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 June, 2002
Intertape Polymer Group Inc.
110E Montee de Liesse, St. Laurent, Quebec, Canada, H4T 1N4
[Indicate by check mark whether the registrant files or
will file annual reports under cover of Form 20-F or Form 40-F.]
Form 20-F Form 40-F X
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[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
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[If "Yes" is marked, indicate below the file number
assigned to the registrant in connection with Rule 12g3-2(b):
82-______]
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REVIEW OF OPERATIONS
SALES
Sales were $146.7 million for the first quarter of 2002 as compared to $158.9
million for the same period last year. This decline of approximately 7.6% is as
a result of lower unit selling prices (5.2%), the effect of foreign exchange
rates as well as lower export sales which continue to be negatively impacted by
the strong US currency (0.6%) and lower unit volume (1.8%). The decline in unit
selling prices is driven by lower raw material costs. The decline in unit volume
is related to the slowness of the North American economy.
Sales for the fourth quarter of 2001 were $146.2 million. This would indicate
that the pressure on sales from both a selling price and unit volume has become
more stable during the most recent quarter. Management remains cautious
concerning the economy; and continue to believe that sales growth for the
balance of the current year should come mostly from new products.
GROSS PROFIT AND GROSS MARGINS
Gross profits declined to $33.4 million for the first quarter of 2002 from $38.8
million for the comparable quarter in 2001. Gross margins were 22.8% for the
current quarter and 24.4% for the same quarter last year. The Company has
continued to maintain its value-added percentage. This means that the raw
material cost of its products represents a fairly constant percent of its
selling prices. Raw material costs have been declining for several years.
Consequently, even with the ability to maintain value added percentages, there
are less value-added dollars in relation to manufacturing costs.
Fourth quarter 2001 reported gross profits were $27.3 million and gross margins
were 18.7%. Included in cost of goods sold during the fourth quarter were $1.0
million of unusual items. Before the effect of these items, gross profits and
margins were $28.3 million and 19.4% respectively. The increase in margins in
2002 is as the result of a decline in manufacturing costs derived by various
cost reduction programs. Management believes margins should continue to improve
during 2002 as sales increase from new products and as cost reduction programs
continue to lower costs.
SELLING, GENERAL AND
ADMINISTRATION EXPENSES
Selling, general and administrative (SG&A) expenses decreased to $20.3 million
for the first quarter of 2002 as compared to $21.2 million for the first quarter
of 2001. The various cost cutting initiatives enacted during 2001 are the reason
for the majority of this decline. Management is confident that SG&A should not
exceed this current run rate in the near term as less than 20% of these costs
bear any relationship to changes in sales levels.
OPERATING PROFIT
Operating profits (defined as gross profit less SG&A) were $13.1 million for the
first quarter of 2002 as compared to $17.6 million for the comparable quarter
last year. As a percent of sales, this represents 8.9% and 11.1% respectively.
Operating profits were impacted by lower gross margins and were partially offset
by the decline in SG&A costs. Management believes that operating margins should
start to increase from approximately 9.5% for the year 2002 and could attain
13.0% by 2005.
FINANCIAL EXPENSES
Financial expenses were $9.0 million for the quarter ended March 2002 as
compared to $8.4 million for the comparative quarter last year. Interest rates
increased on $274.0 million of long-term debts by 225 basis points effective
October 1st, 2001 and had the impact of an additional $1.5 million of interest
during the current quarter. This was partially offset by a reduction in bank
interest due to reduced bank borrowings.
On April 15th, 2002, the Company retired approximately $24.0 million of the
Senior Secured Notes and $23.4 million of long-term bank debt. Based on current
bank
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rates, this will result in a quarterly reduction of financial costs of
approximately $1.1 million. On a comparative basis, financial costs for the
second quarter of 2002 should be lower than that of the first quarter by $0.8
million.
EARNINGS BEFORE INTEREST, TAXES AND DEPRECIATION AND AMORTIZATION COSTS
(EBITDA).
EBITDA (adjusted for those unusual items in the appropriate periods that did not
require cash funding) for the trailing four quarters ended March 2002 was $71.4
million as compared to $95.9 million for the trailing four quarters ended March
2001. The comparative first quarter of 2002 and 2001 EBITDA was $18.8 million
and $22.0 million respectively.
NET EARNINGS
Net earnings for the three months periods ended March 2002 and 2001 were $2.8
million and $4.2 million respectively. The decrease was as a result of lower
sales and gross margins partially offset by lower operating costs during the
quarter ended March 2002 as compared to that of the quarter ended March 2001.
Management believes that as long as interest rates remain steady, the combined
quarterly costs for SG&A, R&D and financial costs should remain at about $30.0
million. Looking out at the next several quarters, any gains in sales volume
should contribute to an increase in net earnings.
LIQUIDITY AND CAPITAL RESOURCES
CAPITAL EXPENDITURES
Capital expenditures were $2.8 million during the first quarter of 2002 as
compared to $12.3 million for the comparative quarter last year. This drop is a
result of management's decision to reduce all capital spending to only essential
projects related to new products and preventive maintenance programs. It is
expected that this spending level of approximately $3.0 million per quarter will
be maintained throughout 2002.
CREDIT FACILITIES
On March 1, 2002 the Company completed a "Bought Deal" in Canada whereby the
Company issued 5.1 million shares from treasury for a per share price of $9.71
(Cdn $15.50) for total net proceeds of approximately $47.4 million. On April
15th, 2002 approximately $24.0 million was used to retire Senior Secured Notes;
and the remaining $23.4 million was used to permanently reduce Facility B of the
Company's recently refinanced bank debt.
During the first quarter of 2002, the Company was able to reduce its borrowings
under Facility A by $4.7 million. It is anticipated that the Company should be
able to further reduce borrowings under this facility throughout the remainder
of the year and management is anticipating the possible elimination of
borrowings under this facility by the end of 2002.
The Company remains in full compliance with all its financial and other
covenants as determined by the Amended and restated Note Agreement and Bank
Credit Agreement.
ACCOUNTING CHANGES
During the first quarter of 2002, the Company adopted, on a retroactive basis,
the new CICA recommendations with respect to Section 3062, Goodwill and Other
Intangible Assets. These standards are equivalent to the U.S. standards. Under
the new recommendations, goodwill and intangible assets determined to have an
indefinite useful life are no longer amortized and are tested for impairment
annually, or more frequently if events or changes in circumstances indicate that
they might be impaired. Under these recommendations, the Company is required to
complete a transitional goodwill impairment test as at January 1, 2002 by the
end of the current fiscal year. Management has completed this test and has
determined no adjustment for impairment of goodwill is necessary as a result of
the change in accounting policy.
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CONSOLIDATED EARNINGS
Periods ended March 31,
(In thousands of US dollars, except per share amounts)
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2002 2001
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$ $
SALES 146,737 158,863
Cost of sales 113,321 120,089
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GROSS PROFIT 33,416 38,774
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Selling, general and administrative expenses 20,299 21,168
Severances 690
Amortization of goodwill 1,743
Research and development 967 1,168
Financial expenses 8,983 8,436
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30,249 33,205
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Earnings before income taxes 3,167 5,568
Income taxes - Future 348 1,392
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NET EARNINGS FOR THE PERIOD 2,819 4,176
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Earnings per share
Basic 0.09 0.15
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Diluted 0.09 0.15
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CONSOLIDATED RETAINED EARNINGS
Periods ended March 31,
(In thousands of US dollars)
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2002 2001
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$ $
Balance, beginning of year 104,567 116,966
Net earnings 2,819 4,176
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107,386 121,142
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Premium on purchase for cancellation of common shares 157
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Balance, end of year 107,386 120,985
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CONSOLIDATED BALANCE SHEETS
(In thousands of US dollars)
AS AT MARCH 31 AS AT DECEMBER 31
2002 2001 2001
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$ $ $
ASSETS
Current assets
Trade receivables (net of allowance for doubtful accounts of $6,069
($882 in March 2001, $6,670 in December 2001) 89,033 94,907 86,529
Other receivables 10,549 8,224 13,654
Inventories 69,705 87,278 70,688
Parts and supplies 11,902 11,744 11,592
Prepaid expenses 8,399 6,335 9,450
Future income tax assets 3,995 10,606 4,025
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193,583 219,094 195,938
Capital assets 363,039 378,956 366,567
Other assets 13,680 11,005 11,680
Goodwill, at amortized cost 227,859 232,049 227,804
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798,161 841,104 801,989
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LIABILITIES
Current liabilities
Bank indebtedness - Facility A 23,313 129,874 28,046
Accounts payable and accrued liabilities 75,058 75,001 91,507
Instalments on long-term debt 7,560 9,959 8,310
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105,931 214,834 127,863
Long-term debt 322,687 275,702 354,663
Other liabilities 3,785 4,500 3,785
Future income tax liabilities 21,878 37,020 21,588
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454,281 532,056 507,899
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SHAREHOLDERS' EQUITY
Capital stock and share purchase warrants 236,872 186,143 189,496
Retained earnings 107,386 120,985 104,567
Accumulated foreign currency translation adjustments (378) 1,920 27
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343,880 309,048 294,090
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798,161 841,104 801,989
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CONSOLIDATED CASH FLOWS
Periods ended March 31,
(In thousands of US dollars)
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2002 2001
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$ $
OPERATING ACTIVITIES
Net earnings 2,819 4,176
Non-cash items
Depreciation and amortization 6,618 8,040
Future income taxes 348 192
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Cash from operations before funding of changes
in non-cash working capital items 9,785 12,408
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Changes in non-cash working capital items
Trade receivables (2,527) 2,588
Other receivables 3,087 3,345
Inventories 953 1,227
Parts and supplies (315) (1,754)
Prepaid expenses 1,051 (217)
Accounts payable and accrued liabilities (16,425) (4,429)
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(14,176) 760
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Cash flows from operating activities (4,391) 13,168
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INVESTING ACTIVITIES
Capital assets, net of investment tax credits (2,842) (12,286)
Other assets (2,514) (1,230)
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Cash flows from investing activities (5,356) (13,516)
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FINANCING ACTIVITIES
Net change in bank indebtedness (4,717) 2,603
Repayment of long-term debt (32,727) (547)
Issue of Common Shares 47,376 14
Common Shares purchased for cancellation (923)
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Cash flows from financing activities 9,932 1,147
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NET INCREASE IN CASH POSITION 185 799
Effect of foreign currency translation adjustments (185) (799)
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Cash position, beginning and end of year -- --
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NOTE 1.
BASIS OF PRESENTATION
In the opinion of Management the accompanying unaudited interim consolidated
financial statements, prepared in accordance with Canadian generally accepted
accounting principles, contain all adjustments necessary to present fairly
Intertape Polymer Group Inc.'s (IPG) financial position as at March 31, 2002 and
2001 and December 31, 2001 as well as its results of operations and its cash
flow for the three months ended March 31, 2002 and 2001.
While Management believes that the disclosures presented are adequate, these
unaudited interim consolidated financial statements and notes should be read in
conjunction with IPG's annual consolidated financial statements.
These unaudited interim consolidated financial statements and notes follow the
same accounting policies as the most recent annual consolidated financial
statements with the exception of accounting changes described in Note 2.
NOTE 2.
ACCOUNTING CHANGES
During the first quarter, the Company adopted, on a prospective basis, the new
CICA recommendations with respect to Section 3870, Stock-based Compensation and
Other Stock-based Payments. This new standard establishes, among other things,
financial accounting and reporting standards for stock-based employee
compensation plans. It defines a fair value method of accounting and encourages
entities to adopt that method of accounting for its stock-based employee
compensation plans. Under this method, compensation cost is measured at the
grant date based on the fair value of the award and is recognized over the
related service period. An entity that does not adopt the fair value method of
accounting for its award granted to employees is required to include in its
financial statements pro forma disclosures of net earnings and earnings per
share as if the fair value method of accounting had been applied. The Company
has adopted the latter alternative treatment. It does not expect adoption of the
standard to have a material effect on the Company's financial position or
results of operations.
Also during the first quarter, the Company adopted, on a retroactive basis, the
new CICA recommendations with respect to Section 3062, Goodwill and Other
Intangible Assets. These standards are equivalent to the U.S. standards Under
the new recommendations, goodwill and intangible assets determined to have an
indefinite useful life are no longer amortized and are tested for impairment
annually, or more frequently if events or changes in circumstances indicate that
they might be impaired. Under these recommendations, the Company is required to
complete a transitional goodwill impairment test as at January 1, 2002 by the
end of the current fiscal year. Management has completed this test and has
determined no adjustment for impairment of goodwill is necessary as a result of
the change in accounting policy.
The following table presents a reconciliation of the net earnings and earnings
per share as reported for the prior periods to the corresponding financial
information adjusted to exclude the amortization of goodwill recognized in those
periods that is no longer taken as a result of applying Section 3062:
THREE MONTHS ENDED MARCH 31
IN THOUSAND OF US DOLLARS
(EXCEPT PER SHARE AMOUNT)
2002 2001
-----------------------
$ $
Net earnings 2,819 4,176
Add: Amortization of goodwill
(net of ($0.4 million of
income taxes) -- 1,307
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Adjusted net earnings 2,819 5,483
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Basic earnings per share:
Net earnings 0.09 0.15
Amortization of goodwill -- 0.05
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Adjusted net earnings 0.09 0.20
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Diluted earnings per share:
Net earnings 0.09 0.15
Amortization of goodwill -- 0.05
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Adjusted net earnings 0.09 0.20
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NOTE 3.
EARNINGS PER SHARE
The following table provides a reconciliation between basic and diluted earnings
per share:
In Thousands of US Dollars
(Except per share amount)
THREE MONTHS
FOR THE PERIOD ENDED MARCH, 31 2002 2001
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$ $
Net earnings applicable
to common shares 2,819 4,176
Weighted average number of
common shares outstanding 30,155 27,983
Effect of dilutive stock options
and warrants(a) 351 693
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Weighted average number of diluted common shares outstanding
30,505 28,676
Basic earnings per share 0.09 0.15
Diluted earnings per share 0.09 0.15
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(a) Diluted earnings per share is calculated by adjusting outstanding shares,
assuming any dilutive effects of stock options and warrants.
NOTE 4.
ACCOUNTING FOR COMPENSATION PROGRAMS
As at March 31, 2002 the Company had a stock-based compensation plan, which is
described in the 2001 Annual Report. The Company does not record any
compensation expense with respect to this plan.
Had compensation cost for the Company's stock-based compensation plan been
determined using the fair value based method for awards at the grant date under
the plan, the Company's net earnings and earnings per share and diluted earnings
per share for the three months ended March 31, 2002 would have been reduced to
the pro forma amounts of $2.8 million, $0.09 and $0.09 respectively.
To determine compensation cost, the fair value of stock options is amortized on
a straight-line basis over the vesting period. Pro forma information reflects
only options granted since January 1, 2002. Therefore, the full impact of
calculating compensation costs for stock options outstanding is not reflected in
the pro forma amounts presented above because compensation cost is amortized
over the options' vesting period of four years and the compensation cost for
options granted prior to January 1, 2002 is excluded.
The fair value of the options granted in the period ended March 31, 2002 is
estimated as at the date of grant using the Black-Scholes option pricing model,
taking into account an expected life of five years, expected volatility of 50%,
risk-free interest rate of 4.57% and expected dividends ranging from $0.00 to
$0.18 per share. The weighted average fair value of stock options granted in the
three months ended March 31, 2002 was $4.47.
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
subjected assumptions including the expected stock price volatility. Because the
Company's amended executive stock options 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.
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NOTE 5.
DIFFERENCES IN ACCOUNTING BETWEEN THE UNITED STATES OF AMERICA AND CANADA
RE-PRICING OF STOCK OPTIONS
The re-pricing of stock options that occurred in 2001 has resulted, under US
GAAP, in variable plan accounting for the re-priced options. Under US GAAP, the
Company would have recorded a non-cash charge of $1.8 million for the three
months ended March 31, 2002 compared to a non-cash charge of $0.3 million for
the three months ended March 31, 2001. These would have no income tax
consequences for the Company and would reflect the changes in the market price
of the common shares.
Accordingly, the Company's net earnings, basic earnings per share and diluted
earnings per share would have been reduced by $1.8 million, $0.06 and $0.06
respectively for the three months ended March 31, 2002. This compares to $0.3
million, $0.01 and $0.01 respectively for the three months ended March 31, 2001.
NOTE 6.
CAPITAL STOCK
On March 2002, the Company issued 5,100,000 common shares for cash consideration
of CAN$75,700,000 (US$47,441,000).
COMMON SHARES 2002 2001
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Average number of
shares outstanding
CDN GAAP - Basic 30,155,360 27,983,417
CDN GAAP - Diluted 30,505,692 28,675,701
U.S. GAAP - Basic 30,155,360 27,983,417
U.S. GAAP - Diluted 30,505,692 28,675,701
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
INTERTAPE POLYMER GROUP INC.
June 3, 2002 By: /s/ Salvatore Vitale
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Salvatore Vitale
Vice President, Finance