UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
(Mark One)
¨ | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 20122015
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period fromto
OR
¨ | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Date of event requiring this shell company report
For the transition period fromto
Commission file number: 1-10928
INTERTAPE POLYMER GROUP INC.
(Exact name of Registrant as specified in its charter)
Canada
(Jurisdiction of incorporation or organization)
9999 Cavendish Blvd., Suite 200, Ville St. Laurent, Quebec, Canada H4M 2X5
(Address of principal executive offices)
Burgess H. Hildreth,Jeffrey Crystal, (941) 739-7500, bhildret@itape.com, 3647 Cortez Road West, Bradenton,739-7522, jcrystal@itape.com, 100 Paramount Drive, Suite 300, Sarasota, Florida 3421934232
(Name, Telephone, E-mail, and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each class | Name of each exchange on which registered | |
Common Shares, without nominal or par value | Toronto Stock Exchange |
Securities registered or to be registered pursuant to Section 12(g) of the Act:
Not applicable
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
Not applicable
(Title of Class)
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.As of December 31, 2012,2015, there were 59,625,03958,667,535 common shares outstandingoutstanding.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ¨x Yes x¨ No
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. ¨ Yes x No
Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
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. x Yes ¨ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ¨ Yes ¨ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer x Accelerated filer ¨ Non-accelerated filer ¨
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
US GAAP ¨ | International Financial Reporting Standards as issued by the International Accounting Standards Board x | Other ¨ |
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. ¨ Item 17 ¨ Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes x No
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. ¨ Yes ¨ No
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ITEM 1: | IDENTITYOF DIRECTORS, SENIOR MANAGEMENTAND ADVISERS | 5 | ||||
ITEM 2: | OFFER STATISTICSAND EXPECTED TIMETABLE | 5 | ||||
ITEM 3: | KEY INFORMATION | 5 | ||||
A. | 5 | |||||
B. | 5 | |||||
C. | 5 | |||||
D. | 5 | |||||
ITEM 4: | INFORMATIONONTHE COMPANY | 13 | ||||
A. | 13 | |||||
B. | 14 | |||||
(1) | 18 | |||||
(2) | 23 | |||||
(3) | 24 | |||||
(4) | 24 | |||||
(5) | 24 | |||||
(6) | 25 | |||||
(7) | 25 | |||||
(8) | 26 | |||||
C. | 27 | |||||
D. | 28 | |||||
ITEM 5: | OPERATINGAND FINANCIAL REVIEWAND PROSPECTS (MANAGEMENT’S DISCUSSION & ANALYSIS) | 29 | ||||
ITEM 6: | DIRECTORS, SENIOR MANAGEMENTAND EMPLOYEES | 60 | ||||
A. | 60 | |||||
B. | 62 | |||||
C. | 72 | |||||
D. | 74 | |||||
E. | 74 | |||||
ITEM 7: | MAJOR SHAREHOLDERSAND RELATED PARTY TRANSACTIONS | 76 | ||||
A. | 76 | |||||
B. | 76 | |||||
C. | 76 | |||||
ITEM 8: | FINANCIAL INFORMATION | 76 | ||||
A. | 76 | |||||
B. | 78 | |||||
ITEM 9: | THE OFFERAND LISTING | 78 | ||||
A. | 78 | |||||
B. | 79 | |||||
C. | 79 | |||||
D. | 79 |
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Cautionary Note Regarding Forward-Looking Statements
Certain statements and information included in this annual report on Form 20-F constitute “forward-looking information” within the meaning of applicable Canadian securities legislation and “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, (collectively, “forward-looking statements”), which are made in reliance upon the protections provided by such legislation for forward-looking statements. All statements other than statements of historical facts included in this annual report on Form 20-F, including statements regarding economic conditions, the Company’s outlook, plans, prospects, products, financial position, future sales and financial results, availability of credit, level of indebtedness, payment of dividends, fluctuations in raw material costs, competition, capital and other significant expenditures, manufacturing facility closures and other restructurings, liquidity, litigation and business strategies, may constitute forward-looking statements. These forward-looking statements are based on current beliefs, assumptions, expectations, estimates, forecasts and projections made by the management of Intertape Polymer Group Inc. (“Intertape,” “Intertape Polymer
Group,” or the “Company”). Words such as “may,” “will,” “should,” “expect,” “continue,” “intend,” “estimate,” “anticipate,” “plan,” “believe,” “future,” “likely,” or “seek” or the negatives of these terms or variations of them or similar terminology are intended to identify such forward-looking statements. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable, these statements, by their nature, involve risks and uncertainties and are not guarantees of future performance. Such statements are also subject to assumptions concerning, among other things: business conditions and growth or declines in the Company’s industry and the Company’s customers’ industries; changes in general economic, political, social, fiscal or other conditions in any of the countries where the Company operates; the Company’s customers’ industries and the general economy; the anticipated benefits from the Company’s manufacturing facility closures and other restructuring efforts; the quality, and market reception, of the Company’s products; the Company’s anticipated business strategies; risks and costs inherent in litigation; the Company’s ability to maintain and improve quality and customer service; anticipated trends in the Company’s business; anticipated cash flows from the Company’s operations; availability of funds under the Company’s Revolving Credit Facility; the Company’s ability to continue to control costs; movements in the prices of key inputs such as raw material, energy and labor; government policies, including those specifically regarding the manufacturing industry, such as industrial licensing, environmental regulations, safety regulations, import restrictions and duties, excise duties, sales taxes, and value added taxes; accidents and natural disasters; changes to accounting rules and standards; and other factors beyond our control. The Company can give no assurance that these statements and expectations will prove to have been correct. Actual outcomes and results may, and often do, differ from what is expressed, implied or projected in such forward-looking statements, and such differences may be material. Readers are cautioned not to place undue reliance on any forward-looking statement. For additional information regarding some important factors that could cause actual results to differ materially from those expressed in these forward-looking statements and other risks and uncertainties, and the assumptions underlying the forward-looking statements, you are encouraged to read “Item 3. Key Information - Risk Factors,” “Item 5. Operating and Financial Review and Prospects (Management’s Discussion & Analysis)” as well as statements located elsewhere in this annual report on Form 20-F and the other statements and factors contained in the Company’s filings with the Canadian securities regulators and the US Securities and Exchange Commission. Each of the forward-looking statements speaks only as of the date of this annual report on Form 20-F. The Company will not update these statements unless applicable securities laws require it to do so.Index to Financial Statements
PART I
Item 1: | Identity of Directors, Senior Management and Advisers |
Not applicable.
Item 2: | Offer Statistics and Expected Timetable |
Not applicable.
Item 3: | Key Information |
A. | SELECTED FINANCIAL DATA |
The selected financial data presented below for the threefive years ended December 31, 20122015 is presented in US dollars and is derived from Intertape Polymer Group Inc.’s (“Intertape”, “Intertape Polymer Group”, or the “Company”)Company’s consolidated financial statements in US dollars and prepared in accordance with International Financial Reporting Standards (“IFRS”). The information set forth below was extracted from the consolidated financial statements and related notes included in this annual report and annual reports previously filed and should be read in conjunction with such consolidated financial statements. As required by the Canadian Accounting Standards Board, the Company adopted IFRS on January 1, 2011 and the Company’s financial information for 2010, with the exception of statements as of the transition date of January 1, 2010, has been restated to comply with IFRS. Information prior to the transition date has not been restated.2011.
As at and for the Year Ended December 31 | As of and for the Year Ended December 31 | |||||||||||||||||||||||||||||||
2012 | 2011 | 2010 | 2015 | 2014 | 2013 | 2012 | 2011 | |||||||||||||||||||||||||
(in thousands of US dollars except percentages, shares and per share data) | (in thousands of US dollars, except shares and per share amounts) | |||||||||||||||||||||||||||||||
Statements of Consolidated Earnings (Loss): | ||||||||||||||||||||||||||||||||
Statements of Consolidated Earnings: | ||||||||||||||||||||||||||||||||
$ | $ | $ | $ | $ | ||||||||||||||||||||||||||||
Revenue | 784,430 | 786,737 | 720,516 | 781,907 | 812,732 | 781,500 | 784,430 | 786,737 | ||||||||||||||||||||||||
Net Earnings (Loss) before Taxes | 22,882 | 10,874 | (15,316 | ) | ||||||||||||||||||||||||||||
Net Earnings (Loss) | 22,507 | 8,954 | (48,549 | ) | ||||||||||||||||||||||||||||
Earnings (Loss) per Share | ||||||||||||||||||||||||||||||||
Earnings before Income Taxes | 67,655 | 58,719 | 31,553 | 20,594 | 9,154 | |||||||||||||||||||||||||||
Net Earnings | 56,672 | 35,816 | 67,357 | 20,381 | 7,384 | |||||||||||||||||||||||||||
Earnings per Share | ||||||||||||||||||||||||||||||||
Basic | 0.38 | 0.15 | (0.82 | ) | 0.95 | 0.59 | 1.12 | 0.35 | 0.13 | |||||||||||||||||||||||
Diluted | 0.37 | 0.15 | (0.82 | ) | 0.93 | 0.57 | 1.09 | 0.34 | 0.12 | |||||||||||||||||||||||
Balance Sheets: | ||||||||||||||||||||||||||||||||
Total Assets | 426,152 | 446,723 | 476,614 | 487,262 | 466,676 | 465,199 | 426,152 | 446,723 | ||||||||||||||||||||||||
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Capital Stock | 351,702 | 348,148 | 348,148 | 347,325 | 357,840 | 359,201 | 351,702 | 348,148 | ||||||||||||||||||||||||
Shareholders’ Equity | 153,834 | 137,178 | 144,085 | 216,728 | 227,500 | 230,428 | 153,834 | 137,178 | ||||||||||||||||||||||||
Number of Common Shares Outstanding | 59,625,039 | 58,961,050 | 58,961,050 | 58.667,535 | 60,435,826 | 60,776,649 | 59,625,039 | 58,961,050 | ||||||||||||||||||||||||
Dividends Declared per Share | CDN$ | 0.08 | — | — | 0.50 | 0.40 | 0.24 | 0.08 | — |
B. | CAPITALIZATION AND INDEBTEDNESS |
Not applicable.
C. | REASONS FOR THE OFFER AND USE OF PROCEEDS |
Not applicable.
D. | RISK FACTORS |
Current economic conditions and uncertain economic forecast could adversely affect the Company’s results of operations and financial conditions.Index to Financial Statements
Unfavorable changes in the global economy have affected and may affect the demand for the Company’s products.products of the Company and its customers. Adverse economic conditions could also increase the likelihood of customer delinquencies. A prolonged period of economic decline would have a material adverse effect on the results of operations, gross margins, and the overall financial condition of the Company, as well as exacerbate the other risk factors set forth below.
Fluctuations in the amount of available funds under the Company’s Asset Based Loan would restrict the Company’s available credit and could require unscheduled repayments.
The Company’s credit facility is an asset-backed loan. A reduction in the eligible assets and receivables included in the borrowing base or an increase in the required reserves will reduce the Company’s available credit under the Asset Based Loan (“ABL”). A decline in the borrowing base could also require an unscheduled repayment of funds already advanced in excess of the available credit amount.
The Company’s Asset Based Loan contains a financial covenant which if not met, will result in an event of default.
The Company’s ABL contains a fixed charge ratio which becomes effective only when unused availability under the borrowing base drops below $25 million. The Company’s failure to comply with this covenant could result in an event of default, which, if not cured or waived, could result in the Company being required to repay these borrowings before their scheduled due date. If the Company were unable to make this repayment or otherwise refinance these borrowings, the lenders under the ABL could elect to declare all amounts borrowed under the Company’s ABL, together with accrued interest, to be due and payable, which, in some instances, would be an event of default under the Indenture governing the Senior Subordinated Notes. In addition, these lenders could foreclose on the Company’s assets. If the Company were unable to refinance these borrowings on favourable terms, the Company’s results of operations and financial condition could be adversely impacted by increased costs and less favorable terms, including interest rates and covenants. Any future refinancing of the Company’s ABL is likely to contain similar or more restrictive covenants and financial tests.
The Company’s significant debt could adversely affect its financial condition and prevent it from fulfilling its obligations under its ABL or Senior Subordinated Notes.
The Company has a significant amount of indebtedness. As of December 31, 2012, the Company had outstanding debt of $151.3 million, which represented 50% of its total capitalization. Of such total debt, approximately $110.4 million, or all of the Company’s outstanding senior debt, was secured.
The Company’s significant indebtedness could adversely affect its financial condition and make it more difficult for the Company to satisfy its obligations with respect to the Senior Subordinated Notes, as well as its obligations under its ABL. The Company’s substantial indebtedness could also increase its vulnerability to adverse general economic and industry conditions; require the Company to dedicate a substantial portion of its cash flows from operations to payments on its indebtedness, thereby reducing the availability of the Company’s cash flows to fund working capital, capital expenditures, research and development efforts and other general corporate purposes; limit the Company’s flexibility in planning for, or reacting to, changes in its business and the industry in which it operates; place the Company at a competitive disadvantage compared to its competitors that have less debt; and limit the Company’s ability to borrow additional funds on terms that are satisfactory to it or at all.
The Company may not be able to generate sufficient cash flow to meet its debt service obligations.
The Company’s ability to generate sufficient cash flows from operations to make scheduled payments on its debt obligations will depend on its future financial performance, which will be affected by a range of economic, competitive, regulatory, legislative and business factors, many of which are outside of the Company’s control. If the Company does not generate sufficient cash flows from operations to satisfy its debt obligations, the Company may have to undertake alternative financing plans, such as refinancing or restructuring its debt, selling assets, reducing or delaying capital investments or seeking to raise
additional capital. The Company cannot assure that any refinancing would be possible or that any assets could be sold on acceptable terms or otherwise. The Company’s inability to generate sufficient cash flows to satisfy its debt obligations, or to refinance its obligations on commercially reasonable terms, would have an adverse effect on the Company’s business, financial condition and results of operations. In addition, any refinancing of the Company’s debt could be at higher interest rates and may require the Company to comply with more onerous covenants, which could further restrict its business operations.
Despite the Company’s level of indebtedness, it will be able to incur substantially more debt. Incurring such debt could further exacerbate the risks to the Company’s financial condition described above.
The Company will be able to incur substantial additional indebtedness in the future. Although the Indenture governing the Senior Subordinated Notes and the loan and security agreement governing the ABL each contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of qualifications and exceptions and the indebtedness incurred in compliance with these restrictions could be substantial. The restrictions also do not prevent the Company from incurring obligations that do not constitute indebtedness. To the extent new debt is added to the Company’s currently anticipated debt levels, the substantial leverage risks described above would increase.
The Company’s Senior Subordinated Notes and ABL contain covenants that limit its flexibility and prevents the Company from taking certain actions.
The Indenture governing the Company’s Senior Subordinated Notes and the loan and security agreement governing the Company’s ABL include a number of significant restrictive covenants. These covenants could adversely limit the Company’s ability to plan for or react to market conditions, meet its capital needs and execute its business strategy. These covenants, among other things, limit the Company’s ability and the ability of its subsidiaries to incur additional debt; pay dividends and make other restricted payments; create or permit certain liens; issue or sell capital stock of restricted subsidiaries; use the proceeds from sales of assets; make certain investments; create or permit restrictions on the ability of the guarantors to pay dividends or to make other distributions to the Company; enter into certain types of transactions with affiliates; engage in unrelated businesses; enter into sale and leaseback transactions; and consolidate or merge or sell the Company’s assets substantially as an entirety.
The Company’s ABL includes other and more restrictive covenants, some of which can restrict the Company’s ability to prepay its other debt.
The Company depends on its subsidiaries for cash to meet its obligations and pay any dividends.
The Company is a holding company. Its subsidiaries conduct all of its operations and own substantially all of its assets. Consequently, the Company’s cash flow and its ability to meet its obligations or pay dividends to its stockholders depend upon the cash flow of its subsidiaries and the payment of funds by its subsidiaries to the Company in the form of dividends, tax sharing payments or otherwise. The Company’s subsidiaries’ ability to provide funding will depend on, amongst others, their earnings, the terms of indebtedness from time to time, tax considerations and legal restrictions.
Payment of dividends may not continue in the future, and the payment of dividends is subject to restriction.
In August 2012, the Board of Directors initiated the payment of a semi-annual cash dividend. The future declaration and payment of dividends, if any, will be at the discretion of the Board of Directors and will depend on a number of factors, including the Company’s financial and operating results, financial position, and anticipated cash requirements. The Company can give no assurance that dividends will be declared and paid in the future or, if declared and paid in the future, at the same level as in the past. Additionally, the Company’s ABL and Indenture restricts its ability to pay dividends if the Company does not maintain certain borrowing availability or if the Company is in default.
Fluctuations in raw material costs or the unavailability of raw materials may adversely affect the Company’s profitability.
Historically, the Company has not always been able to pass on significant raw material cost increases through price increases to its customers. The Company’s results of operations in prior years, at times, have been negatively impacted by raw material cost increases and decreases.increases. These fluctuationsincreases adversely affected the Company’s profitability. As a result of raw material cost fluctuations,increases, the Company may have to either holdincrease prices firm, which results(which could result in a reduced market share,share) or decreasemay choose to keep prices which compresses the Company’s gross margins.same (which could result in decreased margins). The Company’s profitability in the future may be adversely
affected due to continuing fluctuations in raw material prices. Additionally, the Company relies on its suppliers for deliveries of raw materials. If any of its suppliers are unable to deliver raw materials to the Company for an extended period of time, there is no assurance that the Company’s raw material requirements would be met by other suppliers on acceptable terms, or at all, which could have a material adverse effect on the Company’s results of operations.
A downgrade of the Company’s credit ratings would have a negative impact on the Company’s ability to obtain credit and on the trading price of its common shares.
The Company’s Senior Subordinated Notes, as of March 11, 2013, are rated Caa1 by Moody Investor Services, Inc. and B- by Standard & Poor’s Financial Services, LLC. These ratings are considered below investment grade. In the event the Company’s credit ratings are downgraded, it would adversely affect the Company’s cost of borrowing, access to capital markets and trading price of its common shares. A significant downgrade could also adversely affect payment terms with the Company’s suppliers.
The failure to maintain effective internal control over financial reporting in accordance with applicable securities laws could cause the Company’s stock price to decline.
Section 404 of the Sarbanes-Oxley Act of 2002 and the related rules and regulations of the Securities and Exchange Commission, as well as applicable Canadian securities laws require annual management assessments of the effectiveness of the Company’s internal control over financial reporting and a report by the Company’s independent registered public accounting firm to express an opinion on these controls based on their audit. If the Company fails to maintain effective internal control over financial reporting, as such standards are modified, supplemented or amended from time to time, the Company may not be able to conclude that it has effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 and the related rules and regulations of the Securities and Exchange Commission or applicable Canadian securities laws. The Chief Executive Officer and Chief Financial Officer concluded that the Company’s internal control over financial reporting was effective as of December 31, 2012. If the Company cannot in the future favorably assess, or the Company’s independent registered public accounting firm is unable to provide an unqualified attestation report on the effectiveness of the Company’s internal control over financial reporting, investors may lose confidence in the reliability of the Company’s financial reports, which could cause the Company’s stock price to decline.
The Company’s pension and other post-retirement benefit plans are unfunded which could require Company contributions.
The Company’s pension and other post-retirement benefit plans currently have an unfunded deficit of $39.3 million as of December 31, 2012 as compared to $36.8 million at the end of 2011. For 2012 and 2011, the Company contributed $5.6 million and $4.3 million, respectively, to its funded pension plans and to beneficiaries for its unfunded other benefit plans. The Company may need to divert certain of its resources in the future in order to resolve this funding deficit. In addition, the Company cannot predict whether a change in factors such as pension asset performance or interest rates, will require the Company to make a contribution in excess of its current expectations. Further, the Company may not have the funds necessary to meet future minimum pension funding requirements or be able to meet its pension benefit plan funding obligation through cash flows from operations.
The Company’s ability to achieve its growth objectives depends in part on the timing and market acceptance of its new products.
Intertape Polymer Group’sThe Company’s business plan involvesincludes the introduction of new products, which are both developed internally and obtained through acquisitions. The Company’s ability to introduce these products successfully depends on the demand for the products, as well as their price, quality, and quality.related customer service. In the event the market does not fully accept these products or competitors introduce similar or superior products (or products perceived by the market to be similar or superior), the Company’s ability to expand its markets and generate organic growth could be negatively impacted which could have an adverse effect on its operating results.
The Company’s competition and customer preferences could impact the Company’s profitability.
The markets for Intertape Polymer Group’sthe Company’s products are highly competitive. Competition in its markets is primarily based upon the quality, breadth and performance characteristics of its products, customer service and price. The Company’s
ability to compete successfully depends upon a variety of factors, including its ability to increase plant efficiencies and reduce manufacturing costs, as well as its access to quality, low-cost raw materials.
Some of the Company’s competitors, particularly certain of those located in Asia, may, at times, have lower costs (i.e. raw material, energy and labor costs andlabor) and/or less restrictive environmental and governmental regulations to comply with than the Company does. Other competitors may be larger in size or scope than the Company, which may allow them to achieve greater economies of scale on a global basis or allow them to better withstand periods of declining prices and adverse operating conditions.
Demand for the Company’s products and, in turn, its revenue and profit margins, are affected by customer preferences and changes in customer ordering patterns which occur as a result of changes in inventory levels and timing of purchases which may be triggered by price changes and incentive programs.
The Company’s customer contracts contain termination provisions that could decrease the Company’s future revenues and earnings.
Most of the Company’s customer contracts can be terminated by the customer on short notice without penalty. The Company’s customers are, therefore, not contractually obligated to continue to do business with it in the future. This creates uncertainty with respect to the revenues and earnings the Company may recognize with respect to its customer contracts.
Intertape Polymer GroupThe Company’s manufacturing plant rationalization initiatives, manufacturing cost reduction programs and capital expenditure projects may result in higher costs and less savings than anticipated.
The Company has implemented several manufacturing plant rationalization initiatives, manufacturing cost reduction programs and capital expenditure projects. Each may not be completed as planned and as a result, the costs and capital expenditures incurred by the Company may substantially exceed projections. This could potentially result in additional debt incurred by the Company or reduced production and elimination. In addition, the reduction of anticipated manufacturing cost savings may be less than expected or may not materialize at all.
Acquisitions could expose the Company to significant business risks.
The Company may make strategic acquisitions that could, among other goals, complement its existing products, expand its customer base and markets, improve distribution efficiencies and enhance its technological capabilities. Financial risks from these acquisitions include the use of the Company’s cash resources, paying a price that exceeds the future value realized from the acquisition, and incurring additional debt and liabilities (including potentially unknown liabilities). Further, there are possible operational risks including difficulty assimilating and integrating the operations, products, technology, information systems and personnel of acquired companies, losing key personnel of acquired entities, entry into markets in which the Company has no or limited prior experience, failure to obtain or retain intellectual property rights for certain products and difficulty honoring commitments made to customers of the acquired companies prior to the acquisition. The Company may incur significant acquisition, administrative and other costs in connection with these transactions, including costs related to the integration of acquired businesses. These acquisitions could expose the Company to significant integration risks and increased organizational complexity which may challenge management and may adversely impact the realization of an increased contribution from said acquisitions. The failure to adequately address these risks could adversely affect the Company’s business and financial performance.
Although the Company performs due diligence investigations of the businesses and assets that it acquires, and anticipates continuing to do so for future acquisitions, there may be liabilities related to the acquired business or assets that the Company fails to, or is unable to, uncover during its due diligence investigation and for which the Company, as a successor owner, may be responsible. When feasible, the Company seeks to minimize the impact of these types of potential liabilities by obtaining indemnities and warranties from the seller, which may in some instances be supported by deferring payment of a portion of the purchase price. However, these indemnities and warranties, if obtained, may not fully cover the liabilities because of their limited scope, amount or duration, the financial resources of the indemnitor or warrantor, or other reasons.
The Company’s Revolving Credit Facility contains covenants that limit its flexibility and prevent the Company from taking certain actions.
The loan and security agreement governing the Company’s Revolving Credit Facility includes a number of significant restrictive covenants. These covenants could adversely limit the Company’s ability to plan for or react to market conditions, meet its capital needs and execute its business strategy. These covenants, among other things, limit the Company’s ability and the ability of its subsidiaries to incur additional debt; prepay other debt; pay dividends and make other restricted payments; create or permit certain liens; issue or sell capital stock of restricted subsidiaries; use the proceeds from sales of assets; make certain investments; create or permit restrictions on the ability of the guarantors to pay dividends or to make other distributions to the Company; enter into certain types of transactions with affiliates; engage in unrelated businesses; enter into sale and leaseback transactions; and consolidate or merge or sell the Company’s assets substantially as an entirety.
The Company depends on its subsidiaries for cash to meet its obligations and pay any dividends.
The Company is a holding company. Its subsidiaries conduct all of its operations and own substantially all of its assets. Consequently, the Company’s cash flow and its ability to meet its obligations or pay dividends to its stockholders depend upon the cash flow of its subsidiaries and the payment of funds by its subsidiaries to the Company in the form of dividends, tax sharing payments or otherwise. The Company’s subsidiaries’ ability to provide funding will depend on, amongst others, their earnings, the terms of indebtedness from time to time, tax considerations and legal restrictions.
Payment of dividends may not continue in the future, and the payment of dividends is subject to restriction.
On August 12, 2015, the Board of Directors approved a change in the quarterly dividend policy by increasing the dividend from $0.12 to $0.13 per share. The future declaration and payment of dividends, if any, will be at the discretion of the Board of Directors and will depend on a number of factors, including the Company’s financial and operating results, financial position, legal requirements, and anticipated cash requirements. The Company can give no assurance that dividends will be declared and paid in the future or, if declared and paid in the future, at the same level as in the past. Additionally, the Company’s Revolving Credit Facility restricts its ability to pay dividends if the Company does not maintain certain borrowing availability or if the Company is in default.
The Company’s significant debt could adversely affect its financial condition.
While the Company’s indebtedness has declined in recent years, it still has a significant amount of indebtedness. As of December 31, 2015, the Company had outstanding debt of $152.8 million, which represented 16.2% of its total capitalization. Of such total debt, approximately $152.8 million, or all of the Company’s outstanding senior debt, was secured.
The Company’s significant indebtedness could adversely affect its financial condition. The Company’s substantial indebtedness could also increase its vulnerability to adverse general economic and industry conditions; require the Company to dedicate a substantial portion of its cash flows from operating activities to payments on its indebtedness, thereby reducing the availability of the Company’s cash flows to fund working capital, capital expenditures, potential acquisitions, research and development efforts and other general corporate purposes; limit the Company’s flexibility in planning for, or reacting to, changes in its business and the industry in which it operates; place the Company at a competitive disadvantage compared to its competitors that have less debt; and limit the Company’s ability to borrow additional funds on terms that are satisfactory to it or at all.
The Company may not be able to generate sufficient cash flow to meet its debt service obligations.
The Company’s ability to generate sufficient cash flows from operating activities to make scheduled payments on its debt obligations will depend on its future financial performance, which will be affected by a range of economic, competitive, regulatory, legislative and business factors, many of which are outside of the Company’s control. If the Company does not generate sufficient cash flows from operating activities to satisfy its debt obligations, the Company may have to undertake alternative financing plans, such as refinancing or restructuring its debt, selling assets, reducing or delaying capital investments or seeking to raise additional capital. The Company cannot assure that any refinancing would be possible or that any assets could be sold on acceptable terms or otherwise. The Company’s inability to generate sufficient cash flows to satisfy its debt obligations, or to refinance its obligations on commercially reasonable terms, would have an adverse effect on the Company’s business, financial condition and results of operations. In addition, any refinancing of the Company’s debt could be at higher interest rates and may require the Company to comply with more onerous covenants, which could further restrict its business operations. Also, any additional issuances of equity would dilute the Company’s shareholders.
Despite the Company’s level of indebtedness, it will be able to incur substantially more debt. Incurring such debt could further exacerbate the risks to the Company’s financial condition described above.
The Company will be able to incur substantial additional indebtedness in the future. Although the loan and security agreement governing the Revolving Credit Facility contains restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of qualifications and exceptions and the indebtedness incurred in compliance with these restrictions could be substantial. The restrictions also do not prevent the Company from incurring obligations that do not constitute indebtedness. To the extent new debt is added to the Company’s currently anticipated debt levels, the substantial leverage risks described above would increase.
The failure to maintain effective internal control over financial reporting in accordance with applicable securities laws could cause the Company’s stock price to decline.
Section 404 of the Sarbanes-Oxley Act of 2002 and the related rules and regulations of the US Securities and Exchange Commission (the “SEC”) as well as applicable rules and guidelines adopted by the Canadian Securities Administrators require annual management assessments of the effectiveness of the Company’s internal control over financial reporting and a report by the Company’s independent registered public accounting firm to express an opinion on these controls based on their audit. Due to inherent limitations, there can be no assurance that the Company’s system of internal control over financial reporting will be successful in preventing all errors, theft, and fraud, or in informing management of all material information in a timely manner. Also, if the Company cannot in the future favorably assess, or the Company’s independent registered public accounting firm is unable to provide an unqualified attestation report on the effectiveness of the Company’s internal control over financial reporting, investors may lose confidence in the reliability of the Company’s financial reports, which could cause the Company’s stock price to decline.
The Company’s pension and other post-retirement benefit plans are unfunded which could require Company contributions.
The Company’s pension and other post-retirement benefit plans currently have an unfunded deficit of $29.3 million as of December 31, 2015 as compared to $31.7 million at the end of 2014. For 2015 and 2014, the Company contributed $2.0 million and $2.3 million, respectively, to its funded pension plans and to beneficiaries for its unfunded other benefit plans. The Company may need to divert certain of its resources in the future in order to resolve this funding deficit. In addition, the Company cannot predict whether a change in factors such as pension asset performance or interest rates, will require the Company to make a contribution in excess of its current expectations. Also, the Company expects to contribute $1.5 million to satisfy its 2016 minimum funding requirement for its funded pension plans and to beneficiaries for its unfunded other benefit plans. Further, the Company may not have the funds necessary to meet future minimum pension funding requirements or be able to meet its pension benefit plan funding obligation through cash flows from operating activities.
The Company depends on the proper functioning of its information systems.
The Company is dependent on the proper functioning of information systems, some of which are owned and operated by third parties, to store, process and transmit confidential information, including financial reporting, inventory management, procurement, invoicing and electronic communications belonging to its customers, its suppliers, its employees and/or the Company itself. The Company’s information systems are vulnerable to natural disasters, fire, casualty theft, technical failures, terrorist acts, cyber security breaches, power loss, telecommunications failures, physical or software intrusions, computer viruses, and similar events. If the Company’s critical information systems fail or are otherwise unavailable, its operations could be disrupted, causing a material adverse effect on its business. Also, any theft or misuse of information resulting from a security breach could result in, among other things, loss of significant and/or sensitive information, litigation by affected parties, financial obligations resulting from such theft or misuse, higher insurance premiums, governmental investigations, negative reactions from current and potential future customers (including potential negative financial ramifications under certain customer contract provisions) and poor publicity. Any of these consequences, in addition to the time and funds spent on monitoring and mitigating the Company’s exposure and responding to breaches, including the training of employees, the purchase of protective technologies and the hiring of additional employees and consultants to assist in these efforts, could adversely affect its financial results.
The Company faces risks related to its international operations.
The Company has customers and operations located outside the United States and Canada. In 2012,2015, sales to customers located outside the United States and Canada represented approximately 8%7% of its sales. The Company’s international operations present it with a number of risks and challenges, including potential difficulties staffing and managing its foreign operations, potential difficulties managing a more extensive supply chain as compared to its sales efforts in the United States and Canada, potential adverse changes in tax regulations affecting tax rates and the way the United States and other countries tax multinational companies, the effective marketing of the Company’s products in other countries;countries, tariffs and other trade barriers;barriers, less favorable intellectual property laws, longer customer payment cycles, exposure to economies that may be experiencing currency volatility or negative growth, exposure to political and economic instability and unsafe working conditions (including acts of terrorism, widespread criminal activities and outbreaks of war) and different regulatory schemes and political environments applicable to its operations in these areas, such as environmental and health and safety compliance.
In addition, the Company’s financial statements are reported in US dollars while a portion of its sales is made in other currencies, primarily the Canadian dollar and the Euro. A portion of the Company’s debt is also denominated in currencies other than the US dollar. As a result, fluctuations in exchange rates between the US dollar and foreign currencies can have a negative impact on the Company’s reported operating results and financial condition. Moreover, in some cases, the currency of the Company’s sales does not match the currency in which it incurs costs, which can negatively affect its profitability. Fluctuations in exchange rates can also affect the relative competitive position of a particular facility where the facility faces competition from non-local producers, as well as the Company’s ability to successfully market its products in export markets.
The Company’s operations are subject to comprehensive environmental regulation and involve expenditures which may be material in relation to its operating cash flow.
The Company’s operations are subject to extensive environmental regulation in each of the countries in which it maintains facilities. For example, United States (Federal,US (federal, state and local) and Canadian (Federal,(federal, provincial and local) environmental laws applicable to the Company include statutes and regulations intended to impose certain obligations with respect to site contamination and to allocate the cost of investigating, monitoring and remedying soil and groundwater contamination among specifically identified parties, as well as to prevent future soil and groundwater contamination; imposing ambient standards and, in some cases, emission standards, for air pollutants which present a risk to public health, welfare or the natural environment; governing the handling, management, treatment, storage and disposal of hazardous wastes and substances; and regulating the discharge of pollutants into waterways.
The Company’s use of hazardous substances in its manufacturing processes and the generation of hazardous wastes not only by the Company, but by prior occupants of its 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 closely monitor closely its compliance under all the various environmental laws and 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.
The Company obtains Phase I or similar environmental site assessments, and Phase II environmental site assessments, if necessary, for most of the manufacturing facilities it owns or leases at the time it either acquires or leases such facilities. These assessments typically include general inspections and may involve soil sampling and/or ground watergroundwater analysis. The assessments have not revealed any environmental liability other than, or in addition to, the $2.5 million liability accrued in provisions in the Company’s consolidated balance sheet, that, based on current information, the Company believes will have a material adverse effect
on it. Nevertheless, these assessments may not reveal all potential environmental liabilities and current assessments are not available for all facilities. Consequently, there may be material environmental liabilities that the Company is not aware of. In addition, ongoing clean upcleanup and containment operations may not be adequate for purposes of future laws and regulations. The conditions of the Company’s properties could also be affected in the future by neighboring operations or the conditions of the land in the vicinity of its properties. These developments and others, such as increasingly stringent environmental laws and regulations, increasingly strict enforcement of environmental laws and regulations, or claims for damage to property or injury to persons resulting from the environmental, health or safety impact of its operations, may cause the Company to incur significant costs and liabilities that could have a material adverse effect on it.
Except as described in Item 4B(8) below, the Company believes that all of its facilities are in material compliance with applicable environmental laws and regulations and that it has obtained, and is in material compliance with, all material permits required under environmental laws and regulations. Although certain of the Company’s facilities emit toluene and other pollutants into the air, these emissions are within current permitted limitations. The Company believes that these emissions from its US facilities will meet the applicable future federal Maximum Available Control Technology (“MACT”) requirements, although additional testing or modifications at the facilities may be required. The Company believes that the ultimate resolution of these matters should not have a material adverse effect on its financial condition or results of operations.limits.
The Company’s facilities are required to maintain numerous environmental permits and governmental approvals for its operations. Some of the environmental permits and governmental approvals that have been issued to the Company or to its facilities contain conditions and restrictions, including restrictions or limits on emissions and discharges of pollutants and contaminants, or may have limited terms. If the Company fails to satisfy these conditions or to comply with these restrictions, it may become subject to enforcement actions and the operation of the relevant facilities could be adversely affected. The Company may also be subject to fines, penalties or additional costs. The Company may not be able to renew, maintain or obtain all environmental permits and governmental approvals required for the continued operation or further development of the facilities, as a result of which the operation of the facilities may be limited or suspended.
The Company may become involved in litigation relating to its intellectual property rights, which could have an adverse impact on its business.
Intertape Polymer GroupThe Company relies on patent protection, as well as a combination of copyright, trade secret and trademark laws, nondisclosure and confidentiality agreements and other contractual restrictions to protect its proprietary technology. Litigation may be necessary to enforce these rights, which could result in substantial costs to the Company and a substantial diversion of management attention. If the Company does not adequately protect its intellectual property, its competitors or other parties could use the intellectual property that the Company has developed to enhance their products or make products similar to the Company’s and compete more efficiently with it, which could result in a decrease in the Company’s market share.
While the Company has attempted to ensure that its products and the operations of its business do not infringe other parties’ patents and proprietary rights, its competitors or other parties may assert that the Company’s products and operations may be covered byinfringe upon patents held by them. In addition, because patent applications can take many years to issue, there may be applications nowthe Company might have products that infringe upon pending patents of which the Companyit is unaware, which may later result in issued patents which the Company’s products may infringe.unaware. If any of the Company’s products infringe a valid patent, it could be prevented from selling them unless the Company can obtainobtains a license or redesignredesigns the products to avoid infringement. A license may not always be available or may require the Company to pay substantial royalties. The Company may not be successful in any attemptattempts to redesign any of its products to avoid any infringement. Infringement or other intellectual property claims, regardless of merit or ultimate outcome, can be expensive and time-consuming and canto resolve as well as divert management’s attention from the Company’s core business.
The Company may become involved in labor disputes or employees could form or join unions increasing the Company’s costs to do business.
Some of Intertape Polymer Group’sthe Company’s employees are subject to collective bargaining agreements. Other employees are not part of a union and there are no assurances that such employees will not form or join a union. Any attempt by employees to form or join a union could result in increased labor costs and adversely affect the Company’s business, its financial condition and/or results of operations.
Except for the strike which occurred at the Company’s Brantford, Ontario plant in 2008, which is now closed, the Company has never experienced any work stoppages due to employee related disputes. Management believes that it has a good relationship with its employees. There can be no assurance, however, that work stoppages or other labor disturbances will not occur in the future. Such occurrences could adversely affect Intertape Polymer Group’sthe Company’s business, financial condition and/or results of operations.
The Company may become involved in litigation which could have an adverse impact on its business.Index to Financial Statements
Intertape Polymer Group,The Company, like other manufacturers and sellers, is subject to potential liabilities connected with its business operations, including potential liabilities and expenses associated with product defects, performance, reliability or delivery delays. Intertape Polymer GroupThe Company is threatened from time to time with, or is named as a defendant in, legal proceedings, including lawsuits based upon product liability, personal injury, breach of contract and lost profits or other consequential damages claims, in the ordinary course of conducting its business. A significant judgment against Intertape Polymer Group,the Company, or the imposition of a significant fine or penalty as a result ofresulting from a finding that the Company failed to comply with laws or regulations, or being named as a defendant on multiple claims could adversely affect the Company’s business, financial condition and/or results of operations. As discussed further in Item 5. Operating and Financial Review and Prospects (Management’s Discussion & Analysis), the Company’s former Chief Financial Officer filed a lawsuit in the United States District Court for the Middle District of Florida on November 5, 2015 alleging certain violations by the Company related to the terms of his employment and his termination. While the Company is aggressively contesting the allegations and is not currently able to predict the probability of a favourable or unfavourable outcome, or the amount of any possible loss in the event of an unfavourable outcome, such an unfavourable outcome could adversely affect the Company’s business, financial condition and/or results of operations.
Uninsured and underinsured losses and rising insurance costs could adversely affect the Company’s business.
Intertape Polymer GroupThe Company maintains property, business interruption, general liability, and business interruption insurance and directors and officersofficer’s liability and other ancillary insurance on such terms as it deems appropriate. This may result in insurance coverage that, in the event of a substantial loss, would not be sufficient to pay for the full current market value or current replacement cost of the Company’s lost investment. Not all risks are covered by insurance.
Intertape Polymer Group’sThe Company’s cost of maintaining property, general liability and business interruption insurance and director and officer liability insurance is significant. The Company could experience higher insurance premiums as a result of adverse claims experience or because of general increases in premiums by insurance carriers for reasons unrelated to its own claims experience. Generally, the Company’s insurance policies must be renewed annually. Intertape Polymer Group’sThe Company’s ability to continue to obtain insurance at affordable premiums also depends upon its ability to continue to operate with an acceptable claims record. A significant increase in the number of claims against the Company, the assertion of one or more claims in excess of its policy limits, or the inability to obtain adequate insurance coverage at acceptable rates, or any insurance coverage at all, could adversely affect the Company’s business, financial condition and/or results of operations.
The Company’s success depends upon retaining the services of its management team and key employees.
The Company is dependent on its management team and expects that continued success will depend largely upon their efforts and abilities. The loss of the services of any key executive for any reason could have a material adverse effect on the Company. Success also depends upon the Company’s ability to identify, develop, and retain qualified employees.
Product liability could adversely affect the Company’s business.
Difficulties in product design, performance and reliability could result in lost sales, delays in customer acceptance of Intertape Polymer Group’sthe Company’s products, and lawsuits and wouldcustomer complaints or lawsuits. Such difficulties could be detrimental to the Company’s market reputation. Intertape Polymer Group’sThe Company’s products and the products supplied by third parties on behalf of the Company aremay not error free.be error-free. Undetected errors or performance problems may be discovered in the future. The Company may not be able to successfully complete the development of planned or future products in a timely manner or to adequately address product defects, which could harm the Company’s business and prospects. In addition, product defects may expose Intertape Polymer Groupthe Company to product liability claims, for which it may not have sufficient product liability insurance. Difficulties in product design, performance and reliability or product liability claims could adversely affect Intertape Polymer Group’sthe Company’s business, financial condition and/or results of operations.
Acquisitions could exposeBecause the Company to significant business risks.
The Company may make strategic acquisitions that would complement its existing products, expand its customer base and markets, improve distribution efficiencies and enhance its technological capabilities. Financial risks from these acquisitions include the use of the Company’s cash resources and incurring additional debt and liabilities. Further, there are possible operational risks including difficulties in assimilating and integrating the operations, products, technology, information systems and personnel of acquired companies; the loss of key personnel of acquired entities; the entry into markets in which the Company has no or limited prior experience; and difficulties honoring commitments made to customers of the acquired companies prior to the acquisition. The failure to adequately address these risks could adversely affect the Company’s business.
Although the Company performs due diligence investigations of the businesses and assets that it acquires, and anticipates continuing to do so for future acquisitions, there may be liabilities related to the acquired business or assets that the Company fails to, or is unable to, uncover during its due diligence investigation and for which the Company, as a successor owner, may be responsible. When feasible, the Company seeks to minimize the impact of these types of potential liabilities by obtaining indemnities and warranties from the seller, which may in some instances be supported by deferring payment of a portion of the purchase price. However, these indemnities and warranties, if obtained, may not fully cover the liabilities because of their limited scope, amount or duration, the financial resources of the indemnitor or warrantor or other reasons.
The Company’s manufacturing plant rationalization initiatives may result in higher costs and less savings than anticipated.
The Company has implemented several manufacturing plant rationalization initiatives. Each initiative may not be completed as planned and as a result, the costs and capital expenditures incurred by the Company may substantially exceed projections. This could result in additional debt incurred by the Company, reduced production and the loss of anticipated manufacturing cost savings.
Because Intertape Polymer Group is a Canadian company, it may be difficult to enforce rights under US bankruptcy laws.
Intertape Polymer GroupThe Company and certain of its subsidiaries are incorporated under the laws of Canada and a substantial amount of its assets are located outside of the United States. Under bankruptcy laws in the United States, courts typically assert jurisdiction over a debtor’s property, wherever located, including property situated in other countries. However, courts outside of the United States may not recognize the United States bankruptcy court’s jurisdiction over property located outside of the territorial limits of the United States. Accordingly, difficulties may arise in administering a United States bankruptcy case involving a Canadian debtor with property located outside of the United States, and any orders or judgments of a bankruptcy court in the United States may not be enforceable outside the territorial limits of the United States.
It may be difficult for investors to enforce civil liabilities against Index to Financial Statements
Intertape Polymer Groupthe Company under US federal and state securities laws.
Intertape Polymer GroupThe Company and certain of its subsidiaries are incorporated under the laws of Canada. Certain of their directors and executive officers are residents of Canada and a portion of theirdirectors’ and executive officers’ assets aremay be located outside of the United States. In addition, certain subsidiaries are located in other foreign jurisdictions. As a result, it may be difficult or impossible for US investors to effect service of process within the United States upon Intertape Polymer Group,the Company, its Canadian subsidiaries, or its other foreign subsidiaries, or those directors and officers, or to realize against them upon judgments of courts of the United States predicated upon the civil liability provisions of US federal securities laws or securities or blue sky laws of any state within the United States. The Company believes that a judgment of a US court predicated solely upon the civil liability provisions of the Securities Act of 1933, as amended and/or the Securities Exchange Act of 1934, as amended (“Exchange Act”) would likely be enforceable in Canada if the US court in which the judgment was obtained had a basis for jurisdiction in the matter that was recognized by a Canadian court for such purposes. The Company cannot assure that this will be the case. There is substantial doubt whether an action could be brought in Canada in the first instance on the basis of liability predicated solely upon such laws.
The Company has its registered office in the Province of Québec, Canada and, as a result, is subject to the securities laws of that province. In addition, the Company is a “reporting issuer” under the securities laws of each of the provinces of Canada and is therefore subject to the provisions thereof relating to, among other things, continuous disclosure and filing of insider reports by the Company’s “reporting insiders”, as applicable.
While the Company’s shares trade on the Toronto Stock Exchange, they trade on the OTC Pink Marketplace in the US, which may result in the possible absence of a liquid trading market for securities of US investors.
The Company’s common shares are traded in the US on the OTC Pink Marketplace. Trading on this market can be thin and characterized by wide fluctuations in trading prices, due to many factors that may have little to do with a company’s operations or business prospects. In addition, trading on this market is often sporadic, so shareholders may have some difficulty reselling any of their shares of common stock on this market.
Compliance with the SEC’s new conflict mineral disclosure requirements results in additional compliance costs and may create reputational challenges.
The SEC adopted rules pursuant to Section 1502 of the Dodd-Frank Act setting forth disclosure requirements concerning the use or potential use of certain minerals and their derivatives, including tantalum, tin, gold and tungsten, that are mined from the Democratic Republic of Congo and adjoining countries, and deemed conflict minerals. These requirements have necessitated, and will continue to necessitate, due diligence efforts by the Company to assess whether such minerals are used in the Company’s products in order to make the relevant required disclosures. There are certain costs associated with complying with these new disclosure requirements, including diligence to determine the sources of those minerals that may be used or necessary to the production of the Company’s products. If the Company determines that certain of its products contain minerals that are not conflict-free or is unable to sufficiently verify the origins for all conflict minerals used in its products, the Company may face changes to its supply chain or challenges to its reputation, either of which could impact future sales.
The Company’s exemptions under the Securities Exchange Act of 1934, as amended, as a foreign private issuer, limitslimit the protections and information afforded investors.
Intertape Polymer GroupThe Company is a foreign private issuer within the meaning of the rules promulgated under the Exchange Act. As such, it is exempt from certain provisions applicable to United States companies with securities registered under the Exchange Act, including: the rules under the Exchange Act requiring the filing with the Securities and Exchange Commission of quarterly reports on Form 10-Q or current reports on Form 8-K; the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act; and the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and establishing insider liability for profits realized from any “short-swing” trading transaction (i.e., a purchase and sale, or sale and purchase, of the issuers’ equity securities within a period of less than six months). Because of these exemptions, purchasers of Intertape Polymer Group’sthe Company’s securities are not afforded the same protections or information generally available to investors in public companies organized in the United States. Prior to December 31, 2000, the Company filed its annual reports on Form 20-F. Commencing with the year
ended December 31, 2000 through December 31, 2007, and again forFor the year ended December 31, 2009, the Company filed its annual reports on Form 40-F. For the years ended December 31, 2008 and December 31, 2010, Intertape Polymer Group filed its annual report on Form 20-F. Commencingcommencing for the year ended December 31, 2010 and going forward, the Company has elected to file its annual report on Form 20-F which also fulfills the requirements of the Annual Information Form required in Canada, thus necessitating only one report. Intertape Polymer GroupThe Company reports on Form 6-K with the United States Securities and Exchange Commission and publicly releases quarterly financial reports.
Item 4: | Information on the Company |
A. | HISTORY AND DEVELOPMENT OF THE COMPANY |
The business of Intertape was established when Intertape Systems Inc., a predecessor of the Company, established a pressure-sensitivepressure sensitive tape manufacturing facility in Montreal. Intertape Polymer GroupMontreal, Canada. The Company was incorporated under theCanada Business Corporations Act on December 22, 1989 under the name “171695 Canada Inc.” On October 8, 1991, the Company filed a Certificate of Amendment changing its name to “Intertape Polymer Group Inc.” A Certificate of Amalgamation was filed by the Company on August 31, 1993, at which time the Company was amalgamated with EBAC Holdings Inc. The Shareholders, at the Company’s JuneOn November 11, 2003 annual and special meeting, voted on the replacement of the Company’s By-Law No. 1 with a new General By-Law 2003-1. The intent of the replacement by-law was to conform the Company’s general by-laws with amendments that were made to theCanada Business Corporations Act since the adoption of the general by-laws and to simplify certain aspects of the governance of the Company. On August 6, 2006, the Company filed a Certificate of Amendment to permit2015, the Board of Directors adopted a new By-Law 2015-1, requiring advance notice for the nomination of directors. Under the Company to appoint one or more additional Directors to hold office for a term expiring not later thanCanada Business Corporations Act, By-law 2015-1 is in force, but must be confirmed by the close ofCompany’s shareholders at the next annual meeting of the Company’s Shareholders, so long as the total number of Directors so appointed doesshareholders’ meeting. If By-law 2015-1 is not exceed one-third of the number of Directors electedconfirmed at the previous annualshareholders’ meeting, of the Shareholders of the Company.it will cease to have effect at that time.
Intertape Polymer Group’sThe Company’s corporate headquarters is located at 9999 Cavendish Blvd., Suite 200, Ville St. Laurent, Quebec,Québec, Canada H4M 2X5 and the address and telephone number of its registered office is 1250 René-Lévesque Blvd. West,800 Place Victoria, Suite 2500, Montreal, Quebec, Canada H3B 4Y1,3700, Montréal, Québec H4Z 1E9, c/o Heenan BlaikieFasken Martineau Dumoulin LLP, (514) 846-1212.397-7400.
In the last five years, the Company has undertaken a number of significant manufacturing plant rationalization initiatives in an effort to achieve its goal of being a low-cost producer of its products along with having world class assets at its manufacturing facilities. The Company operates in various geographic locations and develops, manufactures and sells a variety of paper and film based pressure sensitive and water activated tapes, specialized polyolefin films, woven fabrics and complementary packaging systems to a diverse customer base. Most of the Company’s products are made from similar processes. A vast majority of the Company’s products, while brought to market through various distribution channels, generally have similar economic characteristics.
The Company entered into an Asset Purchase Agreement in July 2011 to acquire equipment, a customer list and intellectual property to supplement the Company’s existing water activated tape business. The Company’s total expenditure with respect to the acquisition was $0.9 million.
Intertape Polymer Group closed its Brantford, Ontario, facility during the second quarter of 2011 and discontinued the manufacture of certain products that were produced solely at the Brantford, Ontario, plant. Intertape Polymer Group alsoThe Company sold various assets of the Brantford, Ontario, facility. Intertape Polymer Group alsofacility in January 2013. The Company sold its Hawkesbury, Ontario, plant in 2011. In the fourth quarter of 2012, the Company ceased manufacturing operations at its Richmond, Kentucky, manufacturing facility.
On August 14, 2012,facility and transferred operations to its Carbondale, Illinois, facility during the first quarter of 2013. The Company sold the Richmond, Kentucky facility in the fourth quarter of 2014. In addition, the Company entered into a secured debt equipment finance agreement (the “Equipment Finance Agreement”)consolidated its North American shrink film production at its Tremonton, Utah, facility in the amount of up to $24.0 million for qualifying US capital expenditures during the period May 2012 through December 31, 2013. The Equipment Finance Agreement will have quarterly scheduling of amounts with each schedule having a term of sixty months and a fixed interest rate. The average of the fixed interest rates is expected to be less than 3.0%. The Company entered into the first schedule on September 27, 2012 for $2.7 million at an interest rate of 2.74% with 60 monthly payments of $48,577 and the last payment due on October 2, 2017. The Company entered into the second schedule on December 28, 2012 for $2.6 million at an interest rate of 2.74% with 60 monthly payments of $46,258 and the last payment due on December 31, 2017.
As of the result of an internal restructuring, effective December 31, 2012, the Company liquidated and dissolved ECP L.P. and ECP GP II Inc., its Canadian operating companies, and all business, assets and liabilities were transferred to Intertape Polymer Inc., another Canadian subsidiary of the Company. Also effective December 31, 2012, the Company liquidated and dissolved Polymer International Corp., a Virginia corporation, and all of its assets and liabilities are with Intertape Polymer Corp., a Delaware corporation, a US subsidiary of the Company.
In February 2013, the Company announced an initiativeplans to invest $26 million, excluding real estate, to relocate within the same region and modernize its Columbia, South Carolina, manufacturing operation. The new facility will include state-of-the-art manufacturing equipment which the Company believes will allow it to realize significant productivity gains, provide a better working environment for employees, and benefit from advanced environmental controls. In Marchin June 2013, the Company entered into a letter of intent to purchase a manufacturing facilityacquired property in Blythewood, South Carolina. The costCarolina, which is located in close proximity to the Columbia, South Carolina plant. As of December 31, 2015, the Company had completed commissioning efforts in relation to the duct tape production line and began limited production and sales of the building, including improvements, ismasking tape production line in Blythewood, South Carolina with the full transfer of masking tape production still expected to be completed in the first half of 2016. Capital expenditures for this project are expected to total approximately $13.5 million.$60 million, of which $2.7 million was spent in 2012, $21.8 million in 2013, $24.3 million in 2014, and $7.9 million in 2015.
Effective October 30, 2014, the Company completed an additional internal restructuring to reorganize the capital structure of several of its legal entities to more efficiently manage its intercompany debt. The results of this restructuring were (in addition to certain transfers of certain intercompany receivables, payables and notes): (a) IPG Holdings LP was dissolved; (b) all of the preferred shares in IPG (US) Holdings Inc. were redeemed and cancelled, with Intertape Polymer Group Inc. owning all of the common shares of IPG (US) Holdings Inc.; (c) Intertape Polymer Group Inc. formed IPG Luxembourg S.à r.l, a Luxembourg private limited liability company (société à responsabilité limitée) as a wholly owned subsidiary of Intertape Polymer Group Inc. and (d) Intertape Polymer Corp. transferred all of its preferred equity interests in Intertape Polymer Inc. to IPG (US) Inc.
On April 7, 2015, the Company purchased 100% of the issued and outstanding common stock of BP Acquisition Corporation (which wholly-owns a subsidiary, Better Packages, Inc.) (“Better Packages”), a leading supplier of water-activated tape dispensers. The Company expects the Better Packages acquisition to further extend the Company’s total capital expendituresproduct offering and global presence in connection with property, plant and equipment were $21.6the rapidly growing e-commerce market. The Company paid a purchase price of $15.9 million in cash. The Company expects that these acquired operations will generate annualized revenue of approximately $18 million and $14.0 million forEBITDA margin of over 15% in 2016.
Effective September 1, 2015, along with certain related transfers of certain intercompany receivables, payables and notes, on or about the years 2012same date, Intertape Polymer US Inc. was dissolved.
On October 4, 2015, the Columbia, South Carolina manufacturing facility was damaged by significant rainfall and 2011, respectively.subsequent severe flooding. The majoritydamages sustained were considerable and resulted in the facility being shut down permanently. The Company had planned to shut down this facility by the end of the expendituressecond quarter of 2016 so this represents a timeline of eight to nine months earlier.
On November 2, 2015, the Company purchased 100% of the issued and outstanding common shares of RJM Manufacturing, Inc. (d/b/a “TaraTape”), a manufacturer of filament and pressure sensitive tapes, IPC paid in cash, funded primarily from the Company’s Revolving Credit Facility, a purchase price of $11.0 million in cash. The Company expects that these acquired operations will generate annualized revenue of approximately $20 million and EBITDA margin of slightly below 10% before any synergies in 2016.
While the Company received a letter from two of its shareholders on November 9, 2015 urging the Company to take certain actions (such letter and the Company’s response were to update existing manufacturing equipment and to obtain new equipment.
Thereboth made publicly available), there has not been any indication of any public takeover offers by third parties in respect of the Company’s shares or by the Company in respect of other companies’ shares during the last and current fiscal year.
The Company’s total capital expenditures in connection with property, plant and equipment were $34.3 million, $40.6 million and $46.8 million for the years 2015, 2014 and 2013, respectively. The majority of the expenditures were to update existing manufacturing equipment and to obtain new equipment. Capital expenditures for the year ended December 31, 2015 were primarily for property, plant and equipment to support the following strategic and growth initiatives: the new facility in Blythewood, South Carolina ($7.9 million), the recently announced water-activated tape capacity expansion in Cabarrus County, North Carolina ($4.2 million spent in 2015 and applied to this project, which was announced in 2016), shrink film capacity expansion at the Portugal manufacturing facility ($3.9 million), and woven products capacity expansion ($3.2 million). The Company funded these 2015 capital expenditures through its cash flows from operations and funds available under the Revolving Credit Facility. On a related note, the Company typically relies upon cash flows from operations and funds available under the Revolving Credit Facility to fund capital expenditures. Additionally, in August the Company entered into a partially forgivable loan (“Partially Forgivable Loan”) with Agencia para Investmento Comercio Externo de Portugal, EPE (AICEP), the Portuguese agency for investment and external trade, as part of financing the capital expansion project in Portugal.
B. | BUSINESS OVERVIEW |
Intertape Polymer Group is a recognized leaderThe Company operates in the specialty packaging industry in North America. The Company develops, manufactures and sells a variety of paper and film basedfilm-based pressure sensitive and water activated tapes, polyethylene and specialized polyolefin packaging films, woven coated fabrics and complementary packaging systems for industrial use and retail applications.use. The Company’s products includeprimarily consist of carton sealing tapes, including Intertape™ pressure-sensitive and water-activated tapes; packaging equipment; industrial and performance specialty tapes including masking, duct, electrical and reinforced filament tapes; Exlfilm® shrink film; StretchFlex® stretch wrap, engineered coated fabric products,wrap; lumberwrap, structure fabrics, geomembrane fabrics; and non-manufactured flexible intermediate bulk containers (“FIBCs”). TheseMost of the Company’s products are soldmade from similar processes. A vast majority of the Company’s products, while brought to market through a variety of industrial and specialty distributors with a focus on sales to the construction and agricultural markets as well as the flexible packaging market.various distribution channels, generally have similar economic characteristics.
The Company has approximately 1,8002,000 employees with operations in 1617 locations, including 1012 manufacturing facilities in North America and one1 in Europe.
Intertape Polymer GroupThe Company has assembled a broad range of products by leveraging its manufacturing technologies, its research and development capabilities, global sourcing expertise and its strategic acquisition program. Over the years, the Company has made a number of strategic acquisitions, including the 2015 TaraTape and Better Packages acquisitions, in order to offer a broader range of products to better serve its markets. The Company’s extensive product line permits Intertape Polymer Groupthe Company to offer tailored solutions to a wide range of end-markets including food and beverage,processing, fulfillment, consumer, industrial, building and construction, oil and gas, water supply, automotive, medical,transportation, agriculture, aerospace, appliance, general manufacturing, marine, composites and military applications.
Overview of Periods
20132010
In January 2013, the Company sold the Brantford, Ontario manufacturing facility and received net proceeds of $1.6 million. The Company recovered $0.2 million of the asset impairment charge previously recorded in 2011 and 2010.
On February 26, 2013, the Company announced plans to relocate and modernize its Columbia, South Carolina manufacturing operation. In June 2013, the Company acquired property located in Blythewood, South Carolina. This property was financed by an $8.5 million mortgage with Wells Fargo National Association (the “South Carolina Mortgage”). In November 2014, the Company prepaid in full this loan with proceeds from the Revolving Credit Facility. As of December 31, 2015, the Company had completed commissioning efforts in relation to the duct tape production line and began limited production and sales of the masking tape production line in Blythewood, South Carolina with the full transfer of masking tape production still expected to be completed in the first half of 2016.
In June 2013, the Company redeemed $20.0 million aggregate principal amount of its outstanding Senior Subordinated Notes bearing interest at 8.5%, and on August 30, 2013, the Company redeemed the remaining $18.7 million aggregate principal amount of its outstanding Senior Subordinated Notes due August 1, 2014, fully discharging and satisfying the Senior Subordinated Notes and Indenture.
During 2010,2013, the Company remainedcompleted certain initiatives regarding its facilities. Production ceased at the Company’s Richmond, Kentucky, plant in prudentthe fourth quarter of 2012, production of shrink film ceased at the Company’s Truro, Nova Scotia, plant in the first quarter of 2013, and the Company consolidated its shrink film operations at its Tremonton, Utah, manufacturing facility.
On August 14, 2013, the Board of Directors modified the Company’s dividend policy to provide for the payment of quarterly dividends as opposed to semi-annual dividends. During 2013, the Company paid dividends totaling $0.24 per share.
In August 2013, the Company relocated its US executive headquarters to a leased facility at 100 Paramount Drive, Suite 300, Sarasota, Florida 34232. The former US executive headquarters located in Bradenton, Florida was sold in 2015.
The Company entered into an Equipment Finance Agreement in August 2012. During 2013, the Company was required to finance $20 million of equipment purchases. As of December 31, 2013, the Company financed $16.9 million. However, the Company was not required to pay a Reinvestment Premium on the shortfall inasmuch as the three-year SWAP rate at December 31, 2013 as set forth in the Federal Reserve H.15 report decreased to less than 0.5%. The average of the fixed interest rates of the capital leases as of December 31, 2013 was 2.86%.
In assessing the recoverability of deferred tax assets, management mode focusingdetermines, at each balance sheet date, whether it is more likely than not that a portion or all of its deferred tax assets will be realized. This determination is based on costquantitative and debt reductionsqualitative assessments by management and the weighing of all available evidence, both positive and negative. Such evidence includes the scheduled reversal of deferred tax liabilities, projected future taxable income and the implementation of tax planning strategies. As of December 31, 2013, management analyzed all available evidence including, in particular, the Company’s financial results for the year then ended (taxable income and earnings before income tax expense (benefit)), the 2013 budget variances, and the Company’s cumulative financial results for the prior three years. In addition, management took under significant consideration the Company’s 2014 budget, its long-term financial projections, market and industry conditions and certain available tax strategies. As a result of this detailed analysis, management determined at such time that it was more likely than not that substantially all of the Company’s deferred tax assets in the US would be realized and, accordingly, recognized $47.8 million of its US deferred tax assets, $43.0 million of which impacted the Company’s net earnings while making productivity improvements, introducing new products,the balance impacted its shareholders’ equity.
In addition, management determined at such time that it was more likely than not that a portion of its deferred tax assets related to the Company’s corporate (holding) entity (Intertape Polymer Group Inc. or the “Entity”) would not be realized due to insufficient taxable income in future periods. Previously, the Entity benefited from sufficient taxable income as a result of certain tax planning strategies implemented in 2011 (the “Planning”). The Company’s management continued to expect that, pursuant to the Planning, the Entity would continue to generate sufficient taxable income in order to fully utilize its net operating losses with expiration dates through 2015. However, in 2013, the benefit of the Planning was expected to diminish over time. Accordingly, the Company derecognized $4.6 million of its Canadian deferred tax assets as of December 31, 2013.
2014
In 2014, Intertape hired Jeffrey Crystal, who was appointed Chief Financial Officer effective May 9, 2014. Bernard J. Pitz’s tenure as chief financial officer ended on January 30, 2014. Michael C. Jay, Corporate Controller since 2011, assumed the duties of interim Chief Financial Officer from January 30, 2014 to May 9, 2014.
In March 2014, Intertape increased the amount available under the Equipment Finance Agreement dated August 14, 2012 from $24.0 million to $25.7 million and opening new market channels.also entered into its final capital lease schedule under this agreement for $3.5 million. The average of the fixed interest rates of the capital leases as of December 31, 2014 was 2.87%.
On June 8, 2010, Gregory A. Yull was named President11, 2014, Intertape’s Board of Directors adopted: (a) the Performance Share Unit Plan (“PSU Plan”) and Chief Executive Officer(b) the Deferred Share Unit Plan (“DSU Plan”). The PSU Plan is administered by the Compensation Committee of the Board of Directors of the Company and was appointedauthorizes the Company to award PSUs to eligible persons. The DSU Plan is administered by the Compensation Committee of the Board on August 2, 2010. Mr. Yull has been withof Directors of the Company many years and brought with him extensive industry knowledge, hands-on experience and a full understandingauthorizes the Company to award DSUs to any member of the Company’s objectives.
In May 2010,Board of Directors of the Company that is not an executive officer or employee of the Company. A maximum of 1,000,000 common shares may be issued from treasury under the PSU Plan. A maximum of 250,000 common shares may be issued from treasury under the DSU Plan.
On July 7, 2014, Intertape announced that the Toronto Stock Exchange had approved the Company’sa normal course issuer bid pursuant to which(“NCIB”) effective on July 10, 2014. In connection with this NCIB, the Company was entitled to repurchase for cancellation up to 2,947,5522,000,000 of Intertape’s common shares overissued and outstanding. The NCIB was set to expire on July 9, 2015. As of December 31, 2014, the twelve-month period commencing May 26, 2010 and ending on May 25, 2011. The Company did not repurchase anyhad repurchased 597,500 common shares pursuant to the normal course issuer bid.
In October 2010 the Company obtained a $3 million mortgage loan on its owned real estate located in Danville, Virginia. The mortgage isat an average price of CDN$14.35 per share, including commissions, for a termtotal purchase price of 32 months bearing interest at$7.8 million.
On July 7, 2014, Intertape’s Board of Directors modified Intertape’s dividend policy to increase the annualized dividend by 50% from $0.32 to $0.48 per common share.
On August 5, 2014, the Board of Directors appointed Mr. Frank Di Tomaso as a new board member of the Company.
Effective October 30, 2014, Intertape completed an annual rateinternal restructuring to reorganize the capital structure of 10%.several of its legal entities to more efficiently manage its intercompany debt. The mortgage requires monthly paymentsresults of principalthis restructuring were (in addition to certain transfers of certain intercompany receivables, payables and interestnotes): (a) IPG Holdings LP was dissolved; (b) all of the preferred shares in IPG (US) Holdings Inc. were redeemed and cancelled, with Intertape Polymer Group Inc. owning all of the amountcommon shares of $63,741.00 withIPG (US) Holdings Inc.; (c) Intertape Polymer Group Inc. formed IPG Luxembourg Finance S.à r.l, a lump sum paymentLuxembourg private limited liability company (société à responsabilité limitée) as a wholly owned subsidiary of Intertape Polymer Group Inc. and (d) Intertape Polymer Corp. transferred all remaining unpaid principalof its preferred equity interests in Intertape Polymer Inc. to IPG (US) Inc.
On November 18, 2014, Intertape entered into a new Revolving Credit Facility Agreement which provides for a five-year US$300 million Revolving Credit Facility. The Revolving Credit Facility replaced the ABL Facility and accrued interest due on July 1, 2013.
prepaid in full the outstanding balances of the Real Estate Loan and South Carolina Mortgage. The Company has had a sales presence in Europe for many years with supply and services coming from the United States. In December 2010, the Company established a local facility near Flensburg, Germany, to support the Company’s increased focus in Europe with expansion into several different market segments throughRevolving Credit Facility Agreement includes an increased sales force. The new facility allowsincremental accordion feature of US$150 million, which will enable the Company to service its customers with pressure sensitive tapes includingincrease the following Intertape™ branded products: masking tapes, flatback tapes, aluminum foil tapes, double coated tapes, cloth duct tapeslimit of this facility (subject to the Revolving Credit Facility Agreement’s terms and lender approval) if needed. The Revolving Credit Facility matures on November 18, 2019 and bears an interest rate based primarily on the LIBOR rate plus a spread varying between 100 and 225 basis points (125 basis points as well as several electrical and electronic grade tapes. of December 31, 2014) depending on the consolidated total leverage ratio.
In addition, Central® brands of water activated tapes have been stocked in the distribution center. This new facility is helping service the Company’s European customers with faster deliveries and smaller minimum order quantities and is succeeding in increasing the Company’s brand recognition in Europe.
2011
During 2011,December 2014, the Company maintained its focus on its long term strategic plansold the Richmond, Kentucky manufacturing facility and received net proceeds of reducing debt$2.3 million.
2015
On April 7, 2015, the Company purchased 100% of the issued and manufacturing costsoutstanding common stock of Better Packages, a leading supplier of water-activated tape dispensers.
The Company transferred production of duct tape to the new Blythewood facility in early April 2015. During the second and improving itsthird quarters of 2015, commissioning of the duct tape production line was ongoing in order to work toward the attainment of target levels of product mix.quality balanced with targeted production efficiency. Although the global economy continuedCompany was able to be sluggishmeet customer demand for duct tape during 2011, the Company’s selling prices increased more than both conversion costssecond and raw material costs; however,third quarters of 2015, there were production yield and operating inefficiencies related to the spread between selling pricesramp-up of duct tape production that had a negative impact on results in these quarters and raw material costs remained compressed when comparedresulted in an extended timeline for the project. However, these inefficiencies improved throughout the year and production was close to periods prior to 2010.
As a result of the ongoing strike of its unionized employees at the Company’s Brantford, Ontario plant, operations at the plant remained unprofitable. The Company concluded that a turnaround was highly improbable and duringreaching targeted performance levels in early 2016. In the fourth quarter of 2010, decided2015, the Company began limited production and sales of masking tape from the Blythewood facility, with the full transfer of masking tape production still expected to terminate operations.be completed in the first half of 2016. The plant closedCompany now considers that the commercialization of the masking tape products being produced in the Blythewood facility is complete, and therefore must continue to focus on the ramp-up in production efficiencies as well as the transfer of certain masking tape production from the Marysville, Michigan facility.
On June 4, 2015, the Board of Directors appointed Mr. George J. Bunze as the new Chairman of the Board following the retirement of the former Chairman, Mr. Eric E. Baker.
Effective July 10, 2015, the NCIB (effective on July 10, 2014 and scheduled to expire on July 9, 2015) was renewed. In connection with this NCIB, the Company was entitled to repurchase for cancellation up to 2,000,000 of the Company’s common shares issued and outstanding. This renewed NCIB expires on July 9, 2016. On November 11, 2015, the Toronto Stock Exchange approved an amendment to the Company’s NCIB, as a result of which the Company is entitled to repurchase for cancellation up to 4,000,000 common shares.
On August 12, 2015, the Company’s Board of Directors approved a change in the quarterly dividend policy by increasing the dividend from $0.12 to $0.13 per share.
In August 2015, one of the Company’s wholly-owned subsidiaries entered into a Partially Forgivable Loan. The loan was entered into with Agencia para Investmento Comercio Externo de Portugal, EPE (AICEP), the Portuguese agency for investment and external trade, as part of financing a capital expansion project. The loan totalled approximately $1.2 million at December 31, 2015 (€1.1 million). Based on the terms of the agreement, 50% of the loan will be forgiven in 2020 based on satisfying certain 2019 targets, including financial metrics and headcount additions. The partially forgivable loan is non-interest bearing and semi-annual installments of principal are due beginning in July 2018 through January 2024.
On October 4, 2015, the Columbia, South Carolina manufacturing facility was damaged by significant rainfall and subsequent severe flooding. The damages sustained were considerable and resulted in the facility being shut down permanently. The Company had planned to shut down this facility by the end of the second quarter of 2011. Some2016 so this represents a timeline of eight to nine months earlier.
In October 2015, one of the Brantford production was transferred to other facilitiesCompany’s wholly-owned subsidiaries entered into a long-term debt agreement containing a short-term credit line and a long-term loan for the purpose of Intertape Polymer Group, however, the majorityfinancing a capital expansion project. No amounts were outstanding and approximately $2.3 million (€2.5 million) of the activitiesloan was available as of December 31, 2015. Both credit lines bear interest at the Brantford plant were discontinued. In addition, during 2011 the Company selectively stopped selling certain low-margin products manufactured at its other locations and actively worked to increase salesrate of high-margin products.
Through6 month EURIBOR (Euro Interbank Offered Rate) plus a premium (125 basis points as of December 31, 2010, the Company’s financial statements were prepared in accordance with Canadian generally accepted accounting principles. As required by the Canadian Accounting Standards Board, Intertape Polymer Group adopted the International Financial Reporting Standards (“IFRS”) on January 1, 2011. As required by the applicable standards, the Company restated its financial information for 2010 to comply with IFRS with the exception of statements2015). The effective interest rate was 1.21% as of December 31, 2015. The short-term credit line matures in September 2016 and is renewable annually, with interest due quarterly and billed in arrears. The long-term loan has a period for capital use until October, 2017 and matures in April, 2022, with interest billed in arrears and due bi-annually beginning in April, 2018. The loans are secured by a comfort letter issued to the transition dated of January 1, 2010. The impact of the conversion to IFRS on the Company’s current and future key financial metrics is immaterial.
In 2009, the Company filed a complaint in the US District Court for the Middle District of Florida against Inspired Technologies, Inc. (“ITI”) alleging that ITI had breached its obligations under a supply agreement with the Company and ITI filed a counterclaim against the Company alleging that the Company had breached its obligations under the agreements. On April 13, 2011, after two trials on the issues, the Court entered a Judgment againstlender by the Company in favour of its wholly-owned subsidiary.
During 2015, the amountCompany entered into interest swap agreements designated as cash flow hedges. The terms of approximately $1.0 million.the interest swap agreements are as follows:
Effective Date | Maturity | Notional Amount | Settlement | Fixed interest rate paid | ||||||||
March 18, 2015 | November 18, 2019 | $ | 40,000,000 | Monthly | 1.610 | % | ||||||
August 18, 2015 | August 20, 2018 | $ | 60,000,000 | Monthly | 1.197 | % |
On November 2, 2015, the Company purchased 100% of the issued and outstanding common shares of TaraTape, a manufacturer of filament and pressure sensitive tapes.
On May 19, 2011,November 11, 2015, the Company’s Board of Directors adopted a new By-Law 2015-1, requiring advance notice for the nomination of directors. Under the Canada Business Corporations Act, By-law 2015-1 is in force, but must be confirmed by the Company’s shareholders at the next shareholders’ meeting. If By-law 2015-1 is not confirmed at the shareholders’ meeting, it will cease to have effect at that time.
On November 30, 2015, the Board of Directors appointed Ms. Mary Pat Salomone as a new board member of the Company.
On December 14, 2015, the Company entered into a settlement agreementShareholders Rights Plan Agreement (the “Rights Plan”) with ITICST Trust Company. The purpose of the Shareholder Rights Plan is to provide IPG’s Board of Directors with respectadditional time, in the event
of an unsolicited takeover bid, to develop and propose alternatives to the bid and negotiate with the bidder, as well as to ensure equal treatment of shareholders in the context of an acquisition of control made other than by way of an offer to all outstanding litigation betweenshareholders, and lessen the parties. Pursuantpressure on shareholders to tender to a bid. Under the termspolicies of the settlement,Toronto Stock Exchange (“TSX”), the Rights Plan must be ratified by the shareholders of the Corporation at a meeting held within six months following the adoption of the Rights Plan, failing which the Rights Plan must be immediately cancelled and any rights issued thereunder must be immediately redeemed or cancelled. Accordingly, on June 9, 2016, shareholders will be asked to approve a resolution ratifying and approving the Rights Plan. For further details on the Rights Plan, see Item 10(C) below.
As of December 31, 2015, management analyzed all available evidence and determined it is more likely than not that substantially all of the Company’s deferred tax assets in the US will be realized and, accordingly, continues to recognize the majority of its US deferred tax assets. Management also determined it is more likely than not that substantially all of the Company’s deferred tax assets in the Canadian operating entity will be realized based on available evidence such as the cumulative positive financial results for the prior three years, consistent utilization of deferred tax assets, consistent generation of taxable income, and positive financial projections. Accordingly, the Company paid approximately $1.0recognized the majority of its Canadian operating entity’s deferred tax assets, including $3.8 million to ITI in full and complete settlement of all matters between them withthat were previously derecognized. With respect to the litigation.
In July 2011,deferred tax assets at the Company entered into an Asset Purchase AgreementCanadian corporate holding entity (the “Entity”), management determined it appropriate to maintain the same positions for total consideration of $0.9 million to acquire assets primarily consisting of equipment, a customer list, and intellectual property to supplement the Company’s existing water activated tape business.
In August 2008,year ended December 31, 2015 as taken for the Company acquiredyear ended December 31, 2014 in that the exclusive North American rights to a pending patent with respect to an automatic wrapping system. The system is designed to automate the process of wrapping packages of up to 65 feet in length. The technology targets industries such as wood products, which are traditionally manually wrapped. Along with the distribution rights, the Company acquired wrapping machines and existing customer contracts for a total consideration of CDN$5.5 million. As part of acquiring the distribution rights, the Company also made future performance commitments, which required additional considerations or penalties if these commitments were not met. However, within the first two yearsmajority of the purchase agreement, the automatic wrapping system hadEntity’s deferred tax assets should continue to achieve certain market acceptance parameters or the Company had the right to renegotiate the future performance commitments with the vendor and if such renegotiation was not concluded on terms satisfactory to the Company, then the future performance commitments would not be binding on the Company. Effective
September 30, 2009 and due to the adverse economic conditions impacting the lumber wrap film market targeted under the Asset Purchase Agreement, the Company did not meet the performance criteria included in the first milestonederecognized as of the Asset Purchase Agreement. In August 2011, the Company entered into a Contract Adjustment Agreement. Under the Agreement the Company and the vendor agreed all accrued and future penalties, film purchase minimums and machine placement thresholds were eliminated.
2012
During 2012, the Company continued to focus on developing and selling higher margin products, reducing variable manufacturing costs, executing on previously announced manufacturing plant initiatives and optimizing its debt structure.December 31, 2015. The Company took several steps during 2012 to accomplish these objectives.
The Company has a $200.0 million Asset Based Loan (“ABL”) entered into with a syndicate of financial institutions. The amount of borrowingsCanadian deferred tax assets remain available to the Company under the ABL is determined byin order to reduce its applicable borrowing base from time to time. The borrowing base is determined by calculating a percentage of eligible trade accounts receivable, inventories, and equipment. The ABL is priced at LIBOR plus a loan margin determined from a pricing grid. The loan margin declines as unused availability increases. The pricing grid of the ABL, prior to the February 1, 2012 amendment, ranged from 1.5% to 2.25%. Unencumbered real estate is subject to a negative pledgetaxable income in favor of the ABL lenders. However the Company retained the ability to secure financing on all or a portion of its owned real estate up to $35.0 million and have the negative pledge in favor of the ABL lenders terminated. The ABL was scheduled to mature in March 2013. Effective February 1, 2012, the Company entered into a Third Amendment to Loan and Security Agreement among certain subsidiaries of the Company, the Lenders referred to therein, Bank of America, N.A., as agent, Merrill Lynch, Pierce, Fenner & Smith Incorporated, as Lead Arranger and Wells Fargo Capital Finance, LLC, as “right side” joint lead arranger. The Third Amendment extended the maturity date of the ABL to February 2017 from March 2013, however the new maturity date can be accelerated to 90 days prior to August 1, 2014 (the maturity date of the Company’s existing Senior Subordinated Notes) if such Notes have not been retired or if certain other conditions have not been met. Under the Third Amendment the interest rate will increase modestly while several other modifications in the terms provide the Company with greater flexibility. The pricing grid of the extended ABL ranges from 1.75% to 2.25%.
On June 26, 2012, the Company announced its intention to close its Richmond, Kentucky facility with the majority of production to be transferred to its Carbondale, Illinois, facility. The Company also announced the transfer of the shrink film production business from its Truro, Nova Scotia facility to its Tremonton, Utah plant. The Company believes this will allow it to further optimize its manufacturing footprint and generate significant annual savings. The Richmond, Kentucky plant is idle and it is anticipated it will close during the first half of 2013.
During 2012, the Company redeemed $80.0 million of its Senior Subordinated Notes, $25.0 million on August 1, 2012 and $55.0 million on December 13, 2012, both at par value. The notional amount of Senior Subordinated Notes outstanding after the redemptions is $38.7 million. The Senior Subordinated Notes mature on August 1, 2014.
On August 14, 2012, the Company entered into an Equipment Finance Agreement with a lifetime and maximum funding amount of $24.0 million. The terms of the arrangements include multiple individual capital leases, each of which will have a term of sixty months and a fixed interest rate. The average of the fixed interest rates is expected to be less than 3%. If the Company does not finance the full amount of $4.0 million and $20.0 million by December 31, 2012 and December 31, 2013, respectively, then the Company will be required to pay a Reinvestment Premium as defined under the Equipment Finance Agreement on the difference between those amounts and the amounts actually funded in each of those years. The Company financed the required amounts and was not subject to a Reinvestment Premium.
On October 10, 2012, the Company paid a dividend of CDN$0.08 per common share, to shareholders of record at the close of business on September 21, 2012. The aggregate amount of the dividend paid was USD$4.8 million.
On October 16, 2012, the Company prepaid in full $1.9 million, the outstanding balance on its $3.0 million mortgage on its Danville, Virginia, facility which was originally due July 1, 2013.
On November 1, 2012, the Company entered into a Real Estate Loan of $16.6 million, amortized on a straight-line basis over the ten year term. The maturity of the loan may be accelerated if the ABL is not extended and if Bank of America, N.A. ceases to be the agent by reason of an action of the Company. A portion of the loan may be required to be repaid early if
any mortgage properties are disposed of prior to October 31, 2022. Interest on the Real Estate Loan through December 31, 2012, was at a rate of 30-day LIBOR plus 250 basis points. Thereafter, the Real Estate Loan will bear interest at a rate of 30-day LIBOR plus a loan margin between 225 and 275 basis points based on a pricing grid as defined in the loan agreement. The Real Estate Loan contains two financial covenants, both of which are determined at the end of each fiscal month. The Company has been in compliance with these covenants since entering into the Real Estate Loan. The loan is secured by certain of the Company’s real estate.future periods.
(1) | Products, Markets and Distribution |
(a) | Tapes |
The Company manufactures a variety of paper and film based tapes, including pressure sensitivepressure-sensitive and water-activated carton sealing tapes; industrial and performance specialty tapes including paper, flatback, duct, double-coateddouble coated, foil, electrical, filament tapes and stencil products.
TheManagement believes the Company is the only packaging company that manufactures carton sealing tapes using all four adhesive technologies: hot melt, acrylic, natural rubber and water-activated. As a vertically integrated manufacturer, Intertape Polymer Groupthe Company believes it has uniquedistinctive capabilities, relative to its competitors, to produce its own film and adhesives used in the manufacture of its finished tape.
The Company’s tape products are manufactured and primarily sold under the Company’s brands including Intertape™, Central®, Crowell®, American®, Anchor®, ExlfilmPlus™, and Exlfilm®,Crowell® brands to industrial distributors and retailers, and are manufactured for sale to third parties under private brands.
Tape products launched in 20112013, 2014 and 20122015 include new transfer adhesive products, clean removal tensilized polypropylene and filament products, UL 723 rated aluminum foil and UL 181 rated HVAC tapes, and hot melt carton sealing tape manufactured with a proprietary Corru-Grip™ adhesive formulation for optimal closure of highly recycled corrugate. Further information regarding these new products can be found in the Research & Development section of this document.
In 2012,2013, the majority of the Company’s product launches were double-coated, carton sealing, HVAC, appliance packaging and masking tapes.
In 2014, the Company redirectedenhanced its focusoffering of packaging solutions with the introductions of: ExlfilmPlus® GPL, a new high performance cross linked polyolefin shrink film; Ripcord™, a knife free solution to address specific solutionsopen packages; RG317, a filament tape for L-clip box closure applications; Auto H2O™ uniform semi-automatic water-activated case sealer and other complementary products.
In 2015, the Company is able to provide for the following targeted markets: Fulfillment, General Manufacturing, Food Processingfocused on increasing its offering of specialty tape products including additional masking, foil, double-coated and Specialty (Oil and Gas, HVAC, Aerospace, Residential and Commercial Painting, Building and Construction, and Mass Transportation).ATA tapes.
For the years ending December 31, 2012,2015, December 31, 2011,2014, and December 31, 2010,2013, tapes accounted for 66%68%, 66%65%, and 64%65%, respectively, of the Company’s revenue.
The Company’s tape products consist of two main product groups, Carton Sealing Tapes and Industrial & Specialty Tapes.
Carton Sealing TapesIndex to Financial Statements
Carton sealing tapes are sold primarily under the Intertape™ and Central® brands to industrial distributors and leading retailers, as well as to third parties under private brands. Management believes Intertape Polymer Groupthe Company is the only company worldwide that produces carton sealing tapes using all four adhesive technologies: hot melt, acrylic, natural rubber and water-activated.water- activated. The Company also sells the application equipment required for the dispensing of its carton sealing tapes.
Hot Melt Tape
Hot melt carton sealing tape is a polypropylene film coated with a synthetic rubber adhesive which offers a wide range of application flexibility and is typically used in carton sealing applications. The Company’s primary competitors are 3M Co., Shurtape Technologies LLC and Vibac Group.
Acrylic Tape
Acrylic carton sealing tape is a polypropylene film coated with an aqueous, pressure sensitivepressure-sensitive acrylic adhesive which is best suited for applications where performance is required within a broad range of temperatures from less than 40°F (4°C) to greater than 120°F (49°C). The Company’s primary competitors are 3M Co., PitamusGTA, Powerband, Primetac (Pitamas) and Sekisui TA Industries Inc.
Natural Rubber Tape
Natural rubber carton sealing tape is a polypropylene film coated with natural rubber adhesive and is unique among the carton sealing tapes because of its aggressiverobust adhesion properties. This tape is ideally suited for conditions involving hot, dusty, humid or cold environments. Typical uses include moving and storage industry applications, as well as packaging and shipping. The Company’s primary competitors are PrimetacVibac Group and other European manufacturers.imported products from Europe.
Water ActivatedWater-Activated Tape
Water-activated carton sealing tape is typically manufactured using a filament reinforced kraft paper substrate and a starch based adhesive that is activated by water. Water-activated tape is used primarily in applications where a strong mechanical bond or tamper evidence is required. Typical end-use markets include retail fulfillment centers, mail order operations,3PL’s (third-party logistics providers), furniture manufacturers and the apparel industry. The Company’s primary competitor is Holland Manufacturing Co. Inc.
Industrial & Specialty Tapes
The Company produces eight primary industrial and specialty products sold primarily under the Intertape™, American® and American®Anchor® brands: paper tape, flatback tape, duct tape, double-coated tape, foil tape, electrical tape, filament tapestape and stencil products.
Paper Tape
Paper tape is manufactured from a crepe paper substrate coated with a natural rubber or a synthetic rubber adhesive. Paper tape is used for a variety of performance and general purpose end-use applications. Product applications include paint masking (consumer, contractor, automotive, aerospace and marine), splicing, bundling/packaging, and general light duty applications. The Company’s primary competitors for this product are 3M Co., Shurtape Technologies, LLC, Cantech and tesa tape, inc.
Flatback Tape
Flatback tape is manufactured using a smooth kraft paper substrate coated with a natural rubber/SIS blended adhesive. Flatback tape is designed with low elongation and is widely used in applications such as splicing where the tape should not be distorted. Typical applications for flatback tape include splicing, printable identification tapes, label products and carton closure. The Company’s primary competitors for this product are 3M Co. and Shurtape Technologies, LLC.
Duct Tape
Duct tape is manufactured from a polyethylene film that has been reinforced with scrim and coated with natural/synthetic rubber blend adhesive or specialityspecialty polymer adhesives. Duct tape is primarily used by general consumers for a wide range of
applications. Duct tapes are also used in maintenance, repair and operations, in the heating,HVAC (heating, ventilation and air conditioningconditioning) markets, construction and in the convention and entertainment industries. The Company’s primary competitors for this product are Berry Plastics Corp., 3M Co. and Shurtape Technologies, LLC.
Double-Coated TapesTape
Double-coated tapes aretape is manufactured from a paper, foam, or film substrate and areis coated on both sides with a variety of adhesive systems. Double-coated tapestape also useuses a release liner made from paper or film that prevents the tape from sticking to itself. Double-coated tapes aretape is typically used to join two dissimilar surfaces. The Company’s double-coated tape products are used across a range of markets that include automotive, aerospace, graphics, transportation, converting and trophies/monuments.nameplates. The Company’s primary competitors for this product are 3M Co., tesa tape, inc., and Scapa Group plc.
Foil TapesTape
Foil tapes aretape is manufactured using an aluminum substrate and a variety of adhesive systems. The tape is manufactured with a range of aluminum foil gauges and is designed for applications that range from HVAC, Building & Construction, Aerospace,
Transportation, Industrial,building and General Purpose.construction, aerospace, transportation, industrial, and general purpose. The products are UV resistant, have reflective and flame retardant properties, and remain flexible to resist cracking and lifting around irregular or curved surfaces. The Company’s primary competitors for this product are 3M Co., Berry Plastics and Avery Dennison Corp.
Electrical and Electronic TapesTape
Electrical and electronic tapes aretape is manufactured from a number of different substrates, including paper, polyester, glass cloth and a variety of adhesive systems that include rubber, acrylic and silicone adhesives. Electrical and electronic tapes are Underwriters Laboratories (UL) approved and engineered to meet stringent application specifications.specifications and many electrical and electronic tapes are Underwriters Laboratories (UL) component listed. The Company’s primary competitors for this product are 3M Co., Nitto Denko, Saint Gobain, Bondtec, and Nitto Denko.H-Old.
Filament Tape
Filament tape is a film or paperpaper-backed adhesive tape with fiberglass, strands or polyester fiberspolyesterfibers embedded in the adhesive to provide high tensile strength. Primary applications for filament tape include temporary holding, (appliance), bundling and unitizing, subsea umbilical cables (oil and gas), metal coil tubing,tabbing, and agricultural applications. The Company’s primary competitors for this product are 3M Co., TaraTape, Inc. and Shurtape Technologies, LLC.
Stencil Products
Stencil products sold under the Anchor® brand, are manufactured from a calendaredcalendered natural/synthetic rubber blended substrate with an acrylic adhesive and specially formulated adhesives. Stencil products are used in applications within the sign and monument manufacturing markets to protect a surface where sandblastinghigh pressure blasting is required. The Company’s primary competitor for this product is 3M Co.
(b) | Films |
Films
The Company also manufactures a variety of polyethylene and specialized polyolefin films, as well as complementary packaging systems, for industrial use and retail applications,use, including shrink film, stretch wrap and air pillows. As a vertically integrated manufacturer, Intertape Polymer Group has unique capabilitiesthe Company uses internally manufactured films to produce its own adhesives used in the manufacture of its film.tape products.
The Company’s film products are manufactured and soldmarketed under the Company’s brands including SuperFlex™SuperFlex®, StretchFlex®, ExlfilmPlus®, Exlfilm® and iCushion® to industrial distributors and retailers, and are manufactured for sale to third parties under private brands. Film products launched in 2011 and 2012 include a new high performance cross-linked polyolefin shrink film. Further information regarding this new product can be found in
For the Research & Development section of this document.
During eachyear ended December 31, 2015, films accounted for 16% of the last threeCompany’s revenue and for the years ending December 31, 2014, and December 31, 2013, films accounted for 19% of the Company’s revenue.
The Company’s film products consist of two main product groups, film and protective packaging.
The Company primarily produces two film product lines: ExlfilmPlus™SuperFlex® and StretchFlex® stretch wrap and ExlfilmPlus® and Exlfilm® shrink film and SuperFlex™ and StretchFlex® stretch wrap.
Shrink Film
ExlfilmPlus™ and Exlfilm® shrink film are specialty plastic films which shrink under controlled heat to conform to a package’s shape. The process permits the over-wrapping of a vast array of products of varying sizes and dimensions with a single packaging line. ExlfilmPlus™ and Exlfilm® are used to package paper products, consumer products such as bottled water, toys, games, sporting goods, hardware and housewares and a variety of other products. In 2011, the Company introduced ExlfilmPlus™ GPS, a new polyolefin shrink film. The Company’s primary competitors for this product are Sealed Air Corp. and Bemis Co. Inc.
Intertape Polymer Group entered the European shrink film market through its investment in Fibope in April 1995. The Company initially purchased a 50% equity interest in Fibope, acquiring the remaining 50% equity stake in July 2003 to serve as a platform to penetrate European and African markets with other products of the Company. Fibope operates as an autonomous unit within Intertape Polymer Group.
Fibope produces a full range of shrink film products for sale in the European Community. Raw materials are primarily sourced within Europe, with multiple sources utilized
Stretch Wrap
Stretch wrap is a single or multi-layer plastic film that can be stretched without application of heat and which has the characteristic of trying to return to its original length thereby applying force on the wrapped load. It is used industrially to wrap pallets of various products ensuring a solid load for shipping. The Company uses technology that it believes is state-of-the-art technology for the manufacturing of its stretch film products.
SuperFlex™SuperFlex® is a high performance, light gauge stretch film which offers customers good security for their loads but at a low cost per load. Genesys™ (introduced in 2006)Genesys®, Genesys Ultra™ (introduced in 2011)Genesys®Ultra, Fortress®, Fortress® (introduced in 2008)ProLite® and Orbit Air™B are SuperFlex® brand products. Since 2013, the Company has re-formulated its legacy Genesys®, Genesys®Ultra and ProLite® (introduced in 2010) are SuperFlex™ brand products.products to enhance their performance capabilities. AEP Industries, Inc., Amtopp, Berry Plastics Corp., Malpack (Canada), and Paragon Films produce competitive products.
StretchFlex® is the Company’s regular duty, typically a heavier gauge of stretch film which also provides the customer with secure loads at a low price per pound. SFI, SSC, SFIII, Hand Wrap II and Hand Wrap IV are StretchFlex® brand products. Since 2013, the Company has re-formulated its legacy SFI products and all were introduced prior to 2000.enhance performance capabilities. Competitors include AEP Industries Inc., Berry Plastics Corp., Sigma Plastics Group and Amtopp.
Shrink Film
ExlfilmPlus® and Exlfilm® shrink film are specialty plastic films which shrink under controlled heat to conform to a package’s shape. The process permits the over-wrapping of a vast array of products of varying sizes and dimensions with a single packaging line. ExlfilmPlus® and Exlfilm® are used to package paper products, food, toys, games, sporting goods, hardware and housewares and a variety of other products. In 2014, the Company introduced ExlfilmPlus® GPL, a new high performance cross linked polyolefin shrink film. The Company’s primary competitors for this product are Sealed Air Corp. and Clysar LLC.
The Company entered the European shrink film market through its investment in Fibope in April 1995. The Company initially purchased a 50% equity interest in Fibope, acquiring the remaining 50% equity stake in July 2003. Fibope operates as an autonomous unit within the Company.
Fibope produces a full range of shrink film products for sale in the European Community. Raw materials are primarily sourced within Europe, with multiple sources utilized to ensure stability of supply and a competitive price environment.
Protective Packaging
Air Pillows
Air pillows are manufactured from polyethylene film and are inflated at the point of use with an air pillow machine. The Company markets both traditional polyethylene, as well as oxo-biodegradable, air pillow products. Also, as mentioned above, the Company has added a biodegradable film to its iCushion® air pillow protective packaging products. Air pillows are used as packaging material for void fill and cushioning applications. Typical end-use markets for air pillows include 3PL’s retail fulfillment houses and contract packagers, and mail order pharmacies.packaging operations. The Company’s primary competitors for this product are Pregis Corp., Sealed Air Corp., Storopack, Inc., Free-Flow Packaging International Inc. and Polyair Inter Pack Inc.
Complementary Packaging Systems
Machinery
IPG provides complementary packaging systems under the Interpack™ and Better Packages(R) brands. Machinery that makes up IPG’s Complementary Packaging Systems include, but are not limited to, mechanical systems for case sealing applications with the use of long roll carton sealing tape, as well as water-activated tape produced by IPG. They also include IPG’s void fill machines and bagging machines. These machines are used in production lines at the packaging level. They are also widely used in the fulfillment industries. These systems add value by providing efficient packaging processes to a variety of industrial customers. The company’s primary competitors are 3M, Loveshaw, BestPack, Marsh and Phoenix.
(c) |
The Company is a North American leader in the developmentdevelops and manufacture ofmanufactures innovative industrial packaging, protective covering, barrier and liner products utilizing engineered coated polyolefin fabrics, paper and other laminated materials. Its products are sold primarily direct to end-usersthrough multiple channels in a wide number of industries including lumber, construction food, paper, and agriculture.
On October 5, 2005, Intertape Polymer Inc., a subsidiary of the Company, acquired all of the issued and outstanding shares of Flexia Corporation Ltd., beingwhich was the body corporate that resulted fromresult of the amalgamation of Flexia Corporation and Fib-PakFib-pak Industries, Inc. The businesses of such companies were operated under wholly-owned Canadian entities, ECP L.P. and ECP GP II Inc. through December 31, 2012. ECP GP II Inc. was a producer of a wide range of engineered coated and laminated products with its facilities located in Langley, British Columbia and Truro, Nova Scotia. As a result of an internal restructuring of the Company’s subsidiaries, ECP L.P. and ECP GP II Inc., which were subsequently liquidated and dissolved on December 31, 2012 and as a result, all business, assets and liabilities were transferred to Intertape Polymer Inc.
The Company’s engineeredwoven coated productsfabrics are categorized in sixfour markets: (A) building and construction, (B) agro-environmental, (C) specialty fabrics, and (D) FIBCs, (E) industrial packaging, and (F) consumer packaging. For the three years ended December 31, 2012,2015, December 31, 2011,2014, and December 31, 2010 engineered2013, woven coated fabric products accounted for approximately 15%, 15%, and 17%, respectively, of the Company’s sales.
Building and Construction Products
The Company’s building and construction product group includes protective wrap for kiln dried lumber, membrane barrier products such as house wrap, window and door flashing, membrane structure fabrics used in clear span buildings, and protective wrap for kiln dried lumber and a variety of other membrane barrier products such as roof underlayment, house wrap, window and door flashing and insulation facing, which are used directly in residential and commercial construction. The Company also supplies packaging over-wrap sleeves for unitizing multiple bags of fiberglass insulation. IntertapeThe Company’s primary competitors for these products include InterWrap, Inc., E.I. DuPont de Nemours and Company, Polymer Group’s lumber wrapGroup International, Alpha ProTech and various producers from India, China and Korea.
Lumberwrap
The Company’s lumberwrap is used to package, unitize, protect and brand lumber during transportation and storage. The product is available in polyethylene or polypropylene coated fabrics and polyethylene films printed to customer specifications. Lumber wrap is produced at the Company’s plants in Langley, British Columbia, and Truro, Nova Scotia. The Company’s primary competitors for these products include Interwrap, Inc., E.I. DuPont de Nemours and Company, Fiberweb Inc., Alpha ProTech and various producers from China and Korea.competitor is InterWrap.
Membrane Structure Fabrics
Nova-Shield® is a lightweight, wide-width, and durable polyolefin fabric used as the outer skin layer for flexible membrane structures. The introduction and continuous improvement of the Nova-Shield® fabric in the membrane structure market has enabled membrane structure manufacturers to expand the use of this product beyond agricultural applications. New applications such asinclude agriculture barns, into larger structures for human occupancy such as amphitheaters, recreational facilities, trade show pavilions, aircraft hangers, and casinos. Developments in the product line include the patented stacked weave, and AmorKote™ coatings. The Company sells the Nova-Shield® fabrics to membrane structure manufacturers who design, fabricate, and install the structures. The Company’s primary competitors are Fabrene Inc. and a number of polyvinyl chloridePVC (polyvinyl chloride) producers. The Company produces these products primarily at its plant in Truro, Nova Scotia.
Roof Underlayment
IPG’s roofing underlayment is a woven synthetic weather barrier installed on the roof before slate, tile or shingles are applied. The Company began commercial production of Nova-Seal®II at its Truro, Nova Scotia facility in August, 2008. It is a roof underlaybelieves that IPG’s roofing underlayment is lighter and easier to install than standard #30 building felt and costs less. In November 2010,felt. To meet these market needs, the Company introduced new product names for its roof underlaymentcurrently has a three-tiered (“Good, Better, Best”) approach in an attempt to insure consistency across products and to help customers distinguish among levels of product performance so they may specify and use the best solution for their particular application.reach all market segments. The Company’s primary competitors in this market are Interwrap, W.R. Grace,InterWrap, Alpha ProTech, and a variety of #30 felt producers.producers and a number of competitors from India, China and Korea.
Agro-Environmental Products
The Company has developed a range of Agro-Environmental products, including bags for packaging processed cotton,fiber insulation, fabrics designed for conversion into hay covers, grain covers, landfill covers, oil field membranes, and canal and pond liners. These fabrics are intended to provide protection during transit and storage and to line waterways and ponds to prevent loss of water and other liquids.
Geomembrane Fabrics
The Company’s AquaMaster® line of geomembrane fabrics is used as irrigation canal liners, golf course and aquascape pond liners, oil pad liners, hydraulic fracturing ponds and in aquaculture operations. During 2014, the Company widened its product offering by manufacturing composite product composed of its traditional extrusion-coated substrates laminated to other materials such as non-woven textiles and polyethylene film. In order to help customers specify and use the best solution for their particular need, the Company re-branded its geomembrane product lines to clearly separate long-term, high-performance products from products used for shorter term applications during 2014. The Company’s primary competitors for similar products include Fabrene Inc., Mai Weave LLC, InterwrapInterWrap and Inland Tarp. Competitive products which may be used as substitutes are manufactured by GSE Environmental and Raven Industries Inc.
Hay Wrap Hay cover products are specially designed fabrics designed to function as protective covers, haystack covers, pit and pond liners and pool covers. The proprietary coating is used to enhance abrasion resistance, flex resistance, seam strength, UV resistance and longevity. The Company’s primary competitors for this product include offshore imports, as well as InterWrap, Maiweave and Fabrene. Poultry FabricsIndex to Financial Statements
Woven coated polyolefin fabrics are used in the construction of poultry houses in the southern United States. Materials with high ultraviolet resistance are fabricated into side curtains that regulate ventilation and temperature in buildings. Other materials are used in ceiling construction. The Company’s primary competitors for this product are Fabrene Inc. and Mai Weave LLC. These products are primarily produced at the Company’s plant in Truro, Nova Scotia.
Specialty Fabrics
The Company’s specialty fabric product category is comprised of a variety of specialty materials custom designed for unique applications or specific customers. The Company’s ability to provide polyolefin fabrics in a variety of weights, widths, colors and styles, and to slit, print and perform various other conversion steps, allows it to provide an array of coated products designed to meet the specific needs of its customers.
Products and applications of specialty fabrics include fabrics designed for conversion into pool covers, field covers, disaster relief materials, protective covers and construction sheeting, brattice cloth for mine ventilation, underground marking tapes, salt pile covers and industrial packaging.
Primary competitors of the Company for this product include Fabrene Inc., Mai Weave LLC and producers from China and Korea. The Company primarily produces these products at its Truro, Nova Scotia, plant.
Industrial Packaging Products
The Company’s metalprinted wrap is used to brand and protect large coilsa variety of steel and aluminumproducts during transit and storage. For example, the Company’s product is used to cover small recreational vehicles (ATVs) during transportation from their manufacturing location to retail dealers. Primary competitors of the Company for this product include Interwrap Inc. and Covalence Specialty Materials Corp.
(d) | Other |
The Company also manufactures custom designed fabrics for dunnage bags, which are used to fill space in a shipping container or to positionearns revenues from the contents in a container. The productionsale of FIBCs and from royalties from the dunnage bag fabrics are primarily produced at the Company’s Truro, Nova Scotia, facility.
FIBC Products
sale of film wrap. FIBCs are flexible, intermediate bulk containers generally designed to carry and discharge 1,500 to 3,500 pounds of dry flowable fill products such as chemicals, minerals and dry food ingredients. The market for FIBC’sFIBCs is highly fragmented. The Company has established proven supply lines for FIBCs with integrated bag manufacturers in India, China and Mexico. Revenue from royalties is earned on the purchases of film wrap by end-users from another supplier which is used in machines supplied by the Company. During each of the last three years, other revenues accounted for 1% of the Company’s revenue.
(2) | Sales and Marketing |
As of December 31, 2012,2015, the Company had 202213 sales, customer service and marketing personnel, including manufacturer representatives. The Company participates in industry trade shows and uses trade advertising as part of its marketing efforts. The Company’s customer base is diverse, with no singlediverse; however, there was one customer accountingthat accounted for more than 5%approximately 7% of total sales in 2012.2015 and 2014. Sales of products from facilitiesto customers located in the United States Canada and EuropeCanada accounted for approximately 81%, 9%86% and 3%7% of total sales, respectively, in 2012, 80%, 9%2015, 83% and 3%8% of total sales, respectively, in 2011;2014, and 80%, 10%82% and 3%8%; in 2010.2013.
Many tape and film products are sold to the market through a network of paper, packaging and industrial distributors throughout North America. In order to enhance sales of the Company’s pressure-sensitive carton sealing tape, itThe Company also sells carton closing systems, including automatic and semi-automatic carton sealing equipment.equipment through this same network of distribution. The Company’s shrink and stretch film products are typically sold through an existing industrial distribution base primarily to manufacturers of packaged goodsdistributors. Electrical and printing and paper products which package their products internally. The industrial electricalelectronic tapes are primarily sold through specialty distribution.
The Company’s engineeredwoven coated productsfabrics are primarily sold directly to end-users. The Company offers a linealso earns revenues from the sale of lumberwrap, FIBCs and specialty fabrics manufactured from plastic resins. The Company’s engineered coated productsroyalties from the sale of film wrap. FIBCs are sold primarily to end-users and are marketed throughout North America.
(3) | Seasonality of the Company’s Main Business |
The Company does not experience material seasonality or cyclicality in its operations.
(4) | Equipment and Raw Materials |
Intertape Polymer GroupThe 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. The Company is not dependent on any one manufacturer for its equipment.
The major raw materials purchased for the Company’s tape products are polypropylene resin, polyethylene resin, synthetic rubber, hydrocarbon resin, and paper (crepe and kraft). The resins and synthetic rubber are generated from petrochemicals which are by-products of crude oil and natural gas. Almost allA significant majority of these products are sourced from North American manufacturers. The majority of paper products are produced by North American paper manufacturers andwhich are derived from the North American pulp and paper industry. Raw materials accounted for approximately 65% of reported cost of sales in 2015, and 67% for both 2014 and 2013.
The major raw material used in ourthe Company’s film products is polyethylene resin. Polyethylene is a derivative of natural gas petrochemical by-products and/or crude oil.
The major raw materials used to produce the Company’s engineeredwoven coated productsfabrics are polyethylene and polypropylene resins. Both of these products are petrochemical based products derived from crude oil and/or natural gas. These products are predominantly sourced from North American petrochemical manufacturers.
During 20122015, selling prices including(including the impact of product mix, increased moremix) declined less than raw material costs, which did decrease, however, the spread between selling prices and raw material costs was still compressed when compared to periods prior to 2010.also declined on average. During 2010 resin-based, paper and adhesive raw material costs significantly increased and the Company was unable to pass on a portion of the cost increases to its customers due to pricing pressure. During 2012,2015, resin-based raw material costs decreased by about 6%approximately 20%, adhesives decreased by approximately 12%, and paper costs were approximatelycomparable.
The prices of most of the same,major raw materials noted above can be subject to significant volatility, primarily influenced by commodity price fluctuations for crude oil and adhesives increased about 1%.natural gas.
(5) | Research and Development and New Products |
Intertape Polymer Group’sThe Company’s strategy is to create growth opportunities through enhancements of existing products and the introduction of new products. The Company’s research and development efforts continue to focus on new products, technology platform developments, new product processes and formulations. As described in the sections that follow, the Company introduced 3542 new products in both 20122015, and 2011.38 new products in 2014 and 2013.
In 2013, IPG expanded its adhesive transfer tapes product line to include narrower widths, longer rolls, three adhesive thicknesses and a new ATG tape dispenser. Four masking products were launched into the automotive refurbishing, marine, and architectural painting markets. Five double-coated products were released into a variety of splicing and bonding markets.
In 2013, the Company expanded its stretch film product line to include smaller sized bundle wrap designed as convenient solutions for many home, office, workshop, yard and school applications.
In 2013, IPG introduced four new carton sealing tape (CST) products. Specifically, two, hot melt, pressure-sensitive adhesive (HMPSA) products targeted for sealing cartons with a high, recycled content and two water-activated tape (WAT) products. During 2010, Intertape Polymer Group introduced2014 the Company expanded its line of Intertape™ brand double-coated tapes. These high-performance technical products are usedcarton closure solutions with the addition of Ripcord™, a knife free solution to open packages and RG317, a filament tape for L-clip box closure applications.
A new stainless steel uniform semi-automatic case sealer was added to IPG’s line of Interpack™ complementary packaging systems in a number of applications including corrugated splicing, gasket attachment, plastic housing2013. Targeting food processing facilities, the USC 2020-SB SS is available in food grade 302-304 stainless steel and component assembly, nameplates, interior and exterior trim attachments, and lens bonding. The double-coated tapes are also convertibleNEMA 4 electrics, making it ideal for a wide variety of applications requiring die cuts and custom parts. During 2011, Intertape Polymer Groupnon-caustic wash down applications. In 2014 the Company launched its new transfer adhesives product line introducing four newAuto H2O™ uniform semi-automatic water-activated case sealer. The Auto H2O™ case sealer’s patented technology provides a reliable and low maintenance automatic sealing system for reinforced water-activated tape to seal corrugated containers.
In 2014, the Company expanded its offering of specialty tape products developed as partwith the introduction of AC778, a metalized BOPP tape and ALF301, an aluminum foil tape with superior UV, chemical and temperature resistant properties.
In 2014, the Company introduced ExlfilmPlus® GPL, the Company’s on-going product line development in double coated tapes. Intertape™ brand ATA200 and ATA400, a 2 mil and 4 mil acrylic transfer adhesive, was designed for use in general purpose applications such as core starting, paper/film splicing, arts and crafts bonding, picture framing and lamination. The Company also introduced ATA201 and ATA401 which are more suitable for more demanding and specialized applications requiring long term bonding and high temperature and solvent resistance.
In 2012, The Company enhanced its appliance grade clean removal portfolio with new tensilized polypropylene and filament products: APL145, TPP200, TPP350, and TPP400. Each offers excellent adhesion and stain/residue free removal from painted metals, stainless steel, ABS plastic, fiberglass and various other surfaces used in the appliance, steel, composite, plastic extrusion, fulfillment and window and door industries.
In 2009, the Company also created a new technology called “roll edge face coated” which creates cleaner sharper paint lines with the Company’s BLOC-IT® painters tape. In 2012, ProMask Pink™ painters tape was introduced in support of the Susan G. Komen For the Cure Foundation® in the fight against breast cancer. It is a premium pink painter’s tape with the Company’s clean releasing adhesive that delivers superior paint lines for the professional and do-it-yourself consumer of masking tape.
In 2010, the Company launched a number of new products into the Housewrap sector through a new Private Label Supply Agreement with a major Building and Construction distribution company. The Company also launched a new line of AquaMaster® geomembrane products that has allowed the Company to significantly increase both volume and profitability in this market segment.
In 2010, Intertape Polymer Group launched Genesys Ultra™, a new highnewest performance thin gauge cast stretchshrink film. This film has been very successful in the first few years post launch in gaining market share in the demanding lowis a cost savings alternative to standard, heavier gauge performance segment of the stretch film market.
Intertape Polymer Group entered into the foil tape market with a full line of aluminum foil tapes manufactured at its Carbondale, Illinois facility in 2010. These tapes have application in various industries including aerospace, transportation, HVAC and industrial. The product line offers performance ranges within a variety of foil thicknesses and adhesive systems. The shiny, UV resistant foil backing offers an enhanced appearance, excellent reflective and flame retardant properties, and remains flexible to resist cracking and lifting around irregular or curved surfaces. The Company’s foil products include linered, self-wound, FSK, ASJ, foil barrier laminates and metalized films. During 2011 the Company introduced a new aluminum foil tape
designed primarily for HVAC applications. In developing this product the Company focused on producing a finished product that supported both the rigid duct and flexible duct application requirements. The finished product received dual certifications which permits its use to support both flexible and rigid duct HVAC criteria for building codes throughout the United States. The Company also introduced Intertape™ brand ALF175L to meet the need of a UL723 rated multi-purpose foil tape. This product was designed to give exceptional performance where use of a thinner gauge foil base material is acceptable for this application.
In 2011, the Company launched ExlfilmPlus™ GPS, the Company’s newest high performance crosslinked polyolefin shrink film. This multilayered film is versatile enough to perform on all sealing systems and shrink tunnels. The premium resin formulation provides consistently strong sealsexhibits exceptional machinability and offers high shrink force, making it the ideal choice for multipacking and unitizing products.speed processing capabilities.
In 2012,2015, the Company introduced UL 181-rated AC50UL,continued to focus significant R&D resources on the transition of duct and masking tape products from the old Columbia, South Carolina facility to the new Blythewood, South Carolina facility. This transition involved significant product modifications with the most notable being producing products with environmentally-friendly solventless technology in the new facility.
In 2015, the Company expanded its product offering to include a premium-grade HVAC duct taperange of masking tapes designed for flexible air ducts and air connectors. This 14 mil high-strength polyethylene-coated cloth duct tape meets flexible duct criteria for HVAC systems required by many building codes throughoutmultiple surfaces as well as technically demanding applications. During 2015, the US, including that recommended by the 2009 California Residential Compliance Manual. The Company also expanded its offering to contractors with the addition of a metalized version of this AC50UL product. Its reflective finish is especially suited for joining seams on flexible air duct with metallic jackets and duct board with exterior foil laminate vapor retarders.
With more than 90% of all corrugated boxes being recovered for recycling and the average percent of recycled content in a corrugated box greater than 40%, the Company’s Research and Development recognized the need for a test that mirrors the effectiveness of carton sealing tapes when applied to boxes of varying recycled content. A new test apparatus was designed that accepts any box sample, duplicates the box sealing application and measures closure performance under a variety of controlled environmental conditions. In response to this market change, R&D also formulated a new Corru-Grip™ adhesive technology designed specifically for optimal closure of highly recycled corrugate, including 100% recycled boxes. In 2012, the Company introduced a new 1100 premiumdirect printable hot melt carton sealing tape, designedwhich is key product for the fulfillment industry.
In 2015, the Company bolstered its Protective Packaging offering with this new proprietary adhesive formulation.product additions in both its air pillows and tandem bagging product lines.
The Company’s R&Dresearch expenses in 2012, 2011,2015, 2014, and 20102013 totaled $6.2$9.5 million, $6.2$7.9 million, and $6.3$6.9 million, respectively.
(6) | Trademarks and Patents |
Intertape Polymer Group embarked on a new corporate branding strategy during 2009 to create and communicate overall consistency and simplicity to its markets. The Company adopted a new look to its corporate logo and redid its sub-brand logos which are clearer and will help identify the individual product lines.
Intertape Polymer Group markets its tape products under the trademarks Intertape™Intertape™, Central®, Crowell®, American®, TaraTape & Design®, and TARA TAPE® and various private labels. The Company’s shrink wrap is sold under the registered trademark ExlfilmPlus™ExlfilmPlus® and Exlfilm®. Its stretch films are sold under the trademark SuperFlex™SuperFlex® and StretchFlex®.
The Company markets its open mouth bags under the registered trademark Nova-Pac®NovaPac®. The otherOther key engineered coated products, are sold under the registered trademarks Nova-Thene®, Nova-Shield®, Nova-Seal®, NovaWrap™, and NovaFlash®. Its engineered fabricincluding polyolefin fabrics are sold under the registered trademark Nova-Thene®trademarks NovaThene®, NovaShield®, NovaSeal®, NovaWrap™, and NovaFlash®.
The Company has approximately 153157 active registered trademarks, 7285 in the United States, 2030 in Canada, and 89 in Mexico, and 5333 foreign, which include trademarks acquired from American Tape, Anchor, Rexford Paper Company, Central Products Company, The Crowell Corporation, Flexia, Better Packages, TaraTape & Design®, and Flexia.TARA TAPE® The Company currently has 1116 pending trademark applications in the United States, and 1 in Canada, and 15 foreign.foreign jurisdictions.
Intertape Polymer Group does not have, nor does management believe it important to the Company’s business to have, patent protection for its carton sealing tape products. However, theThe Company has pursued US and foreign patents in select areas where it believes that unique products offer a competitive advantage in profitable markets, primarily inmarkets. The Company’s 87 granted patents and 40 pending patent applications include engineered coated products and film for which the Company has 819 patents and no patents4 pending film for which it has 10 patents and no patents pending,applications, tape products for which it has 2235 patents and 1223 pending applications, adhesive products and manufacture for which it has 24 patents and 5 pending adhesiveapplications, other products for which it has 59 patents and 3 patents8 pending container products for which it has 4 patents and no patents pending, and retail for which it has 2 patents and no patents pending.
(7) | Competition |
The Company competes with other manufacturers of plastic packaging and pressure-sensitive adhesive products as well as manufacturers of alternative packaging products, such as paper, cardboard and paper-plastic combinations. Some of these competitors are larger companies with greater financial resources than the Company. 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 as a whole are currently publicly available. Please refer to Section B(1) above for a discussion of the Company’s main competitors by product.
The Company believes that significant barriers to entry exist in the packagingits addressable market. Management considers the principal barriers to be the high cost of vertical integration which it believes is necessary to operate competitively, the significant number of patents which already have been issuedtechnical expertise in respect ofto various processes and equipment operation, and the difficulties and expense of developing an adequate distribution network.
(8) | Environmental Initiatives and Regulation |
(a) | Initiatives |
Intertape Polymer GroupThe Company has and continues to be focused on reducing waste and minimizing any harmful environmental impact throughout its manufacturing process, or footprint left behind by the line of products manufactured and marketed by the Company. Lili™ isLili® represents one aspect of the Company’s environmental stewardship program and stands for “low environmental“low-environmental impact line from IPG”, however it. The stewardship program is more than just the growing number of environmentally preferred products that the Company has and continues to develop, but is also a commitment by management and employees of the Company to continually look for opportunities to lower the Company’s environmental impact. Intertape Polymer GroupThe Company has implemented and continues to implement activities, changes and programs that are designed to reduce waste in the manufacturing process; reduce the footprint left behind by its products, processes and employees; increase the recycle abilityrecycling of products through mainstream recycling;its products; provide an alternative solutionsolutions to a less environmentally friendly productproducts or application; reducesapplications; reduce consumption of raw materials, fuel and other energy sources; reducesreduce pollutants released through air, water and waste; and improvesimprove the safety and health of employees.
The Company’s latest environmental initiative has beenCompany continues to focus on energy savings.its environmental initiative to save energy. In August 2009, the Company became an Energy Star®ENERGY STAR® Industrial Partner, which is a voluntary partnership with the USU.S. Environmental Protection Agency (EPA) to improve energy efficiency and fight global warming. Intertape Polymer Group (IPG®) as an Energy Star®ENERGY STAR® Industrial Partner joined the fight against global warming by improving the efficiency of its buildings and facilities. ProductsThe EPA recognized IPG as a 2014 and buildings2015 ENERGY STAR Partner of the Year for strategically managing and improving the energy efficiency in its operating locations. In addition, several IPG facilities have met the EPA’s ENERGY STAR Challenge for Industry, which is to reduce energy intensity by 10% within 5 years. IPG facilities that have earnedmet the Energy Star® designation preventEPA’s ENERGY STAR Challenge for Industry have achieved an average energy intensity reduction of 24%. The reductions have cut greenhouse gas emissions at these IPG’s plants by meeting strict energy efficiency specifications set by36,000 metric tons over the government. In 2011 Intertape Polymer Group was recognized for meetingpast 5 years, which equals the US EPA Energy Star Challenge by improving energy efficiency at commercialemissions from the electricity use of 5,000 homes.
The transition of manufacturing operations from IPG’s Columbia, South Carolina facility to IPG’s new Blythewood, South Carolina facility has further enhanced IPG’s environmental stewardship. The Blythewood plant uses non-solvent technologies that do not utilize volatile organic compounds in the manufacturing process and industrial facilities by ten percent or more within five years. Onlydo not generate hazardous waste. Additionally, the effortstransition of 34 facilities operated by 14 companies were publicly acknowledged for successfully reducing emissions at their manufacturing sites. Intertape was cited for energy efficiency improvements of 29.1%operations to the Blythewood plant has resulted in Carbondale, Illinois, 23.4% in Richmond, Kentucky, and 18.3% in Menasha, Wisconsin.increased manufacturing efficiencies.
(b) | Regulation |
Intertape Polymer Group’sThe Company’s operations are subject to extensive environmental regulation in each of the countries in which it maintains facilities. For example, United States (federal, state and local) and Canadian (federal, provincial and municipal) environmental laws applicable to the Company include statutes and regulations intended toto: (i) impose certain obligations with respect to site contamination and to allocate the cost of investigating, monitoring and remedying soil and groundwater contamination among specifically identified parties,parties; (ii) prevent future soil and groundwater contamination; (iii) impose national ambient standards and, in some cases, emission standards, for air pollutants which present a risk to public health, welfare or the natural environment; (iv) govern the handling, management, treatment, storage and disposal of hazardous wastes and substances; and (v) regulate the discharge of pollutants into waterways.
The Company’s use of hazardous substances in its manufacturing processes and the generation of hazardous wastes not only by the Company, but by prior occupants of its 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 laws and regulations applicable to the Company. In addition, the Company arranges for the off-site disposal of hazardous substances generated in the ordinary course of its business.
Intertape Polymer GroupThe Company obtains Phase I or similar environmental site assessments, and Phase II environmental site assessments, if necessary, for most of the manufacturing facilities it owns or leases at the time the Company either acquires or leases such facilities. These assessments typically include general inspections and may involve soil sampling and/or ground water analysis. The assessments have not revealed any environmental liability that, based on current information,other than, or in addition to, the Company believes will have a material adverse effect on$2.5 million liability accrued in provisions in the Company.Company’s consolidated balance sheet. Nevertheless, these assessments may not reveal all potential environmental liabilities and current assessments are not available for all facilities. Consequently, there may be material environmental liabilities that the Company is not aware of. In addition, ongoing clean up and containment operations may not be adequate for purposes of future laws and regulations. The conditions of the Company’s properties could also be affected in the future by neighboring operations or the conditions of the land in the vicinity of the Company’s properties. These developments and others, such as increasingly stringent environmental laws and regulations, increasingly strict enforcement of environmental laws and regulations, or claims for damage to property or injury to persons resulting from the environmental, health or safety impact of the Company’s operations, may cause it to incur significant costs and liabilities that could have a material adverse effect on the Company.
Except as described below, the
The Company believes that all of its facilities are in material compliance with applicable environmental laws and regulations, and that the Company has obtained, and is in material compliance with, all material permits required under environmental laws and regulations.
The Company is currently monitoring contamination at itsnew Blythewood plant uses low environmental impact technologies. After the recent closure of the Columbia, South Carolina Plant, its production was relocated to this new plant whichand other existing Company plants. The reduced environmental impacts from Blythewood plant operations minimize applicability of environmental laws and permit requirements. Blythewood operations only require a minor EPA air emission permit and the facility is not classified as a large quantity generator of hazardous waste as opposed to the previous Columbia plant. The transition of manufacturing operations from the Columbia plant to the Blythewood plant has negatively impacted the value of the property. significantly reduced carbon emissions and hazardous air pollutants that require EPA reporting and significantly reduced carbon emissions.
In addition, although certain of the Company’s facilities emit regulated pollutants into the air, the emissions are within current permitted limitations,limits, including applicable Maximum Achievable Control Technology (“MACT”) requirements.
Intertape Polymer GroupThe Company and its operating subsidiaries are required to maintain numerous environmental permits and governmental approvals for their operations. Some of the environmental permits and governmental approvals that have been issued to the Company or its operating subsidiaries contain conditions and restrictions, including restrictions or limits on emissions and discharges of pollutants and contaminants, or may have limited terms. If the Company or any of its operating subsidiaries fails to satisfy these conditions or to comply with these restrictions, it may become subject to enforcement actionactions and the operation of the relevant facilities could be adversely affected. The Company may also be subject to fines, penalties or additional costs. The Company or its operating subsidiaries may not be able to renew, maintain or obtain all environmental permits and governmental approvals required for the continued operation or further development of its facilities, as a result of which the operation of its facilities may be limited or suspended.
C. | ORGANIZATIONAL STRUCTURE |
Intertape Polymer Group Inc. is a holding company which owns various operating companies in the United States, Canada and internationally. Intertape Polymer Inc., a Canadian corporation, is the principal operating company for the Company’s Canadian operations. Intertape Polymer Corp., a Delaware corporation, is the principal operating company for the Company’s United States and international operations.
In an effort to simplify its corporate structure, Intertape Polymer Group has liquidated and dissolved two of its Canadian subsidiaries, ECP L.P. and ECP GP II Inc., and one US subsidiary, Polymer International Corp., effective December 31, 2012. All assets and liabilities of the Canadian entities are now with Intertape Polymer Inc. and all assets and liabilities of Polymer International Corp. are with Intertape Polymer Corp.
The table below lists for each of the subsidiaries of the Company their respective place of incorporation or constitution, as the case may be, and the percentage of voting securities beneficially owned or over which control or direction is exercised directly or indirectly by Intertape Polymer Group.Group Inc.
Corporation | Place of Incorporation Constitution | Percentage of Ownership or Control | ||||
Intertape Polymer Group Inc. | Canada | Parent | ||||
Intertape Polymer Inc. | Canada | 100 | % | |||
Spuntech Fabrics Inc.* | Canada | 100 | % | |||
Intertape Polymer Corp. | Delaware | 100 | % | |||
Intertape Woven Products Services, S.A. de C.V. | Mexico | 100 | % | |||
Intertape Woven Products, S.A. de C.V. | Mexico | 100 | % | |||
IPG | 100 | % | ||||
IPG (US) Inc. | Delaware | 100 | % | |||
IPG (US) Holdings Inc. | Delaware | 100 | % | |||
| Connecticut | 100 | % | |||
Better Packages, Inc. | Delaware | 100 | % | |||
RJM Manufacturing, Inc. (d/b/a TaraTape) | Delaware | 100 | % | |||
Fibope Portuguesa-Filmes Biorientados S.A. | Portugal | 100 | % | |||
Intertape Polymer Europe GmbH | Germany | 100 | % |
* | Dormant |
D. | PROPERTY, PLANTS AND EQUIPMENT |
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Location | Status | Use | Products | Square Feet | Property | |||||||
100 Paramount Dr, Suite 300 Sarasota, FL 34232 | Leased | Office | N/A | 31,942 | ||||||||
2000 South Beltline Boulevard Columbia, SC 29201 | Owned | Idle | 7 Buildings – 499,770 | 86.48 | ||||||||
1091 Carolina Pines Dr. Blythewood, SC 29016 | Owned | Manufacturing | Tapes (paper duct) | 350,000 | 33.83 | |||||||
360 Ringgold Industrial Pkwy. Danville, VA 24540 | Leased | Regional Distribution Center | All products | 199,600 | ||||||||
10101 Nordel Court Delta, British Columbia V4G 1J8 | Leased | Manufacturing | ECPs | 54,274 | ||||||||
317 Kendall Street(2) Marysville, Michigan 48040 | Owned | Manufacturing | Tapes (paper reinforced) | 5 Buildings – 226,016 | 11.53 | |||||||
741 4th Street Menasha, Wisconsin 54952 | Owned | Manufacturing | Tapes (water activated) | 165,134 | 5.91 | |||||||
748 Sheboygan Street Menasha, Wisconsin 54953 | Owned | Office Building | N/A | 16,251 | Incl above | |||||||
760 West 1000 North Tremonton, Utah 84337 | Owned | Manufacturing | Exlfilm®, Stretchflex® | 115,000 | 17.00 | |||||||
50 Abbey Avenue Truro, Nova Scotia | Owned | Manufacturing | ECPs | 306,200 | 13.00 | |||||||
543 Willow Street Truro, Nova Scotia | Leased | Warehouse | 27,000 | |||||||||
9942 Currie Davis Dr., Ste 23B Tampa, Florida 33619 | Leased | Manufacturing | Tape dispensing machinery | 17,000 | ||||||||
2200 North McRoy Drive Carbondale, Illinois 62901 | Owned | Manufacturing | Tapes – electrical, filament, specialty | 190,324 | 29.9 | |||||||
1095 S. 4th Avenue Brighton, Colorado 80601 | Leased | Manufacturing | Film | Manufacturing & Office – 252,940 Warehouse – 21,450 | ||||||||
1101 Eagle Springs Road Danville, Virginia 24540 | Owned | Manufacturing | Carton sealing tape, Stretchflex®, acrylic coating | 289,195 | 26.0 | |||||||
341 Bullys Street Eagle Pass, Texas 78852 | Leased | Warehouse | FIBCs | 20,000 | ||||||||
4-6 Hershey Dr Ansonia, CT | Leased | Manufacturing | Tape dispensing machinery | 27,600 | ||||||||
250 Canal Rd Fairless Hills, PA | Leased | Manufacturing | Tapes- filaments | 88,326 | ||||||||
772 Specialists Avenue Neenah, Wisconsin 54956 | Leased | Distribution | Tapes – water activated | 75,000 | ||||||||
1536 Cty Rd O Neenah, Wisconsin 54957 | Leased | Distribution (Replacement for 772 Specialists Ave) | Tapes – water activated | 114,650 | ||||||||
1407 The Boulevard, Suite E Rayne, Louisiana 70578 | Leased | Offices | N/A | 1,472 | ||||||||
4061 E. Francis Street Ontario, California 91761 | Leased | Warehouse and Distribution | Tapes Packaging products | 50,000 | ||||||||
9999 Cavendish Blvd., Suite 200 St. Laurent, Quebec H4M 2X5 | Leased | Offices | N/A | 8,500 | ||||||||
Gronfahrtweg 3 24955 Harrislee Germany | Leased | Office | N/A | 560 | 5.4 | |||||||
Lugar de Vilares-Barqueiros 4740-676 Barqueiros BCL Barcelos, Portugal | Owned | Manufacturing and Distribution | Exlfilm® | 35,500 | ||||||||
20 Rue de Peupliers L-2328 Luxembourg Grand Duchy of Luxembourg | Leased | Office | N/A | 108 |
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The Company also owns inventory that is temporarily located at facilities owned by various third-party logistics service providers. As these facilities are not owned or leased by the Company, they have been excluded from the summary table above.
The Company has relocated and shut down permanently its Columbia, South Carolina manufacturing facility. In June 2013, the Company acquired property in Blythewood, South Carolina financed by an $8.5 million mortgage with Wells Fargo National Association (in November 2014, the Company prepaid this loan in full with proceeds from the Revolving Credit Facility). As of December 31, 2015, the Company had completed commissioning efforts in relation to the duct tape production line and began limited production and sales of masking tape in Blythewood, South Carolina with the full transfer of masking tape production still expected to be completed in the first half of 2016. Capital expenditures for this project are expected to total approximately $60 million, of which $2.7 million was spent in 2012, $21.8 million in 2013, $24.3 million in 2014, and $7.9 million in 2015. The Company anticipates that the new South Carolina facility will result in a total annual cash savings of $13.0 million with the first full year effect in 2017. | ||||||||||||
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Unresolved Staff Comments |
Not Applicable.
Item 5: | Operating and Financial Review and Prospects (Management’s Discussion & Analysis) |
Business OverviewThis Management’s Discussion and Analysis (“MD&A”) is intended to provide the reader with a better understanding of the business, strategy and performance of Intertape Polymer Group Inc. (the “Company”), as well as how it manages certain risks and capital resources. This MD&A, which has been prepared as of March 9, 2016, should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto as of December 31, 2015 and 2014 and for the three-year period ended December 31, 2015 (“Financial Statements”).
For the purposes of preparing this MD&A, the Company considers the materiality of information. Information is considered material if the Company believes at the time of preparing this MD&A: (i) such information results in, or would reasonably be expected to result in, a significant change in the market price or value of the common shares of the Company; (ii) there is a substantial likelihood that a reasonable investor would consider it important in making an investment decision; and/or (iii) it would significantly alter the total mix of information available to investors. The Company was foundedevaluates materiality with reference to all relevant circumstances, including potential market sensitivity.
Except where otherwise indicated, all financial information presented in 1981this MD&A, including tabular amounts, is prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS” or “GAAP”) and is a recognized leaderexpressed in US dollars. Variance, ratio and percentage changes in this MD&A are based on unrounded numbers.
Financial Highlights
(In millions of US dollars, except per share amounts, selected ratios, and trading volume information)
(Unaudited)
2015 | 2014 | 2013 | ||||||||||
$ | $ | $ | ||||||||||
Operations | ||||||||||||
Revenue | 781.9 | 812.7 | 781.5 | |||||||||
Gross margin(1) | 21.5 | % | 20.1 | % | 20.3 | % | ||||||
Net earnings | 56.7 | 35.8 | 67.4 | |||||||||
Adjusted net earnings(2) | 58.6 | 52.4 | 103.4 | |||||||||
Adjusted EBITDA (2) | 102.0 | 103.9 | 103.1 | |||||||||
Cash flows from operating activities | 102.3 | 86.9 | 82.2 | |||||||||
Free cash flows(2) | 68.0 | 46.3 | 35.3 | |||||||||
Capital expenditures(3) | 34.3 | 40.6 | 46.8 | |||||||||
Effective Tax Rate(4) | 16.2 | % | 39.0 | % | -113.5 | % | ||||||
Per Common Share | ||||||||||||
Net earnings - diluted | 0.93 | 0.58 | 1.09 | |||||||||
Adjusted net earnings - diluted(2) | 0.96 | 0.84 | 1.68 | |||||||||
Dividend paid per share | 0.50 | 0.40 | 0.24 | |||||||||
Financial Position | ||||||||||||
Working capital(5) | 130.5 | 128.2 | 115.0 | |||||||||
Total assets | 487.3 | 466.7 | 465.2 | |||||||||
Net debt(6) | 135.2 | 114.9 | 127.3 | |||||||||
Shareholders’ equity | 216.7 | 227.5 | 230.4 | |||||||||
Cash and loan availability(7) | 182.3 | 206.2 | 50.3 | |||||||||
Selected Ratios | ||||||||||||
Current Ratio(8) | 2.45 | 2.50 | 2.32 | |||||||||
Leverage Ratio(2) (9) | 1.50 | 1.19 | 1.26 | |||||||||
Return on equity(10) | 26.1 | % | 15.7 | % | 29.2 | % |
Stock Information | ||||||||||||
Weighted average shares outstanding - diluted(11) | 61,111 | 62,061 | 61,633 | |||||||||
Shares outstanding as of December 31(11) | 58,668 | 60,436 | 60,777 | |||||||||
The Toronto Stock Exchange (CDN$) | ||||||||||||
Share price as of December 31 | 18.69 | 18.61 | 14.03 | |||||||||
High: 52 weeks | 20.51 | 19.95 | 15.62 | |||||||||
Low: 52 weeks | 13.67 | 11.12 | 7.96 |
(1) | Gross profit divided by revenue |
(2) | These are non-GAAP measures defined below and accompanied by the reconciliation to the closest GAAP measure |
(3) | Purchases of property, plant and equipment |
(4) | Refer to Note 5 – Income Taxes to the Company’s Financial Statements |
(5) | Current assets less current liabilities |
(6) | Long-term debt plus installments on long-term debt less cash |
(7) | Refer to Note 13 – Long-Term Debt to the Company’s Financial Statements |
(8) | Current assets divided by current liabilities |
(9) | Long-term debt plus installments on long-term debt divided by adjusted EBITDA |
(10) | Net earnings divided by end of period shareholders’ equity |
(11) | In thousands |
2015 Share Prices
High | Low | Close | ADV(1) | |||||||||||||
The Toronto Stock Exchange (CDN$) | ||||||||||||||||
Q1 | 20.51 | 16.74 | 17.53 | 218,247 | ||||||||||||
Q2 | 20.31 | 16.21 | 18.72 | 136,468 | ||||||||||||
Q3 | 20.21 | 13.67 | 14.27 | 252,331 | ||||||||||||
Q4 | 19.01 | 13.96 | 18.69 | 221,181 |
(1) | Represents average daily volume sourced from the Toronto Stock Exchange. |
Consolidated Quarterly Statements of Earnings
(In thousands of US dollars, except share and per share amounts)
(Unaudited)
1st Quarter | 2nd Quarter | |||||||||||||||||||||||
2015 | 2014 | 2013 | 2015 | 2014 | 2013 | |||||||||||||||||||
$ | $ | $ | $ | $ | $ | |||||||||||||||||||
Revenue | 189,009 | 199,948 | 196,695 | 196,586 | 202,925 | 193,462 | ||||||||||||||||||
Cost of sales | 151,994 | 157,250 | 158,389 | 154,178 | 158,875 | 151,202 | ||||||||||||||||||
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Gross profit | 37,015 | 42,698 | 38,306 | 42,408 | 44,050 | 42,260 | ||||||||||||||||||
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Gross margin | 19.6 | % | 21.4 | % | 19.5 | % | 21.6 | % | 21.7 | % | 21.8 | % | ||||||||||||
Selling, general and administrative expenses | 18,127 | 18,980 | 22,959 | 22,253 | 20,561 | 20,208 | ||||||||||||||||||
Research expenses | 2,066 | 2,074 | 1,602 | 2,141 | 1,667 | 1,589 | ||||||||||||||||||
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20,193 | 21,054 | 24,561 | 24,394 | 22,228 | 21,797 | |||||||||||||||||||
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Operating profit before manufacturing facility closures, restructuring and other related charges | 16,822 | 21,644 | 13,745 | 18,014 | 21,822 | 20,463 | ||||||||||||||||||
Manufacturing facility closures, restructuring and other related charges | 660 | 1,384 | 27,201 | 142 | 1,020 | 924 | ||||||||||||||||||
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Operating profit (loss) | 16,162 | 20,260 | (13,456 | ) | 17,872 | 20,802 | 19,539 | |||||||||||||||||
Finance costs | ||||||||||||||||||||||||
Interest | 616 | 831 | 1,753 | 982 | 864 | 1,846 | ||||||||||||||||||
Other expense (income), net | (641 | ) | 352 | 160 | 395 | 370 | 437 | |||||||||||||||||
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(25 | ) | 1,183 | 1,913 | 1,377 | 1,234 | 2,283 | ||||||||||||||||||
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Earnings (loss) before income tax expense (benefit) | 16,187 | 19,077 | (15,369 | ) | 16,495 | 19,568 | 17,256 | |||||||||||||||||
Income tax expense (benefit) | ||||||||||||||||||||||||
Current | 1,063 | 457 | 751 | 1,249 | 1,062 | 1,909 | ||||||||||||||||||
Deferred | 3,346 | 6,986 | (312 | ) | 3,498 | 6,392 | 226 | |||||||||||||||||
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4,409 | 7,443 | 439 | 4,747 | 7,454 | 2,135 | |||||||||||||||||||
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Net earnings (loss) | 11,778 | 11,634 | (15,808 | ) | 11,748 | 12,114 | 15,121 | |||||||||||||||||
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Earnings (loss) per share | ||||||||||||||||||||||||
Basic | 0.19 | 0.19 | (0.26 | ) | 0.20 | 0.20 | 0.25 | |||||||||||||||||
Diluted | 0.19 | 0.19 | (0.26 | ) | 0.19 | 0.19 | 0.25 | |||||||||||||||||
Weighted average number of common shares outstanding | ||||||||||||||||||||||||
Basic | 60,471,031 | 60,776,649 | 59,692,751 | 59,727,825 | 60,825,745 | 60,288,991 | ||||||||||||||||||
Diluted | 62,198,126 | 62,019,844 | 59,692,751 | 61,739,717 | 62,569,430 | 61,584,732 |
Consolidated Quarterly Statements of Earnings
(In thousands of US dollars, except share and per share amounts)
(Unaudited)
3rd Quarter | 4th Quarter | |||||||||||||||||||||||
2015 | 2014 | 2013 | 2015 | 2014 | 2013 | |||||||||||||||||||
$ | $ | $ | $ | $ | $ | |||||||||||||||||||
Revenue | 200,635 | 209,109 | 199,853 | 195,677 | 200,750 | 191,490 | ||||||||||||||||||
Cost of sales | 157,838 | 168,447 | 159,872 | 149,885 | 164,527 | 153,543 | ||||||||||||||||||
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Gross profit | 42,797 | 40,662 | 39,981 | 45,792 | 36,223 | 37,947 | ||||||||||||||||||
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Gross margin | 21.3 | % | 19.4 | % | 20.0 | % | 23.4 | % | 18.0 | % | 19.8 | % | ||||||||||||
Selling, general and administrative expenses | 17,927 | 23,153 | 20,547 | 25,765 | 23,261 | 18,968 | ||||||||||||||||||
Research expenses | 2,499 | 1,778 | 1,701 | 2,753 | 2,354 | 2,008 | ||||||||||||||||||
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20,426 | 24,931 | 22,248 | 28,518 | 25,615 | 20,976 | |||||||||||||||||||
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Operating profit before manufacturing facility closures, restructuring and other related charges | 22,371 | 15,731 | 17,733 | 17,274 | 10,608 | 16,971 | ||||||||||||||||||
Manufacturing facility closures, restructuring and other related charges | 181 | 1,560 | 934 | 2,683 | 963 | 1,647 | ||||||||||||||||||
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Operating profit | 22,190 | 14,171 | 16,799 | 14,591 | 9,645 | 15,324 | ||||||||||||||||||
Finance costs | ||||||||||||||||||||||||
Interest | 919 | 867 | 1,261 | 1,036 | 2,069 | 847 | ||||||||||||||||||
Other expense (income), net | (651 | ) | 426 | 190 | 504 | 380 | 159 | |||||||||||||||||
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268 | 1,293 | 1,451 | 1,540 | 2,449 | 1,006 | |||||||||||||||||||
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Earnings before income tax expense (benefit) | 21,922 | 12,878 | 15,348 | 13,051 | 7,196 | 14,318 | ||||||||||||||||||
Income tax expense (benefit) | ||||||||||||||||||||||||
Current | 3,281 | 2,914 | 729 | 2,592 | (768 | ) | 233 | |||||||||||||||||
Deferred | 2,987 | 3,953 | 200 | (7,033 | ) | 1,907 | (39,540 | ) | ||||||||||||||||
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6,268 | 6,867 | 929 | (4,441 | ) | 1,139 | (39,307 | ) | |||||||||||||||||
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Net earnings | 15,654 | 6,011 | 14,419 | 17,492 | 6,057 | 53,625 | ||||||||||||||||||
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Earnings per share | ||||||||||||||||||||||||
Basic | 0.26 | 0.10 | 0.24 | 0.30 | 0.10 | 0.88 | ||||||||||||||||||
Diluted | 0.26 | 0.10 | 0.23 | 0.29 | 0.10 | 0.86 | ||||||||||||||||||
Weighted average number of common shares outstanding | ||||||||||||||||||||||||
Basic | 59,785,871 | 60,790,184 | 60,731,173 | 58,802,897 | 60,427,043 | 60,776,649 | ||||||||||||||||||
Diluted | 60,879,777 | 62,457,931 | 62,072,583 | 60,316,201 | 62,307,696 | 62,170,733 |
Overview
Intertape Polymer Group Inc. operates in the specialty packaging industry in North America. The Company develops, manufactures and sells a variety of paper and film based pressure sensitive and water activatedwater-activated tapes, polyethylene and specialized polyolefin packaging films, woven coated fabrics and complementary packaging systems for industrial use and retail applications. The Company designs its specialty products for aerospace, automotive and industrial applications.use. The Company’s tape and film products are sold to a broad range of industrial and specialty distributors, consumer outlets and large end-users in diverse markets. Other tape products includeprimarily consist of: carton sealing tapes, including Intertape™ pressure-sensitivepressure sensitive and water-activated tapes; industrial and performance specialty tapes, including paper,masking, duct, electrical and reinforced filament tapes; ExIfilm® shrink film; and Stretchflex® stretch wrap. The Company also manufactures engineered coatedwrap; lumberwrap, structure fabrics and geomembrane fabrics; and non-manufactured flexible intermediate bulk containers (“FIBC”). These products are sold through a variety of industrial and specialty distributors with a focus on sales to the construction and agricultural markets as well as the flexible packaging market.containers.
In 2012, theThe Company reported a 3.8% decrease in revenue of $784.4 million, a decrease of 0.3% compared to $786.7 million for 2011. Gross profit totalled $141.0 million in 2012the year ended December 31, 2015 as compared to $114.5 millionthe year ended December 31, 2014 and a 2.5% decrease in 2011, a 23.2% increase. Sales volume in 2012 decreased approximately 4%revenue for the fourth quarter of 2015 as compared to 2011the fourth quarter of 2014. The decrease in both periods was primarily due to progress made toward reducinga decrease in average selling price, including the impact of product mix, partially offset by additional revenue from the Better Packages and TaraTape acquisitions. Both periods in 2015 were impacted negatively by an estimated $9 million of lost sales of low-margin products anddue to the closure ofSouth Carolina Flood (defined later in this document).
Gross margin increased to 21.5% in the Brantford facility.The primary reasons for the increaseyear ended December 31, 2015 as compared to 20.1% in gross profit during 2012 were:
Improved pricing environment allowing for2014 primarily due to an increase in the spread between selling prices and raw material costs and selling prices;
Continued success in reducing manufacturing costs;
Closurethe favourable impact of the Brantford, OntarioCompany’s manufacturing facilitycost reduction programs, partially offset by an unfavourable product mix, an increase in 2011;manufacturing inefficiencies mainly related to the South Carolina Project and
Increased sales the decision to change manufacturing locations of highercertain products to meet customers’ demand.
Gross margin products.
Forincreased to 23.4% in the year ended December 31, 2012, the Company reported net earningsfourth quarter of $22.5 million ($0.38 per share basic, $0.37 per share diluted)2015 as compared to $9.0 million ($0.15 per share, both basic and diluted)18.0% in 2011. For the year ended December 31, 2010 the Company reported a net lossfourth quarter of $48.5 million (($0.82) per share, both basic and diluted). The significant2014 primarily due to an increase in netthe spread between selling prices and lower raw material costs, a significant improvement in manufacturing performance, the reversal of a 2010 impairment for manufacturing equipment, and the favourable impact of the Company’s manufacturing cost reduction programs, partially offset by an unfavourable product mix, the decision to change manufacturing locations of certain products to meet customers’ demand and the impact of the South Carolina Flood.
Net earnings for the year ended December 31, 2012 compared2015 increased to 2011$56.7 million ($0.95 basic earnings per share and $0.93 diluted earnings per share) from $35.8 million ($0.59 basic earnings per share and $0.58 diluted earnings per share) for the same period in 2014. The increase was primarily due to improveda decrease in income tax expense and finance costs, and an increase in gross profit as discussed above, partially offset by significantly increased manufacturing facility closure costs.
The Company continued its efforts to focus on increasing sales and marketing of higher margin products, which include recently launched products and a portfolio of existing products. Manufacturing cost reduction programs implemented during 2012, which included productivity improvements, waste reduction and energy conservation, totalled more than $17 million.
The Company will continue to focus on developing and selling higher margin products, reducing variable manufacturing costs, executing manufacturing plant rationalization initiatives and optimizing its debt structure. As a result, the Company anticipates the following:
RevenueNet earnings for the first quarter of 2013 is expected to be greater than the fourth quarter of 2012, which is reflective of normal seasonality. Revenue is expected2015 increased to be approximately the same or slightly lower than the first quarter of 2012 due to fewer shipping days;
Gross margin$17.5 million ($0.30 basic earnings per share and $0.29 diluted earnings per share) from $6.1 million ($0.10 basic and diluted earnings per share) for the first quarter of 2013 is expected to be similar to the fourth quarter of 2012;2014. The increase was primarily due to an increase in gross profit and a decrease in income tax expense, partially offset by an increase in selling, general and administrative expenses (“SG&A”) related to an increase in variable compensation expense, and an increase in manufacturing facility closures, restructuring and other related charges primarily associated with the South Carolina Flood.
Adjusted EBITDAnet earnings (a non-GAAP financial measure as defined and reconciled later in this document) for the first quarter of 2013 is expectedyear ended December 31, 2015 increased to be greater than both$58.6 million ($0.98 basic adjusted earnings per share and $0.96 diluted adjusted earnings per share) from $52.4 million ($0.86 basic adjusted earnings per share and $0.84 diluted adjusted earnings per share) for the same period in 2014. Adjusted net earnings increased primarily due to decreases in income tax expense, finance costs and variable compensation expenses, partially offset by a decrease in gross profit, an increase in certain other SG&A expenses, and an increase in research expenses primarily associated with the South Carolina Project (defined later in this document).
Adjusted net earnings for the fourth quarter of 20122015 increased to $18.9 million ($0.32 basic adjusted earnings per share and the first quarter of 2012;
Cash flows$0.31 diluted adjusted earnings per share) from operations in the first quarter of 2013 are expected to be lower than$11.9 million ($0.20 basic adjusted earnings per share and $0.19 diluted adjusted earnings per share) for the fourth quarter of 20122014. Adjusted net earnings increased primarily due to changesa decrease in working capital requirements related to:income tax and an increase in gross profit, partially offset by an increase in variable compensation expenses.
Higher trade receivables resulting fromAdjusted EBITDA (a non-GAAP financial measure as defined and reconciled later in this document) decreased $1.9 million to $102.0 million for the expected return to a more typical distribution of shipments within the quarter and higher revenue; and
Payments of amounts expensed in 2012.
Total debt at March 31, 2013 is expected to be greater than atyear ended December 31, 2012, which is consistent with typical seasonal working capital requirements;
Cash income taxes paid in 2013 are expected to be less than $2 million. The effective income tax rate may vary significantly2015 from historical rates$103.9 million for the year ended December 31, 2014, primarily due to the accounting for tax assetsunfavourable impact of foreign exchange due to the strengthening of the US dollar compared to the Canadian dollar and Euro (“FX impact”), an increase in conjunctioncertain SG&A expenses, and an increase in research expenses primarily associated with the impact of restructuring charges and other adjustments. Such potential variations in rate would, therefore, not necessarily be indicative of future income tax payments;
Capital expenditures for 2013, excluding any real estate purchases, are expected to be $33 to $39 million, reflecting planned replacements of machinery and equipment to achieve improved manufacturing efficiencies. Capital expenditures are expected to return to a lower level of $17 to $21 million in 2014;
The remaining $38.7 million Senior Subordinated Notes (“Notes”) outstanding are expected to be redeemed in 2013. In order to retire the Notes and finance capital expenditures, the Company expects to increase borrowings under both its Asset-Based Loan (“ABL”) facility and secured debt equipment finance agreement (“Equipment Finance Agreement”). Furthermore, any real estate purchases are expected to be financed through mortgages;
Manufacturing cost reductions are expected to total $16 to $20 million in 2013, which includes $5 million of expected savings related to:
Closure of the Richmond, Kentucky manufacturing facility; and
Consolidation of shrink film production from Truro, Nova Scotia to Tremonton, Utah.
Consistent with prior years, the Company anticipates that some of these cost savings will beSouth Carolina Project, partially offset by other manufacturing costs that are expecteda decrease in variable compensation expenses.
Adjusted EBITDA increased $3.9 million to increase, such as labor and energy;
Over the next two years, the Company plans to relocate and modernize its Columbia, South Carolina manufacturing operations with state-of-the-art equipment in a new facility. A letter of intent has been entered into$24.6 million for the purchase of a manufacturing facility in Blythewood, South Carolina, which is in close proximity to Columbia. This plan, which reflects the Company’s largest single facility improvement in many years, is expected to result in the following:
Total annual cash savings in excess of $13 million starting in the first half of 2015 with the first full year effects in 2016;
Total charge of $32 to $38 million between 2013 and 2015, with $28 to $32 million expected to be recorded in the first quarter of 2013;
Of the total charge recorded in the first quarter of 2013, $25 to $27 million relates to non-cash impairment of property, plant and equipment with the remaining $3 to $5 million relating to cash items that will be disbursed over the next two years;
Subsequent to the first quarter of 2013, $4 to $6 million of expenses are expected to be recorded and paid over the next two years;
Total capital expenditures for equipment related to this project are expected to be $26 million, of which $2.7 million was paid for in the fourth quarter of 2015 from $20.6 million for the fourth quarter of 2014. The increase in adjusted EBITDA was primarily due to an increase in gross profit, partially offset by an increase in variable compensation expense.
For the three months and year ended December 31, 2015, the Company repurchased 366,600 and 2,487,188 common shares under its normal course issuer bids (“NCIBs”) for a total purchase price of $4.0 million and $30.0 million, respectively. As of March 9, 2016, the Company repurchased 147,200 shares under the NCIB in 2016 for a total purchase price of $1.7 million.
On August 12, 2015, the Board of Directors amended the Company’s quarterly dividend policy to increase the annualized dividend from $0.48 to $0.52 per share. The Board’s decision to increase the dividend was based on the Company’s strong financial position and positive outlook. The declaration and payment of future dividends, however, are discretionary and will be subject to determination by the Board of Directors each quarter following its review of, among other considerations, the Company’s financial performance and the Company’s legal ability to pay dividends. Since the dividend policy was reinstated in August 2012, $15 to $17the Company has paid $73.3 million expected to bein cumulative dividends, of which $29.7 million was paid in 2013 and the remainder to be incurred in periods subsequent to 2013. These capital expenditure amounts do not include any real estate investments. This capital expenditure of $15 to $17 million in 2013 is included in the $33 to $39 million total capital expenditures discussed above; and2015.
Total cost of the new building and facility improvements is expected to be approximately $13.5 million; and
On March 6, 2013,9, 2016, the CompanyBoard of Directors declared a dividend in the amount of US$0.08, under the semi-annual dividend policy. The dividend will be paid$0.13 per common share payable on April 10, 2013March 21, 2016 to shareholders of record at the close of business on March 25, 2013.31, 2016.
Assuming stable or improving macro-economic conditions,
Columbia, South Carolina Flood Update
On October 4, 2015, the Columbia, South Carolina manufacturing facility was damaged by significant rainfall and subsequent severe flooding (“South Carolina Flood”). The damages sustained were considerable and resulted in the facility being shut down permanently. The Company had planned to shut down this facility by the end of the second quarter of 2016 so this represents a timeline of eight to nine months earlier. Production of duct tape at the new Blythewood, South Carolina facility was not affected by the flooding and was shut down for only two days in order to ensure it was safe for employees to return to work.
The Company, along with its insurers and advisors, continues to assess the damage. The Company believes that it has sufficient property and business interruption insurance coverage, and expects that the losses exceeding the $0.5 million deductible will be substantially covered by those insurance policies.
The shut down of the Columbia, South Carolina facility has impacted the production of several masking tape and stencil products that represented approximately $55 million of total annualized sales. The Company has since taken all reasonable measures to ensure that customers’ needs are met.
Production of masking tape has been relocated to the Company’s other facilities such as the Marysville, Michigan and Blythewood, South Carolina facilities. Any masking tape production temporarily moved to the Marysville, Michigan facility will subsequently be transferred to the Blythewood, South Carolina facility. The transfer of masking tape production to the new Blythewood, South Carolina facility represents an acceleration of the previously announced schedule of the end of the second quarter of 2016. In the fourth quarter of 2015, the Company began commercial production of certain masking tape products in the Blythewood, South Carolina facility but production levels are still not at intended target levels. In addition, the Company is experiencing higher costs of production and transportation in the masking tape production that was moved to the Marysville, Michigan facility. The Company expects that these operating inefficiencies will continue until the end of 2016 as current production levels in the Blythewood, South Carolina facility improve to targeted levels and masking tape products are moved from the Marysville, Michigan facility.
Production of stencil products is in the process of being relocated to other manufacturing facilities. Due mainly to the lead time required to receive and commission new equipment for stencil production, the Company expects to achieve quarterly gross marginthat production will resume at some point in the rangesecond half of 18%2016. The Company has been mitigating this delay with its customers via outsourcing arrangements.
In the fourth quarter of 2015, the Company recorded $6.5 million of manufacturing facility closures, restructuring and other related charges related to 20% during 2013.
Results of Operationsthe Columbia, South Carolina facility damage to real and personal property as well as subsequent clean-up and idle facility costs. Partially offsetting the charges within the same caption were $5.0 million in initial insurance settlement claim proceeds received in 2015.
The following discussion and analysis of operating results includes adjusted financialCompany estimates that its results for both the yearsyear and fourth quarter of 2015 were negatively impacted by the South Carolina Flood by the following amounts: approximately $9 million of lost sales of masking tape and stencil products, and reductions in gross profit and adjusted EBITDA of approximately $3 million. In addition to the impact of lost sales, the negative impact to gross profit and adjusted EBITDA is due to lost gross profit on lost sales as well as incremental costs from alternative product sourcing, partially offset by the reduction in South Carolina Duplicate Overhead Costs following the unexpected permanent shut down of the Columbia, South Carolina manufacturing facility.
Going forward, the Company expects, but is currently unable to provide a reliable estimate for the amount and timing of, future amounts related to: insurance recoveries, business interruption losses (including, but not limited to, lost sales and temporary alternative sourcing of the Company’s products), site clean-up and environmental remediation costs, and professional fee costs related to the insurance claim process.
South Carolina Project Update
The “South Carolina Project” refers to the previously announced relocation and modernization of the Company’s Columbia, South Carolina manufacturing operation. This project involves moving the Company’s duct tape and masking tape production to a new state-of-the-art facility in Blythewood, South Carolina as well as moving flatback tape production to the Company’s existing facility in Marysville, Michigan. “South Carolina Duplicate Overhead Costs” refers to temporary operating cost increases related to operating both plants in South Carolina simultaneously and performing planned actions to mitigate risk associated with new technology, including state-of-the-art equipment, to support the South Carolina Project. “South Carolina Commissioning Revenue Reduction” refers to the sales attributed to the commissioning efforts of the production lines that were accounted for as a reduction of revenue and a corresponding reduction of the cost of the South Carolina Project. In addition, unless otherwise noted, the impact of the South Carolina Commissioning Revenue Reduction on gross profit and capital expenditures is not significant due to the requirement to offset this revenue with the associated cost of sales in the reclassification of the related gross profit as a reduction of the capital expenditures.
As expected, the Blythewood, South Carolina facility’s duct tape production efficiency continued to improve throughout the fourth quarter of 2015 and was close to reaching targeted performance levels in early 2016. In the second and third quarters of 2015, the Company recorded a $10.5 million South Carolina Commissioning Revenue Reduction attributed to the duct tape commissioning efforts for the year ended December 31, 2012, 2011 and 2010. A reconciliation of the operating results found in the audited consolidated financial statements to the adjusted operating results discussed herein, a non-GAAP financial measure, can be found in the Adjusted Net Earnings (Loss) Reconciliation to Net Earnings (Loss) table set forth below in the section titled Adjusted Net Earnings (Loss).
Included in this Item as well as in the Company’s Management’s Discussion and Analysis, are references to events and circumstances which have influenced the Company’s quarterly operating results presented in the table of Consolidated Quarterly Statements of Earnings (Loss) set forth in the Company’s Management’s Discussion and Analysis.
Net earnings2015. There was no South Carolina Commissioning Revenue Reduction for 2012 were $22.5 million compared to net earnings of $9.0 million for 2011 and net loss of $48.5 million for 2010.
The net earnings for 2012 include the following:
Improved gross profit as discussed above;
Facility closure costs of $18.3 million primarily related to the Richmond, Kentucky manufacturing facility closure and consolidation of shrink film production from Truro, Nova Scotia to Tremonton, Utah;
Reduced interest expense; and
Recognition of an income tax benefit in 2012.
The net earnings for 2011 included the following:
Gross margin expansion resulting from implemented price increases;
Increased sales of higher margin products and reduction in sales of low-margin products;
Manufacturing cost reductions of approximately $17 million; and
Facility closure costs of $2.9 million, primarily related to the Brantford, Ontario manufacturing facility closure.
The net loss for 2010 included the following:
Gross margin compression resulting from raw material cost increases;
A derecognition of deferred tax assets of $36.7 million, which included a $32.5 million chargeduct tape product required in the fourth quarter of 2015 as the Company has determined that the commissioning efforts in relation to this production line are complete.
In the fourth quarter of 2015, the Company began limited production and sales of masking tape from the Blythewood, South Carolina facility, with respectthe full transfer of masking tape production still expected to be completed in the US jurisdiction;
Facility closure costsfirst half of $3.52016. The Company now considers that the commercialization of the masking tape products being produced in the Blythewood, South Carolina facility is complete, and therefore must continue to focus on the ramp-up in production efficiencies as well as the transfer of certain masking tape production from the Marysville, Michigan facility. In the fourth quarter of 2015, the Company recorded a $0.5 million including $2.9 millionSouth Carolina Commissioning Revenue Reduction attributed to masking tape commissioning efforts for the year ended December 31, 2015.
The production ramp-up inefficiencies related to the Brantford, OntarioSouth Carolina Project, net of project savings and excluding South Carolina Duplicate Overhead Costs, resulted in a net negative impact of less than $0.1 million, $0.6 million and $1.9 million on gross profit and adjusted EBITDA for the fourth quarter, third quarter and year ended December 31, 2015, respectively.
South Carolina Duplicate Overhead Costs included in gross profit were approximately nil, $1.3 million and $4.3 million for the fourth quarter, third quarter, and year ended December 31, 2015, respectively. The costs were nil in the fourth quarter of 2015 as a result of the unexpected permanent shut down of the Columbia, South Carolina manufacturing facility closure;due to the South Carolina Flood discussed in the section above.
The impact of the South Carolina Project, including both components mentioned above, resulted in a net negative impact of less than $0.1 million, $1.9 million and $6.2 million on gross profit and adjusted EBITDA for the fourth quarter, third quarter and year ended December 31, 2015, respectively. The impact to adjusted EBITDA excludes non-cash South Carolina Duplicate Overhead Costs of nil, nil and $0.4 million for the fourth quarter, third quarter and year ended December 31, 2015, respectively.
The Company’s expectation for cost savings from the South Carolina Project remains unchanged with impacts on gross profit and adjusted EBITDA as follows:
Asset impairmentsManagement expects that all ramp-up inefficiencies will be resolved by the beginning of $4.02017, thereby resulting in the realization of the full extent of the expected $13 million including $2.9annual cost savings.
As of December 31, 2015, capital expenditures for the South Carolina Project since inception totalled $56.8 million. South Carolina Project capital expenditures recorded were $1.9 million and $7.9 million for the fourth quarter and year ended December 31, 2015, respectively. Total capital expenditures for the South Carolina Project from inception to the completion of the project are expected to be approximately $60 million, mainly as a result of additional commissioning efforts.
Better Packages Acquisition
On April 7, 2015, the Company purchased 100% of the issued and outstanding common shares of BP Acquisition Corporation (which wholly-owns a subsidiary, Better Packages, Inc.) (“Better Packages”), a leading supplier of water-activated tape dispensers. The Company expects the Better Packages acquisition to further extend the Company’s product offering and global presence in the rapidly growing e-commerce market. The Company paid a purchase price of $15.9 million in cash. The Company expects that these acquired operations will generate annualized revenue of approximately $18 million and EBITDA margin of over 15% in 2016.
The impact of the Better Packages acquisition on the Company’s consolidated earnings was as follows (in thousands of US dollars, unaudited):
Three months ended December 31, 2015 | April 7, 2015 through December 31, 2015 | |||||||
$ | $ | |||||||
Revenue | 5,476 | 14,601 | ||||||
Net earnings | 639 | 1,538 |
TaraTape Acquisition
On November 2, 2015, the Company purchased 100% of the issued and outstanding common shares of RJM Manufacturing, Inc. (doing business as “TaraTape”), a manufacturer of filament and pressure sensitive tapes. The Company expects the acquisition of TaraTape to strengthen the Company’s market position and provide opportunities to realize synergies between $2 and $4 million in additional adjusted EBITDA by the end of 2017. The Company paid a purchase price of $11.0 million. The Company expects that these acquired operations will generate annualized revenue of approximately $20 million and EBITDA margin of slightly below 10% before any synergies in 2016.
The impact of the TaraTape acquisition on the Company’s consolidated earnings was as follows (in thousands of US dollars, unaudited):
November 2, 2015 through December 31, 2015 | ||||
$ | ||||
Revenue | 3,078 | |||
Net loss(1) | (161 | ) |
(1) | The net loss resulting from the TaraTape acquisition includes a non-recurring $0.4 million charge to mark inventory to fair value as required by accounting guidance for business acquisitions. |
Outlook
Results of Operations
Revenue
Revenue for the year ended December 31, 2012 was $784.42015 totalled $781.9 million, a $30.8 million or 3.8% decrease of 0.3% compared to $786.7from $812.7 million for the year ended December 31, 2011. Sales volume decreased approximately 4% andsame period in 2014 primarily due to:
Partially offset by:
demand for the Company’s tape and woven products. The Company closed its Brantford facility inbelieves that the second quarter of 2011. Revenue increased 0.3% in 2012 compared to $781.7 million for 2011 after adjusting for the closure of the Brantford facility. The adjusted selling prices, including the impact of product mix, increased approximately 3% partially offset by the adjusted sales volume decrease of approximately 3%. An improved pricing environment that began in 2011 as well as the reduction in sales of low-margin products were the primary reasons for the increase in selling prices including the impact of product mix. The decrease in sales volume was primarily due to:
Partially offset by:
Embedded in the Company made toward reducing sales of low-margin products partially offset by anunfavourable product mix and the increase in sales volume is an estimate of new products.approximately $9 million of lost sales due to the impact of the South Carolina Flood.
Revenue for the year ended December 31, 20112014 totalled $812.7 million, a $31.2 million or 4.0% increase from $781.5 million for the same period in 2013 primarily due to:
Revenue for the fourth quarter of 2015 totalled $195.7 million, a $5.1 million or 2.5% decrease from $200.8 million for the fourth quarter of 2014 primarily due to:
Partially offset by:
Partially offset by:
Embedded in the unfavourable product mix and the decrease in sales volume is an estimate of approximately $9 million of lost sales due to the impact of the South Carolina Flood.
Revenue for the fourth quarter of 2015 totalled $195.7 million, a $5.0 million or 2.5% decrease from $200.6 million for the third quarter of 2015 primarily due to:
Partially offset by:
Partially offset by:
Embedded in the decrease in sales volume and the unfavourable product mix is an estimate of approximately $9 million of lost sales due to the impact of the South Carolina Flood.
Gross Profit and Gross Margin
Gross profit totalled $168.0 million for the year ended December 31, 2010. Selling prices, including2015, a $4.4 million or 2.7% increase from $163.6 million for the impact of product mix,same period in 2014. Gross margin was 21.5% in 2015 and 20.1% in 2014.
The Company’s revenue for the fourth quarter of 2012 was $189.3 million, a 3.4% increase compared to $183.0 million for the fourth quarter of 2011. Sales volume for the fourth quarter of 2012 increased approximately 6% compared to the fourth quarter of 2011 primarily due to increased demand for tape productsBetter Packages acquisition. These favourable items were partially offset by decreased demand for other products. Selling prices, including the impact ofan unfavourable product mix decreased approximately 3% in the fourth quarter of 2012 compared to the fourth quarter of 2011 primarily due to a shift in the mix of products sold.
The Company’s revenue for the fourth quarter of 2012 was $189.3 million, a 4.6% decrease compared to $198.5 million for the third quarter of 2012. Sales volume for the fourth quarter of 2012 decreased approximately 3% compared to the third quarter of 2012 primarily due to normal seasonality. Selling prices, including thevariance, an unfavourable FX impact of product mix, decreased approximately 2% in the fourth quarter of 2012 compared to the third quarter of 2012 primarily due to a shift in the mix of products sold.
Gross profit totalled $141.0 million for 2012, an increase of 23.2% from 2011. Gross margin was 18.0% in 2012 and 14.6% in 2011. The increase in gross profit in 2012 compared to 2011 was primarily due to an improved pricing environment, manufacturing cost reductions, increase in sales of higher margin products, and the closure of the Brantford, Ontario manufacturing facility in 2011 partially offset by lower sales volumes. The increase in gross margin in 2012 compared to 2011 was primarily due to manufacturing cost reductions, an increase in sales of higher margin products, an improved pricing environment and the progress made toward reducing sales of low-margin products.
Gross profit totalled $114.5 millionmanufacturing inefficiencies mainly in 2011, an increase of 35.8% from $84.3 million gross profit for 2010. Gross margin was 11.7% in 2010. Gross profit and gross margin increased in 2011 over 2010 primarily due to increased selling prices, improved product mix and manufacturing cost reductions, partially offset by lower sales volume.
Gross profit totalled $35.3 million in the fourth quarter of 2012, an increase of 28.0% from $27.6 million in the fourth quarter of 2011. Gross margin was 18.7% in the fourth quarter of 2012 and 15.1% in the fourth quarter of 2011. As comparedrelation to the fourth quarter of 2011, gross profit and grossSouth Carolina Project.
Selling, General,reduction programs, partially offset by an unfavourable product mix, an increase in manufacturing inefficiencies mainly related to the South Carolina Project and Administrative Expenses
Selling, general and administrative expenses (“SG&A”) for the year ended December 31, 2012 was $79.1 million compareddecision to $77.0change manufacturing locations of certain products to meet customers’ demand.
Gross profit totalled $163.6 million for the year ended December 31, 2011. As2014, a percentage$5.1 million or 3.2% increase from $158.5 million for the year ended December 31, 2013. Gross margin was 20.1% in 2014 and 20.3% in 2013.
Gross profit totalled $45.8 million for the fourth quarter of 2015, a $9.6 million or 26.4% increase from $36.2 million for the fourth quarter of 2014. Gross margin was 23.4% in the fourth quarter of 2015 and 18.0% in the fourth quarter of 2014.
Gross profit totalled $45.8 million for the fourth quarter of 2015, a $3.0 million or 7.0% increase from $42.8 million for the third quarter of 2015. Gross margin was 23.4% in the fourth quarter of 2015 and 21.3% in the third quarter of 2015.
Selling, General and Administrative Expenses
SG&A totalled $84.1 million for the year ended December 31, 2015, a $1.9 million or 2.3% decrease from $86.0 million for the year ended December 31, 2014. The decrease in SG&A was 10.1% and 9.8% for the years ended December 31, 2012 and 2011, respectively. The increase of $2.2 millionprimarily due to a decrease in 2012 comparedstock-based compensation mainly related to 2011 was primarily the result of highera reduction in stock appreciation rights (“SARs”) expense, a decrease in variable compensation expense relateddue to higher profitability, higher stock-based compensation expenselower expected annual payment amounts and increased professional fees,a favourable FX impact. These decreases were partially offset by the non-recurrenceBetter Packages and TaraTape acquisitions and an increase in employee costs, including health related costs. The increase in employee costs was primarily to support the expected growth of the settlement of a lawsuit.business.
SG&A for the year ended December 31, 2011 was $77.02014 totalled $86.0 million, compared to $73.3a $3.3 million or 4.0% increase from $82.7 million for the year ended December 31, 2010. 2013. The increase in SG&A in 2014 compared to 2013 was primarily due to (i) an increase in stock compensation expense primarily due to new grants awarded during 2014, (ii) an increase in the expense associated with credit insurance coverage commencing for accounts receivable in the fourth quarter of 2013, (iii) the non-recurrence of a bad debt recovery recorded in 2013, and (iv) an increase in professional fees. The increase was partially offset by a decrease due to the non-recurrence of a provision with respect to the resolution of a contingent liability recorded in 2013.
As a percentage of revenue, SG&A was 10.2%expenses represented 10.8%, 10.6%, and 10.6% for 2015, 2014 and 2013, respectively.
SG&A for the year ended December 31, 2010. Thefourth quarter of 2015 totalled $25.8 million, a $2.5 million or 9.7% increase of $3.7 million in 2011 compared to 2010 was primarily the result of higher selling expenses and other compensation costs related to higher revenue and profitability and the settlement of a lawsuit.
SG&A totalled $20.8from $23.3 million for the fourth quarter of 2012 compared2014. The increase in SG&A was primarily due to $18.4an increase in variable compensation expense and the Better Packages and TaraTape acquisitions.
SG&A for the fourth quarter of 2015 increased $7.8 million or 30.2% from $17.9 million in the third quarter of 2015, primarily due to an increase in variable compensation expense and stock-based compensation mainly related to an increase in SARs expense in the fourth quarter of 2011. As a percentage of revenue, SG&A was 11.0% and 10.1% for2015, partially offset by the fourth quarter of 2012 and the fourth quarter of 2011, respectively. SG&A was $2.4 million higher in the fourth quarter of 2012 compared to the fourth quarter of 2011 primarily due to higher stock-based compensation, severance and professional fees related to managerial reporting enhancements.
Research remains an important aspectgain on disposal of the Company’s strategy. As a percentageformer executive headquarters in Bradenton, Florida recognized in the third quarter of revenue, research expenses represented 0.8%, 0.8%, 0.9% for the years ended December 31, 2012, 2011 and 2010, respectively. 2015.
Research Expenses
The Company continues to focus its research efforts on potential new products, technology, manufacturing processes and formulations for existing products. Research expenses totalled $9.5 million for the year ended December 31, 2015, a $1.6 million or 20.1% increase from $7.9 million for the year ended December 31, 2014. Research expenses for the year ended December 31, 2014 increased $1.0 million or 14.1% from $6.9 million for the year ended December 31, 2013.
Research expenses for the fourth quarter of 2015 totalled $2.8 million, a $0.4 million or 16.9% increase from $2.4 million for the fourth quarter of 2014, and a $0.3 million or 10.1% increase from $2.5 million for the third quarter of 2015.
The increases in all periods were primarily due to ongoing efforts to support the South Carolina Project and other manufacturing cost reduction programs.
As a percentage of revenue, research expenses represented 0.8% for the fourth quarter of 20121.2%, 1.0%, and 0.9% for the fourth quarter of 2011.2015, 2014 and 2013, respectively.
Manufacturing Facility Closures, Restructuring and Other Related ChargesIndex to Financial Statements
As announced on June 26, 2012,Manufacturing facility closures, restructuring and other related charges totalled $3.7 million for the Company ceased production at itsyear ended December 31, 2015, a $1.3 million decrease from $4.9 million for the year ended December 31, 2014. The decrease was primarily due to the non-recurrence of $1.0 million and $0.7 million in charges related to the closure of the Richmond, Kentucky manufacturing operationfacility and the relocation of the Langley, British Columbia manufacturing facility to Delta, British Columbia, respectively. The charges recorded in 2015 are primarily related to the South Carolina Project of $1.5 million and the South Carolina Flood of $1.5 million. The South Carolina Project costs primarily include workforce retention and idle facility costs, partially offset by a reversal of impairment on equipment. The South Carolina Flood charges of $1.5 million primarily relate to a total of $6.5 million of damaged inventory, clean-up and idle facility costs and impaired property, plant and equipment, partially offset by initial insurance settlement claim proceeds of $5.0 million.
Manufacturing facility closures, restructuring and other related charges for the year ended December 31, 2014 totalled $4.9 million, a $25.8 million decrease from $30.7 million for the year ended December 31, 2013, primarily due to a $3.2 million charge recorded in 2014 as compared to a $27.9 million charge recorded in 2013 for the South Carolina Project. The charges recorded in 2014 are primarily related to equipment relocation and workforce retention costs. The charges recorded in 2013 are primarily related to the impairment of property, plant and equipment upon the announcement of the South Carolina Project, and related environmental remediation and accrued workforce retention costs.
Manufacturing facility closures, restructuring and other related charges for the fourth quarter of 2012. North America shrink film production was consolidated in Tremonton, Utah and the production of shrink film in Truro, Nova Scotia ceased in the first quarter of 2013. The Truro facility will continue to manufacture woven products. Other smaller initiatives included the closure of the manufacturing operation in Piedras Negras, Mexico in2015 totalled $2.7 million, a $1.7 million increase from $1.0 million for the fourth quarter of 2012. Total costs incurred were $17.2 million, $3.0 million and nil for2014, primarily due to the full year ended December 31, 2012, fourth quarter of 2012 and fourth quarter of 2011, respectively. The $17.2 million charge consists of $3.0$1.5 million of cash items, andcharges relating to the remainder is non-cashSouth Carolina Flood discussed above. The charges primarily related to property, plant and equipment impairments. The Company anticipates that additional costs of approximately $1.4 million will be recorded in subsequent periods, of which $1.2 million is expected to be incurred in the first half of 2013 and the remainder in the second half of 2013. Total capital expenditures related to these initiatives are expected to be approximately $1.5 million. These initiatives are expected to optimize the Company’s manufacturing footprint while generating significant annual savings and maintaining operating capacity to position the Company for future profitable growth.
The Brantford, Ontario facility was shut down in the second quarter of 2011. The decision to close the facility was made at the end of 2010 and a charge of $2.9 million was recorded in the fourth quarter of 2010. The $2.9 million charge was2014 are primarily related to employee severanceequipment relocation and inventory write-downs. In 2011, $3.0 million was recorded for additional severance,workforce retention incentives, equipment transferscosts.
Manufacturing facility closures, restructuring and other costs related to this facility closure. Total costs incurred during the full year ended December 31, 2012 related to this facility closure were $1.1 million. Facility closure costs were $0.2 million and $0.4 million during the fourth quarter of 2012 and the fourth quarter of 2011, respectively. In January 2013, the Company sold the Brantford, Ontario facility and received net proceeds of $1.6 million.
The Hawkesbury manufacturing operations were shut down at the end of 2009. Asset impairments of $0.7 million were recorded in 2010 on remaining assets that were not sold as of December 31, 2010. The remaining assets were sold in 2011 and the Company recovered $0.2 million of the asset impairment charge.
Operating profit for 2012 amounted to $37.4 million compared to $28.4 million for 2011. The increase of $9.0 million in 2012 over 2011 was primarily the result of higher gross profit related to an improved pricing environment and manufacturing cost reductions partially offset by lower volumes.
Operating profit for 2011 amounted to $28.4 million compared to $1.2 million for 2010. The increase of $27.2 million in 2011 over 2010 was primarily the result of gross profit improvement related to price increases implemented in 2011 to offset increases in raw material costs that compressed gross profit in 2010. The increase in gross profit in 2011 was partially offset by higher selling expenses and other compensation costs related to higher revenue and profitability and the settlement of a lawsuit.
The Company’s operating profitcharges for the fourth quarter of 20122015 totalled $2.7 million, a $2.5 million increase from $0.2 million for the third quarter of 2015, primarily due to charges associated with the South Carolina Flood. The charges recorded in the third quarter of 2015 are primarily related to idle facility, workforce retention, and equipment relocation costs, partially offset by a reversal of impairment on equipment.
Finance Costs
Finance costs totalled $3.2 million for the year ended December 31, 2015, a $3.0 million or 48.7% decrease from $6.2 million for the year ended December 31, 2014. The decrease was $9.8 millionprimarily due to (i) foreign exchange gains in 2015, compared to foreign exchange losses in 2014 and (ii) a decrease in debt issue costs expensed in 2015 as a result of replacing the Company’s $200 million asset-based loan facility (“ABL facility”) with a new five-year $300 million revolving credit facility (“Revolving Credit Facility”) and the prepayment of certain other debt in 2014.
Finance costs for the year ended December 31, 2014 totalled $6.2 million, a $0.5 million or 7.4% decrease from $6.7 million for the year ended December 31, 2013, primarily due to (i) lower interest expense as a result of a lower average cost of debt and a lower average amount of debt outstanding and (ii) an operating profitincrease in capitalized interest. These changes were partially offset by an increase in debt issue cost expensed as a result of $7.2replacing the ABL facility with the Revolving Credit Facility and the prepayment of certain other debt in the fourth quarter of 2014, as well as an increase in foreign exchange losses.
Finance costs for the fourth quarter of 2015 totalled $1.5 million, a $0.9 million or 37.2% decrease from $2.5 million for the fourth quarter of 2011.2014. The 2012 improvement was primarily due to higher gross profit offset by higher manufacturing facility closure costs.
Interest expense for 2012 totalled $13.2 million; a $2.1 million or 13.9% decrease from $15.4 million of interest expense for 2011, primarily due to lower average debt levels resulting from improved free cash flows. Also, the average cost of debt decreased as the Company took the following actions:
On February 1, 2012, the Company entered into an amendment to its ABL facility extending its maturity date to February 2017, and generally providing more flexibility to the Company;
On August 1, 2012, the Company redeemed, at par value, the aggregate principal amount of $25.0 million of its outstanding Notes due August 2014;
On August 14, 2012, the Company entered into an Equipment Finance Agreement with a lifetime and maximum funding amount of $24.0 million with the final funding to occur by December 31, 2013. The terms of the arrangement include multiple individual finance leases, each of which will have a term of 60 months and a fixed interest rate;
On November 1, 2012, the Company entered into a ten-year real estate secured term loan (“Real Estate Loan”) in the amount of $16.6 million; and
On December 13, 2012, the Company redeemed, at par value, the aggregate principal amount of $55.0 million of its outstanding Notes due August 2014.
The decrease in interest expense was partially offset by $0.9 million of debt issue costs expensed as a result of the Note redemptions.
Interest expense was $15.4 million and $15.7 million for the years ended December 31, 2011 and 2010, respectively. The decrease in interest expense from 2010 to 2011 was primarily due to the expirationwrite off of debt issue costs related to the ABL facility that was paid in September 2011 of the interest rate swap agreement and partially due to a lower average level of ABL borrowings.
Interest expense forfull during the fourth quarter of 2012 totalled $3.1 million, a $0.5 million or 14.0% decrease from $3.7 million for the fourth quarter of 2011, primarily due to2014 and lower average debt levels resulting from the redemptions of Notes on August 1, 2012 of $25.0 million and on December 13, 2012 of $55.0 million as well as the prepayment on October 16, 2012 of the mortgage on the Company’s Danville, Virginia facility. These decreases were partially offset by $0.6 million of debt issue costs expensedinterest expense as a result of the Note redemption on December 13, 2012.a lower average cost of debt.
Other expenseFinance costs increased $1.3 million or 474% from $0.3 million for the year ended December 31, 2012 was $1.3 million compared to $2.2 million for 2011, a decreasethird quarter of $0.9 million.2015. The decrease of $0.9 million in 2012 compared to 2011 was primarily due to lower foreign exchange losses in 2012.
Other expense for the year ended December 31, 2010 was $0.9 million. The increase of $1.3 million in 2011 compared to 2010 was primarily due to foreign exchange losses in 2011.
Other expense was $0.4 million for both the fourth quarter of 2012 and2015, compared to foreign exchange gains during the fourththird quarter of 2011. In both periods, the amounts primarily consisted of fees related to the unused portion of the ABL facility and losses on the disposal of property, plant and equipment.2015.
The Company is subject to income taxation in multiple tax jurisdictions around the world. Accordingly, the Company’s effective income tax rate fluctuates depending upon the geographic source of its earnings. The Company’s effective income tax rate is also impacted by tax planning strategies that the Company implements. The effectiveIncome tax expense is recognized in each interim period based on the best estimate of the weighted average annual income tax rate expected for 2012 was 1.6% comparedthe full financial year.
Below is a table reflecting the calculation of the Company’s effective tax rate for the year ended December 31, 2010 was negative 217%. (in millions of US dollars):
Three months ended December 31, | Year ended December 31, | |||||||||||||||||||
2015 | 2014 | 2015 | 2014 | 2013 | ||||||||||||||||
$ | $ | $ | $ | $ | ||||||||||||||||
Income tax (benefit) expense | (4.4 | ) | 1.1 | 11.0 | 22.9 | (35.8 | ) | |||||||||||||
Earnings before income tax (benefit) expense | 13.1 | 7.2 | 67.7 | 58.7 | 31.6 | |||||||||||||||
Effective tax rate | -34.0 | % | 15.8 | % | 16.2 | % | 39.0 | % | -113.5 | % |
The decrease in the effective tax rate in the year ended December 31, 2012for 2015 compared to the year ended December 31, 2011 was2014 is primarily due to increaseda favourable change in the mix of earnings inbetween jurisdictions with lower effective tax rates and the benefit received from the ability to utilize certain US alternative minimumrecognition of previously derecognized Canadian deferred tax (“AMT”) net operating losses without limitation. The AMT benefit was the result of a refund of $1.2 million of AMT recorded in 2012. Approximately $0.5 million was received in 2012, and $0.7 million is expected to be received in 2013.assets. The increase in the effective tax rate infor 2014 compared to 2013 is primarily due to (i) the non-recurrence of the $43.0 million tax benefit recorded during the year ended December 31, 2011 compared2013 to recognize the previously derecognized US deferred tax assets, (ii) the partial utilization of such deferred tax assets during the year ended December 31, 2010 was primarily due to2014, and (iii) the derecognitionupfront tax expense incurred in connection with the reorganization of $36.7 millionthe capital structure of deferred tax assets in 2010 and improved earnings in 2011.
The effective tax rate was 8.7% in the fourth quarter of 2012 and 24.5% in the fourth quarter of 2011. As compared to the fourth quarter of 2011,2014, the effective tax rate for the fourth quarter of 2015 decreased primarily due to the non-recurrencerecognition of expense recorded inpreviously derecognized Canadian deferred tax assets.
Net Earnings
Net earnings totalled $56.7 million for the fourth quarter of 2011 relatedyear ended December 31 2015, a $20.8 million increase from $35.8 million for the year ended December 31, 2014, primarily due to the reduction inrecognition of previously derecognized Canadian deferred tax assets, due to changesa decrease in applicable future tax rates combined withfinance costs, and an increase in earnings in the fourth quarter of 2012 in jurisdictions with lower effective tax rates. These decreases were partially offset by tax expense recorded in the fourth quarter of 2012 related to stock options exercised during 2012.
In assessing the recoverability of deferred tax assets, the Company’s Management determines, at each balance sheet date, whether it is more likely than not that a portion or all of its deferred tax assets will be realized. In accordance with GAAP, this determination is based on quantitative and qualitative assessments by the Company’s Management and the weighing of all available evidence, both positive and negative. Such evidence includes the scheduled reversal of deferred tax liabilities, projected future taxable income and the implementation of tax planning strategies. However, GAAP places a significant weight on the Company’s historical financial performance when making such a determination. Accordingly, the expectation of generating taxable income in future periods may not be sufficient to overcome the negative presumption associated with historical and cumulative operational losses.
As of December 31, 2012, the Company has $49.6 million (CDN$49.3 million) of Canadian operating loss carry-forwards expiring in 2014 through 2032, including $25.9 million (CDN$25.8 million) which has been derecognized, and $140.0 million of US federal and state operating losses expiring in 2021 through 2031, $66.7 million of which have been derecognized.
Net Earnings (Loss)gross profit.
Net earnings for the year ended December 31, 20122014 totalled $22.5$35.8 million, compared to net earnings of $9.0a $31.5 million decrease from $67.4 million for the year ended December 31, 2011.2013, primarily due to the non-recurrence of the $43.0 million tax benefit recorded during the year ended December 31, 2013 to recognize the previously derecognized US deferred tax assets and the partial utilization of such deferred tax assets during the year ended December 31, 2014. The increasedecrease was partially offset by higher manufacturing facility closures, restructuring and other related charges recorded in the first quarter of 2013 when the South Carolina Project was announced.
Net earnings for the year ended 2012 compared to 2011 wasfourth quarter of 2015 totalled $17.5 million, a $11.4 million increase from $6.1 million for the fourth quarter of 2014, primarily due to an increase in gross profit and the recognition of previously derecognized Canadian deferred tax assets, partially offset by an increase in SG&A, and an increase in manufacturing facility closure costs,closures, restructuring and other related charges previously discussed.
Net loss for the year ended December 31, 2010 was $48.5 million. The increase in earnings for 2011 compared to 2010 was primarily duerelated to the derecognition of $36.7 million of deferred tax assets in 2010 and increased revenue and gross margin in 2011.South Carolina Flood.
Net earnings for the fourth quarter of 2012 were $5.72015 increased $1.8 million compared to net earnings of $2.3from $15.7 million infor the fourththird quarter of 2011. The increase in earnings for the fourth quarter of 2012 compared to the fourth quarter of 2011 was2015, primarily due to higherthe recognition of previously derecognized Canadian deferred tax assets and an increase in gross profit, partially offset by higherincreases in SG&A, manufacturing facility closure costs,closures, restructuring and other related charges previously discussed.and finance costs.
This ItemMD&A contains certain non-GAAP financial measures as defined under applicable securities legislation, including EBITDA, adjusted EBITDA, adjusted net earnings (loss) and, adjusted earnings (loss) per share.share, leverage ratio and free cash flows (please see the “Cash Flows” section below for a description and reconciliation of free cash flows). The Company believes such non-GAAP financial measures improve the period-to-period comparability of the Company’s results by providing more insight into the performance of ongoing core business operations. As required by applicable securities legislation, the Company has provided definitions of those measures and reconciliations of those measures to the most directly comparable GAAP financial measures. Investors and other readers are encouraged to review the related GAAP financial measures and the reconciliation of non-GAAP financial measures to their most closely applicabledirectly comparable GAAP financial measures set forth below and should consider non-GAAP financial measures only as a supplement to, and not as a substitute for or as a superior measure to, measures of financial performance prepared in accordance with GAAP.
The Company’s definition of adjusted EBITDA has recently changed
A reconciliation of the Company’s adjusted net earnings (loss), a non-GAAP financial measure, to GAAP net earnings (loss), the most directly comparable GAAP financial measure, is set out in the adjusted net earnings (loss) reconciliation table below. Adjusted net earnings (loss) should not be construed as net earnings (loss) as determined by GAAP. The Company defines adjusted net earnings (loss) as net earnings (loss) before (i) manufacturing facility closures, restructuring and other related charges; (ii) stock-based compensation expense;expense (benefit); (iii) impairment of goodwill; (iv) impairment (reversal of impairment) of long-lived assets and other assets; (v) write-down on assets classified as held-for-sale; (vi) (gain) loss on disposal of property, plant and equipment; (vii) other
discrete items as disclosed;shown in the table below; and (vii)(viii) the income tax effect of these items. The term “adjusted net earnings (loss)” does not have any standardized meaning prescribed by GAAP and is therefore unlikely to be comparable to similar measures presented by other issuers. Adjusted net earnings (loss) is not a measurement of financial performance under GAAP and should not be considered as an alternative to net earnings (loss) as an indicator of the Company’s operating performance or any other measures of performance derived in accordance with GAAP. The Company has included this non-GAAP financial measure because it believes that it permitsallows investors to make a more meaningful comparison of the Company’s performance between periods presented.presented by excluding certain non-cash expenses and non-recurring expenses. In addition, adjusted net earnings (loss) is used by Managementmanagement in evaluating the Company’s performance because it believes that it providesallows management to make a more accurate indicatormeaningful comparison of the Company’s performance.performance between periods presented by excluding certain non-cash expenses and non-recurring expenses.
Adjusted earnings (loss) per share is also presented in the following table and is a non-GAAP financial measure. Adjusted earnings (loss) per share should not be construed as earnings (loss) per share as determined by GAAP. The Company defines adjusted earnings (loss) per share as adjusted net earnings (loss) divided by the weighted average number of common shares outstanding, both basic and diluted. The term “adjusted earnings (loss) per share” does not have any standardized meaning prescribed by GAAP and is therefore unlikely to be comparable to similar measures presented by other issuers. Adjusted earnings (loss) per share is not a measurement of financial performance under GAAP and should not be considered as an alternative to earnings (loss) per share as an indicator of the Company’s operating performance or any other measures of performance derived in accordance with GAAP. The Company has included this non-GAAP financial measure because it believes that it permitsallows investors to make a more meaningful comparison of the Company’s performance between periods presented.presented by excluding certain non-cash expenses and non-recurring expenses. In addition, adjusted earnings (loss) per share is used by Managementmanagement in evaluating the Company’s performance because it believes that it providesallows management to make a more accurate indicatormeaningful comparison of the Company’s performance.performance between periods presented by excluding certain non-cash expenses and non-recurring expenses.
ADJUSTED NET EARNINGS (LOSS) RECONCILIATION TO NET EARNINGS (LOSS)
Adjusted Net Earnings Reconciliation to Net Earnings
(inIn millions of US dollars, except per share amounts and share numbers)
(Unaudited)
Three months ended December 31, | Year ended December 31, | Three months ended December 31, | Year ended December 31, | |||||||||||||||||||||||||||||||||||||
2012 | 2011 | 2012 | 2011 | 2010 | 2015 | 2014 | 2015 | 2014 | 2013 | |||||||||||||||||||||||||||||||
$ | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
Net earnings (loss) | 5.7 | 2.3 | 22.5 | 9.0 | (48.5 | ) | ||||||||||||||||||||||||||||||||||
Add back: | ||||||||||||||||||||||||||||||||||||||||
Manufacturing facility closures, restructuring, and other related charges | 3.2 | 0.4 | 18.3 | 2.9 | 3.5 | |||||||||||||||||||||||||||||||||||
Net earnings | 17.5 | 6.1 | 56.7 | 35.8 | 67.4 | |||||||||||||||||||||||||||||||||||
Manufacturing facility closures, restructuring and other related charges | 2.7 | 1.0 | 3.7 | 4.9 | 30.7 | |||||||||||||||||||||||||||||||||||
Stock-based compensation expense | 0.9 | 0.2 | 1.8 | 0.8 | 0.8 | 2.3 | 3.0 | 3.2 | 6.2 | 4.9 | ||||||||||||||||||||||||||||||
ITI litigation settlement | — | — | — | 1.0 | — | |||||||||||||||||||||||||||||||||||
Less: income tax expense | (0.5 | ) | — | (1.6 | ) | — | — | |||||||||||||||||||||||||||||||||
(Reversal of impairment) impairment of long-lived assets and other assets | (5.8 | ) | 0.1 | (5.8 | ) | 0.1 | 0.2 | |||||||||||||||||||||||||||||||||
(Gain) loss on disposals of property, plant and equipment | 0.2 | (0.0 | ) | (0.8 | ) | (0.1 | ) | 0.1 | ||||||||||||||||||||||||||||||||
Other Item: Provision related to the resolution of a contingent liability | — | — | — | — | 1.3 | |||||||||||||||||||||||||||||||||||
Other Item: Brantford Pension Charge | — | 0.3 | — | 1.6 | — | |||||||||||||||||||||||||||||||||||
Income tax effect of these items | 2.0 | 1.6 | 1.6 | 3.8 | (1.1 | ) | ||||||||||||||||||||||||||||||||||
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Adjusted net earnings (loss) | 9.3 | 2.9 | 41.0 | 13.6 | (44.2 | ) | ||||||||||||||||||||||||||||||||||
Adjusted net earnings | 18.9 | 11.9 | 58.6 | 52.4 | 103.4 | |||||||||||||||||||||||||||||||||||
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Earnings (loss) per share | ||||||||||||||||||||||||||||||||||||||||
Earnings per share | ||||||||||||||||||||||||||||||||||||||||
Basic | 0.10 | 0.04 | 0.38 | 0.15 | (0.82 | ) | 0.30 | 0.10 | 0.95 | 0.59 | 1.12 | |||||||||||||||||||||||||||||
Diluted | 0.09 | 0.04 | 0.37 | 0.15 | (0.82 | ) | 0.29 | 0.10 | 0.93 | 0.58 | 1.09 | |||||||||||||||||||||||||||||
Adjusted earnings (loss) per share | ||||||||||||||||||||||||||||||||||||||||
Adjusted earnings per share | ||||||||||||||||||||||||||||||||||||||||
Basic | 0.16 | 0.05 | 0.69 | 0.23 | (0.75 | ) | 0.32 | 0.20 | 0.98 | 0.86 | 1.71 | |||||||||||||||||||||||||||||
Diluted | 0.15 | 0.05 | 0.68 | 0.23 | (0.75 | ) | 0.31 | 0.19 | 0.96 | 0.84 | 1.68 | |||||||||||||||||||||||||||||
Weighted average number of common shares outstanding | ||||||||||||||||||||||||||||||||||||||||
Basic | 59,316,858 | 58,961,050 | 59,072,407 | 58,961,050 | 58,961,050 | 58,802,897 | 60,427,043 | 59,690,968 | 60,718,776 | 60,379,533 | ||||||||||||||||||||||||||||||
Diluted | 61,036,145 | 59,526,474 | 60,629,136 | 59,099,198 | 58,961,050 | 60,316,201 | 62,307,696 | 61,110,633 | 62,060,923 | 61,632,652 |
Adjusted net earnings amounted to $41.7totalled $58.6 million for the year ended December 31, 2012 compared to adjusted net earnings of $13.62015, a $6.2 million for 2011. Adjusted net earnings were $28.1increase from $52.4 million higher in the year ended December 31, 2012 compared to the year ended December 31, 2011 primarily due to higher gross profit, lower finance costs and lower income tax expense, as discussed above.
Adjusted net loss for the year ended December 31, 2010 was $44.2 million. The2014, primarily due to the recognition of previously derecognized Canadian deferred tax assets and decreases in finance costs and variable compensation expenses, partially offset by a decrease in gross profit, an increase of $57.9in certain other SG&A expenses, and an increase in research expenses primarily associated with the South Carolina Project.
Adjusted net earnings totalled $52.4 million infor the year ended December 31, 2011 over2014, a $51.0 million decrease from $103.4 million for the year ended December 31, 2010 was2013, primarily due to the resultnon-recurrence of a derecognition of $36.7the $43.0 million oftax benefit recorded during the year ended December 31, 2013 to recognize the previously derecognized US deferred tax assets relating to US federal and state operating losses and higher revenue and gross margin, as discussed above.the partial utilization of such deferred tax assets during the year ended December 31, 2014.
Adjusted net earnings were $10.0totalled $18.9 million for the fourth quarter of 2012 as compared to adjusted net earnings of $2.92015, a $7.0 million increase from $11.9 million for the fourth quarter of 2011. The increase in adjusted net earnings of $7.1 million was2014, primarily due to higher revenue,the recognition of previously derecognized Canadian deferred tax assets and an increase in gross profit, partially offset by an increase in variable compensation expense.
Adjusted net earnings for the fourth quarter of 2015 increased $6.0 million from $12.9 million for the third quarter of 2015, primarily due to the recognition of previously derecognized Canadian deferred tax assets, partially offset by an increase in variable compensation expense, a decrease in gross profit and reduced interest expense, as discussed above.an increase in foreign exchange losses.
EBITDA, Adjusted EBITDA and Leverage Ratio
A reconciliation of the Company’s EBITDA, a non-GAAP financial measure, to GAAP net earnings (loss), the most directly comparable GAAP financial measure, is set out in the EBITDA reconciliation table below. EBITDA should not be construed as earnings (loss) before income taxes, net earnings (loss) or cash flows from operating activities as determined by GAAP. The Company defines EBITDA as net earnings (loss) before (i) interest and other (income) expense;finance costs; (ii) income tax expense (benefit); (iii) refinancing expense, net of amortization; (iv) amortization of debt issue expenses; (v) amortization of intangible assets; and (vi)(iv) depreciation of property, plant and equipment. Adjusted EBITDA is defined as EBITDA before (i) manufacturing facility closures, restructuring and other related charges; (ii) stock-based compensation expense;expense (benefit); (iii) impairment of goodwill; (iv) impairment (reversal of impairment) of long-lived assets and other assets; (v) write-down on assets classified as held-for-sale; (vi) (gain) loss on disposal of property, plant and (vi)equipment; and (vii) other discrete items as disclosed.shown in the table below. The terms “EBITDA” and “adjusted EBITDA” do not have any standardized meanings prescribed by GAAP and are therefore unlikely to be comparable to similar measures presented by other issuers. EBITDA and adjusted EBITDA are not measurements of financial performance under GAAP and should not be considered as alternatives to cash flows from operating activities or as alternatives to net earnings (loss) as indicators of the Company’s operating performance or any other measures of performance derived in accordance with GAAP. The Company has included these non-GAAP financial measures because it believes that it permitsthey allow investors to make a more meaningful comparison of the Company’s performance between periods presented.presented by excluding certain non-operating expenses as well as certain non-cash expenses and non-recurring expenses. In addition, EBITDA and adjusted EBITDA are used by Managementmanagement and the Company’s lenders in evaluating the Company’s performance.performance because they believe that they allow management and the Company’s lenders to make a more meaningful comparison of the Company’s performance between periods presented by excluding certain non-operating expenses as well as certain non-cash expenses and non-recurring expenses.
The Company defines leverage ratio as long-term debt plus installments on long-term debt divided by adjusted EBITDA. The term “leverage ratio” does not have any standardized meaning prescribed by GAAP and is therefore unlikely to be comparable to similar measures presented by other issuers. Leverage ratio is not a measurement of financial performance under GAAP and should not be considered as an alternative to any GAAP measure as an indicator of the Company’s liquidity level or any other measures of performance derived in accordance with GAAP. The Company has included this non-GAAP financial measure because it believes that it allows investors to make a meaningful comparison of the Company’s liquidity level. In addition, leverage ratio is used by management in evaluating the Company’s performance because it believes that it allows management to monitor its liquidity level and evaluate its capacity to deploy capital to meet its strategic objectives.
EBITDA AND ADJUSTEDand Adjusted EBITDA RECONCILIATION TO NET EARNINGS (LOSS)Reconciliation to Net Earnings
(inIn millions of US dollars)
(Unaudited)
Three months ended December 31, | Year ended December 31, | Three months ended December 31, | Year ended December 31, | |||||||||||||||||||||||||||||||||||||
2012 | 2011 | 2012 | 2011 | 2010 | 2015 | 2014 | 2015 | 2014 | 2013 | |||||||||||||||||||||||||||||||
$ | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
Net earnings (loss) | 5.7 | 2.3 | 22.5 | 9.0 | (48.5 | ) | ||||||||||||||||||||||||||||||||||
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Interest and other expense | 3.5 | 4.1 | 14.5 | 17.5 | 16.6 | |||||||||||||||||||||||||||||||||||
Net earnings | 17.5 | 6.1 | 56.7 | 35.8 | 67.4 | |||||||||||||||||||||||||||||||||||
Interest and other finance costs | 1.5 | 2.4 | 3.2 | 6.2 | 6.6 | |||||||||||||||||||||||||||||||||||
Income tax expense (benefit) | 0.5 | 0.8 | 0.4 | 1.9 | 33.2 | (4.4 | ) | 1.1 | 11.0 | 22.9 | (35.8 | ) | ||||||||||||||||||||||||||||
Depreciation and amortization | 7.6 | 7.7 | 30.4 | 30.9 | 33.5 | 10.6 | 6.7 | 30.9 | 26.2 | 27.7 | ||||||||||||||||||||||||||||||
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EBITDA | 17.4 | 14.9 | 67.8 | 59.3 | 34.7 | 25.2 | 16.3 | 101.7 | 91.1 | 65.9 | ||||||||||||||||||||||||||||||
Manufacturing facility closures, restructuring and other related charges | 3.2 | 0.4 | 18.3 | 2.9 | 3.5 | 2.7 | 1.0 | 3.7 | 4.9 | 30.7 | ||||||||||||||||||||||||||||||
Stock-based compensation expense | 0.9 | 0.2 | 1.8 | 0.8 | 0.8 | 2.3 | 3.0 | 3.2 | 6.2 | 4.9 | ||||||||||||||||||||||||||||||
Impairment of long-lived assets | — | — | — | — | 2.9 | |||||||||||||||||||||||||||||||||||
Write-down of assets held-for-sale | — | — | — | — | 0.7 | |||||||||||||||||||||||||||||||||||
ITI litigation settlement | — | — | — | 1.0 | — | |||||||||||||||||||||||||||||||||||
(Reversal of impairment) impairment of long-lived assets and other assets | (5.8 | ) | 0.1 | (5.8 | ) | 0.1 | 0.2 | |||||||||||||||||||||||||||||||||
(Gain) loss on disposal of plant, property and equipment | 0.2 | (0.0 | ) | (0.8 | ) | (0.1 | ) | 0.1 | ||||||||||||||||||||||||||||||||
Other Item: Provision related to the resolution of a contingent liability | — | — | — | — | 1.3 | |||||||||||||||||||||||||||||||||||
Other Item: Brantford Pension Charge | — | 0.3 | — | 1.6 | — | |||||||||||||||||||||||||||||||||||
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Adjusted EBITDA | 21.5 | 15.5 | 87.9 | 64.0 | 42.7 | 24.6 | 20.6 | 102.0 | 103.9 | 103.1 | ||||||||||||||||||||||||||||||
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Adjusted EBITDA totalled $87.9$102.0 million for the year ended December 31, 2012 compared to an adjusted EBITDA of $64.02015, a $1.9 million for 2011. Adjusted EBITDA was $23.9or 1.8% decrease from $103.9 million higher in the year ended December 31, 2012 compared to the year ended December 31, 2011 primarily due to increased gross margin, as discussed above.
Adjusted EBITDA for the year ended December 31, 2010 was $42.7 million. The2014, primarily due to (i) an unfavourable FX impact, (ii) an increase of $21.3in SG&A expenses related to the Better Packages and TaraTape acquisitions and an increase in employee related costs, including an increase in health related costs and (iii) an increase in research expenses primarily associated with the South Carolina Project. These negative impacts were partially offset by a decrease in variable compensation expense.
Adjusted EBITDA totalled $103.9 million infor the year ended 2011 overDecember 31, 2014, a $0.8 million or 0.8% increase from $103.1 million for the year ended 2010 wasDecember 31, 2013, primarily due to increased revenuean increase in gross profit partially offset by (i) an increase in professional fees, (ii) an increase in research expenses, (iii) additional expenses associated with credit insurance coverage commencing for accounts receivable in the fourth quarter of 2013 and higher gross margin, as discussed above.(iv) the non-recurrence of a bad debt recovery recorded in 2013.
Adjusted EBITDA was $21.5totalled $24.6 million for the fourth quarter of 2012 as compared to an adjusted EBITDA of $15.52015, a $3.9 million or 19.1% increase from $20.6 million for the fourth quarter of 2011. The $5.9 million adjusted EBITDA increase is2014, primarily due to higher revenue andan increase in gross marginprofit, partially offset by an increase in variable compensation expense.
Adjusted EBITDA for the fourth quarter of 2012, as discussed above.
The Company reported earnings per share of $0.38 basic and $0.37 diluted for 2012 as compared to earnings per share of $0.15 per share, both basic and diluted, for 2011. A loss per share of $0.82 was reported for both basic and diluted for 2010. The weighted-average number of common shares outstanding2015 decreased $2.2 million or 8.4% from $26.8 million for the purposethird quarter of the basic earnings per share calculations was 59.1 million, 59.0 million and 59.0 million for 2012, 2011 and 2010, respectively. The weighted-average number of common shares outstanding for the purpose of the diluted earnings per share calculations was 60.6 million, 59.1 million and 59.0 million for 2012, 2011 and 2010, respectively.2015, primarily due to an increase in variable compensation expense, partially offset by an increase in gross profit.
Adjusted earnings per share (see the Adjusted Net Earnings (Loss) Reconciliation to Net Earnings (Loss) table above) for 2012 was $0.71 basic and $0.69 diluted. Adjusted earnings per share for 2011, both basic and diluted, was $0.23 and adjusted loss per share for 2010 was $0.75, both basic and diluted. Adjusted earnings per share for 2012 increased $0.48 for basic and $0.46 for diluted when compared to the corresponding 2011 adjusted earnings per share. Adjusted earnings per share for 2011 increased $0.98 for both basic and diluted when compared to the corresponding 2010 adjusted earnings per share.
Comprehensive income (loss) is comprised of net earnings (loss) and other comprehensive income (loss). ForComprehensive income totalled $45.7 million for the yearsyear ended December 31, 2012, 2011 and 2010,2015, a $22.2 million or 94.8% increase from $23.5 million for the Company reported comprehensive income of $18.1 million, comprehensive loss of $7.7 million and comprehensive loss of $46.7 million, respectively. The increase in comprehensive income in 2012 wasyear ended December 31, 2014, primarily due to higher net earnings in 20122015 and lowergains from the remeasurement of the defined benefit liability compared to actuarial losses onin 2014.
Comprehensive income totalled $23.5 million for the year ended December 31, 2014, a $56.1 million or 70.5% decrease from $79.6 million for the year ended December 31, 2013, primarily due to lower net earnings in 2014 and losses from the remeasurement of the defined benefits plans whenbenefit liability compared to 2011. actuarial gains in 2013.
Off-Balance Sheet Arrangements
The decreaseCompany had standby letters of comprehensive losscredit issued and outstanding as of December 31, 2015 that could result in 2011payments by the Company of up to an aggregate of $1.9 million upon the occurrence of certain events. All of the letters of credit have expiry dates in the third quarter of 2016.
The Company had commitments to suppliers to purchase machines and equipment totalling approximately $20.9 million as of December 31, 2015. It is expected that such amounts will be paid out in the next twelve months. In the event of cancellation, the penalties that would apply may be equal to the purchase price depending on timing of the cancellation.
The Company obtains certain raw materials from suppliers under consignment agreements. The suppliers retain ownership of raw materials until the earlier of when the materials are consumed in production or auto billings are triggered based upon maturity. The consignment agreements involve short-term commitments that typically mature within 30 to 60 days of inventory receipt and are typically renewed on an ongoing basis. The Company may be subject to fees in the event the Company requires storage in excess of 30 to 60 days. At December 31, 2015, the Company had on hand $13.0 million of raw material owned by its suppliers.
The Company has entered into agreements with various raw material suppliers to purchase minimum quantities of certain raw materials at fixed rates through June 2017 totalling approximately $22.1 million as of December 31, 2015. The Company is also required by the agreements to pay any storage costs incurred by the applicable supplier in the event the Company delays shipment in excess of 30 days. In the event the Company defaults under the terms of an agreement, an arbitrator will determine fees and penalties due to the applicable supplier. Neither party will be liable for failure to perform for reasons of “force majeure” as defined in the agreements.
The Company entered into a ten-year electricity service contract for one of its manufacturing facilities on November 12, 2013. The service date of the contract commenced in August 2014. The Company is committed to monthly minimum usage requirements over the term of the contract. The Company was provided installation at no cost and is receiving economic development incentive credits and maintenance of the required energy infrastructure at the manufacturing facility as part of the contract. The credits are expected to reduce the overall cost of electricity consumed by the facility over the term of the contract. Effective August 1, 2015, the Company entered into an amendment lowering the minimum usage requirements over the term of the contract. In addition, a new monthly facility charge will be incurred by the Company over the term of the contract. The Company estimates that service billings will total approximately $14.4 million over the remaining term of the contract.
Certain penalty clauses exist within the electricity service contract related to early cancellation after the service date of the contract. The costs related to early cancellation penalties include termination fees based on anticipated service billings over the term of the contract and capital expense recovery charges. While the Company does not expect to cancel the contract prior to the end of its term, the penalties that would apply to early cancellation could total as much as $5.4 million as of December 31, 2015. This amount declines annually until the expiration of the contract.
The Company has entered into agreements with various utility suppliers to fix certain energy costs, including natural gas and electricity, through December 2019 for minimum amounts of consumption at several of its manufacturing facilities. The Company estimates that utility billings will total approximately $5.2 million over the term of the contracts based on the contracted fixed terms and current market rate assumptions. The Company is also required by the agreements to pay any difference between the fixed price agreed to with the utility and the sales amount received by the utility for resale to a third party if the Company fails to meet the minimum consumption required by the agreements. In the event of early termination, the Company is required to pay the utility suppliers the difference between the contracted amount and the current market value of the energy, adjusted for present value, of any future agreed upon minimum usage. Neither party will be liable for failure to perform for reasons of “force majeure” as defined in the agreements.
The Company currently knows of no event, trend or uncertainty that may affect the availability or benefits of these arrangements or that would trigger any such penalty described above. The Company maintains no other off-balance sheet arrangements.
Related Party Transactions
In June 2014, the Company engaged with a relocation management company to facilitate the purchase of the then-newly appointed Chief Financial Officer’s home in Montreal, Québec, Canada to assist in his relocation to Sarasota, FL, U.S.A. The Company provided funding to the relocation management company to purchase the home for $0.9 million. On April 15, 2015, the home was sold and the Company was reimbursed for the purchase funding.
The Company’s key personnel are members of the Board of Directors and five members of senior management in 2015. Key personnel remuneration includes: short-term benefits including employee salaries and bonuses, director retainer and committee fees, post-employment benefits, stock-based compensation expense, and termination benefits. Total key personnel remuneration decreased $3.5 million to $5.4 million for the year ended December 31, 2015 from $8.8 million for the year ended December 31, 2014 primarily due to SARs exercise activity in 2014.
Working Capital
The Company experiences some business cyclicality that requires the management of working capital resources. Typically, a larger investment in working capital is required in quarters when accounts receivable increase due to higher sales and when inventory increases due to higher anticipated future sales. Furthermore, certain liabilities are accrued for throughout the year and are only paid during the first quarter of the following year.
The Company uses Days Inventory to measure inventory performance. Days Inventory for the fourth quarter of 2015 increased to 61 from 58 in the fourth quarter of 2014. Inventories increased $3.8 million to $100.6 million as of December 31, 2015 from $96.8 million as of December 31, 2014. The increase was primarily due to the derecognition of deferred tax assets recorded in 2010 partially offset by the increase in net earnings in 2011.
Off-Balance Sheet ArrangementsBetter Packages and TaraTape acquisitions.
The Company maintains no off-balance sheet arrangements exceptuses Days Sales Outstanding (“DSO”) to measure trade receivables. DSO for the lettersfourth quarter of credit issued and outstanding.
In prior reporting periods,2015 of 37 was the Company entered into two agreements, each with a company controlled by two members of its current Board of Directors. Both of these agreements ended prior to 2012 and no support service compensation was paid in 2012. These agreements required the provision of support services that included the duties of the Executive Director and the Chairman of the Board of Directors. The Executive Director support services agreement was effective through September 30, 2010 and provided for monthly compensation beginning January 2010 in the amount of $50,000. The Chairman of the Board of Directors support services agreement was effective through June 30, 2011 and provided monthly compensation beginning January 2010 in the amount of CDN$25,000. These amounts were in lieu of the fees otherwise paid to Directors for their services. During the year ended December 31, 2011, an amount of CDN$150,000 was recorded with respect to the support services agreement with the Chairman of the Board of Directors. During the year ended December 31, 2010, amounts of $300,000 and CDN$450,000 were recorded with respect to the support services agreements with the Executive Director and Chairman of the Board of Directors, respectively. Support service-related expenses of nil and $76,000 were recorded for the years ended December 31, 2011 and December 31, 2010, respectively.
One of the metrics the Company uses to measure inventory performance is Days Inventory. Days Inventory increased one day from 53same as in the fourth quarter of 2011 to 54 in the fourth quarter of 2012. The Company expects Days Inventory to be in the mid 50’s during the first quarter of 2013. Inventories increased $1.22014. Trade receivables decreased $2.7 million to $91.9$78.5 million as of December 31, 20122015 from $90.7$81.2 million as of December 31, 2011.
One of the metrics the Company uses to measure trade receivables is Days Sales Outstanding (“DSO’s”). DSO’s decreased by five days from 42 in the fourth quarter of 2011 to 37 in the fourth quarter of 2012. The reduction in DSO’s was2014 primarily due to an increasea decrease in the amount of revenue invoiced early in the fourth quarter of 2012 compared2015, partially offset by the additional revenue from the Better Packages and TaraTape acquisitions.
Financial Statements
The calculations are shown in the following tables:
Three months ended | Three months ended | |||||||||||||||||
Dec. 31, 2012 | Dec. 31, 2011 | Dec. 31, 2012 | Dec. 31, 2011 | |||||||||||||||
Cost of Sales (in millions of US dollars) | $ | 154.0 | $ | 155.4 | Revenue (in millions of US dollars) | $ | 189.3 | $ | 183.0 | |||||||||
Days in Quarter | 92 | 92 | Days in Quarter | 92 | 92 | |||||||||||||
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Cost of Sales Per Day (in millions of US dollars) | $ | 1.67 | $ | 1.69 | Revenue Per Day (in millions of US dollars) | $ | 2.06 | $ | 1.99 | |||||||||
Average Inventory (in millions of US dollars) | $ | 90.2 | $ | 89.9 | Trade Receivables (in millions of US dollars) | $ | 75.9 | $ | 82.6 | |||||||||
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Days Inventory | 54 | 53 | DSO’s | 37 | 42 | |||||||||||||
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Days Inventory is calculated as follows: | DSO’s is calculated as follows: | |||||||||||||||||
Cost of Sales ÷ Days in Quarter = Cost of Sales Per Day | Revenue ÷ Days in Quarter = Revenue Per Day | |||||||||||||||||
(Beginning Inventory + Ending Inventory) ÷ 2 = Avg Inventory | Ending Trade Receivables ÷ Revenue Per Day = DSO’s | |||||||||||||||||
Average inventory ÷ Cost of Goods Sold Per Day = Days Inventory |
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Cost of sales(1) | $ | 149.9 | $ | 164.5 | ||||
Days in quarter | 92 | 92 | ||||||
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Cost of sales per day(1) | $ | 1.63 | $ | 1.79 | ||||
Average inventory(1) | $ | 99.4 | $ | 102.8 | ||||
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Days inventory | 61 | 58 | ||||||
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Days inventory is calculated as follows:
Cost of sales ÷ Days in quarter = Cost of sales per day
(Beginning inventory + Ending inventory) ÷ 2 = Average inventory
Average inventory ÷ Cost of goods sold per day = Days inventory
(1) | In millions of US dollars |
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Revenue(1) | $ | 195.7 | $ | 200.8 | ||||
Days in quarter | 92 | 92 | ||||||
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Revenue per day(1) | $ | 2.13 | $ | 2.18 | ||||
Trade receivables(1) | $ | 78.5 | $ | 81.2 | ||||
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DSO | 37 | 37 | ||||||
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DSO is calculated as follows:
Revenue ÷ Days in quarter = Revenue per day
Ending trade receivables ÷ Revenue per day = DSO
Accounts payable and accrued liabilities increased $2.0$5.2 million to $76.0$82.2 million as of December 31, 20122015 from $74.0$77.0 million as of December 31, 2011,2014 primarily due to capital equipment.an increase in payables associated with the Better Packages and TaraTape acquisitions and the timing of payments for inventory and SG&A.
The Company finances its operations through a combination of cash flows from operations and borrowings under its Revolving Credit Facility. Liquidity risk management attempts to (i) maintain a sufficient amount of cash and (ii) ensure that the Company has financing sources for a sufficient authorized amount. The Company establishes budgets, cash estimates and cash management policies with a goal of ensuring it has the necessary funds to fulfil its obligations for the foreseeable future.
The Company has access to a $200$300 million ABL facility withRevolving Credit Facility, plus an incremental accordion feature (that is available subject to the credit agreement’s terms and lender approval) of $150 million through November 2019. As of December 31, 2015, the Company had drawn a syndicatetotal of financial institutions. $135.3 million, resulting in loan availability of $164.7 million. In addition, the Company had $17.6 million of cash, yielding total cash and loan availability of $182.3 million as of December 31, 2015.
The Company relies uponbelieves it has sufficient funds from cash flows from operating activities and cash on hand to meet its ongoing expected capital expenditures and working capital requirements funding needs for at least the next twelve months. These funds are also sufficient to meet funding needs for discretionary dividend payments and common share repurchases. In addition, funds available under its ABL facilitythe Revolving Credit Facility may be used, as needed, to meetfund more significant strategic initiatives.
Also refer to the section below entitled “Long-Term Debt” for additional discussion of funds available under the Revolving Credit Facility.
Cash Flows
The Company’s net working capital requirements, anticipated obligations under its other debt instruments and to partially finance capital expenditures foron the foreseeable future. The amount of borrowings availablebalance sheet increased during the year due to the Companyeffects of the 2015 business acquisitions, however, working capital amounts acquired are not included in Cash flows from operating activities under IFRS. As such, the ABL facility is determined by its applicable borrowing basediscussions below regarding 2015 working capital items appropriately exclude these effects.
Cash flows from time to time. The borrowing base is determined by calculating a percentage of eligible trade receivables, inventories and manufacturing equipment.
As ofoperating activities increased in the year ended December 31, 2012, the Company had a total draw of $81.62015 by $15.4 million against its ABL, which consisted of $79.4to $102.3 million of borrowings and $2.2from $86.9 million in letters of credit. As ofthe year ended December 31, 2011, the total draw was $66.1 million, which consisted of $63.7 million of borrowings and $2.4 million in letters of credit. As of December 31, 2010, the total draw was $97.5 million, which consisted of $88.0 million of borrowings and $9.5 million in letters of credit.
The Company had total cash and loan availability of $54.7 million as of December 31, 2012, $58.0 million as of December 31, 2011 and $43.1 million as of December 31, 2010. The decrease of $3.3 million in total cash and loan availability between December 31, 2011 and December 31, 2012 was2014, primarily due to a $15.7 milliondecrease in accounts receivable resulting from lower sales in the fourth quarter of 2015 compared to the fourth quarter of 2014 and an increase in ABL borrowings largely offset by a $10.8 million increaseaccounts receivable in 2014 compared to 2013.
Cash flows from operating activities increased in the borrowing base mainlyyear ended December 31, 2014 by $4.7 million to $86.9 million from $82.2 million in the year ended December 31, 2013, primarily due to a greater value placed on the manufacturing equipment as a result of the appraisal completed in connection with the amendment and extension of the ABL facility in February 2012. The increase in borrowings combined with free cashhigher gross profit.
Cash flows and increases in other debt instruments were used to fund the redemptionsfrom operating activities increased in the aggregate amountfourth quarter of $80.02015 by $8.1 million of Notes at par value. The increase of $14.9to $41.9 million from $33.8 million in total cash and loan availability from December 31, 2010 to December 31, 2011 wasthe fourth quarter of 2014, primarily due to an increase in free cash flowsgross profit. The Company’s working capital contained two significant fluctuations that allowedlargely offset each other:
The ABL facility, at its inception in March 2008, was initially scheduled2014 compared to mature in March 2013. In February 2012, the Company amended the ABL facility to extend its maturity date to February 2017. The new ABL facility maturity date can be accelerated to 90 days prior to August 1, 2014 (the maturity date of the Company’s existing Notes) if the Notes have not been retired or if other conditions have not been met. Under the amendment, the interest rate increased modestly while several other modificationsan increase in the terms provided the Company with greater flexibility.
The ABL facility is priced at 30-day LIBOR plusfourth quarter of 2015 due to a loan margin determined from a pricing grid. The loan margin declines as loan availability increases. The pricing grid ranges from 1.75% to 2.25%. The ABL facility has one financial covenant, a fixed charge ratiolower volume of 1.0 to 1.0. The ratio compares EBITDA (as definedsales and higher production volume of inventory in the ABL facility agreement) lessfourth quarter of 2015 compared to 2014.
Cash flows used for investing activities increased in the year ended December 31, 2015 by $22.4 million to $59.2 million from $36.8 million in the year ended December 31, 2014, primarily due to funding the Better Packages and TaraTape acquisitions in 2015, partially offset by lower capital expenditures. The decrease in capital expenditures not financed under the Equipment Finance Agreement, pension plan contributions in excess of pension plan expense, dividends, and cash taxesprimarily related to the sumSouth Carolina Project, partially offset by capital expenditures to increase production capacity of debt servicewater-activated tape and the amortization of the value of the manufacturing equipment includedshrink film.
Cash flows used for investing activities decreased in the borrowing base. The financial covenant becomes effective only when loan availability drops below $25.0 million. The Company was above the $25.0 million threshold of loan availability during 2012 and had a fixed charge ratio greater than 1.0 to 1.0 as ofyear ended December 31, 2012.
The Company retains the ability2014 by $8.1 million to secure up to $35.0$36.8 million of financing on all or a portion of its owned real estate and have the negative pledgefrom $44.9 million in favour of the ABL facility lenders terminated. As of December 31, 2012, the Company had secured real estate mortgage financing of $18.0 million, including $16.4 million borrowed under the Real Estate Loan described in further detail below, leaving the Company the ability to obtain an additional $17.0 million of real estate mortgage financing.
The ABL facility also allows the Company to secure up to $25.0 million of financing in connection with the purchase of fixed assets under a permitted purchase money debt facility. As of December 31, 2012, the Company had outstanding permitted purchase money debt of $5.9 million incurred after March 28, 2008 (original closing date of the ABL facility), leaving the Company the ability to obtain an additional $19.1 million of permitted purchase money debt financing.
On August 14, 2012, the Company entered into the Equipment Finance Agreement with a lifetime and maximum funding amount of $24.0 million with the final funding to occur by December 31, 2013. The terms of the arrangement include multiple individual finance leases, each of which have and will have a term of 60 months and a fixed interest rate. As of December 31, 2012 the Company had borrowed $5.3 million which was scheduled into finance leases with a term of 60 months at a fixed annual interest rate of 2.74%. In addition, as of December 31, 2012 the Company had borrowed $9.9 million under the Equipment Finance Agreement in the form of advanced fundings at a rate of 2.25% which will be scheduled into finance leases with fixed terms of 60 months and an interest rate of 2.74%. The fixed rate on future finance leases is expected to remain less than 3%. The Company is required to finance an additional $18.7 million by December 31, 2013. If the Company does not finance the additional required amount during the year ended December 31, 2013, then the Company will be required to pay a Reinvestment Premium as defined under the Equipment Finance Agreement on the difference between that amount and the amount actually funded in the year ended December 31, 2013. The Company expects to finance the required amount and does not expect to incur a charge for the Reinvestment Premium.
On November 1, 2012, the Company entered into a Real Estate Loan of $16.6 million, amortized on a straight-line basis over the ten-year term of the loan. The maturity of the loan may be accelerated if the ABL facility is not extended and if Bank of America, N.A. ceases to be the agent by reason of an action of the Company. The notional value of the Real Estate loan as of December 31, 2012 was $16.4 million. A portion of the loan may be required to be repaid early if any of the mortgaged properties are disposed of prior to October 31, 2022. The Real Estate Loan had an interest rate of 30-day LIBOR plus 250 basis points until December 31, 2012. Thereafter, the interest rate on the Real Estate Loan will be 30-day LIBOR plus a loan margin between 225 and 275 basis points determined from a pricing grid as defined in the Real Estate Loan Agreement. The Real Estate Loan contains two financial covenants. The Company was in compliance with both financial covenants as of December 31, 2012. The loan is secured by certain of the Company’s real estate.
As of December 31, 2012, the Company had $38.7 million of Notes outstanding bearing interest at 8.5%, payable semi-annually on February 1 and August 1, with the principal due on August 1, 2014. The Indenture governing the Notes provides that they are redeemable at par beginning August 2012. On August 1, 2012, the Company redeemed $25.0 million aggregate principal amount of its outstanding Notes at par value. On December 13, 2012, the Company redeemed an additional $55.0 million aggregate principal amount of its outstanding Notes at par value. The redemptions were funded through free cash flows combined with funds available under the ABL facility which were higher than they would have been as a result of the execution of the Real Estate Loan and Equipment Finance Agreement. As of December 31, 2011, the Company had $118.7 million of Notes outstanding and did not redeem any Notes during 2011 and 2010.
Pension and Other Post-Retirement Benefit Plans
The Company’s pension and other post-retirement benefit plans currently have an unfunded deficit of $39.3 million as of December 31, 2012 as compared to $36.8 million at the end of December 31, 2011 and $22.3 million at the end of 2010. The increase is primarily due to a decrease inlower capital expenditures and higher proceeds from the discount rate from 4.19%sale of property, plant and 4.50% for US and Canadian plans, respectively, as of December 31, 2011 to 3.64% and 4.00% for US and Canadian plans, respectively, as of December 31, 2012. These changes resulted in an increase in the net present value of the liability and are partially offset by return on plan assets and increased contribution paid by the Company. For 2012, the Company contributed $5.6 million as compared to $4.3 million in 2011 and $4.0 million in 2010, to its funded pension plans and to beneficiaries for its unfunded other benefit plans. Adverse market conditions could require the Company to make additional cash payments to fund the plans which could reduce cash available for other business needs; however the Company expects to meet its minimum required pension benefit plan funding obligations in 2013. None of the benefit plan assets were invested in any of the Company’s own equity or financial instruments or in any property or other assets used by the Company.
Cash flows from operations before changes in working capital items increased in 2012 by $24.5 million to $78.7 million from $54.2 million in 2011. The 2012 increase was primarily due to increased gross profit partially offset by an increase in SG&A.
Cash flows from operations before changes in working capital items increased in 2011 by $15.2 million to $54.2 million from $38.9 million in 2010. The increase in 2011 compared to 2010 was primarily due to the increase in gross margin and the increase in revenue, partially offset by an increase in SG&Aequipment and other finance costs.
Cash flows from operations before changes in working capital items increased in the fourth quarter of 2012 by $4.5 million to $19.4 million from $14.9 million in the fourth quarter of 2011. The increase in cash flows from operations before changes in working capital for the fourth quarter of 2012 compared to the fourth quarter of 2011 was primarily due to increased gross profit derived from higher revenue partially offset by an increase in cash costs associated with manufacturing facility closures, restructuring and other related charges.
Changes in working capital items increased in 2012 by $11.2 million to $5.8 million source of funds from $5.4 million use of funds in 2011. The increase in source of funds from working capital items in 2012 was primarily due to an increase in accounts payable and accrued liabilities and a decrease in trade receivables. The increase in accounts payable and accrued liabilities was primarily related to higher accrued variable compensation related to higher profitability and increased receipts of capital equipment for which payment had not been made. Trade receivables decreased as previously discussed.
Changes in working capital items decreased in 2011 by $7.0 million to $5.4 million use of funds from $12.4 million use of funds in 2010. The reduction in the use of funds from working capital items was primarily due to inventory, which decreased $1.1 million in 2011, but which had increased by $15.2 million in 2010. The impact of inventory was partially offset by the change in accounts payable and accrued liabilities which decreased by $5.7 million in 2011, largely due to timing of payments to obtain early payment discounts and increased by $16.9 million in 2010. Trade receivables decreased in 2011 largely due to the mix of customers and increased in 2010 due to the increased revenue.
Changes in working capital items decreased in the fourth quarter of 2012 by $0.4 million to a $12.4 million source of funds from a $12.8 million source of funds in the fourth quarter of 2011. The decrease in the source of funds in 2012 was primarily due to an increase in inventory, partially offset by an increase in accounts payable and accrued liabilities.assets.
Cash flows used for investing activities increased in 2012the fourth quarter of 2015 by $15.8$15.0 million to $21.1$19.7 million from $5.3$4.7 million in 2011. The increase in 2012 was primarily due to increased capital expenditures in 2012 and the nonrecurrence of a release of restricted cash related to the settlement of a lawsuit in 2011.
Cash flows used for investing activities decreased in 2011 by $10.1 million to $5.3 million from $15.5 million in 2010. The decrease in funds used for investing activities in 2011 compared to 2010 was primarily due to the release in 2011 of cash restricted in 2010 for the bond posted in connection with the settlement of a lawsuit as well as proceeds from the disposal of assets, partially offset by increased capital expenditures and the purchase of intangible assets related to customer lists.
Cash flows used for investing activities were $9.2 million use of funds in the fourth quarter of 2012 compared2014, primarily due to $4.3 million usefunding the TaraTape acquisition in November 2015 and the non-recurrence of fundsproceeds from the sale of the Richmond, Kentucky manufacturing facility in the fourth quarter of 2011. The increase in cash used for investing activities in the fourth quarter of 2012 as compared to the fourth quarter of 2011 was primarily due to increased capital expenditures in 2012 related to manufacturing rationalization initiatives.
Total expenditures in connection with property, plant and equipment were $21.6 million, $14.0 million, and $8.6 million for the years ended December 31, 2012, 2011, and 2010, respectively. Total expenditures in connection with property, plant and equipment were $9.2 million and $4.4 million for the fourth quarter of 2012 and 2011, respectively. The increase in capital expenditures from 2011 to 2012 was related to investments in more efficient manufacturing equipment.
Based on current volume and anticipated market demand, the Company believes it has sufficient capacity available to accommodate increases in sales volumes in most products without additional capital expenditures. In addition, the Company believes that it is positioned to take advantage of opportunities that may arise to grow its market share in existing products, expand its product offerings and expand its markets. However, the Company believes improved manufacturing efficiencies can be achieved through an increase in capital expenditures related to the replacement of machinery and equipment.2014.
Cash flows used forin financing activities increaseddecreased in 2012the year ended December 31, 2015 by $19.1$12.5 million to $62.0$31.2 million from $42.9$43.7 million in 2011. The 2012 increase in the use of funds wasyear ended December 31, 2014, primarily due to an increase in debt reductionnet borrowings, partially offset by an increase in repurchases of $15.8 million from $27.0 millioncommon shares and an increase in 2011dividends paid due to $42.8 millionthe increases in 2012quarterly dividend payments announced in July 2014 and a dividend payment of $4.8 million.August 2015.
Cash flows used forin financing activities increased in 2011 by $32.4 million to $42.9 million from $10.5 million in 2010. The increase in cash used for financing activities in 2011 was primarily due to the reduction of borrowings under the ABL. The Company decreased total indebtedness during the year ended December 31, 20112014 by $27.0 million. The Company increased total indebtedness during$3.3 million to $43.7 million from $40.5 million in the year ended December 31, 2010 by $4.0 million. No2013, primarily due to an increase in dividends were declared onpaid, repurchases of common stock, lower proceeds from the exercise of stock options granted pursuant to the Company’s stockExecutive Stock Option Plan and an increase in 2011 or 2010.the payment of debt issue costs related to entering into the Revolving Credit Facility in the fourth quarter of 2014. The increase was partially offset by smaller net repayment of debt in 2014 and lower interest payments in 2014.
Cash flows used forin financing activities decreased in the fourth quarter of 20122015 by $3.7$8.9 million to $22.0$18.6 million from $25.7$27.6 million in the fourth quarter of 2011. The decrease in cash used for financing activities2014, primarily due to a lower net repayment of debt in the fourth quarter of 2012 as compared to the fourth quarter of 2011 was primarily due to a lower reduction of debt partially offset by a dividend payment of $4.8 million.
Free cash flows, a non-GAAP measurement that is defined by the Company as cash flows from operating activities less purchases of property, plant and equipment, increased in 2012 by $28.2 million to $62.9 million from $34.7 million in 2011. The 2012 increase was primarily due to increased cash flows from operations2015, partially offset by an increase in capital expenditures.
Free cash flows increased in 2011 by $16.9 million to $34.7 million from $17.9 million in 2010. The 2011 increase was primarily due to increased cash flows from operations partially offset by an increase in capital expenditures.
Free cash flowsrepurchases of common shares in the fourth quarter of 2012 were $22.6 million, a decrease of $0.7 million from $23.4 million in the fourth quarter of 2011. The decrease in free cash flows in the fourth quarter of 2012 compared to the fourth quarter of 2011 was primarily due to an increase in capital expenditures partially offset by an increase in cash flows from operating activities.2015.
The Company is including free cash flows, a non-GAAP financial measure, because it is used by Managementmanagement and investors in evaluating the Company’s performance and liquidity. Free cash flows does not have any standardized meaning prescribed by GAAP and is therefore unlikely to be comparable to similar measures presented by other issuers. Free cash flows should not be interpreted to represent residual cash flow available for discretionary purposes, as it excludes other mandatory expenditures such as debt service.
Free cash flows, defined by the Company as cash flows from operating activities less purchases of property, plant and equipment, increased in the year ended December 31, 2015 by $21.7 million to $68.0 million from $46.3 million in the year ended December 31, 2014 primarily due to a decrease in accounts receivable and lower capital expenditures.
Free cash flows increased in the year ended December 31, 2014 by $11.0 million to $46.3 million from $35.3 million in the year ended December 31, 2013, primarily due to lower capital expenditures and an increase in gross profit.
Free cash flows increased in the fourth quarter of 2015 by $6.5 million to $33.3 million from $26.8 million in the fourth quarter of 2014, primarily due to an increase in gross profit.
A reconciliation of free cash flows to cash flows from operating activities, the most directly comparable GAAP financial measure, is set forth below.
Free Cash Flows Reconciliation
FREE CASH FLOWS RECONCILIATION
(inIn millions of US dollars)
(Unaudited)
Three months ended December 31, | Year ended | Three months ended December 31, | Year ended December 31, | |||||||||||||||||||||||||||||||||||||
2012 | 2011 | 2012 | 2011 | 2010 | 2015 | 2014 | 2015 | 2014 | 2013 | |||||||||||||||||||||||||||||||
$ | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
Cash flows from operating activities | 31.8 | 27.8 | 84.5 | 48.8 | 26.5 | 41.9 | 33.8 | 102.3 | 86.9 | 82.2 | ||||||||||||||||||||||||||||||
Less purchases of property, plant and equipment, and other assets | (9.2 | ) | (4.4 | ) | (21.6 | ) | (14.0 | ) | (8.6 | ) | ||||||||||||||||||||||||||||||
Less purchases of property, plant and equipment | (8.5 | ) | (7.0 | ) | (34.3 | ) | (40.6 | ) | (46.8 | ) | ||||||||||||||||||||||||||||||
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Free cash flows | 22.6 | 23.4 | 62.9 | 34.7 | 17.9 | 33.3 | 26.8 | 68.0 | 46.3 | 35.3 | ||||||||||||||||||||||||||||||
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Financial Risk Management, ObjectivesLong-Term Debt
The Company’s $300 million Revolving Credit Facility is with a syndicate of financial institutions and Policiesreplaced the Company’s $200 million ABL facility in November 2014. The Company relies upon cash flows from operations and funds available under the Revolving Credit Facility to meet working capital requirements as well as to fund capital expenditures, mergers and acquisitions, dividends, share repurchases, obligations under its other debt instruments, and other general corporate purposes. The Revolving Credit Facility also includes an incremental accordion feature of $150 million, which will enable the Company to increase the limit of this facility (subject to the credit agreement’s terms and lender approval) if needed.
As of December 31, 2015, the Company had drawn a total of $135.3 million against the Revolving Credit Facility, which consisted of $133.4 million of borrowings and $1.9 million of standby letters of credit. The Company had total cash and loan availability of $182.3 million as of December 31, 2015 and $206.2 million as of December 31, 2014. The change in total cash and loan availability is due to the changes in cash flows as previously discussed above.
The Revolving Credit Facility is priced primarily on the LIBOR rate plus a spread varying between 100 and 225 basis points (150 basis points as of December 31, 2015). The spread depends on the consolidated total leverage ratio and increases as the consolidated total leverage ratio increases. The pricing grid for the loan margin ranges from 1.00% to 2.25% for LIBOR or other floating rate loans. The revolving credit loans denominated in US Dollars bear interest at the LIBOR rate applicable to dollar-denominated loans plus the applicable margin. Revolving credit loans denominated in an alternative currency bear interest at the floating rate applicable to alternative currency-denominated loans plus the applicable margin and any mandatory costs. As of December 31, 2015, $124.0 million of borrowings was priced at 30-day US dollar LIBOR and $9.4 million of US dollar equivalent borrowings was priced at 30-day CDOR (“Canadian Dollar Offer Rate”).
The Revolving Credit Facility has, in summary, three financial covenants: (i) a consolidated total leverage ratio not to be greater than 3.25 to 1.00, (ii) a consolidated debt service ratio not to be less than 1.50 to 1.00, and (iii) the aggregated amount of all capital expenditures in any fiscal year may not exceed $50 million. Any portion of the allowable $50 million not expended in the year may be carried over for expenditure in the following year but not carried over to any additional subsequent year thereafter (as such, the allowable capital expenditures are $65.7 million in 2016 and $59.4 million in 2015 due to a carry forward provision of unused capital expenditure amounts from the prior year).
The Company is exposed to variouswas in compliance with all three financial risks including: foreign exchange rate risk, interest rate risk, credit risk, liquidity riskcovenants, which were 1.55, 7.41 and price risk resulting from its operations$34.3 million, respectively, as of December 31, 2015.
Capital Resources
Capital expenditures totalled $8.5 million and business activities. The Company’s Management is responsible for setting acceptable levels of risks and reviewing management activities as necessary.
The Company does not enter into financial instrument agreements, including derivative financial instruments, for speculative purposes.
This Item includes the significant highlights, events and transactions which have taken place$34.3 million in the course of the yearsthree months and year ended December 31, 2012, 20112015, respectively, as funded by the Revolving Credit Facility and 2010 with respectcash flows from operations. Total capital expenditures are expected to the Company’s financial risksbe between $55 and management thereof. For a complete discussion of the Company’s financial risks, management policies and procedures and objectives, please refer to Note 21 to the Consolidated Financial Statements as of and$65 million in 2016. Capital expenditures for the year ended December 31, 2012.2015 and expected to be made in 2016 are primarily for property, plant and equipment to support the following strategic and growth initiatives: the South Carolina Project, the recently announced water-activated tape capacity expansion in Cabarrus County, North Carolina (“WAT Project”), shrink film capacity
In 2011, in accordance with
expansion at the Company’s foreign exchange rate risk policy, the Company executed a series of nine monthly forward foreign exchange rate contracts to purchase an aggregate CDN$10.0 million beginning in July 2011 through March 2012, at fixed exchange rates ranging from CDN$0.9692 to CDN$0.9766 to the US dollar and a series of five monthly forward foreign exchange rate contracts to purchase an aggregate CDN$10.0 million beginning in March 2012 through July 2012, at fixed exchange rates ranging from CDN$1.0564 to CDN$1.0568 to the US dollar. These forward foreign exchange rate contracts mitigated foreign exchange rate risk associated with a portion of anticipated monthly inventory purchasesPortugal manufacturing facility (“Shrink Film Project”), woven products capacity expansion (“Woven Project”), expansion of the Company’s specialty tape product offering (“Specialty Tape Project”) and various other initiatives and maintenance needs. All of the strategic and growth initiatives discussed above are expected to yield an after-tax internal rate of return greater than 15%. The table below summarizes the capital expenditures to date and expected future capital expenditures for the above mentioned initiatives (in millions of US self-sustaining foreign operations thatdollars):
Year ended December 31, | Approximate amounts based on current estimates | |||||||||||||||
2015 | 2016 | Total Project | Completion Date | |||||||||||||
$ | $ | $ | ||||||||||||||
South Carolina Project | 7.9 | 3 | 60 | End of 2016 | ||||||||||||
WAT Project | 4.2 | 31 - 36 | 44 - 49 | End of 2017 | ||||||||||||
Shrink Film Project(1) | 3.9 | 5 | 11 | End of the first half of 2017 | ||||||||||||
Woven Project | 3.2 | 0 | 5 | Completed in 2015 | ||||||||||||
Specialty Tape Project | — | 4 | 10 | End of the first half of 2017 |
(1) | Subject to foreign exchange impact and excluding any government subsidies. |
In addition to the above, capital expenditures to support maintenance needs are expected to be settledbetween $8 and $12 million in Canadian dollars. The Company designated these forward foreign exchange rate contracts as cash flow hedges, effectively mitigating the cash flow risk associated with the settlement of the inventory purchases.2016.
In 2010, in accordance with the Company’s foreign exchange rate risk policy,addition, the Company executed a series of eight monthly forward foreign exchange rate contractshad commitments to suppliers to purchase an aggregate CDN$10.0machines and equipment totalling approximately $20.9 million beginningas of December 31, 2015, primarily to support the capacity expansion projects and other initiatives discussed above. It is expected that such amounts will be paid out in January 2011, at fixed exchange rates ranging from CDN$1.0260 to CDN$1.0318 to the US dollar; a series of six monthly forward foreign exchange rate contracts to purchase an aggregate CDN$13.5 million beginning in August 2011, at fixed exchange rates ranging from CDN$1.0173 to CDN$1.0223 tonext twelve months and will be funded by the US dollar;Revolving Credit Facility and a series of 13 monthly forward foreign exchange rate contracts to purchase an aggregate CDN$20.0 million beginning in July 2010, at fixed exchange rates ranging from CDN$1.0610 to CDN$1.0636 to the US dollar. These forward foreign exchange rate contracts mitigated foreign exchange rate risk associated with a portion of anticipated monthly inventory purchases of the Company’s US self-sustaining foreign operations that are to be settled in Canadian dollars. The Company designated these forward foreign exchange rate contracts as cash flow hedges, effectively mitigating the cash flow risk associated with the settlement of the inventory purchases.
Finally, in 2010, the Company executed a series of 12 monthly forward foreign exchange rate contracts to purchase an aggregate USD$2.0 million beginning in August 2010, at fixed exchange rates ranging from USD$1.1870 to USD$1.1923 to the Euro. These forward foreign exchange rate contracts comply with Management’s foreign exchange rate risk policy whereby these forward foreign exchange rate contracts will mitigate the foreign exchange rate risk associated with the Company’s translation of foreign generated Euro denominated net earnings. However, these forward foreign exchange rate contracts did not comply with the requirements for hedge accounting and thus were not designated as such.
The Company is exposed to a risk of change in cash flows due to the fluctuations in interest rates applicable on its variable rate ABL facility, Real Estate Loan and other smaller components of debt. To mitigate this risk, the Company entered into an interest rate swap agreement (the “Swap Agreement”), designated as a cash flow hedge which expired on September 22, 2011. The terms of this Swap Agreement were as follows:from operations.
Notional amount | Settlement | Fixed interest rate paid | ||||||||||
$ | % | |||||||||||
Swap Agreement matured in September 2011 | 40,000,000 | Monthly | 3.35 |
Other than the expiration of the Swap Agreement in September 2011 which was not renewed, there have been no material changes with respect to the Company’s financial risks and management thereof during 2012.
The Company’s principal contractual obligations and commercial commitments relate to its outstanding debt and its operating lease obligations. The following table summarizes these obligations as of December 31, 2012:2015 (in millions of USD):
Contractual Obligations | Payments Due by Period(1) | |||||||||||||||||||
(in millions of US dollars) | Total | Less than 1 year | 1-3 years | 4-5 years | After 5 years | |||||||||||||||
$ | $ | $ | $ | $ | ||||||||||||||||
Debt Principal Obligations | 143.3 | 8.1 | 4.1 | 129.8 | 1.3 | |||||||||||||||
Finance Lease Obligations | 11.0 | 1.5 | 3.2 | 3.0 | 3.3 | |||||||||||||||
Pension Obligations(2) | 4.9 | 4.9 | — | — | — | |||||||||||||||
Operating Lease Obligations | 2.9 | 1.9 | 1.0 | — | — | |||||||||||||||
Other Liabilities | 3.4 | 0.5 | 2.9 | — | — | |||||||||||||||
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Total | 165.5 | 16.9 | 11.2 | 132.8 | 4.6 | |||||||||||||||
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Payments Due by Period(1) | ||||||||||||||||||||
Total | Less than 1 year | 1-3 years | 4-5 years | After 5 years | ||||||||||||||||
$ | $ | $ | $ | $ | ||||||||||||||||
Debt principal obligations(2) | 134.7 | — | 0.2 | 133.8 | 0.7 | |||||||||||||||
Finance lease obligations(3) | 21.5 | 6.3 | 10.8 | 1.4 | 3.0 | |||||||||||||||
Pensions and other post-retirement benefits - defined benefit plans(4) | 1.5 | 1.5 | — | — | — | |||||||||||||||
Pensions and other post-retirement benefits - defined contribution plans(5) | 3.5 | 3.5 | — | — | — | |||||||||||||||
Operating lease obligations | 14.0 | 3.1 | 5.5 | 2.7 | 2.7 | |||||||||||||||
Standby letters of credit | 1.9 | 1.9 | — | — | — | |||||||||||||||
Equipment purchase commitments | 20.9 | 20.9 | — | — | — | |||||||||||||||
Utilities contract obligations(6) | 19.6 | 4.0 | 5.8 | 3.8 | 6.0 | |||||||||||||||
Raw material purchase commitments(7) | 35.2 | 33.2 | 2.0 | — | — | |||||||||||||||
Other obligations | 5.1 | 2.2 | 1.0 | 1.0 | 0.9 | |||||||||||||||
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Total | 257.9 | 76.6 | 25.3 | 142.7 | 13.3 | |||||||||||||||
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(1) | “Less than 1 year” represents |
(2) |
(3) | The figures in the included in the table above include interest expense included in minimum lease payments of $1.6 million. |
(4) | Defined benefit plan contributions represent the amount the Company expects to contribute in 2016. Defined benefit plan contributions beyond |
(5) | Defined contribution plan contributions represent the obligation recorded at December 31, 2015 to be paid in 2016. Certain defined contribution plan contributions beyond 2016 are not determinable since contribution to the plan is at the discretion of the Company. |
(6) | Utilities contract obligations also include agreements with various utility suppliers to fix certain energy costs, including natural gas and electricity, for minimum amounts of consumption at several of the Company’s manufacturing facilities, as discussed in the previous section entitled “Off-Balance Sheet Arrangements” above. The figures included in the table above are estimates of utility billings over the term of the contracts based on the contracted fixed terms and current market rate assumptions. The Company currently knows of no event, trend or uncertainty that may affect the availability or benefits of the agreements. |
(7) | Raw material purchase commitments include certain raw materials from suppliers under consignment agreements, as discussed in the previous section entitled “Off-Balance Sheet Arrangements” above. The figures included in the table above represent raw material inventory on hand or in transit, owned by the Company’s suppliers, that the Company expects to consume. |
Raw material purchase commitments also include agreements with various raw material suppliers to purchase minimum quantities of certain raw materials at fixed rates, as discussed in the previous section entitled “Off-Balance Sheet Arrangements” above. The figures included in the table above do not include estimates for storage costs, fees or penalties. The Company currently knows of no event, trend or uncertainty that may affect the availability or benefits of these agreements.
Purchase orders outside the scope of the raw material purchase commitments as defined in this section are not included in the table above. The Company is not able to determine the aggregate amount of such purchase orders that represent contractual obligations, as these purchase orders typically represent authorizations to purchase rather than binding agreements. For the purposes of this table, contractual obligations for purchase of goods or services are defined as agreements that are enforceable and legally binding on the Company and that specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. The Company’s purchase orders are based on current demand expectations and are fulfilled by the Company’s vendors within short time horizons. The Company does not have significant non-cancellable agreements for the purchase of inventory or other goods specifying minimum quantities or set prices that exceed expected requirements. The Company also enters into contracts for outsourced services; however, the obligations under these contracts are not significant and the contracts generally contain clauses allowing for cancellation without significant penalty.
Stock Appreciation Rights
TheOn June 20, 2012, the Board of Directors of the Company adopted the 2012 Stock Appreciation Rights Plan (“SAR Plan”) on June 20, 2012 in lieu of granting stock options in 2012. The purpose of the 2012 SAR Plan is to (a) promote a proprietary interest in the Company among its executives and directors; (b) encourage the Company’s executives and directors to further the Company’s development; and (c) attract and retain key employees necessary for the Company’s long-term success. The 2012 SAR Plan is administered by the Compensation Committee of the Board of Directors of the Company and authorizes the Company to award a Stock Appreciation Right (“SAR”) to eligible persons.. A SAR, as defined by the Company’s plan,SAR Plan, is a right to receive a cash payment equal to the difference between the base price of the SAR and the market value of a common share of the Company on the date of exercise. A SARThese SARs can only be settled only in cash and expiresexpire no later than ten10 years after the date of the grant. The award agreements provide that a SAR granted to employees and executives will vest and may be exercisable 25% per year over four years. A SAR granted to directors, who are not officers of the Company, will vest and may be exercisable 25% on the grant date, and a further 25% will vest and may be exercisable per year over three years.
Over the life of the awards, the total amount of expense recognized will equal the amount of the cash outflows, if any, as a result of exercises. At the end of each reporting period, the lifetime amount of expense recognized will equal the current period value
of the SAR using the Black-Scholes pricing model, multiplied by the percentage vested. As a result, the amount of expense recognized can vary due to changes in the model variables from period to period until the SAR is exercised, expired, or is otherwise cancelled.
A SAR is granted at a price determined and approved by the Board of Directors, which is the closing price of the common shares on the Toronto Stock Exchange on the trading day immediately preceding the day on which a SAR is granted.
On June 28, 2012, 1,240,905 SARs were granted at an exercise price of CDN$7.56 with contractual lives ranging from six to ten years.
The amount and timing of a potential cash payment to settle a SAR is not determinable since the decision to exercise is not within the Company’s control after the award vests. At December 31, 2012,2015, the aggregate intrinsic value of outstanding vested awards was less than $0.1$2.9 million. At December 31, 2015, there was no accrual for SAR awards exercised but not yet paid.
Capital Stock and DividendsIndex to Financial Statements
As of December 31, 20122015, there were 59,625,03958,667,535 common shares of the Company outstanding.
The Company’sOn April 22, 2014, the Board of Directors approvedadopted the Performance Share Unit Plan (“PSU Plan”). A performance share unit (“PSU”), as defined by the PSU Plan, represents the right of a participant, once such PSU is earned and has vested in accordance with the PSU Plan, to receive the number of common shares of the Company underlying the PSU. Furthermore, a participant will receive a cash payment from the Company upon PSU settlement that is equivalent to the number of shares issued or delivered to the participant multiplied by the amount of cash dividends per share declared by the Company between the date of grant and the third anniversary of the grant date. PSUs are net-settled to satisfy minimum statutory tax withholding requirements.
PSUs granted will vest at the third anniversary of the grant date. The number of shares earned can range from 0% to 150% of the grant amount based on entity performance criteria, specifically the total shareholder return ranking of the Company versus a specified peer group of companies.
On April 22, 2014, the Board of Directors adopted the Deferred Share Unit Plan (“DSU Plan”). A deferred share unit (“DSU”), as defined by the DSU Plan, represents the right of a participant to receive a common share of the Company. Under the DSU Plan, a non-executive director is entitled to receive DSUs as a result of a grant and/or in lieu of cash for semi-annual dividend policy on August 14, 2012,directors’ fees. DSUs are settled when the director ceases to be a member of the Board of Directors of the Company. DSUs are net-settled to satisfy minimum statutory tax withholding requirements.
The table below summarizes equity-settled share-based compensation activity that occurred during the three months and concurrently declaredyear ended December 31:
Three months ended | Year ended | |||||||||||||||||||
December 31, | December 31, | |||||||||||||||||||
2015 | 2014 | 2015 | 2014 | 2013 | ||||||||||||||||
Stock options granted | — | — | — | 492,500 | 830,000 | |||||||||||||||
Stock options exercised | 116,250 | 21,250 | 712,500 | 256,677 | 1,151,610 | |||||||||||||||
Cash proceeds (in millions of US dollars) | $ | 0.3 | $ | 0.1 | $ | 1.6 | $ | 0.8 | $ | 3.8 | ||||||||||
Stock options expired or forfeited | 27,500 | — | 30,000 | 140,000 | 71,250 | |||||||||||||||
PSUs granted | — | — | 363,600 | 152,500 | — | |||||||||||||||
PSUs forfeited | 16,290 | — | 18,060 | — | — | |||||||||||||||
DSUs granted | — | — | 46,142 | 36,901 | — | |||||||||||||||
Shares issued upon DSU settlement | — | — | 6,397 | — | — |
The Company paid a dividend of CDN$0.08$0.12, $0.12, $0.13 and $0.13 per common share paid on October 10, 2012 to shareholders of record onMarch 31, June 30, September 21, 2012. No dividends were declared on the Company’s stock in 2011 or 2010.
On March 6, 2013, the Company declared a dividend, in the amount of US$0.08, under the semi-annual dividend policy. The dividend will be paid on April 10, 201330 and December 31, 2015 to shareholders of record at the close of business on March 25, 2013.19, June 15, September 15 and December 15, 2015, respectively.
On August 12, 2015, the Board of Directors amended the Company’s quarterly dividend policy to increase the annualized dividend from $0.48 to $0.52 per share. The Board’s decision to increase the dividend was based on the Company’s strong financial position and positive outlook. The declaration and payment of future dividends, however, are discretionary and will be subject to determination by the Board of Directors each quarter following its review of, among other considerations, the Company’s financial performance and the Company’s legal ability to pay dividends. Since the dividend policy was reinstated in August 2012, the Company has determined it is appropriatepaid $73.3 million in cumulative dividends, of which $29.7 million was paid in 2015.
On March 9, 2016, the Board of Directors declared a dividend of $0.13 per common share payable on March 31, 2016 to payshareholders of record at the dividendclose of business on March 21, 2016.
The dividends paid in US dollars because most of its cash flows are2015 and payable in US dollars. This dividend to be paid2016 by the Company is anare “eligible dividend”dividends” as perdefined in subsection 89(1) of theIncome Tax Act (Canada).
On July 7, 2014, the Company announced an NCIB effective on July 10, 2014. This NCIB expired on July 9, 2015. The Company renewed its NCIB for the repurchase of up to 2,000,000 common shares effective July 10, 2015 and expiring on July 9, 2016. On November 11, 2015, the Toronto Stock Exchange approved an amendment to the Company’s NCIB, as a result of which the Company is entitled to repurchase for cancellation up to 4,000,000 common shares. As of December 31, 2015, approximately 2.5 million shares remained available for repurchase under the NCIB.
The table below summarizes the NCIB activity that occurred during the three months and year ended December 31:
Three months ended | Year ended | |||||||||||||||
December 31, | December 31, | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Common shares repurchased | 366,600 | 9,400 | 2,487,188 | 597,500 | ||||||||||||
Average price per common share including commissions | CDN$ | 14.28 | CDN$ | 17.64 | CDN$ | 15.52 | CDN$ | 14.35 | ||||||||
Total purchase price including commissions(1) | $ | 4,015 | $ | 144 | $ | 29,984 | $ | 7,822 |
(1) | In thousands of US dollars |
As of March 9, 2016, the Company repurchased 147,200 shares under the NCIB in 2016 for a total purchase price of $1.7 million.
Pension and Other Post-Retirement Benefit Plans
The Company’s pension and other post-retirement benefit plans currently have an unfunded deficit of $29.3 million as of December 31, 2015 as compared to $31.7 million as of December 31, 2014. The decrease in the current year is primarily due to an increase in the weighted average discount rate from 3.73% and 4.15% for US and Canadian plans, respectively, as of December 31, 2014 to 4.01% and 4.25% for US and Canadian plans, respectively, as of December 31, 2015. These changes resulted in a decrease in net present value of the liability and are partially offset by the fair value of plan assets. For 2015, the Company contributed $2.0 million as compared to $2.3 million in 2014, to its funded pension plans and to beneficiaries for its unfunded benefit plans. Adverse market conditions could require the Company to make additional cash payments to fund the plans which could reduce cash available for other business needs; however, the Company expects to meet its minimum required pension benefit plan funding obligations for 2016. None of the defined benefit plan assets were invested in any of the Company’s own equity or financial instruments or in any property or other assets used by the Company.
Effective September 30, 2011, the defined benefit plan associated with the former Brantford, Ontario manufacturing facility sponsored by the Company was wound-up. Pursuant to applicable legislation, benefits for this plan had to be settled within the five-year period following the wind-up effective date. During the year ended December 31, 2012, no stock options2014, the Company purchased group annuity buy out policies to settle its obligation to plan participants resulting in non-cash settlement losses of $1.6 million representing the difference between the accounting liability and the cost to settle the obligations. The settlement losses were granted and 663,989 stock options were exercised. Proceeds from the options exercised totalled $2.0 million.
During the year ended December 31, 2011, 875,000 stock options were granted at a weighted average exercise price of CDN$1.66 and a weighted fair market value of CDN$1.01. No stock options were exercised in 2011.
During the year ended December 31, 2010, 825,000 stock options were granted and 10,000 were exercised.
During the fourth quarter of 2012, 451,489 stock options were exercised. Proceeds for the options exercised totalled $1.5 millionincluded in the fourth quarterstatement of 2012. No stock options were granted or exercised inconsolidated earnings under the fourth quartercaption cost of 2011.sales.
Financial Risk, Objectives and Policies
On January 1, 2015, the Company adopted and implemented IFRS 9 (2013) -Financial Instruments. This standard replaces IAS 39 -Financial Instruments: Recognition and Measurement and previous versions of IFRS 9. IFRS 9 (2013) includes revised guidance on the classification and measurement of financial assets and liabilities and introduces a new general hedge accounting model which aims to better align a company’s hedge accounting with risk management.
The Company announcedis exposed to a normal course issuer bid effective May 20, 2010, which entitledrisk of change in cash flows due to the fluctuations in interest rates applicable on its variable rate Revolving Credit Facility and other floating rate debt. In the first and third quarters of 2015, to hedge the long-term cost of floating rate debt, the Company entered into interest rate swap agreements that are designated as cash flow hedges.
The terms of the interest swap agreements are as follows:
Maturity | Notional amount | Settlement | Fixed interest rate paid | |||||||||
$ | % | |||||||||||
November 18, 2019 | 40,000,000 | Monthly | 1.610 | |||||||||
August 20, 2018 | 60,000,000 | Monthly | 1.197 |
Please refer to 2,947,552 of its 58,951,050 common shares issued and outstanding, representing 5%Note 21 of the Company’s common shares issuedFinancial Statements for a complete discussion of the Company’s risk factors, risk management, objectives and outstanding as of that date. The normal course issuer bid expired May 2011 andpolicies.
Litigation
On July 3, 2014, the Company did not repurchase any shares.was informed of a complaint filed on June 27, 2014 by its former Chief Financial Officer with the Occupational Safety and Health Administration of the US Department of Labor (“OSHA”) alleging certain violations by the Company related to the terms of his employment and his termination. The Company aggressively contested the allegations and believes it demonstrated that the purchase of its own common shares may, in appropriate circumstances, be a responsible investment of available funds on hand.
Litigationformer Chief Financial Officer’s assertions are entirely without merit.
In 2009,a letter dated July 16, 2015, OSHA informed the Company that the former Chief Financial Officer had withdrawn his OSHA complaint in order to file a complaint against the Company in US federal district court. The withdrawal occurred prior to any determination by OSHA regarding the complaint.
On November 5, 2015, the former Chief Financial Officer filed a complaintlawsuit against the Company in the USUnited States District Court for the Middle District of Florida against Inspired Technologies, Inc. (“ITI”) allegingFlorida. The lawsuit is premised on essentially the same facts and makes essentially the same allegations as asserted in the OSHA complaint; the lawsuit seeks unspecified money damages and a trial by jury. The Company is not currently able to predict the probability of a favourable or unfavourable outcome, or the amount of any possible loss in the event of an unfavourable outcome. Consequently, no material provision or liability has been recorded for these allegations and claims as of December 31, 2015. As with the OSHA claim, the Company believes that ITI had breached its obligations under a supplythe former Chief Financial Officer’s assertions in the lawsuit are entirely without merit. However, upon termination and in accordance with the existing employment agreement withbetween the Company and ITI filedthe former Chief Financial Officer, a counterclaimtermination benefit accrual of $0.4 million had been recorded as of December 31, 2014. Terms of such agreement were not met within the timeframe specified therein and the termination benefit accrual was consequently reversed during the year ended December 31, 2015.
The Company is engaged from time-to-time in various legal proceedings and claims that have arisen in the ordinary course of business. The outcome of all of the proceedings and claims against the Company allegingis subject to future resolution, including the uncertainties of litigation. Based on information currently known to the Company and after consultation with outside legal counsel, management believes that the Company had breached its obligations underprobable ultimate resolution of any such proceedings and claims, individually or in the agreements. On April 13, 2011, after two trialsaggregate, will not have a material adverse effect on the issues, the Court entered a Judgment againstfinancial condition of the Company, in the amounttaken as a whole, and accordingly, no amounts have been recorded as of approximately $1.0 million. On May 19, 2011, the Company entered into a settlement agreement with ITI with respect to all outstanding litigation between the parties. Pursuant to the terms of the settlement, the Company paid approximately $1.0 million to ITI in full and complete settlement of all matters between them with respect to the litigation.
On February 10, 2012, Multilayer Stretch Cling Film Holdings, Inc. (“Multilayer”) filed a complaint against the Company in the US District Court for the Western District of Tennessee, alleging that the Company has infringed a US patent issued to Multilayer that covers certain aspects of the manufacture of stretch film. Multilayer has filed substantially similar complaints against several other manufacturers of stretch film. In its complaint against the Company, Multilayer is seeking an injunction against the Company‘s alleged infringement, damages of not less than a reasonable royalty, trebling of the damage award and attorneys’ fees. This matter is presently in the discovery phase of litigation. At this time, it is not possible to assess the likelihood of an adverse outcome or determine an estimate, or a range of estimates, of potential damages. The Company believes it has meritorious legal positions and intends to vigorously defend this litigation.
Critical Accounting Judgments, Estimates and Assumptions
The preparation of the consolidated financial statementsCompany’s Financial Statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Significant changes in the underlying assumptions could result in significant changes to these estimates. Consequently, management reviews these estimates on a regular basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. Information about these significant judgments, assumptions and estimates that have the most significant effect on the recognition and measurement of assets, liabilities, income and expenses are summarized below:
Significant Management Judgment
Deferred income taxes
Deferred tax assets are recognized for unused tax losses and tax credits to the extent that it is probable that future taxable income will be available against which the losses can be utilized. These estimates are reviewed at every reporting date. Significant management judgment is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and the level of the reversal of existing timing differences, future taxable income and future tax planning strategies. Refer to Note 5 of the Company’s Financial Statements for more information regarding income taxes.
Estimation Uncertainty
Impairments
At the end of each reporting period the Company performs a test of Impairment,impairment on assets subject to amortization if there are indicators of impairment. Goodwill allocated to cash generating units (“CGU”) and intangible assets with indefinite lives are tested annually. An impairment loss is recognized when the carrying value of an asset or cash generating unitCGU exceeds its recoverable amount, which in turn is the higher of its fair value less costs to sell and its value in use. The value in use is based on discounted estimated future cash flows. The cash flows are derived from the budget or forecasts for the estimated remaining useful lives of the cash generating unitsCGUs and do not include restructuring activities that the Company is not yet committed to or significant future investments that will enhance the performance of the asset or cash generating unitCGU being tested. The value in use will vary depending on the discount rate applied to the discounted cash flows, the estimated future cash inflows, and the growth rate used for extrapolation purposes.
Refer to Note 12 of the Company’s Financial Statements for more information regarding impairment testing.
Pension and other post-retirement benefits
The cost of defined benefit pension plans and other post-retirement benefitsbenefit plans and the present value of the related obligations are determined using actuarial valuations. The determination of benefits expense and related obligations requires assumptions such as the expected return on assets available to fund pension obligations, the discount rate to measure obligations, expected mortality the expected future compensation and the expected healthcare cost trend. Actual results will differ from estimated results which are estimated based on assumptions. Refer to Note 17 of the Company’s Financial Statements for more information regarding the assumptions related to the pension and other post-retirement benefit plans.
Uncertain tax positions
The Company is subject to taxation in numerous jurisdictions. There are many transactions and calculations during the course of business for which the ultimate tax determination is uncertain. The Company maintains provisions for uncertain tax positions that it believes appropriately reflect itstheir risk. These provisions are made using the best estimate of the amount expected to be paid based on a qualitative assessment of all relevant factors. The Company reviews the adequacy of these provisions at the end of the reporting period. However, it is possible that at some future date, liabilities in excess of the Company’s provisions could result from audits by, or litigation with, the relevant taxing authorities. Where the outcome of these tax-related matters is different from the amounts that were initially recorded, such differences will affect the tax provisions in the period in which such determination is made.
Deferred income taxes
Deferred tax assets are recognized for unused tax losses and tax creditsRefer to the extent that it is probable that taxable income will be available against which the losses can be utilized. These estimates are reviewed at every reporting date. Significant management judgment is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and the levelNote 5 of the reversal of existing timing differences, future taxableCompany’s Financial Statements for more information regarding income and future tax planning strategies.
Fair value measurement of financial instruments
Where the fair value of financial assets and financial liabilities recorded in the balance sheet cannot be derived from active markets, they are determined using valuation techniques including the discounted cash flows model. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgment is required in establishing fair values. The judgments include considerations of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions about these factors could affect the reported fair value of financial instruments.
Leases
Leases are classified as either operating or finance, based on the substance of the transaction at inception of the lease. In some cases, the assessment of a lease contract is not always conclusive and management uses its judgment in determining if an agreement is a finance lease that transfers substantially all risks and rewards incidental to ownership, or an operating lease.
Useful lives of depreciable assets
Management reviews the useful lives, depreciation methods and residual values of depreciable assets at each reporting date. As of the reporting date, management assesses the useful lives which represent the expected utility of the assets to the Company. Actual results, however, may vary due to technical or commercial obsolescence, particularly with respect to computersinformation technology and manufacturing equipment.
Net realizable value of inventories and parts and supplies
Inventories and parts and supplies are measured at the lower of cost or net realizable value. In estimating net realizable values of inventories and parts and supplies, management takes into account the most reliable evidence available at the time the estimate is made.
Allowance for doubtful accounts and revenue adjustments
During each reporting period, the Company makes an assessment of whether trade accounts receivable are collectible from customers. Accordingly, management establishes an allowance for estimated losses arising from non-payment and other revenue adjustments, taking into consideration customer creditworthiness, current economic trends, past experience and past experience.credit insurance coverage. The Company also records reductions to revenue for estimated returns, claims, customer rebates, and other incentives that are estimated based on historical experience and current economic trends. If future collections and trends differ from estimates, future earnings will be affected. Refer to Note 21 of the Company’s Financial Statements for more information regarding the allowance for doubtful accounts and the related credit risks.
ProvisionsIndex to Financial Statements
for restoration
Provisions for restoration representare recognized when the estimated valueCompany has a present obligation (legal or constructive) as a result of a past event, it is probable that the Company will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.
The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation to restore one or more leased facilities at the end of the related lease. The estimated value reflectsreporting period, taking into account the risks and uncertainties surrounding the obligation. When a combination of management’s assessment of the cost of performing the work required, the timing ofprovision is measured using the cash flows andestimated to settle the discount rate, as applicablepresent obligation, its carrying amount is the present value of those cash flows, when the effect of the time value of money is material. A change in any or a combination
Provisions of the three key assumptions usedCompany include environmental and restoration obligations, termination benefits and other provisions. Refer to determine the provisions could have an impact on earnings and on the carrying valueNote 14 of the provision.Company’s Financial Statements for more information regarding provisions.
Provisions for termination benefitsStock-based payments
Termination benefits are recognized as a liabilityThe estimation of stock-based payment fair value and expense requires the selection of an expense when, and only when,appropriate pricing model.
The model used by the Company is demonstrably committed to terminatefor the employment of an employee or group of employees before normal retirement date. The measurement of termination benefits is based on the expected costs and the number of employees expected to be terminated.
Provisions for litigation
The Company is currently defending certain litigation where the actual outcome may vary from the amount recognized in the financial statements.
Stock-based payments
The Company has adopted an Executive Stock Option Plan (“ESOP”) and a Stock Appreciation Rights Plan (“SAR Plan”). The ESOP is an equity-settled plan under which certain members of management and directors receive options to acquire common shares of the Company. The SAR Plan is a cash-settled plan underthe Black-Scholes pricing model. The Black-Scholes pricing model requires the Company to make significant judgments regarding the assumptions used within the model, the most significant of which certain members of management and directors receive a cash amount equal toare the difference between the base priceexpected volatility of the Stock Appreciation Right (“SAR”) andCompany’s own stock, the market valueprobable life of a common shareawards granted, the time of exercise, the Company onrisk-free interest rate commensurate with the date of exercise.
With respect to the ESOP, the expense is based on the grant date fair valueterm of the awards, and the expected dividend yield.
The model used by the Company for the PSU Plan is the Monte Carlo simulation model. The Monte Carlo simulation model requires the Company to vest overmake significant judgments regarding the vesting period. Forassumptions used within the SAR Plan,model, the expense is determined based onmost significant of which are the volatility of the Company’s own stock as well as a peer group, the performance measurement period, and the risk-free interest rate commensurate with the term of the awards.
Refer to Note 15 of the Company’s Financial Statements for more information regarding stock-based payments.
Business acquisitions
Management uses valuation techniques when determining the fair values of certain assets and liabilities acquired in a business combination. In particular, the fair value of contingent consideration is dependent on the liability atoutcome of many variables including the endacquirees’ future profitability.
Refer to Note 16 of the reporting period untilCompany’s Financial Statements for more information regarding business acquisitions.
Changes in Accounting Policies
On January 1, 2015, the award is settled. The expense isCompany adopted and implemented IFRS 9 (2013) -Financial Instruments. This standard replaces IAS 39 - Financial Instruments: Recognition and Measurement and previous versions of IFRS 9. IFRS 9 (2013) includes revised guidance on the classification and measurement of financial assets and liabilities and introduces a new general hedge accounting model which aims to better align a company’s hedge accounting with risk management.
Previously, the Company classified financial assets when they were first recognized overas fair value through profit or loss, available for sale, held to maturity investments or loans and receivables. Under IFRS 9 (2013), the vesting period, which isCompany classifies financial assets under the period over which allsame two measurement categories as financial liabilities: amortized cost or fair value through profit and loss. Financial assets are classified as amortized cost if the purpose of the specified vesting conditionsCompany’s business model is to hold the financial assets for collecting cash flows and the contractual terms give rise to cash flows that are satisfied. For awards with graded vesting, thesolely payments of principal and interest. All other financial assets are classified as fair value through profit or loss. The adoption of each tranchethis standard has not resulted in any changes to comparative figures.
The Company has not yet adopted IFRS 9 (2014) -Financial Instruments that incorporates the new impairment model that assesses financial assets based on expected losses rather than incurred losses as applied in IAS 39. This final standard will replace IFRS 9 (2013) and is recognized over its respective vesting period. At the end of each reporting period, the Company re-assesses its estimates of the number of awards that are expectedeffective for annual periods on or after January 1, 2018.
New Standards and Interpretations Issued but Not Yet Effective
Certain new standards, amendments and interpretations, and improvements to existing standards have been published by the IASB but are not yet effective, and have not been adopted early by the Company. Management anticipates that all of the relevant pronouncements will be adopted forin the first reporting period beginningfollowing the date of the pronouncement.application. Information on new standards, amendments and interpretations, and improvements to existing standards, which could potentially impact the Company’s consolidated financial statements,Financial Statements, are detailed as follows:
AmendedIFRS 15 – Revenue from Contracts with Customers replaces IAS 118 –Presentation of Financial Statements: Amended Revenue, IAS 1 includes11 – Construction Contracts and some revenue related interpretations. IFRS 15 establishes a new requirement for entities to group items presented in other comprehensive income oncontrol-based revenue recognition model, changes the basis of whether they are potentially re-classifiable to profitfor deciding when revenue is recognized at a point in time or loss. Theover time, provides new requirementand more detailed guidance on specific topics and expands and improves disclosures about revenue. IFRS 15 is effective for annual reporting periods beginning on or after JulyJanuary 1, 2013.2018. Management does not expect a significanthas yet to assess the impact from Amended IAS 1of this new standard on the financial statements of the Company.Company’s Financial Statements.
IFRS 9 –(2014) - Financial Instruments: The IASB intends to replace IAS 39Financial Instruments: Recognition and Measurement in its entirety. The replacement standard (IFRS 9) is being was issued in phases. To date,July 2014 and differs in some regards from IFRS 9 (2013) which the chapters dealing with recognition,Company adopted effective January 1, 2015. IFRS 9 (2014) includes updated guidance on the classification measurement and derecognitionmeasurement of financial assets and liabilities have been issued. These chapters areassets. The final standard also amends the impairment model by introducing a new expected credit loss model for calculating impairment. The mandatory effective date of IFRS 9 (2014) is for annual periods beginning on or after January 1, 2015. Further chapters dealing2018 and must be applied retrospectively with impairment methodology and hedge accounting are still being developed.some exemptions. Early adoption is permitted. Management has yet to assess the impact that these amendments are likely to haveof this new standard on the consolidatedCompany’s Financial Statements.
In January 2016, the IASB published IFRS 16 - Leases which will replace IAS 17 - Leases. IFRS 16 eliminates the classification as an operating lease and requires lessees to recognize a right-of-use asset and a lease liability in the statement of financial statements of the Company.
IFRS 10 –Consolidated Financial Statements and IFRS 12 –Disclosure of Interests in Other Entities: IFRS 10 provides a single consolidation model that identifies control as the basis for consolidationposition for all typesleases with exemptions permitted for short-term leases and leases of entities.low value assets. In addition, IFRS 10 replaces16 changes the definition of a lease; sets requirements on how to account for the asset and liability, including complexities such as non-lease elements, variable lease payments and options periods; changes the accounting for sale and leaseback arrangements; largely retains IAS 27Consolidated17’s approach to lessor accounting and Separate Financial Statements and SIC-12Consolidation – Special Purpose Entities.introduces new disclosure requirements. IFRS 12 combines, enhances and replaces the disclosure requirements for subsidiaries, joint arrangements, associates and unconsolidated structured entities. As a consequence of these new IFRS disclosure requirements, the IASB also issued amended and retitled IAS 27Separate Financial Statements. IAS 28Investments in Associates and Joint Ventures has been amended to include joint ventures in its scope and to address the changes in IFRS 10 to IFRS 13. The new requirements are16 is effective for annual reporting periods beginning on or after January 1, 2013. These new standards will have no impact on2019 with early application permitted in certain circumstances. Management has yet to assess the Company as it has interests only in fully owned subsidiaries.
IFRS 13 –Fair Value Measurement: IFRS 13 clarifies the definition of fair value and provides related guidance and enhanced disclosures about fair value measurements. IFRS 13 applies when other IFRS standards require or permit fair value measurements. It does not introduce any new requirements to measure an asset or a liability at fair value, change what is measured at fair value in IFRS standards or address how to present changes in fair value. The new requirements apply prospectively and are effective for annual periods beginning on or after January 1, 2013. The impact of this new standard will have no impact on the Company’s current fair value measurement accounting practices or disclosures.
Amended IAS 19 – Employee Benefits: Amended for annual periods beginning on or after January 1, 2013 with retrospective application. The new standard introduces a measure of net interest income (expense) computed on the net pension asset (obligation) that will replace separate measurement of the expected return on plan assets and interest expense on the benefit obligation. The new standard also requires immediate recognition of past service costs associated with benefit plan changes; eliminating the requirement to recognize over the vesting period.
Upon retrospective application of the new standard, the Company’s restated net earnings for 2012 will be lower than originally reported under the current accounting standard. The decrease will arise under the new standard primarily because net interest income (expense) will be calculated using the discount rate used to value the benefit obligation, which is lower than the expected rate of return on assets currently used to measure interest attributable to plan assets. The expected rate of return on assets will no longer be a critical accounting estimate because the Company will not use this to measure under the new accounting standard.
The expected impact of adoption is a decrease to earnings before income tax expense (benefit) of $1.9 to $2.9 million and $1.2 to $2.1 million for the years ended December 31, 2012 and 2011, respectively.Financial Statements.
Certain other new standards and interpretations have been issued but are not expected to have a material impact on the Company’s consolidated financial statements.Financial Statements.
A table of unaudited Consolidated Quarterly Statements of Earnings (Loss) for the twelve most recent quarters can be found at the beginning of the Company’s Management’s Discussion and Analysis.
Internal Control Over Financial Reporting
In accordance with the Canadian Securities Administrators National Instrument 52-109, “Certification of Disclosure in Issuers’ Annual and Interim Filings” (“NI 52-109”), the Company has filed interim certificates signed by the Chief Executive Officer and the Chief Financial Officer that, among other things, report on the design of disclosure controls and procedures and design of internal control over financial reporting. With regards to the annual certification requirements of NI 52-109, the Company relies on the statutory exemption contained in section 8.2 of NI 52-109, which allows it to file with the Canadian securities regulatory authorities the certificates required under the Sarbanes-Oxley Act of 2002 at the same time such certificates are required to be filed in the United States of America.
Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of the Company’s financial reporting and its compliance with GAAP (as derived in accordance with IFRS) in its consolidated financial statements. The Chief Executive Officer and Chief Financial Officer of the Company have evaluated whether there were changes to the Company’s internal control over financial reporting during the Company’s most recent interim period that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. The Chief Executive Officer and the Chief Financial Officer have concluded that the Company’s internal control over financial reporting as of December 31, 20122015 was effective.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of its inherent limitation, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Additional InformationIndex to Financial Statements
Additional information relating to the Company, including its Form 20-F filed in lieu of an Annual Information Form for 2012,2014, is available on the Company’s website (www.intertapepolymer.com)(www.itape.com) as well as under the Company’s profile on SEDAR (www.sedar.com), the system used for electronically filing most securities-related information with the Canadian securities regulatory authoritiesat www.sedar.com and on EDGAR at www.sec.gov.
Certain statements and information included in this Item constitute “forward-looking information” within the meaning of applicable Canadian securities legislation and “forward-looking statements” within the meaning of United States federal securities legislation (collectively, “forward-looking statements”). All statements other than statements of historical facts included in this Item, including statements regarding the Company’s industry and the Company’s prospects, plans, financial position and business strategy may constitute forward-looking statements. These forward-looking statements are based on current expectations, estimates, forecasts and projections about the industries in which the Company operates as well as beliefs and assumptions made by the Company’s management. Such statements include, in particular, statements about the Company’s plans, prospects, financial position and business strategies. Words such as “may,” “will,” “expect,” “continue,” “intend,” “estimate,” “anticipate,” “plan,” “foresee,” “believe” or “seek” or the negatives of these terms or variations of them or similar terminology are intendedIndex to identify such forward-looking statements. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable, these statements, by their nature, involve risks and uncertainties and are not guarantees of future performance. Such statements are also subject to assumptions concerning, among other things: the Company’s anticipated business strategies; anticipated trends in the Company’s business; anticipated cash flows from the Company’s operations; availability of funds under the Company’s Asset-Based Loan facility; and the Company’s ability to continue to control costs. The Company can give no assurance that these statements and expectations will prove to have been correct. Actual outcomes and results may, and often do, differ from what is expressed, implied or projected in such forward-looking statements, and such differences may be material. Readers are cautioned not to place undue reliance on any forward-looking statement. For additional information regarding some important factors that could cause actual results to differ materially from those expressed in these forward-looking statements and other risks and uncertainties, and the assumptions underlying the forward-looking statements, you are encouraged to read “Item 3. Key Information—Risk Factors” and the other factors contained in the Company’s filings with the Canadian securities regulators and the US Securities and Exchange Commission. Each of these forward-looking statements speaks only as of the date of this Form 20-F. The Company will not update these statements unless applicable securities laws require it to do so.
Item 6: | Directors, Senior Management and Employees |
A. | DIRECTORS AND SENIOR MANAGEMENT |
Directors
The following table sets forth the name, residence, position, and principal occupations for the last five (5) years of each Director of the Company as of the date hereof, as well as the date upon which each Director was first elected. Each Director is elected for a term of one year and may be nominated for re-election at the Company’s following annual shareholders’ meeting. The next annual shareholders’ meeting is scheduled to be held on June 5, 2013,9, 2016, at which time the current term of each Director will expire.
Name and City of Residence | Position and Occupation | |||
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Robert M. Beil Phoenix, Arizona | Director September 2006 – Retired Sales, Marketing, Business and Executive Management, the Dow Chemical Company, 1975 to September 2006 | 2007 | ||
George J. Bunze, Ile Bizard, Quebec, Canada | Director – Chairman of the Board (1) Vice-Chairman and Director, Kruger Inc. (manufacturer of paper, tissue, wood products, energy (hydro/wind) and wine and spirits products) | 2007 | ||
Frank Di Tomaso, FCPA, FCA, ICD.D Montreal, Quebec, Canada | Director Director, Birks Group Inc. (designer, manufacturer and retailer of jewelry, timepieces, silverware and gifts), National Bank Trust (asset management and trust services firm), National Bank Life Insurance Company, Yorbeau Resources Inc. (gold exploration company), ADF Group Inc. (complex structural steel and heavy built-up steel components for the non-residential construction industry), and Laurentian Pilotage Authority (regulates operations of pilotage services on the St. Lawrence River) Director, Redline Communications Group Inc., 2010 to 2013 (wireless communications network designer and manufacturer) Partner and Advisory Partner 1981 to 2012 of Raymond Chabot Grant Thornton | 2014 | ||
Robert J. Foster Toronto, Ontario, Canada | Director
| 2010 |
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James Pantelidis Toronto, Ontario, Canada | Director Director and Chairman of the Board of Parkland Fuel Corporation (distributor and marketer of fuels and lubricants) Director and Chairman of the Board of EnerCare Inc. (home services company) | 2012 | ||
Jorge N. Quintas Porto, Portugal | Director President, Nelson Quintas SGPS, SA (manufacturer of electrical and telecommunication cables) | 2009 | ||
Mary Pat Salomone Naples, Florida | Director (2) Senior Vice President and COO, The Babcock & Wilcox Company 2010 to 2013 (power generation company) Director, TransCanda Corporation (energy infrastructure company) Director, TransCanada Pipelines Limited (energy infrastructure company) | 2016 | ||
Gregory Sarasota, Florida | Director CEO and President of the Company since June 2010, President Tapes and Films Division of the Company, 2008 through 2010; prior to that served as Executive Vice President, Industrial Business Unit for Tapes and Films since November 2004 | 2010 | ||
Melbourne F. Yull Sarasota, Florida | Director Executive Director through June 8, 2010 June 2006 – June 2007 – Retired Prior thereto he was Chairman of the Board and Father of Gregory A.C. Yull | 1989-2006 2007 |
(1) | On June 4, 2015, the Board of Directors appointed Mr. Bunze as the new Chairman of the Board following the retirement of the former Chairman, Mr. Eric E. Baker. |
(2) | On November 30, 2015, the Board of Directors appointed Ms. Salomone as a new member of the Board of Directors. |
Senior Management
The following table sets forth the name, residence and position of each member of senior management of the Company as of the date hereof, as well as the date upon which each was first elected:
Name and City of Residence | Position and Occupation | First Elected To Office | ||
Gregory Sarasota, Florida | 2010 | |||
| Chief Financial Officer | |||
2014 | ||||
| Senior Vice President, | |||
2006 | ||||
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Bradenton, Florida | Senior Vice President Sales | 2010 | ||
| Senior Vice President, |
1 | Officer of Intertape Polymer Corp., a wholly owned subsidiary of the Company |
The principal occupationsoccupation of each member of senior management for the last five (5) years is as follows:
Gregory A.A.C. Yull was appointed Chief Executive Officer and President on June 8, 2010. He was President, Tapes & Films, since 2008. Priorfrom 2008 to that he was President, Distribution Products (Tapes & Films), since October 2005. Prior to that he served as Executive Vice President, Industrial Business Unit (for Tapes and Films) since November 2004, and prior to that was President, Film Products, since June 1999. Prior to that he was Products Manager – Films since 1995.2010. Gregory A.A.C. Yull is a son of Melbourne F. Yull.
Bernard J. PitzJeffrey Crystalwas appointed Chief Financial Officer on November 12, 2009. Prior to that he served as the Chief Financial Officer and Senior Vice President of SonoSite Inc. from May 2008 to October 2008.9, 2014. Prior to that he served as Vice President of Finance of Primo International since December 2013. Prior to that he served as Chief Financial Officer and Treasurer at Sybron Dental Specialties, Inc. since May 11, 2005.of American Iron & Metal from June 2008 to February 2013.
Burgess H. HildrethDouglas Nalette was appointed Senior Vice President Administration on August 15, 2010. He was Vice President, Human Resources, since October 1998. Prior to that he had been the Vice President Administration of Anchor Continental, Inc.Operations in 2006.
Jim Bob Carpenter was appointed Senior Vice President Global Sourcing in 2012. He was Senior Vice President ECP and Procurement since 2010. Prior to that he was President, ECP Division since 2008. Prior to that he was Executive Vice President, Global Sourcing since January 2005. Prior to that he served as the President, Woven Products, since 1998 and prior to that, he was the General Manager of Polypropylene Resin Division of Fina Oil & Chemical Co.
Shawn Nelson was appointed Senior Vice President Sales in 2010. Prior to that he served as Senior Vice President Industrial Channel since 2006. In 2005 he was Vice President Packaging. Prior to that he was Exlfilm® General Manager since 2000 and Exlfilm® Director of Sales since 1998. In 1997 he was Midwest Regional Sales Manager and a Sales Representative since 1995. Prior to that he had been the Regional Sales Manager of Polychem.
Douglas NaletteJoseph Tocci was appointed Senior Vice President Operationsof Logistics and Supply Chain in 2006. He was Director of Carton Sealing Manufacturing since 2004.2013. Prior to that he was the Directorserved as Senior Vice President of Manufacturing – Pressure Sensitive Tape for Central Products Company.Corporate Marketing, Research & Development, and Supply Chain since 2012. Prior to that he served as Senior Vice President of Corporate Marketing and Supply Chain since 2011. Prior to that he served as Senior Vice President of Consumer and Supply Chain since 2009.
B. | COMPENSATION |
The following table sets forth the compensation paid, and benefits in kind granted, to the Company’s Directors and senior management for the last fiscal year for services in all capacities to the Company, including contingent and deferred compensation.
2012 | Annual Compensation | Long-Term Compensation | ||||||||||||||||||
Name and principal position | Salary $ | Bonus $ | Other $ | Director/ Committee Fees $ | SAR’s granted | |||||||||||||||
Eric E. Baker | — | — | — | 108,000 | 10,000 | |||||||||||||||
Robert M. Beil | — | — | — | 44,000 | 10,000 | |||||||||||||||
George J. Bunze | — | — | — | 53,500 | 10,000 | |||||||||||||||
Robert J. Foster | — | — | — | 52,000 | 10,000 | |||||||||||||||
James Pantelidis | — | — | — | 26,000 | 30,000 | |||||||||||||||
Jorge N. Quintas | — | — | — | 37,500 | 10,000 | |||||||||||||||
Torsten A. Schermer | — | — | 90,000 | (1) | 23,500 | — |
2012 Name and principal position Melbourne F. Yull Gregory A. Yull Bernard J. Pitz Jim Bob Carpenter Shawn Nelson Douglas Nalette Burgess H. Hildreth 2015 Name and principal position Eric E. Baker Director Robert M. Beil Director George J. Bunze Director, Chairman (4) Frank Di Tomaso Director Robert J. Foster Director James Pantelidis Director Jorge N. Quintas Director Mary Pat Salomone Director (5) Melbourne F. Yull Director Gregory A.C. Yull Director, Chief Executive Officer & President Jeffrey Crystal Chief Financial Officer Douglas Nalette Senior Vice-President Operations Shawn Nelson Senior Vice-President Sales Joseph Tocci Senior Vice-President Logistics & Supply Chain Annual Compensation Long-Term
Compensation Salary
$ Bonus
$ Other
$ Director/
Committee
Fees
$ SAR’s granted
Director — — 260,935 (2) 45,500 10,000
Director, CEO & President 489,519 600,000 23,444 (3) — 500,905
Chief Financial Officer 378,929 452,704 1,225 (4) — 165,000
Sr. Vice-President, Global Sourcing 310,300 248,240 — — 40,000
Sr. Vice-President Sales 311,687 314,150 — — 80,000
Sr. Vice-President Operations 320,000 330,000 — — 80,000
Sr. Vice-President Administration 247,305 249,260 — — 40,000 Annual Compensation Performance Share Unit Plan Deferred Share Unit Plan Salary (1)
$ Bonus
$ Other
$ Director/
Committee
Fees (2)
$ Awards
granted Awards
granted — — 14,539 (3) 47,733 — 9,245 — — — 47,000 — 4,775 — — — 79,500 — 6,965 — — — 50,500 — 3,000 — — — 53,000 — 6,878 — — — 46,000 — 3,000 — — — 41,000 — 5,964 — — — 3,000 — — — — 260,935 (6) 45,000 — 6,315 543,269 412,500 41,655 (7) — 72,960 — 337,235 254,926 5,142 (8) — 20,550 — 347,352 175,048 — — 15,000 — 330,918 166,640 — — 15,000 — 308,985 155,714 — — 10,410 —
(1) |
(2) | Represents total compensation for Board and Committee fees, which includes both cash payments and the value of DSUs elected in lieu of cash for such fees. |
(3) | Represents amounts paid with respect to a service award. Mr. Baker retired from the Board in June 2015. |
(4) | On June 4, 2015, the Board of Directors appointed Mr. Bunze as the new Chairman of the Board following the retirement of the former Chairman, Mr. Baker. |
(5) | On November 30, 2015, the Board of Directors appointed Ms. Salomone as a new member of the Board of Directors. |
(6) | Mr. Yull receives a pension from |
Represents amounts paid with respect to relocation. |
2015 Senior Management Bonus Plan2012Index to Financial Statements
Each of the members of senior management, received a performance bonus for 2012.2015. Bonuses were paid dependbased on the level of achievement of financial objectives of the Company. The Company attributes to each executive, depending on his or her hierarchicmanagement level, a bonus target level set as a percentage of his or her salary, representing the amount which will be paid if all objectives are achieved according to the targets set. Actual bonuses may vary between zero and twice the target bonus, based on the level of achievement of the predetermined objectives set out at the beginning of the fiscal year. The objectives and weight attached thereto are re-evaluated on an annual basis by the Compensation Committee and communicated to the relevant individuals.
For the fiscal year ended December 31, 2012,2015, the bonuses were based on the Company achieving certain target amounts for:
(i) Adjusted EBITDA, which the Company defines as net earnings (loss) before: (i) interest and other finance costs; (ii) income tax expense (benefit); (iii) amortization of intangible assets; (iv) depreciation of property, plant and equipment; (v) manufacturing facility closures, restructuring and other related charges; (vi) stock-based compensation expense (benefit); (vii) impairment of goodwill; (viii) impairment (reversal of impairment) of long-lived assets and other assets; (ix) write-down on assets classified as held-for-sale; (x) (gain) loss on disposal of property, plant, and equipment and (xi) other discrete items as disclosed; and
(ii) Cash flows from operating activities. At the Compensation Committee’s recommendation, the |
The Board of Directors elected to use Adjusted EBITDA instead of EBITDA (which the Company defines as net earnings (loss) before (i) interest and other (income) expense; (ii) income tax expense (benefit); (iii) refinancing expense, net of amortization; (iv) amortization of debt issue expenses; (v) amortization of intangibles assets; and (vi) depreciation of property, plant and equipment) in determining bonuses for 2012 inasmuch as2015 because certain expenses and charges expected (at the time of the Board’s election) to be incurred by the Company during the year (e.g., manufacturing facility closure costs)closures, restructuring and other related charges) were viewed to be in the long term interest of the Company and that such amounts should not impact the ability of senior management to achieve the performance bonus targets.
The target amount for Adjusted EBITDA for 20122015 was set at $70,064,000$116,000,000 (the “Adjusted EBITDA Target”) and the target amount for cash flows from operations after changes in working capitaloperating activities was $53,100,000set at $83,400,000 (the “Cash Flows Target”). The Company’s Adjusted EBITDA for 2012 was $87,904,000$102,019,000 which was 125.5%87.9% of the Adjusted EBITDA Target. The utilizationCompany’s cash flows from operating activities for 2015 was $102,268,000 which was 122.6% of Adjusted EBITDA had the effect of increasing the bonus payable to the members of senior management other than Mr. Yull and Mr. Pitz.Cash Flows Target.
The following table presents the target incentive compensation as a percentage of salary, the indicators used in 20122015 to measure the Company’s performance for purposes of the short term incentive compensation program and their relative weight.
| Gregory A. Yull | Bernard J. Pitz | Jim Bob Carpenter | Burgess H. Hildreth | Shawn Nelson | Douglas Nalette | Gregory A.C. Yull | Jeffrey Crystal | Shawn Nelson | Douglas Nalette | Joseph Tocci | |||||||||||||||||||||||||||||||||||||
2015 Annual Eligible Base Salary | $ | 550,000 | $ | 339,900 | $ | 333,282 | $ | 350,097 | $ | 311,427 | ||||||||||||||||||||||||||||||||||||||
Incentive compensation as a percentage of salary | Minimum Target Maximum |
| 0 100 100 | % % % |
| 0 100 100 | % % % |
| 0 40 80 | % % % |
| 0 50 100 | % % % |
| 0 50 100 | % % % |
| 0 50 100 | % % % | Minimum Target Maximum |
| 0 100 150 | % % % |
| 0 75 150 | % % % |
| 0 50 100 | % % % |
| 0 50 100 | % % % |
| 0 50 100 | % % % | |||||||||||||
Relative weight of financial indicators | ||||||||||||||||||||||||||||||||||||||||||||||||
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| Adjusted EBITDA | 50 | % | 50 | % | 50 | % | 50 | % | 50 | % | ||||||||||||||||||||||||||||||||
Relative weight of financial indicators | ||||||||||||||||||||||||||||||||||||||||||||||||
Adjusted EBITDA | 50 | % | 50 | % | 50 | % | 50 | % | 50 | % | 50 | % | ||||||||||||||||||||||||||||||||||||
Cash flows from operations after changes in working capital | 50 | % | 50 | % | 50 | % | 50 | % | 50 | % | 50 | % | ||||||||||||||||||||||||||||||||||||
Cash flows from operating actives | 50 | % | 50 | % | 50 | % | 50 | % | 50 | % | ||||||||||||||||||||||||||||||||||||||
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| Personal Performance Metrics | 0 | % | 0 | % | 0 | % | 0 | % | 0 | % | ||||||||||||||||||||||||||||||||
Total | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | Total | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | |||||||||||||||||||||||||
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The bonus is calculated using, for each objective,of the Adjusted EBITDA and Cash flows from operating activities objectives, the following formula and is equal to the sum of all results:
Annual Eligible Base salary | X | X | Weight of financial indicator | |||||
Members
For purposes of senior management were also eligible for prorated bonus amountsthe above calculation, “bonus percentage” is between 35% and 100% if between approximately 90% and 100% of the target objectives were achieved by the Company.Company, respectively. For achievement between 90% and 100%, the “bonus percentage” is interpolated between 35% and 100%. For achievement above 100%, the “bonus percentage” is capped at 100% for purposes of calculating the bonuses for each of the Adjusted EBITDA and cash flows from operating activities objectives but such achievement triggers respective additional “reach” bonuses described below.
The members of senior management other than Messrs. Yull and Pitz were also eligible for an additional bonus calculated using an Adjusted EBITDA target amount of $80,478,000$123,000,000 (the “Reach Adjusted EBITDA Target”). This additional bonus is calculated using the following formula:formula (note that the fraction below is capped by the applicable maximum (i.e., it cannot exceed 1)):
Actual Adjusted EBITDA – Adjusted EBITDA Target | X | Maximum bonus amount-Target bonus amount | X Weight of financial indicator | |||
Reach Adjusted EBITDA Target – Adjusted EBITDA Target |
The members of senior management, other than Messrs. Yull and Pitz were also eligible for an additional bonus calculated using a Cash Flowsflows from operating activities target amount of $60,900,000$91,700,000 (the “Reach Cash Flows Target”). This additional bonus is calculated using the following formula:formula (note that the fraction below is capped by the applicable maximum (i.e., it cannot exceed 1)):
Actual Cash flows from | X | Maximum bonus amount-Target bonus amount | X Weight of financial indicator | |||
Reach Cash Flows Target – Cash Flows Target |
The following table presents the objectives for 20122015 approved by the Board of Directors and the results achieved by the Company:Company.
Target | Result | Evaluation of Performance | Target | Result | Evaluation of Performance | |||||||||||||||||||
EBITDA | $ | 68,964,000 | $ | 67,815,000 | 98.3 | % | ||||||||||||||||||
Adjusted EBITDA | $ | 70,064,000 | $ | 87,904,000 | 125.5 | % | $ | 116,000,000 | $ | 102,019,000 | 87.9 | % | ||||||||||||
Cash flows from operations after changes in working capital | $ | 53,100,000 | $ | 84,500,000 | 159.1 | % | ||||||||||||||||||
Reach EBITDA | $ | 79,378,000 | $ | 67,815,000 | 85.4 | % | ||||||||||||||||||
Cash flows from operating activities | $ | 83,400,000 | $ | 102,268,000 | 122.6 | % | ||||||||||||||||||
Reach Adjusted EBITDA | $ | 80,478,000 | $ | 87,904,000 | 109.2 | % | $ | 123,000,000 | $ | 102,019,000 | 82.9 | % | ||||||||||||
Reach Cash Flows | $ | 60,900,000 | $ | 84,500,000 | 138.8 | % | $ | 91,700,000 | $ | 102,268,000 | 111.5 | % |
The following table presents, for each target objective, the bonus amount earned by each member of senior management for 2012.2015.
Gregory A. Yull | Bernard J. Pitz | Jim Bob Carpenter | Burgess H. Hildreth | Shawn Nelson | Douglas Nalette | |||||||||||||||||||
Adjusted EBITDA | ||||||||||||||||||||||||
Target | $ | 250,000 | $ | 190,962 | $ | 62,060 | $ | 62,315 | $ | 78,538 | $ | 82,500 | ||||||||||||
Cash Flows Target | $ | 250,000 | $ | 190,962 | $ | 62,060 | $ | 62,315 | $ | 78,538 | $ | 82,500 | ||||||||||||
Reach Targets | — | — | $ | 124,120 | $ | 124,630 | $ | 157,074 | $ | 165,000 | ||||||||||||||
Discretionary Bonus | $ | 100,000 | (1) | $ | 70,780 | (1) | — | — | — | — | ||||||||||||||
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Total | $ | 600,000 | $ | 452,704 | $ | 248,240 | $ | 249,260 | $ | 314,150 | $ | 330,000 | ||||||||||||
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Gregory A.C. Yull | Jeffrey Crystal | Shawn Nelson | Douglas Nalette | Joseph Tocci | ||||||||||||||||
Adjusted EBITDA | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||
Cash Flows from Operating Activities | $ | 275,000 | $ | 127,463 | $ | 83,320 | $ | 87,524 | $ | 77,857 | ||||||||||
Reach Adjusted EBITDA | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||
Reach Cash Flows | $ | 137,500 | $ | 127,463 | $ | 83,320 | $ | 87,524 | $ | 77,857 | ||||||||||
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Total | $ | 412,500 | $ | 254,926 | $ | 166,640 | $ | 175,048 | $ | 155,714 | ||||||||||
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Defined Contribution Pension Plans
The Company maintains defined contribution pension plans in the United States and Canada. Each member of senior management participates in the “US Plan”. The US Plan is a defined contribution pension plan and qualifies as a deferred salary arrangement under section 401(k) of the United States Internal Revenue Code. Under the US Plan, employees who have been employed for at least 90 days may defer a portion of their pre-tax earnings subject to statutory limitations. The Company may make discretionary contributions for the benefit of eligible employees. The US Plan permits eligible employees to choose how their account balances are invested on their behalf within a range of investment options provided by third-party fund managers. The following table sets out the Company’s contributions to the pension plan payable for 20122015 for each member of senior management.
Name | Company Contributions ($) | |||
Gregory A. Yull | $ | 16,500 | ||
Bernard J. Pitz | $ | 16,500 | ||
Jim Bob Carpenter | $ | 16,500 | ||
Shawn Nelson | $ | 16,500 | ||
Douglas Nalette | $ | 16,500 | ||
Burgess H. Hildreth | $ | 16,500 |
Name | Company Contributions $ | |||
Gregory A.C. Yull | $ | 14,575 | ||
Jeffrey Crystal | $ | 14,575 | ||
Douglas Nalette | $ | 14,575 | ||
Shawn Nelson | $ | 14,575 | ||
Joseph Tocci | $ | 14,575 |
Total Cash Payments
Total cash payments for employee future benefits for 2012,2015, consisting of cash contributed by the Company to its fundedunfunded pension plans, cash payments directly to beneficiaries for its unfunded other benefit plans, cash contributed to its defined contribution plans and cash contributed to its multi-employer defined benefit plans, were $7.8$5.4 million ($5.05.9 million in 2011)2014).
Executive Employment Contracts and Change of Control Agreements
The following agreements between the Company and members of senior management were in effect at the end of the Company’s most recently-completed financial year.2015.
The Company entered into “change of control” agreements as of January 2001 with each of Messrs. Jim Bob Carpenter (Sr. Vice-President, Global Sourcing), Burgess Hildreth (Sr. Vice-President, Administration), Shawn Nelson, (Sr. Vice-President Sales), as of October 28, 2004 with Douglas Nalette, (Sr. Vice-President Operations), and as of November 17, 2009September 8, 2006 with Bernard J. Pitz (Chief Financial Officer).Joseph Tocci. These agreements provide that if, within a period of six months after a change of control of the Company: (a) the executive voluntarily terminates his employment with the Company; or (b) the Company terminates the executive’s employment without cause, such executive will be entitled to, subject to the restrictions of Section 409A of the Internal Revenue Code of 1986, in deferred compensation, 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 either 12 or 24 months of such executive’s base remuneration at the effective date of such resignation or termination, as follows: Jim Bob Carpenter, 24 months, Burgess Hildreth, 24 months, Shawn Nelson, 12 months, Douglas Nalettte, 12 months, and Bernard Pitz, 24 months, and continued insurance coverage then in effect if permitted by its carrier during such period.
Furthermore, these agreements also provide that if during the term of the executive’s employment abona fide offer is made to all shareholders of the Company which, if accepted, would result in a change of control of the Company, then, subject to any applicable law, all of the executive’s options which have not yet become vested and exercisable shall become vested and exercisable immediately. Upon expiry of suchbona fide offer, if it does not result in a change of control of the Company, all of the executive’s unexercised options which were not vested prior to such offer, shall immediately revert to their unvested status and to their former provisions with respect to the time of their vesting.
On August 2, 2010, the Company entered into an Executive Employment Agreement with Gregory A.A.C. Yull. Pursuant to the terms of the Agreement, Mr. Yull shall receive an annual base salary of $450,000, increased to $475,000 commencing June 1, 2011, and $500,000 commencing on June 1, 2012. Annual base salary adjustment shall be determined by the Board as of June 1, 2013 and thereafter. Mr. Yull shall also be entitled to a performance bonus for each fiscal year ranging from zero to 100%150% of his then current annual base salary based on the achievement of specific goals that are mutually agreed to between Mr. Yull and the Board. For 2012,2015, Mr. Yull’s bonus was based on the Company achieving certain target amounts for adjustedAdjusted EBITDA after changes in working capitalTargets and Cash Flow Targets, as set forthfurther described above in the Section entitled “2012“2015 Senior Management Bonus Plan”. In addition to the amount calculated under this plan, Mr. Yull was rewarded a discretionary bonus approved by the Board of Directors in 2012. During the first three years of Mr. Yull’s employment, commencing June 8, 2010, Mr. Yull shall bewas to have been granted 350,000 stock options annually in accordance with the Company’s Executive Stock Option Plan (“ESOP”) and thereafter at the discretion of the Board. ForBoard of Directors. In 2012, instead of receiving an award of 350,000 stock options in accordance with his employment agreement, Mr. Yull agreed to receive 500,905 stock appreciation rights under the Company’s 2012 Stock Appreciation Rights Plan described below. The options to be granted during each of the first three years became, or shall become, exercisable in annual increments of 25% on each of the first four anniversaries of the grant date. Such options shall expire on the tenth anniversary of the grant date, subject to the early expiry provisions of the ESOP. The exercise price of such options shall be equal to the closing market price on the last trading day prior to the date of such grant. Fifty percent (50%) of the shares acquired by Mr. Yull pursuant to the exercise of the options granted under the Executive Employment Agreement must be retained by Mr. Yull and not sold or disposed of for a period of three years following the date when the option was exercised.
Provided Mr. Yull has served under the Agreement a minimum of five years, unless earlier terminated by the Company without cause or by Mr. Yull for Good Reason as defined in the Agreement, he shall receive a defined benefit supplementary pension annually for life equal to the lesser ofof: (i) $600,000 if he separates from service at age 65 or older, $570,000 at age 64, $540,000 at age 63, $510,000 at age 62, $480,000 at age 61, or $450,000 at age 60,60; and (ii) two percent of the average of his total cash compensation (base salary and performance bonus) for the highest five years of his employment during the prior ten years as of the time of separation, multiplied by his years of service with the Company. In the event of Mr. Yull’s death, his surviving spouse would receive 50% of the annual supplement pension benefit within ninety days of his death and continuing annually during her lifetime.
In the event the Company terminates Mr. Yull’s employment for any reason other than cause, or Mr. Yull terminates his employment for Good Reason as defined in the Agreement, Mr. Yull shall be entitled to severance pay in an amount equal to two times the sum of his base salary and the average performance bonus paid to Mr. Yull in the last two fiscal years ending on the date prior to his date of termination. Subject to the restrictions of Section 409A of the Internal Revenue Code of 1986, such amount shall be paid 65% in a lump sum and the balance in eight equal quarterly instalments. In addition, all unvested options that would otherwise vest during the 24 months following the date of termination shall be immediately vested and remain exercisable for a period of twelve months. Lastly, the retirement benefits set forth above shall vest.
In the event that Mr. Yull’s employment is terminated as a result of his Permanent Disability, as defined in the Agreement, or death, he shall be entitled to receivereceive: (i) accrued and unpaid base salary earned up to the date of termination,termination; (ii) a pro-rated performance bonus that he would have received in respect of the fiscal year in which the termination occurred,occurred; (iii) vacation pay earned up to the date of termination,termination; and (iv) provided the date of termination is on or after the fifth year anniversary of the Agreement, the retirement benefits set forth above shall vest. In addition, all unvested stock options held by Mr. Yull shall immediately vest and remain exercisable for a period of nine months following the date of termination for Permanent Disability or death.
In the event that Mr. Yull’s employment is terminated by the Company without cause or for Good Reason within two years of a Change of Control, as defined in the Agreement, then he shall be entitled to receivereceive: (i) accrued and unpaid base salary earned up to the date of termination,termination; (ii) a pro-rated performance bonus that he would have received in respect of the fiscal year in which the termination occurred, based upon the average performance bonus paid to Mr. Yull in the last two fiscal years,years; (iii) vacation pay earned up to the date of termination,termination; and (iv) severance pay in an amount equal to three times the sum of his base salary and the average performance bonus paid in the last two fiscal years immediately preceding the date of termination. In addition, all unvested stock options held by Mr. Yull shall immediately vest and remain exercisable for a period of 36 months following the date of termination, and the retirement benefits set forth above shall vest. Mr. Yull shall also be entitled to participate, at his cost, in the benefits under the Company’s medical and dental benefit program until such time as he reaches the age of eligibility for coverage under Medicare. Lastly, disability and life insurance benefits shall be provided for the benefit of Mr. Yull pursuant to any benefit plans and programs then provided by the Company generally to its executives and continue for a period of 36 months following the date of termination.
Mr. Yull has also agreed to a customary non-compete for two years from the date of termination.
On October 30, 2009,March 21, 2014, the Company entered into an employment letter agreement with Bernard J. Pitz. Pursuantand Mr. Crystal mutually agreed to thecertain terms of the letter agreement,employment. Under these terms, Mr. PitzCrystal receives an annual base salary of $360,000. Further,$330,000. Mr. Pitz was awarded 182,927 options with a grant price of CDN$3.61. In addition, the Company agreed to cover Mr. Pitz’ relocation costs. Mr. PitzCrystal is also entitled to a bonus ranging from zero to 100%50% of his then currentthen-current annual base salary based on the achievement of specific goals that are mutually agreed to between Mr. Pitz and the Board. For 2012, Mr. Pitz’ bonus was based on the Company’s achieving certain target amounts for adjustedAdjusted EBITDA Targets and cash flows from operations after changes in working capitalCash Flow Targets, with the bonus opportunity increasing to 100% of his then-current annual base salary based on the achievement of certain stretch Adjusted EBITDA goals, as set forthfurther described above in the Section entitled “2012“2015 Senior Management Bonus Plan” (also as further described in such section, certain percentages set forth in the terms of Mr. Crystal’s employment were adjusted in connection with the calculation of his 2015 bonus). In addition, to the amount calculated under this plan, Mr. Pitz was rewarded a discretionary bonus approved by the Board of Directors in 2012.
On November 17, 2009, the Company entered into a second letter agreement withagreed to cover certain of Mr. Pitz. Pursuant toCrystal’s relocation costs. Further, the terms of the letter agreement, in the event the Company terminatesprovide that Mr. Pitz’ employment for any reason other than Cause as defined in the letter agreement, or Mr. Pitz terminates his employment for Good Reason as defined in the letter agreement, Mr. Pitz shallCrystal will be entitled to severance pay in an amount equal to 12 times his highest total base monthly salary received in any one month during the twelve months prior to Mr. Pitz’ last day of employment, provided thatbase annual salary, or if Mr. Pitz’ terminationCrystal were terminated within six months of employment occurschange of control, he will be entitled to severance pay in an amount equal to eighteen months base annual salary. Alternatively, if Mr. Crystal were to resign within six months of change of control, or the Company were to terminate Mr. Crystal after six months of change of control, he will be entitled to severance pay in an amount equal to twelve months of the appointment of a Chief Executive Officer of the Company other than Gregory A. Yull, then the severance payment due tobase annual salary. Mr. Pitz shall be equal to 24 times Mr. Pitz’ highest monthly salary. Subject to the restrictions of Section 409A of the Internal Revenue Code of 1986 (“Section 409A”), such amount shall be paid in either 12 or 24 equal monthly instalments as applicable (“Severance Period”). In the event there is a Section 409A Change in Control within 6 months prior to Mr. Pitz’ termination of employment or during the Severance Period, the remainder of the unpaid severance payments shall be accelerated and paid in a single lump sum within 10 days after the 409A Change in Control occurs, subject to Section 409A. In the event there is an occurrence of Good Reason and Mr. Pitz does not terminate his employment within 60 days of the occurrence, he shall be deemed to have waived such Good Reason. If Mr. Pitz’ employment is terminated for Cause, or he resigns without Good Reason, or retires, then Mr. Pitz will not be eligible for severance pay. Mr. PitzCrystal shall also be entitled to participate in the benefits under the Company’s medical, dental, vision, life insurance and accidental death and dismemberment coverage during the Severance Period, subject to the then current cost sharing features of the plans. In the event Mr. Pitz obtains other employment during the first twelve months of severance payments, the Company’s obligation to pay such severance shall cease. In the event Mr. Pitz obtains employment after twelve months but during the remainder of the Severance Period, the severance payments shall be reduced by the amount of compensation paid to Mr. Pitz by his subsequent employer.
On November 17, 2009, the Company also entered into a “change of control” agreement with Mr. Ptiz. The agreement provides that if, within a period of six months after a change of control of the Company: (a) Mr. Ptiz voluntarily terminates his employment with the Company; or (b) the Company terminates his employment without cause, Mr. Pitz will be entitled to, subject to the restrictions of Section 409A of the Internal Revenue Code of 1986, in deferred compensation, 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 24 months of Mr. Pitz’s base remuneration at the effective date of such resignation or termination. Mr. Pitz is also entitled to continuedcontinue insurance coverage then in effect if permitted by its carrier during such period.
On July 19, 2010, the Company entered into a letter agreement with Mr. Jim Bob Carpenter. Pursuant to the terms of the letter agreement, in the event the Company terminates Mr. Carpenter’s employment for any reason other than Cause as defined in the letter agreement, or Mr. Carpenter terminates his employment for Good Reason as defined in the letter agreement, Mr. Carpenter shall be entitled to severance pay in an amount equal to 24 times his highest total base monthly salary received in any one month during the twelve months prior to Mr. Carpenter’s last day of employment. Subject to the restrictions of Section 409A of the Internal Revenue Code of 1986 (“Section 409A”), such amount shall be paid in 24 equal monthly instalments (“Severance Period”). In the event there is a Section 409A Change in Control within 6 months prior to Mr. Carpenter’s termination of employment or during the Severance Period, the remainder of the unpaid severance payments shall be accelerated and paid in a single lump sum within 10 days after the 409A Change in Control occurs, subject to Section 409A. In the event there is an occurrence of Good Reason and Mr. Carpenter does not terminate his employment within 60 days of the occurrence, he shall be deemed to have waived such Good Reason. If Mr. Carpenter’s employment is terminated for Cause, or he resigns without Good Reason, or retires, then Mr. Carpenter will not be eligible for severance pay. Mr. Carpenter shall also be entitled to participate in the benefits under the Company’s medical, dental, vision, life insurance and accidental death and dismemberment coverage for a period of 12 months, subject to the then current cost sharing features of the plans. In the event Mr. Carpenter obtains other employment during the Severance Period, the Company’s obligation to pay such severance shall cease.
Executive Stock Option Plan
In 1992, the Company adopted the Executive Stock Option Plan (the “ESOP”) in respect of the common shares of the Company.. Since its adoption, the ESOP has been amended on several occasions. The ESOP provides that the total number of common shares reserved for issuance thereunder is equal to 10% of the issued and outstanding common shares of the Company from time to time. The ESOP is considered to be an “evergreen” plan, sincebecause the number of common shares covered by options which have been exercised will be available for subsequent grants under the ESOP and the number of options available for grants increases as the number of issued and outstanding common shares of the Company increases. As such, under the rules of the Toronto Stock Exchange, a security-based arrangement such as the ESOP must, when initially put in place, receive shareholder approval at a duly-called meeting of shareholders and the unallocated options are subject to ratification by shareholders every three years thereafter. All unallocated options under the ESOP were ratified, confirmed and approved by shareholders at a special meeting of shareholders of the Company held on September 6, 2012.June 4, 2015.
The purpose of the ESOP is to promote a proprietary interest in the Company among the executives, key employees and directors of the Company and its subsidiaries, in order to both encourage such persons to further the development of the Company and assist the Company in attracting and retaining key personnel necessary for the Company’s long-term success. The Board of Directors designates from time-to-time those persons to whom options are to be granted and determines the number of common shares subject to such options. Generally, participation in the ESOP is limited to persons holding positions that can have an impact on the Company’slong-term results.
The number of common shares to which the options relate is determined by taking into account,inter alia, the market value of the common shares and each optionee’s base salary.
The following is a description of certain features of the ESOP:ESOP (for further details regarding the ESOP, please see Exhibit 4.1 to this Form 20-F):
(a) | options expire not later than ten years after the date of grant and, unless otherwise determined by the Board of Directors, all vested options under a particular grant expire 24 months after the vesting date of the last tranche of such grant; |
(b) | options |
(c) |
the exercise price of the options is determined by the Board of Directors, but cannot be less than the “Market Value” of the common shares of the Company, defined in the ESOP as the closing price of the common shares on the Toronto Stock Exchange for the day immediately preceding the effective date of the grant; and |
certain limitations exist on the number of options, common shares reserved for issuance, |
the number of common shares issued to |
As atof December 31, 2012,2015, there were options outstanding under the ESOP to purchase an aggregate of 2,657,0371,617,500 common shares, representing 4.5%2.8% of the issued and outstanding common shares of the Company, and a total of 1,676,305950,625 options exercisable. NoDuring 2015, no options were granted in 2012. The Company instead adopted a Stock Appreciation Rights Plan as described below and issued Stock Appreciation Rights under the ESOP.
Year-End Unexercised Options and Option Values
The following table sets out for each of the Directors and members of senior management the total number of unexercised options held as of December 31, 20122015 and the value of such unexercised options at that date.
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Name | Number of unexercised options at fiscal year-end Exercisable / Unexercisable | Value of unexercised “in the money” options at fiscal year-end Exercisable / Unexercisable CDN$ (1) | ||||||||||||||||||||||
Eric E. Baker(2) | — | / | — | — | / | — | ||||||||||||||||||
Robert M. Beil | 20,000 | / | 2,500 | 262,525 | / | 16,625 | ||||||||||||||||||
George J. Bunze | 12,500 | / | 2,500 | 135,575 | / | 16,625 | ||||||||||||||||||
Frank Di Tomaso | — | / | — | — | / | — | ||||||||||||||||||
Robert J. Foster | 7,500 | / | 2,500 | 49,875 | / | 16,625 | ||||||||||||||||||
Jorge N. Quintas | 15,000 | / | 2,500 | 176,825 | / | 16,625 | ||||||||||||||||||
James Pantelidis | 7,500 | / | 2,500 | 49,875 | / | 16,625 | ||||||||||||||||||
Mary Pat Salomone | — | / | — | — | / | — | ||||||||||||||||||
Melbourne F. Yull | 30,000 | / | 2,500 | 427,525 | / | 16,625 | ||||||||||||||||||
Gregory A.C. Yull | 522,500 | / | 252,500 | 7,125,726 | / | 1,617,925 | ||||||||||||||||||
Jeffrey Crystal | 8,125 | / | 24,375 | 53,219 | / | 159,626 | ||||||||||||||||||
Douglas Nalette | 83,125 | / | 49,375 | 1,060,638 | / | 315,913 | ||||||||||||||||||
Shawn Nelson | 98,125 | / | 49,375 | 1,308,138 | / | 315,913 | ||||||||||||||||||
Joseph Tocci | 42,500 | / | 40,000 | 408,075 | / | 258,350 |
(1) | The value of unexercised “in-the-money” options is calculated using the closing price of the common shares of |
(2) | Mr. Baker retired from the Board in June, 2015 |
2012 Stock Appreciation Rights Plan
The Board of Directors of the Company adopted the 2012 Stock Appreciation Rights Plan on June 20, 2012 in lieu of granting stock options in 2012. The purpose of the 2012 Stock Appreciation Rights Plan is toto: (a) promote a proprietary interest in the Company among its executives and directors; (b) encourage the Company’s executives and directors to further the Company’s development; and (c) attract and retain the key employees necessary for the Company’s long-term success. The 2012 Stock Appreciation Rights Plan is administered by the Compensation Committee of the Board of Directors of the Company and authorizes the Company to award stock appreciation rights (“SARs”) to eligible persons. A SAR, as defined by the Company’s plan, is a right to receive a cash payment equal to the difference between the base price of the SAR and the market value of a common share of the Company on the date of exercise. These SARs can only be settled in cash and expire no later than 10 years after the date of the grant. The award agreements provide that these SARs granted to employees and executives will vest and may be exercisable 25% per year over four years. The SARs granted to directors, who are not officers of the Company, will vest and may be exercisable 25% on the grant date, and a further 25% will vest and may be exercisable per year over three years. The Stock Appreciation Rights Plan was amended to include the following language during the year: “the base price of each SAR is confirmed in writing by the Compensation Committee to the participant at the time of grant and once so confirmed, may not be changed” and “once the expiry date of SARs is determined in the applicable Grant Agreement, such expiry date may not be extended.” No SARs were granted in 2015.
The following table sets out for each of the Directors and members of senior management the total number of SARs held as of December 31, 2015 and the value of such unexercised SARs at that date.
Name | Number of unexercised SARs at fiscal year-end Exercisable / Unexercisable | Value of unexercised SARs at fiscal year-end Exercisable / Unexercisable CDN$ (1) | ||||||||||||||||||||||
Eric E. Baker(2) | — | / | — | — | / | — | ||||||||||||||||||
Robert M. Beil | 10,000 | / | — | 111,300 | / | — | ||||||||||||||||||
George J. Bunze | 10,000 | / | — | 111,300 | / | — | ||||||||||||||||||
Frank Di Tomaso | — | / | — | — | / | — | ||||||||||||||||||
Robert J. Foster | 10,000 | / | — | 111,300 | / | — | ||||||||||||||||||
James Pantelidis | 30,000 | / | — | 333,900 | / | — | ||||||||||||||||||
Jorge N. Quintas | 10,000 | / | — | 111,300 | / | — | ||||||||||||||||||
Mary Pat Salomone | — | / | — | — | / | — | ||||||||||||||||||
Melbourne F. Yull | 10,000 | / | — | 111,300 | / | — | ||||||||||||||||||
Gregory A.C. Yull | 125,226 | / | 125,226 | 1,393,765 | / | 1,393,765 | ||||||||||||||||||
Jeffrey Crystal | — | / | — | — | / | — | ||||||||||||||||||
Douglas Nalette | 20,000 | / | 20,000 | 222,600 | / | 222,600 | ||||||||||||||||||
Shawn Nelson | 20,000 | / | 20,000 | 222,6000 | / | 222,600 | ||||||||||||||||||
Joseph Tocci | 60,000 | / | 20,000 | 667,800 | / | 222,600 |
(1) | The value of unexercised SARs is calculated using the closing price of the common shares of Intertape on the Toronto Stock Exchange on December 31, 2015 (CDN$18.69 less the base price of the SARs). |
(2) | Mr. Baker retired from the Board in June 2015 |
Performance Share Unit Plan
On April 22, 2014, the Board of Directors of the Company adopted the PSU Plan. The purpose of the PSU Plan is to provide participants with a proprietary interest in the Company to (a) increase the incentives of those participants who share primary responsibility for the management, growth and protection of the business of the Company, (b) furnish an incentive to such participants to continue their services for the Company and (c) provide a means through which the Company may attract potential employees. The PSU Plan is administered by the Compensation Committee of the Board of Directors of the Company and authorizes the Company to award PSUs to eligible persons. A PSU, as defined by the Company’s PSU Plan, represents the right of a participant, once such PSU is earned and has vested in accordance with the PSU Plan, to receive the number of common shares of the Company underlying the PSU. Furthermore, a participant will receive a cash payment from the Company upon PSU settlement that is equivalent to the number of shares issued or delivered to the participant multiplied by the amount of cash dividends per share declared by the Company between the date of grant and the third anniversary of the grant date. PSUs are net-settled to satisfy minimum statutory tax withholding requirements.
PSUs are expensed straight-line over their vesting period. The fair value of the PSU is based on the close price for the common shares of the Company on the Toronto Stock Exchange on the date of the grant adjusted for market-based performance conditions. The PSUs are earned over a three-year period with vesting at the third anniversary of the grant date. The number of shares earned can range from 0 to 150% of the grant amount based on entity performance criteria, specifically the total shareholder return ranking versus a specified peer group of companies.
PSU Grants During the Most Recently Completed Fiscal Year
The following table sets out the details of all PSU grants of SARs to the Directors and members of senior management during the fiscal year ended December 31, 2012.2015.
NAME | NUMBER OF SARs GRANTED | BASE PRICE CDN$ | EXPIRATION DATE | |||||||
Eric E. Baker | 10,000 | 7.56 | June 28,2018 | |||||||
Robert M. Beil | 10,000 | 7.56 | June 28,2018 | |||||||
George J. Bunze | 10,000 | 7.56 | June 28,2018 | |||||||
Robert J. Foster | 10,000 | 7.56 | June 28,2018 |
Name | PSU Awards granted | % of total PSU awards granted in financial year | Market value on date of grant CDN$ | Expiration date | ||||||||||
Gregory A.C. Yull | 72,960 | 20 | % | $ | 16.29 | 3/13/2018 | ||||||||
Jeffrey Crystal | 20,550 | 6 | % | $ | 16.29 | 3/13/2018 | ||||||||
Douglas Nalette | 15,000 | 4 | % | $ | 16.29 | 3/13/2018 | ||||||||
Shawn Nelson | 15,000 | 4 | % | $ | 16.29 | 3/13/2018 | ||||||||
Joseph Tocci | 10,410 | 3 | % | $ | 16.29 | 3/13/2018 |
Year-End Unvested PSU Shares and Values
NAME EXPIRATION DATE James Pantelidis Jorge N. Quintas Gregory A. Yull Melbourne F. Yull Bernard J. Pitz Jim Bob Carpenter Shawn Nelson Douglas Nalette Burgess H. HildrethThe following table sets out for each of the members of senior management the total number of unvested PSU shares held as of December 31, 2015 and the value of such unvested shares at that date. NUMBER OF
SARs GRANTED BASE PRICE CDN$ 30,000 7.56 June 28,2018 10,000 7.56 June 28,2018 500,905 7.56 June 28,2022 10,000 7.56 June 28,2018 165,000 7.56 June 28,2018 40,000 7.56 June 28,2018 80,000 7.56 June 28,2018 80,000 7.56 June 28,2018 40,000 7.56 June 28,2018
Name | Number of unvested PSU at fiscal year-end | Equivalent number of common stock shares at fiscal year-end(1) | Value of unvested shares CDN$ (2) | |||||||||
Gregory A.C. Yull | 112,960 | 169,440 | 3,166,834 | |||||||||
Jeffrey Crystal | 37,550 | 56,325 | 1,052,714 | |||||||||
Douglas Nalette | 25,000 | 37,500 | 700,875 | |||||||||
Shawn Nelson | 25,000 | 37,500 | 700,875 | |||||||||
Joseph Tocci | 18,010 | 27,015 | 504,910 |
(1) | The equivalent number of common stock shares earned is based on the Corporation’s level of attainment of the performance objective measured at December 31, 2015. Based on the first quartile TSR ranking, equivalent common shares are 150% of PSU’s granted. |
(2) | The value of unvested shares is calculated using the closing price of the common shares of Intertape on the Toronto Stock Exchange on December 31, 2015 (CDN$18.69). |
Deferred Share Unit Plan
On April 22, 2014, the Board of Directors of the Company adopted the DSU Plan. The purpose of the DSU Plan is to provide participants with a form of compensation which promotes greater alignment of the interests of the participants and the shareholders of the Company in creating long-term shareholder value. The DSU Plan is administered by the Compensation Committee of the Board of Directors of the Company and authorizes the Company to award DSUs to any member of the Board of Directors of the Company that is not an executive officer or employee of the Company. A DSU, as defined by the Company’s DSU Plan, represents the right of a participant to receive a common share of the Company. Under the DSU Plan, each director is entitled to receive DSUs as a result of a grant and/or in lieu of cash for semi-annual directors’ fees. DSUs are settled when the director ceases to be a member of the Board of Directors of the Company. DSUs are net-settled to satisfy minimum statutory tax withholding requirements.
DSUs received as a result of a grant are expensed immediately. The fair value of DSUs is based on the close price for the common shares of the Company on the Toronto Stock Exchange on the date of the grant. DSUs received in lieu of cash for directors’ fees are expensed as earned over the service period.
DSU Grants During the Most Recently Completed Fiscal Year
The following table sets out the details for the fiscal year ended December 31, 2015 of all DSU grants to Directors, including DSUs elected in lieu of cash by the Directors for semi-annual Director fees. Amounts presented do not include DSUs elected in lieu of cash for semi-annual fees earned that were not granted as of December 31, 2015.
Name | DSU Awards granted | % of total DSU awards granted in financial year | Market value on date of grant CDN$ | Expiration date | ||||||||||
Eric E. Baker | 3,222 | 7 | % | $ | 17.74 | n/a | ||||||||
3,000 | 7 | % | $ | 19.25 | n/a | |||||||||
3,023 | 7 | % | $ | 19.31 | n/a | |||||||||
Robert M. Beil | 703 | 2 | % | $ | 17.74 | n/a | ||||||||
3,000 | 7 | % | $ | 19.25 | n/a | |||||||||
1,072 | 2 | % | $ | 14.24 | n/a | |||||||||
George J. Bunze | 1,689 | 4 | % | $ | 17.74 | n/a | ||||||||
3,000 | 7 | % | $ | 19.25 | n/a | |||||||||
2,276 | 5 | % | $ | 14.24 | n/a | |||||||||
Frank Di Tomaso | 3,000 | 7 | % | $ | 19.25 | n/a | ||||||||
Robert J. Foster | 1,689 | 4 | % | $ | 17.74 | n/a | ||||||||
3,000 | 7 | % | $ | 19.25 | n/a | |||||||||
2,189 | 5 | % | $ | 14.24 | n/a | |||||||||
James Pantelidis | 3,000 | 7 | % | $ | 19.25 | n/a | ||||||||
Jorge N. Quintas | 1,126 | 2 | % | $ | 17.74 | n/a | ||||||||
3,000 | 7 | % | $ | 19.25 | n/a | |||||||||
1,838 | 4 | % | $ | 14.24 | n/a | |||||||||
Mary Pat Salomone | — | — | — | n/a | ||||||||||
Melbourne F. Yull | 1,345 | 3 | % | $ | 17.74 | n/a | ||||||||
3,000 | 7 | % | $ | 19.25 | n/a | |||||||||
1,970 | 4 | % | $ | 14.24 | n/a |
Year-End Unsettled DSU Shares and Values
The following table sets out for each of the Directors the total number of unsettled DSU shares held as of December 31, 2015 and the value of such unsettled shares at that date.
Name | Number of unsettled shares at fiscal year-end(1) | Value of unsettled shares CDN$ (1)(2) | ||||||
Eric E. Baker | — | — | ||||||
Robert M. Beil | 8,749 | 163,519 | ||||||
George J. Bunze | 12,032 | 224,878 | ||||||
Frank Di Tomaso | 6,000 | 112,140 | ||||||
Robert J. Foster | 12,144 | 226,971 | ||||||
James Pantelidis | 6,000 | 112,140 | ||||||
Jorge N. Quintas | 10,594 | 198,002 | ||||||
Mary Pat Salomone | — | — | ||||||
Melbourne F. Yull | 11,064 | 206,789 |
(1) | Amounts presented do not include DSUs elected in lieu of cash for semi-annual directors’ fees earned that were not yet granted as of December 31, 2015. |
(2) | The value of unvested shares is calculated using the closing price of the common shares of Intertape on the Toronto Stock Exchange on December 31, 2015 (CDN$18.69). |
(3) | Mr. Baker retired from the Board in June 2015. |
The following table sets out for each of the Directors the total number of DSUs elected in lieu of cash for semi-annual directors’ fees earned that were not yet granted as of December 31, 2015.
Name | Number of DSUs not yet granted at 12/31/15 (1) | Fees Earned for which DSUs were elected in lieu of cash CDN$ | ||||||
Eric E. Baker(2) | — | — | ||||||
Robert M. Beil | 809 | 15,020 | ||||||
George J. Bunze | 3,848 | 71,427 | ||||||
Frank Di Tomaso | — | — | ||||||
Robert J. Foster | 2,013 | 37,383 | ||||||
James Pantelidis | — | — | ||||||
Jorge N. Quintas | 1,438 | 26,702 | ||||||
Mary Pat Salomone | — | — | ||||||
Melbourne F. Yull | 1,618 | 30,040 |
(1) | Estimated DSUs to be granted in lieu of cash for semi-annual directors’ fee earned based on five-day volume weighted average of the closing price of the common shares of Intertape on the Toronto Stock Exchange on December 31, 2015 (CDN$18.56). |
(2) | Mr. Baker retired from the Board in June 2015 |
Pension and Other Post Retirement Benefit Plans
Melbourne F. Yull was Chairman of the Board of Directors and Chief Executive Officer of the Company from January 11, 1995 to June 14, 2006. Prior thereto, Mr. Yull was the President and a director of the Company or a predecessor thereof, from 1981. The former employment agreement entered into between the Company and Mr. Yull provides that Mr. Yull receive from the Company a defined benefit supplementary pension annually for life in an amount equal to 2% of the average of Mr. Yull’s annual gross salary for the final five years of his employment with the Company, multiplied by his years of service with the Company to retirement. Accordingly, Mr. Yull receives a pension from the Company in an amount of $260,935 per year.
Clawback Policy
In April 2014, the Board of Directors adopted a “clawback” policy, pursuant to which the Company will recoup from executive officers or employees and its subsidiaries, as the case may be, annual incentive bonuses, special bonuses, other incentive compensation and equity-based awards, whether vested or unvested, paid, issued or granted to them, in the event of fraud, restatement of the Company’s financial results, material errors or omissions in the Company’s financial statements, or other events as may be determined from time to time by the Board of Directors in its discretion. To date, the Company has not been required to apply the “clawback” policy.
C. | BOARD PRACTICES |
Term
The Company has eightnine Directors. Each Director is elected for a term of one year and may be nominated for re-election at the Company’s following annual shareholders’ meeting. The next annual shareholders’ meeting is scheduled to be held on June 5, 2013,9, 2016, at which time the current term of each Director will expire.
Service Contracts
In 2010, the Company entered into agreements with companies controlled by two of the current members of the Board of Directors. These agreements required the provision of support services that included the duties of Executive Director and Chairman of the Board.
The Executive Director support services agreement was effective from January 1, 2010 through September 30, 2010 and provided for monthly compensation in the amount of $50,000. This agreement expired on September 30, 2010 and was not replaced. The Chairman of the Board support services agreement was effective from January 1, 2010 through June 30, 2011 and provided for monthly compensation in the amount of CDN$25,000. The agreement was not replaced. These amounts were in lieu of the fees otherwise paid to Directors for their services.
Human Resources and Compensation Committee
The Human Resources and Compensation Committee is appointed by the Board and is currently composed of threefour directors, Robert M. Beil (Chairman), Robert J. Foster, and Jorge N. Quintas and Mary Pat Salomone, none of whom is or has been at any previous time an employee of the Company or any of its subsidiaries. Each of the Human Resources and Compensation Committee members areis independent as that term is defined by the Toronto Stock Exchange and Sarbanes-Oxley Act.
Mr. Beil joined the Dow Chemical Company in 1975 after graduating from Youngstown State University with a BA Degree in Industrial Marketing. During a thirty-two yearthirty-two-year career with Dow, Mr. Beil held numerous sales and marketing executive
positions, where he had responsibility for the implementation of company compensation schemes for large organizations. In addition, he spent a portion of his career working in Dow’s Human Resources function. Human Resourcesfunction, which was responsible for compensation design for Dow, a Fortune 500 company.
Mr. Foster graduated from Queen’s University with an MA in Economics, earning his CFA, then managed the research department and worked in corporate finance at one of the major investment dealers in Canada. He founded and serves as President and Chief Executive Officer of Capital Canada Limited, a boutique investment banking firm. He serves on a number of not-for-profit boards and was on the board and audit committee of CHC Helicopters Corporation and Golf Town Income Trust.
Mr. Quintas graduated in Management at INP-Lisbon and initialized his professional career in ALCAN (England). Later he became a Board Member in several industrial companies from power and telecommunication cable production to Optic Fibers.optic
F=fibers. He was a Board Member at Portgás, a city gas distributiondistributor in Portugal. Presently Mr. Quintas is the Chairman of Nelson Quintas Group in Portugal and Board Member of: ECODEAL -ECODEAL- dangerous waste recycling plant, NQT -NQT- Telecommunication Network in Rio de Janeiro (Brasil) and Audit Committee of Serralves Foundation.
Ms. Salomone graduated from Baldwin Wallace College with a Masters of Business Administration and from Youngstown State University with a Bachelor of Engineering in Civil Engineering. Ms. Salomone is a Director of TransCanda Corporation and TransCanada Pipelines Limited and has served in these roles since 2013. Ms. Salomone is also on the Audit Committee and Health, Safety and Environment Committee of TransCanada Corporation. Ms. Salomone was the Senior Vice President and Chief Operating Officer of The Babcock & Wilcox Company (“B&W”) (power generation company) from January 2010 to June 2013. Prior to that she served as Manager of Business Development from 2009 to 2010 and Manager of Strategic Acquisitions from 2008 to 2009 for Babcock & Wilcox Nuclear Operations Group, Inc. From 1998 through December 2007, Ms. Salomone served as an officer of the Marine Mechanical Corporation, which B&W acquired in 2007, including her term as President and Chief Executive Officer from 2001 through 2007. Ms. Salomone serves as a trustee of the Youngstown State University Foundation. She served on the board of directors of United States Enrichment Corporation from December 2011 to October 2012 and on the Naval Submarine League from 2007 to 2013. She was formerly a member of the Governor’s Workforce Policy Advisory Board in Ohio and the Ohio Employee Ownership Center, and served on the board of Cleveland’s Manufacturing Advocacy & Growth Network.
The mandate of the Human Resources and Compensation Committee consists of ensuring the direction and implementation of the Company’s wage and compensation plans, policies, and programs, and in ensuring that a succession plan is put in place to deal with the Company’s future needs regarding human resources, with respect to the Chief Executive Officer and other key executives.
The Human Resources and Compensation Committee Charter is attached heretoincluded asExhibit “14.1”.15.2 to this Form 20-F.
Audit Committee
The Audit Committee is appointed by the Board and is currently composed of threefour Directors, George J. Bunze,Frank Di Tomaso (Chairman), Robert J. Foster, James Pantelidis, and James Pantelidis.Mary Pat Salomone. Each of the Audit Committee members areis independent and financially literate as such terms are defined by Canadian Multilateral Instrument 52-110-Audit Committees.
Mr. BunzeDi Tomaso graduated from the commerce certification CMA program at McGillConcordia University Montreal, Quebec,with a Bachelor of Commerce in Accounting and is a professional accountantChartered Professional Accountant, a Fellow CPA, FCA and Certified Management Accountant.an ICD.D. Mr. Bunze is the Vice-ChairmanDi Tomaso has over 45 years of experience in accounting and auditing. Mr. Di Tomaso was a Partner and Advisory Partner from 1981 until 2012 and served as Director and a memberMember of the ExecutiveManagement Committee from 2000 to 2009, of Raymond Chabot Grant Thornton. Mr. Di Tomaso currently serves as Director and Chair of the Audit Committee of KrugerADF Group Inc., one of the largest private pulpBirks Group Inc., and paper companies in North America.Yorbeau Resources Inc. He is also served as the Chief Financial Officer of Kruger Inc. and its various subsidiaries from 1982 to 2003. Mr. Bunze is a Director of Stella-Jones Inc.National Bank Trust, National Bank Life Insurance Company and Chairman of its AuditLaurentian Pilotage Authority.
For Mr. Foster’s professional experience, please see above under “Human Resources and Compensation Committee. He was previously a Director of B2B Trust Inc. and Chairman of its Audit Committee.
Mr. Foster graduated from Queen’s University with an MA in Economics, earning his CFA, managed the research department and worked in corporate finance at one of the major investment dealers in Canada. He founded and serves as President and Chief Executive Officer of Capital Canada Limited, a boutique investment banking firm. He serves on a number of not-for-profit boards and was on the board and audit committee of CHC Helicopters Corporation and Golf Town Income Trust.”
Mr. Pantelidis graduated from McGill University with a Bachelor of Science degree and a Master of Business Administration. Mr. Pantelidis has over 30 years of experience in the petroleum industry. Mr. Pantelidis is Chairman of the Board of Parkland Fuel Corporation and has served as a director of Parkland Fuel Corporation since 1999. Mr. Pantelidis is Chairman and Director of EnerCare Inc. since 2002 (member of the Audit, Governance and Compensation, and Investment Committees). He2002. Mr. Pantelidis also serves on the Board of each of RONA Inc. (Chairman of the Human Resources and Compensation Committee and member of the Development Committee)Resources); Industrial Alliance Insurance and Financial Services Inc. (Chairman of the Investment Committee and member of Human Resources and Compensation Committee). From 2002 to 2006, Mr. Pantelidis was on the board of FisherCast Global Corporation and served as Chairman and Chief Executive Officer from 2004 to 2006. From 2002 to 2004, Mr. Pantelidis was President of J.P. & Associates, a strategic consulting group. Between 1999 and 2001, Mr. Pantelidis served as Chairman and Chief Executive Officer for the Bata International Organization.
For Ms. Salomone’s professional experience, please see above under “Human Resources and Compensation Committee.”
The Audit Committee fulfills applicable public corporation obligations required of audit committees and assists the Board in fulfilling its oversight responsibilities. The Audit Committee examines the financial reporting processes, internal controls, financial risk management and the audit process and procedures applied by the Company and makes recommendations to the Board in connection with the nomination of the external auditor.
The Audit Committee’s Charter is attached heretoincluded asExhibit “14.2”15.3 to this Form 20-F..
D. | EMPLOYEES |
As of December 31, 2012,2015 the Company had 1,8001,970 total employees, 387employees; 382 in Canada, 1,3461,517 in the US, 5261 in Portugal, and 1510 in Mexico and Europe. As of December 31, 2012, 3602015, 424 held either sales-related, administrative, information technology or research and development positions and 1,440 of whom were employed in operations. The Company’s Portuguese subsidiary had 54 employees, 2 in sales positions and the rest1,546 were employed in operations. Approximately 136145 hourly employees at the Company’s Marysville plant are unionized and subject to a collective bargaining agreement which expires on April 30, 2015.2018. Approximately 160212 hourly employees at the Company’s Menasha plant are unionized and subject to a collective bargaining agreement which expires on July 31, 2015.2018. Approximately 6292 hourly employees at the Company’s Carbondale plant are unionized and subject to a collective bargaining agreement which expires on March 4, 2015.2017. Approximately 2815 hourly employees at the Company’s Langley,Delta, British Columbia plant are unionized and subject to a collective bargaining agreement which expiresis scheduled to expire on March 31, 2014.2019. Other than the strike at its Brantford, Ontario plant, which was closed in the second quarter of 2011, the Company has never experienced a work stoppage and it considers its employee relations to be satisfactory. The Company does not employ a significant number of temporary employees.
As of December 31, 2011,2014, the Company had 1,8611,896 total employees, 418employees; 369 in Canada, 1,3761,446 in the US, 5267 in Portugal, and 1514 in Mexico and Europe. As of December 31, 2011, 3622014, 387 held either sales-related, administrative, information technology or research and development positions and 1,438 of whom were employed in operations. The Company’s Portuguese subsidiary had 52 employees, 2 in sales positions and the rest1,509 were employed in operations.
As of December 31, 2010,2013, the Company had 2,0211,869 total employees, 563349 in Canada, 1,3891,442 in the US, 5467 in Portugal, and 1511 in Mexico and Europe. As of December 31, 2010, 3602013, 373 held either sales-related, administrative, information technology or research and development positions and 1,664 of whom were employed in operations. The Company’s Portuguese subsidiary had 54 employees, 4 in sales positions and the rest1,496 were employed in operations.
E. | SHARE OWNERSHIP |
The following table sets out for each of the Directors and members of senior management as of February 7, 2013, the number of shares of the Company owned or controlled by each.each, as of March 9, 2016.
Name | Number of Shares Owned | % of Shares Outstanding | ||||||
Eric E. Baker(1) | N/A | N/A | ||||||
Robert M. Beil | 50,196 | 0.09 | % | |||||
George J. Bunze | 53,371 | 0.09 | % | |||||
Frank Di Tomaso | 10,000 | 0.02 | % | |||||
Robert J. Foster | 65,000 | 0.11 | % | |||||
James Pantedilis | 10,000 | 0.02 | % | |||||
Jorge N. Quintas | 39,357 | 0.07 | % | |||||
Mary Pat Salomone | — | — | ||||||
Melbourne F. Yull | 2,035,829 | 3.47 | % | |||||
Gregory A.C. Yull | 595,464 | 1.01 | % | |||||
Jeffrey Crystal | 4,200 | 0.01 | % | |||||
Douglas Nalette | 108,849 | 0.19 | % | |||||
Shawn Nelson | 131,596 | 0.22 | % | |||||
Joseph Tocci | 63,252 | 0.11 | % |
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As of February 7, 2013,March 9, 2016, the Directors and senior management ownowned an aggregate of 6,169,0143,167,114 common shares of the Company, being 10%5.4% of the issued and outstanding common shares of the Company. The common shares held by the Directors and senior management do not have different voting rights from those held by the other shareholders of the Company.
Please see the heading “Executive Stock Option”Option Plan” above in this section for a description of the Company’s Amended Executive Stock Option Plan.
The following table sets forth all vested and unvested outstanding options granted to the Company’s Directors and senior management through December 31, 2012:2015:
Name | Number of options | Exercise price of options $CDN | Expiration date of options | Number of options outstanding | Exercise price of options CDN$ | Expiration date of options | ||||||||||||||
Eric E. Baker | | 50,000 20,000 | | | 2.19 1.55 | | 6/10/2016 6/7/2017 | — | — | n/a | ||||||||||
Robert M. Beil | | 2,500 10,000 | | | 2.19 1.55 | | 6/10/2016 6/7/2017 | 2,500 | 2.19 | 6/10/2016 | ||||||||||
Robert M. Beil | 10,000 | 1.55 | 6/7/2017 | |||||||||||||||||
10,000 | 12.04 | 6/5/2019 | ||||||||||||||||||
| 30,000 10,000 10,000 20,000 | | | 3.61 0.55 2.19 1.55 | | 9/17/2013 4/1/2015 6/10/2016 6/7/2017 | 5,000 | 1.55 | 6/7/2017 | |||||||||||
George J. Bunze | 10,000 | 12.04 | 6/5/2019 | |||||||||||||||||
— | — | n/a | ||||||||||||||||||
Robert J. Foster | | 7,500 10,000 | | | 2.19 1.55 | | 6/10/2016 6/7/2017 | 10,000 | 12.04 | 6/5/2019 | ||||||||||
James Pantelidis | 0 | 0 | 10,000 | 12.04 | 6/5/2019 | |||||||||||||||
Jorge N. Quintas | | 30,000 10,000 20,000 | | | 1.89 2.19 1.55 | | 11/13/2015 6/10/2016 6/7/2017 | 2,500 | 2.19 | 6/10/2016 | ||||||||||
Jorge N. Quintas | 5,000 | 1.55 | 6/7/2017 | |||||||||||||||||
10,000 | 12.04 | 6/5/2019 | ||||||||||||||||||
— | — | n/a | ||||||||||||||||||
Melbourne F. Yull | | 12,500 10,000 | | | 2.19 1.55 | | 6/10/2016 6/7/2017 | 12,500 | 2.19 | 6/10/2016 | ||||||||||
Gregory A. Yull | | 417,073 350,000 350,000 | | | 3.61 1.90 1.55 | | 9/17/2013 8/5/2020 6/7/2021 | |||||||||||||
Bernard J. Pitz | | 182,927 100,000 | | | 3.61 1.80 | | 11/12/2015 6/27/2017 | |||||||||||||
Jim Bob Carpenter | | 1,453 50,000 26,250 25,000 | | | 3.61 3.61 2.19 1.80 | | 9/17/2013 8/26/2014 6/10/2016 6/27/2017 | |||||||||||||
Melbourne F. Yull | 10,000 | 1.55 | 6/7/2017 | |||||||||||||||||
10,000 | 12.04 | 6/5/2019 | ||||||||||||||||||
350,000 | 1.55 | 6/7/2021 | ||||||||||||||||||
Gregory A.C. Yull | 265,000 | 12.04 | 6/5/2023 | |||||||||||||||||
160,000 | 12.55 | 3/17/2024 | ||||||||||||||||||
32,500 | 12.14 | 5/13/2020 | ||||||||||||||||||
Douglas Nalette | 50,000 | 1.80 | 6/27/2017 | |||||||||||||||||
50,000 | 12.04 | 6/5/2019 | ||||||||||||||||||
32,500 | 12.55 | 3/17/2020 | ||||||||||||||||||
Shawn Nelson | | 152,439 35,000 50,000 | | | 3.61 2.19 1.80 | | 9/17/2013 6/10/2016 6/27/2017 | 15,000 | 2.19 | 6/10/2016 | ||||||||||
Douglas Nalette | | 122,352 35,000 50,000 | | | 3.61 2.19 1.80 | | 9/17/2013 6/10/2016 6/27/2017 | |||||||||||||
Burgess H. Hildreth | | 17,500 18,750 | | | 2.19 1.80 | | 6/10/2016 6/27/2017 | |||||||||||||
Shawn Nelson | 50,000 | 1.80 | 6/27/2017 | |||||||||||||||||
50,000 | 12.04 | 6/5/2019 | ||||||||||||||||||
32,500 | 12.55 | 3/17/2020 | ||||||||||||||||||
12,500 | 1.80 | 6/27/2017 | ||||||||||||||||||
Joseph Tocci | 50,000 | 12.04 | 6/5/2019 | |||||||||||||||||
20,000 | 12.55 | 3/17/2020 |
(1) | Mr. Baker retired from the Board in June 2015. |
Item 7: | Major Shareholders and Related Party Transactions |
A. | MAJOR SHAREHOLDERS |
As atof December 31, 2012,2015, to the knowledge of the Company, the following are the only persons who beneficially own, or exercise control or direction over, more than 5% of the issued and outstanding common shares of the Company (“Major Shareholders”), along with. Also provided below is a three-year history of their stock ownership:
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Name and place of residence | # / % 12/31/2015 | # / % 12/31/2014 | # / % 12/31/2013 | |||||||||
FMR, LLC Boston, Massachusetts | 8,193,799 / 13.97 | (1) | 6,675,400 / 11.05 | 7,744,300 / 12.74 | ||||||||
Letko, Brosseau & Associates Inc. Montreal, Québec | 3,408,070 / | (2) | 3,779,901 / | |||||||||
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(1) | Based on report dated February |
(2) | Based on report dated |
The Major Shareholders of the Company do not have any voting rights that differ from the other shareholders of the Company.
As of February 15, 2013, ofDecember 31, 2015, the 59,625,039number record holders in Canada, the United States and elsewhere are 10,263, 818 and 222 respectively. Of the 58,667,535 common shares issued and outstanding, approximately 40,857,420 are held in Canada and 18,767,619such record holders hold 28,747,092 shares in the United States, being 69%26,987,066 shares in Canada and 31%2,933,377 shares elsewhere, equaling 49%, 46% and 5%, respectively.
The Company is not directly or indirectly owned or controlled by another corporation, by any foreign government or by any natural or legal person. There are no arrangements known to the Company that could result at a subsequent date in a change of control of the Company.
B. | RELATED PARTY TRANSACTIONS |
TheTo the knowledge of the Company, is unaware of any material interest of anynone of its directors or officers or of any person who beneficially owns or exercises control or direction over shares carrying more than ten percent of the voting rights attached to the Company’s shares, or any associate or affiliate of any such person, has any material interest in any transaction since the beginning of the last completed financial year or in any proposed transactions that has materially affected or will materially affect the Company or any of its affiliates.affiliates, other than as set forth below.
Prior to July 31, 2002,In June 2014, the Company made certain interest-free loans payable on demand to certain of its directors and officers. Only one loan remained outstanding to Gregory A. Yull in 2013,engaged with a balancerelocation management company to facilitate the purchase of US$52,372.00, whichMr. Crystal’s home in Montreal, Quebec, Canada to assist in the relocation to Sarasota, FL, U.S.A. The Company provided funding to the relocation management company to purchase the home for $0.9 million. On April 15, 2015, the home was paid in full on March 7, 2013.
In 2010,sold and the Company entered into agreements with companies controlled by two of the current members of the Board of Directors. These agreements replaced the advisory services agreements noted below that expired on December 31, 2009. These agreements required the provision of support services that included the duties of Executive Director and Chairman of the Board.
The Executive Director support services agreement was effective from January 1, 2010 through September 30, 2010 and provided for monthly compensation in the amount of $50,000. This agreement expired on September 30, 2010 and was not
replaced. The Chairman of the Board support services agreement was effective from January 1, 2010 through June 30, 2011 and provided for monthly compensation in the amount of CDN$25,000. This agreement expired on June 30, 2011 and was not replaced. These amounts are in lieu of the fees otherwise paid to Directors for their services.
During the year ended December 31, 2007, the Company entered into three advisory services agreements, two with companies controlled by two current members of the Board of Directors and one with a company controlled by a former senior officer of the Company. The advisory services included business planning and corporate finance activities and qualified as related party transactions in the normal course of operations. Effective December 31, 2008, the Company terminated the advisory service agreement with the company controlled by one of its former senior officers.
The agreements with the companies controlled by the two current members of the Board of Directors were effective through December 31, 2009. The agreements provided for monthly compensation beginning January 2008 in the amounts of $75,000 and CDN$100,000 per month for a minimum of at least three months. Beginning April 1, 2008, the Company’s financial commitment relating to the services of two of the three companies was $50,000 and CDN$100,000 per month and remained in effect through December 31, 2009. Effective November 2008, the companies controlled by the two current members of the Board of Directors each agreed to a 10% reduction in their monthly compensation. This reduction in compensation continued through November 2009.
The advisory services agreements also provided for an aggregate performance fee payable on July 1, 2010 based on the difference between the average price of the Company’s common sharesreimbursed for the ten trading days prior to July 1, 2010 on the Toronto Stock Exchange (the “Average Price”) and the Canadian offering price included in the Company’s 2007 rights offering of CDN$3.61 multiplied by an aggregate of 2.2 million, provided that the Average Price exceeds CDN$4.76. This provision survived the expiration of the term of the agreements until July 1, 2010. The average stock price for the ten trading days prior to July 1, 2010 did not exceed CDN$4.76 therefore no performance fee was paid.purchase funding.
C. | INTERESTS OF EXPERTS AND COUNSEL |
Not Applicable.
Item 8: | Financial Information |
Intertape’s consolidated financial statements have been prepared in accordance with International Financial Reporting Standards. Until December 31, 2010, the Company’s consolidated financial statements were prepared in accordance with Canadian Generally Accepted Accounting Principles (“GAAP”).
A. | CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION |
The Consolidated Financial Statements of Intertape for the years ended December 31, 2012, 20112015, 2014, and 20102013 include the following:
Management’s Responsibility for Financial Statements
Management’s Report on Internal Control over Financial Reporting
Independent Auditor’s Report of Registered Public Accounting Firm
Independent Auditor’s Report of Registered Public Accounting Firm on Internal Control over Financial Reporting
Consolidated Financial Statements
Dividend DistributionsLegal or Arbitration Proceedings
On July 3, 2014, the Company was informed of a complaint filed on June 27, 2014 by its former Chief Financial Officer with the Occupational Safety and Health Administration of the US Department of Labor (“OSHA”) alleging certain violations by the Company related to the terms of his employment and his termination. The Company aggressively contested the allegations and, it believes, demonstrated that the former Chief Financial Officer’s assertions are without merit.
In a letter dated July 16, 2015, OSHA informed the Company that the former Chief Financial Officer had withdrawn his OSHA complaint in order to file a complaint against the Company in U.S. federal district court. The withdrawal occurred prior to any determination by OSHA regarding the complaint.
On November 5, 2015, the former Chief Financial Officer filed a lawsuit in the United States District Court for the Middle District of Florida. The lawsuit is premised on essentially the same facts and makes essentially the same allegations as asserted in his OSHA complaint; the lawsuit seeks unspecified damages and a trial by jury. The Company is not currently able to predict the probability of a favourable or unfavourable outcome, or the amount of any possible loss in the event of an unfavourable outcome. Consequently, no material provision or liability has been recorded for these allegations and claims as of December 31, 2015.
The Company is engaged from time-to-time in various legal proceedings and claims that have arisen in the ordinary course of business. The outcome of all of the proceedings and claims against the Company is subject to future resolution, including the uncertainties of litigation. Based on information currently known to the Company and after consultation with outside legal counsel, management believes that the probable ultimate resolution of any such proceedings and claims, individually, or in the aggregate, will not have a material adverse effect on the financial condition of the Company, taken as a whole, and accordingly, no amounts have been recorded as of December 31, 2015.
Dividends
The Board of Directors of the Company adopted a Dividend Policy on August 14, 2012 providing for semi-annual dividend payments inpayments. On August 14, 2013, the amountBoard of CDN$.08.Directors modified the Company’s dividend policy to provide for quarterly dividend payments. On July 7, 2014, the Board of Directors further modified the Company’s dividend policy to increase the annualized dividend by 50% from $0.32 to $0.48 per common share. On August 12, 2015, the Board of Directors of the Company amended the quarterly dividend policy to increase the annualized dividend from $0.48 to $0.52 per share. So long as the payments do not result in a violation of the Company’s covenants with its lenders, and noteholders,subject to the provisions of the Canada Business Corporations Act relating to the declaration and payment of dividends, there are no other restrictions that would prevent the Company from paying dividends. The Companyfollowing table sets forth the dividends paid a dividend on October 10, 2012 in the amountas of CDN$.08 per issued and outstanding common share. On March 6, 2013, the Company declared a dividend in the amount of US$0.08, under the semi-annual dividend policy. The dividend will be paid on April 10, December 31, 2015:
Date Declared | Record Date | Date Paid | Amount per Share | |||||
Dividends per Share | ||||||||
8/14/2012 | 9/21/2012 | 10/10/2012 | CDN $0.08 | |||||
3/6/2013 | 3/25/2013 | 4/10/2013 | USD $0.08 | |||||
8/14/2013 | 9/16/2013 | 9/30/2013 | USD $0.08 | |||||
11/12/2013 | 12/16/2013 | 12/30/2013 | USD $0.08 | |||||
2/6/2014 | 3/19/2014 | 3/31/2014 | USD $0.08 | |||||
5/7/2014 | 6/17/2014 | 6/30/2014 | USD $0.08 | |||||
8/5/2014 | 9/15/2014 | 9/30/2014 | USD $0.12 | |||||
11/4/2014 | 12/15/2014 | 12/31/2014 | USD $0.12 | |||||
3/9/2015 | 3/19/2015 | 3/31/2015 | USD $0.12 | |||||
5/11/2015 | 6/15/2015 | 6/30/2015 | USD $0.12 | |||||
8/12/2015 | 9/15/2015 | 9/30/2015 | USD $0.13 | |||||
11/11/2015 | 12/15/2015 | 12/31/2015 | USD $0.13 |
The Company has determined it is appropriate to pay thedeclare its dividend in US dollars because most of its cash flows are in US dollars. The Company has paid no other dividend in the past three years.years other than as set forth above. For details regarding the Company’s covenants with its lenders and noteholders please refer to the Registration Statement filed onwww.sec.gov in the US on October 26, 2004 as Registration No. 333-119982, as amended, and the Indenture and the ABL Loan and SecurityCredit Facility Agreement filed onwww.sedar.com in Canada.as Exhibit 4.8 to this Form 20-F.
B. | SIGNIFICANT CHANGES |
No significant changes have occurred since the date of the annual financial statements.
Item 9: | The Offer and Listing |
A. | OFFER AND LISTING DETAILS |
The following table sets forth the reporting of the high and low closing prices for Intertape shares on the Toronto Stock Exchange for the periods indicated. Also set forth below are the high and low closing prices for Intertape shares on the New York Stock Exchange through December 2009 and the OTC Pink Sheets from 2010 through 2012. As previously discussed, the Company voluntarily delisted its shares of common stock from the New York Stock Exchange effective December 3, 2009.Marketplace.
Toronto Stock Exchange ($CDN) | New York Stock Exchange ($US)* OTC Pink Sheets | |||||||||||||||||
Year | Period | High | Low | High | Low | |||||||||||||
2008 | Annual | 3.53 | 0.80 | 3.59 | * | 0.67 | * | |||||||||||
2009 | Annual | 3.07 | 0.39 | 2.90 | * | 0.26 | * | |||||||||||
2010 | Annual | 3.60 | 0.92 | 3.43 | 0.93 | |||||||||||||
2011 | Annual | 3.39 | 1.02 | 3.30 | 1.04 | |||||||||||||
2012 | Annual | 9.07 | 3.12 | 9.17 | 3.08 | |||||||||||||
2012 | First Quarter | 4.70 | 3.17 | 4.65 | 3.10 | |||||||||||||
Second Quarter | 7.85 | 4.72 | 7.65 | 4.75 | ||||||||||||||
Third Quarter | 9.00 | 6.12 | 9.11 | 6.21 | ||||||||||||||
Fourth Quarter | 8.28 | 6.10 | 8.40 | 6.03 | ||||||||||||||
2011 | First Quarter | 1.29 | 1.02 | 1.30 | 1.04 | |||||||||||||
Second Quarter | 1.89 | 1.20 | 1.88 | 1.24 | ||||||||||||||
Third Quarter | 2.59 | 1.73 | 2.64 | 1.81 | ||||||||||||||
Fourth Quarter | 3.39 | 1.78 | 3.30 | 1.71 | ||||||||||||||
2012 | September | 6.97 | 6.12 | 7.20 | 6.21 | |||||||||||||
October | 6.94 | 6.42 | 7.00 | 6.48 | ||||||||||||||
November | 8.13 | 6.10 | 8.16 | 6.03 | ||||||||||||||
December | 8.28 | 7.99 | 8.40 | 8.02 | ||||||||||||||
2013 | January | 9.78 | 8.05 | 9.78 | 8.17 | |||||||||||||
February | 9.69 | 9.05 | 9.68 | 8.84 |
Year Period Toronto Stock Exchange (CDN$) OTC Pink Marketplace High Low High Low 2010 Annual 3.60 0.92 3.43 0.93 2011 Annual 3.39 1.02 3.30 1.04 2012 Annual 9.07 3.12 9.17 3.08 2013 Annual 15.62 7.96 15.20 8.09 2014 Annual 19.95 11.12 17.36 10.10 2015 Annual 20.51 13.67 16.65 10.30 2013 First Quarter 11.07 7.96 10.86 8.09 Second Quarter 13.28 10.63 12.62 10.40 Third Quarter 15.62 11.37 15.20 11.16 Fourth Quarter 15.50 12.36 14.89 11.95 2014 First Quarter 14.05 11.12 13.23 10.10 Second Quarter 13.21 11.50 11.96 10.73 Third Quarter 16.37 11.84 14.82 11.24 Fourth Quarter 19.95 14.53 17.36 12.89 2015 First Quarter 20.51 16.74 16.41 13.43 Second Quarter 20.31 16.21 16.65 13.60 Third Quarter 20.21 13.67 15.58 10.30 Fourth Quarter 19.01 13.96 14.19 10.82 2015 September 14.95 13.72 11.32 10.30 October 15.77 13.96 11.79 10.82 November 19.01 14.59 14.19 11.15 December 18.90 17.77 14.13 12.87 2016 January 18.61 16.06 13.21 11.33 February 16.74 15.46 12.13 11.19
Intertape has authorized an unlimited number of voting common shares without par value. The Company also has authorized an unlimited number of non-voting Class A preferred shares issuable in a series, ranking in priority to the common shares with respect to dividends and return of capital on dissolution. The Board of Directors is authorized to fix, before issuance, the designation, rights, privileges, restrictions and conditions attached to the shares of each series of Class A preferred shares. As of December 31, 2012,2015, there were 59,625,03958,667,535 issued and outstanding common shares and no issued and outstanding preferred shares of the Company.
B. | PLAN OF DISTRIBUTION |
Not Applicable.
C. | MARKETS |
The Company’s common shares are traded on the Toronto Stock Exchange under the symbol “ITP.” The Company’s common shares were traded on the New York Stock Exchange under the symbol “ITP” until December 3, 2009, the effective date of the Company’s voluntary delisting. The Company’s common shares are traded in the US on the OTC Pink Sheets.Marketplace.
D. | SELLING SHAREHOLDERS |
Not Applicable.
E. | DILUTION |
Not Applicable.
F. | EXPENSES OF THE ISSUE |
Not Applicable.
Item 10: | Additional Information |
A. | SHARE CAPITAL |
Not Applicable.
B. | MEMORANDUM AND ARTICLES OF ASSOCIATION |
1. The business of Intertape was established when Intertape Systems Inc., a predecessor of the Company, established a pressure-sensitive tape manufacturing facility in Montreal. Intertape Polymer GroupThe Company was incorporated under theCanada Business Corporations Act (the “Act”) on December 22, 1989 under the name “171695 Canada Inc.” On October 8, 1991, the Company filed a Certificate of Amendment changing its name to “Intertape Polymer Group Inc.” A Certificate of Amalgamation was filed by the Company on August 31, 1993, at which time the Company was amalgamated with EBAC Holdings Inc. The Shareholders, at the Company’s June
On November 11, 2003 annual and special meeting, voted on the replacement of the Company’s By-Law No. 1 with a new General By-Law 2003-1. The intent of the replacement by-law was to conform the Company’s general by-laws with amendments that were made to the Act since the adoption of the general by-laws and to simplify certain aspects of the governance of the Company. On August 6, 2006, the Company filed a Certificate of Amendment to permit2015, the Board of Directors ofadopted a new By-Law 2015-1. Under the Company to appoint one or more additional Directors to hold office for a term expiring not later thanCanada Business Corporations Act, By-law 2015-1 is in force, but must be confirmed by the close ofCompany’s shareholders at the next annual meeting of the Company’s Shareholders, so long as the total number of Directors so appointed doesshareholders’ meeting. If By-law 2015-1 is not exceed one-third of the number of Directors electedconfirmed at the previous annualshareholders’ meeting, of the Shareholders of the Companyit will cease to have effect at that time.
2. The directorsDirectors of the Company may, when deemed expedient:
(a)
(a) | borrow money upon the credit of the Company; |
(b) | issue debentures or other securities of the Company, and pledge or sell the same for such sums and at such prices as may be deemed expedient; |
(c) | notwithstanding the provisions of the Civil Code, hypothecate, mortgage or pledge the moveable or immoveable property, present or future, of the Company, to secure any such debentures, or other securities, or give part only of such guarantee for such purposes; and constitute the hypothec, mortgage or pledge above mentioned, by trust deed, or on any other manner; and |
(d) | mortgage, hypothecate, pledge or otherwise create a security interest in all or any moveable or personal, immoveable or real or other property of the Company, owned or subsequently acquired, to secure any obligation of the Company. |
(b) issue debentures or other securities of the Company, and pledge or sell the same for such sums and at such prices as may be deemed expedient;
(c) notwithstanding the provisions of the Civil Code, hypothecate, mortgage or pledge the moveable or immoveable property, present or future, of the Company,
(d) mortgage, hypothecate, pledge or otherwise create a security interest in all or any moveable or personal, immoveable or real or other property of the Company, owned or subsequently acquired, to secure any obligation of the Company.
Each Director isNon-executive directors are required to own a minimum of 50,000 shares of the Company’s common stock by August 201410,000 Common Shares in order to remain eligible for future optionDSU grants.
3. Description of Share Capital:Capital
The authorized capital of the Company consists of an unlimited number of common shares and non-voting Class A preferred shares, issuable in series. The following is a summary of the material provisions which attach to the common shares and Class A preferred shares, and is qualified by reference to the full text of the rights, privileges, restrictions and conditions of such shares.
Common Shares
Voting Rights – Each common share entitles the holder thereof to one vote at all meetings of the shareholders of the Company.
Payment of Dividends – The holders of the Company’s common shares are entitled to receive during each year, as and when declared by the Board of Directors, dividends payable in money, property or by issue of fully-paid shares of the capital of the Company.
Distribution of Assets Upon Winding-Up – In the event of the liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, or other distribution of assets of the Company among shareholders for the purpose of winding-up its affairs, the holders of the Company’s common shares are entitled to receive the remaining property of the Company.
Class A Preferred Shares
The Board of Directors may at any time and from time to time issue non-voting Class A preferred shares in one or more series, each series to consist of such number of shares, designation, rights, restrictions, conditions and limitations (including any sinking fund provisions) as may, before the issuance thereof, be determined by the Board of Directors. The Class A preferred shares are entitled to preference over the common shares with respect to the payment of dividends. In the event of the liquidation, dissolution or winding-up of the Company or other distribution of assets of the Company among shareholders for the purpose of winding-up its affairs, the holders of the Class A preferred shares will, before any amount is paid to, or any property or assets of the Company distributed among, the holders of the common shares, be entitled to receive: (i) an amount equal to the amount paid-up on such shares together with, in the case of cumulative Class A preferred shares, all unpaid cumulative dividends and, in the case of non-cumulative Class A preferred shares, all declared and unpaid non-cumulative dividends; and (ii) if such liquidation, dissolution, winding-up or distribution is voluntary, an additional amount equal to the premium, if any, which would have been payable on the redemption of the Class A preferred shares if they had been called for redemption by the Company on the date of distribution.
4. The rights of the holders of the Class A preferred shares may be amended only with the prior approval of two-thirds of the holders of the Class A preferred shares in addition to any other approvals required by the Act.
There are no preferred shares currently issued and outstanding.
5. Subject to compliance with the Act, the annual shareholders meeting shall be convened on such day each year and at such time as the Board of Directors may by resolution determine. Special meetings of the shareholders may be convened by order of the Chairman of the Board, the President or a Vice President who is a director or by the Board of Directors to be held at such time and place as may be specified in such order. Special meetings of the shareholders may also be called by written request to the Board of Directors signed by shareholders holding between them not less than five percent (5%) of the outstanding shares of the Company entitled to vote at such meeting. Such request shall state the business to be transacted at the meeting and sent to the registered office of the Company. In the event the Board of Directors does not call the meeting within twenty-one (21) days after receiving the request, then any shareholder who signed the request may call the meeting.
6. The Articles of Amalgamation of Intertape do not contain limitations on the rights of non-resident or foreign shareholders to hold or exercise voting rights on the Company’s shares.
7. The Articles of Amalgamation and the Bylaws contain no provision that would have an effect of delaying, deferring or preventing a change in control of the Company and that would operate only with respect to a merger, acquisition or corporate restructuring involving the Company or any of its subsidiaries.
C. | MATERIAL CONTRACTS |
The following is a description of the material contracts the CompanyIntertape was a party to during the last two fiscal years ended December 31, 2012,2015, regardless of when they were initially entered into by Intertape, Polymer Group, either directly or through one of its subsidiaries, and that are not in the ordinary course of the Company’sIntertape’s business:
anAmended Executive Stock Option Plan.For aPurchase Agreement, Registration Rights Agreement and Indenture each dated as summary of July 28, 2004,this Plan, please see Item 6.B in connection with the issuance by Intertape Polymer US Inc., a finance subsidiary of Intertape Polymer Group, of the aggregate principal amount of US$125.0 million of 8.5% Senior Subordinated Notes due 2014. The Notes were offered to institutional investors and are guaranteed on a senior subordinated basis by the Company and substantially all of its subsidiaries. Interest will accrue and be payable on the Notes semi-annually in arrears on February 1 and August 1.this 20-F. For a copy of the Purchase Agreement, RegistrationExecutive Stock Option Plan, see Exhibit 4.1 to this Form 20-F.
a Third AmendmentExhibit 4.5 to Loan and Security Agreement dated February 1, 2012, among certain subsidiaries of the Company, the Lenders referredthis Form 20-F.
anEquipment Finance Agreement dated August 14, 2012 in the amount of up to $24.0 million (which was later increased to $25.7 million as of March 26, 2014) for qualifying US capital expenditures during the period May 2012 through DecemberMarch 31, 2013.2014. The Equipment Finance Agreement will have quarterlyallowed for periodic scheduling of amounts with each schedule having a term of sixty months and a fixed interest rate. The Company entered into the first schedule on September 27, 2012rate for $2.7 million at an interest rate of 2.74% with 60 monthly payments of $48,577 and the last payment due on October 2, 2017. The Company entered into the second schedule on December 28, 2012 for $2.6 million at an interest rate of 2.74% with 60 monthly payments of $46,258 and the last payment due on Decemberleases scheduled prior to March 31, 2017.2014. For a copy of the Equipment Finance Agreement, see Exhibit 4.6 to this Form 20-F. The Company has entered into the 6-K filedfive schedules as listed below.
Date Entered | Amount | Interest Rate | Payments | Last Payment due | ||||||||||
September 27, 2012 | $ | 2.7 million | 2.74 | % | $ | 48,577 | October 1, 2017 | |||||||
December 28, 2012 | $ | 2.6 million | 2.74 | % | $ | 46,258 | January 1, 2018 | |||||||
June 28, 2013 | $ | 2.2 million | 2.90 | % | $ | 39,329 | July 1, 2018 | |||||||
December 31, 2013 | $ | 14.7 million | 2.90 | % | $ | 263,450 | January 1, 2019 | |||||||
April 1, 2014 | $ | 3.5 million | 2.95 | % | $ | 62,263 | April 1, 2019 |
IPG’s Board of Directors has implemented the Rights Plan by authorizing the issuance of one right (a “Right”) in respect of each common share outstanding at the close of business on December 14, 2015 (the “Record Time”) and in respect of each voting share issued by IPG after the Record Time. The Rights trade with, and are represented by, the common shares. Until such time as the Rights separate, when they become exercisable, Rights certificates will not be distributed to shareholders and no further action is required by shareholders. If a person, or a group acting jointly or in concert (each, an “Offeror”), acquires beneficial ownership of 20% or more of the then outstanding voting shares (other than pursuant to an exemption available under the Rights Plan), Rights (other than those held by such Offeror, which will become void) will separate and permit the holders thereof to purchase additional shares at a substantial discount to the market price of the shares at that time. Pursuant to the Rights Plan, any bid that meets certain criteria intended to protect the interests of all shareholders will be deemed to be a “permitted bid” and will not trigger a separation under the Rights Plan. These criteria require, among other things, that the bid be made by way of a takeover bid circular to all holders of voting shares other than the Offeror, that all shareholders be treated equally and that the bid remain open for acceptance by shareholders for at least 60 days or such longer period as may be prescribed by law as the minimum deposit period.
Prior to separation, the Rights Plan is not dilutive and will not affect reported earnings per share or change the way in which shareholders would otherwise trade shares. Upon separation, reported earnings per share, on a fully diluted or non-diluted basis, may be affected. Shareholders who do not exercise their Rights upon separation may suffer substantial dilution along with the Offeror.
Under the policies of the TSX, the Rights Plan must be ratified by the shareholders of the Corporation at a meeting held within six months following the adoption of the Rights Plan, failing which the Rights Plan must be immediately cancelled and any rights issued thereunder must be immediately redeemed or cancelled. Accordingly, on June 9, 2016, shareholders will be asked to approve a resolution ratifying and approving the Rights Plan.
For a copy of the Rights Plan, see Exhibit 2.1 to this Form 20-F.
A copy of all of the foregoing contracts, except as otherwise noted, are available onwww.sedar.com and onwww.sec.gov.as Exhibits to this Form 20-F.
D. | EXCHANGE CONTROLS |
As of the date hereof, there are no governmental laws, decrees or regulations in Canada on the export or import of capital, or which impose foreign exchange controls or affect the remittance of interest, dividends or other payments to non-resident holders of Intertape’s common stock, except as described under Item 10E “Taxation” below.
Except as provided in the Investment Canada Act (Canada), the Competition Act (Canada), and/or the Canada Transportation Act (Canada), which have provisions that may potentially restrict the holding of voting shares by non-Canadians, there are no limitations specific to the rights of non-Canadians to hold or vote the Company’s common shares under the laws of Canada or in its charter documents. The following summarizes the principal features of the Investment Canada Act, the Competition Act and the Canada Transportation Act for non-Canadian residents proposing to acquire the Company’s common shares.
This summary is of a general nature only and is not intended to be, and should not be construed to be, legal advice to any holder or prospective holder of the Company’s common shares, and no opinion or representation to any holder or prospective holder of the Company’s common shares is hereby made. Accordingly, holders and prospective holders of the Company’s common shares should consult with their own legal advisors with respect to the consequences of purchasing and owning the Company’s common shares.
1. | Investment Canada Act |
The Investment Canada Act governs acquisitions of control of Canadian businesses by non-Canadians. Under the Investment Canada Act, non-Canadian individuals or entities acquiring “control” (as defined in the Investment Canada Act) of a corporation carrying on business in Canada are required to either notify, or file an application for review with, IndustryInnovation, Science and Economic Development Canada (or in the case of “cultural businesses”, Heritage Canada), subject to certain statutory exemptions. The relevant Minister may review any transaction which constitutes an acquisition of control of a Canadian business, where the book value of the assets acquired exceeds certain thresholds are exceeded (which are higher for investors from members of the World Trade Organization, including United States residents, or World Trade Organization member-controlled companies) or where the activity of the business is a “cultural business” (as defined in the legislation and its regulations), or where the investment could be injurious to Canada’s national security. For acquisitions of control of businesses which do not involve a cultural business or present national security issues, no change of voting control will be deemed to have occurred, for purposes of the Investment Canada Act, if less than one-third of the voting control of a Canadian corporation is acquired by an investor. Different rules apply to acquisitions of control of businesses related to Canada’s cultural heritage or national identity, or present national security concerns.
If an investment is reviewable under the Investment Canada Act, an application for review in the form prescribed is normally required to be filed with IndustryInnovation, Science and Economic Development Canada or Heritage Canada prior to implementation of the investment. An investment subject to review may not be implemented until the review has been completed and the Minister responsible is satisfied that the investment is likely to be of “net benefit” to Canada. If the Minister is not satisfied that the investment is likely to be of net benefit to Canada, the non-Canadian cannot implement the investment, or if the investment has been implemented, may be required to divest itself of control of the Canadian business that is the subject of the investment. Different rules apply if the Minister determines that the investment may be injurious to Canada’s national security.
Certain transactions relating to Intertape’s common stock would be exempt from the Investment Canada Act, unless they are found to be potentially injurious to Canada’s national security by the Minister responsible, including:
(a) | the acquisition of the Company’s common stock by a person in the ordinary course of that person’s business as a trader or dealer in securities; |
(b) | the acquisition of control of the Company in connection with the realization of security granted for a loan or other financial assistance and not for a purpose related to the provisions of the Investment Canada Act; and |
(c) | the acquisition of control of the Company by reason of an amalgamation, merger, consolidation or corporate reorganization following which the ultimate direct or indirect control in fact of the Company, through ownership of |
These exemptions do not apply to an acquisition of control of a Canadian business that is deemed to be potentially injurious to Canada’s national security.
2. | Competition Act |
The Competition Act requires notification to the Commissioner of Competition of specified merger transactions that exceed certain monetary and share thresholds prior to their completion.
If a proposed merger is subject to pre-merger notification, each party to the proposed merger must file a notification with the Commissioner of Competition.
Proposed mergers that are subject to pre-merger notification under the Competition Act are prohibited from being completed before the end of 30 days following the receipt of a complete notification by the Commissioner of Competition, unless a waiver of the waiting period is obtained from the Commissioner of Competition. The waiting period may be extended by the issuance of a supplementary information request by the Commissioner of Competition within the initial 30 day waiting period. In the event that a supplementary information request is issued by the Commissioner of Competition, the parties may not complete the proposed merger until the end of a further 30 day waiting period that commences on the date on which the information requested pursuant to the supplementary information request has been provided to the Commissioner of Competition.
Whether or not a merger is subject to pre-merger notification to the Commissioner of Competition, the Commissioner of Competition may commence an application for relief in the Competition Tribunal on the basis that the merger prevents or lessens, or is likely to prevent or lessen, competition substantially in a relevant market. Such applications for relief are subject to a one-year limitation period from the merger’s substantial completion.
3. | Canada Transportation Act |
If a proposed transaction involves a transportation undertaking, and is subject to pre-merger notification to the Commissioner of Competition pursuant to the Competition Act, the parties to the proposed transaction must also provide pre-closing notification to the Minister of Transportation under the Canada Transportation Act. Such transactions require a 42 day waiting period which may be extended.
The parties to a proposed transaction subject to pre-merger notification to the Minister of Transportation may not complete the proposed transaction unless the Minister of Transportation issues a notice of his opinion that the proposed transaction does not raise issues with respect to the public interest as it relates to national transportation, or unless the transaction is approved by the Governor in Council.
E. | TAXATION |
Material Canadian Federal Income Tax Consequences
The following general summary describes the principal Canadian federal income tax consequences applicable to a holder of the Company’s common stock who is a resident of the United States, who is not, will not be and will not be deemed to be a resident of Canada for purposes of the Income Tax Act (Canada) (the “Income Tax Act”) and any applicable tax treaty and who does not use or hold, and is not deemed to use or hold, his common stock in the capital of the Company in connection with carrying on a business in Canada (a “non-resident holder”). This summary applies only to non-resident holders who hold their Intertape common stock as capital property. This summary does not apply to non-resident holders who are financial institutions (within the meaning of the Income Tax Act) or insurers.
This summary is based upon the current provisions of the Income Tax Act, the regulations thereunder (the “Regulations”), the current publicly announced administrative and assessing policies of the Canada Revenue Agency and the Canada – UnitedCanada-United States Tax Convention (1980), as amended (the “Treaty”). This summary also takes into account the amendments to the Income Tax Act and the Regulations publicly announced by the Minister of Finance (Canada) prior to the date hereof (the “Tax Proposals”) and assumes that all such Tax Proposals will be enacted in their present form. However, no assurances can be given that the Tax Proposals will be enacted in the form proposed, or at all. This summary is not exhaustive of all possible Canadian federal income tax consequences applicable to a non-resident holder of the Company’s common stock and, except for the foregoing, this summary does not take into account or anticipate any changes in law, whether by legislative, administrative or judicial decision or action, nor does it take into account provincial, territorial or foreign income tax legislation or considerations, which may differ from the Canadian federal income tax consequences described herein.
This summary is of a general nature only and is not intended to be, and should not be construed to be, legal, business or tax advice to any particular holder or prospective holder of Intertape’s common stock, and no opinion or representation with respect to the tax consequences to any holder or prospective holder of the Company’s common stock is made. Accordingly, holders and prospective holders of the Company’s common stock should consult their own tax advisors with respect to the income tax consequences of purchasing, owning and disposing of Intertape’s common stock in their particular circumstances.
Dividends
Dividends paid on the Company’s common stock to a non-resident holder will be subject under the Income Tax Act to withholding tax which tax is deducted at source by the Company. The withholding tax rate for dividends prescribed by the Income Tax Act is 25% but this rate may be reduced under the provisions of an applicable tax treaty. Under the Treaty, the withholding tax rate is reduced to 15% on dividends paid by the Company to a resident of the United States who is the beneficial owner of such dividend and is eligible to benefits under the Treaty. The rate is further reduced to 5% where the beneficial owner of the dividend is a corporation resident in the United States that is eligible for benefits under the Treaty and that owns at least 10% of the voting stock of the Company.
Capital Gains
A non-resident holder is not subject to tax under the Income Tax Act in respect of a capital gain realized upon the disposition of a common share of the Company unless such share is (or is deemed to be) “taxable Canadian property” (as defined in the Income Tax Act) of the non-resident holder. As long as they are listed on a designated stock exchange (which includes the TSX) at the time they are disposed of, Intertape’s common stock generally will not be considered taxable Canadian property of a non-resident holder unless at any time during the 60 month60-month period immediately preceding the disposition of the stock: (i) the non-resident holder, persons with whom the non-resident holder does not deal at arm’s length or the non-resident holder together with such non-arm’s length persons owned, or had an interest in an option in respect of, 25% or more of the issued stock of any class or series of the Company’s capital stock,stock; and (ii) more than 50% of the fair market value of the shares of Intertape Polymer Groupthe Company was derived directly or indirectly from one or any combination of real or immovable property situated in Canada, Canadian resource properties (as defined in the Income Tax Act), timber resource properties (as defined in the Income Tax Act), or an option, an interest or right in such property.
United States Federal Income Tax Consequences
The following is a general discussion of the material United States federal income tax consequences, under current law, generally applicable to a US Holder (as hereinafter defined) of common shares of the Company. This discussion does not address individual consequences to persons subject to special provisions of federal income tax law, such as those described below as excluded from the definition of a US Holder. In addition, this discussion does not cover any state, local or foreign tax consequences. (See “Canadian Federal Tax Consequences”).
The following discussion is based upon the sections of the Internal Revenue Code of 1986, as amended (the “Code”), Treasury Regulations, published Internal Revenue Service (“IRS”) rulings, published administrative positions of the IRS and court decisions that are currently applicable, any or all of which could be materially and adversely changed, possibly on a retroactive basis, at any time. This discussion does not consider the potential effects, both adverse and beneficial, of any recently proposed legislation which, if enacted, could be applied, possibly on a retroactive basis, at any time. This discussion is for general information only and it is not intended to be, nor should it be construed to be, legal or tax advice to any holder or prospective holder of common shares of the Company and no opinion or representation with respect to the United States federal income tax consequences to any such holder or prospective holder is made. Accordingly, holders and prospective holders of common shares of the Company are urged to consult their own tax advisors about the federal, state, local, and foreign tax consequences of purchasing, owning and disposing of common shares of the Company.
US Holders
As used herein, a “US Holder” means a holder of common shares of the Company who is a citizen or individual resident of the United States, a corporation or partnership created or organized in or under the laws of the United States or of any political subdivision thereof or a trust whose income is taxable in the United States irrespective of source.
This summary does not address the tax consequences to, and US Holder does not include, persons subject to specific provisions of federal income tax law, such as tax-exempt organizations, qualified retirement plans, individual retirement accounts and other tax-deferred accounts, financial institutions, insurance companies, real estate investment trusts, regulated investment companies, broker-dealers, non-resident alien individuals, persons or entities that have a “functional currency” other than the US dollar, shareholders who hold common shares as part of a straddle, hedging or a conversion transaction, and shareholders who acquired their common shares through the exercise of employee stock options or otherwise as compensation for services. This summary is limited to US Holders who own common shares as capital assets. This summary does not address the consequences to a person or entity holding an interest in a shareholder or the consequences to a person of the ownership, exercise or disposition of any options, warrants or other rights to acquire common shares.
Distribution on Common Shares of the Company
US Holders receiving dividend distributions (including constructive dividends) with respect to common shares of the Company are required to include in gross income for United States federal income tax purposes the gross amount of such distributions equal to the US dollar value of such dividends on the date of receipt (based on the exchange rate on such date) to the extent that the Company has current or accumulated earnings and profits, without reduction for any Canadian income tax withheld from such distributions. Such Canadian tax withheld may be credited, subject to certain limitations, against the US Holder’s federal income tax liability or, alternatively, may be deducted in computing the US Holder’s federal taxable income by those who itemize deductions. (See more detailed discussion at “Foreign Tax Credit” below). To the extent that distributions exceed current or accumulated earnings and profits of the Company, they will be treated first as a return of capital up to the US Holder’s adjusted basis in the common shares and thereafter as gain from the sale or exchange of the common shares. Preferential tax rates for long-term capital gains are applicable to a US Holder which is an individual, estate or trust. There are currently no preferential tax rates for long-term capital gains for a US Holder which is a corporation. The Health Care and Education Reconciliation Act of 2010 added Section 1411 to the Internal Revenue Code to impose a 3.8% Medicare surtax on net investment income of certain individuals, estates and trusts beginning in 2013. In general, income with respect to Company distributions will be considered investment income for purposes of the surtax.
Foreign Tax Credit
A US Holder who pays (or has withheld from distributions) Canadian income tax with respect to the ownership of common shares of the Company may be entitled, at the option of the US Holder, to either receive a deduction or a tax credit for such foreign tax
paid or withheld. Generally, it will be more advantageous to claim a credit because a credit reduces United States federal income taxes on a dollar-for-dollar basis, while a deduction merely reduces the taxpayer’s income subject to tax. This election is made on a year-by-year basis and applies to all foreign taxes paid by (or withheld from) the US Holder during that year. There are significant and complex limitations which apply to the credit, among which is the general limitation that the credit cannot exceed the proportionate share of the US Holder’s United States income tax liability that the US Holder’s foreign sources income bears to his or its worldwide taxable income. In the determination of the application of this limitation, the various items of income and deduction must be classified into foreign and domestic sources. Complex rules govern this classification process. In addition, this limitation is calculated separately with respect to specific classes of income such as “passive income,” “high
withholding tax interest,” “financial services income,” “shipping income,” and certain other classifications of income. Dividends distributed by the Company will generally constitute “passive income” or, in the case of certain US Holders, “financial services income” for these purposes. The availability of the foreign tax credit and the application of the limitations on the credit are fact specific, and US Holders of common shares of the Company should consult their own tax advisors regarding their individual circumstances.
Disposition of Common Shares of the Company
A US Holder will recognize gain or loss upon the sale of common shares of the Company equal to the difference, if any, betweenbetween: (i) the amount of cash plus the fair market value of any property received,received; and (ii) the shareholder’s tax basis in the common shares of the Company. Preferential tax rates apply to long-term capital gains of US Holders who are individuals, estates or trusts. This gain or loss will be capital gain or loss if the common shares are a capital asset in the hands of the US Holder, which will be long-term capital gain or loss if the common shares of the Company are held for more than one year. The Health Care and Education Reconciliation Act of 2010 added Section 1411 to the Internal Revenue Code to impose a 3.8% Medicare surtax on net investment income of certain individuals, estates and trusts beginning in 2013. In general, capital gain or loss recognized upon the sale of common shares of the Company will be considered investment income for purposes of the surtax.
Other Considerations
In the following circumstances, the above sections of this discussion may not describe the United States federal income tax consequences resulting from the holding and disposition of common shares:
Passive Foreign Investment Company
Certain United States income tax legislation contains rules governing “passive foreign investment companies” (“PFIC”) which can have significant tax effects on US Holders of foreign corporations. These rules do not apply to non-US Holders.
Section 1297 of the Code defines a PFIC as a corporation that is not formed in the United States and, for any taxable year, either (i) 75% or more of its gross income is “passive income”, which includes interest, dividends and certain rents and royalties or (ii) the average percentage, by fair market value (or, if the Company is a controlled foreign corporation or makes an election, adjusted tax basis) of its assets that produce or are held for the production of “passive income” is 50% or more. The Company does not believe that it is a PFIC. Each US Holder of the Company is urged to consult a tax advisor with respect to how the PFIC rules affect their tax situation.situation and whether any related reporting is required.
A US Holder who holds stock in a foreign corporation during any year in which such corporation qualifies as a PFIC is subject to United States federal income taxation under one of twothree alternative tax regimes at the election of each such US Holder.regimes. The following is a discussion of such twothree alternative tax regimes applied to such US Holders of the Company. In addition, special rules apply if a foreign corporation qualifies as both a PFIC and a “controlled foreign corporation” (as defined below) and a US Holder owns, directly or indirectly, ten percent (10%) or more of the total combined voting power of classes of shares of such foreign corporation (See more detailed discussion at “Controlled Foreign Company” below).
A US Holder who makes ana valid election (an “Electing US Holder”) in a timely manner to treat the Company as a Qualified Electing Fund (“QEF”) will be subject, under Section 1293 of the Code, to current federal income tax for any taxable year in which the Company qualifies as a PFIC on his pro rata share of the Company’s (i) “net capital gain” (the excess of net long-term capital gain over net short-term capital loss), which will be taxed as long-term capital gain to the Electing US Holder and (ii) “ordinary earnings” (the excess of earnings and profits over net capital gain), which will be taxed as ordinary income to the Electing US Holder, in each case, for the shareholder’s taxable year in which (or with which) the Company’s taxable year ends, regardless of whether such amounts are actually distributed.
The effective QEF election also allows the Electinga US Holder toto: (i) generally treat any gain realized on the disposition of their common shares of the Company (or deemed to be realized on the pledge of their shares) as capital gain; (ii) treat his share of the Company’s net capital gain, if any, as long-term capital gain instead of ordinary income; and (iii) either avoid interest charges resulting from PFIC status altogether, or make an annual election, subject to certain limitations, to defer payment of current taxes on his share of the Company’s annual realized net capital gain and ordinary earnings subject, however, to an interest charge. If the Electing US Holder is not a corporation, such an interest charge would be treated as “personal interest” that is not deductible. US Holders should be aware that there can be no assurance that the Company will satisfy the recordkeeping requirements that apply to a QEF, or that the Company will supply US Holders with the information that such US Holders require to report under the QEF rules, in the event that the Company is a PFIC and a US Holder wishes to make a QEF election.
A US Holder who makes a valid mark-to-market election is required to include, under Section 1296 of the Code, in ordinary income for any taxable year in which the Company qualifies as a PFIC, an amount equal to the excess, if any, of the fair market value of the Company’s stock held by the US Holder at year-end over the US Holder’s tax basis in such stock. Any amount by which the US Holder’s stock basis exceeds the fair market value of stock held at year-end will be allowed as an ordinary loss deduction to the extent of the unreversed inclusions with respect to such stock. Gain on a sale or other disposition of the stock will be subject to ordinary income tax rates, and a loss on a disposition is deductible as an ordinary loss to the extent it does not exceed the unreversed inclusions attributable to the stock. An effective mark-to-market election allows a US Holder to avoid interest charges resulting from PFIC status where a QEF election may not be available.
If a US Holder does not make a timelyvalid QEF election or a mark-to-market election during a year in which it holds (or is deemed to have held) the shares in question and the Company is a PFIC (a “Non-electing US Holder”), then special taxation rules under Section 1291 of the Code will apply toto: (i) gains realized on the disposition (or deemed to be realized by reasons of a pledge) of his common shares of the CompanyCompany; and (ii) certain “excess distributions”, as specifically defined, by the Company.
A Non-electing US Holder generally would be required to pro rate all gains realized on the disposition of his common shares of the Company and all excess distribution of his common shares and all excess distributions over the entire holding period for the Company.
All gains or excess distributions allocated to prior years of the US Holder (other than years prior to the first taxable year of the Company during such US Holder’s holding period and beginning after January 1, 1987 for which it was a PFIC) would be taxed at the highest tax rate for each such prior year applicable to ordinary income. The Non-electing US Holder also would be liable for interest on the foregoing tax liability for each such prior year calculated as if such liability had been due with respect to each such prior year. A Non-electing US Holder that is not a corporation must treat this interest charge as “personal interest” which, as discussed above, is wholly non-deductible. The balance of the gain of the excess distribution will be treated as ordinary income in the year of the disposition or distribution, and no interest charge will be incurred with respect to such balance.
If the Company is a PFIC for any taxable year during which a Non-electing US Holder holds common shares of the Company, then the Company will continue to be treated as a PFIC with respect to such common shares, even if it is no longer definitionally a PFIC. A Non-electing US Holder may terminate this deemed PFIC status by electing to recognize a gain (which will be taxed under the rules discussed above for Non-electing US Holders) as if such common shares had been sold on the last day of the last taxable year for which it was a PFIC.
Under Section 1291(f) of the Code, the IRS has issued proposed regulations that, subject to certain exceptions, would treat as taxable certain transfers of PFIC stock by Non-Electing US Holders that are generally not otherwise taxed, such as gifts, exchanges pursuant to corporate reorganizations, and transfers at death. Generally, in such cases the basis of the Company common shares in the hands of the transferee and the basis of any property received in the exchange for those common shares would be increased by the amount of gain recognized. An ElectingA US Holder that makes a valid QEF or a mark-to-market election (an “Electing US Holder”) would not be taxed on certain transfers of PFIC stock, such as gifts, exchanges pursuant to corporate reorganizations, and transfers at death. The transferee’s basis in this case will depend on the manner of the transfer. In a transfer at death, for example, the transferee’s basis is equal to (i) the fair market value of the Electing US Holder’s common shares, less (ii) the excess of the fair market value of the Electing US Holder’s common shares reduced by the US Holder’s adjusted basis in these common shares at death. The specific tax effect to the US Holder and the transferee may vary based on the manner in which the common shares are transferred. Each US Holder of the Company is urged to consult a tax advisor with respect to how the PFIC rules affect their tax situation.situation and what elections may or may not be available.
Certain special, generally adverse, rules will apply with respect to common shares of the Company while the Company is a PFIC whether or not it is treated as a QEF.QEF or a mark-to-market election is made. For example under Section 1297(b)(6) of the Code, a US Holder who uses PFIC stock as security for a loan (including a margin loan) will, except as may be provided in regulations, be treated as having made a taxable disposition of such shares.
Controlled Foreign CompanyIndex to Financial Statements
If more than 50% of the voting power of all classes of shares or the total value of the shares of the Company is owned, directly or indirectly, by citizens or residents of the United States, United States domestic partnerships and corporations or estates or trusts other than foreign estates or trusts, each of whom own 10% or more of the total combined voting power of all classes of shares of the Company (“United States shareholder”), the Company could be treated as a “controlled foreign corporation” under Subpart F of the Code. This classification would effectaffect many complex results one of which is the inclusion of certain income of a CFC which is subject to current US tax. The United States generally taxes a United States shareholder of a CFC currently on their pro rata shares of the Subpart F income of the CFC. Such US shareholders are generally treated as having received a current
distribution out of the CFC’s Subpart F income and are also subject to current US tax on their pro rata shares of the CFC’s earnings invested in US property. The foreign tax credit described above may reduce the US tax on these amounts. In addition, under Section 1248 of the Code, gain from the sale or exchange of shares by a US Holder of common shares of the Company who is or was a United States shareholder at any time during the five-year period ending with the sale or exchange is treated as ordinary income to the extent of earnings and profits of the Company attributable to the shares sold or exchanged. If a foreign corporation is both a PFIC and a CFC, the foreign corporation generally will not be treated as a PFIC with respect to United States shareholders of the CFC. This rule generally will be effective for taxable years of United States shareholders beginning after 1997 and for taxable years of foreign corporations ending with or within such taxable years of United States shareholders. Special rules apply to United States shareholders who are subject to the special taxation rules under Section 1291 discussed above with respect to a PFIC. Because of the complexity of Subpart F, and because it is not clear that Subpart F would apply to US Holders of common shares of the Company, a more detailed review of these rules is outside of the scope of this discussion.
F. | DIVIDENDS AND PAYING AGENTS |
Not Applicable.
G. | STATEMENT BY EXPERTS |
Not Applicable.
H. | DOCUMENTS ON DISPLAY |
The documents referred to in this Form 20-F may be viewed at the Company’s office located at 3647 Cortez Road West, Bradenton,100 Paramount Drive, Suite 300, Sarasota, Florida 34210.34232.
I. | SUBSIDIARY INFORMATION |
Not Applicable.
Item 11: | Quantitative and Qualitative Disclosures About Market Risk |
Information for this Item is set forth in Note 21 to the 20122015 audited Consolidated Financial Statements under Item 18 hereof.18.
Item 12: | Description of Securities Other than Equity Securities |
Not Applicable.
Item 13: | Defaults, Dividend Arrearages and Delinquencies |
Not Applicable.
Item 14: | Material Modifications to the Rights of Security Holders and Use of Proceeds |
Not Applicable.
Item 15: | Controls and Procedures |
(a)Disclosure Controls and Procedures. Intertape Polymer Group Inc. (“Intertape Polymer Group” or the “Company”) maintains disclosure controls and procedures designed to ensure not only that information required to be disclosed in its reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, but also that information required to be disclosed by Intertape Polymer Groupthe Company is accumulated and communicated to management, including its principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure. The Chief Executive Officer and Chief Financial Officer of Intertape Polymer
Groupthe Company conducted an evaluation of the effectiveness of the Company’s disclosure controls and procedures and internal control over financial reporting as of December 31, 2012.2015. They concluded based on such evaluation that the Company’s disclosure controls and procedures were effective.
(b)Management’s Annual Report on Internal Control Over Financial Reporting. Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of the Company’s financial reporting as well as the preparation of financial statements for external reporting purposes in accordance with International Financial Reporting Standards.
Internal control over financial reporting includes those policies and procedures thatthat: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with International Financial Reporting Standards, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the Company’s consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements, and even when determined to be effective, can only provide reasonable assurance with respect to financial statements preparation and presentation. Also projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate.
Management conducted an assessment of the effectiveness of the Company’s internal control over financial reporting as at December 31, 2012 based on the criteria established inInternal Controlcont – Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission. Management has concluded that the Company’s internal control over financial reporting was effective as atof December 31, 20122015 based on those criteria.
(c)Attestation Report of Raymond Chabot Grant Thornton LLP. The Company’s independent auditors, Raymond Chabot Grant Thornton LLP, audited the annual consolidated financial statements included in this annual report and audited the Company’s internal control over financial reporting as of December 31, 20122015 and included in the Consolidated Financial Statements referenced in Item 18 of this Form 20-F its report on the Company’s internal control over financial reporting.
(d)Changes in Internal Control Over Financial Reporting.Reporting. There have been no changes in Intertape Polymer Group’sthe Company’s internal control over financial reporting that occurred during 20122015 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
Item 16: | [RESERVED] |
Item 16A: | Audit Committee Financial Expert |
The Board of Directors of Intertape has determined that it has at least one audit committee financial expert serving on its audit committee. Mr. George J. Bunze,Frank Di Tomaso, having been the Chief Financial Officerover 45 years of Kruger Inc.,experience with Raymond Chabot Grant Thornton, and having the attributes set forth in Paragraph 16A(b) of the General Instructions to Form 20-F, has been determined to be an audit committee financial expert. Further, Mr. BunzeDi Tomaso is “independent” as that term is defined by the Toronto Stock Exchange and Sarbanes-Oxley Act.
The Securities and Exchange Commission has stated that the designation of Mr. Bunze as an audit committee financial expert does not make him an “expert” for any purpose, including, without limitation, for purposes of Section 11 of the Securities Act of 1933. Further, such designation does not impose any duties, obligations or liability on Mr. Bunze greater than those imposed on members of the audit committee and Board of Directors not designated as an audit committee financial expert, nor does it affect the duties, obligations or liability of any other member of the audit committee or Board of Directors.
Item 16B: | Code of Ethics |
Intertape has adopted a code of ethics entitled “Intertape Polymer Group Inc. Code of Business Conduct and Ethics”, which is applicable to all of its employees, including its principal executive officer, principal financial officer, principal accounting officer or controller, and all persons performing similar functions. DuringA copy of the 2012 fiscal year, Intertape did not grant aCompany’s Code of Business Conduct and Ethics has been posted on the Company’s website athttp://www.itape.com under “Investor Relations”, “Corporate Governance”, “Governance Documents”. Any amendments to, or waiver from, any provision of itsthe Code of Business Conduct and Ethics. IntertapeEthics will provide, without charge, to any person upon written or oral request, a copy of its Code of Business Conduct and Ethics. Requests should be directed to Burgess H. Hildreth, Intertape Polymer Group Inc., 3647 Cortez Road West, Bradenton, Florida 34210. Mr. Hildreth may be reached by telephoneposted on the Company’s website at (941) 739-7500.the above address.
Item 16C: | Principal Accountant Fees and Services |
The following table sets forth the fees billed (in Canadian dollars) for professional services rendered by Raymond Chabot Grant Thornton LLP, Chartered Accountants, Intertape’s independent auditors, for the fiscal years ended December 31, 20122015, and December 31, 2011:2014:
Year ended December 31, | ||||||||||||||||
2012 | 2011 | 2015 $ | 2014 $ | |||||||||||||
Audit Fees | 860,430 | 1,052,114 | 790,500 | 953,000 | ||||||||||||
Audit-Related Fees | 10,005 | 119,253 | 59,000 | 5,850 | ||||||||||||
Tax Fees | 75,038 | 268,614 | 257,620 | 114,275 | ||||||||||||
All Other Fees | — | — | — | — | ||||||||||||
|
|
|
| |||||||||||||
Total Fees | 945,473 | 1,439,981 | 1,107,120 | 1,073,125 | ||||||||||||
|
|
|
|
(a)Audit Fees. Audit fees were for professional services rendered for the integrated audit of Intertape’s consolidated financial statements and internal control over financial reporting, assisting its Audit Committee in discharging its responsibilities for the review of the Company’s interim unaudited consolidated financial statements and services that generally only the independent auditor can reasonably provide, such as consent letters and assistance and review of documents filed with the Securities and Exchange Commission and Canadian securities regulatory authorities.authorities
(b)Audit-Related Fees. Audit-related fees were for assurance and related services that are reasonably related to the performance of the audit or review of Intertape’s consolidated interim unaudited financial statements and are not reported under the caption “Audit Fees” above. These services included consultations concerning financial accounting and reporting standards, as well as the Company’s transition to International Financial Reporting Standards.standards.
(c)Tax Fees. Tax fees were for tax compliance, tax advice and tax planning. These services included the preparation of the Canadian subsidiaries’ income tax returns, assistance with questions regarding tax audits from the various taxation authorities in Canada and tax planning relating to common forms of domestic and international taxation.
(d)All Other Fees.Fees. All other fees were foris defined as services provided other than the audit fees, audit-related fees and tax fees described above. No such fees have been billed in the last two years.
Intertape’s Audit Committee pre-approves all audit engagement feescharter provides for the required pre-approvals of services to be rendered by the external auditors. The pre-approval process takes place annually and is presented by the Company’s internal accountants and the termsexternal auditors for planned activity including audit, tax and non-audit services and includes reasonable detail with respect to the services covered. The pre-approval of all significant permissible non-audit services provided by independent auditors.allows the Committee to consider the effect of such services on the independence of the external auditor. Any such services that may arise in addition to the pre-approved plan must be presented separately to the Committee for pre-approval. The charter states that this responsibility cannot be delegated to management of the Corporation in any way whatsoever.
Item 16D: | Exemptions |
Not Applicable.
Item 16E: | Purchase of Equity Securities by the Issuer and Affiliated Purchasers |
Not Applicable.
Period | (a) Total number of subordinate voting shares purchased | (b) Average price paid per subordinate voting share | (c) Total number of subordinate voting shares purchased as part of publicly announced plans or programs | (d) Maximum number (or approximate dollar value) of subordinate voting shares that may yet be purchased under the plans or programs (shares in millions) | ||||||||||||
January 1, 2015 – January 31, 2015 | — | — | — | 1,402,500 | ||||||||||||
February 1, 2015 – February 28, 2015 | — | — | — | 1,402,500 | ||||||||||||
March 1, 2015 – March 31, 2015 | 619,988 | 13.82 | 619,988 | 782,512 | ||||||||||||
April 1, 2015 – April 30, 2015 | 248,900 | 14.25 | 248,900 | 533,612 | ||||||||||||
May 1, 2015 – May 31, 2015 | 98,200 | 13.91 | 98,200 | 435,412 | ||||||||||||
June 1, 2015 – June 30, 2015 | — | — | — | 435,412 | ||||||||||||
July 1, 2015 – July 31, 2015(1) | — | — | — | 2,000,000 | ||||||||||||
August 1, 2015 – August 31, 2015(1) | 284,200 | 10.90 | 284,200 | 1,715,800 | ||||||||||||
September 1, 2015 – September 30, 2015 (1) | 869,300 | 10.80 | 869,300 | 846,500 | ||||||||||||
October 1, 2015 – October 31, 2015(1) | 366,600 | 10.95 | 366,600 | 479,000 | ||||||||||||
November 1, 2015 – November 30, 2015 (1) | — | — | — | 2,479,900 | ||||||||||||
December 1, 2015 – December 31, 2015 (1) | — | — | — | 2,479,900 | ||||||||||||
2,487,188 | 12.06 | 2,487,188 | 2,479,900 |
1) | On July 7, 2014, the Company announced a normal course issuer bid (“NCIB”) effective on July 10, 2014. In connection with this NCIB, the Company was entitled to repurchase for cancellation up to 2,000,000 of the Company’s common shares issued and outstanding. This NCIB, which was scheduled to expire on July 9, 2015, was renewed effective July 10, 2015. This renewed NCIB expires on July 9, 2016. On November 11, 2015, the Toronto Stock Exchange approved an amendment to the Company’s NCIB, as a result of which the Company will be entitled to repurchase for cancellation up to 4,000,000 common shares. As of December 31, 2015, the Company has repurchased 2,487,188 common shares at an average price of CDN$15.52 per share, including commissions, for a total purchase price of $30.0 million. |
Item 16F: | Change |
Not Applicable.
Item 16G: | Corporate Governance |
Not Applicable.
Item 16H: | Mine Safety Disclosure |
Not Applicable.
PART IIIIndex to Financial Statements
Item 17: | Financial Statements |
Not Applicable.
Item 18: | Financial Statements |
The Consolidated Financial Statements required under Item 18 of this Form 20-F are attached hereto as Exhibit “A”.
Item 19: | Exhibits |
The Consolidated Financial Statements and the following exhibits are filed as part of this Annual Report on Form 20-F and are incorporated herein by reference.
A. | Consolidated Financial Statements |
Management’s Responsibility for Financial Statements
Management’s Report on Internal Control over Financial Reporting
Independent Auditor’s Report of Registered Public Accounting Firm
Independent Auditor’s Report of Registered Public Accounting Firm on Internal Control over Financial Reporting
Consolidated Financial Statements
B. | Exhibits: |
1.1 | Articles of Amalgamation as amended incorporated herein by reference to Exhibit 3.3 to S-4 filed October 26, 2004, File No. | |
1.2 | General By-law 2003-1 incorporated herein by reference to Exhibit 3.4 to S-4 filed October 26, 2004, File No. | |
1.3 | By-Law 2015-1, filed under 6-K on December 1, 2015, Film No. 151262916. | |
2.1 | Shareholder Rights Plan Agreement with CST Trust Company, dated December 14, 2015. | |
4.1 | Amended Executive Stock Option Plan incorporated herein by reference to S-8 filed November 7, 2012, File No. | |
4.2 | ||
4.3 | Deferred Share Unit Plan filed under 6-K on June 18, 2014, Film No. 14928673. |
4.4 | Performance Share Unit Plan filed under 6-K on June 18, 2014, Film No. 14928649. | |
4.5 | Loan and Security Agreement filed under 6-K on May 8, 2008, Film No. | |
08813597. First and Second Amendments filed under 6-K on April 29, 2011, Film No. 11793224, Third Amendment to Loan and Security Agreement filed under 6-K on February 2, 2012, Film No. | ||
4.6 | Equipment Finance Agreement filed under 6-K on September 5, 2012, Film No. 121073380. | |
4.7 | Credit Facility Agreement filed under 6-K on November 18, 2014, Film No. 141232715. | |
8.1 | A list of all of Intertape’s significant subsidiaries is set forth in Item 4C of this Form 20-F. | |
10.1 | During | |
12.1 | Certification of the Chief Executive Officer required by Rule 13a-14(a) (17 CFR 240.13a-14(a)) or Rule 15d-14(a) (17 CFR 240.15d-14(a)). | |
12.2 | Certification of the Chief Financial Officer required by Rule 13a-14(a) (17 CFR 240.13a-14(a) or Rule 15d-14(a) (17 CFR 240.15d-14(a)). | |
13.1 | Certification of the Chief Executive Officer required by Rule 13a-14(b) (17 CFR 240.13a-14(b)) or Rule 15d-14(b) (17 CFR 240.15d-14(b)) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350). | |
13.2 | Certification of the Chief Financial Officer required by Rule 13a-14(b) (17 CFR 240.13a-14(b)) or Rule 15d-14(b) (17 CFR 240.15d-14(b)) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350) | |
15.1 | Consent of Independent Registered Public Accounting | |
15.2 | Human Resources and Compensation Committee Charter incorporated herein by reference to Exhibit 14.1 to 20-F filed March 26, 2013. | |
15.3 | Audit Committee Charter, as amended. |
The Registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Annual Report on its behalf.
Intertape Polymer Group Inc. | ||
By: | /s/ Gregory | |
Gregory |
Dated March 26, 201331, 2016
EXHIBIT “14.1”Index to
Form 20-F
INTERTAPE POLYMER GROUP INC.
HUMAN RESOURCES AND COMPENSATION COMMITTEE CHARTER
PURPOSE
The Human Resources and Compensation Committee (the “Committee”) is a standing committee appointed by the Board of Directors (the “Board”) of Intertape Polymer Group Inc. (the “Corporation”). The mandate of the Committee consists of ensuring the direction and implementation of the Corporation’s wage and compensation plans, policies and in ensuring that a succession plan is put in place to deal with the Corporation’s future needs regarding human resources, with respect to the Chief Executive Officer and other key executives.
COMPOSITION, PROCEDURES AND POWERS
Composition
The Committee will be comprised of at least three members and a majority of the members of the Committee will be an “independent” director (as such term is defined from time to time under the requirements or guidelines for board service under applicable securities laws and the rules of any stock exchange on which the Corporation’s securities are listed for trading).
The members of the Committee will be appointed or changed by resolution of the Board to hold office from the time of their appointment until the next annual meeting of shareholders or until their successors are so appointed. The Board may remove or replace a member of the Committee at any time. A member will cease to be a member of the Committee upon ceasing to be a director. The Board may fill vacancies on a Committee by appointing another director to the Committee.
Procedures
The Committee will meet regularly at times necessary to perform the duties described herein in a timely manner, but at least annually. Meetings may be held at any time deemed appropriate by the Committee.
A majority of the members of the Committee in office from time to time or, in the event that there are less than four members, two members will constitute a quorum for the transaction of business at any meeting of the Committee.
The Committee will fix its own procedure at meetings and for the calling of meetings. Unless waived by the members of the Committee, the Committee will meet “in camera” at each Committee meeting at which members of management are not in attendance, to allow its members to discuss matters openly and candidly.
The Committee will report to the Board following meetings of the Committee.
Powers
The Committee is entitled to full access to all books, records, facilities, and personnel of the Corporation and its subsidiaries. The Committee may require such officers, directors and employees of the Corporation and its subsidiaries and others as it may see fit from time to time to provide any information about the Corporation and its subsidiaries it may deem appropriate and to attend and assist at meetings of the Committee. The Committee may obtain, where necessary, legal or other advice from outside professionals; and determine and pay the fees of such professionals.
The Committee may delegate from time to time to any person or committee of persons any of the Committee’s responsibilities that lawfully may be delegated.
The Committee may adopt policies and procedures for carrying out its responsibilities.
DUTIES AND RESPONSIBILITIES
The duties and responsibilities of the Committee are established by the Board and include, amongst others, the following:
General Responsibilities
the compensation packages of the Chief Executive Officer and of other key executives for the prior year;
the Committee’s evaluation of the performance of the Chief Executive Officer and the Chief Executive Officer’s evaluation of the performance of the other respective key executives;
the Corporation’s performance and relative shareholder return;
whether the compensation package reflects an appropriate balance between short and longer-term incentives to improve performance of the Corporation;
whether the compensation package of the Chief Executive Officer or other key executives encourages excessive risk-taking;
the competitiveness of the compensation package, including the value of similar incentive awards paid to equivalent officers and positions at comparable companies; and
the awards granted to the Chief Executive Officer and other key executives in previous years;
Responsibilities Concerning the President and Chief Executive Officer
Responsibilities Concerning Other Key Executives
REVIEW AND DISCLOSURE
The Committee will review and reassess the adequacy of this Charter periodically and otherwise, as it deems appropriate, recommend changes to the Board. The performance of the Committee will be evaluated with reference to this Charter annually.
The Committee will ensure that this Charter is disclosed on the Corporation’s website and that this Charter or a summary of it which has been approved by the Committee is disclosed in accordance with all applicable securities laws or regulatory requirements.
EXHIBIT “14.2” to Form 20-F
INTERTAPE POLYMER GROUP INC.
AUDIT COMMITTEE CHARTER
PURPOSE
The Audit Committee (the “Committee”) is a standing committee appointed by the Board of Directors (the “Board”) of Intertape Polymer Group Inc. (the “Corporation”). The Committee is established to fulfill applicable public corporation obligations respecting audit committees and to assist the Board in fulfilling its oversight responsibilities. The Committee examines the financial reporting processes, internal controls, financial risk management and the audit process and procedures applied by the Corporation and makes recommendations to the Board in connection with the nomination of the external auditor.
In addition, the Committee will prepare, if required, an audit committee report for inclusion in the Corporation’s annual management proxy circular, in accordance with applicable rules and regulations.
Nothing contained in this charter is intended to expand applicable standards of liability under statutory or regulatory requirements for the directors of the Corporation or the members of this Committee.
DIVISIONOF RESPONSIBILITIES
The function of the Committee is oversight. It is not the duty or responsibility of the Committee or its members to (i) prepare the interim financial reports or annual financial statements of the Corporation; (ii) plan or conduct audits, (iii) make sure that the Corporation’s interim financial reports or annual financial statements are complete and accurate and prepared in accordance with generally accepted accounting principles (“GAAP”) in Canada (International Financial Reporting Standards), (iv) make other types of auditing or accounting reviews or similar procedures or investigations, or (v) make sure applicable laws, regulations, rules and policies are complied with, including the Corporation’s internal policies. The Committee members and its Chairman are members of the Board, appointed to the Committee to provide broad oversight of the financial, risk and control related activities of the Corporation, and are specifically not accountable or responsible for the day-to-day operation or performance of such activities.
Management is responsible for the preparation, presentation and completeness of the Corporation’s interim financial reports and annual financial statements. Management, with the help of the internal audit service, is also responsible for maintaining appropriate accounting and financial reporting principles and policies and systems of risk assessment and internal controls and procedures designed to provide reasonable assurance that assets are safeguarded and transactions are properly authorized, recorded and reported and to assure the effectiveness and efficiency of operations, the reliability of financial reporting and compliance with accounting standards and applicable laws and regulations. Management is also responsible for monitoring and reporting on the adequacy and effectiveness of the system of internal controls.
The external auditors are responsible for planning and carrying out an audit of the Corporation’s annual financial statements in accordance with generally accepted auditing standards to provide reasonable assurance that, among other things, such financial statements are in accordance with generally accepted accounting principles.
Unless a member of the Committee has knowledge of information to the contrary (of which the Board must be informed forthwith), he or she may rely on (i) the integrity of persons or organizations, whether or not part of the Corporation, who provide information to him or her, (ii) the accuracy of financial information and any other information these persons or organizations provide to the Committee and (iii) statements made by management.
COMPOSITION, PROCEDURES AND POWERS
Composition
The Committee will be comprised of at least three members and each member of the Committee will be an “independent” director (as such term is defined from time to time under the requirements or guidelines for audit committee service under applicable securities laws and the rules of any stock exchange on which the Corporation’s securities are listed for trading).
All members of the Committee must be “financially literate” (as that term is defined from time to time under the requirements or guidelines for audit committee service under applicable securities laws and the rules of any stock exchange on which the Corporation’s securities are listed for trading or if it is not so defined, as that term is interpreted by the Board in its business judgment).
The members of the Committee will be appointed or changed by resolution of the Board to hold office from the time of their appointment until the next annual meeting of shareholders or until their successors are so appointed. The Board may remove or replace a member of the Committee at any time. A member will cease to be a member of the Committee upon ceasing to be a director. The Board may fill vacancies on the Committee by appointing another director to the Committee.
Procedures
The Committee will meet regularly at times necessary to perform the duties described herein in a timely manner, but not less than four times a year and any time the Corporation proposes to issue a press release with respect to its quarterly or annual earnings information. Meetings may be held at any time deemed appropriate by the Committee.
A majority of the members of the Committee in office from time to time or, in the event that there are less than four members, two members will constitute a quorum for the transaction of business at any meeting of the Committee.
The Committee will fix its own procedure at meetings and for the calling of meetings. Unless waived by the members of the Committee, the Committee will meet “in camera” at each Committee meeting without members of management in attendance, to allow its members to discuss matters openly and candidly.
The Committee will report through the Committee Chairman to the Board following meetings of the Committee.
Powers
The Committee is entitled to full access to all books, records, facilities, and personnel of the Corporation and its subsidiaries. The Committee may require such officers, directors and employees of the Corporation and its subsidiaries and others as it may see fit from time to time to provide any information about the Corporation and its subsidiaries it may deem appropriate and to attend and assist at meetings of the Committee. The Committee may obtain, where necessary, legal or other advice from outside professionals; and determine and cause the Corporation to pay the fees of such professionals.
The Committee may delegate from time to time to any person or committee of persons any of the Committee’s responsibilities that lawfully may be delegated.
The Committee may adopt policies and procedures for carrying out its responsibilities.
DUTIES AND RESPONSIBILITIES
The duties and responsibilities of the Committee are established by the Board and include the functions customarily performed by audit committees, such as the following:
Additional Responsibilities
The Committee will review and make recommendations to the Board concerning the financial structure, condition and strategy of the Corporation and its subsidiaries, including with respect to annual budgets, long-term financial plans, corporate borrowings, investments, capital expenditures, long term commitments and the issuance or repurchase of stock.
The Committee will review or approve any other matter specifically delegated to the Committee by the Board and undertake on behalf of the Board such other activities as may be necessary or desirable to assist the Board in fulfilling its oversight responsibilities with respect to financial reporting and financial obligations of the Corporation.
REVIEW AND DISCLOSURE
The Committee will review and reassess the adequacy of this Charter at least annually and otherwise as it deems appropriate and recommend changes to the Board. The performance of the Committee will be evaluated with reference to this Charter annually.
The Committee will ensure that this Charter is disclosed on the Corporation’s website and that this Charter or a summary of it which has been approved by the Committee is disclosed in accordance with all applicable securities laws or regulatory requirements.
Consolidated Financial Statements
December 31, 2012, 20112015, 2014 and 2010
2013
Management’s Responsibility for Consolidated Financial Statements | 2 | |||
Management’s Report on Internal Control over Financial Reporting | 3 | |||
Independent Auditor’s Report of Registered Public Accounting Firm | 4 to 5 | |||
6 to 7 | ||||
8 | ||||
9 | ||||
10 to 12 | ||||
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14 | ||||
15 to |
2
Management’s Responsibility for Financial Statements
The consolidated financial statements of Intertape Polymer Group Inc. (the “Company”) and other financial information are the responsibility of the Company’s management and have been examined and approved by its Board of Directors. These consolidated financial statements have been prepared by management in accordance with International Financial Reporting Standards (“IFRS”) and include some amounts that are based on management’s best estimates and judgments. The selection of accounting principles and methods is management’s responsibility.
Management is responsible for the design, establishment and maintenance of appropriate internal control and procedures over financial reporting, to ensure that financial statements for external purposes are fairly presented in conformity with International Financial Reporting Standards.IFRS. Pursuant to these internal control and procedures, processes have been designed to ensure that the Company’s transactions are properly authorized, the Company’s assets are safeguarded against unauthorized or improper use, and the Company’s transactions are properly recorded and reported to permit the preparation of the Company’s consolidated financial statements in conformity with International Financial Reporting Standards.IFRS.
Management recognizes its responsibility for conducting the Company’s affairs in a manner to comply with the requirements of applicable laws and for maintaining proper standards of conduct in its activities.
The BoardAudit Committee, all of Directors assigns its responsibility forwhose members are independent directors, is involved in the review of the consolidated financial statements and other financial information to the Audit Committee, all of whom are independent directors.information.
The Audit Committee’s role is to examine the consolidated financial statements and annual report and once approved, recommend that the Board of Directors approve them, examine internal control over financial reporting and information protection systems and all other matters relating to the Company’s accounting and finances. In order to do so, the Audit Committee meets periodically with the external auditorsauditor to review theirits audit plan and discuss the results of theirits examinations. The Audit Committee is also responsible for recommending the nomination of the external auditors.auditor.
The Company’s external independent registered public accounting firm, Raymond Chabot Grant Thornton LLP, was appointed by the Shareholders at the Annual Meeting of Shareholders on May 16, 2012,June 4, 2015, to conduct the integrated audit of the Company’s consolidated financial statements, and the Company’s internal control over financial reporting. TheirIts reports indicating the scope of theirits audits and theirits opinions on the consolidated financial statements and the Company’s internal control over financial reporting follow.
/s/ Gregory A.C. Yull
Gregory A.C. Yull
President and Chief Executive Officer
/s/ Bernard J. PitzJeffrey Crystal
Bernard J. PitzJeffrey Crystal
Chief Financial Officer
Bradenton,Sarasota, Florida and Montreal, Quebec
March 6, 2013
39, 2016
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of the Company’s financial reporting as well as the preparation of financial statements for external reporting purposes in accordance with International Financial Reporting Standards.Standards (“IFRS”).
Internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit the preparation of financial statements in accordance with International Financial Reporting Standards,IFRS, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’sCompany’s assets that could have a material effect on the company’sCompany’s financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements and, even when determined to be effective, can only provide reasonable assurance with respect to financial statements preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate.
Management conducted an assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 20122015 based on the criteria established in “2013 Internal Control – Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Management has concluded that the Company’s internal control over financial reporting was effective as of December 31, 20122015 based on those criteria.
The Company’s internal control over financial reporting as of December 31, 20122015 has been audited by Raymond Chabot Grant Thornton LLP, the Company’s external independent registered public accounting firm, as stated in their report which follows.
/s/ Gregory A.C. Yull
Gregory A.C. Yull
President and Chief Executive Officer
/s/ Bernard J. PitzJeffrey Crystal
Bernard J. PitzJeffrey Crystal
Chief Financial Officer
Bradenton,Sarasota, Florida and Montreal, Quebec
March 6, 2013
49, 2016
Independent Auditor’s Report of
Registered Public Accounting Firm
To the Shareholders of
Intertape Polymer Group Inc.
Report on the Consolidated Financial Statements
We have audited the accompanying consolidated financial statements of Intertape Polymer Group Inc. which comprise the consolidated statements of financial positionbalance sheets as at December 31, 20122015 and 20112014 and the consolidated statements of earnings, (loss), comprehensive income, (loss), changes in shareholders’ equity and cash flows for each of the years in the three year-periodthree-year period ended December 31, 2012,2015, and a summary of significant accounting policies and other explanatory information.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.
OpinionIndex to Financial Statements
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Intertape Polymer Group Inc. as at December 31, 20122015 and 2011,2014, and its financial performance and its cash flows for each of the years in the three-year period ended December 31, 2012
5
2015 in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.
Other Matter
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Intertape Polymer Group Inc.’s internal control over financial reporting as at December 31, 2012,2015, based on the criteria established in “2013 Internal Control – Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 6, 2013,9, 2016, expressed an unqualified opinion on Intertape Polymer Group Inc.’s internal control over financial reporting.
Montreal, Canada
March 6, 2013
Montreal, Canada March 9, 2016 |
1 CPA auditor, CA, public accountancy permit No. A120795 |
1 CPA auditor, CA, public accountancy permit No. A120795
6
Independent Auditor’s Report of
Registered Public Accounting Firm on
on Internal Control over Financial Reporting
To the Shareholders of
Intertape Polymer Group Inc.
We have audited Intertape Polymer Group Inc.‘s’s internal control over financial reporting as at December 31, 2012,2015, based on criteria established in ““2013 Internal Control — Integrated Framework”Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Management’s Responsibility
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in Management’s Report on Internal Control over Financial Reporting.
Auditor’s Responsibility
Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.
We believe that the audit evidence we have obtained in our audit is sufficient and appropriate to provide a basis for our audit opinion on the Company’s internal control over financial reporting.
Definition of internal control over financial reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with International Financial Reporting Standards.Standards as issued by the International Accounting Standards Board. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with International Financial Reporting Standards as issued by International Accounting Standards Board, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the consolidated financial statements.
7
Inherent limitations
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Opinion
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as at December 31, 20122015 based on criteria established in “Internal“2013 Internal Control — Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
We have also audited, in accordance with Canadian generally accepted auditing standards and standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements of Intertape Polymer Group Inc. as at December 31, 2012, 20112015 and 2014 and for each of the years in the three-year period ended December 31, 20122015 and our report dated March 6, 20139, 2016 expressed an unqualified opinion thereon.
Montreal, Canada
March 6, 2013
Montreal, Canada March 9, 2016 |
1 CPA auditor, CA, public accountancy permit No. A120795 |
1 CPA auditor, CA, public accountancy permit No. A120795
8
Consolidated Earnings (Loss)
Years ended December 31, 2012, 20112015, 2014 and 20102013
(In thousands of US dollars, except per share amounts)
2012 | 2011 | 2010 | |||||||||||||
$ | $ | $ | |||||||||||||
Revenue | 784,430 | 786,737 | 720,516 | ||||||||||||
Cost of sales | 643,393 | 672,262 | 636,194 | ||||||||||||
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Gross profit | 141,037 | 114,475 | 84,322 | ||||||||||||
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Selling, general and administrative expenses | 79,135 | 76,969 | 73,302 | ||||||||||||
Research expenses | 6,227 | 6,200 | 6,252 | ||||||||||||
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85,362 | 83,169 | 79,554 | |||||||||||||
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Operating profit before manufacturing facility closures, restructuring and other related charges | 55,675 | 31,306 | 4,768 | ||||||||||||
Manufacturing facility closures, restructuring and other related charges (Note 4) | 18,257 | 2,891 | 3,534 | ||||||||||||
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Operating profit | 37,418 | 28,415 | 1,234 | ||||||||||||
Finance costs | |||||||||||||||
Interest | 13,233 | 15,361 | 15,670 | ||||||||||||
Other expense | 1,303 | 2,180 | 880 | ||||||||||||
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14,536 | 17,541 | 16,550 | |||||||||||||
Earnings (loss) before income tax expense (benefit) | 22,882 | 10,874 | (15,316 | ) | |||||||||||
Income tax expense (benefit) (Note 5) | |||||||||||||||
Current | 927 | 688 | (10 | ) | |||||||||||
Deferred | (552 | ) | 1,232 | 33,243 | |||||||||||
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375 | 1,920 | 33,233 | |||||||||||||
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Net earnings (loss) | 22,507 | 8,954 | (48,549 | ) | |||||||||||
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Earnings (loss) per share (Note 6) | |||||||||||||||
Basic | 0.38 | 0.15 | (0.82 | ) | |||||||||||
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Diluted | 0.37 | 0.15 | (0.82 | ) | |||||||||||
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2015 | 2014 | 2013 | ||||||||||
$ | $ | $ | ||||||||||
Revenue | 781,907 | 812,732 | 781,500 | |||||||||
Cost of sales | 613,895 | 649,099 | 623,006 | |||||||||
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Gross profit | 168,012 | 163,633 | 158,494 | |||||||||
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Selling, general and administrative expenses | 84,072 | 85,955 | 82,682 | |||||||||
Research expenses | 9,459 | 7,873 | 6,900 | |||||||||
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93,531 | 93,828 | 89,582 | ||||||||||
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Operating profit before manufacturing facility closures, restructuring and other related charges | 74,481 | 69,805 | 68,912 | |||||||||
Manufacturing facility closures, restructuring and other related charges (Note 4) | 3,666 | 4,927 | 30,706 | |||||||||
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Operating profit | 70,815 | 64,878 | 38,206 | |||||||||
Finance costs (Note 3) | ||||||||||||
Interest | 3,553 | 4,631 | 5,707 | |||||||||
Other (income) expense, net | (393 | ) | 1,528 | 946 | ||||||||
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3,160 | 6,159 | 6,653 | ||||||||||
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Earnings before income tax expense (benefit) | 67,655 | 58,719 | 31,553 | |||||||||
Income tax expense (benefit) (Note 5) | ||||||||||||
Current | 8,185 | 3,665 | 3,622 | |||||||||
Deferred | 2,798 | 19,238 | (39,426 | ) | ||||||||
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10,983 | 22,903 | (35,804 | ) | |||||||||
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Net earnings | 56,672 | 35,816 | 67,357 | |||||||||
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Earnings per share (Note 6) | ||||||||||||
Basic | 0.95 | 0.59 | 1.12 | |||||||||
Diluted | 0.93 | 0.58 | 1.09 |
The accompanying notes are an integral part of the consolidated financial statements and Note 3 presents additional information on consolidated earnings (loss).
9earnings.
Consolidated Comprehensive Income (Loss)
Years ended December 31, 2012, 20112015, 2014 and 20102013
(In thousands of US dollars)
2012 | 2011 | 2010 | |||||||||||||
$ | $ | $ | |||||||||||||
Net earnings (loss) | 22,507 | 8,954 | (48,549 | ) | |||||||||||
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Other comprehensive income (loss) | |||||||||||||||
Changes in fair value of interest rate swap agreements designated as cash flow hedges (net of deferred income tax expense of nil, nil in 2011 and nil in 2010) | - | (30 | ) | (599 | ) | ||||||||||
Settlements of interest rate swap agreements, transferred to earnings (net of income tax expense of nil, nil in 2011 and nil in 2010) | - | 927 | 1,249 | ||||||||||||
Changes in fair value of forward foreign exchange rate contracts, designated as cash flow hedges (net of deferred income tax expense of nil, nil in 2011 and nil in 2010) | 227 | 867 | 1,828 | ||||||||||||
Settlements of forward foreign exchange rate contracts, transferred to earnings (net of income tax expense of nil, nil in 2011 and nil in 2010) | (214 | ) | (1,015 | ) | (869 | ) | |||||||||
Gain on forward foreign exchange rate contracts recorded in earnings pursuant to recognition of the hedged item in cost of sales upon discontinuance of the related hedging relationships (net of income tax expense of nil, nil in 2011 and nil in 2010) | - | (998 | ) | (616 | ) | ||||||||||
Change in cumulative translation adjustments | 2,002 | (1,729 | ) | 2,935 | |||||||||||
Actuarial gains or losses and change in asset ceiling and minimum funding requirements on defined benefit plans (net of income tax benefit of $1,209, $1,427 in 2011 and $768 in 2010) (Note 17) | (6,436 | ) | (14,701 | ) | (2,091 | ) | |||||||||
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Other comprehensive income (loss) | (4,421 | ) | (16,679 | ) | 1,837 | ||||||||||
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Comprehensive income (loss) for the period | 18,086 | (7,725 | ) | (46,712 | ) | ||||||||||
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2015 | 2014 | 2013 | ||||||||||
$ | $ | $ | ||||||||||
Net earnings | 56,672 | 35,816 | 67,357 | |||||||||
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Other comprehensive income (loss) | ||||||||||||
Change in fair value of interest rate swap agreement designated as a cash flow hedge | (272 | ) | — | — | ||||||||
Change in cumulative translation adjustments | (12,294 | ) | (7,343 | ) | (3,978 | ) | ||||||
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Items that will be reclassified subsequently to net earnings | (12,566 | ) | (7,343 | ) | (3,978 | ) | ||||||
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Remeasurement of defined benefit liability (net of income tax (expense) benefit of | 1,586 | (5,023 | ) | 11,501 | ||||||||
Deferred tax benefit due to the recognition of US deferred tax assets (Note 5) | — | — | 4,671 | |||||||||
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Items that will not be reclassified subsequently to net earnings | 1,586 | (5,023 | ) | 16,172 | ||||||||
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Other comprehensive income (loss) | (10,980 | ) | (12,366 | ) | 12,194 | |||||||
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Comprehensive income for the period | 45,692 | 23,450 | 79,551 | |||||||||
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The accompanying notes are an integral part of the consolidated financial statements.
10
Consolidated Changes in Shareholders’ Equity
Year ended December 31, 20102013
(In thousands of US dollars, except for number of common shares)
Capital stock | Accumulated other comprehensive income | |||||||||||||||||||||||||||||||||||||||
Number | Amount | Contributed surplus | Cumulative translation adjustment account | Reserve for cash flow hedges | Total | Deficit | Total shareholders’ equity | |||||||||||||||||||||||||||||||||
$ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
Balance as of January 1, 2010 | 58,951,050 | 348,143 | 15,024 | - | (757 | ) | (757 | ) | (172,387 | ) | 190,023 | |||||||||||||||||||||||||||||
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Transactions with owners | ||||||||||||||||||||||||||||||||||||||||
Exercise of stock options (Note 15) | 10,000 | 5 | 5 | |||||||||||||||||||||||||||||||||||||
Stock-based compensation expense (Note 15) | 769 | 769 | ||||||||||||||||||||||||||||||||||||||
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10,000 | 5 | 769 | 774 | |||||||||||||||||||||||||||||||||||||
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Net earnings (loss) | (48,549 | ) | (48,549 | ) | ||||||||||||||||||||||||||||||||||||
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Other comprehensive income | ||||||||||||||||||||||||||||||||||||||||
Changes in fair value of interest rate swap agreements, designated as cash flow hedges (net of deferred income tax expense of nil) | (599 | ) | (599 | ) | (599 | ) | ||||||||||||||||||||||||||||||||||
Settlement of interest rate swap agreements, transferred to earnings (net of income tax expense of nil) | 1,249 | 1,249 | 1,249 | |||||||||||||||||||||||||||||||||||||
Changes in fair value of forward foreign exchange rate contracts, designated as cash flow hedges (net of deferred income tax expense of nil) | 1,828 | 1,828 | 1,828 | |||||||||||||||||||||||||||||||||||||
Settlement of forward foreign exchange rate contracts, transferred to earnings (net of income tax expense of nil) | (869 | ) | (869 | ) | (869 | ) | ||||||||||||||||||||||||||||||||||
Gain on forward foreign exchange rate contracts recorded in earnings pursuant to recognition of the hedged item in cost of sales upon discontinuance of the related hedging relationships (net of income tax expense of nil) | (616 | ) | (616 | ) | (616 | ) | ||||||||||||||||||||||||||||||||||
Actuarial gains or losses and change in minimum funding requirements on defined benefit plans (net of income tax benefit of $768) (Note 17) | (2,091 | ) | (2,091 | ) | ||||||||||||||||||||||||||||||||||||
Changes to cumulative translation adjustments | 2,935 | 2,935 | 2,935 | |||||||||||||||||||||||||||||||||||||
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2,935 | 993 | 3,928 | 1,837 | |||||||||||||||||||||||||||||||||||||
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Balance as of December 31, 2010 | 58,961,050 | 348,148 | 15,793 | 2,935 | 236 | 3,171 | (223,027 | ) | 144,085 | |||||||||||||||||||||||||||||||
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Capital stock | Accumulated other comprehensive loss | |||||||||||||||||||||||
Number | Amount | Contributed surplus | Cumulative translation adjustment account | Deficit | Total shareholders’ equity | |||||||||||||||||||
$ | $ | $ | $ | $ | ||||||||||||||||||||
Balance as of December 31, 2012 | 59,625,039 | 351,702 | 16,386 | 3,208 | (217,462 | ) | 153,834 | |||||||||||||||||
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Transactions with owners | ||||||||||||||||||||||||
Exercise of stock options (Note 15) | 1,151,610 | 3,760 | 3,760 | |||||||||||||||||||||
Excess tax benefit on exercised stock options | 2,030 | 2,030 | ||||||||||||||||||||||
Excess tax benefit on outstanding stock options (Note 5) | 4,675 | 4,675 | ||||||||||||||||||||||
Stock-based compensation expense (Note 15) | 1,145 | 1,145 | ||||||||||||||||||||||
Stock-based compensation expense credited to capital on options exercised (Note 15) | 1,709 | (1,709 | ) | — | ||||||||||||||||||||
Dividends on common shares (Note 15) | (14,567 | ) | (14,567 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||
1,151,610 | 7,499 | 4,111 | (14,567 | ) | (2,957 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net earnings | 67,357 | 67,357 | ||||||||||||||||||||||
Other comprehensive income | ||||||||||||||||||||||||
Remeasurement of defined benefit liability (net of income tax expense of $6,160) (Note 17) | 11,501 | 11,501 | ||||||||||||||||||||||
Deferred tax benefit due to the recognition of US deferred tax assets (Note 5) | 4,671 | 4,671 | ||||||||||||||||||||||
Changes to cumulative translation adjustments | (3,978 | ) | (3,978 | ) | ||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
(3,978 | ) | 16,172 | 12,194 | |||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Comprehensive income for the period | (3,978 | ) | 83,529 | 79,551 | ||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Balance as of December 31, 2013 | 60,776,649 | 359,201 | 20,497 | (770 | ) | (148,500 | ) | 230,428 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
11
Intertape Polymer Group Inc.
Consolidated Changes in Shareholders’ Equity
Year ended December 31, 20112014
(In thousands of US dollars, except for number of common shares)
Capital stock | Accumulated other comprehensive income | |||||||||||||||||||||||||||||||||||||||
Number | Amount | Contributed surplus | Cumulative translation adjustment account | Reserve for cash flow hedges | Total | Deficit | Total shareholders’ equity | |||||||||||||||||||||||||||||||||
$ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
Balance as of December 31, 2010 (balance carried forward) | 58,961,050 | 348,148 | 15,793 | 2,935 | 236 | 3,171 | (223,027 | ) | 144,085 | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Transactions with owners | ||||||||||||||||||||||||||||||||||||||||
Stock-based compensation expense (Note 15) | 818 | 818 | ||||||||||||||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||||||||||
Net earnings | 8,954 | 8,954 | ||||||||||||||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||||||||||
Other comprehensive loss | ||||||||||||||||||||||||||||||||||||||||
Changes in fair value of interest rate swap agreements, designated as cash flow hedges (net of deferred income tax expense of nil) | (30 | ) | (30 | ) | (30 | ) | ||||||||||||||||||||||||||||||||||
Settlement of interest rate swap agreements, transferred to earnings (net of income tax expense of nil) | 927 | 927 | 927 | |||||||||||||||||||||||||||||||||||||
Changes in fair value of forward foreign exchange rate contracts, designated as cash flow hedges (net of deferred income tax expense of nil) | 867 | 867 | 867 | |||||||||||||||||||||||||||||||||||||
Settlement of forward foreign exchange rate contracts, transferred to earnings (net of income tax expense of nil) | (1,015 | ) | (1,015 | ) | (1,015 | ) | ||||||||||||||||||||||||||||||||||
Gain on forward foreign exchange rate contracts recorded in earnings pursuant to recognition of the hedged item in cost of sales upon discontinuance of the related hedging relationships (net of income tax expense of nil) | (998 | ) | (998 | ) | (998 | ) | ||||||||||||||||||||||||||||||||||
Actuarial gains or losses and change in minimum funding requirements on defined benefit plans (net of income tax benefit of $1,427) (Note 17) | (14,701 | ) | (14,701 | ) | ||||||||||||||||||||||||||||||||||||
Changes to cumulative translation adjustments | (1,729 | ) | (1,729 | ) | (1,729 | ) | ||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||
(1,729 | ) | (249 | ) | (1,978 | ) | (16,679 | ) | |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Balance as of December 31, 2011 | 58,961,050 | 348,148 | 16,611 | 1,206 | (13 | ) | 1,193 | (228,774 | ) | 137,178 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital stock | Accumulated other comprehensive loss | |||||||||||||||||||||||
Number | Amount | Contributed surplus | Cumulative translation adjustment account | Deficit | Total shareholders’ equity | |||||||||||||||||||
$ | $ | $ | $ | $ | ||||||||||||||||||||
Balance as of December 31, 2013 | 60,776,649 | 359,201 | 20,497 | (770 | ) | (148,500 | ) | 230,428 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Transactions with owners | ||||||||||||||||||||||||
Exercise of stock options (Note 15) | 256,677 | 843 | 843 | |||||||||||||||||||||
Excess tax benefit on exercised stock options | 732 | (732 | ) | — | ||||||||||||||||||||
Excess tax benefit on outstanding stock awards (Note 5) | 2,535 | 2,535 | ||||||||||||||||||||||
Stock-based compensation expense (Note 15) | 2,482 | 2,482 | ||||||||||||||||||||||
Stock-based compensation expense credited to capital on options exercised (Note 15) | 289 | (289 | ) | — | ||||||||||||||||||||
Repurchases of common stock (Note 15) | (597,500 | ) | (3,225 | ) | (4,597 | ) | (7,822 | ) | ||||||||||||||||
Dividends on common shares (Note 15) | (24,416 | ) | (24,416 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||
(340,823 | ) | (1,361 | ) | 3,996 | (29,013 | ) | (26,378 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net earnings | 35,816 | 35,816 | ||||||||||||||||||||||
Other comprehensive loss | ||||||||||||||||||||||||
Remeasurement of defined benefit liability (net of income tax benefit of $3,183) (Note 17) | (5,023 | ) | (5,023 | ) | ||||||||||||||||||||
Changes to cumulative translation adjustments | (7,343 | ) | (7,343 | ) | ||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
(7,343 | ) | (5,023 | ) | (12,366 | ) | |||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Comprehensive income for the period | (7,343 | ) | 30,793 | 23,450 | ||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Balance as of December 31, 2014 | 60,435,826 | 357,840 | 24,493 | (8,113 | ) | (146,720 | ) | 227,500 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
12
Intertape Polymer Group Inc.
Consolidated Changes in Shareholders’ Equity
Year ended December 31, 20122015
(In thousands of US dollars, except for number of common shares)
Capital stock | Accumulated other comprehensive income | |||||||||||||||||||||||||||||||||||||||
Number | Amount | Contributed surplus | Cumulative translation adjustment account | Reserve for cash flow hedges | Total | Deficit | Total shareholders’ equity | |||||||||||||||||||||||||||||||||
$ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
Balance as of December 31, 2011 (balance carried forward) | 58,961,050 | 348,148 | 16,611 | 1,206 | (13 | ) | 1,193 | (228,774 | ) | 137,178 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Transactions with owners | ||||||||||||||||||||||||||||||||||||||||
Exercise of stock options (Note 15) | 663,989 | 2,017 | 2,017 | |||||||||||||||||||||||||||||||||||||
Excess tax benefit on stock options (Note 5) | 773 | 773 | ||||||||||||||||||||||||||||||||||||||
Stock-based compensation expense (Note 15) | 539 | 539 | ||||||||||||||||||||||||||||||||||||||
Stock-based compensation expense credited to capital on options exercised (Note 15) | 764 | (764 | ) | |||||||||||||||||||||||||||||||||||||
Dividends on common stock | (4,759 | ) | (4,759 | ) | ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
663,989 | 3,554 | (225 | ) | (4,759 | ) | (1,430 | ) | |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Net earnings | 22,507 | 22,507 | ||||||||||||||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||||||||||
Other comprehensive loss | ||||||||||||||||||||||||||||||||||||||||
Changes in fair value of forward foreign exchange rate contracts, designated as cash flow hedges (net of deferred income tax expense of nil) | 227 | 227 | 227 | |||||||||||||||||||||||||||||||||||||
Settlement of forward foreign exchange rate contracts, transferred to earnings (net of income tax expense of nil) | (214 | ) | (214 | ) | (214 | ) | ||||||||||||||||||||||||||||||||||
Actuarial gains or losses and change in minimum funding requirements on defined benefit plans (net of income tax benefit of $1,209) (Note 17) | (6,436 | ) | (6,436 | ) | ||||||||||||||||||||||||||||||||||||
Changes to cumulative translation adjustments | 2,002 | 2,002 | 2,002 | �� | ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||
2,002 | 13 | 2,015 | (4,421 | ) | ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Balance as of December 31, 2012 | 59,625,039 | 351,702 | 16,386 | 3,208 | - | 3,208 | (217,462 | ) | 153,834 | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital stock | Accumulated other comprehensive loss | |||||||||||||||||||||||||||||||
Number | Amount | Contributed surplus | Cumulative translation adjustment account | Reserve for cash flow hedge | Total | Deficit | Total shareholders’ equity | |||||||||||||||||||||||||
$ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||
Balance as of December 31, 2014 | 60,435,826 | 357,840 | 24,493 | (8,113 | ) | — | (8,113 | ) | (146,720 | ) | 227,500 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Transactions with owners | ||||||||||||||||||||||||||||||||
Exercise of stock options (Note 15) | 712,500 | 1,559 | 1,559 | |||||||||||||||||||||||||||||
Excess tax benefit on exercised stock options (Note 5) | 2,088 | (2,088 | ) | — | ||||||||||||||||||||||||||||
Excess tax benefit on outstanding stock awards (Note 5) | (1,502 | ) | (1,502 | ) | ||||||||||||||||||||||||||||
Stock-based compensation expense (Note 15) | 3,359 | 3,359 | ||||||||||||||||||||||||||||||
Stock-based compensation expense credited to capital on options exercised | 746 | (746 | ) | — | ||||||||||||||||||||||||||||
Deferred Share Units (“DSUs”) settlement, net of required minimum tax withholding (Note 15) | 6,397 | 65 | (218 | ) | (153 | ) | ||||||||||||||||||||||||||
Repurchases of common shares (Note 15) | (2,487,188 | ) | (14,973 | ) | (15,011 | ) | (29,984 | ) | ||||||||||||||||||||||||
Dividends on common shares (Note 15) | (29,743 | ) | (29,743 | ) | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
(1,768,291 | ) | (10,515 | ) | (1,195 | ) | (44,754 | ) | (56,464 | ) | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Net earnings | 56,672 | 56,672 | ||||||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Other comprehensive loss | ||||||||||||||||||||||||||||||||
Change in fair value of interest rate swap agreement designated as a cash flow hedge (net of deferred income tax benefit of $166) (Note 21) | (272 | ) | (272 | ) | (272 | ) | ||||||||||||||||||||||||||
Remeasurement of defined benefit liability (net of income tax expense of $964) (Note 17) | 1,586 | 1,586 | ||||||||||||||||||||||||||||||
Change in cumulative translation adjustments | (12,294 | ) | (12,294 | ) | (12,294 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
(12,294 | ) | (272 | ) | (12,566 | ) | 1,586 | (10,980 | ) | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Comprehensive income for the period | (12,294 | ) | (272 | ) | (12,566 | ) | 58,258 | 45,692 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Balance as of December 31, 2015 | 58,667,535 | 347,325 | 23,298 | (20,407 | ) | (272 | ) | (20,679 | ) | (133,216 | ) | 216,728 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
13
Consolidated Cash Flows
Years ended December 31, 2012, 20112015, 2014 and 20102013
(In thousands of US dollars)
2012 | 2011 | 2010 | |||||||||||||
$ | $ | $ | |||||||||||||
OPERATING ACTIVITIES | |||||||||||||||
Net earnings (loss) | 22,507 | 8,954 | (48,549 | ) | |||||||||||
Adjustments to net earnings (loss) | |||||||||||||||
Depreciation and amortization | 30,397 | 30,882 | 33,482 | ||||||||||||
Income tax expense | 375 | 1,920 | 33,233 | ||||||||||||
Interest expense | 13,233 | 15,361 | 15,670 | ||||||||||||
Charges in connection with manufacturing facility closures, restructuring and other related charges | 14,958 | 191 | 1,540 | ||||||||||||
Write-down (reversal) of inventories, net | (31 | ) | 30 | 1,641 | |||||||||||
Stock-based compensation expense | 1,832 | 818 | 769 | ||||||||||||
Pension and other post-retirement benefits expense | 1,414 | 953 | 1,515 | ||||||||||||
Gain on foreign exchange | (56 | ) | (276 | ) | (180 | ) | |||||||||
Impairment of long-term assets | - | - | 4,037 | ||||||||||||
Other adjustments for non cash items | (77 | ) | 298 | 198 | |||||||||||
Income taxes paid, net | (291 | ) | (639 | ) | (394 | ) | |||||||||
Contributions to defined benefit plans | (5,562 | ) | (4,318 | ) | (4,020 | ) | |||||||||
|
|
|
|
|
| ||||||||||
Cash flows from operating activities before changes in working capital items | 78,699 | 54,174 | 38,942 | ||||||||||||
|
|
|
|
|
| ||||||||||
Changes in working capital items | |||||||||||||||
Trade receivables | 6,269 | 3,356 | (12,201 | ) | |||||||||||
Inventories | (1,500 | ) | 1,140 | (15,210 | ) | ||||||||||
Parts and supplies | (967 | ) | (747 | ) | (1,016 | ) | |||||||||
Other current assets | (104 | ) | (2,750 | ) | (1,892 | ) | |||||||||
Accounts payable and accrued liabilities | 2,646 | (5,664 | ) | 16,899 | |||||||||||
Provisions | (570 | ) | (757 | ) | 985 | ||||||||||
|
|
|
|
|
| ||||||||||
5,774 | (5,422 | ) | (12,435 | ) | |||||||||||
|
|
|
|
|
| ||||||||||
Cash flows from operating activities | 84,473 | 48,752 | 26,507 | ||||||||||||
|
|
|
|
|
| ||||||||||
INVESTING ACTIVITIES | |||||||||||||||
Proceeds on the settlements of forward foreign exchange rate contracts | 198 | 1,520 | 647 | ||||||||||||
Purchases of property, plant and equipment | (21,552 | ) | (14,006 | ) | (8,627 | ) | |||||||||
Proceeds from disposals of property, plant and equipment and other assets | 35 | 2,962 | 1,430 | ||||||||||||
Restricted cash and other assets | 305 | 5,520 | (8,057 | ) | |||||||||||
Purchase of intangible assets | (64 | ) | (1,318 | ) | (849 | ) | |||||||||
|
|
|
|
|
| ||||||||||
Cash flows from investing activities | (21,078 | ) | (5,322 | ) | (15,456 | ) | |||||||||
|
|
|
|
|
| ||||||||||
FINANCING ACTIVITIES | |||||||||||||||
Proceeds from long-term debt | 135,333 | 105,415 | 42,242 | ||||||||||||
Repayment of long-term debt | (178,168 | ) | (132,404 | ) | (38,239 | ) | |||||||||
Payments of debt issue costs | (2,281 | ) | - | - | |||||||||||
Interest paid | (14,190 | ) | (15,953 | ) | (14,481 | ) | |||||||||
Proceeds from exercise of stock options | 2,046 | - | 5 | ||||||||||||
Dividends Paid | (4,759 | ) | - | - | |||||||||||
|
|
|
|
|
| ||||||||||
Cash flows from financing activities | (62,019 | ) | (42,942 | ) | (10,473 | ) | |||||||||
|
|
|
|
|
| ||||||||||
Net increase in cash | 1,376 | 488 | 578 | ||||||||||||
Effect of foreign exchange differences on cash | 170 | (111 | ) | (281 | ) | ||||||||||
Cash, beginning of year | 4,345 | 3,968 | 3,671 | ||||||||||||
|
|
|
|
|
| ||||||||||
Cash, end of year | 5,891 | 4,345 | 3,968 | ||||||||||||
|
|
|
|
|
|
2015 | 2014 | 2013 | ||||||||||
$ | $ | $ | ||||||||||
OPERATING ACTIVITIES | ||||||||||||
Net earnings | 56,672 | 35,816 | 67,357 | |||||||||
Adjustments to net earnings | ||||||||||||
Depreciation and amortization | 30,880 | 26,169 | 27,746 | |||||||||
Income tax expense (benefit) | 10,983 | 22,903 | (35,804 | ) | ||||||||
Interest expense | 3,553 | 4,631 | 5,707 | |||||||||
Non-cash charges in connection with manufacturing facility closures, restructuring and other related charges | 4,620 | 284 | 23,863 | |||||||||
Stock-based compensation expense | 3,249 | 6,185 | 4,937 | |||||||||
Pension and other post-retirement benefits expense | 2,654 | 4,495 | 3,077 | |||||||||
(Gain) loss on foreign exchange | (1,308 | ) | 548 | (100 | ) | |||||||
Impairment (reversals of impairment) of assets | (5,796 | ) | 139 | 161 | ||||||||
Other adjustments for non cash items | (488 | ) | 85 | (547 | ) | |||||||
Income taxes paid, net | (5,209 | ) | (4,329 | ) | (1,371 | ) | ||||||
Contributions to defined benefit plans | (1,877 | ) | (2,196 | ) | (4,222 | ) | ||||||
|
|
|
|
|
| |||||||
Cash flows from operating activities before changes in working capital items | 97,933 | 94,730 | 90,804 | |||||||||
|
|
|
|
|
| |||||||
Changes in working capital items | ||||||||||||
Trade receivables | 4,605 | (4,258 | ) | (2,778 | ) | |||||||
Inventories | (5,345 | ) | (4,686 | ) | (3,492 | ) | ||||||
Parts and supplies | (1,747 | ) | (490 | ) | (570 | ) | ||||||
Other current assets | 5,700 | (919 | ) | (2,402 | ) | |||||||
Accounts payable and accrued liabilities | 3,090 | 1,746 | (1,865 | ) | ||||||||
Provisions | (1,968 | ) | 787 | 2,463 | ||||||||
|
|
|
|
|
| |||||||
4,335 | (7,820 | ) | (8,644 | ) | ||||||||
|
|
|
|
|
| |||||||
Cash flows from operating activities | 102,268 | 86,910 | 82,160 | |||||||||
|
|
|
|
|
| |||||||
INVESTING ACTIVITIES | ||||||||||||
Acquisition of subsidiaries, net of cash acquired | (26,383 | ) | — | — | ||||||||
Purchases of property, plant and equipment | (34,301 | ) | (40,616 | ) | (46,818 | ) | ||||||
Proceeds from disposals of property, plant and equipment | 1,355 | 4,178 | 1,849 | |||||||||
Other assets | 273 | 296 | 416 | |||||||||
Purchases of intangible assets | (174 | ) | (672 | ) | (339 | ) | ||||||
|
|
|
|
|
| |||||||
Cash flows from investing activities | (59,230 | ) | (36,814 | ) | (44,892 | ) | ||||||
|
|
|
|
|
| |||||||
FINANCING ACTIVITIES | ||||||||||||
Proceeds from long-term debt | 191,279 | 294,022 | 111,799 | |||||||||
Repayment of long-term debt | (160,473 | ) | (300,643 | ) | (134,671 | ) | ||||||
Other financing activities | (150 | ) | (2,113 | ) | (139 | ) | ||||||
Interest paid | (3,740 | ) | (3,755 | ) | (6,692 | ) | ||||||
Proceeds from exercise of stock options | 1,559 | 843 | 3,760 | |||||||||
Repurchases of common shares | (30,018 | ) | (7,826 | ) | — | |||||||
Dividends paid | (29,695 | ) | (24,249 | ) | (14,520 | ) | ||||||
|
|
|
|
|
| |||||||
Cash flows from financing activities | (31,238 | ) | (43,721 | ) | (40,463 | ) | ||||||
|
|
|
|
|
| |||||||
Net increase (decrease) in cash | 11,800 | 6,375 | (3,195 | ) | ||||||||
Effect of foreign exchange differences on cash | (2,527 | ) | (533 | ) | (196 | ) | ||||||
Cash, beginning of period | 8,342 | 2,500 | 5,891 | |||||||||
|
|
|
|
|
| |||||||
Cash, end of period | 17,615 | 8,342 | 2,500 | |||||||||
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|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
14
Consolidated Balance Sheets
As of
(In thousands of US dollars)
December 31, 2012 | December 31, 2011 | |||||||||
$ | $ | |||||||||
ASSETS | ||||||||||
Current assets | ||||||||||
Cash | 5,891 | 4,345 | ||||||||
Trade receivables | 75,860 | 82,622 | ||||||||
Other receivables (Note 7) | 5,163 | 4,870 | ||||||||
Inventories (Note 8) | 91,910 | 90,709 | ||||||||
Parts and supplies | 14,442 | 14,596 | ||||||||
Prepaid expenses | 5,701 | 6,581 | ||||||||
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|
| |||||||
198,967 | 203,723 | |||||||||
Property, plant and equipment (Note 9) | 185,592 | 203,648 | ||||||||
Other assets (Note 10) | 3,597 | 2,726 | ||||||||
Intangible assets (Note 11) | 1,980 | 3,137 | ||||||||
Deferred tax assets (Note 5) | 36,016 | 33,489 | ||||||||
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|
| |||||||
Total assets | 426,152 | 446,723 | ||||||||
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LIABILITIES | ||||||||||
Current liabilities | ||||||||||
Accounts payable and accrued liabilities | 76,005 | 73,998 | ||||||||
Provisions (Note 14) | 1,526 | 1,913 | ||||||||
Derivative financial instruments (Note 21) | - | 13 | ||||||||
Installments on long-term debt (Note 13) | 9,688 | 3,147 | ||||||||
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| |||||||
87,219 | 79,071 | |||||||||
Long-term debt (Note 13) | 141,611 | 191,142 | ||||||||
Pension and other post-retirement benefits (Note 17) | 40,972 | 37,320 | ||||||||
Other liabilities (Note 15) | 625 | - | ||||||||
Provisions (Note 14) | 1,891 | 2,012 | ||||||||
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|
| |||||||
272,318 | 309,545 | |||||||||
|
|
|
| |||||||
SHAREHOLDERS’ EQUITY | ||||||||||
Capital stock (Note 15) | 351,702 | 348,148 | ||||||||
Contributed surplus | 16,386 | 16,611 | ||||||||
Deficit | (217,462 | ) | (228,774 | ) | ||||||
Accumulated other comprehensive income (Note 16) | 3,208 | 1,193 | ||||||||
|
|
|
| |||||||
153,834 | 137,178 | |||||||||
|
|
|
| |||||||
Total liabilities and shareholders’ equity | 426,152 | 446,723 | ||||||||
|
|
|
|
December 31, 2015 | December 31, 2014 | |||||||
$ | $ | |||||||
ASSETS | ||||||||
Current assets | ||||||||
Cash | 17,615 | 8,342 | ||||||
Trade receivables | 78,517 | 81,239 | ||||||
Inventories (Note 7) | 100,551 | 96,782 | ||||||
Parts and supplies | 15,265 | 13,788 | ||||||
Other current assets (Note 8) | 8,699 | 13,562 | ||||||
|
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|
| |||||
220,647 | 213,713 | |||||||
Property, plant and equipment (Note 9) | 198,085 | 188,146 | ||||||
Goodwill (Note 12) | 7,476 | — | ||||||
Intangible assets (Note 11) | 12,568 | 1,581 | ||||||
Deferred tax assets (Note 5) | 45,308 | 60,078 | ||||||
Other assets (Note 10) | 3,178 | 3,158 | ||||||
|
|
|
| |||||
Total assets | 487,262 | 466,676 | ||||||
|
|
|
| |||||
LIABILITIES | ||||||||
Current liabilities | ||||||||
Accounts payable and accrued liabilities | 82,226 | 77,049 | ||||||
Provisions (Note 14) | 2,209 | 2,770 | ||||||
Installments on long-term debt (Note 13) | 5,702 | 5,669 | ||||||
|
|
|
| |||||
90,137 | 85,488 | |||||||
Long-term debt (Note 13) | 147,134 | 117,590 | ||||||
Pension and other post-retirement benefits (Note 17) | 29,292 | 31,713 | ||||||
Other liabilities | 1,029 | 845 | ||||||
Provisions (Note 14) | 2,942 | 3,540 | ||||||
|
|
|
| |||||
270,534 | 239,176 | |||||||
|
|
|
| |||||
SHAREHOLDERS’ EQUITY | ||||||||
Capital stock (Note 15) | 347,325 | 357,840 | ||||||
Contributed surplus (Note 15) | 23,298 | 24,493 | ||||||
Deficit | (133,216 | ) | (146,720 | ) | ||||
Accumulated other comprehensive loss | (20,679 | ) | (8,113 | ) | ||||
|
|
|
| |||||
216,728 | 227,500 | |||||||
|
|
|
| |||||
Total liabilities and shareholders’ equity | 487,262 | 466,676 | ||||||
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
15
Notes to Consolidated Financial Statements
December 31, 20122015
(In US dollars, tabular amounts in thousands, except shares, per share data and as otherwise noted)
1- 1 -GENERAL BUSINESS DESCRIPTION
Intertape Polymer Group Inc. (the “Parent Company”), incorporated under theCanada Business Corporations Act, has its principal administrative offices in Montreal, Quebec,Québec, Canada and in Bradenton,Sarasota, Florida, U.S.A. The address of the Parent Company’s registered office is 1250 René-Lévesque Blvd. West,800 Place Victoria, Suite 2500,3700, Montreal, Quebec, Canada H3B 4Y1,Québec H4Z 1E9, c/o Heenan BlaikieFasken Martineau DuMoulin LLP. The Parent Company’s common shares are listed on the Toronto Stock Exchange (“TSX”) in Canada.
The Parent Company and its subsidiaries (together referred to as the “Company”), develops, manufacturesdevelop, manufacture and sellssell a variety of paper and film based pressure sensitive and water activated tapes, polyethylene and specialized polyolefin films, woven coated fabrics and complementary packaging systems for industrial and retail use.
Intertape Polymer Group Inc. is the Company’s ultimate parent.
2- 2 -ACCOUNTING POLICIES
Basis of Presentation and Statement of Compliance
The consolidated financial statements present the Company’s consolidated balance sheets as of December 31, 20122015 and December 31, 2011,2014, as well as its consolidated earnings, (loss), consolidated comprehensive income, (loss), consolidated cash flows, and consolidated changes in shareholders’ equity for each of the years in the three-year period ended December 31, 2012.2015. These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”) and are expressed in USUnited States (“US”) dollars.
The consolidated financial statements were authorized for issuance by the Company’s Board of Directors on March 6, 2013.9, 2016.
Basis of Measurement
The consolidated financial statements have been prepared on the historical cost basis, except for the following material itemsdefined benefit liability of the Company’s pension plans, other post-retirement benefit plans and derivative financial instruments in the balance sheets, for which the measurement basis is detailed in theirthe respective accounting policies:policy.
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Critical Accounting Judgments, Estimates and Assumptions
The preparation of the consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Significant changes in the underlying assumptions could result in significant changes to these estimates. Consequently, management reviews these estimates on a regular basis. Revisions to accounting estimates are recognized in the period in which the estimates are
revised and in any future periods affected. Information about these significant judgments, assumptions and estimates that have the most significant effect on the recognition and measurement of assets, liabilities, income and expenses are summarized below:
16
Deferred income taxes
Deferred tax assets are recognized for unused tax losses and tax credits to the extent that it is probable that future taxable income will be available against which the losses can be utilized. These estimates are reviewed at every reporting date. Significant management judgment is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and the level of the reversal of existing timing differences, future taxable income and future tax planning strategies. Refer to Note 5 for more information regarding income taxes.
Estimation Uncertainty
Impairments
At the end of each reporting period the Company performs a test of Impairment,impairment on assets subject to amortization if there are indicators of impairment. Goodwill allocated to cash generating units (“CGU”) and intangible assets with indefinite useful lives are tested annually. An impairment loss is recognized when the carrying value of an asset or cash generating unit (“CGU”)CGU exceeds its recoverable amount, which in turn is the higher of its fair value less costs to sell and its value in use. The value in use is based on discounted estimated future cash flows. The cash flows are derived from the budget or forecasts for the estimated remaining useful lives of the CGUs and do not include restructuring activities that the Company is not yet committed to or significant future investments that will enhance the performance of the asset or CGU being tested. The value in use will vary depending on the discount rate applied to the discounted cash flows, the estimated future cash inflows, and the growth rate used for extrapolation purposes.
Refer to Note 12 for more information regarding impairment testing of long-term assets.testing.
Pension and other post-retirement benefits
The cost of defined benefit pension plans and other post-retirement benefit plans and the present value of the related obligations are determined using actuarial valuations. The determination of benefits expense and related obligations requires assumptions such as the expected return on assets available to fund pension obligations, the discount rate to measure obligations, expected mortality and the expected healthcare cost trend. Actual results will differ from estimated results which are estimated based on assumptions. Refer to Note 17 for more information regarding the assumptions related to the pension and other post-retirement benefit plans.
Uncertain tax positions
The Company is subject to taxation in numerous jurisdictions. There are many transactions and calculations during the course of business for which the ultimate tax determination is uncertain. The Company maintains provisions for uncertain tax positions that it believes appropriately reflect its risk. These provisions are made using the best estimate of the amount expected to be paid based on a qualitative assessment of all relevant factors. The Company reviews the adequacy of these provisions at the end of the reporting period. However, it is possible that at some future date, liabilities in excess of the Company’s provisions could result from audits by, or litigation with, the relevant taxing authorities. Where the outcome of these tax-related matters is different from the amounts that were initially recorded, such differences will affect the tax provisions in the period in which such determination is made. Refer to Note 5 for more information regarding income taxes.
Deferred income taxes
Deferred tax assets are recognized for unused tax losses and tax credits to the extent that it is probable that taxable income will be available against which the losses can be utilized. These estimates are reviewed at every reporting date. Significant management judgment is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and the level of the reversal of existing timing differences, future taxable income and future tax planning strategies. Refer to Note 5 for more information regarding income taxes.
Fair value measurement of financial instruments
Where the fair value of financial assets and financial liabilities recorded in the balance sheet cannot be derived from active markets, they are determined using valuation techniques including the discounted cash flows model. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgment is required in establishing fair values. The judgments include considerations of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions about these factors could affect the reported fair value of financial instruments. Refer to Note 21 for more information regarding the fair value measurement of financial instruments.
17
Leases
Leases are classified as either operating or finance, based on the substance of the transaction at inception of the lease. In some cases, the assessment of a lease contract is not always conclusive and management uses its judgment in determining if an agreement is a finance lease that transfers substantially all risks and rewards incidental to ownership, or an operating lease.
Useful lives of depreciable assets
Management reviews the useful lives, depreciation methods and residual values of depreciable assets at each reporting date. As of the reporting date, management assesses the useful lives which represent the expected utility of the assets to the Company. Actual results, however, may vary due to technical or commercial obsolescence, particularly with respect to computersinformation technology and manufacturing equipment.
Net realizable value of inventories and parts and suppliesIndex to Financial Statements
Inventories and parts and supplies are measured at the lower of cost or net realizable value. In estimating net realizable values of inventories and parts and supplies, management takes into account the most reliable evidence available at the time the estimate is made.
Allowance for doubtful accounts and revenue adjustments
During each reporting period, the Company makes an assessment of whether trade accounts receivable are collectible from customers. Accordingly, management establishes an allowance for estimated losses arising from non-payment and other revenue adjustments, taking into consideration customer creditworthiness, current economic trends, past experience and past experience.credit insurance coverage. The Company also records reductions to revenue for estimated returns, claims, customer rebates, and other incentives that are estimated based on historical experience and current economic trends. If future collections and trends differ from estimates, future earnings will be affected. Refer to Note 21 for more information regarding the allowance for doubtful accounts and the related credit risks.
Provisions for restoration
Provisions for restoration representare recognized when the estimated valueCompany has a present obligation (legal or constructive) as a result of a past event, it is probable that the Company will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.
The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation to restore one or more leased facilities at the end of the related lease. The estimated value reflectsreporting period, taking into account the risks and uncertainties surrounding the obligation. When a combination of management’s assessment of the cost of performing the work required, the timing ofprovision is measured using the cash flows andestimated to settle the discount rate, as applicablepresent obligation, its carrying amount is the present value of those cash flows, when the effect of the time value of money is material. A change in any or a combination
Provisions of the three key assumptions used to determine the provisions could have an impact on earningsCompany include environmental and on the carrying value of the provision. Please referrestoration obligations, termination benefits and other provisions. Refer to Note 14 for more information regarding provisions.
Provisions for termination benefitsStock-based payments
Termination benefits are recognized as a liabilityThe estimation of stock-based payment fair value and expense requires the selection of an expense when, and only when,appropriate pricing model.
The model used by the Company is demonstrably committed to terminatefor the employment of an employee or group of employees before normal retirement date. The measurement of termination benefits is based on the expected costs and the number of employees expected to be terminated. Please refer to Note 4 for more information regarding termination benefits. Please refer to Note 14 for more information regarding provisions.
Provisions for litigation
The Company is currently defending certain litigation where the actual outcome may vary from the amount recognized in the financial statements. Refer to Note 14 for more information relating to the provisions for litigation. Please refer to Note 14 for more information regarding provisions.
18
Stock-based payments
The Company has adopted an Executive Stock Option Plan (“ESOP”) and a Stock Appreciation Rights Plan (“SAR Plan”). is the Black-Scholes pricing model. The ESOP is an equity-settled plan underBlack-Scholes pricing model requires the Company to make significant judgments regarding the assumptions used within the model, the most significant of which certain members of management and directors receive options to acquire common sharesare the expected volatility of the Company. The SAR Plan is a cash-settled plan under which certain membersCompany’s own stock, the probable life of management and directors receive a cash amount equal toawards granted, the difference betweentime of exercise, the base price ofrisk-free interest rate commensurate with the Stock Appreciation Right (“SAR”) and the market value of a common share of the Company on the date of exercise.
With respect to the ESOP, the expense is based on the grant date fair valueterm of the awards, and the expected dividend yield.
The model used by the Company for the Performance Share Unit Plan (“PSU Plan”) is the Monte Carlo simulation model. The Monte Carlo model requires the Company to vest overmake significant judgements regarding the vesting period. Forassumptions used within the SAR Plan,model, the expense is determined based onmost significant of which are the fair valuevolatility of the liability atCompany’s own stock as well as a peer group, the endperformance measurement period, and the risk-free interest rate commensurate with the term of the reporting period until the award is settled. The expense is recognized over the vesting period, which is the period over which all of the specified vesting conditions are satisfied. For awards with graded vesting, the fair value of each tranche is recognized over its respective vesting period. At the end of each reporting period, the Company re-assesses its estimates of the number of awards that are expected to vest and recognizes the impact of the revisions in the consolidated earnings (loss) statement. Please referawards.
Refer to Note 15 for more information regarding stock-based payments.
Business acquisitions
Management uses valuation techniques when determining the fair values of certain assets and liabilities acquired in a business combination. In particular, the fair value of contingent consideration is dependent on the outcome of many variables including the acquirees’ future profitability. Refer to Note 16 for more information regarding business acquisitions.
Principles of Consolidation
The consolidated financial statements include the accounts of the Parent Company and all of its subsidiaries. Subsidiaries are entities over which theThe Parent Company controls a subsidiary if it is exposed, or has rights, to variable return, from its involvement with the subsidiary and has the ability to affect those returns through its power to controlover the financial and operating policies.subsidiary. At the reporting date, the subsidiaries are all, directly or indirectly, 100% owned by the Parent Company.
All subsidiaries have a reporting date identical to that of the Parent Company. Amounts reported in the financial statements of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Parent Company.
All intercompany balances and transactions have been eliminated on consolidation, including unrealized gains and losses on transactions between the consolidated entities. When unrealized losses on intra-company asset sales are reversed on consolidation, the underlying asset is also tested for impairment from a Company perspective.
Details of the Parent Company’s operating subsidiaries as of December 31, 20112015 are as follows:
Name of | Principal Activity | Country of Incorporation Residence | Proportion of Ownership Interest and Voting Power Held | |||
Intertape Polymer Corp. | Manufacturing | United States | 100% | |||
IPG (US) Holdings Inc. | Holding | United States | 100% | |||
IPG (US) Inc. | Holding | United States | 100% | |||
Intertape Polymer Inc. | Manufacturing | Canada | 100% | |||
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FIBOPE Portuguesa-Filmes | Manufacturing | Portugal | 100% | |||
Intertape Polymer Europe GmbH | Distribution | Germany | 100% | |||
IPG Luxembourg Finance S.à r.l | Financing | Luxembourg | 100% | |||
Intertape Woven Products, S.A. de C.V. | Distribution | Mexico | 100% | |||
Intertape Woven Products Services, S.A. de C.V. | Services | Mexico | 100% | |||
Spuntech Fabrics, Inc. | Holding | Canada | 100% | |||
Better Packages, Inc. | Manufacturing | United States | 100% | |||
BP Acquisition Corporation | Holding | United States | 100% | |||
RJM Manufacturing, Inc. | 100% | |||||
(d/b/a TaraTape) | Manufacturing | United States | 100% |
AsBusiness Acquisitions
The Company applies the acquisition method of accounting for business combinations. The consideration transferred by the Company to obtain control of a subsidiary is calculated as the sum of the resultacquisition-date fair values of an internal restructuring, effective December 31, 2012,assets transferred, liabilities incurred and the equity interests issued by the Company, liquidated and dissolved ECP GP II Inc. and ECP L.P., its Canadian operating companies, and all business, assetswhich includes the fair value of any asset or liability arising from a contingent consideration arrangement. Acquisition costs are expensed as incurred. Assets acquired and liabilities were transferred to Intertape Polymer Inc.assumed are generally measured at their acquisition-date fair values.
19
Financial Instruments
Financial assets and financial liabilities are recognized when the Company becomes party to the contractual provisions of the financial instrument.
Financial assets are derecognized when the contractual rights to the cash flows from the financial asset expire, or when the financial asset and all substantial risks and rewards are transferred. A financial liability is derecognized when it is extinguished, discharged, cancelled or when it expires.
On initial recognition, financial instruments are measured at fair value, plus transaction costs, except for financial assets and financial liabilities carried at fair value through profit or loss, which are measured initially at fair value.
In subsequent periods, the measurement of financial instruments depends on their classification. The classification of the Company’s financial instruments is presented in the following table:
Category | Financial instruments | |
| Cash | |
Trade receivables | ||
Other | ||
| Accounts payable and accrued liabilities(2) | |
Long-term debt(3) | ||
Derivatives used for hedging | Derivative financial instruments |
(1) Excluding income, sales and other taxes
(1) | Excluding prepaids and income, sales and other taxes |
(2) | Excluding employee benefits |
(3) | Excluded finance lease liabilities |
Loans and receivablesFinancial assets are non-derivativemeasured at amortized cost if the purpose of the Company’s business model is to hold the financial assets with fixed or determinable paymentsfor collecting cash flows and the contractual terms give rise to cash flows that are not quoted in an active market.solely payments of principal and interest. Discounting is omitted where the effect of discounting is immaterial. Subsequent to acquisition, trade receivables are measured at amortized cost using the effective interest rate method, which usually corresponds to the amount initially recorded as due from customers based on agreed upon payment terms less any allowance for doubtful accounts. Other receivables are subsequently measured at amortized cost using the effective interest method, including any impairment thereof. The expense relating to the allowance for doubtful accounts is recognized in Selling,earnings in selling, general and administrative expenses.
Other financialFinancial liabilities are measured at amortized cost using the effective interest method. All interest related charges are reportedrecognized in earnings within Financein finance costs.
Financial assets at fair value through profit or loss include financial assets that are either classified as held for trading or that meet certain conditions and are designated at fair value through profit or loss upon initial recognition. Assets in this category are measured at fair value on Discounting is omitted where the consolidated balance sheet, and the related gains and losses are recognized in earnings. The Company does not have any financial assets in this category.effect of discounting is immaterial.
All financial assets except those at fair value through profit or loss are subject to review for impairment at least at each reporting date. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably.
Objective evidence that a financial asset or a group of financial assets areis impaired could include:
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20
Evidence of impairment of Tradetrade receivables and Otherother receivables is considered at both specific asset and collective levels. Individually significant receivables are considered for impairment when they are past due or when other objective evidence is received that a specific counterparty will default. Receivables that are not considered to be individually impaired are reviewed for impairment by grouping together receivables with similar risk categories.
In assessing collective impairment, the Company uses historical trends of the probability of default, timing of recoveries and the amount of the loss incurred, adjusted for management’s judgment as to whether current economic and credit conditions are such that the actual losses are likely to be greater or less than those suggested by historical trends.
Derivative Financial Instruments and HedgingIndex to Financial Statements
The Company may use derivative financial instruments to mitigate or eliminate the interest rate risk on its long-term debt and the foreign exchange risk on certain inventory purchases.
The interest rate swap agreements were used as part of the Company’s program to manage the floating interest rate mix of the Company’s total debt portfolio and the related cost of borrowing. The interest rate swap agreements involve the exchange of periodic payments excluding the notional principal amount upon which the payments are based.
These payments were recorded as an adjustment of interest expense on the hedged debt instrument. The related amount payable to or receivable from counterparties is included as an adjustment to accrued interest.
The forward foreign exchange rate contracts were used to manage the exchange risk associated with certain highly probable forecast monthly inventory purchases of the Company’s United States (“US”) operations that are settled in Canadian dollars.
When the requirements for hedge accounting are met at inception, the Company’s policy is to designate each derivative financial instrument as a hedging instrument in a cash flow hedge relationship. Upon designation, the Company documents the relationships between the hedging instrument and the hedged item, including the risk management objectives and strategy in undertaking the hedge transaction, and the methods that will be used to assess the effectiveness of the hedging relationship.
At inception of thea hedge relationship and at each subsequent reporting date, the Company uses the critical terms method to determine prospectively whether or not the hedging instruments are expected to be “highly effective” in offsetting the changes in the cash flows of the respective hedged items during the period for which the hedge are designated. At each subsequent financial reporting date, the Company uses the dollar offset method to determine retrospectively whether or notevaluates if the hedging relationship has continuedqualifies for hedge accounting under IFRS 9 (2013), which includes the following conditions to be effective,met:
The effective portion of changes in the fair value of a derivative financial instrument designated as a hedging item is recognized in other comprehensive income (loss) and gains and losses related to the ineffective portion, if any, are immediately recognized in earnings. Amounts previously included as part of other comprehensive income (loss) are transferred to earnings in the period during which the changes in cash flowquantity of the hedged item impact net income.
Hedge accounting is discontinued prospectively when a derivative instrument ceases to satisfy the conditions for hedge accounting, or is sold or liquidated or the Company terminates the designation of the hedging relationship.liquidated. If the hedged item ceases to exist, unrealized gains or losses recognized in OCI (“other comprehensive income (loss)income”) are reclassified to earnings.
Embedded derivatives are separated from the host contract and accounted for separately if the economic characteristics and risks of the host contract and the embedded derivative are not closely related, if a separate instrument with the same terms as the embedded derivative would meet the definition of a
21
derivative, and if the combined instrument is not measured at fair value through profit or loss. As of December 31, 2012 and 2011, the Company did not have any embedded derivatives that needed to be separated from a host contract.
Comprehensive income (loss)
Total comprehensive income (loss) is the change in equity during the period resulting from transactions and other events. Other comprehensive income (loss) comprises items of income and expenses (including reclassification adjustments) that are not recognized in net earnings as required or permitted by IFRS. These items include gains and losses arising from the translation of consolidated subsidiaries having a functional currency different from the reporting currency, changes in the fair value of financial instruments designated as cash flow hedges and actuarial gains or losses and changes in asset ceiling and minimum funding requirements on defined benefit plans.
Foreign Currency Translation
Functional and presentation currency
The consolidated financial statements are presented in US dollars, which is the Company’s presentation currency. Items included in the financial statements of each of the consolidated entities are measured using the currency of the primary economic environment in which each entity operates (the “functional currency”). The significant functional currencies of the different consolidated entities include the US dollar, the Canadian dollar and the Euro.
Transactions and balances
Transactions denominated in currencies other than the functional currency of a consolidated entity are translated into the functional currency of that entity using the exchange rates prevailing at the date of each transaction.
Monetary assets and liabilities denominated in foreign currencies are translated into the functional currencies using the current rate at each period-end. Foreign exchange gains or losses arising on the settlement of monetary items or on the translation of monetary items at rates different from those at which they were translated on initial recognition during the period or in previous financial statements are recognized in earnings in finance costs in the period in which they arise, except when deferred in Otherother comprehensive income (loss) (“OCI”) as a qualifying cash flow hedge.
Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction.
Group companies
Assets and liabilities of entities with a functional currency other than the US dollar are translated to the presentation currency using the closing exchange rate in effect at the balance sheet date, and revenues and expenses are translated at theeach month end’s average exchange rate for the reporting period.rate. The resulting translation adjustments are includedcharged or credited to OCI and recognized in the Cumulativecumulative translation adjustment account within Accumulatedaccumulated other comprehensive income (loss) in Shareholders’shareholders’ equity.
On consolidation, exchange differences arising from the translation of the net investment in foreign operations are taken in
When a foreign operation is partially disposed of or sold, exchange differences that were recorded in equity are recognized in the statement of consolidated earnings (loss) as part of the gain or loss on sale.
Foreign exchange gains or losses recognized in earnings are presented in Costcost of sales and Financefinance costs.
22
Revenue Recognition
Revenues are generated almost exclusively from the sale of goods.
Revenue is recognized when the significant risks and rewards of ownership, legal title and effective control and management over the goods have transferred to the customer, collection of the relevant receivable is probable, the sales price is fixed and the revenues and the associated incurred costs can be measured reliably. Revenue is recognized in accordance with the terms of sale, generally when goods are shipped to external customers.
Revenue is measured by reference to the fair value of the consideration received or receivable, net of estimated returns, rebates and discounts.
Research
Research expenses are expensed as they are incurred, net of any related investment tax credits, unless the criteria for capitalization of development expenses are met.
Stock-Based PaymentsCompensation Expense
The Company has adopted an ESOP Plan, a SAR Plan, a PSU Plan and a SAR Plan.Deferred Share Unit Plan (“DSU Plan”).
With respect toFor the ESOP, the expense is based on the grant date fair value of the awards expected to vest over the vesting period. Forfeitures are estimated at the time of the grant and are included in the measurement of the expense and are subsequently adjusted to reflect actual events. For the SAR Plan, the expense is determined based on the fair value of the liability at the end of the reporting period until the award is settled. The expense is recognized over the vesting period, which is the period over which all of the specified vesting conditions are satisfied.
For awards with graded vesting, the fair value of each tranche is recognized on a straight-line basis over its respective vesting period. At the end of each reporting period, the Company re-assesses its estimates of the number of awards that are expected to vest and recognizes the impact of the revisions in the consolidated earnings (loss) statement. Please refer to Note 15 for more information regarding stock-based payments.
Any consideration paid by management and directors on exercise of stock options is credited to capital stock together with any related stock-based compensation expense originally recorded in contributed surplus. If the amount of the tax deduction (or estimated future tax deduction) exceeds the amount of the related cumulative remuneration expense for stock options, this indicates that the tax deduction relates not only to remuneration expense but also to ana shareholders’ equity item. In this situation, the Company recognizes the excess of the associated current or deferred tax to Contributedcontributed surplus prior to an award being exercised, and any such amounts are transferred to Capitalcapital stock upon exercise of the award.
For the SAR Plan, the expense is determined based on the fair value of the liability at the end of the reporting period until the award is settled. The expense is recognized over the vesting period. At the end of each reporting period, the Company re-assesses its estimates of the number of awards that are expected to vest and recognizes the impact of the revisions in the consolidated earnings statement.
For the PSU Plan, the expense is based on the grant date fair value of the awards expected to vest over the vesting period. The expense is recorded on a straight-line basis over the vesting period.
For the DSU Plan, the expense of Deferred Share Units (“DSUs”) received as a result of a grant is based on the closing price for the common shares of the Company on the TSX on the date of the grant. The expense is recognized immediately. The expense of DSUs received in lieu of cash for directors’ fees is based on the fair value of services rendered. The expense is recognized as earned over the service period.
Refer to Note 15 for more information regarding stock-based payments.
Earnings (Loss) Per Share
Basic earnings per share areis calculated by dividing the net earnings attributable to shareholders of the Company by the weighted average number of common shares outstanding during the period. period including the effect of the common shares repurchased under the normal course issuer bid (“NCIB”) and DSUs outstanding.
Diluted earnings per share wasis calculated usingby adjusting the denominatorweighted average number of common shares outstanding for the effect of the basic calculation described above adjusted to includecommon shares repurchased under the potentiallyNCIB and for the effects of all dilutive effectpotential outstanding stock options and contingently issuable shares.
Dilutive potential of outstanding stock options. The denominator is: (1) increased byoptions includes the total number of additional common shares that would have been issued by the Company assuming exercise of all stock options with exercise prices below the average market price for the year;year and (2) decreased by the number of shares that the Company could have repurchased if it had used the assumed proceeds from the exercise of stock options to repurchase them on the open market at the average share price for the period.
DSUs are not contingently issuable shares since the shares are issuable solely after the passage of time. As such, DSUs are treated as outstanding and included in the calculation of weighted average basic common shares.
Performance share units (“PSUs”) are contingently issuable shares since the shares are issuable only after certain service and market-based performance conditions are satisfied. PSUs are treated as outstanding and included in the calculation of weighted average basic common shares only after the date when these conditions are satisfied at the end of the vesting period.
PSUs are treated as outstanding and included in the calculation of weighted average diluted common shares, to the extent they are dilutive, when the applicable performance conditions have been satisfied as of the reporting period end date.
Inventories and Parts and Supplies
Raw materials, work in process and finished goods are measured at the lower of cost or net realizable value. Cost is assigned by using the first in, first out cost formula, and includes all costs of purchases, costs of conversion and other costs incurred in bringing the inventories to their present location and
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condition. Trade discounts, rebates and other similar items are deducted in determining the costs of purchase. The cost of work in process and finished goods includes the cost of raw materials, direct labour and a systematic allocation of fixed and variable production overhead incurred in converting materials into finished goods. The allocation of fixed production overheads to the cost of conversion is based on the normal capacity of the manufacturing facilities.
Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated selling expenses.
Parts and supplies are valued at the lower of cost which is equivalent to its purchase price or net realizable value the latter being determined based on replacement cost.
Assets Held-for-sale
Assets held for sale are non-current assets or disposal groups for which the carrying amount will be recovered principally through a sale transaction rather than through continuing use. These assets are classified as held for sale when they are available for immediate sale in their present condition, subject only to terms that are usual and customary for sales of such assets (or disposal groups), and the sale within one year is highly probable.
Assets held-for-sale are measured at the lower of their carrying amount or fair value less cost to sell and are not depreciated or amortized.
Property, Plant and Equipment
Property, plant and equipment are carried at cost less accumulated depreciation, accumulated impairment losses and the applicable investment tax credits earned. The cost of an item of property, plant and equipment comprises its purchase price, any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management and, where applicable, borrowing costs and the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located.
Depreciation is recognized using the straight-line method, over the estimated useful lives of like assets as outlined below or, if lower, over the terms of the related leases:
Years | ||
Land | Indefinite | |
Buildings and related major components | 5 to 40 | |
Manufacturing equipment and related major components | 5 to 30 | |
Computer equipment and software | 3 to | |
Furniture, office equipment and other | 3 to 7 | |
|
The depreciation methods, useful lives and residual values related to property, plant and equipment are reviewed and adjusted if necessary at each financial year-end.
When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment, and are depreciated over their respective useful lives. Depreciation of an asset begins when it is available for use in the location and condition necessary for it to be capable of operating in the manner intended by management. Manufacturing equipment under construction is not depreciated. Depreciation of an asset ceases at the earlier of the date that the asset is classified as held for sale, or is included in a disposal group that is classified as held for sale, and the date that the asset is derecognized.
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The cost of replacing a part of an item of property, plant and equipment is recognized in the carrying amount of the asset if it is probable that the future economic benefits embodied within the part will flow to the Company, and its cost can be measured reliably. At the same time, the carrying amount of the replaced part is derecognized. The costs of the day-to-day servicing of property, plant and equipment, and repairs and maintenance are recognized in earnings as incurred.
Gains or losses arising on the disposal of property, plant and equipment are determined as the difference between the net disposal proceeds and the carrying amount of the assets and are recognized in earnings in the Finance costs undercategory consistent with the Other expense caption onfunction of the accompanying statement of consolidated earnings (loss).property, plant and equipment.
Depreciation expense has beenis recognized in earnings in the expense category consistent with the function of the property, plant and equipment.
Intangible Assets
The Company has noa trademark and goodwill which are identifiable intangible assets for which the expected useful life is indefinite. The trademark represents the value of a brand name acquired in a business acquisition which management expects will provide benefit to the Company for an indefinite period. Goodwill represents the excess of the purchase price over the fair value of the identifiable net assets acquired in a business acquisition. Intangible assets with indefinite useful lives that are acquired separately are carried at cost.
When intangible assets are purchased with a group of assets, as was the case of distribution rights and customer contracts, the cost of the group of assets is allocated to the individual identifiable assets and liabilities on the basis of their relative fair values at the date of purchase. When intangible assets are purchased separately, as was the case of the license agreement and software, the cost comprises its purchase price and any directly attributable cost of preparing the asset for its intended use.
Intangible assets are carried at cost less accumulated amortization and are amortized using the straight-line method, over their estimated useful lives as follows:
Years | ||||
Distribution rights and customer contracts | 6 | |||
Customer lists, license | 5 | |||
Patents/Trademarks | 5 - indefinite | |||
Non-compete agreements | 3 |
The amortization methods, useful lives and residual values related to intangible assets are reviewed and adjusted if necessary at each financial year-end. Amortization begins when the asset is available for use, i.e. when it is in the location and condition necessary for it to be capable of operating in the manner intended by management. Amortization expense is recognized in earnings in the expense category consistent with the function of the intangible asset.
Borrowing Costs
Borrowing costs, directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use, are capitalized as part of the cost of the asset. All other borrowing costs are recognized in earnings within Interestinterest in the period they are incurred. Borrowing costs consist of interest and other costs incurred in connection with the borrowing of funds.
Impairment Testing of Intangible Assets, Goodwill and Property, Plant and Equipment
The Company assesses, at least at each reporting date, whether or not there is an indication that an asseta CGU may be impaired. If such an indication exists, or when annual impairment testing is required for intangible assets, such as applications software not yet available for use, the Company estimates the recoverable amount of the asset. The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of other assets or groups of assets. In the latter case, the recoverable amount is determined for a CGU which is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or group of assets.
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Goodwill is allocated to CGU that are expected to benefit from synergies of a related business combination and represent the lowest level within the group at which management monitors goodwill.
The recoverable amount is the higher of its value in use and its fair value less costs to sell. Value in use is the present value of the future cash flows expected to be derived from an asset or cash-generating unit.CGU. Fair value less costs to sell is the amount obtainable from the sale ofprice that would be received to sell an asset or cash-generating unitCGU in an arm’s lengthorderly transaction between knowledgeable, willing parties,market participants, less the cost of disposal. The Company determines the recoverable amount and compares it with the carrying amount. If the carrying amount exceeds the recoverable amount, an impairment loss is recognized for the difference. Impairment losses are recognized in earnings in the expense category consistent with the function of the corresponding property, plant and equipment or intangible asset. Impairment losses recognized in respect of cash-generating unitsCGUs are allocated to reduce the carrying amounts of the assets of the unit or group of units on a pro rata basis of the carrying amount of each asset in the unit or group of units.
AnWith the exception of goodwill, an assessment is made at each reporting date as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. In this case, the Company will estimate the recoverable amount of that asset, and if appropriate, record a partial or an entire reversal of the impairment. The increased carrying amount of an asset attributable to a reversal of an impairment loss would not exceed the carrying amount that would have been determined (net of amortization or depreciation) had no impairment loss been recognized for the asset in prior years.
Goodwill is subject to impairment testing at least once a year, or more frequently if events or changes in circumstances indicate the carrying amount may be impaired. Goodwill is considered to be impaired when the carrying amount of the cash generating unit or group of cash generating units to which the goodwill has been allocated exceeds its fair value. An impairment loss, if any, would be recognized in the statement of earnings. ProvisionsIndex to Financial Statements
Contingent Liabilities and Contingent Assets
Provisions represent liabilities to the Company for which the amount or timing is uncertain. Provisions are recognized if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. The amount recognized as a provision is the best estimate of the expenditure required to settle the present obligation at the end of the reporting period. Provisions are measured at the present value of the expected expenditures to settle the obligation which, when the effect of the time value of money is material, is determined using a discount rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision during the period to reflect the passage of time is recognized as Interest.a finance cost in earnings.
A provision is recorded in connection with the estimated future costs to restore a leased property to its original condition at the inception of the lease agreement. The liability and a corresponding asset are recorded on the Company’s consolidated balance sheet respectively under the captions Provisions,provisions, and Property,property, plant and equipment (machinery and equipment). The provision is reviewed at the end of each reporting period to reflect the passage of time, changes in the discount rate and changes in the estimated future restoration costs. The Company amortizes the amount capitalized to Property,property, plant and equipment on a straight-line basis over the expected lease term and recognizes a financial cost in connection with the discounted liability over the same period. Changes in the liability are added to, or deducted from, the cost of the related asset in the current period. These changes to the capitalized cost result in an adjustment to depreciation and interest.
ContingentA provision is recorded in connection with environmental expenditures relating to existing conditions caused by past operations that do not contribute to current or future revenues. Provisions for liabilities represent a possible obligationrelated to the Company that arises from past events the existence of which will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events thatanticipated remediation costs are not wholly within the control of the entity; orrecorded on an undiscounted basis when they are probable and reasonably estimable, and when a present obligation exists as a result of a past event. Environmental expenditures for capital projects that arises from past events butcontribute to current or future operations generally are capitalized and depreciated over their estimated useful lives.
A provision is not recognized because it is not probable that an outflow of resources embodying economicrecorded in connection with termination benefits will be required to settleat the obligation; or the amountearlier of the obligation cannotdate on which the Company can no longer withdraw the offer of those benefits and the date on which the Company recognizes costs related to restructuring activities. In the case of an offer made to encourage voluntary redundancy, the termination benefits are measured based on the number of employees expected to accept the offer. If benefits are not expected to be measured with sufficient reliability.settled wholly within 12 months of the end of the reporting period, then they are presented on a discounted basis.
Pension and Other Post-Retirement Benefits
The Company has defined contribution and defined benefit pension plans and other post-retirement benefit plans for certain of its employees in Canada and the US.
A defined contribution plan is a post-retirement benefit plan under which the Company pays fixed contributions into a separate entity and to which it will have no legal or constructive obligation to pay future amounts. The Company contributes to several state plans, multi-employer plans and insurance funds for individual employees that are considered defined contribution plans. Contributions to defined contribution pension plans are recognized as an employee benefit expense in earnings in the periods during which services are rendered by employees.
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A defined benefit plan is a post-retirement benefit plan other than a defined contribution plan. For defined benefit pension plans and other post-retirement benefit plans, the benefits expense and the related obligations are actuarially determined on an annual basis by independent qualified actuaries using the projected unit credit method. As deemed necessary,Past service costs are recognized as an expense in earnings immediately
following the Company may amend defined benefit plans offeredintroduction of, or changes to, employees, requiringa pension plan. Remeasurements, comprising of actuarial gains and losses, the remeasurementeffect of the benefits expenseasset ceiling, the effect of minimum funding requirements and the related obligations.return on plan assets (excluding amounts included in net interest expense) are recognized immediately in OCI, net of income taxes, and in deficit.
The asset or liability related to a defined benefit plan recognized in the balance sheet is the present value of the defined benefit obligation at the end of the reporting period, less the fair value of plan assets, together with adjustments for unrecognized past service costs, the asset ceiling and minimum funding liabilities. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid and that have terms to maturity approximating the terms of the related pension liability.
Past service costs are recognized as an expense on a straight-line basis over the average vesting period until the benefits become vested. If the benefits have already vested, immediately following the introduction of, or changes to, a pension plan, past service costs are recognized immediately in earnings. The Company recognizes all actuarial gains and losses arising from defined benefit plans immediately in Other comprehensive income, net of income taxes, and in deficit.
For funded plans, surpluses are recognized only recognized to the extent that the surplus is considered recoverable. Recoverability is primarily based on the extent to which the Company can unilaterally reduce future contributions to the plan. Any reduction in the recognized asset is recognized in Other comprehensive income,OCI, net of income taxes, and in deficit.
An additional liability is recognized based on the minimum funding requirement of a plan when the Company does not have an unconditional right to the plan surplus. The liability and any subsequent remeasurement of that liability is recognized in Other comprehensive income,OCI, net of income taxes, and in deficit.
Leases
Leases are classified as either operating or finance, based on the substance of the transaction at inception of the lease. Classification is re-assessed if the terms of the lease are changed other than by renewing the lease.
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. PaymentsExpenses under an operating lease are recognized in the statement of consolidated earnings (loss) on a straight-line basis over the period of the lease.
Leases in which substantially all the risks and rewards of ownership are transferred to the Company are classified as finance leases. Assets meeting finance lease criteria are capitalized at the lower of the present value of the related lease payments or the fair value of the leased asset at the inception of the lease. Minimum lease payments are apportioned between the finance cost and the liability. The finance charge is recognized in earnings within Financein finance costs and is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability.
Income Taxes
Income tax expense (benefit) comprises both current and deferred tax. Current and deferred tax is recognized in earnings except to the extent it relates to items recognized in Other comprehensive income (loss)OCI or directly in Shareholders’shareholders’ equity. When it relates to the latter items, the income tax is recognized in Other comprehensive incomeOCI or directly in Shareholders’shareholders’ equity, respectively.
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Current tax expense is based on the results for the period as adjusted for items that are not taxable or deductible. Current tax is calculated using tax rates and laws enacted or substantially enacted at the reporting date in the countries where the Company operates and generates taxable income.
Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulations are subject to interpretation. Provisions are established where appropriate on the basis of amounts expected to be paid to the taxing authorities.
Deferred tax is recognized in respect of temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the balance sheet. A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences to the extent that it is probable that future taxable income will be available against which they can be utilized. Deferred tax is calculated using tax rates and laws enacted or substantially enacted at the reporting date in the countries where the Company operates, and which are expected to apply when the related deferred income tax asset is realized or the deferred tax liability is settled.
The carrying amountamounts of deferred tax assets are reviewed at each reporting period and reduced to the extent that it is no longer probable that sufficient taxable income will be available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets are reassessed at each reporting period and are recognized to the extent that it has become probable that future taxable income will allow the deferred tax asset to be recovered.
Deferred tax assets and deferred tax liabilities are offset only if a legally enforceable right exists to set off the recognized amounts and the deferred taxes relate to the same taxable entity and the same taxation authority.
Shareholders’ Equity
Capital stock represents the amount received on issuance of shares less(less any issuance costs and net of taxes.taxes), stock-based compensation expense credited to capital on stock options exercised and common shares repurchased equal to the carrying value. Contributed surplus includes amounts related to stock options, PSUs and DSUs until such equity instruments are exercised or settled, in which case the amounts are transferred to Capital stock.capital stock or reversed upon forfeiture. Foreign currency translation differences arising on the translation of the consolidated entities that use a functional currency different from the presentation currency are included in the Cumulativecumulative translation adjustment account. Gains and losses on certain derivative financial instruments designated as hedging instruments are included in reserves for cash flow hedges until such time as the hedged forecasted cash flows affect earnings. Deficit includes all current and prior period retained earnings or losses.losses, the excess of the purchase price paid over the carrying value of common share repurchases, dividends on common shares and remeasurement of defined benefit liability net of income tax expense (benefit).
Share Repurchases
The purchase price of the common shares repurchased equal to its carrying value is recorded in capital stock in the consolidated balance sheet and in the statement of consolidated changes in shareholders’ equity. The excess of the purchase price paid over the carrying value of the common shares repurchased is recorded in deficit in the consolidated balance sheet and in the statement of consolidated changes in shareholders’ equity as a share repurchase premium.
Dividends
Dividend distributions to the Company’s shareholders are recognized as a liability in the consolidated balance sheets if not paid in the period in which dividends are approved by the Company’s Board of Directors.
Segment Reporting
The Company operates as a single segment.
Changes in Accounting Policies
On January 1, 2015, the Company adopted and implemented IFRS 9 (2013) –Financial Instruments. This standard replaces IAS 39 –Financial Instruments: Recognition and Measurement and previous versions of IFRS 9. IFRS 9 (2013) includes revised guidance on the classification and measurement of financial assets and liabilities and introduces a new general hedge accounting model which aims to better align a company’s hedge accounting with risk management.
Previously, the Company classified financial assets when they were first recognized as fair value through profit or loss, available for sale, held to maturity investments or loans and receivables. Under IFRS 9 (2013), the Company classifies financial assets under the same two measurement categories as financial liabilities: amortized cost or fair value through profit and loss. Financial assets are classified as amortized cost if the purpose of the Company’s business model is to hold the financial assets for collecting cash flows and the contractual terms give rise to cash flows that are solely payments of principal and interest. All other financial assets are classified as fair value through profit or loss. The adoption of this standard has not resulted in any changes to comparative figures.
The Company has not yet adopted IFRS 9 (2014) –Financial Instruments that incorporates the new impairment model that assesses financial assets based on expected losses rather than incurred losses as applied in IAS 39. This final standard will replace IFRS 9 (2013) and is effective for annual periods on or after January 1, 2018.
New Standards and Interpretations Issued Butbut Not Yet Effective
Certain new standards, amendments and interpretations, and improvements to existing standards have been published by the IASB but are not yet effective, and have not been adopted early by the Company. Management anticipates that all of the relevant pronouncements will be adopted forin the first reporting period beginningfollowing the date of the pronouncement.application. Information on new standards, amendments and interpretations, and improvements to existing standards, which could potentially impact the Company’s consolidated financial statements, are detailed as follows:
AmendedIFRS 15 – Revenue from Contracts with Customers replaces IAS 118 –Presentation of Financial Statements: Amended Revenue, IAS 1 includes11 – Construction Contracts and some revenue related interpretations. IFRS 15 establishes a new requirement for entities to group items presented in other comprehensive income oncontrol-based revenue recognition model, changes the basis of whether they are
28
potentially re-classifiable to profitfor deciding when revenue is recognized at a point in time or loss. Theover time, provides new requirementand more detailed guidance on specific topics and expands and improves disclosures about revenue. IFRS 15 is effective for annual reporting periods beginning on or after JulyJanuary 1, 2012.2018. Management does not expect a significanthas yet to assess the impact from Amended IAS 1of this new standard on the Company’s consolidated financial statements of the Company.statements.
IFRS 9 (2014) –Financial Instruments: The IASB intends to replace IAS 39Financial Instruments: Recognition and Measurement in its entirety. The replacement standard (IFRS 9) is being was issued in phases. To date,July 2014 and differs in some regards from IFRS 9 (2013) which the chapters dealing with recognition,Company adopted effective January 1, 2015. IFRS 9 (2014) includes updated guidance on the classification measurement and derecognitionmeasurement of financial assets and liabilities have been issued. These chapters areassets. The final standard also amends the impairment model by introducing a new expected credit loss model for calculating impairment. The mandatory effective date of IFRS 9 (2014) is for annual periods beginning on or after January 1, 2015. Further chapters dealing2018 and must be applied retrospectively with impairment methodology and hedge accounting are still being developed.some exemptions. Early adoption is permitted. Management has yet to assess the impact that these amendments are likely to haveof this new standard on the Company’s consolidated financial statementsstatements.
In January 2016, the IASB published IFRS 16 – Leases which will replace IAS 17 – Leases. IFRS 16 eliminates the classification as an operating lease and requires lessees to recognize a right-of-use asset and a lease liability in the statement of the Company.
IFRS 10 –Consolidated Financial Statements and IFRS 12 –Disclosure of Interests in Other Entities: IFRS 10 provides a single consolidation model that identifies control as the basis for consolidationfinancial position for all typesleases with exemptions permitted for short-term leases and leases of entities.low value assets. In addition, IFRS 10 replaces16 changes the definition of a lease; sets requirements on how to account for the asset and liability, including complexities such as non-lease elements, variable lease payments and options periods; changes the accounting for sale and leaseback arrangements; largely retains IAS 27Consolidated17’s approach to lessor accounting and Separate Financial Statements and SIC-12Consolidation – Special Purpose Entities.introduces new disclosure requirements. IFRS 12 combines, enhances and replaces the disclosure requirements for subsidiaries, joint arrangements, associates and unconsolidated structured entities. As a consequence of these new IFRS disclosure requirements, the IASB also issued amended and retitled IAS 27Separate Financial Statements. IAS 28Investments in Associates and Joint Ventures has been amended to include joint ventures in its scope and to address the changes in IFRS 10 to IFRS 13. The new requirements are16 is effective for annual reporting periods beginning on or after January 1, 2013. These new standards will have no impact on2019 with early application permitted in certain circumstances. Management has yet to assess the Company as it has interests only in fully owned subsidiaries.
IFRS 13 –Fair Value Measurement: IFRS 13 clarifies the definition of fair value and provides related guidance and enhanced disclosures about fair value measurements. IFRS 13 applies when other IFRS standards require or permit fair value measurements. It does not introduce any new requirements to measure an asset or a liability at fair value, change what is measured at fair value in IFRS standards or address how to present changes in fair value. The new requirements apply prospectively and are effective for annual periods beginning on or after January 1, 2013. The impact of this new standard will have no impact on the Company’s current fair value measurement accounting practices or disclosures.
Amended IAS 19 –Employee Benefits: Amended for annual periods beginning on or after January 1, 2013 with retrospective application. The new standard introduces a measure of net interest income (expense) computed on the net pension asset (obligation) that will replace separate measurement of the expected return on plan assets and interest expense on the benefit obligation. The new standard also requires immediate recognition of past service costs associated with benefit plan changes; eliminating the requirement to recognize over the vesting period.
Upon retrospective application of the new standard, the Company’s restated net earnings for 2012 will be lower than originally reported under the current accounting standard. The decrease will arise under the new standard primarily because net interest income (expense) will be calculated using the discount rate used to value the benefit obligation, which is lower than the expected rate of return on assets currently used to measure interest attributable to plan assets. The expected rate of return on assets will no longer be a critical accounting estimate because the Company will not use this to measure under the new accounting standard.
The expected impact of adoption is a decrease to earnings before income tax expense (benefit) of $1.9 to $2.9 million and $1.2 to $2.1 million for the years ended December 31, 2012 and 2011, respectively.its consolidated financial statements.
Certain other new standards and interpretations have been issued but are not expected to have a material impact on the Company’s consolidated financial statements.
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3 -INFORMATION INCLUDED IN CONSOLIDATED EARNINGS (LOSS)
2012 | 2011 | 2010 | |||||||||||||
$ | $ | $ | |||||||||||||
Employee benefit expense | |||||||||||||||
Wages, salaries and other short-term benefits | 137,847 | 134,121 | 129,095 | ||||||||||||
Stock-based compensation expense | 1,832 | 818 | 769 | ||||||||||||
Pensions – defined benefit plans (Note 17) | 1,480 | 953 | 1,515 | ||||||||||||
Pensions – defined contribution plans (Note 17) | 3,682 | 2,218 | 536 | ||||||||||||
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144,841 | 138,110 | 131,915 | |||||||||||||
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| ||||||||||
Finance costs - Interest | |||||||||||||||
Interest on long-term debt | 11,556 | 14,453 | 14,503 | ||||||||||||
Amortization of debt issue costs on long-term debt and asset based loan | 1,954 | 1,182 | 1,116 | ||||||||||||
Other interest and financial (income) expense | - | (116 | ) | 58 | |||||||||||
Interest capitalized to property, plant and equipment | (277 | ) | (158 | ) | (7 | ) | |||||||||
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|
|
|
| ||||||||||
13,233 | 15,361 | 15,670 | |||||||||||||
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|
|
|
| ||||||||||
Finance costs - Other expense | |||||||||||||||
Foreign exchange (gain) loss | 152 | 453 | (802 | ) | |||||||||||
Interest (income) and other finance costs, net | 1,151 | 1,409 | 1,432 | ||||||||||||
Change in fair value of forward foreign exchange rate contracts | - | 318 | 250 | ||||||||||||
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|
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| ||||||||||
1,303 | 2,180 | 880 | |||||||||||||
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Additional information | |||||||||||||||
Depreciation of property, plant and equipment | 29,646 | 30,163 | 32,580 | ||||||||||||
Amortization of intangible assets | 751 | 719 | 902 | ||||||||||||
Amortization of other charges | 35 | 86 | 58 | ||||||||||||
Impairment of long-term assets | 12,180 | 107 | 4,037 | ||||||||||||
Loss on disposal of property, plant and equipment | 436 | 550 | 308 | ||||||||||||
Write-down of inventories to net realizable value | 57 | 517 | 1,651 | ||||||||||||
Reversal of write-down of inventories to net realizable value, recognized as a reduction of cost of sales | (88 | ) | (487 | ) | (10 | ) | |||||||||
Related party advisory and support services fees | - | 153 | 796 |
2015 | 2014 | 2013 | ||||||||||
$ | $ | $ | ||||||||||
Employee benefit expense | ||||||||||||
Wages, salaries and other short-term benefits | 148,887 | 139,682 | 135,269 | |||||||||
Termination benefits (Note 14) | (27 | ) | 740 | 905 | ||||||||
Stock-based compensation expense | 3,249 | 6,185 | 4,937 | |||||||||
Pensions and other post-retirement benefits – defined benefit plans (Note 17) | 2,750 | 4,597 | 3,186 | |||||||||
Pensions and other post-retirement benefits – defined contribution plans (Note 17) | 4,016 | 3,606 | 3,641 | |||||||||
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| |||||||
158,875 | 154,810 | 147,938 | ||||||||||
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Finance costs - Interest | ||||||||||||
Interest on long-term debt | 3,737 | 3,763 | 5,255 | |||||||||
Amortization of debt issue costs on long-term debt | 473 | 1,993 | 1,034 | |||||||||
Interest capitalized to property, plant and equipment | (657 | ) | (1,125 | ) | (582 | ) | ||||||
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| |||||||
3,553 | 4,631 | 5,707 | ||||||||||
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Finance costs - Other (income) expense, net | ||||||||||||
Foreign exchange (gain) loss | (1,287 | ) | 541 | (102 | ) | |||||||
Other costs, net | 894 | 987 | 1,048 | |||||||||
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| |||||||
(393 | ) | 1,528 | 946 | |||||||||
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Additional information | ||||||||||||
Depreciation of property, plant and equipment (Note 9) | 29,857 | 25,498 | 27,062 | |||||||||
Amortization of intangible assets (Note 11) | 1,023 | 671 | 684 | |||||||||
Impairment (reversal of impairment) of assets (Note 12) | (1,240 | ) | 54 | 22,497 |
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4 -MANUFACTURING FACILITY CLOSURES, RESTRUCTURING AND OTHER RELATED CHARGES
The following table describes the charges incurred by the Company, in connection with its restructuring efforts,which are included in the Company’s consolidated earnings for each of the years in the three-year period ended December 31, 20122015 under the caption Manufacturingmanufacturing facility closures, restructuring and other related charges.charges:
2012 | 2011 | 2010 | |||||||||||||
$ | $ | $ | |||||||||||||
Impairment of property, plant and equipment (Note 12) | 11,677 | 107 | 665 | ||||||||||||
Impairment of parts and supplies | 1,168 | - | - | ||||||||||||
Equipment relocation | 1,339 | - | - | ||||||||||||
Write-down of inventories to net realizable value | 855 | - | 875 | ||||||||||||
Severance and other labor related costs | 1,585 | 1,411 | 1,994 | ||||||||||||
Impairment of intangible assets (Note 12) | 503 | - | - | ||||||||||||
Idle facility costs | 1,087 | 1,373 | - | ||||||||||||
Other costs | 43 | - | - | ||||||||||||
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| ||||||||||
18,257 | 2,891 | 3,534 | |||||||||||||
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2015 | ||||||||||||||||
South | South | |||||||||||||||
Carolina | Carolina | Other | ||||||||||||||
Project | Flood | projects | Total | |||||||||||||
$ | $ | $ | $ | |||||||||||||
Impairment (reversal of impairment) of property, plant and equipment | (494 | ) | 923 | 558 | 987 | |||||||||||
Impairment (reversal of impairment) of parts and supplies | (60 | ) | 11 | 4 | (45 | ) | ||||||||||
Equipment relocation | 186 | — | 4 | 190 | ||||||||||||
Revaluation and impairment of inventories | 110 | 3,614 | — | 3,724 | ||||||||||||
Termination benefits and other labor related costs | 988 | 88 | 26 | 1,102 | ||||||||||||
Idle facility costs | 822 | 1,465 | — | 2,287 | ||||||||||||
Insurance proceeds | — | (5,000 | ) | — | (5,000 | ) | ||||||||||
Professional fees | — | 273 | — | 273 | ||||||||||||
Other costs (recoveries) | (9 | ) | 157 | — | 148 | |||||||||||
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| |||||||||
1,543 | 1,531 | 592 | 3,666 | |||||||||||||
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2014 | 2013 | |||||||||||||||||||||||
South | South | |||||||||||||||||||||||
Carolina | Other | Carolina | Other | |||||||||||||||||||||
Project | projects | Total | Project | projects | Total | |||||||||||||||||||
$ | $ | $ | $ | $ | $ | |||||||||||||||||||
Impairment (reversal of impairment) of property, plant and equipment | (481 | ) | 226 | (255 | ) | 22,215 | 121 | 22,336 | ||||||||||||||||
Impairment (reversal of impairment) of parts and supplies | — | 77 | 77 | 1,312 | (7 | ) | 1,305 | |||||||||||||||||
Equipment relocation | 2,062 | 462 | 2,524 | 767 | 1,791 | 2,558 | ||||||||||||||||||
Revaluation and impairment (reversal of impairment) of inventories | 42 | 54 | 96 | 22 | (121 | ) | (99 | ) | ||||||||||||||||
Termination benefits and other labor related costs | 1,559 | 271 | 1,830 | 1,012 | 129 | 1,141 | ||||||||||||||||||
Environmental costs | — | — | — | 2,518 | — | 2,518 | ||||||||||||||||||
Idle facility costs | — | 632 | 632 | — | 812 | 812 | ||||||||||||||||||
Professional fees | 18 | 3 | 21 | 86 | 137 | 223 | ||||||||||||||||||
Other costs (recoveries) | — | 2 | 2 | 5 | (93 | ) | (88 | ) | ||||||||||||||||
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3,200 | 1,727 | 4,927 | 27,937 | 2,769 | 30,706 | |||||||||||||||||||
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On February 26, 2013, the Company announced its intention to relocate its Columbia, South Carolina manufacturing facility within the region in order to modernize facility operations and acquire state-of-the-art manufacturing equipment (“South Carolina Project”).
On October 4, 2015, the Columbia, South Carolina manufacturing facility was damaged by significant rainfall and subsequent severe flooding (“South Carolina Flood”). The damages sustained were considerable and resulted in the facility, which was previously scheduled to close by the end of the second quarter of 2016, being shut down permanently.
Going forward, the Company expects, but is currently unable to provide a reliable estimate for the amount and timing of future amounts related to: insurance recoveries, business interruption losses (including, but not limited to, lost revenue and temporary alternative sourcing of the Company’s products), site clean-up and environmental remediation costs, and professional fee costs related to the insurance claim process. The Company believes that it has sufficient property and business interruption insurance coverage, and expects that the losses exceeding the $0.5 million deductible will be substantially covered by those insurance policies. During the year ended December 31, 2015, the Company recognized insurance recoveries for an amount of $5.0 million in insurance settlement claim proceeds.
On June 26, 2012, the Company announced its intention to close its Richmond, Kentucky manufacturing facility to(which was sold in December 2015), and consolidate its shrink film production from Truro, Nova Scotia to Tremonton, Utah, andas well as other small restructuring initiatives. The majority of products produced in the Richmond, Kentucky facility have been transferred to the Company’s Carbondale, Illinois facility. Woven fabric products will continue to be produced at the Truro, Nova Scotia facility.
In 2012, in connection with the closureThe incremental costs of the Richmond, Kentucky manufacturing facility closure, consolidation of the shrink film production from Truro, Nova Scotia to Tremonton, Utah and other small restructuring initiatives a charge of $17.2 million was incurred.
In 2012, in connection with the closure of the Brantford, Ontario facility, the Company recorded additional charges of $1.1 million, on severance and other labor related costs and other closing expenses. As of December 31, 2012, the total charge recorded in connection with this facility closure was $7.0 million.
Due to the economic consequences of significant and unsustainable losses associated with the strike of its unionized workers, and the Company’s management assessment and conclusion that turnaround was unlikely, the Company decided and accordingly committed,are in the latter part of 2010, to a plan to close its manufacturing facility in Brantford, Ontario, Canada. In 2010, the total charge associated with this facility closure was $2.9 million. This charge included $0.9 million associated with the write-down of inventories, including parts and supplies, to net realizable value, and $2.0 million in severance and other labor related costs. Severance and other labor related costs will be paid over a period not exceeding March 2013, depending on the arrangements, rights and obligations of the related employees.
In 2011, in connection with the closure of the Brantford, Ontario facility, the Company recorded additional charges of $3.0 million, on impairment, severance and other labor related costs and other closing expenses.
In 2011, in connection with the closure of the Hawkesbury, Ontario facility, the Company recovered $0.2 million on the sale of remaining assets.
In 2010, in connection with the closure of the Hawkesbury, Ontario facility, the Company recorded an additional impairment charge of $0.7 million, on the remaining assets.table above under Other projects.
As of December 31, 2012, $1.12015, $3.0 million is included in provisions ($1.45.0 million in 2011)2014) and nil (nil in 2011)$1.6 million in accounts payable and accrued liabilities (nil in 2014) for restructuring provisions.
31
5 -INCOME TAXES
The reconciliation of the combined Canadian federal and provincial statutory income tax rate to the Company’s effective income tax rate is detailed as follows:
2012 | 2011 | 2010 | |||||||||||||
% | % | % | |||||||||||||
Combined Canadian federal and provincial income tax rate | 28.9 | 30.4 | 32.8 | ||||||||||||
Foreign earnings/losses taxed at higher income tax rates | 9.8 | 10.8 | (4.3) | ||||||||||||
Foreign earnings/losses taxed at lower income tax rates | 0.4 | 3.2 | 1.4 | ||||||||||||
Stock-based compensation | (4.9) | - | - | ||||||||||||
Expiration of operating losses | - | - | (5.9) | ||||||||||||
Non-deductible expenses | 0.1 | 5.5 | (0.8) | ||||||||||||
Impact of other differences | 1.4 | 3.5 | (0.6) | ||||||||||||
Derecognition of deferred tax assets | (34.1) | (35.7) | (239.5) | ||||||||||||
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| ||||||||||
Effective income tax rate | 1.6 | 17.7 | (216.9) | ||||||||||||
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| ||||||||||
Major components of income tax expense
| |||||||||||||||
2012 | 2011 | 2010 | |||||||||||||
$ | $ | $ | |||||||||||||
Current income tax expense (benefit) | |||||||||||||||
Income tax expense (benefit) for the year | 927 | 688 | (10) | ||||||||||||
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|
| ||||||||||
Total current income tax expense (benefit) | 927 | 688 | (10) | ||||||||||||
Deferred tax expense (benefit) | |||||||||||||||
Amount related to temporary differences, write-downs of deferred tax assets and other | (552) | 1,232 | 33,243 | ||||||||||||
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|
|
|
| ||||||||||
Total deferred income tax expense (benefit) | (552) | 1,232 | 33,243 | ||||||||||||
Total tax expense (benefit) for the year | 375 | 1,920 | 33,233 | ||||||||||||
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2015 | 2014 | 2013 | ||||||||||
% | % | % | ||||||||||
Combined Canadian federal and provincial income tax rate | 29.5 | 28.5 | 28.3 | |||||||||
Foreign earnings/losses taxed at higher income tax rates | 5.8 | 9.7 | 9.5 | |||||||||
Foreign earnings/losses taxed at lower income tax rates | (1.0 | ) | (0.1 | ) | (0.1 | ) | ||||||
Legal entity reorganization | (0.0 | ) | 5.6 | — | ||||||||
Change in statutory rates | (1.6 | ) | (0.2 | ) | (6.8 | ) | ||||||
Prior period adjustments | (3.1 | ) | 0.1 | (13.9 | ) | |||||||
Nondeductible expenses | 0.7 | 1.7 | 1.9 | |||||||||
Impact of other differences | (1.1 | ) | (0.0 | ) | 0.6 | |||||||
Nontaxable dividend | (7.6 | ) | (1.6 | ) | — | |||||||
Change in derecognition of deferred tax assets | (5.4 | ) | (4.7 | ) | (133.0 | ) | ||||||
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| |||||||
Effective income tax rate | 16.2 | 39.0 | (113.5 | ) | ||||||||
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For the year ended December 31, 2012, the Company estimated a recovery of $8.3 million of derecognized deferred tax assets in the US jurisdiction due to increased earnings.
Income Taxes Related toMajor Components of Other Comprehensive Income Tax Expense (Benefit)
2015 | 2014 | 2013 | ||||||||||
$ | $ | $ | ||||||||||
Current income tax expense | 8,185 | 3,665 | 3,622 | |||||||||
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| |||||||
Deferred tax expense (benefit) | ||||||||||||
(Recognition) derecognition of US deferred tax assets | (113 | ) | 114 | (46,049 | ) | |||||||
US temporary differences | 7,794 | 19,411 | 3,011 | |||||||||
(Recognition) derecognition of Canadian deferred tax assets | (3,847 | ) | (2,872 | ) | 4,067 | |||||||
Canadian temporary differences | (1,095 | ) | 2,579 | (316 | ) | |||||||
Temporary differences and derecognition of deferred tax assets in other jurisdictions | 59 | 6 | (139 | ) | ||||||||
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| |||||||
Total deferred income tax expense (benefit) | 2,798 | 19,238 | (39,426 | ) | ||||||||
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| |||||||
Total tax expense (benefit) for the year | 10,983 | 22,903 | (35,804 | ) | ||||||||
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Income taxes related to components of other comprehensive income (loss)
The amount of income taxes relating to components of other comprehensive income (loss) are outlined below:
Components of Other comprehensive income | Amount before income tax | Deferred income taxes | Amount net of income taxes | ||||||||||||
$ | $ | $ | |||||||||||||
For the year ended December 31, 2012 | |||||||||||||||
Deferred tax benefit on actuarial losses on defined benefit plans | (6,451 | ) | 862 | (5,589 | ) | ||||||||||
Deferred tax benefit on funding requirement changes of defined benefit plans | (1,194 | ) | 347 | (847 | ) | ||||||||||
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(7,645 | ) | 1,209 | (6,436 | ) | |||||||||||
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Amount before income tax | Deferred income taxes | Amount net of income taxes | ||||||||||
$ | $ | $ | ||||||||||
For the year ended December 31, 2015 | ||||||||||||
Deferred tax benefit on remeasurement of defined benefit liability | 2,550 | (964 | ) | 1,586 | ||||||||
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2,550 | (964 | ) | 1,586 | |||||||||
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For the year ended December 31, 2014 | ||||||||||||
Deferred tax benefit on remeasurement of defined benefit liability | (10,703 | ) | 3,894 | (6,809 | ) | |||||||
Deferred tax expense on funding requirement changes of defined benefit plans | 2,497 | (711 | ) | 1,786 | ||||||||
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(8,206 | ) | 3,183 | (5,023 | ) | ||||||||
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For the year ended December 31, 2013 | ||||||||||||
Deferred tax expense on remeasurement of defined benefit liability | 18,588 | (6,416 | ) | 12,172 | ||||||||
Deferred tax benefit on funding requirement changes of defined benefit plans | (927 | ) | 256 | (671 | ) | |||||||
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17,661 | (6,160 | ) | 11,501 | |||||||||
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Deferred tax benefit due to the recognition of US deferred tax assets | 4,671 |
32
Components of Other comprehensive income | Amount before income tax | Deferred income taxes | Amount net of income taxes | ||||||||||||
$ | $ | $ | |||||||||||||
For the year ended December 31, 2011 | |||||||||||||||
Deferred tax benefit on actuarial losses on defined benefit plans | (18,066 | ) | 2,005 | (16,061 | ) | ||||||||||
Deferred tax expense on funding requirement changes of defined benefit plans | 1,938 | (578 | ) | 1,360 | |||||||||||
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(16,128 | ) | 1,427 | (14,701 | ) | |||||||||||
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For the year ended December 31, 2010 | |||||||||||||||
Deferred tax benefit on actuarial losses on defined benefit plans | (3,930 | ) | 1,090 | (2,840 | ) | ||||||||||
Deferred tax expense on funding requirement changes of defined benefit plans | 1,071 | (322 | ) | 749 | |||||||||||
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| ||||||||||
(2,859 | ) | 768 | (2,091 | ) | |||||||||||
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| ||||||||||
Recognized Deferred Tax Assets and Liabilities
|
| ||||||||||||||
Timing differences, unused tax losses and unused tax credits | Deferred tax assets | Deferred tax liabilities | Net | ||||||||||||
$ | $ | $ | |||||||||||||
As of December 31, 2012 | |||||||||||||||
Property, plant and equipment | 19,469 | (27,088 | ) | (7,619 | ) | ||||||||||
Loss carry-forwards and other tax deductions | 36,233 | - | 36,233 | ||||||||||||
Pension and other post-retirement benefits | 2,886 | - | 2,886 | ||||||||||||
Goodwill and other intangibles | 4,458 | - | 4,458 | ||||||||||||
Other | 58 | - | 58 | ||||||||||||
|
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| ||||||||||
Deferred tax assets and liabilities | 63,104 | (27,088 | ) | 36,016 | |||||||||||
|
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|
|
| ||||||||||
As of December 31, 2011 | |||||||||||||||
Property, plant and equipment | 15,093 | (34,749 | ) | (19,656 | ) | ||||||||||
Tax credits, losses, carry-forwards and other tax deductions | 46,655 | - | 46,655 | ||||||||||||
Pension and other post-retirement benefits | 2,165 | - | 2,165 | ||||||||||||
Goodwill and other intangibles | 4,272 | - | 4,272 | ||||||||||||
Other | 53 | - | 53 | ||||||||||||
|
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|
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| ||||||||||
Deferred tax assets and liabilities | 68,238 | (34,749 | ) | 33,489 | |||||||||||
|
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|
|
|
Deferred tax assets | Deferred tax liabilities | Net | ||||||||||
$ | $ | $ | ||||||||||
As of December 31, 2015 | ||||||||||||
Tax credits, losses, carryforwards and other tax deductions | 20,319 | — | 20,319 | |||||||||
Property, plant and equipment | 16,801 | (17,851 | ) | (1,050 | ) | |||||||
Pension and other post-retirement benefits | 10,838 | — | 10,838 | |||||||||
Stock-based payments | 6,409 | — | 6,409 | |||||||||
Accounts payable and accrued liabilities | 4,453 | — | 4,453 | |||||||||
Goodwill and other intangibles | 3,464 | (2,118 | ) | 1,346 | ||||||||
Trade and other receivables | 1,698 | — | 1,698 | |||||||||
Inventories | 1,682 | — | 1,682 | |||||||||
Other | 583 | (970 | ) | (387 | ) | |||||||
|
|
|
|
|
| |||||||
Deferred tax assets and liabilities | 66,247 | (20,939 | ) | 45,308 | ||||||||
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|
During 2012, the Company applied for and was granted the ability
Deferred tax assets | Deferred tax liabilities | Net | ||||||||||
$ | $ | $ | ||||||||||
As of December 31, 2014 | ||||||||||||
Tax credits, losses, carryforwards and other tax deductions | 30,442 | — | 30,442 | |||||||||
Property, plant and equipment | 17,969 | (19,792 | ) | (1,823 | ) | |||||||
Pension and other post-retirement benefits | 11,641 | — | 11,641 | |||||||||
Stock-based payments | 9,560 | — | 9,560 | |||||||||
Accounts payable and accrued liabilities | 3,937 | — | 3,937 | |||||||||
Goodwill and other intangibles | 4,896 | — | 4,896 | |||||||||
Inventories | 1,501 | — | 1,501 | |||||||||
Other | 898 | (974 | ) | (76 | ) | |||||||
|
|
|
|
|
| |||||||
Deferred tax assets and liabilities | 80,844 | (20,766 | ) | 60,078 | ||||||||
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Nature of $0.4 millionevidence supporting recognition of AMT paid for those years. During 2012, the Company also utilized a portion of the remaining 2008 NOL carryforward on its 2011 US tax return filed to request a refund of $0.5 million AMT. In January 2013, the Company applied for a refund for the $0.3 million AMT remitted for 2012. The Company has recorded a total income tax benefit of $1.2 million for the expected AMT refunds in 2012.
33
Variations During the Period
Timing differences, unused tax losses and unused tax credits | | Balance January 1, 2011 | | | Recognized in earnings (with translation adjustments) | | | Recognized in other comprehensive income | | | Balance December 31, 2011 | | ||||||||
$ | $ | $ | $ | |||||||||||||||||
Property, Plant and equipment | 16,052 | (959) | - | 15,093 | ||||||||||||||||
Tax credits, losses, carry-forwards and other tax deductions | 49,042 | (2,387) | - | 46,655 | ||||||||||||||||
Pension and other post-retirement benefits | 1,069 | (381) | 1,477 | 2,165 | ||||||||||||||||
Goodwill and other intangibles | 4,403 | (131) | - | 4,272 | ||||||||||||||||
Other | 191 | (138) | - | 53 | ||||||||||||||||
Deferred tax liabilities: PP&E | (36,831) | 2,082 | - | (34,749) | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Deferred tax assets and liabilities | 33,926 | (1,914) | 1,477 | 33,489 | ||||||||||||||||
|
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|
|
|
|
|
| |||||||||||||
Impact due to foreign exchange rates | 562 | (50) | ||||||||||||||||||
Decrease due to reclassification | 120 | - | ||||||||||||||||||
|
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|
| |||||||||||||||||
Total recognized in earnings | (1,232) | 1,427 | ||||||||||||||||||
|
|
|
| |||||||||||||||||
Timing differences, unused tax losses and unused tax credits | | Balance January 1, 2012 | | | Recognized in earnings (with translation adjustments) | | | Recognized in other comprehensive income | | | Balance December 31, 2012 | | ||||||||
$ | $ | $ | $ | |||||||||||||||||
Property, Plant and equipment | 15,093 | 4,376 | - | 19,469 | ||||||||||||||||
Tax credits, losses, carry-forwards and other tax deductions | 46,655 | (10,422) | - | 36,233 | ||||||||||||||||
Pension and other post-retirement benefits | 2,165 | (534) | 1,255 | 2,886 | ||||||||||||||||
Goodwill and other intangibles | 4,272 | 186 | - | 4,458 | ||||||||||||||||
Other | 53 | 5 | - | 58 | ||||||||||||||||
Deferred tax liabilities: PP&E | (34,749) | 7,661 | - | (27,088) | ||||||||||||||||
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|
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|
| |||||||||||||
Deferred tax assets and liabilities | 33,489 | 1,272 | 1,255 | 36,016 | ||||||||||||||||
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|
|
|
| |||||||||||||
Impact due to foreign exchange rates | (720) | (46) | ||||||||||||||||||
Total recognized in earnings | 552 | 1,209 | ||||||||||||||||||
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|
|
As of December 31, 2012, the Company implemented a tax-free reorganization within the Canadian entity group. As the Canadian reorganization did not have any significant business impact to the entities, no additional deferred tax assets were recorded. However, the Company replaced the previously recognized deferred tax assets related to the Canadian investment tax credits with an equal amount of previously derecognized longer-lived deferred tax assets related to fixed assets and net operating losses.
34
Deductible temporary differences and unused tax losses for which no deferred tax asset is recognized on the consolidated balance sheets are as follows:
December 31, 2012 | December 31, 2011 | |||||||||
$ | $ | |||||||||
Trade and other receivables | 2,374 | 1,583 | ||||||||
Inventories | 2,722 | 2,366 | ||||||||
Property, plant and equipment | - | 10,572 | ||||||||
Accounts payable and accrued liabilities | 10,820 | 10,479 | ||||||||
Tax credits, loss carry forwards and other tax deductions | 123,812 | 147,742 | ||||||||
Pension and other post-retirement benefits | 33,521 | 30,847 | ||||||||
Goodwill and other intangibles | 9,731 | 13,582 | ||||||||
Stock-based compensation | 15,596 | - | ||||||||
Other | 4,020 | 2,865 | ||||||||
|
|
|
| |||||||
202,596 | 220,036 | |||||||||
|
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|
|
Nature of Evidence Supporting Recognition of Deferred Tax Assets
In assessing the recoverability of deferred tax assets, the Company’s management determines, at each balance sheet date, whether it is probablemore likely than not that the amount recognizeda portion or all of its deferred tax assets will be realized. This determination is based on the Company’s management’s quantitative and qualitative assessments by management and the weighing of all available evidence, both positive and negative. Such evidence included, notably,includes the scheduled reversal of deferred tax liabilities, projected future taxable income and the implementation of tax planning strategies. A significant weight was nevertheless placed on
As of December 31, 2015, management analyzed all available evidence and determined it is more likely than not that substantially all of the Company’s historical performance when makingdeferred tax assets in the determination.
In particular,US will be realized and, accordingly, continues to recognize the expectationmajority of generatingits US deferred tax assets. Management also determined it is more likely than not that substantially all of the Company’s deferred tax assets in the Canadian operating entity will be realized based on available evidence such as the cumulative positive financial results for the prior three years, consistent utilization of deferred tax assets, consistent generation of taxable income, and positive financial projections. Accordingly, the Company recognized the majority of its Canadian operating entity’s deferred tax assets, including $3.8 million that were previously derecognized. With respect to the deferred tax assets at the Canadian corporate holding entity (the “Entity”), management determined it appropriate to maintain the same positions for the year ended December 31, 2015 as taken for the year ended December 31, 2014 in that the majority of the Entity’s deferred tax assets should continue to be derecognized as of December 31, 2015. The Canadian deferred tax assets remain available to the Company in order to reduce its taxable income in future periodsperiods.
As of December 31, 2014, management analyzed all available evidence and determined it was more likely than not sufficientthat substantially all of the Company’s deferred tax assets in the US will be realized and, accordingly, continued to overcomerecognize the negative presumption associated with historical cumulative operational losses.
Accordingly,majority of its US deferred tax assets. With respect to the Canadian deferred tax assets, management determined it appropriate to maintain the same positions for the year ended December 31, 2014 as taken for the year ended December 31, 2013. Specifically, management determined that the majority of the deferred tax assets related to the Entity should continue to be derecognized as of December 31, 2012 and 2011, notwithstanding2014. In addition, Management determined that no additional deferred tax assets should be recorded at the fact that the Company’s management projected a positive outlook from increased sales, cost reduction measures, and continued increases in the sale of new products with higher gross margins,Canadian operating entity. The Canadian deferred tax assets remain available to the Company derecognized various deferred tax assets. These underlying unused tax losses, tax credits and timing differences remain available, and the Company expectsin order to use them to reduce its taxable income in future periods. When these unrecognized
Variations During the Period
Balance January 1, 2015 | Recognized in earnings (with translation adjustments) | Recognized in contributed surplus | Recognized in other comprehensive income | Business acquisitions | Balance December 31, 2015 | |||||||||||||||||||
$ | $ | $ | $ | $ | $ | |||||||||||||||||||
Deferred tax assets | ||||||||||||||||||||||||
Tax credits, losses, carryforwards and other tax deductions | 30,442 | (10,123 | ) | — | — | — | 20,319 | |||||||||||||||||
Property, plant and equipment | 17,969 | (1,168 | ) | — | — | — | 16,801 | |||||||||||||||||
Pension and other post-retirement benefits | 11,641 | 334 | — | (1,137 | ) | — | 10,838 | |||||||||||||||||
Stock-based payments | 9,560 | 439 | (3,590 | ) | — | — | 6,409 | |||||||||||||||||
Accounts payable and accrued liabilities | 3,937 | 472 | — | — | 44 | 4,453 | ||||||||||||||||||
Goodwill and other intangibles | 4,896 | (1,432 | ) | — | — | — | 3,464 | |||||||||||||||||
Trade and other receivables | — | 1,695 | — | — | 3 | 1,698 | ||||||||||||||||||
Inventories | 1,501 | 157 | — | — | 24 | 1,682 | ||||||||||||||||||
Other | 898 | (485 | ) | — | 166 | 4 | 583 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
80,844 | (10,111 | ) | (3,590 | ) | (971 | ) | 75 | 66,247 | ||||||||||||||||
Deferred tax liabilities | ||||||||||||||||||||||||
Property, plant and equipment | (19,792 | ) | 2,455 | — | — | (514 | ) | (17,851 | ) | |||||||||||||||
Other | (974 | ) | 4 | — | — | — | (970 | ) | ||||||||||||||||
Goodwill and other intangibles | — | 645 | — | — | (2,763 | ) | (2,118 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
(20,766 | ) | 3,104 | — | — | (3,277 | ) | (20,939 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Deferred tax assets and liabilities | 60,078 | (7,007 | ) | (3,590 | ) | (971 | ) | (3,202 | ) | 45,308 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Impact due to foreign exchange rates | 4,209 | — | 172 | |||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Total recognized in earnings | (2,798 | ) | (3,590 | ) | (799 | ) | ||||||||||||||||||
|
|
|
|
|
|
Balance January 1, 2014 | Recognized in earnings (with translation adjustments) | Recognized in contributed surplus | Recognized in other comprehensive income | Balance December 31, 2014 | ||||||||||||||||
$ | $ | $ | $ | $ | ||||||||||||||||
Deferred tax assets | ||||||||||||||||||||
Tax credits, losses, carryforwards and other tax deductions | 45,365 | (15,310 | ) | — | 387 | 30,442 | ||||||||||||||
Property, plant and equipment | 19,012 | (1,043 | ) | — | — | 17,969 | ||||||||||||||
Pension and other post-retirement benefits | 7,914 | 654 | — | 3,073 | 11,641 | |||||||||||||||
Stock-based payments | 7,084 | 673 | 1,803 | — | 9,560 | |||||||||||||||
Accounts payable and accrued liabilities | 6,591 | (2,654 | ) | — | — | 3,937 | ||||||||||||||
Goodwill and other intangibles | 6,196 | (1,300 | ) | — | — | 4,896 | ||||||||||||||
Inventories | 1,826 | (325 | ) | — | — | 1,501 | ||||||||||||||
Other | 702 | 196 | — | — | 898 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
94,690 | (19,109 | ) | 1,803 | 3,460 | 80,844 | |||||||||||||||
Deferred tax liabilities | ||||||||||||||||||||
Property, plant and equipment | (18,371 | ) | (1,421 | ) | — | — | (19,792 | ) | ||||||||||||
Other | — | (974 | ) | — | — | (974 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
(18,371 | ) | (2,395 | ) | — | — | (20,766 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Deferred tax assets and liabilities | 76,319 | (21,504 | ) | 1,803 | 3,460 | 60,078 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Impact due to foreign exchange rates | 2,266 | — | 110 | |||||||||||||||||
|
|
|
|
|
| |||||||||||||||
Total recognized in earnings | (19,238 | ) | 1,803 | 3,570 | ||||||||||||||||
|
|
|
|
|
|
Deductible temporary differences and unused tax losses for which no deferred tax assetsasset is recognized in the consolidated balance sheets are used, or when all or a portion of the unrecognized deferred tax assets are recognized, if sooner, the Company will realize the related benefit in its earnings.
35
December 31, 2015 | December 31, 2014 | |||||||
$ | $ | |||||||
Tax losses, carryforwards and other tax deductions | 22,002 | 40,389 | ||||||
Accounts payable and accrued liabilities | — | 110 | ||||||
Property, plant and equipment | — | 2,124 | ||||||
Other | — | 433 | ||||||
|
|
|
| |||||
22,002 | 43,056 | |||||||
|
|
|
|
The following table presents the amounts and expiration dates relating to unused tax credits for which no deferred tax asset is recognized onin the consolidated balance sheets as of December 31,:31:
2012 | 2011 | 2015 | 2014 | |||||||||||||||||||||||||||||||||
United States | Canada | United States | Canada | United States | Canada | United States | Canada | |||||||||||||||||||||||||||||
$ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
No expiration | 3,310 | - | 4,068 | - | ||||||||||||||||||||||||||||||||
2012 | - | - | 379 | - | ||||||||||||||||||||||||||||||||
2018 | 402 | 854 | 402 | 836 | — | 612 | — | 733 | ||||||||||||||||||||||||||||
2019 | 320 | 1,607 | 320 | 400 | — | 1,152 | — | 1,378 | ||||||||||||||||||||||||||||
2020 | - | 709 | - | - | — | 508 | — | 609 | ||||||||||||||||||||||||||||
2021 | - | 268 | - | - | — | 192 | — | 230 | ||||||||||||||||||||||||||||
2022 | - | 611 | - | - | — | 438 | — | 524 | ||||||||||||||||||||||||||||
2023 | - | 302 | — | 217 | — | 259 | ||||||||||||||||||||||||||||||
2024 | - | 285 | — | 204 | — | 244 | ||||||||||||||||||||||||||||||
2025 | - | 482 | — | 345 | — | 413 | ||||||||||||||||||||||||||||||
2026 | - | 369 | 27 | — | 264 | — | 316 | |||||||||||||||||||||||||||||
2027 | - | 336 | 39 | — | 241 | — | 289 | |||||||||||||||||||||||||||||
2028 | - | 391 | 88 | — | 280 | — | 335 | |||||||||||||||||||||||||||||
2029 | - | 311 | 20 | — | 223 | — | 267 | |||||||||||||||||||||||||||||
2030 | - | 284 | — | 203 | — | 243 | ||||||||||||||||||||||||||||||
2031 | - | 415 | - | - | — | 297 | — | 356 | ||||||||||||||||||||||||||||
2032 | — | 179 | — | 214 | ||||||||||||||||||||||||||||||||
2033 | — | 219 | — | 263 | ||||||||||||||||||||||||||||||||
2034 | — | 194 | — | — | ||||||||||||||||||||||||||||||||
2035 | — | 180 | — | — | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||
Total derecognition of tax credits | 4,032 | 7,224 | 5,169 | 1,410 | ||||||||||||||||||||||||||||||||
Total tax credits derecognized | — | 5,948 | — | 6,673 | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
The following table presents the year of expiration of the Company’s operating losses carried forward as of December 31, 2012:2015:
DTA is recognized | DTA is not recognized | |||||||||||||||||||||||
Canada | United States | Canada | United States | |||||||||||||||||||||
Federal | Provincial | Federal | Provincial | |||||||||||||||||||||
$ | $ | $ | $ | $ | $ | |||||||||||||||||||
2014 | 497 | 497 | - | - | - | - | ||||||||||||||||||
2015 | 1,254 | 1,254 | - | - | - | - | ||||||||||||||||||
2018 | - | - | - | - | - | - | ||||||||||||||||||
2019 | - | - | - | - | - | - | ||||||||||||||||||
2020 | - | - | - | - | - | - | ||||||||||||||||||
2021 | - | - | - | - | - | 17,183 | ||||||||||||||||||
2022 | - | - | - | - | - | 33,876 | ||||||||||||||||||
2023 | - | - | 21,271 | - | - | 13,523 | ||||||||||||||||||
2024 | - | - | 8,873 | - | - | 203 | ||||||||||||||||||
2026 | 1,783 | 1,783 | 25,456 | - | - | 1,959 | ||||||||||||||||||
2027 | 5,333 | 5,333 | - | - | - | 4 | ||||||||||||||||||
2028 | 2,600 | 2,600 | 17,385 | - | - | - | ||||||||||||||||||
2029 | 3,279 | 3,279 | - | 8,133 | 8,133 | - | ||||||||||||||||||
2030 | 3,268 | 3,268 | 186 | 10,363 | 10,363 | - | ||||||||||||||||||
2031 | 2,060 | 2,060 | 40 | 6,771 | 6,771 | - | ||||||||||||||||||
2032 | 3,605 | 3,605 | - | 614 | 614 | - | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
23,679 | 23,679 | 73,211 | 25,881 | 25,881 | 66,748 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
DTA is recognized | DTA is not recognized | |||||||||||||||||||||||
United | United | |||||||||||||||||||||||
Canada | States | Canada | States | |||||||||||||||||||||
Federal | Provincial | Federal | Provincial | |||||||||||||||||||||
$ | $ | $ | $ | $ | $ | |||||||||||||||||||
2024 | — | — | — | — | — | — | ||||||||||||||||||
2026 | — | — | — | — | — | — | ||||||||||||||||||
2028 | — | — | 2,688 | — | — | — | ||||||||||||||||||
2029 | — | — | — | 1,575 | 1,574 | — | ||||||||||||||||||
2030 | 1,255 | 1,255 | 186 | 2,342 | 2,342 | — | ||||||||||||||||||
2031 | 4,852 | 4,852 | 40 | 1,476 | 1,476 | — | ||||||||||||||||||
2032 | 2,835 | 2,835 | 26 | — | — | — | ||||||||||||||||||
2033 | — | — | 45 | — | — | — | ||||||||||||||||||
2034 | — | — | 59 | — | — | |||||||||||||||||||
2035 | — | — | 32 | — | — | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
8,942 | 8,942 | 3,076 | 5,393 | 5,392 | — | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
36
6 - EARNINGS (LOSS) PER SHARE
2012 | 2011 | 2010 | 2015 | 2014 | 2013 | ||||||||||||||||||||||
$ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
Net earnings (loss) | 22,507 | 8,954 | (48,549 | ) | |||||||||||||||||||||||
Weighted average number of common shares outstanding | |||||||||||||||||||||||||||
Basic | 59,072,407 | 58,961,050 | 58,961,050 | 59,690,968 | 60,718,776 | 60,379,533 | |||||||||||||||||||||
Effect of stock options | 1,556,729 | 138,148 | - | 808,928 | 1,214,925 | 1,253,119 | |||||||||||||||||||||
Effect of performance share units | 610,737 | 127,222 | — | ||||||||||||||||||||||||
|
|
|
|
|
| ||||||||||||||||||||||
Diluted | 60,629,136 | 59,099,198 | 58,961,050 | 61,110,633 | 62,060,923 | 61,632,652 | |||||||||||||||||||||
|
|
| |||||||||||||||||||||||||
Earnings (loss) per share | |||||||||||||||||||||||||||
Basic | 0.38 | 0.15 | (0.82 | ) | |||||||||||||||||||||||
Diluted | 0.37 | 0.15 | (0.82 | ) | |||||||||||||||||||||||
Stock options that were anti-dilutive and not included in diluted earnings per share calculations | — | 32,500 | 32,500 |
The following numberAll PSUs outstanding as of optionsDecember 31, 2015 met the performance conditions as of December 31, 2015 and were not included in the computationcalculation of weighted average diluted earnings per share becausecommon shares outstanding.
2012 | 2011 | 2010 | ||||||||||||
- | 1,628,600 | 2,003,974 | ||||||||||||
|
|
|
|
|
|
7 - OTHER RECEIVABLESINVENTORIES
December 31, 2012 | December 31, 2011 | |||||||||
$ | $ | |||||||||
Income and other taxes | 810 | 911 | ||||||||
Supplier rebates receivable | 1,749 | 1,367 | ||||||||
Sales taxes | 819 | 1,462 | ||||||||
Other | 1,785 | 1,130 | ||||||||
|
|
|
| |||||||
5,163 | 4,870 | |||||||||
|
|
|
|
8 - INVENTORIES
December 31, 2012 | December 31, 2011 | December 31, 2015 | December 31, 2014 | |||||||||||||||
$ | $ | $ | $ | |||||||||||||||
Raw materials | 27,856 | 26,754 | 27,570 | 25,358 | ||||||||||||||
Work in process | 19,904 | 18,234 | 18,640 | 18,354 | ||||||||||||||
Finished goods | 44,150 | 45,721 | 54,341 | 53,070 | ||||||||||||||
|
|
|
| |||||||||||||||
91,910 | 90,709 | 100,551 | 96,782 | |||||||||||||||
|
|
|
|
During the year ended December 31, 20122015 the Company recorded in Cost of sales, a write-down of inventories to net realizable value of $57,000 ($0.5 millionearnings, in 2011). The Company recorded, in Manufacturingmanufacturing facility closures, restructuring and other related charges, a write-down of inventories to net realizable value of $0.9$0.1 million (nil in 2011).
In addition, during the year ended December 31, 2012, $88,000 ($0.5(less than $0.1 million in 2011) of previously recorded2014). There were no write-downs of inventories to net realizable value included in earnings in cost of sales in 2015 and 2014.
There were reversed and recognized as a reductionno reversals of costs of sales. The Company’s management determined that circumstances prevailing at the time of the write-down ceased to exist as a result of increased profitability primarily due to an improved relationship between selling prices and raw material costs.
The amountwrite-downs of inventories recognized as an expense during the period corresponds to Cost of sales.
37
2015 | 2014 | 2013 | ||||||||||
$ | $ | $ | ||||||||||
The amount of inventories recognized in earnings as an expense during the period: | 569 | 604 | 580 |
Refer to Note 12 for information regarding impairments and reversals of impairments of inventories.
8 - OTHER CURRENT ASSETS
December 31, 2015 | December 31, 2014 | |||||||
$ | $ | |||||||
Taxes receivable, credits and prepaid | 2,849 | 5,404 | ||||||
Other Prepaid expenses | 4,257 | 4,994 | ||||||
Supplier rebates receivable | 727 | 1,823 | ||||||
Other | 866 | 1,341 | ||||||
|
|
|
| |||||
8,699 | 13,562 | |||||||
|
|
|
|
9 - - PROPERTY, PLANT AND EQUIPMENT
Land | Buildings | Manufacturing equipment | Computer equipment and software | Furniture, office equipment and other | Manufacturing equipment under construction | Total | |||||||||||||||||||||||||||||
$ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
Gross carrying amount | |||||||||||||||||||||||||||||||||||
Balance as of December 31, 2010 | 3,807 | 78,513 | 526,563 | 69,328 | 2,750 | 4,805 | 685,766 | ||||||||||||||||||||||||||||
Additions | - | 873 | 8,099 | 1,617 | 62 | 3,641 | 14,292 | ||||||||||||||||||||||||||||
Disposals | - | (6) | (12,652 | ) | (466 | ) | (265) | - | (13,389 | ) | |||||||||||||||||||||||||
Net foreign exchange differences | 194 | (565 | ) | (3,260 | ) | (157 | ) | (21 | ) | (39 | ) | (3,848 | ) | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Balance as of December 31, 2011 | 4,001 | 78,815 | 518,750 | 70,322 | 2,526 | 8,407 | 682,821 | ||||||||||||||||||||||||||||
Accumulated depreciation and impairments | |||||||||||||||||||||||||||||||||||
Balance as of December 31, 2010 | 310 | 46,803 | 346,217 | 65,456 | 2,645 | - | 461,431 | ||||||||||||||||||||||||||||
Depreciation | - | 2,913 | 24,218 | 2,928 | 104 | - | 30,163 | ||||||||||||||||||||||||||||
Impairments | - | 107 | - | - | - | - | 107 | ||||||||||||||||||||||||||||
Disposals | - | (3 | ) | (8,707 | ) | (371 | ) | (218) | - | (9,299 | ) | ||||||||||||||||||||||||
Net foreign exchange differences | (1 | ) | 220 | (3,052 | ) | (308 | ) | (88 | ) | - | (3,229 | ) | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Balance as of December 31, 2011 | 309 | 50,040 | 358,676 | 67,705 | 2,443 | - | 479,173 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Net carrying amount as of December 31, 2011 | 3,692 | 28,775 | 160,074 | 2,617 | 83 | 8,407 | 203,648 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Gross carrying amount | |||||||||||||||||||||||||||||||||||
Balance as of December 31, 2011 | 4,001 | 78,815 | 518,750 | 70,322 | 2,526 | 8,407 | 682,821 | ||||||||||||||||||||||||||||
Additions | - | 1,778 | 11,977 | 2,277 | 200 | 7,107 | 23,339 | ||||||||||||||||||||||||||||
Disposals | - | (9) | (19,055 | ) | (68 | ) | (99) | - | (19,231 | ) | |||||||||||||||||||||||||
Net foreign exchange differences | 92 | (1,938) | 5,605 | 186 | 36 | 33 | 4,014 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Balance as of December 31, 2012 | 4,093 | 78,646 | 517,277 | 72,717 | 2,663 | 15,547 | 690,943 | ||||||||||||||||||||||||||||
Accumulated depreciation and impairments | |||||||||||||||||||||||||||||||||||
Balance as of December 31, 2011 | 309 | 50,040 | 358,676 | 67,705 | 2,443 | - | 479,173 | ||||||||||||||||||||||||||||
Depreciation | - | 3,135 | 24,042 | 2,355 | 115 | - | 29,647 | ||||||||||||||||||||||||||||
Impairments | - | 1,386 | 10,191 | 5 | - | 95 | 11,677 | ||||||||||||||||||||||||||||
Disposals | - | (7) | (17,261 | ) | (21 | ) | (99 | ) | - | (17,388 | ) | ||||||||||||||||||||||||
Net foreign exchange differences | - | 1,112 | 1,041 | 145 | (56 | ) | - | 2,242 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Balance as of December 31, 2012 | 309 | 55,666 | 376,689 | 70,189 | 2,403 | 95 | 505,351 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Net carrying amount as of December 31, 2012 | 3,784 | 22,980 | 140,588 | 2,528 | 260 | 15,452 | 185,592 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38
Land | Buildings | Manufacturing equipment | Computer equipment and software | Furniture, office equipment and other | Construction in progress | Total | ||||||||||||||||||||||
$ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
Gross carrying amount | ||||||||||||||||||||||||||||
Balance as of December 31, 2013 | 2,695 | 81,119 | 521,081 | 74,644 | 2,799 | 41,473 | 723,811 | |||||||||||||||||||||
Additions | — | — | — | — | — | 39,501 | 39,501 | |||||||||||||||||||||
Assets placed into service | 1,140 | 17,429 | 8,154 | 1,790 | 21 | (28,534 | ) | — | ||||||||||||||||||||
Disposals | (243 | ) | (9,004 | ) | (19,144 | ) | (15,976 | ) | (190 | ) | — | (44,557 | ) | |||||||||||||||
Foreign exchange and other | (128 | ) | (2,575 | ) | (10,238 | ) | (719 | ) | (65 | ) | (209 | ) | (13,934 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Balance as of December 31, 2014 | 3,464 | 86,969 | 499,853 | 59,739 | 2,565 | 52,231 | 704,821 | |||||||||||||||||||||
Accumulated depreciation and impairments | ||||||||||||||||||||||||||||
Balance as of December 31, 2013 | 696 | 62,047 | 406,839 | 70,278 | 2,285 | 54 | 542,199 | |||||||||||||||||||||
Depreciation | — | 2,423 | 21,352 | 1,645 | 78 | — | 25,498 | |||||||||||||||||||||
Impairments | — | 435 | 342 | — | — | 3 | 780 | |||||||||||||||||||||
Impairment reversals | — | (52 | ) | (847 | ) | — | — | — | (899 | ) | ||||||||||||||||||
Disposals | — | (6,867 | ) | (17,353 | ) | (15,965 | ) | (190 | ) | — | (40,375 | ) | ||||||||||||||||
Foreign exchange and other | (1 | ) | (1,433 | ) | (8,253 | ) | (713 | ) | (71 | ) | (57 | ) | (10,528 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Balance as of December 31, 2014 | 695 | 56,553 | 402,080 | 55,245 | 2,102 | — | 516,675 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net carrying amount as of December 31, 2014 | 2,769 | 30,416 | 97,773 | 4,494 | 463 | 52,231 | 188,146 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Gross carrying amount | ||||||||||||||||||||||||||||
Balance as of December 31, 2014 | 3,464 | 86,969 | 499,853 | 59,739 | 2,565 | 52,231 | 704,821 | |||||||||||||||||||||
Additions | — | — | — | — | — | 33,600 | 33,600 | |||||||||||||||||||||
Additions through business acquisitions | — | 1,130 | 4,456 | 46 | 87 | 13 | 5,732 | |||||||||||||||||||||
Assets placed into service | — | 927 | 38,334 | 5,552 | 29 | (44,842 | ) | — | ||||||||||||||||||||
Disposals | — | (1,561 | ) | (3,469 | ) | (61 | ) | (101 | ) | — | (5,192 | ) | ||||||||||||||||
Foreign exchange and other | (101 | ) | (2,689 | ) | (16,027 | ) | (1,249 | ) | 71 | (262 | ) | (20,257 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Balance as of December 31, 2015 | 3,363 | 84,776 | 523,147 | 64,027 | 2,651 | 40,740 | 718,704 | |||||||||||||||||||||
Accumulated depreciation and impairments | ||||||||||||||||||||||||||||
Balance as of December 31, 2014 | 695 | 56,553 | 402,080 | 55,245 | 2,102 | — | 516,675 | |||||||||||||||||||||
Depreciation | — | 4,159 | 23,271 | 2,308 | 119 | — | 29,857 | |||||||||||||||||||||
Impairments | — | 578 | 1,197 | — | — | — | 1,775 | |||||||||||||||||||||
Impairment reversals | (86 | ) | (807 | ) | (5,690 | ) | (1 | ) | — | — | (6,584 | ) | ||||||||||||||||
Disposals | — | (1,226 | ) | (3,296 | ) | (61 | ) | (65 | ) | — | (4,648 | ) | ||||||||||||||||
Foreign exchange and other | — | (2,111 | ) | (13,010 | ) | (1,206 | ) | (129 | ) | — | (16,456 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Balance as of December 31, 2015 | 609 | 57,146 | 404,552 | 56,285 | 2,027 | — | 520,619 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net carrying amount as of December 31, 2015 | 2,754 | 27,630 | 118,595 | 7,742 | 624 | 40,740 | 198,085 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in property, plant and equipment are assets under finance leases as of December 31, which was as follows:
December 31, 2012 | December 31, 2011 | December 31, 2015 | December 31, 2014 | |||||||||||||||
$ | $ | $ | $ | |||||||||||||||
Buildings | 4,487 | 4,816 | 2,898 | 3,425 | ||||||||||||||
Manufacturing equipment | 3,831 | 107 | 23,668 | 24,619 | ||||||||||||||
Computer equipment and software | 142 | 197 | 42 | 66 | ||||||||||||||
Furniture, office equipment and other | 72 | 3 | ||||||||||||||||
|
|
|
| |||||||||||||||
8,532 | 5,123 | 26,608 | 28,110 | |||||||||||||||
|
|
|
| |||||||||||||||
December 31, 2015 | December 31, 2014 | |||||||||||||||||
$ | $ | |||||||||||||||||
Interest capitalized to property, plant and equipment | 657 | 1,125 | ||||||||||||||||
Weighted average capitalization rates | 2.12 | % | 2.48 | % | ||||||||||||||
Commitments to purchase machinery and equipment | 20,877 | 2,696 |
During the years ended December 31, 2012 and 2011 the loss on disposals amounted to $0.4 million and $0.5 million, respectively.
As of December 31, 2012 the Company had commitments to purchase machines and equipment totaling approximately $5.5 million. As of December 31, 2011, the Company had no significant commitments to purchase any property, plant or equipment.
The amount of borrowing costs capitalized in property, plant and equipment was $0.3 million in the year ended December 31, 20122015 the gain on disposals amounted to $0.8 million ($0.20.1 million in the year ended December 31, 2011). The weighted average capitalization rates used to determine the amount2014 and a loss on disposals of the borrowing costs eligible for capitalization for the same periods were 2.70% and 3.94%, respectively.$0.4 million in 2013).
10 - OTHER ASSETS
December 31, 2012 | December 31, 2011 | |||||||||
$ | $ | |||||||||
Loan to an officer | 55 | 91 | ||||||||
Funds held in grantor trust to satisfy future pension obligation | 853 | 1,158 | ||||||||
Cash surrender value of officers life insurance | 1,566 | 1,338 | ||||||||
Deposits | 845 | - | ||||||||
Other | 278 | 139 | ||||||||
|
|
|
| |||||||
3,597 | 2,726 | |||||||||
|
|
|
|
39
December 31, 2015 | December 31, 2014 | |||||||
$ | $ | |||||||
Cash surrender value of officers’ life insurance | 1,581 | 1,701 | ||||||
Prepaid software licensing | 1,232 | 77 | ||||||
Deposits | 339 | 1,107 | ||||||
Funds held in grantor trust to satisfy future pension obligation | — | 253 | ||||||
Other | 26 | 20 | ||||||
|
|
|
| |||||
3,178 | 3,158 | |||||||
|
|
|
|
11 - INTANGIBLE ASSETS
Distribution rights | Customer contracts | License agreements | Customer List | Software | Total | |||||||||||||||||||||||||
$ | $ | $ | $ | �� | $ | $ | ||||||||||||||||||||||||
Gross carrying amount | ||||||||||||||||||||||||||||||
Balance as of December 31, 2010 | 3,404 | 1,266 | 849 | - | 431 | 5,950 | ||||||||||||||||||||||||
Additions – separately acquired | 197 | - | - | 811 | 341 | 1,349 | ||||||||||||||||||||||||
Net foreign exchange differences | (26 | ) | 103 | - | - | - | 77 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Balance as of December 31, 2011 | 3,575 | 1,369 | 849 | 811 | 772 | 7,376 | ||||||||||||||||||||||||
Accumulated amortization and impairments | ||||||||||||||||||||||||||||||
Balance as of December 31, 2010 | 2,517 | 993 | 86 | - | 10 | 3,606 | ||||||||||||||||||||||||
Amortization | 244 | 94 | 173 | 68 | 83 | 662 | ||||||||||||||||||||||||
Net foreign exchange differences | (13 | ) | (16 | ) | - | - | - | (29 | ) | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Balance as of December 31, 2011 | 2,748 | 1,071 | 259 | 68 | 93 | 4,239 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Net Carrying amount as of December 31, 2011 | 827 | 298 | 590 | 743 | 679 | 3,137 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Gross carrying amount | ||||||||||||||||||||||||||||||
Balance as of December 31, 2011 | 3,575 | 1,369 | 849 | 811 | 772 | 7,376 | ||||||||||||||||||||||||
Additions – separately acquired | - | - | - | - | 60 | 60 | ||||||||||||||||||||||||
Net foreign exchange differences | 42 | 30 | - | - | - | 72 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Balance as of December 31, 2012 | 3,617 | 1,399 | 849 | 811 | 832 | 7,508 | ||||||||||||||||||||||||
Accumulated amortization and impairments | ||||||||||||||||||||||||||||||
Balance as of December 31, 2011 | 2,748 | 1,071 | 259 | 68 | 93 | 4,239 | ||||||||||||||||||||||||
Amortization | 271 | 98 | 87 | 162 | 121 | 739 | ||||||||||||||||||||||||
Impairments | - | - | 503 | - | - | 503 | ||||||||||||||||||||||||
Net foreign exchange differences | 24 | 23 | - | - | - | 47 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Balance as of December 31, 2012 | 3,043 | 1,192 | 849 | 230 | 214 | 5,528 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Net Carrying amount as of December 31, 2012 | 574 | 207 | - | 581 | 618 | 1,980 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
40
Distribution rights | Customer contracts | License agreements | Customer Lists | Software | Total | |||||||||||||||||||
$ | $ | $ | $ | $ | $ | |||||||||||||||||||
Gross carrying amount | ||||||||||||||||||||||||
Balance as of December 31, 2013 | 3,385 | 1,309 | 964 | 811 | 1,056 | 7,525 | ||||||||||||||||||
Additions – separately acquired | 14 | — | 187 | — | 470 | 671 | ||||||||||||||||||
Net foreign exchange differences | (277) | (109) | — | — | — | (386) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Balance as of December 31, 2014 | 3,122 | 1,200 | 1,151 | 811 | 1,526 | 7,810 | ||||||||||||||||||
Accumulated amortization and impairments | ||||||||||||||||||||||||
Balance as of December 31, 2013 | 3,103 | 1,207 | 852 | 392 | 374 | 5,928 | ||||||||||||||||||
Amortization | 201 | 69 | 58 | 162 | 181 | 671 | ||||||||||||||||||
Net foreign exchange differences | (271) | (99) | — | — | — | (370) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Balance as of December 31, 2014 | 3,033 | 1,177 | 910 | 554 | 555 | 6,229 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net carrying amount as of December 31, 2014 | 89 | 23 | 241 | 257 | 971 | 1,581 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Distribution rights | Customer contracts | License agreements | Customer Lists | Software | Patents/ Trademarks (1) | Non-compete agreements | Total | |||||||||||||||||||||||||
$ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||
Gross carrying amount | ||||||||||||||||||||||||||||||||
Balance as of December 31, 2014 | 3,122 | 1,200 | 1,151 | 811 | 1,526 | — | — | 7,810 | ||||||||||||||||||||||||
Additions – separately acquired | — | — | — | — | 174 | — | — | 174 | ||||||||||||||||||||||||
Additions through business acquisitions | — | — | — | 9,438 | — | 2,215 | 198 | 11,851 | ||||||||||||||||||||||||
Disposals | — | — | (849) | — | — | — | — | (849) | ||||||||||||||||||||||||
Net foreign exchange differences | (515) | (199) | — | — | — | — | — | (714) | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Balance as of December 31, 2015 | 2,607 | 1,001 | 302 | 10,249 | 1,700 | 2,215 | 198 | 18,272 | ||||||||||||||||||||||||
Accumulated amortization and impairments | ||||||||||||||||||||||||||||||||
Balance as of December 31, 2014 | 3,033 | 1,177 | 910 | 554 | 555 | — | — | 6,229 | ||||||||||||||||||||||||
Amortization | 28 | 20 | 143 | 553 | 210 | 19 | 50 | 1,023 | ||||||||||||||||||||||||
Disposals | — | — | (849) | — | — | — | — | (849) | ||||||||||||||||||||||||
Net foreign exchange differences | (500) | (199) | — | — | — | — | — | (699) | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Balance as of December 31, 2015 | 2,561 | 998 | 204 | 1,107 | 765 | 19 | 50 | 5,704 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net carrying amount as of December 31, 2015 | 46 | 3 | 98 | 9,142 | 935 | 2,196 | 148 | 12,568 | ||||||||||||||||||||||||
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|
|
|
|
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|
|
|
|
|
|
|
(1) | Includes a trademark of $1.7 million not subject to amortization. |
12 -IMPAIRMENT OF LONG-TERM ASSETS
Impairment Testing on Property, PlantCGU Determination and Equipment and Intangible AssetsIndicators of Impairment
In updating its determination of CGUs, and applying the related indicators of impairment, if any, the Company took into consideration the manufacturing facility closureclosures and other related activities that have taken place in the course of the year.year, as well as the expected costs, timeline, and future benefits expected from major capital expenditure projects. In making such an evaluation, the Company attributed these activities to specific CGUs as applicable. The Company concluded that these activities (forfor the yearyears ended December 31, 2012)2015 and 2014 do not give rise to an impairment test to be performed for the applicable CGU.CGUs. However, these activities and the related impairment charges recorded, which are primarily with respect to idledmanufacturing facility closures, restructuring and other related charges and idle assets, are presented in Note 4 and in the table below, respectively.
As The Company also considers indicators for the reversal of December 31, 2011,prior impairment tests were performed on a number of CGUscharges, which is based on the detectionrecent and projected results of possible indicatorsCGUs and specific asset groups that were previously impaired. For the year ended December 31, 2015, this analysis resulted in an impairment reversal for certain specific assets as discussed in further detail below.
Regarding the recent acquisitions of impairment. ForBetter Packages and TaraTape (see Note 16 below for definitions of these situations,two terms), the recoverable amountsCompany has determined at this time that each of those businesses are separate CGUs for impairment testing purposes. This conclusion could be impacted in the future should additional business integration efforts occur, which could cause these businesses to no longer be separate CGUs but part of a larger CGU. The Company assigned each CGU the goodwill and intangible assets with indefinite useful lives acquired as part of each business acquisition to each respective CGU.
Impairment Testing for Goodwill and Intangible Assets with Indefinite Useful Lives
All of the cash-generating units were determined based on their value-in-use, which in turn was based on a detailed three-year forecast, followed by an extrapolationCompany’s carrying amount of expected cash flows for the related property, plantgoodwill and equipment remainingintangible assets with indefinite useful lives using the growth rates stated below:
| ||||
|
Impairment tests performed as of December 31, 2011 resulted2015 relate to the Better Packages and TaraTape business acquisitions and resulting CGUs. The Company performed the required annual impairment test for these two CGUs in the fourth quarter of 2015 with both resulting in no impairments recognized. No reversalimpairment. See Note 16 for the amounts relating to the carrying amount of goodwill allocated to each CGU, as well as the carrying amount of intangible assets with indefinite useful lives allocated to each CGU. The impairment charges occurred during 2012test for each of these CGUs was determined based on value in use. The key assumptions used in each discounted cash flow projection, management’s approach to determine the value assigned to each key assumption, and 2011.other information as required for each CGU are outlined in the table below. Reasonably possible changes in the key assumptions below would not be expected to cause the carrying amount of the CGU to exceed its recoverable amount.
Impairment on Idled Assets
Better Packages | TaraTape | |||||||
Carrying amount allocated to the CGU | ||||||||
Goodwill (Note 16) | $6,077 | $1,399 | ||||||
Intangible assets with indefinite useful lives (Note 16) | $1,700 | — | ||||||
Results of test performed as of December 31, 2015: | ||||||||
Recoverable amount | $16,400 | $23,200 | ||||||
Annual revenue growth rates(1) | 7.1 | % | 4.9 | % | ||||
Discount rate (2) | 15.0 | % | 16.5 | % | ||||
Cash flows beyond the five-year period have been extrapolated using a steady growth rate of(3) | 2.0 | % | 1.0 | % | ||||
Income tax rate(4) | 38.5 | % | 38.6 | % | ||||
Sensitivity analysis performed using reasonably possible changes in key assumptions above: | ||||||||
Revenue growth rates | 4.5 | % | -2.0 | % | ||||
Discount rate | 15.5 | % | 17.5 | % | ||||
Cash flows beyond the five-year period have been extrapolated using a steady growth rate of | 0.0 | % | -2.0 | % | ||||
Income tax rate | 41.0 | % | 41.0 | % |
There was no impairment resulting from changing the individual assumptions above.
(1) | Annual revenue growth rates are for each year in the five year period following acquisition, and are based on projections presented to management and the Board of Directors when the business acquisitions were approved. There have been no significant changes to the projections since that time. The revenue growth rates for the period are consistent with recent history at Better Packages as well as the Company’s expectations for the water-activated tape dispenser market. For TaraTape, the revenue growth rates reflect a reduction associated with certain low margin products and then annual increases that are commensurate with the Company’s expectations for TaraTape’s product lines. |
(2) | The discount rate used is the estimated weighted average cost of capital for each individual CGU. |
(3) | Cash flows beyond the five-year period have been extrapolated using a per annum growth rate which is at or below the projected long-term average growth rate for the CGU’s business. |
(4) | The income tax rate represents an estimated statutory federal and state tax rate. |
Impairments
Impairments (reversals of impairments) recognized during the years ended December 31, 20122015 and 2011 were as a result of manufacturing facility closures, restructuring and other related charges and2014 are as follows:
2015 | 2014 | |||||||||||||||||||||||||||||||||||
For the year ended December 31, 2012 | For the year ended December 31, 2011 | Impairment | Impairment | Impairment | Impairment | |||||||||||||||||||||||||||||||
Impairment recognized | Impairment reversed | Impairment recognized | Impairment reversed | recognized | reversed | recognized | reversed | |||||||||||||||||||||||||||||
$ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
Classes of assets impaired | ||||||||||||||||||||||||||||||||||||
Manufacturing facility closures, restructuring and other related charges | ||||||||||||||||||||||||||||||||||||
Inventories | 3,614 | — | 96 | — | ||||||||||||||||||||||||||||||||
Parts and supplies | 15 | (60 | ) | 77 | — | |||||||||||||||||||||||||||||||
Property, plant and equipment | ||||||||||||||||||||||||||||||||||||
Buildings | 578 | — | 435 | (52 | ) | |||||||||||||||||||||||||||||||
Manufacturing equipment | 1,156 | (747 | ) | 209 | (847 | ) | ||||||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||||||
1,734 | (747 | ) | 644 | (899 | ) | |||||||||||||||||||||||||||||||
Cost of sales and research expenses | ||||||||||||||||||||||||||||||||||||
Property, plant and equipment | ||||||||||||||||||||||||||||||||||||
Land | - | - | - | - | — | (86 | ) | — | — | |||||||||||||||||||||||||||
Buildings | 1,385 | - | 107 | - | — | (807 | ) | — | — | |||||||||||||||||||||||||||
Manufacturing equipment | 10,287 | - | - | - | 41 | (4,944 | ) | 136 | — | |||||||||||||||||||||||||||
Furniture, office equipment and other | - | - | - | - | ||||||||||||||||||||||||||||||||
Computer equipment and software | 5 | - | - | - | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||
11,677 | - | 107 | - | 41 | (5,837 | ) | 136 | — | ||||||||||||||||||||||||||||
Intangible assets | ||||||||||||||||||||||||||||||||||||
Distribution rights | 503 | - | - | - | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||
Total | 12,180 | - | 107 | - | 5,404 | (6,644 | ) | 953 | (899 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
The assets impaired are substantially all related to the manufacturing facility closures, South Carolina Flood and restructuring initiatives as discussed in Note 4. As of December 31, 2015 and 2014 the net book value and recoverable amount forof the above situationassets remaining was namely$0.1 million and $1.8 million, respectively. The net book value includes the effects of ongoing depreciation of the assets continuing to be used until their disposal, which is expected to be at the completion of the facility closure, restructuring initiative or final sale of the asset. The fair value of the recoverable amount of the assets at the impairment dates were determined in connection withusing independent market appraisals by regional real-estate professionals; quoted market values or the Company’s plans and intent to transfer, use, sell or any other value that cancould be attributed to these idled assets. In light of the specificassets; and unique nature ofestimated costs to repair the assets market valuation is not readily available. Accordingly,damaged by the South Carolina Flood. The Company used its best estimate in assessing the likely outcome for each of the assets. The recoverable amount of the assets in all cases was fair value less costs to sell. As a result, the recoverable amounts of the assets were within Level 2 of the fair value measurement hierarchy. A further description of the fair value measurement hierarchy can be found in Note 21.
41
Tremonton, UT Shrink Film Assets | ||||
Results of test performed as of December 31, 2015: | ||||
Recoverable amount | $15,000 | |||
Annual revenue growth rates(1) | 3.7% in 2016, zero thereafter | |||
Discount rate (2) | 10.0% | |||
Average remaining asset life before fully depreciated (3) | 6 years | |||
Income tax rate(4) | 38.5% | |||
Sensitivity analysis performed using reasonably possible changes in key assumptions above: | ||||
Revenue growth rates | 0.0% | |||
Discount rate | 14.0% | |||
Average remaining asset life before fully depreciated | 4.5 years | |||
Income tax rate | 45.0% |
There was no impairment resulting from changing the individual assumptions above.
(1) | Annual revenue growth rate is based on underlying projections of Tremonton, Utah results as presented to management and the Board of Directors for budget purposes. The Company conservatively used a one-time growth rate based on the 2016 budgeted growth and zero growth thereafter. |
(2) | The discount rate used was on the high end of the Company’s estimated weighted average cost of capital. The discount rate used upon adoption of IFRS effective January 1, 2010 that resulted in the original impairment recognized was 14.5%. |
(3) | Average remaining asset life is based on the Company’s asset lives for IFRS purposes. In practice, the Company incurs additional maintenance and capital expenditures to potentially extend the life of the overall facility assets beyond this time period, which would serve to increase the recoverable value but would not affect the outcome of the impairment reversal amount. |
(4) | The income tax rate represents an estimated statutory federal and state tax rate. |
13 -LONG-TERM DEBTIndex to Financial Statements
December 31, 2012 | December 31, 2011 | |||||||||
$ | $ | |||||||||
Senior subordinated notes (a) (1) | 38,282 | 116,794 | ||||||||
Asset-based loan(b) (1) | 77,709 | 63,013 | ||||||||
Real estate secured term loan (“Real Estate Loan”)(c)(1) | 15,632 | - | ||||||||
Finance lease liabilities(d) | 10,979 | 6,058 | ||||||||
Term debt(e) | 2,576 | 4,501 | ||||||||
Mortgage loans (f) (1) | 1,504 | 3,923 | ||||||||
Equipment finance agreement advance fundings(g) | 4,617 | - | ||||||||
|
|
|
| |||||||
151,299 | 194,289 | |||||||||
Less: Installments on long-term debt | 9,688 | 3,147 | ||||||||
|
|
|
| |||||||
141,611 | 191,142 | |||||||||
|
|
|
|
December 31, 2015 | ||||||||||||
Maturity | Effective Interest rate | |||||||||||
$ | ||||||||||||
Revolving Credit Facility(a) (1) | November 2019 | 2.54 | % | 131,684 | ||||||||
Finance lease liabilities(b) | Various until June 2022 | 2.22% - 10.18 | % | 19,971 | ||||||||
Refundable government loan(c) (2) | January 2024 | 0.00 | % | 1,124 | ||||||||
Mortgage and other loans (d) | Various until October 2024 | 0.00% - 1.21 | % | 57 | ||||||||
|
| |||||||||||
152,836 | ||||||||||||
Less: Installments on long-term debt | 5,702 | |||||||||||
|
| |||||||||||
147,134 | ||||||||||||
|
| |||||||||||
December 31, 2014 | ||||||||||||
Maturity | Effective Interest rate | |||||||||||
$ | ||||||||||||
Revolving Credit Facility(a) (1) | November 2019 | 2.01 | % | 97,936 | ||||||||
Asset-based loan (“ABL”)(e) | Repaid in full | — | — | |||||||||
Real estate secured term loan | Prepaid in full | — | — | |||||||||
Finance lease liabilities(b) | Various until October 2024 | 2.74% - 8.70 | % | 25,217 | ||||||||
Mortgage and other loans (d) | November 2017 | 0.00 | % | 106 | ||||||||
|
| |||||||||||
123,259 | ||||||||||||
Less: Installments on long-term debt | 5,669 | |||||||||||
|
| |||||||||||
117,590 | ||||||||||||
|
|
(1) | The |
(2) | The refundable government loan is shown net of imputed interest amounting to $0.1 million. |
Long-term debt repayments are due as follows:
Finance lease liabilities | Other long-term loans | Finance | Other | |||||||||||||||
$ | $ | lease | long-term | |||||||||||||||
2013 | 1,893 | 8,142 | ||||||||||||||||
2014 | 1,926 | 2,342 | ||||||||||||||||
2015 | 1,839 | 1,768 | ||||||||||||||||
liabilities | loans | |||||||||||||||||
$ | $ | |||||||||||||||||
2016 | 1,769 | 1,772 | 6,258 | — | ||||||||||||||
2017 | 1,581 | 128,043 | 6,054 | 58 | ||||||||||||||
2018 | 4,796 | 100 | ||||||||||||||||
2019 | 986 | 133,560 | ||||||||||||||||
2020 | 424 | 200 | ||||||||||||||||
Thereafter | 3,891 | 1,250 | 3,037 | 700 | ||||||||||||||
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| |||||||||||||||
Total payments | 12,899 | 143,317 | 21,555 | 134,618 | ||||||||||||||
Interest expense included in minimum lease payments | 1,920 | - | 1,584 | — | ||||||||||||||
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|
| |||||||||||||||
Total | 10,979 | 143,317 | 19,971 | 134,618 | ||||||||||||||
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|
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(a) |
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Senior subordinated notes bearing interest at 8.5%, payable semi-annually on February 1 and August 1. The principal is due on August 1, 2014. The effective interest rate of the Senior Subordinated Notes is 9.21% as of December 31, 2012.
The Parent Company and all of its subsidiaries, which are all wholly-owned directly or indirectly by the Parent Company, other than the subsidiary issuer, have guaranteed the senior subordinated notes. The senior subordinated notes were issued and the guarantees executed pursuant to an indenture dated July 28, 2004. All of the guarantees are full, unconditional, joint and several. There are no significant restrictions on the ability of the Parent Company or any guarantor to obtain funds from its subsidiaries by dividend or loan.
The Parent Company, on a non-consolidated basis, has no independent assets or operations. The subsidiary issuer is an indirectly wholly-owned subsidiary ofOn November 18, 2014 the Company and has nominal assets and no operations.
42
The Company redeemed $25.0 million of the Senior subordinated notes in August 2012 and $55.0 million in December 2012. There was a corresponding write-off of debt issue costs of $0.3 million and $0.6 million, respectively, which was recorded as Interest expense under the caption Finance costs in the statement of consolidated earnings (loss).
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In 2008, the Company securedentered into a five-year, $200.0$300 million revolving credit facility (“Revolving Credit Facility”) with a syndicate of financial institutions, replacing the Company’s $200 million asset-based loan (“ABL”) entered into with a syndicate of financial institutions. that was due to mature in February 2017.
In securing the ABLRevolving Credit Facility, the Company incurred debt issue costs amounting to approximately $2.8 million.
On February 1, 2012 the Company entered into an amendment to its Asset Based Loan (“ABL”) facility extending its maturity date to February 1, 2017 from March 2013. The new ABL maturity date can be accelerated to 90 days prior to August 1, 2014 (the maturity date of the Company’s existing senior subordinated notes) if the senior subordinated notes have not been retired or if other conditions have not been met. Under the amendment to the ABL, the pricing grid of the extended ABL ranges from 1.75% to 2.25%.
The Company$2.2 million which were capitalized $1.5 million in debt issue costs under the caption Long-term debt on the Balance Sheet as of December 31, 2012, as a result of the ABL amendment. The remaining $1.2 million of debt issue costs and the previously capitalized debt issue costs remaining of $0.5 million are being amortized using the straight-line method over the remaining term of five years. The remaining debt issue costs are being amortized over the extended term as the modification did not result in an extinguishment of debt, thus resulting in only an adjustment to the carrying amount of the liability and amortization over the remaining term of the modified liability.five-year term.
The ABLRevolving Credit Facility matures on November 18, 2019 and bears an interest at 30-dayrate based primarily on the LIBOR (London Interbank Offered Rates) or other floating rate plus a premiumspread varying between 175100 and 225 basis points depending on the loan’s remaining availability (200consolidated total leverage ratio (150 and 125 basis points as of December 31, 20122015 and 200 basis points as2014, respectively). The revolving credit loans denominated in US dollars bear interest primarily at the LIBOR rate applicable to dollar-denominated loans plus the applicable margin. Revolving credit loans denominated in an alternative currency bear interest primarily at the CDOR (Canadian Dollar Offer Rate) applicable to alternative currency-denominated loans plus the applicable margin and any mandatory costs. Interest payments on base rate loans, which consist of December 31, 2011). As of December 31, 2012, the effective interestall loan draws not funded with a floating rate contract, are due and payable in arrears on the ABL was 2.36% (2.56% in 2011).last business day of each calendar quarter. Interest payments on floating rate loans are due and payable on the last day of each interest period. If such interest period extends over three months, interest is due at the end of each three-month interval during such interest period.
The amountcredit agreement also includes an incremental accordion feature of $150 million, which enables the Company to increase the limit of the borrowing availableRevolving Credit Facility, subject to the Company undercredit agreement’s terms and lender approval, if needed. Such incremental revolving credit increase matures on the ABL is determined by itsrevolving credit maturity date and bears interest at the rate applicable borrowing base from time to time. The borrowing base is calculated as a function of a percentage of eligible trade receivables, inventories and property, plant and equipment as defined in the ABL agreement.
Under the ABL agreement, the Company’s remaining unencumbered real estate is subject to a negative pledge in favour of the ABL lenders. However, the Company retains the ability to secure financing, on all or a portion of, its owned real estate, up to an amount of $35.0 million, thereby terminating the negative pledge to the ABL lenders. As of December 31, 2012, the Company had $18.0 million of secured real estate mortgage financing, including $16.4 million outstanding under the Real Estate Loan discussed below. As of December 31, 2012, $17.0 million of real estate mortgage financing remains available to the Company ($31.0 million in 2011).revolving credit loans.
As of December 31, 2012,2015, the ABL’s borrowing baseRevolving Credit Facility’s outstanding balance amounted to $130.5$135.3 million, ($119.7including $1.9 million in 2011) of which $81.6 million ($66.1 million in 2011) was drawn, including $2.2 million instandby letters of credit ($2.4 million in 2011).credit. Accordingly, the Company’s unused availability as of December 31, 20122015 amounted to $48.8 million ($53.7 million in 2011).$164.7 million.
The ABLRevolving Credit Facility is secured by a first priority lien on the Company’s, and substantially all of its subsidiaries’, trade receivables, inventories and personal property of the Company and equipment, includedall current and future material subsidiaries.
The Revolving Credit Facility has three financial covenants, a consolidated total leverage ratio not to be greater than 3.25 to 1.00, with an allowable temporary increase to 3.75 to 1.00 for the four quarters following an acquisition with a price not less than $50 million, a consolidated debt service ratio not to be less than 1.50 to 1.00, and the aggregated amount of all capital expenditures in any fiscal year may not exceed $50 million. Any portion of the allowable $50 million related to capital expenditures which is not expended in the determination ofcurrent year may be carried over for expenditure in the ABL’s borrowing base,following year, but may not be carried over to any additional subsequent years thereafter. The Company was in compliance with a carrying amount of $75.9 million, $91.1 millionthe consolidated total leverage ratio, consolidated debt service ratio and $185.6capital expenditures limit which were 1.55, 7.41 and $34.3 million, respectively, as of December 31, 2012 ($77.5 million, $87.9 million and $190.1 million, respectively in 2011).
43
The ABL has one financial covenant,2015. A default under the Revolving Credit Facility is deemed a fixed charge ratio of greater than or equal to 1.0 to 1.0. The financial covenant becomes effective only when unused availability drops below $25.0 million. Although not in effect,default under the Company was above the $25.0 million threshold of unused availability and, thus, was in compliance with this fixed charge ratio covenant as of December 31, 2012 and 2011.
In line with the Company’s interest rate risk policy to mitigate the risk associated with its variable interest rate debt instruments, including its ABL, the Company contracted interest rate swap agreements designated as cash flow hedges until it expired on September 22, 2011. These interest rate swap agreements as well as the Company’s interest rate risk policy are described in Note 21.Equipment Finance Agreement.
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On November 1, 2012, the Company entered into a Real Estate Loan of $16.6 million, amortized on a straight-line basis over the ten-year term, having a net book value of $16.4 million as of December 31, 2012. The maturity of the loan may be accelerated if the ABL facility is not extended and if Bank of America, N.A. ceases to be the revolver agent by reason of an action of the Company. A portion of the loan may be required to be repaid early if any mortgage properties are disposed of prior to October 31, 2022. The Real Estate Loan bore interest at a rate of 30-day LIBOR plus 250 basis points until December 31, 2012. Thereafter, the Real Estate Loan will bear interest at a rate of 30-day LIBOR plus a loan margin between 225 and 275 basis points based on a pricing grid, as defined in the loan agreement. The Real Estate Loan requires monthly payments of principal of $138,125 plus accrued interest, with the first payment due on December 1, 2012. A final payment of $9.7 million will be due on February 1, 2017. The Real Estate Loan contains two financial covenants, both of which are determined at the end of each fiscal month. The Company has been in compliance with these covenants since entering into the Real Estate Loan. The loan is secured by certain of the Company’s real estate and improvements thereon with a net book value of $12.0 million as of December 31, 2012.
Finance lease liabilities |
The Company has obligations under finance lease liabilities for the rental of a building, computer hardware, shop equipment and office equipment, bearing interest at rates varying between 4.4% and 8.7% as of December 31, 2012 (4.4% to 8.7% as of December 31, 2011), payable in monthly instalmentsinstallments ranging from $90$127 to $46,320$263,450 ($90126 to $46,320$263,450 in 2011)2014), including interest and maturing on various dates until 2024.interest. In addition, a $2.5 million lump sum payment is due in June, 2022, under one of the lease liabilities. The finance lease liabilities are secured by assets under the lease liabilities.
On August 13,14, 2012, the Company entered into a secured debt equipment finance agreement (the “Equipment Finance Agreement”) in the amount of up to $24.0 million for qualifying US capital expenditures during the period May 2012 through DecemberMarch 31, 2013.2014. The Equipment Finance Agreement willamount available under the facility was increased to $25.7 million as of March 26, 2014. The terms of the arrangement include multiple individual finance leases, each of which have quarterly scheduling of amounts with each schedule having a term of sixty60 months and a fixed interest rate. The averagerate of the fixed interest rates is expected2.74%, 2.90%, and 2.95%for leases scheduled prior to be less than 3.0%.January 1, 2013, January 1, 2014, and March 31, 2014, respectively. The Company entered into the firstfinal schedule on September 27, 2012 for $2.7 million at an interest rate of 2.74% with 60 monthly payments of $48,577 and the last payment due on October 1, 2017. March 26, 2014.
The Company entered into the second schedule on December 28, 2012 for $2.6following schedules:
Date entered | Amount | Interest rate | Payments | Last payment due | ||||||||||||
$ | $ | |||||||||||||||
September 27, 2012 | 2.7 million | 2.74 | % | 48,577 | October 1, 2017 | |||||||||||
December 28, 2012 | 2.6 million | 2.74 | % | 46,258 | January 1, 2018 | |||||||||||
June 28, 2013 | 2.2 million | 2.90 | % | 39,329 | July 1, 2018 | |||||||||||
December 31, 2013 | 14.7 million | 2.90 | % | 263,450 | January 1, 2019 | |||||||||||
March 26, 2014 | 3.5 million | 2.95 | % | 62,263 | April 1, 2019 |
The schedules are secured by the equipment with a net book value of $23.0 million at an interest rateas of 2.74% with 60 monthly payments of $46,258 and the last payment due on December 31, 2017.2015 ($23.9 million in 2014).
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OneIn August 2015, one of the Company’s wholly-owned subsidiaries hasentered into a long-termpartially forgivable loan. The loan agreement, containing two debt instruments, totallingwas entered into with Agencia para Investmento Comercio Externo de Portugal, EPE (AICEP), the Portuguese agency for investment and external trade, as part of financing a capital expansion project. The loan totalled approximately $2.4$1.2 million at December 31, 2012 (€1.82015 (€1.1 million) ($4.2. Based on the terms of the agreement, 50% of the loan will be forgiven in 2020 based on satisfying certain 2019 targets, including financial metrics and headcount additions. The partially forgivable loan is non-interest bearing and semi-annual installments of principal are due beginning in July 2018 through January 2024.
To reflect the benefit of the interest-free status, the loan was discounted to its estimated fair value using a discount rate of 1.25% which reflects the borrowing cost of the Company’s wholly-owned subsidiary. The discount was recorded as deferred income in the balance sheet in the caption other liabilities in the amount of $0.1 million. When the capital expansion assets are placed into service, the deferred income will be recognized in earnings through cost of sales on a systematic basis over the related assets’ useful lives. In addition, imputed interest expense will be recorded over the life of the loan so that at the end of the loan period the amount to be reimbursed will equal the nominal amount.
(d) | Mortgage loans and other |
The Company had a $1.8 million atmortgage loan on its owned real estate in Bradenton, Florida. On October 7, 2014, the Company prepaid in full the remaining $1.5 million on the note which was originally due September 28, 2028. There was a corresponding write-off of debt issue costs of $0.1 million which was recorded as interest expense under the caption finance costs in earnings for the year ended December 31, 2011 (€3.22014.
On November 18, 2014, the Company prepaid in full the remaining $7.4 million on the Blythewood, South Carolina mortgage. There was a corresponding write-off of debt issue costs of $0.1 million which was recorded as interest expense under the caption finance costs in earnings for the year ended December 31, 2014.
In October 2015, one of the Company’s wholly-owned subsidiaries entered into a long-term debt agreement containing a short-term credit line and a long-term loan for the purpose of financing a capital expansion project. No amounts were outstanding and approximately $2.3 million (€2.5 million)), with each instrument bearing of the loan was available as of December 31, 2015. Both credit lines bear interest at athe rate of Euribor (ranging between 0.41% and 0.70% in 2012, 1.78% and 1.82% in 2011)6 month
EURIBOR (Euro Interbank Offered Rate) plus a premium 375(125 basis points as of December 31, 2012 (175 basis points2015). The effective interest rate was 1.21% as of December 31, 2011), which could, at the discretion of the lender, be increased semi-annually by 75 basis points. Under the terms of the agreement, only monthly2015. The short-term credit line matures in September 2016 and is renewable annually, with interest payments were requireddue quarterly and billed in arrears. The long-term loan has a period for the first two years followed bycapital use until October, 2017 and matures in April, 2022, with interest plus eight equal semi-annual principal payments amounting to $0.3 millionbilled in arrears and $0.6 million, respectively, for each of the instruments
44
commencing on January 2010 and November 2010, respectively.due bi-annually beginning in April, 2018. The term debt isloans are secured by a comfort letter issued to the lender by the Company in favour of its wholly-owned subsidiary. Term debt also includes other long-term debt of $0.2 million.
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On November 18, 2014, the ABL balance of $95.0 million was repaid in full, resulting in satisfaction and discharge of the first priority lien. There was a corresponding write-off of debt issue costs of $0.9 million which was recorded as interest expense under the caption finance costs in earnings for the year ended December 31, 2014.
The Company hadABL bore interest at 30-day LIBOR plus a $3.0premium varying between 175 and 225 basis points depending on the loan’s remaining availability.
(f) | Real Estate Loan |
On November 18, 2014, the Real Estate Loan balance of $13.3 million mortgage loan on its owned real estate in Danville, Virginia. On October 16, 2012, the Companywas prepaid in full, the remaining $1.9resulting in satisfaction and discharge of liability. There was a corresponding write-off of debt issue costs of $0.4 million on the note which was originally due July 1, 2013. The mortgage loan had a net book value of $1.9 millionrecorded as ofinterest expense under the caption finance costs in earnings for the year ended December 31, 2011.2014.
The Company has a $1.8 million mortgage loan on its owned real estate located in Bradenton, Florida having a net book value of $0.5 million as of December 31, 2012 ($0.5 million in 2011). The mortgage is for a period of 20 years. Until October 1, 2011, the loanReal Estate Loan bore interest at 7.96%. The applicable interesta rate adjusts every three years toof 30-day LIBOR plus a 355loan margin between 225 and 275 basis point spread over the 10-year Interest Rate Swap publishedpoints based on a pricing grid, as defined in the daily release of the Federal Reserve. Effective on October 1, 2011, the applicable interest rate decreased to 5.63%. As a result, the required monthly payments of principal and interest decreased from $14,723 to $12,535 beginning on November 1, 2011.loan agreement.
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Advance fundings, which are amounts funded and borrowed but not yet scheduled, were $4.6 million as of December 31, 2012. Advance fundings accrue interest at the 30-day LIBOR rate plus 200 basis points resulting in an interest rate of 2.25% as of December 31, 2012.
If the Company does not finance the full amount of $4.0 million and $20.0 million by December 31, 2012 and December 31, 2013, respectively, then the Company will be required to pay a Reinvestment Premium as defined under the Equipment Finance Agreement on the difference between those amounts and the amounts actually funded in each of those years. The Company financed two schedules, $2.7 million and $2.6 million in 2012 and expects to finance the required amounts in 2013 and does not expect to be subject to the Reinvestment Premium. The schedules are secured by the equipment with a net book value of $5.1 million as of December 31, 2012.
45
14 -PROVISIONS AND CONTINGENT LIABILITIES
The Company’s current provisions consist of environmental, restoration obligations severanceand termination benefits and other provisions primarily related to employee termination costs resulting from the closure of manufacturing facilities and provisions for litigation.facilities.
The reconciliation of the Company’s provisions as of December 31, 20112014 is as follows:
Restoration provisions | Severance and other provisions | Litigation | Total | Environmental | Restoration | Termination benefits and other | Total | |||||||||||||||||||||||||||||
$ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
Balance, December 31, 2010 | 1,883 | 2,760 | 133 | 4,776 | ||||||||||||||||||||||||||||||||
Balance, December 31, 2013 | 2,518 | 1,674 | 1,553 | 5,745 | ||||||||||||||||||||||||||||||||
Additional provisions | - | 1,873 | 141 | 2,014 | — | 433 | 2,301 | 2,734 | ||||||||||||||||||||||||||||
Amounts paid | - | (2,804 | ) | - | (2,804 | ) | ||||||||||||||||||||||||||||||
Amounts used | — | (532 | ) | (932 | ) | (1,464 | ) | |||||||||||||||||||||||||||||
Amounts reversed | — | (559 | ) | (17 | ) | (576 | ) | |||||||||||||||||||||||||||||
Net foreign exchange differences | (22 | ) | (24 | ) | (15 | ) | (61 | ) | — | (99 | ) | (30 | ) | (129 | ) | |||||||||||||||||||||
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|
|
|
|
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| |||||||||||||||||||||||||||||
Balance, December 31, 2011 | 1,861 | 1,805 | 259 | 3,925 | ||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||
Balance, December 31, 2014 | 2,518 | 917 | 2,875 | 6,310 | ||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||
Amount presented as current | - | 1,654 | 259 | 1,913 | — | — | 2,770 | 2,770 | ||||||||||||||||||||||||||||
Amount presented as non-current | 1,861 | 151 | - | 2,012 | 2,518 | 917 | 105 | 3,540 | ||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||
Balance, December 31, 2011 | 1,861 | 1,805 | 259 | 3,925 | ||||||||||||||||||||||||||||||||
Balance, December 31, 2014 | 2,518 | 917 | 2,875 | 6,310 | ||||||||||||||||||||||||||||||||
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The reconciliation of the Company’s provisions as of December 31, 20122015 is as follows:
Restoration provisions | Severance and other provisions | Litigation | Total | Environmental | Restoration | Termination benefits and other | Total | |||||||||||||||||||||||||||||
$ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
Balance, December 31, 2011 | 1,861 | 1,805 | 259 | 3,925 | ||||||||||||||||||||||||||||||||
Balance, December 31, 2014 | 2,518 | 917 | 2,875 | 6,310 | ||||||||||||||||||||||||||||||||
Additional provisions | - | 2,446 | - | 2,446 | — | 1,026 | 1,397 | 2,423 | ||||||||||||||||||||||||||||
Amounts paid | - | (2,759 | ) | (257 | ) | (3,016 | ) | |||||||||||||||||||||||||||||
Amounts used | (12 | ) | — | (3,039 | ) | (3,051 | ) | |||||||||||||||||||||||||||||
Amounts reversed | — | — | (439 | ) | (439 | ) | ||||||||||||||||||||||||||||||
Net foreign exchange differences | 30 | 34 | (2 | ) | 62 | — | (71 | ) | (20 | ) | (91 | ) | ||||||||||||||||||||||||
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|
|
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| |||||||||||||||||||||||||||||
Balance, December 31, 2012 | 1,891 | 1,526 | - | 3,417 | ||||||||||||||||||||||||||||||||
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|
| |||||||||||||||||||||||||||||||||
Balance, December 31, 2015 | 2,506 | 1,872 | 774 | 5,152 | ||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||
Amount presented as current | - | 1,526 | - | 1,526 | 1,473 | 50 | 686 | 2,209 | ||||||||||||||||||||||||||||
Amount presented as non-current | 1,891 | - | - | 1,891 | 1,033 | 1,822 | 87 | 2,942 | ||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||
Balance, December 31, 2012 | 1,891 | 1,526 | - | 3,417 | ||||||||||||||||||||||||||||||||
Balance, December 31, 2015 | 2,506 | 1,872 | 773 | 5,151 | ||||||||||||||||||||||||||||||||
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The environmental provision pertains to the Columbia, South Carolina manufacturing facility. Refer to Note 4 for more information regarding the relocation of the Columbia, South Carolina manufacturing facility.
The restoration provision pertains to two leases at operating facilities where the Company is obligated to restore the leased properties to the same condition that existed at the time of the lease commencement date. The carrying amount of this obligation is based on management’s best estimate of the costs of the permanent removal of the Company’s manufacturing equipment used in these facilities.
As a result of the TaraTape and Better Packages acquisitions in 2015, the Company recorded additional restoration provisions associated with these leased facilities totalling $0.9 million.
In 2013, the Company began the process to relocate the Langley, British Columbia manufacturing facility to a new nearby location due to the expiration of the non-renewable lease in April 2014. As a result, in 2014, the Company recorded an additional restoration provision for the new location where the Company is obligated to restore the leased property to the same condition that existed at the lease commencement date. In addition, the Company reversed a portion of the outstanding restoration provision of the existing facility based on actual costs incurred. The severancereversal is included in earnings in cost of sales and reduced depreciation and amortization for the year ended December 31, 2014.
The termination benefits and other provisions relatesrelate primarily to the closurerelocation of the Hawkesbury, Ontario, Brantford, Ontario and Richmond, KentuckyColumbia, South Carolina manufacturing facilities.facility. The estimated costs pertain primarily to severancetermination benefits and other labor related costs. The accelerated closure of the Columbia, South Carolina facility as a result of flood damages had minimal impact on the timing of payouts associated with termination benefits. See Note 4 for more information.
The litigation provisions areOn July 3, 2014, the Company was informed of a complaint filed on June 27, 2014 by its former Chief Financial Officer with the Occupational Safety and Health Administration of the US Department of Labor (“OSHA”) alleging certain violations by the Company related to various lawsuits against,the terms of his employment and disputes withhis termination. The Company aggressively contested the Company. Asallegations and believes it demonstrated that the former Chief Financial Officer’s assertions are entirely without merit.
In a letter dated July 16, 2015, OSHA informed the Company cannotthat the former Chief Financial Officer had withdrawn the OSHA complaint in order to file a complaint against the Company in US federal district court. The withdrawal occurred prior to any determination by OSHA regarding the complaint.
On November 5, 2015, the former Chief Financial Officer filed a lawsuit against the Company in the United States District Court for the Middle District of Florida. The lawsuit is premised on essentially the same facts and makes essentially the same allegations as asserted in his OSHA complaint; the lawsuit
seeks unspecified money damages and a trial by jury. The Company is not currently able to predict ifthe probability of a favourable or unfavourable outcome, or the amount of any possible loss in the event of an unfavourable outcome. Consequently, no material provision or liability has been recorded for these allegations and when amounts will be paid, they are classified as current. The litigation provisionclaims as of December 31, 20112015. As with the OSHA claim, the Company believes that the Former Chief Financial Officer’s assertion in the lawsuit are entirely without merit. However, upon termination and in accordance with the existing employment agreement between the Company and the former Chief Financial Officer, a termination benefit accrual of $0.4 million had been recorded as of December 31, 2014. Terms of such agreement were not met within the timeframe specified therein and the termination benefit accrual was settledconsequently reversed during 2012. See Note 20 for more information.the year ended December 31, 2015.
46
The Company is engaged from time-to-time in various legal proceedings and claims that have arisen in the ordinary course of business. The outcome of all of the proceedings and claims against the Company is subject to future resolution, including the uncertainties of litigation. Based on information currently known to the Company and after consultation with outside legal counsel, management believes that the probable ultimate resolution of any such proceedings and claims, individually or in the aggregate, will not have a material adverse effect on the financial condition of the Company, taken as a whole, and accordingly, no amounts have been recorded as of December 31, 2015.
As of December 31, 20122015 and 2011:2014:
No reimbursements are expected to be received by |
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During the reporting period, thereCompany for any of the provided amounts; and
During 2014, there was a reversal of a restoration provision as a result of relocating the Langley, British Columbia manufacturing facility to a new nearby location due to the expiration of the non-renewable lease in contingent liabilities.April 2014.
15 -CAPITAL STOCK
Authorized
The Company is authorized to issue an unlimited number of common shares without par value.
Class “A” preferred shares, issuable in series, rankingrank in priority to the common shares with respect to dividends and return of capital on dissolution. The Board of Directors is authorized to fix, before issuance, the designation, rights, privileges, restrictions and conditions attached to the shares of each series. No Class A preferred shares have been issued.
Common Shares
The Company’s common shares outstanding as of December 31, 20122015 and December 31, 2011,2014, were 59,625,03958,667,535 and 58,961,050,60,435,826, respectively.
Dividends
On August 14, 2012, the Company’s Board of Directors approved a semi-annual dividend policy. Accordingly,On August 14, 2013, the Company’s Board of Directors changed the semi-annual dividend policy to a quarterly dividend policy. On July 7, 2014 and August 12, 2015, the Company’s Board of Directors changed the quarterly dividend policy by increasing the dividend from $0.08 to $0.12 per share and from $0.12 to $0.13 per share, respectively.
Cash dividends paid are as follows:
Declared Date | Paid date | Per common share amount | Shareholder record date | Common shares issued and outstanding | Aggregate payment | |||||||||||
March 6, 2013 | April 10, 2013 | $ | 0.08 | March 25, 2013 | 59,983,184 | $ | 4.8 million | |||||||||
August 14, 2013 | September 30, 2013 | $ | 0.08 | September 16, 2013 | 60,741,649 | $ | 4.9 million | |||||||||
November 12, 2013 | December 30, 2013 | $ | 0.08 | December 16, 2013 | 60,776,649 | $ | 4.9 million | |||||||||
February 6, 2014 | March 31, 2014 | $ | 0.08 | March 19, 2014 | 60,776,649 | $ | 4.9 million | |||||||||
May 7, 2014 | June 30, 2014 | $ | 0.08 | June 17, 2014 | 60,951,976 | $ | 4.9 million | |||||||||
August 5, 2014 | September 30, 2014 | $ | 0.12 | September 15, 2014 | 60,423,976 | $ | 7.2 million | |||||||||
November 4, 2014 | December 31, 2014 | $ | 0.12 | December 15, 2014 | 60,436,476 | $ | 7.2 million | |||||||||
March 9, 2015 | March 31, 2015 | $ | 0.12 | March 19, 2015 | 60,355,638 | $ | 7.3 million | |||||||||
May 11, 2015 | June 30, 2015 | $ | 0.12 | June 15, 2015 | 59,621,238 | $ | 7.2 million | |||||||||
August 12, 2015 | September 30, 2015 | $ | 0.13 | September 15, 2015 | 59,502,185 | $ | 7.7 million | |||||||||
November 11, 2015 | December 31, 2015 | $ | 0.13 | December 15, 2015 | 58,667,535 | $ | 7.5 million |
Share repurchase
On July 7, 2014, the Company declared a cash dividend of CDN$0.08 per common share paid on October 10, 2012 to shareholders of record at the close of business on September 21, 2012. The aggregate amount of this dividend payment was $4.8 million based on 59,101,050 shares of the Company’s common shares issued and outstanding as of September 21, 2012.
The Company did not declare or pay dividends during the year ended December 31, 2011.
Share repurchase
The Company did not repurchase any common shares under the normal course issuer bid which was effective from May 2010 to May 2011. The Company did not initiateannounced a normal course issuer bid (“NCIB”) effective on July 10, 2014. This NCIB expired on July 9, 2015. The Company renewed its NCIB effective July 10, 2015. On November 11, 2015, the TSX approved an amendment to the Company’s NCIB as a result of which the Company will be entitled to repurchase for cancellation up to 4,000,000 common shares. The previous maximum was 2,000,000 common shares. This renewed NCIB expires on July 9, 2016 and 2,479,900 shares remained available for repurchase under the NCIB as of December 31, 2015.
December 31, | ||||||||
2015 | 2014 | |||||||
Common shares repurchased | 2,487,188 | 597,500 | ||||||
Average price per common share including commissions | CDN$15.52 | CDN$14.35 | ||||||
Total purchase price including commissions | $29,984 | $7,822 | ||||||
Carrying value of the common shares repurchased | $14,973 | $3,225 | ||||||
Share repurchase premium(1) | $15,011 | $4,597 |
(1) | The excess of the purchase price paid over the carrying value of the common shares repurchased is recorded in deficit in the consolidated balance sheet and in the statement of consolidated changes in shareholders’ equity. |
Stock options
Under the Company’s ESOP, stock options to acquire the Company’s common shares may be granted to the Company’s executives, directors and key employees. The total number of common shares reserved for issuance under the ESOP is equal to 10% of the Company’s issued and outstanding common shares from time to time. Stock options are equity-settled and expire no later than 10 years after the date of the grant and can be used only to purchase stock and may not be redeemed for cash. The ESOP provides that such stock options granted to key employees and executives will vest and may be exercisable 25% per year over four years. The stock options granted to directors, who are not officers of the Company, will vest and may be exercisable 25% on the grant date, and a further 25% will vest and may be exercisable per year over three years.
All stock options are granted at a price determined and approved by the Board of Directors, which cannot be less than the closing price of the common shares on the TSX for the day immediately preceding the effective date of the grant.
The changes in 2012.number of stock options outstanding were as follows:
2015 | 2014 | 2013 | ||||||||||||||||||||||
Weighted average exercise price | Number of options | Weighted average exercise price | Number of options | Weighted average exercise price | Number of options | |||||||||||||||||||
CDN$ | CDN$ | CDN$ | ||||||||||||||||||||||
Balance, beginning of year | 7.01 | 2,360,000 | 5.52 | 2,264,177 | 2.60 | 2,657,037 | ||||||||||||||||||
Granted | — | — | 12.51 | 492,500 | 12.19 | 830,000 | ||||||||||||||||||
Exercised | 2.79 | (712,500 | ) | 3.60 | (256,677 | ) | 3.35 | (1,151,610 | ) | |||||||||||||||
Forfeited | 12.30 | (30,000 | ) | 8.38 | (140,000 | ) | 9.71 | (71,250 | ) | |||||||||||||||
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Balance, end of year | 8.78 | 1,617,500 | 7.01 | 2,360,000 | 5.52 | 2,264,177 | ||||||||||||||||||
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The weighted average fair value per stock option granted during 2014 and 2013 was $3.12 and $3.69, respectively, using the Black-Scholes option pricing model, taking into account the following weighted average assumptions:
2014 | 2013 | |||||||
Expected life | 5.6 years | 5.6 years | ||||||
Expected volatility(1) | 38 | % | 43 | % | ||||
Risk-free interest rate | 1.75 | % | 1.59 | % | ||||
Expected dividends | 2.83 | % | 2.72 | % | ||||
Stock price at grant date | CDN$12.51 | CDN$12.19 | ||||||
Exercise price of awards | CDN$12.51 | CDN$12.19 | ||||||
Foreign exchange rate USD to CDN | 1.1070 | 1.0358 |
(1) | Expected volatility was calculated by applying a weighted average of the daily closing price change on the TSX for a term commensurate with the expected life of each grant, with more weight placed on the more recent time periods. |
The following table summarizes information about stock options outstanding and exercisable as of:
Options outstanding | Options exercisable | |||||||||||||||||||
Number | Weighted average contractual life (years) | Weighted average exercise price | Number | Weighted average exercise price | ||||||||||||||||
CDN$ | CDN$ | |||||||||||||||||||
December 31, 2015 | ||||||||||||||||||||
Range of exercise prices | ||||||||||||||||||||
$1.55 to $2.19 | 536,250 | 4.00 | 1.65 | 536,250 | 1.65 | |||||||||||||||
$12.04 to $14.34 | 1,081,250 | 5.35 | 12.31 | 414,375 | 12.25 | |||||||||||||||
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1,617,500 | 4.90 | 8.78 | 950,625 | 6.27 | ||||||||||||||||
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December 31, 2014 | ||||||||||||||||||||
Range of exercise prices | ||||||||||||||||||||
$1.55 to $2.19 | 1,190,000 | 4.37 | 1.81 | 1,043,750 | 1.84 | |||||||||||||||
$12.04 to $14.34 | 1,170,000 | 6.22 | 12.30 | 177,500 | 12.15 | |||||||||||||||
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2,360,000 | 5.29 | 7.01 | 1,221,250 | 3.33 | ||||||||||||||||
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Options outstanding | Options exercisable | |||||||||||||||||||
Number | Weighted average contractual life (years) | Weighted average exercise price | Number | Weighted average exercise price | ||||||||||||||||
CDN$ | CDN$ | |||||||||||||||||||
December 31, 2013 | ||||||||||||||||||||
Range of exercise prices | ||||||||||||||||||||
$1.55 to $1.90 | 1,077,500 | 5.78 | 1.74 | 617,500 | 1.76 | |||||||||||||||
$2.19 to $3.61 | 406,677 | 2.18 | 2.83 | 352,927 | 2.93 | |||||||||||||||
$12.04 to $14.34 | 780,000 | 6.80 | 12.14 | 17,500 | 12.04 | |||||||||||||||
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2,264,177 | 5.48 | 5.52 | 987,927 | 2.36 | ||||||||||||||||
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Performance Share Unit Plan
On April 22, 2014, the Board of Directors of the Company adopted the PSU Plan. The purpose of the PSU Plan is to provide participants with a proprietary interest in the Company to (a) increase the incentives of those participants who share primary responsibility for the management, growth and protection of the business of the Company, (b) furnish an incentive to such participants to continue their services for the Company and (c) provide a means through which the Company may attract potential employees. The PSU Plan is administered by the Compensation Committee of the Board of Directors of the Company and authorizes the Company to award PSUs to eligible persons. A PSU, as defined by the Company’s PSU Plan, represents the right of a participant, once such PSU is earned and has vested in accordance with the PSU Plan, to receive the number of common shares of the Company underlying the PSU. Furthermore, a participant will receive a cash payment from the Company upon PSU settlement that is equivalent to the number of shares issued or delivered to the participant multiplied by the amount of cash dividends per share declared by the Company between the date of grant and the third anniversary of the grant date. PSUs are net-settled to satisfy minimum statutory tax withholding requirements.
2015 | 2014 | |||||||
PSUs granted | 363,600 | 152,500 | ||||||
Weighted average fair value per PSU granted | $13.64 | $11.38 | ||||||
PSUs forfeited | 18,060 | — | ||||||
PSUs outstanding | 498,040 | 152,500 | ||||||
Weighted average fair value per PSU outstanding | $12.99 | $11.38 |
The weighted average fair value of PSUs granted was estimated based on a Monte Carlo simulation model, taking into account the following weighted average assumptions:
2015 | 2014 | |||||||
Expected life | 3 years | 3 years | ||||||
Expected volatility(1) | 35 | % | 38 | % | ||||
Risk-free interest rate | 1.07 | % | 0.91 | % | ||||
Expected dividends(2) | 0.00 | % | 0.00 | % | ||||
Performance period starting price(3) | CDN$17.86 | CDN$12.74 | ||||||
Stock price at grant date | CDN$17.53 | CDN$12.72 |
1) | Expected volatility was calculated based on the daily dividend adjusted closing price change on the TSX for a term commensurate with the expected life of the grant. |
(2) | A participant will receive a cash payment from the Company upon PSU settlement that is equivalent to the number of shares issued or delivered to the participant multiplied by the amount of cash dividends per share declared by the Company between the date of grant and the third anniversary of the grant date. As such, there is no impact from expected future dividends in the Monte Carlo simulation model. As of December 31, 2015 the Company accrued $0.1 million (less than $0.1 million as of December 31, 2014) in the consolidated balance sheets in other liabilities. |
(3) | The performance period starting price is measured as the five-day volume weighted average trading price for the common shares of the Company on the TSX on the grant date. |
PSUs are expensed on a straight-line basis over their vesting period. The PSUs granted in 2015 and 2014 are earned over a three-year period with vesting at the third anniversary of the grant date.
The number of shares earned can range from 0 to 150% of the grant amount based on entity performance criteria, specifically the total shareholder return (“TSR”) ranking of the Company versus a specified peer group of companies. As of December 31, 2015, the Company’s TSR ranking was such that if the awards granted in 2014 and 2015 were to be settled at December 31, 2015, the number of shares earned would be 150% of the grants awarded.
Deferred Share Unit Plan
On April 22, 2014, the Board of Directors of the Company adopted the DSU Plan. The purpose of the DSU Plan is to provide participants with a form of compensation which promotes greater alignment of the interests of the participants and the shareholders of the Company in creating long-term shareholder value. The DSU Plan is administered by the Compensation Committee of the Board of Directors of the Company and authorizes the Company to award DSUs to any member of the Board of Directors of the Company who is not an executive officer or employee of the Company. A DSU, as defined by the Company’s DSU Plan, represents the right of a participant to receive a common share of the Company. Under the DSU Plan, each director is entitled to receive DSUs as a result of a grant and/or in lieu of cash for semi-annual directors’ fees. DSUs are settled when the director ceases to be a member of the Board of Directors of the Company. DSUs are net-settled to satisfy minimum statutory tax withholding requirements.
DSUs received as a result of a grant are expensed immediately. The fair value of DSUs is based on the closing price for the common shares of the Company on the TSX on the date of the grant.
DSUs received in lieu of cash for directors’ fees are expensed as earned over the service period. The fair value of DSUs is based on the fair value of services rendered.
2015 | 2014 | |||||||
DSUs granted | 46,142 | 36,901 | ||||||
Weighted average fair value per DSU granted | $ | 15.09 | $ | 12.04 | ||||
Stock-based compensation expense recognized for DSUs received in lieu of cash for directors’ fees not yet granted | $ | 134 | $ | 156 | ||||
DSUs outstanding | 66,583 | 36,901 | ||||||
Weighted average fair value per DSU outstanding | $ | 13.61 | $ | 12.04 | ||||
Shares issued upon DSU settlement: | ||||||||
DSUs settled | 16,460 | — | ||||||
Less: shares withheld for required minimum tax withholding | 10,063 | — | ||||||
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Shares issued | 6,397 | — | ||||||
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Stock Appreciation Rights
On June 20, 2012, the Board of Directors of the Company adopted the 2012 SAR Plan in lieu of granting stock options in 2012. The 2012 SAR Plan is administered by the Compensation Committee of the Board of Directors of the Company and authorizes the Company to award SARs to eligible persons. A SAR, as defined by the Company’s plan,2012 SAR Plan, is a right to receive a cash payment equal to the difference between the base price of the SAR and the market value of a common share of the Company on the date of exercise. These SARs can only be settled only in cash and expire no later than 10 years after the date of the grant. The award agreements provide that these SARs granted to employees and executives will vest and may be exercisable 25% per year over four years. The SARs granted to directors, who are not officers of the Company, will vest and may be exercisable 25% on the grant date, and a further 25% will vest and may be exercisable per year over three years.
Over the life of the awards, the total amount of expense recognized will equal the amount of the cash outflow, if any, as a result of exercises. At the end of each reporting period, the lifetime amount of expense recognized will equal the current period value of the SARs using the Black-Scholes pricing model, multiplied by the percentage vested. As a result, the amount of expense recognized can vary due
47
to changes in the model variables from period to period until the SARs are exercised, expire, or are otherwise cancelled.
All SARs are granted at a price determined and approved by the Board of Directors, which is the closing price of the common shares of the Company on the Toronto Stock Exchange (“TSX”)TSX on the trading day immediately preceding the day on which a SAR is granted.
On June 28, 2012, 1,240,905 SARs were granted at an exercise price of CDN$7.56.
2015 | 2014 | |||||||
SARs outstanding | 582,952 | 645,452 | ||||||
Weighted average fair value per SARs | $ | 7.08 | $ | 8.51 |
As of December 31, 2012, theThe weighted average fair value of SARs grantedper SAR outstanding was estimated, using the Black-Scholes option pricing model, taking into account the following weighted average assumptions:
2015 | 2014 | |||||||
Expected life | 2.4 years | 3.3 years | ||||||
Expected volatility(1) | 35 | % | 33 | % | ||||
Risk-free interest rate | 0.59 | % | 1.17 | % | ||||
Expected dividends | 3.86 | % | 2.99 | % | ||||
Stock price at grant date | CDN$7.56 | CDN$7.56 | ||||||
Exercise price of awards | CDN$7.56 | CDN$7.56 | ||||||
Stock price | CDN$18.69 | CDN$18.61 | ||||||
Foreign exchange rate US to CDN | 1.3887 | 1.1601 |
(1) | Expected volatility was calculated by applying a weighted average of the daily closing price change on the TSX for a term commensurate with the expected life of each grant, with more weight placed on the more recent time periods. |
2015 | 2014 | |||||||
Expense (income) recorded in earnings in selling, general and administrative expenses | ($216 | ) | $3,699 | |||||
SARs exercised | 52,500 | 400,453 | ||||||
Exercise price | CDN$7.56 | CDN$7.56 | ||||||
Cash payments | $462 | $3,631 | ||||||
SARs forfeited | 10,000 | 123,750 |
2015 | 2014 | |||||||
Outstanding amounts vested and expected to vest in the next twelve | $ | $ | ||||||
months, recorded in the consolidated balance sheets in accounts payable and accrued liabilities | 4,014 | 7,232 | ||||||
Outstanding amounts expected to vest in greater than twelve months, recorded in the consolidated balance sheets in other liabilities | — | 539 | ||||||
Aggregate intrinsic value of outstanding vested awards, including awards exercised but not yet paid | 2,857 | 4,386 |
Change in Contributed Surplus
The activity for the years ended December 31, 2015, 2014 and 2013 in the consolidated changes in shareholders’ equity under the caption contributed surplus is detailed as follows:
2015 | 2014 | 2013 | ||||||||||
$ | $ | $ | ||||||||||
Excess tax benefit on exercised stock options | (2,088 | ) | (732 | ) | — | |||||||
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Excess tax benefit on outstanding stock options | (1,502 | ) | 2,535 | 4,675 | ||||||||
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Stock-based compensation expense credited to capital on options exercised | (746 | ) | (289 | ) | (1,709 | ) | ||||||
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Stock-based compensation expense | ||||||||||||
Stock options | 931 | 1,542 | 1,145 | |||||||||
Deferred share units | 665 | 602 | — | |||||||||
Performance share units | 1,763 | 338 | — | |||||||||
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3,359 | 2,482 | 1,145 | ||||||||||
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Deferred Share Units (“DSUs”) settlement, net of required minimum tax withholding | (218 | ) | — | — | ||||||||
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Change in contributed surplus | (1,195 | ) | 3,996 | 4,111 | ||||||||
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16 -BUSINESS ACQUISITION
Better Packages
On April 7, 2015, a subsidiary of the Parent Company, Intertape Polymer Corp. (“IPC”), under a Stock Purchase Agreement (the “Better Packages Agreement”) dated the same day, purchased 100% of the issued and outstanding common shares of BP Acquisition Corporation (“Better Packages”) (which wholly-owns a subsidiary, Better Packages, Inc.) (the “Better Packages Acquisition”), a supplier of water-activated tape dispensers.
IPC paid in cash, funded primarily from the Revolving Credit Facility, a purchase price of $15.9 million. There are no additional contingent consideration arrangements in the Better Packages Agreement. In addition, IPC and the former shareholders of Better Packages each made customary representations and warranties and covenants in the Better Packages Agreement and the Better Packages Agreement contains customary indemnification provisions. The former shareholders of Better Packages have deposited in escrow $2.9 million related to these items as of December 31, 2015.
The net cash consideration paid on the closing date was as follows:
April 7, 2015 | ||||
$ | ||||
| ||||
| ||||
15,333 | ||||
The Better Packages Acquisition was accounted for using the acquisition method of accounting. The Better Packages Acquisition should further extend the Company’s product offering and global presence in the rapidly growing e-commerce market, resulting in the recognition of goodwill of $6.1 million. The Company does not expect any of the goodwill to be deductible for income tax purposes.
The fair value of net identifiable assets acquired and goodwill at the date of acquisition are as follows:
April 7, 2015 | ||||
$ | ||||
| ||||
Cash | ||||
| ||||
| ||||
| ||||
Property, plant and equipment | 632 | |||
Intangible assets | ||||
Customer list | 7,343 | |||
Trademark | 1,700 | |||
Non-compete agreement | 198 | |||
Other intangibles | 21 | |||
Other assets | 22 | |||
14,349 | ||||
Current liabilities | ||||
Accounts payable and accrued liabilities | 1,165 | |||
Deferred tax liability | 3,483 | |||
Provisions | 10 | |||
4,658 | ||||
Fair value of net identifiable assets acquired | 9,691 | |||
April 7, 2015 | ||||
$ | ||||
Cash consideration transferred | 15,768 | |||
Less: fair value of net identifiable assets acquired | 9,691 | |||
Goodwill | 6,077 | |||
Expected volatility was calculated using the average closing price change on the TSX for six years prior to the grant date.
(1) | As of December 31, 2015 the Company has collected the fair value of the trade receivables of $1,310. The gross contractual amounts receivable were $1,324. |
The weighted average fair value per SAR granted is CDN$3.78.
During the year ended December 31, 2012, $1.3 million of expense (nil in 2011) is included under the caption Selling, general and administrative expenses. The corresponding liability is recordedBetter Packages Acquisition’s impact on the Company’s consolidated balance sheet underearnings was as follows:
April 7, 2015 through December 31, 2015 | ||||
$ | ||||
Revenue | 14,601 | |||
Net earnings | 1,538 |
Had the caption Accounts payableBetter Packages Acquisition been effective as of January 1, 2015 the impact on the Company’s consolidated earnings would have been as follows:
December 31, 2015 | ||||
$ | ||||
Revenue | 18,193 | |||
Net earnings(1) | 1,598 |
(1) | The adjustments to arrive at net earnings included (i) the alignment of accounting policies to IFRS, (ii) the removal of acquisition costs incurred by the acquiree, (iii) the amortization of recorded intangibles and other acquisition method accounting adjustments and (iv) the effect of income tax expense using the effective tax rate of Better Packages post-closing. |
The acquisition-related costs are excluded from the consideration transferred and accrued liabilities for amounts vested and expected to vestare included in the next twelve months, and Other liabilities for amounts expected to vest greater than twelve months.Company’s consolidated earnings as follows:
December 31, 2015 | ||||
$ | ||||
Selling, general and administrative expenses | 387 |
TaraTape
On November 2, 2015, IPC, under a Stock options
UnderPurchase Agreement (the “TaraTape Agreement”) dated the Company’s ESOP, options to acquire the Company’s common shares may be granted to the Company’s executives, directors and key employees. The total number of common shares reserved for issuance under the ESOP shall be equal to 10%same day, purchased 100% of the Company’s issued and outstanding common shares and warrants of RJM Manufacturing, Inc. (d/b/a “TaraTape”) (the “TaraTape Acquisition”), a manufacturer of filament and pressure sensitive tapes.
IPC paid in cash, funded primarily from timethe Company’s Revolving Credit Facility, a purchase price of $11.0 million. There are no additional contingent consideration arrangements in the TaraTape Agreement. In addition, IPC and the shareholder and warrantholders of TaraTape each made customary representations and warranties and covenants in the TaraTape Agreement and the TaraTape Agreement contains customary indemnification provisions. The former shareholder and warrantholders of TaraTape have deposited in escrow $0.6 million related to time. Options are equity-settled and expire no later than 10 years after the datethese items as of the grant and can only be used to purchase stock and may not be redeemed for cash. December 31, 2015.
The plan provides that such options granted to key employees and executives will vest and may be exercisable 25% per year over four years. The options granted to directors, who are not officers of the Company, will vest and may be exercisable 25%net cash consideration paid on the grantclosing date and a further 25% will vest and may be exercisable per year over three years.
All options are granted at a price determined and approved bywas $11.0 million less the Boardcash balance acquired of Directors, which cannot be less than the average of the closing price of the common shares on the TSX for the day immediately preceding the effective date of the grant.
No options were granted in 2012.
48
nil.
The changesTaraTape Acquisition was accounted for using the acquisition method of accounting. The TaraTape Acquisition should strengthen the Company’s market position, resulting in numberthe recognition of options outstanding were as follows:goodwill of $1.4 million. The Company expects the goodwill to be deductible for income tax purposes.
2012 | 2011 | 2010 | ||||||||||||||||||||||||||||||||||
Weighted average exercise price | Number of | Weighted average exercise price | Number of | Weighted average exercise price | Number of | |||||||||||||||||||||||||||||||
CDN$ | CDN$ | CDN$ | ||||||||||||||||||||||||||||||||||
Balance, beginning of year | 3.28 | 3,774,026 | 4.44 | 3,355,769 | 6.45 | 3,318,053 | ||||||||||||||||||||||||||||||
Granted | - | - | 1.66 | 875,000 | 2.07 | 825,000 | ||||||||||||||||||||||||||||||
Exercised | 3.10 | (663,989 | ) | - | - | 0.55 | (10,000 | ) | ||||||||||||||||||||||||||||
Forfeited | 1.88 | (52,500 | ) | 3.16 | (149,401 | ) | 6.02 | (210,284 | ) | |||||||||||||||||||||||||||
Expired | 9.27 | (400,500 | ) | 10.13 | (307,342 | ) | 12.14 | (567,000 | ) | |||||||||||||||||||||||||||
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Balance, end of year |
|
2.60 |
|
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2,657,037 |
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3.28 |
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3,774,026 |
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4.44 |
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3,355,769 |
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Options exercisable at the end of the year | 3.03 | 1,676,305 | 4.20 | 2,247,563 | 5.67 | 2,003,974 | ||||||||||||||||||||||||||||||
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The weighted average stock pricefair value of net identifiable assets acquired and goodwill at the date of exercise was $7.39, nil and $1.55 in 2012, 2011 and 2010, respectively, resulting in cash proceeds to the Company of $2.0 million, nil and $5,500, respectively.
The following tables summarize information about options outstanding and exercisableacquisition are as of:follows:
Options outstanding | Options exercisable | |||||||||||||||||||||||||||||||||||||||
December 31, 2012 | Number | Weighted life (years) | Weighted average | Number | Weighted average | |||||||||||||||||||||||||||||||||||
Range of exercise prices | CDN$ | CDN$ | ||||||||||||||||||||||||||||||||||||||
$0.55 to $0.83 | 12,500 | 3.25 | 0.55 | 10,000 | 0.55 | |||||||||||||||||||||||||||||||||||
$1.55 to $2.33 | 1,482,500 | 5.15 | 1.83 | 550,000 | 1.88 | |||||||||||||||||||||||||||||||||||
$3.61 to $5.42 | 1,162,037 | 2.06 | 3.61 | 1,116,305 | 3.61 | |||||||||||||||||||||||||||||||||||
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2,657,037 | 4.45 | 2.60 | 1,676,305 | 3.03 | ||||||||||||||||||||||||||||||||||||
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Options outstanding | Options exercisable | |||||||||||||||||||||||||||||||||||||||
December 31, 2011 | Number | Weighted life (years) | Weighted average | Number | Weighted average exercise price | |||||||||||||||||||||||||||||||||||
Range of exercise prices | CDN$ | CDN$ | ||||||||||||||||||||||||||||||||||||||
$0.55 to $0.83 | 40,000 | 3.25 | 0.55 | 27,500 | 0.55 | |||||||||||||||||||||||||||||||||||
$1.55 to $2.33 | 1,695,000 | 4.92 | 1.85 | 297,500 | 2.00 | |||||||||||||||||||||||||||||||||||
$3.37 to $5.06 | 1,638,526 | 1.93 | 3.36 | 1,522,063 | 3.36 | |||||||||||||||||||||||||||||||||||
$7.50 to $11.25 | 400,500 | 0.30 | 9.27 | 400,500 | 9.27 | |||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
3,774,026 | 3.10 | 3.28 | 2,247,563 | 4.20 | ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
November 2, 2015 | ||||
$ | ||||
Current assets | ||||
Trade receivables(1) | 1,835 | |||
Inventories | 3,183 | |||
Other current assets | 185 | |||
Property, plant and equipment | 5,100 | |||
Intangible assets | ||||
Customer list | 2,095 | |||
Trademark | 494 | |||
Deferred tax asset | 280 | |||
Other assets | 24 | |||
13,196 | ||||
Current liabilities | ||||
Accounts payable and accrued liabilities | 2,677 | |||
Provisions | 918 | |||
3,595 | ||||
Fair value of net identifiable assets acquired | 9,601 | |||
November 2, 2015 | ||||
$ | ||||
Cash consideration transferred | 11,000 | |||
Less: fair value of net identifiable assets acquired | 9,601 | |||
Goodwill | 1,399 | |||
(1) | As of December 31, 2015 the Company expects to collect the fair value of the trade receivables of $1,835. The gross contractual amounts receivable were $1,845. |
49
Options outstanding | Options exercisable | |||||||||||||||||||||||||||||||||||||||
December 31, 2010 | Number | Weighted | Weighted | Number | Weighted | |||||||||||||||||||||||||||||||||||
Range of exercise prices | CDN$ | CDN$ | ||||||||||||||||||||||||||||||||||||||
$0.55 to $0.83 | 40,000 | 4.25 | 0.55 | 17,500 | 0.55 | |||||||||||||||||||||||||||||||||||
$1.84 to $2.76 | 855,000 | 5.69 | 2.06 | 57,500 | 2.10 | |||||||||||||||||||||||||||||||||||
$3.44 to $5.16 | 1,751,327 | 2.91 | 3.58 | 1,219,532 | 3.60 | |||||||||||||||||||||||||||||||||||
$7.50 to $11.25 | 596,950 | 0.68 | 9.30 | 596,950 | 9.30 | |||||||||||||||||||||||||||||||||||
$11.42 | 112,492 | 0.44 | 11.42 | 112,492 | 11.42 | |||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
3,355,769 | 2.59 | 4.44 | 2,003,974 | 5.67 | ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
November 2, 2015 through December 31, 2015 | ||||
$ | ||||
Revenue | 3,078 | |||
Net loss | (161 | ) |
The Company usesHad the fair value based methodTaraTape Acquisition been effective as of accounting for stock-based compensation expense and other stock-based payments. DuringJanuary 1, 2015, the years ended December 31, 2012, 2011 and 2010,impact on the contributed surplus account increased by approximately $0.5 million, $0.8 million and $0.8 million, respectively, representing the stock-based compensation expense recorded for the period.
The fair value of options granted was estimated using the Black-Scholes option pricing model, taking into account the following weighted average assumptions:Company’s consolidated earnings would have been as follows:
2011 | 2010 | |||||||
Expected life | 6.0 years | 6.0 years | ||||||
Expected volatility | 66% | 61% | ||||||
Risk-free interest rate | 2.46% | 2.68% | ||||||
Expected dividends | 0% | 0% | ||||||
Weighted average stock price | CDN$1.66 | CDN$2.07 | ||||||
Weighted average exercise price | CDN$1.66 | CDN$2.07 |
December 31, 2015 | ||||
$ | ||||
Revenue | 19,419 | |||
Net loss(1) | (102 | ) |
Expected volatility was calculated
(1) | The adjustments to arrive at net loss included (i) the alignment of accounting policies to IFRS, (ii) the removal of acquisition costs incurred by the acquiree, (iii) the amortization of recorded intangibles and other acquisition method accounting adjustments and (iv) the effect of income tax expense using the effective tax rate of TaraTape post-closing. |
The acquisition-related costs are excluded from the average closing price change onconsideration transferred and are included in the TSX for six years prior to the grant date.
The fair value per option granted is:Company’s consolidated earnings as follows:
2011 | 2010 | |||||||
CDN$ | CDN$ | |||||||
Fair value | 1.01 | 1.16 |
December 31, 2015 | ||||
$ | ||||
Selling, general and administrative expenses | 502 |
16 - ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
December 31, 2012 | December 31, 2011 | December 31, 2010 | |||||||||||||
$ | $ | $ | |||||||||||||
Accumulated currency translation adjustments | 3,208 | 1,206 | 2,935 | ||||||||||||
Cumulative changes in fair value of interest rate swap agreements (net of future income taxes of nil, nil in 2011 and nil in 2010) | - | - | (898 | ) | |||||||||||
Cumulative changes in fair value of forward foreign exchange rate contracts (net of future income tax expense of nil, nil in 2011 and nil in 2010) | - | (13 | ) | 1,134 | |||||||||||
|
|
|
|
|
| ||||||||||
3,208 | 1,193 | 3,171 | |||||||||||||
|
|
|
|
|
|
50
17 -PENSION AND OTHER POST-RETIREMENT BENEFIT PLANS
The Company has several non-contributory defined contribution plans and defined benefit plans for substantially all its employees in both Canada and the United States.US.
Defined Contribution Planscontribution plans
In the United States,US, the Company maintains a savings retirement plan (401(k) Plan) for the benefit of certain employees who have been employed for at least 90 days. Contribution to this plan is at the discretion of the Company. The Company also maintains 401(k) plans according to the terms of certain collective bargaining agreements.
The Company also contributes to multi-employer plans for employees covered by certain collective bargaining agreements.
In Canada, the Company maintains defined contribution pension plans for its salaried employees and contributes amounts equal to 4% of each participant’s eligible salary.
The amount expensed with respect to the defined contribution plans for the years ended December 31, 2012, 2011was $4.0 million in 2015, and 2010 was $3.7, $2.2$3.6 million for both 2014 and $0.5 million, respectively.2013.
Defined Benefit Plansbenefit plans
The Company has, in the United States,US, three defined benefit pension plans (hourly and salaried). Benefits for employees are based on compensation and years of service for salaried employees and fixed benefits per month for each year of service for hourly employees.
In Canada, certain non-union hourly employees of the Company are covered by a plan which provides a fixed benefit of CDN$20.00 in 2012, 2011 and 2010 (USD$20.00 in 2012, USD$20.22 in 2011 and USD$19.40 in 2010) per month for each year of service. The
Effective September 30, 2011, the only other defined benefit panplan associated with the former Brantford, Ontario manufacturing facility sponsored by the Company in Canada was wound-up effective September 30, 2011.wound-up. Pursuant to applicable legislation, benefits for this plan willhad to be settled within the five-year period following the wind-up effective date. During 2014, the Company purchased group annuity buy out policies to settle its obligation to plan participants. The Company recognized settlement losses in 2014 of $1.6 million resulting from the difference between the defined benefit obligations remeasured at settlement dates and the cost to settle the obligations. The settlement losses were included in earnings in cost of sales.
In the United States, certain non-union hourly employees of the Company are covered by plans which provide a fixed benefit per month for each year of service. The Company amended one of the plans during the year ended December 31, 2012, which immediately increased the fixed benefit as well as incrementally over the next three years. The Company also closed the plan to new entrance whereby employees hired on or after the amendment date will not be permitted to participate in the plan.
In the United States,US, the Company provides group health care and life insurance benefits to certain retirees. In Canada, the Company provides group health care, dental and life insurance benefits for eligible retired employees.
Supplementary Index to Financial Statements
Executive Retirement Plansexecutive retirement plans
The Company has Supplementary Executive Retirement Plans (“SERPs”) to provide supplemental pension benefits to certain key executives. The SERPs are not funded and provide for an annual pension benefit, from retirement or termination date, in the amounts ranging from $0.2 million to $0.6 million, annually.
Non-Routine EventsGovernance and oversight
Certain former employees located at the Company’s manufacturing facility in Brantford, Ontario, Canada, participate in one of the Company’sThe defined benefit plans sponsored by the Company are subject to the requirements of the Employee Retirement Income Security Act and a multi-employer plan.related legislation in the US and of the Canadian Income Tax Act and provincial legislation in Ontario and Nova Scotia. In connectionaddition, all actuarial computations related to defined benefit plans are based on actuarial assumptions and methods determined in accordance with the generally recognized and accepted actuarial principles and practices prescribed by the Actuarial Standards Board, the American Academy of Actuaries and the Canadian Institute of Actuaries.
Minimum funding requirements are computed based on methodologies and assumptions dictated by regulation in the US and Canada. The Company’s practice is to fund at least the statutory minimum required amount for each defined benefit plan’s plan to close this facility, as of December 31, 2010, these plans were effectively curtailed. The curtailment resulted in a gain of $0.6 million which was recorded during 2010.
51
Investment Policy and Basis to Determine Overall Expected Rate of Returnyear.
The Company’s Investment Committee, comprisedcomposed of the Company’s Chief Financial Officer, Senior Vice President of AdministrationHuman Resources, Vice President of Treasury and other members of management, makes investment decisions for the Company’s pension plans. The committeeasset liability matching strategy of the pension plans and plan asset performance is reviewed semi-annually in terms of risk and return profiles with external investment management advisors, actuaries and plan trustees. The Investment Committee, together with external investment management advisors, actuaries and plan trustees, has established a target mix of equitiesequity, fixed income, and bonds.alternative securities based on funded status level and other variables of each defined benefit plan.
The overall expected rate of return is determined based on projected returns and the targeted mixassets of the portfoliosdefined benefit plans are held separately from those of fund assets.the Company in funds under the control of trustees.
Information relatingRelating to the various plans isVarious Plans
Pension Plans | Other plans | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
$ | $ | $ | $ | |||||||||||||
Defined benefit obligations | ||||||||||||||||
Balance, beginning of year | 81,223 | 82,715 | 3,662 | 3,275 | ||||||||||||
Current service cost | 1,208 | 1,126 | 22 | 16 | ||||||||||||
Interest cost | 3,042 | 3,538 | 126 | 136 | ||||||||||||
Benefits paid | (3,211 | ) | (3,488 | ) | (27 | ) | (58 | ) | ||||||||
Benefits paid upon settlement | — | (15,743 | ) | — | — | |||||||||||
Actuarial (gains) losses from demographic assumptions | (1,332 | ) | 3,726 | (30 | ) | 87 | ||||||||||
Actuarial (gains) losses from financial assumptions | (2,652 | ) | 10,311 | (31 | ) | 209 | ||||||||||
Experience losses (gains) | 15 | (1,277 | ) | 22 | 185 | |||||||||||
Settlement loss | — | 1,613 | — | — | ||||||||||||
Foreign exchange rate adjustment | (2,121 | ) | (1,298 | ) | (379 | ) | (188 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Balance, end of year | 76,172 | 81,223 | 3,365 | 3,662 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Fair value of plan assets | ||||||||||||||||
Balance, beginning of year | 53,172 | 67,121 | — | — | ||||||||||||
Interest income | 1,955 | 2,598 | — | — | ||||||||||||
Return on plan assets (excluding amounts included in net interest expense) | (1,458 | ) | 2,538 | — | — | |||||||||||
Contributions by the employer | 1,930 | 2,240 | — | — | ||||||||||||
Benefits paid | (3,211 | ) | (3,488 | ) | — | — | ||||||||||
Benefits paid upon settlement | — | (15,743 | ) | — | — | |||||||||||
Administration expenses | (307 | ) | (675 | ) | — | — | ||||||||||
Foreign exchange rate adjustment | (1,836 | ) | (1,419 | ) | — | — | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Balance, end of year | 50,245 | 53,172 | — | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Funded status – deficit | 25,927 | 28,051 | 3,365 | 3,662 | ||||||||||||
|
|
|
|
|
|
|
|
The defined benefit obligations and fair value of plan assets at December 31, are broken down by geographical locations as follows:
Pension Plans | Other plans | |||||||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||||||
$ | $ | $ | $ | |||||||||||||||||
Defined benefit obligations | ||||||||||||||||||||
Balance, beginning of year | 82,451 | 68,616 | 4,227 | 3,817 | ||||||||||||||||
Current service cost | 1,230 | 992 | 16 | 46 | ||||||||||||||||
Past service costs | 682 | - | - | - | ||||||||||||||||
Interest cost | 3,469 | 3,662 | 181 | 199 | ||||||||||||||||
Benefits paid | (3,223 | ) | (3,070 | ) | (77 | ) | (108 | ) | ||||||||||||
Actuarial losses | 7,195 | 12,568 | 259 | 321 | ||||||||||||||||
Foreign exchange rate adjustment | 552 | (317 | ) | 71 | (48 | ) | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Balance, end of year | 92,356 | 82,451 | 4,677 | 4,227 | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Fair Value of plan assets | ||||||||||||||||||||
Balance, beginning of year | 49,848 | 50,181 | - | - | ||||||||||||||||
Expected return on plan assets | 3,827 | 3,946 | - | - | ||||||||||||||||
Actuarial gains (losses) | 1,274 | (5,091 | ) | - | - | |||||||||||||||
Contributions by the employer | 5,565 | 4,210 | - | - | ||||||||||||||||
Benefits paid | (3,223 | ) | (3,070 | ) | - | - | ||||||||||||||
Foreign exchange rate adjustment | 454 | (328 | ) | - | - | |||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Balance, end of year | 57,745 | 49,848 | - | - | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Funded status – deficit | 34,611 | 32,603 | 4,677 | 4,227 | ||||||||||||||||
|
|
|
|
|
|
|
|
2015 | 2014 | |||||||||||||||||||||||
US | Canada | Total | US | Canada | Total | |||||||||||||||||||
$ | $ | $ | $ | $ | $ | |||||||||||||||||||
Defined benefit obligations | 66,728 | 12,809 | 79,537 | 70,070 | 14,815 | 84,885 | ||||||||||||||||||
Fair value of plan assets | (40,338 | ) | (9,907 | ) | (50,245 | ) | (42,509 | ) | (10,663 | ) | (53,172 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Deficit in plans | 26,390 | 2,902 | 29,292 | 27,561 | 4,152 | 31,713 | ||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|
The above defined benefit obligationobligations for pension plans as ofat December 31, 2012 and 2011 can be analyzedbroken down by funding status are as follows:
Pension Plans | ||||||||||||||||||
December 31, 2012 | December 31, 2011 | 2015 | 2014 | |||||||||||||||
$ | $ | $ | $ | |||||||||||||||
Wholly unfunded | 10,732 | 8,928 | 10,952 | 11,751 | ||||||||||||||
Wholly funded or partially funded | 81,624 | 73,523 | 65,220 | 69,472 | ||||||||||||||
|
|
|
| |||||||||||||||
Total obligations |
|
92,356 |
|
|
82,451 |
| 76,172 | 81,223 | ||||||||||
|
|
|
|
52
Other plans | ||||||||||
December 31, 2012 | December 31, 2011 | |||||||||
$ | $ | |||||||||
Wholly funded | 4,677 | 4,227 | ||||||||
|
|
|
| |||||||
Total obligations | 4,677 | 4,227 | ||||||||
|
|
|
|
Reconciliation of liabilities recognized in the balance sheet
Pension Plans | December 31, 2015 | December 31, 2014 | ||||||||||||||||
December 31, 2012 | December 31, 2011 | $ | $ | |||||||||||||||
$ | $ | |||||||||||||||||
Pension Plans | ||||||||||||||||||
Present value of the defined benefit obligation | 92,356 | 82,451 | 76,172 | 81,223 | ||||||||||||||
Fair value of the plan assets | 57,745 | 49,848 | 50,245 | 53,172 | ||||||||||||||
|
|
|
| |||||||||||||||
Deficit in plans | 34,611 | 32,603 | 25,927 | 28,051 | ||||||||||||||
|
| |||||||||||||||||
Amount recognized as a liability in respect of minimum funding requirements | 1,684 | 490 | ||||||||||||||||
Liabilities recognized | 25,927 | 28,051 | ||||||||||||||||
|
|
|
| |||||||||||||||
Liabilities recognized in the balance sheets | 36,295 | 33,093 | ||||||||||||||||
|
| |||||||||||||||||
Other plans | ||||||||||||||||||
December 31, 2012 | December 31, 2011 | |||||||||||||||||
$ | $ | |||||||||||||||||
Other plans | ||||||||||||||||||
Present value of the defined benefit obligation and deficit in the plans | 4,677 | 4,227 | 3,365 | 3,662 | ||||||||||||||
|
|
|
| |||||||||||||||
Liabilities recognized in the balance sheets | 4,677 | 4,227 | ||||||||||||||||
Liabilities recognized | 3,365 | 3,662 | ||||||||||||||||
|
|
|
| |||||||||||||||
Total plans | ||||||||||||||||||
Total pension and other post-retirement benefits recognized in balance sheets | 29,292 | 31,713 | ||||||||||||||||
|
|
The composition of plan assets based on the fair value as of December 31, was as follows:
December 31, | December 31, | |||||||||||||||||
2015 | 2014 | |||||||||||||||||
December 31, 2012 | December 31, 2011 | $ | $ | |||||||||||||||
Asset category | $ | $ | ||||||||||||||||
Cash | 1,696 | 2,683 | 860 | 1,789 | ||||||||||||||
Equity instruments | 21,943 | 19,663 | 29,399 | 26,706 | ||||||||||||||
Mutual funds | 23,529 | 20,058 | ||||||||||||||||
Debt instruments | 8,699 | 6,897 | ||||||||||||||||
Other assets | 1,878 | 547 | ||||||||||||||||
Fixed income instruments | 16,900 | 22,491 | ||||||||||||||||
Real estate investment trusts | 3,053 | 2,186 | ||||||||||||||||
Other | 33 | — | ||||||||||||||||
|
|
|
| |||||||||||||||
Total | 57,745 | 49,848 | 50,245 | 53,172 | ||||||||||||||
|
|
|
|
The actual gain on plan assets during the year endedAs of December 31, 2012 was $5.1 million. The actual loss on plan assets during the year ended December 31, 2011 was $1.1 million.2015 and 2014, approximately 25% and 26% of equity and fixed income instruments were held in mutual funds, respectively. None of the benefit plan assets were invested in any of the Company’s own equity or financial instruments or in any property or other asset that was used by the Company.
53Most equity, fixed income and real estate investment trusts have quoted prices, or net asset value, in active markets. Certain US government obligations and mutual fund positions are valued at the quoted price, or net asset value, for identical or similar securities reported in active markets.
The defined benefit liabilities are included in the Company’s consolidated balance sheets as of December 31, 2012 and December 31, 2011 as follows:
December 31, 2012 | |||||||||||||||
Pension Plans | Other Plans | Total Plans | |||||||||||||
$ | $ | $ | |||||||||||||
Pension and other post-retirement benefits | 36,295 | 4,677 | 40,972 | ||||||||||||
|
|
|
|
|
| ||||||||||
December 31, 2011 | |||||||||||||||
Pension Plans | Other Plans | Total Plans | |||||||||||||
$ | $ | $ | |||||||||||||
Pension and other post-retirement benefits | 33,093 | 4,227 | 37,320 | ||||||||||||
|
|
|
|
|
|
Defined benefit expenses recognizedBenefit Expenses Recognized in Consolidated Earnings
Pension Plans | Other plans | |||||||||||||||||||||||||||||
2012 | 2011 | 2010 | 2012 | 2011 | 2010 | |||||||||||||||||||||||||
$ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||
Current service cost | 1,230 | 992 | 831 | 16 | 46 | 34 | ||||||||||||||||||||||||
Past service cost | 411 | - | 935 | - | - | - | ||||||||||||||||||||||||
Interest cost | 3,469 | 3,662 | 3,570 | 181 | 199 | 221 | ||||||||||||||||||||||||
Expected return on plan assets | (3,827 | ) | (3,946 | ) | (3,516 | ) | - | - | - | |||||||||||||||||||||
Curtailment gain | - | - | (60 | ) | - | - | (500) | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Total costs (benefits) recognized in the statement of Consolidated Earnings | 1,283 | 708 | 1,760 | 197 | 245 | (245) | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans | Other plans | |||||||||||||||||||||||
2015 | 2014 | 2013 | 2015 | 2014 | 2013 | |||||||||||||||||||
$ | $ | $ | $ | $ | $ | |||||||||||||||||||
Current service cost | 1,208 | 1,126 | 1,335 | 22 | 16 | 18 | ||||||||||||||||||
Administration expenses | 307 | 675 | 307 | — | — | — | ||||||||||||||||||
Net interest expense | 1,087 | 1,031 | 1,355 | 126 | 136 | 171 | ||||||||||||||||||
Settlement loss | — | 1,613 | — | — | — | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net costs recognized in the statement of consolidated earnings | 2,602 | 4,445 | 2,997 | 148 | 152 | 189 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Total amount recognized
Total Plans | ||||||||||||
2015 | 2014 | 2013 | ||||||||||
$ | $ | $ | ||||||||||
Current service cost | 1,230 | 1,142 | 1,353 | |||||||||
Administration expense | 307 | 675 | 307 | |||||||||
Net interest expense | 1,213 | 1,167 | 1,526 | |||||||||
Settlement loss | — | 1,613 | — | |||||||||
|
|
|
|
|
| |||||||
Net costs recognized in the statement of consolidated earnings | 2,750 | 4,597 | 3,186 | |||||||||
|
|
|
|
|
|
Remeasurement of Defined Benefit Liability in Other comprehensive income (loss)Comprehensive Income (Loss)
Pension Plans | Other plans | Pension Plans | Other plans | |||||||||||||||||||||||||||||||||||||||||||||||||||
2012 | 2011 | 2010 | 2012 | 2011 | 2010 | 2015 | 2014 | 2013 | 2015 | 2014 | 2013 | |||||||||||||||||||||||||||||||||||||||||||
$ | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||
Actuarial losses | (6,192) | (17,659) | (3,339) | (259) | (321) | (625) | ||||||||||||||||||||||||||||||||||||||||||||||||
Actuarial gains (losses) from demographic assumptions | 1,332 | (3,726 | ) | (1,075 | ) | 30 | (87 | ) | (86 | ) | ||||||||||||||||||||||||||||||||||||||||||||
Actuarial gains (losses) from financial assumptions | 2,652 | (10,311 | ) | 10,521 | 31 | (209 | ) | 744 | ||||||||||||||||||||||||||||||||||||||||||||||
Experience (losses) gains | (15 | ) | 1,277 | (342 | ) | (22 | ) | (185 | ) | 640 | ||||||||||||||||||||||||||||||||||||||||||||
Return on plan assets (excluding amounts included in net interest expense) | (1,458 | ) | 2,538 | 8,186 | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
Asset ceiling | - | 1,461 | - | - | - | - | — | — | (2,676 | ) | — | — | — | |||||||||||||||||||||||||||||||||||||||||
Change in the amount recognized as a liability in respect of minimum funding requirements | (1,194 | ) | 477 | 1,071 | - | - | - | — | 2,497 | 1,749 | — | — | — | |||||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||
Total amounts recognized in other comprehensive income (loss) | (7,386 | ) | (15,721 | ) | (2,268 | ) | (259 | ) | (321 | ) | (625 | ) | 2,511 | (7,725 | ) | 16,363 | 39 | (481 | ) | 1,298 | ||||||||||||||||||||||||||||||||||
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54The weighted average duration of the defined benefit obligation at December 31, 2015 and 2014 is 14 years for US plans and 20 years for Canadian plans for both periods.
Total cumulative amount recognized in Other comprehensive income (loss)
Pension Plans | Other plans | |||||||||||||||||||||||||||||
2012 | 2011 | 2010 | 2012 | 2011 | 2010 | |||||||||||||||||||||||||
$ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||
Actuarial losses | (27,190 | ) | (20,998 | ) | (3,339 | ) | (1,205 | ) | (946 | ) | (625 | ) | ||||||||||||||||||
Asset ceiling | 1,461 | 1,461 | - | - | - | - | ||||||||||||||||||||||||
Change in the amount recognized as a liability in respect of minimum funding requirements | 354 | 1,548 | 1,071 | - | - | - | ||||||||||||||||||||||||
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| |||||||||||||||||||
Total cumulative amounts recognized in other comprehensive income (loss) | (25,375 | ) | (17,989 | ) | (2,268 | ) | (1,205 | ) | (946) | (625) | ||||||||||||||||||||
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The significant weighted average assumptions, which management considers the most likely, and which were used to measure its defined benefit obligations and defined benefit expensesat December 31, are as follows:
Weighted-average
US plans | Canadian plans | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Discount rate | ||||||||||||||||
Pension plans | 4.03 | % | 3.74 | % | 4.25 | % | 4.15 | % | ||||||||
Other plans | 3.28 | % | 3.15 | % | 4.25 | % | 4.15 | % | ||||||||
Mortality rate (in years) | ||||||||||||||||
Current pensioner - Male | 21 | 22 | 22 | 22 | ||||||||||||
Current pensioner - Female | 23 | 24 | 24 | 24 | ||||||||||||
Current member aged 45 - Male | 22 | 23 | 23 | 23 | ||||||||||||
Current member aged 45 - Female | 24 | 25 | 25 | 25 |
Significant actuarial assumptions used to determinefor defined benefit obligation measurement purposes are discount rate and mortality rate. The sensitivity analyses below have been determined based on reasonably possible changes of the assumptions, in isolation of one another, occurring at the end of the reporting period. This analysis may not be representative of the actual change in the defined benefit obligationsobligation as of December 31, were as follows:
Pension Plans | Other plans | |||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Discount rate | ||||||||||||||||
US plans | 3.64% | 4.19% | 2.83% | 3.64% | ||||||||||||
Canadian plans | 4.00% | 4.50% | 4.00% | 4.50% |
Weighted-average assumptions used to determine defined benefit expenses forit is unlikely that the periods ending December 31, was as follows:
Pension Plans | Other plans | |||||||||||||||||||||||
2012 | 2011 | 2010 | 2012 | 2011 | 2010 | |||||||||||||||||||
Discount rate | ||||||||||||||||||||||||
US plans | 4.19% | 5.34% | 5.72% | 3.64% | 4.68% | 5.29% | ||||||||||||||||||
Canadian plans | 4.50% | 5.40% | 6.50% | 4.50% | 5.40% | 6.50% | ||||||||||||||||||
Expected rate of return on plan assets | ||||||||||||||||||||||||
US plans | 8.00% | 8.00% | 8.50% | |||||||||||||||||||||
Canadian plans | 6.90% | 7.25% | 7.25% | |||||||||||||||||||||
Expected rates of salary increases | - | - | 3.25% |
For measurement purposes, a 5.7% annual rate increasechange in the per capita costassumptions would occur in isolation of covered health care benefits forone another as some of the US plans was assumed for 2012 (6.2% in 2011 and 7.0% in 2010). The assumed rate is expected to decrease to 3.9% by 2100. For the Canadian plans, an 8% annual trend rate was assumed for 2012 (9% in 2011 and 10% in 2010). The assumed rate is expected to decrease to 5% by 2015.assumptions may be correlated. An increase or decrease of 1% in these ratesthe discount rate or an increase or decrease of one year in mortality rate would haveresult in the following impacts:increase (decrease) in the defined benefit obligation:
Increase of 1% | Decrease of 1% | |||||||||||||||||||||||
2012 | 2011 | 2010 | 2012 | 2011 | 2010 | |||||||||||||||||||
$ | $ | $ | $ | $ | $ | |||||||||||||||||||
Impact on aggregate of current service and interest cost | 21 | 20 | 29 | (17) | (16) | (23) | ||||||||||||||||||
Impact on defined benefit obligation | 459 | 381 | 422 | (370) | (310) | (336) |
2015 | 2014 | |||||||
$ | $ | |||||||
Discount rate | ||||||||
Increase of 1% | (9,883 | ) | (10,962 | ) | ||||
Decrease of 1% | 12,337 | 13,792 | ||||||
Mortality rate | ||||||||
Life expectancy increased by one year | 2,546 | 2,477 | ||||||
Life expectancy decreased by one year | (2,494 | ) | (2,443 | ) |
55
The following table summarizes the history of plan obligations, plan assets and experience adjustments. Experience adjustments represent the difference between actual changes in pension asset and liability balances during the year compared to expectations based on previous actuarial assumptions:
Pension Plans | ||||||||||||||||||||
December 31, 2012 | December 31, 2011 | December 31, 2010 | January 1, 2010 | |||||||||||||||||
$ | $ | $ | $ | |||||||||||||||||
Present value of the defined benefit obligation | 92,356 | 82,451 | 68,616 | 60,576 | ||||||||||||||||
Fair value of the plan assets | 57,745 | 49,848 | 50,181 | 43,247 | ||||||||||||||||
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Deficit in the plans | 34,611 | 32,603 | 18,435 | 17,329 | ||||||||||||||||
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Other plans | ||||||||||||||||||||
December 31, 2012 | December 31, 2011 | December 31, 2010 | January 1, 2010 | |||||||||||||||||
$ | $ | $ | $ | |||||||||||||||||
Present value of the defined benefit obligation and deficit in the plans | 4,677 | 4,227 | 3,817 | 3,505 | ||||||||||||||||
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Pension Plans | ||||||||||||
2012 | 2011 | 2010 | ||||||||||
$ | $ | $ | ||||||||||
Experience gains (losses) on defined benefit obligation | (1,947) | (2,345) | (413) | |||||||||
Experience gains (losses) on plan assets | 1,274 | (5,091) | 1,309 | |||||||||
Other Plans | ||||||||||||
2012 | 2011 | 2010 | ||||||||||
$ | $ | $ | ||||||||||
Experience gains (losses) on defined benefit obligation | (8) | (24) | 215 |
The information in the above table will be disclosed for up to five years as the amounts are determined for each accounting period prospectively from the date of transition to IFRS.
The Company expects to contribute $4.6 million to its defined benefit pension plans and $0.3 million to its health and welfare plans in 2013.
18 - SEGMENT DISCLOSURES
The Company operates in various geographic locations and develops, manufactures and sells a variety of products to a diverse customer base. Most of the Company’s products are made from similar processes. A vast majority of the Company’s products, while brought to market through various distribution channels, generally have similar economic characteristics. As a result of theThe Company’s structural, operational, management and reporting realignments, decisions about resources to be allocated are determined for the Company as a whole.whole based on the Company’s operational, management and reporting structure. The chief operating decision maker assesses the Company’s performance as a single operating segment.
56
Geographic Information
The following tables present geographic information about salesrevenue attributed to countries based on the location of external customers and about property, plant and equipment by country based on the location of the assets:
2012 | 2011 | 2010 | 2015 | 2014 | 2013 | ||||||||||||||||||||||
$ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
Sales | |||||||||||||||||||||||||||
Revenue | |||||||||||||||||||||||||||
Canada | 69,085 | 74,272 | 73,293 | 53,035 | 61,903 | 63,656 | |||||||||||||||||||||
United States | 635,727 | 626,551 | 572,673 | 671,187 | 670,997 | 643,053 | |||||||||||||||||||||
Other | 79,618 | 85,914 | 74,550 | 57,685 | 79,832 | 74,791 | |||||||||||||||||||||
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|
|
|
|
| ||||||||||||||||||||||
Total sales | 784,430 | 786,737 | 720,516 | ||||||||||||||||||||||||
Total revenue | 781,907 | 812,732 | 781,500 | ||||||||||||||||||||||||
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|
|
December 31, 2012 | December 31, 2011 | December 31, 2015 | December 31, 2014 | |||||||||||||||
$ | $ | $ | $ | |||||||||||||||
Property, plant and equipment | ||||||||||||||||||
Canada | 24,104 | 31,772 | 14,467 | 15,104 | ||||||||||||||
United States | 150,735 | 160,076 | 171,154 | 162,799 | ||||||||||||||
Other | 10,753 | 11,800 | 12,464 | 10,243 | ||||||||||||||
|
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|
| |||||||||||||||
Total property, plant and equipment | 185,592 | 203,648 | 198,085 | 188,146 | ||||||||||||||
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| |||||||||||||||
Intangible assets | ||||||||||||||||||
Canada | 779 | 1,124 | 50 | 112 | ||||||||||||||
United States | 1,197 | 2,013 | 12,518 | 1,469 | ||||||||||||||
Other | 4 | - | — | — | ||||||||||||||
|
|
|
| |||||||||||||||
Total intangible assets | 1,980 | 3,137 | 12,568 | 1,581 | ||||||||||||||
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| |||||||||||||||||
Other assets | ||||||||||||||||||
Canada | 13 | - | 71 | 84 | ||||||||||||||
United States | 3,581 | 2,726 | 3,081 | 3,065 | ||||||||||||||
Other | 3 | - | 25 | 9 | ||||||||||||||
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| |||||||||||||||
Total other assets | 3,597 | 2,726 | 3,177 | 3,158 | ||||||||||||||
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| |||||||||||||||
Goodwill | ||||||||||||||||||
United States | 7,476 | — | ||||||||||||||||
|
| |||||||||||||||||
Total goodwill | 7,476 | — | ||||||||||||||||
|
|
The following table presents salesrevenue information based on revenues for the following product categories:categories and their complementary packaging systems:
2012 | 2011 | 2010 | 2015 | 2014 | 2013 | ||||||||||||||||||||||
$ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
Sales | |||||||||||||||||||||||||||
Revenue | |||||||||||||||||||||||||||
Tape | 519,399 | 516,582 | 462,045 | 529,524 | 524,979 | 510,539 | |||||||||||||||||||||
Film | 145,780 | 150,138 | 135,431 | 128,361 | 158,398 | 149,293 | |||||||||||||||||||||
Woven | 112,280 | 117,049 | 106,127 | ||||||||||||||||||||||||
Woven coated fabrics | 117,881 | 121,431 | 114,438 | ||||||||||||||||||||||||
Other | 6,971 | 2,968 | 16,913 | 6,141 | 7,924 | 7,230 | |||||||||||||||||||||
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|
|
|
|
| ||||||||||||||||||||||
784,430 | 786,737 | 720,516 | 781,907 | 812,732 | 781,500 | ||||||||||||||||||||||
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57
19 -RELATED PARTY TRANSACTIONS
In prior reporting periods, the Company entered into two agreements, each with a company controlled by two members of its Board of Directors. These agreements required the provision of support services that included the duties of the Executive Director and the Chairman of the Board of Directors. The Executive Director support services agreement was effective through September 30, 2010 and provided for monthly compensation beginning January 2010 in the amount of $50,000. The Chairman of the Board of Directors support services agreement was effective through June 30, 2011 and provided monthly compensation in the amount of CDN$25,000. These amounts were in lieu of the fees otherwise paid to Directors for their services. In connection with these agreements, the Company recorded a charge amounting to nil ($0.2 million in 2011 and $0.7 million in 2010) with respect to the support services agreement and a charge amounting to nil (nil in 2011 and $0.1 million in 2010) with respect to the support service related expenses in its consolidated earnings for the year ended December 31, 2012 included under the caption selling, general and administrative expenses.
The Company’s key personnel are members of the Board of Directors and sixfive members of senior management.management in 2015, 2014 and 2013. Key personnel remuneration includes the following expenses:
2012 | 2011 | 2010 | |||||||||||||
$ | $ | $ | |||||||||||||
Short-term employee benefits: | |||||||||||||||
Salaries including bonuses and post-employment benefits | 4,402 | 3,553 | 3,021 | ||||||||||||
Short-term director benefits: | |||||||||||||||
Director and committee fees and post-employment benefits | 741 | 575 | 622 | ||||||||||||
Stock-based payments for employees and directors | 1,607 | 679 | 706 | ||||||||||||
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|
|
| ||||||||||
Total remuneration | 6,750 | 4,807 | 4,349 | ||||||||||||
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|
|
2015 | 2014 | 2013 | ||||||||||
$ | $ | $ | ||||||||||
Short-term benefits including employee salaries and bonuses and director retainer and committee fees | 3,378 | 3,359 | 4,619 | |||||||||
Post-employment benefits | 311 | 300 | 286 | |||||||||
Stock-based compensation expense | 2,074 | 4,802 | 3,977 | |||||||||
Termination benefits (1) | (405 | ) | 405 | — | ||||||||
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| |||||||
Total remuneration | 5,358 | 8,866 | 8,882 | |||||||||
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(1) | Refer to Note 14 for more information regarding termination benefits. |
In June 2014, the Company engaged with a relocation management company to facilitate the purchase of the then-newly appointed Chief Financial Officer’s home in Montreal, Québec, Canada to assist in the relocation to Sarasota, FL, U.S.A. The Company provided funding to the relocation management company to purchase the home for $0.9 million. The sale of the home was completed on April 15, 2015 and the Company was reimbursed for the purchase funding.
20 -COMMITMENTS AND CONTINGENCIES
Commitments Under Operating Leases
For the year ended December 31, 2012,2015, the expense in respect of operating leases was $4.1$5.9 million ($3.85.2 million in 20112014 and $3.6$4.6 million in 2010)2013). As of December 31, 2012,2015, the Company had commitments aggregating to approximately $2.9$14.0 million through the year 20162032 for the rental of offices, warehouse space, manufacturing equipment, automobiles, computer hardware and other assets. Minimum lease payments for the next five years are $1.9 million in 2013, $0.6 million in 2014, $0.3 million in 2015, less than $0.1expected to be $3.1 million in 2016, and nil$3.0 million in 2017, $2.5 million in 2018, $1.5 million in 2019, $1.2 million in 2020 and $2.7 million thereafter. The 2013 minimum lease payment is offset by a sublease of the Langley, British Columbia facility of $37,000.
Contingent Loss
In 2009, the Company filed a complaint in the US District Court for the Middle District of Florida against Inspired Technologies, Inc. (“ITI”) alleging that ITI had breached its obligations under a supply agreement with the Company and ITI filed a counterclaim against the Company alleging that the Company had breached its obligations under the agreements. On April 13, 2011, after two trials on the issues, the Court entered a Judgment against the Company in the amount of approximately $1.0 million. On May 19, 2011 the Company entered into a settlement agreement with ITI with respect to all outstanding litigation between the parties. Pursuant to the terms of the settlement, the Company paid approximately $1.0 million to ITI in full and complete settlement of all matters between them with respect to the litigation.
The amount is included in the Selling, general and administrative expenses caption on the accompanying statement of consolidated earnings (loss).
On February 10, 2012, Multilayer Stretch Cling Film Holdings, Inc. (“Multilayer”) filed a complaint against the company in the US District Court for Western Tennessee, alleging that the Company has infringed a
58
US patent issued to Multilayer that covers certain aspects of the manufacture of stretch film. Multilayer has filed substantially similar complaints against several other manufacturers of stretch film. In its complaint against the Company, Multilayer is seeking an injunction against the Company’s alleged infringement, damages of not less than a reasonable royalty, trebling of the damage award and attorneys’ fees. This matter is presently in the discovery phase of litigation.
Inasmuch as the Company does not believe that a loss from this lawsuit is probable or estimable as required under the applicable IFRS standard, it has not established an accrual for this matter. The Company assessed the probability of a potential loss and whether it could be reasonably estimated by analyzing the litigation using available information. In the event developments cause a change in the Company’s determination as to an unfavorable outcome resulting in the need to recognize a material accrual, or result in an adverse judgment, there could be a material adverse effect on the Company’s consolidated balance sheets, cash flows, and earnings in the period or periods in which such change in determination or judgment occurs.
The Company’s management concluded that the amount of the contingent loss if any cannot be reasonably estimated. In making its assessment, the Company’s management considered, among others, (i) the nature and merits of the Claim and the appeal, (ii) the current procedural status of the Claim, and (iii) the Company’s past experience in similar situations. Accordingly, the Company’s consolidated financial statements as at and for the year ended December 31, 2012, no amount has been recorded in connection with this contingent loss.
In addition to the matters described above, the Company is engaged from time-to-time in various legal proceedings and claims that have arisen in the ordinary course of business. The outcome of all of the proceedings and claims against the Company is subject to future resolution, including the uncertainties of litigation. Based on information currently known to the Company and after consultation with outside legal counsel, management believes that the probable ultimate resolution of any such proceedings and claims, individually or in the aggregate, will not have a material adverse effect on the financial condition of the Company, taken as a whole, and accordingly, no additional amounts have been recorded as of December 31, 2012.
592015. Refer to Note 14 for more information regarding contingent liabilities.
Commitment Under Service Contract
The Company entered into a ten-year electricity service contract for one of its manufacturing facilities on November 12, 2013. The service date of the contract commenced in August 2014. The Company is committed to monthly minimum usage requirements over the term of the contract. The Company was provided installation at no cost and is receiving economic development incentive credits and maintenance of the required energy infrastructure at the manufacturing facility as part of the contract. The credits are expected to reduce the overall cost of electricity consumed by the facility over the term of the contract. Effective August 1, 2015, the Company entered into an amendment lowering the minimum usage requirements over the term of the contract. In addition, a new monthly facility charge will be incurred by the Company over the term of the contract. The Company estimates that service billings will total approximately $1.7 million annually in 2016 through 2020 and $6.0 million as the total billings expected over the remainder of the contract up to 2023.
Certain penalty clauses exist within the contract related to early cancellation after the service date of the contract. The costs related to early cancellation penalties include termination fees based on anticipated service billings over the term of the contract and capital expense recovery charges. While the Company does not expect to cancel the contract prior to the end of its term, the penalties that would apply to early cancellation could total as much as $5.4 million as of December 31, 2015. This amount declines annually until the expiration of the contract.
The Company has entered into agreements with various utility suppliers to fix certain energy costs, including natural gas and electricity, through December 2019 for minimum amounts of consumption at several of its manufacturing facilities. The Company estimates that utility billings will total approximately $5.2 million over the term of the contracts based on the contracted fixed terms and current market rate assumptions. The Company is also required by the agreements to pay any difference between the fixed price agreed to with the utility and the sales amount received by the utility for resale to a third party if the Company fails to meet the minimum consumption required by the agreements. In the event of early termination, the Company is required to pay the utility suppliers the difference between the contracted amount and the current market value of the energy, adjusted for present value, of any future agreed upon minimum usage. Neither party will be liable for failure to perform for reasons of “force majeure” as defined within the agreements.
Commitments to Suppliers
The Company has entered into agreements with various raw material suppliers to purchase minimum quantities of certain raw materials at fixed rates through June 2017 totaling approximately $22.1 million as of December 31, 2015. The Company is also required by the agreements to pay any storage costs incurred by the applicable supplier in the event the Company delays shipment in excess of 30 days. In the event the Company defaults under the terms of an agreement, an arbitrator will determine fees and penalties due to the applicable supplier. Neither party will be liable for failure to perform for reasons of “force majeure” as defined in the agreements.
The Company obtains certain raw materials from suppliers under consignment agreements. The suppliers retain ownership of the raw materials until the earlier of when the materials are consumed in production or auto billings are triggered based upon maturity. The consignment agreements involve short-term commitments that typically mature within 30 to 60 days of inventory receipt and are typically renewed on an ongoing basis. The Company may be subject to fees in the event the Company requires storage in excess of 30 to 60 days. At December 31, 2015, the Company had on hand $13.0 million of raw material owned by its suppliers.
The Company currently knows of no event, trend or uncertainty that may affect the availability or benefits of these arrangements.
21 -FINANCIAL INSTRUMENTS
Fair valueValue and classificationClassification of financial instrumentsFinancial Instruments
As of December 31, 20122015 and December 31, 2011,2014, the classification of financial instruments, excluding derivative financial instruments designated as part of an effective hedging relationship, as well as their carrying amounts and respective fair values are as follows:
December 31, 2012 | Carrying amount | ||||||||||||||||||||||||||
Carrying amount | Financial assets at amortized cost | Financial liabilities at amortized cost | Fair value | ||||||||||||||||||||||||
Loans and receivables | Other liabilities | Fair value | $ | $ | $ | ||||||||||||||||||||||
December 31, 2015 | |||||||||||||||||||||||||||
$ | $ | $ | |||||||||||||||||||||||||
Financial assets | |||||||||||||||||||||||||||
Cash | 5,891 | - | 5,891 | 17,615 | — | 17,615 | |||||||||||||||||||||
Trade receivables | 75,860 | - | 75,860 | 78,517 | — | 78,517 | |||||||||||||||||||||
Other receivables(1) | 3,249 | - | 3,249 | ||||||||||||||||||||||||
Loan to an officer(2) | 55 | - | 55 | ||||||||||||||||||||||||
Supplier rebates and other receivables | 1,135 | — | 1,135 | ||||||||||||||||||||||||
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|
| |||||||||||||||||||||||||
Total | 97,267 | — | 97,267 | ||||||||||||||||||||||||
|
|
| |||||||||||||||||||||||||
Financial liabilities | |||||||||||||||||||||||||||
Accounts payable and accrued liabilities(1) | — | 64,484 | 64,484 | ||||||||||||||||||||||||
Long-term debt(2) | — | 132,865 | 132,865 | ||||||||||||||||||||||||
|
|
|
|
|
| ||||||||||||||||||||||
Total | 85,055 | - | 85,055 | — | 197,349 | 197,349 | |||||||||||||||||||||
|
|
|
|
|
| ||||||||||||||||||||||
Financial liabilities | |||||||||||||||||||||||||||
Accounts payable and accrued liabilities | - | 76,005 | 76,005 | ||||||||||||||||||||||||
Senior Subordinated Notes | - | 38,282 | 38,700 | ||||||||||||||||||||||||
Other long-term debt | - | 113,017 | 113,017 | ||||||||||||||||||||||||
December 31, 2014 | |||||||||||||||||||||||||||
Financial assets | |||||||||||||||||||||||||||
Cash | 8,342 | — | 8,342 | ||||||||||||||||||||||||
Trade receivables | 81,239 | — | 81,239 | ||||||||||||||||||||||||
Supplier rebates and other receivables | 2,398 | — | 2,398 | ||||||||||||||||||||||||
|
|
|
|
|
| ||||||||||||||||||||||
Total | - | 227,304 | 227,722 | 91,979 | — | 91,979 | |||||||||||||||||||||
|
|
|
|
|
| ||||||||||||||||||||||
December 31, 2011 | |||||||||||||||||||||||||||
Carrying amount | |||||||||||||||||||||||||||
Loans and receivables | Other liabilities | Fair value | |||||||||||||||||||||||||
$ | $ | $ | |||||||||||||||||||||||||
Financial assets | |||||||||||||||||||||||||||
Cash and cash equivalents | 4,345 | - | 4,345 | ||||||||||||||||||||||||
Trade receivables | 82,622 | - | 82,622 | ||||||||||||||||||||||||
Other receivables(1) | 2,283 | - | 2,283 | ||||||||||||||||||||||||
Loan to an officer(2) | 91 | - | 91 | ||||||||||||||||||||||||
Financial liabilities | |||||||||||||||||||||||||||
Accounts payable and accrued liabilities(1) | — | 54,890 | 54,890 | ||||||||||||||||||||||||
Long-term debt(2) | — | 98,042 | 98,042 | ||||||||||||||||||||||||
|
|
|
|
|
| ||||||||||||||||||||||
Total | 89,341 | - | 89,341 | — | 152,932 | 152,932 | |||||||||||||||||||||
|
|
|
|
|
| ||||||||||||||||||||||
Financial liabilities | |||||||||||||||||||||||||||
Accounts payable and accrued liabilities | - | 73,998 | 73,998 | ||||||||||||||||||||||||
Senior Subordinated Notes | - | 116,794 | 113,441 | ||||||||||||||||||||||||
Other long-term debt | - | 77,495 | 77,495 | ||||||||||||||||||||||||
|
|
| |||||||||||||||||||||||||
Total | - | 268,287 | 264,934 | ||||||||||||||||||||||||
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(1) Consists primarily of supplier rebates receivable
(2) Included in Other assets on the Consolidated Balance Sheets
(1) | Excludes employee benefits |
(2) | Excluded finance lease liabilities |
The Company’s interest rate swap agreement expired on September 22, 2011 (carryingcarrying amount and fair value of the interest rate swap agreements was a liability, included in other liabilities in the consolidated balance sheet, amounting to $0.9$0.4 million as of December 31, 2010). The Company’s final forward foreign exchange rate contract expired on July 31, 2012 (a liability amounting to $13,0002015 (nil as of December 31, 2011)2014).
60 See additional disclosures under interest rate risk below.
The following methods and assumptions were used to determine the estimated fair value of each class of financial instruments:
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The Company ensures, to the extent possible, that its valuation techniques and assumptions incorporate all factors that market participants would consider in setting a price and that it is consistent with accepted economic methods for pricing financial instruments.
Income and expenses relating to financial assets and liabilities are as follows:
Interest income | |||||||||||||||
2012 | 2011 | 2010 | |||||||||||||
$ | $ | $ | |||||||||||||
Cash | 132 | 269 | 54 | ||||||||||||
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Bad debt expense (recovery) | |||||||||||||||
2012 | 2011 | 2010 | |||||||||||||
$ | $ | $ | |||||||||||||
Trade receivables | 185 | 677 | 318 | ||||||||||||
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Interest expense calculated using the effective interest rate method | |||||||||||||||
2012 | 2011 | 2010 | |||||||||||||
$ | $ | $ | |||||||||||||
Long-term debt | 13,433 | 15,635 | 15,619 | ||||||||||||
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As of December 31, 2011 the financial instruments presented at fair value on the Company’s consolidated balance sheet by level of the fair value hierarchy are as follows:
December 31, 2011 | |||||||||||||||
Level 1 | Level 2 | Total | |||||||||||||
$ | $ | $ | |||||||||||||
Financial liabilities | |||||||||||||||
Forward foreign exchange rate contracts | - | 13 | 13 | ||||||||||||
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Hierarchy of financial instruments
The Company categorizes its financial instruments, measured at fair value in the consolidated balance sheet, including its financial assets, financial liabilities and derivative financial instruments into a three-level fair value measurement hierarchy as follows:
Level 1: The fair value is determined directly by reference to unadjusted quoted prices in active markets for identical assets and liabilities.
Level 2: The fair value is estimated using a valuation technique based on observable market data, either directly or indirectly.
Level 3: The fair value is estimated using a valuation technique based on unobservable data.
Exchange Risk
The Company is exposed to exchange risk due to cash, trade receivables, accounts payable and accrued liabilities, and long-term debt dominated in a currency other than the functional currency of the operating unit incurring the cost or earning the revenues, primarily the Canadian dollar and the Euro. As of December 31, 20122015 and 20112014, long-term debt and interest rate swaps are categorized as Level 2 of the fair value hierarchy.
Income and expenses relating to financial assets and financial liabilities in foreign currency, translated into US dollars at the closing rate, are as follows:
2012 | 2011 | |||||||||||||||||||
Canadian dollar | Euro | Canadian dollar | Euro | |||||||||||||||||
USD$ | USD$ | USD$ | USD$ | |||||||||||||||||
Cash | 1,168 | 1,903 | 663 | 1,669 | ||||||||||||||||
Trade receivables | 7,596 | 4,671 | 8,322 | 5,113 | ||||||||||||||||
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8,764 | 6,574 | 8,985 | 6,782 | |||||||||||||||||
Accounts payable and accrued liabilities | 8,254 | 1,763 | 8,244 | 2,060 | ||||||||||||||||
Total debt | 26 | 2,411 | 33 | 4,563 | ||||||||||||||||
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8,280 | 4,174 | 8,277 | 6,623 | |||||||||||||||||
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Net Exposure | 484 | 2,400 | 708 | 159 | ||||||||||||||||
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2015 | 2014 | 2013 | ||||||||||
$ | $ | $ | ||||||||||
Interest income | ||||||||||||
Cash and deposits | 47 | 62 | 75 | |||||||||
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Bad debt expense (recovery) | ||||||||||||
Trade receivables | 339 | 200 | (132 | ) | ||||||||
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Interest expense calculated using the effective interest rate method | ||||||||||||
Long-term debt | 3,380 | 5,756 | 6,289 | |||||||||
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Exchange Risk
The Company’s consolidated financial statements are expressed in US dollars while a portion of its business is conducted in other currencies. Changes in the exchange rates for such currencies into US dollars can increase or decrease revenues, operating profit, earnings and the carrying values of assets and liabilities.
The following table details the Company’s sensitivity to a 10% strengthening of the Canadian dollar and the Euro, against the US dollar, and the related impact on finance costs - other comprehensive income (loss).expense, net. For a 10% weakening of the Canadian dollar and the Euro, against the US dollar, there would be an equal and opposite impact on finance costs - other comprehensive income (loss).expense, net. As of December 31, 20122015 and 20112014 everything else being equal, a 10% strengthening of the Canadian dollar and Euro, against the US dollar, would result as follows:
2012 | 2011 | |||||||||||||||||||
Canadian dollar | Euro | Canadian dollar | Euro | |||||||||||||||||
USD$ | USD$ | USD$ | USD$ | |||||||||||||||||
Increase in other comprehensive income (loss) | 4,987 | 1,478 | 5,858 | 1,379 | ||||||||||||||||
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2015 | 2014 | |||||||||||||||
Canadian dollar | Euro | Canadian dollar | Euro | |||||||||||||
USD$ | USD$ | USD$ | USD$ | |||||||||||||
Increase (decrease) to finance costs - other expense,net from financial assets and financial liabilities | (258 | ) | 52 | (461 | ) | (21 | ) | |||||||||
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In 2011, in accordance with the Company’s foreign exchange rate risk policy, the Company executed a series of 9 monthly forward foreign exchange rate contracts to purchase an aggregate CDN$10.0 million beginning in July 2011 through March 2012, at fixed exchange rates ranging from CDN$0.9692 to CDN$0.9766 to the US dollar and a series of five monthly forward foreign exchange rate contracts to purchase an aggregate CDN$10.0 million beginning in March 2012 through July 2012, at fixed
62
exchange rates ranging from CDN$1.0564 to CDN$1.0568 to the US dollar. These forward foreign exchange rate contracts mitigated foreign exchange rate risk associated with a portion of anticipated monthly inventory purchases of the Company’s US self-sustaining foreign operations that were settled in Canadian dollars. The Company designated these forward foreign exchange rate contracts as cash flow hedges, effectively mitigating the cash flow risk associated with the settlement of the inventory purchases.
In 2010, in accordance with the Company’s foreign exchange rate risk policy, the Company executed a series of 8 monthly forward foreign exchange rate contracts to purchase an aggregate CDN$10.0 million beginning in January 2011, at fixed exchange rates ranging from CDN$1.0260 to CDN$1.0318 to the US dollar; a series of 6 monthly forward foreign exchange rate contracts to purchase an aggregate CDN$13.5 million beginning in August 2011, at fixed exchange rates ranging from CDN$1.0173 to CDN$1.0223 to the US dollar; and a series of 13 monthly forward foreign exchange rate contracts to purchase an aggregate CDN$20.0 million beginning in June 2010, at fixed exchange rates ranging from CDN$1.0610 to CDN$1.0636 to the US dollar. These forward foreign exchange rate contracts mitigated foreign exchange rate risk associated with a portion of anticipated monthly inventory purchases of the Company’s US self-sustaining foreign operations that were settled in Canadian dollars. The Company designated these forward foreign exchange rate contracts as cash flow hedges, effectively mitigating the cash flow risk associated with the settlement of the inventory purchases.
Finally, in 2010, the Company executed a series of 12 monthly forward foreign exchange rate contracts to purchase an aggregate USD$2.0 million beginning in July 2010, at fixed exchange rates ranging from USD$1.1870 to USD$1.1923 to the Euro. These forward foreign exchange rate contracts complied with management’s foreign exchange risk policy whereby these forward foreign exchange rate contracts mitigated the foreign exchange rate risk associated with the Company’s translation of foreign generated Euro denominated net earnings. However, these forward foreign exchange rate contracts did not comply with the requirements for hedge accounting and thus were not been designated as such.
Execution and Settlement
During the year ended December 31, 2012, one of the Company’s US foreign operations (the “Subsidiary”) purchased an aggregate of CDN$50.5 million (USD$50.8 million) (CDN$76.9 million (USD$77.8 million) in 2011) of inventories. Included in this amount is approximately CDN$22.3 million (USD$22.4 million) (CDN$26.5 million (USD$26.8 million) in 2011) of inventory purchases previously designated as part of a hedging relationship using forward foreign exchange rate contracts (the “Contracts”). These Contracts, used to reduce the exposure related to the Subsidiary’s “anticipated” inventory purchases during the period of January through July 2012. All inventories purchased and subject to the hedging relationship pursuant to these Contracts were sold as of December 31, 2012.
For the year ended December 31, 2012, the cumulative change in these settled Contracts’ fair value was recognized in the consolidated earnings under the caption “Cost of sales” in the amount of $0.2 million, ($1.7 million in 2011 and $1.5 million in 2010). The cumulative change in the Contracts’ fair value was recognized in consolidated earnings as a result of the following:
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Discontinuance of Hedging Relationships
During the year ended December 31, 2011, the Company’s management decided to discontinue hedge accounting for specific hedging relationships by terminating the designation of these relationships. The discontinued hedging relationships consisted of seven forward foreign exchange rate contracts (four forward foreign exchange rate contracts in 2010) (collectively the “Terminated Contracts”). These
63
Terminated Contracts represent the Company’s hedged inventory purchases and related accounts payable during the months of March, June, July, August and September 2011 (June and September 2010). All inventory purchases covered under these contracts were sold and consequently were included in the determination of net earnings for the years ended December 31, 2011 and 2010. Accordingly, included in the Company’s consolidated earnings for the year ended December 31, 2011 are $1.0 million ($0.6 million in 2010) under the caption Cost of sales, representing the gain on these Terminated Contracts, which had been previously recognized in accumulated other comprehensive income as a result of applying hedge accounting and a loss of $0.3 million in 2011 (nil in 2010) under the caption other (income) expense, representing the change in fair value of these Terminated Contracts arising subsequent to the Company’s management decision to terminate the designation of these specific hedging relationships.
Interest Rate Risk
The Company’s ABL, Real Estate Loan, term debt and equipment finance agreement advance fundings areCompany is exposed to a risk of change in cash flows due to changesthe fluctuations in interest rates applicable on its variable rate Revolving Credit Facility and other floating rate debt. The Company’s overall risk management objective is to minimize the underlying interest rates.long-term cost of debt, taking into account short-term and long-term earnings and cash flow volatility. The Company does not currently hold any derivative financial instrumentsCompany’s risk strategy with respect to mitigate this risk.
In 2011,its exposure associated with floating rate debt is that the Chief Executive Officer, Chief Financial Officer and Vice President of Treasury monitor the Company’s ABLamount of floating rate debt, taking into account the current and term debt were exposedexpected interest rate environment, the Company’s leverage and sensitivity to a risk of change inearnings and cash flows due to changes in the underlying interest rates. ToThe Company’s risk management objective at this time is to mitigate the riskvariability in 30-day LIBOR-based cash flows from the first $100,000,000 through August 20, 2018 and the first $40,000,000 through November 18, 2019 of such variable rate debt due to changes in the ABL,benchmark interest rate.
To help accomplish this objective, the Company entered into an interest rate swap agreement (the “Agreement”),agreements designated as a cash flow hedge which expired on September 22, 2011.
hedges. The terms of this Agreement werethe interest swap agreements are as follows:
Notional | Settlement | Fixed interest | ||||||||||
$ | % | |||||||||||
Agreement matured in September 2011 | 40,000,000 | Monthly | 3.35 |
Effective Date | Maturity | Notional amount | Settlement | Fixed interest rate paid | ||||||
March 18, 2015 | November 18, 2019 | $ | 40,000,000 | Monthly | 1.610% | |||||
August 18, 2015 | August 20, 2018 | $ | 60,000,000 | Monthly | 1.197% |
The interest rate swap agreements involve the exchange of periodic payments excluding the notional principal amount upon which the payments are based. These payments were recorded as an adjustment of interest expense on the hedged debt instruments. The related amount payable to or receivable from counterparties is included as an adjustment to accrued interest.
Additionally, the Company elects to use the Hypothetical Derivative methodology to measure the ineffectiveness of its hedging relationships in a given reporting period to be recorded in earnings. Under the Hypothetical Derivative method, the actual interest rate swaps would be recorded at fair value on the balance sheet, and accumulated OCI would be adjusted to a balance that reflects the lesser of either the
cumulative change in the fair value of the actual interest rate swaps or the cumulative change in the fair value of the hypothetical derivatives. The determination of the fair values of both the hypothetical derivative and the actual interest rate swaps will use discounted cash flows based on the relevant interest rate swap curves. The amount of ineffectiveness, if any, recorded in earnings in finance costs in other expense, net, would be equal to the excess of the cumulative change in the fair value of the actual interest rate swaps over the cumulative change in the fair value of the hypothetical derivatives. Amounts previously included as part of OCI are transferred to earnings in the period during which the hedged item impacts net earnings.
The change in fair value of the derivatives used for calculating hedge effectiveness was $0.4 million as of December 31, 2015.
As of December 31, 2012,2015 and 2014, the impact on the Company’s consolidated earnings offinance costs - interest expense from a 1.0% increase in interest rates, assuming all other variables remained equal, would be a decreasean increase of approximately $0.3 million and $1.0 million, (a decrease of $0.7 million in 2011). Other comprehensive income (loss) would not materially change as a result of a similar shift in interest rates and consequently, no sensitivity analysis is provided.respectively.
Credit Risk
Credit risk results from the possibility that a loss may occur from the failure of another party to perform according to the terms of the contract. Generally, the carrying amount reported on the Company’s consolidated balance sheet for its financial assets exposed to credit risk, net of any applicable provisions for losses, represents the maximum amount exposed to credit risk.
Financial assets that potentially subject the Company to credit risk consist primarily of cash, trade receivables and supplier rebate receivables and other receivables, namely supplier rebates receivable, and derivative financial instruments.receivables.
Cash
Credit risk associated with cash is substantially mitigated by ensuring that these financial assets are primarily placed with major financial institutions that have been accorded investment grade ratings by a primary rating agency and qualify as credit worthy counterparties.institutions. The Company performs an ongoing review and evaluation of the possible changes in the status and credit worthinesscreditworthiness of its counterparties.
64
Derivative Financial Instruments
Credit risk related to derivative financial instruments is adequately controlled, as the Company enters into such agreements solely with large American financial institutions having suitable credit ratings and who demonstrate sufficient liquidity. The credit risk, which the Company is exposed to in respect of derivative financial instruments, is limited to the replacement costs of contracts at market prices and when these agreements result in a receivable from the financial institution in the event of a counterparty default.
Trade Receivablesreceivables
CreditAs of December 31, 2015, there were two individual customers with trade receivables that accounted for over 5% of the Company’s total trade receivables. These trade receivables were current as of December 31, 2015. As of December 31, 2014, no single customer accounted for over 5% of the Company’s total trade receivables. The Company believes its credit risk with respect to trade receivables is limited due to the Company’s credit evaluation process, reasonably short collection terms and the credit worthinesscreditworthiness of its customers.customers and credit insurance. The Company regularly monitors its credit risk exposures and takes steps to mitigate the likelihood of these exposures from resulting in actual losses. Allowance for doubtful accounts is maintained consistent with credit risk, historical trends, general economic conditions and other information and is taken into account in the consolidated financial statements.
The following table presents an analysis of the age of trade receivables and related balance as of:
December 31, 2012 | December 31, 2011 | December 31, 2015 | December 31, 2014 | |||||||||||||||
$ | $ | $ | $ | |||||||||||||||
Current | 70,503 | 74,558 | 74,371 | 74,304 | ||||||||||||||
Past due accounts not impaired | ||||||||||||||||||
1 – 30 days past due | 5,688 | 6,100 | 3,321 | 6,530 | ||||||||||||||
31 – 60 days past due | 46 | 1,244 | 709 | 230 | ||||||||||||||
61 – 90 days past due | 22 | 99 | 52 | 85 | ||||||||||||||
Over 91 days past due | 1,993 | 2,840 | ||||||||||||||||
Over 90 days past due | 64 | 90 | ||||||||||||||||
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78,252 | 84,841 | 4,146 | 6,935 | |||||||||||||||
Allowance for doubtful accounts | (2,392 | ) | (2,219 | ) | 128 | 396 | ||||||||||||
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Balance | 75,860 | 82,622 | ||||||||||||||||
Gross accounts receivable | 78,645 | 81,635 | ||||||||||||||||
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The Company makes estimates and assumptions in the process of determining an adequate allowance for doubtful accounts. Trade receivables outstanding longer than the agreed upon payment terms are considered past due. The Company determines its allowance by considering a number of factors, including the length of time trade receivables are past due, the customer’s current ability to pay its obligation to the Company, historical results and the condition of the general economy and the industry as a whole. The Company writes-offwrites off trade receivables when they are determined to be uncollectible and any payments subsequently received on such trade receivables are credited to the allowance for doubtful accounts. The allowance for doubtful accounts is primarily calculated on a specific-identification of trade receivable accounts.
The following table presents a continuity summary of the Company’s allowance for doubtful accounts as of and for the year ended December 31:
2012 | 2011 | 2015 | 2014 | |||||||||||||||
$ | $ | $ | $ | |||||||||||||||
Balance, beginning of year | 2,219 | 1,653 | 396 | 656 | ||||||||||||||
Additions | 163 | 676 | 286 | 169 | ||||||||||||||
Recoveries | 428 | — | ||||||||||||||||
Write-offs | (4 | ) | (97 | ) | (980 | ) | (425 | ) | ||||||||||
Foreign exchange | 14 | (13 | ) | (2 | ) | (4 | ) | |||||||||||
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Balance, end of year | 2,392 | 2,219 | 128 | 396 | ||||||||||||||
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Other ReceivablesSupplier rebates and other receivables
Credit risk associated with other receivables primarily relates to supplier rebates receivable. This riskand other receivables is limited considering the amount is not material, the Company’s large size and diversified counterparties and geography.
As of December 31, 2012 and 2011, no single vendor accounted for over 5% of the Company’s total current assets. The Company does not believe it is subject to any significant concentration of credit risk.
Liquidity Risk
Liquidity risk is the risk that the Company will not be able to meet its financial liabilities and obligations as they become due. The Company is exposed to this risk mainly through its long-term debt and accounts payable and accrued liabilities, and derivative financial instruments (liabilities).liabilities. The Company finances its operations through a combination of cash flows from operations and borrowings under its ABL.Revolving Credit Facility.
Liquidity risk management serves to maintain a sufficient amount of cash and to ensure that the Company has financing sources for a sufficient authorized amount. The Company establishes budgets, cash estimates and cash management policies to ensure it has the necessary funds to fulfil its obligations for the foreseeable future.
The following maturity analysis for derivatives and non-derivative financial liabilities is based on the remaining contractual maturities as of the balance sheet date. The amounts disclosed reflect the contractual undiscounted cash flows categorized by their earliest contractual maturity date on which the Company can be required to pay its obligation.
The maturity analysis for non-derivative financial liabilities is as follows as of December 31:
2012 | ||||||||||||||||||||
Other long- term loans | Finance lease liabilities | Accounts payable and accrued liabilities | Total | |||||||||||||||||
$ | $ | $ | $ | |||||||||||||||||
Current maturity | 8,142 | 1,893 | 76,005 | 86,040 | ||||||||||||||||
2014 | 2,342 | 1,926 | - | 4,268 | ||||||||||||||||
2015 | 1,768 | 1,839 | - | 3,607 | ||||||||||||||||
2016 | 1,772 | 1,769 | - | 3,541 | ||||||||||||||||
2017 | 128,043 | 1,581 | - | 129,624 | ||||||||||||||||
2018 and thereafter | 1,250 | 3,891 | - | 5,141 | ||||||||||||||||
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143,317 | 12,899 | 76,005 | 232,221 | |||||||||||||||||
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Other long- term loans | Finance lease liabilities | Accounts payable and accrued liabilities | Total | |||||||||||||||||
$ | $ | $ | $ | |||||||||||||||||
Current maturity | 2,640 | 784 | 73,998 | 77,422 | ||||||||||||||||
2013 | 67,382 | 798 | - | 68,180 | ||||||||||||||||
2014 | 119,441 | 692 | - | 120,133 | ||||||||||||||||
2015 | 71 | 645 | - | 716 | ||||||||||||||||
2016 | 75 | 577 | - | 652 | ||||||||||||||||
2017 and thereafter | 1,291 | 4,358 | - | 5,649 | ||||||||||||||||
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190,900 | 7,854 | 73,998 | 272,752 | |||||||||||||||||
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Other long- term loans | Finance lease liabilities | Accounts payable and accrued liabilities(1) | Total | |||||||||||||
$ | $ | $ | $ | |||||||||||||
2015 | ||||||||||||||||
Current maturity | — | 6,258 | 64,484 | 70,742 | ||||||||||||
2017 | 58 | 6,054 | — | 6,112 | ||||||||||||
2018 | 100 | 4,796 | — | 4,896 | ||||||||||||
2019 | 133,560 | 986 | — | 134,546 | ||||||||||||
2020 | 200 | 424 | — | 624 | ||||||||||||
2021 and thereafter | 700 | 3,037 | — | 3,737 | ||||||||||||
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134,618 | 21,555 | 64,484 | 220,657 | |||||||||||||
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2014 | ||||||||||||||||
Current maturity | — | 6,405 | 54,890 | 61,295 | ||||||||||||
2016 | — | 6,327 | — | 6,327 | ||||||||||||
2017 | 106 | 6,141 | — | 6,247 | ||||||||||||
2018 | — | 4,887 | — | 4,887 | ||||||||||||
2019 | 100,085 | 1,078 | — | 101,163 | ||||||||||||
2020 and thereafter | — | 2,657 | — | 2,657 | ||||||||||||
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100,191 | 27,495 | 54,890 | 182,576 | |||||||||||||
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(1) | Excludes employee benefits |
The maturity analysis for derivatives financial liabilities includes only the maturities essential for an understanding of the timing of the cash flows. In connection with the Company’s derivative financial liabilities requiring settlement on a net basis, undiscounted net cash flows are presented.
The maturity analysis for derivative financial liabilities is as follows as of December 31, 2011:
Less than | 6 months | Greater than 1 year | Total | |||||||||||||||||
$ | $ | $ | $ | |||||||||||||||||
Forward foreign exchange rate contracts | (30 | ) | 17 | - | (13 | ) | ||||||||||||||
Interest rate swap agreements | - | - | - | - | ||||||||||||||||
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(30 | ) | 17 | - | (13 | ) | |||||||||||||||
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As of December 31, 2012, the Company’s unused availability under the ABLRevolving Credit Facility and available cash on hand amounted to $54.7$182.3 million ($58.9as of December 31, 2015, and $206.2 million in 2011).2014.
Price Risk
The Company’s price risk arises from changes in its oil-derived raw material prices, which are significantly influenced by the fluctuating underlying crude oil markets. The Company’s objectives in managing its price risk are threefold: i) to protect its financial result for the period from significant fluctuations in raw material costs, ii) to anticipate, to the extent possible, and plan for significant changes in the raw material markets and iii) to ensure sufficient availability of raw material required to meet the Company’s manufacturing requirements. In order to manage its exposure to price risks, the Company closely monitors current and anticipated changes in market prices and develops pre-buying strategies and patterns, and seeks to adjust its selling prices when market conditions permit. Historical results indicate management’s ability to rapidly identify fluctuations in raw material prices and, to the extent possible, incorporate such fluctuations in the Company’s selling prices.
As of December 31, 2012,2015, all other parameters being equal, a hypothetical increase of 10% in the cost of raw materials, with no corresponding sales price adjustments, would result in a decreasean increase in earningscost of $43.7sales of $39.8 million (a decrease(an increase in earningscost of $46.8sales of $43.9 million in 2011)2014). A similar decrease of 10% will have the opposite impact. No material impact is expected on other comprehensive income (loss) and accordingly, no sensitivity analysis is provided.
Capital ManagementIndex to Financial Statements
The Company’s primary objectives when managingCompany manages its capital are i) to provide adequate return to its shareholders, ii) minimize, to the extent possible, the risks associated with its shareholders’ investment in the Company, iii) safeguard the Company’s ability to continue as a going concern, and iv) provide financial capacitysufficient liquidity and flexibility to meet strategic objectives and growth.growth and provide adequate return to its shareholders, while taking into consideration financial leverage and financial risk.
The capital structure of the Company consists of cash, debt and shareholders’ equity. A summary of the Company’s capital structure is as follows as of December 31:
2012 | 2011 | |||||||
$ | $ | |||||||
Cash | 5,891 | 4,345 | ||||||
Debt | 151,299 | 194,289 | ||||||
Shareholders’ equity | 153,834 | 137,178 |
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2015 | 2014 | |||||||
$ | $ | |||||||
Cash | 17,615 | 8,342 | ||||||
Debt | 152,836 | 123,259 | ||||||
Shareholders’ equity | 216,728 | 227,500 |
The Company manages its capital structure in accordance with its expected business growth, operational objectives and underlying industry, market and economic conditions. Consequently, the Company will determine, from time to time, its capital requirements and will accordingly develop a plan to be presented and approved by its Board of Directors. The plan may include the repurchase of common shares, the issuance of shares, the payment of dividends and the issuance of new debt or the refinancing of existing debt.
In meeting its principal objective to provide adequate return to its shareholders, the Company undertakes measures to maintain and grow its adjusted EBITDA over the years. Such measures include the introduction of new products, penetration into new markets and market niches, the manufacturing rationalization plan and increasing operating efficiencies.
The Company monitors its capital by reviewing its credit ratings as determined by independent agencies and evaluating various financial metrics. These metrics, which are provided to and used by the Company’s key management personnel in their decision making process, consisted of the following for the trailing twelve months ended December 31:
2012 | 2011 | |||||||||
$ | $ | |||||||||
Net earnings (loss) | 22,507 | 8,954 | ||||||||
Add back: | ||||||||||
Interest and other expense | 14,536 | 17,541 | ||||||||
Income tax expense (benefit) | 375 | 1,920 | ||||||||
Depreciation and amortization | 30,397 | 30,882 | ||||||||
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EBITDA | 67,815 | 59,297 | ||||||||
Manufacturing facility closures, restructuring and other related charges | 18,257 | 2,891 | ||||||||
Stock-based compensation expense | 1,832 | 818 | ||||||||
ITI litigation settlement | - | 956 | ||||||||
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Adjusted EBITDA | 87,904 | 63,962 | ||||||||
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Interest expense | 13,233 | 15,361 | ||||||||
Debt | 151,299 | 194,289 | ||||||||
Internal financial ratios | ||||||||||
Debt to Adjusted EBITDA | 1.72 | 3.04 | ||||||||
Adjusted EBITDA to interest expense | 6.64 | 4.16 |
Debt represents the Company’s long-term and related current portion borrowings. The Company defines EBITDA as net earnings (loss) before (i) interest and other (income) expense; (ii) income tax expense (benefit); (iii) refinancing expense, net of amortization; (iv) amortization of debt issue expenses; (v) amortization of intangible assets; and (vi) depreciation of property, plant and equipment. Adjusted EBITDA is defined as EBITDA before (i) manufacturing facility closures, restructuring and other related charges; (ii) stock-based compensation expense; (iii) impairment of goodwill; (iv) impairment of long-lived assets and other assets; (v) write-down on assets classified as held-for-sale; and (vi) other items as disclosed. Interest expense is defined as the total interest expense incurred net of any interest income earned during the year.
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22 -POST REPORTING EVENTS
Adjusting Events
No adjusting events have occurred between the reporting date of these consolidated financial statements and the date of authorization.
Non-Adjusting Events
No adjusting or significant non-adjusting events have occurred between the reporting date of these consolidated financial statements and the date of authorization with the exception of the items discussed below.
In January 2013,On March 9, 2016, the Company sold the Brantford, Ontario manufacturing facility and received net proceeds of $1.6 million. The Company recovered $0.2 million of the asset impairment charge previously recorded in 2011 and 2010.
The Company declared a cash dividend of $0.08$0.13 per common share payable April 10, 2013on March 31, 2016 to shareholders of record at the close of business on March 25, 2013.21, 2016. The estimated amount of this dividend payment is $4.8$7.6 million based on 59,625,03958,520,335 shares of the Company’s common shares issued and outstanding as of March 6, 2013.9, 2016.
On February 26, 2013,No other significant non-adjusting events have occurred between the Company announced its intention to relocate its Columbia, South Carolina manufacturing facility withinreporting date of these consolidated financial statements and the region in order to modernize facility operations and acquire state-of-the-art manufacturing equipment.date of authorization.
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