[ROYAL GROUP LOGO]
S E C O N D Q U A R T E R
R E P O R T
E N D E D
M A R C H 3 1
2 0 0 3
MESSAGE TO SHAREHOLDERS
Royal's second quarter financial performance was less than planned as a result
of a series of factors, including greater than expected losses in US window
coverings operations, broad-based unfavorable product mix and sales shortfall,
as well as margin compression. Harsh winter weather in key North American
markets served to postpone sales expected in the second quarter, as did the
severe decline in consumer confidence in the days leading up to and during the
war in Iraq. As a consequence of these unfavorable market conditions, sales
growth was restricted to 2% over the same quarter last year, with sales reaching
$412 million.Net earnings declined to $6 million from $27 million in the
previous year.
FIXING WINDOW COVERINGS
After an extensive review of our US window coverings situation, we have embarked
upon a strategy to retrench the business. We will focus on manufacturing
products that leverage our core competencies. We will execute marketing
strategies to renew our focus on our traditional customer base -- dealers and
fabricators.
We have recently initiated exits from custom special order programs and related
stock-size programs with those home improvement retailers that require a high
degree of costly merchandising and in-store personnel support. Our decision to
exit these programs recognizes the high overhead costs associated with these
programs, unacceptable margins on the stock-size portions of the programs and
custom order volumes not increasing at the projected pace. We have come to the
conclusion that the custom order programs will take too long to develop to the
point of acceptable profitability given the costs associated with merchandising
these programs and the lack of margin on the related stock-size components of
the programs.
We remain, and will remain, a very strong player in the dealer/fabricator
distribution channel, where we offer creative extruded blind components and
related products to businesses that typically fabricate blind systems for sale
to home owners and commercial or industrial renovation specialists.
Our brand names and quality are well recognized in this channel, as they are
with the architects and designers who specify for commercial and industrial
applications. We have a very strong customer base, with over 1400
dealer/fabricators across the US.
After thorough analysis, we believe that we can achieve break-even performance
on a monthly basis in US window covering operations by the end of the fiscal
year. Moreover, we believe that the actions we are taking will enable us to
return to profitability in 2004, which will significantly improve Royal's
overall financial performance.
DEALING WITH RISING MATERIAL COSTS
During the period January through April 2003, market prices for PVC resin rose
by over 25%. We have responded by increasing prices for a number of products. We
have already increased certain prices for pipe and fittings, as well as exterior
cladding and we will increase certain of our window coverings and custom profile
prices in June.
REDUCING INVENTORY AND CAPITAL EXPENDITURES
Our second quarter sales were curtailed by harsh weather, as well as consumers'
focus on the war in Iraq and other geo-political concerns. This trend continued
into April, leaving us with more finished goods inventory than we planned,
particularly in our Consumer Products group. Accordingly, we are planning to
ease production rates during the balance of the year, to enable the reduction of
inventories to more appropriate levels. This action will decrease our fixed cost
absorption and margins during this period, but will help us to achieve desired
cash flow and reduce our investment in inventories.
It is imperative that we return to 80% plus capacity utilization in order to
return to historical EBITDA margins. Accordingly, we continue to pursue
opportunities to consolidate operations and improve utilization rates, including
soliciting short term contract jobs to fill available machine time.
Additionally, we are actively scrutinizing all requested capital expenditures
with intent to allocate requirements across existing capacities, and to reduce
our spending.
ACCELERATING CROSS SELLING INITIATIVES
We are accelerating the pace at which our sales forces cross sell our products.
We have visited several prospective and existing custom profile customers during
the second quarter and were pleased with their interest levels in our window
profiles, exterior cladding products, outdoor products, decorative trim and
other products. We have good products and a strong customer base, and are
continuing to increase our efforts in cross selling. This cross selling
initiative has been embraced and we intend to increase its pace and facilitate a
more optimal product mix.
We wish to thank our shareholders, employees, customers and suppliers for their
support, as we implement strategies to improve financial performance.
/s/ Vic De Zen /s/ Douglas Dunsmuir
- ----------------- -----------------
Vic De Zen Douglas Dunsmuir
Chairman and C.E.O. President
May 26, 2003 May 26, 2003
CONSOLIDATED BALANCE SHEETS
(in thousands of Canadian dollars)
MAR. 31/03 Sept. 30/02 Mar 31/02
----------- ----------- -----------
(UNAUDITED) (audited) (unaudited)
(restated, (restated,
note 2) note 2)
ASSETS
Current assets:
Accounts receivable $ 349,653 $ 390,332 $ 377,641
Inventories 567,832 495,710 503,474
Prepaid expenses 31,087 26,295 29,585
----------- ----------- -----------
948,572 912,337 910,700
Future income tax assets 7,762 8,824 26,547
Property, plant and equipment 1,588,721 1,637,049 1,708,955
Goodwill and other assets 271,403 275,757 282,509
----------- ----------- -----------
$ 2,816,458 $ 2,833,967 $ 2,928,711
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank indebtedness $ 514,511 $ 383,785 $ 549,947
Accounts payable and accrued liabilities 220,349 257,324 211,135
Term debt due within one year 24,830 103,754 103,619
----------- ----------- -----------
759,690 744,863 864,701
Term debt 424,017 447,290 473,076
Future income tax liabilities 128,674 126,891 138,187
Minority interest 15,100 18,249 19,965
Shareholders' equity:
Capital stock 632,711 632,697 628,733
Retained earnings 921,599 900,141 822,055
Currency translation adjustments (65,333) (36,164) (18,006)
----------- ----------- -----------
1,488,977 1,496,674 1,432,782
----------- ----------- -----------
$ 2,816,458 $ 2,833,967 $ 2,928,711
=========== =========== ===========
See accompanying notes to consolidated financial statements.
On behalf of the Board:
/s/ Vic De Zen /s/ Ron Goegan
- ------------------ -------------------
Chairman and Director Director
Vic De Zen Ron Goegan
Chief Executive Officer Chief Financial Officer
CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands of Canadian dollars, except per share amounts)
3 MONTHS 3 months 6 MONTHS 6 months
ENDED ended ENDED ended
MAR. 31/03 Mar. 31/02 MAR. 31/03 Mar. 31/02
---------- ---------- ---------- ----------
(UNAUDITED) (unaudited) (UNAUDITED) (unaudited)
(restated, (restated,
note 2) note 2)
Net sales $ 412,283 $ 404,744 $ 833,595 $ 788,964
Cost of sales and operating expenses (364,665) (323,181) (718,158) (629,100)
--------- --------- --------- ----------
Operating margin 47,618 81,563 115,437 159,864
Amortization charges (32,310) (30,109) (64,273) (59,149)
Interest and financing charges (12,502) (13,176) (25,644) (26,421)
--------- --------- --------- ----------
Earnings before income taxes and minority interest 2,806 38,278 25,520 74,294
Income tax recovery (expense) (note 5) 2,396 (11,344) (4,102) (22,010)
--------- --------- --------- ----------
Earnings before minority interest 5,202 26,934 21,418 52,284
Minority interest 319 (263) 40 (282)
--------- --------- --------- ----------
Net earnings $ 5,521 $ 26,671 $ 21,458 $ 52,002
========= ========= ========= ==========
Earnings per share (note 4):
Basic $ 0.06 $ 0.29 $ 0.23 $ 0.56
Diluted $ 0.06 $ 0.28 $ 0.23 $ 0.56
========= ========= ========= ==========
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(in thousands of Canadian dollars)
3 MONTHS 3 months 6 MONTHS 6 months
ENDED ended ENDED ended
MAR. 31/03 Mar. 31/02 MAR. 31/03 Mar. 31/02
---------- ---------- ---------- ----------
(UNAUDITED) (unaudited) (UNAUDITED) (unaudited)
(restated, (restated,
note 2) note 2)
Retained earnings, beginning of period $ 916,078 $ 800,096 $ 900,141 $ 775,229
Accounting policy change (note 2) -- (4,712) -- (5,176)
Net earnings 5,521 26,671 21,458 52,002
--------- --------- ---------- ----------
Retained earnings, end of period $ 921,599 $ 822,055 $ 921,599 $ 822,055
========= ========= ========== ==========
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of Canadian dollars)
3 MONTHS 3 months 6 MONTHS 6 months
ENDED ended ENDED ended
MAR. 31/03 Mar. 31/02 MAR. 31/03 Mar. 31/02
---------- ---------- ---------- ----------
(UNAUDITED) (unaudited) (UNAUDITED) (unaudited)
(restated, (restated,
note 2) note 2)
Cash provided by (used in):
Operating activities:
Earnings before minority interest $ 5,202 $26,934 $21,418 $52,284
Items not affecting cash 32,272 29,890 67,389 63,076
Increase in non-cash working capital requirements (51,951) (53,560) (79,082) (66,922)
------- ------- ------- -------
(14,477) 3,264 9,725 48,438
Financing activities:
Proceeds from draws on bank credit facilities 46,611 37,607 130,726 144,580
Repayment of term debt (549) (224) (79,751) (447)
Decrease in minority interest (3,313) -- (3,964) --
Proceeds from issuance of shares under stock option plan -- 3,729 14 19,957
------- ------- ------- -------
42,749 41,112 47,025 164,090
Investing activities:
Acquisition of property, plant and equipment, net (24,818) (44,264) (50,509) (72,838)
Acquisitions of other businesses (4,134) -- (4,134) (149,250)
Proceeds from the sale of non-strategic assets -- -- -- 9,871
Decrease (increase) in other assets 680 (112) (2,107) (311)
------- ------- ------- -------
(28,272) (44,376) (56,750) (212,528)
------- ------- ------- -------
Change in cash, being cash, end of period $ -- $ -- $ -- $ --
======= ======= ======= =======
See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars)
1. CONSOLIDATED FINANCIAL STATEMENTS
These consolidated financial statements have been prepared by management in
accordance with Canadian generally accepted accounting principles, and include
the accounts of Royal Group Technologies Limited, its subsidiaries and its
proportionate share of its joint ventures.
In the opinion of management, the unaudited interim consolidated financial
statements reflect all adjustments, which consist only of normal and recurring
adjustments, necessary to present fairly the financial position at March 31,
2003 and the results of operations and cash flows for the three month and six
month periods ended March 31, 2003.
Currently the Company operates substantially in the North American
renovation, remodeling and construction markets, which are seasonal.
Accordingly, approximately three-fifths of the Company's net sales and
two-thirds of its net earnings occur in the last two fiscal quarters.
Furthermore, the Company's annual free cash flow is achieved substantially in
the last two quarters.
2. CHANGE IN ACCOUNTING POLICIES
Except as outlined below, the Company's accounting principles remain unchanged
from the most recent fiscal year ended September 30, 2002. For details, please
refer to note 1 on page 30 of the Company's 2002 Annual Report.
CICA Handbook Section 1650 with respect to foreign currency exchange gains
and losses was adopted for fiscal 2003. The standard requires separate
disclosure of exchange gains and losses on the income statement and the
elimination of deferral and amortization of unrealized gains and losses on
non-current foreign currency denominated monetary assets and liabilities, except
to the extent that they meet specified criteria for hedge accounting. This
change was applied retroactively with the result that net earnings increased by
$464 in the quarter ending March 31, 2002 and by $928 ($0.01 per share) in the
six month period ending March 31, 2002. The deferred foreign exchange losses on
the balance sheet have been reclassified from term debt to retained earnings.
Effective October 1, 2002, the Company adopted the new recommendations of
the Canadian Institute of Chartered Accountants with respect to the accounting
for stock-based compensation and other stock-based payments. The new
recommendations are applied prospectively to all stock-based payments to
non-employees, and to employee awards that are direct awards of stock, call for
settlement in cash or other assets, or are stock appreciation rights that call
for settlement by the issuance of equity instruments, granted on or after
October 1, 2002. CICA Handbook Section 3870, requires additional disclosures for
options granted to employees, including disclosure of pro forma earnings and pro
forma earnings per share as if the fair value based accounting method had been
used to account for employee stock options issued on or after October 1, 2002.
The Company did not issue any stock options in the period from October 1, 2002
to March 31, 2003.
Certain September 30, 2002 and March 31, 2002 figures have been restated to
conform with the financial statement presentation adopted in fiscal 2003.
3. SEGMENT REPORTING INFORMATION
Products Support Intra-
Segment Segment Group Consolidated
------- ------- ----------- ------------
For the quarter ended March 31, 2003
Net sales $ 396,913 $ 141,790 $ (126,420) $ 412,283
Operating margin 16,668 30,950 47,618
Amortization charges 22,876 9,434 32,310
Acquisition of property, plant and equipment 13,876 10,942 24,818
Property, plant and equipment 807,989 780,732 1,588,721
Total assets 1,761,669 1,054,789 2,816,458
For the 6 months ended March 31, 2003
Net sales $ 815,175 $ 274,840 $ (256,420) $ 833,595
Operating margin 52,354 63,083 115,437
Amortization charges 46,578 17,695 64,273
Acquisition of property, plant and equipment 31,302 19,207 50,509
Property, plant and equipment 807,989 780,732 1,588,721
Total assets 1,761,669 1,054,789 2,816,458
For the quarter ended March 31, 2002
Net sales $ 398,464 $ 137,102 $ (130,822) $ 404,744
Operating margin 39,607 41,956 81,563
Amortization charges 21,261 8,848 30,109
Acquisition of property, plant and equipment 26,827 17,437 44,264
Property, plant and equipment 822,530 886,425 1,708,955
Total assets 1,743,067 1,185,644 2,928,711
For the 6 months ended March 31, 2002
Net sales $ 767,254 $ 284,932 $ (263,222) $ 788,964
Operating margin 74,012 85,852 159,864
Amortization charges 41,564 17,585 59,149
Acquisition of property, plant and equipment 46,505 26,333 72,838
Property, plant and equipment 822,530 886,425 1,708,955
Total assets 1,743,067 1,185,644 2,928,711
Net sales by geographic region for the 3 months ending March 31, 2003 were
65% to the U.S. (2002 -- 67%), 27% to Canada (2002 -- 26%) and 8% to foreign
markets (2002 -- 7%) and for the 6 months ended March 31, 2003 were 64% to the
U.S. (2002 -- 64%), 28% to Canada (2002 -- 28%) and 8% to foreign markets
(2002 -- 8%).
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
(in thousands of Canadian dollars)
4. EARNINGS PER SHARE
Basic and diluted earnings per share have been calculated using the weighted
average and maximum dilutive number of shares outstanding for the three month
period of 93,220,617 (2002 -- 92,795,090) and 93,269,201 (2002 -- 94,470,713)
and for the six month period of 93,219,331 (2002 -- 92,086,724) and 93,427,597
(2002 -- 93,382,957) respectively. As at March 31, 2003, the Company had
outstanding 15,935,444 multiple voting shares, 77,285,173 subordinate voting
shares, and 9,228,766 options to acquire subordinate voting shares under the
Company's employee stock option plan.
5. INCOME TAXES
During the quarter, the Company recorded an income tax recovery on its pre-tax
earnings reported under GAAP, as a result of permanent differences between
income for accounting purposes including the elimination of inter-company
transactions, and the amounts upon which tax is assessable.
6. SUBSEQUENT EVENT
On May 5, 2003, after completing it's analysis of various products and customers
in its U.S. Window Coverings operations, the Company decided to terminate its
attempts to expand supply of custom special order window coverings to certain
home improvement retailers as well as substantially all of the related stock
window coverings. As a consequence of this decision, the Company expects to
record a pre-tax charge of approximately $35 million in its third quarter,
relating to the write-down of its tangible assets, primarily inventories,
relating to these products and customers, as well as the various anticipated
related termination and other exit costs. In its third quarter, the Company will
also reassess its valuation of goodwill relating to the Products Segment to
determine whether there may be an impairment charge required as a result of this
decision. The Company intends to re-focus its efforts in its Window Coverings
operations on its original and primary product and customer base in Dealers and
Fabricators, and to continue its expansion of other Products through the
affected manufacturing plants and distribution and marketing channels.
M A N A G E M E N T ' S D I S C U S S I O N A N D A N A L Y S I S
QUARTER ENDED MARCH 31, 2003, AS COMPARED TO THE QUARTER ENDED MARCH 31, 2002
Consolidated net sales for the second quarter grew by 2% to $412 million,
compared to $405 million the previous year. Sales were negatively affected by
the harsh weather experienced in our major markets and the overall weak consumer
confidence, including the concerns associated with the war in Iraq. Products
Segment sales for the quarter were flat at $397 million compared to $398
million. Home Improvement Products sales increased by 1% to $215 million. Custom
Profiles sales declined by 2%, while Exterior Cladding sales increased by 10%.
The increase in Exterior Cladding sales was due to both customers stocking up on
product prior to the implementation of April price increases and strong
construction markets. Consumer Products sales declined by 10% to $111 million.
The above mentioned factors, and particularly the severe winter weather
significantly impacted Consumer Products sales. The decline in sales occurred
throughout the entire Consumer Products division with a 9% decrease in Window
Coverings, a 7% decrease in Outdoor Products and a 14% decrease in Housewares &
Furniture. Housewares & Furniture sales are lower than last year, primarily
relating to housewares, as a result of both soft consumer spending and an
increasingly competitive environment. Construction Product sales increased
16% overall primarily due to the strength of new construction markets which
resulted in a 17% increase in Pipe & Fittings sales. Royal Building Systems
and Foreign Operations sales increased 4%, largely due to the success achieved
from operations in both China and Poland.
Support Segment sales for the quarter increased 3% to $142 million. Sales in the
Support Segment are largely eliminated on consolidation due to the nature of the
Group's vertical integration. Sales of Materials grew 8% reflecting both volume
growth from Pipe and Exterior Cladding and raw material price increases. Sales
in Machinery & Tooling increased 33% to $19 million, due to some significant
projects by our Italian equipment manufacturer that were originally expected to
be completed in December 2002 but were not delivered until January 2003. As
anticipated, sales in the Services category decreased 25% to $21 million as the
wind-up and sale of certain plant construction and related businesses occurred
throughout fiscal 2002.
During the quarter, sales to non-Canadian customers including foreign based
sales and exports from Canadian operations decreased to 73% of total sales,
compared to 74% for the prior year.
Operating margin or earnings before interest and financing charges, taxes,
depreciation and amortization charges and minority interest (EBITDA) is a widely
used term in the financial markets but is not a recognized measure under
Canadian generally accepted accounting principles. Management believes that
EBITDA is a valuable supplemental measure as it provides investors with an
indication of cash available for distribution prior to debt service, capital
expenditures, income taxes and minority interest. It should also be noted that
the Group's method of calculating EBITDA may differ from other companies and
therefore may not be comparable to EBITDA used by other companies. The Group's
overall EBITDA for the quarter ended March 31, 2003, decreased by 42% to
$48 million compared to $82 million last year. EBITDA as a percentage of sales
was 11.5% compared to 20.2% last year. The decrease in EBITDA was predominantly
due to both greater than expected losses from the Window Coverings division's US
operations and higher material costs.
Second quarter losses from the Window Coverings division increased to
$8 million. On May 5th 2003, after completing an extensive review of the
business, management decided to terminate its attempts to expand supply of
custom special order window coverings to certain US home improvement retailers,
as well as substantially all of the related stock window coverings. As a
consequence of this decision, the Group expects to record a pretax charge of
approximately $35 million in the third quarter (see note 6 to the accompanying
financial statements). Additionally, the Group will reassess its valuation of
goodwill to determine whether there may be an impairment charge required as a
result of this decision. The Window Coverings division's US operations will
refocus on manufacturing core products to be sold by way of our traditional
dealer and fabricator distribution channel.
M A N A G E M E N T ' S D I S C U S S I O N A N D A N A L Y S I S
Raw material costs increased to 46.9% of sales from 41.3% last year, due to
both higher material costs and from a shift in product mix towards more material
intensive products. The amount of material as a percentage of the total
manufactured cost for Construction Products is much higher than for Consumer
Products. Labor costs and other manufacturing costs increased as a percentage of
sales to 14.9% and 12.8%, as compared to 13.8% and 10.5% respectively last year.
The increase in labor costs was due to higher staffing levels as the Group was
converting Products Segment goods into finished goods inventory for the upcoming
busier season. In doing so, the requirements for additional machine capacities
and related overtime should lessen during the upcoming peak season. The increase
in other manufacturing costs was primarily due to margins from the current
product mix, sales prices and volumes not providing anticipated absorption of
fixed costs. It is expected that other manufacturing costs as a percentage of
sales will remain high, as the focus will be to reduce finished goods inventory
levels over the remainder of the fiscal year by way of production curtailments.
Partially offsetting this will be Management's on-going efforts to review
existing capacities, curtail new capital expenditures and consolidate certain of
Royal's operations with its ultimate goal to increase the overall Group capacity
utilization rate. Selling and distribution costs decreased to 13.9% of sales
compared to 14.3% last year due to the change in geographic and sales mix. The
decrease was due to less Consumer Products sold in the US, which tend to have a
higher per unit distribution cost as these products are sold through the
in-store, sales oriented market. General and administration costs as a percent
of sales increased slightly from 7.4% to 7.8%.
Products Segment EBITDA, for the quarter ended March 31, 2003 declined to
$17 million from $40 million. EBITDA as a percentage of sales decreased to 4.2%
from 9.9% last year. The decrease was due to a change in sales mix towards lower
margin products together with more material intensive manufacturing and higher
raw material cost. Higher Pipe & Fittings sales, the change in product mix
towards loss leaders in the Window Coverings division and the overall decline in
Housewares & Furniture sales, all contributed to the decrease in Product Segment
EBITDA.
Support Segment EBITDA for the quarter ended March 31, 2003, decreased to
$31 million from $42 million. EBITDA as a percentage of sales decreased to 21.8%
from 30.6% due primarily to higher feedstock costs experienced in the Materials
category and the loss of margin from certain of our real estate dispositions.
Amortization expense for the quarter increased slightly to $32 million as
compared to last year's $30 million. In the Products Segment, amortization was
5.8% of sales, up from 5.3% last year. In the Support Segment, amortization
expense was 6.7% of sales, up from 6.5% last year. Interest and financing
charges remained consistent with last year's $13 million. This was due to a
lower level of debt compared to the same quarter last year offset by higher
borrowing costs. In January 2003, the Group's cost of borrowing increased by
approximately fifty basis points per annum as its public debt rating was
downgraded. Based on anticipated debt levels, this will increase interest costs
by about $0.5 million per quarter. Effective October 1, 2002, the Group adopted
Section 1650, of the CICA Handbook regarding Foreign Currency Translation (see
note 2 to the accompanying financial statements). The change in accounting
policy resulted in no deferred foreign exchange losses being amortized this
quarter, whereas for the quarter ended March 31, 2002, net earnings were
retroactively increased by $0.5 million.
During the quarter, the Group recorded a net income tax recovery of $2.4
million as a result of permanent differences between income recorded for
accounting purposes and the amounts upon which tax is assessable (see note 5 to
the accompanying financial statements). The Group's overall effective tax rate
for each of the remaining quarters of fiscal 2003 is expected to be between 27%
and 28%. Net earnings during the quarter decreased to $5.5 million or 1.3% of
sales, from $26.7 million or 6.6% of net sales last year. On a diluted basis,
earnings per share for the period was $0.06 compared to $0.28 for the same
period in the prior year. The income tax recovery accounted for over $0.03 of
the total earnings recorded in the quarter. The average number of shares
outstanding for the quarter on a diluted basis was 93.3 million, down
approximately 1.2 million from the prior year.
LIQUIDITY AND CAPITAL RESOURCES
Free cash flow (cash flow from operations less change in non-cash working
capital, less acquisition of property, plant and equipment) during the quarter
was a use of $39.3 million, compared to the prior year's cash flow use of $41.0
million. Due to the seasonal nature of the Building Products Industry, the
second quarter has been historically a period of working capital buildup,
predominately finished goods inventory, for the upcoming spring demand. Working
capital, excluding cash and funded debts, was $728 million at March 31, 2003
compared to $685 million as at December 31, 2002 and $700 million at March 31,
2002. This year's working capital was higher due to the increase in finished
goods inventory.
Due to the continuous efforts and focus on monitoring collections, days
receivable outstanding had improved to 70 days as compared to last year's 78
days. Days inventory outstanding at March 31, 2003, decreased to 154 days from
last year's 156 days. Measures are underway to significantly reduce finished
goods inventory levels. Second quarter capital expenditures decreased to $25
million compared to the prior year's $44 million. This quarter's capital
expenditures continued to be primarily for tooling and equipment to be used in
the Products Segment, and additional capacities in the Materials division.
Capital expenditures not yet committed have been suspended, with each new
request requiring re-approval by the CEO or the President.
At March 31, 2003, the net bank indebtedness was $515 million. The Group's
$700 million bank credit facility was effectively 74% utilized. This is an
improvement from last year when $550 million was utilized, particularly given
the repayments of $104 million made on the term debt since last year. The funded
debt to total capitalization ratio was 39.0%, compared to 38.0% at September 30,
2002 and 43.7% at March 31, 2002. The Group expects continued significant
reductions to short term debt through application of free cash flow. Free cash
flow improvements are intended to be achieved through the curtailment of capital
expenditures, proceeds from the sale of non-strategic assets and through the
reduction of finished goods inventory. The bank credit facility has been renewed
in April 2003 for $650 million with a further decline to $500 million committed
for the end of August 2003. Management believes that the Group's anticipated
operating cash flow and available credit under its existing financing
arrangements are sufficient to meet its working capital and capital spending
requirements, as well as debt service requirements, including the seasonal
natures thereof.
C O R P O R A T E D I R E C T O R Y
CORPORATE OFFICE: TRANSFER AGENTS AND REGISTRARS: SHAREHOLDER INQUIRIES
Royal Group Technologies Limited Computershare Trust Company of Canada Responses to shareholder inquiries as
1 Royal Gate Blvd., 100 University Avenue, 9th Floor well as information published by the
Woodbridge, Ontario Toronto, Ontario M5J 2Y1 Company for its shareholders and others,
Canada L4L 8Z7 Tel: 1-800-663-9097 or (416) 981-9633 including annual reports, quarterly
Facsimile: (416) 981-9507 reports and annual information forms may
Telephone: (905) 264-0701 E-mail: caregistryinfo@computershare.com be obtained from:
Facsimile: (905) 264-0702
Web site: www.royalgrouptech.com Co-Transfer Agent (U.S.A.) Investor Relations
Computershare Trust Company, Inc. Royal Group Technologies Limited
SHARES LISTED ("RYG"): 12039 W. Alameda Parkway, Site 2-2 1 Royal Gate Blvd.,
Toronto Stock Exchange, Lakewood, CO 80228 Woodbridge, Ontario L4L 8Z7
New York Stock Exchange Tel: (303) 956-5400 Telephone: (905) 264-0701
Fax: (303) 986-2444 Facsimile: (905) 264-0702
INDEX LISTINGS E-mail: info@royalgrouptech.com
S&P/TSX60 Index Web site: www.royalgrouptech.com
S&P/TSX Composite Index
T R A D I N G D A T A D E B T R A T I N G S
High Low Close Volume Rating Commercial Medium
(TSX) (TSX) (TSX) (in 000's) Agency Paper Term
TSX+NYSE Notes
----- ----- ----- ---------- ------ ---------- -----------
Fiscal 2002
Q1 29.49 21.90 29.38 17,216 DBRS R-2 (high) BBB (high)
Q2 32.40 28.05 30.15 14,460
Q3 32.20 28.67 31.48 16,953 S&P n/a BBB
Q4 31.97 13.06 13.70 25,607
----- ----- ----- ------
Fiscal 2003
Q1 17.50 13.02 15.21 19,095
Q2 16.79 6.57 6.85 30,163
FORWARD LOOKING STATEMENTS:
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 "expects", "should continue", "believes",
"anticipates", "estimated" and "intends" or similar formulations. By their
nature, these forward-looking statements involve known and unknown risks,
uncertainties and other factors affecting Royal specifically or its industry
generally that could cause actual performance and financial results to differ
materially from those contemplated by the forward-looking statements. These
risks and uncertainties include 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 revenues related to sales price increases, consolidation and
restructuring programs, 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 (particularly markets in
developing countries), 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, changes in
environmental 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 May 26, 2003 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.
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