-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PL2EJUkSSE5uOmdlEdJsAbAHjiBt0mU0MFY4sl+oTwRwF/Lew3SfUoMeOgb+xJlP sdf8PvWgnnxrm17+OVvOSQ== 0000912057-00-025643.txt : 20000526 0000912057-00-025643.hdr.sgml : 20000526 ACCESSION NUMBER: 0000912057-00-025643 CONFORMED SUBMISSION TYPE: 6-K PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000519 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERTAPE POLYMER GROUP INC CENTRAL INDEX KEY: 0000880224 STANDARD INDUSTRIAL CLASSIFICATION: 2670 IRS NUMBER: 000000000 STATE OF INCORPORATION: A8 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 6-K SEC ACT: SEC FILE NUMBER: 001-10928 FILM NUMBER: 640253 BUSINESS ADDRESS: STREET 1: 110E MONTEE DE LIESSE STREET 2: ST LAURENT CITY: QUEBEC H4T 1N4 CANAD STATE: A8 BUSINESS PHONE: 5147310731 MAIL ADDRESS: STREET 1: 110 E MONTEE LIESSE CITY: ST LAURENT STATE: A8 ZIP: 00000 6-K 1 FORM 6-K FORM 6-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Report of Foreign Issuer Pursuant to Rule 13a - 16 or 15d - 16 of the Securities Exchange Act of 1934 For the month of May, 2000 Intertape Polymer Group Inc. 110E Montee de Liesse, St. Laurent, Quebec, Canada, H4T 1N4 [Indicate by check mark whether the registrant files or will file annual reports under over Form 20-F or Form 40-F. Form 20-F X Form 40-F --- --- [Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934. Yes No X --- --- [If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82- ------- SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized. INTERTAPE POLYMER GROUP INC. May 19,2000 By: /s/ Andrew M. Archibald ---------------------------------- Andrew M. Archibald C.A. Chief Financial Officer, Secretary, Treasurer, & Vice President Administration INTERTAPE POLYMER GROUP INC. 1999 ANNUAL REPORT CORPORATE PROFILE Intertape Polymer Group Inc. (IPG) is a recognized leader in the development and manufacturing of specialized polyolefin plastic & paper packaging products and complementary packaging systems. Headquartered in Montreal, Quebec, the Company has strategically grown to support operations in 19 locations including 15 manufacturing facilities, with over 3,000 employees. IPG's advanced manufacturing technologies offer the flexibility to produce a wide range of products that reflect the needs of our customers. These include products sold through IPG distributors, consisting of: Intertape-Registered Trademark- brand hot-melt, acrylic and natural rubber pressure-sensitive carton sealing tapes, water-activated carton sealing tape, masking tape, duct tape; Exlfilm-Registered Trademark- brand shrink film; and StretchFlex-TM- brand stretch wrap. Examples of products sold directly to end users include a wide range of Nova-Thene-Registered Trademark- brand woven polyolefin products; Intertape-Registered Trademark- brand flexible intermediate bulk containers (FIBC); and transport & display cases that are either sold to the customer or rented. Since its inception in 1981, IPG has become a major presence in North America by focusing on large niche markets, continuing its momentum of successful rapid growth and remaining for the most part, the low cost producer. With this strategy, IPGs' competitively priced products are sold to both a broad range of industrial / specialty distributors, retail stores and large end-users in diverse industries. These industries include the aeronautical, agricultural, automotive, beverage, chemical, construction, food, forest, geotextile, mining, pharmaceutical, paper, recreational, sports and transportation industries. The Company's financial strength establishes the foundation for continued organic growth, acquisitions and new product development. These combine to form the basis for continued expansion in both current and new markets. Intertape Polymer Group Inc. is a publicly traded company with its common shares listed on the New York Stock Exchange and The Toronto Stock Exchange under the Stock Symbol "ITP". TABLE OF CONTENTS Corporate Profile 2 Financial Highlights 5 1999 Share Trading Data 5 Message to Shareholders 6 Management's Discussion and Analysis 8 Management's Responsibility for Financial Statements 21 Auditor's Report to the Shareholders 21 Consolidated Financial Statements 22 Directors, Officers et al 47
CORPORATE HEADQUARTERS 110 E Montee de Liesse Phone: (514) 731-0731 Montreal, Quebec Fax: (514) 731- 5477 Canada H4T 1N4 Website: www.intertapepolymer.com E-mail: itp$info@intertapeipg.com SAFE HABOUR STATEMENT This release contains statements that are forward-looking within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements involve known and unknown risks and uncertainties, which may cause the Company's actual results in future periods to differ materially from forecasted results or forward-looking statements. Those risks and uncertainties include, but are not limited to: - risks associated with pricing, volume and continued strength of markets where the Company's products are sold, and the timing and acceptance of new product offerings. - actions of competitors as are described in the Company's filings with the Securities and Exchange Commission (SEC) over the last twelve months. - the Company's ability to successfully integrate the operations and information systems of acquired companies with its existing operations, and information system, including risks and uncertainties relating to its ability to achieve projected earnings estimates, achieve administrative and operating cost savings and anticipate synergies. - the effect of competition and raw material pricing on the Company's ability to maintain margins on existing or acquired operations. The Company does not undertake to publicly update or revise its forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized. IPG LOCATIONS 1 Augusta, Georgia, U.S.A. 1 Brighton, Colorado, U.S.A. 1 Carbondale, Illinois, U.S.A. 2 1 Danville, Virginia, U.S.A. 3 1 Edmundston, New Brunswick, Canada 2 1 Green Bay, Wisconsin, U.S.A. 1 Lachine, Quebec, Canada 1 Menasha, Wisconsin, U.S.A. 3 1 Marysville, Michigan, U.S.A. 4 Montreal, Quebec, Canada 2 1 Porto, Portugal 3 2 1 Rayne, Louisiana, U.S.A. 2 1 Richmond, Kentucky, U.S.A. 4 Sarasota, Florida, U.S.A. 3 2 1 St. Laurent, Quebec, Canada 4 Tampa, Florida, U.S.A. 2 1 Tremonton, Utah, U.S.A. 3 1 Truro, New Brunswick, Canada
LEGEND 1 Manufacturing Location 2 Distribution Center 3 ISO Certified 4 Corporate Office
FINANCIAL HIGHLIGHTS
Years Ended December 31, 1999 1998 1997 RESULTS FROM OPERATIONS Consolidated sales 569,947 378,030 227,553 Net earnings before restructuring charges (Cdn GAAP) n/a n/a 21,110 Net earnings before restructuring charges (U.S. GAAP) n/a n/a 21,110 Net earnings (Cdn GAAP) 8,098 28,751 8,885 Net earnings (U.S. GAAP) 8,098 28,751 8,885 Cash from operations before funding of changes in non-cash working capital items 36,130 57,922 39,705 PER COMMON SHARE Net earnings before restructuring charges (Cdn GAAP) n/a n/a 0.85 Net earnings before restructuring charges (U.S. GAAP) n/a n/a 0.85 Net earnings (Cdn GAAP) 0.29 1.14 0.36 Net earnings (U.S. GAAP) 0.29 1.14 0.36 Cash from operations before funding of changes in non-cash working capital items 1.31 2.31 1.60 Book value after restructuring charges (Cdn GAAP) 9.97 7.71 6.53 Book value after restructuring charges (U.S. GAAP) 9.97 7.71 6.53 FINANCIAL POSITION Working capital 68,937 (11,313) 50,436 Total assets (Cdn GAAP) 815,006 622,152 397,373 Total assets (U.S. GAAP) 815,006 622,152 397,373 Total debt 338,094 211,844 153,138 Shareholders' equity (Cdn GAAP) 282,003 194,249 163,412 Shareholders' equity (U.S. GAAP) 282,003 194,249 163,412 SELECTED RATIOS Working Capital 1.48 0.94 1.75 Debt/Capital Employed (Cdn GAAP) 0.55 0.52 0.48 Debt/Capital Employed (U.S. GAAP) 0.55 0.52 0.48 Return on equity before restructuring charges (Cdn GAAP) n/a n/a 12.0% Return on equity before restructuring charges (U.S. GAAP) n/a n/a 12.0% Return on equity after restructuring charges (Cdn GAAP) 2.9% 14.8% 5.4% Return on equity after restructuring charges (U.S. GAAP) 2.9% 14.8% 5.4% STOCK INFORMATION (in thousands) Weighted average shares o/s (Cdn GAAP) 27,679 25,124 24,819 Weighted average shares o/s (U.S. GAAP) 27,679 25,124 24,819 Toronto Stock Exchange: Market price at year end 40.80 39.00 30.75 High: 52 weeks 46.30 39.00 34.45 Low: 52 weeks 35.50 25.75 25.25 Volume: 52 weeks 10,611 9,361 8,603 New York Stock Exchange: Market price at year end in U.S. $ 28.19 25.50 21.88 High: 52 weeks in U.S. $ 30.94 25.50 25.00 Low: 52 weeks in U.S. $ 24.06 16.25 18.38 Volume: 52 weeks 1,264 1,381 3,055
1999 Share Trading Data
Symbol: ITP Toronto Stock Exchange New York Stock Exchange Total High Low Close A.D.V.* High Low Close A.D.V.* A.D.V.* Canadian $ # U.S. $ # # 1st Quarter** $42.80 $34.50 $40.80 39,700 $29.00 $23.56 $28.00 4,952 44,652 2nd Quarter** $49.50 $39.85 $41.40 30,030 $33.38 $27.13 $28.25 6,885 36,915 3rd Quarter** $44.25 $38.00 $43.00 58,404 $29.63 $25.88 $29.25 2,569 60,973 4th Quarter $41.75 $37.25 $39.50 38,395 $27.25 $24.88 $26.38 4,119 42,514
This data should be read in conjunction with the Consolidated Financial Statements of the Company and the Notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations. (In thousands of U.S. dollars except per share data, selected ratios and trading volume information.) * Average Daily Volume ** Prior to August 16, 1999 stock was traded on the American Stock Exchange (AMEX) MESSAGE TO SHAREHOLDERS Dear Shareholders, Last year proved to be one of many challenges, beginning with excellent results for the first three quarters in both top line growth and bottom line improvement. Fourth quarter results however, did not continue this trend. Difficulties in the total implementation of our new enterprise-wide Management Information System and customer service issues, paralyzed our ability to enter and process orders. The result was a substantial drop in sales during the period. In addition, serious errors were made in unit-of-measure and pricing history files, which affected the validity of inventory value counts and accounts receivable. These difficulties combined with additional unforeseen problems in realizing synergies and costs savings related to the acquisition of Anchor Continental, Inc. (Anchor), resulted in unusual and non-recurring fourth quarter charges. These problems are now corrected, and pricing, unit-of-measure and asset values are now accurate. The Anchor situation is one of timing and is directly related to process and equipment changes. These improvements will be completed in stages throughout the year with gross margins increasing in conjunction with these changes. There was a concern by those outside the Company, that the drop in sales in the fourth quarter would continue into the first quarter of 2000. It is a testament to our sales force and the strength of our product line that this did not happen. In fact, our first quarter sales were a record for the Company, one that we expect to exceed in the second quarter. 1999 brought about another series of successful events for the Company. We evaluated a number of acquisitions on the basis of adding customers and products, achieving scale in key growth lines of business and attractive growth markets, and most importantly, their economic return to our shareholders over time. On July 30 and August 9, 1999, respectively, IPG acquired all the assets of Spinnaker Electrical Tape Co. and Central Products Company, manufacturers of pressure-sensitive, water-activated and electrical/electronic tapes. In this regard, we have remained consistent with our overall acquisition strategy. August was also a busy time for IPG as we moved from the American Stock Exchange (AMEX) to the New York Stock Exchange (NYSE). This event took place on August 16, 1999 with the goal of broadening our visibility within the financial community, attracting a wider range of research investors and analysts on a global basis and further enhancing shareholder value. During 2000 and beyond, the Company expects to maintain double-digit growth with at least a 15% internal product expansion. The increases will be in all product lines and driven by two of the Company's key strengths. The first is the continuation of new product development, where we have dedicated both time and money. New stretch wrap and shrink films will be introduced in 2000 and will provide access to new markets and increase gross margins. New patented, vinyl replacements and Pallet-Free-TM- FIBC bags, are also expected to significantly add to the growth in woven sales. New products and applications for pressure-sensitive tapes will also supply considerable impetus. The second exciting growth will come from our ability to fully implement our "Basket of Products" strategy which is unique in our marketplace. Finally, we are in a position to provide a value added to our customers through supply chain efficiencies. At least two distribution centers will be in operation in 2000 and the balance early 2001. The Company will continue to improve its bottom line through growth and cost savings throughout the organization. SG&A will be reduced to approximately 10.5% of sales during the year and significant manpower savings will be made in our various plants due to automation. We expect to realize a savings of $11.0 million on an annualized basis over the year. I expect gross margins to improve in our operations, and new high value-added products to become a larger portion of our sales. The potential of the Company is greater than ever and is spread across a wide variety of customers and industries. We are now positioned to take advantage of B to B commerce and have the breadth of products to make it effective. I want to thank IPG's staff who extended themselves to overcome the challenges brought about during the latter part of 1999. I appreciate this effort and look forward to having their energy back where it belongs... in growing the Company. In closing, 1999 was a year of tremendous accomplishments on many fronts. We are enthusiastic about the general tone of our business and remain on course for achieving profitable growth and increased shareholder value. Melbourne F. Yull Chairman & Chief Executive Officer April 7, 2000 MANAGEMENT'S DISCUSSION AND ANALYSIS REPORTING CURRENCY The financial statements of Intertape Polymer Group Inc. (Intertape Polymer Group, IPG or the Company) were presented in Canadian dollars up to December 31, 1998. As a result of business acquisitions and increasing activities in the United States, the Company adopted the U.S. dollar as its reporting currency effective January 1, 1999. In accordance with generally accepted accounting principles in Canada, for periods up to and including December 31, 1998, amounts pertaining to the consolidated financial statements and notes thereto were converted into U.S. dollars using a translation of convenience with the December 31, 1998 exchange rate of CDN $1.5305 per US $1.00. OVERVIEW OF 1999 On March 10, 2000 Intertape Polymer Group announced that it expected to incur a loss for the fourth quarter ended December 31, 1999. At that time, Management stated that sales in the fourth quarter were adversely affected by difficulties encountered in the implementation of new business systems which negatively impacted customer service, warehousing and some aspects of order fulfillment. The expected loss would also include substantial charges related to integration, transition and other costs in connection with business acquisitions and to asset impairment and non-recurring expenses. On March 28, 2000, the fourth quarter and annual financial results were released and confirmed that earnings had been negatively impacted by issues related to the integration of a new enterprise-wide resource planning system, the reorganization of customer service, and issues related to integration, transition and non-recurring charges discussed above. During 1999, the Company consolidated four separate non-year 2000 (Y2K) compliant legacy systems inherited with the acquisitions of Tape, Inc., American Tape Co. (ATC or American Tape), Anchor Continental, Inc. (Anchor) and Rexford Paper Company (Rexford), as well as an older in-house system. This complex systems integration contributed to significant inaccuracies in unit-of-measure and pricing history files, order fulfillment and tracking routines. The reorganization of customer service was completed during the fourth quarter, and should have been positive for the Company's customers as procedures were installed to facilitate a "one order for all products" process. However, complications with the new phone systems combined with the aforementioned Management Information Systems (MIS) issues, caused order placement obstacles for customers resulting in a slow-down in orders during December 1999. Unit-of-measure and pricing inaccuracies resulted in improper inventory valuations and levels. Higher than anticipated costs were incurred due to extended lead times to acquire equipment to automate and reduce waste in certain operations. The costs of rationalizing plants, products and brands were higher than expected due to manufacturing process changes and increased R&D expenditures. Finally, the acquisition of Central Products Company (CPC or Central Products) postponed the Company's fourth quarter plans to eliminate duplicate warehouses until a full assessment of plant rationalization and markets were completed. These factors resulted in an unusual charge against cost of sales. An evaluation was carried out to assess the value of the MIS system as well as the quality of the account receivables due to pricing and unit-of-measure issues which had a negative impact. This resulted in an increase in the reserve for doubtful accounts as well as a reduction in the carrying cost of the MIS. In addition, during the last three fiscal years, IPG had actively pursued and acquired suitable companies in line with its strategy to maintain a leading position in the packaging industry. The costs related to certain acquisitions that had been previously pursued and abandoned during the fourth quarter; as well as the finalization of the costs incurred to relocate key Management to IPG's corporate office in Sarasota, Florida have resulted in a further non-recurring charge. REVIEW OF OPERATIONS SALES Intertape Polymer Group's consolidated sales increased by 51.0% to $570.0 million for the year 1999; and by 66.1% to $378.0 million for the year 1998 from $227.6 for 1997. All sales continue to be derived from packaging products made from various combinations of resins and papers which are then converted into high quality, value-added products. The Company is managed based on all products being within one operational segment. Products are made from somewhat the same extrusion processes and differ to some degree only in the final stages of manufacturing. Furthermore, most of the Company's products, while brought into the market through varying sales methods and channels, bear the same economic characteristics in all respects. The two basic methods of bringing products to market are either through distributors or by selling directly to end-users. In both cases, the Company's highly trained sales force works closely with either the sales forces of the distributors or directly with the distributor's customer; or with the end user customer. Examples of products sold through distributors are Intertape-Registered Trademark- brand pressure-sensitive carton sealing tapes which include both hot-melt (introduced in 1981) and acrylic (1995); water-activated carton sealing tape (1996); masking tapes (1997); duct tapes (1998); Exlfilm-Registered Trademark- brand shrink film (1992); and StretchFlex-TM- brand stretch wrap (1996). Examples of products sold directly to end users include a wide range of Nova-Thene-Registered Trademark- brand woven polyolefin products (1989); Intertape-Registered Trademark- brand flexible intermediate bulk containers (FIBC) (1994); and transport and display cases (1989) that are either sold to the customer or rented. The following are the highlights of factors that contributed to changes in sales volume during 1999. - - - In almost all of the major product lines, selling prices generally started to fall during 1996. This trend continued throughout 1997, 1998 and into 1999, in sharp contrast to 1995 where unit prices saw a significant increase during that year. These changes in unit selling prices are mostly in relation to raw material resin prices, which cycled with a downward trend beginning in 1995 to 1999. Consequently, increases in sales resulting from increases in unit volume were lessened in dollars by falling unit selling prices. - - - Acquisitions continue to play an important role as the Company broadens its range of products. During 1999, IPG acquired CPC, which contributed $55.5 million to the Company's revenues. Revenues recorded during 1998 from the acquisitions of Anchor (September 1998) and Rexford (October 1998) as well as those derived from the acquisition of ATC which was completed during the last days of 1997 were $147.1 million. - - - A limited number of new products were introduced by the Company in 1999 and 1998 other than those derived from acquisitions. Management is anticipating further increases in revenue during 2000 as a result of the following factors: - - - Intertape Polymer Group is continuing to increase its manufacturing capacities. The Company's new facility located in Tremonton, Utah was further expanded during 1999. Various additional capacities were installed in a number of facilities during the year including the addition of a multi-layer coater in the Truro, Nova Scotia facility. The integration of the acquired facilities in Columbia, South Carolina and Richmond, Kentucky within the Company's other tape plants will provide further capacity for various products. In order to keep pace with FIBC demand IPG continues to further expand its relationships in Mexico to gain capacity. Finally, the Company's continuous program to reduce waste and increase running speeds will provide additional throughput. - - - The Company has enjoyed unit growth in substantially all product lines under various economic conditions throughout its history. Management believes that this unit growth will continue and not diminish in any material way during 2000. - - - As mentioned above, 1999 was a year of further declines in some unit selling prices through the third quarter. In light of rapid increases in resin raw material costs, Management currently anticipates that selling prices will start to increase for some product lines with the exception of certain North American produced products that compete with imported products. These importers are taking advantage of devaluations in their home currencies that have the effect of lowering prices in selected North American geographical areas. Management does not anticipate that this situation will reverse until the home currencies of these importers begin to strengthen against the U.S. dollar. Sales In millions of US $ 75.0 74.4 87.9 115.6 147.3 177.3 227.6 378.0 570.0 1991 1992 1993 1994 1995 1996 1997 1998 1999
GROSS PROFIT AND GROSS MARGIN The Company's gross profit increased 17.5% to $124.6 million for 1999; and 68.4% to $106.1 million for 1998 from $63.0 million for 1997. As a percentage of sales, gross margins decreased to 21.9% for 1999, and had increased to 28.1% for 1998, from 27.7% for 1997. The 1999 gross profits were seriously impacted by the introduction of new enterprise-wide computer and telephone systems and the integration of acquired manufacturing facilities. The nature of these challenges have been presented in the Overview section in this MD&A. The following is a breakdown of these unusual and non-recurring charges, as disclosed in the press release of March 28, 2000. - - - Sales were impacted during December 1999 due to the poor level of service to most customers. The combination of the Company's problems resulted in customers having difficulty placing orders and receiving their product on time. The result was a shortfall in revenues of $17.0 million. Based on historical raw material content expressed as a percentage of sales, Management estimates that the Company lost $8.5 million in contribution to labor and overhead costs. As this shortfall happened quickly, this lost contribution generated lost gross profits of the same amount. - - - Unit-of-measure computer errors and incorrect information in the selling price computer files, resulted in a combination of shipping inaccuracies and a build-up of finished goods inventory. After an extensive review of both the Company's shipping records and the year end inventory position, the Company recorded an unusual and non-recurring charge in the cost of sales of approximately $9.7 million to reflect the combined impact of these factors. - - - During 1999, the Company incurred unusual costs of approximately $9.8 million related to the integration of recently acquired businesses, principally Anchor's facility in Columbia, South Carolina. These integration difficulties at that location resulted in additional costs that were borne by other IPG facilities. Examples of the costs directly related to the Columbia facility are poor maintenance practices which led to equipment breakdown, excessive labor charges and low productivity, all as a result of past management practices. The Anchor facility integration difficulties impacted costs in other IPG facilities because of excess freight, overtime and incremental manufacturing charges incurred to accommodate manufacturing of products which were previously made in the Anchor facility. - - - Circumstances within several product lines have continued to result in margins below the Company's targeted levels. Specifically, margins for StretchFlex-TM- stretch wrap were and are currently lower than the Company's overall margins due to over-capacity in the market, leading to lower unit selling prices. This situation became even more critical during the fourth quarter of 1999 when market conditions resulted in a decline in selling prices even as raw material costs increased. The effect on gross profit for the fourth quarter was approximately $3.0 million.The combined effect of the above was that gross profits were negatively impacted by approximately $31.0 million for 1999. Had these factors not occurred, gross profits would have been $155.6 million instead of $124.6 million, and gross margins would have been 26.5% instead of 21.9%. - - - Water-activated products traditionally have had lower gross margins, as this has been a mature market for the past several years. In addition, several of the product lines acquired from American Tape and Anchor are products which have margins that are 3% to 4% lower than IPG's traditional margins. The impact of the above has affected the Company's gross margins for 1998 and 1999. Management estimates that the Company's gross margins were reduced by 2% to 3% due to the addition of these products in 1998 and 1999. - - - Management continues to implement its program to improve efficiencies at all facilities. Since 1990, $240.0 million has been invested on equipment in all plants in an effort to reduce waste, increase output, and create capacity for new products. Throughout 1999, the Company increased outputs in all plants and as a result, recorded increased sales volume in its product lines without requiring a related proportionate increase in manufacturing costs. Lower dollars of value-added (the difference between the purchase price of a unit of resin and its corresponding selling price) resulted in a dampening effect on gross margins. Management foresees that the trend of increasing gross profits will continue and that margins should approach historic levels by the end of fiscal year 2000 for the following reasons: - - - The Company's sales have returned to anticipated levels. Revenues for the first quarter of 2000 are anticipated to be in excess of $169.0 million which are in line with Management's expectations. - - - Except for continuing difficulties at the Columbia facility, Management believes that the underlying causes of the various unusual and non-recurring charges against cost of sales in 1999 have been corrected and should not reoccur during 2000. - - - The Company has begun to implement its supply chain strategy which will result in logistic savings gained by way of the introduction of Regional Distribution Centers (RDC) over the next 18 to 24 months. It is anticipated that at least one such RDC should be functional during the third quarter of 2000. In addition, the process of closing duplicate warehouses that existed throughout 1999 has now begun. - - - Management has taken steps to improve the situation during the third and fourth quarters by installing new 5-Layer extrusion technology on all of IPG's "cast" production lines. This should result in lower manufacturing costs and improved profitability. - - - The impact of expanded plant outputs should continue during 2000 as further efficiency measures are implemented. - - - New equipment installed during 1999 should have a positive effect on gross profits for 2000. - - - The Company's recently announced reduction in the number of employees to lower costs by $9.0 million on an annualized basis, should be fully implemented during the second quarter of 2000. - - - Selling prices have started to increase in most product lines. The above reasons for expanding margins throughout the coming fiscal year will be impacted by the effect of continuing problems with the Columbia facility and possibly the implementation of price increases. Management believes that the Columbia facility could have a decreasing negative effect on gross margins as new automated equipment is installed throughout the coming year. Finally, margins could be positively impacted by possible revisions to the estimated useful lives of certain manufacturing equipment for depreciation calculation purposes. Since the acquisition of CPC and into the first quarter of 2000, Management has conducted an extensive review of such assets with the assistance of professional valuators. As a result, the estimated useful lives of certain manufacturing equipment in major plants of the Company could be extended. This change, if adopted, will be effected prospectively starting with the first quarter 2000. Gross Margin and Gross Profit Millions of US Dollars and % 23.4% 26.7% 27.7% 29.1% 29.3% 28.9% 27.7% 28.1% 26.5% Gross Margin 17.6 19.9 24.3 33.6 43.2 51.3 63.0 106.1 155.6 Gross Profit 1991 1992 1993 1994 1995 1996 1997 1998 1999* *These numbers have been adjusted. See note in MD&A
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, General and Administrative (SG&A) expenses increased $38.6 million or 82.5% to $85.3 million ($19.5 million or 71.4% to $46.8 million for 1998 from $27.3 million for 1997). As a percentage of sales, these expenses increased to 15.0% for 1999, compared to 12.4% for 1998 and to 12.0% for 1997. These increases occurred primarily for the following reasons: THE YEAR 1999 RESULTS: In order to fully understand the 1999 results and comparisons to prior years, both sales and the SG&A costs should be adjusted on a pro forma basis for the following items: - - - Reported sales have to be adjusted for the previously discussed drop in volume during December 1999 in the amount of approximately $17.0 million as SG&A costs did not proportionally decrease as a result of this rapid decline. - - - There are several unusual and non-recurring charges included in SG&A costs in the amount of $8.5 million which are a direct result of the MIS difficulties. This includes an increase in the allowance for doubtful accounts and a reserve against the carrying value of the MIS development costs. - - - Finally, $3.1 million of further non-recurring costs related to several abandoned acquisitions and the final costs of relocating more than 25 key managers to the Company's new corporate office in Sarasota, Florida. When these factors are taken into account, the comparisons are as follows: - - - Increase in SG&A costs year-over-year for 1999, 1998 and 1997 are 57.7%, 71.4% and 27.0%. These increases are directly related to acquisitions. - - - More importantly, SG&A costs would have been $73.7 million, and as a percentage of sales for 1999 would have been 12.6%. Over the past 3 years, these costs have been increasing as a percentage of sales as the Company expanded through acquisitions. The Company did not attain its expected synergies from its acquisitions as a result of the MIS difficulties during 1999. THE YEAR 1998 RESULTS: - - - SG&A costs do not fluctuate with changes in unit selling prices. Based on Management's analysis of 1998 revenue, it is believed that the Company has endured approximately a 10% decline in selling prices which would have resulted in selling costs being 1.2% less as a percentage of revenue without this decline in selling prices. - - - Included in SG&A for 1998 are those costs derived from businesses acquired during the year. In total, these costs amount to approximately $4.8 million. Management believes it is in a position to reduce SG&A costs as a percentage of sales. This reduction should be brought about by the SG&A portion of the recently announced staff reductions; by attaining planned efficiencies now that all facilities are operating within the same MIS systems except those of Central Products; the recent Customer Service telephone systems difficulties have been overcome; and expected increases in volume should not require the same percentage increases in these costs. Management anticipates that SG&A as a percentage of sales will be less than 12.0% for the first quarter 2000. Selling, General and Administrative Millions of US Dollars and % 9.6% 12.0% 12.0% 12.7% 11.5% 12.1% 12.0% 12.4% 12.6% As a Percent of Sales 7.2 8.9 10.5 14.6 17.0 21.5 27.3 46.8 73.7 Millions of US Dollars 1991 1992 1993 1994 1995 1996 1997 1998 1999* *These numbers have been adjusted. See note in MD&A
RESEARCH AND DEVELOPMENT Research and Development (R&D) has become an extremely important function within the Company. Taken as a percentage of sales, R&D is 0.7% for the current year compared to 0.8% for 1998 and 0.6% for 1997. R&D is focused on new products, new technology developments and new product processes. While there have been new products introduced in prior years, Management believes that fiscal 2000 will see a steady rollout of significant new products into the market. Research & Development In millions of US $ 0.00 0.02 0.03 0.64 0.72 1.15 1.46 3.06 3.90 1991 1992 1993 1994 1995 1996 1997 1998 1999
OPERATING PROFIT Intertape Polymer Group's operating profit (defined for these purposes as gross profit less selling, general and administrative expenses) for the year 1999 decreased $20.0 million to $39.3 million from $59.3 million for 1998; and increased $23.6 million to $59.3 million from $35.7 million for 1997. As a percentage of sales for the years 1999, 1998 and 1997, operating margins were 6.9%, 15.7% and 15.7%, respectively. When adjusted for all of the above highlighted effects on revenue, cost of sales and SG&A costs as a result of the MIS and plant integration difficulties, the operating profits are $81.9 million (14.0%) for 1999, $59.3 million (15.7%) for 1998 and $35.7 million (15.7%) for 1997 respectively. The recent decline in operating margins is as a result of several factors. Firstly, the acquisitions of 1998 and 1999 have brought into the Company products which have gross margins currently below the Company's historic levels. In addition, StretchFlex-TM- stretch wrap margins are under intense pressure as a result of market conditions. Secondly, the MIS difficulties made certain synergistic cost reductions unattainable during 1999. Lastly, ongoing plant integration difficulties are depressing both gross margins and operating margins. Management is confident that operating margins will expand as the current effect of selling price increases start to enhance gross margins, synergistic cost reductions are attained and the effects of plant integration efforts are achieved. Operating Profit Millions of US Dollars and % 13.9% 14.8% 15.7% 16.4% 17.8% 16.8% 15.7% 15.7% 14.0% As a Percent of Sales 10.4 11.0 13.8 19.0 26.2 29.8 35.7 59.3 81.9 Millions of US Dollars 1991 1992 1993 1994 1995 1996 1997 1998 1999* *These numbers have been adjusted. See note in MD&A
RESTRUCTURING CHARGES During 1997 the Company recorded a restructuring charge of $17.7 million in relation to the Company's FIBC products. INCOME TAXES The Company's statutory income tax rate was 42.7% for 1999; 42.9% for 1998, and 43.4% for 1997. Except for the impact of certain items for tax purposes discussed below, the amortization of that part of the goodwill which is non-deductible for income tax purposes, will result in the Company's effective income tax rate exceeding its statutory tax rate. The Company's effective tax rate was impacted by two material events during these three years commencing with 1997. Firstly, the Company's foreign based income is taxed at rates which are significantly lower than the rates that would have applied on the income had it been earned in Canada. Secondly, the Company entered into a series of transactions that resulted in permanent differences greater than that of previous years. It is expected that the effective tax rate for 2000 should stabilize at 28.0%. This rate depends somewhat on there being no announced significant increases in corporate income tax rates for fiscal 2000 in Canada, the United States of America or Portugal. Income Taxes Effective Income Tax Rates 46.4% 43.6% 41.0% 38.7% 36.7% 29.2% 31.0% 29.0% -0.04% 1991 1992 1993 1994 1995 1996 1997 1998 1999
NET EARNINGS - CANADIAN AND U.S. GAAP During 1997, the Company recorded a charge against earnings for a restructuring of certain operations. Generally Accepted Accounting Principles (GAAP) in Canada permits the disclosure of a subtotal representing "earnings before restructuring charges and income taxes". U.S. GAAP does not permit the presentation of this subtotal. Consequently, net earnings under both Canadian and U.S. GAAP was $8.1 million for 1999 as compared to $28.8 million for 1998 and $8.9 million for 1997. For purposes of the following three (3) year discussion, the 1997 net earnings are based on the earnings that would have been recorded as if the restructuring had not taken place; and 1999 net earnings are being presented before the above highlighted negative effects on revenue, cost of sales and SG&A as a result of costs of the MIS and plant integration difficulties. IPG's net earnings adjusted as per the above for the years 1999, 1998 and 1997 would have been $38.3 million, $28.8 million and $21.1 million respectively. As a percentage of sales net earnings were 6.5% for 1999, 7.6% for 1998 and 9.3% for 1997. Canadian GAAP net earnings conform in all material amounts that would have to be reported if the financial statements would have been prepared under U.S. GAAP. Net Earnings - CDN and U.S. GAAP Millions of US Dollars 2.9 3.7 6.3 9.4 14.1 18.7 21.1 28.8 38.3 Canadian GAAP - Before Restructuring Charge 2.6 3.9 6.7 9.8 14.4 19.0 21.1 28.8 38.3 U.S. GAAP - Before Restructuring Charge 1991 1992 1993 1994 1995 1996 1997* 1998 1999* *These numbers have been adjusted. See note in MD&A
EARNINGS PER SHARE CANADIAN AND U.S. GAAP CANADIAN GAAP As noted previously, Canadian GAAP and U.S. GAAP differ in the presentation of the restructuring charges taken against earnings during 1997. Neither allows for the presentation of earnings per share (EPS) before the effect of restructuring charges. Consequently, these charges that reduced EPS by $0.49, are included in all computations of EPS for 1997. - - - Basic EPS decreased 74.6% to $0.29 for 1999 from $1.14 for 1998; and increased 216.7% to $1.14 for 1998 from $0.36 for 1997. The weighted average number of common shares outstanding for the purpose of the basic EPS calculation was 27.7 million shares for 1999, 25.1 million shares for 1998 and 24.8 million shares for 1997. - - - Fully diluted EPS decreased 73.6% to $0.29 for 1999 from $1.10 for 1998; and increased 225.7% to $1.10 for 1998 from $0.35 for 1997. The fully diluted EPS takes into consideration the effects of stock options that have been granted to employees of the Company but that have not yet been exercised, as well as 300,000 warrants issued during 1999 in conjunction with the acquisition of Central Products. - - - Had 1999 net earnings been presented before the above negative effects on revenue, cost of sales and SG&A as a result of costs of the MIS and plant integration difficulties; and had 1997 net earnings been presented on earnings that would have been recorded as if the restructuring had not taken place; basic EPS would have been $1.39 for 1999, $1.14 for 1998 and $0.85 for 1997. Fully diluted EPS would have been $1.32, $1.10 and $0.82 respectively. U.S. GAAP Commencing in 1997, basic EPS under U.S. GAAP is calculated in a manner consistent with Canadian GAAP. Fully diluted EPS was $0.29, $1.10 and $0.35 for the years 1999, 1998 and 1997 respectively. The weighted average number of common shares outstanding used to compute fully diluted EPS under U.S. GAAP was 28.6 million shares for 1999, 26.2 million shares for 1998 and 25.6 million shares for 1997. Earnings Per Share CDN and US GAAP US Dollars Per Share 0.20 0.20 0.31 0.46 0.67 0.77 0.85 1.14 1.39 Canadian - Basic 0.18 0.23 0.33 0.48 0.68 0.78 0.85 1.14 1.39 U.S. - Basic 0.20 0.19 0.30 0.44 0.63 0.74 0.82 1.10 1.32 Canadian - Fully Diluted 0.18 0.23 0.33 0.47 0.65 0.75 0.82 1.10 1.32 U.S. - Fully Diluted 1991 1992 1993 1994 1995 1996 1997(1) 1998 1999* (1) Before Restructuring Charge *These numbers have been adjusted. See note in MD&A
LIQUIDITY AND CAPITAL RESOURCES CHANGES IN CASH FLOWS Cash flow from operations decreased to $36.1 million from $57.9 million in 1998 and $39.7 million in 1997. To this amount, $10.4 million was added from the decrease in non-cash working capital items. In 1998 and 1997, non-cash working capital items required funding in the amount of $37.3 million and $14.4 million respectively. The balance of $46.5 million in 1999 was augmented by an increase in long-term debt of $187.0 million, $76.9 million from the issue of common shares in March 1999, and $1.7 million by way of the exercise of stock options. This was then reduced by $60.8 million for the repayment of long-term debt, $2.5 million for the purchase of shares for cancellation under a Normal Course Issuer Bid, $3.0 million for the payment of dividends, and by $68.8 million for the reimbursement of bank indebtedness. These funds totaling $177.0 million were used as follows: - - - invested $67.7 million in capital and other assets, - - - carried out the acquisition of Central Products Company and Spinnaker Electrical Tape Company in the amount of $108.1 million. Cash Flow Millions of US Dollars 9.2 10.9 14.7 18.4 22.7 28.4 39.7 57.9 36.1 Cash Flow From Operations Before Funding Non-Cash Working Capital Items 9.2 7.3 13.9 15.1 16.9 5.6 25.3 20.6 46.5 Cash Flow From Operations After Funding Non-Cash Working Capital Items 1991 1992 1993 1994 1995 1996 1997 1998 1999
CREDIT FACILITIES Overall, the Company has approximately $94.0 million of committed one and two year credit facilities. Included in this amount is a $60.0 million facility which expired on April 1, 2000 and was extended for 90 days so that the Company's 1999 Annual Report could be made available to the bank. The Company will request that this facility be replaced with a one year committed facility in the same amount. CASH (BANK INDEBTEDNESS) The uses of short-term credit facilities continued during the year in both Canada and the U.S. The 1999 year end balance of $53.9 million includes an amount of $45.8 million which pertains to that portion of the acquisition of Central Products funded through the use of a short-term credit facility. The bank indebtedness decreased $68.2 million from 1998 as part of the proceeds of the 1999 Series A and B Notes Offering was used to repay all short-term borrowings. Bank Indebtedness Millions of US Dollars - - -8.4 -4.4 -5.8 6.7 33.1 2.4 -16.4 -122.1 -53.9 1991 1992 1993 1994 1995 1996 1997 1998 1999
LONG-TERM DEBT During 1999, the Company successfully completed a Series A and B Notes Offering of $137.0 million of Senior Unsecured U.S. dollar Notes bearing interest at an average rate of 7.78%, interest payable semi-annually, $25.0 million principle maturing November 2005 and the balance on May 2009. The proceeds were used primarily to repay some bank debt incurred during 1999 for part of the acquisition of Central Products and to repay the balance of bank debt incurred during 1998 for part of the purchase of Anchor. During 1998, the Company successfully completed a U.S. Offering of $137.0 million of Senior Unsecured U.S. dollar Notes bearing interest at the rate of 6.82%, interest payable semi-annually, principle maturing March 31, 2008. The proceeds were used primarily to repay the bank debt $114.0 million incurred during 1997 in relation to the acquisition of American Tape. Long-Term Debt Millions of US Dollars 27.2 23.0 22.2 38.3 36.4 44.4 153.1 211.8 338.1 1991 1992 1993 1994 1995 1996 1997 1998 1999
Debt/Capital Employed As a % of Total Capital Employed 42.0% 28.0% 26.0% 34.0% 22.0% 23.0% 48.0% 52.0% 55.0% 1991 1992 1993 1994 1995 1996 1997 1998 1999
CAPITAL STOCK During 1999 and 1998 various employees exercised stock options which contributed $1.7 million and $1.2 million respectively. During the first quarter of 1999, the Company issued 3,000,000 additional common shares at a price of Cdn $40.25 per share for a total cash infusion of US $76.9 million after issue costs. Proceeds were used to repay some short-term and long-term debts. During 1999, the Company announced that it had registered a Normal Course Issuer Bid in Canada. During December 1999, 100,000 shares were purchased for cancellation, which resulted in a reduction of $0.7 million in the stated value of the Company's issued common shares. As part of the purchase price for the acquisition of Central Products, the Company issued 300,000 share purchase warrants. These warrants expire on August 9, 2004 and permit the holder to purchase common shares of the Company at a price of $29.50 per share. Capital Stock Millions of US Dollars 35.3 51.6 51.6 52.3 94.9 100.0 102.8 104.0 185.1 1991 1992 1993 1994 1995 1996 1997 1998 1999
CAPITAL EXPENDITURES Total capital expenditures for 1999 were $57.2 million. There were a number of major projects either ongoing or completed in 1999. The expansion of our Truro, Nova Scotia plant was completed in 1999. This expansion will add much needed capacity for production of woven products. The installation of a new BOPP extrusion line was under way at our Danville, Virginia plant as well as adding more stretch film production capacity as part of our 100 million-pound stretch film expansion. Other expenditures were made in order to lower manufacturing costs and improve output of tape production facilities in Columbia, South Carolina, Marysville, Michigan and Richmond, Kentucky primarily in the areas offinishing and packaging. Lastly, expenditures in the MIS area continued in 1999 as we completed the migration of most of our systems onto a new, Y2K compliant, enterprise platform which is essential to our "Basket-of-Products" program. Capital Expenditures Millions of US Dollars 6.5 9.1 7.7 16.6 27.7 32.1 34.0 45.9 57.2 1991 1992 1993 1994 1995 1996 1997 1998 1999
BUSINESS ACQUISITIONS 1999 On July 30 and August 9, 1999, respectively, the Company acquired from Spinaker Industries, Inc. (AMEX: SKK) substantially all the assets of Spinnaker Electrical Tape Company and all of the outstanding shares of Central Products Company, manufacturers of pressure-sensitive, water-activated and electrical tapes. The total cash consideration and estimated transaction costs for these acquisitions were approximately $108.1 million. In addition, the Company issued 300,000 share purchase warrants valued at $3.2 million to the seller of these companies. Preliminary purchase price allocations reflect approximately $48.5 million of goodwill, which is amortized over a forty year period. 1998 On September 23, 1998 and October 7, 1998 respectively, the Company purchased 100% of the outstanding shares of Anchor, a manufacturer of pressure-sensitive tapes including both duct and masking tapes and substantially all the operating assets of Rexford, which is a Wisconsin redistributor of a variety of pressure-sensitive tapes as well as a manufacturer of water-activated tapes. The total cash consideration and estimated transaction costs for these acquisitions were approximately $113.2 million. BOOK VALUE PER SHARE The per share book value for the years ended 1999, 1998 and 1997 were $9.97, $7.71 and $6.53 respectively. Had 1999 net earnings been presented before the above negative effects on revenue, cost of sales and SG&A costs brought about by the MIS and plant integration difficulties; and had 1997 net earnings been presented as if the restructuring had not taken place; the book value on a per share basis would have increased 43.2% to $11.04 as compared to $7.71 for 1998. The 1998 book value would have increased 9.8% from $7.02 for 1997. Book Value Per Share US Dollars Per Share 2.57 2.86 3.15 3.61 5.38 6.23 7.02 7.71 11.0 1991 1992 1993 1994 1995 1996 1997 1998 1999* *These numbers have been adjusted. See Note in MD&A
DIVIDEND ON COMMON SHARES On March 10, 1998, the Company declared an annual dividend of $0.092 per share (Cdn $0.13) to shareholders of record on March 20, 1998. The dividend was paid on March 31, 1998 and amounted to approximately $2.1 million. On March 9, 1999, the Company declared an annual dividend of $0.106 per share (Cdn $0.16) to shareholders of record on March 19, 1999. The dividend was paid on April 5, 1999 and amounted to approximately $3.0 million. TO THE SHAREHOLDERS OF INTERTAPE POLYMER GROUP INC. MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS 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 generally accepted accounting principles and include some amounts that are based on Management's best estimates and judgements. 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, the majority of whom are non-management 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 the 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, appointed by the shareholders at the Annual and Special Meeting, have audited the Company's financial statements and their report indicating the scope of their audit and their opinion on the financial statements follows. Sarasota, Florida and Montreal, Canada April 7, 2000 Melbourne F. Yull Andrew M. Archibald, C.A. Chairman and Chief Executive Officer Chief Financial Officer, Secretary, Treasurer, Vice President Administration AUDITOR'S REPORT We have audited the consolidated balance sheets of Intertape Polymer Group Inc. as at December 31, 1999 and 1998 and the consolidated statements of earnings, retained earnings and cash flows for each of the years in the three-year period ended December 31, 1999. 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 generally accepted auditing standards in Canada. 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, 1999 and 1998 and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1999 in accordance with generally accepted accounting principles in Canada. General Partnership, Chartered Accountants Raymond Chabot Grant Thornton Montreal April 7, 2000 CONSOLIDATED EARNINGS (In thousands of U.S. dollars; except per share amounts)
Years Ended December 31, 1999 1998 1997 Sales $ 569,947 $ 378,030 $ 227,553 Cost of sales (Note 4) 445,322 271,971 164,558 Gross profit 124,625 106,059 62,995 Selling, general and administrative expenses (Note 4) 85,330 46,747 27,281 Amortization of goodwill 5,451 3,330 1,542 Research and development 3,901 3,059 1,456 Financial expenses (Note 5) 22,149 12,429 2,122 116,831 65,565 32,401 Earnings before restructuring charges and income taxes 7,794 40,494 30,594 Restructuring charges (Note 6) - - 17,717 Earnings before income taxes 7,794 40,494 12,877 Income taxes (Note 7) (304) 11,743 3,992 Net earnings $ 8,098 $ 28,751 $ 8,885 Earnings per share Basic $ 0.29 $ 1.14 $ 0.36 Fully diluted $ 0.29 $ 1.10 $ 0.35
CONSOLIDATED RETAINED EARNINGS (In thousands of U.S. dollars)
Years Ended December 31, 1999 1998 1997 Balance, beginning of year $ 85,184 $ 58,563 $ 51,294 Net earnings 8,098 28,751 8,885 93,282 87,314 60,179 Dividends 2,993 2,130 1,616 Premium on Common Shares purchased for cancellation 1,867 - - 4,860 2,130 1,616 Balance, end of year $ 88,422 $ 85,184 $ 58,563 Consolidated Cash Flows (In thousands of U.S. dollars)
Years Ended December 31, 1999 1998 1997 OPERATING ACTIVITIES Net earnings $ 8,098 $ 28,751 $ 8,885 Non-cash items Depreciation and amortization 31,229 20,544 12,049 Future income taxes (3,197) 8,627 1,635 Restructuring charges - - 17,136 Cash from operations before funding of changes in non-cash working capital items $ 36,130 $ 57,922 $ 39,705 Changes in non-cash working capital items Trade and other receivables (3,321) (175) (12,586) Inventories and parts and supplies (6,085) (15,076) (1,525) Prepaid expenses (2,123) 1,939 (651) Accounts payable and accrued liabilities 21,903 (24,033) 393 10,374 (37,345) (14,369) Cash flows from operating activities $ 46,504 $ 20,577 $ 25,336
INVESTING ACTIVITIES Acquisitions of businesses (Note 8) (108,172) (113,187) (42,903) Capital assets, net of investment tax credits (57,154) (45,941) (32,711) Other assets (10,577) (8,923) (4,087) Cash flows from investing activities $ (175,903) $ (168,051) $ (79,701) FINANCING ACTIVITIES Net change in bank indebtedness (68,835) 103,460 14,231 Issue of long-term debt 187,000 166,553 108,519 Repayment of long-term debt (60,767) (120,099) (72,260) Issue of Common Shares 78,583 1,172 2,893 Common Shares purchased for cancellation (2,542) -- -- Dividends paid (2,993) (2,130) (1,616) Cash flows from financing activities $ 130,446 $ 148,956 $ 51,767 Net increase (decrease) in cash position 1,047 1,482 (2,598) Effect of foreign currency translation adjustments (1,047) (1,482) 194 Cash position, beginning of year, -- -- 2,404 Cash position, end of year $ -- $ -- $ -- SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION Interest paid $ 22,065 $ 15,257 $4,031 Income taxes paid $ 3,153 $ 3,339 $2,016
CONSOLIDATED BALANCE SHEETS (In thousands of U.S. dollars)
December 31, 1999 1998 Assets Current assets Trade receivables (net of allowance for doubtful accounts of $6,178,000 ($2,210,000 in 1998)) $ 83,120 $ 71,094 Other receivables (Note 9) 17,712 11,872 Inventories (Note 10) 87,301 72,167 Parts and supplies 9,813 5,171 Prepaid expenses 4,204 1,603 Future income tax assets 11,349 7,869 213,499 169,776 Capital assets (Note 11) 351,722 258,208 Other assets (Note 12) 31,899 20,606 Goodwill, at amortized cost 217,886 173,562 Total Assets $ 815,006 $ 622,152 Liabilities Current liabilities Bank indebtedness (Note 13) $ 53,920 $ 122,100 Accounts payable and accrued liabilities 88,563 56,987 Installments on long-term debt 2,079 2,002 144,562 181,089 Long-term debt (Note 14) 336,015 209,842 Other liabilities (Note 15) 52,426 36,972 Total Liabilities $ 533,003 $ 427,903 Shareholders' Equity Capital stock and share purchase warrants (Note 16) $ 185,091 $ 104,033 Retained earnings 88,422 85,184 Accumulated foreign currency translation adjustments 8,490 5,032 Total Shareholders' Equity $ 282,003 $ 194,249 Total Liability and Shareholders' Equity $ 815,006 $ 622,152
On behalf of the Board, Gordon R. Cunningham, Director Ben J. Davenport, Jr., Director NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In U.S. dollars; tabular amounts in thousands, except per share amounts) 1. GOVERNING STATUTES The Company, incorporated under the Canada Business Corporations Act, is based in Montreal, Canada. The common shares of the Company are listed on the New York Stock Exchange in the United States of America and on the Toronto Stock Exchange in Canada. 2. ACCOUNTING POLICIES Statements of Cash Flows In 1999, the Company retroactively adopted the new Canadian standards with respect to the statements of cash flows. As a result of the application of the new standards, the variation of bank indebtedness is now presented with financing activities. In the past, bank indebtedness was included as part of cash position. Accounting Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires Management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Principles of Consolidation These consolidated financial statements include the accounts of the Company and all its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. Investments in joint ventures have been proportionately consolidated based on the Company's ownership interest. Fair Value of Financial Instruments The fair value of trade receivables, other receivables, 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 value of receivables from joint ventures approximates the carrying amounts reported in the consolidated balance sheets. The fair value of long-term debt was established as described in Note 14. Foreign Currency Translation Reporting Currency The financial statements of the Company were presented in Canadian dollars up to December 31, 1998. As a result of business acquisitions and increasing activities in the United States, the Company adopted the U.S. dollar as its reporting currency effective January 1, 1999. In accordance with generally accepted accounting principles in Canada, for periods up to and including December 31, 1998, amounts pertaining to the consolidated financial statements and notes thereto were converted into U.S. dollars using a translation of convenience with the December 31, 1998 exchange rate of CDN $1.5305 per US $1.00. For years after December 31, 1998, the accounts of the Company's operations having a functional currency other than the U.S. 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 the 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 foreign 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 revenues and expenses have been translated at the average exchange rate for each year; 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. Inventory, 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. Parts and supplies are valued at the lower of cost and replacement cost. Capital Assets Capital assets 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 5 % or straight-line 15 to 40 years Buildings under capital leases Straight-line 20 years Manufacturing equipment Straight-line 7 to 20 years Furniture, office, computer equipment and software Diminishing balance 20% and other or straight-line 5 years
The Company follows the policy of capitalizing interest during the construction and preproduction periods as part of the cost of significant capital assets. Normal repairs and maintenance are expensed as incurred. Expenditures which materially increase values, change capacities or extend useful lives are capitalized. 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 a five-year period. Goodwill Goodwill represents the excess of the purchase price and related cost over the value assigned to the net tangible assets of investments in subsidiaries and joint ventures at the dates of acquisition. Goodwill is being amortized on a straight-line basis over 40 years, the estimated life of the benefit. The value of goodwill is regularly evaluated by reviewing the returns of the related business, taking into account the risk associated with the investment. Any permanent impairment in the value of goodwill would be written off against earnings. 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 costs associated with the remediation of environmental pollution when it becomes probable that a liability has been incurred and its proportionate share of the amount can be reasonably estimated. 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 enacted income tax rates expected to be in effect for the year in which the differences are expected to reverse. Stock Options The Company has granted stock options as described in Note 16. No compensation expense is recognized when stock options are issued to employees. Any consideration paid by employees on the exercise of stock options is credited to capital stock. Earnings Per Share Basic earnings per share are calculated using the weighted average number of common shares outstanding during the year. Fully diluted earnings per share reflect the dilutive effects of stock options and share purchase warrants which would have resulted if exercise of options and warrants had occurred at the beginning of the period or at the date of the granting of the options or warrants. Based on imputed rates of return of 6% in 1999, 1998 and 1997, after-tax imputed earnings of $1,397,000 in 1999, $1,008,000 in 1998, and $290,000 in 1997 were considered for purposes of calculating fully diluted earnings per share. 3. JOINT VENTURES The Company's pro rata share of its joint ventures' operations included in the consolidated financial statements is summarized as follows:
Years Ended December 31, 1999 1998 1997 Earnings Sales $ 4,467 $ 3,934 $ 2,639 Gross profit 1,010 1,130 900 Financial expenses 882 440 71 Net earnings (net loss) (767) (59) 150 Changes in Cash Flows Source (use) of cash from operating activities (1,331) 827 1,217 Source (use) of cash for investing activities 2,343 (1,309) (3,296) Source (use) of cash from financing activities (2,566) 1,136 2,725
Years Ended December 31, 1999 1998 Balance Sheet Assets Current assets $ 3,091 $ 3,245 Long-term assets 11,243 9,529 Liabilities Current liabilities 10,817 2,902 Long-term debt 3,187 2,745
During the year ended December 31, 1999, the Company recorded sales of $7,716,000 to its joint ventures ($1,745,000 in 1998 and $2,462,000 in 1997). Also, interest income of $1,493,660 from a joint venture was accounted for during the year ended December 31, 1999 ($996,000 in 1998 and $682,000 in 1997). Those operations, measured at exchange values, were conducted in the normal course of business. 4. INTEGRATION AND TRANSITION, ASSET WRITE-DOWNS AND OTHER NON-RECURRING COSTS For the year ended December 31, 1999, the Company incurred substantial integration and transition, asset write-downs and other non-recurring costs as a result of recent business acquisitions and the implementation of a major enterprise-wide Management Information System. Such costs were included in cost of sales ($19.5 million) and selling, general and administrative expenses ($11.6 million). 5. INFORMATION INCLUDED IN THE CONSOLIDATED STATEMENTS OF EARNINGS
Years Ended December 31, 1999 1998 1997 Depreciation of capital assets $ 25,077 $ 16,090 $ 10,154 Amortization of deferred charges 701 1,124 353 Financial expenses Interest on long-term debt 17,924 10,078 3,205 Interest and bank charges 6,519 6,473 951 Interest income, gain on foreign exchange and other (1,154) (2,542) (1,497) Interest capitalized to capital assets (1,140) (1,580) (537) $ 22,149 $ 12,429 $ 2,122
6. RESTRUCTURING CHARGES In 1997, the Company initiated an organizational review of the operations of certain facilities manufacturing flexible intermediate bulk containers and approved a plan to improve efficiency and reduce operating costs. As a result of the review, a restructuring provision of $17.7 million was recorded to reflect asset impairment and to provide for accruals for costs identified in the restructuring plan. 7. INCOME TAXES The provision for income taxes consists of the following:
Years Ended December 31, 1999 1998 1997 Current $ 2,893 $ 3,116 $ 2,357 Future (3,197) 8,627 1,635 $ (304) $ 11,743 $ 3,992
The reconciliation of the combined Federal and Provincial statutory income tax rate to the Company's effective tax rate is detailed as follows:
Years Ended December 31, 1999 1998 1997 Combined Federal and Provincial income tax rate % 42.7 % 42.9 % 43.4 Manufacturing and processing 14.0 (2.1) (6.1) Foreign losses recovered (income taxed) at lower rates 0.3 (5.1) 3.2 Impact of other differences (60.9) (6.7) (9.5) Effective income tax rate % (3.9) % 29.0 % 31.0
The net future income tax liabilities are detailed as follows:
Years Ended December 31, 1999 1998 Future income tax assets Accounts payable and accrued liabilities $ 6,944 $ 8,676 Tax credits and loss carry-forwards 12,979 5,106 Trade and other receivables 2,101 845 Inventories 4,264 486 Others -- 54 26,288 15,167 Future income tax liabilities Capital assets (50,112) (34,270) Others (2,545) -- (52,657) (34,270) Net future income tax liabilities $(26,369) $(19,103)
8. ACQUISITIONS OF BUSINESSES In the last three years, the following business acquisitions have been accounted for using the purchase method of accounting and, accordingly, the purchase price was allocated to the assets and liabilities based on their estimated fair value as of acquisition date. The operating results of the acquired businesses have been included in the consolidated financial statements from the dates of acquisition. Year ended December 31, 1999 On July 30, 1999 and August 9, 1999 respectively, the Company purchased certain assets of Spinnaker Electrical Tape Company (SETco) and 100% of the outstanding shares of Central Products Company (CPC), manufacturers of pressure-sensitive, water-activated and electrical tapes. The total cash consideration and estimated transaction costs for the acquisitions were approximately $108.1 million. In addition, the Company issued share purchase warrants valued at $3.2 million to the former owners. The preliminary purchase price allocations, which reflect approximately $48.5 million allocated to goodwill, were based on available information and preliminary appraisals and are subject to revision as more facts become known. Goodwill from the acquisitions is being amortized over a 40-year period. Year ended December 31, 1998 On September 23, 1998 and October 7, 1998 respectively, the Company purchased 100% of the outstanding shares of Anchor Continental, Inc., a manufacturer of pressure-sensitive tapes including both masking and duct tapes and substantially all the operating assets of Rexford Paper Company, a redistributor of a variety of pressure-sensitive tapes as well as a manufacturer of water-activated tapes. The total cash consideration and estimated transactions costs for the acquisitions were approximately $113.2 million. Year ended December 31, 1997 On December 16, 1997, the Company purchased 100% of the outstanding shares of American Tape Co., a manufacturer of pressure-sensitive tapes and shrink film. The total cash consideration and transaction costs were approximately $42.9 million. Approximately $67 million of American Tape Co.'s long-term debt was refinanced following the acquisition. The following is a summary of the initial values of the net assets purchased in the last three years:
December 31, 1999 1998 1997 Current assets $ 26,523 $ 32,473 $ 21,511 Capital assets 66,541 51,745 43,906 Goodwill and other assets 49,763 72,116 68,450 Net future income tax assets -- -- 4,866 142,827 156,334 138,733 Current liabilities assumed (23,250) (38,926) (25,359) Net future income tax liabilities (8,255) (4,221) -- Long-term debt assumed -- -- (70,471) Net assets purchased $ 111,322 $ 113,187 $ 42,903 Consideration Cash 108,172 113,187 42,903 Issue of share purchase warrants 3,150 -- -- $ 111,322 $ 113,187 $ 42,903
9. OTHER RECEIVABLES
December 31, 1999 1998 Rebates receivable 5,560 3,461 Income and other taxes 5,354 1,604 Sales taxes 2,059 1,827 Other 4,739 4,980 $17,712 $11,872
10. INVENTORIES
December 31, 1999 1998 Raw materials $25,460 $19,423 Work in process 12,189 8,507 Finished goods 49,652 44,237 $87,301 $72,167
11. CAPITAL ASSETS
Accumulated December 31, 1999 Cost Depreciation Net Land $ 2,264 $ -- $ 2,264 Buildings 37,142 5,336 31,806 Buildings under capital leases 15,125 2,560 12,565 Manufacturing equipment 346,629 78,202 268,427 Furniture, office, computer equipment and software and other 25,517 6,584 18,933 Manufacturing equipment under construction 17,727 -- 17,727 $444,404 $ 92,682 $351,722
December 31, 1998 Cost Depreciation Net Land $ 1,879 $ -- $ 1,879 Buildings 29,366 3,360 26,006 Buildings under capital leases 14,958 2,174 12,784 Manufacturing equipment 255,760 59,793 195,967 Furniture, office, computer equipment and software and other 12,915 4,192 8,723 Building and manufacturing equipment under construction 12,849 -- 12,849 $327,727 $ 69,519 $258,208
12. OTHER ASSETS
December 31, 1999 1998 Debt issue expenses and other deferred charges, at amortized cost $ 4,067 $ 3,460 Loans to officers and directors including loans regarding the exercise of stock options, without interest, various repayment terms 275 458 Receivables from joint ventures (a) 23,449 13,985 Other receivables 1,452 1,683 Other, at cost 2,656 1,020 $ 31,899 $ 20,606
(a) Of this amount, a total of $21,802,000 is receivable from IFCO - U.S., L.L.C. (IFCO) as at December 31, 1999 ($12,590,000 in 1998) and includes the following: $7,087,000 ($6,274,000 in 1998) of promissory notes bearing interest at a rate of 10%, repayable in annual principal instalments, maturing at various dates until January 2003 and a $14,715,000 ($6,316,000 in 1998)loan bearing interest at the U.S. prime rate, due on demand. In March 2000, all amounts receivable from IFCO were reimbursed to the Company as a result of the sale of the Company's interest in this joint venture. The proceeds of this sale were used to reduce outstanding bank credit facilities. 13. BANK INDEBTEDNESS AND CREDIT FACILITIES The bank indebtedness consists of the utilized portion of unsecured demand and revolving bank credit facilities and cheques issued which have not been drawn from the facilities and is reduced by any cash balances. As at December 31, 1999, the Company had: - - - A senior unsecured bank loan under a US $60.0 million term credit facility which matures on April 1, 2000. This loan bears interest at U.S. prime rate or LIBOR plus a premium varying between 1.25% and 1.50%. As at December 31, 1999, the effective interest rate pertaining to the bank loan was approximately 8.1% and US $50.0 million was utilized; - - - CDN $6.0 million of revolving credit facilities from Canadian financial institutions of which CDN $0.4 million was utilized as at December 31, 1999; - - - US $30.0 million of revolving credit facilities from U.S. and Canadian financial institutions of which US $7.8 million was utilized as at December 31, 1999. The effective interest rate on the used portion of the revolving credit facilities was 8.0% as at December 31, 1999 (8.0% as at December 31, 1998). 14. LONG-TERM DEBT Long-term debt consists of the following:
1999 1998 a) $137,000,000 Series A and B Senior Notes $ 137,000 $ - b) $137,000,000 Senior Notes 137,000 137,000 c) $8,000,000 Series 3 Notes 8,000 33,000 d) Bank loan under a revolving credit facility 50,000 33,001 e) Other debt 6,094 8,843 338,094 211,844 Less Current portion of long-term debt 2,079 2,002 $ 336,015 $ 209,842
a) Series A and B Senior Notes Senior Unsecured Notes, bearing interest at an average rate of 7.78%, payable semi-annually. The Series A $25.0 million Notes are repayable on May 31, 2005 and the Series B $112.0 million Notes are repayable in semi-annual amounts between November 30, 2005 and May 31, 2009. b) Senior Notes Senior Unsecured Notes, bearing interest at 6.82%, payable semi-annually, maturing March 31, 2008. 14. LONG-TERM DEBT (Continued) c) Series 3 Notes Senior Unsecured Notes, bearing interest at an effective rate of 8.08% (7.78% in 1998), payable semi-annually. These Notes mature on June 1, 2001. The Series 1 and 2 Senior Unsecured Notes were repaid during the year with a portion of the proceeds from the Series A and B Senior Unsecured Notes. d) Bank Loan Under a Revolving Credit Facility Senior unsecured bank loan under a $50.0 million revolving credit facility maturing July 15, 2001. This loan bears interest at U.S. prime rate or LIBOR plus a premium varying from 0.4% to 0.625%. As at December 31, 1999, the effective interest rate pertaining to the loan was 7.0% (6.9% in 1998). e) Other Debt Other debt consisting of government loans, mortgage loans in a joint venture, obligations related to capitalized leases and other loans at fixed and variable interest rates ranging from interest-free to 8.25% and requiring periodic principal repayments through 2008. 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: 2000 $ 2,079 2001 59,531 2002 1,242 2003 463 2004 422 Thereafter 274,357 $ 338,094
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, 1999 and 1998 are:
1999 1998 Fair Carrying Fair Carrying value amount value amount $ 333,193 $ 338,094 $ 221,154 $211,844
15. OTHER LIABILITIES
December 31, 1999 1998 Provision for future site rehabilitation costs $ 4,500$ $ 4,500 Future income tax liabilities 37,718 26,972 Other 10,208 5,500 $ 52,426 $ 36,972
16. CAPITAL STOCK AND SHARE PURCHASE WARRANTS 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. Capital Stock - Issued and Fully Paid The changes in the number of outstanding common shares and their aggregate stated value from January 1, 1997 to December 31, 1999 were as follows:
1999 1998 1997 Number Stated Number Stated Number Stated of shares value of shares value of shares value Balance, beginning of year 25,194,333 $ 104,033 25,019,921 $ 102,861 24,446,476 $ 99,968 Shares issued for cash in public offering 3,000,000 $ 76,887 - - - - Shares purchased for cancellation (100,000) (675) - - - - Shares issued for cash upon exercise of stock options 202,059 $ 1,696 174,412 $ 1,172 573,445 $ 2,893 Balance, end of year 28,296,392 $ 181,941 25,194,333 $ 104,033 25,019,921 $ 102,861
On March 16, 1999, the Company issued 3,000,000 shares by way of a public offering at US$26.31 per share. The proceeds for the Company, after deducting underwriting commissions and transaction fees of $2,043,000, net of related income tax benefits of $1,117,000, totaled $76,887,000. During 1999, the Corporation purchased for cancellation 100,000 common shares at an average stated value per share of $6.75 under a Normal Course Issuer Bid. The excess of the purchase price over the average stated capital of the shares has been charged to retained earnings. For basic earnings per share calculation purposes, the weighted average number of common shares outstanding was 27,679,385 for the year ended December 31, 1999 (25,123,812 in 1998 and 24,819,495 in 1997). Share Purchase Warrants 1999 300,000 share purchase warrants 3,150 As partial consideration for the 1999 business acquisitions described in Note 8, 300,000 warrants were issued. These warrants, which expire on August 9, 2004, permit holders to purchase common shares of the Company at a price of $29.50 per share. Shareholders' Protection Rights Plan On May 21, 1998, the shareholders approved the extension to September 2003 of a Shareholders' Protection Rights Plan originally established in 1993. The effect of the Rights Plan is to require anyone who seeks to acquire 20 percent or more of the Company's voting shares to make a bid complying with specific provisions. Stock Options Under the Company's Amended Executive Stock Option Plan, options may be granted to the Company's executives and directors. Options expire no later than ten years after the date of granting. The plan provides that such options will vest and may be exercisable 25 percent per year over four years. Options granted during the last three years were as follows:
1999 1998 1997 Number of common shares in respect of which new options were granted 14,000 744,650 634,900 Exercise price $27.88 $16.69 to $23.26 $19.09 to$20.59
All options were granted at a price equal to the average market value on the five days immediately preceding the date the options were granted. The following table presents the situation pertaining to common shares reserved for issuance under the plan and options exercised:
1999 1998 1997 Number of common shares reserved for issuance under the plan 2,405,242 2,405,242 2,405,242 Number of shares remaining available for issuance under the plan(a) - - 484,453 Number of common shares issued pursuant to the exercised stock options 202,059 174,412 573,445 Price range at issuance $4.25 to $23.26 $4.25 to $20.59 $4.25 to $17.84
(a) As at December 31, 1999, a total of 82,708 options to purchase common shares (68,708 options as at December 31, 1998) had been granted, subject to regulatory and shareholder approval. The changes in number of options outstanding were as follows:
1999 1998 1997 Weighted average exercise price Number Number Number Balance, beginning of year $ 14.30 2,406,067 1,837,329 1,799,074 Granted $ 27.88 14,000 744,650 634,900 Exercised $ 8.18 (202,059) (174,412) (573,445) Cancelled $ 19.30 (784) (1,500) (23,200) Balance, end of year $ 15 .76 2,217,224 2,406,067 1,837,329
The following table summarizes information about options outstanding and exercisable at December 31, 1999:
Options Outstanding Options Exercisable Weighted average Range of contractual life Weighted average Weighted average exercise prices Number (in years) exercise price Number exercise price $ 4.25 to 8.58 490,132 4.8 $ 5.93 490,132 $ 5.93 $ 10.86 to 19.30 1,407,004 5.0 $ 17.58 720,136 $ 16.75 $ 19.49 to 27.88 320,088 5.0 $ 22.81 76,522 $ 22.57 2,217,224 1,286,790
17. COMMITMENTS AND CONTINGENCIES Commitments At December 31, 1999, the Company had commitments aggregating approximately $8,131,000 to 2004 for the rental of offices, warehouse space, manufacturing equipment, automobiles and other. Minimum lease payments for the next five years are $2,432,000 in 2000, $1,599,000 in 2001, $1,431,000 in 2002 and $1,344,000 in 2003 and $1,325,000 in 2004. The Company also had commitments aggregating approximately $15,200,000 for the purchase of manufacturing equipment. 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. 18. 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. 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 one year. Contribution to these plans is at the discretion of the Company. The Company contributes as well to a multi-employer plan for employees covered by collective bargaining agreements. In Canada, the Company maintains a defined contribution plan for its salaried employees. The Company contributes to the plan amounts equal to 4 percent of each participant's eligible salary. The Company has expensed $2,937,000 for these plans for the year ended December 31, 1999 ($1,367,000 and $619,000 for 1998 and 1997 respectively). Defined Benefit Plans The Company has, in the United States, two defined benefit 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 services for hourly employees. The funding policy is consistent with the funding requirements of federal laws and regulations. Plan assets consist primarily of equity securities and fixed income investments. In Canada, certain non-union hourly employees of the Company are covered by a plan which provides a fixed benefit of $10.33 ($9.15 and $8.49 in 1998 and 1997 respectively) per month for each year of service. Plan assets are invested in segregated funds, managed by an unaffiliated investment firm who places these funds in pooled accounts. The following represents the weighted average of significant assumptions used for the measurement of pension costs and projected benefit obligation:
Years Ended December 31, 1999 1998 1997 Discount rate % 7.00 % 7.00 % 7.50 Expected long-term rate of return % 8.50 % 9.50 % 9.50
There is no salary increase assumption because the remaining plans provide fixed benefits. Components of net periodic benefit cost for defined benefit plans are as follows:
Years Ended December 31, 1999 1998 1997 Service cost $ 420 $ 642 $ 39 Interest cost 804 1,954 46 Expected return on plan assets (846) (2,434) (56) Amortization of actuarial gains -- -- (1) Amortization of unrecognized prior service cost 52 49 -- Other 3 3 1 Net periodic benefit cost $ 433 $ 214 $ 29
The funded status of the plans are as follows:
December 31, 1999 1998 Benefit obligation at beginning of year $ 7,423 $ 8,773 Service cost 420 642 Interest cost 804 1,954 Business acquisition 10,294 -- Actuarial loss and other (1,852) 1,227 Benefits paid (399) (5,173) Benefit obligation at end of year $ 16,690 $ 7,423
December 31, 1999 1998 Fair value of plan assets at beginning of year $ 7,145 $ 10,524 Actual return on plan assets 1,000 1,294 Contributions received 185 500 Business acquisition 8,775 -- Benefits paid (399) (5,173) Fair value of plan assets at end of year $ 16,706 $ 7,145 Funded status of the plan $ 16 $ (278) Unrecognized actuarial gain (2,154) (138) Unrecognized prior service cost 691 734 Other (106) (106) Prepaid (accrued liability) benefit cost $ (1,553) $ 212
Post-retirement Benefits In the United States, the Company provides group health care and life insurance benefits to certain retirees. The cost of providing these benefits, which is charged against earnings on an accrual basis, amounted to $109,000 ($126,000 in 1998). 19. SEGMENT DISCLOSURES The Company manufactures and sells an extensive range of specialized polyolefin plastic packaging products primarily in Canada and in the United States. All products have to be considered part of one reportable segment as 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 revenues by country based on the location of the manufacturing facilities:
Years Ended December 31, 1999 1998 1997 Canada $ 107,072 $ 94,186 $ 93,272 United States 487,640 334,367 193,938 Other 3,333 3,390 2,110 Transfers between geographic areas (28,098) (53,913) (61,767) Total revenues $ 569,947 $ 378,030 $ 227,553
The following table presents capital assets and goodwill by country based on the locations of assets:
December 31, 1999 1998 Capital Assets Canada $ 48,016 $ 36,658 United States 296,326 213,779 Other 7,380 7,771 Total capital assets $ 351,722 $ 258,208 Goodwill Canada $ 19,053 $ 18,643 United States 198,833 154,919 Total goodwill $ 217,886 $ 173,562
No customer accounted for 10 percent or more of revenues in 1999, 1998 and 1997. 20. DIFFERENCES IN ACCOUNTING BETWEEN THE UNITED STATES OF AMERICA AND CANADA In certain respects, Canadian generally accepted accounting principles (Canadian GAAP) differ from United States generally accepted accounting principles (U.S. GAAP). a) Net Earnings and Earnings Per Share Net earnings of the Company and basic earnings per share established under Canadian GAAP, conform in all material respects to the amounts that would be reported if the financial statements would have been prepared under U.S. GAAP. Fully diluted earnings per share under U.S. GAAP is calculated using the assumption that proceeds from exercising options are used at the beginning of the year to acquire common shares of the Company at average market price. Fully diluted earnings per share established in accordance with U.S. GAAP would be as follows:
1999 1998 1997 Fully diluted earnings per share $ 0.29 $ 1.10 $ 0.35
b) Consolidated Statements of Earnings Canadian GAAP permits the disclosure of a subtotal representing "Earnings before restructuring charges and income taxes". U.S. GAAP does not permit the presentation of this subtotal. Under Canadian GAAP, the change in reporting currency effected on January 1, 1999 has been accounted for using a translation of convenience, as described in Note 2. Under U.S. GAAP, the financial statements for periods presented prior to the change in reporting currency would be translated to U.S. dollars using the current rate method, which method uses specific year-end or annual average exchange rates as appropriate. Accordingly, using the current rate method, the following amounts would have been reported for sales and cost of sales, under U.S. GAAP:
December 31, 1999 1998 Sales $ 390,007 $ 243,631 Cost of sales $ 280,588 $ 176,185
c) Consolidated Balance Sheets Under Canadian GAAP, the financial statements are prepared using the proportionate consolidation method of accounting for joint ventures. Under U.S. 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 1999, 1998 and 1997, including the impact on the consolidated balance sheets. The other differences in presentation that would be required under U.S. GAAP to the consolidated balance sheets are not viewed as significant enough to require further disclosure. d) 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. U.S. GAAP does not permit this subtotal to be presented. e) Post-retirement Benefits Other Than Pensions The following disclosure on post-retirement benefit cost components and funded status would be required under U.S. GAAP:
Year Ended December 31, 1999 1998 1997 Service cost for the year $ 21 $ 27 $ - Interest cost on accumulated post-retirement benefit obligation $ 58 $ 66 $ - Net amortization $ 30 $ 33 $ - Net post-retirement benefit cost $ 109 $ 126 $ -
December 31, 1999 1998 Benefit obligation at beginning of year $ 960 $ 827 Service cost $ 21 $ 27 Interest cost $ 58 $ 66 Business acquisition $ 41 $ - Actuarial loss (gain) $ (398) $ 100 Benefits paid $ 30 $ (60) Benefit obligation at end of year $ 712 $ 960
For measurement purposes, an 8% annual rate of increase in the per capita cost of covered health care benefits was assumed for 1999 and to gradually decrease to 5% in 2005. A 1% increase/decrease in this annual trend rate would have the following effects:
1% Increase 1% Decrease Effect on total service and interest cost components $ 2 $ (2) Effect on post-retirement benefit obligation $ 25 $ (22)
f) Accounting for Compensation Programs The Company has chosen to continue to measure compensation costs related to awards of stock options using the intrinsic value based method of accounting. Under U.S. GAAP, the Company is required to make 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 1999, 1998 and 1997 was estimated using the Black-Scholes option-pricing model, taking into account an expected life of five years, expected volatility of 25% for all periods, risk-free interest rates of 5.39% (5.27% in 1998, 5.67% in 1997) and maintenance of the existing dividend policy. A compensation charge is charged off on the vesting periods. Accordingly, the Company's net earnings, basic earnings per share and diluted earnings per share for the year ended December 31, 1999 would have been reduced, on a pro forma basis, by $2,499,000, $0.09 and $0.09 ($2,100,000, $0.08 and $0.08 respectively in 1998 and $1,567,000, $0.07 and $0.06 respectively in 1997). The weighted average fair value of options granted in 1999 was $8.79 ($5.98 in 1998 and $5.83 in 1997). The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's Amended Executive Stock Option Plan has characteristics significantly different from those of traded options and because changes in the subjective input assumptions can materially affect the fair value estimate, in Management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. g) Business Acquisition - Pro forma Disclosures As required under U.S. GAAP, the following unaudited pro forma financial information has been prepared by the Company's Management, giving effect to the SETco and CPC acquisitions, described in Note 8, as if they had taken place at the beginning of the 1998 fiscal year-end. The pro forma information is presented in response to applicable accounting rules relating to business acquisitions. It is not necessarily indicative of the actual results that would have been achieved had the acquisitions occurred as at January 1, 1998 and is not necessarily indicative of future consolidated results of the Company. The pro forma assumptions that have been reflected are limited to the inclusion of additional amortization of goodwill and capital assets arising from the acquisitions, increases in financial expenses for debt incurred to finance the acquisitions and the income tax effects of such adjustments. Assumptions that have not been included in the pro forma information are the effect of either certain decisions that have been made by the Company's Management since the date of the acquisition as well as the effect of various decisions that the Company's Management might have made at the beginning of the respective periods. In Management's opinion, because of the inability to reflect such assumptions, the pro forma net earnings and basic earnings per share data described below do not necessarily provide a reliable measure of the impact of the business acquisitions:
December 31, 1999 1998 (Unaudited) Sales $ 645,217 $ 507,200 Net earnings $ (2,497 ) $ 15,300 Basic earnings per share $ (0.09) $ 0.61
h) Consolidated Comprehensive Income As required under U.S. GAAP, the Company would have reported the following consolidated comprehensive income:
1999 1998 1997 Net earnings in accordance with U.S. GAAP $ 8,098 $ 28,751 $ 8,885 Foreign currency translation adjustments $ 3,458 $ (17,581) $ (6,414) Consolidated comprehensive income $ 11,556 $ 11,170 $ 2,471
i) New Accounting Pronouncement The Financial Accounting Standards Board (FASB) has issued SFAS No. 133 which outlines accounting and reporting standards pertaining to derivative instruments and hedging activities. For U.S. GAAP reporting purposes, this statement should be adopted for fiscal years commencing after June 15, 2000. As the Company does not presently use derivative or hedging instruments, there is no foreseen impact for the implementation of this new recommendation. BOARD OF DIRECTORS Melbourne F. Yull Chairman and Chief Executive Officer Eric E. Baker President, Miralta Capital II Inc. Gordon R. Cunningham(1) President, Cumberland Asset Management Ben J. Davenport, Jr. Chairman, First Piedmont Corporation Chairman & CEO, Chatham Oil Company Irvin Mermelstein Managing Partner, Market-Tek James A. Motley Sr.(1) Director, American National Bank & Trust Company American National Bankshares, Inc. Michael L. Richards(1) Senior Partner, Stikeman Elliott L. Robbie Shaw(1) Vice President, Nova Scotia Community College (1) Member of Audit Committee EXECUTIVE OFFICERS Melbourne F. Yull Chairman and Chief Executive Officer Andrew M. Archibald, C.A. Chief Financial Officer, Secretary, Treasurer, Vice President Administration Joseph D. Bruno Vice President, Supply Chain Management Jim Bob Carpenter President, Woven Products John T. Fain Vice President, Corporate Marketing Burgess H. Hildreth Vice President, Human Resources James A. Jackson Vice President, Chief Information Officer Lloyd W. Jones Vice President, Procurement H. Dale McSween President, Distribution Products Sal Vitale, C.A. Vice President, Finance Duncan R. Yull Vice President Sales, Distribution Products Gregory A. Yull President, Film Products Transfer Agent and Registrar Canada CIBC Mellon Trust Company 2001 University Street, 16th Floor Montreal, Quebec, Canada H3A 2A6 United States of America ChaseMellon Shareholder Services, L.L.C. 450 West 33rd Street New York, New York, USA 10001 AUDITORS Canada Raymond Chabot Grant Thornton 600 de la Gauchetiere West, Suite 1900 Montreal, Quebec, Canada H3B 4L8 United States of America Grant Thornton International 130 E. Randolf Street Chicago, Illinois, USA 60601-6203 INVESTOR INFORMATION Stock and Share Listing Common shares are listed on the New York Stock Exchange and the Toronto Stock Exchange, trading under the symbol ITP. Shareholder and Investor Relations Shareholders and investors having inquiries or wishing to obtain copies of the Company's Annual Report or other U.S. Securities Exchange Commission filings should write to: Mr. Andrew M. Archibald, C.A. Chief Financial Officer Intertape Polymer Group Inc. 110 E Montee de Liesse St. Laurent, Quebec, Canada H4T 1N4 Tel.: (514) 731-0731 E-Mail: itp$info@intertapeipg.com ANNUAL AND SPECIAL MEETINGS OF SHAREHOLDERS The Annual & Special Meeting of Shareholders will be held on Wednesday, June 21, 2000 at 4:00 P.M. at Hotel Omni Montreal, 1050 Sherbrooke Street West, Montreal, Quebec, Canada. INTERTAPE POLYMER GROUP INC. NOTICE OF ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS AND MANAGEMENT PROXY CIRCULAR TO BE HELD ON JUNE 21, 2000 INTERTAPE POLYMER GROUP INC. 110E Montee de Liesse St. Laurent, Quebec H4T 1N4 NOTICE OF ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS NOTICE IS HEREBY GIVEN that the Annual and Special Meeting (the "Meeting") of Shareholders of INTERTAPE POLYMER GROUP INC. (the "Corporation") will be held at Hotel Omni Montreal, 1050 Sherbrooke Street West, Montreal, Quebec, on June 21, 2000, at 4:00 o'clock in the afternoon, for the purposes of: (1) receiving the consolidated financial statements for the year ended December 31, 1999, together with the auditors' report thereon; (2) electing a board of eight (8) directors to serve until the next annual meeting of shareholders; (3) appointing auditors and authorizing the directors to fix their remuneration; (4) considering and, if deemed advisable, approving, ratifying and confirming amendments to the Corporation's Amended Executive Stock Option Plan; and (5) transacting such other business as may properly be brought before the Meeting. The specific details of all matters proposed to be put before the Meeting are set forth in the accompanying Management Proxy Circular. Only holders of record of common shares of the Corporation at the close of business on May 17, 2000 will be entitled to vote at the Meeting. By Order of the Board of Directors, ANDREW M. ARCHIBALD, C.A. Chief Financial Officer, Secretary, Treasurer, Vice President Administration St. Laurent, Quebec May 19, 2000 SHAREHOLDERS WHO ARE UNABLE TO BE PRESENT AT THE MEETING ARE REQUESTED TO COMPLETE AND RETURN THE ENCLOSED FORM OF PROXY IN THE ENVELOPE PROVIDED FOR THAT PURPOSE. PROXIES MUST BE RECEIVED AT THE REGISTERED OFFICE OF THE TRANSFER AGENT OF THE CORPORATION NOT LESS THAN FORTY-EIGHT (48) HOURS PRIOR TO THE MEETING. MANAGEMENT PROXY CIRCULAR SOLICITATION OF PROXIES THIS MANAGEMENT PROXY CIRCULAR (THE "CIRCULAR"), WHICH IS BEING MAILED TO SHAREHOLDERS ON OR ABOUT MAY 19, 2000, IS FURNISHED IN CONNECTION WITH THE SOLICITATION BY THE MANAGEMENT OF INTERTAPE POLYMER GROUP INC. (THE "CORPORATION") OF PROXIES TO BE USED AT THE ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS OF THE CORPORATION (THE "MEETING") TO BE HELD ON JUNE 21, 2000 AT THE TIME AND PLACE AND FOR THE PURPOSES SET FORTH IN THE ACCOMPANYING NOTICE OF ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS, OR ANY ADJOURNMENT THEREOF. The solicitation will be primarily by mail but may also be made by telephone or other means of telecommunication by regular employees of the Corporation at nominal cost. The cost of the solicitation will be borne by the Corporation. All dollar amounts set forth in this Circular are in Canadian dollars, except as otherwise indicated. APPOINTMENT OF PROXYHOLDERS AND REVOCATION OF PROXIES A SHAREHOLDER MAY APPOINT AS PROXYHOLDER A PERSON OTHER THAN THE DIRECTORS OF THE CORPORATION NAMED IN THE ACCOMPANYING FORM OF PROXY TO ATTEND AND VOTE AT THE MEETING IN HIS STEAD, AND MAY DO SO BY INSERTING THE NAME OF SUCH OTHER PERSON, WHO NEED NOT BE A SHAREHOLDER, IN THE BLANK SPACE PROVIDED IN THE FORM OF PROXY OR BY COMPLETING ANOTHER PROPER FORM OF PROXY. In order for proxies to be recognized at the Meeting, the completed forms of proxy must be received at the office of the Corporation's Canadian transfer agent, CIBC Mellon Trust Company, 2001 University Street, 16th Floor, Montreal, Quebec, not less than forty-eight (48) hours prior to the Meeting. A shareholder, or his attorney authorized in writing, who executed a form of proxy may revoke it in any manner permitted by law, including the depositing of an instrument of revocation in writing at the principal place of business of the Corporation, 110E Montee de Liesse, St. Laurent, Quebec H4T 1N4, at any time up to and including the last business day preceding the day of the Meeting or an adjournment thereof or with the Chairman of the Meeting or an adjournment thereof on the day of the Meeting but prior to the use of the proxy at the Meeting. EXERCISE OF DISCRETION BY PROXYHOLDERS THE PERSONS WHOSE NAMES ARE PRINTED ON THE ACCOMPANYING FORM OF PROXY WILL, ON A SHOW OF HANDS OR ANY BALLOT THAT MAY BE CALLED FOR, VOTE OR WITHHOLD FROM VOTING THE SHARES IN RESPECT OF WHICH THEY ARE APPOINTED IN ACCORDANCE WITH THE DIRECTION OF THE SHAREHOLDER APPOINTING THEM. IF NO CHOICE IS SPECIFIED BY THE SHAREHOLDER, THE SHARES WILL BE VOTED FOR THE ELECTION OF THE NOMINEES FOR DIRECTORS SET FORTH IN THIS CIRCULAR UNDER THE HEADING "ELECTION OF DIRECTORS," FOR THE APPOINTMENT OF THE AUDITORS SET FORTH IN THIS CIRCULAR UNDER THE heading "Appointment and Remuneration of Auditors" and in favour of the resolution approving, ratifying and confirming the amendments to the Corporation's Amended Executive Stock Option Plan described in this Circular under the heading "Amendments to the Amended Executive Stock Option Plan." THE ENCLOSED FORM OF PROXY CONFERS DISCRETIONARY AUTHORITY UPON THE PERSONS NAMED THEREIN WITH RESPECT TO AMENDMENTS OR VARIATIONS TO MATTERS IDENTIFIED IN THE NOTICE OF THE MEETING AND TO OTHER MATTERS WHICH MAY PROPERLY COME BEFORE THE MEETING. AS AT THE DATE HEREOF, MANAGEMENT KNOWS OF NO SUCH AMENDMENT, VARIATION OR OTHER MATTERS TO COME BEFORE THE MEETING. IF ANY MATTERS WHICH ARE NOT NOW KNOWN SHOULD PROPERLY COME BEFORE THE MEETING, THE PERSONS NAMED IN THE FORM OF PROXY WILL VOTE ON SUCH MATTERS IN ACCORDANCE WITH THEIR BEST JUDGMENT. SHAREHOLDER PROPOSALS FOR 2001 ANNUAL MEETING Shareholder proposals intended to be presented at the Corporation's 2001 Annual Meeting of Shareholders must be submitted for inclusion in the Corporation's proxy materials prior to May 23, 2001. 2 VOTING SHARES AND PRINCIPAL HOLDERS THEREOF As at May 17, 2000, the Corporation had 28,297,392 common shares outstanding, being the only class of shares entitled to be voted at the Meeting. Each holder of such shares is entitled to one vote for each share registered in his name as at the close of business on May 17, 2000, being the date fixed by the Board of Directors of the Corporation for the determination of the registered holders of such shares who are entitled to receive the Notice of Annual and Special Meeting of Shareholders enclosed herewith (the "Record Date"). In the event that such a shareholder transfers the ownership of any of his shares after the Record Date, the transferee of such shares shall be entitled to vote at the Meeting if he produces properly endorsed share certificates or otherwise establishes proof of his ownership of the shares and demands, not later than ten days before the Meeting, that his name be included in the list of shareholders entitled to vote. This list of shareholders will be available for inspection on and after the Record Date during usual business hours at the registered office of the Corporation and at the Meeting. To the knowledge of the directors and officers of the Corporation, no person beneficially owns or exercises control or direction over shares carrying more than 10% of the voting rights attached to all shares of the Corporation. ELECTION OF DIRECTORS The Articles of the Corporation stipulate that the Board of Directors shall consist of a minimum of one (1) and a maximum of eleven (11) directors. The entire Board of Directors currently consists of eight (8) members. Management will propose these eight (8) persons, who are named below, as nominees for election as directors to hold office until the next succeeding annual meeting of shareholders of the Corporation or until their successors are elected or appointed.
NAME AGE POSITION OR OFFICE WITH CORPORATION DIRECTOR SINCE Melbourne F. Yull(2) 59 Director, Chairman of the Board December 22, 1989(3) and Chief Executive Officer Eric E. Baker 66 Director December 22, 1989(4) Michael L. Richards(2)(5) 61 Director December 22, 1989(3) James A. Motley, Sr.(5) 71 Director February 21, 1992 Irvine Mermelstein 73 Director March 14, 1994 Ben J. Davenport, Jr.(2) 57 Director June 8, 1994 L. Robbie Shaw(2)(5) 56 Director June 8, 1994 Gordon R. Cunningham(5) 55 Director May 21, 1998 AS AT MAY 9, 2000 CONTROL OR DIRECTION OF THE CORPORATION IS EXERCISED BY MEANS OF(1) OPTIONS TO NAME COMMON SHARES PURCHASE SHARES Melbourne F. Yull(2) 422,595 644,000 Eric E. Baker 502,802 16,000 Michael L. Richards(2)(5) 76,000 16,000 James A. Motley, Sr.(5) 6,800 16,000 Irvine Mermelstein 13,140 11,000 Ben J. Davenport, Jr.(2) 18,000 16,000 L. Robbie Shaw(2)(5) 3,000 13,500 Gordon R. Cunningham(5) 6,000 7,000 1,048,337 739,500
(1) This information, not being within the knowledge of the Corporation, was furnished by the respective nominees individually. (2) Member of Compensation Committee. (3) Director of the predecessor company since 1981. (4) Director of the predecessor company since 1984. (5) Member of Audit Committee. Melbourne F. Yull, a resident of Sarasota, Florida was appointed Chairman of the Board and Chief Executive Officer on January 11, 1995, having been the President and a director of the Corporation or a predecessor thereof since 1981. Eric E. Baker, a resident of Long-Sault, Ontario, is President of Miralta Capital II Inc., a venture capital company, and is President of Almiria Capital Corp., a venture capital company. Michael L. Richards, a resident of Westmount, Quebec, is a senior partner in the law firm Stikeman Elliott, Montreal, Quebec. James A. Motley, Sr., a resident of Danville, Virginia, is a Director of American National Bank & Trust Company and American National Bankshares, Inc. and was formerly Chairman of the Board and Chief Executive Officer of the same firms. 3 Irvine Mermelstein, a resident of Tucson, Arizona is the managing partner of Market-Tek, Management Consultants. Ben J. Davenport, Jr., a resident of Chatham, Virginia, is the Chief Executive Officer of Chatham Oil Company, a distributor of oil, gasoline and propane. He also serves as Chairman and Chief Executive Officer of First Piedmont Corporation, a waste hauling business. L. Robbie Shaw, a resident of Halifax, Nova Scotia, is the Vice President of Nova Scotia Community College. Gordon R. Cunningham, a resident of Toronto, Ontario, is President of Cumberland Asset Management Corp., a discretionary management firm. If any of the above nominees is for any reason unavailable to serve as a director, proxies in favour of Management will be voted for another nominee in the discretion of the persons named in the form of proxy unless the shareholder has specified in the proxy that his shares are to be withheld from voting on the election of directors. The Board of Directors recommends a vote in favour of each of the nominees. STATEMENT OF CORPORATE GOVERNANCE PRACTICES In 1995, The Toronto Stock Exchange adopted a requirement that disclosure be made by each listed company of its corporate governance system by making reference to The Toronto Stock Exchange Guidelines for Corporate Governance (the "Guidelines"). Compliance with the Guidelines is not mandatory but each listed corporation is required to explain where its system of governance differs from the Guidelines. 1. MANDATE OF THE BOARD The mandate of the Board of Directors is to supervise the management of the business and affairs of the Corporation, including the development of major policy and strategy and the identification of the risks of the Corporation's business and implementation of the appropriate systems to manage these risks. The Board meets at least quarterly, and more frequently as required to consider particular issues or conduct specific reviews between quarterly meetings whenever appropriate. Governance responsibilities are undertaken by the Board as a whole, with certain specific responsibilities delegated to the audit and compensation committees as described below. The Board of Directors periodically invites senior operating management to attend meetings of the Board of Directors to report on their business responsibilities. 2. COMPOSITION OF THE BOARD The Corporation's Board currently consists of eight directors, five of whom are unrelated directors in accordance with the definition of an unrelated director in the Guidelines. The Board has examined its size and determined that eight is appropriate for effective decision-making. 3. CHAIR OF THE BOARD The Board is chaired by a director who is also the Chief Executive Officer of the Corporation. The Board is of the view that this does not impair its ability to act independently of management due, inter alia, to the independence of the remaining members of the Board and the role of the Board in determining its own policies, procedures and practices, and ensuring that the appropriate information is made available to the Board. 4. COMMITTEES The Board has established two committees, the Audit Committee and the Compensation Committee, to facilitate the carrying out of its duties and responsibilities and to meet applicable statutory requirements. The Guidelines recommend that the Audit Committee be made up of outside directors only and that other board committees should be comprised generally of outside directors, a majority of whom should be unrelated directors. The Audit Committee complies with the Guidelines as it is composed of four outside directors. The Compensation Committee, although composed of a majority of outside directors, as at present constituted, does not comply with the Guidelines in as much as it has two related directors and two unrelated directors. The Board has decided not to modify its composition for the reasons outlined below. 4 The following is a description of the Committees of the Board and their mandate: - AUDIT COMMITTEE The mandate of the Committee is to review the annual financial statements of the Corporation and to make recommendations to the Board of Directors in respect thereto. The Committee also reviews the nature and scope of the annual audit as proposed by the auditors and management and, with the auditors and management, the adequacy of the internal accounting control procedures and systems within the Corporation. The Committee also makes recommendations to the Board regarding the appointment of independent auditors and their remuneration and reviews any proposed change in accounting practices or policies. - COMPENSATION COMMITTEE The mandate of the Committee is described below under the heading "Report on Executive Compensation". The Chairman and Chief Executive Officer is a member of this Committee. The Board of Directors considers his participation in the Committee as essential and feels he should continue to serve on the Committee provided the other members are outside directors. 5. DECISIONS REQUIRING BOARD APPROVAL All major decisions concerning, among other things, the Corporation's corporate status, capital, debt financing, securities distributions, investments, acquisitions, divestitures and strategic alliances, are subject to approval by the Board of Directors. In particular, capital investments and other outlays of an aggregate monetary amount of one million dollars or more are subject to the prior approval of the Board of Directors. 6. DIRECTOR RECRUITMENT AND BOARD EFFECTIVENESS All the directors presently in office and proposed to be elected at the next annual meeting of shareholders have served as directors in good standing of the Corporation since 1994, other than Mr. Cunningham who was elected in 1998, and the majority of them have served since it became a reporting issuer in 1992. The Board of Directors has not adopted a formal policy for the recruitment of directors. Participation of directors is expected at all Board of Directors and Committee meetings to which they are called. Directors are asked to notify the Corporation if they are unable to attend, and attendance at meetings is duly recorded. All the directors have agreed to contribute to the evaluation of their collective as well as their individual performances. 7. SHAREHOLDER COMMUNICATION AND FEEDBACK The fundamental objective of the Corporation's shareholder communication policy is to ensure open, accessible and timely exchange of information with all shareholders respecting the business, affairs and performance of the Corporation, subject to the requirements of securities legislation in effect and other statutory and contractual obligations limiting the disclosure of such information. In order to facilitate the effective and timely dissemination of information to all shareholders, the Corporation releases its disclosed information through news wire services, the general media, telephone conferences with investment analysts and mailings to shareholders. APPOINTMENT AND REMUNERATION OF AUDITORS Raymond Chabot Grant Thornton, Chartered Accountants, who have been the auditors of the Corporation since December 22, 1989 and the auditors of the predecessor company since 1981, will be nominated for appointment as the Corporation's auditors to hold office until the next annual meeting of shareholders at such remuneration as may be fixed by the Board of Directors. Representatives of Raymond Chabot Grant Thornton will be present at the Meeting and will have an opportunity to make a statement if they desire to do so. They will also be available to respond to appropriate questions. 5 EXECUTIVE COMPENSATION 1. SUMMARY COMPENSATION TABLE The following table sets forth all compensation paid in respect of the individuals who were, at December 31, 1999, the Chief Executive Officer and the other four most highly compensated executive officers of the Corporation (the "named executive officers"). SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION AWARDS SECURITIES UNDER OTHER ANNUAL OPTIONS/SARS SALARY BONUS COMPENSATION GRANTED NAME AND PRINCIPAL POSITION YEAR $ $ ($)(1) (#) M.F. Yull 1999 Cdn $668,928 0 Cdn $164,727 0 Chairman of the Board and 1998 Cdn $610,493 Cdn $732,592 Cdn $30,431 201,006 Chief Executive Officer 1997 U.S. $303,270 Cdn $30,326 0 263,006 H.D. McSween 1999 U.S. $288,000 0 U.S. $57,642 0 President -- 1998 Cdn $289,324 Cdn $289,324 Cdn $9,949 43,123 Distribution Products 1997 Cdn $238,082 0 Cdn $16,099 78,623 A.M. Archibald 1999 Cdn $340,421 0 Cdn $74,912 0 Chief Financial Officer, 1998 Cdn $236,510 Cdn $236,510 Cdn $32,920 25,553 Secretary, Treasurer, Vice 1997 Cdn $189,520 0 Cdn $7,001 78,553 President Administration K. Rogers 1999 U.S. $160,000 0 U.S. $37,739 0 Corporate Vice President 1998 U.S. $160,000 U.S. $128,000 U.S. $4,837 35,390 1997 Cdn $197,605 0 Cdn $9,204 20,390 L.W. Jones 1999 U.S. $238,695 0 U.S. $10,328 0 Vice President -- 1998 U.S. $228,367 U.S. $228,367 U.S. $5,711 75,000 Procurement 1997 U.S. $229,872 0 U.S. $8,704 28,000
(1) Perquisites and other personal benefits do not exceed the lesser of $50,000 and 10% of the total of the annual salary and bonus for any of the named executive officers. The amounts in this column related to taxable benefits on employee loans and company contribution to the pension plan. The aggregate compensation for all executive officers and directors of the Corporation who are not "named executive officers" for the fiscal year ended December 31, 1999 amounts to U.S.$1,403,512. 2. EXECUTIVE STOCK OPTION PLAN AND STOCK APPRECIATION RIGHTS The Corporation has an ongoing Executive Stock Option Plan (the "Plan"). The Plan is administered by the Board of Directors. The shares offered under the Plan are common shares of the Corporation. The Board of Directors designates from time to time from the eligible executives those to whom options are granted and determines the number of shares covered by such options. Generally, participation in the Plan will be limited to persons holding positions that can have a significant impact on the Corporation's long-term results. The number of common shares to which the options relate will be determined by taking into account, inter alia, 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 will be 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 grant. The Plan provides that options issued thereunder shall vest 25% per year over four years. 6 There were no individual grants of stock options under the Plan and SARs during the financial year ended December 31, 1999 to the named executive officers. In 1999, options to acquire 91,026 common shares were exercised by executives, at exercise prices ranging from U.S. $4.25 to U.S. $23.26. As at December 31, 1999, options to acquire 2,217,224 common shares were outstanding under the Plan. The following table sets forth each exercise of options during the financial year ended December 31, 1999 by the named executive officers. AGGREGATED OPTION/SAR EXERCISES DURING THE FINANCIAL YEAR ENDED DECEMBER 31, 1999 AND FINANCIAL YEAR-END OPTION VALUES
VALUE OF UNEXERCISED UNEXERCISED SECURITIES AGGREGATE OPTIONS OPTIONS ACQUIRED VALUE AT FY-END AT FY-END ON EXERCISE REALIZED (#) (US $) NAME (#) ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE M.F. Yull Nil n/a 347,500/296,500 9,795,156/8,357,594 H.D. McSween Nil n/a 163,946/77,362 4,621,228/2,180,641 A.M. Archibald Nil n/a 155,536/67,150 4,384,171/1,892,791 K. Rogers 50,000 U.S. $1,340,500 80,154/41,250 2,259,341/1,162,734 L.W. Jones 41,026 U.S. $1,043,019 n/a/75,250 n/a/2,121,109
3. PENSION ARRANGEMENTS Effective January 1, 1991, the pension plan for Intertape Polymer Inc. ("IPI"), a Canadian subsidiary of the Corporation, for its salaried employees in Canada, including the named executive officers who are Canadian residents, was changed from a defined benefit plan to a defined contribution plan. Participants in the Plan were credited with either a lump sum amount in their individual accounts or had an insurance contract purchased to settle their benefit obligations at January 1, 1991. The Corporation maintains a savings retirement plan (401[k] Plan) for the benefit of substantially all of its employees in the United States of America who have been employed for at least one year. The Corporation may make a discretionary matching contribution determined each year equal to a percentage of contributions made by employees; such contributions are limited to a maximum of 6% of their compensation deposited as elective contributions. A subsidiary of the Corporation also maintains two savings retirement plans (401[k] Plans); contributions to these plans are at the discretion of the Corporation. This subsidiary contributes as well to a multi-employer plan for employees covered by collective bargaining agreements. The Corporation's expense for such savings retirement plans for the year ended December 31, 1999 was $4,266,000 ($2,092,000 in 1998, $653,000 in 1997 and $485,000 in 1996). 4. EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT On July 1, 1998, the Corporation entered into a new employment agreement with Melbourne F. Yull. Pursuant to the terms of the employment agreement, Mr. Yull agreed to continue to serve as Chairman of the Board and Chief Executive Officer of the Corporation and its subsidiaries initially at a fixed annual gross salary and subsequently at compensation levels to be reviewed annually by the Corporation in accordance with its internal policies. The agreement provides inter alia for annual bonuses based on budgeted objectives of the Corporation. The agreement also provides for the payment of 24 months of Mr. Yull's remuneration in the event of termination without cause or resignation within six months of a change of control. Further, it provides for all options for the acquisition of common shares of the Corporation previously granted to Mr. Yull to become immediately vested and exercisable in the event of his termination without cause, or his resignation within six months of a change of control, or his retirement at any time after his 60th birthday or in the event of his death, and that they must be exercised within 90 days following the effective date of such termination, resignation, retirement or death. In addition to his participation in the pension plan for IPI, the employment contract provides for Mr. Yull to receive, upon his ceasing to be an employee for any reason, a defined benefit supplementary pension annually for life equal to 2% of his average annual gross salary for the final 5 years of his employment multiplied by his years of service with IPI. 7 On June 13, 1989, predecessors of Intertape Polymer Inc. entered into an employment agreement with Lloyd W. Jones, whereby he agreed to act as President of a subsidiary as well as in such other positions within the Intertape Polymer Group as would be agreed upon between the parties. The agreement is renewed yearly for an additional one-year term and Mr. Jones' compensation is agreed upon on an annual basis, including the salary and the basis for the determination of the annual bonus. The Corporation has entered into change-in-control letter agreements dated August 8, 1996 with Messrs. McSween, Archibald, Rogers and Jones. These letter agreements provide that if, within a period of six months after a change in control of the Corporation, (a) an executive voluntarily terminates his employment with the Corporation, or (b) the Corporation terminates an executive's employment without cause, such executive will be entitled to a lump sum in the case of his resignation or an indemnity in lieu of notice in a lump sum in the case of his termination, equal to fifteen months of such executive's remuneration at the effective date of such resignation or termination. In addition, all options for the acquisition of common shares of the Corporation previously granted to such executive under the Plan shall become immediately vested and exercisable and must be exercised within 90 days following the effective date of such resignation or termination. 5. COMPOSITION OF COMPENSATION COMMITTEE Members of the Compensation Committee of the Corporation are Ben J. Davenport, Jr., Michael L. Richards, L. Robbie Shaw and Melbourne F. Yull. The Committee met once during the period from January 1, 1999 to December 31, 1999. Mr. Yull is Chairman of the Board and Chief Executive Officer of the Corporation. The members of the Compensation Committee have no interlocking relationship as contemplated in the Ontario Securities Regulations. 6. REPORT ON EXECUTIVE COMPENSATION - COMPENSATION COMMITTEE REPORT The Committee is responsible for the determination and administration of the compensation policies and levels for the executive officers of the Corporation and its subsidiaries. The recommendations of the Committee are communicated to the Board of Directors. The compensation of the Chief Executive Officer and the recommendation for the granting of stock options to executive officers are submitted to the Board of Directors for approval. Mr. Yull does not participate in the Committee's or the Board's deliberations concerning the recommendation on his own compensation. In arriving at its compensation decisions, the Committee reviews industry comparisons for similar sized companies and companies in the packaging materials sector. The Committee uses compensation surveys from an independent consultant from time to time to provide data to review and adjust its compensation policies. The compensation philosophy of the Corporation is to be competitive with similar manufacturing companies in order to attract and retain high-quality executives with the expertise and skills required in the business of the Corporation. Three primary components comprise the compensation program: basic salary, annual bonuses based on performance and long-term stock options/SARs. Base salaries are established at levels which will enable the Corporation and its subsidiaries to attract, retain and reward executive officers who can effectively contribute to the long-term success and objectives of the Corporation. The annual bonus program is formula-based and is measured against pre-determined performance targets. Awards are granted on the basis of divisional profit results, corporate results and individual performance as measured against pre-established objectives. The third component is stock options/SARs which are granted periodically at the discretion of the Board of Directors. Options/SARs are granted to provide key employees who have significant responsibility for the management, growth and future success of the Corporation with an opportunity for rewards as a result of stock price increases. To encourage continued service, the options become exercisable over four years in four equal annual installments commencing on the first anniversary of the date of the grant and the SARs only become vested on the third anniversary of the effective date of the grant. They have no value if the stock price does not appreciate. It is felt that this approach closely aligns the interests of the executives and the shareholders. Each element of compensation fulfills a different role in the attraction, retention and motivation of qualified officers and employees. 8 - CHIEF EXECUTIVE OFFICER COMPENSATION The compensation levels for the Chief Executive Officer have been designed to ensure that they are not only competitive with similar size companies and companies in the packaging materials sector, but also incorporate recognition of the Chief Executive Officer's personal contribution and leadership. The compensation of the Chief Executive Officer is reviewed each year by the Committee utilizing both financial and non-financial measurements covering performance in the following areas: financial performance, marketing, operations, human resource management, technology and strategic planning. In addition, the Committee considers compensation surveys described above when assessing the Chief Executive Officer's compensation levels. Submitted by the Committee: Ben J. Davenport, Jr. Michael L. Richards L. Robbie Shaw Melbourne F. Yull 7. PERFORMANCE GRAPH The first graph compares the yearly change in the cumulative total shareholder return over the five-year period on the Corporation's common shares with the cumulative total return of the TSE 300. The second graph compares the yearly change in the cumulative total shareholder return over the five-year period on the Corporation's common shares with the cumulative total return of the S&P 500. The cumulative total shareholder return is based on the United States dollar trading values of the common shares of the Corporation on the New York Stock Exchange. FIVE-YEAR TOTAL RETURN ON $100 INVESTMENT (DIVIDENDS REINVESTED) (Based on the Corporation's activity on The Toronto Stock Exchange) (Canadian $) $100.00 $198.61 $292.18 $278.86 $326.36 $362.19 Intertape $100.00 $114.09 $148.05 $168.20 $165.30 $219.46 TSE 300 1994 1995 1996 1997 1998 1999 Dec. 30 Dec. 29 Dec. 31 Dec. 31 Dec. 31 Dec. 30
9 FIVE-YEAR TOTAL RETURN ON $100 INVESTMENT (DIVIDENDS REINVESTED) (Based on the Corporation's activity on the New York Stock Exchange)* (US $) $100.00 $198.61 $292.18 $278.86 $326.36 $362.19 Intertape $100.00 $137.59 $169.18 $225.63 $290.11 $315.16 S&P 500 1994 1995 1996 1997 1998 1999 Dec. 30 Dec. 29 Dec. 31 Dec. 31 Dec. 31 Dec. 30
* Since August 16, 1999, IPG has traded on the NYSE. Prior to that date IPG traded on the AMEX. COMPENSATION OF DIRECTORS In 1999, directors of the Corporation, who were not officers of the Corporation, received an annual fee of $8,000 for their services as directors and a fee of $1,000 for each board meeting attended ($250 for telephone meetings). Furthermore, a total of 14,000 options to purchase common shares of the Corporation were granted to directors of the Corporation, who were not officers of the Corporation, options at an exercise price of $40.67 (U.S.$27.88) per share. INDEBTEDNESS OF DIRECTORS AND OFFICERS Officers of the Corporation are currently indebted to the Corporation in respect of interest-free loans granted for the purpose of purchasing common shares of the Corporation upon the exercise of options. Such loans are repayable not later than September 30, 2000. As at May 17, 2000, the aggregate indebtedness of all officers to the Corporation entered into in connection with the purchase of common shares was $399,531. The following table summarizes the largest amount of the loans outstanding since January 1, 1999, and the amount outstanding on May 17, 2000.
FINANCIALLY LARGEST AMOUNT ASSISTED SECURITIES COMMON OUTSTANDING AMOUNT PURCHASES DURING SHARES AS DURING OUTSTANDING FY -- DEC 31, 1999 SECURITY FOR NAME AND PRINCIPAL POSITION FY -- ENDED DEC 31, 1999 AS AT MAY 17, 1999 (#) INDEBTEDNESS M.F. Yull Chairman of the Board and Chief Executive Officer $369,218 $369,218 Nil 26,000 H.D. McSween President Distribution Products $30,313 $30,313 Nil Nil
10 DIRECTORS' AND OFFICERS' INSURANCE The Corporation maintains directors' and officers' liability insurance covering liability, including defense costs, of directors and officers of the Corporation incurred as a result of acting as such directors or officers, provided they acted honestly and in good faith with a view to the best interests of the Corporation. The current limit of insurance is $25,000,000 and an annual premium of $157,000 was paid by the Corporation in the last completed financial year with respect to the period from December 1999 to December 2000. Claims payable to the Corporation are subject to a retention of up to $250,000 per occurrence. AMENDMENTS TO EXECUTIVE STOCK OPTION PLAN The Corporation established an ongoing Executive Stock Option Plan (the "Plan") in respect of the Common Shares of the Corporation. The purpose of the Plan is to promote a proprietary interest in the Corporation among its executives, to encourage the executives to further the development of the Corporation and to assist the Corporation in attracting and retaining executives necessary for the Corporation's long term success. The Plan was amended in 1996 to comply with new rules adopted by The Toronto Stock Exchange and to allow the granting of options to existing and future directors of the Corporation who are not part of management. In 1998, the Plan was again amended to allow the granting, from time to time, on an annual basis, up to 2,000 options to the directors of the Company who are not part of management and the granting of 5,000 options to any new non-management upon becoming a director. The directors of the Corporation have now adopted a further amending resolution effective as of May 15, 2000 to increase the number of shares that may be issued under the Plan from 2,405,242 to 3,500,000 Common Shares, being approximately 12.4% of the outstanding Common Shares of the Corporation as of May 17, 2000. The Director's resolution also changes the reference in Section 6 of the Plan from the American Stock Exchange to the New York Stock Exchange effective as of August 16, 1999. The proposed amendments to the Plan are subject to the approval of regulatory authorities having jurisdiction over the Corporation's Common Shares. The Toronto Stock Exchange's rules further require that the amendments to the Plan be submitted to the shareholders of the Corporation for approval. Consequently, the following resolution will be submitted for approval by a majority of shareholders present or represented by proxy at the meeting. IT IS RESOLVED: THAT the Amended Executive Stock Option Plan of the Corporation be amended by deleting the figure "2,405,242 Shares" in Section 4 thereof and replacing same by "3,500,000 Shares" and by deleting the words "American Stock Exchange" in Section 6 thereof and replacing same by "New York Stock Exchange". INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS The Management of the Corporation is unaware of any material interest of any director or officer of the Corporation, of any management nominee for election as a director of the Corporation or of any person who beneficially owns or exercises control or direction over shares carrying more than 10% of the voting rights attached to all shares of the Corporation, or any associate or affiliate of any such person, in any transaction since the beginning of the last completed financial year of the Corporation or in any proposed transactions that has materially affected or will materially affect the Corporation or any of its affiliates. 11 APPROVAL OF DIRECTORS The contents and the sending of this Circular have been approved by the directors of the Corporation. ANDREW M. ARCHIBALD, C.A. Chief Financial Officer, Secretary, Treasurer, Vice President Administration St. Laurent, Quebec May 19, 1999 12 Certified Extract of Resolutions of the Board of Directors of INTERTAPE POLYMER GROUP INC. adopted on May 15, 2000. APPROVAL OF ANNUAL INFORMATION FORM WHEREAS the Chairman presented to the meeting an annual information form of the Corporation dated May 15, 2000. 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 of Canada in order to permit the Corporation to be able to qualify its securities for distribution through the use of a short form prospectus under the prompt offering qualification system. BE IT RESOLVED THAT 1. the English and French version of the annual information form ("AIF") of the Corporation dated May 15, 2000 presented to this meeting be and the same is hereby approved and, subject to such additions, deletions and changes therein as may be consented to by the officers and directors of the Corporation authorized to sign the certificate to be delivered pursuant to Section 5.3 of National Policy No. 47 Prompt Offering Qualification System of the Canadian Securities Administrators ("NP47") relating to the prompt offering qualification system and the use of a short form prospectus; 2. the Corporation be and it is hereby authorised to file the English and French 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 of Canada in order to qualify the Corporation as an eligible issuer under the Prompt Offering Qualification System; 3. each of the President, any Vice President or any Secretary, be and they are hereby authorized and directed for and behalf of the Corporation, to sign the certificate to be delivered pursuant to Section 5.3 of NP47; 4. 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 language versions of the AIF under the securities legislation of any of the provinces 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; 5. the Corporation 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, 1999, such Form 40-F to be substantially in the form of the draft presented to the Board of Directors, together with such changes or modifications as may be deemed necessary or appropriate by the officers of the Corporation with and upon the advice of counsel, and the officers of the Corporation be, and they each hereby are, 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 Securities and Exchange Commission, the Form 40-F and any all amendments or supplements thereto; 6. any director or officer of the Corporation be, and he is, hereby authorised 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, chief Financial Officer, Treasurer, Secretary and Vice President Administration 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 May 15, 2000 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 Montreal, Quebec, this 16th day of May, 2000. /s/ Andrew M. Archibald ------------------------------------------------ Name: Andrew M. Archibald Office: Chief Financial Office, Treasurer, Secretary, Vice President Administration Intertape Polymer Group Inc. PROXY The Management of the Corporation Solicits this Proxy The undersigned shareholder of INTERTAPE POLYMER GROUP INC. (the "Corporation") hereby appoints Melbourne F. Yull, failing whom, Michael L. Richards, or instead of the foregoing, - - -------------------------------------------------------------------------------- as the proxyholder of the undersigned to attend and act for and on behalf of the undersigned at the ANNUAL MEETING OF SHAREHOLDERS OF THE CORPORATION TO BE HELD ON JUNE 21, 2000, and at any adjournment thereof to the same extent and with the same power as if the undersigned were present in person thereat and with authority to vote and act in the said proxyholder's discretion with respect to amendments or variations to matters referred to in the notice of the Meeting and with respect to other matters which may properly come before the Meeting. THIS PROXY IS SOLICITED BY AND ON BEHALF OF THE MANAGEMENT OF THE CORPORATION. The said proxyholder is specifically directed to vote or withhold from voting the shares registered in the name of the undersigned as indicated below: (1) ELECTION OF DIRECTORS FOR all nominees listed below as a group WITHHOLD AUTHORITY to vote for all (except as marked to the contrary below) nominees listed below as a group
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE A LINE THROUGH THE NOMINEE'S NAME IN THE LIST BELOW.) Melbourne F. Yull, Eric E. Baker, Michael L. Richards, James A. Motley, Sr., Irvine Mermelstein, Ben J. Davenport, Jr., L. Robbie Shaw, Gordon R. Cunningham. (2) VOTE FOR [ ] WITHHOLD FROM VOTING [ ] IN RESPECT OF THE APPOINTMENT OF RAYMOND CHABOT GRANT THORNTON AS AUDITORS OF THE CORPORATION AND AUTHORIZING THE DIRECTORS TO FIX THEIR REMUNERATION. Date: Signature Notes: (1) This form of proxy must be executed by the shareholder or his attorney authorized in writing or, if the shareholder is a corporation, under the corporate seal or by an officer or attorney thereof duly authorized. Joint holders should each sign. Executors, administrators, trustees, etc., should so indicate when signing. If undated, this proxy is deemed to bear the date it was mailed to the shareholder. (2) A shareholder may appoint as proxyholder a person (who need not be a shareholder) other than the persons designated in this form of proxy to attend and act on his behalf at the Meeting by inserting the name of such other person in the space provided or by completing another proper form of proxy. (3) The shares represented by this proxy will, on a show of hand or any ballot that may be called for, be voted or withheld from voting in accordance with the instructions given by the shareholder; in the absence of any contrary instructions, this proxy will be voted "FOR" the itemized matters. PROXY PLEASE COMPLETE AND RETURN IN THE ENVELOPE PROVIDED. FORMULAIRE DE PROCURATION VEUILLEZ COMPLETER ET POSTER DANS L'ENVELOPPE CI-JOINTE. Le Groupe Intertape Polymer Inc. formulaire de procuration La Direction de la Societe sollicite cette Procuration Le soussigne, actionnaire de LE GROUPE INTERTAPE POLYMER INC. (la "Societe"), constitue par les presentes Melbourne F. Yull, ou a defaut, Michael L. Richards, ou, a leur place, - - -------------------------------------------------------------------------------- son fonde de pouvoir, pour assister et agir en son nom a L'ASSEMBLEE ANNUELLE DES ACTIONNAIRES DE LA SOCIETE QUI AURA LIEU LE 21 JUIN 2000 ou a toute reprise. Il lui confre tous les pouvoirs qu'il pourrait exercer s'il etait present a une telle assemblee ou reprise, avec autorite pour le fonde de pouvoir de voter et d'agir selon sa discretion quant aux modifications ou aux variations apportees aux questions enoncees dans l'avis de convocation a l'assemblee et quant a toute autre question dument soumise a l'assemblee. CETTE PROCURATION EST SOLLICITEE PAR LA DIRECTION DE LA SOCIETE ET EN SON NOM. Le fonde de pouvoir est par les presentes specifiquement autorise a exercer cette procuration afin de voter ou de s'abstenir de voter de la facon indiquee ci-dessous : (1) ELECTION DES ADMINISTRATEURS EN FAVEUR du groupe de candidats don't ABSTENTION de voter pour le groupe de les noms paraissent ci-dessous (sauf si candidats dont les noms apparaissent indique au contraire) ci-dessous.
(DIRECTIVES : POUR FAIRE EN SORTE QUE LE FONDE DE POUVOIR S'ABSTIENNE DE VOTER EN FAVEUR DE TOUT CANDIDAT, BIFFER LE NOM DU CANDIDAT EN QUESTION DANS LA LISTE CI-DESSOUS.) Melbourne F. Yull, Eric E. Baker, Michael L. Richards, James A. Motley, Sr., Irvine Mermelstein, Ben J. Davenport, Jr., L. Robbie Shaw, Gordon R. Cunningham. (2) EN FAVEUR [ ] ABSTENTION [ ] QUANT A LA NOMINATION DU CABINET RAYMOND CHABOT GRANT THORNTON COMME VERIFICATEURS DE LA SOCIETE ET QUANT A L'AUTORISATION AUX ADMINISTRATEURS DE FIXER LEUR REMUNERATION. Date: Signature Remarques : (1) Cette procuration doit etre signee par l'actionnaire ou par son mandataire autorise par ecrit. Si l'actionnaire est une societe, la procuration doit porter son sceau ou etre signee par un dirigeant ou un mandataire dument autorise. Les codetenteurs doivent tous signer. Les executeurs, administrateurs, fiduciaires et autres doivent faire mention de leur fonction lorsqu'ils signent. Une procuration non date est reputee porter la date de son envoi par la poste a l'actionnaire. (2) Un actionnaire peut nommer comme fonde de pouvoir pour assister et agir en son nom a l'assemblee une personne (qui n'a pas a etre actionnaire) autre que les personnes designies dans ce formulaire de procuration en inscrivant le nom de cette personne dans l'espace prevu ou en remplissant un autre formulaire de procuration approprie. (3) Lors d'un vote a main levee ou d'un, scrutin, les voix afferentes aux actions representees par ce formulaire de procuration seront exprimees, selon les directives donnees par l'actionnaire, en faveur ou en abstention d'une affaire; en l'absence de directives contraires, les voix afferentes aux actions seront exprimees "EN FAVEUR" des questions specifiees aux presentes. -----END PRIVACY-ENHANCED MESSAGE-----