second quarterly report

Transcription

1 second quarterly report

2 Intertape Polymer Group Inc. Management s Discussion and Analysis Consolidated Quarterly Statements of Earnings Three month periods ended (In thousands of US dollars, except per share amounts) (Unaudited) June 30, March 31, December 31, September 30, $ $ $ $ Revenue 196, , , ,109 Cost of sales 154, , , ,447 Gross profit 42,408 37,015 36,223 40,662 Gross margin 21.6% 19.6% 18.0% 19.4% Selling, general and administrative expenses 22,253 18,127 23,261 23,153 Research expenses 2,141 2,066 2,354 1,778 24,394 20,193 25,615 24,931 Operating profit before manufacturing facility closures, restructuring and other related charges 18,014 16,822 10,608 15,731 Manufacturing facility closures, restructuring and other related charges ,560 Operating profit 17,872 16,162 9,645 14,171 Finance costs Interest , Other expense (income), net 395 (641) ,377 (25) 2,449 1,293 Earnings before income tax expense (benefit) 16,495 16,187 7,196 12,878 Income tax expense (benefit) Current 1,249 1,063 (768) 2,914 Deferred 3,498 3,346 1,907 3,953 4,747 4,409 1,139 6,867 Net earnings 11,748 11,778 6,057 6,011 Earnings per share Basic Diluted Weighted average number of common shares outstanding Basic 59,727,825 60,471,031 60,427,043 60,790,184 Diluted 61,739,717 62,198,126 62,307,696 62,457,931 1

3 Consolidated Quarterly Statements of Earnings Three month periods ended (In thousands of US dollars, except per share amounts) (Unaudited) June 30, March 31, December 31, September 30, $ $ $ $ Revenue 202, , , ,853 Cost of sales 158, , , ,872 Gross profit 44,050 42,698 37,947 39,981 Gross margin 21.7% 21.4% 19.8% 20.0% Selling, general and administrative expenses 20,561 18,980 18,968 20,547 Research expenses 1,667 2,074 2,008 1,701 22,228 21,054 20,976 22,248 Operating profit before manufacturing facility closures, restructuring and other related charges 21,822 21,644 16,971 17,733 Manufacturing facility closures, restructuring and other related charges 1,020 1,384 1, Operating profit 20,802 20,260 15,324 16,799 Finance costs Interest ,261 Other expense, net ,234 1,183 1,006 1,451 Earnings before income tax expense (benefit) 19,568 19,077 14,318 15,348 Income tax expense (benefit) Current 1, Deferred 6,392 6,986 (39,540) 200 7,454 7,443 (39,307) 929 Net earnings 12,114 11,634 53,625 14,419 Earnings per share Basic Diluted Weighted average number of common shares outstanding Basic 60,825,745 60,776,649 60,776,649 60,731,173 Diluted 62,569,430 62,019,844 62,170,733 62,072,583 2

4 This Management s Discussion and Analysis ( MD&A ) is intended to provide the reader with a better understanding of the business, strategy and performance of Intertape Polymer Group Inc. (the Company ), as well as how it manages certain risks and capital resources. This MD&A, which has been prepared as of August 12, 2015, should be read in conjunction with the Company s unaudited interim condensed consolidated financial statements and notes thereto as of and for the three and six months ended June 30, 2015 and 2014 ( Financial Statements ). It should also be read together with the text below on forward-looking statements in the Section entitled Forward-Looking Statements. For the purposes of preparing this MD&A, the Company considers the materiality of information. Information is considered material if the Company believes at the time of preparing this MD&A: (i) such information results in, or would reasonably be expected to result in, a significant change in the market price or value of the common shares of the Company; (ii) there is a substantial likelihood that a reasonable investor would consider it important in making an investment decision; and/or (iii) it would significantly alter the total mix of information available to investors. The Company evaluates materiality with reference to all relevant circumstances, including potential market sensitivity. Except where otherwise indicated, all financial information presented in this MD&A, including tabular amounts, is prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board ( IFRS or GAAP ) and is expressed in US dollars. Variance, ratio and percentage changes in this MD&A are based on unrounded numbers. Overview The Company reported a 3.1% decrease in revenue for the second quarter of 2015 as compared to the second quarter of 2014 and a 4.3% decrease in revenue for the first six months of 2015 as compared to the first six months of The decrease in both periods was primarily due to a decrease in average selling price, including the impact of product mix, partially offset by an increase in sales volume. Gross margin decreased slightly to 21.6% in the second quarter of 2015 as compared to the second quarter of 2014 primarily due to an increase in manufacturing inefficiencies and certain manufacturing costs, and an unfavourable product mix variance. These unfavourable factors were partially offset by favourable results of the Company s manufacturing cost reduction programs, an increase in the spread between selling prices and lower raw material costs and a decrease in freight costs. Gross margin for the first six months of 2015 decreased to 20.6% as compared to 21.5% for the same period in 2014 primarily due to an increase in manufacturing inefficiencies and certain manufacturing costs, an unfavourable product mix variance and an increase in South Carolina Duplicate Overhead Costs (as defined below), partially offset by favourable results of the Company s manufacturing cost reduction programs, an increase in the spread between selling prices and lower raw material costs and a decrease in freight costs. Net earnings for the second quarter of 2015 decreased to $11.7 million ($0.20 basic earnings per share and $0.19 diluted earnings per share) from $12.1 million ($0.20 basic earnings per share and $0.19 diluted earnings per share) for the second quarter of The decrease was primarily due to an increase in selling, general and administrative expenses ( SG&A ) relating to (i) stock-based compensation expense and (ii) the Better Packages acquisition (as defined below), and a decrease in gross profit, partially offset by a decrease in income tax expense. Net earnings for the first six months of 2015 decreased to $23.5 million ($0.39 basic earnings per share and $0.38 diluted earnings per share) from $23.7 million ($0.39 basic earnings per share and $0.38 diluted earnings per share). The decrease was primarily due to a decrease in gross profit and increase in SG&A, partially offset by decreases in income tax expense, manufacturing facility closures, restructuring and other related charges, and foreign exchange losses. Adjusted net earnings (a non-gaap financial measure as defined and reconciled later in this document) for the second quarter of 2015 decreased to $14.1 million ($0.24 basic adjusted earnings per share and $0.23 diluted adjusted earnings per share) from $14.7 million ($0.24 basic adjusted earnings per share and $0.23 diluted adjusted earnings per share) for the second quarter of Adjusted net earnings decreased primarily due to a decrease in gross profit, an increase in SG&A resulting from the Better 3

5 Packages acquisition and an increase in research expenses associated with the South Carolina Project (as defined below), partially offset by a decrease in income tax expense. Adjusted net earnings for the first six months of 2015 increased to $26.8 million ($0.45 basic adjusted earnings per share and $0.43 diluted adjusted earnings per share) from $26.5 million ($0.44 basic adjusted earnings per share and $0.42 diluted adjusted earnings per share) for the same period in Adjusted net earnings increased primarily due to decreases in income tax expense and variable compensation expense partially offset by a decrease in gross profit. Adjusted EBITDA (a non-gaap financial measure as defined and reconciled later in this document) decreased $2.4 million from $29.5 million for the second quarter of 2014 to $27.1 million for the second quarter of The decrease in adjusted EBITDA was primarily due to a decrease in gross profit, an increase in research expenses associated with the South Carolina Project and an increase in SG&A resulting from the Better Packages acquisition. Adjusted EBITDA decreased $5.5 million from $56.1 million for the first six months of 2014 to $50.6 million for the first six months of 2015, primarily due to a decrease in gross profit, partially offset by a decrease in variable compensation expense. On July 7, 2014, the Company announced a normal course issuer bid ( NCIB ) effective July 10, In connection with this NCIB, the Company was entitled to repurchase for cancellation up to 2,000,000 of the Company s common shares issued and outstanding. The NCIB expired on July 9, As of June 30, 2015 and July 9, 2015, the Company has repurchased a total of 1,564,588 common shares under the NCIB at an average price of CDN$16.20 per share, including commissions, for a total purchase price of $21.3 million. The Company announced the renewal of its NCIB effective July 10, 2015 under which it is entitled to repurchase for cancellation up to 2,000,000 common shares issued and outstanding through expiration on July 9, As of August 12, 2015, no shares were repurchased under the renewed NCIB. On August 12, 2015, the Board of Directors amended the Company s quarterly dividend policy to increase the annualized dividend from $0.48 to $0.52 per share and concurrently declared a dividend of $0.13 per common share payable on September 30, 2015 to shareholders of record at the close of business on September 15, The Board s decision to increase the dividend was based on the Company s strong financial position and positive outlook. The declaration and payment of future dividends, however, are discretionary and will be subject to determination by the Board of Directors each quarter following its review of, among other considerations, the Company s financial performance and the Company s legal ability to pay dividends. South Carolina Project Update The South Carolina Project refers to the previously announced relocation and modernization of the Company s Columbia, South Carolina manufacturing operation. This project involves moving the Company s duct tape and masking tape production to a new state-of-the-art facility in Blythewood, South Carolina as well as moving flatback tape production to the Company s existing facility in Marysville, Michigan. South Carolina Duplicate Overhead Costs are temporary operating cost increases related to operating both plants in South Carolina simultaneously and performing planned actions to mitigate risk associated with new technology, including state-of-the-art equipment, to support the South Carolina Project. The Company transferred production of flatback tape to its Marysville, Michigan facility in March 2015 and production of duct tape to the new Blythewood facility in early April During the second quarter of 2015, commissioning of the duct tape production line was ongoing in order to work toward the attainment of target levels of product quality balanced with production efficiency. Although the Company was able to meet customer demand for duct tape during the quarter, there were production yield and operating inefficiencies related to the ramp-up of duct tape production that had a negative impact on results in the quarter. However, these inefficiencies improved throughout the second quarter and continue to improve 4

6 into the third quarter of Lastly, the Company continues to conduct tests on the masking tape product produced at the Blythewood facility and now expects to fully transfer production from the Columbia facility by the end of the second quarter of Despite the aforementioned ramp-up issues, the annual cost savings of $13 million are still expected to be fully realized, but the realization of those cost savings will be more gradual than previously expected due to the ramp-up inefficiencies as well as a delay in the transfer of masking tape production to the Blythewood facility. The impact on gross profit and adjusted EBITDA for the relevant periods is as follows: The Company experienced a net negative impact of $1.3 million on gross profit and adjusted EBITDA for the second quarter of Production improvements are expected in the third and fourth quarters of 2015 compared to the second quarter of 2015 as ramp-up inefficiencies are reduced in the duct tape production process. However, despite this expected improvement, management expects the impact on gross profit and adjusted EBITDA to remain negative in the second half of A significant net positive impact is expected in 2016 compared to 2015 due to the expected optimization of the duct tape production processes as well as the transfer of masking tape production to the Blythewood facility by the end of the second quarter of Management expects that all ramp-up inefficiencies will be resolved in both duct and masking tape production at the Blythewood facility by the beginning of 2017, thereby resulting in the realization of the full extent of the expected cost savings. For the three and six months ended June 30, 2015, South Carolina Duplicate Overhead Costs included in gross profit were approximately $0.8 million and $3.0 million, respectively. The Company now expects South Carolina Duplicate Overhead Costs to total approximately $5 million for For 2016, the Company expects South Carolina Duplicate Overhead Costs of approximately $1 million per quarter to continue until masking tape production is fully transferred to the Blythewood facility. As the Company was in the process of commissioning the duct production line throughout the second quarter of 2015, $4.9 million of sales attributed to the commissioning efforts were accounted for as a reduction of revenue ( South Carolina Commissioning Revenue Reduction ) and a reduction of the cost of the South Carolina Project. However, the impact on gross profit and capital expenditures was minimal due to the requirement to offset this revenue with the associated cost of sales in the reclassification of the related gross profit as a reduction of the capital expenditures. As a result of the delay in the optimization of the South Carolina Project, manufacturing cost reductions for 2015 are now expected to be between $9 and $12 million, down from the expected range of $13 to $16 million announced in the first quarter of As of June 30, 2015, capital expenditures for the South Carolina Project since inception total $53.0 million. South Carolina Project capital expenditures recorded were $0.8 million and $4.1 million for the three and six months ended June 30, 2015, respectively. Capital expenditures relating to the South Carolina Project since inception are expected to total approximately $55 million by the completion of the project. The Company has previously stated that it expected to achieve a gross margin of between 22% and 24% upon completion of the South Carolina Project. Assuming that raw material costs remain at current levels along with the continued reduction of the production ramp-up inefficiencies, the Company expects to achieve this gross margin target prior to the completion of the South Carolina Project. Better Packages Acquisition On April 7, 2015, the Company purchased 100% of the issued and outstanding common stock of BP Acquisition Corporation (which wholly-owns a subsidiary, Better Packages, Inc.) ( Better Packages ), a leading supplier of water-activated tape dispensers. The Better Packages acquisition further extends the Company s product offering and global presence in the rapidly growing e-commerce market. The Company paid a purchase price of $16.0 million in cash, subject to a working capital adjustment. The 5

7 Company expects that these acquired operations will generate annualized revenue of approximately $18 million and EBITDA margin of over 15%. A post-closing working capital adjustment was determined on July 10, 2015, resulting in a receivable of $0.1 million as of June 30, The impact of the Better Packages acquisition on the Company s consolidated earnings for the three and six months ended June 30, 2015, was as follows: April 7, 2015 through June 30, 2015 $ Revenue Net earnings Outlook 4, The Company anticipates revenue for the third quarter of 2015 to be higher compared to revenue for the second quarter of 2015 primarily due to seasonally higher sales volume. Gross margin for the third quarter of 2015 is anticipated to be lower compared to the second quarter of 2015 primarily due to sequentially higher manufacturing overhead related to the planned annual maintenance shutdowns at many of the Company s manufacturing facilities. As a result of the revenue and gross margin outlook above, adjusted EBITDA for the third quarter of 2015 is anticipated to be similar to the second quarter of Results of Operations Revenue Revenue for the second quarter of 2015 totalled $196.6 million, a $6.3 million or 3.1% decrease from $202.9 million for the second quarter of 2014 primarily due to: A decrease in average selling price, including the impact of product mix, of approximately 8% which had an unfavourable impact of approximately $15.6 million primarily due to: an unfavourable product mix in the Company s tape and woven product categories; an unfavourable impact of foreign exchange of approximately $3 million due to strengthening of the US dollar compared to the Canadian dollar and Euro; and lower prices primarily driven by lower petroleum-based raw material costs; the South Carolina Commissioning Revenue Reduction of $4.9 million; Partially offset by: An increase in sales volume of approximately 5% or $9.8 million due to an increase in demand across the Company s major product categories driven by customers returning to a more normal level of demand following the inventory de-stocking experienced in the fourth quarter of 2014 and the first quarter of 2015; Additional revenue of $4.3 million due to the Better Packages acquisition. Revenue for the second quarter of 2015 totalled $196.6 million, a $7.6 million or 4.0% increase from $189.0 million for the first quarter of 2015 primarily due to: An increase in sales volume of approximately 5% or $10.1 million primarily driven by: an increase in film product demand which the Company believes was a result of customers pre-buying ahead of expected resin price increases and a return to more normal levels of demand compared to the inventory de-stocking experienced in the first quarter of 2015; and an increase in the Company s tape product demand primarily due to a net increase in carton sealing tape demand. Additional revenue of $4.3 million due to the Better Packages acquisition 6

8 Partially offset by: The South Carolina Commissioning Revenue Reduction of $4.9 million; and A decline in the average selling price, including the impact of product mix, of approximately 1% or $2.0 million due to lower prices mainly driven by lower petroleum-based raw material costs, partially offset by a favourable product mix. Revenue for the first six months of 2015 totalled $385.6 million, a $17.3 million or 4.3% decrease from $402.9 million for the same period in 2014 primarily due to: A decrease in average selling price, including the impact of product mix, of approximately 6% or $23.4 million due to: an unfavourable product mix variance primarily in the Company s tape and woven product categories; an unfavourable impact of foreign exchange of approximately $6 million due to strengthening of the US dollar compared to the Canadian dollar and Euro; and lower selling price mainly driven by lower petroleum-based raw material costs. The South Carolina Commissioning Revenue Reduction of $4.9 million; Partially offset by: An increase in sales volume of approximately 2% or $6.7 million primarily due to increased demand for the Company s woven and tape products; and Additional revenue of $4.3 million due to the Better Packages acquisition. Gross Profit and Gross Margin Gross profit totalled $42.4 million for the second quarter of 2015, a $1.6 million or 3.7% decrease from $44.1 million for the second quarter of Gross margin was 21.6% in the second quarter of 2015 and 21.7% in the second quarter of Gross profit decreased primarily due to an increase in manufacturing inefficiencies and certain manufacturing costs and an unfavourable product mix variance, partially offset by favourable results of the Company s manufacturing cost reduction programs, an increase in the spread between selling prices and lower raw material costs, an increase in sales volume, additional revenue due to the Better Packages acquisition and a decrease in freight costs. Gross margin decreased slightly primarily due to an increase in manufacturing inefficiencies and certain manufacturing costs, and an unfavourable product mix, partially offset by favourable results of the Company s manufacturing cost reduction programs, an increase in the spread between selling prices and lower raw material costs, and a decrease in freight costs. Gross profit totalled $42.4 million for the second quarter of 2015, a $5.4 million or 14.6% increase from $37.0 million for the first quarter of Gross margin was 21.6% in the second quarter of 2015 and 19.6% in the first quarter of Gross profit increased primarily due to an increase in the spread between selling prices and raw material costs, an increase in sales volume, a decrease in South Carolina Duplicate Overhead Costs, additional revenue due to the Better Packages acquisition and a favourable product mix variance, partially offset by manufacturing ramp-up inefficiencies related to the South Carolina Project. Gross margin increased primarily due to an increase in the spread between selling prices and raw material costs, a decrease in South Carolina Duplicate Overhead Costs, and a favourable product mix variance, partially offset by manufacturing ramp-up inefficiencies related to the South Carolina Project. Gross profit totalled $79.4 million for the first six months of 2015, a $7.3 million or 8.4% decrease from $86.7 million for the same period in Gross margin was 20.6% in the first six months of 2015 and 21.5% for the same period in Gross profit decreased primarily due to an increase in manufacturing inefficiencies and certain manufacturing costs, an unfavourable product mix variance, and an increase in South Carolina Duplicate Overhead Costs, partially offset by favourable results of the Company s manufacturing cost reduction programs, an increase in the spread between selling prices and lower raw material costs, additional revenue due to the Better Packages acquisition and a decrease in freight costs. Gross margin decreased primarily due to an increase in manufacturing inefficiencies and certain manufacturing costs, an unfavourable product mix variance and an increase in South Carolina 7

9 Duplicate Overhead Costs, partially offset by favourable results of the Company s manufacturing cost reduction programs, an increase in the spread between selling prices and lower raw material costs and a decrease in freight costs. Selling, General and Administrative Expenses SG&A for the second quarter of 2015 totalled $22.3 million, a $1.7 million or 8.2% increase from $20.6 million for the second quarter of The increase in SG&A was primarily due to an increase in stockbased compensation expense and the Better Packages acquisition. The increase in stock-based compensation expense was primarily due to (i) the impact of an increase in the Company s share price during the second quarter of 2015, compared to a decrease in the share price during the second quarter of 2014 on Stock Appreciation Rights ( SARs ) expense and (ii) Performance Share Unit ( PSU ) awards granted. SG&A for the second quarter of 2015 increased $4.1 million or 22.8% from $18.1 million in the first quarter of SG&A increased primarily due to increases in stock-based compensation expense, variable compensation expense, and the Better Packages acquisition. The increase in stock-based compensation expense was primarily due to (i) the impact of an increase in the Company s share price on SARs expense in the second quarter of 2015 compared to a decrease in the Company s share price in the first quarter of 2015 and (ii) PSU and Deferred Share Unit ( DSU ) awards granted. SG&A totalled $40.4 million for the first six months of 2015, a $0.8 million or 2.1% increase from $39.5 million for the same period in SG&A increased primarily due to increases in stock-based compensation expense, employee related costs to support growth in the business, and the Better Packages acquisition, partially offset by a decrease in variable compensation expense resulting from lower expected annual payment amounts. The increase in stock-based compensation expense was primarily due to (i) the impact of an increase in the Company s share price on SARs expense in the first six months of 2015 compared to decrease in the Company s share price in the first six months of 2014 and (ii) PSU awards granted. Research Expenses Research expenses for the second quarter of 2015 totalled $2.1 million, a $0.5 million or 28.4% increase from $1.7 million for the second quarter of The increase was primarily due to ongoing efforts to support the South Carolina Project and other manufacturing cost reduction programs. Research expenses totalled $4.2 million for the first six months of 2015, a $0.5 million or 12.5% increase from $3.7 million for the same period in 2014, primarily due to higher expenses in support of the South Carolina Project. Manufacturing Facility Closures, Restructuring and Other Related Charges Manufacturing facility closures, restructuring and other related charges for the second quarter of 2015 totalled $0.1 million, a $0.9 million decrease from $1.0 million for the second quarter of 2014, primarily due to lower charges related to the South Carolina Project. The charges recorded in the second quarter of 2015 primarily related to idle facility and workforce retention costs. The charges recorded in the second quarter of 2014 primarily related to workforce retention and equipment relocation. Manufacturing facility closures, restructuring and other related charges totalled $0.8 million for the first six months of 2015, a $1.6 million decrease from $2.4 million for the same period in The decrease was primarily due to lower charges related to the South Carolina Project, as well as the non-recurrence of $0.6 million and $0.3 million in charges related to the relocation of the Langley, British Columbia manufacturing facility to Delta, British Columbia, and the Richmond, Kentucky manufacturing facility closure, respectively. The charges recorded in the first six months of 2015 primarily related to workforce retention and idle facility costs. The charges recorded in the first six months of 2014 primarily related to workforce retention and equipment relocation costs. 8

10 Finance Costs Finance costs for the second quarter of 2015 totalled $1.4 million, a $0.1 million increase from $1.2 million for the second quarter of The increase was primarily due to foreign exchange losses in the second quarter of 2015, compared to foreign exchange gains during the second quarter of 2014, and a decrease in the amount of borrowing costs capitalized on qualifying assets associated with the South Carolina Project. Finance costs totalled $1.4 million for the first six months of 2015, a $1.1 million or 44.1% decrease from $2.4 million for the same period in The decrease was primarily due to foreign exchange gains in the first six months of 2015, compared to foreign exchange losses during the same period in 2014, and lower interest expense as a result of a lower average cost of debt and a lower average amount of debt outstanding, partially offset by a decrease in the amount of borrowing costs capitalized on qualifying assets associated with the South Carolina Project. 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. Below is a table reflecting the calculation of the Company s effective tax rate: June 30, June 30, June 30, June 30, $ $ $ $ Income tax expense Earnings before income tax expense Effective tax rate 28.8% 38.1% 28.0% 38.5% The decrease in the effective tax rate in each period above is primarily due to a change in the mix of earnings between jurisdictions. Net Earnings Net earnings for the second quarter of 2015 totalled $11.7 million, a $0.4 million decrease from $12.1 million for the second quarter of 2014, primarily due to an increase in SG&A related to (i) stock-based compensation expense and (ii) the Better Packages acquisition, and a decrease in gross profit, partially offset by a decrease in income tax expense. Net earnings for the second quarter of 2015 decreased less than $0.1 million from $11.8 million for the first quarter of 2015, primarily due to an increase in SG&A related to (i) stock-based compensation expense, (ii) variable compensation expense, and (iii) the Better Packages acquisition, and an increase in foreign exchange losses, partially offset by an increase in gross profit. Net earnings totalled $23.5 million for the first six months of 2015, a $0.2 million decrease from $23.7 million for the same period in 2014, primarily due to a decrease in gross profit and increase in SG&A partially offset by decreases in income tax expense, manufacturing facility closures, restructuring and other related charges, and foreign exchange losses. 9

11 Non-GAAP Financial Measures This MD&A contains certain non-gaap financial measures as defined under applicable securities legislation, including EBITDA, adjusted EBITDA, adjusted net earnings (loss), adjusted earnings (loss) per share and free cash flows (please see the Cash Flows section below for a description and reconciliation of free cash flows). The Company believes such non-gaap financial measures improve the period-toperiod comparability of the Company s results by providing more insight into the performance of ongoing core business operations. As required by applicable securities legislation, the Company has provided definitions of those measures and reconciliations of those measures to the most directly comparable GAAP financial measures. Investors and other readers are encouraged to review the related GAAP financial measures and the reconciliation of non-gaap financial measures to their most directly comparable GAAP financial measures set forth below and should consider non-gaap financial measures only as a supplement to, and not as a substitute for or as a superior measure to, measures of financial performance prepared in accordance with GAAP. Adjusted Net Earnings (Loss) A reconciliation of the Company s adjusted net earnings (loss), a non-gaap financial measure, to net earnings (loss), the most directly comparable GAAP financial measure, is set out in the adjusted net earnings (loss) reconciliation table below. Adjusted net earnings (loss) should not be construed as net earnings (loss) as determined by GAAP. The Company defines adjusted net earnings (loss) as net earnings (loss) before (i) manufacturing facility closures, restructuring and other related charges; (ii) stockbased compensation expense (benefit); (iii) impairment of goodwill; (iv) impairment of long-lived assets and other assets; (v) write-down on assets classified as held-for-sale; (vi) (gain) loss on disposal of property, plant and equipment; (vii) other discrete items as shown in the table below; and (viii) the income tax effect of these items. The term adjusted net earnings (loss) does not have any standardized meaning prescribed by GAAP and is therefore unlikely to be comparable to similar measures presented by other issuers. Adjusted net earnings (loss) is not a measurement of financial performance under GAAP and should not be considered as an alternative to net earnings (loss) as an indicator of the Company s operating performance or any other measures of performance derived in accordance with GAAP. The Company has included this non-gaap financial measure because it believes that it permits investors to make a more meaningful comparison of the Company s performance between periods presented by excluding certain non-cash expenses and non-recurring expenses. In addition, adjusted net earnings (loss) is used by management in evaluating the Company s performance because it believes that it permits management to make a more meaningful comparison of the Company s performance between periods presented by excluding certain non-cash expenses and non-recurring expenses. Adjusted earnings (loss) per share is also presented in the following table and is a non-gaap financial measure. Adjusted earnings (loss) per share should not be construed as earnings (loss) per share as determined by GAAP. The Company defines adjusted earnings (loss) per share as adjusted net earnings (loss) divided by the weighted average number of common shares outstanding, both basic and diluted. The term adjusted earnings (loss) per share does not have any standardized meaning prescribed by GAAP and is therefore unlikely to be comparable to similar measures presented by other issuers. Adjusted earnings (loss) per share is not a measurement of financial performance under GAAP and should not be considered as an alternative to earnings (loss) per share as an indicator of the Company s operating performance or any other measures of performance derived in accordance with GAAP. The Company has included this non-gaap financial measure because it believes that it permits investors to make a more meaningful comparison of the Company s performance between periods presented by excluding certain non-cash expenses and non-recurring expenses. In addition, adjusted earnings (loss) per share is used by management in evaluating the Company s performance because it believes that it permits management to make a more meaningful comparison of the Company s performance between periods presented by excluding certain non-cash expenses and non-recurring expenses. 10

12 Adjusted Net Earnings Reconciliation to Net Earnings (In millions of US dollars, except per share amounts and share numbers) (Unaudited) June 30, March 31, June 30, June 30, June 30, $ $ $ $ $ Net earnings Manufacturing facility closures, restructuring and other related charges Stock-based compensation expense (benefit) 2.1 (0.0) (0.0) Impairment of long-lived assets and other assets - (0.0) - (0.0) - Loss on disposals of property, plant and equipment Income tax effect of these items Adjusted net earnings Earnings per share Basic Diluted Adjusted earnings per share Basic Diluted Weighted average number of common shares outstanding Basic 59,727,825 60,471,031 60,825,745 60,091,438 60,801,333 Diluted 61,739,717 62,198,126 62,569,430 61,929,200 62,536,098 Adjusted net earnings totalled $14.1 million for the second quarter of 2015, a $0.5 million decrease from $14.7 million for the second quarter of 2014, primarily due to a decrease in gross profit, an increase in SG&A resulting from the Better Packages acquisition and an increase in research expenses associated with the South Carolina Project, partially offset by a decrease in income tax expense. Adjusted net earnings for the second quarter of 2015 increased $1.5 million from $12.6 million for the first quarter of 2015, primarily due to an increase in gross profit, partially offset by increases in variable compensation expense, foreign exchange losses, and SG&A resulting from the Better Packages acquisition. Adjusted net earnings totalled $26.8 million for the first six months of 2015, a $0.3 million increase from $26.5 million for the same period in 2014, primarily due to decreases in income tax expense and variable compensation expense, partially offset by a decrease in gross profit. EBITDA and Adjusted EBITDA A reconciliation of the Company s EBITDA, a non-gaap financial measure, to net earnings (loss), the most directly comparable GAAP financial measure, is set out in the EBITDA reconciliation table below. EBITDA should not be construed as earnings (loss) before income taxes, net earnings (loss) or cash flows from operating activities as determined by GAAP. The Company defines EBITDA as net earnings (loss) before (i) interest and other finance costs; (ii) income tax expense (benefit); (iii) amortization of intangible assets; and (iv) depreciation of property, plant and equipment. Adjusted EBITDA is defined as EBITDA before (i) manufacturing facility closures, restructuring and other related charges; (ii) stock-based compensation expense (benefit); (iii) impairment of goodwill; (iv) impairment of long-lived assets and other assets; (v) write-down on assets classified as held-for-sale; (vi) (gain) loss on disposal of property, plant and equipment; and (vii) other discrete items as shown in the table below. The terms EBITDA and adjusted EBITDA do not have any standardized meanings prescribed by GAAP and are therefore unlikely to be comparable to similar measures presented by other issuers. EBITDA and adjusted EBITDA are not measurements of financial performance under GAAP and should not be considered as alternatives to cash flows from operating activities or as alternatives to net earnings (loss) as indicators of 11

13 the Company s operating performance or any other measures of performance derived in accordance with GAAP. The Company has included these non-gaap financial measures because it believes that they permit investors to make a more meaningful comparison of the Company s performance between periods presented by excluding certain non-operating expenses as well as certain non-cash expenses and nonrecurring expenses. In addition, EBITDA and adjusted EBITDA are used by management and the Company s lenders in evaluating the Company s performance because it believes that they permit management and the Company s lenders to make a more meaningful comparison of the Company s performance between periods presented by excluding certain non-operating expenses as well as certain non-cash expenses and non-recurring expenses. EBITDA and Adjusted EBITDA Reconciliation to Net Earnings (In millions of US dollars) (Unaudited) June 30, March 31, June 30, June 30, June 30, $ $ $ $ $ Net earnings Interest and other finance costs 1.4 (0.0) Income tax expense Depreciation and amortization EBITDA Manufacturing facility closures, restructuring and other related charges Stock-based compensation expense (benefit) 2.1 (0.0) (0.0) Impairment of long-lived assets and other assets - (0.0) - (0.0) - Loss on disposal of plant, property and equipment Adjusted EBITDA Adjusted EBITDA totalled $27.1 million for the second quarter of 2015, a $2.4 million or 8.1% decrease from $29.5 million for the second quarter of 2014, primarily due to a decrease in gross profit, an increase in research expenses associated with the South Carolina Project and an increase in SG&A resulting from the Better Packages acquisition. Adjusted EBITDA for the second quarter of 2015 increased $3.6 million or 15.1% from $23.5 million for the first quarter of 2015, primarily due to an increase in gross profit, partially offset by increases in variable compensation expenses and SG&A resulting from the Better Packages acquisition. Adjusted EBITDA totalled $50.6 million for the first six months of 2015, a $5.5 million or 9.8% decrease from $56.1 million for the same period in 2014, primarily due to a decrease in gross profit, partially offset by a decrease in variable compensation expense. Off-Balance Sheet Arrangements There has been no material change with respect to off-balance sheet arrangements since December 31, 2014 outside of the Company s ordinary course of business. Reference is made to the Section entitled Off-Balance Sheet Arrangements in the Company s MD&A as of and for the year ended December 31, Related Party Transactions In June 2014, the Company engaged with a relocation management company to facilitate the purchase of the then-newly appointed Chief Financial Officer s home in Montreal, Québec, Canada to assist in his relocation to Sarasota, FL, U.S.A. The Company provided funding to the relocation management company to purchase the home for $0.9 million. On April 15, 2015, the home was sold and the Company was reimbursed for the purchase funding. 12

14 Working Capital The Company uses Days Inventory to measure inventory performance. Days Inventory increased to 64 in the second quarter of 2015 from 61 in the second quarter of 2014 and the first quarter of Inventories increased $12.3 million to $109.1 million as of June 30, 2015 from $96.8 million as of December 31, The increase was primarily due to an increase in raw material purchases as well as an inventory build in anticipation of higher expected sales volume and annual maintenance shutdowns of certain facilities in the third quarter of The Company uses Days Sales Outstanding ( DSO ) to measure trade receivables. DSO decreased to 39 in the second quarter of 2015 from 41 in the second quarter of 2014 and first quarter of Trade receivables increased $4.1 million to $85.3 million as of June 30, 2015 from $81.2 million as of December 31, 2014 primarily due to the timing of collections and the Better Packages acquisition. The calculations are shown in the following tables: Jun. 30, Mar. 31, Jun. 30, Jun. 30, Mar. 31, Jun. 30, Cost of sales (1) $ $ $ Revenue (1) $ $ $ Days in quarter Days in quarter Cost of sales per day (1) $ 1.69 $ 1.69 $ 1.75 Revenue per day (1) $ 2.16 $ 2.10 $ 2.23 Average inventory (1) $ $ $ Trade receivables (1) $ 85.3 $ 85.8 $ 91.0 Days inventory DSO Days inventory is calculated as follow s: DSO is calculated as follow s: Cost of sales Days in quarter = Cost of sales per day Revenue Days in quarter = Revenue per day (Beginning inventory + Ending inventory) 2 = Ending trade receivables Revenue per day = DSO Average inventory Average inventory Cost of goods sold per day = Days inventory (1) In millions of US dollars Accounts payable and accrued liabilities decreased $8.1 million to $68.9 million as of June 30, 2015 from $77.0 million as of December 31, 2014 primarily due to annual payments made in the first quarter of 2015 for 2014 liabilities relating to compensation and volume rebates provided to customers. These decreases were partially offset by an increase in payables associated with the timing of payments for inventory and other SG&A. Liquidity The Company has access to a $300 million Revolving Credit Facility through November As of June 30, 2015, the Company had drawn a total of $145.0 million, resulting in loan availability of $155.0 million. In addition, the Company had $15.3 million of cash, yielding total cash and loan availability of $170.3 million as of June 30, The Company believes it has sufficient funds from cash flows from operating activities, funds available under the Revolving Credit Facility and cash on hand to meet its expected capital expenditures and working capital requirements for at least the next twelve months. Cash Flows Cash flows from operating activities increased in the second quarter of 2015 by $7.6 million to $25.7 million from $18.2 million in the second quarter of 2014, primarily due to an increase in accounts payable and accrued liabilities in the second quarter of 2015 compared to a decrease in the second quarter of 2014 related to timing of annual compensation related payments, and a decrease in inventory in the second quarter of 2015 compared to an inventory build in the second quarter of 2014 to support the 13

15 South Carolina Project, partially offset by an increase in income taxes paid in the second quarter of 2015 related to the installment of US alternative minimum tax. Cash flows from operating activities increased $24.8 million to $25.7 million from $0.9 million in the first quarter of 2015, primarily due to a large seasonal increase in working capital in the first quarter of 2015 compared to a relatively small decrease in the second quarter of Cash flows from operating activities increased in the first six months of 2015 by $3.6 million to $26.6 million from $23.0 million in the first six months of 2014, primarily due to a smaller increase in trade receivables due to a decrease in revenue in the first six months of 2015, partially offset by decrease in gross profit. Cash flows used for investing activities increased in the second quarter of 2015 by $11.2 million to $21.3 million from $10.0 million in the second quarter of 2014 and increased $12.3 million from $9.0 million in the first quarter of Cash flows used for investing activities increased in the first six months of 2015 by $5.8 million to $30.3 million from $24.5 million in the first six months of The increase for all periods was primarily due to funding the Better Packages acquisition in April 2015, partially offset by lower capital expenditures. Cash flows used in financing activities increased in the second quarter of 2015 by $4.5 million to $14.0 million from $9.5 million in the second quarter of 2014, primarily due to repurchases of common stock and an increase in dividends paid due to the increase in quarterly dividend payments announced in July 2014, partially offset by a decrease in net repayment of debt. Cash flows used in financing activities increased $39.8 million to a $14.0 million outflow from a $25.7 million inflow in the first quarter of 2015, primarily due to an increase in net borrowings in the first quarter of 2015 and an increase in repurchases of common stock in the second quarter of Cash flows from financing activities increased in the first six months of 2015 by $8.3 million to $11.7 million from $3.4 million in the first six months of 2014, primarily due to an increase in net borrowings, partially offset by repurchases of common stock and an increase in dividends paid due to the increase in quarterly dividend payments announced in July The Company is including free cash flows, a non-gaap financial measure, because it is used by management and investors in evaluating the Company s performance and liquidity. Free cash flows does not have any standardized meaning prescribed by GAAP and is therefore unlikely to be comparable to similar measures presented by other issuers. Free cash flows should not be interpreted to represent residual cash flow available for discretionary purposes, as it excludes other mandatory expenditures such as debt service. Free cash flows, defined by the Company as cash flows from operating activities less purchases of property, plant and equipment, increased in the second quarter of 2015 by $11.6 million to $19.6 million from $8.0 million in the second quarter of 2014, due to higher cash flows from operating activities and lower capital expenditures. Free cash flows increased $27.7 million to a $19.6 inflow from an $8.1 million outflow for the first quarter of 2015, primarily due to a decrease in working capital in the second quarter of 2015 compared to a significant increase in working capital in the first quarter of Free cash flows increased in the first six months of 2015 by $13.0 million to an $11.5 million inflow from a $1.5 million outflow in the first six months of 2014, due to lower capital expenditures and higher cash flows from operating activities. A reconciliation of free cash flows to cash flows from operating activities, the most directly comparable GAAP financial measure, is set forth below. 14

16 Free Cash Flows Reconciliation (In millions of US dollars) (Unaudited) June 30, March 31, June 30, June 30, June 30, $ $ $ $ $ Cash flows from operating activities Less purchases of property, plant and equipment (6.2) (9.0) (10.2) (15.1) (24.5) Free cash flows 19.6 (8.1) (1.5) Long-Term Debt As of June 30, 2015, the Company had drawn a total of $145.0 million against the Revolving Credit Facility, which consisted of $143.0 million of borrowings and $2.0 million of standby letters of credit. The Company had total cash and loan availability of $170.3 million as of June 30, 2015 and $206.2 million as of December 31, The change in total cash and loan availability is due to the changes in cash flows as discussed above. The Revolving Credit Facility is priced primarily on the LIBOR rate plus a spread varying between 100 and 225 basis points (150 basis points as of June 30, 2015). As of June 30, 2015, $134.0 million of borrowings was priced at 30-day US dollar LIBOR and $8.9 million of US dollar equivalent borrowings was priced at 30-day Canadian dollar LIBOR. The Revolving Credit Facility has, in summary, three financial covenants: (1) a consolidated total leverage ratio not to be greater than 3.25 to 1.00, (2) a consolidated debt service ratio not to be less than 1.50 to 1.00, and (3) the aggregated amount of all capital expenditures in any fiscal year may not exceed $50 million ($59.4 million in 2015 due to a carry forward provision of unused capital expenditure amounts in 2014). The Company was in compliance with all three financial covenants, which were 1.70, 5.20 and $15.1 million, respectively, as of June 30, Capital Resources The Company had commitments to suppliers to purchase machines and equipment totalling approximately $16.9 million as of June 30, It is expected that such amounts will be paid out in the next twelve months and will be funded by the Revolving Credit Facility as discussed above. Contractual Obligations There has been no material change with respect to contractual obligations since December 31, 2014 outside of the Company s ordinary course of business. Reference is made to the Section entitled Contractual Obligations in the Company s MD&A as of and for the year ended December 31, Capital Stock and Dividends As of June 30, 2015, there were 59,627,635 common shares of the Company outstanding. 15

17 The table below summarizes equity settled share-based compensation activity that occurred during the three and six months ended June 30: June 30, June 30, Stock options granted - 42, ,500 Stock options exercised 132, , , ,927 Cash proceeds (in millions of US dollars) $ 0.4 $ 0.7 $ 0.4 $ 0.7 Stock options expired or forfeited 2,500-2, ,000 PSUs granted 126, , , ,500 DSUs granted 27,023 21,000 36,797 21,000 Shares issued upon DSU settlement 6,397-6,397 - The Company paid a dividend of $0.12 per common share on June 30, 2015 to shareholders of record at the close of business on June 15, On August 12, 2015, the Board of Directors amended the Company s quarterly dividend policy to increase the annualized dividend from $0.48 to $0.52 per share and concurrently declared a dividend of $0.13 per common share payable on September 30, 2015 to shareholders of record at the close of business on September 15, The Board s decision to increase the dividend was based on the Company s strong financial position and positive outlook. The declaration and payment of future dividends, however, are discretionary and will be subject to determination by the Board of Directors each quarter following its review of, among other considerations, the Company s financial performance and the Company s legal ability to pay dividends. The dividends paid and payable by the Company in 2015 are eligible dividends as defined in subsection 89(1) of the Income Tax Act (Canada). On July 7, 2014, the Company announced a normal course issuer bid ( NCIB ) effective July 10, In connection with this NCIB, the Company was entitled to repurchase for cancellation up to 2,000,000 of the Company s common shares issued and outstanding. The NCIB expired on July 9, As of June 30, 2015 and July 9, 2015, the Company has repurchased a total of 1,564,588 common shares under the NCIB at an average price of CDN$16.20 per share, including commissions, for a total purchase price of $21.3 million. The Company announced the renewal of its NCIB effective July 10, 2015 under which it is entitled to repurchase for cancellation up to 2,000,000 common shares issued and outstanding through expiration on July 9, As of August 12, 2015, no shares were repurchased under the renewed NCIB. Financial Risk, Objectives and Policies On January 1, 2015, the Company adopted and implemented IFRS 9 (2013) - Financial Instruments. This standard replaces IAS 39 - Financial Instruments: Recognition and Measurement and previous versions of IFRS 9. IFRS 9 (2013) includes revised guidance on the classification and measurement of financial assets and liabilities and introduces a new general hedge accounting model which aims to better align a company s hedge accounting with risk management. There has been no material change with respect to the Company s financial risks and management thereof since December 31, 2014 except for the item discussed below. Please refer to Note 21 of the Company s annual audited consolidated financial statements as of and for the year ended December 31, 2014 for a complete discussion of the Company s risk factors, risk management, objectives and policies. 16

18 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 debt. In the first quarter of 2015, to minimize the long-term cost of debt, the Company entered into an interest rate swap agreement and designated it as a cash flow hedge. The terms of the interest swap agreement are as follows: Maturity Notional amount Settlement Fixed interest rate paid $ % November 18, ,000,000 Monthly 1.61 Litigation On July 3, 2014, the Company was informed of a complaint filed on June 27, 2014 by its former Chief Financial Officer with the Occupational Safety and Health Administration of the US Department of Labor ("OSHA") alleging certain violations by the Company related to the terms of his employment and his termination. The Company aggressively contested the allegations and, it believes, demonstrated that the former Chief Financial Officer s assertions are without merit. In a letter dated July 16, 2015, OSHA informed the Company that the former Chief Financial Officer had withdrawn his OSHA complaint in order to file a complaint against the Company in US federal district court. The withdrawal occurred prior to any determination by OSHA regarding the complaint. As of the date of the filing of the Financial Statements, the Company is not aware of any complaint filed against it in US federal district court by the former Chief Financial Officer. Because such complaint has not been filed and the Company is not aware of any information to lend merit to such a complaint, the Company is not currently able to predict the probability of a favourable or unfavourable outcome, or the amount of any possible loss in the event of an unfavourable outcome. Consequently, no material provision or liability has been recorded for these allegations and claims as of June 30, The Company is engaged from time-to-time in various legal proceedings and claims that have arisen in the ordinary course of business. The outcome of all of the proceedings and claims against the Company is subject to future resolution, including the uncertainties of litigation. Based on information currently known to the Company and after consultation with outside legal counsel, management believes that the probable ultimate resolution of any such proceedings and claims, individually or in the aggregate, will not have a material adverse effect on the financial condition of the Company, taken as a whole, and accordingly, no amounts have been recorded as of June 30, Critical Accounting Judgments, Estimates and Assumptions The preparation of the Financial Statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Significant changes in the underlying assumptions could result in significant changes to these estimates. Consequently, management reviews these estimates on a regular basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. The judgments, estimates and assumptions applied in the Financial Statements were the same as those applied in the Company s most recent annual audited consolidated financial statements. The only exceptions are (i) the estimate of the provision for income taxes which is determined in the financial statements using the estimated weighted average annual effective income tax rate applied to the earnings before income tax expense (benefit) 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 remeasurement of the defined benefit liability which is required at year-end and if triggered by plan amendment or settlement during interim periods. For additional information on intangible assets please refer to Note 2 of the Company s Financial Statements. The Financial Statements should be read in conjunction with the Company s 2014 annual audited consolidated financial statements. 17

19 New Standards and Interpretations Issued But Not Yet Effective Certain new standards, amendments and interpretations, and improvements to existing standards have been published by the IASB but are not yet effective, and have not been adopted early by the Company. Management anticipates that all of the relevant pronouncements will be adopted 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 consolidated financial statements, are detailed as follows: IFRS 15 Revenue from Contracts with Customers: IFRS 15 replaces IAS 18 Revenue, IAS 11 Construction Contracts and some revenue related interpretations. IFRS 15 establishes a new controlbased 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, Management has yet to assess the impact of this new standard on the Company s consolidated financial statements. 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, 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. Early adoption is permitted. Management has yet to assess the impact of this new standard on the Company s consolidated financial statements Certain other new standards and interpretations have been issued but are not expected to have a material impact on the Company s consolidated financial statements. Internal Control Over Financial Reporting In accordance with the Canadian Securities Administrators National Instrument , Certification of Disclosure in Issuers Annual and Interim Filings ( NI ), the Company has filed interim certificates signed by the Chief Executive Officer and the Chief Financial Officer that, among other things, report on the design of disclosure controls and procedures and design of internal control over financial reporting. With regards to the annual certification requirements of NI , the Company relies on the statutory exemption contained in section 8.2 of NI , which allows it to file with the Canadian securities regulatory authorities the certificates required under the Sarbanes-Oxley Act of 2002 at the same time such certificates are required to be filed in the United States of America. Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of the Company's financial reporting and its compliance with GAAP (as derived in accordance with IFRS) in its consolidated financial statements. The Chief Executive Officer and Chief Financial Officer of the Company have evaluated whether there were changes to the Company's internal control over financial reporting during the Company s most recent interim period that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. The Chief Executive Officer and the Chief Financial Officer have concluded that the Company s internal control over financial reporting as of June 30, 2015 was effective. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of its inherent limitation, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 18

20 Additional Information Additional information relating to the Company, including its Form 20-F filed in lieu of an Annual Information Form for 2014, is available on the Company s website ( as well as under the Company s profile on SEDAR at and on EDGAR at Forward-Looking Statements Certain statements and information included in this MD&A constitute "forward-looking information" within the meaning of applicable Canadian securities legislation and "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (collectively, "forward-looking statements"), which are made in reliance upon the protections provided by such legislation for forward-looking statements. All statements other than statements of historical facts included in this MD&A, including statements regarding the Company s industry and the Company s outlook, prospects, plans, financial position, future sales and financial results, future cost savings, availability of credit, level of indebtedness, payment of dividends, fluctuations in raw material costs, capital and other significant expenditures, liquidity, judgments, estimates, assumptions, litigation and business strategy, may constitute forward-looking statements. These forward-looking statements are based on current beliefs, assumptions, expectations, estimates, forecasts and projections made by the Company s management. Words such as "may," "will," "should," "expect," "continue," "intend," "estimate," "anticipate," "plan," "foresee," "believe" or "seek" or the negatives of these terms or variations of them or similar terminology are intended to identify such forwardlooking statements. Although the Company believes that the expectations reflected in these forwardlooking statements are reasonable, these statements, by their nature, involve risks and uncertainties and are not guarantees of future performance. Such statements are also subject to assumptions concerning, among other things: business conditions and growth or declines in the Company s industry, the Company s customers industries and the general economy; the anticipated benefits from the Company s manufacturing facility closures and other restructuring efforts; the quality, and market reception, of the Company s products; the Company s anticipated business strategies; risks and costs inherent in litigation; the Company s ability to maintain and improve quality and customer service; anticipated trends in the Company s business; anticipated cash flows from the Company s operations; availability of funds under the Company s Revolving Credit Facility; and the Company s ability to continue to control costs. The Company can give no assurance that these statements and expectations will prove to have been correct. Actual outcomes and results may, and often do, differ from what is expressed, implied or projected in such forward-looking statements, and such differences may be material. Readers are cautioned not to place undue reliance on any forward-looking statement. For additional information regarding some important factors that could cause actual results to differ materially from those expressed in these forward-looking statements and other risks and uncertainties, and the assumptions underlying the forward-looking statements, you are encouraged to read "Item 3. Key Information - Risk Factors, Item 5 Operating and Financial Review and Prospects (Management s Discussion & Analysis) and statements located elsewhere in the Company s annual report on Form 20-F for the year ended December 31, 2014 and the other statements and factors contained in the Company s filings with the Canadian securities regulators and the US Securities and Exchange Commission. Each of the forward-looking statements speaks only as of the date of this MD&A. The Company will not update these statements unless applicable securities laws require it to do so. 19

21 Intertape Polymer Group Inc. Interim Condensed Consolidated Financial Statements June 30, 2015 Unaudited Interim Condensed Consolidated Financial Statements Consolidated Earnings 2 Consolidated Comprehensive Income 3 Consolidated Changes in Shareholders Equity 4 to 5 Consolidated Cash Flows 6 Consolidated Balance Sheets 7 Notes to Interim Condensed Consolidated Financial Statements 8 to 22

22 Intertape Polymer Group Inc. Consolidated Earnings Periods ended June 30 (In thousands of US dollars, except per share amounts) (Unaudited) June 30, June 30, $ $ $ $ Revenue 196, , , ,873 Cost of sales 154, , , ,125 Gross profit 42,408 44,050 79,423 86,748 Selling, general and administrative expenses 22,253 20,561 40,380 39,541 Research expenses 2,141 1,667 4,207 3,741 24,394 22,228 44,587 43,282 Operating profit before manufacturing facility closures, restructuring and other related charges 18,014 21,822 34,836 43,466 Manufacturing facility closures, restructuring and other related charges (Note 4) 142 1, ,404 Operating profit 17,872 20,802 34,034 41,062 Finance costs (Note 3) Interest ,598 1,695 Other (income) expense, net (246) 722 1,377 1,234 1,352 2,417 Earnings before income tax expense 16,495 19,568 32,682 38,645 Income tax expense (Note 8) Current 1,249 1,062 2,312 1,519 Deferred 3,498 6,392 6,844 13,378 4,747 7,454 9,156 14,897 Net earnings 11,748 12,114 23,526 23,748 Earnings per share (Note 11) Basic Diluted The accompanying notes are an integral part of the interim condensed consolidated financial statements. Note 3 presents additional information on consolidated earnings. 2

23 Intertape Polymer Group Inc. Consolidated Comprehensive Income Periods ended June 30 (In thousands of US dollars) (Unaudited) June 30, June 30, $ $ $ $ Net earnings 11,748 12,114 23,526 23,748 Other comprehensive income (loss) Change in fair value of interest rate swap agreement designated as a cash flow hedge (net of deferred income tax expense of $105 and deferred income tax benefit of $102 for the three and six months ended June 30, 2015, respectively, nil in 2014) (166) - Change in cumulative translation adjustments 2,117 2,287 (5,403) (379) Items that will be subsequently reclassified to net earnings 2,289 2,287 (5,569) (379) Comprehensive income for the period 14,037 14,401 17,957 23,369 The accompanying notes are an integral part of the interim condensed consolidated financial statements. 3

24 Intertape Polymer Group Inc. Consolidated Changes in Shareholders Equity June 30, 2014 (In thousands of US dollars, except for number of common shares) (Unaudited) Accumulated other comprehensive Capital stock loss Cumulative translation Total Contributed adjustment shareholders Number Amount surplus account Deficit equity $ $ $ $ $ Balance as of December 31, ,776, ,201 20,497 (770) (148,500) 230,428 Transactions with owners Exercise of stock options (Note 11) 232, Excess tax benefit on exercised stock options 672 (672) - Excess tax benefit on outstanding stock awards (742) (742) Stock-based compensation expense (Note 11) 1,185 1,185 Stock-based compensation expense credited to capital on options exercised (Note 11) 238 (238) - Dividends on common stock (Note 11) (9,714) (9,714) 232,927 1,600 (467) (9,714) (8,581) Net earnings 23,748 23,748 Other comprehensive loss Change in cumulative translation adjustments (379) (379) (379) (379) Comprehensive income for the period (379) 23,748 23,369 Balance as of June 30, ,009, ,801 20,030 (1,149) (134,466) 245,216 The accompanying notes are an integral part of the interim condensed consolidated financial statements. 4

25 Intertape Polymer Group Inc. Consolidated Changes in Shareholders Equity June 30, 2015 (In thousands of US dollars, except for number of common shares) (Unaudited) Capital stock Accumulated other comprehensive loss Cumulative translation Reserve for Total Contributed adjustment cash flow shareholders Number Amount surplus account hedge Total Deficit equity $ $ $ $ $ $ $ Balance as of December 31, ,435, ,840 24,493 (8,113) - (8,113) (146,720) 227,500 Transactions with owners Exercise of stock options (Note 11) 152, Excess tax benefit on exercised stock options 689 (689) - Excess tax benefit on outstanding stock awards (606) (606) Stock-based compensation expense (Note 11) 1,871 1,871 Stock-based compensation expense credited to capital on options exercised (Note 11) 182 (182) - Deferred Share Units ("DSUs") settlement, net of required minimum tax withholding (Note 11) 6, (218) (153) Repurchases of common stock (Note 11) (967,088) (8,302) (5,177) (13,479) Dividends on common stock (Note 11) (14,381) (14,381) (808,191) (6,962) 176 (19,558) (26,344) Net earnings 23,526 23,526 Other comprehensive loss Change in fair value of interest rate swap agreement designated as a cash flow hedge (net of deferred income tax benefit of $102) (166) (166) (166) Change in cumulative translation adjustments (5,403) (5,403) (5,403) (5,403) (166) (5,569) (5,569) Comprehensive income for the period (5,403) (166) (5,569) 23,526 17,957 Balance as of June 30, ,627, ,878 24,669 (13,516) (166) (13,682) (142,752) 219,113 The accompanying notes are an integral part of the interim condensed consolidated financial statements. 5

26 Intertape Polymer Group Inc. Consolidated Cash Flows Periods ended June 30 (In thousands of US dollars) (Unaudited) June 30, June 30, $ $ $ $ OPERATING ACTIVITIES Net earnings 11,748 12,114 23,526 23,748 Adjustments to net earnings Depreciation and amortization 6,939 6,673 13,673 12,692 Income tax expense 4,747 7,454 9,156 14,897 Interest expense ,598 1,695 Non-cash charges in connection with manufacturing facility closures restructuring and other related charges (137) (154) (100) 109 Stock-based compensation expense (benefit) 2, ,127 (31) Pension and other post-retirement benefits expense ,163 1,423 (Gain) loss on foreign exchange 194 (21) (667) 25 Other adjustments for non cash items 54 (170) 229 (21) Income taxes paid, net (2,955) (545) (3,065) (607) Contributions to defined benefit plans (602) (851) (1,201) (1,330) Cash flows from operating activities before changes in working capital items 23,679 27,049 46,439 52,600 Changes in working capital items Trade receivables 1,779 1,579 (3,507) (12,536) Inventories 2,341 (4,445) (11,479) (15,165) Parts and supplies (520) (310) (805) (382) Other current assets (773) 1,242 2, Accounts payable and accrued liabilities 384 (6,817) (5,414) (2,224) Provisions (1,157) (133) (752) 277 2,054 (8,884) (19,823) (29,568) Cash flows from operating activities 25,733 18,165 26,616 23,032 INVESTING ACTIVITIES Acquisition of a subsidiary, net of cash acquired (15,333) - (15,333) - Purchases of property, plant and equipment (6,165) (10,178) (15,148) (24,546) Proceeds from disposals of property, plant and equipment Other assets Purchases of intangible assets (34) (185) (108) (335) Cash flows from investing activities (21,267) (10,032) (30,283) (24,495) FINANCING ACTIVITIES Proceeds from long-term debt 33,759 39, ,598 79,157 Repayment of long-term debt (30,397) (44,050) (91,664) (64,761) Payments of debt issue costs (1) - (28) - Interest paid (996) (920) (1,620) (1,876) Proceeds from exercise of stock options Repurchases of common stock (9,609) - (13,532) - Dividends paid (7,154) (4,927) (14,457) (9,802) Cash flows from financing activities (14,031) (9,483) 11,701 3,408 Net increase (decrease) in cash (9,565) (1,350) 8,034 1,945 Effect of foreign exchange differences on cash (1,113) 1 Cash, beginning of period 24,283 5,767 8,342 2,500 Cash, end of period 15,263 4,446 15,263 4,446 The accompanying notes are an integral part of the interim condensed consolidated financial statements. 6

27 Intertape Polymer Group Inc. Consolidated Balance Sheets As of (In thousands of US dollars) June 30, December 31, (Unaudited) (Audited) $ $ ASSETS Current assets Cash 15,263 8,342 Trade receivables 85,260 81,239 Inventories (Note 5) 109,145 96,782 Parts and supplies 14,530 13,788 Other current assets 12,095 13, , ,713 Property, plant and equipment (Note 6) 186, ,146 Goodwill (Note 13) 6,078 - Intangible assets (Note 7) 10,563 1,581 Deferred tax assets 46,947 60,078 Other assets 3,285 3,158 Total assets 489, ,676 LIABILITIES Current liabilities Accounts payable and accrued liabilities 69,106 77,049 Provisions (Note 10) 2,434 2,770 Installments on long-term debt (Note 9) 5,550 5,669 77,090 85,488 Long-term debt (Note 9) 157, ,590 Pension and other post-retirement benefits 31,413 31,713 Other liabilities Provisions (Note 10) 3,147 3, , ,176 SHAREHOLDERS EQUITY Capital stock (Note 11) 350, ,840 Contributed surplus (Note 11) 24,669 24,493 Deficit (142,752) (146,720) Accumulated other comprehensive loss (13,682) (8,113) 219, ,500 Total liabilities and shareholders equity 489, ,676 The accompanying notes are an integral part of the interim condensed consolidated financial statements. 7

28 Intertape Polymer Group Inc. Notes to Interim Condensed Consolidated Financial Statements June 30, 2015 (In US dollars, tabular amounts in thousands, except 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, 2015 and December 31, 2014, as well as its consolidated earnings, comprehensive income and cash flows for the three and six months ended June 30, 2015 and 2014, and the changes in shareholders equity for the six months ended June 30, 2015 and 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 (benefit) 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 12,

29 Critical Accounting Judgments, Estimates and Assumptions The preparation of these Financial Statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Significant changes in the underlying assumptions could result in significant changes to these estimates. Consequently, management reviews these estimates on a regular basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. 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. Changes in Accounting Policies On January 1, 2015, the Company adopted and implemented IFRS 9 (2013) - Financial Instruments. This standard replaces IAS 39 - Financial Instruments: Recognition and Measurement and previous versions of IFRS 9. IFRS 9 (2013) includes revised guidance on the classification and measurement of financial assets and liabilities and introduces a new general hedge accounting model which aims to better align a company s hedge accounting with risk management. Previously, the Company classified financial assets when they were first recognized as fair value through profit or loss, available for sale, held to maturity investments or loans and receivables. Under IFRS 9 (2013), the Company classifies financial assets under the same two measurement categories as financial liabilities; amortized cost or fair value through profit and loss. Financial assets are classified as amortized cost if the purpose of the Company s business model is to hold the financial assets for collecting cash flows and the contractual terms give rise to cash flows that are solely payments of principal and interest. All other financial assets are classified as fair value through profit or loss. All of the Company s financial assets and financial liabilities as at December 31, 2014 will continue to be classified and measured at amortized cost with the exception of derivative financial instruments disclosed below. The adoption of this standard has not resulted in any changes to comparative figures. The Company has not yet adopted IFRS 9 (2014) - Financial Instruments that incorporates the new impairment model that assesses financial assets based on expected losses rather than incurred losses as applied in IAS 39. This final standard will replace IFRS 9 (2013) and is effective for annual periods on or after January 1, Derivative Financial Instruments and Hedging When the requirements for hedge accounting are met at inception, the Company s policy is to designate each derivative financial instrument as a hedging instrument in a cash flow hedge relationship. Upon designation, the Company documents the relationships between the hedging instrument and the hedged item, including the risk management objectives and strategy in undertaking the hedge transaction, and the methods that will be used to assess the effectiveness of the hedging relationship. At inception of a hedge relationship and at each subsequent reporting date, the Company evaluates if the hedging relationship qualifies for hedge accounting under IFRS 9 (2013), which includes the following conditions to be met: There is an economic relationship between the hedged item and the hedging instrument; The effect of credit risk does not dominate the value changes that result from that economic relationship; and The hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged item that the entity actually hedges and the quantity of the hedging instrument that the entity actually uses to hedge that quantity of hedged item. 9

30 Hedge accounting is discontinued prospectively when a derivative instrument ceases to satisfy the conditions for hedge accounting, or is sold or liquidated. If the hedged item ceases to exist, unrealized gains or losses recognized in OCI are reclassified to earnings. New Standards and Interpretations Issued But Not Yet Effective Certain new standards, amendments and interpretations, and improvements to existing standards have been published by the IASB but are not yet effective, and have not been adopted early by the Company. Management anticipates that all of the relevant pronouncements will be adopted 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 consolidated 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, Management has yet to assess the impact of this new standard on the Company s consolidated financial statements. 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, 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. Early adoption is permitted. Management has yet to assess the impact of this new standard on the Company s consolidated financial statements. Certain other new standards and interpretations have been issued but are not expected to have a material impact on the Company s consolidated financial statements. 3 - INFORMATION INCLUDED IN CONSOLIDATED EARNINGS June 30, June 30, $ $ $ $ Employee benefit expense Wages, salaries and other short-term benefits 36,725 33,704 71,888 68,691 Termination benefits Stock-based compensation expense (benefit) 2, ,127 (31) Pensions and other post-retirement benefits defined benefit plans ,211 1,475 Pensions and other post-retirement benefits defined contribution plans 950 1,058 1,975 2,006 40,489 36,529 77,358 72,760 10

31 June 30, June 30, $ $ $ $ Finance costs - Interest Interest on long-term debt 976 1,013 1,662 1,992 Amortization of debt issue costs on long-term debt Interest capitalized to property, plant and equipment (105) (303) (285) (604) ,598 1,695 Finance costs - Other (income) expense, net Foreign exchange (gain) loss 181 (22) (670) 26 Other costs, net (246) 722 Additional information Depreciation of property, plant and equipment 6,684 6,499 13,292 12,340 Amortization of intangible assets Reversal of impairment of long-term assets (101) (390) (140) (291) 4 - MANUFACTURING FACILITY CLOSURES, RESTRUCTURING AND OTHER RELATED CHARGES The following table describes the charges incurred by the Company in connection with its manufacturing facility closures and restructuring initiatives, which are included in the Company s consolidated earnings under the caption manufacturing facility closures, restructuring and other related charges: June 30, June 30, $ $ $ $ Reversal of impairment of property, plant and equipment (101) (390) (137) (291) Impairment (reversal) of parts and supplies (20) - (41) 77 Equipment relocation ,056 Write-down (reversal) of inventories to net realizable value (16) Severance and other labor related costs ,097 Idle facility costs Other costs (reversals) 148 (24) , ,404 The charges incurred in the table above are the incremental costs of: (i) the ongoing relocation of the Columbia, South Carolina manufacturing facility; (ii) the Richmond, Kentucky manufacturing facility closure; and (iii) other small restructuring initiatives. 11

32 5 - INVENTORIES June 30, December 31, $ $ Raw materials 29,711 25,358 Work in process 22,613 18,354 Finished goods 56,821 53, ,145 96,782 During the three and six months ended June 30, 2015 and 2014, the Company did not record a writedown or reversal of write-down of inventories to net realizable value, except for the amounts recorded in earnings in manufacturing facility closures, restructuring and other related charges. Refer to Note 4 for more information. 6 - PROPERTY, PLANT AND EQUIPMENT June 30, June 30, $ $ $ $ Acquisitions of property, plant and equipment 6,165 10,178 15,148 24,546 Additions to property, plant and equipment due to business acquisition Net book value of property, plant and equipment disposals (Gain) loss on disposals 2 99 (3) 108 Reversals of impairments on idle assets - - (3) - June 30, December 31, $ $ Commitments to purchase machinery and equipment 16,919 2, INTANGIBLE ASSETS The Company has a trademark and goodwill which are identifiable intangible assets for which the expected useful life is indefinite. The trademark represents the value of a brand name acquired in a business acquisition which management expects will provide benefit to the Company for an indefinite period. Goodwill represents the excess of the purchase price over the fair value of the identifiable net assets acquired in a business acquisition. Intangible assets with indefinite useful lives that are acquired separately are carried at cost. When intangible assets are purchased with a group of assets, the cost of the group of assets is allocated to the individual identifiable assets and liabilities on the basis of their relative fair values at the date of purchase. When intangible assets are purchased separately, the cost comprises its purchase price and any directly attributable cost of preparing the asset for its intended use. 12

33 Intangible assets are carried at cost less accumulated amortization and are amortized using the straightline method, over their estimated useful lives as follows: Years Goodwill and trademark Indefinite Customer lists 5 to 15 Distribution rights and customer contracts 6 License agreements and software 5 Non-compete agreement 3 The amortization methods, useful lives and residual values related to intangible assets are reviewed and adjusted if necessary at each financial year-end. Amortization begins when the asset is available for use, i.e. when it is in the location and condition necessary for it to be capable of operating in the manner intended by management. Amortization expense is recognized in earnings in the expense category consistent with the function of the intangible asset. June 30, December 31, $ $ Customer lists 7, Trademark 1,700 - Other 1,467 1,324 10,563 1, INCOME TAXES The calculation of the Company s effective tax rate is as follows: June 30, June 30, Income tax expense $4,747 $7,454 $9,156 $14,897 Earnings before income tax expense $16,495 $19,568 $32,682 $38,645 Effective tax rate 28.8% 38.1% 28.0% 38.5% 9 - LONG-TERM DEBT June 30, December 31, $ $ Revolving Credit Facility (1) 140,954 97,936 Finance lease liabilities 22,319 25,217 Other Loans , ,259 Less: Installments on long-term debt 5,550 5, , ,590 (1) The Revolving Credit Facility is presented net of unamortized related debt issue costs totalling $1.9 million ($2.1 million as of December 31, 2014). On November 18, 2014, the Company entered into a five-year, $300 million revolving credit facility ( Revolving Credit Facility ) with a syndicate of financial institutions. 13

34 June 30, December 31, Effective interest rate on borrowings under the Revolving Credit Facility 2.25% 2.01% Unused availability under the Revolving Credit Facility $155,040 $197, PROVISIONS AND CONTINGENT LIABILITIES Severance and other Environmental Restoration provisions Total $ $ $ $ Balance, December 31, , ,875 6,310 Additional provisions Amounts used (12) - (1,310) (1,322) Amounts reversed - - (131) (131) Net foreign exchange differences - (27) (8) (35) Balance, June 30, , ,127 5,581 Amount presented as current 406-2,028 2,434 Amount presented as non-current 2, ,147 Balance, June 30, , ,127 5,581 On July 3, 2014, the Company was informed of a complaint filed on June 27, 2014 by its former Chief Financial Officer with the Occupational Safety and Health Administration of the US Department of Labor ("OSHA") alleging certain violations by the Company related to the terms of his employment and his termination. The Company aggressively contested the allegations and, it believes, demonstrated that the former Chief Financial Officer s assertions are without merit. In a letter dated July 16, 2015, OSHA informed the Company that the former Chief Financial Officer had withdrawn his OSHA complaint in order to file a complaint against the Company in US federal district court. The withdrawal occurred prior to any determination by OSHA regarding the complaint. As of the date of the filing of these Financial Statements, the Company is not aware of any complaint filed against it in US federal district court by the former Chief Financial Officer. Because such complaint has not been filed and the Company is not aware of any information to lend merit to such a complaint, the Company is not currently able to predict the probability of a favourable or unfavourable outcome, or the amount of any possible loss in the event of an unfavourable outcome. Consequently, no material provision or liability has been recorded for these allegations and claims as of June 30, As of June 30, 2015, approximately $0.4 million in severance and other provisions is for an estimated amount relating to the former Chief Financial Officer based on the employment letter agreements entered into with him on October 30, 2009 and November 17, The Company is engaged from time-to-time in various legal proceedings and claims that have arisen in the ordinary course of business. The outcome of all of the proceedings and claims against the Company is subject to future resolution, including the uncertainties of litigation. Based on information currently known to the Company and after consultation with outside legal counsel, management believes that the probable ultimate resolution of any such proceedings and claims, individually or in the aggregate, will not have a material adverse effect on the financial condition of the Company, taken as a whole, and accordingly, no amounts have been recorded as of June 30,

35 11 - CAPITAL STOCK AND EARNINGS PER SHARE Common Shares The Company s common shares outstanding as of June 30, 2015 and December 31, 2014 were 59,627,635 and 60,435,826, respectively. Dividends Paid date Per common share amount Shareholder record date Common shares issued and outstanding Aggregate payment March 31, 2015 $0.12 March 19, ,355,638 $7.3 million June 30, 2015 $0.12 June 15, ,621,238 $7.2 million Share Repurchases On July 7, 2014, the Company announced a normal course issuer bid ( NCIB ) effective on July 10, In connection with this NCIB, the Company is entitled to repurchase for cancellation up to 2,000,000 of the Company s common shares issued and outstanding. This NCIB, which was scheduled to expire on July 9, 2015, was renewed effective July 10, Refer to Note 15 for more information on the renewed NCIB. June 30, June 30, Common shares repurchased 347, ,088 - Average price per common share including commissions CDN$ CDN$ Total purchase price including commissions $4,912 - $13,479 - Carrying value of the common shares repurchased $2,554 - $8,302 - Share repurchase premium (1) $2,358 - $5,177 - Since inception of NCIB on July 10, 2014: Common shares repurchased 1,564,588 Average price per common share including commissions CDN$16.20 Total purchase price including commissions $21,301 Carrying value of the common shares repurchased $11,527 Share repurchase premium (1) $9,774 (1) The excess of the purchase price paid over the carrying value of the common shares repurchased recorded in deficit in the consolidated balance sheet and in the statement of consolidated changes in shareholders equity. 15

36 Earnings Per Share The weighted average number of common shares outstanding are as follows: June 30, June 30, Basic 59,727,825 60,825,745 60,091,438 60,801,333 Effect of stock options 1,329,461 1,743,685 1,335,544 1,734,765 Effect of performance share units 682, ,218 - Diluted 61,739,717 62,569,430 61,919,200 62,536,098 Stock options that were anti-dilutive and not included in diluted earnings per share calculations - 1,118,633-1,118,633 All performance share units ( PSUs ) granted to date have met the performance conditions as of June 30, 2015 and were included in the calculation of weighted average diluted common shares outstanding. Stock Options June 30, June 30, Stock options exercised 132, , , ,927 Weighted average exercise price CDN$3.39 CDN$3.22 CDN$3.23 CDN$3.22 Cash proceeds $367 $690 $404 $690 Stock options expired or forfeited 2,500-2, ,000 June 30, 2015 Stock options outstanding 2,205,000 Weighted average exercise price per stock option outstanding CDN$7.27 Weighted average fair value at grant date per stock option outstanding $2.32 Performance Share Unit Plan June 30, June 30, PSUs granted 126, , , ,500 Weighted average fair value per PSU $15.15 $11.38 $13.64 $

37 The weighted average fair value of PSUs granted was estimated based on a Monte Carlo simulation model, taking into account the following weighted average assumptions: June 30, June 30, Expected life 3 years 3 years 3 years 3 years Expected volatility (1) 35% 38% 35% 38% Risk-free interest rate 1.07% 0.91% 1.07% 0.91% Expected dividends (2) 0.00% 0.00% 0.00% 0.00% Performance period starting price (3) CDN$17.86 CDN$12.74 CDN$17.86 CDN$12.74 Stock price at grant date CDN$17.53 CDN$12.72 CDN$17.53 CDN$12.72 (1) Expected volatility was calculated based on the daily dividend adjusted closing price change on the TSX for a term commensurate with the expected life of the grant. (2) A participant will receive a cash payment from the Company upon PSU settlement that is equivalent to the number of shares issued or delivered to the participant multiplied by the amount of cash dividends per share declared by the Company between the date of grant and the third anniversary of the grant date. As such, there is no impact from expected future dividends in the Monte Carlo simulation model. As of June 30, 2015 and December 31, 2014, the Company accrued less than $0.1 million in the consolidated balance sheets in other liabilities. (3) The performance period starting price is measured as the five day volume weighted average trading price for the common shares of the Company on the grant date. The PSUs granted in 2014 and 2015 are earned over a three-year period with vesting at the third anniversary of the grant date. The number of shares earned can range from 0% to 150% of the grant amount based on entity performance criteria, specifically the total shareholder return ( TSR ) ranking versus a specified peer group of companies. As of June 30, 2015, the Company s TSR ranking was such that if the awards granted in 2014 and 2015 were to be settled at June 30, 2015, the number of shares earned would be 150% of the grants awarded. June 30, June 30, PSUs forfeited June 30, 2015 PSUs outstanding 516,100 Weighted average fair value per PSU $12.98 Deferred Share Unit Plan June 30, June 30, DSUs granted 27,023 21,000 36,797 21,000 Weighted average fair value per DSU $16.04 $11.65 $16.02 $11.65 Stock-based compensation expense recognized for DSUs received in lieu of cash for directors fees not yet granted $50 $78 $107 $163 17

38 Shares issued upon DSU settlement June 30, June 30, DSUs settled 16,460-16,460 - Less: shares withheld for required minimum tax withholding 10,063-10,063 - Shares issued 6,397-6,397 - June 30, 2015 DSUs outstanding 57,238 Weighted average fair value per DSU $13.96 Stock Appreciation Rights June 30, June 30, Expense (income) recorded in earnings in selling, general and administrative expenses $930 $70 $218 ($1,215) SARs exercised 32,500 41,250 32,500 41,250 Exercise price CDN$7.56 CDN$7.56 CDN$7.56 CDN$7.56 Cash payments $319 $179 $319 $179 SARs forfeited ,750 June 30, December 31, $ $ Outstanding amounts vested and expected to vest in the next twelve months, recorded in the consolidated balance sheets in accounts payable and accrued liabilities 4,776 7,232 Outstanding amounts expected to vest in greater than twelve months, recorded in the consolidated balance sheets in other liabilities Aggregate intrinsic value of outstanding vested awards, including awards exercised but not yet paid 1,196 4, 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 debt. The Company s overall risk management objective is to minimize the long-term cost of debt, taking into account short-term and long-term earnings and cash flow volatility. The Company s risk strategy with respect to its exposure associated with floating rate debt is that the Chief Executive Officer, Chief Financial Officer and Treasurer monitor the Company s amount of floating rate debt, taking into account the current and expected interest rate environment, the Company s leverage and sensitivity to earnings and cash flows due to changes in interest rates. The Company s risk management objective at this time is to mitigate the variability in 30- day LIBOR-based cash flows from the first $40,000,000 of such variable rate debt due to changes in the benchmark interest rate. 18

39 On March 18, 2015, to help achieve accomplish this objective, the Company entered into an interest rate swap agreement and designated it as a cash flow hedge. The terms of the interest swap agreement are as follows: Maturity Notional amount Settlement Fixed interest rate paid November 18, 2019 $40,000,000 Monthly 1.61% The interest rate swap agreement involves the exchange of periodic payments excluding the notional principal amount upon which the payments are based. These payments were recorded as an adjustment of interest expense on the hedged debt instrument. The related amount payable to or receivable from counterparties is included as an adjustment to accrued interest. Additionally, the Company elects to use the Hypothetical Derivative methodology to measure the ineffectiveness of the hedging relationship in a given reporting period to be recorded in earnings. Under the Hypothetical Derivative method, the actual interest rate swap would be recorded at fair value on the balance sheet, and accumulated OCI would be adjusted to a balance that reflects the lesser of either the cumulative change in the fair value of the actual interest rate swap or the cumulative change in the fair value of the hypothetical derivative. The determination of the fair value of both the hypothetical derivative and the actual interest rate swap will use discounted cash flows based on the relevant interest rate swap curves. The amount of ineffectiveness, if any, recorded in earnings in finance costs in other expense, net, would be equal to the excess of the cumulative change in the fair value of the actual interest rate swap over the cumulative change in the fair value of the hypothetical derivative. Amounts previously included as part of OCI are transferred to earnings in the period during which the hedged item impacts net earnings. The change in fair value of the derivative used for calculating hedge effectiveness was $0.3 million as of June 30, The carrying amount and fair value was a liability, included in other liabilities in the consolidated balance sheet, amounting to $0.3 million as of June 30, The Company categorizes its interest rate swap as Level 2 within the fair value measurement hierarchy as the fair value is estimated using a valuation technique based on observable market data, including interest rates, as a listed market price is not available BUSINESS ACQUISITION On April 7, 2015, a subsidiary of the Parent Company, Intertape Polymer Corp. ( IPC ), under a Stock Purchase Agreement (the Agreement ) dated the same day, purchased 100% of the issued and outstanding common stock of BP Acquisition Corporation ( Better Packages ) (which wholly-owns a subsidiary, Better Packages, Inc.) (the Acquisition ), a leading supplier of water-activated tape dispensers. IPC paid in cash, funded primarily from the Company s Revolving Credit Facility, a purchase price of $16.0 million, subject to a working capital adjustment. A post-closing working capital adjustment was determined on July 10, 2015, resulting in a receivable of $0.1 million as of June 30, 2015 included in other current assets in the consolidated balance sheet. There are no additional contingent consideration arrangements in the Agreement. In addition, IPC and the former shareholders of Better Packages each made customary representations and warranties and covenants in the Agreement and the Agreement contains customary indemnification provisions. The former shareholders of Better Packages have deposited in escrow $2.9 million related to these items. 19

40 The net cash consideration paid on the closing date was as follows: April 7, 2015 (Unaudited) $ Consideration paid in cash 15,867 Less: cash balances acquired ,333 The Acquisition was accounted for using the acquisition method of accounting. The Acquisition further extends the Company s product offering and global presence in the rapidly growing e-commerce market, resulting in the recognition of goodwill of $6.1 million. The Company does not expect any of the goodwill to be deductible for income tax purposes. The fair value of net identifiable assets acquired and goodwill at the date of acquisition are as follows: April 7, 2015 (Unaudited) $ Current assets Cash 534 Trade receivables (1) 1,310 Inventories 2,489 Other current assets 99 Property, plant and equipment 632 Intangible assets Customer list 7,343 Trademark 1,700 Non-compete agreement 198 Other intangibles 21 Other assets 22 14,348 Current liabilities Accounts payable and accrued liabilities 1,165 Deferred tax liability 3,483 Provisions 10 4,658 Fair value of net identifiable assets acquired 9,690 Cash consideration transferred 15,867 Less: Adjustment receivable 99 Less: fair value of net identifiable assets acquired 9,690 Goodwill 6,078 (1) The Company expects to collect the fair value of the trade receivables of $1,310. The gross contractual amounts receivable were $1,

41 The Acquisition s impact on the Company s consolidated earnings for the three and six months ended June 30, 2015, was as follows: Revenue Net earnings April 7, 2015 through June 30, 2015 $ 4, Had the Acquisition been effective as of January 1, 2015 the impact on the Company s consolidated earnings would have been as follows: June 30, 2015 June 30, 2015 $ $ Revenue Net earnings (1) 4, , (1) The adjustments to arrive at net earnings included (i) the alignment of accounting policies to IFRS, (ii) the removal of acquisition costs incurred by the acquiree, (iii) the amortization of recorded intangibles and other acquisition method accounting adjustments and (iv) the effect of income tax expense using the effective tax rate of Better Packages post-closing. The acquisition-related costs are excluded from the consideration transferred and are included in the Company s consolidated earnings as follows: June 30, 2015 June 30, 2015 $ $ Selling, general and administrative expenses RELATED PARTY In June 2014, the Company engaged with a relocation management company to facilitate the purchase of the then-newly appointed Chief Financial Officer s home in Montreal, Québec, Canada to assist in his relocation to Sarasota, FL, U.S.A. The Company provided funding to the relocation management company to purchase the home for $0.9 million. The sale of the home was completed on April 15, 2015 and the Company was reimbursed for the purchase funding POST REPORTING EVENTS Adjusting Events No adjusting events have occurred between the reporting date of these Financial Statements and the date of authorization. Non-Adjusting Events On August 12, 2015, the Company s Board of Directors approved a change in the quarterly dividend policy by increasing the dividend from $0.12 to $0.13 per share. Accordingly, on August 12, 2015, the Company declared a cash dividend of $0.13 per common share payable September 30, 2015 to shareholders of record at the close of business on September 15, The estimated amount of this dividend payment is $7.8 million based on 59,721,385 of the Company s common shares issued and outstanding as of August 12,

42 On July 8, 2015, the Company announced the renewal of its NCIB effective July 10, 2015 under which the Company will be entitled to repurchase for cancellation up to 2,000,000 common shares, representing 3.35% of its 59,627,635 common shares issued and outstanding as of June 30, This renewed NCIB expires on July 9, As of August 12, 2015, there had been no repurchases since the beginning of this renewed NCIB time period. No other significant non-adjusting events have occurred between the reporting date of these Financial Statements and the date of authorization. 22

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