CONTINGENCIES

*Leases.**  *Welease railcars, storage terminals, computer equipment, automobiles andwarehouse and office space under non-cancelable operating leases with varyingmaturities through the year 2014. Future minimum payments under thesenon-cancelable operating leases as of December 31, 2006, are$27.4 million in 2007, $19.1 million in 2008, $15.1 million in 2009, $9.3million in 2010, $5.4 million in 2011 and $11.2 million thereafter. Total leaseexpense was approximately $26.2 million, $23.1 million and $19.3 millionfor the years ended December 31, 2006, 2005 and 2004, respectively. Leaseexpense is recognized on a straight line basis.

*Lettersof Credit.**  *Asof December 31, 2006 and 2005, we had outstanding letters of credittotaling approximately $99.9 million and $25.6 million, respectively. Of these amounts,$99.9 million and $7.8 million reduced the availability under ourrevolving credit facility as of December 31, 2006 and 2005, respectively.These letters of credit, which have terms from one month to one year, provideadditional security for the payment of a loan and financial assurance to statesfor environmental closure, post-closure costs, and potential third partyliability awards.

*Purchase Commitments.**  *We have long-term raw materialpurchase agreements with variable and fixed payments through 2014. The variablecomponent of future payments is based on market prices of commodities used inproduction. Under these contracts we were required to prepay a certain portionof the fixed and determinable costs, of which we have capitalized $107.2million and $112.9 million as of December 31, 2006 and 2005, respectively,in the accompanying consolidated balance sheets. We amortize these advancesbased on the physical delivery from the manufacturer to our plants. We analyzethe recoverability of these prepaid manufacturing costs based on thecreditworthiness of the manufacturer and the performance under the terms of thecontract. In addition, these purchase commitments are not in excess of marketprices and are designed to assure a source of supply and are not in excess ofour normal manufacturing requirements. We have historically taken physicaldelivery of the raw materials under these purchase agreements and intend totake physical delivery over the contract term. Therefore, we account for themunder the normal purchase provisions of SFAS No. 133 and its amendments.The aggregate amounts of the fixed and determinable portion of the requiredpayments under the agreements are $11.9 million for 2007 and $5.4 millionfor the year 2008. The aggregate amount of payments made under 

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**Georgia Gulf Corporation and Subsidiaries Notes to Consolidated Financial Statements (Continued)**

**11.**   COMMITMENTS AND CONTINGENCIES (Continued)

the agreements forpurchases in 2006, 2005 and 2004 were $190.0 million, $235.5 million and $108.3million, respectively.

We also have other long-term supply contracts for rawmaterials, which are at prices not in excess of market, designed to assure asource of supply and not expected to be in excess of our normal manufacturingoperations requirements. Historically, we have taken physical delivery underthese contracts and we intend to take physical delivery in the future.Therefore, at inception we designate these contracts as normal purchaseagreements and account for them under the normal purchase provisions of SFAS No. 133.

*Legal Proceedings.**  *In October 2004 the UnitedStates Environmental Protection Agency (“USEPA”) notified us that we have beenidentified as a PRP for a Superfund site in Galveston, Texas. The site is aformer industrial waste recycling, treatment and disposal facility. Over onethousand PRPs have been identified by the USEPA. We contributed a relativelysmall proportion of the total amount of waste shipped to the site. In thenotice, the USEPA informed us of the agency’s willingness to settle with us andother PRPs that contributed relatively small proportions of the total quantityof waste shipped to the Superfund site. We believe that we can reach asettlement with the USEPA in this matter, and although there can be noassurance, we expect the amount of the settlement to be less than $100,000.

In August 2004 and January and February 2005,the USEPA conducted environmental investigations of our manufacturingfacilities in Aberdeen, Mississippi and Plaquemine, Louisiana, respectively. TheUSEPA has informed us that it has identified several “areas of concern,” andhas indicated that such areas of concern may, in its view, constituteviolations of applicable requirements, thus warranting monetary penalties andpossible injunctive relief. In lieu of pursuing such relief through itstraditional enforcement process, the USEPA has proposed that the parties enterinto negotiations in an effort to reach a global settlement of the areas ofconcern and that such a global settlement cover our manufacturing facilities atLake Charles, Louisiana and Oklahoma City, Oklahoma as well. During the secondquarter of 2006, we were informed by USEPA that its regional office responsiblefor Oklahoma and Louisiana desired to pursue resolution of these matters on aseparate track from the regional office responsible for Mississippi.

It is likely that any settlement, if achieved, willresult in the imposition of monetary penalties, capital expenditures forinstallation of environmental controls, and/or other relief. We do not know thetotal cost of monetary penalties, environmental projects, or other relief thatwould be imposed in any settlement or order. While we expect that such costswill exceed $100,000, we do not expect that such costs will have a materialeffect on our financial position, results of operations, or cash flows.

On October 3, 2006, we acquired Royal Group,which is subject to several pending investigations and pending and threatenedlawsuits, including the following:

Royal Group is currently under investigation by theRoyal Canadian Mounted Police (the “RCMP”), the Ontario Securities Commission(the “OSC”) and the SEC regarding its prior public disclosures, includingfinancial and accounting matters. The OSC is also conducting a regulatory investigationof Royal Group, principally in connection with certain related partytransactions between Royal Group and Royal St. Kitts Beach Resort Limited, butalso in connection with trading in Royal Group’s shares.

In October 2005, Royal Group advised the OSCstaff, the RCMP and the SEC staff of emails and documents authored by a formerfinance employee of Royal Group that relate to certain financial 

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**Georgia Gulf Corporation and Subsidiaries Notes to Consolidated Financial Statements (Continued)**

**11.**   COMMITMENTS AND CONTINGENCIES (Continued)

accounting and disclosurematters. Royal Group understands that the SEC staff made a referral to theU.S. Department of Justice, Criminal Division, in connection with thosedocuments.

Royal Group and certain of its former officers andformer Board members are named defendants in two shareholder class actionlawsuits pending in the United States District Court for the Southern Districtof New York (instituted in December 2004) and the Ontario Superior Courtof Justice (instituted February 24, 2006) brought by Royal Groupshareholders and additional suits have been threatened. These cases have beenconsolidated as *In re Royal GroupTechnologies Securities Litigation*. These class actions includeallegations of non-disclosure of certain related party transactions and wereamended in connection with the matters described in the preceding paragraph.

Royal Group has entered into a stipulation andagreement of settlement with the lead and representative plaintiffs in the consolidatedcases after a mediation process among the parties. It is a condition to thesettlement that the U.S. and Canadian actions be settled contemporaneously. Underthe terms of the global settlement, subject to the approval of both the U.S.and Canadian courts, Royal Group will make a payment of C$9 million in cash or($7.7 million based on the exchange rate as of December 31, 2006), whichwill be paid into escrow within 5 business days of the execution of thestipulation and agreement. The settlement remains conditioned, among otherthings, on receipt of all required court approvals. Although the settlementagreement has been entered into among the parties, there can be no assurance atthis time that all conditions to the agreement will be satisfied. Thesettlement contains no admission of wrongdoing by Royal Group or any of theother defendants.

Further, Royal Group is the subject of a criminalinvestigation being conducted by the Antitrust Division of the U.S. Departmentof Justice (the “Department of Justice”), which focuses on alleged price fixingin the window coverings industry. Royal Group has also been contacted bycounsel for a group of civil plaintiffs (direct purchasers) who have indicatedtheir intention to commence litigation against the company pertaining to thismatter.

There can be no assurance that the damages,liabilities and costs we will incur in respect of each of the foregoinginvestigations, lawsuits or claims related to Royal Group will not exceed theamounts anticipated by us in respect thereof, and to the extent they do, ourfinancial condition, results of operations and cash flows may be adverselyaffected in a material respect.

In addition, we are subject to other claims and legalactions that may arise in the ordinary course of business. We believe that theultimate liability, if any, with respect to these other claims and legalactions will not have a material effect on our financial position or on ourresults of operations.

*EnvironmentalRegulation.**  *Ouroperations are subject to increasingly stringent federal, state and local lawsand regulations relating to environmental quality. These regulations, which areenforced principally by the USEPA and comparable state agencies and Canadianfederal and provincial agencies, govern the management of solid hazardouswaste, emissions into the air and discharges into surface and undergroundwaters, and the manufacture of chemical substances.

In October 2004 the USEPA notified us that wehave been identified as a potentially responsible party (“PRP”) for a Superfundsite in Galveston, Texas. The site is a former industrial waste recycling,treatment and disposal facility. Over one thousand PRPs have been identified bythe USEPA. We contributed a relatively small proportion of the total amount ofwaste shipped to the site. In the notice, the USEPA 

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**Georgia Gulf Corporation and Subsidiaries Notes to Consolidated Financial Statements (Continued)**

**11.**   COMMITMENTS AND CONTINGENCIES (Continued)

informed us of the agency’s willingness to settle withus and other PRPs that contributed relatively small proportions of the totalquantity of waste shipped to the Superfund site. We believe that we can reach asettlement with the USEPA in this matter, and although there can be noassurance, we expect the amount of the settlement to be less than $100,000.

Subsequent to the close of the fourth quarter of 2006,we voluntarily disclosed possible noncompliance with certain provisions of theToxic Substances Control Act (TSCA) to USEPA. While the penalties, if any, forsuch noncompliance may exceed $100,000, we believe our voluntary disclosureswill qualify us for substantially reduced penalties. In any event, we do notexpect that any penalties will have a material effect on our financialposition, results of operations, or cash flows.

There are several serious environmental issues concerningthe VCM facility at Lake Charles, Louisiana we acquired from CONDEA VistaCompany (“CONDEA Vista” is now Sasol North America, Inc.) on November 12,1999. Substantial investigation of the groundwater at the site has beenconducted, and groundwater contamination was first identified in 1981. Groundwaterremediation through the installation of groundwater recovery wells began in1984. The site currently contains about 90 monitoring wells and 18recovery wells. Investigation to determine the full extent of the contaminationis ongoing. It is possible that offsite groundwater recovery will be required,in addition to groundwater monitoring. Soil remediation could also be required.

Investigations are currently underway by federalenvironmental authorities concerning contamination of an estuary near the LakeCharles VCM facility we acquired known as the Calcasieu Estuary. It is likelythat this estuary will be listed as a Superfund site and be the subject of anatural resource damage recovery claim. It is estimated that there are about200 PRPs associated with the estuary contamination. CONDEA Vista is includedamong these parties with respect to its Lake Charles facilities, including theVCM facility we acquired. The estimated cost for investigation and remediationof the estuary is unknown and could be quite costly. Also, Superfund statutesmay impose joint and several liability for the cost of investigations andremedial actions on any company that generated the waste, arranged for disposalof the waste, transported the waste to the disposal site, selected the disposalsite, or presently or formerly owned, leased or operated the disposal site or asite otherwise contaminated by hazardous substances. Any or all of theresponsible parties may be required to bear all of the costs of cleanupregardless of fault, legality of the original disposal or ownership of thedisposal site. Currently, we discharge our wastewater to CONDEA Vista, whichhas a permit to discharge treated wastewater into the estuary.

CONDEA Vista has agreed to retain responsibility forsubstantially all environmental liabilities and remediation activity relatingto the vinyls business we acquired from it, including the Lake Charles,Louisiana VCM facility. For all matters of environmental contamination thatwere currently known at the time of acquisition (November 1999), we maymake a claim for indemnification at any time; for environmental matters thatwere then unknown, we must generally make claims for indemnification before November 12,2009. Further, our agreement with CONDEA Vista provides that CONDEA Vista willbe subject to the presumption that all later discovered on-site environmentalcontamination arose before closing, and is therefore CONDEA Vista’sresponsibility; this presumption may only be rebutted if CONDEA Vista can showthat we caused the environmental contamination by a major, unaddressed release.

At our Lake Charles VCM facility, CONDEA Vista willcontinue to conduct the ongoing remediation at its expense until November 12,2009. After November 12, 2009, we will be responsible for remediation 

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**Georgia Gulf Corporation and Subsidiaries Notes to Consolidated Financial Statements (Continued)**

**11.**   COMMITMENTS AND CONTINGENCIES (Continued)

costs up to about $150,000 of expense per year, aswell as costs in any year in excess of this annual amount up to an aggregateone-time amount of about $2.3 million. In the first quarter of 2004, as part ofour ongoing assessment of our environmental contingencies, we determined theseremediation costs to be probable and estimable and therefore recorded a $2.7million accrual to other non-current liabilities.

As for employee and independent contractor exposureclaims, CONDEA Vista is responsible for exposures before November 12,2009, and we are responsible for exposures after November 12, 2009, on apro rata basis determined by years of employment or service before and after November 12,1999, by any claimant. There is, however, a presumption for claims broughtbefore November 12, 2004, by current or former CONDEA Vista employees andcontractors that, absent a showing of new acute exposure after November 12,1999, all responsibility will be deemed to have arisen before November 12,1999, and will be solely CONDEA Vista’s.

We believe that we are in material compliance with allcurrent environmental laws and regulations. We estimate that any expensesincurred in maintaining compliance with these requirements will not materiallyaffect earnings or cause us to exceed our level of anticipated capitalexpenditures. However, there can be no assurance that regulatory requirementswill not change, and it is not possible to accurately predict the aggregatecost of compliance resulting from any such changes.

Although we are not awareof any significant environmental liabilities associated with Royal Group,should any arise,  we would have no thirdparty indemnities for environmental liabilities including liabilities resultingfrom Royal Group’s operations prior to our acquisition of the company.

**12.**   RELATEDPARTY TRANSACTIONS

*JointVentures.**  *Ourjoint ventures are accounted for using the equity method. We own a 50 percentinterest in PHH Monomers, LLC (“PHH”), a manufacturing joint venture with PPGIndustries, Inc., (“PPG”), to produce VCM. We receive 50 percent of theVCM production of PHH and consume the majority of the production to producevinyl resins. Pursuant to the terms of the operating agreement and themanufacturing and services agreement, PPG is the operator of PHH. We purchaseour share of the raw materials and pay 50 percent of the processing costs forthe right to 50 percent of the VCM production of PHH. PHH has capacity toproduce 1.15 billion pounds. The chlorine needs of the PHH facility aresupplied via pipeline, under a long-term market price based contract with PPG.PHH is an integral part of our manufacturing operations. At December 31,2006 and 2005, our investment in PHH was $15.5 million and $18.6 million, respectively,which represents 50 percent of the property, plant and equipment of the PHHproduction facility, and is included in other long-term assets.

In connection with our acquisition of Royal Group, weacquired investments in building product joint ventures, with an estimated fairvalue of $12.1 million at December 31, 2006. We own a 50 percent interestin several manufacturing joint ventures in the window and door profilesbusiness. We sell raw materials to these joint ventures at market prices. Salesof materials to these joint ventures from October 3, 2006 to December 31,2006 were approximately $6.5 million. As of December 31, 2006 our netinvestment in these manufacturing joint ventures was $6.1 million.

At December 31, 2006 and 2005 we had $6.7 millionand $4.7 million, respectively, of liabilities due to these related partiesincluded in accounts payable. At December 31, 2006 and 2005 we had $2.2million and $5.1 million, respectively, of receivables due from these relatedparties included in accounts receivable. 

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**Georgia Gulf Corporation and Subsidiaries Notes to Consolidated Financial Statements (Continued)**

**12.**   RELATED PARTY TRANSACTIONS (Continued)

Ourequity in earnings (losses) from these joint ventures was not material for theyears ended December 31, 2006, 2005, and 2004.

**13.**   STOCKHOLDERS’EQUITY

Each outstanding share of common stock is accompaniedby a preferred stock purchase right, which entitles the holder to purchase fromus 1/100th of a share of Junior Participating Preferred Stock for $90.00,subject to adjustment in certain circumstances. The rights expire on April 27,2010, and may be redeemed by us for $0.01 per right until the earlier to occurof (1) the tenth calendar day following announcement by us that a personor group (other than us or certain related persons) beneficially owns15 percent or more of our outstanding shares of common stock (an “AcquiringPerson”) or (2) the tenth business day following the commencement of atender or exchange offer that would result in a person or group becoming anAcquiring Person (the earliest of any such date, the “Distribution Date”). Therights first become exercisable on the Distribution Date. Subject to certainconditions, if a person or group becomes an Acquiring Person, each right willentitle its holder (other than the Acquiring Person) to receive, upon exercise,common stock having a market value equal to two times the right’s exerciseprice. 

In addition, subject to certain conditions, if we areinvolved in a merger or certain other business combination transactions, eachright will entitle its holder (other than an Acquiring Person) to receive, uponexercise, common stock of the acquiring company having a market value equal totwo times the right’s exercise price.

In connection with thestock purchase rights described above, 15.0 million of the authorized shares ofpreferred stock are designated Junior Participating Preferred Stock. If issued,the Junior Participating Preferred Stock would be entitled, subject to theprior rights of any senior preferred stock, to a dividend equal to the greaterof $0.01 or that which is paid on the common shares.

**14.   STOCK-BASEDCOMPENSATION**

Under the 1998 and 2002 Equity and PerformanceIncentive Plans, we are authorized by our stockholders to grant awards for upto 4,500,000 shares of our common stock to employees and non-employeedirectors. As of December 31, 2006, we had various types of share-basedpayment arrangements with our employees and non-employee directors includingrestricted and deferred stock units, stock options and the employee stockpurchase plan, which are described below.

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**Georgia Gulf Corporation and Subsidiaries Notes to Consolidated Financial Statements (Continued)**

**14.   STOCK-BASEDCOMPENSATION (Continued)**

*Stock Options.  *Optionprices are equal to the closing price of our common stock on the day prior tothe date of grant. Options vest over a one or three-year period from the dateof grant and expire no more than ten years after the date of grant. A summaryof stock option activity under all plans during 2006, is as follows:

| ** **                                                                  | ** ** | **Year ended December 31, 2006** | ** ** |
|-----------------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                                  | ** ** | **Shares**                                           | ** ** | **Weighted  Average  Remaining  Contractual  Terms** | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Aggregate  Intrinsic Value** | ** ** |
| ** **                                                                  | ** ** | ** **                                           | ** ** | ** ** | ** ** | ** ** | ** ** | **(In thousands)** | ** ** |
| Outstanding on  January 1, 2006                                        | ** ** | **1,632,608**                                        | ** ** |   | ** ** | ** ** |   |   | **$** | **30.47** | ** ** |   |   | ** ** | ** ** |   |
| Granted                                                                     | ** ** | **351,996**                                          | ** ** |   | ** ** | ** ** |   |   | **28.91** | ** ** |   |   | ** ** | ** ** |   |
| Exercised                                                                   | ** ** | **(18,366**                                          | **)**      |   | ** ** | ** ** |   |   | **21.40** | ** ** |   |   | ** ** | ** ** |   |
| Forfeited                                                                   | ** ** | **(15,748**                                          | **)**      |   | ** ** | ** ** |   |   | **43.46** | ** ** |   |   | ** ** | ** ** |   |
| Expired                                                                     | ** ** | **(3,667**                                           | **)**      |   | ** ** | ** ** |   |   | **47.44** | ** ** |   |   | ** ** | ** ** |   |
| Outstanding on  December 31, 2006                                      | ** ** | **1,946,823**                                        | ** ** |   | **5.9 years** | ** ** |   |   | **$** | **30.14** | ** ** |   |   | **$** | **581** | ** ** |   |
| Vested or  expected to vest at December 31, 2006                       | ** ** | **1,935,421**                                        | ** ** |   | **5.9 years** | ** ** |   |   | **$** | **30.08** | ** ** |   |   | **581** | ** ** |   |
| Exercisable on  December 31, 2006                                      | ** ** | **1,307,059**                                        | ** ** |   | **4.7 years** | ** ** |   |   | **$** | **27.23** | ** ** |   |   | **$** | **581** | ** ** |   |
| Shares available on  December 31, 2006 for options that may be granted | ** ** | **757,423**                                          | ** ** |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |

 

Theweighted-average grant date fair value of options granted during 2006, 2005 and2004 was $10.21, $19.35 and $12.09, respectively. The total intrinsic value ofoptions exercised during the years ended December 31, 2006, 2005 and 2004was $0.1 million, $3.1 million and $14.9 million, respectively. The intrinsicvalue is calculated as the difference between the market value on exercise dateand the exercise price of the shares. The following table summarizesinformation about stock options at December 31, 2006:

| ** **                                  | ** ** | **Outstanding** | ** ** | **Exercisable** | ** ** |
|---------------------------------------------|------------|-----------------|------------|-----------------|------------|
| **Range of Exercise Prices** | ** ** | ** **      | ** ** | **Shares**      | ** ** | **Weighted Average  Exercise  Price** | ** ** | **Weighted Average Remaining  Contractual Life** | ** ** | **Shares** | ** ** | **Weighted Average  Exercise  Price** | ** ** |
| **$15.44  to $25.00**                       | ** ** | **606,078**     | ** ** |            | **$**      | **19.58** | ** ** |   |   | **5.04 years** | ** ** |   | **606,078** | ** ** |   | **$** | **19.58** | ** ** |   |
| **$25.01  to $35.00**                       | ** ** | **875,545**     | ** ** |            | **28.48**  | ** ** |   |   | **6.74 years** | ** ** |   | **429,904** | ** ** |   | **28.41** | ** ** |   |
| **$35.01  to $45.00**                       | ** ** | **163,000**     | ** ** |            | **35.25**  | ** ** |   |   | **1.11 years** | ** ** |   | **163,000** | ** ** |   | **35.25** | ** ** |   |
| **$45.01  to $53.38**                       | ** ** | **302,200**     | ** ** |            | **53.38**  | ** ** |   |   | **8.07 years** | ** ** |   | **108,077** | ** ** |   | **53.38** | ** ** |   |
| **Total $15.44 to $53.38**                  | ** ** | **1,946,823**   | ** ** |            | **$**      | **30.14** | ** ** |   |   | **5.94 years** | ** ** |   | **1,307,059** | ** ** |   | **$** | **27.23** | ** ** |   |
|                                             |            |                 |            |                 |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

*EmployeeStock Purchase Plan.**  *Ourstockholders have approved a qualified employee stock purchase plan (“ESPP”),which allows employees to acquire shares of common stock through payrolldeductions over a twelve-month period. The purchase price is equal to 85percent of the fair market value of the common stock on either the first orlast day of the subscription period, whichever is lower. Purchases under theplan are limited to 15 percent of an employee’s base salary. In connection withthis stock purchase plan, 62,072 shares of common stock are reserved for futureissuances. Under this plan 169,368, 125,075 and 131,198 shares of common stockwere issued at $16.54, $25.95 and $24.71 per share during 2006, 2005 and 2004,respectively. The ESPP was discontinued in 2007.

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**Georgia Gulf Corporation and Subsidiaries Notes to Consolidated Financial Statements (Continued)**

**14.**   STOCK-BASED COMPENSATION (Continued)

*Stock-basedCompensation related to Stock Option and ESPP Plan.  **T*he fairvalue of stock options granted and the ESPP shares for 2006 has been estimatedas of the date of grant using the Black-Scholes option-pricing model. Theuse of a valuation model requires us to make certain assumptions with respectto selected model inputs. We use the historical volatility for our stock, as webelieve that historical volatility is more representative than impliedvolatility. The expected life of the awards is based on historical and othereconomic data trended into the future. The risk-free interest rate assumptionis based on observed interest rates appropriate for the terms of our awards.The dividend yield assumption is based on our history and expectation ofdividend payouts. The weighted average fair value derived from theBlack-Scholes model and the related weighted-average assumptions used in themodel are as follows:

| ** **               | ** ** | **Year ended  December 31, 2006** | ** ** |
|--------------------------|------------|--------------------------------------------------|------------|
| ** **               | ** ** | **ESPP**                                         | ** ** | **Stock option  grants** | ** ** |
| Assumptions              |       |                                             |       |   |   |   |   |
| Risk-free interest rate  |       | 4.85                                             | %          |   | 4.82 | % |   |
| Expected life            |       | 1.0 year                                         |       |   | 4.5 years |   |   |
| Expected volatility      |       | 44                                               | %          |   | 39 | % |   |
| Expected dividend  yield |       | 1.05                                             | %          |   | 1.11 | % |   |

 

Compensation expense, net of tax, for 2006 from stockoptions and ESPP shares was approximately $4.4 million. No compensation expensewas recognized for our stock option plans or our ESPP for 2005 and 2004.

*Restricted and DeferredStock.**  *During2006, 2005 and 2004, we granted 136,902, 116,375 and 113,625 shares of restrictedstock units, restricted stock and deferred stock units, respectively, to ourkey employees and non-employee directors. The restricted stock units andrestricted stock vest over a three-year period and the deferred stock unitsvest over a one-year period. During 2006, 2005 and 2004, 35,457, 33,550 and21,166 shares of restricted stock, respectively, were surrendered insatisfaction of required minimum tax withholding obligations. A summary ofrestricted and deferred stock units and related changes therein is as follows:

| ** **                                            | ** ** | **Year ended December 31, 2006** | ** ** |
|-------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                            | ** ** | **Shares**                                           | ** ** | **Weighted  Average  Remaining  Contractual  Terms** | ** ** | **Weighted  Average  Grant Date  Fair Value** | ** ** | **Aggregate  Intrinsic Value  (In thousands)** | ** ** |
| Outstanding on  January 1, 2006                  | ** ** | **225,441**                                          | ** ** |   | ** ** | ** ** |   |   | **$** | **38.99** | ** ** |   |   | ** ** | ** ** |   |
| Granted                                               | ** ** | **136,902**                                          | ** ** |   | ** ** | ** ** |   |   | **28.70** | ** ** |   |   | ** ** | ** ** |   |
| Vested                                                | ** ** | **(105,378**                                         | **)**      |   | ** ** | ** ** |   |   | **33.34** | ** ** |   |   | ** ** | ** ** |   |
| Forfeited                                             | ** ** | **(2,055**                                           | **)**      |   | ** ** | ** ** |   |   | **39.09** | ** ** |   |   | ** ** | ** ** |   |
| Outstanding on  December 31, 2006                | ** ** | **254,910**                                          | ** ** |   | **1.5 years** | ** ** |   |   | **35.80** | ** ** |   |   | **$** | **4,922** | ** ** |   |
| Vested or expected to  vest at December 31, 2006 | ** ** | **250,221**                                          | ** ** |   | **1.5 years** | ** ** |   |   | **35.73** | ** ** |   |   | **$** | **4,832** | ** ** |   |

 

The weighted average grant date fair value per shareof restricted and deferred stock units and restricted stock granted during2006, 2005 and 2004 was $28.70, $52.81 and $27.11, respectively, which is 

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**Georgia Gulf Corporation and Subsidiaries Notes to Consolidated Financial Statements (Continued)**

**14.**   STOCK-BASED COMPENSATION (Continued)

based on the stock priceas of the date of grant. The total intrinsic value of restricted and deferredstock units that vested during the years ended December 31, 2006, 2005 and2004 was $3.1 million, $5.2 million and $1.9 million, respectively.

Compensation expense, net of tax, for 2006, 2005 and2004, from restricted stock units, restricted stock and deferred stock unitswas $3.6 million, $2.6 million and $2.0 million, respectively.

*Nonvested shares.**  *A summary of the status of thenonvested share activity under all plans is as follows:

| ** **                           | ** ** | **Year ended  December 31, 2006** | ** ** |
|--------------------------------------|------------|--------------------------------------------------|------------|
| ** **                           | ** ** | **Shares**                                       | ** ** | **Weighted  Average Grant  Date Fair Value** | ** ** |
| Nonvested on  January 1, 2006   | ** ** | **837,092**                                      | ** ** |   | **$** | **21.65** | ** ** |   |
| Granted                              | ** ** | **488,898**                                      | ** ** |   | **15.39** | ** ** |   |
| Vested                               | ** ** | **(421,846**                                     | **)**      |   | **19.23** | ** ** |   |
| Forfeited and  expired               | ** ** | **(21,470**                                      | **)**      |   | **43.72** | ** ** |   |
| Nonvested on  December 31, 2006 | ** ** | **882,674**                                      | ** ** |   | **$** | **19.41** | ** ** |   |

 

As of December 31,2006, we had approximately $6.9 million of total unrecognized compensation costrelated to nonvested share-based compensation, which we will record in ourstatements of income over a weighted average recognition period of less thantwo years. The total fair value of shares vested during 2006, 2005 and 2004,was $8.1 million $5.5 million and $4.5 million, respectively.

**15.**   EMPLOYEERETIREMENT PLANS

We have certain employee retirement plans that coversubstantially all of our employees. The expense incurred for these plans wasapproximately $8.5 million, $7.8 million, and $10.6 million for the years endedDecember 31, 2006, 2005, and 2004, respectively.  These plans are discussed below.

Most employees are covered by defined contributionplans under which we make contributions to individual employee accounts. We had401k expense of approximately $5.8 million, 4.6 million, and $4.6 million forthe years ended December 31, 2006, 2005, and 2004, respectively.  In addition, about one third of our employeesare covered by defined benefit plans for which the benefits are based on yearsof service and the employee’s compensation or for which the benefit is aspecific monthly amount for each year of service. We use a measurement date of December 31for our pension and other postretirement plans. We sponsor a postretirementhealth care plan, which covers employees at our manufacturing facility inSarnia, Ontario.

SFAS No. 158*,Employers’ Accounting for Defined Benefit Pension and Other PostretirementPlans.*On September 29, 2006, the FASB issued SFAS No. 158,Employers’ Accounting for Defined Benefit Pension and Other PostretirementPlans, which amends SFAS No. 87 and SFAS No. 106 to requirerecognition of the overfunded or underfunded status of pension and otherpostretirement benefit plans on the balance sheet. Under SFAS No. 158,gains and losses, prior service costs and credits, and any remaining transitionamounts under SFAS No. 87 and SFAS No. 106 that have not yet beenrecognized through net periodic benefit cost are to be recognized inaccumulated other comprehensive income, net of tax effects, until they 

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**Georgia Gulf Corporation and Subsidiaries Notes to Consolidated Financial Statements (Continued)**

**15.**   EMPLOYEE RETIREMENT PLANS (Continued)

are amortized as a component of net periodic cost.SFAS No. 158 is effective for publicly held companies for fiscal yearsending after December 15, 2006. The incremental effect of adopting SFAS No. 158is summarized below:

| **In Thousands**                 | ** ** | ** ** | ** ** | **Before  Adopting  SFAS No. 158** | ** ** | **Adjustments  to Adopt  SFAS No. 158** | ** ** | **After  Adopting  SFAS  No. 158** | ** ** |
|---------------------------------------|------------|------------|------------|----------------------------------------------|------------|--------------------------------------------------------|------------|-----------------------------------------|------------|
| Assets                                |       |       |       |                                         |       |                                                   |       |                                    |       |   |   |
| Noncurrent benefit asset              | ** ** | ** ** | **$**      | **23,223**                                   | ** ** | ** **                                             | ** ** | **$**                                   | **(4,990** | **)** | ** ** | **$** | **18,233** | ** ** |
| Intangible asset                      | ** ** | ** ** | **22**     | ** **                                   | ** ** | ** **                                             | **(22**    | **)**                                   | ** ** | **—** | ** ** |
| Deferred tax asset                    | ** ** | ** ** | **(99**    | **)**                                        | ** ** | ** **                                             | **(1,528** | **)**                                   | ** ** | **(1,627** | **)** |
| Liabilities                           |       |       |       |                                         |       |                                                   |       |                                    |       |   |   |
| Current benefit liability             | ** ** | ** ** | **—** | ** **                                   | ** ** | ** **                                             | **438**    | ** **                              | ** ** | **438** | ** ** |
| Noncurrent benefit liability          | ** ** | ** ** | **9,035**  | ** **                                   | ** ** | ** **                                             | **(1,333** | **)**                                   | ** ** | **7,702** | ** ** |
| Shareholders’ equity             |       |       |       |                                         |       |                                                   |       |                                    |       |   |   |
| Accumulated other  comprehensive loss | ** ** | ** ** | **$**      | **(170**                                     | **)**      | ** **                                             | ** ** | **$**                                   | **(2,589** | **)** | ** ** | **$** | **(2,759** | **)** |

 

*Benefit Obligations.*   Thereconciliation of the beginning and ending balances of the projected benefitobligation for defined benefit plans is as follows:

| ** **                                            | ** ** | **Pension Benefits** | ** **  | **Other  Postretirement  Benefits** | ** ** |
|-------------------------------------------------------|------------|---------------------------|-------------|-------------------------------------|------------|
| **In Thousands**                                 | ** ** | ** **                | ** **  | **2006**                            | ** ** | **2005** | ** ** | **2006** | ** ** |
| **Change in Benefit Obligation**                      | ** ** | ** **                | ** **  | ** **                          | ** ** |   | ** ** | ** ** |   |
| Benefit obligation, beginning of year                 | ** ** | **$**                     | **93,764**  |                                | $          | 83,871 | ** ** |   | **$** | **—** | ** ** |   |
| Service cost                                          | ** ** | **3,798**                 |        | 3,396                               | ** ** |   | **22** | ** ** |   |
| Interest cost                                         | ** ** | **5,689**                 |        | 5,292                               | ** ** |   | **34** | ** ** |   |
| Actuarial (gain)/loss                                 | ** ** | **(6,235**                | **)**       | 3,413                               | ** ** |   | **—** | ** ** |   |
| Exchange rate loss                                    | ** ** | **(266**                  | **)**       | —                              | ** ** |   | **(104** | **)** |   |
| Gross benefits paid                                   | ** ** | **(2,480**                | **)**       | (2,208                              | )          |   | **(5** | **)** |   |
| Plan amendments                                       | ** ** | **1,022**                 |        | —                              | ** ** |   | **—** | ** ** |   |
| Acquisitions                                          | ** ** | **21,925**                |        | —                              | ** ** |   | **2,719** | ** ** |   |
| Benefit obligation, end of year                       | ** ** | **$**                     | **117,217** |                                | $          | 93,764 | ** ** |   | **$** | **2,666** | ** ** |   |
| Accumulated benefit  obligation, end of 2006 and 2005 | ** ** | **$**                     | **106,612** |                                | $          | 83,931 | ** ** |   | **—** | ** ** |   |
|                                                       |            |                           |             |                                     |            |  |  |  |  |  |  |  |  |  |

 

The accumulated benefit obligation is defined as theactuarial present value of pension benefits (whether vested or unvested)attributed to employee service rendered before December 31, 2006 and 2005,respectively, and based on employee service and compensation prior to theapplicable date. The accumulated benefit obligation differs from the projectedbenefit obligation in that it includes no assumption about future compensationlevels. Other postretirement benefits represent benefit plans that were assumedin connection with the Royal Group acquisition on October 3, 2006. Priorto October 3, 2006, we did not have any other postretirement plans.

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**Georgia Gulf Corporation and Subsidiaries Notes to Consolidated Financial Statements (Continued)**

**15.**   EMPLOYEE RETIREMENT PLANS (Continued)

*PlanAssets.*   The reconciliation of the beginning andending balances of the fair value of plan assets were as follows:

| ** **                                    | ** ** | **Pension Benefits** | ** **  | **Other  Postretirement  Benefits** | ** ** |
|-----------------------------------------------|------------|---------------------------|-------------|-------------------------------------|------------|
| **In Thousands**                         | ** ** | ** **                | ** **  | **2006**                            | ** ** | **2005** | ** ** | **2006** | ** ** |
| **Change in Plan Assets**                     | ** ** | ** **                | ** **  | ** **                          | ** ** |   | ** ** | ** ** |   |
| Fair value of plan assets,  beginning of year | ** ** | **$**                     | **94,448**  |                                | $          | 84,811 | ** ** |   | **$** | **—** | ** ** |   |
| Actual return on plan  assets                 | ** ** | **13,276**                |        | 6,748                               | ** ** |   | **—** | ** ** |   |
| Exchange rate loss                            | ** ** | **(221**                  | **)**       | N/A                                 | ** ** |   | **—** | ** ** |   |
| Employer contribution                         | ** ** | **730**                   |        | 5,097                               | ** ** |   | **5** | ** ** |   |
| Gross benefits paid                           | ** ** | **(2,480**                | **)**       | (2,208                              | )          |   | **(5** | **)** |   |
| Acquisitions                                  | ** ** | **24,222**                |        | —                              | ** ** |   | **—** | ** ** |   |
| Fair value of plan assets, end of year        | ** ** | **$**                     | **129,975** |                                | $          | 94,448 | ** ** |   | **$** | **—** | ** ** |   |
|                                               |            |                           |             |                                     |            |  |  |  |  |  |  |  |  |  |

 

*Funded Status.*   Thefunded status of the plans, reconciled to the amounts reported on the balancesheets follows:

| ** **                                                                    | ** ** | **Pension Benefits** | ** **  | **Other  Postretirement  Benefits** | ** ** |
|-------------------------------------------------------------------------------|------------|---------------------------|-------------|-------------------------------------|------------|
| ** **                                                                    | ** ** | **December 31,**     | ** **  | **December 31,**               | ** ** |
| **In Thousands**                                                         | ** ** | ** **                | ** **  | **2006**                            | ** ** | **2005** | ** ** | **2006** | ** ** |
| **Funded status, end of year:**                                               | ** ** | ** **                | ** **  | ** **                          |       |   | ** ** | ** ** |   |
| Fair value of plan  assets                                                    | ** ** | **$**                     | **129,975** | ** **                          | $          | 94,448 |   |   | **$** | **—** | ** ** |   |
| Benefit obligations                                                           | ** ** | **117,217**               | ** **  | 93,764                              |       |   | **2,665** | ** ** |   |
| Funded status                                                                 | ** ** | **12,758**                | ** **  | 684                                 |       |   | **(2,665** | **)** |   |
| Unrecognized net  actuarial (gain)/loss                                       | ** ** | **—**                | ** **  | 12,917                              |       |   | **—** | ** ** |   |
| Unrecognized prior  service (credit)/cost                                     | ** ** | **—**                | ** **  | 2,114                               |       |   | **—** | ** ** |   |
| Unrecognized transition  (asset)/obligation                                   | ** ** | **—**                | ** **  | 295                                 |       |   | **—** | ** ** |   |
| Amount recognized, end  of year                                               | ** ** | **$**                     | **12,758**  | ** **                          | $          | 16,010 |   |   | **$** | **(2,665** | **)** |   |
| **Amounts recognized in the balance sheets consist  of:**                     | ** ** | ** **                | ** **  | ** **                          |       |   | ** ** | ** ** |   |
| Noncurrent asset                                                              | ** ** | **$**                     | **18,233**  | ** **                          | N/A        |   |   | **$** | **—** | ** ** |   |
| Current liability                                                             | ** ** | **(419**                  | **)**       | N/A                                 |       |   | **(18** | **)** |   |
| Noncurrent liability                                                          | ** ** | **(5,056**                | **)**       | N/A                                 |       |   | **(2,646** | **)** |   |
| Prepaid benefit cost                                                          | ** ** | **—**                | ** **  | 21,041                              |       |   | **—** | ** ** |   |
| Accrued benefit cost                                                          | ** ** | **—**                | ** **  | (5,030                              | )          |   | **—** | ** ** |   |
| Additional minimum  liability                                                 | ** ** | **—**                | ** **  | (357                                | )          |   | **—** | ** ** |   |
| Intangible asset                                                              | ** ** | **—**                | ** **  | 44                                  |       |   | **—** | ** ** |   |
| Accumulated other  comprehensive income                                       | ** ** | **—**                | ** **  | 312                                 |       |   | **—** | ** ** |   |
|                                                                          | ** ** | **$**                     | **12,758**  | ** **                          | $          | 16,010 |   |   | **$** | **(2,665** | **)** |   |
| **Amounts recognized in accumulated other  comprehensive income consist of:** | ** ** | ** **                | ** **  | ** **                          |       |   | ** ** | ** ** |   |
| Net actuarial loss                                                            | ** ** | **$**                     | **1,552**   | ** **                          | **—** |   |   | **$** | **—** | ** ** |   |
| Prior service cost                                                            | ** ** | **2,753**                 | ** **  | **—**                          |       |   | **—** | ** ** |   |
| Transition obligation                                                         | ** ** | **81**                    | ** **  | **—**                          |       |   | **—** | ** ** |   |
|                                                                          | ** ** | **$**                     | **4,386**   | ** **                          | N/A        |   |   | **$** | **—** | ** ** |   |
|                                                                               |            |                           |             |                                     |            |  |  |  |  |  |  |  |  |  |

 

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**Georgia Gulf Corporation and Subsidiaries Notes to Consolidated Financial Statements (Continued)**

**15.**   EMPLOYEERETIREMENT PLANS (Continued)

*Net Periodic Cost.*   Theamount of net periodic benefit cost recognized includes the followingcomponents:

| ** **                            | ** ** | **Pension Benefit  Year Ended December 31,** | ** ** | **Other  Postretirement  Benefits** | ** ** |
|---------------------------------------|------------|------------------------------------------------------------------|------------|-------------------------------------|------------|
| **In Thousands**                 | ** ** | ** **                                                       | ** ** | **2006**                            | ** ** | **2005** | ** ** | **2004** | ** ** | **Year Ended  December 31, 2006** | ** ** |
| Components of periodic  benefit cost: |       |                                                             |       |                                |       |   |   |   |   |   |   |
| Service cost                          |       | **$**                                                            | **3,798**  | ** **                          | $          | 3,396 |   | $ | 3,021 | ** ** | ** ** | **$** | **21** |   |   |
| Interest cost                         | ** ** | **5,689**                                                        |       | 5,292                               |       | 4,852 | ** ** | ** ** | **34** |   |   |
| Expected return on assets             | ** ** | **(8,187**                                                       | **)**      | (7,133                              | )          | (5,535 | ) | ** ** | **—** |   |   |
| Amortization of:                      |       |                                                             |       |                                |       |   |   |   |   |   |   |
| Transition obligation                 | ** ** | **214**                                                          |       | 214                                 |       | 223 | ** ** | ** ** | **—** |   |   |
| Prior service cost                    | ** ** | **382**                                                          |       | 305                                 |       | 278 | ** ** | ** ** | **—** |   |   |
| Actuarial gain                        | ** ** | **66**                                                           |       | 333                                 |       | 34 | ** ** | ** ** | **—** |   |   |
| Curtailment charge                    |       | **—**                                                       |       | —                              |       | 68 | ** ** | ** ** | **—** |   |   |
| Settlement credit                     | ** ** | **(18**                                                          | **)**      | —                              |       | (287 | ) | ** ** | **—** |   |   |
| Total net periodic  benefit cost      | ** ** | **$**                                                            | **1,944**  |                                | $          | 2,407 |   | $ | 2,654 | ** ** | ** ** | **$** | **55** |   |   |
|                                       |            |                                                                  |            |                                     |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

*Additional Information.**  *At December 31, 2006 and 2005the projected benefit obligation, accumulated benefit obligation, and fairvalue of plan assets for pension plans with a projected benefit obligation inexcess of plan assets, and pension plans with an accumulated benefit obligationin excess of plan assets, were as follows: 

| ** **                     | ** ** | **Accumulated**

**Benefit  Obligation in  Excess of the  Fair Value of  Plan Assets  December 31,** | ** ** | **Projected Benefit  Obligation in Excess  of the Fair Value of  Plan Assets  December 31,** | ** ** |
|--------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------|------------|
| **In Thousands**          | ** ** | ** **                                                                                                                              | ** ** | **2006**                                                                                                                                  | ** ** | **2005** | ** ** | **2006** | ** ** | **2005** | ** ** |
| End of year:                   |       |                                                                                                                                    |       |                                                                                                                                      |       |   |   |   |   |
| Projected benefit obligation   | ** ** | **$**                                                                                                                                   | **4,453**  |                                                                                                                                      | $          | 4,790 | ** ** | **$** | **11,317** |   | $ | 4,790 |   |
| Accumulated benefit obligation | ** ** | **4,453**                                                                                                                               |       | 4,790                                                                                                                                     | ** ** | **4,453** |   | 4,790 |   |
| Fair value of  plan assets     |       | **—**                                                                                                                              |       | —                                                                                                                                    | ** ** | **5,842** |   | — |   |
|                                |            |                                                                                                                                         |            |                                                                                                                                           |            |  |  |  |  |  |  |  |  |  |  |

 

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**Georgia Gulf Corporation and Subsidiaries Notes to Consolidated Financial Statements (Continued)**

**15.**   EMPLOYEE RETIREMENT PLANS (Continued)

*Assumptions.**  *Our major assumptions used todetermine benefit obligations for our pension plans are presented asweighted-averages:

| ** **                                                                                                  | ** ** | **Pension  Benefits** | ** ** | **Other  Postretirement  Benefits** | ** ** |
|-------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|-------------------------------------|------------|
| **In Thousands**                                                                                       | ** ** | ** **            | ** ** | **2006**                            | ** ** | **2005** | ** ** | **2006** | ** ** |
| Weighted-average  assumptions used todetermine benefit obligation at end of year:                           |       |                  |       |                                |       |   |   |   |   |
| Discount rate                                                                                               | ** ** | **5.94**              | **%**      | 5.75                                | %          | ** ** | **5.00** | **%** | ** ** |
| Rate of compensation increase                                                                               | ** ** | **4.17**              | **%**      | 4.26                                | %          | ** ** | **3.75** | **%** | ** ** |
| Health care cost  trend rate                                                                                |       |                  |       |                                |       |   |   |   |   |
| Initial rate                                                                                                | ** ** | **—**            | ** ** | **—**                          | ** ** | ** ** | **11.00** | **%** | ** ** |
| Ultimate rate                                                                                               | ** ** | **—**            | ** ** | **—**                          | ** ** | ** ** | **6.00** | **%** | ** ** |
| Years to ultimate                                                                                           | ** ** | **—**            | ** ** | **—**                          | ** ** | ** ** | **5 years** | ** ** | ** ** |
| Effect of  one-percentage-point change in assumed health care cost trend rate on  postretirement obligation |       |                  |       |                                |       |   |   |   |   |
| Increase                                                                                                    | ** ** | **—**            | ** ** | **—**                          | ** ** | ** ** | **231** | ** ** | ** ** |
| Decrease                                                                                                    | ** ** | **—**            | ** ** | **—**                          | ** ** | ** ** | **(223** | **)** | ** ** |
|                                                                                                             |            |                       |            |                                     |            |  |  |  |  |  |  |

 

Our majorassumptions used to determine net periodic benefit cost for pension plans arepresented as weighted-averages:

| ** **                      | ** ** | **Year Ended December 31,** | ** ** |
|---------------------------------|------------|--------------------------------------------|------------|
| ** **                      | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| Discount rate                   | ** ** | **5.75**                                   | **%**      | 6.00 | % | 6.25 | % |
| Expected return  on plan assets | ** ** | **8.23**                                   | **%**      | 8.50 | % | 8.75 | % |
| Rate of compensation  increase  | ** ** | **4.24**                                   | **%**      | 4.31 | % | 4.31 | % |

 

The expected long-term rate of return on plan assetsassumption is based on historical and projected rates of return for current andplanned asset classes in the plan’s investment portfolio. Projected rates ofreturn for each of the plan’s projected asset classes were selected afteranalyzing historical experience and future expectations of the returns andvolatility of the various asset classes. Based on the target asset allocationfor each asset class, the overall expected rate of return for the portfolio wasdeveloped and adjusted for historical and expected experience of activeportfolio management results compared to the benchmark returns and for theeffect of expenses paid from plan assets.

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**Georgia Gulf Corporation and Subsidiaries Notes to Consolidated Financial Statements (Continued)**

**15.**   EMPLOYEE RETIREMENT PLANS (Continued)

The expected long-termrate of return on plan assets was changed from 8.25 percent to 8.00 percent asof December 31, 2006. The asset allocations for our pension plans at theend of 2006 and 2005 and the target allocation for 2006, by asset category, areas follows:

| ** **              | ** ** | **Target  Allocation** | ** ** | **Percentage of Plan  Assets at Year  End** | ** ** |
|-------------------------|------------|------------------------|------------|-----------------------------------------------------------------|------------|
| **Asset Category** | ** ** | ** **             | ** ** | **2007**                                                        | ** ** | **2006** | ** ** | **2005** | ** ** |
| Equity Securities       |       |                   | 70 - 80    | %                                                               |       | 76.6 | % | 76.8 | % |
| Debt Securities         |       |                   | 20 - 25    | %                                                               |       | 20.5 | % | 17.3 | % |
| Real Estate             |       |                   | 0 - 5      | %                                                               |       | 1.4 | % | 0.5 | % |
| Other                   |       |                   | 0 - 5      | %                                                               |       | 1.5 | % | 5.4 | % |
|                    |       |                   | 100        | %                                                               |       | 100.0 | % | 100.0 | % |
|                         |            |                        |            |                                                                 |            |  |  |  |  |  |  |

 

Equity securities do not include any of our commonstock at the end of 2006 and 2005.

Our investment committee establishes investmentpolicies and strategies and regularly monitors the performance of the plan’sfunds. Our investment strategy with respect to pension assets is to invest theassets in accordance with the “prudent investor” guidelines contained in theEmployee Retirement Income Security Act of 1974, and fiduciary standards. Ourpolicy on funding is to contribute an amount within the range of the minimumrequired and the maximum tax-deductible contribution.

Employer contributions include direct benefits paidunder all pension plants of $0.5 million and $0.6 million from employer assetsin 2006 and 2005.

*Expected Cash Flows.*   We expect to make contributions tothe plan trust for all pension plans of $0.9 million during 2007. Our expectedcontribution in the form of direct benefit payments for 2007 is approximately$0.5 million for all pension plans. Expectedbenefit payments for all pension plans are as follows:

| **In Thousands**          | ** ** | ** ** | ** ** | **Pension  Benefits** | ** ** | **Other  Postretirement  Benefits** | ** ** |
|--------------------------------|------------|------------|------------|-----------------------|------------|-------------------------------------|------------|
| **Expected benefit payments:** |       |       |       |                  |       |                                |       |
| 2007                           |       | $          | 3,082      |                  |       | $                                   | 18         |   |   |
| 2008                           |       | 3,522      |       |                  | 25         |                                |       |
| 2009                           |       | 4,024      |       |                  | 29         |                                |       |
| 2010                           |       | 4,564      |       |                  | 34         |                                |       |
| 2011                           |       | 5,130      |       |                  | 39         |                                |       |
| 2012-2016                      |       | 35,814     |       |                  | 318        |                                |       |
|                                |            |            |            |                       |            |                                     |            |  |  |  |  |

 

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**Georgia Gulf Corporation and Subsidiaries Notes to Consolidated Financial Statements (Continued)**

**16.   INCOME TAXES**

Theprovision for (benefit from) income taxes consists of the following: 

| ** **                  | ** ** | **Year Ended December 31,** | ** ** |
|-----------------------------|------------|--------------------------------------------|------------|
| **In Thousands**            | ** ** | ** **                                 | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
| Current income taxes:       |       |                                       |       |   |   |   |   |
| Federal                     |       | **$**                                      | **36,516** |   | $ | 52,829 |   | $ | 49,556 |   |
| State                       | ** ** | **4,088**                                  |       | 9,093 |   | 6,742 |   |
| Foreign                     | ** ** | **2,211**                                  |       | — |   | — |   |
| Total current               | ** ** | **42,815**                                 |       | 61,922 |   | 56,298 |   |
| Deferred income taxes:      |       |                                       |       |   |   |   |   |
| Federal                     | ** ** | **8**                                      |       | (9,560 | ) | 4,034 |   |
| State                       | ** ** | **(954**                                   | **)**      | (5,507 | ) | 536 |   |
| Foreign                     | ** ** | **(12,193**                                | **)**      | — |   | — |   |
| Total deferred              | ** ** | **(13,139**                                | **)**      | (15,067 | ) | 4,570 |   |
| Provision for income  taxes | ** ** | **$**                                      | **29,676** |   | $ | 46,855 |   | $ | 60,868 |   |
|                             |            |                                            |            |  |  |  |  |  |  |  |  |  |

 

Incometax expense attributable to U.S. income of $116,426 and foreign loss of($38,158) before income taxes differs from the amounts computed by applying theU.S. statutory federal income tax rate to earnings before income taxes asfollows:  

| ** **                                            | ** ** | **Year Ended December 31,** | ** ** |
|-------------------------------------------------------|------------|--------------------------------------------|------------|
| **In Thousands**                                 | ** ** | ** **                                 | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
| Statutory federal  income tax rate                    | ** ** | **35.0**                                   | **%**      | 35.0 | % | 35.0 | % |
| State and local  income taxes, net of federal benefit | ** ** | **2.6**                                    |       | 2.8 |   | 2.8 |   |
| Difference  between U.S. and foreign tax rates        | ** ** | **1.0**                                    |       | — |   | — |   |
| Extraterritorial  income exclusion                    | ** ** | **(1.1**                                   | **)**      | (1.0 | ) | (1.0 | ) |
| Manufacturing  deduction                              | ** ** | **(1.9**                                   | **)**      | (1.2 | ) | — |   |
| Non-deductible  compensation                          | ** ** | **0.6**                                    |       | 0.4 |   | 0.7 |   |
| Percentage  depletion                                 | ** ** | **(0.7**                                   | **)**      | (0.4 | ) | (0.4 | ) |
| State legislation  changes                            |       | —                                     |       | (1.5 | ) | — |   |
| Tax loss on  disposition of subsidiary                | ** ** | **(3.1**                                   | **)**      | — |   | — |   |
| Income tax  contingencies                             | ** ** | **2.8**                                    |       | — |   | — |   |
| Other, net                                            | ** ** | **2.6**                                    |       | (1.2 | ) | (0.6 | ) |
| Effective income  tax rate                            | ** ** | **37.8**                                   | **%**      | 32.9 | % | 36.5 | % |
|                                                       |            |                                            |            |  |  |  |  |  |  |

 

Cash payments for income taxes during 2006, 2005, and2004 were $65.2 million, $51.8 million and $61.3 million, respectively.

Our overall effective income tax rate increased from32.9 percent for the year ended December 31, 2005, to 37.8 percent for theyear ended December 31, 2006, primarily due to differences between U.S.and foreign tax rates and an increase in tax contingencies related to the RoyalGroup acquisition offset by the tax benefit on the disposition of a subsidiaryand the benefit of the domestic manufacturing deduction.

90

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**Georgia Gulf Corporation and Subsidiaries Notes to Consolidated Financial Statements (Continued)**

**16.   INCOME TAXES (Continued)**

Ournet deferred tax liability consisted of the following major items:

| ** **                       | ** ** | **December 31,** | ** **  |
|----------------------------------|------------|-----------------------|-------------|
| **In Thousands**            | ** ** | ** **            | ** **  | **2006** | ** ** | **2005** | ** ** |
| Deferred tax assets:             |       |                  |        |   |   |
| Receivables                      | ** ** | **$**                 | **1,782**   |   | $ | 914 |   |
| Inventories                      | ** ** | **228**               |        | 1,673 |   |
| Vacation                         | ** ** | **1,658**             |        | 1,685 |   |
| Currency translation adjustment  | ** ** | **3,745**             |        | — |   |
| Foreign currency loss            | ** ** | **8,817**             |        | — |   |
| Net operating loss carryforwards | ** ** | **70,344**            |        | — |   |
| Employee compensation            | ** ** | **8,486**             |        | — |   |
| Accrued liabilities              | ** ** | **14,453**            |        | — |   |
| Tax credits                      | ** ** | **7,053**             |        | 3,550 |   |
| Spare parts inventories          | ** ** | **1,739**             |        | 1,764 |   |
| Environmental                    | ** ** | **1,436**             |        | 1,700 |   |
| Other                            | ** ** | **795**               |        | 2,646 |   |
| Valuation allowance              | ** ** | **(7,728**            | **)**       | — |   |
| Total deferred tax assets        | ** ** | **112,808**           |        | 13,932 |   |
| Deferred tax liability:          |       |                  |        |   |   |
| Property, plant and equipment    | ** ** | **(132,217**          | **)**       | (98,279 | ) |
| Intangible assets                | ** ** | **(34,461**           | **)**       | (13,047 | ) |
| Pension                          | ** ** | **(3,942**            | **)**       | (4,558 | ) |
| Other                            |       | —                |        | (916 | ) |
| Total deferred tax liability     | ** ** | **(170,620**          | **)**       | (116,800 | ) |
| Net deferred tax  liability      | ** ** | **$**                 | **(57,812** | **)** | $ | (102,868 | ) |
|                                  |            |                       |             |  |  |  |  |  |  |

 

As of December 31,2006, the Company had U.S. federal, state and foreign net operating loss (“NOL”)carryovers. The Company’s foreign NOLs principally relate to its operations inCanada and reside in both federal and provincial tax jurisdictions. Thejurisdictional amount of NOLs as of December 31, 2006, and the years inwhich they will expire in varying amounts are as follows (In thousands):

| **Jurisdiction**  | ** ** | ** **     | ** ** | **NOL amount** | ** **  | **Year of   expiration** | ** ** |
|-------------------|------------|----------------|------------|---------------------|-------------|------------------------------------|------------|
| U.S. federal      |       | $              | 86,790     |                | 2010 - 2026 |                               |
| U.S. state        |       | 3,956          |       | 2018 - 2026         |        |
| Canada federal    |       | 130,884        |       | 2010 - 2026         |        |
| Canada provincial |       | Up to $133,471 |       | 2011 - 2026         |        |
|                   |            |                |            |                     |             |                                    |            |  |

 

The U.S. federal and state NOL carryforwards as of December 31,2006, principally relate to NOLs acquired in connection with the acquisition ofRoyal Group on October 3, 2006. In connection with this acquisition, weplaced a valuation allowance of $3.9 million on certain U.S. state  NOL carryovers. Should these deferred taxassets be realized in the future, the resulting tax benefit will be allocatedto reduce 

91

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**Georgia Gulf Corporation and Subsidiaries Notes to Consolidated Financial Statements (Continued)**

**16.**   INCOME TAXES (Continued)

goodwilland other noncurrent intangibles assets. Our ability to reduce future taxableincome through the utilization of the NOLs acquired is subject to the change inownership restrictions under Internal Revenue Code Section 382. We do notexpect our U.S. federal and state NOLs to expire, notwithstanding the change inownership restrictions.

As of December 31,2006, we had U.S. federal, state and foreign tax credit carryovers. These taxcredits expire over varying amounts and periods as follows (in thousands):

| **Jurisdiction**                 | ** ** | ** ** | ** ** | **Tax credit  amount** | ** ** | **Year of   expiration** | ** ** |
|----------------------------------|------------|------------|------------|-----------------------------|------------|------------------------------------|------------|
| U.S. federal  foreign tax credit |       |       | $          | 774                         |       |                               | 2016       |   |
| U.S. state                       |       |       | 3,066      |                        |       | No expiration                      |       |
| Foreign investment tax  credit   |       |       | 3,213      |                        |       | 2008 - 2016                        |       |

 

The foreign investment tax credit includesapproximately $3.1 million of foreign investment tax credits that were recordedas a result of the company’s acquisition of Royal Group Technologies, Ltd. Thebalance of the foreign investment tax credits were earned during the periodfrom the acquisition date through December 31, 2006.

Under APB Opinion No. 23, “Accounting for Income Taxes—SpecialAreas,” we are permanently reinvested with respect to earnings of our foreignsubsidiaries. Accordingly, we record a deferred tax liability with respect tothe tax effect of repatriating the earnings of our foreign subsidiaries. As aresult of losses with respect to our foreign jurisdictions, we did not recordany additional deferred tax liability with respect to the earnings of ourforeign subsidiaries for the period ending on December 31, 2006.

We accrue for tax contingencies when it is probablethat a liability to a taxing authority has been incurred and the amount of thecontingency can be reasonably estimated. The tax contingency reserve isadjusted for, among other things, changes in facts and circumstances, receiptof tax assessments, expiration of statute of limitations, interest and settlementsand additional uncertainties. As of December 31, 2006 and 2005, we had taxcontingency reserves of $88.3 million and $3.8 million, respectively. The $84.5million increase in the tax contingency reserve in 2006 is primarily due to theacquisition of Royal Group, and more specifically the Quebec Trust retroactivelegislation enacted during 2006. 

The Quebec National Assembly recently passed into lawBill 15 to amend the Quebec Taxation Act and other legislative provision. Bill15 includes retroactive changes to the Quebec Taxation Act that will have theimpact of creating Quebec taxable income for Royal Group for prior years. Overthe last several years, Royal Group established structures that used a QuebecTrust to minimize overall tax liabilities in consultation with their taxadvisors. Bill 15 has eliminated the ability to use the Quebec Trust structure.We continue to negotiate with the Province of Quebec to reach a settlement onthis issue and have challenged their assessments. As of December 31, 2006, wehave reserved $35.8 million related to the Quebec Trust. A change in ourassumptions used to develop our tax contingency reserve could significantlyimpact our effective tax rate and our results of operations.

92

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**Georgia Gulf Corporation and Subsidiaries Notes to Consolidated Financial Statements (Continued)**

**17.   HEDGINGTRANSACTIONS AND DERIVATIVE FINANCIAL INSTRUMENTS**

We use derivative financial instruments primarily toreduce our exposure to adverse fluctuations in interest rates, foreign currencyexchange rates and commodity prices. When entered into, we formally designateand document the financial instrument as a hedge of a specific underlyingexposure, as well as the risk management objectives and strategies forundertaking the hedge transactions. We formally assess, both at the inception andat least quarterly thereafter, whether the financial instruments that are usedin hedging transactions are effective at offsetting changes in either the fairvalue or cash flows of the related underlying exposure. Because of the highdegree of effectiveness between the hedging instrument and the underlyingexposure being hedged, fluctuations in the value of the derivative instrumentsare generally offset by changes in the fair values or cash flows of theunderlying exposures being hedged. Any ineffective portion of a financialinstrument’s change in fair value is immediately recognized in earnings. Virtuallyall of our derivatives are straightforward over-the-counter instruments withliquid markets. We do not enter into derivative financial instruments fortrading purposes.

The fair values of derivatives used to hedge or modifyour risks fluctuate over time. We do not view these fair value amounts inisolation, but rather in relation to the fair values or cash flows of theunderlying hedged transaction or other exposures. The notional amounts of thederivative financial instruments do not necessarily represent amounts exchangedby the parties and, therefore, are not a direct measure of our exposure to thefinancial risks described above. The amounts exchanged are calculated byreference to the notional amounts and by other terms of the derivatives, suchas interest rates, foreign currency exchange rates or other financial indices.

We recognize all derivative instruments as eitherassets or liabilities in our consolidated balance sheets at fair value. Theaccounting for changes in fair value of a derivative instrument depend onwhether it has been designated and qualifies as part of a hedging relationshipand, further, on the type of hedging relationship. At the inception of thehedging relationship, we must designate the instrument as a fair value hedge, acash flow hedge, or a hedge of a net investment in a foreign operation,depending on the exposure being hedged.

*Raw Materials and NaturalGas Price Risk Management.**  *The availability and price of our raw materials andnatural gas are subject to fluctuations due to unpredictable factors in globalsupply and demand. To reduce price risk caused by market fluctuations, we mayor may not enter into derivative contracts, such as swaps, futures and optioncontracts with financial counter-parties, which are generally less than oneyear in duration. We designate any natural gas or raw material derivatives ascash flow hedges. Our outstanding contracts are valued at market with theoffset going to other comprehensive income, net of applicable income taxes andany hedge ineffectiveness. Any gain or loss is recognized in cost of goods soldin the same period or periods during which the hedged transaction affectsearnings. At December 31, 2006 and 2005, we had no raw material or naturalgas forward swap contracts outstanding.

*Interest Rate RiskManagement.*   We maintain floating rate debt,which exposes us to changes in interest rates. Our policy is to manage ourinterest rate risk through the use of a combination of fixed and floating rateinstruments and interest rate swap agreements. We designate interest ratederivatives as cash flow hedges. At December 31, 2006, we had interestrate swaps as a liability of $1.1 million designated as cash flow hedges ofunderlying floating rate debt obligations. These hedges had various expirationdates in 2008 through 2009. At December 31, 2005, we had no interest rateswap agreements outstanding. The effective portion of the mark-to-marketeffects of our cash flow hedge instruments was recorded in AOCI until theunderlying interest payment affect income. The unrealized amounts in AOCI willfluctuate based 

93

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**Georgia Gulf Corporation and Subsidiaries Notes to Consolidated Financial Statements (Continued)**

**17.**   HEDGING TRANSACTIONS AND DERIVATIVE FINANCIAL INSTRUMENTS(Continued)

on changes in the fairvalue of open contracts at the end of each reporting period. During 2006, 2005,and 2004, the impact on the consolidated financial statements due to interestrate hedge ineffectiveness was immaterial.

*ForeignCurrency Risk Management.**  *Our international operations require activeparticipation in foreign exchange markets. We may or may not enter into foreignexchange forward contracts and options, and cross-currency swaps to hedgevarious currency exposures or create desired exposures. At December 31,2006 and 2005, we had no forward contracts, options and cross-currency swaps tobuy, sell or exchange foreign currencies.

*Royal Group CanadianDollar Hedge.**   In connection with our Royal Group acquisition, we entered intoforward contracts for $1.5 billion Canadian dollars to hedge the purchase priceof the acquisition, which was in Canadian dollars.* For theyear ended December 31, 2006, we realized losses of $20.8 million relatedto these Canadian dollar forward contracts. Settlement of these Canadian dollarforward contracts took place during the three months ended December 31,2006.  At December 31, 2006, we hadno outstanding Canadian dollar forward contracts.

**18.   FAIR VALUE OFFINANCIAL INSTRUMENTS**

Financial instruments consist primarily of cash andcash equivalents, accounts receivable, accounts payable, accrued expenseslong-term debt, and interest rate swap contracts. The carrying amount of cashand cash equivalents, accounts receivable, accounts payable and accruedexpenses approximate their fair value because of the short-term maturity ofsuch instruments. The carrying amounts ofour senior credit facility and other financial instruments approximate the fairvalue due to the floating market interest rates to which the respectiveagreements are subject. The fair values of our 7.125percentsenior notes, our 9.5 percent senior notes, our 10.75percent senior subordinated notes and our interestrate swap contracts were, based on quoted market interest rates that areor were currently available to us for issuance of long-term debt and interestrate swap contracts with similar terms and remaining maturities.

The following is a summaryof the carrying values and estimated fair values of our fixed-rate long-termdebt and interest rate swaps as of December 31, 2006 and 2005:

|                                           | ** ** | **December 31,** | ** **  |
|-------------------------------------------|------------|-----------------------|-------------|
| ** **                                | ** ** | **2006**              | ** **  | **2005** | ** ** |
| **In Thousands**                     | ** ** | ** **            | ** **  | **Carrying  Amount** | ** ** | **Fair  Value** | ** ** | **Carrying  Amount** | ** ** | **Fair  Value** | ** ** |
| Long-term debt:                           |       |                  |        |   |   |   |   |   |   |
| 7.125% senior notes due 2013              | ** ** | **$**                 | **100,000** | ** ** | **$** | **90,000** |   | $ | 100,000 |   | $ | 102,625 |   |
| 9.5% senior notes due 2014                | ** ** | **496,591**           | ** **  | **490,000** | ** ** | **—** | ** ** | **—** | ** ** |
| 10.75% senior subordinated notes due 2016 | ** ** | **197,028**           | ** **  | **191,500** | ** ** | **—** | ** ** | **—** | ** ** |
| Derivative instruments:                   | ** ** | ** **            | ** **  | ** ** |   |   |   |   |   |
| Interest rate swap contracts              | ** ** | **(1,148**            | **)**       | **(1,148** | **)** | **—** | ** ** | **—** | ** ** |
|                                           |            |                       |             |  |  |  |  |  |  |  |  |  |  |  |  |

 

**19.   SEGMENTINFORMATION**

In connection with the acquisition of Royal Group, wereassessed how we internally report our financial information. We haveidentified four reportable segments through which we conduct our 

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**Georgia Gulf Corporation and Subsidiaries Notes to Consolidated Financial Statements (Continued)**

**19.**   SEGMENT INFORMATION (Continued)

operating activities: (i) chlorovinyls;(ii) window and door profiles and mouldings products; (iii) outdoorbuilding products; and (iv) aromatics. These four segments reflect theorganization used by our management for purposes of allocating resources, andassessing performance. The chlorovinyls segment is a highly integrated chain ofproducts, which includes chlorine, caustic soda, VCM and vinyl resins andcompounds. Through the Royal Group acquisition, we acquired vinyl resin, vinylcompound and compound additives manufacturing facilities. These manufacturingoperations are very similar to our legacy chlorovinyl manufacturing facilities.Therefore, we have aggregated these manufacturing operations with ourchlorovinyls reportable segment. In addition, we acquired manufacturingfacilities for vinyl-based building and home improvement products. Ourvinyl-based building and home improvement products are marketed under the RoyalGroup brand names, and are managed within two reportable segments, window anddoor profiles and mouldings products; and outdoor building products, whichincludes the following products: siding, pipe and pipe fittings, deck, fenceand rail products, and outdoor storage buildings. The aromatics segment is alsointegrated and includes cumene and the co-products phenol and acetone.

Earnings of our segments exclude interest income andexpense, unallocated corporate expenses and general plant services, provisionfor income taxes, costs of our receivables securitization program and incomeand expense items reflected as “other income (expense)” on our consolidatedstatements of income. Transactions between operating segments are valued atmarket-based prices. The revenues generated by these transfers are provided inthe following table.

Identifiable assetsconsist of plant and equipment used in the operations of the segment as well asinventory, receivables and other assets directly related to the segment.Unallocated and other assets include cash, certain corporate receivables, dataprocessing equipment and prepaid pension costs.  The accounting polices of the reportablesegments are the same as those described in note 2, “Summary of SignificantAccounting Polices.”

95

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**Georgia Gulf Corporation and Subsidiaries Notes to Consolidated Financial Statements (Continued)**

**19.**   SEGMENT INFORMATION (Continued)

**Segments**

| **In Thousands**                                | ** ** | ** **    | ** **    | **Chlorovinyls** | ** ** | **Aromatics** | ** **  | **Window and  Door Profiles  and  Mouldings  Products** | ** ** | **Outdoor  Building  Products** | ** ** | **Unallocated  and  Other** | ** **  | **Total**   | ** ** |
|------------------------------------------------------|------------|---------------|---------------|------------------|------------|---------------|-------------|-------------------------------------------------------------------|------------|---------------------------------|------------|-----------------------------|-------------|-------------|------------|
| **Year Ended December 31,  2006:**              |       |          |          |             |       |          |        |                                                              |       |                            |       |                        |        |        |       |   |   |
| **Net sales**                                        | ** ** | **$**         | **1,642,782** | ** **       | **$**      | **559,116**   | ** **  | ** **                                                        | **$**      | **117,029**                     | ** ** | ** **                  | **$**       | **108,916** | ** ** | ** ** | **$** | **—** | ** ** | ** ** | **$** | **2,427,843** | ** ** |
| **Intersegment revenues**                            | ** ** | **60,760**    |          | —           | ** ** | ** **    | **1,786**   | ** **                                                        | ** ** | **1,914**                       | ** ** | ** **                  | **—**  | ** **  | ** ** | **64,460** | ** ** |
| **Operating income (loss)**                          | ** ** | **238,792**   | ** **    | **(17,230**      | **)**      | ** **    | **(5,946**  | **)**                                                             | ** ** | **(17,186**                     | **)**      | ** **                  | **(42,309** | **)**       | ** ** | **156,121** | ** ** |
| **Loss  from discontinued operations, net of a tax** | ** ** | ** **    | ** **    | ** **       | ** ** | ** **    | ** **  | ** **                                                        | ** ** | ** **                      | ** ** | ** **                  | ** **  | ** **  | ** ** | ** ** | ** ** |
| **Depreciation and amortization**                    | ** ** | **57,630**    | ** **    | **7,083**        | ** ** | ** **    | **11,222**  | ** **                                                        | ** ** | **4,479**                       | ** ** | ** **                  | **4,605**   | ** **  | ** ** | **85,019** | ** ** |
| **Capital expenditures**                             | ** ** | **70,315**    | ** **    | **2,545**        | ** ** | ** **    | **13,772**  | ** **                                                        | ** ** | **1,631**                       | ** ** | ** **                  | **2,507**   | ** **  | ** ** | **90,770** | ** ** |
| **Total assets**                                     | ** ** | **1,221,540** | ** **    | **96,527**       | ** ** | ** **    | **713,231** | ** **                                                        | ** ** | **311,858**                     | ** ** | ** **                  | **115,071** | ** **  | ** ** | **2,458,227** | ** ** |
| Year Ended  December 31, 2005:                  |       |          |          |             |       |          |        |                                                              |       |                            |       |                        |        |        |       |   |   |
| Net sales                                            |       | $             | 1,592,749     |             | $          | 680,970       |        |                                                              | $          | —                          |       |                        | $           | —      |       |   | $ | — |   |   | $ | 2,273,719 |   |
| Operating income (loss)                              |       | 202,555       |          | (10,453          | )          |          | —      |                                                              |       | —                          |       |                        | (29,337     | )(1)        |       | 162,765 |   |
| Depreciation and amortization                        |       | 52,584        |          | 6,967            |       |          | —      |                                                              |       | —                          |       |                        | 3,550       |        |       | 63,101 |   |
| Capital expenditures                                 |       | 28,311        |          | 2,635            |       |          | —      |                                                              |       | —                          |       |                        | 1,098       |        |       | 32,044 |   |
| Total assets                                         |       | 807,873       |          | 99,386           |       |          | —      |                                                              |       | —                          |       |                        | 93,694      |        |       | 1,000,953 |   |
| Year Ended  December 31, 2004:                  |       |          |          |             |       |          |        |                                                              |       |                            |       |                        |        |        |       |   |   |
| Net sales                                            |       | $             | 1,452,404     |             | $          | 753,835       |        |                                                              | $          | —                          |       |                        | $           | —      |       |   | $ | — |   |   | $ | 2,206,239 |   |
| Operating income (loss)                              |       | 165,910       |          | 50,556           |       |          | —      |                                                              |       | —                          |       |                        | (26,043     | )(1)        |       | 190,423 |   |
| Depreciation and amortization                        |       | 51,345        |          | 7,408            |       |          | —      |                                                              |       | —                          |       |                        | 5,801       |        |       | 64,554 |   |
| Capital expenditures                                 |       | 18,326        |          | 3,138            |       |          | —      |                                                              |       | —                          |       |                        | 1,977       |        |       | 23,441 |   |
| Total assets                                         |       | 725,712       |          | 135,105          |       |          | —      |                                                              |       | —                          |       |                        | 103,013     |        |       | 963,830 |   |

----

(1)          Includes sharedservices, administrative and legal expenses, along with the cost of ourreceivables securitization program.

96

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**Georgia Gulf Corporation and Subsidiaries Notes to Consolidated Financial Statements (Continued)**

**19. SEGMENT INFORMATION (Continued)**

**Geographic Areas**

Salesare attributable to geographic areas based on customer location and are asfollows for the years ended December 31, 2006, 2005, and 2004.

| ** **            | ** ** | **Year Ended December 31,** | ** **    |
|-----------------------|------------|--------------------------------------------|---------------|
| **In Thousands** | ** ** | ** **                                 | ** **    | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
| Net sales:            |       |                                       |          |   |   |   |   |
| United States         | ** ** | **$**                                      | **2,081,671** |   | $ | 1,939,832 |   | $ | 1,822,822 |   |
| Foreign               | ** ** | **346,172**                                |          | 333,887 |   | 383,417 |   |
| Total                 | ** ** | **$**                                      | **2,427,843** |   | $ | 2,273,719 |   | $ | 2,206,239 |   |
|                       |            |                                            |               |  |  |  |  |  |  |  |  |  |

 

Export sales were approximately 16 percent, 15 percentand 17 percent of our sales for the years ended December 31, 2006, 2005and 2004, respectively. Based on destination, the principal international markets we serveare Europe, Canada, and South and Central America. Net sales to Canada were 9percent of total sales in 2006. No sales to any one country were greater thanfive percent of total net sales in 2005 and 2004.

Long-livedassets are attributable to geographic areas based on asset location. Long-livedassets by geographic area as of December 31, 2006 and 2005 are as follows.

| ** **            | ** ** | **December 31,** | ** **                                                                                        |
|-----------------------|------------|-----------------------|---------------------------------------------------------------------------------------------------|
| **In Thousands** | ** ** | ** **            | ** **                                                                                        | **2006** | ** ** | **2005** | ** ** |
| Long-lived assets:    |       |                  |                                                                                              |   |   |
| United States         | ** ** | **$**                 | **591,518  **                                                                           |   | $ | 401,412            |   |
| Foreign               | ** ** | **431,486**           |                                                                                              | — |   |
| Total                 | ** ** | **$**                 | **1,023,004              ** |   | $ | 401,412            |   |
|                       |            |                       |                                                                                                   |  |  |  |  |  |  |

 

Netassets are attributable to geographic areas based on the location of the legalentity. Net assets by geographic locations are as follows:

| ** **            | ** ** | **December 31,** | ** **  |
|-----------------------|------------|-----------------------|-------------|
| **In Thousands** | ** ** | ** **            | ** **  | **2006** | ** ** | **2005** | ** ** |
| Net assets:           |       |                  |        |   |   |
| United States         | ** ** | **$**                 | **432,632** |   | **$** | **363,012** |   |
| Foreign               | ** ** | **(39,109**           | **)**       | — |   |
| Total                 | ** ** | **$**                 | **393,523** |   | **$** | **363,012** |   |
|                       |            |                       |             |  |  |  |  |  |  |

 

97

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**Georgia Gulf Corporation and Subsidiaries Notes to Consolidated Financial Statements (Continued)**

**20. QUARTERLY FINANCIALDATA (UNAUDITED)**

Thefollowing table sets forth certain quarterly financial data for the periodsindicated:

| **In Thousands, Except Per Share Data*** | ** ** | ** ** | ** **  | **First  Quarter** | ** ** | **Second  Quarter (1)** | ** **  | **Third  Quarter (2)** | ** ** | **Fourth  Quarter (3)** | ** ** |
|-------------------------------------------------------------------|------------|------------|-------------|--------------------|------------|------------------------------|-------------|-----------------------------|------------|------------------------------|------------|
| **2006**                                                          | ** ** | ** ** | ** **  |               | ** ** | ** **                   |        |                        | ** ** | ** **                   |       |   | ** ** | ** ** |   |
| **Net  sales**                                                    | ** ** | **$**      | **567,873** | ** **         |       | **$**                        | **602,159** | ** **                  |       |                         | **$**      | **576,288** | ** ** |   |   | **$** | **681,538** | ** ** |   |
| **Gross  margin**                                                 | ** ** | **78,988** | ** **  |               | **92,569** | ** **                   |        |                        | **62,886** | ** **                   |       |   | **40,827** | ** ** |   |
| **Operating  income (loss)**                                      | ** ** | **58,775** | ** **  |               | **75,352** | ** **                   |        |                        | **44,187** | ** **                   |       |   | **(22,194** | **)** |   |
| **Income  (loss) from continuing operations**                     | ** ** | **33,681** | ** **  |               | **39,390** | ** **                   |        |                        | **22,661** | ** **                   |       |   | **(43,930** | **)** |   |
| **Loss  from discontinued operations**                            | ** ** | **—** | ** **  |               | **—** | ** **                   |        |                        | **—** | ** **                   |       |   | **(3,263** | **)** |   |
| **Net  income (loss)**                                            | ** ** | **33,681** | ** **  |               | **39,390** | ** **                   |        |                        | **22,661** | ** **                   |       |   | **(47,193** | **)** |   |
| **Basic earnings (loss) per  share:**                             | ** ** | ** ** | ** **  |               | ** ** | ** **                   |        |                        | ** ** | ** **                   |       |   | ** ** | ** ** |   |
| **Income (loss) from continuing operations**                      | ** ** | **0.99**   | ** **  |               | **1.16**   | ** **                   |        |                        | **0.66**   | ** **                   |       |   | **(1.28** | **)** |   |
| **Loss from discontinued operations**                             | ** ** | **—** | ** **  |               | **—** | ** **                   |        |                        | **—** | ** **                   |       |   | **(0.10** | **)** |   |
| **Net income (loss)**                                             | ** ** | **0.99**   | ** **  |               | **1.16**   | ** **                   |        |                        | **0.66**   | ** **                   |       |   | **(1.38** | **)** |   |
| **Diluted earnings (loss) per  share**                            | ** ** | ** ** | ** **  |               | ** ** | ** **                   |        |                        | ** ** | ** **                   |       |   | ** ** | ** ** |   |
| **Income (loss) from continuing operations**                      | ** ** | **0.98**   | ** **  |               | **1.15**   | ** **                   |        |                        | **0.66**   | ** **                   |       |   | **(1.28** | **)** |   |
| **Loss from discontinued operations**                             | ** ** | **—** | ** **  |               | **—** | ** **                   |        |                        | **—** | ** **                   |       |   | **(0.10** | **)** |   |
| **Net income (loss)**                                             | ** ** | **0.98**   | ** **  |               | **1.15**   | ** **                   |        |                        | **0.66**   | ** **                   |       |   | **(1.38** | **)** |   |
| **Dividends  per common share**                                   | ** ** | **0.08**   | ** **  |               | **0.08**   | ** **                   |        |                        | **0.08**   | ** **                   |       |   | **0.08** | ** ** |   |
| 2005                                                              |       |       |        |               |       | ** **                   |        |                        |       | ** **                   |       |   |   | ** ** |   |
| Net sales                                                         |       | $          | 645,409     |               |       | $                            | 584,162     | ** **                  |       |                         | $          | 525,223 | ** ** |   |   | $ | 518,925 | ** ** |   |
| Gross margin                                                      |       | 82,310     |        |               | 35,109     | ** **                   |        |                        | 60,339     | ** **                   |       |   | 46,451 | ** ** |   |
| Operating income                                                  |       | 66,460     |        |               | 20,494     | ** **                   |        |                        | 43,422     | ** **                   |       |   | 32,390 | ** ** |   |
| Net income                                                        |       | 38,743     |        |               | 10,169     | ** **                   |        |                        | 27,933     | ** **                   |       |   | 18,658 | ** ** |   |
| Basic earnings  per share                                         |       | 1.15       |        |               | 0.30       | ** **                   |        |                        | 0.82       | ** **                   |       |   | 0.55 | ** ** |   |
| Diluted earnings  per share                                       |       | 1.13       |        |               | 0.30       | ** **                   |        |                        | 0.82       | ** **                   |       |   | 0.55 | ** ** |   |
| Dividends per common  share                                       |       | 0.08       |        |               | 0.08       | ** **                   |        |                        | 0.08       | ** **                   |       |   | 0.08 | ** ** |   |

----

*                    Totalingquarterly data for 2006 and 2005 may differ from the annual auditedconsolidated income statements due to rounding.

(1)          The second quarter of2005 includes an unfavorable impact of $0.50 per diluted share due to both ourplanned and unplanned plant outages. Also included is a loss on foreignexchange forward contracts used to effectively hedge the purchase price ofRoyal Group of $11.4 million. See note 18.

(2)          The third quarter of2005 includes favorable income tax adjustments of $0.09 per diluted share aswell as a negative impact of $0.24 per diluted share related to the operationaldisruptions caused by Hurricanes Katrina and Rita. Also included is a loss onforeign exchange forward contracts used to effectively hedge the purchase priceof Royal Group of $4.5 million. See note 18.

(3)          The fourth quarter of2006 includes the acquisition of Royal Group, which was accounted for under thepurchase method. Therefore, the results of Royal Group from the date ofacquisition, October 3, 2006, through December 31, 2006 are included.In addition, we recorded additional costs of sales of $18.0 million as a resultof valuing Royal Group’s inventory at fair value as of the date of acquisitionin compliance with generally accepted accounting standards related to businesscombinations. Also 

98

----

**Georgia Gulf Corporation and Subsidiaries Notes to Consolidated Financial Statements (Continued)**

**20.QUARTERLY FINANCIAL DATA (UNAUDITED) (Continued)**

included is a losson foreign exchange forward contracts used to effectively hedge the purchaseprice of Royal Group of $5.0 million. See note 18. The Fourth Quarter of 2005includes an unfavorable impact of approximately $0.22 per diluted share due tooperational disruptions caused by Hurricane Rita.

**21. SUBSEQUENT EVENTS**

In January 2007, we sold the operations of ourcaptive trucking business to a large transportation services company. Followingthis sale the purchaser has agreed to provide us with transportation agency andmanagement services for our building products operations. Also in January 2007,we sold certain assets of our U.S. window coverings operations and in February of2007, we sold certain assets of our Canadian window coverings operations, aswell as certain assets of our Mexican window coverings operations. Also in February 2007,we sold our  interest in our Colombianoperations. In March 2007, we sold most of the remaining Canadian and U.S.window coverings operations and sold seven of our other Canadian facilities,four of which we have agreed to leaseback on a long-term basis.

On March 14, 2007 weamended our Senior Secured Credit Facility to temporarily waive compliance withour interest coverage ratio for the year ended December 31, 2006, through May 31,2007. See Note 10 for further discussion regarding the amendment andwaiver.

**22. SUPPLEMENTAL GUARANTORINFORMATION**

Our payment obligations under the indentures for ourunsecured 7.125 percent senior notes, our unsecured 9.5 percent senior notes,and our unsecured 10.75 percent senior subordinated notes are guaranteed byGreat River Oil & Gas Corporation, Georgia Gulf Lake Charles, LLC,Georgia Gulf Chemicals & Vinyls, LLC, and Royal Plastics Group (USA)Limited and its subsidiaries, some of our wholly owned subsidiaries (theGuarantor Subsidiaries). The guarantees are full, unconditional and joint andseveral. Georgia Gulf is in essence a holding company for all of its wholly ***and majority***ownedsubsidiaries. The following condensed consolidating balance sheets, statementsof income and statements of cash flows present the combined financialstatements of the parent company, and the combined financial statements of ourGuarantor Subsidiaries and our remaining subsidiaries (the Non-GuarantorSubsidiaries). Separate financial statements of the Guarantor Subsidiaries arenot presented because we have determined that they would not be material toinvestors.

Provisions in our senior credit facility limit paymentof dividends, distributions, loans and advances to us by our subsidiaries.

99

----

**Georgia GulfCorporation and SubsidiariesSupplemental Condensed Consolidating Balance Sheet InformationDecember 31, 2006**

| **In Thousands**                                            | ** ** | ** **    | ** **    | **Parent  Company** | ** **    | **Guarantor   Subsidiaries** | ** **    | **Non-Guarantor   Subsidiaries** | ** **  | **Eliminations** | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------------------|------------|---------------|---------------|---------------------|---------------|-----------------------------------|---------------|---------------------------------------|-------------|------------------|------------|------------------|------------|
| **Cash and  cash equivalents**                                   | ** ** | **$**         | **—**    | ** **          |          | **$**                             | **11,400**    | ** **                            |        |             | **$**      | **(1,759**       | **)**      |   | **$** | **—** | ** ** |   | **$** | **9,641** | ** ** |   |
| **Receivables,  net**                                            | ** ** | **122,899**   | ** **    |                | **155,380**   | ** **                        |          |                                  | **237,883** | ** **       |       | **(278,666**     | **)**      |   | **237,496** | ** ** |   |
| **Inventories**                                                  | ** ** | **—**    | ** **    |                | **196,231**   | ** **                        |          |                                  | **146,432** | ** **       |       | **(3,258**       | **)**      |   | **339,405** | ** ** |   |
| **Prepaid  expenses**                                            | ** ** | **20,298**    | ** **    |                | **(3,363**    | **)**                             |          |                                  | **11,396**  | ** **       |       | **1,246**        | ** ** |   | **29,577** | ** ** |   |
| **Income  tax receivable**                                       | ** ** | **6,762**     | ** **    |                | **30,381**    | ** **                        |          |                                  | **—**  | ** **       |       | **—**       | ** ** |   | **37,143** | ** ** |   |
| **Deferred  income taxes**                                       |       | **—**    | ** **    |                | **10,204**    | ** **                        |          |                                  | **20,460**  | ** **       |       | **—**       | ** ** |   | **30,664** | ** ** |   |
| **Current  assets held-for-sale and of discontinued operations** |       | **—**    | ** **    |                | **3,269**     | ** **                        |          |                                  | **7,811**   | ** **       |       | **—**       | ** ** |   | **11,080** | ** ** |   |
| **Total current assets**                                         | ** ** | **149,959**   | ** **    |                | **403,502**   | ** **                        |          |                                  | **422,223** | ** **       |       | **(280,678**     | **)**      |   | **695,006** | ** ** |   |
| **Property,  plant and equipment, net**                          | ** ** | **166**       | ** **    |                | **591,352**   | ** **                        |          |                                  | **431,486** | ** **       |       | **—**       | ** ** |   | **1,023,004** | ** ** |   |
| **Long-term  receivables-affiliates**                            | ** ** | **571,527**   | ** **    |                | **—**    | ** **                        |          |                                  | **—**  | ** **       |       | **(571,527**     | **)**      |   | **—** | ** ** |   |
| **Goodwill**                                                     | ** ** | ** **    | ** **    |                | **202,131**   | ** **                        |          |                                  | **174,993** | ** **       |       | **—**       | ** ** |   | **377,124** | ** ** |   |
| **Intangibles,  net**                                            | ** ** | **—**    | ** **    |                | **42,555**    | ** **                        |          |                                  | **45,806**  | ** **       |       | **—**       | ** ** |   | **88,361** | ** ** |   |
| **Other  assets, net**                                           | ** ** | **37,565**    | ** **    |                | **148,917**   | ** **                        |          |                                  | **22,056**  | ** **       |       | **(3,725**       | **)**      |   | **204,813** | ** ** |   |
| **Non-current  assets held-for-sale**                            | ** ** | **—**    | ** **    |                | **—**    | ** **                        |          |                                  | **69,919**  | ** **       |       | **—**       | ** ** |   | **69,919** | ** ** |   |
| **Investment  in subsidiaries**                                  | ** ** | **1,253,533** | ** **    |                | **164,864**   | ** **                        |          |                                  | **—**  | ** **       |       | **(1,418,397**   | **)**      |   | **—** | ** ** |   |
| **Total assets**                                                 | ** ** | **$**         | **2,012,750** | ** **          |          | **$**                             | **1,553,321** | ** **                            |        |             | **$**      | **1,166,483**    | ** ** |   | **$** | **(2,274,327** | **)** |   | **$** | **2,458,227** | ** ** |   |
| **Current  portion of long-term debt**                           | ** ** | **$**         | **32,400**    | ** **          |          | **$**                             | **—**    | ** **                            |        |             | **$**      | **95**           | ** ** |   | **$** | **—** | ** ** |   | **$** | **32,495** | ** ** |   |
| **Accounts  payable**                                            | ** ** | **89,565**    | ** **    |                | **389,326**   | ** **                        |          |                                  | **31,908**  | ** **       |       | **(295,517**     | **)**      |   | **215,282** | ** ** |   |
| **Interest  payable**                                            | ** ** | **21,246**    | ** **    |                | **—**    | ** **                        |          |                                  | **44**      | ** **       |       | **—**       | ** ** |   | **21,290** | ** ** |   |
| **Accrued  compensation**                                        | ** ** | **726**       | ** **    |                | **19,577**    | ** **                        |          |                                  | **16,915**  | ** **       |       | **—**       | ** ** |   | **37,218** | ** ** |   |
| **Income  tax reserve**                                          | ** ** | **—**    | ** **    |                | **(7,874**    | **)**                             |          |                                  | **79,361**  | ** **       |       | **16,851**       | ** ** |   | **88,338** | ** ** |   |
| **Other  accrued liabilities**                                   | ** ** | **464**       | ** **    |                | **26,497**    | ** **                        |          |                                  | **70,467**  | ** **       |       | **—**       | ** ** |   | **97,428** | ** ** |   |
| **Total current liabilities**                                    | ** ** | **144,401**   | ** **    |                | **427,526**   | ** **                        |          |                                  | **198,790** | ** **       |       | **(278,666**     | **)**      |   | **492,051** | ** ** |   |
| **Long-term  debt**                                              | ** ** | **1,465,639** | ** **    |                | **—**    | ** **                        |          |                                  | **—**  | ** **       |       | **—**       | ** ** |   | **1,465,639** | ** ** |   |
| **Long-term  payables—affiliates**                          | ** ** | **—**    | ** **    |                | **3,724**     | ** **                        |          |                                  | **571,526** | ** **       |       | **(575,250**     | **)**      |   | **—** | ** ** |   |
| **Deferred  income taxes**                                       | ** ** | **—**    | ** **    |                | **83,118**    | ** **                        |          |                                  | **5,358**   | ** **       |       | **—**       | ** ** |   | **88,476** | ** ** |   |
| **Other  non-current liabilities**                               | ** ** | **9,186**     | ** **    |                | **8,846**     | ** **                        |          |                                  | **506**     | ** **       |       | **—**       | ** ** |   | **18,538** | ** ** |   |
| **Total liabilities**                                            | ** ** | **1,619,226** | ** **    |                | **523,214**   | ** **                        |          |                                  | **766,180** | ** **       |       | **(853,916**     | **)**      |   | **2,064,704** | ** ** |   |
| **Stockholders’ equity:**                                   | ** ** | ** **    | ** **    |                | ** **    | ** **                        |          |                                  | ** **  | ** **       |       | ** **       | ** ** |   | ** ** | ** ** |   |
| **Preferred stock**                                              | ** ** | **—**    | ** **    |                | **—**    | ** **                        |          |                                  | **—**  | ** **       |       | **—**       | ** ** |   | **—** | ** ** |   |
| **Common stock**                                                 | ** ** | **344**       | ** **    |                | **451,490**   | ** **                        |          |                                  | **304,943** | ** **       |       | **(756,433**     | **)**      |   | **344** | ** ** |   |
| **Additional paid-in capital**                                   | ** ** | **94,046**    | ** **    |                | **60,374**    | ** **                        |          |                                  | **107,349** | ** **       |       | **(167,723**     | **)**      |   | **94,046** | ** ** |   |
| **Retained earnings**                                            | ** ** | **324,008**   | ** **    |                | **517,873**   | ** **                        |          |                                  | **(11,252** | **)**            |       | **(506,622**     | **)**      |   | **324,007** | ** ** |   |
| **Accumulated other comprehensive loss, net of tax**             | ** ** | **(24,874**   | **)**         |                | **370**       | ** **                        |          |                                  | **(10,737** | **)**            |       | **10,367**       | ** ** |   | **(24,874** | **)** |   |
| **Total stockholders’ equity**                              | ** ** | **393,524**   | ** **    |                | **1,030,107** | ** **                        |          |                                  | **390,303** | ** **       |       | **(1,420,411**   | **)**      |   | **393,523** | ** ** |   |
| **Total  liabilities and stockholders’ equity**             | ** ** | **$**         | **2,012,750** | ** **          |          | **$**                             | **1,553,321** | ** **                            |        |             | **$**      | **1,166,483**    | ** ** |   | **$** | **(2,274,327** | **)** |   | **$** | **2,458,227** | ** ** |   |

 

100

----

**Georgia GulfCorporation and SubsidiariesSupplemental Condensed Consolidating Balance Sheet InformationDecember 31, 2005**
| In Thousands                                | ** ** | ** ** | ** ** | **Parent  Company** | ** ** | **Guarantor   Subsidiaries** | ** ** | **Non-Guarantor   Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|--------------------------------------------------|------------|------------|------------|---------------------|------------|-----------------------------------|------------|---------------------------------------|------------|------------------|------------|------------------|------------|
| Cash and cash  equivalents                       |       | $          | —     |                | $          | 14,296                            |       |                                  | $          | 2                |       |             |       | $ | — |   |   |   | $ | 14,298 |   |   |
| Receivables, net                                 |       | 139,077    |       | 53,571              |       |                              | 134,081    |                                  |       |             | (208,536   | )                |       |   | 118,193 |   |   |
| Inventories                                      |       | —     |       | 195,628             |       |                              | —     |                                  |       |             | —     |             |       |   | 195,628 |   |   |
| Prepaid expenses                                 |       | —     |       | 11,202              |       |                              | 34         |                                  |       |             | —     |             |       |   | 11,236 |   |   |
| Income tax  receivable                           |       | —     |       | 2,070               |       |                              | —     |                                  |       |             | —     |             |       |   | 2,070 |   |   |
| Deferred income  taxes                           |       | —     |       | 5,091               |       |                              | —     |                                  |       |             | —     |             |       |   | 5,091 |   |   |
| Total current assets                             |       | 139,077    |       | 281,858             |       |                              | 134,117    |                                  |       |             | (208,536   | )                |       |   | 346,516 |   |   |
| Property, plant  and equipment, net              |       | 173        |       | 401,239             |       |                              | —     |                                  |       |             | —     |             |       |   | 401,412 |   |   |
| Goodwill                                         |       | —     |       | 77,720              |       |                              | —     |                                  |       |             | —     |             |       |   | 77,720 |   |   |
| Other assets, net                                |       | 15,657     |       | 159,648             |       |                              | —     |                                  |       |             | —     |             |       |   | 175,305 |   |   |
| Investment in  subsidiaries                      |       | 419,400    |       | 116,230             |       |                              | —     |                                  |       |             | (535,630   | )                |       |   | — |   |   |
| Total assets                                     |       | $          | 574,307    |                | $          | 1,036,695                         |       |                                  | $          | 134,117          |       |             |       | $ | (744,166 | ) |   |   | $ | 1,000,953 |   |   |
| Current portion of long-term debt                |       | $          | —     |                | $          | 49,300                            |       |                                  | $          | —           |       |             |       | $ | — |   |   |   | $ | 49,300 |   |   |
| Accounts payable                                 |       | 73,258     |       | 319,561             |       |                              | 17,896     |                                  |       |             | (208,536   | )                |       |   | 202,179 |   |   |
| Interest payable                                 |       | 597        |       | 629                 |       |                              | —     |                                  |       |             | —     |             |       |   | 1,226 |   |   |
| Accrued  compensation                            |       | —     |       | 14,986              |       |                              | —     |                                  |       |             | —     |             |       |   | 14,986 |   |   |
| Income tax  reserve                              |       | —     |       | 3,780               |       |                              | —     |                                  |       |             | —     |             |       |   | 3,780 |   |   |
| Other accrued  liabilities                       |       | —     |       | 12,715              |       |                              | —     |                                  |       |             | —     |             |       |   | 12,715 |   |   |
| Total current liabilities                        |       | 73,855     |       | 400,971             |       |                              | 17,896     |                                  |       |             | (208,536   | )                |       |   | 284,186 |   |   |
| Long-term debt                                   |       | 129,339    |       | 100,000             |       |                              | —     |                                  |       |             | —     |             |       |   | 229,339 |   |   |
| Deferred income  taxes                           |       | —     |       | 107,959             |       |                              | —     |                                  |       |             | —     |             |       |   | 107,959 |   |   |
| Other non-current  liabilities                   |       | 8,101      |       | 8,356               |       |                              | —     |                                  |       |             | —     |             |       |   | 16,457 |   |   |
| Total liabilities                                |       | 211,295    |       | 617,286             |       |                              | 17,896     |                                  |       |             | (208,536   | )                |       |   | 637,941 |   |   |
| Stockholders’  equity:                      |       |       |       |                |       |                              |       |                                  |       |             |       |             |       |   |   |   |   |
| Preferred stock                                  |       | —     |       | —              |       |                              | —     |                                  |       |             | —     |             |       |   | — |   |   |
| Common stock                                     |       | 342        |       | 5                   |       |                              | 19         |                                  |       |             | (24        | )                |       |   | 342 |   |   |
| Additional paid-in capital                       |       | 81,782     |       | 7,940               |       |                              | 107,349    |                                  |       |             | (115,289   | )                |       |   | 81,782 |   |   |
| Unearned compensation                            |       | (5,377     | )          | —              |       |                              | —     |                                  |       |             | —     |             |       |   | (5,377 | ) |   |
| Retained earnings                                |       | 286,265    |       | 411,464             |       |                              | 8,853      |                                  |       |             | (420,317   | )                |       |   | 286,265 |   |   |
| Total stockholders’ equity                  |       | 363,012    |       | 419,409             |       |                              | 116,221    |                                  |       |             | (535,630   | )                |       |   | 363,012 |   |   |
| Total liabilities  and stockholders’ equity |       | $          | 574,307    |                | $          | 1,036,695                         |       |                                  | $          | 134,117          |       |             |       | $ | (744,166 | ) |   |   | $ | 1,000,953 |   |   |

 

101

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**Georgia GulfCorporation and SubsidiariesSupplemental Condensed Consolidating Statement of Income InformationYear Ended December 31, 2006**

| **In Thousands**                                          | ** ** | ** **  | ** ** | **Parent  Company** | ** ** | **Guarantor   Subsidiaries** | ** **  | **Non-Guarantor   Subsidiaries** | ** ** | **Eliminations** | ** **  | **Consolidated** | ** ** |
|----------------------------------------------------------------|------------|-------------|------------|---------------------|------------|-----------------------------------|-------------|---------------------------------------|------------|------------------|-------------|------------------|------------|
| **Net  sales**                                                 | ** ** | **$**       | **12,352** | ** **          | **$**      | **2,271,553**                     | ** **  |                                  | **$**      | **182,367**      | ** **  |             |       | **$** | **(38,429** | **)** |   |   | **$** | **2,427,843** | ** ** |   |
| **Operating costs and expenses:**                              | ** ** | ** **  | ** ** | ** **          | ** ** |                              | ** **  | ** **                            |       |             | ** **  | ** **       |       |   | ** ** | ** ** |   |
| **Cost of sales**                                              | ** ** | **—**  | ** ** | **2,001,271**       | ** ** |                              | **158,730** | ** **                            |       |             | **(7,430**  | **)**            |       |   | **2,152,571** | ** ** |   |
| **Selling, general and administrative**                        | ** ** | **26,919**  | ** ** | **78,229**          | ** ** |                              | **41,744**  | ** **                            |       |             | **(27,741** | **)**            |       |   | **119,151** | ** ** |   |
| **Total operating costs and expenses**                         | ** ** | **26,919**  | ** ** | **2,079,500**       | ** ** |                              | **200,474** | ** **                            |       |             | **(35,171** | **)**            |       |   | **2,271,722** | ** ** |   |
| **Operating  income (loss)**                                   | ** ** | **(14,567** | **)**      | **192,053**         | ** ** |                              | **(18,107** | **)**                                 |       |             | **(3,258**  | **)**            |       |   | **156,121** | ** ** |   |
| **Other income (expense):**                                    | ** ** | ** **  | ** ** | ** **          | ** ** |                              | ** **  | ** **                            |       |             | ** **  | ** **       |       |   | ** ** | ** ** |   |
| **Interest expense, net**                                      | ** ** | **(29,333** | **)**      | **(12,183**         | **)**      |                              | **(9,763**  | **)**                                 |       |             | **—**  | ** **       |       |   | **(51,279** | **)** |   |
| **Loss on foreign exchange derivative instruments  and other** | ** ** | **(21,543** | **)**      | **—**          | ** ** |                              | **—**  | ** **                            |       |             | **—**  | ** **       |       |   | **(21,543** | **)** |   |
| **Equity in income of subsidiaries**                           | ** ** | **89,239**  | ** ** | **(22,117**         | **)**      |                              | **—**  | ** **                            |       |             | **(67,122** | **)**            |       |   | **—** | ** ** |   |
| **Income  before income taxes**                                | ** ** | **23,796**  | ** ** | **157,753**         | ** ** |                              | **(27,870** | **)**                                 |       |             | **(70,380** | **)**            |       |   | **83,299** | ** ** |   |
| **Provision  for income taxes**                                | ** ** | **(24,743** | **)**      | **66,853**          | ** ** |                              | **(9,368**  | **)**                                 |       |             | **(1,245**  | **)**            |       |   | **31,497** | ** ** |   |
| **Income  from continuing operations**                         | ** ** | **48,539**  | ** ** | **90,900**          | ** ** |                              | **(18,502** | **)**                                 |       |             | **(69,135** | **)**            |       |   | **51,802** | ** ** |   |
| **Loss  from discontinued operations, net of tax**             | ** ** | **—**  | ** ** | **(1,661**          | **)**      |                              | **(1,602**  | **)**                                 |       |             | **—**  | ** **       |       |   | **(3,263** | **)** |   |
| **Net income**                                                 | ** ** | **$**       | **48,539** | ** **          | **$**      | **89,239**                        | ** **  |                                  | **$**      | **(20,104**      | **)**       |             |       | **$** | **(69,135** | **)** |   |   | **$** | **48,539** | ** ** |   |

 

102

----

**Georgia Gulf Corporation and SubsidiariesSupplemental Condensed Consolidating Statement of Income InformationYear Ended December 31, 2005**
| In Thousands                   | ** ** | ** ** | ** ** | **Parent  Company** | ** ** | **Guarantor   Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|-------------------------------------|------------|------------|------------|---------------------|------------|-----------------------------------|------------|---------------------------------|------------|------------------|------------|------------------|------------|
| Net sales                           |       | $          | 12,491     |                | $          | 2,273,718                         |       |                            | $          | 12,174           |       |             |       | $ | (24,664 | ) |   |   | $ | 2,273,719 |   |   |
| Operating costs and  expenses:      |       |       |       |                |       |                              |       |                            |       |             |       |             |       |   |   |   |   |
| Cost of sales                       |       | —     |       | 2,049,510           |       |                              | —     |                            |       |             | —     |             |       |   | 2,049,510 |   |   |
| Selling, general and administrative |       | 18,685     |       | 59,114              |       |                              | 8,309      |                            |       |             | (24,664    | )                |       |   | 61,444 |   |   |
| Total operating costs and expenses  |       | 18,685     |       | 2,108,624           |       |                              | 8,309      |                            |       |             | (24,664    | )                |       |   | 2,110,954 |   |   |
| Operating income  (loss)            |       | (6,194     | )          | 165,094             |       |                              | 3,865      |                            |       |             | —     |             |       |   | 162,765 |   |   |
| Other income (expense):             |       |       |       |                |       |                              |       |                            |       |             |       |             |       |   |   |   |   |
| Interest expense, net               |       | (3,440     | )          | (16,967             | )          |                              | —     |                            |       |             | —     |             |       |   | (20,407 | ) |   |
| Equity in income of subsidiaries    |       | 101,966    |       | 3,876               |       |                              | —     |                            |       |             | (105,842   | )                |       |   | — |   |   |
| Income before  income taxes         |       | 92,332     |       | 152,003             |       |                              | 3,865      |                            |       |             | (105,842   | )                |       |   | 142,358 |   |   |
| Provision for  income taxes         |       | (3,171     | )          | 50,026              |       |                              | —     |                            |       |             | —     |             |       |   | 46,855 |   |   |
| Net income                          |       | $          | 95,503     |                | $          | 101,977                           |       |                            | $          | 3,865            |       |             |       | $ | (105,842 | ) |   |   | $ | 95,503 |   |   |

 

103

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**Georgia Gulf Corporation and SubsidiariesSupplemental Condensed Consolidating Statement of Income InformationYear Ended December 31, 2004**
| In Thousands                   | ** ** | ** ** | ** ** | **Parent  Company** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|-------------------------------------|------------|------------|------------|---------------------|------------|-----------------------------|------------|---------------------------------|------------|------------------|------------|------------------|------------|
| Net sales                           |       | $          | 10,830     |                | $          | 2,206,239                   |       |                            | $          | 10,066           |       |             |       | $ | (20,896 | ) |   |   | $ | 2,206,239 |   |   |
| Operating costs  and expenses:      |       |       |       |                |       |                        |       |                            |       |             |       |             |       |   |   |   |   |
| Cost of sales                       |       | —     |       | 1,955,095           |       |                        | —     |                            |       |             | —     |             |       |   | 1,955,095 |   |   |
| Selling, general and administrative |       | 19,481     |       | 56,993              |       |                        | 5,143      |                            |       |             | (20,896    | )                |       |   | 60,721 |   |   |
| Total operating costs and expenses  |       | 19,481     |       | 2,012,088           |       |                        | 5,143      |                            |       |             | (20,896    | )                |       |   | 2,015,816 |   |   |
| Operating income  (loss)            |       | (8,651     | )          | 194,151             |       |                        | 4,923      |                            |       |             | —     |             |       |   | 190,423 |   |   |
| Other income (expense):             |       |       |       |                |       |                        |       |                            |       |             |       |             |       |   |   |   |   |
| Interest expense, net               |       | (5,617     | )          | (18,046             | )          |                        | —     |                            |       |             | —     |             |       |   | (23,663 | ) |   |
| Equity in income of subsidiaries    |       | 114,953    |       | 4,935               |       |                        | —     |                            |       |             | (119,888   | )                |       |   | — |   |   |
| Income before  income taxes         |       | 100,685    |       | 181,040             |       |                        | 4,923      |                            |       |             | (119,888   | )                |       |   | 166,760 |   |   |
| Provision for  income taxes         |       | (5,207     | )          | 66,075              |       |                        | —     |                            |       |             | —     |             |       |   | 60,868 |   |   |
| Net income                          |       | $          | 105,892    |                | $          | 114,965                     |       |                            | $          | 4,923            |       |             |       | $ | (119,888 | ) |   |   | $ | 105,892 |   |   |

 

104

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**Georgia GulfCorporation and SubsidiariesSupplemental Condensed Consolidating Statement of Cash Flows InformationYear Ended December 31, 2006**

| **In Thousands**                                                      | ** ** | ** **    | ** ** | **Parent  Company** | ** **   | **Guarantor  Subsidiaries** | ** **  | **Non-Guarantor  Subsidiaries** | ** **     | **Eliminations** | ** ** | **Consolidated** | ** ** |
|----------------------------------------------------------------------------|------------|---------------|------------|---------------------|--------------|-----------------------------|-------------|---------------------------------|----------------|------------------|------------|------------------|------------|
| **Net cash  provided by continuing operations**                            | ** ** | **$**         | **22,108** | ** **          |         | **$**                       | **193,822** | ** **                      |           |             | **$**      | **16,207**       | ** ** |   | **$** | **22,589** | ** ** | **$** | **254,726** | ** ** |
| **Net cash  (used in) provided by discontinued operations**                | ** ** | **—**    | ** ** |                | **8,141**    | ** **                  |        |                            | **(3,648**     | **)**            |       | **(8,642**       | **)**      | **(4,149** | **)** |
| **Net cash  provided by operating activities**                             | ** ** | **22,108**    | ** ** |                | **201,963**  | ** **                  |        |                            | **12,559**     | ** **       |       | **13,947**       | ** ** | **250,577** | ** ** |
| **Investing  activities:**                                                 | ** ** | ** **    | ** ** |                | ** **   | ** **                  |        |                            | ** **     | ** **       |       | ** **       | ** ** | ** ** | ** ** |
| **Capital expenditures**                                                   | ** ** | **(28**       | **)**      |                | **(82,709**  | **)**                       |        |                            | **(8,033**     | **)**            |       | —           | ** ** | **(90,770** | **)** |
| **Acquisition of Royal Group and related payments,  net of cash acquired** |       | —        | ** ** |                | **5,529**    | ** **                  |        |                            | **(1,098,156** | **)**            |       | **17,231**       | ** ** | **(1,075,396** | **)** |
| **Settlement of foreign exchange contracts**                               | ** ** | **(20,843**   | **)**      |                | —       | ** **                  |        |                            | —         | ** **       |       | —           | ** ** | **(20,843** | **)** |
| **Contributions and advances to affiliates**                               | ** ** | **(957,816**  | **)**      |                | **(67,418**  | **)**                       |        |                            | **5,567**      | ** **       |       | **1,019,667**    |       | — |   |
| **Proceeds from sale of property, plant and  equipment**                   |       | —        | ** ** |                | **22,234**   | ** **                  |        |                            | **83,858**     | ** **       |       | —           | ** ** | **106,092** | ** ** |
| **Net cash  used in investing activities**                                 | ** ** | **(978,687**  | **)**      |                | **(122,364** | **)**                       |        |                            | **(1,016,764** | **)**            |       | **1,036,898**    | ** ** | **(1,080,917** | **)** |
| **Financing  activities:**                                                 | ** ** | ** **    | ** ** |                | ** **   | ** **                  |        |                            | ** **     | ** **       |       | ** **       | ** ** | ** ** | ** ** |
| **Net change in revolving line of credit**                                 | ** ** | **(123,400**  | **)**      |                | —       | ** **                  |        |                            | —         | ** **       |       | —           | ** ** | **(123,400** | **)** |
| **Proceeds from notes payable to affiliates**                              | ** ** | **(366,485**  | **)**      |                | **66,805**   | ** **                  |        |                            | **1,351,161**  | ** **       |       | **(1,051,481**   | **)**      | — |   |
| **Long-term debt proceeds**                                                | ** ** | **1,493,543** |       |                | —       | ** **                  |        |                            | —         | ** **       |       | —           | ** ** | **1,493,543** | ** ** |
| **Long-term debt payments**                                                | ** ** | **(2,249**    | **)**      |                | **(149,300** | **)**                       |        |                            | **(345,825**   | **)**            |       | —           | ** ** | **(497,374** | **)** |
| **Fees paid for bridge financing**                                         | ** ** | **(2,325**    | **)**      |                | —       | ** **                  |        |                            | —         | ** **       |       | —           | ** ** | **(2,325** | **)** |
| **Fees paid to issue debt**                                                | ** ** | **(35,103**   | **)**      |                | —       | ** **                  |        |                            | **(2,917**     | **)**            |       | —           | ** ** | **(38,020** | **)** |
| **Proceeds from issuance of common stock**                                 | ** ** | **3,194**     |       |                | —       | ** **                  |        |                            | —         | ** **       |       | —           | ** ** | **3,194** | ** ** |
| **Tax benefits from employee share-based exercises**                       | ** ** | **1,432**     |       |                | —       | ** **                  |        |                            | —         | ** **       |       | —           | ** ** | **1,432** | ** ** |
| **Purchase and retirement of common stock**                                | ** ** | **(1,032**    | **)**      |                | —       | ** **                  |        |                            | —         | ** **       |       | —           | ** ** | **(1,032** | **)** |
| **Dividends**                                                              | ** ** | **(10,996**   | **)**      |                | —       | ** **                  |        |                            | —         | ** **       |       | —           | ** ** | **(10,996** | **)** |
| **Net cash  provided by (used in) financing activities**                   | ** ** | **956,579**   | ** ** |                | **(82,495**  | **)**                       |        |                            | **1,002,419**  | ** **       |       | **(1,051,481**   | **)**      | **825,022** | ** ** |
| **Effect  of exchange rate changes on cash and cash equivalents**          |       | —        |       |                | —       | ** **                  |        |                            | **25**         | ** **       |       | **636**          | ** ** | **661** | ** ** |
| **Net  change in cash and cash equivalents**                               |       | —        | ** ** |                | **(2,896**   | **)**                       |        |                            | **(1,761**     | **)**            |       | —           | ** ** | **(4,657** | **)** |
| **Cash and  cash equivalents at beginning of year**                        |       | —        | ** ** |                | **14,296**   | ** **                  |        |                            | **2**          | ** **       |       | —           | ** ** | **14,298** | ** ** |
| **Cash and cash equivalents at  end of year**                              | ** ** | **$**         | **—** | ** **          |         | **$**                       | **11,400**  | ** **                      |           |             | **$**      | **(1,759**       | **)**      |   | **$** | **—** | ** ** | **$** | **9,641** | ** ** |

 

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**Georgia Gulf Corporation and SubsidiariesSupplemental Condensed Consolidating Statement of Cash Flows InformationYear Ended December 31, 2005**
| In Thousands                                                                | ** ** | ** ** | ** ** | **Parent  Company** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|----------------------------------------------------------------------------------|------------|------------|------------|---------------------|------------|-----------------------------|------------|---------------------------------|------------|------------------|------------|------------------|------------|
| Net cash provided  by (used in) operating activities                        |       | $          | 106,653    |                |       | $                           | (35,505    | )                               |       |             | $          | (3               | )          |   |   | $ | — |   |   |   | $ | 71,145 |   |   |
| Investing activities:                                                            |       |       |       |                |       |                        |       |                            |       |             |       |             |       |   |   |   |   |   |   |
| Capital expenditures                                                             |       | —     |       |                | (32,044    | )                           |       |                            | —     |             |       |             | —     |   |   |   | (32,044 | ) |   |
| Proceeds from sale of property, plant and equipment                              |       | —     |       |                | 1,362      |                        |       |                            | —     |             |       |             | —     |   |   |   | 1,362 |   |   |
| Net cash used in  investing activities                                           |       | —     |       |                | (30,682    | )                           |       |                            | —     |             |       |             | —     |   |   |   | (30,682 | ) |   |
| Financing activities:                                                            |       |       |       |                |       |                        |       |                            |       |             |       |             |       |   |   |   |   |   |   |
| Net change in revolving line of credit                                           |       | —     |       |                | 59,400     |                        |       |                            | —     |             |       |             | —     |   |   |   | 59,400 |   |   |
| Long-term debt payments                                                          |       | (100,000   | )          |                | —     |                        |       |                            | —     |             |       |             | —     |   |   |   | (100,000 | ) |   |
| Proceeds from issuance of common stock        |       | 5,943      |       |                | —     |                        |       |                            | —     |             |       |             | —     |   |   |   | 5,943 |   |   |
| Purchase and retirement of common stock            |       | (1,681     | )          |                | —     |                        |       |                            | —     |             |       |             | —     |   |   |   | (1,681 | ) |   |
| Dividends                                                                        |       | (10,915    | )          |                | —     |                        |       |                            | —     |             |       |             | —     |   |   |   | (10,915 | ) |   |
| Net cash (used  in) provided by financing activities                   |       | (106,653   | )          |                | 59,400     |                        |       |                            | —     |             |       |             | —     |   |   |   | (47,253 | ) |   |
| Net change in  cash and cash equivalents                                         |       | —     |       |                | (6,787     | )                           |       |                            | (3         | )                |       |             | —     |   |   |   | (6,790 | ) |   |
| Cash and cash  equivalents at beginning of year         |       | —     |       |                | 21,082     |                        |       |                            | 6          |             |       |             |       |   |   |   | 21,088 |   |   |
| Cash and cash  equivalents at end of year                                        |       | $          | —     |                |       | $                           | 14,295     |                            |       |             | $          | 3                |       |   |   | $ | — |   |   |   | $ | 14,298 |   |   |

 

106

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**Georgia Gulf Corporation and SubsidiariesSupplemental Condensed Consolidating Statement of Cash Flows InformationYear Ended December 31, 2004**
| In Thousands                                                                  | ** ** | ** ** | ** ** | **Parent  Company** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------------------------------------|------------|------------|------------|---------------------|------------|-----------------------------|------------|---------------------------------|------------|------------------|------------|------------------|------------|
| Net cash (used  in) provided by operating activities                          |       | $          | (16,525    | )                   |       | $                           | 152,496    |                            |       |             | $          | (4               | )          |   |   | $ | — |   |   |   | $ | 135,967 |   |   |
| Investing activities:                                                              |       |       |       |                |       |                        |       |                            |       |             |       |             |       |   |   |   |   |   |   |
| Capital expenditures                                                               |       | (172       | )          |                | (23,269    | )                           |       |                            | —     |             |       |             | —     |   |   |   | (23,441 | ) |   |
| Financing activities:                                                              |       |       |       |                |       |                        |       |                            |       |             |       |             |       |   |   |   |   |   |   |
| Net change in revolving line of credit                                             |       | —     |       |                | 89,900     |                        |       |                            | —     |             |       |             | —     |   |   |   | 89,900 |   |   |
| Long-term debt payments                                                            |       | —     |       |                | (200,000   | )                           |       |                            | —     |             |       |             | —     |   |   |   | (200,000 | ) |   |
| Proceeds from issuance of common stock                                             |       | 27,948     |       |                | —     |                        |       |                            | —     |             |       |             | —     |   |   |   | 27,948 |   |   |
| Purchase and retirement of common stock         |       | (602       | )          |                | —     |                        |       |                            | —     |             |       |             | —     |   |   |   | (602 | ) |   |
| Dividends                                                                          |       | (10,649    | )          |                | —     |                        |       |                            | —     |             |       |             | —     |   |   |   | (10,649 | ) |   |
| Net cash provided  by (used in) financing activities                |       | 16,697     |       |                | (110,100   | )                           |       |                            | —     |             |       |             | —     |   |   |   | (93,403 | ) |   |
| Net change in  cash and cash equivalents                                           |       | —     |       |                | 19,127     |                        |       |                            | (4         | )                |       |             | —     |   |   |   | 19,123 |   |   |
| Cash and cash  equivalents at beginning of year      |       | —     |       |                | 1,955      |                        |       |                            | 10         |             |       |             | —     |   |   |   | 1,965 |   |   |
| Cash and cash  equivalents at end of year                                          |       | $          | —     |                |       | $                           | 21,082     |                            |       |             | $          | 6                |       |   |   | $ | — |   |   |   | $ | 21,088 |   |   |

 

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**Item 9.**                        CHANGES INAND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None.

**Item 9A.**                CONTROLS ANDPROCEDURES.

*Controlsand Procedures.**  *Wecarried out an evaluation, under the supervision and with the participation ofGeorgia Gulf management, including the company’s Chief Executive Officer andChief Financial Officer, of the effectiveness of the design and operation ofthe company’s disclosure controls and procedures as defined in Rule 13a-15(e) underthe Securities Exchange Act of 1934 (the “1934 Act”). Based on that evaluation,the Chief Executive Officer and Chief Financial Officer have concluded that thecompany’s disclosure controls and procedures were effective as of December 31,2006

*Changesin Internal Control.**  *Exceptfor the acquisition of Royal Group and the incorporation of Royal Group’sconsolidated financial statements into our consolidation process, there havenot been any changes in the company’s internal control over financial reportingthat occurred during the fiscal quarter ended December 31, 2006, that havematerially affected, or are reasonably likely to materially affect, the company’sinternal control over financial reporting.

*Changesin Internal Control Subsequent to Fiscal Quarter Ended December 31, 2006.**  *As a result of the acquisition ofRoyal Group on October 3, 2006, we will have significant changes to ourinternal control over financial reporting during the year ended December 31,2007. Pursuant to Section 404 of the U.S. Sarbanes-Oxley Act of 2002 (the “Sarbanes-OxleyAct”), we are required to evaluate our internal control over financialreporting and to provide an assessment of the effectiveness of our internalcontrol over financial reporting. Internal control over financial reportingconsists of procedures designed to provide reasonable assurance thattransactions are properly authorized, recorded and reported, and assets aresafeguarded against unauthorized or improper use. As permitted by theguidelines established by the SEC, the company elected to exclude the internalcontrol over financial reporting of Royal Group from its assessment andreporting on the effectiveness of our internal control over financial reportingas of December 31, 2006. Although Royal Group is not yet required to be apart of our assessment and reporting on the effectiveness of our internalcontrol over financial reporting, management has assessed significantdeficiencies in its financial reporting structure as of December 31, 2006,including an accounting function that lacks clear organization andaccountability, insufficient qualified accounting professionals, insufficientreview and supervision and financial reporting systems that did not share acommon platform and that require extensive manual interventions. In addition,management concluded that certain aspects of Royal Group’s disclosure controlsand procedures need improvement, including the ability to produce financialstatements on a timely basis.

We must ensure effective internal control over financialreporting for Royal Group’s operations and, in so doing we may identifyadditional areas requiring improvements. As the aforementioned control issuesare remediated or, to the extent that internal control weaknesses that requireremediation are identified, we may be required to incur expenditures or costs,which, if significant, could adversely affect our operating results. We havesubstantial effort ahead of us to complete the improvements and requiredmanagement assessment regarding Royal Group’s internal control system andfinancial processes, information systems, assessment of control design,remediation of the deficiencies discussed above, and any other deficienciesthat may arise out of this process. See Item 1A. “Risk Factors—Our ability to complywith the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 isdependent upon our implementation of effective internal controls for RoyalGroup.”

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**Report ofManagement on Internal Control Over Financial Reporting**

To the Stockholders of Georgia Gulf Corporation:

Management of the company is responsible forestablishing and maintaining adequate internal control over financial reportingas defined in Rule 13a-15(f) under the Securities Exchange Actof 1934. The company’s internal control over financial reporting is designed toprovide reasonable assurance to the company’s management and board of directorsregarding the preparation and fair presentation of published financialstatements.

Our management, including our Chief Executive Officerand Chief Financial Officer, does not expect that our internal controls overfinancial reporting will prevent all errors and all fraud. Internal controls,no matter how well designed and operated, can provide only reasonable, notabsolute, assurance that the objectives of the internal controls are met.Because of the inherent limitations of internal controls, internal controlsover financial reporting may not prevent or detect all misstatements or fraud.Therefore, no evaluation of internal control can provide absolute assurancethat all control issues or instances of fraud will be prevented or detected.

Management assessed the effectiveness of the company’sinternal control over financial reporting as of December 31, 2006. Managementhas excluded from the scope of its assessment of internal control overfinancial reporting as of December 31, 2006, Royal Group TechnologiesLimited and their subsidiaries (“Royal Group”), which businesses were acquiredon October 3, 2006 and whose financial statements reflect total assetsconstituting approximately 62.8 percent and revenues of approximately 9.5 percentof the company’s related consolidated financial statements as of and for theyear ended December 31, 2006. In making this assessment, management usedthe criteria set forth by the Committee of Sponsoring Organizations of theTreadway Commission in Internal Control—Integrated Framework. Based on thisassessment, the company’s management concluded that, as of December 31,2006, the company’s internal control over financial reporting was effectivebased on those criteria.

Deloitte &Touche LLP, the company’s independent registered public accounting firm, whichalso audited the company’s consolidated financial statements included in thisannual report on Form 10-K, has issued an attestation report onmanagement’s assessment of the company’s internal control over financialreporting, which is included below.
| /s/ EDWARD A. SCHMITT                 |   | /s/ JAMES T.  MATTHEWS                     |
|---------------------------------------|--------|--------------------------------------------|
| Edward A. Schmitt                     |   | James T. Matthews                          |
| President and Chief Executive Officer |   | Vice President—Finance, Treasurer and |
|                                  |   | Chief Financial Officer                    |

 

March 30, 2007

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**Report ofIndependent Registered Public Accounting Firm**

To the Board of Directors and Stockholders of Georgia Gulf Corporation**Atlanta, Georgia

We have audited management’s assessment, included inthe accompanying*******Report of Management on Internal Control OverFinancial Reporting*, that Georgia Gulf Corporation and subsidiaries(the “Company”) maintained effective internal control over financial reportingas of December 31, 2006, based on criteria established in *Internal Control—Integrated Framework*issuedby the Committee of Sponsoring Organizations of the Treadway Commission. Asdescribed *in Report of Management onInternal Control Over Financial Reporting*, management excluded fromits assessment the internal control over financial reporting of Royal Group TechnologiesLimited which was acquired on October 3, 2006 and whose financialstatements constitute -25.3 percent and 62.8percent of net and total assets, respectively, 9.5 percent of revenues,and 40.2 percent of net income of the consolidated financial statement amountsas of and for the year ended December 31, 2006. Accordingly, our audit didnot include the internal control over financial reporting at Royal GroupTechnologies Limited. The Company’s management is responsible for maintainingeffective internal control over financial reporting and for its assessment ofthe effectiveness of internal control over financial reporting. Ourresponsibility is to express an opinion on management’s assessment and anopinion on the effectiveness of the Company’s internal control over financialreporting based on our audit.

We conducted our audit in accordance with thestandards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonableassurance about whether effective internal control over financial reporting wasmaintained in all material respects. Our audit included obtaining anunderstanding of internal control over financial reporting, evaluatingmanagement’s assessment, testing and evaluating the design and operatingeffectiveness of internal control, and performing such other procedures as weconsidered necessary in the circumstances. We believe that our audit provides areasonable basis for our opinions.

A company’s internal control over financial reportingis a process designed by, or under the supervision of, the company’s principalexecutive and principal financial officers, or persons performing similarfunctions, and effected by the company’s board of directors, management, andother personnel to provide reasonable assurance regarding the reliability offinancial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles. A company’sinternal control over financial reporting includes those policies andprocedures that (1) pertain to the maintenance of records that, inreasonable detail, accurately and fairly reflect the transactions anddispositions of the assets of the company; (2) provide reasonableassurance that transactions are recorded as necessary to permit preparation offinancial statements in accordance with generally accepted accountingprinciples, and that receipts and expenditures of the company are being madeonly in accordance with authorizations of management and directors of thecompany; and (3) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use, or disposition of thecompany’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internalcontrol over financial reporting, including the possibility of collusion orimproper management override of controls, material misstatements due to erroror fraud may not be prevented or detected on a timely basis. Also, projectionsof any evaluation of the effectiveness of the internal control over financialreporting to future periods are subject to the risk that the controls maybecome inadequate because of changes in conditions, or that the degree ofcompliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that theCompany maintained effective internal control over financial reporting as of December 31,2006, is fairly stated, in all material respects, based on the 

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criteria established in *Internal Control—Integrated Framework*issuedby the Committee of Sponsoring Organizations of the Treadway Commission. Alsoin our opinion, the Company maintained, in all material respects, effectiveinternal control over financial reporting as of December 31, 2006, basedon the criteria established in *InternalControl—Integrated Framework*issued by the Committee of SponsoringOrganizations of the Treadway Commission.

We have also audited, inaccordance with the standards of the Public Company Accounting Oversight Board(United States), the consolidated financial statements and financial statementschedule as of and for the year ended December 31, 2006 of the Company andour report dated March 30, 2007, expressed an unqualified opinion on thosefinancial statements and financial statement schedule and included anexplanatory paragraph regarding the Company’s adoption of statement ofFinancial Accounting Standards No. 123 (R), *Share-Based Payments*, on January 1,2006, and the recognition and related disclosure provisions of statement ofFinancial Accounting Standard No. 158, *Employers’Accounting for Defined Benefit Pension and Other Postretirement P**lans*, on December 31, 2006.

/s/ DELOITTE & TOUCHE LLP

Atlanta, GeorgiaMarch 30, 2007

**Item9B.**   OTHER INFORMATION.

None.

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**PART III**

**Item 10.**   DIRECTORS,EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE.

The information set forth under the captions “Electionof Directors,” and “Section 16(a) Beneficial Ownership ReportingCompliance” in our proxy statement for the Annual Meeting of Stockholders to beheld May 15, 2007, are hereby incorporated by reference in response tothis item.

We have adopted the Georgia Gulf Code of Ethics, whichapplies to all of our directors, officers and employees. The Code of Ethics ispublicly available on our website at http://www.ggc.com under InvestorRelations. If we make any substantive amendments to our Code of Ethics or wegrant any waiver, including any implicit waiver, from a provision of the Codeof Ethics, that applies to our principal executive officer, principal financialofficer, principal accounting officer or controller, we will disclose thenature of the amendment or waiver on our website. Also, we may elect to alsodisclose the amendment or waiver in a report on Form 8-K filed withthe SEC.

In addition, our Corporate Governance Guidelines andthe charters for our audit committee, equity compensation committee andnominating and governance committee are available on our website athttp://www.ggc.com under Investor Relations and are available in print to anystockholder who requests them from the Corporate Secretary of Georgia GulfCorporation, 115 Perimeter Center Place, Suite 460, Atlanta, GA  30346.

Our President and Chief Executive Officer certified tothe New York Stock Exchange (“NYSE”) on May 31, 2006, pursuant to Section 303A.12of the NYSE’s listing standards, that he was not aware of any violation byGeorgia Gulf of the NYSE’s corporate governance listing standards as of thatdate.

The following is additional information regarding our executiveofficers who are not directors, as of February 27, 2006:

Joel I. Beerman, 57, has served as Vice President,General Counsel and Secretary since February 1994.

Paul D. Carrico, 56, has served as Vice President,Chemicals and Vinyls since October 2006. Before then, Mr. Carricoheld the position of Vice President, Polymer Group since May 2005 and asBusiness Manager, Resin Division, since joining Georgia Gulf in 1999 when itacquired the vinyls business of CONDEA Vista.

William H. Doherty, 52, has served as Vice President,Custom Products since October 2006. Before then, Mr. Doherty servedas Vice President, Vinyl Compounds Group since December 1999 and asGeneral Manager Vinyl Compounds since May 1998 and as Business ManagerVinyl Compounds from May 1992 until May 1998.

James T. Matthews, 53, has served as VicePresident-Finance, Treasurer and Chief Financial Officer since December 2003and as Treasurer since December 2002. Mr. Matthews served asCorporate Controller from March 2001 until August 2003. From 1996 to2001 Mr. Matthews served as Vice President of Finance of thecontainerboard division of The Mead Corporation.

Mark J. Seal, 55,has served as Vice President, Outdoor Building Products since October 2006.Before then, Mr. Seal had served as Vice President, Chemicals Group since May 2005and as Vice President, Polymer Group since August 1993.

C.     DouglasShannon, 55, has served as Vice President, Procurement since May 2005 andserved as Vice President, Chemicals Group from December 1999 until May 2005.Before then, Mr. Shannon served as Director of Business Area ManagementCommodity Chemicals from July 1998 until December 1999. Since September 1993,Mr. Shannon has also served as Business Manager Electrochemicals andmanaged feedstock purchasing.

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James L. Worrell, 52, has as Vice President, HumanResources, since September 2006 handling all aspects of the humanresources function including staffing, labor relations, organizationaldevelopment, compensation, benefits, and training. Prior to then, Mr. Worrellserved as the Director of Human Resources since 1993 and has been a manager ofhuman resources since our inception.

Executive officers areelected by, and serve at the pleasure of, the board of directors.

**Item 11.**                 EXECUTIVECOMPENSATION.

The information set forthunder the captions “Election of Directors—Compensation of Directors,” and “ExecutiveCompensation” in our proxy statement for the Annual Meeting of Stockholders tobe held on May 15, 2007, is hereby incorporated by reference in response tothis item.

**Item 12.**                 SECURITYOWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERMATTERS.

The information set forthunder the caption “Security Ownership of Principal Stockholders and Management”in our proxy statement for the Annual Meeting of Stockholders to be held on May 15,2007, is hereby incorporated by reference in response to this item.

**SecuritiesAuthorized for Issuance Under Equity Compensation Plans**

Thefollowing table provides information with respect to compensation plans underwhich our equity securities are authorized for issuance to employees as of December 31,2006:

| **Plan category**                                      | ** ** | ** ** | ** ** | **Number of securities  to be issued upon  exercise of  outstanding options,  warrants and rights  (a)** | ** ** | **Weighted-average  exercise price  of outstanding  options, warrants  and rights  (b)** | ** ** | **Number of securities  remaining available  for future  issuance under  equity compensation  plans (excluding  securities reflected  in column (a))  (c)** | ** ** |
|-------------------------------------------------------------|------------|------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| Equity  compensation plans approved by security holders     |       |       | 1,946,823  |                                                                                                                                                  |       |                                                                                                         | $          | 30.14                                                                                                                                                                                                         |       |   |   | 757,423 |   |   |
| Equity  compensation plans not approved by security holders |       |       | —     |                                                                                                                                                  |       |                                                                                                         | —     |                                                                                                                                                                                                          |       |   | — |   |   |
| Total                                                       |       |       | 1,946,823  |                                                                                                                                                  |       |                                                                                                         | $          | 30.14                                                                                                                                                                                                         |       |   |   | 757,423 |   |   |

 

**Item 13.**                 CERTAINRELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

We have not had any relatedparty transactions required to be reported under this item for the calendaryear 2006, or for the period from January 1, 2007 to the date of thisreport. The information set forth under the caption  “Election of Directors” in our proxystatement for the Annual Meeting of Stockholders to be held on May 15,2007 is herby incorporated by reference in response to this item.

**Item 14.**                 PRINCIPALACCOUNTANT FEES AND SERVICES.

The information contained in the section entitled “Appointmentof Independent Registered Public Accounting Firm” in our proxy statement forthe Annual Meeting of Stockholders to be held on May 15, 2007, isincorporated herein by reference in response to this item.

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**PART IV**

**Item 15.**   EXHIBITS,FINANCIAL STATEMENT SCHEDULES.

(a)   Thefollowing documents are filed as a part of this Form 10-K:
| (1)        |       | Consolidated Balance Sheets as of December 31,  2006 and 2005                                                                                                                                             |
|------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** | ** ** | Consolidated Statements  of Income for the years ended December 31, 2006, 2005 and 2004                                                                                                                   |
|       |       | Consolidated Statements  of Cash Flows for the years ended December 31, 2006, 2005 and 2004                                                                                                               |
|       |       | Consolidated Statements  of Stockholders’ Equity for the years ended December 31, 2006, 2005 and  2004                                                                                               |
|       | ** ** | Notes to Consolidated  Financial Statements                                                                                                                                                                    |
|       | ** ** | Report of Independent  Registered Public Accounting Firm                                                                                                                                                       |
| (2)        |       | Financial Statement  Schedules:                                                                                                                                                                                |
|       |       | The following  consolidated financial statement schedule is for the years ended  December 31, 2006, 2005 and 2004:                                                                                        |
| ** ** | ** ** | Schedule II Valuation  and Qualifying Accounts                                                                                                                                                                 |
|       |       | Schedules other than the  one listed above are omitted because they are not required and are not  applicable or the information is otherwise shown in the Consolidated  Financial Statements or related notes. |
| (3)        |       | Exhibits. Each  management contract or compensatory plan or arrangement is preceded by an  asterisk.                                                                                                           |

 

(b)         Thefollowing exhibits are filed as part of this Form 10-K:
| Exhibit No. | ** ** | **Description** |                                                           |
|------------------|------------|-----------------|----------------------------------------------------------------|
| *           | 10.1       |            | Description of the 2007 Management Incentive Bonus  Plan.      |
| *           | 10.2       |            | Description of the Deferred Compensation Plan                  |
|             | 21         |            | Subsidiaries of the Registrant.                                |
|             | 23         |            | Consent of Independent Registered Public Accounting  Firm.     |
|             | 31         |            | Rule 13a - 14(a) / 15d -  14(a) Certifications. |
|             | 32         |            | Section 1350 Certifications.                              |
|                  |            |                 |                                                                |  |  |

 

Thefollowing exhibits are incorporated by reference to Georgia Gulf’s Form 8-Kdated October 6, 2006:
| Exhibit No. | ** ** | **Description**                                                                                                                                                                                                           |
|------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 4.1              |       | Indenture, dated as  of October 3, 2006, among Georgia Gulf Corporation, each of the  Guarantors party thereto, and LaSalle Bank National Association, as Trustee,  relating to the 9.5% Senior Notes due 2014. |
| 4.2              |       | Indenture, dated as of October 3, 2006, among  Georgia Gulf Corporation, each of the Guarantors party thereto, and LaSalle  Bank National Association, as Trustee, relating to the 10.75% Senior Notes  due 2016.    |

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| 4.3 |   | Credit Agreement, dated as of October 3, 2006, among Georgia Gulf  Corporation and Royal Group Technologies Limited, as Borrowers, certain  subsidiaries of Georgia Gulf Corporation from time to time party thereto, as  Guarantors, Bank of America, National Association, as Domestic Administrative  Agent, Domestic Collateral Agent and Domestic L/C Issuer, Bank of America,  National Association, acting through its Canada branch as Canadian  Administrative Agent, Canadian Collateral Agent and Canadian L/C Issuer, and  The Bank of Nova Scotia, as Canadian Swing Line Lender, Merrill Lynch Capital  Corporation and Lehman Commercial Paper Inc., as Co-Syndication Agents, and  Wachovia Bank, National Association, as Co-Documentation Agent, and the other  lenders party thereto, Banc of America Securities LLC, and J.P. Morgan  Securities Inc., as Joint Lead Arrangers, and Banc of America Securities LLC,  Merrill Lynch, Pierce, Fenner & Smith Incorporated, Lehman Brothers  Inc. and J.P. Morgan Securities Inc., as Joint Book Runners. |
|-----|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

Thefollowing exhibits are incorporated by reference to Georgia Gulf’s Form 8-Kdated September 21, 2006:
| Exhibit No. | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.1             |       | Third Amendment to Amended and Restated Receivables  Purchase Agreement, dated as of September 18, 2006, among GGRC Corp., as  Seller, Georgia Gulf Corporation and Georgia Gulf Chemicals and Vinyls, LLC,  as Initial Servicers, Blue Ridge Asset Funding Corporation, as a Purchaser,  Victory Receivables Corporation, as a Purchaser, Wachovia Bank, National  Association, as Administrative Agent and Blue Ridge Purchaser Agent, and the  Bank of Tokyo-Mitsubishi, Ltd., New York Branch, as Victory Purchaser Agent. |
| 10.2             |       | Third Amendment to Receivables Sale Agreement, dated  as of September 18, 2006, among Georgia Gulf Corporation, as a Seller,  Georgia Gulf Chemicals & Vinyls, LLC, as a Seller, Georgia Gulf Lake  Charles, LLC, as a Seller, and GGRC Corp.                                                                                                                                                                                                                                                                         |

 

Thefollowing exhibit is incorporated by reference to Georgia Gulf’s Form 8-Kdated June 9, 2006:
| Exhibit No. | ** ** | **Description**                                                                                                       |
|------------------|------------|-----------------------------------------------------------------------------------------------------------------------|
| 2                |       | Arrangement Agreement, dated June 9, 2006,  between Rome Acquisition Corp. and Royal Group Technologies Limited. |

 

Thefollowing exhibits are incorporated by reference to Georgia Gulf’s Form 8-Kdated March 23, 2006:
| Exhibit No. | ** ** | **Description**                                                                    |
|------------------|------------|------------------------------------------------------------------------------------|
| *10.1            |       | Form of 2006 Restricted Shares Units Agreement.                               |
| *10.2            |       | Form of 2006 Nonqualified Stock Option  Agreement.                            |
| *10.3            |       | Form of 2006 Nonqualified Stock Option  Agreement for Non-Employee Directors. |

 

Thefollowing exhibit is incorporated by reference to Georgia Gulf’s Form 10-Kfor the year ended December 31, 2005, filed March 1, 2006:
| Exhibit No. | ** ** | **Description**                                           |
|------------------|------------|-----------------------------------------------------------|
| *10              |       | Description of the 2006 Management Incentive Bonus  Plan. |

 

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The following exhibit isincorporated by reference to Georgia Gulf’s Form 8-K dated October 4,2005:
| Exhibit No. | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.1             |       | Second Amendment to Amended and Restated Receivables  Purchase Agreement, dated September 30, 2005, among GGRC Corp., as  Seller, Georgia Gulf Corporation and Georgia Gulf Chemicals and Vinyls, LLC,  as Initial Servicers, Blue Ridge Asset Funding Corporation, as a Purchaser,  Victory Receivables Corporation, as a Purchaser, Wachovia Bank, National  Association, as Administrative Agent and Blue Ridge Purchaser Agent, and the  Bank of Tokyo-Mitsubishi, Ltd., New York Branch, as Victory Purchaser Agent. |

 

Thefollowing exhibit is incorporated by reference to Georgia Gulf’s Form 8-Kdated May 23, 2005:
| Exhibit No. | ** ** | **Description**              |
|------------------|------------|------------------------------|
| 99.1             |       | Amended and Restated Bylaws. |

 

Thefollowing exhibit is incorporated by reference to Georgia Gulf’s Form 8-Kdated November 30, 2004:
| Exhibit No. | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.2             |       | First Amendment to Amended and Restated Receivables  Purchase Agreement, dated as of November 23, 2004, by and among GGRC  Corp., as Seller, Georgia Gulf Corporation and Georgia Gulf Chemicals and  Vinyls, LLC, as Servicers, Blue Ridge Asset Funding Corporation, as a  Purchaser, Victory Receivables Corporation, as a Purchaser, Wachovia Bank,  National Association, as Blue Ridge Purchaser Agent and Administrative Agent,  and The Bank of Tokyo-Mitsubishi, Ltd., New York Branch, as Victory Purchaser  Agent. |

 

Thefollowing exhibits are incorporated by reference to Georgia Gulf’s Form 8-Kdated November 18, 2004:
| Exhibit No. | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.1             |       | Amended and Restated Receivables Purchase Agreement,  dated as of November 23, 2004, among GGRC Corp., as Seller, Georgia Gulf  Corporation and Georgia Gulf Chemicals and Vinyls, LLC, as Initial Servicers,  Blue Ridge Asset Funding Corporation, as a Purchaser, Victory Receivables Corporation,  as a Purchaser, Wachovia Bank, National Association, as Administrative Agent  and Blue Ridge Purchaser Agent, and The Bank of Tokyo-Mitsubishi, Ltd., New  York Branch, as Victory Purchaser Agent. |
| 10.2             |       | First Amendment to Receivables Sale Agreement, dated  as of November 12, 2004, by and among Georgia Gulf Corporation, as a  Seller, Georgia Gulf Chemicals and Vinyls, LLC, as a Seller, Georgia Gulf  Lake Charles, LLC, as a Seller, GGRC Corp. and Wachovia Bank, National  Association, as Administrative Agent.                                                                                                                                                                                       |

 

Thefollowing exhibits are incorporated by reference to Georgia Gulf’s Form 10-Qfor the quarter ended September 30, 2004, filed November 1, 2004:
| Exhibit No. | ** ** | **Description**                                                                                                  |
|------------------|------------|------------------------------------------------------------------------------------------------------------------|
| *10.1            |       | Form of Georgia Gulf Corporation Termination of  Split Dollar Agreement and Implementation of Bonus Policy. |
| *10.2            |       | Form of Executive Nonqualified Stock Option  Agreement.                                                     |
| *10.3            |       | Form of Non-Employee Director Nonqualified  Stock Option Agreement.                                         |
| *10.4            |       | Form of Executive Restricted Shares Agreement.                                                              |
| *10.5            |       | Form of Deferred Shares Agreement.                                                                          |

 

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Thefollowing exhibits are incorporated by reference to Appendices B and C toGeorgia Gulf’s proxy statement filed April 13, 2004:
| Exhibit No. | ** ** | **Description**                                                                            |
|------------------|------------|--------------------------------------------------------------------------------------------|
| *10.1            |       | Georgia Gulf Corporation Amended and Restated 2002  Equity and Performance Incentive Plan. |
| *10.2            |       | Georgia Gulf Corporation Senior Executive Bonus  Plan.                                     |

 

Thefollowing exhibit is incorporated by reference to Georgia Gulf’s Form 8-KReport dated December 3, 2003:
| Exhibit No. | ** ** | **Description**                                                                                                                                                                                      |
|------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 99.3             |       | Indenture, dated as of December 3, 2003, among  Georgia Gulf Corporation and its subsidiary guarantors and SunTrust Bank, as  Trustee, for the issuance of 7.125percent senior notes due  2013. |

 

Thefollowing exhibit is incorporated by reference to Appendix A to Georgia Gulf’sproxy statement filed April 10, 2002.
| Exhibit No. | ** ** | **Description**                             |
|------------------|------------|---------------------------------------------|
| *10              |       | 2002 Equity and Performance Incentive Plan. |

 

Thefollowing exhibit is incorporated by reference to Exhibit A to GeorgiaGulf’s proxy statement filed April 10, 2001.
| Exhibit No. | ** ** | **Description**                                   |
|------------------|------------|---------------------------------------------------|
| *10              |       | Second Amendment to Employee Stock Purchase Plan. |

 

Thefollowing exhibit is incorporated by reference to Georgia Gulf’s Form 8-Aamendment filed December 13, 2000:
| Exhibit No. | ** ** | **Description**                                                                                                                   |
|------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------|
| 4.1              |       | Amended and Restated Rights Agreement, dated as of  December 5, 2000, between Georgia Gulf and EquiServe Trust Company, N.A. |

 

Thefollowing exhibit is incorporated herein by reference to Georgia Gulf’s Form S-8(File No. 33-59433) filed July 20, 1998:
| Exhibit No. | ** ** | **Description**                                                       |
|------------------|------------|-----------------------------------------------------------------------|
| *4               |       | Georgia Gulf Corporation 1998 Equity and Performance  Incentive Plan. |

 

Thefollowing exhibit is incorporated herein by reference to Georgia Gulf’s Form S-8(File No. 33-64749) filed December 5, 1995:
| Exhibit No. | ** ** | **Description**                                         |
|------------------|------------|---------------------------------------------------------|
| *4               |       | Georgia Gulf Corporation Employee Stock Purchase  Plan. |

 

Thefollowing exhibit is incorporated herein by reference to Georgia Gulf’s 1991 Form 10-KAnnual Report filed March 30, 1992:
| Exhibit No. | ** ** | **Description**                                            |
|------------------|------------|------------------------------------------------------------|
| 3(a)             |       | Certificate of Amendment of Certificate of  Incorporation. |

 

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Thefollowing exhibits are incorporated herein by reference to Georgia Gulf’sRegistration Statement on Form S-1 (File No. 33-9902)declared effective on December 17, 1986:
| **Exhibit No.** | ** ** | **Description** |
|----------------------|------------|-----------------|
|                 | 3          | (a)             |   | Certificate of Agreement of Merger, with Certificate  of Incorporation of Georgia Gulf as Exhibit A thereto, dated  December 31, 1984, and amendments thereto. |
|                 | 10         | (g)             |   | Agreement re: Liabilities among Georgia-Pacific,  Georgia-Pacific Chemicals, Inc., and others dated, December 31,  1984. |
|                 | 10         | (v)             |   | Salt Contract. |

 

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**SIGNATURES**

Pursuantto the requirements of Section 13 or 15(d) of the Securities ExchangeAct of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized.
|                            | GEORGIA GULF CORPORATION |
|----------------------------|--------------------------|
|                       | (Registrant)             |
| Date: March 30,  2007 | By:                      | /s/ EDWARD A. SCHMITT |
|                       |                     | Edward A. Schmitt, |
|                       | * *                 | *Chief Executive Officer* |

 

Pursuantto the requirements of the Securities Exchange Act of 1934, this report hasbeen signed below by the following persons on behalf of the Registrant and inthe capacities and on the dates indicated.
|                         | **Signature** | ** **                                                  | ** ** | **Title**           | ** ** | ** ** | ** ** | ** ** | **Date** | ** ** |
|-------------------------|---------------|-------------------------------------------------------------|------------|---------------------|------------|------------|------------|------------|----------|------------|
| /s/ EDWARD A.  SCHMITT  |          | President, Chief  Executive Officer and Director            |       | March 30, 2007 |
| Edward  A. Schmitt      |          | (Principal Executive  Officer)                              |       |                |
| /s/ JAMES T.  MATTHEWS  |          | Vice  President—Finance, Treasurer and Chief Financial |       | March 30, 2007 |
| James  T. Matthews      |          | Officer (Principal  Financial and Accounting Officer)       |       |                |
| /s/ JOHN E.  AKITT      |          | Director                                                    |       | March 30, 2007 |
| John  E. Akitt          |          |                                                        |       |                |
| /s/ CHARLES L.  HENRY   |          | Director                                                    |       | March 30, 2007 |
| Charles  L. Henry       |          |                                                        |       |                |
| /s/ DENNIS M.  CHORBA   |          | Director                                                    |       | March 30, 2007 |
| Dennis  M. Chorba       |          |                                                        |       |                |
| /s/ PATRICK J.  FLEMING |          | Director                                                    |       | March 30, 2007 |
| Patrick  J. Fleming     |          |                                                        |       |                |
| /s/ JERRY R.  SATRUM    |          | Director                                                    |       | March 30, 2007 |
| Jerry  R. Satrum        |          |                                                        |       |                |
| /s/ YOSHI  KAWASHIMA    |          | Director                                                    |       | March 30, 2007 |
| Yoshi Kawashima         |          |                                                        |       |                |

 

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**GEORGIA GULFCORPORATION AND SUBSIDIARIES**

**SCHEDULEII  VALUATION AND QUALIFYING ACCOUNTS**

**(InThousands)**
| Year Ended December 31, | ** ** | ** ** | ** ** | **Balance at  beginning of   period** | ** ** | **Charged to  costs and  expenses, net  of recoveries** | ** ** | **Charged to  other accounts** | ** ** | **Deductions (2)** | ** ** | **Balance at  end of period** | ** ** |
|----------------------------------------|------------|------------|------------|------------------------------------------------------|------------|-----------------------------------------------------------------------------|------------|------------------------------------------|------------|-------------------------|------------|----------------------------------------------|------------|
| **2004**                               | ** ** |       | ** ** | ** **                                           |       |                                                                        | ** ** | ** **                               |       |                    | ** ** | ** **                                   |       |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Allowance for  doubtful accounts       |       |       | $          | 4,450                                                | ** ** |                                                                        |       | $                                        | 294        |                    |       |                                         | $          | (2,065 | ) |   |   | $ | (805 | ) |   |   | $ | 1,874 | ** ** |   |
| **2005**                               | ** ** |       | ** ** | ** **                                           |       |                                                                        | ** ** | ** **                               |       |                    | ** ** | ** **                                   |       |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Allowance for  doubtful accounts       |       |       | $          | 1,874                                                | ** ** |                                                                        |       | $                                        | 1,482      |                    |       |                                         | $          | — |   |   |   | $ | (899 | ) |   |   | $ | 2,457 | ** ** |   |
| Note receivable  reserve               |       |       | $          | 2,065                                                |  (3)  |                                                                        |       | $                                        | (2,065     | ) (3)              |       |                                         | $          | — |   |   |   | $ | — |   |   |   | $ | — | ** ** |   |
| **2006**                               | ** ** |       | ** ** | ** **                                           |       |                                                                        | ** ** | ** **                               |       |                    | ** ** | ** **                                   |       |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| **Allowance for doubtful accounts**    | ** ** |       | **$**      | **2,457**                                            | ** ** |                                                                        |       | **$**                                    | **327**    | ** **              |       |                                         | **$**      | **14,241** | ** (1)** |   |   | **(878** | **)** |   |   | **$** | **16,147** | ** ** |   |

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**NOTES:**

(1)          Represents theincremental allowance for doubtful accounts receivable for Royal Group as of December 31,2006.

(2)          Accounts receivablebalances written off during the period, net of recoveries.

(3)          Portion of allowance fordoubtful accounts transferred to note receivable reserve upon conversion ofrelated receivables to a note receivable. Note receivable was repaid in full inthe fourth quarter of 2005.

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