SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For the month of October, 2004
Commission File Number 1-10928
INTERTAPE POLMER 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 if the registrant is submitting the Form 6-K in paper as
permitted by Regulation S-T Rule 101(b)(1): __________
Indicate by check mark if the registrant is submitting the Form 6-K in paper as
permitted by Regulation S-T Rule 101(b)(7): __________
Indicate by check mark whether by furnishing the information contained in this
Form, the registrant 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-______
The Information contained in this Report is incorporated by reference into
Registration Statement No. 333-109944
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
INTERTAPE POLYMER GROUP INC.
Date: October 29, 2004 By: /s/Andrew M. Archibald
Andrew M. Archibald, C.A., CFO,
Secretary, Vice President
Administration
2004 THIRD QUARTERLY REPORT
INTERTAPE POLYMER GROUP (TM)
(LOGO)
October 29, 2004
This Management's Discussion and Analysis ("MD&A") supplements the
consolidated financial statements and related notes for the three
months and six months ended September 30, 2004. Except where
otherwise indicated, all financial information reflected herein
is prepared in accordance with Canadian generally accepted
accounting principles ("GAAP") and is expressed in US dollars.
OVERVIEW
During the third quarter of 2004, Intertape Polymer Group Inc. ("the Company"
or "IPG") completed a refinancing of virtually all of its bank indebtedness
and long-term debt. The refinancing will benefit the Company through lower
interest costs of approximately $7.0 million annually, increased working
capital flexibility and a schedule of principal repayments that provides
greater opportunity for reinvestment in the business over the next several
years. Scheduled principal payments over the next 18 months have been reduced
from $84.0 million to $3.0 million due to the refinancing.
The Company achieved an 11.2% increase in sales for the three months ended
September 30, 2004 as compared to the corresponding period in 2003. Sales
increased 3.3% for the three months ended September 30, 2004 compared to the
three months ended June 30, 2004.
Pretax earnings for the third quarter of 2004, excluding the $30.4 million
in refinancing cost, were $6.5 million compared to $5.6 million for the
third quarter of 2003, a 17.4% increase. The $6.5 million is also an
improvement over the $6.3 million in pretax earnings for the second quarter
of 2004.
The refinancing cost of $30.4 million had a related tax benefit of $10.6
million. The resulting after tax cost of the refinancing was $19.9 million.
Net earnings for the three months ended September 30, 2004, excluding the
after tax cost of the refinancing, were $5.6 million or $0.14 per share,
both basic and diluted. This compares to net earnings for the third quarter
of 2003 of $6.2 million or $0.18 per share, both basic and diluted. The
third quarter of 2003 includes a tax benefit of $0.6 million due to
adjustments in the Company's effective income tax rate for that year. The
earnings per share for the second quarter of 2004 were also $0.14 per
share, both basic and diluted.
Including the after tax cost of the refinancing, the Company reported a
net loss for the third quarter of 2004 of $14.3 million, or $0.35 per
share both basic and diluted.
Earnings, excluding the cost of the refinancing, were essentially flat
between the second quarter of 2004 and the third quarter of 2004 with
lower gross profit and higher selling, general and administrative expenses
offset by substantially lower financial expenses. The Company has already
begun to realize the benefits of the refinancing.
Gross margin and gross profit both declined during the three months ended
September 30, 2004 compared to the three months ended June 30, 2004.
Gross margin also declined in the third quarter of 2004 compared to the
third quarter of 2003 however, gross profits improved.
The Company has experienced rising raw material costs throughout 2004.
However, the Company did not begin to achieve meaningful price increases
until the second quarter of 2004 due to competitive pressures and the time
lag between incurring raw material cost increases and passing the
increases on to customers in the form of higher sales prices. The Company
has been able to continue achieving price increases in the marketplace at
levels sufficient to offset the material cost increases experienced in the
second and third quarter. The Company expects raw material costs to
continue to increase in the fourth quarter. The Company anticipates being
able to continue increasing sales prices at levels sufficient to recover
higher raw material costs and may begin restoring gross margins, but no
assurance can be provided that the marketplace will accept additional sales
price increases timed to match the expected raw material cost increases.
Gross margin declines between the second and third quarters of 2004 and
between the third quarter of 2003 and the third quarter of 2004 reflect
the fact that the Company's 2004 sales price increases to date are primarily
offsetting raw material cost increases, but not yet providing incremental
gross profit on the increased sales.
Except as discussed above and under the caption "Gross Profit and Gross
Margin" below, general economic and industrial factors during the first
nine months of 2004 were, in management's view, substantially unchanged
from December 31, 2003.
Also, in management's view, there are no general seasonal aspects of the
Company's business that affect its financial condition or results.
RECENT DEVELOPMENTS
REFINANCING
On July 28, 2004, the Company completed the offering of $125.0 million of
senior subordinated notes. On August 4, 2004 the Company borrowed the
$200.0 million term loan portion of a new $275.0 million senior secured
credit facility. The Company has not drawn on the $75.0 million revolving
credit facility except to issue $3.2 million in letters of credit.
The proceeds from the refinancing were used to repay the existing bank
credit facility, redeem all three series of existing senior secured notes,
pay related make-whole premiums, accrued interest and transaction fees
and provide cash for working capital purposes.
The Company recorded a one-time pretax charge of approximately $30.4
million ($19.9 million net of related tax benefits) associated with the
refinancing transaction.
See Note 9 to the accompanying consolidated financial statements for
further discussion of the refinancing.
PLANT CLOSURE
On October 5, 2004, the Company announced that it will be closing its
Cumming, Georgia facility by January 2005. The Company believes that the
closure will provide annual cost savings of approximately $2.0 million
and will result in a one-time charge in the fourth quarter of 2004 of
approximately $2.9 million, of which approximately $0.7 million is non-cash.
RESULTS OF OPERATIONS
SALES
Sales for the third quarter of 2004 were $177.7 million, an increase of
11.2% over the third quarter of 2003 sales of $159.8 million. The increase
includes revenues associated with the February 2004 acquisition of the duct
and masking tape operations of tesa tape. Selling prices in the third
quarter of 2004 were also approximately 3.5% higher than the third quarter
of 2003.
Sales for the first nine months of 2004 were $511.7 million compared to
$463.6 million for the same period in 2003, a 10.4% increase. The increase
is attributable to the tesa tape acquisition discussed above, the
incremental sales associated with acquiring the remaining 50% interest in
the Company's Portuguese joint venture in late June 2003, as well as higher
overall selling prices and sales volumes in 2004 compared to 2003.
Including the revenues associated with the above acquisitions, the Company
believes that it can achieve 10% annual sales growth for calendar 2004.
GROSS PROFIT AND GROSS MARGIN
Gross profit for the third quarter of 2004 totaled $37.2 million and the
gross margin was 20.9%, as compared to gross profit of $36.3 million for
the third quarter of 2003 and a gross margin of 22.7%.
Sales price increases for the third quarter of 2004 slightly exceeded new
raw material cost increases for the third quarter but did not provide
meaningful additional gross profits. The lower gross margin of 20.9% for
the third quarter of 2004 compared to the second quarter gross margin of
22.0% highlights the challenge in a rising cost environment of timing sales
price increases to not only recover increasing costs but also recover
additional gross profit dollars in order to maintain gross margins.
The 2004 third quarter gross margin is also lower than the 22.7% gross
margin experienced in the third quarter of 2003 due to the same challenge
of raising sales prices fast enough to recover rising raw material costs
and generate incremental gross profit dollars.
Gross profit for the nine months ended September 30, 2004 totaled $107.1
million and the gross margin was 20.9%. Gross profit for the nine months
ended September 30, 2003 totaled $104.2 million at a gross margin of 22.5%.
The margin decline in the first nine months of 2004 as compared to the
first nine months of 2003 was due to several factors including raw
material cost increases throughout the first three quarters of 2004, the
timing delay in passing these raw material cost increases through to
customers through sales price increases, first quarter of 2004 production
interruptions at the Truro, Nova Scotia manufacturing facility and higher
than anticipated integration costs at the Columbia facility related to
the acquired duct and masking tape operations of tesa tape.
SELLING, GENERAL AND ADMINSTRATIVE EXPENSES
Selling, general and administrative expenses were $23.3 million for the
third quarter of 2004 (13.1% of sales), compared to $22.3 million for the
third quarter of 2003 (13.9% of sales). The increase in expense reflects
the increase in selling expenses attributable to the accounts acquired in
the tesa tape acquisition.
The selling, general and administrative expenses for the nine months ended
September 30, 2004 totaled $68.4 million (13.4% of sales) compared to
$65.1 million for the nine months ended September 30, 2003 (14.0% of
sales). The 2004 increase is the result of the additional costs arising
from the tesa tape and Portuguese joint venture acquisitions discussed
previously.
OPERATING PROFIT
Operating profit is not a financial measure under GAAP in Canada or the
United States. The Company's management uses operating profit to measure
and evaluate the profit contributions of the Company's product offerings
as well as the profit contribution by channel of distribution.
Operating profit (defined as gross profit less selling, general and
administrative expenses and stock-based compensation expense) was $13.6
million for the third quarter of 2004, compared to $14.0 million for the
third quarter of 2003. The 3.2% decrease in the third quarter of 2004
compared to the corresponding amount in 2003 was the result of the higher
selling, general and administrative expenses in 2004, including stock-based
compensation expense, which was an expense that was not reported in the
first nine months of 2003 (see Changes In Accounting Policies).
Operating profit for the nine months ended September 30, 2004 totaled
$38.0 million compared to $39.1 million for the nine months ended
September 30, 2003. Gross profit increased by $3.0 million for the first
nine months of 2004 compared to the first nine months of 2003. The
selling, general and administrative expenses for the first nine months of
2004 increased by $3.4 million over the amounts for the first nine months
of 2003. Additionally, operating profits for the first nine months of
2004 reflected $0.7 million of stock-based compensation expense due to the
change in accounting policy adopted by the Company in the fourth quarter
of 2003.
FINANCIAL EXPENSES
Financial expenses for the third quarter of 2004 were $5.9 million,
excluding the $30.4 million cost of the refinancing. This compares to
$7.4 million in the third quarter of 2003. Financial expenses for the
nine months ended September 30, 2004 totaled $20.0 million excluding
the cost of the refinancing compared to $22.9 million for the nine months
ended September 30, 2003.
The nine month period to period decrease in financial expenses is the
result of substantial debt repayments in the second and third quarters of
2003 as well as the interest savings attributable to the refinancing. The
common stock issuance in late September 2003 allowed the Company to repay
$40.8 million in debt at the end of the third quarter of 2003.
The $5.9 million of financial expenses in the third quarter of 2004,
excluding the cost of the refinancing, is a decrease from $7.2 million
of financial expenses in the second quarter of 2004. The decrease is the
result of the interest savings attributable to the refinancing as well as
foreign exchange losses incurred in the second quarter.
EBITDA
A reconciliation of the Company's EBITDA, a non-GAAP financial measure, to
GAAP net earnings is set out in the EBITDA reconciliation table below.
EBITDA should not be construed as earnings before income taxes, net earnings
or cash from operating activities as determined by generally accepted
accounting principles.
The Company defines EBITDA as net income before (i) income taxes; (ii)
financial expense, net of amortization of intangibles and capitalized
software costs; (iii) refinancing expense and (iv) depreciation. Other
companies in our industry may calculate EBITDA differently than we do.
EBITDA is not a measurement of financial performance under GAAP and should
not be considered as an alternative to cash flow from operating activities
or as an alternative to net income as indicators of our operating
performance or any other measures of performance derived in accordance with
GAAP. The Company has included this non-GAAP financial measure because
management believes that it provides investors with useful information
regarding our financial condition and results of operations.
We also present EBITDA because it is used in the indenture governing our
senior subordinated notes to determine whether we may incur additional
indebtedness. Our new senior secured credit facility also contains covenants
that utilize EBITDA in connection with certain financial ratios.
EBITDA Reconciliation to Net Earnings
(in millions of US dollars)
Three Months Nine Months
Periods ended September 30, 2004 2003 2004 2003
_____________________________ ______ _____ _____ _____
$ $ $ $
Net Earnings (loss) (14.3) 6.2 (6.3) 13.0
Add back:
Financial expenses,
net of amortization 5.7 7.3 19.0 21.6
Refinancing expense 30.4 30.4
Income taxes (recovery) (9.7) (0.6) (9.3) 0.1
Depreciation and amortization 7.5 8.2 22.1 21.6
______ _____ _____ _____
EBITDA 19.6 21.1 55.9 56.3
______ _____ _____ _____
______ _____ _____ _____
NET EARNINGS
Net earnings (loss) for the third quarter of 2004 were $(14.3) million or
$(0.35) per share, both basic and diluted, compared to net earnings of
$6.2 million or $0.18 per share, both basic and diluted for the third
quarter of 2003. Excluding the net of tax effect of the refinancing of
$19.9 million, earnings for the third quarter of 2004 were $5.6 million
or $0.14 per share, both basic and diluted.
Net earnings (loss) for the nine months ended September 30, 2004 were
$(6.3) million or $(0.15) per share, both basic and diluted, compared to
net earnings for the nine months ended September 30, 2003 of $13.0 million
or $0.38 per share, both basic and diluted. Excluding the after tax cost
of the refinancing of $19.9 million, net earnings for the nine months
ended September 30, 2004 were $13.5 million or $0.33 per share, both basic
and diluted.
There was a substantial increase in the weighted average number of basic
and diluted common shares outstanding at September 30, 2004 as compared
to September 30, 2003 due to the public offering of 5,750,000 common shares
in late September 2003.
FINANCIAL POSITION
Trade receivables increased $17.1 million between December 31, 2003 and
September 30, 2004. The increase is primarily due to the higher level of
sales for the three months ended September 30, 2004 compared to the three
months ended December 31, 2003. Other receivables increased during the
third quarter of 2004 due to tax refunds expected as a result of the
refinancing. Inventories have increased $8.5 million between December
31, 2003 and September 30, 2004 in part to accommodate the requirements of
the customer accounts obtained in the tesa tape acquisition. Inventories
have also increased due to the effect of higher cost of raw materials
increasing inventory valuations and because the Company continues to pre-buy
selected raw materials in advance of price increases announced by suppliers.
Current liabilities decreased by $28.7 million between December 31, 2003
and September 30, 2004. As explained in Note 9 to the accompanying
consolidated financial statements, most of the Company's bank indebtedness
and long-term debt was refinanced during the three months ended September
30, 2004, resulting in most of the indebtedness originally due in 2004
now maturing in later years.
Long-term debt at September 30, 2004 was $332.5 million compared to
long-term debt of $235.1 million at December 31, 2003. This $97.4 million
increase resulted from additional net borrowings of approximately $42.4
million as part of the refinancing transaction in the third quarter of
2004, the recording of the Danville regional distribution center as capital
lease of $7.2 million in the first quarter of 2004 and bank indebtedness
increases during the first six months of 2004 of approximately $20.6
million to fund working capital needs and capital expenditures. The
remaining increase was bank indebtedness and current portions of long-term
debt reported as current liabilities at December 31, 2003 that have been
rescheduled as long-term debt as explained above.
The consolidated balance sheet at September 30, 2003 is included in the
accompanying consolidated financial statements for additional information.
Property, plant and equipment, net of accumulated depreciation and
amortization, increased by $2.1 million between December 31, 2003 and
September 30, 2004 due to $13.5 million of capital expenditures and $7.2
million associated with the capital lease described in "Liquidity and
Capital Resources" below. Goodwill increased $4.0 million during the
first quarter of 2004 due to the tesa tape acquisition.
OFF-BALANCE SHEET ARRANGEMENTS AND RELATED PARTY TRANSACTIONS
The Company maintains no off-balance sheet arrangements and is not a party
to any related party transactions.
LIQUIDITY AND CAPITAL RESOURCES
Cash from (required for) operations before changes in non-cash working
capital items was $(4.9) million and $17.5 million, respectively, for the
three and nine months ended September 30, 2004 compared to $12.5 million
and $33.4 million for the three and nine months ended September 30, 2003.
Changes in non-cash working capital items required $6.6 million and $23.3
million respectively, in cash flows for the three months and nine months
ended September 30, 2004 compared to providing (requiring) $7.7 million
and $(2.2) million, respectively in cash during the same periods in 2003.
Included in the 2004 cash flows from operations before changes in working
capital items is the payment of a $21.9 million make-whole payment to the
holders of the notes that were refinanced in the third quarter. Excluding
the make-whole payment and related current tax benefit of approximately
$3.9 million, cash flows from operations before changes in working capital
items for the three and nine months ended September 30, 2004 would have
been $13.1 million and $35.5 million.
Cash flows used in investing activities was $14.4 million and $30.9
million respectively, in the three months and nine months ended September
30, 2004 compared to $10.9 million and $16.6 million respectively in the
three months and nine months ended September 30, 2003. The increase in
cash required for investing activities in 2004 was due to increased capital
spending, the debt issuance costs associated with the third quarter
refinancing and the $5.5 million used to acquire the duct and masking
tape operations of tesa tape. The third quarter of 2003 includes $6.0
million of contingent consideration arising from the acquisition of certain
assets of Olympian Tape Sales, Inc. d/b/a United Tape Company.
The Company increased cash flows from financing activities during the three
months and nine months ended September 30, 2004 by $42.8 million and $64.3
million to fund the costs of the debt refinancing and the additional
investments in receivables and inventories made since December 31, 2003.
Total cash flows from financing activities decreased for the three months
ended September 30, 2003 by $6.5 million as $49.0 million of long-term
debt was repaid in part from cash flows from operations but principally
from $42.5 million received by the Company in its late September 2003
common stock issuance. For the nine months ended September 30, 2003 the
Company used $12.5 million in cash flows to reduce debt.
In 2003, the Company entered into a twenty-year capital lease for the new
Regional Distribution Center in Danville, Virginia. The lease commenced
in January 2004. This non-cash transaction was valued at $7.2 million and
is reflected in the September 30, 2004 consolidated balance sheet as an
increase in property, plant and equipment and long-term debt.
CREDIT FACILITIES
The Company maintains a $75.0 million revolving line of credit facility.
When added with the Company's cash on-hand and cash equivalents, cash
and available credit totaled $99.7 million at September 30, 2004 compared
to $32.6 million at December 31, 2003.
CURRENCY RISK
The Company is subject to currency risks through its Canadian and European
operations. Changes in the exchange rates may result in decreases or
increases in the Company's foreign exchange gains or losses. The Company
does not use derivative instruments to reduce its exposure to foreign
currency risk, as historically these risks have not been significant.
CHANGES IN ACCOUNTING POLICIES
STOCK BASED COMPENSATION EXPENSE
In the fourth quarter of 2003, the Company adopted the fair value-based
approach of the Canadian Institute of Chartered Accountants ("CICA")
Handbook Section 3870 "Stock-based Compensation and Other Stock-based
Payments." The Company adopted the new accounting rules effective
January 1, 2003 on a prospective basis for options granted for years
beginning in 2003. The three months and nine months ended September 30,
2004 include approximately $0.3 million and $0.7 million respectively
of stock-based compensation expense, compared to none in the corresponding
periods of 2003.
EMPLOYEE FUTURE BENEFITS
In March 2004, the CICA amended the CICA Handbook Section 3461, Employee
Future Benefits. Section 3461 requires additional disclosures about the
assets, cash flows and net periodic benefit cost of defined benefit
pension plans and other employee future benefit plans. The new annual
disclosures are effective for fiscal years ending on or after June 30,
2004, and new interim disclosures are effective for periods ending on
or after that date. The Company adopted the new interim disclosure
requirements of Section 3461 and provided additional interim period
disclosures of the defined benefit pension plans and other employee
future benefit plans in Note 5.
SUMMARY OF QUARTERLY RESULTS
A table of Consolidated Quarterly Statements of Earnings for the eight
most recent quarters can be found at the end of this MD&A.
ADDITIONAL INFORMATION
Additional information relating to IPG, including its Annual Information
Form is filed on SEDAR at www.sedar.com in Canada and on EDGAR at
www.sec.gov in the U.S.
FORWARD-LOOKING STATEMENTS
Certain statements and information set forth in this report, including
statements regarding the business and anticipated financial performance
of the Company, constitute "forward-looking statements" within the meaning
of the Federal Private Securities Litigation Reform Act of 1995. You
should not place undue reliance on these statements. Forward-looking
statements include information concerning possible or assumed future
results of operations, capital expenditures, the outcome of pending legal
proceedings and claims, goals and objectives for future operations,
including descriptions of our business strategies and purchase commitments
from customers, among other things. These statements are typically
identified by words such as "believe," "anticipate," "expect," "plan,"
"intend," "estimate" and similar expressions. The Company bases these
statements on particular assumptions that it has made in light of its
industry experience, as well as its perception of historical trends,
current conditions, expected future developments and other factors that
it believes are appropriate under circumstances. As you read and consider
the information in this report, you should understand that these
statements are not guarantees of performance or results. They involve
risks, uncertainties and assumptions.
Although the Company believes that these forward-looking statements are
based on reasonable assumptions, you should be aware that many factors
could affect the Company's actual financial results or results of operations
and could cause actual results to differ materially from those expressed
in the forward-looking statements. These factors include, among other
things:
- The Company's significant indebtedness and ability to incur
substantially more debt;
- Restrictions and limitations contained in the agreements governing
our debt;
- The Company's substantial leverage and ability to generate
sufficient cash to service our debt;
- The Company's ability to refinance its indebtedness on acceptable
terms as it comes due and the impact of floating interest rates
on the Company's debt service costs;
- The limited sources available to fund the Company's ongoing
operations;
- Increases in the cost of the Company's principal raw materials;
- Availability of raw materials;
- The effects of acquisitions the Company might make;
- The timing and market acceptances of the Company's new products;
- The Company's ability to achieve anticipated cost savings from the
Company's corporate initiatives;
- Competition in the industry and markets in which the Company
operates;
- The Company's ability to comply with applicable environmental laws;
- Potential litigation relating to the Company's intellectual property
rights;
- The loss of, or deterioration of our relationship with, any
significant customers;
- Changes in operating expenses or the need for additional capital
expenditures;
- Changes in the Company's strategy; and
- General economic conditions.
In light of these risks and uncertainties, there can be no assurance that
the results and events contemplated by forward-looking statements contained
in this report will in fact transpire.
Additional discussion of factors that could cause actual results to differ
materially from management's projections, estimates and expectations is
contained in the Company's SEC filings. These and other factors should
be considered carefully and undue reliance should not be placed on the
Company's forward-looking statements. The Company undertakes no duty to
update its forward-looking statements, including any sales outlook.
Intertape Polymer Group Inc.
Conslidated Quarterly Statements of Earnings
Three month periods ended
(In thousands of US dollars, except per share amounts)
(Unaudited)
------------ ----------- ------------- -------------
September 30, June 30, March 31, December 31,
2004 2004 2004 2003
------------ ----------- ------------- -------------
$ $ $ $
Sales 177,671 171,934 162,100 157,682
Cost of sales 140,480 134,097 129,986 122,975
------------ ----------- ------------- -----------
Gross profit 37,191 37,837 32,114 34,707
------------ ----------- ------------- -----------
Selling, general and
administrative expenses 23,327 22,793 22,307 24,843
Stock-based compensation expense 270 351 70 130
Impairment of goodwill
Research and development 1,121 1,153 962 212
Financial expenses 5,948 7,235 6,768 5,587
Refinancing expense 30,444 - - -
Manufacturing facility closure
costs - - - 3,005
------------ ----------- ------------- -----------
61,110 31,532 30,107 33,777
------------ ----------- ------------- -----------
Earnings (loss) before income
taxes (23,919) 6,305 2,007 930
Income taxes (recovery) (9,664) 654 (284) (4,244)
------------ ----------- ------------- -----------
Net earnings (loss) (14,255) 5,651 2,291 5,174
------------ ----------- ------------- -----------
------------ ----------- ------------- -----------
Earnings (loss) per share
Cdn GAAP - Basic - US $ (0.35) 0.14 0.06 0.13
Cdn GAAP - Diluted - US $ (0.35) 0.14 0.06 0.13
US GAAP - Basic - US $ (0.35) 0.14 0.06 0.13
US GAAP - Diluted - US $ (0.35) 0.14 0.06 0.13
Weighted average number of
shares outstanding
Cdn GAAP - Basic 41,285,161 41,215,111 40,971,739 40,870,426
Cdn GAAP - Diluted 41,285,161 41,396,403 41,528,581 41,225,776
U.S. GAAP - Basic 41,285,161 41,215,111 40,971,739 40,870,426
U.S. GAAP - Diluted 41,285,161 41,396,403 41,528,581 41,225,776
------------ ----------- ------------- -------------
September 30, June 30, March 31, December 31,
2003 2003 2003 2002
------------ ----------- ------------- -------------
$ $ $ $
Sales 159,798 150,249 153,592 151,261
Cost of sales 123,489 116,166 119,793 121,764
------------ ----------- ------------- -----------
Gross profit 36,309 34,083 33,799 29,497
------------ ----------- ------------- -----------
Selling, general and
administrative expenses 22,264 20,830 21,982 23,462
Stock-based compensation expense
Impairment of goodwill 70,000
Research and development 1,080 1,086 894 480
Financial expenses 7,409 7,825 7,700 7,621
Refinancing expense - - - -
Manufacturing facility closure
costs - - - -
------------ ----------- ------------- -----------
30,753 29,741 30,576 101,563
------------ ----------- ------------- -----------
Earnings (loss) before income
taxes 5,556 4,342 3,223 (72,066)
Income taxes (recovery) (643) 439 322 (13,292)
------------ ----------- ------------- -----------
Net earnings (loss) 6,199 3,903 2,901 (58,774)
------------ ----------- ------------- -----------
------------ ----------- ------------- -----------
Earnings (loss) per share
Cdn GAAP - Basic - US $ 0.18 0.12 0.09 (1.74)
Cdn GAAP - Diluted - US $ 0.18 0.12 0.09 (1.74)
US GAAP - Basic - US $ 0.18 0.12 0.09 (1.74)
US GAAP - Diluted - US $ 0.18 0.12 0.09 (1.74)
Weighted average number of
shares outstanding
Cdn GAAP - Basic 35,302,174 33,832,527 33,821,074 33,821,074
Cdn GAAP - Diluted 35,397,800 33,912,232 33,821,497 33,821,074
U.S. GAAP - Basic 35,302,174 33,832,527 33,821,074 33,821,074
U.S. GAAP - Diluted 35,397,800 33,912,232 33,821,497 33,821,074
Intertape Polymer Group Inc.
Consolidated Earnings
Periods ended September 30,
(In thousands of US dollars, except per share amounts)
(Unaudited)
-------------------------------------------------------
Three months Nine months
------------ ----------- ------------- -----------
2004 2003 2004 2003
------------ ----------- ------------- -----------
$ $ $ $
Sales 177,671 159,798 511,705 463,639
Cost of sales 140,480 123,489 404,563 359,448
------------ ----------- ------------- -----------
Gross profit 37,191 36,309 107,142 104,191
------------ ----------- ------------- -----------
Selling, general and
administrative expenses 23,327 22,264 68,427 65,076
Stock-based compensation expense 270 691
Research and development 1,121 1,080 3,236 3,060
Financial expenses 5,948 7,409 19,951 22,934
Refinancing expense 30,444 30,444
------------ ----------- ------------- -----------
61,110 30,753 122,749 91,070
------------ ----------- ------------- -----------
Earnings (loss) before
income taxes (23,919) 5,556 (15,607) 13,121
Income taxes (recovery) (9,664) (643) (9,294) 118
------------ ----------- ------------- -----------
Net earnings (loss) (14,255) 6,199 (6,313) 13,003
------------ ----------- ------------- -----------
------------ ----------- ------------- -----------
Earnings (loss) per share
Basic (0.35) 0.18 (0.15) 0.38
------------ ----------- ------------- -----------
------------ ----------- ------------- -----------
Diluted (0.35) 0.18 (0.15) 0.38
------------ ----------- ------------- -----------
------------ ----------- ------------- -----------
Consolidated Retained Earnings
Periods ended September 30,
(In thousands of US dollars)
(Unaudited)
-------------------------------------------------------
Three months Nine months
------------------------- ------------- -----------
2004 2003 2004 2003
------------ ----------- ------------- -----------
$ $ $ $
Balance, beginning of period 76,233 56,918 68,291 50,114
Net earnings (loss) (14,255) 6,199 (6,313) 13,003
------------ ----------- ------------- -----------
Balance, end of period 61,978 63,117 61,978 63,117
------------ ----------- ------------- -----------
------------ ----------- ------------- -----------
The accompanying notes are an integral part of the consolidated
financial statements.
Intertape Polymer Group Inc.
Consolidated Balance Sheets
As at
(In thousands of US dollars)
September 30, September 30, December 31,
2004 2003 2003
(Unaudited) (Unaudited) (Audited)
________ _________ ________
$ $ $
ASSETS
Current assets
Cash 27,868
Trade receivables,
net of allowance for
doubtful accounts of $3,959
($3,274 in September 2003,
$3,911 in December 2003) 106,436 97,034 89,297
Other receivables 12,764 10,155 11,852
Inventories 78,451 67,128 69,956
Parts and supplies 13,641 13,046 13,153
Prepaid expenses 4,013 5,917 7,924
Future income tax 2,682 2,397 2,682
________ _________ ________
245,855 195,677 194,864
Property, plant and equipment 356,680 355,297 354,627
Other assets 15,341 12,137 12,886
Future income taxes 11,593 3,812
Goodwill 177,780 172,007 173,056
________ _________ ________
807,249 735,118 739,245
________ _________ ________
________ _________ ________
LIABILITIES
Current liabilities
Bank indebtedness 179 18,376 13,944
Accounts payable and
accrued liabilities 94,591 92,739 95,270
Instalments on long-term debt 2,700 16,886 16,925
________ _________ ________
97,470 128,001 126,139
Long-term debt 332,539 234,353 235,066
Other liabilities 530 3,530 530
Future income taxes 2,623
________ _________ ________
430,539 368,507 361,735
_________ ________ _______
SHAREHOLDERS' EQUITY
Capital stock and share
purchase warrants 289,538 289,367 286,841
Contributed surplus 3,971 3,150
Retained earnings 61,978 63,117 68,291
Accumulated currency
translation adjustments 21,223 14,127 19,228
________ _________ ________
376,710 366,611 377,510
________ _________ ________
807,249 735,118 739,245
________ _________ ________
________ _________ ________
The accompanying notes are an integral part of the consolidated
financial statements.
Intertape Polymer Group Inc.
Consolidated Cash Flows
Periods ended September 30,
(In thousands of US dollars)
(Unaudited)
-------------------------------------------------------
Three months Nine months
------------------------- ------------- -----------
2004 2003 2004 2003
------------ ----------- ------------- -----------
$ $ $ $
OPERATING ACTIVITIES
Net earnings (loss) (14,255) 6,199 (6,313) 13,003
Non-cash items
Depreciation and amortization 7,482 8,226 22,119 21,589
Write-off of deferred debt
issue expenses 8,482 8,482
Stock-based compensation expense 270 691
Future income taxes (6,879) (1,926) (7,465) (1,166)
------------ ----------- ------------- -----------
Cash flow from operations
before changes in non-cash
working capital items (4,900) 12,499 17,514 33,426
------------ ----------- ------------- -----------
Changes in non-cash working
capital items
Trade receivables (4,599) (6,635) (16,847) (9,357)
Other receivables (1,351) (70) (864) 46
Inventories (4,125) 5,029 (8,003) (3,118)
Parts and supplies (340) (545) (488) (669)
Prepaid expenses 1,772 212 3,912 2,057
Accounts payable and accrued
liabilities 2,007 9,667 (990) 8,859
------------ ----------- ------------- -----------
(6,636) 7,658 (23,280) (2,182)
------------ ----------- ------------- -----------
Cash flows from operating
activities (11,536) 20,157 (5,766) 31,244
------------ ----------- ------------- -----------
INVESTING ACTIVITIES
Property, plant and equipment (3,664) (4,620) (13,539) (9,700)
Business acquisition (5,500)
Goodwill 58 (6,217) - (6,217)
Other assets (10,786) (75) (11,850) (683)
------------ ----------- ------------- -----------
Cash flows from investing
activities (14,392) (10,912) (30,889) (16,600)
------------ ----------- ------------- -----------
FINANCING ACTIVITIES
Net change in bank indebtedness (34,509) (5,762) (13,669) 9,413
Issue of long-term debt 325,000 325,787
Repayment of long-term debt (248,051) (43,212) (250,528) (64,329)
Issue of common shares 319 42,457 2,697 42,457
------------ ----------- ------------- -----------
Cash flows from financing
activities 42,759 (6,517) 64,287 (12,459)
------------ ----------- ------------- -----------
Net increase in cash position 16,831 2,728 27,632 2,185
Effect of currency translation
adjustments 1,549 (2,728) 236 (2,185)
Cash position,
beginning of period 9,488
------------ ----------- ------------- -----------
Cash position, end of period 27,868 27,868
------------ ----------- ------------- -----------
------------ ----------- ------------- -----------
The accompanying notes are an integral part of the
consolidated financial statements.
NOTE 1.
Basis of Presentation
In the opinion of management the accompanying unaudited interim
consolidated financial statements, prepared in accordance with
Canadian generally accepted accounting principles, contain all
adjustments necessary to present fairly Intertape Polymer Group
Inc.' ("IPG" or the "Company") financial position as at September
30, 2004 and 2003 and December 31, 2003 as well as its results of
operations and its cash flows for the three and nine months ended
September 30, 2004 and 2003.
These unaudited interim consolidated financial statements and notes
should be read in conjunction with IPG's annual consolidated
financial statements.
These unaudited interim consolidated financial statements and notes
follow the same accounting policies as the most recent annual
consolidated financial statements, except as described in Note 2.
NOTE 2.
Change In Accounting Policy
Employee Future Benefits
In March 2004, the Canadian Institute of Chartered Accountants
("CICA") amended CICA Handbook Section 3461, Employee Future
Benefits. Section 3461 requires additional disclosures about the
assets, cash flows and net periodic benefit cost of defined benefit
pension plans and other employee future benefit plans. The new
annual disclosures are effective for fiscal years ending on or after
June 30, 2004, and new interim disclosures are effective for periods
ending on or after that date. The Company adopted the new interim
disclosure requirements of Section 3461 and provided additional
interim period disclosures of the defined benefit pension plans and
other employee future benefit plans in Note 5.
NOTE 3.
Earnings per Share
The following table provides a reconciliation between basic and
diluted earnings (loss) per share:
In thousands of US dollars
(Except per share amounts)
Three Months Nine Months
Period ended September 30, 2004 2003 2004 2003
___________________________ ________________ ________________
$ $ $ $
Net earnings (loss)
applicable to common
shares (14,255) 6,199 (6,313) 13,003
Weighted average
number of common shares
outstanding (000's) 41,285 35,302 41,157 34,319
Effect of dilutive
stock options and
warrants (a) (000's) 0 96 0 90
___________________________ ________________ ________________
Weighted average number of
diluted common shares
outstanding (000's) 41,285 35,398 41,157 34,409
______ ______ ______ ______
______ ______ ______ ______
Basic earnings per share (0.35) 0.18 (0.15) 0.38
Diluted earnings per share (0.35) 0.18 (0.15) 0.38
(a) Diluted earnings per share is calculated by adjusting
outstanding shares, assuming any dilutive effects of stock options
and warrants.
NOTE 4.
Accounting for Compensation Programs
As at September 30, 2004 the Company had a stock-based compensation
plan, which is described in the 2003 Annual Report. Under the
transitional provisions prescribed by the CICA, the Company is
prospectively applying the recognition provisions to stock options
issued in 2003 and thereafter. The transitional provisions of the
CICA are similar to those of the US Financial Accounting Standards
Board ("FASB"). To determine the compensation cost, the fair value
of stock options is recognized on a straight-line basis over the
vesting periods. For stock options granted during the year ended
December 31, 2002, the Company is required to make pro forma
disclosures of net earnings and basic and diluted earnings per share
as if the fair value based method of accounting had been applied.
Accordingly, the Company's net earnings (loss) and basic and
diluted earnings (loss) per share for the periods ended September
30, 2004 and 2003 would have decreased or increased to the pro forma
amounts indicated in the following table:
In thousands of US dollars
(Except per share amounts)
Three months Nine months
Periods ended September 30, 2004 2003 2004 2003
________________________________________ _________________ ________________
$ $ $ $
Net earnings (loss) - as reported (14,255) 6,199 (6,313) 13,003
Add: Stock-based employee
compensation expense included in
reported net earnings (loss) 270 - 691 -
Deduct: Total stock-based employee
compensation expense determined
under fair value based method (457) (225) (1,254) (621)
_________________ _______________
Pro Forma net earnings (loss) (14,442) 5,974 (6,876) 12,382
_________________ _______________
_________________ _______________
Earnings (loss) per share:
Basic - as reported (0.35) 0.18 (0.15) 0.38
Based - pro forma (0.35) 0.17 (0.17) 0.36
Diluted - as reported (0.35) 0.18 (0.15) 0.38
Diluted - pro forma (0.35) 0.17 (0.17) 0.36
NOTE 5.
Pension and Post-Retirement Benefit Plans
In thousands of U.S. dollars
Three months Nine months
Periods ended September 30, 2004 2003 2004 2003
________________________________________ _________________ ________________
$ $ $ $
Net periodic benefit cost for defined
benefit pension plans 419 349 1,321 841
________________ _________________
________________ _________________
NOTE 6.
Financial Expenses
In thousands of U.S. dollars
Three months Nine months
Periods ended September 30, 2004 2003 2004 2003
________________________________________ _________________ ________________
$ $ $ $
Interest on long-term debt 5,645 6,371 17,466 20,406
Interest on credit facilities 122 878 1,193 1,643
Other 331 310 1,742 1,335
Interest capitalized to property,
plant and equipment (150) (150) (450) (450)
_________________ ________________
5,948 7,409 19,951 22,934
_________________ ________________
_________________ ________________
NOTE 7.
Capital Stock
In May 2004, the Company issued 225,160 common shares to the USA
Employees Stock Ownership and Retirement Savings Plan at a value of
$1,727,000.
During the three months ended March 31, 2004, 115,125 common shares
at a value of $970,000 were issued to employees who exercised stock
options.
In September 2003, the Company issued 5,750,000 common shares for cash
consideration of CAN$57,500,000 - (U.S.$ 42,512,000). The net proceeds
after tax benefits were approximately $41,300,000.
In August 2003, the Company issued 238,535 common shares to the USA
Employees Stock Ownership and Retirement Savings Plan at a value of
U.S.$1,694,000.
In June 2003, the Company issued 1,030,767 common shares to acquire
the remaining 50% common equity interest in Fibope Portuguesa Filmes
Biorientados S.A., a manufacturer and distributor of film products
in Portugal.
The Company's shares outstanding as at September 30, 2004, December
31, 2003 and September 30, 2003 were 41,285,161, 40,944,876 and
40,840,376 respectively.
Weighted average number of common shares outstanding:
Periods ended Three Months Nine Months
September 30, 2004 2003 2004 2003
________________________ _______________________ _______________________
CDN GAAP - Basic 41,285,161 35,302,174 41,156,911 34,318,592
CDN GAAP - Diluted 41,285,161 35,397,800 41,156,911 34,409,403
U.S. GAAP - Basic 41,285,161 35,302,174 41,156,911 34,318,592
U.S. GAAP - Diluted 41,285,161 35,397,800 41,156,911 34,409,403
The Company did not declare or pay dividends during the nine months
ended September 30, 2004 or the nine months ended September 30, 2003.
NOTE 8.
Business Acquisition
In February 2004, the Company purchased for a cash consideration of
$5.5 million plus contingent consideration (dependent on business
retention), assets relating to the masking and duct tape operations
of tesa tape, inc. ("tesa tape"). At the same time, the Company
finalized its three-year agreement to supply duct tape and masking
tape to tesa tape.
The purchase was accounted for as a business combination and,
accordingly, the purchase method of accounting was used. The purchase
price was allocated to the assets purchased based on their estimated
fair values as at the date of acquisition and includes $4.0 million
of goodwill. Any contingent consideration paid will be recorded as
an increase in goodwill.
NOTE 9.
Refinancing
On July 28, 2004 the Company completed the offering of $125.0 million
of senior subordinated notes due 2014. On August 4, 2004 the
Company established a new $275.0 million senior secured credit
facility, consisting of a $200.0 million term loan and a $75.0
million revolving credit facility ($71.8 million available at
September 30, 2004 due to outstanding letters of credit of $3.2
million). The proceeds from the refinancing were used to repay the
existing bank credit facility, redeem all three series of existing
senior secured notes, pay related make-whole premiums, accrued
interest and transaction fees and provide cash for general working
capital purposes.
The $125.0 million senior subordinated notes bear interest at an
annual interest rate of 8.50% payable semi-annually on February 1
and August 1. All principal is due on August 1, 2014.
The term loan bears interest at a floating rate tied to either an
alternate base rate (plus 1.25%) or LIBOR (plus 2.25%). The
revolving credit facility is a five year commitment at floating
rates tied to either an alternate base rate (plus 1.75%), Canadian
prime rate (plus 1.75%) or LIBOR (plus 2.75%). The revolving credit
facility interest rate spreads are determined by a pricing grid
based on the achievement of certain leverage ratios. The Company
will also pay an annual 0.50% commitment fee on the unused portion
of the revolving credit facility.
The term loan includes scheduled quarterly repayments of $500,000
commencing December 31, 2004 though June 30, 2010. Beginning
September 30, 2010 the Company has four final quarterly principal
repayments of $47.125 million each. The loan agreement also requires
an annual excess cash flow calculation that can result in
accelerated principal repayments from excess cash flow as defined
in the agreement.
The senior secured credit facility is guaranteed by, and secured by
a first lien on the assets of the Company, including substantially
all of its subsidiaries.
Both the senior subordinated notes and the senior secured credit
facility require the Company to meet certain financial covenants on
an ongoing basis, including a maximum leverage ratio and minimum
interest and fixed charges coverage ratios.
As a result of the refinancing, the Company recorded a one-time
pretax charge of approximately $30.4 million in the third quarter
of 2004. The principal elements of the one-time charge are a
make-whole premium of approximately $21.9 million and the write-off
of deferred financing costs of approximately $8.5 million
attributable to the debt that was refinanced.
NOTE 10.
Subsequent Event
On October 5, 2004, the Company announced that it will close its
Cumming, Georgia facility by January 2005. The closure will result
in a one-time charge in the fourth quarter of 2004 of approximately
$2.9 million, of which approximately $0.7 million is non-cash.
Information Request Form
I would like to o receive or o continue receiving financial information on
Intertape Polymer Group.
Name: ____________________________________________________
Title: ____________________________________________________
Firm: ____________________________________________________
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Telephone: ____________________________________________________
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Please Fax a copy of this page to:
The Secretary
Intertape Polymer Group Inc.
Fax: 941-727-3798
110E Montee de Liesse
Montreal Quebec
Canada, H4T 1N4
Investor Relations
Toll Free: 866-202-4713
www.intertapepolymer.com
itp$info@intertapeipg.com
Form 52-109FT2 - Certification of Interim Filings during Transition Period
I, Melbourne F. Yull, Chairman of the Board and Chief Executive Officer of
INTERTAPE POLYMER GROUP INC./LE GROUPE INTERTAPE POLYMER INC. certify that:
1. I have reviewed the interim filings (as this term is defined in
Multilateral Instrument 52-109 Certification of Disclosure in Issuers'
Annual and Interim Filings) of INTERTAPE POLYMER GROUP INC./LE GROUPE
INTERTAPE POLYMER INC., (the "issuer") for the interim period ending
September 30, 2004;
2. Based on my knowledge, the interim filings do not contain any untrue
statement of a material fact or omit to state a material fact required
to be stated or that is necessary to make a statement not misleading
in light of the circumstances under which it was made, with respect to
the period covered by the interim filings; and
3. Based on my knowledge, the interim financial statements together with
the other financial information included in the interim filings fairly
present in all material respects the financial condition, results of
operations and cash flows of the issuer, as of the date and for the
periods presented in the interim filings.
Date: October 29, 2004
/s/Melbourne F. Yull
Melbourne F. Yull
Chairman of the Board and Chief Executive Officer
Form 52-109FT2 - Certification of Interim Filings during Transition Period
I, Andrew M. Archibald, Chief Financial Officer, Secretary and Vice President
Administration of INTERTAPE POLYMER GROUP INC./LE GROUPE INTERTAPE POLYMER
INC. certify that:
1. I have reviewed the interim filings (as this term is defined in
Multilateral Instrument 52-109 Certification of Disclosure in Issuers'
Annual and Interim Filings) of INTERTAPE POLYMER GROUP INC./LE GROUPE
INTERTAPE POLYMER INC., (the "issuer") for the interim period ending
September 30, 2004;
2. Based on my knowledge, the interim filings do not contain any untrue
statement of a material fact or omit to state a material fact required
to be stated or that is necessary to make a statement not misleading
in light of the circumstances under which it was made, with respect
to the period covered by the interim filings; and
3. Based on my knowledge, the interim financial statements together with
the other financial information included in the interim filings fairly
present in all material respects the financial condition, results of
operations and cash flows of the Issuer, as of the date and for the
periods presented in the interim filings.
Date: October 29, 2004
/s/Andrew M. Archibald
Andrew M. Archibald
Chief Financial Officer,
Secretary and Vice President Administration