SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For the month of December, 2005
Commission File Number 1-10928
INTERTAPE POLYMER GROUP INC.
9999 Cavendish Blvd., 2nd Floor, St. Laurent, Quebec, Canada, H4M 2X5
Indicate by check mark whether the registrant files or will file annual reports
under cover of Form 20-F or Form 40-F:
Form 20-F Form 40-F X
Indicate by check mark if the registrant is submitting the Form 6-K in paper as
permitted by Regulation S-T Rule 101(b)(1): __________
Indicate by check mark if the registrant is submitting the Form 6-K in paper as
permitted by Regulation S-T Rule 101(b)(7): __________
Indicate by check mark whether by furnishing the information contained in this
Form, the registrant is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes No X
If "Yes" is marked, indicate below the file number assigned to the registrant
in connection with Rule 12g3-2(b): 82-______
The Information contained in this Report is incorporated by reference into
Registration Statement No. 333-109944
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
INTERTAPE POLYMER GROUP INC.
Date: December 20, 2005 By: /s/Andrew M. Archibald
Andrew M. Archibald, C.A.,
CFO and Secretary
Intertape Polymer Group Inc.
Form 51-102 F4
Business Acquisition Report
Item 1 Identity of Company
1.1 Name and Address of Company
Intertape Polymer Group Inc. (the "Company")
9999 Cavendish Blvd. 2nd Floor
Ville St. Laurent, Quebec
H4M 2X5
1.2 Executive Officer
For further information contact Melbourne F. Yull, Chairman of the
Board and Chief Executive Officer of the Company at (941) 739-7505.
Item 2 Details of Acquisition
2.1 Nature of Business Acquired
On October 5, 2005, the Company's wholly-owned subsidiary, Intertape
Polymer Inc., acquired all of the outstanding shares of Flexia
Corporation Ltd., being the body corporate that resulted from the
amalgamation, on October 4, 2005, of Flexia Corporation ("Flexia") and
Fib-Pak Industries Inc. ("Fib-Pak").
Flexia is headquartered in Brantford, Ontario and also has operations
in Langley, British Columbia and Cap-de-la-Madeleine, Quebec. Flexia
produces a wide range of coated, printed and laminated materials,
including fabrics, paper, film and foil, all of which it sells to
customers throughout North America.
Fib-Pak operates two plants in Hawkesbury, Ontario from which it manufactures
woven circular or flat polyethylene scrims and polypropylene fabrics that are
sold to manufacturers of flexible intermediate bulk containers (FIBCs),
reinforced products and flexible packaging. Fib Pak also manufactures a broad
range of FIBCs.
2.2 Date of Acquisition
October 5, 2005.
2.3 Consideration
The aggregate consideration paid by the Company in connection with the
transaction was approximately C$33,500,000:
(a) approximately C$14,768,000 of which was advanced by the Company to
Flexia and Fib-Pak in order to be used by Flexia and Fib-Pak to repay,
in full, their respective indebtedness to the National Bank of Canada
and to holders of debentures that had previously been issued by Flexia
and Fib-Pak;
(b) a portion of the remaining consideration is being held in escrow
in order, inter alia, to satisfy post-closing purchase price
adjustments which may be required to be made further to the terms and
conditions of the share purchase agreement entered into by the parties
in connection with the acquisition, such post-closing adjustments which
will be based on items related to Flexia and Fib-Pak at the time of
the closing of the acquisition, including, without limitation, the
actual level of their respective working capital and indebtedness; and
(c) the remaining consideration was paid to the shareholders of Flexia
and Fib-Pak.
To fund the acquisition, the Company used approximately C$6,000,000 of
cash on hand and it drew approximately C$27,500,000 on its revolving
credit facility.
2.4 Effect on Financial Position
The Company completed its acquisition of Flexia Corporation Ltd.,
being the successor corporate body to Flexia and Fib-Pak, for several
reasons, including the expectation that the acquisition would (i) allow
the Company to increase its market share in key product groups, (ii)
provide the Company with an enhanced geographic proximity to its
customers and to its suppliers of raw materials, (iii) lead to
procurement savings arising from an improved global sourcing model,
(iv) provide the Company with operational synergies, and (v) broaden
the Company's existing product offering.
Subsequent to the acquisition, on December 20, 2005, the Company
announced its intention to pursue a spin-off of substantially all of
its engineered coated products and flexible intermediate bulk
containers bag import operations (the "Coated Products Operations"),
combined with a spin-off of substantially all of the operations of
Flexia and Fib-Pak (the Coated Products Operations, Flexia's
operations and Fib-Pak's operations being collectively referred to
herein as the "Business"). For the 12-month period ended September 30,
2005, the Company's Coated Products Operations generated sales of
approximately C$120.0 million and Flexia and Fib-Pak generated sales
of approximately C$117.0 million for a combined total of approximately
C$237.0 million in sales during such period.
The Company intends to proceed with an initial public offering of the
Business through an income trust structure. A preliminary prospectus
in respect of the offering is expected to be filed by the Company in
the first quarter of 2006. Following the closing of the offering, the
Company will continue to retain a significant interest in the
Business. The amount of cash generated from the offering will be
dependent on the pricing and successful completion of the offering.
The Company plans to use the cash that it receives as a result of the
offering primarily to reduce its outstanding indebtedness with the
balance, if any, to be used for general corporate purposes,
including working capital.
The Company's intention to proceed with the offering is subject to
its ability to obtain all required regulatory approvals and third
party consents in connection with the offering, as well as the
existence of favourable market conditions for such an offering.
Please note that the financial statements and other financial
information presented as part of this report, including the pro forma
financial statements, cover periods during which the Company, Flexia
and Fib-Pak were not under the same management and, therefore, may
not be indicative of future financial conditions or operating results.
2.5 Prior Valuations
No valuation opinions of Flexia Corporation Ltd., Flexia or Fib-Pak
were obtained within the last 12 months by the Company, Flexia
Corporation Ltd., Flexia or Fib-Pak.
2.6 Parties to the Acquisition
Flexia Corporation Ltd., Flexia and Fib-Pak were not, prior to the
acquisition, informed persons, associates or affiliates of the
Company or Intertape Polymer Inc.
2.7 Date of Report
December 20, 2005.
Item 3 Financial Statements
The following financial statements are included as part of this
Business Acquisition Report:
Schedule A:
a balance sheet of Flexia as at June 30, 2005 and as at June 30, 2004,
statements of earnings, retained earnings and cash flows for Flexia
for its financial years ended June 30, 2005 and June 30, 2004, as
well as notes to the foregoing financial statements and an auditor's
report thereon;
Schedule B:
a balance sheet of Fib-Pak as at June 30, 2005 and as at June 30, 2004,
statements of earnings and deficit and cash flows for Fib-Pak for its
financial years ended June 30, 2005 and June 30, 2004, as well as
notes to the foregoing financial statements and an auditor's report
thereon;
Schedule C:
an unaudited interim balance sheet of Flexia as at September 30, 2005,
unaudited interim statements of earnings, retained earnings and cash
flows for Flexia for the three months ended September 30, 2005 and
September 30, 2004;
Schedule D:
an unaudited interim balance sheet of Fib-Pak as at September 30, 2005,
unaudited interim statements of income, retained earnings and cash
flows for Fib-Pak for the three months ended September 30, 2005 and
September 30, 2004; and
Schedule E:
an unaudited pro forma consolidated balance sheet of the Company as at
September 30, 2005, unaudited pro forma consolidated statement of
earnings of the Company for its financial year ended December 31, 2004
and for the nine months ended September 30, 2005, notes to the pro
forma consolidated financial statements of the Company and a
compilation report dated December 19, 2005 accompanying the unaudited
pro forma consolidated financial statements of the Company.
INTERTAPE POYLMER GROUP INC.
(signed by):
Name: Andrew M. Archibald
Title: Chief Financial Officer and
Secretary
Business Acquisition Report Dated December 20, 2005
Caution Regarding Forward-Looking Information
This Business Acquisition Report may contain certain forward looking
statements. In some cases, forward-looking statements can be identified by
terminology such as "may", "will", "intend", "should", "expect", "plan",
"anticipate", "believe", "estimate", "predict", "potential", "continue" or
the negative of these terms or other comparable terminology. Such statements
constitute "forward-looking statements" within the meaning of the Federal
Private Securities Litigation Reform Act of 1995 and are made pursuant to the
"safe harbour" provisions of US securities legislation. Forward looking
statements involve significant risks and uncertainties and should not be read
as guarantees of future performance or results and will not necessarily be
accurate indications as to whether or not such results will be achieved. A
number of factors could cause actual events or results to differ materially
from the results discussed in the forward looking statements. In evaluating
these statements, readers should specifically consider various factors
mentioned in the Company's public securities filings that could cause actual
results to differ materially from management's projections, estimates and
expectations. While such forward-looking statements reflect current beliefs
of management and are based upon what management believes to be reasonable
assumptions, there can be no assurance that actual results will be consistent
with these forward looking statements. These forward looking statements are
made as at the date of this Business Acquisition Report and the Company does
not assume any obligation to update or revise them to reflect new events or
circumstances.
Schedule A
A balance sheet of Flexia as at June 30, 2005 and as at June 30, 2004,
statements of earnings, retained earnings and cash flows for Flexia for its
financial years ended June 30, 2005 and June 30, 2004, as well as notes to
the foregoing financial statements and an auditor's report thereon
(Please see attached)
Financial Statements of
FLEXIA CORPORATION
June 30, 2005, June 30, 2004 and June 30, 2003
DELOITTE
Deloitte & Touche LLP
1005 Skyview Drive
Suite 202
Burlington ON L7P 5B1
Canada
Tel: 905 315-6770
Fax: 905 315-6700
www.deloitte.ca
AUDITORS' REPORT
To the Directors of
Flexia Corporation
We have audited the balance sheets of Flexia Corporation as at June 30, 2005
and 2004 and the statements of earnings, retained earnings and cash flows for
each of the years in the three year period ended June 30, 2005. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with Canadian generally accepted
auditing standards. Those standards require that we plan and perform an audit
to obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at June 30, 2005 and 2004
and the results of its operations and its cash flows for each of the years
in the three year period ended June 30, 2005 in accordance with Canadian
generally accepted accounting principles.
/s/Deloitte & Touche LLP
Chartered Accountants
Burlington, Ontario
October 26, 2005
Member of
Deloitte Touche Tohmatsu
FLEXIA CORPORATION
Statements of Earnings
For the years ended June 30, 2005, 2004 and 2003
(in thousands of dollars except per share amounts)
_______________________________________________________________________________
2005 2004 2003
____________ ____________ ______________
NET SALES $ 106,401 $ 98,106 $ 104,523
COST OF SALES 95,748 86,955 91,126
_______________________________________________________________________________
GROSS PROFIT 10,653 11,151 13,397
_______________________________________________________________________________
OTHER EXPENSES (INCOME)
Selling and administrative 6,246 6,361 5,814
Amortization of patents
and trademarks 83 83 83
Amortization of deferred
financing costs 55 161 161
Amortization of deferred
gain (Note 15) (132) -- --
Gain on sale of product line
(Note 16) (11,886) -- --
_______________________________________________________________________________
(5,634) 6,605 6,058
_______________________________________________________________________________
EARNINGS BEFORE THE UNDERNOTED 16,287 4,546 7,339
Interest expense - long term (Note 8) 1,767 2,195 2,640
- short term 323 438 326
_______________________________________________________________________________
2,090 2,633 2,966
_______________________________________________________________________________
EARNINGS BEFORE INCOME TAXES 14,197 1,913 4,373
_______________________________________________________________________________
INCOME TAXES (Note 17)
Current 3,507 252 503
Future (439) 393 932
_______________________________________________________________________________
3,068 645 1,435
_______________________________________________________________________________
NET EARNINGS $ 11,129 $ 1,268 $ 2,938
_______________________________________________________________________________
EARNINGS PER SHARE
BASIC AND DILUTED $1.11 $0.13 $0.29
_______________________________________________________________________________
FLEXIA CORPORATION
Statements of Retained Earnings
For the years ended June 30, 2005, 2004 and 2003
(in thousands of dollars)
_______________________________________________________________________________
2005 2004 2003
__________ __________ _________
RETAINED EARNINGS, BEGINNING OF YEAR $ 6,620 $ 5,352 $ 2,414
NET EARNINGS 11,129 1,268 2,938
_______________________________________________________________________________
RETAINED EARNINGS, END OF YEAR $ 17,749 $ 6,620 $ 5,352
_______________________________________________________________________________
FLEXIA CORPORATION
Balance Sheets
June 30, 2005 and 2004
(in thousands of dollars)
_______________________________________________________________________________
2005 2004
_____________ ____________
ASSETS
CURRENT
Accounts receivable $ 13,040 $ 15,063
Due from affiliated company (Note 12) 8 -
Income taxes receivable - 336
Inventories (Note 4) 17,377 13,701
Prepaid expenses 191 319
_______________________________________________________________________________
30,616 29,419
LONG-TERM RECEIVABLE (Note 16) 1,517 -
PROPERTY, PLANT AND EQUIPMENT (Note 5) 18,291 26,478
ACCRUED PENSION ASSET (Note 13) 1,295 602
OTHER NON-CURRENT ASSETS (Note 6) - 138
_______________________________________________________________________________
$ 51,719 $ 56,637
_______________________________________________________________________________
LIABILITIES
CURRENT
Bank indebtedness (Note 7) $ 1,687 $ 5,258
Accounts payable and accrued liabilities 10,370 15,654
Income taxes payable 3,021 -
Due to affiliated company (Note 12) - 506
Current portion of long-term debt (Note 8) 7,420 20,143
_______________________________________________________________________________
22,498 41,561
FUTURE INCOME TAXES (Note 17) 2,461 2,900
ACCRUED POST-RETIREMENT BENEFITS OBLIGATION (Note 13) 1,458 1,326
DEFERRED GAIN (Note 15) 3,323 -
_______________________________________________________________________________
29,740 45,787
_______________________________________________________________________________
CONTINGENCIES (Note 9)
SHAREHOLDERS' EQUITY
Share capital (Note 10) 4,230 4,230
Retained earnings 17,749 6,620
_______________________________________________________________________________
21,979 10,850
_______________________________________________________________________________
$ 51,719 $ 56,637
APPROVED BY THE BOARD
.......................Director .............................Director
FLEXIA CORPORATION
Statements of Cash Flows
For the years ended June 30, 2005, 2004 and 2003
(in thousands of dollars)
_______________________________________________________________________________
2005 2004 2003
___________ ___________ ___________
NET INFLOW (OUTFLOW) OF CASH RELATED
TO THE FOLLOWING ACTIVITIES:
OPERATING
Net earnings $ 11,l29 $ 1,268 $ 2,938
Items not affecting cash
Gain on sale of product line (11,886) - -
Amortization of property, plant
and equipment 2,455 2,349 2,222
Amortization of deferred gain (132) - -
Amortization of patents and
trademarks 83 83 83
Amortization of deferred
financing costs 55 161 161
Future income taxes (439) 393 932
Pension funding in excess of
amounts expensed (693) (540) (238)
Post-retirement benefit expense 132 110 96
Other (17) - -
_______________________________________________________________________________
687 3,824 6,194
Changes in non-cash operating working
capital items (Note 11) (3,966) 96 (4,400)
_______________________________________________________________________________
(3,279) 3,920 1,794
_______________________________________________________________________________
INVESTING
Proceeds on sale of product line (Note 16) 10,386 - -
Purchase of property, plant and equipment (1,499) (1,828) (2,823)
Proceeds on sale of property, plant and
equipment (Note 15) 10,686 - -
_______________________________________________________________________________
19,573 (1,828) (2,823)
_______________________________________________________________________________
FINANCING
(Decrease) increase in bank indebtedness (3,571) 1,435 3,279
Repayment of long-term debt (12,723) (3,527) (2,250)
_______________________________________________________________________________
(16,294) (2,092) 1,029
NET CASH INFLOW, CASH AND CASH EQUIVALENTS
BEGINNING AND END OF YEAR $ - $ - $ -
_______________________________________________________________________________
Supplementary information (Note ll)
FLEXIA CORPORATION
Notes to the Financial Statements
For the years ended June 30, 2005, 2004 and 2003
(amounts in thousands of dollars except per share amounts)
1. DESCRIPTION OF BUSINESS
Flexia Corporation (the "Company") is incorporated under the province
of Quebec and its principal line of business is the manufacture and
distribution of protective barrier products.
2. CHANGES IN ACCOUNTING POLICIES
Asset retirement obligations
On July 1, 2004, the Company adopted the recommendations of CICA
Handbook Section 3110 "Asset retirement obligations". The standard
provides guidance for the recognition, measurement and disclosure of
liabilities for asset retirement obligations. The liability represents
the fair value of the obligations. The corresponding cost is
capitalized as part of the related asset and is amortized over the
asset's useful life. The new recommendations had no impact on the
financial statements.
Stock-based compensation and other stock-based payments
Effective July 1, 2002 the Company adopted the recommendations in
section 3870 of the CICA Handbook, "Stock-based compensation and other
stock-based payments". The section sets standards for recognizing,
measuring and disclosing stock-based compensation and other stock-based
payments made in exchange for goods and services.
According to the standard, awards granted to employees which can be
settled in cash and other assets, must be recognized in the financial
statements based on the intrinsic value of the awards.
The Company's employee stock option plan includes cash settlement
features in the event an employee leaves the employ of the Company or
if there is a change in control. Before July 1, 2002 an expense was
not recognized until the date the employee ceased working for the
Company. Effective July 1, 2002 the liability is recognized as an
expense, amortized over the period that the options vest. At the
reporting dates, the liability is measured as the difference between
the exercise price and the net book value of the options, which is
the settlement value according to the Plan.
Impairment of long-lived assets
Effective July 1, 2003 the Company prospectively adopted the
recommendations in Section 3063 of the CICA Handbook, "Impairment of
long-lived assets". These recommendations require that an impairment
loss on long-lived assets to be held and used be recognized when their
carrying value exceeds the total undiscounted cash flows expected from
their use and eventual disposal. The amount of the impairment loss is
determined as the excess of the carrying value of the assets over
their fair value. The new recommendations had no impact on the
financial statements.
FLEXIA CORPORATION
Notes to the Financial Statements
For the years ended June 30, 2005, 2004 and 2003
(amounts in thousands of dollars except per share amounts)
_______________________________________________________________________________
3. ACCOUNTING POLICIES (continued)
Use of estimates
The financial statements are prepared in accordance with Canadian
generally accepted accounting principles (GAAP). The preparation of
financial statements in conformity with GAAP requires management to
make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Due to the inherent
uncertainty in making estimates, actual results could differ from
these estimates.
Revenue recognition
The Company recognizes revenue when persuasive evidence of an
arrangement exists, delivery has occurred, the price to the buyer is
fixed or determinable and collection is reasonably assured.
Cash and cash equivalents
Cash and cash equivalents consist of cash on hand and balances with
banks.
Inventories
Finished goods and work-in-process are valued at the lower of cost
and net realizable value. Inventories of raw materials are valued at
the lower of average cost determined on a first-in, first-out basis
and replacement cost. The cost of work-in-process and finished goods
includes the cost of raw materials, direct labour and applicable
overhead.
Accounts receivable
Credit is extended based on evaluation of a customer's financial
condition and collateral is usually not requested. Accounts receivable
are stated at amounts due from customers based on agreed upon payment
terms net of an allowance for doubtful accounts. The Company determines
its allowance by considering a number of factors, including the length
of time trade accounts receivable are past due and the customer's
current ability to pay its obligation to the Company. The Company
writes off accounts receivable when they are determined to be
uncollectible. Any payments subsequently received on such receivables
are credited to the bad debt expense.
Property, plant and equipment
Property, plant and equipment is recorded at acquisition cost. The
Company provides for amortization of capital assets using the
straight-line method over the following number of years:
Buildings 10 - 25
Machinery and equipment 5- 12.5
Office furniture and equipment 10
Computer equipment 4
Assets under development are recorded at cost until they are
completed and then they are transferred into the appropriate property,
plant and equipment account.
FLEXIA CORPORATION
Notes to the Financial Statements
For the years ended June 30, 2005, 2004 and 2003
(amounts in thousands of dollars except per share amounts)
_______________________________________________________________________________
3. ACCOUNTING POLICIES (continued)
Impairment of long-lived assets
Long-lived assets are tested for recoverability whenever events or
changes in circumstances indicate that their carrying amount may not be
recoverable. An impairment loss is recognized when their carrying value
exceeds the total undiscounted cash flows expected from their use and
eventual disposition. The amount of the impairment loss is determined
as the excess of the carrying value of the asset over its fair value.
Patents and trademarks
Patents and trademarks are recorded at acquisition cost less
accumulated amortization. Amortization for patents and trademarks is
charged on a straight-line basis over six years.
Deferred financing costs
Financing costs are amortized over the term of the long-term debt to
which they relate, namely six years, on a straight-line basis.
Environmental costs
The Company expenses, on a current basis, recurring costs associated
with managing hazardous substances and pollution in ongoing operations.
Foreign currency transactions and balances
Monetary assets and liabilities are translated at the exchange rates
in effect at the balance sheet date. Non-monetary assets and
liabilities are translated at historical rates. Revenues and expenses
are translated at average rates for the year except for amortization,
which is translated at historical rates. Translation gains or losses
are included in earnings.
Income taxes
The Company follows the liability method of accounting for income
taxes. Under this method, future income taxes are recognized based on
the expected future tax consequences of differences between
carrying amount of balance sheet items and their corresponding tax
basis, using the enacted or substantively enacted income tax rates
for the years in which the differences are expected to reverse.
FLEXIA CORPORATION
Notes to the Financial Statements
For the years ended June 30, 2005, 2004 and 2003
(amounts in thousands of dollars except per share amounts)
_______________________________________________________________________________
3. ACCOUNTING POLICIES (continued)
Post-retirement benefits
The Company maintains two defined benefit pension plans for unionized
employees.
The Company contributes to a multi-employer pension plan on behalf of
unionized employees at its Langley facility.
The Company maintains a defined contribution pension plan for salaried
employees.
The Company maintains an unfunded defined benefit plan which provides
life insurance, and health and dental benefits for eligible retired
employees.
The Company accrues its obligations under employee benefit plans and
the related costs, net of plan assets. The Company has adopted the
following policies:
- The cost of pensions and other retirement benefits earned by
employees is actuarially determined using the projected benefit
method prorated on service and management's best estimate of
expected plan investment performance, salary escalation, retirement
ages of employees and expected health care costs.
- For the purpose of calculating the expected return on plan assets,
those assets are valued at fair value.
- Past service costs from plan amendments are amortized on a
straight-line basis over the average remaining service period of
employees active at the date of amendment.
- The excess of the net actuarial gain (loss) over 10% of the greater
of the benefit obligation and the fair value of plan assets is
amortized over the average remaining service period of active
employees. The average remaining service period of the active
employees covered by the pension plan is 18 years (2004 and 2003 -
17 years). The average remaining service period of the active
employees covered by the other retirement benefits plan is 12 years
(2004 and 2003 - 12 years).
- When the restructuring of a benefit plan gives rise to both a
curtailment and a settlement of obligations, the curtailment is
accounted for prior to the settlement.
- Defined contribution plan accounting is applied to a multi-employer
defined benefit plan for which the Company has insufficient
information to apply defined benefit plan accounting.
Deferred gain
The deferred gain resulted from the sale and leaseback of land and
building (see note 15). The deferred gain is being amortized on a
straight line basis over the initial term of the operating lease
entered into as part of the sale leaseback transaction (5 years).
FLEXIA CORPORATION
Notes to the Financial Statements
For the years ended June 30, 2005, 2004 and 2003
(amounts in thousands of dollars except per share amounts)
_______________________________________________________________________________
3. ACCOUNTING POLICIES (continued)
Stock based compensation plans
The Company has a stock based compensation plan, as described in Note
14. Compensation expense is measured as the difference between the net
book value per common share and the exercise price and is recognized
as the stock options vest to the employee. If the options are settled
in cash with the employee, the value is measured at the net book value
of the stock at the time of the settlement. Any difference between
cash value and the accrued liability is taken as an adjustment to
income at the time of the settlement. Any consideration paid by
employees on exercise of stock options and purchase of stock is
credited to share capital.
Earnings per share
Basic earnings per share are calculated using the weighted average
number of common shares outstanding during the year. Diluted earnings
per share are calculated using the treasury stock method.
4. INVENTORIES
2005 2004
_____________ _________________
Raw materials $ 10,709 $ 8,865
Work-in-process 2,391 1,632
Finished goods 4,277 3,204
_______________________________________________________________________________
$ 17,377 $ 13,701
_______________________________________________________________________________
5. PROPERTY, PLANT AND EQUIPMENT
2005
______________________________________________
Accumulated Net Book
Cost Amortization Value
_____________ ____________ _____________
Land $ 594 $ - $ 594
Buildings 2,639 955 1,684
Machinery and equipment 23,949 9,672 14,277
Office furniture and equipment 114 61 53
Computer equipment 787 662 125
Assets under development 1,558 - 1,558
_______________________________________________________________________________
$ 29,641 $ 11,350 $ 18,291
_______________________________________________________________________________
FLEXIA CORPORATION
Notes to the Financial Statements
For the years ended June 30, 2005, 2004 and 2003
(amounts in thousands of dollars except per share amounts)
_______________________________________________________________________________
5. PROPERTY, PLANT AND EQUIPMENT (continued)
2004
______________________________________________
Accumulated Net Book
Cost Amortization Value
_____________ ____________ _____________
Land $ 2,414 $ - $ 2,414
Buildings 9,409 2,094 7,315
Machinery and equipment 22,629 7,744 14,885
Office furniture and equipment 105 50 55
Computer equipment 733 611 122
Assets under development 1,687 - 1,687
_______________________________________________________________________________
$ 36,977 $ 10,499 $ 26,478
_______________________________________________________________________________
6. OTHER NON-CURRENT ASSETS
2005
______________________________________________
Accumulated Net Book
Cost Amortization Value
_____________ ____________ _____________
Deferred financing costs $ 327 $ 327 $ -
Patents and trademarks 500 500 -
_______________________________________________________________________________
$ 827 $ 827 $ -
_______________________________________________________________________________
2004
______________________________________________
Accumulated Net Book
Cost Amortization Value
_____________ ____________ _____________
Deferred financing costs $ 327 $ 272 $ 55
Patents and trademarks 500 417 83
_______________________________________________________________________________
$ 827 $ 689 $ 138
_______________________________________________________________________________
7. BANK INDEBTEDNESS
Under its operating credit facilities, the Company, on a combined basis
with Fib-Pak Industries Inc., a related company under common ownership,
may draw up to $17,000 (2004 - $15,000). The companies have provided
cross-guarantees for amounts drawn on the credit facility. At June 30,
2005, the companies on a combined basis have drawn $2,350 (2004 -
$7,050) against the credit facility made up of a revolving line of
credit bearing interest averaging at 4.25% (2004-4.1%).
FLEXIA CORPORATION
Notes to the Financial Statements
For the years ended June 30, 2005, 2004 and 2003
(amounts in thousands of dollars except per share amounts)
7. BANK INDEBTEDNESS (continued)
An assignment of inventory and accounts receivable has been provided
as security for the bank indebtedness under a Credit Agreement dated
March 31, 2005 (see Note 9).
Accounts receivable and inventory of Fib-Pak Industries Inc. at June 30,
2005 amounted to $4,366 (2004 - $3,903).
8. LONG-TERM DEBT
2005 2004
____________ ______________
Bankers' acceptances
Interest payable in advance for one to
six months at the bankers' acceptance
rate plus margin dependent on the debt
to EBITDA ratio. On a combined basis
with Fib-Pak Industries Inc., this debt
was repayable in four quarterly principal
payments of $500,000 commencing on
January 1, 2000, followed by thirteen
quarterly instalments of $750,000 and
four quarterly instalments of $1,000,000.
The outstanding balance was repaid on
November 30, 2004. $ - $ 7,700
Debentures
Interest at 12.5% payable annually,
principal due December 1, 2005 (April 2,
2005 in 2004), collateralized by a general
security agreement consisting of a first
charge on all assets not pledged to the
bank, and a second charge on the assets
pledged to the bank. On April 22, 2005 a
principal repayment of $5,000,000
was made. 7,420 12,420
Term loans
Interest payable monthly at prime rate
plus up to 1.5% dependent on debt to
EBITDA ratio, due April 1, 2005,
collateralized by a security agreement
consisting of a first charge on all
assets not pledged to the bank and a
second charge on the assets pledged to
the bank. The term loan was repaid on
November 30, 2004. - 23
_______________________________________________________________________________
7,420 20,143
Current portion 7,420 20,143
_______________________________________________________________________________
$ - $ -
_______________________________________________________________________________
Interest expense on the long-term debt was $1,767 (2004 - $2,195; 2003 -
$2,640).
FLEXIA CORPORATION
Notes to the Financial Statements
For the years ended June 30, 2005, 2004 and 2003
(amounts in thousands of dollars except per share amounts)
_______________________________________________________________________________
9. COMMITMENTS AND CONTINGENCIES
Commitments
(a) The future minimum lease payments under operating leases for the
rental of space, equipment, automobiles and rail sidings for each
of the next five years:
2006 $ 888
2007 847
2008 838
2009 832
2010 684
_______
$ 4,089
(b) Contingencies
The Company is party to various claims which are being contested.
In the opinion of management, the outcome of such claims will not
have a material adverse effect on the Company.
Security for the bank indebtedness provides for a cross-guarantee
by the Company and Fib-Pak Industries Inc. (a related company) for
amounts drawn on the credit facility (see Note 7).
The Company believes that this guarantee will not have any
significant unfavourable impact on its financial position and
consequently no provision has been made in the financial statements.
10. SHARE CAPITAL
Authorized
Unlimited number of common shares
2005 2004
_____________ _______________
Issued
10,000,000 common shares $ 4,230 $ 4,230
___________________________________________________________________________
There were no issuance or cancellation of common shares during fiscal 2005
and 2004.
FLEXIA CORPORATION
Notes to the Financial Statements
For the years ended June 30, 2005, 2004 and 2003
(amounts in thousands of dollars except per share amounts)
________________________________________________________________________________
11. SUPPLEMENTAL CASH FLOW INFORMATION
Changes in non-cash operating working capital items
2005 2004 2003
____________ _____________ ____________
Accounts receivable $ 2,023 $ (1,418) $ 748
Inventories (3,676) (192) (1,105)
Income taxes 3,357 (714) 324
Prepaid expenses 128 89 (96)
Accounts payable and accrued
liabilities (5,284) 2,128 (4,369)
Due to/from affiliated company (514) 203 98
_____________________________________________________________________________
$ (3,966) $ 96 $ (4,400)
_____________________________________________________________________________
Interest and taxes
2005 2004 2003
____________ _____________ ____________
Interest paid $ 4,101 $ 2,446 $ 6,406
Income taxes paid 150 625 266
12. RELATED PARTY BALANCES AND TRANSACTIONS
2005 2004 2003
____________ _____________ ____________
Fib-Pak Industries Inc. - a company
under common ownership
Purchases of materials $ 2,047 $ 3,547 $ 3,191
Sales of finished goods 37 41 58
These transactions are in the normal course of operations and are measured at
the exchange amount, which is the amount of consideration established and
agreed by the related parties. The amounts due to and from the affiliated
company are non-interest bearing, unsecured and due on demand.
FLEXIA CORPORATION
Notes to the Financial Statements
For the years ended June 30, 2005, 2004 and 2003
(amounts in thousands of dollars except per share amounts)
________________________________________________________________________________
13. PENSION COSTS AND OBLIGATIONS
The Company has three defined benefit plans providing pension, other
retirement and post-employment benefits to most of its employees. The
Company maintains a defined contribution pension plan for its salaried
employees. The Company contributions equal 4% of each participant's
eligible salary. One of the Company's divisions participates in a
multi-employer defined benefit plan providing both pension and other
retirement benefits. This plan is accounted for as a defined
contribution plan.
The net expense for the Company's benefit plans is as follows:
Pension Benefit Plans Other Benefit Plan
2005 2004 2003 2005 2004 2003
Defined benefit plans $401 $457 $413 $152 $126 $117
Defined contribution plans 160 171 182 - - -
Contributions to a multi-
employer plan 271 262 263 - - -
_______________________________________________________________________________
$832 $890 $858 $152 $126 $117
_______________________________________________________________________________
FLEXIA CORPORATION
Notes to the Financial Statements
For the years ended June 30, 2005, 2004 and 2003
(amounts in thousands of dollars except per share amounts)
_______________________________________________________________________________
13. PENSION COSTS AND OBLIGATIONS (continued)
Information about the Company's defined benefit plans as at June 30,
in aggregate, is as follows:
Pension Benefit Plans Other Benefit Plan
2005 2004 2005 2004
Accrued benefit obligations
Balance, beginning of year $ 9,439 $ 8,737 $ 1,510 $ 1,333
Current service cost 284 271 56 41
Interest cost 586 525 93 85
Benefits paid and expenses (312) (281) (20) (14)
Employee contributions 179 175 - -
Actuarial losses (gains) 1,290 (81) 209 65
Past service cost - 93 - -
_______________________________________________________________________________
Balance, end of year 11,466 9,439 1,848 1,510
_______________________________________________________________________________
Plan assets
Balance, beginning of year 7,399 5,969 - -
Actual return on plan assets 920 540 - -
Employer contributions 1,094 997 - -
Benefits paid (312) (281) - -
Employee contributions 179 175 - -
_______________________________________________________________________________
Balance, end of year 9,280 7,400 - -
_______________________________________________________________________________
Funded status - deficit 2,186 2,039 1,848 1,510
Unamortized past service costs (165) (176) - -
Unamortized net actuarial loss (3,113) (2,246) (390) (184)
Unamortized transition obligation (203) (219) - -
_______________________________________________________________________________
Accrued benefit
(asset) liability $ (1,295) $ (602) $ 1,458 $ 1,326
_______________________________________________________________________________
Both defined benefit pension plans had a plan deficit as at June 30, 2005
and June 30, 2004.
FLEXIA CORPORATION
Notes to the Financial Statements
For the years ended June 30, 2005, 2004 and 2003
(amounts in thousands of dollars except per share amounts)
_______________________________________________________________________________
13. PENSION COSTS AND OBLIGATIONS (continued)
Net benefit expense for defined benefit plans:
Pension Benefit Plans Other Benefit Plan
2005 2004 2003 2005 2004 2003
Current service cost $ 284 $ 271 $ 267 $ 56 $ 41 $ 38
Interest cost 586 525 484 93 85 79
Actual return on plan
assets (920) (540) (72) - - -
Actuarial losses (gains) 1,290 (81) 588 209 65 -
Difference between
expected return and
actual return on plan
assets for the year 350 77 (332) - - -
Difference between
actuarial loss recognized
for the year and actual
actuarial loss on accrued
benefit obligation for the
year (1,216) 178 (542) (206) (65) -
Amortization of past
service costs 11 11 4 - - -
Amortization of
transition obligation 16 16 16 - - -
_______________________________________________________________________________
Net benefit expense for
the year $ 401 $ 457 $ 413 $ 152 $ 126 $ 117
_______________________________________________________________________________
Approximately 50% of plan assets are invested in Jarislowsky Fraser Balanced
Fund and approximately 50% in Standard Life Diversified Fund as at June 30,
2005 and 2004. Both funds employ a target equity weighting varying within the
range of 45% to 65%.
The dates of the most recent actuarial valuations are as follows:
(i) Pension Benefit Plans - December 31, 2004 and December 31, 2002
(ii) Other Benefit Plan - June 30, 2004
FLEXIA CORPORATION
Notes to the Financial Statements
For the years ended June 30, 2005, 2004 and 2003
(amounts in thousands of dollars except per share amounts)
_______________________________________________________________________________
13. PENSION COSTS AND OBLIGATIONS (continued)
The significant actuarial assumptions adopted in measuring the
Company's accrued benefit obligations are as follows (weighted-average
assumptions as of December 31st).
Pension Benefit Plans Other Benefit Plan
2005 2004 2005 2004
________ _________ ________ ________
Discount rate 5.63% 6.25% 5.63% 6.25%
Rate of compensation
increase 3.25% 3.25% - -
For measurement purposes, an 8% annual rate of increase in the per
capita cost of covered health care benefits was assumed for the first ten
years of service. The rate was assumed to decrease to 5% thereafter with an
increase of these rates by 3% occurring at retirement. For dental benefits, a
3.5% annual rate of increase was assumed. An increase or decrease of 1% of
this rate would have the following impact:
Increase of 1% Decrease of 1%
______________ ______________
Impact on net benefit expense -
increase (decrease) $ 25 $ (20)
Impact on accrued benefit obligation -
increase (decrease) 215 (171)
14. DIRECTORS AND EMPLOYEES SHARE OPTION PLAN
Under the Company's share option plan, options were granted to
designated directors and/or employees on or after June 30, 1999.
Options provide the right to purchase common shares from the Company
at a fixed price in the event of a change in control and are intended
to maximize the Company's net worth. When employment has ceased, the
vested options are purchased by the Company for cancellation. The
price is determined by the Board of Directors and the maximum number
of shares that may be issued upon the exercise of options granted
under the plan cannot exceed 5% of the outstanding shares of the
Company. The options granted under the plan shall vest as follows:
a) 25% on the second anniversary of the grant date
b) an additional 25% on each of the following anniversary dates.
FLEXIA CORPORATION
Notes to the Financial Statements
For the years ended June 30, 2005, 2004 and 2003
(amounts in thousands of dollars except per share amounts)
_______________________________________________________________________________
14. DIRECTORS AND EMPLOYEES SHARE OPTION PLAN (continued)
The share option liability of $723 (2004 - $231) is included in
accounts payable and accrued liabilities.
Share option expense for the year amounted to $492 (2004 -
$74; 2003 - $157).
2005 2004 2003
_________________ _________________ __________________
Weighted Weighted Weighted
Average Average Average
Shares Exercise Shares Exercise Shares Exercise
Price Price Price
_______ ________ _______ ________ _______ ________
Outstanding, beginning of year 395,000 $ 0.49 420,000 $ 0.48 380,000 $ 0.49
Granted - - - - 40,000 0.47
Purchased for cancellation - - (25,000) 0.42 - -
_____________________________________________________________________________________________
Outstanding, end of year 395,000 $ 0.49 395,000 $ 0.49 420,000 $ 0.48
_____________________________________________________________________________________________
Exercisable 385,000 $ 0.49 336,250 $ 0.48 256,250 $ 0.47
_____________________________________________________________________________________________
The following table summarizes information about share options outstanding
and exercisable as at June 30:
2005 2004 2003
___________________________ ___________________________ __________________________
# of Options # of Options # of Options # of Options # of Options # of Options
Exercise Price Outstanding Exercisable Oustanding Exercisable Outstanding Exercisable
____________ ____________ ____________ ____________ ____________ ____________
$0.42 200,000 200,000 200,000 200,000 225,000 168,750
$0.47 40,000 30,000 40,000 20,000 40,000 10,000
$0.58 155,000 155,000 155,000 116,250 155,000 77,500
______________________________________________________________________________________________________
Total 395,000 385,000 395,000 336,250 420,000 256,250
______________________________________________________________________________________________________
Weighted average
exercise price: $0.49 $0.49 $0.49 $0.48 $0.48 $0.47
______________________________________________________________________________________________________
15. DEFERRED GAIN ON SALE AND LEASEBACK TRANSACTION
On April 22, 2005, the Company sold its land and building located in
Langley, British Columbia for net proceeds of $10,686 and
simultaneously entered into an operating lease for the entire property.
The sale resulted in a gain of $3,454 which has been deferred and
amortized over the initial lease term of 5 years. Amortization of the
gain amounted to $132 in 2005.
FLEXIA CORPORATION
Notes to the Financial Statements
For the years ended June 30, 2005, 2004 and 2003
(amounts in thousands of dollars except per share amounts)
_______________________________________________________________________________
16. SALE OF PRODUCT LINE
On November 30, 2004 the Company sold of the synthetic roof
underlayment product line. The sale included all intangible property
related to this product line including product formulations, customer
relationships, trade names, and goodwill. The Company recorded a pre
tax gain of $11,886. The initial proceeds included $1,500 which is
being held in escrow (along with accrued interest of $17) until
November 30, 2006 to support the representations and warranties made
by the Company. The Company may also be entitled to additional proceeds
of up to $3,700 contingent on synthetic roof underlayment sales in a
particular market for the year ending November 30, 2005. As at June
30, 2005 the Company has not earned or recorded any contingent proceeds.
17. INCOME TAXES
The reconciliation of the combined federal and provincial statutory
income tax rate to the Company's effective income tax rate is detailed
below:
2005 2004 2003
______ ______ ______
Combined federal and provincial income
tax rate 40.65% 38.52% 40.65%
Manufacturing and processing allowance (6.33) (7.15) (7.73)
Non-taxable portion of gain on sale of
product line (14.33) - -
Impact of other differences 1.61 2.33 (0.12)
____________________________________________________________________________
Effective income tax rate 21.6% 33.7% 32.8%
____________________________________________________________________________
Net future income tax liabilities (assets) are detailed as follows:
2005 2004
__________ ___________
Property, plant and equipment $ 2,819 $ 2,852
Post-retirement benefit obligations (212) (167)
Accrued pension asset 447 209
Deferred gain on sale and leaseback transaction (604) -
Other 11 6
_________________________________________________________________________
Future income taxes $ 2,461 $ 2,900
_________________________________________________________________________
FLEXIA CORPORATION
Notes to the Financial Statements
For the years ended June 30, 2005, 2004 and 2003
(amounts in thousands of dollars except per share amounts)
_______________________________________________________________________________
18. EARNINGS PER SHARE
2005 2004 2003
Net earnings $ 11,129 $ 1,268 $ 2,938
_______________________________________________________________________________
Number of common shares
outstanding 10,000,000 10,000,000 10,000,000
_______________________________________________________________________________
Basic earnings per share $ 1.11 $ 0.13 $ 0.29
_______________________________________________________________________________
There were no dilutive instruments outstanding in fiscal 2005, 2004 and 2003.
19. FINANCIAL INSTRUMENTS
Financial risk
The financial risk is the risk to the Company's earnings that arises
from fluctuations in interest rates, foreign exchange rates and the
degree of volatility of these rates.
The Company is exposed to currency risk as a result of its export to
the United States of goods produced in Canada. From time to time the
Company uses forward exchange contracts to reduce its exposure to this
risk. No such contracts were outstanding as at June 30, 2005, 2004 and
2003.
The Company's bank indebtedness has a floating interest rate and
therefore is subject to risks associated with fluctuating interest
rates.
Credit risk
The Company is exposed to credit risk from the potential that a
counterparty will fail to perform its obligations. The Company is
exposed to credit risk from customers. The Company monitors its credit
risk associated with amounts receivable.
Fair value
The fair value of accounts receivable, bank indebtedness, accounts
payable and accrued liabilities, income taxes receivable/payable and
due from/to affiliated company approximates their carrying values due
to their short-term nature.
The fair value of the long-term receivable approximates the carrying
value as the interest rate is at market rates.
The fair value of debentures approximates the carrying value due to
their short term to maturity.
The fair value of the bankers' acceptances and term loans approximates
their carrying values as interest is charged at floating rates.
FLEXIA CORPORATION
Notes to the Financial Statements
For the years ended June 30, 2005, 2004 and 2003
(amounts in thousands of dollars except per share amounts)
_______________________________________________________________________________
20. SEGMENT DISCLOSURES
The Company supplies protective barrier products to customers in
North America. All products are to be considered part of one reportable
segment as they are made from similar manufacturing processes and
generally have similar economic characteristics.
All capital assets of the Company are located in Canada.
The following table presents revenues attributed to countries based
on the location of customers:
2005 2004 2003
_________ ________ _________
Canada $ 50,052 $ 47,624 $ 47,707
United States 55,414 50,376 56,641
Other Foreign Countries 935 106 175
_______________________________________________________________________________
Total net sales $ 106,401 $ 98,106 $ 104,523
_______________________________________________________________________________
For the year ended June 30, 2005, a single customer accounted for
13.1% (2004 - 10.7%; 2003 - 12.6%) of total sales, and 12.3% (2004 -
9.9%) of trade accounts receivable as of June 30, 2005.
21. SUBSEQUENT EVENT
Flexia Corporation was amalgamated with Fib-Pak Industries Inc.
(see Note 12) on October 4, 2005 and all of the shares of the
amalgamated corporation were acquired by a new shareholder on
October 5, 2005.
Schedule B
A balance sheet of Fib-Pak as at June 30, 2005 and as at June 30, 2004,
statements of earnings and deficit and cash flows for Fib-Pak for its
financial years ended June 30, 2005 and June 30, 2004, as well as notes to
the foregoing financial statements and an auditor's report thereon.
(Please see attached)
Financial Statements of
FIB-PAK INDUSTRIES INC.
June 30, 2005, June 30, 2004 and June 30, 2003
(In Canadian dollars)
Deloitte
Auditors' Report
To the Directors of Fib-Pak Industries Inc.
We have audited the balance sheets of Fib-Pak Industries Inc. as at June 30,
2005 and 2004 and the statements of earnings, deficit and cash flows for each
of the years in the three year period ended June 30, 2005. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with Canadian generally accepted
auditing standards. Those standards require that we plan and perform an audit
to obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at June 30, 2005 and 2004
and the results of its operations and its cash flows for each of the years
in the three year period ended June 30, 2005 in accordance with Canadian
generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Chartered Accountants
Hawkesbury, Ontario
October 28, 2005
FIB-PAK INDUSTRIES INC.
Statements of Earnings
For the years ended June 30, 2005, 2004 and 2003
(In thousands of dollars except per share amounts)
_______________________________________________________________________________
2005 2004 2003
____________ ____________ ______________
Sales $ 14,429 $ 12,676 $ 14,145
Cost of Sales 12,845 11,530 12,674
_______________________________________________________________________________
Gross profit 1,584 1,146 1,471
Other expenses
Selling and administration 797 1,062 874
Amortization of goodwill - - 97
Amortization of deferred
financing costs 8 41 41
Write-off of goodwill (note 6) - 578 -
_______________________________________________________________________________
805 1,681 1,012
_______________________________________________________________________________
Earnings (loss) before the undernoted 779 (535) 459
_______________________________________________________________________________
Interest expenses
Long-term (note 9) 202 233 294
Short-term 117 104 51
_______________________________________________________________________________
319 337 345
_______________________________________________________________________________
Earnings (loss) before income taxes 460 (872) 114
_______________________________________________________________________________
Income taxes
Current 214 (2) 161
Future (57) (183) (103)
_______________________________________________________________________________
157 (185) 58
_______________________________________________________________________________
NET EARNINGS (LOSS) $ 303 $ (687) $ 56
_______________________________________________________________________________
EARNINGS (LOSS) PER SHARE - BASIC
AND DILUTED $ 0.03 $ (0.068) $ 0.006
_______________________________________________________________________________
FIB-PAK INDUSTRIES INC.
Statements of Retained Earnings
For the years ended June 30, 2005, 2004 and 2003
(In thousands of dollars)
_______________________________________________________________________________
2005 2004 2003
____________ ____________ ______________
RETAINED EARNINGS (DEFICIT),
BEGINNING OF YEAR $ (401) $ 286 $ 230
NET EARNINGS (LOSS) 303 (687) 56
_______________________________________________________________________________
RETAINED EARNINGS (DEFICIT),
END OF YEAR $ (98) $ (401) $ 286
_______________________________________________________________________________
FIB-PAK INDUSTRIES INC.
Balance Sheets
as at June 30, 2005 and 2004
(In thousands of dollars)
_______________________________________________________________________________
2005 2004
__________ ___________
ASSETS
CURRENT
Accounts receivable $ 1,871 $ 1,576
Income taxes receivable - 145
Due from affiliated company (note 12) - 506
Inventories (note 3) 2,495 2,327
Prepaid expenses 2 3
_______________________________________________________________________________
4,368 4,557
PROPERTY, PLANT AND EQUIPMENT (note 4) 1,360 1,615
DEFERRED FINANCING COSTS (note 5) - 8
FUTURE INCOME TAXES (note 14) 176 119
_______________________________________________________________________________
$ 5,904 $ 6,299
_______________________________________________________________________________
LIABILITIES
CURRENT
Bank indebtedness (note 7) $ 69 $ 54
Bank loan (note 7) 2,350 1,651
Accounts payable and accrued liabilities 1,094 1,501
Due to affiliated company (note 12) 8 -
Income taxes payable 208 -
Current portion of long-term debt (note 9) 1,380 2,630
_______________________________________________________________________________
5,109 5,836
ACCRUED POST-RETIREMENT BENEFITS
OBLIGATION (note 8) 423 394
_______________________________________________________________________________
5,532 6,230
_______________________________________________________________________________
SHAREHOLDERS' EQUITY
Share capital (note 10) 470 470
Deficit (98) (401)
_______________________________________________________________________________
372 69
_______________________________________________________________________________
$ 5,904 $ 6,299
_______________________________________________________________________________
APPROVED BY THE BOARD:
_________________________, Director
_________________________, Director
FIB-PAK INDUSTRIES INC.
Statements of Cash Flows
For the years ended June 30, 2005, 2004 and 2003
(In thousands of dollars)
_______________________________________________________________________________
2005 2004 2003
___________ ___________ ___________
NET INFLOW (OUTFLOW) OF CASH RELATED
TO THE FOLLOWING ACTIVITIES:
OPERATING
Net earnings (loss) $ 303 $ (687) $ 56
Items not affecting cash
Amortization of property,
plant and equipment 283 377 440
Amortization of deferred
financing costs 8 41 41
Amortization of goodwill - - 97
Write-off of goodwill - 578 -
Future income taxes (57) (183) (103)
Post-retirement benefits
expense (recovery) 29 29 (21)
________________________________________________________________________________
566 155 510
Changes in non-cash operating working
capital items (note 11) (2) (561) (482)
________________________________________________________________________________
564 (406) 28
________________________________________________________________________________
INVESTING
Purchase of property, plant and equipment (28) (62) (92)
________________________________________________________________________________
FINANCING
Increase in bank indebtedness 699 564 666
Repayment of long-term debt (1,250) - (750)
________________________________________________________________________________
(551) 564 (84)
________________________________________________________________________________
NET CASH INFLOW (OUTFLOW) (15) 96 (148)
BANK INDEDTEDNESS, BEGINNING OF YEAR (54) (150) (2)
________________________________________________________________________________
BANK INDEDTEDNESS, END OF YEAR $ (69) $ (54) $ (150)
________________________________________________________________________________
Supplementary information (note 11)
FIB-PAK INDUSTRIES INC.
Notes to Financial Statements
For the years ended June 30, 2005, 2004 and 2003
(Amounts in thousands of dollars except per share amounts)
________________________________________________________________________________
1. DESCRIPTION OF BUSINESS
The Company was incorporated pursuant to the laws of the Province of
Quebec. The Company is primarily engaged in the production of industrial
bags and fabrics.
2. ACCOUNTING POLICIES
The financial statements have been prepared in accordance with Canadian
generally accepted accounting principles and include the following
significant accounting policies:
Use of estimates
The financial statements are prepared in accordance with Canadian
generally accepted accounting principles (GAAP). The preparation of
financial statements in conformity with GAAP requires management to
make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Due to the inherent
uncertainty in making estimates, actual results could differ from
these estimates.
Revenue recognition
The Company recognizes revenue when persuasive evidence of an
arrangement exists, delivery has occurred, the price to the buyer is
fixed or determinable and collection is reasonably assured.
Inventories
Inventories of finished goods and work in process are valued at the
lower of cost and net realizable value. Inventories of raw materials
are valued at the lower of average cost and replacement cost. The cost
of finished goods and work in process includes the cost of raw
materials, direct labour and applicable overhead.
Accounts receivable
Credit is extended based on evaluation of a customer's financial
condition and collateral is usually not requested. Accounts receivable
are stated at amounts due from customers based on agreed upon payment
terms net of an allowance for doubtful accounts. The Company
determines its allowance by considering a number of factors, including
the length of time trade accounts receivable are past due and the
customer's current ability to pay its obligation to the Company. The
Company writes off accounts receivable when they are determined to be
uncollectible. Any payments subsequently received on such receivables
are credited to the bad debt expense.
FIB-PAK INDUSTRIES INC.
Notes to Financial Statements
For the years ended June 30, 2005, 2004 and 2003
(Amounts in thousands of dollars except per share amounts)
_______________________________________________________________________________
2. ACCOUNTING POLICIES (continued)
Property, plant and equipment
Property, plant and equipment are recorded at cost. Amortization is
based on their estimated useful life using the straight-line basis
method over the following number of years:
Buildings 10 - 25
Machinery and equipment 5 - 6 - 12.5
Furniture and fixtures 10
Computer 4
Impairment of long-lived assets
Long-lived assets are tested for recoverability whenever events or
changes in circumstances indicate that their carrying amount may not
be recoverable. An impairment loss is recognized when their carrying
value exceeds the total undiscounted cash flows expected from their
use and eventual disposition. The amount of the impairment loss is
determined as the excess of the carrying value of the asset over its
fair value.
Goodwill
Goodwill is tested for impairment annually or more frequently if events
or changes in circumstances indicate that the assets might be impaired.
When the carrying amount exceeds the fair value, an impairment loss is
recognized in an amount equal to the excess.
Deferred financing costs
Deferred financing costs are being amortized over 6 years, which is the
term of the financing agreement.
Income taxes
The Company follows the liability method of accounting for income taxes.
Under this method, future income taxes are recognized based on the
expected future tax consequences of differences between the carrying
amount of balance sheet items and their corresponding tax basis, using
the enacted and substantively enacted income tax rates for the years
in which the differences are expected to reverse.
FIB-PAK INDUSTRIES INC.
Notes to Financial Statements
For the years ended June 30, 2005, 2004 and 2003
(Amounts in thousands of dollars except per share amounts)
_______________________________________________________________________________
2. ACCOUNTING POLICIES (continued)
Post retirement benefits
The Company maintains a defined contribution pension plan for salaried
employees.
The Company maintains an unfunded defined benefit plan which provides
life insurance, and health and dental benefits for eligible retired
employees.
The Company has adopted the following policies:
- The cost of pensions and other retirement benefits earned by
employees is actuarially determined using the projected benefit
method prorated on service and management's best estimate of
expected plan investment performance, salary escalation, retirement
ages of employees and expected health care costs.
- For the purpose of calculating the expected return on plan assets,
those assets are valued at fair value.
- Past service costs from plan amendments are amortized on a straight-
line basis over the average remaining service period of employees
active at the date of amendment.
- The excess of the net actuarial gain (loss) over 10% of the greater
of the benefit obligation and the fair value of plan assets is
amortized over the average remaining service period of active
employees. The average remaining service period of the active
employees covered by the pension plan is 11.8 years (2004 and 2003 -
10 years).
- When the restructuring of a benefit plan gives rise to both a
curtailment and a settlement of obligations, the curtailment is
accounted for prior to the settlement.
Earnings (loss) per share
Basic earnings per share are calculated using the weighted average
number of common shares outstanding during the year.
FIB-PAK INDUSTRIES INC.
Notes to Financial Statements
For the years ended June 30, 2005, 2004 and 2003
(Amounts in thousands of dollars except per share amounts)
_______________________________________________________________________________
3. INVENTORIES
2005 2004
_____________ _________________
Raw materials $ 504 $ 556
Work in process 230 175
Finished goods 1,761 1,596
__________________________________
$ 2,495 $ 2,327
__________________________________
4. PROPERTY, PLANT AND EQUIPMENT
2005
______________________________________________
Accumulated Net book
Cost depreciation value
_____________ ____________ _____________
Land $ 77 $ - $ 77
Buildings 1,475 742 733
Machinery and equipment 2,175 1,633 542
Furniture and fixtures 25 25 --
Computer 71 63 8
______________________________________________
$ 3,823 $ 2,463 $ 1,360
______________________________________________
2004
______________________________________________
Accumulated Net book
Cost depreciation value
_____________ ____________ _____________
Land $ 77 $ - $ 77
Buildings 1,475 616 859
Machinery and equipment 2,150 1,480 670
Furniture and fixtures 25 25 -
Computer 68 59 9
______________________________________________
$ 3,795 $ 2,180 $ 1,615
______________________________________________
FIB-PAK INDUSTRIES INC.
Notes to Financial Statements
For the years ended June 30, 2005, 2004 and 2003
(Amounts in thousands of dollars except per share amounts)
_______________________________________________________________________________
5. DEFERRED FINANCING COSTS
2005
______________________________________________
Accumulated Net book
Cost depreciation value
_____________ ____________ _____________
Financing Costs $ 50 $ 50 $ -
______________________________________________
2004
______________________________________________
Accumulated Net book
Cost depreciation value
_____________ ____________ _____________
Financing Costs $ 50 $ 42 $ 8
______________________________________________
6. WRITE-OFF OF GOODWILL
It was determined by management that the value of the goodwill should
be written off as of June 30, 2004 due to an impairment arising from the
loss incurred in 2004. The amount of loss recognized was $ 578.
7. BANK INDEBTEDNESS AND BANK LOAN
A general security agreement and a general assignment of inventory and
accounts receivable have been provided as collateral for the bank
indebtedness under a Credit Agreement dated March 31, 2005. Security
for the bank indebtedness provides for a cross-guarantee by the Company
and Flexia Corporation for amounts drawn on the credit facility. The
Company believes that this guarantee will not have any significant
unfavorable impact on its financial position and consequently no
provision for loss has been made in the financial statements.
Under their credit facilities, the Company, on a combined basis with
Flexia Corporation may draw up to $ 17,000 (2004, $ 15,000). At June
30, 2005, the companies, on a combined basis, have drawn $ 2,350
(2004, $ 7,050) against their credit facilities made up of bankers'
acceptances and a revolving line of credit bearing interest averaging
at 4.25% (2004, 4.1%).
Accounts receivable and inventory of Flexia Corporation at June 30,
2005 amounted to $ 30,417 (2004 - $ 28,764)
FIB-PAK INDUSTRIES INC.
Notes to Financial Statements
For the years ended June 30, 2005, 2004 and 2003
(Amounts in thousands of dollars except per share amounts)
_______________________________________________________________________________
8. PENSION COSTS AND OBLIGATIONS
The Company provides certain post-employment and post-retirement
benefits (other benefit plan) to most of its employees. The unfunded
other plan include life insurance, health and dental benefits for
eligible retired employees. The Company also maintains a defined
contribution pension plan for its salaried employees. The Company
contribution equal 4% of each participant's eligible salary. The benefit
expense for the Company is as follows:
2005 2004 2003
_________________________
Current service cost $ 15 $ 20 $ 19
Interest cost on accrued
benefit obligation 19 17 15
Amortization of net actuarial loss (gain) (5) (8) (10)
Curtailment gain - - (45)
__________________________
Benefit expense (income) $ 29 $ 29 $ (21)
__________________________
Information about the Company's other benefit plans as at June 30, in
aggregate, is as follows:
The accrued benefit obligation is as follows:
2005 2004
_________________
Balance, beginning of year $ 300 $ 254
Current service cost 15 20
Interest cost 19 17
Actuarial gains 17 9
_________________
Balance, end of year 351 300
Unamortized net actuarial gains 72 94
_________________
$ 423 $ 394
FIB-PAK INDUSTRIES INC.
Notes to Financial Statements
For the years ended June 30, 2005, 2004 and 2003
(Amounts in thousands of dollars except per share amounts)
________________________________________________________________________________
8. PENSION COSTS AND OBLIGATIONS (continued)
Plans assets
The future benefit obligation is currently not funded.
The date of the most recent actuarial valuations was June 30, 2004.
The next valuation will be performed June 30, 2006. This unfunded
defined benefit plan includes life insurance, health and dental
benefits for eligible retired employees. The significant actuarial
assumptions adopted in measuring the Company's accrued benefit
obligations are as follows:
2005 2004
________ _________
Discount rate 5.75% 6.00%
___________________
Rate of compensation increase 3.25% 3.25%
___________________
Active employees entitled to
post-retirement benefit 15 15
___________________
For measurement purposes, an 8% annual rate of increase in the per
capital cost of covered health care benefits were assumed for the
first ten years of service. The rate was assumed to decrease to 5%
thereafter with an increase of these rates by 3% occurring at
retirement. For dental benefit, a 3.5% annual rate of increase was
assumed. An increase on decrease of 1% of this rate would have the
following impact:
Increase Decrease
of 1% of 1%
_________ ________
Impact on net benefit expense $ 9 $ (7)
_______________________
Impact on accrued obligation $ 70 $ (54)
_______________________
The employer contributions to the defined contribution pension plan
were $ 73, 2004, $ 65 and 2003, $ 62.
FIB-PAK INDUSTRIES INC.
Notes to Financial Statements
For the years ended June 30, 2005, 2004 and 2003
(Amounts in thousands of dollars except per share amounts)
_______________________________________________________________________________
9. LONG-TERM DEBT
2005 2004
________ ________
Bankers' acceptances, interest payable at the
bankers' acceptance rate plus 1% plus margin
dependent on the debt to EBITDA ratio; the
principal was due on April 1, 2005, the bankers
acceptances have terms from 30 to 180 days per
the banking agreement $ - $1,250
Debentures due December 1, 2005, interest at
12.5% payable annually, a general security
agreement has been provided as collateral 1,380 1,380
_____________________
1,380 2,630
Current portion 1,380 2,630
_____________________
$ - $ -
_____________________
Interest expense on the long-term debt was $ 202 (2004 - $ 233;
2003 - $ 294).
10. SHARE CAPITAL
Authorized
Unlimited number of common shares,
voting, participating
2005 2004
_________ ________
Issued
10,000,000 common shares $470 $470
__________________
There is no issuance or cancellation of common shares during
fiscal 2005 and 2004.
FIB-PAK INDUSTRIES INC.
Notes to Financial Statements
For the years ended June 30, 2005, 2004 and 2003
(Amounts in thousands of dollars except per share amounts)
________________________________________________________________________________
11. SUPPLEMENTAL CASH FLOW INFORMATION
Changes in non-cash operating working capital items
2005 2004 2003
____________ _____________ ____________
Accounts receivable $ (295) $ 85 $ (97)
Income taxes 353 (322) 556
Due to/from affiliated company 514 (203) (98)
Inventories (168) 57 (443)
Prepaid expenses 1 12 10
Accounts payable and accrued
liabilities (407) (190) (410)
_____________________________________________________________________________
$ (2) $ (561) $ (482)
_____________________________________________________________________________
Interest and taxes
Interest paid $ 248 $ 265 $ 953
Income taxes paid (recovered) (139) 320 --
12. RELATED PARTY BALANCES AND TRANSACTIONS
2005 2004 2003
____________ _____________ ____________
Flexia Corporation - a company
with the same shareholders
Purchases of materials $ 37 $ 41 $ 58
Sales of finished goods 2,047 3,547 3,191
These transactions are in the normal course of operations and are
measured at the exchange amount, which is the amount of consideration
established and agreed by the related parties. The due from
affiliated company is non-interest bearing, unsecured and due on
demand.
13. DIRECTORS AND EMPLOYEES SHARE OPTION PLAN
Under the Company's share option plan, options were granted to
designated directors and/or employees on or after June 30, 1999.
Options provide the right to purchase common shares from the Company
at a fixed price in the event of a change in control and are intended
to maximize the Company's net worth. When employment has ceased, the
vested options are purchased by the Company for cancellation. The
price is determined by the Board of Directors and the maximum number
of shares that may be issued upon the exercise of options granted
under the plan cannot exceed 5% of the outstanding shares of the
Company. The options granted under the plan shall vest as follows:
a) 25% on the second anniversary of the grant date
b) an additional 25% on each of the following anniversary date
FIB-PAK INDUSTRIES INC.
Notes to Financial Statements
For the years ended June 30, 2005, 2004 and 2003
(Amounts in thousands of dollars except per share amounts)
_______________________________________________________________________________
13. DIRECTORS AND EMPLOYEES SHARE OPTION PLAN (continued)
As of June 30, 2005, there were 395,000 options outstanding with a
total exercise price of $ 32,800.
No options were issued or exercised as of June 30, 2005, 2004 and
2003.
In August 2003, 25,000 options were forfeited.
The share option liability of $ 32,800 (2004 - $ 32,800; 2003 -
$ 34,050) was not included in accounts payable and accrued liabilities.
2005 2004 2003
_________________ _________________ __________________
Weighted Weighted Weighted
Average Average Average
Shares Exercise Shares Exercise Shares Exercise
Price Price Price
_______ ________ _______ ________ _______ ________
Outstanding, beginning of year 395,000 $ 0.08 420,000 $ 0.08 380,000 $ 0.07
Granted - - - - 40,000 0.14
Purchased for cancellation - - (25,000) 0.05 - -
_____________________________________________________________________________________________
Outstanding, end of year 395,000 $ 0.08 395,000 $ 0.08 420,000 $ 0.08
_____________________________________________________________________________________________
Exercisable 385,000 $ 0.08 336,250 $ 0.07 256,250 $ 0.07
_____________________________________________________________________________________________
The following table summarizes information about share options outstanding
and exercisable as at June 30:
2005 2004 2003
___________________________ ___________________________ __________________________
# of Options # of Options # of Options # of Options # of Options # of Options
Exercise Price Outstanding Exercisable Oustanding Exercisable Outstanding Exercisable
____________ ____________ ____________ ____________ ____________ ____________
$0.05 200,000 200,000 200,000 200,000 225,000 168,750
$0.10 70,000 70,000 70,000 52,500 70,000 35,000
$0.12 85,000 85,000 85,000 63,750 85,000 42,500
$0.14 40,000 30,000 40,000 20,000 40,000 10,000
______________________________________________________________________________________________________
Total 395,000 385,000 395,000 336,250 420,000 256,250
______________________________________________________________________________________________________
Weighted average
exercise price: $0.08 $0.08 $0.08 $0.07 $0.08 $0.07
______________________________________________________________________________________________________
FIB-PAK INDUSTRIES INC.
Notes to Financial Statements
For the years ended June 30, 2005, 2004 and 2003
(Amounts in thousands of dollars except per share amounts)
_______________________________________________________________________________
14. INCOME TAXES
The income tax expense (benefit reported differs from the amount
computed by applying the Canadian Statutory Rate to earnings before
income taxes).
2005 2004 2003
______________________________
Tax at the applicable tax rate 34% (34% in
2004 and 2003) $ 156 $ (296) $ 38
Amortization of capital assets 96 128 149
Amortization of goodwill and deferred costs 2 14 47
Interest and penalties 0.5 - -
Charitable donations 0.5 1 1
Non-deductible meals and
entertainment expenses 2 2 2
Capital cost allowance (48) (52) (61)
Financing fees deductible (4) (5) (4)
Pension expense (income) 9 9 (7)
Write-off of goodwill - 197 -
Capital assets adjustments - - (4)
______________________________
Income tax (benefit) expense $ 214 $ (2) $ 161
______________________________
Net future income tax liability (asset) is detailed as follows:
2005 2004 2003
______________________________
Building, machinery and equipment
and Computer $ (36) $ 11 $ 185
Post-retirement benefits (140) (130) (121)
______________________________
$(176) $(119) $ 64
______________________________
FIB-PAK INDUSTRIES INC.
Notes to Financial Statements
For the years ended June 30, 2005, 2004 and 2003
(Amounts in thousands of dollars except per share amounts)
________________________________________________________________________________
15. FINANCIAL INSTRUMENTS
Credit risk
The Company provides credit to its customers in the normal course of
its operations. It carries out, on a continuing basis, credit checks
on its clients and maintains provisions for potential credit losses.
The Company minimizes its credit risk by concluding transactions with
a large number of clients.
Fair value
The fair value of accounts receivable, the bank indebtedness, accounts
payable and accrued liabilities and debentures is approximately equal
to their carrying values due to their short-term maturity.
Currency risk
The Company realized approximately 39% of its sales in U.S. dollars
in 2005 (2004 - 17%) and is thus exposed to foreign exchange
fluctuations. The Company does not actively manage this risk except
to partially offset with purchases in U.S. dollars.
Interest rate risk
The Company is subject to interest rate risk due to changes to the
prime rate since the majority of its borrowings bear variable
interest rates or are short term.
16. EARNINGS (LOSS) PER SHARE
2005 2004 2003
________ ________ _______
Net earnings (loss) $ 303 $ (687) $ 56
_________________________________
Number of common shares
outstanding 10,000 10,000 10,000
_________________________________
Basic earnings (loss) per share $ 0.03 $(0.068) $ 0.006
_________________________________
There were no dilutive instruments outstanding in fiscal 2005, 2004
and 2003.
FIB-PAK INDUSTRIES INC.
Notes to Financial Statements
For the years ended June 30, 2005, 2004 and 2003
(Amounts in thousands of dollars except per share amounts)
_______________________________________________________________________________
17. SEGMENT DISCLOSURES
The Company supplies industrial bags and fabrics to customers in North
America. All products have to be considered part of one reportable
segment as they are made from similar manufacturing processes and
generally have similar economic characteristics.
All capital assets of the Company are located in Canada.
The following table presents revenues attributed to countries based
on the location of customers:
2005 2004 2003
________ ________ ________
Canada $ 8,786 $ 10,458 $ 7,039
United States 5,643 2,218 7,106
________________________________
Total sales $ 14,429 $ 12,676 $ 14,145
________________________________
18. SUBSEQUENT EVENT
Fib-Pak Industries Inc. was amalgamated with Flexia Corporation on
October 4, 2005 and all of the shares of the amalgamated corporation
were acquired by a new shareholder on October 5, 2005.
Schedule C
An unaudited interim balance sheet of Flexia as at September 30, 2005,
unaudited interim statements of earnings, retained earnings and cash flows
for Flexia for the three months ended September 30, 2005 and September 30,
2004.
(Please see attached)
FLEXIA CORPORATION
UNAUDITED FINANCIAL STATEMENTS
For the Three Months ended September 30, 2005 and 2004
FLEXIA CORPORATION
BALANCE SHEETS
(In thousands of Canadian dollars)
September 30, 2005 June 30, 2005
______________________________________
$ $
_______________________________________________________________________________
(unaudited) (audited)
ASSETS
Current assets
Accounts receivables 12,421 13,040
Due from affiliated company 135 8
Income taxes receivable 963
Inventories 12,697 17,377
Prepaid expenses 335 191
Future income taxes 126
_______________________________________________________________________________
26,677 30,616
_______________________________________________________________________________
Long-term receivable 1,610 1,517
Property, plant and equipment 17,722 18,291
Deferred pension expense 1,448 1,295
Future income taxes 447
_______________________________________________________________________________
47,904 51,719
_______________________________________________________________________________
LIABILITIES
Current liabilities
Bank indebtedness 3,083 1,687
Accounts payable and accrued liabilities 9,011 10,370
Income taxes payable 3,021
Current portion of long term debt 7,420 7,420
_______________________________________________________________________________
19,514 22,498
_______________________________________________________________________________
Future income taxes 3,070 2,461
Post retirement benefits obligation 1,500 1,458
Deferred gain 3,151 3,323
_______________________________________________________________________________
27,235 29,740
_______________________________________________________________________________
SHAREHOLDERS' EQUITY
Share capital 4,230 4,230
Retained earnings 16,439 17,749
_______________________________________________________________________________
20,669 21,979
_______________________________________________________________________________
47,904 51,719
_______________________________________________________________________________
See accompanying notes
FLEXIA CORPORATION
STATEMENTS OF EARNINGS
(In thousands of Canadian dollars)
(Unaudited)
Three Months ended
September 30,
________________________________________
2005 2004
$ $
_______________________________________________________________________________
Net sales 21,065 25,287
Cost of sales 20,338 22,530
_______________________________________________________________________________
Gross profit 727 2,757
_______________________________________________________________________________
Selling and administrative expenses 2,579 1,714
Amortization of patents and trademarks --- 21
Amortization of deferred costs --- 14
Amortization of deferred gain (172) ---
Gain on sale of intangibles (83) ---
Interest expense 287 632
_______________________________________________________________________________
2,611 2,381
_______________________________________________________________________________
Earnings (loss) before income taxes (1,884) 376
Income taxes (recovery) (574) 143
_______________________________________________________________________________
Net earnings (loss) (1,310) 233
_______________________________________________________________________________
See accompanying notes
FLEXIA CORPORATION
STATEMENTS OF RETAINED EARNINGS
(In thousands of Canadian dollars)
(Unaudited)
September 30,
_____________________________________
2005 2004
_______________________________________________________________________________
$ $
Retained earnings, beginning of period 17,749 6,620
Net earnings (loss) (1,310) 233
_______________________________________________________________________________
Retained earnings, end of period 16,439 6,853
_______________________________________________________________________________
See accompanying notes
FLEXIA CORPORATION
STATEMENTS OF CASH FLOWS
(In thousands of Canadian dollars)
(Unaudited)
Three Months ended
September 30,
________________________________________
2005 2004
$ $
_______________________________________________________________________________
OPERATING ACTIVITIES
Net earnings (1,310) 233
Items not affecting cash
Gain on sale of intangibles (83)
Amortization 421 658
Future income taxes 36
Pension funding in excess of
amounts expensed (153) (144)
Post retirement benefit expense 42 27
_______________________________________________________________________________
Cash flows from operations before changes
in non-cash operating capital items (1,047) 774
_______________________________________________________________________________
Changes in non cash operating working
capital items (315) (4,981)
_______________________________________________________________________________
Cash flows from operating activities (1,362) (4,207)
_______________________________________________________________________________
INVESTING ACTIVITIES
Long-term receivable (10)
Purchase of property, plant and equipment (24) (161)
_______________________________________________________________________________
Cash-flow from investing activities (34) (161)
_______________________________________________________________________________
FINANCING ACTIVITIES
Increase in bank indebtedness 1,396 5,368
Repayment of long-term debt (1,000)
_______________________________________________________________________________
Cash flows from financing activities 1,396 4,368
_______________________________________________________________________________
Net change in cash and cash beginning
and end of period --- ---
_______________________________________________________________________________
See accompanying notes
FLEXIA CORPORATION
NOTES TO FINANCIAL STATEMENTS
(In thousands of Canadian dollars, except as otherwise noted)
(Unaudited)
1. BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited interim financial
statements, prepared in accordance with Canadian generally accepted accounting
principles, contain all adjustments necessary to present fairly Flexia
Corporation's (the "Company") financial position as at September 30, 2005 as
well as its results of operations and its cash flows for the three months
ended September 30, 2005 and 2004.
These unaudited interim financial statements and notes should be read in
conjunction with the Company's audited annual financial statements.
These unaudited interim financial statements and notes follow the same
accounting policies as the most recent audited annual financial statements.
2. INFORMATION INCLUDED IN THE INTERIM STATEMENTS OF EARNINGS
Three months ended
September 30,
2005 2004
_______________ _______________
$ $
Amortization of property, plant and
equipment 593 623
_______________ _______________
Board of directors' fees 22 24
_______________ _______________
Expenses of sale of Flexia to
Intertape Polymer Group Inc. and
other valuation adjustments 1,753 -
_______________ _______________
Included in the statement of earnings for the three months ended September 30,
2005 is $1,253 of expense incurred in connection with the sale of the Company
to Intertape Polymer Group Inc. in October 2005, $22 of fees and expenses
paid to the prior owners of Flexia in their capacity as directors of the
Company, as well as a $500 increase in inventory obsolescence for roof
underlay products.
3. POST-RETIREMENT BENEFITS
Three months ended
September 30,
2005 2004
_______________ _______________
$ $
Net periodic benefit cost for defined
benefit plans 154 133
_______________ _______________
4. SUBSEQUENT EVENTS
On October 4, 2005, the Company and its sister company (through common
ownership) Fib-Pak Industries Inc. were amalgamated into Flexia Corporation
Ltd. and, on October 5, 2005, Intertape Polymer Group Inc., through a
wholly-owned subsidiary, acquired all of the outstanding stock of Flexia
Corporation Ltd.
Schedule D
An unaudited interim balance sheet of Fib-Pak as at September 30, 2005,
unaudited interim statements of income, retained earnings and cash flows
for Fib-Pak for the three months ended September 30, 2005 and September
30, 2004.
(Please see attached)
FIB-PAK INDUSTRIES INC.
UNAUDITED FINANCIAL STATEMENTS
For the Three Months ended September 30, 2005 and 2004
FIB PAK INDUSTRIES INC.
BALANCE SHEETS
(In thousands of Canadian dollars)
September 30, 2005 June 30, 2005
_________________________________________
$ $
(unaudited) (audited)
______________________________________________________________________________
ASSETS
Current assets
Accounts receivables 1,929 1,871
Income taxes receivable 6
Due from affiliated company 7
Inventories 2,405 2,495
Prepaid expenses 35 2
______________________________________________________________________________
4,375 4,375
______________________________________________________________________________
Property plant and equipment 1,305 1,360
Future income taxes 191 176
______________________________________________________________________________
5,871 5,911
______________________________________________________________________________
LIABILITIES
Current liabilities
Bank indebtedness 69
Bank loan 2,570 2,350
Accounts payable and accrued
liabilities 1,058 1,094
Due to affiliated company 135 15
Income taxes payable 208
Current portion of long term debt 1,380 1,380
______________________________________________________________________________
5,143 5,116
______________________________________________________________________________
Post retirement benefits obligation 433 423
______________________________________________________________________________
5,576 5,539
______________________________________________________________________________
SHAREHOLDERS' EQUITY
Share capital 470 470
Deficit (175) (98)
______________________________________________________________________________
295 372
______________________________________________________________________________
5,871 5,911
______________________________________________________________________________
See accompanying notes
FIB PAK INDUSTRIES INC.
STATEMENTS OF EARNINGS AND DEFICIT
(In thousands of Canadian dollars)
(Unaudited)
Three Months ended
September 30,
_____________________________________
2005 2004
$ $
(unaudited) (unaudited)
Sales 3,011 3,066
Cost of sales 2,593 2,795
______________________________________________________________________________
Gross profit 418 271
______________________________________________________________________________
Selling and administrative expenses 394 174
Amortization -- 2
Interest expense 78 80
______________________________________________________________________________
472 256
______________________________________________________________________________
Earning (loss) before income taxes (54) 15
Income taxes 23 5
______________________________________________________________________________
Net earnings (loss) (77) 10
Deficit, beginning of the period (98) (401)
______________________________________________________________________________
Deficit, end of the period (175) (391)
______________________________________________________________________________
See accompanying notes
FIB PAK INDUSTRIES INC.
STATEMENTS OF CASH FLOWS
(In thousands of Canadian dollars)
(Unaudited)
Three Months ended
September 30,
_________________________________
2005 2004
$ $
______________________________________________________________________________
OPERATING ACTIVITIES
Net earnings (loss) (77) 10
Items not affecting cash
Amortization 70 77
Future income taxes (15)
Post retirement benefit expense 10 7
______________________________________________________________________________
Cash flows from operations before changes in
non-cash operating working capital items (12) 94
______________________________________________________________________________
Changes in non cash operating working capital
items (124) 462
______________________________________________________________________________
Cash flows from operating activities (136) 556
______________________________________________________________________________
INVESTING ACTIVITIES
Purchase of property, plant and equipment and
cash flows from investing activities (15) (22)
______________________________________________________________________________
FINANCING ACTIVITIES
Increase in bank indebtedness and bank loan
and cash flows from financing activities 151 (534)
______________________________________________________________________________
Net change in cash and cash beginning
and end of period -- --
See accompanying notes
FIB-PAK INDUSTRIES
NOTES TO FINANCIAL STATEMENTS
(In thousands of Canadian dollars, except as otherwise noted)
(Unaudited)
1. BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited interim financial
statements, prepared in accordance with Canadian generally accepted accounting
principles, contain all adjustments necessary to present fairly Fib-Pak
Industries Inc.'s (the "Company") financial position as at September 30, 2005
as well as its results of operation and its cash flows for the three months
ended September 30, 2005 and 2004.
These unaudited interim financial statements and notes should be read in
conjunction with the Company's audited annual financial statements.
These unaudited interim financial statements and notes follow the same
accounting policies as the most recent audited annual financial statements.
2. INFORMATION INCLUDED IN THE INTERIM STATEMENT OF EARNINGS
Three months ended
September 30,
2005 2004
______________ ______________
$ $
Amortization of property, plant and equipment 70 75
______________ ______________
Board of directors' fees 3 3
______________ ______________
Expenses of sale of Flexia to Intertape
Polymer Group Inc. 154 -
______________ ______________
Included in the statement of earnings for the three months ended September
30, 2005 is $154 of expense incurred in connection with the sale of the
Company to Intertape Polymer Group Inc. in October 2005 and $3 of fees and
expenses paid to the prior owners of Fib-Pak in their capacity as directors
of the Company.
3. 3. POST-RETIREMENT BENEFITS
Three months ended
September 30,
2005 2004
______________ ______________
$ $
Net periodic benefit cost for defined
benefit plans 9 7
______________ ______________
4. SUBSEQUENT EVENTS
On October 4, 2005, the Company and its sister company (through common
ownership) Flexia Corporation were amalgamated into Flexia Corporation Ltd.,
and on October 5, 2005, Intertape Polymer Group Inc., through a wholly-owned
subsidiary, acquired all of the outstanding stock of Flexia Corporation Ltd.
Schedule E:
An unaudited pro forma consolidated balance sheet of the Company as at
September 30, 2005, unaudited pro forma consolidated statement of earnings
of the Company for its financial year ended December 31, 2004 and for the
nine months ended September 30, 2005, notes to the pro forma consolidated
financial statements of the Company and a compilation report dated December
19, 2005 accompanying the unaudited pro forma consolidated financial
statements of the Company.
(Please see attached)
Intertape Polymer Group Inc.
Pro Forma Consolidated Financial Statements
As at September 30, 2005 and for the nine months then
ended and for the year ended December 31, 2004
(Unaudited - See Compilation Report)
Compilation Report 2
Consolidated Pro Forma Financial Statements
Balance Sheet 4
Statement of Earnings 5
Statement of Earnings 6
Notes to the Pro Forma Consolidated
Financial Statements 7 to 13
COMPILATION REPORT ON PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
To the Directors of
Intertape Polymer Group Inc.
We have read the accompanying unaudited pro forma consolidated balance
sheet of Intertape Polymer Group Inc. ("IPG") as at September 30, 2005 and the
unaudited pro forma consolidated statements of earnings for the nine months
then ended and for the year ended December 31, 2004, and have performed
the following procedures:
1. Compared the figures in the columns captioned "IPG" to the
corresponding figures in the unaudited financial statements of
IPG as at and for the nine months ended September 30, 2005, and
the corresponding figures in the audited financial statements for
the year ended December 31, 2004 and found them to be in agreement.
2. Compared the figures in the columns captioned "Flexia" to the
corresponding figures in the unaudited balance sheet of Flexia
Corporation as at September 30, 2005, and found them to be in
agreement.
3. Compared the figures in the columns captioned "Fib-Pak" to the
corresponding figures in the unaudited balance sheet of Fib-Pak
Industries Inc. as at September 30, 2005, and found them to be
in agreement.
4. Reperformed the calculations of the columns captioned "Flexia"
and "Fib-Pak" in the unaudited pro forma consolidated statements
of earnings for the nine months ended September 30, 2005 and for
the twelve months ended December 31, 2004. These columns were
constructed, as described in Notes 2 and 3, by adding and
subtracting relevant periods. We found the columns to be
arithmetically correct.
5. Made enquiries of certain officials of the IPG who have
responsibility for financial and accounting matters about:
(a) the basis for determination of the pro forma adjustments; and
(b) whether the unaudited pro forma consolidated financial
statements comply as to form in all material respects with
the applicable requirements of the applicable securities
regulatory authorities in Canada.
6. The officials:
(a) described to us the basis for determination of the pro
forma adjustments; and
(b) stated that the unaudited pro forma consolidated financial
statements comply as to form in all material respects with
the applicable requirements of applicable securities
regulatory authorities in Canada.
7. Read the notes to the unaudited pro forma consolidated financial
statements, and found them to be consistent with the basis
described to us for determination of the pro forma adjustments.
8. Recalculated the application of the pro forma adjustments to the
aggregate of the amounts in the columns captioned "IPG", "Flexia"
and "Fib-Pak" as at September 30,
2005 and for the nine months then ended, and for the year ended
December 31, 2004, and found the amounts in the column captioned
"Pro forma consolidated" to be arithmetically correct.
A pro forma financial statement is based on management's assumptions and
adjustments, which are inherently subjective. The foregoing procedures
are substantially less than either an audit or a review, the objective
of which is the expression of assurance with respect to management's
assumptions, the pro forma adjustments, and the application of the
adjustments to the historical financial information. Accordingly, we
express no such assurance. The foregoing procedures would not
necessarily reveal matters of significance to the unaudited pro forma
consolidated financial statements, and we therefore make no
representation about the sufficiency of the procedures for the purposes
of a reader of such statements.
/s/ Raymond Chabot Grant Thornton LLP
Chartered Accountants
Montreal, Canada
December 19, 2005
Intertape Polymer Group Inc. 4
Pro Forma Consolidated Balance Sheet
As at September 30, 2005
(In thousands of U.S. dollars, except as otherwise noted)
(Unaudited - See Compilation Report)
Pro forma Pro forma
IPG Flexia Fib-Pak Total adjustments Note 4 consolidated
$ $ $ $ $ $
ASSETS
Current assets
Cash 48,759 48,759 (28,368) (b) 20,391
Accounts receivable 122,217 10,594 1,645 134,456 134,456
Due from affiliated company 115 115 (115) (a)
Other receivables 10,008 821 5 10,834 10,834
Inventories 92,297 10,829 2,052 105,178 105,178
Parts and supplies 14,271 14,271 14,271
Prepaid expenses 5,444 286 30 5,760 5,760
Future income taxes 1,509 107 1,616 (107) (b) 1,509
_______ ______ _____ _______ ________ _______
294,505 22,752 3,732 320,989 (28,590) 292,399
Long-term receivable 1,373 1,373 (1,373) (b)
Property, plant and equipment 345,417 15,115 1,113 361,645 1,169 (b) 362,814
Other assets 18,815 18,815 18,815
Pension plan prepaid benefit 1,235 1,235 (1,235) (b)
Future income taxes 35,323 381 163 35,867 (381) (b) 35,486
Goodwill 181,117 181,117 3,555 (b) 184,672
_______ ______ _____ _______ ________ _______
875,177 40,856 5,008 921,041 (26,855) 894,186
_______ ______ _____ _______ ________ _______
LIABILITIES
Current liabilities
Bank indebtedness 28,529 2,629 2,194 33,352 (4,823) (a) 28,529
Accounts payable and
accrued liabilities 89,340 7,679 901 97,920 (264) (a)
4,450 (b) 102,106
Due to affiliated company 115 115 (115) (a)
Current portion of
long-term debt 2,781 6,328 1,177 10,286 (7,505) (a) 2,781
_______ ______ _____ _______ ________ _______
120,650 16,636 4,387 141,673 (8,257) 133,416
Long-term debt 328,898 328,898 328,898
Deferred gain 2,687 2,687 (2,687) (b)
Pension liability 1,390 (b) 1,390
Post retirement benefit 1,279 369 1,648 386 (b) 2,034
Future income taxes 2,618 2,618 (1,761) (b) 857
Other liabilities 435 435 1,962 (b) 2,397
_______ ______ _____ _______ ________ _______
449,983 23,220 4,756 477,959 (8,967) 468,992
SHAREHOLDERS' EQUITY
Capital stock 288,930 3,608 401 292,939 (4,009) (b) 288,930
Contributed surplus 5,749 5,749 5,749
Retained earnings 97,657 14,028 (149) 111,536 (13,879) (b) 97,657
Accumulated currency translation
adjustments 32,858 32,858 32,858
_______ ______ _____ _______ ________ _______
425,194 17,636 252 443,082 (17,888) 425,194
_______ ______ _____ _______ ________ _______
875,177 40,856 5,008 921,041 (26,855) 894,186
_______ ______ _____ _______ ________ _______
The accompanying notes are an integral part of the pro forma consolidated
financial statements
Intertape Polymer Group Inc. 5
Pro Forma Consolidated Statement of Earnings
Nine months ended September 30, 2005
(In thousands of U.S. dollars, except as otherwise noted)
(Unaudited - See Compilation Report)
Pro forma Pro forma
IPG Flexia Fib-Pak Total adjustments Note 5 consolidated
$ $ $ $ $ $
Sales 579,156 59,151 8,588 646,895 646,895
Cost of sales 458,918 54,834 7,530 521,282 (637) (c)
(70) (d)
(92) (e) 520,483
_______ ______ _____ _______ ________ _______
Gross profit 120,238 4,317 1,058 125,613 799 126,412
Selling, general and
administrative expenses 76,154 3,613 664 80,431 (638) (b) 79,793
Research and development 3,468 3,468 3,468
Financial expenses 17,144 882 189 18,215 (1,089) (a)
1,140 (f) 18,266
Manufacturing facility closure
and industrial accident costs 2,191 2,191 2,191
_______ ______ _____ _______ ________ _______
98,957 4,495 853 104,305 (587) 103,718
_______ ______ _____ _______ ________ _______
Earnings before income taxes 21,281 (178) 205 21,308 1,386 22,694
Income taxes 3,217 (176) 104 3,145 487 (g) 3,632
_______ ______ _____ _______ ________ _______
Net earnings 18,064 (2) 101 18,163 899 19,062
_______ ______ _____ _______ ________ _______
Earnings (loss) per share
Basic 0.44 0.46
_______ ______ _____ _______ ________ _______
Diluted 0.44 0.46
_______ ______ _____ _______ ________ _______
Weighted average number of shares
outstanding
Basic 41,219,329 41,219,329
__________ ______ _____ _______ ________ _______
Diluted 41,362,491 41,362,491
__________ ______ _____ _______ ________ _______
The accompanying notes are an integral part of the pro forma
consolidated financial statements.
Intertape Polymer Group Inc.
Pro Forma Consolidated Statement of Earnings
Year ended December 31, 2004
(In thousands of U.S. dollars, except as otherwise noted)
(Unaudited - See Compilation Report)
Pro forma Pro forma
IPG Flexia Fib-Pak Total adjustments Note 5 consolidated
$ $ $ $ $ $
Sales 692,449 82,484 10,702 785,635 785,635
Cost of sales 549,252 72,796 9,582 631,630 (867) (c)
(87) (d)
(115) (e) 630,561
__________ ______ _____ _______ ________ _______
Gross profit 143,197 9,688 1,120 154,005 1,069 155,074
Selling, general and
administrative expenses 95,272 5,918 636 101,826 (800) (b) 101,026
Research and development 4,233 4,233 4,233
Impairment of goodwill 444 444 444
Gain on sale of intangibles (9,132) (9,132) (9,132)
Financial expenses 24,253 1,987 260 26,500 (1,847) (a)
1,521 (f) 26,174
Refinancing expense 30,444 30,444 30,444
Manufacturing facility
closure costs 7,386 7,386 7,386
__________ ______ _____ _______ ________ _______
161,588 (1,227) 1,340 161,701 (1,126) 160,575
__________ ______ _____ _______ ________ _______
Earnings before income taxes (18,391) 10,915 (220) (7,696) 2,195 (5,501)
Income taxes (29,749) 2,514 (31) (27,266) 778 (g) (26,488)
__________ ______ _____ _______ ________ _______
Net earnings 11,358 8,401 (189) 19,570 1,417 20,987
Earnings (loss) per share
Basic 0.28 0.51
__________ _______
Diluted 0.27 0.51
__________ _______
Weighted average number of shares outstanding
Basic 41,186,143 41,186,143
__________ __________
Diluted 41,445,864 41,445,864
__________ __________
The accompanying notes are an integral part of the pro forma consolidated
financial statements.
INTERTAPE POLYMER GROUP INC.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Nine months ended September 30, 2005 and the year ended December 31, 2004
(In thousands of U.S. dollars, except as otherwise noted)
(Unaudited - See Compilation Report)
1. DESCRIPTION OF TRANSACTIONS
On October 4, 2005, Flexia Corporation ("Flexia") and Fib-Pak Industries Inc.
("Fib-Pak") amalgamated to form Flexia Corporation Limited ("Flexia Co.") and
create a new limited partnership, Flexia L.P. ("Flexia LP"). Nine units were
issued upon formation of Flexia LP. Flexia Co. transferred all of its assets
to Flexia LP, except for the land, building and equipment located at the
Cap-de-la-Madeleine, Quebec facility and assumed the liabilities related to
the assets transferred in exchange for 170,000 units of Flexia LP.
Effective October 4, 2005, Intertape Polymer Inc. ("IPI"), a wholly owned
subsidiary of Intertape Polymer Group Inc. ("IPG") made cash advances to
Flexia Co. in order for it to repay its bank indebtedness and long-term debt
and the related accrued interest.
On October 5, 2005, IPI acquired all of the outstanding share capital of
Flexia Co. and subsequently converted the advances into share capital.
Effective November 26, 2005, Flexia Co. was liquidated into IPI.
2. BASIS OF PRESENTATION
The accompanying unaudited pro forma consolidated balance sheet as at
September 30, 2005 and the unaudited pro forma consolidated statements of
earnings for the nine months ended September 30, 2005 and for the year ended
December 31, 2004 have been prepared by management of IPG. The accounting
policies used in the preparation of the unaudited pro forma consolidated
financial statements are those disclosed in the annual report of IPG and
in the audited annual financial statements of Flexia and Fib-Pak, and are in
accordance with Canadian generally accepted accounting principles.
The accompanying unaudited pro forma consolidated financial statements should
be read in conjunction with the annual report of IPG and the audited annual
financial statements of Flexia and Fib-Pak, and the notes thereto.
The unaudited pro forma consolidated balance sheet of IPG as at September 30,
2005 has been prepared with the information derived from the unaudited
consolidated balance sheet of IPG and the unaudited balance sheets of Flexia
and Fib-Pak as at September 30, 2005 and the adjustments and assumptions
outlined below.
The unaudited pro forma consolidated statement of earnings of IPG for the
nine months ended September 30, 2005 has been prepared with the information
derived from the unaudited consolidated statement of earnings of IPG for
the nine months ended September 30, 2005 and the unaudited statements of
earnings of Flexia and Fib-Pak for the nine months ended September 30, 2005,
constructed by adding the respective unaudited statements of earnings for
the three months
INTERTAPE POLYMER GROUP INC.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Nine months ended September 30, 2005 and the year ended December 31, 2004
(In thousands of U.S. dollars, except as otherwise noted)
(Unaudited - See Compilation Report)
ended September 30, 2005 and the unaudited statements of earnings for the
six months ended June 30, 2005 as disclosed in Note 3, and the adjustments
and assumptions outlined below.
The unaudited pro forma consolidated statement of earnings of IPG for the
year ended December 31, 2004 has been prepared with the information derived
from the audited consolidated statement of earnings of IPG for the year
ended December 31, 2004 and the unaudited statements of earnings of Flexia
and Fib-Pak for the twelve months ended December 31, 2004, constructed by
adding the respective audited statements of earnings for the year ended
June 30, 2005 with the unaudited statements of earnings for the six months
ended June 30, 2004 and subtracting the unaudited statements of earnings
for the six months ended June 30, 2005 as disclosed in Note 3, and the
adjustments and assumptions outlined below.
The transactions described in Note 1 are reflected in the unaudited pro
forma consolidated balance sheet as if they had occurred on September 30,
2005 and in the unaudited pro forma consolidated statements of earnings for
the nine months ended September 30, 2005 and for the year ended December
31, 2004 as if they had occurred on January 1, 2004.
The acquisition of Flexia and Fib-Pak was accounted for using the purchase
method of accounting, under which the purchase price was allocated to the
assets acquired and the liabilities assumed based on their estimated fair
values at the date of the acquisition.
The underlying assumptions for the pro forma adjustments provide a
reasonable basis for presenting the significant financial effects directly
attributable to the transactions described in Note 1. These pro forma
adjustments are tentative and are based on available financial information
and certain estimates and assumptions. The actual financial effects of the
transactions to the consolidated financial statements of IPG will depend on
a number of factors. Therefore, the actual effects of the transactions will
differ from those reflected in the pro forma adjustments. Management
believes that such assumptions provide a reasonable basis for presenting
all of the significant effects of the transactions contemplated and that
the pro forma adjustments give appropriate effect to those assumptions and
are properly applied in the unaudited pro forma consolidated financial
statements. In addition, in preparing the unaudited pro forma consolidated
financial statements, no adjustments have been made to reflect the
additional costs, savings or synergies that could result from combining IPG,
Flexia and Fib-Pak.
The unaudited pro forma consolidated financial statements are not intended
to reflect the results of operations which would have actually resulted had
the acquisition of Flexia and Fib-Pak and other pro forma transactions and
adjustments been effected on the dates indicated. Furthermore, the unaudited
pro forma consolidated statements of earnings are not necessarily
indicative of the results of operations that may be obtained by the IPG
in the future.
The historical financial statements of Flexia and Fib-Pak have been prepared
and presented in Canadian dollars. For the purpose of the preparation
of these unaudited pro forma consolidated financial statements, the historical
consolidated financial statements of Flexia and Fib-Pak have been translated
into U.S. dollars using the exchange rates for the periods, as follows:
INTERTAPE POLYMER GROUP INC.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Nine months ended September 30, 2005 and the year ended December 31, 2004
(In thousands of U.S. dollars, except as otherwise noted)
(Unaudited - See Compilation Report)
Nine months
As at ended Year ended
September September 30, December
30, 2005 2005 31, 2004
_________ _____________ __________
Average rate...................... - 0.8164 0.7682
End of period rate................ 0.8528 - -
3. COMPUTATION OF THE UNAUDITED STATEMENTS OF EARNINGS OF FLEXIA AND
FIB PAK
Flexia
The unaudited statement of earnings of Flexia for the nine months ended
September 30, 2005 was constructed by adding the unaudited statement of
earnings for the three months ended September 30, 2005 and the unaudited
statement of earnings for the six months ended June 30, 2005:
Flexia Three months Six months ended Nine months
ended September June 30, 2005 ended September
30, 2005 30, 2005
$ $ $
_______________________________________________________________________________
Sales 17,197 41,954 59,151
Cost of sales 16,604 38,230 54,834
_______________________________________________________________________________
Gross profit 593 3,724 4,317
_______________________________________________________________________________
Selling, general and
administrative expenses 1,897 1,716 3,613
Financial expenses 235 647 882
_______________________________________________________________________________
2,132 2,363 4,495
_______________________________________________________________________________
Earnings (loss) before
income taxes (1,539) 1,361 (178)
Income taxes (recovery) (470) 294 (176)
_______________________________________________________________________________
Net earnings (loss) (1,069) 1,067 (2)
_______________________________________________________________________________
The unaudited statement of earnings of Flexia for the twelve months ended
December 31, 2004, was constructed by adding the audited statement of earnings
for the year ended June 30, 2005 and the unaudited statement of earnings for
the six months ended June 30, 2004 and subtracting the unaudited statement
of earnings for the six months ended June 30, 2005:
INTERTAPE POLYMER GROUP INC.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Nine months ended September 30, 2005 and the year ended December 31, 2004
(In thousands of U.S. dollars, except as otherwise noted)
(Unaudited - See Compilation Report)
Flexia Six months Six months Twelve months
Year ended ended June 30, ended June 30, ended
June 30, 2005 2004 2005 December 31,
2004
$ $ $ $
_______________________________________________________________________________
Sales 81,740 40,222 (39,478) 82,484
Cost of sales 73,556 35,215 (35,945) 72,796
_______________________________________________________________________________
Gross profit 8,184 5,007 (3,503) 9,688
_______________________________________________________________________________
Selling, general and
administrative
expenses 4,803 2,730 (1,615) 5,918
Gain on sale of
intangibles (9,132) -- -- (9,131)
Financial expenses 1,605 991 (609) 1,987
_______________________________________________________________________________
(2,724) 3,721 (2,224) (1,227)
_______________________________________________________________________________
Earnings before
income taxes 10,908 1,286 (1,279) 10,915
Income taxes 2,357 434 (277) 2,514
_______________________________________________________________________________
Net earning 8,551 852 (1,002) 8,401
_______________________________________________________________________________
Fib-Pak
The unaudited statement of earnings of Fib-Pak for the nine months ended
September 30, 2005 was constructed by adding the unaudited statement of
earnings for the three months ended September 30, 2005 and the unaudited
statement of earnings for the six months ended June 30, 2005:
Fib-Pak Three months Six months ended Nine months
ended September June 30, 2005 ended September
30, 2005 30, 2005
$ $ $
_______________________________________________________________________________
Sales 2,458 6,130 8,588
Cost of sales 2,116 5,414 7,530
_______________________________________________________________________________
Gross profit 342 716 1,058
_______________________________________________________________________________
Selling, general and
administrative expenses 320 344 664
Financial expenses 65 124 189
_______________________________________________________________________________
385 468 853
_______________________________________________________________________________
Earnings (loss) before
income taxes (43) 248 205
Income taxes 19 85 104
_______________________________________________________________________________
Net earnings (loss) (62) 163 101
_______________________________________________________________________________
The unaudited statement of earnings of Fib-Pak for the twelve months ended
December 31, 2004, was constructed by adding the audited statement of earnings
for the year ended June 30, 2005
INTERTAPE POLYMER GROUP INC.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Nine months ended September 30, 2005 and the year ended December 31, 2004
(In thousands of U.S. dollars, except as otherwise noted)
(Unaudited - See Compilation Report)
and the unaudited statement of earnings for the six months ended June 30,
2004 and subtracting the unaudited statement of earnings for the six months
ended June 30, 2005:
Fib-Pak Six months Six months Twelve months
Year ended ended June 30, ended June 30, ended
June 30, 2005 2004 2005 December 31,
2004
$ $ $
_______________________________________________________________________________
Sales 11,085 5,386 (5,769) 10,702
Cost of sales 9,868 4,793 (5,079) 9,582
_______________________________________________________________________________
Gross profit 1,217 593 (690) 1,120
_______________________________________________________________________________
Selling, general and
administrative expenses 618 356 (338) 636
Impairment of goodwill -- 444 -- 444
Financial expenses 245 132 (117) 260
_______________________________________________________________________________
863 932 (445) 1,340
_______________________________________________________________________________
Earnings (loss) before
income taxes 354 (349) (235) (220)
Income taxes (recovery) 121 (72) (80) (31)
_______________________________________________________________________________
Net earnings (loss) 233 (267) (155) (189)
_______________________________________________________________________________
4. PRO FORMA CONSOLIDATED BALANCE SHEET OF IPG
The unaudited pro forma consolidated balance sheet of IPG as at September 30,
2005 is based on the unaudited balance sheet of IPG as at September 30, 2005
and has been prepared as if the acquisition of Flexia and Fib-Pak had
occurred on September 30, 2005 and gives effect to the following adjustments:
(a) Effective October 4, 2005, IPI made cash advances amounting to $12,592 to
Flexia Co. in order for it to repay its bank indebtedness and long-term
debt and the related accrued interest. The unaudited pro forma
consolidated balance sheet reflects the repayment of bank indebtedness of
$4,823, the repayment of long-term debt of $7,505 and of the related
accrued interest of $264 included with accounts payable and accrued
liabilities.
(b) On October 5, 2005, IPI acquired all of the outstanding share capital of
Flexia Co. for a cash consideration of $28,368.
The acquisition was accounted for using the purchase method. The preliminary
allocation of the purchase price is summarized as follows:
INTERTAPE POLYMER GROUP INC.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Nine months ended September 30, 2005 and the year ended December 31, 2004
(In thousands of U.S. dollars, except as otherwise noted)
(Unaudited - See Compilation Report)
$
_______________________________________________________________________________
Assets acquired and liabilities assumed:
Net working capital 13,496
Property, plant and equipment 17,397
Future income tax assets 163
Goodwill 3,555
Pension and post retirement liability (3,424)
Future income taxes liabilities (857)
Other liabilities (1,962)
_______________________________________________________________________________
28,368
_______________________________________________________________________________
Consideration:
Cash 28,368
_______________________________________________________________________________
The actual calculation and allocation of the purchase price is to be based on
the fair values of the assets acquired and liabilities assumed at the
effective date of the acquisition and other information at that date to
support the allocation of the purchase price. Accordingly, the actual amounts
allocated for each of the assets and liabilities will vary from the pro forma
amounts and the variations may be material.
5. PRO FORMA CONSOLIDATED STATEMENTS OF EARNINGS OF IPG
The unaudited pro forma consolidated statements of earnings of IPG for the
nine months ended September 30, 2005 and the year ended December 31, 2004
assume that the acquisition of Flexia and Fib-Pak had occurred on January 1,
2004 and give effect to the following adjustments:
(a) As a result of the repayment of bank indebtedness and long-term debt
described in Note 4(a), the unaudited pro forma consolidated statements
of earnings reflect a decrease in interest expense of $1,089 for the nine
months ended September 30, 2005 and of $1,847 for the year ended December
31, 2004.
(b) Reduction of salaries and wages amounting to $638 for the nine months
ended September 30, 2005 and $800 for the year ended December 31, 2004
relating to the elimination of certain management and staffing positions
at Flexia that have occurred.
(c) Decrease in the amortization expense of $637 for the nine months ended
September 30, 2005 and of $867 for the year ended December 31, 2004 to
reflect the adjustment to fair value of the property, plant and equipment.
INTERTAPE POLYMER GROUP INC.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Nine months ended September 30, 2005 and the year ended December 31, 2004
(In thousands of U.S. dollars, except as otherwise noted)
(Unaudited - See Compilation Report)
(d) Reduction of the pension expense of $70 for the nine months ended
September 30, 2005 and of $87 for the year ended December 31, 2004, to
reflect the recording of the post retirement benefit obligations at
fair value.
(e) Reduction in rental expense of $92 for the nine months ended September
30, 2005 and of $115 for the year ended December 31, 2004 relating to
the termination of a lease regarding the rental of warehouse space which
has taken place.
(f) Increase in interest expense due to bank indebtedness assumed for the
purpose of financing the acquisition amounting to $1,140 for the nine
months ended September 30, 2005 and $1,521 for the year ended December
31, 2004.
(g) Tax effects of the above adjustments at the estimated effective income
tax rate of IPG.