FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Report of Foreign Issuer
Pursuant to Rule 13a - 16 or 15d - 16 of
the Securities Exchange Act of 1934
For the month of May, 2003
Intertape Polymer Group Inc.
110E Montee de Liesse
St. Laurent, Quebec, Canada, H4T 1N4
[Indicate by check mark whether the registrant files or
will file annual reports under cover of Form 20-F or Form 40-F.]
Form 20-F Form 40-F X
[Indicate by check mark whether the registrant by
furnishing the information contained in this Form is also
thereby furnishing the information to the Commission pursuant
to Rule 12g3-2(b) under the Securities Exchange Act of 1934.]
Yes No X
[If "Yes" is marked, indicate below the file number
assigned to the registrant in connection with Rule 12g3-2(b):
82-______]
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: May 16, 2003 By: /s/Andrew M. Archibald
Chief Financial Officer,
Secretary, Vice President,
Administration
2003
First Quarterly Report
[LOGO]
REVIEW OF OPERATIONS
SALES
Sales for the first quarter of 2003 were $153.6 million, a
4.7% increase over first quarter of 2002 sales of $146.7 million. The sales
improvement was driven by an 8.2% increase in unit sales, offset by a 3.5%
reduction in selling prices.
The first quarter 2003 sales of $153.6 million were $2.3 million higher than
the $151.3 million reported for the fourth quarter of 2002. The Company
realized strong unit growth of 7% in non-retail channel products for the
quarter. There was a decline in retail channel volume in the first quarter
of 2003 compared to the fourth quarter of 2002, consistent with historic
seasonality. Prices for the quarter held firm, with the Company experiencing
a negligible 0.1% decline in pricing.
For the year, the Company expects revenue growth of approximately 5%.
GROSS PROFIT AND GROSS MARGINS
First quarter 2003 gross profits were $33.8 million, a gross margin of 22.0%.
Gross profits for the first quarter of 2002 were $33.4 million, a gross
margin of 22.8%. The Company's 22.0% gross margin for the first quarter of
2003 approached the first quarter 2002 level despite a 3.5% decline in
selling prices between periods. The Company's cost reduction efforts,
including the value-added improvements and FIBC consolidation discussed
below have played a part in maintaining gross margins. More recently, the
Company has been successful in reflecting raw material price increases in
product selling prices.
Gross profits grew by $4.3 million to $33.8 million (22.0%) for the first
quarter of 2003 from the fourth quarter 2002 level of $29.5 million (19.5%).
The Company improved its value-added percentage between quarters. Value
added is the difference between materials costs and selling prices,
expressed as a percentage of sales. Several factors contributed to the
value-added improvement including:
- The implementation of waste reduction programs at the manufacturing
facilities
- Conversion to lower cost blending formulae for select products
- Improved production efficiencies
Margins also benefited from the FIBC plant consolidation completed in the
fourth quarter of 2002, improved sales mix and selective product price
increases.
COST REDUCTIONS
The Company's previously announced cost reduction program of $17.5 million
pre-tax is proceeding on schedule and contributed to the earnings gains
in the first quarter of 2003. The FIBC plant consolidation completed in the
fourth quarter of 2002 will save $3.0 million annually. Effects of the
$2.5 million annual savings in selling, general and administrative expenses
identified in the fourth quarter of 2002 are also reflected in the first
quarter of 2003. Of the remaining $12.0 million in planned cost reductions,
it is expected that $6.0 million will benefit 2003 and the full benefit
will be realized in 2004.
On April 14, 2003, the Company announced that it will be consolidating three
existing regional distribution centers (RDCs) into a new facility in
Danville, Virginia, adjacent to existing manufacturing operations. The
expected benefits include improved product availability for customers,
lower processing costs and enhanced working capital management through
increased inventory turns.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative (SG&A) expenses were $22.0 million for
the first quarter of 2003 (14.3% of sales) compared to $20.3 million
(13.8% of sales) for the first quarter of 2002. The increase in SG&A
spending between the first quarter of 2002 and the first quarter of 2003
is due in part to the increased unit sales in the retail channel between
quarters. The retail distribution channel carries a substantially higher
selling cost structure than sales in non-retail channels.
SG&A expenses decreased to $22.0 million for the first quarter of 2003
(14.3% of sales) as compared to $23.5 million for the fourth quarter of
2002 (15.5% of sales). Of the $1.5 million decrease, $0.7 million was
the result of the SG&A cost reductions previously discussed and the
balance was attributable to the normal seasonal decline in the retail
sector.
OPERATING PROFIT
Operating profits (defined as gross profit less SG&A) were $11.8 million
for the first quarter of 2003 and represented 7.7% of sales. Operating
profits for the first quarter of 2002 were $13.1 million, representing
8.9% of sales. The higher SG&A costs in the first quarter of 2003
attributable to supporting the more expensive retail distribution channel
resulted in lower operating profit dollars and operating profit
percentage when compared to the corresponding period in 2002. A slightly
lower gross margin in 2003 also contributed to the lower operating
profit percentage when comparing first quarters between years.
Operating profits were $11.8 million for the first quarter of 2003 as
compared to $6.0 million for the fourth quarter of 2002. As a percent
of sales, this represents 7.7% and 4.0% respectively. Operating profits
for the first quarter of 2003 were favorably impacted by higher gross
margins and the decline in SG&A costs.
FINANCIAL EXPENSES
Financial expenses were $7.7 million for the quarter ended March 2003.
Financial expenses for the first quarter of 2002 were $9.0 million.
The 14.3% decrease between the first quarter of 2002 and the first
quarter of 2003 is due to $70 million in debt repayments over the course
of the last year coupled with improved interest rates. A portion of the
debt repayments was funded with the proceeds of a 5.1 million share
common stock issue on March 31, 2002. The issue raised $47.4 million,
net of issuance costs.
The financial expenses for the quarter ended March 2003 of $7.7 million
were comparable to the $7.6 million in financial expenses for the three
months ended December 2002.
EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION COSTS
(EBITDA)
EBITDA for the first quarter of 2003 was $17.6 million and EBITDA
interest coverage (that is, EBITDA divided by financial expenses) was
2.28 times. EBITDA for the first quarter of 2002 was $18.8 million
(EBITDA interest coverage of 2.09 times) and for the fourth quarter of
2002 (adjusted for the impact of the $70 million goodwill impairment)
was $13.2 million (EBITDA interest coverage of 1.73 times).
EBITDA and adjusted EBITDA are non-GAAP financial measures that the
Company believes enhance the understanding of its ongoing operating
results and are used by management and the Company's lenders in
evaluating the Company's performance. The Company believes that
comparability is improved by excluding the goodwill impairment that
occurred in the fourth quarter of 2002.
NET EARNINGS
Net earnings of $2.9 million for the first quarter of 2003 were
slightly improved over first quarter 2002 net earnings of $2.8
million. The earnings before income taxes for the first quarter
of 2003 and the first quarter of 2002 were both $3.2 million.
Net earnings (loss) for the three month periods ended March 2003
and December 2002 were $2.9 million and $(58.8) million respectively.
Adjusted for the $70 million goodwill impairment (and related tax
effect of $6.7 million), the fourth quarter of 2002 adjusted net
earnings were $4.5 million. The earnings before income taxes for the
first quarter 2003 increased by $5.3 million to $3.2 million from an
adjusted loss before income taxes of $2.1 million for the fourth
quarter 2002. The adjusted loss before income taxes for the fourth
quarter 2002 was offset by an adjusted recovery of income taxes of
$6.6 million arising from the adjusted loss for the quarter and
changes in the estimated effective income tax rate.
Adjusted earnings (loss) is a non-GAAP financial measure that the
Company believes enhances the understanding of its ongoing operating
results. The Company believes that comparability is improved by
excluding the goodwill impairment that occurred in the fourth quarter
of 2002.
LIQUIDITY AND CAPITAL RESOURCES
FINANCIAL CONDITION
Working capital requirements increased during the first quarter of 2003
as compared to the fourth quarter of 2002. The increase was anticipated
as the Company was building inventories in advance of the annual plant
shutdowns and buying in advance of cost increases in key raw materials.
Trade receivables increased by $7.0 million as a result of March 2003
being the Company's most successful sales month on record.
Management continues to make reducing working capital a priority.
Inventories at March 31, 2003 are $4.0 million less than the levels
reported at March 31, 2002. This is largely the result of the
Company's investments in RDCs and central planning which allow the
Company to fulfill customer orders with a lower level of finished goods
investment. The Company continues to refine its RDC strategy. When
finalized in late 2003, the RDC consolidation discussed above is
expected to generate an additional $4.4 million in working capital
savings on comparable sales volume. While trade receivables have
increased from $89.0 million at March 31, 2002 to $93.2 million at
March 31, 2003, the Company has actually reduced its days sales
outstanding over the same period from 53 days to 46 days.
CASH FLOWS
Total debt at March 31, 2003 was $28.7 million less than March 31, 2002
levels. The decrease resulted primarily from repayments of approximately
$22.8 million on Facilities B and C of the bank credit agreement.
Facility B has been repaid in its entirety. The Company also reduced
its borrowings under Facility A of the bank credit agreement by $5.9
million between March 31, 2002 and March 31, 2003.
The Company has scheduled long-term debt repayments of $29.3 million
for calendar 2003, including the $5.3 million repaid in the first
quarter. The Company expects to fund the required long-term debt
repayments with cash flows from operations combined with working
capital improvements. Additionally, the Company has sufficient
availability under Facility A of its bank credit agreement to
accommodate any short-term liquidity requirements.
CREDIT FACILITIES
As a result of the working capital increases during the first quarter
of 2003, the Company's overall debt level increased by $3.6 million
from December 31, 2002. Bank indebtedness, including Facility A of
the Company's bank credit agreement, increased by approximately $8.9
million while long-term debt was reduced by $5.3 million. Over the
balance of 2003, the Company expects borrowings under Facility A to
return to December 2002 levels.
The Company remains in full compliance with all its financial and
other covenants as determined by the Amended and restated Note
Agreement and Bank Credit Agreement.
CAPITAL EXPENDITURES
Capital expenditures for the first quarter of 2003 were $2.5 million,
compared to $2.1 million in the fourth quarter of 2002 and $2.8
million in the first quarter of 2002. The Company expects capital
expenditures for calendar 2003 to be in the range of $13.0 million
to $15.0 million.
Consolidated Earnings
Three month periods ended
(In thousands of US dollars,
except per share amounts)
March 31, December 31,
_________________________ ____________
2003 2002 2002
____________ ___________ ____________
$ $ $
Sales 153,592 146,737 151,261
Cost of sales 119,793 113,321 121,764
____________ ___________ ____________
Gross profit 33,799 33,416 29,497
Selling, general and
administrative expenses 21,982 20,299 23,462
Impairment of goodwill 70,000
Research and development 894 967 480
Financial expenses 7,700 8,983 7,621
____________ ___________ ____________
30,576 30,249 101,563
Earnings (loss) before
income taxes 3,223 3,167 (72,066)
Income taxes (recovery) 322 348 (13,292)
____________ ___________ _____________
Net earnings (loss) 2,901 2,819 (58,774)
____________ ___________ _____________
Earnings (loss) per share
Basic 0.09 0.09 (1.74)
Diluted 0.09 0.09 (1.74)
Consolidated Retained Earnings
Three month periods ended
(In thousands of US dollars)
March 31, March 31, December 31,
____________ ____________ ____________
2003 2002 2002
____________ ____________ ____________
$ $ $
Balance, beginning of period 50,113 104,567 108,887
Net earnings (loss) 2,901 2,819 (58,774)
____________ ____________ ____________
Balance, end of period 53,014 107,386 50,113
____________ ____________ ____________
Consolidated Balance Sheets
(In thousands of US dollars)
March 31, December 31,
_________________________ ____________
2003 2002 2002
____________ ___________ ____________
$ $ $
ASSETS
Current assets
Trade receivables, net of
allowance for doubtful
accounts of $3,475 ($6,069
in March 2002, $3,844 in
December 2002) 93,221 89,033 86,169
Other receivables 10,554 10,549 10,201
Inventories 65,732 69,705 60,969
Parts and supplies 12,422 11,902 12,377
Prepaid expenses 6,784 8,399 7,884
Future income tax assets 2,397 3,995 2,397
____________ ___________ ___________
191,110 193,583 179,997
Property, plant and equipment 350,955 363,039 351,530
Other assets 14,518 13,680 13,178
Goodwill 160,248 227,859 158,639
____________ ___________ ___________
716,831 798,161 703,344
LIABILITIES
Current liabilities
Bank indebtedness 17,405 23,313 8,573
Accounts payable and
accrued liabilities 81,271 75,058 80,916
Installments on long-term debt 28,600 7,560 29,268
____________ ___________ ___________
127,276 105,931 118,757
Long-term debt 278,902 322,687 283,498
Other liabilities 3,530 3,785 3,550
Future income taxes 3,654 21,878 4,446
____________ ___________ ___________
413,362 454,281 410,251
____________ ___________ ___________
SHAREHOLDERS' EQUITY
Capital stock and share
purchase warrants 239,185 236,872 239,185
Retained earnings 53,014 107,386 50,113
Accumulated currency
translation adjustments 11,270 (378) 3,795
____________ ___________ ___________
303,469 343,880 293,093
____________ ___________ ___________
716,831 798,161 703,344
Consolidated Cash Flows
Three month periods ended
(In thousands of US dollars)
March 31, December 31,
_________________________ ____________
2003 2002 2002
____________ ___________ ____________
$ $ $
OPERATING ACTIVITIES
Net earnings (loss) 2,901 2,819 (58,774)
Non-cash items
Depreciation and amortization 6,639 6,618 7,647
Loss on disposal of property,
plant and equipment 30
Impairment of goodwill 70,000
Future income taxes (recovery) 322 348 (15,723)
____________ ___________ ____________
Cash flows from operations
before changes in non-cash
working capital items 9,862 9,785 3,180
____________ ___________ ____________
Changes in non-cash working
capital items
Trade receivables (6,371) (2,527) 8,825
Other receivables (218) 3,087 2,531
Inventories (3,847) 953 10,666
Parts and supplies 100 (315) (112)
Prepaid expenses 1,147 1,051 (3,177)
Accounts payable and
accrued liabilities (522) (16,425) 6,922
____________ ___________ ____________
(9,711) (14,176) 25,655
____________ ___________ ____________
Cash flows from operating
activities 151 (4,391) 28,835
____________ ___________ ____________
INVESTING ACTIVITIES
Property, plant and equipment (2,451) (2,842) (2,130)
Other assets (1,953) (2,514) (1,619)
____________ ___________ ____________
Cash flows from investing
activities (4,404) (5,356) (3,749)
____________ ___________ ____________
FINANCING ACTIVITIES
Net change in bank indebtedness 8,832 (4,717) (17,419)
Repayment of long-term debt (5,265) (32,727) (8,885)
Issue of common shares 47,376 647
____________ ___________ ____________
Cash flows from financing
activities 3,567 9,932 (25,657)
____________ ___________ ____________
Net increase (decrease) in
cash position (686) 185 (571)
Effect of currency translation
adjustments 686 (185) 571
____________ ___________ ____________
Cash position, beginning and
end of year - - -
____________ ___________ ____________
NOTE 1.
Basis of Presentation
In the opinion of Management the accompanying unaudited interim consolidated
financial statements, prepared in accordance with Canadian generally accepted
accounting principles, contain all adjustments necessary to present fairly
Intertape Polymer Group Inc.'s (IPG) financial position as at March 31, 2003
and 2002 and December 31, 2002 as well as its results of operations and its
cash flows for the three months ended March 31, 2003 and 2002 and December 31,
2002.
While Management believes that the disclosures presented are adequate, these
unaudited interim consolidated financial statements and notes should be read
in conjunction with IPG's annual consolidated financial statements.
These unaudited interim consolidated financial statements and notes follow the
same accounting policies as the most recent annual consolidated financial
statements.
NOTE 2.
Earnings per Share
The following table provides a reconciliation between basic and diluted earnings
per share:
In thousands of US dollars
(Except per share amounts)
March 31, December 31,
For the three months ended 2003 2002 2002
__________________________________________________________________
$ $ $
Net earnings (loss) applicable
to common shares 2,901 2,819 (58,774)
Weighted average number of
common shares outstanding 33,821 30,155 33,821
Effect of dilutive stock
options and warrants(a) 351
__________________________________________________________________
Weighted average number of
diluted common shares
outstanding
33,821 30,506 33,821
Basic earnings (loss) per
share 0.09 0.09 (1.74)
Diluted earnings (loss)
per share 0.09 0.09 (1.74)
__________________________________________________________________
(a) Diluted earnings per share is calculated by adjusting outstanding
shares, assuming any dilutive effects of stock options and warrants.
NOTE 3.
Accounting for Compensation Programs
As at March 31, 2003 the Company had a stock-based compensation plan, which
is described in the 2002 Annual Report. The Company does not record any
compensation expense with respect to this plan.
Had compensation cost for the Company's stock-based compensation plan been
determined using the fair value based method for awards at the grant date
under the plan, the Company's net earnings (loss) and earnings (loss) per
share (both basic and diluted) for the three months ended March 31, 2003,
March 31, 2002 and December 31, 2002 would have been reduced (increased) to
the pro forma amounts of $2.7 million, $2.8 million, ($59.0) million, $0.08,
$0.09 and ($1.74) respectively.
NOTE 4.
Differences in Accounting Between The United States of America and Canada
Re-pricing of Stock Options
The re-pricing of stock options that occurred in 2001 has resulted, under
US GAAP, in variable plan accounting for the re-priced options. Under US GAAP,
the Company would not have recorded a non-cash charge for the three months
ended March 31, 2003 and December 31, 2002, but would have recorded a non-cash
charge of $1.8 million for the three months ended March 31, 2002. The charge
would have no income tax consequences for the Company and would reflect the
changes in the market price of the common shares.
Accordingly, the Company's net earnings (loss), basic earnings (loss) per share
and diluted earnings (loss) per share would have been unchanged for the three
months ended March 31, 2003 and December 31, 2002 and reduced by $1.8 million,
$0.06 and $0.06 respectively for the three months ended March 31, 2002.
NOTE 5.
Capital Stock
In March 2002, the Company issued 5,100,000 common shares for cash consideration
of CAN $75,700,000 (US $47,441,000).
Average number of common shares outstanding
March 31, December 31,
Three months ended 2003 2002 2002
__________________________________________________________________
CDN GAAP - Basic 33,821,074 30,155,360 33,821,074
CDN GAAP - Diluted 33,821,497 30,505,692 33,821,074
U.S. GAAP - Basic 33,821,074 30,155,360 33,821,074
U.S. GAAP - Diluted 33,821,497 30,505,692 33,821,074
Safe Harbor Statement
Certain statements and information set forth in this Quarterly Report,
including statements regarding the business and anticipated financial
performance of the Company, constitute "forward-looking statements" within
the meaning of the Federal Private Securities Litigation Reform Act of 1995.
Such forward-looking statements involve known and unknown risks, uncertainties
and other factors which may cause the actual results, performance or
achievements of the Company to be materially different from any future results,
performance or achievements expressed or implied in such forward-looking
statements. Some of the factors that could cause such differences include, but
are not limited to, inflation and general economic conditions, changes in the
level of demand for the Company's products, competitive pricing pressures, and
general market trends. Additional discussion of factors that could cause actual
results to differ materially from management's projections, estimates and
expectations is contained in the Company's SEC filings. These and other factors
should be considered carefully and undue reliance should not be placed on
forward-looking statements. The Company undertakes no duty to update its
forward-looking statements, including its earnings outlook.
INFORMATION REQUEST FORM
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Polymer Group.
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Please fax a copy of this page to: 110E Montee de Liesse
The Secretary Montreal Quebec
Intertape Polymer Group Inc. Canada, H4T 1N4
Fax: 941-727-3798 Investor Relations
Toll Free: 866-202-4713
www.intertapepolymerl.com
itp$info@intertapeipg.com