2020 annual report
REVENUE
(USD MILLIONS)
(USD MILLIONS)
1,213
1,159
1,053
CASH FLOWS
(USD MILLIONS)
(USD MILLIONS)
180
135
134
91
87
2018
2019
2020
2018
2019
2020
FREE CASH FLOWS*
CASH FLOWS FROM
OPERATING ACTIVITIES
15
EARNINGS
(USD MILLIONS)
(USD MILLIONS; PERCENTAGE)
NET
EARNINGS
ADJUSTED NET
EARNINGS*
ADJUSTED
EBITDA*
ADJUSTED
EBITDA MARGIN*
2018
2019
2020
47
62
41
58
141
172
73
90
211
13.4% 14.9% 17.4%
*Non-GAAP financial measure. Please see the “Non-GAAP Financial Measures and Key Performance Indicators” section of the Management’s Discussion
& Analysis for an explanation of the Company’s use of this measure and a cross-reference to a reconciliation to its most directly comparable GAAP measure.
Dear Fellow Shareholder
A Message from the Chief Executive Officer and President
Dear Shareholder,
We met a series of challenges both as an IPG team and a broader community over
the course of the past twelve months. Our business has fundamentally changed.
Where we are today is very different than 2016 or even 2020. We are a much
stronger business in multiple ways.
The onset of the pandemic acted as an accelerant for demand in the e-commerce
end-market. It pulled forward two to five years of demand into the e-commerce
channel according to industry estimates and set a new base level from which
future growth is expected to continue. Our water-activated tape primarily serves
the e-commerce market and is experiencing growth in line with the largest
e-commerce retailers in the market. Our acquisitions of Polyair in 2018 and Better
Packages in 2015 strengthened our product bundle with protective packaging products, like mailers and air
pillow systems, and tape dispensers for fulfillment centers, respectively. Growth in the e-commerce channel
disproportionately benefits us due to our higher market share in leading products, like water-activated tape,
relative to the broader competition.
Beyond e-commerce, we have also experienced outsized growth in our wovens business. The capital deployed
in the Indian woven facilities and the acquisition of Maiweave met our objectives by both structurally and
materially improving the profitability and EBITDA contribution of this business. This has enabled us to return
to a competitive position in this market thereby taking back market share that has been lost over the years. In
addition, the pandemic has accelerated demand in the building & construction sector making this favorable
impact even more pronounced.
These demand changes, together with the important investments we have made in capital projects and
acquisitions, have led to record performance for the business. We recorded revenue of more than $1.2 billion,
Adjusted EBITDA* of more than $211 million and free cash flow* of $134 million.
These results are a function of the team’s performance. During some of the most difficult of circumstances and
uncertainty, our employees shined. Showing up to work to perform essential services during the peak of the
pandemic was just one aspect of it. They also performed their work in a manner respecting their colleagues
and their own personal safety and health, which is a longstanding tenet of our business. The Board and I are
exceptionally proud of how the team performed during this difficult period.
With this level of performance from the team, the plants and the business, we believe we have structurally
changed the margin profile from consistently sub-15% Adjusted EBITDA, to well above that level moving forward.
We have also improved our free cash generation profile. We believe this business is a free cash flow engine and
its performance during the past two years demonstrates what it can deliver on a consistent and ongoing basis.
Based on the strength of this cash flow we have significantly de-levered the business to 2.2 times on a net debt
to Adjusted EBITDA basis while also modestly improving our dividends to shareholders.
Based on the demand in our end-markets and the confidence we have in our growth outlook, we are investing
in capex to expand production capacity within our existing operational footprint to serve our highest growth
markets. Our first priority is installing a new water-activated tape line to meet the demand in the e-commerce
channel. We are also investing in new capacity for air pillows, mailers, films and woven products to address
increased demand in these product categories.
By installing new capacity within our existing footprint, we expect these projects will provide shorter-term
investment horizons and return profiles that well exceed the 15% after-tax internal rate of return threshold that we
have traditionally applied to our strategic investments. We are investing directly into categories where we expect
demand to exceed production in the near term. In our view, these are low risk, margin accretive projects. Based
on our capital plan, we expect to generate more than $100 million in incremental revenue on an annualized run-
rate basis by the end of 2022, as well as additional growth in 2023 and beyond.
Our customers are increasingly conscious of what the end-users and consumers want as it relates to packaging
and protective solutions. We are proactively addressing this demand by certifying and expanding the
sustainable products within our product bundle. During the past two years, we have obtained the Cradle to
Cradle Certification™ for four of our major product lines: water-activated tape, shrink film, stretch film and
woven structure membrane. Each of these products is a first-of-the-world product in its category to be Cradle to
Cradle certified. We intend to continue to invest in innovative packaging that our customers are demanding to
meet higher sustainability standards. As part of this commitment, we have expanded our management capacity
and our board oversight which will be responsible for these specific sustainability, environmental, social and
governance initiatives.
I want to take this opportunity to thank our employees across North America, Asia and Europe. Their dedication
and commitment to operating our assets safely and efficiently enabled us to continue to provide essential
products to our customers through the course of the pandemic. On behalf of everyone at IPG, we appreciate
our shareholders’ continued support and shared belief that IPG is a vehicle of sustainable growth as a trusted
supplier of packaging and protective solutions to a stable industry. Our business is stronger today than at any
point at which I have led it. We are better positioned to grow than ever before.
* Non-GAAP financial measure. Please see the “Non-GAAP Financial Measures and Key Performance Indicators” section of the Management’s Discussion & Analysis for an explanation of
the Company’s use of this measure and a cross-reference to a reconciliation to its most directly comparable GAAP measure.
This Annual Report contains “forward-looking information” (within the meaning of applicable Canadian securities legislation) and “forward-looking statements” (within the meaning of
applicable U.S. securities legislation). Please see the section of the Management’s Discussion & Analysis entitled “Forward-Looking Statements” for additional information.
Gregory A.C. Yull
Chief Executive Officer and President of IPG
Intertape Polymer Group Inc.
Management’s Discussion and Analysis
This Management’s Discussion and Analysis ("MD&A") is intended to provide the reader with a better understanding of the
business, strategy and performance of Intertape Polymer Group Inc. (the "Company"), as well as how it manages certain risks
and capital resources. This MD&A, which has been prepared as of March 11, 2021, should be read in conjunction with the
Company’s audited consolidated financial statements and notes thereto as of December 31, 2020 and 2019 and for the three-
year period ended December 31, 2020 ("Financial Statements"). It should also be read together with the text below on forward-
looking statements in the Section entitled "Forward-Looking Statements."
For the purposes of preparing this MD&A, the Company considers the materiality of information. Information is considered
material if the Company believes at the time of preparing this MD&A that: (i) such information results in, or would reasonably
be expected to result in, a significant change in the market price or value of the common shares of the Company; (ii) there is a
substantial likelihood that a reasonable investor would consider it important in making an investment decision; and/or (iii) it
would significantly alter the total mix of information available to investors. The Company evaluates materiality with reference
to all relevant circumstances, including potential market sensitivity.
Except where otherwise indicated, all financial information presented in this MD&A, including tabular amounts, is prepared in
accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board
("IFRS" or "GAAP") and is expressed in US dollars ("USD") unless otherwise stated to be in Canadian dollars ("CDN") or
Indian rupees ("INR"). Variance, ratio and percentage changes in this MD&A are based on unrounded numbers.
This MD&A contains certain non-GAAP financial measures and key performance indicators as defined under applicable
securities legislation, including adjusted net earnings (loss), adjusted earnings (loss) per share, EBITDA, adjusted EBITDA,
total leverage ratio, consolidated secured net leverage ratio, and free cash flows (please see the "Adjusted Net Earnings (Loss)
and Adjusted Net Earnings (Loss) Per Share" section below for a description and reconciliation of adjusted net earnings (loss)
and adjusted earnings (loss) per share, “EBITDA, Adjusted EBITDA and Total Leverage Ratio” section below for a description
and reconciliation of EBITDA and adjusted EBITDA, and a description of consolidated secured net leverage ratio and total
leverage ratio, and the “Cash Flows” section below for a description and reconciliation of free cash flows). In determining these
measures, the Company excludes certain items which are otherwise included in determining the comparable GAAP financial
measures. The Company believes such non-GAAP financial measures are key performance indicators that improve the period-
to-period comparability of the Company’s results and provide investors with more insight into, and an additional tool to
understand and assess, the performance of the Company's ongoing core business operations. As required by applicable
securities legislation, the Company has provided definitions of those measures and reconciliations of those measures to the most
directly comparable GAAP financial measures. Investors and other readers are encouraged to review the related GAAP
financial measures and the reconciliation of non-GAAP financial measures to their most directly comparable GAAP financial
measures set forth below in the section entitled "Non-GAAP Financial Measures and Key Performance Indicators" and should
consider non-GAAP financial measures and key performance indicators only as a supplement to, and not as a substitute for or
as a superior measure to, measures of financial performance prepared in accordance with GAAP.
1
Financial Highlights
(In millions of USD, except per share amounts, selected ratios, and stock information)
(Unaudited)
Operations
Revenue
Gross margin (1)
Net earnings attributable to Company shareholders (2)
Adjusted net earnings (3)
Adjusted EBITDA (3)
Cash flows from operating activities
Free cash flows (3)
Capital expenditures (4)
Effective tax rate (5)
Per Common Share
IPG Net Earnings - diluted
Adjusted earnings - diluted (3)
Dividend paid per share (6)
Financial Position
Working capital (7)
Total assets
Net debt (8)
Total equity attributable to Company shareholders
Cash and loan availability (9)
Selected Ratios
Current ratio (10)
Consolidated secured net leverage ratio (3) (9)
Total leverage ratio (3) (11)
Stock Information
Weighted average shares outstanding - diluted (12)
Shares outstanding as of December 31 (12)
The Toronto Stock Exchange (CDN$)
Share price as of December 31
High: 52 weeks
Low: 52 weeks
2020
$
2019
$
2018
$
1,213.0
1,158.5
1,053.0
23.8 %
72.7
89.7
211.1
179.6
133.8
45.8
20.7 %
1.22
1.50
0.60
165.6
1,109.6
473.5
304.7
408.7
1.7
1.1
2.2
59,631
59,027
24.14
26.86
7.02
21.3 %
41.2
57.8
172.2
135.0
86.8
48.2
28.3 %
0.70
0.98
0.58
169.4
1,025.7
501.8
260.7
406.0
2.0
1.4
2.9
58,989
59,010
16.62
19.97
15.68
20.8 %
46.8
62.2
140.9
90.8
15.0
75.8
17.4 %
0.79
1.05
0.56
186.5
1,004.8
481.3
249.8
393.9
2.1
1.5
3.2
59,084
58,650
16.92
22.84
14.60
(1)
(2)
(3)
Gross profit divided by revenue.
Net earnings attributable to Company shareholders ("IPG Net Earnings").
These are non-GAAP financial measures defined below and accompanied by a reconciliation (where required) to the
most directly comparable GAAP financial measure. Refer to the section below entitled "Non-GAAP Financial
Measures and Key Performance Indicators."
Purchases of property, plant and equipment.
(4)
(5) Refer to the section below entitled "Income Taxes" and Note 5 – Income Taxes to the Company’s Financial Statements.
(6)
Dividends paid divided by weighted average basic shares outstanding.
Current assets less current liabilities.
Borrowings and lease liabilities, current and non-current, less cash.
Refer to the section below entitled "Liquidity and Borrowings".
Current assets divided by current liabilities.
Net debt, divided by adjusted EBITDA. Adjusted EBITDA for the twelve months ending December 31, 2018 used in
this calculation includes (i) pre-acquisition results for Polyair, Maiweave and Airtrax conformed to the Company's
(7)
(8)
(9)
(10)
(11)
2
current definition of adjusted EBITDA, which is not normalized for expected run-rates and (ii) the pro forma effects of
operating lease payments that were capitalized in accordance with new lease accounting guidance implemented on
January 1, 2019. "Polyair" refers to Polyair Inter Pack, Inc. and "Polyair Acquisition" refers to the acquisition by the
Company of 100% of the outstanding equity in Polyair on August 3, 2018. "Maiweave" refers to Maiweave LLC and
"Maiweave Acquisition" refers to the acquisition by the Company of substantially all of the operating assets of
Maiweave on December 17, 2018. "Airtrax Acquisition" refers to the acquisition by the Company of substantially all
of the assets and assumption of certain liabilities of Airtrax Polymers Private Limited (doing business as "Airtrax") on
May 11, 2018 as part of a larger transaction involving Capstone Polyweave Private Limited (doing business as
“Capstone”) and its minority shareholders.
In thousands.
(12)
2020 Share Prices
The Toronto Stock Exchange (CDN$)
Q1
Q2
Q3
Q4
High
Low
Close
ADV (1)
17.34
13.83
16.38
26.86
7.02
9.27
11.61
14.82
10.04
11.98
14.83
24.14
262,007
250,895
196,442
279,556
(1)
Represents average daily volume sourced from the Toronto Stock Exchange.
3
Consolidated Quarterly Statements of Earnings
(In thousands of USD, except share and per share amounts)
(Unaudited)
Revenue
Cost of sales
Gross profit
Gross margin
Selling, general and administrative
expenses
Research expenses
Operating profit before manufacturing
facility closures, restructuring and
other related charges (recoveries)
Manufacturing facility closures,
restructuring and other related charges
(recoveries)
Operating profit
Finance costs (income)
Interest
Other (income) expense, net
2020 (1)
$
278,212
219,105
59,107
1st Quarter
2019
$
277,823
220,027
57,796
2018
$
237,229
186,777
50,452
2020 (1)
$
267,710
210,623
57,087
2nd Quarter
2019
$
295,609
230,915
64,694
2018
$
249,072
194,625
54,447
21.2 %
20.8 %
21.3 %
21.3 %
21.9 %
21.9 %
30,907
3,333
34,240
32,683
3,168
35,851
29,123
3,221
32,344
34,534
2,546
37,080
36,433
3,023
39,456
27,653
3,233
30,886
24,867
21,945
18,108
20,007
25,238
23,561
651
24,216
304
21,641
107
18,001
3,211
16,796
3,875
21,363
(407)
23,968
7,798
(1,132)
6,666
7,693
(655)
7,038
2,462
1,125
3,587
7,513
(9,590)
(2,077)
8,565
798
9,363
3,945
1,328
5,273
Earnings before income tax expense
17,550
14,603
14,414
18,873
12,000
18,695
Income tax expense (benefit)
Current
Deferred
Net earnings
Net earnings (loss) attributable to:
Company shareholders
Non-controlling interests
IPG Net Earnings per share
Basic
Diluted
Weighted average number of common
shares outstanding
2,355
881
3,236
14,314
1,175
2,896
4,071
10,532
988
2,132
3,120
11,294
3,996
296
4,292
14,581
5,977
(439)
5,538
6,462
765
2,901
3,666
15,029
14,376
(62)
14,314
10,491
41
10,532
11,359
(65)
11,294
14,479
102
14,581
6,566
(104)
6,462
15,097
(68)
15,029
0.24
0.24
0.18
0.18
0.19
0.19
0.25
0.25
0.11
0.11
0.26
0.26
Basic
Diluted
59,009,685
58,652,366
58,801,327
59,009,685
58,760,473
58,811,586
59,075,593
58,924,107
59,146,693
59,467,336
58,955,643
59,103,899
(1)
Certain prior period amounts, including net earnings and the Company's non-GAAP financial measures, have been
adjusted to reflect the allocation of purchase proceeds related to the acquisition by the Company of substantially all of
the operating assets of Nortech Packaging LLC and Custom Assembly Solutions, Inc. (together "Nortech") on
February 11, 2020 ("Nortech Acquisition") as measured and reported in the third quarter of 2020. These results reflect
all adjustments which are, in the opinion of management, necessary to present a fair statement of the results for these
interim periods. These adjustments are of a normal recurring nature. See "Nortech Acquisition and Integration Update"
below as well as the section below entitled “Non-GAAP Financial Measures and Key Performance Indicators.”
4
Consolidated Quarterly Statements of Earnings
(In thousands of USD, except share and per share amounts)
(Unaudited)
Revenue
Cost of sales
Gross profit
Gross margin
Selling, general and administrative
expenses
Research expenses
Operating profit before manufacturing
facility closures, restructuring and
other related charges (recoveries)
Manufacturing facility closures,
restructuring and other related charges
(recoveries)
Operating profit
Finance costs
Interest
Other expense (income), net
2020
$
323,027
238,917
84,110
3rd Quarter
2019
$
293,598
229,535
64,063
2018
$
279,062
221,719
57,343
2020
$
344,079
255,599
88,480
4th Quarter
2019
$
291,489
231,167
60,322
2018
$
287,656
231,015
56,641
26.0 %
21.8 %
20.5 %
25.7 %
20.7 %
19.7 %
38,621
2,554
41,175
35,025
3,326
38,351
34,230
2,926
37,156
53,424
2,763
56,187
32,533
3,010
35,543
31,460
2,644
34,104
42,935
25,712
20,187
32,293
24,779
22,537
466
42,469
1,614
24,098
5,777
14,410
—
32,293
(657)
25,436
1,583
20,954
7,368
1,296
8,664
7,764
(459)
7,305
3,952
(1,497)
2,455
6,757
3,188
9,945
7,668
3,630
11,298
6,713
2,854
9,567
Earnings before income tax expense
33,805
16,793
11,955
22,348
14,138
11,387
Income tax expense (benefit)
Current
Deferred
Net earnings
Net earnings (loss) attributable to:
Company shareholders
Non-controlling interests
IPG Net Earnings per share
Basic
Diluted
Weighted average number of common
shares outstanding
9,373
(2,741)
6,632
27,173
6,584
(2,332)
4,252
12,541
(496)
2,742
2,246
9,709
9,871
(4,910)
4,961
17,387
3,459
(1,010)
2,449
11,689
(323)
1,093
770
10,617
26,726
447
27,173
12,528
13
12,541
0.45
0.45
0.21
0.21
9,663
46
9,709
0.16
0.16
17,089
298
17,387
11,631
58
11,689
10,634
(17)
10,617
0.29
0.28
0.20
0.20
0.18
0.18
Basic
Diluted
59,009,685
58,877,185
58,817,410
59,012,869
58,900,337
58,831,432
59,745,118
59,058,758
59,081,293
60,083,664
59,027,917
59,055,824
5
Overview
The Company develops, manufactures and sells a variety of paper-and-film based pressure sensitive and water-activated tapes,
polyethylene and specialized polyolefin films, protective packaging, engineered coated products and packaging machinery for
industrial and retail use. The Company provides packaging and protective solutions for industrial markets in North America,
Europe and other geographies.
The Company’s products primarily consist of carton sealing tapes, including pressure-sensitive and water-activated tapes;
packaging equipment; industrial and performance specialty tapes including masking, duct, electrical, foil, process indicator,
sheathing, sports and reinforced filament tapes; protective packaging solutions including inflatable systems, mailer products,
bubble cushioning, paper void fill, thermal solutions and protective foam roll stock; stencil products; shrink film; stretch wrap;
lumber wrap, structure fabrics, geomembrane fabrics; and non-manufactured flexible intermediate bulk containers. Most of the
Company’s products are made from similar processes. A vast majority of the Company’s products, while brought to market
through various distribution channels, generally have similar economic characteristics.
The Company has assembled a broad range of products by leveraging its manufacturing technologies, research and
development capabilities, global sourcing expertise and strategic acquisitions. Over the years, the Company has made a number
of strategic acquisitions intended to offer a broader range of products to better serve its markets. The Company’s extensive
product line permits the Company to offer tailored solutions to a wide range of end-markets. The Company's largest end-
markets as of December 31, 2020 were: general manufacturing, fulfillment/e-commerce, food and beverage, building and
construction, retail and transportation.(1)
The Company's unique bundle of products positions it to serve the market with a broad and comprehensive range of packaging,
protective and industrial product solutions. The Company believes that its broad and unique product bundle is a key competitive
advantage. The portfolio of products is valuable to the Company’s customers as it contributes to the flexibility of its distributor
partners by allowing them to offer a solutions-oriented approach to address specific end user needs, creates operating
efficiencies and lowers operating costs. Management believes this flexibility is unique to the Company and differentiates the
Company from its competitors.
COVID-19
Beginning in December 2019, a new strain of the coronavirus (COVID-19) has been spreading rapidly through the world,
including the United States, Canada, India and Europe (where, collectively, significant portions of the Company’s operations
are located and its sales occur). As of late, variants of COVID-19 have been reported in certain countries, including the United
States. The impact of the virus varies from region to region and from week to week.
The Company has implemented measures to prioritize the health and safety of its employees while protecting its assets,
customers, suppliers, shareholders and other stakeholders. The following is an overview of the status of the Company's efforts
as of the time of this filing as well as a discussion of certain risks to its business associated with COVID-19:
•
The Company's facilities are open and operating, having qualified as essential under the applicable government orders
and guidelines. Alternative capacity exists across all major product lines that would enable the continuation of
operations if certain facilities were required to close; however, in most cases, this alternative capacity would produce
less than current run rates. Management has adjusted, and will continue to adjust, production plans to align with
changes in demand in order to manage working capital and associated cost levels. Management has successfully
mitigated minor supply chain challenges experienced to date and continues to work closely with suppliers as supply
chain risk mitigation plans are refined.
• Management has put measures in place to enable employees to work safely according to the United States Centers for
Disease Control and Prevention and World Health Organization guidelines and other applicable local guidelines,
including social distancing and requiring employees to wear protective face coverings provided by the Company while
in our manufacturing facilities and to complete health interviews prior to entry on a regular basis. The Company has
significantly increased the frequency of cleaning and sanitizing equipment and facilities in the context of COVID-19
and the Company continues to support remote work arrangements for approximately 20% of its workforce in North
America. The remote work arrangements have not had any significant effect on the Company's ability to conduct its
day-to-day operations.
6
•
•
Employee health coverage has been enhanced to include the cost of COVID-19 testing and treatment at no additional
cost to employees, and the higher risk workforce or those experiencing illness of any kind are strongly encouraged to
stay at home or shelter in place. As a result of these and other factors, we believe the current absentee rate at facilities
in North America is at a manageable level and has not resulted in any material level of production disruption.
The Company has been effectively managing working capital and has implemented cost savings initiatives. In the
fourth quarter and fiscal year 2020, the Company generated cash flows from operating activities of $88.6 million and
$179.6 million, respectively, and free cash flows of $63.8 million and $133.8 million, respectively. Cash and loan
availability was $408.7 million at the conclusion of the fourth quarter. Loan covenants were well within their limits
with the consolidated secured net leverage ratio at 1.14, compared to the covenant maximum of 3.70, and the
consolidated interest coverage ratio at 7.08, compared to the covenant minimum of 2.75 as of December 31, 2020.
Loan availability was $392.2 million as of December 31, 2020, which does not include the incremental accordion
feature of $200.0 million available on the Company's credit facility (subject to the credit agreement's terms and lender
approval). Additionally, the 2018 Credit Facility (defined later in this document) has approximately two years
remaining until maturity and the Senior Unsecured Notes (defined later in this document) have approximately six years
remaining until maturity. See "Liquidity and Borrowings" below for more information.
There continues to be significant macroeconomic uncertainty, and the Company expects the COVID-19 pandemic will likely
have a materially negative impact on the global economy into 2021 and perhaps beyond. While the Company has delivered
positive financial results to date, the pandemic could yet materially impact the Company’s ability to manufacture, source
(including the delivery of raw materials to its facilities) or distribute its products both domestically and internationally and
reduce demand for its products, any of which could have a significant negative impact on the Company’s financial results in
2021 and beyond. Given the dynamic nature of the pandemic (including its duration and the severity of its impact on the global
economy and the applicable governmental responses), the extent to which the COVID-19 pandemic impacts the Company’s
future results will depend on unknown future developments and any further impact on the global economy and the markets in
which the Company operates and sells its products, all of which remain highly uncertain and cannot be accurately predicted at
this time.
Financial Summary
The Company reported a 4.7% increase in revenue for the year ended December 31, 2020 as compared to the year ended
December 31, 2019 and an 18% increase in revenue for the fourth quarter of 2020 as compared to the fourth quarter of 2019.
The increase in revenue in both periods was primarily due to increased demand in products with significant e-commerce or
building and construction end-market exposure, including water-activated tapes, protective packaging and certain other tape
products.
Gross margin increased to 23.8% in the year ended December 31, 2020 as compared to 21.3% in 2019. Gross margin increased
to 25.7% in the fourth quarter of 2020 compared to 20.7% in the fourth quarter of 2019. In both periods, gross margin
increased primarily due to an increase in spread between selling prices and combined raw material and freight costs and
favourable plant performance driven by increased scale providing leverage on both fixed costs and recent investments.
IPG Net Earnings for the year ended December 31, 2020 increased to $72.7 million ($1.23 basic and $1.22 diluted earnings per
share) from $41.2 million ($0.70 basic and diluted earnings per share) for the year ended December 31, 2019. The increase was
primarily due to an increase in gross profit and a gain resulting from a fair value adjustment to the Company's contingent
consideration related to the Nortech Acquisition. These favourable impacts were partially offset by an increase in share-based
compensation mainly due to an increase in the fair value of cash-settled awards, including the impact of performance
adjustments.
IPG Net Earnings for the fourth quarter of 2020 totalled $17.1 million ($0.29 basic earnings per share and $0.28 diluted
earnings per share) compared to $11.6 million ($0.20 basic and diluted earnings per share) for the fourth quarter of 2019. The
increase was primarily due to an increase in gross profit, partially offset by an increase in share-based compensation mainly due
to an increase in the fair value of cash-settled awards, including the impact of performance adjustments and an increase in
income tax expense.
Adjusted net earnings(2) increased to $89.7 million ($1.52 basic adjusted earnings per share(2) and $1.50 diluted adjusted
earnings per share) for the year ended December 31, 2020 from $57.8 million ($0.98 basic and diluted adjusted earnings per
share) for the year ended December 31, 2019. Adjusted net earnings increased to $32.4 million ($0.55 basic adjusted earnings
per share and $0.54 diluted adjusted earnings per share) for the fourth quarter of 2020 from $13.6 million ($0.23 basic and
7
diluted adjusted earnings per share) for the fourth quarter of 2019. The increase in both periods was primarily due to an increase
in gross profit, partially offset by an increase in income tax expense.
Adjusted EBITDA(2) increased to $211.1 million for the year ended December 31, 2020 from $172.2 million for the year ended
December 31, 2019 and to $67.7 million for the fourth quarter of 2020 from $43.8 million for the fourth quarter of 2019. The
increase in both periods was primarily due to an increase in gross profit.
(1)
(2)
Represents management estimates as the Company does not have access to exact point of sale data.
Non-GAAP financial measure. For definitions and reconciliations of non-GAAP financial measures to their most
directly comparable GAAP financial measures, see “Non-GAAP Financial Measures and Key Performance Indicators”
below.
Other Highlights
Dividend Declaration
On March 11, 2021, the Board of Directors declared a dividend of $0.1575 per common share payable on March 31, 2021 to
shareholders of record at the close of business on March 22, 2021.
On November 11, 2020, the Board of Directors amended the Company's quarterly policy to increase the annualized dividend by
6.8% from $0.59 to $0.63 per common share. The Board's decision to increase the dividend was based on the Company's strong
financial position and positive outlook.
Sustainability
The Company continues to embrace sustainability as a key strategy of doing business to drive operational excellence and
benefit from new opportunities in its markets. In July 2020, the Company published its annual 2019 sustainability report, titled
"We Package, We Protect & We Sustain", which provides an overview of the Company's sustainability progress in 2019 and
highlights sustainability opportunities in the years ahead. The Company's achievements in 2020 include:
• Achieved Cradle to Cradle Certified™ Silver level for Exlfilmplus® Shrink Film, StretchFLEX® and SuperFLEX®
Stretch Film
• Achieved Cradle to Cradle Certified™ Bronze level for Water Activated Tape and NovaShield® Structure Membrane
•
Formed the Environmental, Social & Governance ("ESG") Committee of the Board of Directors with a mandate to
provide governance and oversight with respect to ESG matters including: health, safety, environmental, social,
sustainability, climate-related matters, corporate governance and other human capital matters.
Read the full report at www.itape.com/sustainability.
Nortech Acquisition & Integration Update
On February 11, 2020, the Company completed the Nortech Acquisition. Nortech manufactures, assembles and services
automated packaging machines under the Nortech Packaging and Tishma Technologies brands, and services customers
worldwide across major industries including food and beverage, pharmaceutical, e-commerce, confections, personal care and
cosmetics. The custom in-feed and robotic solutions for packaging applications that the Company acquired from Nortech are
designed for cartoning, case-packing, case-erecting, pouch-packaging and palletizing. The acquisition expands the Company’s
product bundle into technologies that the Company believes are increasingly critical to automation in packaging. Automation
system design and service are key capabilities in growing markets like e-commerce. The acquisition provides the Company
with opportunities to supply its consumable products, such as tapes, films and protective packaging to new and existing
machine customers. The acquisition also adds engineering automation and integrated robotic design talent to the Company’s
existing engineering and design teams. These new capabilities enable the Company to service customers experiencing growth
pressures that require a customized automation solution.
The Nortech Acquisition was completed for an aggregate purchase price of $46.5 million, net of cash balances acquired. This
amount includes potential earn-out consideration of up to $12.0 million contingent upon certain future performance measures of
the acquired assets to be determined following the two-year anniversary of the acquisition date. Excluding working capital
adjustments, cash balances acquired and the contingent consideration noted above, the purchase price was $36.5 million. In the
8
twelve months prior to the acquisition date, Nortech's sales were approximately $20 million with adjusted EBITDA (as
determined consistent with the Company's definition) of $5.5 million. The upfront purchase price represents an adjusted
EBITDA multiple of 6.6x. The purchase price, when including the tax basis step-up value, represents an adjusted EBITDA
multiple of 5.7x without any consideration given to potential revenue synergies. The potential earn-out consideration does not
impact the adjusted EBITDA multiples. The initial purchase price amount paid was financed using funds available under the
Company's 2018 Credit Facility.
The Nortech Acquisition’s impact on the Company’s consolidated earnings was as follows (in millions of USD):
Revenue
Net loss
Three months ended
December 31, 2020
$
February 12 through
December 31, 2020
$
2.5
1.2
11.7
2.1
The COVID-19 pandemic has created, what management believes to be, short-term changes in market conditions surrounding
Nortech's business including: delays in customer approvals on new machines and installations and changes in customer capital
expenditure behavior resulting in significantly fewer orders from successful lead generation. In addition, new product
opportunities currently in the early design stages are experiencing some delay. As a result of these impacts, management:
•
•
continues to believe that the absence of any future payment toward the contingent consideration obligation is probable
and, therefore, the Company estimates the fair value of the obligation to be nil as of December 31, 2020; and
performed impairment testing for the Nortech asset group in the second and fourth quarters of 2020, which did not
indicate impairment or result in any impairment charge being recognized largely due to what management expects to
be the relatively short-term nature of the COVID-19 pandemic's impact on the macroeconomic environment relative to
the expected future cash flows and growth expected to be generated by Nortech over the long-term once market
conditions have improved.
Outlook
The Company's expectations for fiscal year 2021 are as follows:
•
•
•
•
•
Revenue in 2021 is expected to be between $1.3 and $1.4 billion. This range takes into consideration recent increases
in raw material prices, which are expected to have a direct impact on selling prices.
Adjusted EBITDA for 2021 is expected to be between $220 and $240 million.
Total capital expenditures for 2021 are expected to be approximately $100 million, which includes $70 million to
expand production capacity in the Company's highest growth product categories, specifically water-activated tape,
wovens, protective packaging and films. This also includes $10 million for digital transformation and cost savings
initiatives, and $20 million for regular maintenance.
Free cash flows for 2021 are expected to be between $80 and $100 million. As in previous years, the Company
expects the majority of free cash flows to be generated in the second half of the year due to the normal seasonality of
working capital requirements.
The Company expects a 22% to 27% effective tax rate for 2021, excluding the potential impact of changes in the mix
of earnings between jurisdictions and the potential impact of changes resulting from potential US tax legislation that
increases rates and could be retroactive to January 1, 2021. The Company expects cash taxes paid in 2021 to be
approximately 10% greater than income tax expense due to less availability of tax attributes and loss carryforwards, as
well as the impacts of bonus depreciation previously taken.
The Company recognizes that the potential effects and duration of COVID-19, as well as the impact of the weather-related
event in Texas during February on the availability and price of raw materials is uncertain and could have an effect on the
expected level of revenue and adjusted EBITDA. Consistent with past practices, the Company expects to protect the dollar
spread by implementing price increases as required to offset higher raw material and freight costs. The implications of the
weather-related event in Texas continue to evolve. The Company is monitoring the situation and does not anticipate inventory
constraints in the first quarter. However, availability of raw materials could impact the second quarter if production in Texas is
not restored in a reasonable time frame.
The Company is expanding production capacity in high-growth product categories. By installing new capacity within its
existing footprint, the Company expects these projects will provide shorter-term investment horizons and return profiles that
9
more than exceed the 15% after-tax internal rate of return threshold that the Company has traditionally applied to its strategic
investments. The Company is investing directly into categories where it expects demand to exceed production in the near term.
The Company views these as low risk, margin accretive projects. Based on its capital plan, the Company anticipates generating
more than $100 million in incremental revenue on an annualized run-rate basis by the end of 2022 as well as additional growth
into 2023 and beyond.
The above description of the Company's 2021 financial outlook in this MD&A is based on management's current views,
strategies, assumptions and expectations concerning growth opportunities, the potential impact of COVID-19, as well as
management's assessment of the opportunities for the Company and its industry. The purpose of disclosing this outlook is to
provide investors with more information concerning the fiscal impact of the Company's business initiatives and growth
strategies. The above description of the Company's 2021 outlook is forward-looking information for the purposes of applicable
securities laws in Canada and readers are therefore cautioned that actual results may vary materially from those described
above. Refer to the section below entitled "Forward-Looking Statements" as well as "Item 3. Key Information - Risk Factors,"
located in the Company’s annual report on Form 20-F for the year ended December 31, 2019 for a reference to the risks and
uncertainties impacting the Company that could cause actual results to vary.
Results of Operations
Revenue
Revenue for the year ended December 31, 2020 totalled $1,213.0 million, a $54.5 million or 4.7% increase from $1,158.5
million for the year ended December 31, 2019, primarily due to:
•
•
An increase in volume/mix of approximately $54.0 million primarily driven by increased demand in products with
significant e-commerce or building and construction end-market exposure, including water-activated tape, protective
packaging, and certain other tape products; and
Additional revenue of $11.7 million from the Nortech Acquisition.
Partially offset by:
•
The impact of lower selling prices of approximately $10.3 million primarily in films, woven products, and certain
carton sealing tape products as a result of lower cost raw materials experienced through a portion of the year.
Revenue for the year ended December 31, 2019 totalled $1,158.5 million, a $105.5 million or 10.0% increase from $1,053.0
million for the year ended December 31, 2018, primarily due to:
•
•
•
Additional revenue of $107.5 million from the Polyair, Maiweave, and Airtrax acquisitions;
The impact of higher selling prices of approximately $1.9 million primarily in certain tape products partially offset by
a decline in price for certain film products; and
An increase in volume/mix of approximately $0.5 million driven by growth in water-activated tape and films which
are each product categories directly related to the Company's recent strategic investments. This increase was offset
significantly by declines in a retail tape product line, certain industrial tapes, and equipment products.
Partially offset by:
•
An unfavourable foreign exchange impact of $4.4 million.
Revenue for the fourth quarter of 2020 totalled $344.1 million, a $52.6 million or 18.0% increase from $291.5 million for the
fourth quarter of 2019, primarily due to:
•
•
•
An increase in volume/mix of approximately 15.9% or $46.4 million primarily driven by increased demand in products
with significant e-commerce or building and construction end-market exposure including water-activated tapes,
protective packaging, and certain other tape products;
The impact of higher selling prices of approximately $2.8 million primarily in film products driven by increases in
certain raw materials; and
Additional revenue of $2.5 million from the Nortech Acquisition.
Gross Profit and Gross Margin
Gross profit totalled $288.8 million for the year ended December 31, 2020, a $41.9 million or 17.0% increase from $246.9
million for the year ended December 31, 2019. Gross margin was 23.8% in 2020 and 21.3% in 2019.
•
•
Gross profit increased primarily due to an increase in spread between selling prices and combined raw material and
freight costs, a favourable product volume/mix, and favourable plant performance driven by increased scale providing
leverage on both fixed costs and recent investments.
Gross margin increased primarily due to an increase in spread between selling prices and combined raw material and
freight costs and favourable plant performance driven by increased scale.
10
Gross profit totalled $246.9 million for the year ended December 31, 2019, a $28.0 million or 12.8% increase from $218.9
million for the year ended December 31, 2018. Gross margin was 21.3% in 2019 and 20.8% in 2018.
•
•
Gross profit increased primarily due to an increase in spread between selling prices and combined raw material and
freight costs, and additional gross profit from the Polyair, Maiweave, and Airtrax acquisitions. These favourable
impacts were partially offset by an unfavourable product volume/mix.
Gross margin increased primarily due to an increase in spread between selling prices and combined raw material and
freight costs, partially offset by the dilutive impact of the Polyair and Maiweave acquisitions and an unfavourable
product mix.
Gross profit totalled $88.5 million for the fourth quarter of 2020, a $28.2 million or 46.7% increase from $60.3 million for the
fourth quarter of 2019. Gross margin was 25.7% in the fourth quarter of 2020 and 20.7% in the fourth quarter of 2019.
•
•
Gross profit increased primarily due to a favourable product volume/mix, an increase in spread between selling prices
and combined raw material and freight costs, and favourable plant performance driven by increased scale providing
leverage on both fixed costs and recent investments.
Gross margin increased primarily due to an increase in spread between selling prices and combined raw material and
freight costs and favourable plant performance driven by increased scale.
Selling, General and Administrative Expenses
Selling, general & administrative expenses ("SG&A") totalled $157.5 million for the year ended December 31, 2020, a $20.8
million or 15.2% increase from $136.7 million for the year ended December 31, 2019. SG&A for the fourth quarter of 2020
totalled $53.4 million, a $20.9 million or 64.2% increase from $32.5 million for the fourth quarter of 2019. The increase in
both periods was primarily due to an increase in share-based compensation mainly due to an increase in the fair value of cash-
settled awards, including the impact of performance adjustments.
Share-based compensation expense totalled $22.9 million and $0.5 million for the years ended December 31, 2020 and 2019,
respectively, and $18.4 million and a benefit of $1.5 million for the fourth quarter of 2020 and 2019, respectively. Excluding
share-based compensation expense, SG&A decreased $1.6 million or 1.2% for the year ended December 31, 2020 compared to
2019, primarily due to cost saving initiatives implemented due to COVID-19, partially offset by additional SG&A from the
Nortech Acquisition. Excluding share-based compensation expense, SG&A increased $0.9 million or 2.8% for the fourth
quarter of 2020 compared to the same period in 2019, primarily due to an increase in variable compensation expense and
additional SG&A from the Nortech Acquisition, partially offset by cost saving initiatives implemented due to COVID-19.
SG&A totalled $136.7 million for the year ended December 31, 2019, a $14.2 million or 11.6% increase from $122.5 million
for the year ended December 31, 2018. The increase was primarily due to additional SG&A from the Polyair and Maiweave
acquisitions.
As a percentage of revenue, SG&A, excluding share-based compensation expense, represented 11.1%, 11.8% and 11.4% for
2020, 2019 and 2018, respectively.
Manufacturing Facility Closures, Restructuring and Other
Manufacturing facility closures, restructuring and other related charges totalled $4.3 million for the year ended December 31,
2020, a $0.8 million decrease from $5.1 million for the year ended December 31, 2019. The decrease was primarily due to
higher closure costs incurred in 2019 related to both the Cantech (1) facility closures (the Montreal, Quebec manufacturing
facility at the end of 2019 and the Johnson City, Tennessee manufacturing facility at the end of 2018) as compared to 2020
which included charges associated with employee restructuring initiatives in response to COVID-19 uncertainties. Charges
incurred during the year ended December 31, 2020 were composed of $3.7 million in cash charges mainly related to
termination benefits, restoration and ongoing idle facility costs and $0.6 million in non-cash impairments of inventory. Charges
incurred during the year ended December 31, 2019 were composed of $4.3 million in cash charges mainly related to
termination benefits, restoration and ongoing idle facility costs and $0.8 million in non-cash impairments of property, plant and
equipment and inventory.
Manufacturing facility closures, restructuring and other related charges totalled $5.1 million for the year ended December 31,
2019, a $1.9 million decrease from $7.1 million for the year ended December 31, 2018. The decrease was primarily due to
higher closure costs incurred related to the Johnson City, Tennessee manufacturing facility closure in 2018 as compared to
closure costs incurred related to both Cantech facility closures in 2019. Charges incurred during the year ended December 31,
2018 were composed of $6.1 million of non-cash impairments of property, plant and equipment and inventory as well as $0.9
million in cash charges mainly related to termination benefits and other labor related costs.
11
Manufacturing facility closures, restructuring and other related recoveries were nil for the fourth quarter of 2020 compared to a
recovery of $0.7 million for the fourth quarter of 2019. The recovery in the fourth quarter of 2019 was primarily due to a
reversal of impaired inventory related to the Johnson City, Tennessee manufacturing facility closure.
(1)
"Cantech" refers to the Canadian Technical Tape Ltd. which was acquired by the Company in July 2017.
Finance Costs (Income)
Finance costs for the year ended December 31, 2020 totalled $23.2 million, an $11.8 million decrease from $35.0 million for
the year ended December 31, 2019, primarily due to (i) a gain resulting from a fair value adjustment to the Company's
contingent consideration related to the Nortech Acquisition, (ii) a decrease in interest expense as discussed below, and (iii) a
decrease in the re-valuation of non-controlling interest put options associated with the Airtrax Acquisition (refer to Note 24 in
the Company's Financial Statements for more information regarding the options) in 2020 compared to 2019. These favourable
items were partially offset by the non-recurrence of the benefit resulting from the favourable settlement of the previously-
recorded liability to the former shareholders of Polyair and foreign exchange losses in 2020, compared to foreign exchange
gains in 2019.
The decrease in interest expense for the year ended December 31, 2020 compared to December 31, 2019 is largely due to a
lower average cost of debt, lower average debt outstanding and the non-recurrence of interest expense resulting from the
Proposed Tax Assessment (defined later in this document) recorded in 2019, partially offset by a decrease in capitalized
interest.
Finance costs for the year ended December 31, 2019 totalled $35.0 million, a $14.1 million increase from $20.9 million for the
year ended December 31, 2018, primarily due to an increase in interest expense resulting from (i) higher average cost of debt
and higher average debt outstanding and (ii) incremental interest due to capitalizing operating leases in accordance with new
lease accounting guidance implemented on January 1, 2019, as well as the re-valuation of non-controlling interest put options
associated with the Airtrax Acquisition. These unfavourable items were partially offset by (i) foreign exchange gains in 2019,
compared to foreign exchange losses in 2018, (ii) the non-recurrence of debt issue costs written off in the second quarter of
2018 as a result of refinancing and replacing one of the Company's debt facilities and (iii) the benefit resulting from the
favourable settlement of the previously-recorded liability to the former shareholders of Polyair.
Finance costs for the fourth quarter of 2020 totalled $9.9 million, a $1.4 million decrease from finance costs of $11.3 million
for the fourth quarter of 2019, primarily due to (i) a decrease in interest expense largely due to lower average debt outstanding
and a lower average cost of debt and (ii) a decrease in the re-valuation of non-controlling interest put options associated with
the Airtrax Acquisition. These favourable items were partially offset by foreign exchange losses realized in the fourth quarter of
2020 compared to foreign exchange gains in the same period in 2019.
Income Taxes
The Company is subject to income taxation in multiple tax jurisdictions around the world. Accordingly, the Company’s
effective tax rate fluctuates depending on the geographic source of its earnings. The Company’s effective tax rate is also
impacted by tax planning strategies that the Company implements from time to time. Income tax expense is recognized in each
interim period based on the best estimate of the weighted average annual income tax rate expected for the full financial year.
12
The table below reflects the calculation of the Company’s effective tax rate (in millions of USD):
Income tax expense
Earnings before income tax expense
Effective tax rate
Three months ended
December 31,
2020
$
5.0
22.3
22.2 %
2019
$
2.4
14.1
17.3 %
Year ended
December 31,
2019
$
16.3
57.5
28.3 %
2020
$
19.1
92.6
20.7 %
2018
$
9.8
56.5
17.4 %
The decrease in the effective tax rate for the year ended December 31, 2020 compared to the same period in 2019 was primarily
due to the recognition of previously unrecognized tax assets and the non-recurrence of the Proposed Tax Assessment recorded
in the second quarter of 2019. The "Proposed Tax Assessment" refers to a proposed state income tax assessment and the related
interest expense totalling $2.3 million resulting from the denial of the utilization of certain net operating losses generated in tax
years 2000-2006.
The increase in the effective tax rate for the year ended December 31, 2019 compared to the same period in 2018 is primarily
due to the elimination of certain tax benefits as a result of the Tax Cuts and Jobs Act ("TCJA") related to intercompany debt and
the Proposed Tax Assessment. Excluding the Proposed Tax Assessment, the effective tax rate for the year end December 31,
2019 would have been 26.3%.
The increase in the effective tax rate for the three months ended December 31, 2020 compared to the same period in 2019 was
primarily due to the non-recurrence of utilization of available income tax credits.
IPG Net Earnings
IPG Net Earnings totalled $72.7 million for the year ended December 31, 2020, a $31.5 million increase from $41.2 million for
the year ended December 31, 2019. The increase was primarily due to an increase in gross profit and a gain resulting from a fair
value adjustment to the Company's contingent consideration related to the Nortech Acquisition. These favourable impacts were
partially offset by an increase in share-based compensation mainly due to an increase in the fair value of cash-settled awards,
including the impact of performance adjustments.
IPG Net Earnings totalled $41.2 million for the year ended December 31, 2019, a $5.5 million decrease from $46.8 million for
the year ended December 31, 2018. The decrease was primarily due to (i) an increase in interest expense mainly resulting from
higher average debt outstanding and higher average cost of debt, (ii) additional SG&A from the Polyair and Maiweave
acquisitions and (iii) an increase in income tax expense mainly due to the elimination of certain tax benefits related to
intercompany debt. These unfavourable impacts were partially offset by an increase in gross profit, as well as a reduction in
manufacturing facility closures, restructuring, and other related charges mainly related to higher one-time, non-cash
impairments from the closure of the Johnson City, Tennessee manufacturing facility in 2018.
IPG Net Earnings for the fourth quarter of 2020 totalled $17.1 million, a $5.5 million increase from $11.6 million for the fourth
quarter of 2019. The increase was primarily due to an increase in gross profit, partially offset by an increase in share-based
compensation mainly due to an increase in the fair value of cash-settled awards, including the impact of performance
adjustments and an increase in income tax expense.
Non-GAAP Financial Measures and Key Performance Indicators
The Company measures the success of the business using a number of key performance indicators, many of which are in
accordance with GAAP as described throughout this MD&A. This MD&A also contains certain non-GAAP financial measures
and key performance metrics as defined under applicable securities legislation, including adjusted net earnings (loss), adjusted
earnings (loss) per share, EBITDA, adjusted EBITDA, total leverage ratio, consolidated secured net leverage ratio and free cash
flows (please see the "Adjusted Net Earnings (Loss) and Adjusted Net Earnings (Loss) Per Share" section below for a
description and reconciliation of adjusted net earnings (loss) and adjusted earnings (loss) per share, “EBITDA, Adjusted
EBITDA and Total Leverage Ratio” section below for a description and reconciliation of EBITDA, adjusted EBITDA, and a
description of consolidated secured net leverage ratio and total leverage ratio, and the “Cash Flows” section below for a
description and reconciliation of free cash flows). In determining these measures, the Company excludes certain items which
are otherwise included in determining the comparable GAAP financial measures. The Company believes such non-GAAP
13
financial measures are key performance indicators that improve the period-to-period comparability of the Company’s results
and provide investors with more insight into, and an additional tool to understand and assess, the performance of the Company's
ongoing core business operations. As required by applicable securities legislation, the Company has provided definitions of
those measures and reconciliations of those measures to the most directly comparable GAAP financial measures. Investors and
other readers are encouraged to review the related GAAP financial measures and the reconciliation of non-GAAP financial
measures to their most directly comparable GAAP financial measures set forth below and should consider non-GAAP financial
measures and key performance indicators only as a supplement to, and not as a substitute for or as a superior measure to,
measures of financial performance prepared in accordance with GAAP.
Adjusted Net Earnings (Loss) and Adjusted Earnings (Loss) Per Share
A reconciliation of the Company’s adjusted net earnings (loss), a non-GAAP financial measure, to IPG Net Earnings, the most
directly comparable GAAP financial measure, is set out in the adjusted net earnings (loss) reconciliation table below. Adjusted
net earnings (loss) should not be construed as IPG Net Earnings as determined by GAAP. The Company defines adjusted net
earnings (loss) as IPG Net Earnings before (i) manufacturing facility closures, restructuring and other related charges
(recoveries); (ii) advisory fees and other costs associated with mergers and acquisitions activity, including due diligence,
integration and certain non-cash purchase price accounting adjustments ("M&A Costs"); (iii) share-based compensation
expense (benefit); (iv) impairment of goodwill; (v) impairment (reversal of impairment) of long-lived assets and other assets;
(vi) write-down on assets classified as held-for-sale; (vii) (gain) loss on disposal of property, plant, and equipment; (viii) other
discrete items as shown in the table below; and (ix) the income tax expense (benefit) effected by these items. The term
“adjusted net earnings (loss)” does not have any standardized meaning prescribed by GAAP and is therefore unlikely to be
comparable to similar measures presented by other issuers. Adjusted net earnings (loss) is not a measurement of financial
performance under GAAP and should not be considered as an alternative to IPG Net Earnings as an indicator of the Company’s
operating performance or any other measures of performance derived in accordance with GAAP. The Company has included
this non-GAAP financial measure because it believes that it allows investors to make a more meaningful comparison of the
Company’s performance between periods presented by excluding certain non-operating expenses, non-cash expenses and,
where indicated, non-recurring expenses. In addition, adjusted net earnings (loss) is used by management in evaluating the
Company’s performance because it believes it provides an indicator of the Company’s performance that is often more
meaningful than GAAP financial measures for the reasons stated in the previous sentence.
Adjusted earnings (loss) per share is also presented in the following table and is a non-GAAP financial measure. Adjusted
earnings (loss) per share should not be construed as IPG Net Earnings per share as determined by GAAP. The Company
defines adjusted earnings (loss) per share as adjusted net earnings (loss) divided by the weighted average number of common
shares outstanding, both basic and diluted. The term “adjusted earnings (loss) per share” does not have any standardized
meaning prescribed by GAAP and is therefore unlikely to be comparable to similar measures presented by other issuers.
Adjusted earnings (loss) per share is not a measurement of financial performance under GAAP and should not be considered as
an alternative to IPG Net Earnings per share as an indicator of the Company’s operating performance or any other measures of
performance derived in accordance with GAAP. The Company has included this non-GAAP financial measure because it
believes that it allows investors to make a more meaningful comparison of the Company’s performance between periods
presented by excluding certain non-operating expenses, non-cash expenses and, where indicated, non-recurring expenses. In
addition, adjusted earnings (loss) per share is used by management in evaluating the Company’s performance because it
believes it provides an indicator of the Company’s performance that is often more meaningful than GAAP financial measures
for the reasons stated in the previous sentence.
The following table presents M&A Costs included in IPG Net Earnings and added back to adjusted net earnings and adjusted
EBITDA (in millions of USD):
Three months ended
December 31,
2020
$
December 31,
2019
$
December 31,
2020
$
Twelve months ended
December 31,
2019
$
December 31,
2018
$
M&A Costs
0.4
3.3
3.5
11.2
9.5
M&A Costs for the year ending December 31, 2020 were composed of $2.1 million in integration costs and $1.4 million in
other due diligence, legal, accounting, and other advisory costs in connection with deals that did not progress to the execution
phase.
14
Adjusted Net Earnings Reconciliation to IPG Net Earnings
(In millions of USD, except per share amounts and share numbers)
(Unaudited)
Three months ended
December 31,
Year ended
December 31,
2020
$
2019
$
2020
$
2019
$
17.1
—
0.4
18.4
0.3
0.1
—
—
11.6
(0.7)
3.3
(1.5)
0.6
0.4
—
—
(3.9)
32.4
(0.2)
13.6
0.29
0.28
0.55
0.54
0.20
0.20
0.23
0.23
72.7
4.3
3.5
22.9
0.6
0.3
—
(11.0)
(3.4)
89.7
1.23
1.22
1.52
1.50
41.2
5.1
11.2
0.5
0.9
0.6
2.3
—
(4.0)
57.8
0.70
0.70
0.98
0.98
2018
$
46.8
7.1
9.5
1.9
0.1
0.2
—
—
(3.3)
62.2
0.79
0.79
1.06
1.05
IPG Net Earnings
Manufacturing facility closures, restructuring and
other related (recoveries) charges
M&A Costs
Share-based compensation expense (benefit)
Impairment of long-lived assets and other assets
Loss on disposal of property, plant and equipment
Other item: special income tax events (1)
Other item: change in fair value of contingent
consideration (2)
Income tax benefit, net
Adjusted net earnings
IPG Net Earnings per share
Basic
Diluted
Adjusted earnings per share
Basic
Diluted
Weighted average number of common shares
outstanding
Basic
Diluted
(1)
(2)
59,012,869
60,083,664
58,900,337
59,027,917
59,010,485
59,630,873
58,798,488
58,989,134
58,815,526
59,084,175
Refers to the Proposed Tax Assessment recorded in the second quarter of 2019.
Refers to the fair value adjustment recorded in the second quarter of 2020 related to the potential earn-out
consideration obligation associated with the Nortech Acquisition.
Adjusted net earnings totalled $89.7 million for the year ended December 31, 2020, a $31.9 million or 55.2% increase from
$57.8 million for the year ended December 31, 2019. Adjusted net earnings totalled $32.4 million for the fourth quarter of
2020, an $18.8 million or 138.6% increase from $13.6 million for the fourth quarter of 2019. The increase in both periods was
primarily due to an increase in gross profit, partially offset by an increase in income tax expense.
Adjusted net earnings totalled $57.8 million for the year ended December 31, 2019, a $4.4 million or 7.1% decrease from $62.2
million for the year ended December 31, 2018, primarily due to an increase in (i) interest expense, (ii) income tax expense and
(iii) SG&A, partially offset by organic growth in gross profit as well as adjusted net earnings contributed by the Polyair and
Maiweave acquisitions.
15
EBITDA, Adjusted EBITDA and Total Leverage Ratio
A reconciliation of the Company’s EBITDA, a non-GAAP financial measure, to net earnings (loss), the most directly
comparable GAAP financial measure, is set out in the EBITDA reconciliation table below. EBITDA should not be construed as
earnings (loss) before income taxes, net earnings (loss) or cash flows from operating activities as determined by GAAP. The
Company defines EBITDA as net earnings (loss) before (i) interest and other finance costs (income); (ii) income tax expense
(benefit); (iii) amortization of intangible assets; and (iv) depreciation of property, plant and equipment. The Company defines
adjusted EBITDA as EBITDA before (i) manufacturing facility closures, restructuring and other related charges (recoveries);
(ii) advisory fees and other costs associated with mergers and acquisitions activity, including due diligence, integration and
certain non-cash purchase price accounting adjustments ("M&A Costs"); (iii) share-based compensation expense (benefit); (iv)
impairment of goodwill; (v) impairment (reversal of impairment) of long-lived assets and other assets; (vi) write-down on
assets classified as held-for-sale; (vii) (gain) loss on disposal of property, plant and equipment; and (viii) other discrete items as
shown in the table below. The terms "EBITDA" and "adjusted EBITDA" do not have any standardized meanings prescribed by
GAAP and are therefore unlikely to be comparable to similar measures presented by other issuers. EBITDA and adjusted
EBITDA are not measurements of financial performance under GAAP and should not be considered as alternatives to cash
flows from operating activities or as alternatives to net earnings (loss) as indicators of the Company’s operating performance or
any other measures of performance derived in accordance with GAAP. The Company has included these non-GAAP financial
measures because it believes that they allow investors to make a more meaningful comparison between periods of the
Company’s performance, underlying business trends and the Company’s ongoing operations. The Company further believes
these measures may be useful in comparing its operating performance with the performance of other companies that may have
different financing and capital structures, and tax rates. Adjusted EBITDA excludes costs that are not considered by
management to be representative of the Company’s underlying core operating performance, including certain non-operating
expenses, non-cash expenses and, where indicated, non-recurring expenses. In addition, EBITDA and adjusted EBITDA are
used by management to set targets and are metrics that, among others, can be used by the Company’s Human Resources and
Compensation Committee to establish performance bonus metrics and payout, and by the Company’s lenders and investors to
evaluate the Company’s performance and ability to service its debt, finance capital expenditures and acquisitions, and provide
for the payment of dividends to shareholders. The Company experiences normal business seasonality that typically results in
adjusted EBITDA that is proportionately higher in the second half of the year relative to the first half.
The Company defines total leverage ratio as borrowings and lease liabilities less cash divided by adjusted EBITDA.
Consolidated secured net leverage ratio is defined in the Company’s 2018 Credit Facility (please refer to such document for a
definition of this term and its prescribed calculation). The terms "total leverage ratio" and "consolidated secured net leverage
ratio" do not have any standardized meaning prescribed by GAAP and are therefore unlikely to be comparable to similar
measures presented by other issuers with diversified sources of capital. Total leverage ratio and consolidated secured net
leverage ratio are not measurements of financial performance under GAAP and should not be considered as alternatives to any
GAAP measure as indicators of the Company’s liquidity level or any other measures of performance derived in accordance with
GAAP. Total leverage ratio is not presented as defined by applicable indentures and should not be considered as an alternative
to the consolidated secured net leverage ratio debt covenant described in the section below entitled "Liquidity and Borrowings."
The Company has included these non-GAAP financial measures because it believes that they allow investors to make a
meaningful comparison of the Company’s liquidity level and borrowing flexibility. In addition, total leverage ratio and
consolidated secured net leverage ratio are used by management in evaluating the Company’s performance because it believes
that they allow management to monitor the Company's liquidity level and borrowing flexibility as well as evaluate its capacity
to deploy capital to meet its strategic objectives.
16
EBITDA and Adjusted EBITDA Reconciliation to Net Earnings
(In millions of USD)
(Unaudited)
Net earnings
Interest and other finance costs
Income tax expense
Depreciation and amortization
EBITDA
Manufacturing facility closures, restructuring and
other related (recoveries) charges
M&A Costs
Share-based compensation expense (benefit)
Impairment of long-lived assets and other assets
Loss on disposal of property, plant and equipment
Adjusted EBITDA
Three months ended
December 31,
2020
$
2019
$
Year ended
December 31,
2019
$
2018
$
2020
$
17.4
9.9
5.0
16.2
48.5
—
0.4
18.4
0.3
0.1
67.7
11.7
11.3
2.4
16.2
41.6
(0.7)
3.3
(1.5)
0.6
0.4
43.8
73.5
23.2
19.1
63.8
179.6
4.3
3.5
22.9
0.6
0.3
211.1
41.2
35.0
16.3
61.4
154.0
5.1
11.2
0.5
0.9
0.6
172.2
46.6
20.9
9.8
44.8
122.2
7.1
9.5
1.9
0.1
0.2
140.9
Adjusted EBITDA totalled $211.1 million for the year ended December 31, 2020, a $38.9 million or 22.6% increase from
$172.2 million for the year ended December 31, 2019. Adjusted EBITDA totalled $67.7 million for the fourth quarter of 2020,
a $23.9 million or 54.7% increase from $43.8 million for the fourth quarter of 2019. The increase in both periods was primarily
due to an increase in gross profit.
Adjusted EBITDA totalled $172.2 million for the year ended December 31, 2019, a $31.3 million or 22.2% increase from
$140.9 million for the year ended December 31, 2018, primarily due to (i) organic growth in gross profit, (ii) adjusted EBITDA
contributed by the Polyair and Maiweave acquisitions and (iii) the favorable impact of operating lease payments totalling $7.1
million that were capitalized in accordance with new lease accounting guidance. These favourable impacts were partially offset
by an increase in SG&A.
Comprehensive Income Attributable to Company Shareholders ("IPG Comprehensive Income")
IPG Comprehensive Income is comprised of IPG Net Earnings and other comprehensive income (loss) ("OCI") attributable to
Company shareholders. IPG Comprehensive Income totalled $73.0 million for the year ended December 31, 2020, a $32.2
million or 79.0% increase from $40.8 million for the year ended December 31, 2019. The increase was primarily due to higher
IPG Net Earnings in 2020 and a decrease in cumulative translation adjustments ("CTA") in 2020, partially offset by smaller
gains arising from the Company's hedge of a net investment in foreign operations in 2020 as compared to 2019.
IPG Comprehensive Income totalled $40.8 million for the years ended December 31, 2019 and 2018. Changes in IPG
Comprehensive Income contained significant fluctuations that largely offset each other, including: gains arising from the
Company's hedge of a net investment in foreign operations in 2019 compared to losses in 2018, largely offset by (i)
unfavourable foreign exchange impacts from CTA in 2019, (ii) lower IPG Net Earnings in 2019, (iii) decreases in the fair value
of interest rate swap agreements designated as cash flow hedges in 2019 compared to increases in 2018 and (iv) a decrease in
gains from the remeasurement of the defined benefit liability in 2019.
Off-Balance Sheet Arrangements
Letters of Credit
The Company had standby letters of credit issued and outstanding as of December 31, 2020 that could result in payments by the
Company up to an aggregate of $1.5 million upon the occurrence of certain events. All of the letters of credit have expiry dates
in 2021.
17
Capital Commitments
The Company had commitments to suppliers to purchase machinery and equipment totalling approximately $17.0 million as of
December 31, 2020, primarily to support e-commerce-related production capacity improvements and other strategic initiatives.
The Company expects that such amounts will be paid out in the next twelve months and will be funded by the Company's
borrowings and cash flows from operating activities. In the event of cancellation, the penalties that would apply may be equal to
the purchase price depending on the timing of the cancellation.
Raw Material Commitments
The Company obtains certain raw materials from suppliers under consignment agreements. The suppliers retain ownership of
raw materials until the earlier of when the materials are consumed in production or auto billings are triggered based upon
maturity. The consignment agreements involve short-term commitments that typically mature within 30 to 60 days of inventory
receipt and are typically renewed on an ongoing basis. The Company may be subject to fees in the event the Company requires
storage in excess of 30 to 60 days. As of December 31, 2020, the Company had on hand $5.9 million of raw material owned by
its suppliers.
The Company has entered into agreements with various raw material suppliers to purchase minimum quantities of certain raw
materials at fixed rates through December 2021 totalling approximately $9.9 million as of December 31, 2020. Subsequent to
December 31, 2020, the Company entered into an agreement with a raw material supplier to purchase raw materials at a fixed
rate from September 2021 through December 2022, totalling approximately $7.1 million. The Company is required by the
agreements to pay any storage costs incurred by the applicable supplier in the event the Company delays shipment in excess of
30 days. In the event the Company defaults under the terms of an agreement, an arbitrator will determine fees and penalties due
to the applicable supplier. Neither party will be liable for failure to perform for reasons of "force majeure" as defined in the
agreements.
Utilities Commitments
The Company entered into a five-year electricity service contract for one of its manufacturing facilities on May 1, 2016, under
which the Company has reduced the overall cost of electricity consumed by the facility and expects to continue to do so until
contract expiration. The service contract required the Company to pay for unrecovered power supply costs incurred by the
supplier in the event of early termination, declining monthly based on actual service billings to date. As of December 31, 2020,
the Company has fulfilled its commitment under the contract and would not be subject to termination penalties in the event of
cancellation.
The Company entered into a ten-year electricity service contract for one of its manufacturing facilities on November 12, 2013.
The service date of the contract commenced in August 2014. The Company is committed to monthly minimum usage
requirements over the term of the contract. The Company was provided installation at no cost and is receiving economic
development incentive credits and maintenance of the required energy infrastructure at the manufacturing facility as part of the
contract. The credits are expected to reduce the overall cost of electricity consumed by the facility over the term of the contract.
Effective August 1, 2015, the Company entered into an amendment lowering the minimum usage requirements over the term of
the contract. In addition, a new monthly facility charge has been incurred by the Company over the term of the contract. The
Company estimates that service billings will total approximately $6.1 million over the remaining term of the contract. Certain
penalty clauses exist within the electricity service contract related to early cancellation after the service date of the contract. The
costs related to early cancellation penalties include termination fees based on anticipated service billings over the term of the
contract and capital expense recovery charges. While the Company does not expect to cancel the contract prior to the end of its
term, the penalties that would apply to early cancellation could total as much as $2.4 million as of December 31, 2020. This
amount is expected to decline annually until the expiration of the contract assuming there are insignificant fluctuations in
kilowatt hour peak demand.
The Company has entered into agreements with various utility suppliers to fix certain energy costs, including natural gas,
through December 2024 for minimum amounts of consumption at several of its manufacturing facilities. The Company
estimates that utility billings will total approximately $7.7 million over the term of the contracts based on the contracted fixed
terms and current market rate assumptions. The Company is also required by the agreements to pay any difference between the
fixed price agreed to with the utility and the sales amount received by the utility for resale to a third party if the Company fails
to meet the minimum consumption required by the agreements. In the event of early termination, the Company is required to
pay the utility suppliers the difference between the contracted amount and the current market value of the energy, adjusted for
present value, of any future agreed upon minimum usage. Neither party will be liable for failure to perform for reasons of "force
majeure" as defined in the agreements.
18
The Company currently knows of no event, trend or uncertainty, including the impact of COVID-19, that may affect the
availability or benefits of these arrangements now or in the future or that would trigger any such penalty described above. The
Company maintains no other off-balance sheet arrangements.
Related Party Transactions
The Company’s key personnel include all non-executive directors on the Board (ten in 2020, eight in 2019, seven in 2018) and
senior executive level members of management (eight in 2020, six in 2019 and 2018). Key personnel remuneration includes
short-term benefits including base and variable compensation, deferred compensation, director retainer and committee fees,
post-employment benefits and share-based compensation.
Total key personnel remuneration included in the statement of consolidated earnings totalled $22.3 million for the year ended
December 31, 2020, an increase of $14.5 million from $7.9 million for the year ended December 31, 2019. The increase was
primarily due to an increase in share-based compensation mainly due to an increase in the fair value of cash-settled awards,
including the impact of performance adjustments.
Total key personnel remuneration included in the statement of consolidated earnings totalled $7.9 million for the year ended
December 31, 2019, an increase of $1.4 million from $6.4 million for the year ended December 31, 2018. The increase was
primarily due to an increase in variable compensation based on achievement of certain performance targets.
Working Capital
The Company experiences some business seasonality that results in the Company’s efforts to effectively manage its working
capital resources. Typically, a larger investment in working capital is required in quarters during which accounts receivable
increase due to a higher level of sales invoiced towards the end of the quarter and inventory builds in anticipation of higher
future sales. This working capital build normally unwinds later in the fiscal year. Furthermore, certain liabilities are accrued for
throughout the year and are paid only during the first quarter of the following year.
The Company uses Days Inventory (defined below) to measure inventory performance. Days Inventory was 67 for the year
ended December 31, 2020 and 2019. Days Inventory decreased to 61 for the fourth quarter of 2020 from 68 in the fourth quarter
of 2019. Inventories totalled $194.5 million as of December 31, 2020, a $9.6 million increase from $184.9 million as of
December 31, 2019. The increase was primarily due to additional inventory resulting from the Nortech Acquisition, inventory
pre-purchased at the end of 2020 in order to manage anticipated increases in certain raw material prices and the non-recurrence
of an inventory reduction initiative in 2019, partially offset by increased demand in products with significant e-commerce or
building and construction end-market exposure, including water-activated tapes, protective packaging and certain other tape
products. The calculations are shown in the following table (in millions of USD, except days):
Three months ended
Year ended
December 31,
2020
December 31,
2019
December 31,
2020
December 31,
2019
$
$
$
255.6 $
92
2.8 $
170.7 $
61
231.2 $
92
2.5 $
171.0 $
68
924.2 $
366
2.5 $
168.3 $
67
911.6
365
2.5
167.3
67
Cost of sales
Days in period
Cost of sales per day
Average inventory
Days inventory
Days inventory is calculated as follows:
Cost of sales ÷ Days in period = Cost of sales per day
(Beginning inventory + Ending inventory) ÷ 2 = Average inventory
Average inventory ÷ Cost of goods sold per day = Days inventory
For purposes of this calculation inventory excludes items considered parts and supplies.
The Company uses Days Sales Outstanding (“DSO” defined below) to measure trade receivables. DSO increased to 49 for the
year ended December 31, 2020 from 42 for the year ended December 31, 2019. DSO increased to 43 in the fourth quarter of
2020 from 42 in the fourth quarter of 2019. Trade receivables totalled $162.2 million as of December 31, 2020, a $29.1 million
increase from $133.2 million as of December 31, 2019. The increase was primarily due to the amount and timing of revenue
invoiced in the fourth quarter of 2020 as compared to the fourth quarter of 2019, and the impacts of the additional receivables
resulting from the Nortech Acquisition.
19
The calculations are shown in the following table (in millions of USD, except days):
Three months ended
Year ended
Revenue
Days in period
Revenue per day
Trade receivables
DSO
DSO is calculated as follows:
Revenue ÷ Days in period = Revenue per day
Ending trade receivables ÷ Revenue per day = DSO
$
$
$
344.1 $
92
3.7 $
162.2 $
43
December 31,
2020
December 31,
2019
December 31,
2020
1,213.0 $
366
3.3 $
162.2 $
49
December 31,
2019
1,158.5
365
3.2
133.2
42
291.5 $
92
3.2 $
133.2 $
42
Accounts payable and accrued liabilities totalled $180.4 million as of December 31, 2020, an increase of $35.4 million from
$145.1 million as of December 31, 2019. The increase was primarily due to the timing of payments for inventory and SG&A,
and the impacts of the additional accounts payable and accrued liabilities resulting from the Nortech Acquisition.
Liquidity and Borrowings
Senior Unsecured Notes
On October 15, 2018, the Company completed the private placement of $250 million aggregate principal amount of senior
unsecured notes due October 15, 2026 ("Senior Unsecured Notes") with certain guarantors and Regions Bank, as Trustee. The
Company incurred debt issue costs of $5.1 million which were capitalized and are being amortized using the straight-line
method over the eight-year term. The Company used the net proceeds to partially repay borrowings under the 2018 Credit
Facility (defined below) and to pay related fees and expenses, as well as for general corporate purposes. The Senior Unsecured
Notes bear interest at a rate of 7.00% per annum, payable semi-annually, in cash, in arrears on April 15 and October 15 of each
year, beginning on April 15, 2019.
As of December 31, 2020, the Senior Unsecured Notes outstanding balance amounted to $250.0 million ($246.2 million, net of
$3.8 million in unamortized debt issue costs).
2018 Credit Facility
On June 14, 2018, the Company entered into a five-year, $600.0 million credit facility (“2018 Credit Facility”) with a
syndicated lending group, refinancing and replacing the Company's previous $450.0 million credit facility that was due to
mature in November 2019. In securing the 2018 Credit Facility, the Company incurred debt issue costs amounting to $2.7
million which were capitalized and are being amortized using the straight-line method over the five-year term.
The 2018 Credit Facility consists of a $400.0 million revolving credit facility (“2018 Revolving Credit Facility”) and a $200.0
million term loan (“2018 Term Loan”). The 2018 Term Loan amortizes $65.0 million until March 2023 ($5.0 million in 2018,
$10.0 million in 2019, $12.5 million in 2020, $15.0 million in 2021, $17.5 million in 2022, and $5.0 million in 2023), and the
remaining balance of the 2018 Credit Facility is due upon maturity in June 2023. Any repayments of borrowings under the 2018
Term Loan are not available to be borrowed again in the future.
The 2018 Credit Facility also includes an incremental accordion feature of $200.0 million, which enables the Company to
increase the limit of this facility (subject to the credit agreement's terms and lender approval) if needed. The 2018 Credit
Facility bears an interest rate based, at the Company’s option, on the London Inter-bank Offered Rate ("LIBOR"), the Federal
Funds Rate, or Bank of America’s prime rate, plus a spread varying between 25 and 250 basis points (150 basis points as of
December 31, 2020 and December 31, 2019) depending on the debt instrument's benchmark interest rate and the consolidated
secured net leverage ratio.
20
The 2018 Credit Facility has two financial covenants, a consolidated secured net leverage ratio and a consolidated interest
coverage ratio. In July 2019, the Company and its syndicated lending group amended the 2018 Revolving Credit Facility to,
among other things, revise the two financial covenant thresholds to account for the associated impacts of new lease accounting
guidance implemented on January 1, 2019 requiring operating leases to be accounted for as borrowings (with corresponding
interest payments). The amendment provides that the consolidated secured net leverage ratio must not be more than 3.70 to 1.00
(previously 3.50 to 1.00), with an allowable temporary increase to 4.20 to 1.00 (previously 4.00 to 1.00) for the quarters in
which the Company consummates an acquisition with a price not less than $50 million and the following three quarters. The
amendment also provides that the consolidated interest coverage ratio must not be less than 2.75 to 1.00 (previously 3.00 to
1.00). The Company was in compliance with the consolidated secured net leverage ratio and consolidated interest coverage
ratio, which were 1.14 and 7.08, respectively, as of December 31, 2020. In addition, the 2018 Credit Facility has certain non-
financial covenants, such as covenants regarding indebtedness, investments, and asset dispositions. The Company was in
compliance with all covenants as of and for the year ended December 31, 2020.
As of December 31, 2020, the 2018 Term Loan's outstanding principal balance amounted to $172.5 million and the 2018
Revolving Credit Facility’s outstanding principal balance amounted to $14.0 million, for a total gross outstanding principal
balance under the 2018 Credit Facility of $186.5 million ($185.2 million, net of $1.3 million in unamortized debt issue costs).
Standby letters of credit totalled $1.5 million resulting in total utilization under the 2018 Credit Facility of $188.0 million.
Accordingly, the unused availability under the 2018 Credit Facility as of December 31, 2020 amounted to $384.5 million. The
Company's capacity to borrow available funds under the 2018 Credit Facility may be limited because of the secured net
leverage ratio covenant and other restrictions as defined in the Company's credit agreement.
2018 Powerband Credit Facility
On July 4, 2018, Powerband, one of the Company's subsidiaries, entered into an INR1,300.0 million ($19.0 million) credit
facility (“2018 Powerband Credit Facility”) subsequently replacing Powerband's previous outstanding debt. In December 2018,
Powerband amended the 2018 Powerband Credit Facility to reallocate and increase its credit limit by INR 100.0 million ($1.4
million), bringing the total 2018 Powerband Credit Facility limit to INR 1,400.0 million ($19.3 million).
The 2018 Powerband Credit Facility is guaranteed by the Parent Company, and certain local assets (carrying amount of $34.7
million as of December 31, 2020) are required to be pledged. Powerband is prohibited from granting liens on its assets without
the consent of the lender under the 2018 Powerband Credit Facility. Funding under the 2018 Powerband Credit Facility is not
committed and could be withdrawn by the lender with 10 days' notice. Additionally, under the terms of the 2018 Powerband
Credit Facility, Powerband's debt to net worth ratio (as defined by the 2018 Powerband Credit Facility credit agreement) must
be maintained below 3.00. Powerband was in compliance with the debt to net worth ratio (0.02 as of December 31, 2020) as of
and for the year ended December 31, 2020.
As of December 31, 2020, the 2018 Powerband Credit Facility consisted of an INR 375.0 million ($5.1 million) working capital
loan facility (“2018 Powerband Working Capital Loan Facility”) that renews annually and is due upon demand, bearing interest
based on the prevailing Indian Marginal Cost-Lending Rate ("IMCLR").
Additionally, the 2018 Powerband Credit Facility previously included an INR 960.0 million ($13.1 million) demand term loan
(“2018 Powerband Demand Term Loan”) and an INR 65.0 million ($0.9 million) term loan ("2018 Powerband Term Loan"),
which were restricted for capital projects and bore interest based on the prevailing IMCLR. In September 2020, Powerband
repaid the 2018 Powerband Demand Term Loan and 2018 Powerband Term Loan in full and these amounts are not available to
be borrowed again in the future. Subsequently, only the 2018 Powerband Working Capital Loan Facility remains outstanding.
As of December 31, 2020, the 2018 Powerband Working Capital Loan Facility’s outstanding balance was INR 46.0 million
($0.6 million). Including INR 176.5 million ($2.4 million) in letters of credit, total utilization under the 2018 Powerband Credit
Facility amounted to INR 222.5 million ($3.0 million). The 2018 Powerband Credit Facility's unused availability as of
December 31, 2020 amounted to INR 152.5 million ($2.1 million), composed of uncommitted funding.
USD amounts presented above are translated from INR and are impacted by fluctuations in the USD and INR exchange rates.
2018 Capstone Credit Facility
On February 6, 2018, Capstone, one of the Company's subsidiaries, entered into an INR 975.0 million ($15.0 million) credit
facility ("2018 Capstone Credit Facility"). The 2018 Capstone Credit Facility consists of an INR 585.0 million ($9.0 million)
term loan facility ("Capstone Term Loan Facility") for financing capital expenditures and INR 390.0 million ($6.0 million)
working capital facility ("Capstone Working Capital Facility") and bears interest based on the prevailing IMCLR. Any
21
repayments of borrowings under the Capstone Term Loan Facility are not available to be borrowed again in the future. The
Capstone Working Capital Facility matures in August 2021. Portions of term loans borrowed under the Capstone Term Loan
Facility matured in September 2020, with the remainder of the term loan maturing in June 2023. Funding under the Capstone
Term Loan Facility is committed, while the Capstone Working Capital Facility is uncommitted. Borrowings under the 2018
Capstone Credit Facility are guaranteed by the Parent Company and are otherwise unsecured.
As of December 31, 2020, the 2018 Capstone Credit Facility credit limit was INR 975.0 million ($13.3 million). The Capstone
Term Loan Facility had an outstanding balance of INR 564.1 million ($7.7 million), and the Capstone Working Capital Facility
outstanding balance was INR 204.6 million ($2.8 million) for a total gross outstanding amount of INR 768.7 million ($10.5
million). Total utilization under the 2018 Capstone Credit Facility amounted to INR 768.7 million ($10.5 million). As of
December 31, 2020, the 2018 Capstone Credit Facility's unused availability was INR 185.4 million ($2.5 million), composed
entirely of uncommitted funding.
USD amounts presented above are translated from INR and are impacted by fluctuations in the USD and INR exchange rates.
Liquidity
The Company relies upon cash flows from operations and borrowings to meet working capital requirements, as well as to fund
capital expenditures, mergers & acquisitions, dividends, share repurchases, obligations under its other debt instruments, and
other general corporate purposes.
The Company's liquidity risk management process serves to maintain a sufficient amount of cash and to ensure that the
Company has financing sources for a sufficient authorized amount. The Company establishes budgets, cash estimates, cash
management policies and long-term capital structure strategies to ensure it has the necessary funds to fulfill its obligations for
the foreseeable future and ensure adequate liquidity on a long-term basis.
The Company believes it has sufficient cash on hand, and that it will generate sufficient funds from cash flows from operating
activities, to meet its ongoing expected capital expenditures, working capital and discretionary dividend payment funding needs
for at least the next twelve months. In addition, funds available under the 2018 Credit Facility may be used, as needed, to fund
more significant strategic initiatives.
As of December 31, 2020, the Company had $16.5 million of cash and $392.2 million of loan availability (comprised of
committed funding of $384.5 million and uncommitted funding of $7.7 million), yielding total cash and loan availability of
$408.7 million compared to total cash and loan availability of $406.0 million as of December 31, 2019.
Cash Flows
The Company’s net working capital on the balance sheets increased during 2020 due to the effects of business acquisitions.
However, working capital amounts acquired are not included in cash flows from operating activities under IFRS. As such, the
discussions below regarding 2020 working capital items appropriately exclude these effects.
Cash flows from operating activities increased in the year ended December 31, 2020 by $44.6 million to $179.6 million from
$135.0 million in the year ended December 31, 2019 primarily due to an increase in gross profit and an increase in accounts
payable and accrued liabilities in 2020, compared to a decrease in 2019, partially offset by (i) a greater increase in accounts
receivable, (ii) an increase in income taxes paid and (iii) an increase in inventories. Additional discussion on working capital
changes is provided in the section entitled "Working Capital” above.
Cash flows from operating activities increased in the year ended December 31, 2019 by $44.2 million to $135.0 million from
$90.8 million in the year ended December 31, 2018 primarily due to (i) an increase in gross profit, (ii) a year over year decrease
in cash used for working capital items and (iii) the non-recurrence of a discretionary pension contribution in the third quarter of
2018, partially offset by an increase in income taxes paid as a result of the non-recurrence of a US tax refund received in 2018.
The combination of accounts receivable, inventories, other current assets and accounts payable decreased working capital by
$11.0 million in 2019, compared to a decrease of $27.4 million in 2018.
Cash flows from operating activities increased in the fourth quarter of 2020 by $15.3 million to $88.6 million from $73.3
million in the fourth quarter of 2019 primarily due to an increase in gross profit and a greater increase in accounts payables in
the fourth quarter of 2020. These increases were partially offset by (i) an increase in inventories, (ii) an increase in accounts
receivable in the fourth quarter of 2020, compared to a decrease in the fourth quarter of 2019 and (iii) an increase in income tax
paid. Additional discussion on working capital changes is provided in the section entitled "Working Capital" above.
22
Cash flows used for investing activities increased in the year ended December 31, 2020 by $33.9 million to $82.8 million from
$48.9 million in the year ended December 31, 2019, primarily due to the Nortech Acquisition in the first quarter of 2020,
partially offset by a decrease in capital expenditures as a result of the Company proactively reducing its planned capital
expenditures during the first nine months of 2020 as a precautionary measure given market uncertainty caused by COVID-19.
Cash flows used for investing activities decreased in the year ended December 31, 2019 by $194.4 million to $48.9 million
from $243.3 million in the year ended December 31, 2018, primarily due to the non-recurrence of the Polyair Acquisition in
August 2018 and the Maiweave Acquisition in December 2018, as well as a decrease in capital expenditures due to the
completion of larger-scale greenfield projects.
Cash flows used for investing activities increased by $15.7 million to $25.5 million in the fourth quarter of 2020 from $9.8
million in the fourth quarter of 2019 primarily due to an increase in capital expenditures due primarily to investments in e-
commerce-related production capacity initiatives. Additional discussion on capital expenditures are provided in the section
entitled "Capital Resources".
Cash flows from financing activities decreased in the year ended December 31, 2020 by $11.0 million to an outflow of $87.8
million from an outflow of $98.9 million in the year ended December 31, 2019 primarily due to a decrease in net debt
repayments and a decrease in interest paid due to lower average cost of debt and lower average debt outstanding. These
decreases were partially offset by a decrease in cash proceeds from the exercise of stock options and an increase in dividends
paid primarily due to a $0.01 per share increase in the fourth quarter of 2020. Additional discussion on borrowings is provided
in the section entitled "Liquidity and Borrowings".
Cash flows from financing activities decreased in the year ended December 31, 2019 by $263.0 million to an outflow of $98.9
million from an inflow of $164.2 million in the year ended December 31, 2018 primarily due to greater net borrowing in 2018
to fund strategic and growth acquisitions and other working capital requirements, as well as an increase in interest paid which
was largely the result of the semi-annual recurring interest payment on the Senior Unsecured Notes in April and October of
2019. These decreases were partially offset by the non-recurrence of the settlement of the Company's call options to acquire the
outstanding 26% interest in Powerband in 2018 and the non-recurrence of debt issuance costs primarily associated with the
Senior Unsecured Notes and the 2018 Credit Facility entered into during 2018.
Cash flows from financing activities decreased by $10.5 million to an outflow of $60.4 million in the fourth quarter of 2020
from an outflow of $70.9 million in the fourth quarter of 2019 primarily due to a decrease in net debt repayments as well as a
decrease in interest paid due to lower average debt outstanding and average cost of debt. These decreases were partially offset
by a decrease in cash proceeds from the exercise of stock options and an increase in dividends paid primarily due to a $0.01 per
share increase in the fourth quarter of 2020. Additional discussion on borrowings is provided in the section entitled "Liquidity
and Borrowings".
Free Cash Flows
The Company is including free cash flows, a non-GAAP financial measure, because it is used by management and investors in
evaluating the Company’s performance and liquidity. Free cash flows does not have any standardized meaning prescribed by
GAAP and is therefore unlikely to be comparable to similar measures presented by other issuers. Free cash flows should not be
interpreted to represent the total cash movement for the period as described in the Company's Financial Statements, or to
represent residual cash flow available for discretionary purposes, as it excludes other mandatory expenditures such as debt
service. The Company experiences business seasonality that typically results in the majority of cash flows from operating
activities and free cash flows being generated in the second half of the year.
Free cash flows is defined by the Company as cash flows from operating activities less purchases of property, plant and
equipment.
23
A reconciliation of free cash flows to cash flows from operating activities, the most directly comparable GAAP financial
measure, is set forth below.
Free Cash Flows Reconciliation to Cash Flows from Operating Activities
(In millions of USD)
(Unaudited)
Three months ended
December 31,
2020
$
2019
$
Cash flows from operating activities
Less purchases of property, plant and equipment
Free cash flows
88.6
(24.8)
63.8
73.3
(9.6)
63.7
Year ended
December 31,
2019
$
135.0
2020
$
179.6
(45.8)
133.8
(48.2)
86.8
2018
$
90.8
(75.8)
15.0
Free cash flows increased in the year ended December 31, 2020 by $46.9 million to $133.8 million from $86.8 million in the
year ended December 31, 2019 primarily due to an increase in cash flows from operating activities and a decrease in capital
expenditures.
Free cash flows increased in the year ended December 31, 2019 by $71.8 million to $86.8 million from $15.0 million in the
year ended December 31, 2018 primarily due to an increase in cash flows from operating activities and a decrease in capital
expenditures.
Free cash flows increased in the fourth quarter of 2020 by $0.1 million to $63.8 million from $63.7 million in the fourth quarter
of 2019, primarily due to an increase in cash flows from operating activities, largely offset by an increase in capital
expenditures.
Capital Resources
Capital expenditures totalled $24.8 million and $45.8 million in the three months and year ended December 31, 2020,
respectively, and were funded primarily by the Company's cash flows from operating activities and borrowings. Capital
expenditures for the year ended December 31, 2020 were primarily for investments in e-commerce-related production capacity,
maintenance needs, initiatives supporting the efficiency and effectiveness of operations and other strategic initiatives. All of the
Company's strategic and growth initiatives are expected to yield an after-tax internal rate of return greater than 15%.
The Company had commitments to suppliers to purchase machinery and equipment totalling approximately $17.0 million as of
December 31, 2020, primarily to support e-commerce-related production capacity improvements and other strategic initiatives.
The Company expects that such amounts will be paid out in the next twelve months and will be funded by the Company's
borrowings and cash flows from operating activities.
Capital expenditures in 2021 are expected to be approximately $100 million, which includes $70 million to expand production
capacity in the Company's highest growth product categories, specifically water-activated tape, wovens, protective packaging
and films. By installing new capacity within its existing footprint, the Company expects these projects will provide shorter-term
investment horizons and return profiles that more than exceed the 15% after-tax internal rate of return threshold that the
Company has traditionally applied to its strategic investments. The Company is investing directly into categories where it
expects demand to exceed production in the near term. The Company views these as low risk, margin accretive projects. Based
on its capital plan, the Company anticipates generating more than $100 million in incremental revenue on an annualized run-
rate basis by the end of 2022 as well as additional growth into 2023 and beyond. Also included in the capital expenditures
expected for 2021 is $10 million for digital transformation and cost savings initiatives, and $20 million for regular maintenance.
24
Contractual Obligations
The Company’s principal contractual obligations and commercial commitments as of December 31, 2020 are summarized in the
following table (in millions of USD):
Debt obligations (2)
Standby letters of credit (2)
Capitalized lease obligations (3)
Pensions, post-retirement and other long-term
employee benefit plans (4)
Operating lease and service contract obligations
Equipment purchase commitments
Utilities contract obligations (5)
Raw material purchase commitments (6)
Other obligations (7)
Total
Payments Due by Period (1)
Less
than
1 year
$
41.9
1.5
9.4
7.5
0.5
17.0
4.3
15.8
12.5
110.5
Total
$
565.6
1.5
52.3
10.2
1.0
17.0
13.8
15.8
20.2
697.5
1-3
years
$
4-5
years
$
After
5 years
$
223.1
—
18.8
0.7
0.4
—
7.7
—
4.7
255.4
37.0
—
10.3
1.2
0.1
—
1.8
—
1.5
51.9
263.5
—
13.8
0.8
—
—
—
—
1.5
279.6
(1)
(2)
(3)
(4)
"Less than 1 year" represents those payments due in 2021, "1-3 years" represents those payments due in 2022 and
2023, "3-5 years" represents those payments due in 2024 and 2025, while "After 5 years" includes those payments due
in later years.
Refer to the previous section entitled "Liquidity and Borrowings" and Note 14 in the Company’s Financial Statements
for a complete discussion of borrowings. The figures in the table above include interest expense payments of $112.4
million representing the contractual undiscounted cash flows categorized by their earliest contractual maturity date. As
of December 31, 2020, $2.5 million had been reclassified from borrowings to deferred income in other liabilities
pertaining to forgivable government loans. Refer to Note 24 in the Company’s Financial Statements for a complete
discussion of liquidity risk.
The figures in the table above include interest expense included in minimum lease payments of $10.2 million and
exclude variable lease payments. Refer to Note 24 in the Company’s Financial Statements for a complete discussion
of liquidity risk.
Pension, post-retirement and other long-term employee benefit plans includes contributions associated with defined
benefit and defined contribution plans. Defined benefit plan contributions represent the minimum required amount the
Company expects to contribute in 2021, including benefit payments associated with the health & welfare and other
wholly unfunded post-retirement plans. Defined benefit plan contributions beyond 2021 are not determinable since the
amount of any contributions is heavily dependent on the future economic environment and investment returns on
pension plan assets. Volatility in the global financial markets could have an unfavourable impact on the Company’s
future pension and other post-retirement benefits funding obligations as well as net periodic benefit cost.
Defined contribution plan contributions represent the obligation recorded as of December 31, 2020 to be paid in 2021.
Certain defined contribution plan contributions beyond 2021 are not determinable since contribution to the plan is at
the discretion of the Company.
Obligations under deferred compensation plans represent participant compensation deferrals and earnings and losses
thereon. Amounts due to participants are payable based on participant elections. For certain elections, the amount and
timing of a potential cash payment to settle these obligations is not determinable since the decision to settle is not
within the Company’s control and, therefore, are not included in the table above. The amounts included in the table
are based on current participant balances and represent scheduled distributions only. As of December 31, 2020,
obligations under the deferred compensation plan totalled $5.6 million.
25
(5)
(6)
(7)
Refer to Note 20 in the Company’s Financial Statements for a complete discussion of pension, post-retirement and
other long-term employee benefit plans.
Utilities contract obligations include agreements with various utility suppliers to fix certain energy costs, including
natural gas and electricity, for minimum amounts of consumption at several of the Company’s manufacturing facilities,
as discussed in the previous section entitled "Off-Balance Sheet Arrangements". The figures included in the table
above are estimates of utility billings over the term of the contracts based on the contracted fixed terms and current
market rate assumptions. The Company currently knows of no event, trend or uncertainty that may affect the
availability or benefits of the agreements now or in the future.
Raw material purchase commitments include certain raw materials from suppliers under consignment agreements, as
discussed in the previous section entitled "Off-Balance Sheet Arrangements". The figures included in the table above
represent raw material inventory on hand or in transit, owned by the Company’s suppliers, that the Company expects
to consume.
Raw material purchase commitments also include agreements with various raw material suppliers to purchase
minimum quantities of certain raw materials at fixed rates, as discussed in the previous section entitled "Off-Balance
Sheet Arrangements". The figures included in the table above do not include estimates for storage costs, fees or
penalties. The Company currently knows of no event, trend or uncertainty, including the impact of COVID-19, that
may affect the availability or benefits of these agreements now or in the future.
Subsequent to December 31, 2020, the Company entered into an agreement with a raw material supplier to purchase
raw materials at a fixed rate from September 2021 through December 2022, totalling approximately $7.1 million. This
is not included in the table above.
Other obligations include provisions for (i) environmental obligations primarily related to the Columbia, South
Carolina manufacturing facility, (ii) restoration obligations associated with leased facilities, (iii) termination benefits,
(iv) litigation provisions, (v) total future cash outflows associated with leases committed but not commenced as of
December 31, 2020, and (vi) other liabilities. Refer to Notes 15, 16 and 17 in the Company’s Financial Statements for
a complete discussion of lease liabilities, provisions and contingent liabilities, and other liabilities, respectively.
The amount and timing of a potential cash payment to settle a deferred share unit ("DSU") is not determinable since
the decision to settle is not within the Company’s control after the award vests and, therefore, is not included in the
table above. Share-based compensation awards that have not vested as of December 31, 2020 are also not included in
the table above. Refer to the section below entitled "Capital Stock" for a discussion of share-based compensation
plans.
The Company is not able to reasonably estimate the timing of payments associated with deferred tax liabilities and
therefore, the preceding table excludes total deferred tax liabilities of $34.1 million. Refer to Note 5 in the Company’s
Financial Statements for a complete discussion of income taxes.
The timing related to the settlement of the Company's non-controlling interest put option, which totalled $15.8 million
as of December 31, 2020, is not determinable due to the nature of the shareholders’ agreement, which provides each of
the non-controlling interest shareholders of Capstone with the right to require the Company to purchase their retained
interest at a variable purchase price following a five-year lock-in period following the date of acquisition, with no
expiration of these rights. Refer to Note 24 in the Company’s Financial Statements for a complete discussion of non-
controlling interest put options.
Purchase orders outside the scope of the raw material purchase commitments as defined in this section are not included in the
table above. The Company is not able to determine the aggregate amount of such purchase orders that represent contractual
obligations, as these purchase orders typically represent authorizations to purchase rather than binding agreements. For the
purposes of this table, contractual obligations for purchase of goods or services are defined as agreements that are enforceable
and legally binding on the Company and that specify all significant terms, including: fixed or minimum quantities to be
purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. The Company’s
purchase orders are based on current demand expectations and are fulfilled by the Company’s vendors within short time
horizons. The Company also enters into contracts for outsourced services; however, the obligations under these contracts are
not significant and the contracts generally contain clauses allowing for cancellation without significant penalty.
26
Capital Stock and Dividends
Common Shares
As of December 31, 2020, there were 59,027,047 common shares of the Company outstanding.
Dividends
On November 11, 2020, the Board of Directors amended the Company's quarterly policy to increase the annualized dividend by
6.8% from $0.59 to $0.63 per common share. The Board's decision to increase the dividend was based on the Company's strong
financial position and positive outlook. During the year ended December 31, 2020, cash dividends paid to shareholders were
as follows:
Declared Date
March 12, 2020
May 12, 2020
August 12, 2020
Paid date
March 31, 2020
June 30, 2020
September 30, 2020
November 11, 2020
December 31, 2020
$
$
$
$
Per common
share
amount
Shareholder
record date
0.1475 March 23, 2020
0.1475
0.1475 September 15, 2020
0.1575 December 16, 2020
June 15, 2020
Common
shares issued
and
outstanding
Aggregate
payment
59,009,685 $
59,009,685 $
59,009,685 $
59,019,546 $
8.8
8.7
8.6
9.4
On March 11, 2021, the Board of Directors declared a dividend of $0.1575 per common share payable on March 31, 2021 to
shareholders of record at the close of business on March 22, 2021.
The dividends paid in 2020 and payable in 2021 by the Company are "eligible dividends" as defined in subsection 89(1) of the
Income Tax Act (Canada).
Share Repurchases
On July 23, 2020, the Company renewed its normal course issuer bid ("NCIB") under which it is permitted to repurchase for
cancellation up to 4,000,000 common shares of the Company at prevailing market prices during the twelve-month period
ending July 22, 2021. As of December 31, 2020 and March 11, 2021, 4,000,000 shares remained available for repurchase under
the NCIB.
The Company's two previous NCIBs, which each allowed repurchases for cancellation of up to 4,000,000 common shares,
expired on July 22, 2020 and July 22, 2019, respectively. There were no share repurchases during the years ended December
31, 2020 and 2019.
27
Share-based Compensation
The Company's share-based compensation plans include: stock options, Stock Appreciation Rights ("SAR"), Performance
Share Units ("PSU"), Restricted Share Units ("RSU") and Deferred Share Units ("DSU"). The SAR plan was terminated in
2020.
The table below summarizes share-based compensation activity that occurred during the following periods:
Equity-settled
Stock options granted
Stock options exercised
Stock options forfeited/cancelled
Cash proceeds (in millions of USD)
Cash-settled
DSUs granted
DSUs settled
PSUs granted
PSUs cancelled by performance factor (1)
PSUs settled (1)
PSUs forfeited/cancelled
RSUs granted
RSUs forfeited/cancelled
SARs exercised
Cash settlements (in millions of USD)
Share-based compensation expense (benefit) (in
millions of USD)
Three months ended
December 31,
2020
2019
2020
Year ended
December 31,
2019
—
—
1,533,183
17,362
132,500
—
$0.3
—
$1.3
17,362
77,500
$0.3
392,986
359,375
32,503
$3.3
13,312
9,003
115,114
72,434
—
—
—
—
20,891
—
6,965
—
—
—
—
30,161
—
9,669
—
694,777
346,887
—
—
291,905
401,319
—
335,465
25,923
23,739
16,053
—
281,326
120,197
113,047
2,013
8,643
7,412
—
—
—
—
—
—
$18.4
($1.5)
$22.9
$0.5
2018
242,918
67,500
—
$0.6
69,234
37,668
284,571
2,125
1,228
147,500
$7.9
$1.9
(1)
The table below provides further information regarding the PSUs settled included in the table above. The number of
"Target Shares" reflects 100% of the PSUs granted and the number of PSUs settled reflects the performance
adjustments to the Target Shares:
Date Settled
Target Shares
Performance
PSUs settled
Grant Date
March 14, 2015
May 14, 2015
May 20, 2015
March 21, 2016
March 21, 2018
May 22, 2018
May 28, 2018
March 21, 2019
December 20, 2016
December 20, 2019
March 20, 2017
March 20, 2020
217,860
115,480
4,250
371,158
30,161
346,887
100 %
100 %
50 %
0 %
0 %
0 %
217,860
115,480
2,125
—
—
—
Grant details for PSUs granted during the year ended December 31, 2020:
The number of PSUs granted during the year ended December 31, 2020 that will be eligible to vest can range from 0% to 175%
of the Target Shares as determined by multiplying the number of PSUs awarded by the adjustment factors as follows:
•
25% based on the Company's total shareholder return ("TSR") ranking relative to the S&P North America
SmallCap Materials (Industry Group) Index (the "Index Group") over the measurement period as set out in the
table below;
28
•
•
25% based on the Company's TSR ranking relative to a specified peer group of companies ("Peer Group") over
the measurement period as set out in the table below; and
50% based on the Company's average return on invested capital over the measurement period as compared to
internally developed thresholds (the “ROIC Performance”) as set out in the table below.
Grant details for PSUs granted during the years ended December 31, 2019 and 2018:
The number of PSUs granted during the years ended December 31, 2019 and 2018 that will be eligible to vest can range from
0% to 175% of the Target Shares as determined by multiplying the number of PSUs awarded by the adjustment factors as
follows:
•
•
50% based on the Company's TSR ranking relative to the Peer Group over the measurement period as set out in
the table below; and
50% based on the Company's ROIC Performance as set out in the table below.
The relative TSR performance adjustment factor is determined as follows:
TSR Ranking Relative to the Index Group/Peer Group
90th percentile or higher
75th percentile
50th percentile
25th percentile
Less than the 25th percentile
The ROIC Performance adjustment factor is determined as follows:
ROIC Performance
1st Tier
2nd Tier
3rd Tier
4th Tier
Percent of Target Shares Vested
Percent of Target Shares Vested
200 %
150 %
100 %
50 %
0 %
0 %
50 %
100 %
150 %
The TSR performance and ROIC Performance adjustment factors between the numbers set out in the two tables above are
interpolated on a straight-line basis.
The performance period is the period from January 1st in the year of grant through December 31st of the third calendar year
following the date of grant. The PSUs are expensed over the vesting period beginning from the date of grant through February
15th of the fourth calendar year following the date of grant.
On December 7, 2020, the Board of Directors approved amendments that, among other things: (i) provide for vesting of future
annual DSU grants over a service period and (ii) allow participants to elect to receive settlement of their DSUs in the calendar
year that their services end or in the following calendar year in accordance with, and to extent permitted by, applicable tax
rules. DSUs granted prior to this amendment (i) were expensed immediately if received as part of an annual grant and (ii) for
US directors, will be settled in the calendar year in which their services end. DSUs granted subsequent to this amendment and
as part of an annual grant are expensed as earned over the service period. DSUs received in lieu of cash for directors’ fees
continue to be expensed as earned over the service period.
As of December 31, 2020, $17.8 million was recorded in share-based compensation liabilities, current, and $13.7 million was
recorded in share-based compensation liabilities, non-current.
Pension and Other Post-Retirement Benefit Plans
The Company’s pension and other post-retirement benefit plans had an unfunded net deficit of $16.8 million as of
December 31, 2020 as compared to $15.1 million as of December 31, 2019. The increase was primarily due to a decrease in the
weighted average discount rate at year-end from 2.98% and 3.15% for US and Canadian plans, respectively, as of December 31,
29
2019 to 2.15% and 2.55% for US and Canadian plans, respectively, as of December 31, 2020. This change in the defined
benefit obligation was partially offset by favourable plan asset performance.
Adverse market conditions could require the Company to make additional cash payments to fund the plans which could reduce
cash available for other business needs; however, the Company expects to meet its minimum required pension benefit plan
funding obligations for 2021. None of the defined benefit plan assets were invested in any of the Company’s own equity or
financial instruments or in any property or other assets used by the Company.
Financial Risk, Objectives and Policies
Interest Rate Risk
The Company is exposed to a risk of change in cash flows due to the fluctuations in interest rates on its variable rate
borrowings.
To minimize the potential long-term cost of floating rate borrowings, the Company entered into interest rate swap agreements.
The interest rate swap agreements involve the exchange of periodic payments excluding the notional principal amount upon
which the payments are based. If the underlying interest rate swap agreement is a qualifying cash flow hedge, these payments
are recorded as an adjustment of interest expense on the hedged debt instruments and the related amount payable to or
receivable from counterparties is included as an adjustment to accrued interest. Cash payments related to non-qualifying cash
flow hedges are recorded as a reduction of the fair value of the corresponding interest rate swap agreement recognized in the
balance sheet, which indirectly impacts the change in fair value recorded in earnings.
The Company was party to the following interest rate swap agreements which are qualifying cash flow hedges designated as
hedging instruments as of December 31, 2020 and 2019 (in millions of USD):
Effective Date
June 8, 2017
August 20, 2018
Maturity
June 20, 2022
August 18, 2023
Notional amount
$
40.0
60.0
Settlement
Monthly
Monthly
Fixed interest
rate paid
%
1.7900
2.0450
The fair value of the derivative liabilities totalled $4.0 million and $1.3 million as of December 31, 2020 and 2019,
respectively.
Additionally, on November 18, 2019 an interest rate swap agreement with a notional amount of $40.0 million and fixed interest
rate of 1.61%, which was considered a non-qualifying cash flow hedge, matured and was settled in full and on December 12,
2019, and an interest rate swap agreement with a notional amount of CDN $36.0 million and fixed interest rate of 1.6825%,
which was considered a qualifying cash flow hedge, matured and was also settled in full.
Exchange Risk
The Company’s Financial Statements are expressed in USD while a portion of its business is conducted in other currencies.
Changes in the exchange rates for such currencies into USD can increase or decrease revenues, operating profit, earnings and
the carrying values of assets and liabilities.
The Company's primary strategy to minimize its risk of foreign currency exposure is to ensure that the Financial Risk
Management Committee:
• monitors the Company's exposures and cash flows, taking into account the large extent of naturally offsetting
exposures,
•
•
considers the Company's ability to adjust its selling prices due to foreign currency movements and other market
conditions, and
considers borrowing under available debt facilities in the most advantageous manner, after considering interest rates,
foreign currency exposures, expected cash flows and other factors.
30
Hedge of net investment in foreign operations
A foreign currency exposure arises from Intertape Polymer Group Inc.'s (the “Parent Company”) net investment in its USD
functional currency subsidiary, IPG (US) Holdings Inc. The risk arises from the fluctuations in the USD and CDN current
exchange rate, which causes the amount of the net investment in IPG (US) Holdings Inc. to vary.
In 2018, the Parent Company completed the private placement of its USD denominated Senior Unsecured Notes which resulted
in additional equity investments in IPG (US) Holdings Inc. The Senior Unsecured Notes are being used to hedge the
Company’s exposure to the USD foreign exchange risk on this investment.
Gains or losses on the retranslation of this borrowing are transferred to OCI to offset any gains or losses on translation of the
net investment in the subsidiary.
There is an economic relationship between the hedged item and the hedging instrument as the net investment creates a
translation risk that will match the foreign exchange risk on the USD borrowing designated as the hedging instrument. Hedge
ineffectiveness will arise when the amount of the investment in the foreign subsidiary becomes lower than the outstanding
amount of the Senior Unsecured Notes. Hedge ineffectiveness is recorded in finance costs (income) in other (income) expense,
net.
The changes in value related to the Senior Unsecured Notes designated as a hedging instrument, in the hedge of a net
investment, are as follows for the years ended December 31 (in millions of USD):
Gain from change in value of the Senior Unsecured Notes used for calculating
hedge ineffectiveness
Gain from Senior Unsecured Notes recognized in OCI
Gain from hedge ineffectiveness recognized in earnings in finance costs (income)
in other (income) expense, net
Deferred tax expense on change in value of the Senior Unsecured Notes
recognized in OCI
2020
$
2019
$
6.5
6.5
—
(0.8)
11.2
10.3
0.9
0.0
The cumulative amounts included in the foreign currency translation reserve related to the net investment in IPG (US)
Holdings, Inc., designated as the hedged item in the hedge of a net investment, (in millions of USD) is as follows as of:
Cumulative gain included in foreign currency translation reserve in OCI
7.3
0.9
December 31,
2020
$
December 31,
2019
$
Litigation
The Company records liabilities for legal proceedings in those instances where it can reasonably estimate the amount of the loss
and where liability is probable. The Company is engaged from time-to-time in various legal proceedings and claims that have
arisen in the ordinary course of business. The outcome of all of the proceedings and claims against the Company is subject to
future resolution, including the uncertainties of litigation. Based on information currently known to the Company and after
consultation with outside legal counsel, management believes that the probable ultimate resolution of any such proceedings and
claims, individually or in the aggregate, will not have a material adverse effect on the financial condition of the Company, taken
as a whole as of December 31, 2020.
Critical Accounting Judgments, Estimates and Assumptions
The preparation of the Financial Statements in conformity with IFRS requires management to make judgments, estimates and
assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and
expenses. Significant changes in the underlying assumptions could result in significant changes to these estimates.
Consequently, management reviews these estimates on a regular basis. Revisions to accounting estimates are recognized in the
period in which the estimates are revised and in any future periods affected. Information about these significant judgments,
31
assumptions and estimates that have the most significant effect on the recognition and measurement of assets, liabilities, income
and expenses are summarized below.
The Company is closely monitoring the impact of the COVID-19 pandemic as a potential trigger for changes in critical
accounting judgments, estimates and assumptions. As of December 31, 2020, and as a result of the impact of COVID-19, the
Company recorded a fair value adjustment to its contingent consideration related to the Nortech Acquisition and certain
termination benefits related to a restructuring plan the Company initiated in response to COVID-19 uncertainties. There were
no other material impairments, changes to allowance for credit losses, restructuring charges or other changes in critical
accounting judgments, estimates and assumptions that it can directly attribute to COVID-19 or otherwise.
Significant Management Judgments
Deferred income taxes
Deferred tax assets are recognized for unused tax losses and tax credits to the extent that it is probable that future taxable
income will be available against which the losses can be utilized. These estimates are reviewed at every reporting date.
Significant management judgment is required to determine the amount of deferred tax assets that can be recognized, based upon
the likely timing and the level of the reversal of existing timing differences, future taxable income and future tax planning
strategies. Refer to Note 5 of the Company’s Financial Statements for more information regarding income taxes.
Determination of the aggregation of operating segments
The Company uses judgment in the aggregation of operating segments for financial reporting and disclosure purposes. In doing
so, management has determined that there are two operating segments consisting of a tape, film, protective packaging and
machinery segment and an engineered coated product segment. The Company has aggregated these two operating segments
into one reporting segment due to similar characteristics including the nature of goods and services provided to its customers,
methods used in the sale and distribution of those goods and services, types of customers comprising its customer base, and the
regulatory environment in which the Company operates.
Estimation Uncertainty
Impairments
At the end of each reporting period, the Company performs a test of impairment on assets subject to depreciation and
amortization if there are indicators of impairment. Cash-generating units ("CGU") containing goodwill or intangible assets
having indefinite useful lives are tested at least annually, regardless of the existence of impairment indicators. An impairment
loss is recognized when the carrying value of an asset or CGU exceeds its recoverable amount, which is the higher of its fair
value less costs of disposal and its value in use. The value in use is based on estimated discounted net future cash inflows,
which are derived from management's financial forecast models of the estimated remaining useful life of the asset or CGU, and
do not include restructuring activities to which the Company is not yet formally committed, nor any anticipated significant
future investments expected to enhance the performance of the asset or CGU being tested. The calculated value in use varies
depending on the discount rate applied to the estimated discounted cash flows, the estimated future cash flows, and the growth
rate used for extrapolation purposes.
Refer to Note 13 of the Company’s Financial Statements for more information regarding impairment testing.
Pension, post-retirement and other long-term employee benefits
The cost of defined benefit pension plans and other post-retirement benefit plans and the present value of the related obligations
are determined using actuarial valuations. The determination of benefits expense and related obligations requires assumptions
such as the discount rate to measure obligations, expected mortality and the expected health care cost trend. These assumptions
are developed by management with the assistance of independent actuaries and are based on current actuarial benchmarks and
management’s historical experience. Actual results will differ from estimated results, which are based on assumptions. Refer to
Note 20 of the Company’s Financial Statements for more information regarding the assumptions related to the pension and
other post-retirement benefit plans.
32
Uncertain tax positions
The Company is subject to taxation in numerous jurisdictions and may have transactions and calculations during the course of
business for which the ultimate tax determination is uncertain. The Company maintains provisions for uncertain tax positions
that it believes appropriately reflects its risk. These provisions are made using the best estimate of the amount expected to be
paid based on a qualitative assessment of all relevant factors. The Company reviews the adequacy of these provisions at the end
of the reporting period. However, it is possible that at some future date, liabilities in excess of the Company’s provisions could
result from audits by, or litigation with, the relevant taxing authorities. As of December 31, 2020 and 2019, the Company does
not have any matters for which the tax determination is uncertain and as such, no provision has been recognized. Refer to Note
5 of the Company’s Financial Statements for more information regarding income taxes.
Useful lives of depreciable assets
The Company depreciates property, plant and equipment over the estimated useful lives of the assets. Right-of-use assets are
depreciated over the shorter period of the lease term and the useful life of the underlying asset. In determining the estimated
useful life of these assets, significant judgment is required. Judgment is required to determine whether events or circumstances
warrant a revision to the remaining periods of depreciation and amortization. The Company considers expectations of the in-
service period of these assets in determining these estimates. The Company assesses the estimated useful life of these assets at
each reporting date. If the Company determines that the useful life of an asset is different from the original assessment, changes
to depreciation and amortization will be applied prospectively. The estimates of cash flows used to assess the potential
impairment of these assets are also subject to measurement uncertainty. Actual results may vary due to technical or commercial
obsolescence, particularly with respect to information technology and manufacturing equipment.
Right-of-use assets and lease liabilities
Extension and early termination options are included in a number of leases across the Company. These are used to maximize
operational flexibility in terms of managing assets used in the Company's operations. In determining the lease term and lease
payments to be included in the measurement of the corresponding right-of-use asset and lease liability, management considers
all facts and circumstances that create an economic incentive to exercise an extension option, or not exercise an early
termination option. Extension options (or periods after early termination options) are only included in the lease term if the lease
is reasonably certain to be extended (or not early terminated). The lease term is reassessed if an option is actually exercised (or
not exercised) or the Company becomes obliged to exercise (or not exercise) it. The assessment of reasonable certainty is only
revised if a significant event or a significant change in circumstances occurs, which affects this assessment, and that is within
the control of the lessee. Refer to Note 15 of the Company’s Financial Statements for more information regarding right-of-use
assets and lease liabilities.
Net realizable value of inventories and parts and supplies
Inventories are measured at the lower of cost or net realizable value. In estimating net realizable values of inventories,
management takes into account the most reliable evidence available at the time the estimate is made.
Provisions for slow-moving and obsolete inventories are made based on the age and estimated net realizable value of
inventories. The assessment of the provision involves management judgment and estimates associated with expected disposition
of the inventory. Refer to Note 7 of the Company’s Financial Statements for information regarding inventories and write-downs
of inventories.
Allowance for doubtful accounts and revenue adjustments
During each reporting period, the Company makes an assessment of whether trade accounts receivable are collectible from
customers. Accordingly, management establishes an allowance for estimated losses arising from non-payment and other
revenue adjustments. The Company’s allowance for expected credit loss reflects lifetime expected credit losses using a
provision matrix model, supplemented by an allowance for individually impaired trade receivables. The provision matrix is
based on the Company’s historic credit loss experience, adjusted for any change in risk of the trade receivable population based
on credit monitoring indicators, and expectations of general economic conditions that might affect the collection of trade
receivables. The provision matrix applies fixed provision rates depending on the number of days that a trade receivable is past
due, with higher rates applied the longer a balance is past due. The Company also records reductions to revenue for estimated
returns, claims, customer rebates, and other incentives. These incentives are recorded as a reduction to revenue at the time of
the initial sale using the most-likely amount estimation method. The most-likely amount method is based on the single most
likely outcome from a range of possible consideration outcomes. The range of possible outcomes are primarily derived from the
33
following inputs: sales terms, historical experience, trend analysis, and projected market conditions in the various markets
served. If future collections and trends differ from estimates, future earnings will be affected. Refer to Note 24 of the
Company’s Financial Statements for more information regarding the allowance for doubtful accounts and the related credit
risks.
Provisions
Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of a past event, it is
probable that the Company will be required to settle the obligation, and a reliable estimate can be made of the amount of the
obligation.
The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the end
of the reporting period, taking into account the risks and uncertainties surrounding the obligation. When a provision is measured
using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows,
when the effect of the time value of money is material.
The Company's provisions include environmental and restoration obligations, termination benefits and other and litigation
provisions. Refer to Note 16 of the Company’s Financial Statements for more information regarding provisions.
Share-based compensation
The estimation of share-based compensation fair value and expense requires the selection of an appropriate pricing model.
The model used by the Company for stock options and SAR awards is the Black-Scholes pricing model. The Black-Scholes
model requires the Company to make significant judgments regarding the assumptions used within the model, the most
significant of which are the expected volatility of the Company’s own common shares, the probable life of awards granted, the
time of exercise, the risk-free interest rate commensurate with the term of the awards, and the expected dividend yield.
The model used by the Company for PSU awards subject to a market performance condition is the Monte Carlo simulation
model. The Monte Carlo model requires the Company to make significant judgments regarding the assumptions used within the
model, the most significant of which are the expected volatility of the Company’s own common shares as well as those of a
peer group and the risk-free interest rate commensurate with the term of the awards. For PSU awards subject to a non-market
performance condition, management estimates the expected achievement of performance criteria using long-range forecasting
models.
Refer to Note 18 of the Company’s Financial Statements for more information regarding share-based compensation expense.
Business acquisitions
Management uses various valuation techniques when determining the fair values of certain assets and liabilities acquired in a
business combination. Refer to Note 19 of the Company’s Financial Statements for more information regarding business
acquisitions.
34
New Standards adopted as of January 1, 2020
On March 29, 2018, the IASB issued its revised Conceptual Framework for Financial Reporting ("Conceptual Framework").
This replaces the previous version of the Conceptual Framework issued in 2010. The revised Conceptual Framework became
effective on January 1, 2020. The revised Conceptual Framework does not constitute a substantial revision from the previously
effective guidance but does provide additional guidance on topics not previously covered such as presentation and disclosure,
revised definitions of an asset and a liability, as well as new guidance on measurement and derecognition. There was no
material impact to the Company’s Financial Statements as a result of adopting the revised Conceptual Framework.
On September 26, 2019, the IASB published Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39 and IFRS 7) in
response to the ongoing reform of interest rate benchmarks around the world. The objective of the amendments is to modify
specific hedge accounting requirements so that entities would apply those hedge accounting requirements assuming that the
interest rate benchmark on which the hedged cash flows and cash flows of the hedging instrument are based is not altered as a
result of interest rate benchmark reform. The amendments became effective on January 1, 2020. There was no material impact
to the Company’s Financial Statements as a result of adopting Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS
39 and IFRS 7) due to the application of the amendments by the Company in the following ways:
•
•
The Company has floating rate debt, linked to the London Inter-bank Offered Rate ("LIBOR"), which it cash flow
hedges using interest rate swaps (refer to Note 24 for additional information on the Company's interest rate swaps).
The amendments permit continuation of hedge accounting even though there is uncertainty about the timing and
amount of the hedged cash flows due to the interest rate benchmark reforms.
The Company will retain the cumulative gain or loss in the cash flow hedge reserve for designated cash flow hedges
that are subject to interest rate benchmark reforms even though there is uncertainty arising from the interest rate
benchmark reform with respect to the timing and amount of the cash flows of the hedged items. Should the Company
consider the hedged future cash flows are no longer expected to occur due to reasons other than interest rate
benchmark reform, the cumulative gain or loss will be immediately reclassified to profit or loss.
Other pronouncements and amendments
In the current year, the Company has applied a number of other amendments to IFRS and Interpretations issued by the IASB
that are effective for annual periods beginning on or after January 1, 2020. Their adoption has not had any material impact on
the disclosures or on the amounts reported in the Company's Financial Statements.
New Standards and Interpretations Issued but Not Yet Effective
As of the date of authorization of the Company’s Financial Statements, certain new standards, amendments and interpretations,
and improvements to existing standards have been published by the IASB but are not yet effective and have not been adopted
early by the Company. Management anticipates that all the relevant pronouncements will be adopted in the first reporting
period following the date of application. Information on new standards, amendments and interpretations, and improvements to
existing standards, which could potentially impact the Company’s Financial Statements, are detailed as follows:
On January 23, 2020, the IASB published Classification of Liabilities as Current or Non-current (Amendments to IAS 1), which
includes narrow-scope amendments to IAS 1 Presentation of Financial Statements. The objective of the amendments is to
clarify how to classify debt and other liabilities as current or non-current depending on the rights that exist at the end of the
reporting period. The amendments include clarification of the classification requirements for debt a company could settle by
converting it into equity. The amendments are effective on January 1, 2023 and will be applied retrospectively. Management is
currently assessing, but has not yet determined, the impact on the Company’s Financial Statements.
On May 14, 2020, the IASB published Property, Plant and Equipment: Proceeds Before Intended Use (Amendments to IAS 16),
which prohibits deducting amounts received from selling items produced while preparing the asset for its intended use from the
cost of property, plant and equipment. Instead, such sales proceeds and related costs will be recognized in earnings. The
amendments are effective on January 1, 2022. Management is currently assessing, but has not yet determined, the impact on the
Company’s Financial Statements.
On May 14, 2020, the IASB published Onerous Contracts - Cost of Fulfilling a Contract (Amendments to IAS 37), which
specifies the costs a Company can include when assessing whether a contract will be loss-making. The amendments are
effective on January 1, 2022. Management is currently assessing, but has not yet determined, the impact on the Company’s
Financial Statements.
35
On May 14, 2020, the IASB published Annual Improvements to IFRS Standards 2018 - 2020, which amends IFRS 1, IFRS 9,
and the Illustrative Examples accompanying IFRS 16. These are minor amendments that clarify, simplify or remove redundant
wordings in the standards. The amendments are effective on January 1, 2022. Management is currently assessing, but has not
yet determined, the impact on the Company’s Financial Statements.
On May 28, 2020, the IASB published Covid-19-Related Rent Concessions (Amendment to IFRS 16), which amends IFRS 16,
Leases, to provide lessees with a practical expedient that relieves lessees from assessing whether a COVID-19-related rent
concession is a lease modification. The amendments are effective for annual reporting periods beginning on or after June 1,
2020 and will be applied retrospectively. Management has completed its analysis of the guidance and does not currently expect
it to materially impact the Company’s Financial Statements.
On August 27, 2020, the IASB published Interest Rate Benchmark Reform - Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7
and IFRS 16) in response to the ongoing reform of interest rate benchmarks around the world. The objective of the amendments
is to support the application of the requirements of IFRS Standards when changes are made to contractual cash flows or hedging
relationships as a result of the transition to an alternative benchmark interest rate. The amendments are effective on January 1,
2021 and will be applied retrospectively. Management has completed its analysis of the guidance and has determined that this
amendment does not materially impact the Company’s Financial Statements.
Certain other new standards and interpretations have been issued but are not expected to have a material impact on the
Company’s Financial Statements.
Internal Control Over Financial Reporting
In accordance with the Canadian Securities Administrators National Instrument 52-109, "Certification of Disclosure in Issuers’
Annual and Interim Filings" ("NI 52-109"), the Company has filed interim certificates signed by the Chief Executive Officer
("CEO") and the Chief Financial Officer ("CFO") that, among other things, report on the design of disclosure controls and
procedures and design of internal control over financial reporting. With regards to the annual certification requirements of NI
52-109, the Company relies on the statutory exemption contained in section 8.1 of NI 52-109, which allows it to file with the
Canadian securities regulatory authorities the certificates required under the Sarbanes-Oxley Act of 2002 at the same time such
certificates are required to be filed in the United States of America.
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be
disclosed in its annual filings, interim filings or other reports filed or submitted by the Company under securities legislation is
recorded, processed, summarized and reported within the time periods specified in securities legislation and that such
information is accumulated and communicated to the Company's management including the CEO and CFO as appropriate to
allow timely decision regarding required disclosure. The Company has also established internal control over financial reporting
which is designed to provide reasonable assurance regarding the reliability of the Company’s financial reporting and its
compliance with GAAP (as derived in accordance with IFRS) in its Financial Statements.
Management, under the supervision of the Company's CEO and CFO, evaluated the effectiveness of the Company's disclosure
controls and procedures as well as the effectiveness of the Company's internal control over financial reporting. The CEO and
CFO have concluded that the Company’s disclosure controls and procedures and internal control over financial reporting as of
December 31, 2020 were effective.
There have been no changes to the Company’s internal control over financial reporting during the Company’s most recent
interim period that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over
financial reporting.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined
to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because
of its inherent limitation, internal control over financial reporting may not prevent or detect misstatements. Also, projections of
any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Additional Information
Additional information relating to the Company, including its Form 20-F filed in lieu of an Annual Information Form for 2019,
is available on the Company’s website (www.itape.com) as well as under the Company’s profile on SEDAR at www.sedar.com
and on EDGAR at www.sec.gov.
36
Forward-Looking Statements
Certain statements and information included in this MD&A constitute "forward-looking information" within the meaning of
applicable Canadian securities legislation and "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (collectively,
"forward-looking statements"), which are made in reliance upon the protections provided by such legislation for forward-
looking statements. All statements other than statements of historical facts included in this MD&A, including statements
regarding the Company’s industry and the Company’s outlook, prospects, plans, financial position, future transactions,
acquisitions and partnerships, the expected financial performance and benefits of acquisitions, including the Nortech
transaction, the expected synergies gained from the Nortech acquisition, strategic initiatives and anticipated demand in growing
markets, including e-commerce, sales and financial results, inventory, income tax and effective tax rate, availability of funds
and credit, expected credit spread, level of indebtedness, payment of dividends, share repurchases, capital and other significant
expenditures including, but not limited to expected rate of return, timing, risk level, growth and revenue of such expenditures
and expansion projects, working capital requirements, manufacturing facility closures and restructurings, and related cost
savings, the Company's production plans, including at its greenfield manufacturing facilities, remote work arrangements and
absentee rate at facilities in North America, sourcing of raw materials including the availability and pricing due to supply chain
disruptions, including the Texas weather-related event, pension plan contribution requirements and administration expenses,
liquidity, selling prices including maintaining dollar spread due to higher raw material and freight costs, fluctuations in costs,
the impacts of new accounting standards, including the impact of new accounting guidance for leases, contractual
commitments, judgments, estimates, assumptions, litigation and business strategy, may constitute forward-looking statements.
These forward-looking statements are based on current beliefs, assumptions, expectations, estimates, forecasts and projections
made by the Company’s management. Words such as "may," "will," "should," "expect," "continue," "intend," "estimate,"
"anticipate," "plan," "foresee," "believe" or "seek" or the negatives of these terms or variations of them or similar terminology
are intended to identify such forward-looking statements. Although the Company believes that the expectations reflected in
these forward-looking statements are reasonable, these statements, by their nature, involve risks and uncertainties and are not
guarantees of future performance. Such statements are also subject to assumptions concerning, among other things: business
conditions and growth or declines in the Company’s industry, the Company’s customers’ industries and the general economy,
including as a result of the impact of COVID-19; tax and regulatory environments, the anticipated benefits from the Company’s
manufacturing facility closures and other restructuring efforts; the anticipated benefits from the Company's greenfield projects
and manufacturing facility expansions; the impact of selling prices; the impact of fluctuations in raw material prices and freight
costs; the anticipated benefits from the Company’s acquisitions and partnerships; the Company's ability to integrate and realize
synergies from acquisitions; the anticipated benefits from the Company’s capital expenditures; the quality of, and market
reception for, the Company’s products; the Company’s anticipated business strategies; risks and costs inherent in litigation; the
Company’s ability to maintain and improve product quality and customer service; anticipated trends in the Company’s
business; anticipated cash flows from the Company’s operations; availability of funds under the Company’s 2018 Credit
Facility, 2018 Powerband Credit Facility, and 2018 Capstone Facility; the flexibility to allocate capital after the Senior
Unsecured Notes offering; changes to accounting rules and standards; and the Company’s ability to continue to control costs.
The Company can give no assurance that these statements and expectations will prove to have been correct. Actual outcomes
and results may, and often do, differ from what is expressed, implied or projected in such forward-looking statements, and such
differences may be material. Readers are cautioned not to place undue reliance on any forward-looking statement. For
additional information regarding some important factors that could cause actual results to differ materially from those expressed
in these forward-looking statements and other risks and uncertainties, and the assumptions underlying the forward-looking
statements, you are encouraged to read "Item 3. Key Information - Risk Factors," "Item 5 Operating and Financial Review and
Prospects (Management’s Discussion & Analysis)" and statements located elsewhere in the Company’s annual report on Form
20-F for the year ended December 31, 2019 and the other statements and factors contained in the Company’s filings with the
Canadian securities regulators and the US Securities and Exchange Commission. Each of the forward-looking statements
speaks only as of the date of this MD&A. The Company will not update these statements unless applicable securities laws
require it to do so.
37
Intertape Polymer Group Inc.
Consolidated Financial Statements
December 31, 2020, 2019 and 2018
Management’s Responsibility for Consolidated Financial Statements
Management’s Report on Internal Control over Financial Reporting
Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting
Consolidated Financial Statements
Consolidated Earnings
Consolidated Comprehensive Income
Consolidated Changes in Equity
Consolidated Cash Flows
Consolidated Balance Sheets
Notes to Consolidated Financial Statements
2
3
4 to 6
7 to 8
9
10
11 to 14
15
16
17 to 89
Management’s Responsibility for Consolidated Financial Statements
The consolidated financial statements of Intertape Polymer Group Inc. (the “Company”) and other financial information are the
responsibility of the Company’s management and have been examined and approved by its Board of Directors. These
consolidated financial statements have been prepared by management in accordance with International Financial Reporting
Standards (“IFRS”) as issued by the International Accounting Standards Board and include some amounts that are based on
management’s best estimates and judgments. The selection of accounting principles and methods is management’s
responsibility.
Management is responsible for the design, establishment and maintenance of appropriate internal control and procedures over
financial reporting, to ensure that financial statements for external purposes are fairly presented in conformity with IFRS.
Pursuant to these internal controls and procedures, processes have been designed to ensure that the Company’s transactions are
properly authorized, the Company’s assets are safeguarded against unauthorized or improper use, and the Company’s
transactions are properly recorded and reported to permit the preparation of the Company’s consolidated financial statements in
conformity with IFRS.
Management recognizes its responsibility for conducting the Company’s affairs in a manner to comply with the requirements of
applicable laws and for maintaining proper standards of conduct in its activities.
The Audit Committee, all of whose members are independent directors, is involved in the review of the consolidated financial
statements and other financial information.
The Audit Committee’s role is to examine the consolidated financial statements and annual report and once approved,
recommend that the Board of Directors approve them, examine internal control over financial reporting and information
protection systems and all other matters relating to the Company’s accounting and finances. In order to do so, the Audit
Committee meets periodically with the external auditor to review its audit plan and discuss the results of its examinations. The
Audit Committee is also responsible for recommending the nomination of the external auditor.
The Company’s external independent registered public accounting firm, Raymond Chabot Grant Thornton LLP, was appointed
by the Shareholders at the Annual Meeting of Shareholders on May 13, 2020 to conduct the integrated audit of the Company’s
consolidated financial statements, and the Company’s internal control over financial reporting. Its reports indicating the scope
of its audits and its opinions on the consolidated financial statements and the Company’s internal control over financial
reporting follow.
/s/ Gregory A.C. Yull
Gregory A.C. Yull
President and Chief Executive Officer
/s/ Jeffrey Crystal
Jeffrey Crystal
Chief Financial Officer
Sarasota, Florida and Montreal, Quebec
March 11, 2021
2
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company.
Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of the
Company’s financial reporting as well as the preparation of consolidated financial statements for external reporting purposes in
accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards
Board.
Internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit the preparation of consolidated financial statements
in accordance with IFRS, and that receipts and expenditures of the Company are being made only in accordance with
authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the
Company’s consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements and, even
when determined to be effective, can provide only reasonable assurance with respect to consolidated financial statements
preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures
may deteriorate.
Management conducted an assessment of the effectiveness of the Company’s internal control over financial reporting as of
December 31, 2020 based on the criteria established in the “2013 Internal Control – Integrated Framework” issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
Management has concluded that the Company’s internal control over financial reporting was effective as of December 31, 2020
based on those criteria.
The Company’s internal control over financial reporting as of December 31, 2020 has been audited by Raymond Chabot Grant
Thornton LLP, the Company’s external independent registered public accounting firm, as stated in its report which follows.
/s/ Gregory A.C. Yull
Gregory A.C. Yull
President and Chief Executive Officer
/s/ Jeffrey Crystal
Jeffrey Crystal
Chief Financial Officer
Sarasota, Florida and Montreal, Quebec
March 11, 2021
3
Report of Independent Registered
Public Accounting Firm
To the Shareholders and Directors of
Intertape Polymer Group Inc.
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of Intertape Polymer Group
Inc. (the "Company") as of December 31, 2020 and 2019, the related consolidated statements
of earnings, comprehensive income, changes in equity and cash flows, for each of the three
years in the period ended December 31, 2020, and the related notes (collectively referred to
as the "financial statements"). In our opinion, the financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 2020 and 2019,
and the results of its operations and its cash flows for each of the three years in the period
ended December 31, 2020, in conformity with International Financial Reporting Standards as
issued by the International Accounting Standards Board.
We have also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States) (PCAOB), the Company's internal control over financial
reporting as of December 31, 2020, based on criteria established in the 2013 Internal Control
– Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO), and our report dated March 11, 2021 expressed an
unqualified opinion on the effectiveness of the Company's internal control over financial
reporting.
Basis for opinion
These financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the Company’s financial statements based on our
audits. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws
and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement, whether due to error or fraud. Our
audits included performing procedures to assess the risks of material misstatement of the
financial statements, whether due to error or fraud, and performing procedures that respond
to those risks. Such procedures included examining, on a test basis, evidence regarding the
amounts and disclosures in the financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements. We believe that our audits
provide a reasonable basis for our opinion.
4
Raymond Chabot Grant Thornton LLP Suite 2000 National Bank Tower 600 De La Gauchetière Street West Montréal, Quebec H3B 4L8 T 514-878-2691 Member of Grant Thornton International Ltd rcgt.com Critical audit matter
The critical audit matter communicated below is a matter arising from the current-period audit
of the financial statements that was communicated or required to be communicated to the
Company’s Audit Committee and that: (1) relates to accounts or disclosures that are material
to the financial statements and (2) involved our especially challenging, subjective, or complex
judgments. The communication of critical audit matters does not alter in any way our opinion
on the financial statements, taken as a whole, and we are not, by communicating the critical
audit matter below, providing a separate opinion on the critical audit matter or on the accounts
or disclosures to which it relates.
Evaluation of the recoverability of the carrying value of goodwill and indefinite-lived
intangible assets
As described in Note 13 to the financial statements, the Company evaluates the recoverability
of the carrying value of goodwill and indefinite-lived intangible assets annually or when events
or changes in circumstances indicate a potential impairment has occurred.
The Company exercises significant judgment in determining the recoverability of the carrying
values split by cash-generating units (CGUs), which the Company has identified as the tapes
and films CGU, Polyair CGU (tested in a group with tapes and films CGU), the engineered
coated products CGU, the Nortech CGU and another CGU. In assessing the recoverability,
the Company compares the carrying value to the recoverable amount based on the value in
use, which is based on discounted cash flows for each CGU, which includes significant
management judgment, including projected cash flows, growth rate and discount rate. We
identified evaluation of the recoverability of the carrying values of goodwill and indefinite-lived
intangible assets as a critical audit matter.
The principal considerations for our determination that evaluation of the recoverability of the
carrying values of goodwill and indefinite-lived intangible assets is a critical audit matter are
the high level of auditor’s judgment and effort required in performing the audit procedures to
evaluate management’s estimates and assumptions mentioned above, which include the use
of professionals with specialized skills in valuation.
Our audit procedures related to the Company’s determination of their CGUs recoverable
amounts included the following, among others:
– We tested the effectiveness of internal controls related to goodwill and indefinite lived
intangible assets, including controls over the determination of value in use, such as
management’s judgment in determining projected cash flows, growth rate and discount
rate;
– We evaluated the reasonableness of the Company’s discounted cash flows by comparing
projections to:
historical values;
industry data;
current communicated business plans and approved budget;
5
– We used valuation specialists in evaluating the reasonableness of the valuation model
used by the Company, including the assumptions such as growth rates and discount rates;
– We tested the completeness and accuracy of the underlying data used in the Company’s
valuation model;
– We performed a sensitivity analysis on significant management assumptions used in the
valuation model.
We have served as the Company’s auditor since 1981.
Montréal, Canada
March 11, 2021
6
Report of Independent Registered
Public Accounting Firm on Internal
Control over Financial Reporting
To the Shareholders and Directors of
Intertape Polymer Group Inc.
Opinion on internal control over financial reporting
We have audited the internal control over financial reporting of Intertape Polymer Group Inc.
(the "Company") as of December 31, 2020, based on criteria established in the 2013 Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of December 31, 2020, based
on criteria established in the 2013 Internal Control-Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States) (PCAOB), the consolidated financial statements of the
Company as of December 31, 2020 and 2019 and for each of the three years in the period
ended December 31, 2020 and our report dated March 11, 2021 expressed an unqualified
opinion on those consolidated financial statements.
Basis for opinion
The Company’s management is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying Management’s Report on Internal Control over
Financial Reporting ("Management's Report"). Our responsibility is to express an opinion on
the Company’s internal control over financial reporting based on our audit. We are a public
accounting firm registered with the PCAOB and are required to be independent with respect
to the Company in accordance with the U.S. federal securities laws and the applicable rules
and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all material respects. Our
audit included obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk, and performing such
other procedures as we considered necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.
7
Raymond Chabot Grant Thornton LLP Suite 2000 National Bank Tower 600 De La Gauchetière Street West Montréal, Quebec H3B 4L8 T 514-878-2691 Member of Grant Thornton International Ltd rcgt.com Definition and limitations of internal control over financial reporting
A company’s internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with International Financial
Reporting Standards as issued by the International Accounting Standards Board. A
company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with International Financial Reporting Standards as issued by the
International Accounting Standards Board, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Montréal, Canada
March 11, 2021
8
Intertape Polymer Group Inc.
Consolidated Earnings
Years ended December 31, 2020, 2019 and 2018
(In thousands of US dollars, except per share amounts)
Revenue (Note 21)
Cost of sales
Gross profit
Selling, general and administrative expenses
Research expenses
Operating profit before manufacturing facility closures,
restructuring and other related charges
Manufacturing facility closures, restructuring and other
related charges (Note 4)
Operating profit
Finance costs (income) (Note 3)
Interest
Other (income) expense, net
Earnings before income tax expense
Income tax expense (benefit) (Note 5)
Current
Deferred
Net earnings
Net earnings (loss) attributable to:
Company shareholders
Non-controlling interests
Earnings per share attributable to Company shareholders (Note 6)
Basic
Diluted
2020
$
2019
$
2018
$
1,213,028
1,158,519
1,053,019
924,244
288,784
157,486
11,196
168,682
120,102
4,328
115,774
29,436
(6,238)
23,198
92,576
25,595
(6,474)
19,121
73,455
72,670
785
73,455
1.23
1.22
911,644
246,875
136,674
12,527
149,201
97,674
5,136
92,538
31,690
3,314
35,004
57,534
17,195
(885)
16,310
41,224
41,216
8
41,224
0.70
0.70
834,136
218,883
122,466
12,024
134,490
84,393
7,060
77,333
17,072
3,810
20,882
56,451
934
8,868
9,802
46,649
46,753
(104)
46,649
0.79
0.79
The accompanying notes are an integral part of the consolidated financial statements and Note 3 presents additional information
on consolidated earnings.
9
Intertape Polymer Group Inc.
Consolidated Comprehensive Income
Years ended December 31, 2020, 2019 and 2018
(In thousands of US dollars)
Net earnings
Other comprehensive income (loss)
Change in fair value of interest rate swap agreements
designated as cash flow hedges (1) (Note 24)
Reclassification adjustments for amounts recognized in
earnings related to interest rate swap agreements (Note 24)
Change in cumulative translation adjustments (2)
Net gain (loss) arising from hedge of a net investment in
foreign operations (3) (Note 24)
Items that will be reclassified subsequently to net earnings
Remeasurement of defined benefit liability (4) (Note 20)
Items that will not be reclassified subsequently to net earnings
Other comprehensive income (loss)
Comprehensive income for the year
Comprehensive income (loss) for the year attributable to:
Company shareholders
Non-controlling interests
2020
$
2019
$
2018
$
73,455
41,224
46,649
(2,027)
(3,057)
1,433
—
(3,028)
5,724
669
(480)
(480)
189
73,644
73,006
638
73,644
(503)
(7,798)
10,235
(1,123)
589
589
(534)
40,690
40,783
(93)
40,690
(531)
(153)
(9,421)
(8,672)
2,286
2,286
(6,386)
40,263
40,828
(565)
40,263
(1)
(2)
(3)
(4)
Presented net of deferred income tax benefit of $658 in 2020, $359 in 2019 and $463 in 2018.
Presented net of deferred income tax expense of $281 in 2020, nil in 2019 and 2018.
Presented net of deferred income tax expense of $764 in 2020, $45 in 2019 and nil in 2018.
Presented net of deferred income tax (benefit) expense of ($216) in 2020, $173 in 2019, and $730 in 2018.
The accompanying notes are an integral part of the consolidated financial statements.
10
Intertape Polymer Group Inc.
Consolidated Changes in Equity
Year ended December 31, 2018
(In thousands of US dollars, except for number of common shares)
Balance as of December 31, 2017
Transactions with owners
Capital stock
Accumulated other comprehensive loss
Number
Amount
Contributed
surplus
Cumulative
translation
adjustment
account
Reserve for
cash flow
hedges
Total
Deficit
Total equity
attributable
to Company
shareholders
Non-
controlling
interest
$
$
$
$
$
$
$
$
Total
equity
$
58,799,910
350,759
17,530
(15,057)
1,588
(13,469)
(106,687)
248,133
6,589
254,722
Exercise of stock options (Note 18)
67,500
Change in excess tax benefit on exercised share-based awards (Note 5)
Change in excess tax benefit on outstanding share-based awards (Note 5)
Share-based compensation (Note 18)
Share-based compensation expense credited to capital on options
exercised (Note 18)
Repurchases of common shares (Note 18)
Dividends on common shares (Note 18)
Net earnings (loss)
Other comprehensive income (loss)
Change in fair value of interest rate swap agreements designated as cash
flow hedges (1) (Note 24)
Reclassification adjustments for amounts recognized in earnings related
to interest rate swap agreements (Note 24)
Remeasurement of defined benefit liability (2) (Note 20)
Change in cumulative translation adjustments
Net loss arising from hedge of a net investment in foreign
operations (Note 24)
Comprehensive (loss) income for the year
(472) (6)
(1,263)
(32,943)
(34,678)
46,753
2,286
1,433
1,433
(531)
(531)
308
(9,421)
902
(8,211)
2,286
902
(8,211)
49,039
308
(9,421)
(9,113)
(9,113)
618
—
(737)
(5)
—
(2,559)
(32,943)
(35,626)
46,753
1,433
(531)
2,286
308
(9,421)
(5,925)
40,828
618
—
(737)
(5)
—
(2,559)
(32,943)
(35,626)
46,649
1,433
(531)
2,286
(153)
(9,421)
(6,386)
40,263
(104)
(461)
(461)
(565)
618
7
179
(7)
(737)
467
(179)
(217,100)
(1,296)
(149,600)
(492)
(456)
11
Capital stock
Accumulated other comprehensive loss
Number
Amount
Contributed
surplus
Cumulative
translation
adjustment
account
Reserve for
cash flow
hedges
Total
Deficit
Total equity
attributable
to Company
shareholders
Non-controlling interest arising from investment in Polyair (3)
Capital transactions with non-controlling shareholders of Capstone (4)
Recognition of non-controlling interest put options arising from the Capstone
Acquisition (Note 24)
Derecognition of call option redemption liability related to Powerband (5)
Acquisition of the non-controlling interest of Powerband (5)
(10,888)
(10,888)
1,434
5,966
1,434
5,966
Balance as of December 31, 2018
58,650,310
350,267
17,074
(24,170)
2,490
(21,680)
(95,814)
249,847
Non-
controlling
interest
421
11,102
(5,966)
11,581
Total
equity
421
11,102
(10,888)
1,434
—
261,428
(1)
(2)
(3)
(4)
(5)
(6)
Presented net of deferred income tax benefit of $463.
Presented net of deferred income tax expense of $730.
As part of the acquisition of Polyair Inter Pack Inc. (“Polyair”), on August 3, 2018, the Company indirectly obtained a controlling 50.1% interest in the Polyair subsidiary GPCP Inc.
On May 11, 2018, the Company, through its partially owned subsidiary Capstone Polyweave Private Limited ("Capstone"), acquired substantially all of the assets and assumed certain liabilities of Airtrax Polymers
Private Limited and on August 20, 2018, the Company acquired additional existing and newly-issued shares of Capstone as part of the same overall transaction. As a result of these transactions,and the impacts on the
non-controlling interest's share of ownership, the Company recorded an $11.1 million increase to equity attributable to non-controlling interests.
On November 16, 2018, the Company closed on the exercised call option to acquire the outstanding 26% interest in Powerband Industries Private Limited ("Powerband"), which resulted in the full derecognition of the
previously recorded call option redemption liability. Upon derecognition of the call option redemption liability, and to account for the difference between the agreed-upon share purchase price of $9.9 million and the
recorded liability of $12.7 million, a $1.4 million increase in equity was recorded on the consolidated balance sheet as of December 31, 2018 and a $1.4 million foreign exchange gain was recorded in consolidated
earnings in finance costs (income) in other (income) expense, net.
Presented net of income tax benefit of $126.
The accompanying notes are an integral part of the consolidated financial statements.
12
Intertape Polymer Group Inc.
Consolidated Changes in Equity
Year ended December 31, 2019
(In thousands of US dollars, except for number of common shares)
Balance as of December 31, 2018
Transactions with owners
Capital stock
Accumulated other comprehensive loss
Number
Amount
Contributed
surplus
Cumulative
translation
adjustment
account
Reserve for
cash flow
hedges
Total
Deficit
Total equity
attributable
to Company
shareholders
Non-
controlling
interests
$
$
$
$
$
$
$
$
Total
equity
$
58,650,310
350,267
17,074
(24,170)
2,490
(21,680)
(95,814)
249,847
11,581
261,428
Exercise of stock options (Note 18)
359,375
3,278
Change in excess tax benefit on exercised share-based awards (Note 5)
38
Change in excess tax benefit on outstanding share-based awards (Note 5)
Share-based compensation (Note 18)
Share-based compensation expense credited to capital on options
exercised (Note 18)
Dividends on common shares (Note 18)
Net earnings
Other comprehensive income (loss)
Change in fair value of interest rate swap agreements designated as cash flow
hedges (1) (Note 24)
Reclassification adjustments for amounts recognized in earnings related to
interest rate swap agreements (Note 24)
Remeasurement of defined benefit liability (2) (Note 20)
Change in cumulative translation adjustments
Net gain arising from hedge of a net investment in foreign
operations (3) (Note 24)
Comprehensive income (loss) for the year
Balance as of December 31, 2019
(1)
(2)
(3)
(4)
Presented net of deferred income tax benefit of $359.
Presented net of deferred income tax expense of $173.
Presented net of deferred income tax expense of $45.
Presented net of income tax benefit of $3.
The accompanying notes are an integral part of the consolidated financial statements.
(38)
21
701
976
(976)
359,375
4,292
(292)
(56) (4)
(33,834)
(33,890)
41,216
(3,057)
(3,057)
(503)
(503)
589
3,278
—
21
645
—
(33,834)
(29,890)
41,216
(3,057)
(503)
589
3,278
—
21
645
—
(33,834)
(29,890)
8
41,224
(3,057)
(503)
589
(7,697)
(7,697)
(7,697)
(101)
(7,798)
10,235
2,538
2,538
10,235
(3,560)
(1,022)
589
(3,560)
(1,022)
41,805
59,009,685
354,559
16,782
(21,632)
(1,070)
(22,702)
(87,899)
10,235
(433)
40,783
260,740
(101)
(93)
10,235
(534)
40,690
11,488
272,228
13
Intertape Polymer Group Inc.
Consolidated Changes in Equity
Year ended December 31, 2020
(In thousands of US dollars, except for number of common shares)
Capital stock
Number
Amount
Contributed
surplus
Accumulated other comprehensive loss
Cumulative
translation
adjustment
account
Reserve for
cash flow
hedges
Total
$
$
$
$
$
Total equity
attributable
to Company
shareholders
Non-
controlling
interests
$
$
Total
equity
$
Deficit
$
Balance as of December 31, 2019
Transactions with owners
59,009,685
354,559
16,782
(21,632)
(1,070)
(22,702)
(87,899)
260,740
11,488
272,228
Exercise of stock options (Note 18)
17,362
271
Change in excess tax benefit on outstanding share-based awards (Note 5)
Share-based compensation (Note 18)
Share-based compensation expense credited to capital on options
exercised (Note 18)
Dividends on common shares (Note 18)
5,306
738
50
(50)
17,362
321
5,994
Net earnings
Other comprehensive income (loss)
Change in fair value of interest rate swap agreements designated as cash
flow hedges (1) (Note 24)
Remeasurement of defined benefit liability (2) (Note 20)
Change in cumulative translation adjustments (3)
Net gain arising from hedge of a net investment in foreign
operations (4) (Note 24)
Comprehensive income (loss) for the period
Dividend paid to non-controlling interest in GPCP Inc.
(35,405)
(35,405)
72,670
(2,027)
(2,027)
(480)
(2,881)
(2,881)
5,724
2,843
2,843
5,724
(2,027)
(2,027)
816
(480)
816
72,190
271
5,306
738
—
(35,405)
(29,090)
72,670
(2,027)
(480)
(2,881)
5,724
336
73,006
271
5,306
738
—
(35,405)
(29,090)
785
73,455
(2,027)
(480)
(147)
(3,028)
(147)
638
(100)
5,724
189
73,644
(100)
Balance as of December 31, 2020
59,027,047
354,880
22,776
(18,789)
(3,097)
(21,886)
(51,114)
304,656
12,026
316,682
(1)
(2)
(3)
(4)
Presented net of deferred income tax benefit of $658.
Presented net of deferred income tax benefit of $216.
Presented net of deferred income tax expense of $281.
Presented net of deferred income tax expense of $764.
The accompanying notes are an integral part of the consolidated financial statements.
14
Intertape Polymer Group Inc.
Consolidated Cash Flows
Years ended December 31, 2020, 2019 and 2018
(In thousands of US dollars)
OPERATING ACTIVITIES
Net earnings
Adjustments to net earnings
Depreciation and amortization
Income tax expense
Interest expense
Non-cash charges in connection with manufacturing facility closures, restructuring
and other related charges
Impairment of inventories
Share-based compensation expense (Note 18)
Pension and other post-retirement expense related to defined benefit plans
Contingent consideration liability fair value adjustment (Note 24)
Loss (gain) on foreign exchange
Other adjustments for non-cash items
Income taxes paid, net
Contributions to defined benefit plans
Cash flows from operating activities before changes in working capital items
Changes in working capital items
Trade receivables
Inventories
Other current assets
Accounts payable and accrued liabilities and share-based compensation
settlements
Provisions
Cash flows from operating activities
INVESTING ACTIVITIES
Acquisition of subsidiaries, net of cash acquired (Note 19)
Purchases of property, plant and equipment
Purchase of intangible assets
Other investing activities
Cash flows from investing activities
FINANCING ACTIVITIES
Proceeds from borrowings
Repayment of borrowings and lease liabilities
Payments of debt issue costs
Interest paid
Proceeds from exercise of stock options
Repurchases of common shares
Dividends paid
Dividends paid to non-controlling interest in GPCP Inc.
Acquisition of non-controlling interest in Powerband through settlement of call option
Cash outflow from capital transactions with non-controlling interest in Capstone
Other financing activities
Cash flows from financing activities
Net increase (decrease) in cash
Effect of foreign exchange differences on cash
Cash, beginning of year
Cash, end of year
The accompanying notes are an integral part of the consolidated financial statements.
15
2020
$
2019
$
2018
$
73,455
41,224
46,649
63,840
19,121
29,436
596
1,179
22,879
2,057
(11,005)
38
3,338
(24,610)
(1,129)
179,195
(25,947)
(4,742)
383
29,014
1,682
390
179,585
(35,704)
(45,828)
(1,854)
579
(82,807)
302,031
(325,881)
—
(28,764)
271
—
(35,386)
(100)
—
—
—
(87,829)
8,949
471
7,047
16,467
61,415
16,310
31,690
799
2,877
501
2,073
—
(790)
4,823
(11,995)
(1,261)
147,666
(3,893)
4,341
127
(11,571)
(1,658)
(12,654)
135,012
—
(48,165)
(2,259)
1,508
(48,916)
190,673
(225,902)
(70)
(32,934)
3,278
(329)
(33,992)
—
—
—
411
(98,865)
(12,769)
1,165
18,651
7,047
44,829
9,802
17,072
6,136
716
1,914
2,695
—
1,933
928
(1,577)
(13,802)
117,295
(9,660)
(30,388)
(6,523)
19,215
859
(26,497)
90,798
(165,763)
(75,781)
(1,558)
(173)
(243,275)
991,917
(762,622)
(7,862)
(10,901)
618
(2,160)
(32,776)
—
(9,869)
(2,630)
452
164,167
11,690
(2,132)
9,093
18,651
Intertape Polymer Group Inc.
Consolidated Balance Sheets
As of
(In thousands of US dollars)
ASSETS
Current assets
Cash
Trade receivables (Note 24)
Inventories (Note 7)
Other current assets (Note 8)
Property, plant and equipment (Note 9)
Goodwill (Note 11)
Intangible assets (Note 12)
Deferred tax assets (Note 5)
Other assets (Note 10)
Total assets
LIABILITIES
Current liabilities
Accounts payable and accrued liabilities
Share-based compensation liabilities, current (Note 18)
Provisions, current (Note 16)
Borrowings and lease liabilities, current (Notes 14 and 15)
Borrowings and lease liabilities, non-current (Notes 14 and 15)
Pension, post-retirement and other long-term employee benefits (Note 20)
Share-based compensation liabilities, non-current (Note 18)
Non-controlling interest put options (Note 24)
Deferred tax liabilities (Note 5)
Provisions, non-current (Note 16)
Other liabilities (Note 17)
Total liabilities
EQUITY
Capital stock (Note 18)
Contributed surplus (Note 18)
Deficit
Accumulated other comprehensive loss
Total equity attributable to Company shareholders
Non-controlling interests
Total equity
Total liabilities and equity
The accompanying notes are an integral part of the consolidated financial statements.
December 31,
2020
$
December 31,
2019
$
16,467
162,235
194,516
21,048
394,266
415,214
132,894
124,274
29,677
13,310
1,109,635
180,446
17,769
4,222
26,219
228,656
463,745
19,826
13,664
15,758
34,108
2,430
14,766
792,953
354,880
22,776
(51,114)
(21,886)
304,656
12,026
316,682
1,109,635
7,047
133,176
184,937
22,287
347,447
415,311
107,677
115,049
29,738
10,518
1,025,740
145,051
4,948
1,766
26,319
178,084
482,491
17,018
4,247
13,634
46,669
3,069
8,300
753,512
354,559
16,782
(87,899)
(22,702)
260,740
11,488
272,228
1,025,740
16
Intertape Polymer Group Inc.
Notes to Consolidated Financial Statements
December 31, 2020
(In US dollars, tabular amounts in thousands, except shares, per share data and as otherwise noted)
1 - GENERAL BUSINESS DESCRIPTION
Intertape Polymer Group Inc. (the “Parent Company”), incorporated under the Canada Business Corporations Act, has its
principal administrative offices in Montreal, Québec, Canada and in Sarasota, Florida, USA. The address of the Parent
Company’s registered office is 800 Place Victoria, Suite 3700, Montreal, Québec H4Z 1E9, c/o Fasken Martineau DuMoulin
LLP. The Parent Company’s common shares are listed on the Toronto Stock Exchange (“TSX”) in Canada. Details of the
Parent Company and its subsidiaries (together referred to as the “Company”) are set out in Note 2.
The Company develops, manufactures and sells a variety of paper-and-film based pressure sensitive and water-activated tapes,
polyethylene and specialized polyolefin films, protective packaging, engineered coated products and packaging machinery for
industrial and retail use.
Intertape Polymer Group Inc. is the Company’s ultimate parent.
2 - ACCOUNTING POLICIES
Basis of Presentation and Statement of Compliance
The consolidated financial statements present the Company’s consolidated balance sheets as of December 31, 2020 and 2019,
as well as its consolidated earnings, comprehensive income, cash flows, and changes in equity for each of the years in the three-
year period ended December 31, 2020. These consolidated financial statements have been prepared in accordance with
International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”) and are
expressed in United States (“US”) dollars and are rounded to the nearest thousands, except for per share amounts.
The consolidated financial statements were authorized for issuance by the Company’s Board of Directors on March 11, 2021.
New Standards adopted as of January 1, 2020
On March 29, 2018, the IASB issued its revised Conceptual Framework for Financial Reporting ("Conceptual Framework").
This replaces the previous version of the Conceptual Framework issued in 2010. The revised Conceptual Framework became
effective on January 1, 2020. The revised Conceptual Framework does not constitute a substantial revision from the previously
effective guidance but does provide additional guidance on topics not previously covered such as presentation and disclosure,
revised definitions of an asset and a liability, as well as new guidance on measurement and derecognition. There was no
material impact to the Company’s financial statements as a result of adopting the revised Conceptual Framework.
On September 26, 2019, the IASB published Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39 and IFRS 7) in
response to the ongoing reform of interest rate benchmarks around the world. The objective of the amendments is to modify
specific hedge accounting requirements so that entities would apply those hedge accounting requirements assuming that the
interest rate benchmark on which the hedged cash flows and cash flows of the hedging instrument are based is not altered as a
result of interest rate benchmark reform. The amendments became effective on January 1, 2020. There was no material impact
to the Company’s financial statements as a result of adopting Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39
and IFRS 7) due to the application of the amendments by the Company in the following ways:
•
•
The Company has floating rate debt, linked to the London Inter-bank Offered Rate ("LIBOR"), which it cash flow
hedges using interest rate swaps (refer to Note 24 for additional information on the Company's interest rate swaps).
The amendments permit continuation of hedge accounting even though there is uncertainty about the timing and
amount of the hedged cash flows due to the interest rate benchmark reforms.
The Company will retain the cumulative gain or loss in the cash flow hedge reserve for designated cash flow hedges
that are subject to interest rate benchmark reforms even though there is uncertainty arising from the interest rate
benchmark reform with respect to the timing and amount of the cash flows of the hedged items. Should the Company
consider the hedged future cash flows are no longer expected to occur due to reasons other than interest rate
benchmark reform, the cumulative gain or loss will be immediately reclassified to profit or loss.
17
Other pronouncements and amendments
In the current year, the Company has applied a number of other amendments to IFRS and Interpretations issued by the IASB
that are effective for annual periods beginning on or after January 1, 2020. Their adoption has not had any material impact on
the disclosures or on the amounts reported in these financial statements.
New Standards and Interpretations Issued but Not Yet Effective
As of the date of authorization of the Company's financial statements, certain new standards, amendments and interpretations,
and improvements to existing standards have been published by the IASB but are not yet effective and have not been adopted
early by the Company. Management anticipates that all of the relevant pronouncements will be adopted in the first reporting
period following the date of application. Information on new standards, amendments and interpretations, and improvements to
existing standards, which could potentially impact the Company’s financial statements, are detailed as follows:
On January 23, 2020, the IASB published Classification of Liabilities as Current or Non-current (Amendments to IAS 1), which
includes narrow-scope amendments to IAS 1 Presentation of Financial Statements. The objective of the amendments is to
clarify how to classify debt and other liabilities as current or non-current depending on the rights that exist at the end of the
reporting period. The amendments include clarification of the classification requirements for debt a company could settle by
converting it into equity. The amendments are effective on January 1, 2023 and will be applied retrospectively. Management is
currently assessing, but has not yet determined, the impact on the Company’s financial statements.
On May 14, 2020, the IASB published Property, Plant and Equipment: Proceeds Before Intended Use (Amendments to IAS 16),
which prohibits deducting amounts received from selling items produced while preparing the asset for its intended use from the
cost of property, plant and equipment. Instead, such sales proceeds and related costs will be recognized in earnings. The
amendments are effective on January 1, 2022. Management is currently assessing, but has not yet determined, the impact on the
Company’s financial statements.
On May 14, 2020, the IASB published Onerous Contracts - Cost of Fulfilling a Contract (Amendments to IAS 37), which
specifies the costs a Company can include when assessing whether a contract will be loss-making. The amendments are
effective on January 1, 2022. Management is currently assessing, but has not yet determined, the impact on the Company’s
financial statements.
On May 14, 2020, the IASB published Annual Improvements to IFRS Standards 2018 - 2020, which amends IFRS 1, IFRS 9,
and the Illustrative Examples accompanying IFRS 16. These are minor amendments that clarify, simplify or remove redundant
wordings in the standards. The amendments are effective on January 1, 2022. Management is currently assessing, but has not
yet determined, the impact on the Company’s financial statements.
On May 28, 2020, the IASB published Covid-19-Related Rent Concessions (Amendment to IFRS 16), which amends IFRS 16,
Leases, to provide lessees with a practical expedient that relieves lessees from assessing whether a COVID-19-related rent
concession is a lease modification. The amendments are effective for annual reporting periods beginning on or after June 1,
2020 and will be applied retrospectively. Management has completed its analysis of the guidance and does not currently expect
it to materially impact the Company’s financial statements.
On August 27, 2020, the IASB published Interest Rate Benchmark Reform - Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7
and IFRS 16) in response to the ongoing reform of interest rate benchmarks around the world. The objective of the amendments
is to support the application of the requirements of IFRS Standards when changes are made to contractual cash flows or hedging
relationships as a result of the transition to an alternative benchmark interest rate. The amendments are effective on January 1,
2021 and will be applied retrospectively. Management has completed its analysis of the guidance and has determined that this
amendment does not materially impact the Company’s financial statements.
Certain other new standards and interpretations have been issued but are not expected to have a material impact on the
Company’s financial statements.
18
Basis of Measurement
The consolidated financial statements have been prepared on the historical cost basis, except for certain financial instruments
that are measured at revalued amounts or fair values at the end of each reporting period and the Company’s pension plans, post-
retirement plans and other long-term employee benefit plans, as explained in the accounting policies below. Historical cost is
generally based on the fair value of the consideration given in exchange for goods and services.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date, regardless of whether that price is directly observable or estimated using another
valuation technique. In estimating the fair value of an asset or a liability, the Company takes into account the characteristics of
the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the
measurement date. Fair value for measurement and/or disclosure purposes in these consolidated financial statements is
determined on such a basis, except for share-based payment transactions that are within the scope of IFRS 2 - Share-based
Payment, leasing transactions that are within the scope of IFRS 16 - Leases, and measurements that have some similarities to
fair value but are not fair value, such as net realizable value in IAS 2 - Inventories or value in use in IAS 36 - Impairment of
Assets.
The principal accounting policies adopted are set out below.
Basis of Consolidation
The consolidated financial statements include the accounts of the Parent Company and entities controlled by the Company (its
subsidiaries). Control is achieved when (i) the Company has power over the investee, (ii) is exposed, or has rights, to variable
returns from its involvement with the investee; and (iii) has the ability to use its power to affect its returns. The Company
reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the
three elements of control listed above.
Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the Company
loses control of the subsidiary. Specifically, subsidiaries acquired or disposed of during the year are reflected in the Company's
earnings from the date the Company gains control until the date when the Company ceases to control the subsidiary. Changes in
the Company's interests in subsidiaries that do not result in a loss of control are accounted for as equity transactions.
Non-controlling interests in subsidiaries is presented in the consolidated balance sheets as a separate component of equity that is
distinct from shareholders' equity. The carrying amount of the Company's interests and the non‑controlling interests are
adjusted to reflect the changes in their relative interests in the subsidiaries.
Earnings and each component of other comprehensive income are attributed to the owners of the Company and to the
non‑controlling interests. Total comprehensive income of the subsidiaries is attributed to the owners of the Company and to the
non‑controlling interests based on their respective ownership interests, even if this results in the non‑controlling interests having
a deficit balance.
All intercompany assets and liabilities, equity, income, expenses and cash flows relating to transactions between subsidiaries of
the Company are eliminated on consolidation, including unrealized gains and losses on transactions between the consolidated
entities.
Powerband and Capstone have a fiscal year-end of March 31 due to Indian legislation. However, for consolidation purposes, the
financial information for Powerband and Capstone is presented as of the same date as the Parent Company. All other
subsidiaries have a reporting date identical to that of the Parent Company. Amounts reported in the financial statements of
subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Parent
Company.
19
Details of the Parent Company’s subsidiaries are as follows:
Name of Subsidiary
Principal
Activity
Country of
Incorporation
and Residence
Better Packages, Inc.
Manufacturing
United States
Capstone Polyweave Private Limited
FIBOPE Portuguesa-Filmes Biorientados, S.A.
Manufacturing
Manufacturing
India
Portugal
GPCP, Inc.
Intertape Polymer Corp.
Intertape Polymer Europe GmbH
Intertape Polymer Inc.
Intertape Polymer Japan GK
Manufacturing
United States
Manufacturing
United States
Distribution
Germany
Manufacturing
Distribution
Canada
Japan
Intertape Polymer Woven USA Inc.
Manufacturing
United States
Intertape Woven Products Services, S.A. de C.V.
Intertape Woven Products, S.A. de C.V.
Non-operating
Non-operating
IPG (US) Holdings Inc.
IPG (US) Inc.
IPG Mauritius Holding Company Ltd
IPG Mauritius II Ltd
IPG Mauritius Ltd
Polyair Canada Limited
Holding
Holding
Holding
Holding
Holding
Manufacturing
Mexico
Mexico
United States
United States
Mauritius
Mauritius
Mauritius
Canada
Polyair Corporation
Powerband Industries Private Limited
Spuntech Fabrics Inc.
Manufacturing
United States
Manufacturing
Holding
India
Canada
Business Acquisitions
Proportion of Ownership
Interest and Voting Power Held as of:
December 31,
2020
December 31,
2019
100%
55%
100%
50.1%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
55%
100%
50.1%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
The Company applies the acquisition method of accounting for business acquisitions. The consideration transferred by the
Company to obtain control of a subsidiary, or a group of assets that qualifies as a business, is calculated as the sum of the
acquisition-date fair values of assets transferred, liabilities incurred, and the equity interests issued by the Company.
Acquisition costs are expensed as incurred.
Assets acquired and liabilities assumed are generally measured at their acquisition-date fair values. If the initial accounting for a
business combination is incomplete by the end of the reporting period in which the combination occurs, the Company reports
provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the
measurement period (which cannot exceed one year from the acquisition date), or additional assets or liabilities are recognized,
to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would
have affected the amounts recognized as of that date.
When the consideration transferred by the Company in a business combination includes a contingent consideration
arrangement, the contingent consideration is measured at its acquisition-date fair value and included as part of the total
consideration transferred in a business combination. Changes in fair value of the contingent consideration that qualify as
measurement period adjustments are made retrospectively, with corresponding adjustments against goodwill. Changes in the
fair value of the contingent consideration that do not qualify as measurement period adjustments are made in the current period,
with corresponding adjustments recognized in earnings.
Refer to Note 19 for more information regarding business acquisitions.
Non-controlling Interests
Non-controlling interests represent the equity in subsidiaries that are not attributable, directly or indirectly, to the Parent
Company. A non-controlling interest is initially recognized as the proportionate share of the identifiable net assets of the
20
subsidiary on the date of its acquisition and is subsequently adjusted for the non-controlling interest’s share of the acquired
subsidiary’s earnings and any changes to capital, including dividends paid to the non-controlling interest, as well as changes in
foreign currency exchange rates where applicable.
Foreign Currency Translation
Functional and presentation currency
The consolidated financial statements are presented in US dollars, which is the Company’s presentation currency. Items
included in the financial statements of each of the consolidated entities are measured using the currency of the primary
economic environment in which such entity operates (the “functional currency”). The significant functional currencies of the
different consolidated entities include the US dollar, Canadian dollar ("CDN"), Indian rupee ("INR") and Euro. The functional
currencies of entities within the Company have remained unchanged during the reporting period.
The Parent Company's functional currency is CDN, which is different than the Company's presentation currency. The Company
elected to present its consolidated financial statements in US dollars as it is the predominate currency of the consolidated
entities and as a result most of the Company's cash flows are in US dollars.
For the purpose of presenting consolidated financial statements, all assets, liabilities and transactions of entities with a
functional currency other than the US dollar are translated to US dollars upon consolidation. On consolidation, assets and
liabilities have been translated to US dollars using the closing exchange rate in effect at the balance sheet date, and revenues
and expenses are translated at each month-end’s average exchange rate. The resulting translation adjustments are recognized in
other consolidated comprehensive income (loss) ("OCI") and accumulated in a foreign exchange translation reserve (attributed
to non-controlling interests as appropriate).
When a foreign operation is partially disposed of or sold, exchange differences that were recorded in equity are recognized in
earnings as part of the gain or loss on sale. When there is no reduction in the ownership percentage, exchange differences
recorded in equity will remain in equity until the foreign operation is partially or fully disposed of or sold.
Goodwill arising on the acquisition of a foreign entity is treated as an asset of the foreign entity and translated at the closing
rate. Exchange differences arising are charged or credited to OCI and recognized in the cumulative translation adjustment
account within accumulated OCI in equity.
Foreign currency transactions and balances
Transactions denominated in currencies other than the functional currency of a consolidated entity are translated into the
functional currency of that entity using the exchange rates prevailing at the date of each transaction.
At each reporting date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates
prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the
rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical
cost in a foreign currency are not retranslated.
Foreign exchange gains or losses arising on settlement or translation of monetary items are recognized in earnings in finance
costs (income) - other (income) expense, net in the period in which they arise, except (i) when deferred in OCI as a qualifying
hedge (refer to Note 24) or (ii) exchange differences on monetary items receivable from or payable to a foreign operation for
which settlement is neither planned nor likely to occur in the foreseeable future (therefore forming part of the net investment in
the foreign operation) which is recognized in OCI until disposal or partial disposal of the net investment at which time it is
reclassified to profit or loss. Tax charges and credits attributable to exchange differences on qualifying hedges are also
recognized in OCI.
Segment Reporting
The Company operates in various geographic locations and develops, manufactures and sells a variety of products to a diverse
customer base. Most of the Company’s products are made from similar processes. A vast majority of the Company’s products,
while brought to market through various distribution channels, generally have similar economic characteristics. The Company’s
decisions about resources to be allocated are predominantly determined as a whole based on the Company’s operational,
management and reporting structure. The chief operating decision maker primarily assesses the Company’s performance as a
single reportable segment.
21
Revenue Recognition
The Company recognizes revenues from the sale of goods classified within five product categories: Tape, Film, Engineered
Coated Products, Protective Packaging and Other. Refer to Note 21 for additional information on revenue by product category
and geographical location.
The vast majority of the Company's customer arrangements contain a single performance obligation to transfer manufactured
goods. Revenue is recognized when control of goods has transferred to customers. Control is considered transferred in
accordance with the terms of sale, generally when goods are shipped to external customers as that is generally when legal title,
physical possession and risks and rewards of goods/services transfers to the customer. The normal credit term is 30 days upon
delivery.
Revenue is recognized at the transaction price that the Company expects to be entitled. In determining the transaction price, the
Company considers the effects of variable consideration. The main sources of variable consideration for the Company are
customer rebates and cash discounts. These incentives are recorded as a reduction to revenue at the time of the initial sale using
the most-likely amount estimation method. The most-likely amount method is based on the single most likely outcome from a
range of possible consideration outcomes. The range of possible consideration outcomes are primarily derived from the
following inputs: sales terms, historical experience, trend analysis, and projected market conditions in the various markets
served. Because the Company serves numerous markets, the sales incentive programs offered vary across businesses, but the
most common incentive relates to amounts paid or credited to customers for achieving defined volume levels or growth
objectives. There are no material instances where variable consideration is constrained and not recorded at the initial time of
sale.
Certain contracts provide a customer with a right to return goods if certain conditions are met. Product returns are recorded as a
reduction to revenue based on anticipated sales returns that occur in the normal course of business. At this time, the Company
believes it is highly unlikely that a significant reversal in the cumulative revenue recognized will occur given the consistent
level of claims over previous years. Sales, use, value-added, and other excise taxes are not recognized in revenue.
Borrowing Costs
Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a
substantial period of time to get ready for its intended use are added to the cost of those assets during the period of time that is
necessary to complete and prepare the asset for its intended use. All other borrowing costs are recognized in earnings within
interest in finance costs in the period in which they are incurred. Borrowing costs consist of interest and other costs incurred in
connection with the borrowing of funds.
Research Expenses
Research expenses are expensed as they are incurred, net of any related investment tax credits, unless the criteria for
capitalization of development expenses are met.
Government Grants
Grants from governments are recognized at their fair value when there is a reasonable assurance that the grant will be received
and / or earned, and any specified conditions will be met. Government grants that are receivable as compensation for expenses
or losses already incurred or for the purpose of giving immediate financial support to the Company with no future related costs
are recognized in profit or loss in the period in which they become receivable.
Grants received in relation to the purchase and construction of plant and equipment are included in non-current liabilities as
deferred income in other liabilities and are recognized in earnings on a straight-line basis over the estimated useful life of the
related asset.
The benefit of a government loan at a below-market rate of interest is treated as a government grant, measured as the difference
between proceeds received and the fair value of the loan based on prevailing market interest rates.
22
Share-Based Compensation Expense
Stock options
Stock option expense is based on the grant date fair value of the awards expected to vest over the vesting period. Forfeitures are
estimated at the time of the grant and are included in the measurement of the expense and are subsequently adjusted to reflect
actual events. For awards with graded vesting, the fair value of each tranche is recognized on a straight-line basis over its
vesting period.
Any consideration paid by participants on exercise of stock options is credited to capital stock together with any related share-
based compensation expense originally recorded in contributed surplus. If the amount of the tax deduction (or estimated future
tax deduction) exceeds the amount of the related cumulative remuneration expense for stock options, this indicates that the tax
deduction relates not only to remuneration expense but also to an equity item. In this situation, the Company recognizes the
excess of the associated current or deferred tax to contributed surplus prior to an award being exercised, and any such amounts
are transferred to capital stock upon exercise of the award.
Stock appreciation rights
The stock appreciation rights ("SARs") expense is determined based on the fair value of the liability at the end of the reporting
period. The expense is recognized over the vesting period. At the end of each reporting period, the Company re-assesses its
estimates of the number of awards that are expected to vest and recognizes the impact of the revisions in the consolidated
earnings statement. The total amount of expense recognized over the life of the awards will equal the amount of the cash
outflow, if any, as a result of exercises. At the end of each reporting period, the lifetime amount of expense recognized will
equal the current period value of the SARs using the Black-Scholes pricing model, multiplied by the percentage vested. As a
result, the amount of expense recognized can vary due to changes in the model variables from period to period until the SARs
are exercised, expire, or are otherwise cancelled. The SARs plan was terminated in 2020.
Deferred share units
Deferred share units ("DSUs") are settled in cash only and, as a result, the corresponding liability is remeasured to fair value at
the end of each reporting period. The fair value of DSUs is based on the volume weighted average trading price ("VWAP") of
the Company’s common shares on the TSX for the five consecutive trading days immediately preceding the end of each
reporting period. As a result, the amount of expense recognized can vary due to changes in the stock price from period to period
until the DSUs are settled, expire, or are otherwise cancelled. The corresponding liability is recorded on the Company’s
consolidated balance sheet under the caption share-based compensation liabilities, current, for amounts expected to settle in the
next twelve months and share-based compensation liabilities, non-current for amounts expected to settle in more than twelve
months. Generally, unless the participant has made a specific election to defer the settlement of DSUs to the calendar year
following their separation from service, the DSU liabilities are classified as current as the Company does not have an
unconditional right to defer settlement of the liabilities for at least twelve months after the reporting period end date.
On December 7, 2020, the Board of Directors approved amendments that, among other things: (i) provide for vesting of future
annual DSU grants over a service period; and (ii) allow participants to elect to receive settlement of their DSUs in the calendar
year that their services end or in the following calendar year in accordance with, and to extent permitted by, applicable tax
rules. DSUs granted prior to this amendment: (i) were expensed immediately if received as part of an annual grant; and (ii) for
US directors, will be settled in the calendar year in which their services end. DSUs granted subsequent to this amendment and
as part of an annual grant are expensed as earned over the service period. DSUs received in lieu of cash for directors’ fees
continue to be expensed as earned over the service period.
Performance share units
Performance share unit ("PSUs") are settled in cash only and, as a result, the corresponding liability is remeasured to fair value
at the end of each reporting period.
PSUs granted during the three years ending December 31, 2020 are subject to market (50 percent) and non-market performance
conditions (50 percent) as well as a time-based vesting condition. Accordingly, the fair value of such PSUs is based 50 percent
on a Monte Carlo valuation model at each reporting date and 50 percent on the Company's VWAP of common shares on the
TSX for the five consecutive trading days immediately preceding the reporting period end multiplied by the number of PSUs
expected to vest based on estimated achievement of non-market performance criteria at the reporting period end. Expense is
recognized over the vesting period. As a result, the amount of expense recognized can vary due to changes in the model
23
variables, stock price and estimated achievement of non-market performance criteria, from period to period, until the PSUs are
settled, expire or are otherwise cancelled. The corresponding liability is recorded on the Company’s consolidated balance sheet
under the caption share-based compensation liabilities, current for amounts expected to settle in the next twelve months and
share-based compensation liabilities, non-current for amounts expected to settle in more than twelve months. The cash payment
at settlement is calculated based on the number of settled PSUs held by the participant, multiplied by the VWAP of the
Company’s common shares on the TSX for the five consecutive trading days immediately preceding the day of settlement.
PSUs granted prior to December 31, 2017 which settled during the three years ending December 31, 2020 were subject only to
a market performance condition (100 percent) and time-based vesting condition.
Restricted share units
Restricted share units ("RSUs") are settled in cash only and, as a result, the corresponding liability is remeasured to fair value at
the end of each reporting period. The fair value of RSUs is based on the VWAP of the Company’s common shares on the TSX
for the five consecutive trading days immediately preceding the end of each reporting period. The RSUs are expensed over the
vesting period. As a result, the amount of expense recognized can vary due to changes in the stock price from period to period
until the RSUs are settled, expire, or are otherwise cancelled. The corresponding liability is recorded on the Company’s
consolidated balance sheet under the caption share-based compensation liabilities, current for amounts expected to settle in the
next twelve months and share-based compensation liabilities, non-current for amounts expected to settle in more than twelve
months. The cash payment at settlement is calculated based on the number of settled RSUs held by the participant, multiplied
by the VWAP of the Company’s common shares on the TSX for the five consecutive trading days immediately preceding the
day of settlement.
Refer to Note 18 for more information regarding share-based payments.
Income Taxes
Current and deferred taxes are recognized in the consolidated statement of earnings, except when they relate to items that are
recognized in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognized
in other comprehensive income or directly in equity respectively. Where current tax or deferred tax arises from the initial
accounting for a business combination, the tax effect is included in the accounting for the business combination.
Current tax
Current tax is based on the results for the period as adjusted for items that are not taxable or deductible. Current tax is
calculated using tax rates and laws enacted or substantially enacted at the reporting date in the countries in which the Company
operates and generates taxable income.
Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulations
are subject to interpretation. A provision is recognized for those matters for which the tax determination is uncertain, but it is
considered probable that there will be a future outflow of funds to a tax authority. The provisions are measured at the best
estimate of the amount expected to become payable. The assessment is based on the judgment of tax professionals within the
Company supported by previous experience in respect of such activities and in certain cases based on specialist independent tax
advice. As of December 31, 2020 and 2019, the Company does not have any matters for which the tax determination is
uncertain and as such, no provision has been recognized.
Deferred tax
Deferred tax is the tax expected to be payable or recoverable on temporary differences between the carrying amounts of assets
and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit and is
accounted for using the liability method. A deferred tax asset is recognized for unused tax losses, tax credits and deductible
temporary differences to the extent that it is probable that future taxable income will be available against which they can be
utilized. This is assessed based on the Company’s forecast of future operating results, adjusted for significant non-taxable
income and expenses and specific limits on the use of any unused tax loss or credit.
Deferred tax is calculated using tax rates and laws enacted or substantially enacted at the reporting date in the countries where
the Company operates, and which are expected to apply when the related deferred income tax asset is realized, or the deferred
tax liability is settled.
24
The carrying amounts of deferred tax assets are reviewed at each reporting period and reduced to the extent that it is no longer
probable that sufficient taxable income will be available to allow all or part of the deferred tax asset to be utilized.
Unrecognized deferred tax assets are reassessed at each reporting period and are recognized to the extent that it has become
probable that future taxable income will allow the deferred tax asset to be recovered.
Deferred tax assets and deferred tax liabilities are offset only if a legally enforceable right exists to set off the recognized
amounts and the deferred taxes relate to the same taxable entity and the same taxation authority and the Company intends to
settle its current tax assets and liabilities on a net basis.
Earnings Per Share
Basic earnings per share is calculated by dividing the net earnings attributable to Company shareholders by the weighted
average number of common shares outstanding during the period, including the effect of stock option activity and common
shares repurchased.
Diluted earnings per share is calculated by dividing the net earnings attributable to Company shareholders by the weighted
average number of common shares outstanding during the period, including the effect of stock option activity and common
shares repurchased and for the effects of all dilutive potential outstanding stock options.
Dilutive potential outstanding stock options includes the total number of additional common shares that would have been issued
by the Company assuming stock options with exercise prices below the average market price for the year were exercised and
reduced by the number of shares that the Company could have repurchased if it had used the assumed proceeds from the
exercise of stock options to repurchase them on the open market at the average share price for the period.
Refer to Note 6 for more information regarding earnings per share.
Financial Instruments
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity
instrument of another entity. Financial assets and liabilities are recognized when the Company becomes party to the contractual
provisions of the financial instrument.
Financial assets are derecognized when the contractual rights to the cash flows from the financial asset expire, or when the
financial asset and all substantial risks and rewards are transferred. A financial liability is derecognized when it is extinguished,
discharged, cancelled or when it expires.
Classification and initial measurement of financial assets
The Company’s financial assets consist of cash, trade receivables, and supplier rebates and other receivables.
Financial assets, other than those designated and effective as hedging instruments, are classified at initial recognition as either:
• measured at amortized cost,
•
•
fair value through earnings, or
fair value through OCI.
The classification of financial assets at initial recognition depends on the financial asset's contractual cash flow characteristics
and the Company's business model for managing them.
In the case of financial assets not at fair value through earnings, and with the exception of trade receivables that do not contain a
significant financing component, the Company initially measures a financial asset at its fair value adjusted for transaction costs.
In the case of financial assets at fair value through earnings, transaction costs directly attributable to the acquisition of financial
assets or financial liabilities are recognized immediately in earnings.
Trade receivables that do not contain a significant financing component or for which the Company has applied the practical
expedient are measured at the transaction price determined under IFRS 15 - Revenue from Contracts with Customers. Refer to
the accounting policies discussed above in Revenue Recognition.
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Subsequent measurement
In subsequent periods, the measurement of financial instruments depends on their classification. The classification is
determined by both the Company’s business model for managing the financial asset and the contractual cash flow
characteristics of the financial asset.
Financial assets are measured at amortized cost if the assets meet the following conditions (and are not designated as fair value
through earnings):
•
•
the financial asset is held within a business model whose objective is to hold the financial assets and collect its
contractual cash flows
the contractual terms of the financial assets give rise to cash flows that are solely payments of principal and interest on
the principal amount outstanding.
After initial recognition, these are measured at amortized cost using the effective interest method. Discounting is omitted where
the effect of discounting is immaterial. The Company's cash, trade receivables, supplier rebates and other receivables fall into
this category of financial instruments. The expense relating to the allowance for expected credit loss is recognized in earnings in
selling, general and administrative expense ("SG&A").
In the periods presented the Company does not have any financial assets categorized as fair value through OCI.
Financial assets that are held within a different business model other than ‘hold to collect’ or ‘hold to collect and sell’ are
categorized at fair value through earnings. Further, irrespective of business model, financial assets with cash flows that are not
solely payments of principal and interest are classified and measured at fair value through earnings. Assets in this category are
measured at fair value with gains or losses recognized in earnings. The fair values of financial assets in this category are
determined by reference to active market transactions or using a valuation technique where no active market exists. All
derivative financial instruments fall into this category, except for those designated and effective as hedging instruments, for
which the hedge accounting requirements apply (see below).
Impairment of financial assets
The Company recognizes a loss allowance for expected credit losses arising from financial assets. The amount of expected
credit losses is updated at each reporting date to reflect changes in credit risk since initial recognition of the respective financial
instrument.
The Company applies a simplified approach for calculating expected credit losses for trade and other receivables. The Company
recognizes a loss allowance based on lifetime expected credit losses at each reporting date. These are the expected shortfalls in
contractual cash flows, considering the potential for default at any point during the life of the financial instrument. In
calculating, the Company uses its historical experience, external indicators and forward-looking information to calculate the
expected credit losses using a provision matrix. The Company assesses impairment of trade receivables on a collective basis as
they possess shared credit risk characteristics and have been grouped based on the days past due. Refer to Note 24 for a detailed
analysis of how the impairment requirements of IFRS 9 - Financial Instruments ("IFRS 9") are applied.
Classification and measurement of financial liabilities
The Company’s financial liabilities include accounts payable and accrued liabilities (excluding employee benefits and taxes
payable), borrowings (excluding lease liabilities), non-controlling interest put options, and interest rate swap agreements.
Financial liabilities are initially measured at fair value, and, where applicable, adjusted for transaction costs unless the
Company designated a financial liability at fair value through earnings. Subsequently, financial liabilities are measured at
amortized cost using the effective interest method, except for derivatives and financial liabilities designated at fair value
through earnings. The Company's accounts payable and accrued liabilities (excluding employee benefits and taxes payable) and
borrowings (excluding lease liabilities) fall into this category of financial instruments.
Derivatives (other than those that are designated and effective as hedging instruments) and financial liabilities designated at fair
value through earnings are carried subsequently at fair value with gains or losses recognized in earnings. The Company's non-
controlling interest put options fall into this category of financial instruments. Changes in the fair value of the non-controlling
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interest put options are recognized in earnings in finance costs. Refer to Note 24 for more information regarding the fair value
measurement and classification of put options relating to the Capstone non-controlling interest.
All interest-related charges for financial liabilities measured at amortized cost are recognized in earnings in finance costs.
Discounting is omitted where the effect of discounting is immaterial.
Derivative instruments and hedging
Derivatives are recognized initially at fair value at the date a derivative contract is entered into and are subsequently remeasured
to their fair value at each reporting date. The resulting gain or loss is recognized in earnings immediately unless the derivative is
designated and effective as a hedging instrument, in which event, the timing of the recognition in earnings depends on the
nature of the hedge relationship.
Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is
negative.
Derivatives are not offset in the financial statements unless the Company has both a legally enforceable right and intention to
offset.
A derivative is presented as a non-current asset or a non-current liability if the remaining maturity of the instrument is more
than twelve months and it is not due to be realized or settled within twelve months. Other derivatives are presented as current
assets or current liabilities.
The Company applies hedge accounting to arrangements that qualify and are designated for hedge accounting treatment.
For the purpose of hedge accounting, hedges are classified as:
•
•
•
fair value hedges when hedging the exposure to changes in the fair value of a recognized asset or liability or an
unrecognized firm commitment;
cash flow hedges when hedging the exposure to variability in cash flows that is either attributable to a particular risk
associated with a recognized asset or liability or a highly probable forecast transaction or the foreign currency risk in
an unrecognized firm commitment; or
hedges of a net investment in foreign operations.
When the requirements for hedge accounting are met at inception, the Company may designate a certain financial instrument as
a hedging instrument in a hedge relationship. Upon designation, the Company documents the relationships between the hedging
instrument and the hedged item, including the risk management objectives and strategy in undertaking the hedge transaction,
and the methods that will be used to assess the effectiveness of the hedging relationship.
At inception of a hedge relationship and at each subsequent reporting date, the Company evaluates if the hedging relationship
qualifies for hedge accounting under IFRS 9, which requires the following conditions to be met:
•
•
•
there is an economic relationship between the hedged item and the hedging instrument;
the effect of credit risk does not dominate the value changes that result from that economic relationship; and
the hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged item that the
entity actually hedges and the quantity of the hedging instrument that the entity actually uses to hedge that quantity of
hedged item.
Cash flow hedges
The Company has certain interest rate swap agreements designated as cash flow hedges. These arrangements have been entered
into to mitigate the risk of change in cash flows due to the fluctuations in interest rates applicable on the Company's floating
rate borrowings. Such derivative financial instruments used for hedge accounting are recognized initially at fair value on the
date on which the derivative contract is entered into and are subsequently reported at fair value in the consolidated balance
sheets.
To the extent that the hedge is effective, changes in the fair value of the derivatives designated as hedging instruments in cash
flow hedges are recognized in OCI and are included within the reserve for cash flow hedges in equity. Any ineffectiveness in
the hedge relationship is recognized immediately in earnings.
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Hedge accounting is discontinued prospectively when a derivative instrument ceases to satisfy the conditions for hedge
accounting or is sold or liquidated. If the hedging relationship ceases to meet the effectiveness conditions, hedge accounting is
discontinued, and the related gain or loss is held in the equity reserve until reclassified to the consolidated statement of earnings
in the same period or periods during which the hedged future cash flows affect earnings. If the hedged item ceases to exist
before the end of the original hedge term, the unrealized hedge gain or loss in OCI is reclassified immediately in the
consolidated statement of earnings.
Interest rate swap agreements that economically hedge the risk of changes in cash flows due to the fluctuations in interest rates
applicable on the Company's variable rate borrowings, but for which hedge accounting is not applied, are measured at fair value
through earnings.
Refer to Note 24 for more information regarding interest rate swap agreements.
Hedge of a net investment in foreign operations
Hedges of a net investment in foreign operations, including a hedge of a monetary item that is accounted for as part of the net
investment, are accounted for similar to cash flow hedges. Gains or losses on the hedging instrument relating to the effective
portion of the hedge are recognized in OCI and any gains or losses relating to the ineffective portion are recognized in the
statement of earnings. On disposal of a foreign operation, the cumulative value of any such gains or losses recorded in equity is
reclassified immediately in earnings.
The Company uses some of its borrowings as a hedge of its exposure to foreign exchange risk on its investments in foreign
operations.
Refer to Note 24 for more information regarding net investment hedging.
Cash
Cash comprises cash at banks and on hand.
Inventories
Inventories consists of raw materials, works in process, finished goods and parts and supplies.
Inventories are measured at the lower of cost or net realizable value.
Cost is assigned by using the first in, first out cost formula, and includes all costs of purchases, costs of conversion and other
costs incurred in bringing the inventories to their present location and condition. Trade discounts, rebates and other similar
items are deducted in determining the costs of purchases. The cost of work in process and finished goods includes the cost of
raw materials, direct labor and a systematic allocation of fixed and variable production overhead incurred in converting
materials into finished goods. The allocation of fixed production overheads to the cost of conversion is based on the normal
capacity of the manufacturing facilities.
Net realizable value of raw materials, works in process, finished goods is the estimated selling price in the ordinary course of
business, less the estimated costs of completion and the estimated selling expenses. Net realizable value of parts and supplies is
the estimated replacement cost.
Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated depreciation, accumulated impairment losses and the
applicable investment tax credits earned. The cost of an item of property, plant and equipment, excluding leases which are
discussed in the Leases section below, comprises its purchase price or manufacturing cost, including any costs directly
attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended
by management and, where applicable, borrowing costs and the initial estimate of the costs of dismantling and removing the
item and restoring the leased site on which it is located.
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Depreciation is recognized using the straight-line method over the estimated useful lives of like assets as outlined below or, if
lower, over the terms of the related leases:
Land
Buildings and related major components
Manufacturing equipment and related major components
Computer equipment and software
Furniture, office equipment and other
Assets related to restoration provisions
Years
Indefinite
3 to 60
4 to 30
3 to 15
3 to 10
Expected remaining term of the lease
Right-of-use assets are depreciated over the shorter period of the lease term and the useful life of the underlying asset. If a lease
transfers ownership of the underlying asset or the cost of the right-of-use asset reflects that the Company expects to exercise a
purchase option, the related right-of-use asset is depreciated over the useful life of the underlying asset.
The depreciation methods, useful lives and residual values related to property, plant and equipment are reviewed at each
reporting date, or more frequently when there is an indication that they have changed and adjusted if necessary.
When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items
(major components) of property, plant and equipment, and are depreciated over their respective useful lives. Depreciation of an
asset begins when it is available for use in the location and condition necessary for it to be capable of operating in the manner
intended by management. Manufacturing equipment under construction is not depreciated. Depreciation of an asset ceases at
the earlier of the date on which the asset is classified as held for sale or is included in a disposal group that is classified as held
for sale, and the date on which the asset is derecognized.
The cost of replacing a part of an item of property, plant and equipment is recognized in the carrying amount of the asset if it is
probable that the future economic benefits embodied within the part will flow to the Company, and its cost can be measured
reliably. At the same time, the carrying amount of the replaced part is derecognized. The costs of the day-to-day servicing of
property, plant and equipment, and repairs and maintenance are recognized in earnings as incurred.
An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected to
arise from the continued use of the asset. Gains or losses arising on the disposal of property, plant and equipment are
determined as the difference between the net disposal proceeds and the carrying amount of the assets and are recognized in
earnings in the category consistent with the function of the property, plant and equipment.
Depreciation expense is recognized in earnings in the expense category consistent with the function of the property, plant and
equipment.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of the identifiable net assets acquired in business
acquisitions. Goodwill is carried at cost less any accumulated impairment losses.
Intangible Assets
Intangible assets acquired separately
When intangible assets are purchased separately, the cost is comprised of the purchase price and any directly attributable cost of
preparing the asset for its intended use. Intangible assets with finite lives are carried at cost less accumulated amortization and
accumulated impairment losses.
Intangible assets with indefinite lives that are acquired separately are carried at cost less accumulated impairment losses. The
Company has trademarks and trade names which are identifiable intangible assets for which the expected useful life is
indefinite. The trademarks and trade names represent the value of brand names primarily acquired in business acquisitions,
which management expects will provide benefits to the Company for an indefinite period.
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When intangible assets are purchased with a group of assets, the cost of the group of assets is allocated to the individual
identifiable assets and liabilities on the basis of their relative fair values at the date of purchase.
Internally generated intangible assets
An internally-generated intangible asset arising from development (or from the development phase of an internal project) is
recognized if, and only if, all of the following conditions have been demonstrated:
• the technical feasibility of completing the intangible asset so that it will be available for use or sale;
• the intention to complete the intangible asset and use or sell it;
• the ability to use or sell the intangible asset;
• the ways in which the intangible asset can generate probable future economic benefits;
• the availability of adequate technical, financial and other resources to complete the development and to use or
sell the intangible asset; and
• the ability to measure reliably the expenditure attributable to the intangible asset during its development.
For capitalized internally developed software, directly attributable costs include employee costs incurred on solution
development and implementation along with an appropriate portion of borrowing costs. Where no internally generated
intangible asset can be recognized, development expenditure is recognized in the earnings in the period in which it is incurred.
Subsequent to initial recognition, internally generated intangible assets are reported at cost less accumulated amortization and
accumulated impairment losses, on the same basis as intangible assets that are acquired separately.
Intangible assets acquired in a business combination
Intangible assets acquired in a business combination and recognized separately from goodwill are recognized initially at their
fair value at the acquisition date (which is regarded as their cost).
Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost less accumulated
amortization and accumulated impairment losses, on the same basis as intangible assets that are acquired separately.
Amortization is recognized using the straight-line method over their estimated useful lives as follows:
Distribution rights and customer contracts
Customer lists, license agreements and software
Patents and trademarks being amortized
Non-compete agreements
Years
6 to 15
1 to 20
2 to 13
3 to 10
The amortization methods, useful lives and residual values related to intangible assets are reviewed at each reporting date, or
more frequently when there is an indication that they have changed and adjusted if necessary, with the effect of any changes in
estimate being accounted for on a prospective basis. Amortization begins when the asset is available for use, i.e. when it is in
the location and condition necessary for it to be capable of operating in the manner intended by management. Amortization
expense is recognized in earnings in the expense category consistent with the function of the intangible asset.
An intangible asset is derecognized on disposal, or when no future economic benefits are expected from use. The gain or loss
on disposal is determined as the difference between the net disposal proceeds and the carrying amount of the asset and is
recognized in earnings in the expense category consistent with the function of the intangible asset.
Impairment Testing of Long-Lived Assets
At each reporting date, the Company reviews the carrying amounts of its intangible assets, goodwill and property, plant and
equipment to determine whether there is any indication that those assets have suffered any impairment loss. If any such
indication exists, or when required annual impairment testing is performed on intangible assets including software applications
in development and not yet available for use and trademark and trade names with indefinite useful lives, the recoverable amount
of the asset is estimated to determine the extent of the impairment loss, if any exists.
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For impairment assessment purposes, assets are grouped at the lowest levels for which there are largely independent cash
inflows, known as a "cash-generating unit" or "CGU". The recoverable amount is determined for an individual asset, unless the
asset does not generate cash inflows that are largely independent of other assets or groups of assets. Where the asset does not
generate cash flows that are independent from other assets, the Company estimates the recoverable amount of the CGU to
which the asset belongs. Goodwill is allocated to those CGUs that are expected to benefit from synergies of related business
acquisitions and that represent the lowest level within the group at which management monitors goodwill.
The recoverable amount is the higher of its value in use and its fair value less costs of disposal. To determine the value in use,
management estimates the expected future cash flows from each CGU and determines a suitable discount rate in order to
calculate the present value of those cash flows. Fair value in this case represents the price that would be received to sell an asset
or CGU in an orderly transaction between market participants, less the associated costs of disposal. The Company determines
the recoverable amount and compares it with the carrying amount. If the carrying amount exceeds the recoverable amount, an
impairment loss is recognized for the difference. Impairment losses are recognized in earnings in the expense category
consistent with the function of the associated corresponding property, plant and equipment or intangible asset. Impairment
losses recognized with respect to CGUs are allocated first to reduce the carrying amount of any goodwill allocated to that CGU,
and then to reduce the carrying amounts of other assets within the unit or group of units on a pro rata basis applied to the
carrying amount of each asset in the unit or group of units.
With the exclusion of goodwill whose impairment losses may not be reversed, an assessment is made at each reporting date as
to whether there is any indication that previously recognized asset impairment losses may no longer exist or may have
decreased. In this case, the Company will estimate the recoverable amount of that asset and, if appropriate, record a partial or
entire reversal of the previously recognized impairment. Upon such reversal, the adjusted carrying amount of the asset will not
exceed the carrying amount that would have been determined (net of amortization or depreciation) had no impairment loss been
recognized for the asset in prior years.
Goodwill is subject to impairment testing at least annually, or more frequently if events or changes in circumstances indicate
the carrying amount may be impaired. Goodwill is considered to be impaired when the carrying amount of the CGU or group of
CGUs to which the goodwill has been allocated exceeds its fair value. Any resulting impairment loss would be recognized in
the statement of earnings.
Provisions
Provisions represent liabilities to the Company for which the amount or timing is uncertain. Provisions are recognized when the
Company has a present obligation (legal or constructive) as a result of a past event, it is probable that the Company will be
required to settle that obligation and a reliable estimate can be made of the amount of the obligation.
The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the end
of the reporting period, taking into account the risks and uncertainties surrounding the obligation. Provisions are measured at
the present value of the expected consideration to settle the obligation which, when the effect of the time value of money is
material, is determined using a discount rate that reflects current market assessments of the time value of money and the risks
specific to the obligation. The increase in the provision during the period to reflect the passage of time is recognized in earnings
as a finance cost.
When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, and if
it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably, a
receivable is recognized as an asset.
A provision is recorded in connection with environmental expenditures relating to existing conditions caused by past operations
that do not contribute to current or future cash flows. Provisions for liabilities related to anticipated remediation costs are
recorded on a discounted basis, if the effects of discounting are material, when they are probable and reasonably estimable, and
when a present obligation exists as a result of a past event. Environmental expenditures for capital projects that contribute to
current or future operations generally are capitalized and depreciated over their estimated useful lives.
A provision is recorded in connection with the estimated future costs to restore leased property to their original condition, as
required by the terms and conditions of the lease, and are recognized when the obligation is incurred, either at the
commencement date of the lease or as a consequence of having used the underlying asset during a particular period of the lease,
at the Company's best estimate of the expenditure that would be required to restore the asset. The liability and a corresponding
asset are recorded on the Company’s consolidated balance sheet under the captions provisions, and property, plant and
equipment (buildings), respectively. The provision is reviewed at the end of each reporting period to reflect the passage of time,
31
changes in the discount rate and changes in the estimated future restoration costs. The Company amortizes the amount
capitalized to property, plant and equipment on a straight-line basis over the expected lease term and recognizes a financial cost
in connection with the discounted liability over the same period. Changes in the liability are added to, or deducted from, the
cost of the related asset in the current period. These changes to the capitalized cost result in an adjustment to depreciation and
interest.
A provision is recorded in connection with termination benefits at the earlier of the date on which the Company can no longer
withdraw the offer of those benefits and the date on which the Company recognizes costs related to restructuring activities. In
the case of an offer made to encourage voluntary redundancy, the termination benefits are measured based on the number of
employees expected to accept the offer. If benefits are not expected to be settled wholly within 12 months of the end of the
reporting period, they are presented on a discounted basis, if the effects of discounting are material.
The Company is engaged from time-to-time in various legal proceedings and claims that have arisen in the ordinary course of
business. The Company records liabilities for legal proceedings in those instances where it can reasonably estimate the amount
of the loss and where liability is probable.
Pension, Post-Retirement and Other Long-term Employee Benefits
The Company has defined contribution plans, defined benefit pension plans, other post-retirement benefit plans, and other long-
term employee benefit plans for certain of its employees in Canada and the US.
Defined contribution plans
A defined contribution plan is a post-retirement benefit plan under which the Company pays fixed contributions into a separate
entity and to which it will have no legal or constructive obligation to pay future amounts. The Company contributes to several
state plans, multi-employer plans, retirement savings plans and insurance funds for individual employees that are considered
defined contribution plans. Contributions to defined contribution pension plans are recognized as an employee benefit expense
in consolidated earnings in the periods during which services are rendered by employees.
Defined benefit plans
A defined benefit plan is a post-retirement benefit plan other than a defined contribution plan. For defined benefit pension
plans, other post-retirement benefit plans and other long-term employee benefit plans, the benefits expense and the related
obligations are actuarially determined on a quarterly basis by independent qualified actuaries using the projected unit credit
method when the effects of discounting are material.
The asset or liability related to a defined benefit plan recognized in the consolidated balance sheet is the present value of the
defined benefit obligation at the end of the reporting period, less the fair value of plan assets, together with adjustments for the
asset ceiling and minimum funding liabilities. The present value of the defined benefit obligation is determined by discounting
the estimated future cash outflows. Discount rates are determined close to each period-end by reference to market yields of
high-quality corporate bonds that are denominated in the currency in which the benefits will be paid and have terms to maturity
approximating the terms of the related pension benefit obligation.
Current service cost is recognized as an employee benefit expense in consolidated earnings in the periods during which services
are rendered by employees and is calculated using a separate discount rate to reflect the longer duration of future benefit
payments associated with the additional year of service to be earned by the plan's active participants. Net interest expense is
calculated by applying the discount rate to the net balance of the defined benefit obligation and the fair value of plan assets. Net
interest expense is recognized as an employee benefit expense in consolidated earnings. Past service costs are recognized as an
expense in consolidated earnings immediately following the introduction of, or changes to, a pension plan. Gains and losses on
settlement of a defined benefit plan are recognized in consolidated earnings when the settlement occurs. Remeasurements,
comprising actuarial gains and losses, the effect of the asset ceiling, the effect of minimum funding requirements and the return
on plan assets (excluding amounts included in net interest expense) are recognized immediately in OCI, net of income taxes,
and in deficit.
For funded plans, surpluses are recognized only to the extent that the surplus is considered recoverable. Recoverability is
primarily based on the extent to which the Company can unilaterally reduce future contributions to the plan. Any reduction in
the recognized asset is recognized in OCI, net of income taxes, and in deficit.
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An additional liability is recognized based on the minimum funding requirement of a plan when the Company does not have an
unconditional right to the plan surplus. The liability and any subsequent remeasurement of that liability is recognized in OCI,
net of income taxes, and in deficit.
Other
A liability is recognized for benefits to employees in respect of wages and salaries, annual leave and sick leave that are
expected to be settled wholly within twelve months after the end of the period in which the employees render the related service
are recognized in respect of employees’ services up to the end of the reporting period and are measured at the amounts expected
to be paid when the liabilities are settled. The liabilities are presented as accounts payable and accrued liabilities in the balance
sheet.
Leases
The Company adopted IFRS 16 Leases as of January 1, 2019 using the modified retrospective approach and therefore
comparative information for the year ended December 31, 2018 is still reported under IAS 17 Leases and IFRIC 4 Determining
whether an Arrangement contains a Lease.
Accounting policy applicable from January 1, 2019
The Company assesses whether a contract is or contains a lease, at inception of the contract. Contracts that meet the definition
of a lease are recognized on the balance sheet as a right-of-use asset and a corresponding lease liability, unless they are
determined to be low value (such as small office equipment) or short-term leases (defined as leases with a lease term of 11
months or less). Lease payments related to low value and short-term leases are recognized in earnings on a straight-line basis
over the lease term. The classification of a short-term lease is re-assessed if the terms of the lease are changed.
At the lease commencement date, the lease liability is measured as the present value of the lease payments unpaid at that date,
including non-lease components, discounted using the interest rate implicit in the lease if that rate is readily available or the
Company’s incremental borrowing rate determined by reference to current market rates for a similarly rated industrial company
issuing debt for maturities approximating the term of the lease. Lease payments are apportioned between the finance cost and
the liability. The finance charge is recognized in earnings in finance costs and is allocated to each period during the lease term
so as to produce a constant periodic rate of interest on the remaining balance of the liability.
Lease payments included in the measurement of the lease liability are made up of fixed payments (including in substance fixed
payments), variable payments based on an index or rate, amounts expected to be payable under a residual value guarantee and
payments arising from options reasonably certain to be exercised.
At the lease commencement date, the right-of-use asset is measured at cost, which is made up of the initial measurement of the
lease liability, any initial direct costs incurred, an estimate of any costs to dismantle and remove the asset at the end of the lease,
and any lease payments made in advance of the lease commencement date (net of any incentives received). Right-of-use assets
are depreciated on a straight-line basis from the lease commencement date to the earlier of the end of the useful life of the right-
of-use asset or the end of the lease term. If a lease transfers ownership of the underlying asset or the cost of the right-of-use
asset reflects that the Company expects to exercise a purchase option, the related right-of-use asset is depreciated over the
useful life of the underlying asset. Lease term includes extension and early termination options when it is reasonably certain
that the Company will exercise the option.
The lease liability is remeasured to reflect any reassessment or modification, and the corresponding adjustment is reflected in
the right-of-use asset, or earnings if the right-of-use asset is already fully depreciated.
In the consolidated balance sheets, the right-of-use assets have been included under the caption property, plant and equipment
and lease liabilities are presented under the caption borrowings and lease liabilities, current for amounts expected to settle in the
next twelve months and borrowings and lease liabilities, non-current for amounts expected to settle in more than twelve months.
Variable lease payments that are not recognized as a lease liability include usage charges on manufacturing equipment,
inventory handling charges at warehouses and common area maintenance on office buildings and manufacturing facilities.
Variable lease payments are expensed in the period they are incurred.
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Accounting policy applicable prior to January 1, 2019
Leases are classified as either operating or finance, based on the substance of the transaction at inception of the lease.
Classification is re-assessed if the terms of the lease are changed other than by renewing the lease.
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating
leases. Expenses under an operating lease are recognized in earnings on a straight-line basis over the period of the lease.
Equity
Capital stock represents the amount received on issuance of shares (less any issuance costs and net of taxes), share-based
compensation expense credited to capital on stock options exercised less common shares repurchased equal to the carrying
value.
Contributed surplus includes amounts related to equity-settled share-based compensation until such equity instruments are
exercised or settled, in which case the amounts are transferred to capital stock or reversed upon forfeiture if not vested.
Accumulated other comprehensive income consists of the cumulative translation adjustment account and the reserve for cash
flow hedges. The cumulative translation adjustment account comprises all foreign currency translation differences arising on
the translation of the consolidated entities that use a functional currency different than US dollars, as well as the effective
portion of the foreign currency differences arising from the Company's hedge of its net investment in foreign operations. The
reserve for cash flow hedges includes gains and losses on certain derivative financial instruments designated as hedging
instruments until such time as the hedged forecasted cash flows affect earnings.
Deficit includes all current and prior period earnings or losses, the excess of the purchase price paid over the carrying value of
common share repurchases, dividends on common shares, the remeasurement of the defined benefit liability net of income tax
expense (benefit), and the impacts of the derecognition and recognition of non-controlling interest put and call options
(discussed in Note 24).
Share Repurchases
The purchase price of the common shares repurchased equal to its carrying value is recorded in capital stock in the consolidated
balance sheet and in the statement of consolidated changes in equity. The excess of the purchase price paid over the carrying
value of the common shares repurchased is recorded in deficit in the consolidated balance sheet and in the statement of
consolidated changes in equity as a share repurchase premium. Refer to Note 18 for additional information on share
repurchases.
Dividends
Dividend distributions to the Company’s shareholders are recognized as a liability in the consolidated balance sheets if not paid
in the period in which dividends are approved by the Company’s Board of Directors.
Critical Accounting Judgments, Estimates and Assumptions
The preparation of the consolidated financial statements in conformity with IFRS requires management to make judgments,
estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities,
income and expenses. Significant changes in the underlying assumptions could result in significant changes to these estimates.
Consequently, management reviews these estimates on a regular basis. Revisions to accounting estimates are recognized in the
period in which the estimates are revised and in any future periods affected. Information about these significant judgments,
assumptions and estimates that have the most significant effect on the recognition and measurement of assets, liabilities, income
and expenses are summarized below.
Beginning in December 2019, a new strain of the coronavirus (COVID-19) has been spreading rapidly through the world,
including the United States, Canada, India and Europe (where, collectively, significant portions of the Company’s operations
are located and its sales occur). As of late, variants of COVID-19 have been reported in certain countries, including the United
States. The impact of the virus varies from region to region and from week to week. The Company is closely monitoring the
impacts of the COVID-19 pandemic as a trigger for changes in critical accounting judgments, estimates and assumptions.
34
As of December 31, 2020, and as a result of the impact of COVID-19, the Company recorded (i) a fair value adjustment to its
contingent consideration related to the acquisition of Nortech Packaging LLC and Custom Assembly Solutions, Inc. (refer to
Note 19 for more information on the Company's acquisition and Note 24 for more information on the Company's contingent
consideration liability) and (ii) certain termination benefits related to a restructuring plan the Company initiated in response to
COVID-19 uncertainties (refer to Note 4 for more information on manufacturing facility closures, restructuring and other
related charges). There were no other material impairments, changes to allowance for credit losses, restructuring charges or
other changes in critical accounting judgments, estimates and assumptions that it can directly attribute to COVID-19 or
otherwise. Refer to Note 13 for more information regarding asset impairment testing.
There continues to be significant macroeconomic uncertainty, and the Company expects the COVID-19 pandemic will likely
have a materially negative impact on the global economy into 2021 and perhaps beyond. Given the dynamic nature of the
pandemic (including its duration and the severity of its impact on the global economy and the applicable governmental
responses), the extent to which the COVID-19 pandemic impacts the Company’s future results will depend on unknown future
developments and any further impact on the global economy and the markets in which the Company operates and sells its
products, all of which remain highly uncertain and cannot be accurately predicted at this time.
Significant Management Judgments
Deferred income taxes
Deferred tax assets are recognized for unused tax losses and tax credits to the extent that it is probable that future taxable
income will be available against which the losses can be utilized. These estimates are reviewed at every reporting date.
Significant management judgment is required to determine the amount of deferred tax assets that can be recognized, based upon
the likely timing and the level of the reversal of existing timing differences, future taxable income and future tax planning
strategies. Refer to Note 5 for more information regarding income taxes.
Determination of the aggregation of operating segments
The Company uses judgment in the aggregation of operating segments for financial reporting and disclosure purposes. In doing
so, management has determined that there are two operating segments consisting of a tape, film, protective packaging and
machinery segment and an engineered coated product segment. The Company has aggregated these two operating segments
into one reporting segment due to similar characteristics including the nature of goods and services provided to its customers,
methods used in the sale and distribution of those goods and services, types of customers comprising its customer base, and the
regulatory environment in which the Company operates.
Estimation Uncertainty
Impairments
At the end of each reporting period, the Company performs a test of impairment on assets subject to depreciation and
amortization if there are indicators of impairment. CGUs containing goodwill or intangible assets having indefinite useful lives
are tested at least annually, regardless of the existence of impairment indicators. An impairment loss is recognized when the
carrying value of an asset or CGU exceeds its recoverable amount, which is the higher of its fair value less costs of disposal and
its value in use. The value in use is based on estimated discounted net future cash inflows, which are derived from
management's financial forecast models of the estimated remaining useful life of the asset or CGU, and do not include
restructuring activities to which the Company is not yet formally committed, nor any anticipated significant future investments
expected to enhance the performance of the asset or CGU being tested. The calculated value in use varies depending on the
discount rate applied to the estimated discounted cash flows, the estimated future cash flows, and the growth rate used for
extrapolation purposes.
Refer to Note 13 for more information regarding asset impairment testing.
Pension, post-retirement and other long-term employee benefits
The cost of defined benefit pension plans and other post-retirement benefit plans and the present value of the related obligations
are determined using actuarial valuations. The determination of benefits expense and related obligations requires assumptions
such as the discount rate to measure obligations, expected mortality and the expected health care cost trend. These assumptions
are developed by management with the assistance of independent actuaries and are based on current actuarial benchmarks and
management’s historical experience. Actual results will differ from estimated results, which are based on assumptions. Refer to
35
Note 20 for more information regarding the assumptions related to the pension, post-retirement and other long-term employee
benefit plans.
Uncertain tax positions
The Company is subject to taxation in numerous jurisdictions and may have transactions and calculations during the course of
business for which the ultimate tax determination is uncertain. The Company maintains provisions for uncertain tax positions
that it believes appropriately reflects its risk. These provisions are made using the best estimate of the amount expected to be
paid based on a qualitative assessment of all relevant factors. The Company reviews the adequacy of these provisions at the end
of the reporting period. However, it is possible that at some future date, liabilities in excess of the Company’s provisions could
result from audits by, or litigation with, the relevant taxing authorities. As of December 31, 2020 and 2019, the Company does
not have any matters for which the tax determination is uncertain and as such, no provision has been recognized. Refer to Note
5 for more information regarding income taxes.
Useful lives of depreciable assets
The Company depreciates property, plant and equipment over the estimated useful lives of the assets. Right-of-use assets are
depreciated over the shorter period of the lease term and the useful life of the underlying asset. In determining the estimated
useful life of these assets, significant judgment is required. Judgment is required to determine whether events or circumstances
warrant a revision to the remaining periods of depreciation and amortization. The Company considers expectations of the in-
service period of these assets in determining these estimates. The Company assesses the estimated useful life of these assets at
each reporting date. If the Company determines that the useful life of an asset is different from the original assessment, changes
to depreciation and amortization will be applied prospectively. The estimates of cash flows used to assess the potential
impairment of these assets are also subject to measurement uncertainty. Actual results may vary due to technical or commercial
obsolescence, particularly with respect to information technology and manufacturing equipment.
Right-of-use assets and lease liabilities
Extension and early termination options are included in a number of leases across the Company. These are used to maximize
operational flexibility in terms of managing assets used in the Company's operations. In determining the lease term and lease
payments to be included in the measurement of the corresponding right-of-use asset and lease liability, management considers
all facts and circumstances that create an economic incentive to exercise an extension option, or not exercise an early
termination option. Extension options (or periods after early termination options) are only included in the lease term if the lease
is reasonably certain to be extended (or not early terminated). The lease term is reassessed if an option is actually exercised (or
not exercised) or the Company becomes obliged to exercise (or not exercise) it. The assessment of reasonable certainty is only
revised if a significant event or a significant change in circumstances occurs, which affects this assessment, and that is within
the control of the lessee. Refer to Note 15 for information regarding lease liabilities.
Net realizable value of inventories
Inventories are measured at the lower of cost or net realizable value. In estimating net realizable values of inventories,
management takes into account the most reliable evidence available at the time the estimate is made. Provisions for slow-
moving and obsolete inventories are made based on the age and estimated net realizable value of inventories. The assessment of
the provision involves management judgment and estimates associated with expected disposition of the inventory. Refer to
Note 7 for information regarding inventories and write-downs of inventories.
Allowance for expected credit loss and revenue adjustments
During each reporting period, the Company makes an assessment of whether trade accounts receivable are collectible from
customers. Accordingly, management establishes an allowance for estimated losses arising from non-payment and other
revenue adjustments. The Company’s allowance for expected credit loss reflects lifetime expected credit losses using a
provision matrix model, supplemented by an allowance for individually impaired trade receivables. The provision matrix is
based on the Company’s historic credit loss experience, adjusted for any change in risk of the trade receivable population based
on credit monitoring indicators, and expectations of general economic conditions that might affect the collection of trade
receivables. The provision matrix applies fixed provision rates depending on the number of days that a trade receivable is past
due, with higher rates applied the longer a balance is past due. The Company also records reductions to revenue for estimated
returns, claims, customer rebates, and other incentives. These incentives are recorded as a reduction to revenue at the time of
the initial sale using the most-likely amount estimation method. The most-likely amount method is based on the single most
likely outcome from a range of possible consideration outcomes. The range of possible outcomes are primarily derived from the
36
following inputs: sales terms, historical experience, trend analysis, and projected market conditions in the various markets
served. If future collections and trends differ from estimates, future earnings will be affected. Refer to Note 24 for more
information regarding the allowance for doubtful accounts and the related credit risks.
Provisions
Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of a past event, it is
probable that the Company will be required to settle the obligation, and a reliable estimate can be made of the amount of the
obligation.
The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the end
of the reporting period, taking into account the risks and uncertainties surrounding the obligation. When a provision is measured
using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows,
when the effect of the time value of money is material.
The Company's provisions include environmental and restoration obligations, termination benefits and other and litigation
provisions. Refer to Note 16 for more information regarding provisions.
Share-based compensation
The estimation of share-based compensation fair value and expense requires the selection of an appropriate pricing model.
The model used by the Company for stock options and SAR awards is the Black-Scholes pricing model. The Black-Scholes
model requires the Company to make significant judgments regarding the assumptions used within the model, the most
significant of which are the expected volatility of the Company’s own common shares, the probable life of awards granted, the
time of exercise, the risk-free interest rate commensurate with the term of the awards, and the expected dividend yield.
The model used by the Company for PSU awards subject to a market performance condition is the Monte Carlo simulation
model. The Monte Carlo model requires the Company to make significant judgments regarding the assumptions used within the
model, the most significant of which are the expected volatility of the Company’s own common shares as well as those of a
peer group and the risk-free interest rate commensurate with the term of the awards. For PSU awards subject to a non-market
performance condition, management estimates the expected achievement of performance criteria using long-range forecasting
models.
Refer to Note 18 for more information regarding share-based payments.
Business acquisitions
Management uses various valuation techniques when determining the fair values of certain assets and liabilities acquired in a
business combination. Refer to Note 19 for more information regarding business acquisitions.
37
3 - INFORMATION INCLUDED IN CONSOLIDATED EARNINGS
The following table describes the charges incurred by the Company which are included in the Company’s consolidated earnings
for each of the years in the three-year period ended December 31, 2020:
Employee benefit expense
Wages, salaries and other short-term benefits
Termination benefits (Note 16)
Share-based compensation expense (Note 18)
Pension, post-retirement and other long-term employee benefit
plans (Note 20):
Defined benefit plans
Defined contributions plans
Finance costs (income) - Interest
Interest on borrowings and lease liabilities
Amortization and write-off of debt issue costs on borrowings
Interest capitalized to property, plant and equipment
Finance costs (income) - other (income) expense, net
Foreign exchange loss (gain)
Valuation adjustment made to non-controlling interest put
options (Note 24)
Change in fair value of contingent consideration
liability (Note 24)
Other costs, net
Additional information
Depreciation of property, plant and equipment (Note 9)
Amortization of intangible assets (Note 12)
Impairment of assets, net (Note 13)
2020
$
2019
$
2018
$
242,113
4,110
22,879
2,057
6,824
277,983
28,684
1,210
(458)
29,436
38
2,470
(11,005)
2,259
(6,238)
50,237
13,603
2,359
227,043
2,274
501
2,139
7,142
239,099
32,472
1,194
(1,976)
31,690
197,155
1,861
1,914
2,768
3,471
207,169
17,443
1,906
(2,277)
17,072
(790)
1,945
3,339
—
765
3,314
51,030
10,385
4,549
—
—
1,865
3,810
38,548
6,281
6,936
38
4 - MANUFACTURING FACILITY CLOSURES, RESTRUCTURING AND OTHER RELATED CHARGES
The following table describes the charges incurred by the Company which are included in the Company’s consolidated earnings
for each of the years in the three-year period ended December 31, 2020 under the caption manufacturing facility closures,
restructuring and other related charges:
Impairment of property, plant and equipment, net
Equipment relocation
Revaluation and impairment of inventories, net
Termination benefits and other labor related costs, net
Restoration and idle facility costs, net
Professional fees, net
Other (recoveries) costs
2020
$
2019
$
2018
$
—
38
596
3,389
270
40
(5)
4,328
669
156
130
1,874
1,978
393
(64)
5,136
4,839
—
1,297
1,043
268
31
(418)
7,060
Charges incurred during the year ended December 31, 2020 were mainly the result of employee restructuring initiatives which
began in the second quarter in response to COVID-19 uncertainties. Charges incurred were composed of $3.7 million in cash
charges mainly related to termination benefits, restoration and ongoing idle facility costs and $0.6 million in non-cash
impairments of inventory.
Charges incurred during the year ended December 31, 2019 were mainly the result of the Montreal, Quebec manufacturing
facility closure at the end of 2019 and the Johnson City, Tennessee manufacturing facility closure at the end of 2018. Charges
incurred were composed of $4.3 million in cash charges mainly related to termination benefits, restoration and ongoing idle
facility costs and $0.8 million in non-cash impairments of property, plant and equipment and inventory.
Charges incurred during the year ended December 31, 2018 were mainly the result of the Johnson City, Tennessee
manufacturing facility closure and were composed of $6.1 million of non-cash impairments of property, plant and equipment
and inventory as well as $0.9 million in cash charges mainly related to termination benefits and other labor related costs.
As of December 31, 2020, restructuring provisions of $3.6 million are included in provisions ($2.0 million in 2019). Refer to
Note 16 for more information on provisions.
39
5 - INCOME TAXES
The reconciliation of the combined Canadian federal and provincial statutory income tax rate to the Company’s effective
income tax rate is detailed as follows for each of the years in the three-year period ended December 31, 2020:
Combined Canadian federal and provincial income tax rate
Foreign earnings/losses taxed at higher income tax rates
Foreign earnings/losses taxed at lower income tax rates
Prior period adjustments
(Nontaxable income) nondeductible expenses
Impact of other differences
Nontaxable dividend
Canadian deferred tax assets (recognized) not recognized
Recognition of deferred tax assets
Proposed tax assessment (1)
Effective income tax rate
2020
%
2019
%
2018
%
27.8
—
(4.3)
(0.5)
(1.9)
1.6
—
(1.8)
(0.2)
—
20.7
28.4
0.2
(4.8)
0.5
1.1
(2.3)
—
4.3
(1.3)
2.2
28.3
28.4
0.4
(5.1)
(3.4)
3.9
(0.7)
(8.6)
2.5
—
—
17.4
(1)
Proposed tax assessment refers to a $2.3 million proposed state income tax assessment and the related interest expense
recorded in the second quarter of 2019 which resulted from the denial of the utilization of certain net operating losses
generated in tax years 2000-2006.
The major components of income tax expense (benefit) are outlined below for each of the years in the three-year period ended
December 31, 2020:
Current income tax expense
Deferred tax expense (benefit)
Recognition of US deferred tax assets
US temporary differences
Canadian deferred tax assets (recognized) not recognized
Recognition of Canadian deferred tax assets
Canadian temporary differences
Temporary differences in other jurisdictions
Total deferred income tax (benefit) expense
Total tax expense for the year
2020
$
2019
$
2018
$
25,595
17,195
934
(153)
(6,605)
(1,660)
—
1,674
270
(6,474)
19,121
(701)
3,988
2,474
(22)
(5,678)
(946)
(885)
16,310
(182)
10,427
1,297
—
(1,548)
(1,126)
8,868
9,802
40
The amount of income taxes relating to components of OCI for each of the years in the three-year period ended December 31,
2020 is outlined below:
For the year ended December 31, 2020
Deferred tax benefit on remeasurement of defined benefit liability
Deferred tax benefit on change in fair value of interest rate swap
agreements designated as cash flow hedges
Deferred tax expense on foreign exchange related impacts arising
from intercompany settlements
Deferred tax expense on gain arising from hedge of a net investment
in foreign operations
Amount before
income tax
$
Deferred
income taxes
$
Amount net of
income taxes
$
(696)
(2,685)
2,117
6,488
5,224
216
658
(281)
(764)
(171)
(480)
(2,027)
1,836
5,724
5,053
For the year ended December 31, 2019
Deferred tax expense on remeasurement of defined benefit liability
762
(173)
589
Deferred tax benefit on change in fair value of interest rate swap
agreements designated as cash flow hedges
Deferred tax expense on gain arising from hedge of a net investment
in foreign operations
For the year ended December 31, 2018
Deferred tax expense on remeasurement of defined benefit liability
Deferred tax benefit on change in fair value of interest rate swap
agreements designated as cash flow hedges
(3,416)
359
(3,057)
10,280
7,626
3,016
970
3,986
(45)
141
10,235
7,767
(730)
463
(267)
2,286
1,433
3,719
The amount of recognized deferred tax assets and liabilities is outlined below as of December 31, 2020:
As of December 31, 2020
Tax credits, losses, carryforwards and other tax deductions
Property, plant and equipment
Pension and other post-retirement benefits
Share-based payments
Accounts payable and accrued liabilities
Goodwill and other intangibles
Trade and other receivables
Inventories
Lease liabilities
Other
Deferred tax assets and liabilities
Deferred tax
assets
Deferred tax
liabilities
$
$
Net
$
10,465
15,882
4,231
11,929
8,945
7,083
1,152
1,530
9,616
2,481
73,314
—
(52,956)
—
—
—
(23,121)
—
—
—
(1,668)
(77,745)
10,465
(37,074)
4,231
11,929
8,945
(16,038)
1,152
1,530
9,616
813
(4,431)
41
Presented in the consolidated balance sheets as:
Deferred tax assets
Deferred tax liabilities
December 31,
2020
$
29,677
(34,108)
(4,431)
The amount of recognized deferred tax assets and liabilities is outlined below as of December 31, 2019:
As of December 31, 2019
Tax credits, losses, carryforwards and other tax deductions
Property, plant and equipment
Pension and other post-retirement benefits
Share-based payments
Accounts payable and accrued liabilities
Goodwill and other intangibles
Trade and other receivables
Inventories
Lease liabilities
Other
Deferred tax assets and liabilities
Presented in the consolidated balance sheets as:
Deferred tax assets
Deferred tax liabilities
Deferred tax
assets
Deferred tax
liabilities
$
$
Net
$
11,638
16,020
3,966
1,766
6,022
7,028
688
1,918
9,832
863
59,741
—
(52,871)
—
—
—
(22,893)
—
—
—
(908)
(76,672)
11,638
(36,851)
3,966
1,766
6,022
(15,865)
688
1,918
9,832
(45)
(16,931)
December 31,
2019
$
29,738
(46,669)
(16,931)
Nature of evidence supporting recognition of deferred tax assets
In assessing the recoverability of deferred tax assets, management determines, at each balance sheet date, whether it is more
likely than not that a portion or all of its deferred tax assets will be realized. This determination is based on quantitative and
qualitative assessments by management and the weighing of all available evidence, both positive and negative. Such evidence
includes the scheduled reversal of deferred tax liabilities, projected future taxable income and the implementation of tax
planning strategies.
As of December 31, 2020 and 2019, respectively, management analyzed all available evidence and determined it is more likely
than not that substantially all of the Company’s deferred tax assets in the US and Canadian operating entities will be realized.
Accordingly, the Company continues to recognize the majority of its deferred tax assets in the US and Canadian operating
entities. With respect to the deferred tax assets at the Canadian corporate holding entity, the Parent Company, management
determined it appropriate that the Parent Company's deferred tax assets should continue not to be recognized as of
December 31, 2020 and 2019, respectively. The Canadian deferred tax assets remain available to the Company in order to
reduce its taxable income in future periods.
42
The following table outlines the changes in the deferred tax assets and liabilities during the year ended December 31, 2019:
Balance
January 1,
2019
Recognized in
earnings (with
translation
adjustments)
Recognized
in
contributed
surplus
Recognized in
OCI
Recognized
in deficit
Balance
reclassified
to other
current
assets
Balance
December
31,
2019
$
$
$
$
$
$
$
Deferred tax assets
Tax credits, losses, carryforwards and
other tax deductions
Property, plant and equipment
Pension and other post-retirement
benefits
Share-based payments
Accounts payable and accrued
liabilities
Goodwill and other intangibles
Trade and other receivables
Inventories
Lease liabilities
Other
11,147
13,910
3,798
2,508
5,659
6,998
633
2,262
—
5
2,503
2,110
333
(728)
363
30
55
(344)
9,832
903
—
—
—
(17)
—
—
—
—
—
—
Deferred tax liabilities
Property, plant and equipment
Goodwill and other intangibles
Other
Deferred tax assets and liabilities
Impact due to foreign exchange rates
Total recognized
46,920
15,057
(17)
(38,290)
(25,343)
(539)
(64,172)
(17,252)
(14,581)
2,450
(726)
(12,857)
2,200
(1,315)
885
—
—
—
—
(17)
—
(17)
—
—
(165)
—
—
—
—
—
—
(45)
(210)
—
—
357
357
147
(6)
141
(2,012)
—
—
—
—
—
—
—
—
—
11,638
16,020
3,966
1,766
6,022
7,028
688
1,918
9,832
863
(2,012)
59,741
—
—
—
—
(2,012)
(52,871)
(22,893)
(908)
(76,672)
(16,931)
—
—
—
3
—
—
—
—
—
—
3
—
—
—
—
3
—
3
43
The following table outlines the changes in the deferred tax assets and liabilities during the year ended December 31, 2020:
Deferred tax assets
Tax credits, losses, carryforwards and other tax
deductions
Property, plant and equipment
Pension and other post-retirement benefits
Share-based payments
Accounts payable and accrued liabilities
Goodwill and other intangibles
Trade and other receivables
Inventories
Lease liabilities
Other
Deferred tax liabilities
Property, plant and equipment
Goodwill and other intangibles
Other
Deferred tax assets and liabilities
Impact due to foreign exchange rates
Total recognized
Balance January
1, 2020
Recognized in
earnings (with
translation
adjustments)
Recognized in
contributed
surplus
Recognized in
OCI
Balance
December 31,
2020
$
$
$
$
$
11,638
16,020
3,966
1,766
6,022
7,028
688
1,918
9,832
863
59,741
(52,871)
(22,893)
(908)
(76,672)
(16,931)
(892)
(138)
30
4,857
2,923
55
464
(388)
(216)
1,722
8,417
(85)
(228)
(760)
(1,073)
7,344
(870)
6,474
—
—
—
5,306
—
—
—
—
—
—
5,306
—
—
—
—
5,306
—
5,306
10,465
15,882
4,231
11,929
8,945
7,083
1,152
1,530
9,616
2,481
73,314
(52,956)
(23,121)
(1,668)
(77,745)
(4,431)
(281)
—
235
—
—
—
—
—
—
(104)
(150)
—
—
—
—
(150)
(21)
(171)
Deductible temporary differences and unused tax losses for which no deferred tax asset is recognized in the consolidated
balance sheets are as follows:
Tax losses, carryforwards and other tax deductions
Share-based payments
December 31,
2020
$
December 31,
2019
$
47,829
7,231
55,060
51,134
3,457
54,591
44
The following table presents the amounts and expiration dates relating to unused tax credits in Canada for which no asset is
recognized in the consolidated balance sheets as of December 31:
2020
$
2019
$
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
Total tax credits derecognized
—
209
476
236
222
376
288
262
305
243
221
324
194
238
211
560
367
266
666
266
266
6,196
541
204
466
230
217
367
281
256
298
237
216
316
190
233
206
547
359
260
651
651
—
6,726
The following table presents the year of expiration of the Company’s operating losses carried forward in Canada as of
December 31, 2020:
2026
2029
2030
2031
2037
2038
2039
Deferred tax assets not recognized
Federal
$
Provincial
$
5,311
602
2,675
1,607
3,766
5,251
11,122
30,334
5,311
602
2,675
1,607
3,766
5,251
11,122
30,334
In addition, the Company has (i) consolidated state losses of $48.1 million (with expiration dates ranging from 2021 to 2038)
for which a tax benefit of $0.6 million has not been recognized; (ii) standalone state losses of $69.5 million (with expiration
dates ranging from 2021 to 2038) for which a tax benefit of $2.4 million has not been recognized; and (iii) $15.9 million of
capital loss carryforwards with indefinite lives available to offset future capital gains in Canada for which no tax benefit has
been recognized.
45
6 - EARNINGS PER SHARE
The weighted average number of common shares outstanding is as follows for each of the years in the three-year period ended
December 31, 2020:
Basic
Effect of stock options
Diluted
2020
59,010,485
620,388
59,630,873
2019
58,798,488
190,646
58,989,134
2018
58,815,526
268,649
59,084,175
Stock options that were anti-dilutive and excluded from the calculation of weighted average diluted common shares for each of
the years in the three-year period ended December 31, 2020 were as follows:
Anti-dilutive stock options
7 - INVENTORIES
Inventory is composed of the following for the years ended:
Raw materials
Work in process
Finished goods
Parts and supplies
2020
2019
2018
612,601
505,812
242,918
December 31,
2020
$
December 31,
2019
$
61,051
38,850
72,535
22,080
194,516
52,617
29,927
81,605
20,788
184,937
The Company recorded impairments of inventories to net realizable value in the Company’s consolidated earnings as an
expense for each of the years in the three-year period ended December 31, 2020 as follows:
Impairments recorded in manufacturing facility closures, restructuring
and other related charges
Reversals of impairments recorded in manufacturing facility closures,
restructuring and other related charges
Impairments recorded in cost of sales
2020
$
2019
$
2018
$
596
—
1,179
1,775
634
(504)
2,877
3,007
1,297
—
716
2,013
Refer to Note 13 for information regarding impairments of inventories.
The amount of inventories included in the Company’s consolidated earnings in cost of sales for each of the years in the three-
year period ended December 31, 2020 is as follows:
Inventories recognized in cost of sales
2020
$
2019
$
2018
$
843,717
836,600
771,224
46
8 - OTHER CURRENT ASSETS
Other current assets are composed of the following for the years ended:
Prepaid expenses
Sales and other taxes receivable and credits
Income taxes receivable and prepaid
Supplier rebates receivable
Reserve for inventory returns
Other
9 - PROPERTY, PLANT AND EQUIPMENT
December 31,
2020
$
December 31,
2019
$
9,086
3,988
3,280
2,596
1,196
902
21,048
8,892
5,747
3,977
1,533
1,003
1,135
22,287
The following table outlines the changes to property, plant and equipment during the year ended December 31, 2019:
Land
$
Buildings
$
Manufacturing
equipment
Computer
equipment
and software
Furniture,
office equipment
and other
Construction in
progress
$
$
$
$
Total
$
Gross carrying amount
Balance as of December 31, 2018
12,076
145,417
682,246
44,051
Adjustment on transition to IFRS 16
Additions – right-of-use assets
Additions – separately acquired
Assets placed into service
Disposals
Category reclassifications
Foreign exchange and other
—
—
—
581
(360)
—
(105)
27,960
11,844
—
13,105
(3,776)
(1,488)
769
1,914
1,701
—
73,708
(8,889)
1,488
3,445
—
—
—
2,174
(1,622)
—
121
3,458
1,180
203
—
563
(136)
—
26
57,669
944,917
—
—
48,376
(90,131)
(960)
—
(543)
31,054
13,748
48,376
—
(15,743)
—
3,713
Balance as of December 31, 2019
12,192
193,831
755,613
44,724
5,294
14,411
1,026,065
Accumulated depreciation and impairments
Balance as of December 31, 2018
Depreciation (1)
Impairments
Impairment reversals
Disposals
Foreign exchange and other
Balance as of December 31, 2019
Net carrying amount as of December 31,
2019
979
—
—
—
(360)
(10)
609
71,576
11,208
236
—
(2,501)
536
454,004
36,810
1,211
(751)
(7,996)
2,849
81,055
486,127
38,460
2,326
149
—
(1,595)
113
39,453
2,466
1,121
18
—
(105)
10
3,510
356
—
607
—
(960)
(3)
—
567,841
51,465
2,221
(751)
(13,517)
3,495
610,754
11,583
112,776
269,486
5,271
1,784
14,411
415,311
47
The following table outlines the changes to property, plant and equipment during the year ended December 31, 2020:
Land
$
Buildings
$
Manufacturing
equipment
Computer
equipment
and software
Furniture,
office equipment
and other
Construction in
progress
$
$
$
$
Total
$
Gross carrying amount
Balance as of December 31, 2019
12,192
193,831
755,613
44,724
5,294
14,411
1,026,065
Additions – right-of-use assets
Additions – separately acquired
Additions through business
acquisitions
Assets placed into service
Disposals
Foreign exchange and other
—
—
—
—
—
(79)
2,284
—
140
2,528
(54)
1,605
974
—
656
18,054
(1,902)
3,216
—
—
10
1,493
(7)
247
Balance as of December 31, 2020
12,113
200,334
776,611
46,467
Accumulated depreciation and impairments
Balance as of December 31, 2019
Depreciation (1)
Impairments
Disposals
Foreign exchange and other
609
—
—
—
81,055
11,314
—
(54)
515
486,127
35,745
127
(845)
3,034
39,453
2,211
—
(7)
217
Balance as of December 31, 2020
609
92,830
524,188
41,874
806
—
115
289
(541)
217
6,180
3,510
1,146
—
(531)
192
4,317
—
45,464
—
(22,364)
(86)
(98)
4,064
45,464
921
—
(2,590)
5,108
37,327
1,079,032
—
—
86
(86)
—
—
610,754
50,416
213
(1,523)
3,958
663,818
Net carrying amount as of December 31,
2020
11,504
107,504
252,423
4,593
1,863
37,327
415,214
(1)
The difference between the depreciation additions presented above and depreciation expense included in the
Company’s consolidated earnings is the amortization of government grants recognized in deferred income for the
purchase and construction of plant and equipment in the amount of $0.2 million and $0.4 million as of December 31,
2020 and 2019, respectively. When the assets are placed into service, the deferred income is recognized as a credit to
depreciation expense through cost of sales on a systematic basis over the related assets’ useful lives. Refer to Note 14
for additional information on the Company's forgivable government loans.
Capital expenditures incurred in the year ended December 31, 2020 were primarily to support investments in e-commerce-
related production capacity, maintenance needs, initiatives supporting the efficiency and effectiveness of operations and other
strategic initiatives. As of December 31, 2020, the Company had commitments to suppliers to purchase machinery and
equipment totalling $17.0 million primarily to support e-commerce-related production capacity improvements and other
strategic initiatives. It is expected that such amounts will be paid out in the next twelve months and will be funded by the
Company's borrowings and cash flows from operating activities.
Capital expenditures incurred in the year ended December 31, 2019 were primarily to support the end stages of strategic
initiatives completed during 2019 including: the greenfield manufacturing facilities in India and the capacity expansion project
at the Midland, North Carolina manufacturing facility. Capital expenditures were also incurred to support other smaller-scale
strategic and growth initiatives, including projects to support the integration of acquired operations.
During the year ended December 31, 2020, the loss on disposals amounted to $0.3 million ($0.6 million and $0.2 million loss
on disposals in 2019 and 2018, respectively).
Supplemental information regarding property, plant and equipment is as follows for the years ended:
Interest capitalized to property, plant and equipment
Weighted average capitalization rates
December 31,
2020
December 31,
2019
$458
4.94 %
$1,976
7.56 %
48
Additional information on the carrying amount of the right-of-use assets by class of assets and related depreciation expense is
as follows as of and for the years ended:
December 31, 2020:
Carrying amount
Depreciation expense
December 31, 2019:
Carrying amount
Depreciation expense
10 - OTHER ASSETS
Buildings
$
Manufacturing
equipment
Furniture,
office equipment
and other
$
$
Total
$
32,795
5,923
36,263
5,331
15,916
3,230
18,348
3,248
917
746
866
796
49,628
9,899
55,477
9,375
Other assets are composed of the following for the years ended:
Corporate owned life insurance held in grantor trust
Pension benefits (1)
Deposits
Prepaid software licensing
Cash surrender value of officers’ life insurance
Other
December 31,
2020
$
December 31,
2019
$
7,988
3,024
1,083
786
408
21
13,310
5,992
1,966
1,179
960
386
35
10,518
(1)
Refer to Note 20 for additional information regarding employee benefit plans.
11 - GOODWILL
The following table outlines the changes in goodwill during the period:
Balance as of December 31, 2018
Foreign exchange
Balance as of December 31, 2019
Acquired through business acquisition (1)
Foreign exchange
Balance as of December 31, 2020
(1)
Refer to Note 19 for additional information regarding the Company's business acquisition.
Total
$
107,714
(37)
107,677
25,640
(423)
132,894
49
12 - INTANGIBLE ASSETS
The following tables outline the changes in intangible assets during the period:
Distribution
rights
Customer
contracts
License
agreements
Customer
lists
Software (1)
Patents/
Trademark/
Trade names (2)
Non-
compete
agreements
$
$
$
$
$
$
$
Total
$
Gross carrying amount
Balance as of
December 31, 2018
Additions – separately
acquired
Disposals
Foreign exchange and
other
Balance as of
December 31, 2019
2,655
1,021
302
106,249
6,527
15,038
8,367
140,159
—
—
(2,728)
(1,049)
—
(112)
—
(811)
2,588
(477)
—
(503)
—
(198)
2,588
(5,878)
73
—
28
—
—
59
(20)
518
(135)
523
190
105,497
8,618
15,053
8,034
137,392
Accumulated amortization and impairments
Balance as of
December 31, 2018
Amortization
Disposals
Impairments
Foreign exchange and
other
Balance as of
December 31, 2019
Net carrying amount as of
December 31, 2019
2,655
—
1,021
—
(2,728)
(1,049)
—
73
—
—
—
28
—
—
224
7
(112)
72
9,310
7,677
(811)
—
1,875
1,133
(477)
—
(1)
(54)
(25)
608
258
(503)
—
19
2,077
1,310
17,770
10,385
(198)
(5,878)
—
(46)
72
(6)
190
16,122
2,506
382
3,143
22,343
—
89,375
6,112
14,671
4,891
115,049
Gross carrying amount
Balance as of December 31, 2019
Additions – separately acquired
Additions through business acquisitions
Disposals
Foreign exchange and other
Balance as of December 31, 2020
Accumulated amortization and impairments
Balance as of December 31, 2019
Amortization
Disposals
Impairments
Foreign exchange and other
Balance as of December 31, 2020
Net carrying amount as of December 31, 2020
License
agreements
Customer
lists
Software (1)
Patents/
Trademark/
Trade names (2)
Non-
compete
agreements
$
$
$
$
$
190
105,497
—
—
—
—
—
18,462
—
(207)
8,618
1,881
—
(421)
—
15,053
—
1,616
—
135
190
123,752
10,078
16,804
190
—
—
—
—
190
—
16,122
10,406
—
—
(49)
26,479
97,273
2,506
1,449
(371)
371
—
3,955
6,123
382
257
—
—
2
641
16,163
8,034
—
1,441
—
(180)
9,295
3,143
1,491
—
—
(54)
4,580
4,715
Total
$
137,392
1,881
21,519
(421)
(252)
160,119
22,343
13,603
(371)
371
(101)
35,845
124,274
(1)
(2)
Includes $0.4 million of acquired software licenses during the years ended December 31, 2020 and 2019, respectively.
Includes trademarks and trade names not subject to amortization totalling $16.1 million and $14.4 million as of
December 31, 2020 and 2019, respectively.
During the year ended December 31, 2020, the loss on disposals amounted to $0.1 million (nil in 2019 and 2018, respectively).
The Company holds customer relationships related to its Polyair acquisition with a carrying amount of $59.6 million and $64.3
million as of December 31, 2020 and 2019, respectively. These customer relationships will be fully amortized in the year 2033.
50
13 - IMPAIRMENT OF ASSETS
CGU Determination and Indicators of Impairment
In updating its determination of CGUs and applying any related indicators of impairment, the Company took into consideration
any manufacturing facility closures and other related activities that may have taken place over the course of the year; the
expected costs, timeline, and future benefits expected from its major capital expenditure projects; the impact of acquisitions; as
well as changes in the interdependencies of cash flows among the Company’s manufacturing sites. As a result of this analysis,
the Company’s CGUs consist of the following:
•
•
•
•
•
The tapes and films CGU (the "T&F CGU") includes the Company’s tape and film manufacturing locations in the United
States, Canada and India.
Polyair continues to be considered a separate CGU by management, despite integration efforts making significant progress
in 2019 and in 2020 and in continuing towards furthering operational alignment and interdependency of cash flows within
the T&F CGU. Management monitors the goodwill balance of Polyair combined with the T&F CGU assets as it remains
focused on achieving its strategic plan of developing significant acquisition synergies and, as a result of those synergies,
having greater interdependencies of cash flows. Accordingly, the assets of Polyair are included in the tapes and film
impairment test discussed further below (the “T&F Group”).
The engineered coated products CGU (“ECP CGU") includes the Company’s engineered coated products manufacturing
facilities located in the United States, Canada and India.
As discussed in Note 19, the Company acquired the operating assets of Nortech in February 2020, which consists of one
manufacturing facility ("Nortech CGU") that operates largely on a standalone basis and with its own customer base.
The Company has an additional CGU consisting of a single manufacturing facility located in Portugal, which does not
contain any long-lived intangible assets or goodwill and, as such, is not subject to annual impairment testing.
During the year ended December 31, 2020, with the exception of Nortech for which management conducted an impairment test
during the second quarter resulting in no impairment for that CGU, there were no other indicators of impairment for any of the
CGUs previously described. Due to the existence of recorded goodwill and indefinite-lived intangible assets associated with the
T&F Group, the ECP CGU and the Nortech CGU, the Company conducted impairment tests as discussed further below. The
tests did not result in any impairment being recognized as of December 31, 2020 and 2019. Unrelated to the impairment tests
performed at the CGU level, there were impairments of certain individual assets as disclosed in the impairments table below,
which primarily relate to manufacturing facility closures, restructuring and other related charges.
The Company also considers indicators for the reversal of prior impairment charges recorded. This analysis of indicators is
based on the recent and projected results of CGUs and specific asset groups that were previously impaired. For the years ended
December 31, 2020 and 2019, these analyses did not result in any impairment reversals.
Impairment Testing
All of the Company’s carrying amounts of goodwill, intangible assets with indefinite useful lives and software not yet available
for use as of December 31, 2020 and 2019 relate to the T&F Group, the ECP CGU and the Nortech CGU. The Company
performed the required annual impairment testing for these asset groups during the fourth quarter of 2020 and 2019. The
impairment test for the asset groups was determined based on their value in use. Key assumptions used in each discounted cash
flow projection, management’s approach to determine the value assigned to each key assumption, and other information as
required for the asset groups are outlined in the tables below. Changes in the key assumptions below that the Company believes
are reasonably possible would not be expected to cause the carrying amount of the asset groups to exceed its recoverable
amount, in which case an impairment would otherwise be recognized.
Revenue and other future assumptions used in these models were prepared in accordance with IAS 36 – Impairment of Assets
and do not include the benefit from obtaining, or the incremental costs to obtain, growth initiatives or cost reduction programs
that the Company may be planning but has not yet undertaken within its current asset base.
Details of the key assumptions used in impairment tests performed as of December 31, 2020 are outlined below:
Carrying amount allocated to the asset group:
Goodwill
Intangible assets with indefinite useful lives
T&F Group
ECP CGU
Nortech CGU
$101,568
$14,493
$5,686
—
$25,640
$1,616
51
T&F Group
ECP CGU
Nortech CGU
Results of test performed as of December 31, 2020:
Forecast period annual revenue growth rates (1)
9.4% in 2021,
2.3%-3.1% thereafter
11.5% in 2021, 3.1%
in 2022, tapering down
to 2.5% thereafter
Discount rate (2)
Cash flows beyond the forecast period have been
extrapolated using a steady growth rate of (3)
Income tax rate (4)
8.8 %
2.3 %
28.0 %
11.6 %
2.5 %
27.0 %
35.2% in 2021,
54.6% in 2022,
tapering down to
2.5% thereafter
12.5 %
2.5 %
25.5 %
(1)
(2)
(3)
(4)
For all three models, the annual revenue growth rates for the forecast period are based on projections presented to
management and the Board of Directors. The projected revenue growth rates for the period are consistent with the
Company's recent history of sales volumes within the asset group, as well as the Company’s expectation that its sales
will at least match gross domestic product growth. For 2021, anticipated revenue growth used in these analyses is
partially attributable to expected increases in selling prices due to the passing through of higher raw material costs to
customers.
For the T&F Group, projections assume that the Company’s revenue will grow due to growth in the e-commerce
channel and areas of recent capital investment in the short term, and consistent with United States gross domestic
product average projections over the longer term.
For the ECP CGU, projections expect additional revenue from the recent Capstone investment and recovery from
COVID-19 demand disruptions in the short term, and sustained growth levels consistent with United States gross
domestic product over the longer term.
For the Nortech CGU, projections expect the business to achieve growth in the acquisition business case, which has
been delayed by national lockdowns and restricted customer capital expenditures due to the global COVID-19
pandemic. The initial high rate of growth anticipated in 2021 is largely due to an expected recovery from these delays
in fulfilling the customer order backlog.
The discount rate used is the estimated weighted average cost of capital for the asset group, using observable market
rates and data based on a set of publicly traded industry peers.
Cash flows beyond the forecast period have been primarily extrapolated at or below the projected long-term average
growth rates for the asset groups.
The income tax rate represents an estimated effective tax rate based on enacted or substantively enacted rates.
Sensitivity analysis performed as of December 31, 2020 using reasonably possible changes in key assumptions above are
outlined below:
Forecast period annual revenue
growth rates
9.4% in 2021, 0% thereafter
11.5% in 2021, 1.0%
thereafter
0% in 2021 and 2022,
109.1% in 2023, tapering
down to 2.5% thereafter
T&F Group
ECP CGU
Nortech CGU
Discount rate
Cash flows beyond the forecast
period have been extrapolated
using a steady growth rate of
Income tax rate
11.0 %
1.0 %
35.0 %
12.6 %
1.0 %
37.0 %
14.5 %
1.5 %
28.0 %
There was no indication of any impairment resulting from changing the individual assumptions above.
52
Details of the key assumptions used in impairment tests performed as of December 31, 2019 are outlined below:
Carrying amount allocated to the asset group
Goodwill
Intangible assets with indefinite useful lives
Results of test performed as of December 31, 2019:
Forecast period annual revenue growth rates (1)
Discount rate (2)
Cash flows beyond the forecast period have been
extrapolated using a steady growth rate of (3)
Income tax rate (4)
T&F Group
ECP CGU
$101,846
$14,359
$5,831
—
1.3% in 2020, 2.3%-3.1%
thereafter
8.8 %
6.3% in 2020, 2.8% in 2021,
tapering down to 2.5% thereafter
11.6 %
2.3 %
28.0 %
2.5 %
27.0 %
(1)
(2)
(3)
(4)
For both models, the annual revenue growth rates for the forecast period are based on projections presented to
management and the Board of Directors. The projected revenue growth rates for the period are consistent with the
Company's recent history of sales volumes within the asset group, as well as the Company’s expectation that its sales
will at least match gross domestic product growth.
For the T&F Group, projections assume that the Company's revenue will grow consistent with United States gross
domestic product average projections, and from anticipated synergies realized from Polyair cross-selling opportunities,
included discretely through 2022.
For the ECP CGU, projections expect additional ramping of revenue from the group due to integration and capital
expenditure efforts through 2021, and then tapering down to sustained growth levels consistent with United States
gross domestic product.
The discount rate used is the estimated weighted average cost of capital for the asset group, using observable market
rates and data based on a set of publicly traded industry peers.
Cash flows beyond the forecast period have been primarily extrapolated at or below the projected long-term average
growth rates for the asset groups.
The income tax rate represents an estimated effective tax rate based on enacted or substantively enacted rates.
Sensitivity analysis performed as of December 31, 2019 using reasonably possible changes in key assumptions above are
outlined below:
Forecast period annual revenue growth rates
Discount rate
Cash flows beyond the forecast period have been
extrapolated using a steady growth rate of
Income tax rate
T&F Group
ECP CGU
1.3% in 2020, 0% thereafter
11.0 %
6.3% in 2020, 1.0% thereafter
12.6 %
1.0 %
35.0 %
1.0 %
37.0 %
There was no indication of any impairment resulting from changing the individual assumptions above.
53
Impairments
Impairments recognized during the year ended December 31, 2020 and 2019 and reversals of impairments recognized during
the year ended December 31, 2019 are presented in the table below. There were no reversals of impairments recognized during
the year ended December 31, 2020.
Classes of assets impaired
Manufacturing facility closures, restructuring and other related charges
Inventories
Property, plant and equipment
Buildings
Manufacturing equipment
Computer equipment and software
Furniture, office equipment and other
Construction in progress
Cost of sales
Inventories
Property, plant and equipment
Manufacturing equipment
Computer equipment and software
Construction in progress
Intangibles
Total
2020
2019
Impairment
recognized
Impairment
recognized
Impairment
reversed
$
$
$
596
—
—
—
—
—
596
634
(504)
236
987
114
18
65
2,054
—
(751)
—
—
—
(1,255)
1,179
2,877
—
127
—
86
371
1,763
2,359
224
35
542
72
3,750
5,804
—
—
—
—
—
(1,255)
The assets impaired during the year ended December 31, 2020 were primarily impairments of inventories related to slow-
moving and obsolete goods, including inventory associated with the Montreal, Quebec manufacturing facility closure. The
assets impaired during the year ended December 31, 2019 were primarily impairments of inventories related to slow-moving
and obsolete goods, as well as assets impaired as a result of the closure of the Montreal, Quebec and Johnson City, Tennessee
manufacturing facilities.
The Company used its best estimate in assessing the likely outcome for each of the assets. The recoverable amount of the assets
in all cases was fair value less costs to sell.
54
14 - BORROWINGS
Borrowings are composed of the following for the years ended:
December 31,
2020
Weighted average
effective interest
rate
$
December 31,
2019
Weighted average
effective interest
rate
$
Maturity
Senior Unsecured Notes (a)
2018 Credit Facility (b)
2018 Powerband Credit Facility (c)
2018 Capstone Credit Facility (d)
Partially forgivable government
loans (e)
Lease liabilities (f)
Term and other loans (g)
Total borrowings
Less: borrowings and lease liabilities, current
Total borrowings and lease liabilities, non-current
October 2026
June 2023
August 2021
Various until June 2023
Various until June 2026
Various until December 2034
Various until February 2024
7.00 % 246,236
3.07 % 185,162
629
9.31 %
10,505
6.47 %
1.25 %
5,265
6.12 %
42,122
0.82 %
45
489,964
26,219
463,745
7.00 % 245,681
4.04 % 185,438
17,294
8.90 %
10,434
7.84 %
1.25 %
4,431
6.97 %
44,756
0.75 %
776
508,810
26,319
482,491
The aggregate principal amounts of the related borrowings and lease liabilities in the table above are presented net of debt
issuance costs of $5.1 million and $6.2 million as of December 31, 2020 and 2019, respectively, and imputed interest of $0.3
million and $0.4 million as of December 31, 2020 and 2019, respectively, netting to $4.6 million and $5.8 million as of
December 31, 2020 and 2019, respectively.
Refer to Note 24 for a maturity analysis on borrowings.
(a)
Senior Unsecured Notes
On October 15, 2018, the Company completed the private placement of $250 million aggregate principal amount of senior
unsecured notes due October 15, 2026 ("Senior Unsecured Notes") with certain guarantors and Regions Bank, as Trustee. The
Company incurred debt issue costs of $5.1 million which were capitalized and are being amortized using the straight-line
method over the eight-year term. The Company used the net proceeds to partially repay borrowings under the 2018 Credit
Facility (defined below) and to pay related fees and expenses, as well as for general corporate purposes. The Senior Unsecured
Notes bear interest at a rate of 7.00% per annum, payable semi-annually, in cash, in arrears on April 15 and October 15 of each
year, beginning on April 15, 2019.
As of December 31, 2020, the Senior Unsecured Notes outstanding balance amounted to $250.0 million ($246.2 million, net of
$3.8 million in unamortized debt issue costs).
On or after October 15, 2021, the Company may redeem the Senior Unsecured Notes at its option, in whole or in part, on
certain redemption dates and at certain redemption prices specified in the indenture, plus any accrued and unpaid interest. If the
Company experiences a change of control, it may be required to offer to repurchase the Senior Unsecured Notes at a purchase
price equal to 101% of their aggregate principal amount plus any accrued and unpaid interest up to, but excluding, the date of
such repurchase.
The Senior Unsecured Notes's indenture contains usual and customary incurrence based covenants that are generally less
restrictive than covenants under the 2018 Credit Facility and, among other things, limit the Company's ability to incur
additional debt; pay dividends, redeem stock or make other distributions; enter into certain types of transactions with affiliates;
incur liens on assets; make certain restricted payments and investments; engage in certain asset sales, including sale and
leaseback transactions; agree to certain restrictions on the ability of restricted subsidiaries to make payments to the Company;
and merge, consolidate, transfer or dispose of substantially all assets. Certain of these covenants will be suspended if the Senior
Unsecured Notes are assigned an investment grade rating by Standard & Poor's Rating Services and Moody's Investors
Services, Inc. None of these covenants are considered restrictive to the Company’s operations and, as of December 31, 2020,
the Company was in compliance with all of these debt covenants. The Senior Unsecured Notes are guaranteed by all direct and
indirect subsidiaries of the Parent Company that are borrowers or guarantors under the 2018 Credit Facility. Under the terms of
55
the indenture, any direct or indirect subsidiaries that in the future become borrowers or guarantors under the 2018 Credit
Facility shall also be guarantors of the Senior Unsecured Notes.
(b)
2018 Credit Facility
On June 14, 2018, the Company entered into a five-year, $600.0 million credit facility (“2018 Credit Facility”) with a
syndicated lending group, refinancing and replacing the Company's previous $450.0 million credit facility that was due to
mature in November 2019. In securing the 2018 Credit Facility, the Company incurred debt issue costs amounting to $2.7
million which were capitalized and are being amortized using the straight-line method over the five-year term.
The 2018 Credit Facility consists of a $400.0 million revolving credit facility (“2018 Revolving Credit Facility”) and a $200.0
million term loan (“2018 Term Loan”). The 2018 Term Loan amortizes $65.0 million until March 2023 ($5.0 million in 2018,
$10.0 million in 2019, $12.5 million in 2020, $15.0 million in 2021, $17.5 million in 2022, and $5.0 million in 2023), and the
remaining balance of the 2018 Credit Facility is due upon maturity in June 2023. Any repayments of borrowings under the 2018
Term Loan are not available to be borrowed again in the future.
The 2018 Credit Facility also includes an incremental accordion feature of $200.0 million, which enables the Company to
increase the limit of this facility (subject to the credit agreement's terms and lender approval) if needed. The 2018 Credit
Facility bears an interest rate based, at the Company’s option, on LIBOR, the Federal Funds Rate, or Bank of America’s prime
rate, plus a spread varying between 25 and 250 basis points (150 basis points as of December 31, 2020 and December 31, 2019)
depending on the debt instrument's benchmark interest rate and the consolidated secured net leverage ratio.
As of December 31, 2020, the 2018 Term Loan's outstanding principal balance amounted to $172.5 million and the 2018
Revolving Credit Facility’s outstanding principal balance amounted to $14.0 million, for a total gross outstanding principal
balance under the 2018 Credit Facility of $186.5 million ($185.2 million, net of $1.3 million in unamortized debt issue costs).
Standby letters of credit totalled $1.5 million resulting in total utilization under the 2018 Credit Facility of $188.0 million.
Accordingly, the unused availability under the 2018 Credit Facility as of December 31, 2020 amounted to $384.5 million. The
Company's capacity to borrow available funds under the 2018 Credit Facility may be limited because of the secured net
leverage ratio covenant and other restrictions as defined in the Company's credit agreement.
The 2018 Credit Facility is secured by a first priority lien on all personal property of the Company and all current and future
material subsidiaries who are borrowers or guarantors under the facility.
The 2018 Credit Facility has two financial covenants, a consolidated secured net leverage ratio and a consolidated interest
coverage ratio. In July 2019, the Company and its syndicated lending group amended the 2018 Revolving Credit Facility to,
among other things, revise the two financial covenant thresholds to account for the associated impacts of new lease accounting
guidance implemented on January 1, 2019 requiring operating leases to be accounted for as borrowings (with corresponding
interest payments). The amendment provides that the consolidated secured net leverage ratio must not be more than 3.70 to 1.00
(previously 3.50 to 1.00), with an allowable temporary increase to 4.20 to 1.00 (previously 4.00 to 1.00) for the quarters in
which the Company consummates an acquisition with a price not less than $50 million and the following three quarters. The
amendment also provides that the consolidated interest coverage ratio must not be less than 2.75 to 1.00 (previously 3.00 to
1.00). The Company was in compliance with the consolidated secured net leverage ratio and consolidated interest coverage
ratio, which were 1.14 and 7.08, respectively, as of December 31, 2020. In addition, the 2018 Credit Facility has certain non-
financial covenants, such as covenants regarding indebtedness, investments, and asset dispositions. The Company was in
compliance with all covenants as of and for the year ended December 31, 2020.
(c)
2018 Powerband Credit Facility
On July 4, 2018, Powerband, one of the Company's subsidiaries, entered into an INR1,300.0 million ($19.0 million) credit
facility (“2018 Powerband Credit Facility”) subsequently replacing Powerband's previous outstanding debt. In December 2018,
Powerband amended the 2018 Powerband Credit Facility to reallocate and increase its credit limit by INR 100.0 million ($1.4
million), bringing the total 2018 Powerband Credit Facility limit to INR 1,400.0 million ($19.3 million).
The 2018 Powerband Credit Facility is guaranteed by the Parent Company, and certain local assets (carrying amount of $34.7
million as of December 31, 2020) are required to be pledged. Powerband is prohibited from granting liens on its assets without
the consent of the lender under the 2018 Powerband Credit Facility. Funding under the 2018 Powerband Credit Facility is not
committed and could be withdrawn by the lender with 10 days' notice. Additionally, under the terms of the 2018 Powerband
Credit Facility, Powerband's debt to net worth ratio (as defined by the 2018 Powerband Credit Facility credit agreement) must
56
be maintained below 3.00. Powerband was in compliance with the debt to net worth ratio (0.02 as of December 31, 2020) as of
and for the year ended December 31, 2020.
As of December 31, 2020, the 2018 Powerband Credit Facility consisted of an INR 375.0 million ($5.1 million) working capital
loan facility (“2018 Powerband Working Capital Loan Facility”) that renews annually and is due upon demand, bearing interest
based on the prevailing Indian Marginal Cost-Lending Rate ("IMCLR").
Additionally, the 2018 Powerband Credit Facility previously included an INR 960.0 million ($13.1 million) demand term loan
(“2018 Powerband Demand Term Loan”) and an INR 65.0 million ($0.9 million) term loan ("2018 Powerband Term Loan"),
which were restricted for capital projects and bore interest based on the prevailing IMCLR. In September 2020, Powerband
repaid the 2018 Powerband Demand Term Loan and 2018 Powerband Term Loan in full and these amounts are not available to
be borrowed again in the future. Subsequently, only the 2018 Powerband Working Capital Loan Facility remains outstanding.
As of December 31, 2020, the 2018 Powerband Working Capital Loan Facility’s outstanding balance was INR 46.0 million
($0.6 million). Including INR 176.5 million ($2.4 million) in letters of credit, total utilization under the 2018 Powerband Credit
Facility amounted to INR 222.5 million ($3.0 million). The 2018 Powerband Credit Facility's unused availability as of
December 31, 2020 amounted to INR 152.5 million ($2.1 million), composed of uncommitted funding.
USD amounts presented above are translated from INR and are impacted by fluctuations in the USD and INR exchange rates.
(d)
2018 Capstone Credit Facility
On February 6, 2018, Capstone, one of the Company's subsidiaries, entered into an INR 975.0 million ($15.0 million) credit
facility ("2018 Capstone Credit Facility"). The 2018 Capstone Credit Facility consists of an INR 585.0 million ($9.0 million)
term loan facility ("Capstone Term Loan Facility") for financing capital expenditures and INR 390.0 million ($6.0 million)
working capital facility ("Capstone Working Capital Facility") and bears interest based on the prevailing IMCLR. Any
repayments of borrowings under the Capstone Term Loan Facility are not available to be borrowed again in the future. The
Capstone Working Capital Facility matures in August 2021. Portions of term loans borrowed under the Capstone Term Loan
Facility matured in September 2020, with the remainder of the term loan maturing in June 2023. Funding under the Capstone
Term Loan Facility is committed, while the Capstone Working Capital Facility is uncommitted. Borrowings under the 2018
Capstone Credit Facility are guaranteed by the Parent Company and are otherwise unsecured.
As of December 31, 2020, the 2018 Capstone Credit Facility credit limit was INR 975.0 million ($13.3 million). The Capstone
Term Loan Facility had an outstanding balance of INR 564.1 million ($7.7 million), and the Capstone Working Capital Facility
outstanding balance was INR 204.6 million ($2.8 million) for a total gross outstanding amount of INR 768.7 million ($10.5
million). Total utilization under the 2018 Capstone Credit Facility amounted to INR 768.7 million ($10.5 million). As of
December 31, 2020, the 2018 Capstone Credit Facility's unused availability was INR 185.4 million ($2.5 million), composed
entirely of uncommitted funding.
USD amounts presented above are translated from INR and are impacted by fluctuations in the USD and INR exchange rates.
(e)
Partially forgivable government loans
In August 2015, one of the Company’s wholly-owned subsidiaries entered into a partially forgivable loan with the Agencia para
Investmento Comercio Externo de Portugal, EPE ("AICEP"), the Portuguese agency for investment and external trade, as part
of financing a capital expansion project.
Based on the terms of the agreement, up to 50% of the loan could be forgiven as long as certain conditions were met, namely
satisfying certain 2019 targets, including financial metrics and headcount additions, to be confirmed and communicated after
the conclusion of the project. The Company had determined there was reasonable assurance that the forgiveness requirements
would be satisfied and as a result €2.1 million ($2.4 million) was reclassified to deferred income in other liabilities as of
December 31, 2019. On February 11, 2021, the AICEP formally approved for 45% of the original cash proceeds borrowed to be
forgiven.
The partially forgivable loan is non-interest bearing with semi-annual installments of principal initially due from July 2018
through January 2024. However, as of July 2020, the remaining payments were rescheduled to one year later than initially
agreed, based on a decision taken by AICEP due to COVID-19, and as such, final payment is now due in January 2025.
57
To reflect the benefit of the interest-free status, the loan was discounted to its estimated fair value using a discount rate of
1.25% which reflects the borrowing cost of the Company’s wholly-owned subsidiary.
The loan had an outstanding balance of €3.6 million ($4.4 million) as of December 31, 2020 and €3.9 million ($4.4 million) as
of December 31, 2019. The difference between the gross proceeds and the fair value of the loan, which totalled €1.4 million
($1.7 million) as of December 31, 2020 (€1.7 million ($1.9 million) as of December 31, 2019) is the amount reclassified based
on the Company's determination that the forgiveness requirements were satisfied and the benefit derived from the interest-free
loan which are both recognized as deferred income in other liabilities until the assets are placed into service. When the capital
expansion assets are placed into service, the deferred income is recognized in earnings through cost of sales on a systematic
basis over the related assets’ useful lives. The unamortized deferred income is €1.9 million ($2.3 million) as of December 31,
2020 (€2.0 million ($2.2 million) as of December 31, 2019) and is included in the Company's consolidated balance sheet in the
caption other liabilities.
In February 2018, the same subsidiary entered into a second partially forgivable loan with the AICEP to finance an additional
capital expansion project. Based on the terms of the agreement, up to 60% of the loan could be forgiven in 2022 as long as
certain conditions were met, namely satisfying certain 2021 targets, including financial metrics and headcount additions. The
partially forgivable loan is non-interest bearing and semi-annual installments of principal are due from December 2020 through
June 2026.
To reflect the benefit of the interest-free status, the loan was discounted to its estimated fair value using a discount rate of
1.25% which reflects the borrowing cost of the Company’s wholly-owned subsidiary. The loan had an outstanding balance of
€3.1 million ($3.8 million) as of December 31, 2020 and €2.4 million ($2.7 million) as of December 31, 2019. The difference
between the gross proceeds and the fair value of the loan, which totalled €2.9 million ($3.6 million) as of December 31, 2020
and €2.3 million ($2.5 million) as of December 31, 2019 is the benefit derived from the interest-free loan and is recognized as
deferred income. When the capital expansion assets are placed into service, the deferred income is recognized in earnings
through cost of sales on a systematic basis over the related assets’ useful lives. The unamortized deferred income is €0.2 million
($0.2 million) as of December 31, 2020 and 2019 and is included in the Company's consolidated balance sheet in the caption
other liabilities.
Imputed interest expense is recorded over the life of the loans so that at the end of the loan periods the amounts to be
reimbursed will equal the nominal amounts. Interest expense of less than $0.1 million was recognized on these loans during the
years ended December 31, 2020 and 2019.
USD amounts presented above are translated from Euros and are impacted by fluctuations in the USD and Euro exchange rates.
(f)
Refer to Note 15 for more information regarding lease liabilities.
(g)
Term and other loans
One of the Company’s wholly-owned subsidiaries has a short-term credit line for up to €2.5 million ($3.1 million) for the
purpose of financing a capital expansion project. No amounts were outstanding under the short-term credit line as of
December 31, 2020. As of December 31, 2019, €0.7 million ($0.8 million) of the short-term credit line was utilized. The credit
line bears interest at the rate of the twelve-month Euro Interbank Offered Rate with a floor of 0% plus a premium (75 basis
points as of December 31, 2020 and 2019). The short-term credit line matures in September 2021 and is renewable annually,
with interest due quarterly and billed in arrears.
In February 2020, one of the Company’s wholly-owned subsidiaries entered into a loan for less than €0.1 million (less than
$0.1 million) for the purchase of a vehicle. The loan is repaid in annual installments until February 2024. Amounts repaid on
the loan are not available to be borrowed again in the future. As of December 31, 2020, the loan's outstanding principal balance
amounted to less than €0.1 million (less than $0.1 million).
58
Reconciliation of liabilities arising from financing activities
The changes in the Company’s liabilities arising from financing activities can be classified as follows:
Balance as of December 31, 2018
Cash flows:
Proceeds
Repayments
Debt issuance costs
Non-cash:
Operating lease liabilities recognized
under IFRS 16 as of January 1, 2019
Lease additions
Lease disposals
Amounts forgiven under forgivable
government loans (1)
Amortization of debt issuance costs
Foreign exchange and other
Reclassification
Balance as of December 31, 2019
Balance as of December 31, 2019
Cash flows:
Proceeds
Repayments
Non-cash:
Lease additions
Lease disposals
Other non-cash additions
Amortization of debt issuance costs
Foreign exchange and other
Reclassification
Balance as of December 31, 2020
Borrowings,
non-current
(excluding lease
liabilities)
$
Borrowings,
current
(excluding lease
liabilities)
$
Lease liabilities
$
481,325
12,948
5,712
Total
$
499,985
104,169
(136,403)
(70)
—
—
—
(2,424)
1,194
197
(4,169)
443,819
86,504
(83,290)
—
—
—
—
—
—
(96)
4,169
20,235
—
(6,209)
—
190,673
(225,902)
(70)
31,484
13,748
(213)
—
—
234
—
44,756
31,484
13,748
(213)
(2,424)
1,194
335
—
508,810
Borrowings,
non-current
(excluding lease
liabilities)
$
Borrowings,
current
(excluding lease
liabilities)
$
Lease liabilities
$
443,819
20,235
44,756
Total
$
508,810
234,972
(248,903)
67,059
(70,397)
—
(6,581)
302,031
(325,881)
—
—
57
1,210
(80)
(2,364)
428,711
—
—
—
—
(130)
2,364
19,131
4,064
(203)
—
—
86
—
42,122
4,064
(203)
57
1,210
(124)
—
489,964
(1) Refer to partially forgivable government loans discussed above.
15 - LEASE LIABILITIES
The Company has building leases for office space for corporate and shared service functions, manufacturing facilities and
warehouse space for inventory, manufacturing equipment leases (e.g. forklifts, tractor trailers, and storage containers) and
automobile leases. Refer to Note 9 for additional information regarding right-of-use-assets.
Each lease generally imposes a restriction that, unless there is a contractual right for the Company to sublet the asset to another
party, the right-of-use asset can only be used by the Company. Leases are either non-cancellable or may only be cancelled by
59
incurring a termination fee. Some leases contain an option to purchase the underlying leased asset outright at the end of the
lease, or to extend the lease for an additional term. For leases of office buildings and manufacturing facilities the Company
must keep the properties in a good state of repair and return the properties in their original condition at the end of the lease.
Further, the Company must insure items of property, plant and equipment and incur maintenance fees on such items in
accordance with the lease contracts.
Lease liabilities are presented in the consolidated balance sheet under the caption borrowings and lease liabilities current and
non-current as follows:
Lease liabilities (current)
Lease liabilities (non-current)
December 31,
2020
December 31,
2019
$
$
7,088
35,034
42,122
6,084
38,672
44,756
Interest expense relating to payments on lease liabilities was approximately $2.7 million and $2.6 million for the years ended
December 31, 2020 and 2019, respectively, and is included in interest expense under the caption finance costs (income) in
earnings.
As of December 31, 2020, the Company's leases fall into the following categories, by class of right-of-use asset:
Count of leases
Buildings
Manufacturing
equipment
Furniture,
office equipment
and other
Total right-of-use
assets
Right-of-use assets leased
Leases with extension options
Extension options reasonably certain to
exercise
Leases with options to purchase
Purchase options reasonably certain to
exercise
Leases with variable payments linked to an
index
Leases with termination options, none of
which are reasonably certain to exercise
35
21
11
1
1
—
6
95
42
—
7
5
30
—
54
2
—
8
—
—
1
184
65
11
16
6
30
7
Lease terms on the Company's leasing activities by class of right-of-use asset recognized on the balance sheet are as follows:
Range of remaining term
Average remaining lease term
Buildings
2-168 months
Manufacturing
equipment
3-96 months
Furniture,
office equipment
and other
1-52 months
54 months
26 months
18 months
Rent expense relating to payments not included in the measurement of lease liabilities was approximately $1.8 million and $3.4
million for the years ended December 31, 2020 and 2019, respectively, and is composed of the following:
Short-term leases
Leases of low value assets
Variable lease payments
December 31, 2020
December 31, 2019
$
$
826
81
850
1,757
2,298
70
1,025
3,393
Refer to the Liquidity section of Note 24 for the disclosure of minimum lease liabilities due.
60
As of December 31, 2020, the Company had commitments of $1.7 million, respectively, for short-term leases and leases of
furniture, office equipment and other which had not yet commenced.
Total cash outflow for leases for the twelve months ended December 31, 2020 and 2019 was $11.0 million and $12.1 million,
respectively.
16 - PROVISIONS AND CONTINGENT LIABILITIES
The Company’s current known provisions and contingent liabilities consist of environmental and restoration obligations,
termination benefits and litigation.
The reconciliation of the Company’s provisions is as follows:
Balance as of December 31, 2018
Additional provisions
Amounts used
Amounts reversed
Net foreign exchange differences
Balance as of December 31, 2019
Amount presented as current
Amount presented as non-current
Balance as of December 31, 2019
Additional provisions
Provisions through business acquisitions
Amounts used
Amounts reversed
Net foreign exchange differences
Balance as of December 31, 2020
Amount presented as current
Amount presented as non-current
Balance as of December 31, 2020
Environmental
Restoration
Termination
benefits and
other
Litigation
Total
$
1,829
—
(311)
—
6
1,524
84
1,440
1,524
—
—
(127)
—
—
1,397
819
578
1,397
$
1,568
—
—
—
18
1,586
50
1,536
1,586
80
—
—
—
10
1,676
50
1,626
1,676
$
1,861
2,274
(3,184)
—
10
961
868
93
961
4,162
—
(2,654)
(52)
48
2,465
2,370
95
2,465
$
1,198
31
(273)
(192)
—
764
764
—
764
258
100
(8)
—
—
1,114
983
131
1,114
$
6,456
2,305
(3,768)
(192)
34
4,835
1,766
3,069
4,835
4,500
100
(2,789)
(52)
58
6,652
4,222
2,430
6,652
The environmental provision activity during the year ended December 31, 2020, as well as the remaining balance at December
31, 2020, is primarily related to the Columbia, South Carolina facility. The environmental provision activity during the year
ended December 31, 2019 pertains primarily to the post-closure activities of the Columbia, South Carolina, Johnson City,
Tennessee and Montreal, Quebec manufacturing facilities.
The restoration provision pertains to leases at manufacturing facilities where the Company is obligated to restore the leased
properties to the same condition that existed at the lease commencement date. The estimated expenses will not be incurred until
the end of the lease terms which, is not in the next twelve months, and only occurs if the lease is not renewed.
Termination benefit activity during the year ended December 31, 2020 relates primarily to employee restructuring initiatives in
response to COVID-19 uncertainties. Termination benefits activity during the year ended December 31, 2019 relate primarily to
initiatives associated with acquisition integration efforts and the closures of the Montreal, Quebec and Johnson City, Tennessee
manufacturing facilities. Refer to Note 4 for additional information on manufacturing facility closures, restructuring and other
related charges.
The Company records liabilities for legal proceedings in those instances where it can reasonably estimate the amount of the loss
and where liability is probable. The Company is engaged from time-to-time in various legal proceedings and claims that have
arisen in the ordinary course of business. The outcome of all of the proceedings and claims against the Company is subject to
future resolution, including the uncertainties of litigation. Based on information currently known to the Company and after
61
consultation with outside legal counsel, management believes that the probable ultimate resolution of any such proceedings and
claims, individually or in the aggregate, will not have a material adverse effect on the financial condition of the Company, taken
as a whole as of December 31, 2020.
As of December 31, 2020, and 2019, no reimbursements are expected to be received by the Company for any of the provided
amounts and there were no contingent assets at any of the financial statement reporting dates covered by these consolidated
financial statements.
17 - OTHER LIABILITIES
Other liabilities are composed of the following for the years ended:
Deferred compensation (1)
Deferred income on partially forgivable government loans (2)
Interest rate swap agreements (3)
Deferred social security tax (4)
Other
December 31,
2020
$
December 31,
2019
$
3,943
2,525
4,025
3,239
1,034
14,766
4,049
2,412
1,339
—
500
8,300
(1)
(2)
(3)
(4)
Refer to Note 20 for additional information on other long-term employee benefit plans.
Refer to Note 14 for additional information on deferred income on partially forgivable government loans.
Refer to Note 24 for additional information regarding the fair value of interest rate swap agreements.
The Coronavirus, Aid, Relief and Economic Security Act enacted in 2020 allows employers to defer until a future
period the deposit and payment of the employer's share of Social Security taxes in the United States. The amount
herein represents the long-term portion of these deferred payroll taxes with the short-term portion recorded on the
Company’s consolidated balance sheet under the caption accounts payable and accrued liabilities.
18 - CAPITAL STOCK
Authorized
The Company is authorized to issue an unlimited number of common shares without par value.
Class “A” preferred shares, issuable in series, rank in priority to the common shares with respect to dividends and return of
capital on dissolution. The Board of Directors is authorized to fix, before issuance, the designation, rights, privileges,
restrictions and conditions attached to the shares of each series. No Class A preferred shares have been issued.
Common Shares
The Company’s common shares outstanding as of December 31, 2020 and 2019, were 59,027,047 and 59,009,685, respectively.
62
Dividends
Cash dividends paid to shareholders are as follows for each of the years in the three-year period ended December 31, 2020:
Declared Date
March 7, 2018
May 9, 2018
August 10, 2018
November 7, 2018
March 12, 2019
May 8, 2019
August 7, 2019
November 8, 2019
March 12, 2020
May 12, 2020
August 12, 2020
November 11, 2020
Paid date
March 30, 2018
June 29, 2018
September 28, 2018
December 28, 2018
March 29, 2019
June 28, 2019
September 30, 2019
December 30, 2019
March 31, 2020
June 30, 2020
September 30, 2020
December 31, 2020
Per common
share
amount
Shareholder
record date
0.14 March 20, 2018
0.14
June 15, 2018
0.14 September 14, 2018
0.14 December 14, 2018
0.14 March 22, 2019
0.14
June 14, 2019
0.1475 September 16, 2019
0.1475 December 16, 2019
0.1475 March 23, 2020
0.1475
0.1475 September 15, 2020
0.1575 December 16, 2020
June 15, 2020
$
$
$
$
$
$
$
$
$
$
$
$
Common
shares issued
and
outstanding
Aggregate
payment (1)
58,807,410
58,817,410
58,817,410
58,867,410
58,665,310
58,877,185
58,877,185
58,939,685
59,009,685
59,009,685
59,009,685
59,019,546
$
$
$
$
$
$
$
$
$
$
$
$
8,333
8,140
8,214
8,089
8,189
8,352
8,709
8,742
8,807
8,651
8,574
9,354
(1)
Aggregate dividend payment amounts presented in the table above are adjusted for the impact of foreign exchange
rates on cash payments to shareholders.
Share Repurchases
On July 23, 2020, the Company renewed its normal course issuer bid ("NCIB"), under which it is permitted to repurchase for
cancellation up to 4,000,000 common shares of the Company at prevailing market prices during the twelve-month period
ending July 22, 2021. As of December 31, 2020 and March 11, 2021, 4,000,000 shares remained available for repurchase under
the NCIB. The Company's two previous NCIBs, which each allowed repurchases for cancellation up to 4,000,000 common
shares, expired on July 22, 2020 and July 22, 2019, respectively. There were no share repurchases during the year ended
December 31, 2020 and 2019.
Information regarding share repurchases during the year ended December 31, 2018 is presented in the table below as of:
Common shares repurchased
Average price per common share including commissions
Carrying value of the common shares repurchased
Share repurchase premium (1)
Total purchase price including commissions
December 31,
2018
217,100
CDN$ 16.02
1,296
1,263
2,559
$
$
$
(1)
The excess of the purchase price paid over the carrying value of the common shares repurchased is recorded in deficit
in the consolidated balance sheet and in the statement of consolidated changes in equity.
Stock options
The Company's prior Executive Stock Option Plan ("ESOP"), which was adopted in 1992 and last ratified on June 4, 2015,
elapsed on June 4, 2018. In accordance with the TSX rules, no further grants of stock options have been made under the prior
ESOP since June 4, 2018. On March 12, 2019, the Board of Directors adopted a new Executive Stock Option Plan ("2019
ESOP") and on June 6, 2019, shareholders approved the 2019 ESOP at the Company's Annual Meeting of Shareholders.
2019 ESOP (approved on June 6, 2019)
Stock options outstanding under the 2019 ESOP are equity-settled and expire no later than ten years after the date of the grant
and can be used only to purchase stock and may not be redeemed for cash. Stock options may be granted only to employees and
consultants of the Company and its subsidiaries and will vest based on the vesting schedule determined at the discretion of the
Board of Directors. All stock options that have been granted under the 2019 ESOP vest one-third on each of the first three
anniversaries of the date of grant.
63
Prior ESOP (elapsed on June 4, 2018)
Stock options outstanding under the prior ESOP are equity-settled and expire no later than ten years after the date of the grant
and can be used only to purchase stock and may not be redeemed for cash. Stock options granted to key employees and
executives vest one-third on each of the first three anniversaries of the date of grant. Stock options granted to directors who are
not officers of the Company vest 25% on the grant date and 25% on each of the first three anniversaries of the date of grant.
All stock options granted, under both plans described above, were granted at a price determined and approved by the Board of
Directors, which cannot be less than the closing price of the Company's common shares on the TSX for the day immediately
preceding the effective date of the grant.
The changes in number of stock options outstanding were as follows for each of the years in the three-year period ended
December 31, 2020:
2020
2019
2018
Weighted
average
exercise
price
CDN$
Number of
options
Weighted
average
exercise
price
CDN$
Number of
options
Weighted
average
exercise
price
CDN$
Number of
options
16.49
7.94
19.94
12.34
11.25
1,010,901
1,533,183
(17,362)
(77,500)
2,449,222
14.59
17.54
12.34
15.85
16.49
1,009,793
392,986
(359,375)
(32,503)
1,010,901
12.29
21.76
12.04
—
14.59
834,375
242,918
(67,500)
—
1,009,793
Balance, beginning of year
Granted
Exercised
Forfeited
Balance, end of year
Shares issued upon exercise of stock options during 2020, 2019 and 2018 had a weighted average fair value per share at
exercise of $20.11, $13.06 and $14.19, respectively.
The following table summarizes information about stock options outstanding and exercisable for each of the years in the three-
year period ended December 31, 2020:
Options outstanding
Options exercisable
Weighted
average
contractual
life (years)
Weighted
average
exercise price
CDN$
Number
Weighted
average
exercise price
CDN$
6.76
2.82
5.67
4.71
5.89
3.13
6.62
5.61
5.01
2.18
2.88
6.61
3.51
7.94
12.30
17.54
21.76
11.25
—
320,000
115,994
152,084
588,078
12.30
17.54
21.76
16.49
397,500
—
80,973
478,473
12.05
12.59
21.76
14.59
386,250
380,625
—
766,875
—
12.30
17.54
21.76
15.78
12.30
—
21.76
13.90
12.05
12.59
—
12.32
Range of exercise prices (CDN$)
Number
December 31, 2020
$7.94
$12.04 to $12.55
$17.54
$21.76
December 31, 2019
$12.04 to $12.55
$17.54
$21.76
December 31, 2018
$12.04 to $12.14
$12.55 to $14.34
$21.76
1,533,183
320,000
362,982
233,057
2,449,222
397,500
370,483
242,918
1,010,901
386,250
380,625
242,918
1,009,793
64
The weighted average fair value of stock options granted was estimated using the Black-Scholes option pricing model. The
following table summarizes information about the weighted average fair value of stock options granted during each of the years
in the three-year period ending December 31, 2020, including the weighted average assumptions used in the model:
Weighted average fair value of stock options granted
$0.44
$2.21
$3.65
December 31, 2020
December 31, 2019
December 31, 2018
Weighted average model assumptions:
Expected life
Expected volatility (1)
Risk-free interest rate
Expected dividends
Stock price at grant date
Exercise price of awards
Foreign exchange rate USD to CDN
5.5 years
34.18 %
0.75 %
10.79 %
CDN$ 7.94
CDN$ 7.94
1.4526
4.9 years
29.79 %
1.44 %
4.27 %
CDN$ 17.54
CDN$ 17.54
1.3380
4.8 years
32.09 %
2.05 %
3.30 %
CDN$ 21.76
CDN$ 21.76
1.2809
(1)
Expected volatility was calculated by applying a weighted average of the daily closing price on the TSX for a term
commensurate with the expected life of the grant.
Restricted Share Units
On March 7, 2018, the Board of Directors approved the addition of RSUs as an available cash-settled award type. A RSU is a
right to receive a cash payment equal to the five trading days VWAP of the Company’s common shares on the TSX
immediately preceding a date specified in the grant terms after completion of time-based vesting conditions. The purpose of a
RSU is to tie a portion of the value of the compensation of participants to the future value of the Company's common shares.
Grants of RSUs to employees of the Company are on a discretionary basis and subject to the Board of Directors’ approval.
RSUs accrue dividend equivalents which are paid in cash at the end of the vesting period. A dividend equivalent is calculated as
the number of settled RSUs multiplied by the amount of cash dividends per share declared and paid by the Company between
the date of grant and the settlement date.
The following table summarizes information about RSUs for each of the years in the three-year period ended December 31,
2020:
RSUs granted
Weighted average fair value per RSU granted
RSUs forfeited
$
2020
2019
2018
281,326
120,197
6.07 $
8,643
13.74 $
7,412
113,047
16.29
1,228
The following table summarizes information about RSUs outstanding as of:
RSUs outstanding
Weighted average fair value per RSU outstanding
Performance Share Units
December 31,
2020
December 31,
2019
497,287
$
18.91 $
224,604
12.67
A PSU is a right that has a value equal to the five trading days VWAP of the Company's common shares on the TSX
immediately preceding a date specified in the grant terms. The purpose of a PSU is to tie a portion of the value of the
compensation of participants to the future value of the Company's common shares. Grants of PSUs to employees of the
Company are on a discretionary basis and subject to the Board of Directors’ approval. PSUs accrue dividend equivalents which
are paid in cash at the settlement date. A dividend equivalent is calculated as the number of settled PSUs multiplied by the
amount of cash dividends per share declared and paid by the Company between the date of grant and the settlement date.
65
Grant details for PSUs granted prior to December 31, 2017:
The number of PSUs granted prior to December 31, 2017 that will be eligible to vest can range from 0% to 150% of the Target
Shares ("Target Shares" reflects 100% of the PSUs granted) based on the Company's total shareholder return ("TSR") ranking
relative to a specified peer group of companies (the "Peer Group") over the measurement period as outlined in the table below:
TSR Ranking Relative to the Peer Group
76th percentile or higher
51st-75th percentile
25th-50th percentile
Less than the 25th percentile
Percent of Target Shares Vested
150 %
100 %
50 %
0 %
The performance and vesting period is the period from the date of grant through the third anniversary of the date of grant. The
PSUs are expensed over the vesting period.
On August 7, 2019, the Board of Directors amended the terms of the PSU awards granted in 2017 only to modify the
performance adjustment factor specific to the TSR ranking relative to the Peer Group over the performance measurement
period. The amendment was intended to align the performance adjustment factors with the market practice of interpolating as
well as the recent practice of the Company. As amended, the TSR performance adjustment factor is determined as follows
(interpolated on a straight-line basis):
TSR Ranking Relative to the Peer Group
75th percentile or above
50th percentile
25th percentile
Less than the 25th percentile
Percent of Target Shares Vested
150 %
100 %
50 %
0 %
Grant details for PSUs granted subsequent to December 31, 2017 and prior to December 31, 2019:
The number of PSUs granted subsequent to December 31, 2017 that will be eligible to vest can range from 0% to 175% of the
Target Shares as determined by multiplying the number of PSUs awarded by the adjustment factors as follows:
•
•
50% based on the Company's TSR ranking relative to the Peer Group over the measurement period as set out in
the table below; and
50% based on the Company's average return on invested capital over the measurement period as compared to
internally developed thresholds (the “ROIC Performance”) as set out in the table below.
Grant details for PSUs granted subsequent to December 31, 2019:
The number of PSUs granted subsequent to December 31, 2019 that will be eligible to vest can range from 0% to 175% of the
Target Shares as determined by multiplying the number of PSUs awarded by the adjustment factors as follows:
•
•
•
25% based on the Company's TSR ranking relative to the S&P North America SmallCap Materials (Industry
Group) Index (the "Index Group") over the measurement period as set out in the table below;
25% based on the Company's TSR ranking relative to the Peer Group over the measurement period as set out in
the table below; and
50% based on the Company's ROIC Performance as set out in the table below.
66
The relative TSR performance adjustment factor is determined as follows:
TSR Ranking Relative to the Index Group/Peer Group
90th percentile or higher
75th percentile
50th percentile
25th percentile
Less than the 25th percentile
The ROIC Performance adjustment factor is determined as follows:
ROIC Performance
1st Tier
2nd Tier
3rd Tier
4th Tier
Percent of Target Shares Vested
Percent of Target Shares Vested
200 %
150 %
100 %
50 %
0 %
0 %
50 %
100 %
150 %
The TSR performance and ROIC Performance adjustment factors between the numbers set out in the two tables above are
interpolated on a straight-line basis.
The performance period is the period from January 1st in the year of grant through December 31st of the third calendar year
following the date of grant. The PSUs are expensed over the vesting period beginning from the date of grant through February
15th of the fourth calendar year following the date of grant.
The following table summarizes information about PSUs for each of the years in the three-year period ended December 31,
2020:
PSUs granted
2020
2019
2018
694,777
291,905
284,571
Weighted average fair value per PSU granted
$
5.59 $
14.28 $
PSUs forfeited/cancelled
PSUs cancelled by performance factor (1)
PSUs settled
Weighted average fair value per PSU settled
Cash payment on settlement
25,923
346,887
23,739
401,319
$
$
—
— $
— $
—
— $
— $
17.84
16,053
2,125
335,465
15.87
5,863
(1)
The table below provides further information regarding the PSUs settled included in the table above. The number of
PSUs settled reflects the performance adjustments to the Target Shares:
Grant Date
March 14, 2015
May 14, 2015
May 20, 2015
March 21, 2016
December 20, 2016
March 20, 2017
Date Settled
Target Shares
Performance
PSUs settled
March 21, 2018
May 22, 2018
May 28, 2018
March 21, 2019
December 20, 2019
March 20, 2020
217,860
115,480
4,250
371,158
30,161
346,887
100 %
100 %
50 %
— %
— %
— %
217,860
115,480
2,125
—
—
—
67
The weighted average fair value of PSUs granted in the three-year period ended December 31, 2020 were based 50% on the
VWAP of the Company's common shares on the TSX for the five trading days immediately preceding the grant date and 50%
based on a Monte Carlo simulation model implemented in a risk-neutral framework considering the assumptions presented in
the following table:
5 day VWAP at grant date
Monte Carlo simulation model assumptions:
Expected life
Expected volatility (1)
US risk-free interest rate
Canadian risk-free rate
Expected dividends (2)
Performance period starting price (3)
Stock price as of estimation date
2020
CDN$ 8.63
2019
CDN$ 18.31
2018
CDN$ 21.22
3 years
36 %
0.3 %
0.59 %
CDN$ 0.00
CDN$ 16.25
CDN$ 7.24
3 years
25 %
2.36 %
1.6 %
CDN$ 0.00
CDN$ 16.36
CDN$ 18.06
3 years
30 %
2.43 %
1.96 %
CDN$ 0.00
CDN$ 21.13
CDN$ 20.59
(1)
(2)
(3)
Expected volatility was calculated based on the daily dividend adjusted closing price change on the TSX for a term
commensurate with the expected life of the grant.
A participant will receive a cash payment from the Company upon PSU settlement that is equivalent to the number of
settled PSUs multiplied by the amount of cash dividends per share declared and paid by the Company between the date
of grant and the settlement date. As such, there is no impact from expected future dividends in the Monte Carlo
simulation model.
The performance period starting price is measured as the VWAP for the common shares of the Company on the TSX
on the grant date.
The following table summarizes information about PSUs outstanding as of:
PSUs outstanding
Weighted average fair value per PSU outstanding
December 31,
2020
December 31,
2019
$
1,223,053
28.53 $
901,086
8.09
Based on the Company’s performance adjustment factors as of December 31, 2020, the number of PSUs earned if all of the
outstanding awards were to be settled at December 31, 2020, would be as follows:
Grant Date
March 21, 2018
March 21, 2019
March 23, 2020
Deferred Share Unit Plan
Performance
155.7 %
138.2 %
168.7 %
DSUs are granted to non-executive directors as a result of an annual grant, in lieu of dividends and/or in lieu of cash for semi-
annual directors’ fees and must be retained until the director leaves the Company’s Board of Directors. The purpose of a DSU is
to tie a portion of the value of the compensation of non-executive directors to the future value of the Company's common
shares. A DSU is a right that has a value equal to the five trading days VWAP of the Company's common shares on the TSX
immediately preceding a date specified in the grant terms.
The following table summarizes information about DSUs for each of the years in the three-year period ended December 31,
2020:
DSUs granted
Weighted average fair value per DSU granted
DSUs settled
Weighted average fair value per DSU settled
Cash payments on DSUs settled
2020
2019
2018
115,114
72,434
10.26 $
13.83 $
—
— $
— $
—
— $
— $
$
$
$
69,234
14.75
37,668
14.50
546
68
The following table summarizes information about DSUs outstanding as of:
DSUs outstanding
Weighted average fair value per DSU outstanding
Stock Appreciation Rights
December 31,
2020
December 31,
2019
386,541
$
18.91 $
271,427
12.67
SAR awards are for directors, executives and other designated employees of the Company. A SAR is a right to receive a cash
payment equal to the difference between the base price of the SAR and the market value of a common share of the Company on
the TSX on the date of exercise. SARs are settled only in cash and expire no later than ten years after the date of the grant. All
SARs are granted at a price determined and approved by the Board of Directors, which is the closing price of the common
shares of the Company on the TSX on the trading day immediately preceding the day on which a SAR is granted. SARs granted
to employees and executives will vest and may be exercisable 25% per year over four years. SARs granted to directors who are
not officers of the Company will vest and may be exercisable 25% on the grant date, and a further 25% will vest and may be
exercisable per year over three years. SARs were granted only in 2012 with a base price of CDN$7.56.
There were no SARs outstanding as of and since December 31, 2018. The SAR Plan was terminated in 2020.
The following table summarizes information regarding SARs activity for the year ended December 31, 2018:
SARs exercised
Cash payments on exercise
2018
147,500
1,481
$
Summary of Share-based Compensation Expense and Share-based Compensation Liabilities
The following table summarizes share-based compensation expense (benefit) recorded in earnings in SG&A for each of the
years in the three-year period ended December 31, 2020:
Stock options
PSUs
DSUs
RSUs
SARs
2020
$
2019
$
2018
$
738
14,829
3,819
3,493
—
22,879
701
(2,057)
914
943
—
501
467
866
230
448
(97)
1,914
69
The following table summarizes share-based liabilities recorded in the consolidated balance sheets for the years ended:
Share-based compensation liabilities, current
PSUs (1)
DSUs (2)
RSUs
Share-based compensation liabilities, non-current
PSUs (1)
RSUs
(1)
(2)
Includes dividend equivalents accrued on awards.
Includes dividend equivalent grants.
Change in Contributed Surplus
December 31,
2020
December 31,
2019
$
$
8,446
7,354
1,969
17,769
10,743
2,921
13,664
1,291
3,457
200
4,948
3,055
1,192
4,247
The following table summarizes the activity in the consolidated changes in equity under the caption contributed surplus for each
of the years in the three-year period ended December 31, 2020:
Change in excess tax benefit on exercised share-based awards
Change in excess tax benefit on outstanding share-based awards
Share-based compensation expense credited to capital on options
exercised
Share-based compensation expense for stock options
Increase (decrease) in contributed surplus
19 - BUSINESS ACQUISITION
Nortech Packaging Acquisition
2020
$
2019
$
2018
$
—
5,306
(50)
738
5,994
(38)
21
(976)
701
(292)
(7)
(737)
(179)
467
(456)
On February 11, 2020, the Company acquired substantially all of the operating assets of Nortech Packaging LLC and Custom
Assembly Solutions, Inc. (together "Nortech") for an aggregate purchase price of $46.5 million, net of cash balances acquired
("Nortech Acquisition"). This amount includes potential earn-out consideration of up to $12.0 million, contingent upon certain
future performance measures of the acquired assets to be determined following the two-year anniversary of the acquisition
date. Refer to Note 24 for further discussion of this financial liability and inputs used in management's estimation of fair value.
The initial purchase price amount paid was financed using funds available under the Company's revolving credit facility.
Nortech manufactures, assembles and services automated packaging machines under the Nortech Packaging and Tishma
Technologies brands. The acquisition expands the Company’s product bundle into technologies that the Company believes are
increasingly critical to automation in packaging.
Excluding working capital adjustments, cash balances acquired and the contingent consideration noted above, the purchase
price was $36.5 million. As of December 31, 2020, the former owners of Nortech have in escrow approximately $4.7 million
related to customary representations, warranties and covenants in the asset purchase agreement, which contains customary
indemnification provisions. The transaction is being accounted for using the acquisition method of accounting.
70
The net cash consideration paid on the closing date for the acquisition described above was as follows:
Consideration paid in cash
Estimated fair value of contingent consideration (1)
Consideration transferred
Less: cash balances acquired
Consideration transferred, net of cash acquired
February 11, 2020
$
36,188
10,806
46,994
484
46,510
(1)
The gross contractual contingent consideration amount of $12.0 million is included in the gross consideration total at its
net present value when the contingency was entered into on the date of acquisition, which is discounted over two years
using a discount rate of 5.38%. As of December 31, 2020, management continues to believe that the absence of any
future payment toward the contingent consideration obligation is probable due to the macroeconomic events and
uncertainty related to the COVID-19 pandemic that have transpired since the date of the acquisition. Refer to Note 24
for further discussion of this financial liability and inputs used in management's estimation of fair value.
The fair values of net identifiable assets acquired at the date of acquisition were as follows:
Current assets
Cash
Trade receivables (1)
Inventories
Other current assets
Property, plant and equipment
Intangible assets
Current liabilities
Accounts payable and accrued liabilities
Borrowings and lease liabilities, current
Borrowings and lease liabilities, non-current
Fair value of net identifiable assets acquired
February 11, 2020
$
484
2,749
5,123
199
921
21,519
30,995
9,493
143
5
9,641
21,354
(1)
The gross contractual amounts receivable were $3.2 million. As of December 31, 2020, the Company has collected
approximately $2.9 million of the outstanding trade receivables, with $0.3 million expected to remain uncollected.
The fair value of goodwill at the date of acquisition was as follows:
Consideration transferred
Less: fair value of net identifiable assets acquired
Goodwill
February 11, 2020
$
46,994
21,354
25,640
Goodwill recognized is primarily related to growth expectations, revenue synergies, and expected future profitability. The
Company expects all of the recorded goodwill to be deductible for income tax purposes.
The Nortech Acquisition’s impact on the Company’s consolidated earnings was as follows:
Revenue
Net loss
71
February 12 through
December 31, 2020
$
11,674
2,103
Had the Nortech Acquisition been effective as of January 1, 2020, the impact on the Company’s consolidated earnings would
have been as follows:
Revenue
Net loss
Twelve Months Ended
December 31, 2020
$
16,424
1,332
The Company's acquisition-related costs of $0.8 million are excluded from the consideration transferred. Approximately
$0.1 million and $0.7 million of these costs are included in the Company’s consolidated earnings, primarily in selling, general
and administrative expenses for the years ended December 31, 2020 and 2019, respectively.
20 - PENSION, POST-RETIREMENT AND OTHER LONG-TERM EMPLOYEE BENEFIT PLANS
The Company has several contributory and non-contributory defined contribution plans and defined benefit plans for
substantially all its employees in Canada and the US.
Defined contribution plans
In the US, the Company maintains a savings retirement plan (401(k) Plan) for the benefit of certain employees who have been
employed for at least 90 days. Contribution to this plan is at the discretion of the Company. Among investment options
available to participants is a common trust fund that holds cash and common shares of the Company. The Company also
maintains 401(k) plans according to the terms of certain collective bargaining agreements.
The Company also contributes to multi-employer plans for employees covered by certain collective bargaining agreements.
In Canada, the Company maintains defined contribution pension plans for certain employees and contributes amounts equal to
up to 4% of each participant’s eligible salary. Among investment options available to participants is a common trust fund that
holds cash and common shares of the Company.
The amount expensed with respect to the defined contribution plans for the years ended December 31, was $6.8 million in
2020, $7.1 million in 2019 and $3.5 million in 2018.
Defined benefit plans
The Company has, in the US, three defined benefit pension plans (hourly and salaried). Benefits for employees are based on
compensation and years of service for salaried employees and fixed benefits per month for each year of service for hourly
employees.
In Canada, certain non-union hourly employees of the Company are covered by a plan which provides a fixed benefit per month
for each year of service.
In the US, the Company provides group health care benefits to certain eligible retired employees. In Canada, the Company
provides group health care, dental and life insurance benefits for certain eligible retired employees.
All defined benefit plans described above are closed to new entrants.
Supplementary executive retirement plans
The Company has Supplementary Executive Retirement Plans (“SERPs”) to provide supplemental pension benefits to certain
key executives. The SERPs are not funded and provide for an annual pension benefit, from retirement or termination date, in
amounts ranging from $0.2 million to $0.6 million, annually.
Other long-term employee benefit plans
In the US, the Company provides a deferred compensation plan to certain employees. Earnings and losses on the deferral and
amounts due to the participants are payable based on participant elections. Assets are held in a Rabbi trust and are composed of
72
corporate owned life insurance policies. Participant investment selections are used to direct the allocation of funds underlying
the corporate owned life insurance policies. As of December 31, 2020 and 2019, the deferred compensation plan assets totalled
$5.7 million and $4.0 million, respectively, and are presented in other assets in the consolidated balance sheets. As of
December 31, 2020 and 2019, the deferred compensation plan liabilities totalled $5.6 million and $4.0 million, respectively,
and are presented in the consolidated balance sheets under the captions accounts payable and accrued liabilities for amounts
expected to settle in the next twelve months and other liabilities for amounts not expected to settle in the next twelve months.
Governance and oversight
The defined contribution and defined benefit pension plans sponsored by the Company are subject to the requirements of the
Employee Retirement Income Security Act and related legislation in the US and the Canadian Income Tax Act and provincial
legislation in Ontario and Nova Scotia. In addition, all actuarial computations related to defined benefit plans are based on
actuarial assumptions and methods determined in accordance with the generally recognized and accepted actuarial principles
and practices prescribed by the Actuarial Standards Board, the American Academy of Actuaries and the Canadian Institute of
Actuaries.
Minimum funding requirements are computed based on methodologies and assumptions dictated by regulation in the US and
Canada. The Company’s practice is to fund at least the statutory minimum required amount for each defined benefit plan’s plan
year. However, the Company may make additional discretionary contributions as deemed necessary.
The Company’s Retirement Plans Committee, composed of management and benefits personnel, makes investment decisions
for the Company’s pension plans. The asset liability matching strategy of the pension plans and plan asset performance is
reviewed at least semi-annually in terms of risk and return profiles with external investment management advisors, actuaries
and plan trustees. The Committee, together with external investment management advisors, actuaries and plan trustees, has
established a target mix of equity, fixed income, and alternative securities based on funded status level and other variables of
each defined benefit plan.
The assets of the funded or partially funded defined benefit pension plans are held separately from those of the Company in
funds under the control of trustees.
Information Relating to the Various Benefit Plans
A reconciliation of the defined benefit obligations and plan assets is presented in the table below for the years ended:
Defined benefit obligations
Balance, beginning of year
Current service cost
Interest cost
Benefits paid
Actuarial (gains) losses from demographic
assumptions
Actuarial losses from financial assumptions
Experience losses (gains)
Foreign exchange rate adjustment
Balance, end of year
Fair value of plan assets
Balance, beginning of year
Interest income
Return on plan assets (excluding amounts included
in net interest expense)
Contributions by the employer
Pension plans
Other plans
December 31,
2020
December 31,
2019
December 31,
2020
December 31,
2019
$
$
$
$
91,148
1,132
2,701
(4,456)
80,696
1,036
3,228
(5,476)
(666)
(542)
9,561
282
507
100,209
79,003
2,297
8,494
1,051
10,924
692
590
91,148
68,578
2,713
11,789
1,261
2,907
62
80
(78)
(4)
105
(88)
34
3,018
—
—
—
78
2,780
60
106
(70)
17
209
(273)
78
2,907
—
—
—
—
73
Benefits paid
Administration expenses
Foreign exchange rate adjustment
Balance, end of year
Funded status – deficit
Pension plans
Other plans
December 31,
2020
December 31,
2019
December 31,
2020
December 31,
2019
$
(4,456)
(379)
415
86,425
13,784
$
(5,476)
(422)
560
79,003
12,145
$
$
(78)
—
—
—
3,018
—
—
—
—
2,907
The defined benefit obligations and fair value of plan assets broken down by geographical locations is as follows for the years
ended:
Defined benefit obligations
Fair value of plan assets
Deficit in plans
Defined benefit obligations
Fair value of plan assets
Deficit in plans
US
$
81,883
(69,649)
12,234
US
$
75,571
(63,877)
11,694
December 31, 2020
Canada
$
21,344
(16,776)
4,568
December 31, 2019
Canada
$
18,484
(15,126)
3,358
Total
$
103,227
(86,425)
16,802
Total
$
94,055
(79,003)
15,052
The defined benefit obligations for pension plans broken down by funding status are as follows for the years ended:
Wholly unfunded
Wholly funded or partially funded
Total obligations
December 31,
2020
$
December 31,
2019
$
13,460
86,749
100,209
12,187
78,961
91,148
A reconciliation of pension and other post-retirement benefits recognized in the consolidated balance sheets is as follows for the
years ended:
Pension Plans
Present value of the defined benefit obligations
Fair value of the plan assets
Deficit in plans
Assets recognized in Other assets
Liabilities recognized
Pension benefits recognized in balance sheets
Other plans
Present value of the defined benefit obligations and deficit in the plans
Liabilities recognized
Total plans
Total assets recognized in Other assets
Total liabilities recognized
Total pension and other post-retirement benefits recognized in balance sheets
December 31,
2020
$
December 31,
2019
$
100,209
86,425
13,784
3,024
16,808
13,784
3,018
3,018
3,024
19,826
16,802
91,148
79,003
12,145
1,966
14,111
12,145
2,907
2,907
1,966
17,018
15,052
74
The composition of plan assets based on the fair value was as follows for the years ended:
Asset category
Cash
Equity instruments
Fixed income instruments
Total
December 31,
2020
$
December 31,
2019
$
78
14,838
71,509
86,425
110
13,753
65,140
79,003
Approximately 100% of equity and fixed income instruments as of December 31, 2020 and 2019, respectively, were held in
mutual funds or pooled separate accounts valued at net asset value ("NAV") provided by the fund administrator. The NAV is
based on the value of the underlying assets owned by the fund, minus its liabilities, and then divided by the number of shares
outstanding. Units of participation in pooled separate accounts invested in mutual funds and common stock, are valued based on
the NAV of the underlying investments held in the pooled separate accounts at year-end. None of the benefit plan assets were
invested in any of the Company’s own equity or financial instruments or in any property or other asset that was used by the
Company.
The following tables present the defined benefit expenses recognized in consolidated earnings for each of the years in the three-
year period ended December 31, 2020:
Current service cost
Administration expenses
Net interest expense
Net costs recognized in the statement of
consolidated earnings
Pension plans
2020
2019
2018
$
1,132
379
404
$
1,036
422
515
$
1,193
611
814
2020
$
62
—
80
1,915
1,973
2,618
142
Other plans
2019
$
2018
$
60
—
106
166
44
—
106
150
Current service cost
Administration expenses
Net interest expense
Net costs recognized in the statement of consolidated earnings
2020
$
1,194
379
484
2,057
Total plans
2019
$
1,096
422
621
2,139
2018
$
1,237
611
920
2,768
The table below presents the defined benefit liability or asset remeasurement recognized in OCI for each of the years in the
three-year period ended December 31, 2020:
Actuarial gains (losses) from demographic
assumptions
Actuarial (losses) gains from financial
assumptions
Experience (losses) gains
Return on plan assets (excluding amounts
included in net interest expense)
Total amounts recognized in OCI
2020
$
Pension plans
2019
$
2018
$
2020
$
Other plans
2019
$
2018
$
666
542
163
4
(17)
(21)
(9,561)
(282)
(10,924)
(692)
5,186
(266)
(105)
88
(209)
273
8,494
(683)
11,789
715
(2,369)
2,714
—
(13)
—
47
210
113
—
302
The Company currently expects to contribute a total of $1.1 million to its defined benefit pension plans and $0.3 million to its
health and welfare plans in 2021.
The weighted average duration of the defined benefit obligations as of December 31, 2020 and 2019 is 13 years for US plans
and 18 years for Canadian plans, for both periods.
75
The significant weighted average assumptions which were used to measure defined benefit obligations are as follows for the
years ended:
Discount rate
Pension plans (end of the year) (1)
Pension plans (current service cost) (2)
Other plans (end of the year) (1)
Other plans (current service cost) (2)
Life expectancy at age 65 (in years) (3)
Current pensioner - Male
Current pensioner - Female
Current member aged 45 - Male
Current member aged 45 - Female
US plans
Canadian plans
December 31,
2020
December 31,
2019
December 31,
2020
December 31,
2019
2.15 %
3.10 %
1.65 %
2.82 %
19
21
21
23
2.98 %
4.13 %
2.60 %
3.91 %
20
22
21
23
2.55 %
3.20 %
2.55 %
3.20 %
22
25
23
26
3.15 %
4.10 %
3.15 %
4.10 %
22
25
23
26
(1)
(2)
(3)
Represents the discount rate used to calculate the accrued benefit obligation at the end of the year and applied to other
components such as interest cost in the following year.
Represents the discount rate used to calculate annual service cost.
Utilizes mortality tables issued by the Society of Actuaries and the Canadian Institute of Actuaries.
Significant actuarial assumptions for defined benefit obligation measurement purposes are the discount rate and mortality rate.
The sensitivity analysis below has been determined based on reasonably possible changes in the assumptions, in isolation from
one another, occurring at the end of the reporting period. This analysis may not be representative of the actual change in the
defined benefit obligation as it is unlikely that the change in the assumptions would occur in isolation from one another as some
of the assumptions may be correlated. An increase or decrease of 1% in the discount rate or an increase or decrease of one year
in mortality rate would result in the following increase (decrease) in the defined benefit obligations:
Discount rate
Increase of 1%
Decrease of 1%
Mortality rate
Life expectancy increased by one year
Life expectancy decreased by one year
December 31,
2020
$
December 31,
2019
$
(12,590)
15,637
3,491
(3,588)
(11,157)
13,812
2,891
(3,155)
21 - SUPPLEMENTAL DISCLOSURES BY GEOGRAPHIC LOCATION AND PRODUCT LINE
The following table presents geographic information about revenue attributed to countries based on the location of external
customers for each of the years in the three-year period ended December 31, 2020:
Revenue
Canada
Germany
United States
Other
Total revenue
2020
$
119,287
25,387
966,729
101,625
1,213,028
2019
$
2018
$
104,842
26,082
923,239
104,356
1,158,519
96,434
24,361
834,989
97,235
1,053,019
76
The following table presents geographic information about long-lived assets by country based on the location of the assets for
the years ended:
Property, plant and equipment
Canada
India
Portugal
United States
Other
Total property, plant and equipment
Goodwill
Canada
India
United States
Total goodwill
Intangible assets
Canada
India
United States
Total intangible assets
Other assets
Canada
India
Portugal
United States
Total other assets
December 31,
2020
$
December 31,
2019
$
34,984
54,518
24,720
300,950
42
415,214
12,309
26,905
93,680
132,894
13,167
12,389
98,718
124,274
165
192
34
12,919
13,310
36,855
57,857
23,880
296,719
—
415,311
12,032
27,606
68,039
107,677
13,595
15,530
85,924
115,049
205
22
33
10,258
10,518
The following table presents revenue information based on revenues for the following product categories and their
complementary packaging systems for each of the years in the three-year period ended December 31, 2020:
Revenue
Tape
Film
Engineered coated products
Protective packaging
Other
2020
$
713,781
181,180
159,933
152,710
5,424
1,213,028
2019
$
2018
$
666,571
184,398
162,955
135,605
8,990
1,158,519
672,856
184,743
126,973
57,070
11,377
1,053,019
77
22 - RELATED PARTY TRANSACTIONS
The Company’s key personnel include all non-executive directors on the Board (ten in 2020, eight in 2019 and seven in 2018)
and senior executive level members of management (eight in 2020, six in 2019 and 2018). Key personnel remuneration includes
the following expenses for each of the years in the three-year period ended December 31, 2020:
Short-term benefits including employee salaries and bonuses and
director retainer and committee fees
Post-employment and other long-term benefits
Share-based compensation expense (1)
Total remuneration
2020
$
2019
$
2018
$
8,845
593
12,894
22,332
6,124
604
1,152
7,880
5,080
205
1,154
6,439
(1)
The table above does not include amounts recognized in deficit for share-based compensation arising as a result of the
amendments to the DSU and PSU plans.
23 - COMMITMENTS
Commitments Under Service Contracts
The Company entered into a five-year electricity service contract for one of its manufacturing facilities on May 1, 2016, under
which the Company has reduced the overall cost of electricity consumed by the facility and expects to continue to do so until
contract expiration. The service contract required the Company to pay for unrecovered power supply costs incurred by the
supplier in the event of early termination, declining monthly based on actual service billings to date. As of December 31, 2020,
the Company has fulfilled its commitment under the contract and would not be subject to termination penalties in the event of
cancellation.
The Company entered into a ten-year electricity service contract for one of its manufacturing facilities on November 12, 2013.
The service date of the contract commenced in August 2014. The Company is committed to monthly minimum usage
requirements over the term of the contract. The Company was provided installation at no cost and is receiving economic
development incentive credits and maintenance of the required energy infrastructure at the manufacturing facility as part of the
contract. The credits are expected to reduce the overall cost of electricity consumed by the facility over the term of the contract.
Effective August 1, 2015, the Company entered into an amendment lowering the minimum usage requirements over the term of
the contract. In addition, a new monthly facility charge has been incurred by the Company over the term of the contract. The
Company estimates that service billings will total approximately $1.7 million annually in 2021 through 2023 and $1 million for
the total billings expected over the remainder of the contract up to 2024. Certain penalty clauses exist within the electricity
service contract related to early cancellation after the service date of the contract. The costs related to early cancellation
penalties include termination fees based on anticipated service billings over the term of the contract and capital expense
recovery charges. While the Company does not expect to cancel the contract prior to the end of its term, the penalties that
would apply to early cancellation could total as much as $2.4 million as of December 31, 2020. This amount is expected to
decline annually until the expiration of the contract assuming there are insignificant fluctuations in kilowatt hour peak demand.
The Company has entered into agreements with various utility suppliers to fix certain energy costs, including natural gas,
through December 2024 for minimum amounts of consumption at several of its manufacturing facilities. The Company
estimates that utility billings will total approximately $7.7 million over the term of the contracts based on the contracted fixed
terms and current market rate assumptions. The Company is also required by the agreements to pay any difference between the
fixed price agreed to with the utility and the sales amount received by the utility for resale to a third party if the Company fails
to meet the minimum consumption required by the agreements. In the event of early termination, the Company is required to
pay the utility suppliers the difference between the contracted amount and the current market value of the energy, adjusted for
present value, of any future agreed upon minimum usage. Neither party will be liable for failure to perform for reasons of
“force majeure” as defined in the agreements.
Commitments to Suppliers
The Company obtains certain raw materials from suppliers under consignment agreements. The suppliers retain ownership of
raw materials until the earlier of when the materials are consumed in production or auto billings are triggered based upon
maturity. The consignment agreements involve short-term commitments that typically mature within 30 to 60 days of inventory
78
receipt and are typically renewed on an ongoing basis. The Company may be subject to fees in the event the Company requires
storage in excess of 30 to 60 days. As of December 31, 2020, the Company had on hand $5.9 million of raw material owned by
its suppliers.
The Company has entered into agreements with various raw material suppliers to purchase minimum quantities of certain raw
materials at fixed rates through December 2021 totaling approximately $9.9 million as of December 31, 2020. Subsequent to
December 31, 2020, the Company entered into an agreement with a raw material supplier to purchase raw materials at a fixed
rate from September 2021 through December 2022, totaling approximately $7.1 million. The Company is also required by the
agreements to pay any storage costs incurred by the applicable supplier in the event the Company delays shipment in excess of
30 days. In the event the Company defaults under the terms of an agreement, an arbitrator will determine fees and penalties due
to the applicable supplier. Neither party will be liable for failure to perform for reasons of “force majeure” as defined in the
agreements.
The Company currently knows of no event, trend or uncertainty that may affect the availability or benefits of these
arrangements now or in the future.
24 - FINANCIAL INSTRUMENTS
Classification and Fair Value of Financial Instruments
The classification of financial instruments, as well as their carrying amounts, are as follows for the years ended:
Amortized cost
$
Fair value
through
earnings
$
Derivatives used
for hedging (fair
value through OCI)
$
16,467
162,235
4,627
183,329
140,011
—
447,842
—
587,853
7,047
133,177
3,584
143,808
115,501
—
464,054
—
579,555
—
—
—
—
—
—
—
15,758
15,758
—
—
—
—
—
—
—
13,634
13,634
—
—
—
—
—
4,025
—
—
4,025
—
—
—
—
—
1,339
—
—
1,339
December 31, 2020
Financial assets
Cash
Trade receivables
Supplier rebates and other receivables
Total financial assets
Financial liabilities
Accounts payable and accrued liabilities (1)
Interest rate swap agreements
Borrowings (2)
Non-controlling interest put options
Total financial liabilities
December 31, 2019
Financial assets
Cash
Trade receivables
Supplier rebates and other receivables
Total financial assets
Financial liabilities
Accounts payable and accrued liabilities (1)
Interest rate swap agreements
Borrowings (2)
Non-controlling interest put options
Total financial liabilities
(1)
(2)
Excludes employee benefits and taxes payable
Excludes lease liabilities
79
Total interest expense (calculated using the effective interest method) for financial assets or financial liabilities that are not at
fair value through earnings are as follows for each of the years in the three-year period ended December 31, 2020:
Interest expense calculated using the effective interest rate method
27,243
31,040
19,020
2020
$
2019
$
2018
$
Hierarchy of financial instruments
The Company categorizes its financial instruments into a three-level fair value measurement hierarchy as follows:
Level 1: The fair value is determined directly by reference to unadjusted quoted prices in active markets for identical
assets and liabilities.
Level 2: The fair value is estimated using a valuation technique based on observable market data, either directly or
indirectly.
Level 3: The fair value is estimated using a valuation technique based on unobservable data.
The Company ensures, to the extent possible, that its valuation techniques and assumptions incorporate all factors that market
participants would consider in setting a price and are consistent with accepted economic methods for pricing financial
instruments. There were no transfers between Level 1 and Level 2 in 2020 or 2019.
The carrying amounts of the following financial assets and liabilities are considered a reasonable approximation of fair value
given their short maturity periods:
•
•
•
•
cash
trade receivables
supplier rebates and other receivables
accounts payable and accrued liabilities (excluding employee benefits and taxes payable)
Borrowings (Excluding Lease Liabilities)
The company's borrowings, other than the Senior Unsecured Notes discussed below, consist primarily of variable rate debt. The
corresponding fair values are estimated using observable market interest rates of similar variable rate loans with similar risk and
credit standing. Accordingly, the carrying amounts are considered to be a reasonable approximation of the fair values.
The fair value of the Company's Senior Unsecured Notes is based on the trading levels and bid/offer prices observed by a
market participant. As of December 31, 2020 and 2019, the Senior Unsecured Notes had a carrying value, including
unamortized debt issuance cost, of $246.2 million and $245.7 million, respectively, and a fair value of $265.4 million and
$264.7 million, respectively.
As of December 31, 2020, and 2019, the Company categorizes its borrowings as Level 2 on the three-level fair value hierarchy.
Refer to Note 14 for additional information on borrowings.
Interest Rate Swap Agreements
The Company measures the fair value of its interest rate swap agreements using discounted cash flows. Future cash flows are
estimated based on forward interest rates (from observable yield curves at the end of a reporting period) and contract interest
rates, discounted as a rate that reflects the credit risk of various counterparties.
As of December 31, 2020 and 2019, the Company categorizes its interest rate swaps as Level 2 on the three-level fair value
hierarchy.
Non-controlling interest put options
The Company is party to a shareholders’ agreement that contains put options, which provide each of the non-controlling interest
shareholders of the Company's 55% controlling ownership stake in Capstone with the right to require the Company to purchase
their retained interest at a variable purchase price following a five-year lock-in period following the date of acquisition. The
agreed-upon purchase price is equal to the fair market valuation as determined through a future negotiation or, as needed, a
80
valuation to be performed by an independent and qualified expert at the time of exercise. Finalization of the acquisition resulted
in the initial recognition of $10.9 million in present obligations recorded in non-controlling interest put options, and a
corresponding reduction of equity on the consolidated balance sheet as of December 31, 2018.
During the years ended December 31, 2020 and 2019, the fair market valuation of the obligation was reassessed by
management resulting in a $2.5 million and $3.3 million increase in the liability, respectively, and a corresponding loss
recorded in finance costs (income) in other (income) expense, net. As of December 31, 2020 and 2019, the amounts recorded on
the consolidated balance sheets for this obligation are $15.8 million and $13.6 million, respectively.
The Company categorizes its non-controlling interest put options as Level 3 of the fair value hierarchy. The Company measures
the fair value of its non-controlling interest put options by estimating the present value of future net cash inflows from earnings
associated with the proportionate shares that are subject to sale to the Company pursuant to an exercise event. These estimations
are intended to approximate the redemption value of the options as indicated in the shareholders’ agreement. The estimation as
of December 31, 2020 was calculated using significant unobservable inputs including estimations of undiscounted future annual
cash inflows ranging between approximately $1.5 million and $5.0 million. The estimation as of December 31, 2019 was
calculated using significant unobservable inputs including estimations of undiscounted future annual cash inflows ranging from
$2.0 million and $5.0 million. A discount rate of 11% was used, which the Company believes to be commensurate with the
risks inherent in the ownership interest as of December 31, 2020 and 2019. The fair value of the liability is sensitive to changes
in projected earnings and thereby, future cash inflows, and the discount rate applied to those future cash inflows, which could
have resulted in a higher or lower fair value measurement.
A reconciliation of the carrying amount of non-controlling interest put options follows for the years ended December 31, 2020
and 2019:
Balance as of December 31, 2018
Foreign exchange
Valuation adjustment made to non-controlling interest put options
Balance as of December 31, 2019
Foreign exchange
Valuation adjustment made to non-controlling interest put options
Balance as of December 31, 2020
Contingent Consideration
Non-controlling
interest put options
$
10,499
(204)
3,339
13,634
(346)
2,470
15,758
In connection with the Nortech Acquisition, the Company may be required to pay additional consideration to the former owners
of Nortech contingent upon the achievement of certain designated financial metrics following a measurement period as
specified in the asset purchase agreement.
The Company categorizes this contingent consideration as Level 3 of the fair value hierarchy, meaning that the fair value is
estimated using a valuation technique based on unobservable market data. The Company measures the fair value of its
contingent consideration by estimating the present value of probable future net cash outflows from the settlement of the earnout
related provisions contained within the asset purchase agreement. These provisions require the Company to pay up to
$12.0 million to the former owners of Nortech should the acquired assets generate in excess of certain profit thresholds as
defined in the asset purchase agreement, measured over the two-year period following the date of acquisition.
As of the date of the Nortech Acquisition, management deemed it probable that the entire amount of contingent consideration
would be paid after the two-year anniversary of the acquisition date, and therefore recorded a $10.8 million financial liability in
the opening balance sheet for Nortech, representing the discounted net present value of the $12.0 million potential obligation.
During the second quarter of 2020, however, management concluded that any payment toward this obligation was no longer
probable due to the impact of, and macroeconomic events resulting from, COVID-19 and the continued uncertainty surrounding
the pandemic. As a result, the Company recorded an adjustment to the related liability in the amount of $11.0 million, with an
off-setting gain (net of accretion expense) recorded in finance costs (income) in other (income) expense, net. As of December
31, 2020, management continues to believe that any amount of payment toward this obligation is not probable for the same
81
reasons and, therefore, the Company continues to estimate the fair value of the obligation to be nil. The fair value of the
contingent consideration will continue to be reassessed at each reporting date with any changes to be recognized in earnings in
finance costs (income) in other (income) expense, net.
The fair value estimations as of the date of the acquisition and as of December 31, 2020 were calculated using significant
unobservable inputs including estimations of undiscounted future net cash flows (as measured according to the asset purchase
agreement) to be generated by Nortech, which management had previously estimated as of the date of the acquisition to be in
excess of $12.5 million over the two-year period following the date of acquisition, but now estimates as of December 31, 2020
to be less than $11.8 million, which represents the minimum threshold for the additional consideration payment according to the
asset purchase agreement. A discount rate of 5.38% was used in estimating the net present value of the estimated future cash
outflows which represents the Company's estimated incremental borrowing rate as of the date of acquisition and through the
date of maturity of the obligation. The fair value of the liability is sensitive to changes in projected profits and thereby, future
cash outflows, and the discount rate applied to those future cash outflows, which could have resulted in a higher or lower fair
value measurement.
A reconciliation of the carrying amount of contingent consideration follows for the year ended December 31, 2020:
Balance as of December 31, 2019
Contingent consideration recorded as a result of the Nortech Acquisition
Increases resulting from net present value discounting
Fair value adjustment recorded in finance costs (income)
Balance as of December 31, 2020
Refer to Note 19 for more information regarding business acquisitions.
Exchange Risk
Contingent
Consideration
$
—
10,806
199
(11,005)
—
The Company’s consolidated financial statements are expressed in US dollars while a portion of its business is conducted in
other currencies. Changes in the exchange rates for such currencies into US dollars can increase or decrease revenues, operating
profit, earnings and the carrying values of assets and liabilities.
The following table details the Company’s sensitivity to a 10% strengthening of other currencies against the US dollar, and the
related impact on finance costs (income) - other (income) expense, net. For a 10% weakening of the other currencies against the
US dollar, there would be an equal and opposite impact on finance costs (income) - other (income) expense, net.
The estimated increase (decrease) to finance cost (income) - other (income) expense, net from financial assets and financial
liabilities resulting from a 10% strengthening of other currencies against the US dollar, everything else being equal, would be as
follows as of December 31:
Canadian dollar
Euro
Indian Rupee
2020
USD$
2019
USD$
(3,786)
(125)
(2,525)
(6,436)
482
(110)
(1,089)
(717)
The Company's primary strategy to minimize its risk of foreign currency exposure is to ensure that the Financial Risk
Management Committee:
• monitors the Company's exposures and cash flows, taking into account the large extent of naturally offsetting
•
•
exposures,
considers the Company's ability to adjust its selling prices due to foreign currency movements and other market
conditions, and
considers borrowing under available debt facilities in the most advantageous manner, after considering interest rates,
foreign currency exposures, expected cash flows and other factors.
82
Hedge of net investment in foreign operations
A foreign currency exposure arises from the Parent Company’s net investment in its USD functional currency subsidiary, IPG
(US) Holdings Inc. The risk arises from the fluctuations in the USD and CDN current exchange rate, which causes the amount
of the net investment in IPG (US) Holdings Inc. to vary.
In 2018, the Parent Company completed the private placement of its USD denominated Senior Unsecured Notes which resulted
in additional equity investments in IPG (US) Holdings Inc. The Senior Unsecured Notes are being used to hedge the
Company’s exposure to the USD foreign exchange risk on this investment.
Gains or losses on the retranslation of this borrowing are transferred to OCI to offset any gains or losses on translation of the
net investment in the subsidiary. The Senior Unsecured Notes are included as a liability in the borrowings line on the
consolidated balance sheets.
There is an economic relationship between the hedged item and the hedging instrument as the net investment creates a
translation risk that will match the foreign exchange risk on the USD borrowing designated as the hedging instrument. The
Company has established a hedge ratio of 1:1 as the underlying risk of the hedging instrument is identical to the hedge risk
component. Hedge ineffectiveness will arise when the amount of the investment in the foreign subsidiary becomes lower than
the outstanding amount of the Senior Unsecured Notes. Hedge ineffectiveness is recorded in finance costs (income) in other
(income) expense, net. To assess hedge effectiveness, the Parent Company determines the economic relationship between the
hedging instrument and the hedged item by comparing changes in the carrying amount of the Senior Unsecured Notes that is
attributable to a change in the current exchange rate, with changes in the investment in the foreign operation that are attributable
to a change in the current exchange rate.
The changes in value related to the Senior Unsecured Notes designated as a hedging instrument, in the hedge of a net
investment, are as follows for the years ended December 31:
Gain from change in value of the Senior Unsecured Notes used for calculating
hedge ineffectiveness
Gain from Senior Unsecured Notes recognized in OCI
Gain from hedge ineffectiveness recognized in earnings in finance costs (income)
in other (income) expense, net
Foreign exchange gains recognized in cumulative translation adjustments in the
statement of changes in equity
Deferred tax expense on change in value of the Senior Unsecured Notes
recognized in OCI
The notional and carrying amounts of the Senior Unsecured Notes are as follows as of:
Notional Amount
Carrying Amount
2020
$
2019
$
6,488
6,488
—
—
(764)
11,214
10,280
911
23
(45)
December 31,
2020
$
December 31,
2019
$
250,000
246,236
250,000
245,681
The amounts related to the net investment in IPG (US) Holdings, Inc., designated as the hedged item in the hedge of a net
investment, are as follows for the years ended December 31:
Loss from change in value of IPG (US) Holdings, Inc. used for calculating hedge
ineffectiveness
(6,488)
(10,280)
2020
$
2019
$
83
The cumulative amounts included in the foreign currency translation reserve related to the net investment in IPG (US)
Holdings, Inc., designated as the hedged item in the hedge of a net investment, is as follows as of:
December 31,
2020
$
December 31,
2019
$
Cumulative gain included in foreign currency translation reserve in OCI
7,347
859
Interest Rate Risk
The Company is exposed to a risk of change in cash flows due to the fluctuations in interest rates applicable on its variable rate
borrowings. The Company’s overall risk management objective is to minimize the long-term cost of debt, taking into account
short-term and long-term earnings and cash flow volatility. The Company’s primary strategy to minimize exposure associated
with variable rate borrowings is to ensure the Financial Risk Management Committee monitors the Company’s amount of
variable rate borrowings, taking into account the current and expected interest rate environment, the Company’s leverage and
sensitivity to earnings and cash flows due to changes in interest rates. The Company’s risk management objective at this time is
to mitigate the variability in 30-day LIBOR based cash flows. To help accomplish this objective, the Company enters into
interest rate swap agreements.
The Company was party to the following interest rate swap agreements which are qualifying cash flow hedges designated as
hedging instruments as of December 31, 2020 and 2019:
Effective Date
June 8, 2017
August 20, 2018
Maturity
June 20, 2022
August 18, 2023
Notional amount
$
40,000
60,000
Settlement
Monthly
Monthly
Fixed interest
rate paid
%
1.79
2.045
Additionally, on November 18, 2019 an interest rate swap agreement with a notional amount of $40.0 million and fixed interest
rate of 1.61%, which was considered a non-qualifying cash flow hedge, matured and was settled in full and on December 12,
2019, and an interest rate swap agreement with a notional amount of CDN $36.0 million and fixed interest rate of 1.6825%,
which was considered a qualifying cash flow hedge, matured and was also settled in full.
The interest rate swap agreements involve the exchange of periodic payments excluding the notional principal amount upon
which the payments are based. If the underlying interest rate swap agreement is a qualifying cash flow hedge, these payments
are recorded as an adjustment of interest expense on the hedged debt instruments and the related amount payable to or
receivable from counterparties is included as an adjustment to accrued interest. Cash payments related to non-qualifying cash
flow hedges are recorded as a reduction of the fair value of the corresponding interest rate swap agreement recognized in the
balance sheet, which indirectly impacts the change in fair value recorded in earnings.
There is an economic relationship between the hedged item and the hedging instrument as the terms of the interest rate swap
match the terms of the corresponding variable rate borrowing and it is expected that the value of the interest rate swap contracts
and the value of the corresponding hedged items will systematically change in the opposite direction in response to movements
in the underlying interest rates. The Company has established a hedge ratio of 1:1 for the hedging relationships as the
underlying risk of the interest rate swap is identical to the hedged risk component. The main source of hedge ineffectiveness
which could exist in these hedge relationships is the effect of the counterparty and the Company’s own credit risk on the fair
value of the interest rate swap contracts, which is not reflected in the fair value of the hedged item attributable to the change in
interest rates.
The Company elects to use the hypothetical derivative methodology to measure the ineffectiveness of its hedging relationships
in a given reporting period to be recorded in earnings. Under the hypothetical derivative method, the actual interest rate swaps
would be recorded at fair value on the balance sheet, and accumulated OCI would be adjusted to a balance that reflects the
lesser of either the cumulative change in the fair value of the actual interest rate swaps or the cumulative change in the fair
value of the hypothetical derivatives. The determination of the fair values of both the hypothetical derivative and the actual
interest rate swaps will use discounted cash flows based on the relevant interest rate swap curves. The amount of
ineffectiveness, if any, recorded in earnings in finance costs (income) in other (income) expense, net, would be equal to the
excess of the cumulative change in the fair value of the actual interest rate swaps over the cumulative change in the fair value of
the hypothetical derivatives. Amounts previously included as part of OCI are transferred to earnings in the period during which
the hedged item impacts net earnings.
84
The following table summarizes activity related to interest rate swap agreements designated as hedging instruments for the
years ended December 31:
Loss from change in fair value of the interest rate swap agreements designated as
hedging instruments recognized in OCI (1)
Deferred tax benefit on change in fair value of the interest rate swap agreements
designated as hedging instruments recognized in OCI
Amounts reclassified from cash flow hedging reserve to earnings (2)
2020
$
2019
$
(2,685)
(3,416)
658
—
359
(503)
(1)
(2)
The hedging loss recognized in OCI before tax is equal to the change in fair value used for measuring effectiveness.
There is no ineffectiveness recognized in earnings.
Reclassification of unrealized gains from OCI as a result of discontinuation of hedge accounting for certain interest
rate swap agreements that matured and were settled in full in 2019.
The following table summarizes balances related to interest rate swap agreements designated as hedging instruments as of:
Carrying amount included in other liabilities
Cumulative loss in cash flow hedge reserve, included in OCI, for continuing
hedges
December 31,
2020
$
December 31,
2019
$
4,025
(3,097)
1,339
(1,070)
As of December 31, 2020, and 2019, the impact on the Company’s finance costs in interest expense from a 1.0% increase in
interest rates, assuming all other variables remained equal, would be an increase of approximately $1.0 million and $1.2
million, respectively.
Interest Rate Benchmark Reform
The Company is exposed to the LIBOR interest rate benchmark, which is subject to interest rate benchmark reform as a result
of its interest rate swap agreements (designated as hedging instruments) and its variable rate borrowings (the hedged item).
The Company is managing its LIBOR transition plan as a result of the interest rate benchmark reform. The Company expects
the greatest change will be amendments to the contractual terms of the LIBOR-referenced variable rate borrowings and the
associated interest rate swaps and the corresponding update of the hedge designation. However, the changed reference rate may
also affect other systems, processes, risk and valuation models, and may have tax and accounting implications.
The Company has applied the following reliefs that were introduced by Interest Rate Benchmark Reform (Amendments to
IFRS 9, IAS 39 and IFRS 7) in September 2019:
• When considering the ‘highly probable’ requirement, the Company has assumed that the LIBOR interest rate on which
•
the Company’s hedged borrowings is based does not change as a result of LIBOR reform.
In assessing whether the hedge is expected to be highly effective on a forward-looking basis, the Company has
assumed that the LIBOR interest rate on which the cash flows of the hedged borrowings and the interest rate swap
agreements that hedges it are based is not altered by LIBOR reform.
As a result, the Company will retain the cumulative gain or loss in the cash flow hedge reserve for designated cash flow hedges
that are subject to interest rate benchmark reforms, even though there is uncertainty around the timing and amount of the cash
flows of the hedged items. In the event the Company no longer expects the hedged future cash flows to occur due to reasons
other than interest rate benchmark reform, the cumulative gain or loss will be immediately reclassified to profit or loss.
The Company will continue to apply Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39 and IFRS 7) until there
is no longer uncertainty around the timing and the amount of the underlying cash flows to which the Company is exposed. The
Company has assumed that this uncertainty will not end until the Company’s contracts that reference LIBOR are amended to
specify the date on which the interest rate benchmark will be replaced, the cash flows of the alternative benchmark rate, and the
relevant spread adjustment.
85
Concentration and Credit Risk
Credit risk results from the possibility that a loss may occur from the failure of another party to perform according to the terms
of the contract. Generally, the carrying amount reported on the Company’s consolidated balance sheet for its financial assets
exposed to credit risk, net of any applicable provisions for losses, represents the maximum amount exposed to credit risk.
Financial assets that potentially subject the Company to credit risk consist primarily of cash, trade receivables and supplier
rebate receivables and other receivables.
Cash
Credit risk associated with cash is substantially mitigated by ensuring that these financial assets are primarily placed with major
financial institutions. The Company performs an ongoing review and evaluation of the possible changes in the status and
creditworthiness of its counterparties.
Revenue and trade receivables
There was one customer as of December 31, 2020 and 2019 with sales that accounted for 11% and 7%, respectively, of the
Company's total revenue for the years then ended. The Company's customer base is diverse and there were no other individual
customers that accounted for more than 5% of the Company’s revenue. This one customer had trade receivables that accounted
for 17% and 15% of the Company’s total trade receivables as of December 31, 2020 and 2019, respectively. These trade
receivables were current as of December 31, 2020 and 2019, and the Company believes its credit risk with respect to this
customer is limited due to the customer's strong financial condition, creditworthiness, payment history, and relationship with
the Company. There were no other individual customers that accounted for more than 5% of the Company’s trade receivables
as of December 31, 2020 and 2019, respectively. The Company believes its credit risk with respect to trade receivables overall
is limited due to the Company’s credit evaluation process, reasonably short collection terms and the creditworthiness of its
customers and credit insurance. The Company regularly monitors its credit risk exposures and takes steps to mitigate the
likelihood of these exposures resulting in actual losses.
The following table presents an analysis of the age of trade receivables and related balance as of:
Current
Past due accounts not impaired
1 – 30 days past due
31 – 60 days past due
61 – 90 days past due
Over 90 days past due
Allowance for expected credit loss
Gross accounts receivable
December 31,
2020
$
December 31,
2019
$
138,798
115,853
15,257
2,798
1,299
4,083
23,437
1,268
163,503
13,602
1,604
956
1,162
17,324
909
134,086
The Company’s allowance for expected credit loss reflects expected credit losses using a provision matrix model, supplemented
by an allowance for individually impaired trade receivables. The provision matrix is based on the Company’s historic credit
loss experience, adjusted for any change in risk of the trade receivable population based on credit monitoring indicators, and
expectations of general economic conditions that might affect the collection of trade receivables. The provision matrix applies
fixed provision rates depending on the number of days that a trade receivable is past due, with higher rates applied the longer a
balance is past due. Trade receivables outstanding longer than the agreed upon payment terms are considered past due. The
Company determines its allowance for individually impaired trade receivables by considering a number of factors, including
notices of liquidation, information provided by credit monitoring services, the length of time trade receivables are past due, the
customer’s current ability to pay its obligation to the Company, the customer’s history of paying balances when they are past
due, historical results and the condition of the general economy and the industry as a whole. After considering the factors
above, at December 31, 2020, the Company has determined there is no significant increase or decrease in its trade receivable
credit risk since their initial recognition, including the impacts of COVID-19.
86
The Company writes off trade receivables when they are determined to be uncollectible and any payments subsequently
received on such trade receivables are credited to the allowance for expected credit loss. Amounts are written-off based on the
final results of bankruptcy or liquidation proceedings, as well as consideration of local statutes of limitations and other
regulations permitting or requiring the write-off of trade receivables. Substantially all of the trade receivables written off during
the year ended December 31, 2020 are still subject to enforcement activity.
The Company’s maximum exposure to credit risk at the end of the reporting period would be the gross accounts receivable
balance shown in the table above. In general, the Company does not hold collateral with respect to its trade receivables.
The following table presents a continuity summary of the Company’s allowance for expected credit loss as of and for the years
ended December 31:
Balance, beginning of year
Additions
Write-offs
Foreign exchange
Balance, end of year
Supplier rebates and other receivables
2020
$
2019
$
909
545
(197)
11
1,268
659
357
(104)
(3)
909
Credit risk associated with supplier rebates and other receivables is limited considering the amount is not material, the
Company’s large size and diversified counterparties and geography.
Liquidity Risk
Liquidity risk is the risk that the Company will not be able to meet its financial liabilities and obligations as they become due.
The Company is exposed to this risk mainly through its borrowings, finance lease liabilities, accounts payable and accrued
liabilities and its option liabilities. The Company finances its operations through a combination of cash flows from operations
and borrowings.
The Company's liquidity risk management process serves to maintain a sufficient amount of cash and to ensure that the
Company has financing sources for a sufficient authorized amount. The Company establishes budgets, cash estimates and cash
management policies to ensure it has the necessary funds to fulfill its obligations for the foreseeable future.
The following maturity analysis for financial liabilities is based on the remaining contractual maturities as of the balance sheet
date. The amounts disclosed reflect the contractual undiscounted cash flows categorized by their earliest contractual maturity
date on which the Company can be required to pay its obligation.
87
The maturity analysis for financial liabilities and finance lease liabilities is as follows for the years ended:
December 31, 2020
Current maturity
2022
2023
2024
2025
2026 and thereafter
December 31, 2019
Current maturity
2021
2022
2023
2024
2025 and thereafter
Non-controlling
interest put
options
Borrowings (1)
Interest on
borrowings (1)
$
$
$
Lease
liabilities
$
Interest on
Lease
liabilities
Accounts payable
and accrued
liabilities (2)
$
$
Total
$
—
—
—
—
—
15,758
15,758
19,131
18,663
163,025
1,183
817
250,408
453,227
22,813
22,197
19,224
17,500
17,500
13,125
112,359
7,088
9,013
6,473
4,577
3,869
11,102
42,122
2,303
1,853
1,424
1,070
817
2,745
10,212
140,011
—
—
—
—
—
140,011
191,346
51,726
190,146
24,330
23,003
293,138
773,689
Non-controlling
interest put
options
Borrowings (1)
Interest on
Borrowings (1)
$
$
Lease
liabilities
$
Interest on
Lease
liabilities
Accounts payable
and accrued
liabilities (2)
$
Total
$
—
—
—
—
—
13,634
13,634
20,235
16,399
18,050
164,236
550
250,825
470,295
25,861
25,295
24,770
20,660
17,792
31,014
145,392
6,084
6,057
8,271
5,885
4,082
14,377
44,756
2,586
2,218
1,793
1,384
1,044
3,555
12,580
115,501
—
—
—
—
—
115,501
170,267
49,969
52,884
192,165
23,468
313,405
802,158
(1)
(2)
Excludes lease liabilities
Excludes employee benefits and taxes payable
As of December 31, 2020, the Company had $16.5 million of cash and $392.2 million of loan availability (composed of
committed funding of $384.5 million and uncommitted funding of $7.7 million), yielding total cash and loan availability of
$408.7 million compared to total cash and loan availability of $406.0 million as of December 31, 2019.
Price Risk
The Company’s price risk arises from changes in its raw material prices. A significant portion of the Company’s major raw
materials are by-products of crude oil and natural gas and as such, prices are significantly influenced by the fluctuating
underlying energy markets. The Company’s objectives in managing its price risk are threefold: (i) to protect its financial result
for the period from significant fluctuations in raw material costs, (ii) to anticipate, to the extent possible, and plan for significant
changes in the raw material markets, and (iii) to ensure sufficient availability of raw material required to meet the Company’s
manufacturing requirements. In order to manage its exposure to price risks, the Company closely monitors current and
anticipated changes in market prices and develops pre-buying strategies and patterns and seeks to adjust its selling prices when
market conditions permit. Historical results indicate management’s ability to rapidly identify fluctuations in raw material prices
and, to the extent possible, incorporate such fluctuations in the Company’s selling prices.
As of December 31, 2020, all other parameters being equal, a hypothetical increase of 10% in the cost of raw materials, with no
corresponding sales price adjustments, would result in an increase in cost of sales of $55.6 million ($56.2 million in 2019). A
similar decrease of 10% will have the opposite impact.
Capital Management
The Company manages its capital to safeguard the Company’s ability to continue as a going concern, provide sufficient
liquidity and flexibility to meet strategic objectives and growth and provide adequate return to its shareholders, while taking
into consideration financial leverage and financial risk.
88
The capital structure of the Company consists of cash, borrowings and equity. A summary of the Company’s capital structure is
as follows for the years ended:
Cash
Borrowings (excluding lease liabilities)
Total equity
December 31, 2020
December 31, 2019
$
$
16,467
447,842
316,682
7,047
464,054
272,228
The Company manages its capital structure in accordance with its expected business growth, operational objectives and
underlying industry, market and economic conditions. Consequently, the Company will determine, from time to time, its capital
requirements and will accordingly develop a plan to be presented and approved by its Board of Directors. The plan may include
the repurchase of common shares, the issuance of shares, the payment of dividends and the issuance of new debt or the
refinancing of existing debt.
25 - POST REPORTING EVENTS
Adjusting Events
No adjusting events have occurred between the reporting date of these consolidated financial statements and the date of
authorization.
Non-Adjusting Events
No significant non-adjusting events have occurred between the reporting date of these consolidated financial statements and the
date of authorization with the exception of the items discussed below.
On March 11, 2021, the Company declared a cash dividend of $0.1575 per common share payable on March 31, 2021 to
shareholders of record at the close of business on March 22, 2021. The estimated amount of this dividend payment is $9.3
million based on 59,027,047 shares of the Company’s common shares issued and outstanding as of March 11, 2021.
89
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