Document
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________________
FORM 6-K
________________________________________
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934
For the month of August, 2018
Commission File Number 1-10928
________________________________________
INTERTAPE POLYMER GROUP INC.
________________________________________
9999 Cavendish Blvd., Suite 200, Ville St. Laurent, Quebec, Canada, H4M 2X5
________________________________________
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:
Form 20-F  x            Form 40-F  ¨
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):  ¨
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):  ¨
 


SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
INTERTAPE POLYMER GROUP INC.
 
 
 
Date: August 13, 2018
By:
 
/s/ Jeffrey Crystal
 
 
 
Jeffrey Crystal, Chief Financial Officer
















Intertape Polymer Group Inc.
Unaudited Interim Condensed Consolidated Financial Statements
June 30, 2018




 
 
Unaudited Interim Condensed Consolidated Financial Statements
 
 
 
 
 
 
 
Consolidated Changes in Equity
4 to 5
 
 
 
 
 
 
Notes to Unaudited Interim Condensed Consolidated Financial Statements
8 to 22



Intertape Polymer Group Inc.
Consolidated Earnings
Periods ended June 30,
(In thousands of US dollars, except per share amounts)
(Unaudited)
 
 
 
Three months ended
June 30,
 
Six months ended
June 30,
 
 
2018
 
2017
 
2018
 
2017
 
 
$
 
$
 
$
 
$
Revenue
 
249,072

 
210,158

 
486,301

 
417,278

Cost of sales
 
194,605

 
162,783

 
381,382

 
320,763

Gross profit
 
54,467

 
47,375

 
104,919

 
96,515

Selling, general and administrative expenses
 
27,626

 
28,717

 
56,749

 
54,690

Research expenses
 
3,233

 
2,643

 
6,454

 
5,622

 
 
30,859

 
31,360

 
63,203

 
60,312

Operating profit before manufacturing facility closures, restructuring and other related (recoveries) charges
 
23,608

 
16,015

 
41,716

 
36,203

Manufacturing facility closures, restructuring and other related (recoveries) charges
 
(407
)
 
410

 
(300
)
 
677

Operating profit
 
24,015

 
15,605

 
42,016

 
35,526

Finance costs (Note 3)
 
 
 
 
 
 
 
 
Interest
 
3,945

 
1,283

 
6,407

 
2,431

Other expense, net
 
1,328

 
274

 
2,453

 
702

 
 
5,273

 
1,557

 
8,860

 
3,133

Earnings before income tax expense
 
18,742

 
14,048

 
33,156

 
32,393

Income tax expense (Note 4)
 
 
 
 
 
 
 
 
Current
 
765

 
2,753

 
1,753

 
5,446

Deferred
 
2,901

 
1,222

 
5,033

 
3,441

 
 
3,666

 
3,975

 
6,786

 
8,887

Net earnings
 
15,076

 
10,073

 
26,370

 
23,506

 
 
 
 
 
 
 
 
 
Net earnings (loss) attributable to:
 
 
 
 
 
 
 
 
Company shareholders
 
15,144

 
10,199

 
26,503

 
23,661

Non-controlling interests
 
(68
)
 
(126
)
 
(133
)
 
(155
)
 
 
15,076

 
10,073

 
26,370

 
23,506

Earnings per share attributable to Company shareholders (Note 5)
 
 
 
 
 
 
 
 
Basic
 
0.26

 
0.17

 
0.45

 
0.40

Diluted
 
0.26

 
0.17

 
0.45

 
0.40

The accompanying notes are an integral part of the interim condensed consolidated financial statements. Note 3 presents additional information on consolidated earnings.


2

Intertape Polymer Group Inc.
Consolidated Comprehensive Income
Periods ended June 30,
(In thousands of US dollars)
(Unaudited)
 
 
 
Three months ended
June 30,
 
Six months ended
June 30,
 
 
2018
 
2017
 
2018
 
2017
 
 
$
 
$
 
$
 
$
Net earnings
 
15,076

 
10,073

 
26,370

 
23,506

Other comprehensive income (loss)
 
 
 
 
 
 
 
 
Change in fair value of interest rate swap agreements designated as cash flow hedges (1)
 
515

 
87

 
2,247

 
273

Change in cumulative translation adjustments
 
(3,781
)
 
2,475

 
(4,367
)
 
4,912

Items that will be subsequently reclassified to net earnings
 
(3,266
)
 
2,562

 
(2,120
)
 
5,185

Comprehensive income for the period
 
11,810

 
12,635

 
24,250

 
28,691

 
 
 
 
 
 
 
 
 
Comprehensive income (loss) for the period attributable to:
 
 
 
 
 
 
 
 
Company shareholders
 
12,336

 
12,749

 
24,842

 
28,523

Non-controlling interests
 
(526
)
 
(114
)
 
(592
)
 
168

 
 
11,810

 
12,635

 
24,250

 
28,691

 
(1) 
Presented net of deferred income tax expense of $53 and $345 for the three and six months ended June 30, 2018, respectively, and $53 and $167 for the three and six months ended June 30, 2017, respectively. Refer to Note 9 for additional information on the Company’s cash flow hedges.
The accompanying notes are an integral part of the interim condensed consolidated financial statements.


3

Intertape Polymer Group Inc.
Consolidated Changes in Equity
Six months ended June 30, 2017
(In thousands of US dollars, except for number of common shares)
(Unaudited)
 
 
 
 
 
 
 
Accumulated other comprehensive loss
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cumulative translation adjustment account
 
Reserve for cash flow hedges
 
 
 
 
 
Total equity attributable to Company shareholders
 
Non-controlling interests
 
 
 
Capital stock
 
Contributed surplus
 
 
 
 
 
 
 
 
 
Total equity
 
Number
 
Amount
 
 
 
 
Total
 
Deficit
 
 
 
 
 
 
$
 
$
 
$
 
$
 
$
 
$
 
$
 
$
 
$
Balance as of December 31, 2016
59,060,335

 
351,203

 
29,585

 
(19,511
)
 
(136
)
 
(19,647
)
 
(124,605
)
 
236,536

 
6,407

 
242,943

Transactions with owners
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Exercise of stock options (Note 8)
226,875

 
1,362

 
 
 
 
 
 
 
 
 
 
 
1,362

 
 
 
1,362

Change in excess tax benefit on exercised share-based awards
 
 
500

 
(500
)
 
 
 
 
 
 
 
 
 
—

 
 
 
—

Change in excess tax benefit on outstanding share-based awards
 
 
 
 
(2,198
)
 
 
 
 
 
 
 
1,442

 
(756
)
 
 
 
(756
)
Share-based compensation (Note 8)
 
 
 
 
(7,874
)
 
 
 
 
 
 
 
(5,228
)
(1) 
(13,102
)
 
 
 
(13,102
)
Share-based compensation expense credited to capital on options exercised (Note 8)
 
 
495

 
(495
)
 
 
 
 
 
 
 
 
 
—

 
 
 
—

Dividends on common shares (Note 8)
 
 
 
 
 
 
 
 
 
 
 
 
(16,546
)
 
(16,546
)
 
 
 
(16,546
)
 
226,875

 
2,357

 
(11,067
)
 
 
 
 
 
 
 
(20,332
)
 
(29,042
)
 
 
 
(29,042
)
Net earnings (loss)
 
 
 
 
 
 
 
 
 
 
 
 
23,661

 
23,661

 
(155
)
 
23,506

Other comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Change in fair value of interest rate swap agreements designated as cash flow hedges (2) (Note 9)
 
 
 
 
 
 
 
 
273

 
273

 
 
 
273

 
 
 
273

Change in cumulative translation adjustments
 
 
 
 
 
 
4,589

 
 
 
4,589

 
 
 
4,589

 
323

 
4,912

 
 
 
 
 
 
 
4,589

 
273

 
4,862

 


 
4,862

 
323

 
5,185

Comprehensive income for the period
 
 
 
 
 
 
4,589

 
273

 
4,862

 
23,661

 
28,523

 
168

 
28,691

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-controlling interest arising from investment in Capstone(3)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
15

 
15

Balance as of June 30, 2017
59,287,210

 
353,560

 
18,518

 
(14,922
)
 
137

 
(14,785
)
 
(121,276
)
 
236,017

 
6,590

 
242,607


(1) 
Presented net of income tax benefit of $1,442 for the six months ended June 30, 2017.
(2) 
Presented net of deferred income tax expense of $167 for the six months ended June 30, 2017.
(3) 
Refers to the purchase by the Company of shares in Capstone Polyweave Private Limited, a newly-formed enterprise in India (d/b/a "Capstone"), on June 23, 2017.
The accompanying notes are an integral part of the interim condensed consolidated financial statements.

4

Intertape Polymer Group Inc.
Consolidated Changes in Equity
Six months ended June 30, 2018
(In thousands of US dollars, except for number of common shares)
(Unaudited)
 
 
 
 
 
 
 
 
Accumulated other comprehensive loss
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cumulative translation adjustment account
 
Reserve for cash flow hedges
 
 
 
 
 
Total equity attributable to Company shareholders
 
Non-controlling interests
 
 
 
Capital stock
 
Contributed surplus
 
 
 
 
 
 
 
 
 
Total equity
 
Number
 
Amount
 
 
 
 
Total
 
Deficit
 
 
 
 
 
 
$
 
$
 
$
 
$
 
$
 
$
 
$
 
$
 
$
Balance as of December 31, 2017
58,799,910

 
350,759

 
17,530

 
(15,057
)
 
1,588

 
(13,469
)
 
(106,687
)
 
248,133

 
6,589

 
254,722

Transactions with owners
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Exercise of stock options (Note 8)
17,500

 
163

 
 
 
 
 
 
 
 
 
 
 
163

 
 
 
163

Change in excess tax benefit on exercised share-based awards
 
 
7

 
(7
)
 
 
 
 
 
 
 
 
 
—

 
 
 
—

Change in excess tax benefit on outstanding share-based awards
 
 
 
 
(568
)
 
 
 
 
 
 
 


 
(568
)
 
 
 
(568
)
Share-based compensation (Note 8)
 
 
 
 
195

 
 
 
 
 
 
 
(284
)
(1) 
(89
)
 
 
 
(89
)
Share-based compensation expense credited to capital on options exercised (Note 8)
 
 
48

 
(48
)
 
 
 
 
 
 
 
 
 
—

 
 
 
—

Dividends on common shares (Note 8)
 
 
 
 
 
 
 
 
 
 
 
 
(16,467
)
 
(16,467
)
 
 
 
(16,467
)
 
17,500

 
218

 
(428
)
 
 
 
 
 
 
 
(16,751
)
 
(16,961
)
 
 
 
(16,961
)
Net earnings (loss)
 
 
 
 
 
 
 
 
 
 
 
 
26,503

 
26,503

 
(133
)
 
26,370

Other comprehensive income (loss)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Change in fair value of interest rate swap agreements designated as cash flow hedges (2) (Note 9)
 
 
 
 
 
 
 
 
2,247

 
2,247

 
 
 
2,247

 
 
 
2,247

Change in cumulative translation adjustments
 
 
 
 
 
 
(3,908
)
 
 
 
(3,908
)
 
 
 
(3,908
)
 
(459
)
 
(4,367
)
 
 
 
 
 
 
 
(3,908
)
 
2,247

 
(1,661
)
 
 
 
(1,661
)
 
(459
)
 
(2,120
)
Comprehensive income for the period
 
 
 
 
 
 
(3,908
)
 
2,247

 
(1,661
)
 
26,503

 
24,842

 
(592
)
 
24,250

Capital transactions with non-controlling shareholders of Capstone (Note 10)
 
 
 
 
 
 
 
 
 
 
 
 
2,485

 
2,485

 
10,915

 
13,400

Balance as of June 30, 2018
58,817,410

 
350,977

 
17,102

 
(18,965
)
 
3,835

 
(15,130
)
 
(94,450
)
 
258,499

 
16,912

 
275,411


(1) 
Presented net of income tax benefit of $96 for the six months ended June 30, 2018.
(2) 
Presented net of deferred income tax expense of $345 for the six months ended June 30, 2018.
The accompanying notes are an integral part of the interim condensed consolidated financial statements.

5

Intertape Polymer Group Inc.
Consolidated Cash Flows
Periods ended June 30,
(In thousands of US dollars)
(Unaudited)
 
 
Three months ended
June 30,
 
Six months ended
June 30,
 
 
2018
 
2017
 
2018
 
2017
 
 
$
 
$
 
$
 
$
OPERATING ACTIVITIES
 
 
 
 
 
 
 
 
Net earnings
 
15,076

 
10,073

 
26,370

 
23,506

Adjustments to net earnings
 
 
 
 
 
 
 
 
Depreciation and amortization
 
9,947

 
8,363

 
20,006

 
16,638

Income tax expense
 
3,666

 
3,975

 
6,786

 
8,887

Interest expense
 
3,945

 
1,283

 
6,407

 
2,431

Share-based compensation (benefit) expense
 
(714
)
 
3,976

 
(304
)
 
5,164

Loss on foreign exchange
 
921

 
2

 
1,690

 
193

Pension and other post-retirement expense related to defined benefit plans
 
700

 
698

 
1,426

 
1,383

Other adjustments for non-cash items
 
253

 
(388
)
 
917

 
(745
)
Income taxes received (paid), net
 
385

 
(2,461
)
 
363

 
(2,762
)
Contributions to defined benefit plans
 
(1,004
)
 
(1,836
)
 
(1,516
)
 
(2,429
)
Cash flows from operating activities before changes in working capital items
 
33,175

 
23,685

 
62,145

 
52,266

Changes in working capital items
 
 
 
 
 
 
 
 
Trade receivables
 
(1,025
)
 
(1,176
)
 
(5,836
)
 
(3,406
)
Inventories
 
(724
)
 
(2,927
)
 
(23,577
)
 
(12,355
)
Parts and supplies
 
(708
)
 
(557
)
 
(1,185
)
 
(1,164
)
Other current assets
 
(1,604
)
 
(1,200
)
 
(1,686
)
 
1,245

Accounts payable and accrued liabilities and share-based compensation liabilities, current
 
(877
)
 
2,196

 
(21,672
)
 
(26,263
)
Provisions
 
(743
)
 
(432
)
 
(825
)
 
(1,311
)
 
 
(5,681
)
 
(4,096
)
 
(54,781
)
 
(43,254
)
Cash flows from operating activities
 
27,494

 
19,589

 
7,364

 
9,012

 
 
 
 
 
 
 
 
 
INVESTING ACTIVITIES
 
 
 
 
 
 
 
 
Purchases of property, plant and equipment
 
(16,352
)
 
(20,392
)
 
(34,748
)
 
(42,516
)
Restricted cash (1)
 
—

 
(71,785
)
 
—

 
(71,785
)
Other investing activities
 
(199
)
 
14

 
(355
)
 
33

Cash flows from investing activities
 
(16,551
)
 
(92,163
)
 
(35,103
)
 
(114,268
)
 
 
 
 
 
 
 
 
 
FINANCING ACTIVITIES
 
 
 
 
 
 
 
 
Proceeds from borrowings
 
373,310

 
113,966

 
474,633

 
153,477

Repayment of borrowings
 
(361,421
)
 
(27,081
)
 
(416,657
)
 
(41,289
)
Payments of debt issue costs
 
(2,618
)
 
—

 
(2,618
)
 
—

Interest paid
 
(2,179
)
 
(1,391
)
 
(4,529
)
 
(2,599
)
Proceeds from exercise of stock options
 
93

 
1,256

 
163

 
1,362

Dividends paid
 
(8,140
)
 
(8,365
)
 
(16,473
)
 
(16,681
)
Other financing activities
 
1

 
(545
)
 
1

 
(638
)
Cash flows from financing activities
 
(954
)
 
77,840

 
34,520

 
93,632

 
 
 
 
 
 
 
 
 
Net increase (decrease) in cash
 
9,989

 
5,266

 
6,781

 
(11,624
)
Effect of foreign exchange differences on cash
 
(1,128
)
 
1,353

 
(1,935
)
 
1,393

Cash, beginning of period
 
5,078

 
4,106

 
9,093

 
20,956

Cash, end of period
 
13,939

 
10,725

 
13,939

 
10,725


(1)  
Restricted cash for the three and six months ended June 30, 2017 consists of cash transferred into a third-party trust account as part of the Company’s acquisition of Canadian Technical Tape Ltd. The funds were released from the trust account following the acquisition closing on July 1, 2017.
The accompanying notes are an integral part of the interim condensed consolidated financial statements.

6

Intertape Polymer Group Inc.
Consolidated Balance Sheets
As of
(In thousands of US dollars)
 
 
June 30,
2018
 
December 31, 2017
 
 
(Unaudited)
 
(Audited)
 
 
$
 
$
ASSETS
 
 
 
 
Current assets
 
 
 
 
Cash
 
13,939

 
9,093

Trade receivables
 
113,089

 
106,634

Inventories
 
151,218

 
128,233

Parts and supplies
 
19,734

 
18,571

Other current assets
 
17,242

 
16,188

 
 
315,222

 
278,719

Property, plant and equipment
 
325,344

 
313,520

Goodwill
 
48,673

 
41,690

Intangible assets
 
43,834

 
47,318

Deferred tax assets
 
26,317

 
27,627

Other assets
 
10,982

 
6,998

Total assets
 
770,372

 
715,872

 
 
 
 
 
LIABILITIES
 
 
 
 
Current liabilities
 
 
 
 
Accounts payable and accrued liabilities
 
87,755

 
104,812

Share-based compensation liabilities, current (Note 8)
 
4,974

 
10,265

Call option redemption liability (Note 9)
 
11,864

 
12,725

Provisions, current
 
341

 
657

Borrowings, current (Note 7)
 
24,388

 
14,979

 
 
129,322

 
143,438

Borrowings, non-current (Note 7)
 
308,718

 
264,484

Pension, post-retirement and other long-term employee benefits
 
29,056

 
29,298

Share-based compensation liabilities, non-current (Note 8)
 
2,167

 
4,984

Deferred tax liabilities
 
19,570

 
13,769

Provisions, non-current
 
2,680

 
3,221

Other liabilities
 
3,448

 
1,956

Total liabilities
 
494,961

 
461,150

 
 
 
 
 
EQUITY
 
 
 
 
Capital stock (Note 8)
 
350,977

 
350,759

Contributed surplus
 
17,102

 
17,530

Deficit
 
(94,450
)
 
(106,687
)
Accumulated other comprehensive loss
 
(15,130
)
 
(13,469
)
Total equity attributable to Company shareholders
 
258,499

 
248,133

Non-controlling interests
 
16,912

 
6,589

Total equity
 
275,411

 
254,722

Total liabilities and equity
 
770,372

 
715,872

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

7

Intertape Polymer Group Inc.
Notes to Unaudited Interim Condensed Consolidated Financial Statements
June 30, 2018
(In US dollars, tabular amounts in thousands, except per share data and as otherwise noted)
(Unaudited)
1 - GENERAL BUSINESS DESCRIPTION
Intertape Polymer Group Inc. (the “Parent Company”), incorporated under the Canada Business Corporations Act, has its principal administrative offices in Montreal, Québec, Canada and in Sarasota, Florida, U.S.A. The address of the Parent Company’s registered office is 800 Place Victoria, Suite 3700, Montreal, Québec H4Z 1E9, c/o Fasken 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”) develop, manufacture and sell 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 - ACCOUNTING POLICIES
Basis of Presentation and Statement of Compliance
The unaudited interim condensed consolidated financial statements (“financial statements”) present the Company’s consolidated balance sheets as of June 30, 2018 and December 31, 2017, as well as its consolidated earnings, comprehensive income and cash flows for the three and six months ended June 30, 2018 and 2017 and the changes in equity for the six months ended June 30, 2018 and 2017.
These financial statements have been prepared in accordance with International Accounting Standard (“IAS”) 34 – Interim Financial Reporting and are expressed in United States (“US”) dollars. Accordingly, certain information and footnote disclosures normally included in annual audited consolidated financial statements prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”), have been omitted or condensed. These financial statements use the same accounting policies, except for the adoption of the new standards described below, and use the same methods of computation as compared with the Company’s most recent annual audited consolidated financial statements, except for (i) the estimate of the provision for income taxes, which is determined in these financial statements using the estimated weighted average annual effective income tax rate applied to the earnings before income tax expense of the interim period, which may have to be adjusted in a subsequent interim period of the financial year if the estimate of the annual income tax rate changes, and (ii) the re-measurement of the defined benefit liability, which is required at year-end and if triggered by plan amendment or settlement during interim periods.
These financial statements reflect all adjustments which are, in the opinion of management, necessary to present a fair statement of the results for these interim periods. These adjustments are of a normal recurring nature.
These financial statements were authorized for issuance by the Company’s Board of Directors on August 10, 2018.
Critical Accounting Judgments, Estimates and Assumptions
The preparation of these financial statements 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. The judgments, estimates and assumptions applied in these financial statements were the same as those applied in the Company’s most recent annual audited consolidated financial statements other than (as noted above) the accounting policies and methods of computation for the estimate of the provision for income taxes and the re-measurement of the defined benefit liability.

8

New Standards Adopted as of January 1, 2018
IFRS 15 – Revenue from Contracts with Customers replaces IAS 18 – Revenue, IAS 11 – Construction Contracts and some revenue related interpretations. IFRS 15 establishes a new control-based revenue recognition model, changes the basis for deciding when revenue is recognized at a point in time or over time, provides new and 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 January 1, 2018. Management has chosen the modified retrospective method of adoption, and as a result, the 2017 comparative period has not been restated to conform to the new IFRS 15 requirements. There was no material impact to the Company’s financial statements as a result of adopting IFRS 15.
The Company adopted IFRS 9 (2013) - Financial Instruments effective January 1, 2015. IFRS 9 (2014) - Financial Instruments differs in some regards from IFRS 9 (2013). IFRS 9 (2014) includes updated guidance on the classification and measurement of financial assets. 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, 2018 and must be applied retrospectively with some exceptions. The new guidance resulted in enhancements to the Company's model that calculates the allowance for doubtful accounts on trade receivables for expected credit losses. There was no material impact to the Company’s financial statements as a result of adopting IFRS 9 (2014) and the 2017 comparative period has not been restated.
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 the relevant pronouncements will be adopted in the first reporting period following the date of application. Information on new standards, amendments and interpretations, and improvements to existing standards, which could potentially impact the Company’s financial statements, are detailed as follows:
IFRS 16 - Leases, which will replace IAS 17 - Leases, introduces a comprehensive model for the identification of lease arrangements and accounting treatments for both lessors and lessees, as well as new disclosure requirements. IFRS 16 is effective for annual reporting periods beginning on or after January 1, 2019. The Company will adopt IFRS 16 effective January 1, 2019. The Company is acting as a lessee for its leases. Management has performed a preliminary review of the new guidance as compared to the Company's current accounting policies, including a review of the various practical expedients and other elections available under the new guidance, an analysis of the Company's significant existing leases for treatment under the new guidance and an analysis estimating the potential impact on the financial statements. Management will review these impacts in more detail before deciding on the adoption method. Based on the Company's current portfolio of leases, management expects:
•
an increase in long-term assets and liabilities, due to the new requirements to record right-of-use assets and related liabilities for operating leases by lessees;
•
an increase in cash flows from operating activities and a decrease in cash flows from financing activities, as operating lease payments will be reclassified to financing cash flows as components of interest and lease obligations; and
•
an insignificant change to net earnings, but with reclassification of amounts between costs within operating profit and finance costs as operating lease costs are reclassified into amortization of the right-of-use asset and interest expense on the related lease obligation.
Management will continue to refine its models and assumptions in 2018 for these calculations, develop reporting processes to meet the new disclosure requirements, and analyze any new leases or changes to the Company's current lease portfolio.
On March 29, 2018, the IASB issued its revised Conceptual Framework for Financial Reporting ("Conceptual Framework").This replaces the previous version of the Conceptual Framework issued in 2010. The revised Conceptual Framework will be effective on November 1, 2020. Management is currently assessing but has not yet determined the impact of this new standard on the Company’s financial statements.
Certain other new standards and interpretations have been issued but are not expected to have a material impact on the Company’s financial statements.

9

3 - INFORMATION INCLUDED IN CONSOLIDATED EARNINGS
The following table describes the charges incurred by the Company which are included in the Company’s consolidated earnings:
 
 
Three months ended June 30,
 
Six months ended June 30,
 
 
2018
 
2017
 
2018
 
2017
 
 
$
 
$
 
$
 
$
Employee benefit expense
 
 
 
 
 
 
 
 
Wages, salaries and other short-term benefits
 
46,271

 
40,000

 
92,972

 
80,184

Share-based compensation (benefit) expense (Note 8)
 
(714
)
 
3,976

 
(304
)
 
5,164

Pension, post-retirement and other long-term employee benefit plans:
 
 
 
 
 
 
 
 
Defined benefit plans
 
719

 
718

 
1,464

 
1,425

Defined contributions plans
 
1,253

 
1,253

 
3,014

 
2,558

 
 
47,529

 
45,947

 
97,146

 
89,331

 
 
 
 
 
 
 
 
 
Finance costs - Interest
 
 
 
 
 
 
 
 
Interest on borrowings
 
3,280

 
1,497

 
5,764

 
2,769

Amortization of debt issue costs on borrowings
 
1,279

 
147

 
1,469

 
276

Interest capitalized to property, plant and equipment
 
(614
)
 
(361
)
 
(826
)
 
(614
)
 
 
3,945

 
1,283

 
6,407

 
2,431

 
 
 
 
 
 
 
 
 
Finance costs - Other expense, net
 
 
 
 
 
 
 
 
Foreign exchange loss
 
915

 
1

 
1,684

 
192

Other costs, net
 
413

 
273

 
769

 
510

 
 
1,328

 
274

 
2,453

 
702

 
 
 
 
 
 
 
 
 
Additional information
 
 
 
 
 
 
 
 
Depreciation of property, plant and equipment
 
8,933

 
7,482

 
17,960

 
14,908

Amortization of intangible assets
 
1,013

 
881

 
2,045

 
1,730

Impairment of assets
 
207

 
361

 
553

 
217

4 - INCOME TAXES
The calculation of the Company’s effective tax rate is as follows:
 
 
Three months ended June 30,
 
Six months ended June 30,
 
 
2018
 
2017
 
2018
 
2017
Income tax expense
 
$
3,666

 
$
3,975

 
$
6,786

 
$
8,887

Earnings before income tax expense
 
$
18,742

 
$
14,048

 
$
33,156

 
$
32,393

Effective tax rate
 
19.6
%
 
28.3
%
 
20.5
%
 
27.4
%

The decrease in the effective tax rate in the three and six months ended June 30, 2018 as compared to the same periods in 2017 was primarily due to the reduction in the US statutory corporate tax rate as a result of the Tax Cuts and Jobs Act ("TCJA"), partially offset by an unfavourable change in the mix of earnings between jurisdictions and the elimination and limitation of certain deductions in the US as a result of the TCJA.


10

5 - EARNINGS PER SHARE
The weighted average number of common shares outstanding is as follows:
 
 
Three months ended June 30,
 
Six months ended June 30,
 
 
2018
 
2017
 
2018
 
2017
Basic
 
58,811,586

 
59,153,920

 
58,806,485

 
59,144,024

Effect of stock options
 
292,313

 
403,523

 
317,492

 
399,307

Effect of performance share units
 
—

 
—

 
—

 
289,820

Diluted
 
59,103,899

 
59,557,443

 
59,123,977

 
59,833,151

 
 
Three months ended June 30,
 
Six months ended June 30,
 
 
2018
 
2017
 
2018
 
2017
Stock options that were anti-dilutive and not included in diluted earnings per share
 
242,918

 
—

 
242,918

 
—

The performance share unit ("PSU") plan was amended on February 17, 2017 to provide for only cash settlement of awards. Prior to the amendment, PSUs were to be settled in common shares of the Company and were included in the calculation of weighted average diluted common shares, to the extent they were dilutive, when the applicable performance conditions had been satisfied. Subsequent to amendment, there is no impact of PSUs in the calculation of weighted average diluted common shares. For the three and six months ended June 30, 2017 there were nil and 885,718 PSUs, respectively, which met the performance criteria and were included in the calculation of weighted average diluted shares outstanding.
6 - COMMITMENTS
The following table summarizes information related to commitments to purchase machinery and equipment:
 
 
June 30, 2018
 
December 31, 2017
Commitments to purchase machinery and equipment
 
$
29,167

 
$
29,281


7 - BORROWINGS
On June 14, 2018, the Company entered into a new five-year, $600.0 million credit facility (“2018 Credit Facility”) with a syndicated lending group, refinancing and replacing the Company's previous $450.0 million credit facility that was due to mature in November 2019 ("2014 Revolving Credit Facility").
The 2014 Revolving Credit Facility's outstanding balance of $304.7 million was repaid in full and a corresponding write-off of debt issue costs of $1.0 million was recorded as interest expense under the caption finance costs in earnings. In securing the 2018 Credit Facility, the Company incurred debt issue costs amounting to $2.6 million which were capitalized and are being amortized using the straight-line method over the five-year term.
The 2018 Credit Facility consists of a $200.0 million term loan (“2018 Term Loan”) and a $400.0 million revolving credit facility (“2018 Revolving Credit Facility”) with the 2018 Term Loan amortizing 35% over five years. The 2018 Credit Facility also includes an incremental accordion feature of $200.0 million, which would enable the Company to increase the limit of this facility (subject to the credit agreement's terms and lender approval) to $800.0 million if needed. The 2018 Credit Facility matures on June 14, 2023 and bears an interest rate based, at the Company’s option, on the London Inter-bank Offered Rate, the Federal Funds Rate, or Bank of America’s prime rate, plus a spread varying between 25 and 250 basis points depending on the debt instrument's benchmark interest rate and the consolidated secured net leverage ratio (weighted average of 200 basis points as of June 30, 2018).
As of June 30, 2018, the 2018 Term Loan's outstanding balance amounted to $200.0 million and the 2018 Revolving Credit Facility’s outstanding balance amounted to $110.7 million, for a total outstanding balance under the 2018 Credit Facility of $310.7 million ($308.1 million, net of $2.6 million in unamortized debt issue costs). Including $31.3 million in standby letters of credit, total utilization under the 2018 Credit Facility amounted to $342.0 million. Accordingly, the Company’s unused availability as of June 30, 2018 amounted to $258.0 million.

11

The 2018 Credit Facility is secured by a first priority lien on all personal property of the Company and all current and future material subsidiaries.
The 2018 Credit Facility has two financial covenants, a consolidated secured net leverage ratio not to be more than 3.50 to 1.00, with an allowable temporary increase to 4.00 to 1.00 for the quarter in which the Company consummates an acquisition with a price not less than $50 million and the following three quarters, and a consolidated interest coverage ratio not to be less than 3.00 to 1.00. The Company was in compliance with the consolidated secured net leverage ratio and consolidated interest coverage ratio, which were 2.33 and 12.27, respectively, as of June 30, 2018. In addition, the 2018 Credit Facility has certain non-financial covenants, such as covenants regarding indebtedness, investments, and asset dispositions.
Borrowings are comprised of the following:
 
 
June 30, 2018
 
December 31, 2017
 
 
$
 
$
2018 Credit Facility (1)
 
308,161

 
—

2014 Revolving Credit Facility (2)
 
—

 
254,773

Powerband Revolving Line of Credit (3)
 
9,823

 
9,563

Finance lease liabilities
 
6,503

 
8,817

Forgivable government loan (4)
 
5,215

 
4,660

Other loans
 
3,404

 
1,650

 
 
333,106

 
279,463

Less: current borrowings
 
24,388

 
14,979

 
 
308,718

 
264,484

(1) 
The 2018 Credit Facility is presented net of unamortized related debt issue costs, amounting to $2.6 million as of June 30, 2018.
(2) 
The 2014 Revolving Credit Facility is presented net of unamortized related debt issue costs, amounting to $1.4 million as of December 31, 2017.
(3) 
"Powerband Revolving Line of Credit" refers to debt maintained by Powerband Industries Private Limited (doing business as "Powerband").
(4) 
The forgivable government loan is shown net of imputed interest amounting to $0.3 million as of June 30, 2018 and December 31, 2017.

12

Reconciliation of liabilities arising from financing activities
The changes in the Company’s liabilities arising from financing activities can be classified as follows:
 
Borrowings, non-current (excluding finance lease liabilities)
 
Borrowings, current (excluding finance lease liabilities)
 
Finance lease liabilities
 
Total
 
$
 
$
 
$
 
$
Balance as of December 31, 2017
260,300

 
10,346

 
8,817

 
279,463

Cash flows:
 
 
 
 
 
 
 
Proceeds
462,353

 
12,280

 
—

 
474,633

Repayments
(402,995
)
 
(11,252
)
 
(2,410
)
 
(416,657
)
Debt issuance costs
(2,618
)
 
—

 
—

 
(2,618
)
Non-cash:
 
 
 
 
 
 
 
Additions – separately acquired (Note 10)
—

 
—

 
102

 
102

Additions through business acquisitions
346

 
533

 
—

 
879

Amortization of debt issuance costs
424

 
—

 
—

 
424

Write-off of debt issuance costs
1,045

 
—

 
—

 
1,045

Foreign exchange and other
(3,414
)
 
(745
)
 
(6
)
 
(4,165
)
Reclassification
(10,271
)
 
10,271

 
—

 
—

Balance as of June 30, 2018
305,170

 
21,433

 
6,503

 
333,106


13

8 - CAPITAL STOCK
Common Shares
The Company’s common shares outstanding as of June 30, 2018 and December 31, 2017 were 58,817,410 and 58,799,910, respectively.
Dividends
The cash dividends paid during the period were as follows:
Declared Date
 
Paid date
 
Per common
share amount
 
Shareholder
record date
 
Common shares
issued and
outstanding
 
Aggregate payment (1)
March 7, 2018
 
March 30, 2018
 
$0.14
 
March 20, 2018
 
58,807,410
 
$8,333
May 9, 2018
 
June 29, 2018
 
$0.14
 
June 15, 2018
 
58,817,410
 
$8,140

(1) 
The aggregate dividend payment amount presented in the table above has been adjusted for the impact of foreign exchange rates on cash payments to shareholders.
Share Repurchases
Under its normal course issuer bid ("NCIB"), the Company may repurchase for cancellation up to 4,000,000 common shares of the Company at prevailing market prices during the twelve-month period ending July 16, 2018.
There were no share repurchases during the three and six months ended June 30, 2018 and 2017. As of June 30, 2018 , there were 3,512,700 shares available for repurchase under the NCIB.
The NCIB which expired on July 16, 2018 was renewed for a twelve-month period starting July 23, 2018. There were no shares repurchased under the renewed NCIB as of August 10, 2018.
Stock Options
The following tables summarize information related to stock options (in Canadian dollars ("CDN") where noted):
 
 
Three months ended June 30,
 
Six months ended June 30,
 
 
2018
 
2017
 
2018
 
2017
Stock options granted
 
—
 
—
 
242,918
 
—
Weighted average exercise price per stock option granted
 
—
 
—
 
CDN$21.76
 
—
Stock options exercised
 
10,000
 
161,875
 
17,500
 
226,875
Weighted average exercise price per stock option exercised
 
CDN$12.04
 
CDN$10.33
 
CDN$12.04
 
CDN$8.00
 
 
June 30, 2018
Stock options outstanding
 
1,059,793
Weighted average exercise price per stock option outstanding
 
CDN$14.46

14

During the six months ended June 30, 2018, the weighted average fair value of stock options granted was estimated using the Black-Scholes option pricing model, taking into account the following weighted average assumptions:
 
Six months ended
June 30, 2018
Expected life
 4.8 years
Expected volatility(1)
32.09%
Risk-free interest rate
2.05%
Expected dividends
3.30%
Stock price at grant date
CDN$21.76
Exercise price of awards
CDN$21.76
Foreign exchange rate USD to CDN
1.2809

(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.
Restricted Share Units
On March 7, 2018, the Board of Directors approved the addition of restricted share units ("RSUs") as an available cash-settled award type. An RSU, as defined by the Amended and Restated PSU and RSU Plan, is a right to receive a cash payment equal to the five trading days volume weighted average price ("VWAP") of a common share of the Company on the TSX upon completion of time-based vesting conditions. Grants of RSUs to employees of the Company are on a discretionary basis and subject to the Board of Directors’ approval. The purpose of an RSU is to provide award holders with a proprietary interest in the Company to: (a) increase the incentives of those award holders who share primary responsibility for the management, growth and protection of the business of the Company; (b) furnish an incentive to such award holders to continue their services for the Company; and (c) provide a means through which the Company may attract potential employees. The fair value of RSUs is based on the five trading days VWAP of the Company’s common shares on the TSX at the end of each reporting period. The RSUs are expensed over the vesting period beginning from the date of grant through February 15th of the fourth calendar year following the date of grant, unless vesting is accelerated based on retirement eligibility, death or disability. On March 21, 2018, 113,047 RSUs were granted at a weighted average fair value of $16.29. As of June 30, 2018 the weighted average fair value of the RSUs outstanding was $13.48.

15

Deferred Share Units
The following table summarizes information related to deferred share units ("DSUs"):
 
 
Three months ended June 30,
 
Six months ended June 30,
 
 
2018
 
2017
 
2018
 
2017
DSUs granted
 
36,204
 
32,280
 
43,203
 
40,242
Weighted average fair value per DSU granted
 
$14.50
 
$18.58
 
$14.94
 
$18.30
DSUs settled
 
37,668
 
—
 
37,668
 
—
Weighted average fair value per DSU settled
 
$14.50
 
—
 
$14.50
 
—
Cash payments on DSUs settled
 
$546
 
—
 
$546
 
—
 
June 30, 2018
DSUs outstanding
172,962
Weighted average fair value per DSU outstanding
$13.48
Performance Share Units
The following table summarizes information about PSUs during the period:
 
 
Three months ended June 30,
 
Six months ended June 30,
 
 
2018
 
2017
 
2018
 
2017
PSUs granted
 
—
 
—
 
284,571
 
358,386
Weighted average fair value per PSU granted
 
—
 
—
 
$17.84
 
$16.15
PSU forfeited/cancelled
 
3,638
 
—
 
3,638
 
6,198
PSUs settled (1)
 
117,605
 
208,800
 
335,465
 
208,800
Weighted average fair value per PSU settled
 
$14.50
 
$27.74
 
$15.87
 
$27.74
Cash payments on PSUs settled(2)
 
$1,895
 
$4,174
 
$5,863
 
$4,174

(1) 
The following table summarizes the Target Shares ("Target Shares" are 100% of the PSUs granted) and performance adjustments on settled PSUs included in the table above:
Grant Date
Date Settled
Target Shares

Performance

PSUs settled

June 11, 2014
June 22, 2017
139,200

150
%
208,800

March 14, 2015
March 21, 2018
217,860

100
%
217,860

May 14, 2015
May 22, 2018
115,480

100
%
115,480

May 20, 2015
May 28, 2018
4,250

50
%
2,125


(2) 
Cash payments on PSUs settled includes the fair value of the PSUs plus the cash dividends per common share declared and paid by the Company from the date of grant of the PSUs to the settlement date.

16

The weighted average fair value of PSUs granted was estimated based on a Monte Carlo simulation model, considering the following weighted average assumptions:
 
Six months ended June 30,
 
2018
 
2017
Expected life
3 years

 
3 years

Expected volatility(1)
30
%
 
34
%
US risk-free interest rate
2.43
%
 
1.57
%
Canadian risk-free interest rate
1.96
%
 
N/A

Expected dividends(2)
0
%
 
0
%
Performance period starting price(3)
CDN$21.13

 
CDN$22.26

Closing stock price on TSX as of the estimation date
CDN$20.59

 
CDN$21.94

 
(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 settled PSUs multiplied by the amount of cash dividends per share declared by the Company between the date of grant and the settlement date. As such, there is no impact from expected future dividends in the Monte Carlo simulation model.
(3) 
The performance period starting price is measured as the VWAP for the common shares of the Company on the TSX on the grant date.
The following table summarizes information about PSUs outstanding as of:
 
June 30, 2018
PSUs outstanding
1,048,779
Weighted average fair value per PSU outstanding
$9.38
Based on the Company’s performance adjustment factors (see additional information below), the number of PSUs earned if all of the outstanding PSUs were to be settled at June 30, 2018 would be as follows:
 
Grant Date
 
Performance
March 21, 2016
 
50
%
December 20, 2016
 
0
%
March 20, 2017
 
0
%
March 21, 2018
 
50
%
Grant details for PSUs granted prior to December 31, 2017:
The number of PSUs which will be eligible to vest can range from 0% to 150% of the Target Shares ("Target Shares" are 100% of the PSUs granted) based on the Company's total shareholder return ("TSR") ranking relative to a specified peer group of companies ("Peer Group") over the measurement period as outlined in the table below:
TSR Ranking Relative to the Peer Group
 
Percent of Target Shares Vested
76th percentile or higher
 
150
%
51st-75th percentile
 
100
%
25th-50th percentile
 
50
%
Less than the 25th percentile
 
0
%
The performance and vesting period is the period from the date of grant through the third anniversary of the date of grant. The PSUs are expensed over the vesting period.

17

Grant details for PSUs granted subsequent to December 31, 2017:
The number of PSUs which will be eligible to vest is determined by multiplying the number of PSUs awarded by the adjustment factors as follows:
•
50% based on the Company's TSR ranking relative to the Peer Group over the measurement period as set out in the table below; and
•
50% based on the Company's average return on invested capital over the measurement period as compared to internally developed thresholds (the “ROIC Performance”) as set out in the table below.
The relative TSR performance adjustment factor is determined as follows:
TSR Ranking Relative to the Peer Group
 
Percent of Target Shares Vested
90th percentile or higher
 
200
%
75th percentile
 
150
%
50th percentile
 
100
%
25th percentile
 
50
%
Less than the 25th percentile
 
0
%
The ROIC Performance adjustment factor is determined as follows:
ROIC Performance
 
Percent of Target Shares Vested
1st Tier
 
0
%
2nd Tier
 
50
%
3rd Tier
 
100
%
4th Tier
 
150
%
The TSR performance and ROIC Performance adjustment factors between the numbers set out in the two tables above is interpolated on a straight-line basis.
The performance period is the period from January 1st in the year of grant through December 31st of the third calendar year following the date of grant. The PSUs are expensed over the vesting period beginning from the date of grant through February 15th of the fourth calendar year following the date of grant.
Stock Appreciation Rights
There were no stock appreciation rights (“SARs”) outstanding as of June 30, 2018. The following tables summarize information regarding SARs:
 
Three months ended June 30,
 
Six months ended June 30,
 
2018
 
2017
 
2018
 
2017
SARs exercised
40,000

 
—

 
147,500

 
13,250

Base price
CDN$7.56

 
CDN$7.56

 
CDN$7.56

 
CDN$7.56

Cash payments on exercise, including awards exercised but not yet paid
$
323

 
—

 
$
1,481

 
$
155







 

18

Summary of Share-based Compensation Expense and Share-based Compensation Liabilities
The following table summarizes share-based compensation expense (benefit) recorded in earnings in selling, general and administrative ("SG&A") expense:
 
Three months ended June 30,
 
Six months ended June 30,
 
2018
 
2017
 
2018
 
2017
 
$
 
$
 
$
 
$
Stock options
135

 
45

 
195

 
121

PSUs
(1,122
)
 
2,923

 
(750
)
 
4,202

RSUs
162

 
—

 
221

 
—

DSUs
184

 
814

 
127

 
834

SARs
(73
)
 
194

 
(97
)
 
7

 
(714
)
 
3,976

 
(304
)
 
5,164

The following table summarizes share-based liabilities recorded in the consolidated balance sheets as of:
 
June 30, 2018
 
December 31, 2017
Share-based compensation liabilities, current
$
 
$
PSUs (1)
2,517

 
5,709

RSUs (1)
42

 
—

DSUs (2)
2,415

 
2,956

SARs
—

 
1,600

 
4,974

 
10,265

 
 
 
 
Share-based compensation liabilities, non-current
 
 
 
PSUs (1)
1,989

 
4,984

RSUs (1)
178

 
—

 
2,167

 
4,984


(1)     Includes dividend equivalents accrued.
(2)     Includes effect of DSUs received in lieu of cash for directors' fees not yet granted.
9 - FINANCIAL INSTRUMENTS
The Company is exposed to a risk of change in cash flows due to the fluctuations in interest rates on its variable rate borrowings. To minimize the potential long-term cost of floating rate borrowings, the Company entered into interest rate swap agreements that are designated as cash flow hedges.
The terms of the interest rate swap agreements are as follows:
Effective Date
 
Maturity
 
Notional amount
$
 
Settlement
 
Fixed interest rate paid
%
March 18, 2015
 
November 18, 2019
 
40,000

 
Monthly
 
1.6100
August 18, 2015
 
August 20, 2018
 
60,000

 
Monthly
 
1.1970
June 8, 2017
 
June 20, 2022
 
40,000

 
Monthly
 
1.7900
July 21, 2017
  
July 18, 2022
  
CDN$90,000 (1)

  
Monthly
  
1.6825
August 20, 2018
 
August 18, 2023
 
60,000

 
Monthly
 
2.0450

(1) 
The notional amount will decrease by CDN$18.0 million on the 18th of July of each year until settlement.
As of June 30, 2018 and December 31, 2017, the carrying amount and fair value of the interest rate swap agreements was an asset included in other assets in the consolidated balance sheet, amounting to $4.7 million and $2.1 million, respectively.

19

The following table summarizes information regarding the change in fair value of the interest rate swap agreements:
 
 
Three months ended June 30,
 
Six months ended June 30,
 
 
2018
 
2017
 
2018
 
2017
 
 
$
 
$
 
$
 
$
Increase in fair value of the derivatives used for calculating hedge effectiveness
 
568

 
140

 
2,592

 
440

Classification and Fair Value of Financial Instruments
The carrying amount of the financial assets and liabilities classified as measured at amortized cost is considered a reasonable approximation of fair value. The fair value of cash, trade receivables, supplier rebates and other receivables, accounts payable and accrued liabilities and the call option redemption liability is comparable to their respective carrying amounts, given their short maturity periods.
Long-term Borrowings and Interest Rate Swaps
The Company categorizes long-term borrowings and interest rate swaps as Level 2 on the three-level fair value hierarchy, meaning the fair value is estimated using a valuation technique based on observable market data, either directly or indirectly. The fair value of long-term borrowings, mainly bearing interest at variable rates, is estimated using observable market interest rates of similar variable rate loans with similar risk and credit standing.
The Company measures the fair value of its interest rate swap agreements using discounted cash flows. Future cash flows are estimated based on forward interest rates (from observable yield curves at the end of a reporting period) and contract interest rates, discounted as a rate that reflects the credit risk of various counterparties.
Option Agreements
On July 4, 2017, the Company and the non-controlling shareholders of Powerband Industries Private Limited executed a binding term sheet that confirmed that the Company’s call option on all of the shares owned by the non-controlling shareholders had been triggered and substantially reaffirmed the exit terms of the shareholders’ agreement executed between the parties on September 2, 2016. The Company's call option obligation under the term sheet and shareholders' agreement with the non-controlling shareholders of Powerband Industries Private Limited is recorded in the call option liability on the consolidated balance sheet in the amount of $11.9 million and $12.7 million as of June 30, 2018 and December 31, 2017, respectively.
As of August 10, 2018, no shares have been purchased by the Company under this agreement as the parties continue to work through the exit provisions stipulated in the term sheet.
10 - BUSINESS ACQUISITIONS

On May 11, 2018 the Company acquired substantially all of the assets and assumed certain liabilities of Airtrax Polymers Private Limited (d/b/a “Airtrax”) ("Airtrax Acquisition") through the Company's controlled subsidiary, Capstone, of which the Company currently owns 55%. Airtrax manufactures and sells woven products that are used in various applications, including in the building and construction industry.

As part of the agreement, the minority shareholders of Capstone contributed in kind certain assets and liabilities valued at approximately $13 million that were formerly attributed to Airtrax’s woven product manufacturing operations in exchange for newly-issued shares of Capstone. As a result of the in-kind contribution, the Company recorded a $10.9 million increase to equity attributable to non-controlling interest as well as a $2.5 million credit to deficit in the consolidated changes in equity for the six months ended June 30, 2018. As of this reporting date, the Company held a 52% controlling ownership stake in Capstone while the minority shareholders held a 48% non-controlling interest in Capstone, as reflected in the June 30, 2018 balance sheet.

On August 10, 2018 the Company acquired additional shares of Capstone in exchange for approximately $3.6 million in cash as part of the same overall transaction. As a result of this purchase, the Company now has a controlling 55% ownership stake in Capstone with the minority shareholders of Capstone owning 45%.

The Airtrax purchase agreement contains customary indemnification provisions. As of June 30, 2018, there were no outstanding

20

obligations or indemnifications, other than the commitment to purchase additional shares of Capstone.

The Airtrax Acquisition is being accounted for using the acquisition method of accounting. The acquisition is expected to further enhance and extend the Company’s product offering, and provide a globally competitive position in woven products. The Company expects a significant portion of the acquisition's purchase price to be assigned to goodwill and intangible assets. Management is in the process of allocating the fair value of the opening balance sheet purchase price allocation and post-closing equity transactions and was not yet completed as of June 30, 2018.

The preliminary fair values of net identifiable assets acquired at the date of acquisition were as follows:
 
May 11, 2018
 
 $
Current assets
 
     Trade receivables (1)
1,296

     Inventories
1,565

     Parts and supplies
54

     Other current assets
477

Property, plant and equipment
2,785

 
6,177

Current liabilities
 
     Accounts payable and accrued liabilities
959

     Borrowings, current
533

Borrowings, non-current
346

Pension, post-retirement and other long-term employee benefits
8

 
1,846

Fair value of net identifiable assets acquired
4,331


(1) 
The gross contractual amounts receivable were $1.3 million. As of June 30, 2018, the Company has collected substantially all of the outstanding trade receivables.

Goodwill recognized is primarily related to growth expectations, expected future profitability, and expected cost synergies. The Company does not expect any of the goodwill to be deductible for income tax purposes.

The preliminary fair value of goodwill at the date of acquisition was as follows:
 
May 11, 2018
 
 $
Fair value of increase to non-controlling interest
10,915

Effect of change in IPG's ownership interest in Capstone
2,485

Less: fair value of net identifiable assets acquired
4,331

Goodwill
9,069


The Airtrax Acquisition’s impact on the Company’s consolidated earnings was as follows:
 
May 11 through June 30, 2018
 
 $
Revenue
1,286

Net earnings
195



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Had the Airtrax Acquisition been effective as of January 1, 2018, the impact on the Company’s consolidated earnings would have been as follows:
 
Six months ended
June 30, 2018
 
 $
Revenue
6,134

Net earnings (1)
570


(1) 
Adjustments to arrive at net earnings included (i) the alignment of accounting policies to IFRS, (ii) the removal of acquisition costs incurred by Airtrax, and (iii) the effect of income tax expense using the effective tax rate of the acquisition post-closing.

The Company's acquisition-related costs of $0.1 million are excluded from the consideration transferred and are included in the Company’s consolidated earnings primarily in SG&A for the six months ended June 30, 2018.
11 - POST REPORTING EVENTS
Non-Adjusting Events
•
On August 10, 2018, the Company declared a quarterly cash dividend of $0.14 per common share payable on September 28, 2018 to shareholders of record at the close of business on September 14, 2018. The estimated amount of this dividend payment is $8.2 million based on 58,817,410 of the Company’s common shares issued and outstanding as of August 10, 2018.
•
On August 3, 2018, the Company acquired 100% of the outstanding equity value in Polyair Inter Pack Inc. (“Polyair”) for total cash consideration of approximately $146 million, subject to certain purchase price adjustments. The Company funded the acquisition with funds available under the Company’s 2018 Credit Facility. Polyair, a private company, is in the protective packaging business and has seven manufacturing facilities and a distribution center in North America. Polyair's primary products consist of bubble cushioning, foam, mailers and air pillow systems. The acquisition is expected to further enhance and extend the Company’s product offering, and provide additional scale of protective packaging solutions. The acquisition will be accounted for using the acquisition method of accounting. The Company expects a significant portion of the acquisition purchase price to be assigned to goodwill and intangible assets. The Company does not expect any of the goodwill to be deductible for income tax purposes. Management is not yet able to provide a breakout of the purchase price allocation due to the timing of the acquisition and the post-closing working capital adjustment.
No other significant adjusting or non-adjusting events have occurred between the reporting date of these financial statements and the date of authorization.

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Form 52-109F2
Certification of Interim Filings
Full Certificate
I, Gregory A.C. Yull, Chief Executive Officer of INTERTAPE POLYMER GROUP INC./LE GROUPE INTERTAPE POLYMER INC., certify the following:
1.
Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of INTERTAPE POLYMER GROUP INC./LE GROUPE INTERTAPE POLYMER INC. (the “Issuer”) for the interim period ended June 30, 2018.
2.
No misrepresentation: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.
3.
Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the Issuer, as of the date and for the periods presented in the interim filings.
4.
Responsibility: The Issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52 - 109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the Issuer.
5.
Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the Issuer’s other certifying officer(s) and I have, as at the end of the period covered by the interim filings: 
(a)
designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that
(a)
material information relating to the Issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and
(b)
information required to be disclosed by the Issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and
(b)
designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the Issuer’s GAAP.
5.1
Control framework: The control framework the Issuer’s other certifying officer(s) and I used to design the Issuer’s ICFR is the 2013 Internal Control – Integrated Framework published by the Committee of Sponsoring Organization of the Treadway Commission (COSO).
5.2
ICFR – material weakness relating to design: N/A
5.3
Limitation on scope of design: The issuer has disclosed in its interim MD&A
(a)
the fact that the issuer’s other certifying officer(s) and I have limited the scope of our design of DC&P and ICFR to exclude controls, policies and procedures of:
(i) N/A;
(ii) N/A; or
(iii) a business that the issuer acquired not more than 365 days before the last day of the period covered by the interim filings;
(b)
summary financial information about business that the issuer acquired that has been consolidated in the issuer’s financial statements.



6.
Reporting changes in ICFR: The Issuer has disclosed in the interim MD&A any change in the Issuer’s ICFR that occurred during the period beginning on April 1, 2018 and ended on June 30, 2018 that has materially affected, or is reasonably likely to materially affect, the Issuer’s ICFR.


DATED the 13th day of August, 2018.

By: /s/ Gregory A.C. Yull
Gregory A.C. Yull
Chief Executive Officer


Form 52-109F2
Certification of Interim Filings
Full Certificate
I, Jeffrey Crystal, Chief Financial Officer of INTERTAPE POLYMER GROUP INC./LE GROUPE INTERTAPE POLYMER INC., certify the following:
1.
Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of INTERTAPE POLYMER GROUP INC./LE GROUPE INTERTAPE POLYMER INC. (the “Issuer”) for the interim period ended June 30, 2018.
2.
No misrepresentation: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.
3.
Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the Issuer, as of the date and for the periods presented in the interim filings.
4.
Responsibility: The Issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52 - 109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the Issuer.
5.
Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the Issuer’s other certifying officer(s) and I have, as at the end of the period covered by the interim filings: 
(a)
designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that
(a)
material information relating to the Issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and
(b)
information required to be disclosed by the Issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and
(b)
designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the Issuer’s GAAP.
5.1
Control framework: The control framework the Issuer’s other certifying officer(s) and I used to design the Issuer’s ICFR is the 2013 Internal Control – Integrated Framework published by the Committee of Sponsoring Organization of the Treadway Commission (COSO).
5.2ICFR – material weakness relating to design: N/A
5.3
Limitation on scope of design: The issuer has disclosed in its interim MD&A
a.
the fact that the issuer’s other certifying officer(s) and I have limited the scope of our design of DC&P and ICFR to exclude controls, policies and procedures of:
(i) N/A;
(ii) N/A; or
(iii) a business that the issuer acquired not more than 365 days before the last day of the period covered by the interim filings;
b.
summary financial information about business that the issuer acquired that has been consolidated in the issuer’s financial statements.


6.
Reporting changes in ICFR: The Issuer has disclosed in the interim MD&A any change in the Issuer’s ICFR that occurred during the period beginning on April 1, 2018 and ended on June 30, 2018 that has materially affected, or is reasonably likely to materially affect, the Issuer’s ICFR.

DATED the 13th day of August, 2018.

By: /s/ Jeffrey Crystal
Jeffrey Crystal
Chief Financial Officer