-----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, QhU8eTbYURdKqZD+LvBMZeC4lYsMlATBybtII80hQRnuCWuPgxKW9TXrmvCh8ra5 D8dFrs02W0bwbWti5kyfkA== 0000950123-01-502757.txt : 20010521 0000950123-01-502757.hdr.sgml : 20010521 ACCESSION NUMBER: 0000950123-01-502757 CONFORMED SUBMISSION TYPE: 20-F PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010518 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERTAPE POLYMER GROUP INC CENTRAL INDEX KEY: 0000880224 STANDARD INDUSTRIAL CLASSIFICATION: CONVERTED PAPER & PAPERBOARD PRODS (NO CONTAINERS/BOXES) [2670] IRS NUMBER: 000000000 STATE OF INCORPORATION: A8 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 20-F SEC ACT: SEC FILE NUMBER: 001-10928 FILM NUMBER: 1643644 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 20-F 1 m10045e20-f.txt INTERTAPE POLYMER GROUP INC. 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 40-F ANNUAL REPORT PURSUANT TO SECTION 13(a) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year ended December 31, 2000 Commission file number: 1-10928 INTERTAPE POLYMER GROUP INC. (Exact name of Registrant as specified in its charter) Canada (Jurisdiction of incorporation or organization) 110E Montee de Liesse, St. Laurent, Quebec H4T 1N4 Canada (514) 731-0731 (Address and telephone number of Registrant's principal executive offices) Burgess H. Hildreth, 3647 Cortez Road West, Bradenton, Florida, 34219 (941) 727-5788 (Name, address and telephone number of Agent for service in the United States) Securities registered pursuant to Section 12(b) of the Act:
Title of each class: Name of each exchange on which registered: Common Shares, without nominal or New York Stock Exchange par value The Toronto Stock Exchange
Securities registered or to be registered pursuant to Section 12(g) of the Act -NONE- Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: -NONE-
For annual reports, indicate by check mark the information filed with this form: [X] Annual Information Form [X] Audited Annual Financial Statements The number of outstanding shares of each of the issuer's classes of capital stock as of December 31, 2000 is: 28,211,179 Common Shares -0- Preferred Shares 2 Indicate by check mark whether the registrant by filing the information contained in this form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934 (the "Exchange Act"). If "Yes" is marked, indicate the file number assigned to the registrant in connection with such rule. Yes [ ] No [X] Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] 2 3 EXHIBIT INDEX
Exhibit No. Description Page No. - ----------- ----------- -------- 1 Annual Information Form dated May 18, 2001....................... 4 2 2000 Annual Report, including: Audited Annual Financial Statements (Pg. 19) Management's Discussion and Analysis for 2001 (Pg. 6)......... 33 3 Auditor's Consent................................................ 77
3 EX-99.1 2 m10045ex99-1.txt ANNUAL INFORMATION FORM 1 EXHIBIT 1 Item 1. INTERTAPE POLYMER GROUP INC. ANNUAL INFORMATION FORM For the Year ended December 31, 2000 Dated: May 18, 2001 4 2 INTERTAPE POLYMER GROUP INC. ANNUAL INFORMATION FORM Table of Contents Page Item 1. Cover Page................................................. 4 Item 2. Corporate Structure........................................ 7 2.1 Name and Incorporation................................ 7 2.2 Intercorporate Relationships.......................... 7 Item 3. General Development of the Business........................ 9 3.1 History............................................... 9 3.2 Significant Acquisitions and Significant Dispositions. 11 3.3 Trends................................................ 12 3.4 Cautionary Statements and Risk Factors................ 12 Item 4. Narrative Description of the Business...................... 14 4.1 General............................................... 14 4.2 Products.............................................. 14 4.3 Sales and Marketing................................... 19 4.4 Manufacturing; Quality Control........................ 20 4.5 Equipment and Raw Materials........................... 21 4.6 Research and Development; New Products................ 21 4.7 Trademarks and Patents................................ 22 4.8 Competition........................................... 22 4.9 Environmental Regulation.............................. 22 4.10 Employees............................................. 23 4.11 Description of Property............................... 24 Item 5. Selected Consolidated Financial Information................ 25 5.1 Annual Information.................................... 25 5.2 Dividends............................................. 26 Item 6. Management's Discussion and Analysis....................... 26 5 3 Page Item 7. Market for Securities...................................... 26 Item 8. Directors and Officers..................................... 26 Item 9. Additional Information..................................... 30 Schedule A - Company Subsidiary Diagram.................................. 31 6 4 Item 2. CORPORATE STRUCTURE 2.1 NAME AND INCORPORATION The business of Intertape Polymer Group Inc. ("Intertape Polymer Group" or the "Company") was established by Melbourne F. Yull, Intertape Polymer Group's Chairman of the Board and Chief Executive Officer, when Intertape Systems Inc., a predecessor of the Company, established a pressure-sensitive tape manufacturing facility in Montreal. Intertape Polymer Group was incorporated under the Canada Business Corporations Act on December 22, 1989 under the name "171695 Canada Inc." On October 8, 1991, the Company filed a Certificate of Amendment changing its name to "Intertape Polymer Group Inc." A Certificate of Amalgamation was filed by the Company on August 31, 1993, and was amalgamated with EBAC Holdings Inc. In February 1992, Intertape Polymer Group completed an initial public offering of its Common Shares at the offering price of $5.035 (US$4.25)(after giving effect to a 2:1 stock split on June 4, 1996). The Company completed a second public offering of its Common Shares in Canada and the United States in October 1995, at the offering price of $19.75 (US$14.60). The Company completed a third public offering of its Common Shares in Canada on a "bought deal" basis in March 1999, at the offering price of $40.25 (US$26.31) per share. 2.2 INTERCORPORATE RELATIONSHIPS Intertape Polymer Group is a holding company which owns various operating companies in the United States and in Canada. Intertape Polymer Inc., a Canadian corporation, is the principal operating company for the Company's Canadian operations. Intertape, Inc., a Virginia corporation, formerly known as Intertape Polymer Corp., is the principal operating company for the Company's United States and international operations. Schedule "A" attached hereto is an organizational chart diagraming the relationship between the Company and each of its principal subsidiaries. The table below lists for each of the subsidiaries on Schedule "A" their respective jurisdiction of incorporation and the percentage of voting securities beneficially owned or over which control or direction is exercised directly or indirectly by Intertape Polymer Group. Certain subsidiaries, each of which represents not more than ten percent of consolidated assets and not more than ten percent of consolidated sales and operating revenues of the Company, and all of which, in the aggregate, represent not more than twenty percent of total consolidated assets and total consolidated sales and operating revenues of the Company at December 31, 2000, have been omitted. 7 5
Jurisdiction of Percentage of Ownership Corporation Incorporation or Control ----------- --------------- ----------------------- Intertape Polymer Group Inc. Canada Parent Intertape Polymer Inc. Canada 100% Interpack Machinery Inc. Canada 100% Spuntech Fabrics Inc. Canada 100% Intertape Inc. Delaware 100%
Jurisdiction of Percentage of Ownership Corporation Incorporation or Control ----------- --------------- ----------------------- Central Products Company Delaware 100% Cajun Bag & Supply Corp. Delaware 100% UTC Acquisition Corp. Delaware 100% Intertape Polymer Corp. Delaware 100% IPG Administrative Services Inc. Delaware 100% Intertape Woven Products S.A. de Mexico 100% Drumheath Indemnity Ltd. Barbados 100% Intertape Woven Products Services S.A. de Mexico 100% IPG Holdings LP Delaware 100% Intertape Polymer Management Corp. Florida 100% Polymer International Corp. Virginia 100% Intertape Polymer Export Inc. Barbados 100% IPG (US) Inc. Delaware 100% IPG (US) Holdings Inc. Delaware 100% Intertape International Corp. Delaware 100% O&S Jet, LLC Michigan 50% FIBC Holding Inc. Delaware 100% COIF Holding Inc. Delaware 100% IPG Technologies Inc. Delaware 100% Fibope Portuguesa-Filmes Biorientados, S.A. Portugal 50% Drumheath Company Ireland 100% Interpack International Ltd. Bermuda 100% International Container Systems, Inc. Florida 100%
8 6 ITEM 3. GENERAL DEVELOPMENT OF THE BUSINESS 3.1 HISTORY The Company has pursued a strategy of aggressive growth through both substantial capital investments and acquisitions. When the Company commenced operations in 1981, it converted purchased films into pressure-sensitive carton sealing tapes. Originally intended as a local manufacturer, management of the Company decided in the mid-1980's to take advantage of the extraordinary growth in demand for carton sealing tapes by significantly expanding its output of such product and, thereby, its customer base. Following adoption of this new business plan and over the next few years, the output of the Montreal plant doubled and a new facility was constructed in Danville, Virginia, in 1987. The Virginia plant was "upstream integrated" to include film extrusion, thereby reducing material cost. The market for carton sealing tape has continued to grow and the Danville facility is five times larger (measured in capacity) today than at the date of its construction. Even as the Company was growing its customer base in pressure-sensitive tapes, it pursued an aggressive policy of new product development to leverage its pressure-sensitive tape products. In 1992, the Company developed a new variety of speciality shrink films and purchased and installed manufacturing equipment to produce such films. The ability to manufacture its own shrink films enabled the Company to participate in the shrink film market estimated to be $500 million annually. Further, it strengthened the Company's position with its customers. The Company's entry into the stretch wrap market began with the Company's concurrent development of stretch wrap products with the processes to manufacture such products. The Company entered the stretch wrap market (estimated at $750 million annual sales in 2000) utilizing its existing customer base and distribution network. To broaden the product line and provide one-stop shopping with a "basket of products", the Company has made a series of acquisitions. Interpack Machinery Inc. ("Interpack"), a designer of automatic carton sealing equipment, was acquired by the Company in 1993. In acquiring Interpack, the Company gained technology for systems capable of utilizing large volumes of high value carton sealing tapes. Tape, Inc. was acquired in 1996 to provide a complete line of water-activated tapes. American Tape Co. ("American Tape") was acquired in 1997 bringing to the Company products including high performance masking, filament and speciality products, which mesh well with the Company's related product lines. Anchor Continental, Inc. ("Anchor") was acquired in 1998 and was a competitor of the Company for the sale of masking tapes. Rexford Paper Company ("Rexford"), a redistributor of a variety of pressure-sensitive tapes, as well as a manufacturer of water-activated tapes, was also acquired in 1998. In 1999, the Company acquired certain assets of Spinnaker Electrical Tape Company ("SETco"), bringing a new product line, pressure-sensitive electrical tapes, to the Company. In addition, in 1999, the Company also acquired Central Products Company ("CPC"), one of its competitors for the sale of both pressure-sensitive and water-activated carton sealing tapes. The combination of these various product lines enables the Company to offer the market place a range of products to service its customers' needs. Effective as of the close of business August 31, 2000, the Company acquired the assets of Olympian Tape Sales, Inc. d/b/a United Tape Company, which sells various packaging products to large retail chains. 9 7 The Company also markets products directly to the end user. Polymer International (N.S.) Inc. ("Polymer International") and International Container Systems, Inc. ("International Container") were acquired in 1989. Polymer International manufactures a wide range of coated, woven polyolefin fabrics; International Container manufactures returnable plastic cases for the beverage industry. Since acquiring Polymer International, sales of the Company's woven product line have increased five-fold, assisted in part by the development of lumber wrap and other products. In addition, two small companies (Cajun Bag & Supply Corp. and Augusta Bag & Supply Co.) were purchased to produce flexible intermediate bulk containers ("FIBC's") utilizing the Company's fabric as the prime raw material. During 2000, the Company continued its participation in two joint ventures: Fibope Portuguesa-Filmes Biorientados, S.A. ("Fibope") and IFCO-U.S., L.L.C. ("IFCO"). Fibope produces shrink films in Portugal for the European market and has doubled its manufacturing capacity since 1995. IFCO is a provider of returnable plastic cases for the produce industry. The Company, however, sold its interest in IFCO in March 2000. The capital resources generated from the IFCO sale have been utilized in other areas of the Company's business expected to provide higher rates of return. Until 1998, the majority of the Company's growth came from the sale of internally developed products. Since then, internal capacity increases are continuing throughout the organization and in all product lines due to acquisitions as well as internal growth. The Company's Utah manufacturing facility, a 115,000 square foot plant, became operational in June 1998, was expanded in 1999, and is to be expanded further in 2001. Consistent with the Company's strategy, this plant is acting not only as a producer of shrink and stretch films, but also as a distribution center for all of the Company's products with the goal to increase sales in the western United States and western Canada. The integration of the acquired facilities will continue to provide further capacity for various products. The Company is a holding company which owns various operating companies in the United States and in Canada. Intertape Polymer Inc., a Canadian corporation ("IPI"), is the principal operating company for the Company's Canadian operations. Intertape, Inc., a Virginia corporation, formerly known as Intertape Polymer Corp. ("IPC"), is the principal operating company for the Company's United States and international operations including, most notably, each of the businesses referenced in the acquisition table set forth below. In addition to internally generated growth, the Company has engaged in a series of acquisitions. The Company believes it now ranks among the leading developers and manufacturers of industrial plastic packaging products in North America. The following table illustrates the principal acquisitions completed by the Company during the last five years: 10 8
Completed Acquisitions - ------------------------------------------------------------------------------------------------------------- Annual Cost of Year Acquisitions Company Location Products - ---- -------------------- ------- -------- -------- (US$ in millions) 1996 $ 5.3 Tape, Inc. Green Bay, Wisconsin Water-activated packaging tapes 1997 $ 42.9 American Tape Co. Marysville, Michigan Pressure-sensitive Richmond, Kentucky tapes, masking tapes Anchor Continental, Columbia, South Pressure-sensitive 1998 $113.2 Inc. Carolina tapes, masking and duct tapes Rexford Paper Milwaukee, Wisconsin Pressure-sensitive Company and water-activated tapes 1999 $111.3 Central Products Menasha, Wisconsin Pressure-sensitive Company Brighton, Colorado and water-activated carton sealing tapes Spinnaker Carbondale, Illinois Pressure-sensitive Electrical Tape electrical tapes Company 2000 $ 32.2 Olympian Tape Cumming, Georgia Distribution of Sales, Inc. packaging products
3.2 SIGNIFICANT ACQUISITIONS AND SIGNIFICANT DISPOSITIONS On September 25, 2000, the Company, through UTC Acquisition Corp., a US subsidiary, completed the acquisition of substantially all of the assets of Olympian Tape Sales, Inc. d/b/a United Tape Company ("United Tape"). United Tape is a distributor of a wide range of packaging products with facilities in Cumming, Georgia. The purchase price was approximately US $32.2 million, US $4 million of which was paid through the issuance of the Company's common stock. Funding for the remaining portion of the purchase price was provided by a bridge loan from a Canadian institution. The acquisition of United Tape has facilitated the growth of the Company's retail product business and has enabled the Company to become an integrated supplier of the retail market by serving it directly. Further, unlike most acquisitions made by the Company, by remaining a stand alone operation with its existing management, the acquisition of United Tape provided the Company with immediate new volume, cost savings, and an experienced management team. The Company has made no significant dispositions during 2000. 11 9 3.3 TRENDS It is anticipated that the Company's gross profits will continue their upward trend and that gross margins should improve from levels in 2000 during the second half of 2001 due to several factors. First, the Company's sales during 2000 were, and continue to be, impacted by the slowing economy, however it is believed that both unit volume and pricing should be returning to better levels in 2001. Second, the underlying causes of the charges taken by the Company against costs of sales in 1999 have been corrected for the most part and should not reoccur. Third, freight costs incurred by the Company should decline as a result of the implementation of Regional Distribution Centers ("RDC"). In addition, the RDC will improve customer satisfaction by providing timely delivery of complete orders to the customers. Lastly, the installation of new equipment and the implementation of various efficiency measures at Company facilities, as well as the expanded output of the Company's plants, should also have a positive effect on gross profits for 2001. 3.4 CAUTIONARY STATEMENTS AND RISK FACTORS This Annual Information Form, including Management's Discussion & Analysis incorporated herein by reference, contain certain "forward-looking statements" within the meaning of Section 27A of the U.S. Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the U.S. Securities Exchange Act of 1934, as amended (the "Exchange Act") concerning, among other things, discussions of the business strategy of Intertape Polymer Group and expectations concerning the Company's future operations, liquidity and capital resources. When used in this Annual Information Form, the words "anticipate", "believe", "estimate", "expect" and similar expressions are generally intended to identify forward-looking statements. Such forward-looking statements, including statements regarding intent, belief or current expectations of the Company or its management, are not guarantees of future performance and involve risks and uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of various factors, including those factors set forth below and other factors discussed elsewhere in this Annual Information Form and in the Management's Discussion & Analysis included in the Company's Annual Report. In addition to the other information contained in this Annual Information Form, readers should carefully consider the cautionary statements and risk factors set forth below. Implementation of Business Strategy and Acquisitions The Company's business strategy includes, among other things, increasing manufacturing capacity, developing new products, improving distribution efficiencies, and expanding into new geographic markets. There can be no assurance that the Company will be able to fully implement its strategy or that the anticipated results of this strategy will be realized. Implementation of this strategy could also be affected by a number of factors beyond the Company's control such as manufacturing difficulties, disruption of distribution systems, or general or local economic conditions. Any material failure to implement its strategy could have a material adverse effect on the Company's business, financial condition and results of operations. Further, there are no assurances that the Company's acquisitions will yield the expected benefits, revenue and earnings projections, synergies and growth prospects. In addition, there is no certainty that the Company will be successful in making additional acquisitions, realizing synergies and/or integrating the operations of acquired businesses in an effective manner. 12 10 Raw Material Prices and Availability A substantial portion of the cost of manufacturing the Company's products is the cost of raw materials, primarily petroleum based resins. Historically, there have been fluctuations in these raw material prices due to factors which are beyond the Company's control, and in some instances price movements have been volatile when associated with outside influences. There can be no assurance that the Company will be able to pass on raw material price increases in the future. Further, in the past, there have been shortages from time to time in the supply of certain resins. There can be no assurances that the Company will not be subject to such shortages in the future. Exchange Rate Risks The Company's result of operations were reported in Canadian dollars through December 31, 1998. Commencing January 1, 1999, due to increased activity in the U.S., the Company adopted the U.S. dollar as its reporting currency. Since the trading price in the United States of the Common Shares of the Company is quoted in U.S. dollars, any weakening of the Canadian dollar relative to the U.S. dollar could result in a decline in the market value and trading price of the Common Shares measured in U.S. dollars. The exchange rate between Canadian dollars and U.S. dollars has varied significantly over the last five years. New Product Development The Company's business plan involves the introduction of new products, which are both developed internally and acquired through acquisition. There can be no assurance that the market will accept these products or that competitors will not introduce similar products, which will impact the company's ability to expand its markets and generate organic growth. Shareholder Protection Rights Plan (anti-takeover provisions) On August 24, 1993, the shareholders of the Company approved a Shareholder Protection Rights Plan (the "Rights Plan"). Under the Rights Plan, one common share purchase right was issued on September 1, 1993 in respect of each outstanding common share and became issuable in respect of each common share issued thereafter. The Rights Plan was to have expired on September 1, 1998, however, on May 21, 1998, the Shareholders approved an amendment extending the term of the Rights Plan to September 1, 2003. The effect of the Rights Plan is to require anyone who seeks to acquire 20% or more of the Company's voting shares to make a bid complying with specific provisions. Thus, the provisions of the Rights Plan could prevent or delay the acquisition of the Company by means of a tender offer, a proxy contest, or otherwise, in which shareholders might receive a premium over the then current market price. 13 11 Item 4. NARRATIVE DESCRIPTION OF THE BUSINESS 4.1 GENERAL Intertape Polymer Group develops, manufactures and sells a variety of specialized polyolefin plastic packaging products. These products include INTERTAPE(R) pressure-sensitive and water-activated tape, EXLFILM(R) shrink film ("EXLFILM(R)"), STRETCHFLEX(R) stretch wrap ("STRETCHFLEX(R)") and woven products. Most of the Company's products are derived from resins that are converted into films and adhesives. Resins also are combined with paper and converted into a variety of packaging products. Vertical integration, whereby the Company performs each step in the conversion of polyolefin resins and paper into its various products, and continuous capital expenditures to increase manufacturing efficiencies allow the Company to be among the low-cost producers of each product it manufactures. This vertical integration combined with the use of high speed production equipment provides competitive advantages to the Company in flexibility and control of the manufacturing process and in speed of delivery. Management considers all of its products to be within one operational segment because all products are made basically from similar extrusion processes and differ only in the final stages of manufacturing. The Company expanded its product offering with the 1999 acquisitions of Spinnaker Electrical Tape Company, a U.S. manufacturer of pressure-sensitive electrical tapes, and Central Products Company, a U.S. manufacturer of a natural rubber pressure-sensitive tape. Central Products Company also manufactured hot melt and acrylic pressure-sensitive tapes, and a line of water-activated carton sealing tapes, giving the Company what it now believes to be 70% of the water-activated tape market. The Company's revenues are derived primarily from sales of its products in the United States and Canada, with approximately 84.6% of the Company's 2000 revenues attributable to sales from manufacturing facilities in the United States. The Company is headquartered in Montreal, Quebec and maintains approximately 2.9 million square feet of manufacturing facilities throughout the United States, Canada and Portugal. 4.2 PRODUCTS INTERTAPE(R) Carton Sealing Tape: Pressure-Sensitive and Water-Activated Tapes The Company produces a variety of pressure-sensitive plastic film carton sealing tape, ranging from commodity designed standard tape to tape tailored to meet customers' unique requirements. The product range encompasses tape with film thickness from 25 microns to 50 microns and adhesives formulated for manual as well as automatic applications. Carton sealing tape lends itself to use in high speed taping machines that replace other closure methods such as staples, hot melt glues and cold glues. The tape produced by the Company includes a wide range of customized colored and printed tape, as well as tape designed for cold temperature applications and label protection. 14 12 The Company believes that it is one of the leading manufacturers of pressure-sensitive carton sealing tape and further believes that it is the only manufacturer in North America of all three types of adhesives; hot melt, acrylic, and natural rubber. Carton sealing tape is manufactured and sold under the INTERTAPE(R) name to industrial distributors and manufactured for other customers for sale under private labels. It is produced at the Company's Danville, Montreal, Richmond and Columbia facilities and is utilized by end-users for sealing corrugated cartons. Geographic territories in which the Company markets its products are serviced by sales personnel and manufacturers' representatives coordinated by regional managers. Distributors are appointed on a basis designed to achieve market penetration of both commodity and higher grade products. In 1994, the Company commenced efforts to utilize its expanded production capacity and field support to begin to penetrate the United States west coast and the western Canadian markets and continues to increase its sales force for these markets. The Company expects its centralized warehouse distribution system in the Tremonton, Utah facility will continue to enhance these efforts. In addition, the Company exports its product to Europe, Asia, Central America and South America. The Company's acquisition in 1993 of the assets of Interpack, a manufacturer of equipment used to apply pressure-sensitive tapes to seal corrugated boxes, enabled the Company to further enhance the mix of products it offered to its customers. The Company introduced a line of machines designed for the high-speed application of pressure-sensitive carton sealing tape in January 1994 and has continued to enhance and improve its equipment designs. In 1996, the acquisition of Tape, Inc. added a complete range of water-activated adhesive tapes to the Company's product mix. This product line is generally sold through the same distribution network as pressure-sensitive carton sealing tape which has allowed the Company to increase its market penetration of this product. The Company's 1999 acquisition of CPC, a producer of carton sealing tapes, should serve to provide cost reductions to the Company. In addition, the Brighton, Colorado, facility obtained in the acquisition provides the Company with the needed capacity in hot melt coating and solvent rubber products to form a basis for continued growth in these products. The Company's principal competitor for the sale of carton sealing tape products is Minnesota Mining & Manufacturing Co. ("3M"). INTERTAPE(R) Masking Tapes: Performance and General Purpose The Company added masking tapes to its product line in December 1997 through the acquisition of American Tape, a leading manufacturer of these products and expanded its position in this product line with the acquisition of Anchor in September 1998. Masking tapes are used for a variety of end-use applications which can be broadly described under two categories: general purpose and performance. 15 13 General purpose applications include packaging and bundling, and residential and commercial paint applications. Performance applications include use in painting of aircraft, cars, buses and boats, where the properties of the tape, such as high temperature resistance and clean adhesive release, are individually designed for the customer's process. The Company's processing capabilities include solvent and synthetic rubber, hot melt and acrylic adhesive alternatives. The Company believes that its unique adhesive systems provide it with a competitive advantage in this market. The main competitors for the sale of masking tapes include 3M, Shuford Mills, Inc., Industrias Tuk, S.A. de C.V., and Tesa Tape Inc. ("Tesa"). INTERTAPE(R) Reinforced Filament Tape: Performance and General Purpose In addition to masking tapes, the Company's purchases of American Tape and Anchor also introduced reinforced filament tapes and flat back tapes to the Company's product line. Reinforced, general and specialty products are manufactured at the Company's facilities in Richmond, Kentucky, Marysville, Michigan and Columbia, South Carolina which were acquired in the American Tape and Anchor acquisitions. These facilities produce filament tape using synthetic, natural rubber and hot melt adhesives coated on a variety of plastic filaments. The reinforcement is provided by fibreglass yarns laminated between two plastic substrates. Many of these filament tapes are odorless, stainless, and provide clean removal and are used in bundling, sealing, unitizing, palletizing and packaging, notably for household appliances. The Company's main competitor in the industrial filament tape market is 3M, and for commodity filament tapes the Company's main competitors are Tesa and RJM Manufacturing, Inc. Acrylic Coating In 1995, the Company completed a $7.0 million capital expenditure program for an acrylic coater and ancillary equipment design to apply acrylic based adhesives to a wide variety of substrates at its Danville, Virginia plant. These acrylic coatings, when applied to film tapes, offer extended shelf life as well as increased performance under the extremes of low and high temperatures. In addition, certain applications, such as mirror backing, utilize woven products as the base material to which acrylic coating is applied. INTERTAPE(R) Duct Tape The acquisition of Anchor provided the Company a significant capacity in the duct tape product line. Duct tapes are manufactured at the Columbia, South Carolina, facility. Approximately 75% of the duct tape volume consists of polyethylene-coated cloth. Aluminum foil type tape accounts for most of the non-polyethylene coated product sales of the Company's duct tape products. The main competitors are Tyco International, Ltd. ("Tyco") and Shurtape Technologies, Inc. 16 14 EXLFILM(R) Shrink Wrap EXLFILM(R) is a specialty plastic film which shrinks under controlled heat to conform to package shape as compared to other packaging forms that require unique machinery for different product sizes and shapes. The process provides versatility because it permits the over-wrapping of a variety of products of considerably different sizes and dimensions (such as printing and paper products, packaged foods, cassettes, toys, games and sporting goods, and hardware and housewares). The Company manufactures EXLFILM(R) at its plant in Truro, Nova Scotia, and at its Tremonton, Utah facility. The Company believes that its continued investment in equipment and product development will help it expand in this market. With the development of cross-linking technology, the Company has introduced a new line of high performance shrink film, EXLFILMPLUS(TM), which can be used to satisfy additional end user applications. The Company's shrink wrap products are sold through a select group of specialty distributors primarily to manufacturers of packaged goods and printing and paper products who package their products internally. In addition, the Company holds a 50% interest in FIBOPE, a manufacturer of shrink films in Portugal. FIBOPE utilizes similar manufacturing equipment as is currently operated by the Company in its Truro and Tremonton facilities. In addition to being served by the Company, the United States and Canadian markets for polyolefin shrink wrap are currently served by two large United States manufacturers, W.R. Grace & Co. and E.I. DuPont de Nemours & Co., and to a lesser extent by foreign manufacturers. STRETCHFLEX(R) Stretch Wrap STRETCHFLEX(R) is a multi-layer plastic film that can be stretched without application of heat. It is used industrially to wrap pallet loads of various products to ensure a solid load for shipping. The Company has the capacity to produce a total of 130 million pounds of STRETCHFLEX(R) annually at its Danville, Virginia plant and its facility in Tremonton, Utah. During 1999, the Company invested in upgrading all of its cast lines to new five-layer technology. This technology, combined with re-engineered film allows the Company to produce polyolefin stretch wrap that has higher performance while reducing manufacturing costs. The North American market for such polyolefin stretch wrap is served by a number of manufacturers, the largest of which are Tenneco Inc. and Linear Films, Inc. Industrial Electrical Tapes As a result of the Company's 1999 acquisition of certain assets of SETco, which included its Carbondale, Illinois, facility, the Company is now a manufacturer of specialty electrical and electronic tape. The new manufacturing capability and technology at the Carbondale, Illinois, facility, coupled with the Company's high temperature resistant products manufactured at its Marysville, Michigan, facility is hoped to provide the Company access to new high margin markets. 17 15 Competing manufacturers of industrial electrical tapes include 3M, Tessa, and Tyco. Finally, the Company's acquisitions have positioned the Company as a stronger supplier of industrial tape, second only, in the estimation of management, to 3M in North America, with the additional capability to provide shrink and stretch wrap, a product line 3M does not offer. The Company's status as a low-cost, high value added single source supplier to its individual distributor customer base should lead to continued strong sales growth in the intermediate future. Woven Products The Company produces a variety of finished products utilizing coated woven polyolefin fabrics, such as bags and lumber wrap, as well as coated woven polyolefin fabrics that are sold to other manufacturers which convert these fabrics into finished products, such as packaging, protective covers, pond liners, housewrap, recreational products, and temporary structures. Depending on the needs of the customer, the Company produces valve bags or open mouth bags. Valve bags have a one way self-closing filler valve inserted into one corner and are used for packaging pelletized and granular chemicals and other materials. Open mouth bags, which require a secondary closure method such as stitching, are used primarily for packaging of compressed material such as mineral fibers. NOVA-THENE(R) lumber wrap is a polyolefin fabric which is extrusion coated and printed to customer specifications. It is used in the forest products industry to package kiln-dried cut lumber. The Company believes that polyolefin products have certain advantages over traditional paper-plastic laminate products, including superior strength, ease of application, durability, better appearance and the potential to be recycled. The Company also manufactures other coated woven polyolefin fabrics that it supplies to converters which produce finished products for specific application, such as synthetic fiber packaging, temporary and permanent shelters, recreational products, protective covers, pond liners, and flame retardant lattice cloth. In 1999, the Company developed a new patented woven fabric that meets the fire retardant specifications required for human occupancy and maintains the UV specifications for extended outdoor use. This product is used in applications where PVC was the primary fabric previously used. The Company's NOVA-THENE(R) lumber wrap line competes with products manufactured by partially integrated manufacturers and by secondary converters. In addition, the Company competes with manufacturers of coated woven fabrics such as Amoco Fabrics and Fibers Company and Fabrene, Inc., which sell their products to converters. 18 16 FIBCs The Company added FIBCs (flexible intermediate bulk containers) to its product line in 1993 with the acquisition of Cajun Bag & Supply Corp. ("Cajun Bag"). To facilitate production of seamless FIBCs in the Crowley, Louisiana plant, the Company installed circular weaving equipment in 1994 in its Truro plant. The Company made additional investments in the Crowley plant in 1995 to reduce costs, increase capacity and reduce turnover. In 1996, the Company opened an FIBC plant in Edmundston, New Brunswick, Canada to meet the growing demands of the industry and purchased the assets of Augusta Bag & Supply Co. ("Augusta Bag") to add further capacity, expand market share and acquire unique manufacturing methods. In 1997, the Company initiated an organizational review of the operations of certain facilities manufacturing FIBCs and, during the latter half of 1997, approved a restructuring plan designed to improve efficiency and reduce operating costs. Specifically, while the Company will continue to produce the fabrics used to make FIBCs, the Company decided to outsource some of the conversion process to Mexico due to increased foreign competition. As a consequence, during 1997 the Company incurred a one-time charge against earnings in respect of write-downs of certain assets employed in these operations as well as goodwill associated with the Cajun Bag and Augusta Bag acquisitions. Furthering the Company's plan to increase its Mexican operations, Intertape Polymer Group acquired the Professional Manufacturing Group in Piedras Negras, Mexico, an exclusive contract packager of FIBCs for the Company since February 2000. The Company believes this acquisition will increase the Company's FIBC production, should provide the Company with a lower cost alternative to its now closed Augusta, Georgia, facility, and its Rayne, Louisiana, manufacturing facility to be closed during the second quarter of 2001, and should expand the use of the Company's woven coated fabrics in the manufacture of FIBCs, which should improve profitability. The Company has also launched two new FIBC products, PALLET-FREE(TM), which has significant cost and performance advantages compared to traditional corrugated bulk containers which compete in the same bulk product markets, and NOVA-STAT(TM), a static-dissipative FIBC. The Company believes that both of these products should provide access to new higher margin markets that require speciality high performance bags. The market for FIBCs is highly competitive and is not dominated by any single manufacturer. 4.3 SALES AND MARKETING As of December 31, 2000, the Company maintained a sales force of 128 personnel. The Company participates in industry trade shows and uses trade advertising as part of its marketing efforts. The Company's overall customer base is diverse, with no single customer accounting for more than 5% of total sales. The Company has one long term contract with a customer which accounts for less than 5% of total sales. Sales for facilities located in the United States and Canada accounted for approximately 86% and 14% of total sales, respectively, in 1999, and approximately 83% and 17% in 2000. The Company has also continued to develop its sales efforts in Europe, Asia, Central America and South America. Management does not intend to achieve more than 10% of its sales outside North America. Export sales currently represent less than 5% of total sales and are included in United States or Canadian sales depending on the manufacturing facility from which the sale originates. 19 17 The Company sales are primarily focused on distribution products and woven products. Distribution products go to market through a network of paper and packaging distributors throughout North America. Products sold into this segment include carton sealing, masking, duct and reinforced tapes, EXLFILM(R) and STRETCHFLEX(R). In order to enhance sales of its pressure-sensitive carton sealing tape, the Company also sells carton closing systems, including automatic and semi-automatic carton sealing equipment. Prior to the acquisition of Interpack, these products were manufactured by others. The Company's EXLFILM(R) and STRETCHFLEX(R) products are sold through its existing industrial distribution base primarily to manufacturers of packaged goods and printing and paper products which package their products internally. The industrial electrical tapes are sold to the electronics and electrical industries. The Company's woven products group sells its products directly to the end-users. It offers a line of lumberwrap, valve bags, FIBCs and speciality fabrics manufactured from plastic resins. The woven products group markets its products throughout North America. 4.4 MANUFACTURING; QUALITY CONTROL The Company's philosophy is, where efficient, to manufacture products from the lowest cost raw material and add value to such products by vertical integration. About 80% of the Company's products are manufactured through a process which starts with a variety of polyolefin resins and extrudes them into film for further processing. Over 50 million pounds of wide width biaxially oriented polypropylene film is extruded annually in the Company's facilities. This film is then coated in high-speed equipment with in-house-produced adhesive and cut to various widths and lengths for carton sealing tape. The same basic process applies for reinforced filament tape, which also uses polypropylene film and adhesive but has fiberglass strands inserted between the layers. Specific markets demand different adhesives and the Company manufactures acrylic solvent based rubber and "hot melt" adhesives to respond to all demands. Masking tapes utilize the same process with paper as the coating substrate. Duct tapes utilize a similar process with either polyethylene or aluminum foil type coated cloth. Intertape Polymer Group is the only North American supplier of all four technologies of carton sealing tape: hot melt, acrylic, water-activated, and natural rubber. Further, the Company is the only manufacturer of natural rubber carton sealing tape. This broad family of carton sealing tapes is further enhanced by the Company's tape application equipment which is made in the Montreal facility. The technology for basic film extrusion, essential to the low cost production of pressure-sensitive tape products, also has been utilized by the Company to expand its product line into highly technical and sophisticated films. Extrusion of up to five layers of various resins is done in four of the Company's plants. These high value added films service the shrink and stretch wrap markets, both of which have high entry barriers. 20 18 The Company maintains at each manufacturing facility a quality control laboratory and a process control program on a 24-hour basis to monitor the quality of all packaging and woven products it manufactures. At the end of 2000, four of the Company's plants were certified under ISO-9002 quality standards program, and one has been certified under ISO-9001 quality standards program. 4.5 EQUIPMENT AND RAW MATERIALS The Company purchases mostly custom designed manufacturing equipment, including extruders, coaters, finishing equipment, looms, printers, bag manufacturing machines and injection molds, from manufacturers located in the United States and Western Europe, and participates in the design and upgrading of such equipment. It is not dependent on any one manufacturer for such equipment. Polyolefin resins are a widely produced petrochemical product and are available from a variety of sources worldwide. The Company purchases raw materials from a limited number of vendors with whom, over time, it has developed long-term relationships. The Company believes that such long term relationships, together with the Company's centralized purchasing operations, have enhanced the Company's ability to obtain a continuity of supply of raw materials on competitively favorable purchase terms. Historically, fluctuations in raw material prices experienced by the Company have been passed on to its customers over time. 4.6 RESEARCH AND DEVELOPMENT; NEW PRODUCTS Prior to 1992, research and development consisted of activities related to adapting new technologies as they emerged within the various manufacturing environments. Management decided to embark upon a program, beginning in 1992, to develop new manufacturing processes, to enhance product performance and to develop new products throughout the Company. In 1994, the Company emphasized developing products for existing markets, and in 1996 established a corporate research and development group to undertake development of new products. Research and development expenses in 1998, 1999, and 2000 totaled $3,059,000, $3,901,000, and $5,109,000, respectively. The Company currently has two active research and development programs; one primarily focused on tape products and the other supporting the film, woven fabric, and FIBC development. These programs have been instrumental in the development of numerous new products including most recently, PALLET-FREE(TM) and NOVA-STAT(TM), both FIBCs. Research and development is an important factor generating internal growth for the Company. 21 19 4.7 TRADEMARKS AND PATENTS The Company markets its tape products under the registered trademark INTERTAPE(R) and various private labels. The Company's valve or open mouth bags are marketed under the registered trademark NOVA-PAC(R). Its woven polyolefin fabrics are sold under the registered trademark NOVA-THENE(R). Its shrink wrap is sold under the registered trademark EXLFILM(R). Its stretch films are sold under the registered trademark STRETCHFLEX(R). FIBC's are sold under the trademarks LeGRAND SACK(R) and CAJUN(R) BAGS. The Company has approximately seventy-two registered trademarks, principally in the United States and Canada, including trademarks acquired from American Tape, Anchor, Rexford and CPC. The Company does not have, nor does management believe it important to the Company's business to have, patent protection for its carton sealing tape products. However, the Company has pursued patents in select areas where unique products offer a competitive advantage in profitable markets, primarily in woven products and shrink wrap. The Company currently has twenty-five patents and approximately fifteen patents pending. 4.8 COMPETITION The Company competes with other manufacturers of plastic packaging products as well as manufacturers of alternative packaging products, such as paper, cardboard and paper-plastic combinations. Some of these competitors are larger companies with greater financial resources. Management believes that competition, while primarily based on price and quality, is also based on other factors, including product performance characteristics and service. No statistics, however, on the packaging market are currently publicly available. See "Products" for a discussion of the Company's main competitors. The Company believes that significant barriers to entry exist in the packaging market. Management considers the principal barriers to be: (i) the high cost of vertical integration which is necessary to operate competitively, (ii) the significant number of patents which already have been issued in respect of various processes and equipment, and (iii) the difficulties and expense of developing an adequate distribution network. 4.9 ENVIRONMENTAL REGULATION The Company manufactures and sells a variety of specialized polyolefin plastic packaging products for industrial use at its manufacturing plants throughout North America and through its joint venture in Portugal. The Company is actively promoting environmental solutions, both in the development of its products and in its own manufacturing facilities. Furthermore, the Company's operations are subject to extensive regulation. Federal and state environmental laws applicable to the Company include statutes (i) intended to allocate the cost of remedying contamination among specifically identified parties as well as to prevent future contamination (the "Comprehensive Environmental Response, Compensation, and Liability Act"); (ii) imposing national ambient standards and, in some cases, emission standards, for air pollutants which present a risk to public health or welfare (the "Federal Clean Air Act"); (iii) governing the management, treatment, storage and disposal of hazardous wastes (the "Resource Conservation and Recovery Act"); and (iv) regulating the discharge of pollutants into protected waterways (the "Clean Water Act of 1972"). The Company's use in its manufacturing processes of hazardous substances and the generation of hazardous wastes not only by the Company but by prior occupants of Company facilities suggest that hazardous substances may be present at or near certain of the Company's facilities or may come to be located there in the future. Consequently, the Company is required to monitor closely its compliance under all the various environmental regulations applicable to it. In addition, the Company arranges for the off-site disposal of hazardous substances generated in the ordinary course of its business. 22 20 Except as described below, the Company believes that all of its facilities are in material compliance with applicable environmental laws and regulations. The Company's environmental due diligence review conducted in 1997 in connection with its acquisition of American Tape revealed certain issues associated with American Tape's use of chemical solvents, primarily toluene, at the Marysville, Michigan, facility in the manufacturing process. Management undertook a comprehensive plan of investigation and remediation at the facility, with the remediation nearly complete. The Company expects the full cost of remediation to be funded through amounts available under a $2 million escrow fund established by the sellers at closing. In addition, the Marysville, Michigan, facility emits toluene and other pollutants. Approximately 95% of the toluene used is recaptured under existing solvent recovery systems or controlled by the regenerative thermal oxidizer pollution control system. The facility's emissions are within the current permitted limitations, and the Company believes that these emissions will meet the Maximum Available Control Technology requirements, which are expected to come into effect in late 2003, although some additional testing or modifications at the facility may be required. The Company believes that ultimate resolution of these matters should not have a material adverse effect on the Company's business or results of operations. 4.10 EMPLOYEES As of December 31, 2000, the Company employed approximately 3001 people, 781 of whom held either sales-related, operating or administrative positions and 2220 of whom were employed in production. These figures reflect the majority of the staff reductions effectuated by the Company in April, 2000. Approximately 66 hourly employees at the Montreal plant are unionized and are subject to a collective bargaining agreement expiring in November 2002. Approximately 113 hourly employees at the Edmundston plant became unionized in February 1997 and are subject to a collective bargaining agreement which expires on October 31, 2003. Approximately 70 hourly employees at the Green Bay plant are unionized and are subject to a collective bargaining agreement which expires on February 28, 2004. Approximately 194 hourly employees at the Marysville plant are unionized and subject to a collective bargaining agreement which expires on April 28, 2002. Approximately 167 hourly employees at the Menasha plant are unionized and subject to a collective bargaining agreement which expires July 31, 2003. Finally, approximately 50 hourly employees at the Carbondale plant are unionized and subject to a collective bargaining agreement which expires on March 4, 2003. The Company has never experienced a work stoppage and considers its employee relations to be satisfactory. 23 21 4.11 DESCRIPTION OF PROPERTY The following table sets forth the principal manufacturing and distribution facilities owned or leased by the Company as at December 31, 2000:
Area Location Use Products (sq. ft.) Title - -------------------- -------------------- ------------------------------ --------- ----------------------- United States: Bradenton, Florida Corporate Offices N/A 20,800 Owned Brighton, Colorado Manufacturing Pressure-sensitive carton 211,000 Leased to 2014 sealing tapes Carbondale, Illinois Manufacturing Pressure-sensitive tapes 193,500 Leased for $1 per acre electrical/electronic per year until 2092 with a 99-year extension option Columbia, South Manufacturing and Pressure-sensitive masking 490,000 Owned Carolina Distribution and duct tapes Cumming, Georgia Distribution Packaging products 172,000 Leased to 2005 w/option to renew to 2010 and option to purchase Danville, Virginia Manufacturing and Carton sealing tape, 281,000 Owned Distribution STRETCHFLEX(R) acrylic coating Denver, Colorado Warehouse Storage for finished goods 100,000 Leased on 6-month basis Green Bay, Wisconsin Manufacturing and Water-activated adhesive tapes 156,000 Owned Distribution Marysville, Michigan Manufacturing High performance masking, 250,000 Owned filament tape, and specialty pressure-sensitive tape Menasha, Wisconsin Manufacturing Water-activated adhesive tapes 195,000 Owned Ontario, California Warehouse Packaging products 45,630 Leased to 2003 w/option to renew Rayne, Louisiana Manufacturing and FIBCs 78,000 Leased month-to-month Distribution Richmond, Kentucky Manufacturing and Carton sealing, masking and 200,000 Owned Distribution reinforced tape San Antonio, Texas Manufacturing FIBCs 65,000 Owned Tampa, Florida Corporate offices Display and crate operations 4,000 Leased to February 2003 Tremonton, Utah Manufacturing and EXLFILM(TM) 115,000 Owned Distribution STRETCHFLEX(R)
24 22
Area Location Use Products (sq. ft.) Title -------------------- -------------------- ------------------------------ --------- ----------------------- Edmundston, New Manufacturing FIBCs 65,000 Owned Brunswick Lachine, Quebec Manufacturing Carton sealing equipment 15,000 Leased to 2002 St. Laurent, Quebec Corporate N/A 20,000 Leased to 2002 w/option Headquarters to renew for two years St. Laurent, Quebec Slitting, Warehouse Carton sealing tape 40,000 Leased to 2002 w/option to renew for two years St. Laurent, Quebec Manufacturing and Carton sealing tape 25,000 Owned Distribution Truro, Nova Scotia Manufacturing Woven products, 260,000 Owned EXLFILM (TM)
ITEM 5. SELECTED CONSOLIDATED FINANCIAL INFORMATION 5.1 ANNUAL INFORMATION The table set forth below provides a summary of the financial data for the three most recently completed financial years:
Three-year data ---------------------------------------------------------------------------- ($ millions) For the years ended December 31 2000 1999 1998 ---------------------------------------------------------------------------- US$ CDN$ US$ CDN$ US$ CDN$ Total Revenue $653,915 $ 971,325 569,947 846,770 378,030 560,808 Total Net Income 33,422 49,645 8,098 12,031 28,751 42,652 Per share 1.18 1.75 .29 .43 1.14 1.69 Diluted 1.16 1.72 .29 .43 1.10 1.63 Total Assets 845,040 1,273,560 815,006 1,183,796 622,152 952,204 Total Long-term liabilities 318,722 480,346 388,441 564,211 246,814 377,749 Cash dividends declared per share .106 .16 .106 .16 .092 .013
25 23 5.2 DIVIDENDS The Company has no written policy for the payment of dividends. Currently there are no known restrictions that could prevent the Company from paying dividends. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS Management's Discussion and Analysis is contained in the Company's 2000 Annual Report, Pages 40 to 51, attached to Form 40-F as Exhibit 2, to which this Annual Information Form is attached as Exhibit 1, and is incorporated herein by reference. ITEM 7. MARKET FOR SECURITIES The Company's Common Shares are currently traded on the New York Stock Exchange and The Toronto Stock Exchange under the symbol "ITP". The Common Shares were listed on The Toronto Stock Exchange on January 6, 1993. The Company's Common Shares were listed on the American Stock Exchange from February 21, 1992 to August 23, 1999, at which time they were listed on the New York Stock Exchange. The Common Shares are not traded on any other exchanges. Prior to the February 21, 1992 initial public offering of Common Shares, there was no public market for such shares. ITEM 8. DIRECTORS AND OFFICERS The following table sets forth the name, residence, position, principal occupations for the last five (5) years, and date first elected, of each Director of the Company as of the date hereof. Each Director serves for a term of one year and is elected at the annual shareholders' meeting. The next annual shareholders' meeting is to be held on June 20, 2001, at which time the current term of each Director will expire.
Name of First Year as Municipality of Residence Position and Occupation Director - ------------------------- ---------------------------------------- ------------- Melbourne F. Yull Director, Chairman of the Board Sarasota, Florida CEO of the Company 1989 Michael L. Richards Director Westmount, Quebec Lawyer, Senior Partner, Stikeman Elliott 1989 Ben J. Davenport, Jr. Director Chatham, Virginia Chairman, First Piedmont Corporation; Chairman & CEO, Chatham Oil Company; Chairman & CEO, First Piedmont Corporation 1994 L. Robbie Shaw Director Halifax, Nova Scotia Vice President, Nova Scotia Community College 1994 Gordon R. Cunningham Director Toronto, Ontario President, Cumberland Asset Management Corp. 1998
26 24 The following table sets forth the name, residence and position of each executive officer of the Company as of the date hereof:
Name and Municipality of Residence Position and Occupation - ------------------------- ------------------------------------------------- Andrew M. Archibald Chief Financial Officer, Secretary, Treasurer, Montreal, Quebec and Vice President Administration Joseph D. Bruno Sarasota, Florida Vice President, Supply Chain Management Jim Bob Carpenter Sarasota, Florida President, Woven Products since May 1, 1999. John T. Fain Vice President, Corporate Marketing since Bradenton, Florida October, 1999 Burgess H. Hildreth Vice President, Human Resources since October Sarasota, Florida 1998 James A. Jackson Sarasota, Florida Vice President, Chief Information Officer H. Dale McSween Sarasota, Florida President, Distribution Products Salvatore Vitale Montreal, Quebec Vice President, Finance Melbourne F. Yull Sarasota, Florida Chief Executive Officer Duncan R. Yull Sarasota, Florida Vice President, Sales-Distribution Products Gregory A. Yull Sarasota, Florida President-Film Products
27 25 The principal occupations of each executive officer for the last five (5) years is as follows: ANDREW M. ARCHIBALD has been Chief Financial Officer, Secretary, Treasurer and Vice President Administration since May 1995. He was Vice President Finance from May, 1995, to January 15, 1999. Prior thereto he served as Vice-President, Finance and Secretary of the Company since 1989. JOSEPH BRUNO has been Vice President, Supply Chain Management, since December, 1999. He was Vice President, Distribution Products, since September 1, 1998, and was Vice President, Sales & Marketing from April 1996. JIM BOB CARPENTER has been President, Woven Products, since May 1, 1999. Prior to that he was the General Manager of Polypropylene Fince Oil & Chemical Co. JOHN T. FAIN has been Vice President, Corporate Marketing, since October, 1999. He was the Director of Marketing since May, 1998, and the Marketing Manager for Distribution Products since September, 1995. BURGESS H. HILDRETH has been Vice President, Human Resources, since October, 1998. Prior to that he was the Vice President Administration of Anchor Continental, Inc. since June, 1996, and their Vice President Materials since April, 1995. JAMES A. JACKSON has been Vice-President, Chief Information Officer, since September 1, 1998. Prior to that he was the Managing Partner of Spectrum Information Management Systems since 1996. H. DALE MCSWEEN has been President, Distribution Products, since December, 1999. Prior thereto he served as Executive Vice-President and Chief Operating Officer from May 1995, and Senior Vice-President since 1990. SALVATORE VITALE has been Vice President Finance since September 1, 1998. He has been Controller of the Company since May 1997. Prior to that he was the Controller of Canadian Liquid Air. 28 26 MELBOURNE F. YULL, established the business and has been the Company's Chief Executive Officer since 1992. DUNCAN R. YULL, a son of Melbourne F. Yull, has been Vice President Sales Distribution Products, since December, 1999. Prior to that he was a Regional Sales Manager for the Company until 1997 and was the Director of Sales until December, 1999. GREGORY A. YULL, a son of Melbourne F. Yull, has been President, Film Products, since June, 1999. Prior to that he was Products Manager - Films since 1995. As of May 17, 2001, the directors and executive officers of the Company as a group owned beneficially, directly or indirectly, or exercise control or direction over, 808,165 Common Shares, representing approximately 3% of all Common Shares outstanding. In addition, the directors and executive officers as a group have 1,771,334 options to purchase Common Shares of the Company. The Board of Directors 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 Toronto Stock Exchange Guidelines for Corporate Governance (the "Guidelines") recommend, but do not require, 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 three outside directors, namely Michael L. Richards, L. Robbie Shaw, and Gordon R. Cunningham. The Compensation Committee, as presently constituted, does not comply with the Guidelines, inasmuch as it has two related directors and two unrelated directors, namely Michael L. Richards, L. Robbie Shaw, Ben J. Davenport, Jr., and Melbourne F. Yull. The Board of Directors has decided not to modify its composition for the reasons outlined below. The following is a description of the Committees of the Board of Directors and their mandate: o Audit Committee: The mandate of the Committee is to review the annual financial statements of the Company 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 Company. The Committee also makes recommendations to the Board of Directors regarding the appointment of independent auditors and their remuneration and reviews any proposed change in accounting practices or policies. o Compensation Committee: The Committee is responsible for the determination and administration of the compensation policies and levels for the executive officers of the Company 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. 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. Mr. Yull does not, however, participate in the Committee's or the Board of Directors' deliberations concerning the recommendation on his own compensation. 29 27 ITEM 9. ADDITIONAL INFORMATION The Company, upon request to its Secretary, will provide to any person or entity: (1) when the securities of the Company are in the course of a distribution under a preliminary short form prospectus or a short form prospectus; (a) one copy of the Annual Information Form of the Company, together with one copy of any document, or the pertinent pages of any document, incorporated by reference in the Annual Information Form; (b) one copy of the comparative financial statements of the Company for its most recently completed financial year for which financial statements have been filed together with the accompanying report of the auditor and one copy of the most recent interim financial statements of the Company that have been filed, if any, for any period after the end of its most recently completed financial year; (c) one copy of the information circular of the Company in respect of its most recent annual meeting of shareholders that involved the election of directors or one copy of any annual filing prepared instead of that information circular, as appropriate; and (d) one copy of any other documents that are incorporated by reference into the preliminary short form prospectus or the short form prospectus and are not required to be provided under clauses (a), (b) or (c); or (2) at any other time, one copy of any documents referred to in clauses (1)(a), (b) and (c) provided that the Company may require the payment of a reasonable charge if the request is made by a person or company who is not a security holder of the Company. Additional information, including directors' and officers' remuneration and indebtedness, principal holders of the Company's securities, options to purchase securities, and interests of insiders in material transactions, if applicable, is contained in the Company's Notice of Annual and Special Meeting of Shareholders and Management Proxy Circular for its June 20, 2001, Annual and Special Meeting of Shareholders. Additional financial information is provided in the Company's Consolidated Financial statements for the fiscal year ended December 31, 2000. 30 28 SCHEDULE A Intertape Polymer Group Subsidiary Organizational Chart available from Company upon request 31 29 UNDERTAKING. Registrant undertakes to make available, in person or by telephone, representatives to respond to inquiries made by the Commission staff, and to furnish promptly, when requested to do so by the Commission staff, information relating to: the securities registered pursuant to Form 40-F; the securities in relation to which the obligation to file an annual report on Form 40-F arises; or transactions in said securities. SIGNATURE. Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant certifies that it meets all of the requirements for filing on Form 40-F, and has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized. INTERTAPE POLYMER GROUP INC. (Registrant) /s/Andrew M. Archibald, C.A. ---------------------------------- (Signature) Name: Andrew M. Archibald, C.A. Title: Chief Financial Officer, Secretary, Treasurer, and Vice President Administration Date: May 18, 2001 32 EX-99.2 3 m10045ex99-2.txt 2000 ANNUAL REPORT 1 2000 TWO THOUSAND ANNUAL REPORT INTERTAPE POLYMER GROUP INC. [INTERTAPE POLYMER GROUP(TM) LOGO] 33 2 IPG Corporate Profile - -------------------------------------------------------------------------------- Intertape Polymer Group Inc. (IPG) is a recognized leader in the development and manufacture of specialized polyolefin plastic & paper packaging products and complementary packaging systems. Headquartered in Montreal, Quebec, the Company has strategically grown to support operations in 26 locations including 20 manufacturing facilities, with approximately 2,700 employees. IPG's advanced manufacturing technologies offer the flexibility to produce a wide range of products that reflect the needs of our customers. Products sold through IPG distributors include Intertape(R) brand hot-melt, acrylic and natural rubber pressure-sensitive carton sealing tapes, water-activated carton sealing tape, masking tape, cloth duct tape, HVAC tape, electrical/electronic tape, automotive high-performance and a variety of specialty tapes. Other products include Exlfilm(R) brand shrink film; StretchFlex(R) brand stretch wrap; Interpack(R) brand packaging equipment, carton sealers, case erectors, shrink packaging, ink jet printers and labeling systems. Examples of products sold directly to end users include a wide range of Nova(TM) brand woven polyolefin fabrics and Intertape(R) brand flexible intermediate bulk containers (FIBC). 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 a 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, retail, 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". [LOGO - INTERTAPE POLYMER GROUP(TM)] 34 3 Table of Contents - -------------------------------------------------------------------------------- Table of Contents Financial Highlights ...................................................... 2 2000 Share Trading Data ................................................... 3 Message to Shareholders ................................................... 4 Management's Discussion and Analysis ...................................... 6 Consolidated Quarterly Statements of Earnings ............................. 7 Management's Responsibility for Financial Statements ...................... 18 Auditor's Report to the Shareholders ...................................... 18 Consolidated Financial Statements ......................................... 19 IPG Locations ............................................................. 40 Other Information ........................................... Inside back cover Notice of Annual and Special Meeting ........................ Inside back cover Corporate Headquarters 110 E Montee de Liesse Montreal, Quebec Canada, H4T 1N4 Investor Relations Tel: 866-202-4713 Fax: 514-731-5477 Web: www.intertapepolymer.com Email: itp$info@intertapeipg.com Safe Harbor Statement The business, financial condition, results of operations, cash flows and prospects, and the prevailing market price and performance of the Company's common stock, may be adversely affected by a number of factors, including the matters discussed below. Certain statements and information set forth in this Annual Report as well as other written or oral statements made from time to time by the Company or by our authorized executive officers on our behalf, constitute "forward-looking statements" within the meaning of the United States Federal Private Securities Litigation Reform Act of 1995. The Company intends for its forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the United States Federal Private Securities Litigation Reform Act of 1995, and it sets forth this statement and these risk factors in order to comply with such safe harbor provisions. The reader should note that the Company's forward-looking statements speak only as of the date of this Annual Report or when made and IPG undertakes no duty or obligation to update or revise its forward-looking statements, whether as a result of new information, future events or otherwise. Although Management believes that the expectations, plans, intentions and projections reflected in its forward-looking statements are reasonable, such statements are subject to known and unknown risks, uncertainties and other factors that may cause the Company's actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. The risk, uncertainties and other factors that IPG's stockholders and prospective investors should consider include, but are not limited to, the following: the packaging industry is cyclical and is sensitive to changing economic conditions; the Company is in the midst of an industry and general economic slowdown that could materially adversely impact the Company's business; risks associated with pricing, volume and continued strength of markets where the Company's products are sold; 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 anticipated synergies; and the effect of competition on the Company's ability to maintain margins on existing or acquired operations. [LOGO - intertape polymer group(TM)] 35 4 Financial Highlights - -------------------------------------------------------------------------------- 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.)
YEARS ENDED DECEMBER 31, 2000 1999 1998 -------- -------- -------- RESULTS FROM OPERATIONS $ $ $ Consolidated sales 653,915 569,947 378,030 Net earnings (Cdn GAAP) 33,422 8,098 28,751 Net earnings (U.S. GAAP) 33,422 8,098 28,751 Cash from operations before funding of changes in non-cash working capital items 57,932 36,130 57,922 -------- -------- -------- PER COMMON SHARE Net earnings (Cdn GAAP) 1.18 0.29 1.14 Net earnings (U.S. GAAP) 1.18 0.29 1.14 Cash from operations before funding of changes in non-cash working capital items 2.05 1.31 2.31 Book value after restructuring charges (Cdn GAAP) 10.98 9.97 7.71 Book value after restructuring charges (U.S. GAAP) 10.98 9.97 7.71 -------- -------- -------- FINANCIAL POSITION Working capital 8,718 68,937 (11,313) Total assets (Cdn GAAP) 845,040 815,006 622,152 Total assets (U.S. GAAP) 845,040 815,006 622,152 Total debt 286,216 338,094 211,844 Shareholders' equity (Cdn GAAP) 309,642 282,003 194,249 Shareholders' equity (U.S. GAAP) 309,642 282,003 194,249 -------- -------- --------
[LOGO - intertape polymer group(TM)] 36 5 Financial Highlights - --------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, 2000 1999 1998 ---------- ---------- ---------- SELECTED RATIOS Working Capital 1.04 1.48 0.94 Debt/Capital Employed (Cdn GAAP) 0.48 0.55 0.52 Debt/Capital Employed (U.S. GAAP) 0.48 0.55 0.52 Return on equity (Cdn GAAP) 10.8% 2.9% 14.8% Return on equity (U.S. GAAP) 10.8% 2.9% 14.8% ---------- ---------- ---------- STOCK INFORMATION Weighted average shares o/s (Cdn GAAP)++ 28,328 27,679 25,124 Weighted average shares o/s (U.S. GAAP)++ 28,328 27,679 25,124 Toronto Stock Exchange: Market price at year end $ 11.00 $ 40.80 $ 39.00 High: 52 weeks $ 41.00 $ 46.30 $ 39.00 Low: 52 weeks $ 11.00 $ 35.50 $ 25.75 Volume: 52 weeks++ 14,053 10,611 9,361 New York Stock Exchange: Market price at year end in U.S. $ $ 7.31 $ 28.19 $ 25.50 High: 52 weeks in U.S. $ $ 28.19 $ 30.94 $ 25.50 Low: 52 weeks in U.S. $ $ 7.19 $ 24.06 $ 16.25 Volume: 52 weeks++ 4,929 1,264 1,381 ---------- ---------- ----------
++ In thousands 2000 SHARE TRADING DATA SYMBOL: ITP TORONTO STOCK EXCHANGE - ----------------------
HIGH LOW CLOSE ADV* --------- --------- --------- ------ Canadian $ # 1st Quarter $ 41.00 $ 15.20 $ 16.30 61,637 2nd Quarter $ 28.30 $ 15.80 $ 25.75 47,165 3rd Quarter $ 27.00 $ 20.00 $ 20.00 41,873 4th Quarter $ 22.00 $ 11.00 $ 11.00 73,234
NEW YORK STOCK EXCHANGE - -----------------------
HIGH LOW CLOSE ADV* --------- --------- --------- ------ U.S. $ # 1st Quarter** $ 28.19 $ 10.63 $ 11.38 23,315 2nd Quarter** $ 19.00 $ 10.81 $ 17.26 14,551 3rd Quarter** $ 18.00 $ 13.56 $ 13.56 12,463 4th Quarter** $ 14.75 $ 7.19 $ 7.31 28,283
AVERAGE DAILY VOLUME TOTAL - -------------------- ------- 1st Quarter 84,952 2nd Quarter 61,716 3rd Quarter 54,336 4th Quarter 101,517
* Average Daily Volume ** Prior to August 16, 1999 stock was traded on the American Stock Exchange (AMEX). [LOGO - intertape polymer group(TM)] 37 6 Message to Shareholders - -------------------------------------------------------------------------------- Dear Shareholders, During the first nine months, the Company focused on the integration issues that surfaced at the end of 1999. Our priority was to validate and correct our systems. This was completed during the third quarter of 2000 and the results have put us in a position of confidence with respect to asset valuation and the ability to successfully communicate with and service our customers. As a result, the Company is returning to what it does best, expanding revenues and increasing bottom line. Now we can focus on our customers and implement our strategy to provide them with unique value-added programs to reduce their transaction costs as well as improve their cash flow. In doing so, we must first regain the trust of our customers and with that, we will quickly regain revenues lost during 2000. We are already seeing results during the first quarter of 2001 with 90% plus "on-time deliveries" as opposed to 40% in 2000; a dramatic improvement which we expect to continue throughout the year. The Company has moved ahead with providing efficiencies in the supply chain. During the latter part of the year, our B2B and EDI capabilities were perfected and tested in the market. Transaction costs for both IPG and our customers, will be significantly reduced by using these tools and we expect that most of our clients will rapidly embrace this new technology. Five Regional Distribution Centers (RDCs) will swing into full operation by June 2001. These centers are designed to at least double our customers' inventory turns of IPG products. This is a value-added feature that no one in our industry can match. We of course will benefit from lower logistics costs as well as an anticipated surge in volume. Along with these improvements, the Company has concentrated on the development of new distribution channels for its new as well as existing products. In support of these efforts, the assets of United Tape Company (United) were acquired in late August. United services the $500 million plus retail market and will provide substantial growth for us in the oncoming years. We have also started to leverage our manufacturing and product development expertise into the Electronic, Aerospace, HVAC and other OEM markets; all new avenues to create growth. With all of these elements in place, the sales force has returned to its traditional aggressive mode. [UNITED LOGO] Our existing markets are continuing to grow, and I cannot help but be excited with our new product developments. We have an extremely strong product line, which has been augmented by these new and proprietary products that touch virtually all areas of the economy. This diversity by its nature will allow the Company to provide double-digit growth in relatively small bites... a very powerful advantage. [LOGO - intertape polymer group(TM)] 38 7 Message to Shareholders - -------------------------------------------------------------------------------- There are numerous examples of these new products in all areas of our business. Some of the most notable for 2000: are Exlfilmplus(TM) LTG shrink film, which revolutionized the use of light gauge shrink film; patent-pending Pallet-Free(TM) FIBCs which now provide a replacement for expensive corrugated bulk boxes; and patent-pending Nova-Stat(TM) static dissipative fabric which is used in FIBCs and other applications where there is a risk of explosion due to static discharge. Additionally, we introduced PG-511 a NEW paper masking tape combines the high performance of natural rubber adhesive with a value price. The tools to manage our business are now in place. Performance in all areas can be measured and acted on. Our focus is now growth. We will continue to realize the potential of new markets, introduce innovative products, expand and improve both manufacturing and distribution, and develop stronger customer relationships...all avenues for continued growth. Finally, the employees in every sector of our business met the challenges presented to them during the year and their dedication enabled us to quickly correct the deficiencies that hindered IPG during the integration of our acquisitions and systems. My thanks to them. /s/ Melbourne F. Yull Melbourne F. Yull Chairman & Chief Executive Officer May 19, 2001 [LOGO - intertape polymer group(TM)] 39 8 Management's Discussion and Analysis - -------------------------------------------------------------------------------- OVERVIEW 1999 On March 28, 2000, the fourth quarter and annual financial results for 1999 were released and detailed that 1999 earnings had been negatively impacted by issues related to the total integration of the new enterprise-wide resource planning system, the reorganization of customer service, and issues related to integration, transition and non-recurring charges. 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 of 1999, 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 of 1999 which impacted results for 1999 and 2000. Unit-of-measure and pricing inaccuracies resulted in improper inventory valuations and levels. Furthermore, the Company also detailed the effect on 1999 earnings of higher than anticipated costs which 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 1999 plans to eliminate duplicate warehouses until a full assessment of plant rationalization and markets was completed. These factors resulted in an unusual charge against cost of sales. An evaluation was carried out to assess the value of the account receivables and inventories due to the effect of both pricing and unit-of-measure issues. This resulted in an increase in the reserve for doubtful accounts and inventory. 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 resulted in a non-recurring charge. 2000 During the third quarter of 2000, the last of the problems set forth above that impacted 1999 earnings were overcome. During the fourth quarter of 2000 a review was conducted of receivable and inventory balances and a further charge to earnings of $9.5 million was recorded. Management believes that the identified problems related to both integration and systems difficulties have been resolved and that these charges reflect the financial impact of these issues. The Company recently integrated the operations of Spinnaker Electrical Tape Company (SETco) and Central Products and does not anticipate significant further difficulties with respect to systems integration. At various sections of the following, the discussion takes into account the 1999 and 2000 non-recurring charges. These sections have been clearly noted as including non-recurring charges. [LOGO - intertape polymer group(TM)] 40 9 Consolidated Quarterly Statements of Earnings - -------------------------------------------------------------------------------- (In thousands of U.S. dollars, except per share amounts)
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER ------------------------- ------------------------ ------------------------ ------------------------- 2000 1999 2000 1999 2000 1999 2000 1999 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- $ $ $ $ $ $ $ $ SALES 169,358 121,471 167,231 133,234 166,356 161,470 150,970 153,772 Cost of sales 131,117 86,593 126,513 96,711 121,612 118,893 121,305 143,125 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- GROSS PROFIT 38,241 34,878 40,718 36,523 44,744 42,577 29,665 10,647 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Selling, general and administrative expenses 20,032 16,098 17,891 15,959 21,306 19,918 23,863 33,355 Amortization of goodwill 1,550 1,224 1,522 1,256 1,663 1,436 1,805 1,535 Research and development 1,325 813 1,409 766 1,073 1,003 1,302 1,319 Financial expenses 5,995 5,249 6,652 4,901 7,345 5,806 7,213 6,193 Gain on sale of interest in joint venture (5,500) -- -- -- -- -- -- -- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- 23,402 23,384 27,474 22,882 31,387 28,163 34,183 42,402 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Earnings (losses) before income taxes 14,839 11,494 13,244 13,641 13,357 14,414 (4,518) (31,755) Income taxes (recovery) 4,155 3,333 3,707 3,957 3,741 4,180 (8,103) (11,774) ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- NET EARNINGS (LOSSES) 10,684 8,161 9,537 9,684 9,616 10,234 3,585 (19,981) =========== =========== =========== =========== =========== =========== =========== =========== EARNINGS (LOSS) PER SHARE Cdn GAAP - Basic - US $ 0.38 0.32 0.34 0.34 0.34 0.36 0.13 (0.71) Cdn GAAP - Diluted - US $ 0.37 0.30 0.33 0.34 0.33 0.35 0.13 (0.71) U.S. GAAP - Basic - US $ 0.38 0.32 0.34 0.34 0.34 0.36 0.13 (0.71) U.S. GAAP - Diluted - US $ 0.37 0.30 0.33 0.34 0.33 0.35 0.13 (0.71) =========== =========== =========== =========== =========== =========== =========== =========== AVERAGE NUMBER OF SHARES OUTSTANDING Cdn GAAP - Basic 28,300,781 25,836,000 28,297,621 28,296,915 28,342,803 28,531,518 28,380,530 28,356,241 Cdn GAAP - Diluted 28,879,770 26,769,000 28,716,590 29,262,328 28,763,582 29,560,516 28,565,564 28,320,327 U.S. GAAP - Basic 28,300,781 25,836,000 28,297,621 28,296,915 28,342,803 28,531,518 28,380,530 28,356,241 U.S. GAAP - Diluted 28,879,770 26,769,000 28,716,590 29,262,328 28,763,582 29,560,516 28,565,564 28,320,327 =========== =========== =========== =========== =========== =========== =========== ===========
Note: In the 4th quarter of 2000, Canadian GAAP adopted the US GAAP definition of the diluted earnings per share retroactively. [LOGO - intertape polymer group(TM)] 41 10 Management's Discussion and Analysis - -------------------------------------------------------------------------------- SALES In Millions of U.S. Dollars [Bar Graph] REVIEW OF OPERATIONS SALES Intertape Polymer Group's consolidated sales increased by 14.73% to $653.9 million for the year 2000; and by 51.0% to $570.0 million for the year 1999 from $378.0 for 1998. 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(R) 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(R) brand shrink wrap (1992); and StretchFlex(R) brand stretch wrap (1996). Examples of products sold directly to end-users include a wide range of Nova-Thene(R) brand woven polyolefin products (1989); Intertape(R) brand flexible intermediate bulk containers (FIBC) (1994). The following are the highlights of factors that contributed to changes in sales volume during 2000. o In almost all of the major product lines, selling prices generally started to fall during 1996; and this trend continued through 2000. These changes in unit selling prices are mostly in relation to raw material resin prices, which cycled with a downward trend beginning in 1995 continuing thru 2000. Consequently, increases in sales resulting from increases in unit volume were lessened in dollars by falling unit-selling prices. o Acquisitions continue to play an important role as the Company broadens its range of products. During 2000 IPG acquired the assets of United Tape Company (UTC); a company devoted to sales of various packaging products to large retail chains. Approximately $22.0 million of sales were derived from this acquisition since its acquisition effective September 1, 2000. At the same time, UTC ceased to be a customer of IPG and after September 1, 2000, revenue no longer includes IPG sales to UTC. During 1999, IPG acquired CPC, which contributed $55.5 million to the Company's revenues in that year. 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. o A limited number of new products were introduced by the Company in the period 1998 to 2000 other than those derived from acquisitions. Despite the fact that the North American economy started to slow down during the latter stages of the 3rd quarter of 2000 and has remained slow in so far as the packaging industry is concerned, Management is anticipating further increases in revenue during 2001 partially as a result of the following factors: o Intertape Polymer Group is continuing to increase its manufacturing capacities. The Company's new facility located in Tremonton, Utah is to be further expanded during 2001. Various additional capacities were installed in a number of facilities during the 2000 year as well [LOGO - intertape polymer group(TM)] 42 11 Management's Discussion and Analysis - -------------------------------------------------------------------------------- as the completion of the addition of a multi-layer coater in the Truro, Nova Scotia facility which was begun during 1999. The continuation of the integration of the previously acquired facilities in Columbia, South Carolina and Richmond, Kentucky within the Company's other tape plants will continue to provide further capacity for various products. In order to keep pace with FIBC's long-term demand, IPG continues to further expand in Mexico to gain the anticipated capacity requirements. Finally, the Company's continuous programs to reduce waste and increase running speeds which should provide additional throughput. o The Company had enjoyed unit growth in substantially all product lines under various economic conditions throughout its history. As a result of the recent economic slowdown, there were some declines in unit growth within the product mix components which are commodity products. Management believes that unit growth should resume during the latter half of 2001. o Importers continue to take advantage of revaluations in their home currencies that have the effect of lowering prices in selected North American geographical areas. In addition, the continuing strength of the US dollar vs other currencies has negatively impacted export markets during 2000. Management does not anticipate that this situation will reverse until the home currencies of these importers begin to strengthen against the U.S. dollar. GROSS PROFIT AND GROSS MARGIN The Company's gross profit excluding non-recurring amounts increased 13.1% to $162.9 million in 2000; and 35.8% to $144.1 million for 1999; and 68.4% to $106.1 million for 1998. As a percentage of sales, gross margins excluding non-recurring amounts for 1999 and 2000 decreased to 24.9% for 2000, and to 25.3% for 1999, and had increased to 28.1% for 1998 from 27.7% for 1997. For the year 2000, the following are highlights of contributing factors which lead to lower gross margins: o An important factor is the effect of the economy on the Company's commodity products. These products are subject to market driven pricing pressures. During 2000, as the economy slowed, pricing declined to some degree. In addition, the economy impacted the costs of resins which declined during the year. As commodity products sales prices bear a relationship to raw material costs, this had an additional negative effect on IPG's selling prices. o Certain of IPG's products are experiencing below normal margins and recent acquisitions have added lower margin lines to our product mix. Most notably, Stretch wrap continues to suffer from the impact of over supply and margins remain very low throughout the industry. Water-activated tapes are also a low margin product as this is a niche product with limited growth opportunities. With the acquisition of UTC, the Company took on a retail product line with margins that are lower than our historic base. o Gross profits were negatively impacted by further charges of a net amount of $9.5 million which were recorded during the fourth quarter of 2000. This is made up of additional account receivable and inventory reserves of $15.0 million less the impact of the reversal against earnings of $5.5 million of provisions which had been established in prior years related to environmental, transfer pricing and employee related benefits. During the year ended December 2000, the Company completed its review of these provisions and decided to reduce them to more appropriate levels based on third party studies. As the Company has made a series of acquisitions over the past few years, Management contracted with a third party consultant to have an extensive review conducted of its major manufacturing equipment. Their report supported the decision to standardize the useful lives of major equipment to twenty years. GROSS PROFIT In Millions of U.S. Dollars [Bar Graph] '99 and '00 numbers have been adjusted. See note in MD&A. GROSS MARGIN As a % of Sales [Bar Graph] '99 and '00 numbers have been adjusted. See note in MD&A. [LOGO - intertape polymer group(TM)] 43 12 Management's Discussion and Analysis - -------------------------------------------------------------------------------- GROSS PROFIT AND GROSS MARGIN (Continued) Previously, equipment had been depreciated from twelve to twenty years. For the year 1999, the following are highlights of contributing factors which lead to lower gross margins: o Sales were impacted during December 1999 due to the Company's customers inability to place orders and receive 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. o 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. o 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 related directly 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. o Circumstances within several product lines resulted in margins below the Company's targeted levels. Specifically, margins for StretchFlex(R) 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 of 1999 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 and $9.5 million for 2000. Had these factors not occurred, gross profits for 2000 would have been $162.9 million instead of $153.4 million; and would have been $144.1 million instead of $124.6 million for 1999. Gross margins would have been 24.9% instead of 23.4% for 2000; and 25.3% instead of 21.9% for 1999. Based on information available to Management at the current time, we anticipate that the trend of increasing gross profits for 2001 will continue and that gross margins should begin to recover during the latter half of 2001 due to: o The Company's sales have continued to be impacted by the slow economy. At this time, we anticipate that both unit volume and pricing should start to increase as the economy recovers. o 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 and 2000 have been corrected and should not reoccur during 2001. [LOGO - intertape polymer group(TM)] 44 13 Management's Discussion and Analysis - -------------------------------------------------------------------------------- o The Company has begun to implement its supply chain strategy, which should result in logistic savings gained by way of the introduction of Regional Distribution Centers (RDC). The first such RDC was opened during the last quarter of 2000 and is generating cost reductions in freight costs. The remaining four (4) RDC's are scheduled to be operational during the second quarter of 2001. The Company anticipates the RDC's will result in lower freight costs, and will increase efficiencies through complete and on-time delivery of products to our customers. o The impact of expanded plant outputs should continue during 2001 as further efficiency measures are implemented. o New equipment installed during 2000 should have a positive effect on gross profits for 2001. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, General and Administrative (SG&A) expenses increased $9.4 million to $83.1 million for 2000 from $73.7 million excluding non-recurring items for 1999; and increased $26.9 million to $73.7 million from $46.8 million for 1998. As a percentage of sales, these expenses were 12.7% for 2000, 12.9% for 1999 excluding the non-recurring items and 12.4% for 1998. These increases occurred primarily for the following reasons: THE YEAR 2000 RESULTS: o SG&A costs increased as a result of the acquisitions of UTC during 2000 and CPC during 1999. In both cases, the Company did not obtain the anticipated synergies due to the decision not to integrate these operations' systems until IPG's MIS systems stabilized. CPC was integrated during April 2001 and UTC will not be scheduled for integration before the fourth quarter of 2001. o The majority of sales costs are not driven by either sales volume or pricing. THE YEAR 1999 RESULTS: In order to fully understand the 1999 results and comparisons to prior year, both sales and the SG&A costs should take into account the following non-recurring items: o Reported sales for 1999 should take into account 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. o There are several unusual 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 primarily relates to the increase in the allowance for doubtful accounts. o 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: o Increase in SG&A costs year-over-year for 1999 and 1998 are 57.7% and 71.4%. These increases are directly related to acquisitions. SELLING, GENERAL AND ADMINISTRATIVE In Millions of U.S. Dollars [Bar Graph] The '99 number has been adjusted. See note in MD&A. SELLING, GENERAL AND ADMINISTRATIVE As a %of Sales [Bar Graph] The '99 number has been adjusted. See note in MD&A. [LOGO - intertape polymer group(TM)] 45 14 Management's Discussion and Analysis - -------------------------------------------------------------------------------- SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (Continued) o More importantly, SG&A costs for 1999 would have been $73.7 million and as a percent of sales would have been 12.9% for 1999. 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 and 2000. RESEARCH AND DEVELOPMENT Research and Development (R&D) remains an extremely important function within the Company. Taken as a percentage of sales, R&D is 0.8% for the year 2000 compared to 0.7% for 1999 and 0.8% for 1998. 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 2001 will start to see a steady rollout of significant new products into the Company's markets. OPERATING PROFIT 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 for the year 1999 and 2000, the operating profits are $79.8 million for 2000 (12.2%); $70.4 million (12.4%) for 1999, $59.3 million (15.7%) for 1998 respectively. The recent decline in operating margins is as a result of several factors. Acquisitions consummated in 1998, 1999 and 2000 have brought into the Company more products, which currently have gross margins below the Company's historic levels. Stretch-Flex(R) stretch wrap margins are under intense pressure as a result of market conditions. MIS difficulties made certain synergistic cost reductions unattainable during both 1999 and 2000. Ongoing plant integration difficulties have depressed both gross margins and operating margins for both during 1999 and 2000. Management anticipates that operating margins will expand when the 2001 synergistic cost reductions are attained, as the RDC strategy begins to reduce logistic costs, and the effects of plant integration efforts are achieved. INCOME TAX The Company's statutory income tax rate was approximately 43.0% the period from 1998 to 2000. 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 the years commencing with 1998. First, 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. Second, the Company entered into a series of transactions that resulted in permanent differences greater than prior years. It is expected that the effective tax rate for 2001 should stabilize between 23-28%. This rate depends somewhat on both there being no significant changes increases in corporate income tax rates for fiscal 2001 in Canada, the United States of America or Portugal; and that pre-tax income be at least $50.0 million. If pre-tax accounting income is less than $50.0 million, this will have the effect of reducing the effective tax rate lower than the expected percent. RESEARCH & DEVELOPMENT In Millions of U.S. Dollars [BAR GRAPH] OPERATING PROFIT In Millions of U.S. Dollars [BAR GRAPH] `99 and `00 numbers have been adjusted. See note in MD&A. OPERATING PROFIT As a % of Sales [BAR GRAPH] `99 and `00 numbers have been adjusted. See note in MD&A. [LOGO - intertape polymer group(TM)] 46 15 Management's Discussion and Analysis - -------------------------------------------------------------------------------- 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". US GAAP does not permit the presentation of this subtotal. Consequently, net earnings under both Canadian and US GAAP was $8.1 million for 1999 as compared to $28.8 million for 1998. For purposes of the ten year graphical presentation, 1997 net earnings are based on the earnings that would have been recorded as if the restructuring had not taken place; 1999 net earnings are being presented before the above highlighted negative effects on revenue, cost of sales and SG&A as a result of the MIS and plant integration difficulties; and 2000 earnings are being presented before the final effect on cost of goods sold. IPG's net earnings adjusted as per the above for the years 2000, 1999 and 1998 would have been $42.9 million, $39.2 million, and $28.8 million respectively. As a percentage of sales adjusted net earnings are 6.6% for 2000, 6.9% for 1999, and 7.6% for 1998. Canadian GAAP net earnings conform in all material respects to amounts that would have to be reported if the financial statements would have been prepared under U.S. GAAP. 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, for purposes of the ten year graphical presentation, the 1997 charge against earnings which reduced EPS by $0.49 are included in all computations of EPS for 1997. Adjusted basic EPS increased 6.5% to $1.48 for 2000 from $1.39 in 1999; and increased 21.9% to $1.14 for 1998. The weighted average number of common shares outstanding for the purpose of the basic EPS calculation was 28.3 million shares for 2000, 27.7 million shares for 1999, and 25.1 million shares for 1998. U.S. GAAP Commencing in 1997, basic EPS under U.S. GAAP is calculated in a manner consistent with Canadian GAAP. In the 4th quarter of 2000, Canadian GAAP adopted the US GAAP definition of diluted earnings per share retroactively. INCOME TAXES Effective Income Tax Rates [BAR GRAPH] NET EARNINGS - CDN GAAP In Millions of U.S. Dollars [BAR GRAPH] `97, `99 and `00 numbers have been adjusted. See note in MD&A. EPS - BASIC CDN GAAP U.S. Dollars Per Share [BAR GRAPH] `97, `99 and `00 numbers have been adjusted. See note in MD&A. [LOGO - intertape polymer group(TM)] 47 16 Management's Discussion and Analysis - -------------------------------------------------------------------------------- LIQUIDITY AND CAPITAL RESOURCES CHANGES IN CASH FLOW Cash flow from operations increased by $21.8 million to $57.9 million for 2000, and decreased $21.8 million in 1999 from $57.9 million in 1998. Of this amount, $17.9 million was used to support working capital during 2000; $10.4 million was added from the decrease in non-cash working capital items. The balance of $40.0 million in 2000 was augmented by $17.2 million through an increase in bank indebtedness of $26.5 million less $2.2 million, $4.2 million and $3.0 million used to repay long-term debt, purchase common shares for cancellation and payment of the 2000 dividend respectively. These combined sources of funds from operations and bank financing activities were used to acquire certain assets of UTC in the amount of $28.2 million; increase in fixed assets and construction in progress in the amount of $48.1 million; less the impact of the sale of certain fixed assets of $4.2 million and increases in other assets and deferred charges. 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 debts, $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 totalling $177.0 million were used to invest in capital and other assets in the amount of $67.7 million and the acquisition of CPC of $108.1 million. CREDIT FACILITIES The Company has various credit facilities, most of which expired during 2000 and have been extended until June 30th, 2001. Of the amount outstanding as at December 2000, $120.0 million were loans related to the acquisition of UTC and CPC. The Company has negotiated and accepted a term sheet with its two largest bank lenders. Currently, both IPG and these major lenders are conducting negotiations with several additional Canadian Financial Institutions with a view to syndicate a $175.0 million facility to replace the current facilities. It is anticipated that the final financing package will comprise a $50.0 million revolving facility, a $25.0 million one year term facility, and a 5 year $100.0 million term facility which will require eight semi-annual capital repayments of $12.5 million commencing eighteen months after closing, Closing is anticipated to be late June, 2001. 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 the 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 31st, 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. CASH FLOW In Millions of U.S. Dollars [BAR GRAPH] CASH FLOW FROM OPERATIONS BEFORE FUNDING NON-CASH WORKING CAPITAL ITEMS CASH FLOW In Millions of U.S. Dollars [BAR GRAPH] CASH FLOW FROM OPERATIONS AFTER FUNDING NON-CASH WORKING CAPITAL ITEMS BANK INDEBTEDNESS In Millions of U.S. Dollars [BAR GRAPH] [LOGO - intertape polymer group(TM)] 48 17 Management's Discussion and Analysis - -------------------------------------------------------------------------------- CAPITAL STOCK From time to time, various employees exercised stock options which contributed $0.2 million, $1.7 million and $1.2 million during 2000, 1999 and 1998 respectively. As part of the financing of the purchase of certain assets of UTC during the third quarter of 2000, $4.0 million worth of shares were issued from treasury at a per share price of $15.9625. During the first quarter of 1999, the Company issued 3,000,000 additional common shares at a price of CDN $40.25 per share (US $25.63 per share after issue costs) for a total cash infusion of US $76.9 million after issue costs. Proceeds were used to repay 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 $2.5 million in the stated value of the Company's issued common shares. During the fourth quarter of 2000, the Normal Course Issuer Bid was extended for another year. During 2000, 353,200 shares were purchased for cancellation which resulted in a reduction of $2.4 million in the stated value on 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 EXPENDITURES Total capital expenditures for 2000 were $48.1 million; and for 1999 were $57.2 million. There were a number of major projects either ongoing or completed during this period. o The expansion of our Truro, Nova Scotia plant began in 1999 and was completed in 2000. This expansion added much needed capacity for production of both traditional and new woven products such as vinyl replacement products. As well, new printing capacity for woven products was brought in line in 2000. o The installation of a 6th BOPP extrusion line was commercialized at the Company's Danville, Virginia facility. This enabled the Company to be completely self-sufficient in the production of film for pressure sensitive tapes for both hot-melt and acrylic based adhesives tapes. o The Virginia plant also saw the addition of a 7th cast line for the production of Stretch Films to bring the Company's capacity in this product line to more 100 million pounds. o The Company added irradiated film capacity for the production of a new type of Shrink Film in its Tremonton, Utah facility. This is a new process which broadens the markets for this film into areas that were previously supplied solely by PVC manufacturers. PVC type films represent 60% of the Shrink Film market. o 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 of finishing and packaging. BANK INDEBTEDNESS PRO FORMA FOR NEW FINANCING In Millions of U.S. Dollars [BAR GRAPH] LONG-TERM DEBT In Millions of U.S. Dollars [BAR GRAPH] LONG-TERM DEBT PRO FORMA FOR NEW FINANCING In Millions of U.S. Dollars [BAR GRAPH] [LOGO - intertape polymer group(TM)] 49 18 Management's Discussion and Analysis - -------------------------------------------------------------------------------- CAPITAL EXPENDITURES (Continued) o Expenditures in the MIS area continued in 2000 as the Company completed the migration of most of its systems onto a new enterprise platform, which is essential to the "Basket-of-Products" programs. As well, the Company continued with the role- out of Warehouse Management Systems (WMS). All major manufacturing locations and RDC's will have a WMS by the end of 2001. During 2000, the Company also started to bring the entire payroll function in house. BUSINESS ACQUISITIONS 2000 On September 1st, 2000, the Company completed the acquisition of UTC. With this acquisition IPG established a presence in the retail market for North America. Prior to the acquisition, IPG was involved to a lesser degree in this channel of distribution. The UTC acquisition has accelerated the development of this important channel. Effective September 1, 2000, the Company acquired certain assets of Olympian Tape Sales, Inc. d/b/a United Tape Company ("UTC"). UTC was a manufacturer and distributor of certain packaging products into the retail market. UTC was a long-term customer of one particular product line of IPG. The purchase price was paid for in both cash in the amount of $28.2 million and $4.0 million worth of common shares of Intertape stock from treasury. The preliminary purchase price allocation, which includes approximately $20.4 million allocated to goodwill, was based upon available information and preliminary appraisals and is subject to revision as more facts become known. Goodwill from the acquisition is being amortized over a twenty-year period. 1999 On July 30 and August 9, 1999, respectively, the Company acquired from Spinnaker Industries, Inc. (Amex: SKK) substantially all the assets of SETco 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 transactions 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. CAPITAL STOCK In Millions of U.S. Dollars [BAR GRAPH] CAPITAL EXPENDITURES In Millions of U.S. Dollars [BAR GRAPH] [LOGO - intertape polymer group(TM)] 50 19 Management's Discussion and Analysis - -------------------------------------------------------------------------------- 1998 On September 23 and October 7th, 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 paper, 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 unadjusted book value per share for the years ended 2000, 1999, and 1998 are $10.98, $9.97 and $7.71 respectively. DIVIDEND ON COMMON SHARES On May 15 2000, the Company declared an annual dividend of $0.106 per share (CDN $0.16) to shareholders of record on May 30, 2000. The dividend was paid on June 8, 2000 and amounted to approximately $3.0 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. 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. BOOK VALUE PER SHARE U.S. Dollars Per Share [BAR GRAPH] `97 and `99 numbers have been adjusted. See note in MD&A. [LOGO - intertape polymer group(TM)] 51 20 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 Canadian 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 March 19, 2001 /s/ Melbourne F. Yull /s/ Andrew M. Archibald, C.A. - ------------------------------------ ---------------------------------------- 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, 2000 and 1999 and the consolidated statements of earnings, retained earnings and cash flows for each of the years in the three-year period ended December 31, 2000. These financial statements are the responsibility of the Company's Management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by Management, as well as evaluating the overall financial statement presentation. In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2000 and 1999 and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2000 in accordance with Canadian generally accepted accounting principles. /s/ Raymond Chabot Grant Thornton - ------------------------------------------ General Partnership, Chartered Accountants Montreal, Canada March 19, 2001 [LOGO - intertape polymer group(TM)] 52 21 Consolidated Earnings and Retained Earnings - -------------------------------------------------------------------------------- CONSOLIDATED EARNINGS (In thousands of U.S. dollars; except per share amounts)
YEARS ENDED DECEMBER 31, 2000 1999 1998 ------- ------- ------- $ $ $ SALES 653,915 569,947 378,030 Cost of sales (Note 4) 500,547 445,322 271,971 ------- ------- ------- GROSS PROFIT 153,368 124,625 106,059 ======= ======= ======= Selling, general and administrative expenses (Note 4) 83,092 85,330 46,747 Amortization of goodwill 6,540 5,451 3,330 Research and development 5,109 3,901 3,059 Financial expenses (Note 5) 27,205 22,149 12,429 Gain on sale on interest in joint venture (Note 4) (5,500) -- -- ------- ------- ------- 116,446 116,831 65,565 ------- ------- ------- Earnings before income taxes 36,922 7,794 40,494 Income taxes (Note 6) 3,500 (304) 11,743 ------- ------- ------- NET EARNINGS 33,422 8,098 28,751 ======= ======= ======= EARNINGS PER SHARE Basic 1.18 0.29 1.14 Diluted 1.16 0.29 1.10
CONSOLIDATED RETAINED EARNINGS (In thousands of U.S. dollars)
YEARS ENDED DECEMBER 31, 2000 1999 1998 ------- ------- ------- $ $ $ Balance, beginning of year 88,422 85,184 58,563 ------- ------- ------- Net earnings 33,422 8,098 28,751 ------- ------- ------- 121,844 93,282 87,314 ======= ======= ======= Dividends 3,006 2,993 2,130 Premium on purchase for cancellation of Common Shares 1,872 1,867 -- ------- ------- ------- 4,878 4,860 2,130 ------- ------- ------- BALANCE, END OF YEAR 116,966 88,422 85,184 ======= ======= =======
The accompanying notes are an integral part of the consolidated financial statements. [LOGO - intertape polymer group(TM)] 53 22 Consolidated Cash Flows - -------------------------------------------------------------------------------- (In thousands of U.S. dollars)
YEARS ENDED DECEMBER 31, 2000 1999 1998 ------- ------- ------- OPERATING ACTIVITIES $ $ $ Net earnings 33,422 8,098 28,751 Non-cash items Depreciation and amortization 27,934 31,229 20,544 Future income taxes 482 (3,197) 8,627 Write-off of capital assets 1,594 -- -- Other non-cash items (Note 14) (5,500) -- -- ------- ------- ------- Cash from operations before funding of changes in non-cash working capital items 57,932 36,130 57,922 ======= ======= ======= Changes in non-cash working capital items Trade and other receivables (3,894) (3,321) (175) Inventories and parts and supplies 3,493 (6,085) (15,076) Prepaid expenses (1,809) (2,123) 1,939 Accounts payable and accrued liabilities (15,697) 21,903 (24,033) ------- ------- ------- (17,907) 10,374 (37,345) ------- ------- ------- CASH FLOWS FROM OPERATING ACTIVITIES 40,025 46,504 20,577 ======= ======= ======= INVESTING ACTIVITIES Acquisitions of businesses (Note 7) (28,195) (108,172) (113,187) Capital assets, net of investment tax credits (48,142) (57,154) (45,941) Proceed on sale of capital assets 4,239 -- -- Other assets 17,637 (10,577) (8,923) ------- ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES (54,461) (175,903) (168,051) ======= ======= ======= FINANCING ACTIVITIES Net change in bank indebtedness 26,468 (68,835) 103,460 Issue of long-term debt -- 187,000 166,553 Repayment of long-term debt (2,249) (60,767) (120,099) Issue of Common Shares 176 78,583 1,172 Common Shares purchased for cancellation (4,194) (2,542) -- Dividends paid (3,006) (2,993) (2,130) ------- ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES 17,195 130,446 148,956 ------- ------- ------- NET INCREASE IN CASH POSITION 2,759 1,047 1,482 Effect of foreign currency translation adjustments (2,759) (1,047) (1,482) ------- ------- ------- CASH POSITION, BEGINNING AND END OF YEAR -- -- -- ======= ======= ======= SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION INTEREST PAID 29,319 22,065 15,257 ======= ======= ======= INCOME TAXES PAID 3,118 3,153 3,339 ======= ======= =======
The accompanying notes are an integral part of the consolidated financial statements. [LOGO - intertape polymer group(TM)] 54 23 Consolidated Balance Sheets - -------------------------------------------------------------------------------- (In thousands of U.S. dollars)
DECEMBER 31, 2000 1999 ------- ------- $ $ ASSETS Current assets Trade receivables (net of allowance for doubtful accounts of $10,300 ($6,178 in 1999)) 97,478 83,120 Other receivables (Note 8) 11,659 17,712 Inventories (Note 9) 89,264 87,301 Parts and supplies 10,069 9,813 Prepaid expenses 6,114 4,204 Future income tax assets 10,810 11,349 ------- ------- 225,394 213,499 Capital assets (Note 10) 374,753 351,722 Other assets (Note 11) 10,636 31,899 Goodwill, at amortized cost 234,257 217,886 ------- ------- TOTAL ASSETS 845,040 815,006 ======= ======= LIABILITIES Current liabilities Bank indebtedness (Note 12) 127,333 53,920 Accounts payable and accrued liabilities 79,811 88,563 Installments on long-term debt 9,532 2,079 ------- ------- 216,676 144,562 Long-term debt (Note 13) 276,684 336,015 Other liabilities (Note 14) 42,038 52,426 ------- ------- TOTAL LIABILITIES 535,398 533,003 ======= ======= SHAREHOLDERS' EQUITY Capital stock and share purchase warrants (Note 15) 186,908 185,091 Retained earnings 116,966 88,422 Accumulated foreign currency translation adjustments 5,768 8,490 ------- ------- TOTAL SHAREHOLDERS' EQUITY 309,642 282,003 ------- ------- TOTAL LIABILITY AND SHAREHOLDERS' EQUITY 845,040 815,006 ======= =======
On behalf of the Board, /s/ Gordon R. Cunningham /s/ Ben J. Davenport, Jr. Gordon R. Cunningham, Director Ben J. Davenport, Jr., Director The accompanying notes are an integral part of the consolidated financial statements. [LOGO - intertape polymer group(TM)] 55 24 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 ("United States") and on The Toronto Stock Exchange in Canada. 2 -- ACCOUNTING POLICIES The consolidated financial statements are expressed in U.S. dollars and were prepared in accordance with Canadian generally accepted accounting principles, which, in certain respects, differ from the accounting principles generally accepted in the United States, as shown in Note 20. ACCOUNTING ESTIMATES The preparation of financial statements in conformity with Canadian 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 The consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly-owned. 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 13. FOREIGN CURRENCY TRANSLATION REPORTING CURRENCY The financial statements of the Company were reported in Canadian dollars until 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 Canadian generally accepted accounting principles, 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. [LOGO - intertape polymer group(TM)] 56 25 Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- (In U.S. dollars; tabular amounts in thousands, except per share amounts) CASH AND CASH EQUIVALENTS The Company's policy is to present cash and temporary investments having a term of three months or less with cash and cash equivalents. INVENTORIES AND PARTS AND SUPPLIES VALUATION Raw materials are valued at the lower of cost and replacement cost. Work in process and finished goods are valued at the lower of cost and net realizable value. Cost is principally determined by the first in, first out method. The cost of work in process and finished goods includes the cost of raw materials, direct labour and manufacturing overhead. 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 20 years(a) Furniture, office, computer equipment and software........ Diminishing balance 20% and other..................... or Straight-line 7 years
(a) As a result of an extensive review of the useful lives of the Company's principal manufacturing equipment, Management decided to extend to 20 years the estimated useful lives of all manufacturing equipment. Prior to such revision, these assets were depreciated over periods of 12 to 20 years. This change in estimated useful life was applied prospectively commencing January 1, 2000 and has resulted in a decrease to depreciation expense and corresponding increase in earnings before income taxes of approximately $11.6 million for the year ended December 31, 2000. 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. Depreciation is not charged on new capital assets until they become operative. 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 periods ranging from 20 to 40 years, the estimated life of the underlying 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 amortized 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 share of the amount can be reasonably estimated. PENSION PLANS AND OTHER RETIREMENT BENEFITS The Company has defined benefit and defined contribution pension plans and other retirement benefit plans for its Canadian and American employees. In the year ended December 31, 2000, the Company adopted, without restating prior period financial statements, the new recommendations of the Canadian Institute of Chartered Accountants with respect to accounting for the cost of pension benefits and [LOGO - intertape polymer group(TM)] 57 26 Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- (In U.S. dollars; tabular amounts in thousands, except per share amounts) 2 -- ACCOUNTING POLICIES (Continued) PENSION PLANS AND OTHER RETIREMENT BENEFITS (Continued) other employee future benefits. The new recommendations require that the discount rate used to value pension obligations and current costs be changed from an estimated long-term rate to a market interest rate. The adoption of these new recommendations has not resulted in a significant impact to the current or prior year's financial statements. The following policies are used with respect the accounting for the defined benefit and other retirement benefit plans: o The cost of pensions and other retirement benefits earned by employees is actuarially determined using the projected benefit method prorated on service and is charged to earnings as services are provided by the employees. The calculations take into account Management's best estimate of expected plan investment performance, salary escalation, retirement ages of employees, participants' mortality rates and expected health care costs. o For the purpose of calculating the expected return on plan assets, those assets are valued at fair value. o Past service costs from plan amendments are amortized on a straight-line basis over the average remaining service period of employees active at the date of amendment. o The excess of the net actuarial gains (losses) over 10% of the greater of the benefit obligation and the fair value of plan assets is amortized over the average remaining service period of active employees. 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 15. No compensation expense is recognized when stock options are granted. Any consideration paid by employees on exercise of stock options is credited to capital stock. EARNINGS PER SHARE In the year ended December 31, 2000, the Company adopted, on a retroactive basis, the new recommendations of the Canadian Institute of Chartered Accountants with respect to Section 3500, Earnings per share. Under the new recommendations, the treasury stock method is to be used, instead of the current imputed earnings approach, for determining the dilutive effect of warrants and options. Previously reported diluted earnings per share amounts have been recalculated in accordance with the new requirements. This change in accounting policy has not resulted in differences in previously reported diluted earnings per share and has not impacted the establishment of the current year's diluted earnings per share. Basic earnings per share are calculated using the weighted average number of common shares outstanding during the year. [LOGO - intertape polymer group(TM)] 58 27 Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- (In U.S. dollars; tabular amounts in thousands, except per share amounts) 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, 2000 1999 1998 ------- ------- ------- $ $ $ EARNINGS Sales...................................... 2,671 4,467 3,934 Gross profit............................... 383 1,010 1,130 Financial expenses (income)................ (320) 882 440 Net earnings (net loss).................... 136 (767) (59) CASH FLOWS Cash flows from operating activities....... 643 (1,331) 827 Cash flows for investing activities........ (2,232) 2,343 (1,309) Cash flows from financing activities....... 512 2,566 1,136 ====== ====== ======
DECEMBER 31, 2000 1999 ------- ------- $ $ BALANCE SHEET Assets Current assets............................. 1,483 3,091 Long-term assets........................... 7,119 11,243 Liabilities Current liabilities........................ 2,885 10,817 Long-term debt............................. 1,862 3,187 ===== ======
During the year ended December 31, 2000, the Company recorded sales of $2,790,000 to its joint ventures ($7,716,000 in 1999 and $1,745,000 in 1998). Also, the Company recorded interest income of $58,000 from a joint venture for the year ended December 31, 2000 ($1,494,000 in 1999 and $996,000 in 1998). 4. INTEGRATION AND TRANSITION, ASSET WRITE-DOWNS AND OTHER NON-RECURRING ITEMS During the year ended December 31, 2000, the Company realized a gain of $5.5 million on the sale of its interest in a joint venture. 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, 2000 1999 1998 ------- ------- ------- $ $ $ Depreciation of capital assets................ 20,334 25,077 16,090 ======= ======= ======= Amortization of debt issue expenses and other deferred charges................... 1,060 701 1,124 ======= ======= ======= Financial expenses Interest on long-term debt................. 20,812 17,924 10,078 Interest on credit facilities.............. 8,747 6,519 6,473 Interest income, gain on foreign exchange and other.............. (1,116) (1,154) (2,542) Interest capitalized to capital assets.... (1,238) (1,140) (1,580) ------- ------- ------- 27,205 22,149 12,429 ======= ======= =======
[LOGO - intertape polymer group(TM)] 59 28 Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- (In U.S. dollars; tabular amounts in thousands, except per share amounts) 6. INCOME TAXES The provision for income taxes consists of the following:
YEARS ENDED DECEMBER 31, 2000 1999 1998 ------- ------- ------- $ $ $ Current....................................... 3,018 2,893 3,116 Future........................................ 482 (3,197) 8,627 ------- ------- ------- 3,500 (304) 11,743 ======= ======= =======
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, 2000 1999 1998 ------- ------- ------- % % % Combined Federal and Provincial income tax rate.................. 43.1 42.7 42.9 Manufacturing and processing................... 2.2 14.0 (2.1) Foreign losses recovered (income taxed) at lower rates............... (5.1) 0.3 (5.1) Impact of other differences.................... (30.7) (60.9) (6.7) ------- ------- ------- EFFECTIVE INCOME TAX RATE...................... 9.5 (3.9) 29.0 ======= ======= =======
The net future income tax liabilities are detailed as follows:
DECEMBER 31, 2000 1999 ------- ------- $ $ Future income tax assets Accounts payable and accrued liabilities.... 4,131 6,944 Tax credits and loss carry-forwards......... 17,843 16,528 Trade and other receivables................. 5,561 2,101 Inventories................................. 1,761 4,264 ------- ------- 29,296 29,837 ======= ======= Future income tax liabilities Capital assets.............................. (54,613) (50,112) Other....................................... (1,411) (6,094) ------- ------- (56,024) (56,206) ------- ------- NET FUTURE INCOME TAX LIABILITIES.............. (26,728) (26,369) ======= =======
7. 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. A) YEAR ENDED DECEMBER 31, 2000 Effective September 1, 2000, the Company acquired certain assets of Olympian Tape Sales, Inc. d/b/a United Tape Company ("UTC"). UTC was a manufacturer and distributor of certain packaging products into the retail market. UTC was a long term customer of one particular product line of the Company. [LOGO - intertape polymer group(TM)] 60 29 Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- (In U.S. dollars; tabular amounts in thousands, except per share amounts) The purchase price was paid for in both cash in the amount of $28.2 million and $4.0 million worth of common shares of the Company's stock from treasury. The preliminary purchase price allocation, which includes approximately $20.4 million allocated to goodwill, was based upon available information and preliminary appraisals and is subject to revision as more facts become known. Goodwill from the acquisition is being amortized over a 20-year period. B) 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. C) 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. The following is a summary of the initial values of the net assets purchased in the last three years:
DECEMBER 31, 2000 1999 1998 ------- ------- ------- $ $ $ Current assets............................... 14,383 26,523 32,473 Capital assets............................... 1,316 66,541 51,745 Goodwill and other assets.................... 20,963 49,763 72,116 ------- ------- ------- 36,662 142,827 156,334 Current liabilities assumed.................. (4,467) (23,250) (38,926) Net future income tax liabilities............ -- (8,255) (4,221) ------- ------- ------- NET ASSETS PURCHASED......................... 32,195 111,322 113,187 ======= ======= ======= Consideration Cash...................................... 28,195 108,172 113,187 Issue of common shares.................... 4,000 -- -- Issue of share purchase warrants.......... -- 3,150 -- ------- ------- ------- 32,195 111,322 113,187 ======= ======= =======
[LOGO - intertape polymer group(TM)] 61 30 Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- (In U.S. dollars; tabular amounts in thousands, except per share amounts) 8. OTHER RECEIVABLES
DECEMBER 31, 2000 1999 ------- ------- $ $ Rebates receivable........................... 5,734 5,560 Income and other taxes....................... 1,046 5,354 Sales taxes.................................. 1,051 2,059 Other........................................ 3,828 4,739 ------- ------- 11,659 17,712 ======= =======
9. INVENTORIES
DECEMBER 31, 2000 1999 ------- ------- $ $ Raw materials................................ 23,198 25,460 Work in process.............................. 14,483 12,189 Finished goods............................... 51,583 49,652 ------- ------- 89,264 87,301 ======= =======
10. CAPITAL ASSETS
ACCUMULATED DECEMBER 31, 2000 COST DEPRECIATION NET ------- ------------ ------- $ $ $ Land......................................... 3,329 -- 3,329 Buildings and related capital leases......... 57,024 10,573 46,451 Manufacturing equipment...................... 359,883 88,540 271,343 Furniture, office, computer equipment and software and other.................... 33,629 7,351 26,278 Manufacturing equipment under construction and software projects under development................ 27,352 -- 27,352 ------- ------- ------- 481,217 106,464 374,753 ======= ======= =======
ACCUMULATED DECEMBER 31, 1999 COST DEPRECIATION NET ------- ------------ ------- $ $ $ Land......................................... 3,219 -- 3,219 Buildings and related capital leases......... 51,853 8,348 43,505 Manufacturing equipment...................... 341,445 75,709 265,736 Furniture, office, computer equipment and software and other.................... 30,160 8,625 21,535 Manufacturing equipment under construction and software projects under development................ 17,727 -- 17,727 ------- ------- ------- 444,404 92,682 351,722 ======= ======= =======
11. OTHER ASSETS
DECEMBER 31, 2000 1999 ------- ------- $ $ Debt issue expenses and other deferred charges, at amortized cost............................. 5,773 4,067 Loans to officers and directors including loans regarding the exercise of stock options, without interest, various repayment terms...................... 1,675 275 Receivables from joint ventures........................... 648 23,449 Other receivables......................................... 65 1,452 Other, at cost............................................ 2,475 2,656 ------- ------- 10,636 31,899 ======= =======
[LOGO - intertape polymer group(TM)] 62 31 Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- (In U.S. dollars; tabular amounts in thousands, except per share amounts) 12. 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 and cash equivalent balances. As at December 31, 2000, the Company had: o A senior unsecured bank loan under a US $80.0 million revolving credit facility which matures June 30, 2001. This loan bears interest at U.S. prime rate plus a premium bearing between 0 and 125 basis points or at LIBOR plus a premium varying between 40 and 225 basis points. As at December 31, 2000, the effective rate was approximately 7.40% and the facility was fully utilized; o A senior unsecured bank loan under a US $50.0 million revolving credit facility which matures June 30, 2001. This loan bears interest at U.S. prime rate or at LIBOR plus a premium varying between 125 and 150 basis points. As at December 31, 2000, the effective interest rate was approximately 8.70% and US $40.0 million was utilized; o A senior unsecured bank loan under a US $15.0 million revolving credit facility which matures June 30, 2001. This loan bears interest at U.S. prime rate. As at December 31, 2000, the effective rate was approximately 9.50% and US $14.8 million was utilized; o A senior unsecured US $10.0 million demand bank loan, bearing interest at U.S. prime rate. As at December 31, 2000, the effective interest rate was approximately 9.50% and US $7.7 million was utilized; and o A senior unsecured CDN $5.0 million of demand bank loan, bearing interest at Canadian prime rate. As at December 31, 2000, the effective rate was approximately 7.50% and CDN $2.6 million was utilized. 13. LONG-TERM DEBT Long-term debt consists of the following:
DECEMBER 31, 2000 1999 ------- ------- $ $ a) $137,000,000 Series A and B Senior Notes............... 137,000 137,000 b) $137,000,000 Senior Notes.............................. 137,000 137,000 c) $8,000,000 Series 3 Notes.............................. 8,000 8,000 d) Bank loan under a revolving credit facility............ -- 50,000 e) Other debt............................................. 4,216 6,094 ------- ------- 286,216 338,094 Less Current portion of long-term debt...................... 9,532 2,079 ------- ------- 276,684 336,015 ======= =======
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 mature on May 31, 2005. The Series B $112.0 million Notes are repayable in semi-annual installments of $13,440,000 starting in November 2005 and mature on May 31, 2009. B) SENIOR NOTES Senior Unsecured Notes, bearing interest at 6.82%, payable semi-annually, repayable in semi-annual installments of $16,500,000 starting in September 2004 and maturing on March 31, 2008. C) SERIES 3 NOTES Senior Unsecured Notes, bearing interest at a rate of 8.08%, payable semi-annually. These Notes mature on June 1, 2001. [LOGO - intertape polymer group(TM)] 63 32 Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- (In U.S. dollars; tabular amounts in thousands, except per share amounts) 13. LONG-TERM DEBT (Continued) D) BANK LOAN UNDER A REVOLVING CREDIT FACILITY As at December 31, 2000, the bank loan under a revolving credit facility is classified with bank indebtedness and credit facilities. 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:
$ ------- 2001...................................................... 9,532 2002...................................................... 1,242 2003...................................................... 463 2004...................................................... 16,922 2005...................................................... 72,688 Thereafter................................................ 185,369 ------- TOTAL..................................................... 286,216 =======
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, 2000 and 1999 are:
2000 1999 FAIR CARRYING FAIR CARRYING VALUE AMOUNT VALUE AMOUNT - ------- --------- ------- --------- $ $ $ $ 264,680 286,216 333,193 338,094 ======= ======= ======= =======
14. OTHER LIABILITIES
DECEMBER 31, 2000 1999 - ------------ ------- ------- $ $ Provision for future site rehabilitation costs.......................... 1,500 4,500 Future income tax liabilities.................. 37,538 37,718 Other.......................................... 3,000 10,208 ------- ------- 42,038 52,426 ======= =======
During the year ended December 31, 2000, the Company completed its review of certain provisions previously established in accounting for prior years' business acquisitions. This process included obtaining from third parties environmental, transfer pricing and employee benefit related studies. Furthermore, the Company holds letters of guarantee provided by the vendors against certain future related claims. As a result of the above, the Company reversed against earning $5,500,000 of provisions which had been recorded in prior years. [LOGO - intertape polymer group(TM)] 64 33 Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- (In U.S. dollars; tabular amounts in thousands, except per share amounts) 15. CAPITAL STOCK AND SHARE PURCHASE WARRANTS A) CAPITAL STOCK -- AUTHORIZED Unlimited number of shares without par value. -- Common shares, voting and participating -- Class "A" preferred shares, issuable in series, ranking in priority to the common shares with respect to dividends and return of capital on dissolution. The Board of Directors is authorized to fix, before issuance, the designation, rights, privileges, restrictions and conditions attached to the shares of each series. B) CAPITAL STOCK -- ISSUED AND FULLY PAID The changes in the number of outstanding common shares and their aggregate stated value from January 1, 1998 to December 31, 2000 were as follows:
2000 1999 1998 --------------------- --------------------- --------------------- NUMBER STATED NUMBER STATED NUMBER STATED OF SHARES VALUE OF SHARES VALUE OF SHARES VALUE ---------- ------- ---------- ------- ---------- ------- # $ # $ # $ Balance, beginning of year................... 28,296,392 181,941 25,194,333 104,033 25,019,921 102,861 Shares issued for cash in public offering.... -- -- 3,000,000 76,887 -- -- Shares issued for business acquisitions...... 250,587 4,000 -- -- -- -- Shares purchased for cancellation............ (353,200) (2,359) (100,000) (675) -- -- Shares issued for cash upon exercise of stock options.................. 17,400 176 202,059 1,696 174,412 1,172 ---------- ------- ---------- ------- ---------- ------- BALANCE, END OF YEAR......................... 28,211,179 183,758 28,296,392 181,941 25,194,333 104,033 ========== ======= ========== ======= ========== =======
During the year ended December 31, 2000, the Corporation purchased for cancellation 353,200 common shares at an average stated value per share of $6.68 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 28,328,114 for the year ended December 31, 2000 (27,679,385 in 1999 and 25,123,812 in 1998). C) SHARE PURCHASE WARRANTS
DECEMBER 31, 2000 1999 ------- ------- $ $ 300,000 share purchase warrants............... 3,150 3,150
The warrants, which expire on August 9, 2004, permit holders to purchase common shares of the Company at a price of $29.50 per share. [LOGO - intertape polymer group(TM)] 65 34 Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- (In U.S. dollars; tabular amounts in thousands, except per share amounts) 15. CAPITAL STOCK AND SHARE PURCHASE WARRANTS (Continued) D) 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. E) 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:
2000 1999 1998 --------- --------- --------- # # # Number of common shares in respect of which new options were granted....... 1,183,000 14,000 744,650 --------- --------- --------- $8.13 $16.69 Exercise price............................. to $17.19 $27.88 to $23.26 ========= ========= =========
All options were granted at a price equal to the average closing market values on the day immediately preceding the date the options were granted. The following table presents the situation pertaining to common shares reserved for issuance under the plan and options exercised:
2000 1999 1998 --------- --------- --------- # # # Number of common shares reserved for issuance under the plan............. 2,829,739 2,405,242 2,405,242 Number of shares remaining available for issuance under the plan............. 32,703 -- -- Number of common shares issued pursuant to the exercised stock options.......... 17,400 202,059 174,412 --------- --------- --------- $4.25 $4.25 $4.25 PRICE RANGE AT ISSUANCE.................... to $27.28 to $23.26 to $20.59 ========= ========= =========
The changes in number of options outstanding were as follows:
2000 1999 1998 --------------------------------- WEIGHTED AVERAGE EXERCISE PRICE NUMBER NUMBER NUMBER -------------- --------- --------- --------- $ # # # Balance, beginning of year....... 15.76 2,217,224 2,406,067 1,837,329 Granted.................... 10.37 1,183,000 14,000 744,650 Exercised.................. 8.23 (17,400) (202,059) (174,412) Cancelled.................. 16.84 (585,788) (784) (1,500) ----- --------- --------- --------- BALANCE, END OF YEAR....... 12.89 2,797,036 2,217,224 2,406,067 ===== ========= ========= =========
[LOGO - intertape polymer group(TM)] 66 35 Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- (In U.S. dollars; tabular amounts in thousands, except per share amounts) The following table summarizes information about options outstanding and exercisable at December 31, 2000:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ----------------------------------------- --------------------- WEIGHTED WEIGHTED WEIGHTED RANGE OF AVERAGE AVERAGE AVERAGE EXERCISE CONTRACTUAL LIFE EXERCISE EXERCISE PRICES NUMBER (IN YEARS) PRICE NUMBER PRICE - -------- --------- ---------------- -------- --------- -------- $ # $ # $ 4.25 TO 8.13 812,832 4.8 7.01 402,832 5.83 10.86 TO 19.30 1,704,454 5.1 14.20 730,312 15.90 19.49 TO 27.88 279,750 4.0 21.97 133,875 21.74 --------- --------- 2,797,036 1,267,019 ========= =========
Subsequent to year-end, on January 10, 2001 the Company repriced 474,163 of unexercised stock options held by employees, other than directors and executive officers. The repriced options had exercise prices ranging from US $16.30 to US $23.26 (CDN $22.50 to CDN $32.92) and expire in 2003 and 2006. The revised exercise price was set at US $8.28 (CDN $12.40), being the average of the closing price on the Toronto and New York Stock Exchanges on January 9, 2001. All other terms and conditions of the respective options including the percentage vesting and the vesting and expiry dates remain unchanged. 16. COMMITMENTS AND CONTINGENCIES A) COMMITMENTS As at December 31, 2000, the Company had commitments aggregating approximately $23,626,000 to 2005 for the rental of offices, warehouse space, manufacturing equipment, automobiles and other. Minimum lease payments for the next five years are $7,377,000 in 2001, $6,754,000 in 2002, $6,249,000 in 2003, $1,920,000 in 2004 and $1,326,000 in 2005. The Company also had commitments aggregating approximately $9,600,000 for the purchase of manufacturing equipment. Most of these costs will be incurred in 2001. B) CONTINGENCIES The Company is party to various claims and lawsuits which are being contested. In the opinion of Management, the outcome of such claims and lawsuits will not have a material adverse effect on the Company. 17. 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 90 days. 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 $3,033,000 for these plans for the year ended December 31, 2000 ($2,937,000 and $1,367,000 for 1999 and 1998 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 service for hourly employees. [LOGO - intertape polymer group(TM)] 67 36 Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- (In U.S. dollars; tabular amounts in thousands, except per share amounts) 17. PENSION AND POST-RETIREMENT BENEFIT PLANS (Continued) DEFINED BENEFIT PLANS (Continued) 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 $9.95 ($10.33 and $9.15 in 1999 and 1998 respectively) per month for each year of service. In the United States, the Company provides group health care and life insurance benefits to certain retirees. Information relating to the various plans is as follows:
PENSION PLANS OTHER PLANS ------------------- ------------------- 2000 1999 2000 1999 ------- ------- ------- ------- $ $ $ $ ACCRUED BENEFIT OBLIGATIONS Balance, beginning of year......... 16,690 7,423 712 1,002 Business acquisition............... -- 10,294 -- -- Current service cost............... 393 420 9 21 Interest cost...................... 1,309 804 53 58 Benefits paid...................... (686) (399) (54) (30) Plan amendments.................... -- -- -- (109) Actuarial losses (gains)........... 1,203 (1,359) 65 (230) Foreign exchange rate adjustment................... (43) (493) -- -- ------- ------- ------- ------- BALANCE, END OF YEAR............... 18,866 16,690 785 712 ======= ======= ======= ======= PLAN ASSETS Balance, beginning of year......... 16,706 7,145 -- -- Business acquisition............... -- 8,775 -- -- Actual return on plan assets.................... (1,260) 1,512 -- -- Employer Contributions............. 2,206 185 -- -- Benefits paid...................... (686) (399) -- -- Foreign exchange rate adjustment................... (35) (512) -- -- ------- ------- ------- ------- BALANCE, END OF YEAR............... 16,931 16,706 -- -- ======= ======= ======= ======= FUNDED STATUS DEFICIT (SURPLUS)................. 1,935 (16) 785 712 Unamortized past service costs..................... (633) (691) -- -- Unamortized net actuarial loss (gain)............. (1,772) 2,154 128 206 Unamortized transition assets (obligation)............... 100 106 (45) (49) ------- ------- ------- ------- ACCRUED BENEFIT LIABILITY (PREPAID BENEFIT)................. (370) 1,553 868 869 ======= ======= ======= =======
[LOGO - intertape polymer group(TM)] 68 37 Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- (In U.S. dollars; tabular amounts in thousands, except per share amounts)
PENSION PLANS OTHER PLANS ------------------------------- ------------------------------- 2000 1999 1998 2000 1999 1998 ------- ------- ------- ------- ------- ------- $ $ $ $ $ $ ACCRUED BENEFIT EXPENSE Current service cost..................... 393 420 642 9 21 27 Interest cost............................ 1,309 804 1,954 53 58 66 Expected return on plan assets........... (1,459) (846) (2,434) -- -- -- Amortization of past service costs....... 53 52 49 (14) (2) (1) Amortization of transition obligation (asset)..................... (4) (4) (4) 4 32 34 Amortization of unrecognised loss (gain)........................... (21) 7 7 -- -- -- ------- ------- ------- ------- ------- ------- PENSION EXPENSE FOR THE YEAR............. 271 433 214 52 109 126 ======= ======= ======= ======= ======= =======
The significant assumptions which management considers to be the most likely and which were used to measure its accrued benefit obligations are as follows (weighted average assumptions, as at December 31):
PENSION PLANS OTHER PLANS ------------------------------- ------------------------------- 2000 1999 1998 2000 1999 1998 ------- ------- ------- ------- ------- ------- CANADIAN PLANS Discount rate............................ 7.50% 6.50% 6.75% -- -- -- Expected rate of return on plan assets........................ 9.00% 9.00% 9.00% -- -- -- ----- ----- ----- ------- ------- -------
PENSION PLANS OTHER PLANS ------------------------------- ------------------------------- 2000 1999 1998 2000 1999 1998 ------- ------- ------- ------- ------- ------- U.S. PLANS Discount rate............................ 7.50% 7.50% 7.00% 7.50% 8.25% -- Expected rate of return on plan assets........................ 8.60% 8.60% 9.50% -- -- -- Rate of compensation increase (only for one plan)................... 4.00% 4.00% 4.00% -- -- -- ----- ----- ----- ------- ------- -------
For measurement purposes, a 5.0% annual rate of increase in the per capita cost covered health care benefits was assumed for 2000 (8.0% in 1999, 9.0% in 1998) and deemed to remain constant through 2005. [LOGO - intertape polymer group(TM)] 69 38 Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- (In U.S. dollars; tabular amounts in thousands, except per share amounts) 18. 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 sales by country based on the location of the manufacturing facilities:
YEARS ENDED DECEMBER 31, 2000 1999 1998 ------- ------- ------- $ $ $ SALES Canada....................................... 117,799 107,072 94,186 United States................................ 581,723 487,640 334,367 Other........................................ 2,443 3,333 3,390 Transfers between geographic areas........... (48,050) (28,098) (53,913) ------- ------- ------- TOTAL SALES.................................. 653,915 569,947 378,030 ======= ======= =======
The following table presents capital assets and goodwill by country based on the locations of assets:
DECEMBER 31, 2000 1999 ------- ------- $ $ CAPITAL ASSETS Canada.................................... 51,388 48,016 United States............................. 316,900 296,326 Other..................................... 6,465 7,380 ------- ------- TOTAL CAPITAL ASSETS......................... 374,753 351,722 ======= ======= GOODWILL Canada.................................... 17,955 19,053 United States............................. 216,302 198,833 ------- ------- TOTAL GOODWILL............................... 234,257 217,886 ======= =======
No customer accounted for 10 percent or more of revenues in 2000, 1999 and 1998. 19. COMPARATIVE FIGURES Certain comparative figures have been reclassified to conform with the presentation adopted in the current year. 20. DIFFERENCES IN ACCOUNTING BETWEEN THE UNITED STATES OF AMERICA AND CANADA A) NET EARNINGS AND EARNINGS PER SHARE Net earnings of the Company and 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. B) CONSOLIDATED STATEMENTS OF EARNINGS Under Canadian GAAP, the changes 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:
YEAR ENDED DECEMBER 31, 1998 ------- $ Sales........................................ 390,007 Cost of Sales................................ 280,588
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 2000, 1999 and 1998, including the impact on the consolidated balance sheets. [LOGO - intertape polymer group(TM)] 70 39 Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- (In U.S. dollars; tabular amounts in thousands, except per share amounts) 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) 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 2000, 1999 and 1998 was estimated using the Black-Scholes option-pricing model, taking into account an expected life of five years, expected volatility of 45% in 2000 (25% in 1999 and 1998) risk-free interest rates of 5.96% (5.39% in 1999, 5.27% in 1998) and maintenance of the existing dividend policy. A compensation charge is amortized over the vesting periods. Accordingly, the Company's net earnings, basic earnings per share and diluted earnings per share for the year ended December 31, 2000 would have been reduced, on a pro forma basis, by $3,362,000, $0.12 and $0.12 ($2,499,000, $0.09 and $0.09 respectively in 1999 and $2,100,000, $0.08 and $0.08 respectively in 1998). The weighted average fair value of options granted in 2000 was $4.42 ($8.79 in 1999 and $5.98 in 1998). 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. In March 2000, the Financial Accounting Standards Board issued FASB Interpretation No. 44 (FIN 44), which became effective on July 1, 2000. FIN 44 requires that the cancellation, in November 2000, of 400,000 outstanding stock options by the Company and the granting of new options with a lower exercise price (the replacement options) be considered as an indirect reduction of the exercise price of the stock options. The replacement options will be subject to variable accounting from the cancellation date of date of grant, depending on which stock options were identified as the replacement options. Under variable accounting, the Company is required to recognize compensation expense for any increase in the quoted market price of the stock above the exercise price of US $10.13 and US $14.71 (CDN $15.50 and CDN $21.94) of the replacement options. The compensation expense must be recorded until the replacement options are exercised, forfeited or expire. The impact on the Company's financial results will depend on the fluctuations in the Company's stock price and the dates of the exercise, forfeitures or cancellations of the stock options. Depending on these factors, the Company could be required to record significant compensation expense during the life of the options which expire in 2006. As at December 31, 2000, the Company's quoted market stock price was US $7.31 (CDN $11.00) per share. There was no compensation expense recognized in the year 2000 related to the replacement options since the quoted market stock price was below the exercise prices of these options. FIN 44 will also require that options repriced in January 2001 (see Note 15) be subject to variable accounting starting in 2001. [LOGO - intertape polymer group(TM)] 71 40 Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- (In U.S. dollars; tabular amounts in thousands, except per share amounts) 20. DIFFERENCES IN ACCOUNTING BETWEEN THE UNITED STATES OF AMERICA AND CANADA (Continued) F) CONSOLIDATED COMPREHENSIVE INCOME As required under U.S. GAAP, the Company would have reported the following consolidated comprehensive income:
2000 1999 1998 ------- ------- ------- $ $ $ Net earnings in accordance with U.S. GAAP............................ 33,422 8,098 28,751 Foreign currency translation adjustments............................... (2,722) 3,458 (17,581) ------- ------- ------- CONSOLIDATED COMPREHENSIVE INCOME............ 30,700 11,556 11,170 ======= ======= =======
G) NEW ACCOUNTING PRONOUNCEMENTS 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. [LOGO - intertape polymer group(TM)] 72 41 Memo - -------------------------------------------------------------------------------- [LOGO - intertape polymer group(TM)] 73 42 Intertape Polymer Group - Locations - -------------------------------------------------------------------------------- CORPORATE OFFICES: o MONTREAL, QUEBEC, CANADA o SARASOTA, FLORIDA, U.S.A. t Atlanta, Georgia, U.S.A. ab Brighton, Colorado, U.S.A. ab Carbondale, Illinois, U.S.A. t Chicago, Illinois, U.S.A. ab Columbia, South Carolina, U.S.A. ab Cumming, Georgia, U.S.A. txab Danville, Virginia, U.S.A. xab Edmundston, New Brunswick, Canada x Georgetown, Barbados ab Green Bay, Wisconsin, U.S.A. b Lachine, Quebec, Canada t Los Angeles, California, U.S.A. xab Marysville, Michigan, U.S.A. b Matomoros, Mexico ab Menasha, Wisconsin, U.S.A. o Piedras Negras, Mexico ab Porto, Portugal xab Rayne, Louisiana, U.S.A. ab Richmond, Kentucky, U.S.A. b San Luis Potosi, Mexico ab Santa Fe Springs, California, U.S.A. txab St. Laurent, Quebec, Canada ab Tremonton, Utah, U.S.A. xab Truro, Nova Scotia, Canada Manufacturing Location a Distribution b ISO Certified x Corporate Office o Regional Distribution Centers t [LOGO - intertape polymer group(TM)] 74 43 Other Information - -------------------------------------------------------------------------------- BOARD OF DIRECTORS MELBOURNE F. YULL Chairman and Chief Executive Officer GORDON R. CUNNINGHAM (1) President, Cumberland Asset Management BEN J. DAVENPORT, JR. Chairman, First Piedmont Corporation; Chairman and CEO, Chatham Oil Company MICHAEL L. RICHARDS (1) Senior Partner, Stikeman Elliott L. ROBBIE SHAW (1) Vice President, Nova Scotia Community College (1) Member of Audit Committee HONORARY DIRECTORS IRVINE MERMELSTEIN Managing Partner, Market-Tek JAMES A. MOTLEY SR. Director, American National Bank and Trust Company American National Bankshares, Inc. 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 USA: Mellon Investor Services L.L.C. 85 Challenger Road, 2nd Floor Ridgefield Park, New Jersey 07660 AUDITORS CANADA: Raymond Chabot Grant Thornton 600 de la Gauchetiere West, Suite 1900 Montreal, Quebec, Canada H3B 4L8 USA: 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 contact: MR. ANDREW M. ARCHIBALD, C.A. Chief Financial Officer Intertape Polymer Group Inc. 110 E Montee de Liesse St. Laurent, Quebec, Canada H4T 1N4 Toll Free: (866) 202-4713 o E-Mail: itp$info@intertapeipg.com ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS The Annual and Special Meeting of Shareholders will be held on WEDNESDAY, JUNE 20, 2001 at 4:00 P.M. at Loews Hotel Vogue; 1425 de la Montagne, Montreal, Quebec, Canada. [LOGO -- intertape polymer group(TM)] 75 44 INTERTAPE POLYMER GROUP INC. o TWO THOUSAND ANNUAL REPORT [LOGO - intertape polymer group inc.(TM)] Design: Intertape Polymer Group, Corporate Marketing Printed in U.S.A., 5-01-13M 76 EX-99.3 4 m10045ex99-3.txt AUDITOR'S CONSENT 1 EXHIBIT 3 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation of our report dated March 19, 2001, on our audits of the consolidated financial statements of Intertape Polymer Group Inc. as at December 31, 2000 and 1999 and for each of the years in the three-year period ended December 31, 2000, which report is included in this Annual Report on Form 40-F. (s) Raymond Chabot Grant Thornton General Partnership Chartered Accountants Montreal, Canada May 18, 2001 77 -----END PRIVACY-ENHANCED MESSAGE-----