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, 1997
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 Section 12(b) of the Act:
Title of each class: Name of each exchange on which
registered:
Common Shares, without nominal or American Stock Exchange
par value 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, 1997 is:
25,019,921 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 . . . . . . . . . . . . . . . . . -ii-
PART I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1-
ITEM 1. DESCRIPTION OF BUSINESS. . . . . . . . . . . . . . . . . . . . -1-
ITEM 2. DESCRIPTION OF PROPERTY . . . . . . . . . . . . . . . . . . . . -17-
ITEM 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . -18-
ITEM 4. CONTROL OF REGISTRANT . . . . . . . . . . . . . . . . . . . . . -18-
ITEM 5. NATURE OF TRADING MARKET. . . . . . . . . . . . . . . . . . . . -18-
ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING
SECURITY HOLDERS . . . . . . . . . . . . . . . . . . . . . . . -19-
ITEM 7. TAXATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . -20-
ITEM 8. SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . -22-
ITEM 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS. . . . . . . . . -25-
ITEM 10. DIRECTORS AND OFFICERS OF REGISTRANT. . . . . . . . . . . . . . -26-
ITEM 11. COMPENSATION OF DIRECTORS AND OFFICERS. . . . . . . . . . . . . -30-
ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT
OR SUBSIDIARIES. . . . . . . . . . . . . . . . . . . . . . . . -32-
ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS . . . . . . . . -34-
PART II. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -35-
PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -35-
ITEM 15. DEFAULTS FROM SENIOR SECURITIES . . . . . . . . . . . . . . . . -35-
-i-
ITEM 16. CHANGES IN SECURITIES AND CHANGES IN SECURITY
FOR REGISTERED SECURITIES. . . . . . . . . . . . . . . . . . . -36-
PART IV. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -36-
ITEM 17. FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . -36-
ITEM 18. FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . -36-
ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS . . . . . . . . . . . . . . . -36-
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -39-
-ii-
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 following cautionary statements and risk
factors.
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 are reported in Canadian dollars.
Due to the geographic mix of the Company's business, any weakening in the
value of the Canadian dollar relative to the U.S. dollar would result in
increased consolidated earnings for the Company, expressed in Canadian
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dollars. These earnings, however, on an earnings per share basis, would be
negatively impacted when translated into U.S. dollars. Since the trading
price in the United States of the Common Shares will be 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 is developing returnable plastic cases for the
transportation and retail display of fruits and vegetables and other new
products. Any new product involves risk and, as in the case of stretch wrap,
may require significant capital expenditures. There can be no assurance that
the returnable plastic cases, or any other new products, will produce
revenues or profits for the Company, and that expenditures thereon will not
have a material adverse effect on the Company's results of operations.
-iv-
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
Intertape Polymer Group develops, manufactures and sells a variety of
specialized polyolefin plastic packaging products for industrial use. These
products include pressure sensitive and water activated carton sealing tape,
masking and reinforced filament pressure sensitive tapes, acrylic coating,
EXLFILM-TM- shrink wrap ("EXLFILM-TM-"), STRETCHFLEX-TM- stretch wrap
("STRETCHFLEX-TM-") and woven products. Most of the Company's products are
derived from resins which 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 a low-cost producer 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 the same extrusion processes and differ only in the final
stages of manufacturing.
The Company's most recent expansion of its product offering occurred
with the December, 1997 acquisition of American Tape Co. ("American Tape"), a
leading U.S. manufacturer of masking, reinforced filament and printable and
non-printable flat back tapes, as well as certain specialty tapes.
The Company's revenues are derived primarily from sales of its products
in the United States and Canada, with approximately 80% of the Company's 1997
revenues attributable to sales in the United States. The Company is
headquartered in Montreal, Quebec and maintains 1.8 million square feet of
manufacturing facilities throughout the United States, Canada and Portugal.
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
-1-
of $5.035 (US$4.25)(after giving effect to a 2:1 stock split on June 4,
1996). The Company's shares are listed on the American Stock Exchange and,
since January, 1993, 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 $19.75 (US$14.60).
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 U.S.$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 Company entered the stretch wrap market
(estimated at U.S.$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. Interpak
Machinery Inc., a designer of automatic carton sealing equipment, was
acquired by the Company in 1993. In acquiring Interpak, 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 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. 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
-2-
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 Co. 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.
The Company also participates 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 majority of the Company's growth comes from the sale of internally
developed products. Capacity increases are ongoing throughout the
organization and all product lines. The Company's newest manufacturing
facility, a 115,000 square foot plant in Utah, is expected to be operational
by June 1998. Consistent with the Company's strategy, this plant will act 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.
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 Polymer Corp., a Virginia corporation
("IPC"), is the principal holding and 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 above.
As of April 13, 1998, the Company had 25,125,016 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
Canadian 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.
-3-
COMPLETED ACQUISITIONS
Cost of
Year Acquisition Company Location Products
- ---- ----------- -------------------- --------------- ----------------
($ in
millions)
1989 $82.4 Polymer International Tampa, Florida Holding company
Corp. and its
subsidiaries:
- Polymer Truro, Nova Woven fabrics
International Scotia
- International Tampa, Florida Transport &
Container(1) display cases
1993 $ 6.6 Interpak Machinery Inc. Toronto, Canada Equipment used
to seal
corrugated boxes
Cajun Bag & Supply Co. Crowley, FIBCs
Louisiana
1995 $3.9 IFCO-U.S., L.L.C.(2) Tampa, Florida Distributor of
returnable
plastic
containers
Fibope Portugesa-Filmes Porto, Portugal EXLFILM-TM-
Biorientados S.A.(3)
1996 $12.1 Augusta Bag & Supply Augusta, FIBCs
Co. Georgia
Tape, Inc. Green Bay, Water activated
Wisconsin carton sealing
tape
1997 $65.7 American Tape Co. Marysville, Pressure
Michigan sensitive tapes,
Richmond, masking tapes
Kentucky
- ----------------------
(1) The Company originally purchased a 67% interest in this company. In
1994, the Company conducted a tender offer for all the outstanding shares it
did not already own, the cost of this tender offer was $2.6 million.
(2) The Company acquired a 20% interest in this joint venture.
(3) The Company acquired a 50% interest in this joint venture.
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:
-4-
- 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 four 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
is scheduled to commence EXLFILM-TM- and STRETCHFLEX-TM-
manufacturing operations at its new facility located in Tremonton,
Utah during the second quarter of 1998.
- 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-TM- trademark. The Company is
also continuing market and feasibility studies for the introduction of
a system which employs reusable plastic produce containers in the
distribution of fruits and vegetables to food retailers. The Company
has developed several other new products, such as truck and rail car
flexible covers, and product line extensions, such as new acrylic
coatings and new varieties of EXLFILM-TM- shrink films, each of which
it is in the process of introducing. In addition, with the
acquisition of American Tape, the Company now offers a complete line
of masking tape products.
- DEVELOP CENTRAL DISTRIBUTION CENTERS. The Company is in the process
of installing in both its Danville and Tremonton an enhanced
facilities warehouse distribution systems which will increase
efficiency in the storage, shipping and inventory management of all
its products located in those facilities. This US$2.0 million
investment will increase the level of service that the Company
provides to its customers as well as reduce its operating costs in
these areas.
- 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
-5-
Company considers complementary companies, technologies and products
as potential acquisition targets, and evaluates the merits of each
such potential acquisition. The Company's recent completion of its
purchase of American Tape is an example of such an acquisition,
providing the Company with masking, 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 acquisition of American
Tape, the Company gained a market presence throughout the world in
high performance masking tapes. The Company believes that it can
leverage 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
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. Carton sealing tape is manufactured
and sold under the INTERTAPE-TM- name to industrial distributors and
manufactured for other customers for sale under private labels. It is
produced at the Company's Danville, Montreal, and Richmond 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
market and continues to increase its sales force for these markets. The
-6-
Company expects the addition of a centralized warehouse distribution system
in the new Tremonton, Utah facility will enhance these efforts. In addition,
the Company exports this product to Europe, Asia, Central America and South
America.
The Company's acquisition in 1993 of the assets of Interpak Machinery
Inc., 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 design and introduce new
equipment.
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 principal competitors for the sale of carton sealing tape
products include Minnesota Mining & Manufacturing Co. ("3M") and Central
Products Company, Inc. ("Central"), a division of Spinnaker Industries, Inc.
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. Masking tapes are used for a variety of end-use applications which
can be broadly described under two categories: general purpose and high
performance.
General purpose applications include packaging and bundling, 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.
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,
Anchor Continental, Inc. ("Anchor"), Shuford Mills, Inc., Industrias Tuk,
S.A. de C.V., and Tesa Tape Inc. ("Tesa").
REINFORCED FILAMENT TAPE: PERFORMANCE AND GENERAL PURPOSE
In addition to masking tapes, the Company's purchase of American Tape
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 and
Marysville, Michigan facilities which were acquired in the American Tape
acquisition. These
-7-
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 Anchor, Tesa and RJM Manufacturing, Inc.
ACRYLIC COATING
In 1995, the Company completed a $10.0 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 plant. These
acrylic coatings, when applied to filmic tapes, offer extended shelf life as
well as increased performance under the extremes of low and high temperatures.
When acrylic coating is applied to polypropylene film, the finished
product broadens the Company's line of pressure sensitive carton sealing
tape. In addition, certain applications, such as mirror backing, utilize
woven products as the base material to which acrylic coating is applied.
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 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 maintains additional extruders for
EXLFILM-TM- production there. In addition, in connection with its intention
to expand into the western United States, the Company expects that
EXLFILM-TM- production at its new Tremonton, Utah facility will begin during
the second quarter of 1998. The Company believes that its continual
investment in equipment will help it expand its exploitation of niches in
this market.
The Company's shrink wrap products are sold through its existing
industrial distribution base 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.
-8-
STRETCHFLEX-TM- STRETCH WRAP
STRETCHFLEX-TM- 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 and is also used in
agriculture as a bale wrap. The Company produces STRETCHFLEX-TM- at its
Danville plant and has the capacity to produce 60 million pounds of
polyolefin stretch wrap annually. Although excess capacity exists in the
stretch wrap market, management believes the performance capabilities of the
Company's film accounts for operations at its Danville plant being at
capacity. The Company's high level of production at Danville, combined with
its western oriented marketing initiatives, prompted the Company to include
additional extruders for stretch wrap production in the Tremonton facility.
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.
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 Co. ("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
-9-
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 the conversion process due to enhanced
foreign competition. As a consequence, the Company has 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. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Restructuring Charges" in
the Annual Report attached hereto as Exhibit 4.
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, recreational products,
protective covers, pond liners, and flame retardant brattice cloth. The
markets for these products are diverse and considered by management to be too
small to justify the cost of further vertical integration to the finished
product stage.
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.
RETURNABLE PLASTIC CASES
The Company has entered into a joint venture agreement with Schoeller
International Logistics Beteiligungsgesellschaft GmbH to develop a system of
returnable plastic cases for the transportation and retail display of fruits
and vegetables in the United States and Canada as an alternative to the use
of corrugated boxes and wooden crates. The system is in effect in Europe and
the Company is currently experimenting with the patented containers by means
of a growing number of roll-out programs in North America.
SALES AND MARKETING
As of January 1998, the Company maintained a sales force of 96
personnel. The Company participates in industry trade shows and uses trade
advertising as part of its marketing efforts. The
-10-
Company's overall customer base is diverse, with no single customer
accounting for more than 5% of total sales. There are no long term contracts
with any customers. Sales to customers in the United States and Canada
accounted for approximately 78% and 22% of total sales, respectively, in 1996
and approximately 80% and 20% of total sales, respectively, in 1997. 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 focused in two distinct areas: 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 and reinforced tapes, EXLFILM-TM-
and STRETCHFLEX-TM-. 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 the
Interpak Machinery Inc., these products were manufactured by others. The
Company's EXLFILM-TM- and STRETCHFLEX-TM- 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 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.
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.
-11-
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 1997, five of the Company's plants were
certified under ISO-9002 quality standards program.
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.
Expenditures for research and development in 1995, 1996 and 1997 totaled
$1,104,000, $1,763,000 and $2,228,000, respectively.
-12-
The Company currently maintains active research and development programs in
three areas: woven products, pressure sensitive products and specialty films.
In woven products, the emphasis is on developing polyolefin fabrics that can
replace vinyl fabrics. Targeted end-use areas include truck tarps, protective
coverings and billboards. Research and development in pressure sensitive
products is focused on improving the Company's cost base and product line in
solvent, hot melt and acrylic based general purpose performance products. In
specialty films, the Company has recently introduced Exfilm Plus, a cross-linked
heat shrinkable film, and IP72, a low-shrink force product. 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 carton sealing tape under the registered
trademark INTERTAPE-TM- 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-TM-. FIBC's are sold under the trademarks LeGRAND
SACK-Registered Trademark- and CAJUN BAGS-Registered Trademark-. The Company
has over two dozen registered trademarks, principally in the United States
and Canada, including trademarks acquired from American Tape. 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,
woven products, stretch wrap or shrink wrap.
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.
-13-
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 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.
THE WISCONSIN FACILITY
Since the Company's acquisition of Tape, Inc. ("Tape") in 1996, the Company
and the former shareholders of Tape have been conducting an investigation into
three areas of contamination in the soil and groundwater on the Green Bay,
Wisconsin facility purchased in the acquisition, particularly the former drum
storage area and the current and former press areas. Under the terms of the
acquisition agreement, the former shareholders of Tape are responsible for the
investigation and remediation of these matters, as well as reimbursement to the
Company of certain costs associated with overseeing the work to a maximum of
$1,000,000. To date, the former shareholders estimate the cost of the
recommended remedial alternative will be approximately $100,000 and have
incurred costs of approximately $50,000. The Company believes that ultimate
resolution of these matters should not have a material adverse effect on the
Company's business or results of operations.
-14-
MICHIGAN FACILITY
The Company's environmental due diligence review conducted in connection
with the acquisition of American Tape, revealed certain issues associated
with American Tape's use of chemical solvents at its Marysville facility in
the tape-making process. These solvents (primarily toluene) are stored in
tanks on site, emitted into the air and, when mixed with other wastes from
the manufacturing process, shipped off-site as wastes for disposal.
Management undertook a comprehensive plan of investigation and remediation at
the facility, focusing on the site's approximately fifteen underground
storage tanks which contained a variety of hazardous substances. Remediation
of six 10,000 gallon tanks is expected to continue for two to three years.
The Company, however, anticipates that the full cost of remediation will be
funded through amounts available under a US$ 2.0 million escrow fund
established by the sellers at closing.
In addition, the Michigan facility emits toluene and other pollutants, but
86% of the toluene used is recaptured under existing solvent recovery systems.
While these emissions do not currently exceed permitted limits, they may exceed
limits being phased in over the next five years under Title V of the Clean Air
Act Amendments of 1990. To satisfy future Title V requirements, in 1997,
American Tape entered into an Administrative Order and Consent with the Michigan
Department of Environmental Quality under which it agreed to install a
regenerative thermal oxidizer to increase the capture rate from 86% to 95%, and
budgeted $2.2 million for such purchase and installation. 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 February 1997, the Company employed approximately 1,785 people, 439
of whom held either sales-related, operating or administrative positions and
1,346 of whom were employed in production. Although approximately 64 hourly
employees at the Montreal plant are unionized, the collective bargaining
agreement to which they are subject expired in November 1997 and has not been
renegotiated as of the date hereof. Approximately 79 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 87
hourly employees at the Green Bay plant are unionized and a collective
bargaining agreement is in place that expires in February 1999. Finally,
approximately 184 hourly employees at the Marysville plant are unionized and
subject to a collective bargaining agreement which expires in May 1999. The
Company has never experienced a work stoppage and considers its employee
relations to be satisfactory.
AMERICAN TAPE ACQUISITION
On December 16, 1997 the Company acquired from STC Corp., a publicly traded
multinational company based in Seoul, South Korea, all the outstanding capital
stock of American
-15-
Tape Co., a leading manufacturer and marketer of high performance and general
purpose masking, reinforced filament pressure sensitive and other specialty
tapes. The Company paid US$122 million for the acquisition, including costs,
consisting of US$46 million in cash and US$76 million in assumed
indebtedness, substantially all of which was refinanced. The Company
acquired American Tape principally to improve and increase the Company's
product base, increase production capacity, enhance its customer base and
strengthen the Company's competitive position in the market.
In connection with the acquisition, the Company inherited two
manufacturing facilities: one in Marysville, Michigan, and one in Richmond,
Kentucky. While the Michigan facility is profitable, the Kentucky facility
had experienced production problems and has only recently achieved break even
status. The Company's strong technical expertise is expected to improve
production efficiencies at both manufacturing facilities.
The Company anticipates that it will benefit from certain synergies
resulting from the American Tape acquisition. Specifically, high performance
masking tape represents a new opportunity for the Company, while general
purpose masking tape and reinforced filament tape may be sold through the
Company's existing distribution channels. The Company believes the
acquisition of American Tape has further improved the Company's status as a
single source basket-of-products supplier to its distributor customers.
Finally, the acquisition of American Tape has 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.
-16-
ITEM 2. DESCRIPTION OF PROPERTY.
The following table illustrates the principal manufacturing and
distribution facilities owned or leased by the Company as at December 31, 1997:
AREA
LOCATION USE PRODUCTS (SQ. FT.) TITLE
- ----------------------------------------------------------------------------------------------------------------------------------
UNITED STATES:
- ----------------------------------------------------------------------------------------------------------------------------------
Augusta, Georgia Manufacturing FIBCs 41,000 Leased to July 1999
- ----------------------------------------------------------------------------------------------------------------------------------
Augusta, Georgia Warehouse FIBCs 20,000 Leased to October 2000
- ----------------------------------------------------------------------------------------------------------------------------------
Crowley, Manufacturing and FIBCs 180,000 Leased to December 1998
Louisiana Warehouse
- ----------------------------------------------------------------------------------------------------------------------------------
Danville, Manufacturing and Carton sealing tape, 281,000 Capital lease to August 2007
Virginia Distribution STRETCHFLEX-TM- with option to purchase for
acrylic coating nominal amount
- ----------------------------------------------------------------------------------------------------------------------------------
Green Bay, Manufacturing and Water activated carton sealing 156,000 Owned
Wisconsin Warehouse tape
- ----------------------------------------------------------------------------------------------------------------------------------
Marysville, Manufacturing High performance masking and 250,000 Owned
Michigan filament tape
- ----------------------------------------------------------------------------------------------------------------------------------
Rayne, Manufacturing and FIBCs 83,000 Leased to September 1998
Louisiana Corporate offices
- ----------------------------------------------------------------------------------------------------------------------------------
Richmond, Manufacturing Carton sealing, masking and 200,000 Owned
Kentucky reinforced tape
- ----------------------------------------------------------------------------------------------------------------------------------
Secaucus, New Former corporate N/A N/A Leased and to be closed prior to
Jersey offices of American June 1998
Tape
- ----------------------------------------------------------------------------------------------------------------------------------
Tampa, Corporate offices Display and crate operations 4,000 Leased to February 2003
Florida
- ----------------------------------------------------------------------------------------------------------------------------------
Tremonton, Manufacturing and EXLFILM-TM-, 115,000 Owned
Utah Distribution STRETCHFLEX-TM-(1)
- ----------------------------------------------------------------------------------------------------------------------------------
CANADA:
- ----------------------------------------------------------------------------------------------------------------------------------
Edmundston, Manufacturing FIBCs 65,000 Owned
New Brunswick
- ----------------------------------------------------------------------------------------------------------------------------------
Lachine, Manufacturing Carton sealing equipment 13,000 Leased to July 1999
Quebec
- ----------------------------------------------------------------------------------------------------------------------------------
St. Laurent, Slitting, Carton sealing tape 60,000 Leased to March 1999
Quebec Warehouse and
Corporate offices
- ----------------------------------------------------------------------------------------------------------------------------------
St. Laurent, Manufacturing Carton sealing tape 25,000 Owned
Quebec
- ----------------------------------------------------------------------------------------------------------------------------------
Truro, Manufacturing Woven products, 260,000 Owned
Nova Scotia EXLFILM-TM-
- ----------------------------------------------------------------------------------------------------------------------------------
(1) Operations are anticipated to commence during the second quarter of 1998.
-17-
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:
As of May 13, 1998, the directors and officers of the Company as a group
owned beneficially, directly or indirectly, 1,684,330 Common Shares,
representing approximately 6.7% 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 expire on September 1, 1998,
unless terminated earlier by the Company's Board of Directors. An amendment
to extend the term of the Rights Plan has been proposed by the Board of
Directors and will be submitted to the Shareholders for approval at the
annual meeting to be held on May 21, 1998. If approved, the term of the
Rights Plan will expire on 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 American Stock
Exchange and The Toronto Stock Exchange. The Common Shares were listed on
The Toronto Stock Exchange on January 6, 1993. 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 13, 1998, 28.9% of the Company's Common Shares are held in the United
States by 44 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 1996 and 1997:
-18-
Period High Low
- ------ ---- ---
U.S.$ U.S.$
1st Quarter 1996 19.44 14.94
2nd Quarter 1996 21.81 18.81
3rd Quarter 1996 22.88 16.63
4th Quarter 1996 24.13 20.63
Period High Low
- ------ ---- ---
U.S$ U.S$
1st Quarter 1997 25.00 19.88
2nd Quarter 1997 21.00 18.38
3rd Quarter 1997 24.75 20.75
4th Quarter 1997 25.00 19.81
The following table sets forth high and low sales price information for
trading of the Common Shares on The Toronto Stock Exchange in 1996 and 1997:
Period High Low
- ------ ---- ---
CDN.$ CDN.$
1st Quarter 1996 26.50 20.25
2nd Quarter 1996 30.25 25.75
3rd Quarter 1996 31.15 23.00
4th Quarter 1996 33.00 28.00
Period High Low
- ------ ---- ---
CDN.$ CDN.$
1st Quarter 1997 33.85 27.50
2nd Quarter 1997 29.20 25.25
3rd Quarter 1997 34.30 28.50
4th Quarter 1997 34.45 27.00
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.
-19-
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 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 TAX CONVENTION (1980) (the "Convention"), is a resident
of the United States and not of Canada 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 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
-20-
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: 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 deemed to be paid by the Company. In the case of
a U.S. Holder 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 by 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 to any
combination thereof, owned or had a right to acquire not less than 25% of the
issued shares of any class or series of a class 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.
-21-
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
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, 1993, 1994, 1995, 1996 and 1997, which data have
been derived from consolidated financial statements that been audited by
Raymond Chabot Grant Thornton, General Partnership, independent chartered
accountants, a member firm of Grant Thornton International.
Year Ended December 31,
------------------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
(in thousands of Canadian dollars, except per
share amounts)
INCOME STATEMENT DATA
Amounts Under Canadian GAAP (1)
Sales $134,521 $176,973 $225,378 $271,277 $348,270
Cost of Sales 97,302 125,485 159,195 192,748 251,856
-------- -------- -------- -------- --------
Gross Profit 37,219 51,488 66,183 78,529 96,414
-------- -------- -------- -------- --------
Selling, general and
administrative expenses 16,069 22,400 26,071 32,895 41,754
Research and Development 496 976 1,104 1,763 2,228
Amortization of goodwill 1,280 1,440 1,760 1,780 2,360
Financial expenses 2,966 3,289 3,194 1,695 3,247
20,811 28,105 32,129 38,133 49,589
-------- -------- -------- -------- --------
Earnings before restructuring, income
taxes and non-controlling interest 46,825
Restructuring charges 27,116
Earnings before income taxes and
non-controlling interest 16,408 23,383 34,054 40,396 19,709
Income taxes 6,720 9,050 12,500 11,800 6,110
-------- -------- -------- -------- --------
Earnings before
non-controlling interest 9,688 14,333 21,554 28,596 13,599
Non-controlling interest 65 (36) -- -- --
-------- -------- -------- -------- --------
Net earnings $9,623 $14,369 $21,554 $28,596 $13,599
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Earnings per share before restructuring:
Basic $1.30
Fully diluted 1.26
Earnings per share:
Basic $0.48 $0.71 $1.02 $1.18 $0.55
Fully diluted $0.46 $0.68 $0.97 $1.13 $0.53
-22-
Year Ended December 31,
------------------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
(in thousands of Canadian dollars, except per
share amounts)
U.S. GAAP Earnings Reconciliation (1)
Net earnings according
to Canadian GAAP $9,623 $14,369 $21,554 $28,596 $13,599
Net earnings before the following
U.S. GAAP adjustments 9,623 14,369 21,554 28,596 13,599
Deferred preproduction and product
development costs 644 691 530 282
Decrease in the income tax expense
for the period with respect to the
income tax effects of the above (232) (249) (191) (102)
Difference in the determination
of income taxes 180 180 180 180
-------- -------- -------- -------- --------
Net earnings according to U.S.
GAAP 10,215 14,991 22,073 28,956 13,599
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Earnings per share according
to U.S. GAAP before restructuring charge
Basic $1.30
Diluted $1.26
Earnings per share according
to U.S. GAAP
Basic $0.50 $0.74 $1.04 $1.20 $0.55
Diluted $0.50 $0.72 $1.00 $1.15 $0.53
-23-
Year Ended December 31,
------------------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
(in thousands of Canadian dollars, except per
share amounts)
BALANCE SHEET DATA
Amounts Under Canadian GAAP(2)
Working capital $ 23,215 $ 44,390 $ 95,672 $ 81,018 $ 60,054
Total assets 165,693 207,572 300,540 348,578 596,043
Long-term debt 32,294 51,667 54,680 64,026 230,067
Total liabilities 67,801 94,491 102,521 115,671 345,941
Shareholders' equity 97,892 113,081 198,019 232,907 250,102
- --------------------------
(1) In certain respect, Canadian GAAP differ 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
1997 Annual Report to Shareholders which is attached as Exhibit 4 to, and
incorporated by reference in, this Annual Report on Form 20-F.
Starting in fiscal 1997, any U.S. GAAP reconciling matters, for the
statements of earnings, were assessed to be not material enough to require
separate disclosure.
(2) Under Canadian GAAP, the financial statements are prepared using the
proportionate consolidation method of accounting for joint ventures. Under
U.S. GAAP, these investments would be accounted for using the equity
method.
See Note 20 to the consolidated financial statements set forth in the 1997
Annual Report to Shareholders which is attached as Exhibit 4 to, and
incorporated by reference in, this Annual Report on Form 20-F.
The other differences in presentation that would be required under U.S.
GAAP to the consolidated balance sheets are not viewed as significant
enough to require further disclosure.
The following table sets forth certain exchange rates, expressed in
United States dollars per Canadian dollar, determined by the noon buying
rates in New York city for cable transfers in Canadian dollars as certified
for customs purposes by the Federal Reserve Bank of New York. On May 7,
1998, the noon buying rate was CDN. $1.00 = U.S. $0.6944.
-24-
Year Ended December 31,
--------------------------------------------------
1993 1994 1995 1996 1997
------ ------ ------ ------ ------
(All amounts in United States dollars)
Exchange rate at end
of period $0.7544 $0.7128 $0.7323 $0.7297 $0.6999
Average exchange rate
during period $0.7751 $0.7302 $0.7305 $0.7296 $0.7221
Highest exchange rate
during period $0.8046 $0.7632 $0.7527 $0.7477 $0.7487
Lowest exchange rate
during period $0.7439 $0.7103 $0.7023 $0.7271 $0.6962
The Company has no written policy for the payment of dividends. On
March 8, 1993, the company paid its first dividend of CDN. $0.05 or U.S.
$0.04 per common share to shareholders of record on March 19, 1993. On March
14, 1994, the Company declared a dividend of CDN. $0.06 or U.S. $0.04 per
common share to shareholders of record on March 23, 1994. Dividends totaling
CDN. $1.2 Million were paid on March 31, 1994. On March 14, 1995, the
Company declared a dividend of CDN. $0.07 or U.S. $0.05 per common share to
Shareholders of record on March 23, 1995. Dividends totaling CDN. $1.4
Million were paid on March 30, 1995. On February 28, 1996, the Company
declared a dividend of CDN. $0.085 or U.S. $0.06 per common share to
Shareholders of record on March 8, 1996. Dividends totaling CDN. $2.0
Million were paid on March 22, 1996. On March 4, 1997, the Company declared
a dividend of CDN. $0.10 or U.S.$0.073 per common share to Shareholders of
record on March 13, 1997. Dividends totaling CDN. $2.5 Million were paid on
March 27, 1997. On March 10, 1998, the Company declared a dividend of CDN.
$0.13 or U.S. $0.092 per common share to Shareholders of record on March 20,
1998. Dividends totaling CDN. $3.3 Million were paid on March 31, 1998.
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 7
through 16 of Registrant's 1997 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.
-25-
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 57 Chairman of the Board,
Chief Executive Officer and Director
H. Dale McSween 48 Executive Vice President and
Chief Operating Officer
Andrew M. Archibald 52 Vice-President, Finance and
Administration, Chief Financial
Officer and Secretary
Lloyd W. Jones 60 Vice-President
Kenneth R. Rogers 61 Vice-President, Sales and Marketing
Richard Gerrior 51 Vice President, Manufacturing, Truro
Eric E. Baker 64 Director
Michael L. Richards 59 Director
James A. Motley, Sr. 69 Director
Irvine Mermelstein 71 Director
L. Robbie Shaw 54 Director
Ben J. Davenport, Jr. 55 Director
Gordon R. Cunningham 53 Director(1)
(1) Nominee
MELBOURNE F. YULL, founder of the Company, has been the Chief Executive
Officer and a director of the Company since 1981. He was President from 1981
to June 1994 and has been Chairman of
-26-
the Board since then. Mr. Yull has over 27 years experience in the packaging
industry, primarily related to both extrusion and coating.
H. DALE MCSWEEN has served as Executive Vice-President and Chief Operating
Officer since May 1995. Prior thereto he was 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.
ANDREW M. ARCHIBALD has been Vice-President Finance and Administration, Chief
Financial Officer and Secretary since May 1995. Prior thereto he served as
Vice-President, Finance and Secretary of the Company since 1989. Prior to
1989 he was an audit and financial consulting service partner with Raymond,
Chabot, Martin, Pare, Chartered Accountants.
LLOYD W. JONES has been 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.
KENNETH R. ROGERS has been Corporate Vice-President, Sales and Marketing
since 1997. He was previously Vice-President, Sales and Marketing of the
Company since 1987. From 1984 to 1987, Mr. Rogers was Marketing Manager of
Devon Tape Company, a tape manufacturer based in New Jersey.
RICHARD GERRIOR has been Vice-President, Manufacturing Truro since 1990.
From 1968 to 1989 he served in various manufacturing management positions
with Polymer International.
ERIC E. BAKER, has served as a director of the Company since 1984. He was
Chairman of the Board from 1984 to June 1994. He is the President of Almiria
Capital Corp., a venture capital company and was the President of its
predecessor, Altamira Capital Corp. since 1984.
MICHAEL L. RICHARDS has served as a Director of the Company and its
predecessor, Systems, since 1981. Mr. Richards is a Senior Partner at the
law firm of Stikeman, Elliott, Montreal, Quebec.
JAMES A. MOTLEY, SR., has been a director of the Company since February 1992.
He is a Director of American Bank and Trust Company and American National
Bank Shares, Inc. and was formerly Chairman of the Board and Chief Executive
Officer of the same firms.
IRVINE MERMELSTEIN, a director of the Company since March 1994, is a resident
of Tucson, Arizona and Halifax, Nova Scotia, and is the managing partner of
Market-Tek, management consultants.
-27-
L. ROBBIE SHAW, a resident of Halifax, Nova Scotia, has been a director of
the Company since June 1994. He has been Vice-President Marketing and Public
Affairs of Nova Scotia Power since 1993. Prior to that, Mr. Shaw was
Managing Partner for Atlantic Canada of Peat Marwick Stevenson Kellogg, a
management consulting firm.
BEN J. DAVENPORT, JR. has been a director of the Company since June 1994. He
is a resident of Chatham, Virginia, and has been since 1983 the President of
Chatham Oil Company, a distributor of oil, gasoline and propane. He also is
the Chairman of the Board and Chief Executive Officer of First Piedmont
Corporation, a waste hauling business.
GORDON R. CUNNINGHAM has been nominated as a director. He is a partner with
Connor Capital Management Corp. Prior to that Mr. Cunningham was President
and Chief Executive Officer of London Life Insurance Co. and President and
Chief Executive Officer of London Insurance Group.
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 seven directors, four of whom
are unrelated directors in accordance with the definition of an unrelated
director in the Guidelines. The Board has considered its size for the 1998
fiscal year and proposes increasing its number to eight directors.
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, inter alia, to the
independence of the remaining members of the Board and the role of the Board
-28-
in determining 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 three outside
directors. The Compensation Committee, as presently constituted, does not
comply with the Guidelines as it is composed of two related directors and two
unrelated directors and 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.
-29-
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 $15,000,000 and
an annual premium of $90,000 was paid by the Company in the last completed
financial year with respect to the period from October 1997 to October 1998.
Claims payable to the Company are subject to a retention of $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
-30-
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.
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, 1997.
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, 1997, to all directors and executive officers as a group, for
services in all capacities, was $1,610,290. In addition, in 1998, the
Company has paid director fees of $54,000 earned in 1997.
The aggregate amount accrued or set aside by the Company for the year
ended December 31, 1997 to provide pension, retirement or similar benefits,
to all directors and executive officers as a group was $653,000.
The following table sets forth all compensation paid in 1997 in respect
of the individuals who were, at December 31, 1997, 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 U.S. 303,270 U.S. Nil U.S. 30,326
D. McSween 238,082 Nil 16,099
A. M. Archibald 189,520 Nil 7,001
K. Rogers 197,605 Nil 9,204
L. W. Jones U.S. 213,628 U.S. Nil U.S. 8,704
- ---------------
(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.
-31-
ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES.
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 lowest
price allowed from time to time by the applicable regulatory authorities or
any stock exchange on which the common shares are listed. The Plan provides
that options issued thereunder shall vest 25% per year over four years.
The Plan was amended in 1996 to comply with new rules adopted by The
Toronto Stock Exchange and to allow the granting of options to existing and
future directors of the Company who are not part of management. The
directors of the Company have now adopted a further amending resolution
effective as of May 28, 1997: (i) authorizing the Board of Directors of the
Company to grant, from time to time, on an annual basis, up to 2,000 options
to the directors of the Company who are not part of management; and (ii)
specifying that any new non-management director will receive a Grant of 5,000
options upon becoming a director.
On February 28, 1996, options to purchase 324,100 common shares were
granted to executive officers, directors and employees at an exercise price
of CDN. $22.50 or U.S. $16.30 per share. Of such 324,100 options, 227,200
were granted to executive officers of the Company. None of these options has
been exercised.
On August 2, 1996, options to purchase 20,000 common shares were granted
to an executive officer and an employee, at an exercise price of CDN. $24.78
or U.S. $17.84 per share. Of such 10,000 were granted to an executive
officer of the Company.
-32-
As of May 13, 1998, there were outstanding options to purchase a total
of 2,004,284 of the Company's common shares, of which options to purchase a
total of 1,309,234 common shares are held by the directors and officers as a
group.
The following table sets forth the exercise price and expiration date
for all of the currently outstanding options:
Number of
Option Shares Exercise Price Expiration Date
- ------------- -------------- ---------------
CDN.$ U.S.$
146,700 $5.035 $4.25 February, 2002
92,050 $6.125 $4.813 January, 2003
5,600 $7.730 $6.022 July, 2003
150,000 $7.915 $6.040 October, 2003
100,000 $8.585 $6.406 December, 2003
39,850 $10.465 $7.710 March, 2004
8,500 $11.175 $8.260 October, 2004
94,900 $11.175 $8.135 January, 2005
49,034 $12.095 $8.575 March, 2005
100,000 $14.890 $10.860 June, 2005
290,100 $22.500 $16.300 February 2006
20,000 $24.780 $17.840 August, 2006
339,900 $26.51 $19.09 May, 2003
299,000 $29.03 $20.59 December, 2003
274,650 $32.92 $23.26 March, 2004
- ----------
2,004,284
- ---------
- ---------
-33-
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 during 1991 for the purpose of
purchasing Common Shares of the Company upon the exercise of options. Such
loans are repayable not later than September 30, 1999. As of April 14, 1998,
the aggregate indebtedness of all officers to the Company entered into in
connection with the purchase of Common Shares was $399,531. The following
table summarizes the largest amount of the loans outstanding since January 1,
1997, and the amount outstanding on April 14, 1998.
Largest amount
Name and Municipality outstanding since Amount outstanding
of residence January 1, 1997 on April 14, 1998
- ------------ --------------- -----------------
Melbourne F. Yull $ 369,218 $ 369,218
Westmount, Quebec
H. Dale McSween $ 30,313 $ 30,313
Beaconsfield, Quebec
Andrew M. Archibald $ 32,853 $ Nil
Westmount, Quebec
Richard Gerrior $ 9,175 $ Nil
Truro, Nova Scotia
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT
On March 10, 1992, the Company entered into an employment agreement with
Melbourne F. Yull. Pursuant to the terms of the employment agreement, Mr.
Yull agreed to continue to serve as 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 INTER ALIA 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.
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'
-34-
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 terminates his employment
with the Company, or (b) the Company terminates an executive's employment
without cause, such executive will be entitled to receive 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
-35-
ITEM 16. CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR REGISTERED
SECURITIES.
None Reportable
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 17 through 42 of
Registrant's 1997 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 A-1**
Consolidated Earnings 18*
Consolidated Retained Earnings 18*
Consolidated Changes in Cash
Resources 19*
Consolidated Balance Sheet 20*
Notes 1-20 to the Financial
Statements 21-42*
(a) (2) FINANCIAL STATEMENT SCHEDULES
-----------------------------
Auditors' Report F-1**
Schedule II - Valuation and
Qualifying Accounts F-2**
(b) EXHIBITS
1 Renewal of operating line of credit between Intertape
Polymer Inc. and the National Bank of Canada dated
April 29, 1996 ***
-36-
2.1 Fourth Lease Amendment between Intertape Polymer
Corp. and Danville Industrial Development Incorporated
dated February 1, 1993 ***
2.2 Fifth Lease Amendment between Intertape Polymer
Corp. and Danville Industrial Development Incorporated
dated September 6, 1995 ***
2.3 Loan Agreement between Intertape Polymer Corp.,
Intertape Polymer Inc., Intertape Polymer Group Inc.
and Danville Industrial Development and American
National Bank and Trust Company ***
3 [Deleted]
4 Registrant's 1997 Annual Report to
Shareholders
5 Consent of Independent Auditors
6 Note agreements between Intertape Polymer Group
Inc. and various institutions dated January 1, 1996 ***
7 Amended Memorandum of lease between Intertape ***
Polymer Corp. and Danville Industrial
Development, Inc. dated May 14, 1996
8 Loan modification agreement between Danville
Industrial Development Incorporated,
American National Bank and Trust Company,
Intertape Polymer Corp., Intertape Polymer
Inc. and Intertape Polymer Group Inc. dated
July, 1996 ***
9 Loan documents between Danville Industrial
Development, Incorporated and American
National Bank and Trust Company, dated
August 15, 1996. ***
10 Acquisition Agreement between Intertape
Polymer Group Inc. and STC Corp. dated
December 16, 1997.
-37-
11 Loan Documents between IPG Holdings,
L.P. and Toronto Dominion Bank dated
December 15, 1997 and Guaranty by
Intertape Polymer Group Inc.
12 Revolving Credit Facility between IPG
Holdings, L.P. and Comerica Bank
dated December 15, 1997 and Guaranty
by Intertape Polymer Group Inc.
- -----------------------------
* The financial statements filed as part of this report are incorporated
herein by reference to the 1997 Annual Report to Shareholders which is
included as Exhibit 4 to this Annual Report on Form 20-F. References to
page numbers are references to the applicable page in the 1997 Annual
Report.
** References are to pages in this Annual Report on Form 20-F.
*** Previously filed as an exhibit to registrant's Annual Report on Form 20-F,
Commission File No. 1-10928, and incorporated herein by reference.
-38-
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: Vice-President, Finance and
Administration, Chief Financial
Officer and Secretary
Date: May 19, 1998
-39-
EXHIBIT INDEX
-------------
1 Renewal of operating line of credit between Intertape
Polymer Inc. and the National Bank of Canada dated
April 29, 1996 ***
2.1 Fourth Lease Amendment between Intertape Polymer
Corp. and Danville Industrial Development Incorporated
dated February 1, 1993 ***
2.2 Fifth Lease Amendment between Intertape Polymer
Corp. and Danville Industrial Development Incorporated
dated September 6, 1995 ***
2.3 Loan Agreement between Intertape Polymer Corp.,
Intertape Polymer Inc., Intertape Polymer Group Inc.
and Danville Industrial Development and American
National Bank and Trust Company ***
3 [Deleted]
4 Registrant's 1997 Annual Report to
Shareholders
5 Consent of Independent Auditors
6 Note agreements between Intertape Polymer Group
Inc. and various institutions dated January 1, 1996 ***
7 Amended Memorandum of lease between Intertape ***
Polymer Corp. and Danville Industrial
Development, Inc. dated May 14, 1996
8 Loan modification agreement between Danville
Industrial Development Incorporated,
American National Bank and Trust Company,
Intertape Polymer Corp., Intertape Polymer
Inc. and Intertape Polymer Group Inc. dated
July, 1996 ***
9 Loan documents between Danville Industrial
Development, Incorporated and American
National Bank and Trust Company, dated
August 15, 1996. ***
-40-
10 Acquisition Agreement between Intertape
Polymer Group Inc. and STC Corp. dated
December 16, 1997.
11 Loan Documents between IPG Holdings,
L.P. and Toronto Dominion Bank dated
December 15, 1997 and Guaranty by
Intertape Polymer Group Inc.
12 Revolving Credit Facility between IPG
Holdings, L.P. and Comerica Bank
dated December 15, 1997 and Guaranty
by Intertape Polymer Group Inc.
- -----------------------------
*** Previously filed as an exhibit to registrant's Annual Report on Form
20-F, Commission File No. 1-10928, and incorporated herein by reference.
-41-
AUDITORS' REPORT
To the Shareholders of
INTERTAPE POLYMER GROUP INC.
We have audited the consolidated balance sheets of Intertape Polymer
Group Inc. as at December 31, 1997 and 1996 and the consolidated statements
of earnings, retained earnings and changes in cash resources for the years
ended December 31, 1997, 1996 and 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in Canada. Those standards require that we plan and perform an
audit to obtain reasonable assurance whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation.
In our opinion, these consolidated financial statements present fairly,
in all material respects, the financial position of the Company as at
December 31, 1997 and 1996 and the results of its operations and the changes
in its financial position for the years ended December 31, 1997, 1996 and
1995 in accordance with generally accepted accounting principles in Canada.
Generally accepted accounting principles in Canada differ in some
respects from those applicable in the United States of America (See Note 20).
Raymond Chabot Grant Thornton
General Partnership
Chartered Accountants
Montreal, Canada
March 10, 1998
AUDITORS' REPORT
To the Board of Directors of
Intertape Polymer Group Inc.
Our examination of the Consolidated Financial Statements referred to in our
report dated March 10, 1998 appearing on page 17 of the 1997 Annual Report to
the shareholders of Intertape Polymer Group Inc. (which report and
Consolidated Financial Statements are incorporated by reference in this
Annual Report on Form 20-F) also included an examination of the Financial
Statement Schedule referred to in Part IV of this Form 20-F. In our opinion,
this Financial Statement Schedule presents fairly, in all material respects,
the information set forth therein when read in conjunction with the related
Consolidated Financial Statements taken as a whole.
Raymond Chabot Grant Thornton
General Partnership
Chartered Accountants
Montreal, Canada
March 10, 1998
CONSENT OF INDEPENDENT AUDITORS
We have issued our reports, dated March 10, 1998 on the Consolidated
Financial Statements and the Financial Statement Schedule of Intertape Polymer
Group Inc. referred to in Items 8 and 17 of this Annual Report on Form 20-F
and we hereby consent to the use of such reports in this Annual Report on
Form 20-F.
We also consent to the reference to us under the heading "Item 8 - Selected
Financial Data" in such Annual Report.
Raymond Chabot Grant Thornton
General Partnership
Chartered Accountants
Montreal, Canada
May , 1998
SCHEDULE II
INTERTAPE POLYMER GROUP INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
AMOUNTS
BALANCE AT ADDITIONS ASSUMED
BEGINNING OF CHARGED TO UNDER BALANCE AT
YEAR EXPENSE DEDUCTIONS ACQUISTIONS END OF YEAR
DESCRIPTION ------------ ---------- ---------- ----------- -----------
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Year ended December 31, 1997 $764 $455 $162 $878 $1,935
--- --- --- --- -----
Year ended December 31, 1996 $689 $217 $142 - $ 764
--- --- --- -----
Year ended December 31, 1995 $286 $475 $ 72 - $ 689
--- --- --- -----