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 November, 2017
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: November 13, 2017
By:
 
/s/ Jeffrey Crystal
 
 
 
Jeffrey Crystal, Chief Financial Officer



Intertape Polymer Group Inc.
Unaudited Interim Condensed Consolidated Financial Statements
September 30, 2017
 
 
 
Unaudited Interim Condensed Consolidated Financial Statements
 
 
 
 
 
 
 
Consolidated Changes in Equity
4 to 5
 
 
 
 
 
 
Notes to Unaudited Interim Condensed Consolidated Financial Statements
8 to 21



Intertape Polymer Group Inc.
Consolidated Earnings
Periods ended September 30,
(In thousands of US dollars, except per share amounts)
(Unaudited)
 
 
 
Three months ended
September 30,
 
Nine months ended
September 30,
 
 
2017
 
2016
 
2017
 
2016
 
 
$
 
$
 
$
 
$
Revenue
 
243,444

 
206,559

 
660,722

 
598,892

Cost of sales
 
192,575

 
161,705

 
513,339

 
461,140

Gross profit
 
50,869

 
44,854

 
147,383

 
137,752

Selling, general and administrative expenses
 
18,776

 
27,338

 
73,466

 
77,004

Research expenses
 
3,091

 
2,287

 
8,713

 
7,563

 
 
21,867

 
29,625

 
82,179

 
84,567

Operating profit before manufacturing facility closures, restructuring and other related charges
 
29,002

 
15,229

 
65,204

 
53,185

Manufacturing facility closures, restructuring and other related charges (Note 4)

216

 
6,329

 
893

 
10,152

 
 
 
 
 
 
 
 
 
Operating profit
 
28,786

 
8,900

 
64,311

 
43,033

 
 
 
 
 
 
 
 
 
Finance costs (Note 3)

 
 
 
 
 
 
 
Interest
 
2,290

 
1,158

 
4,721

 
3,162

Other expense, net
 
593

 
270

 
1,294

 
590

 
 
2,883

 
1,428

 
6,015

 
3,752

 
 
 
 
 
 
 
 
 
Earnings before income tax expense
 
25,903

 
7,472

 
58,296

 
39,281

 
 
 
 
 
 
 
 
 
Income tax expense (Note 5)

 
 
 
 
 
 
 
Current
 
2,253

 
30

 
7,699

 
5,303

Deferred
 
4,378

 
1,192

 
7,819

 
4,540

 
 
6,631

 
1,222

 
15,518

 
9,843

 
 
 
 
 
 
 
 
 
Net earnings
 
19,272

 
6,250

 
42,778

 
29,438

 
 
 
 
 
 
 
 
 
Net earnings (loss) attributable to:
 
 
 
 
 
 
 
 
Company shareholders
 
19,244

 
6,250

 
42,905

 
29,438

Non-controlling interests
 
28

 
—

 
(127
)
 
—

 
 
19,272

 
6,250

 
42,778

 
29,438

Earnings per share attributable to Company shareholders (Note 9)

 
 
 
 
 
 
 
Basic
 
0.33

 
0.11

 
0.73

 
0.50

Diluted
 
0.32

 
0.10

 
0.72

 
0.49

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 September 30,
(In thousands of US dollars)
(Unaudited)
 
 
 
Three months ended
September 30,
 
Nine months ended
September 30,
 
 
2017
 
2016
 
2017
 
2016
 
 
$
 
$
 
$
 
$
Net earnings
 
19,272

 
6,250

 
42,778

 
29,438

Other comprehensive income (loss)
 
 
 
 
 
 
 
 
Change in fair value of interest rate swap agreements designated as cash flow hedges (1)
 
613

 
388

 
886

 
(625
)
Change in cumulative translation adjustments
 
1,718

 
(235
)
 
6,630

 
3,846

Items that will be subsequently reclassified to net earnings
 
2,331

 
153

 
7,516

 
3,221

Comprehensive income for the period
 
21,603

 
6,403

 
50,294

 
32,659

 
 
 
 
 
 
 
 
 
Comprehensive income (loss) for the period attributable to:
 
 
 
 
 
 
 
 
Company shareholders
 
21,644

 
6,403

 
50,167

 
32,659

Non-controlling interests
 
(41
)
 
—

 
127

 
—

 
 
21,603

 
6,403

 
50,294

 
32,659

 
(1) 
Presented net of deferred income tax expense (benefit) of ($39) and $128 for the three and nine months ended September 30, 2017, respectively, and $237 and $(384) for the three and nine months ended September 30, 2016, respectively. Refer to Note 11 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
Nine months ended September 30, 2016
(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
 
 
 
 
 
Equity attributable to Company shareholders
 
Non-controlling interest
 
 
 
Capital stock
 
Contributed Surplus
 
 
 
 
 
 
 
 
 
Total
 
Number
 
Amount
 
 
 
 
Total
 
Deficit
 
 
 
 
 
 
$
 
$
 
$
 
$
 
$
 
$
 
$
 
$
 
$
Balance as of December 31, 2015
58,667,535

 
347,325

 
23,298

 
(20,407
)
 
(272
)
 
(20,679
)
 
(133,216
)
 
216,728

 
—

 
216,728

Transactions with owners
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Exercise of stock options (Note 9)
125,000

 
822

 
 
 
 
 
 
 
 
 
 
 
822

 
 
 
822

Change in excess tax benefit on exercised share-based awards
 
 
195

 
(195
)
 
 
 
 
 
 
 
 
 
—

 
 
 
—

Change in excess tax benefit on outstanding share-based awards
 
 
 
 
2,773

 
 
 
 
 
 
 
 
 
2,773

 
 
 
2,773

Share-based compensation (Note 9)
 
 
 
 
4,119

 
 
 
 
 
 
 
 
 
4,119

 
 
 
4,119

Share-based compensation expense credited to capital on options exercised (Note 9)
 
 
259

 
(259
)
 
 
 
 
 
 
 
 
 
—

 
 
 
—

Repurchases of common shares (Note 9)
(147,200
)
 
(862
)
 
 
 
 
 
 
 
 
 
(835
)
 
(1,697
)
 
 
 
(1,697
)
Dividends on common shares (Note 9)
 
 
 
 
 
 
 
 
 
 
 
 
(23,424
)
 
(23,424
)
 
 
 
(23,424
)
 
(22,200
)
 
414

 
6,438

 
 
 
 
 
 
 
(24,259
)
 
(17,407
)
 
 
 
(17,407
)
Net earnings
 
 
 
 
 
 
 
 
 
 
 
 
29,438

 
29,438

 
 
 
29,438

Other comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Change in fair value of interest rate swap agreements designated as cash flow hedges (net of the deferred income tax benefit of $384) (Note 11)
 
 
 
 
 
 
 
 
(625
)
 
(625
)
 
 
 
(625
)
 
 
 
(625
)
Change in cumulative translation adjustments
 
 
 
 
 
 
3,846

 
 
 
3,846

 
 
 
3,846

 
 
 
3,846

 
 
 
 
 
 
 
3,846

 
(625
)
 
3,221

 


 
3,221

 
 
 
3,221

Comprehensive income for the period
 
 
 
 
 
 
3,846

 
(625
)
 
3,221

 
29,438

 
32,659

 
 
 
32,659

Non-controlling interest arising from the acquisition of Powerband (1)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2,054

 
2,054

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance as of September 30, 2016
58,645,335

 
347,739

 
29,736

 
(16,561
)
 
(897
)
 
(17,458
)
 
(128,037
)
 
231,980

 
2,054

 
234,034


(1) 
"Powerband Acquisition" refers to the acquisition by the Company of 74% of Powerband Industries Private Limited (doing business as "Powerband") on September 16, 2016.

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

4

Intertape Polymer Group Inc.
Consolidated Changes in Equity
Nine months ended September 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
 
 
 
 
 
Equity attributable to Company shareholders
 
Non-controlling interest
 
 
 
Capital stock
 
Contributed Surplus
 
 
 
 
 
 
 
 
 
Total
 
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 9)
226,875

 
1,362

 
 
 
 
 
 
 
 
 
 
 
1,362

 
 
 
1,362

Change in excess tax benefit on exercised share-based awards
 
 
493

 
(493
)
 
 
 
 
 
 
 
 
 
—

 
 
 
—

Change in excess tax benefit on outstanding share-based awards
 
 
 
 
(3,615
)
 
 
 
 
 
 
 


 
(3,615
)
 
 
 
(3,615
)
Share-based compensation (Note 9)
 
 
 
 
(7,850
)
 
 
 
 
 
 
 
(3,595
)
(2) 
(11,445
)
 
 
 
(11,445
)
Share-based compensation expense credited to capital on options exercised (Note 9)
 
 
495

 
(495
)
 
 
 
 
 
 
 
 
 
—

 
 
 
—

Repurchases of common shares (Note 9)
(415,500
)
 
(2,463
)
 
 
 
 
 
 
 
 
 
(3,974
)
 
(6,437
)
 
 
 
(6,437
)
Dividends on common shares (Note 9)
 
 
 
 
 
 
 
 
 
 
 
 
(24,811
)
 
(24,811
)
 
 
 
(24,811
)
 
(188,625
)
 
(113
)
 
(12,453
)
 
 
 
 
 
 
 
(32,380
)
 
(44,946
)
 
 
 
(44,946
)
Net earnings (loss)
 
 
 
 
 
 
 
 
 
 
 
 
42,905

 
42,905

 
(127
)
 
42,778

Other comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Change in fair value of interest rate swap agreements designated as cash flow hedges (net of the deferred income tax expense of $128) (Note 11)
 
 
 
 
 
 
 
 
886

 
886

 
 
 
886

 
 
 
886

Change in cumulative translation adjustments
 
 
 
 
 
 
6,376

 
 
 
6,376

 
 
 
6,376

 
254

 
6,630

 
 
 
 
 
 
 
6,376

 
886

 
7,262

 
 
 
7,262

 
254

 
7,516

Comprehensive income for the period
 
 
 
 
 
 
6,376

 
886

 
7,262

 
42,905

 
50,167

 
127

 
50,294

Non-controlling interest arising from investment in Capstone (1) 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
15

 
15

Capital transactions with non-controlling shareholders of Capstone (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
153

 
153

Balance as of September 30, 2017
58,871,710

 
351,090

 
17,132

 
(13,135
)
 
750

 
(12,385
)
 
(114,080
)
 
241,757

 
6,702

 
248,459


(1) 
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. Refer to Note 10 for additional information on Capstone.
(2) 
Presented net of income tax benefit of $1,925 for the nine months ended September 30, 2017.
The accompanying notes are an integral part of the interim condensed consolidated financial statements.

5

Intertape Polymer Group Inc.
Consolidated Cash Flows
Periods ended September 30,
(In thousands of US dollars)
(Unaudited)
 
 
Three months ended September 30,
 
Nine months ended September 30,
 
 
2017
 
2016
 
2017
 
2016
 
 
$
 
$
 
$
 
$
OPERATING ACTIVITIES
 
 
 
 
 
 
 
 
Net earnings
 
19,272

 
6,250

 
42,778

 
29,438

Adjustments to net earnings
 
 
 
 
 
 
 
 
Depreciation and amortization
 
9,633

 
7,673

 
26,271

 
22,305

Income tax expense
 
6,631

 
1,222

 
15,518

 
9,843

Interest expense
 
2,290

 
1,158

 
4,721

 
3,162

Non-cash charges (recoveries) in connection with manufacturing facility closures, restructuring and other related charges
 
73

 
3,803

 
(16
)
 
4,987

Impairment of inventories
 
110

 
678

 
41

 
1,905

Share-based compensation (benefit) expense
 
(8,231
)
 
2,450

 
(3,067
)
 
6,586

Pension, post-retirement and other long-term employee benefits
 
692

 
700

 
2,075

 
2,110

Other adjustments for non-cash items
 
441

 
(193
)
 
47

 
94

Income taxes paid, net
 
(3,254
)
 
(3,573
)
 
(6,016
)
 
(5,737
)
Contributions to defined benefit plans
 
(799
)
 
(254
)
 
(3,228
)
 
(942
)
Cash flows from operating activities before changes in working capital items
 
26,858

 
19,914

 
79,124

 
73,751

Changes in working capital items
 
 
 
 
 
 
 
 
Trade receivables
 
(12,859
)
 
(2,788
)
 
(16,265
)
 
(11,844
)
Inventories
 
3,607

 
1,373

 
(8,748
)
 
(10,185
)
Parts and supplies
 
(498
)
 
(320
)
 
(1,662
)
 
(857
)
Other current assets
 
(174
)
 
(2,216
)
 
1,071

 
(903
)
Accounts payable and accrued liabilities and share-based compensation liabilities, current
 
7,363

 
1,711

 
(18,900
)
 
(9,259
)
Provisions
 
(202
)
 
2,449

 
(1,513
)
 
2,479

 
 
(2,763
)
 
209

 
(46,017
)
 
(30,569
)
Cash flows from operating activities
 
24,095

 
20,123

 
33,107

 
43,182

 
 
 
 
 
 
 
 
 
INVESTING ACTIVITIES
 
 
 
 
 
 
 
 
Acquisition of subsidiaries, net of cash acquired
 
(67,274
)
 
(41,855
)
 
(67,258
)
 
(41,855
)
Purchases of property, plant and equipment
 
(28,836
)
 
(12,498
)
 
(71,352
)
 
(35,802
)
Restricted cash (Note 10)
 
71,785

 
—

 
—

 
—

Other investing activities
 
973

 
(165
)
 
990

 
(210
)
Cash flows from investing activities
 
(23,352
)
 
(54,518
)
 
(137,620
)
 
(77,867
)
 
 
 
 
 
 
 
 
 
FINANCING ACTIVITIES
 
 
 
 
 
 
 
 
Proceeds from borrowings
 
63,966

 
66,095

 
217,443

 
155,398

Repayment of borrowings
 
(38,242
)
 
(28,735
)
 
(79,531
)
 
(104,324
)
Interest paid
 
(1,955
)
 
(1,117
)
 
(4,554
)
 
(3,340
)
Proceeds from exercise of stock options
 
—

 
344

 
1,362

 
822

Repurchases of common shares
 
(6,437
)
 
—

 
(6,437
)
 
(1,697
)
Dividends paid
 
(8,150
)
 
(8,235
)
 
(24,831
)
 
(23,318
)
Other financing activities
 
124

 
(161
)
 
(514
)
 
(161
)
Cash flows from financing activities
 
9,306

 
28,191

 
102,938

 
23,380

 
 
 
 
 
 
 
 
 
Net increase (decrease) in cash
 
10,049

 
(6,204
)
 
(1,575
)
 
(11,305
)
Effect of foreign exchange differences on cash
 
10

 
(1,177
)
 
1,403

 
(668
)
Cash, beginning of period
 
10,725

 
13,023

 
20,956

 
17,615

Cash, end of period
 
20,784

 
5,642

 
20,784

 
5,642

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)
 
 
September 30, 2017
 
December 31, 2016
 
 
(Unaudited)
 
(Audited)
 
 
$
 
$
ASSETS
 
 
 
 
Current assets
 
 
 
 
Cash
 
20,784

 
20,956

Trade receivables
 
116,208

 
90,122

Inventories
 
129,961

 
103,470

Parts and supplies
 
18,150

 
16,368

Other current assets
 
11,984

 
11,321

 
 
297,087

 
242,237

Property, plant and equipment (Note 6)
 
306,920

 
233,478

Goodwill (Note 10)
 
41,227

 
30,841

Intangible assets (Note 7)
 
44,334

 
34,050

Deferred tax assets (Note 5)
 
29,369

 
36,611

Other assets
 
5,639

 
3,380

Total assets
 
724,576

 
580,597

 
 
 
 
 
LIABILITIES
 
 
 
 
Current liabilities
 
 
 
 
Accounts payable and accrued liabilities
 
84,549

 
98,016

Share-based compensation liabilities, current (Note 9)
 
6,102

 
2,200

Provisions, current
 
1,307

 
3,851

Borrowings, current (Note 8)
 
10,925

 
7,604

 
 
102,883

 
111,671

Borrowings, non-current (Note 8)
 
311,307

 
172,221

Pension, post-retirement and other long-term employee benefits
 
29,874

 
30,832

Share-based compensation liabilities, non-current (Note 9)
 
2,530

 
296

Non-controlling interest put options (Note 11)
 
10,415

 
10,020

Deferred tax liabilities (Note 5)
 
14,200

 
9,332

Provisions, non-current
 
2,924

 
2,040

Other liabilities
 
1,984

 
1,242

 
 
476,117

 
337,654

EQUITY
 
 
 
 
Capital stock (Note 9)
 
351,090

 
351,203

Contributed surplus
 
17,132

 
29,585

Deficit
 
(114,080
)
 
(124,605
)
Accumulated other comprehensive loss
 
(12,385
)
 
(19,647
)
Total equity attributable to Company shareholders
 
241,757

 
236,536

Non-controlling interests
 
6,702

 
6,407

Total equity
 
248,459

 
242,943

Total liabilities and equity
 
724,576

 
580,597

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
September 30, 2017
(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 September 30, 2017 and December 31, 2016, as well as its consolidated earnings, comprehensive income and cash flows for the three and nine months ended September 30, 2017 and 2016 and the changes in equity for the nine months ended September 30, 2017 and 2016.
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 and 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 November 10, 2017.
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 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 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 performed a preliminary review of the new guidance as compared to the Company’s current accounting policies, and began a review of its sales contracts. Based on its initial evaluation, management does not expect the new guidance to materially impact the Company’s Financial Statements. Management plans to finalize its review and determine the method of adoption in the next quarter.

IFRS 9 (2014) - Financial Instruments was issued in July 2014 and differs in some regards from IFRS 9 (2013) which the Company adopted effective January 1, 2015. 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 exemptions. Based on its initial evaluation, management does not expect the new guidance to materially impact the Company’s Financial Statements. Management plans to finalize its review and determine the method of adoption in the next quarter.

IFRS 16 - Leases which will replace IAS 17 - Leases was issued in January 2016. IFRS 16 eliminates the classification of an operating lease and requires lessees to recognize a right-of-use asset and a lease liability in the statement of financial position for all leases with exemptions permitted for short-term leases and leases of low value assets. In addition, IFRS 16 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 option periods; changes the accounting for sale and leaseback arrangements; largely retains IAS 17’s approach to lessor accounting and introduces new disclosure requirements. IFRS 16 is effective for annual reporting periods beginning on or after January 1, 2019 with early adoption permitted in certain circumstances. Management is currently quantifying 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 September 30,
 
Nine months ended September 30,
 
 
2017
 
2016
 
2017
 
2016
 
 
$
 
$
 
$
 
$
Employee benefit expense
 
 
 
 
 
 
 
 
Wages, salaries and other short-term benefits
 
45,913

 
40,064

 
125,608

 
119,396

Termination benefits
 
69

 
936

 
135

 
1,220

Share-based compensation (benefit) expense
 
(8,231
)
 
2,450

 
(3,067
)
 
6,586

Pension, post-retirement and other long-term employee benefit plans:
 
 
 
 
 
 
 
 
Defined benefit plans
 
711

 
723

 
2,136

 
2,178

Defined contributions plans
 
1,204

 
1,150

 
3,762

 
3,528

 
 
39,666

 
45,323

 
128,574

 
132,908

 
 
 
 
 
 
 
 
 
Finance costs - Interest
 
 
 
 
 
 
 
 
Interest on borrowings
 
2,511

 
1,205

 
5,280

 
3,470

Amortization of debt issue costs on borrowings
 
187

 
108

 
463

 
324

Interest capitalized to property, plant and equipment
 
(408
)
 
(155
)
 
(1,022
)
 
(632
)
 
 
2,290

 
1,158

 
4,721

 
3,162

 
 
 
 
 
 
 
 
 
Finance costs - Other expense, net
 
 
 
 
 
 
 
 
Foreign exchange loss (gain)
 
304

 
6

 
496

 
(164
)
Other costs, net
 
289

 
264

 
798

 
754

 
 
593

 
270

 
1,294

 
590

 
 
 
 
 
 
 
 
 
Additional information
 
 
 
 
 
 
 
 
Depreciation of property, plant and equipment
 
8,618

 
7,380

 
23,526

 
21,397

Amortization of intangible assets
 
1,015

 
293

 
2,745

 
908

Impairment of assets
 
109

 
5,158

 
326

 
9,004



4 - MANUFACTURING FACILITY CLOSURES, RESTRUCTURING AND OTHER RELATED CHARGES
The following table describes the charges incurred by the Company which are included in the Company’s consolidated earnings under the caption manufacturing facility closures, restructuring and other related charges:
 
 
Three months ended September 30,
 
Nine months ended September 30,
 
 
2017
 
2016
 
2017
 
2016
 
 
$
 
$
 
$
 
$
Impairment of property, plant and equipment
 
—

 
3,144

 
289

 
3,634

Impairment of intangibles
 
—

 
387

 
—

 
387

Equipment relocation
 
24

 
212

 
147

 
711

Revaluation and impairment of inventories
 
(2
)
 
272

 
14

 
966

Termination benefits and other labor related (recoveries) costs
 
62

 
965

 
(34
)
 
1,400

Restoration and idle facility costs
 
106

 
1,106

 
139

 
2,759

Professional fees
 
26

 
51

 
67

 
586

Insurance proceeds
 
—

 
—

 
—

 
(483
)
Other costs
 
—

 
192

 
271

 
192

 
 
216

 
6,329

 
893

 
10,152


10

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 permanent closure of the Columbia, South Carolina manufacturing facility eight to nine months in advance of the planned shutdown.
The charges incurred in the three and nine months ended September 30, 2017 were primarily related to the post-closure activities of the Columbia, South Carolina manufacturing facility. Included in Other costs in the table above are charges primarily related to product trials to support post-South Carolina Flood stencil production.
The charges incurred in the three and nine months ended September 30, 2016 were primarily related to asset impairment charges associated with the closure of the TaraTape Fairless Hills, Pennsylvania manufacturing facility and costs associated with the South Carolina Flood including site clean-up and environmental remediation costs, real and personal property damage, and professional fees related to the insurance claim process. Also included in manufacturing facility closures, restructuring and other related charges for the nine months ended September 30, 2016 was $0.5 million in insurance claim settlement proceeds. The Company received a total of $5.0 million in insurance claim settlement proceeds in the nine months ended September 30, 2016 related to the South Carolina Flood of which the remaining $4.5 million was recorded in cost of sales.
5 - INCOME TAXES

The Company is subject to income taxation in multiple tax jurisdictions around the world. Accordingly, the Company's effective tax rate fluctuates depending upon the geographic source of its earnings. The Company's effective tax rate is also impacted by tax planning strategies that the Company implements. Income tax expense is recognized in each interim period based on the best estimate of the weighted average annual income tax rate expected for the full financial year.
The calculation of the Company’s effective tax rate is as follows:
 
 
Three months ended September 30,
 
Nine months ended September 30,
 
 
2017
 
2016
 
2017
 
2016
Income tax expense
 
$
6,631

 
$
1,222

 
$
15,518

 
$
9,843

Earnings before income tax expense
 
$
25,903

 
$
7,472

 
$
58,296

 
$
39,281

Effective tax rate
 
25.6
%
 
16.4
%
 
26.6
%
 
25.1
%

The increase in the effective tax rate in the three months ended September 30, 2017 as compared to the same period in 2016 is primarily due to a change in the mix of earnings between jurisdictions. The increase in the effective tax rate in the nine months ended September 30, 2017 as compared to the same period in 2016 is primarily due to a change in the mix of earnings between jurisdictions, partially offset by the benefit recognized in the US for the domestic production activities deduction.

The following table outlines the deferred tax assets and liabilities:

 
 
September 30, 2017
 
December 31, 2016
 
 
$
 
$
Deferred tax assets
 
29,369

 
36,611

Deferred tax liabilities
 
(14,200
)
 
(9,332
)
Net deferred tax assets
 
15,169

 
27,279


The decrease in the net deferred tax assets recorded at September 30, 2017 as compared to the net deferred tax assets recorded at December 31, 2016 is primarily due to the utilization of tax credits, the decrease in the Company's share price causing a reduction in the expected future tax benefit of share-based compensation, and the deferred tax liabilities recorded through purchase accounting in connection with the Cantech Acquisition (defined later in this document).
6 - PROPERTY, PLANT AND EQUIPMENT
Capital expenditures totalled $28.8 million and $71.4 million in the three and nine months ended September 30, 2017, respectively, and $12.5 million and $35.8 million in the three and nine months ended September 30, 2016, respectively.

11

Capital expenditures incurred in the nine months ended September 30, 2017 were primarily to support the water-activated tape capacity expansion at the Midland, North Carolina manufacturing facility (“WAT Project”), the greenfield manufacturing facility related to Capstone and other growth initiatives and maintenance needs.
Capital expenditures incurred in the nine months ended September 30, 2016 primarily related to the WAT Project, shrink film capacity expansion at the Portugal manufacturing facility, and other growth initiatives and maintenance needs.
The following table summarizes the net book value of property, plant and equipment:
 
 
September 30, 2017
 
December 31, 2016
 
 
$
 
$
Land
 
11,563

 
5,521

Buildings
 
60,804

 
31,873

Manufacturing equipment
 
168,067

 
145,393

Computer equipment and software
 
5,773

 
6,183

Furniture, office equipment and other
 
635

 
601

Construction in progress
 
60,078

 
43,907

 
 
306,920

 
233,478

The following table summarizes information related to commitments to purchase machinery and equipment:
 
 
September 30, 2017
 
December 31, 2016
 
 
$
 
$
Commitments to purchase machinery and equipment
 
27,390

 
32,375

7 - INTANGIBLE ASSETS

The following table summarizes the net book value of intangible assets:

 
 
September 30, 2017
 
December 31, 2016
 
 
$
 
$
Distribution rights
 
—

 
19

License agreements
 
87

 
92

Customer lists
 
28,135

 
23,910

Software
 
588

 
767

Patents/Trademarks (1)
 
8,002

 
1,707

Non-compete agreements
 
7,522

 
7,555

 
 
44,334

 
34,050

(1) Includes trademarks of $7.8 million not subject to amortization.
The increase in intangible assets in the nine months ended September 30, 2017 consists primarily of additional customer lists and patents and trademarks recognized as a result of the Cantech Acquisition (defined later in this document) of approximately $11.7 million.
Refer to Note 10 for more information.


12

8 - BORROWINGS
On June 9, 2017, the Company amended its $300.0 million revolving credit facility with a syndicate of financial institutions (“Revolving Credit Facility”) to increase its borrowing limit by $150.0 million, bringing the Revolving Credit Facility credit limit to $450.0 million. The amended credit agreement continues to include an incremental accordion feature of $150.0 million, enabling the Company to further increase the credit limit of the Revolving Credit Facility, if needed, subject to the credit agreement’s existing terms and lender approval. In securing the amendment, the Company incurred debt issue costs amounting to $0.5 million which were capitalized and are being amortized using the straight-line method over the remaining life of the Revolving Credit Facility. As of September 30, 2017, the Company had drawn a total of $309.1 million against the Revolving Credit Facility, which consisted of $302.3 million of borrowings and $6.8 million of standby letters of credit.
Borrowings are comprised of the following:
 
 
September 30, 2017
 
December 31, 2016
 
 
$
 
$
Revolving Credit Facility (1)
 
300,704

 
159,608

Finance lease liabilities
 
9,999

 
14,265

Forgivable government loan
 
4,570

 
3,276

Mortgage and other loans
 
6,959

 
2,676

 
 
322,232

 
179,825

Less: current borrowings
 
10,925

 
7,604

 
 
311,307

 
172,221

 
(1) 
The Revolving Credit Facility is presented net of unamortized related debt issue costs, amounting to $1.6 million and $1.4 million as of September 30, 2017 and December 31, 2016, respectively.

9 - CAPITAL STOCK AND EARNINGS PER SHARE
Common Shares
The Company’s common shares outstanding as of September 30, 2017 and December 31, 2016 were 58,871,710 and 59,060,335, 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 8, 2017
 
March 31, 2017
 
$
0.14

 
March 21, 2017
 
59,110,335

 
$
8,316

May 8, 2017
 
June 30, 2017
 
$
0.14

 
June 15, 2017
 
59,169,710

 
$
8,365

August 10, 2017
 
September 29, 2017
 
$
0.14

 
September 15, 2017
 
59,036,310

 
$
8,150

 
(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.

13

Share Repurchases
Under the Company’s normal course issuer bid (“NCIB”), it has the ability to repurchase for cancellation up to 4,000,000 of the Company’s common shares.
The following table summarizes repurchases under the NCIB:
 
 
Three months ended September 30,
 
Nine months ended September 30,
 
 
2017
 
2016
 
2017
 
2016
Common shares repurchased
 
415,500

 
—

 
415,500

 
147,200

Average price per common share including commissions
 
CDN$19.05

 
—

 
CDN$19.05

 
CDN$15.77

Total purchase price including commissions
 
$
6,437

 
$
—

 
$
6,437

 
$
1,697

Carrying value of the common shares repurchased
 
$
2,463

 
$
—

 
$
2,463

 
$
862

Share repurchase premium (1)
 
$
3,974

 
$
—

 
$
3,974

 
$
835


(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 equity.

The NCIB which expired on July 13, 2017 was renewed for a twelve-month period starting July 17, 2017. Under the renewed NCIB, the Company may repurchase for cancellation up to 4,000,000 common shares. As of November 10, 2017, 487,300 shares have been repurchased and cancelled under the renewed NCIB.

Earnings Per Share
The weighted average number of common shares outstanding is as follows:
 
 
Three months ended September 30,
 
Nine months ended September 30,
 
 
2017
 
2016
 
2017
 
2016
Basic
 
59,171,255

 
58,696,647

 
59,153,200

 
58,670,099

Effect of stock options
 
356,568

 
881,393

 
386,083

 
815,073

Effect of performance share units
 
—

 
1,292,874

 
192,152

 
1,124,296

Diluted
 
59,527,823

 
60,870,914

 
59,731,435

 
60,609,468

There were no stock options that were anti-dilutive and excluded from the diluted earnings per share calculations for the periods ended September 30, 2017 and 2016.
The effect of performance share units (“PSUs”) included in the calculation of weighted average diluted shares outstanding includes the following:
 
 
Three months ended September 30,
 
Nine months ended September 30,
 
 
2017
 
2016
 
2017
 
2016
PSUs which met the performance criteria (1)
 
—

 
861,916

 
885,879

 
861,916

 
(1) 
See section entitled “Performance Share Unit Plan” for additional information.

14

Stock Options
The following tables summarize information related to stock options
 
 
Three months ended September 30,
 
Nine months ended September 30,
 
 
2017
 
2016
 
2017
 
2016
Stock options exercised
 
—

 
42,500

 
226,875

 
125,000

Weighted average exercise price
 
—

 
CDN$10.59

 
CDN$8.00

 
$CDN8.58

Cash proceeds
 
$
—

 
$
344

 
$
1,362

 
$
822

Stock options expired or forfeited
 
$
—

 
$
16,250

 
$
—

 
$
16,250

 
 
September 30, 2017
Stock options outstanding
834,375

Weighted average exercise price per stock option outstanding
CDN$12.29

Weighted average fair value at grant date per stock option outstanding
$
3.43

Performance Share Unit Plan
On February 17, 2017, the Board of Directors approved an amendment to the PSU Plan to provide for only cash settlement of PSU awards. As a result of the amendment, the Company remeasured the fair value of the PSU awards on the amendment date and will continue to do so prospectively at each reporting period end date and at settlement. There was no incremental fair value granted as a result of these modifications. The fair value of the PSUs is based on the Monte Carlo valuation model at each reporting period end date 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 PSUs are settled, expire or are otherwise cancelled. The corresponding liability is recorded on the Company’s consolidated balance sheet under the caption share-based compensation liabilities, current for amounts expected to settle in the next twelve months and share-based compensation liabilities, non-current for amounts expected to settle in more than twelve months.
The PSUs are earned over a three-year period with vesting at the third anniversary of the grant date unless vesting is accelerated based on retirement eligibility, death or disability. The number of PSUs earned can range from 0% to 150% of the grant amount based on the total shareholder return (“TSR”) ranking versus a specified peer group of companies. Based on the Company’s TSR ranking as of September 30, 2017, the number of PSUs earned if all of the outstanding awards were to be settled at September 30, 2017, would be as follows:
 
Grant Date
Performance
March 13, 2015
50
%
May 14, 2015
50
%
May 20, 2015
—
%
March 21, 2016
—
%
December 20, 2016
—
%
March 20, 2017
—
%
The following table summarizes information about PSUs during the period:
 
 
 
Three months ended September 30,
 
Nine months ended September 30,
 
 
2017
 
2016
 
2017
 
2016
PSUs granted
 
—

 
—

 
358,377

 
392,572

Weighted average fair value per PSU granted
 
$
—

 
$
—

 
$
16.15

 
$
13.52

PSUs forfeited/cancelled
 
—

 
25,688

 
6,198

 
28,696

PSUs settled (1)
 
—

 
—

 
139,200

 
—

Weighted average fair value per PSU settled
 
$
—

 
$
—

 
$
27.74

 
$
—

Expense (benefit) recorded in earnings in selling, general and administrative expenses (“SG&A”)
 
$
(6,772
)
 
$
954

 
$
(2,571
)
 
$
3,209

Cash settlements
 
$
—

 
$
—

 
$
4,174

 
$
—

 

15

(1) 
On June 15, 2017, the Board of Directors approved the settlement of PSUs granted in 2014, which had been earned and vested in accordance with the PSU Plan. The PSU settlement occurred on June 22, 2017. The cash payment at settlement was calculated based on the number of settled PSUs held by the participant, multiplied by the volume weighted average trading price (“VWAP”) of the Company’s common shares on the TSX for the five consecutive trading days immediately preceding the day of settlement (CDN$24.60). The number of PSUs earned was 150% of the grant amount based on the TSR ranking versus a specified peer group of companies as of June 11, 2017.
The weighted average fair value of PSUs granted was estimated based on a Monte Carlo simulation model, considering the following weighted average assumptions:
 
 
 
Nine months ended September 30,
 
 
2017
 
2016
Expected life
 
3 years

 
3 years

Expected volatility(1)
 
34
%
 
36
%
Risk-free interest rate
 
1.57
%
 
1.05
%
Expected dividends(2)
 
—
%
 
—
%
Performance period starting price(3)
 
CDN$22.26

 
CDN$18.49

Closing stock price on TSX as of the estimation date
 
CDN$21.94

 
CDN$18.44

 
(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:
 
September 30, 2017
PSUs outstanding
1,105,056

Weighted average fair value per PSU outstanding
$
8.41

Outstanding amounts recorded in the consolidated balance sheets in share-based compensation liabilities, current
$
2,403

Outstanding amounts recorded in the consolidated balance sheets in share-based compensation liabilities, long-term
$
2,530

Deferred Share Unit Plan
On February 17, 2017, the Board of Directors approved an amendment to the Deferred Share Unit (“DSU”) Plan to provide for only cash settlement of DSU awards. As a result of the amendment, the Company remeasured the fair value of the DSU awards on the amendment date and will continue to do so prospectively at each reporting period end date and at settlement. There was no incremental fair value granted as a result of these modifications. The fair value of DSUs is based on the five trading days VWAP of the Company’s common shares on the TSX at the end of each reporting period. As a result, the amount of expense recognized can vary due to changes in the share price from period to period until the DSUs are settled, expire, or are otherwise cancelled. The corresponding liability is recorded on the Company’s consolidated balance sheet under the caption share-based compensation liabilities, current.

16

The following tables summarize information related to DSUs:
 
 
Three months ended September 30,
 
Nine months ended September 30,
 
 
2017
 
2016
 
2017
 
2016
DSUs granted
 
7,937

 
40,951

 
48,179

 
52,665

Weighted average fair value per DSU granted
 
$
15.18

 
$
17.47

 
$
17.79

 
$
16.76

Expense (benefit) recorded in earnings in SG&A(1)
 
$
(786
)
 
$
677

 
$
49

 
$
821

 
 
September 30, 2017
DSUs outstanding
167,427

Weighted average fair value per DSU outstanding
$
14.55

Outstanding amounts recorded in the consolidated balance sheets in share-based compensation liabilities, current (1)
$
2,496

 
(1) 
Includes effect of DSUs received in lieu of cash for directors’ fees not yet granted.

Stock Appreciation Rights
The following tables summarize information regarding stock appreciation rights (“SARs”):
 
 
Three months ended September 30,
 
Nine months ended September 30,
 
 
2017
 
2016
 
2017
 
2016
SARs exercised
 
—

 
234,475

 
13,250

 
382,202

Base price
 
CDN$7.56

 
CDN$7.56

 
CDN$7.56

 
CDN$7.56

Expense (benefit) recorded in earnings in SG&A
 
$
(696
)
 
$
769

 
$
(689
)
 
$
2,215

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

 
$
2,754

 
$
155

 
$
4,018

 
 
September 30, 2017
SARs outstanding
147,500

Aggregate intrinsic value of outstanding vested awards
$
1,253

Outstanding amounts vested recorded in the consolidated balance sheets in share-based compensation liabilities, current
$
1,203


10 - ACQUISITION AND INVESTMENT IN NEWLY-FORMED ENTERPRISE

Cantech Acquisition

On July 1, 2017, the Company acquired substantially all of the assets of Canadian Technical Tape Ltd. (doing business as “Cantech”), a privately-owned North American supplier of industrial and specialty tapes based in Montreal, Quebec for an aggregate purchase price of approximately $67 million, net of cash acquired of $4.6 million and subject to a post-closing working capital adjustment. The assets include the shares of Cantech Industries Inc., Cantech’s US subsidiary (collectively, “Cantech Acquisition”).

The change in the Company’s restricted cash presented in the consolidated cash flows is primarily due to the release of cash balances held in a third-party trust account on July 1, 2017 to fund the Cantech Acquisition closing.

The purchase price was financed with funds available under the Revolving Credit Facility. The former shareholders of Cantech have in escrow $10.8 million, as of September 30, 2017, related to customary representations, warranties and covenants in the Cantech purchase agreement. The Cantech purchase agreement also contains customary indemnification provisions.


17

The net cash consideration paid on the closing date was as follows:
 
 
July 1, 2017
 
 
(Unaudited)
 
 
 $
Consideration paid in cash
 
71,841

Less: cash balances acquired
 
(4,567
)
 
 
67,274


The Cantech Acquisition was accounted for using the acquisition method of accounting. The Cantech Acquisition is expected to further enhance and extend the Company’s product offering, and provide additional distribution channels for the Company’s products in Canada, the US and Europe. The Company expects a significant portion of the goodwill to be deductible for income tax purposes. Management is still in the process of finalizing the fair value of the opening balance sheet purchase price allocation and post-closing working capital adjustment. The preliminary fair value of net identifiable assets acquired and goodwill at the date of acquisition are as follows:

 
 
 
 
July 1, 2017
 
 
 
 
(Unaudited)
 
 
 
 
 $
Current assets
 
 
 
 
     Cash
 
 
 
4,567

     Trade receivables (1)
 
 
 
8,899

     Inventories
 
 
 
15,828

     Other current assets
 
 
 
505

 
 
 
 
 
Property, plant and equipment
 
 
 
27,275

Intangible assets
 
 
 
11,700

 
 
 
 
68,774

Current liabilities
 
 
 
 
     Accounts payable and accrued liabilities
 
 
 
3,593

 
 
 
 
 
Deferred tax liability
 
 
 
2,743

Provisions
 
 
 
192

 
 
 
 
6,528

Fair value of net identifiable assets acquired
 
 
 
62,246


 
 
 
 
July 1, 2017
 
 
 
 
(Unaudited)
 
 
 
 
 $
Cash consideration transferred
 
 
 
71,841

Less: fair value of net identifiable assets acquired
 
 
 
62,246

Goodwill
 
 
 
9,595


(1) 
The gross contractual amounts receivable were $9,117. As of September 30, 2017 the Company has collected $8,847 of the outstanding trade receivables.

The Cantech Acquisition’s impact on the Company’s consolidated earnings was as follows:
 
Three months ended September 30, 2017
July 1, 2017 through September 30, 2017
 
 $
 $
Revenue
15,894

15,894

IPG Net Loss
(789
)
(789
)


18

Had the Cantech Acquisition been effective as of January 1, 2017, the impact on the Company’s consolidated earnings would have been as follows:
 
 
Nine Months Ended
September 30, 2017
 
 
 $
Revenue
 
48,126

IPG Net Earnings
 
467


Acquisition-related costs of $0.5 million and $1.7 million for the three and nine months ended September 30, 2017 are excluded from the consideration transferred and are included in the Company’s consolidated earnings in SG&A.
Investment in Newly-Formed Enterprise
On June 23, 2017, the Company, under a Share Subscription and Shareholder Agreement, purchased 3,250,000 or 99.7% of the issued and outstanding shares of Capstone, a newly-formed enterprise in India (“Capstone Investment”). The principal purpose of the Capstone Investment is to further extend the Company’s woven products business through a global supply of woven products. The Company invested $5.1 million in cash, funded primarily from the Revolving Credit Facility.
The balance sheet of Capstone subsequent to the investment was as follows:
 
 
June 23, 2017
 
 
$
Current assets
 
 
Cash
 
5,066

Other assets
 
578

 
 
5,644

Current liabilities
 
 
Accounts payable and accrued liabilities
 
20

Borrowings, current
 
559

 
 
579

 
 
5,065

 
 
 
 
 
June 23, 2017
 
 
$
Consideration paid for investment
 
5,050

Plus: remaining non-controlling interest
 
15

Fair value of net assets
 
5,065


The Company is partnering with the non-controlling shareholders of Capstone, who are also the shareholders and operators of Airtrax Polymers Private Limited (d/b/a “Airtrax”). Airtrax manufactures and sells woven products that are used in various applications, including in the building and construction industry. The Company has agreed to maintain a minimum 55% interest in Capstone for total cash consideration of approximately $13 million, which is being financed with funds from the Revolving Credit Facility. The shareholders of Airtrax have agreed to arrange a contribution in kind to Capstone of the net assets attributed to Airtrax’s existing woven product manufacturing operations, which are estimated to have a value of approximately $12 million. The legal process to make the contribution of the net assets has begun and is expected to be completed in the first half of 2018. The Company is making payments in several tranches over the same period.

Accordingly, on July 19, 2017, the non-controlling shareholders of Capstone acquired 99,000 additional shares of Capstone for a purchase price of approximately $0.2 million. On August 8, 2017, the Company acquired 3,250,000 additional shares of Capstone for a purchase price of approximately $5.1 million. As of September 30, 2017, the Company and the non-controlling shareholders held 98.4% and 1.6% of the issued and outstanding shares of Capstone, respectively. As a result of the share-purchase activity, the Company recorded a $0.2 million increase to equity attributable to non-controlling interest in the Consolidated Changes in Equity for the nine months ended September 30, 2017.

19

The advisory fees and other costs (recoveries) associated with establishing the newly-formed enterprise were $(0.4) million and $0.5 million for the three and nine months ended September 30, 2017, respectively, and are included in the Company’s consolidated earnings in SG&A.
11 - FINANCIAL INSTRUMENTS
The Company is exposed to a risk of change in cash flows due to the fluctuations in interest rates applicable on its variable rate Revolving Credit Facility and other floating rate borrowings. To minimize the 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
 
1.610
%
August 18, 2015
 
August 20, 2018
 
$
60,000

 
Monthly
 
1.197
%
June 8, 2017
 
June 20, 2022
 
$
40,000

 
Monthly
 
1.790
%
July 21, 2017
  
July 18, 2022
  
CDN$90,000 (1)

  
Monthly
  
1.683
%
August 20, 2018
 
August 18, 2023
 
$
60,000

 
Monthly
 
2.045
%

(1) 
The notional amount will decrease by CDN$18.0 million on the 18th of July of each year until settlement.
As of September 30, 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 $0.8 million. As of December 31, 2016, the carrying amount and fair value was a liability included in other liabilities in the consolidated balance sheet amounting to $0.2 million.
The following table summarizes information regarding the change in fair value of the interest rate swap agreements:
 
 
Three months ended September 30,
 
Nine months ended September 30,
 
 
2017
 
2016
 
2017
 
2016
Increase (decrease) in fair value of the derivatives used for calculating hedge effectiveness
 
$
574

 
$
625

 
$
1,014

 
$
(1,009
)
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 Company categorizes long-term borrowings and interest rate swaps as Level 2 of the fair value hierarchy. 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 at a rate that reflects the credit risk of various counterparties.

The Company categorizes its non-controlling interest put options in Powerband as Level 3 of the fair value hierarchy. The Company measures the fair value of its non-controlling interest put options in Powerband by estimating the present value of future net cash inflows from earnings associated with the proportionate shares that are subject to sale to the Company pursuant to an exercise event. This estimation is intended to approximate the redemption value of the options as indicated in the shareholders’ agreement. The calculation is made using significant unobservable inputs including estimations of undiscounted annual future cash inflows ranging between $4.5 million and $7.5 million, and a discount rate of 12.7%, which the Company believes to be commensurate with the risks inherent in the ownership interest. The fair value of the liability is sensitive to changes in projected earnings and thereby, future cash inflows, and the discount rate applied to those future cash inflows, which could result in a higher or lower fair value measurement. On July 4, 2017, the Company and the non-controlling shareholders of Powerband executed a binding term sheet that confirmed that the Company’s call option on the non-controlling shares had been triggered to purchase the 26% shareholding interest currently held by the non-controlling shareholders in Powerband. The term sheet essentially reaffirmed the process to conduct a third-party valuation of the 26% shareholding interest in Powerband, which the Company is currently conducting. The valuation has not yet been completed as of the Financial Statement date of authorization. The fair value of the liability is sensitive to changes in projected earnings and thereby, future cash inflows, and the discount rate applied to those future

20

cash inflows; therefore, the updated valuation could result in a higher or lower fair value measurement. As of November 10, 2017, 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.
The reconciliation of the carrying amount of the non-controlling interest put options resulting from the Powerband Acquisition classified within Level 3 is as follows:
 
 
Level 3
 
 
$
Balance as of December 31, 2016
 
10,020

Net foreign exchange differences
 
395

Balance as of September 30, 2017
 
10,415


12 - POST REPORTING EVENTS
Non-Adjusting Events
 
•
On November 10, 2017, the Company declared a quarterly cash dividend of $0.14 per common share payable on December 29, 2017 to shareholders of record at the close of business on December 15, 2017. The estimated amount of this dividend payment is $8.2 million based on 58,799,910 of the Company’s common shares issued and outstanding as of November 10, 2017.

No other significant adjusting or non-adjusting events have occurred between the reporting date of these Financial Statements and the date of authorization.




21

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 September 30, 2017.
 
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 5.1 and 5.2, 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
(i)
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
(ii)
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
N/A
 
5.3
N/A
 
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 July 1, 2017 and ended on September 30, 2017 that has materially affected, or is reasonably likely to materially affect, the Issuer’s ICFR.
 


 
 
 
DATED the 13th day of November, 2017
 
 
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 September 30, 2017.
 
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
N/A
 
5.3
N/A
 
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 July 1, 2017 and ended on September 30, 2017 that has materially affected, or is reasonably likely to materially affect, the Issuer’s ICFR.
 


 
 
 
DATED the 13th day of November, 2017
 
 
By:
 
/s/ Jeffrey Crystal
 
 
Jeffrey Crystal
 
 
Chief Financial Officer