Mr. Greg Yull reports

INTERTAPE POLYMER GROUP REPORTS IMPROVED THIRD QUARTER 2013

Intertape Polymer Group Inc. has released results for the third quarter ended Sept. 30, 2013. All amounts are denominated in United States dollars unless otherwise indicated and all percentages are calculated on unrounded numbers.

Third quarter 2013 highlights

• Gross margin increased to 20.0 per cent from 17.6 per cent in the third quarter of 2012.
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of $26.8-million increased 19.9 per cent over the third quarter of 2012.
• Cash flows from operating activities before changes in working capital were $25.0-million.
• Adjusted fully diluted EPS (earnings per share) was 28 cents compared with 19 cents in the third quarter of 2012.
• The company redeemed the remaining $18.7-million of senior subordinated notes in August.

Other announcements

• Board of directors declared a dividend of eight cents per common share.

"We are pleased with the increase in gross margin over last year which reflects manufacturing cost reductions and an increase in the spread between raw material costs and selling prices. For 2014, we expect gross margin to be between 20 per cent and 22 per cent. This range assumes temporary costs associated with the relocation of our South Carolina manufacturing operation offset by continued success with gross margin expansion initiatives," stated Intertape president and chief executive officer, Greg Yull.

"The increase in revenue reflects an increase in selling prices, including the impact of product mix, which was offset by a decrease in sales volume reflecting our decision to reduce sales of low-margin products.

"During the quarter, the company redeemed the remaining $18.7-million of high-interest-bearing notes. The lower average cost of debt combined with the reduction in debt significantly reduced interest expense year to date," concluded Mr. Yull.

On Nov. 12, 2013, the board of directors declared a dividend of eight cents per common share payable on Dec. 30, 2013, to shareholders of record at the close of business Dec. 16, 2013. These dividends will be designated by the company as eligible dividends as defined in Subsection 89(1) of the Income Tax Act (Canada).

The company's revenue for the third quarter of 2013 was $199.9-million, an increase of 0.7 per cent compared with $198.5-million for the third quarter of 2012. Revenue was higher in the third quarter of 2013 compared with the third quarter of 2012 primarily due to an increase in selling prices, including the impact of product mix, partially offset by a decrease in sales volume. The decrease in sales volume of approximately 3 per cent when compared with the third quarter of 2012 was primarily due to the progress the company made in reducing sales of low-margin products in the second half of 2012 partially offset by increased sales of new products. Selling prices, including the impact of product mix, increased approximately 4 per cent in the third quarter of 2013 compared with the third quarter of 2012. The increase in selling prices was primarily due to higher selling prices of equivalent units and a shift in the mix of products sold.

The company's revenue for the third quarter of 2013 increased 3.3 per cent sequentially compared with $193.5-million for the second quarter of 2013. Revenue increased in the third quarter of 2013 versus the second quarter of 2013 primarily due to higher sales volume partially offset by a decrease in selling prices, including the impact of product mix. The increase in sales volume of approximately 5 per cent was primarily due to increased demand for tape and film product lines. The company believes that some of the increased demand for film products in the third quarter of 2013 was due to customers prebuying in response to an announcement of a price increase to take effect on orders placed on or after Sept. 30, 2013. The company also believes that the second quarter of 2013 volume was lower partially due to customers prebuying both tape and film products during the first quarter of 2013 in advance of price increases that took effect in the first quarter of 2013. Selling prices, including the impact of product mix, decreased approximately 2 per cent in the third quarter of 2013 versus the second quarter of 2013. The decrease in selling prices was primarily due to a shift in the mix of products sold and lower selling prices of equivalent units.

Gross profit totalled $40-million in the third quarter of 2013, an increase of 14.3 per cent from $35.0-million in the third quarter of 2012 and a decrease of 5.4 per cent from $42.3-million in the second quarter of 2013. Gross margin was 20.0 per cent, 17.6 per cent and 21.8 per cent in the third quarter of 2013, in the third quarter of 2012 and in the second quarter of 2013, respectively.

When compared with the third quarter of 2012, gross profit and gross margin increased primarily due to the impact of manufacturing cost reductions and an increase in the spread between raw material costs and selling prices. When set against the second quarter of 2013, the decrease in gross profit was primarily due to an increase in overhead related to the planned annual maintenance partially offset by an increase in sales volume. The decrease in gross margin was primarily related to an increase in overhead related to the planned annual maintenance. The spread between selling prices and raw material costs remained relatively stable in the first nine months of 2013.

Selling, general and administrative expenses (SG&A) totalled $20.5-million for the third quarter of 2013 compared with $19.3-million in the third quarter of 2012 and versus $20.2-million in second quarter of 2013. As a percentage of revenue, SG&A was 10.3 per cent, 9.7 per cent and 10.4 per cent for the third quarter of 2013, the third quarter of 2012 and the second quarter of 2013, respectively. SG&A increased when set against both periods primarily due to an increase in stock-based compensation expense.

Adjusted EBITDA was $26.8-million for the third quarter of 2013, $22.3-million for the third quarter of 2012 and $28.3-million for the second quarter of 2013. The increase in adjusted EBITDA in the third quarter of 2013 compared with the third quarter of 2012 was primarily due to higher gross margin. The decrease in adjusted EBITDA in the third quarter of 2013 versus the second quarter of 2013 was primarily due to an increase in overhead related to the planned annual maintenance.

Net earnings for the third quarter of 2013 totalled $14.4-million compared with net earnings of $10.9-million for the third quarter of 2012 and net earnings of $15.1-million for the second quarter of 2013. The increase in net earnings for the third quarter of 2013 compared with the third quarter of 2012 was primarily due to an increase in gross profit and a decrease in interest expense partially offset by an increase in stock-based compensation expense. The decrease in net earnings for the third quarter of 2013 versus the second quarter of 2013 was primarily due to a decrease in gross profit.

Adjusted net earnings amounted to $17.5-million for the third quarter of 2013 compared with $11.8-million for the third quarter of 2012. Adjusted net earnings were $5.7-million higher for the third quarter of 2013 compared with the third quarter of 2012 primarily due to higher gross profit and lower interest expense. Adjusted net earnings were $800,000 lower for the third quarter of 2013 versus $18.3-million for the second quarter of 2013 primarily due to a decrease in gross profit.

Adjusted fully diluted earnings per share for the third quarter of 2013 were 28 cents per share, a nine-cent-per-share increase compared with the third quarter of 2012 and a two-cent-per-share decrease versus the second quarter of 2013.

Cash flows from operations before changes in working capital items increased in the third quarter of 2013 by $3.8-million to $25.0-million from $21.2-million in the third quarter of 2012 and decreased $800,000 versus the second quarter of 2013. The increase for the third quarter of 2013 compared with the third quarter of 2012 was primarily due to higher gross profit. The decrease over the second quarter of 2013 was primarily due to lower gross profit.

The company had total cash and loan availability of $44.5-million as of Sept. 30, 2013, $51.6-million as of June 30, 2013, and $87.6-million as of Sept. 30, 2012. The decrease of $7.1-million in total cash and loan availability between June 30, 2013, and Sept. 30, 2013, was due to the redemption of an aggregate principal amount of $18.7-million of notes, a $5.2-million decrease in the borrowing base and the payment of a $4.9-million dividend, partially offset by free cash flows of $22.5-million for the quarter. The decrease of $43.1-million in total cash and loan availability between Sept. 30, 2012, and Sept. 30, 2013, was primarily due to the increase in total borrowings under the ABL facility, which was used to finance the redemption of an aggregate principal amount of $93.7-million of notes that occurred during the 12-month period ended Sept. 30, 2013. This increase was partially offset by cash flows from operations during the same period. The company had cash and loan availability under its asset-based loan facility exceeding $45-million as of Nov. 12, 2013.

Total debt as of Sept. 30, 2013, was $137.7-million, a decrease of $13.6-million from Dec. 30, 2012. The ratio of debt to trailing 12-month adjusted EBITDA was 1.4 as of Sept. 30, 2013.

Outlook

The company will continue to focus on developing and selling higher margin products, reducing variable manufacturing costs and executing on the previously announced manufacturing rationalization projects.

The company's financial projections include the following:

• Revenue for the fourth quarter of 2013 is expected to be lower than the third quarter of 2013 which is reflective of normal seasonality.
• Gross margin for the fourth quarter of 2013 is expected to be between 20 per cent and 22 per cent.
• Assuming stable or improving macroeconomic conditions, the company expects gross margin to be in the range of 20 per cent to 22 per cent for 2014. This reflects further improvement resulting from gross margin expansion initiatives partially offset by approximately $3-million to $7-million of temporary operating cost increases, the majority of which is expected in the second half of 2014 with the remainder expected in the first half of 2015. These costs are related to actions being taken to maintain the uninterrupted supply of products to the company's customers during the relocation of the South Carolina manufacturing operation from Columbia to Blythewood.
• After the South Carolina relocation has been completed and start-up inefficiencies have been resolved, the company expects gross margin to be between 22 per cent and 24 per cent.
• Adjusted EBITDA for the fourth quarter of 2013 is expected to be somewhat lower than the third quarter of 2013 and substantially higher than the fourth quarter of 2012.
• Capital expenditures:
  • Expenditures for the fourth quarter of 2013 are expected to be $12-million to $18-million, depending on the timing of delivery of several large pieces of new equipment.
  • Expenditures for 2013 are expected to total $47-million to $52-million.
  • Expenditures for 2014 are expected to total $25-million to $29-million excluding any new high-return projects that may arise.
  • The company has started the process to relocate and modernize its Columbia, S.C., manufacturing operation with state-of-the-art equipment in a new facility with the purchase of real estate in Blythewood, S.C. Purchases of equipment and real estate related to the South Carolina project are expected to total $43-million to $46-million of which $2.7-million was spent in 2012, $23-million to $25-million is expected to be spent in 2013 and the remainder is expected to be spent primarily in 2014. These amounts are included in the estimates above.
• Total debt at Dec. 31, 2013, is expected to be the same or slightly lower versus Sept. 30, 2013, primarily due to an increase in projected capital expenditures.
• The company ceased production at its Richmond, Ky., manufacturing facility in the fourth quarter of 2012 as well as shrink film production at its Truro, N.S., facility in the first quarter of 2013. Cash savings related to these projects are expected to total approximately $3-million in 2013 and approximately $6-million annually in future years. The company anticipates that the South Carolina project will have total annual cash savings in excess of $13-million starting in the first half of 2015 with the first full-year effects in 2016.
• With respect to the manufacturing rationalization projects announced to date:
  • Charges for the fourth quarter of 2013 primarily related to equipment moves and work force retention costs are expected to be approximately $2-million.
  • Charges for the full year of 2013 primarily related to environmental costs, work force retention costs and equipment moves costs are expected to be $6-million to $8-million. Cash outflows expected in 2013 are estimated to total $2-million to $4-million, primarily related to equipment moves.
  • Charges after 2013 related to equipment moves and work force retention costs are estimated to be $5-million to $7-million, primarily related to the South Carolina project. Cash outflows expected after 2013 for equipment moves, work force retention costs and environmental are estimated to be $8-million to $11-million.

Conference call

A conference call to discuss Intertape's 2013 third quarter results will be held Wednesday, Nov. 13, 2013, at 10 a.m. Eastern Time. Participants may dial 800-734-8507 (U.S. and Canada) and 1-212-231-2910 (international).

You may access a replay of the call by dialling 800-633-8284 (U.S. and Canada) or 1-402-977-9140 (international) and entering the access No. 21683027. The recording will be available from Nov. 13, 2013, at 12 p.m. until Dec. 13, 2013, at 11:59 p.m. Eastern Time.

                         CONSOLIDATED EARNINGS                                                   
          (In thousands of dollars, except per share amounts)                      

                                  Three months ended       Nine months ended 
                                           Sept. 30,               Sept. 30, 
                                     2013       2012         2013       2012

Revenue                          $199,853   $198,476     $590,010   $595,139
Cost of sales                     159,872    163,499      469,463    491,633
Gross profit                       39,981     34,977      120,547    103,506
Selling, general and
administrative expenses            20,547     19,260       63,714     58,286
Research expenses                   1,701      1,530        4,892      4,699
                                   22,248     20,790       68,606     62,985
Operating profit before
manufacturing facility
closures, restructuring and
other related charges              17,733     14,187       51,941     40,521
Manufacturing facility
closures, restructuring and
other related charges                 934        387       29,059     15,085
Operating profit                   16,799     13,800       22,882     25,436
Finance costs
Interest                            1,261      3,347        4,860     10,086
Other (income) expense                190       (192)         787        948
                                    1,451      3,155        5,647     11,034
Earnings before income tax
expense (benefit)                  15,348     10,645       17,235     14,402
Income tax expense (benefit)
Current (benefit)                     729       (888)       3,389        (42)
Deferred (benefit)                    200        659          114       (250)
                                      929       (229)       3,503       (292)
Net earnings                       14,419     10,874       13,732     14,694
Earnings per share
Basic                                0.24       0.18         0.23       0.25
Diluted                              0.23       0.18         0.22       0.24
                                                                           

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