2o16second quarterly report - intertape … relations...1 intertape polymer group inc....

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2O16 SECOND QUARTERLY REPORT

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Intertape Polymer Group Inc. Management’s Discussion and Analysis

Consolidated Quarterly Statements of Earnings Three month periods ended (In thousands of US dollars, except per share amounts) (Unaudited)

June 30, March 31, December 31, September 30,

2016 2016 2015 2015

$ $ $ $

Revenue 201,517 190,816 195,677 200,635

Cost of sales 149,715 149,720 149,885 157,838

Gross profit 51,802 41,096 45,792 42,797

Gross margin 25.7% 21.5% 23.4% 21.3%

Selling, general and administrative expenses 26,282 23,384 25,765 17,927

Research expenses 2,734 2,542 2,753 2,499

29,016 25,926 28,518 20,426

Operating profit before manufacturing facility

closures, restructuring and other related

charges 22,786 15,170 17,274 22,371

Manufacturing facility closures, restructuring

and other related charges 2,090 1,733 2,683 181

Operating profit 20,696 13,437 14,591 22,190

Finance costs

Interest 1,022 982 1,036 919

Other expense (income), net 411 (91) 504 (651)

1,433 892 1,540 268

Earnings before income tax expense (benefit) 19,263 12,545 13,051 21,922

Income tax expense (benefit)

Current 3,197 2,076 2,592 3,281

Deferred 2,408 940 (7,033) 2,987

5,605 3,016 (4,441) 6,268

Net earnings 13,658 9,530 17,492 15,654

Earnings per share

Basic 0.23 0.16 0.30 0.26

Diluted 0.22 0.16 0.29 0.26

Weighted average number of common

shares outstanding

Basic 58,657,691 58,655,667 58,802,897 59,785,871

Diluted 60,834,393 60,035,667 60,316,201 60,879,777

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Consolidated Quarterly Statements of Earnings Three month periods ended (In thousands of US dollars, except per share amounts) (Unaudited)

June 30, March 31, December 31, September 30,

2015 2015 2014 2014

$ $ $ $

Revenue 196,586 189,009 200,750 209,109

Cost of sales 154,178 151,994 164,527 168,447

Gross profit 42,408 37,015 36,223 40,662

Gross margin 21.6% 19.6% 18.0% 19.4%



24,394 20,193 25,615 24,931



charges 18,014 16,822 10,608 15,731


and other related charges 142 660 963 1,560


Finance costs (income)

Interest 982 616 2,069 867

Other expense (income), net 395 (641) 380 426

1,377 (25) 2,449 1,293

Earnings before income tax expense (benefit) 16,495 16,187 7,196 12,878

Income tax expense (benefit)

Current 1,249 1,063 (768) 2,914

Deferred 3,498 3,346 1,907 3,953

4,747 4,409 1,139 6,867

Net earnings 11,748 11,778 6,057 6,011

Earnings per share

Basic 0.20 0.19 0.10 0.10

Diluted 0.19 0.19 0.10 0.10


shares outstanding

Basic 59,727,825 60,471,031 60,427,043 60,790,184

Diluted 61,739,717 62,198,126 62,307,696 62,457,931

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This Management’s Discussion and Analysis (“MD&A”) is intended to provide the reader with a better understanding of the business, strategy and performance of Intertape Polymer Group Inc. (the “Company”), as well as how it manages certain risks and capital resources. This MD&A, which has been prepared as of August 10, 2016, should be read in conjunction with the Company’s unaudited interim condensed consolidated financial statements and notes thereto as of and for the three and six months ended June 30, 2016 and 2015 (“Financial Statements”). It should also be read together with the text below on forward-looking statements in the section entitled “Forward-Looking Statements”. For the purposes of preparing this MD&A, the Company considers the materiality of information. Information is considered material if the Company believes at the time of preparing this MD&A: (i) such information results in, or would reasonably be expected to result in, a significant change in the market price or value of the common shares of the Company; (ii) there is a substantial likelihood that a reasonable investor would consider it important in making an investment decision; and/or (iii) it would significantly alter the total mix of information available to investors. The Company evaluates materiality with reference to all relevant circumstances, including potential market sensitivity. Except where otherwise indicated, all financial information presented in this MD&A, including tabular amounts, is prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS” or “GAAP”) and is expressed in US dollars. Variance, ratio and percentage changes in this MD&A are based on unrounded numbers and therefore can give rise to rounding differences.

Overview The Company reported a 2.5% increase in revenue for the second quarter of 2016 compared to the second quarter of 2015 and a 1.7% increase in revenue for the first six months of 2016 compared to the same period in 2015. The increase in revenue compared to the second quarter of 2015 was primarily due to additional revenue from the TaraTape acquisition, a decrease in the South Carolina Commissioning Revenue Reduction (defined later in this document) and increased sales volume, partially offset by a decrease in average selling price, including the impact of product mix. The increase in revenue for the first six months of 2016 compared to the same period in 2015 was primarily due to additional revenue from the Better Packages and TaraTape acquisitions (“Acquisitions”) and increased sales volume, partially offset by a decrease in average selling price, including the impact of product mix and an increase in the South Carolina Commissioning Revenue Reduction. Embedded in the changes in product mix and sales volume is an estimate of lost sales of masking tape and stencil products due to the impact of the South Carolina Flood (defined later in this document) totalling $5 million for the second quarter of 2016 and $11 million for the first six months of 2016. Gross margin increased to 25.7% in the second quarter of 2016 compared to 21.6% in the second quarter of 2015 primarily due to South Carolina Flood insurance claim settlement proceeds, the favourable impact of the Company’s manufacturing cost reduction programs and an increase in the spread between selling prices and lower raw material costs. Gross margin increased to 23.7% in the first six months of 2016 compared to 20.6% for the same period in 2015. Gross margin increased primarily due to an increase in the spread between selling prices and lower raw material costs and the favourable impact of the Company’s manufacturing cost reduction programs. The Company estimates that the South Carolina Flood had a net positive impact on its gross profit of approximately $3 million in the second quarter of 2016 and did not significantly impact its gross profit in the first six months of 2016. The South Carolina Flood impacts are due to lost gross profit on the lost sales as well as incremental costs from alternative product sourcing net of insurance claim settlement proceeds. Net earnings for the second quarter of 2016 increased to $13.7 million ($0.23 basic earnings per share and $0.22 diluted earnings per share) from $11.7 million for the second quarter of 2015 ($0.20 basic earnings per share and $0.19 diluted earnings per share). The increase was primarily due to an increase in gross profit and additional net earnings in 2016 derived from the Acquisitions. The favourable impacts

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on net earnings were partially offset by increases in (i) selling, general and administrative expenses (“SG&A”) mainly relating to variable compensation expense; and (ii) manufacturing facility closure charges relating to the South Carolina Flood. Net earnings for the first six months of 2016 decreased to $23.2 million ($0.40 basic earnings per share and $0.38 diluted earnings per share) from $23.5 million for the same period in 2015 ($0.39 basic earnings per share and $0.38 diluted earnings per share). The decrease was primarily due to increases in (i) SG&A mainly relating to variable and stock-based compensation expenses, and employee related costs to support growth initiatives in the business; and (ii) manufacturing facility closure charges relating to the South Carolina Flood. These unfavourable impacts on net earnings were largely offset by an increase in gross profit and additional net earnings in 2016 derived from the Acquisitions. Adjusted net earnings (a non-GAAP financial measure as defined and reconciled later in this document) for the second quarter of 2016 increased to $20.3 million ($0.35 basic adjusted earnings per share and $0.33 diluted adjusted earnings per share) from $14.1 million ($0.24 basic adjusted earnings per share and $0.23 diluted adjusted earnings per share) for the second quarter of 2015. Adjusted net earnings increased primarily due to an increase in gross profit and additional adjusted net earnings in 2016 derived from the Acquisitions, partially offset by an increase in SG&A mainly relating to variable compensation expenses and employee related costs to support growth initiatives in the business. Adjusted net earnings for the first six months of 2016 increased to $34.3 million ($0.59 basic adjusted earnings per share and $0.57 diluted adjusted earnings per share) from $26.8 million ($0.45 basic adjusted earnings per share and $0.43 diluted adjusted earnings per share) for the same period in 2015. Adjusted net earnings increased primarily due to an increase in gross profit, a decrease in income tax expense and additional adjusted net earnings in 2016 derived from the Acquisitions. These favourable impacts on adjusted net earnings were partially offset by an increase in SG&A mainly relating to variable compensation expenses and employee related costs to support growth initiatives in the business. Adjusted EBITDA (a non-GAAP financial measure as defined and reconciled later in this document) for the second quarter of 2016 increased to $33.0 million from $27.1 million for the second quarter of 2015. The increase in adjusted EBITDA was primarily due to an increase in gross profit, partially offset by an increase in SG&A mainly relating to variable compensation expenses and employee related costs to support growth initiatives in the business. Adjusted EBITDA for the first six months of 2016 increased to $57.0 million from $50.6 million for the same period in 2015. The increase in adjusted EBITDA was primarily due to an increase in gross profit and additional adjusted EBITDA in 2016 derived from the Acquisitions, partially offset by an increase in SG&A mainly relating to variable compensation expenses and employee related costs to support growth initiatives in the business. On August 10, 2016, the Board of Directors amended the Company’s dividend policy to increase the annualized dividend from $0.52 to $0.56 per share. The Board’s decision to increase the dividend was based on the Company’s strong financial position and positive outlook. Since the dividend policy was reinstated in August 2012, the Company has paid an aggregate of $88.3 million in dividends. On August 10, 2016, the Board of Directors declared a quarterly cash dividend of $0.14 per common share payable on September 30, 2016 to shareholders of record at the close of business on September 15, 2016. Columbia, South Carolina Flood Update On October 4, 2015, the Columbia, South Carolina manufacturing facility was damaged by significant rainfall and subsequent severe flooding (“South Carolina Flood”). The damages sustained were considerable and resulted in the facility being shut down permanently. Also as a result of the damage, production of masking tape was relocated to the Company’s Blythewood, South Carolina facility and temporarily to the Marysville, Michigan facility.

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The Company, along with its insurers and advisors, continues to assess the damage. The Company believes that it has sufficient property and business interruption insurance coverage, and expects that the losses exceeding the $0.5 million deductible will be substantially covered by those insurance policies. The Company has received a total of $10.0 million in insurance claim settlement proceeds to date of which $5.0 million was recorded in manufacturing facility closures, restructuring and other related charges in the fourth quarter of 2015 and $4.5 million and $0.5 million were recorded in cost of sales and manufacturing facility closures, restructuring and other related charges, respectively, in the second quarter of 2016. The Company estimates that the South Carolina Flood had the following impacts on its results:

• Reductions in revenue of approximately $5 million and $11 million for the second quarter and first six months of 2016, respectively, related to lost sales of masking tape and stencil products;

• Improvement in gross profit and adjusted EBITDA of approximately $3 million for the second quarter of 2016 as a result of insurance claim settlement proceeds of $4.5 million included in cost of sales offsetting the negative impacts of the South Carolina Flood;

• Improvement in adjusted net earnings of approximately $2 million for the second quarter of 2016 as a result of insurance claim settlement proceeds of $4.5 million included in cost of sales offsetting the negative impacts of the South Carolina Flood;

• Gross profit, adjusted EBITDA and adjusted net earnings for the first six months of 2016 were not impacted as a result of insurance claims settlement proceeds of $4.5 million included in cost of sales offsetting the negative impacts of the South Carolina Flood; and

• Improvement in net earnings of approximately $1 million for the second quarter of 2016 and a reduction in net earnings of $2 million for the first six months of 2016, net of the benefit from insurance claim settlement proceeds totalling $5.0 million.

The impact on gross profit, net earnings, adjusted net earnings and adjusted EBITDA includes lost gross profit on lost sales as well as incremental costs from alternative product sourcing. Also included in the net earnings impact above is $1.4 million and $2.9 million of manufacturing facility closures, restructuring and other related charges for the second quarter and first six months of 2016, respectively, net of the benefit from insurance claim settlement proceeds within the same caption of $0.5 million. These charges related to damage to property as well as subsequent clean-up and insurance claim preparation costs. Going forward, the Company still expects, but is currently unable to provide a reliable estimate for the amount and timing of, future: insurance recoveries, business interruption losses (including, but not limited to, lost sales and additional costs from temporary alternative sourcing of the Company’s products), site clean-up and environmental remediation costs, and professional fee costs related to the insurance claim process. South Carolina Project Update The “South Carolina Project” refers to the previously announced relocation and modernization of the Company’s Columbia, South Carolina manufacturing operation. This project primarily involves moving the Company’s duct tape and masking tape production to a new state-of-the-art facility in Blythewood, South Carolina as well as moving flatback tape production to the Company’s existing facility in Marysville, Michigan. “South Carolina Duplicate Overhead Costs” refers to temporary operating cost increases related to operating both plants in South Carolina simultaneously and performing planned actions to mitigate risk associated with new technology, including state-of-the-art equipment, to support the South Carolina Project. “South Carolina Commissioning Revenue Reduction” refers to the sales attributed to the commissioning efforts of the production lines that were accounted for as a reduction of revenue and a corresponding reduction of the cost of the South Carolina Project. In addition, unless otherwise noted, the impact of the South Carolina Commissioning Revenue Reduction on gross profit and capital expenditures is not significant due to the requirement to offset this revenue with the associated cost of sales in the reclassification of the related gross profit as a reduction of the capital expenditures.

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The Blythewood, South Carolina facility’s duct tape production is meeting targeted production levels and has contributed a net positive impact on gross profit and adjusted EBITDA in the second quarter and first six months of 2016. In regards to masking tape production, the Company has been working on optimizing the related production processes since that production was transferred to the Blythewood facility in the fourth quarter of 2015. Since that time the Company has made significant improvements in this objective. However, since the end of the second quarter of 2016, the Company has made significantly less progress than expected on reducing the inefficiencies in masking tape production as well as eliminating certain quality issues in relation to one of the masking tape products. These masking tape production inefficiencies largely offset the cost savings realized by the duct tape production resulting in a slightly positive impact to the results realized in the second quarter of 2016 as compared to the more significant positive impact of the project to the first quarter of 2016 results. The table below presents the impact of the South Carolina Project on gross profit and adjusted EBITDA:

June 30, March 31, June 30, June 30, June 30,

2016 2016 2015 2016 2015

$ $ $ $ $

Cost savings, net of production ramp-up inefficiencies 0.2 1.3 (1.3) 1.6 (1.3)

South Carolina Duplicate Overhead Costs - - 0.8 - 3.0

Impact on gross profit 0.2 1.3 (2.1) 1.6 (4.3)

Addback: Non-cash South Carolina Duplicate Overhead Costs - - 0.0 - 0.4

Impact on adjusted EBITDA 0.2 1.3 (2.1) 1.6 (3.9)

Three months ended Six months ended

The Company recorded $4.3 million and $2.1 million in the first and second quarters of 2016, respectively, for the South Carolina Commissioning Revenue Reduction. As previously stated, the impact of the South Carolina Commissioning Revenue Reduction on gross profit is not significant due to the requirement to offset this revenue with the associated cost of sales in the reclassification of the related gross profit as a reduction of the capital expenditures. As of June 30, 2016, capital expenditures for the South Carolina Project since inception totalled $59.8 million. South Carolina Project capital expenditures recorded were $0.7 million and $2.8 million for the second quarter and first six months of 2016, respectively. Total capital expenditures for the South Carolina Project from inception to the completion of the project are expected to remain at approximately $60 million. The Company still expects the cost savings from the South Carolina Project to have a significant net positive impact on gross profit and adjusted EBITDA in 2016 as compared to 2015, given the success of duct tape production and the expected improvements to masking tape production. The Company continues to work aggressively on optimizing the masking tape production process mainly through minimization of production waste and machine downtime as well as achieving target quality levels on one of the masking tape products. However, as a result of the current production issues in regard to masking tape production, the Company now believes there is a possibility of not realizing all of our target annual cost savings of $13 million by the beginning of 2017 and will provide further guidance towards the end of the year. Outlook

• The Company expects gross margin for 2016 to be between 23% and 24%.

• Adjusted EBITDA for 2016 is expected to be $117 to $123 million, excluding the impact of the South Carolina Flood. While South Carolina Flood costs and lost sales are expected to be substantially offset by insurance claim settlement proceeds, the timing of the insurance claim settlement proceeds is uncertain.

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• Manufacturing cost reductions for 2016 are expected to be between $8 and $11 million, excluding any cost savings related to the South Carolina Project.

• Total capital expenditures for 2016 are expected to be between $55 and $65 million.

• The Company expects a 25% to 30% effective tax rate for 2016. Cash taxes paid in 2016 are expected to be approximately half of the income tax expense in 2016.

• The Company expects revenue, gross margin and adjusted EBITDA, excluding the impact of the South Carolina Flood, to be greater in the third quarter of 2016 than in the third quarter of 2015.

Results of Operations Revenue Revenue for the second quarter of 2016 totalled $201.5 million, a $4.9 million or 2.5% increase from $196.6 million for the second quarter of 2015 primarily due to:

• Additional revenue of $4.8 million due to the TaraTape acquisition; • A decrease in the South Carolina Commissioning Revenue Reduction of $2.8 million to $2.1

million in the second quarter of 2016 from $4.9 million in the second quarter of 2015; • An increase in sales volume, excluding Acquisitions, of approximately 0.8% or $1.6 million due to

an increase in demand for woven products. The Company believes that the increased sales volume was primarily due to growth in the building and construction market;

Partially offset by: • A decrease in average selling price, including the impact of product mix, of approximately 2.1%

which had an unfavourable impact of approximately $4.3 million primarily due to: � an unfavourable product mix in the tape and woven product categories; and � lower average selling prices primarily driven by lower petroleum-based raw material costs.

Embedded in the changes in product mix and sales volume in the second quarter of 2016 is an estimate of $5 million of lost sales due to the impact of the South Carolina Flood. Revenue for the second quarter of 2016 totalled $201.5 million, a $10.7 million or 5.6% increase from $190.8 million for the first quarter of 2016 primarily due to:

• An increase in sales volume of approximately 3.2% or $6.3 million due to an increase in demand for certain tape and woven products. The Company believes that the increased sales volume was primarily due to:

� growth in demand for certain industrial tape product offerings; and � growth in the building and construction market;

• An increase in average selling price, including the impact of product mix, of approximately 1.2% or $2.3 million due to:

� a favourable impact of foreign exchange (“FX”) of approximately $0.9 million due to a weakening of the US dollar compared to the Canadian dollar and Euro;

� higher average selling price primarily due to announced price increases in the first quarter of 2016; and

� a favourable product mix primarily in certain tape and film product categories; • A decrease in the South Carolina Commissioning Revenue Reduction of $2.2 million to $2.1

million in the second quarter of 2016 from $4.3 million in the first quarter of 2016. Embedded in the changes in product mix and sales volume in each of the first and second quarters of 2016 is an estimate of $5 million of lost sales from the impact of the South Carolina Flood. Revenue for the first six months of 2016 totalled $392.3 million, a $6.7 million or 1.7% increase from $385.6 million for the same period in 2015 primarily due to:

• Additional revenue of $16.3 million due to the Acquisitions;

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• An increase in sales volume, excluding Acquisitions, of approximately 1.8% or $7.1 million primarily due to increased demand for certain tape and woven products. The Company believes that the increased sales volume was primarily due to:

� growth in e-commerce fulfillment across the carton sealing tape product offerings; and � growth in the building and construction market;

Partially offset by: • A decrease in average selling price, including the impact of product mix, of approximately 3.9% or

$15.2 million due to: � lower average selling price mainly driven by lower petroleum-based raw material costs; � an unfavourable product mix primarily in the Company’s tape product categories; and � an unfavourable FX impact of approximately $2.0 million due to strengthening of the US

dollar primarily compared to the Canadian dollar; • An increase in the South Carolina Commissioning Revenue Reduction of $1.5 million to $6.3

million in the first six months of 2016 from $4.9 million for the same period in 2015. Embedded in the changes in product mix and sales volume in the first six months of 2016 is an estimate of $11 million of lost sales due to the impact of the South Carolina Flood. Gross Profit and Gross Margin Gross profit totalled $51.8 million for the second quarter of 2016, a $9.4 million or 22.2% increase from $42.4 million for the second quarter of 2015. Gross margin was 25.7% in the second quarter of 2016 and 21.6% in the second quarter of 2015.

• Gross profit increased primarily due to South Carolina Flood insurance claim settlement proceeds, the favourable impact of the Company’s manufacturing cost reduction programs, an increase in the spread between selling prices and lower raw material costs, and additional gross profit in 2016 derived from the Acquisitions.

• Gross margin increased primarily due to South Carolina Flood insurance claim settlement proceeds, the favourable impact of the Company’s manufacturing cost reduction programs and an increase in the spread between selling prices and lower raw material costs.

Gross profit totalled $51.8 million for the second quarter of 2016, a $10.7 million or 26.1% increase from $41.1 million for the first quarter of 2016. Gross margin was 25.7% in the second quarter of 2016 and 21.5% in the first quarter of 2016.

• Gross profit increased primarily due to South Carolina Flood insurance claim settlement proceeds and an increase in sales volume.

• Gross margin increased primarily due to South Carolina Flood insurance claim settlement proceeds and a favourable product mix variance.

Gross profit totalled $92.9 million for the first six months of 2016, a $13.5 million or 17.0% increase from $79.4 million for the same period in 2015. Gross margin was 23.7% in the first six months of 2016 and 20.6% for the same period in 2015.

• Gross profit increased primarily due to an increase in the spread between selling prices and lower raw material costs, the favourable impact of the Company’s manufacturing cost reduction programs and additional gross profit in 2016 derived from the Acquisitions. These favourable impacts were partially offset by an unfavourable product mix variance.

• Gross margin increased primarily due to an increase in the spread between selling prices and lower raw material costs and the favourable impact of the Company’s manufacturing cost reduction programs.

Selling, General and Administrative Expenses SG&A for the second quarter of 2016 totalled $26.3 million, a $4.0 million or 18.1% increase from $22.3 million for the second quarter of 2015. The increase was primarily due to an increase in variable

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compensation expense, employee related costs to support growth initiatives in the business and additional SG&A in 2016 derived from the TaraTape acquisition.

SG&A for the second quarter of 2016 increased $2.9 million or 12.4% from $23.4 million in the first quarter of 2016. The increase was primarily due to an increase in variable and stock-based compensation expense. SG&A for the first six months of 2016 totalled $49.7 million, a $9.3 million or 23.0% increase from $40.4 million for the same period in 2015. The increase was primarily due to an increase in variable and stock-based compensation expense, additional SG&A in 2016 derived from the Acquisitions and employee related costs to support growth initiatives in the business. Manufacturing Facility Closures, Restructuring and Other Related Charges Manufacturing facility closures, restructuring and other related charges for the second quarter of 2016 totalled $2.1 million, a $1.9 million increase from $0.1 million for the second quarter of 2015 and a $0.4 million increase from $1.7 million in the first quarter of 2016. The increase from the second quarter of 2015 was primarily due to (i) $1.4 million of South Carolina Flood costs net of the benefit from insurance claim settlement proceeds of $0.5 million, and (ii) $0.4 million of South Carolina Project equipment relocation costs incurred in the second quarter of 2016. Manufacturing facility closures, restructuring and other related charges for the first six months of 2016 totalled $3.8 million, a $3.0 million increase from $0.8 million for the same period in 2015, primarily due to $2.9 million of South Carolina Flood costs net of the benefit from insurance claim settlement proceeds of $0.5 million. The South Carolina Flood costs recorded within this caption in the second quarter and first six months of 2016 are discussed in the section above entitled “Columbia, South Carolina Flood Update”. Finance Costs Finance costs for the second quarter of 2016 totalled $1.4 million and were approximately the same as in the second quarter of 2015. Finance costs for the second quarter of 2016 increased $0.5 million from $0.9 million in the first quarter of 2016, primarily due to an FX loss in the second quarter of 2016, compared to an FX gain during the first quarter of 2016. Finance costs for the first six months of 2016 totalled $2.3 million, a $1.0 million increase from $1.4 million in the same period in 2015. This increase is primarily due to lower FX gains in 2016 and higher interest expense as a result of (i) entering into an interest rate swap agreement in August of 2015, (ii) a higher average cost of debt and (iii) a higher average amount of 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 upon the geographic source of its earnings. The Company’s effective tax rate is also impacted by tax planning strategies that the Company implements. Income tax expense is recognized in each interim period based on the best estimate of the weighted average annual income tax rate expected for the full financial year.

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The table below reflects the calculation of the Company’s effective tax rate:

June 30, June 30, June 30, June 30,

2016 2015 2016 2015

$ $ $ $

Income tax expense 5.6 4.7 8.6 9.2

Earnings before income tax expense 19.3 16.5 31.8 32.7

Effective tax rate 29.1% 28.8% 27.1% 28.0%


Net Earnings Net earnings for the second quarter of 2016 totalled $13.7 million, a $1.9 million increase from $11.7 million for the second quarter of 2015, primarily due to an increase in gross profit and additional net earnings in 2016 derived from the Acquisitions. These favourable impacts on net earnings were partially offset by increases in SG&A and manufacturing facility closures, restructuring and other related charges. The Company estimates that its net earnings for the second quarter of 2016 were positively impacted by the South Carolina Flood by approximately $1 million as a result of insurance claim settlement proceeds totalling $5.0 million offsetting the negative net earnings impact of the South Carolina Flood. Net earnings for the second quarter of 2016 increased $4.1 million from $9.5 million for the first quarter of 2016, primarily due to an increase in gross profit, partially offset by increases in SG&A, and income tax expense mainly due to higher earnings. Net earnings for the first six months of 2016 totalled $23.2 million, a $0.3 million decrease from $23.5 million for the same period in 2015. The decrease was primarily due to increases in SG&A and manufacturing facility closure charges, which were largely offset by an increase in gross profit and additional net earnings in 2016 derived from the Acquisitions. The Company estimates that its net earnings for the first six months of 2016 were negatively impacted by the South Carolina Flood by approximately $2 million net of the benefit from insurance claim settlement proceeds totalling $5.0 million. Non-GAAP Financial Measures This MD&A contains certain non-GAAP financial measures as defined under applicable securities legislation, including EBITDA, adjusted EBITDA, adjusted net earnings (loss), adjusted earnings (loss) per share and free cash flows (please see the “Cash Flows” section below for a description and reconciliation of free cash flows). The Company believes such non-GAAP financial measures improve the period-to-period comparability of the Company’s results by providing more insight into the performance of ongoing core business operations. As required by applicable securities legislation, the Company has provided definitions of those measures and reconciliations of those measures to the most directly comparable GAAP financial measures. Investors and other readers are encouraged to review the related GAAP financial measures and the reconciliation of non-GAAP financial measures to their most directly comparable GAAP financial measures set forth below and should consider non-GAAP financial measures only as a supplement to, and not as a substitute for or as a superior measure to, measures of financial performance prepared in accordance with GAAP. Adjusted Net Earnings (Loss) A reconciliation of the Company’s adjusted net earnings (loss), a non-GAAP financial measure, to net earnings (loss), the most directly comparable GAAP financial measure, is set out in the adjusted net earnings (loss) reconciliation table below. Adjusted net earnings (loss) should not be construed as net earnings (loss) as determined by GAAP. The Company defines adjusted net earnings (loss) as net earnings (loss) before (i) manufacturing facility closures, restructuring and other related charges; (ii) stock-based compensation expense (benefit); (iii) impairment of goodwill; (iv) impairment of long-lived assets

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and other assets; (v) write-down on assets classified as held-for-sale; (vi) (gain) loss on disposal of property, plant and equipment; (vii) other discrete items as shown in the table below; and (viii) the income tax effect of these items. The term “adjusted net earnings (loss)” does not have any standardized meaning prescribed by GAAP and is therefore unlikely to be comparable to similar measures presented by other issuers. Adjusted net earnings (loss) is not a measurement of financial performance under GAAP and should not be considered as an alternative to net earnings (loss) as an indicator of the Company’s operating performance or any other measures of performance derived in accordance with GAAP. The Company has included this non-GAAP financial measure because it believes that it permits investors to make a more meaningful comparison of the Company’s performance between periods presented by excluding certain non-cash expenses and non-recurring expenses. In addition, adjusted net earnings (loss) is used by management in evaluating the Company’s performance because it believes that it allows management to make a more meaningful comparison of the Company’s performance between periods presented by excluding certain non-cash expenses and non-recurring expenses. Adjusted earnings (loss) per share is also presented in the following table and is a non-GAAP financial measure. Adjusted earnings (loss) per share should not be construed as earnings (loss) per share as determined by GAAP. The Company defines adjusted earnings (loss) per share as adjusted net earnings (loss) divided by the weighted average number of common shares outstanding, both basic and diluted. The term “adjusted earnings (loss) per share” does not have any standardized meaning prescribed by GAAP and is therefore unlikely to be comparable to similar measures presented by other issuers. Adjusted earnings (loss) per share is not a measurement of financial performance under GAAP and should not be considered as an alternative to earnings (loss) per share as an indicator of the Company’s operating performance or any other measures of performance derived in accordance with GAAP. The Company has included this non-GAAP financial measure because it believes that it permits investors to make a more meaningful comparison of the Company’s performance between periods presented by excluding certain non-cash expenses and non-recurring expenses. In addition, adjusted earnings (loss) per share is used by management in evaluating the Company’s performance because it believes that it allows management to make a more meaningful comparison of the Company’s performance between periods presented by excluding certain non-cash expenses and non-recurring expenses.

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Adjusted Net Earnings Reconciliation to Net Earnings (In millions of US dollars, except per share amounts and share numbers) (Unaudited)


2016 2016 2015 2016 2015

$ $ $ $ $

Net earnings 13.7 9.5 11.7 23.2 23.5

Manufacturing facility closures, restructuring and other

related charges 2.1 1.7 0.1 3.8 0.8

Stock-based compensation expense 2.5 1.6 2.1 4.1 2.1

Impairment (reversal of impairment) of long-lived assets and

other assets0.1 0.0 - 0.2 (0.0)

Loss (gain) on disposals of property, plant and equipment 0.1 (0.0) 0.0 0.1 0.0

Income tax effect of these items 1.8 1.1 0.1 2.9 0.3

Adjusted net earnings 20.3 14.0 14.1 34.3 26.8

Earnings per share

Basic 0.23 0.16 0.20 0.40 0.39

Diluted 0.22 0.16 0.19 0.38 0.38

Adjusted earnings per share

Basic 0.35 0.24 0.24 0.59 0.45

Diluted 0.33 0.23 0.23 0.57 0.43


shares outstanding

Basic 58,657,691 58,655,667 59,727,825 58,656,679 60,091,438

Diluted 60,834,393 60,035,667 61,739,717 60,527,529 61,929,200


Adjusted net earnings totalled $20.3 million for the second quarter of 2016, a $6.2 million increase from $14.1 million for the second quarter of 2015. Adjusted net earnings increased primarily due to an increase in gross profit and additional adjusted net earnings in 2016 derived from the Acquisitions, partially offset by increases in SG&A. The Company estimates that its adjusted net earnings for the second quarter of 2016 were positively impacted by the South Carolina Flood by approximately $2 million as a result of insurance claim settlement proceeds offsetting the negative adjusted net earnings impact of the South Carolina Flood. Adjusted net earnings for the second quarter of 2016 increased $6.3 million from $14.0 million for the first quarter of 2016, primarily due to an increase in gross profit, partially offset by increases in SG&A and income tax expense. Adjusted net earnings for the first six months of 2016 totalled $34.3 million, a $7.6 million increase from $26.8 million for the same period in 2015. Adjusted net earnings increased primarily due to an increase in gross profit, a decrease in income tax expense and additional adjusted net earnings in 2016 derived from the Acquisitions, partially offset by increases in SG&A. The Company estimates that its adjusted net earnings for the first six months of 2016 were not impacted by the South Carolina Flood as a result of insurance claim settlement proceeds offsetting the negative adjusted net earnings impact of the South Carolina Flood. EBITDA and Adjusted EBITDA A reconciliation of the Company’s EBITDA, a non-GAAP financial measure, to net earnings (loss), the most directly comparable GAAP financial measure, is set out in the EBITDA reconciliation table below. EBITDA should not be construed as earnings (loss) before income taxes, net earnings (loss) or cash flows from operating activities as determined by GAAP. The Company defines EBITDA as net earnings (loss) before (i) interest and other finance costs; (ii) income tax expense (benefit); (iii) amortization of intangible assets; and (iv) depreciation of property, plant and equipment. Adjusted EBITDA is defined

13

as EBITDA before (i) manufacturing facility closures, restructuring and other related charges; (ii) stock-based compensation expense (benefit); (iii) impairment of goodwill; (iv) impairment (reversal of impairment) of long-lived assets and other assets; (v) write-down on assets classified as held-for-sale; (vi) (gain) loss on disposal of property, plant and equipment; and (vii) other discrete items as shown in the table below. The terms “EBITDA” and “adjusted EBITDA” do not have any standardized meanings prescribed by GAAP and are therefore unlikely to be comparable to similar measures presented by other issuers. EBITDA and adjusted EBITDA are not measurements of financial performance under GAAP and should not be considered as alternatives to cash flows from operating activities or as alternatives to net earnings (loss) as indicators of 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 of the Company’s performance between periods presented by excluding certain non-operating expenses as well as certain non-cash expenses and non-recurring expenses. In addition, EBITDA and adjusted EBITDA are used by management and the Company’s lenders in evaluating the Company’s performance because they believe that they allow management and the Company’s lenders to make a more meaningful comparison of the Company’s performance between periods presented by excluding certain non-operating expenses as well as certain non-cash expenses and non-recurring expenses. EBITDA and Adjusted EBITDA Reconciliation to Net Earnings (In millions of US dollars) (Unaudited)


2016 2016 2015 2016 2015

$ $ $ $ $

Net earnings 13.7 9.5 11.7 23.2 23.5

Interest and other finance costs 1.4 0.9 1.4 2.3 1.4

Income tax expense 5.6 3.0 4.7 8.6 9.2

Depreciation and amortization 7.4 7.2 6.9 14.6 13.7

EBITDA 28.1 20.7 24.8 48.8 47.7

Manufacturing facility closures, restructuring and other

related charges 2.1 1.7 0.1 3.8 0.8

Stock-based compensation expense 2.5 1.6 2.1 4.1 2.1

Impairment (reversal of impairment) of long-lived assets and

other assets0.1 0.0 - 0.2 (0.0)

Loss (gain) on disposal of plant, property and equipment 0.1 (0.0) 0.0 0.1 0.0

Adjusted EBITDA 33.0 24.0 27.1 57.0 50.6


Adjusted EBITDA totalled $33.0 million for the second quarter of 2016, a $5.9 million or 21.7% increase from $27.1 million for the second quarter of 2015. The increase in adjusted EBITDA was primarily due to an increase in gross profit, partially offset by an increase in SG&A. The Company estimates that its adjusted EBITDA for the second quarter of 2016 was positively impacted by the South Carolina Flood by approximately $3 million as a result of insurance claim settlement proceeds offsetting the negative adjusted EBITDA impact of the South Carolina Flood. Adjusted EBITDA for the second quarter of 2016 increased $9.0 million or 37.3% from $24.0 million for the first quarter of 2016, primarily due to an increase in gross profit, partially offset by an increase in SG&A. Adjusted EBITDA for the first six months of 2016 totalled $57.0 million, a $6.4 million or 12.6% increase from $50.6 million for the same period in 2015. The increase in adjusted EBITDA was primarily due to an increase in gross profit and additional adjusted EBITDA in 2016 derived from the Acquisitions, partially offset by an increase in SG&A. The Company estimates that its adjusted EBITDA for the first six months of 2016 was not impacted by the South Carolina Flood as a result of insurance claim settlement proceeds offsetting the negative adjusted EBITDA impact of the South Carolina Flood.

14

Comprehensive Income Comprehensive income is comprised of net earnings and other comprehensive income (loss). Comprehensive income totalled $12.9 million for the second quarter of 2016, a $1.2 million decrease from $14.0 million for the second quarter of 2015, primarily due to an unfavourable FX impact from cumulative translation adjustments in the second quarter of 2016 compared to a favourable impact in the second quarter of 2015, partially offset by an increase in net earnings in the second quarter of 2016. Comprehensive income for the second quarter of 2016 decreased $0.6 million from $13.4 million for the first quarter of 2016, primarily due to an unfavourable FX impact from cumulative translation adjustments in the second quarter of 2016 compared to a favourable impact in the first quarter of 2016, largely offset by an increase in net earnings in the second quarter of 2016. Comprehensive income totalled $26.3 million for the first six months of 2016, an $8.3 million increase from $18.0 million for the same period in 2015, primarily due to a favourable FX impact from cumulative translation adjustments in 2016 compared to an unfavourable impact in 2015. This FX impact was partially offset by a larger increase in the change in fair value of the $40 million notional amount interest rate swap agreement liability in 2016 and the impact of the $60 million notional amount interest rate swap agreement liability entered into in the third quarter of 2015.

Off-Balance Sheet Arrangements Except as noted below, there have been no material changes with respect to off-balance sheet arrangements since December 31, 2015 outside of the Company’s ordinary course of business. Reference is made to the section entitled “Off-Balance Sheet Arrangements” in the Company’s MD&A as of and for the year ended December 31, 2015. Effective May 1, 2016, the Company entered into a five-year electricity service contract for one of its manufacturing facilities under which the Company expects to reduce the overall cost of electricity consumed by the facility. In the event of early termination, the Company is required to pay for unrecovered power supply costs incurred by the supplier which are estimated to be approximately $13 million as of June 30, 2016 and would decline monthly based on actual service billings to date. Working Capital The Company uses Days Inventory to measure inventory performance. Days Inventory increased to 68 in the second quarter of 2016 from 64 in the second quarter of 2015 and 65 in the first quarter of 2016. Inventories increased $10.6 million to $111.2 million as of June 30, 2016 from $100.6 million as of December 31, 2015 primarily due to an inventory build in anticipation of higher expected sales volume and annual maintenance shutdowns of certain facilities in the third quarter of 2016 as well as an increase in raw material purchases. The Company uses Days Sales Outstanding (“DSO”) to measure trade receivables. DSO increased to 40 in the second quarter of 2016 from 39 in the second quarter of 2015 and decreased from 41 in the first quarter of 2016. Trade receivables increased $9.5 million to $88.0 million as of June 30, 2016 from $78.5 million as of December 31, 2015, primarily due to an increase in the amount of revenue invoiced in the second quarter of 2016 as compared to the fourth quarter of 2015.

15

The calculations are shown in the following tables:

June 30, March 31, June 30, June 30, March 31, June 30,

2016 2016 2015 2016 2016 2015

Cost of sales (1) 149.7$ 149.7$ 154.2$ Revenue (1) 201.5$ 190.8$ 196.6$

Days in quarter 91 91 91 Days in quarter 91 91 91

Cost of sales per day (1) 1.65$ 1.65$ 1.69$ Revenue per day (1) 2.21$ 2.10$ 2.16$

Average inventory (1) 111.8$ 106.5$ 108.8$ Trade receivables (1) 88.0$ 85.8$ 85.3$

Days inventory 68 65 64 DSO 40 41 39

Days inventory is calculated as follows: DSO is calculated as follows:

Cost of sales ÷ Days in quarter = Cost of sales per day Revenue ÷ Days in quarter = Revenue per day

(Beginning inventory + Ending inventory) ÷ 2 = Ending trade receivables ÷ Revenue per day = DSO

Average inventory

Average inventory ÷ Cost of goods sold per day =

Days inventory(1) In millions of US dollars

Three months ended Three months ended

Accounts payable and accrued liabilities decreased $6.4 million to $75.9 million as of June 30, 2016 from $82.2 million as of December 31, 2015 primarily due to a decrease in payables associated with the timing of payments for inventory. Liquidity The Company finances its operations through a combination of cash flows from operations and borrowings under its five-year $300 million revolving credit facility with a syndicate of financial institutions, which includes an incremental accordion feature of $150 million that could enable the Company to increase the limit of this facility by up to $150 million (subject to the terms and lender participation) if needed (“Revolving Credit Facility”). The Company’s liquidity risk management processes attempt to (i) maintain a sufficient amount of cash and (ii) ensure that the Company has financing sources for a sufficient authorized amount. The Company establishes budgets, cash estimates and cash management policies with a goal of ensuring it has the necessary funds to fulfil its obligations for the foreseeable future. The Company has access to the Revolving Credit Facility through November 2019. As of June 30, 2016, the Company had drawn a total of $151.0 million, resulting in loan availability of $149.0 million. In addition, the Company had $13.0 million of cash, yielding total cash and loan availability of $162.0 million as of June 30, 2016. The Company believes it has sufficient funds from cash flows from operating activities, funds available under the Revolving Credit Facility and cash on hand to meet its expected capital expenditures and working capital requirements for at least the next twelve months. Cash Flows Cash flows from operating activities decreased in the second quarter of 2016 by $1.4 million to $24.4 million from $25.7 million in the second quarter of 2015 primarily due to (i) an increase in trade receivables resulting from higher sales in the second quarter of 2016 and (ii) a decrease in accounts payable primarily associated with the timing of payments for inventory, partially offset by an increase in the accrual for variable compensation expense in the second quarter of 2016. These reductions to cash flows from operating activities were partially offset by an increase in gross profit. Cash flows from operating activities increased $25.7 million to a $24.4 million inflow from a $1.3 million outflow in the first quarter of 2016 primarily due to a large seasonal increase in working capital in the first quarter of 2016 and an increase in gross profit during the second quarter of 2016.

16

Cash flows from operating activities decreased in the first six months of 2016 by $3.6 million to $23.1 million from $26.6 million in the same period in 2015 primarily due to a decrease in accounts payable primarily associated with the timing of payments for inventory and an increase in trade receivables resulting from higher sales in the second quarter of 2016 as compared to the second quarter of 2015, partially offset by an increase in gross profit. Cash flows used for investing activities decreased in the second quarter of 2016 by $7.5 million to $13.8 million from $21.3 million in the second quarter of 2015. Cash flows used for investing activities decreased in the first six months of 2016 by $6.9 million to $23.3 million from $30.3 million in same period in 2015. The decrease for all periods was primarily due to the non-recurrence of the Better Packages acquisition funding in April 2015, partially offset by an increase in capital expenditures in 2016 related to the water-activated tape capacity expansion in Cabarrus County, North Carolina (“WAT Project”) and other initiatives discussed in the section entitled “Capital Resources” in the Company’s MD&A as of and for the year ended December 31, 2015. Cash flows used for investing activities increased in the second quarter of 2016 by $4.3 million to $13.8 million from $9.5 million in the first quarter of 2016, primarily due to an increase in capital expenditures related mostly to the WAT Project in the second quarter. Cash flows used in financing activities decreased in the second quarter of 2016 by $1.9 million to $12.2 million from $14.0 million in the second quarter of 2015, primarily due to a decrease in the repurchase of common shares, partially offset by an increase in net repayment of debt in the second quarter of 2016. Cash flows used in financing activities increased $19.5 million to a $12.1 million outflow in the second quarter of 2016 from a $7.4 million inflow in the first quarter of 2016, primarily due to an increase in net repayments of debt in the second quarter of 2016 compared to an increase in net borrowing from debt in the first quarter due to funding seasonally high working capital requirements. Cash flows used in financing activities increased in the first six months of 2016 by $16.5 million to a $4.8 million outflow compared to $11.7 million inflow in the same period in 2015, primarily due to a decrease in net borrowing from debt, partially offset by a decrease in the repurchase of common stock. The Company is reporting free cash flows, a non-GAAP financial measure, because it is used by management and investors in evaluating the Company’s performance and liquidity. Free cash flows does not have any standardized meaning prescribed by GAAP and is therefore unlikely to be comparable to similar measures presented by other issuers. Free cash flows should not be interpreted to represent residual cash flow available for discretionary purposes, as it excludes other mandatory expenditures such as debt service. Free cash flows are defined by the Company as cash flows from operating activities less purchases of property, plant and equipment. A reconciliation of free cash flows to cash flows from operating activities, the most directly comparable GAAP financial measure, is set forth below. Free Cash Flows Reconciliation (In millions of US dollars) (Unaudited)


2016 2016 2015 2016 2015

$ $ $ $ $

Cash flows from operating activities 24.4 (1.3) 25.7 23.1 26.6

Less purchases of property, plant and equipment (13.8) (9.5) (6.2) (23.3) (15.1)

Free cash flows 10.6 (10.8) 19.6 (0.2) 11.5


17

Free cash flows decreased in the second quarter of 2016 by $9.0 million to $10.6 million from $19.6 million in the second quarter of 2015 primarily due to an increase in capital expenditures. Free cash flows increased by $21.4 million to an inflow of $10.6 million from an outflow of $10.8 million in the first quarter of 2016, primarily due to a large seasonal increase in working capital in the first quarter of 2016 and an increase in gross profit in the second quarter of 2016, partially offset by an increase in capital expenditures in the second quarter of 2016. Free cash flows decreased in the first six months of 2016 by $11.7 million to a $0.2 million outflow from a $11.5 million inflow in the same period in 2015, primarily due to an increase in capital expenditures and a decrease in cash flows from operating activities.

Long-Term Debt The Company’s Revolving Credit Facility is with a syndicate of financial institutions and includes an incremental accordion feature of $150 million that could enable the Company to increase the limit of this facility by up to $150 million (subject to the Revolving Credit Facility’s terms and lender participation) if needed. As of June 30, 2016, the Company had drawn a total of $151.0 million against the Revolving Credit Facility, which consisted of $149.1 million of borrowings and $1.9 million of standby letters of credit. The Company had total cash and loan availability of $162.0 million as of June 30, 2016 and $182.3 million as of December 31, 2015. The Revolving Credit Facility is priced primarily on the LIBOR rate plus a spread varying between 100 and 225 basis points (150 basis points as of June 30, 2016). The LIBOR rate varies depending on the specific term of the outstanding LIBOR tranche within the Revolving Credit Facility. As of June 30, 2016, $141.0 million of borrowings was priced at 30-day US Dollar LIBOR and $8.1 million of US Dollar equivalent borrowings was priced at the 30-day Canadian Dollar Offering Rate. The Revolving Credit Facility has three primary financial covenants: (1) a consolidated total leverage ratio not to be greater than 3.25 to 1.00, with an allowable temporary increase to 3.75 to 1.00 for the four quarters following an acquisition with a purchase price of $50 million or more, (2) a consolidated debt service ratio not to be less than 1.50 to 1.00, and (3) the aggregate amount of all capital expenditures in any fiscal year may not exceed $50 million. However, any portion of the allowable $50 million of capital expenditures not expended in the year may be carried over for expenditure in the following year but not carried over to any additional subsequent year thereafter. The unused capital expenditures were $15.7 million as of December 31, 2015, resulting in total allowable capital expenditures of $65.7 million for the 2016 fiscal year. The Company was in compliance with all three financial covenants, which were 1.58, 7.47 and $23.3 million, respectively, as of June 30, 2016. Capital Expenditures Capital expenditures totalled $13.8 million and $23.3 million for the three and six months ended June 30, 2016, as funded by the Revolving Credit Facility and cash flows from operations. The Company had commitments to suppliers to purchase machines and equipment totalling $20.9 million as of June 30, 2016, primarily to support capacity expansion projects and other initiatives discussed in the section entitled “Capital Resources” in the Company’s MD&A as of and for the year ended December 31, 2015. Capital commitments, as of June 30, 2016, are expected to be paid out in the next twelve months.

18

Contractual Obligations Except as noted in the section entitled “Off-Balance Sheet Arrangements” above, there have been no material changes with respect to contractual obligations since December 31, 2015 outside of the Company’s ordinary course of business. Reference is made to the section entitled “Contractual Obligations” in the Company’s MD&A as of and for the year ended December 31, 2015. Capital Stock and Dividends As of June 30, 2016, there were 58,602,835 common shares of the Company outstanding. The table below summarizes equity-settled share-based compensation activity that occurred during the following periods:

2016 2015 2016 2015

Stock options exercised 60,200 132,500 82,500 152,500

Cash proceeds (in millions of US dollars) $0.4 $0.4 $0.5 $0.4

Stock options expired or forfeited - 2,500 - 2,500

PSUs granted - 126,460 392,572 363,600

PSUs cancelled 3,008 - 3,008 -

DSUs granted - 27,023 11,714 36,797

Shares issued upon DSU settlement - 6,397 - 6,397

June 30,


June 30,

The Company paid a cash dividend of $0.13 per common share on March 31 and June 30, 2016 to shareholders of record at the close of business on March 21 and June 15, 2016, respectively. On August 10, 2016, the Board of Directors amended the Company’s dividend policy to increase the annualized dividend from $0.52 to $0.56 per share. The Board’s decision to increase the dividend was based on the Company’s strong financial position and positive outlook. The declaration and payment of future dividends, however, are discretionary and will be subject to determination by the Board of Directors each quarter following its review of, among other considerations, the Company’s financial performance and the Company’s legal ability to pay dividends. Since the dividend policy was reinstated in August 2012, the Company has paid an aggregate of $88.3 million in dividends.

On August 10, 2016, the Board of Directors declared a quarterly cash dividend of $0.14 per common share payable on September 30, 2016 to shareholders of record at the close of business on September 15, 2016. The dividends paid and payable in 2016 by the Company are “eligible dividends” as defined in subsection 89(1) of the Income Tax Act (Canada). On July 10, 2015, the Company entered into a normal course issuer bid (“NCIB”) which entitled the Company to repurchase for cancellation up to 4,000,000 of the Company’s common shares issued and outstanding. As of June 30, 2016, 2,332,700 shares remained available for repurchase. This NCIB, which was scheduled to expire on July 9, 2016, was renewed for a twelve-month period starting July 14, 2016, and following the renewal, 4,000,000 shares are again available for repurchase. As of August 10, 2016, no shares have been repurchased under the renewed NCIB.

19

The table below summarizes the NCIB activity that occurred during the following periods:

2016 2015 2016 2015

Common shares repurchased - 347,100 147,200 967,088

Average price per common share including

commissions - CDN$17.11 CDN$15.77 CDN$17.35

Total purchase price including commissions (1) - $4.9 $1.7 $13.5

(1) In millions of US dollars

Three months ended

June 30,

Six months ended

June 30,

Financial Risk, Objectives and Policies There has been no material change with respect to financial risk, objectives and policies since December 31, 2015 outside of the Company’s ordinary course of business. Reference is made to the section entitled “Financial Risk, Objectives and Policies” in the Company’s MD&A as of and for the year ended December 31, 2015. Litigation The Company is engaged from time-to-time in various legal proceedings and claims that have arisen in the ordinary course of business. The outcome of all of the proceedings and claims against the Company is subject to future resolution, including the uncertainties of litigation. Based on information currently known to the Company and after consultation with outside legal counsel, management believes that the probable ultimate resolution of any such proceedings and claims, individually or in the aggregate, will not have a material adverse effect on the financial condition of the Company, taken as a whole, and accordingly, no amounts have been recorded as of June 30, 2016. Critical Accounting Judgments, Estimates and Assumptions The preparation of the Financial Statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Significant changes in the underlying assumptions could result in significant changes to these estimates. Consequently, management reviews these estimates on a regular basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. The judgments, estimates and assumptions applied in the Financial Statements were the same as those applied in the Company’s most recent annual audited consolidated financial statements, except for (i) the estimate of the provision for income taxes, which is determined in the Financial Statements using the estimated weighted average annual effective income tax rate applied to the earnings before income tax expense (benefit) of the interim period, which may have to be adjusted in a subsequent interim period of the financial year if the estimate of the annual income tax rate changes and (ii) the re-measurement of the defined benefit liability, which is required at year-end and if triggered by plan amendment or settlement during interim periods. The Financial Statements should be read in conjunction with the Company’s 2015 annual audited consolidated financial statements. New Standards and Interpretations Issued but Not Yet Effective Certain new standards, amendments and interpretations, and improvements to existing standards have been published by the IASB but are not yet effective, and have not been adopted early by the Company. Management anticipates that all of the relevant pronouncements will be adopted in the first reporting period following the date of application. Information on new standards, amendments and interpretations,

20

and improvements to existing standards, which could potentially impact the Company’s consolidated financial statements, are detailed as follows: IFRS 15 – Revenue from Contracts with Customers replaces IAS 18 – Revenue, IAS 11 – Construction Contracts and some revenue related interpretations. IFRS 15 establishes a new control-based revenue recognition model, changes the basis for deciding when revenue is recognized at a point in time or over time, provides new and more detailed guidance on specific topics and expands and improves disclosures about revenue. IFRS 15 is effective for annual reporting periods beginning on or after January 1, 2018. Management has yet to assess the impact of this new standard on the Company’s consolidated financial statements. IFRS 9 (2014) - Financial Instruments was issued in July 2014 and differs in some regards from IFRS 9 (2013) which the Company adopted effective January 1, 2015. IFRS 9 (2014) includes updated guidance on the classification and measurement of financial assets. The final standard also amends the impairment model by introducing a new expected credit loss model for calculating impairment. The mandatory effective date of IFRS 9 (2014) is for annual periods beginning on or after January 1, 2018 and must be applied retrospectively with some exemptions. Early adoption is permitted. Management has yet to assess the impact of this new standard on the Company’s consolidated financial statements. IFRS 16 - Leases which will replace IAS 17 – Leases was issued in January 2016. IFRS 16 eliminates the classification as an operating lease and requires lessees to recognize a right-of-use asset and a lease liability in the statement of financial position for all leases with exemptions permitted for short-term leases and leases of low value assets. In addition, IFRS 16 changes the definition of a lease; sets requirements on how to account for the asset and liability, including complexities such as non-lease elements, variable lease payments and options periods; changes the accounting for sale and leaseback arrangements; largely retains IAS 17’s approach to lessor accounting and introduces new disclosure requirements. IFRS 16 is effective for annual reporting periods beginning on or after January 1, 2019 with early application permitted in certain circumstances. Management has yet to assess the impact of this new standard on the Company’s consolidated financial statements. Certain other new standards and interpretations have been issued but are not expected to have a material impact on the Company’s consolidated financial statements. Internal Control Over Financial Reporting In accordance with the Canadian Securities Administrators National Instrument 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 and the Chief Financial Officer that, among other things, report on the design of disclosure controls and procedures and design of internal control over financial reporting. With regards to the annual certification requirements of NI 52-109, the Company relies on the statutory exemption contained in section 8.2 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. Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of the Company's financial reporting and its compliance with GAAP (as derived in accordance with IFRS) in its consolidated financial statements. The Chief Executive Officer and Chief Financial Officer of the Company have evaluated whether there were changes to the Company's internal control over financial reporting during the Company’s most recent interim period that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. The Chief Executive Officer and the Chief Financial Officer have concluded that the Company’s internal control over financial reporting as of June 30, 2016 was effective. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of its inherent limitation, internal control over financial

21

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 2015, 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. Forward-Looking Statements Certain statements and information included in this MD&A constitute "forward-looking information" within the meaning of applicable Canadian securities legislation and "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (collectively, "forward-looking statements"), which are made in reliance upon the protections provided by such legislation for forward-looking statements. All statements other than statements of historical facts included in this MD&A, including statements regarding the Company’s industry and the Company’s outlook, prospects, plans, financial position, future sales and financial results, the South Carolina Flood, the South Carolina Project, income tax and effective tax rate, availability of funds and credit, level of indebtedness, payment of dividends, capital and other significant expenditures, working capital requirements, liquidity, judgments, estimates, assumptions, litigation and business strategy, may constitute forward-looking statements. These forward-looking statements are based on current beliefs, assumptions, expectations, estimates, forecasts and projections made by the Company’s management. Words such as "may," "will," "should," "expect," "continue," "intend," "estimate," "anticipate," "plan," "foresee," "believe" or "seek" or the negatives of these terms or variations of them or similar terminology are intended to identify such 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; the anticipated benefits from the Company’s manufacturing facility closures and other restructuring efforts; the quality, and market reception, of the Company’s products; the Company’s anticipated business strategies; risks and costs inherent in litigation; the Company’s ability to maintain and improve quality and customer service; anticipated trends in the Company’s business; anticipated cash flows from the Company’s operations; availability of funds under the Company’s Revolving Credit Facility; and the Company’s ability to continue to control costs. The Company can give no assurance that these statements and expectations will prove to have been correct. Actual outcomes and results may, and often do, differ from what is expressed, implied or projected in such forward-looking statements, and such differences may be material. Readers are cautioned not to place undue reliance on any forward-looking statement. For additional information regarding some important factors that could cause actual results to differ materially from those expressed in these forward-looking statements and other risks and uncertainties, and the assumptions underlying the forward-looking statements, you are encouraged to read "Item 3. Key Information - Risk Factors,” “Item 5 Operating and Financial Review and Prospects (Management’s Discussion & Analysis)” and statements located elsewhere in the Company’s annual report on Form 20-F for the year ended December 31, 2015 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.

Intertape Polymer Group Inc.

Interim Condensed Consolidated Financial Statements June 30, 2016

Unaudited Interim Condensed Consolidated Financial Statements

Consolidated Earnings 2

Consolidated Comprehensive Income 3

Consolidated Changes in Shareholders’ Equity 4 to 5

Consolidated Cash Flows 6

Consolidated Balance Sheets 7

Notes to Interim Condensed Consolidated Financial Statements 8 to 16

2

Intertape Polymer Group Inc. Consolidated Earnings Periods ended June 30, (In thousands of US dollars, except per share amounts) (Unaudited)

2016 2015 2016 2015

$ $ $ $

Revenue 201,517 196,586 392,333 385,595

Cost of sales 149,715 154,178 299,435 306,172

Gross profit 51,802 42,408 92,898 79,423



29,016 24,394 54,942 44,587



charges 22,786 18,014 37,956 34,836


and other related charges (Note 4) 2,090 142 3,823 802


Finance costs (income) (Note 3)

Interest 1,022 982 2,004 1,598

Other expense (income), net 411 395 320 (246)

1,433 1,377 2,324 1,352

Earnings before income tax expense 19,263 16,495 31,809 32,682

Income tax expense (Note 5)

Current 3,197 1,249 5,273 2,312

Deferred 2,408 3,498 3,348 6,844

5,605 4,747 8,621 9,156

Net earnings 13,658 11,748 23,188 23,526

Earnings per share (Note 6)

Basic 0.23 0.20 0.40 0.39 Diluted 0.22 0.19 0.38 0.38

Three months ended

June 30,

Six months ended

June 30,

The accompanying notes are an integral part of the interim condensed consolidated financial statements. Note 3 presents additional information on consolidated earnings.

3

Intertape Polymer Group Inc. Consolidated Comprehensive Income Periods ended June 30, (In thousands of US dollars) (Unaudited)

2016 2015 2016 2015

$ $ $ $

Net earnings 13,658 11,748 23,188 23,526

Other comprehensive income (loss)

Change in fair value of interest rate swap

agreements designated as cash flow hedges

(net of the change in the deferred income tax

benefit of $126 and $621 for the three and six

months ended June 30, 2016, respectively, and

change in the deferred income tax expense of $105 and income tax benefit of $102 for the three and six months ended June 30, 2015, respectively). (205) 172 (1,013) (166)

Change in cumulative translation adjustments (601) 2,117 4,081 (5,403)

Items that will be subsequently reclassified to net earnings (806) 2,289 3,068 (5,569)

Comprehensive income for the period 12,852 14,037 26,256 17,957

Three months ended

June 30,

Six months ended

June 30,

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

4

Intertape Polymer Group Inc. Consolidated Changes in Shareholders’ Equity Six months ended June 30, 2015 (In thousands of US dollars, except for number of common shares) (Unaudited)

Cumulative

translation Reserve for Total

Contributed adjustment cash flow shareholders’

Number Amount surplus account hedge Total Deficit equity

$ $ $ $ $ $ $

Balance as of December 31, 2014 60,435,826 357,840 24,493 (8,113) - (8,113) (146,720) 227,500

Transactions w ith ow ners

Exercise of stock options (Note 6) 152,500 404 404

Excess tax benefit on exercised stock options 689 (689) -

Excess tax benefit on outstanding stock aw ards (606) (606)

Stock-based compensation expense (Note 6) 1,871 1,871

Stock-based compensation expense credited to capital

on options exercised (Note 6) 182 (182) -

Deferred Share Units settlement, net of

required minimum tax w ithholding (Note 6) 6,397 65 (218) (153)

Repurchases of common shares (Note 6) (967,088) (8,302) (5,177) (13,479)

Dividends on common shares (Note 6) (14,381) (14,381)

(808,191) (6,962) 176 (19,558) (26,344)

Net earnings 23,526 23,526

Other comprehensive loss

Change in fair value of interest rate sw ap agreement

designated as a cash flow hedge (net of the change

in deferred income tax benefit of $207) (Note 7) (166) (166) (166)

Change in cumulative translation adjustments (5,403) (5,403) (5,403)

(5,403) (166) (5,569) (5,569)

Comprehensive income for the period (5,403) (166) (5,569) 23,526 17,957

Balance as of June 30, 2015 59,627,635 350,878 24,669 (13,516) (166) (13,682) (142,752) 219,113

Capital stock Accumulated other comprehensive loss


5

Intertape Polymer Group Inc. Consolidated Changes in Shareholders’ Equity Six months ended June 30, 2016 (In thousands of US dollars, except for number of common shares) (Unaudited)

Cumulative

translation Reserve for Total

Contributed adjustment cash flow shareholders’

Number Amount surplus account hedge Total Deficit equity

$ $ $ $ $ $ $

Balance as of December 31, 2015 58,667,535 347,325 23,298 (20,407) (272) (20,679) (133,216) 216,728

Transactions w ith ow ners

Exercise of stock options (Note 6) 82,500 478 478

Excess tax benefit on exercised stock options 99 (99) -

Excess tax benefit on outstanding stock aw ards 1,739 1,739

Stock-based compensation expense (Note 6) 2,528 2,528

Stock-based compensation expense credited to capital

on options exercised (Note 6) 154 (154) -

Repurchases of common shares (Note 6) 147,200 (862) (835) (1,697)

Dividends on common shares (Note 6) (15,221) (15,221)

229,700 (131) 4,014 (16,056) (12,173)

Net earnings 23,188 23,188

Other comprehensive income

Change in fair value of interest rate sw ap agreements

designated as cash f low hedges (net of change in

deferred income tax benefit of $621) (Note 7) (1,013) (1,013) (1,013)

Change in cumulative translation adjustments 4,081 4,081 4,081

4,081 (1,013) 3,068 3,068

Comprehensive income for the period 4,081 (1,013) 3,068 23,188 26,256

Balance as of June 30, 2016 58,897,235 347,194 27,312 (16,326) (1,285) (17,611) (126,084) 230,811

Capital stock Accumulated other comprehensive loss


6

Intertape Polymer Group Inc. Consolidated Cash Flows Periods ended June 30, (In thousands of US dollars) (Unaudited)

2016 2015 2016 2015

$ $ $ $

OPERATING ACTIVITIES

Net earnings 13,658 11,748 23,188 23,526

Adjustments to net earnings

Depreciation and amortization 7,397 6,939 14,632 13,673

Income tax expense 5,605 4,747 8,621 9,156

Interest expense 1,022 982 2,004 1,598

Non-cash charges (recoveries) in connection w ith manufacturing facility closures, restructuring and other related charges 787 (137) 1,315 (100)

Stock-based compensation expense 2,542 2,146 4,136 2,127

Pension and other post-retirement benefits expense 703 563 1,410 1,163

Loss (gain) on foreign exchange 168 194 (160) (667)

Impairment of assets 135 - 163 -

Other adjustments for non cash items 190 54 284 229

Income taxes paid, net (1,965) (2,955) (2,164) (3,065)

Contributions to defined benefit plans (510) (602) (688) (1,201)

Cash f low s from operating activities before changes in w orking capital items 29,732 23,679 52,741 46,439

Changes in w orking capital items

Trade receivables (2,515) 1,779 (9,056) (3,507)

Inventories 360 2,341 (10,332) (11,479)

Parts and supplies (73) (520) (537) (805)

Other current assets (1,143) (773) 1,313 2,134

Accounts payable and accrued liabilities (1,986) 384 (11,100) (5,414)

Provisions 8 (1,157) 30 (752)

(5,349) 2,054 (29,682) (19,823)

Cash f low s from operating activities 24,383 25,733 23,059 26,616

INVESTING ACTIVITIES

Acquisition of a subsidiary, net of cash acquired - (15,333) - (15,333)

Purchases of property, plant and equipment (13,810) (6,165) (23,304) (15,148)

Other investing activities 5 231 (45) 198

Cash f low s from investing activities (13,805) (21,267) (23,349) (30,283)

FINANCING ACTIVITIES

Proceeds from long-term debt 24,668 33,759 89,303 132,598

Repayment of long-term debt (28,226) (30,397) (75,589) (91,664)

Interest paid (1,408) (996) (2,223) (1,620)

Proceeds from exercise of stock options 363 367 478 404

Repurchases of common shares - (9,609) (1,697) (13,532)

Dividends paid (7,574) (7,154) (15,083) (14,457)

Other f inancing activities - (1) - (28)

Cash f low s from financing activities (12,177) (14,031) (4,811) 11,701

Net (decrease) increase in cash (1,599) (9,565) (5,101) 8,034

Effect of foreign exchange differences on cash 349 545 509 (1,113)

Cash, beginning of period 14,273 24,283 17,615 8,342

Cash, end of period 13,023 15,263 13,023 15,263

Three months ended

June 30,

Six months ended

June 30,


7

Intertape Polymer Group Inc. Consolidated Balance Sheets As of (In thousands of US dollars)

June 30, December 31,

2016 2015

(Unaudited) (Audited)

$ $

ASSETS

Current assets

Cash 13,023 17,615

Trade receivables 88,025 78,517

Inventories 111,152 100,551

Parts and supplies 15,894 15,265

Other current assets 7,689 8,699

235,783 220,647

Property, plant and equipment 207,788 198,085

Goodwill 7,476 7,476

Intangible assets 12,014 12,568

Deferred tax assets 46,030 45,308

Other assets 3,332 3,178

Total assets 512,423 487,262

LIABILITIES

Current liabilities

Accounts payable and accrued liabilities 75,857 82,226

Provisions 2,136 2,209

Installments on long-term debt 5,761 5,702

83,754 90,137

Long-term debt 161,701 147,134

Pension and other post-retirement benefits 30,211 29,292

Other liabilities 2,973 1,029

Provisions 2,973 2,942

281,612 270,534

SHAREHOLDERS’ EQUITY

Capital stock (Note 6) 347,194 347,325

Contributed surplus 27,312 23,298

Deficit (126,084) (133,216)

Accumulated other comprehensive loss (17,611) (20,679)

230,811 216,728

Total liabilities and shareholders’ equity 512,423 487,262


8

Intertape Polymer Group Inc. Notes to Interim Condensed Consolidated Financial Statements June 30, 2016 (In US dollars, tabular amounts in thousands, except as otherwise noted) (Unaudited)

1 - GENERAL BUSINESS DESCRIPTION Intertape Polymer Group Inc. (the “Parent Company”), incorporated under the Canada Business Corporations Act, has its principal administrative offices in Montreal, Québec, Canada and in Sarasota, Florida, U.S.A. The address of the Parent Company’s registered office is 800 Place Victoria, Suite 3700, Montreal, Québec H4Z 1E9, c/o Fasken Martineau DuMoulin LLP. The Parent Company’s common shares are listed on the Toronto Stock Exchange (“TSX”) in Canada. The Parent Company and its subsidiaries (together referred to as the “Company”) develop, manufacture and sell a variety of paper and film based pressure sensitive and water activated tapes, polyethylene and specialized polyolefin films, woven coated fabrics and complementary packaging systems for industrial and retail use. Intertape Polymer Group Inc. is the Company’s ultimate parent. 2 - ACCOUNTING POLICIES Basis of Presentation and Statement of Compliance The unaudited interim condensed consolidated financial statements (“Financial Statements”) present the Company’s consolidated balance sheets as of June 30, 2016 and December 31, 2015, as well as its consolidated earnings, comprehensive income, changes in shareholders’ equity and cash flows for the three and six months ended June 30, 2016 and 2015. These Financial Statements have been prepared in accordance with International Accounting Standard (“IAS”) 34 – Interim Financial Reporting and are expressed in United States (“US”) dollars. Accordingly, certain information and footnote disclosures normally included in annual audited consolidated financial statements prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board ("IASB"), have been omitted or condensed. These Financial Statements use the same accounting policies and methods of computation as compared with the Company’s most recent annual audited consolidated financial statements, except for (i) the estimate of the provision for income taxes, which is determined in these Financial Statements using the estimated weighted average annual effective income tax rate applied to the earnings before income tax expense (benefit) of the interim period, which may have to be adjusted in a subsequent interim period of the financial year if the estimate of the annual income tax rate changes and (ii) the re-measurement of the defined benefit liability, which is required at year-end and if triggered by plan amendment or settlement during interim periods. These Financial Statements reflect all adjustments which are, in the opinion of management, necessary to present a fair statement of the results for these interim periods. These adjustments are of a normal recurring nature. These Financial Statements were authorized for issuance by the Company’s Board of Directors on August 10, 2016.

9

Critical Accounting Judgments, Estimates and Assumptions The preparation of these Financial Statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Significant changes in the underlying assumptions could result in significant changes to these estimates. Consequently, management reviews these estimates on a regular basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. The judgments, estimates and assumptions applied in these Financial Statements were the same as those applied in the Company’s most recent annual audited consolidated financial statements other than (as noted above) the accounting policies and methods of computation for the estimate of the provision for income taxes and the re-measurement of the defined benefit liability. New Standards and Interpretations Issued but Not Yet Effective Certain new standards, amendments and interpretations, and improvements to existing standards have been published by the IASB but are not yet effective, and have not been adopted early by the Company. Management anticipates that all of the relevant pronouncements will be adopted in the first reporting period following the date of application. Information on new standards, amendments and interpretations, and improvements to existing standards, which could potentially impact the Company’s consolidated financial statements, are detailed as follows: IFRS 15 – Revenue from Contracts with Customers replaces IAS 18 – Revenue, IAS 11 – Construction Contracts and some revenue related interpretations. IFRS 15 establishes a new control-based revenue recognition model, changes the basis for deciding when revenue is recognized at a point in time or over time, provides new and more detailed guidance on specific topics and expands and improves disclosures about revenue. IFRS 15 is effective for annual reporting periods beginning on or after January 1, 2018. Management has yet to assess the impact of this new standard on the Company’s consolidated financial statements. IFRS 9 (2014) - Financial Instruments was issued in July 2014 and differs in some regards from IFRS 9 (2013) which the Company adopted effective January 1, 2015. IFRS 9 (2014) includes updated guidance on the classification and measurement of financial assets. The final standard also amends the impairment model by introducing a new expected credit loss model for calculating impairment. The mandatory effective date of IFRS 9 (2014) is for annual periods beginning on or after January 1, 2018 and must be applied retrospectively with some exemptions. Early adoption is permitted. Management has yet to assess the impact of this new standard on the Company’s consolidated financial statements. IFRS 16 - Leases which will replace IAS 17 - Leases was issued in January 2016. IFRS 16 eliminates the classification as an operating lease and requires lessees to recognize a right-of-use asset and a lease liability in the statement of financial position for all leases with exemptions permitted for short-term leases and leases of low value assets. In addition, IFRS 16 changes the definition of a lease; sets requirements on how to account for the asset and liability, including complexities such as non-lease elements, variable lease payments and options periods; changes the accounting for sale and leaseback arrangements; largely retains IAS 17’s approach to lessor accounting and introduces new disclosure requirements. IFRS 16 is effective for annual reporting periods beginning on or after January 1, 2019 with early application permitted in certain circumstances. Management has yet to assess the impact of this new standard on the Company’s consolidated financial statements. Certain other new standards and interpretations have been issued but are not expected to have a material impact on the Company’s consolidated financial statements.

10

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:

2016 2015 2016 2015

$ $ $ $

Employee benefit expense

Wages, salaries and other short-term benefits 39,655 36,725 79,147 71,888

Termination benefits 193 168 334 838

Stock-based compensation expense 2,342 1,578 3,825 1,526

Pensions and other post-retirement benefits –

defined benefit plans 725 586 1,455 1,211

Pensions and other post-retirement benefits –

defined contribution plans 1,093 950 2,378 1,975

44,008 40,007 87,139 77,438

Three months ended

June 30,

Six months ended

June 30,

Finance costs (income)- interest Interest on long-term debt 1,174 976 2,265 1,662 Amortization of debt issue costs on long-term debt 108 111 216 221

Interest capitalized to property, plant and equipment (260) (105) (477) (285)

1,022 982 2,004 1,598

Finance costs (income)- other expense (income), net Foreign exchange loss (gain) 167 181 (170) (670)

Other costs, net 244 214 490 424

411 395 320 (246)

Additional information Depreciation of property, plant and equipment 7,086 6,684 14,017 13,292 Amortization of intangible assets 311 255 615 381 Impairment (reversal of impairment) of assets 792 (137) 1,348 (103) 4 - MANUFACTURING FACILITY CLOSURES, RESTRUCTURING AND OTHER RELATED

CHARGES The following tables describe the charges incurred by the Company which are included in the Company’s consolidated earnings under the caption manufacturing facility closures, restructuring and other related charges:

South Carolina Other South Carolina OtherFlood projects Total Flood projects Total

$ $ $ $ $ $Impairment (reversal of impairment) of property, plant and equipment 83 - 83 620 (130) 490 Equipment relocation - 455 455 - 499 499 Revaluation and impairment of inventories 575 - 575 694 - 694 Termination benefits and other labor related expense (reversal) (21) 182 161 49 386 435 Idle facility costs 865 33 898 1,511 142 1,653 Insurance proceeds (483) - (483) (483) - (483) Professional fees 401 - 401 535 - 535

1,420 670 2,090 2,926 897 3,823

Three months ended June 30, 2016 June 30, 2016

Six months ended

11

June 30, 2015 June 30, 2015

Other Projects Other Projects

$ $

Reversal of impairment of property, plant and equipment (101) (137) Reversal of impairment of parts and supplies (20) (41)

Equipment relocation 44 71

Revaluation and impairment (reversal

of impairment) of inventories (16) 78

Termination benefits and other labor related costs 87 681

Other costs 148 150

142 802


On October 4, 2015, the Columbia, South Carolina manufacturing facility was damaged by significant rainfall and subsequent severe flooding (“South Carolina Flood”). The damages sustained were considerable and resulted in the facility being shut down permanently. The Company received a total of $5.0 million in insurance claim settlement proceeds in the second quarter of 2016 related to the South Carolina Flood of which $0.5 million was recorded in manufacturing facility closures, restructuring and other related charges and is presented in the table above under insurance proceeds and $4.5 million was recorded in cost of sales. The incremental costs of relocating the Columbia, South Carolina manufacturing facility are included in the table above under Other Projects for 2016 and 2015. In 2015, the table above also includes costs related to the Richmond, Kentucky manufacturing facility closure, and consolidation of the shrink film production from Truro, Nova Scotia to Tremonton, Utah. 5 - INCOME TAXES The calculation of the Company’s effective tax rate is as follows:

2016 2015 2016 2015Income tax expense $5,605 $4,747 $8,621 $9,156Earnings before income tax expense $19,263 $16,495 $31,809 $32,682Effective tax rate 29.1% 28.8% 27.1% 28.0%

Three months ended June 30,

Six months ended June 30,

6 - CAPITAL STOCK AND EARNINGS PER SHARE Common Shares The Company’s common shares outstanding as of June 30, 2016 and December 31, 2015 were 58,602,835 and 58,667,535, respectively. Dividends The cash dividends paid during the period were as follows:

Declared Date Paid datePer common share amount

Shareholderrecord date

Common shares issued and outstanding Aggregate payment

March 9, 2016 March 31, 2016 $0.13 March 21, 2016 58,522,835 $7,509May 9, 2016 June 30, 2016 $0.13 June 15, 2016 58,602,835 $7,574

12

Share Repurchases On July 10, 2015, the Company entered into a normal course issuer bid (“NCIB”) which entitled the Company to repurchase for cancellation up to 4,000,000 of the Company’s common shares issued and outstanding. As of June 30, 2016, 2,332,700 shares remained available for repurchase. The NCIB which was scheduled to expire on July 9, 2016, was renewed for a twelve-month period starting July 14, 2016, and following the renewal, 4,000,000 shares are again available for repurchase. Refer to Note 9 for more information on the renewed NCIB. The following table summarizes information related to share repurchases:

2016 2015 2016 2015

Common shares repurchased - 347,100 147,200 967,088

Average price per common share including commissions - CDN$17.11 CDN$15.77 CDN$17.35

Total purchase price including commissions - $4,912 $1,697 $13,479

Carrying value of the common shares repurchased - $2,554 $862 $8,302

Share repurchase premium (1) - $2,358 $835 $5,177

Three months ended

June 30,

Six months ended

June 30,

(1) The excess of the purchase price paid over the carrying value of the common shares repurchased is recorded in deficit in the consolidated balance sheet and in the statement of consolidated changes in shareholders’ equity. Earnings Per Share The weighted average number of common shares outstanding is as follows:

2016 2015 2016 2015

Basic 58,657,691 59,727,825 58,656,679 60,091,438

Effect of stock options 845,296 1,329,461 799,511 1,335,544

Effect of performance share units 1,331,406 682,431 1,071,339 492,218

Diluted 60,834,393 61,739,717 60,527,529 61,919,200

Three months ended

June 30,

Six months ended

June 30,

There were no stock options that were anti-dilutive and excluded from the diluted earnings per share calculations for the three month and six months ended June 30, 2016 and 2015.

The effect of performance share units (“PSUs”) included in the calculation of weighted average diluted shares outstanding includes the following:

2016 2015PSUs which met the performance criteria 887,604 516,100

June 30, Three and six months ended

13

Stock Options The following tables summarize information related to stock options:

2016 2015 2016 2015Stock options exercised 60,200 132,500 82,500 152,500Weighted average exercise price CDN$7.80 CDN$3.39 CDN$7.54 CDN$3.23Cash proceeds $363 $367 $478 $404Stock options expired or forfeited - 2,500 - 2,500



June 30, 2016Stock options outstanding 1,535,000Weighted average exercise price per stock option outstanding CDN$8.84Weighted average fair value at grant date per stock option outstanding $2.69

Performance Share Unit Plan On May 9, 2016, the Board of Directors approved an amendment to the PSU Plan to provide the Company the option of settling PSUs in cash. In the event of cash settlement, the cash payment will equal the number of shares that would otherwise have been issued or delivered to the participant, multiplied by the volume weighted average trading price (“VWAP”) of the shares on the TSX for the five consecutive trading days immediately preceding the day of payment. The Board has full discretion to determine the form of settlement of the PSUs and as of June 30, 2016, no such discretion has been used. As a result, the Company has no present obligation to settle the PSUs in cash and the amendment to the PSU Plan had no impact on the treatment of the PSUs as equity-settled share-based payment transactions as of June 30, 2016. Additionally, on the same date, the Board of Directors approved an amendment to the PSU Plan that allowed for accelerated vesting of PSUs in the event of death, disability or retirement. This amendment required the immediate recognition of expense associated with awards outstanding for certain retirement-eligible participants, the impact of which was $0.4 million for the three and six months ended June 30, 2016 and was included in earnings in selling, general and administrative expense. The following tables summarize information related to PSUs:

2016 2015 2016 2015PSUs granted - 126,460 392,572 363,600 Weighted average fair value per PSU granted - $15.15 $13.52 $13.64PSUs cancelled 3,008 - 3,008 -



June 30, 2016PSUs outstanding 887,604 Weighted average fair value per PSU outstanding $13.22

The PSUs granted in 2016 and 2015 are earned over a three-year period with vesting at the third anniversary of the grant date. The number of shares earned can range from 0% to 150% of the grant amount based on entity performance criteria, specifically the total shareholder return (“TSR”) ranking versus a specified peer group of companies. Based on the Company's TSR ranking as of June 30, 2016, the number of shares earned if all of the outstanding awards were to be settled at June 30, 2016, would be equivalent to 150% of awards granted.

14

The weighted average fair value of PSUs granted was estimated based on a Monte Carlo simulation model, taking into account the following weighted average assumptions:

2016 2015 2016 2015Expected life 3 years 3 years 3 years 3 years

Expected volatility(1) 36% 35% 36% 35%

Risk-free interest rate 1.05% 1.07% 1.05% 1.07%

Expected dividends(2) 0.00% 0.00% 0.00% 0.00%

Performance period starting price(3) CDN$18.49 CDN$17.86 CDN$18.49 CDN$17.86

Stock price at grant date CDN$18.44 CDN$17.53 CDN$18.44 CDN$17.53



(1) Expected volatility was calculated based on the daily dividend adjusted closing price change on the TSX for a term commensurate with the expected life of the grant. (2) A participant will receive a cash payment from the Company upon PSU settlement that is equivalent to the number of shares issued or delivered to the participant or, in the event of cash settlement, an amount equal to the number of shares that would otherwise have been issued or delivered to the participant, multiplied by the amount of cash dividends per share declared by the Company between the date of grant and the third anniversary of the grant date. As such, there is no impact from expected future dividends in the Monte Carlo simulation model. As of June 30, 2016, the Company accrued $0.3 million ($0.1 million as of December 31, 2015) in the consolidated balance sheets in other liabilities. (3) The performance period starting price is measured as the five-day VWAP for the common shares of the Company on the TSX on the grant date. Deferred Share Unit Plan The following tables summarize information related to deferred share units (“DSUs”):

2016 2015 2016 2015DSUs granted - 27,023 11,714 36,797 Weighted average fair value per DSU granted - $16.04 $14.29 $16.02

Stock-based compensation expense recognized for DSUs received in lieu of cash for directors' fees not yet granted $57 $50 $117 $107



2016 2015 2016 2015

DSUs settled - 16,460 - 16,460 Less: shares withheld for required minimum

tax withholding - 10,063 - 10,063

Shares issued upon DSU settlement - 6,397 - 6,397



June 30,2016

DSUs outstanding 78,297 Weighted average fair value per DSU outstanding $13.71

15

Stock Appreciation Rights The following tables summarize information regarding stock appreciation rights (“SARs”):

2016 2015 2016 2015Expense recorded in earnings in selling, general and administrative expenses $910 $930 $1,446 $218SARs exercised 6,250 32,500 147,727 32,500 Exercise price CDN$7.56 CDN$7.56 CDN$7.56 CDN$7.56Cash payments on exercise, including awards exercised but not yet paid $66 $319 $1,264 $319

June 30, Three months ended Six months ended

June 30,

June 30, December 31,2016 2015

$ $Outstanding amounts vested recorded in the consolidated balance sheets in accounts payable and accrued liabilities 4,291 4,014 Aggregate intrinsic value of outstanding vested awards 2,171 2,857 7 - FINANCIAL INSTRUMENTS The terms of the interest swap agreements designated as cash flow hedges are as follows:

Effective Date Maturity Notional amount Settlement Fixed interest rate paid March 18, 2015 November 18, 2019 $40,000,000 Monthly 1.610%

August 18, 2015 August 20, 2018 $60,000,000 Monthly 1.197% The change in fair value of the derivatives used for calculating hedge effectiveness was $1.6 million and $0.3 million as of June 30, 2016 and 2015, respectively. The carrying amount and fair value was a liability, included in other liabilities in the consolidated balance sheet, amounting to $2.1 million and $0.5 million as of June 30, 2016 and December 31, 2015, respectively. The Company categorizes its interest rate swap as Level 2 within the fair value measurement hierarchy as the fair value is estimated using a valuation technique based on observable market data, including interest rates, as a listed market price is not available. As at June 30, 2016 and December 31, 2015, the fair value of long-term debt, excluding finance lease liabilities, mainly bearing interest at variable rates, is estimated using observable market interest rates of similar variable rate loans with similar risk and credit standing and approximates its carrying amount. 8 - COMMITMENTS The following table summarizes information related to commitments to purchase machinery and equipment:

June 30, December 31,2016 2015

$ $Commitments to purchase machinery and equipment 20,924 20,877 Effective May 1, 2016, the Company entered into a five-year electricity service contract for one of its manufacturing facilities under which the Company expects to reduce the overall cost of electricity consumed by the facility. In the event of early termination, the Company is required to pay for

16

unrecovered power supply costs incurred by the supplier which are estimated to be approximately $13 million as of June 30, 2016, and would decline monthly based on actual service billings to date. 9- POST REPORTING EVENTS Adjusting Events No adjusting events have occurred between the reporting date of these Financial Statements and the date of authorization. Non-Adjusting Events

On August 10, 2016, the Board of Directors amended the Company’s dividend policy to increase the annualized dividend from $0.52 to $0.56 per share. Accordingly, on August 10, 2016, the Company declared a quarterly cash dividend of $0.14 per common share payable on September 30, 2016 to shareholders of record at the close of business on September 15, 2016. The estimated amount of this dividend payment is $8.2 million based on 58,602,835 of the Company’s common shares issued and outstanding as of August 10, 2016.

The NCIB which was scheduled to expire on July 9, 2016, was renewed for a twelve-month period

starting July 14, 2016. Under the renewed NCIB, the Company may repurchase for cancellation up to 4,000,000 common shares. As of August 10, 2016, no shares have been repurchased under the renewed NCIB.

No other significant non-adjusting events have occurred between the reporting date of these Financial Statements and the date of authorization.

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