TORONTO, Aug. 11 /PRNewswire-FirstCall/ -- Royal Group Technologies
Limited (RYG-TSX; RYG-NYSE) today announced financial results for
the three months ended June 30, 2005. Net sales for the quarter
were $549 million versus $555 million during the same period in the
prior year. Net earnings were $18.6 million or $0.20 per share,
versus $35.5 million or $0.38 per share last year. During the
quarter ended June 30, 2005, sales declined 1% from the same
quarter last year, principally due to the impact of the decline in
the value of the US dollar on products exported to the United
States from Canada. Assuming the same average US dollar exchange
rate as in the matching quarter last year, sales in Canadian dollar
equivalency would have been approximately $582 million, up 5% from
last year. The increase in constant dollar sales can be primarily
attributed to selling price increases. Royal generated 57% of its
sales in the United States, 36% in Canada and 7% internationally.
Gross margin for the three months ended June 30, 2005 was $137.0
million, versus $159.0 million for the same quarter last year.
Gross margin as a percentage of sales was 24.9%, compared to 28.7%
during the same quarter last year, representing a 380 basis point
decline. Escalating raw material costs net of recovery through
selling price increases accounted for approximately $21 million of
the decline, with the remainder primarily attributable to a decline
in the value of the US dollar. Operating expenses rose to $99.5
million, from $99.2 million last year. During the second quarter of
2005, the company benefited from reversal of a $8 million
overaccrual for prior periods' management bonuses and a $1.3
million dollar gain on real estate. However, incremental expenses
incurred in the second quarter of 2005 more than offset the
foregoing gains. Incremental expenses included those relating to
divestiture of a window coverings plant in Tijuana, Mexico,
professional fees associated with the previously announced sale
process, as well as professional fees related to regulatory
investigations. In addition, product delivery expenses increased
relative to the same quarter last year, largely as a result of new
retail programs involving greater delivery expense. Second quarter
financial results in Canadian dollars expressed in accordance with
Canadian GAAP are outlined in the following chart: For the Quarter
For the Six Months Ended Ended June 30, 05 June 30, 04 June 30, 05
June 30, 04 Sales ($000s) 549,168 554,673 936,863 975,778 Gross
Margin ($000) 137,003 158,992 227,690 271,283 Gross Margin
Percentage 24.9% 28.7% 24.3% 27.8% Net Earnings ($000s) 18,583
35,488 7,188 44,903 E.P.S. $ Basic and Diluted 0.20 0.38 0.08 0.48
Average Shares Outstanding Basic (000s) 93,445 93,354 93,432 93,350
Diluted (000s) 94,525 93,354 94,480 93,350 "Second quarter
financial results underscore the necessity for change, which we
have initiated through a comprehensive strategic planning process
that is well underway", according to Lawrence J. Blanford, who was
appointed President and CEO of Royal Group in May 2005. "Through
restructuring our business unit portfolio, pursuit of profit
improvement initiatives and development of full potential strategic
plans for our core businesses, we have the opportunity to
substantially improve Royal's financial performance and create
greater shareholder value", added Mr. Blanford. On July 28th, Royal
Group announced its intention to divest of three non-core business
units, noting that these divestiture decisions can assist the
company to focus its capital and management resources on higher
potential core businesses, as well improve the balance sheet
through proceeds from dispositions. In addition, Royal Group
announced its intention to divest of its unprofitable Polish
subsidiary, noting that this divestiture can eliminate this
subsidiary's on-going drain on Royal's overall profitability. Royal
Group Technologies Limited is a manufacturer of innovative,
polymer-based home improvement, consumer and construction products.
The company has extensive vertical integration, with operations
dedicated to provision of materials, machinery, tooling, real
estate and transportation services to its plants producing finished
products. Royal Group's manufacturing facilities are primarily
located throughout North America, with international operations in
South America, Europe and Asia. Additional investment information
is available on Royal Group's web site at
http://www.royalgrouptech.com/ under the "Investor Relations"
section. The information in this document contains certain
forward-looking statements with respect to Royal Group Technologies
Limited, its subsidiaries and affiliates. These statements are
often, but not always made through the use of words or phrases such
as "expect", "should continue", "continue", "believe",
"anticipate", "estimate", "contemplate", "target", "plan",
"budget", "may", "will", "schedule" and "intend" or similar
formulations. By their nature, these forward-looking statements are
necessarily based upon a number of estimates and assumptions that,
while considered reasonable by management, are inherently subject
to significant, known and unknown, business, economic, competitive
and other risks, uncertainties and other factors affecting Royal
specifically or its industry generally that could cause actual
performance, achievements and financial results to differ
materially from those contemplated by the forward-looking
statements. These risks and uncertainties include the ongoing
shareholder value maximization process and its outcome; the outcome
of the ongoing internal review and investigations by the Special
Committee of the Board of Directors; the outcome of the ongoing
assessment and review of the Royal Building System's compliance
with the smoke generated elements of the US building code and the
safety of buildings constructed with the Royal Building System;
fluctuations in the level of renovation, remodeling and
construction activity; changes in product costs and pricing; an
inability to achieve or delays in achieving savings related to the
cost reductions or increases in revenues related to sales price
increases; the sufficiency of our restructuring activities,
including the potential for higher actual costs to be incurred in
connection with restructuring activities compared to the estimated
costs of such actions; the ability to recruit and retain qualified
employees; the level of outstanding debt and our current debt
ratings; the ability to meet the financial covenants in our credit
facilities; changes in product mix; the growth rate of the markets
into which Royal's products are sold; market acceptance and demand
for Royal's products; changes in availability or prices for raw
materials; pricing pressures resulting from competition; difficulty
in developing and introducing new products; failure to penetrate
new markets effectively; the effect on foreign operations of
currency fluctuations, tariffs, nationalization, exchange controls,
limitations on foreign investment in local business and other
political, economic and regulatory risks; difficulty in preserving
proprietary technology; adverse resolution of any litigation,
investigations, administrative and regulatory matters, intellectual
property disputes, or similar matters; changes in securities or
environmental laws, rules and regulations; currency risk exposure
and other risks described from time to time in publicly filed
disclosure documents and securities commission reports of Royal
Group Technologies Limited and its subsidiaries and affiliates. In
view of these uncertainties we caution readers not to place undue
reliance on these forward-looking statements. Statements made in
this document are made as of August 11, 2005 and Royal disclaims
any intention or obligation to update or revise any statements made
herein, whether as a result of new information, future events or
otherwise. ROYAL GROUP TECHNOLOGIES LIMITED CONSOLIDATED BALANCE
SHEETS (in thousands of Canadian dollars) June 30/05 Dec. 31/04
June 30/04
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(unaudited) (unaudited) ASSETS Current assets: Cash (note 6) $ - $
112,088 $ 118,294 Accounts receivable 368,008 257,346 382,160
Inventories 471,605 456,339 435,400 Prepaid expenses 22,902 13,893
19,283
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862,515 839,666 955,137 Future income tax assets 22,541 16,561
21,200 Property, plant and equipment 1,297,439 1,330,600 1,424,410
Goodwill 214,379 213,620 218,044 Other assets 43,119 44,525 47,466
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$ 2,439,993 $ 2,444,972 $ 2,666,257
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LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Bank
indebtedness (note 6) $ 296,846 $ - $ - Accounts payable and
accrued liabilities 285,510 268,348 287,553 Term bank loan (note 6)
- 324,836 424,312 Term debt due within one year 18,656 18,303
20,296
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601,012 611,487 732,161 Term debt 306,675 303,214 343,695 Future
income tax liabilities 146,719 149,049 150,700 Minority interest
13,744 15,761 15,260 Shareholders' equity: Capital stock (note 8)
634,866 633,754 633,754 Contributed surplus (note 8) 5,083 3,703
136 Retained earnings 877,267 878,779 890,559 Currency translation
adjustment (145,373) (150,775) (100,008)
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1,371,843 1,365,461 1,424,441 Investigations and agreement with
controlling shareholder (note 2) Contingencies (note 10) Subsequent
event (note 12)
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$ 2,439,993 $ 2,444,972 $ 2,666,257
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See accompanying notes to consolidated financial statements. ROYAL
GROUP TECHNOLOGIES LIMITED CONSOLIDATED STATEMENTS OF EARNINGS (in
thousands of Canadian dollars, except per share amounts)
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3 months 3 months 6 months 6 months ended ended ended ended June
30/05 June 30/04 June 30/05 June 30/04
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(unaudited) (unaudited) (unaudited) (unaudited) (note 1) (note 1)
Net sales $ 549,168 $ 554,673 $ 936,863 $ 975,778 Cost of sales
412,165 395,681 709,173 704,495
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Gross profit 137,003 158,992 227,690 271,283 Operating expenses
99,516 99,189 198,137 187,727
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Earnings before the undernoted 37,487 59,803 29,553 83,556 Interest
and financing charges 11,454 9,687 19,883 20,603
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Earnings before income taxes and minority interest 26,033 50,116
9,670 62,953 Income tax expense (note 5) 7,491 14,305 2,826 17,634
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Earnings before minority interest 18,542 35,811 6,844 45,319
Minority interest 41 (323) 344 (416)
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Net earnings $ 18,583 $ 35,488 $ 7,188 $ 44,903
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Earnings per share (note 4): Basic $ 0.20 $ 0.38 $ 0.08 $ 0.48
Diluted $ 0.20 $ 0.38 $ 0.08 $ 0.48
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See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (in thousands of
Canadian dollars)
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3 months 3 months 6 months 6 months ended ended ended ended June
30/05 June 30/04 June 30/05 June 30/04
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(unaudited) (unaudited) (unaudited) (unaudited) Retained earnings,
beginning of period $ 867,384 $ 855,071 $ 878,779 $ 845,656 Net
earnings 18,583 35,488 7,188 44,903 Premium on conversion of
multiple voting shares (note 2) (8,700) - (8,700) -
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Retained earnings, end of period $ 877,267 $ 890,559 $ 877,267 $
890,559
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See accompanying notes to consolidated financial statements. ROYAL
GROUP TECHNOLOGIES LIMITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of Canadian dollars)
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3 months 3 months 6 months 6 months ended ended ended ended June
30/05 June 30/04 June 30/05 June 30/04
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(unaudited) (unaudited) (unaudited) (unaudited) (note 1) (note 1)
Cash provided by (used in): Operating activities: Net earnings $
18,583 $ 35,488 $ 7,188 $ 44,903 Items not affecting cash (note 11)
37,881 39,763 71,445 70,764 Change in non-cash working capital
(note 11) (2,798) (15,139) (120,127) (52,518)
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53,666 60,112 (41,494) 63,149 Financing activities: (Decrease)
increase in bank indebtedness (note 6) (32,865) - 296,846 -
Decrease in term bank loan (note 6) - (5,688) (324,836) (75,688)
Repayment of term debt (71) (10,079) (141) (32,785) Proceeds from
issuance of shares under stock option plan - 145 - 145
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(32,936) (15,622) (28,131) (108,328) Investing activities:
Acquisition of property, plant and equipment (18,779) (19,617)
(40,143) (41,530) Change in investments (229) (63) (145) (3,577)
Change in minority interest (1,641) 323 (2,045) 416 Proceeds from
the sale of non-strategic assets - 3,416 161 9,707 Change in other
assets (357) (532) (518) (601)
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(21,006) (16,473) (42,690) (35,585) Effect of foreign exchange rate
changes on cash 276 399 227 479
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Increase (decrease) in cash during the period - 28,416 (112,088)
(80,285) Cash, beginning of period - 89,878 112,088 198,579
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Cash, end of period $ - $ 118,294 $ - $ 118,294
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See accompanying notes to consolidated financial statements. ROYAL
GROUP TECHNOLOGIES LIMITED Additional Financial Information
(unaudited) (in thousands of Canadian dollars, except percentages)
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3 months 3 months 6 months 6 months ended ended ended ended June
30/05 June June 30/05 June 30/04(i) 30/04(i)
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Net Sales by Segment Custom Profiles $ 206,042 $ 215,623 $ 353,929
$ 375,320 Exterior Claddings 90,788 99,392 149,838 168,040 Home
Furnishings 55,040 60,818 107,788 117,643 Outdoor Products/RBS
85,148 91,665 145,564 144,240 Pipe/Fittings/Other Construction
100,051 84,218 170,661 145,220 Eliminations (7,624) (13,554)
(19,765) (23,053)
--------------------------------------------------- Total Products
Segment 529,445 538,162 908,015 927,410
--------------------------------------------------- Materials
144,381 136,927 260,028 242,418 Machinery & Tooling 20,407
18,955 31,385 51,158 Services 20,283 21,140 39,254 40,409
Eliminations (165,348) (160,511) (301,819) (285,617)
--------------------------------------------------- Total Support
Segment 19,723 16,511 28,848 48,368
---------------------------------------------------
--------------------------------------------------- Consolidated
Net Sales $ 549,168 $ 554,673 $ 936,863 $ 975,778
---------------------------------------------------
--------------------------------------------------- Net Sales by
Geographic Region Canada 36% 34% 34% 32% US 57% 59% 59% 59% Foreign
7% 7% 7% 9% ---------------------------------------------------
Consolidated Net Sales 100% 100% 100% 100%
---------------------------------------------------
--------------------------------------------------- Percentage of
Sales Analysis Gross profit 24.9% 28.7% 24.3% 27.8% EBITDA 13.1%
16.8% 10.4% 15.3% Cost of sales 75.1% 71.3% 75.7% 72.2% Selling
expenses 12.8% 12.4% 14.1% 12.8% G&A expenses 5.3% 5.5% 7.0%
6.4% Other Net Funded Debt as a percentage of Total Capitalization
31.0% 31.8% 31.0% 31.8% Free Cash Flow (Use) $ 34,617 $ 40,755 $
(82,126) $ 18,458 (i) Certain percentages for the three month and
six month periods ended June 30, 2004 have been reclassified to
reflect the current presentation adopted in fiscal 2005. NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (in thousands of Canadian
dollars) 1. Consolidated financial statements Basis of presentation
These unaudited interim consolidated financial statements have been
prepared by management in accordance with Canadian generally
accepted accounting principles for interim financial statements.
Accordingly, certain information and note disclosures included in
the annual consolidated financial statements prepared in accordance
with generally accepted accounting principles have been omitted or
condensed. These financial statements include the accounts of Royal
Group Technologies Limited ("the Group"), its subsidiaries and its
proportionate share of its joint ventures. These financial
statements should be read in conjunction with the Group's audited
financial statements as of and for the fifteen months ended
December 31, 2004, as set out in the Group's December 2004 Annual
Report. In the opinion of management, these financial statements
reflect all adjustments, which consist only of normal and recurring
adjustments, necessary to present fairly the financial position at
June 30, 2005 and the results of operations and cash flows for the
three month and six month periods ended June 30, 2005. The Group's
accounting principles remain unchanged from the most recent fiscal
year ended December 31, 2004. For details, please refer to note 1
on page 29 of the Group's 2004 Annual Report. The Group operates
predominantly in the seasonal North American renovation, remodeling
and new construction segments of the marketplace. As such, net
sales, net earnings and cash flow are impacted by the amount of
activity in these segments. Historically, the Group's highest
revenue generating quarters have been the three months ended June
30 and September 30. Change in year end The Group changed its
fiscal year end to December 31 from September, effective for fiscal
2004. The change to the calendar year basis is more consistent with
its sales planning and business reporting activities and programs.
Accordingly these unaudited interim consolidated financial
statements include results for the three months ended June 30, 2005
as compared to the three months ended June 30, 2004, which was the
third quarter of the 15 month period ending December 31, 2004 and
the six months ended June 30, 2005 as compared to the six months
ended June 30, 2004. Comparative figures Certain comparative
figures for the three months and six months ended June 30, 2004
have been reclassified to conform with the financial statement
presentation adopted in fiscal 2005. 2. Investigations and
agreement with the controlling shareholder The Royal Canadian
Mounted Police continues its previously announced investigation.
The Ontario Securities Commission has also indicated that it is
investigating the Group with respect to disclosure, financial
affairs and trading in the shares of the Group. Subsequent to the
quarter end, the Group received notification that the Securities
and Exchange Commission ("SEC") is investigating the Group's past
accounting practices and disclosures. As part of these
investigations, the Group received various requests for information
and it has expressed its willingness to cooperate with all
regulators and law enforcement agencies in their investigations.
These investigations may produce results that have a material
impact on the Group and its previously reported financial
statements. During the quarter, the Group obtained shareholder
approval for the settlement with the controlling shareholder and
the conversion of the multiple voting shares to single voting
shares. On June 23, 2005, the Group filed the articles of amendment
approved by the shareholders on May 25, 2005. The Group now has one
class of voting common shares. In lieu of a cash payment to the
Group by the controlling shareholder personally of the full amount
of the gain earned by all interested parties on the sale of the
Vaughan West Lands to the Group the conversion of his multiple
voting shares to common shares on a one-for-one basis has occurred.
The Group decreased retained earnings by $8,700, decreased land by
$5,200, increased miscellaneous income by $1,300 for the part of
the Vaughan West land sold in fiscal 2004, and increased interest
income by $2,200. 3. Segmented information Operating segments are
defined as components of an enterprise about which separate
financial information is available and which are evaluated
regularly by the chief decision-makers in deciding how to allocate
resources and in assessing performance. The Group's significant
operating segments are: (a) Products segment: This segment
represents production and sale of products predominately to the
renovation and retrofit market, which include custom profiles,
exterior claddings, home furnishings, outdoor products/Royal
Building Systems and pipe/fittings/other construction. (b) Support
segment: This segment represents materials, machinery and tooling
and services provided predominately to the Products Segment. It
includes PVC resin and chemical additives manufactured and utilized
to produce compounds, as well as a variety of recycled plastics and
materials. Machinery and tooling manufacturing, property
management, distribution, transportation, research and development,
as well as various support services, such as strategic guidance,
sales, operational issues, purchasing, financial and administrative
support and human resources, are also provided by this segment.
Performance is evaluated based on pre-tax earnings before
amortization and interest, and return on invested capital. Products
Elimi- Support Elimi- Consol- Segment nations Segment nations
idated
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For the 3 months ended June 30, 2005 Net sales $ 537,069 $ (7,624)
$ 185,071 $(165,348) $ 549,168 Gross profit 114,789 22,214 137,003
Amortization charges 24,871 9,469 34,340 Acquisition of property,
plant and equipment 16,665 2,114 18,779 and goodwill Property,
plant and equipment 636,284 661,155 1,297,439 Goodwill 178,743
35,636 214,379 Total assets 1,604,550 835,443 2,439,993 For the 6
months ended June 30, 2005 Net sales $ 927,780 $ (19,765) $ 330,667
$(301,819) $ 936,863 Gross profit 181,255 46,435 227,690
Amortization charges 49,197 19,144 68,341 Acquisition of property,
plant and equipment 35,662 4,481 40,143 and goodwill Property,
plant and equipment 636,284 661,155 1,297,439 Goodwill 178,743
35,636 214,379 Total assets 1,604,550 835,443 2,439,993 For the 3
months ended June 30, 2004 Net sales $ 551,716 $ (13,554) $ 177,022
$(160,511) $ 554,673 Gross profit 123,697 35,295 158,992
Amortization charges 23,733 9,898 33,631 Acquisition of property,
plant and equipment 16,219 3,398 19,617 and goodwill Property,
plant and equipment 706,968 717,442 1,424,410 Goodwill 182,408
35,636 218,044 Total assets 1,691,168 975,089 2,666,257 For the 6
months ended June 30, 2004 Net sales $ 950,463 $ (23,053) $ 333,985
$(285,617) $ 975,778 Gross profit 201,065 70,218 271,283
Amortization charges 47,013 19,066 66,079 Acquisition of property,
plant and equipment 34,264 7,266 41,530 and goodwill Property,
plant and equipment 706,968 717,442 1,424,410 Goodwill 182,408
35,636 218,044 Total assets 1,691,168 975,089 2,666,257 Net sales
by geographic region for the 3 months ended June 30, 2005 were 57%
(2004 - 59%) to the US, 36% (2004 - 34%) to Canada and 7% (2004 -
7%) to other markets and for the 6 months ended June 30, 2005 were
59% (2004 - 59%) to the US, 34% (2004 - 32%) to Canada and 7% (2004
- 9%) to other markets. 4. Earnings per share Basic earnings per
share have been calculated using the weighted average number of
shares outstanding for the three month period of 93,444,502 (2004 -
93,353,670) and for the six month period of 93,431,879 (2004 -
93,350,233) respectively. Diluted earnings per share amounts assume
the exercise of options and restricted stock units ("RSUs") where a
dilutive effect would result. No options were included in the
diluted earnings per share calculation as all options were out of
the money at both June 2005 and June 2004. The maximum dilutive
number of shares for the three month period was 94,524,502 (2004 -
93,353,670) and for the six month period was 94,480,212 (2004 -
93,350,233) respectively. During the quarter, 15,935,444 multiple
voting shares were converted to subordinate voting shares thus
eliminating the Group's dual-class capital structure. The Group now
has one class of voting common shares. At June 30, 2005, the Group
had outstanding 93,444,502 common shares, 1,145,000 RSUs and
3,200,078 options to acquire voting common shares under the Group's
employee stock option plan. 5. Income taxes During the quarter, the
Group recorded an income tax expense on its pre- tax earnings
reported under generally accepted accounting principles ("GAAP").
The effective tax rate for the quarter ended June 30, 2005 was 29%,
comparable to the 29% in the previous quarter ended March 31, 2005.
6. Bank indebtedness The Group finalized a credit facility in
support of its North American operations with three banks on March
24, 2005. It is a $340,000 revolving credit facility with a secured
portion and an unsecured portion. The $300,000 first tranche, which
increases to $312,500 on September 1, 2005, bears interest at prime
plus 0.5%, or either LIBOR or Bankers' Acceptance Rate plus 1.5%.
This portion of the credit facility is collateralized by
substantially all of the Group's assets in Canada and the United
States, although real property charges will only be registered
initially against certain properties located in Ontario, Canada. In
addition, the Group also maintains credit facilities with various
indigenous banks in support of its international operations in an
aggregate amount of $82,800. Until September 1, 2005, a second
tranche of $40,000 (up to $37,500 of which is unsecured) bears
interest at prime plus 1.5%, or either LIBOR or Bankers' Acceptance
Rate plus 2.5%. While the second tranche expires on August 31,
2005, on September 1, 2005, the fully collateralized first tranche
of credit facility increases to $312,500. The first tranche of the
credit facility matures on April 30, 2006. A further separate
credit facility, as reported in the quarter ended March 31, 2005,
for which a letter of intent was signed on May 11, 2005 was not
further pursued. 7. Related party transactions During the quarter,
related party transactions with companies related to the former
controlling shareholder totaled $69 (2004 - $216). Related party
transactions principally between a non-wholly owned subsidiary of
the Group and minority shareholders of this subsidiary totaled
$1,941 (2004 - $1,151). At June 30, 2005, there are accounts
receivable from companies related to the former controlling
shareholder of $32 (2004 - $154) and an account receivable from the
former controlling shareholder of $1,130 (2004 - $1,130). Payment
of $1,130 was received in July, 2005. At June 30, 2005, there are
accounts receivable of $198 (2004 - $2) and accounts payable of
$438 (2004 - $1,157) relating to other related parties. These
related party transactions were in the normal course of the Group's
business relating either to products typically manufactured by it
and sold at prices and terms consistent with those to third
parties, the recovery of costs incurred in respect of certain
shared services and the purchase of other goods and services such
as rent for premises. See note 2 above. 8. Stock-based compensation
plans During fiscal 2004, the Group established the Senior
Management Incentive Plan ("SMIP") to provide for the issuance of a
maximum of 1,400,000 RSUs. Each RSU entitles the participant to
receive one voting share or an equivalent cash payment on the
entitlement date provided that the vesting criteria are satisfied,
including performance-based criteria established in respect of the
participant's grant of RSUs. It is the Group's intention to settle
in shares on the entitlement date. During the current quarter,
155,000 RSUs were issued and 20,000 RSUs were cancelled. At June
30, 2005, there were 1,145,000 RSUs outstanding. Based on the
market price on the grant date of these RSUs, compensation expense
of $1,279 was recorded during the three month period ended June 30,
2005, including an adjustment for RSUs issued and cancelled in the
quarter. Based on RSUs outstanding at June 30, 2005, compensation
expense of $2,942 is expected to be recorded in the remainder of
fiscal 2005 and $5,883 in fiscal 2006. 9. Divestiture During the
quarter, the Group divested of its shares in its wood blind
business in Mexico. The Group maintains a financial and a purchase
agreement relationship with the company in Mexico. The Group
recorded a loss of $1,838 on this divestiture. 10. Contingencies As
noted in note 19 of the 2004 consolidated financial statements, the
Group is the subject of a pending criminal investigation being
conducted by the Antitrust Division of the United States Department
of Justice. The investigation focuses on alleged price fixing in
the window coverings industry. The Group is cooperating with the
Department of Justice and is attempting to negotiate a resolution
of the matter. As noted in note 19 of the 2004 consolidated
financial statements, the Group and certain of its former officers,
former directors and former employees have been named as defendants
in a class action shareholder lawsuit filed in the United States
District Court for the Southern District of New York. The action
purports to assert U.S. federal securities law violations,
principally alleging that the Group misrepresented its business
performance and engaged in various improprieties. The complaint
seeks certification of the putative class, unspecified damages,
reasonable costs and attorneys' fees, and other relief. The Group
is presently unable to determine whether this action will have a
material adverse effect on the business, results of operations,
financial condition and liquidity of the Group, and intends to
defend itself vigorously in these actions. The Group is also
involved in various claims, legal proceedings, investigations and
complaints arising in the course of business. Where the Group
expects to incur a loss as a result of a claim, an estimate of the
loss has been recorded as an expense. In all other cases, the Group
cannot determine whether these claims, legal proceedings,
investigations and complaints will, individually or collectively,
have a material adverse effect on the business, results of
operations and financial condition and liquidity of the Group. 11.
Supplementary cash flow information 3 months 3 months 6 months 6
months ended ended ended ended Jun. 30/05 Jun. 30/04 Jun. 30/05
Jun. 30/04
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a) Items not affecting cash: Amortization charges 34,340 33,632
68,341 66,080 Amortization of deferred financing costs 1,590 76
1,656 133 Future income taxes (1,761) 7,820 (8,308) 8,344 Other
3,712 (1,765) 9,756 (3,793)
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Cash provided 37,881 39,763 71,445 70,764
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b) Changes in non-cash working capital: Accounts receivable
(65,505) (59,803) (109,037) (100,432) Inventories 36,364 12,529
(14,333) 6,706 Prepaid expenses (3,503) (3,415) (10,538) (329)
Accounts payable and accrued liabilities 29,846 35,550 13,781
41,537
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Cash provided (used) (2,798) (15,139) (120,127) (52,518)
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12. Subsequent event On July 28, 2005, the Group announced that the
board of directors approved the potential divestiture of certain
non-core business units, including Royal Alliance, Baron Metals
Industries and Roadex Transport. Royal Alliance and Baron Metal
Industries' results are reported in the Group's products segment.
Roadex Transport's results are reported in the Group's support
segment. The combined revenues of these three business units for
the six months ended June 30, 2005, net of inter-company
eliminations were $65,938, with EBITDA being $7,277. The Group's
invested capital in these three business units was $80,946 at June
30, 2005. In addition, the Group is in negotiations to sell its
Polish operations. With respect to the latter, a letter of intent
was signed in July 2005 and negotiations are ongoing with respect
to this sale. This business unit has generated accumulated losses
of $24,136 since operations commenced in 1998. The Group's invested
capital in this business unit was $48,333 at June 30, 2005. On July
28, 2005, the Group announced that results of testing on its Royal
Building Systems (RBS) indicate that this product does not
consistently meet the smoke generation requirements of applicable
US building codes for interior unfinished surfaces in non-utility
buildings. The Group has ceased shipment of all non-utility
products globally. On August 11, 2005 the Group announced that it
would continue to follow the Canadian Building Code as grounds for
resumption of shipments in Canada. For international locations the
Group will apply Canadian Building Code guidelines, as well as
local building code requirements. Due to the unique test
requirements of the US Building Codes, the Group will maintain its
current policy not to ship projects into the US market and
international locations applying those standards, other than
qualified utility applications. The Group has retained various
experts to assist in determining the impact of this issue. The
Group is presently unable to determine whether this will have a
material adverse effect on the business, results of operations,
financial condition and liquidity of the Group. Non-GAAP financial
measures (unaudited) "EBITDA" (earnings before interest, taxes,
depreciation, amortization and minority interest) or "operating
margin" is not a recognized measure under Canadian or United States
(US) generally accepted accounting principles (GAAP). Management
believes that in addition to net earnings, EBITDA is a useful
supplementary measure as it provides investors with an indication
of cash available for distribution prior to debt service, capital
expenditures, income taxes and minority interest. Investors should
be cautioned, however, that EBITDA should not be construed as an
alternative to (i) net earnings determined in accordance with GAAP
as an indicator of the Company's performance or (ii) cash flow from
operating, investing and financing activities as a measure of
liquidity and cash flow. The Company's method of calculating EBITDA
may differ from other companies and, accordingly, the Company's
EBITDA may not be comparable to measures used by other companies.
Free cash flow (earnings before minority interest adjusted for
items not affecting cash, changes in non-cash working capital
items, less acquisition of property, plant and equipment and change
in investments) is not a recognized measure under GAAP. It
therefore may not to be comparable to similar measures presented by
other issuers. Management believes free cash flow to be an
important indicator of the financial performance of our business
because it shows how much cash is available to repay debt and to
reinvest in the Company. Net funded debt (bank indebtedness net of
cash plus term bank loan and term debt) to total capitalization
(aggregate of shareholders' equity, minority interest and net
funded debt) ratio is not a recognized measure under GAAP.
DATASOURCE: Royal Group Technologies Limited CONTACT: Mark Badger,
Vice President, Marketing and Corporate Communications, Phone:
(905) 264-0701, Fax: (905) 264-0702
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