UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
ANNUAL REPORT PURSUANT TO SECTION 13 OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year ended December 31, 1999
Commission file number: 1-10928
INTERTAPE POLYMER GROUP INC.
(Exact name of Registrant as specified in its charter)
Canada
(Jurisdiction of incorporation or organization)
110E Montee de Liesse, St. Laurent, Quebec H4T 1N4 Canada
(Address of principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: Name of each exchange on which registered:
Common Shares, without nominal or New York Stock Exchange
par value The Toronto Stock Exchange
Securities registered or to be registered pursuant to Section 12(g) of the Act:
-NONE-
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act: -NONE-
The number of outstanding shares of each of the issuer's classes of capital
stock as of December 31, 1999 is:
28,296,392 Common Shares
-0- Preferred Shares
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes ___x___ No _____
Indicate by check mark which financial statement item the registrant has
elected to follow.
Item 17 ___x___ Item 18 _____
TABLE OF CONTENTS
Item Caption Page
---- ------- ----
CAUTIONARY STATEMENTS AND RISK FACTORS..................................................1
PART I.......................................................................................2
ITEM 1. DESCRIPTION OF BUSINESS.......................................................2
ITEM 2. DESCRIPTION OF PROPERTY......................................................17
ITEM 3. LEGAL PROCEEDINGS............................................................18
ITEM 4. CONTROL OF REGISTRANT........................................................18
ITEM 5. NATURE OF TRADING MARKET.....................................................19
ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS...........20
ITEM 7. TAXATION.....................................................................21
ITEM 8. SELECTED FINANCIAL DATA......................................................22
ITEM 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS................................................................24
ITEM 9A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK...................25
ITEM 10. DIRECTORS AND OFFICERS OF REGISTRANT.........................................28
ITEM 11. COMPENSATION OF DIRECTORS AND OFFICERS.......................................32
ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES...............34
ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS...............................36
PART II.....................................................................................38
PART III....................................................................................38
ITEM 15. DEFAULTS FROM SENIOR SECURITIES.............................................38
ITEM 16. CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR REGISTERED SECURITIES.....38
PART IV.....................................................................................39
ITEM 17. FINANCIAL STATEMENTS........................................................39
ITEM 18. FINANCIAL STATEMENTS........................................................39
ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS...........................................39
SIGNATURES.............................................................................41
EXHIBIT INDEX..........................................................................42
i
CAUTIONARY STATEMENTS AND RISK FACTORS
This Annual Report contains certain "forward-looking statements" within
the meaning of Section 27A of the U.S. Securities Act of 1933, as amended
(the "Securities Act") and Section 21E of the U.S. Securities Exchange Act of
1934, as amended (the "Exchange Act") concerning, among other things,
discussions of the business strategy of Intertape Polymer Group Inc. (the
"Company" or "Intertape Polymer Group") and expectations concerning the
Company's future operations, liquidity and capital resources. When used in
this Annual Report, the words "anticipate", "believe", "estimate", "expect"
and similar expressions are generally intended to identify forward-looking
statements. Such forward-looking statements, including statements regarding
intent, belief or current expectations of the Company or its management, are
not guarantees of future performance and involve risks and uncertainties.
Actual results may differ materially from those in the forward-looking
statements as a result of various factors, including those factors set forth
below and other factors discussed elsewhere in this Annual Report. In
addition to the other information contained in this Annual Report, readers
should carefully consider the cautionary statements and risk factors
contained in Item 9A below.
IMPLEMENTATION OF BUSINESS STRATEGY
The Company's business strategy includes, among other things, increasing
manufacturing capacity, developing new products, improving distribution
efficiencies, and expanding into new geographic markets. There can be no
assurance that the Company will be able to fully implement its strategy or
that the anticipated results of this strategy will be realized.
Implementation of this strategy could also be affected by a number of factors
beyond the Company's control such as manufacturing difficulties, disruption
of distribution systems, or general or local economic conditions. Any
material failure to implement its strategy could have a material adverse
effect on the Company's business, financial condition and results of
operations.
RAW MATERIAL PRICES AND AVAILABILITY
A substantial portion of the cost of manufacturing the Company's
products is the cost of raw materials, primarily petroleum based resins.
Historically, there have been fluctuations in these raw material prices due
to factors which are beyond the Company's control, and in some instances
price movements have been volatile when associated with outside influences.
There can be no assurance that the Company will be able to pass on raw
material price increases in the future. Further, in the past, there have
been shortages from time to time in the supply of certain resins. There can
be no assurances that the Company will not be subject to such shortages in
the future.
EXCHANGE RATE RISKS
The Company's result of operations were reported in Canadian dollars
through December 31, 1998. Commencing January 1, 1999, due to increased
activity in the U.S., the Company adopted the U.S. dollar as its reporting
currency. Since the trading price in the United States of the Common Shares
of the Company is quoted in U.S. dollars, any weakening of the Canadian
dollar relative to the U.S. dollar could result in a decline in the market
value and trading price of the Common Shares
measured in U.S. dollars. The exchange rate between Canadian dollars and
U.S. dollars has varied significantly over the last five years.
NEW PRODUCT DEVELOPMENT
The Company's business plan involves the introduction of new products,
which are both developed internally and acquired through acquisition. There
can be no assurance that the market will accept these products or that
competitors will not introduce similar products, which will impact the
company's ability to expand its markets and generate organic growth.
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
Intertape Polymer Group develops, manufactures and sells a variety of
specialized polyolefin plastic packaging products. These products include
INTERTAPE-Registered Trademark- pressure-sensitive and water-activated tape,
EXLFILM-TM- shrink film ("EXLFILM-TM-"), STRETCHFLEX-Registered Trademark-
stretch wrap ("STRETCHFLEX-Registered Trademark-") and woven products. Most
of the Company's products are derived from resins that are converted into
films and adhesives. Resins also are combined with paper and converted into
a variety of packaging products. Vertical integration, whereby the Company
performs each step in the conversion of polyolefin resins and paper into its
various products, and continuous capital expenditures to increase
manufacturing efficiencies allow the Company to be among the low-cost
producers of each product it manufactures. This vertical integration
combined with the use of high speed production equipment provides competitive
advantages to the Company in flexibility and control of the manufacturing
process and in speed of delivery. Management considers all of its products
to be within one operational segment because all products are made basically
from similar extrusion processes and differ only in the final stages of
manufacturing.
The Company's most recent expansion of its product offering occurred
with its 1999 acquisitions of Spinnaker Electrical Tape Company, a U.S.
manufacturer of pressure-sensitive electrical tapes, and Central Products
Company, a U.S. manufacturer of a natural rubber pressure-sensitive tape.
Central Products Company also manufactured hot melt and acrylic
pressure-sensitive tapes, and a line of water-activated carton sealing tapes,
giving the Company what it now believes to be 70% of the market.
The Company's revenues are derived primarily from sales of its products
in the United States and Canada, with approximately 95% of the Company's 1999
revenues attributable to sales from manufacturing facilities in the United
States. The Company is headquartered in Montreal, Quebec and maintains
approximately 2.9 million square feet of manufacturing facilities throughout
the United States, Canada and Portugal.
2
The registered office of the Company is located at 1155 Rene-Levesque
Boulevard West, Suite 4000, Montreal, Quebec, Canada H3B 3V2, and its
principal executive offices are located at 110E Montee de Liesse St. Laurent,
Quebec, Canada H4T 1N4. The Company's telephone number at its principal
executive offices is (514) 731-0731.
HISTORY
The Company's business was established in 1981 by Melbourne F. Yull,
Intertape Polymer Group's Chairman of the Board and Chief Executive Officer,
when Intertape Systems Inc. ("Systems"), a predecessor of the Company,
established a pressure-sensitive tape manufacturing facility in Montreal.
Intertape Polymer Group was incorporated under the laws of Canada in 1989 and
in February 1992, completed an initial public offering of its Common Shares
at the offering price of $4.25 (CDN$5.035) (after giving effect to a 2:1
stock split on June 4, 1996). The Company's Common Shares were previously
listed on the American Stock Exchange and, commencing August 1999, are now
listed on the New York Stock Exchange. In addition, since January 1993, the
Company's Common Shares have been listed on The Toronto Stock Exchange. The
Company completed a second public offering of its Common Shares in Canada and
the United States in October 1995, at the offering price of $14.60
(CDN$19.75). The Company completed a third public offering of its Common
Shares in Canada on a "bought deal" basis in March 1999, at the offering
price of $26.31 (CDN$40.25) per share.
The Company has pursued a strategy of aggressive growth through both
substantial capital investments and acquisitions (See "Acquisition History"
below). When the Company commenced operations in 1981, it converted
purchased films into pressure-sensitive carton sealing tapes. Originally
intended as a local manufacturer, management of the Company decided in the
mid-1980's to take advantage of the extraordinary growth in demand for carton
sealing tapes by significantly expanding its output of such product and,
thereby, its customer base. Following adoption of this new business plan and
over the next few years, the output of the Montreal plant doubled and a new
facility was constructed in Danville, Virginia, in 1987. The Virginia plant
was "upstream integrated" to include film extrusion, thereby reducing
material cost. The market for carton sealing tape has continued to grow and
the Danville facility is five times larger (measured in capacity) today than
at the date of its construction.
Even as the Company was growing its customer base in pressure-sensitive
tapes, it pursued an aggressive policy of new product development to leverage
its pressure-sensitive tape products. In 1992, the Company developed a new
variety of speciality shrink films and purchased and installed manufacturing
equipment to produce such films. The ability to manufacture its own shrink
films enabled the Company to participate in the shrink film market estimated
to be $500 million annually. Further, it strengthened the Company's position
with its customers.
The Company's entry into the stretch wrap market began with the Company's
concurrent development of stretch wrap products with the processes to
manufacture such products. The
3
Company entered the stretch wrap market (estimated at $1 billion annual sales
in 1996) utilizing its existing customer base and distribution network.
To broaden the product line and provide one-stop shopping with a "basket
of products", the Company has made a series of acquisitions. Interpack
Machinery Inc. ("Interpack"), a designer of automatic carton sealing
equipment, was acquired by the Company in 1993. In acquiring Interpack, the
Company gained technology for systems capable of utilizing large volumes of
high value carton sealing tapes. Tape, Inc. was acquired in 1996 to provide
a complete line of water-activated tapes. American Tape Co. ("American
Tape") was acquired in 1997 bringing to the Company products including high
performance masking, filament and speciality products, which mesh well with
the Company's related product lines. Anchor Continental, Inc. ("Anchor") was
acquired in 1998 and was a main competitor of the Company for the sale of
masking tapes. Rexford Paper Company ("Rexford"), a redistributor of a
variety of pressure-sensitive tapes, as well as a manufacturer of
water-activated tapes, was also acquired in 1998. In 1999, the Company
acquired Spinnaker Electrical Tape Company ("SETco"), bringing a new product
line, pressure-sensitive electrical tapes, to the Company. In addition, in
1999, the Company also acquired Central Products Company ("CPC"), one of its
competitors for the sale of both pressure-sensitive and water-activated
carton sealing tapes. The combination of these various product lines enables
the Company to offer the market place a range of products to service its
customers' needs.
The Company also markets products directly to the end user. Polymer
International (N.S.) Inc. ("Polymer International") and International
Container Systems, Inc. ("International Container") were acquired in 1989.
Polymer International manufactures a wide range of coated, woven polyolefin
fabrics; International Container manufactures returnable plastic cases for
the beverage industry. Since acquiring Polymer International, sales of the
Company's woven product line have increased five-fold, assisted in part by
the development of lumber wrap and other products. In addition, two small
companies (Cajun Bag & Supply Corp. and Augusta Bag & Supply Co.) were
purchased to produce flexible intermediate bulk containers ("FIBC's")
utilizing the Company's fabric as the prime raw material.
During 1999, the Company participated in two joint ventures: Fibope
Portuguesa-Filmes Biorientados, S.A. ("Fibope") and IFCO-U.S., L.L.C.
("IFCO"). Fibope produces shrink films in Portugal for the European market
and has doubled its manufacturing capacity since 1995. IFCO is a provider of
returnable plastic cases for the produce industry. The Company, however,
sold its interest in IFCO in March 2000. The capital resources will now be
utilized in other areas of the Company's business expected to provide higher
rates of return.
Until 1998, the majority of the Company's growth came from the sale of
internally developed products. Capacity increases are ongoing throughout the
organization and all product lines. The Company's Utah manufacturing
facility, a 115,000 square foot plant, became operational in June 1998, and
was expanded further in 1999. Consistent with the Company's strategy, this
plant is acting not only as a producer of shrink and stretch films, but also
as a distribution center for all of the Company's products to increase sales
in the western United States and western Canada.
4
The Company is a holding company which owns various operating companies
in the United States and in Canada. Intertape Polymer Inc., a Canadian
corporation ("IPI"), is the principal operating company for the Company's
Canadian operations. Intertape, Inc., a Virginia corporation, formerly known
as Intertape Polymer Corp. ("IPC"), is the principal operating company for
the Company's United States and international operations including, most
notably, each of the businesses referenced in the acquisition table set forth
below.
As of May 17, 2000, the Company had 28,297,392 Common Shares outstanding.
Unless the context otherwise requires, the terms "Intertape Polymer
Group" and the "Company" are used to refer to Intertape Polymer Group Inc.
together with all of its wholly-owned subsidiaries and joint ventures. Where
the context requires, such terms also include the predecessors of Intertape
Polymer Group. All dollar amounts referenced in this Annual Report are in
U.S. dollars unless otherwise indicated.
ACQUISITION HISTORY
In addition to internally generated growth, the Company has engaged in a
series of acquisitions. The Company believes it now ranks among the leading
developers and manufacturers of industrial plastic packaging products in
North America. The following table illustrates the principal acquisitions
completed by the Company during the last five years:
COMPLETED ACQUISITIONS
- --------------------------------------------------------------------------------------------------------
Annual Cost of
Year Acquisitions Company Location Products
- ---- -------------- ----------------------- ------------------------ ----------------------
($in millions)
1997 $ 42.9 American Tape Co. Marysville, Michigan Pressure-sensitive
Richmond, Kentucky tapes, masking tapes
1998 $113.2 Anchor Continental, Inc. Columbia, South Carolina Pressure-sensitive
tapes, masking and
duct tapes
Rexford Paper Company Milwaukee, Wisconsin Pressure-sensitive and
water-activated tapes
1999 $111.3 Central Products Company Menasha, Wisconsin Pressure-sensitive and
Brighton, Colorado water-activated carton
sealing tapes
Spinnaker Electrical Tape Carbondale, Illinois Pressure-sensitive
Company electrical tapes
5
BUSINESS STRATEGY
The Company's overall objective is to gain market share in large niche
markets which it believes are growing at rates faster than the economy as a
whole. The Company's strategies for achieving this objective are as follows:
- SOLIDIFY THE COMPANY'S POSITION AS A LOW-COST MANUFACTURER. The
Company has pursued a vertically integrated manufacturing strategy as a
means of controlling the costs of its manufacturing inputs and, in
connection therewith, has made substantial investments in high-speed
production equipment and various forms of manufacturing automation.
For example, during the past several years the Company has installed
various extrusion lines of equipment for the making of film for
pressure-sensitive carton sealing tapes. This allows the Company to
buy resin as a basic raw material to produce its own films and
adhesives rather than purchase them from other manufacturers at greater
cost. In addition, the Company continually undertakes initiatives to
reduce waste at its production facilities as a means of further
controlling its manufacturing costs.
- INCREASE MANUFACTURING CAPACITY. The Company believes that increasing
manufacturing capacity at its existing plants will contribute to its
ability to increase market share in its current markets. Over the past
five years, the Company has achieved an increase in its coating
capability at its Danville plant, an increase in its output of woven
products from its Truro facility and a doubling of the EXLFILM-TM-
production capacity at its Truro facility. In addition, the Company
commenced EXLFILM-TM- and STRETCHFLEX-Registered Trademark-
manufacturing operations at its new facility located in Tremonton, Utah
during the second quarter of 1998 and further expanded this facility
during 1999.
- DEVELOP NEW PRODUCTS. The Company has been increasing its investment
in research and development and believes that it can take advantage of
its manufacturing strengths and distribution network by introducing new
products and product line extensions which complement its existing
product base. The Company introduced in 1996 a new stretch wrap
product line sold under the STRETCHFLEX-Registered Trademark-
trademark. Recent product developments during 1999 have
positioned STRETCHFLEX-Registered Trademark- as a leader in new
five-layer high performance stretch wrap. EXLFILM-TM- shrink films,
launched in 1992, have been the focus of numerous product developments,
including the addition of new cross-linking technology that led to the
development of EXLFILMPLUS-TM- which gives the Company access to new
markets that it did not previously participate in.
NOVATHENE-Registered Trademark- woven fabrics have been undergoing
continued product development. The Company has completed the
successful test of a patented woven fabric that competes with PVC in
several major markets. Tape developments continue to focus on
performance products targeted to unique applications and specific
customers.
- DISTRIBUTION CENTERS. The Company has installed in several of its key
manufacturing/distribution facilities a Warehouse Management System
("WMS") which will increase efficiency in the storage, shipping and
inventory management of all its products located in those facilities.
This investment will increase the level of service that
6
the Company provides to its customers, as well as reduce its operating
costs in these areas. With recent acquisitions, the Company's
management initiated a fresh look at its Supply Chain strategy. The
premier consultants in the Supply Chain arena have been engaged to
manage the process and guide the Company to reduce its costs, formulate
a strategy, train personnel, eliminate inefficiencies and further
enhance the Company's ability to service its customers.
- EVALUATE FUTURE COMPLEMENTARY ACQUISITIONS. The Company is continually
evaluating the attractiveness of other companies, technologies or
products that could complement the Company's existing product lines and
manufacturing and distribution strengths. The Company considers
complementary companies, technologies and products as potential
acquisition targets, and evaluates the merits of each such potential
acquisition. The Company's purchase of American Tape, Anchor, and CPC
are examples of such acquisitions, providing the Company with masking,
duct, reinforced filament and printable and non-printable flat back
tapes as well as other specialty tapes not previously manufactured by
the Company but which can be integrated into the Company's distribution
system to broaden the range of products offered to its customers.
- EXPAND SALES INTO NEW GEOGRAPHIC MARKETS. The Company intends to
continue to exploit the breadth of its product lines, distribution
network and strong market position by entering into new markets in both
North America and abroad. The Company was able to use its joint
venture arrangement with a Portuguese manufacturer of shrink films as a
springboard to market some of its North American manufactured products
in Europe. In addition, with the acquisitions of American Tape and
Anchor, the Company gained a market presence throughout the world in
high performance masking tapes and duct tapes. The Company believes
that it can build upon this market position in the sale of its other
products. The Company expects to increase its penetration in all
markets either by enhancing its internal marketing efforts or through
joint ventures or acquisitions.
PRODUCTS
INTERTAPE-Registered Trademark- CARTON SEALING TAPE: PRESSURE-SENSITIVE
AND WATER-ACTIVATED TAPE
The Company produces a variety of pressure-sensitive plastic film carton
sealing tape, ranging from commodity designed standard tape to tape tailored
to meet customers' unique requirements. The product range encompasses tape
with film thickness from 25 microns to 50 microns and adhesives formulated
for manual as well as automatic applications. Carton sealing tape lends
itself to use in high speed taping machines that replace other closure
methods such as staples, hot melt glues and cold glues. The tape produced by
the Company includes a wide range of customized colored and printed tape, as
well as tape designed for cold temperature applications and label protection.
The Company believes that it is one of the leading manufacturers of
pressure-sensitive carton sealing tape and further believes that it is the only
manufacturer in North America of all three types
7
of adhesives; hot melt, acrylic, and natural rubber. Carton sealing tape is
manufactured and sold under the INTERTAPE-Registered Trademark- name to
industrial distributors and manufactured for other customers for sale under
private labels. It is produced at the Company's Danville, Montreal, Richmond
and Columbia facilities and is utilized by end-users for sealing corrugated
cartons. Geographic territories in which the Company markets its products
are serviced by sales personnel and manufacturers' representatives
coordinated by regional managers. Distributors are appointed on a basis
designed to achieve market penetration of both commodity and higher grade
products. In 1994, the Company commenced efforts to utilize its expanded
production capacity and field support to begin to penetrate the United States
west coast and the western Canadian markets and continues to increase its
sales force for these markets. The Company expects its centralized warehouse
distribution system in the Tremonton, Utah facility will continue to enhance
these efforts. In addition, the Company exports its product to Europe, Asia,
Central America and South America.
The Company's acquisition in 1993 of the assets of Interpack, a
manufacturer of equipment used to apply pressure-sensitive tapes to seal
corrugated boxes, enabled the Company to further enhance the mix of products
it offered to its customers. The Company introduced a line of machines
designed for the high-speed application of pressure-sensitive carton sealing
tape in January 1994 and has continued to enhance and improve its equipment
designs.
In 1996, the acquisition of Tape, Inc. added a complete range of
water-activated adhesive tapes to the Company's product mix. This product
line is generally sold through the same distribution network as
pressure-sensitive carton sealing tape which has allowed the Company to
increase its market penetration of this product.
The Company's 1999 acquisition of CPC, a producer of carton sealing
tapes, should serve to provide cost reductions to the Company. In addition,
the Brighton, Colorado, facility obtained in the acquisition provides the
Company with the needed capacity in hot melt coating and solvent rubber
products to form a basis for continued growth in these products.
The Company's principal competitor for the sale of carton sealing tape
products is Minnesota Mining & Manufacturing Co. ("3M").
INTERTAPE-Registered Trademark- MASKING TAPES: PERFORMANCE AND GENERAL
PURPOSE
The Company added masking tapes to its product line in December 1997
through the acquisition of American Tape, a leading manufacturer of these
products and expanded its position in this product line with the acquisition
of Anchor in September 1998. Masking tapes are used for a variety of end-use
applications which can be broadly described under two categories: general
purpose and performance.
General purpose applications include packaging and bundling, and
residential and commercial paint applications. Performance applications
include use in painting of aircraft, cars, buses and boats, where the
properties of the tape, such as high temperature resistance and clean
adhesive release, are individually designed for the customer's process.
8
The Company's processing capabilities include solvent and synthetic
rubber, hot melt and acrylic adhesive alternatives. The Company believes
that its unique adhesive systems provide it with a competitive advantage in
this market. The main competitors for the sale of masking tapes include 3M,
Shuford Mills, Inc., Industrias Tuk, S.A. de C.V., and Tesa Tape Inc.
("Tesa").
INTERTAPE-Registered Trademark- REINFORCED FILAMENT TAPE: PERFORMANCE
AND GENERAL PURPOSE
In addition to masking tapes, the Company's purchases of American Tape
and Anchor also introduced reinforced filament tapes and flat back tapes to
the Company's product line. Reinforced, general and specialty products are
manufactured at the Company's facilities in Richmond, Kentucky, Marysville,
Michigan and Columbia, South Carolina which were acquired in the American
Tape and Anchor acquisitions. These facilities produce filament tape using
synthetic, natural rubber and hot melt adhesives coated on a variety of
plastic filaments. The reinforcement is provided by fibreglass yarns
laminated between two plastic substrates.
Many of these filament tapes are odorless, stainless, and provide clean
removal and are used in bundling, sealing, unitizing, palletizing and
packaging, notably for household appliances. The Company's main competitor
in this market is 3M, and for commodity filament tapes the Company's main
competitors are Tesa and RJM Manufacturing, Inc.
ACRYLIC COATING
In 1995, the Company completed a $7.0 million capital expenditure
program for an acrylic coater and ancillary equipment design to apply acrylic
based adhesives to a wide variety of substrates at its Danville, Virginia
plant. These acrylic coatings, when applied to film tapes, offer extended
shelf life as well as increased performance under the extremes of low and
high temperatures. In addition, certain applications, such as mirror
backing, utilize woven products as the base material to which acrylic coating
is applied.
INTERTAPE-Registered Trademark- DUCT TAPE
The acquisition of Anchor provided the Company a significant capacity in
the duct tape product line. Duct tapes are manufactured at the Columbia,
South Carolina, facility. Approximately 75% of the duct tape volume consists
of polyethylene-coated cloth. Aluminum foil type tape accounts for most of
the non-polyethylene coated product sales of the Company's duct tape
products. The main competitors are Tyko International, Ltd. ("Tyko") and
Shurtape Technologies, Inc.
EXLFILM-TM- SHRINK WRAP
EXLFILM-TM- is a specialty plastic film which shrinks under controlled
heat to conform to package shape as compared to other packaging forms that
require unique machinery for different product sizes and shapes. The process
provides versatility because it permits the over-wrapping of a variety of
products of considerably different sizes and dimensions (such as printing and
paper
9
products, packaged foods, cassettes, toys, games and sporting goods, and
hardware and housewares). The Company manufactures EXLFILM-TM- at its plant
in Truro, Nova Scotia, and at its Tremonton, Utah facility. The Company
believes that its continued investment in equipment and product development
will help it expand in this market. With the development of cross-linking
technology, the Company has introduced a new line of high performance shrink
film, EXLFILMPLUS-TM-, which can be used to satisfy additional end user
applications.
The Company's shrink wrap products are sold through a select group of
specialty distributors primarily to manufacturers of packaged goods and
printing and paper products who package their products internally. In
addition, the Company holds a 50% interest in FIBOPE, a manufacturer of
shrink films in Portugal. FIBOPE utilizes similar manufacturing equipment as
is currently operated by the Company in its Truro and Tremonton facilities.
In addition to being served by the Company, the United States and
Canadian markets for polyolefin shrink wrap are currently served by two large
United States manufacturers, W.R. Grace & Co. and E.I. DuPont de Nemours &
Co., and to a lesser extent by foreign manufacturers.
STRETCHFLEX-Registered Trademark- STRETCH WRAP
STRETCHFLEX-Registered Trademark- is a multi-layer plastic film that can
be stretched without application of heat. It is used industrially to wrap
pallet loads of various products to ensure a solid load for shipping. The
Company has the capacity to produce a total of 130 million pounds of
STRETCHFLEX-Registered Trademark- annually at its Danville, Virginia plant
and its facility in Tremonton, Utah. During 1999, the Company invested in
upgrading all of its cast lines to new five-layer technology. This
technology, combined with re-engineered film allows the Company to produce
polyolefin stretch wrap that has higher performance while reducing
manufacturing costs.
The North American market for such polyolefin stretch wrap is served by
a number of manufacturers, the largest of which are Tenneco Inc. and Linear
Films, Inc.
INDUSTRIAL ELECTRICAL TAPES
As a result of the Company's 1999 acquisition of SETco, which included
its Carbondale, Illinois, facility, the Company is now a manufacturer of
specialty electrical and electronic tape. The new manufacturing capability
and technology at the Carbondale, Illinois, facility, coupled with the
Company's high temperature resistant products manufactured at its Marysville,
Michigan, facility is hoped to provide the Company access to new high margin
markets.
Competing manufacturers of industrial electrical tapes include 3M,
Tessa, and Tyko.
10
WOVEN PRODUCTS
The Company produces a variety of finished products utilizing coated
woven polyolefin fabrics, such as bags and lumber wrap, as well as coated
woven polyolefin fabrics that are sold to other manufacturers which convert
these fabrics into finished products, such as packaging, protective covers,
pond liners, housewrap, recreational products, and temporary structures.
Depending on the needs of the customer, the Company produces valve bags
or open mouth bags. Valve bags have a one way self-closing filler valve
inserted into one corner and are used for packaging pelletized and granular
chemicals and other materials. Open mouth bags, which require a secondary
closure method such as stitching, are used primarily for packaging of
compressed material such as mineral fibers.
NOVA-THENE-Registered Trademark- lumber wrap is a polyolefin fabric
which is extrusion coated and printed to customer specifications. It is used
in the forest products industry to package kiln-dried cut lumber. The
Company believes that polyolefin products have certain advantages over
traditional paper-plastic laminate products, including superior strength,
ease of application, durability, better appearance and the potential to be
recycled.
The Company added FIBCs to its product line in 1993 with the acquisition
of Cajun Bag & Supply Corp. ("Cajun Bag"). To facilitate production of
seamless FIBCs in the Crowley, Louisiana plant, the Company installed
circular weaving equipment in 1994 in its Truro plant. The Company made
additional investments in the Crowley plant in 1995 to reduce costs, increase
capacity and reduce turnover. In 1996, the Company opened an FIBC plant in
Edmundston, New Brunswick, Canada to meet the growing demands of the industry
and purchased the assets of Augusta Bag & Supply Co. ("Augusta Bag") to add
further capacity, expand market share and acquire unique manufacturing
methods. In 1997, the Company initiated an organizational review of the
operations of certain facilities manufacturing FIBCs and, during the latter
half of 1997, approved a restructuring plan designed to improve efficiency
and reduce operating costs. Specifically, while the Company will continue to
produce the fabrics used to make FIBCs, the Company has decided to outsource
some of the conversion process to Mexico due to increased foreign
competition. As a consequence, during 1997 the Company incurred a one-time
charge against earnings in respect of write-downs of certain assets employed
in these operations as well as goodwill associated with the Cajun Bag and
Augusta Bag acquisitions.
The Company recently announced the development of a patent pending
Pallet-Free-TM- FIBC product. This new product has significant cost and
performance advantages compared to traditional corrugated bulk containers,
which compete in the same bulk product markets.
The Company also manufactures other coated woven polyolefin fabrics that
it supplies to converters which produce finished products for specific
application, such as synthetic fiber packaging, temporary and permanent
shelters, recreational products, protective covers, pond liners, and flame
retardant lattice cloth. During 1999, the Company developed a new patented
woven fabric that meets the fire retardant specifications required for human
occupancy and maintains the UV
11
specifications for extended outdoor use. This product is used in
applications where PVC was the primary fabric previously used.
The Company's NOVA-THENE-Registered Trademark- lumber wrap line competes
with products manufactured by partially integrated manufacturers and by
secondary converters. In addition, the Company competes with manufacturers
of coated woven fabrics such as Amoco Fabrics and Fibers Company and Fabrene,
Inc., which sell their products to converters.
The market for FIBCs is highly competitive and is not dominated by any
single manufacturer.
SOFT DRINK TRANSPORT AND DISPLAY CASES
The Company is engaged in the design, development and sale of reusable
plastic soft drink transport and display cases. These cases are manufactured
for the Company by independent contractors located throughout North America.
This approach is consistent with the Company's goal of being a low-cost
producer in each market it serves, as management believes the savings to its
customers on freight exceed any potential savings from in-house manufacturing.
SALES AND MARKETING
As of January 1, 2000, the Company maintained a sales force of 165
personnel. The Company participates in industry trade shows and uses trade
advertising as part of its marketing efforts. The Company's overall customer
base is diverse, with no single customer accounting for more than 5% of total
sales. The Company has one long term contract with a customer which accounts
for less than 5% of total sales. Sales for facilities located in the United
States and Canada accounted for approximately 88% and 11% of total sales,
respectively, in 1998, and approximately 86% and 14% in 1999. The Company
has also continued to develop its sales efforts in Europe, Asia, Central
America and South America. Management does not intend to achieve more than
10% of its sales outside North America. Export sales currently represent
less than 5% of total sales and are included in United States or Canadian
sales depending on the manufacturing facility from which the sale originates.
The Company sales are primarily focused on distribution products and
woven products. Distribution products go to market through a network of
paper and packaging distributors throughout North America. Products sold
into this segment include carton sealing, masking, duct and reinforced tapes,
EXLFILM-TM- and STRETCHFLEX-Registered Trademark-. In order to enhance sales
of its pressure-sensitive carton sealing tape, the Company also sells carton
closing systems, including automatic and semi-automatic carton sealing
equipment. Prior to the acquisition of Interpack, these products were
manufactured by others. The Company's EXLFILM-TM- and STRETCHFLEX-Registered
Trademark- products are sold through its existing industrial distribution
base primarily to manufacturers of packaged goods and printing and paper
products which package their products internally. The industrial electrical
tapes are sold to the electronics and electrical industries.
12
The Company's woven products group sells its products directly to the
end-users. It offers a line of lumberwrap, valve bags, FIBCs and speciality
fabrics manufactured from plastic resins. The woven products group markets
its products throughout North America.
MANUFACTURING; QUALITY CONTROL
The Company's philosophy is, where efficient, to manufacture products
from the lowest cost raw material and add value to such products by vertical
integration. About 80% of the Company's products are manufactured through a
process which starts with a variety of polyolefin resins and extrudes them
into film for further processing. Over 50 million pounds of wide width
biaxially oriented polypropylene film is extruded annually in the Company's
facilities. This film is then coated in high-speed equipment with
in-house-produced adhesive and cut to various widths and lengths for carton
sealing tape. The same basic process applies for reinforced filament tape,
which also uses polypropylene film and adhesive but has fiberglass strands
inserted between the layers. Specific markets demand different adhesives and
the Company manufactures acrylic solvent based rubber and "hot melt"
adhesives to respond to all demands. Masking tapes utilize the same process
with paper as the coating substrate. Duct tapes utilize a similar process
with either polyethylene or aluminum foil type coated cloth.
The technology for basic film extrusion, essential to the low cost
production of pressure-sensitive tape products, also has been utilized by the
Company to expand its product line into highly technical and sophisticated
films. Extrusion of up to five layers of various resins is done in four of
the Company's plants. These high value added films service the shrink and
stretch wrap markets, both of which have high entry barriers.
A wide variety of woven products are also part of the Company's family
of products. The first manufacturing step in the production of woven
products is film extrusion utilizing various resins and additives. These
speciality films are slit in line and woven on wide width looms. They are
then coated with a variety of resins to provide unique properties for large
niche markets. Printing, bag making and FIBC converting enhance the value
added on certain products.
The Company also designs and sells specialty cases for the reusable
containers market. Propriety molds and raw materials are provided to outside
contractors which produce cases on an exclusive basis. Continuing product
development, investment in new capital equipment and advanced engineering
provide the basis that enables the Company to compete in its marketplace.
The Company maintains a quality control laboratory and a process control
program on a 24-hour basis to monitor the quality of all packaging and woven
products it manufactures. At the end of 1999, five of the Company's plants
were certified under ISO-9002 quality standards program, and one has been
certified under ISO-9001 quality standards program.
13
EQUIPMENT AND RAW MATERIALS
The Company purchases mostly custom designed manufacturing equipment,
including extruders, coaters, finishing equipment, looms, printers, bag
manufacturing machines and injection molds, from manufacturers located in the
United States and Western Europe, and participates in the design and
upgrading of such equipment. It is not dependent on any one manufacturer for
such equipment.
Polyolefin resins are a widely produced petrochemical product and are
available from a variety of sources worldwide. The Company purchases raw
materials from a limited number of vendors with whom, over time, it has
developed long-term relationships. The Company believes that such long term
relationships, together with the Company's centralized purchasing operations,
have enhanced the Company's ability to obtain a continuity of supply of raw
materials on competitively favorable purchase terms. Historically,
fluctuations in raw material prices experienced by the Company have been
passed on to its customers over time.
RESEARCH AND DEVELOPMENT; NEW PRODUCTS
Prior to 1992, research and development consisted of activities related
to adapting new technologies as they emerged within the various manufacturing
environments. Management decided to embark upon a program, beginning in
1992, to develop new manufacturing processes, to enhance product performance
and to develop new products throughout the Company. In 1994, the Company
emphasized developing products for existing markets, and in 1996 established
a corporate research and development group to undertake development of new
products. Research and development expenses in 1997, 1998 and 1999 totaled
$1,456,000, $3,059,000 and $3,901,000, respectively.
The Company currently has two active research and development programs;
one primarily focused on tape products and the other supporting the film,
woven fabric, and FIBC development. These programs have been instrumental in
the development of numerous new products including STRETCHFLEX-Registered
Trademark-5L and EXLFILMPLUS LTG, which were rolled out during the later part
of 1999. Additionally, these teams have developed several new products which
will be launched during 2000. The Company believes that the development of
these products will allow the Company to expand into the specialty film
market which previously was not accessible using conventional products.
Research and development is an important factor generating internal growth
for the Company.
TRADEMARKS AND PATENTS
The Company markets its tape products under the registered trademark
INTERTAPE-Registered Trademark- and various private labels. The Company's
valve or open mouth bags are marketed under the registered trademark
NOVA-PAC-Registered Trademark-. Its woven polyolefin fabrics are sold under
the registered trademark NOVA-THENE-Registered Trademark-. Its shrink wrap
is sold under the trademark EXLFILM-TM-. Its stretch films are sold under
the trademark STRETCHFLEX-Registered Trademark-. FIBC's are sold under the
trademarks LeGRAND
14
SACK-Registered Trademark- and CAJUN-Registered Trademark- BAGS. The Company
has approximately seventy-two registered trademarks, principally in the
United States and Canada, including trademarks acquired from American Tape,
Anchor, Rexford and CPC. The Company does not have, nor does management
believe it important to the Company's business to have, patent protection for
its carton sealing tape products. However, the Company has pursued patents
in select areas where unique products offer a competitive advantage in
profitable markets, primarily in woven products and shrink wrap. The Company
currently has twenty-five patents and approximately fifteen patents pending.
COMPETITION
The Company competes with other manufacturers of plastic packaging
products as well as manufacturers of alternative packaging products, such as
paper, cardboard and paper-plastic combinations. Management believes that
competition, while primarily based on price and quality, is also based on
other factors, including product performance characteristics and service. No
statistics, however, on the packaging market are currently publicly
available. See "Products" for a discussion of the Company's main competitors.
The Company believes that significant barriers to entry exist in the
packaging market. Management considers the principal barriers to be: (i)
the high cost of vertical integration which is necessary to operate
competitively, (ii) the significant number of patents which already have been
issued in respect of various processes and equipment, and (iii) the
difficulties and expense of developing an adequate distribution network.
ENVIRONMENTAL REGULATION
The Company manufactures and sells a variety of specialized polyolefin
plastic packaging products for industrial use at its manufacturing plants
throughout North America and through its joint venture in Portugal. The
Company is actively promoting environmental solutions, both in the
development of its products and in its own manufacturing facilities.
Furthermore, the Company's operations are subject to extensive
regulation. Federal and state environmental laws applicable to the Company
include statutes (i) intended to allocate the cost of remedying contamination
among specifically identified parties as well as to prevent future
contamination (the "Comprehensive Environmental Response, Compensation, and
Liability Act"); (ii) imposing national ambient standards and, in some cases,
emission standards, for air pollutants which present a risk to public health
or welfare (the "Federal Clean Air Act"); (iii) governing the management,
treatment, storage and disposal of hazardous wastes (the "Resource
Conservation and Recovery Act"); and (iv) regulating the discharge of
pollutants into protected waterways (the "Clean Water Act of 1972"). The
Company's use in its manufacturing processes of hazardous substances and the
generation of hazardous wastes not only by the Company but by prior occupants
of Company facilities suggest that hazardous substances may be present at or
near certain of the Company's facilities or may come to be located there in
the future. Consequently, the Company is required to monitor closely its
compliance under all the various environmental regulations applicable to it.
In
15
addition, the Company arranges for the off-site disposal of hazardous
substances generated in the ordinary course of its business.
Except as described below, the Company believes that all of its
facilities are in material compliance with applicable environmental laws and
regulations.
MICHIGAN FACILITY
The Company's environmental due diligence review conducted in 1997 in
connection with its acquisition of American Tape revealed certain issues
associated with American Tape's use of chemical solvents, primarily toluene,
at the Marysville, Michigan, facility in the manufacturing process.
Management undertook a comprehensive plan of investigation and remediation at
the facility, with the remediation nearly complete. The Company expects the
full cost of remediation to be funded through amounts available under a $2
million escrow fund established by the sellers at closing.
In addition, the Marysville, Michigan, facility emits toluene and other
pollutants. Approximately 95% of the toluene used is recaptured under
existing solvent recovery systems or controlled by the regenerative thermal
oxidizer pollution control system. The facility's emissions are within the
current permitted limitations, and the Company believes that these emissions
will meet the Maximum Available Control Technology requirements, which are
expected to come into effect in late 2003, although some additional testing
or modifications at the facility may be required.
The Company believes that ultimate resolution of these matters should
not have a material adverse effect on the Company's business or results of
operations.
EMPLOYEES
As of May 1, 2000, the Company employed approximately 2,795 people, 718
of whom held either sales-related, operating or administrative positions and
2,077 of whom were employed in production. These figures reflect the
majority of the staff reductions effectuated by the Company in April, 2000.
Approximately 66 hourly employees at the Montreal plant are unionized and are
subject to a collective bargaining agreement expiring in November 2002.
Approximately 113 hourly employees at the Edmundston plant became unionized
in February 1997 and are subject to a collective bargaining agreement which
expires in October 2000. Approximately 70 hourly employees at the Green Bay
plant are unionized and are subject to a collective bargaining agreement
which expires on February 28, 2004. Approximately 194 hourly employees at
the Marysville plant are unionized and subject to a collective bargaining
agreement which expires in May 2002. Approximately 167 hourly employees at
the Menasha plant are unionized and subject to a collective bargaining
agreement which expires July 31, 2003. Finally, approximately 50 hourly
employees at the Carbondale plant are unionized and subject to a collective
bargaining agreement which expires March 2, 2001. The Company has never
experienced a work stoppage and considers its employee relations to be
satisfactory.
16
SPINNAKER ELECTRICAL TAPE COMPANY AND CENTRAL PRODUCTS COMPANY ACQUISITIONS
On July 30, 1999, the Company acquired substantially all of the assets
of Spinnaker Electrical Tape Company ("SETco"), a subsidiary of Spinnaker
Industries, Inc. ("Spinnaker"). SETco is an Illinois manufacturer of
pressure-sensitive industrial electrical tapes. The acquisition included a
55-acre facility in Carbondale, Illinois.
On August 9, 1999, the Company acquired 100% of the outstanding shares
of Central Products Company ("CPC"), also a subsidiary of Spinnaker. CPC is
a manufacturer of both pressure-sensitive and water-activated carton sealing
tapes sold primarily to industrial distributors.
The total cash considerations and estimated transaction costs for both
of these acquisitions on a combined basis was approximately $108.1 million.
In addition, Spinnaker received 300,000 five-year warrants to purchase the
Company's Common Shares at a price per share of $29.50.
The acquisition of SETco and CPC has expanded the Company's existing
product lines. As a result of the acquisitions, the Company anticipates cost
reductions for both its water-activated and pressure-sensitive carton sealing
tapes. Also, the CPC facility provides the Company needed capacity in hot
melt coating and solvent rubber products to form a basis for continued growth
in these products. In addition, the Company believes that the new
manufacturing capability and technology obtained as a result of the
acquisition of SETco combined with the Company's high temperature resistant
products manufactured in the Company's Marysville, Michigan, facility will
provide the Company access to new markets.
Finally, the Company's acquisitions have positioned the Company as a
stronger supplier of industrial tape, second only, in the estimation of
management, to 3M in North America, with the additional capability to provide
shrink and stretch wrap, a product line 3M does not offer. The Company's
status as a low-cost, high value added single source supplier to its
individual distributor customer base should lead to continued strong sales
growth in the intermediate future.
ITEM 2. DESCRIPTION OF PROPERTY.
The following table sets forth the principal manufacturing and
distribution facilities owned or leased by the Company as at December 31,
1999:
Area
Location Use Products (sq. ft.) Title
- -------------------- ----------------- --------------------------------- --------- -------------------------
UNITED STATES:
Bradenton, Florida Corporate Offices N/A 20,800 Owned
Brighton, Colorado Manufacturing Pressure-sensitive carton sealing 211,000 Leased to 2014
tapes
Carbondale, Illinois Manufacturing Pressure-sensitive tapes 193,500 Leased for $1 per acre per
electrical/electronic year until 2092 with a 99-
year extension option
17
Area
Location Use Products (sq. ft.) Title
- -------------------- ----------------- --------------------------------- --------- -------------------------
Columbia, South Manufacturing and Pressure-sensitive masking and 490,000 Owned
Carolina distribution duct tapes
Danville, Virginia Manufacturing and Carton sealing tape, 281,000 Owned
Distribution STRETCHFLEX-Registered Trademark-
acrylic coating
Denver, Colorado Warehouse Storage for finished goods 100,000 Leased on 6-month basis
Green Bay, Wisconsin Manufacturing and Water-activated adhesive tapes 156,000 Owned
Distribution
Marysville, Michigan Manufacturing High performance masking, 250,000 Owned
filament tape, and specialty
pressure-sensitive tape
Menasha, Wisconsin Manufacturing Water-activated adhesive tapes 195,000 Owned
Rayne, Louisiana Manufacturing and FIBCs 78,000 Leased to September 2000
Distribution
Richmond, Kentucky Manufacturing and Carton sealing, masking and 200,000 Owned
Distribution reinforced tape
Tampa, Florida Corporate offices Display and crate operations 4,000 Leased to February 2003
Tremonton, Utah Manufacturing and EXLFILM-TM-, 115,000 Owned
Distribution STRETCHFLEX-Registered Trademark-
CANADA:
Edmundston, New Manufacturing FIBCs 65,000 Owned
Brunswick
Lachine, Quebec Manufacturing Carton sealing equipment 13,000 Leased to July 2000
St. Laurent, Quebec Slitting, Carton sealing tape 60,000 Leased March 2001
Warehouse and
Corporate
Headquarters
St. Laurent, Quebec Manufacturing and Carton sealing tape 25,000 Owned
Distribution
Truro, Nova Scotia Manufacturing Woven products, 260,000 Owned
EXLFILM-TM-
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to, nor is the Company's property the subject
of, any pending material litigation, or any litigation which, if adversely
determined, would have a material effect, individually or in the aggregate, on
the business or financial condition of the Company. The Company is not aware
of any material proceedings being contemplated by governmental authorities.
ITEM 4. CONTROL OF REGISTRANT.
To the knowledge of the Company, there is no person who, or corporation
that, beneficially owns or exercises control or direction over shares carrying
more than 10% of the voting rights attached to all shares of the Corporation.
18
As of May 17, 2000, the directors and officers of the Company as a group
owned beneficially, directly or indirectly, 1,253,973 Common Shares,
representing approximately 4% of all Common Shares outstanding.
SHAREHOLDER PROTECTION RIGHTS PLAN
On August 24, 1993, the shareholders of the Company approved a
Shareholders' Protection Rights Plan (the "Rights Plan"). Under the Rights
Plan, one Common Share purchase right was issued on September 1, 1993, in
respect of each outstanding Common Share and became issuable in respect of
each Common Share issued thereafter. The Rights Plan was to have expired on
September 1, 1998, however, on May 21, 1998, the Shareholders approved an
amendment extending the term of the Rights Plan to September 1, 2003. The
effect of the Rights Plan is to require anyone who seeks to acquire 20% or
more of the Company's voting shares to make a bid complying with specific
provisions.
ITEM 5. NATURE OF TRADING MARKET.
The Company's Common Shares currently trade on the New York Stock Exchange
and The Toronto Stock Exchange under the symbol "ITP". The Common Shares were
listed on The Toronto Stock Exchange on January 6, 1993. The Company's Common
Shares were listed on the American Stock Exchange until August 23, 1999, at
which time they were listed on the New York Stock Exchange. The Common Shares
are not traded on any other exchanges. Prior to the February 21, 1992 initial
public offering of Common Shares, there was no public market for such shares.
As of May 16, 2000, 26% of the Company's Common Shares are held in the United
States by 53 record holders in the United States.
The following table sets forth high and low sales price information for
trading of the Common Shares on the American Stock Exchange in 1998 and on the
New York Stock Exchange in 1999:
Period High Low
------ ----- -----
1st Quarter 1998 24.00 20.62
2nd Quarter 1998 24.00 20.12
3rd Quarter 1998 25.38 18.12
4th Quarter 1998 25.50 16.25
Period High Low
------ ----- -----
1st Quarter 1999 27.25 24.87
2nd Quarter 1999 29.62 25.87
3rd Quarter 1999 33.37 27.12
4th Quarter 1999 29.00 23.56
19
The following table sets forth high and low sales price information for
trading of the Common Shares on The Toronto Stock Exchange in 1998 and 1999:
Period High Low
------ ----- -----
CDN.$ CDN.$
1st Quarter 1998 34.00 30.00
2nd Quarter 1998 35.00 29.00
3rd Quarter 1998 38.28 25.75
4th Quarter 1998 39.00 25.75
Period High Low
------ ----- -----
CDN.$ CDN.$
1st Quarter 1999 41.75 37.25
2nd Quarter 1999 44.25 38.00
3rd Quarter 1999 49.50 39.85
4th Quarter 1999 42.80 34.50
ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS.
There are no governmental laws, decrees or regulations in Canada that
restrict the export or import of capital, including, but not limited to,
foreign exchange controls, or that affect the remittance of dividends,
interest or other payments to nonresident holders of the Common Shares, other
than withholding tax requirements. Any such remittances, however, are subject
to withholding tax.
There is no limitation imposed by Canadian law or by the charter or other
constituent documents of the Company on the right of nonresident or foreign
owners to hold or vote Common Shares, other than the Rights Plan discussed in
ITEM 4 above or as provided in the INVESTMENT CANADA ACT (Canada) (the
"INVESTMENT CANADA ACT"). The following summarizes the principal features of
the Investment Canada Act.
The INVESTMENT CANADA ACT requires certain "non-Canadian" (as defined in
the INVESTMENT CANADA ACT) individuals, governments, corporations and other
entities who wish to acquire control of a "Canadian business" (as defined in
the INVESTMENT CANADA ACT) to file either a notification or an application for
review with the Director of Investments appointed under the INVESTMENT CANADA
ACT. The INVESTMENT CANADA ACT requires that in certain cases an acquisition
of control of a Canadian business by a "non-Canadian" must be reviewed and
approved by the Minister responsible for the INVESTMENT CANADA ACT on the
basis that the Minister is satisfied that the acquisition is "likely to be of
net benefit to Canada", having regard to criteria set forth in the INVESTMENT
CANADA ACT.
With respect to acquisitions of voting shares, generally only those
acquisitions of voting shares of a corporation that constitute acquisitions of
control of such corporation are reviewable
20
under the INVESTMENT CANADA ACT. The INVESTMENT CANADA ACT provides detailed
rules for the determination of whether control has been acquired. For
example, the acquisition of one-third or more of the voting shares of a
corporation may, in some circumstances, be considered to constitute an
acquisition of control. Certain reviewable acquisitions of control may not be
implemented before being approved by the Minister. If the Minister does not
ultimately approve a reviewable acquisition which has been completed, the
non-Canadian person or entity may be required, among other things, to divest
itself of control of the acquired Canadian business. Failure to comply with
the review provisions of the INVESTMENT CANADA ACT could result in, among
other things, a court order directing the disposition of assets of shares.
ITEM 7. TAXATION.
CERTAIN CANADIAN FEDERAL INCOME TAX CONSIDERATIONS APPLICABLE TO U.S. RESIDENTS
The following is a summary of the principal Canadian federal income tax
considerations generally applicable to a person who is a U.S. Holder. In this
summary, a "U.S. Holder" means a person who, for the purposes of the
CANADA-UNITED STATES INCOME TAX CONVENTION (1980) (the "Convention"), is a
resident of the United States for purposes of the Convention and who, for the
purposes of the INCOME TAX ACT (Canada) (the "Canadian Tax Act"), deals at
arms's length with the Company, does not use or hold and is not deemed to use
or hold the Common Shares in carrying on business in Canada and who holds his
Common Shares as capital property. Generally, Common Shares will be
considered to be capital property to a U.S. Holder provided the U.S. Holder
does not hold the Common Shares in the course of carrying on a business and
has not acquired the Common Shares in one or more transactions considered to
be an adventure or concern in the nature of trade. This summary is not
applicable to a U.S. Holder that is a "financial institution" for purposes of
the mark-to-market rules in the Canadian Tax Act and to Insurers who carry on
an insurance business in Canada and elsewhere whose Common Shares are
"designated insurance property."
The summary is based upon the Convention, the current provisions of the
Canadian Tax Act, the regulations thereunder, and proposed amendments to the
Canadian Tax Act and regulations publicly announced by or on behalf of the
Minister of Finance, Canada, prior to the date hereof. It does not otherwise
take into account or anticipate any changes in law, whether by legislative,
governmental or judicial decision or action. The discussion does not take into
account the tax laws of the various provinces or territories of Canada. It is
intended to be a general description of the Canadian federal income tax
considerations and does not take into account the individual circumstances of
any particular shareholder. This summary is of a general nature only and U.S.
Holders should consult their own tax advisors with respect to the income tax
consequences to their holding and disposing of Common Shares having regard to
their particular circumstances.
DIVIDENDS
U.S. Holders will be subject to a 15% withholding tax on the gross amount
of dividends paid or credited or deemed to be paid or credited to them by the
Company. In the case of a U.S. Holder
21
that is a corporation which beneficially owns at least 10% of the voting stock
of the Company, the applicable withholding tax rate on dividends is 5%.
A purchase of Common Shares by the Company (other than a purchase in the
open market in the manner in which shares are normally purchased by a member
of the public) will give rise to a deemed dividend equal to the amount paid by
the Company on the purchase in excess of the paid-up capital of such shares,
determined in accordance with the Canadian Tax Act. Any such deemed dividend
will be subject to non-resident withholding tax, as described above, and will
reduce the proceeds of disposition to a holder of Common Shares for the
purposes of computing the amount of his capital gain or loss arising on the
disposition.
DISPOSITIONS
A U.S. Holder will not be subject to tax under the Canadian Tax Act in
respect of any capital gain arising on a disposition of Common Shares
(including on a purchase by the Company) unless such shares constitute taxable
Canadian property and the U.S. Holder is not entitled to relief under the
Convention. Generally, Common Shares will not constitute taxable Canadian
property of a U.S. Holder unless, at any time during the five year period
immediately preceding the disposition of the Common Shares, the U.S. Holder,
persons with whom the U.S. Holder did not deal at arm's length or the U.S.
Holder together with such persons, owned, had an interest or option in respect
of, or otherwise had a right to acquire, not less than 25% of the issued
shares of any class or series of the capital stock of the Company. In any
event, under the Convention, gains derived by a U.S. Holder from the
disposition of Common Shares will generally not be taxable in Canada unless
the value of the Company's shares is derived principally from real property
situated in Canada.
Common Shares will constitute taxable Canadian property of a U.S. Holder
that is a former Canadian resident who made an election under the Canadian Tax
Act to be deemed not to dispose of such shares on the U.S. Holder's departure
from Canada. Such U.S. Holders may not be eligible to claim the exemption
provided in the Convention for gains realized on a disposition of Common Shares
if they were resident in Canada at any time during the ten year period
immediately preceding the disposition.
ITEM 8. SELECTED FINANCIAL DATA.
Set forth below are selected and consolidated financial data for each of
the years ended December 31, 1995, 1996, 1997, 1998 and 1999, which have been
derived from consolidated financial statements that have been audited by Raymond
Chabot Grant Thornton, General Partnership, independent chartered accountants.
Please note, 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
22
were converted into U.S. dollars using a translation of convenience with the
December 31, 1998 exchange rate of CDN$1.5305 per U.S.$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.
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 an 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.
Year Ended December 31,
--------------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
INCOME STATEMENT DATA
Amounts Under Canadian GAAP (1)
Sales $147,258 $177,247 $227,553 $378,030 $569,947
Cost of Sales 104,015 125,938 164,558 271,971 445,322
-------- -------- -------- -------- --------
Gross Profit 43,243 51,309 62,995 106,059 124,625
-------- -------- -------- -------- --------
Selling, general and
administrative expenses 17,034 21,493 27,281 46,747 85,330
Amortization of goodwill 1,150 1,163 1,542 3,330 5,451
Research and development expenses 721 1,152 1,456 3,059 3,901
Financial expenses 2,087 1,107 2,122 12,429 22,149
-------- -------- -------- -------- --------
20,992 24,915 32,401 65,565 116,831
-------- -------- -------- -------- --------
Earnings before restructuring charges
and income taxes 22,250 26,394 30,594 40,494 7,794
Restructuring charges 17,717
-------- -------- -------- -------- --------
Earnings before income taxes 22,250 26,394 12,877 40,494 7,794
Income taxes 8,167 7,710 3,992 11,743 (304)
-------- -------- -------- -------- --------
Net Earnings -- Canadian GAAP 14,083 18,684 8,885 28,751 8,098
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Earnings per share -- Canadian GAAP
Basic 0.67 0.77 0.36 1.14 0.29
---- ---- ---- ---- ----
---- ---- ---- ---- ----
Fully diluted 0.63 0.74 0.35 1.10 0.29
---- ---- ---- ---- ----
---- ---- ---- ---- ----
Net earnings -- US GAAP 14,422 18,919 8,885 28,751 8,098
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Earnings per share -- U.S. GAAP
Basic 0.69 0.78 0.36 1.14 0.29
---- ---- ---- ---- ----
---- ---- ---- ---- ----
Fully diluted 0.65 0.75 0.35 1.10 0.29
---- ---- ---- ---- ----
---- ---- ---- ---- ----
23
Year Ended December 31,
--------------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
BALANCE SHEET DATA
Amounts Under Canadian GAAP(1)
Working capital $ 62,510 $ 52,936 $ 50,435 $(11,313) $ 64,229
Total assets 196,367 227,754 397,179 622,152 815,006
Long-term debt 35,727 41,833 150,321 209,842 336,015
Total liabilities 66,985 75,577 233,961 427,903 533,003
Shareholders' equity 129,382 152,177 163,412 194,249 282,003
- --------------------------
(1) In certain respects, Canadian GAAP differs from US GAAP. For a more
extensive discussion of the differences between Canadian GAAP and U.S.
GAAP, see Note 20 to the consolidated financial statements set forth in
the 1999 Annual Report to Shareholders which is attached as Exhibit 2.1
to, and incorporated by reference in, this Annual Report on Form 20-F.
The Company has no written policy for the payment of dividends. The
following table sets forth a five-year summary of dividends per share:
DECLARATION DIVIDEND TOTAL DATE
DATE PAID
----------- -------- ----- ----
CDN U.S. CDN$
March 14, 1995 $ .07 $ .05 $1,400,000 March 30, 1995
February 28, 1996 .085 .06 $2,000,000 March 22, 1996
March 4, 1997 .10 .073 $2,500,000 March 27, 1997
March 10, 1998 .013 .092 $3,300,000 March 31, 1998
March 9, 1999 .16 .106 $4,500,000 April 5, 1999
May 15, 2000 .16 .106 $4,500,000 To be paid June 8, 2000
ITEM 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Reference is made to "Management's Discussion and Analysis" on Pages 8
through 20 of Registrant's 1999 Annual Report to Shareholders, which is
incorporated herein by reference and which is included as Exhibit 2.1 to this
Annual Report on Form 20-F.
24
ITEM 9A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
(a) QUANTITATIVE INFORMATION ABOUT MARKET RISK
The following table provides information about the Company's financial
statements that are sensitive to changes in interest rates, which include the
Company's bank indebtedness, credit facilities, and long-term debt. For long-
term debt, the table presents principal cash flows and related interest by
expected maturity dates.
As of December 31, 1999:
Expected Maturity Date
----------------------
1999
2000 2001 2002 2003 2004 Thereafter Total Fair Value
---- ---- ---- ---- ---- ---------- ----- ----------
Long-term Debt $2,079(1) $59,531 $1,242 $463 $422 $274,357 $338,094 $333,193(2)
- -------------------------------------------------
1. Long-term debt consists of the following:
(a) Series A and B Senior Notes:
Senior unsecured U.S. Dollar notes, bearing interest at an average
rate of 7.78%, payable semi-annually. The Series A $25 million
notes are repayable on May 31, 2005, and the Series B $112 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.
(c) $8,000,000 Series 3 Notes:
Senior unsecured U.S. Dollar 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 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 U.S. dollar bank loan under a $50 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 bank loan was 7.0% (6.9% in 1998).
25
(e) Other Debt:
Consists 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.
2. 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 of
December 31, 1999, and 1998 are:
1999 1998
---------------------------- ----------------------------
Fair Value Carrying Amount Fair Value Carrying Amount
---------- --------------- ---------- ---------------
$333,193 $338,094 $221,154 $211,844
The Company's 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 of December 31, 1999, the Company had:
. A senior unsecured bank loan under a $60 million term credit facility
which matures 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 of December
31, 1999, the effective interest rate pertaining to the bank loan was
approximately 8.1% and $50 million was utilized.
. CDN $6 million of revolving credit facilities from Canadian financial
institutions of which CDN $0.4 million was utilized as at December 31,
1999.
. US$30 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 of December 31, 1999 (8.0% as of December 31, 1998).
FOREIGN EXCHANGE RISK MANAGEMENT
The Company's objective in managing foreign exchange risk is to protect
against cash flow and balance sheet volatility resulting from changes in
foreign exchange rates. Substantially all of the Company's revenues are
denominated in U.S. dollars. Long-term debt denominated in U.S. dollars
exposes the Company to changes in foreign exchange rates. As of December 31,
1999, the Company did not hold any derivative instruments related to foreign
currency risk.
26
(b) QUALITATIVE INFORMATION ABOUT MARKET RISK
The Company is exposed to various types of market risk in the normal
course of business, including the impact of interest rate changes and foreign
currency exchange rate fluctuations. The Company does not presently use
derivative nor hedging instruments and does not hold derivatives for trading
purposes.
INTEREST RATE RISK MANAGEMENT AND SENSITIVITY
The Company's objective in managing its cash flow exposure to fluctuations
in interest rate is to maintain a mix of fixed and variable-rate debt that will
limit its exposure to within reasonable risk parameters. Generally, the fair
market value of fixed interest rate debt will increase as interest rates fall
and decrease as interest rates rise. Changes in interest rates will affect the
market value but do not impact earnings or cash flows. Conversely for floating
rate debt, interest rate changes generally do not affect the fair market value
but do impact future earnings and cash flows assuming other factors are held
constant.
FOREIGN EXCHANGE RISK MANAGEMENT
The Company's objective in managing foreign exchange risk is to protect
against cash flow and balance sheet volatility resulting from changes in foreign
exchange rates. Substantially all of the company's revenues are denominated in
U.S. dollars. Long-term debt denominated in U.S. dollars exposes the Company to
changes in foreign exchange rates. As of December 31, 1999, the Company did not
hold any derivative instruments related to foreign currency risk.
YEAR 2000
The Company believes that all of its systems are operating and that no
material Year 2000 issues have been encountered. The Company is unaware of any
third party Year 2000 issues that would materially affect its financial
condition or results of operations. The Company obtained Year 2000 compliance
statements from its vendors, suppliers, and other third parties that do business
with the Company. Nevertheless, if any Year 2000 issues presently unknown to
the Company occur with respect to it or with third party products and business
dependencies, the Company might experience a delay or disruption in the delivery
of products which could have a material adverse impact on its financial
condition and results of operations including, but not limited to, loss of
revenue, increased operating costs, loss of customers or suppliers, or other
significant disruptions to the Company's business.
27
ITEM 10. DIRECTORS AND OFFICERS OF REGISTRANT.
The name and office with the Company of each person who is, or has been
chosen to become, a Director or executive officer of the Company as of the date
hereof are set forth in the following table.
Name Age Position
---- --- --------
Melbourne F. Yull 59 Chairman of the Board,
Chief Executive Officer and Director
Andrew M. Archibald 54 Chief Financial Officer, Secretary,
Treasurer and Vice President
Administration
Joseph D. Bruno 61 Vice President, Supply Chain Management
Jim Bob Carpenter 44 President, Woven Products
John T. Fain 49 Vice President, Corporate Marketing
Burgess H. Hildreth 58 Vice President, Human Resources
James A. Jackson 51 Vice President, Chief Information Officer
Lloyd W. Jones 62 Vice President, Procurement
H. Dale McSween 50 President, Distribution Products
Salvatore Vitale 36 Vice President, Finance
Duncan R. Yull 35 Vice President Sales, Distribution
Products
Gregory A. Yull 33 President, Film Products
Eric E. Baker 66 Director
Gordon R. Cunningham 55 Director
Ben J. Davenport, Jr. 57 Director
Irvine Mermelstein 73 Director
James A. Motley, Sr. 71 Director
Michael L. Richards 61 Director
L. Robbie Shaw 56 Director
28
MELBOURNE F. YULL, founder of the Company, has been the Chief Executive
Officer and a director of the Company since 1989 and was a director of the
predecessor company since 1981. He was President of the predecessor company
from 1981 to 1989 and President of the Company until June, 1994. He has been
Chairman of the Board since January 1995.
ANDREW M. ARCHIBALD has been Chief Financial Officer, Secretary, Treasurer and
Vice President Administration since May 1995. He was Vice President Finance
from May, 1995, to January 15, 1999. Prior thereto he served as
Vice President, Finance and Secretary of the Company since 1989.
JOSEPH BRUNO has been Vice President, Supply Chain Management, since December,
1999. He was Vice President, Distribution Products, since September 1, 1998,
and was Vice President, Sales & Marketing from April 1996.
JIM BOB CARPENTER has been President, Woven Products, since May 1, 1999.
JOHN T. FAIN has been Vice President, Corporate Marketing, since October, 1999.
BURGESS H. HILDRETH has been Vice President, Human Resources, since October,
1998.
JAMES A. JACKSON has been Vice President, Chief Information Officer, since
September 1, 1998.
LLOYD W. JONES has been Vice President Procurement since December, 1999, and
served as Corporate Vice President since June 1994. Previously he was
Vice President Manufacturing since 1990. He was also President and a director
of International Container Systems, Inc. from 1989 to 1994. International
Container was a public company which was merged with Polymer International
Corp. ("PIC") in late 1994. Mr. Jones is President of PIC.
H. DALE MCSWEEN has been President, Distribution Products, since December,
1999. Prior thereto he served as Executive Vice President and Chief Operating
Officer from May 1995, and Senior Vice President since 1990. From 1987 to
1989 Mr. McSween was the President and Chief Executive Officer of Polymer
International (N.S.) Incorporated. The Company indirectly acquired all of the
shares of Polymer International during 1989, and it became part of Intertape
Polymer Inc. in January 1990 in the context of a corporate reorganization.
From 1982 to 1987, Mr. McSween was the Director of Sales and Marketing of
Polymer International.
SALVATORE VITALE has been Vice President Finance since September 1, 1998. He
has been Controller of the Company since May 1997.
DUNCAN R. YULL, a son of Melbourne F. Yull, has been Vice President Sales
Distribution Products, since December, 1999.
GREGORY A. YULL, a son of Melbourne F. Yull, has been President, Film
Products, since June, 1999.
29
ERIC E. BAKER, has served as a director of the Company since December 1989. He
was Chairman of the Board from 1989 to January 1995.
GORDON R. CUNNINGHAM has been a director of the Company since May 1998.
BEN J. DAVENPORT, JR. has been a director of the Company since June 1994.
IRVINE MERMELSTEIN, has been a director of the Company since March 1994.
JAMES A. MOTLEY, SR., has been a director of the Company since February 1992.
MICHAEL L. RICHARDS has served as a Director of the Company and its predecessor,
Systems, since 1981.
L. ROBBIE SHAW has been a director of the Company since June 1994.
STATEMENT OF COMPANY 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.
MANDATE OF THE BOARD
The mandate of the Board of Directors is to supervise the management of
the business and affairs of the Company, including the development of major
policy and strategy. The Board meets at least quarterly, and more frequently
as required to consider particular issues or conduct specific reviews between
quarterly meetings whenever appropriate. Governance responsibilities are
undertaken by the Board as a whole, with certain specific responsibilities
delegated to the audit and compensation committees as described below.
COMPOSITION OF THE BOARD
The Company'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.
CHAIR OF THE BOARD
The Board is chaired by a director who is also the Chief Executive
Officer of the Company. The Board is of the view that this does not impair
its ability to act independently of management due to the independence of the
remaining members of the Board and the role of the Board in determining
30
its own policies, procedures and practices, and ensuring that the appropriate
information is made available to the Board.
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, as presently constituted, does not
comply with the Guidelines, inasmuch as it has two related directors and two
unrelated directors. The Board has decided not to modify its composition for
the reasons outlined below.
The following is a description of the Committees of the Board and their
mandate:
- Audit Committee: The mandate of the Committee is to review the annual
financial statements of the Company 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 Company. 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 Committee is responsible for the
determination and administration of the compensation policies and levels for
the executive officers of the Company 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. 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. Mr. Yull does not, however,
participate in the Committee's or the Board's deliberations concerning the
recommendation on his own compensation.
DECISIONS REQUIRING BOARD APPROVAL
All major decisions concerning, among other things, the Company'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.
31
DIRECTOR RECRUITMENT AND BOARD EFFECTIVENESS
All the directors presently in office and proposed to be elected (other
than Mr. Cunningham) at the next annual meeting of shareholders have served as
directors in good standing of the Company since 1994 and the majority of them
have served since it became a reporting issuer in 1992. The Board of
Directors has not adopted a formal policy for the recruitment of directors.
Participation of directors is expected at all Board of Directors and
Committee meetings to which they are called. Directors are asked to notify
the Company 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.
SHAREHOLDER COMMUNICATION AND FEEDBACK
The fundamental objective of the Company'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
Company, 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 Company releases its disclosed
information through news wire services, the general media, telephone
conferences with investment analysts and mailings to shareholders.
DIRECTORS' AND OFFICERS' INSURANCE
The Company maintains directors' and officers' liability insurance
covering liability, including defense costs, of directors and officers of the
Company incurred as a result of acting as such directors and officers,
provided they acted honestly and in good faith with a view to the best
interests of the Company. The current limit of insurance is CDN $25,000,000
and an annual premium of $157,000 was paid by the Company in the last
completed financial year with respect to the period from December 1999 to
December 2000. Claims payable to the Company are subject to a retention of up
to $250,000 per occurrence.
ITEM 11. COMPENSATION OF DIRECTORS AND OFFICERS.
Under most circumstances, the Company's bonus policy provides for the
payment of bonuses to its officers based on the performance of the Company.
Bonuses are paid to certain officers if the net income of their respective
divisions reaches a certain percentage of the budgeted net income. Such
bonuses are set at 0% of the salary of the particular executive if net income
equals 80% of budgeted net income, increasing on a straight line basis to a
maximum of 50% (60% with respect to the Chief Executive Officer) as net income
increases to 100% of budgeted net income. Bonuses are paid yearly after the
receipt of the audited financial statements of the Company.
32
The Company provided certain executive officers with non-cash
compensation, including the use of a car or a car allowance and the
reimbursement of related expenses, during the year ended December 31, 1999.
Such non-cash compensation for the Company's officers did not exceed an
aggregate of $50,000 for that year.
The aggregate compensation paid by the Company for the year ended
December 31, 1999, to all directors and executive officers as a group, for
services in all capacities, was $2,982,288.
The aggregate amount accrued or set aside by the Company for the year
ended December 31, 1999 to provide pension, retirement or similar benefits, to
all directors and executive officers as a group was $4,266,000.
The following table sets forth all compensation paid in 1999 in respect of
the individuals who were, at December 31, 1999, the Chief Executive Officer and
the other four (4) most highly compensated executive officers of the Corporation
(the "named executive officers").
Annual Compensation
-------------------
Other Annual
Name Salary $ Bonus $ Compensation $(1)
---- -------- ------- -----------------
M. F. Yull CDN$668,928 -0- CDN$164,727
D. McSween $288,000 -0- $57,642
A. M. Archibald CDN$340,421 -0- CDN$74,912
K. Rogers $160,000 -0- $37,739
L. W. Jones $238,695 -0- $10,328
- ---------------
(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.
33
ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES.
SHARE PURCHASE WARRANTS
As partial consideration for the 1999 acquisitions of SETco and CPC,
Spinnaker received 300,000 warrants to purchase the Company's Common Shares at
a price per share of $29.50. The warrants expire August 9, 2004.
EXECUTIVE STOCK OPTION PLAN
In the context of its initial public offering, the Company established an
ongoing Executive Stock Option Plan. The ongoing Executive Stock Option Plan
of the Company is designed to promote a proprietary interest in the Company
among its executives, to encourage the executives to further the development
of the Company and to assist the Company in attracting and retaining
executives necessary for the Company's long-term success. The Executive Stock
Option Plan is administered by the Board of Directors. The shares offered
under the Executive Stock Option Plan are Common Shares of the Company. The
total number of shares reserved for issuance under the Plan and any other
insider stock option or stock purchase plan will not exceed 10% of the issued
and outstanding Common Shares of the Company from time to time.
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
Company'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.
As of December 31, 1999, there were outstanding 2,217,224 options to
purchase the Company's Common Shares, of which a total of 1,552,948 options to
purchase the Company's Common Shares are held by the directors and officers as
a group.
There were no individual grants of options under the Plan during the
fiscal year ended December 31, 1999, to the name executives.
The following table sets forth the exercise price and expiration date for
all of the currently outstanding options:
34
Number of
Option Shares Exercise Price Year Granted Expiration Date
------------- -------------- ------------ ---------------
CDN.$ U.S.$
27,600 $ 5.035 $ 4.250 February 1992 February 2002
70,500 $ 6.125 $ 4.813 January 1993 January 2003
150,000 $ 7.915 $ 6.040 July 1993 October 2003
100,000 $ 8.585 $ 6.406 December 1993 December 2003
24,000 $10.465 $ 7.710 March 1994 March 2004
1,600 $11.175 $ 8.260 October 1994 October 2004
76,450 $11.175 $ 8.135 January 1995 January 2005
39,982 $12.095 $ 8.575 March 1995 March 2005
100,000 $14.890 $10.860 June 1995 June 2005
267,475 $22.500 $16.300 February 1996 February 2006
15,000 $24.780 $17.840 August 1996 August 2006
308,588 $26.510 $19.090 May 1997 May 2003
300,000 $29.030 $20.590 December 1997 December 2003
281,088 $32.920 $23.260 March 1998 March 2004
5,000 $33.900 $23.010 May 1998 May 2004
20,000 $30.650 $19.500 September 1998 September 2004
311,000 $25.860 $16.690 October 1998 October 2004
104,941 $29.750 $19.300 November 1998 November 2004
14,000 $40.670 $27.875 May 1999 May 2005
2,217,224
---------
---------
In addition, in 1996, certain executive officers were credited notional
units, based on salary, related to the market price of the Company's Common
Shares. Each such unit credited to the officers corresponded to one common
share of the Company. These units did not vest for three years and were paid in
full at the end of the three-year period, January 1, 1999. The value of the
units fluctuated with share appreciation (and depreciation) and additional
entitlements (dividend equivalents) may be awarded by the Company to compensate
the holder of these units for any
35
dividends paid to the shareholders of the Company. If employment was
terminated during the three-year restriction period, the units were canceled.
All notional units have vested under this plan and none remain outstanding.
Payments on these units were treated as free-standing Stock Appreciation
Rights ("SARs").
The following table sets forth each exercise of options during the fiscal
year ended December 31, 1999, by the named executive officers.
AGGREGATED OPTION EXERCISES DURING THE FISCAL YEAR ENDED
DECEMBER 31, 1999, AND FISCAL YEAR-END OPTION VALUES
Securities Value of
Acquired Unexercised Options
On Aggregate Unexercised Options at FY-End at FY-End
Exercise Value Realized (#) ($)
Name (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable
---- ---------- -------------- ----------------------------- -------------------------
M. F. Yull Nil n/a 347,500 / 296,500 9,795,156 / 8,357,594
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 1,340,500 80,154 / 41,250 2,259,341 / 1,162,734
L. W. Jones 41,026 1,043,019 n/a / 72,250 n/a / 2,121,109
ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS.
INDEBTEDNESS TO THE COMPANY
Officers of the Company are currently indebted to the Company in respect of
interest-free loans granted for the purpose of purchasing Common Shares of the
Company upon the exercise of options. Such loans are repayable not later than
September 30, 2000. As of May 17, 2000, the aggregate indebtedness of all
officers to the Company entered into in connection with the purchase of Common
Shares was $399,531.00. The following table summarizes the largest amount of
the loans outstanding since January 1, 1999, and the amount outstanding on May
17, 2000.
36
Largest amount
Name and Municipality outstanding during Amount outstanding
of residence fiscal year ended 12/12/99 on May 17, 2000
- --------------------- -------------------------- ------------------
Melbourne F. Yull $369,218 $369,218
Chairman of the Board and
Chief Executive Officer
Sarasota, Florida
H. Dale McSween $30,313 $30,313
President, Distribution Products
Sarasota, Florida
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT
On July 1, 1998, the Company 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 Company and its subsidiaries initially at a fixed annual gross
salary and subsequently at compensation levels to be reviewed annually by the
Company in accordance with its internal policies. The agreement provides for
annual bonuses based on budgeted objectives of the Company. 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 Company 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 ninety (90) days following the
effective date of such termination, resignation, retirement or death. In
addition to his participation in the pension plan, 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 two
percent of his average annual gross salary for the final five years of his
employment multiplied by his years of service with the Company.
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 Company 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 Company, (a) an executive voluntarily
37
terminates his employment with the Company, or (b) the Company 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 Company 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.
INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS
The management of the Company is unaware of any material interest of any
director or officer of the Company, of any management nominee for election as
a director of the Company 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 Company or any associate or affiliate of any
such person, in any transaction since the beginning of the last completed
fiscal year of the Company or in any proposed transaction that has materially
affected or will materially affect the Company or any of its affiliates.
PART II
Not Applicable
PART III
ITEM 15. DEFAULTS FROM SENIOR SECURITIES.
None Reportable
ITEM 16. CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR REGISTERED
SECURITIES.
None Reportable
38
PART IV
ITEM 17. FINANCIAL STATEMENTS.
Reference is made to the Company's Financial Statements, and the notes
thereto, together with the Auditors' Report, on pages 21 through 46 of
Registrant's 1999 Annual Report to Shareholders which is incorporated herein
by reference and which is included as Exhibit 4 to this Annual Report on Form
20-F, and to the Financial Statement Schedules, together with the Auditor's
Report thereon, included as part of this Annual Report on Form 20-F.
ITEM 18. FINANCIAL STATEMENTS.
Not Applicable
ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS.
(a) (1) Financial Statements Page(s)
Auditors' Report 21 *
Consolidated Earnings 22 *
Consolidated Retained Earnings 22 *
Consolidated Cash Flows 23 *
Consolidated Balance Sheets 24 *
Notes 1-20 to the Financial
Statements 25-46 *
(b) Exhibits
1.1 Second Amendment to Restated Credit Agreement dated as of
January 22, 1999
1.2 Third Amendment to Restated Credit Agreement with Comerica
Bank dated as of May 17, 1999
1.3 Fourth Amendment to Restated Credit Agreement with
Comerica Bank dated as of July 15, 1999
1.4 Second Restated Revolving Credit Agreement with Comerica
Bank dated as of September 30, 1999
2.1 Registrant's 1999 Annual Report to Shareholders
2.2 Stock Purchase Agreement between Intertape Polymer Group
Inc. and Spinnaker Industries, Inc., dated as of April 9,
1999
39
2.3 Asset Purchase Agreement between Intertape Polymer Group
Inc., Spinnaker Electrical Tape Company, and Spinnaker
Industries, Inc., dated as of April 9, 1999
2.4 IPG Holdings LP and Intertape Polymer Group Inc. Note
Agreement dated as of July 1, 1999
2.5 Prospectus regarding public offering of 3,000,000 Common
Shares which closed March 16, 1999
3. Auditors' Report
4. Consent of Independent Accountants
- -----------------------------
* The financial statements filed as part of this report are incorporated
herein by reference to the 1999 Annual Report to Shareholders which is
included as Exhibit 2.1 to this Annual Report on Form 20-F. References
to page numbers are references to the applicable page in the 1999 Annual
Report.
40
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the Registrant certifies that it meets all of the requirements for
filing on Form 20-F and has duly caused this Annual Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
INTERTAPE POLYMER GROUP INC.
(Registrant)
/s/ Andrew M. Archibald, C.A.
---------------------------------------
(Signature)
Name: Andrew M. Archibald, C.A.
Title: Chief Financial Officer,
Secretary, Treasurer, and
Vice President Administration
Date: May 19, 2000
41
Exhibit Index
1.1 Second Amendment to Restated Credit Agreement dated as of
January 22, 1999
1.2 Third Amendment to Restated Credit Agreement with Comerica Bank
dated as of May 17, 1999
1.3 Fourth Amendment to Restated Credit Agreement with Comerica
Bank dated as of July 15, 1999
1.4 Second Restated Revolving Credit Agreement with Comerica Bank
dated as of September 30, 1999
2.1 Registrant's 1999 Annual Report to Shareholders
2.2 Stock Purchase Agreement between Intertape Polymer Group Inc.
and Spinnaker Industries, Inc., dated as of April 9, 1999
2.3 Asset Purchase Agreement between Intertape Polymer Group Inc.,
Spinnaker Electrical Tape Company, and Spinnaker Industries,
Inc., dated as of April 9, 1999
2.4 IPG Holdings LP and Intertape Polymer Group Inc. Note Agreement
dated as of July 1, 1999
2.5 Prospectus regarding public offering of 3,000,000 Common Shares
which closed March 16, 1999
3. Auditors' Report
4. Consent of Independent Accountants
42