40-F

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 40-F

¨ REGISTRATION STATEMENT PURSUANT TO SECTION 12

OF THE SECURITIES EXCHANGE ACT OF 1934

ý ANNUAL REPORT PURSUANT TO SECTION 13(a) OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year ended December 31, 2005

Commission file number: 1-10928

INTERTAPE POLYMER GROUP INC.

(Exact name of Registrant as specified in its charter)

Canada

(Jurisdiction of incorporation or organization)

Not Applicable

(I.R.S. Employer Identification Number)

Primary Standard Industrial Classification Code Number: 2670

9999 Cavendish Blvd., Suite 200, Ville St. Laurent, Quebec, Canada H4M 2X5 (514) 731-7591

(Address and telephone number of Registrant’s principal executive offices)

Burgess H. Hildreth, 3647 Cortez Road West, Bradenton, Florida, 34219 (941) 739-7500

(Name, address and telephone number of Agent for service in the United States)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:	Name of each Exchange on which registered:
Common Shares, without nominal or par value	New York Stock Exchange Toronto Stock Exchange

Securities registered or to be registered pursuant to Section 12(g) of the Act:

Not Applicable

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

Not Applicable

For annual reports, indicate by check mark the information filed with this form:

ý Annual Information Form  ý Audited Annual Financial Statements

The number of outstanding shares of each of the issuer's classes of capital stock as of December 31, 2005 is:

40,957,574 Common Shares

 -0- Preferred Shares

Indicate by check mark whether the registrant by filing 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 (the “Exchange Act”).  If “Yes” is marked, indicate the file number assigned to the registrant in connection with such rule.

Yes ¨  No ý

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ý  No ¨

The information contained in this 40-F and the exhibits attached hereto are incorporated by reference into Registration Statement No. 333-109944.

2

Controls and Procedures.

Disclosure Controls and Procedures.  Intertape Polymer Group Inc. maintains disclosure controls and procedures designed to ensure not only that information required to be disclosed in its reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, but also that information required to be disclosed by Intertape Polymer Group Inc. is accumulated and communicated to management, including its principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.  Based on the annual evaluation made by management as of December 31, 2005 of Intertape Polymer Group Inc.’s disclosure controls and procedures, with the participation of the principal executive officer and principal financial officer, the princi pal executive officer and principal financial officer have concluded that Intertape Polymer Group Inc.’s disclosure controls and procedures were adequate and effective to accomplish the purposes for which they were designed.

Changes in Internal Control Over Financial Reporting.  Based on the annual evaluation made by management as of December 31, 2005 of Intertape Polymer Group Inc.’s internal control over financial reporting, with the participation of the principal executive and principal financial officers, the principal executive officer and principal financial officer have concluded that there have been no changes in Intertape Polymer Group Inc.’s internal controls over financial reporting that occurred during 2005 that has materially affected, or is reasonably likely to materially affect, Intertape Polymer Group Inc.’s internal control over financial reporting.

Blackout Period Notices.

During 2005, Intertape Polymer Group Inc. was not required to send its directors and executive officers notices pursuant to Rule 104 of Regulation BTR concerning any equity security subject to a blackout period under Rule 101 of Regulation BTR.  Intertape Polymer Group Inc.’s blackout periods are regularly scheduled and a description of such periods, including their frequency and duration and plan transactions to be suspended or affected are included in the documents under which Intertape Polymer Group Inc.’s plans operate and is disclosed to employees before enrollment or within thirty (30) days thereafter.

Audit Committee Financial Expert.

The Board of Directors of Intertape Polymer Group Inc. has determined that it has at least one audit committee financial expert serving on its audit committee.  Mr. John E. Richardson, having been a senior partner of Clarkson Gordon & Co. (now Ernest & Young), and having the attributes set forth in Paragraph 8(b) of General Instruction B to Form 40-F, has been determined to be an audit committee financial expert.  Further, Mr. Richardson is “independent” as that term is defined by the New York Stock Exchange’s corporate governance standards applicable to Intertape Polymer Group Inc.

The Securities and Exchange Commission has stated that the designation of Mr. Richardson as an audit committee financial expert does not make him an “expert” for any

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purpose, including without limitation, for purposes of Section 11 of the Securities Act of 1933.  Further, such designation does not impose any duties, obligations or liability on Mr. Richardson greater than those imposed on members of the audit committee and Board of Directors not designated as an audit committee financial expert, nor does it affect the duties, obligations or liability of any other member of the audit committee or Board of Directors.

Code of Ethics.

Intertape Polymer Group Inc. has adopted a code of ethics entitled “Intertape Polymer Group Inc. Code of Business Conduct and Ethics”, which is applicable to all of its employees, including its principal executive officer, principal financial officer, principal accounting officer or controller, and all persons performing similar functions.  During the 2005 fiscal year, Intertape Polymer Group Inc. did not amend its Code of Business Conduct and Ethics and did not grant a waiver from any provision of its Code of Business Conduct and Ethics.  Intertape Polymer Group Inc. will provide, without charge, to any person upon written or oral request, a copy of its Code of Business Conduct and Ethics.  Requests should be directed to Burgess H. Hildreth, Intertape Polymer Group Inc., 3647 Cortez Road West, Bradenton, Florida 34210.  Mr. Hildreth may be reached by telephone at (941) 739-7500.

Principal Accountant Fees and Services.

A table setting forth the fees billed for professional services rendered by Raymond Chabot Grant Thornton LLP, Chartered Accountants, Intertape Polymer Group’s principal accountant, for the fiscal years ended December 31, 2005 and December 31, 2004, is set forth in Item 17.5 of Intertape Polymer Group’s Annual Information Form attached hereto as Exhibit 1.

Intertape Polymer Group Inc.’s Audit Committee pre-approves all audit engagement fees and terms of all significant permissible non-audit services provided by independent auditors. With respect to services other than audit, review or attest services set forth in the table referenced above, none were approved pursuant to the de minimus exception provided by paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.

Off-Balance Sheet Arrangements.

Through June 2005, Intertape Polymer Group Inc. maintained no off-balance sheet arrangements, except for the letters of credit issued and outstanding.  As of December 31, 2005 and 2004, the Company had $7.0 million and $3.8 million respectively of outstanding letters of credit, which decrease the available balance under the Company’s credit facility.  In June 2005, Intertape Polymer Group Inc. entered into an interest rate swap agreement for a notional principal amount of $50.0 million maturing in June 2010.  In July 2005, Intertape Polymer Group Inc. entered into a second interest swap agreement for a notional principal amount of $25.0 million maturing in July 2010.  Under the terms of these interest rate swap agreements, Intertape Polymer Group Inc. receives, on a quarterly basis, a variable interest rate and pays a fixed interest rate of 4.27% and 4.29% respectively, plus the 2.25% premium appl icable on its term loan. As of December 31, 2005, the effective interest rate on $75,000,000 was 6.53% and the effective interest rate on the excess was 6.74% (4.67% in 2004).

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Tabular Disclosure of Contractual Obligations.

The information required by Paragraph (12) of General Instruction B to Form 40-F is located on Page 19 of Management’s Discussion and Analysis for 2005 attached hereto as Exhibit 2 and made a part hereof by this reference.

Identification of the Audit Committee.

Intertape Polymer Group Inc. has a separately designated standing Audit Committee established in accordance with Section 3(a)(58)(A) of the Exchange Act.  The Audit Committee is comprised of four of the seven directors of Intertape Polymer Group Inc.:  John E. Richardson, L. Robbie Shaw, Gordon R. Cunningham, and Thomas E. Costello.  For additional information with respect to the Company’s Audit Committee, see Item 17 of the Company’s Annual Information Form attached hereto as Exhibit 1.

Undertaking.

Intertape Polymer Group Inc. undertakes to make available, in person or by telephone, representatives to respond to inquiries made by the Securities and Exchange Commission staff, and to furnish promptly, when requested to do so by the Commission staff, information relating to: the securities in relation to which the obligation to file an annual report on Form 40-F arises, or transactions in said securities.

Signature.

Pursuant to the requirements of the Exchange Act, Intertape Polymer Group Inc. certifies that it meets all of the requirements for filing on Form 40-F, and has duly caused this Annual Report to be signed on its behalf by the undersigned, thereto duly authorized.

INTERTAPE POLYMER GROUP INC.

(Registrant)

By:/s/Andrew M. Archibald

(Signature)

Name:

Andrew M. Archibald, C.A.

Title:

Chief Financial Officer and Secretary

Date: March 31, 2006

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EXHIBIT INDEX

Exhibit No.	Description	Page No.
1	Annual Information Form dated March 31, 2006	7
2	Management’s Discussion and Analysis for 2005 Audited Annual Consolidated Financial Statements	54
3	Consent of Raymond Chabot Grant Thornton LLP, Chartered Accountants	55
4	Certifications pursuant to Rule 13a-14(a) or Rule 15d-14(a), pursuant to Section 302 of the U.S. Sarbanes-Oxley Act of 2002	56
5	Certification pursuant to 18 U.S.C. Section 1350, as enacted pursuant to Section 906 of the U.S. Sarbanes-Oxley Act of 2002	60

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EXHIBIT 1

Item 1.

INTERTAPE POLYMER GROUP INC.

ANNUAL INFORMATION FORM

For the Year ended December 31, 2005

Dated: March 31, 2006

7

INTERTAPE POLYMER GROUP INC.

ANNUAL INFORMATION FORM

Table of Contents

Page

Item 1.

Cover Page

7

Item 2.

Corporate Structure

10

2.1

Name, Address and Incorporation

10

2.2

Intercorporate Relationships

10

Item 3.

General Development of the Business

11

3.1

Three Year History

11

3.2

Significant Acquisitions

16

Item 4.

Narrative Description of the Business

17

4.1

General

17

4.2

Key Markets and Products

17

4.3

Sales and Marketing

23

4.4

Manufacturing and Quality Control

22

4.5

Equipment and Raw Materials

23

4.6

Research and Development and New Products

23

4.7

Trademarks and Patents

24

4.8

Competition

24

4.9

Environmental Regulation

25

4.10

Employees

26

Item 5.

Cautionary Statements and Risk Factors

27

5.1

Forward-Looking Statements

27

5.2

Risk Factors

28

Item 6.

Dividends

37

Item 7.

General Description of Capital Structure

37

7.1

General Description of Capital Structure

37

7.2

Ratings

38

8

Item 8.

Market For Securities

38

8.1

Trading Prices and Volume on the Toronto Stock Exchange

38

8.2

Trading Prices and Volume on the New York Stock Exchange

38

Item 9.

Escrowed Securities

40

Item 10.

Directors and Officers

40

Item 11.

Legal Proceedings

43

Item 12.

Interest of Management and Others in Material Transactions

43

Item 13.

Transfer Agents and Registrars

44

Item 14.

Material Contracts

44

Item 15.

Experts

46

15.1

Name of Experts

46

15.2

Interests of Experts

47

Item 16.

Additional Information

47

Item 17.

Audit Committee

47

17.1

Audit Committee Charter

47

17.2

Composition of the Audit Committee

48

17.3

Relevant Education and Experience

48

17.4

Pre-Approved Policies and Procedures

48

17.5

External Auditor Services Fees

48

Exhibit A

Audit Committee Charter

50

9

Item 2.

 Corporate Structure

2.1

Name, Address and Incorporation

The business of Intertape Polymer Group Inc. (“Intertape Polymer Group” or the “Company”) was established by Melbourne F. Yull, Intertape Polymer Group’s Chairman of the Board and Chief Executive Officer, when Intertape Systems Inc., a predecessor of the Company, established a pressure-sensitive tape manufacturing facility in Montreal.  Intertape Polymer Group was incorporated under the Canada Business Corporations Act on December 22, 1989 under the name “171695 Canada Inc.”  On October 8, 1991, the Company filed a Certificate of Amendment changing its name to “Intertape Polymer Group Inc.”  A Certificate of Amalgamation was filed by the Company on August 31, 1993, at which time the Company was amalgamated with EBAC Holdings Inc.  The shareholders, at the Company’s June 11, 2003 annual and special meeting voted on the replacement of the Company&# 146;s By-Law No. 1 with a new General By-Law 2003-1. The intent of the replacement by-law was to conform the Company’s general by-laws with amendments that were made to the Canada Business Corporations Act since the adoption of the general by-laws and to simplify certain aspects of the governance of the Company.  

Intertape Polymer Group’s corporate headquarters is located at 9999 Cavendish Blvd., Suite 200, Ville St. Laurent, Quebec, Canada  H4M 2X5 and the address of its registered office is 1155 Rene-Levesque Blvd. West, Montreal, Quebec, Canada  H3B 3V2.

2.2

Intercorporate Relationships

Intertape Polymer Group is a holding company which owns various operating companies in the United States and Canada.  Intertape Polymer Inc., incorporated under the Canada Business Corporations Act, is the principal operating company for the Company’s Canadian operations.  Central Products Company, a Delaware corporation, is the principal operating company for the Company’s United States and international operations.

The table below lists for each of the subsidiaries of the Company their respective place of incorporation and the percentage of voting securities beneficially owned or over which control or direction is exercised directly or indirectly by Intertape Polymer Group.  Certain subsidiaries, each of which represents not more than ten percent of consolidated assets and not more than ten percent of consolidated sales and operating revenues of the Company, and all of which, in the aggregate, represent not more than twenty percent of total consolidated assets and total consolidated sales and operating revenues of the Company at December 31, 2005, have been omitted.

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Corporation	Place of Incorporation	Percentage of Ownership or Control
Intertape Polymer Group Inc.	Canada	Parent
Intertape Polymer Inc.	Canada	100%
Flexia Corporation Ltd.	Canada	100%
4273460 Canada Inc.	Canada	100%
Flexia L.P.	Province of Ontario	100%
Spuntech Fabrics Inc.	Canada	100%
IPG Financial Services Inc.	Delaware	100%
IPG Holding Company of Nova Scotia	Nova Scotia	100%
Central Products Company	Delaware	100%
Intertape Polymer Corp.	Delaware	100%
IPG Administrative Services Inc.	Delaware	100%
Intertape Woven Products Services S.A. de C.V.	Mexico	100%
IPG Holdings LP	Delaware	100%
Polymer International Corp.	Virginia	100%
IPG (US) Inc.	Delaware	100%
IPG (US) Holdings Inc.	Delaware	100%
Intertape Polymer US Inc.	Delaware	100%
Fibope Portuguesa-Filmes Biorientados S.A.	Portugal	100%

Item 3.

 General Development of the Business

3.1

Three Year History

The Company commenced operations in 1981 and since has evolved into a recognized leader in North America in the development and manufacture of specialized polyolefin plastic and paper packaging products and related packaging systems.  For several years, Intertape Polymer Group’s business strategy was primarily one of growth.  Commencing in the mid-1990’s, the Company made several strategically important acquisitions to further its business plan to either develop or acquire new products to complete the “basket of products” approach to the Company’s markets.  Beginning in 2001, the Company transitioned from a period of rapid

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expansion to a period of operational consolidation and debt reduction.  As a result of its efforts and the refinancing of its debt in 2004, management believes the Company is now well-positioned for further growth to expand its market share in existing products, expand its product offerings, and expand its markets.

The Company has focused on implementing improvements aimed both at realizing the benefits of past acquisitions and optimizing the Company’s efficiency and the quality of its products and services.  In 2001, the Company completed the initial implementation of its Regional Distribution Centers (“RDCs”) strategy.  The streamlined operations of the five RDCs permitted the Company to close the approximately twenty-five leased warehouse facilities it was maintaining and consolidate product shipments through the RDCs.  During 2002, the Company continued to monitor the operations of its RDCs and re-assessed its overall RDC strategy.  As a result, in its ongoing efforts to increase its efficiency, the Company announced in 2003 that it would consolidate three RDCs into a new facility adjacent to its existing manufacturing operations in Danville, Virginia.  The new RDC became operational in Fe bruary 2004 and has lowered warehousing costs to the Company as well as enhanced service levels to its customers.

During 2005, in response to increasing sales prices and product shortages negatively impacting Intertape Polymer Group’s customer profitability, Intertape Polymer Group implemented its “Full Truck” concept which is designed to provide the Company’s customers with a vendor consolidation format through the ordering of multiple products in single shipments.  Under the “Full Truck” strategy, customers are offered truckload pricing without requiring them to purchase full truckloads of each product line.  This inventory management system is designed to permit Intertape Polymer Group customers to operate their businesses with a lower cash investment.  The “Full Truck” concept is an extension of Intertape Polymer Group’s “basket of products” strategy which provides the Company’s customers with “one-stop shopping” and is an essential element of In tertape Polymer Group’s value proposition to its customers.  The Company’s value proposition includes the following financial contributions:

1.

Inventory optimization achieved through more frequent inventory turns.

2.

New business development resulting from Intertape Polymer Group’s partnering with distributors in addressing the needs of end-user customers.

3.

More effective cash management resulting from a combination of Intertape Polymer Group customer terms and the frequent inventory turns available to customers that take advantage of the “Full Truck” concept.

4.

Improved product mix attributable to the “basket of products” that Intertape Polymer Group offers to increase distributor profitability.

5.

Single sourcing of product thereby reducing the distributor’s operating expenses.

Over the last three years, the Company has invested approximately $55.4 million in capital expenditures principally to purchase more efficient production equipment and to expand information systems capabilities.  One of the benefits of these investments has been the Company’s ability to reduce the number of its production and distribution facilities, while

12

maintaining its existing capacities.  In the fourth quarter of 2004, as part of the Company’s ongoing review of the efficiency and effectiveness of its production and distribution network, the Company announced and substantially completed the closure of two of its manufacturing facilities, one in Cumming, Georgia and the second in Montreal, Quebec, as well as the closure of its distribution center in Cumming, Georgia.  In December, 2003, the Company consolidated its two water activated tape facilities into its Menasha, Wisconsin operation.

As part of a continuous cost improvement process, in 2002 the Company completed the consolidation of its U.S. based operations for flexible intermediate bulk container (“FIBC”) production into its Piedras Negras facility in Mexico.  As a part of its ongoing efforts to contain costs, the Company is increasing its commitment to import FIBCs and will close its Piedras Negras, Mexico facility on or about March 31, 2006.  The Company believes that the small facility in Hawkesbury, Ontario, it acquired in the Flexia Corporation Ltd. acquisition described below will be adequate to provide the limited manufacturing support necessary to support the Company’s imported FIBC operation.

Acquisitions have been and remain a part of the Company’s growth strategy.  On October 5, 2005 the Company, through Intertape Polymer Inc., a wholly owned Canadian subsidiary, acquired all of the outstanding capital stock of Flexia Corporation Ltd. (“Flexia”), the successor entity to Flexia Corporation and Fib-Pak Industries Inc., for an aggregate consideration of approximately $29.1 million after purchase price adjustments occurring after year-end.  Flexia produces a wide range of engineered coated products, polyethylene scrims and polypropylene fabrics which the Company feels will mesh well with its existing coated products business based in Truro, Nova Scotia, as well as its FIBC business.

In February 2004, the Company completed the purchase for a cash consideration of $5.5 million plus contingent consideration (dependent on business retention), of the assets relating to the masking and duct tape operations of tesa tape, inc.  The Company also finalized a three-year agreement to supply duct tape and masking tape to tesa.  The production of the acquired business was integrated into the Company’s Columbia, South Carolina manufacturing facility.  This acquisition provided the Company’s retail business with access to several large retail chains not previously serviced by the Company.

In June 2003, the Company acquired the remaining fifty percent of the issued and outstanding common shares of Fibope Portuguesa-Filmes Biorientados S.A. (“Fibope”).  Intertape Polymer Group acquired Fibope in order to provide a viable platform from which to introduce its North American made products into European markets.  

Set forth below is a summary of the Company’s acquisitions since 1996.

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Completed Acquisitions
Year	Annual Cost of Acquisitions	Company	Location	Products
	(US$ in millions)
1996	$5.3	Tape, Inc.	Green Bay, Wisconsin	Water-activated packaging tapes
1997	$42.9	American Tape Co.	Marysville, Michigan Richmond, Kentucky	Pressure-sensitive tapes, masking tapes
1998	$113.2	Anchor Continental, Inc.	Columbia, South Carolina	Pressure-sensitive tapes, masking and duct tapes
		Rexford Paper Company	Milwaukee, Wisconsin	Pressure-sensitive and water-activated tapes
1999	$111.3	Central Products Company	Menasha, Wisconsin Brighton, Colorado	Pressure-sensitive and water-activated carton sealing tapes
		Spinnaker Electrical Tape Company	Carbondale, Illinois	Pressure-sensitive electrical tapes
2000	$38.4	Olympian Tape Sales, Inc.	Cumming, Georgia	Distribution of packaging products
2003	$7.2	Fibope Portuguesa-Filmes Biorientados S.A.	Portugal	Manufacture and distribution of shrink film
2004	$5.5	tesa tape inc.	Columbia, South Carolina	Masking and duct tape
2005	$29.1	Flexia Corporation Ltd. (now operating as Flexia L.P.)	Brantford, Ontario Langley, British Columbia Hawkesbury, Ontario	Engineered coated products, polyethylene scrims, polypropylene fabrics and FIBCs

Historically, the Company has been able to maintain value-added percentages within a narrow range of less than 0.75% because it passed on raw material cost increases to its customers.  (“Value-added” is a term defined by the Company as the difference between material costs and selling prices, expressed as a percentage of sales.)  During 2002, in the Company’s view, this situation changed as a result of a timing lag between raw material cost increases and full implementation of selling price increases.  In 2003, the Company implemented a series of unit selling price increases that, coupled with certain of the Company’s cost reduction programs, did result in improved gross margins.  Throughout 2004, the Company, along with the industry, experienced rising raw material costs.  Market pressures and the normal time lag between incurring raw material cost increases and passing the in creases on to customers in the form of higher sales prices prevented the Company from achieving meaningful sales price increases until the second quarter of 2004.

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In 2005, the Company, as well as the industry, were not only faced with rising raw material costs, but also certain key raw materials became in short supply.  In the first half of 2005, the shortage was in synthetic rubber, an essential ingredient in the formulation of certain of the Company’s tape adhesives.  After two major hurricanes hit the Gulf Coast of Louisiana and Texas during the third quarter, prices for petroleum-based resins, which are key raw materials for several of the Company’s products, rose dramatically.  However, as a result of the creation of smaller business teams within the Company and a global sourcing group, Intertape was able to manage the rising raw material costs through a series of timely sales price increases to its industrial and specialty distributors, and to a lesser extent, its retail customers, and was able to aggressively pursue and secure resin supplies from wor ldwide sources.  During the first quarter of 2006, petroleum-based resin prices started decreasing.  Accordingly, in order to remain competitive, the Company has had to reduce sales prices for certain of its products.  This may result in a decrease in the Company’s gross margin for the first quarter of 2006.  However, the benefit from the raw material cost decreases experienced so far in 2006 are expected to be reflected primarily in the second quarter of the year.

On July 28, 2004, the Company entered into a new senior secured credit facility consisting of a US$200.0 million seven-year delayed draw Term Loan B facility, a US$65.0 million five-year revolving credit facility, and a US$10.0 million five-year revolving credit facility to be issued in Canadian Dollars.  The credit facility is secured by a first priority security interest in substantially all of the tangible and intangible assets of, and is guaranteed by, the Company and substantially all of its subsidiaries.  Further, on July 28, 2004, the Company completed an offering of US$125.0 million 8-½% Senior Subordinated Notes due 2014.  The proceeds from the refinancing were used to repay the Company’s then existing bank credit facility, redeem all three series of its then existing senior secured notes, pay related make-whole premiums, accrued interest and transaction fees and provide cash for general working capital purposes.

The credit agreement governing the senior secured credit facility and the indenture governing the outstanding Senior Subordinated Notes each contain restrictive covenants that, among other things, limit the Company’s ability to incur additional indebtedness, make restricted payments, make loans or advances to subsidiaries and other entities, invest in capital expenditures, sell its assets or declare dividends. In addition, under its Senior Secured Credit Facility, the Company is required to maintain certain financial ratios, including a maximum total leverage ratio, a minimum interest coverage ratio and a minimum fixed charge ratio.  

For additional information regarding the Company’s Senior Secured Credit Facility and Senior Subordinated Notes, see Item 14, “Material Contracts”.

Intertape Polymer Group reduced indebtedness associated with long-term debt instruments by $50.2 million during 2002, and a further $64.3 million during 2003. Long-term debt increased during 2004 as a result of the capital lease for the new RDC in Danville, Virginia, and the $325.0 million borrowed in connection with the refinancing completed in August 2004.  In 2005, the Company’s indebtedness associated with long-term debt instruments was increased by $10.0 million due to the Company’s borrowing in connection with the Flexia acquisition, and was reduced by $3.0 million in accordance with the Company’s debt amortization schedule.  

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During 2003 Intertape Polymer Group entered into a capital lease agreement for the new Danville RDC. The twenty-year lease agreement commenced in January 2004. The value of the building and the related capital lease obligation of Intertape Polymer Group Inc. is $7.2 million.

As part of its ongoing efforts to reduce costs, the Company plans on closing both its Piedras Negras, Mexico facility and its Trois-Rivières (formerly the city of Cap-de-la Madeleine), Quebec facility effective at the end of the first quarter of 2006.

During 2006, the Company intends to continue to invest in equipment to improve productivity and expand certain of its operations vertically which should also create new product capabilities.  In addition, the Company believes it should continue to see the benefits from its realignment of its mid-management.  The Company believes that by dropping accountability down to the mid-management level, it has rekindled the entrepreneurial culture within the Company and placed greater focus on increasing market share, better managing of product mix and improving the product development process.

As previously announced, the Company intends to sell a portion of its interest in the combined engineered coated products operations and FIBC business through an initial public offering of the combined business using a Canadian Income Trust.  The Company’s announced plan was to file a prospectus in the first quarter of 2006.  Although the Company will not file a prospectus during the first quarter of 2006, the Company’s intention remains to file a prospectus at the earliest opportunity.  The amount of cash generated from the transaction will be dependent on the pricing and successful completion of the transaction.  The Company anticipates using the cash proceeds from the transaction primarily to reduce its outstanding indebtedness, with the balance, if any, to be used for general corporate purposes, including working capital.

3.2

Significant Acquisitions

On October 5, 2005, Intertape Polymer Group’s wholly owned subsidiary, Intertape Polymer Inc., acquired all of the issued and outstanding shares of Flexia Corporation Ltd., being the body corporate that resulted from the amalgamation on October 4, 2005, of Flexia Corporation and Fib-Pak Industries Inc. for a purchase price of US $29.1 million after purchase price adjustments occurring after year-end.  The Company believes that this acquisition will increase its market share in certain product groups and will provide the Company with an enhanced geographic proximity to its customers and to its suppliers of raw materials. The acquisition of the stock of Flexia Corporation Ltd. met the definition of a “significant acquisition”, as that term is understood with reference to Part 8 of the Canadian National Instrument 51-102-Continuous Disclosure Obligations and a Business Acquisition Report on Form 51 - -102F4 was filed and is incorporated herein by reference.  The form was also filed with the U.S. Securities and Exchange Commission under Form 6-K on December 27, 2005.

Acquisitions are an important part of the Company’s strategy for growth and it will continue to investigate favorable opportunities that present themselves during 2006.

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Item 4.

 Narrative Description of the Business

4.1

General

Intertape Polymer Group is a leader in the specialty packaging industry in North America.  It develops, manufactures and sells a variety of specialized polyolefin plastic and paper-based products as well as complementary packaging systems for use in industrial and retail applications.  The Company’s products include carton sealing tapes, including Intertape® pressure-sensitive and water-activated tapes; industrial and performance specialty tapes, including masking, duct, electrical and reinforced filament tapes; Exlfilm® shrink film; Stretchflex® stretch wrap; engineered fabric products; and flexible intermediate bulk containers. The Company designs its specialty packaging products for aerospace, automotive and industrial applications. These specialty packaging products are sold to a broad range of industrial and specialty distributors, retail stores and large end-users in diverse markets.

Intertape Polymer Group believes it has assembled one of the broadest and deepest ranges of products in the industry by leveraging its advanced manufacturing technologies, its extensive research and development capabilities and its comprehensive strategic acquisition program.  Since 1995, the Company has made a series of strategic acquisitions in order to offer a broader range of products to better serve its markets.  These products include water-activated tapes, masking tapes, duct tapes, filament tapes and natural rubber adhesive tapes. At the same time, the Company has continued to develop new products, including shrink and stretch wrap films.

4.2

Key Markets and Products

Intertape® Carton Sealing Tape: Pressure-Sensitive and Water-Activated Tapes

The Company produces a variety of pressure-sensitive plastic film carton sealing tape, ranging from commodity-designed standard tape to tape tailored to meet customers' unique requirements. The product range encompasses tape with film thickness from 25 microns to 50 microns and adhesives formulated for manual as well as automatic applications. Carton sealing tape lends itself to use in high speed taping machines that replace other closure methods such as staples, hot melt glues and cold glues. The tape the Company produces includes a wide range of customized colored and printed tape, as well as tape designed for cold temperature applications and label protection.

The Company believes that it is one of the leading manufacturers of pressure-sensitive carton sealing tape. Carton sealing tape is manufactured and sold under the Intertape® name to industrial distributors and leading retailers, and is also manufactured for sale under private labels. It is produced at the Company’s Danville, Virginia, Richmond, Kentucky, and Brighton, Colorado, facilities and is primarily utilized by end-users for sealing corrugated cartons. Geographic territories in which the Company markets its products are serviced by sales personnel and manufacturers' representatives coordinated by regional managers. Distributors are appointed on a basis designed to achieve market penetration of both commodity and higher grade products. Intertape Polymer Group markets carton sealing tapes, industrial tapes, equipment, and

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stretch and shrink films as a "basket of packaging products," an approach which it believes is unique in the industry and differentiates the Company from its competitors. This broad assortment of products is available from the Company’s three RDCs and offers its distribution partners opportunities for increased inventory turns, reduced storage space and lower transaction costs.

Intertape Polymer Group’s acquisition of Tape, Inc. in 1996 and Central Products Company in 1999 added a complete range of water-activated adhesive tapes to the Company’s product mix. This product line is generally sold through the same distribution network as pressure-sensitive carton sealing tape, which has allowed the Company to increase its market penetration for this product. Water-activated tapes are used primarily in fulfillment center applications and the furniture and apparel industries where tamper evidence or a strong mechanical bond is needed to seal large boxes that will be subject to rigorous handling during shipment. The Company believes it is the largest producer of this type of tape and has in excess of 70% of the North American market.

The Company’s principal competitors for the sale of carton sealing tape products are Minnesota Mining & Manufacturing Co. ("3M"), Shurtape Technologies, Inc. and Sekisui TA Industries, Inc.

Intertape® Masking Tapes: Performance and General Purpose

Intertape Polymer Group added masking tapes to its product line in December 1997 through the acquisition of American Tape Co., a leading manufacturer of these products and expanded the Company’s position in this product line with the acquisition of Anchor Continental, Inc. in September 1998.

Masking tapes are used for a variety of end-use applications which can be broadly described under two categories: performance and general purpose. Performance applications include use in painting of aircraft, cars, buses and boats, where the properties of the tape, such as high temperature resistance and clean adhesive releases, are individually designed for the customer's process. General purpose applications include packaging and bundling, and residential and commercial paint applications.

In February 2004, the Company purchased the assets of tesa's masking tape operations, which had been a key competitor in this product line. The Company also entered into a three-year supply agreement with tesa.

Intertape Polymer Group’s processing capabilities include solvent and synthetic rubber, hot melt and acrylic adhesive alternatives. The Company believes that its unique adhesive systems provide it with a competitive advantage in this market.

The Company’s main competitors for the sale of masking tapes include 3M and Shurtape Technologies.

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Intertape® Reinforced Filament Tape: Performance and General Purpose

In addition to masking tapes, the Company’s purchases of American Tape and Anchor also introduced reinforced filament tapes and tensiled polypropylene tapes (“MOPP”) to its product line. Reinforced, general and specialty products are manufactured at the Company’s facilities in Richmond, Kentucky, Carbondale, Illinois, and Marysville, Michigan. These facilities produce filament tape using synthetic, natural rubber and hot melt adhesives coated on a variety of plastic films. The reinforcement is provided by fiberglass yarns laminated between the adhesive and backing layers. MOPP tapes are made from highly oriented polypropylene films and complement the reinforced filament products in several of the unitizing and bundling operations.

The Company’s main competitor in the industrial filament tape market is 3M, and for commodity filament tapes its main competitor is TaraTape.

Intertape® Duct Tape

The acquisition of Anchor in 1998 provided Intertape Polymer Group with significant capacity in its duct tape product line, which has now been enhanced by the acquisition of the assets of the duct tape operations of tesa. Duct tapes are manufactured at the Company’s Columbia, South Carolina facility. Most of the duct tape volume consists of polyethylene-coated cloth. Aluminum foil type tape accounts for much of the non-polyethylene coated product sales of the Company’s duct tape products. The Company has also entered into a three-year supply agreement with tesa for duct tape products.

The Company’s main competitors in the duct tape market are Covalance Specialty Materials, 3M, and Shurtape Technologies.

Exlfilm® Shrink Wrap

Exlfilm® is a specialty plastic film which shrinks under controlled heat to conform to package shape as compared to other packaging forms that require unique machinery for different product sizes and shapes. The process provides versatility because it permits the over-wrapping of a variety of products of considerably different sizes and dimensions, such as printing and paper products, packaged foods, cassettes, toys, games and sporting goods and hardware and housewares. Intertape Polymer Group manufactures Exlfilm® at its facilities in Truro, Nova Scotia, Tremonton, Utah, and Portugal. With the development of cross-linking technology, the Company has introduced a new line of high performance shrink film, Exlfilmplus® which can be used to satisfy additional end-user applications. The Company’s shrink wrap products are sold through a select group of specialty distributors primarily to manufacturers of pa ckaged goods and printing and paper products who package their products internally.

In addition to being served by the Company, the United States and Canadian markets for polyolefin shrink wrap are currently served by two large United States manufacturers, Sealed Air and Bemis Company, and to a lesser extent by foreign manufacturers.

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Stretchflex® Stretch Wrap

Stretchflex® is a multi-layer plastic film that can be stretched without application of heat. It is used industrially to wrap pallet loads of various products to ensure a solid load for shipping. The Company has a total of seven cast lines, all using the state-of-the-art five-layer technology. This technology, combined with re-engineered film, allows the Company to produce polyolefin stretch wrap that has higher performance while reducing manufacturing costs. The Company has the capacity to produce a total of 130 million pounds of Stretchflex® annually at its Danville, Virginia plant and its facility in Tremonton, Utah.

The North American market for polyolefin stretch wrap is served by a number of manufacturers, the largest of which are AEP, Tyco, and Linear Films. The Company’s key strategic acquisitions have positioned it as a stronger supplier of specialty packaging industrial tapes, second only, by management’s estimates, to 3M in North America, with the additional capability to provide shrink and stretch wrap, product lines that 3M does not offer.

Industrial Electrical Tapes

Following the Company’s 1999 acquisition of certain assets of Spinnaker Electrical Tape Company, which included its Carbondale, Illinois facility, Intertape Polymer Group became a manufacturer of specialty electrical and electronic tape. The manufacturing capability and technology at the Carbondale, Illinois facility, coupled with the Company’s high temperature-resistant products manufactured at its Marysville, Michigan facility provides it with access to high margin markets.

Competing manufacturers of industrial electrical tapes include 3M and Permacel.

Acrylic Coating

The Company entered into the acrylic market in 1995 through its Danville, Virginia plant capabilities. Acrylic coatings, when applied to film tapes, offer extended shelf life as well as increased performance under the extremes of low and high temperatures. In addition, certain applications utilize engineered fabric products as the base material to which acrylic coating is applied. The Company is completely self-sufficient in the production of film for pressure tapes for acrylic based adhesive tapes.

Engineered Fabric Products

Intertape Polymer Group produces a variety of products utilizing coated engineered polyolefin fabrics, and coated and laminated paper/poly/foil composites such as industrial bags, lumber wrap, house wrap, metal wrap, and paper and food packaging, as well as coated engineered polyolefin fabrics that are sold to other manufacturers which convert these fabrics into finished products, such as packaging, protective covers, pond liners, recreational products and temporary structures.

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Nova-Thene® lumber wrap is a polypropylene fabric which is extrusion coated and printed to customer specifications. It is used in the forest products industry to package kiln-dried cut lumber and other wood products. The Company believes it has a leading market share in this product segment as a result of the acquisition of Flexia in October 2005.  In addition to increased market presence, the addition of plants in Ontario and British Columbia better position the Company to service this market, control transportation costs, and to source materials globally through West Coast ports.

Also in transportation packaging the Company has increased its share in the metal wrap market through the acquisition of Flexia and the Company manufactures Nova-Pac® sleeves and bags for packaging fiberglass, cotton, synthetic fibers and other products for protection during transportation and storage.

The Company also manufactures a wide range of coated engineered polyolefin fabrics that it supplies to converters and manufacturers which produce finished products for specific applications, such as temporary structures, recreational products, protective covers, pond liners, and flame retardant brattice cloth.

The Company has developed a patented fabric design and weaving method for its Nova-Shield™ structure fabrics.  In addition to improved strengths as a result of these innovations the products have been engineered to meet the fire retardant specifications required for human occupancy and to maintain strength in prolonged exposure to UV as encountered in extended outdoor use.  This product is used in applications where PVC fabrics were previously dominant. Further, the Company has entered the metal wrap market with a patent pending wrap, Nova-Wrap™, for steel and aluminum coils and sheets.

Intertape Polymer Group’s most recent engineered fabric product introduction is Aquamaster™, a coated fabric to be used primarily to line man-made canals, decorative ponds and acquaculture installations to prevent water loss into the ground.

The Flexia acquisition has given the Company a position in the markets for coated and laminated paper and foil structures used in form/fill/seal food packaging systems and to package copy and printing paper.

The Company competes with manufacturers of coated engineered fabrics such as Propex, Fabrics, Fabrene, and Firstline, which sell their products to converters and selected end-use market segments.

FIBCs

The Company has been producing flexible intermediate bulk containers, or FIBCs, at a facility in Piedras Negras, Mexico, but as a result of its commitment to increase its importation of FIBCs, Intertape Polymer Group will close the plant effective March 31, 2006.  As a part of the Flexia acquisition, Intertape Polymer Group obtained a small facility in Hawkesbury, Ontario, which the Company believes will be adequate to provide the limited manufacturing support necessary to support the Company’s imported FIBC operation and will strengthen the

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Company’s position in the FIBC market in Canada.  The market for FIBCs is highly competitive and is not dominated by any single manufacturer.

4.3

Sales and Marketing

As of December 31, 2005, the Company maintained a sales force of 120 personnel. The Company participates in industry trade shows and uses trade advertising as part of its marketing efforts. The Company’s overall customer base is diverse, with no single customer accounting for more than 5% of total sales in 2005.  Sales from facilities located in the United States and Canada accounted for approximately 90% and 10% of total sales, respectively, in 2005, 80% and 20% in 2004, and 86% and 14% in 2003. Export sales currently represent 6% of total sales and are included in United States or Canadian sales depending on the manufacturing facility from which the sale originates.

The Company’s sales are primarily focused on distribution products and engineered fabric products. Distribution products go to market through a network of paper and packaging distributors throughout North America. Products sold into this segment include carton sealing, masking, duct and reinforced tapes, Exlfilm® and Stretchflex®. In order to enhance sales of the Company’s pressure-sensitive carton sealing tape, it also sells carton closing systems, including automatic and semi-automatic carton sealing equipment. The Company’s Exlfilm® and Stretchflex® products are sold through an existing industrial distribution base primarily to manufacturers of packaged goods and printing and paper products which package their products internally. The industrial electrical tapes are sold to the electronics and electrical industries.

The Company’s engineered fabric products are sold directly to end-users. The Company offers a line of lumberwrap, valve bags, FIBCs and specialty fabrics manufactured from plastic resins. The engineered fabric products are marketed throughout North America.

4.4

Manufacturing and Quality Control

Intertape Polymer Group’s philosophy is to manufacture those products that are efficient for it from a cost and customer-service perspective. In cases in which the Company manufactures its own products, the Company seeks to do so utilizing the lowest cost raw material and add value to such products by vertical integration. The majority of the Company’s products are manufactured through a process which starts with a variety of polyolefin resins which are extruded into film for further processing. Wide width biaxially oriented polypropylene film is extruded in the Company’s facilities and this film is then coated in high-speed equipment with in-house-produced adhesive and cut to various widths and lengths for carton sealing tape. The same basic process applies for reinforced filament tape, which also uses polypropylene film and adhesive but has fiberglass strands inserted between the layers. Specific markets demand different adhesives and the Company manufactures acrylic solvent based rubber, “hot melt,” aqueous acrylic, solvent acrylic, silicone and water-activated adhesives to respond to all demands. Masking tapes utilize the same process with paper as the coating substrate. Duct tapes utilize a similar process with either polyethylene or aluminum foil type coated cloth.

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The Company is the only North American manufacturer of all four technologies of carton sealing tape: hot melt, acrylic, water-activated and natural rubber. Further, the Company is the only United States manufacturer of natural rubber carton sealing tape. This broad family of carton sealing tapes is further enhanced by the Company’s tape application equipment which is based in Florida.

The Company has utilized its technology for basic film extrusion, essential to the low cost production of pressure-sensitive tape products, to expand its product line into highly technical and sophisticated films. Extrusion of up to five layers of various resins is done in four of the Company’s plants. These high value added films service the shrink and stretch wrap markets, both of which have high entry barriers.

The Company maintains at each of its manufacturing facilities a quality control laboratory and a process control program on a 24-hour basis to monitor the quality of all packaging and engineered fabric products it manufactures. At the end of 2005, ten of the Company’s plants were certified under the ISO-9001:2000 quality standards program.

4.5

Equipment and Raw Materials

Intertape Polymer Group purchases mostly custom designed manufacturing equipment, including extruders, coaters, finishing equipment, looms, printers, bag manufacturing machines and injection molds, from manufacturers located in the United States and Western Europe, and participates in the design and upgrading of such equipment. The Company is not dependent on any one manufacturer for such equipment.

Polyolefin resins are a widely produced petrochemical product and are available from a variety of sources worldwide.  Historically, fluctuations in raw material prices experienced by the Company have been passed on to its customers over time, however, the timing and extent of recent price increases have made it difficult to pass the full impact of such increases on to customers. The Company was unable to achieve meaningful sales price increases until the second quarter of 2004 due to market pressures and the normal time lag between incurring raw material cost increases and passing the increases on to customers in the form of higher sales prices.  During the first half of 2005, synthetic rubber was in short supply.  During the second half of the year two major hurricanes hit the Gulf Coast creating a shortage in petroleum-based resins.  Resin prices rose sharply during 2005, but as a result of a series of timely sales price increases, the Company was able to recover a significant portion of the raw material price increases.  During the first quarter of 2006, petroleum-based resin prices started to decline requiring the Company to reduce its sales prices for certain products in order to remain competitive.

4.6

Research and Development and New Products

The Company has increased its emphasis on applied research which is more efficient in identifying new product opportunities, thus reducing research and development expenses. Research and development continues to focus on new products, technology developments, new

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product processes and formulations. The Company introduced several new products into its markets in 2005.  In 2005, the Company rolled out Genesys™, a high performance machine-grade stretch film, Veneer Tape™, a water activated tape product, and several new filament and masking tapes.

During 2006, in the films sector, Intertape Polymer Group expects to introduce new shrink bundling products to complement the continuing improvements in the Company’s shrink film product line.  As a comparable product to the Genesys™ high performance stretch film, the Company anticipates the introduction of a high performance hand wrap stretch film in 2006.

In the tapes sector, during 2006 Intertape Polymer Group expects to introduce a new generation of filament reinforced product that will allow it to penetrate new market segments.  Additionally, the Company is planning on introducing new generation masking products into the automotive and paint contractor markets.

Research and development expenses in 2003, 2004 and 2005 totaled $3.3 million, $4.2 million and $4.7 million, respectively.

4.7

Trademarks and Patents

Intertape Polymer Group markets its tape products under the trademark Intertape® and various private labels. The Company’s valve or open mouth bags are marketed under the registered trademark Nova-Pac®. Its engineered fabric polyolefin fabrics are sold under the registered trademark Nova-Thene®. The Company’s shrink wrap is sold under the registered trademark Exlfilm®. Its stretch films are sold under the registered trademark Stretchflex®. FIBC's are sold under the registered trademark Cajun® bags. The Company has approximately 150 active registered trademarks, 58 in the United States, 32 in Canada, and 60 foreign, which include trademarks acquired from American Tape, Anchor, Rexford Paper Company, Central Products Company, and Flexia.  The Company currently has 47 pending trademark applications. It does not have, nor does management believe it important to the Company’s b usiness to have, patent protection for its carton sealing tape products. However, the Company has pursued patents in select areas where unique products offer a competitive advantage in profitable markets, primarily in engineered coated products for which the Company has 3 patents and 11 patents pending, film for which it has 6 patents and 12 patents pending, tape products for which it has 9 patents and 5 patents pending, adhesive products for which it has 1 patent and 7 patents pending, and container products for which it has 1 patent.

4.8

Competition

The Company competes with other manufacturers of plastic packaging products as well as manufacturers of alternative packaging products, such as paper, cardboard and paper-plastic combinations. Some of these competitors are larger companies with greater financial resources. management believes that competition, while primarily based on price and quality, is also based on other factors, including product performance characteristics and service. No statistics, however, on the packaging market as a whole are currently publicly available.  Please refer to Section 4.2 above for a discussion of the Company’s main competitors.

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The Company believes that significant barriers to entry exist in the packaging market. management considers the principal barriers to be the high cost of vertical integration which is necessary to operate competitively, the significant number of patents which already have been issued in respect of various processes and equipment, and the difficulties and expense of developing an adequate distribution network.

4.9

Environmental Regulation

Intertape Polymer Group’s operations are subject to extensive environmental regulation in each of the countries in which it maintains facilities. For example, United States (federal, state and local) and Canadian (federal, provincial and local) environmental laws applicable to the Company include statutes and regulations intended to (i) allocate the cost of investigating, monitoring and remedying soil and groundwater contamination among specifically identified parties, (ii) prevent future soil and groundwater contamination; (iii) impose national ambient standards and, in some cases, emission standards, for air pollutants which present a risk to public health, welfare or the natural environment; (iv) govern the handling, management, treatment, storage and disposal of hazardous wastes and substances; and (v) regulate the discharge of pollutants into protected waterways.

The Company’s use of hazardous substances in its manufacturing processes and the generation of hazardous wastes not only by the Company, but by prior occupants of its facilities, suggest that hazardous substances may be present at or near certain of the Company’s facilities or may come to be located there in the future. Consequently, the Company is required to monitor closely its compliance under all the various environmental regulations applicable to the Company. In addition, the Company arranges for the off-site disposal of hazardous substances generated in the ordinary course of its business.

Intertape Polymer Group obtains Phase I or similar environmental site assessments, and Phase II environmental site assessments, if necessary, for most of the manufacturing facilities it owns or leases at the time the Company either acquires or leases such facilities. These assessments typically include general inspections and may involve soil sampling and/or ground water analysis. The assessments have not revealed any environmental liability that, based on current information, the Company believes will have a material adverse effect on the Company. Nevertheless, these assessments may not reveal all potential environmental liabilities and current assessments are not available for all facilities. Consequently, there may be material environmental liabilities that the Company is not aware of. In addition, ongoing clean up and containment operations may not be adequate for purposes of future laws and regulations. The condition s of the Company’s properties could also be affected in the future by neighboring operations or the conditions of the land in the vicinity of the Company’s properties. These developments and others, such as increasingly stringent environmental laws and regulations, increasingly strict enforcement of environmental laws and regulations, or claims for damage to property or injury to persons resulting from the environmental, health or safety impact of the Company’s operations, may cause it to incur significant costs and liabilities that could have a material adverse effect on the Company.

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Except as described below, the Company believes that all of its facilities are in material compliance with applicable environmental laws and regulations, and that the Company has obtained, and is in material compliance with, all material permits required under environmental law.  The Company is currently remediating contamination at its Columbia, South Carolina plant, and it installed a hydraulic barrier at its now closed St. Laurent, Québec plant to prevent off-site migration of contaminated groundwater. Contamination at the Company’s St. Laurent location which migrated to the adjacent property prior to the installation of the hydraulic barrier will also be subject to remediation.  As a result of the recent acquisition of all of the shares of Flexia, the Company has inherited limited soil contamination resulting from historical activities at Flexia’s facility located in Trois-Rivières (formerly the city of Cap-de-la-Madeleine), Québec.  As part of its plan to close the Trois-Rivières facility, the Company will proceed with additional investigation to determine what action is required.  The Company has completed remediation activities at its Marysville, Michigan facility and has requested final approval of the remediation from the State of Michigan.  In addition, although certain of the Company’s facilities emit regulated pollutants into the air, the emissions are within current permitted limitations, including applicable MACT requirements.  The Company believes that the ultimate resolution of these matters should not have a material adverse effect on its financial condition or results of operations.

Intertape Polymer Group and its operating subsidiaries are required to maintain numerous environmental permits and governmental approvals for its operations. Some of the environmental permits and governmental approvals that have been issued to the Company or its operating subsidiaries contain conditions and restrictions, including restrictions or limits on emissions and discharges of pollutants and contaminants, or may have limited terms. If the Company or any of its operating subsidiaries fails to satisfy these conditions or to comply with these restrictions, it may become subject to enforcement action and the operation of the relevant facilities could be adversely affected. The Company may also be subject to fines, penalties or additional costs. The Company or its operating subsidiaries may not be able to renew, maintain or obtain all environmental permits and governmental approvals required for the continued operation or further development of its facilities, as a result of which the operation of its facilities may be limited or suspended.

4.10

Employees

As of December 31, 2005, Intertape Polymer Group employed approximately 2,700 people, 800 of whom held either sales-related, operating or administrative positions and 1,900 of whom were employed in production.  Approximately 169 hourly employees at the Marysville plant are unionized and subject to a collective bargaining agreement which expires on April 29, 2007. Approximately 161 hourly employees at the Menasha plant are unionized and subject to a collective bargaining agreement which expires on July 31, 2008. Approximately 157 employees at the Piedras Negras, Mexico facility are unionized and are subject to an agreement dated January 1, 2003, which continues indefinitely and provides for, among other things, annual salary reviews and bi-annual reviews of terms.  Approximately 39 hourly employees at the Carbondale plant are unionized and subject to a collective bargaining agreement which expires on March 4, 200 9.  The fabric plant in Hawkesbury, Ontario, has 37 unionized employees whose agreement expires October 10, 2008.  The bag plant in Hawkesbury, Ontario, is also unionized,

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having 12 members whose agreement expires May 15, 2008.  In Langley, British Columbia, 48 employees are represented, their agreement expiring March 31, 2010.  The union agreement of Brantford, Ontario, expires February 28, 2008, and covers 76 employees.  Finally, the plant at Trois-Rivières (formerly the city of Cap-de la-Madeleine), Québec, has 36 employees whose agreement expires March 31, 2010.  Upon the closing of the plant, the employees will be terminated in accordance with the terms of the agreement and the agreement cancelled.  The Company has never experienced a work stoppage and it considers its employee relations to be satisfactory.

Item 5. Cautionary Statements and Risk Factors

5.1

Forward-Looking Statements

This Annual Information Form, including the Management’s Discussion & Analysis incorporated herein by reference, contains certain "forward-looking statements" concerning, among other things, discussions of the business strategy of Intertape Polymer Group and expectations concerning the Company’s future operations, liquidity and capital resources.  When used in this Annual Information Form, the words "anticipate", "believe", "estimate", “intends”, "expect" and similar expressions are generally intended to identify forward-looking statements.  Such forward-looking statements, including statements regarding intent, belief or current expectations of the Company or its management, are not guarantees of future performance and involve risks and uncertainties.  All statements other than statements of historical fact made in this Annual Inform ation Form or in any document incorporated herein by reference are forward-looking statements.  In particular, the statements regarding industry prospects and the Company’s future results of operations or financial position are forward-looking statements.  Forward-looking statements reflect the Company’s current expectations and are inherently uncertain.  Actual results may differ materially from those in the forward-looking statements as a result of various factors, including those factors set forth below and other factors discussed elsewhere in this Annual Information Form and in the Management’s Discussion & Analysis for 2005.  In addition to the other information contained in this Annual Information Form, readers should carefully consider the above cautionary statements as well as the risk factors set forth below.  The Company undertakes no duty to update its forward-looking statements, including its earnings outlook.

Although the Company believes that these forward-looking statements are based on reasonable assumptions, you should be aware that many factors could affect the Company’s actual financial results or results of operations and could cause actual results to differ materially from those expressed in the forward-looking statements. These factors include, among other things the Company’s significant indebtedness and ability to incur substantially more debt; restrictions and limitations contained in the agreements governing its debt; the Company’s substantial leverage and ability to generate sufficient cash to service its debt; increases in the cost of the Company’s principal raw materials; availability of raw materials; the effects of acquisitions the Company might make; the timing and market acceptance of the Company’s new products; the Company’s ability to achieve anticipated cost savings from its corporate initiatives; competition in the industry and markets in which the Company operates; the Company’s ability to comply with applicable environmental laws; potential litigation relating to the Company’s

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intellectual property rights; the loss of, or deterioration of the Company’s relationship with, any significant customers; changes in operating expenses or the need for additional capital expenditures; changes in the Company’s strategy; and general economic conditions.

In light of these risks and uncertainties, there can be no assurance that the results and events contemplated by the forward-looking statements contained in this Annual Information Form and in the Management’s Discussion and Analysis will in fact transpire.

The Management’s Discussion and Analysis for 2005 incorporated herein by reference contain certain non-GAAP financial measures as defined under SEC rules, including adjusted net earnings, operating profit, free cash flow, EBITDA, and adjusted EBITDA.  The Company believes such non-GAAP financial measures improve the transparency of the Company's disclosure, provide a meaningful presentation of the Company's results from its core business operations, excluding the impact of items not related to the Company's ongoing core business operations, and improve the period-to-period comparability of the Company's results from its core business operations. As required by SEC rules, the Company has provided in its Management Discussion and Analysis for 2005 reconciliations of those measures to the most directly comparable GAAP measures.

In addition to the other information contained in this Annual Information Form, readers should carefully consider the above cautionary statements as well as the risk factors set forth below.

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5.2

Risk Factors

Risks Relating to the Company’s Business

Increases in raw material costs or the unavailability of raw materials may adversely affect the Company’s profitability.

Intertape Polymer Group has historically been able to pass on significant raw material cost increases through price increases to its customers.  Nevertheless, the Company’s results of operations for individual quarters can and have been negatively impacted by delays between the time of raw material cost increases and price increases in its products.  For example, during 2004, significant increases in the costs of polypropylene and natural rubber adversely affected the Company’s profitability because it was unable to pass along all of these price increases to its customers on a timely basis.  The Company had difficulty in increasing its prices to offset these higher costs due to the failure of competitors to increase prices and customer resistance to price increases.  The Company’s profitability in the future may be adversely affected due to continuing increases in raw material prices. &n bsp;Additionally, the Company relies on its suppliers for deliveries of raw materials.  If any of its suppliers were unable to deliver raw materials to the Company for an extended period of time, there is no assurance that the Company’s raw material requirements would be met by other suppliers on acceptable terms, or at all, which could have a material adverse effect on the Company’s results of operations.

Acquisitions have been and are expected to continue to be a substantial part of the Company’s growth strategy, which could expose it to significant business risks.

An important aspect of Intertape Polymer Group’s business strategy is to make strategic acquisitions that will complement its existing products, expand its customer base and markets, improve distribution efficiencies and enhance its technological capabilities. Financial risks from these acquisitions include the use of the Company’s cash resources and incurring additional debt and liabilities. Further, there are possible operational risks including difficulties in assimilating and integrating the operations, products, technology, information systems and personnel of acquired companies; the loss of key personnel of acquired entities; the entry into markets in which the Company has no or limited prior experience; and difficulties honoring commitments made to customers of the acquired companies prior to the acquisition. The failure to adequately address these risks could adversely affect the Company’s business.

Although the Company performs due diligence investigations of the businesses or assets that it acquires, and anticipates continuing to do so for future acquisitions, there may be liabilities related to the acquired business or assets that the Company fails to, or is unable to, uncover during its due diligence investigation and for which the Company, as a successor owner, may be responsible. When feasible, the Company seeks to minimize the impact of these types of potential liabilities by obtaining indemnities and warranties from the seller, which may in some instances be supported by deferring payment of a portion of the purchase price. However, these indemnities and warranties, if obtained, may not fully cover the liabilities because of their limited scope, amount or duration, the financial resources of the indemnitor or warrantor or other reasons.

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The Company’s ability to achieve its growth objectives depends in part on the timing and market acceptance of its new products.

Intertape Polymer Group’s business plan involves the introduction of new products, which are both developed internally and obtained through acquisitions. The Company’s ability to introduce these products successfully depends on the demand for the products, as well as their price and quality. In the event the market does not accept these products or competitors introduce similar products, the Company’s ability to expand its markets and generate organic growth could be negatively impacted which could have an adverse affect on its operating results.

The Company faces significant competition.

The markets for Intertape Polymer Group’s products are highly competitive. Competition in its markets is primarily based upon the quality, breadth and performance characteristics of its products, customer service and price. The Company’s ability to compete successfully depends upon a variety of factors, including its ability to maintain high plant efficiencies and operating rates and low manufacturing costs, as well as its access to quality, low-cost raw materials.

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Some of the Company’s competitors outside of North America may, at times, have lower raw material, energy and labor costs and less restrictive environmental and governmental regulations to comply with than the Company does. Other competitors may be larger in size or scope than is the Company, which may allow them to achieve greater economies of scale on a global basis or allow them to better withstand periods of declining prices and adverse operating conditions.

In addition, there has been an increasing trend among the Company’s customers towards consolidation. With fewer customers in the market for its products, the strength of the Company’s negotiating position with these customers could be weakened, which could have an adverse effect on its pricing, margins and profitability.

Intertape Polymer Group faces risks related to its international operations.

The Company has customers and operations located outside the United States and Canada. In 2005, sales to customers located outside the United States and Canada represented approximately five percent of its sales. The Company’s international operations present it with a number of risks and challenges, including the effective marketing of the Company’s products in other countries; tariffs and other trade barriers; and different regulatory schemes and political environments applicable to its operations in these areas, such as environmental and health and safety compliance.

In addition, the Company’s financial statements are reported in U.S. dollars while a portion of its sales is made in other currencies, primarily the Canadian dollar and the Euro. A portion of the Company’s debt is also denominated in currencies other than the U.S. dollar. As a result, fluctuations in exchange rates between the U.S. dollar and foreign currencies can have a negative impact on the Company’s reported operating results and financial condition. Moreover, in some cases, the currency of the Company’s sales does not match the currency in which it incurs costs, which can negatively affect its profitability. Fluctuations in exchange rates can also affect the relative competitive position of a particular facility where the facility faces competition from non-local producers, as well as the Company’s ability to successfully market its products in export markets.

The Company’s operations are subject to comprehensive environmental regulation and involve expenditures which may be material in relation to its operating cash flow.

The Company’s operations are subject to extensive environmental regulation in each of the countries in which it maintains facilities. For example, United States (Federal and state) and Canadian (Federal and provincial) environmental laws applicable to the Company include statutes and regulations intended to allocate the cost of investigating, monitoring and remedying soil and groundwater contamination among specifically identified parties, as well as to prevent future soil and groundwater contamination; imposing national ambient standards and, in some cases, emission standards, for air pollutants which present a risk to public health, welfare or the natural environment;   governing the handling, management, treatment, storage and disposal of

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hazardous wastes and substances; and regulating the discharge of pollutants into protected waterways.

The Company’s use of hazardous substances in its manufacturing processes and the generation of hazardous wastes not only by the Company, but by prior occupants of its facilities suggest that hazardous substances may be present at or near certain of the Company’s facilities or may come to be located there in the future. Consequently, the Company is required to monitor closely its compliance under all the various environmental regulations applicable to it. In addition, the Company arranges for the off-site disposal of hazardous substances generated in the ordinary course of its business.

The Company obtains Phase I or similar environmental site assessments, and Phase II environmental site assessments, if necessary, for most of the manufacturing facilities it owns or leases at the time it either acquires or leases such facilities. These assessments typically include general inspections and may involve soil sampling and/or ground water analysis. The assessments have not revealed any environmental liability that, based on current information, the Company believes will have a material adverse effect on it. Nevertheless, these assessments may not reveal all potential environmental liabilities and current assessments are not available for all facilities. Consequently, there may be material environmental liabilities that the Company is not aware of. In addition, ongoing clean up and containment operations may not be adequate for purposes of future laws and regulations. The conditions of the Company’s proper ties could also be affected in the future by neighboring operations or the conditions of the land in the vicinity of its properties. These developments and others, such as increasingly stringent environmental laws and regulations, increasingly strict enforcement of environmental laws and regulations, or claims for damage to property or injury to persons resulting from the environmental, health or safety impact of its operations, may cause the Company to incur significant costs and liabilities that could have a material adverse effect on it.

Except as described below, the Company believes that all of its facilities are in material compliance with applicable environmental laws and regulations and that it has obtained, and is in material compliance with, all material permits required under environmental laws. The Company is currently remediating contamination at its Columbia, South Carolina plant, and it installed a hydraulic barrier at its now closed St. Laurent, Québec plant to prevent off-site migration of contaminated groundwater. Contamination at the Company’s St. Laurent location may have migrated to the adjacent property.  The Company is investigating to determine what additional action is required.  The Company has completed remediation activities at its Marysville, Michigan facility and has requested final approval of the remediation from the State of Michigan.  In addition, although certain of the Company’s facilit ies emit toluene and other pollutants into the air, these emissions are within current permitted limitations. The Company believes that these emissions from its U.S. facilities will meet the applicable future federal Maximum Available Control Technology ("MACT") requirements, although additional testing or modifications at the facilities may be required.  Currently, the Company estimates the cost of additional testing or modification at the facilities to comply with MACT requirements will be less than $125 thousand through 2006.  The Company believes that the ultimate resolution of these matters should not have a material adverse effect on its financial condition or results of operations.

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The Company’s facilities are required to maintain numerous environmental permits and governmental approvals for its operations. Some of the environmental permits and governmental approvals that have been issued to the Company or to its facilities contain conditions and restrictions, including restrictions or limits on emissions and discharges of pollutants and contaminants, or may have limited terms. If the Company fails to satisfy these conditions or to comply with these restrictions, it may become subject to enforcement actions and the operation of the relevant facilities could be adversely affected. The Company may also be subject to fines, penalties or additional costs. The Company may not be able to renew, maintain or obtain all environmental permits and governmental approvals required for the continued operation or further development of the facilities, as a result of which the operation of the facilities may b e limited or suspended.

The Company may become involved in litigation relating to its intellectual property rights, which could have an adverse impact on its business.

Intertape Polymer Group relies on patent protection, as well as a combination of copyright, trade secret and trademark laws, nondisclosure and confidentiality agreements and other contractual restrictions to protect its proprietary technology. Litigation may be necessary to enforce these rights, which could result in substantial costs to the Company and a substantial diversion of management attention. If the Company does not adequately protect its intellectual property, its competitors or other parties could use the intellectual property that the Company has developed to enhance their products or make products similar to the Company’s and compete more efficiently with it, which could result in a decrease in the Company’s market share.

While the Company has attempted to ensure that its products and the operations of its business do not infringe other parties' patents and proprietary rights, its competitors or other parties may assert that the Company’s products and operations may be covered by patents held by them. In addition, because patent applications can take many years to issue, there may be applications now pending of which the Company is unaware, which may later result in issued patents which the Company’s products may infringe. If any of the Company’s products infringe a valid patent, it could be prevented from selling them unless the Company can obtain a license or redesign the products to avoid infringement. A license may not always be available or may require the Company to pay substantial royalties. The Company may not be successful in any attempt to redesign any of its products to avoid any infringement. Infringement or othe r intellectual property claims, regardless of merit or ultimate outcome, can be expensive and time-consuming and can divert management's attention from the Company’s core business.

The Company may become involved in labor disputes or employees could form or join unions increasing the Company’s costs to do business.

Some of Intertape Polymer Group's employees are subject to collective bargaining agreements. Other employees are not part of a union and there are no assurances that such employees will not form or joint a union. Any attempt by employees to form or join a union could result in increased labor costs and adversely affect the Company’s business, its financial condition and/or results of operations.

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The Company has never experienced any work stoppages due to employee related disputes. Management believes that it has a good relationship with is employees. There can be no assurance that work stoppages, or other labor disturbances will not occur in the future. Such occurrences could adversely affect Intertape Polymer Group's business, financial condition and/or results of operations.

The Company may become involved in litigation which could have an adverse impact on its business.

Intertape Polymer Group, like other manufacturers and sellers, is subject to potential liabilities connected with its business operations, including potential liabilities and expenses associated with product defects, performance, reliability or delivery delays. Intertape Polymer Group is threatened from time to time with, or is named as a defendant in, legal proceedings, including lawsuits based upon product liability, personal injury, breach of contract and lost profits or other consequential damages claims, in the ordinary course of conducting its business. A significant judgment against Intertape Polymer Group, or the imposition of a significant fine or penalty, as a result of a finding that the Company failed to comply with laws or regulations, or being named as a defendant on multiple claims could adversely affect the Company's business, financial condition and/or results of operations.

Uninsured and underinsured losses and rising insurance costs could adversely affect the Company’s business.

Intertape Polymer Group maintains property, general liability and business interruption insurance and directors and officers liability insurance on such terms as it deems appropriate. This may result in insurance coverage that, in the event of a substantial loss, would not be sufficient to pay for the full current market value or current replacement cost of the Company's lost investment.  Not all risks are covered by insurance.

Intertape Polymer Group's cost of maintaining property general liability and business interruption insurance and director and officer liability insurance is significant. The Company could experience higher insurance premiums as a result of adverse claims experience or because of general increases in premiums by insurance carriers for reasons unrelated to its own claims experience. Generally, the Company's insurance policies must be renewed annually. Intertape Polymer Group's ability to continue to obtain insurance at affordable premiums also depends upon its ability to continue to operate with an acceptable claims record. A significant increase in the number of claims against the Company, the assertion of one or more claims in excess of its policy limits or the inability to obtain adequate insurance coverage at acceptable rates, or at all, could adversely affect the Company's business, financial condition and/or results o f operations.

Product liability could adversely affect the Company’s business.

Difficulties in product design, performance and reliability could result in lost sales, delays in customer acceptance of Intertape Polymer Group's products and lawsuits and would be detrimental to the Company's market reputation. Intertape Polymer Group's products and the

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products supplied by third parties, on behalf of the Company, are not error free. Undetected errors or performance problems may be discovered in the future. The Company may not be able to successfully complete the development of planned or future products in a timely manner or to adequately address product defects, which could harm the Company's business and prospects. In addition, product defects may expose Intertape Polymer Group to product liability claims, for which it may not have sufficient product liability insurance. Difficulties in product design, performance and reliability or product liability claims could adversely affect Intertape Polymer Group's business, financial condition and/or results of operations.

Risks Relating to the Company’s Indebtedness

The Company’s substantial debt could adversely affect its financial condition and prevent it from fulfilling its obligations under its Senior Secured Credit Facility or Senior Subordinated Notes.

The Company has a significant amount of indebtedness.  As of December 31, 2005, the Company had outstanding debt of approximately $345.9 million, which represented 44.3% of its total capitalization.  Of such total debt, approximately $197.5 million, or all of the Company’s outstanding senior debt, was secured.  Furthermore, an additional $53.0 million (net of $7.0 million in outstanding letters of credit and $15.0 million in outstanding draws) in loans available under the Company’s Senior Credit Facility, subject to certain restrictive covenants, also would be secured, if drawn upon.

The Company’s substantial indebtedness could adversely affect its financial condition and make it more difficult for the Company to satisfy its obligations with respect to the Senior Subordinated Notes, as well as its obligations under its Senior Secured Credit Facility.  The Company’s substantial indebtedness could also increase its vulnerability to adverse general economic and industry conditions; require the Company to dedicate a substantial portion of its cash flows from operations to payments on its indebtedness, thereby reducing the availability of the Company’s cash flows to fund working capital, capital expenditures, research and development efforts and other general corporate purposes; limit the Company’s flexibility in planning for, or reacting to, changes in its business and the industry in which it operates; place the Company at a competitive disadvantage compared to its competitors th at have less debt; and limit the Company’s ability to borrow additional funds on terms that are satisfactory to it or at all.

Despite the Company’s level of indebtedness, it will be able to incur substantially more debt. Incurring such debt could further exacerbate the risks to the Company’s financial condition described above.

The Company will be able to incur significant additional indebtedness in the future. Although the indenture governing the Senior Subordinated Notes and the credit agreement governing the Senior Secured Credit Facility each contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of qualifications and exceptions and the indebtedness incurred in compliance with these restrictions could be substantial. The restrictions also do not prevent the Company from incurring obligations that do

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not constitute indebtedness. To the extent new debt is added to the Company’s currently anticipated debt levels, the substantial leverage risks described above would increase.

The Company’s Senior Subordinated Notes and Senior Secured Credit Facility contain covenants that limit its flexibility and prevents the Company from taking certain actions.

The indenture governing the Company’s Senior Subordinated Notes and the credit agreement governing the Company’s Senior Secured Credit Facility include a number of significant restrictive covenants. These covenants could adversely limit the Company’s ability to plan for or react to market conditions, meet its capital needs and execute its business strategy. These covenants, among other things, limit the Company’s ability and the ability of its restricted subsidiaries to incur additional debt; pay dividends and make other restricted payments; create or permit certain liens; issue or sell capital stock of restricted subsidiaries; use the proceeds from sales of assets; make certain investments; create or permit restrictions on the ability of the guarantors to pay dividends or to make other distributions to the Company; enter into certain types of transactions with affiliates; engage in unrelated businesse s; enter into sale and leaseback transactions; and consolidate or merge or sell the Company’s assets substantially as an entirety.

The Company’s Senior Secured Credit Facility includes other and more restrictive covenants and prohibits the Company from prepaying its other debt, including the Senior Subordinated Notes, while borrowings under the Company’s Senior Secured Credit Facility are outstanding.  The Company’s Senior Secured Credit Facility also requires it to maintain certain financial ratios and meet other financial tests. The Company’s failure to comply with these covenants could result in an event of default, which, if not cured or waived, could result in the Company being required to repay these borrowings before their scheduled due date. If the Company were unable to make this repayment or otherwise refinance these borrowings, the lenders under the Senior Secured Credit Facility could elect to declare all amounts borrowed under the Company’s Senior Secured Credit Facility, together with accrued interest, to b e due and payable, which, in some instances, would be an event of default under the indenture governing the Senior Subordinated Notes. In addition, these lenders could foreclose on the Company’s assets. If the Company was unable to refinance these borrowings on favorable terms, the Company’s results of operations and financial condition could be adversely impacted by increased costs and less favorable terms, including interest rates and covenants. Any future refinancing of the Company’s Senior Secured Credit Facility is likely to contain similar restrictive covenants and financial tests.

The Company may not be able to generate sufficient cash flow to meet its debt service obligations.

The Company’s ability to generate sufficient cash flows from operations to make scheduled payments on its debt obligations will depend on its future financial performance, which will be affected by a range of economic, competitive, regulatory, legislative and business factors, many of which are outside of the Company’s control. If the Company does not generate sufficient cash flows from operations to satisfy its debt obligations, the Company may have to undertake alternative financing plans, such as refinancing or restructuring its debt, selling assets, reducing or delaying capital investments or seeking to raise additional capital. The Company

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cannot assure that any refinancing would be possible or that any assets could be sold on acceptable terms or otherwise. The Company’s inability to generate sufficient cash flows to satisfy its debt obligations, or to refinance its obligations on commercially reasonable terms, would have an adverse effect on the Company’s business, financial condition and results of operations. In addition, any refinancing of the Company’s debt could be at higher interest rates and may require the Company to comply with more onerous covenants, which could further restrict its business operations.

Because Intertape Polymer Group is a Canadian company, it may be difficult to enforce rights under U.S. bankruptcy laws.

Intertape Polymer Group and certain of its subsidiaries are incorporated under the laws of Canada and a substantial amount of its assets are located outside of the United States. Under bankruptcy laws in the United States, courts typically assert jurisdiction over a debtor's property, wherever located, including property situated in other countries. However, courts outside of the United States may not recognize the United States bankruptcy court's jurisdiction over property located outside of the territorial limits of the United States. Accordingly, difficulties may arise in administering a United States bankruptcy case involving a Canadian debtor with property located outside of the United States, and any orders or judgments of a bankruptcy court in the United States may not be enforceable outside the territorial limits of the United States.

It may be difficult for investors to enforce civil liabilities against Intertape Polymer Group under U.S. federal and state securities laws.

Intertape Polymer Group and certain of its subsidiaries are incorporated under the laws of Canada.  Certain of their directors and executive officers are residents of Canada and a portion of their assets are located outside of the United States. In addition, certain subsidiaries are located in other foreign jurisdictions.  As a result, it may be difficult or impossible for U.S. investors to effect service of process within the United States upon Intertape Polymer Group, its Canadian subsidiaries, or its other foreign subsidiaries, or those directors and officers or to realize against them upon judgments of courts of the United States predicated upon the civil liability provisions of U.S. federal securities laws or securities or blue sky laws of any state within the United States.  The Company believes that a judgment of a U.S. court predicated solely upon the civil liability provisions of the Securities Act and/or the Exchange Act would likely be enforceable in Canada if the U.S. court in which the judgment was obtained had a basis for jurisdiction in the matter that was recognized by a Canadian court for such purposes. The Company cannot assure that this will be the case.  There is substantial doubt whether an action could be brought in Canada in the first instance on the basis of liability predicated solely upon such laws.

Anti-takeover provisions in the Company’s Shareholder Protection Rights Plan may prevent an acquisition.  

Intertape Polymer Group has a Shareholder Protection Rights Plan (the “Plan”) which will remain in effect through the date immediately following the date of the Company’s 2006 annual shareholders’ meeting.  The shareholders at their June 14, 2006 meeting will vote on the adoption of an amended Plan which, among other things, would extend the Plan through the date

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immediately following the date of the Company’s 2009 annual shareholders’ meeting.  The effect of the Plan is to currently require anyone who seeks to acquire 20% or more of Intertape Polymer Group’s voting shares to make a bid complying with specific provisions of the Plan.  Thus, the provisions of the Plan could prevent or delay the acquisition of the Company by means of a tender offer, a proxy contest, or otherwise, in which shareholders might receive a premium over the then current market price of the Company’s common shares.

The Company’s exemptions under the Securities Exchange Act of 1934 (“Exchange Act”) as a foreign private issuer limits the protections and information afforded investors.  

Intertape Polymer Group is a foreign private issuer within the meaning of the rules promulgated under the Exchange Act.  As such, it is exempt from certain provisions applicable to United States companies with securities registered under the Exchange Act, including: the rules under the Exchange Act requiring the filing with the Securities and Exchange Commission of quarterly reports on Form 10-Q or current reports on Form 8-K; the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act; and the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and establishing insider liability for profits realized from any "short-swing" trading transaction (i.e., a purchase and sale, or sale and purchase, of the issuer's equity securities within a period of less than six months).  Because of these exemptions, purchasers of Intertape Polymer Group's securities are not afforded the same protections or information generally available to investors in public companies organized in the United States.  Intertape Polymer Group previously filed its annual reports on Form 20-F.  Commencing with the year ended December 31, 2000, the Company files its annual report on Form 40-F.  Intertape Polymer Group reports on Form 6-K with the Commission and publicly releases quarterly financial reports.

Item 6.

 Dividends

The Company has no written policy for the payment of dividends.  So long as the payment does not result in a violation of the Company’s covenants with its lenders and noteholders, there are no other restrictions that would prevent the Company from paying dividends.  However, the Company has not paid dividends in the past three years and has no current intention to pay dividends in the upcoming fiscal year.  For details regarding the Company’s covenants with its lenders and noteholders please refer to the Registration Statement filed on www.sedar.com in Canada and www.sec.gov in the U.S. on October 26, 2004 as Registration No. 333-119982, as amended.

Item 7.

 General Description of Capital Structure

7.1

General Description of Capital Structure

Intertape Polymer Group has authorized an unlimited number of voting common shares without par value.  The Company also has authorized an unlimited number of non-voting Class A preferred shares issuable in a series, ranking in priority to the common shares with respect to dividends and return of capital on dissolution.  The Board of Directors is authorized to fix, before

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issuance, the designation, rights, privileges, restrictions and conditions attached to the shares of each series of Class A preferred shares.  As of December 31, 2005, there were 40,957,574 issued and outstanding common shares and no issued and outstanding preferred shares of the Company. As of March 28, 2006, there were 40,984,940 issued and outstanding common shares of the Company.  No preferred shares of the Company are issued and outstanding.

7.2

Ratings

Intertape Polymer US Inc., a finance subsidiary of Intertape Polymer Group, has issued in the aggregate $125 million Senior Subordinate Notes that bear interest at 8-½% per annum and will mature August 1, 2014.

Moody Investor Service, Inc. (“Moody”) last rated the Senior Subordinate Notes on July 7, 2004 and at that time rated them B3 (stable), which it affirmed on October 27, 2005.  Standard & Poor’s (“S&P”) last rated the Senior Subordinated Notes on February 9, 2006 and rated them B-.

The credit ratings provided by S&P and Moody’s (collectively “Rating Agencies”) are not recommendations to buy, hold or sell the securities, as such ratings do not comment on the market price or suitability of the securities for a particular investor.  There is no assurance that any rating will remain in effect for any given period of time or that any rating will not be revised or withdrawn entirely by a Rating Agency in the future if in its judgment circumstances so warrant.

Credit ratings are intended to provide investors with an independent measure of credit quality of an issue of securities.  Ratings for debt instruments are presented in ranges by each of the Rating Agencies.  The highest quality of securities are rated AAA, in the case of S&P and Aaa, in the case of Moody’s.  The lowest quality of securities are rated D, in the case of S&P and C, in the case of Moody’s.

Pursuant to Moody’s rating system, notes which are rated B are considered speculative and are subject to a high credit risk.  Moody appends numerical modifiers from 1 to 3 on its long-term debt ratings which indicate where the obligation ranks in its rating category, with 1 being the highest.  Moody’s outlook is its assessment regarding the likely direction of the ratings over the medium term, 18 to 36 months.

According to the S&P rating system, issuers of debt securities rated B are judged to have the current capacity to meet their financial commitment but adverse business, financial or economic conditions will likely impair the issuer’s capacity to meet its financial obligations.  S&P also uses the plus or minus sign to show relative standing within the major rating categories.  The issue rating definitions are expressed in terms of default risk, thus subordinated debt is typically rated lower than senior debt and the rating of subordinated debt may not conform exactly with the category definition.

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Item 8.

 Market for Securities

8.1

Trading Prices and Volume on the Toronto Stock Exchange

The Company’s common shares are traded on the Toronto Stock Exchange under the symbol “ITP”.  Set forth below is the price range and volume traded on the Toronto Stock Exchange for each month of 2005.

Month	Price Range (CDN$)	Volume Traded
January	$9.64- 11.34	30,660
February	$9.05- 10.09	157,465
March	$8.60-10.10	49,327
April	$8.99-10.10	57,405
May	$10.00- 12.04	75,624
June	$11.03- 12.59	36,577
July	$9.40-13.81	62,340
August	$8.32- 9.78	96,000
September	$8.04- 8.92	70,895
October	$7.37- 9.49	128,000
November	$8.50- 9.35	45,436
December	$8.96- 10.37	67,745

8.2

Trading Prices and Volume on the New York Stock Exchange

The Company’s common shares are also traded on the New York Stock Exchange under the symbol “ITP”.  The 2005 monthly price range and volume traded on the New York Stock Exchange is as follows:

Month	Price Range (US$)	Volume Traded
January	$7.77- 9.29	32,485
February	$7.40- 8.14	153,373
March	$7.11- 8.34	58,190
April	$7.35- 8.04	51,295
May	$7.97- 9.50	40,609
June	$8.80- 10.23	40,886
July	$7.60- 11.25	102,140
August	$6.85- 8.18	115,708
September	$6.90- 7.56	91,480

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October	$6.27- 8.03	45,466
November	$7.08- 7.96	68,100
December	$7.65- 8.97	83,561

Item 9.

 Escrowed Securities

250,587 of the Company’s common shares were placed into escrow pursuant to the terms of an Escrow Agreement dated September 25, 2000, entered into in connection with the Company’s acquisition of the assets of Olympian Tape Sales Inc.  The escrow agent was SunTrust Bank, Corporate Trust Services Division, Atlanta, Georgia.  The shares were released in 2005 upon the settlement of certain claims arising out of the transaction and the agreement of the parties thereto and were returned by the escrow agent to Intertape Polymer Group.  The shares were then cancelled.

Item 10. Directors and Officers

The following table sets forth the name, residence, position, and principal occupations for the last five (5) years of each Director of the Company as of the date hereof, as well as the date upon which each Director was first elected.  Each Director serves for a term of one year and may be nominated for re-election at the following annual shareholders’ meeting.  The next annual shareholders’ meeting is to be held on June 14, 2005, at which time the current term of each Director will expire.  It is contemplated that each Director will be nominated for re-election at the upcoming annual meeting.

Name and City of Residence	Position and Occupation	First Year as Director
Melbourne F. Yull Sarasota, Florida	Director, Chairman of the Board CEO of the Company	1989
Michael L. Richards Montreal, Quebec	Director Attorney, Senior Partner, Stikeman Elliott LLP	1989
Ben J. Davenport, Jr. Chatham, Virginia	Director CEO, Chatham Oil Company, a distributor of oil, gasoline and propane; Chairman & CEO, First Piedmont Corporation, a waste hauling business	1994
L. Robbie Shaw Halifax, Nova Scotia	Director President, IWK Health Centre Foundation Former Vice President, Nova Scotia Community College	1994
Gordon R. Cunningham Toronto, Ontario	Director President, Cumberland Private Wealth Management Inc., a discretionary investment management firm	1998

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John E. Richardson Toronto, Ontario	Director Chairman, Ontario Pension Board; Chairman, Boiler Inspection and Insurance Company of Canada; Director, Research in Motion; Trustee, Armtec Limited Income Trust; Trustee, Resolve Business Outsourcing Income Fund; former Deputy Chairman of London Insurance Group Inc.; former Chairman, President and CEO of Wellington Insurance Co.; former President of Great Lakes Power; former senior partner of Clarkson Gordon & Co. (now Ernst &Young)	2005
Thomas E. Costello Longboat Key, Florida	Director Former CEO of xpedx , a subsidiary of International Paper Company, from 1991 to 2002 (Since Retired)	2002

The following table sets forth the name, residence and position of each executive officer of the Company as of the date hereof, as well as the date upon which each executive officer was first elected:

Name and City of Residence	Position and Occupation	First Elected To Office
Melbourne F. Yull Sarasota, Florida	Chief Executive Officer	1992
Andrew M. Archibald, C.A. Sarasota, Florida	Chief Financial Officer and Secretary	1995
Burgess H. Hildreth Sarasota, Florida	Vice President, Human Resources	1998
James A. Jackson Sarasota, Florida	Vice President, Chief Information Officer	1998
H. Dale McSween Sarasota, Florida	Executive Vice-President, Operations	1999
Gregory A. Yull Sarasota, Florida	President, Distribution Products	1999
Jim Bob Carpenter Sarasota, Florida	Executive Vice President, Global Sourcing	1999
Duncan R. Yull Sarasota, Florida	Executive Vice President, Strategic Planning & International Business	1999
Victor DiTommaso, CPA Sarasota, Florida	Vice President, Finance and Treasurer	2003

The principal occupations of each executive officer for the last five (5) years is as follows:

Melbourne F. Yull, established the business and has been the Company’s Chief Executive Officer since 1992.

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Andrew M. Archibald has been Chief Financial Officer and Secretary since May 1995.  He was Vice President Administration from May 1995 through January 2005.  He was Vice President Finance from May, 1995, to January 15, 1999.  Prior thereto he served as Vice-President, Finance and Secretary of the Company since 1989.

Burgess H. Hildreth has been Vice President, Human Resources, since October, 1998.  Prior to that he had been the Vice President Administration of Anchor Continental, Inc. since June, 1996.

James A. Jackson has been Vice-President, Chief Information Officer, since September 1, 1998.  Prior to that he had been the Managing Partner of Spectrum Information Management Systems since 1996.

H. Dale McSween was appointed Executive Vice President, Operations in January, 2005.  Prior to that he served as President, Distribution Products, since December, 1999 and as Executive Vice-President and Chief Operating Officer from May 1995.

Gregory A. Yull, a son of Melbourne F. Yull, was appointed President, Distribution Products, in January, 2005.  He served as President, Film Products, since June, 1999.  Prior to that he was Products Manager - Films since 1995.

Jim Bob Carpenter was appointed Executive Vice President, Global Sourcing in January, 2005.  Prior to that he served as the President, Woven Products, Procurement, since May 1, 1999 and prior to that, he was the General Manager of Polypropylene Fina Oil & Chemical Co.

Duncan R. Yull, a son of Melbourne F. Yull, was appointed Executive Vice President, Strategic Planning and International Business in January, 2005.  He was Vice President Sales, Distribution Products, since December, 1999.  Prior to that he was a Regional Sales Manager for the Company until 1997 and was the Director of Sales until December, 1999.

Victor DiTommaso was appointed Vice President, Finance on April 24, 2003.  He was also appointed Treasurer on May 25, 2005.  Prior to that he had served as the Senior Vice President of Information Technology of Walls Industries, Inc. since July, 2000, and Senior Vice President of Finance since July, 1998.

As of March 26, 2006, the directors and executive officers of the Company as a group owned beneficially, directly or indirectly, or exercised control or direction over, 919,565 common shares, representing approximately 2.2% of all common shares outstanding.  In addition, the directors and executive officers as a group have 2,875,071 options to purchase common shares of the Company.

The Board of Directors has established three committees, the Audit Committee, the Compensation Committee, and the Nominating & Governance Committee to facilitate the carrying out of its duties and responsibilities and to meet applicable statutory requirements.  

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Canadian Multilateral Instrument 52-110-Audit Committees, requires, inter alia, that all members of the Audit Committee be directors of the Company, be independent of the Company, be financially literate, and that the Audit Committee be comprised of at least three members.  The Company’s Audit Committee complies with Canadian Multilateral Instrument 52-110-Audit Committees as it is composed of four independent, financially literate directors, namely L. Robbie Shaw, Gordon R. Cunningham, Thomas E. Costello, and John E. Richardson.  Further details regarding the Company’s Audit Committee are provided in Item 17 hereof.  The Compensation Committee, as presently constituted, has one related director and three unrelated directors, namely Michael L. Richards, L. Robbie Shaw, Ben J. Davenport, Jr., and Gordon R. Cunningham (as such terms are defined in the Toronto Stock Exchange Company Manual).   ;Mr. Richards is deemed to be a related director, inasmuch as the law firm of Stikeman Elliott LLP, of which he is a senior partner, provides legal services to the Company on a regular basis.  However, the Company believes that its relationship with Stikeman Elliott LLP does not inhibit Mr. Richards’ ability to act impartially, nor his ability to act independently of the views of the management of the Company.  The Nominating & Governance Committee is composed of all of the members of the Board, the majority of whom are unrelated directors (as such terms are defined in the Toronto Stock Exchange Company Manual).

Item 11. Legal Proceedings

The Company and its subsidiaries are not currently party to any proceedings or legal claim, nor does it have any knowledge of any potential proceeding or legal claim, that involves or would involve a claim for damages that exceeds ten percent of the current assets of the Company on a consolidated basis.  While the Company or its subsidiaries are parties to various legal actions, the Company is of the view that such actions are ordinary in nature and incidental to the operation of its business and that the outcome of these actions are not likely to have a material adverse effect upon the Company.

Item 12. Interest of Management and Others in Material Transactions

The Company is unaware of any material interest of any of its directors or officers or of any person who beneficially owns or exercises control or direction over shares carrying more than ten percent of the voting rights attached to the Company’s shares, or any associate or affiliate of any such person, in any transaction since the beginning of the last completed financial year or in any proposed transactions that has materially affected or will materially affect the Company or any of its affiliates.

Prior to July 31, 2002, the Company made certain interest-free loans payable on demand to certain of its directors and officers.  The balances of such loans as of December 31, 2005, are set forth in the table below:

Name and Principal Position	Loan Balance as of 12/31/2005
M. F. Yull Chairman of the Board, Chief Executive Officer and a Director	US$572,584.00*

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G. A. Yull President - Film Products	US$117,500.00
A. M. Archibald Chief Financial Officer, Secretary, Vice President Administration	US$137,452.00*
D. R. Yull Vice President Sales & Marketing - Distribution Products	US$59,730.00
H. D. McSween President - Distribution Products	US$26,676.00*
J. Jackson Vice President, Chief Information Officer	US$10,000.00
*These loans are denominated in Canadian dollars thus the U.S. amounts fluctuate based on the exchange rate.

Item 13. Transfer Agents and Registrars

Set forth below are the Company’s transfer agents and registrars with respect to its common shares, who also maintain the registers of the transfers of the stock of the Company:

In Canada:

CIBC Mellon Trust Company

2001 University Street, 16^th Floor

Montreal, Quebec, Canada  H3A 4L8

In the U.S.:

Mellon Investor Services L.L.C.

85 Challenger Road, 2^nd Floor

Ridgefield Park, New Jersey

U.S.A.  07660

Wilmington Trust Company, Corporate Capital Markets, 1100 North Market Street, Wilmington, DE 19890-1626, is the Trustee under the Indenture with respect to the Company’s registered 8-½ % Senior Subordinated Notes due 2014.

Item 14. Material Contracts

Since January 1, 2002, Intertape Polymer Group directly or through its subsidiaries has entered into the following material contracts:

·

an Amended and Restated Shareholder Protection Rights Plan Agreement adopted by the shareholders of the Company on June 11, 2003, amending and restating the Shareholder Protection Rights Plan originally entered into on August 24, 1993, as first amended on May 21, 1998.  The 2003 Amended and Restated Plan, among other things, extended the Plan through the date immediately following the date of the Company’s 2006 annual Shareholders’ meeting.  The Shareholders at their June 14, 2006 meeting

45

will vote on the adoption of an Amended Plan which, among other things, would extend the Plan through the date immediately following the date of the Company’s 2009 annual shareholders’ meeting.  A copy of the Amended and Restated Shareholder Protection Rights Plan Agreement will be attached to the Company’s proxy circular.

The effect of the Plan is to require anyone who seeks to acquire 20% or more of Intertape Polymer Group’s voting shares to make a bid complying with specific provisions of the Plan.  Thus, the provisions of the Plan could prevent or delay the acquisition of the Company by means of a tender offer, a proxy contest, or otherwise, in which shareholders might receive a premium over the then current market price of the Company’s common shares.

·

an employment agreement with Melbourne F. Yull dated January 1, 2004 as amended by Amendment to Employment Agreement dated November 1, 2004.  Pursuant to the terms of the employment agreement, Mr. Yull continues to serve as Chairman of the Board and Chief Executive Officer of Intertape Polymer Group.  His compensation level is reviewed annually by the Company in accordance with its internal policies.  Mr. Yull’s fixed annual gross salary for 2005 was $548,600.  The employment agreement provides, among other things, for annual bonuses based on the budgeted objectives of the Company.  

·

an Amended Executive Stock Option Plan as amended and consolidated to June 2, 2004.  The Plan was established by Intertape Polymer Group in 1992 and has been amended from time to time.  The Plan is administered by the Board of Directors.  The shares offered under the Plan are common shares of the Company.

The purpose of the Plan is to promote a proprietary interest in the Company among the executives, the key employees and the non-management directors of the Company and its subsidiaries, in order to both encourage such persons to further the development of the Company and to assist the Company in attracting and retaining key personnel necessary for the Company’s long term success. The Board of Directors designates from time to time from the eligible executives those executives to whom options are to be granted and determines the number of shares covered by such options. Generally, participation in the Plan is limited to persons holding positions that can have an impact on the Company’s long-term results.

The number of common shares to which the options relate are determined by taking into account, among other things, the market price of the common shares and each optionee's base salary. The exercise price payable for each common share covered by an option is determined by the Board of Directors but will not be less than the market value of the underlying common shares on the day preceding the effective date of the grant. The Plan provides that options issued thereunder shall vest 25% per year over four years. Currently the maximum number of common shares that may be issued under the Plan is 4,094,538.

·

a Credit Agreement dated as of July 28, 2004, among the Company and certain of its subsidiaries, the Lenders referred to therein, Citigroup Global Markets Inc., as Sole Lead

46

Arranger and Sole Bookrunner, Citicorp North America, Inc., as Administrative Agent, The Toronto-Dominion Bank, as Syndication Agent, and Comerica Bank and HSBC Bank USA, National Association, as Co-Documentation Agents.  The Credit Agreement represents the new Senior Secured Credit Facility entered into by the Company and its subsidiaries.  The initial funding under the new Senior Secured Credit Facility occurred on August 4, 2004.  The Company’s new Senior Secured Credit Facility consists of a US$200.0 million seven-year delayed draw Term B facility to be made available in U.S. Dollars; a US$65.0 million five-year revolving credit facility to be made available in U.S. Dollars; and a US$10.0 million five-year revolving credit facility to be made available in Canadian Dollars.  The Company and substantially all of its subsidiaries guaranteed the Senior Secured Credit Facility.  Further, the Senior Secured Credit Facility is secured by a first priority perfected security interest in substantially all tangible and intangible assets of the Company and its subsidiaries.

·

a Purchase Agreement, Registration Rights Agreement and Indenture each dated as of July 28, 2004, in connection with the issuance by Intertape Polymer US Inc., a finance subsidiary of Intertape Polymer Group, of the aggregate principal amount of US$125.0 million of 8-½% Senior Subordinated Notes due 2014.  The Notes were offered to institutional investors and are guaranteed on a senior subordinated basis by the Company and substantially all of its subsidiaries.  Interest will accrue and be payable on the Notes semi-annually in arrears on February  1 and August 1.  For a copy of the Purchase Agreement, Registration Rights Agreement, and Indenture, as well as details of the terms of the Senior Subordinated Notes, see the Registration Statement filed on October 26, 2004 as Registration No. 333-119982 as amended on www.sec.gov in the United States.

·

a Supply Agreement dated February 2, 2004, among Intertape Polymer Corp. and Central Products Company, subsidiaries of Intertape Polymer Group, as buyer, and tesa tape inc., as seller, in connection with the acquisition of the assets relating to the masking and duct tape operations of tesa tape inc.  The Supply Agreement provides that the Company will manufacture and supply to tesa tape inc. products previously produced by tesa tape inc. prior to the acquisition.

A copy of all of the foregoing contracts, except as otherwise noted, are available on www.sedar.com and on www.sec.gov.

Item 15. Experts

15.1

Name of Experts

The following are the names of each person or company who has prepared or certified a statement, report or valuation described or included in a filing, or referred to in a filing made by Intertape Polymer Group during 2005:

Raymond Chabot Grant Thornton LLP; Montreal, Quebec

Stikeman Elliott LLP; Montreal, Quebec

Shutts & Bowen LLP; Orlando, Florida

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Stewart, McKelvey, Stirling, Scales; Halifax, Nova Scotia

F. Castelo Branco & Associates; Lisbon, Portugal

Chancery Chambers; Bridgetown, Barbados

Goodrich Riquelme Y Asociados; Mexico City, Mexico

Ernst & Young; Montreal, Quebec

15.2

Interests of Experts

None of the experts set forth in Item 15.1 above directly or indirectly, held at the time their statement, report or valuation was prepared; received after their statement, report or valuation was prepared; or shall receive, any registered or beneficial interest in any securities or other property of Intertape Polymer Group or any of its subsidiaries.

Michael L. Richards is a senior partner of the law firm of Stikeman Elliott LLP and is a Director of the Company.  As at December 31, 2005 Mr. Richards owned 77,600 common shares of the Company and outstanding options to purchase an additional 55,000 common shares of the Company.  J. Gregory Humphries is a partner of the law firm of Shutts & Bowen LLP and acts as a Director and officer of certain of the U.S. subsidiaries of the Company.  The Company is of the view that its relationship with Stikeman Elliott LLP and Shutts & Bowen LLP does not inhibit Mr. Richards’ or Mr. Humphries’ respective ability to act impartially, or their ability to act independently of the views of management.  It is anticipated that both gentlemen will be re-elected.

Item 16. Additional Information

Additional information with respect to the Company, including directors’ and officers’ remuneration and indebtedness, principal holders of the Company’s securities, and securities authorized for issuance under equity compensation plans is contained in the Company’s information circular for its most recent annual meeting of security holders that involved the election of directors.  Additional financial information is provided in the Company’s Consolidated Financial Statements and Management’s Discussion and Analysis for the fiscal year ended December 31, 2005.  All of this information, as well as additional information, may be found on the System for Electronic Document Analysis and Retrieval (SEDAR) at www.sedar.com.

Item 17. Audit Committee

17.1

Audit Committee Charter

The text of the Audit Committee’s Charter is attached hereto as Exhibit “A”.

17.2

Composition of the Audit Committee

The members of the Audit Committee of Intertape Polymer Group are Thomas J. Costello, Gordon R. Cunningham, John E. Richardson, and L. Robbie Shaw.  Each of the Audit

48

Committee members are independent and financially literate as such terms are defined by Canadian Multilateral Instrument 52-110-Audit Committees.

17.3

Relevant Education and Experience

Mr. Costello earned a Bachelor of Science in Business and an MBA from Indiana University Kelly School of Business.  He was the Chief Executive Officer of xpedx, a subsidiary of International Paper Company, from 1991 until his retirement in 2002.

Mr. Cunningham earned a Bachelor of Arts and an SJD from the University of Toronto.  He was awarded an honorary LLD from the University of Victoria.  Mr. Cunningham is the President of Cumberland Private Wealth Management Inc., a discretionary investment management firm.  Previously, Mr. Cunningham served as the President and Chief Executive Officer of London Life Insurance Company, one of Canada’s largest life insurers.

Mr. Richardson earned a Bachelor of Commerce from the University of Toronto, and received an M.B.A. from the Harvard Business School, and is a fellow of the Institute of Chartered Accountants of Ontario.  Mr. Richardson is currently the Chairman of the Ontario Pension Board, the Chairman of the Boiler Inspection and Insurance Company of Canada, as well as a Director of Research in Motion, a Trustee of Armtec Limited Income Trust, and a Trustee of Resolve Business Outsourcing Income Fund.  Mr. Richardson previously served as the Deputy Chairman of London Insurance Group Inc., the Chairman, President and CEO of Wellington Insurance Co. and President of Great Lakes Power, and prior to that, he had been a senior partner of Clarkson Gordon & Co. (now Ernest & Young).

Mr. Shaw earned a Bachelor of Arts in Politics and History from Queens University and an LLB from Dalhousie Law School.  Currently, Mr. Shaw serves as President of the IWK Health Centre Foundation.  Until the acquisition of Meloche Monnex Inc. by Toronto Dominion Bank in 2003, Mr. Shaw was the Chair of its Audit Committee.  He has also held several executive positions, including the Vice President of Finance and Administration of Dalhousie University, the operating head of the Canadian Business Unit of National Sea Products, and the Vice President of the Nova Scotia Community College.

17.4

Pre-Approval Policies and Procedures

Intertape Polymer Group’s Audit Committee pre-approves all audit engagement fees and the terms of all significant permissible non-audit services provided by independent auditors.

17.5

External Auditor Service Fees

The following table sets forth the fees billed for professional services rendered by Raymond Chabot Grant Thornton LLP, Chartered Accountants, Intertape Polymer Group’s principal accountant, for the fiscal years ended December 31, 2005 and December 31, 2004:

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	Year ended December 31,
	2005	2004
Audit Fees	$891,985	$1,011,850
Audit-Related Fees
Tax Fees	89,762	146,462
All Other Fees	3,935
Total Fees	$985,682	$1,169,312

Audit Fees.  Audit fees were for professional services rendered for the audits of Intertape Polymer Group’s consolidated financial statements, assisting its Audit Committee in discharging its responsibilities for the review of the Company’s interim consolidated financial statements and services that generally only the independent auditor can reasonably provide, such as comfort letters, consents and assistance and review of documents filed with the Securities and Exchange Commission and Canadian securities regulatory authorities.

Audit-Related Fees.  Audit-related fees were for assurance and related services that are reasonably related to the performance of the audit or review of Intertape Polymer Group’s consolidated financial statements and are not reported under Audit Fees above.  These services included consultations concerning financial accounting and reporting standards.

Tax Fees.  Tax fees were for tax compliance, tax advice and tax planning.  These services included the preparation of the Canadian subsidiaries’ income tax returns, the preparation of information returns for foreign affiliates, assistance with questions regarding tax audits and tax planning relating to common forms of domestic and international taxation (i.e. income tax, capital tax and excise tax) and advisory services regarding restructurings.

All Other Fees.  All other fees were for services provided other than the audit fees, audit-related fees and tax fees described above.  These services consisted mainly of miscellaneous corporate reporting and advisory services.

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EXHIBIT “A” to AIF

INTERTAPE POLYMER GROUP INC.

AUDIT COMMITTEE CHARTER

CHARTER

The Audit Committee of the Board of Directors (the "Board") of Intertape Polymer Group Inc. (the "Corporation") will be responsible for assisting the Board in carrying out its duties and responsibilities relating to corporate accounting policies, financial reporting and procedures, and the quality and integrity of the financial reports of the Corporation.  The external auditors are ultimately accountable to the Board and the Audit Committee, as representatives of the shareholders.  The Audit Committee, subject to any action that may be taken by the Board, shall have the ultimate authority and responsibility to select and nominate for shareholder approval, evaluate and, as deemed appropriate, recommend to the shareholders the removal of the external auditors.  The Audit Committee shall be responsible for overseeing the independence of the external auditors.

In discharging its role, the Audit Committee is empowered to investigate any matter brought to its attention with full access to all books, records, facilities and personnel of the Corporation.  The Audit Committee shall have the authority to retain special legal, accounting or other consultants to advise the Audit Committee for this purpose.

COMMITTEE MEMBERSHIP

The Audit Committee shall consist of no fewer than three directors.  The members of the Audit Committee shall meet the independence and experience requirements of the Sarbanes-Oxley Act, the New York Stock Exchange, and The Toronto Stock Exchange.

The members of the Audit Committee shall be appointed annually by the Board on the recommendation of the Nominating & Governance Committee.  Audit Committee members may be replaced by the Board.

COMMITTEE AUTHORITY AND RESPONSIBILITIES

The Audit Committee shall have the sole authority to recommend to the shareholders the appointment or replacement of the external auditors, and shall approve all audit engagement fees and terms and all significant non-audit engagements with the external auditors. The Audit Committee shall consult with management but shall not delegate these responsibilities.

The Audit Committee shall meet as often as it determines, but not less frequently than quarterly. The Audit Committee may form and delegate authority to subcommittees when appropriate.

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The Audit Committee shall have the authority, to the extent it deems necessary or appropriate, to retain special legal, accounting or other consultants to advise the Committee. The Audit Committee may request any officer or employee of the Corporation or the Corporation's legal counsel or external auditors to attend a meeting of the Committee or to meet with any members of, or consultants to, the Committee. The Audit Committee shall meet with management and the external auditors in separate executive sessions at least quarterly.

The Audit Committee shall make regular reports to the Board. The Audit Committee shall review and reassess the adequacy of this Charter annually and recommend any proposed changes to the Board for approval. The Audit Committee shall annually review the Audit Committee's own performance.

The Audit Committee, to the extent it deems necessary or appropriate, shall:

Financial Statement and Disclosure Matters

1.

Review and discuss with management and the external auditors the annual audited financial statements, including disclosures made in management's discussion and analysis, and recommend to the Board whether the audited financial statements should be included in the Corporation's Form 40-F and Annual Report to Shareholders.

2.

Review and discuss with management and the external auditors the Corporation's quarterly financial statements prior to their filing and publication, including the results of the external auditors' reviews of the quarterly financial statements.

3.

Discuss with management and the external auditors significant financial reporting issues and judgments made in connection with the preparation of the Corporation's financial statements, including any significant changes in the Corporation's selection or application of accounting principles, any major issues as to the adequacy of the Corporation's internal controls, the development, selection and disclosure of critical accounting estimates, and analyses of the effect of alternative assumptions, estimates or GAAP methods on the Corporation's financial statements.

4.

Discuss with management the Corporation's earnings press releases, including the use of "pro forma" or "adjusted" non-GAAP information, as well as financial information and earnings guidance provided to analysts and rating agencies.

5.

Discuss with management and the external auditors the effect of regulatory and accounting initiatives as well as off-balance sheet structures on the Corporation's financial statements.

6.

Discuss with management the Corporation's major financial risk exposures and the steps management has taken to monitor and control such exposures, including the Corporation's risk assessment and risk management policies.

52

7.

Discuss with the external auditors the matters required to be discussed by auditing standards relating to the conduct of the audit.  In particular, discuss:

(a)

The adoption of, or changes to, the Corporation's significant auditing and accounting principles and practices as suggested by the external auditors or management.

(b)

The management letter provided by the external auditors and the Corporation's response to that letter.

(c)

Any difficulties encountered in the course of the audit work, including any restrictions on the scope of activities or access to requested information, and any significant disagreements with management

Oversight of the Corporation's Relationship with the External Auditors

8.

Review the experience and qualifications of the senior members of the external auditors’ team.

9.

Obtain and review a report from the external auditors at least annually regarding (a) the auditors' internal quality-control procedures, (b) any material issues raised by the most recent quality-control review, or peer review, of the firm, or by any inquiry or investigation by governmental or professional authorities within the preceding five years respecting one or more independent audits carried out by the firm, (c) any steps taken to deal with any such issues, and (d) all relationships between the external auditors and the Corporation. Evaluate the qualifications, performance and independence of the external auditors, including considering whether the auditor's quality controls are adequate and the provision of non-audit services is compatible with maintaining the auditors' independence, and taking into account the opinions of management. The Audit Committee shall present its conclusions to the Board and, if so determ ined by the Audit Committee, recommend that the Board take additional action to satisfy itself of the qualifications, performance and independence of the auditors.

10.

Consider whether, in order to assure continuing auditor independence, it is appropriate to adopt a policy of rotating the lead audit partner or even the external auditing firm itself on a regular basis.

11.

Recommend to the Board policies for the Corporation's hiring of employees or former employees of the external auditors who were engaged on the Corporation's account.

12.

Determine from the audit team of the external auditors any professional matters dealt with at the national office level of the external auditors.

13.

Meet with the external auditors prior to the audit to discuss the planning and staffing of the audit.

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Oversight of the Corporation's Internal Audit Function

14.

Review and discuss with management and the external auditors the appropriateness of having a senior internal auditing executive.

15.

If a senior internal auditing executive is appointed, review the significant reports to management prepared by the internal auditing department and management's responses.

Compliance Oversight Responsibilities

17.

Obtain from the external auditors assurance that Section 10A of the Securities Exchange Act of 1934 has been complied with.

18.

Obtain reports from management, the Corporation's senior internal auditing executive if one is appointed and the external auditors that the Corporation and its subsidiary/foreign affiliated entities are in conformity with applicable legal requirements and the Corporation's Code of Business Conduct and Ethics. Review reports and disclosures of insider and affiliated party transactions. Advise the Board with respect to the Corporation's policies and procedures regarding compliance with applicable laws and regulations and with the Corporation's Code of Business Conduct and Ethics.

19.

Discuss with management and the external auditors any correspondence with regulators or governmental agencies and any employee complaints or published reports, which raise material issues regarding the Corporation's financial statements or accounting policies.

20.

Discuss with the Corporation's legal counsel matters that may have a material impact on the financial statements or the Corporation's compliance policies.

LIMITATION OF AUDIT COMMITTEE'S ROLE

While the Audit Committee has the responsibilities and powers set forth herein, it is not the duty of the Committee to prepare the Corporation's financial statements, to plan or conduct audits of those financial statements, or to determine that those financial statements are complete and accurate and in accordance with generally accepted accounting principles in Canada or any other country.  This is the responsibility of the Corporation's management and the external auditors.  Nor is it the duty of the Audit Committee to conduct investigations, to resolve disagreements, if any, between management and the external auditors or to assure compliance with applicable laws and regulations.

54

Exhibit 2

MANAGEMENT’S DISCUSSION AND ANALYSIS FOR 2005

AUDITED ANNUAL CONSOLIDATED FINANCIAL STATEMENTS

(SEE SEPARATE DOCUMENT)

55

Exhibit 3

CONSENT OF INDEPENDENT CHARTERED ACCOUNTANTS

We consent to the incorporation of our report dated February 28, 2006, on our audits of the consolidated financial statements of Intertape Polymer Group Inc. as at December 31, 2005 and 2004 and for each of the years in the three-year period ended December 31, 2005, which report is included in this Annual Report on Form 40-F.

Raymond Chabot Grant Thornton LLP

Chartered Accountants

Montréal, Canada

March 31, 2006

56

Exhibit 4

CERTIFICATIONS

I, Melbourne F. Yull, Chairman of the Board and Chief Executive Officer of Intertape Polymer Group Inc., certify that:

1.

I have reviewed this annual report on Form 40-F of Intertape Polymer Group Inc.;

2.

Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.

Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this annual report;

4.

The Registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures [as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)] for the Registrant and have:

a.

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b.

Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this annual report based on such evaluation; and

c.

Disclosed in this annual report any change in the Registrant’s internal control over financial reporting that occurred during the period covered by this annual report that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5.

The Registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of Registrant’s board of directors (or persons performing the equivalent functions):

57

a.

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

b.

Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Date: March 31, 2006

/s/Melbourne F. Yull

Melbourne F. Yull, Chairman of the Board

and Chief Executive Officer

58

I, Andrew M. Archibald, C.A., Chief Financial Officer and Secretary of Intertape Polymer Group Inc., certify that:

1.

I have reviewed this annual report on Form 40-F of Intertape Polymer Group Inc.;

2.

Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.

Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this annual report;

4.

The Registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures [as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)] for the Registrant and have:

a.

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b.

Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this annual report based on such evaluation; and

c.

Disclosed in this annual report any change in the Registrant’s internal control over financial reporting that occurred during the period covered by this annual report that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5.

The Registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of Registrant’s board of directors (or persons performing the equivalent functions):

a.

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

59

b.

Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Date:  March 31, 2006

/s/Andrew M. Archibald

Andrew M. Archibald, C.A.,

Chief Financial Officer and Secretary

60

Exhibit 5

CERTIFICATION

PURSUANT TO 18 U.S.C. SECTION 1350, AS ENACTED PURSUANT

TO SECTION 906 OF THE U.S. SARBANES-OXLEY ACT OF 2002

The undersigned, Melbourne F. Yull, Chairman of the Board and Chief Executive Officer, and Andrew M. Archibald, C.A., Chief Financial Officer and Secretary, hereby certify that this report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 and that the information contained in this report fairly presents in all material respects the financial condition and results of operations of Intertape Polymer Group Inc. as of and for the periods presented in this report.

Date: March 31, 2006

/s/Melbourne F. Yull

Melbourne F. Yull, Chairman of the Board

and Chief Executive Officer

Date: March 31, 2006

/s/Andrew M. Archibald

Andrew M. Archibald, C.A.,

Chief Financial Officer and Secretary

61

CERTIFIED EXTRACT OF RESOLUTIONS OF THE BOARD OF DIRECTORS

OF

INTERTAPE POLYMER GROUP INC.

ADOPTED ON MARCH 28, 2006

"APPROVAL OF ANNUAL INFORMATION FORM

WHEREAS the Chairman presented to the meeting a draft of an annual information form of the Corporation to be dated March 31, 2006.

WHEREAS the Chairman informed the meeting that the Corporation proposes to file the annual information form with the securities commissions and other appropriate regulatory authorities in each of the provinces and territories of Canada.

BE IT RESOLVED THAT:

1.

the annual information form ("AIF") of the Corporation to be dated March 31, 2006, substantially in the form of the document presented to this meeting, be and the same is hereby approved, subject to such additions, deletions and changes therein as may be consented to by any one director or officer of the Corporation;

2.

the Corporation be and it is hereby authorized to file the English and French (when and if available) language versions of the AIF, as the same may be amended from time to time, with the securities commissions and appropriate regulatory authorities in each of the provinces and territories of Canada;

3.

any one director or officer of the Corporation be, and he is, hereby authorized and directed, for and on behalf of the Corporation, to file or cause to be filed the English and French (when and if available) language versions of the AIF under the securities legislation of any of the provinces and territories of Canada and to file such other documents and to do such other things as he may, in his sole discretion, consider necessary, appropriate or useful in connection with, or to carry out the provisions of this resolution;

4.

the Corporation be and it is hereby authorized to file with the United States Securities and Exchange Commission an Annual Report on Form 40-F (the "Form 40-F") covering the Corporation's fiscal year ended December 31, 2005, such Form 40-F to be substantially in the form of the draft presented to the Board of Directors, and which includes the AIF as an exhibit thereto, together with such changes or modifications as may be deemed necessary or appropriate by any director or officer of the Corporation with and upon the advice of counsel, and any director or officer of the Corporation be, and he is, hereby authorized, empowered and directed to execute in the name and on behalf of the Corporation, to procure all other necessary signatures to, and to file with the United States

62

Securities and Exchange Commission, the Form 40-F and any all amendments or supplements thereto;

5.

any director or officer of the Corporation be, and he is, hereby authorized and directed for and on behalf of the Corporation, to execute, whether under the corporate seal of the Corporation or otherwise, and to deliver all such certificates, undertakings and other documents and to do all such other acts and things as he may, in his sole discretion, consider necessary or advisable in connection with or to carry out the provisions of this resolution."

I, the undersigned, Andrew M. Archibald, C.A., Chief Financial Officer and Secretary, of Intertape Polymer Group Inc. hereby certify that the foregoing resolutions were duly adopted by the Board of Directors of Intertape Polymer Group Inc. on March 28, 2006 and that the said resolutions are, as of the date hereof, in full force and effect and have not been amended.

IN WITNESS WHEREOF, I HAVE SIGNED in, Bradenton, Florida, this 31^st day of March, 2006.

/s/Andrew M. Archibald

Andrew M. Archibald, C.A.

Chief Financial Officer and Secretary

63

EX-2

Exhibit 2

March 13, 2006

This Management’s Discussion and Analysis (“MD&A”) supplements the consolidated financial statements and related notes for the year ended December 31, 2005. Except where otherwise indicated, all financial information reflected herein is prepared in accordance with Canadian generally accepted accounting principles (“GAAP”) and is expressed in US dollars.

FINANCIAL HIGHLIGHTS

(In thousands of US dollars except per share data, selected ratios and trading volume information.)

	2005	2004	2003
Operations	$	$	$
Consolidated sales	801,844	692,449	621,321
Net earnings Cdn GAAP	27,791	11,358	18,178
Net earnings US GAAP	28,056	12,739	16,501
Cash flows from operations before changes in non-cash working capital items	57,688	26,864	38,137

	2005	2004	2003
Per Common Share
Net earnings Cdn GAAP – basic	0.67	0.28	0.51
Net earnings US GAAP – basic	0.68	0.31	0.46
Net earnings Cdn GAAP – diluted	0.67	0.27	0.50
Net earnings US GAAP – diluted	0.68	0.31	0.46
Cash flows from operations before changes in non-cash working capital items	1.41	0.65	0.93
Book value Cdn GAAP	10.61	9.80	9.22
Book value US GAAP	10.40	9.60	9.05

	2005	2004	2003
Financial Position
Working capital	174,608	146,833	68,725
Total assets Cdn GAAP	889,316	840,900	739,245
Total assets US GAAP	896,450	848,020	745,902
Total long-term debt	330,897	334,127	251,991
Shareholders’ equity Cdn GAAP	434,415	404,300	377,510
Shareholders’ equity US GAAP	425,968	396,183	370,434

	2005	2004	2003
Selected Ratios
Working capital	2.43	2.41	1.54

Debt/capital employed Cdn GAAP	0.44	0.45	0.41
Debt/capital employed US GAAP	0.45	0.46	0.42
Return on equity Cdn GAAP	6.4%	2.8%	4.8%
Return on equity US GAAP	6.6%	3.2%	4.5%

	2005	2004	2003
Stock Information
Weighted average shares outstanding (Cdn GAAP) - basic +	41,174	41,186	35,957
Weighted average shares outstanding (US GAAP) -  basic +	41,174	41,186	35,957
Weighted average shares outstanding (Cdn GAAP) - diluted +	41,309	41,446	36,052
Weighted average shares outstanding (US GAAP) - diluted +	41,309	41,446	36,052
Shares outstanding as at December 31 +	40,958	41,237	40,945

	2005	2004	2003
The Toronto Stock Exchange (CA$)
Market price as at December 31	10.37	10.90	16.49
High: 52 weeks	13.68	16.93	16.51
Low: 52 weeks	7.57	8.59	4.50
Volume: 52 weeks+	18,208	20,790	16,542

	2005	2004	2003
New York Stock Exchange
Market price as at December 31	8.97	9.11	12.73
High: 52 weeks	11.17	13.34	12.73
Low: 52 weeks	6.37	6.30	3.10
Volume: 52 weeks+	18,354	13,843	14,831

	High	Low	Close	ADV*
The Toronto Stock Exchange(CA$)
Q1	11.10	8.71	9.28	78,189
Q2	12.50	9.10	12.50	56,223
Q3	13.68	8.07	8.30	76,946
Q4	10.37	7.57	10.37	79,266

	High	Low	Close	ADV*
New York Stock Exchange
Q1	9.23	7.12	7.69	78,939
Q2	10.19	7.43	10.19	43,398
Q3	11.17	6.93	7.15	103,519
Q4	8.97	6.37	8.97	65,646

* Average daily volume

+In thousands

Management’s Discussion and Analysis

CONSOLIDATED QUARTERLY STATEMENTS OF EARNINGS

(In thousands of US dollars, except as otherwise noted)

(Unaudited)

	1st Quarter			2nd Quarter
	2005	2004	2003	2005	2004	2003
	$	$	$	$	$	$
Sales	187,697	162,100	153,592	190,282	171,934	150,249
Cost of sales	148,574	129,986	119,793	150,895	134,097	116,166
Gross Profit	39,123	32,114	33,799	39,387	37,837	34,083
Selling, general and administrative expenses	23,917	22,307	21,982	24,844	22,793	20,830
Stock-based compensations expense	455	70		483	351
Research and development	1,011	962	894	1,224	1,153
Financial expenses	5,649	6,768	7,700	5,918	7,235	1,086
Refinancing expense						7,825
Manufacturing facility closure and industrial accident costs	719			1,087
	31,751	30,107	30,576	33,556	31,532	29,741
Earnings (loss) before income taxes	7,372	2,007	3,223	5,831	6,305	4,342
Income taxes (recovery)	1,339	(284)	322	399	654	439
Net earnings (loss)	6,033	2,291	2,901	5,432	5,651	3,903
Earnings (loss) per share
Cdn GAAP - Basic - US $	0.15	0.06	0.09	0.13	0.14	0.12
Cdn GAAP - Diluted - US $	0.15	0.06	0.09	0.13	0.14	0.12
US GAAP - Basic - US $	0.15	0.06	0.09	0.13	0.14	0.12
US GAAP - Diluted - US $	0.15	0.06	0.09	0.13	0.14	0.12
Weighted average number of common shares outstanding
Cdn GAAP - Basic	41,237,461	40,971,739	33,821,074	41,214,969	41,215,111	33,832,527
Cdn GAAP - Diluted	41,444,870	41,528,581	33,821,497	41,550,160	41,396,403	33,912,232
US GAAP - Basic	41,237,461	40,971,739	33,821,074	41,214,969	41,215,111	33,832,527
US GAAP - Diluted	41,444,870	41,528,581	33,821,497	41,550,160	41,396,403	33,912,232

Management’s Discussion and Analysis

CONSOLIDATED QUARTERLY STATEMENTS OF EARNINGS

(In thousands of US dollars, except as otherwise noted)

(Unaudited)

	3rd Quarter			4th  Quarter
	2005	2004	2003	2005	2004	2003
	$	$	$	$	$	$
Sales	201,177	177,671	159,798	222,688	180,744	157,682
Cost of Sales	159,449	140,480	123,489	176,927	144,689	122,975
Gross Profit	41,728	37,191	36,309	45,761	36,055	34,707
Selling, general and administrative expenses	25,970	23,327	22,264	30,083	25,799	24,843
Stock-based compensations expense	485	270		488	355	130
Research and Development	1,233	1,121	1,080	1,257	997	212
Financial expenses	5,577	5,948	7,409	6,655	4,302	5,587
Refinancing Expense		30,444
Manufacturing facility closure and industrial accident costs	385			(760)	7,386	3,005
	33,650	61,110	30,753	37,723	38,839	33,777
Earnings (loss) before income taxes	8,078	(23,919)	5,556	8,038	(2,784)	930
Income taxes (recovery)	1,479	(9,664)	(643)	(1,689)	(20,455)	(4,244)
Net earnings (loss)	6,599	(14,255)	6,199	9,727	17,671	5,174
Earnings (loss) per share
Cdn GAAP – Basic – S$	0.16	(0.35)	0.18	0.24	0.43	0.13
Cdn GAAP – Diluted-US$	0.16	(0.35)	0.18	0.24	0.43	0.13
US GAAP – Basic- US$	0.16	(0.35)	0.18	0.24	0.43	0.13
US GAAP – Diluted-US$	0.16	(0.35)	0.18	0.24	0.43	0.13
Weighted average number of common shares outstanding
Cdn GAAP – Basic	41,205,555	41,285,161	35,302,174	41,039,278	41,273,840	40,870,426
Cdn GAAP – Diluted	41,337,378	41,285,161	35,397,800	41,157,568	41,468,992	41,225,776
US GAAP – Basic	41,205,555	41,285,161	35,302,174	41,039,278	41,273,840	40,870,426
US GAAP - Diluted	41,337,378	41,285,161	35,397,800	41,157,568	41,468,992	41,225,776

Management’s Discussion and Analysis

ADJUSTED CONSOLIDATED EARNINGS

Adjustments for non-recurring items and manufacturing facility closure costs.

Years Ended December 31,

(In millions of US dollars, except per share amounts)

As Reported	2005	2004	2003
	$	$	$
Sales	801.8	692.4	621.3
Cost of sales	635.8	549.2	482.4
Gross profit	166.0	143.2	138.9
Selling, general and administrative expenses	104.8	94.2	89.9
Stock-based compensation expense	1.9	1.0	0.1
Research and development	4.8	4.2	3.3
Financial expenses	23.8	24.3	28.5
Refinancing expense		30.4
Manufacturing facility closure and industrial accident costs	1.4	7.4	3.0
	136.7	161.5	124.8
Earnings (loss) before income taxes	29.3	(18.3)	14.1
Income taxes (recovery)	1.5	(29.7)	(4.1)
Net earnings	27.8	11.4	18.2

Earnings per share – As Reported	2005	2004	2003
Basic	0.67	0.28	0.51
Diluted	0.67	0.27	0.50

Adjustments for non-recurring items	2005	2004	2003
Refinancing Expense		30.4

Adjustments for Manufacturing Facility Closure Costs	2005	2004	2003
	1.4	7.4	3.0

ADJUSTED CONSOLIDATED EARNINGS

Adjustments for non-recurring items and manufacturing facility closure costs.

Years Ended December 31,

(In millions of US dollars, except per share amounts)

As Adjusted	2005	2004	2003
	$	$	$
Sales	801.8	692.4	621.3
Cost of sales	635.8	549.2	482.4
Gross profit	166.0	143.2	138.9
Selling, general and administrative expenses	104.8	94.2	89.9
Stock-based compensation expense	1.9	1.0	0.1
Research and development	4.8	4.2	3.3
Financial expenses	23.8	24.3	28.5
	135.3	123.7	121.8
Earnings before income taxes	30.7	19.5	17.1
Income taxes (recovery)	2.0	(16.5)	(3.0)
Net earnings	28.7	36.0	20.1
Earnings per Share - As Adjusted
Basic	0.70	0.87	0.56
Diluted	0.69	0.87	0.56

Note: These tables reconcile consolidated earnings as reported in the accompanying consolidated financial statements to adjusted consolidated earnings after the elimination of non-recurring items and manufacturing facility closure costs. The Company has included these non-GAAP financial measures because it believes the measures permit more meaningful comparisons of its performance between the periods presented.

MANAGEMENT'S DISCUSSION & ANALYSIS

Our Business

Intertape Polymer Group Inc. (“IPG” or the “Company”) was founded in 1981 and is a recognized leader in the specialty packaging industry in North America. IPG develops, manufactures and sells a variety of specialized polyolefin films, paper and film pressure sensitive tapes and complementary packaging systems for use in industrial and retail applications. IPG’s products include carton sealing tapes, including Intertape® pressure-sensitive and water-activated tapes; industrial and performance specialty tapes, including masking, duct, electrical and reinforced filament tapes; ExIFilm® shrink film; Stretchflex® stretch wrap; engineered fabric products; and flexible intermediate bulk containers (“FIBCs”). The Company designs its specialty products for aerospace, automotive and industrial applications. IPG’s specialty products are sold to a broad range of industria l and specialty distributors, retail stores and large end-users in diverse markets.

During 2005, the Company completed the realignment of its internal organization, renewing much of its entrepreneurial spirit and establishing a new culture of accountability.  An essential element of the realignment was to create smaller business teams, closer to the customer.  The Company also created a global sourcing group in early 2005, to focus on ensuring that the Company obtains the most effective combination of raw material pricing and availability for its production needs. This group is also charged with searching worldwide for new products to add to the Company’s offering.  These changes were instrumental to the success we experienced in 2005.

Just as in 2003 and 2004, the Company was faced with rising raw material costs during 2005.  Furthermore, in 2005 certain key raw materials were in short supply.  In the first half of the year, the supply constraint was in synthetic rubber, an essential ingredient in the formulation of some of the Company’s tape adhesives.  Then, late in the third quarter, two major hurricanes, Hurricane Katrina and Hurricane Rita, struck the Gulf Coast of Louisiana and Texas, sending prices for petroleum-based resins, which are key raw materials for many of the Company’s products, spiraling upward.  Additionally, resin price increases accelerated as a result of Hurricane Rita temporarily reducing U.S.-based petroleum refining and petrochemical plant capacity by approximately 25%.  Due in part to the smaller business units established, the Company managed the rising raw material cost environment through a series of timely sales price increases to its industrial and specialty distributors and to a lesser extent, to its retail customers. Concurrently, IPG’s global sourcing group aggressively pursued and secured resin supplies from worldwide sources, allowing the Company to avoid the fate of some of its competitors, which had to put customers on product allocation.

Approximately one-half of the raw material cost increases the Company experienced in the fourth quarter of 2005 was reflected in cost of sales for the fourth quarter of 2005. At December 31, 2005, the other half of the raw material cost increases was recorded in inventory. These remaining costs will be reflected in cost of sales in the first quarter of 2006.  The Company’s sales prices remained relatively constant through the first two months of 2006 but downward pressure on pricing is increasing and the Company has had to respond accordingly with sales price decreases on selected products in order to remain competitive.  This downward pressure on pricing is due to decreases in petroleum-based resin costs since the beginning of 2006.  Accordingly, the Company’s gross margin in the first quarter of 2006 may decrease.  The benefit from the raw material cost decreases experienced so far in 2006 will be reflected primarily in the second quarter of 2006.

During 2005, sales price increases and product shortages also placed significant pressures on IPG’s customers’ profitability.  In response, IPG launched its “Full Truck” concept designed to provide customers a vendor consolidation format through the ordering of multiple products in single shipments.  The “Full Truck” offers customers truckload pricing without requiring them to purchase full truckloads of each product line.  This inventory management system is intended to allow IPG customers to run their business with a lower cash investment.  With its wide array of packaging products, the Company is well positioned to offer this cash improvement opportunity to customers. The “Full Truck” is an extension of the “basket of products” strategy employed by IPG, and an essential element of the Company’s value proposition to its customers.  I PG’s value proposition includes the following financial contributions:

1.

Inventory optimization achieved through more frequent inventory turns.

2.

New business development resulting from IPG’s partnering with distributors in addressing the needs of end-user customers.

3.

More effective cash management resulting from a combination of IPG customer terms and the frequent inventory turns available to customers that take advantage of the “Full Truck” concept.

4.

Improved product mix attributable to the “basket of products” that IPG offers to increase distributor profitability.

5.

Single sourcing of product thereby reducing the distributor’s operating expenses.

In addition to new product groups and geographic expansion, IPG believes the value proposition is a key element of the Company’s strategy for future growth.

Acquisition

In October 2005, the Company, through a wholly-owned Canadian subsidiary, acquired all of the outstanding capital stock of Flexia Corporation Ltd. (“Flexia”) being the successor entity to Flexia Corporation and Fib-Pak Industries Inc. for an aggregate consideration of approximately $29.1 million, after purchase price adjustments occurring subsequent to year-end. Flexia produces a wide range of engineered coated products, polyethylene scrims and polypropylene fabrics. The acquired business complements the Company’s existing coated products business based in Truro, Nova Scotia, as well as its FIBCs business.  

Proposed Income Fund

As announced in December 2005, the Company is presently investigating the possibility of selling a portion of its interest in the combined coated products operation and FIBC business through an initial public offering of the combined business using a Canadian Income Trust.  The Company’s announced plan was to file a prospectus in the first quarter of 2006. While it is now unlikely that the Company will file a prospectus during the first quarter of 2006, the Company’s intention remains to file a prospectus when it has completed its evaluation. The amount of cash generated from the transaction will be dependent on the pricing and successful completion of the transaction. The Company anticipates using the cash proceeds from the transaction primarily to reduce its outstanding indebtedness, with the balance, if any, to be used for general corporate purposes, including working capital.

Facility Rationalizations

The Company is increasing its commitment to importing FIBCs and as a consequence, in January 2006 announced to the employees at its FIBC manufacturing facility in Piedras Negras, Mexico that it would be closing that facility on or about March 31, 2006. IPG believes the small Flexia facility in Hawkesbury, Ontario will provide the limited manufacturing support necessary to complement the Company’s imported FIBC operation. The Company expects to incur a plant-closing charge of approximately $1.0 million in the first quarter of 2006 as a result of this decision.  

At the end of March 2006, the Company will also close a manufacturing facility located in Cap-de-la Madeleine, Quebec that had been acquired in the Flexia acquisition. This closure was identified and planned for during the evaluation of the Flexia acquisition and the costs of the closure have been accrued for as part of the cost of the acquisition. Accordingly, there will be no charge to the Company’s operating results related to this facility closure.

Industrial Accident

An explosion occurred on the night of March 30, 2005 in an external steam generation unit at the Company’s manufacturing facility in Columbia, South Carolina.  Regrettably, one of the Company’s employees was killed in the explosion.  The plant remained closed in whole or in part for five days as employees were provided counseling and the facility was repaired.  Through the first nine months of 2005, the Company recorded a loss provision of approximately $0.9 million for policy deductible and non-reimburseble costs related to the explosion.  The Company also incurred $1.8 million in damages and extra costs in 2005 resulting from the explosion that is reimbursable from the insurance company. The Company received $1.5 million of the reimbursement in 2005 and was due $0.3 million in reimbursement at December 31, 2005. In the fourth quarter of 2005, the Company recorded a $3.4 million insu rance claim for the boiler.  Accordingly, the Company reduced cost of sales by $2.0 million with the balance of the claim recorded against the earlier loss provision of approximately $0.9 million and the write-off of the net book value of the boilers destroyed in the explosion.

Results of Operations

Our consolidated financial statements are prepared in accordance with Canadian GAAP with US dollars as the reporting currency. Note 22 to the consolidated financial statements provides a summary of significant differences between Canadian GAAP and US GAAP.

The following discussion and analysis of operating results includes adjusted financial results for the three years ended December 31, 2005. A reconciliation from the operating results found in the consolidated financial statements to the adjusted operating results discussed herein, can be found in the tables appearing on pages 12 and 13 hereof.

Included in this MD&A are references to events and circumstances which have influenced the Company’s quarterly operating results presented in the table of Consolidated Quarterly Statements of Earnings appearing on page 3 hereof. As discussed in the “Sales” and “Gross Profit and Gross Margin” sections, the Company’s quarterly sales and gross profits are largely influenced by the timing of raw material cost increases and the Company’s ability or inability to pass the increases through to customers in the form of higher unit selling prices. While the actual amounts increase, selling, general and administrative expenses are relatively constant or decline as a percentage of sales.

IPG’s quarterly financial expenses through the second quarter of 2004 were most significantly influenced by the levels of IPG’s bank indebtedness and long-term debt. The debt reduction occurring at the end of the third quarter of 2003 was as a result of a common stock equity offering as discussed in the section titled “Capital Stock”, and has had a significant impact on quarterly financial expenses. Regular, scheduled debt repayments also decreased quarterly financial expenses during 2003 and the first half of 2004.   In the third quarter of 2004, the Company refinanced substantially all of its bank indebtedness and long-term debt.  Despite increasing the overall level of debt, in order to pay for the refinancing, lower interest rates on the new borrowings reduced 2004 third quarter and fourth quarter financial expenses from prior levels (excluding the one-time cost of the refina ncing of approximately $30.4 million).  Of the $325.0 million borrowed during the refinancing, $200.0 million was floating rate debt. Accordingly, the Company’s increased financial expenses for 2005 reflect the consequence of rising interest rates.  In June and July 2005, the Company entered into interest rate swap agreements that effectively fixed the interest rate on $75.0 million of bank debt at approximately 4.28% plus the applicable premium of 2.25% for five years.  The increase in the fourth quarter 2005 interest expense was primarily as a result of the increased borrowings to fund the Flexia acquisition.

Sales

IPG’s consolidated annual sales for 2005 were $801.8 million, an increase of 15.8% compared to $692.4 million for 2004.  Consolidated annual sales for 2004 were $692.4 million, an increase of 11.4% compared to $621.3 million in 2003.The sales increase for 2005 includes the sales associated with the Flexia acquisition in early October 2005. Excluding revenues related to the Flexia acquisition, sales were increased by about 12.5% from $692.4 million for the year 2004 to approximately $780.0 million for the year 2005.  The sales increase for 2004 includes the sales associated with the February 2004 acquisition of the masking and duct tape operations of tesa tape, inc. (“tesa”), as well as the full year effect of the June 2003 acquisition of the remaining 50% interest in Fibope Portuguesa Filmes Biorientados, S.A. (“Fibope”). Fluctuating foreign exchange rat es did not have a significant impact on the Company’s 2005, 2004 or 2003 sales.

In 2005, the Company had a sales volume (units) decrease of approximately 0.4%, excluding the fourth quarter sales volume increase associated with the Flexia acquisition.  The fourth quarter 2005 sales volume decrease, on the same basis, was approximately 1.8%. In 2004, the Company had a sales volume increase of approximately 2.9%, excluding the volume increase associated with the tesa acquisition. The fourth quarter 2004 sales volume increase, on the same basis, was slightly less than the annual rate of increase.

In response to rising raw material costs, the Company instituted substantial selling price increases beginning in the second quarter of 2004. The rate of selling price increases accelerated throughout the year and continued though the first quarter of 2005.  After a brief pause in the summer of 2005, selling prices were increased again in the fall of 2005 and continued to increase through the balance of the year. With the decline in raw material costs in early 2006, product selling prices have started to decline as well. Selling prices for most of the Company’s product lines also had increased in 2003 after several years of selling price declines.

Gross Profit and Gross Margin

Gross profit totaled $166.0 million in 2005, an increase of 15.9% from 2004. Gross profit totaled $143.2 million in 2004, an increase of 3.1% from 2003 gross profit of $138.9 million. Gross margin represented 20.7% of sales in 2005, 20.7% in 2004, and 22.4% in 2003.  

“Value-added” is defined by the Company as the difference between material costs and selling prices. While raw material costs increased throughout 2003, the Company’s successful implementation of a series of unit selling price increases resulted in improved value-added dollars. During 2004, the dollar impact of raw material cost increases grew substantially.  The Company was again able to raise its selling prices, and increase its value-added dollars.  Raw material costs continued to increase through the first quarter of 2005 and then, after a pause, began to rise again in the fall of 2005 and continued throughout the rest of the year.  Due to a series of timely sales price increases, the Company was able to once again increase its value-added dollars.

The increased value-added dollars, along with cost savings from facility rationalizations as discussed below, are the key reasons for the Company’s $27.1 million growth in gross profit dollars between 2003 and 2005.  Gross margins declined during that same period because the Company’s raw material cost base increased substantially.  As the cost base grew, smaller markups were required to generate more value-added dollars, and by extension, more gross profit dollars.

The acquisition of Flexia contributed much of the gross profit improvement for the fourth quarter of 2005 compared to the third quarter of 2005.  However, the lower gross margin of the Flexia product mix resulted in the Company’s overall gross margin declining to 20.5% for the fourth quarter of 2005 compared to the same period last year.

There were several significant events in the fourth quarter of 2005. As previously mentioned, the Company recorded a $2.0 million reduction to cost of sales related to the insurance claim on the boiler explosion earlier in the year.  The Company also recorded a $2.8 million increase in its allowance for doubtful accounts as a reduction to sales to reflect outstanding claims and short payments by existing customers, principally in the retail distribution channel. Selected customers have the contractual right to perform post-audits on prior year’s sales and related incentive activities.  Included in the $2.8 million of additional allowance for doubtful accounts are customer post-audit claims submitted to the Company in 2005 for periods as far back as 2000.

The Company takes measures to regularly identify and implement productivity initiatives aimed at reducing product costs, allowing the Company to mitigate the impact of rising raw material costs as well as other increases in production costs such as wage adjustments and energy costs.  These productivity initiatives generally fall into three major categories; material waste reduction, improved labor efficiencies and reduced overhead costs. The Company also has an ongoing facility rationalization process that reduces costs by leveraging existing production facilities more effectively. The Company closed its Green Bay, Wisconsin manufacturing facility at the end of 2003, its Montreal, Quebec and Cumming, Georgia manufacturing facilities in late 2004 and recently announced to employees the closing of both the Piedras Negras, Mexico facility and the Cap-de-la Madeleine, Quebec facility at the end of the first quart er of 2006. The Company believes these programs help it remain competitive in the marketplace and possibly in some instances, contribute to improved profitability.

Selling, General and Administrative Expenses

Selling, general and administrative expenses (“SG&A”) for the year ended December 31, 2005 totaled $104.8 million, an increase of $10.6 million from the $94.2 million incurred for the year ended December 31, 2004. The 2004 SG&A expenses were up $4.3 million from $89.9 million in 2003. As a percentage of sales, SG&A expenses were 13.1%, 13.6%, and 14.5% for 2005, 2004 and 2003 respectively.

The three primary factors behind the large increase in SG&A for 2005 are the previously discussed staffing realignment, the fact that a significant portion of the Company’s selling expenses are variable in nature including external sales commissions and internal sales staff incentives as well as customer incentives and for the fourth quarter of 2005, the impact of the Flexia acquisition.  The Company began increasing its staffing level during the first quarter of 2005 in order to support the smaller business teams established at the beginning of the year and maintained those higher staffing levels for the balance of the year.  In addition to the increased salaries and benefits related to the staffing increases, SG&A for 2005 also includes approximately $1.0 million in recruiting fees and relocation costs in excess of normal spending levels. Many customer incentives and external sales commiss ions are based on sales dollar growth and therefore, our higher sales prices in 2005 resulted in increased customer incentive payments and commissions payable. Internal sales incentives are driven by margin improvement, which occurred in several of our distributor-based markets in 2005. The increase in SG&A for 2004 compared to 2003 is due to the variable nature of the Company’s selling expenses, particularly in the retail distribution channel.

SG&A in the fourth quarter of 2005 increased by $4.1 million from the third quarter of 2005.  A portion of the increase was attributable to the acquisition of Flexia and the balance of the increase was primarily due to higher customer incentives and year-end management bonuses.  The Company also settled a 2002 dispute with a supplier over defective raw material that resulted in a gain of approximately $0.9 million reflected as a reduction of SG&A.  As a percentage of sales, SG&A for the fourth quarter of 2005 was 13.5% compared to 14.3% for the fourth quarter of 2004.

Stock-Based Compensation

In the fourth quarter of 2003, the Company adopted the fair value based method of accounting for stock options and recorded an expense of approximately $0.1 million for the stock options granted to employees during calendar 2003.  For 2005 and 2004, the Company recorded approximately $1.9 million and $1.0 million, respectively, in stock-based compensation expense related to options granted to employees. The year over year expense increase in each of the last two years is due to the larger number of stock option grants being expensed in accordance with the fair value based method of accounting.

Operating Profit

This discussion presents the Company’s operating profit for 2005, 2004 and 2003. “Operating profit” does not have a standardized meaning prescribed by GAAP in Canada or the United States but is included herein as the Company’s management uses “operating profit” to measure and evaluate the profit contributions of the Company’s product offerings as well as the contribution by channel of distribution.

Because “operating profit” is a non-GAAP financial measure, other companies may present similar titled items determined with differing adjustments.  Presented below is a table reconciling this non-GAAP financial measure with gross profit being the most comparable GAAP measurement.  The reader is encouraged to review this reconciliation. Operating profit is defined by the Company as gross profit less SG&A expenses and stock-based compensation.

OPERATING PROFIT RECONCILIATION

(In millions of US dollars)

	Three months ended December 31, (Unaudited)		Twelve months ended December 31,
	2005	2004	2005	2004	2003
	$	$	$	$	$
Gross Profit	45.8	36.1	166.0	143.2	138.9
Less: SG&A Expenses	30.1	25.8	104.8	94.2	89.9
Less: Stock-Based Compensation	0.5	0.4	1.9	1.0	0.1
Operating Profit	15.2	9.9	59.3	48.0	48.9

Operating profit for 2005 amounted to $59.3 million compared to $48.0 million for 2004 and $48.9 million for 2003.  Operating profits increased $11.3 million in 2005 compared to 2004 due to the improvement in gross profits of $22.8 million.  Just under half of the improved gross profits in 2005 was realized in operating profits with the other half of the improved gross profits offsetting increased SG&A expenses and stock-based compensation.  For 2004, the gross profit increase was offset by the increase in SG&A expenses.  The increase in stock-based compensation expense for 2004 compared to 2003 resulted in the decline in operating profit between 2003 and 2004.  

The Company’s operating profit for the fourth quarter of 2005 was $15.2 million compared to $9.9 million for the fourth quarter of 2004. The improvement in operating profit was the result of the higher gross profits achieved in 2005. The improved gross profits were the result of the Flexia acquisition in October 2005 and the cumulative benefit of the 2005 sales price increases.

Impairment of Goodwill

In accordance with the requirements of the Canadian Institute of Chartered Accountants (“CICA”), which are substantively equivalent to the applicable US standards, the Company performs an annual goodwill impairment test as at December 31. For purposes of the impairment test, based on the specific requirements of the accounting pronouncements, the Company determined that it was a single reporting unit. The Company calculated the fair value of this reporting unit using the discounted cash flow method, and compared it with other methods including multiples of sales and earnings before interest, income taxes, depreciation and amortization (“EBITDA”), and with historical transactions where appropriate. From these approaches, the fair value was determined. There was no goodwill impairment charge incurred by IPG for the years 2003, 2004 or 2005.

Research and Development

Research and development (“R&D”) remains an important function within the Company. Taken as a percentage of sales, R&D was 0.6% for 2005 and 2004 and 0.5% for 2003.  The Company continues to focus its R&D efforts on new products, new technology developments, new product processes and formulations.  In 2005, the R&D group played an instrumental role in designing new adhesive formulations, which helped the Company mitigate the impact of synthetic rubber shortages.

EBITDA

A reconciliation of the Company’s EBITDA, a non-GAAP financial measure, to GAAP net earnings is set out in the EBITDA reconciliation table below.  EBITDA should not be construed as earnings before income taxes, net earnings or cash from operating activities as determined by GAAP.  The Company defines EBITDA as net income before (i) income taxes; (ii) financial expenses, net of amortization; (iii) refinancing expense; (iv) amortization of other intangibles and capitalized software costs; and (v) depreciation.  Adjusted EBITDA is defined as EBITDA before manufacturing facility closure costs. The terms “EBITDA” and “Adjusted EBITDA” do not have any standardized meanings prescribed by GAAP in Canada or the United States and are therefore unlikely to be comparable to similar measures presented by other issuers. EBITDA and Adjusted EBITDA are not measurements of financial performa nce under GAAP and should not be considered as alternatives to cash flow from operating activities or as alternatives to net income as indicators of IPG’s operating performance or any other measures of performance derived in accordance with GAAP. The Company has included these non-GAAP financial measures because it believes that it permits investors to make a more meaningful comparison of IPG’s performance between periods presented. In addition, the Company’s covenants contained in the loan agreement with its lenders require certain debt to Adjusted EBITDA ratios be maintained, thus EBITDA and Adjusted EBITDA are used by Management and the Company’s lenders in evaluating the Company’s performance.

EBITDA RECONCILIATION TO NET EARNINGS

(In millions of US dollars)  

	Three months ended December 31, (Unaudited)		Twelve months ended December 31,
	2005	2004	2005	2004	2003
	$	$	$	$	$
Net Earnings – As Reported	9.7	17.7	27.8	11.4	18.2
Add Back:
Financial Expenses, net of amortization	6.3	4.1	22.4	23.0	26.7
Refinancing Expense				30.4
Income Taxes (recovery)	(1.7)	(20.5)	1.5	(29.7)	(4.1)
Depreciation & Amortization	7.5	7.8	31.1	29.9	29.4
EBITDA	21.8	9.1	82.8	65.0	70.2
Manufacturing facility closure costs	(0.8)	7.4	1.4	7.4	3.0
Adjusted EBITDA	21.0	16.5	84.2	72.4	73.2

EBITDA was $82.8 million for 2005, $65.0 million for 2004, and $70.2 million for 2003.  Adjusted EBITDA was $84.2 million, $72.4 million, and $73.2 million for the years 2005, 2004 and 2003 respectively.

The Company’s EBITDA for the fourth quarter of 2005 was $21.8 million compared to $9.1 million for the fourth quarter of 2004. The Adjusted EBITDA was $21.0 million in the fourth quarter of 2005 as compared to $16.5 million in the fourth quarter of 2004.

Financial Expenses

Financial expenses decreased 1.9% to $23.8 million for 2005 as compared to $24.3 million for 2004. Financial expenses decreased 15.0% to $24.3 million for 2004 as compared to $28.5 million for 2003.  

The decrease in financial expenses for 2005 as compared to 2004, reflects the full year benefit of the third quarter 2004 refinancing described below. However, during 2005, interest rates rose steadily throughout the year, reducing the benefit of the refinancing on the floating rate $275.0 million senior secured credit facility. In response to the rising interest rate environment, in June and July 2005, the Company entered into interest-rate swap agreements that effectively fixed the interest rate on $75.0 million of bank debt at approximately 4.28% plus applicable premium of 2.25% for five years.

The decrease in financial expenses for 2004 compared to 2003, reflects the full year benefit of the debt reduction that occurred at the end of September 2003 (a debt reduction funded through the raising of equity capital), as well as the third quarter 2004 refinancing of substantially all of the Company’s bank indebtedness and long-term debt. Financial expenses for 2003 reflected the concerted effort the Company placed on managing the balance sheet, generating cash and reducing debt and raising additional equity capital.  

Financial expenses for the fourth quarter of 2005 totaled $6.7 million, a 54.7% increase compared to $4.3 million for the fourth quarter of 2004. The increase is principally due to the higher interest rates in the fourth quarter of 2005 compared to the fourth quarter of 2004 and the increase in borrowings at the end of September 2005 in order to fund the acquisition of Flexia.  

Refinancing Expense

On July 28, 2004, the Company completed the offering of $125.0 million of senior subordinated notes. On August 4, 2004, the Company borrowed the $200.0 million term loan portion of a new $275.0 million senior secured credit facility.  The proceeds from the refinancing were used to repay the then existing bank credit facility, redeem all three series of the Company’s then existing senior secured notes, pay related make-whole premiums, accrued interest and transaction fees and provide cash for general corporate purposes.  

In the third quarter of 2004, the Company recorded a one-time pretax charge of approximately $30.4 million ($19.9 million net of related tax benefits) associated with the refinancing transaction.

Income Taxes

In the past three years, the Company’s statutory income tax rate has been impacted primarily by a lower rate on foreign-based income, manufacturing and processing deductions, transactions that resulted in permanent differences and changes in the valuation allowance.  

As at December 31, 2005, the Company had approximately $69.3 million in Canadian operating loss carry-forwards for tax purposes expiring from 2007 through 2015, and $153.9 million in US federal and state operating losses for tax purposes expiring from 2008 through 2024. In assessing the valuation of future income tax assets, management considers whether it is more likely than not that some portion or all of the future income tax assets will not be realized.  Management considers the scheduled reversal of future income tax liabilities, projected future taxable income and tax planning strategies in making this assessment. The Company expects the future income tax assets to be realized, net of the valuation allowance at December 31, 2005, as a result of the reversal of existing taxable temporary differences. Based on management’s assessment, a $12.4 million valuation allowance was established as at December 31, 2005, which is $4.1 million lower than the allowance established as at December 31, 2004.

Net Earnings – Canadian and US GAAP

For 2005, the Company posted net earnings of $27.8 million as compared to $11.4 million in 2004 and $18.2 million in 2003.  

Adjusted net earnings, a non-GAAP financial measure (see table on page 6) amounted to $28.7 million for 2005, $36.0 million for 2004 and $20.1 million for 2003. The Company is including adjusted net earnings here because it believes it provides a better comparison of results for the periods presented since it does not take into account non-recurring items and manufacturing facility closure costs in each period.

Adjusted net earnings does not have any standardized meaning prescribed by GAAP in Canada or the United States and is therefore unlikely to be comparable to similar measures presented by other issuers. A reconciliation of adjusted net earnings to net earnings, being the most comparable measurement under GAAP, is set forth on pages 5 and 6. The reader is encouraged to review this reconciliation.

The Company had net earnings of $9.7 million for the fourth quarter of 2005 as compared to net earnings for the fourth quarter of 2004 totaling $17.7 million.  The substantial increase in fourth quarter 2004 net earnings was due to a tax asset valuation adjustment that contributed the majority of a $20.4 million income tax benefit.  Excluding plant facility closure costs, pretax profits for the fourth quarter of 2005 were $7.3 million, a 58.1% improvement over the 2004 amount of $4.6 million.  The fourth quarter 2005 pretax profit improvement is attributable to the increase in gross profits.

Canadian GAAP net earnings conform in all material respects to amounts that would have to be reported had the financial statements been prepared under US GAAP, except for the effect of variable accounting, which would result in an increase in net earnings of approximately $0.3 million in 2005 ($1.4 million in 2004 and a reduction of $1.7 million in 2003). Consequently, in accordance with US GAAP, net earnings in 2005 would be approximately $28.0 million, $12.7 million in 2004 and $16.5 million in 2003. For further details, see Note 22a to the consolidated financial statements.

In the case of IPG, net earnings are equal to earnings from continuing operations, as the Company had no discontinued operations, extraordinary items, or changes in accounting principles that resulted in a charge against earnings for these periods.

Earnings Per Share – Canadian and US GAAP

Basic and diluted net earnings per share in accordance with Canadian GAAP conform in all material respects to amounts that would have been reported had the financial statements been prepared under US GAAP, except for the impact of variable accounting previously discussed under the caption “Net earnings – Canadian and US GAAP”. Consequently, in accordance with US GAAP, basic and diluted net earnings per share would be $0.68 in 2005 ($0.31 in 2004 and $0.46 in 2003).

The Company reported earnings per share of $0.67 basic and diluted for 2005 as compared to earnings per share of $0.28 basic and $0.27 diluted for 2004 and earnings per share of $0.51 basic and $0.50 diluted for 2003. The weighted-average number of common shares outstanding for the purpose of the basic EPS calculation was 41.2 million for 2005 (41.3 million diluted), 41.2 million (41.4 million diluted) for 2004 and 36.0 million (36.1 million diluted) for 2003. The increases in the weighted-average number of shares outstanding in 2003 was primarily due to the equity offering at the end of September 2003 and the issuance of shares in June 2003 to acquire the remaining 50% common equity interest in Fibope. The increase in the weighted-average number of shares outstanding in 2004 was due to the full year effect of the September 2003 equity offering and the June 2003 Fibope acquisition.  

The adjusted EPS (see table on page 6) for 2005 was $0.70 basic and $0.69 diluted, compared to $0.87 basic and diluted for 2004, and to $0.56 basic and diluted for 2003.  

Off-Balance Sheet Arrangements and Related Party Transactions

The Company maintains no off-balance sheet arrangements except for the interest rate swap agreements and letters of credit issued and outstanding discussed in the section entitled “Bank Indebtedness and Credit Facilities” and in Notes 15 and 16 to the consolidated financial statements. The Company is not a party to any material related party transactions.

Liquidity and Capital Resources

Cash Flow

In 2005, the Company generated cash flow from operating activities of $32.4 million.  In 2004, the Company used cash of $4.1 million in operating activities.  In 2003, the Company generated cash flow from operating activities of $40.4 million. In the fourth quarter of 2005, the Company generated $11.9 million cash flow from operating activities compared to $1.7 million for the fourth quarter of 2004.

Cash from operations before changes in non-cash working capital items increased in 2005 by $30.8 million to $57.7 million from $26.9 million in 2004.  The increase in 2005 was due to improved profitability and the absence of a $21.9 million make-whole payment to the Company’s previous noteholders, which occurred in the third quarter of 2004 as part of the refinancing.  Cash from operations before changes in non-cash working capital items decreased in 2004 by $11.2 million to $26.9 million from $38.1 million in 2003.  The decrease in 2004 is primarily the result of the make-whole payment. Excluding this item, cash from operations before changes in non-cash working capital items was $48.8 million, a $10.7 million increase over 2003.  For the fourth quarter of 2005, cash from operations before changes in non-cash working capital was $12.0 million compared to $9.4 million in the fourth quarter of 2004.  The improvement in 2005 is the result of improved profitability compared to the fourth quarter of 2004.

In 2005, non-cash working capital items used $25.3 million in net cash flow, including $0.1 million used in the fourth quarter.  Most of the increase in working capital was in trade and other receivables of $10.2 million and accounts payable and accrued liabilities of $12.5 million.  Due to the two major Gulf Coast hurricanes late in the third quarter of 2005, resin prices increased substantially, resulting in higher working capital investments in the fourth quarter for both inventories and trade receivables.   The increased inventories investment resulting from higher material costs was substantially offset by the Company’s ability to substantially reduce inventory units, particularly in raw materials.  The decrease in accounts payable and accrued expenses was due to lack of inventory pre-buying at December 31, 2005 compared to December 31, 2004 and the fact that the Company was taki ng increased advantage of prompt pay discounts from suppliers at the end of 2005.

In 2004, non-cash working capital items used $30.9 million in net cash flow, of which $7.6 million was used in the fourth quarter.  An increase in trade and other receivables of $12.7 million and an increase in inventories of $20.1 million accounted for the use of working capital.  As in 2005, rapidly rising raw material costs over the course of the year consumed cash in the form of higher inventory investments. Also impacting inventories was the Company’s practice of pre-buying raw materials in anticipation of future raw material costs increases. The tesa acquisition in February 2004 increased working capital requirements for inventories and trade accounts receivable to accommodate the acquired customers.  Increases in unit sales prices also increased the balance of trade accounts receivable owed by customers.  

In 2003, non-cash working capital items generated $2.3 million additional net cash flow.  This was driven by an increase in trade payables of $10.5 million less an increase in trade and other receivables of $2.4 million and an increase in inventories of $5.1 million.  The increase in inventories was a result of several factors.  First, there was a need to increase finished goods inventory in the water activated product line to accommodate the closure of the Green Bay facility at the end of December and insure a smooth transition for IPG’s customers.  Second, masking and duct tape inventories were increased in order to facilitate the February 2004 transfer of customers from tesa to IPG. Lastly, certain finished goods inventories were increased to facilitate the consolidation of three RDCs into the new RDC located in Danville, Virginia which opened in late January 2004.  

Cash flow used in investing activities was $55.8 million for 2005 as compared to $37.6 million for 2004 and $20.6 million for 2003.  These investing activities include an increase in property, plant and equipment of $24.0 million for 2005, $18.4 million for 2004 and $13.0 million for 2003.  In the fourth quarter of 2005, the Company used cash of $28.1 million to acquire Flexia and in the first quarter of 2004 the Company purchased the duct and masking tape operations of tesa for $5.5 million.  In addition, goodwill increased $6.2 million in 2003 as a result of the payment of an additional amount related to a prior acquisition.  Other assets increased $3.9 million during 2005, $13.2 million during 2004 and $1.4 million in 2003. The increase in 2004 includes $10.5 million incurred for debt issuance costs associated with the refinancing.  Cash flow used in investing activities was $36.4 milli on for the fourth quarter of 2005 compared to $6.7 million for the fourth quarter of 2004, an increase of $29.7 million.  Most of the increase was due to the Flexia acquisition in 2005 and increased spending on capital assets.

Cash flow provided by financing activities totaled $11.7 million in 2005 and $63.2 million in 2004. Cash flow used in financing activities amounted to $16.4 million in 2003.  On the last business day of the third quarter of 2005, the Company borrowed $23.5 million under its revolving credit facilities to fund the Flexia acquisition which closed on October 5, 2005.  This increased IPG’s total outstanding balance under its revolving credit facilities to $28.5 million.  During the fourth quarter of 2005, the Company was able to reduce its revolving credit facilities by a total of $13.5 million to $15.0 million at December 31, 2005. During the third quarter of 2004, the Company borrowed $325.0 million to refinance substantially all of its bank indebtedness and long-term debt.  During 2004, the Company issued approximately 345,000 shares for a consideration of $2.7 million to fund its contribut ions to various pension funds and for the exercise of employees’ stock options. During 2003, the Company issued 5,750,000 shares from treasury as a result of an equity offering for a consideration of $41.3 million. The proceeds were used to pay down short-term bank indebtedness under the Company’s then existing line of credit and to retire long-term debt. In 2003, the Company also issued approximately 343,000 shares for consideration of $2.4 million to fund its contributions to various pension funds and for the exercise of employees’ stock options. The Company retired long-term debt in the amount of $64.3 million in 2003 utilizing a combination of net cash flows from operations, the proceeds from the equity offering and increased borrowings under its then existing line of credit.

In 2003, the Company entered into a twenty-year capital lease for its RDC in Danville, Virginia.  The lease commenced in January 2004. This non-cash transaction was valued at $7.2 million and is reflected in the Company’s consolidated balance sheet as property, plant and equipment and long-term debt.

Free cash flow, a non-GAAP measurement that is defined by the Company as cash flows from operating activities less property, plant and equipment expenditures and dividends was $8.4 million for 2005, an improvement of $30.9 million from 2004, which was negative $22.5 million.  The improvement is due to the absence in 2005 of the $21.9 million make-whole payment discussed above and improved profitability.  The improvement in free cash for 2005 was not as substantial as anticipated, particularly in the fourth quarter, as the rapid escalation in raw material costs and the resulting increase in inventory values, offset the inventory unit reduction achieved in the fourth quarter.  Free cash flow for 2003 was $27.4 million.  The Company is including free cash flow because it is used by Management and the Company’s investors in evaluating the Company’s performance.  Free cash flow does n ot have any standardized meaning prescribed by GAAP in Canada or the United States and is therefore, unlikely to be comparable to similar measures presented by other issuers. A reconciliation of free cash flow to cash flow from operating activities, the most directly comparable GAAP measure, is set forth below. The reader is encouraged to review this reconciliation.

FREE CASH FLOW RECONCILIATION

(In millions of US dollars)

	2005	2004	2003
Cash Flow From Operating Activities	32.4	(4.1)	40.4
Less: Capital Expenditures	24.0	18.4	13.0
Free Cash Flow	8.4	(22.5)	27.4

Liquidity

As at December 31, 2005, working capital stood at $174.6 million as compared to $146.8 million as at December 31, 2004. The increase of $27.8 million is due to the increase in receivables and inventories previously discussed, the decrease in cash on hand from $21.9 million at December 31, 2004 to $10.1 million at December 31, 2005, a $14.6 million increase in the current future income taxes due to the expected utilization of net operating loss carryforwards in 2006, a $3.7 million increase in other receivables due to the insurance claim arising out of the Columbia, South Carolina facility explosion and a $15.0 million increase in bank indebtedness. The Company believes that it has sufficient working capital to meet the requirements of its day-to-day operations, given its operating margins and projected budgets.

Quick assets, which are the Company’s total current assets excluding prepaid expenses and future income taxes, increased by $30.4 million during 2005 to a level of $272.1 million, and by $57.4 million during 2004 to a level of $241.7 million. The 2005 increase was due to increased investments in inventories and trade receivables triggered by the higher cost of raw materials. The 2004 increase was primarily due to the increased cash provided by the refinancing, the increases in trade receivables resulting from higher sales volume and increased inventories due to higher raw material costs and pre-buying.

The Company’s cash liquidity is influenced by several factors, the most significant of which is the Company’s level of inventory investment. The Company periodically increases its inventory levels when business conditions suggest that it is in the Company’s interest to do so, such as buying opportunities to mitigate the impact of rising raw material costs. The Company believes it has adequate cash and credit availability to support these strategies.

Days outstanding in trade receivables were 56.6 days at the end of 2005 as compared to 53.6 days at the end of 2004. Due to rising raw material costs, inventory turnover (cost of sales divided by inventories) slipped to 6.0 times in 2005 compared to 6.1 times in 2004.

Currency Risk

The Company is subject to currency risks through its Canadian and European operations. Changes in the exchange rates may result in decreases or increases in the Company’s foreign exchange gains or losses. The Company does not use derivative instruments to reduce its exposure to foreign currency risk, as historically these risks have not been significant.

Capital Expenditures

Total property, plant and equipment expenditures were $24.0 million, $18.4 million and $13.0 million for the years 2005, 2004 and 2003 respectively.

Prior to 2004, property, plant and equipment expenditures were maintained at lower than historical levels as the Company was working to reduce its debt.  The refinancing in the third quarter of 2004 positioned the Company to increase its capital investment for further growth and productivity. Based on current volume and anticipated market demand, the Company believes it has sufficient capacity available to accommodate increases in volumes in most products without additional capital expenditure.  In addition, Management believes the Company is positioned to take advantage of opportunities that may arise to grow its market share in existing products, expand its product offerings or expand its market.

Bank Indebtedness and Credit Facilities

The Company has a US$65.0 million five-year revolving credit facility and a US$10.0 million five-year revolving credit facility available in Canadian dollars.  As at the end of 2005, the Company had $15.0 in outstanding draws under these facilities and $7.0 million in outstanding letters of credit.  As at December 31 2004, none of the revolving credit facilities were drawn except for $3.8 million in outstanding letters of credit. The facilities are part of the $275.0 million Senior Secured Credit Facility described in more detail below. The Senior Secured Credit Facility, along with the issuance of Senior Subordinated Notes also described below, allowed the Company to refinance substantially all of its bank indebtedness and long-term debt including its previously existing $50.0 million revolving line of credit.  When combined with on-hand cash and cash equivalents and temporary investments, the Comp any had total cash and credit availability, subject to covenant restrictions, of $66.8 million as at December 31, 2005 and $93.6 million as at December 31, 2004.  The decrease between December 31, 2004 and December 31, 2005 is due to the borrowing of the funds to finance the acquisition of Flexia in October 2005.

Long-Term Debt

On July 28, 2004, the Company completed the offering of $125.0 million of Senior Subordinated Notes due 2014.  On August 4, 2004, initial funding under the Company’s new $275.0 million Senior Secured Credit Facility occurred, consisting of a $200.0 million term loan and a total of $75.0 million in revolving credit facilities.  The proceeds from the refinancing were used to repay the Company’s then existing bank credit facility, redeem all three series of its then existing senior secured notes, pay related make-whole premiums, accrued interest and transaction fees and provide cash for general working capital purposes.

The Senior Secured Credit Facility is guaranteed by the Company and substantially all of its subsidiaries and is secured by a first priority perfected security interest in substantially all tangible and intangible assets owned by the Company and substantially all of its subsidiaries, subject to certain customary exceptions.

The Company reduced indebtedness associated with long-term debt instruments by $64.3 million during 2003. In 2004, the Company’s non-current long-term debt increased by $96.0 million however, due to the refinancing, it is at a reduced cost to the Company. A portion of the Company’s increase in indebtedness in 2004 was also attributable to the capital lease for the new RDC in Danville, Virginia, and the reclassification of short-term debt to long-term debt as a result of the refinancing. In 2005, the Company reduced its indebtedness associated with its long-term debt instruments by $3.0 million in accordance with its debt amortization schedule.

Tabular Disclosure of Contractual Obligations

Our principal contractual obligations and commercial commitments relate to our outstanding debt and our operating lease obligations. The following table summarizes these obligations as of December 31, 2005:

	Payments Due by Period
Contractual Obligations  (in millions of US dollars)	Total	Less than 1 year	1-3 years	4-5 years	After 5 years
	$	$	$	$	$
Long-Term Debt	323.9	2.6	4.5	97.5	219.3
Capital (Finance) Lease Obligations	10.7	0.6	1.1	1.1	7.9
Operating Lease Obligations	21.4	6.1	9.4	4.9	1.0
Purchase Obligations
Other Long-Term Liabilities Reflected on Balance Sheet under GAAP of the primary financial statements
Total	356.0	9.3	15.0	103.5	228.2

IPG anticipates that funds generated by its operations and funds available to it under its Senior Secured Credit Facility will be sufficient to meet working capital requirements and anticipated obligations under its Senior Secured Credit Facility and the Senior Subordinated Notes and to finance capital expenditures for the foreseeable future. The Company has experienced, and expects to continue to experience in the future, fluctuations in its quarterly results of operations. IPG’s ability to make scheduled payments of principal or interest on, or to make other payments on and refinance, its indebtedness, or to fund planned capital expenditures and existing capital commitments, will depend on IPG’s future performance, which is subject to general economic conditions, the competitive environment and other factors, a number of which are outside of the Company’s control.

The credit agreement governing the Senior Secured Credit Facility and the indenture governing the outstanding Senior Subordinated Notes each contain restrictive covenants that, among other things, limit the Company’s ability to incur additional indebtedness, make restricted payments, make loans or advances to subsidiaries and other entities, invest in capital expenditures, sell its assets or declare dividends. In addition, under its Senior Secured Credit Facility, the Company is required to maintain certain financial ratios, including a maximum total leverage ratio, a minimum interest coverage ratio and a minimum fixed charge ratio.  The Company was in compliance with its financial covenants as at December 31, 2005.

Capital Stock

As at February 28, 2006 there were 40,958,074 common shares of the Company outstanding.

In 2005, 2004, and 2003, employees exercised stock options worth $0.1 million, $1.0 million and $0.7 million respectively. Further, in both 2004 and 2003, $1.7 million worth of shares were issued in relation to funding the Company’s US employee stock ownership retirement savings plan.  

In the fourth quarter of 2005, the Company reacquired and cancelled 250,587 common shares of the Company as part of a settlement with the former owner of a business the Company had previously acquired.

On March 13, 2006, the Company announced the effectiveness of a new Normal Course Issuer Bid (NCIB) in Canada, pursuant to which the Company may, over a 12-month period, repurchase at prevailing market prices, up to a maximum of 2,047,903 of its common shares.  The bid commenced on March 16, 2006 and the bid will remain in effect until the earlier of March 15, 2007 or the date upon which the Company has either acquired the maximum number of common shares specified above or otherwise decided not to make any further purchases under the bid.  The Company believes that the purchase of its own common shares may, in appropriate circumstances, be a responsible investment of available funds on hand.

During November 2004, the Company announced that it had registered an NCIB in Canada, under which the Company was authorized to repurchase up to 5.0% of its outstanding common shares. In the fourth quarter of 2004, there were 53,200 shares purchased for cancellation at a cost to the Company of $0.4 million.  In the second quarter of 2005, there were 46,300 shares purchased for cancellation at a cost to the Company of $0.3 million. There were no shares purchased for cancellation during 2003. The NCIB expired on November 8, 2005.  

In the third quarter of 2003, the Company issued 5,750,000 common shares at a price of CA$10.00 per share (US$7.18 per share after issue costs) for a cash infusion of US$41.3 million net of issue costs.  The proceeds from the stock issue were used to reduce short-term bank indebtedness, repay long-term bank indebtedness and repay principal amounts under the Company’s then existing notes.

During 2003, in a transaction valued at $7.2 million, 1,030,767 common shares were issued to acquire the remaining 50% common equity interest of Fibope.

Accumulated currency translation adjustments increased $12.0 million during 2004, from $19.2 million as at December 31, 2003 to $31.2 million as at December 31, 2004. In 2005, the increase was $2.6 million from $31.2 million as at December 31, 2004 to $33.8 million as at December 31, 2005. The increases in both years were due to the strengthening of the Canadian dollar.  In 2004, the Euro also strengthened relative to the US dollar.  For 2005, the Euro weakened relative to the US dollar.

Business Acquisitions

In October 2005, the Company, through a wholly-owned Canadian subsidiary, acquired all of the outstanding capital stock of Flexia Corporation Ltd., being the successor entity to Flexia Corporation and Fib-Pak Industries Inc. for an aggregate consideration of approximately $29.1 million after purchase price adjustments occurring subsequent to year-end of which $28.1 million was paid in cash and the balance is included in accounts payable and accrued liabilities. Flexia produces a wide range of engineered coated products, polyethylene scrims and polypropylene fabrics.

In February 2004, the Company purchased for a cash consideration of $5.5 million plus contingent consideration (dependent on business retention), assets relating to the masking and duct tape operations of tesa.  At the same time, the Company finalized its three-year agreement to supply duct tape and masking tape to tesa. The acquisition has been accounted for using the purchase method of accounting and, accordingly, the purchase price has been allocated to the assets and liabilities based on their estimated fair values as at the date of the acquisition.

During 2003, the Company acquired the remaining 50% common equity interest in Fibope, a manufacturer and distributor of film products in Portugal. The acquisition has been accounted for using the purchase method of accounting and, accordingly, the purchase price has been allocated to the assets and liabilities based on their estimated fair values as at the date of the acquisition. Previously, the Company had accounted for its investment in Fibope as a joint venture using the proportionate consolidation method.  The Company acquired the remaining interest in Fibope in order to provide a viable platform from which to introduce products made in its various North American facilities into the European markets. The purchase price of $7.2 million was settled by the issuance of 1,030,767 common shares of the Company.  The Company acquired assets with a fair value of $11.1 million, including approximately $3.4 mi llion of goodwill, and assumed liabilities of $3.9 million, of which $2.2 million was interest-bearing debt.

Pension and Post-Retirement Benefit Plans

IPG’s pension benefit plans are currently showing an unfunded deficit of $15.8 million at the end of 2005 as compared to $11.6 million at the end of 2004. Included in the increase in the unfunded deficit between the end of 2004 and the end of 2005 is $3.4 million of deficits assumed with respect to the two defined benefit plans of Flexia. For both 2005 and 2004, the Company contributed $2.3 million annually to its plans. The Company may need to divert some of its resources in the future in order to resolve this funding deficit but expects to meet its pension benefit plan funding obligations in 2006 through cash flows from operations.

Dividend on Common Shares

No dividends were declared on the Company’s stock in 2005, 2004 or 2003.

Critical Accounting Estimates

The preparation of financial statements in conformity with Canadian GAAP requires Management to make estimates and assumptions that affect the recorded amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the recorded amounts of revenues and expenses during the reporting period. On an on-going basis Management reviews its estimates, including those relating to the allowance for doubtful accounts, reserve for slow moving and unmarketable inventories and income taxes based on currently available information. Actual results may differ from those estimates.

The allowance for doubtful accounts is based on reserves for specific accounts which Management believes may not be fully recoverable combined with an overall reserve reflective of the Company’s historical bad debt experience and current economic conditions.

Establishing and updating the reserve for slow moving and unmarketable inventories starts with an evaluation of the inventory on hand as compared to historical and expected future sales of the products. For items identified as slow-moving or unmarketable; the cost of products is compared with their estimated net realizable values and a valuation reserve is established when the cost exceeds the estimated net realizable value.

In assessing the realizability of future income tax assets, Management considers whether it is more likely than not that some portion or all of the future income tax assets will not be realized. Management considers the scheduled reversal of future income tax liabilities, projected future taxable income, and tax planning strategies in making this assessment.

Changes in Accounting Policies

Derivative Financial Instruments

Derivative financial instruments are utilized by the Company to reduce interest rate risk on its debt.  The Company does not enter into financial instruments for trading or speculative purposes.  

The Company’s policy is to formally designate each derivative financial instrument as a hedge of a specifically identified debt instrument.  The Company believes the derivative financial instruments are effective as hedges, both at inception and over the term of the instrument, as the term to maturity, the principal amount and the interest rate basis in the instruments all match the terms of the debt instrument being hedged.

Interest rate swap agreements are used as part of the Company’s program to manage the floating interest rate mix of the Company’s total debt portfolio and related overall cost of borrowing.  The interest rate swap agreements involve the periodic exchange of payments without the exchange of the notional principal amounts upon which the payments are based, and are recorded as an adjustment of interest expense on the hedged debt instrument.  The related amount payable to or receivable from counterparties is included as an adjustment of accrued interest.

Gains and losses on terminations of interest rate swap agreements are deferred under other current, or noncurrent, assets or liabilities on the consolidated balance sheet and amortized as an adjustment to interest expense related to the obligation over the remaining term of the original contract life of the terminated swap agreement.  In the event of early extinguishment of the debt obligation, any realized or unrealized gain or loss from the swap would be recognized in the consolidated statement of earnings at the time of extinguishment.

Consolidation of variable interest entities

In June 2003, the Canadian Institute of Chartered Accountants (“CICA”) issued Accounting Guideline 15 (AcG-15), Consolidation of Variable Interest Entities. This guideline clarifies and addresses the application of consolidation guidelines to those entities defined as variable interest entities (VIEs), which are entities that are subject to control on a basis other than voting interest. Such entities should be consolidated by the primary beneficiary, which is the entity that will absorb the majority of the VIEs expected losses or will receive a majority of its expected residual returns, or both.  This guideline is required for annual and interim periods beginning on or after November 1, 2004.  The application of AcG-15 had no impact on the Company’s consolidated financial statements.

Impact of Accounting Pronouncements Not Yet Implemented

Canadian GAAP

Financial instruments

In April 2005, the CICA issued the following new sections: Section 1530, Comprehensive Income, Section 3251, Equity, Section 3855, Financial Instruments-Recognition and Measurements, and Section 3865, Hedges. These standards, which are aimed at harmonizing Canadian and US rules, will be applicable for fiscal years starting on or after October 1, 2006. The Company is currently evaluating the impact of these pronouncements including the initial application.

§

Section 1530, Comprehensive Income

According to Section 1530, Comprehensive Income, comprehensive income includes net income as well as all changes in equity during a period, from transactions and events from non-owners sources.

§

Section 3251, Equity

This section establishes standards for the presentation of equity and changes in equity during the reporting period. The main feature of this Section is a requirement for an enterprise to present separately the changes in equity during the period, including comprehensive income as well as components of equity at the end of the period.

§

Section 3855, Financial Instruments-Recognition and Measurements

One of the basic principles of Section 3855 is that fair value is the most relevant measure for financial instruments.

§

Financial assets, which involve trade and loans receivable and investments in debt and equity securities, must be classified into one of four categories:

§

Held-to maturity investments (measured at amortized cost)

§

Loans and receivables (measured at amortized cost)

§

Held for trading assets (measured at fair value with changes in fair value recognized in earnings immediately)

§

Available for sale assets, including investments in equity securities, held-to-maturity investments that an entity elects to designate as being available for sale and any financial asset that does not fit into any other category (measured at fair value with changes in fair value accumulated in a separate component of shareholders’ equity called “Other Comprehensive Income” until the asset is sold or impaired).

§

Financial liabilities, which include long-term debt and other similar instruments, must be accounted for at amortized cost, except for those classified as held for trading, which must be measured at fair value.

§

Section 3865, Hedges

Section 3865 includes the guidance on hedging relationships that was previously contained in AcG-13, Hedging Relationships, such as that relating to the designation of hedge relationships and their documentation and specifies how hedge accounting should be applied and identifies the information that should be disclosed.

§

Derivatives used as hedging items should be measured at fair value considering the following specific considerations:

§

If the derivative is used as a hedge of an exposure to changes in fair value of an asset or a liability or of a firm commitment, changes in fair value of derivative and offsetting change in the fair value of the hedged item attributable to the hedged risk exposure are recognized in net income. The carrying amount of the hedged item is adjusted for the gain or loss on the hedged risk.

§

If the derivative is used as a hedge of an exposure to changes in cash flows of an asset or liability or of a forecasted transaction or for a foreign currency risk relating to a firm commitment, the portion of the gain or loss on the derivative that is determined to be an effective hedge is recognized in other comprehensive income. The portion determined not to be an effective hedge is recognized in net income. Gains or losses accrued in other comprehensive income are recognized in net income in the period in which the hedged item has an impact on net earnings.

§

A hedge of a net investment in a self-subsidizing foreign operation is treated in a manner similar to a cash flow hedge.

Non-monetary transactions

Section 3831 establishes standards for the measurement and disclosure of non-monetary transactions. An asset exchanged or transferred in a non-monetary transaction is measured at its carrying amount when the transaction lacks commercial substance. Specific criteria are given to assets whether this condition is present in a particular exchange, which would require an entity to consider whether its value or its future cash flows have been altered as a result of the transaction. The “commercial substance” criterion replaces the “culmination of the earnings process” criterion in former Section 3830. The new requirements are effective for non-monetary transactions initiated in periods beginning on or after January 1, 2006. The Company does not expect this pronouncement to have a material impact on its results of operations and financial condition.

Accounting for conditional asset retirement obligations

In December 2005, the Emerging Issues Committee (EIC) of the CICA issued EIC-159, Conditional Asset Retirement Obligations. This pronouncement governs the accounting for asset retirement obligations where the method or timing of disposal of an asset is conditional on some future event. The new pronouncement is effective for annual and interim periods ending after March 31, 2006. The Company does not expect this pronouncement to have a material impact on its results of operations and financial condition.

US GAAP

Accounting for conditional asset retirement obligations

FASB Interpretation No. 47 (FIN47), issued in March 2005, clarifies that the term “conditional asset retirement obligation” as used in FASB Statement No. 143, Accounting for Asset Retirement Obligations, refers to a legal condition to perform an asset retirement activity in which the timing and (or) method of settlement are conditional on a future event that may or may not be with the control of the entity. The obligation to perform the asset retirement activity is unconditional even though uncertainty exists about the timing and (or) method of settlement. Accordingly, an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value of the liability can be reasonably estimated. This Interpretation is effective no later than the end of fiscal years ending after December 15, 2005 and had no material impact on the Company’s financia l position and results of operations.

Share-Based Payment

The FASB issued SFAS No. 123 (“SFAS 123 (R)”), Share-Based Payment, in December 31, 2004. SFAS 123 (R) requires all entities to recognize the fair value of share-based payment awards (stock compensation) classified in equity. SFAS 123 (R) is effective for the Company at the beginning of the fiscal year 2006. The requirements of SFAS 123 (R) will not have an impact on the Company’s results of operations and financial condition.

Inventory Costs

In November 2004, the FASB issued SFAS 151, Inventory Costs – An Amendment of ARB No. 43, Chapter 4.

SFAS 151 amends the guidance in ARB No. 43, Chapter 4 Inventory Pricing, to clarify the accounting for certain abnormal amounts in establishing inventory valuation. The proposed statement would recognize as current-period charges, idle facility expense, excessive spoilage, double freight, and rehandling costs regardless of whether they meet the criterion of so abnormal: as stated in ARB No. 43. The proposed statement would also require that the allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. SFAS 151 is effective for fiscal years beginning after June 15, 2005. The Company expects that this pronouncement will not have a material impact on its results of operations and financial condition.

Exchange of Non-Monetary Assets

December 2004, the FASB issued SFAS 153, Exchange of Non-monetary Assets – An Amendment of APB Opinion No. 29. SFAS 153 eliminates the exception from fair value measurement for non-monetary exchanges of similar productive assets in paragraph 21(b) of APB Opinion 26, Accounting for Non-monetary Transactions, and replaces it with an exception for exchanges that do not have commercial substance. SFAS 153 is effective for the fiscal periods beginning after June 15, 2005. The Company expects that this pronouncement will not have a material impact on its results of operations and financial condition.

Accounting Changes and Error Corrections

During the second quarter of 2005, the FASB issued SFAS 154, Accounting Changes and Error Corrections, which changes the accounting and reporting requirements for the change in an accounting principle, SFAS 154 requires retrospective application to prior periods’ financial statements of changes in an accounting principle, unless it is impracticable to do so. SFAS 154 differentiates between retrospective application and restatement. Retrospective application is defined as the application of a different accounting principle to prior accounting periods as if that principle had always been used, or as the adjustment of previously issued financial statements to reflect a change in the reporting entity. SFAS 154 is effective for accounting changes and correction of error made in fiscal years beginning after December 15, 2005. The Company does not expect this pronouncement to have a material impact on its res ults of operations and financial condition.  

Controls and Procedures

The Chief Executive Officer and Chief Financial Officer of the Company conducted an evaluation of the disclosure controls and procedures as required by Multilateral Instrument 52-109 issued by the Canadian Securities Administrators. They concluded that as at December 31, 2005 the Company’s disclosure controls and procedures were effective in ensuring that material information regarding this MD&A and other required filings were made known to them on a timely basis.

Disclosure Required by the NYSE

A summary of the significant ways that the corporate governance practices of the Company differs from that of a US company is available on the Company’s website at www.intertapepolymer.com under “Investor Relations”.

Additional Information

Additional information relating to IPG, including its Annual Information Form is filed on SEDAR at www.sedar.com in Canada and on EDGAR at www.sec.gov in the US.

MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS

TO THE SHAREHOLDERS OF INTERTAPE POLYMER GROUP INC.

The consolidated financial statements of Intertape Polymer Group Inc. and the other financial information included in this annual report are the responsibility of the Company's Management and have been examined and approved by its Board of Directors. These consolidated financial statements have been prepared by Management in accordance with Canadian generally accepted accounting principles and include some amounts that are based on Management's best estimates and judgments. The selection of accounting principles and methods is Management's responsibility.

The Company maintains internal control systems designed to ensure that the financial information produced is relevant and reliable.

Management recognizes its responsibility for conducting the Company's affairs in a manner to comply with the requirements of applicable laws and established financial standards and principles, and for maintaining proper standards of conduct in its activities.

The Board of Directors assigns its responsibility for the financial statements and other financial information to the Audit Committee, all of whom are non-management and unrelated directors.

The Audit Committee's role is to examine the financial statements and annual report and recommend that the Board of Directors approve them, to examine the internal control and information protection systems and all other matters relating to the Company's accounting and finances. In order to do so, the Audit Committee meets periodically with external auditors to review their audit plans and discuss the results of their examination. This committee is responsible for recommending the appointment of the external auditors or the renewal of their engagement.

The Company's external auditors, Raymond Chabot Grant Thornton LLP appointed by the shareholders at the Annual and Special Meeting on May 25, 2005, have audited the Company's consolidated financial statements and their report indicating the scope of their audit and their opinion on the consolidated financial statements follows.

Sarasota/Bradenton, Florida and Montreal, Canada

February 28, 2006

/s/ Melbourne F. Yull

Melbourne F. Yull

Chairman and Chief Executive Officer

/s/ Andrew M. Archibald

Andrew M. Archibald

Chief Financial Officer and Secretary

AUDITORS' REPORT

TO THE SHAREHOLDERS OF INTERTAPE POLYMER GROUP INC.

We have audited the consolidated balance sheets of Intertape Polymer Group Inc. as at December 31, 2005 and 2004 and the consolidated statements of earnings, retained earnings and cash flows for each of the years in the three-year period ended December 31, 2005. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2005 and 2004 and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2005 in accordance with Canadian generally accepted accounting principles.

/s/Raymond Chabot Grant Thornton LLP

Chartered Accountants

Montreal, Canada

February 28, 2006

Intertape Polymer Group Inc.

Consolidated Earnings

Years Ended December 31,

(In thousands of US dollars, except per share amounts)

	2005	2004	2003
	$	$	$
Sales	801,844	692,449	621,321
Cost of sales	635,845	549,252	482,423
Gross profit	165,999	143,197	138,898
Selling, general and administrative expenses	104,814	94,226	89,917
Stock-based compensation expense	1,911	1,046	130
Research and development	4,725	4,233	3,272
Financial expenses (Note 5)	23,799	24,253	28,521
Refinancing expense (Note 15)		30,444
Manufacturing facility closure and industrial accident costs (Note 4)	1,431	7,386	3,005
	136,680	161,588	124,845
Earnings (loss) before income taxes	29,319	(18,391)	14,053
Income taxes  (recovery) (Note 6)	1,528	(29,749)	(4,125)
Net earnings	27,791	11,358	18,178
Earnings per share (Note 7)
Basic	0.67	0.28	0.51
Diluted	0.67	0.27	0.50

Consolidated Retained Earnings

Years Ended December 31,

(In thousands of US dollars)

	2005	2004	2003
	$	$	$
Balance, beginning of year	79,609	68,291	50,113
Net earnings	27,791	11,358	18,178
	107,400	79,649	68,291
Premium on purchase for cancellation of common shares	239	40
Balance, end of year	107,161	79,609	68,291

The accompanying notes are an integral part of the consolidated financial statements and Note 5 presents additional information on the consolidated earnings.

Intertape Polymer Group Inc.

Consolidated Cash Flows Years Ended December 31, (In thousands of US dollars)

	2005	2004	2003
OPERATING ACTIVITIES	$	$	$
Net earnings	27,791	11,358	18,178
Non-cash items
Depreciation and amortization	31,131	29,889	29,375
Property, plant and equipment impairment and other non-cash charges in connection with facility closures	299	5,848	732
Future income taxes	714	(28,806)	(7,148)
Insurance claim	(3,679)
Write-off of debt issue expenses		8,482
Stock-based compensation expense	1,911	1,046
Pension and post-retirement benefits funding in excess of amounts expensed	(479)	(858)
Other non-cash items		(95)	(3,000)
Cash flows from operations before changes in non-cash working capital  items	57,688	26,864	38,137
Changes in non-cash working capital items
Trade receivables	(10,750)	(11,345)	(741)
Other receivables	535	(1,308)	(1,647)
Inventories	(1,366)	(20,115)	(5,139)
Parts and supplies	(1,145)	(266)	(776)
Prepaid expenses	(95)	202	100
Accounts payable and accrued liabilities	(12,500)	1,909	10,465
	(25,321)	(30,923)	2,262
Cash flows from operating activities	32,367	(4,059)	40,399
INVESTING ACTIVITIES
Temporary investment	489	(497)
Property, plant and equipment	(24,026)	(18,408)	(12,980)
Business acquisition (Note 8)	(28,118)	(5,500)
Goodwill	(300)		(6,217)
Other assets	(3,852)	(13,178)	(1,435)
Cash flows from investing activities	(55,807)	(37,583)	(20,632)
FINANCING ACTIVITIES
Net change in bank indebtedness	15,000	(13,967)	4,910
Issue of long-term debt		325,787
Repayment of long-term debt	(3,032)	(250,936)	(64,329)
Issue of common shares	89	2,717	43,009
Common shares purchased for cancellation	(340)	(418)
Cash flows from financing activities	11,717	63,183	(16,410)
Net increase (decrease) in cash and cash equivalents	(11,723)	21,541	3,357
Effect of foreign currency translation adjustments	(25)	341	(3,357)
Cash and cash equivalents, beginning of year	21,882
Cash and cash equivalents, end of year	10,134	21,882
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION
Interest paid	22,510	22,258	29,309
Income taxes paid	1,446	2,004	1,790

The accompanying notes are an integral part of the consolidated financial statements.

Intertape Polymer Group Inc.

Consolidated Balance Sheets December 31,

(In thousands of US dollars)

	2005	2004
	$	$
ASSETS
Current assets
Cash and cash equivalents	10,134	21,882
Temporary investment (Note 9)		497
Trade receivables (net of allowance for doubtful accounts of $7,574; $4,065 in 2004)	124,440	101,628
Other assets and receivables  (Note 10)	17,125	13,381
Inventories  (Note 11)	105,565	90,677
Parts and supplies	14,836	13,618
Prepaid expenses	8,406	7,788
Future income taxes  (Note 6)	16,142	1,509
	296,648	250,980
Property, plant and equipment (Note 12)	362,827	352,610
Other assets  (Note 13)	21,071	20,663
Future income taxes  (Note 6)	24,014	36,689
Goodwill  (Note 14)	184,756	179,958
	889,316	840,900

LIABILITIES

Current liabilities
Bank indebtedness (Note 15)	15,000
Accounts payable and accrued liabilities	104,256	101,115
Installments on long-term debt	2,784	3,032
	122,040	104,147
Long-term debt (Note 16)	328,113	331,095
Pension and post-retirement benefits (Note 20)	4,313	923
Other liabilities (Note 17)	435	435
	454,901	436,600

SHAREHOLDERS' EQUITY

Capital stock (Note 18)	287,187	289,180
Contributed surplus (Note 18)	6,237	4,326
Retained earnings	107,161	79,609
Accumulated currency translation adjustments	33,830	31,185
	434,415	404,300
	889,316	840,900

The accompanying notes are an integral part of the consolidated financial statements.

On behalf of the Board

/s/John Richardson                  

 /s/Gordon Cunningham

John Richardson F.C. A., Director          Gordon Cunningham, Director

Intertape Polymer Group Inc.

Notes To Consolidated Financial Statements

December 31,

(In US dollars; tabular amounts in thousands, except as otherwise noted)

1. GOVERNING STATUTES AND NATURE OF OPERATIONS

Intertape Polymer Group Inc. (“Company”), incorporated under the Canada Business Corporations Act, is based in Montreal, Canada and in Sarasota/Bradenton, Florida and develops, manufactures and sells a variety of specialized  polyolefin films, paper and film pressure sensitive tapes and complimentary packaging systems for use in industrial and retail applications.

The common shares of the Company are listed on the New York Stock Exchange in the United States of America (“United States” or "US") and on the Toronto Stock Exchange in Canada.

2. ACCOUNTING POLICIES

The consolidated financial statements are expressed in US dollars and were prepared in accordance with Canadian generally accepted accounting principles (”GAAP”), which, in certain respects, differ from the accounting principles generally accepted in the United States, as shown in Note 22.

Reclassification

Certain amounts have been reclassified from prior years to conform to the current year presentation.

Accounting Changes

Year ended December 31, 2005

Consolidation of variable interest entities

In June 2003, the Canadian Institute of Chartered Accountants (“CICA”) issued Accounting Guideline 15 (AcG-15), Consolidation of Variable Interests Entities. This guideline clarifies and addresses the application of consolidation guidance to those entities defined as variable interest entities (VIEs), which are entities that are subject to control on a basis other than voting interest. Such entities should be consolidated by the primary beneficiary, which is the entity that will absorb the majority of the VIEs expected losses or will receive a majority of its expected residual returns, or both. This guideline is required for annual and interim periods beginning on or after November 1, 2004. The application of AcG-15 had no impact on the Company’s consolidated financial statements.

Year ended December 31, 2004

Employee future benefits

On January 1, 2004, the CICA amended CICA Handbook Section 3461, Employee Future Benefits. Section 3461 requires additional disclosures about the assets, cash flows and net periodic benefit cost of defined benefit pension plans and other employee future benefit plans. The new annual disclosures are effective for years ending on or after June 30, 2004, and new interim disclosures were effective for periods ending on or after that date. As at June 30, 2004, the Company adopted the new disclosure requirements of Section 3461 and provided the additional disclosures of the defined benefit pension plans and other employee future benefit plans in Note 20.

Impairment of long-lived assets

Effective January 1, 2004, the Company adopted, on a prospective basis, the new recommendations of CICA Handbook Section 3063, Impairment of Long-lived Assets. This new Section provides guidance on the recognition, measurement and disclosure of the impairment of long-lived assets. It replaces the write-down provisions in Property, Plant and Equipment, Section 3061. The Section requires an impairment loss for a long-lived asset to be held and used be recognized when its carrying amount exceeds the sum of the undiscounted cash flows expected from its use and eventual disposition. An impairment loss for a long-lived asset to be held and used should be measured as the amount by which its carrying amount exceeds its fair value. This change in accounting policy did not result in any adjustment to the carrying value of the Company’s property, plant and equipment.

Asset retirement obligations

In March 2003, the CICA issued Handbook Section 3110, Asset Retirement Obligations, which replaces the limited guidance on future removal and site restoration costs previously provided in Section 3061, Property, Plant and Equipment. It establishes standards for recognition, measurement and disclosure of a liability for an asset retirement obligation and the associated asset retirement cost. The section provides for an initial recognition of the fair value of a liability for an asset retirement obligation in the period in which it is incurred, when a reasonable estimate of fair value can be made. The asset retirement obligation is recorded as a liability with a corresponding increase to the carrying amount of the related long-lived asset. Subsequently, the asset retirement cost is allocated to expenses using a systematic and rational allocation method and is adjusted to reflect period-t o-period changes in the liability resulting from passage of time and revisions to either timing or the amount of the original estimate of the undiscounted cash flow. The Company adopted Section 3110 prospectively on January 1, 2004 and the application of this standard did not have a material impact on either results of operations for the year ended December 31, 2004 or on the financial position as at December 31, 2004.

Year ended December 31, 2003

Stock-based compensation

In September 2003, the CICA revised the transitional provisions for Handbook Section 3870, Stock-Based Compensation and Other Stock-Based Payments, for voluntary adoption of the fair value based method of accounting for stock options granted to employees which previously had not been accounted for at fair value to provide the same alternative methods of transition as are provided under US GAAP. These provisions could have been applied retroactively or prospectively. However, the prospective application was only available to enterprises that elected to apply the fair value based method of accounting for fiscal years beginning before January 1, 2004.

Effective January 1, 2003, the Company adopted, on a prospective basis, the fair value based method of accounting for stock options as provided for under revised transitional provisions. Accordingly, the Company recorded an expense of approximately $0.1 million for the stock options granted to employees during the year ended December 31, 2003.

Accounting estimates

The preparation of financial statements in conformity with Canadian GAAP requires management to make estimates and assumptions that affect the recorded amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the recorded amounts of revenues and expenses during the reporting period.  On an ongoing basis, management reviews its estimates, including those relating to the allowance for doubtful accounts, reserve for slow moving and unmarketable inventories and income taxes based on currently available information. Actual results may differ from those estimates.

Principles of consolidation

The consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly-owned. All intercompany accounts and transactions have been eliminated. Investment in the joint venture for the year ended December 31, 2003 has been proportionately consolidated based on the Company's ownership interest.

Fair value of financial instruments

The fair value of cash and cash equivalents, temporary investment, trade receivables, other assets and receivables excluding income and other taxes, bank indebtedness as well as accounts payable and accrued liabilities is equivalent to carrying amounts, given the short maturity period of such financial instruments.

The fair values of long-term debt and the interest rate swap agreements were established as described in Note 16.

Derivative financial instruments

Derivative financial instruments are utilized by the Company to reduce interest rate risk on its debt. The Company does not enter into financial instruments for trading or speculative purposes.

The Company’s policy is to formally designate each derivative financial instrument as a hedge of a specifically identified debt instrument. The Company believes the derivative financial instruments are effective as hedges, both at inception and over the term of the instrument, as the term to maturity, the principal amount and the interest rate basis in the instruments all match the terms of the debt instrument being hedged.

Interest rate swap agreements are used as part of the Company’s program to manage the floating interest rate mix of the Company’s total debt portfolio and related overall cost of borrowing. The interest rate swap agreements involve the periodic exchange of payments without the exchange of the notional principal amount upon which the payments are based, and are recorded as an adjustment of interest expense on the hedged debt instrument. The related amount payable to or receivable from counterparties is included as an adjustment to accrued interest.

Gains and losses on terminations of interest rate swap agreements are deferred under other current, or non-current, assets or liabilities on the balance sheet and amortized as an adjustment to interest expense related to the obligation over the remaining term of the original contract life of the terminated swap agreement. In the event of early extinguishment of the debt obligation, any realized or unrealized gain or loss from the swap would be recognized in the consolidated statement of earnings at the time of extinguishment.

Foreign Currency Translation

Reporting currency

The accounts of the Company's operations having a functional currency other than the US dollar have been translated into the reporting currency using the current rate method as follows: assets and liabilities have been translated at the exchange rate in effect at year-end and revenues and expenses have been translated at the average rate during the year. All translation gains or losses of the Company's net equity investments in these operations have been included in the accumulated currency translation adjustments account in shareholders' equity. Changes in this account for all periods presented result solely from the application of this translation method.

Foreign currency translation

Transactions denominated in currencies other than the functional currency have been translated into the functional currency as follows: monetary assets and liabilities have been translated at the exchange rate in effect at the end of each year and revenue and expenses have been translated at the average exchange rate for each year, except for depreciation and amortization which are translated at the historical rate; non-monetary assets and liabilities have been translated at the rates prevailing at the transaction dates. Exchange gains and losses arising from such transactions are included in earnings.

Revenue recognition

Revenue from product sales is recognized when there is persuasive evidence of an arrangement, the amount is fixed or determinable, delivery of the product to the customer has occurred, there are no uncertainties surrounding product acceptance and collection of the amount is considered probable. Title to the product generally passes upon shipment of the product. Sales returns and allowances are treated as reductions to sales and are provided for based on historical experience and current estimates.

Research and development

Research and development expenses are expensed as they are incurred, net of any related investment tax credits, unless the criteria for capitalization of development expenses in accordance with Canadian GAAP are met.

Stock option plan

The Company has a stock-based compensation plan that grants stock options to employees. Stock-based compensation expense is recognized over the vesting period of the options granted. Any consideration paid by employees on exercise of stock options is credited to capital stock together with any related stock-based compensation expense recorded in contributed surplus.

Earnings per share

Basic earnings per share are calculated using the weighted average number of common shares outstanding during the year. Diluted earnings per share are calculated using the treasury stock method giving the effect to the exercise of options and warrants. The treasury stock method assumes that any proceeds that could be obtained upon the exercise of options and warrants would be used to repurchase common shares at the average market price during the year.

Cash and cash equivalents

The Company's policy is to present cash and temporary investments having a term of three months or less, from the date of purchase, with cash and cash equivalents.

Accounts receivable

Credit is extended based on evaluation of a customer’s financial condition and generally, collateral is not required. Accounts receivable are stated at amounts due from customers based on agreed upon payment terms net of an allowance for doubtful accounts. Accounts outstanding longer than the agreed upon payment terms are considered past due. The Company determines its allowance by considering a number of factors, including the length of time trade accounts receivable are past due, the customer’s current ability to pay its obligation to the Company and the condition of the general economy and the industry as a whole. The Company writes off accounts receivable when they are determined to be uncollectible and any payments subsequently received on such receivable are credited to the allowance for doubtful accounts.

Inventories and parts and supplies valuation

Raw materials are valued at the lower of cost and replacement cost. Work in process and finished goods are valued at the lower of cost and net realizable value. Cost is principally determined by the first in, first out method. The cost of work in process and finished goods includes the cost of raw materials, direct labor and manufacturing overhead.

Parts and supplies are valued at the lower of cost and replacement cost.

Property, plant and equipment

Property, plant and equipment are stated at cost less applicable investment tax credits and government grants earned and are depreciated over their estimated useful lives principally as follows:

	Methods	Rates and Periods
Buildings	Diminishing balance or straight-line	5% or 15 to 40 years
Manufacturing equipment	Straight-line	5 to 20 years
Furniture, office and computer equipment, software and other	Diminishing balance or straight-line	20% or 3 to 10 years

The Company follows the policy of capitalizing interest during the construction and preproduction periods as part of the cost of significant property, plant and equipment. Normal repairs and maintenance are expensed as incurred. Expenditures which materially increase values, change capacities or extend useful lives are capitalized. Depreciation is not charged on new property, plant and equipment until they become operative.

Impairment of long-lived assets

Long-lived assets are reviewed for impairment upon the occurrence of events or changes in circumstances indicating that the carrying amount of the assets may not be recoverable, as measured by comparing their carrying amount to the estimated undiscounted cash flows generated by their use. When the carrying amount of the assets exceed their fair value, an impairment loss is recognized in an amount equal to the excess. Fair value is calculated using discounted cash flows.

Deferred charges

Debt issue expenses are deferred and amortized on a straight-line basis over the term of the related obligation. Other deferred charges are amortized on a straight-line basis over the period benefited varying from 1 to 5 years.

Goodwill

Goodwill is the excess of the cost of acquired businesses over the net of the amounts assigned to assets acquired and liabilities assumed. Goodwill is not amortized. It is tested for impairment annually or more frequently if events or changes in circumstances indicate that it is impaired. Any potential goodwill impairment is identified by comparing the carrying amount of a reporting unit with its fair value. If any potential impairment is identified, it is quantified by comparing the carrying amount of goodwill to its fair value. When the carrying amount of goodwill exceeds the fair value of the goodwill, an impairment loss is recognized in an amount equal to the excess. The fair value is calculated as discussed in Note 14.

Environmental costs

The Company expenses, on a current basis, recurring costs associated with managing hazardous substances and pollution in ongoing operations. The Company also accrues for the fair value of a liability for costs associated with the remediation of environmental pollution in the period in which it is incurred and when a reasonable estimate of fair value can be made.

Pension and post-retirement benefit plans

The Company has defined benefit and defined contribution pension plans and other post-retirement benefit plans for its Canadian and American employees.

The following policies are used with respect to the accounting for the defined benefit and other post-retirement benefit plans:

- The cost of pensions and other post-retirement benefits earned by employees is actuarially determined using the projected benefit method prorated on service and is charged to earnings as services are provided by the employees. The calculations take into account management's best estimate of expected plan investment performance, salary escalation, retirement ages of employees, participants' mortality rates and expected health care costs;

- For the purpose of calculating the expected return on plan assets, those assets are valued at the market-related value for certain plans and, for other plans, at fair value;

- Past service costs from plan amendments are amortized on a straight-line basis over the average remaining service period of employees who are active at the date of amendment;

-Actuarial gains (losses) arise from the difference between actual long-term rate of return on plan assets for a period and the expected long-term rate of return on plan assets for that period from changes in actuarial assumptions used to determine the accrued benefit obligation. The excess of the net actuarial gains (losses) over 10% of the greater of the benefit obligation and the market-related value or the fair value of plan assets is amortized over the average remaining service period of active employees.

-On January 1, 2000, the Company adopted the new accounting standard on employee future benefits using the prospective application method. The Company is amortizing the transitional obligations on a straight-line basis over the average remaining service periods of employees expected to receive benefits under the benefit plans as of January 1, 2000.

Income taxes

The Company provides for income taxes using the liability method of tax allocation. Under this method, future income tax assets and liabilities are determined based on deductible or taxable temporary differences between the financial statement values and tax values of assets and liabilities, using substantially enacted income tax rates expected to be in effect for the year in which the differences are expected to reverse. A valuation allowance is recognized to the extent the recoverability of future income tax assets is not considered to be more likely than not.

New accounting pronouncements

Financial instruments

In April 2005, the CICA issued the following new sections; Section 1530, Comprehensive Income, Section 3251, Equity, Section 3855, Financial Instruments-Recognition and Measurements, and Section 3865, Hedges. These standards, which are aimed at the harmonizing Canadian and US rules, will be applicable for fiscal years starting on or after October 1, 2006. The Company is currently evaluating the impact of these pronouncements including the initial application.

§

Section 1530, Comprehensive Income

According to Section 1530 Comprehensive Income, comprehensive income includes net income as well as all changes in equity during a period from transactions and events from non-owners sources.

§

Section 3251, Equity

This section establishes standards for the presentation of equity and changes in equity during the reporting period. The main feature of this Section is a requirement for an enterprise to present separately the changes in equity during the period, including comprehensive income as well as components of equity at the end of the period.

§

Section 3855, Financial Instruments-Recognition and Measurement

One of the basic principles of Section 3855 is that fair value is the most relevant measure for financial instruments.

§

Financial assets, which involve trade and loans receivable and investments in debt and equity securities, must be classified into one of four categories:

§

Held-to maturity investments (measured at amortized cost)

§

Loans and receivables (measured at amortized cost)

§

Held for trading assets (measured at fair value with changes in fair value recognized in earnings immediately)

§

Available for sale assets, including investments in equity securities, held-to-maturity investments that an entity elects to designate as being available for sale and any financial asset that does not fit into any other category (measured at fair value with changes in fair value accumulated in a separate component of shareholders’ equity called “Other Comprehensive Income” until the asset is sold or impaired).

§

Financial liabilities, which include long-term debt and other similar instruments, must be accounted for at amortized cost, except for those classified as held for trading, which must be measured at fair value.

§

Section 3865, Hedges

Section 3865 includes the guidance on hedging relationships that was previously contained in AcG-13, Hedging Relationships, such as that relating to the designation of hedge relationships and their documentation and specifies how hedge accounting should be applied and identifies the information that should be disclosed.

§

Derivatives used as hedging items should be measured at fair value considering the following specific considerations:

§

If the derivative is used as a hedge of an exposure to changes in fair value of an asset or a liability or of a firm commitment, changes in fair value of derivative and offsetting change in the fair value of the hedged item attributable to the hedged risk exposure are recognized in net income. The carrying amount of the hedged item is adjusted for the gain or loss on the hedged risk.

§

If the derivative is used as a hedge of an exposure to changes in cash flows of an asset or liability or of a forecasted transaction or for a foreign currency risk relating to a firm commitment, the portion of the gain or loss on the derivative that is determined to be an effective hedge is recognized in other comprehensive income. The portion determined not to be an effective hedge is recognized in net income. Gains or losses accrued in other comprehensive income are recognized in net income in the period in which the hedged item has an impact on net earnings.

§

A hedge of a net investment in a self-sustaining foreign operation is treated in a manner similar to a cash flow hedge.

Non-monetary transactions

Section 3831 establishes standards for the measurement and disclosure of non-monetary transactions. An asset exchanged or transferred in a non-monetary transaction is measured at its carrying amount when the transaction lacks commercial substance. Specific criteria are given to assess whether this condition is present in a particular exchange, which would require an entity to consider whether its value or its future cash flows have been altered as a result of the transaction. The “commercial substance” criterion replaces the “culmination of the earnings process” criterion in former Section 3830. The new requirements are effective for non-monetary transactions initiated in periods beginning on or after January 1, 2006. The Company does not expect this pronouncement to have a material impact on its results of operations and financial condition.

Accounting for conditional asset retirement obligations

In December 2005, the Emerging Issues Committee (EIC) of the CICA issued EIC-159, Conditional Asset Retirement Obligations. This pronouncement governs the accounting for asset retirement obligations where the method or timing of disposal of an asset is conditional on some future event. The new pronouncement is effective for annual and interim periods ending after March 31, 2006. The Company does not expect this pronouncement to have a material impact on its results of operations and financial condition.

3. JOINT VENTURE

The Company's pro rata share of its joint venture’s operations included in the consolidated financial statements is summarized as follows:

	2003 (6 Months)
	$
Earnings
Sales	2,298
Gross profit	651
Financial expenses	40
Net earnings	180
Cash flows
From operating activities	972
From investing activities	(345)
From financing activities	82

During the six-month period ended June 30, 2003, the Company had no sales to its joint venture. As discussed in Note 8, Business Acquisition, the Company acquired the remaining 50% of common equity interest on June 26, 2003. For the years ended December 31, 2005 and 2004, the Company has no investment in a joint venture.

4. MANUFACTURING FACILITY CLOSURES AND INDUSTRIAL ACCIDENT COSTS

Facility closures

During the year ended December 31, 2005, the Company completed the closure of its Cumming, Georgia and Montreal, Quebec manufacturing locations incurring approximately $1.4 million of additional plant closure costs. The additional costs include an amount of $0.1 million of termination related benefits, an amount of $0.3 million related to impairment of property, plant and equipment and $1.0 million for other facility related closure costs including relocating equipment and inventory to other facilities. As at December 31, 2005, there were no amounts payable relating to facility closures.

During 2004, the Company announced the closure of its Cumming, Georgia and Montreal, Quebec, manufacturing locations pursuant to its ongoing plan to lower costs, enhance customer order fulfillment and effectively optimize inventory investments. Approximately thirty-seven and eighty employees were affected at Cumming and Montreal, respectively. The total charge related to this plan amounted to approximately $7.4 million of which $5.8 million was non-cash. The total charge included an amount of $0.5 million of termination-related benefits, an amount of $4.5 million related to impairment of property, plant and equipment and $2.4 million for other facility related closure costs. As at December 31, 2004, a balance of $2.2 million was included in accounts payable and accrued liabilities, which was paid in 2005.

During 2003, management approved a plan to consolidate the Company’s water activated tape operations at its Menasha, Wisconsin plant. The consolidation was completed during 2003. The plan involved closing its Green Bay, Wisconsin facility, and relocating some employees and equipment to its Menasha, Wisconsin facility. Eighty-six employees were terminated. The total charge for this plan amounted to $3.0 million, including $1.7 million of termination related benefits, and is included in manufacturing facility closure costs in the 2003 consolidated statement of earnings. As at December 31, 2005 and 2004, a balance of $1.2 million was included in accounts payable and accrued liabilities.

Industrial accident

During the year ended December 31, 2005, an explosion occurred at one of the Company’s plants resulting in damage to the facility’s structure and assets. The Company recorded a total insurance claim of $5.2 million in 2005 including $1.8 million related to reimbursable damages and expenses incurred and $3.4 million related to the replacement of the boilers destroyed in the explosion. The Company received $1.5 million of the insurance claim during 2005.

An amount of $0.9 million of the insurance claim has been recorded on the consolidated earnings line captioned “Manufacturing facility closure and industrial accident costs” against $0.9 million of insurance deductibles and non-insurable expenses recorded on that same line. The remaining $4.3 million of the insurance claim is recorded as a reduction to the cost of sales against the remaining costs incurred, the write-off of the boilers amounting to $0.5 million and other assets damaged in the explosion.

5. INFORMATION INCLUDED IN THE CONSOLIDATED STATEMENTS OF EARNINGS

	2005	2004	2003
	$	$	$
Depreciation of property, plant and equipment	29,519	28,621	26,957
Amortization of other deferred charges	248	3	609
Amortization of debt issue expenses included in financial expenses below	1,364	1,265	1,809
Write off of debt issue expenses		8,482
Financial expenses
Interest on long-term debt	22,897	22,340	26,675
Interest on credit facilities	360	830	1,804
Interest income and other	1,577	2,045	742
Interest capitalized to property, plant and  equipment	(1,035)	(962)	(700)
	23,799	24,253	28,521
Impairment of property, plant and equipment	483	4,539	732
Foreign exchange loss (gain)	250	16	(1,192)
Investment tax credits recorded as a reduction of research and development expenses	91	435	800

6. INCOME TAXES

The provision for income taxes consists of the following:

	2005	2004	2003
	$	$	$
Current	814	(943)	3,023
Future	714	(28,806)	(7,148)
	1,528	(29,749)	(4,125)

The reconciliation of the combined federal and provincial statutory income tax rate to the Company's effective income tax rate is detailed as follows:

	2005	2004	2003
	%	%	%
Combined federal and provincial income tax rate	35.7	33.6	45.8
Foreign losses recovered (foreign income taxed) at lower rates	(0.1)	(12.8)	6.3
Impact of other differences	(16.5)	61.4	(92.3)
Change in valuation allowance	(13.9)	79.6	10.8
Effective income tax rate	5.2	161.8	(29.4)

The net future income tax assets are detailed as follows:

	2005	2004
	$	$
Future income tax assets
Trade and other receivables	2,029	1,112
Accounts payable and accrued liabilities	346
Tax credits and loss carry-forwards	98,633	104,350
Other	11,209	14,658
Valuation allowance	(12,446)	(16,508)
	99,771	103,612
Future income tax liabilities
Inventories	198	214
Property, plant and equipment	59,267	64,134
Accounts payable and accrued liabilities		1,066
Pension and post retirement benefits	150
	59,615	65,414
Net future income tax assets	40,156	38,198
Net current future income tax assets	16,142	1,509
Net long-term future income tax assets	24,014	36,689
Net future income tax assets	40,156	38,198

As at December 31, 2005, the Company has $69.3 million of Canadian operating loss carry-forwards expiring 2007 through 2015 and $153.9 million of US federal and state operating losses expiring 2018 through 2024.

In assessing the realizability of future income tax assets, management considers whether it is more likely than not that some portion or all of the future income tax assets will not be realized. Management considers the scheduled reversal of future income tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. The Company expects the future income tax assets, net of the valuation allowance, as at December 31, 2005, to be realized as a result of the reversal of existing taxable temporary differences.

As part of the above analysis, the valuation allowance was decreased by $4.1 million for the year ended December 31, 2005 and $14.6 million for the year ended December 31, 2004. The decrease in valuation allowance resulted in $4.1 million in 2005 and $14.6 million in 2004 of additional income tax benefit.

7. EARNINGS PER SHARE

The following table provides reconciliation between basic and diluted earnings per share:

	2005	2004	2003
	$	$	$
Net earnings	27,791	11,358	18,178
Weighted average number of common shares outstanding	41,174,316	41,186,143	35,956,550
Effect of dilutive stock options and warrants(i)	134,602	259,721	95,770
Weighted average number of diluted common shares outstanding	41,308,918	41,445,864	36,052,320
Basic earnings per share	0.67	0.28	0.51
Diluted earnings per share	0.67	0.27	0.50

(i)The following number of equity instruments were not included in the computation of diluted earnings per share because to do so would have been anti-dilutive for the periods presented:
	2005	2004	2003
	Number of instruments	Number of instruments	Number of instruments
Options	3,231,251	2,328,773	2,843,216
Warrants			300,000
	3,231,251	2,328,773	3,143,216

8. BUSINESS ACQUISITIONS

On October 5, 2005, the Company, through a wholly-owned Canadian subsidiary, acquired all of the outstanding stock of Flexia Corporation Ltd. (“Flexia”), being the successor entity to Flexia Corporation and Fib-Pak Industries Inc. for a total consideration of approximately $29.1 million after purchase price adjustments occurring after year-end (CDN$34.8 million), of which $28.1 million was paid in cash and the balance is included in accounts payable and accrued liabilities. Flexia produces a wide range of engineered coated products, polyethylene scrims and polypropylene fabrics. The acquisition was funded from the Company’s cash on-hand and available credit facilities. The acquisition was accounted for using the purchase method of accounting. The operating results of Flexia have been included in the consolidated statement of earnings from October 5, 2005.

The preliminary allocation of the purchase price was determined using information available based on preliminary evaluations. The allocation is subject to change should new information become available.

The net assets acquired are detailed as follows:

	2005
	$
Current Assets	26,260
Property, plant and equipment	16,322
Future income tax asset	1,369
Goodwill (i)	2,530
Total assets acquired	46,481
Current liabilities	13,348
Pension and post retirement benefits	3,425
Total liabilities assumed	16,773
Net assets acquired	29,708
Purchase  price	29,708
Balance of purchase price payable	1,590
Net cash paid for business acquisition	28,118

(i) Goodwill is not deductible for income tax purposes.

In November 2005, the Company reacquired and cancelled 250,587 common shares held in escrow pursuant to an escrow agreement created during the acquisition on September 1, 2000 of Olympian Tape Sales, Inc. d/b/a United Tape Company (“UTC”). The shares had been held in escrow pending the resolution of certain third party legal claims arising from the acquisition.  As a result of the resolution of such claims and the related expense incurred in connection therewith, the Company became entitled to reacquire the escrowed shares. Pursuant to the transaction, an amount of $1.8 million was accounted for as a reduction of the capital stock; an amount of $0.2 million was accounted for as a decrease of retained earnings as a premium on the purchase for cancellation of common shares; an amount of $0.9 million was accounted for as an increase of goodwill representing expenses not reimbursed from amounts av ailable under the escrow agreement; and an amount of $2.9 million was accounted for as a reduction of other assets.

In February 2004, the Company purchased for a cash consideration of $5.5 million plus contingent consideration (dependent on business retention), assets relating to the masking and duct tape operations of tesa tape, inc. (“tesa tape”). At the same time, the Company finalized its three-year agreement to supply duct tape and masking tape to tesa tape. The purchase was accounted for as a business combination and, accordingly, the purchase method of accounting was used.  The purchase price was allocated to the assets purchased based on their estimated fair values as at the date of acquisition and included $0.9 million of equipment and $4.6 million of goodwill. The goodwill is deductible over 15 years for income tax purposes. Any contingent consideration paid will be recorded as an increase in goodwill. During the year ended December 31, 2005, the Company recorded $0.3 million of contingent consideration .

On June 26, 2003, the Company acquired the remaining 50% common equity interest in Fibope Portuguesa Filmes Biorientados S. A. (“Fibope”), a manufacturer and distributor of film products in Portugal.  The acquisition has been accounted for using the purchase method of accounting and, accordingly, the purchase price has been allocated to the assets and liabilities based on their estimated fair values as at the date of the acquisition. Previously, the Company had accounted for its investment in Fibope as a joint venture using the proportionate consolidation method.  The purchase price of $7.2 million was settled by the issuance of 1,030,767 common shares of the Company. The Company acquired assets with a fair value of $11.1 million, including approximately $3.4 million of goodwill, and assumed liabilities of $3.9 million, of which $2.2 million was interest-bearing debt. The operating results of t he acquired business have been included in the consolidated financial statements from the effective date of acquisition (see Note 3).

During July 2003, the Company satisfied a contingent consideration arising from the September 1, 2000 acquisition of certain assets by making a $6.0 million cash payment to a third party. The cash payment and certain related expenses were recorded as an increase in the goodwill of $6.2 million arising from the UTC acquisition.

9. TEMPORARY INVESTMENT

The temporary investment acquired in 2004 in the amount of $0.5 million (CA$0.6 million), bore interest at 2.25% and matured on August 3, 2005.

The temporary investment was given in guarantee of an outstanding letter of credit for the same amount.

10. OTHER ASSETS AND RECEIVABLES

	2005	2004
	$	$
Income and other taxes	8,724	8,914
Rebates receivable	1,348	1,193
Sales taxes	923	1,316
Insurance claim	3,400
Other	2,730	1,958
	17,125	13,381

11. INVENTORIES

	2005	2004
	$	$
Raw materials	37,662	30,908
Work in process	16,205	14,255
Finished goods	51,698	45,514
	105,565	90,677

12. PROPERTY, PLANT AND EQUIPMENT

			2005
	Cost	Accumulated depreciation	Net
Land	4,480		4,480
Buildings	70,491	32,604	37,887
Building under capital lease	7,214	614	6,600
Manufacturing equipment	467,893	205,079	262,814
Furniture, office and computer equipment, software and other	68,996	36,689	32,307
Manufacturing equipment under construction and software projects under development	18,739		18,739
	637,813	274,986	362,827

			2004
	Cost	Accumulated depreciation	Net
Land	3,040		3,040
Buildings	65,823	27,496	38,327
Building under capital lease	7,214	263	6,951
Manufacturing equipment	430,764	166,234	264,530
Furniture, office and computer equipment, software and other	60,907	31,009	29,898
Manufacturing equipment under construction and software projects under development	9,864		9,864
	577,612	225,002	352,610

In 2003, the Company entered into a twenty year capital lease for the new Regional Distribution Center in Danville, Virginia. The lease commenced January 2004. This non-cash transaction was valued at $7.2 million and was reflected in the consolidated balance sheet as an increase to property, plant and equipment and long-term debt.

13. OTHER ASSETS

	2005	2004
	$	$
Debt issue expenses and other deferred charges, at amortized cost	11,681	13,941
Loans to officers and directors, including loans regarding the exercise of stock options, without interest, various repayment terms	924	914
Pension plan prepaid benefits	5,107	4,694
Other receivables	1,292	301
Other, at cost	2,067	813
	21,071	20,663

14. ACCOUNTING FOR GOODWILL

The Company performs an annual impairment test as at December 31. The Company determined that it was a single reporting unit. The Company calculates the fair value of this reporting unit using the discounted cash flow method, and compared with other methods including multiples of sales and earnings before interest, taxes, depreciation, and amortization (“EBITDA”) and, with historical transactions where appropriate. From these approaches, the fair market value was determined. No impairment charge was required for 2005, 2004 and 2003.

The changes in the carrying amount of goodwill are as follows:

	2005	2004
	$	$
Balance as at January 1	179,958	173,056
Goodwill acquired during the year (Note 8)	2,530	4,613
Escrow shares reacquired (Note 8)	921
Contingent consideration (Note 8)	300
Foreign exchange impact	1,047	2,289
Balance as at December 31	184,756	179,958

15. BANK INDEBTEDNESS AND CREDIT FACILITIES

Bank indebtedness

The bank indebtedness consists of the utilized portion of the short-term revolving bank credit facilities.

As at December 31, 2005, the Company had bank loans available under a US$75.0 million revolving credit facility with a five-year term. The loan bears interest at various interest-rates including US prime rate plus a premium varying between 100 and 200 basis points, Canadian prime rate plus a premium varying between 100 and 200 basis points and LIBOR plus a premium varying between 200 and 300 basis points. As at December 31, 2005, the credit facility had been drawn by US$15.0 million having an effective interest rate of 7.39%. An amount of $53.0 million was available, subject to covenant restrictions, after the outstanding draw and outstanding letters of credit of $7.0 million. As at December 31, 2004, the credit facility had not been drawn and an amount of $71.2 million, subject to covenant restrictions, was available due to outstanding letters of credit of $3.8 million.

The credit facility has been guaranteed by the Company and substantially all of its subsidiaries and secured by a first lien on all assets of the Company and substantially all of its subsidiaries.

The credit facility contains certain financial covenants, including interest expense coverage, debt leverage and fixed charge coverage ratios.

Refinancing

On July 28, 2004, the Company completed the offering of $125.0 million of Senior Subordinated Notes due 2014. On August 4, 2004, the Company established a new $275.0 million Senior Secured Credit Facility, consisting of a $200.0 million Term Loan and a $75.0 million Revolving Credit Facility. The proceeds from the refinancing were used to repay the existing bank credit facility, redeem three series of secured notes, pay related make-whole premiums, accrued interest and transaction fees and provide cash for general working capital purposes.

As a result of the refinancing, the Company recorded a one-time pre-tax charge of approximately $30.4 million. The principal elements of the one-time charge are a make-whole payment of approximately $21.9 million and the write-off of deferred financing costs of $8.5 million attributable to the debt that was refinanced.

16. LONG-TERM DEBT

Long-term debt consists of the following:

	2005	2004
	$	$
a) US$125,000,000 Senior Subordinated Notes	125,000	125,000
b) US$200,000,000 Term Loan	197,500	199,500
c) Obligation under capital lease	6,982	7,166
d) Other debt	1,415	2,461
	330,897	334,127
Less: Current portion of long-term debt	2,784	3,032
	328,113	331,095

a) Senior Subordinated Notes

Senior Subordinated Notes bearing interest at 8.5%, payable semi-annually on February 1 and August 1.  All principal is due on August 1, 2014.

Senior Subordinated Notes are guaranteed on an unsecured senior subordinated basis by the Company and substantially all of its existing subsidiaries.

b) Term Loan

A Term Loan bearing interest at LIBOR plus a premium varying between 200 and 300 basis points, payable in quarterly installments of $0.5 million starting on December 31, 2004 until June 30, 2010, followed by four quarterly installments of $47.125 million thereafter and maturing on July 28, 2011.

In June 2005, the Company entered into an interest rate swap agreement for a notional principal amount of $50.0 million maturing in June 2010. In July 2005, the Company entered into a second interest swap agreement for a notional principal amount of $25.0 million maturing in July 2010. Under the terms of these interest rate swap agreements, the Company receives, on a quarterly basis, a variable interest rate and pays a fixed interest rate of 4.27% and 4.29% respectively, plus the premium of 2.25% applicable on its term loan. As at December 31, 2005, the effective interest rate on $75.0 million was 6.53% and the effective interest rate on the excess was 6.74% (4.67% in 2004).

The Term Loan is guaranteed by the Company and each of its material subsidiaries.  The Term Loan is also secured by a first priority perfected security interest in substantially all of the tangible and intangible assets of the Company and each of its material subsidiaries, subject to certain customary exceptions.

c) Obligation under capital lease

Obligation under capital lease, bearing interest at 5.10%, payable in monthly installments of $47,817 and maturing in 2024.

d) Other debt

Other debt consisting of government loans, mortgage loans and other loans at fixed and variable interest rates ranging from interest-free to 9.03% and requiring periodic principal repayments through 2010.

The Company has complied with the maintenance of financial ratios and with other conditions that are stipulated in the covenants pertaining to the various loan agreements.

Long-term debt repayments are due as follows:

	Obligation under capital lease	Other long-term loans
	$	$
2006	591	2,566
2007	574	2,339
2008	574	2,130
2009	574	2,139
2010	574	95,399
Thereafter	7,889	219,342
Total minimum lease payments	10,776
Interest expense included in minimum lease payments	3,794
Total	6,982	323,915

Fair value

For all debts with fixed interest rates, the fair value has been determined based on the discounted value of cash flows under the existing contracts using rates representing those which the Company could currently obtain for loans with similar terms, conditions and maturity dates.  For the debts with floating interest rates, the fair value is closely equivalent to their carrying amounts.

The carrying amounts and fair values of the Company's long-term debt as at December 31, 2005 and 2004 are as follows:

	2005		2004
	Fair value	Carrying amount	Fair value	Carrying amount
	$	$	$	$
Long-term debt	328,897	330,897	341,703	334,127

The fair value of the interest rate swap agreements generally reflects the estimated amounts that the Company would receive (favorable) or pay (unfavorable) to settle these agreements at the reporting date and is estimated by obtaining quotes (mark to market) from the Company’s principal lender. As at December 31, 2005, the Company’s favorable position was approximately $1.5 million.

17. OTHER LIABILITIES

	2005	2004
	$	$
Provision for future site rehabilitation costs	435	435

During the year ended December 31, 2005, the Company reviewed the provision for future site rehabilitation costs. No changes were required for 2005.

During the year ended December 31, 2004, the Company reviewed the provision for future site rehabilitation costs. This resulted in the reversal of $0.1 million of the provision in 2004.

18. CAPITAL STOCK

a) Capital stock - authorized

Unlimited number of shares without par value

Common shares, voting and participating

Class "A" preferred shares, issuable in series, ranking in priority to the common shares with respect to dividends and return of capital on dissolution.  The Board of Directors is authorized to fix, before issuance, the designation, rights, privileges, restrictions and conditions attached to the shares of each series.

b) Capital stock – issued and fully paid

The changes in the number of outstanding common shares and their aggregate stated value from January 1, 2003 to December 31, 2005 were as follows:

	2005		2004		2003
	Number of shares	Stated value	Number of shares	Stated value	Number of shares	Stated value
		$		$		$
Balance, beginning of year	41,236,961	289,180	40,944,876	286,841	33,821,074	236,035
Shares issued for cash in public offering					5,750,000	41,250
Shares issued for business acquisitions					1,030,767	7,175
Shares issued to the USA Employees' Stock Ownership and Retirement Savings Plan			225,160	1,727	238,535	1,695
Escrow shares reacquired (Note 8)	(250,587)	(1,757)
Shares purchased for cancellation	(46,300)	(324)	(53,200)	(378)
Shares issued for cash upon exercise of stock options	17,500	88	120,125	990	104,500	686
Balance, end of year	40,957,574	287,187	41,236,961	289,180	40,944,876	286,841

During the year ended December 31, 2005, the Company redeemed 46,300 common shares for a cash consideration of $340,000. An amount of $324,000 was accounted for as a reduction of the capital stock and an amount of $16,000 was accounted for as a decrease of the retained earnings as a premium on the purchase for cancellation of common shares.

During the year ended December 31, 2004, the Company redeemed 53,200 common shares for a cash consideration of $418,000. An amount of $378,000 was accounted for as a reduction of the capital stock and an amount of $40,000 was accounted for as a decrease of the retained earnings as a premium on the purchase for cancellation of common shares.

c) Share purchase warrants

On December 29, 2003, the 300,000 share purchase warrants outstanding were cancelled as a result of settling an outstanding claim with the holders. The recorded value of the warrants was reclassified to contributed surplus. The warrants, which would have expired on August 9, 2004, permitted holders to purchase common shares of the Company at a price of $29.50 per share.

d) Contributed surplus

	2005	2004
Balance, beginning of year	4,326	3,150
Stock-based compensation expense	1,911	1,046
Adjustment of stock-based compensation		130
Balance, end of year	6,237	4,326

e) Shareholder’s protection rights plan

This agreement was adopted by the shareholders of the Company on June 11, 2003, amending and restating the Shareholder Protection Rights Plan originally entered into on August 24, 1993, as first amended on May 21, 1998.  The 2003 Amended and Restated Plan, among other things, extended the Plan through the date immediately following the date of the Company’s 2006 annual Shareholders’ meeting.  The Shareholders at their June 14, 2006 meeting will vote on the adoption of an Amended and Restated Plan, which, among other things, would extend the Plan through the date immediately following the date of the Company’s 2009 annual Shareholders’ meeting.  The effect of the Plan is to require anyone who seeks to acquire 20% or more of Intertape Polymer Group’s voting shares to make a bid complying with specific provisions of the Plan.

f) Stock options

Under the Company's amended executive stock option plan, options may be granted to the Company's executives, directors and employees for the purchase of up to 4,094,538 shares of common stock. Options expire no later than 10 years after the date of granting. The plan provides that such options granted to employees and executives will vest and may be exercisable 25% per year over four years. The options granted to directors who are not officers of the Company will vest and may be exercisable 25% on the effective date of the grant, and a further 25% will vest and may be exercisable per year over three years.

All options were granted at a price equal to the average closing market values on the day immediately preceding the date the options were granted.

The changes in the number of options outstanding were as follows:

	2005		2004		2003
	Weighted average exercise price	Number of options	Weighted average exercise price	Number of options	Weighted average exercise price	Number of options
	$		$		$
Balance, beginning of the year	9.37	3,722,155	9.52	3,165,716	10.02	2,996,673
Granted	8.15	526,378	10.26	921,750	5.15	498,500
Exercised	4.73	(17,500)	8.24	(120,125)	6.56	(104,500)
Cancelled	10.07	(361,782)	13.01	(195,186)	7.28	(224,957)
Balance, end of year	9.18	3,919,251	9.37	3,772,155	9.52	3,165,716
Options exercisable at the end of the year		2,431,686		2,068,655		1,729,951

The following table summarizes information about options outstanding and exercisable at December 31, 2005:

		Options outstanding			Options exercisable
	Number	Weighted average contractual life (in years)	Weighted average exercise price	Number	Weighted average exercise price
Range of exercise prices			$		$
$3.90 to $4.85	296,000	3.1	3.99	155,375	4.01
$5.30 to $7.84	839,050	4.7	7.49	178,563	7.23
$8.00 to $11.92	2,610,928	2.2	9.86	1,924,475	9.74
$12.36 to $17.19	173,273	0.3	15.84	173,273	15.84
	3,919,251	2.7	9.18	2,431,686	9.62

On January 10, 2001, the Company repriced 474,163 of unexercised stock options held by employees, other than directors and executive officers. The repriced options had exercise prices ranging from US$16.30 to US$23.26 (CA$26.01 to CA$37.11) and expiry dates in 2003 and 2006. The revised exercise price was set at US$8.28 (CA$13.21), being the average of the closing price on the Toronto Stock Exchange and the New York Stock Exchange on January 9, 2001. All other terms and conditions of the respective options, including the percentage vesting and the vesting and expiry dates, remained unchanged.

In January 2003, the Company adopted the fair value based method of accounting for stock-based compensation and other stock-based payments. Under transitional provisions prescribed by the CICA, the Company prospectively applied the recognition provisions to awarded stock options issued in 2003 and thereafter. The transitional provisions of the CICA are similar to those of the Financial Accounting Standards Board (“FASB”). As a result, the Company recorded a pre-tax stock-based compensation expense of approximately $1.9 million in 2005, $1.0 million in 2004, and $0.1 million in 2003.

For stock options granted during the year ended December 31, 2002, the Company is required to make pro forma disclosures of net earnings and basic and diluted earnings per share as if the fair value based method of accounting had been applied.

Accordingly, the Company’s net earnings and basic and diluted earnings per share would have been decreased to the pro forma amounts indicated in the following table:

	2005	2004	2003
	$	$	$
Net earnings - as reported	27,791	11,358	18,178
Add: Stock-based employee compensation expense included in reported net earnings	1,911	1,046	130
Deduct: Total stock-based employee compensation expense determined under fair value based method	(2,665)	(1,800)	(884)
Pro forma net earnings	27,037	10,604	17,424
Earnings per share:
Basic - as reported	0.67	0.28	0.51
Basic - pro forma	0.66	0.26	0.48
Diluted - as reported	0.67	0.27	0.50
Diluted - pro forma	0.65	0.26	0.48

The pro forma effect on net earnings and earnings per share is not representative of the pro forma effect on net earnings and earnings per share of future years because it does not take into consideration the pro forma compensation cost related to options awarded prior to January 1, 2002.

The fair value of options granted was estimated using the Black-Scholes option-pricing model, taking into account the following weighted average assumptions:

	2005	2004	2003
Expected life	5 years	5 years	5 years
Expected volatility	55%	55%	50%
Risk-free interest rate	4.12%	3.14%	2.80%
Expected dividends	$0.00	$0.00	$0.00
The weighted average fair value per share of options granted is:	$4.21	$5.29	$2.41

19. COMMITMENTS AND CONTINGENCIES

a) Commitments

As at December 31, 2005, the Company had commitments aggregating approximately $21.4 million up to 2011 for the rental of offices, warehouse space, manufacturing equipment, automobiles, computer equipment and other assets.  Future minimum lease payments are $6.1 million in 2006, $5.1 million in 2007, $4.3 million in 2008, $2.9 million in 2009, $2.0 million in 2010 and $1.0 million thereafter.

b) Contingencies

The Company is party to various claims and lawsuits which are being contested. In the opinion of management, the outcome of such claims and lawsuits will not have a material adverse effect on the Company.

20. PENSION AND POST-RETIREMENT BENEFIT PLANS

The Company has several defined contribution plans and defined benefit plans for substantially all its employees in both Canada and the United States. These plans are generally contributory in Canada and non-contributory in the United States.

Total cash payments

Total cash payments for employee future benefits for 2005, consisting of cash contributed by the Company to its funded pension plans, cash payments directly to beneficiaries for its unfunded other benefit plans, cash contributed to its defined contribution plans and cash contributed to its multi-employer defined benefit plan were $4.2 million ($4.1 million in 2004 and $5.6 million in 2003).

Defined contribution plans

In the United States, the Company maintains a savings retirement plan (401[k] Plan) for the benefit of certain employees who have been employed for at least 90 days. Contribution to this plan is at the discretion of the Company.

The Company contributes as well to multi-employer plans for employees covered by collective bargaining agreements.

In Canada, the Company maintains defined contribution pension plans for its salaried employees. The Company contributes to the plan amounts equal to 4% of each participant's eligible salary.

The Company has expensed $2.1 million for these plans for the year ended December 31, 2005 ($0.9 million and $2.4 million for 2004 and 2003, respectively).

Defined benefit plans

The Company has, in the United States, two defined benefit pension plans (hourly and salaried). Benefits for employees are based on compensation and years of service for salaried employees and fixed benefits per month for each year of service for hourly employees.

In Canada, certain non-union hourly employees of the Company are covered by a pension plan which provides a fixed benefit of $17.15 ($14.60 and $12.81 in 2004 and 2003, respectively) per month for each year of service. In addition, the Company maintains two defined benefit plans, which provide for a fixed benefit ranging from 50% to 110% of the employee contributions, depending on the participation start date.

In the United States, the Company provides group health care and life insurance benefit to certain retirees.

In Canada, the Company provides group health care, dental and life insurance benefits for eligible retired employees.

Acquisition

The Company acquired Flexia in October 2005 (Note 8) including its pension and post-retirement benefits plans. As a result, the Company accounted for $9.8 million and $8.4 million of accrued benefit obligations and plans assets related to two pension plans and $2.0 million of accrued benefit obligations related to the post-retirement benefit plans. One of the pension plans acquired with the Flexia acquisition will be terminated in 2006 with the termination of employees due to the closure of one of the facilities purchased (Note 24). This termination was taken into account at the time of the acquisition in the valuation of the accrued benefit obligations.

Investment policy

The Company’s Investment Committee establishes a target mix of equities and bonds of 70% equities and 30% bonds over time.  In January of 2003, the Committee determined, with assistance from the investment manager and trustee, to temporarily increase the allocation for the US plans to 80% equity and 20% bonds due to the performance, current and expected, in the bond market and the expected appreciation in the small and midcap equity markets. The increased investment in those markets was 7.5% target in small cap and 2.5% in mid cap. That direction was reviewed with the same advisors, and the Committee determined to continue this approach at its meetings in 2004 and 2005. In February of 2006, the Committee revised the target mix back to 70% equity and 30% bonds. The relatively heavy emphasis on equities is due to the better performance over time in equities versus bonds and the fact that the Company’s pension funds do not have a large number of current recipients. In Canada, the funds of the non-union plans are split evenly between two balanced mutual funds, thus, over time, achieving the target mix of 70% equities and 30% bonds. The funds of the union plans have a target equity weighing ranging from 45% to 65%.

The rate of return decision is a function of advice from the Company’s actuaries and their review of current holdings, general market trends, and common levels used by other employers.

Measurement date

The Company measures its accrued benefit obligations and the fair value of plan assets for accounting purposes as at December 31 of each year.  The most recent actuarial valuations of the pension plans for funding purposes were October 1, 2004 and January 1, 2005 for the US plans and December 31, 2002, December 31, 2004 and January 1, 2005 for the Canadian plans.  

The next valuation dates are October 1, 2005 and January 1, 2006 for the US plans and September 30, 2005 and December 31, 2005 for the Canadian plans.

Information relating to the various plans is as follows:

	Pension plans		Other plans
	2005	2004	2005	2004
	$	$	$	$
Accrued benefit obligations
Balance, beginning of year	34,010	29,873	1,021	906
Acquisition	9,786		2,034
Current service cost	875	654	19	15
Interest cost	2,128	1,853	84	56
Benefits paid	(1,075)	(1,061)	(64)	(59)
Plan amendments		34
Actuarial losses	1,625	2,354	19	103
Foreign exchange rate adjustment	233	303	15
Balance, end of year	47,582	34,010	3,128	1,021
Plans assets
Balance, beginning of year	23,467	19,959
Acquisition	8,396
Actual return on plans assets	1,594	2,074
Employer contributions	2,330	2,292
Benefits paid	(1,075)	(1,061)
Foreign exchange rate adjustment	167	203
Balance, end of year	34,879	23,467
Funded status – deficit	12,703	10,543	3,128	1,021
Unamortized past service costs	(2,251)	(2,457)	(7)	(8)
Unamortized net actuarial loss	(14,364)	(12,884)	(78)	(60)
Unamortized transition assets (obligations)	102	104	(27)	(30)
Accrued benefit liability (prepaid benefit)	(3,810)	(4,694)	3,016	923

Weighted average plans assets allocations as at December 31	Pension plans
	2005	2004
Asset category
Equity securities	77%	80%
Debt securities	22%	16%
Other	1%	4%
Total	100%	100%

The accrued benefit liability (prepaid benefit) is included in the Company’s balance sheets as follows:

	Pension plans		Other plans
	2005	2004	2005	2004
Other assets	(5,107)	(4,694)
Pension and post-retirement benefits	1,297		3,016	923
	(3,810)	(4,694)	3,016	923

Net benefit cost

	Pension plans			Other plans
	2005	2004	2003	2005	2004	2003
	$	$	$	$	$	$
Current service cost	875	654	574	19	15	12
Interest cost	2,128	1,853	1,714	85	56	58
Actual return on plans assets	(1,594)	(2,074)	(3,565)
Actuarial losses	1,625	2,354	3,205	19	103	48
Plan amendments		34	755
Elements of employee future benefit costs before adjustments to recognize the long-term nature of employee future benefit costs	2,951	2,821	2,683	123	174	118
Adjustments to recognize the long-term nature of employee future benefit costs:
Difference between expected return and actual return on plans assets for year	(598)	264	2,152
Difference between actuarial loss recognized for year and actual actuarial loss on accrued benefit obligations	(835)	(1,791)	(2,745)	(18)	(103)	(52)
Difference between amortization of past  service costs for year and actual plan amendments for year	225	189	(581)
Amortization of transition obligation	(5)	(5)	11	4	4	4
	(1,130)	(1,343)	(1,163)	(14)	(99)	(48)
Net benefit cost for the year	1,821	1,478	1,520	109	75	70

The average remaining service period of the active employees covered by the pension plans ranges from 11.70 to 25.80 years for 2005 and from 11.40 to 25.60 years for 2004.

The significant assumptions which management considers the most likely and which were used to measure its accrued benefit obligations and net periodic benefit costs are as follows:

Weighted-average assumption used to determine benefit obligations as at December 31	Pension plans		Other plans
	2005	2004	2005	2004
Discount rate
US plans	5.75%	5.75%	5.75%	5.75%
Canadian plans	5.25%	5.75%	5.25%

Weighted-average assumption used to determine net benefit cost for years ended December 31	Pension plans			Other plans
	2005	2004	2003	2005	2004	2003
Discount rate
US plans	5.75%	6.25%	7.00%	5.75%	6.25%	7.00%
Canadian plans	5.75%	6.25%	6.25%	7.00%
Canadian plans from acquisition	5.25%			5.25%
Expected long term return on plan assets
US plans	8.50%	8.50%	8.50%
Canadian plans	7.00%	7.00%	7.00%

For measurement purposes, a 10% annual rate increase in the per capita cost of covered health care benefits was assumed for 2005 (11.0% in 2004 and 9.0% in 2003). The assumed rate is expected to decrease to 5% by 2011. For the Canadian plans from acquisition (Note 8), the annual trend rate is 8.0% for the next ten years and 5% thereafter. An increase or decrease of 1% of this rate would have the following impact:

	Increase of 1%	Decrease of 1%
	$	$
Impact on net periodic cost	25	(20)
Impact on accrued benefit obligation	292	(236)

The Company expects to contribute $4.9 million to its defined benefit pension plans and $0.1 million to its health and welfare plans in 2006.

21. SEGMENT DISCLOSURES

The Company manufactures and sells an extensive range of specialized polyolefin plastic packaging products primarily in Canada and the United States. Management has considered all products to be part of one reporting segment since they are made from similar extrusion processes and differ only in the final stages of manufacturing. A vast majority of the Company’s products, while brought to market through various distribution channels, generally have similar economic characteristics.

The following table presents sales attributed to countries based on the location of external customers:

	2005	2004	2003
	$	$	$
Canada	84,091	64,224	58,675
United States	675,861	586,004	529,506
Other	41,892	42,221	33,140
Total sales	801,844	692,449	621,321

The following table presents property, plant and equipment and goodwill by country based on the location of the assets:

	2005	2004
Property, plant and equipment, net	$	$
Canada	64,780	54,128
United States	286,414	287,104
Other	11,632	11,378
Total property, plant and equipment, net	362,826	352,610
	2005	2004
	$	$
Goodwill, net
Canada	33,495	24,917
United States	147,894	151,674
Other	3,367	3,367
Total goodwill, net	184,756	179,958

22. DIFFERENCES IN ACCOUNTING BETWEEN THE UNITED STATES OF AMERICA AND CANADA

The consolidated financial statements have been prepared in accordance with Canadian GAAP, which differ in certain material respects from those principles that the Company would have followed had its consolidated financial statements been prepared in accordance with US GAAP.

a) Net earnings and earnings per share

The adjustment to comply with US GAAP would be as follows:

	2005	2004	2003
	$	$	$
Net earnings as per Canadian GAAP	27,791	11,358	18,178
Variable accounting (Note 22d)	265	1,381	(1,677)
Net earnings as per US GAAP	28,056	12,739	16,501
Earnings per share
Basic	0.68	0.31	0.46
Diluted	0.68	0.31	0.46

b) Consolidated balance sheets

The adjustments, as described in notes e and f herein, to comply with US GAAP would be as follows:

	2005			2004
	As per Canadian GAAP	Adjustments	As per US GAAP	As per Canadian GAAP	Adjustments	As per US GAAP
	$	$	$	$	$	$
Assets
Other assets	21,071	1,625(e) 1,479(f)	24,175	20,663	2,353(e)	41,456
Future income tax assets	24,014	5,509(e) (547)(f)	28,976	36,689	4,767(e)	4,767
Liabilities
Accounts payable and accrued liabilities	104,256	16,513(e)	120,769	101,115	15,237(e)	116,352
Shareholders' equity
Accumulated other comprehensive income		(9,379)(e)	(8,447)		(8,117)(e)	(8,117)
		932(f)

Under Canadian GAAP, the financial statements are prepared using the proportionate consolidation method of accounting for joint ventures. Under US GAAP, these investments would be accounted for using the equity method. Note 3 to the consolidated financial statements provides details of the impact of proportionate consolidation on the Company’s consolidated financial statements for 2003.

The other differences in presentation that would be required under US GAAP to the consolidated balance sheets, other than as disclosed below, are not viewed as significant enough to require further disclosure.

c) Consolidated cash flows

Canadian GAAP permits the disclosure of a subtotal of the amount of funds provided by operations before changes in non-cash working capital items to be included in the consolidated statements of cash flows. US GAAP does not permit this subtotal to be presented.

d) Accounting for compensation programs

Effective January 1, 2003 the Company adopted the fair value based method of accounting for stock-based compensation granted to employees on a prospective basis in accordance with Statement of Financial Accounting standard (“SFAS”) No. 148 Accounting for Stock-Based Compensation, Transition and Disclosure, an amendment of FASB Statement No. 123. Under the prospective method, the Company is required to recognize compensation costs for all employee awards granted, modified, or settled after January 1, 2003.

Through December 31, 2002, the Company chose to continue to measure compensation costs related to awards of stock options using the intrinsic value based method of accounting. In March 2000, the FASB issued Interpretation No. 44 (“FIN 44”), which became effective on July 1, 2000, requiring that the cancellation of outstanding stock options by the Company and the granting of new options with a lower exercise price (the replacement options) be considered as an indirect reduction of the exercise price of the stock options. Under FIN 44, the replacement options and any repriced options are subject to variable accounting from the cancellation date or date of grant, depending on which stock options were identified as the replacement options. Using variable accounting, the Company is required to recognize, at each reporting date, compensation expense for the excess of the quoted market price of the stock over t he exercise prices of the replacement or repriced options until such time as the replacement options are exercised, forfeited or expire. The prospective adoption of the fair value based method for recognition of compensation costs did not change the accounting for the replacement and repriced options as they will continue to be accounted for by the intrinsic value method (or be subject to the variable accounting) until they are exercised, forfeited, modified or expire.

The impact on the Company's financial results of variable accounting will depend on the fluctuations in the Company's stock price and the dates of the exercises, forfeitures or cancellations of the stock options. Depending on these factors, the Company could be required to record significant compensation expense during the life of the options which expire in 2006.

In November 2000, 300,000 and 50,000 replacement options were issued at exercise prices of US$10.13 (CA$15.50) and US$14.71 (CA$21.94) respectively, and in May and August 2001, 54,000 and 40,000 replacement options were issued for US$11.92 (CA$18.80) and US$9.00 (CA$13.80), respectively. In addition, in January 2001, 474,163 options were repriced at US$8.28 (CA$12.40) (see Note 18).

As at December 31, 2005, the Company's quoted market stock price was $8.97 (CA$10.37) per share. The impact of variable accounting for 2005 and 2004 would be a reduction of the compensation expense of approximately $0.3 million and $1.4 million, respectively under US GAAP (expense of $1.7 million in 2003).  

Under US GAAP, the Company is required to make the following pro forma disclosures of net earnings, basic earnings per share and diluted earnings per share as if the fair value based method of accounting had been applied. The fair value of options granted in 2005, 2004 and 2003 was estimated using the Black-Scholes option-pricing model, taking into account the following weighted average assumptions:

	2005	2004		2003
Expected life	5 years	5 years		5 years
Expected volatility	55%	55%		50%
Risk-free interest rate	4.12%	3.14%		2.80%
Expected dividends	$0.00	$0.00		$0.00
The weighted average fair value per share of options granted is:	$4.21	$5.29	$2.41

Accordingly, the Company's net earnings and earnings per share would have been decreased to the pro forma amounts indicated in the following table:

	2005	2004	2003
	$	$	$
Net earnings in accordance with US GAAP–as reported	28,056	12,739	16,501
Add: Stock-based employee compensation expense included in reported net earnings	1,911	1,046	130
Deduct: Total stock-based employee compensation expense determined under fair value based method	(2,915)	(2,245)	(2,635)
Pro forma net earnings	27,052	11,540	13,996
Earnings per share:
Basic - as reported	0.68	0.31	0.46
Basic - pro forma	0.66	0.28	0.39
Diluted - as reported	0.68	0.31	0.46
Diluted - pro forma	0.65	0.28	0.39

e) Accumulated pension benefit obligation

Under US GAAP, if the accumulated pension benefit obligation exceeds the fair value of benefit plan assets, a liability must be recognized in the balance sheet that is at least equal to the unfunded accumulated benefit obligation. To the extent that the additional minimum liability is created by a plan improvement, an intangible asset can be established. Any additional minimum liability not covered by an intangible asset will cause a net of tax reduction in accumulated other comprehensive income.

f) Interest rate swap agreements

Under US GAAP, the fair value of the interest rate swap agreements, used for hedging purposes, must be recognized in the balance sheet with a corresponding amount recognized in comprehensive income.

g) Consolidated comprehensive income

As required under US GAAP, the Company would have reported the following consolidated comprehensive income:

	2005	2004	2003
	$	$	$
Net earnings in accordance with US GAAP	28,056	12,739	16,501
Currency translation adjustments	2,645	11,957	15,433
Minimum pension liability adjustment, net of tax (Note 22e)	(1,262)	(1,041)	(474)
Adjustments for fair value of interest rate swap agreements, net of tax (Note 22f)	932
Consolidated comprehensive income	30,371	23,655	31,460

23. SIGNIFICANT NEW ACCOUNTING PRONOUNCEMENTS UNDER US GAAP

Accounting for conditional asset retirement obligations

FASB Interpretation No. 47(FIN 47), issued in March 2005, clarifies that the term “conditional asset retirement obligation” as used in FASB Statement No. 143, Accounting for Asset Retirement Obligations, refers to a legal condition to perform an asset retirement activity in which the timing and (or) method of settlement are conditional on a future event that may or may not be within the control of the entity. The obligation to perform the asset retirement activity is unconditional even though uncertainty exists about the timing and (or) method of settlement. Accordingly, an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value of the liability can be reasonably estimated. This Interpretation is effective no later than the end of fiscal years ending after December 15, 2005 and had no material impact on the Company’s financ ial position and results of operations.

Share-based payment

The FASB issued SFAS No. 123 (“SFAS 123 (R)”), Share-Based Payment, in December 31, 2004. SFAS 123 (R) requires all entities to recognize the fair value of share-based payment awards (stock compensation) classified in equity. SFAS 123 (R) is effective for the Company at the beginning of the fiscal year 2006. The requirements of SFAS 123 (R) will not have an impact on the Company’s results of operations and financial condition.

Inventory costs

In November 2004, the FASB issued SFAS 151, Inventory Costs – An Amendment of ARB No. 43, Chapter 4.

SFAS 151 amends the guidance in ARB No. 43, Chapter 4 Inventory Pricing, to clarify the accounting for certain abnormal amounts in establishing inventory valuation. The statement recognizes as current-period charges, idle facility expense, excessive spoilage, double freight, and rehandling costs regardless of whether they meet the criterion of so abnormal: as stated in ARB No. 43. The statement also requires that the allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. SFAS 151 is effective for fiscal years beginning after June 15, 2005. The Company does not expect this pronouncement to have a material impact on its results of operations and financial condition.

Exchange of non-monetary assets

In December 2004, the FASB issued SFAS 153, Exchange of Non-monetary Assets – An Amendment of APB Opinion No. 29. SFAS 153 eliminates the exception from fair value measurement for non-monetary exchanges of similar productive assets in paragraph 21(b) of APB Opinion 26, Accounting for Non-monetary Transactions, and replaces it with an exception for exchanges that do not have commercial substance. SFAS 153 is effective for the fiscal periods beginning after June 15, 2005. The Company does not expect this pronouncement to have a material impact on its results of operations and financial condition.

Accounting changes and error corrections

During the second quarter of 2005, the FASB issued SFAS 154, Accounting Changes and Error Corrections, which changes the accounting and reporting requirements for the change in an accounting principle. SFAS 154 requires retrospective application to prior periods’ financial statements of changes in an accounting principle, unless it is impracticable to do so. SFAS 154 differentiates between retrospective application and restatement. Retrospective application is defined as the application of a different accounting principle to prior accounting periods as if that principle had always been used or as the adjustment of previously issued financial statements to reflect a change in the reporting entity. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Company does not expect this pronouncement to have a material impact on its re sults of operations and financial condition.  

24. SUBSEQUENT EVENTS

As announced in December 2005, the Company is presently investigating the possibility of a portion of its interest in the combined coated products operation and flexible intermediate bulk container (FIBC) business through an initial public offering of the combined business using a Canadian Income Trust. The Company’s announced plan was to file a prospectus in the first quarter of 2006.  While it is now unlikely that the Company will file a prospectus during the first quarter of 2006, the Company’s intention remains to file a prospectus when it has completed its evaluation.

Facility rationalizations

The Company is increasing its commitment to importing FIBC products and as a consequence, in January 2006 announced to the employees at its Piedras Negras, Mexico facility that it would be closing on or about March 31, 2006. The small Flexia facility in Hawkesbury, Ontario provides the limited manufacturing support necessary to complement the imported FIBC operation. The Company expects to incur a plant-closing charge of approximately $1.0 million in the first quarter of 2006 as a result of this decision.  

At the end of March 2006, the Company will also close a manufacturing facility located in Cap-de-la Madeleine, Quebec that had been acquired in the Flexia acquisition. This closure was identified and planned for during the evaluation of Flexia as a potential acquisition and the costs of the closure have been accrued for as part of the cost of the acquisition. Accordingly, there will be no charge to the Company’s operating results related to this facility closure.