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SEC may force Royal Group to restate

Firm in talks with U.S. watchdog

Canadian Press

TORONTO -- Embattled plastic products maker Royal Group Technologies Ltd. may have to restate some of its previous financial reports as a result of a U.S. Securities Exchange Commission review.

The restructuring company, which is facing criminal and regulatory investigations in Canada, said yesterday that it is in discussions with the SEC about financial statements for the year ended Dec. 31, 2004, and its 2005 quarterly filings.

The regulator's comments relate primarily to Royal Group's audited historical financial statements -- including segmented financial presentation and the carrying value of goodwill, the company said.

"It is possible that these ongoing discussions may result in changes to the presentation of historical financial information," the Toronto-based company said in a statement.

Royal Group said it won't meet the March 29 deadline for its audited 2005 financial results, but hopes to file them within 60 days.

The reporting delay, Royal Group said, was caused by "the combined impact of a number of issues," including accounting for the numerous divestitures, writedowns and discussions with the SEC on segmented financial reporting and regulatory investigations.

The firm has said it will sell five units -- Royal Alliance, Baron Metal Industries, Roadex Transport, Royal EcoProducts and a subsidiary in Poland -- as it seeks to rebuild after being beset by high raw material costs, shaky sales, the strong Canadian dollar and continuing probes into its governance under previous management.

"This delay will allow us to provide investors more detailed and transparent disclosure of our new segmented results," stated Jim Lawn, Royal Group's chief financial officer.

He added that "financial information systems, personnel and procedures are being enhanced during 2006 to facilitate more rapid reporting of financial results for the new business segments."

Royal Group was sticking by its previous assertions that it will book a fourth-quarter asset impairment charge of $210-million to $250-million, partly offset by a gain of $30-million to $40-million after sales close. It expects cash proceeds from divestitures of $110-million to $120-million in the first quarter of 2006, with additional cash proceeds of $60-million to $80-million expected during the remainder of 2006.

Dominion Bond Rating Service Ltd. said it expects the fourth-quarter writedown to be at the upper end of that range.

"The divestitures should provide cash proceeds in the range of $170-million to $200-million in 2006, although DBRS believes the timing may be delayed," stated analysts Nigel Heath and Kam Hon.

"Depending on the timing, cash proceeds should help support balance sheet liquidity through the working capital-intensive spring season."

On the Toronto Stock Exchange yesterday, the company's stock fell 17 cents to close at $10.44.

© The Globe and Mail

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