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