1) 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.
CASH FLOWS
(USD MILLIONS)
EARNINGS
(USD MILLIONS)
172
211
247
ADJUSTED
EBITDA(1)
61
92
119
ADJUSTED NET
EARNINGS(1)
14.9%
17.4%
16.1%
ADJUSTED
EBITDA MARGIN(1)
41
NET
EARNINGS
73
68
2019
2020
2021
REVENUE
(USD MILLIONS)
2019
2020
2021
87
134
160
135
180
81
79
46
48
FREE CASH FLOWS(1)
CASH FLOWS FROM
OPERATING ACTIVITIES
CAPITAL EXPENDITURES
2019
1,159
2020
1,213
2021
1,532
15%
CAGR
Dear Fellow Shareholder
A Message from the Chief Executive Officer and President
Dear Shareholder,
The business has undergone a tremendous level of change since 2010. As a
management team, the first five years were focused on stabilizing the business
coming out of the recession with profitability as the key metric. In the period from
2015 to 2019, we used the profitability profile and cash flow generation we built
to invest in the business for future growth with significant capital expenditure and
acquisition initiatives. Which brings us up to 2020, which has been defined by
the pandemic. The structural changes we implemented during the prior periods
enabled us to manage through the past 24 months and come out stronger than
ever.
The complexity of managing manufacturing assets on three continents across 29
facilities is not for the faint of heart – and operating through the pandemic has brought a number of challenges.
Ensuring our employees are healthy and safe. Ensuring the assets remain operational and efficient. Ensuring
product is available to meet our customers’ needs. Managing dramatic price volatility in raw materials and
exceptional supply chain and labor constraints. Investing in new capacity to keep pace with surging demand in
our end markets. These are on top of the usual challenges our team has met each and every day for the past two
years.
Our team has performed exceptionally well. The level of commitment and the team-first approach they have
brought to their work speaks to the established positive culture engrained across the organization. The
investments we have made in the assets are easily measured. But through this period the investment we made
during the past decade in our human capital, which is seldom emphasized externally and difficult to measure,
paid enormous dividends to the organization and our stakeholders.
The financial performance of the business supports this view. We achieved record revenue of more than $1.5
billion and Adjusted EBITDA* of more than $247 million in 2021. To put that performance in perspective, we
have grown Adjusted EBITDA more than 15% on a compound annual growth rate basis since 2016.
We continue to invest in growth initiatives, specifically expanding capacity in key verticals and product categories,
where we see high demand today and into the future. Even with this increased level of investment we continue
to generate strong free cash flow* which is a core attribute of the business. With more than $81 million deployed
in capital expenditure in 2021 the business generated $79 million in free cash flow.
We believe the opportunity ahead of us is tremendously exciting. The market share gains of e-commerce
fulfillment play directly into a strength of ours. The investments, acquisitions and new products within our wovens
business put us in a much stronger competitive position to address and expand within the building & construction
vertical. We have invested in and acquired new capacity in our films business to address the demand we are
experiencing in the market.
We have embraced sustainability as a key strategic pillar of the business. It’s good for the planet and the
communities where we live and work. In the packaging sector, we also believe sustainability is good business. It is
a differentiator for us and we expect it to be a long-term growth driver in the market. We have certified our major
products under the Cradle to Cradle Certified® Products Program and we will continue to add others under that
program. We acquired a key supplier in the paper void fill category which is a sustainable packaging application.
Sustainability isn’t a campaign for us. It is an approach to managing the business that we have deployed for
years, reducing or eliminating waste, improving our use of resources and efficiently operating our facilities.
Gregory A.C. Yull
Chief Executive Officer and President of IPG
We see a tremendous opportunity before us to build further scale, to strengthen our product bundle and to grow
with our customers. We have built a world-class, low-cost base of manufacturing assets that can compete with
anyone. We have the team, the assets and the strategy to deliver for our stakeholders. 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.
* 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.
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 10, 2022, should be read in conjunction with the
Company’s audited consolidated financial statements and notes thereto as of December 31, 2021 and 2020 and for the three-
year period ended December 31, 2021 ("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 and other specified financial measures 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 and Adjusted EBITDA” section below for a description and reconciliation of EBITDA and
adjusted EBITDA, "Non-GAAP Ratios" for a description of total leverage ratio, consolidated secured net leverage ratio and
consolidated interest coverage ratio, and the "Free Cash Flows" and “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 and other specified
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. Where 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 and other
specified financial measures to their most directly comparable GAAP financial measures set forth below in the section entitled
"Non-GAAP and Other Specified Financial Measures" and should consider non-GAAP and other specified financial measures
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)
2021
2020
2019
$
$
$
Operations
Revenue
1,531.5
1,213.0
1,158.5
Gross margin (1)
22.2 %
23.8 %
21.3 %
Net earnings attributable to Company shareholders (2)
67.8
72.7
41.2
Adjusted net earnings (3) (4)
118.5
92.2
61.2
Adjusted EBITDA (3)
247.2
211.1
172.2
Cash flows from operating activities
160.4
179.6
135.0
Free cash flows (3)
79.1
133.8
86.8
Capital expenditures (5)
81.3
45.8
48.2
Effective tax rate (6)
25.6 %
20.7 %
28.3 %
Per Common Share
IPG Net Earnings - diluted
1.12
1.22
0.70
Adjusted earnings - diluted (3) (4)
1.96
1.55
1.04
Dividend paid per share (7)
0.65
0.60
0.58
Financial Position
Working capital (8)
193.1
165.6
169.4
Total assets
1,333.8
1,109.6
1,025.7
Net debt (9)
529.0
473.5
501.8
Total equity attributable to Company shareholders
338.2
304.7
260.7
Cash and loan availability (10)
528.4
408.7
406.0
Selected Ratios
Current ratio (11)
1.6
1.7
2.0
Consolidated secured net leverage ratio (3) (10)
0.5
1.1
1.4
Total leverage ratio (3) (12)
2.1
2.2
2.9
Stock Information (in thousands)
Weighted average shares outstanding - diluted
60,516
59,631
58,989
Shares outstanding as of December 31
59,285
59,027
59,010
The Toronto Stock Exchange (CDN$)
Share price as of December 31
26.32
24.14
16.62
High: 52 weeks
32.88
26.86
19.97
Low: 52 weeks
22.37
7.02
15.68
(1)
Gross profit divided by revenue.
(2)
Net earnings attributable to Company shareholders ("IPG Net Earnings").
(3)
Adjusted net earnings, adjusted earnings per share, adjusted EBITDA and free cash flows are non-GAAP financial measures,
and consolidated secured net leverage ratio and total leverage ratio are non-GAAP ratios. Such measures are not standardized
financial measures under GAAP and therefore may not be comparable to similar financial measures presented by other
issuers. For definitions and a reconciliation to the most directly comparable GAAP financial measure, refer to the section
below entitled "Non-GAAP and Other Specified Financial Measures" and "Cash Flows - Free Cash Flows".
(4)
Prior period amounts presented have been conformed to the current definition of adjusted net earnings which excludes the
NCI Put Options Revaluation (defined later in this document).
(5)
Purchases of property, plant and equipment.
(6) Refer to the section below entitled "Income Taxes" and Note 5 – Income Taxes to the Company’s Financial Statements.
(7)
Dividends paid divided by weighted average basic shares outstanding.
(8)
Current assets less current liabilities.
(9)
Borrowings and lease liabilities, current and non-current, less cash.
(10)
Refer to the section below entitled "Liquidity and Borrowings".
(11)
Current assets divided by current liabilities.
(12)
Net debt, divided by adjusted EBITDA.
2
2021 Share Prices
High
Low
Close
ADV (1)
The Toronto Stock Exchange (CDN$)
Q1
31.23
22.37
28.00
270,212
Q2
32.88
27.07
28.74
166,415
Q3
32.76
26.11
27.55
139,668
Q4
30.64
23.95
26.32
191,576
(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)
1st Quarter
2nd Quarter
2021
2020
2019
2021
2020
2019
$
$
$
$
$
$
Revenue
345,566
278,212
277,823
376,686
267,710
295,609
Cost of sales
263,016
219,105
220,027
287,402
210,623
230,915
Gross profit
82,550
59,107
57,796
89,284
57,087
64,694
Gross margin
23.9 %
21.2 %
20.8 %
23.7 %
21.3 %
21.9 %
Selling, general and administrative
expenses
46,743
30,907
32,683
44,075
34,534
36,433
Research expenses
3,048
3,333
3,168
2,910
2,546
3,023
49,791
34,240
35,851
46,985
37,080
39,456
Operating profit before manufacturing
facility closures, restructuring and
other related charges
32,759
24,867
21,945
42,299
20,007
25,238
Manufacturing facility closures,
restructuring and other related charges
—
651
304
—
3,211
3,875
Operating profit
32,759
24,216
21,641
42,299
16,796
21,363
Finance costs (income)
Interest
5,368
7,798
7,693
10,070
7,513
8,565
Other expense (income), net
1,342
(1,132)
(655)
11,951
(9,590)
798
6,710
6,666
7,038
22,021
(2,077)
9,363
Earnings before income tax expense
26,049
17,550
14,603
20,278
18,873
12,000
Income tax expense (benefit)
Current
2,184
2,355
1,175
6,039
3,996
5,977
Deferred
4,076
881
2,896
(484)
296
(439)
6,260
3,236
4,071
5,555
4,292
5,538
Net earnings
19,789
14,314
10,532
14,723
14,581
6,462
Net earnings (loss) attributable to:
Company shareholders
19,052
14,376
10,491
14,338
14,479
6,566
Non-controlling interests
737
(62)
41
385
102
(104)
19,789
14,314
10,532
14,723
14,581
6,462
IPG Net Earnings per share
Basic
0.32
0.24
0.18
0.24
0.25
0.11
Diluted
0.32
0.24
0.18
0.24
0.25
0.11
Weighted average number of common
shares outstanding
Basic
59,027,047
59,009,685
58,652,366
59,027,230
59,009,685
58,760,473
Diluted
60,358,431
59,075,593
58,924,107
60,519,144
59,467,336
58,955,643
4
Consolidated Quarterly Statements of Earnings
(In thousands of USD, except share and per share amounts)
(Unaudited)
3rd Quarter
4th Quarter
2021 (1)
2020
2019
2021
2020
2019
$
$
$
$
$
$
Revenue
395,552
323,027
293,598
413,665
344,079
291,489
Cost of sales
308,699
238,917
229,535
332,378
255,599
231,167
Gross profit
86,853
84,110
64,063
81,287
88,480
60,322
Gross margin
22.0 %
26.0 %
21.8 %
19.7 %
25.7 %
20.7 %
Selling, general and administrative
expenses
42,835
38,621
35,025
43,486
53,424
32,533
Research expenses
2,897
2,554
3,326
3,027
2,763
3,010
45,732
41,175
38,351
46,513
56,187
35,543
Operating profit before manufacturing
facility closures, restructuring and
other related charges (recoveries)
41,121
42,935
25,712
34,774
32,293
24,779
Manufacturing facility closures,
restructuring and other related charges
(recoveries)
—
466
1,614
—
—
(657)
Operating profit
41,121
42,469
24,098
34,774
32,293
25,436
Finance costs
Interest
6,157
7,368
7,764
6,081
6,757
7,668
Other expense (income), net
3,684
1,296
(459)
12,231
3,188
3,630
9,841
8,664
7,305
18,312
9,945
11,298
Earnings before income tax expense
31,280
33,805
16,793
16,462
22,348
14,138
Income tax expense (benefit)
Current
5,878
9,373
6,584
8,012
9,871
3,459
Deferred
(353)
(2,741)
(2,332)
(1,288)
(4,910)
(1,010)
5,525
6,632
4,252
6,724
4,961
2,449
Net earnings
25,755
27,173
12,541
9,738
17,387
11,689
Net earnings attributable to:
Company shareholders
25,314
26,726
12,528
9,109
17,089
11,631
Non-controlling interests
441
447
13
629
298
58
25,755
27,173
12,541
9,738
17,387
11,689
IPG Net Earnings per share
Basic
0.43
0.45
0.21
0.15
0.29
0.20
Diluted
0.42
0.45
0.21
0.15
0.28
0.20
Weighted average number of common
shares outstanding
Basic
59,165,617
59,009,685
58,877,185
59,284,947
59,012,869
58,900,337
Diluted
60,579,770
59,745,118
59,058,758
60,568,005
60,083,664
59,027,917
(1)
Certain prior period amounts, including net earnings and the Company's non-GAAP and other specified financial
measures, have been adjusted to reflect the allocation of purchase proceeds related to the acquisition by the Company
of Nuevopak Global Limited ("Nuevopak") on July, 30, 2021 ("Nuevopak Acquisition") as measured and reported in
the fourth quarter of 2021. 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
"Nuevopak Acquisition" below as well as the section below entitled “Non-GAAP and Other Specified Financial
Measures.”
5
Overview
The Company develops, manufactures and sells a variety of paper-and-film based pressure sensitive and water-activated tapes,
stretch and shrink 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, 2021 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
In response to the coronavirus ("COVID-19") pandemic that began in December 2019, the Company implemented measures to
prioritize the health and safety of its employees while protecting its assets, customers, suppliers, shareholders and other
stakeholders. The Company instituted paid leave for all U.S. employees for certain COVID-19-related reasons, implemented
remote work practices where possible, and added significant safety protocols for those needing to be on site at manufacturing
facilities. The Company's COVID-19 safety practices can be grouped into four main areas:
•
PROACTIVE COMMUNICATION: Portal to facilitate communication, including weekly COVID-19 updates for
operations managers and town halls for all staff conducted by the Company's senior management.
•
PREVENTION: Cleaning and sanitization processes including disinfection using UVC light and ozone to sanitize
areas and objects; social distancing, including camera monitoring to assess social distancing performance and
wearables to alert workers when the adequate distance is not maintained and help with contact tracking; mandatory
mask requirement; remote working; physical barriers; touchless entry and exit, and temperature monitoring; and thank
you bonuses for employees electing to receive the vaccination.
•
RESPONSE PLAN: Incident response and ‘ready-to-go’-resources including cleaning kits.
•
BEST PRACTICE SHARING AND TECHNOLOGY: Knowledge transfer across locations managed by a dedicated
corporate team, including a COVID-19 Best Practice Matrix, as well as the evaluation of technologies to manage risk
and automate processes.
While the Company has delivered positive financial results to date, the pandemic could yet materially impact, and in certain
ways has negatively impacted (see the discussion elsewhere in this document regarding supply chain challenges) 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 2022 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
6
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 achieved the revenue and adjusted EBITDA growth it expected in fiscal 2021 despite the challenges presented by
significant, continued and widespread inflation in input costs, global supply chain constraints and labor shortages. Global
supply chain disruptions, including those caused by COVID-19, ten-year highs in many commodity prices, weather-related
events, transportation capacity limitations, port congestion, and energy consumption and intensity restrictions, have required the
Company to modify supply plans, certify and source materials from new vendors, and increase selling prices to protect the
dollar spread in an inflationary environment. As anticipated, these factors put pressure on the Company's margin percentages
and required a significant investment in working capital. Demand remains strong and the Company continues to invest capital
in additional capacity for its highest growth product categories.
The Company reported a 26.3% increase in revenue for the year ended December 31, 2021 as compared to the year ended
December 31, 2020. Revenue increased for the year ended December 31, 2021 compared to 2020 primarily due to the impact of
higher selling prices in all product categories driven by significant increases in the cost of raw materials and freight. The full
year increase was also due to an increase in volume/mix primarily driven by organic growth in certain tape, films, woven, and
protective packaging products, including continued strength in products with significant e-commerce end-market exposure,
such as dispensing machines and water-activate tape, and the non-recurrence of COVID-19 related demand declines
experienced in the second quarter of 2020.
Revenue increased 20.2% in the fourth quarter of 2021 compared to the fourth quarter of 2020 primarily due to the impact of
higher selling prices and an increase in volume/mix primarily driven by certain tapes and dispensing machines.
Gross margin decreased to 22.2% in the year ended December 31, 2021 as compared to 23.8% in 2020. The decline in gross
margin from the year ended December 31, 2021 compared to 2020 was primarily due to the unfavourable mathematical impact
of Dollar Spread Maintenance(2).
Gross margin decreased to 19.7% in the fourth quarter of 2021 compared to 25.7% in the fourth quarter of 2020. The decline in
gross margin for the fourth quarter of 2021 compared to the fourth quarter of 2020 was primarily due to the unfavourable
mathematical impact of Dollar Spread Maintenance and an increase in plant operating costs including costs associated with
supply chain disruptions and labor shortages, partially offset by a favourable product mix.
IPG Net Earnings for the year ended December 31, 2021 decreased to $67.8 million ($1.15 basic and $1.12 diluted earnings per
share) from $72.7 million ($1.23 basic and $1.22 diluted earnings per share) for the year ended December 31, 2020. The
decrease was primarily due to (i) an increase in finance costs mainly due to the 2018 Senior Unsecured Notes Redemption
Charges(3), the non-recurrence of the Nortech Contingent Consideration Gain(4) and an increase in the NCI Put Options
Revaluation(5), and (ii) an increase in selling, general and administrative expenses ("SG&A") mainly due to the growth of the
business in 2021 and the non-recurrence of cost saving measures implemented in response to COVID-19 related uncertainty in
2020. These unfavourable impacts were partially offset by an increase in gross profit.
IPG Net Earnings for the fourth quarter of 2021 totalled $9.1 million ($0.15 basic and diluted earnings per share) compared to
$17.1 million ($0.29 basic and $0.28 diluted earnings per share) for the fourth quarter of 2020. The decrease was primarily due
to an increase in finance costs mainly due to an increase in the NCI Put Options Revaluation and a decrease in gross profit.
These unfavourable impacts were partially offset by a decrease in SG&A mainly due to a decrease in the fair value of cash-
settled share-based compensation awards in the fourth quarter of 2021 compared to a significant increase in the fourth quarter
of 2020.
As of December 31, 2021, the Company modified its definition of adjusted net earnings(6) to also exclude the NCI Put Options
Revaluation. The NCI Put Options Revaluation has been excluded because it is not considered by management to be
representative of the Company's underlying core operating performance as it is a non-operating, non-cash adjustment. Prior
period amounts presented have been conformed to the current definition of adjusted net earnings.
Adjusted net earnings increased to $118.5 million ($2.00 basic and $1.96 diluted adjusted earnings per share(6)) for the year
ended December 31, 2021 from $92.2 million ($1.56 basic and $1.55 diluted adjusted earnings per share) for the year ended
December 31, 2020. The increase was primarily due to an increase in gross profit, partially offset by increases in SG&A and
income tax expense.
7
Adjusted net earnings decreased to $26.2 million ($0.44 basic adjusted earnings per share and $0.43 diluted adjusted earnings
per share) for the fourth quarter of 2021 from $34.8 million ($0.59 basic adjusted earnings per share and $0.58 diluted adjusted
earnings per share) for the fourth quarter of 2020. The decrease was primarily due to an increase in SG&A and a decrease in
gross profit.
Adjusted EBITDA(6) increased to $247.2 million for the year ended December 31, 2021 from $211.1 million for the year ended
December 31, 2020. The increase was primarily due to an increase in gross profit, partially offset by an increase in SG&A.
Adjusted EBITDA decreased to $58.2 million for the fourth quarter of 2021 from $67.7 million for the fourth quarter of 2020.
The decrease was primarily due to an increase in SG&A and a decrease in gross profit.
(1)
Represents management estimates as the Company does not have access to exact point of sale data.
(2)
The "Dollar Spread Maintenance" refers to the Company's objective of maintaining the dollar spread between selling
prices and the cost of raw materials and freight in an inflationary environment by attempting to increase selling prices
to offset those higher costs. When this objective is successfully met, the result is a reduction in margin percentages due
to the mathematical effect of having a constant dollar profit per unit on a higher revenue per unit. The opposite would
be expected to occur in a deflationary input cost environment.
(3)
The "2018 Senior Unsecured Notes Redemption Charges" refers to debt issuance costs of $3.6 million that were
written off, as well as an early redemption premium and other costs of $14.4 million recorded in the second quarter of
2021 in connection with the redemption of the $250 million 7.00% senior unsecured notes that were scheduled to
mature on October 15, 2026 (the "2018 Senior Unsecured Notes"). For additional information, see the "Liquidity and
Borrowings" section below.
(4)
The "Nortech Contingent Consideration Gain" 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. The "Nortech
Acquisition" refers 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.
(5)
The "NCI Put Options Revaluation" refers to the valuation adjustment made to non-controlling interest put options.
Refer to Note 24 – Financial Instruments to the Company’s Financial Statements.
(6)
Non-GAAP financial measure. For definitions and reconciliations of non-GAAP financial measures to their most
directly comparable GAAP financial measures, see “Non-GAAP and Other Specified Financial Measures” below.
Other Highlights
Syfan USA Acquisition
On January 13, 2022, the Company acquired substantially all of the operating assets of Syfan Manufacturing, Inc. ("Syfan
USA") for $18.0 million, subject to post-closing adjustments. The Company financed the acquisition with funds available under
its 2021 Credit Facility (defined later in this document). Syfan USA manufactures polyolefin shrink film products at a facility in
Everetts, North Carolina, serving customers in a variety of end use applications. The acquisition of Syfan USA is expected to
expand the Company’s existing shrink film production capacity in North America, allowing the Company to better service the
growing demand of its customer base.
Acquisition by Clearlake
On March 7, 2022, the Company entered into a definitive agreement to be acquired by an affiliate of Clearlake Capital Group,
L.P. (together with certain of its affiliates, “Clearlake”). Under the terms of the agreement, Clearlake agreed to acquire the
outstanding shares of the Company for CDN$40.50 per share in an all-cash transaction valued at approximately US$2.6 billion,
including net debt. Upon completion of the transaction, the Company will become a privately held company. The transaction,
which will be effected pursuant to a court-approved plan of arrangement, is expected to close in the third quarter of 2022. The
transaction is not subject to a financing condition but is subject to customary closing conditions, including receipt of
shareholder, regulatory and court approvals.
Dividend Declaration
On March 10, 2022, the Board of Directors declared a dividend of $0.17 per common share payable on March 31, 2022 to
shareholders of record at the close of business on March 21, 2022.
8
On August 10, 2021, the Board of Directors increased the annualized dividend by 7.9% from $0.63 to $0.68 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 to drive operational excellence. The Company's core
sustainability goals and commitments include:
•
75% of the products manufactured by the Company, by revenue, will be Cradle to Cradle Certified™ by 2025;
•
75% of packaging products manufactured by the Company, by revenue, will be recyclable, reusable, or compostable
by 2025 and 100% by 2030;
•
50% of the energy used by the Company, at a minimum, will be renewable by 2030;
•
25% reduction in water withdrawal by 2030 (using 2019 as the baseline year);
•
25% reduction in energy intensity by 2030 (using 2019 as the baseline year);
•
30% reduction in CO2 emissions by 2030 (using 2019 as the baseline year);
•
committed to net-zero emissions by 2040 in line with the Climate Pledge, an initiative co-founded by Amazon and
Global Optimism, as well as the Business Ambition for 1.5°C campaign by Science Based Targets initiative;
•
the Company's workforce will be reflective of the demographics in the communities in which it operates by 2030; and
•
the top 200 people leaders at IPG will complete training and a management development program centered on
inclusivity and diversity.
In June 2021, the Company published its 2020 annual sustainability report, titled “Our Circular Economy”. The report provides
an overview of the Company’s sustainability progress in 2020 and highlights future opportunities. The Company's
achievements in 2021 include:
•
Achieved Cradle to Cradle Certified™ Bronze level for Intertape® Acrylic Carton Sealing Tape and Intertape® Hot
Melt Carton Sealing Tape.
•
Awarded the U.S. Environmental Protection Agency's 2021 ENERGY STAR® Partner of the Year - Sustained
Excellence(1) designation for the sixth consecutive year.
•
Achieved the U.S. Environmental Protection Agency's ENERGY STAR® Challenge for Industry Award for the fifth
time at the Carbondale, Illinois manufacturing facility.
•
Earned the U.S. Environmental Protection Agency's 2021 ENERGY STAR® Award for superior energy performance
at the Danville, Virginia regional distribution center.
•
Achieved ISO 50001 certification for the energy management system in place at the Danville, Virginia manufacturing
facility and regional distribution center.
•
Partnered with the U.S. Department of Energy Better Buildings® Low Carbon Pilot, a two year program designed to
demonstrate real world successes in achieving low carbon emissions from building and manufacturing operations.
•
Partnered with the Sustainable Packaging Coalition and How2Recycle® program in an effort to ensure recycling
instructions are communicated to customers in the most effective manner. As a result of this collaboration,
StretchFLEX® and SuperFLEX® stretch films qualified as store drop-off recyclable per the How2Recycle®
guidelines.
•
Achieved Cradle to Cradle Certified™ Silver level for Curby® Mailer HD and the Curby® Cushioning Solutions
family of products.
•
Supported customer sustainability initiatives with cradle to cradle certification of private label water-activated tape.
•
Submitted its first report to CDP Climate and received a B score, which is above the industry average, on the
comprehensiveness of disclosure, awareness and management of environmental risks and best practices associated
with environmental leadership.
•
Signed the CEO Water Mandate making an aspirational pledge to advance water stewardship across six commitment
areas including direct operations, public policy and transparency, and submit annual progress reports.
Read the full report at www.itape.com/sustainability.
9
Nuevopak Acquisition
On July 30, 2021, the Company completed the acquisition of Nuevopak Global Limited (“Nuevopak”) (the "Nuevopak
Acquisition") for $43.0 million in total estimated consideration. This amount includes $34.7 million paid at closing (net of cash
received) and potential earn-out consideration of up to $8.3 million to be paid upon the achievement of certain operational
milestones within three years from the date of closing. The Company financed the acquisition with funds available under its
2021 Credit Facility (defined later in this document).
Nuevopak designs and develops a range of machines that provide void-fill and cushioning protective packaging solutions
primarily targeting protective paper packaging solutions. Prior to the acquisition, Nuevopak supplied the Company with paper
dispensing machines and converted paper for protective packaging distribution in North America. Nuevopak is headquartered
in Hong Kong with subsidiaries in Jiangmen, China and Scheden, Germany that serve customers around the world, providing
protective packaging solutions using a combination of world-class innovation and specialized industry experience.
This acquisition is expected to further strengthen the Company's product bundle and secure a broader suite of sustainable
packaging solutions, thereby supporting the Company’s vision to be a global leader in packaging and protective solutions. The
acquisition is also expected to enable the Company to secure dispensing machine supply, vertically integrate its paper
converting operation, and expand market share in this growing, sustainability-focused market.
The Company expects to achieve a post-synergy adjusted EBITDA acquisition multiple on the Nuevopak transaction that is
approximately 5x by 2023. In management’s view, the post-synergy multiple is more representative of the contribution
Nuevopak can offer within the Company, compared to Nuevopak’s current modest contribution on a stand-alone basis given
its early stage growth profile. Expected cost synergies include margin expansion through the vertical integration of the
Company’s paper converting operations, as well as savings on future capital expenditures by leveraging Nuevopak’s strategic
parts sourcing and assembly capabilities. The Company also believes additional revenue synergies will materialize as it
continues to scale its protective packaging business across multiple market verticals, led by the continued demand growth in
the e-commerce fulfillment vertical and customer preferences for sustainable packaging solutions. In total, deal and
integration costs are expected to be approximately $2 to $3 million, with the majority of these costs expected to be recognized
by the end of 2022.
The Nuevopak Acquisition’s impact on the Company’s consolidated earnings was as follows (in millions of USD):
Three months ended
December 31, 2021
July 31 through
December 31, 2021
$
$
Revenue
0.8
2.9
Net loss
0.6
0.8
Results of Operations
Revenue
Revenue for the year ended December 31, 2021 totalled $1,531.5 million, a $318.4 million or 26.3% increase from $1,213.0
million for the year ended December 31, 2020, primarily due to:
•
The impact of higher selling prices of approximately $162 million across all product lines driven by increases in the
cost of raw materials and freight;
•
An increase in volume/mix of approximately 12% or $143 million primarily driven by organic growth in certain tapes,
machines, films, woven, and protective packaging products, including continued strength in products with significant
e-commerce end-market exposure such as dispensing machines and water-activated tape, and the non-recurrence of
COVID-19 related demand declines experienced in the second quarter of 2020; and
•
A favourable foreign exchange impact of $11 million.
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 4.7% or $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.
10
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 fourth quarter of 2021 totalled $413.7 million, a $69.6 million or 20.2% increase from $344.1 million for the
fourth quarter of 2020, primarily due to:
•
The impact of higher selling prices of approximately $62 million across all product lines driven by increases in the cost
of raw materials and freight; and
•
An increase in volume/mix of approximately 2% or $7 million primarily driven by certain tapes, woven products, and
dispensing machines.
Gross Profit and Gross Margin
Gross profit totalled $340.0 million for the year ended December 31, 2021, a $51.2 million or 17.7% increase from $288.8
million for the year ended December 31, 2020. Gross margin was 22.2% in 2021 and 23.8% in 2020.
•
Gross profit increased primarily due to a favourable product volume/mix and an increase in spread between selling
prices and combined raw material and freight costs, partially offset by unfavourable performance of the Nortech
Acquisition and the unfavourable impacts of supply chain disruptions and labor shortages.
•
Gross margin decreased primarily due to the unfavourable mathematical impact of Dollar Spread Maintenance.
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.
Gross profit totalled $81.3 million for the fourth quarter of 2021, a $7.2 million or 8.1% decrease from $88.5 million for the
fourth quarter of 2020. Gross margin was 19.7% in the fourth quarter of 2021 and 25.7% in the fourth quarter of 2020.
•
Gross profit decreased primarily due to an increase in plant operating costs, unfavourable performance of the Nortech
Acquisition, and the unfavourable impacts of supply chain disruptions and labor shortages, partially offset by
favourable product volume/mix.
•
Gross margin decreased primarily due to the unfavourable mathematical impact of Dollar Spread Maintenance and the
increase in plant operating costs.
Selling, General and Administrative Expenses
SG&A totalled $177.1 million for the year ended December 31, 2021, a $19.7 million or 12.5% increase from $157.5 million
for the year ended December 31, 2020. The increase was primarily due to increases in (i) variable compensation, (ii)
professional consulting services, including M&A Costs (defined later in this document), and (iii) employee- and technology-
related costs, all of which increased mainly due to the growth of the business in 2021 and the non-recurrence of cost saving
measures implemented in response to COVID-19 related uncertainty in 2020.
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. 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.
Share-based compensation expense totalled $21.7 million, $22.9 million and $0.5 million for the years ended December 31,
2021, 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.
As a percentage of revenue, SG&A, excluding share-based compensation expense, represented 10.2%, 11.1%, and 11.8%% for
2021, 2020 and 2019, respectively.
11
SG&A for the fourth quarter of 2021 totalled $43.5 million, a $9.9 million or 18.6% decrease from $53.4 million for the fourth
quarter of 2020. The decrease was primarily due to a decrease in the fair value of cash-settled share-based compensation awards
in the fourth quarter of 2021 compared to a significant increase in the fourth quarter of 2020, partially offset by the increases in
SG&A in 2021 discussed above.
Manufacturing Facility Closures, Restructuring and Other
Manufacturing facility closures, restructuring and other related charges were nil for the year ended December 31, 2021 and
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 in 2020 was primarily due to higher closure costs incurred in 2019 related to both 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 in 2019 were composed of $4.3 million of 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.
(1)
"Cantech" refers to Canadian Technical Tape Ltd. which was acquired by the Company in July 2017.
Finance Costs (Income)
Finance costs for the year ended December 31, 2021 totalled $56.9 million, a $33.7 million increase from $23.2 million for the
year ended December 31, 2020, primarily due to (i) the 2018 Senior Unsecured Notes Redemption Charges in 2021, (ii) the
non-recurrence of the Nortech Contingent Consideration Gain, and (iii) an increase in the NCI Put Options Revaluation (refer to
Note 24 in the Company's Financial Statements for more information regarding the options).
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) the Nortech Contingent Consideration Gain, (ii) a decrease in interest
expense as discussed below, and (iii) a decrease in the NCI Put Options Revaluation. These favourable items were partially
offset by the non-recurrence of the benefit resulting from the favourable settlement of the previously-recorded liability related
to a 2018 business acquisition 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 fourth quarter of 2021 totalled $18.3 million, an $8.4 million increase from finance costs of $9.9 million
for the fourth quarter of 2020, primarily due to an increase in the NCI Put Options Revaluation, partially offset by (i) foreign
exchange gains in 2021 compared to foreign exchange losses in 2020 and (ii) a decrease in interest expense largely due to a
lower average cost of debt, partially offset by higher average debt outstanding.
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):
Three months ended
December 31,
Year ended
December 31,
2021
2020
2021
2020
2019
$
$
$
$
$
Income tax expense
6.7
5.0
24.1
19.1
16.3
Earnings before income tax expense
16.5
22.3
94.1
92.6
57.5
Effective tax rate
40.9 %
22.2 %
25.6 %
20.7 %
28.3 %
The increase in the effective tax rate for the year ended December 31, 2021 compared to the same period in 2020 was primarily
due to the unfavourable impacts of non-deductible activity including the NCI Put Option Revaluation and certain other
expenses within the US as a result of limitations imposed by the Tax Cuts and Jobs Act ("TCJA").
The increase in the effective tax rate for the year ended December 31, 2020 compared to the same period in 2019 is primarily
due to the elimination of certain tax benefits as a result of the 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, 2020 would have
been 26.3%. 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 three months ended December 31, 2021 compared to the same period in 2020 was
primarily due to the unfavourable impact of the non-deductible NCI Put Option Revaluation.
IPG Net Earnings
IPG Net Earnings totalled $67.8 million for the year ended December 31, 2021, a $4.9 million decrease from $72.7 million for
the year ended December 31, 2020. The decrease was primarily due to (i) an increase in finance costs mainly due to the 2018
Senior Unsecured Notes Redemption Charges, the non-recurrence of the Nortech Contingent Consideration Gain and an
increase in the NCI Put Options Revaluation, and (ii) an increase in SG&A mainly due to the growth of the business in 2021
and the non-recurrence of cost saving measures implemented in response to COVID-19 related uncertainty in 2020. These
unfavourable impacts were partially offset by an increase in gross profit.
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 an increase in gross profit and the Nortech Contingent
Consideration Gain. 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 2021 totalled $9.1 million, a $8.0 million decrease from $17.1 million for the fourth
quarter of 2020. The decrease was primarily due to an increase in finance costs mainly due to an increase in the NCI Put
Options Revaluation and a decrease in gross profit. These unfavourable impacts were partially offset by a decrease in SG&A
mainly due to a decrease in the fair value of cash-settled share-based compensation awards in the fourth quarter of 2021
compared to a significant increase in the fourth quarter of 2020.
13
Non-GAAP and Other Specified Financial Measures
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 and other specified
financial measures 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 and other specified
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. Where 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 and other
specified financial measures to their most directly comparable GAAP financial measures set forth below and should consider
non-GAAP and other specified financial measures 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.
Non-GAAP Financial Measures
A non-GAAP financial measure (i) depicts the historical or expected future financial performance, financial position or cash
flows of the Company, (ii) with respect to its composition, excludes an amount that is included in, or includes an amount that is
excluded from, the composition of the most comparable financial measure presented in the financial statements, (iii) is not
presented in the financial statements of the Company, and (iv) is not a ratio, fraction, percentage or similar representation.
Non-GAAP financial measures presented and discussed in this MD&A are as follows:
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) the
valuation adjustment made to non-controlling interest put options ("NCI Put Option Revaluation"); (ix) other discrete items as
shown in the table below; and (x) 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
14
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
Twelve months ended
December 31,
2021
December 31,
2020
December 31,
2021
December 31,
2020
December 31,
2019
$
$
$
$
$
M&A Costs
5.0
0.4
8.1
3.5
11.2
M&A Costs for the year ending December 31, 2021 were composed of $3.6 million in due diligence, legal, accounting, and
other advisory costs, including for deals that did not progress to the execution phase ("Due Diligence"), $2.9 million in
integration costs and $1.6 million in non-cash purchase price accounting adjustments.
M&A Costs in the fourth quarter of 2021 were composed of $2.8 million in integration costs, $1.4 million in Due Diligence and
$0.8 million in non-cash purchase price accounting adjustments.
The integration costs in the fourth quarter and full year 2021 included impairment of pre-acquisition inventories related to
Nortech of $2.1 million.
15
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,
2021
2020
2021
2020
2019
$
$
$
$
$
IPG Net Earnings
9.1
17.1
67.8
72.7
41.2
Manufacturing facility closures, restructuring and
other related charges
—
—
—
4.3
5.1
M&A Costs
5.0
0.4
8.1
3.5
11.2
Share-based compensation expense
0.7
18.4
21.7
22.9
0.5
Impairment of long-lived assets and other assets
0.4
0.3
0.8
0.6
0.9
Loss on disposal of property, plant and equipment
0.2
0.1
0.1
0.3
0.6
NCI Put Option Revaluation
12.0
2.5
12.0
2.5
3.3
Other item: special income tax events(1)
—
—
—
—
2.3
Other item: Nortech Contingent Consideration Gain
—
—
—
(11.0)
—
Other item: Nortech incremental tax costs incurred(2)
—
—
0.8
—
—
Other item: 2018 Senior Unsecured Notes
Redemption Charges
—
—
18.1
—
—
Income tax benefit, net
(1.3)
(3.9)
(10.8)
(3.4)
(4.0)
Adjusted net earnings(3)
26.2
34.8
118.5
92.2
61.2
IPG Net Earnings per share
Basic
0.15
0.29
1.15
1.23
0.70
Diluted
0.15
0.28
1.12
1.22
0.70
Adjusted earnings per share(3)
Basic
0.44
0.59
2.00
1.56
1.04
Diluted
0.43
0.58
1.96
1.55
1.04
Weighted average number of common shares
outstanding
Basic
59,284,947 59,012,869 59,127,025 59,010,485 58,798,488
Diluted
60,568,005 60,083,664 60,516,106 59,630,873 58,989,134
(1)
Refers to the Proposed Tax Assessment recorded in the second quarter of 2019.
(2)
Refers to charges incurred related to an amount payable to the former owners of Nortech for tax-related costs
associated with the Nortech Acquisition that was subsequently paid in July 2021.
(3)
Prior period amounts presented have been conformed to the current definition of adjusted net earnings which excludes
the NCI Put Options Revaluation.
Adjusted net earnings totalled $118.5 million for the year ended December 31, 2021, a $26.3 million or 28.6% increase from
$92.2 million for the year ended December 31, 2020. The increase was primarily due to an increase in gross profit, partially
offset by increases in SG&A and income tax expense.
Adjusted net earnings totalled $92.2 million for the year ended December 31, 2020, a $31.0 million or 50.8% increase from
$61.2 million for the year ended December 31, 2019. The increase was primarily due to an increase in gross profit, partially
offset by an increase in income tax expense.
16
Adjusted net earnings totalled $26.2 million for the fourth quarter of 2021, an $8.6 million or 24.8% decrease from $34.8
million for the fourth quarter of 2020. The decrease was primarily due to an increase in SG&A and a decrease in gross profit.
EBITDA and Adjusted EBITDA
A reconciliation of the Company’s EBITDA and adjusted EBITDA, both of which are non-GAAP financial measures, to net
earnings (loss), the most directly comparable GAAP financial measure, is set out in the table below. EBITDA and adjusted
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.
EBITDA and Adjusted EBITDA Reconciliation to Net Earnings
(In millions of USD)
(Unaudited)
Three months ended
December 31,
Year ended
December 31,
2021
2020
2021
2020
2019
$
$
$
$
$
Net earnings
9.7
17.4
70.0
73.5
41.2
Interest and other finance costs
18.3
9.9
56.9
23.2
35.0
Income tax expense
6.7
5.0
24.1
19.1
16.3
Depreciation and amortization
17.1
16.2
65.5
63.8
61.4
EBITDA
51.9
48.5
216.5
179.6
154.0
Manufacturing facility closures, restructuring and
other related charges
—
—
—
4.3
5.1
M&A Costs
5.0
0.4
8.1
3.5
11.2
Share-based compensation expense
0.7
18.4
21.7
22.9
0.5
Impairment of long-lived assets and other assets
0.4
0.3
0.8
0.6
0.9
Loss on disposal of property, plant and equipment
0.2
0.1
0.1
0.3
0.6
Adjusted EBITDA
58.2
67.7
247.2
211.1
172.2
Adjusted EBITDA totalled $247.2 million for the year ended December 31, 2021, a $36.0 million or 17.1% increase from
$211.1 million for the year ended December 31, 2020. The increase was primarily due to an increase in gross profit, partially
offset by an increase in SG&A.
17
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. The increase was primarily due to an increase in gross profit.
Adjusted EBITDA totalled $58.2 million for the fourth quarter of 2021, a $9.4 million or 13.9% decrease from $67.7 million
for the fourth quarter of 2020. The decrease was primarily due to an increase in SG&A and a decrease in gross profit.
Free Cash Flows
Free cash flows is defined by the Company as cash flows from operating activities less purchases of property, plant and
equipment. 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 is including free cash
flows because it is used by management and investors in evaluating the Company’s performance and liquidity. 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. A reconciliation of free cash flows to cash flows from operating activities, the
most directly comparable GAAP financial measure, is set forth in the section entitled "Cash Flows - Free Cash Flows".
Non-GAAP Ratios
A non-GAAP ratio is a financial measure presented in the form of a ratio, fraction, percentage or similar representation that has
a non-GAAP financial measure as one of its components and is not presented in the financial statements of the Company. The
non-GAAP ratios presented and discussed in this MD&A are as follows:
Total Leverage Ratio. Consolidated Secured Net Leverage Ratio and Consolidated Interest Coverage Ratio
The Company defines total leverage ratio as borrowings and lease liabilities less cash divided by adjusted EBITDA.
Consolidated secured net leverage ratio and consolidated interest coverage ratio are defined in the Company’s 2021 Credit
Facility (please refer to such document for a definition of this term and its prescribed calculation). Refer to "Non-GAAP
Financial Measures - EBITDA and Adjusted EBITDA Reconciliation to Net Earnings" above for the reconciliation of adjusted
EBITDA to the most directly comparable GAAP financial measure.
The terms "total leverage ratio", "consolidated secured net leverage ratio" and "consolidated interest coverage 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, consolidated secured net leverage ratio and consolidated
interest coverage rat 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 or consolidated interest coverage ratio debt covenants 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 as well as determine the Company's compliance with the financial covenants of its credit facility. 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.
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 $67.9 million for the year ended December 31, 2021, a $5.1
million or 7.0% decrease from $73.0 million for the year ended December 31, 2020. The decrease was primarily due to losses
arising from the Company's hedge of a net investment in foreign operations in 2021 compared to gains in 2020 and lower IPG
Net Earnings, partially offset by (i) favourable foreign exchange impacts from cumulative translation adjustments ("CTA") in
2021 as compared to unfavourable impacts in 2020, (ii) gains from the remeasurement of the defined benefit liability in 2021 as
compared to losses in 2020 and (iii) increases in the fair value of interest rate swap agreements designed as cash flow hedges in
2021 as compared to decreases in 2020.
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
18
and a decrease in 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.
Off-Balance Sheet Arrangements
Letters of Credit
The Company had standby letters of credit issued and outstanding as of December 31, 2021 that could result in payments by the
Company up to an aggregate of $2.3 million upon the occurrence of certain events. All of the letters of credit have expiry dates
in 2022.
Capital Commitments
The Company had commitments to suppliers to purchase machinery and equipment totalling approximately $26.2 million as of
December 31, 2021, primarily to support the Company's capacity expansion initiatives in its highest growth product categories,
specifically wovens, protective packaging, films, and water-activated tape. 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, 2021, the Company had on hand $12.2 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 2022 totaling approximately $22.3 million as of December 31, 2021. 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.
Utilities Commitments
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 $4.4 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 $1.9 million as of December 31, 2021. 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 other 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 $5.6 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
19
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.
Service Contract Commitments
The Company has entered into agreements with various service companies for the provision of services including machine
assembly and supply, energy consultation, and software access through June 2025. In the event of early termination, the
Company would be required to pay the remaining fees owed under the agreements which totalled $1.1 million as of
December 31, 2021.
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 2021, ten in 2020, eight in 2019) and
senior executive level members of management (eight in 2021, eight in 2020 and six 2019). 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 $19.7 million for the year ended
December 31, 2021, a decrease of $2.7 million from $22.3 million for the year ended December 31, 2020. The decrease was
primarily due to a decrease in share-based compensation expense mainly driven by a smaller increase in the fair value of cash-
settled awards in 2021 as compared to 2020 as well as a decrease in variable compensation based on the level of achievement of
certain performance targets.
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.
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 decreased to 66 for the
year ended December 31, 2021 from 67 for the year ended December 31, 2020. Days Inventory increased to 69 for the fourth
quarter of 2021 from 61 in the fourth quarter of 2020. Inventories totalled $280.3 million as of December 31, 2021, an $85.8
million increase from $194.5 million as of December 31, 2020. The increase was primarily due to increases in raw material
prices as well as the impact and management of supply chain disruptions and inventory increases to support organic growth.
The calculations are shown in the following table (in millions of USD, except days):
20
Three months ended
Year ended
December 31,
2021
December 31,
2020
December 31,
2021
December 31,
2020
Cost of sales
$
332.4 $
255.6 $
1,191.5 $
924.2
Days in period
92
92
365
366
Cost of sales per day
$
3.6 $
2.8 $
3.3 $
2.5
Average inventory
$
251.0 $
170.7 $
214.6 $
168.3
Days inventory
69
61
66
67
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 was 49 for the year
ended December 31, 2021 and 2020. DSO increased to 45 in the fourth quarter of 2021 from 43 in the fourth quarter of 2020.
Trade receivables totalled $204.0 million as of December 31, 2021, a $41.7 million increase from $162.2 million as of
December 31, 2020. The increase was primarily due to the impact of higher selling prices and the amount and timing of revenue
invoiced and collected later in the fourth quarter of 2021 compared to the fourth quarter of 2020.
The calculations are shown in the following table (in millions of USD, except days):
Three months ended
Year ended
December 31,
2021
December 31,
2020
December 31,
2021
December 31,
2020
Revenue
$
413.7 $
344.1 $
1,531.5 $
1,213.0
Days in period
92
92
365
366
Revenue per day
$
4.5 $
3.7 $
4.2 $
3.3
Trade receivables
$
204.0 $
162.2 $
204.0 $
162.2
DSO
45
43
49
49
DSO is calculated as follows:
Revenue ÷ Days in period = Revenue per day
Ending trade receivables ÷ Revenue per day = DSO
Accounts payable and accrued liabilities totalled $280.4 million as of December 31, 2021, an increase of $99.9 million from
$180.4 million as of December 31, 2020. The increase was primarily due to the timing of payments related to inventories and
SG&A as well as higher raw material prices in 2021.
Liquidity and Borrowings
Liquidity
The Company relies upon cash flows from operations and borrowings to meet working capital requirements, as well as to fund
capital expenditures, 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 2021 Credit Facility may be used, as needed, to fund
more significant strategic initiatives.
21
As of December 31, 2021, the Company had $26.3 million of cash and $502.1 million of loan availability (composed of
committed funding of $497.7 million and uncommitted funding of $4.4 million), yielding total cash and loan availability of
$528.4 million compared to total cash and loan availability of $408.7 million as of December 31, 2020.
2021 Senior Unsecured Notes
On June 8, 2021, the Company completed the private placement of $400 million aggregate principal amount of senior
unsecured notes due June 15, 2029 ("2021 Senior Unsecured Notes"). The Company incurred debt issuance costs of
$5.0 million which were capitalized and are being amortized using the straight-line method over the eight-year term. The 2021
Senior Unsecured Notes bear interest at a rate of 4.375% per annum, payable semi-annually, in cash, in arrears on June 15 and
December 15 of each year, beginning on December 15, 2021.
The Company used the net proceeds from the 2021 Senior Unsecured Notes to redeem its previously outstanding $250 million
7.00% senior unsecured notes due in October 2026, to repay a portion of the borrowings outstanding under its 2018 Credit
Facility (discussed below) and to pay related fees and expenses, as well as for general corporate purposes.
As of December 31, 2021, the 2021 Senior Unsecured Notes outstanding balance amounted to $400.0 million ($395.6 million,
net of $4.4 million in unamortized debt issuance costs).
2021 Credit Facility
On June 14, 2021, the Company entered into a new five-year, $600 million credit facility (“2021 Credit Facility”) with a
syndicated lending group, amending and extending the Company's previous $600 million credit facility that was due to mature
in June 2023 ("2018 Credit Facility"). The 2018 Credit Facility's outstanding balance of $112.8 million at the time of
amendment was transferred to the 2021 Credit Facility.
In securing the 2021 Credit Facility, the Company incurred debt issuance costs amounting to $3.4 million, which, in addition to
the remaining unamortized debt issuance costs on the 2018 Credit Facility, were capitalized and are being amortized using the
straight-line method over the five-year term of the loan. The 2021 Credit Facility consists of a $600.0 million revolving credit
facility, as well as an incremental accordion feature of $300.0 million, which would enable the Company to increase the limit of
this facility (subject to the credit agreement's terms and lender approval) to $900.0 million, if needed.
The 2021 Credit Facility matures on June 12, 2026 and bears an interest rate based, at the Company’s option, on the London
Inter-bank Offered Rate ("LIBOR") (or a lender-approved comparable or successor rate), the Federal Funds Rate, or Bank of
America’s prime rate, plus a spread varying between 10 and 235 basis points (110 basis points as of December 31, 2021)
depending on the debt instrument's benchmark interest rate and the consolidated secured net leverage ratio.
As of December 31, 2021, the 2021 Credit Facility's outstanding principal balance amounted to $100.0 million ($96.1 million,
net of $3.9 million in unamortized debt issuance costs). Including $2.3 million in standby letters of credit, total utilization under
the 2021 Credit Facility amounted to $102.3 million. Accordingly, the Company’s unused availability as of December 31, 2021
amounted to $497.7 million.
The 2021 Credit Facility has two financial covenants, a consolidated secured net leverage ratio not to be more than 4.00 to 1.00,
with an allowable temporary increase to 4.50 to 1.00 for the quarter in which the Company consummates an acquisition with a
price not less than $50 million and the following three quarters, and a consolidated interest coverage ratio not to be less than
2.25 to 1.00. The Company was in compliance with the consolidated secured net leverage ratio and consolidated interest
coverage ratio, which were 0.47 and 10.73 respectively, as of December 31, 2021. In addition, the 2021 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 December 31, 2021.
The 2021 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.
2018 Capstone Credit Facility
On February 6, 2018, one of the Company's Indian 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 Indian Marginal Cost-
22
Lending Rate Any repayments of borrowings under the Capstone Term Loan Facility are not available to be borrowed again in
the future. The 2018 Capstone Working Capital Facility and the balance of the Capstone Term Loan Facility mature 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, 2021, the 2018 Capstone Credit Facility credit limit was INR 975.0 million ($13.1 million). The Capstone
Term Loan Facility had an outstanding balance of INR 564.1 million ($7.6 million), and the Capstone Working Capital Facility
outstanding balance was INR 283.4 million ($3.8 million) for a total gross outstanding amount of INR 847.5 million ($11.4
million). As of December 31, 2021, the 2018 Capstone Credit Facility's unused availability was INR 106.6 million ($1.4
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.
Cash Flows
The Company’s net working capital on the balance sheets increased during 2021 and 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 2021 and 2020 working capital items appropriately exclude these effects.
Cash flows from operating activities decreased in the year ended December 31, 2021 by $19.2 million to $160.4 million from
$179.6 million in the year ended December 31, 2020 primarily due to an increase in cash used for working capital items,
partially offset by an increase in gross profit. Changes in working capital items consisted primarily of (i) a greater increase in
inventories, (ii) greater increase in accounts receivables, and (iii) share-based compensation settlements in 2021 related to cash-
settled awards as discussed in the "Capital Stock" section below, partially offset by a greater increase in accounts payable. A
larger investment in working capital was required in 2021 due to higher selling and raw material prices, the impacts and
management of supply chain constraints, as well as organic growth and the timing of payments and receipts. 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, 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.
Cash flows from operating activities increased in the fourth quarter of 2021 by $35.8 million to $124.4 million from $88.6
million in the fourth quarter of 2020 primarily due to an increase in cash flows from working capital items and a decrease in
income tax paid, partially offset by a decrease in gross profit. Changes in working capital items consisted primarily of a greater
increase in accounts payable and accrued liabilities, partially offset by a greater increase in inventories as discussed in the
section entitled "Working Capital” above
Cash flows used for investing activities increased in the year ended December 31, 2021 by $38.6 million to $121.4 million from
$82.8 million in the year ended December 31, 2020. Cash flows used for investing activities increased by $8.3 million to $33.8
million in the fourth quarter of 2021 from $25.5 million in the fourth quarter of 2020. The increase in both periods was
primarily due to an increase in capital expenditures as discussed in the section entitled "Capital Resources".
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 outflows for financing activities decreased in the year ended December 31, 2021 by $60.7 million to $27.1 million from
$87.8 million in the year ended December 31, 2020 primarily due to greater net borrowings in 2021 to support increases in
working capital needs and higher capital expenditures, partially offset by charges incurred as a result of changes to the
Company's capital structure in 2021, including the 2018 Senior Unsecured Notes Redemption Charges and debt issuance costs
associated with the 2021 Senior Unsecured Notes and the 2021 Credit Facility. Additional discussion on borrowings is provided
in the section entitled "Liquidity and Borrowings".
Cash outflows for financing activities decreased in the year ended December 31, 2020 by $11.0 million to $87.8 million from
$98.9 million in the year ended December 31, 2019 primarily due to a decrease in net debt repayments and a decrease in interest
23
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.
Cash outflows for financing activities increased by $11.2 million to $71.6 million in the fourth quarter of 2021 from $60.4
million in the fourth quarter of 2020 primarily due to greater net debt repayments in the fourth quarter of 2021.
Free Cash Flows
A reconciliation of free cash flows, a non-GAAP financial measure, to cash flows from operating activities, the most directly
comparable GAAP financial measure, is set forth below. For definitions of non-GAAP financial measures, see the section
entitled “Non-GAAP and Other Specified Financial Measures”.
Free Cash Flows Reconciliation to Cash Flows from Operating Activities
(In millions of USD)
(Unaudited)
Three months ended
December 31,
Year ended
December 31,
2021
2020
2021
2020
2019
$
$
$
$
$
Cash flows from operating activities
124.4
88.6
160.4
179.6
135.0
Less purchases of property, plant and equipment
(33.8)
(24.8)
(81.3)
(45.8)
(48.2)
Free cash flows
90.6
63.8
79.1
133.8
86.8
Free cash flows decreased in the year ended December 31, 2021 by $54.6 million to $79.1 million from $133.8 million in the
year ended December 31, 2020 primarily due to an increase in capital expenditures and working capital needs.
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 fourth quarter of 2021 by $26.8 million to $90.6 million from $63.8 million in the fourth
quarter of 2020, primarily due to an increase in cash flows from operating activities, partially offset by an increase in capital
expenditures.
Capital Resources
Capital expenditures totalled $33.8 million and $81.3 million in the three months and year ended December 31, 2021,
respectively, and were funded primarily by the Company's cash flows from operating activities and borrowings. Capital
expenditures for the year ended December 31, 2021 consisted of approximately $43 million to expand production capacity in
the Company's highest growth product categories, specifically water-activated tape, wovens, protective packaging and films, as
well as approximately $17 million for cost savings initiatives and digital transformation and approximately $21 million for
regular maintenance. Some of the Company's capacity expansion initiatives announced in 2021 have been delayed by supply
chain constraints and labor shortages, which will result in some expenditures shifting into 2022. By installing new capacity
within its existing footprint, the Company expects these capacity expansion projects will provide shorter-term investment
horizons and return profiles that will exceed 20% in after-tax internal rates of return. The Company is investing directly into
categories where it expects demand to exceed production in the near term. Based on its current capital plan for capacity
expansion initiatives, the Company still anticipates generating approximately $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 Company had commitments to suppliers to purchase machinery and equipment totalling approximately $26.2 million as of
December 31, 2021, primarily to support the Company's capacity expansion initiatives discussed above. 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.
24
Contractual Obligations
The Company’s principal contractual obligations and commercial commitments as of December 31, 2021 are summarized in the
following table (in millions of USD):
Payments Due by Period (1)
Total
Less
than
1 year
1-3
years
4-5
years
After
5 years
$
$
$
$
$
Debt obligations (2)
653.1
27.8
46.3
136.5
442.5
Standby letters of credit (2)
2.3
2.3
—
—
—
Capitalized lease obligations (3)
54.4
12.8
16.4
10.2
14.9
Pensions, post-retirement and other long-term
employee benefit plans (4)
13.0
7.9
1.8
1.7
1.6
Operating lease and related service contract
obligations
0.8
0.5
0.3
—
—
Equipment purchase commitments
26.2
26.2
—
—
—
Utilities contract obligations (5)
9.9
4.5
5.5
—
—
Raw material purchase commitments (6)
34.5
34.5
—
—
—
Other obligations (7)
22.8
14.3
4.7
2.0
1.9
Total
817.1
130.9
74.9
150.4
460.9
(1)
"Less than 1 year" represents those payments due in 2022, "1-3 years" represents those payments due in 2023 and
2024, "3-5 years" represents those payments due in 2025 and 2026, while "After 5 years" includes those payments due
in later years.
(2)
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 $134.2
million representing the contractual undiscounted cash flows categorized by their earliest contractual maturity date.
Amounts included in deferred income in other liabilities pertaining to forgivable government loans are not included in
the table above. Refer to Note 24 in the Company’s Financial Statements for a complete discussion of liquidity risk.
(3)
The figures in the table above include interest expense included in minimum lease payments of $9.5 million and
exclude variable lease payments. Refer to Note 24 in the Company’s Financial Statements for a complete discussion
of liquidity risk.
(4)
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 2022, including benefit payments associated with the health & welfare and other
wholly unfunded post-retirement plans. Defined benefit plan contributions beyond 2022 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, 2021 to be paid in 2022.
Certain defined contribution plan contributions beyond 2022 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, 2021,
obligations under the deferred compensation plan totalled $8.3 million.
25
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.
(5)
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, including the impact of
COVID-19, that may affect the availability or benefits of the agreements now or in the future.
(6)
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.
(7)
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, 2021, (vi) service agreements for which the Company is contractually obligated, and (vii) other
liabilities. Refer to Notes 15, 16, 23, and 17 in the Company’s Financial Statements for a complete discussion of lease
liabilities, provisions and contingent liabilities, service agreements, 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, 2021 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 $38.9 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 $27.5 million
as of December 31, 2021, 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.
Capital Stock and Dividends
Common Shares
As of December 31, 2021, there were 59,284,947 common shares of the Company outstanding.
26
Dividends
On August 10, 2021, the Board of Directors amended the Company's quarterly policy to increase the annualized dividend by
7.9% from $0.63 to $0.68 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, 2021, cash dividends paid to shareholders were
as follows:
Declared Date
Paid date
Per common
share
amount
Shareholder
record date
Common
shares issued
and
outstanding
Aggregate
payment (1)
March 11, 2021
March 31, 2021
$
0.1575 March 22, 2021
59,027,047 $
9.2
May 11, 2021
June 30, 2021
$
0.1575 June 16, 2021
59,027,047 $
9.2
August 10, 2021
September 30, 2021
$
0.1700 September 16, 2021
59,284,947 $
10.0
November 11, 2021
December 31, 2021
$
0.1700 December 17, 2021
59,284,947 $
10.2
(1)
Aggregate dividend payment amounts presented in the table above are adjusted for the impact of foreign exchange
rates on cash payments to shareholders.
On March 10, 2022, the Board of Directors declared a dividend of $0.17 per common share payable on March 31, 2022 to
shareholders of record at the close of business on March 21, 2022.
The dividends paid in 2021 and payable in 2022 by the Company are "eligible dividends" as defined in subsection 89(1) of the
Income Tax Act (Canada).
Share Repurchases
On July 23, 2021, 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, 2022. As of December 31, 2021 and March 10, 2022, 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, 2021 and July 22, 2020, respectively. There were no share repurchases during the years ended December
31, 2021 and 2020.
27
Share-based Compensation
The Company's share-based compensation plans include: stock options, Performance Share Units ("PSU"), Restricted Share
Units ("RSU") and Deferred Share Units ("DSU").
The table below summarizes share-based compensation activity that occurred during the following periods:
Three months ended
December 31,
Year ended
December 31,
2021
2020
2021
2020
2019
Equity-settled
Stock options granted
—
—
243,152 1,533,183
392,986
Stock options exercised
—
17,362
257,900
17,362
359,375
Stock options forfeited/cancelled
—
—
—
77,500
32,503
Cash proceeds (in millions of USD)
—
$0.3
$2.7
$0.3
$3.3
Cash-settled
DSUs granted
11,860
13,312
67,554
115,114
72,434
PSUs granted
—
—
200,982
694,777
291,905
PSUs added (cancelled) by performance factor (1)
—
—
143,512 (346,887) (401,319)
PSUs settled (1)
—
—
409,670
—
—
PSUs forfeited/cancelled
3,872
20,891
10,046
25,923
23,739
RSUs granted
—
—
81,981
281,326
120,197
RSUs forfeited/cancelled
1,291
6,965
3,349
8,643
7,412
RSUs settled
—
—
106,906
—
—
Cash settlements (in millions of USD)
—
—
$13.2
—
—
Share-based compensation expense (in millions of
USD)
$0.7
$18.4
$21.7
$22.9
$0.5
(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:
Grant Date
Date Settled
Target Shares
Performance
PSUs settled
March 21, 2016
March 21, 2019
371,158
0 %
—
December 20, 2016
December 20, 2019
30,161
0 %
—
March 20, 2017
March 20, 2020
346,887
0 %
—
March 21, 2018
March 23, 2021
266,158
153.9 % $
409,670
Grant details for PSUs granted during the year ended December 31, 2021 and 2020:
The number of PSUs granted during the years ended December 31, 2021 and 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;
•
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
28
•
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 year ended December 31, 2019:
The number of PSUs granted during the year ended 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:
•
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
Percent of Target Shares Vested
90th percentile or higher
200 %
75th percentile
150 %
50th percentile
100 %
25th percentile
50 %
Less than the 25th percentile
0 %
The ROIC Performance adjustment factor is determined as follows:
ROIC Performance
Percent of Target Shares Vested
1st Tier
0 %
2nd Tier
50 %
3rd Tier
100 %
4th Tier
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.
As of December 31, 2021, $19.1 million was recorded in share-based compensation liabilities, current, and $19.9 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 $12.3 million as of
December 31, 2021 as compared to $16.8 million as of December 31, 2020. The decrease was primarily due to an increase in
the year-end weighted average discount rate which was 2.57% and 3.00% as of December 31, 2021 for US and Canadian plans,
respectively, and 2.15% and 2.55% as of December 31, 2020 for US and Canadian plans, respectively.
The Company currently expects to contribute a total of $1.0 million to its defined benefit pension and health and welfare plans
in 2022. 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 2022. 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.
29
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. For qualifying cash flow hedges, 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.
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, 2021 and 2020 (in millions of USD):
Effective Date
Maturity
Notional amount
$
Settlement
Fixed interest
rate paid
%
June 8, 2017
June 20, 2022
40.0
Monthly
1.7900
August 20, 2018
August 18, 2023
60.0
Monthly
2.0450
The fair value of the derivative liabilities totalled $1.6 million and $4.0 million as of December 31, 2021 and 2020,
respectively.
Interest Rate Benchmark Reform
The LIBOR interest rate benchmark continues to be the subject of proposals for reform. It is expected that a transition away
from the widespread use of LIBOR to alternative rates will occur before June 2023 and that alternative reference rate(s) will be
established.
The Company is exposed to the LIBOR interest rate benchmark as a result of its interest rate swap agreements and its variable
rate borrowings. The Company's 2021 Credit Facility currently contains benchmark replacement provisions. As of December
31, 2021 the Company has had no amendments to its interest rate swap agreements as it pertains to interest rate benchmark
reform.
The Company has applied certain reliefs that were introduced by Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS
39 and IFRS 7) in September 2019 and in the current year adopted the Phase 2 amendments Interest Rate Benchmark Reform—
Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16. Adopting these amendments enables the Company to reflect the
effects of transitioning from LIBOR to alternative benchmark interest rates without giving rise to accounting impacts that would
not provide useful information to users of financial statements.
Exchange Risk
While the Company is mainly exposed to the currency of the US dollar, a portion of its business is conducted in other
currencies. Changes in the exchange rates for other currencies into US dollars 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
30
•
considers borrowing under available debt facilities in the most advantageous manner, after considering interest rates,
foreign currency exposures, expected cash flows and other factors.
Hedge of net investment in foreign operations
A foreign currency exposure arises from Intertape Polymer Group Inc.'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. Both the 2018 Senior Unsecured Notes and the
2021 Senior Unsecured Notes (collectively "Senior Unsecured Notes") have been used to hedge the Company’s exposure to the
USD foreign exchange risk on this investment.
Gains or losses on the retranslation of these borrowings have been 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 expense (income),
net.
The changes in value related to the net investment in IPG (US) Holdings, Inc., designated as the hedged item, and the Senior
Unsecured Notes, designated as a hedging instrument, in the hedge of a net investment, are as follows (in millions of USD):
2021
2020
$
$
Gain (loss) from change in value of IPG (US) Holdings, Inc. used for calculating
hedge ineffectiveness
9.4
(6.5)
(Loss) gain from change in value of the Senior Unsecured Notes used for
calculating hedge ineffectiveness
(10.8)
6.5
(Loss) gain from Senior Unsecured Notes recognized in OCI
(9.4)
6.5
Loss from hedge ineffectiveness recognized in earnings in finance costs (income)
in other expense (income), net
(1.4)
—
Deferred tax expense on change in value of the Senior Unsecured Notes
recognized in OCI
(1.6)
(0.8)
The cumulative amounts included in the foreign currency translation reserve recognized in other comprehensive income related
to the hedge of net investment in foreign operations are a loss of $2.1 million and a gain of $7.3 million as of December 31,
2021 and 2020, respectively.
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 currently 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, 2021.
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. There were no material impairments, changes to allowance for credit losses,
restructuring charges or other changes in critical accounting judgments, estimates and assumptions that can directly attribute to
COVID-19 or otherwise for the year ended December 31 2021.
Critical Judgments in Applying the Company's Accounting Policies
The following are the critical judgments, apart from those involving estimations (which are presented separately below), that
management has made in the process of applying the Company’s accounting policies and that have the most significant effect
on the amounts recognized in financial statements.
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 reportable 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.
Key Sources of Estimation Uncertainty
The key assumptions concerning the future, and other key sources of estimation uncertainty at the reporting period that may
have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial
year, are discussed below.
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 that require 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. Discount rates
are determined close to each period-end by reference to market yields of high-quality corporate bonds that are denominated in
32
the currency in which the benefits will be paid and have terms to maturity approximating the terms of the related pension
benefit obligation. 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 costs and obligation related to the pension and other post-
retirement benefit plans and the sensitivity of those amounts to changes in these assumptions.
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, 2021 and 2020, 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. Refer to Note 9 of the
Company’s Financial Statements for more information regarding depreciable assets.
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 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
33
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
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 expected credit loss 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 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 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 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 of the Company’s Financial Statements for more information regarding business
acquisitions.
New Standards adopted as of January 1, 2021
In the prior year, the Company adopted the Phase 1 amendments Interest Rate Benchmark Reform—Amendments to IFRS 9, IAS
39 and IFRS 7. These amendments modify specific hedge accounting requirements to allow hedge accounting to continue for
affected hedges during the period of uncertainty before the hedged items or hedging instruments are amended as a result of the
interest rate benchmark reform.
In the current year, the Company adopted the Phase 2 amendments Interest Rate Benchmark Reform—Amendments to IFRS 9,
IAS 39, IFRS 7, IFRS 4 and IFRS 16. There was no material impact to the Company’s financial statements as a result of
34
adopting Interest Rate Benchmark Reform—Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16. Adopting these
amendments enables the Company to reflect the effects of transitioning from interbank offered rates ("IBOR") to alternative
benchmark interest rates without giving rise to accounting impacts that would not provide useful information to users of
financial statements. The amendments have been applied retrospectively.
The Company will continue to apply the Phase 1 amendments until the uncertainty arising from the interest rate benchmark
reform with respect to the timing and the amount of the underlying cash flows to which the Company is exposed ends. The
Company expects this uncertainty will continue until the Company’s contracts that reference IBORs are amended to specify the
date on which the interest rate benchmark will be replaced and the basis for the cash flows of the alternative benchmark rate are
determined. The Company has floating rate debt, linked to the London Inter-bank Offered Rate, which it cash flow hedges
using interest rate swaps. Details of the financial instruments affected by the interest rate benchmark reform together with a
summary of the actions taken by the Company to manage the risks relating to the reform and the accounting impact, including
the impact on hedge accounting relationships, appear in Note 24.
In the current year, the Company has applied a number of amendments to IFRS Standards and Interpretations issued by the
IASB that are effective for annual periods beginning on or after January 1, 2021. 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
affect only the presentation of liabilities as current or non-current in the statement of financial position and not the amount or
timing of recognition of any asset, liability, income or expenses, or the information disclosed about those items. The
amendments clarify that the classification of liabilities as current or non-current is based on rights that are in existence at the
end of the reporting period, specify that classification is unaffected by expectations about whether an entity will exercise its
right to defer settlement of a liability, explain that rights are in existence if covenants are complied with at the end of the
reporting period, and introduce a definition of ‘settlement’ to make clear that settlement refers to the transfer to the counterparty
of cash, equity instruments, other assets or services. 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.
The amendments are applied retrospectively, but only to items of property, plant and equipment that are brought to the location
and condition necessary for them to be capable of operating in the manner intended by management on or after the beginning of
the earliest period presented in the financial statements in which the Company first applies the amendments. The Company will
recognize the cumulative effect of initially applying the amendments as an adjustment to the opening balance of retained
earnings (or other component of equity, as appropriate) at the beginning of that earliest period presented. Management has
completed its analysis of the guidance and does not currently expect it to materially impact the Company’s financial statements.
On May 7, 2021, the IASB published Deferred Tax Related to Assets and Liabilities Arising From a Single Transaction
(Amendments to IAS 12), which clarifies that the initial recognition exemption does not apply to transactions in which both
deductible and taxable temporary differences will result in the recognition of equal deferred tax assets and liabilities, and that
the Company is required to recognize deferred tax on such transactions. The amendments are effective on January 1, 2023.
Management is currently assessing, but has not yet determined, the impact on the Company’s financial statements.
Certain other new standards and interpretations have been issued but are not expected to have a material impact on the
Company’s Financial Statements.
35
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, 2021 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 2020,
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, Nuevopak
and Syfan USA transactions, the expected synergies gained from the Nuevopak Acquisition, the acquisition of the Company by
Clearlake, including expected consideration, timing and closing conditions, strategic initiatives, anticipated demand in growing
markets, including e-commerce, the potential impact and effects of COVID-19, 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, the impact of the
Company’s capacity expansion initiatives in high growth product categories, including anticipated incremental revenue,
potential investment horizons and return profiles resulting from new capacity within the Company’s existing footprint, the
impact of the Company’s capacity expansion initiatives in high growth product categories, including anticipated incremental
revenue, potential investment horizons and return profiles resulting from new capacity within the Company’s existing footprint,
the Company’s environmental-related goals and objectives, 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, pension plan
contribution requirements and administration expenses, liquidity, supply chain constraints and labor shortages, fluctuations in
raw material prices, inflation, selling prices including maintaining dollar spread due to higher raw material and freight costs,
fluctuations in costs, the impacts of new accounting standards, 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 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 2021 Credit Facility, 2018 Capstone
Facility; the flexibility to allocate capital after the 2021 Senior Unsecured Notes; 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, 2020 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, 2021, 2020 and 2019
Management’s Responsibility for Consolidated Financial Statements
2
Management’s Report on Internal Control over Financial Reporting
3
Report of Independent Registered Public Accounting Firm (PCAOB ID Number 1232)
4 to 6
Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting
7 to 8
Consolidated Financial Statements
Consolidated Earnings
9
Consolidated Comprehensive Income
10
Consolidated Changes in Equity
11 to 13
Consolidated Cash Flows
14 to 15
Consolidated Balance Sheets
16
Notes to Consolidated Financial Statements
17 to 93
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 12, 2021 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 10, 2022
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, 2021 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, 2021
based on those criteria.
The Company’s internal control over financial reporting as of December 31, 2021 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 10, 2022
3
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
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, 2021 and 2020, 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, 2021, 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, 2021 and 2020,
and the results of its operations and its cash flows for each of the three years in the period
ended December 31, 2021, 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, 2021, 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 10, 2022 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
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,
films and protective packaging 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 10, 2022
Raymond Chabot Grant Thornton LLP
6
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
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, 2021, 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, 2021, 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, 2021 and 2020 and for each of the three years in the period
ended December 31, 2021 and our report dated March 10, 2022 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
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 10, 2022
Raymond Chabot Grant Thornton LLP
8
Intertape Polymer Group Inc.
Consolidated Earnings
Years ended December 31, 2021, 2020 and 2019
(In thousands of US dollars, except per share amounts)
2021
2020
2019
$
$
$
Revenue (Note 21)
1,531,469
1,213,028
1,158,519
Cost of sales
1,191,495
924,244
911,644
Gross profit
339,974
288,784
246,875
Selling, general and administrative expenses
177,139
157,486
136,674
Research expenses
11,882
11,196
12,527
189,021
168,682
149,201
Operating profit before manufacturing facility closures,
restructuring and other related charges
150,953
120,102
97,674
Manufacturing facility closures, restructuring and other
related charges (Note 4)
—
4,328
5,136
Operating profit
150,953
115,774
92,538
Finance costs (income) (Note 3)
Interest
27,676
29,436
31,690
Other expense (income), net
29,208
(6,238)
3,314
56,884
23,198
35,004
Earnings before income tax expense
94,069
92,576
57,534
Income tax expense (benefit) (Note 5)
Current
22,113
25,595
17,195
Deferred
1,951
(6,474)
(885)
24,064
19,121
16,310
Net earnings
70,005
73,455
41,224
Net earnings attributable to:
Company shareholders
67,813
72,670
41,216
Non-controlling interests
2,192
785
8
70,005
73,455
41,224
Earnings per share attributable to Company shareholders (Note 6)
Basic
1.15
1.23
0.70
Diluted
1.12
1.22
0.70
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, 2021, 2020 and 2019
(In thousands of US dollars)
2021
2020
2019
$
$
$
Net earnings
70,005
73,455
41,224
Other comprehensive income (loss)
Change in fair value of interest rate swap agreements
designated as cash flow hedges (1) (Note 24)
1,806
(2,027)
(3,057)
Reclassification adjustments for amounts recognized in
earnings related to interest rate swap agreements (Note 24)
—
—
(503)
Change in cumulative translation adjustments (2)
5,212
(3,028)
(7,798)
Net (loss) gain arising from hedge of a net investment in
foreign operations (3) (Note 24)
(11,012)
5,724
10,235
Items that will be reclassified subsequently to net earnings
(3,994)
669
(1,123)
Remeasurement of defined benefit liability (4) (Note 20)
3,939
(480)
589
Items that will not be reclassified subsequently to net earnings
3,939
(480)
589
Other comprehensive (loss) income
(55)
189
(534)
Comprehensive income for the year
69,950
73,644
40,690
Comprehensive income (loss) for the year attributable to:
Company shareholders
67,889
73,006
40,783
Non-controlling interests
2,061
638
(93)
69,950
73,644
40,690
(1)
Presented net of deferred income tax expense (benefit) of $577 in 2021, ($658) in 2020 and ($359) in 2019.
(2)
Presented net of deferred income tax expense of $281 in 2020 (nil in 2021 and 2019).
(3)
Presented net of deferred income tax expense of $1,589 in 2021, $764 in 2020 and $45 in 2019.
(4)
Presented net of deferred income tax expense (benefit) of $1,366 in 2021, ($216) in 2020, and $173 in 2019.
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, 2019
(In thousands of US dollars, except for number of common shares)
$
$
$
$
$
$
$
$
$
Balance as of December 31, 2018
58,650,310
350,267
17,074
(24,170)
2,490
(21,680) (95,814)
249,847
11,581
261,428
Transactions with owners
Exercise of stock options (Note 18)
359,375
3,278
3,278
3,278
Change in excess tax benefit on exercised share-based awards (Note 5)
38
(38)
—
—
Change in excess tax benefit on outstanding share-based awards (Note 5)
21
21
21
Share-based compensation (Note 18)
701
(56) (4)
645
645
Share-based compensation expense credited to capital on options
exercised (Note 18)
976
(976)
—
—
Dividends on common shares (Note 18)
(33,834)
(33,834)
(33,834)
359,375
4,292
(292)
(33,890)
(29,890)
(29,890)
Net earnings
41,216
41,216
8
41,224
Other comprehensive income (loss)
Change in fair value of interest rate swap agreements designated as cash
flow hedges (1) (Note 24)
(3,057) (3,057)
(3,057)
(3,057)
Reclassification adjustments for amounts recognized in earnings related
to interest rate swap agreements (Note 24)
(503)
(503)
(503)
(503)
Remeasurement of defined benefit liability (2) (Note 20)
589
589
589
Change in cumulative translation adjustments
(7,697)
(7,697)
(7,697)
(101)
(7,798)
Net gain arising from hedge of a net investment in foreign
operations (3) (Note 24)
10,235
10,235
10,235
10,235
2,538
(3,560) (1,022)
589
(433)
(101)
(534)
Comprehensive income (loss) for the year
2,538
(3,560) (1,022)
41,805
40,783
(93)
40,690
Balance as of December 31, 2019
59,009,685
354,559
16,782
(21,632)
(1,070) (22,702) (87,899)
260,740
11,488
272,228
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
(1)
Presented net of deferred income tax benefit of $359.
(2)
Presented net of deferred income tax expense of $173.
(3)
Presented net of deferred income tax expense of $45.
(4)
Presented net of income tax benefit of $3.
The accompanying notes are an integral part of the consolidated financial statements.
11
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
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
$
$
$
$
$
$
$
$
$
Balance as of December 31, 2019
59,009,685
354,559
16,782
(21,632)
(1,070) (22,702) (87,899)
260,740
11,488
272,228
Transactions with owners
Exercise of stock options (Note 18)
17,362
271
271
271
Change in excess tax benefit on outstanding share-based awards (Note 5)
5,306
5,306
5,306
Share-based compensation (Note 18)
738
738
738
Share-based compensation expense credited to capital on options
exercised (Note 18)
50
(50)
—
—
Dividends on common shares (Note 18)
(35,405)
(35,405)
(35,405)
17,362
321
5,994
(35,405)
(29,090)
(29,090)
Net earnings
72,670
72,670
785
73,455
Other comprehensive income (loss)
Change in fair value of interest rate swap agreements designated as cash flow
hedges (1) (Note 24)
(2,027) (2,027)
(2,027)
(2,027)
Remeasurement of defined benefit liability (2) (Note 20)
(480)
(480)
(480)
Change in cumulative translation adjustments (3)
(2,881)
(2,881)
(2,881)
(147)
(3,028)
Net gain arising from hedge of a net investment in foreign
operations (4) (Note 24)
5,724
5,724
5,724
5,724
2,843
(2,027)
816
(480)
336
(147)
189
Comprehensive income (loss) for the year
2,843
(2,027)
816
72,190
73,006
638
73,644
Dividend paid to non-controlling interest in GPCP Inc.
(100)
(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)
Presented net of deferred income tax benefit of $658.
(2)
Presented net of deferred income tax benefit of $216.
(3)
Presented net of deferred income tax expense of $281.
(4)
Presented net of deferred income tax expense of $764.
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, 2021
(In thousands of US dollars, except for number of common shares)
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
$
$
$
$
$
$
$
$
$
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
Transactions with owners
Exercise of stock options (Note 18)
257,900
2,664
2,664
2,664
Change in excess tax benefit on exercised share-based awards (Note 5)
672
(672)
—
—
Change in excess tax benefit on outstanding share-based awards (Note 5)
824
824
824
Share-based compensation (Note 18)
879
879
879
Share-based compensation expense credited to capital on options
exercised (Note 18)
737
(737)
—
—
Dividends on common shares (Note 18)
(38,751)
(38,751)
(38,751)
257,900
4,073
294
(38,751)
(34,384)
(34,384)
Net earnings
67,813
67,813
2,192
70,005
Other comprehensive (loss) income
Change in fair value of interest rate swap agreements designated as cash
flow hedges (1) (Note 24)
1,806
1,806
1,806
1,806
Remeasurement of defined benefit liability (2) (Note 20)
3,939
3,939
3,939
Change in cumulative translation adjustments
5,343
5,343
5,343
(131)
5,212
Net loss from hedge of a net investment in foreign
operations (3) (Note 24)
(11,012)
(11,012)
(11,012)
(11,012)
(5,669)
1,806
(3,863)
3,939
76
(131)
(55)
Comprehensive (loss) income for the year
(5,669)
1,806
(3,863)
71,752
67,889
2,061
69,950
Balance as of December 31, 2021
59,284,947
358,953
23,070
(24,458)
(1,291) (25,749) (18,113)
338,161
14,087
352,248
(1)
Presented net of deferred income tax expense of $577.
(2)
Presented net of deferred income tax expense of $1,366.
(3)
Presented net of deferred income tax expense of $1,589.
The accompanying notes are an integral part of the consolidated financial statements.
13
Intertape Polymer Group Inc.
Consolidated Cash Flows
Years ended December 31, 2021, 2020 and 2019
(In thousands of US dollars)
OPERATING ACTIVITIES
Net earnings
70,005
73,455
41,224
Adjustments to net earnings
Depreciation and amortization
65,547
63,840
61,415
Income tax expense
24,064
19,121
16,310
Interest expense
27,676
29,436
31,690
Early redemption premium and other costs (Note 14)
14,412
—
—
Non-cash charges in connection with manufacturing facility
closures, restructuring and other related charges (Note 4)
—
596
799
Impairment of inventories (Note 7)
5,240
1,179
2,877
Share-based compensation expense (Note 18)
21,655
22,879
501
Pension and other post-retirement expense related to defined benefit
plans
1,944
2,057
2,073
Contingent consideration liability fair value adjustment (Note 24)
—
(11,005)
—
Valuation adjustment to non-controlling interest put options (Note
24)
12,007
2,470
3,339
(Gain) loss on foreign exchange
(48)
38
(790)
Other adjustments for non-cash items
573
868
1,484
Income taxes paid, net
(25,846)
(24,610)
(11,995)
Contributions to defined benefit plans
(1,178)
(1,129)
(1,261)
Cash flows from operating activities before changes in working capital
items
216,051
179,195
147,666
Changes in working capital items
Trade receivables
(40,726)
(25,947)
(3,893)
Inventories
(86,759)
(4,742)
4,341
Other current assets
(3,471)
383
127
Accounts payable and accrued liabilities
91,440
29,014
(11,571)
Share-based compensation settlements
(13,205)
—
—
Provisions
(2,923)
1,682
(1,658)
(55,644)
390
(12,654)
Cash flows from operating activities
160,407
179,585
135,012
INVESTING ACTIVITIES
Acquisition of subsidiaries, net of cash acquired (Note 19)
(34,660)
(35,704)
—
Purchases of property, plant and equipment
(81,268)
(45,828)
(48,165)
Purchase of intangible assets
(5,627)
(1,854)
(2,259)
Other investing activities
192
579
1,508
Cash flows from investing activities
(121,363)
(82,807)
(48,916)
2021
2020
2019
$
$
$
14
FINANCING ACTIVITIES
Proceeds from borrowings (Note 14)
797,429
302,031
190,673
Repayment of borrowings and lease liabilities (Note 14)
(739,127)
(325,881)
(225,902)
Payments of debt issue costs (Note 14)
(8,279)
—
(70)
Payments of early redemption premium and other costs (Note 14)
(14,444)
—
—
Interest paid
(27,907)
(28,764)
(32,934)
Proceeds from exercise of stock options (Note 18)
2,664
271
3,278
Dividends paid (Note 18)
(38,641)
(35,386)
(33,992)
Dividends paid to non-controlling interest in GPCP Inc.
—
(100)
—
Other financing activities
1,223
—
82
Cash flows from financing activities
(27,082)
(87,829)
(98,865)
Net increase in cash
11,962
8,949
(12,769)
Effect of foreign exchange differences on cash
(2,137)
471
1,165
Cash, beginning of year
16,467
7,047
18,651
Cash, end of year
26,292
16,467
7,047
2021
2020
2019
$
$
$
The accompanying notes are an integral part of the consolidated financial statements.
15
Intertape Polymer Group Inc.
Consolidated Balance Sheets
As of
(In thousands of US dollars)
December 31,
2021
December 31,
2020
$
$
ASSETS
Current assets
Cash
26,292
16,467
Trade receivables (Note 24)
203,984
162,235
Inventories (Note 7)
280,323
194,516
Other current assets (Note 8)
32,110
21,048
542,709
394,266
Property, plant and equipment (Note 9)
459,356
415,214
Goodwill (Note 11)
151,834
132,894
Intangible assets (Note 12)
138,725
124,274
Deferred tax assets (Note 5)
24,579
29,677
Other assets (Note 10)
16,549
13,310
Total assets
1,333,752
1,109,635
LIABILITIES
Current liabilities
Accounts payable and accrued liabilities
280,353
180,446
Share-based compensation liabilities, current (Note 18)
19,089
17,769
Non-controlling interest put options, current (Note 24)
27,523
—
Provisions and contingent consideration, current (Note 16)
4,504
4,222
Borrowings and lease liabilities, current (Notes 14 and 15)
18,119
26,219
349,588
228,656
Borrowings and lease liabilities, non-current (Notes 14 and 15)
537,142
463,745
Pension, post-retirement and other long-term employee benefits (Note 20)
15,807
19,826
Share-based compensation liabilities, non-current (Note 18)
19,850
13,664
Non-controlling interest put options, non-current (Note 24)
—
15,758
Deferred tax liabilities (Note 5)
38,925
34,108
Provisions and contingent consideration, non-current (Note 16)
7,645
2,430
Other liabilities (Note 17)
12,547
14,766
Total liabilities
981,504
792,953
EQUITY
Capital stock (Note 18)
358,953
354,880
Contributed surplus (Note 18)
23,070
22,776
Deficit
(18,113)
(51,114)
Accumulated other comprehensive loss
(25,749)
(21,886)
Total equity attributable to Company shareholders
338,161
304,656
Non-controlling interests
14,087
12,026
Total equity
352,248
316,682
Total liabilities and equity
1,333,752
1,109,635
The accompanying notes are an integral part of the consolidated financial statements.
16
Intertape Polymer Group Inc.
Notes to Consolidated Financial Statements
December 31, 2021
(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 (collectively 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,
stretch and shrink 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, 2021 and 2020,
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, 2021. 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 shares, per share data and as
otherwise noted.
The consolidated financial statements were authorized for issuance by the Company’s Board of Directors on March 10, 2022.
New Standards adopted as of January 1, 2021
In the prior year, the Company adopted the Phase 1 amendments Interest Rate Benchmark Reform—Amendments to IFRS 9, IAS
39 and IFRS 7. These amendments modify specific hedge accounting requirements to allow hedge accounting to continue for
affected hedges during the period of uncertainty before the hedged items or hedging instruments are amended as a result of the
interest rate benchmark reform.
In the current year, the Company adopted the Phase 2 amendments Interest Rate Benchmark Reform—Amendments to IFRS 9,
IAS 39, IFRS 7, IFRS 4 and IFRS 16. 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, IFRS 7, IFRS 4 and IFRS 16. Adopting these
amendments enables the Company to reflect the effects of transitioning from interbank offered rates ("IBOR") to alternative
benchmark interest rates without giving rise to accounting impacts that would not provide useful information to users of
financial statements. The amendments have been applied retrospectively.
The Company will continue to apply the Phase 1 amendments until the uncertainty arising from the interest rate benchmark
reform with respect to the timing and the amount of the underlying cash flows to which the Company is exposed ends. The
Company expects this uncertainty will continue until the Company’s contracts that reference IBORs are amended to specify the
date on which the interest rate benchmark will be replaced and the basis for the cash flows of the alternative benchmark rate are
determined. The Company has floating rate debt, linked to the London Inter-bank Offered Rate, which it cash flow hedges
using interest rate swaps. Details of the financial instruments affected by the interest rate benchmark reform together with a
summary of the actions taken by the Company to manage the risks relating to the reform and the accounting impact, including
the impact on hedge accounting relationships, appear in Note 24.
17
In the current year, the Company has applied a number of amendments to IFRS Standards and Interpretations issued by the
IASB that are effective for annual periods beginning on or after January 1, 2021. 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
affect only the presentation of liabilities as current or non-current in the statement of financial position and not the amount or
timing of recognition of any asset, liability, income or expenses, or the information disclosed about those items. The
amendments clarify that the classification of liabilities as current or non-current is based on rights that are in existence at the
end of the reporting period, specify that classification is unaffected by expectations about whether an entity will exercise its
right to defer settlement of a liability, explain that rights are in existence if covenants are complied with at the end of the
reporting period, and introduce a definition of ‘settlement’ to make clear that settlement refers to the transfer to the counterparty
of cash, equity instruments, other assets or services. 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. The amendments are applied retrospectively, but only to items of property, plant
and equipment that are brought to the location and condition necessary for them to be capable of operating in the manner
intended by management on or after the beginning of the earliest period presented in the financial statements in which the
Company first applies the amendments. The Company will recognize the cumulative effect of initially applying the
amendments as an adjustment to the opening balance of retained earnings (or other component of equity, as appropriate) at the
beginning of that earliest period presented. Management has completed its analysis of the guidance and does not currently
expect it to materially impact the Company’s financial statements.
On May 7, 2021, the IASB published Deferred Tax Related to Assets and Liabilities Arising From a Single Transaction
(Amendments to IAS 12), which clarifies that the initial recognition exemption does not apply to transactions in which both
deductible and taxable temporary differences will result in the recognition of equal deferred tax assets and liabilities, and that
the Company is required to recognize deferred tax on such transactions. The amendments are effective on January 1, 2023.
Management is currently assessing, but has not yet determined, the impact on the Company’s financial statements.
Certain other new standards and interpretations have been issued but are not expected to have a material impact on the
Company’s financial statements.
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.
18
Principal Accounting Policies
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.
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. Changes in the Company's interests in subsidiaries
that do not result in a loss of control are accounted for as equity transactions.
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.
IPG Asia Private Limited ("IPG Asia") and Capstone Polyweave Private Limited ("Capstone") have a fiscal year-end of
March 31 due to Indian legislation. However, for consolidation purposes, the financial information for IPG Asia 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:
December 31,
2021
December 31,
2020
Better Packages, Inc.
Manufacturing
United States
100%
100%
Capstone Polyweave Private Limited
Manufacturing
India
55%
55%
FIBOPE Portuguesa-Filmes Biorientados, S.A.
Manufacturing
Portugal
100%
100%
GPCP, Inc.
Manufacturing
United States
50.1%
50.1%
Intertape Packaging UK Limited
Manufacturing
Great Britain
100%
—%
Intertape Polymer Corp.
Manufacturing
United States
100%
100%
Intertape Polymer Europe GmbH
Distribution
Germany
100%
100%
Intertape Polymer Inc.
Manufacturing
Canada
100%
100%
Intertape Polymer Japan GK
Distribution
Japan
100%
100%
Intertape Polymer Woven USA Inc.
Manufacturing
United States
100%
100%
Intertape Woven Products Services, S.A. de C.V.
Non-operating
Mexico
100%
100%
Intertape Woven Products, S.A. de C.V.
Non-operating
Mexico
100%
100%
IPG Asia Private Limited (1)
Manufacturing
India
100%
100%
IPG (US) Holdings Inc.
Holding
United States
100%
100%
IPG (US) Inc.
Holding
United States
100%
100%
IPG Mauritius Holding Company Ltd
Holding
Mauritius
100%
100%
IPG Mauritius II Ltd
Holding
Mauritius
100%
100%
IPG Mauritius Ltd
Holding
Mauritius
100%
100%
Nuevopak Global Limited
Holding
Hong Kong
100%
—%
Nuevopak GmbH
Manufacturing
Germany
100%
—%
Nuevopak (Jiangmen) Environmental &
Technology Company Ltd
Manufacturing
China
100%
—%
Nuevopak Technology Company Limited
Holding
Hong Kong
100%
—%
Octo Packaging Limited
Holding
Hong Kong
100%
—%
Polyair Canada Limited
Manufacturing
Canada
100%
100%
Polyair Corporation
Manufacturing
United States
100%
100%
Spuntech Fabrics Inc.
Holding
Canada
100%
100%
Name of Subsidiary
Principal
Activity
Country of
Incorporation
and Residence
Proportion of Ownership
Interest and Voting Power Held as of:
(1)
Formerly known as Powerband Industries Private Limited.
Business Acquisitions
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 measured at fair value, which is
calculated as the sum of the acquisition-date fair values of assets transferred, liabilities incurred, and the equity interests issued
by the Company in exchange for control of the acquiree. 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
20
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
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 Company
has other functional currencies that are not considered significant for each of the years in the three-year period ended
December 31, 2021.
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 expense (income), 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
21
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.
Revenue Recognition
The Company recognizes revenues from the sale of goods classified within six product categories: tape, film, engineered coated
products, protective packaging, packaging machinery 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 and refund liability based on anticipated sales returns that occur in the normal course of business. At the
same time, the Company has a right to recover the product when customers exercise their right of return, and the Company
consequently recognizes a right to returned goods assets and a corresponding adjustment to cost of sales. 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. Refer to the section below entitled "Allowance for expected credit loss and
revenue adjustments" for additional discussion. 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 qualifying assets, which are assets that
necessarily takes a substantial period of time to get ready for its intended use or sale, are added to the cost of those assets until
such time as the assets are substantially ready for their intended use or sale. 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.
22
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 are recognized in earnings on a systematic basis over the periods in which the Company recognizes as
expenses the related costs for which the grants are intended to compensate. Specifically, 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.
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 earnings in the period in which they
become receivable.
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.
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.
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. DSUs are
expensed as earned and vested 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, 2021 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
variables, stock price and estimated achievement of non-market performance criteria, from period to period, until the PSUs are
23
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 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.
PSUs granted prior to December 31, 2017 which settled during the three years ending December 31, 2021 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. RSUs accrue dividend equivalents which are paid in cash at the settlement date. 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
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, 2021 and 2020, 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. Deferred tax liabilities are generally recognized for all taxable temporary differences
and deferred tax assets are recognized to the extent that it is probable that future taxable income will be available against which
24
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.
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 period 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
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 into one of
the following categories:
•
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.
25
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.
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), contingent consideration 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
26
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 and contingent consideration liabilities fall into this category of financial instruments. Changes
in the fair values of the non-controlling interest put options and contingent consideration liabilities 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, and contingent consideration liabilities.
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
27
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.
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
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discussed in the Leases section below, includes its purchase price or manufactured cost including 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 an initial estimate of the costs of dismantling and removing the item
and restoring the leased site on which it is located.
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:
Years
Land
Indefinite
Buildings and related major components
3 to 60
Manufacturing equipment and related major components
3 to 30
Computer equipment and software
3 to 15
Furniture, office equipment and other
3 to 10
Assets related to restoration provisions
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 are 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 disposed.
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 assessed for impairment. 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 impaired when no future economic benefits are
expected to arise from the continued use of the asset. Gains or losses arising from 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.
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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.
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:
Years
Customer lists, license agreements and software
1 to 20
Patents and trademarks being amortized
2 to 15
Non-compete agreements
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
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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.
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". An impairment loss is recognized for the amount by which the asset's (or
CGU's) carrying amount exceeds its recoverable amount. 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 an appropriate 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
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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,
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.
Defined benefit expenses consist of: current service costs, past service costs, net interest expense, and settlement gains and
losses. Defined benefit expenses are recognized in consolidated earnings in cost of sales and selling and administrative
expenses. Current service cost is recognized 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. Past service costs are recognized in
consolidated earnings immediately following the introduction of, or changes to, a pension plan. 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.
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.
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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.
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 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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Equity
Capital stock represents the amount received on issuance of shares (less any issuance costs and net of taxes) and 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, and the remeasurement of the defined benefit liability net of income
tax expense (benefit).
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.
Critical Judgments in Applying the Company's Accounting Policies
The following are the critical judgments, apart from those involving estimations (which are presented separately below), that
management has made in the process of applying the Company’s accounting policies and that have the most significant effect
on the amounts recognized in financial statements.
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 reportable 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.
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Key Sources of Estimation Uncertainty
The key assumptions concerning the future, and other key sources of estimation uncertainty at the reporting period that may
have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial
year, are discussed below.
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 that require 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. 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. Actual results will differ from estimated results, which are based on assumptions. Refer to Note 20 for more
information regarding the costs and obligations related to the pension, post-retirement and other long-term employee benefit
plans and the sensitivity of those amounts to changes in these assumptions.
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, 2021 and 2020, 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.
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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
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 expected credit loss 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 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 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
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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.
COVID-19
The Company is closely monitoring the impacts of the coronavirus ("COVID-19") pandemic as a trigger for changes in critical
accounting judgments, estimates and assumptions. 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.
During the year ended 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 can be directly attributed to COVID-19 or otherwise for the years
ending December 31, 2021 and 2020. Refer to Note 13 for more information regarding asset impairment testing.
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, 2021:
2021
2020
2019
$
$
$
Employee benefit expense
Wages, salaries and other short-term benefits
277,910
242,113
227,043
Termination benefits (Note 16)
74
4,110
2,274
Share-based compensation expense (Note 18)
21,655
22,879
501
Pension, post-retirement and other long-term employee benefit
plans (Note 20):
Defined benefit plans
1,944
2,057
2,139
Defined contributions plans
8,245
6,824
7,142
309,828
277,983
239,099
Finance costs (income) - Interest
Interest on borrowings and lease liabilities (1)
23,804
28,684
32,472
Amortization and write-off of debt issue costs on borrowings
5,149
1,210
1,194
Interest capitalized to property, plant and equipment
(1,277)
(458)
(1,976)
27,676
29,436
31,690
Finance costs (income) - Other expense (income), net
Early redemption premium and other costs (Note 14)
14,412
—
—
Foreign exchange (gain) loss
(48)
38
(790)
Valuation adjustment made to non-controlling interest put
options (Note 24)
12,007
2,470
3,339
Change in fair value of contingent consideration
liability (Note 24)
—
(11,005)
—
Other costs, net
2,837
2,259
765
29,208
(6,238)
3,314
Additional information
Depreciation of property, plant and equipment (Note 9)
51,871
50,237
51,030
Amortization of intangible assets (Note 12)
13,676
13,603
10,385
Impairment of assets, net (Note 13)
6,044
2,359
4,549
(1)
Presented net of $1.2 million in interest reimbursements as a result of interest subsidy programs for the year ended
December 31, 2021. Reimbursements were nil for the years ended December 31, 2020 and 2019.
38
4 - MANUFACTURING FACILITY CLOSURES, RESTRUCTURING AND OTHER RELATED CHARGES
There were no manufacturing facility closures, restructuring and other related charges incurred by the Company for the year
ended December 31, 2021.
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 two-year period ended December 31, 2020 under the caption manufacturing facility closures,
restructuring and other related charges:
2020
2019
$
$
Impairment of property, plant and equipment, net
—
669
Equipment relocation
38
156
Revaluation and impairment of inventories, net
596
130
Termination benefits and other labor related costs, net
3,389
1,874
Restoration and idle facility costs, net
270
1,978
Professional fees, net
40
393
Other recoveries
(5)
(64)
4,328
5,136
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 of non-cash impairments of property, plant and equipment and inventory.
As of December 31, 2021, restructuring provisions of $1.7 million ($3.6 million in 2020) are included in provisions on the
consolidated balance sheets within environmental and termination benefits and other. 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, 2021:
2021
2020
2019
%
%
%
Combined Canadian federal and provincial income tax rate
27.5
27.8
28.4
Foreign earnings/losses taxed at higher income tax rates
0.1
—
0.2
Foreign earnings/losses taxed at lower income tax rates
(1.6)
(4.3)
(4.8)
Prior period adjustments
0.4
(0.5)
0.5
Nondeductible expenses (nontaxable income)
4.5
(1.9)
1.1
Impact of other differences
(2.6)
1.6
(2.3)
Canadian deferred tax assets (recognized) not recognized
(3.1)
(1.8)
4.3
Derecognition (recognition) of deferred tax assets
0.4
(0.2)
(1.3)
Proposed tax assessment (1)
—
—
2.2
Effective income tax rate
25.6
20.7
28.3
(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, 2021:
2021
2020
2019
$
$
$
Current income tax expense
22,113
25,595
17,195
Deferred tax expense (benefit)
Derecognition (recognition) of US deferred tax assets
396
(153)
(701)
US temporary differences
(83)
(6,605)
3,988
Canadian deferred tax assets (recognized) not recognized
(2,887)
(1,660)
2,474
Recognition of Canadian deferred tax assets
—
—
(22)
Canadian temporary differences
4,999
1,674
(5,678)
Temporary differences in other jurisdictions
(474)
270
(946)
Total deferred income tax expense (benefit)
1,951
(6,474)
(885)
Total tax expense for the year
24,064
19,121
16,310
40
The amount of income taxes relating to components of OCI for each of the years in the three-year period ended December 31,
2021 is outlined below:
Amount before
income tax
Deferred
income taxes
Amount net of
income taxes
$
$
$
For the year ended December 31, 2021
Deferred tax expense on remeasurement of defined benefit liability
5,305
(1,366)
3,939
Deferred tax expense on change in fair value of interest rate swap
agreements designated as cash flow hedges
2,383
(577)
1,806
Deferred tax expense on gain arising from hedge of a net investment
in foreign operations
(9,423)
(1,589)
(11,012)
(1,735)
(3,532)
(5,267)
For the year ended December 31, 2020
Deferred tax benefit on remeasurement of defined benefit liability
(696)
216
(480)
Deferred tax benefit on change in fair value of interest rate swap
agreements designated as cash flow hedges
(2,685)
658
(2,027)
Deferred tax expense on foreign exchange related impacts arising
from intercompany settlements
2,117
(281)
1,836
Deferred tax expense on gain arising from hedge of a net investment
in foreign operations
6,488
(764)
5,724
5,224
(171)
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
(3,416)
359
(3,057)
Deferred tax expense on gain arising from hedge of a net investment
in foreign operations
10,280
(45)
10,235
7,626
141
7,767
The amount of recognized deferred tax assets and liabilities is outlined below as of December 31, 2021:
Deferred tax
assets
Deferred tax
liabilities
Net
$
$
$
Tax credits, losses, carryforwards and other tax deductions
8,842
—
8,842
Property, plant and equipment
10,142
(57,501)
(47,359)
Pension and other post-retirement benefits
3,210
—
3,210
Share-based payments
13,558
—
13,558
Accounts payable and accrued liabilities
10,146
—
10,146
Goodwill and other intangibles
7,768
(24,405)
(16,637)
Trade and other receivables
679
—
679
Inventories
2,150
—
2,150
Lease liabilities
10,475
—
10,475
Other
2,091
(1,501)
590
Deferred tax assets and liabilities
69,061
(83,407)
(14,346)
41
Presented in the consolidated balance sheets as:
December 31,
2021
$
Deferred tax assets
24,579
Deferred tax liabilities
(38,925)
(14,346)
The amount of recognized deferred tax assets and liabilities is outlined below as of December 31, 2020:
Deferred tax
assets
Deferred tax
liabilities
Net
$
$
$
Tax credits, losses, carryforwards and other tax deductions
10,465
—
10,465
Property, plant and equipment
15,882
(52,956)
(37,074)
Pension and other post-retirement benefits
4,231
—
4,231
Share-based payments
11,929
—
11,929
Accounts payable and accrued liabilities
8,945
—
8,945
Goodwill and other intangibles
7,083
(23,121)
(16,038)
Trade and other receivables
1,152
—
1,152
Inventories
1,530
—
1,530
Lease liabilities
9,616
—
9,616
Other
2,481
(1,668)
813
Deferred tax assets and liabilities
73,314
(77,745)
(4,431)
Presented in the consolidated balance sheets as:
December 31,
2020
$
Deferred tax assets
29,677
Deferred tax liabilities
(34,108)
(4,431)
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, 2021 and 2020, 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 fully recognized as of
December 31, 2021 and 2020, 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, 2020:
Balance
January 1,
2020
Recognized in
earnings (with
translation
adjustments)
Recognized in
contributed
surplus
Recognized in
OCI
Balance
December 31,
2020
$
$
$
$
$
Deferred tax assets
Tax credits, losses, carryforwards and other tax deductions
11,638
(892)
—
(281)
10,465
Property, plant and equipment
16,020
(138)
—
—
15,882
Pension and other post-retirement benefits
3,966
30
—
235
4,231
Share-based payments
1,766
4,857
5,306
—
11,929
Accounts payable and accrued liabilities
6,022
2,923
—
—
8,945
Goodwill and other intangibles
7,028
55
—
—
7,083
Trade and other receivables
688
464
—
—
1,152
Inventories
1,918
(388)
—
—
1,530
Lease liabilities
9,832
(216)
—
—
9,616
Other
863
1,722
—
(104)
2,481
59,741
8,417
5,306
(150)
73,314
Deferred tax liabilities
Property, plant and equipment
(52,871)
(85)
—
—
(52,956)
Goodwill and other intangibles
(22,893)
(228)
—
—
(23,121)
Other
(908)
(760)
—
—
(1,668)
(76,672)
(1,073)
—
—
(77,745)
Deferred tax assets and liabilities
(16,931)
7,344
5,306
(150)
(4,431)
Impact due to foreign exchange rates
(870)
—
(21)
Total recognized
6,474
5,306
(171)
43
The following table outlines the changes in the deferred tax assets and liabilities during the year ended December 31, 2021:
Balance
January 1,
2021
Recognized in
earnings (with
translation
adjustments)
Recognized in
contributed
surplus
Recognized in
OCI
Business
acquisitions
Balance
December 31,
2021
$
$
$
$
$
$
Deferred tax assets
Tax credits, losses, carryforwards and
other tax deductions
10,465
(1,751)
—
—
128
8,842
Property, plant and equipment
15,882
(5,740)
—
—
—
10,142
Pension and other post-retirement benefits
4,231
339
—
(1,360)
—
3,210
Share-based payments
11,929
1,477
152
—
—
13,558
Accounts payable and accrued liabilities
8,945
1,201
—
—
—
10,146
Goodwill and other intangibles
7,083
1,609
—
—
(924)
7,768
Trade and other receivables
1,152
(473)
—
—
—
679
Inventories
1,530
576
—
—
44
2,150
Lease liabilities
9,616
812
—
—
47
10,475
Other
2,481
1,733
—
(2,123)
—
2,091
73,314
(217)
152
(3,483)
(705)
69,061
Deferred tax liabilities
Property, plant and equipment
(52,956)
(4,387)
—
—
(158)
(57,501)
Goodwill and other intangibles
(23,121)
2,282
—
—
(3,566)
(24,405)
Other
(1,668)
569
—
—
(402)
(1,501)
(77,745)
(1,536)
—
—
(4,126)
(83,407)
Deferred tax assets and liabilities
(4,431)
(1,753)
152
(3,483)
(4,831)
(14,346)
Impact due to foreign exchange rates
(198)
—
(49)
Total recognized
(1,951)
152
(3,532)
Deductible temporary differences and unused tax losses for which no deferred tax asset is recognized in the consolidated
balance sheets are as follows:
December 31,
2021
December 31,
2020
$
$
Tax losses, carryforwards and other tax deductions
44,523
47,829
Share-based payments
8,852
7,231
53,375
55,060
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:
$
$
2021
—
209
2022
476
476
2023
235
236
2024
222
222
2025
375
376
2026
287
288
2027
262
262
2028
304
305
2029
242
243
2030
221
221
2031
323
324
2032
194
194
2033
238
238
2034
210
211
2035
559
560
2036
367
367
2037
265
266
2038
665
666
2039
266
266
2040
240
266
2041
240
—
Total tax credits derecognized
6,191
6,196
2021
2020
The following table presents the year of expiration of the Company’s operating losses carried forward in Canada as of
December 31, 2021:
Deferred tax assets not recognized
Federal
Provincial
$
$
2026
6,047
6,047
2029
563
563
2030
126
126
2031
—
—
2037
2,567
2,567
2038
—
—
2039
—
—
9,303
9,303
In addition, the Company has (i) consolidated state losses of $46.3 million (with expiration dates ranging from 2022 to 2039)
for which a tax benefit of $1.0 million has not been recognized; (ii) standalone state losses of $70.7 million (with expiration
dates ranging from 2022 to 2039) for which a tax benefit of $2.4 million has not been recognized; and (iii) $15.6 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, 2021:
2021
2020
2019
Basic
59,127,025
59,010,485
58,798,488
Effect of stock options
1,389,081
620,388
190,646
Diluted
60,516,106
59,630,873
58,989,134
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, 2021 were as follows:
2021
2020
2019
Anti-dilutive stock options
243,152
612,601
505,812
7 - INVENTORIES
Inventory is composed of the following for the years ended:
December 31,
2021
December 31,
2020
$
$
Raw materials
91,232
61,051
Work in process
62,128
38,850
Finished goods
103,329
72,535
Parts and supplies
23,634
22,080
280,323
194,516
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, 2021 as follows:
2021
2020
2019
$
$
$
Impairments recorded in manufacturing facility closures, restructuring
and other related charges
—
596
634
Reversals of impairments recorded in manufacturing facility closures,
restructuring and other related charges
—
—
(504)
Impairments recorded in cost of sales
5,240
1,179
2,877
5,240
1,775
3,007
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, 2021 is as follows:
2021
2020
2019
$
$
$
Inventories recognized in cost of sales
1,088,649
843,717
836,600
46
8 - OTHER CURRENT ASSETS
Other current assets are composed of the following for the years ended:
December 31,
2021
December 31,
2020
$
$
Prepaid expenses
11,058
9,086
Income taxes receivable and prepaid
10,688
3,280
Sales and other taxes receivable and credits
4,756
3,988
Supplier rebates receivable
2,982
2,596
Reserve for inventory returns
1,002
1,196
Other
1,624
902
32,110
21,048
9 - PROPERTY, PLANT AND EQUIPMENT
The following table outlines the changes to property, plant and equipment during the year ended December 31, 2020:
$
$
$
$
$
$
$
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
—
2,284
974
—
806
—
4,064
Additions – separately acquired
—
—
—
—
—
45,464
45,464
Assets placed into service
—
2,528
18,054
1,493
289
(22,364)
—
Disposals
—
(54)
(1,902)
(7)
(541)
(86)
(2,590)
Foreign exchange and other
(79)
1,605
3,216
247
217
(98)
5,108
Balance as of December 31, 2020
12,113
200,334
776,611
46,467
6,180
37,327
1,079,032
Accumulated depreciation and impairments
Balance as of December 31, 2019
609
81,055
486,127
39,453
3,510
—
610,754
Depreciation (1)
—
11,314
35,745
2,211
1,146
—
50,416
Impairments
—
—
127
—
—
86
213
Disposals
—
(54)
(845)
(7)
(531)
(86)
(1,523)
Foreign exchange and other
515
3,034
217
192
—
3,958
Balance as of December 31, 2020
609
92,830
524,188
41,874
4,317
—
663,818
Net carrying amount as of December 31,
2020
11,504
107,504
252,423
4,593
1,863
37,327
415,214
Land
Buildings
Manufacturing
equipment
Computer
equipment
and software
Furniture,
office equipment
and other
Construction in
progress
Total
47
The following table outlines the changes to property, plant and equipment during the year ended December 31, 2021:
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, 2020
12,113
200,334
776,611
46,467
6,180
37,327
1,079,032
Additions – right-of-use assets
—
7,977
1,782
—
519
—
10,278
Additions – separately acquired
—
—
—
—
—
88,532
88,532
Additions through business
acquisitions
—
309
1,290
—
58
—
1,657
Assets placed into service
—
4,549
44,180
1,517
128
(50,374)
—
Disposals
—
(3,195)
(25,425)
(1,118)
(633)
(513)
(30,884)
Foreign exchange and other
(187)
(827)
(5,215)
—
(136)
665
(5,700)
Balance as of December 31, 2021
11,926
209,147
793,223
46,866
6,116
75,637
1,142,915
Accumulated depreciation and impairments
Balance as of December 31, 2020
609
92,830
524,188
41,874
4,317
—
663,818
Depreciation (1)
—
12,319
36,298
2,247
1,122
—
51,986
Impairments
—
72
219
—
—
513
804
Disposals
—
(3,195)
(25,033)
(1,118)
(619)
(513)
(30,478)
Foreign exchange and other
—
(413)
(2,046)
(9)
(103)
—
(2,571)
Balance as of December 31, 2021
609
101,613
533,626
42,994
4,717
—
683,559
Net carrying amount as of December 31,
2021
11,317
107,534
259,597
3,872
1,399
75,637
459,356
(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 $0.1 million and $0.2 million as of December 31,
2021 and 2020, 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, 2021 consisted primarily of $43.2 million to expand production
capacity in the Company's highest growth product categories, specifically water-activated tape, wovens, protective packaging
and films, as well as $17.1 million for cost savings initiatives and digital transformation and $21.0 million for regular
maintenance. As of December 31, 2021, the Company had commitments to suppliers to purchase machinery and equipment
totalling $26.2 million, primarily to support the above mentioned 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, 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.
During the year ended December 31, 2021, the loss on disposals amounted to $0.1 million ($0.3 million and $0.6 million loss
on disposals in 2020 and 2019, respectively).
Supplemental information regarding property, plant and equipment is as follows for the years ended:
December 31,
2021
December 31,
2020
Interest capitalized to property, plant and equipment
$1,277
$458
Weighted average capitalization rates
4.14 %
4.94 %
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:
Buildings
Manufacturing
equipment
Furniture,
office equipment
and other
Total
$
$
$
$
December 31, 2021:
Carrying amount
34,586
14,264
716
49,566
Depreciation expense
6,316
3,270
852
10,438
December 31, 2020:
Carrying amount
32,795
15,916
917
49,628
Depreciation expense
5,923
3,230
746
9,899
10 - OTHER ASSETS
Other assets are composed of the following for the years ended:
December 31,
2021
December 31,
2020
$
$
Corporate owned life insurance held in grantor trust
10,735
7,988
Pension benefits (1)
3,539
3,024
Deposits
1,120
1,083
Prepaid software licensing
722
786
Cash surrender value of officers’ life insurance
418
408
Other
15
21
16,549
13,310
(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:
Total
$
Balance as of December 31, 2019
107,677
Acquired through business acquisition (1)
25,640
Foreign exchange
(423)
Balance as of December 31, 2020
132,894
Acquired through business acquisition (1)
19,789
Foreign exchange
(849)
Balance as of December 31, 2021
151,834
(1)
Refer to Note 19 for additional information regarding the Company's recent business acquisitions.
49
12 - INTANGIBLE ASSETS
The following tables outline the changes in intangible assets during the period:
Gross carrying amount
Balance as of December 31, 2019
190
105,497
8,618
15,053
8,034
137,392
Additions – separately acquired
—
—
1,881
—
—
1,881
Additions through business acquisitions
—
18,462
—
1,616
1,441
21,519
Disposals
—
—
(421)
—
—
(421)
Foreign exchange and other
—
(207)
—
135
(180)
(252)
Balance as of December 31, 2020
190
123,752
10,078
16,804
9,295
160,119
Accumulated amortization and impairments
Balance as of December 31, 2019
190
16,122
2,506
382
3,143
22,343
Amortization
—
10,406
1,449
257
1,491
13,603
Disposals
—
—
(371)
—
—
(371)
Impairments
—
—
371
—
—
371
Foreign exchange and other
—
(49)
—
2
(54)
(101)
Balance as of December 31, 2020
190
26,479
3,955
641
4,580
35,845
Net carrying amount as of December 31, 2020
—
97,273
6,123
16,163
4,715
124,274
License
agreements
Customer
lists (1)
Software (2)
Patents/
Trademark/
Trade names (3)
Non-
compete
agreements
Total
$
$
$
$
$
$
License
agreements
Customer
lists (1)
Software (2)
Patents/
Trademark/
Trade names (3)
Non-
compete
agreements
Total
$
$
$
$
$
$
Gross carrying amount
Balance as of December 31, 2020
190
123,752
10,078
16,804
9,295
160,119
Additions – separately acquired
—
—
3,268
3,503
—
6,771
Additions through business acquisitions
—
8,343
30
12,152
1,126
21,651
Disposals
(75)
(2,344)
—
—
—
(2,419)
Foreign exchange and other
—
(296)
(20)
(87)
(122)
(525)
Balance as of December 31, 2021
115
129,455
13,356
32,372
10,299
185,597
Accumulated amortization and impairments
Balance as of December 31, 2020
190
26,479
3,955
641
4,580
35,845
Amortization
—
9,331
1,982
706
1,657
13,676
Disposals
(75)
(2,344)
—
—
—
(2,419)
Foreign exchange and other
—
(141)
4
(14)
(79)
(230)
Balance as of December 31, 2021
115
33,325
5,941
1,333
6,158
46,872
Net carrying amount as of December 31, 2021
—
96,130
7,415
31,039
4,141
138,725
(1)
Includes customer relationships related to the Company's acquisition of Polyair Inter Pack Inc. on August 3, 2018, with
a carrying amount of $54.9 million and $59.6 million as of December 31, 2021 and 2020, respectively. These customer
relationships will be fully amortized in the year 2033.
(2)
Includes $0.1 million and $0.4 million of acquired software licenses during the years ended December 31, 2021 and
2020, respectively.
(3)
Includes trademarks and trade names not subject to amortization totalling $22.9 million and $16.1 million as of
December 31, 2021 and 2020, respectively.
During the year ended December 31, 2021, the loss on disposals was nil ($0.1 million in 2020 and nil in 2019, respectively).
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, films and protective packaging CGU (the "TF&P CGU") includes the Company’s tape, film and protective
packaging manufacturing locations in the United States, Canada, India, Hong Kong, China, Germany, and the United
Kingdom.
•
The engineered coated products CGU (the “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 (the "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, therefore, is not subject to annual impairment testing.
There were no indicators of impairment for the TF&P CGU and the ECP CGU. During the year ended December 31, 2021 and
2020, however, management concluded there were indicators of impairment for the Nortech CGU due to the impact of, and
macroeconomic events resulting from, COVID-19 and other delays in the acquisition integration efforts. Due to the existence of
recorded goodwill and indefinite-lived intangible assets associated with the TF&P CGU, 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, 2021 and 2020. Unrelated to the impairment
tests performed at the CGU level, there were impairments of certain individual assets as disclosed in the impairments table
further below.
The Company also considers indicators, if any exist, 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, 2021 and 2020, 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, 2021 and 2020 relate to the TF&P CGU, the ECP CGU and the Nortech CGU. The Company
performed the required annual impairment testing for these asset groups during the fourth quarter of 2021 and 2020. 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 key assumptions used that the Company believes are
reasonably possible would not cause the carrying amounts of the asset groups to exceed their recoverable amounts, in which
case impairments 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.
51
Details of the key assumptions used in impairment tests performed as of December 31, 2021 are outlined below:
Carrying amount allocated to the asset group:
Goodwill
$120,601
$5,593
$25,640
Intangible assets with indefinite useful lives
$21,281
—
$1,616
Results of test performed as of December 31, 2021:
Forecast period annual revenue growth rates (1)
15% in 2022, 3% in
2023, tapering down
to 2% thereafter
14% in 2022, 3%
thereafter
77% in 2022, 19% in
2023, 29% in 2024,
tapering down to 3%
thereafter
Discount rate (2)
7.9 %
10.9 %
11.6 %
Cash flows beyond the forecast period have been
extrapolated using a steady growth rate of (3)
2 %
3 %
3 %
Income tax rate (4)
28.0 %
27.0 %
25.5 %
TF&P CGU
ECP CGU
Nortech CGU
(1)
For the TF&P CGU and for the ECP CGU, 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 2022, anticipated revenue growth used in these analyses is
partially attributable to expected increases in selling prices due to the passing through of higher costs to customers.
For the TF&P CGU, 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 recent capacity expansion investments made 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 due to acquisition integration improvements
to both scale production and optimize the cost/pricing structure, which is expected to add long-term value to the
Company, despite slower than anticipated revenue and lower margins during 2020 and 2021. The initial high rate of
growth currently anticipated in 2022 is largely due to continued recovery from COVID-19 pressures and expected
improvements in operational performance.
(2)
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.
(3)
Cash flows beyond the forecast period have been primarily extrapolated at or below the projected long-term average
growth rates for the asset groups.
(4)
The income tax rate represents an estimated effective tax rate based on enacted or substantively enacted rates.
Sensitivity analysis performed as of December 31, 2021 using reasonably possible changes in key assumptions above are
outlined below:
TF&P CGU
ECP CGU
Nortech CGU
Forecast period annual revenue
growth rates
15% in 2022, 0% in 2023
through 2030, and 2%
thereafter
14% in 2022, 1% in 2023
through 2030, and 3%
thereafter
0% in 2022 and 2023, 77%
in 2024, 19% in 2025, 29%
in 2026, tapering down to
3% thereafter
Discount rate
9.9 %
12.9 %
13.6 %
Cash flows beyond the forecast
period have been extrapolated
using a steady growth rate of
1 %
1 %
2 %
Income tax rate
35.0 %
37.0 %
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, 2020 are outlined below:
T&F Group (1)
ECP CGU
Nortech CGU
Carrying amount allocated to the asset group
Goodwill
$101,568
$5,686
$25,640
Intangible assets with indefinite useful lives
$14,493
—
$1,616
Results of test performed as of December 31, 2020:
Forecast period annual revenue growth rates (2)
9% in 2021, 2%-3%
thereafter
12% in 2021, 3% in
2022, tapering down
to 3% thereafter
35% in 2021, 55% in
2022, tapering down
to 3% thereafter
Discount rate (3)
8.8 %
11.6 %
12.5 %
Cash flows beyond the forecast period have been
extrapolated using a steady growth rate of (4)
2 %
3 %
3 %
Income tax rate (5)
28.0 %
27.0 %
25.5 %
(1)
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. In 2020, the Company's subsidiaries Polyair Canada Limited, Polyair Corp. and
GPCP, Inc. (collectively, "Polyair") continued 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 monitored the goodwill balance of Polyair
combined with the T&F CGU assets as it remained 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 were included in the tapes and film impairment test (the “T&F Group”).
(2)
For the T&F Group and for the ECP CGU, 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 recent capacity expansion investments made 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.
(3)
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.
(4)
Cash flows beyond the forecast period have been primarily extrapolated at or below the projected long-term average
growth rates for the asset groups.
(5)
The income tax rate represents an estimated effective tax rate based on enacted or substantively enacted rates.
53
Sensitivity analysis performed as of December 31, 2020 using reasonably possible changes in key assumptions above are
outlined below:
T&F Group
ECP CGU
Nortech CGU
Forecast period annual revenue growth
rates
9% in 2021, 0%
thereafter
12% in 2021, 1%
thereafter
0% in 2021 and 2022,
109% in 2023, 21% in
2023, 17% in 2024,
tapering down to 3%
thereafter
Discount rate
11.0 %
12.6 %
14.5 %
Cash flows beyond the forecast period
have been extrapolated using a steady
growth rate of
1 %
1 %
2 %
Income tax rate
35.0 %
37.0 %
28.0 %
There was no indication of any impairment resulting from changing the individual assumptions above.
Impairments
Impairments recognized during the year ended December 31, 2021 and 2020 are presented in the table below. There were no
reversals of impairments recognized during the year ended December 31, 2021 and 2020.
2021
2020
$
$
Classes of assets impaired
Manufacturing facility closures, restructuring and other related charges
Inventories
—
596
—
596
Cost of sales
Inventories
5,240
1,179
Property, plant and equipment
Buildings
72
—
Manufacturing equipment
219
127
Construction in progress
513
86
Intangibles
—
371
6,044
1,763
Total
6,044
2,359
The assets impaired during the year ended December 31, 2021 were primarily impairments of inventories related to (i) Nortech
net realizable value write-downs and returned product and (ii) slow-moving and obsolete goods. 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 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,
2021
December 31,
2020
Maturity
Weighted average
effective interest
rate
$
Weighted average
effective interest
rate
$
2021 Senior Unsecured Notes (a)
June 2029
4.38 % 395,614
— %
—
2018 Senior Unsecured Notes (b)
October 2026
— %
—
7.00 %
246,236
2021 Credit Facility (c)
June 2026
2.16 %
96,116
— %
—
2018 Credit Facility (d)
June 2023
— %
—
3.07 %
185,162
2018 Capstone Credit Facility (e)
Various until June 2023
5.17 %
11,389
6.47 %
10,505
Partially forgivable government
loans (f)
Various until June 2026
1.25 %
4,628
1.25 %
5,265
Lease liabilities (g)
Various until December 2034
5.89 %
44,801
6.12 %
42,122
Other borrowings (h)
Various until December 2025
0.77% - 4.70%
2,713
0.82% - 9.31%
674
Total borrowings
555,261
489,964
Less: borrowings and lease liabilities, current
18,119
26,219
Total borrowings and lease liabilities, non-current
537,142
463,745
The aggregate principal amounts of the related borrowings and lease liabilities in the table above are presented net of debt
issuance costs of $8.3 million and $5.1 million as of December 31, 2021 and 2020, respectively, and imputed interest of $0.2
million and $0.3 million as of December 31, 2021 and 2020, respectively, netting to $8.1 million and $4.8 million as of
December 31, 2021 and 2020, respectively.
Refer to Note 24 for a maturity analysis on borrowings.
(a)
2021 Senior Unsecured Notes
On June 8, 2021, the Company completed the private placement of $400.0 million aggregate principal amount of senior
unsecured notes due June 15, 2029 ("2021 Senior Unsecured Notes"). The Company incurred debt issuance costs of
$5.0 million which were capitalized and are being amortized using the straight-line method over the eight-year term. The 2021
Senior Unsecured Notes bear interest at a rate of 4.375% per annum, payable semi-annually, in cash, in arrears on June 15 and
December 15 of each year, beginning on December 15, 2021.
The Company used the net proceeds from the 2021 Senior Unsecured Notes to redeem its previously outstanding 2018 Senior
Unsecured Notes (defined below), to repay a portion of the borrowings outstanding under its 2018 Credit Facility (defined
below) and to pay related fees and expenses, as well as for general corporate purposes.
As of December 31, 2021, the 2021 Senior Unsecured Notes outstanding balance amounted to $400.0 million ($395.6 million,
net of $4.4 million in unamortized debt issuance costs).
On or after June 15, 2024, the Company may redeem the 2021 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. In
addition, prior to June 15, 2024, the Company may redeem the 2021 Senior Unsecured Notes at its option, in whole or in part,
from time to time, at a redemption price equal to 100% of the principal amount of the notes redeemed, plus an applicable
premium 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 2021 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 2021 Senior Unsecured Notes indenture contains usual and customary incurrence-based covenants that are generally less
restrictive than covenants under the 2021 Credit Facility (defined below) 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
55
the 2021 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, 2021, the Company was in compliance with all of these debt covenants. The 2021 Senior Unsecured Notes are
guaranteed by all direct and indirect subsidiaries of the Parent Company that are borrowers or guarantors under the 2021 Credit
Facility. Under the terms of the indenture, any direct or indirect subsidiaries that in the future become borrowers or guarantors
under the 2021 Credit Facility shall also be guarantors of the 2021 Senior Unsecured Notes.
(b)
2018 Senior Unsecured Notes
On June 16, 2021, the Company's $250.0 million 7.00% senior unsecured notes ("2018 Senior Unsecured Notes") were
redeemed in full, resulting in satisfaction and discharge of the obligation. In connection with the redemption of its 2018 Senior
Unsecured Notes, the Company wrote-off debt issuance costs of $3.6 million which are recorded as interest expense under the
caption finance costs (income) in earnings, and recognized an early redemption premium and other costs of $14.4 million
recorded as other expense (income), net under the caption finance costs (income) in earnings.
On October 15, 2018, the Company completed the private placement of its 2018 Senior Unsecured Notes due October 15, 2026.
The 2018 Senior Unsecured Notes bore interest at a rate of 7.00% per annum, which was payable semi-annually, in cash, in
arrears on April 15 and October 15 of each year, beginning on April 15, 2019.
The 2018 Senior Unsecured Notes' indenture contained usual and customary incurrence-based covenants that were generally
less restrictive than covenants under the 2018 Credit Facility and 2021 Credit Facility and, among other things, limited 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. The indenture allowed for
suspension of certain covenants if the 2018 Senior Unsecured Notes were assigned an investment grade rating by Standard &
Poor's Rating Services and Moody's Investors Services, Inc. None of these covenants were considered restrictive to the
Company’s operations. The 2018 Senior Unsecured Notes were guaranteed by all direct and indirect subsidiaries of the Parent
Company that were borrowers or guarantors under the 2018 Credit Facility. Under the terms of the indenture, any direct or
indirect subsidiaries that became borrowers or guarantors under the 2018 Credit Facility were also considered guarantors of the
2018 Senior Unsecured Notes.
(c)
2021 Credit Facility
On June 14, 2021, the Company entered into a new five-year, $600.0 million credit facility (“2021 Credit Facility”) with a
syndicated lending group, amending and extending the Company's 2018 Credit Facility that was due to mature in June 2023.
The 2018 Credit Facility's outstanding balance of $112.8 million at the time of amendment was transferred to the 2021 Credit
Facility.
In securing the 2021 Credit Facility, the Company incurred debt issuance costs amounting to $3.4 million which, in addition to
the remaining unamortized debt issuance costs on the 2018 Credit Facility, were capitalized and are being amortized using the
straight-line method over the five-year term of the loan. The 2021 Credit Facility consists of a $600.0 million revolving credit
facility, as well as an incremental accordion feature of $300.0 million, which would enable the Company to increase the limit of
this facility (subject to the credit agreement's terms and lender approval) to $900.0 million, if needed.
The 2021 Credit Facility matures on June 12, 2026 and bears an interest rate based, at the Company’s option, on the London
Inter-bank Offered Rate ("LIBOR") (or a lender-approved comparable or successor rate), the Federal Funds Rate, or Bank of
America’s prime rate, plus a spread varying between 10 and 235 basis points (110 basis points as of December 31, 2021)
depending on the debt instrument's benchmark interest rate and the consolidated secured net leverage ratio.
As of December 31, 2021, the 2021 Credit Facility's outstanding principal balance amounted to $100.0 million ($96.1 million,
net of $3.9 million in unamortized debt issuance costs). Including $2.3 million in standby letters of credit, total utilization under
the 2021 Credit Facility amounted to $102.3 million. Accordingly, the Company’s unused availability as of December 31, 2021
amounted to $497.7 million.
The 2021 Credit Facility has two financial covenants, a consolidated secured net leverage ratio not to be more than 4.00 to 1.00,
with an allowable temporary increase to 4.50 to 1.00 for the quarter in which the Company consummates an acquisition with a
price not less than $50.0 million and the following three quarters, and a consolidated interest coverage ratio not to be less than
2.25 to 1.00. The Company was in compliance with the consolidated secured net leverage ratio and consolidated interest
56
coverage ratio, which were 0.47 and 10.73 respectively, as of December 31, 2021. In addition, the 2021 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 during the year ended, December 31, 2021.
The 2021 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.
(d)
2018 Credit Facility
The Company's five-year, $600.0 million credit facility entered into on June 14, 2018 and due in June 2023 ("2018 Credit
Facility") was amended and extended on June 14, 2021 as part of entering into the 2021 Credit Facility, as discussed above.
In securing the 2018 Credit Facility, the Company incurred debt issue costs amounting to $2.7 million which were capitalized
and were being amortized using the straight-line method over the five-year term of the loan. At the time the Company entered
into the 2021 Credit Facility, the remaining unamortized debt issuance costs on the 2018 Credit Facility totalled $1.1 million,
which are now being amortized using the straight-line method over the five-year term of the 2021 Credit Facility.
The 2018 Credit Facility consisted 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 included amortization features of $65.0 million through 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 was due upon maturity in June 2023. Repayments of borrowings under the
2018 Term Loan were not available to be borrowed again in the future.
The 2018 Credit Facility also included an incremental accordion feature of $200.0 million, which enabled 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 bore 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) depending on the debt
instrument's benchmark interest rate and the consolidated secured net leverage ratio.
The 2018 Credit Facility was secured by a first priority lien on all personal property of the Company and all previous material
subsidiaries who were borrowers or guarantors under the facility.
The 2018 Credit Facility had, in summary, two financial covenants: (i) a consolidated secured net leverage ratio not to be more
than 3.70 to 1.00 with an allowable temporary increase to 4.20 to 1.00 for the quarters in which the Company consummated an
acquisition with a price not less than $50.0 million and the following three quarters and (ii) a consolidated interest coverage
ratio not to be less than 2.75 to 1.00. In addition, the 2018 Credit Facility had certain non-financial covenants, such as
covenants regarding indebtedness, investments, and asset dispositions.
(e)
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 Indian Marginal Cost-
Lending Rate ("IMCLR"). Any repayments of borrowings under the Capstone Term Loan Facility are not available to be
borrowed again in the future. The 2018 Capstone Working Capital Facility and the balance of the Capstone Term Loan Facility
mature 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, 2021, the 2018 Capstone Credit Facility credit limit was INR 975.0 million ($13.1 million). The Capstone
Term Loan Facility had an outstanding balance of INR 564.1 million ($7.6 million), and the Capstone Working Capital Facility
outstanding balance was INR 283.4 million ($3.8 million) for a total gross outstanding amount of INR 847.5 million ($11.4
million). As of December 31, 2021, the 2018 Capstone Credit Facility's unused availability was INR 106.6 million ($1.4
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.
57
(f)
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 due from July 2018 through
January 2025. 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.
As of December 31, 2021, the loan had an outstanding balance of €1.4 million ($1.5 million) and a fair value of €1.3 million
($1.5 million). The difference between the outstanding balance and the fair value of the loan is the benefit derived from the
interest-free loan which is 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, which consists of the benefits of both meeting the loan forgiveness requirements and the
interest-free loan status, is €1.7 million ($1.9 million) as of December 31, 2021 (€1.9 million ($2.3 million) as of December 31,
2020) 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 2023 as long as
certain conditions were met, namely satisfying certain 2022 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.
As of December 31, 2021, the loan had an outstanding balance of €2.9 million ($3.3 million) and a fair value of €2.8 million
($3.1 million). The difference between the outstanding balance and the fair value of the loan is the benefit derived from the
interest-free loan and is recognized as deferred income. Additionally, once the Company has determined there is reasonable
assurance that the forgiveness requirements will be satisfied, the portion of the loan that is no longer repayable will be
reclassified to deferred income in other liabilities. The deferred income will be recognized in earnings through cost of sales on a
systematic basis over the related assets’ useful lives when the capital expansion assets are placed into service. The unamortized
deferred income is €0.2 million ($0.2 million) as of December 31, 2021 and December 31, 2020 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, 2021 and 2020.
USD amounts presented above are translated from Euros and are impacted by fluctuations in the USD and Euro exchange rates.
(g)
Refer to Note 15 for more information regarding lease liabilities.
(h)
Other borrowings
IPG Asia Credit Facility
One of the Company's subsidiaries, IPG Asia, has a credit facility consisting of an INR 375.0 million ($5.0 million) working
capital facility that renews annually, is due upon demand and bears interest based on the prevailing IMCLR ("IPG Asia Credit
Facility").
The IPG Asia Credit Facility is guaranteed by the Parent Company, and certain local assets (with a carrying amount of $39.2
million as of December 31, 2021) are required to be pledged. IPG Asia is prohibited from granting liens on its assets without
58
the consent of the lender under the IPG Asia Credit Facility. Funding under the IPG Asia Credit Facility is not committed and
could be withdrawn by the lender with 10 days' notice. Additionally, under the terms of the IPG Asia Credit Facility, IPG Asia's
debt to net worth ratio (as defined by the IPG Asia Credit Facility credit agreement) must be maintained below 3.00. IPG Asia
was in compliance with the debt to net worth ratio which was 0.04 as of December 31, 2021.
As of December 31, 2021, the IPG Asia Credit Facility’s outstanding balance was INR 63.5 million ($0.9 million). Including
INR 167.6 million ($2.2 million) in letters of credit, total utilization under the IPG Asia Credit Facility amounted to INR
231.1 million ($3.1 million). The IPG Asia Credit Facility's unused availability as of December 31, 2021 amounted to INR
143.9 million ($1.9 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.
Short-term Credit Line
One of the Company’s wholly-owned subsidiaries has a short-term credit line for up to €2.5 million ($2.8 million) for the
purpose of financing a capital expansion project. As of December 31, 2021, €1.5 million ($1.7 million) of the short-term credit
line was utilized. No amounts were outstanding under the short-term credit line as of December 31, 2020. 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, 2021 and 2020). The short-term credit line matures in September 2022 and is renewable annually, with interest
due quarterly and billed in arrears.
Vehicle Loans
One of the Company's subsidiaries has various loans related to the purchase of vehicles. The loans' outstanding principal
balances amounted to €0.1 million ($0.1 million) as of December 31, 2021. The loans are repaid in annual installments through
December 2025.
59
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, 2019
443,819
20,235
44,756
508,810
Cash flows:
Proceeds
234,972
67,059
—
302,031
Repayments
(248,903)
(70,397)
(6,581)
(325,881)
Non-cash:
Lease additions
—
—
4,064
4,064
Lease disposals
—
—
(203)
(203)
Amortization of debt issuance costs
1,210
—
—
1,210
Foreign exchange and other
(23)
(130)
86
(67)
Reclassification
(2,364)
2,364
—
—
Balance as of December 31, 2020
428,711
19,131
42,122
489,964
Borrowings,
non-current
(excluding lease
liabilities)
Borrowings,
current
(excluding lease
liabilities)
Lease liabilities
Total
$
$
$
$
Balance as of December 31, 2020
428,711
19,131
42,122
489,964
Cash flows:
Proceeds
716,555
80,874
—
797,429
Repayments
(653,472)
(77,852)
(7,803)
(739,127)
Debt issuance costs (1)
(8,421)
—
—
(8,421)
Non-cash:
Lease additions
—
—
10,278
10,278
Lease disposals
—
—
(68)
(68)
Additions through business
acquisitions
—
—
250
250
Amortization of debt issuance costs
1,502
—
—
1,502
Write-off of debt issuance costs
3,647
—
—
3,647
Foreign exchange and other
(192)
(23)
22
(193)
Reclassification
14,650
(14,650)
—
—
Balance as of December 31, 2021
502,980
7,480
44,801
555,261
Borrowings,
non-current
(excluding lease
liabilities)
Borrowings,
current
(excluding lease
liabilities)
Lease liabilities
Total
$
$
$
$
(1)
Includes debt issuance costs of $0.1 million that were accrued for but unpaid as of December 31, 2021.
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
60
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:
December 31,
2021
December 31,
2020
$
$
Lease liabilities (current)
10,639
7,088
Lease liabilities (non-current)
34,162
35,034
44,801
42,122
Interest expense relating to payments on lease liabilities was approximately $2.4 million and $2.7 million for the years ended
December 31, 2021 and 2020, respectively, and is included in interest expense under the caption finance costs (income) in
earnings.
As of December 31, 2021, 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
40
157
57
254
Leases with extension options
21
35
1
57
Extension options reasonably certain to
exercise
10
—
—
10
Leases with options to purchase
1
8
3
12
Purchase options reasonably certain to
exercise
1
5
—
6
Leases with variable payments linked to an
index
—
36
—
36
Leases with termination options, none of
which are reasonably certain to exercise
6
—
1
7
Lease terms on the Company's leasing activities by class of right-of-use asset recognized on the balance sheet are as follows:
Buildings
Manufacturing
equipment
Furniture,
office equipment
and other
Range of remaining term
1-156 months
1-84 months
1-46 months
Average remaining lease term
40 months
21 months
14 months
Rent expense relating to payments not included in the measurement of lease liabilities was approximately $2.5 million and $1.8
million for the years ended December 31, 2021 and 2020, respectively, and is composed of the following:
December 31, 2021
December 31, 2020
$
$
Short-term leases
837
826
Leases of low value assets
123
81
Variable lease payments
1,508
850
2,468
1,757
Refer to the Liquidity section of Note 24 for the disclosure of minimum lease liabilities due.
61
As of December 31, 2021, the Company had commitments of $4.2 million, respectively, for short-term leases and leases of
manufacturing equipment, furniture, office equipment, and other which had not yet commenced.
Total cash outflow for leases for the twelve months ended December 31, 2021 and 2020 was $12.7 million and $11.0 million,
respectively.
16 - PROVISIONS AND CONTINGENT CONSIDERATION
The reconciliation of the Company’s provisions is as follows:
$
$
$
$
$
$
Balance as of December 31, 2019
1,524
1,586
961
764
—
4,835
Provisions assumed through
business acquisitions
—
—
—
100
—
100
Additional provisions
—
80
4,162
258
11,005
(1)
15,505
Amounts used
(127)
—
(2,654)
(8)
—
(2,789)
Amounts reversed
—
—
(52)
—
(11,005)
(11,057)
Net foreign exchange differences
—
10
48
—
—
58
Balance as of December 31, 2020
1,397
1,676
2,465
1,114
—
6,652
Amount presented as current
819
50
2,370
983
—
4,222
Amount presented as non-current
578
1,626
95
131
—
2,430
Balance as of December 31, 2020
1,397
1,676
2,465
1,114
—
6,652
Provisions assumed through
business acquisitions
—
88
—
—
—
88
Additional provisions
—
12
314
208
8,305
8,839
Amounts used
(165)
—
(1,842)
(1,034)
—
(3,041)
Amounts reversed
(50)
—
(240)
(106)
—
(396)
Net foreign exchange differences
—
1
(1)
(1)
9
8
Balance as of December 31, 2021
1,182
1,777
696
181
8,314
12,150
Amount presented as current
670
—
413
78
3,344
4,505
Amount presented as non-current
512
1,777
283
103
4,970
7,645
Balance as of December 31, 2021
1,182
1,777
696
181
8,314
12,150
Environmental
Restoration
Termination
benefits
Litigation
Contingent
consideration
Total
(1)
Includes increases resulting from net present value discounting of $0.2 million. Refer to Note 24 for additional
information regarding the Company's contingent consideration arrangements.
The environmental provision activity during the years ended December 31, 2021 and 2020 is primarily related to the Columbia,
South Carolina facility.
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 benefits activity during the years ended December 31, 2021 and 2020 relate primarily to employee restructuring
initiatives started in 2020 in response to COVID-19 uncertainties. 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
consultation with outside legal counsel, management currently believes that the probable ultimate resolution of any such
62
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, 2021.
The Company is party to certain contingent consideration arrangements as part of the Nortech Acquisition (defined in Note 19)
and Nuevopak Acquisition (defined in Note 19), which require the Company to make future payments, if specified future events
occur or conditions are met, based on the provisions contained within the respective acquisition's purchase agreement. Refer to
Note 24 for additional information regarding the Company's contingent consideration arrangements.
As of December 31, 2021, and 2020, 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:
December 31,
2021
December 31,
2020
$
$
Deferred compensation (1)
6,584
3,943
Deferred income on partially forgivable government loans (2)
2,098
2,525
Interest rate swap agreements (3)
1,642
4,025
Contract liabilities
938
565
Royalty liabilities
926
301
Deferred social security tax (4)
—
3,239
Other
359
168
12,547
14,766
(1)
Refer to Note 20 for additional information on other long-term employee benefit plans.
(2)
Refer to Note 14 for additional information on deferred income on partially forgivable government loans.
(3)
Refer to Note 24 for additional information regarding the fair value of interest rate swap agreements.
(4)
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, 2021 and 2020, were 59,284,947 and 59,027,047, respectively.
63
Dividends
Cash dividends paid to shareholders are as follows for each of the years in the three-year period ended December 31, 2021:
Declared Date
Paid date
Per common
share
amount
Shareholder
record date
Common
shares issued
and
outstanding
Aggregate
payment (1)
$
$
March 12, 2019
March 29, 2019
0.1400 March 22, 2019
58,665,310
8,189
May 8, 2019
June 28, 2019
0.1400 June 14, 2019
58,877,185
8,352
August 7, 2019
September 30, 2019
0.1475 September 16, 2019
58,877,185
8,709
November 8, 2019
December 30, 2019
0.1475 December 16, 2019
58,939,685
8,742
March 12, 2020
March 31, 2020
0.1475 March 23, 2020
59,009,685
8,807
May 12, 2020
June 30, 2020
0.1475 June 15, 2020
59,009,685
8,651
August 12, 2020
September 30, 2020
0.1475 September 15, 2020
59,009,685
8,574
November 11, 2020
December 31, 2020
0.1575 December 16, 2020
59,019,546
9,354
March 11, 2021
March 31, 2021
0.1575 March 22, 2021
59,027,047
9,237
May 11, 2021
June 30, 2021
0.1575 June 16, 2021
59,027,047
9,214
August 10, 2021
September 30, 2021
0.1700 September 16, 2021
59,284,947
10,039
November 11, 2021
December 31, 2021
0.1700 December 17, 2021
59,284,947
10,151
(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, 2021, 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, 2022. As of December 31, 2021 and March 10, 2022, 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, 2021 and July 22, 2020, respectively. There were no share repurchases during the years ended
December 31, 2021 and 2020.
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.
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 vested 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 vested 25% on the grant date and 25% on each of the first three anniversaries of the date of
grant.
64
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, 2021:
2021
2020
2019
Weighted
average
exercise
price
Number of
options
Weighted
average
exercise
price
Number of
options
Weighted
average
exercise
price
Number of
options
CDN$
CDN$
CDN$
Balance, beginning of year
11.25 2,449,222
16.49 1,010,901
14.59 1,009,793
Granted
29.34
243,152
7.94 1,533,183
17.54
392,986
Exercised
12.90
(257,900)
19.94
(17,362)
12.34 (359,375)
Forfeited
—
—
12.34
(77,500)
15.85
(32,503)
Balance, end of year
12.88 2,434,474
11.25 2,449,222
16.49 1,010,901
Shares issued upon exercise of stock options during 2021, 2020 and 2019 had a weighted average fair value per share at
exercise of $24.41, $20.11 and $13.06, respectively.
The following table summarizes information about stock options outstanding and exercisable for each of the years in the three-
year period ended December 31, 2021:
CDN$
CDN$
December 31, 2021
$7.94
1,501,231
5.82
7.94
479,111
7.94
$12.55
140,000
2.21
12.55
140,000
12.55
$17.54
338,604
4.84
17.54
215,109
17.54
$21.76
211,487
3.97
21.76
211,487
21.76
$29.34
243,152
6.47
29.34
—
—
2,434,474
5.38
12.88 1,045,707
13.33
December 31, 2020
$7.94
1,533,183
6.76
7.94
—
—
$12.04 to $12.55
320,000
2.82
12.30
320,000
12.30
$17.54
362,982
5.67
17.54
115,994
17.54
$21.76
233,057
4.71
21.76
152,084
21.76
2,449,222
5.89
11.25
588,078
15.78
December 31, 2019
$12.04 to $12.55
397,500
3.13
12.30
397,500
12.30
$17.54
370,483
6.62
17.54
—
—
$21.76
242,918
5.61
21.76
80,973
21.76
1,010,901
5.01
16.49
478,473
13.90
Options outstanding
Options exercisable
Range of exercise prices (CDN$)
Number
Weighted
average
contractual
life (years)
Weighted
average
exercise price
Number
Weighted
average
exercise price
65
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, 2021, including the weighted average assumptions used in the model:
December 31, 2021
December 31, 2020
December 31, 2019
Weighted average fair value of stock options granted
$4.25
$0.44
$2.21
Weighted average model assumptions:
Expected life
5.5 years
5.5 years
4.9 years
Expected volatility (1)
27.63 %
34.18 %
29.79 %
Risk-free interest rate
1.09 %
0.75 %
1.44 %
Expected dividends
3.07 %
10.79 %
4.27 %
Stock price at grant date
CDN$ 29.34
CDN$ 7.94
CDN$ 17.54
Exercise price of awards
CDN$ 29.34
CDN$ 7.94
CDN$ 17.54
Foreign exchange rate USD to CDN
1.2482
1.4526
1.3380
(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
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 settlement date. 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,
2021:
2021
2020
2019
RSUs granted
81,981
281,326
120,197
Weighted average fair value per RSU granted
$
23.88 $
6.07 $
13.74
RSUs forfeited
3,349
8,643
7,412
RSUs settled
106,906
—
—
Weighted average fair value per RSU settled
23.84
—
—
Cash settlements (1)
2,733
—
—
(1)
Includes a cash payment of dividend equivalents on RSUs equaling the product that results from multiplying the
number of settled RSUs by the amount of cash dividends per common share declared and paid by the Company from
the date of grant of the RSUs to the settlement date.
The following table summarizes information about RSUs outstanding as of:
December 31,
2021
December 31,
2020
RSUs outstanding
469,468
497,287
Weighted average fair value per RSU outstanding
$
20.21 $
18.91
66
Performance Share Units
A PSU 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 vesting conditions 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.
Grant details for PSUs granted prior to December 31, 2017:
The PSUs granted prior to December 31, 2017 were eligible to vest 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
Percent of Target Shares Vested
76th percentile or higher
150 %
51st-75th percentile
100 %
25th-50th percentile
50 %
Less than the 25th percentile
0 %
The performance and vesting period was the period from the date of grant through the third anniversary of the date of grant.
The PSUs were 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 was determined as follows
(interpolated on a straight-line basis):
TSR Ranking Relative to the Peer Group
Percent of Target Shares Vested
75th percentile or above
150 %
50th percentile
100 %
25th percentile
50 %
Less than the 25th percentile
0 %
Grant details for PSUs granted subsequent to December 31, 2017 and prior to December 31, 2019:
The number of PSUs granted in 2018 and 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:
•
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.
67
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.
The relative TSR performance adjustment factor is determined as follows:
TSR Ranking Relative to the Index Group/Peer Group
Percent of Target Shares Vested
90th percentile or higher
200 %
75th percentile
150 %
50th percentile
100 %
25th percentile
50 %
Less than the 25th percentile
0 %
The ROIC Performance adjustment factor is determined as follows:
ROIC Performance
Percent of Target Shares Vested
1st Tier
0 %
2nd Tier
50 %
3rd Tier
100 %
4th Tier
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.
68
The following table summarizes information about PSUs for each of the years in the three-year period ended December 31,
2021:
2021
2020
2019
PSUs granted
200,982
694,777
291,905
Weighted average fair value per PSU granted
$
29.02 $
5.59 $
14.28
PSUs forfeited/cancelled
10,046
25,923
23,739
PSUs added/(cancelled) by performance factor (1)
143,512
(346,887)
(401,319)
PSUs settled
409,670
—
—
Weighted average fair value per PSU settled
$
23.84 $
— $
—
Cash payment on settlement (2)
$
10,472 $
— $
—
(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
Date Settled
Target Shares
Performance
PSUs settled
March 21, 2016
March 21, 2019
371,158
0 %
—
December 20, 2016
December 20, 2019
30,161
0 %
—
March 20, 2017
March 20, 2020
346,887
0 %
—
March 21, 2018
March 23, 2021
266,158
153.9 %
409,670
(2)
Includes a cash payment of dividend equivalents on PSUs equaling the product that results from multiplying the
number of settled PSUs by the amount of cash dividends per common share declared and paid by the Company from
the date of grant of the PSUs to the settlement date.
The weighted average fair value of PSUs granted in the three-year period ended December 31, 2021 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:
2021
2020
2019
5 day VWAP at grant date
CDN$ 29.78
CDN$ 8.63
CDN$ 18.31
Monte Carlo simulation model assumptions:
Expected life
3 years
3 years
3 years
Expected volatility (1)
45 %
36 %
25 %
US risk-free interest rate
0.28 %
0.3 %
2.36 %
Canadian risk-free rate
0.46 %
0.59 %
1.6 %
Expected dividends (2)
CDN$ 0.00
CDN$ 0.00
CDN$ 0.00
Performance period starting price (3)
CDN$ 24.20
CDN$ 16.25
CDN$ 16.36
Stock price as of estimation date
CDN$ 29.27
CDN$ 7.24
CDN$ 18.06
(1)
Expected volatility was calculated based on the daily dividend adjusted closing price change on the TSX for a term
commensurate with the expected life of the grant.
(2)
A participant will receive a cash payment from the Company upon PSU settlement that is equivalent to the number of
settled PSUs multiplied by the amount of cash dividends per share declared 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.
(3)
The performance period starting price is measured as the VWAP for the common shares of the Company on the TSX
on the grant date.
69
The following table summarizes information about PSUs outstanding as of:
December 31,
2021
December 31,
2020
PSUs outstanding
1,149,196
1,223,053
Weighted average fair value per PSU outstanding
$
29.35 $
28.53
Based on the Company’s performance adjustment factors as of December 31, 2021, the number of PSUs earned if all of the
outstanding awards were to be settled at December 31, 2021, would be as follows:
Grant Date
Performance
March 21, 2019
127.1 %
March 23, 2020
157.6 %
March 22, 2021
118.0 %
Deferred Share Unit Plan
A DSU 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. 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. 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 following table summarizes information about DSUs for each of the years in the three-year period ended December 31,
2021:
2021
2020
2019
DSUs granted
67,554
115,114
72,434
Weighted average fair value per DSU granted
$
22.93 $
10.26 $
13.83
The following table summarizes information about DSUs outstanding as of:
December 31,
2021
December 31,
2020
DSUs outstanding
454,095
386,541
Weighted average fair value per DSU outstanding
$
20.21 $
18.91
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, 2021:
2021
2020
2019
$
$
$
Stock options
879
738
701
PSUs
15,253
14,829
(2,057)
DSUs
1,546
3,819
914
RSUs
3,977
3,493
943
21,655
22,879
501
70
The following table summarizes share-based liabilities recorded in the consolidated balance sheets for the years ended:
December 31,
2021
December 31,
2020
Share-based compensation liabilities, current
$
$
PSUs (1)
7,921
8,446
DSUs (2)
8,852
7,354
RSUs (1)
2,316
1,969
19,089
17,769
Share-based compensation liabilities, non-current
PSUs (1)
15,850
10,743
RSUs (1)
4,000
2,921
19,850
13,664
(1)
Includes dividend equivalents accrued on awards.
(2)
Includes dividend equivalent grants.
Change in Contributed Surplus
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, 2021:
2021
2020
2019
$
$
$
Change in excess tax benefit on exercised share-based awards
(672)
—
(38)
Change in excess tax benefit on outstanding share-based awards
824
5,306
21
Share-based compensation expense credited to capital on options
exercised
(737)
(50)
(976)
Share-based compensation expense for stock options
879
738
701
Increase (decrease) in contributed surplus
294
5,994
(292)
19 - BUSINESS ACQUISITIONS
Nuevopak Global Limited Acquisition
On July 30, 2021, the Company acquired 100% of the outstanding equity in Nuevopak Global Limited ("Nuevopak") for
$43.0 million, net of cash balances acquired (the "Nuevopak Acquisition"). This amount includes potential earn-out
consideration of up to $9.0 million to be paid upon the achievement of certain operational milestones within three years from
the date of closing. (Refer to Note 24 for further discussion of this contingent consideration and the inputs used in
management's estimation of fair value.)
Nuevopak designs and develops a range of machines that provide void-fill and cushioning protective packaging solutions
primarily targeting protective paper packaging solutions. Nuevopak supplies the Company with paper dispensing machines and
converted paper for protective packaging distribution in North America. Nuevopak is headquartered in Hong Kong with
subsidiaries in Jiangmen, China and Scheden, Germany. The Nuevopak Acquisition is expected to further strengthen the
Company's product bundle and secure a broader suite of sustainable packaging solutions, while enabling the Company to secure
dispensing machine supply, vertically integrate its paper converting operation, and expand its market share.
Excluding working capital adjustments, cash balances acquired and the contingent consideration arrangement noted above, the
purchase price was $34.8 million. The consideration paid in cash was financed using funds available under the Company's
revolving credit facility. Customary representations and warranties, covenants and indemnification provisions were included in
the share purchase agreement. The transaction is being accounted for using the acquisition method of accounting.
71
The net consideration paid on the closing date for the acquisition described above was as follows:
July 30, 2021
$
Consideration paid in cash
35,402
Estimated fair value of contingent consideration arrangement (1)
8,305
Consideration transferred
43,707
Less: cash balances acquired
742
Consideration transferred, net of cash acquired
42,965
(1)
The gross contractual contingent consideration amount of $9.0 million is included in the gross consideration total at its
net present value as of the date of acquisition when the contingency was entered into, with expected cash outflows
discounted using a rate of 4.74%. Refer to Note 24 for further discussion of this financial liability and inputs used in
management's estimation of fair value.
Fair values of net identifiable assets acquired at the date of acquisition were as follows:
July 30, 2021
$
Current assets
Cash
742
Trade receivables (1)
1,167
Inventories
5,305
Other current assets
996
Property, plant and equipment
1,657
Intangible assets
21,651
Deferred tax assets
11
31,529
Current liabilities
Accounts payable and accrued liabilities
3,519
Borrowings and lease liabilities, current
155
Borrowings and lease liabilities, non-current
95
Deferred tax liabilities
3,754
Provisions, non-current
88
7,611
Fair value of net identifiable assets acquired
23,918
(1)
The gross contractual amounts receivable were $1.2 million. As of December 31, 2021, the Company has collected
substantially all of the trade receivables that were outstanding as of the date of acquisition.
The fair value of goodwill at the date of acquisition was as follows:
July 30, 2021
$
Consideration transferred
43,707
Less: fair value of net identifiable assets acquired
23,918
Goodwill
19,789
Goodwill recognized is primarily related to growth expectations, expected future profitability, and expected revenue and cost
synergies. The Company does not expect goodwill to be deductible for income tax purposes.
72
The Nuevopak Acquisition’s impact on the Company’s consolidated earnings was as follows:
July 31 through
December 31, 2021
$
Revenue
2,889
Net loss
804
Had the Nuevopak Acquisition been effective as of January 1, 2021, the impact on the Company’s consolidated earnings would
have been as follows:
Twelve Months Ended
December 31, 2021
$
Revenue
7,668
Net loss
2,159
The Company's acquisition-related costs of $1.7 million are excluded from the consideration transferred and are included in the
Company’s consolidated earnings, primarily in selling, general and administrative expenses for the year ended December 31,
2021.
Nortech Packaging Acquisition
On February 11, 2020, the Company acquired substantially all of the operating assets of Nortech Packaging LLC and Custom
Assembly Solutions, Inc. (collectively, "Nortech") for an aggregate purchase price of $46.5 million, net of cash balances
acquired (the "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.)
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 arrangement noted above, the
purchase price was $36.5 million. The consideration paid in cash was financed using funds available under the Company's
revolving credit facility. As of December 31, 2021, the former owners of Nortech have in escrow approximately $2.4 million
($4.7 million as of December 31, 2020) 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.
The net cash consideration paid on the closing date for the acquisition described above was as follows:
February 11, 2020
$
Consideration paid in cash
36,188
Estimated fair value of contingent consideration arrangement (1)
10,806
Consideration transferred
46,994
Less: cash balances acquired
484
Consideration transferred, net of cash acquired
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%. Subsequent to the acquisition, and as of December 31, 2021 and 2020, management
concluded that any payment toward this obligation was not probable due to the impact of, and macroeconomic events
resulting from, COVID-19 and other delays in the acquisition integration efforts. Refer to Note 24 for further discussion
of this financial liability and inputs used in management's estimation of fair value.
73
The fair values of net identifiable assets acquired at the date of acquisition were as follows:
February 11, 2020
$
Current assets
Cash
484
Trade receivables (1)
2,749
Inventories
5,123
Other current assets
199
Property, plant and equipment
921
Intangible assets
21,519
30,995
Current liabilities
Accounts payable and accrued liabilities
9,493
Borrowings and lease liabilities, current
143
Borrowings and lease liabilities, non-current
5
9,641
Fair value of net identifiable assets acquired
21,354
(1)
The gross contractual amounts receivable were $3.2 million. As of December 31, 2021, 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:
February 11, 2020
$
Consideration transferred
46,994
Less: fair value of net identifiable assets acquired
21,354
Goodwill
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:
February 12 through
December 31, 2020
$
Revenue
11,674
Net loss
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:
Twelve Months Ended
December 31, 2020
$
Revenue
16,424
Net loss
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.
74
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.
The amount expensed with respect to the defined contribution plans for the years ended December 31, was $8.2 million in
2021, $6.8 million in 2020 and $7.1 million in 2019.
Defined benefit plans
In the US, the Company has three defined benefit pension plans for certain union hourly and non-union salaried employees.
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
current and former 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
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, 2021 and 2020, the deferred compensation plan assets totalled
$8.3 million and $5.7 million, respectively, and are presented in other assets in the consolidated balance sheets. As of
December 31, 2021 and 2020, the deferred compensation plan liabilities totalled $8.3 million and $5.6 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.
75
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
100,209
91,148
3,018
2,907
Current service cost
1,177
1,132
64
62
Interest cost
2,230
2,701
65
80
Benefits paid
(4,561)
(4,456)
(210)
(78)
Actuarial losses (gains) from demographic
assumptions
225
(666)
1
(4)
Actuarial (gains) losses from financial
ti
(5,654)
9,561
(155)
105
Experience losses (gains)
1
282
(55)
(88)
Foreign exchange rate adjustment
(30)
507
(2)
34
Balance, end of year
93,597
100,209
2,726
3,018
Fair value of plan assets
Balance, beginning of year
86,425
79,003
—
—
Interest income
1,867
2,297
—
—
Return on plan assets (excluding amounts included
in net interest expense)
(332)
8,494
—
—
Contributions by the employer
968
1,051
210
78
Benefits paid
(4,561)
(4,456)
(210)
(78)
Administration expenses
(275)
(379)
—
—
Foreign exchange rate adjustment
(37)
415
—
—
Balance, end of year
84,055
86,425
—
—
Funded status – deficit
9,542
13,784
2,726
3,018
Pension plans
Other plans
December 31,
2021
December 31,
2020
December 31,
2021
December 31,
2020
$
$
$
$
76
The defined benefit obligations and fair value of plan assets broken down by geographical locations is as follows for the years
ended:
December 31, 2021
US
Canada
Total
$
$
$
Defined benefit obligations
76,206
20,117
96,323
Fair value of plan assets
(66,657)
(17,398)
(84,055)
Deficit in plans
9,549
2,719
12,268
December 31, 2020
US
Canada
Total
$
$
$
Defined benefit obligations
81,883
21,344
103,227
Fair value of plan assets
(69,649)
(16,776)
(86,425)
Deficit in plans
12,234
4,568
16,802
The defined benefit obligations for pension plans broken down by funding status are as follows for the years ended:
December 31,
2021
December 31,
2020
$
$
Wholly unfunded
12,445
13,460
Wholly funded or partially funded
81,152
86,749
Total obligations
93,597
100,209
A reconciliation of pension and other post-retirement benefits recognized in the consolidated balance sheets is as follows for the
years ended:
December 31,
2021
December 31,
2020
$
$
Pension Plans
Present value of the defined benefit obligations
93,597
100,209
Fair value of the plan assets
84,055
86,425
Deficit in plans
9,542
13,784
Assets recognized in other assets
3,539
3,024
Liabilities recognized
13,081
16,808
Pension benefits recognized in balance sheets
9,542
13,784
Other plans
Present value of the defined benefit obligations and deficit in the plans
2,726
3,018
Liabilities recognized
2,726
3,018
Total plans
Total assets recognized in other assets
3,539
3,024
Total liabilities recognized
15,807
19,826
Total pension and other post-retirement benefits recognized in balance sheets
12,268
16,802
77
The composition of plan assets based on the fair value was as follows for the years ended:
December 31,
2021
December 31,
2020
$
$
Asset category
Cash
42
78
Equity instruments
11,580
14,838
Fixed income instruments
72,433
71,509
Total
84,055
86,425
Approximately 100% of equity and fixed income instruments as of December 31, 2021 and 2020, 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, 2021:
Pension plans
Other plans
2021
2020
2019
2021
2020
2019
$
$
$
$
$
$
Current service cost
1,177
1,132
1,036
64
62
60
Administration expenses
275
379
422
—
—
—
Net interest expense
363
404
515
65
80
106
Net costs recognized in the statement of
consolidated earnings
1,815
1,915
1,973
129
142
166
Total plans
2021
2020
2019
$
$
$
Current service cost
1,241
1,194
1,096
Administration expenses
275
379
422
Net interest expense
428
484
621
Net costs recognized in the statement of consolidated earnings
1,944
2,057
2,139
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, 2021:
Pension plans
Other plans
2021
2020
2019
2021
2020
2019
$
$
$
$
$
$
Actuarial (losses) gains from demographic
assumptions
(225)
666
542
(1)
4
(17)
Actuarial gains (losses) from financial
assumptions
5,654
(9,561)
(10,924)
155
(105)
(209)
Experience (losses) gains
(1)
(282)
(692)
55
88
273
Return on plan assets (excluding amounts
included in net interest expense)
(332)
8,494
11,789
—
—
—
Total amounts recognized in OCI
5,096
(683)
715
209
(13)
47
The Company currently expects to contribute a total of $1.0 million to its defined benefit pension plans and $0.2 million to its
health and welfare plans in 2022.
The weighted average duration of the defined benefit obligations as of December 31, 2021 and 2020 is 12 years for US plans
and 17 years for Canadian plans, for both periods.
78
The significant weighted average assumptions which were used to measure defined benefit obligations are as follows for the
years ended:
US plans
Canadian plans
December 31,
2021
December 31,
2020
December 31,
2021
December 31,
2020
Discount rate
Pension plans (end of the year) (1)
2.58 %
2.15 %
3.00 %
2.55 %
Pension plans (current service cost) (2)
2.34 %
3.10 %
2.60 %
3.20 %
Other plans (end of the year) (1)
2.17 %
1.65 %
3.00 %
2.55 %
Other plans (current service cost) (2)
1.99 %
2.82 %
2.60 %
3.20 %
Life expectancy at age 65 (in years) (3)
Current pensioner - Male
20
19
22
22
Current pensioner - Female
22
21
25
25
Current member aged 45 - Male
21
21
24
23
Current member aged 45 - Female
23
23
26
26
(1)
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.
(2)
Represents the discount rate used to calculate annual service cost.
(3)
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:
December 31,
2021
December 31,
2020
$
$
Discount rate
Increase of 1%
(11,388)
(12,590)
Decrease of 1%
14,058
15,637
Mortality rate
Life expectancy increased by one year
3,229
3,491
Life expectancy decreased by one year
(3,313)
(3,588)
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, 2021:
2021
2020
2019
$
$
$
Revenue
Canada
151,949
119,287
104,842
Germany
37,615
25,387
26,082
United States
1,206,868
966,729
923,239
Other
135,037
101,625
104,356
Total revenue
1,531,469
1,213,028
1,158,519
79
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
31,473
34,984
India
58,301
54,518
Portugal
27,398
24,720
United Kingdom
11,801
—
United States
329,682
300,950
Other
701
42
Total property, plant and equipment
459,356
415,214
Goodwill
Canada
12,289
12,309
Germany
8,629
—
Hong Kong
10,781
—
India
26,455
26,905
United States
93,680
93,680
Total goodwill
151,834
132,894
Intangible assets
Canada
15,326
13,167
Hong Kong
21,128
—
India
9,482
12,389
United Kingdom
790
—
United States
91,999
98,718
Total intangible assets
138,725
124,274
Other assets
Canada
149
165
India
312
192
Portugal
33
34
United States
16,055
12,919
Total other assets
16,549
13,310
December 31,
2021
December 31,
2020
The following table presents revenue information based on revenues for the following product categories for each of the years
in the three-year period ended December 31, 2021:
2021
2020
2019
$
$
$
Revenue
Tape
799,576
658,911
632,950
Film
250,181
181,180
184,398
Engineered coated products
206,315
159,933
162,955
Protective packaging
188,902
152,710
135,605
Packaging machinery
81,087
54,870
33,621
Other
5,408
5,424
8,990
1,531,469
1,213,028
1,158,519
80
22 - RELATED PARTY TRANSACTIONS
The Company’s key personnel include all non-executive directors on the Board (ten in 2021 and 2020 and eight in 2019) and
senior executive level members of management (eight in 2021 and 2020 and six in 2019). Key personnel remuneration includes
the following expenses for each of the years in the three-year period ended December 31, 2021:
2021
2020
2019
$
$
$
Short-term benefits including employee salaries and bonuses and
director retainer and committee fees
7,655
8,845
6,124
Post-employment and other long-term benefits
703
593
604
Share-based compensation expense
11,292
12,894
1,152
Total remuneration
19,650
22,332
7,880
23 - COMMITMENTS
Commitments Under Service Contracts
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 for 2022 and 2023 and $1.0 million in
2024, when the contract expires. 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 $1.9 million as of December 31, 2021. 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 other 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 $5.6 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.
The Company has entered into agreements with various service companies for the provision of services including machine
assembly and supply, energy consultation, and software access through June 2025. In the event of early termination, the
Company would be required to pay the remaining fees owed under the agreements which totaled $1.1 million as of
December 31, 2021.
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
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, 2021, the Company had on hand $12.2 million of raw material owned
by its suppliers.
81
The Company has entered into agreements with various raw material suppliers to purchase minimum quantities of certain raw
materials at fixed rates through December 2022 totaling approximately $22.3 million as of December 31, 2021. 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:
$
$
$
December 31, 2021
Financial assets
Cash
26,292
—
—
Trade receivables
203,984
—
—
Supplier rebates and other receivables
5,247
—
—
Total financial assets
235,523
—
—
Financial liabilities
Accounts payable and accrued liabilities (1)
235,449
—
—
Interest rate swap agreements
—
—
1,642
Borrowings (2)
510,460
—
—
Non-controlling interest put options
—
27,523
—
Contingent consideration liability
—
8,314
—
Total financial liabilities
745,909
35,837
1,642
December 31, 2020
Financial assets
Cash
16,467
—
—
Trade receivables
162,235
—
—
Supplier rebates and other receivables
4,627
—
—
Total financial assets
183,329
—
—
Financial liabilities
Accounts payable and accrued liabilities (1)
140,011
—
—
Interest rate swap agreements
—
—
4,025
Borrowings (2)
447,842
—
—
Non-controlling interest put options
—
15,758
—
Total financial liabilities
587,853
15,758
4,025
Amortized cost
Fair value
through
earnings
Derivatives used
for hedging (fair
value through OCI)
(1)
Excludes employee benefits and taxes payable
(2)
Excludes lease liabilities
82
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, 2021:
2021
2020
2019
$
$
$
Interest expense calculated using the effective interest rate method
26,574
27,243
31,040
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 2021 or 2020.
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 (excluding interest subsidies receivable)
•
accounts payable and accrued liabilities (excluding employee benefits and taxes payable)
Borrowings (Excluding Lease Liabilities)
The company's borrowings, other than the 2021 Senior Unsecured Notes and 2018 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.
In June 2021, the Company redeemed its 2018 Senior Unsecured Notes and issued its 2021 Senior Unsecured Notes. The fair
value of both the 2021 Senior Unsecured Notes and 2018 Senior Unsecured Notes is based on the trading levels and bid/offer
prices observed by a market participant.
As of December 31, 2021, the 2021 Senior Unsecured Notes had a carrying value, including unamortized debt issuance cost, of
$395.6 million, and a fair value of $400.1 million. As of December 31, 2020, the 2018 Senior Unsecured Notes had a carrying
value, including unamortized debt issuance costs, of $246.2 million, and a fair value of $265.4 million, respectively.
As of December 31, 2021, and 2020, 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 at a rate that reflects the credit risk of various counterparties.
As of December 31, 2021 and 2020, the Company categorizes its interest rate swaps as Level 2 on the three-level fair value
hierarchy.
83
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 ending on June 22, 2022. The agreed-
upon purchase price is equal to the fair market valuation as determined through a future negotiation or, as needed, a 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, 2021 and 2020, the fair market valuation of the obligation was reassessed by
management resulting in a $12.0 million and $2.5 million increase in the liability, respectively, and a corresponding loss
recorded in finance costs (income) in other expense (income), net. The amounts recorded on the consolidated balance sheets for
this obligation are $27.5 million in non-controlling interest put options, current as of December 31, 2021 and $15.8 million in
non-controlling interest put options, non-current as of December 31, 2020.
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
was calculated using significant unobservable inputs including estimations of undiscounted future annual cash inflows ranging
between approximately $1.5 million and $8.5 million as of December 31, 2021 and $1.5 million and $5.0 million as of
December 31, 2020 . 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, 2021 and 2020. 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, 2021
and 2020:
Non-controlling
interest put options
$
Balance as of December 31, 2019
13,634
Foreign exchange
(346)
Valuation adjustment made to non-controlling interest put options
2,470
Balance as of December 31, 2020
15,758
Foreign exchange
(242)
Valuation adjustment made to non-controlling interest put options
12,007
Balance as of December 31, 2021
27,523
Contingent Consideration Arrangements
The Company categorizes contingent consideration liabilities 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 arrangements by estimating the present value of probable future net cash outflows from the settlement
of the earn-out related provisions contained within the respective acquisition's purchase agreement.
Nortech Packaging LLC and Custom Assembly Solutions, Inc.
In connection with the Nortech Acquisition, the Company is required to pay up to $12.0 million to the former owners of
Nortech if the acquired assets generated an excess of certain profit thresholds, as defined in the asset purchase agreement,
measured over the two-year period following the date of acquisition, which ended February 11, 2022. 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 representing the
discounted net present value of the $12.0 million potential obligation.
84
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 other delays in the acquisition
integration efforts. 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 expense (income), net. Following the
expiration of this two-year period, no amount is expected to be paid by the Company as it relates to this obligation and,
therefore, a nil value has been recorded as of December 31, 2021 and 2020.
The fair value estimations as of the date of the acquisition and as of December 31, 2021 and 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, 2021 and 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.
Nuevopak Global Limited
In connection with the Nuevopak Acquisition, the Company may be required to pay up to $9.0 million of additional
consideration to the former owner of Nuevopak upon the achievement of certain milestones related to operational integration
and capacity expansion, as specified in the share purchase agreement. Management estimated the fair value of the contingent
consideration and recognized a corresponding liability on the consolidated balance sheet on the date of acquisition in the
amount of $8.3 million, $3.3 million of which is recorded in provisions and contingent consideration, current, for amounts
expected to settle in the next twelve months and $5.0 million of which is recorded in provisions and contingent consideration,
non-current, for amounts expected to settle in more than twelve months.
The fair value of the contingent consideration is reassessed at each reporting date with changes recognized in earnings in
finance costs (income) in other finance expense (income), net. As of December 31, 2021, management estimates the fair value
to be $8.3 million.
The fair value estimations as of the date of acquisition and as of December 31, 2021 were calculated using significant
unobservable inputs consisting of management's estimation of the timing and overall likelihood of achieving the operational
milestones established in the share purchase agreement. Management currently believes that these milestones will be achieved
within one or two years of the acquisition date. A discount rate of 4.74% 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 both the
timing and likelihood of achieving the operational milestones, which could have resulted in a higher or lower fair value
measurement. Refer to Note 19 for further discussion of the Nuevopak Acquisition.
85
A reconciliation of the carrying amount of contingent consideration liabilities follows for the years ended December 31, 2021
and 2020:
Nortech Acquisition
Nuevopak Acquisition
$
$
Balance as of December 31, 2019
—
—
Contingent consideration recorded as a result of the Nortech Acquisition
10,806
—
Increases resulting from net present value discounting
199
—
Fair value adjustment recorded in finance costs (income)
(11,005)
—
Balance as of December 31, 2020
—
—
Contingent consideration recorded as a result of the Nuevopak Acquisition
—
8,305
Foreign exchange
9
Balance as of December 31, 2021
—
8,314
Refer to Note 19 for more information regarding business acquisitions.
Exchange Risk
While the Company is mainly exposed to the currency of the US dollar, a portion of its business is conducted in other
currencies. Changes in the exchange rates for other 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 expense (income), 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 expense (income), net.
The estimated increase (decrease) to finance cost (income) - other expense (income), 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:
2021
2020
USD$
USD$
Canadian dollar
(10,597)
(3,786)
Indian Rupee
(2,594)
(2,525)
(13,191)
(6,311)
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.
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 2018 Senior Unsecured Notes which
resulted in additional equity investments in IPG (US) Holdings Inc. In June 2021, the Parent Company redeemed its 2018
Senior Unsecured Notes and issued its 2021 Senior Unsecured Notes. In conjunction with the issuance of the 2021 Senior
Unsecured Notes, the Parent Company repaid external borrowings held by IPG (US) Holdings Inc., which resulted in an even
greater net investment in IPG (US) Holdings Inc., from a hedging perspective. Both the 2018 Senior Unsecured Notes and the
86
2021 Senior Unsecured Notes (collectively "Senior Unsecured Notes") were and 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
expense (income), 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:
2021
2020
$
$
(Loss) gain from change in value of the Senior Unsecured Notes used for
calculating hedge ineffectiveness
(10,789)
6,488
(Loss) gain from Senior Unsecured Notes recognized in OCI
(9,423)
6,488
Loss from hedge ineffectiveness recognized in earnings in finance costs (income)
in other expense (income), net
(1,385)
—
Foreign exchange gains recognized in cumulative translation adjustments in the
statement of changes in equity
19
—
Deferred tax expense on change in value of the Senior Unsecured Notes
recognized in OCI
(1,589)
(764)
The notional and carrying amounts of the Senior Unsecured Notes are as follows as of:
December 31,
2021
December 31,
2020
$
$
Notional Amount
400,000
250,000
Carrying Amount
395,614
246,236
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:
2021
2020
$
$
Gain (loss) from change in value of IPG (US) Holdings, Inc. used for calculating
hedge ineffectiveness
9,423
(6,488)
87
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,
2021
December 31,
2020
$
$
Cumulative (loss) gain included in foreign currency translation reserve in OCI
(2,076)
7,347
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, 2021 and 2020:
Effective Date
Maturity
Notional amount
$
Settlement
Fixed interest
rate paid
%
June 8, 2017
June 20, 2022
40,000
Monthly
1.79
August 20, 2018
August 18, 2023
60,000
Monthly
2.045
The interest rate swap agreements involve the exchange of periodic payments excluding the notional principal amount upon
which the payments are based. For qualifying cash flow hedges, 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.
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 consolidated 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 expense (income), 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.
88
The following table summarizes activity related to interest rate swap agreements designated as hedging instruments for the
years ended December 31:
2021
2020
$
$
Gain (loss) from change in fair value of the interest rate swap agreements
designated as hedging instruments recognized in OCI (1)
2,383
(2,685)
Deferred tax (expense) benefit on change in fair value of the interest rate swap
agreements designated as hedging instruments recognized in OCI
(577)
658
(1)
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.
The following table summarizes balances related to interest rate swap agreements designated as hedging instruments as of:
December 31,
2021
December 31,
2020
$
$
Carrying amount included in other liabilities
1,642
4,025
Cumulative loss in cash flow hedge reserve, included in OCI, for continuing
hedges
(1,291)
(3,097)
As of December 31, 2021, and 2020, 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 $0.1 million and $1.0
million, respectively.
Interest Rate Benchmark Reform
The LIBOR interest rate benchmark continues to be the subject of proposals for reform. The Company is exposed to the LIBOR
interest rate benchmark as a result of its interest rate swap agreements (designated as hedging instruments) and its variable rate
borrowings (the hedged item). It is expected that a transition away from the widespread use of LIBOR to alternative rates will
occur before June 2023 and that alternative reference rate(s) will be established. The full impact of such reforms and actions,
together with any transition away from LIBOR, remains unclear.
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.
In the current year, the Company adopted the Phase 2 amendments Interest Rate Benchmark Reform—Amendments to IFRS 9,
IAS 39, IFRS 7, IFRS 4 and IFRS 16. Adopting these amendments enables the Company to reflect the effects of transitioning
from LIBOR to alternative benchmark interest rates without giving rise to accounting impacts that would not provide useful
information to users of financial statements.
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. The Company's 2021 Credit Facility contains benchmark replacement provisions, however, the
Company has had no amendments to its interest rate swap agreements as it pertains to interest rate benchmark reform as of
December 31, 2021.
89
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, 2021 and 2020 with sales that accounted for approximately 13% of the Company's
total revenue for the years then ended. This one customer had trade receivables that accounted for 17% of the Company’s total
trade receivables as of December 31, 2021 and 2020. These trade receivables were current as of December 31, 2021 and 2020,
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. 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 or trade receivables as of
December 31, 2021 and 2020. The Company believes its credit risk with respect to trade receivables overall is limited due to the
Company’s credit evaluation process, its reasonably short collection terms, the creditworthiness of its customers and its credit
insurance coverage. 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:
December 31,
2021
December 31,
2020
$
$
Current
172,877
138,798
Past due accounts not impaired
1 – 30 days past due
20,988
15,257
31 – 60 days past due
4,728
2,798
61 – 90 days past due
1,383
1,299
Over 90 days past due
4,008
4,083
31,107
23,437
Allowance for expected credit loss
1,044
1,268
Gross accounts receivable
205,028
163,503
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, 2021, 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.
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
90
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, 2021 are not 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:
2021
2020
$
$
Balance, beginning of year
1,268
909
Additions
493
545
Recoveries
(104)
—
Write-offs
(613)
(197)
Foreign exchange
—
11
Balance, end of year
1,044
1,268
Supplier rebates and other receivables
The Company's believes its credit risk associated with supplier rebates and other receivables is limited considering the amount
is not material, the Company’s large size, the diverse base of 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 and ensure adequate
liquidity on a long-term basis.
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.
91
The maturity analysis for financial liabilities and finance lease liabilities is as follows for the years ended:
$
$
$
$
$
$
$
$
December 31, 2021
Current maturity
27,523
3,500
7,480
20,311
10,639
2,182
235,449
307,084
2023
—
3,500
8,815
18,761
7,714
1,714
—
40,504
2024
—
2,000
1,235
17,500
5,655
1,322
—
27,712
2025
—
—
1,000
17,500
4,924
1,030
—
24,454
2026
—
—
100,376
17,597
3,504
779
—
122,256
2027 and thereafter
—
—
400,000
42,487
12,365
2,522
—
457,374
27,523
9,000
518,906
134,156
44,801
9,549
235,449
979,384
Non-controlling
interest put
options
Contingent
consideration
liability
Borrowings (1)
Interest on
Borrowings (1)
Lease
liabilities
Interest on
lease
liabilities
Accounts payable
and accrued
liabilities (2)
Total
$
$
$
$
$
$
$
$
December 31, 2020
Current maturity
—
—
19,131
22,813
7,088
2,303
140,011
191,346
2022
15,758
—
18,663
22,197
9,013
1,853
—
67,484
2023
—
—
163,025
19,224
6,473
1,424
—
190,146
2024
—
—
1,183
17,500
4,577
1,070
—
24,330
2025
—
—
817
17,500
3,869
817
—
23,003
2026 and thereafter
—
—
250,408
13,125
11,102
2,745
—
277,380
15,758
—
453,227
112,359
42,122
10,212
140,011
773,689
Non-controlling
interest put
options
Contingent
consideration
liability
Borrowings (1)
Interest on
borrowings (1)
Lease
liabilities
Interest on
lease
liabilities
Accounts payable
and accrued
liabilities (2)
Total
(1)
Excludes lease liabilities
(2)
Excludes employee benefits and taxes payable
As of December 31, 2021, the Company had $26.3 million of cash and $502.1 million of loan availability (composed of
committed funding of $497.7 million and uncommitted funding of $4.4 million), yielding total cash and loan availability of
$528.4 million compared to total cash and loan availability of $408.7 million as of December 31, 2020.
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, 2021, 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 $75.0 million ($55.6 million in 2020). 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.
92
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:
December 31, 2021
December 31, 2020
$
$
Cash
26,292
16,467
Borrowings (excluding lease liabilities)
510,460
447,842
Total equity
352,248
316,682
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 January 13, 2022, the Company acquired substantially all of the operating assets of Syfan Manufacturing, Inc. ("Syfan
USA") for $18.0 million, subject to post-closing adjustments. The former owners of Syfan USA have in escrow $2.5 million for
any potential indemnification requirements related to the customary representations, warranties and covenants in the purchase
agreement. The Company financed the acquisition with funds available under its 2021 Credit Facility. Syfan USA manufactures
polyolefin shrink film products at a facility in Everetts, North Carolina, serving customers in a variety of end use applications.
The acquisition of Syfan USA is expected to expand the Company’s existing shrink film production capacity in North America,
allowing the Company to better service the growing demand of its customer base. The transaction will be accounted for using
the acquisition method of accounting, and the Company expects a significant part of the purchase price to be allocated to
goodwill and intangible assets. The Company also expects a significant portion of the goodwill to be deductible for income tax
purposes. Management is not yet able to provide a full breakout of the purchase price allocation due to the timing of the
acquisition and to anticipated post-closing working capital adjustments.
On March 7, 2022, the Company entered into a definitive agreement to be acquired by an affiliate of Clearlake Capital Group,
L.P. (together with certain of its affiliates, “Clearlake”). Under the terms of the agreement, Clearlake agreed to acquire the
outstanding shares of the Company for CDN$40.50 per share in an all-cash transaction valued at approximately US$2.6 billion,
including net debt. Upon completion of the transaction, the Company will become a privately held company. The transaction,
which will be effected pursuant to a court-approved plan of arrangement, is expected to close in the third quarter of 2022. The
transaction is not subject to a financing condition but is subject to customary closing conditions, including receipt of
shareholder, regulatory and court approvals.
On March 10, 2022, the Company declared a cash dividend of $0.1700 per common share payable on March 31, 2022 to
shareholders of record at the close of business on March 21, 2022. The estimated amount of this dividend payment is $10.1
million based on 59,284,947 shares of the Company’s common shares issued and outstanding as of March 10, 2022.
93
BOARD OF DIRECTORS
Robert M. Beil, Director
Corporate Director
Chris R. Cawston, CPA, Director
Chief Executive Officer, The Cawston Group
Jane Craighead, CPA, CA, Director
Corporate Director
Frank Di Tomaso, FCPA, FCA, ICD.D, Director
Corporate Director
Robert J. Foster, Director
Chief Executive Officer and President, Capital Canada Limited
Dahra Granovsky, Director
Chief Executive Officer, Beresford Accurate Folding Cartons
James Pantelidis, Chairman of the Board
Corporate Director
Jorge N. Quintas, Director
President, Nelson Quintas SGPS, SA
Mary Pat Salomone, Director
Corporate Director
Gregory A.C. Yull, Director
Chief Executive Officer and President, IPG
Melbourne F. Yull, Director
President, Sammana Properties, LLC
President, Affinity Kitchen and Bath, LLC
INVESTOR INFORMATION
Stock and Share Listing
Common shares are listed on the Toronto Stock Exchange, trading
under the symbol “ITP” and in the U.S. on the OTC Pink Marketplace,
trading under the symbol “ITPOF”.
Shareholder and Investor Relations
Shareholders and investors having inquiries or wishing to obtain
copies of the Company’s Annual Report or other US Securities and
Exchange Commission or Canadian Securities Commissions filings
should contact:
Filings Request
Tel: (866) 202-4713 Fax: (941) 727-3798
Itp$info@itape.com
Sustainability Request
Sustainability@itape.com
Investor Relations
LodeRock Advisors, Inc.
Ross Marshall, (416) 526-1563
ross.marshall@loderockadvisors.com
Strategic Shareholder Advisor
and Proxy Solicitation Agent
Kingsdale Advisors
(855) 682-9437 (toll-free in North America)
(416) 867-2272 (collect call outside North America)
Contactus@kingsdaleadvisors.com
Corporate Headquarters
9999 Cavendish Boulevard, 2nd Floor
Ville St. Laurent, Quebec, H4M 2X5
Executive Headquarters
100 Paramount Drive, Suite 300
Sarasota, Florida, USA 34232
MANAGEMENT
Gregory A.C. Yull
Chief Executive Officer and President
Jeffrey Crystal, CPA, CA
Chief Financial Officer
Randi Booth
Senior Vice President and General Counsel
Silvano Iaboni, P.Eng
Senior Vice President of Engineered Coated Products
Douglas Nalette
Senior Vice President Operations
Shawn Nelson
Senior Vice President Sales
Mary Beth Thompson
Senior Vice President Human Resources
Joseph Tocci
Senior Vice President Global Sourcing and Supply Chain
AUDITORS
Raymond Chabot Grant Thornton LLP
600 de la Gauchetiere Street West, Suite 2000
Montreal, Quebec, Canada H3B 4L8
TRANSFER AGENT AND REGISTRAR
TSX Trust Company
1 Toronto Street
Suite 1200
Toronto, Ontario M5C 2V6
AST Trust Company, LLC
6201 15th Avenue
Brooklyn, New York USA 11219
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