SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For the month of July, 2005
Commission File Number 1-10928
INTERTAPE POLMER GROUP INC.
110E Montee de Liesse, St. Laurent, Quebec, Canada, H4T 1N4
Indicate by check mark whether the registrant files or will file annual reports
under cover of Form 20-F or Form 40-F.
Form 20-F Form 40-F X
Indicate by check mark if the registrant is submitting the Form 6-K in paper as
permitted by Regulation S-T Rule 101(b)(1): __________
Indicate by check mark if the registrant is submitting the Form 6-K in paper as
permitted by Regulation S-T Rule 101(b)(7): __________
Indicate by check mark whether by furnishing the information contained in this
Form, the registrant is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes No X
If "Yes" is marked, indicate below the file number assigned to the registrant
in connection with Rule 12g3-2(b): 82-______
The Information contained in this Report is incorporated by reference into
Registration Statement No. 333-109944
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
INTERTAPE POLYMER GROUP INC.
Date: July 28, 2005 By: /s/Andrew M. Archibald
Andrew M. Archibald, C.A.,
CFO and Secretary
2005 SECOND QUARTERLY REPORT
Intertape Polymer Group Inc.
Consolidated Quarterly Statements of Earnings
Three months ended
(In thousands of US dollars, except per share amounts)
(Unaudited)
------------ ----------- ------------- -------------
June 30, March 31, December 31, September 30,
2005 2005 2004 2004
------------ ----------- ------------- -------------
$ $ $ $
Sales 190,282 187,697 180,744 177,671
Cost of sales 150,895 148,574 144,689 140,480
------------ ----------- ------------- -----------
Gross profit 39,387 39,123 36,055 37,191
------------ ----------- ------------- -----------
Selling, general and
administrative expenses 24,844 23,917 25,799 23,327
Stock-based compensation expense 483 455 355 270
Research and development 1,224 1,011 997 1,121
Financial expenses 5,918 5,649 4,302 5,948
Refinancing expense 30,444
Manufacturing facility closure
and industrial accident costs 1,087 719 7,386
------------ ----------- ------------- -----------
33,556 31,751 38,839 61,110
Earnings (loss) before income
taxes 5,831 7,372 (2,784) (23,919)
Income taxes (recovery) 399 1,339 (20,455) (9,664)
------------ ----------- ------------- -----------
Net earnings (loss) 5,432 6,033 17,671 (14,255)
------------ ----------- ------------- -----------
------------ ----------- ------------- -----------
Earnings (loss) per share
Cdn GAAP - Basic - US $ 0.13 0.15 0.43 (0.35)
Cdn GAAP - Diluted - US $ 0.13 0.15 0.43 (0.35)
US GAAP - Basic - US $ 0.13 0.15 0.43 (0.35)
US GAAP - Diluted - US $ 0.13 0.15 0.43 (0.35)
Weighted average number of
common shares outstanding
Cdn GAAP - Basic 41,214,969 41,237,461 41,273,840 41,285,161
Cdn GAAP - Diluted 41,550,160 41,444,870 41,468,992 41,285,161
U.S. GAAP - Basic 41,214,969 41,237,461 41,273,840 41,285,161
U.S. GAAP - Diluted 41,550,160 41,444,870 41,468,992 41,285,161
------------ ----------- ------------- -------------
June 30, March 31, December 31, September 30,
2004 2004 2003 2003
------------ ----------- ------------- -------------
$ $ $ $
Sales 171,934 162,100 157,682 159,798
Cost of sales 134,097 129,986 122,975 123,489
------------ ----------- ------------- -----------
Gross profit 37,837 32,114 34,707 36,309
------------ ----------- ------------- -----------
Selling, general and
administrative expenses 22,793 22,307 24,843 22,264
Stock-based compensation expense 351 70 130
Research and development 1,153 962 212 1,080
Financial expenses 7,235 6,768 5,587 7,409
Refinancing expense
Manufacturing facility closure
and industrial accident costs 3,005
------------ ----------- ------------- -----------
31,532 30,107 33,777 30,753
------------ ----------- ------------- -----------
Earnings (loss) before income
taxes 6,305 2,007 930 5,556
Income taxes (recovery) 654 (284) (4,244) (643)
------------ ----------- ------------- -----------
Net earnings (loss) 5,651 2,291 5,174 6,199
------------ ----------- ------------- -----------
------------ ----------- ------------- -----------
Earnings (loss) per share
Cdn GAAP - Basic - US $ 0.14 0.06 0.13 0.18
Cdn GAAP - Diluted - US $ 0.14 0.06 0.13 0.18
US GAAP - Basic - US $ 0.14 0.06 0.13 0.18
US GAAP - Diluted - US $ 0.14 0.06 0.13 0.18
Weighted average number of
common shares outstanding
Cdn GAAP - Basic 41,215,111 40,971,739 40,870,426 35,302,174
Cdn GAAP - Diluted 41,396,403 41,528,581 41,225,776 35,397,800
U.S. GAAP - Basic 41,215,111 40,971,739 40,870,426 35,302,174
U.S. GAAP - Diluted 41,396,403 41,528,581 41,225,776 35,397,800
July 28, 2005
This Management's Discussion and Analysis ("MD&A") supplements the
consolidated financial statements and related notes for the three months and
six months ended June 30, 2005. Except where otherwise indicated, all
financial information reflected herein is prepared in accordance with Canadian
generally accepted accounting principles ("GAAP") and is expressed in US
dollars.
OVERVIEW
Intertape Polymer Group Inc. ("the Company" or "IPG") experienced a 10.7%
increase in sales for the three months ended June 30, 2005 as compared to
the corresponding period in 2004. Sales increased 1.4% for the three months
ended June 30, 2005 compared to the three months ended March 31, 2005.
Earnings for the three months ended June 30, 2005 were $0.13 per share, both
basic and diluted, as compared to earnings of $0.14 per share, both basic
and diluted, for the same period in 2004 and $0.15 per share, both basic and
diluted for the three months ended March 31, 2005.
Excluding non-recurring costs associated with manufacturing facility closures
and the industrial accident in Columbia, South Carolina, earnings for the
second quarter of 2005 were $0.15 per share, both basic and diluted, as
compared to $0.14 per share, both basic and diluted for the same period in
2004 and $0.16 per share, both basic and diluted for the first quarter of 2005.
As previously discussed by the Company, a fatal explosion occurred the night
of March 30, 2005 in an external steam generation unit at the Company's
manufacturing facility in Columbia, South Carolina. With completion of the
preliminary investigation, the Company has established a loss provision
totaling approximately $1.1 million, almost all of which was recorded in the
second quarter. Most of the loss provision relates to applicable insurance
policy deductibles.
Except as discussed under the captions "Sales" and "Gross Profit and Gross
Margin" below, economic and industrial factors during the first half of 2005
were substantially unchanged from December 31, 2004.
RESULTS OF OPERATIONS
SALES
Sales for the second quarter of 2005 were $190.3 million, an increase of
10.7% over the second quarter of 2004 sales of $171.9 million. The increase
is due to sales price increases.
Sales for the first six months of 2005 were $378.0 million compared to $334.0
million for the same period in 2004, an increase of 13.2%. The increase is
attributable to higher selling prices. Sales volumes for the first six
months of 2005 are comparable to the sales volumes for the same period in 2004.
The volume experienced in the second quarter of 2005 is due in part to the
fact that the Company and the industry as a whole are experiencing a shortage
of synthetic rubber, an essential ingredient in the formulation of some of
the Company's tape adhesives. The shortage, which began in the first
quarter of 2005, is expected to continue through the summer and possibly into
next year, until additional capacity becomes available. As a result, the
Company is unable to supply selected tapes at levels that meet all of its
customers' demand. Fortunately, the Company is uniquely positioned with its
broad assortment of products to satisfy some of its customers' demand with
alternative products not currently experiencing raw material shortages.
The cost of synthetic rubber also increased substantially during the first
quarter of 2005 and into the second quarter, but to date, the Company has
been able to recover the higher cost through sales price increases. The raw
material shortage and industry-wide slowdown in the film side of the
business, thought to be related to an industry-wide inventory correction,
has caused the Company to revise downward its sales outlook for the full
year. The Company believes that it can achieve sales for 2005 in the range
of $755 million to $775 million due to its broad range of products and the
sales price increases it has implemented over the last twelve months, down
from a range of $775 million to $790 million.
GROSS PROFIT AND GROSS MARGIN
Gross profit for the second quarter of 2005 totaled $39.4 million at a gross
margin of 20.7%, as compared to gross profit of $37.8 million for the second
quarter of 2004 at a gross margin of 22.0%. The margin decline in 2005
compared to 2004 is due to the rising cost of raw materials. The Company has
been able to raise prices to levels that recover all raw material cost
increases, but has not been able to maintain historical gross margin levels.
The gross profit and gross margin for the first six months of 2005 were $78.5
million and 20.8% compared to $70.0 million and 20.9% for the first six
months of 2004. The Company's gross margin for the first six months of
2005 was steady between quarters. The Company's first quarter of 2004 gross
margin was adversely influenced by production difficulties and the onset of
a steady rise in raw material prices. Gross margins began to improve in the
second quarter of 2004 due to sales price increases achieved in the second
quarter of 2004.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses were $24.8 million for the
second quarter of 2005 (13.1% of sales), compared to $22.8 million for the
second quarter of 2004 (13.3% of sales). The selling, general and
administrative expenses for the six months ended June 30, 2005 were $48.8
million (12.9% of sales) compared to $45.1 million (13.5% of sales) for
the same period in 2004.
The selling, general and administrative expenses of $24.8 million for the
three months ended June 30, 2005 represents an increase of $0.9 million over
the expense level for the first quarter of 2005. The Company began
increasing its staffing level during the first quarter of 2005 in order to
support the smaller business teams established at the beginning of the year.
Additional staffing was put in place over the course of the first quarter
and was substantially in place for all of the second quarter. In addition
to the staffing adjustments, the new, smaller business teams increased
business travel in a proactive effort to seek out new business. The Company
expects to begin realizing sales benefits from the smaller business teams
during the second half of 2005.
STOCK-BASED COMPENSATION EXPENSE
Stock-based compensation expense for the second quarter of 2005 was $0.5
million compared to $0.4 million in the second quarter of 2004. For the
first six months of 2005, stock-based compensation expense was $0.9 million
compared to $0.4 million for the comparable period in 2004. The increase
in stock-based compensation expense is attributable to the increasing number
of stock option grants being expensed in accordance with the fair value
method of accounting adopted by the Company in 2003.
OPERATING PROFIT
Operating profit is not a financial measure under GAAP in Canada or the
United States. The Company's Management uses operating profit to measure
and evaluate the profit contributions of the Company's product offerings as
well as the contribution by channel of distribution.
Because "operating profit" is a non-GAAP financial measure, companies may
present similar titled items determined with differing adjustments.
Presented below is a table reconciling this non-GAAP financial measure with
the most comparable GAAP measurement. The reader is encouraged to review
this reconciliation. Operating profit is defined by the Company as gross
profit less selling, general and administrative expenses and stock-based
compensation expense.
Operating Profit Reconciliation
(In millions of US dollars)
Three months Six months
For the periods ended June 30, 2005 2004 2005 2004
________________________________ ____ ____ ____ ____
$ $ $ $
Gross Profit 39.4 37.8 78.5 70.0
Less: SG&A Expense 24.8 22.8 48.8 45.1
Less: Stock-Based Compensation
Expense 0.5 0.4 0.9 0.4
____ ____ ____ ____
Operating Profit 14.1 14.6 28.8 24.5
Operating profit was $14.1 million for the second quarter of 2005, compared
to $14.6 million for the second quarter of 2004. Higher gross profits in
2005 were offset by increased selling, general and administrative expenses.
Operating profit for the six months ended June 30, 2005 totaled $28.8
million compared to $24.5 million for the six months ended June 30, 2004.
The increase in operating profits for the first six months of 2005 compared
to the first six months of 2004 is due to the increased sales in the first
quarter of 2005 compared to the first quarter of 2004.
FINANCIAL EXPENSES
Financial expenses for the second quarter of 2005 were $5.9 million compared
to $7.2 million in the first quarter of 2004, a 18.1% reduction. Financial
expenses for the first six months of 2005 were $11.6 million compared to
$14.0 million for the same period in 2004. The decrease in financial expenses
is the result of refinancing substantially all of the Company's indebtedness
in August 2004. The refinancing resulted in lower interest costs (at current
interest rate levels) despite increasing the Company's indebtedness. The
Company increased its indebtedness in part to pay the costs of the
refinancing and in part to provide cash for general corporate purposes.
Financial expense increased from $5.6 million in the first quarter of 2005 to
$5.9 million in the second quarter of 2005. The increase is primarily due to
increased utilization of the Company's revolving line of credit to fund
working capital increases in 2005. Additionally, the Company, entered into
an interest-rate swap agreement in June 2005 effectively fixing the interest
rate on $50.0 million of the Company's floating rate bank debt for five
years. The interest-rate swap effectively fixes the interest cost on the
$50.0 million of bank debt at 6.52%. A similar swap transaction became
effective in July 2005, thereby effectively fixing the interest rate on an
additional $25.0 million of floating rate bank debt at 6.54% for a period
of five years.
FACILITY RATIONALIZATIONS
In the fourth quarter of 2004, as part of the Company's on-going review of
the efficiency and effectiveness of its production and distribution network,
the Company announced and substantially completed the closure of two of its
manufacturing facilities located in Cumming, Georgia and Montreal, Quebec,
as well as its distribution center located in Cumming, Georgia. The total
estimated cost for these closures is $8.7 million, of which $7.4 million
was recorded in the fourth quarter of 2004. The Company estimates total
one-time charges for facility closures to approximate $1.3 million during
2005, of which $0.6 million was incurred during the three months ended March
31, 2005 and $0.1 million was incurred in the three months ended June 30,
2005.
EBITDA
A reconciliation of the Company's EBITDA and adjusted EBITDA, non-GAAP
financial measures, to GAAP net earnings is set out in the EBITDA
reconciliation table below. EBITDA should not be construed as earnings
before income taxes, net earnings or cash from operating activities as
determined by GAAP. The Company defines EBITDA as net income before (i)
income taxes; (ii) financial expenses, net of amortization; (iii) amortization
of other intangibles and capitalized software costs; and (iv) depreciation.
Adjusted EBITDA is defined as EBITDA before manufacturing facility closure
and industrial accident costs. Other companies in our industry may calculate
EBITDA and Adjusted EBITDA differently than we do.
EBITDA and Adjusted EBITDA are not measurements of financial performance
under GAAP and should not be considered as alternatives to cash flow from
operating activities or as alternatives to net income as indicators of our
operating performance or any other measures of performance derived in
accordance with GAAP. The Company has included these non-GAAP financial
measures because it believes that it permits investors to make a more
meaningful comparison of IPG's performance between periods presented. In
addition, the Company's covenants contained in the loan agreement with its
lenders require certain debt to Adjusted EBITDA ratios be maintained, thus
EBITDA and Adjusted EBITDA are used by Management and the Company's lenders
in evaluating the Company's performance.
EBITDA Reconciliation to Net Earnings
(In millions of US dollars)
Three months Six months
______________ _____________
For the periods ended June 30, 2005 2004 2005 2004
______________________________ ____ ____ ____ ____
$ $ $ $
Net earnings 5.4 5.7 11.5 7.9
Add back:
Financial expenses, net of
amortization 5.6 7.0 10.9 13.3
Income taxes 0.4 0.7 1.7 0.4
Depreciation and amortization 8.2 7.5 16.1 14.6
____ ____ ____ ____
EBITDA 19.6 20.9 40.2 36.2
Manufacturing facility closure
and industrial accident costs 1.1 1.8
____ ____ ____ ____
Adjusted EBITDA 20.7 20.9 42.0 36.2
____ ____ ____ ____
____ ____ ____ ____
INCOME TAXES
The Company is subject to income taxation in multiple tax jurisdictions
around the world. As a result, the Company's effective income tax rate
fluctuates depending upon the geographic source of its earnings. The Company's
effective income tax rate is also impacted by tax planning strategies that
the Company implements. The Company estimates its annual effective income
tax rate and utilizes that rate in its quarterly financial statements. For
the six months ended June 30, 2005, the Company has an estimated effective
income tax rate of approximately 13.2% compared to an estimated effective
income tax rate of approximately 4.5% for the six months ended June 30, 2004.
The effective income tax rate for the first six months of 2005 declined from
the 18.2% rate estimated in the first quarter of 2005. The rate change is
due to changes in profitability among the varying taxing jurisdictions and
the relative impact of permanent tax differences as profitability increases
or decreases.
NET EARNINGS
Net earnings for the second quarter of 2005 were $5.4 million or $0.13 per
share, both basic and diluted, compared to net earnings of $5.7 million or
$0.14 per share, both basic and diluted for the second quarter of 2004.
Excluding manufacturing facility closure and industrial accident costs and
related taxes, adjusted net earnings for the three months ended June 30,
2005 were $6.1 million or $0.15 per share, both basic and diluted and $12.6
million for the six months ended June 30, 2005. A reconciliation of the
Company's adjusted net earnings is set out in the table on the following page:
Reconciliation of Net Earnings to Adjusted Net Earnings
(in millions of US dollars)
Three months Six months
______________ _____________
For the periods ended June 30, 2005 2004 2005 2004
______________________________ ____ ____ ____ ____
$ $ $ $
Net earnings - As reported 5.4 5.7 11.5 7.9
Add back:
Manufacturing facility closure
and industrial accident costs
(after-tax) 0.7 - 1.1 -
____ ____ ____ ____
Adjusted net earnings 6.1 5.7 12.6 7.9
____ ____ ____ ____
____ ____ ____ ____
FINANCIAL POSITION
Trade receivables increased $8.5 million between December 31, 2004 and June
30, 2005. The increase is primarily due to the higher level of sales as well
as higher selling prices for the month of June 2005 compared to the month
of December 2004. Aside from the trade receivables, inventories were the
only other current asset to substantially change between December 31, 2004
and June 30, 2005. Inventories increased during the first six months of 2005
by $9.0 million due to rising raw material costs, selected pre-buying of
raw materials in advance of supplier announced cost increases and the
building of finished goods in advance of summer plant shutdowns. Current
liabilities increased by $1.0 million between December 31, 2004 and June
30, 2005. The increase is due to $5.0 million in borrowings under the
Company's revolving credit facilities offset by decreases in other current
liabilities of $4.0 million.
Property, plant and equipment, net of accumulated depreciation and
amortization, decreased by $8.8 million in the first half of 2005 primarily
due to depreciation and amortization in excess of capital expenditures for
the period.
OFF-BALANCE SHEET ARRANGEMENTS AND RELATED PARTY TRANSACTIONS
The Company is not a party to any related party transactions. Except for the
interest rate swap contracts discussed in the section entitled "Bank
Indebtedness and Credit Facilities" and in Notes 9 and 10 to the financial
statements, the Company maintains no off-balance sheet arrangements.
LIQUIDITY AND CAPITAL RESOURCES
Cash from operations before changes in non-cash working capital items was
$14.4 million for the second quarter of 2005 compared to $13.8 million for
the second quarter of 2004. Changes in non-cash working capital items
required $2.7 million in cash flows for the three months ended June 30,
2005 compared to using $14.4 million in cash during the same three month
period in 2004.
The improved cash flow from operating activities before changes in non-cash
working capital items in the second quarter of 2005 compared to the second
quarter of 2004 is the result of improved profitability. The improved cash
flows from changes in non-cash working capital items in the second quarter
of 2005 compared to the second quarter of 2004 is the result of improved trade
receivable collections in the second quarter of 2005, collection of an income
tax refund in the second quarter of 2005 and the fact that in the second
quarter of 2004, accounts payable and accrued liabilities substantially
decreased.
Cash from operations before changes in non-cash working capital items was
$30.0 million for the six months ended June 30, 2005 and $22.4 million for
the six months ended June 30, 2004. Changes in non-cash working capital
items required $20.2 million in cash flows for the six months ended June 30,
2005 compared to using $16.6 million in cash during the same three month
period in 2004. In both years, the changes in non-cash working capital
items for the six month periods were principally impacted by increasing
investments in trade receivables, inventories and a decline in accounts
payable and accrued liabilities. The rising investments in trade receivables
and inventories are reflective of the rising cost of raw materials and the
related impact on sales prices to customers.
Cash flows used in investing activities was $4.9 million in the second
quarter of 2005 and $11.1 million for the six months ended June 30, 2005.
This compares to using $4.6 million and $16.5 million, respectively, in cash
flows used in investing activities in the second quarter of 2004 and the
six months ended June 30, 2004. The decrease for the six month period in
2005 compared to the six month period in 2004 was due to the $5.5 million
used to acquire the duct and masking tape operations of tesa tape, inc.
during the first quarter of 2004.
The Company decreased total indebtedness during the three months ended June
30, 2005 by $1.2 million compared to increasing total indebtedness of $13.4
million during the three months ended June 30, 2004. The increase in total
indebtedness in 2004 was necessary to finance investing activities in
excess of cash flows from operations and to build cash balances. Total
indebtedness increased during the six months ended June 30, 2005 and 2004
by $3.3 million and $19.2 million, respectively, for the same reasons.
The Company's cash liquidity is influenced by several factors, the most
significant of which is the Company's level of inventory investment. The
Company periodically increases its inventory levels when business
conditions suggest that it is in the Company's best interest to do so, such
as buying opportunities to mitigate the impact of rising raw material costs.
The Company does not expect these higher inventory investments to continue
indefinitely, but until the circumstances reverse themselves, the Company
believes it has adequate cash and credit available to support these
strategies. Further, the Company believes that it has the ability to
generate sufficient working capital, both long and short term, to meet the
requirements of its day-to-day operations, given its operating margins and
projected budgets.
BANK INDEBTEDNESS AND CREDIT FACILITIES
The Company maintains a US$65.0 million five-year revolving credit facility
available in US dollars and a US$10.0 million five-year revolving credit
facility available in Canadian dollars. At June 30, 2005, the Company had
borrowed $9.2 million under its US$65.0 million revolving credit facility,
including $4.2 million in letters of credit. No amounts were borrowed
under the revolving credit facilities at December 31, 2004 except for $3.8
million in letters of credit. When added with the cash on-hand, cash
equivalents and temporary investments, the Company's cash and credit
availability, subject to covenant restrictions, totaled $89.5 million at
June 30, 2005 compared to $93.6 million at December 31, 2004.
In June 2005, the Company entered into a $50.0 million five year interest-rate
swap contract requiring quarterly settlements. The contract effectively
fixes $50.0 million of the Company's floating rate bank debt at 6.52%
(including loan premium). In July 2005, the Company entered into a $25.0
million five year interest-rate swap contract requiring quarterly settlements.
The contract effectively fixes $25.0 million of the Company's floating rate
bank debt at 6.54% (including loan premium).
CONTRACTUAL OBLIGATIONS
At March 31, 2005, there were no material changes in the contractual
obligations set forth in the Company's 2004 Annual Report that were outside
the ordinary course of the Company's business except the interest-rate swap
contracts described in the section entitled "Bank Indebtedness and Credit
Facilities" and in Notes 9 and 10 to the financial statements.
CAPITAL STOCK
As at June 30, 2005 there were 41,204,911 common shares of the Company
outstanding.
During the first six months of 2005, employees exercised 14,250 stock options
with an aggregate exercise price of $70,936. During the first six months of
2004, employees exercised 115,125 stock options with an aggregate exercise
price of $970,000.
During November 2004, the Company announced that it had registered a Normal
Course Issuer Bid in Canada, under which the Company is authorized to
repurchase for cancellation up to 5.0% of its outstanding common shares.
In the first quarter of 2005, there were no shares purchased for cancellation.
In the second quarter, 46,300 shares were purchased for cancellation at a
cost of $340,000.
CURRENCY RISK
The Company is subject to currency risks through its Canadian and European
operations. Changes in the exchange rates may result in decreases or
increases in the foreign exchange gains or losses. The Company does not use
derivative instruments to reduce its exposure to foreign currency risk, as
historically these risks have not been significant.
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with Canadian GAAP
requires management to make estimates and assumptions that affect the
recorded amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements and the
recorded amounts of revenues and expenses during the reporting period. On an
on-going basis, management reviews its estimates, including those relating
to the allowance for doubtful accounts, reserve for slow moving and
unmarketable inventories and income taxes based on currently available
information. Actual results may differ from those estimates.
The discussion on the methodology and assumptions underlying these critical
accounting estimates, their effect on the Company's results of operations
and financial position for the year ended December 31, 2004 can be found
in the Company's 2004 Annual Report and have not materially changed since
that date.
NEW ACCOUNTING POLICY
Derivative financial instruments are utilized by the Company to reduce
interest rate risk on its debt. The Company does not enter into financial
instruments for trading or speculative purposes.
The Company's policy is to formally designate each derivative financial
instrument as a hedge of a specifically identified debt instrument. The
Company believes the derivative financial instruments are effective as
hedges, both at inception and over the term of the instrument, as the term
to maturity, the principal amount and the interest rate basis in the
instruments all match the terms of the debt instrument being hedged.
Interest rate swap agreements are used as part of the Company's program to
manage the floating interest rate mix of the Company's total debt portfolio
and related overall cost of borrowing. The interest rate swap agreements
involve the periodic exchange of payments without the exchange of the
notional principal amount upon which the payments are based, and are recorded
as an adjustment of interest expense on the hedged debt instrument. The
related amount payable to or receivable from counterparties is included as
an adjustment to accrued interest.
Gains and losses on terminations of interest rate swap agreements are
deferred under other current, or non-current, assets or liabilities on the
balance sheet and amortized as an adjustment to interest expense related
to the obligation over the remaining term of the original contract life
of the terminated swap agreement. In the event of early extinguishment of
the debt obligation, any realized or unrealized gain or loss from the swap
would be recognized in the consolidated statement of earnings at the time
of extinguishment.
SUMMARY OF QUARTERLY RESULTS
A table of Consolidated Quarterly Statements of Earnings for the eight most
recent quarters can be found at the beginning of this MD&A.
DISCLOSURE REQUIRED BY THE NEW YORK STOCK EXCHANGE
A summary of the significant ways that the governance of the Company differs
from that of a US listed company is available on the Company's website at
www.intertapepolymer.com under "Investor Relations."
ADDITIONAL INFORMATION
Additional information relating to IPG, including its Annual Information
Form is filed on SEDAR at www.sedar.com in Canada and on EDGAR at www.sec.gov
in the U.S.
FORWARD-LOOKING STATEMENTS
Certain statements and information set forth in this Quarterly Report,
including statements regarding the business and anticipated financial
performance of the Company, constitute "forward-looking statements" within
the meaning of the Federal Private Securities Litigation Reform Act of 1995.
Such forward-looking statements involve known and unknown risks, uncertainties
and other factors which may cause the actual results, performance or
achievements of the Company to be materially different from any future
results, performance or achievements expressed or implied in such forward-
looking statements. Forward-looking statements include, but are not limited
to, statements regarding the Company's cost savings from its consolidation
efforts, projected sales and earnings, the success of new products, the
Company's product mix, and future financing plans.
Forward-looking statements can be identified in some cases by terms such as
"may", "should", "could", "intends", "anticipates", "potential", and similar
expressions intended to identify forward-looking statements. These
statements, which reflect our current views regarding future events, are
based on assumptions and subject to risks and uncertainties.
Among the factors that could cause actual results to differ from the forward-
looking statements include, but are not limited to, inflation and general
economic conditions, changes in the level of demand for the Company's
products, competitive pricing pressures, general market trends, failure to
achieve planned cost savings associated with consolidation, restrictions
and limitations placed on the Company by its debt instruments, international
risks including exchange rate fluctuations, trade disruptions, and political
instability of foreign markets that we produce in or purchase materials
from, and the availability and price of raw materials.
This Quarterly Report contains certain non-GAAP financial measures as defined
under SEC rules, including operating profit, EBITDA, and adjusted EBITDA.
The Company believes such non-GAAP financial measures improve the
transparency of the Company's disclosure, provide a meaningful presentation
of the Company's results from its core business operations, excluding the
impact of items not related to the Company's ongoing core business
operations, and improve the period-to-period comparability of the Company's
results from its core business operations.
As required by SEC rules, the Company has provided reconciliations of those
measures to the most directly comparable GAAP measures.
Additional discussion of factors that could cause actual results to differ
materially from management's projections, estimates and expectations is
contained in the Company's SEC filings. These and other factors should be
considered carefully and undue reliance should not be placed on forward-
looking statements. The Company undertakes no duty to update its forward-
looking statements, including its sales and earnings outlook, other than as
required under applicable law.
This Quarterly Report contains certain non-GAAP financial measures, including
operating profit and EBITDA. The Company has included these non-GAAP
financial measures because it believes they provide investors with a more
meaningful period-to-period comparison of the Company's performance. Further,
EBITDA is used by IPG's Management, lenders and noteholders to evaluate the
Company's performance. IPG has included in this Quarterly Report
reconciliations of non-GAAP financial measures to the most directly comparable
GAAP measures as required by the Securities and Exchange Commission.
Intertape Polymer Group Inc.
Consolidated Earnings
Periods ended June 30,
(In thousands of US dollars, except per share amounts)
-------------------------------------------------------
Three months Six months
------------ ----------- ------------- -----------
2005 2004 2005 2004
------------ ----------- ------------- -----------
$ $ $ $
Sales 190,282 171,934 377,979 334,034
Cost of sales 150,895 134,097 299,469 264,083
------------ ----------- ------------- -----------
Gross profit 39,387 37,837 78,510 69,951
------------ ----------- ------------- -----------
Selling, general and
administrative expenses 24,844 22,793 48,761 45,100
Stock-based compensation 483 351 938 421
Research and development 1,224 1,153 2,235 2,115
Financial expenses 5,918 7,235 11,567 14,003
Manufacturing facility closure
and industrial accident costs 1,087 1,806
------------ ----------- ------------- -----------
33,556 31,532 65,307 61,639
------------ ----------- ------------- -----------
Earnings before
income taxes 5,831 6,305 13,203 8,312
Income taxes 399 654 1,738 370
------------ ----------- ------------- -----------
Net earnings 5,432 5,651 11,465 7,942
------------ ----------- ------------- -----------
------------ ----------- ------------- -----------
Earnings per share
Basic 0.13 0.14 0.28 0.19
------------ ----------- ------------- -----------
------------ ----------- ------------- -----------
Diluted 0.13 0.14 0.28 0.19
------------ ----------- ------------- -----------
------------ ----------- ------------- -----------
Consolidated Retained Earnings
Periods ended June 30,
(In thousands of US dollars)
(Unaudited)
-------------------------------------------------------
Three months Six months
------------------------- ------------- -----------
2005 2004 2005 2004
------------ ----------- ------------- -----------
$ $ $ $
Balance, beginning of period 85,642 70,582 79,609 68,291
Net earnings 5,432 5,651 11,465 7,942
------------ ----------- ------------- -----------
91,074 76,233 91,074 76,233
Premium on purchase for
cancellation of common shares 11 11
------------ ----------- ------------- -----------
Balance, end of period 91,063 76,233 91,063 76,233
------------ ----------- ------------- -----------
------------ ----------- ------------- -----------
The accompanying notes are an integral part of the consolidated financial
statements.
Intertape Polymer Group Inc.
Consolidated Balance Sheets
As at
(In thousands of US dollars)
_____________________________________________________________________________
June 30, June 30, December 31,
2005 2004 2004
(Unaudited) (Unaudited) (Audited)
________ _________ ___________
$ $ $
ASSETS
Current assets
Cash and cash equivalents 23,247 9,488 21,882
Temporary investment 489 497
Trade receivables,
net of allowance for
doubtful accounts of $4,463
($4,037 in June 2004,
$4,065 in December 2004) 110,167 101,201 101,628
Other receivables 11,283 11,353 13,381
Inventories 99,632 73,213 90,677
Parts and supplies 13,979 13,301 13,618
Prepaid expenses 7,642 5,761 7,788
Future income tax 1,509 2,682 1,509
________ _________ ________
267,948 216,999 250,980
Property, plant and equipment 343,839 357,227 352,610
Other assets 17,397 13,181 16,474
Future income taxes 34,731 4,457 36,689
Goodwill 179,767 176,231 179,958
________ _________ ________
843,682 768,095 836,711
________ _________ ________
________ _________ ________
LIABILITIES
Current liabilities
Bank indebtedness 5,000
Accounts payable and
accrued liabilities 94,059 91,834 97,849
Installments on long-term debt 2,802 1,958 3,032
________ _________ ________
101,861 93,792 100,881
Long-term debt 329,539 290,240 331,095
Other liabilities 435 530 435
________ _________ ________
431,835 384,562 432,411
_________ ________ _______
SHAREHOLDERS' EQUITY
Capital stock 288,911 289,219 289,180
Contributed surplus 5,264 3,701 4,326
Retained earnings 91,063 76,233 79,609
Accumulated currency
translation adjustments 26,609 14,380 31,185
________ _________ ________
411,847 383,533 404,300
________ _________ ________
843,682 768,095 836,711
________ _________ ________
________ _________ ________
The accompanying notes are an integral part of the consolidated financial
statements.
Intertape Polymer Group Inc.
Consolidated Cash Flows
Periods ended June 30,
(In thousands of US dollars)
(Unaudited)
_______________________________________________________________________________
-------------------------------------------------------
Three months Six months
------------------------- ------------- -----------
2005 2004 2005 2004
------------ ----------- ------------- -----------
$ $ $ $
OPERATING ACTIVITIES
Net earnings 5,432 5,651 11,465 7,942
Non-cash items
Depreciation and amortization 8,234 7,514 16,142 14,637
Other non-cash charges in
connection with facility
closures 81 127
Future income taxes 203 310 1,372 (586)
Stock-based compensation expense 483 351 938 421
------------ ----------- ------------- -----------
Cash flow from operations
before changes in non-cash
working capital items 14,433 13,826 30,044 22,414
------------ ----------- ------------- -----------
Changes in non-cash working
capital items
Trade receivables 2,801 (2,163) (9,100) (12,248)
Other receivables 2,082 2,017 487
Inventories (6,338) (3,366) (9,535) (3,878)
Parts and supplies (96) 43 (409) (148)
Prepaid expenses 449 1,039 132 2,140
Accounts payable and accrued
liabilities (1,616) (9,935) (3,285) (2,997)
------------ ----------- ------------- -----------
(2,718) (14,382) (20,180) (16,644)
------------ ----------- ------------- -----------
Cash flows from operating
activities 11,715 (556) 9,864 5,770
------------ ----------- ------------- -----------
INVESTING ACTIVITIES
Property, plant and equipment (4,069) (4,055) (9,058) (9,875)
Business acquisition (5,500)
Other assets (800) (501) (1,721) (1,064)
Goodwill (58) (300) (58)
------------ ----------- ------------- -----------
Cash flows from investing
activities (4,869) (4,614) (11,079) (16,497)
------------ ----------- ------------- -----------
FINANCING ACTIVITIES
Net change in bank indebtedness 15,907 5,000 20,840
Issue of long-term debt 787
Repayment of long-term debt (1,164) (2,477) (1,703) (2,477)
Issue of common shares 68 1,408 71 2,378
Common shares purchased for
cancellation (340) (340)
------------ ----------- ------------- -----------
Cash flows from financing
activities (1,436) 14,838 3,028 21,528
------------ ----------- ------------- -----------
Net increase (decrease) in
cash position 5,410 9,668 1,813 10,801
Effect of currency translation
adjustments (246) (180) (448) (1,313)
Cash position,
beginning of period 18,083 21,882
------------ ----------- ------------- -----------
Cash position, end of period 23,247 9,488 23,247 9,488
------------ ----------- ------------- -----------
------------ ----------- ------------- -----------
The accompanying notes are an integral part of the consolidated financial
statements.
NOTE 1.
Basis of Presentation
In the opinion of management, the accompanying unaudited interim consolidated
financial statements, prepared in accordance with Canadian generally accepted
accounting principles, contain all adjustments necessary to present fairly
Intertape Polymer Group Inc.'s ("IPG" or the "Company") financial position
as at June 30, 2005 and 2004 as well as its results of operations and its
cash flows for the three and six months ended June 30, 2005 and 2004.
These unaudited interim consolidated financial statements and notes should be
read in conjunction with IPG's annual consolidated financial statements.
These unaudited interim consolidated financial statements and notes follow
the same accounting policies as the most recent annual consolidated
financial statements, except for a new accounting policy on derivative
financial instruments described in note 9.
NOTE 2.
Earnings per Share
The following table provides a reconciliation between basic and diluted
earnings per share:
In thousands of US dollars
(Except per share amounts)
Three Months Six Months
____________ __________
Periods ended June 30, 2005 2004 2005 2004
_______________________________________ ______________ _________________
$ $ $ $
Net earnings applicable to common shares 5,432 5,651 11,465 7,942
Weighted average number of common shares
outstanding (000's) 41,215 41,215 41,226 41,093
Effect of dilutive stock options
(000's)(a) 335 181 267 336
_______________________________________ ________________ _________________
Weighted average number of diluted
common shares outstanding (000's) 41,550 41,396 41,493 41,429
________________ _________________
________________ _________________
Basic earnings per share 0.13 0.14 0.28 0.19
Diluted earnings per share 0.13 0.14 0.28 0.19
(a) Diluted earnings per share is calculated by adjusting outstanding
shares, assuming any dilutive effects of stock options.
NOTE 3.
Accounting for Compensation Programs
As at June 30, 2005, the Company had a stock-based compensation plan, which
is described in the 2004 Annual Report. Under the transitional provisions
prescribed by the Canadian Institute of Chartered Accountants ("CICA"), the
Company is prospectively applying the recognition provisions to stock options
issued in 2003 and thereafter. The transitional provisions of the CICA are
similar to those of the US Financial Accounting Standards Board ("FASB").
To determine the compensation cost, the fair value of stock options is
recognized on a straight-line basis over the vesting periods. For stock
options granted during the year ended December 31, 2002, the Company is
required to make pro forma disclosures of net earnings and basic and diluted
earnings per share as if the fair value based method of accounting had been
applied.
Accordingly, the Company's net earnings and basic and diluted earnings per
share for the periods ended June 30, 2005 and 2004 would have been decreased
to the pro forma amounts indicated in the following table:
In thousands of US dollars
(Except per share amounts)
Three Months Six Months
______________ _________________
Periods ended June 30, 2005 2004 2005 2004
_______________________________________ ______________ _________________
$ $ $ $
Net earnings as reported 5,432 5,651 11,465 7,942
Add: Stock-based employee compensation
expense included in reported net earnings 483 351 938 421
Deduct: Total stock-based employee
compensation expense determined under fair
value based method (697) (534) (1,452) (797)
_______________ _______________
Pro forma net earnings 5,218 5,468 10,951 7,566
______________ _______________
______________ _______________
Earnings per share:
Basic - as reported 0.13 0.14 0.28 0.19
Basic - pro forma 0.13 0.13 0.27 0.18
Diluted - as reported 0.13 0.14 0.28 0.19
Diluted -pro forma 0.13 0.13 0.26 0.18
NOTE 4.
Pension and Post-Retirement Benefit Plans
In thousands of US dollars
Three Months Six Months
______________ _______________
Periods ended June 30, 2005 2004 2005 2004
_______________________________________ ______________ _______________
$ $ $ $
Net periodic benefit cost for defined
benefit pension plans 478 453 949 918
_____ _____ ______ _____
_____ _____ ______ _____
NOTE 5.
Information Included in the Interim Consolidated Statements of Earnings
In thousands of US dollars
Three Months Six Months
______________ _______________
Periods ended June 30, 2005 2004 2005 2004
_______________________________________ ______________ _______________
$ $ $ $
Depreciation of property, plant and
equipment 7,896 7,314 15,445 13,926
Amortization of other deferred charges 3 66 10 66
Amortization of debt issue expenses
included in financial expenses below 335 134 687 645
Financial expenses
Interest on long-term debt 5,510 5,910 10,706 11,821
Interest on credit facilities 177 700 207 1,071
Other 381 775 954 1,411
Interest capitalized to property, plant
and equipment (150) (150) (300) (300)
_____ _____ ______ ______
5,918 7,235 11,567 14,003
_____ _____ ______ ______
_____ _____ ______ ______
Foreign exchange loss 198 372 317 422
Investment tax credits recorded as a
reduction of research and development
expenses 20 68 40 222
NOTE 6.
Manufacturing Facility Closure and Industrial Accident Costs
The Company incurred one-time costs associated with facility closures of $0.1
million and $0.7 million during the three months and six months ended June
30, 2005, respectively. There were no costs associated with facility
closures during the three months and six months ended June 30, 2004.
The Company incurred one-time costs associated with an industrial accident
of $1.0 million and $1.1 million during the three months and six months ended
June 30, 2005, respectively. There were no costs associated with industrial
accidents during the three months and six months ended June 30, 2004.
NOTE 7.
Capital Stock
During the three months ended June 30, 2005, 13,500 shares with an aggregate
exercise price of $68,011 were issued to employees who exercised stock
options.
During the three months ended June 30, 2005, the Company redeemed 46,300
common shares for a cash consideration of $340,000. An amount of $329,000 was
accounted for as a reduction of the capital stock and an amount of $11,000
was accounted for as a decrease of retained earnings as a premium on purchase
for cancellation of common shares.
During the three months ended March 31, 2005, 750 shares with an aggregate
exercise price of $2,925 were issued to employees who exercised stock options.
During the three months ended June 30, 2004, there were no options exercised.
In May 2004, the Company issued 225,160 common shares to the USA Employees
Stock Ownership and Retirement Savings Plan at a value of $1,408,000.
During the three months ended March 31, 2004, 115,125 common shares at a value
of $970,000 were issued to employees who exercised stock options.
The Company's shares outstanding as at June 30, 2005, December 31, 2004 and
June 30, 2004 were 41,204,911, 41,236,961 and 41,285,161 respectively.
Weighted average number of common shares outstanding:
Three Months Six Months
_______________________ _______________________
For the periods ended June 30, 2005 2004 2005 2004
______________________________ __________ __________ __________ __________
CDN GAAP - Basic 41,214,969 41,215,111 41,226,215 41,092,785
CDN GAAP - Diluted 41,550,160 41,396,403 41,493,093 41,429,232
U.S. GAAP - Basic 41,214,969 41,215,111 41,226,215 41,092,785
U.S. GAAP - Diluted 41,550,160 41,396,403 41,493,093 41,429,232
The Company did not declare or pay dividends during the six months ended June
30, 2005 or the six months ended June 30, 2004.
NOTE 8.
Business Acquisition
In February 2004, the Company purchased for a cash consideration of $5.5
million plus contingent consideration (dependent on business retention), assets
relating to the masking and duct tape operations of tesa tape, inc. ("tesa
tape"). At the same time, the Company finalized its three-year agreement to
supply duct tape and masking tape to tesa tape.
The purchase was accounted for as a business combination and, accordingly, the
purchase method of accounting was used. The purchase price was allocated to
the assets purchased based on their estimated fair values as at the date of
acquisition and included $0.9 million of equipment and $4.6 million of
goodwill. The goodwill is deductible over 15 years for income tax purposes.
Any contingent consideration paid will be recorded as an increase in
goodwill. During the three months ended March 31, 2005, the Company recorded
$0.3 million of contingent consideration.
NOTE 9.
Derivative Financial Instruments
Derivative financial instruments are utilized by the Company to reduce
interest rate risk on its debt. The Company does not enter into financial
instruments for trading or speculative purposes.
The Company's policy is to formally designate each derivative financial
instrument as a hedge of a specifically identified debt instrument. The
Company believes the derivative financial instruments are effective as hedges,
both at inception and over the term of the instrument, as the term to
maturity, the principal amount and the interest rate basis in the instruments
all match the terms of the debt instrument being hedged.
Interest rate swap agreements are used as part of the Company's program to
manage the floating interest rate mix of the Company's total debt portfolio
and related overall cost of borrowing. The interest rate swap agreements
involve the periodic exchange of payments without the exchange of the notional
principal amount upon which the payments are based, and are recorded as an
adjustment of interest expense on the hedged debt instrument. The related
amount payable to or receivable from counterparties is included as an
adjustment to accrued interest.
Gains and losses on terminations of interest rate swap agreements are
deferred under other current, or non-current, assets or liabilities on the
balance sheet and amortized as an adjustment to interest expense related
to the obligation over the remaining term of the original contract life of
the terminated swap agreement. In the event of early extinguishment of the
debt obligation, any realized or unrealized gain or loss from the swap would
be recognized in the consolidated statement of earnings at the time of
extinguishment.
During the three months ended June 30, 2005, the Company entered into an
interest rate swap agreement for a notional principal amount of $50.0
million maturing in June 2010. Under the terms of this interest rate swap
agreement, the Company receives, on a quarterly basis, a variable interest
rate and pays a fixed interest rate of 4.27% plus the premium applicable on
its term loan.
NOTE 10.
Subsequent Event
Subsequent to the end of the second quarter of 2005, the Company entered into
an interest rate swap agreement for a notional principal amount of $25.0
million maturing in July 2010. Under the terms of this interest rate swap
agreement, the Company receives, on a quarterly basis, a variable interest
rate and pays a fixed interest rate of 4.29% plus the premium applicable on
its term loan.
Information Request Form
I would like to o receive or o continue receiving financial information on
Intertape Polymer Group Inc.
Name: ____________________________________________________
Title: ____________________________________________________
Firm: ____________________________________________________
Address: ____________________________________________________
Province/State: ____________________________________________________
Postal Code/Zip: ____________________________________________________
Telephone: ____________________________________________________
Fax: ____________________________________________________
E-mail: ____________________________________________________
Please send me now on a regular basis. (Please indicate number of copies
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Please Fax a copy of this page to:
The Secretary
Intertape Polymer Group Inc.
Fax: 941-727-3798
3647 Cortez Road West
Bradenton, FL 34210
Investor Relations
Toll Free: 866-202-4713
www.intertapepolymer.com
itp$info@intertapeipg.com
Form 52-109FT2 - Certification of Interim Filings during Transition Period
I, Melbourne F. Yull, Chairman of the Board and Chief Executive Officer of
INTERTAPE POLYMER GROUP INC./LE GROUPE INTERTAPE POLYMER INC. certify that:
1. I have reviewed the interim filings (as this term is defined in
Multilateral Instrument 52-109 Certification of Disclosure in Issuers'
Annual and Interim Filings) of INTERTAPE POLYMER GROUP INC./LE GROUPE
INTERTAPE POLYMER INC., (the "issuer") for the interim period ending
June 30, 2005;
2. Based on my knowledge, the interim filings do not contain any untrue
statement of a material fact or omit to state a material fact required
to be stated or that is necessary to make a statement not misleading
in light of the circumstances under which it was made, with respect to
the period covered by the interim filings; and
3. Based on my knowledge, the interim financial statements together with
the other financial information included in the interim filings fairly
present in all material respects the financial condition, results of
operations and cash flows of the issuer, as of the date and for the
periods presented in the interim filings.
Date: July 28, 2005
/s/Melbourne F. Yull
Melbourne F. Yull
Chairman of the Board and Chief Executive Officer
Form 52-109FT2 - Certification of Interim Filings during Transition Period
I, Andrew M. Archibald, Chief Financial Officer and Secretary of INTERTAPE
POLYMER GROUP INC./LE GROUPE INTERTAPE POLYMER INC. certify that:
1. I have reviewed the interim filings (as this term is defined in
Multilateral Instrument 52-109 Certification of Disclosure in Issuers'
Annual and Interim Filings) of INTERTAPE POLYMER GROUP INC./LE GROUPE
INTERTAPE POLYMER INC., (the "issuer") for the interim period ending
June 30, 2005;
2. Based on my knowledge, the interim filings do not contain any untrue
statement of a material fact or omit to state a material fact required
to be stated or that is necessary to make a statement not misleading
in light of the circumstances under which it was made, with respect
to the period covered by the interim filings; and
3. Based on my knowledge, the interim financial statements together with
the other financial information included in the interim filings fairly
present in all material respects the financial condition, results of
operations and cash flows of the Issuer, as of the date and for the
periods presented in the interim filings.
Date: July 28, 2005
/s/Andrew M. Archibald
Andrew M. Archibald
Chief Financial Officer and Secretary