Winpak Reports Third Quarter Results

Transcription

1 NEWS RELEASE Winpak Reports Third Quarter Results Winnipeg, Manitoba, October 25, Winpak Ltd. (WPK) today reports consolidated results in US dollars for the third quarter of 2012, which ended on September 30, Quarter Ended Year-To-Date Ended (1) September 30 September 25 September 30 September (thousands of US dollars, except per share amounts) Revenue 165, , , ,547 Net income 17,319 14,635 50,573 46,228 Income tax expense 7,935 7,912 22,160 21,434 Net fi nance income (316) (100) (726) (257) Depreciation and amortization 6,577 6,745 19,706 20,037 EBITDA (2) 31,515 29,192 91,713 87,442 Net income attributable to equity holders of the Company 17,078 14,408 50,041 45,297 Net income attributable to non-controlling interests Net income 17,319 14,635 50,573 46,228 Basic and fully diluted earnings per share (cents) Winpak Ltd. manufactures and distributes high-quality packaging materials and related packaging machines. The Company s products are used primarily for the packaging of perishable foods, beverages and in health care applications. For further information: K.P. Kuchma, Vice President and CFO, (204) ; B.J. Berry, President and CEO, (204) The 2012 fi scal year comprises 53 weeks and the 2011 fi scal year comprised 52 weeks. Each quarter of 2012 and 2011 comprises 13 weeks with the exception of the fi rst quarter of 2012, which comprised 14 weeks. 2 EBITDA is not a recognized measure under International Financial Reporting Standards (IFRS). Management believes that in addition to net income, this measure provides useful supplemental information to investors including an indication of cash available for distribution prior to debt service, capital expenditures and income taxes. Investors should be cautioned, however, that this measure should not be construed as an alternative to net income, determined in accordance with IFRS, as an indicator of the Company s performance. The Company s method of calculating this measure may differ from other companies, and accordingly, the results may not be comparable. 1

2 Management s Discussion and Analysis (presented in US dollars) Forward-looking statements: Certain statements made in the following Management s Discussion and Analysis contain forward-looking statements including, but not limited to, statements concerning possible or assumed future results of operations of the Company. Forward-looking statements represent the Company s intentions, plans, expectations and beliefs, and are not guarantees of future performance. Such forward-looking statements represent Winpak s current views based on information as at the date of this report. They involve risks, uncertainties and assumptions and the Company s actual results could differ, which in some cases may be material, from those anticipated in these forward-looking statements. Unless otherwise required by applicable securities law, we disclaim any intention or obligation to publicly update or revise this information, whether as a result of new information, future events or otherwise. The Company cautions investors not to place undue reliance upon forward-looking statements. Financial Performance Net income attributable to common shareholders for the third quarter of 2012 was $17.1 million or 26 cents in earnings per share compared to $14.4 million or 22 cents per share in the corresponding quarter of 2011, an increase of 18.5 percent. An improvement in gross profi t margins added approximately 0.5 cents in earnings per share while a lower effective income tax rate bolstered earnings by 1.5 cents per share. A favorable foreign exchange impact contributed a further 2 cents in earnings per share in the quarter. For the nine months ended September 30, 2012, net income attributable to common shareholders equalled $50.0 million or 77 cents in earnings per share, eclipsing the prior year three-quarter result of $45.3 million or 70 cents in earnings per share by 10.5 percent. Higher sales volumes added 3 cents to earnings per share while improved manufacturing performance raised earnings per share by an additional 1 cent. However, higher operating expenses offset some of this improvement by lowering earnings per share by 1 cent. A lower effective income tax rate and a lesser amount attributable to non-controlling interests further added to earnings per share by 1.5 cents and 0.5 cents respectively. Finally, foreign exchange favorably impacted earnings per share by 2 cents. Revenue Revenue for the third quarter of 2012 was $165.4 million, a decline of $5.3 million or 3.1 percent over the comparable quarter in 2011, primarily a result of lower selling prices in response to reduced raw material costs. Volumes in total were up marginally from the prior year comparable quarter, increasing by 0.3 percent. A realignment of inventory levels by a major specialty beverage customer in the fi rst two months of the quarter resulted in shipment reductions of over 20 percent for that customer in the three-month period compared to the third quarter of 2011, and offset a general improvement in volume across many of the other product groups. Overall, demand in the third month of the quarter was particularly promising. Volumes in modifi ed atmosphere and specialty fi lm packaging advanced in the mid-single digit percentage range in the quarter versus the prior year corresponding period. Lidding volumes grew marginally while rigid container shipments retracted by a few percentage points. However, excluding specialty beverages, rigid container volumes rose in excess of 15 percent in the quarter due to strong performance in juice cups and custom containers. Also during the quarter, the Company concluded an agreement to divest its drink cup product line including equipment, inventory and customer lists to a Canadian competitor, representing approximately $7 million in revenue on an annualized basis. This divestiture is expected to be marginally accretive to earnings in the fourth quarter. As in the second quarter of this year, both packaging machinery and biaxially oriented nylon continued to experience weak demand, with double-digit percentage declines in revenue. Packaging machinery bookings, however, are much improved going into the fi nal quarter of the year. The greatest impact on revenue for the period in relation to the third quarter of 2011 was an overall decline in selling prices, in response to lower raw material costs, which reduced revenue by 2.9 percent. A weaker Canadian dollar further reduced revenue by 0.5 percent in the current quarter in relation to the corresponding prior year period. For the fi rst nine months of 2012, revenue grew to $496.9 million, an increase of $16.3 million or 3.4 percent in relation to the comparable period in This was due entirely to increased volumes, which expanded by 3.8 percent. Demand was strongest in modifi ed atmosphere packaging followed closely behind by lidding, specialty fi lms and rigid containers, which all advanced in the mid-single digit percentage range. Biaxially oriented nylon and packaging machinery were most impacted by the lackluster performance of the economy, recording volume declines in percentage terms in the mid single-digit and low double-digit range respectively from the prior year. The combination of selling prices and product mix was neutral to revenues year-to-date while a weaker Canadian dollar compared to the prior year had only a minor effect on revenue, resulting in a reduction of 0.4 percent. Gross profi t margins Gross profi t margins widened to 28.8 percent of revenue in the third quarter of 2012 from the 27.6 percent of revenue recorded in the same quarter of 2011, an increase of 1.2 percentage points. An improvement in manufacturing performance as a result of greater effi ciencies resulted in a contribution of 0.5 cents in earnings per share. For the fi rst three quarters of 2012, gross profi t margins surpassed the comparable prior year period at 29.0 percent versus 28.6 percent in This added 1 cent in additional earnings per share as higher average material costs for product sold in the fi rst nine months of 2012 were more than offset by enhanced production effi ciencies and lower waste levels. 2

3 For reference, the following presents the weighted indexed purchased cost of Winpak s eight primary raw materials in the reported quarter and each of the preceding eight quarters, where base year 2001 = 100. The index was rebalanced as of December 26, 2011 to refl ect the mix of the eight primary raw materials purchased in Quarter and Year 3/12 2/12 1/12 4/11 3/11 2/11 1/11 4/10 3/10 Purchase Price Index The purchase price index fell by 4.1 percent in the third quarter of 2012 in relation to the second quarter. Certain raw materials experienced declines while others remained steady. Likewise, the index retreated by 8.5 percent from a year prior with several materials rising in price while others decreased. Overall, the outlook for the fourth quarter is a relatively stable raw material pricing environment. Expenses and Other Operating expenses were in line with the levels recorded in the third quarter of 2011 while foreign exchange had a favorable impact on earnings per share of 2 cents. The strengthening Canadian dollar in the third quarter of 2012 resulted in foreign exchange gains on the translation of Canadian net monetary assets, accounting for the majority of the favorable foreign exchange impact. A lower overall income tax rate in the third quarter of 2012, in relation to the comparable period in 2011, resulted in an additional 1.5 cents in earnings per share. A 1.5 percentage point decrease in the 2012 federal corporate income tax rate in Canada, an upward adjustment to the year-to-date income tax rate in the third quarter of 2011, and a larger proportion of net income being earned in lower tax jurisdictions in 2012 all contributed to this favorable result. On a year-to-date basis, operating expenses progressed at a higher rate than the expansion in sales volumes over the prior year period, due to elevated freight costs, new hires in sales representation, and share-based incentive costs which rose in conjunction with the Company s stock price. This resulted in a reduction of approximately 1 cent in earnings per share. More than offsetting this decrease were the favorable foreign exchange gains, mainly on the translation of Canadian net monetary assets, which added 2 cents in earnings per share as well as a lower amount attributable to the non-controlling interests which augmented earnings per share by a further 0.5 cents. An additional 1.5 cents in earnings per share was a consequence of lower income tax rates in Capital Resources, Cash Flow and Liquidity The Company s cash and cash equivalents balance at the end of the third quarter of $120.3 million diminished by $2.4 million from the end of the previous quarter. Winpak continued to generate consistent cash fl ow from operating activities before changes in working capital amounting to $32.4 million in the three-month period, an improvement of $2.3 million from the third quarter of Cash was utilized to supplement working capital by $5.3 million, property, plant and equipment additions of $20.8 million, income tax payments of $5.3 million, dividends of $1.9 million, and other items of $1.5 million. For the nine months ended September 30, 2012, the cash and cash equivalents balance decreased by $6.6 million. Cash fl ow from operating activites before changes in working capital advanced to $93.5 million, surpassing the prior year corresponding period by $4.8 million. Additions to working capital utilized $17.3 million in cash, with inventory levels rising by $9.5 million since the start of the year, but down from the $14.7 million escalation seen in the fi rst half of Cash was also used for property, plant and equipment additions of $51.0 million, income tax payments of $20.6 million, dividends of $5.8 million, employee defi ned benefi t plan payments of $3.6 million and other items totalling $1.8 million. The Company remains debt-free and has unutilized operating lines of $38 million, with the ability to increase borrowing capacity further should the need arise. Summary of Quarterly Results Thousands of US dollars, except per share amounts (US cents) Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q Revenue 165, , , , , , , ,930 Net income attributable to equity holders of the Company 17,078 16,002 16,961 18,486 14,408 16,195 14,694 12,794 EPS

4 Looking Forward The Company is cautiously optimistic heading into the fourth quarter. Sales volumes rebounded in the last month of the third quarter and appear to be trending in the right direction. From a raw material pricing standpoint, volatility appears to be at its lowest level in quite a while with a stable outlook. The Company s capital expenditure program is forging ahead. Over $50 million has been invested year-to-date and approximately $25 to $30 million more is planned for the fi nal quarter of the year. This signifi cant commitment in technology will provide the foundation for continued growth and keep the Company at the forefront of innovation and new product development. Much of the capital being spent in 2012 will be commercialized in the fi rst half of 2013 with the associated revenue to begin fl owing shortly thereafter. However, one should note that as this new capacity becomes available, costs may temporarily increase as development expenses peak and new capacity is not yet fully utilized. Margins, however, are not expected to deviate from current levels by more than a few percentage points during that period. In the months ahead, the Company will also continue to seek out acquisition opportunities in its core competencies of food and health care packaging while remaining strongly committed to the capital investment plan. Future Changes to Accounting Standards As more fully described in Note 4 to the Condensed Consolidated Financial Statements, various new accounting standards have been issued which apply as follows: IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements, IFRS 12 Disclosure of Interests in Other Entities, IFRS 13 Fair Value Measurement, amended IAS 27 Separate Financial Statements, and amended IAS 28 Investments in Associates and Joint Ventures, effective for annual periods beginning January 1, 2013; amended IAS 32 Financial Instruments: Presentation, effective for annual periods beginning January 1, 2014; and IFRS 9 Financial Instruments, effective for annual periods beginning January 1, None of these standards is expected to have a signifi cant impact on the Company s consolidated fi nancial statements. The International Accounting Standards Board (IASB) issued an amendment to IAS 1 Financial Statement Presentation regarding the presentation of items of other comprehensive income. This amendment is effective for annual periods beginning July 1, 2012 and is not expected to have a signifi cant impact on the Company s consolidated fi nancial statements. The IASB also issued an amended standard effective for annual periods beginning January 1, 2013: IAS 19 Employee Benefi ts which is a comprehensive set of amendments dealing with the manner in which pensions and other employee benefi ts are recorded, classifi ed and disclosed in the fi nancial statements. The Company has not yet begun the process of assessing the impact that this standard will have on its consolidated fi nancial statements. In May 2012, the IASB also issued the Annual Improvements project, which contains amendments to IAS 1 Financial Statement Presentation, IAS 16 Property, Plant and Equipment, IAS 32 Financial Instruments: Presentation, and IAS 34 Interim Financial Reporting. These amendments result in accounting changes for presentation, recognition and disclosure purposes and are applicable for annual periods beginning on or after January 1, Management does not expect the amendments to have a signifi cant impact on the Company s consolidated fi nancial statements. Controls and Procedures Disclosure Controls Management is responsible for establishing and maintaining disclosure controls and procedures in order to provide reasonable assurance that material information relating to the Company is made known to them in a timely manner and that information required to be disclosed is reported within time periods prescribed by applicable securities legislation. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based on management s evaluation of the design of the Company s disclosure controls and procedures, the Company s Chief Executive Offi cer and Chief Financial Offi cer have concluded that these controls and procedures are designed as of September 30, 2012 to provide reasonable assurance that the information being disclosed is recorded, summarized and reported as required. Internal Controls Over Financial Reporting Management is responsible for establishing and maintaining adequate internal controls over fi nancial reporting to provide reasonable assurance regarding the reliability of fi nancial reporting and the preparation of fi nancial statements for external purposes in accordance with IFRS. Internal control systems, no matter how well designed, have inherent limitations and therefore can only provide reasonable assurance as to the effectiveness of internal controls over fi nancial reporting, including the possibility of human error and the circumvention or overriding of the controls and procedures. Management used the Internal Control Integrated Framework published by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) as the control framework in designing its internal controls over fi nancial reporting. Based on management s design of the Company s internal controls over fi nancial reporting, the Company s Chief Executive Offi cer and Chief Financial Offi cer have concluded that these controls and procedures are designed as of September 30, 2012 to provide reasonable assurance 4

5 that the fi nancial information being reported is materially accurate. During the third quarter ended September 30, 2012, there have been no changes to the design of the Company s internal controls over fi nancial reporting that have materially affected, or are reasonably likely to materially affect, its internal controls over fi nancial reporting. 5

6 Winpak Ltd. Interim Condensed Consolidated Financial Statements Third Quarter Ended: September 30, 2012 These interim condensed consolidated fi nancial statements have not been audited or reviewed by the Company s independent external auditors, PricewaterhouseCoopers LLP. 6

7 Winpak Ltd. Condensed Consolidated Balance Sheets (thousands of US dollars) (unaudited) September 30 December 25 Note Assets Current assets: Cash and cash equivalents 120, ,879 Trade and other receivables 12 87,295 83,935 Income taxes receivable 1, Inventories 5 87,525 78,018 Prepaid expenses 3,393 2,769 Derivative fi nancial instruments , ,876 Non-current assets: Property, plant and equipment 9 288, ,938 Intangible assets 9 14,609 15,076 Deferred tax assets 3,365 3, , ,743 Total assets 606, ,619 Equity and Liabilities Current liabilities: Trade payables and other liabilities 55,575 59,294 Provisions Income taxes payable 3,853 4,988 Derivative fi nancial instruments ,981 65,710 Non-current liabilities: Employee benefi t plan liabilities 11,291 12,504 Deferred income 9,133 10,243 Provisions 6 7,604 8,423 Deferred tax liabilities 19,760 17,116 47,788 48,286 Total liabilities 107, ,996 Equity: Share capital 29,195 29,195 Reserves 361 (426) Retained earnings 453, ,008 Total equity attributable to equity holders of the Company 482, ,777 Non-controlling interests 15,815 15,846 Total equity 498, ,623 Total equity and liabilities 606, ,619 See accompanying notes to condensed consolidated fi nancial statements. 7

8 Winpak Ltd. Condensed Consolidated Statements of Income (thousands of US dollars, except per share amounts) (unaudited) Quarter Ended Year-To-Date Ended (Note 2) September 30 September 25 September 30 September 25 Note Revenue 165, , , ,547 Cost of sales (117,837) (123,503) (352,930) (343,016) Gross profi t 47,562 47, , ,531 Sales, marketing and distribution expenses (13,798) (13,574) (42,141) (39,731) General and administrative expenses (6,477) (6,130) (21,002) (19,631) Research and technical expenses (3,332) (3,346) (10,198) (9,600) Pre-production expenses (30) (38) (537) (240) Other income (expenses) 7 1,013 (1,632) 1,963 (924) Income from operations 24,938 22,447 72,007 67,405 Finance income 1,244 1,054 3,513 3,111 Finance expense (928) (954) (2,787) (2,854) Income before income taxes 25,254 22,547 72,733 67,662 Income tax expense 8 (7,935) (7,912) (22,160) (21,434) Net income for the period 17,319 14,635 50,573 46,228 Attributable to: Equity holders of the Company 17,078 14,408 50,041 45,297 Non-controlling interests ,319 14,635 50,573 46,228 Basic and fully diluted earnings per share - cents Condensed Consolidated Statements of Comprehensive Income (thousands of US dollars) (unaudited) Quarter Ended Year-To-Date Ended (Note 2) September 30 September 25 September 30 September 25 Note Net income for the period 17,319 14,635 50,573 46,228 Cash fl ow hedge gains (losses) recognized 589 (424) 611 (42) Cash fl ow hedge gains transferred to the statement of income 7 (138) (456) (146) (1,158) Cash fl ow hedge losses transferred to property, plant and equipment Income tax relating to applicable components of other comprehensive income (91) 249 (245) 350 Other comprehensive income (loss) for the period - net of income tax 985 (631) 787 (850) Comprehensive income for the period 18,304 14,004 51,360 45,378 Attributable to: Equity holders of the Company 18,063 13,777 50,828 44,447 Non-controlling interests ,304 14,004 51,360 45,378 See accompanying notes to condensed consolidated fi nancial statements. 8

9 Winpak Ltd. Condensed Consolidated Statements of Changes in Equity (thousands of US dollars) (unaudited) Attributable to equity holders of the Company Non- Share Retained controlling Note capital Reserves earnings Total interests Total equity Balance at December 27, , , ,764 16, ,297 Comprehensive (loss) income for the period Cash fl ow hedge losses, net of tax - (19) - (19) - (19) Cash fl ow hedge gains transferred to the statement of income, net of tax - (831) - (831) - (831) Other comprehensive loss - (850) - (850) - (850) Net income for the period ,297 45, ,228 Comprehensive (loss) income for the period - (850) 45,297 44, ,378 Preferred share redemption (980) (980) Dividends (5,856) (5,856) (833) (6,689) Balance at September 25, ,195 (409) 400, ,355 15, ,006 Balance at December 26, ,195 (426) 409, ,777 15, ,623 Comprehensive income for the period Cash fl ow hedge gains, net of tax Cash fl ow hedge gains transferred to the statement of income, net of tax - (114) - (114) - (114) Cash fl ow hedge losses transferred to property, plant and equipment Other comprehensive income Net income for the period ,041 50, ,573 Comprehensive income for the period ,041 50, ,360 Dividends (5,853) (5,853) (563) (6,416) Balance at September 30, , , ,752 15, ,567 See accompanying notes to condensed consolidated fi nancial statements. 9

10 Winpak Ltd. Condensed Consolidated Statements of Cash Flows (thousands of US dollars) (unaudited) Quarter Ended Year-To-Date Ended (Note 2) September 30 September 25 September 30 September Cash provided by (used in): Operating activities: Net income for the period 17,319 14,635 50,573 46,228 Items not involving cash: Depreciation 6,559 6,543 19,464 19,422 Amortization - deferred income (303) (309) (911) (920) Amortization - intangible assets ,153 1,535 Employee defi ned benefi t plan expenses ,796 2,433 Net fi nance income (316) (100) (726) (257) Income tax expense 7,935 7,912 22,160 21,434 Other (964) (1,080) Cash fl ow from operating activities before the following 32,356 30,045 93,545 88,795 Change in working capital: Trade and other receivables (9,792) (3,866) (3,360) (6,847) Inventories 5,239 4,185 (9,507) (12,002) Prepaid expenses 504 (160) (624) (1,524) Trade payables and other liabilities (1,246) (2,435) (3,802) 2,855 Provisions (107) 850 (999) 850 Employee defi ned benefi t plan payments (1,388) (483) (3,633) (2,995) Income tax paid (5,292) (4,422) (20,580) (16,455) Interest received Interest paid (28) (8) (30) (17) Net cash from operating activities 20,364 23,792 51,377 52,865 Investing activities: Acquisition of property, plant and equipment - net (20,813) (11,920) (50,963) (27,817) Acquisition of intangible assets (2) (55) (687) (286) (20,815) (11,975) (51,650) (28,103) Financing activities: Dividends paid (1,915) (1,976) (5,780) (5,895) Change in non-controlling interests in subsidiary - - (563) (1,813) (1,915) (1,976) (6,343) (7,708) Change in cash and cash equivalents (2,366) 9,841 (6,616) 17,054 Cash and cash equivalents, beginning of period 122,629 97, ,879 90,488 Cash and cash equivalents, end of period 120, , , ,542 See accompanying notes to condensed consolidated fi nancial statements. 10

11 Notes to Condensed Consolidated Financial Statements For the periods ended September 30, 2012 and September 25, 2011 (thousands of US dollars, unless otherwise indicated) (Unaudited) 1. General Winpak Ltd. is incorporated under the Canada Business Corporations Act. The Company manufactures and distributes high-quality packaging materials and related packaging machines. The Company s products are used primarily for the packaging of perishable foods, beverages and in health care applications. The address of the Company s registered offi ce is 100 Saulteaux Crescent, Winnipeg, Manitoba, Canada R3J 3T3. 2. Basis of Presentation The unaudited interim condensed consolidated fi nancial statements were prepared in accordance with International Financial Reporting Standards (IFRS), using the same accounting policies as those used in the Company s consolidated fi nancial statements for the year ended December 25, 2011, except as disclosed in note 3. The unaudited interim condensed consolidated fi nancial statements are in compliance with IAS 34. Accordingly, certain information and note disclosure normally included in annual fi nancial statements prepared in accordance with IFRS as issued by the International Accounting Standards Board (IASB) have been omitted or condensed. These unaudited interim condensed consolidated fi nancial statements should be read in conjunction with the Company s consolidated fi nancial statements for the year ended December 25, 2011, which are included in the Company s 2011 Annual Report. The fi scal year of the Company ends on the last Sunday of the calendar year. As a result, the Company s fi scal year is usually 52 weeks in duration, but includes a 53 rd week every fi ve to six years. The 2012 fi scal year comprises 53 weeks and the 2011 fi scal year comprised 52 weeks. Each quarter of 2012 and 2011 comprises 13 weeks with the exception of the fi rst quarter of 2012, which comprised 14 weeks. The unaudited interim condensed consolidated fi nancial statements were approved by the Audit Committee on behalf of the Board of Directors on October 25, Accounting Policy Changes Effective December 26, 2011, the Company adopted the amendments to IFRS 7 Financial Instruments: Disclosures. The amendments relate to required disclosures for transfers of fi nancial assets to help users of fi nancial statements evaluate the risk exposures relating to such transfers and the effect of those risks on an entity s fi nancial position. The amendments had no impact on the Company s unaudited interim condensed consolidated fi nancial statements. 4. Future Accounting Standards In May 2011, the IASB issued the following standards: IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements, IFRS 12 Disclosure of Interests in Other Entities, IFRS 13 Fair Value Measurement and amended IAS 27 Separate Financial Statements and IAS 28 Investments in Associates and Joint Ventures. Each of the new standards is effective for annual periods beginning on or after January 1, 2013 with early adoption permitted. The following is a brief summary of the new standards: (a) Consolidation: IFRS 10 Consolidated Financial Statements requires an entity to consolidate an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Under existing IFRS, consolidation is required when an entity has the power to govern the fi nancial and operating policies of an entity so as to obtain benefi ts from its activities. IFRS 10 replaces SIC 12 Consolidation - Special Purpose Entities and parts of IAS 27 Consolidated and Separate Financial Statements. (b) Joint Arrangements: IFRS 11 Joint Arrangements requires a venturer to classify its interest in a joint arrangement as a joint venture or joint operations. Joint ventures will be accounted for using the equity method of accounting whereas for a joint operation the venturer will recognize its share of the assets, liabilities, revenue and expenses of the joint operation. Under existing IFRS, entities have the choice to proportionately consolidate or equity account for interests in joint ventures. IFRS 11 supersedes IAS 31 Interests in Joint Ventures and SIC 13 Jointly Controlled Entities - Non-monetary Contributions by Venturers. (c) Disclosure of Interests in Other Entities: IFRS 12 Disclosure of Interests in Other Entities establishes disclosure requirements for interests in other entities, such as joint arrangements, associates, special purpose vehicles and off balance sheet vehicles. The standard carries forward existing disclosures and also introduces signifi cant additional disclosure requirements that address the nature of, and risks associated with, an entity s interests in other entities. (d) Fair Value Measurement: IFRS 13 Fair Value Measurement is a comprehensive standard for fair value measurement and disclosure requirements for use across all IFRS standards. The new standard clarifi es that fair value is the price that would be received to sell an asset, or paid to transfer a liability in an orderly transaction between market participants, at the measurement date. It also establishes disclosures about fair value measurement. Under existing IFRS, guidance on measuring and disclosing fair value is dispersed among the specifi c standards requiring fair value measurements and in many cases does not refl ect a clear measurement basis or consistent disclosures. 11

12 Notes to Condensed Consolidated Financial Statements For the periods ended September 30, 2012 and September 25, 2011 (thousands of US dollars, unless otherwise indicated) (Unaudited) (e) Amendments to Other Standards: There have been amendments to existing standards, including IAS 27 Separate Financial Statements and IAS 28 Investments in Associates and Joint Ventures. IAS 27 addresses accounting for subsidiaries, jointly controlled entities and associates in non-consolidated fi nancial statements. IAS 28 has been amended to include joint ventures in its scope and to address the changes in IFRS as explained above. (f) Financial Instruments: IFRS 9 Financial Instruments was issued in November 2009 as the fi rst step in the project to replace IAS 39. IFRS 9 retains but simplifi es the mixed measurement model and establishes two primary measurement categories for fi nancial assets: amortized cost and fair value. The basis of classifi cation depends on an entity s business model and the contractual cash fl ow of the fi nancial asset. Classifi cation is made at the time the fi nancial asset is initially recognized, namely when the entity becomes a party to the contractual provisions of the instrument. IFRS 9 is effective for annual periods beginning on or after January 1, While the Company is currently assessing the impact of the aforementioned standards, management does not expect the standards to have a signifi cant impact on the Company s consolidated fi nancial statements. In addition, the Company does not anticipate early adopting these standards at this time. In June 2011, the IASB amended IAS 1 Financial Statement Presentation and IAS 19 Employee Benefi ts. (g) Financial Statement Presentation: The amendments to IAS 1 Financial Statement Presentation requires entities to separate items presented in other comprehensive income into two groups, based on whether or not they may be recycled to the statement of income in the future. Items that will not be recycled such as re-measurements resulting from amendments to IAS 19 will be presented separately from items that may be recycled in the future, such as deferred gains and losses on cash fl ow hedges. Entities that presented other comprehensive income items before tax will be required to show the amount of tax related to the two groups separately. The amendment is effective for annual periods beginning on or after July 1, Early adoption is permitted and full retrospective application is required. Beginning in 2013, the Company will be separating the items disclosed in other comprehensive income. (h) Employee Benefits: The amendments to IAS 19 Employee Benefi ts makes signifi cant changes to the recognition and measurement of defi ned benefi t pension expense and termination benefi ts, and to the disclosure for all employee benefi ts. Actuarial gains and losses are renamed re-measurements and will be recognized immediately in other comprehensive income. Re-measurements recognized in other comprehensive income will not be recycled through the statement of income in subsequent periods. The amendments also accelerate the recognition of past service costs whereby they are recognized in the period of a plan amendment. The annual expense for a defi ned benefi t plan will be computed based on the application of the discount rate to the net defi ned benefi t plan asset or liability. The amendments to IAS 19 will also impact the presentation of pension expense as benefi t costs will be split between (i) the cost of benefi ts accrued in the current period (service cost) and benefi t changes (past service cost, settlements and curtailments); and (ii) fi nance expense or income. The amendment is effective for periods beginning on or after January 1, Early adoption is permitted. The amendment should be applied retrospectively, except for changes to the carrying value of assets that include benefi t costs in the carrying amount. The Company has not yet begun the process of assessing what impact the amended standard may have on its fi nancial statements. The amended standard will be adopted in (i) Financial Instruments - Presentation: In December 2011, the IASB issued an amendment to the application guidance in IAS 32 Financial Instruments: Presentation to clarify some of the requirements for offsetting fi nancial assets and fi nancial liabilities on the statement of fi nancial position. As a result, the IASB has also published an amendment to IFRS 7 Financial Instruments: Disclosures. The amendments do not change the current offsetting model in IAS 32 but instead clarifi es that the right of offset must not be contingent on a future event. It also must be legally enforceable for all counterparties in the normal course of business, as well as in the event of default, insolvency or bankruptcy. The amendments also clarify that gross settlement mechanisms with features that both (i) eliminate credit and liquidity risk and (ii) process receivables and payables in a single settlement process, are effectively equivalent to net settlement. The offsetting disclosures in IFRS 7 are to be retrospectively applied, with an effective date for annual periods beginning on or after January 1, However, the clarifi cations to the application guidance in IAS 32 are to be retrospectively applied, with an effective date for annual periods beginning on or after January 1, While the Company is currently assessing the impact of this new standard, management does not expect the standard to have a signifi cant impact on the Company s consolidated fi nancial statements. The new standard will be adopted in In May 2012, the IASB issued the Annual Improvements project, which contains amendments that result in accounting changes for presentation, recognition and disclosure purposes. The amendments are applicable for annual periods beginning on or after January 1, Early adoption is permitted. The following is a brief summary of the amended standards: (j) Financial Statement Presentation: IAS 1 Financial Statement Presentation was amended to clarify that no additional note disclosure is required when an entity provides a third balance sheet in accordance with IFRS 8 Accounting Policies. However, if an entity provides a third balance sheet voluntarily it should provide supporting note disclosures. 12

13 Notes to Condensed Consolidated Financial Statements For the periods ended September 30, 2012 and September 25, 2011 (thousands of US dollars, unless otherwise indicated) (Unaudited) (k) Property, Plant and Equipment: IAS 16 Property, Plant and Equipment was amended to clarify that spare parts and servicing equipment are classifi ed as property, plant and equipment rather than inventory if they meet the defi nition of property, plant and equipment. (l) Financial Instruments - Presentation: IAS 32 Financial Instruments: Presentation was amended to clarify the treatment of income tax relating to distributions and transaction costs. Income tax related to distributions is recognized in the statement of income and income tax related to the cost of equity transactions is recognized in equity. (m) Interim Financial Reporting: IAS 34 Interim Financial Reporting was amended to clarify the disclosure requirements for segment assets and liabilities in interim fi nancial statements. A measure of total assets and liabilities is required for an operating segment in interim fi nancial statements if such information is regularly provided to the chief operating decision maker and there has been a material change in those measures since the last annual fi nancial statements. While the Company is currently assessing the impact of the aforementioned amended standards, management does not expect the amendments to have a signifi cant impact on the Company s consolidated fi nancial statements. In addition, the Company does not anticipate early adopting these revisions at this time. 5. Inventories September 30 December Raw materials 26,285 22,584 Work-in-process 13,982 13,753 Finished goods 42,536 37,367 Spare parts 4,722 4,314 87,525 78,018 During the third quarter of 2012, the Company recorded, within cost of sales, inventory write-downs for slow-moving and obsolete inventory of $1,150 ( $1,551) and reversals of previously written-down items of $184 ( $145). On a year-to-date basis, the Company recorded, within cost of sales, inventory write-downs for slow-moving and obsolete inventory of $4,814 ( $4,730) and reversals of previously written-down items of $2,865 ( $1,636). 6. Provisions Multiemployer Asset Withdrawal Retirement Liability Obligations Total Balance at December 26, 2011 Current liabilities Non-current liabilities 7, ,423 8, , Activity Payments (107) - (107) Finance expense - unwinding of discount Reversals (1,102) - (1,102) Change in discount rates Balance at September 30, , ,132 At September 30, 2012 Current liabilities Non-current liabilities 6, ,604 7, ,132 13

14 Notes to Condensed Consolidated Financial Statements For the periods ended September 30, 2012 and September 25, 2011 (thousands of US dollars, unless otherwise indicated) (Unaudited) The Company participated in one multiemployer defi ned benefi t pension plan providing benefi ts to certain unionized employees in the US. The administration of the plan and investment of its assets are controlled by a board of independent trustees. The trustees communicated to both the Company and the Union in 2010 that this plan was in a critical status position from a funding perspective. During the fourth quarter of 2010, the Company analyzed its options with the assistance of external consultants. Management determined that the only economically feasible alternative was to withdraw from the plan and therefore, in the fi rst quarter of 2011, reached an agreement with the Union to proceed. In addition, the Company fi led the necessary paperwork with the plan trustees to withdraw from the plan. Pursuant to US federal legislation, an employer who withdraws from a plan with unfunded vested benefi ts is responsible for a share of that underfunding. As a consequence of withdrawing from the plan, the Company is required to make monthly payments at a constant dollar value of $36, or $427 on an annual basis, over a twenty year period. The multiemployer withdrawal liability is measured by discounting the expected future cash fl ows at pre-income tax rates that refl ect the current market assessments of the time value of money and the risks specifi c to the obligation. A one-percentage point increase in the discount rates would have decreased the September 30, 2012 liability by $594 and increased income before income taxes by $ Other Income (Expenses) Quarter Ended Year-To-Date Ended September 30 September 25 September 30 September 25 Amounts shown on a net basis Foreign exchange gain (loss) 875 (1,238) 925 (1,232) Cash fl ow hedge gains transferred from other comprehensive income ,158 Multiemployer defi ned benefi t pension plan withdrawal liability - (850) 892 (850) 1,013 (1,632) 1,963 (924) 8. Income Tax Expense Excluding adjustments to the income tax provision for prior periods and to the income tax rates applied to deferred tax balances, the weighted average of the annual income tax rates used for the quarter ended September 30, 2012 was 31.4 percent ( percent) and on a year-to-date basis was 31.5 percent ( percent). 9. Property, Plant and Equipment and Intangible Assets At September 30, 2012, the Company has commitments to purchase property, plant and equipment of $16,638 (September 25, $22,588). No impairment losses or impairment reversals were recognized during the year-to-date period ended September 30, 2012 or September 25, Dividends During the third quarter of 2012, dividends in Canadian dollars of 3 cents per common share were declared ( cents) and on a year-to-date basis, 9 cents per common share were declared ( cents). 11. Earnings Per Share Quarter Ended Year-To-Date Ended September 30 September 25 September 30 September Net income attributable to equity holders of the Company 17,078 14,408 50,041 45,297 Weighted average shares outstanding (000 s) 65,000 65,000 65,000 65,000 Basic and fully diluted earnings per share - cents Financial Risk Management In the normal course of business, the Company has risk exposures consisting primarily of foreign exchange risk, interest rate risk, commodity price risk, liquidity risk, and credit risk. The Company manages its risks and risk exposures through a combination of derivative fi nancial instruments, insurance, a system of internal and disclosure controls and sound business practices. The Company does not purchase any derivative fi nancial instruments for speculative purposes. Financial risk management is primarily the responsibility of the Company s corporate fi nance function. Signifi cant risks are regularly monitored and actions are taken, when appropriate, according to the Company s approved policies, established for that purpose. In addition, as required, these risks are reviewed with the Company s Board of Directors. 14

15 Notes to Condensed Consolidated Financial Statements For the periods ended September 30, 2012 and September 25, 2011 (thousands of US dollars, unless otherwise indicated) (Unaudited) Foreign Exchange Risk Translation differences arise when foreign currency monetary assets and liabilities are translated at foreign exchange rates that change over time. These foreign exchange gains and losses are recorded in other income (expenses). As a result of the Company s CDN dollar net asset monetary position as at September 30, 2012, a one-cent change in the period-end foreign exchange rate from to (CDN to US dollars) would have decreased net income by $120 for the third quarter of Conversely, a one-cent change in the period-end foreign exchange rate from to (CDN to US dollars) would have increased net income by $120 for the third quarter of The Company s Foreign Exchange Policy requires that between 50 and 80 percent of the Company s net requirement of CDN dollars for the ensuing 9 to 15 months will be hedged at all times with a combination of cash and cash equivalents and forward or zero-cost option foreign currency contracts. The Company may also enter into forward foreign currency contracts when equipment purchases will be settled in other foreign currencies. Transactions are only conducted with certain approved Schedule I Canadian fi nancial institutions. All foreign currency contracts are designated as cash fl ow hedges. Certain foreign currency contracts matured during the third quarter of 2012 and the Company realized pre-tax foreign exchange losses of $487 (year-todate - realized pre-tax foreign exchange losses of $421). Of these foreign exchange differences, gains of $138 were recorded in other income (expenses) (year-to-date gains - $146) and losses of $625 were recorded in property, plant and equipment (year-to-date losses - $567). As at September 30, 2012, the Company had US to CDN dollar foreign currency forward contracts outstanding with a notional amount of US $16.0 million at an average exchange rate of maturing between October 2012 and April 2013 and US dollar to Euro foreign currency forward contracts outstanding with a notional amount of US $1.5 million at an average rate of (US dollars to Euros) maturing between October 2012 and January The fair value of these fi nancial instruments was $438 US and the corresponding unrealized gain has been recorded in other comprehensive income. Interest Rate Risk The Company s interest rate risk arises from interest rate fl uctuations on the fi nance income that it earns on its cash invested in money market accounts and short-term deposits. The Company developed and implemented an investment policy, which was approved by the Company s Board of Directors, with the primary objective to preserve capital, minimize risk and provide liquidity. Regarding the September 30, 2012 cash and cash equivalents balance of $120.3 million, a 1.0 percent increase/decrease in interest rate fl uctuations would increase/decrease income before income taxes by $1,203 annually. Commodity Price Risk The Company s manufacturing costs are affected by the price of raw materials, namely petroleum-based and natural gas-based plastic resins and aluminum. In order to manage its risk, the Company has entered into selling price-indexing programs with certain customers. Changes in raw material prices for these customers are refl ected in selling price adjustments but there is a slight time lag. For the year-to-date period ended September 30, 2012, 66 percent of revenue was to customers with selling price-indexing programs. For all other customers, the Company s preferred practice is to match raw material cost changes with selling price adjustments, albeit with a slight time lag. This matching is not always possible, as customers react to selling price pressures related to raw material cost fl uctuations according to conditions pertaining to their markets. Liquidity Risk Liquidity risk is the risk that the Company would not be able to meet its fi nancial obligations as they come due. Management believes that the liquidity risk is low due to the strong fi nancial condition of the Company. This risk assessment is based on the following: (a) cash and cash equivalents amounts of $120.3 million, (b) no outstanding bank loans, (c) unused credit facilities comprised of unsecured operating lines of $38 million, (d) the ability to obtain term-loan fi nancing to fund an acquisition, if needed, (e) an informal investment grade credit rating, and (f) the Company s ability to generate positive cash fl ows from ongoing operations. Management believes that the Company s cash fl ows are more than suffi cient to cover its operating costs, working capital requirements, capital expenditures and dividend payments in The Company s trade payables and other liabilities and derivative fi nancial instrument liabilities are virtually all due within twelve months. Credit Risk The Company is exposed to credit risk from its cash and cash equivalents held with banks and fi nancial institutions, derivative fi nancial instruments (foreign currency forward contracts), as well as credit exposure to customers, including outstanding trade and other receivable balances. The following table details the maximum exposure to the Company s counterparty credit risk which represents the carrying value of the fi nancial asset: September 30 December Cash and cash equivalents 120, ,879 Trade and other receivables 87,295 83,935 Foreign currency forward contracts , ,056 15