FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Report of Foreign Private Issuer
Pursuant to Rule 13a - 16 or 15d - 16 of
the Securities Exchange Act of 1934
For the month of April, 2002
Intertape Polymer Group Inc.
110E Montee de Liesse, St. Laurent, Quebec, Canada, H4T 1N4
[Indicate by check mark whether the registrant files
or will file annual reports under cover of Form 20-F or Form 40-F.]
Form 20-F Form 40-F X
---- -----
[Indicate by check mark whether the registrant by
furnishing the information contained in this Form is also
thereby furnishing the information to the Commission pursuant
to Rule 12g3-2(b) under the Securities Exchange Act of 1934.]
Yes No X
----- ------
[If "Yes" is marked, indicate below the file number
assigned to the registrant in connection with Rule 12g3-2(b):
82-______]
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
INTERTAPE POLYMER GROUP INC.
April 19, 2002 By: /s/ Andrew M. Archibald
-------------------------------
Andrew M. Archibald C.A.
Chief Financial Officer, Secretary,
Treasurer, & Vice President
Administration
COVER
2001
Annual Report
LOGO
INSIDE
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, and
Sarasota, Florida, the company has grown strategically to support operations in
23 locations including 17 manufacturing facilities, with approximately 2,900
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(TM) 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(TM) brand packaging equipment, carton sealers, case erectors,
shrink packaging, ink jet printers and labeling systems. Examples of products
directly to end users include a wide range of Nova(TM) brand woven polyolefin
fabrics and Intertape(TM) 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, IPG's
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.
Intertape Polymer Group Inc. is a publicly traded company with its common shares
listed on the New York Stock Exchange and The Toronto Stock Exchange under the
Stock Symbol "ITP."
Table of Contents
Financial Highlights ...................................................... 2
Message to Shareholders ................................................... 4
Consolidated Quarterly Statements of Earnings ............................. 5
Management's Discussion and Analysis ...................................... 6
Management's Responsibility for Financial Statements ...................... 17
Auditors' Report .......................................................... 18
Financial Statements
Consolidated Earnings .................................................... 19
Consolidated Retained Earnings ........................................... 19
Consolidated Cash Flows .................................................. 20
Consolidated Balance Sheets .............................................. 21
Notes to Consolidated Financial
Statements ......................................................... 22 to 38
Intertape Polymer Group - Locations ...................................... 39
Other Information ........................................................ 40
Notes .................................................................... 41
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
E-mail: itp$info@intertapeipg.com
Safe Harbor Statement
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 its
authorized executive officers on its behalf, constitute "forward-looking
statements" within the meaning of the the Federal Securities laws including
statements regarding the Company's expectations, beliefs, intentions, or
strategies for the future. The Company intends for its forward-looking
statements to be covered by the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995.
The reader should note that the Company's forward-looking statements speak only
as of the date hereof or when made and the Company undertakes no duty or
obligation to update or revise its forward-looking statements. 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 expressed or
implied by the forward-looking statements.
The risks, uncertainties and other factors that the Company's stockholders and
prospective investors should consider include, but are not limited to, the
following: risks associated with pricing, volume and continued strength of
markets where the Company's products are sold; delays and disruptions associated
with terrorist attacks and reprisals, political instability, heightened security
and war in countries of the world that affect the Company's business; the effect
of competition on the Company's ability to maintain margins on existing or
acquired operations; the continued acceptance of the Company's existing and new
products by its major customers; increases in costs; and other risk factors
listed from time to time in the Company's reports (including its Annual Report
on Form 40-F) filed with the U.S. Securities and Exchange Commission, especially
those discussed under the heading "Risk Factors."
1
Financial Highlights
2001 2000 1999
-------- -------- --------
OPERATIONS
Consolidated sales $594,905 $653,915 $569,947
Net earnings (Loss) Cdn Gaap (12,242) 33,422 8,098
Net earnings (Loss) US Gaap (12,242) 33,422 8,098
Cash from operations before funding of changes in non-cash
working capital items 13,874 57,932 36,130
-------- -------- --------
PER COMMON SHARE
Net earnings (Loss) Cdn Gaap (0.43) 1.18 0.29
Net earnings (Loss) US Gaap (0.43) 1.18 0.29
Cash from operations before funding of changes in non-cash
working capital items 0.49 2.05 1.31
Book value Cdn Gaap 10.32 10.98 9.97
Book value US Gaap 10.32 10.98 9.97
-------- -------- --------
FINANCIAL POSITION
Working capital 68,075 8,718 68,937
Total assets Cdn Gaap 801,989 845,040 815,006
Total assets US Gaap 801,989 845,040 815,006
Total debt 362,973 286,216 338,094
Shareholders equity Cdn Gaap 294,090 309,642 282,003
Shareholders equity US Gaap 294,090 309,642 282,003
-------- -------- --------
SELECTED RATIOS
Working capital 1.53 1.04 1.48
Debt/Capital Employed Cdn Gaap 0.55 0.48 0.55
Debt/Capital Employed US Gaap 0.55 0.48 0.55
Return on equity Cdn Gaap -4.2% 10.8% 2.9%
Return on equity US Gaap -4.2% 10.8% 2.9%
-------- -------- --------
2
2001 2000 1999
------ ------ ------
STOCK INFORMATION
Weighted average shares o/s (Cdn Gaap)+ 28,266 28,328 27,679
Weighted average shares o/s (US Gaap)+ 28,266 28,328 27,679
TORONTO STOCK EXCHANGE (CDN $)
Market price at year end 13.25 11.00 40.80
High : 52 weeks 24.00 41.00 46.30
Low : 52 weeks 10.50 10.90 35.50
Volume : 52 weeks+ 20,490 14,053 10,611
NEW YORK STOCK EXCHANGE
Market price at year end 8.30 7.31 28.19
High : 52 weeks 15.60 28.19 30.94
Low : 52 weeks 7.00 7.19 24.06
Volume : 52 weeks+ 13,695 4,929 1,264
====== ===== =====
TORONTO STOCK EXCHANGE (CDN $)
High Low Close ADV*
----- ----- ----- -------
Q1 18.50 10.70 14.50 150,300
Q2 24.00 14.10 18.80 49,200
Q3 20.00 10.50 12.04 72,533
Q4 16.55 11.85 13.25 50,433
----- ----- ----- -------
NEW YORK STOCK EXCHANGE
High Low Close ADV*
----- ----- ----- -------
Q1** 12.03 7.25 9.02 81,100
Q2** 15.60 9.04 13.59 35,767
Q3** 13.57 7.00 7.60 47,167
Q4** 10.44 7.55 8.30 54,800
===== ==== ==== ======
This data should be read in conjunction with the Consolidated Financial
Statements of the Company and the Notes thereto and Management's Disscussion and
Analysis of Financial Condition and Results of Operations.
(In thousands of U.S. dollars except per share data, selected ratios and
trading volume information.)
* Average daily volume.
** Prior to August 16, 1999 stock was traded on the American Stock Exchange
(AMEX).
+ In thousands
3
Message to Shareholders
Dear Shareholders,
The year 2001 started well for the Company. Our first quarter was in line with
our projections. However, the deterioration in the overall economy caught up
with us and 2001 became a year of contrasts. In spite of the negative results,
it was a year of key achievements for Intertape. We effected a variety of
initiatives, all of which should have a direct and positive effect on IPG's
future growth and profitability.
Last year, Intertape:
o Opened five regional distribution centers
o Attained key information technology (I.T.) objectives
o Closed or reduced unprofitable operations
o Completed a refinancing of our credit facilities and senior notes
o Developed several new products
o Reorganized our marketing and sales structure into focused markets
From an operational standpoint, we made improvements aimed at realizing the
benefits from all of our recent acquisitions and optimizing our efficiency and
quality. While these programs are ongoing, a quantum leap was achieved during
the year, which should manifest itself in 2002. Raw material prices were
generally at an all-time low, which was reflected by considerably lower selling
prices in most products. We did, however, retain our historic value-added as a
percentage of sales and expect to maintain it as prices of raw material increase
with an improved economy. Historically, our gross margin dollars have increased
substantially as raw material prices rise and we believe this relationship will
continue.
The performance of our I.T. Division met expectations. The instantaneous
information that is available to our managers has provided the tools to react to
an ever-changing economy and markets. In addition, we can supply our customers
with cost effective transactions and inventory controls.
Measurement-to-performance criteria has been enhanced for every aspect of the
Company to ensure that we remain a low cost provider of products and services to
a diverse customer base.
The breadth of our product line and our supply chain strategy will provide our
customers with a value added beyond their standard margins by reducing their
overall inventory levels. During the latter part of the year, our sales and
marketing staffs were realigned and trained to leverage this unique position.
Research & Development continued to provide new products for new applications
and markets. Five new films were commercialized during the year. All are
designed to provide superior performance. New tape products designed for
specific industries such as automotive, aerospace, etc., were also developed.
The R&D focus of the company is in these performance products which provide
higher gross margins. Our Woven and FIBC fabrics division introduced improved
shelter fabrics during the year and entered the steel market with a patented
wrap for coils. There are a number of exciting new products in our pipeline for
all markets we are in.
We refinanced our borrowing facilities and our long-term debt during the year.
This was followed by an issue of 5.1 million shares early in 2002 that generated
approximately $47 million, which was used to lower our borrowings. I anticipate
a further $25-30 million reduction in borrowings during 2002 by cash generated
from operations. Capital expenditures are budgeted to be 50% of the 2001 level
as the Company now has the ability to produce over $800 million of products.
As 2002 begins, I am very excited about our prospects. Our cost
base is at an all-time low and should continue to decline as we optimize our
operations and realize the full benefits of our distribution centers. Our supply
chain strategy is designed to give us a competitive advantage and enable us to
grow existing product lines. New products in all sectors of our business will
provide potential for accelerated growth as the year progresses. New business
development efforts should offer future opportunities.
I want to thank our employees, customers, and shareholders for their unwavering
support and dedication. I am optimistic that their devoted efforts will be
rewarded as we close 2002.
/s/ Melbourne F. Yull
-------------------------------
Melbourne F. Yull
Chairman & Chief Executive Officer
March 8, 2002
4
Consolidated Quarterly Statements of Earnings
(In thousands of US dollars, except per share amounts)
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
2001 2000 2001 2000 2001 2000 2001 2000
--------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
SALES $ 158,863 $ 169,358 $ 141,265 $ 167,231 $ 148,602 $ 166,356 $ 146,175 $ 150,970
Cost of sales 120,089 131,117 114,549 126,513 122,544 121,612 118,906 121,305
--------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
GROSS PROFIT 38,774 38,241 26,716 40,718 26,058 44,744 27,269 29,665
Selling, general and
administrative expenses 21,858 20,032 20,090 17,891 27,837 21,306 21,558 23,863
Amortization of goodwill 1,743 1,550 1,797 1,522 1,757 1,663 1,717 1,805
Research and development 1,168 1,325 1,198 1,409 884 1,073 932 1,302
Financial expenses 8,436 5,995 7,736 6,652 13,212 7,345 9,527 7,213
--------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
33,205 28,902 30,821 27,474 43,690 31,387 33,734 34,183
Gain on sale of interest
in joint venture 0 (5,500) 0 0 0 0 0 0
--------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
33,205 23,402 30,821 27,474 43,690 31,387 33,734 34,183
Earnings (losses)
before income taxes 5,568 14,839 (4,105) 13,244 (17,632) 13,357 (6,465) (4,518)
Income taxes (recovery) 1,392 4,155 (1,392) 3,707 (4,937) 3,741 (5,455) (8,103)
Net earnings (losses) 4,176 10,684 (2,713) 9,537 (12,695) 9,616 (1,010) 3,585
--------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
EARNINGS (LOSS) PER SHARE
Cdn GAAP - Basic - US $ 0.15 0.38 (0.10) 0.34 (0.45) 0.34 (0.03) 0.13
Cdn GAAP - Diluted - US $ 0.15 0.37 (0.10) 0.33 (0.45) 0.33 (0.03) 0.13
US GAAP - Basic - US $ 0.15 0.38 (0.10) 0.34 (0.45) 0.34 (0.03) 0.13
US GAAP - Diluted - US $ 0.15 0.37 (0.10) 0.33 (0.45) 0.33 (0.03) 0.13
--------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
AVERAGE NUMBER OF SHARES OUTSTANDING
Cdn GAAP - Basic - US $27,983,417 28,300,781 28,199,535 28,297,621 28,346,102 28,342,803 28,496,884 28,380,530
Cdn GAAP - Diluted - US $28,675,701 28,879,770 27,304,725 28,716,590 28,346,102 28,763,582 28,496,884 28,565,564
US GAAP - Basic - US $27,983,417 28,300,781 28,199,535 28,297,621 28,346,102 28,342,803 28,496,884 28,380,530
US GAAP - Diluted - US $28,675,701 28,879,770 27,304,725 28,716,590 28,346,102 28,763,582 28,496,884 28,565,564
=========== ========== ========== ========== ========== ========== ========== ==========
Note: In the 4th quarter of 2000, Canadian GAAP adopted the US GAAP definition
of the diluted earnings per share retroactively.
5
Review of Operations
SALES
Intertape Polymer Group's consolidated sales decreased by 9.0%
to $594.9 million for the year 2001. In the year 2000 sales had increased by
14.7% to $653.9 million and increased by 50.8% to $569.9 million for the year
1999. All sales are derived from packaging products made from various
combinations of resins and papers which are then converted into high quality,
value-added products. 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 selective distribution or by selling directly to
end-users. In both cases, the Company's highly trained sales force works closely
with either the distributors sales force or with the end-users.
Examples of products sold through distributors are Intertape(TM)
brand pressure-sensitive carton sealing tapes which include hot-melt (introduced
in 1981) acrylic (1995) and natural rubber adhesives (1998); water-activated
carton sealing tape (1996); paper 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(TM) brand flexible
intermediate bulk containers (FIBC) (1994), and electrical specialty tapes
(1997).
[GRAPH: SALES]
The following are the highlights of factors that contributed to changes in sales
volume during 2001.
o In a majority of the Company's product lines, selling prices declined during
the year. These changes in unit selling prices are mostly in relation to
steadily declining raw material prices. Overall, selling prices declined by
2.2% or approximately $14.4 million from the 2000 selling price levels.
o The North American economy started to slow down during the last half of 2000
and continued to do so up to September 11, 2001. After the events of
September, the economy slowed even more. While some of the strategically
important product lines showed unit growth in spite of the economy, overall,
unit growth declined by 6.8% or $44.6 million as compared to the year 2000.
Significant contributions to the unit decline were:
o The combined effect of a world-wide slowing economy, increasing domestic
capacity in Asia and a strong US currency led the Company to the
decision to withdraw from commodity export markets. This decision
lowered sales by approximately $12.0 million.
o The Company acquired the operating assets of Olympian Tape Sales, Inc.
d/b/a United Tape Company (UTC) during the third quarter of 2000. As a
result of this acquisition, the Company lost a major private label
supply contract with a customer that had been a major competitor of UTC
in the retail market. This resulted in a decline in sales of
approximately $20.0 million.
o During 2001, the strong US currency provided an opportunity for
importers of flexible intermediate bulk containers (FIBC) to increase
their share of the North American market. Sales from this product line
decreased $7.8 million during 2001.
o Sales volumes were impacted by substantial declines in the consumption
of packaging materials used in certain industries including the
textiles, furniture and appliance, electronics and computer, aviation
and electrical industries.
The Company expects modest revenue growth during 2002 driven
by new products and the implementation of our supply chain cost reduction
programs. It is expected that increased economic activity in general will
contribute to further growth during the balance of 2002.
6
GROSS PROFIT AND GROSS MARGIN
The Company's gross profit excluding non-recurring amounts decreased 22.3%
during 2001 to $126.5 million. In the year 2000, the Company's gross profit
excluding non-recurring amounts had increased 13.0% to $162.9 million in 2000;
and in 1999, it had increased 35.8% from its 1998 level to $144.1 million. As a
percentage of sales, gross margins excluding non-recurring amounts decreased to
21.3% in 2001 from 24.9% for 2000 and from 25.3% for 1999. Throughout this
three-year period, the Company was able to maintain value-added percentages
within less than 0.75%. Value-added is the difference between material costs and
selling prices expressed as a percent of sales. Traditionally, the Company has
been able to maintain an extremely narrow value-added window despite changes in
raw material costs. This is one of the strengths of the Company.
For the year 2001, the following are highlights of key factors contributing to
the decline in margins as compared to 2000:
o Value-added as a percent of sales did not materially change from 2000 to
2001. However, the decline in sales of $59.0 million brought about a decline
in value-added dollars with a direct impact on gross profit of approximately
$30.0 million between these years.
o Had the fiscal 2000 cost structures related to labour and manufacturing
overhead remained at the same level for fiscal 2001, there would have been a
further decline in gross profits of approximately $18.0 million. However,
during the year Management took various actions to bring about cost
reductions which resulted in cost savings being realized in the amount of
approximately $18.7 million.
o Several non-recurring charges were incurred during 2001, including $3.2
million of finished goods inventory write downs, $2.3 million related to the
cost of setting up the various regional distribution centers (RDC's), $1.2
million for severance payments and $1.0 million related to the write down of
certain assets. These amounts totaling $7.7 million are included in cost of
sales and reduced gross profit.
Even though the Company was able to maintain value-added as a percent of sales
and was able to reduce its manufacturing costs, the effect of lower sales and
the non-recurring costs of $7.7 million brought about a decline in gross margins
excluding non-recurring amounts from 24.9% in 2000 to 21.3% in 2001.
For the year 2000, the following are highlights of contributing factors which
lead to lower gross margins in that year:
o Lower selling prices particularly in stretch wrap and carton sealing tapes
adversely affected gross margin.
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. These
charges consisted 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,
[GRAPH: GROSS PROFIT]
[GRAPH: GROSS MARGIN]
7
[GRAPH: SELLING, GENERAL & ADMINISTRATIVE]
[GRAPH: SELLING GENERAL & ADMINISTRATIVE]
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. The consultant's report supported the decision to
standardize the useful lives of major equipment to twenty (20) years.
Based on information available at the current time, Management anticipates that
both gross profits and gross margins should increase during 2002 due to the
realization of new product sales. Management's expectations in this regard are
based on the following assumptions being realized:
o Available economic data regarding raw material prices indicates that the
cost of many of the Company's raw material components should increase
sometime during 2002. Historically, the Company has been able to maintain
value-added as a percent of sales which should put pressure on the packaging
industry to increase unit selling prices as raw material costs increase.
This should bring about an expansion in the Company's gross margins and
profits.
o During 2001, the Company completed the implementation of its RDC strategy.
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 its customers.
o Based on current volume, the Company has more than 30% capacity available as
a result of various programs completed during 2001 which expanded plant
outputs. The incremental cost of additional volume beyond that of 2001 is
mostly in raw materials, freight, and energy cost. Should sales volume
increase, this will also contribute to improvements in both gross profits
and margins.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
During 2001, the Company recorded $10.8 million of non-recurring charges in
Selling, General and Administrative (SG&A) expenses. These charges are comprised
of $7.0 million of additional reserves for bad debts related primarily to
insufficient reserves related to the systems conversion of Central Products
Company (CPC), $3.0 million worth of expense for severance payments was taken
and a further amount of $0.8 million was related to the required reductions in
the value of certain assets.
During 1999, there were several unusual non-recurring charges included as SG&A
expenses. These charges were comprised of $8.5 million as a result of the MIS
difficulties which contributed to increases in the allowance for doubtful
accounts and a further $3.1 million related to several abandoned acquisitions as
well as the final costs of relocating more than twenty-five key managers to the
Company's new corporate office in Sarasota, Florida. For purposes of the graphs
above and the following detailed explanations, these non-recurring expenses have
been excluded.
8
SG&A expenses decreased by $2.6 million to an adjusted amount of $80.5 million
for 2001; increased $9.4 million to $83.1 million for 2000 from $73.7 million
excluding non-recurring items for 1999. As a percentage of sales, these expenses
were 13.5%, 12.7% and 12.9% for the years 2001 to 1999 respectively.
The year 2000 results:
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 to not integrate these operations' systems until the
Company's MIS systems were stabilized. CPC was integrated during April 2001 and
UTC is not scheduled for integration before the second quarter of 2002.
RESEARCH AND DEVELOPMENT
Research and Development (R&D) remains an important function within the Company.
Taken as a percentage of sales, R&D was 0.7%, 0.8% and 0.7% for the years 2001
to 1999 respectively. R&D continues to be focused on new products, new
technology developments, new product processes and formulations. Fiscal 2002
will see a steady rollout of significant new products into the Company's
markets.
OPERATING PROFIT
For purposes of this discussion, Operating Profit is defined as Gross Profit
less SG&A expenses.
When adjusted for all of the above highlighted effects on sales, cost of sales
and SG&A expenses incurred as a result of the MIS and plant integration
difficulties for the years from 2001 to 1999, adjusted operating profits are
$46.0 million (7.7%), $79.8 million (12.2%) and $70.4 million (12.4%) for the
years 2001 to 1999 respectively. The decline in operating profits is as a result
of several factors.
[GRAPH: RESEARCH AND DEVELOPMENT]
[GRAPH: OPERATING PROFIT]
[GRAPH: OPERATING MARGIN]
9
[GRAPH: EFFECTIVE INCOME TAX RATES]
For the year 2001:
The majority of the decline in operating profits was as a result of the effect
of the decrease in value-added dollars although the decline was lessened by
certain cost reduction programs both in manufacturing costs and SG&A expenses.
However, overall, the Company was not able to sustain this decline in
value-added dollars as the majority of its manufacturing costs and SG&A expenses
are somewhat fixed.
For the years 2000 and 1999:
Acquisitions consummated in 1999 and 2000 have brought products into the Company
which currently have gross margins below the Company's historic levels.
Furthermore, Stretch-Flex(R) stretch wrap margins were and continue to be 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 depressed both gross margins and operating
profits even further.
FINANCIAL EXPENSES
Included in financial expenses for 2001 is a non-recurring $6.7 million charge
consisting of the write-off of certain deferred costs related to the previous
financing arrangements that were refinanced at the end of 2001, together with to
the fees paid to both the Noteholders and the Banks in relation to the
refinancing.
INCOME TAX
The Company's statutory income tax rate was approximately 43.0% for the period
from 1999 to 2001. The impact of certain items for tax purposes discussed below
and 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 recent years. 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. Secondly, the Company
entered into a series of transactions that resulted in permanent differences
greater than prior years. As such, 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.
At December 31, 2001, the Company had accumulated $31.3 million of Canadian
operating loss carry-forwards expiring in 2007 and 2008 and $102.3 million of
U.S. federal and state operating losses expiring in 2017 through 2020.
In assessing the valuation of future income tax assets, Management considers
whether it is more likely than not that some portion or all of the future income
tax assets will not be realized. Management considers the scheduled reversal of
future income tax liabilities, projected future taxable income and tax planning
strategies in making this assessment. The Company expects the future income tax
assets, net of the valuation allowance at December 31, 2001, to be realized as a
result of the reversal of existing taxable temporary differences.
As part of the above analysis, a $15.5 million valuation allowance was
established during the year ended December 31, 2001.
10
NET EARNINGS - CANADIAN AND U.S. GAAP
For the purposes of the ten year graphical presentation, 1997 net earnings are
based on the earnings that would have been recorded if a restructuring charge
had not taken place in that year; 1999 net earnings are being presented before
the above highlighted negative effects on sales, gross profit and SG&A as a
result of the MIS and plant integration difficulties; 2000 net earnings are
being presented before the final effect on gross profit; and 2001 net earnings
have been presented before the effect of the non-recurring costs discussed in
the above text. The Company's net earnings adjusted as per the above for the
years 2001, 2000, and 1999 would have been $13.0 million, $42.9 million, and
$39.2 million respectively. 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
Basic EPS adjusted for non-recurring costs decreased to $0.46 for the year 2001
as compared to $1.48 for 2000 and $1.39 in 1999. The weighted-average number of
common shares outstanding for the purpose of the basic EPS calculation was 28.3
million shares for 2001, 28.3 million shares for 2000, and 27.7 million shares
for 1999.
Liquidity and Capital Resources
CASH FLOW
Cash flow from operations before changes in non-cash working capital items
decreased $44.0 million to $13.9 million for 2001, increased by $21.8 million to
$57.9 million for 2000, and decreased $21.8 million to $36.1 million in 1999.
The decrease for the year 2001 is directly related to the decline in sales which
negatively impacted earnings. In spite of the shortfall in sales, the Company's
management certain balance sheet items generated $34.2 million of additional
cash flow from working capital during 2001, during the year 2000, working
capital consumed $17.9 million of cash. This turnaround of $52.1 million in
working capital contribution to cash flow is a direct result of the Company
placing less emphasis on its acquisition strategy and more emphasis on the
completion of integrating its acquired business processes.
[GRAPH: NT EARNINGS - CDN GAAP]
[GRAPH: EPS - BASIC CDN GAAP]
11
[GRAPH: CASH FLOW BEFORE FUNDING WORKING CAPITAL]
[GRAPH: CASH FLOW AFTER FUNDING WORKING CAPITAL]
Cash flow from investing activities was also significantly different in 2001
than in recent years. For 2001, the Company acquired net capital assets of $17.9
million and increased other assets by $8.6 million, for a total use of cash of
$26.5 million. During 2000, $54.5 million of cash was used to acquire $43.9
million of net capital assets and in order to complete a small acquisition in
the amount of $28.2 million; less funds provided by a reduction of $17.6 million
in other assets. In 1999, cash flow was consumed in order to sustain investing
activities. $175.9 million was used to complete acquisitions of $108.1 million,
to increase capital assets in the amount of $57.2 million and to fund an
increase in other assets of $10.5 million.
Cash flow from financing activities was also significantly different than that
in previous years. 2001 was the first fiscal period since the Company embarked
on its acquisition strategy in 1995 in which cash flow from operations was used
to reduce debt. Short-term bank indebtedness was reduced by $12.9 million and
$86.4 million was transferred to long-term debt as a result of the refinancing
completed late in 2001. Long-term debt was reduced by $9.6 million. The Company
issued $3.4 million of common shares related to the exercise of employees' stock
options and the funding of the U.S. employee stock ownership and retirement
savings plan. It also used $0.9 million to purchase and cancel common shares.
There were no dividends paid during 2001. For the year 2000, the Company
increased short-term bank indebtedness by $26.5 million, repaid $2.2 million in
long-term debt and used $7.2 million to purchase common shares for cancellation
and to pay dividends. For the year 1999, the Company increased long-term debt by
$187.0 million in order to fund its investing activities, issued $78.6 million
of common shares, used $60.8 million to reduce other long-term debt, used $5.5
million to purchase common shares for cancellation and to pay dividends and
reduced bank indebtedness by $68.8 million.
Management is committed to further debt reductions. This will be accomplished by
a combination of the 2002 common share issue which should generate approximately
$47.4 million of net proceeds and will be used to reduce long-term debt;
maintain a policy of limited investing in capital assets; and further reductions
in working capital requirements.
12
CREDIT FACILITIES
The Company had various credit facilities that had expired during 2000 and that,
throughout 2001, were renewed on a short-term basis subject to being refinanced.
On December 20, 2001, the new financing was completed. The effect was a new
short-term line of credit committed for three years in the amount of $50.0
million. $39.0 million of which was utilized as at the year-end. A first charge
against trade receivables and inventories was granted to the banks to secure
this new facility.
Even though 2001 was a year of challenges, the Company was able to generate
positive cash flows both before and after funding of working capital needs. The
effect of the issuance of common shares in 2002, the planned reduction in 2002
capital expenditures and cash from operations and management of financial items
will further enhance the ability of the Company to reduce debt while meeting all
its short and long term funding commitments.
LONG-TERM DEBT
As part of the new financing, the balance of the then short-term debt was
cancelled and new facilities with two year and four year terms in the aggregate
amount of $95.0 million were entered into. $86.4 million was drawn against these
facilities as at December 31, 2001. A fixed charge against all assets and a
second lien against receivables and inventory was granted to both the long-term
bank debt and the Senior Noteholders. Interest rates applicable to the Senior
Noteholders was increased by 225 basis points for the duration of their Notes.
[GRAPH: BANK DEBT]
[GRAPH: LONG-TERM DEBT]
[GRAPH: LONG-TERM DEBT -- PROFORMA FOR NEW FINANCING]
13
[GRAPH: CAPITAL STOCK]
[GRAPH: CAPITAL STOCK - PROFORMA OF MARCH 1, 2002 OFFERING]
[GRAPH: CAPITAL EXPENDITURES]
CAPITAL STOCK
From time to time in 2001, 2000, and 1999, various employees exercised stock
options which contributed $1.1 million, $0.2 million, and $1.7 million during
2001, 2000, and 1999 respectively. Further, for the first time in 2001, $2.3
million worth of shares were issued in relation to funding the Company's U.S.
employee stock ownership retirement savings plan.
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 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 (NCIB) in Canada. The NCIB was extended for one-year terms during 2000 and
again during 2001. 128,100, 353,200 and 100,000 shares were purchased for
cancellation during 2001, 2000 and 1999 respectively. This resulted in a
reduction in the stated value of the Company's issued common shares in the
amounts of $0.8 million, $2.4 million and $0.7 million for the years 2001, 2000
and 1999 respectively.
As part of the purchase price for the acquisition of CPC, 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.
On March 1, 2002, the Company issued 5.1 million shares at a price of CDN $15.50
(US $9.71) per share under a "Bought Deal" as allowed under Canadian security
laws for a cash infusion of $. Proceeds have been used primarily to reduce
long-term debt.
14
CAPITAL EXPENDITURES
Total net capital expenditures were $17.9 million, $43.9 million, and $57.2
million for the years 2001 to 1999 respectively. There were a number of major
projects either ongoing or completed during this period as described below:
o The expansion of our Truro, Nova Scotia, plant began in 1999 and was
completed in 2001. 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 on
line in 2000.
o The installation of a 6th BOPP extrusion line was commercialized at the
Company's Danville, Virginia, facility during 2000 and 2001. 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 A 7th cast line for the production of Stretch Films was installed in the
Danville, Virginia, location during 2000 to bring the Company's capacity in
this product line to more than 100 million pounds.
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.
o Expenditures in the MIS area continued in 2001 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 roll-out of Warehouse Management Systems (WMS). All of
the Company's major manufacturing locations and RDC's will have a WMS by the
end of 2002. During 2000, the Company also started to bring the entire
payroll function in house. This was completed in the latter part of 2001.
Management is projecting that capital expenditures for the year 2002 should not
exceed $16.0 million and will be funded from available cash generated by
operations.
BUSINESS ACQUISITIONS
2001
There were no acquisitions in the year 2001. While acquisitions remain an
important component of the strategy to provide the Company with new products and
channels of distribution, there were no attractive opportunities presented to
the Company during the year which met Management's criteria.
2000
On September 1, 2000, the Company completed the acquisition of UTC, a
manufacturer and distributor of certain packaging products into the retail
market. With this acquisition, the Company established a presence in the North
American retail market. Prior to the acquisition, the Company was involved to a
lesser degree in this channel of distribution. The UTC acquisition has
accelerated the development of this important channel of distribution.
The purchase price was paid for with cash in the amount of
$28.2 million and $4.0 million worth of common shares of Intertape stock. The
purchase price allocation includes $20.4 million allocated to goodwill.
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 transactions costs for these acquisitions was $108.1 million.
In addition, the Company issued 300,000 share purchase warrants valued at $3.2
million to the seller of these companies. The purchase price allocations reflect
$48.5 million allocated to goodwill.
15
[GRAPH: BOOK VALUE PER SHARE]
BOOK VALUE PER SHARE
The unadjusted book value per share for the years ended 2001, 2000, and 1999 are
$10.32, $10.98, and $9.97 respectively.
DIVIDEND ON COMMON SHARES
There were no dividends declared during 2001.
On May 15, 2000, the Company declared an annual dividend of $0.106 per share
(CDN $0.16) to shareholders of record as of 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 as of March 19, 1999. The dividend was
paid on April 5, 1999, and amounted to approximately $3.0 million.
NEW ACCOUNTING REPORTING STANDARDS
Over the past several months, the Financial Accounting Standards Board approved
the issuance of SFAS No. 141, "Business Combinations", and SFAS 142, "Goodwill
and Other Intangible Assets". The new standards require that all business
acquisitions initiated after June 30, 2001, must be accounted for under the
purchase method. In addition, all intangible assets acquired that are obtained
through contractual or legal right, or are capable of being separately sold,
transferred, licensed, rented, or exchanged shall be recognized as an asset
apart from goodwill. Goodwill and intangibles with indefinite lives will no
longer be subject to amortization, but will be subject to at least an annual
assessment for impairment by applying a fair value based test.
The Company continued to amortize goodwill under its current method until
January 1, 2002. The Company will begin applying SFAS 142 beginning in the first
quarter of 2002. Application of the non-amortization provisions of SFAS 142 is
expected to result in an increase in net income of approximately $7.1 million in
2002. The Company will test for goodwill impairment using the two-step process
prescribed in SFAS 142. The first step is a screen for potential impairment,
while the second step measures the amount of the impairment, if any. The Company
expects to perform the first test of the required impairment tests of goodwill
and indefinite lived intangible assets as of January 1, 2002, in the first
quarter of 2002. Any impairment charge resulting from these transitional
impairment tests will be reflected as the cumulative effect of a change in
accounting principle in the first quarter of 2002. The Company has been able to
determine the effect of these tests; and does not anticipate that there will be
any material effect on the earnings and financial position of the Company for
2002.
16
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 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 8, 2002
/s/ Melbourne F. Yull
-------------------------------
Melbourne F. Yull
Chairman and Chief Executive Officer
/s/ Andrew M. Archibald
-------------------------------
Andrew M. Archibald
Chief Financial Officer, Secretary, Treasurer
Vice President, Administration
17
AUDITOR'S REPORT
We have audited the consolidated balance sheets of Intertape Polymer Group Inc.
as at December 31, 2001 and 2000, and the consolidated statements of earnings,
retained earnings and cash flows for each of the years in the three-year period
ended December 31, 2001. 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, 2001
and 2000, and the results of its operations and its cash flows for each of the
years in the three-year period ended December 31, 2001, in accordance with
Canadian generally accepted accounting principles.
/s/ Raymond Chabot Grant Thornton
--------------------------------------------
General Partnership
Chartered Accountants
Montreal
March 8, 2002
18
Consolidated Earnings
(In thousands of US dollars, except per share amounts)
YEARS ENDED DECEMBER 31, 2001 2000 1999
------------------------ --------- --------- ---------
Sales $ 594,905 $ 653,915 $ 569,947
Cost of sales (Note 4) 476,089 500,547 445,322
--------- --------- ---------
GROSS PROFIT 118,816 153,368 124,625
Selling, general and administrative expenses (Note 4) 91,343 83,092 85,330
Amortization of goodwill 7,014 6,540 5,451
Research and development 4,182 5,109 3,901
Financial expenses (Note 5) 38,911 27,205 22,149
Gain on sale of interest in joint venture (Note 4) (5,500)
--------- --------- ---------
141,450 116,446 116,831
--------- --------- ---------
Earnings (loss) before income taxes (22,634) 36,922 7,794
Income taxes (Note 6) (10,392) 3,500 (304)
--------- --------- ---------
Net earnings (loss) $ (12,242) $ 33,422 $ 8,098
--------- --------- ---------
EARNINGS (LOSS) PER SHARE (NOTE 7)
Basic $ (0.43) $ 1.18 $ 0.29
--------- --------- ---------
Diluted $ (0.43) $ 1.16 $ 0.29
========= ========= =========
Consolidated Retained Earnings
(In thousands of US dollars)
Years Ended December 31, 2001 2000 1999
--------- --------- ---------
Balance, beginning of year $ 116,966 $ 88,422 $ 85,184
Net earnings (loss) (12,242) 33,422 8,098
--------- --------- ---------
104,724 121,844 93,282
Dividends 3,006 2,993
Premium on purchase for cancellation of common shares 157 1,872 1,867
--------- --------- ---------
157 4,878 4,860
Balance, end of year $ 104,567 $ 116,966 $ 88,422
========= ========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
19
Consolidated Cash Flows
(In thousands of US dollars)
YEARS ENDED DECEMBER 31, 2001 2000 1999
--------- --------- ---------
OPERATING ACTIVITIES
Net earnings (loss) $ (12,242) $ 33,422 $ 8,098
Non-cash items
Depreciation and amortization 33,831 27,934 31,229
Future income taxes (9,165) 482 (3,197)
Write-off of debt issue expenses 2,165
Write-off of capital assets 1,594
Other non-cash items (Note 15) (715) (5,500)
Cash from operations before changes
in non-cash working capital items $ 13,874 $ 57,932 $ 36,130
--------- --------- ---------
Changes in non-cash working capital items
Trade receivables 10,337 (6,897) 2,274
Other receivables (1,287) 3,003 (5,595)
Inventories 17,690 3,318 (4,393)
Parts and supplies (1,626) 175 (1,692)
Prepaid expenses (3,341) (1,809) (2,123)
Accounts payable and accrued liabilities 12,431 (15,697) 21,903
--------- --------- ---------
34,204 (17,907) 10,374
Cash flows from operating activities $ 48,078 $ 40,025 $ 46,504
--------- --------- ---------
INVESTING ACTIVITIES
Acquisitions of businesses (Note 8) (28,195) (108,172)
Capital assets, net of investment tax credits (25,942) (48,142) (57,154)
Proceeds on sale of capital assets 8,000 4,239
Other assets (8,592) 17,637 (10,577)
Cash flows from investing activities $ (26,534) $ (54,461) $(175,903)
--------- --------- ---------
FINANCING ACTIVITIES
Net change in bank indebtedness (99,261) 26,468 (68,835)
Issue of long-term debt 86,400 187,000
Repayment of long-term debt (9,634) (2,249) (60,767)
Issue of common shares 3,379 176 78,583
Common shares purchased for cancellation (922) (4,194) (2,542)
Dividends paid (3,006) (2,993)
Cash flows from financing activities $ (20,038) $ 17,195 $ 130,446
--------- --------- ---------
NET INCREASE IN CASH POSITION 1,506 2,759 1,047
Effect of foreign currency translation adjustments (1,506) (2,759) (1,047)
Cash position, beginning and end of year $ -- $ -- $ --
--------- --------- ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION
Interest paid $ 32,791 $ 29,319 $ 22,065
Income taxes paid $ 1,234 $ 3,118 $ 3,153
========= ========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
20
Consolidated Balance Sheets
(In thousands of US dollars)
DECEMBER 31, 2001 2000
-------- --------
ASSETS
Current assets
Trade receivables (net of allowance for doubtful accounts
of $6,670; $10,300 in 2000) $ 86,529 $ 97,478
Other receivables (Note 9) 13,654 11,659
Inventories (Note 10) 70,688 89,264
Parts and supplies 11,592 10,069
Prepaid expenses 9,450 6,114
Future income tax assets (Note 6) 4,025 10,810
-------- --------
195,938 225,394
Capital assets (Note 11) 366,567 374,753
Other assets (Note 12) 11,680 10,636
Goodwill, at amortized cost 227,804 234,257
-------- --------
801,989 845,040
======== ========
LIABILITIES
Current liabilities
Bank indebtedness (Note 13) 28,046 127,333
Accounts payable and accrued liabilities 91,507 79,811
Instalments on long-term debt 8,310 9,532
-------- --------
127,863 216,676
Future income taxes (Note 6) 21,588 37,538
Long-term debt (Note 14) 354,663 276,684
Other liabilities (Note 15) 3,785 4,500
-------- --------
507,899 535,398
SHAREHOLDERS' EQUITY
Capital stock and share purchase warrants (Note 16) 189,496 186,908
Retained earnings 104,567 116,966
Accumulated foreign currency translation adjustments 27 5,768
-------- --------
294,090 309,642
$801,989 $845,040
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
On behalf of the Board,
/s/ Ben J. Davenport, Jr. /s/ Gordon R. Cunningham
---------------------------- ----------------------------
Ben J. Davenport, Jr., Gordon R. Cunningham,
(signed) Director (signed) Director
21
Notes to Consolidated Financial Statements
December 31,
(In US 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 and Sarasota, Florida.
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 US 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 21.
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 recorded amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the recorded amounts of revenues and expenses during the
reporting period. Actual results may differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its subsidiaries, all of which are wholly-owned. All significant intercompany
accounts and transactions have been eliminated. Investments in joint ventures
have been proportionately consolidated based on the Company's ownership
interest.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of trade receivables, other receivables, bank indebtedness as
well as accounts payable and accrued liabilities is equivalent to carrying
amounts, given the short maturity period of such financial instruments.
The fair value of receivables from joint ventures approximates the carrying
amounts reported in the consolidated balance sheets.
The fair value of long-term debt was established as described in Note 14.
FOREIGN CURRENCY TRANSLATION
Reporting currency
The accounts of the Company's operations having a functional currency other than
the US dollar have been translated into the reporting currency using the current
rate method as follows: assets and liabilities have been translated at the
exchange rate in effect at year-end and revenues and expenses have been
translated at the average rate during the year. All translation gains or losses
of the Company's net equity investments in these operations have been included
in the accumulated 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 revenue and expenses have been translated at the average exchange
rate for each year, except for depreciation and amortization which are
translated at the historical rate; non-monetary assets and liabilities have been
translated at the rates prevailing at the transaction dates. Exchange gains and
losses arising from such transactions are included in earnings.
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.
22
2 - ACCOUNTING POLICIES (CONTINUED)
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:
Rates and
Methods 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(i)
Furniture, office and computer equipment, software and other Diminishing
balance 20%
or
straight-line 7 years
------------- --------------
(i) In 2000, 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 in depreciation expense and a
corresponding increase in earnings before income taxes, net earnings, basic
earnings per share and diluted earnings per share of approximately $11.6
million, $7.3 million, $0.26 and $0.25 respectively 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 costs 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 (CICA) with respect to accounting for the
cost of pension benefits and 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 to the accounting for the defined
benefit and other retirement benefit plans:
-- 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;
23
2 - ACCOUNTING POLICIES (CONTINUED)
-- For the purpose of calculating the expected return on plan assets, those
assets are valued at the market-related value for certain plans and, for
other plans, at fair value;
-- Past service costs from plan amendments are amortized on a straight-line
basis over the average remaining service period of employees active at the
date of amendment;
-- The excess of the net actuarial gains (losses) over 10% of the greater of
the benefit obligation and the market-related value or the fair value of
plan assets is amortized over the average remaining service period of active
employees.
INCOME TAXES
The Company provides for income taxes using the liability method of tax
allocation. Under this method, future income tax assets and liabilities are
determined based on deductible or taxable temporary differences between the
financial statement values and tax values of assets and liabilities, using
substantially enacted income tax rates expected to be in effect for the year in
which the differences are expected to reverse.
STOCK OPTIONS
The Company has granted stock options as described in Note 16. 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.
REVENUE RECOGNITION
Revenue is recorded when products are shipped to customers.
EARNINGS PER SHARE
In the year ended December 31, 2000, the Company adopted, on a retroactive
basis, the new recommendations of the CICA with respect to Section 3500,
Earnings Per Share. Under the new recommendations, the treasury stock method is
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.
NEW ACCOUNTING PRONOUNCEMENTS
In December 2001, the CICA issued Handbook Section 3870, Stock-based
Compensation and Other Stock-based Payments, effective for fiscal years
beginning on or after January 1, 2002. This standard establishes, among other
things, financial accounting and reporting standards for stock-based employee
compensation plans. It defines a fair value method of accounting for employee
stock options and encourages entities to adopt that method of accounting for its
stock-based compensation plans. Under this method, compensation cost would be
measured at the grant date based on the fair value of the award and would be
recognized over the related service period. An entity that does not adopt the
fair value method of accounting will be required to include in its financial
statements pro forma disclosures of net earnings and earnings per share as if
the fair value method of accounting had been applied. In adopting this new
standard in 2002, the Company plans to adopt the latter alternative treatment.
It does not expect adoption of the standard to have a material effect on the
Company's financial position or results of operations. Under US GAAP, the
Company already follows a similar method and presents similar pro forma
disclosures.
In 2001, the CICA approved new standards modifying the method of accounting for
business combinations entered into after June 30, 2001 and dealing with the
accounting for goodwill and other intangible assets. The new standard on
goodwill and other intangible assets should be applied for fiscal years
beginning on or after January 1, 2002. When these recommendations are adopted,
the Company will no longer amortize its goodwill but will however evaluate
goodwill for impairment annually. The Company will also be required to perform a
transitional goodwill impairment test as at January 1, 2002.
The transitional goodwill impairment test has to be completed by the end of the
current fiscal year. Any impairment loss recognized as a result of the
transitional goodwill impairment test would be recognized as the effect of a
change in accounting policy and charged to opening retained earnings for the
fiscal year ending December 31, 2002. The effect of implementation will be a
reduction of amortization of goodwill of approximately $7.1 million during
fiscal year 2002. Management does not anticipate any adjustments for impairment
of goodwill as a result of the change in accounting policy. These standards are
equivalent to the US standards.
24
3 - JOINT VENTURES
The Company's pro rata share of its joint ventures' operations included in the
consolidated financial statements is summarized as follows:
2001 2000 1999
-------- -------- --------
Earnings
Sales $ 3,572 $ 2,671 $ 4,467
Gross profit 664 383 1,010
Financial expenses (income) (7) (320) 882
Net earnings (loss) 110 136 (767)
Cash flows
From operating activities 1,342 643 (1,331)
From investing activities 86 (2,232) 2,343
From financing activities (956) 512 2,566
Balance sheets
Assets
Current assets 1,307 1,483 3,091
Long-term assets 6,122 7,119 11,243
Liabilities
Current liabilities 2,925 2,885 10,817
Long-term debt 667 1,862 3,187
======== ======== ========
During the year ended December 31, 2001, the Company had no sales to its joint
ventures ($2,790,000 in 2000 and $7,716,000 in 1999). Also, the Company had no
interest income from a joint venture for the year ended December 31, 2001
($58,000 in 2000 and $1,494,000 in 1999).
4 - INTEGRATION AND TRANSITION, ASSET WRITE-DOWNS AND OTHER NON-RECURRING ITEMS
For the year ended December 31, 2001, the Company recorded asset write-downs and
non-recurring costs as a result of recent integrations, the startup of its
Regional Distribution Centers, workforce reductions and debt refinancing. Cost
of sales includes $7.7 million, selling, general and administrative expenses
include $10.8 million and financial expenses include $6.7 million of such costs.
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. Cost of sales includes $19.5
million and selling, general and administrative expenses include $11.6 million
of such costs.
5 - INFORMATION INCLUDED IN THE CONSOLIDATED STATEMENTS OF EARNINGS
2001 2000 1999
------- ------- --------
Depreciation of capital assets $24,977 $20,334 $25,077
------- ------- -------
Amortization of debt issue expenses and other deferred charges 1,840 1,060 701
======= ======= =======
Financial expenses
Interest on long-term debt 22,029 20,812 17,924
Interest on credit facilities 11,064 8,747 6,519
Refinancing costs 6,700
Interest income, exchange gain and other 18 (1,116) (1,154)
Interest capitalized to capital assets (900) (1,238) (1,140)
------- ------- -------
38,911 27,205 22,149
======= ======= =======
25
6 - INCOME TAXES
The provision for income taxes consists of the following:
2001 2000 1999
-------- -------- --------
Current $ (1,227) $ 3,018 $ 2,893
Future (9,165) 482 (3,197)
-------- -------- --------
(10,392) 3,500 (304)
======== ======== ========
The reconciliation of the combined federal and provincial statutory income tax
rate to the Company's effective tax rate is detailed as follows:
2001 2000 1999
------ ------ ------
Combined federal and provincial income tax rate 42.7% 43.1% 42.7%
Manufacturing and processing (8.6) 2.2 14.0
Foreign losses recovered (foreign income taxed) at lower rates (6.4) (5.1) 0.3
Impact of other differences 86.7 (30.7) (60.9)
Change in valuation allowance (68.5)
------ ------ ------
Effective income tax rate 45.9 9.5 (3.9)
====== ====== ======
The net future income tax liabilities are detailed as follows:
2001 2000
-------- --------
Future income tax assets
Accounts payable and accrued liabilities $ 2,257 $ 4,131
Tax credits and loss carry-forwards 55,397 17,843
Trade and other receivables 2,318 5,561
Inventories 296 1,761
Valuation allowance (15,498)
-------- --------
44,770 29,296
======== ========
Future income tax liabilities
Capital assets 62,333 54,613
Other -- 1,411
-------- --------
62,333 56,024
-------- --------
Net future income tax liabilities 17,563 26,728
Net current future income tax assets 4,025 10,810
-------- --------
Net long-term future income tax liabilities 21,588 37,538
======== ========
At December 31, 2001, the Company has $31.3 million of Canadian operating loss
carry-forwards expiring in 2007 and 2008 and $102.3 million of US federal and
state operating losses expiring 2017 through 2020.
In assessing the realizability of future income tax assets, Management considers
whether it is more likely than not that some portion or all of the future income
tax assets will not be realized. Management considers the scheduled reversal of
future income tax liabilities, projected future taxable income, and tax planning
strategies in making this assessment. The Company expects the future income tax
assets, net of the valuation allowance, at December 31, 2001 to be realized as a
result of the reversal of existing taxable temporary differences.
As part of the above analysis, a $15.5 million valuation allowance was
established during the year ended December 31, 2001.
26
7 - EARNINGS (LOSS) PER SHARE
The following table provides a reconciliation between basic and diluted earnings
(loss) per share:
2001 2000 1999
------------ ------------ ------------
Net earnings (loss) $ (12,242) $ 33,422 $ 8,098
Weighted average number of common shares outstanding 28,265,708 28,328,114 27,679,385
Effect of dilutive stock options and warrants(i) 387,738 915,423
---------- ---------- ----------
Weighted average number of diluted common shares outstanding 28,265,708 28,715,852 28,594,808
---------- ---------- ----------
Basic earnings (loss) per share (0.43) 1.18 0.29
Diluted earnings (loss) per share (0.43) 1.16 0.29
========== ========== ==========
(i) Diluted earnings (loss) per share is calculated by adjusting outstanding
shares, assuming any dilutive effects of stock options and warrants. For the
year ended December 31, 2001, the effect of the stock options and warrants
numbering 269,707 were not included as the effect would be anti-dilutive.
8 - ACQUISITIONS OF BUSINESSES
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 the acquisition date.
The operating results of the acquired businesses have been included in the
consolidated financial statements from the effective dates of acquisition.
A) YEAR ENDED DECEMBER 31, 2000
Effective as of 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.
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.
2000 1999
--------- ---------
Current assets $ 14,383 $ 26,523
Capital assets 1,316 66,541
Goodwill and other assets 20,963 49,763
--------- ---------
36,662 142,827
Current liabilities assumed (4,467) (23,250)
Net future income tax liabilities (8,255)
--------- ---------
Net assets purchased 32,195 111,322
========= =========
Consideration
Cash 28,195 108,172
Issue of common shares 4,000
Issue of share purchase warrants 3,150
--------- ---------
32,195 111,322
========= =========
27
9 - OTHER RECEIVABLES
2001 2000
------- -------
Rebates receivable $ 3,088 $ 5,734
Income and other taxes 4,903 1,046
Sales taxes 745 1,051
Other 4,918 3,828
------- -------
13,654 11,659
======= =======
10 - INVENTORIES
2001 2000
------- -------
Raw materials $15,520 $23,198
Work in process 11,815 14,483
Finished goods 43,353 51,583
------- -------
70,688 89,264
======= =======
11 - CAPITAL ASSETS
2001
-----------------------------------
Accumulated
Cost amortization Net
-------- ------------- --------
Land $ 3,317 $ $ 3,317
Buildings and related capital leases 59,425 15,241 44,184
Manufacturing equipment 370,195 101,609 268,586
Furniture, office and computer equipment, software and other 30,969 15,279 15,690
Manufacturing equipment under construction and
software projects under development 34,790 34,790
-------- -------- --------
498,696 132,129 366,567
======== ======== ========
2000
-----------------------------------
Accumulated
Cost amortization 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 and computer equipment, 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
======== ======== ========
12 - OTHER ASSETS
2001 2000
------- -------
Debt issue expenses and other deferred charges, at amortized cost $ 8,879 $ 5,773
Loans to officers and directors, including loans regarding the exercise
of stock options, without interest, various repayment terms 1,059 1,675
Receivables from joint ventures 648
Other receivables 430 65
Other, at cost 1,312 2,475
------- -------
11,680 10,636
======= =======
28
13 - BANK INDEBTEDNESS AND CREDIT FACILITIES
In December 2001, the Company completed a refinancing agreement which provides
revolving credit facilities of up to US$145.0 million (short-term US$50.0
million, long-term US$35.0 million and US$60.0 million - see Note 14). The
credit facilities are secured by certain assets of the Company and contain
certain financial covenants, including limitations on debt as a percentage of
tangible net worth, maintenance of tangible net worth above predefined levels
and fixed charge coverage ratios.
The bank indebtedness consists of the utilized portion of the short-term
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, 2001, the Company had:
-- Bank loans under a US$50.0 million revolving credit facility (Facility A),
extendible annually at the option of the lenders, converting to a two-year
term loan if not extended by the lenders. The loan is secured by a first
ranking charge on the Company's accounts receivable and inventories. The
loan bears interest at various interest rates including US prime rate plus a
premium varying between 0 and 275 basis points and LIBOR plus a premium
varying between 75 and 350 basis points. As at December 31, 2001, the
effective rate was approximately 7.95% and US$39.0 million was utilized.
An amount of $5.5 million of this credit facility is used for letters of
credit.
As at December 31, 2000, the Company had:
-- A senior unsecured bank loan under a US$80.0 million revolving credit
facility which matured June 30, 2001. This loan bears interest at US 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 7.4% and the facility was fully
utilized;
-- A senior unsecured bank loan under a US$50.0 million revolving credit
facility which matured June 30, 2001. This loan bears interest at US 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 8.7% and
US$40.0 million was utilized;
-- A senior unsecured bank loan under a US$15.0 million revolving credit
facility which matured June 30, 2001. This loans bears interest at US prime
rate. As at December 31, 2000, the effective rate was approximately 9.5% and
US$14.8 million was utilized;
-- A senior unsecured US$10.0 million demand bank loan, bearing interest at US
prime rate. As at December 31, 2000, the effective interest rate was
approximately 9.5% and US$7.7 million was utilized;
-- A senior unsecured CAN$5.0 million demand bank loan, bearing interest at
Canadian prime rate. As at December 31, 2000, the effective rate was
approximately 7.5% and CAN$2.6 million was utilized.
14 - LONG-TERM DEBT
Long-term debt consists of the following:
2001 2000
-------- --------
a) US$137,000,000 Series A and B Senior Notes $137,000(i) $137,000
b) US$137,000,000 Senior Notes 137,000(i) 137,000
c) US$8,000,000 Series 3 Notes 8,000
d) Bank loans under revolving credit facilities 86,400
e) Other debt 2,573 4,216
-------- --------
362,973 286,216
Less
Current portion of long-term debt 8,310 9,532
-------- --------
354,663 276,684
======== ========
(i) In December 2001, the senior note agreements for the US$137.0 million Series
A and B Senior Notes and the US$137.0 million Senior Notes were amended
resulting in the notes being secured by a first ranking charge on all of the
tangible and intangible assets of the Company and a second ranking charge on
the accounts receivable and inventories and an increase in the interest
rates. The Senior Notes contain the same financial covenants as the credit
facilities.
29
14 - LONG-TERM DEBT (CONTINUED)
A) SERIES A AND B SENIOR NOTES
Senior Notes bearing interest at an average rate of 10.03% (7.8% in
2000) payable semi-annually.The Series A US$25.0 million Notes mature
on May 31, 2005. The Series B US$112.0 million Notes are repayable in
semi-annual instalments of $13,440,000 starting in November 2005 and
mature on May 31, 2009.
B) SENIOR NOTES
Senior Notes bearing interest at 9.07% (6.82% in 2000) payable
semi-annually, repayable in semi-annual instalments 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 matured on June 1, 2001.
D) BANK LOANS UNDER REVOLVING CREDIT FACILITIES
Revolving reducing facility (Facility B) in the amount of up to US$35.0
million, reducing by US$3.5 million on the last day of each quarter
beginning September 30, 2002, maturing on December 31, 2003, secured by
a first ranking charge on all of the tangible and intangible assets of
the Company and a second ranking charge on the accounts receivable and
inventories. This loan bears interest at various rates including US
prime rate plus a premium varying between 75 and 320 basis points and
LIBOR plus a premium varying between 150 and 395 basis points. As at
December 31, 2001, the effective interest rate was approximately 7.95%
and US$26.4 million was utilized.
Revolving reducing term loan (Facility C) in the amount of up to
US$60.0 million, reducing by US$5.0 million on the last day of each
quarter beginning the earlier of March 31, 2004 or the last day of the
quarter following the repayment of Facility B, maturing on December 31,
2005, secured by a first ranking charge on all of the tangible and
intangible assets of the Company and a second ranking charge on all the
accounts receivable and inventories. This loan bears interest at US
prime rate plus a premium varying between 75 and 320 basis points or
LIBOR plus a premium varying between 150 and 395 basis points. As at
December 31, 2001, the effective interest rate was approximately 7.95%
and US$60.0 million was utilized.
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:
2002 $ 8,310
2003 20,012
2004 36,922
2005 111,440
2006 60,259
Thereafter 126,030
--------
Total 362,973
========
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, 2001 and 2000 are as follows:
2001 2000
------------------------- ------------------------
Carrying Carrying
Fair value amount Fair value amount
---------- -------- ---------- ---------
Long-term debt $334,054 $362,973 $ 264,680 $ 286,216
======== ======== ========= =========
30
15 - OTHER LIABILITIES
2001 2000
------ ------
Provision for future site rehabilitation costs $ 785 $1,500
Other 3,000 3,000
------ ------
3,785 4,500
====== ======
During the years ended December 31, 2001 and 2000, the Company reviewed certain
provisions, which it had previously established in accounting for prior years'
business acquisitions. This process included the obtaining from third parties
environmental, transfer pricing and employee related benefit 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 earnings $715,000 of
provisions in 2001 and $5,500,000 in 2000, which had been recorded in prior
years.
16 - 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
Subsequent to year-end, on February 19, 2002, the Company filed a final
prospectus in Canada for the registration and sale of 5,100,000 common
shares at CAN$15.50 (US$9.71) per share. The closing of the transaction
is expected to take place on or before March 1, 2002. The net proceeds
of approximately CAN$75,700,000 (US$47,441,000) will be used to
partially repay indebtedness to the Company's banking syndicate and
indebtedness to holders of its Senior Notes.
The changes in the number of outstanding common shares and their
aggregate stated value from January 1, 1999 to December 31, 2001 were
as follows:
2001 2000 1999
------------------------- ------------------------- -------------------------
Number Stated Number Stated Number Stated
of shares value of shares value of shares value
---------- ----------- ---------- ----------- ---------- -----------
Balance, beginning of year 28,211,179 $ 183,758 28,296,392 $ 181,941 25,194,333 $ 104,033
Shares issued for cash in
public offering 3,000,000 76,887
Shares issued for business
acquisitions 250,587 4,000
Shares issued to the USA
Employees' Stock
Ownership and Retirement
Savings Plan 248,906 2,240
Shares purchased for cancellation (128,100) (765) (353,200) (2,359) (100,000) (675)
Shares issued for cash upon
exercise of stock options 174,125 1,113 17,400 176 202,059 1,696
---------- ----------- ---------- ----------- ---------- -----------
Balance, end of year 28,506,110 186,346 28,211,179 183,758 28,296,392 181,941
========== =========== ========== =========== ========== ===========
31
16 - CAPITAL STOCK AND SHARE PURCHASE WARRANTS (CONTINUED)
C) SHARE PURCHASE WARRANTS
2001 2000
------- ------
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.
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% 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 10 years after the date of granting. The plan provides that
such options will vest and may be exercisable 25% per year over four
years.
All options were granted at a price equal to the average closing market
values on the day immediately preceding the date the options were
granted.
The changes in number of options outstanding were as follows:
2001 2000 1999
--------- --------- ---------
Weighted Weighted Weighted
Average average average
exercise Number of exercise Number of exercise Number of
price options price options price options
-------- --------- -------- --------- -------- ---------
Balance, beginning of year $ 12.89 2,797,036 $15.76 2,217,224 $14.30 2,406,067
Granted 9.79 386,000 10.37 1,183,000 27.88 14,000
Exercised 6.39 (174,125) 8.23 (17,400) 8.18 (202,059)
Cancelled 16.56 (601,661) 16.84 (585,788) 19.30 (784)
--------- --------- ---------
Balance, end of year 10.06 2,407,250 12.89 2,797,036 15.76 2,217,224
======== ========= ======== ========= ======== =========
Options exercisable at the end
of the year 1,022,214 1,267,019 1,286,790
========= ========= =========
The following table summarizes information about options outstanding and
exercisable at December 31, 2001:
Options outstanding Options exercisable
------------------------- ------------------------
Weighted
Average Weighted Weighted
Contractual average average
Life exercise exercise
Number (in years) price Number price
--------- ------------ -------- --------- --------
Range of exercise prices
$4.25 to $8.14 672,900 6.2 7.48 365,400 6.93
$8.31 to $19.09 1,707,350 7.4 10.74 648,064 10.41
$22.13 to $27.88 27,000 6.8 25.10 8,750 25.41
--------- ---------
2,407,250 1,022,214
========= =========
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 (CAN$26.01 to
CAN$37.11) and expire in 2003 and 2006. The revised exercise price was set at
US$8.28 (CAN$13.21), being the average of the closing price on The Toronto Stock
Exchange and the New York Stock Exchange on January 9, 2001. All other terms and
conditions of the respective options, including the percentage vesting and the
vesting and expiry dates, remain unchanged.
32
17 - COMMITMENTS AND CONTINGENCIES
A) COMMITMENTS
As at December 31, 2001, the Company had commitments aggregating
approximately $35,506,000 up to 2010 for the rental of offices,
warehouse space, manufacturing equipment, automobiles and other.
Minimum payments for the next five years are $10,752,000 in 2002,
$10,212,000 in 2003, $4,688,000 in 2004, $2,352,000 in 2005 and
$1,646,000 in 2006.
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.
18 - PENSION AND POST-RETIREMENT BENEFIT PLANS
The Company has several defined contribution plans and defined benefit plans for
substantially all its employees in both Canada and the United States. These
plans are generally contributory in Canada and non-contributory in the United
States.
DEFINED CONTRIBUTIONS 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% of each
participant's eligible salary.
The Company has expensed $2,295,000 for these plans for the year ended December
31, 2001 ($2,013,000 and $1,896,000 for 2000 and 1999 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. The funding policy is consistent with the funding requirements
of federal laws and regulations. Plan assets consist primarily of equity
securities and fixed income investments.
In Canada, certain non-union hourly employees of the Company are covered by a
plan which provides a fixed benefit of $10.65 ($9.95 and $10.33 in 2000 and 1999
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.
33
18 - PENSION AND POST-RETIREMENT BENEFIT PLANS (CONTINUED)
Information relating to the various plans is as follows:
Pension plans Other plans
------------------- -------------------
2001 2000 2001 2000
-------- -------- -------- --------
Accrued benefit obligations
Balance, beginning of year $ 18,866 $ 16,690 $ 785 $ 712
Current service cost 398 393 10 9
Interest cost 1,363 1,309 56 53
Benefits paid (754) (686) (73) (54)
Plan amendments 340
Actuarial losses 420 1,203 4 65
Foreign exchange rate adjustment (61) (43)
------- ------- ------- -------
Balance, end of year 20,572 18,866 782 785
------- ------- ------- -------
Plan assets
Balance, beginning of year 16,931 16,706
Actual return on plan assets (1,742) (1,260)
Employer contributions 1,075 2,206
Benefits paid (754) (686)
Foreign exchange rate adjustment (60) (35)
------- ------- ------- -------
Balance, end of year 15,450 16,931 -- --
------- ------- ------- -------
Funded status - deficit 5,122 1,935 782 785
Unamortized past service costs (912) (633)
Unamortized net actuarial gain (loss) (5,573) (1,772) 118 128
Unamortized transition assets (obligation) 90 100 (41) (45)
------- ------- ------- -------
Accrued benefit liability (prepaid benefit) (1,273) (370) 859 868
======= ======= ======= =======
34
18 - PENSION AND POST-RETIREMENT BENEFIT PLANS (CONTINUED)
ACCRUED BENEFIT EXPENSE
Pension plans Other plans
---------------------------- ----------------------------
2001 2000 1999 2001 2000 1999
------- ------- ------- ------- ------- -------
Current service cost $ 398 $ 393 $ 420 $ 10 $ 9 $ 21
Interest cost 1,363 1,309 804 56 53 58
Expected return on plan assets (1,652) (1,459) (846)
Amortization of past service costs 52 53 52
Amortization of transition
obligation (asset) (4) (4) (4) 4 4 32
Amortization of unrecognized
loss (gain) 18 (21) 7 (6) (14) (2)
------- ------- ------- ------- ------- -------
Pension expense for the year 175 271 433 64 52 109
======= ======= ======= ======= ======= =======
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
--------------------------- ------------------------------
2001 2000 1999 2001 2000 1999
------ ------ ------ ------ ------ ------
Canadian plans
Discount rate 7.25% 7.50% 6.50% -- -- --
Expected rate of return
on plan assets 9.25% 9.00% 9.00% -- -- --
US plans
Discount rate 7.25% 7.50% 7.50% 7.25% 7.50% 8.25%
Expected rate of return
on plan assets 9.25% 8.60% 8.60% -- -- --
Rate of compensation increase
(only for one plan) -- -- 4.00% -- -- --
===== ===== ===== ===== ===== =====
For measurement purposes, a 5.5% annual rate of increase in the per capita cost
of covered health care benefits was assumed for 2001 (5% in 2000 and 8% in 1999)
and deemed to remain constant through 2005.
35
19 - SEGMENT DISCLOSURES
The Company manufactures and sells an extensive range of specialized polyolefin
plastic packaging products primarily in Canada and in the United States. All
products have to be considered part of one reportable segment as they are made
from similar extrusion processes and differ only in the final stages of
manufacturing. A vast majority of the Company's products, while brought to
market through various distribution channels, generally have similar economic
characteristics.
The following table presents sales by country based on the location of the
manufacturing facilities:
2001 2000 1999
--------- --------- ---------
Canada $ 127,878 $ 117,799 $ 107,072
United States 500,028 581,723 487,640
Other 3,563 2,443 3,333
Transfers between geographic areas (36,564) (48,050) (28,098)
--------- --------- ---------
Total sales 594,905 653,915 569,947
========= ========= =========
The following table presents capital assets and goodwill by country based on the
locations of assets:
2001 2000 1999
-------- -------- --------
Capital assets, net
Canada $ 48,693 $ 51,388 $ 48,016
United States 312,501 316,900 296,326
Other 5,373 6,465 7,380
-------- -------- --------
Total capital assets 366,567 374,753 351,722
======== ======== ========
Goodwill, net
Canada $ 16,202 17,955 19,053
United States 211,602 216,302 198,833
-------- -------- --------
Total goodwill 227,804 234,257 217,886
======== ======== ========
No customer accounted for 10% or more of revenues in 2001, 2000 and 1999.
20 - COMPARATIVE FIGURES
Certain comparative figures have been reclassified to conform with the
presentation adopted in the current year.
21 - 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 US GAAP.
B) CONSOLIDATED BALANCE SHEETS
Under Canadian GAAP, the financial statements are prepared using the
proportionate consolidation method of accounting for joint ventures.
Under US GAAP, these investments would be accounted for using the
equity method. Note 3 to the consolidated financial statements
provides details of the impact of proportionate consolidation on the
Company's consolidated financial statements for 2001, 2000 and 1999,
including the impact on the consolidated balance sheets.
The other differences in presentation that would be required under US
GAAP to the consolidated balance sheets are not viewed as significant
enough to require further disclosure.
C) CONSOLIDATED CASH FLOWS
Canadian GAAP permits the disclosure of a subtotal of the amount of
funds provided by operations before changes in non-cash working
capital items to be included in the consolidated statements of cash
flows. US GAAP does not permit this subtotal to be presented.
36
21 - DIFFERENCES IN ACCOUNTING BETWEEN THE UNITED STATES OF AMERICA AND CANADA
(CONTINUED)
D) 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. In March 2000, the Financial Accounting
Standards Board issued FASB Interpretation No. 44 (FIN 44), which
became effective on July 1, 2000, requiring that the cancellation of
outstanding stock options by the Company and the granting of new
options with a lower exercise price (the replacement options) be
considered as an indirect reduction of the exercise price of the stock
options. Under FIN 44, the replacement options and any repriced
options are subject to variable accounting from the cancellation date
or date of grant, depending on which stock options were identified as
the replacement options. Using variable accounting, the Company is
required to recognize, at each reporting date, compensation expense
for the excess of the quoted market price of the stock over the
exercise prices of the replacement or repriced options until such time
as 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
exercises, forfeitures or cancellations of the stock options.
Depending on these factors, the Company could be required to record
significant compensation expense during the life of the options which
expire in 2006.
In November 2000, 300,000 and 50,000 replacement options were issued
at exercise prices of US$10.13 (CAN$15.50) and US$14.71 (CAN$21.94)
respectively, and in May and August 2001, 40,000 and 54,000
replacement options were issued for US$9.00 (CAN$13.80) and US$11.92
(CAN$18.80) respectively. In addition, in January 2001, 474,163
options were repriced at US$8.28 (CAN$12.40) (see note 16).
As at December 31, 2001, the Company's quoted market stock price was
US$8.30 (CAN$13.25) per share. For the options subject to variable
accounting, the compensation expense would not materially impact net
earnings (loss) reported in the consolidated statement of earnings for
2001 under US GAAP.
Under US 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 2001, 2000 and 1999 was
estimated using the Black-Scholes option-pricing model, taking into
account an expected life of five years, expected volatility of 50%
(45% in 2000 and 25% in 1999), risk-free interest rates of 4.76%
(5.96% in 2000 and 5.39% in 1999) and expected dividends ranging from
$0.00 to $0.18 per share ($0.11 in 2000 and 1999). A compensation
charge is amortized over the vesting periods.
Accordingly, the Company's net loss, basic loss per share and diluted
loss per share for the year ended December 31, 2001, would have been
increased, on a pro forma basis, by $4,212,000, $0.15 and $0.15
respectively, the net earnings, earnings per share and diluted
earnings per share for the year ended December 31, 2000, on a pro
forma basis, would have been decreased by $3,362,000, $0.12 and $0.12
respectively, and for the year ended December 31, 1999, by $2,499,000,
$0.09 and $0.09 respectively.
The weighted average fair value of options granted in 2001 was $4.74
($4.42 in 2000 and $8.79 in 1999).
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.
E) ACCUMULATED PENSION BENEFIT OBLIGATION
Under US GAAP, if the accumulated pension benefit obligation exceeds
the fair value of benefit plan assets, a liability must be recognized
in the balance sheet that is at least equal to the unfunded
accumulated benefit obligation. To the extent that the additional
minimum liability is created by a plan improvement, an intangible
asset can be established. Any additional minimum liability not covered
by an intangible asset will cause a net of tax reduction in
accumulated other comprehensive income.
37
21 - DIFFERENCES IN ACCOUNTING BETWEEN THE UNITED STATES OF AMERICA AND CANADA
(CONTINUED)
The following sets out the adjustments required to the Company's consolidated
balance sheets to conform with US GAAP:
2001 2000 1999
------- ------ ------
Future income tax assets would increase by $ 2,029 $ -- $ --
Other assets would increase by 912 -- --
Accounts payable and accrued liabilities would
increase by 6,396 -- --
Shareholders' equity would decrease by (3,455) -- --
======== ======== ========
F) CONSOLIDATED COMPREHENSIVE INCOME
As required under US GAAP, the Company would have reported the
following consolidated comprehensive income:
2001 2000 1999
-------- -------- -------
Net earnings (loss) in accordance with US GAAP $(12,242) $ 33,422 $ 8,098
Foreign currency translation adjustments (5,741) (2,722) 3,458
Minimum pension liability adjustment, net of tax
(Note 21 e)) (3,455)
-------- -------- --------
Consolidated comprehensive income (loss) (21,438) 30,700 11,556
======== ======== ========
22 - SIGNIFICANT NEW ACCOUNTING PRONOUNCEMENTS UNDER US GAAP
NEW ACCOUNTING PRONOUNCEMENTS
In 2001, the Financial Accounting Standards Board (FASB) approved the issuance
of SFAS No. 141, "Business Combinations", and SFAS 142, "Goodwill and Other
Intangible Assets". The new standards are equivalent to the Canadian standards
as disclosed in Accounting Policies - New accounting pronouncements.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" effective for fiscal years beginning after
December 15, 2001. The Company does not expect any significant impact upon
adoption.
38
Intertape Polymer Group - Locations
CORPORATE OFFICES
MONTREAL, QUEBEC, CANADA
SARASOTA, FLORIDA, U.S.A.
------------------------------------------------- ---------------------------------------------
Atlanta, Georgia, U.S.A. o Marysville, Michigan, U.S.A. + # *
Brighton, Colorado, U.S.A. # * Menasha, Wisconsin, U.S.A. # *
Carbondale, Illinois, U.S.A. # * Ontario, California, U.S.A. # *
Chicago, Illinois, U.S.A. o Piedras Negras, Mexico *
Columbia, South Carolina, U.S.A. # * Porto, Portugal # *
Cumming, Georgia, U.S.A. # * Rayne, Louisiana, U.S.A. #
Danville, Virginia, U.S.A. o + # * Richmond, Kentucky, U.S.A. # *
Edmundston, New Brunswick, Canada + # * St. Laurent, Quebec, Canada o + # *
Green Bay, Wisconsin, U.S.A. # * Tremonton, Utah, U.S.A. # *
Lachine, Quebec, Canada * Truro, Nova Scotia, Canada + # *
Los Angeles, California, U.S.A. o
------------------------------------------------- ---------------------------------------------
O REGIONAL DIST. CTR.
+ ISO CERTIFIED
# DISTRIBUTION
* MANUFACTURING LOCATION
39
Other Information
BOARD OF DIRECTORS HONORARY DIRECTOR
------------------------------------- -------------------------------------- -------------------------------------
Melbourne F. Yul Ben J. Davenport, Jr. James A. Motley, Sr.
Chairman and Chief Executive Officer Chairman, First Piedmont Corporation Director, American National Bank and
Chairman and CEO, Chatham Oil Company Trust Company American National Bancshares, inc.
L. Robbie Shaw (1) Gordon R. Cunningham (1)
Vice President President, Cumberland Asset Management
Nova Scotia Community College
Michael Richards (1) Irvine Mermelstein
Senior Partner, Stikeman Elliott Managing Partner, Market-Tek
J. Spencer Lanthier (1)
Currently Serves as a Member of the Board
of Several Publicly Traded Companies
(1) Member of Audit Committee
EXECUTIVE OFFICERS
------------------------------------- -------------------------------------- -------------------------------------
Melbourne F. Yull Burgess H. Hildreth. Salvatore Vitale, C.A.
Chairman and Chief Executive Officer Vice President, Human Resources Vice President, Finance
Andrew M. Archibald, C.A. James A. Jackson Duncan R. Yull
Chief Financial Officer, Secretary, Vice President, Chief Information Vice President
Treasurer, Vice President, Administration Officer Sales, Distribution Products
Jim Bob Carpenter H. Dale McSween Gregory A. Yull
President, Woven Products, Procurement President, Distribution Products President, Film Products
TRANSFER AGENT AND REGISTRAR
------------------------------------- --------------------------------------------
CANADA: CIBC Mellon Trust Company U.S.A.: Mellon Investor Services L.L.C.
2110 University Street, 16th floor 85 Challenger Road, 2nd Floor
Montreal, Quebec, Canada H3A 4L8 Ridgefield Park, New Jersey, U.S.A.
07660
AUDITORS
------------------------------------- --------------------------------------------
CANADA: Raymond Chabot Grant Thornton U.S.A.: Grant Thornton International
600 de la Gauchetiere West, 130 E. Randolph Street
Suite 1900 Chicago, Illinois, U.S.A. 60601-6203
Montreal, Quebec, Canada H3B 4L8
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
(866) 202-4713
E-mail: itp$info@intertapeipg.com
ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS
The Annual and Special Meeting of Shareholders will be held on Wednesday, May
22, 2002, at 4:00 p.m. at The Hilton Montreal Bonaventure Hotel, 1 Place
Bonaventure, Montreal, Quebec, Canada.
40
Notes
41
2001
Annual Report
INTERTAPE POLYMER GROUP INC.
NOTICE OF
ANNUAL AND SPECIAL MEETING
OF SHAREHOLDERS
TO BE HELD ON
MAY 22, 2002
LOGO
INTERTAPE POLYMER GROUP INC.
110 E Montee de Liesse, St. Laurent, Quebec, H4T 1N4
NOTICE OF ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS
NOTICE IS HEREBY GIVEN that the Annual and Special Meeting (the "Meeting")
of Shareholders of INTERTAPE POLYMER GROUP INC. (the "Corporation") will be held
in the Verdun/Lachine Rooms of the Hilton Montreal Bonaventure Hotel, 1 Place
Bonaventure, Montreal, Quebec, on May 22, 2002, at 4:00 o'clock in the
afternoon, for the purposes of:
(1) receiving the consolidated financial statements for the year ended
December 31, 2001, together with the auditors' report thereon;
(2) electing a board of seven (7) directors to serve until the next
annual meeting of shareholders;
(3) appointing auditors and authorizing the directors to fix their
remuneration;
(4) considering and, if deemed advisable, approving, ratifying and
confirming amendments to the Corporation's Executive Stock Option
Plan; and
(5) transacting such other business as may properly be brought before the
Meeting.
The specific details of all matters proposed to be put before the Meeting are
set forth in the accompanying Management Proxy Circular.
Only holders of record of common shares of the Corporation at the close of
business on April 12, 2002 will be entitled to vote at the Meeting.
By Order of the Board of Directors,
By: /s/ Andrew M. Archibald
-------------------------------
ANDREW M. ARCHIBALD, C.A.
Chief Financial Officer,
Secretary, Treasurer,
Vice President Administration
St. Laurent, Quebec
April 12, 2002
SHAREHOLDERS WHO ARE UNABLE TO BE PRESENT AT THE MEETING ARE REQUESTED TO
COMPLETE AND RETURN THE ENCLOSED FORM OF PROXY IN THE ENVELOPE PROVIDED FOR THAT
PURPOSE. PROXIES MUST BE RECEIVED AT THE REGISTERED OFFICE OF THE TRANSFER AGENT
OF THE CORPORATION NOT LESS THAN FORTY-EIGHT (48) HOURS PRIOR TO THE MEETING.
1
MANAGEMENT PROXY CIRCULAR
SOLICITATION OF PROXIES
THIS MANAGEMENT PROXY CIRCULAR (THE "CIRCULAR"), WHICH IS BEING MAILED TO
SHAREHOLDERS ON OR ABOUT APRIL 18, 2002, IS FURNISHED IN CONNECTION WITH THE
SOLICITATION BY THE MANAGEMENT OF INTERTAPE POLYMER GROUP INC. (THE
"CORPORATION") OF PROXIES TO BE USED AT THE ANNUAL AND SPECIAL MEETING OF
SHAREHOLDERS OF THE CORPORATION (THE "MEETING") TO BE HELD ON MAY 22, 2002 AT
THE TIME AND PLACE AND FOR THE PURPOSES SET FORTH IN THE ACCOMPANYING NOTICE OF
ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS, OR ANY ADJOURNMENT THEREOF. The
solicitation will be primarily by mail but may also be made by telephone or
other means of telecommunication by regular employees of the Corporation at
nominal cost. The cost of the solicitation will be borne by the Corporation.
All dollar amounts set forth in this Circular are in Canadian dollars,
except as otherwise indicated.
APPOINTMENT OF PROXYHOLDERS AND REVOCATION OF PROXIES
A SHAREHOLDER MAY APPOINT AS PROXYHOLDER A PERSON OTHER THAN THE DIRECTORS
OF THE CORPORATION NAMED IN THE ACCOMPANYING FORM OF PROXY TO ATTEND AND VOTE AT
THE MEETING IN HIS STEAD, AND MAY DO SO BY INSERTING THE NAME OF SUCH OTHER
PERSON, WHO NEED NOT BE A SHAREHOLDER, IN THE BLANK SPACE PROVIDED IN THE FORM
OF PROXY OR BY COMPLETING ANOTHER PROPER FORM OF PROXY.
In order for proxies to be recognized at the Meeting, the completed forms
of proxy must be received at the office of the Corporation's Canadian transfer
agent, CIBC Mellon Trust Company, 2001 University Street, 16th Floor, Montreal,
Quebec, not less than forty-eight (48) hours prior to the Meeting.
A shareholder, or his attorney authorized in writing, who executed a form
of proxy may revoke it in any manner permitted by law, including the depositing
of an instrument of revocation in writing at the principal place of business of
the Corporation, 110E Montee de Liesse, St. Laurent, Quebec H4T 1N4, at any time
up to and including the last business day preceding the day of the Meeting or an
adjournment thereof or with the Chairman of the Meeting on the day of the
Meeting or an adjournment thereof but prior to the use of the proxy at the
Meeting.
EXERCISE OF DISCRETION BY PROXYHOLDERS
THE PERSONS WHOSE NAMES ARE PRINTED ON THE ACCOMPANYING FORM OF PROXY WILL,
ON A SHOW OF HANDS OR ANY BALLOT THAT MAY BE CALLED FOR, VOTE OR WITHHOLD FROM
VOTING THE SHARES IN RESPECT OF WHICH THEY ARE APPOINTED IN ACCORDANCE WITH THE
DIRECTION OF THE SHAREHOLDER APPOINTING THEM. IF NO CHOICE IS SPECIFIED BY THE
SHAREHOLDER, THE SHARES WILL BE VOTED FOR THE ELECTION OF THE NOMINEES FOR
DIRECTORS SET FORTH IN THIS CIRCULAR UNDER THE HEADING "ELECTION OF DIRECTORS,"
FOR THE APPOINTMENT OF THE AUDITORS SET FORTH IN THIS CIRCULAR UNDER THE HEADING
"APPOINTMENT AND REMUNERATION OF AUDITORS" AND IN FAVOUR OF THE RESOLUTION
APPROVING, RATIFYING AND CONFIRMING THE AMENDMENTS TO THE CORPORATION'S
EXECUTIVE STOCK OPTION PLAN DESCRIBED IN THIS CIRCULAR UNDER THE HEADING
"AMENDMENTS TO THE EXECUTIVE STOCK OPTION PLAN."
THE ENCLOSED FORM OF PROXY CONFERS DISCRETIONARY AUTHORITY UPON THE PERSONS
NAMED THEREIN WITH RESPECT TO AMENDMENTS OR VARIATIONS TO MATTERS IDENTIFIED IN
THE NOTICE OF THE MEETING AND TO OTHER MATTERS WHICH MAY PROPERLY COME BEFORE
THE MEETING. AS AT THE DATE HEREOF, MANAGEMENT KNOWS OF NO SUCH AMENDMENT,
VARIATION OR OTHER MATTERS TO COME BEFORE THE MEETING. IF ANY MATTERS WHICH ARE
NOT NOW KNOWN SHOULD PROPERLY COME BEFORE THE MEETING, THE PERSONS NAMED IN THE
FORM OF PROXY WILL VOTE ON SUCH MATTERS IN ACCORDANCE WITH THEIR BEST JUDGMENT.
SHAREHOLDER PROPOSALS FOR 2003 ANNUAL MEETING
Shareholder proposals intended to be presented at the Corporation's 2003
Annual Meeting of Shareholders must be submitted for inclusion in the
Corporation's proxy materials prior to March 1, 2003.
VOTING SHARES AND PRINCIPAL HOLDERS THEREOF
As at April 12, 2002, the Corporation had 33,616,610 common shares
outstanding, being the only class of shares entitled to be voted at the Meeting.
Each holder of such shares is entitled to one (1) vote for each share registered
in his name as at the close of business on April 12, 2002, being the date fixed
by the Board of Directors of the Corporation for the determination of the
registered holders of such shares who are entitled to receive the Notice of
Annual and Special Meeting of Shareholders enclosed herewith (the "Record
Date"). In the event that such a shareholder transfers the
2
ownership of any of his shares after the Record Date, the transferee of such
shares shall be entitled to vote at the Meeting if he produces properly endorsed
share certificates or otherwise establishes proof of his ownership of the shares
and demands, not later than ten (10) days before the Meeting, that his name be
included in the list of shareholders entitled to vote. This list of shareholders
will be available for inspection on and after the Record Date during usual
business hours at the registered office of the Corporation and at the Meeting.
To the knowledge of the directors and officers of the Corporation, no
person beneficially owns or exercises control or direction over shares carrying
more than 10% of the voting rights attached to all shares of the Corporation.
ELECTION OF DIRECTORS
The Articles of the Corporation stipulate that the Board of Directors shall
consist of a minimum of one (1) and a maximum of eleven (11) directors. The
entire Board of Directors currently consists of seven (7) members, all of whom
are being proposed for re-election as directors. The following sets out
information regarding each of the seven (7) persons proposed by management as
nominees for election as directors to hold office until the next succeeding
annual meeting of shareholders of the Corporation or until their successors are
elected or appointed.
As at April 12, 2002
Control or Direction of
the Corporation is
Exercised by Means of (1)
--------------------------
Options to
Common Purchase
Name Age Position or office with Corporation Director Since Shares Shares
------------------------- --- ----------------------------------- ------------------- --------- ------------
Melbourne F. Yull(2) 61 Director, Chairman of the Board December 22, 1989(3) 504,395 728,000
and Chief Executive Officer
Michael L. Richards(2)(4) 63 Director December 22, 1989(3) 73,000 30,500
Irvine Mermelstein 75 Director June 20, 2001(5) 5,500 25,500
Ben J. Davenport, Jr.(2) 59 Director June 8, 1994 18,000 30,500
L. Robbie Shaw(2)(4) 58 Director June 8, 1994 4,500 28,000
Gordon R. Cunningham(4) 57 Director May 21, 1998 10,000 21,500
J. Spencer Lanthier(4) 61 Director June 20, 2001 2,000 12,500
------- -------
617,395 876,500
======= =======
---------------
(1) This information, not being within the knowledge of the Corporation, was
furnished by the respective nominees individually.
(2) Member of Compensation Committee.
(3) Director of the predecessor company since 1981.
(4) Member of Audit Committee.
(5) Previously a director of the Corporation from March 14, 1994 to August 2,
2000.
MELBOURNE F. YULL, a resident of Sarasota, Florida was appointed Chairman
of the Board and Chief Executive Officer on January 11, 1995, having been the
President and a director of the Corporation or a predecessor thereof since 1981.
MICHAEL L. RICHARDS, a resident of Westmount, Quebec, is a senior partner
in the law firm Stikeman Elliott, Montreal, Quebec.
BEN J. DAVENPORT, JR., a resident of Chatham, Virginia, is the Chief
Executive Officer of Chatham Oil Company, a distributor of oil, gasoline and
propane. He also serves as Chairman and Chief Executive Officer of First
Piedmont Corporation, a waste hauling business.
L. ROBBIE SHAW, a resident of Halifax, Nova Scotia, is the Vice President
of Nova Scotia Community College.
GORDON R. CUNNINGHAM, a resident of Toronto, Ontario, is President of
Cumberland Asset Management Corp., a discretionary investment management firm.
IRVINE MERMELSTEIN, a resident of Tucson, Arizona, is and has been the
managing partner of Market-Tek, Management Consultants since 1989. Mr.
Mermelstein has extensive years of experience in the manufacturing and
distribution of packaging products.
3
J. SPENCER LANTHIER, a resident of Toronto, Ontario currently serves as a
member of the board of directors of several publicly traded corporations. From
1993 to 1999, Mr. Lanthier held the position of Chairman and Chief Executive
Officer of KPMG Canada and was a member of the KPMG international executive
committee and board of directors.
If any of the above nominees is for any reason unavailable to serve as a
director, proxies in favour of management will be voted for another nominee in
the discretion of the persons named in the form of proxy unless the shareholder
has specified in the proxy that his shares are to be withheld from voting on the
election of directors. The Board of Directors recommends a vote in favour of
each of the nominees.
STATEMENT OF CORPORATE GOVERNANCE PRACTICES
In 1995, The Toronto Stock Exchange adopted a requirement that disclosure
be made by each listed company of its corporate governance system by making
reference to The Toronto Stock Exchange Guidelines for Corporate Governance (the
"Guidelines"). Compliance with the Guidelines is not mandatory but each listed
company is required to explain where its system of governance differs from the
Guidelines.
1. MANDATE OF THE BOARD
The mandate of the Board of Directors is to supervise the management of the
business and affairs of the Corporation, including the development of major
policy and strategy and the identification of the risks of the Corporation's
business and implementation of the appropriate systems to manage these risks.
The Board of Directors meets at least quarterly, and more frequently as required
to consider particular issues or conduct specific reviews between quarterly
meetings whenever appropriate. Governance responsibilities are undertaken by the
Board of Directors as a whole, with certain specific responsibilities delegated
to the audit and compensation committees as described below. The Board of
Directors periodically invites senior operating management to attend meetings of
the Board of Directors to report on their business responsibilities.
2. COMPOSITION OF THE BOARD
The Corporation's Board of Directors currently consists of seven (7)
directors, five (5) of whom are unrelated directors in accordance with the
definition of an unrelated director in the Guidelines. The Board of Directors
has examined its size and determined that seven (7) directors, five (5) of whom
are unrelated, is an appropriate number for continued effective decision-making
for the Corporation.
3. CHAIR OF THE BOARD
The Board of Directors is currently chaired by M.F. Yull who is also the
Chief Executive Officer of the Corporation. The Board is of the view that this
does not impair its ability to act independently of management due, inter alia,
to the independence of the remaining members of the Board of Directors and due
to the role of the Board of Directors in determining its own policies,
procedures and practices, and ensuring that the appropriate information is made
available to the Board of Directors.
4. COMMITTEES
The Board of Directors has established two (2) committees, the Audit
Committee and the Compensation Committee, to facilitate the carrying out of its
duties and responsibilities and to meet applicable statutory requirements. The
Guidelines recommend that the Audit Committee be made up of outside directors
only and that other board committees should be comprised generally of outside
directors, a majority of whom should be unrelated directors. The Audit Committee
complies with the Guidelines as it is composed of four (4) outside directors.
The Compensation Committee, although composed of a majority of outside
directors, as at present constituted, does not comply with the Guidelines
inasmuch as it has two (2) related directors and two (2) unrelated directors.
The Board 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 Corporation and to make recommendations to the Board of Directors in
respect thereto. The Committee also reviews the nature and scope of the annual
audit as proposed by the auditors and management and, with the auditors and
4
management, the adequacy of the internal accounting control procedures and
systems within the Corporation. 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 mandate of the Committee is described below under the heading "Report
on Executive Compensation". The Chairman and Chief Executive Officer, M.F. Yull,
is a member of this Committee. The Board of Directors considers his
participation in the Committee as essential and feels he should continue to
serve on the Committee provided the other members are outside directors.
5. DECISIONS REQUIRING BOARD APPROVAL
All major decisions concerning, among other things, the Corporation's
corporate status, capital, debt financing, securities distributions,
investments, acquisitions, divestitures and strategic alliances, are subject to
approval by the Board of Directors. In particular, capital investments and other
outlays of an aggregate monetary amount of one million dollars or more are
subject to the prior approval of the Board of Directors.
6. DIRECTOR RECRUITMENT AND BOARD EFFECTIVENESS
All the directors presently in office and proposed to be elected at the
next annual meeting of shareholders have served as directors in good standing of
the Corporation since 1994, other than Mr. Cunningham who was elected in 1998
and Mr. Lanthier who was elected in 2001. Mr. Mermelstein served as a director
of the Corporation from March 14, 1994 to August 2, 2000 when he resigned from
the Board of Directors in order for the Board of Directors to be in compliance
with the requirement of the Canada Business Corporations Act, that a majority of
the members of the Board of Directors be Canadian residents. Given subsequent
modifications that were made to the Canadian residency requirements contained in
the Canada Business Corporations Act, Mr. Mermelstein was proposed for
re-election on June 20, 2001 and was so re-elected by the shareholders of the
Corporation at that time. The Board of Directors has not adopted a formal policy
for the recruitment of directors.
Participation of directors is expected at all Board of Directors and
Committee meetings to which they are called. Directors are asked to notify the
Corporation if they will be unable to attend and attendance at meetings is duly
recorded. All the directors have agreed to contribute to the evaluation of their
collective as well as their individual performances.
7. SHAREHOLDER COMMUNICATION AND FEEDBACK
The fundamental objective of the Corporation's shareholder communication
policy is to ensure an open, accessible and timely exchange of information with
all shareholders respecting the business, affairs and performance of the
Corporation, subject to the requirements of securities legislation in effect and
other statutory and contractual obligations limiting the disclosure of such
information.
In order to facilitate the effective and timely dissemination of
information to all of its shareholders, the Corporation releases its disclosed
information through news wire services, the general media, telephone conferences
with investment analysts and mailings to shareholders.
APPOINTMENT AND REMUNERATION OF AUDITORS
Raymond Chabot Grant Thornton, Chartered Accountants, who have been the
auditors of the Corporation since December 22, 1989 and the auditors of the
predecessor company since 1981, will be nominated for appointment as the
Corporation's auditors to hold office until the next annual meeting of
shareholders at such remuneration as may be fixed by the Board of Directors. A
majority of the votes of the shareholders present or represented by proxy at the
Meeting is required for the approval of such matter. Representatives of Raymond
Chabot Grant Thornton will be present at the Meeting and will have an
opportunity to make a statement if they desire to do so. They will also be
available to respond to appropriate questions.
5
EXECUTIVE COMPENSATION
1. SUMMARY COMPENSATION TABLE
The following table sets forth all compensation paid in respect of the
individuals who were, at December 31, 2001, the Chief Executive Officer and the
other four most highly compensated executive officers of the Corporation (the
"named executive officers").
SUMMARY COMPENSATION TABLE
Annual Compensation
-------------------------------------------------------------------------------------------------------
Long-Term
Compensation
Awards
Securities Under
Other Annual Options Granted
Salary Bonus Compensation As At FY-End
Name and Principal Position Year $ $ ($)(1) (#)
--------------------------- ---- ------------ ------------ ------------ ----------------
M.F. Yull
Chairman of the Board and
Chief Executive Officer 2001 U.S. $475,000 0 U.S. $42,828 668,000
2000 U.S. $515,793 0 Cdn $20,587 568,000
1999 Cdn $668,928 0 Cdn $164,727 644,000
H.D. McSween
President -
Distribution Products 2001 U.S. $300,498 0 U.S. $12,730 205,165
2000 U.S. $300,544 0 U.S. $16,991 372,308
1999 U.S. $288,000 0 U.S. $57,642 241,308
A.M. Archibald
Chief Financial Officer,
Secretary, Treasurer,
Vice President
Administration 2001 Cdn $350,144 0 Cdn $11,283 197,543
2000 Cdn $354,886 0 Cdn $17,000 354,688
1999 Cdn $340,421 0 Cdn $74,912 202,686
J.B. Carpenter
President -
Woven Products 2001 U.S. $220,040 0 U.S. $14,304 35,000
2000 U.S. $221,584 0 U.S. $9,125 60,000
1999 U.S. $218,841 0 U.S. $9,257 20,000
D.R. Yull
Vice-President Sales
& Marketing -
Distribution Products 2001 U.S. $178,156 0 U.S. $19,959 104,800
2000 U.S. $154,005 0 U.S. $8,400 87,800
1999 U.S. $144,419 U.S. $37,500 U.S. $8,400 87,800
---------------
(1) Perquisites and other personal benefits do not exceed the lesser of $50,000
and 10% of the total of the annual salary and bonus for any of the named
executive officers. The amounts in this column relate to taxable benefits on
employee loans and to the Corporation's contributions to the pension plan.
The aggregate compensation for all executive officers and directors of the
Corporation who are not "named executive officers" for the fiscal year ended
December 31, 2001 amounts to U.S. $640,317.
2. EXECUTIVE STOCK OPTION PLAN
The Corporation has established an ongoing Executive Stock Option Plan
which has been amended from time to time since 1996 (the "Plan"). See
"Amendments to the Executive Stock Option Plan". The Plan is administered by the
Board of Directors. The shares offered under the Plan are common shares of the
Corporation.
6
The Board of Directors designate from time to time from the eligible
executives those executives to whom options are to be granted and determines the
number of shares covered by such options. Generally, participation in the Plan
is limited to persons holding positions that can have a significant impact on
the Corporation's long-term results. The number of common shares to which the
options relate are determined by taking into account, inter alia, the market
price of the common shares and each optionee's base salary. The exercise price
payable for each common share covered by an option is determined by the Board of
Directors but will not be less than the market value of the underlying common
shares on the day preceding the effective date of the grant. The Plan provides
that options issued thereunder shall vest 25% per year over four (4) years.
In 2001, the named executive officers who were granted stock options were
M.F. Yull who was granted 100,000 stock options, J.B. Carpenter, who was granted
10,000 stock options and D.R. Yull who was granted 60,000 stock options.
The following table sets forth each grant of options to the named executive
officers under the Plan during the financial year ended December 31, 2001.
OPTION GRANTS DURING THE FINANCIAL YEAR ENDED DECEMBER 31, 2001
% Of The Total
Number Of Options
That Were Granted
Securities To Employees
Under During The Market Value Of The
Options Financial Year Common Shares On
Granted Ended Dec. 31, Exercise Price the Date Of Grant
Name (#) 2001 ($/ Common Share) ($/ Common Share) Expiration Date
---- ---------- ----------------- ----------------- ------------------- ----------------------
D.R. Yull 60,000 15.5% U.S. $11.43(1) U.S. $11.43(1) May 17, 2007
August 15, 2007(2)
J.B. Carpenter 10,000 2.5% U.S. $ 9.00 U.S. $ 9.00 August 15, 2007
M.F. Yull 100,000 25.9% U.S. $ 8.35 U.S. $ 8.35 December 18, 2007
---------------
(1) This number represents a weighted aggregate of 10,000 options that were
granted with an exercise price of U.S.$9.00 and 50,000 options that were
granted with an exercise price of U.S.$11.92.
(2) 50,000 of the options granted have an expiration date of May 17, 2007 and
10,000 of the options granted have an expiration date of August 15, 2007.
As further highlighted in the table below, no options were exercised by any
named executive officers, executive officers or senior officers of the
Corporation in the financial year ended December 31, 2001.
AGGREGATED OPTION EXERCISES DURING THE FINANCIAL YEAR ENDED
DECEMBER 31, 2001 AND FINANCIAL YEAR-END OPTION VALUES
Value of
Unexercised Unexercised
Securities Aggregate Options Options
Acquired Value at FY-End at FY-End
on Exercise Realized (#) (U.S.$)
Name (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable
---- ---------------- ---------------- ------------------------- -------------------------
M.F. Yull Nil n/a 305,500/362,500 2,535,650/3,008,750
H.D. McSween Nil n/a 116,742/88,423 968,959/733,911
A.M. Archibald Nil n/a 110,086/87,457 913,714/725,893
J.B. Carpenter Nil n/a 6,250/28,750 51,875/238,625
D.R. Yull Nil n/a 18,550/86,250 153,965/715,875
3. PENSION ARRANGEMENTS
The Corporation maintains a defined contribution plan through its Canadian
subsidiary, Intertape Polymer Inc., for its salaried employees in Canada,
including the named executive officers who are Canadian residents.
Effective January 1, 2001, the Corporation amended and restated its USA
Employees' Retirement Plan to be a combined employee stock ownership plan and
7
401 (k) plan, to change the name of the plan to the "Intertape Polymer Group
Inc. USA Employees' Stock Ownership and Retirement Savings Plan" and to bring
the plan into compliance with recent legislative changes. The Corporation may
make annual discretionary matching contributions equal to a percentage of the
contributions made by employees, but in no event shall such contributions exceed
six percent (6%) of the employee's compensation deposited as elective
contributions. A subsidiary of the Corporation contributes to a multi-employer
plan for employees covered by collective bargaining agreements. The
Corporation's expense for such retirement savings plans for the year ended
December 31, 2001, was $3,555,000 ($2,991,000 in 2000 and $2,817,000 in 1999).
4. EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT
The employment agreement which the Corporation entered into with M.F. Yull
on July 1, 1998 was amended on November 7, 2000 and further amended on January
28, 2001. Pursuant to the terms of the employment agreement, as amended (the
"Agreement"), M.F. Yull agreed to continue to serve as Chairman of the Board and
Chief Executive Officer of the Corporation and its subsidiaries at a fixed
annual gross salary of U.S. $475,000 for the year 2001 and subsequently at
compensation levels to be reviewed annually by the Corporation in accordance
with its internal policies. M.F. Yull's fixed annual gross salary for the year
2002 remained at U.S. $475,000. The Agreement provides inter alia for annual
bonuses based on budgeted objectives of the Corporation. The Agreement also
provides for the payment of 36 months of M.F. Yull's remuneration in the event
of termination without cause or resignation within 6 months of a change of
control of the Corporation. Further, it provides for all options for the
acquisition of common shares of the Corporation previously granted to M.F. Yull
to become immediately vested and exercisable in the event of his termination
without cause, or his resignation within 6 months of a change of control of the
Corporation, or his retirement at any time after his 60th birthday or in the
event of his death, and that such options must be exercised within 36 months
following the effective date of such termination, resignation, retirement or
death. In addition to his participation in the pension plan of IPI, the
Agreement provides that M.F. Yull will receive, upon his ceasing to be an
employee for any reason, a defined benefit supplementary pension annually for
life equal to 2% of his average annual gross salary for the final 5 years of his
employment multiplied by his years of service with IPI. Furthermore, the
Agreement provides that if during the term of M.F. Yull's employment a bona fide
offer is made to all shareholders of the Corporation which, if accepted, would
result in a change of control of the Corporation, then, subject to any
applicable law, all of M.F. Yull's options which have not yet become vested and
exercisable shall become vested and exercisable immediately. Upon expiry of such
bona fide offer, if it does not result in a change of control of the
Corporation, all of M.F. Yull's unexercised options which were not vested prior
to such offer, shall immediately revert to their unvested status and to their
former provisions with respect to the time of their vesting.
The Corporation has entered into agreements dated as of January 28, 2001
with each of Messrs. A.M. Archibald, W.A. Barnes, J.B. Carpenter, B.H. Hildreth,
J.A. Jackson, G.C. Jones, H.D. McSween, S. Nelson, E. Nugent, K.R. Rogers, S.
Vitale, D.R. Yull and G.A. Yull. These agreements provide that if, within a
period of 6 months after a change in control of the Corporation, (a) the
executive voluntarily terminates his employment with the Corporation, or (b) the
Corporation terminates the executive's employment without cause, such executive
will be entitled to a lump sum in the case of his resignation or an indemnity in
lieu of notice in a lump sum in the case of his termination, equal to 12 to 24
months of such executive's remuneration at the effective date of such
resignation or termination, depending on his seniority. In addition, all options
for the acquisition of common shares of the Corporation previously granted to
such executive shall become immediately vested and exercisable and must be
exercised by such executive within 90 days following the effective date of such
resignation or termination. Furthermore, these agreements also provide that if
during the term of the executive's employment a bona fide offer is made to all
shareholders of the Corporation which, if accepted, would result in a change of
control of the Corporation, then, subject to any applicable law, all of the
executive's options which have not yet become vested and exercisable shall
become vested and exercisable immediately. Upon expiry of such bona fide offer,
if it does not result in a change of control of the Corporation, all of the
executive's unexercised options which were not vested prior to such offer, shall
immediately revert to their unvested status and to their former provisions with
respect to the time of their vesting.
5. COMPOSITION OF COMPENSATION COMMITTEE
Members of the Compensation Committee of the Corporation are Ben J.
Davenport, Jr., Michael L. Richards, L. Robbie Shaw and Melbourne F. Yull. The
committee met 3 times during the period from January 1, 2001 to December 31,
2001. M.F. Yull is Chairman of the Board and Chief Executive Officer of the
Corporation and is indebted to the Corporation as is further set out herein
8
under the caption "Indebtedness of Directors and Officers". The members of the
Compensation Committee have no other interlocking relationship as contemplated
in the Ontario Securities Regulations.
6. REPORT ON EXECUTIVE COMPENSATION
o COMPENSATION COMMITTEE REPORT
The Compensation Committee is responsible for the determination and
administration of the compensation policies and levels for the executive
officers of the Corporation and its subsidiaries. The determinations of the
Compensation Committee are communicated to the Board of Directors. The
compensation of the Chief Executive Officer, M.F. Yull, and the recommendation
for the granting of stock options to executive officers are submitted to the
Board of Directors for approval. M.F. Yull does not participate in the
Compensation Committee's or the Board of Directors' deliberations as regards to
his compensation.
In arriving at its decisions, the Compensation Committee reviews industry
comparisons for similar sized companies and for other companies in the packaging
materials sector. The Compensation Committee uses surveys from an independent
consultant from time to time to provide data to review in order to adjust its
compensation policies. The philosophy of the Corporation as regards compensation
is to be competitive with similar manufacturing companies in order to attract
and retain high-quality executives with the expertise and skills required in the
business of the Corporation. Three primary components comprise the compensation
program: basic salary, annual bonuses based on performance and long-term stock
options.
Base salaries are established at levels which will enable the Corporation
and its subsidiaries to attract, retain and reward executive officers who can
effectively contribute to the long-term success and objectives of the
Corporation.
The annual bonus program is formula-based and is measured against
pre-determined performance targets. Awards are granted on the basis of
divisional profit results, corporate results and individual performance as
measured against pre-established objectives.
Stock options are granted periodically at the discretion of the Board of
Directors. Options are granted to provide key employees who have significant
responsibility for the management, growth and future success of the Corporation
with an opportunity for rewards as a result of stock price increases. The amount
and terms of outstanding options are taken into account when determining whether
and how many new options will be granted. To encourage continued service, the
options granted, if any, become exercisable over a 4-year period in 4 equal
annual instalments, commencing on the 1st anniversary of the date of the grant.
The options have no value if the stock price of the Corporation does not
appreciate. It is felt that this approach closely aligns the interests of the
executives and the shareholders.
Each element of compensation fulfills a different role in the attraction,
retention and motivation of qualified officers and employees.
o CHIEF EXECUTIVE OFFICER COMPENSATION
The compensation level for the Chief Executive Officer has been designed to
ensure that it is not only competitive with similar size companies and companies
in the packaging materials sector, but so as to also ensure recognition of the
Chief Executive Officer's personal contribution and leadership to the
Corporation.
The compensation of the Chief Executive Officer is reviewed each year by
the Committee utilizing both financial and non-financial measurements covering
performance in the following areas: financial performance, marketing,
operations, human resource management, technology and strategic planning. In
addition, the Compensation Committee considers compensation surveys, as such
were described above, when assessing the Chief Executive Officer's compensation
level.
Submitted by the Committee:
Ben J. Davenport, Jr.
Michael L. Richards
L. Robbie Shaw
Melbourne F. Yull
9
7. PERFORMANCE GRAPH
The first graph compares the yearly change in the cumulative total
shareholder return over the five-year period on the Corporation's common shares
with the cumulative total return of the TSE 300.
The second graph compares the yearly change in the cumulative total
shareholder return over the five-year period on the Corporation's common shares
with the cumulative total return of the S&P 500. The cumulative total
shareholder return is based on the United States dollar trading values of the
common shares of the Corporation on the New York Stock Exchange.
FIVE-YEAR TOTAL RETURN ON $100 INVESTMENT (DIVIDENDS REINVESTED)
(Based on the Corporation's activity on The Toronto Stock Exchange)
(Canadian $)
GRAPH
Dec. 29 Dec. 31 Dec. 31 Dec. 31 Dec. 30 Dec. 31
1996 1997 1998 1999 2000 2001
--------- --------- --------- --------- --------- ---------
Intertape $100.00 $ 98.09 $124.82 $131.09 $ 35.86 $ 43.19
TSE 300 $100.00 $114.79 $112.81 $148.27 $159.34 $126.20
FIVE-YEAR TOTAL RETURN ON $100 INVESTMENT (DIVIDENDS REINVESTED)
(Based on the Corporation's activity on the New York Stock Exchange*)
(US $)
GRAPH
Dec. 31 Dec. 31 Dec. 31 Dec. 31 Dec. 29 Dec. 31
1996 1997 1998 1999 2000 2001
--------- --------- --------- --------- --------- ---------
Intertape $100.00 $ 95.43 $111.64 $123.87 $ 32.60 $ 37.00
S&P 500 $100.00 $133.10 $170.83 $206.50 $187.85 $165.54
---------------
(* Since August 16, 1999, the Corporation has traded on the NYSE. Prior to that
date the corporation traded on the AMEX.)
10
COMPENSATION OF DIRECTORS
In 2001, directors of the Corporation, who were not officers of the
Corporation, received an annual fee of $10,777 for their services as directors
and a fee of $1,098 for each board meeting attended ($424 for telephone
meetings). Furthermore, a total of 32,000 options to purchase common shares of
the Corporation were granted to directors of the Corporation who were not
officers of the Corporation. Such options were granted at an exercise price of
U.S.$11.92.
INDEBTEDNESS OF DIRECTORS AND OFFICERS
As listed in the table below, certain officers of the Corporation are
currently indebted to the Corporation in respect of interest-free loans that are
payable on demand. As at April 12, 2002, the aggregate indebtedness of all
directors, executive officers and senior officers to the Corporation in
connection with such loans was Cdn $720,322 and U.S. $316,616. The following
table summarizes the largest amount of such loans outstanding during the year
ended December 31, 2001 and the amount outstanding as at April 12, 2002.
TABLE OF INDEBTEDNESS OF DIRECTORS, EXECUTIVE OFFICERS AND SENIOR OFFICERS
Largest Amount
Outstanding
During Amount Outstanding
Involvement of the FY-Ended Dec. 31, as at April 12,
Corporation or its 2001 2002
Name and Principal Position subsidiaries ($) ($)
--------------------------- ------------------ ----------------- ------------------
M.F. Yull The Corporation is U.S. $630,618 U.S. $130,618
Chairman of the Board and Chief Executive the Lender Cdn $412,027 Cdn $412,027
Officer(1)
G.A. Yull The Corporation is U.S. $126,268 U.S. $126,268
President - Film Products the Lender Cdn $6,040 Cdn $6,040
A.M. Archibald The Corporation is Cdn $194,159 Cdn $194,159
Chief Financial Officer, Secretary, Treasurer, the Lender
Vice President Administration
Sal Vitale The Corporation is Cdn $77,783 Cdn $77,783
Vice-President - Finance the Lender
D.R. Yull The Corporation is U.S. $59,730 U.S. $59,730
Vice-President Sales & Marketing - Distribution the Lender
Products
H.D. McSween The Corporation is Cdn $30,313 Cdn $30,313
President - Distribution Products the Lender
---------------
(1) Proposed nominee as a director of the Corporation.
DIRECTORS' AND OFFICERS' INSURANCE
The Corporation maintains directors' and officers' liability insurance
covering liability, including defense costs, of directors and officers of the
Corporation incurred as a result of acting as such directors or officers,
provided they acted honestly and in good faith with a view to the best interests
of the Corporation. The current limit of insurance is $25,000,000 and an annual
premium of $297,000 was paid by the Corporation in the last completed financial
year with respect to the period from December 2001 to December 2002. Claims
payable to the Corporation are subject to a retention of up to $250,000 per
occurrence.
AMENDMENTS TO EXECUTIVE STOCK OPTION PLAN
In 1992, the Corporation established its ongoing Executive Stock Option
Plan (the "Plan") in respect of the common shares of the Corporation. The
purpose of the Plan is to promote a proprietary interest in the Corporation
among the executives, the key employees and the non-management directors of the
Corporation and its subsidiaries, in order to both encourage such persons to
further the development of the Corporation and to assist the Corporation in
attracting and retaining key personnel necessary for the Corporation's long term
success.
Currently, (a) the maximum number of common shares that may be issued under
the Plan is 2,829,739, being approximately 10% of the common shares of the
Corporation that were outstanding as of June 20, 2000, and (b) the
11
non-management directors of the Corporation and of its subsidiaries may receive
a maximum of 5,000 options under the Plan per annum.
On March 8, 2002, the Board of Directors adopted an amending resolution (a)
to amend Section 4 of the Plan in order to increase the number of options that
may be granted under the Plan from 2,829,739 to 3,361,661 being approximately
10% of the outstanding common shares of the Corporation as of March 8, 2002, and
(b) to remove the limitation on the number of options that may be granted to the
non-management directors of the Corporation and of its subsidiaries.
Effective March 13, 2002, the Board of Directors approved a grant of 7,500
options to each non-management director of the Corporation. Such options have an
exercise price of Cdn $15.72 (U.S. $9.92) and will expire on March 13, 2007.
These grants, for the portion in excess of 5,000 options per non-management
director, are subject to the proposed amendments to the Plan being approved by
the regulatory authorities having jurisdiction over the Corporation's common
shares and by the shareholders of the Corporation. Consequently, the following
resolution will be submitted for approval by a majority of shareholders present
or represented by proxy at the meeting.
IT IS RESOLVED:
"THAT the Executive Stock Option Plan (the "Plan") of the Corporation be
amended by:
(i) deleting the figure "2,829,739 Shares" in Section 4 of the Plan and
replacing same with "3,361,661 Shares";
(ii) deleting from Section 5 of the Plan the limitation on the number of
options that may be granted to the directors of the Corporation and
its subsidiaries; and
(iii) amending Section 7 of the Plan to add the vesting provisions in
respect of options granted to directors of the Corporation and its
subsidiaries (being twenty-five percent (25%) on the effective date
of the grant of the options and being twenty-five percent (25%) on
each of the next three (3) anniversaries of the effective date of the
grant of the options).
INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS
The management of the Corporation is unaware of any material interest of
any director or officer of the Corporation, of any management nominee for
election as a director of the Corporation or of any person who beneficially owns
or exercises control or direction over shares carrying more than 10% of the
voting rights attached to all shares of the Corporation, or any associate or
affiliate of any such person, in any transaction since the beginning of the last
completed financial year of the Corporation or in any proposed transactions that
has materially affected or will materially affect the Corporation or any of its
affiliates.
APPROVAL OF DIRECTORS
The contents and the sending of this Circular have been approved by the
directors of the Corporation.
By: /s/ Andrew M. Archibald
-------------------------------
ANDREW M. ARCHIBALD, C.A.
Chief Financial Officer,
Secretary, Treasurer,
Vice President Administration
St. Laurent, Quebec
April 12, 2002
12
INTERTAPE POLYMER GROUP INC.
PROXY
THE MANAGEMENT OF THE CORPORATION SOLICITS THIS PROXY
The undersigned shareholder of INTERTAPE POLYMER GROUP INC. (the "Corporation")
hereby appoints Melbourne F. Yull, failing whom, Michael L. Richards, or instead
of the foregoing................................................................
................................................................................,
as the proxyholder of the undersigned to attend and act for and on behalf of the
undersigned at THE ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS OF THE CORPORATION
TO BE HELD ON MAY 22, 2002, and at any adjournment thereof to the same extent
and with the same power as if the undersigned were present in person thereat and
with authority to vote and act in the said proxyholder's discretion with respect
to amendments or variations to matters referred to in the Notice of the Meeting
and with respect to other matters which may properly come before the Meeting.
THIS PROXY IS SOLICITED BY AND ON BEHALF OF THE MANAGEMENT OF THE CORPORATION.
The said proxyholder is specifically directed to vote or withhold from voting
the shares registered in the name of the undersigned as indicated below:
(1) ELECTION OF DIRECTORS
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY to vote for all
as a group (except as nominees listed below as a group.
marked to the contrary below).
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE A
LINE THROUGH THE NOMINEE'S NAME IN THE LIST BELOW.)
Melbourne F. Yull; Michael L. Richards; Ben J. Davenport Jr.; Gordon R.
Cunningham; L. Robbie Shaw; Irvine Mermelstein; J. Spencer Lanthier.
(2) VOTE FOR [ ] WITHHOLD FROM VOTING [ ] in respect of the appointment of
Raymond Chabot Grant Thornton as auditors of the Corporation and
authorizing the directors to fix their remuneration.
(3) VOTE FOR [ ] VOTE AGAINST [ ] the resolution approving, ratifying and
confirming the amendments to the Corporation's Executive Stock Option Plan.
Date:.............................
Signature ........................
Notes:
(1) This form of proxy must be executed by the shareholder or his attorney
authorized in writing or, if the shareholder is a corporation, under the
corporate seal or by an officer or attorney thereof duly authorized. Joint
holders should each sign. Executors, administrators, trustees, etc., should
so indicate when signing. If undated, this proxy is deemed to bear the date
it was mailed to the shareholder.
(2) A SHAREHOLDER MAY APPOINT AS PROXYHOLDER A PERSON (WHO NEED NOT BE A
SHAREHOLDER) OTHER THAN THE PERSONS DESIGNATED IN THIS FORM OF PROXY TO
ATTEND AND ACT ON HIS BEHALF AT THE MEETING BY INSERTING THE NAME OF SUCH
OTHER PERSON IN THE SPACE PROVIDED OR BY COMPLETING ANOTHER PROPER FORM OF
PROXY.
(3) The shares represented by this proxy will, on a show of hand or any ballot
that may be called for, be voted or withheld from voting in accordance with
the instructions given by the shareholder; in the absence of any contrary
instructions, this proxy will be voted "FOR" the itemized matters.
PROXY
PLEASE COMPLETE AND RETURN IN THE ENVELOPE PROVIDED.
LE GROUPE INTERTAPE POLYMER INC.
FORMULAIRE DE PROCURATION
LA DIRECTION DE LA SOCIETE SOLLICITE CETTE PROCURATION
Le soussigne, actionnaire de LE GROUPE INTERTAPE POLYMER INC. (la "Societe"),
constitue par les presentes Melbourne F. Yull, ou a defaut, Michael L. Richards,
ou, a leur place,...............................................................
................................................................................,
son fonde de pouvoir, pour assister et agir en son nom a L'ASSEMBLEE ANNUELLE ET
SPECIALE DES ACTIONNAIRES DE LA SOCIETE QUI AURA LIEU LE 22 MAI 2002 ou a toute
reprise. Il lui confere tous les pouvoirs qu'il pourrait exercer s'il etait
present a une telle assemblee ou reprise, avec autorite pour le fonde de pouvoir
de voter et d'agir selon sa discretion quant aux modifications ou aux variations
apportees aux questions enoncees dans l'avis de convocation a l'assemblee et
quant a toute autre question dument soumise a l'assemblee. CETTE PROCURATION EST
SOLLICITEE PAR LA DIRECTION DE LA SOCIETE ET EN SON NOM.
Le fonde de pouvoir est par les presentes specifiquement autorise a exercer
cette procuration afin de voter ou de s'abstenir de voter de la facon indiquee
ci-dessous :
(1) ELECTION DES ADMINISTRATEURS
[ ] EN FAVEUR du groupe de candidats dont [ ] ABSTENTION de voter pour
les noms paraissent ci-dessous le groupe de candidats
(sauf si indique au contraire). dont les noms apparaissent
ci-dessous.
(DIRECTIVES : POUR FAIRE EN SORTE QUE LE FONDE DE POUVOIR S'ABSTIENNE DE VOTER
EN FAVEUR DE TOUT CANDIDAT, BIFFER LE NOM DU CANDIDAT EN QUESTION DANS LA LISTE
CI-DESSOUS.)
Melbourne F. Yull; Michael L. Richards; Ben J. Davenport Jr.; Gordon R.
Cunningham; L. Robbie Shaw; Irvine Mermelstein; J. Spencer Lanthier.
(2) EN FAVEUR [ ] ABSTENTION [ ] quant a la nomination du cabinet Raymond
Chabot Grant Thornton comme verificateurs de la Societe et quant a
l'autorisation aux administrateurs de fixer leur remuneration.
(3) EN FAVEUR [ ] CONTRE [ ] la resolution approuvant, ratifiant et confirmant
les modifications au Executive Stock Option Plan de la Societe.
Date:.............................
Signature.........................
Remarques :
(1) Cette procuration doit etre signee par l'actionnaire ou par son mandataire
autorise par ecrit. Si l'actionnaire est une societe, la procuration doit
porter son sceau ou etre signee par un dirigeant ou un mandataire dument
autorise. Les codetenteurs doivent tous signer. Les executeurs,
administrateurs, fiduciaires et autres doivent faire mention de leur
fonction lorsqu'ils signent. Une procuration non datee est reputee porter
la date de son envoi par la poste a l'actionnaire.
(2) UN ACTIONNAIRE PEUT NOMMER COMME FONDE DE POUVOIR POUR ASSISTER ET AGIR EN
SON NOM A L'ASSEMBLEE UNE PERSONNE (QUI N'A PAS A ETRE ACTIONNAIRE) AUTRE
QUE LES PERSONNES DESIGNEES DANS CE FORMULAIRE DE PROCURATION EN INSCRIVANT
LE NOM DE CETTE PERSONNE DANS L'ESPACE PREVU OU EN REMPLISSANT UN AUTRE
FORMULAIRE DE PROCURATION APPROPRIE.
(3) Lors d'un vote a main levee ou d'un scrutin, les voix afferentes aux
actions representees par ce formulaire de procuration seront exprimees,
selon les directives donnees par l'actionnaire, en faveur ou en abstention
d'une affaire; en l'absence de directives contraires, les voix afferentes
aux actions seront exprimees "EN FAVEUR" des questions specifiees aux
presentes.
FORMULAIRE DE PROCURATION
VEUILLEZ COMPLETER ET POSTER DANS L'ENVELOPPE CI-JOINTE.