Exhibit 99.1
[ROYAL GROUP TECHNOLOGIES - LOGO]
THIRD QUARTER REPORT
ended June 30, 2002
MESSAGE TO SHAREHOLDERS
Royal's third quarter financial results continued to reflect the achievement of
profitable growth, increasing utilization of existing capacities and generation
of free cash flow. However, sales growth and operating margins achieved during
the quarter fell short of our expectations, limiting our net profit growth to
13% over the same quarter in the previous year. Still, we were able to achieve
free cash flow of $71 million, assisting us to realize a considerable reduction
in the ratio of net debt to total capitalization.
BROAD-BASED GROWTH, WITH STRATEGIES TO ENHANCE PERFORMANCE
Our sales shortfall to plan during the third quarter can be primarily attributed
to two of our eleven divisions: Window Coverings and Royal Building Systems &
Foreign Operations. The majority of divisions continue to meet or exceed
expectations.
After experiencing a contraction in sales of window coverings during the
first two quarters of the year, we were encouraged to deliver marginally
increased sales in the third quarter, although we had expected to achieve a
faster roll out of new programs with key customers. We believe double-digit
sales growth is achievable in 2003, as we recently entered into nation-wide
arrangements with dominant national home center retailers, regarding new custom
window covering products and ready-made product programs. It will take us until
the end of the current year to complete point-of-purchase materials, in-store
display systems, brochures, staffing for customer service and store personnel
training programs. We anticipate that sales from these new programs will
commence during the first quarter of fiscal 2003 and continue to expand
throughout the balance of the year.
We are rapidly implementing strategies to effect the transition of our
Window Coverings Division from being primarily engaged in the manufacture of
vertical window blinds, to being a supplier of a full and diversified window
coverings product line. This transition is being effected in response to window
covering fashion trends currently moving away from vertical blinds toward other
treatments, including the horizontal blinds, wood-look venetian blinds, shutters
and roller shades, which we have recently introduced. During the third quarter
we incurred certain unexpected inventory and selling costs associated with this
transition, which compressed margins in this division. We view this margin
pressure as temporary, with margin expansion expected in the first quarter of
next fiscal year as we realize rising sales of our innovative new window
covering products and custom window covering programs.
We believe that double-digit sales growth is achievable in the Royal
Building Systems & Foreign Operations Division in 2003, as we are extremely
encouraged by prospects for growth in each of China, Poland and Mexico. We fully
acknowledge that our South American operations will remain in a difficult
economic environment in 2003, however we are expanding our marketing activities
there to a regional rather than local focus.
In China, the use of Royal Building Systems(TM) continues to expand and we
have established an extensive network of fabricators for our vinyl window
profiles. The vinyl window market in China is experiencing significant annual
increases, as vinyl has been accepted as a preferred window framing material for
both low rise and high rise applications. We have a strong position in this
market, with additional manufacturing lines being added to meet increasing
demand.
In Poland, we are experiencing strong double-digit growth. Both our vinyl
window systems and fencing product lines are being well received by an
ever-increasing customer base. We are continuing to expand our customer base
throughout Europe for siding, with new customers added during the third quarter
in France and England.
In Mexico, we are working with the Home Depot to introduce a number of
products, including Royal Building Systems(TM), windows, window coverings,
storage systems, garden furniture and Marley Moulding's trim moldings. The Home
Depot expects to open a large number of stores in Mexico over the next 2 years
and we intend to be an important supplier to it.
WELL POSITIONED FOR PENETRATION OF GROWING PLASTIC FENCING AND DECKING MARKET
In North America, we continue to be pleased with acceptance of our
do-it-yourself and professionally-installed PVC fencing and decking product
lines. We believe that our fencing and decking business is at the same stage
that our PVC window business was at 20 years ago.
With increasing public awareness of environmental and health problems
associated with certain kinds of treated wood, there is increasing demand for
alternative products. In addition to the broad range of PVC fencing and decking
styles currently offered, we are developing a decking product to compete against
pressure-treated wood, utilizing our unique RoyalEco(TM) technology. We are also
completing development of a porch planking system that will look and feel
exactly like wood, using Marley Moulding's cellular foam technology. We intend
to penetrate the rapidly growing plastic fencing and decking market with a broad
range of innovative products, which will appeal to home-owners at all price
points.
OUTLOOK
We have made progress during 2002, with financial results that are significantly
improved from 2001. We expect to end the fiscal year with sales of over $1.9
billion and fully diluted earnings per share in the range of $1.65 to $1.70. We
expect to generate over $110 million of free cash flow this year, assisting us
to reduce the ratio of net debt to total capitalization to approximately 38%.
Our rate of progress has been slower than expected, but we continue to effect
strategies to improve performance in all divisions.
We are confident that 2003 will show accelerating financial improvement,
given a stable economic environment. Our financial outlook for 2003 remains
substantially unchanged, with sales growth of over 10% and earnings per share
improving significantly as we leverage the cost structure put in place to
accommodate expanding sales volumes. We also expect to generate increasing free
cash flow in 2003 and intend to further pay down debt.
Thank you for your continuing support.
[SIGNATURE OF VIC DE ZEN] [SIGNATURE OF DOUGLAS DUNSMUIR]
- ------------------------------------ --------------------------------
Vic De Zen Douglas Dunsmuir
Chairman and C.E.O. President
August 26, 2002
CONSOLIDATED BALANCE SHEETS
(in thousands of Canadian dollars)
JUNE 30/02 Sept. 30/01 June 30/01
----------- ----------- -----------
(UNAUDITED) (audited) (unaudited)
ASSETS
Current assets:
Accounts receivable $ 426,898 $ 370,030 $ 392,812
Inventories 480,037 420,597 446,425
Prepaid expenses and deposits 25,656 30,609 25,241
----------- ----------- -----------
932,591 821,236 864,478
Property, plant and equipment 1,694,196 1,604,499 1,578,487
Future income tax assets 31,218 22,847 20,826
Goodwill and other assets 274,379 245,729 245,970
----------- ----------- -----------
$ 2,932,384 $ 2,694,311 $ 2,709,761
----------- ----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank indebtedness $ 471,828 $ 405,367 $ 436,994
Accounts payable and accrued liabilities 249,715 211,472 268,168
Term debt due within one year 102,646 24,635 479
----------- ----------- -----------
824,189 641,474 705,641
Term debt 458,832 544,861 548,568
Future income tax liabilities 152,058 127,487 118,023
Minority interest 17,208 18,802 20,549
Shareholders' equity:
Capital stock 632,316 608,776 607,325
Retained earnings 882,685 775,229 725,256
Currency translation adjustments (34,904) (22,318) (15,601)
----------- ----------- -----------
1,480,097 1,361,687 1,316,980
----------- ----------- -----------
$ 2,932,384 $ 2,694,311 $ 2,709,761
----------- ----------- -----------
On behalf of the Board:
[SIGNATURE OF VIC DE ZEN] [SIGNATURE OF RON GOEGAN]
- -------------------------------- --------------------------------
Director Director
Vic De Zen Ron Goegan
Chairman and C.E.O. Chief Financial Officer
CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands of Canadian dollars, except per share amounts)
3 MONTHS 3 months 9 MONTHS 9 months
ENDED ended ENDED ended
JUNE 30/02 June 30/01 JUNE 30/02 June 30/01
----------- ----------- ----------- -----------
(UNAUDITED) (unaudited) (UNAUDITED) (unaudited)
Net sales $ 579,330 $ 506,949 $ 1,368,294 $ 1,194,640
Cost of sales and operating expenses (455,096) (391,832) (1,084,196) (974,901)
----------- ----------- ----------- -----------
Operating margin 124,234 115,117 284,098 219,739
Amortization charges (29,777) (26,998) (88,926) (77,218)
Interest and financing charges (13,512) (14,712) (40,861) (41,953)
----------- ----------- ----------- -----------
Earnings before income taxes and minority interest 80,945 73,407 154,311 100,568
Income taxes (23,884) (23,192) (45,894) (32,182)
----------- ----------- ----------- -----------
Earnings before minority interest 57,061 50,215 108,417 68,386
Minority interest (679) (342) (961) (922)
----------- ----------- ----------- -----------
Net earnings $ 56,382 $ 49,873 $ 107,456 $ 67,464
----------- ----------- ----------- -----------
Basic net earnings per share (note 4) $ 0.61 $ 0.55 $ 1.16 $ 0.74
----------- ----------- ----------- -----------
Diluted net earnings per share (note 4) $ 0.60 $ 0.54 $ 1.15 $ 0.72
----------- ----------- ----------- -----------
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(in thousands of Canadian dollars)
3 MONTHS 3 months 9 MONTHS 9 months
ENDED ended ENDED ended
JUNE 30/02 June 30/01 JUNE 30/02 June 30/01
----------- ----------- ----------- -----------
(UNAUDITED) (unaudited) (UNAUDITED) (unaudited)
Retained earnings, beginning of period $ 826,303 $ 675,383 $ 775,229 $ 657,792
Net earnings 56,382 49,873 107,456 67,464
----------- ----------- ----------- -----------
Retained earnings, end of period $ 882,685 $ 725,256 $ 882,685 $ 725,256
----------- ----------- ----------- -----------
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of Canadian dollars, except per share amounts)
3 MONTHS 3 months 9 MONTHS 9 months
ENDED ended ENDED ended
JUNE 30/02 June 30/01 JUNE 30/02 June 30/01
----------- ----------- ----------- ----------
(UNAUDITED) (unaudited) (UNAUDITED) (unaudited)
Cash provided by (used in):
Operating activities:
Earnings before minority interest $ 57,061 $ 50,215 $ 108,417 $ 68,386
Items not affecting cash 39,427 30,519 103,431 111,542
Change in non-cash operating working capital 12,687 (11,426) (57,270) (112,781)
--------- --------- --------- ---------
109,175 69,308 154,578 67,147
Financing activities:
Increase (decrease) in bank indebtedness (78,119) (15,993) 66,461 106,448
Term debt repayments (210) (124) (657) (344)
Issuance of shares under stock option plan 3,584 287 23,541 1,613
--------- --------- --------- ---------
(74,745) (15,830) 89,345 107,717
Investing activities:
Acquisition of property, plant and equipment, net (37,740) (44,068) (110,578) (167,278)
Acquisition of other businesses -- -- (149,250) (641)
Decrease (increase) in investments 21,130 -- 30,939 (1,034)
Increase in other assets (245) (236) (494) (1,283)
--------- --------- --------- ---------
(16,855) (44,304) (229,383) (170,236)
Effect of exchange rate changes (17,575) (9,174) (14,540) (4,628)
--------- --------- --------- ---------
Change in cash, being cash, end of period $ -- $ -- $ -- $ --
--------- --------- --------- ---------
Operating cash flow, being earnings before
minority interest plus items not affecting cash $ 96,488 $ 80,734 $ 211,848 $ 179,928
--------- --------- --------- ---------
Basic operating cash flow per share (note 4) $ 1.04 $ 0.89 $ 2.29 $ 1.98
--------- --------- --------- ---------
Diluted operating cash flow per share (note 4) $ 1.02 $ 0.87 $ 2.26 $ 1.93
--------- --------- --------- ---------
Free cash flow (use), being operating cash flow,
less change in non-cash working capital items,
less acquisition of property, plant and equipment $ 71,435 $ 25,240 $ 44,000 $(100,131)
--------- --------- --------- ---------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, except per share amounts)
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 June 30, 2002
and the results of operations and cash flows for the three month and nine month
periods ended June 30, 2002.
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 operating
margin and two-thirds of its net earnings occur in the last fiscal two quarters.
Furthermore, the Company's annual free cash flow is achieved substantially in
the last two quarters, as a result of seasonality.
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, 2001. For details, please
refer to note 1 of the Company's 2001 annual report.
In August 2001, the Accounting Standards Board of the CICA issued Handbook
Section 3062, Goodwill and Other Intangible Assets. The Company has adopted this
effective October 1, 2001. In accordance with the requirements of Section 3062,
this change in accounting policy has not been applied retroactively and the
amounts presented for prior periods have not been restated.
Section 3062 replaces the requirement to amortize goodwill with a
requirement to test for impairment annually at a reporting unit level. Any
impairment loss would be charged against current period earnings and shown as a
separate line item in the statement of earnings. As of the date of adoption of
Section 3062, the Company had unamortized goodwill in the amount of $187M which
is no longer being amortized. This change in accounting policy resulted in no
amortization expense related to goodwill being recorded in the quarter ended
June 30, 2002, whereas $1.6 million of amortization expense related to goodwill
was recorded during the quarter ended June 30, 2001. No impairment loss has been
recorded in the quarter ended and 9 months ended June 30, 2002.
Section 3062 requires transitional disclosure of reported net income
exclusive of amortization expense related to goodwill that will no longer be
amortized for each period presented. Also required is a reconciliation of
reported net income to adjusted net income as well as per-share amounts. This
disclosure is presented in note 5.
3. SEGMENT REPORTING INFORMATION
Products Support Intra-
Segment Segment Group Consolidated
- -----------------------------------------------------------------------------------------------------------------------
For the quarter ended June 30, 2002
Net sales $ 560,760 $ 151,270 $(132,700) $ 579,330
Operating margin 79,626 44,609 124,235
Amortization charges 21,052 8,752 29,777
Acquisition of property, plant and equipment 30,215 7,525 37,740
Property, plant and equipment 832,098 862,098 1,694,196
Total assets 1,752,151 1,180,233 2,932,384
For the 9 months ended June 30, 2002
Net sales $1,328,014 $ 436,202 $(395,922) $1,368,294
Operating margin 153,637 130,461 284,098
Amortization charges 62,616 26,310 88,926
Acquisition of property, plant and equipment 76,720 33,858 110,578
Property, plant and equipment 832,098 862,098 1,694,196
Total assets 1,752,151 1,180,233 2,932,384
For the quarter ended June 30, 2001
Net sales $ 482,070 $ 140,879 $(116,000) $ 506,949
Operating margin 74,385 40,732 115,117
Amortization charges 18,483 8,515 26,998
Acquisition of property, plant and equipment 27,281 16,787 44,068
Property, plant and equipment 715,350 863,137 1,578,487
Total assets 1,508,461 1,201,300 2,709,761
For the 9 months ended June 30, 2001
Net sales $1,150,323 $ 492,317 $(448,000) $1,194,640
Operating margin 109,250 110,489 219,739
Amortization charges 53,322 23,896 77,218
Acquisition of property, plant and equipment 96,185 71,093 167,278
Property, plant and equipment 715,350 863,137 1,578,487
Total assets 1,508,461 1,201,300 2,709,761
- -----------------------------------------------------------------------------------------------------------------------
Net sales by geographic region for the 3 months ending June 30, 2002 were 62% to
the U.S. (2001 - 54%), 32% to Canada (2001 - 39%) and 6% to foreign markets
(2001 - 7%) and for the 9 months ended June 30, 2002 were 63% to the U.S. (2001
- - 55%), 30% to Canada (2001 - 35%) and 7% to foreign markets (2001 - 10%).
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in thousands of Canadian dollars, except per share amounts)
4. EARNINGS PER SHARE
Basic and fully diluted net earnings per share have been calculated using the
weighted average and maximum dilutive number of shares outstanding for the three
month period of 93,032,997 (2001 - 90,891,119) and 94,588,206 (2001 -
92,995,484) and for the nine month period of 92,382,232 (2001 - 90,828,667) and
93,658,049 (2001 - 93,107,940) respectively. As at June 30, 2002, the Company
had outstanding 15,935,444 multiple voting shares, 77,270,173 subordinate voting
shares, and 9,573,461 options to acquire subordinate voting shares under the
Company's employee stock option plan.
5. GOODWILL AND OTHER INTANGIBLE ASSETS - ADOPTION OF SECTION 3062
3 MONTHS 3 months 9 MONTHS 9 months
ENDED ended ENDED ended
JUNE 30/02 June 30/01 JUNE 30/02 June 30/01
---------- ---------- ---------- ----------
Reported net earnings $56,382 $49,873 $107,456 $67,464
Add back amortization of goodwill - 1,596 - 4,456
---------- ---------- ---------- ----------
Adjusted net earnings $56,382 $51,469 $107,456 $71,920
---------- ---------- ---------- ----------
Reported basic net earnings per share $ 0.61 $ 0.55 $ 1.16 $ 0.74
Add back amortization of goodwill - 0.02 - 0.05
---------- ---------- ---------- ----------
Adjusted basic net earnings per share $ 0.61 0.57 $ 1.16 $ 0.79
---------- ---------- ---------- ----------
Reported diluted net earnings per share $ 0.60 $ 0.54 $ 1.15 $ 0.72
Add back amortization of goodwill - 0.02 - 0.05
---------- ---------- ---------- ----------
Adjusted diluted net earnings per share $ 0.60 $ 0.56 $ 1.15 $ 0.77
---------- ---------- ---------- ----------
6. BUSINESS DEVELOPMENT
There were no acquisitions in the quarter ended June 30, 2002. During the first
quarter ended December 31, 2001, the Company acquired the assets and business of
Marley Mouldings LLC ("Marley"). Marley is the largest U.S. manufacturer and
marketer of mouldings and millwork made from polyvinylchloride and polystyrene
using cellular/foam extrusion technology. Marley is located in Marion, Virginia.
The purchase closed on December 10, 2001 for a cash price of U.S. $88
million based on the net tangible assets having a value of U.S. $59 million. The
results of Marley have been included in the company's financial statements as of
this date.
The acquisition is summarized below:
Working capital $ 21,845
Property, plant and equipment 72,130
--------
$ 93,975
Intangible assets 7,327
Goodwill 38,864
--------
Total purchase price $140,166
--------
Intangible assets relate to patents and trademarks that continue to be amortized
over their estimated useful lives.
MANAGEMENT'S DISCUSSION AND ANALYSIS
QUARTER ENDED JUNE 30, 2002, AS COMPARED TO THE QUARTER ENDED JUNE 30, 2001
Consolidated net sales for the third quarter grew by 14% to $579 million,
compared to $507 million in 2001. Growth in sales was primarily due to unit
volume increases in most product categories, coupled with the inclusion of sales
from Marley Mouldings Limited ("Marley"), acquired in December 2001. Excluding
the acquisition of Marley, growth in sales was 6%, representing a short fall of
$34 million from our expectations for the quarter.
Products segment sales for the quarter, excluding Marley, increased $33
million or 6% to $515 million. Custom Profiles sales grew organically by 3%,
reflecting the renovation and remodeling market's year to date experience.
Siding and Roofing sales increased 28% as this market experienced double digit
growth and Royal continued to gain market share. During the quarter, sales of
Window Coverings were less than expected, up only 3% over last year, as new
product introductions rolled out slower than expected. In addition, certain
window covering market segments continue to experience pricing pressures.
Outdoor Products sales increased 10%, due to new accounts and higher volumes,
offset slightly by a delay in change over to Royal programs by certain
customers. Housewares and Furniture decreased 7%, primarily due to lower volumes
of patio furniture resulting from inclement weather experienced in the Spring.
Pipe and Fittings increased 24%, reflecting a robust market for municipal
infrastructure projects and market penetration across the product line. Finally,
Royal Building Systems & Foreign Operations sales
MANAGEMENT'S DISCUSSION AND ANALYSIS
decreased 20% to $27 million, though sequentially up from sales of $19 million
in the second quarter. Sales in the division declined from last year, as a
result of a weak South American market, weak demand for telecommunication
shelters and the delay of the roll out of previously anticipated large housing
projects in various international locations.
Support segment sales for the quarter increased $10 million or 7% to $151
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
23%, reflecting volume growth in the Products segment. Sales of Machinery &
Tooling increased 36% to $16 million. As expected, sales in the Services
category decreased 35% to $26 million, primarily due to the completion of
manufacturing facilities in Woodbridge last year.
During the quarter, sales to non-Canadian customers, including foreign
based sales and exports from Canadian operations, increased to 68% or $394
million of total sales from 61% or $310 million for the same period last year.
Approximately 50% of this increase was from sales outside of Canada, primarily
due to the acquisition of Marley, while the balance was due to increasing
volumes in the US.
The Group's overall operating margin ("EBITDA"), for the quarter ended June
30, 2002, increased $9 million or 8% to $124 million compared to $115 million
last year. EBITDA as a percentage of sales was 21.4% compared to 22.7% last
year. Lower than expected operating margin was due to the above mentioned short
fall in sales, coupled with unexpected inventory and selling costs in the Window
Coverings division. However, other margin improvements were achieved during the
quarter.
Raw material costs as a percentage of sales were 42.2%, up from 41.3% in
the preceding quarter and down from 42.8% last year, due to lower cost raw
materials working their way through the system. However, unexpected inventory
costs this quarter in Window Coverings of $6.5 million were incurred. Recently,
there have been increases in PVC resin costs. In response to these cost
increases, a number of finished product price increases have been effected.
Labor costs as a percent of sales were 13.4%, versus 13.8% in the preceding
quarter and 13.4% last year, as volume increases improved efficiencies. Other
manufacturing costs decreased to 9.0% of sales from 10.5% in the preceding
quarter, as a result of seasonally higher sales. Other manufacturing costs were
8.9% in the same quarter last year. Selling and distribution costs decreased to
13.8% of sales compared to 14.3% in the preceding quarter, but increased from
12.2% last year. The increase compared to last year was due to greater volumes
shipped into the US with higher per unit shipping costs, as well as the Marley
acquisition, which has more in-store sales oriented costs. In addition,
unexpected costs incurred in the Window Covering division, representing
preparatory costs for new accounts were approximately $2 million during the
quarter. General and administration costs as a percent of sales remained
unchanged from last year at 5.3%.
Product segment EBITDA for the quarter ended June 30, 2002 increased to $80
million compared to $74 million last year. The increase was due to lower
material costs and increased use of existing plant, labor and infrastructure
capacities. Support segment EBITDA for the quarter increased to $44 million
compared to $41 million last year. Support segment EBITDA as a percentage of
sales increased to 29.5% from 28.9% due primarily to lower raw material costs
experienced in the Materials category.
Amortization expense increased $3 million to $30 million from $27 million
last year. As a percentage of sales, amortization expense was 5.1% compared to
5.3% last year. In the Products segment, amortization as a percentage of sales
remained unchanged from last year at 3.8%. In the Support segment amortization
expense as a percentage of sales was 5.8%, down from 6.0% last year. Effective
October 1, 2001 the Company adopted new CICA Handbook Section 3062, pertaining
to Goodwill and Other Intangible Assets (see note 2 to the accompanying
quarterly financial statements). This change in accounting policy resulted in a
reduction in amortization charges related to goodwill of $1.6 million for the
quarter ended June 30, 2001. As disclosed in note 5 of the accompanying
quarterly financial statements, this represents approximately $0.015 per share
per quarter during fiscal 2001.
Interest and financing charges remained consistent with expectations, at
$13.5 million compared to $14.7 million last year and $13.6 million last
quarter. Lower interest rates on floating rate debt were offset by less interest
capitalized to assets under construction, being approximately $1 million
compared to $2 million during the same quarter last year.
During the quarter income tax expense as a percentage of pre-tax earnings
decreased to 30% from 32% last year. The rate is consistent with the Group's
overall expected effective rate for fiscal 2002.
Net earnings during the quarter were $56 million or 9.7% of sales compared
with $50 million or 9.8% of sales in the prior year. On a fully diluted basis,
earnings per share for the period were $0.60 compared to $0.54 in the prior
year. The average number of shares outstanding for the quarter on a fully
diluted basis were approximately 94.6 million, up approximately 1.6 million from
the prior year.
LIQUIDITY AND CAPITAL RESOURCES
Management is committed to continued generation of free cash flow. During the
quarter, the Group generated operating cash flow of $96 million or $1.02 diluted
cash flow per share, representing an increase of 19.5% over $81 million or $0.87
per share for the previous year. Free cash flow (defined as cash flow from
operations less change in non-cash working capital items, less acquisition of
property, plant and equipment) of $71 million during the quarter represents an
improvement of $46 million over the prior year cash flow of $25 million. Capital
expenditures during the quarter ended June 30, 2002 were $38 million versus $44
million during the same quarter last year, the decline being primarily as a
result of the completion of Royal's new industrial complex in Woodbridge last
year. Continuing improvement in free cash flow, together with proceeds from the
sale of non-strategic assets and from the exercise of employee stock options,
continues to be directed to reducing outstanding debt. Non-cash working capital
was $683 million at June 30, 2002 compared to $700 million at March 31, 2002 and
$610 million at September 30, 2001. At June 30, 2002, approximately $138 million
was drawn on the bank credit facility and $353 million of commercial paper was
drawn. During the period the Group's existing credit arrangements were
re-affirmed by both Standards and Poor and the Dominion Bond Credit Agency.
Permitted drawings under the commercial paper program were increased to $400
million from $300 million. The Group's $700 million bank credit facility, which
also acts as backup credit to its commercial paper outstanding, was effectively
70% utilized. The funded debt to capital ratio was 40.8%, compared to 43.5% at
March 31, 2002 and 42.4% at June 30, 2001. Management believes that cash flow
from operations 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.
CORPORATE DIRECTORY
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@royplas.com
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TRADING DATA DEBT RATINGS
High Low Close Volume Rating Commercial Medium
(TSX) (TSX) (TSX) (in 000's) Agency Paper Term
TSX/NYSE Notes
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Fiscal 2001
Q1 $C 31.40 $C 16.10 $C 18.75 12,740 DBRS R-1 (low) A (low)
Q2 27.20 18.55 23.25 12,135
Q3 29.50 20.00 27.95 12,739 S&P n/a BBB
Q4 30.00 19.94 23.95 12,763
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Fiscal 2002
Q1 29.49 21.90 29.38 17,216
Q2 32.40 28.05 30.15 14,460
Q3 32.20 28.67 31.48 16,953
FORWARD LOOKING STATEMENTS:
The information in this document contains certain forward-looking statements
with respect to Royal Group Technologies Limited, its subsidiaries and
affiliates. 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 construction
activity, changes in product costs and pricing, an inability to achieve or
delays in achieving savings related to the cost reductions, 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.
Statements made in this document are made as of August 26, 2002 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 - LOGO]