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FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Report of Foreign Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For the month of May, 1999
Intertape Polymer Group Inc.
110E Montee de Liesse, St. Laurent, Quebec, Canada, H4T 1N4
[Indicate by check mark whether the registrant files or
will file annual reports under over Form 20-F or Form 40-F
Form 20-F X Form 40-F
----- -----
[Indicate by check mark whether the registrant by
furnishing the information contained in this Form is also
thereby furnishing the information to the Commission pursuant
to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes No X
----- -----
[If "Yes" is marked, indicate below the file number
assigned to the registrant in connection with Rule 12g3-2(b):
82-
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
INTERTAPE POLYMER GROUP INC.
May 27, 1999 By: /s/ Andrew M. Archibald C.A.
-----------------------------
Vice President, Finance &
Chief Financial Officer
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NINETEEN NINETY EIGHT ANNUAL REPORT
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CORPORATE PROFILE
[PICTURE]
Intertape Polymer Group Inc. (IPG) is a recognized leader in the development
and manufacturing of specialized polyolefin plastic and paper products and
complementary packaging systems.
Headquartered in Montreal, Quebec, the Company has strategically grown to
support operations in 16 locations with over 2,400 employees and 13
manufacturing facilities encompassing over 2.4 million square feet.
IPG's advanced manufacturing technologies offer the flexibility to produce a
wide range of products. These include carton sealing equipment and packaging
products such as: shrink and stretch wrap films, carton sealing, cloth duct,
double-coated, masking, filament and high-performance specialty
pressure-sensitive and water-activated tapes. Other products include a variety
of woven coated fabrics, flexible intermediate bulk containers (FIBC), soft
drink transport & display cases and returnable produce containers.
Since its inception in 1981, IPG has been steadily becoming a major presence in
North America by focusing on large niche markets, remaining the low cost
producer and continuing its momentum of successful rapid growth. With this
focus, its competitively priced products are sold to a broad range of
industrial and specialty distributors as well as large end users in the forest
and paper, chemical, mining, automotive, agricultural, recreational, geotextile
and beverage industries.
The Company's financial strength establishes the foundation for continued
organic growth, acquisitions and new product development. These combine to form
the basis for continued expansion into both current and new markets.
Intertape Polymer Group Inc. is a publicly traded company with its common
shares listed on the American Stock Exchange, and the Toronto Stock Exchange
under the Stock Symbol "ITP".
SAFE HARBOUR STATEMENT
Except for historical information contained herein, statements in the
release are forward-looking statements that are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements involve known and unknown risks and
uncertainties, which may cause the Company's actual results in future
periods to differ materially from forecasted results. Those risks include,
but are not limited to, risks associated with pricing, volume and
conditions of markets. Those and other risks are described in the
Company's filings with the Securities and Exchange Commission (SEC) over
the last twelve months, copies of which are available from the SEC or may
be obtained upon request from the Company.
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TABLE OF CONTENTS
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Corporate Profile . . . . . . . . . . . . . . . . . . . . . . . . 2
Financial Highlights. . . . . . . . . . . . . . . . . . . . . . . 4
1998 Share Trading Data . . . . . . . . . . . . . . . . . . . . . 4
Message to Shareholders . . . . . . . . . . . . . . . . . . . . . 5
Management's Discussion and Analysis. . . . . . . . . . . . . . . 7
Management's Responsibility for Financial Statements. . . . . . . 19
Auditor's Report to the Shareholders. . . . . . . . . . . . . . . 19
Consolidated Financial Statements . . . . . . . . . . . . . . . . 20
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CORPORATE HEADQUARTERS
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<S> <C> <C>
110 E Montee de Liesse Phone: (514) 731-0731
Montreal, Quebec Fax: (514) 731-5477
Canada H4T 1N4 Website: WWW.INTERTAPEPOLYMER.COM
E-mail: [email protected]
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MANUFACTURING LOCATIONS & DIVISIONAL OFFICES
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Augusta, Georgia, U.S.A. Montreal, Quebec, Canada
Bradenton, Florida, U.S.A. Porto, Portugal
Columbia, South Carolina, U.S.A. Rayne, Louisiana, U.S.A.
Danville, Virginia, U.S.A. Richmond, Kentucky, U.S.A.
Edmundston, New Brunswick, Canada St. Laurent, Quebec, Canada
Green Bay, Wisconsin, U.S.A Tampa, Florida, U.S.A.
Lachine, Quebec, Canada Tremonton, Utah, U.S.A.
Marysville, Michigan, U.S.A. Truro, Nova Scotia, Canada
Manufacturing Location
Distribution Center
ISO Certified
Corporate Office
</TABLE>
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FINANCIAL HIGHLIGHTS
The data below should be read in conjunction with the Consolidated Financial
Statements of the Company and the Notes thereto and Management's Discussion and
Analysis of Financial Condition and Results of Operations. (In thousands of
Canadian dollars except per share data and selected ratios.)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1998 1997 1996
<S> <C> <C> <C>
RESULTS FROM OPERATIONS
Consolidated sales 578,575 348,270 271,277
Net earnings before restructuring charges (Cdn GAAP) N/A 32,309 n/a
Net earnings before restructuring charges (U.S. GAAP) N/A 32,309 n/a
Net earnings (Cdn GAAP) 44,003 13,599 28,596
Net earnings (U.S. GAAP) 44,003 13,599 28,956
Cash from operations before funding of changes in
non-cash working capital items 88,648 60,770 43,405
PER COMMON SHARE
Net earnings before restructuring charges (Cdn GAAP) N/A 1.30 n/a
Net earnings before restructuring charges (U.S. GAAP) N/A 1.30 n/a
Net earnings (Cdn GAAP) 1.75 0.55 1.18
Net earnings (U.S. GAAP) 1.75 0.55 1.20
Cash from operations before funding of changes in
non-cash working capital items 3.53 2.45 1.79
Book value after restructuring charges (Cdn GAAP) 11.80 10.00 9.53
Book value after restructuring charges (U.S. GAAP) 11.80 10.00 9.53
FINANCIAL POSITION
Working capital (17,314) 77,193 81,018
Total assets (Cdn GAPP) 952,204 608,179 348,578
Total assets (U.S. GAPP) 952,204 608,179 348,578
Long-term debt 324,227 234,377 67,909
Shareholders' equity (Cdn GAAP) 297,298 250,102 232,907
Shareholders' equity (U.S. GAAP) 297,298 250,102 232,907
SELECTED RATIOS
Working Capital 0.94 1.75 3.02
Debt/Capital Employed (Cdn GAAP) 0.52 0.48 0.23
Debt/Capital Employed (U.S. GAAP) 0.52 0.48 0.23
Return on equity before restructuring charges (Cdn GAAP) N/A 12.0% n/a
Return on equity before restructuring charges (U.S. GAAP) N/A 12.0% n/a
Return on equity after restructuring charges (Cdn GAAP) 14.8% 5.4% 12.3%
Return on equity after restructuring charges (U.S. GAAP) 14.8% 5.4% 12.4%
STOCK INFORMATION (in thousands)
Weighted average shares o/s (Cdn GAAP) 25,124 24,819 24,201
Weighted average shares o/s (U.S. GAAP) 25,124 24,819 24,201
Toronto Stock Exchange:
Market price at year end 39.00 30.75 28.00
High: 52 weeks 39.00 34.45 33.33
Low: 52 weeks 25.75 25.25 20.25
Volume: 52 weeks 9,361 8,603 8,048
American Stock Exchange:
Market price at year end in U.S. $ 25.50 21.88 20.63
High: 52 weeks in U.S. $ 25.50 25.00 24.13
Low: 52 weeks in U.S. $ 16.25 18.38 14.94
Volume: 52 weeks 1,381 3,055 5,368
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1998 SHARE TRADING DATA
<TABLE>
<CAPTION>
SYMBOL: ITP TORONTO STOCK EXCHANGE AMERICAN STOCK EXCHANGE TOTAL
High Low Close A.D.V.* High Low Close A.D.V.* A.D.V.*
Canadian $ # U.S. $ # #
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1st Quarter $34.00 $30.00 $33.00 39,670 $24.00 $20.62 $23.12 4,864 44,534
2nd Quarter $35.00 $29.00 $33.00 36,181 $24.00 $20.12 $22.38 9,070 45,251
3rd Quarter $38.28 $25.75 $27.75 40,602 $25.38 $18.12 $18.12 3,747 44,349
4th Quarter $39.00 $25.75 $39.00 32,297 $25.50 $16.25 $25.50 4,273 36,570
</TABLE>
*Average Daily Volume
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MESSAGE TO SHAREHOLDERS
Dear Shareholders,
Once again in 1998, Intertape Polymer Group (IPG) achieved record-breaking
results in both revenue and bottom-line performance. It was a significant year
for many reasons; substantial internal growth, the integration of American Tape
Co. (ATC) and the timely acquisitions of Anchor Continental, Inc. (Anchor) and
Rexford Paper Company (Rexford). The year's financial highlights are as
follows:
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o Sales up 66.1% to $578.6 million
o Gross profits increased by 68.4% to $162.3 million
o Net earnings up 36.2% (before 1997 restructuring) to $44.0 million
o Earnings per share up 34.6% (before 1997 restructuring) to $1.75
o Dividends increased by 23.1% to $0.16
</TABLE>
Going forward, the Company is in an enviable position with historical product
growth continuing to thrive in the double-digit arena and IPG's ability to
acquire and assimilate companies without incurring financial, managerial or
operational strain.
The year was an excellent one for all major products. Overall sales of pressure
sensitive tape, equipment, shrink film and stretch wrap showed above-average
growth. Our "Basket of Products" approach is becoming a highly effective
strategy and should continue to provide high sustainable growth. IPG continues
to be a unique company in offering non-product pricing savings to our
customers.
IPG also enjoyed growth in the woven coated and FIBC products. Time and
resources were dedicated to developing new products for the former, and
consolidating a lower manufacturing base for the latter. The initial results
in 1999 indicate rapid growth for these products, and the projected return to
profitability in FIBC manufacturing operations.
New shrink film, pressure sensitive tape and woven product developments in 1998
continued to provide high value-added results for our growing customer base.
These new products added to IPG's solid foundation for continued market share
growth and offers our customers an effective alternative to existing
competitive products.
The 1997 acquisition of ATC proved to be very successful. The addition of
masking, filament and specialty tape products improved IPG's ability to expand
our unique "Basket of Products" program. The impact was enhanced manufacturing
output, resulting in a 20% gross margin increase at the Marysville, Michigan
plant. This fell in line with our 1998 objectives. The Richmond, Kentucky
facility broke even during the year, which is exceptional as there were large
on-going losses prior to the acquisition.
During the fall of 1998, we acquired Rexford and Anchor. Rexford was a
relatively small manufacturer of water-activated tape in Milwaukee, Wisconsin
and more importantly, a unique re-distributor of packaging products. Rexford's
specialized sales department continues to focus on a distributor niche, which
specifi-cally place small quantity orders. This sales department remains intact
and will spearhead our developing business with a growing network of these
distributors. Since the acquisition, the Milwaukee facility was closed and
production has been shifted to our Green Bay plant.
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MESSAGE TO SHAREHOLDERS (Continued)
In keeping with IPG's objective to increase overall efficiencies, the
production of some products was moved from Anchor to other more efficient
facilities. In addition, the workforce continues to shrink as changes are
implemented. This results in an initial reduction in personnel of 20%, and
further downsizing is planned as new improvements are made. As well, a major
training and capital equipment modification program has been instituted. This
will allow the facility to grow and expand according to new objectives and to
meet our stringent quality standards.
There is no doubt that 1998 was a year of strategically important
accomplishments, despite operational concerns about the number of
non-integrated IT systems within the corporation that hampered our ability to
supply our normally high standard of customer service. The burden of
non-integration on our inventory and accounts receivable departments amounted
to some $30 million of working capital, and made tracking our results
difficult. A total revamp of the Company's hardware and software was
implemented and subsequently came on-line in mid March of 1999. The results to
date are positive and we look forward to meeting our customer's future needs,
and providing the best service in our industry.
Adding to our continued dedication for improvement throughout our operations,
products and services, we would like to provide assurance that the Y2K issue
continues to be at the forefront of our systems implementation and we
anticipate its completion well before the end of the year.
Manufacturing improvements also resulted in substantial cost reductions during
the year. The Danville facility increased unit output by 15% with no increase
in labour and fixed costs. All plants showed overall improvement, with the
Truro facility remaining extremely productive throughout an extensive warehouse
expansion process. Simultaneously, construction of the Utah facility was
completed on time and is currently producing at the targeted output and cost.
During the first quarter of 1999, the Company completed a "bought deal" whereby
three million new shares were issued from treasury at Cdn$40.25 each. The
market conditions were favorable and the proceeds were used to retire existing
debt.
The packaging industry is continuing to evolve rapidly. Consolidation of
customers, competitors and suppliers is happening on a regular basis. IPG
remains at the forefront of these activities, and in a strong position to
continue our multi-product growth. The Company is more than prepared to meet
the challenge, and people remain our most important collective asset. I look
forward to a prosperous 1999, with the confidence that our potential for
success is more exciting than ever.
Melbourne F. Yull
Chairman & Chief Executive
Officer
March 14, 1999
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MANAGEMENT'S DISCUSSION AND ANALYSIS
REVIEW OF OPERATIONS
SALES
Intertape Polymer Group's (IPG's) consolidated sales increased by 66.1% to
$578.6 million for the year 1998; and in 1997 recorded an increase of 28.4% to
$348.3 million for the year, from $271.3 million for the year 1996. All our
products consist of packaging products made from various combinations of resins
and papers, which are then converted into high quality and value-added
products. These products are made from somewhat the same extrusion processes
and differ only in the final stages of manufacturing. Furthermore, most of our
products, while brought into the market through varying sales methods,
generally bear the same economic characteristics. Management considers all of
our products to be within one reportable segment.
IPG's products are brought to market either through distributors or by selling
directly to end-users. In both cases, the Company's highly trained sales force
works closely with either the sales forces of the distributors or directly with
the distributor's customer; or with the end-user customer. Examples of
products sold through distributors are: pressure sensitive carton sealing tape
which include both hot-melt (introduced in 1981) and acrylic (1995); water
activated carton sealing tape (1996); masking tape (1997); cloth duct tape
(1998); shrink wrap (1992); stretch wrap (1996) and a line of carton sealing
equipment (1994). Examples of products sold directly to end-users include a
wide range of woven/coated fabrics (1989); flexible intermediate bulk
containers (1993); and transport and display cases (1989) that are either sold
to the customer or rented.
The following are the highlights of factors that contributed to the increase in
sales volume during 1998:
o In almost all of the major products, selling prices were generally falling
throughout 1996. This trend continued throughout 1997 and 1998. This is in
sharp contrast to 1995 where unit prices saw a significant increase during that
year. These changes in unit selling prices move in relation to raw material
resin prices which began to fall during the latter half of 1995, continued to
decline throughout 1996, 1997 and again in 1998. Consequently, growth in
revenue was a result of increases in unit volume, less the dampening effect of
falling unit selling prices by an average 10.0% each year for all product lines
during the period from 1996 to 1998. For 1998 alone, Management estimates that
revenue increased $62.7 million (18.0% of 1997 revenue) as a result of volume
increases, less the effect of lower unit selling prices of $46.3 million for a
net gain of approximately $16.4 million.
[CHART]
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MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
o 1998 was the first year where there were significant increases in revenue
derived from acquisitions. These revenues resulted from the acquisitions of
American Tape Co. (ATC) (December 15, 1997), Anchor Continental, Inc. (ACI)
(September 1998) and Rexford Paper Company (Rexford) (October 1998). The
combined revenue effect of these acquisitions during 1998, amounts to
approximately $175.0 to $200.0 million. 1997 was a year where there was very
little volume growth as a result from acquisitions. During 1996, the Company
had some increases in revenue from acquisitions.
o Fewer new products were introduced in 1998 and 1997 other than those
resulting from Management's decision to search out new products through
acquisitions. During 1996, the Company successfully introduced stretch wrap and
various new woven coated products. Sales derived from these new products
during 1996 amounted to approximately $29.7 million.
o Our U.S. derived sales increased in Canadian dollars by $16.7 million ($4.2
million for 1997 and decreased by $1.9 million for 1996) because of a 7.1%
decline (decrease of 1.5% for 1997 and an increase of 0.6% for 1996
respectively) in the Canadian dollar against the US dollar during these years.
Management is anticipating further increases in revenue during 1999 as a result
of the following factors:
o Intertape Polymer Group is continuing to increase its manufacturing
capacities. The Company has completed its new facility located in Tremonton,
Utah and will further expand this facility during 1999. Various additional
capacities are to be installed in a number of facilities throughout the year.
The integration of the acquired facilities in Columbia, S.C. and Richmond, KY.
within our traditional tape plants will provide further capacity for various
products. In order to keep pace with the FIBC demand we are expanding our
relationship in Mexico to gain further output. Finally, our continuous program
to reduce waste and increase running speeds will provide additional throughput.
o The Company has enjoyed unit growth in all products under various economic
conditions throughout its history. Management does not anticipate that this
growth will diminish in any material way during 1999.
o As mentioned above, 1998 saw a further series of declines in unit selling
prices. We currently anticipate that selling prices will remain stable for
most products unless the trend in stable raw
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MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
material costs changes. The exception to this relates to the effect of
imported products that are competing with some of our low-end products. These
imports are taking advantage of their currency devaluation that has started to
have the effect of temporarily lowering prices. We do not anticipate that this
situation will reverse until those currencies begin to strengthen.
GROSS PROFIT AND GROSS MARGIN
Intertape Polymer Group's gross profit increased 68.4% to $162.3 million for
1998 from $96.4 million in 1997. Gross profit increased 22.8% to $96.4 million
in 1997 from $78.5 million for 1996. As a percentage of sales, gross margins
were 28.1% for 1998, 27.7% for 1997 and 28.9% for 1996.
o The Company continues to follow a program to improve efficiencies by devoting
extensive capital expenditures at all our plants, on an ongoing basis. Since
1990, over $280.0 million has been invested in equipment and capital assets in
all plants, in an effort to reduce waste and increase output, as well as on
equipment to manufacture new products. Throughout 1998, IPG again increased
outputs in all plants and as a result, recorded increased sales volume in these
products without requiring a proportionate increase in direct and indirect
labour or in manufacturing overhead. Consequently, gross margins should have
increased more than they did. Decreases in raw material costs that began in
the 3rd quarter of 1995 and continued during 1996, 1997 and 1998 have
negatively impacted gross margins. Lower dollars of value-added (the difference
between the cost of a unit of resin and its corresponding selling price)
resulted in pressure on gross margins.
o Circumstances within several products have lead to margins below our
objective of 30%. Margins for stretch wrap are currently lower than our normal
margins because of over-capacity in the market, which lead to lower unit
selling prices. Water-activated products traditionally bear a lower gross
margin, as this market has been relatively flat for the past several years.
Within the products that came with the acquisitions of both American Tape and
Anchor Continental, are products which bear margins that are traditionally 3%
to 5% lower than Intertape's traditional margins. As a result of the above,
Management estimates that the Company gave up between 2% to 3% gross margin in
both 1998 and 1997.
[CHART]
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MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
Management foresees that the trend of increasing gross profits will continue
for the following reasons:
o The impact of expanded plant outputs will continue during 1999 as further
efficiency measures are implemented.
o New equipment installed during 1998 will have an effect on gross profits for
1999.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, General and Administrative (SG&A) expenses increased $29.7 million or
71.1% to $71.5 million ($8.9 million or 27.0% to $41.8 million for 1997 from
$32.9 million for 1996). As a percentage of sales, these expenses increased to
12.4% for 1998, compared to 12.0% for 1997 and 12.1% for 1996. These increases
in costs occurred for the following reasons:
1998
o During the year the Canadian dollar declined against the US dollar by 7.1%.
As applied to US$ based SG&Acosts from 1997, this resulted in an increase in
reported costs in Canadian dollars of approximately $1.5 million.
o SG&A costs do not fluctuate with changes in unit selling prices. Based on
Management's analysis of 1998 revenue whereby we believe that the Company has
endured approximately a 10.0% decline in selling prices, means that selling
costs would have been 1.2% less as a percentage of revenue without this impact.
o Included in SG&A for 1998 are those costs derived from businesses acquired
during the year. In total, these costs amount to approximately $7.4 million.
1997
o For 1997, SG&A expenses related to businesses acquired during 1996 were
naturally for a full twelve-month period as opposed to eight weeks and
twenty-five weeks during 1996 for Tape, Inc. and Augusta Bag respectively.
Although these costs increased in gross dollars, they declined as a percentage
of related sales. In addition, there is a small amount of SG&A dollars in 1997
as a result of the acquisition of ATC.
o With the introduction of stretch wrap as well as continued increases in unit
volume in the shrink wrap products, additional sales personnel and technical
support staff were added in both 1996 and 1997.
[CHART]
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MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
o Additional product marketing managers were also added to our staff during
1997. o Finally, during 1997 the sales team and sales support units of Tape,
Inc. were combined with the rest of the Company to make a more cohesive group,
reducing the number of positions on a combined basis.
Looking ahead, Management believes that once the integration of the ACI and
Rexford sales groups are finalized during 1999, SG&A costs, taken as a
percentage of sales, should begin to decline.
RESEARCH AND DEVELOPMENT
Research and Development continues to be an extremely important function within
the Company. The R&D staff within ACI augments the current IPG group and has
placed the Company in a stronger position to develop new products and processes
on an accelerated basis. Taken as a percentage of sales, R&D has increased to
0.8% for the current year compared to 0.6% for 1997 and 1996.
OPERATING PROFIT
Intertape Polymer Group's operating profit (defined for these purposes as gross
profit less selling, general and administrative expenses) increased $36.1
million to $90.8 million compared with $9.0 million to $54.7 million for 1997,
from $45.6 million for 1996. As a percentage of sales, operating profits were
15.7% for both 1998 and 1997, as compared to 16.8% for 1996.
RESTRUCTURING CHARGES
During 1997, the Company recorded a restructuring charge of $27.1 million in
relation to the Company's flexible intermediate bulk containers (FIBC)
products. The first decision was to supply converters outside of Canada and the
U.S.A. with Intertape's fabric and convert them into bags. This program was
introduced during the latter half of 1997 and has dramatically impacted our
converting margins. The second decision was to undertake a review of all FIBC
facilities' assets, which resulted in a decision to take a one-time charge
against earnings for write-downs and other restructuring provisions totalling
$27.1 million. The Company has written down goodwill previously purchased as
part of the Cajun Bag and Augusta Bag acquisitions, written off certain assets
within these facilities, reduced
[CHART]
[CHART]
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MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
the carrying value of certain other assets within these operations and has made
provisions for future costs to reduce the size of these operations. During
1998, several facilities were consolidated into one location and the amount of
production contracted outside of Canada and the U.S.A. was increased.
INCOME TAXES
The Company's income taxes increased to $18.0 million or 29.0% of earnings as
compared to $6.1 million or 31.0% of earnings in 1997 and from $11.8 million or
29.2% of earnings for 1996. The Company's statutory income tax rate was 42.9%
for 1998; 43.4% for 1997, and 43.1% for 1996. Except for the impact of certain
items for tax purposes discussed below, the amortization of that part of the
goodwill which is non-deductible for income tax purposes, will result in the
Company's effective income tax rate exceeding its statutory tax rate. The
Company's effective tax rate was impacted by two material events during the
three years commencing with 1996. Firstly, the Company's foreign based income
is taxed at rates which are significantly lower than the rates that would have
applied on the income had it been earned in Canada. Secondly, the Company
entered into a series of transactions that resulted in permanent differences
greater than that of previous years. It is expected that the effective tax
rate for 1999 will settle around the 30% rate. This depends somewhat on there
being no announced significant increases in corporate income tax rates for
fiscal 1999 in Canada, the U.S.A. or Portugal.
NET EARNINGS - CANADIAN AND U.S. GAAP
During 1997, the Company recorded a charge against earnings for a restructuring
of certain operations as discussed earlier. Canadian GAAP permits the
disclosure of a subtotal representing "earnings before restructuring charges
and income taxes". US GAAP does not permit the presentation of this subtotal.
Consequently, net earnings for 1997 under both Canadian and US GAAP were $13.6
million as compared to $28.6 million for 1996. For purposes of the following,
the 1997 earnings are based on the earnings that would have been recorded as if
the restructuring had not taken place. Net earnings under Canadian GAAP
increased 36.2% to $44.0 million for 1998 from $32.3 million for 1997.
Previously, 1997 net earnings had increased 13.0% from $28.6 million for 1996.
Net earnings prepared under
[CHART]
[CHART]
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MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
Canadian GAAP conform in all material amounts that would have to be reported if
the financial statements would have been prepared under US GAAP.
EARNINGS PER SHARE - CANADIAN AND U.S. GAAP
CANADIAN GAAP
As noted previously, Cdn GAAP and US GAAP differ in the presentation of the
restructuring charges taken against earnings during 1997. Neither allows for
the presentation of earnings per share before the effect of this charge.
Consequently, these charges that had the effect of $0.75, are included in all
computations of earnings per share.
o Basic earnings per share (EPS) increased 218.2% to $1.75 in 1998 from $0.55
in 1997; and 1997 had decreased by 53.4% from $1.18 in 1996. The weighted
average number of common shares outstanding for the purpose of the EPS
calculation was 25.1 million shares for 1998, 24.8 million shares for 1997, and
24.2 million shares for 1996. o Fully diluted EPS increased 217.0% to $1.68
for 1998 from $0.53 for 1997; and had decreased 53.1% from $1.13 in 1996. The
fully diluted EPS reflects the effects of stock options that have been granted
to employees of the Company but that have not been exercised.
U.S. GAAP
o Starting in 1997, basic EPS under US GAAP is calculated in a manner
consistent with Canadian GAAP. Earnings per share increased 218.2% to $1.75
from $0.55 for 1997; and 1997 decreased 54.2% from $1.20 in 1996. The weighted
average number of common shares outstanding used to compute earnings per share
under US GAAP was 25.1 million shares for 1998, 24.8 million shares for 1997
and 24.2 million shares in 1996. Comparative figures have been restated
accordingly.
LIQUIDITY AND CAPITAL RESOURCES
CHANGES IN CASH RESOURCES
Cash flow from operations increased 46.0% to $88.6 million from $60.8 million
in 1997 and $43.4 million in 1996. Of this amount, $57.2 million ($22.0
million for 1997) was used to fund the increase in non-cash working capital
items. The balance of $31.5 million ($38.8 million in 1997) was augmented with
an increase in long-term debt of $254.9 million ($166.1 million for 1997) and
$1.8 million from the issue of common shares by way of the exercise of stock
options ($4.4 million
[CHART]
[CHART]
13
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
for 1997). These funds totalling $288.2 million ($209.3 million for 1997) were
used primarily to:
o Refinance $183.8 million of bank loans and other debt; ($110.6 million during
1997 to refinance debt acquired from the purchase of American Tape Co. (ATC);
o Acquire $70.3 million of fixed assets; ($50.0 million for 1997);
o Carry out the acquisition of Anchor Continental, Inc. (ACI) in the amount of
$173.2 million; ($65.7 million during 1997 for the acquisition of American Tape
Co. (ATC);
o Pay an annual dividend of $3.3 million; ($2.5 million for 1997);
o For 1998, increase in the deficiency of cash from $25.1 million to $186.9
million; and for 1997 decrease the balance of cash from $3.7 million to a
deficiency of $25.1 million.
CASH (BANK INDEBTEDNESS)
The use of short-term credit facilities continued during the year in both
Canada and the U.S. Of the $161.8 million increase, approximately $150.0
million relates to the acquisition of Anchor Continental, Inc. during September
of 1998 and the remainder relates to the acquisition of Rexford Paper Company.
These credit facilities were reduced to approximately $150.0 million during
March 1999 by the partial use of the proceeds of a common share offering which
was finalized at that time. As discussed below, the Company has in excess of
$150.0 million of unused long-term credit facilities which it intends to use to
refinance this remaining short-term borrowing. After this expected repayment,
Management does not anticipate any significant change in either the use of or
the conditions of any of these credit facilities during 1999.
CREDIT FACILITIES
After the effect of the recent common stock issue, the Company maintains a cash
balance of approximately $35.0 million and retains unused facilities of $25.0
million with a Canadian Chartered Bank and a further US$20.0 million facility
with several U.S. banks. All these facilities are unsecured and bare interest
at the bank prime rate. As well, the Company has two, 2 year facilities in the
amount of US$50.0 million each which it intends to use to refinance the
remaining short-term facility.
LONG-TERM DEBT
During the year, the Company successfully completed a US offering of $209.7
million (US$137.0 million) of Senior
[CHART]
[CHART]
14
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
unsecured U.S. dollar notes bearing interest at the rate of 6.82%, payable
semi-annually, maturing March 31, 2008. The proceeds were used primarily to
repay the bank debt of $164.0 million (US$114.0 million) incurred during 1997
in relation to the acquisition of American Tape Co. As mentioned above, part
of the proceeds of the recent stock offering were used to repay the $50.5
million revolving credit facility. Proceeds of the offering have not yet been
utilized to repay the Series 1, 2 and 3 Notes.
CAPITAL STOCK
During 1998 and 1997 various employees exercised stock options which
contributed $1.8 million and $4.4 million respectively. During the 1st quarter
of 1999, the Company issued 3,000,000 additional common shares at a price of
$40.25 per share for a total cash injection of $120.8 million or $115.7 million
after issue costs. This cash was used for the repayment of all short-term
borrowings, excluding the US$100.0 million facility. In addition, the Company
used proceeds to payback the amounts outstanding under the $50.5 million
long-term revolving facility. The resulting excess cash was used to retain
approximately $35.0 million in short-term investments.
CAPITAL EXPENDITURES
Total capital expenditures for 1998 were $70.3 million. A number of major
capital projects underway during 1998 included: the increase in film capacity
at the Danville plant with the installation of a BOPP line. In keeping with
IPG's commitment to increase output, an adhesive coater was upgraded at the
Montreal facility. With continued emphasis on successful commercialization and
development of new vinyl replacement materials in the Truro facility, a new
coextrusion fabric coater was acquired in late 1998, with installation
continuing in the first half of 1999. The Tremonton and Marysville facilities
also experienced major improvements with the installation of a film treatment
unit for high strength and light gauge shrink film for the former, and the
completion of a project to reduce VOC emissions for the latter. Eventually
impacting all facilities, the Warehouse Management System (WMS) was implemented
in three facilities to improve inventory management and shipping efficiencies
during 1998. WMS will be implemented in all other major facilities during 1999.
Other initiatives were undertaken to upgrade the former ATC plant in Richmond
and to lower costs in manufacturing, by
[CHART]
[CHART]
15
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
automating processes to improve material yields and output from certain
equipment. The 1998 program is a continuation of the Company's ongoing
commitment to its shareholders, employees and customers to grow its businesses
at greater than industry rates and to be the low-cost producer in chosen
markets. The 1998 program compares with $50.1 million for 1997. As in the
recent past, the 1998 capital program was financed from cash flow.
BUSINESS ACQUISITIONS
1998
On September 23, 1998 the Company purchased 100% of the outstanding shares of
Anchor Continental, Inc., a South Carolina manufacturer of pressure sensitive
tape including both duct and masking tape. On October 7, 1998 the Company
acquired substantially all the operating assets of Rexford Paper Company which
is a Wisconsin redistributor of a variety of pressure-sensitive tape as well as
a manufacturer of water-activated tape. Both these acquisitions form part of
the ongoing program to broaden the variety of products, which the Company makes
and distributes both domestically and throughout the world.
The total cash consideration and estimated transaction costs for these
acquisitions were approximately $173.2 million (US$113.3 million). The
preliminary purchase price allocation, which reflects $110.0 million allocated
to goodwill, were based on available information and preliminary appraisals and
are subject to revision as more facts become known. Goodwill from these
acquisitions is being amortized over a forty-year period. Under US GAAP, the
Company is required to present pro forma financial information in the notes to
the financial statements. This presentation is limited to certain permissible
adjustments such as the inclusion of additional amortization of goodwill
arising from these acquisitions, increases in financial expenses for debts
incurred to finance these acquisitions and the income tax effects on such
adjustments. Assumptions that have not been included in the pro forma
information are the effects of either certain decisions that have been made by
Intertape's Management since the date of the acquisitions as well as the effect
of various decisions that Intertape's Management would have made at the
beginning of the respective periods. Examples of recent decisions are the
reduction in interest rates for both short-term and long-term debt, the
downsizing throughout the acquired organizations, the closure of one of the
acquired company's manufacturing facilities and offices in Wisconsin and its
transfer into our Green Bay facility, and product rationalization leading to
the transfer for the manufacturing of some products to Intertape facilities.
16
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
Examples of decisions Intertape's management would have changed or altered had
they been in the position of making such decisions throughout the respective
periods would have been the location of the manufacturing of certain products
to other Intertape facilities, and the method by which certain key management
positions of the acquired entities were staffed. Taken as a whole, the absence
of the effect of the above-mentioned information makes these pro forma
financial disclosures to be of little value.
1997
On December 16, 1997 the Company completed the acquisition of 100% of the
common shares of American Tape Co. (ATC). This acquisition increased
Intertape's product line with additions to its then prevailing line of
pressure-sensitive tape as well as other products. The former group of products
includes paper masking and speciality tape, paper identification,
packaging/splicing tape, reinforced filament and cloth tape. The latter group
includes certain products already made by Intertape such as pressure-sensitive
carton sealing tape and shrink wrap. The purchase price was approximately $66.0
million (US$46.0 million). In addition, $103.0 million (US$72.0 million) of
ATC's long-term debts were refinanced following the acquisition.
The purchase price allocation, reflects approximately $105.0 million allocated
to goodwill, and is being amortized over a forty-year period.
BOOK VALUE PER SHARE
Taken before the effect of the 1997 restructuring, the book value on a per
share basis increased 9.9% to $11.80 as compared to $10.74 last year; The 1997
increase was 12.7% from $9.53 for 1996.
DIVIDEND ON COMMON SHARES
On March 9, 1999, the Company declared an annual dividend of Cdn$0.16 or
U.S.$0.106 per share to shareholders of record on March 19, 1999. The dividend
is payable on April 5, 1999 and will amount to approximately $4.5 million.
On March 10, 1998, the Company declared an annual dividend of Cdn$0.13 or
US$0.092 per share to shareholders of record on March 20, 1998. The dividend
was paid on March 31, 1998 and amounted to approximately $3.3 million.
On March 4, 1997, the Company declared an annual dividend of Cdn$0.10 or
US$0.073 per share to shareholders of record on March 13, 1997. The dividend
was paid on March 27, 1997 and amounted to approximately $2.5 million.
[CHART]
17
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
INFORMATION TECHNOLOGY INITIATIVES
The Company has significantly reduced its exposure to the possible risks
related to the arrival of the Year 2000 (Y2K) on its computerized financial
management and process controls systems. The Company's action plan; begun in
1997 and drawing upon the time and expertise of over 50 employees and
consultants, has accessed and inventoried all internal and external factors
that are within the influence of the Company. The "Enterprise and business
process control systems" (EBPCS) currently in use, have been thoroughly
analyzed and the solutions will be fully implemented by September 1999. By the
end of the 1st quarter of 1999, the EBPCS' of the seven (7) of the largest
sites (Danville, Montreal, Truro, Marysville, Richmond, Tremonton and Lachine),
will have been converted, as well as the accounting functions of the head
office group. The action plan also requires continual monitoring of all
business related hardware and software systems and the development of a
compliance repository to track and document all activities taken to date to
become Y2K compliant. In addition, the Company is giving special attention to
our suppliers, vendors, and customers to elicit guarantees of continued service
and support in order to avoid any difficulties in its transactions with them.
These guarantees are in the form of contracts with the third-party
representatives to provide hardware/software support, personnel support, or
financial support to maintain the Company's financial and competitive position.
The cost of these solutions is capitalized whenever the systems functions are
improved; otherwise, they are charged against earnings. To date, the Company
has spent in excess of $4.0 million to replace and revamp it's various computer
systems.
As a part of this process, the Company has also migrated over 80% of
it's various accounting and order entry systems that were in use as the result
of acquisitions over the past three (3) years into one (1) integrated
enterprise system. The remaining 20% will be migrated in the same time frame
as the balance of the Y2K initiatives.
OTHER MATTERS
Management believes that the combination of the newly enhanced order entry and
other enterprise systems in conjunction with new products and increases in
various capacities as the result of the ongoing series of strategic
acquisitions over the past several years, will allow the Company to maintain
its impressive organic growth while maintaining its low cost producer
objectives. Taken as a whole, management is committed to continue to grow
revenues and earnings in the years to come.
18
<PAGE> 20
MANAGEMENT'S RESPONSIBILITY
FOR FINANCIAL STATEMENTS
TO THE SHAREHOLDERS OF INTERTAPE POLYMER GROUP INC.
The consolidated financial statements of Intertape Polymer Group Inc. and the
other financial information included in this annual report are the
responsibility of the Company's management and have been examined and approved
by its Board of Directors. These consolidated financial statements have been
prepared by management in accordance with generally accepted accounting
principles and include some amounts that are based on management's best
estimates and judgements. The selection of accounting principles and methods is
management's responsibility.
The Company maintains internal control systems designed to ensure that the
financial information produced is relevant and reliable.
Management recognizes its responsibility for conducting the Company's affairs
in a manner to comply with the requirements of applicable laws and established
financial standards and principles, and for maintaining proper standards of
conduct in its activities.
The Board of Directors assigns its responsibility for the financial statements
and other financial information to the audit committee, the majority of whom
are non-management directors.
The audit committee's role is to examine the financial statements and annual
report and recommend that the Board of Directors approve them, to examine the
internal control and information protection systems and all other matters
relating to the Company's accounting and finances. In order to do so, the audit
committee meets periodically with the external auditors, to review their audit
plans and discuss the results of their examination. This committee is
responsible for recommending the appointment of the external auditors or the
renewal of their engagement.
The Company's external auditors, Raymond Chabot Grant Thornton, appointed by
the shareholders at the Annual General 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.
March 9, 1999
Andrew M. Archibald, C.A.
Chief Financial Officer,
Secretary, Treasurer,
Vice President Administration
Melbourne F. Yull
Chairman and Chief Executive Officer
AUDITOR'S REPORT
TO THE SHAREHOLDERS OF INTERTAPE POLYMER GROUP INC.
We have audited the consolidated balance sheets of Intertape Polymer Group Inc.
as at December 31, 1998 and 1997 and the consolidated statements of earnings,
retained earnings and changes in cash resources for the years ended December
31, 1998, 1997 and 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in Canada. Those standards require that we plan and perform an audit
to obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31,
1998 and 1997 and the results of its operations and the changes in its
financial position for the years ended December 31, 1998, 1997 and 1996 in
accordance with generally accepted accounting principles in Canada.
Generally accepted accounting principles in Canada differ in some respects from
those applicable in the United States of America (See Note 22).
Chartered Accountants
Montreal
March 9, 1999
<PAGE> 21
CONSOLIDATED EARNINGS
(In thousands of Canadian dollars; except per share amounts)
<TABLE>
<CAPTION>
Years Ended December 31, 1998 1997 1996
- ------------------------ ---- ---- ----
<S> <C> <C> <C>
SALES $ 578,575 $ 348,270 $ 271,277
Cost of sales 416,252 251,856 192,748
--------- --------- ---------
GROSS PROFIT 162,323 96,414 78,529
Selling, general and administrative expenses 71,547 41,754 32,895
Amortization of goodwill 5,096 2,360 1,780
Research and development 4,682 2,228 1,763
Financial expenses (Note 4) 19,022 3,247 1,695
--------- --------- ---------
100,347 49,589 38,133
Earnings before restructuring charges
and income taxes 61,976 46,825 40,396
Restructuring charges (Note 5) - 27,116 -
--------- --------- ---------
Earnings before income taxes 61,976 19,709 40,396
Income taxes (Note 6) 17,973 6,110 11,800
--------- --------- ---------
NET EARNINGS $ 44,003 $ 13,599 $ 28,596
--------- --------- ---------
Earnings per share
BASIC $ 1.75 $ 0.55 $ 1.18
--------- --------- ---------
FULLY DILUTED $ 1.68 $ 0.53 $ 1.13
--------- --------- ---------
</TABLE>
CONSOLIDATED RETAINED EARNINGS
(In thousands of Canadian dollars)
<TABLE>
<CAPTION>
Years Ended December 31, 1998 1997 1996
- ------------------------ ---- ---- ----
<S> <C> <C> <C>
Balance, beginning of year $ 89,632 $ 78,506 $ 51,953
Net earnings 44,003 13,599 28,596
--------- --------- ---------
133,635 92,105 80,549
Dividends 3,260 2,473 2,043
--------- --------- ---------
BALANCE, END OF YEAR $ 130,375 $ 89,632 $ 78,506
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
20
<PAGE> 22
CONSOLIDATED CHANGES IN CASH RESOURCES
(In thousands of Canadian dollars)
<TABLE>
<CAPTION>
Years Ended December 31, 1998 1997 1996
- ------------------------ ---- ---- ----
<S> <C> <C> <C>
OPERATIONS
Net earnings $ 44,003 $ 13,599 $ 28,596
Non-cash items
Depreciation and amortization 31,442 18,441 12,759
Future income taxes 13,203 2,503 2,050
Restructuring charges - 26,227 -
---------- ---------- ----------
Cash from operations before funding of changes
in non-cash working capital items 88,648 60,770 43,405
Changes in non-cash working capital items (57,156) (21,991) (34,941)
---------- ---------- ----------
SOURCE OF CASH 31,492 38,779 8,464
FINANCING
Issue of long-term debt 254,910 166,089 52,626
Repayment of long-term debt (183,812) (110,594) (45,361)
Issue of common shares 1,793 4,427 7,851
Dividends paid (3,260) (2,473) (2,043)
---------- ---------- ----------
SOURCE OF CASH 69,631 57,449 13,073
INVESTMENT
Acquisitions of businesses (Note 7) (173,232) (65,663) (12,096)
Capital assets, net of investment tax credits (70,312) (50,064) (46,994)
Other assets (13,657) (6,255) (9,530)
---------- ---------- ----------
USE OF CASH (257,201) (121,982) (68,620)
DECREASE IN CASH (156,078) (25,754) (47,083)
---------- ---------- ----------
Effect of foreign currency translation adjustments (2,268) 294 125
Bank indebtedness assumed on business acquisitions (3,445) (3,303) -
Cash (bank indebtedness), beginning of year (25,083) 3,680 50,638
---------- ---------- ----------
CASH (BANK INDEBTEDNESS), END OF YEAR $ (186,874) $ (25,083) $ 3,680
---------- ---------- ----------
</TABLE>
Cash includes cash reduced by bank overdrafts
The accompanying notes are an integral part of the consolidated financial
statements.
21
<PAGE> 23
CONSOLIDATED BALANCE SHEET
(In thousands of Canadian dollars)
<TABLE>
<CAPTION>
ASSETS December 31, 1998 1997
- ------ ---- ----
<S> <C> <C>
Current assets
Receivables (Note 8) $ 126,980 $ 94,970
Inventories (Note 9) 118,366 68,675
Prepaid expenses 2,453 4,752
Future income tax assets 12,044 12,136
---------- ----------
259,843 180,533
Capital assets (Note 10) 395,187 256,467
Other assets (Note 11) 31,537 21,945
Goodwill, at amortized cost 265,637 149,234
---------- ----------
$ 952,204 $ 608,179
========== ==========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES December 31, 1998 1997
- ----------- ---- ----
<S> <C> <C>
Current liabilities
Bank indebtedness (Note 12) $ 186,874 $ 25,083
Accounts payable and accrued liabilities 87,219 73,947
Installments on long-term debt 3,064 4,310
---------- ----------
277,157 103,340
Long-term debt (Note 13) 321,163 230,067
Other liabilities (Note 14) 56,586 24,670
---------- ----------
$ 654,906 $ 358,077
========== ==========
</TABLE>
<TABLE>
<CAPTION>
SHAREHOLDERS' EQUITY December 31, 1998 1997
- -------------------- ---- ----
<S> <C> <C>
Capital stock (Note 15) $ 159,223 $ 157,430
Retained earnings 130,375 89,632
Accumulated foreign currency
translation adjustments (Note 16) 7,700 3,040
---------- ----------
297,298 250,102
---------- ----------
$ 952,204 $ 608,179
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
On behalf of the Board,
Gordon R. Cunningham, Director Ben J. Davenport, Jr., Director
22
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Canadian dollars; tabular amounts in thousands, except per share amounts)
1. GOVERNING STATUTES
The Company, incorporated under the Canada Business Corporations Act, is based
in Montreal, Canada. The common shares of the Company are listed on the American
Stock Exchange in the United States of America and on the Toronto Stock Exchange
in Canada.
2. ACCOUNTING POLICIES
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
These consolidated financial statements include the accounts of the Company and
all its subsidiaries. All significant intercompany accounts and transactions
have been eliminated. Investments in joint ventures have been proportionately
consolidated based on the Company's ownership interest.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of cash, receivables, bank indebtedness as well as accounts
payable and accrued liabilities is equivalent to carrying amounts, given the
short maturity period of such financial instruments. The fair value of
receivables from joint ventures approximates the carrying amounts reported in
the consolidated balance sheets. The fair value of long-term debt was
established as described in Note 13.
INVENTORY VALUATION
Raw materials and parts and supplies 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.
23
<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Canadian dollars; tabular amounts in thousands, except per share amounts)
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:
<TABLE>
<CAPTION>
Methods Rates and Periods
------- -----------------
<S> <C> <C>
Buildings . . . . . . . . . . . . . . . . . . . . . . Diminishing balance 5%
or straight-line 15 to 40 years
Buildings under capital leases. . . . . . . . . . . . Straight-line 20 years
Manufacturing equipment . . . . . . . . . . . . . . . Straight-line 7 to 20 years
Furniture, office, computer equipment and other . . . Diminishing balance 20%
or straight-line 5 years
</TABLE>
The Company follows the policy of capitalizing interest during the construction
and preproduction periods as part of the cost of significant capital assets.
Normal repairs and maintenance are expensed as incurred. Expenditures which
materially increase values, change capacities or extend useful lives are
capitalized.
DEFERRED CHARGES
Debt issue expenses are deferred and amortized on a straight-line basis over the
term of the related obligation. Other deferred charges are amortized on a
straight-line basis over a five-year period.
GOODWILL
Goodwill represents the excess of the purchase price and related cost over the
value assigned to the net tangible assets of investments in subsidiaries and
joint ventures at the dates of acquisition. Goodwill is being amortized on a
straight-line basis over 40 years, the estimated life of the benefit. The value
of goodwill is regularly evaluated by reviewing the returns of the related
business, taking into account the risk associated with the investment. Any
permanent impairment in the value of goodwill would be written off against
earnings.
ENVIRONMENTAL COSTS
The Company expenses, on a current basis, recurring costs associated with
managing hazardous substances and pollution in ongoing operations. The Company
also accrues for costs associated with the remediation of environmental
pollution when it becomes probable that a liability has been incurred and its
proportionate share of the amount can be reasonably estimated.
24
<PAGE> 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Canadian dollars; tabular amounts in thousands, except per share amounts)
2. ACCOUNTING POLICIES (Continued)
INCOME TAXES
In 1998, the Company adopted the recently revised recommendations of the
Canadian Institute of Chartered Accountants section 3465, Accounting for income
taxes. Under these recommendations, income taxes are now accounted for using the
liability method. Under this method, future income tax assets and liabilities
are determined based on deductible or taxable temporary differences between the
financial reporting values and the tax values of assets and liabilities, using
enacted income tax rates expected to be in effect for the years in which the
differences are expected to reverse. This change in accounting policy was
applied prospectively, as the effect on prior years' reported amounts was not
significant. For the year ended December 31, 1998, the change resulted in an
increase to goodwill of $4.7 million and a corresponding increase in net future
income tax liabilities.
FOREIGN CURRENCY TRANSLATION
The accounts of foreign subsidiaries and joint ventures which are considered to
be financially and operationally self-sustaining are translated into Canadian
dollars under the current rate method and therefore, all gains and losses
arising from the translation of the financial statements of these foreign
subsidiaries are deferred in the "Accumulated foreign currency translation
adjustments" account in shareholders' equity. Accounts in currencies other than
Canadian dollars of Canadian entities and accounts of integrated foreign
subsidiaries are translated under the temporal method.
EARNINGS PER SHARE
Basic earnings per share are calculated using the weighted average number of
common shares outstanding during the year.
Fully diluted earnings per share reflect the dilutive effects of stock options
which would have resulted if exercise of options had occurred at the beginning
of the period or at the date of the granting of the options.
Based on imputed rates of return of 6% in 1998, 1997 and 1996, after-tax imputed
earnings of $1,542,000 in 1998, $444,000 in 1997 and $693,000 in 1996 were
considered for purposes of calculating fully diluted earnings per share.
All earnings per share calculations reflect the impact of the two-for-one
subdivision of the common shares which was effected on June 4, 1996.
25
<PAGE> 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Canadian dollars; tabular amounts in thousands, except per share amounts)
3. JOINT VENTURES
The Company's pro rata share of its joint ventures' operations included in the
consolidated financial statements is summarized as follows:
<TABLE>
<CAPTION>
Years Ended December 31, 1998 1997 1996
- ------------------------ ---- ---- ----
<S> <C> <C> <C>
EARNINGS
Sales . . . . . . . . . . . . . . . . . . . . . . $ 6,021 $ 4,039 $ 2,827
Gross profit. . . . . . . . . . . . . . . . . . . 1,729 1,377 1,204
Financial expenses. . . . . . . . . . . . . . . . 673 109 232
Net earnings (net loss) . . . . . . . . . . . . . (90) 230 50
CHANGES IN CASH RESOURCES
Source of cash from operating activities . . . . 1,265 1,862 2,278
Source (use) of cash from financing activities . 1,739 4,170 (94)
Use of cash for investing activities . . . . . . (2,003) (5,044) (2,338)
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31, 1998 1997
- ------------------------ ---- ----
<S> <C> <C>
BALANCE SHEETS
Assets
Current assets. . . . . . . . . . . . . . . . . $ 4,967 $ 3,294
Long-term assets. . . . . . . . . . . . . . . . 14,584 12,599
Liabilities
Current liabilities. . . . . . . . . . . . . . 4,441 2,976
Long-term debt . . . . . . . . . . . . . . . . 4,201 3,607
</TABLE>
During the year ended December 31, 1998, the Company recorded sales of
$2,589,000 to its joint ventures ($3,768,000 in 1997). Also, interest income of
$1,524,000 from a joint venture was accounted for during the year ended December
31, 1998 ($1,044,000 in 1997). Those operations, measured at exchange values,
were conducted in the normal course of business.
4. INFORMATION INCLUDED IN THE CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Years Ended December 31, 1998 1997 1996
- ------------------------ ---- ---- ----
<S> <C> <C> <C>
Statements of earnings
Depreciation of capital assets . . . . . . . . . . . . $ 24,625 $ 15,540 $ 10,580
Amortization of deferred charges . . . . . . . . . . . 1,721 541 399
Financial expenses
Interest on long-term debt. . . . . . . . . . . . . . 15,424 4,906 4,405
Interest and bank charges . . . . . . . . . . . . . . 9,907 1,455 842
Interest income, gain on foreign exchange & other . . (3,890) (2,291) (2,787)
Interest capitalized to capital assets. . . . . . . . (2,419) (823) (765)
--------- ---------- ---------
$ 19,022 $ 3,247 $ 1,695
--------- ---------- ---------
</TABLE>
26
<PAGE> 28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Canadian dollars; tabular amounts in thousands, except per share amounts)
5. RESTRUCTURING CHARGES
In 1997, the Company initiated an organizational review of the operations of
certain facilities manufacturing fabric intermediate bulk containers and
approved a plan to improve efficiency and reduce operating costs.
As a result of the review, a restructuring provision of $27.1 million was
recorded to reflect asset impairment and to provide for accruals for costs
identified in the restructuring plan. An income tax recovery of $8.4 million was
recorded as a result of those restructuring charges.
6. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Years Ended December 31, 1998 1997 1996
- ------------------------ ---- ---- ----
<S> <C> <C> <C>
Current. . . . . . . . . . . . . . . $ 4,770 $ 3,607 $ 9,750
Future . . . . . . . . . . . . . . . 13,203 2,503 2,050
---------- ---------- ----------
$ 17,973 $ 6,110 $ 11,800
---------- ---------- ----------
</TABLE>
The reconciliation of the combined Federal and Provincial statutory income tax
rate to the Company's effective tax rate is detailed as follows:
<TABLE>
<CAPTION>
Years Ended December 31, 1998 1997 1996
- ------------------------ ---- ---- ----
<S> <C> <C> <C>
Combined Federal and Provincial income tax rate % 42.9 % 43.4 % 43.1
Manufacturing and processing . . . . . . . . . . . . . . . . (2.1) (6.1) (2.7)
Foreign losses recovered (income taxed) at lower rates (5.1) 3.2 (4.2)
Impact of other permanent differences . . . . . . . . . . . (6.7) (9.5) (7.0)
---- ---- ----
Effective income tax rate % 29.0 % 31.0 % 29.2
---- ---- ----
</TABLE>
The net future income tax liabilities are detailed as follows:
<TABLE>
<CAPTION>
Years Ended December 31, 1998 1997
- ------------------------ ---- ----
<S> <C> <C>
Future income tax assets
Accounts payable and accrued liabilities $ 13,278 $ 8,154
Tax credits and loss carry-forwards 7,814 5,861
Receivables 1,294 1,253
Inventories 744 2,508
Other 82 2,805
---------- ----------
23,212 20,581
Future income tax liabilities
Capital assets (52,449) (28,112)
---------- ----------
Net future income tax liabilities $ (29,237) $ (7,531)
---------- ----------
</TABLE>
27
<PAGE> 29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Canadian dollars; tabular amounts in thousands, except per share amounts)
7. ACQUISITIONS OF BUSINESSES
In the last three years, the following business acquisitions have been accounted
for using the purchase method of accounting and accordingly the purchase price
was allocated to the assets and liabilities based on their estimated fair value
as of acquisition date. The operating results of the acquired businesses have
been included in the consolidated financial statements from the dates of
acquisition.
a) YEAR ENDED DECEMBER 31, 1998
On September 23, 1998 and October 7, 1998, respectively, the Company purchased
100% of the outstanding shares of Anchor Continental, Inc., a South Carolina
manufacturer of pressure sensitive tapes including both masking and duct tapes
and substantially all the operating assets of Rexford Paper Company, a Wisconsin
redistributor of a variety of pressure sensitive tapes as well as a manufacturer
of water activated tapes.
The total cash consideration and estimated transactions costs for the
acquisitions were approximately $173.2 million (US$113.3 million).
The preliminary purchase price allocations, which reflect approximately $110.0
million allocated to goodwill, were based on available information and
preliminary appraisals and are subject to revision as more facts become known.
Goodwill from the acquisitions is being amortized over a forty-year period.
b) YEAR ENDED DECEMBER 31, 1997
On December 16, 1997, the Company purchased 100% of the outstanding shares of
American Tape Co., a manufacturer of pressure sensitive tapes and shrink film
with facilities located in Michigan and Kentucky. The total cash consideration
and transaction costs were $65.7 million. Approximately $103.0 million of
American Tape Co.'s long-term debt was refinanced following the acquisition
c) YEAR ENDED DECEMBER 31, 1996
On August 5, 1996 and November 15, 1996, respectively, the Company purchased the
operating assets of Augusta Bag & Supply, Co., a Georgia manufacturer of fabric
intermediate bulk containers and 100% of the shares of Tape, Inc., a Wisconsin
manufacturer of water activated gummed tape. The total cost for those two
acquisitions was $12,096,000. The cash consideration for the acquisitions was
$5,238,000. The Company also issued 229,370 common shares valued at a price of
$29.90 (US$22,315) per share. For one of the acquired businesses, additional
goodwill of $2.5 million was recorded in the year ended December 31, 1997, based
on a contingent consideration arrangement.
28
<PAGE> 30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Canadian dollars; tabular amounts in thousands, except per share amounts)
7. ACQUISITIONS OF BUSINESSES (Continued)
The following is a summary of the initial values of the net assets purchased in
the last three years:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Current assets $ 49,700 $ 32,923 $ 11,977
Capital assets 79,196 67,198 5,870
Goodwill and other assets 110,373 104,763 9,582
Net future income tax assets - 7,447 1,133
---------- ----------- ----------
239,269 212,331 28,562
Current liabilities assumed (59,576) (38,812) (11,781)
Net future income tax liabilities (6,461) - -
Long-term debt assumed - (107,856) (4,685)
---------- ----------- ----------
Net assets purchased and consideration paid $ 173,232 $ 65,663 $ 12,096
---------- ----------- ----------
</TABLE>
8. RECEIVABLES
<TABLE>
<CAPTION>
December 31, 1998 1997
---- ----
<S> <C> <C>
Trade (net of allowance for doubtful accounts of
$3,382,000 in 1998 and $ 1,935,000 in 1997) $ 108,810 $ 85,749
Income and other taxes 2,455 3,183
Rebates receivable 5,297 3,694
Sales taxes 2,796 888
Other 7,622 1,456
----------- ----------
$ 126,980 $ 94,970
----------- ----------
</TABLE>
9. INVENTORIES
<TABLE>
<CAPTION>
December 31, 1998 1997
- ------------ ---- ----
<S> <C> <C>
Raw materials $ 29,727 $ 24,355
Work in process 13,020 8,809
Finished goods 67,704 30,454
Parts and supplies 7,915 5,057
---------- -----------
$ 118,366 $ 68,675
---------- -----------
</TABLE>
29
<PAGE> 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Canadian dollars; tabular amounts in thousands, except per share amounts)
10. CAPITAL ASSETS
<TABLE>
<CAPTION>
ACCUMULATED
DECEMBER 31, 1998 COST DEPRECIATION NET
- ----------------- ---- ------------ ---
<S> <C> <C> <C>
Land. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,876 $ - $ 2,876
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . 44,945 5,142 39,803
Buildings under capital leases. . . . . . . . . . . . . . . 22,893 3,327 19,566
Manufacturing equipment . . . . . . . . . . . . . . . . . . 391,440 91,514 299,926
Furniture, office, computer equipment and other . . . . . . 19,767 6,417 13,350
Manufacturing equipment under construction. . . . . . . . . 19,666 - 19,666
--------- --------- ---------
$ 501,587 $ 106,400 $ 395,187
--------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATED
DECEMBER 31, 1997 COST DEPRECIATION NET
- ----------------- ---- ------------ ---
<S> <C> <C> <C>
Land. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,194 $ - $ 1,194
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . 18,942 3,735 15,207
Buildings under capital leases. . . . . . . . . . . . . . . 21,382 2,557 18,825
Manufacturing equipment . . . . . . . . . . . . . . . . . . 241,447 62,550 178,897
Manufacturing equipment under capital leases. . . . . . . . 10,908 5,565 5,343
Furniture, office, computer equipment and other . . . . . . 13,528 4,218 9,310
Building and manufacturing equipment
under construction . . . . . . . . . . . . . . . . . . . . 27,691 - 27,691
--------- --------- ---------
$ 335,092 $ 78,625 $ 256,467
--------- --------- ---------
</TABLE>
30
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Canadian dollars; tabular amounts in thousands, except per share amounts)
11. OTHER ASSETS
<TABLE>
<CAPTION>
December 31, 1998 1997
- ------------ ---- ----
<S> <C> <C>
Deferred charges and debt issue expenses,
at amortized cost . . . . . . . . . . . . . . . . . . . . . $ 5,296 $ 1,238
Loans to officers and directors including loans
regarding the exercise of stock options, without
interest, various repayment terms . . . . . . . . . . . . . 700 987
Receivables from joint ventures(a) . . . . . . . . . . . . . 21,404 17,300
Other receivables. . . . . . . . . . . . . . . . . . . . . . 2,576 -
Other, at cost . . . . . . . . . . . . . . . . . . . . . . . 1,561 2,420
--------- ---------
$ 31,537 $ 21,945
--------- ---------
</TABLE>
[FN]
(a) Of this amount, a total of $19,269,000 is receivable from IFCO - U.S.,
L.L.C. (IFCO) as at December 31, 1998 ($16,260,000 in 1997) and includes
the following: $9,602,000 ($7,223,000 in 1997) of promissory notes bearing
interest at a rate of 10%, repayable in annual principal installments,
maturing at various dates until January 2002 and a $9,667,000 ($9,037,000
in 1997) loan bearing interest at the U.S. prime rate, of which $2,000,000
is repayable once certain profitability levels are attained by IFCO, and
the balance is due on demand. The promissory notes are secured by a first
ranking security interest granted by IFCO on fixed assets. As well, a
portion of the total amount receivable is subject to a guaranty agreement
provided by the other party to the joint venture.
</FN>
12. BANK INDEBTEDNESS AND CREDIT FACILITIES
The bank indebtedness consists of the utilized portion of unsecured demand and
revolving bank credit facilities and cheques issued which have not been drawn
from the facilities and is reduced by any cash balances.
As at December 31, 1998, the Company had:
- - A US$100 million senior unsecured bank loan under a term credit facility
which matures August 22, 1999. This loan bears interest at U.S. prime rate
plus a premium varying between 0.50% and 1.25% or LIBOR plus a premium
varying between 1.25% and 2.00%. As at December 31, 1998, the effective
interest rate pertaining to the bank loan was approximately 7.8%;
- - $30 million of revolving credit facilities from Canadian financial
institutions of which $2.2 million was utilized as at December 31, 1998;
- - US$30 million of revolving credit facilities from U.S. and Canadian
financial institutions of which US$8.4 million was utilized as at December
31, 1998.
The effective interest rate on the used portion of these credit facilities was
8.0% as at December 31, 1998 (5.0% as at December 31, 1997).
31
<PAGE> 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Canadian dollars; tabular amounts in thousands, except per share amounts)
13. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31, 1998 1997
- ------------ ---- ----
<S> <C> <C>
a) US$137,000,000 Senior Notes. . . . . . . . . . . . . . $ 209,679 $ -
b) US$33,000,000 Series 1, 2 and 3 Notes. . . . . . . . . 50,507 47,174
c) US$33,001,000 bank loan under a revolving
credit facility. . . . . . . . . . . . . . . . . . . . 50,508 -
d) Other debt . . . . . . . . . . . . . . . . . . . . . . 13,533 23,240
e) US$114,700,000 bank loans. . . . . . . . . . . . . . . - 163,963
------------ ------------
324,227 234,377
Less
Current portion of long-term debt 3,064 4,310
------------ ------------
$ 321,163 $ 230,067
------------ ------------
</TABLE>
a) U.S. SENIOR NOTES
Senior unsecured U.S. dollar Notes, bearing interest at 6.82%, payable
semi-annually, maturing March 31, 2008.
b) U.S. NOTES - SERIES 1, 2 AND 3
Senior unsecured U.S. dollar Notes, bearing interest at an effective rate of
7.78% (7.78% in 1997), payable semi-annually. These Notes mature on June 1,
2001.
c) U.S. DOLLAR BANK LOAN
Senior unsecured U.S. dollar bank loan under a US$50 million revolving credit
facility maturing April 1, 2000. This loan bears interest at U.S. prime rate or
LIBOR plus 1.00%. As at December 31, 1998 the effective interest rate pertaining
to the bank loan was 6.9%.
d) OTHER DEBT
Consist 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.
e) U.S. DOLLAR BANK LOANS
Senior unsecured U.S. dollar bank loans under term or revolving credit
facilities which were reimbursed during the year. Those loans were bearing
interest at U.S. prime rate or LIBOR plus a premium varying between 0.95% and
1.25%.
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.
32
<PAGE> 34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Canadian dollars; tabular amounts in thousands, except per share amounts)
13. LONG-TERM DEBT (Continued) Long-term debt repayments are due as follows:
<TABLE>
<C> <C>
1999. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,064
2000. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53,609
2001. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53,214
2002. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,405
2003. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 683
Thereafter. . . . . . . . . . . . . . . . . . . . . . . . . . 211,252
----------
Total $ 324,227
----------
</TABLE>
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, 1998 and 1997 are:
<TABLE>
<CAPTION>
1998 1997
---- ----
FAIR CARRYING Fair Carrying
VALUE AMOUNT value amount
----- ------ ----- ------
<S> <C> <C> <C>
$ 338,476 $ 324,227 $ 237,474 $ 234,377
</TABLE>
14. OTHER LIABILITIES
<TABLE>
<CAPTION>
December 31, 1998 1997
- ------------ ---- ----
<S> <C> <C>
Provision for future site rehabilitation costs. . . . . . . . . $ 6,887 $ 1,430
Future income tax liabilities . . . . . . . . . . . . . . . . . 41,281 19,667
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,418 3,573
--------- ---------
$ 56,586 $ 24,670
--------- ---------
</TABLE>
33
<PAGE> 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Canadian dollars; tabular amounts in thousands, except per share amounts)
15. CAPITAL STOCK
a) 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) ISSUED AND FULLY PAID
The changes in the number of outstanding common shares and their aggregate
stated value from January 1, 1996 to December 31, 1998 were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
NUMBER STATED Number Stated Number Stated
OF SHARES VALUE of shares value of shares value
--------- ----- --------- ----- --------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance, beginning of year. . . . . 25,019,921 $ 157,430 24,446,476 $ 153,003 24,052,436 $ 145,152
Shares issued for business
acquisitions . . . . . . . . . . . - - - - 229,370 6,858
Shares issued for cash upon
exercise of stock options. . . . . 174,412 1,793 573,445 4,427 164,670 993
---------- --------- ---------- --------- ---------- ---------
Balance, end of year 25,194,333 $ 159,223 25,019,921 $ 157,430 24,446,476 $ 153,003
---------- --------- ---------- --------- ---------- ---------
</TABLE>
For basic earnings per share calculation purposes, the weighted average number
of common shares outstanding was 25,123,812 for the year ended December 31, 1998
(24,819,495 in 1997 and 24,201,002 in 1996).
c) SHAREHOLDERS' PROTECTION RIGHTS PLAN
On May 21, 1998, the shareholders approved the extension to September 2003 of a
Shareholders' Protection Rights Plan originally established in 1993. The effect
of the Rights Plan is to require anyone who seeks to acquire 20 percent or more
of the Company's voting shares to make a bid complying with specific provisions.
d) STOCK OPTIONS
Under the Company's Amended Executive Stock Option Plan, options may be granted
to Company's executives and directors. Options expire ten years after the date
of granting. The plan provides that such options will vest and may be
exercisable 25% per year over four years.
34
<PAGE> 36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Canadian dollars; tabular amounts in thousands, except per share amounts)
15. CAPITAL STOCK (Continued)
Options granted during the last three years were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Number of common shares in respect
of which new options were granted. . . . . . . . . . . . 744,650 634,900 344,100
Exercise price (or their U.S. dollar equivalent). . . . $25.86 TO $33.90 $26.51 to $29.03 $22.50 to $24.78
</TABLE>
All options were granted at a price equal to the average market value on the
five days immediately preceding the date the options were granted.
The following table presents the situation pertaining to common shares reserved
for issuance under the plan and options exercised: 1998 1997 1996
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Number of common shares reserved for
issuance under the plan. . . . . . . . . . . . . . . . . 2,405,242 2,405,242 2,405,242
Number of shares remaining available for
issuance under the plan. . . . . . . . . . . . . . . . . 681,592 1,426,242 2,061,142
Number of common shares issued pursuant
to the exercised stock options . . . . . . . . . . . . . 174,412 573,445 164,670
Price range at issuance . . . . . . . . . . . . . . . . . $5.04 TO $29.20 $5.04 to $22.50 $5.04 to $12.10
</TABLE>
The changes in number of options outstanding from January 1, 1996 to December
31, 1998 were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Balance, beginning of year . . . . . . . . . . . . . . . 1,837,329 1,799,074 1,624,894
Granted. . . . . . . . . . . . . . . . . . . . . . . . . 744,650 634,900 344,100
Exercised. . . . . . . . . . . . . . . . . . . . . . . . (174,412) (573,445) (164,670)
Canceled . . . . . . . . . . . . . . . . . . . . . . . . (1,500) (23,200) (5,250)
--------- --------- ---------
Balance, end of year 2,406,067 1,837,329 1,799,074
--------- --------- ---------
</TABLE>
The exercise prices for options outstanding range from $5.04 (US$4.25) to $33.90
(US$23.01).
35
<PAGE> 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Canadian dollars; tabular amounts in thousands, except per share amounts)
16. ACCUMULATED FOREIGN CURRENCY TRANSLATION ADJUSTMENTS
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Balance, beginning of year . . . . . . . . . . . . . . . . $ 3,040 $ 1,398 $ 914
Effect of changes in exchange rates during
the year on the net assets of self-sustained
foreign subsidiaries. . . . . . . . . . . . . . . . . . . 4,660 1,642 484
------- -------- --------
Balance, end of year $ 7,700 $ 3,040 $ 1,398
------- -------- --------
</TABLE>
17. COMMITMENTS AND CONTINGENCIES
a) COMMITMENTS
At December 31, 1998, the Company had commitments aggregating approximately
$2,245,000 to 2003 for the rental of offices, warehouse space, manufacturing
equipment, automobiles and other. Minimum lease payments for the next five years
are $1,078,000 in 1999, $522,000 in 2000, $279,000 in 2001 and $183,000 in 2002
and 2003.
The Company also had commitments aggregating approximately $11,518,000 for the
purchase of manufacturing equipment.
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
one year. Contribution to these plans are 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.
36
<PAGE> 38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Canadian dollars; tabular amounts in thousands, except per share amounts)
18. PENSION AND POST-RETIREMENT BENEFIT PLANS (Continued)
The Company has expensed $2,092,000 for these plans for the year ended December
31, 1998 ($948,000 and $762,000 for 1997 and 1996 respectively).
DEFINED BENEFITS PLANS
The Company has, in the United States, two defined benefits plans (hourly and
salaried). Benefits for employees are based on compensation and years of service
for salaried employees and fixed benefits per month for each year of services
for hourly employees.
The funding policy is consistent with the funding requirements of federal laws
and regulations. Plan assets consist primarily of equity securities and fixed
income investments.
In Canada, the non-union hourly employees of the Company are covered by a plan
which provides a fixed benefit of $14.00 ($13.00 and $11.50 in 1997 and 1996
respectively) per month for each year of service and which will be $15.00 in
1999.
Plan assets are invested in segregated funds, managed by an unaffiliated
investment firm who places these funds in pooled accounts.
The following represents weighted-average of significant assumptions used for
the measurement of pension costs and projected benefit obligation:
<TABLE>
<CAPTION>
Year Ended December 31, 1998 1997 1996
- ----------------------- ---- ---- ----
<S> <C> <C> <C>
Discount rate. . . . . . . . . . . . . . . % 7.00 % 7.50 % 7.50
Expected long-term rate of return. . . . . % 9.50 % 9.50 % 9.00
</TABLE>
There is no salary increase assumption because the remaining plans provide fixed
benefits.
As at December 31, 1998, one of the U.S. defined benefits plan (salaried
employees) was in the latter stages of termination and the value of the
remaining assets was US$550,000, an amount approximately equal to the plan
liabilities.
As the plan proceeds into 1999, remaining assets will be distributed and any
residual plan assets that remain will be used to increase participant benefits
and will not revert back to the Company.
37
<PAGE> 39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Canadian dollars; tabular amounts in thousands, except per share amounts)
18. PENSION AND POST-RETIREMENT BENEFIT PLANS (Continued)
a) NET PERIODIC BENEFIT COST
Components of net periodic benefit cost for defined benefits plans were as
follows:
<TABLE>
<S> <C> <C> <C>
Years Ended December 31, 1998 1997 1996
Service cost. . . . . . . . . . . . . . . . . . $ 983 $ 60 $ 42
Interest cost . . . . . . . . . . . . . . . . . 2,990 71 54
Expected return on plan assets. . . . . . . . . (3,724) (85) (69)
Recognized actuarial gains. . . . . . . . . . . 75 (2) (2)
Other . . . . . . . . . . . . . . . . . . . . . 4 1 (2)
Net periodic benefit cost $ 328 $ 45 $ 23
</TABLE>
b) FUNDING
The funded status of the plans was as follows:
<TABLE>
<S> <C> <C>
December 31, 1998 1997
Benefit obligation at beginning of year . . . . . . . $13,427 $ 902
Service cost. . . . . . . . . . . . . . . . . . . . . 983 60
Interest cost . . . . . . . . . . . . . . . . . . . . 2,990 71
Business acquisition. . . . . . . . . . . . . . . . . - 12,147
Actuarial loss and other. . . . . . . . . . . . . . . 1,878 279
Benefits paid . . . . . . . . . . . . . . . . . . . . (7,917) (32)
Benefit obligation at end of year $11,361 $13,427
Fair value of plan assets at beginning of year. . . . $16,107 $ 939
Actual return on plan assets. . . . . . . . . . . . . 1,980 97
Contributions received. . . . . . . . . . . . . . . . 765 47
Business acquisition. . . . . . . . . . . . . . . . . - 15,056
Benefits paid . . . . . . . . . . . . . . . . . . . . (7,917) (32)
Fair value of plan assets at end of year $10,935 $16,107
Funded status of the plan . . . . . . . . . . . . . . $ (426) $ 2,680
Unrecognized actuarial gain . . . . . . . . . . . . . (211) (2,588)
Unrecognized prior service cost . . . . . . . . . . . 1,124 1,042
Other . . . . . . . . . . . . . . . . . . . . . . . . (162) (168)
Prepaid benefit cost $ 325 $ 966
</TABLE>
38
<PAGE> 40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Canadian dollars; tabular amounts in thousands, except per share amounts)
18. PENSION AND POST-RETIREMENT BENEFIT PLANS (Continued)
C) POST-RETIREMENT BENEFITS
In the United States, the Company provides group health care and life insurance
benefits to certain retirees. The cost of providing these benefits, which is
charged against earnings on an accrual basis, amounted to $193,000 in 1998.
19. SEGMENT DISCLOSURES
The Company adopted the new disclosures requirements regarding segmented
information under section 1701 of the Canadian Institute of Chartered
Accountants. The information for 1997 and 1996 has been restated from prior
year's presentation in order to conform to the 1998 presentation.
The Company manufactures and sells a variety of specialized polyolefin
plastic packaging products primarily in Canada and in the United States of
America. All products are considered part of one reportable segment as they are
made from similar extrusion processes and differ only in the final stages of
manufacturing. A vast majority of the Company's products, while brought to
market through various distribution channels, generally have similar economic
characteristics.
The following table presents revenues by country based on the location of the
manufacturing facilities:
<TABLE>
<CAPTION>
Years Ended December 31, 1998 1997 1996
<S> <C> <C> <C>
Canada. . . . . . . . . . . . . . . . . . . . . . . . . . . . $144,152 $142,752 $121,838
United States . . . . . . . . . . . . . . . . . . . . . . . . 511,748 296,822 218,377
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,189 3,230 2,585
Transfers between geographic areas. . . . . . . . . . . . . . (82,514) (94,534) (71,523)
Total revenue $578,575 $348,270 $271,277
</TABLE>
The following table presents capital assets and goodwill by country based on the
locations of assets:
<TABLE>
<CAPTION>
December 31, 1998 1997
<S> <C> <C>
Capital assets
Canada. . . . . . . . . . . . . . . . . . . . . . . . $ 56,105 $58,030
United States . . . . . . . . . . . . . . . . . . . . 327,189 188,635
Other . . . . . . . . . . . . . . . . . . . . . . . . 11,893 9,802
Total capital assets $ 395,187 $256,467
Goodwill
Canada . . . . . . . . . . . . . . . . . . . . . . . $ 28,534 $28,893
United States. . . . . . . . . . . . . . . . . . . . 237,103 120,341
Total goodwill $ 265,637 $149,234
</TABLE>
39
<PAGE> 41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Canadian dollars; tabular amounts in thousands, except per share amounts)
19. SEGMENT INFORMATION (Continued)
No customer accounted for 10% or more of revenues in 1998, 1997 and 1996.
20. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information
using year 2000 dates is processed. In addition, similar problems may arise in
some systems which use certain dates in 1999 to represent something other than
a date. The effects of the Year 2000 Issue may be experienced before, on or
after January 1, 2000, and if not addressed, the impact on operations and
financial reporting may range from minor errors to significant systems failure
which could affect an entity's ability to conduct normal business operations.
It is not possible to be certain that all aspects of the Year 2000 Issue
affecting the Company, including those related to the efforts of customers,
suppliers or other third parties, will be fully resolved.
21. SUBSEQUENT EVENTS
On March 8, 1999, the Company filed a final prospectus in Canada for the
registration and sale of 3,000,000 common shares priced at $40.25 per share.
The closing of the transaction is anticipated for March 16, 1999. It is
expected that the total net estimated proceeds of $115,670,000 from the
offering will be used to reimburse the three series of outstanding senior
unsecured U.S. dollar notes and the outstanding balance of a senior unsecured
U.S. dollar bank loan under a revolving credit facility.
22. DIFFERENCES IN ACCOUNTING BETWEEN THE UNITED STATES OF AMERICA AND CANADA
In certain respects, Canadian generally accepted accounting principles
("Canadian GAAP") differ from United States generally accepted accounting
principles ("U.S. GAAP").
a) CONSOLIDATED STATEMENTS OF EARNINGS
The amounts reported in the consolidated statements of earnings of the Company,
prepared under Canadian GAAP, conform in all material respects to the amounts
that would be reported if the financial statements would have been prepared
under U.S. GAAP.
Canadian GAAP permits the disclosure of a subtotal representing "Earnings
before restructuring charges and income taxes". U.S. GAAP does not permit the
presentation of this subtotal.
40
<PAGE> 42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Canadian dollars; tabular amounts in thousands, except per share amounts)
22. DIFFERENCES IN ACCOUNTING BETWEEN THE UNITED STATES OF AMERICA AND CANADA
(Continued)
EARNINGS PER SHARE UNDER U.S. GAAP
Starting in 1997, basic earnings per share under U.S. GAAP is calculated in a
matter consistent with Canadian GAAP. Diluted earnings per share under U.S.
GAAP is calculated using the assumption that proceeds from exercising options
are used at the beginning of the year to acquire common shares of the Company
at average market price.
Earnings per share established in accordance with U.S. GAAP are as follows:
<TABLE>
<CAPTION>
Years Ended December 31, 1998 1997 1996
<S> <C> <C> <C>
Basic. . . . . . . . . . . . . . . . . $1.75 $0.55 $1.20
Diluted. . . . . . . . . . . . . . . . $1.68 $0.53 $1.15
</TABLE>
b) CONSOLIDATED BALANCE SHEETS
Under Canadian GAAP, the financial statements are prepared using the
proportionate consolidation method of accounting for joint ventures. Under U.S.
GAAP, these investments would be accounted for using the equity method. Note 3
to the consolidated financial statements provides details of the impact of
proportionate consolidation on the Company's consolidated financial statements
for 1998, 1997 and 1996, including the impact on the consolidated balance
sheets.
The other differences in presentation that would be required under U.S. GAAP to
the consolidated balance sheets are not viewed as significant enough to require
further disclosure
c) OTHER
Consolidated statements of changes in cash resources, supplemental disclosure
of cash flow information:
<TABLE>
<CAPTION>
Years Ended December 31, 1998 1997 1996
<S> <C> <C> <C>
(i) Supplemental disclosure of details
of changes in non-cash working capital items:
Changes in non-cash working capital items
Receivables. . . . . . . . . . . . . . . . . . . . . . . . . $ (268) $(19,263) $(12,880)
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . (23,074) (2,334) (12,749)
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . 2,968 (997) (947)
Accounts payable and accrued liabilities . . . . . . . . . . (36,782) 603 (8,365)
$(57,156) $(21,991) $(34,941)
(ii) Cash paid during the year for:
Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 23,351 $ 6,169 $ 4,905
Income taxes. . . . . . . . . . . . . . . . . . . . . . . . . 5,110 3,086 6,533
</TABLE>
41
<PAGE> 43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Canadian dollars; tabular amounts in thousands, except per share amounts)
22. DIFFERENCES IN ACCOUNTING BETWEEN THE UNITED STATES OF AMERICA AND CANADA
(Continued)
(iii) Canadian GAAP permit bank indebtedness (which includes the effect of bank
overdrafts) to be included in the determination of cash or cash
equivalents. Under U.S. GAAP, changes in bank indebtedness would be
reported as cash flows under the heading "Financing".
(iv) Canadian GAAP permit 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 changes in cash resources.
U.S. GAAP do not permit this subtotal to be included.
(v) Under U.S. GAAP, non-cash investing and financing activities would be
excluded from the consolidated financial statement of changes in cash
resources and separately disclosed. As required by Canadian GAAP, the
consolidated statement of cash resources for the year ended December 31,
1996 reflects cash flows required for assets acquired in exchange of
common shares. Under U.S. GAAP, cash flows required for investment and
issue of common shares for such investment would be reduced accordingly.
Such impact for 1996 was $6,858,000.
PENSION PLANS
The principal difference between Canadian and United States GAAP in accounting
for pension cost is in the choice of discount rate for computing the benefit
obligation and the service and interest cost components of net periodic pension
expense. Under Canadian GAAP, the discount rate used represents management's
best estimate of the long term rate of return on pension fund assets whereas
under United States GAAP the discount rate reflects the rate at which pension
benefits can be effectively settled at the date of the financial statements.
The impact of this difference on the Company's pension expense and on the
funded status of the Company's defined benefit pension plans is not
significant.
42
<PAGE> 44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Canadian dollars; tabular amounts in thousands, except per share amounts)
22. DIFFERENCES IN ACCOUNTING BETWEEN THE UNITED STATES OF AMERICA AND CANADA
(Continued)
POST-RETIREMENT BENEFITS OTHER THAN PENSIONS
The following information on post-retirement benefit cost components and funded
status are required under U.S. GAAP:
<TABLE>
<CAPTION>
Years Ended December 31, 1998 1997
<S> <C> <C>
Service cost for the year. . . . . . . . . . . . . . . $ 42 $ -
Interest cost on accumulated
post-retirement benefit obligation . . . . . . . . . . 101 -
Net amortization . . . . . . . . . . . . . . . . . . . 50 -
Net post-retirement benefit cost $ 193 $ -
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998 1997
<S> <C> <C>
Benefit obligation at beginning of year . . . . . . . . $1,265 $ -
Service cost. . . . . . . . . . . . . . . . . . . . . . 42 -
Interest cost . . . . . . . . . . . . . . . . . . . . . 101 -
Business acquisition. . . . . . . . . . . . . . . . . . - 1,265
Actuarial loss. . . . . . . . . . . . . . . . . . . . . 154 -
Benefits paid . . . . . . . . . . . . . . . . . . . . . (92) -
Benefit obligation at end of year and amount recognized $1,470 $1,265
</TABLE>
For measurement purposes, a 9% annual rate of increase in the per capita cost
of covered health care benefits was assumed for 1998 and to gradually decrease
to 5% in 2005. A 1% increase/decrease in this annual trend rate would have the
following effects.
<TABLE>
<CAPTION>
1% Increase 1% Decrease
<S> <C> <C>
Effect on total service and interest cost components. . . . . . $ 4 $ -
Effect on postretirement benefit obligation . . . . . . . . . . 51 (38)
</TABLE>
ACCOUNTING FOR COMPENSATION PROGRAMS
The Company has chosen to continue to measure compensation costs related to
awards of stock options using the intrinsic value based method of accounting.
Under U.S. GAAP, the Company is required to make pro forma disclosures of net
earnings, basic earnings per share and diluted earnings per share as if the
fair value based method of accounting had been applied. The fair value of
options granted in 1996, 1997 and 1998 was estimated using the Black-Scholes
option-pricing model, taking into account a rate of cancellation of options of
1% per year and an expected life of five years. Other assumptions used for
purposes of valuation include expected volatility of 25% for all periods,
risk-free interest rates of 5.27% (5.67% in 1997, 6.79% in 1996) and
maintenance of the existing dividend policy. A compensation charge is charged
off on the vesting periods.
43
<PAGE> 45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Canadian dollars; tabular amounts in thousands, except per share amounts)
22. DIFFERENCES IN ACCOUNTING BETWEEN THE UNITED STATES OF AMERICA AND CANADA
(Continued)
Accordingly, the Company's net earnings, basic earnings per share and diluted
earnings per share for the year ended December 31, 1998 would have been
reduced, on a pro forma basis, by $3,213,000, $0.13 and $0.12 respectively
($2,398,000, $0.10 and $0.09 respectively in 1997 and $1,017,000, $0.04 and
$0.04 respectively in 1996). The pro forma effect on net income for 1996, 1997
and 1998 is not necessarily representative of the pro forma effect on net
income in future years because it does not take into consideration pro forma
compensation expense related to grants made prior to January 1, 1995.
The weighted average fair value of options granted in 1998 was $9.16 ($8.92 in
1997 and $7.48 in 1996).
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.
BUSINESS ACQUISITION - PRO FORMA DISCLOSURES
The following unaudited pro forma financial information has been prepared by
the Company's management, giving effect to the Anchor Continental, Inc.
acquisition, described in Note 7, as if it had taken place at the beginning of
the respective periods.
The pro forma information is presented in response to applicable accounting
rules relating to business acquisitions. It is not necessarily indicative of
the actual results that would have been achieved had the acquisitions occurred
as at January 1, 1997 and January 1, 1998, respectively, and is not necessarily
indicative of future consolidated results of the Company.
The pro forma assumptions that have been reflected are limited to the inclusion
of additional amortization of goodwill and capital assets arising from the
acquisitions, increases in financial expenses for debt incurred to finance the
acquisitions and the income tax effects of such adjustments. Assumptions that
have not been included in the pro forma information are the effect of either
certain decisions that have been made by the Company's management since the
date of the acquisition as well as the effect of various decisions that the
Company's management might have made at the beginning of the respective
periods. In management's opinion, because of the inability to reflect such
assumptions, the pro forma net earnings and basic earnings per share data
described below do not necessarily provide a reliable measure of the impact of
the business acquisitions.
44
<PAGE> 46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Canadian dollars; tabular amounts in thousands, except per share amounts)
22. DIFFERENCES IN ACCOUNTING BETWEEN THE UNITED STATES OF AMERICA AND CANADA
(Continued)
<TABLE>
<CAPTION>
Years Ended December 31, 1998 1997
(UNAUDITED)
<S> <C> <C>
Sales. . . . . . . . . . . . . . . . . . $715,692 $537,813
Net earnings . . . . . . . . . . . . . . $ 32,267 $ 1,911
Basic earnings per share . . . . . . . . $ 1.28 $ 0.08
</TABLE>
CONSOLIDATED COMPREHENSIVE INCOME
The Company adopted for the year ended December 31, 1998 the new SFAS No. 130
pertaining to comprehensive income:
<TABLE>
<CAPTION>
Years Ended December 31, 1998 1997 1996
<S> <C> <C> <C>
Net earnings in accordance with U.S. GAAP. . . . . . $44,003 $13,599 $28,956
Foreign currency translation adjustments . . . . . . 4,660 1,642 484
Consolidated comprehensive income $48,663 $15,241 $29,440
</TABLE>
NEW ACCOUNTING PRONOUNCEMENTS APPLICABLE OVER NEXT YEARS
The Financial Accounting Standards Board (FASB) has issued SFAS No. 133 which
outlines accounting and reporting standards pertaining to derivative
instruments and hedging activities. For U.S. GAAP reporting purposes, this
statement should be adopted for fiscal years commencing after June 15, 1999. As
the Company does not presently use derivative nor hedging instruments, there is
no foreseen impact for the implementation of this new recommendation.
The Canadian Institute of Chartered Accountants has issued a new accounting
standard concerning reporting cash flows statements (section 1540). This
standard should be adopted for fiscal years commencing after August 1, 1998.
The Company has determined that the implementation of this standard will result
in the preparation of cash flows statements which will generally be consistent
with U.S. standards.
45
<PAGE> 47
NOTES
46
<PAGE> 48
<TABLE>
<CAPTION>
<S> <C> <C>
BOARD OF DIRECTORS
MELBOURNE F. YULL BEN J. DAVENPORT, JR. MICHAEL L. RICHARDS (1)
Chairman and Chief Executive Officer, Senior Partner,
Chief Executive Officer Chatham Oil Company Stikeman, Elliott
ERIC E. BAKER IRVINE MERMELSTEIN L. ROBBIE SHAW (1)
President, Managing Partner, Vice President Customer
Miralta Capital II Inc. Market-Tek Service, Marketing and Sales,
Nova Scotia Power Inc.
GORDON R. CUNNINGHAM (1) JAMES A. MOTLEY SR. (1)
President, Director
Cumberland Asset Management American National Bank & Trust Company
American National Bankshares, Inc. (1) Member of Audit Committee
EXECUTIVE OFFICERS
MELBOURNE F. YULL RICHARD GERRIOR H. DALE MCSWEEN
Chairman and Vice President, Executive Vice President,
Chief Executive Officer Manufacturing Truro Chief Operating Officer
ANDREW M. ARCHIBALD, C.A. JAMES A. JACKSON KENNETH R. ROGERS
Chief Financial Officer, Vice President, Corporate Vice President;
Secretary, Treasurer, Chief Information Officer President, International Food
Vice President Administration Container Organization - U.S.
LLOYD W. JONES
JOSEPH D. BRUNO Corporate Vice President SAL VITALE, C.A.
Vice President, Vice President, Finance
Distribution Products
TRANSFER AGENT AND REGISTRAR
CANADA UNITED STATES OF AMERICA
CIBC Mellon Trust Company ChaseMellon Shareholder Services, L.L.C.
2001 University Street, 16th Floor 450 West 33rd Street
Montreal, Quebec, Canada New York, New York, USA
H3A 2A6 10001
AUDITORS
CANADA UNITED STATES OF AMERICA
Raymond Chabot Grant Thornton Grant Thornton International
600 de la Gauchetiere West, 800 One Prudential Plaza
Suite 1900 130 E. Randolf Drive
Montreal, Quebec, Canada Chicago, Illinois, USA
H3B 4L8 60601-6050
INVESTOR INFORMATION
STOCK AND SHARE LISTING SHAREHOLDER AND INVESTOR RELATIONS MR. ANDREW M. ARCHIBALD, C.A.
Common shares are listed on the Shareholders and investors having Chief Financial Officer,
American Stock Exchange and the inquiries or wishing to obtain copies Secretary, Treasurer,
Toronto Stock Exchange, trading of the Company's Annual Report or other Vice President Administration
under the symbol ITP. U.S. Securities Exchange Commission Intertape Polymer Group Inc.
filings should write to: 110E Montee de Liesse
St. Laurent, Quebec, Canada
H4T 1N4 Tel.: (514) 731-0731
E-Mail: [email protected]
</TABLE>
ANNUAL GENERAL MEETING OF SHAREHOLDERS
The Annual General Meeting of Shareholders will be held on WEDNESDAY, JUNE 16,
1999 at 4:00 P.M. at Hotel Omni Montreal, 1050 Sherbrooke Street West, Montreal,
Quebec, Canada.
47
<PAGE> 49
Design: Intertape Polymer Group, Corporate Marketing.
Printed in Canada 5-99-20M
48
<PAGE> 50
1999 Quarterly Report
FIRST QUARTERLY REPORT
<PAGE> 51
Quarterly Report
MESSAGE TO SHAREHOLDERS
Dear Shareholders,
As a result of the recent series of acquisitions, which started with American
Tape Co. in 1997, Intertape Polymer Group (IPG) is now deriving more than 89%
of its revenue in US dollars. All of these acquisitions have taken place in the
USA and the related debt financing has been solely in US dollars. Consequently,
commencing with this Quarterly Report, IPG has decided to report its financial
results in US dollars.
The first quarter was strong. This bodes well for the balance of 1999. The
sales and earnings growth compared to the 1st quarter of 1998 is noteworthy.
The highlights are as follows:
o Sales: Increased 51.1% to $121.5 MM
o Gross Margins: Increased to 28.7%
o Net Earnings: Up 27.2% to $8.2 MM
o Earnings per share: Increased by 23.1% to $0.32.
During March, IPG issued 3,000,000 common shares from treasury at Cdn$40.25 or
US$26.33, which raised US$79.0 million. This was an attractive price.
Those proceeds have since been applied to various debts and a portion retained
in short-term investments.
Regarding acquisitions, IPG negotiated the acquisition of the common shares of
Central Products Company (CPC); and the asset purchase of Spinnaker Electrical
Tape Co. (SETco), both from Spinnaker Industries, Inc. The definitive agreements
were signed in early April and will close subject to U.S. government regulatory
approval. The synergies between CPC and IPG's tape operations will result in
combined lower costs; and SETco's purchase will open new distribution avenues in
both the electrical and electronic field. Technology from our existing tape
facilities will also expand the SETco product line and provide a broader range
of offerings to this new customer base.
2
<PAGE> 52
Quarterly Report
The recent integration of Anchor Continental, Inc. (ACI) and Rexford in the
fall of 1998 is progressing on schedule. In this short window of time, the
Rexford facility in Milwaukee has been closed, with production, warehousing and
administration relocated to IPG's Green Bay facility. The successful transfer
of these operations has had minimal impact on the staffing levels in Green Bay.
Concurrently, reductions in personnel at ACI's Columbia facility have been
made and the second quarter should generate more positive results. To date, we
have achieved half of our overall objectives including limited process and
efficiency gains, which will accelerate with the installation of new equipment
over the next 18 months. During this transition IPG has maintained the
traditional sales levels in both acquired operations.
Company wide, raw material costs have started to rise in polyethylene and
polypropylene resins. These costs have been at an all time low for the past two
years, which has had a negative effect on our selling prices. However, during
this quarter, the customer base accepted recently announced price increases
which perhaps indicates an end to this downward trend. Historically, we have
maintained and improved our gross margins during periods of rising raw material
costs. I see no reason why this should not occur again with this latest series
of cost increases. Bookings for the second quarter are strong and I look
forward to accelerated growth throughout the year.
Melbourne F. Yull
Chairman and Chief Executive Officer May 12, 1999
3
<PAGE> 53
Quarterly Report
CONSOLIDATED EARNINGS
(Unaudited)
In thousands of U.S. dollars, except per share amounts, Using Canadian GAAP
(Note 1)
For the three months ended March 31,
Sales Cost of sales
GROSS PROFIT
Selling, general and administrative expenses Amortization of goodwill Research
and development Financial expenses
Earnings before income taxes Income taxes
NET EARNINGS FOR THE PERIOD
Retained earnings - beginning of period Dividend
RETAINED EARNINGS - END OF PERIOD
Earnings per Share
Cdn GAAP - US$
Cdn GAAP - Fully diluted - US$ U.S. GAAP - US$ U.S. GAAP - Fully diluted - US$
Cdn GAAP - CDN$ Cdn GAAP - Fully diluted - CDN$
Except for historical information contained herein, statements in the release
are forward-looking statements that are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements involve known and unknown risks and uncertainties,
which may cause the Company's actual results in future periods to differ
materially from forecasted results. Those risks include, but are not limited
to, risks associated with pricing, volume and conditions of markets. Those and
other risks are described in the Company's filings with the Securities and
Exchange Commission (SEC) over the last twelve months, copies of which are
available from the SEC or may be obtained upon request from the Company.
4
<PAGE> 54
<TABLE>
<C> <C>
1999 1998
$121,471 $80,367
86,593 57,593
$ 34,878 $22,774
16,098 10,072
1,224 ,727
813 ,742
5,249 2,223
$ 23,384 $13,764
11,494 9,010
3,333 2,594
$ 8,161 $ 6,416
88,318 58,564
(2,993) (2,130)
$ 93,486 $62,850
1999 1998
$ 0.32 $ 0.26
$ 0.30 $ 0.25
$ 0.32 $ 0.26
$ 0.30 $ 0.25
$ 0.48 $ 0.39
$ 0.45 $ 0.38
</TABLE>
NOTE 1. CHANGE OF REPORTING CURRENCY
The financial statements of the Company were presented in Canadian dollars up
to December 31, 1998. As a result of its increasing U.S. activities, the
Company adopted the U.S. dollar as its reporting currency commencing January 1,
1999. The Canadian self-sustained operations of the Company have been
translated using the current rate method.
The prior years' financial statements have been converted in accordance with
the Translation of Convenience Method using the closing exchange rate at
December 31, 1998 of Cdn$ 1.5305 for US$ 1.00.
5
<PAGE> 55
Quarterly Report
FIRST QUARTER HIGHLIGHTS
[CHART]
[CHART]
[CHART]
6
<PAGE> 56
Quarterly Report
[CHART]
[CHART]
[CHART]
7
<PAGE> 57
Quarterly Report
CONSOLIDATED CHANGES IN
(Unaudited)
In thousands of U.S. dollars,
Using Canadian GAAP (Note 1)
For the three months ended March 31,
OPERATIONS
Net earnings for the period
Non-cash items
Depreciation and amortization
Cash from operations before funding of
changes in non-cash working capital
items
Changes in non-cash working capital items
SOURCE (USE) OF CASH DURING THE PERIOD
FINANCING
Net change in bank indebtedness
Issue of long-term debt
Repayment of long-term debt
Issue of common shares
Dividend
SOURCE OF CASH DURING THE PERIOD
INVESTMENT
Capital assets
Other assets
USE OF CASH DURING THE PERIOD
INCREASE (DECREASE) IN CASH DURING THE PERIOD
Effect of foreign currency translation
adjustments Cash, beginning of period
CASH, END OF PERIOD
8
<PAGE> 58
Quarterly Report
CASH RESOURCES
<TABLE>
<C> <C>
1999 1998
$ 8,161 $ 6,416
7,268 4,286
15,429 10,702
6,270 (10,803)
$ 21,699 $ (101)
(23,353) 15,121
- 469
(34,384) (1,276)
77,434 556
(2,993) (2,130)
$ 16,704 $ 12,740
(15,447) (10,793)
(5,343) (2,064)
$(20,790) $(12,857)
17,613 (218)
(946) 218
- -
$ 16,667 $ -
</TABLE>
9
<PAGE> 59
Quarterly Report
CONSOLIDATED BALANCE SHEET
(Unaudited)
In thousands of U.S. dollars,
Using Canadian GAAP (Note 1)
As at March 31,
ASSETS
Current assets
Capital assets
Goodwill and other assets, at amortized cost
TOTAL ASSETS
LIABILITIES
Current liabilities
Long-term debt and other
TOTAL LIABILITIES
SHAREHOLDERS' EQUITY
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
COMMON SHARES
Average number of shares outstanding
Canadian GAAP
Canadian GAAP - Fully diluted
U.S. GAAP
U.S. GAAP - Fully diluted
10
<PAGE> 60
Quarterly Report
<TABLE>
<C> <C>
1999 1998
$ 192,336 $ 123,351
268,197 173,986
198,589 112,964
$ 659,122 $ 410,301
$ 170,837 $ 81,552
209,261 161,334
$ 380,098 $ 242,886
279,024 167,415
$ 659,122 $ 410,301
</TABLE>
<TABLE>
<CAPTION>
3 MONTHS ENDED 3 MONTHS ENDED
MARCH 31, 1999 MARCH 31, 1998
<C> <C>
25,836,000 25,035,000
28,167,000 27,042,000
25,836,000 25,035,000
26,769,000 26,115,000
</TABLE>
11
<PAGE> 61
INFORMATION REQUEST FORM
PLEASE CHECK ONE:
I WOULD LIKE TO RECEIVE OR
CONTINUE RECEIVING FINANCIAL INFORMATION
ON THE COMPANY.
Name: Title: Firm:
Address:
Province/State:
Postal Code/Zip:
Telephone: Fax:
E-mail:
PLEASE SEND ME NOW AND ON A REGULAR
BASIS (PLEASE INDICATE NUMBER OF
COPIES REQUESTED):
Annual & Quarterly Reports # Fax
Updates (Press Releases only) #
PLEASE INDICATE YOUR OCCUPATION:
Investment Dealer Analyst
Institution/Corporation Journalist
Institutional Broker Retail Broker
Institutional Investor Shareholder
Investment Banker Other
PLEASE FAX A COPY OF THIS PAGE TO:
The Secretary
-Treasurer Intertape
Polymer Group Inc.
(514) 731-5477
OR WRITE TO US AT:
110E Montee de Liesse,
Montreal, Quebec, Canada
H4T 1N4
OR CONTACT US VIA THE INTERNET:
Web: www.intertapepolymer.com
E-mail: [email protected]
<PAGE> 62
INTERTAPE POLYMER GROUP INC.
NOTICE OF ANNUAL GENERAL MEETING OF SHAREHOLDERS
AND
MANAGEMENT PROXY CIRCULAR
TO BE HELD ON
JUNE 16, 1999
<PAGE> 63
INTERTAPE POLYMER GROUP INC.
110 E Montee de Liesse St. Laurent, Quebec H4T 1N4
NOTICE OF ANNUAL GENERAL MEETING OF SHAREHOLDERS
NOTICE IS HEREBY GIVEN that the Annual General Meeting (the "Meeting") of
Shareholders of INTERTAPE POLYMER GROUP INC. (the "Corporation") will be held
at Hotel Omni Montreal, 1050 Sherbrooke Street West, Montreal, Quebec, on June
16, 1999, at 4:00 o'clock in the afternoon, for the purposes of:
(1) receiving the consolidated financial statements for the year ended
December 31, 1998, together with the auditors' report thereon;
(2) electing a board of eight directors to serve until the next
annual meeting of shareholders;
(3) appointing auditors and authorizing the directors to fix
their remuneration; and
(4) transacting such other business as may properly be brought
before the Meeting.
The specific details of all matters proposed to be put before the Meeting
are set forth in the accompanying Management Proxy Circular.
Only holders of record of common shares of the Corporation at the close of
business on May 11, 1999 will be entitled to vote at the Meeting.
By Order of the Board of Directors,
ANDREW M. ARCHIBALD, C.A.
Chief Financial Officer,
Secretary, Treasurer, Vice
President Administration
St. Laurent, Quebec
May 12, 1999
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
<PAGE> 64
MANAGEMENT PROXY CIRCULAR
SOLICITATION OF PROXIES
THIS MANAGEMENT PROXY CIRCULAR (THE "CIRCULAR"), WHICH IS BEING MAILED TO
SHAREHOLDERS ON OR ABOUT MAY 14, 1999, 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 MEETING OF SHAREHOLDERS OF
THE CORPORATION (THE "MEETING") TO BE HELD ON JUNE 16, 1999 AT THE TIME AND
PLACE AND FOR THE PURPOSES SET FORTH IN THE ACCOMPANYING NOTICE OF ANNUAL
MEETING OF SHAREHOLDERS, OR ANY ADJOURNMENT THEREOF. The solicitation will be
primarily by mail but may also be made by telephone or other means of
telecommunication by regular employees of the Corporation at nominal cost. The
cost of the solicitation will be borne by the Corporation.
All dollar amounts set forth in this Circular are in Canadian dollars,
except as otherwise indicated.
APPOINTMENT OF PROXYHOLDERS AND REVOCATION OF PROXIES
A SHAREHOLDER MAY APPOINT AS PROXYHOLDER A PERSON OTHER THAN THE DIRECTORS
OF THE CORPORATION NAMED IN THE ACCOMPANYING FORM OF PROXY TO ATTEND AND VOTE
AT THE MEETING IN HIS STEAD, AND MAY DO SO BY INSERTING THE NAME OF SUCH OTHER
PERSON, WHO NEED NOT BE A SHAREHOLDER, IN THE BLANK SPACE PROVIDED IN THE FORM
OF PROXY OR BY COMPLETING ANOTHER PROPER FORM OF PROXY.
In order for proxies to be recognized at the Meeting, the completed forms
of proxy must be received at the office of the Corporation's Canadian transfer
agent, CIBC Mellon Trust Company, 2001 University Street, 16th Floor, Montreal,
Quebec, not less than forty-eight (48) hours prior to the Meeting.
A shareholder, or his attorney authorized in writing, who executed a form
of proxy may revoke it in any manner permitted by law, including the depositing
of an instrument of revocation in writing at the principal place of business of
the Corporation, 110E Montee de Liesse, St. Laurent, Quebec H4T 1N4, at any
time up to and including the last business day preceding the day of the Meeting
or an adjournment thereof or with the Chairman of the Meeting or an adjournment
thereof on the day of the Meeting but prior to the use of the proxy at the
Meeting.
EXERCISE OF DISCRETION BY PROXYHOLDERS
THE PERSONS WHOSE NAMES ARE PRINTED ON THE ACCOMPANYING FORM OF PROXY
WILL, ON A SHOW OF HANDS OR ANY BALLOT THAT MAY BE CALLED FOR, VOTE OR WITHHOLD
FROM VOTING THE SHARES IN RESPECT OF WHICH THEY ARE APPOINTED IN ACCORDANCE
WITH THE DIRECTION OF THE SHAREHOLDER APPOINTING THEM. IF NO CHOICE IS
SPECIFIED BY THE SHAREHOLDER, THE SHARES WILL BE VOTED FOR THE ELECTION OF THE
NOMINEES FOR DIRECTORS SET FORTH IN THIS CIRCULAR UNDER THE HEADING "ELECTION
OF DIRECTORS" AND FOR THE APPOINTMENT OF THE AUDITORS SET FORTH IN THIS
CIRCULAR UNDER THE HEADING "APPOINTMENT AND REMUNERATION OF AUDITORS".
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 2000 ANNUAL GENERAL MEETING
Shareholder proposals intended to be presented at the Corporation's 2000
Annual General Meeting of shareholders must be submitted for inclusion in the
Corporation's proxy materials prior to March 17, 2000.
VOTING SHARES AND PRINCIPAL HOLDERS THEREOF
As at May 11, 1999, the Corporation had 28,273,559 common shares
outstanding, being the only class of shares entitled to be voted at the
Meeting. Each holder of such shares is entitled to one vote for each share
registered in his name as at the close of business on May 11, 1999, being the
date fixed by the Board of Directors of the Corporation for
2
<PAGE> 65
the determination of the registered holders of such shares who are entitled to
receive the Notice of Annual Meeting of Shareholders enclosed herewith (the
"Record Date"). In the event that such a shareholder transfers the ownership of
any of his shares after the Record Date, the transferee of such shares shall be
entitled to vote at the Meeting if he produces properly endorsed share
certificates or otherwise establishes proof of his ownership of the shares and
demands, not later than ten days before the Meeting, that his name be included
in the list of shareholders entitled to vote. This list of shareholders will be
available for inspection on and after the Record Date during usual business
hours at the registered office of the Corporation and at the Meeting.
To the knowledge of the directors and officers of the Corporation, no
person beneficially owns or exercises control or direction over shares carrying
more than 10% of the voting rights attached to all shares of the Corporation.
ELECTION OF DIRECTORS
The Articles of the Corporation stipulate that the Board of Directors
shall consist of a minimum of one (1) and a maximum of eleven (11) directors.
The entire Board of Directors currently consists of eight (8) members.
Management will propose these eight (8) persons, who are named below, as
nominees for election as directors to hold office until the next succeeding
annual meeting of shareholders of the Corporation or until their successors are
elected or appointed.
<TABLE>
<CAPTION>
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 Common Shares Shares
---- --- ----------------------------------- ------------------- --------------- ----------
<S> <C> <C> <C> <C> <C>
Melbourne F. Yull (2) 58 Director, Chairman of the December 22, 1989(3) 405,495 644,000
Board and Chief Executive
Officer
Eric E. Baker 65 Director December 22, 1989(4) 962,812 14,000
Michael L. Richards (2)(5) 60 Director December 22, 1989(3) 79,000 14,000
James A. Motley, Sr. (2)(5) 70 Director February 21, 1992 5,800 14,000
Irvine Mermelstein 72 Director March 14, 1994 13,538 9,000
Ben J. Davenport, Jr.(2) 56 Director June 8, 1994 8,000 14,000
L. Robbie Shaw(2)(5) 55 Director June 8, 1994 3,000 14,000
Gordon R. Cunningham(5) 54 Director May 21, 1998 4,000 5,000
--------- -------
1,481,645 728,000
</TABLE>
- --------------
(1) This information, not being within the knowledge of the Corporation, was
furnished by the respective nominees individually.
(2) Member of Compensation Committee.
(3) Director of the predecessor company since 1981.
(4) Director of the predecessor company since 1984.
(5) Member of Audit Committee.
Melbourne F. Yull, a resident of Montreal, Quebec, was appointed Chairman
of the Board on January 11, 1995, having been the President and a director of
the Corporation or a predecessor thereof since 1981. Eric E. Baker, a resident
of Longsault, Ontario, has been President of Miralta Capital II Inc., a venture
capital company, and has been the President of Almiria Capital Corp., a venture
capital company, since 1984. Michael L. Richards, a resident of Montreal,
Quebec, is senior partner in the law firm Stikeman, Elliott, Montreal, Quebec
since December 1997. James A. Motley, Sr., a resident of Danville, Virginia, is
a Director of American National Bank & Trust Company and American National
Bankshares, Inc. and was formerly Chairman of the Board and Chief Executive
Officer of the same firms.
Irvine Mermelstein, a resident of Tucson, Arizona and Halifax, Nova
Scotia, is the managing partner of Market-Tek, management consultants. Ben J.
Davenport, Jr., a resident of Chatham, Virginia, has been, since 1983, 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, has been Vice President Marketing and Public Affairs of
Nova Scotia Power Inc. from 1993 to 1995 and since then, Vice President
Customer Service, Marketing and Sales. Prior to that, Mr. Shaw was Managing
Partner for Atlantic Canada of Peat Marwick Stevenson Kellogg.
3
<PAGE> 66
Gordon R. Cunningham, a resident of Toronto, Ontario, is President of
Cumberland Asset Management Corp., formerly known as Connor Capital Management
Corp. Prior to that Mr. Cunningham was the President and Chief Executive
Officer of London Life Insurance Co. and President and Chief Executive Officer
of London Insurance Group.
If any of the above nominees is for any reason unavailable to serve as a
director, proxies in favour of Management will be voted for another nominee in
the discretion of the persons named in the form of proxy unless the shareholder
has specified in the proxy that his shares are to be withheld from voting on
the election of directors. The Board of Directors recommends a vote in favour
of each of the nominees.
STATEMENT OF CORPORATE GOVERNANCE PRACTICES
In 1995, The Toronto Stock Exchange adopted a requirement that disclosure
be made by each listed company of its corporate governance system by making
reference to The Toronto Stock Exchange Guidelines for Corporate Governance
(the "Guidelines"). Compliance with the Guidelines is not mandatory but each
listed corporation is required to explain where its system of governance
differs from the Guidelines.
1. MANDATE OF THE BOARD
The mandate of the Board of Directors is to supervise the management of
the business and affairs of the Corporation, including the development of major
policy and strategy. The Board meets at least quarterly, and more frequently as
required to consider particular issues or conduct specific reviews between
quarterly meetings whenever appropriate. Governance responsibilities are
undertaken by the Board as a whole, with certain specific responsibilities
delegated to the audit and compensation committees as described below
2. COMPOSITION OF THE BOARD
The Corporation's Board currently consists of eight directors five of whom
are unrelated directors in accordance with the definition of an unrelated
director in the Guidelines.
3. CHAIR OF THE BOARD
The Board is chaired by a director who is also the Chief Executive Officer
of the Corporation. The Board is of the view that this does not impair its
ability to act independently of management due, inter alia, to the independence
of the remaining members of the Board and the role of the Board in determining
its own policies, procedures and practices, and ensuring that the appropriate
information is made available to the Board.
4. COMMITTEES
The Board has established two committees, the Audit Committee and the
Compensation Committee, to facilitate the carrying out of its duties and
responsibilities and to meet applicable statutory requirements. The Guidelines
recommend that the Audit Committee be made up of outside directors only and
that other board committees should be comprised generally of outside directors,
a majority of whom should be unrelated directors. The Audit Committee complies
with the Guidelines as it is composed of four outside directors. The
Compensation Committee, although composed of a majority of outside directors,
as at present constituted, does not comply with the Guidelines in as much as it
has two related directors and two unrelated directors. The Board has decided
not to modify its composition for the reasons outlined below.
The following is a description of the Committees of the Board 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
management, the adequacy of the internal accounting control procedures and
systems within the Corporation. The Committee also makes recommendations to the
Board regarding the appointment of independent auditors and their remuneration
and reviews any proposed change in accounting practices or policies.
o COMPENSATION COMMITTEE
The mandate of the Committee is described below under the heading "Report
on Executive Compensation". The Chairman and Chief Executive Officer is a
member of this Committee. The Board of Directors considers his participation in
the Committee as essential and feels he should continue to serve on the
Committee provided the other members are outside directors.
4
<PAGE> 67
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 (other
than Mr. Cunningham) at the next annual meeting of shareholders have served as
directors in good standing of the Corporation since 1994 and the majority of
them have served since it became a reporting issuer in 1992. The Board of
Directors has not adopted a formal policy for the recruitment of directors.
Participation of directors is expected at all Board of Directors and
Committee meetings to which they are called. Directors are asked to notify the
Corporation if they are unable to attend, and attendance at meetings is duly
recorded. All the directors have agreed to contribute to the evaluation of
their collective as well as their individual performances
7. SHAREHOLDER COMMUNICATION AND FEEDBACK
The fundamental objective of the Corporation's shareholder communication
policy is to ensure open, accessible and timely exchange of information with
all shareholders respecting the business, affairs and performance of the
Corporation, subject to the requirements of securities legislation in effect
and other statutory and contractual obligations limiting the disclosure of such
information.
In order to facilitate the effective and timely dissemination of
information to all shareholders, the Corporation releases its disclosed
information through news wire services, the general media, telephone
conferences with investment analysts and mailings to shareholders.
APPOINTMENT AND REMUNERATION OF AUDITORS
Raymond Chabot Grant Thornton, Chartered Accountants, who have been the
auditors of the Corporation since December 22, 1989 and the auditors of the
predecessor company since 1981, will be nominated for appointment as the
Corporation's auditors to hold office until the next annual meeting of
shareholders at such remuneration as may be fixed by the Board of Directors.
Representatives of Raymond Chabot Grant Thornton will be present at the Meeting
and will have an opportunity to make a statement if they desire to do so. They
will also be available to respond to appropriate questions.
5
<PAGE> 68
EXECUTIVE COMPENSATION
1. SUMMARY COMPENSATION TABLE
The following table sets forth all compensation paid in respect of the
individuals who were, at December 31, 1998, the Chief Executive Officer and the
other four most highly compensated executive officers of the Corporation (the
"named executive officers").
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Annual Compensation Awards
--------------------------------------- Securities Under
Other Annual Options/SARs
Salary Bonus Compensation Granted
Name and Principal Position Year $ $ ($)(1) (#)
- --------------------------- ---- ------ ------ ------------- ----------------
<S> <C> <C> <C> <C> <C>
M.F. Yull 1998 Cdn$610,493 Cdn$732,592 Cdn$30,431 201,006
Chairman of the Board and 1997 U.S.$303,270 0 Cdn$30,326 263,006
Chief Executive Officer 1996 U.S.$272,000 0 Cdn$63,361 64,123
D. McSween 1998 Cdn$289,324 Cdn$289,324 Cdn$9,949 43,123
Executive Vice President, 1997 Cdn$238,082 0 Cdn$16,099 78,623
Chief Operating Officer 1996 Cdn$212,159 0 Cdn$12,619 29,310
A.M. Archibald 1998 Cdn$236,510 Cdn$236,510 Cdn$32,920 25,553
Chief Financial Officer, 1997 Cdn$189,520 0 Cdn$7,001 78,553
Secretary, Treasurer, 1996 Cdn$167,000 0 Cdn$11,028 38,763
Vice President Administration
K. Rogers 1998 U.S.$160,000 U.S.$128,000 U.S.$4,837 35,390
Corporate Vice President 1997 Cdn$197,605 0 Cdn$9,204 20,390
1996 Cdn$172,000 0 Cdn$6,880 20,821
L.W. Jones 1998 U.S.$228,367 U.S.$228,367 U.S.$5,711 75,000
Corporate Vice President 1997 U.S.$229,872 0 U.S.$8,704 28,000
1996 U.S.$195,200 0 U.S.$8,669 20,000
</TABLE>
- ---------------
(1) Perquisites and other personal benefits do not exceed the lesser of $50,000
and 10% of the total of the annual salary and bonus for any of the named
executive officers. The amounts in this column related to taxable benefits on
employee loans and company contribution to the pension plan.
The aggregate compensation for all executive officers and directors of the
Corporation who are not "named executive officers" for the fiscal year ended
December 31, 1998 amounts to $251,602.
2. EXECUTIVE STOCK OPTION PLAN AND STOCK APPRECIATION RIGHTS
The Corporation has an ongoing Executive Stock Option Plan (the "Plan").
The Plan is administered by the Board of Directors. The shares offered under
the Plan are common shares of the Corporation.
The Board of Directors designates from time to time from the eligible
executives those to whom options are granted and determines the number of
shares covered by such options. Generally, participation in the Plan will be
limited to persons holding positions that can have a significant impact on the
Corporation's long-term results. The number of common shares to which the
options relate will be determined by taking into account, inter alia, the
market price of the common shares and each optionee's base salary. The exercise
price payable for each common share covered by an option will be determined by
the Board of Directors but will not be less than the market value of the
underlying common shares on the day preceding the grant. The Plan provides that
options issued thereunder shall vest 25% per year over four years.
6
<PAGE> 69
In 1998 the Board of Directors granted options to purchase an aggregate of
744,650 common shares to directors, executives and employees of the
Corporation, being 296,650 options at an exercise price of $32.92 (or
U.S.$23.26), 5,000 options at an exercise price of $33.90 (or U.S.$23.01),
20,000 options at an exercise price of $30.65 (or U.S.$19.50), 405,500 options
at an exercise price of $25.86 (or U.S.$16.69), and 17,500 options at an
exercise price of $29.75 (or U.S.$19.30) per share. In 1998, options to acquire
73,770 common shares were exercised by executives, at exercise prices ranging
from $5.04 to $22.50 or the U.S. dollar equivalent. As at December 31, 1998,
options to acquire 2,406,067 common shares were outstanding under the Plan.
In addition, on December 31, 1998, certain executive officers were
credited notional units, based on salary, related to the market price of the
Corporation's common shares. Each such unit credited to the officers
corresponds to one common share of the Corporation. These units do not vest
for three years and are paid in full at the end of the three-year period. The
value of the units fluctuates with share appreciation (and depreciation) and
additional entitlements (dividend equivalents) may be awarded by the
Corporation to compensate the holder of these units for any dividends paid to
the shareholders of the Corporation. If employment is terminated during the
three-year restriction period, the units will be cancelled. No notional units
has vested under this plan. Payments on these units are treated as
free-standing Stock Appreciation Rights ("SARs") and reported in the table
below.
The following table sets forth individual grants of stock options under
the Plan and SARs during the financial year ended December 31, 1998 to the
named executive officers.
OPTION /SAR GRANTS DURING THE
FINANCIAL YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Market Value
of Securities
Securities % of Total Underlying
Under Options/SARs Options/SARs
Options/SARs Granted to Exercise on
Granted Employees in Price Date of Grant
Name (#) Financial Year ($) ($) Expiration Date
- ---- ------------ --------------- --------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
M.F. Yull 200,000(1) 26.77 25.86 25.86 October 10, 2004
1,006(2) 0.13 U.S.$25.50 39.00 January 1, 1999
D. McSween 25,000(1) 3.35 25.86 25.86 October 10, 2004
17,500(1) 2.34 29.75 29.75 November 2, 2004
623(2) 0.08 39.00 39.00 January 1, 1999
A.M. Archibald 25,000(1) 3.35 25.86 25.86 October 10, 2004
553(1) 0.07 39.00 39.00 January 1, 1999
K. Rogers 20,000(1) 2.68 U.S.$23.26 U.S.$23.26 March 10, 2004
15,000(1) 2.01 U.S.$16.69 U.S.$16.69 October 10, 2004
390(2) 0.05 U.S.$25.50 U.S.$25.50 January 1, 1999
L.W. Jones 50,000(1) 6.69 U.S.$23.26 U.S.$23.26 March 10, 2004
25,000(1) 3.35 U.S.$16.69 U.S.$16.69 October 10, 2004
</TABLE>
- -------------
(1) Represents securities under options granted.
(2) (2) Represents securities under SARs granted.
The following table sets forth each exercise of options during the
financial year ended December 31, 1998 by the named executive officers. No
SARs vested during the financial year ended December 31, 1998.
7
<PAGE> 70
AGGREGATED OPTION/SAR EXERCISES DURING THE FINANCIAL YEAR ENDED
DECEMBER 31, 1998 AND FINANCIAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Value of
Unexercised Unexercised
Securities Aggregate Options/SARs Options/SARs
Acquired Value at FY-End at FY-End
on Exercise Realized (#) ($)
Name (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable
- ----- ------------ ----------- -------------------------- --------------------------
<S> <C> <C> <C> <C>
M.F. Yull Nil n/a 191,500/452,500 7,468,500/17,647,500
D. McSween 50,000 1,625,000 121,369/120,623 4,733,391/4,704,297
A.M. Archibald Nil n/a 150,115/107,571 5,854,485/4,195,269
K. Rogers Nil n/a 105,803/65,601 4,126,317/2,558,439
L.W. Jones 23,770 U.S.$544,566 17,957/98,319 700,323/3,834,441
</TABLE>
3. PENSION ARRANGEMENTS
Effective January 1, 1991, the pension plan for Intertape Polymer Inc.
("IPI"), a Canadian subsidiary of the Corporation, for its salaried employees
in Canada, including the named executive officers who are Canadian residents,
was changed from a defined benefit plan to a defined contribution plan.
Participants in the plan were credited with either a lump sum amount in their
individual accounts or had an insurance contract purchased to settle their
benefit obligations at January 1, 1991.
The Corporation maintains a savings retirement plan (401[k] Plan) for the
benefit of substantially all of its employees in the United States of America
who have been employed for at least one year. The Corporation may make a
discretionary matching contribution determined each year equal to a percentage
of contributions made by employees; such contributions are limited to a maximum
of 6% of their compensation deposited as elective contributions. A subsidiary
of the Corporation also maintains two savings retirement plans (401[k] Plans);
contributions to these plans are at the discretion of the Corporation. This
subsidiary contributes as well to a multi-employer plan for employees covered
by collective bargaining agreements. The Corporation's expense for such savings
retirement plans for the year ended December 31, 1998 was $2,092,000 ($653,000
in 1997 and $485,000 in 1996).
4. EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT
On July 1, 1998, the Corporation entered into a new employment agreement
with Melbourne F. Yull. Pursuant to the terms of the employment agreement, Mr.
Yull agreed to continue to serve as Chairman of the Board and Chief Executive
Officer of the Corporation and its subsidiaries initially at a fixed annual
gross salary and subsequently at compensation levels to be reviewed annually by
the Corporation in accordance with its internal policies. The agreement
provides inter alia for annual bonuses based on budgeted objectives of the
Corporation. The agreement also provides for the payment of 24 months of Mr.
Yull's remuneration in the event of termination without cause or resignation
within six months of a change of control. Further, it provides for all options
for the acquisition of common shares of the Corporation previously granted to
Mr. Yull to become immediately vested and exercisable in the event of his
termination without cause, or his resignation within six months of a change of
control, or his retirement at any time after his 60th birthday or in the event
of his death, and that they must be exercised within 90 days following the
effective date of such termination, resignation, retirement or death. In
addition to his participation in the pension plan for IPI, the employment
contract provides for Mr. Yull to receive, upon his ceasing to be an employee
for any reason, a defined benefit supplementary pension annually for life equal
to 2% of his average annual gross salary for the final 5 years of his
employment multiplied by his years of service with IPI.
On June 13, 1989, predecessors of Intertape Polymer Inc. entered into an
employment agreement with Lloyd W. Jones, whereby he agreed to act as President
of a subsidiary as well as in such other positions within the Intertape Polymer
Group as would be agreed upon between the parties. The agreement is renewed
yearly for an additional one-year term and Mr. Jones' compensation is agreed
upon on an annual basis, including the salary and the basis for the
determination of the annual bonus.
The Corporation has entered into change-in-control letter agreements dated
August 8, 1996 with Messrs. McSween, Archibald, Rogers and Jones. These letter
agreements provide that if, within a period of six months after a change in
control of the Corporation, (a) an executive voluntarily terminates his
employment with the Corporation,
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or (b) the Corporation terminates an executive's employment without cause, such
executive will be entitled to a lump sum in the case of his resignation or an
indemnity in lieu of notice in a lump sum in the case of his termination, equal
to fifteen months of such executive's remuneration at the effective date of such
resignation or termination. In addition, all options for the acquisition of
common shares of the Corporation previously granted to such executive under the
Plan shall become immediately vested and exercisable and must be exercised
within 90 days following the effective date of such resignation or termination.
5. COMPOSITION OF COMPENSATION COMMITTEE
Members of the Compensation Committee of the Corporation are Ben J.
Davenport, Jr., Michael L. Richards, L. Robbie Shaw and Melbourne F. Yull. The
Committee met three times during the period from January 1, 1998 to December
31, 1998. Mr. Yull is Chairman of the Board and Chief Executive Officer of the
Corporation. The members of the Compensation Committee have no interlocking
relationship as contemplated in the Ontario Securities Regulations.
6. REPORT ON EXECUTIVE COMPENSATION
o COMPENSATION COMMITTEE REPORT
The Committee is responsible for the determination and administration of
the compensation policies and levels for the executive officers of the
Corporation and its subsidiaries. The recommendations of the Committee are
communicated to the Board of Directors. The compensation of the Chief Executive
Officer and the recommendation for the granting of stock options to executive
officers are submitted to the Board of Directors for approval. Mr. Yull does
not participate in the Committee's or the Board's deliberations concerning the
recommendation on his own compensation.
In arriving at its compensation decisions, the Committee reviews industry
comparisons for similar sized companies and companies in the packaging
materials sector. The Committee uses compensation surveys from an independent
consultant from time to time to provide data to review and adjust its
compensation policies. The compensation philosophy of the Corporation is to be
competitive with similar manufacturing companies in order to attract and retain
high-quality executives with the expertise and skills required in the business
of the Corporation. Three primary components comprise the compensation program:
basic salary, annual bonuses based on performance and long-term stock
options/SARs.
Base salaries are established at levels which will enable the Corporation
and its subsidiaries to attract, retain and reward executive officers who can
effectively contribute to the long-term success and objectives of the
Corporation.
The annual bonus program is formula-based and is measured against
pre-determined performance targets. Awards are granted on the basis of
divisional profit results, corporate results and individual performance as
measured against pre-established objectives.
The third component is stock options/SARs which are granted periodically
at the discretion of the Board of Directors. Options/SARs are granted to
provide key employees who have significant responsibility for the management,
growth and future success of the Corporation with an opportunity for rewards as
a result of stock price increases. To encourage continued service, the options
become exercisable over four years in four equal annual installments commencing
on the first anniversary of the date of the grant and the SARs only become
vested on the third anniversary of the effective date of the grant. They have
no value if the stock price does not appreciate. It is felt that this approach
closely aligns the interests of the executives and the shareholders.
Each element of compensation fulfills a different role in the attraction,
retention and motivation of qualified officers and employees.
o CHIEF EXECUTIVE OFFICER COMPENSATION
The compensation levels for the Chief Executive Officer have been designed
to ensure that they are not only competitive with similar size companies and
companies in the packaging materials sector, but also incorporate recognition
of the Chief Executive Officer's personal contribution and leadership.
The compensation of the Chief Executive Officer is reviewed each year by
the Committee utilizing both financial and non-financial measurements covering
performance in the following areas: financial performance, marketing,
operations, human resource management, technology and strategic planning. In
addition, the Committee considers compensation surveys described above when
assessing the Chief Executive Officer's compensation levels.
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Submitted by the Committee:
Ben J. Davenport,
Jr. Michael L.
Richards L. Robbie
Shaw Melbourne F.
Yull
7. PERFORMANCE GRAPH
The first graph compares the yearly change in the cumulative total
shareholder return over the five-year period on the Corporation's common shares
with the cumulative total return of the TSE 300.
The second graph compares the yearly change in the cumulative total
shareholder return over the five-year period on the Corporation's common shares
with the cumulative total return of the S&P 500. The cumulative total
shareholder return is based on the United States dollar trading values of the
common shares of the Corporation on the American Stock Exchange.
Both graphs assume the reinvestment of dividends at 100% of the market
price on each of the dividend payment dates.
FIVE-YEAR TOTAL RETURN ON $100 INVESTMENT (DIVIDENDS REINVESTED)
(Based on the Corporation's activity on The Toronto Stock Exchange)
(Canadian $)
<TABLE>
<CAPTION>
Dec. 31 Dec. 31 Dec. 31 Dec. 31 Dec. 31 Dec. 31
1993 1994 1995 1996 1997 1998
-------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
INTERTAPE $100.00 $127.85 $247.24 $364.29 $357.42 $455.10
TSE 300 $100.00 $ 99.82 $114.62 $146.74 $168.71 $166.04_
</TABLE>
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<PAGE> 73
FIVE-YEAR TOTAL RETURN ON $100 INVESTMENT (DIVIDENDS REINVESTED)
(Based on the Corporation's activity on the American Stock Exchange)
(US $)
<TABLE>
<CAPTION>
Dec. 31 Dec. 31 Dec. 31 Dec. 31 Dec. 31 Dec. 31
1993 1994 1995 1996 1997 1998
-------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
INTERTAPE $100.00 $120.69 $239.69 $352.57 $336.85 $394.24
S&P 500 $100.00 $101.58 $139.61 $171.73 $229.78 $295.30
</TABLE>
COMPENSATION OF DIRECTORS
In 1998, directors of the Corporation, who were not officers of the
Corporation, received an annual fee of $6,083 for their services as directors
and a fee of $1,000 for each board meeting attended ($250 for telephone
meetings). Furthermore, a total of 15,000 options to purchase common shares of
the Corporation were granted to directors of the Corporation, who were not
officers of the Corporation, those being 10,000 options at an exercise price of
$32.92 (U.S.$23.26) and 5,000 options at an exercise price of $33.90 (US$23.01)
per share.
INDEBTEDNESS OF DIRECTORS AND OFFICERS
Officers of the Corporation are currently indebted to the Corporation in
respect of interest-free loans granted for the purpose of purchasing common
shares of the Corporation upon the exercise of options. Such loans are
repayable not later than September 30, 1999. As at May 11, 1999, the aggregate
indebtedness of all officers to the Corporation entered into in connection with
the purchase of common shares was $399,531. The following table summarizes the
largest amount of the loans outstanding since January 1, 1998, and the amount
outstanding on May 11, 1999.
<TABLE>
<CAPTION>
Financially
Largest Amount Assisted Securities Common
Outstanding Purchases During Shares as
During Amount Outstanding FY-31.12.98 Security for
Name and Principal Position FY-Ended 31.12.98 as at 11.05.99 (#) Indebtedness
- --------------------------- ----------------- ------------------- -------------------- -------------
<S> <C> <C> <C> <C>
M.F. Yull $369,218 $369,218 Nil 26,000
Chairman of the Board and
Chief Executive Officer
D. McSween 30,313 30,313 Nil Nil
Executive Vice President and
Chief Operating Officer
</TABLE>
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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 $143,000 was paid by the Corporation in the last completed financial
year with respect to the period from October 1998 to December 1999. Claims
payable to the Corporation are subject to a retention of $250,000 per
occurrence.
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.
ANDREW M. ARCHIBALD, C.A.
Chief Financial Officer,
Secretary, Treasurer, Vice
President Administration
St. Laurent, Quebec
May 12, 1999
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INTERTAPE POLYMER GROUP INC.
PROXY
The Management of the Corporation Solicits this Proxy
The undersigned shareholder of INTERTAPE POLYMER GROUP INC. (the "Corporation")
hereby appoints Melbourne F. Yull, failing whom, Michael L. Richards, or
instead of the foregoing,
...............................................................................,
as the proxyholder of the undersigned to attend and act for and on behalf of
the undersigned at the ANNUAL MEETING OF SHAREHOLDERS OF THE CORPORATION TO BE
HELD ON JUNE 16, 1999, 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
<TABLE>
<S> <C>
[ ] FOR all nominees listed below as a group [ ] WITHHOLD AUTHORITY to vote for all
(except as marked to the contrary below) nominees listed below as a group
</TABLE>
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE
A LINE THROUGH THE NOMINEE'S NAME IN THE LIST BELOW.) Melbourne F. Yull, Eric
E. Baker, Michael L. Richards, James A. Motley, Sr., Irvine Mermelstein, Ben J.
Davenport, Jr., L. Robbie Shaw, Gordon R. Cunningham.
(2) VOTE FOR [ ] WITHHOLD FROM VOTING [ ] in respect of the appointment of
Raymond Chabot Grant Thornton as auditors of the Corporation and authorizing the
directors to fix their remuneration.
Date:. . . . . . . . . . . . . . . . . . . . . . .
Signature. . . . . . . . . . . . . . . . . . . . .
Notes:
(1) This form of proxy must be executed by the shareholder or his attorney
authorized in writing or, if the shareholder is a corporation, under the
corporate seal or by an officer or attorney thereof duly authorized. Joint
holders should each sign. Executors, administrators, trustees, etc.,
should so indicate when signing. If undated, this proxy is deemed to bear
the date it was mailed to the shareholder.
(2) A shareholder may appoint as proxyholder a person (who need not be a
shareholder) other than the persons designated in this form of proxy to
attend and act on his behalf at the Meeting by inserting the name of such
other person in the space provided or by completing another proper form of
proxy.
(3) The shares represented by this proxy will, on a show of hand or any
ballot that may be called for, be voted or withheld from voting in
accordance with the instructions given by the shareholder; in the absence
of any contrary instructions, this proxy will be voted "FOR" the itemized
matters.
PROXY
PLEASE COMPLETE AND RETURN IN THE ENVELOPE PROVIDED.
