6-K 1 ipgfirstquarter2003.txt FIRSTQUARTERREPORT2003 FORM 6-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Report of Foreign Issuer Pursuant to Rule 13a - 16 or 15d - 16 of the Securities Exchange Act of 1934 For the month of May, 2003 Intertape Polymer Group Inc. 110E Montee de Liesse St. Laurent, Quebec, Canada, H4T 1N4 [Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.] Form 20-F Form 40-F X [Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.] Yes No X [If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-______] SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. INTERTAPE POLYMER GROUP INC. Date: May 16, 2003 By: /s/Andrew M. Archibald Chief Financial Officer, Secretary, Vice President, Administration 2003 First Quarterly Report [LOGO] REVIEW OF OPERATIONS SALES Sales for the first quarter of 2003 were $153.6 million, a 4.7% increase over first quarter of 2002 sales of $146.7 million. The sales improvement was driven by an 8.2% increase in unit sales, offset by a 3.5% reduction in selling prices. The first quarter 2003 sales of $153.6 million were $2.3 million higher than the $151.3 million reported for the fourth quarter of 2002. The Company realized strong unit growth of 7% in non-retail channel products for the quarter. There was a decline in retail channel volume in the first quarter of 2003 compared to the fourth quarter of 2002, consistent with historic seasonality. Prices for the quarter held firm, with the Company experiencing a negligible 0.1% decline in pricing. For the year, the Company expects revenue growth of approximately 5%. GROSS PROFIT AND GROSS MARGINS First quarter 2003 gross profits were $33.8 million, a gross margin of 22.0%. Gross profits for the first quarter of 2002 were $33.4 million, a gross margin of 22.8%. The Company's 22.0% gross margin for the first quarter of 2003 approached the first quarter 2002 level despite a 3.5% decline in selling prices between periods. The Company's cost reduction efforts, including the value-added improvements and FIBC consolidation discussed below have played a part in maintaining gross margins. More recently, the Company has been successful in reflecting raw material price increases in product selling prices. Gross profits grew by $4.3 million to $33.8 million (22.0%) for the first quarter of 2003 from the fourth quarter 2002 level of $29.5 million (19.5%). The Company improved its value-added percentage between quarters. Value added is the difference between materials costs and selling prices, expressed as a percentage of sales. Several factors contributed to the value-added improvement including: - The implementation of waste reduction programs at the manufacturing facilities - Conversion to lower cost blending formulae for select products - Improved production efficiencies Margins also benefited from the FIBC plant consolidation completed in the fourth quarter of 2002, improved sales mix and selective product price increases. COST REDUCTIONS The Company's previously announced cost reduction program of $17.5 million pre-tax is proceeding on schedule and contributed to the earnings gains in the first quarter of 2003. The FIBC plant consolidation completed in the fourth quarter of 2002 will save $3.0 million annually. Effects of the $2.5 million annual savings in selling, general and administrative expenses identified in the fourth quarter of 2002 are also reflected in the first quarter of 2003. Of the remaining $12.0 million in planned cost reductions, it is expected that $6.0 million will benefit 2003 and the full benefit will be realized in 2004. On April 14, 2003, the Company announced that it will be consolidating three existing regional distribution centers (RDCs) into a new facility in Danville, Virginia, adjacent to existing manufacturing operations. The expected benefits include improved product availability for customers, lower processing costs and enhanced working capital management through increased inventory turns. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative (SG&A) expenses were $22.0 million for the first quarter of 2003 (14.3% of sales) compared to $20.3 million (13.8% of sales) for the first quarter of 2002. The increase in SG&A spending between the first quarter of 2002 and the first quarter of 2003 is due in part to the increased unit sales in the retail channel between quarters. The retail distribution channel carries a substantially higher selling cost structure than sales in non-retail channels. SG&A expenses decreased to $22.0 million for the first quarter of 2003 (14.3% of sales) as compared to $23.5 million for the fourth quarter of 2002 (15.5% of sales). Of the $1.5 million decrease, $0.7 million was the result of the SG&A cost reductions previously discussed and the balance was attributable to the normal seasonal decline in the retail sector. OPERATING PROFIT Operating profits (defined as gross profit less SG&A) were $11.8 million for the first quarter of 2003 and represented 7.7% of sales. Operating profits for the first quarter of 2002 were $13.1 million, representing 8.9% of sales. The higher SG&A costs in the first quarter of 2003 attributable to supporting the more expensive retail distribution channel resulted in lower operating profit dollars and operating profit percentage when compared to the corresponding period in 2002. A slightly lower gross margin in 2003 also contributed to the lower operating profit percentage when comparing first quarters between years. Operating profits were $11.8 million for the first quarter of 2003 as compared to $6.0 million for the fourth quarter of 2002. As a percent of sales, this represents 7.7% and 4.0% respectively. Operating profits for the first quarter of 2003 were favorably impacted by higher gross margins and the decline in SG&A costs. FINANCIAL EXPENSES Financial expenses were $7.7 million for the quarter ended March 2003. Financial expenses for the first quarter of 2002 were $9.0 million. The 14.3% decrease between the first quarter of 2002 and the first quarter of 2003 is due to $70 million in debt repayments over the course of the last year coupled with improved interest rates. A portion of the debt repayments was funded with the proceeds of a 5.1 million share common stock issue on March 31, 2002. The issue raised $47.4 million, net of issuance costs. The financial expenses for the quarter ended March 2003 of $7.7 million were comparable to the $7.6 million in financial expenses for the three months ended December 2002. EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION COSTS (EBITDA) EBITDA for the first quarter of 2003 was $17.6 million and EBITDA interest coverage (that is, EBITDA divided by financial expenses) was 2.28 times. EBITDA for the first quarter of 2002 was $18.8 million (EBITDA interest coverage of 2.09 times) and for the fourth quarter of 2002 (adjusted for the impact of the $70 million goodwill impairment) was $13.2 million (EBITDA interest coverage of 1.73 times). EBITDA and adjusted EBITDA are non-GAAP financial measures that the Company believes enhance the understanding of its ongoing operating results and are used by management and the Company's lenders in evaluating the Company's performance. The Company believes that comparability is improved by excluding the goodwill impairment that occurred in the fourth quarter of 2002. NET EARNINGS Net earnings of $2.9 million for the first quarter of 2003 were slightly improved over first quarter 2002 net earnings of $2.8 million. The earnings before income taxes for the first quarter of 2003 and the first quarter of 2002 were both $3.2 million. Net earnings (loss) for the three month periods ended March 2003 and December 2002 were $2.9 million and $(58.8) million respectively. Adjusted for the $70 million goodwill impairment (and related tax effect of $6.7 million), the fourth quarter of 2002 adjusted net earnings were $4.5 million. The earnings before income taxes for the first quarter 2003 increased by $5.3 million to $3.2 million from an adjusted loss before income taxes of $2.1 million for the fourth quarter 2002. The adjusted loss before income taxes for the fourth quarter 2002 was offset by an adjusted recovery of income taxes of $6.6 million arising from the adjusted loss for the quarter and changes in the estimated effective income tax rate. Adjusted earnings (loss) is a non-GAAP financial measure that the Company believes enhances the understanding of its ongoing operating results. The Company believes that comparability is improved by excluding the goodwill impairment that occurred in the fourth quarter of 2002. LIQUIDITY AND CAPITAL RESOURCES FINANCIAL CONDITION Working capital requirements increased during the first quarter of 2003 as compared to the fourth quarter of 2002. The increase was anticipated as the Company was building inventories in advance of the annual plant shutdowns and buying in advance of cost increases in key raw materials. Trade receivables increased by $7.0 million as a result of March 2003 being the Company's most successful sales month on record. Management continues to make reducing working capital a priority. Inventories at March 31, 2003 are $4.0 million less than the levels reported at March 31, 2002. This is largely the result of the Company's investments in RDCs and central planning which allow the Company to fulfill customer orders with a lower level of finished goods investment. The Company continues to refine its RDC strategy. When finalized in late 2003, the RDC consolidation discussed above is expected to generate an additional $4.4 million in working capital savings on comparable sales volume. While trade receivables have increased from $89.0 million at March 31, 2002 to $93.2 million at March 31, 2003, the Company has actually reduced its days sales outstanding over the same period from 53 days to 46 days. CASH FLOWS Total debt at March 31, 2003 was $28.7 million less than March 31, 2002 levels. The decrease resulted primarily from repayments of approximately $22.8 million on Facilities B and C of the bank credit agreement. Facility B has been repaid in its entirety. The Company also reduced its borrowings under Facility A of the bank credit agreement by $5.9 million between March 31, 2002 and March 31, 2003. The Company has scheduled long-term debt repayments of $29.3 million for calendar 2003, including the $5.3 million repaid in the first quarter. The Company expects to fund the required long-term debt repayments with cash flows from operations combined with working capital improvements. Additionally, the Company has sufficient availability under Facility A of its bank credit agreement to accommodate any short-term liquidity requirements. CREDIT FACILITIES As a result of the working capital increases during the first quarter of 2003, the Company's overall debt level increased by $3.6 million from December 31, 2002. Bank indebtedness, including Facility A of the Company's bank credit agreement, increased by approximately $8.9 million while long-term debt was reduced by $5.3 million. Over the balance of 2003, the Company expects borrowings under Facility A to return to December 2002 levels. The Company remains in full compliance with all its financial and other covenants as determined by the Amended and restated Note Agreement and Bank Credit Agreement. CAPITAL EXPENDITURES Capital expenditures for the first quarter of 2003 were $2.5 million, compared to $2.1 million in the fourth quarter of 2002 and $2.8 million in the first quarter of 2002. The Company expects capital expenditures for calendar 2003 to be in the range of $13.0 million to $15.0 million. Consolidated Earnings Three month periods ended (In thousands of US dollars, except per share amounts)
March 31, December 31, _________________________ ____________ 2003 2002 2002 ____________ ___________ ____________ $ $ $ Sales 153,592 146,737 151,261 Cost of sales 119,793 113,321 121,764 ____________ ___________ ____________ Gross profit 33,799 33,416 29,497 Selling, general and administrative expenses 21,982 20,299 23,462 Impairment of goodwill 70,000 Research and development 894 967 480 Financial expenses 7,700 8,983 7,621 ____________ ___________ ____________ 30,576 30,249 101,563 Earnings (loss) before income taxes 3,223 3,167 (72,066) Income taxes (recovery) 322 348 (13,292) ____________ ___________ _____________ Net earnings (loss) 2,901 2,819 (58,774) ____________ ___________ _____________ Earnings (loss) per share Basic 0.09 0.09 (1.74) Diluted 0.09 0.09 (1.74)
Consolidated Retained Earnings Three month periods ended (In thousands of US dollars)
March 31, March 31, December 31, ____________ ____________ ____________ 2003 2002 2002 ____________ ____________ ____________ $ $ $ Balance, beginning of period 50,113 104,567 108,887 Net earnings (loss) 2,901 2,819 (58,774) ____________ ____________ ____________ Balance, end of period 53,014 107,386 50,113 ____________ ____________ ____________
Consolidated Balance Sheets (In thousands of US dollars)
March 31, December 31, _________________________ ____________ 2003 2002 2002 ____________ ___________ ____________ $ $ $ ASSETS Current assets Trade receivables, net of allowance for doubtful accounts of $3,475 ($6,069 in March 2002, $3,844 in December 2002) 93,221 89,033 86,169 Other receivables 10,554 10,549 10,201 Inventories 65,732 69,705 60,969 Parts and supplies 12,422 11,902 12,377 Prepaid expenses 6,784 8,399 7,884 Future income tax assets 2,397 3,995 2,397 ____________ ___________ ___________ 191,110 193,583 179,997 Property, plant and equipment 350,955 363,039 351,530 Other assets 14,518 13,680 13,178 Goodwill 160,248 227,859 158,639 ____________ ___________ ___________ 716,831 798,161 703,344 LIABILITIES Current liabilities Bank indebtedness 17,405 23,313 8,573 Accounts payable and accrued liabilities 81,271 75,058 80,916 Installments on long-term debt 28,600 7,560 29,268 ____________ ___________ ___________ 127,276 105,931 118,757 Long-term debt 278,902 322,687 283,498 Other liabilities 3,530 3,785 3,550 Future income taxes 3,654 21,878 4,446 ____________ ___________ ___________ 413,362 454,281 410,251 ____________ ___________ ___________ SHAREHOLDERS' EQUITY Capital stock and share purchase warrants 239,185 236,872 239,185 Retained earnings 53,014 107,386 50,113 Accumulated currency translation adjustments 11,270 (378) 3,795 ____________ ___________ ___________ 303,469 343,880 293,093 ____________ ___________ ___________ 716,831 798,161 703,344
Consolidated Cash Flows Three month periods ended (In thousands of US dollars)
March 31, December 31, _________________________ ____________ 2003 2002 2002 ____________ ___________ ____________ $ $ $ OPERATING ACTIVITIES Net earnings (loss) 2,901 2,819 (58,774) Non-cash items Depreciation and amortization 6,639 6,618 7,647 Loss on disposal of property, plant and equipment 30 Impairment of goodwill 70,000 Future income taxes (recovery) 322 348 (15,723) ____________ ___________ ____________ Cash flows from operations before changes in non-cash working capital items 9,862 9,785 3,180 ____________ ___________ ____________ Changes in non-cash working capital items Trade receivables (6,371) (2,527) 8,825 Other receivables (218) 3,087 2,531 Inventories (3,847) 953 10,666 Parts and supplies 100 (315) (112) Prepaid expenses 1,147 1,051 (3,177) Accounts payable and accrued liabilities (522) (16,425) 6,922 ____________ ___________ ____________ (9,711) (14,176) 25,655 ____________ ___________ ____________ Cash flows from operating activities 151 (4,391) 28,835 ____________ ___________ ____________ INVESTING ACTIVITIES Property, plant and equipment (2,451) (2,842) (2,130) Other assets (1,953) (2,514) (1,619) ____________ ___________ ____________ Cash flows from investing activities (4,404) (5,356) (3,749) ____________ ___________ ____________ FINANCING ACTIVITIES Net change in bank indebtedness 8,832 (4,717) (17,419) Repayment of long-term debt (5,265) (32,727) (8,885) Issue of common shares 47,376 647 ____________ ___________ ____________ Cash flows from financing activities 3,567 9,932 (25,657) ____________ ___________ ____________ Net increase (decrease) in cash position (686) 185 (571) Effect of currency translation adjustments 686 (185) 571 ____________ ___________ ____________ Cash position, beginning and end of year - - - ____________ ___________ ____________
NOTE 1. Basis of Presentation In the opinion of Management the accompanying unaudited interim consolidated financial statements, prepared in accordance with Canadian generally accepted accounting principles, contain all adjustments necessary to present fairly Intertape Polymer Group Inc.'s (IPG) financial position as at March 31, 2003 and 2002 and December 31, 2002 as well as its results of operations and its cash flows for the three months ended March 31, 2003 and 2002 and December 31, 2002. While Management believes that the disclosures presented are adequate, these unaudited interim consolidated financial statements and notes should be read in conjunction with IPG's annual consolidated financial statements. These unaudited interim consolidated financial statements and notes follow the same accounting policies as the most recent annual consolidated financial statements. NOTE 2. Earnings per Share The following table provides a reconciliation between basic and diluted earnings per share: In thousands of US dollars (Except per share amounts)
March 31, December 31, For the three months ended 2003 2002 2002 __________________________________________________________________ $ $ $ Net earnings (loss) applicable to common shares 2,901 2,819 (58,774) Weighted average number of common shares outstanding 33,821 30,155 33,821 Effect of dilutive stock options and warrants(a) 351 __________________________________________________________________ Weighted average number of diluted common shares outstanding 33,821 30,506 33,821 Basic earnings (loss) per share 0.09 0.09 (1.74) Diluted earnings (loss) per share 0.09 0.09 (1.74) __________________________________________________________________ (a) Diluted earnings per share is calculated by adjusting outstanding shares, assuming any dilutive effects of stock options and warrants.
NOTE 3. Accounting for Compensation Programs As at March 31, 2003 the Company had a stock-based compensation plan, which is described in the 2002 Annual Report. The Company does not record any compensation expense with respect to this plan. Had compensation cost for the Company's stock-based compensation plan been determined using the fair value based method for awards at the grant date under the plan, the Company's net earnings (loss) and earnings (loss) per share (both basic and diluted) for the three months ended March 31, 2003, March 31, 2002 and December 31, 2002 would have been reduced (increased) to the pro forma amounts of $2.7 million, $2.8 million, ($59.0) million, $0.08, $0.09 and ($1.74) respectively. NOTE 4. Differences in Accounting Between The United States of America and Canada Re-pricing of Stock Options The re-pricing of stock options that occurred in 2001 has resulted, under US GAAP, in variable plan accounting for the re-priced options. Under US GAAP, the Company would not have recorded a non-cash charge for the three months ended March 31, 2003 and December 31, 2002, but would have recorded a non-cash charge of $1.8 million for the three months ended March 31, 2002. The charge would have no income tax consequences for the Company and would reflect the changes in the market price of the common shares. Accordingly, the Company's net earnings (loss), basic earnings (loss) per share and diluted earnings (loss) per share would have been unchanged for the three months ended March 31, 2003 and December 31, 2002 and reduced by $1.8 million, $0.06 and $0.06 respectively for the three months ended March 31, 2002. NOTE 5. Capital Stock In March 2002, the Company issued 5,100,000 common shares for cash consideration of CAN $75,700,000 (US $47,441,000). Average number of common shares outstanding March 31, December 31, Three months ended 2003 2002 2002 __________________________________________________________________ CDN GAAP - Basic 33,821,074 30,155,360 33,821,074 CDN GAAP - Diluted 33,821,497 30,505,692 33,821,074 U.S. GAAP - Basic 33,821,074 30,155,360 33,821,074 U.S. GAAP - Diluted 33,821,497 30,505,692 33,821,074 Safe Harbor Statement Certain statements and information set forth in this Quarterly Report, including statements regarding the business and anticipated financial performance of the Company, constitute "forward-looking statements" within the meaning of the Federal Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied in such forward-looking statements. Some of the factors that could cause such differences include, but are not limited to, inflation and general economic conditions, changes in the level of demand for the Company's products, competitive pricing pressures, and general market trends. Additional discussion of factors that could cause actual results to differ materially from management's projections, estimates and expectations is contained in the Company's SEC filings. These and other factors should be considered carefully and undue reliance should not be placed on forward-looking statements. The Company undertakes no duty to update its forward-looking statements, including its earnings outlook. INFORMATION REQUEST FORM I would like to receive or continue receiving financial information on Intertape Polymer Group. ________________________________________________________________________________ Name:____________________________________________________ Title:___________________________________________________ Firm:____________________________________________________ Address:_________________________________________________ Province/State:__________________________________________ Postal Code/Zip:_________________________________________ Telephone:_______________________________________________ Fax:_____________________________________________________ E-mail:__________________________________________________ Please send me now on a regular basis. (Please indicate number of copies requested. Annual Reports Quantity:_________________ Fax UPdates Quantity:_________________ (Press Releases only) Please indicate your occupation: Investment Dealer Analyst Institution/Corporation Journalist Institutional Broker Retail Broker Institutional Investor Shareholder Investment Banker Other Please fax a copy of this page to: 110E Montee de Liesse The Secretary Montreal Quebec Intertape Polymer Group Inc. Canada, H4T 1N4 Fax: 941-727-3798 Investor Relations Toll Free: 866-202-4713 www.intertapepolymerl.com itp$info@intertapeipg.com