Winpak Ltd — Interim / Quarterly Report 2019

Mar 3, 2020

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Winpak Ltd. Interim Condensed Consolidated Financial Statements Fourth Quarter Ended: December 29, 2019

These interim condensed consolidated financial statements have not been audited or reviewed by the Company’s independent external auditors, KPMG LLP.

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Winpak Ltd.

Condensed Consolidated Balance Sheets

(thousands of US dollars) (unaudited)

Note	December 29 2019	December 30 2018*
Assets Current assets: Cash and cash equivalents Trade and other receivables 14 Income taxes receivable Inventories 8 Prepaid expenses Derivative fnancial instruments Non-current assets: Property, plant and equipment 9 Intangible assets Employee beneft plan assets Deferred tax assets Total assets Equity and Liabilities Current liabilities: Trade payables and other liabilities Contract liabilities Provisions Income taxes payable Derivative fnancial instruments Non-current liabilities: Employee beneft plan liabilities Deferred income Provisions and other long-term liabilities Deferred tax liabilities Total liabilities Equity: Share capital Reserves Retained earnings Total equity attributable to equity holders of the Company Non-controlling interests Total equity Total equity and liabilities	397,159 141,855 1,253 130,467 2,715 527 673,976 489,267 37,326 11,131 688 538,412 1,212,388 64,134 3,715 149 3,529 8 71,535 11,411 14,237 4,839 44,604 75,091 146,626 29,195 380 1,005,202 1,034,777 30,985 1,065,762 1,212,388	344,322 131,851 1,294 132,318 2,761 -
		612,546 453,867 14,311 7,507 707
		476,392
		1,088,938
		63,687 3,031 - 3,753 2,697
		73,168 11,108 14,786 660 41,313
		67,867
		141,035
		29,195 (2,264) 893,279
		920,210 27,693
		947,903
		1,088,938

*The Company has initially applied IFRS 16 “Leases” at December 31, 2018. Under the transition method chosen by the Company, comparative information has not been restated. See note 3.

See accompanying notes to condensed consolidated financial statements.

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Winpak Ltd.

Condensed Consolidated Statements of Income

(thousands of US dollars, except per share amounts) (unaudited)

Note	Quarter Ended	Quarter Ended	Year Ended	Year Ended
	December 29 2019	December 30 2018*	December 29 2019	December 30 2018*
Revenue 6 Cost of sales Gross proft Sales, marketing and distribution expenses General and administrative expenses Research and technical expenses Pre-production expenses Other income (expenses) 7 Income from operations Finance income Finance expense Income before income taxes Income tax expense Net income for the period Attributable to: Equity holders of the Company Non-controlling interests Basic and diluted earnings per share - cents 12 Condensed Consolidated Statements of Comprehensive Income (thousands of US dollars) (unaudited) Note	217,456 (151,369)	222,138 (154,181)	873,843 (600,252)	889,641 (619,582)
	66,087 (16,844) (8,409) (4,219) (628) 368	67,957 (17,421) (8,377) (4,315) - (1,295)	273,591 (67,693) (33,069) (16,900) (975) 20	270,059 (69,533) (31,845) (16,640) (115) (1,840)
	36,355 1,949 (953)	36,549 1,737 (986)	154,974 8,515 (3,714)	150,086 5,276 (3,833)
	37,351 (9,830)	37,300 (10,059)	159,775 (41,711)	151,529 (39,952)
	27,521	27,241	118,064	111,577
	26,679 842	26,683 558	114,772 3,292	108,921 2,656
	27,521	27,241	118,064	111,577
	41	41	177	168
	December 29 2019	December 30 2018*	December 29 2019	December 30 2018*
Net income for the period Items that will not be reclassifed to the statements of income: Cash fow hedge (losses) gains recognized Cash fow hedge losses transferred to property, plant and equipment Employee beneft plan remeasurements Income tax effect Items that are or may be reclassifed subsequently to the statements of income: Cash fow hedge gains (losses) recognized Cash fow hedge losses transferred to the statements of income 7 Income tax effect Other comprehensive income (loss) for the period - net of income tax Comprehensive income for the period Attributable to: Equity holders of the Company Non-controlling interests	27,521	27,241	118,064	111,577
	(10) 24 4,174 (1,112)	(1,327) 227 2,269 (613)	389 690 4,174 (1,112)	(1,260) 47 2,269 (613)
	3,076	556	4,141	443
	392 56 (120)	(1,854) 269 424	1,187 951 (573)	(2,580) 331 602
	328	(1,161)	1,565	(1,647)
	3,404	(605)	5,706	(1,204)
	30,925	26,636	123,770	110,373
	30,083 842	26,078 558	120,478 3,292	107,717 2,656
	30,925	26,636	123,770	110,373

*The Company has initially applied IFRS 16 “Leases” at December 31, 2018. Under the transition method chosen by the Company, comparative information has not been restated. See note 3.

See accompanying notes to condensed consolidated financial statements.

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Winpak Ltd.

Condensed Consolidated Statements of Changes in Equity

(thousands of US dollars) (unaudited)

Note	Attributable to equityholders of the Company Non- Share Retained controlling capital Reserves earnings Total interests Total equity
Balance at January 1, 2018 Comprehensive (loss) income for the year Cash fow hedge losses, net of tax Cash fow hedge losses transferred to the statements of income, net of tax Cash fow hedge losses transferred to property, plant and equipment Employee beneft plan remeasurements, net of tax Other comprehensive (loss) income Net income for the year Comprehensive (loss) income for the year Dividends 11 Balance at December 30, 2018**	29,195 596 788,636 818,427 25,037 843,464
	- (3,149) - (3,149) - (3,149) - 242 - 242 - 242 - 47 - 47 - 47 - - 1,656 1,656 - 1,656
	- (2,860) 1,656 (1,204) - (1,204) - - 108,921 108,921 2,656 111,577
	- (2,860) 110,577 107,717 2,656 110,373
	- - (5,934) (5,934) - (5,934)
	29,195 (2,264) 893,279 920,210 27,693 947,903
Balance at December 31, 2018 Comprehensive income for the year Cash fow hedge gains, net of tax Cash fow hedge losses transferred to the statements of income, net of tax Cash fow hedge losses transferred to property, plant and equipment Employee beneft plan remeasurements, net of tax Other comprehensive income Net income for the year Comprehensive income for the year Dividends 11 Balance at December 29, 2019	29,195 (2,264) 893,279 920,210 27,693 947,903
	- 1,258 - 1,258 - 1,258 - 696 - 696 - 696 - 690 - 690 - 690 - - 3,062 3,062 - 3,062
	- 2,644 3,062 5,706 - 5,706 - - 114,772 114,772 3,292 118,064
	- 2,644 117,834 120,478 3,292 123,770
	- - (5,911) (5,911) - (5,911)
	29,195 380 1,005,202 1,034,777 30,985 1,065,762

*The Company has initially applied IFRS 16 “Leases” at December 31, 2018. Under the transition method chosen by the Company, comparative information has not been restated. See note 3.

See accompanying notes to condensed consolidated financial statements.

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Winpak Ltd.

Condensed Consolidated Statements of Cash Flows

(thousands of US dollars) (unaudited)

Note	Quarter Ended	Quarter Ended	Year Ended	Year Ended
	December 29 2019	December 30 2018*	December 29 2019	December 30 2018*
Cash provided by (used in): Operating activities: Net income for the period Items not involving cash: Depreciation Amortization - deferred income Amortization - intangible assets Employee defned beneft plan expenses Net fnance income Income tax expense Other Cash fow from operating activities before the following Change in working capital: Trade and other receivables Inventories Prepaid expenses Trade payables and other liabilities Contract liabilities Employee defned beneft plan contributions Income tax paid Interest received Interest paid Net cash from operating activities Investing activities: Acquisition of property, plant and equipment - net Acquisition of intangible assets Business acquisition 4 Financing activities: Payment of lease liabilities Dividends paid 11 Change in cash and cash equivalents Cash and cash equivalents, beginning of period Cash and cash equivalents, end of period	27,521 12,590 (381) 431 941 (996) 9,830 (196)	27,241 10,476 (401) 119 806 (751) 10,059 (47)	118,064 44,310 (1,517) 777 3,490 (4,801) 41,711 (2,586)	111,577 41,143 (1,586) 511 3,650 (1,443) 39,952 (2,383)
	49,740 (2,598) 802 707 (2,784) 2,187 (323) (8,214) 1,894 (810)	47,502 530 (1,498) 313 (2,155) 129 (111) (6,941) 1,648 (886)	199,448 (6,002) 2,960 96 (1,960) 684 (2,530) (37,754) 8,339 (3,250)	191,421 (14,896) (15,598) (441) 189 3,031 (2,056) (33,248) 5,100 (3,479)
	40,601	38,531	160,031	130,023
	(14,282) (19) (42,726)	(16,005) (225) -	(58,052) (122) (42,726)	(71,227) (378) -
	(57,027)	(16,230)	(100,900)	(71,605)
	(124) (1,472)	- (1,508)	(445) (5,849)	- (6,055)
	(1,596)	(1,508)	(6,294)	(6,055)
	(18,022) 415,181	20,793 323,529	52,837 344,322	52,363 291,959
	397,159	344,322	397,159	344,322

*The Company has initially applied IFRS 16 “Leases” at December 31, 2018. Under the transition method chosen by the Company, comparative information has not been restated. See note 3.

See accompanying notes to condensed consolidated financial statements.

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Notes to Condensed Consolidated Financial Statements For the periods ended December 29, 2019 and December 30, 2018 (thousands of US dollars, unless otherwise indicated) (Unaudited)

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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 healthcare applications. The address of the Company’s registered office is 100 Saulteaux Crescent, Winnipeg, Manitoba, Canada R3J 3T3.

2. Basis of Presentation

The unaudited interim condensed consolidated financial statements were prepared in accordance with International Financial Reporting Standards (IFRS). The unaudited interim condensed consolidated financial statements are in compliance with IAS 34. Accordingly, certain information and note disclosures normally included in annual consolidated financial 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 financial statements should be read in conjunction with the Company’s consolidated financial statements for the year ended December 30, 2018, which are included in the Company’s 2018 Annual Report.

Since the first quarter of 2019, IFRS 16 “Leases” has been applied in the Company’s consolidated financial statements. The changes in accounting policies from those used in the Company’s consolidated financial statements for the year ended December 30, 2018 are described in note 10.

The fiscal year of the Company ends on the last Sunday of the calendar year. As a result, the Company’s fiscal year is usually 52 weeks in duration, but includes a 53[rd ] week every five to six years. The 2019 and 2018 fiscal years are both comprised of 52 weeks and each quarter of 2019 and 2018 are comprised of 13 weeks.

The unaudited interim condensed consolidated financial statements were approved by the Board of Directors on March 3, 2020.

3. Accounting Standards Implemented in 2019

The following accounting standards came into effect commencing in the Company’s 2019 fiscal year:

(a) Uncertainty over Income Tax Treatments:

In June 2017, IFRIC Interpretation 23 “Uncertainty over Income Tax Treatments” was issued and aims to reduce diversity in how companies recognize and measure a tax liability or tax asset when there is uncertainty over income tax treatments. The Interpretation was implemented with retrospective application, effective December 31, 2018, and had no impact on the Company’s unaudited interim condensed consolidated financial statements.

(b) Employee Benefit Plan Amendment, Curtailment or Settlement:

In February 2018, amendments to IAS 19 “Employee Benefits” were issued to specify how an entity determines pension expenses when changes to a defined benefit plan occur. When a change to a plan takes place, including an amendment, curtailment or settlement, IAS 19 requires an entity to remeasure its employee benefit plan liability or asset. The amendments require an entity to use the updated assumptions from this remeasurement to determine current service cost and the net finance cost for the remainder of the reporting period after the change to the plan occurs. The amendments were implemented with prospective application, effective December 31, 2018, and had no impact on the Company’s unaudited interim condensed consolidated financial statements.

(c) Leases:

The Company has adopted IFRS 16 with a date of initial application of December 31, 2018. The new standard introduces a balance sheet recognition and measurement model for lessees, eliminating the distinction between operating and finance leases. As a result, most leases are recognized on the balance sheet. Certain exemptions apply for short-term leases and leases for low-value assets. Lessors continue to classify leases as operating and finance leases. IFRS 16 replaces IAS 17 “Leases” and the related interpretations.

As a result of the adoption of IFRS 16, the Company’s accounting policies have been updated. See note 10 for these changes in accounting policies, as well as the new disclosure requirements. The changes in accounting policies will also be reflected in the Company’s consolidated financial statements as at and for the year ended December 29, 2019.

The Company has applied IFRS 16 using the modified retrospective approach and therefore the comparative information has not been restated and continues to be reported under IAS 17.

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Notes to Condensed Consolidated Financial Statements For the periods ended December 29, 2019 and December 30, 2018 (thousands of US dollars, unless otherwise indicated) (Unaudited)

Impact on the 2019 Interim Condensed Consolidated Financial Statements

On initial application, the Company has elected to record right-of-use assets based on the corresponding lease liability. Right-of-use assets and lease liabilities of $568 were recorded as of December 31, 2018, with no net impact on retained earnings. When measuring lease liabilities, the Company discounted lease payments using its incremental borrowing rate at December 31, 2018. The weighted-average rate applied was 4.5%.

For leases with a lease term ending within 12 months of the date of initial application, the Company has elected to apply the practical expedient to account for them as short-term leases. The Company recognizes the lease payments associated with these leases as an expense on a straight-line basis over the lease term.

The following table reconciles the Company’s operating lease commitments at December 30, 2018, as previously disclosed in the Company’s consolidated financial statements, to the lease liabilities recognized on initial application of IFRS 16 at December 31, 2018:

Operating lease commitments at December 30, 2018 Discounted using the incremental borrowing rate at December 31, 2018 Recognition exemption for short-term leases and leases of low-value assets Lease liabilities recognized at December 31, 2018 Of which are: Current Non-current Lease liabilities recognized at December 31, 2018	(835)
	(812) 244
	(568)
	(429) (139)
	(568)

The following table summarizes the impact of adopting IFRS 16 on the Company’s condensed consolidated balance sheet as at December 29, 2019:

	Amount Without		IFRS 16
	IFRS 16		Adjustment		As Reported
Property, plant and equipment	484,512		4,755		489,267
Trade payables and other liabilities	(63,522)		(612)		(64,134)
Provisions and other long-term liabilities	(561)		(4,278)		(4,839)
Deferred tax liabilities	(44,638)		34		(44,604)
Retained earnings	(1,005,303)		101		(1,005,202)

There was no material impact on the Company’s condensed consolidated statement of income or condensed consolidated statement of cash flows for the fourth quarter of 2019 and the year ended December 29, 2019.

4. Business acquisition

On October 1, 2019, the Company acquired all of the business (net assets including property and plant) of privately owned Cheringal Associates, Inc. and Norwood Printing, Inc. collectively (“Control Group”) located in Norwood, New Jersey. Control Group delivers specialized printed packaging solutions to the pharmaceutical, healthcare, nutraceutical, cosmetic and personal care markets. The acquisition of Control Group is in line with the Company’s growth strategy. The acquired entity now operates as Winpak Control Group Inc.

The cash consideration was $42,726, including customary adjustments for working capital. At acquisition date, the Company financed the consideration paid as well as the acquisition costs from cash resources on hand.

The acquisition of Control Group has been accounted for using the acquisition method. Winpak Control Group Inc. has been consolidated from the acquisition date.

The fair value of trade and other receivables acquired of $4,005, which includes a negligible amount deemed uncollectible as at the acquisition date, and inventories of $1,060 is included in the current assets in the accounting of this business acquisition.

The acquisition of Control Group gave rise to goodwill because the consideration paid for the acquisition effectively included amounts in relation to the benefit of expected synergies, revenue growth and the assembled workforce.

The Company’s consolidated statement of income for the fourth quarter of 2019 and the year ended December 29, 2019 reflect the operating results of Winpak Control Group Inc. since October 1, 2019, including revenue of $5.2 million, and income from operations of $0.2 million.

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Notes to Condensed Consolidated Financial Statements For the periods ended December 29, 2019 and December 30, 2018 (thousands of US dollars, unless otherwise indicated) (Unaudited)

The following table presents the value of the assets acquired and liabilities assumed at the acquisition date:

The following table presents the value of the assets acquired and liabilities assumed at the acquisition date:
Assets acquired
Current assets Property, plant and equipment Intangible assets Goodwill (deductible for tax purposes) Liabilities assumed	5,111 17,531 18,003 5,669
	46,314
Current liabilities Provisions and other long-term liabilities Net assets acquired and total consideration	1,753 1,835
	3,588
	42,726

Net assets acquired and total consideration

5. Segment Reporting

Operating segments and product groups

The Company provides three distinct types of packaging technologies: a) rigid packaging and flexible lidding, b) flexible packaging and c) packaging machinery. Each is deemed to be a separate operating segment.

The rigid packaging and flexible lidding segment includes the rigid containers, lidding and specialized printed packaging product groups. Rigid containers include portion control and single-serve containers, as well as plastic sheet, custom and retort trays, which are used for applications such as food, pet food, beverage, dairy, industrial and healthcare. Lidding products are available in die-cut, daisy chain and rollstock formats and are used for applications such as food, dairy, beverage, industrial and healthcare. Specialized printed packaging provides packaging solutions to the pharmaceutical, healthcare, nutraceutical, cosmetic and personal care markets.

The flexible packaging segment includes the modified atmosphere packaging, specialty films and biaxially oriented nylon product groups. Modified atmosphere packaging extends the shelf life of perishable foods, while at the same time maintains or improves the quality of the product. The packaging is used for a wide range of markets and applications, including fresh and processed meats, poultry, cheese, medical device packaging, high performance pouch applications and high-barrier films for converting applications. Specialty films include a full line of barrier and non-barrier films which are ideal for converting applications such as printing, laminating and bag making, including shrink bags. Biaxially oriented nylon film is stretched by length and width to add stability for further conversion using printing, metalizing or laminating processes and is ideal for food packaging applications such as cheese, fluid and viscous liquids, and industrial applications such as book covers and balloons.

Packaging machinery includes a full line of horizontal fill/seal machines for preformed containers and vertical form/fill/seal pouch machines for pumpable liquid and semi-liquid products and certain dry products.

Due to similar economic characteristics, including long-term sales volume growth and long-term average gross profit margins, and having similar products, production processes, types of customers and distribution methods, the rigid packaging and flexible lidding and flexible packaging operating segments have been aggregated as one reportable segment. In addition, the packaging machinery operating segment has been aggregated with these two segments as the segment’s revenue and assets represents less than 4 percent of total Company revenue and assets.

The Company operates principally in Canada and the United States. See note 6 for a breakdown of revenue by operating and geographic segment. The following summary presents property, plant and equipment and intangible assets information by geographic segment:

	December 29 2019	December 30 2018
United States Canada Mexico	264,639 242,296 19,658 526,593	223,446 229,094 15,638
		468,178

6. Revenue

Most of the Company’s contracts have a single performance obligation as the promise to transfer the individual goods. Revenue for each of the three operating segments is recognized at a point in time when the customer obtains control of a product, which typically takes place when legal title and physical possession of the product is transferred to the customer. These conditions are usually fulfilled upon shipment, however, in some instances, upon delivery. Invoices are generated when control has transferred and are usually payable within 30 to 60 days.

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Notes to Condensed Consolidated Financial Statements For the periods ended December 29, 2019 and December 30, 2018 (thousands of US dollars, unless otherwise indicated) (Unaudited)

Disaggregation of Revenue

	Quarter Ended December 29 December 30 2019 2018 99,654 108,309 110,371 107,544 7,431 6,285 217,456 222,138 173,538 186,593 27,941 24,651 15,977 10,894 217,456 222,138	Year Ended	Year Ended
	December 29 2019	December 29 2019	December 30 2018
Operating segment Rigid packaging and fexible lidding Flexible packaging Packaging machinery Geographic segment United States Canada Mexico and other	99,654 110,371 7,431 217,456 173,538 27,941 15,977 217,456	401,084 445,581 27,178 873,843 711,361 107,891 54,591 873,843	430,310 433,944 25,387
			889,641
			735,906 112,314 41,421
			889,641

The Company’s products are primarily used for the packaging of perishable foods and beverages, which accounted for more than 90 percent of sales during 2019 and 2018. Other markets include medical, pharmaceutical, personal care, industrial, and other consumer goods.

7. Other Income (Expenses)

Amounts shown on a net basis	Quarter Ended December 29 December 30 2019 2018 668 (1,026) (56) (269) 612 (1,295) (244) - 368 (1,295)	Year Ended	Year Ended
	December 29 2019	December 29 2019	December 30 2018
Foreign exchange gains (losses) Cash fow hedge losses transferred from other comprehensive income Employee beneft plan settlement expense	668 (56) 612 (244) 368	1,215 (951) 264 (244) 20	(1,509) (331)
			(1,840) -
			(1,840)

8. Inventories

8. Inventories
	December 29 2019	December 30 2018
Raw materials Work-in-process Finished goods Spare parts	32,741 25,281 60,532 11,913 130,467	44,179 22,365 55,329 10,445
		132,318

During the fourth quarter of 2019, the Company recorded, within cost of sales, inventory write-downs for slow-moving and obsolete inventory of $2,561 (2018 - $1,884) and reversals of previously written-down items of $356 (2018 - $134). During 2019, the Company recorded, within cost of sales, inventory write-downs for slow-moving and obsolete inventory of $7,617 (2018 - $7,681) and reversals of previously written-down items of $2,531 (2018 - $1,835).

9. Property, Plant and Equipment

Property, plant and equipment comprise owned and leased assets.

Property, plant and equipment comprise owned and leased assets.
	December 29 2019
Property, plant and equipment owned Right-of-use assets	484,512 4,755
	489,267

At December 29, 2019, the Company has commitments to purchase plant and equipment of $29,741 (December 30, 2018 - $31,157). No impairment losses or impairment reversals were recognized during 2019 or 2018.

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Notes to Condensed Consolidated Financial Statements For the periods ended December 29, 2019 and December 30, 2018 (thousands of US dollars, unless otherwise indicated) (Unaudited)

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10. Leases

The Company has adopted IFRS 16 with a date of initial application of December 31, 2018. The updated accounting policies and additional disclosures are detailed as follows.

Accounting Policies

At inception of a contract, the Company assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

The Company recognizes a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received. The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The estimated useful lives of right-of-use assets are determined on the same basis as those of plant and equipment. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company’s incremental borrowing rate. Generally, the Company uses its incremental borrowing rate as the discount rate. Lease payments included in the measurement of the lease liability comprise the following: a) fixed payments, including in-substance fixed payments, b) variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date, c) amounts expected to be payable under a residual value guarantee and d) the exercise price under a purchase option that the Company is reasonably certain to exercise, lease payments in an optional renewal period if the Company is reasonably certain to exercise an extension option, and penalties for early termination of a lease unless the Company is reasonably certain not to terminate early.

The lease liability is measured at amortized cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Company’s estimate of the amount expected to be payable under a residual value guarantee, or if the Company changes its assessment of whether it will exercise a purchase, extension or termination option. When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in the statement of income if the carrying amount of the right-of-use asset has been reduced to zero.

In the comparative periods, operating leases were not recognized in the Company’s consolidated balance sheet. Payments made were recognized in the statement of income on a straight-line basis over the term of the lease, while any lease incentive received was recognized as a reduction of the total lease expense, over the term of the lease.

The Company presents right-of-use assets in ‘Property, plant and equipment’. The current portion of lease liabilities is presented within ‘Trade payables and other liabilities’. The non-current portion is presented within ‘Provisions and other long-term liabilities’.

The Company has elected not to recognize right-of-use assets and lease liabilities for short-term leases that have a lease term of 12 months or less and leases of low-value assets. The Company recognizes the lease payments associated with these leases as an expense on a straight-line basis over the lease term.

The adoption of IFRS 16 did not impact the Company’s accounting policies for lessors.

Right-of-use assets

Right-of-use assets
	December 29 2019
Opening balance, December 31, 2018 Additions Business acquisition Depreciation Closing balance, December 29, 2019	568 2,857 1,835 (505)
	4,755

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Notes to Condensed Consolidated Financial Statements For the periods ended December 29, 2019 and December 30, 2018 (thousands of US dollars, unless otherwise indicated) (Unaudited)

Lease liabilities

As lessee, the Company’s leases are for office and manufacturing facilities.

The following tables provide information about the timing of future lease payments:

The following tables provide information about the timing of future lease payments:
	December 29 2019
Less than one year One to fve years More than fve years Total contractual undiscounted lease liabilities	(623) (3,569) (1,743)
	(5,935)
	December 29 2019
Current Non-current Total discounted lease liabilities	(612) (4,278)
	(4,890)

During the fourth quarter of 2019, the Company recorded finance expense on lease liabilities of $47. Total cash outflow for leases was $197, including $52 for short-term leases. During 2019, the Company recorded finance expense on lease liabilities of $77. Total cash outflow for leases was $832, including $349 for short-term leases. Expenses for leases of low-dollar value items were not material.

Extension Options

Some leases of office and manufacturing facilities contain extension options exercisable by the Company up to one year before the end of the noncancellable contract period. Where practicable, the Company seeks to include extension options in new leases to provide operational flexibility. The extension options held are exercisable only by the Company and not by the lessors. The Company assesses at lease commencement whether it is reasonably certain to exercise the extension options. The Company reassesses whether it is reasonably certain to exercise the options if there is a significant event or significant change in circumstances within its control. At December 29, 2019, potential future lease payments not included in lease liabilities totalled $4,964 on a discounted basis.

Future lease commitment

As at December 29, 2019 the Company had committed to a lease which had not yet commenced. The total future cash outflow for this lease is $8,333 on a discounted basis.

Lease Income

Lease contracts in which the Company acts as a lessor are classified as operating leases because they do not transfer substantially all of the risks and rewards incidental to ownership of the assets. Lease income from these lease contracts during the fourth quarter of 2019 totalled $198 and during 2019 totalled $780.

11. Dividends

During the fourth quarter of 2019, dividends in Canadian dollars of 3 cents per common share were declared (2018 - 3 cents) and during 2019, 12 cents per common share were declared (2018 - 12 cents).

12. Earnings Per Share

12. Earnings Per Share
	Quarter Ended December 29 December 30 2019 2018 26,679 26,683 65,000 65,000 41 41	Year Ended
	December 29 2019	December 29 2019	December 30 2018
Net income attributable to equity holders of the Company Weighted average shares outstanding (000’s) Basic and diluted earnings per share - cents	26,679 65,000 41	114,772 65,000 177	108,921 65,000
			168

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Notes to Condensed Consolidated Financial Statements For the periods ended December 29, 2019 and December 30, 2018 (thousands of US dollars, unless otherwise indicated) (Unaudited)

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13. Financial Instruments

The Company measures assets and liabilities under the following fair value hierarchy in accordance with IFRS. The inputs used for fair value measurements, including their classification within the required three levels of the fair value hierarchy that prioritizes the inputs used for fair value measurement, are as follows:

Level 1 - unadjusted quoted prices in active markets for identical assets or liabilities; Level 2 - inputs other than quoted prices that are observable for the asset or liability either directly or indirectly; and Level 3 - inputs that are not based on observable market data.

The fair value of cash and cash equivalents, trade and other receivables, including trade and other receivables subject to factoring arrangements and classified as measured at fair value through other comprehensive income (FVOCI), trade payables and other liabilities approximate their carrying value because of the short-term maturity of these instruments. The fair value of foreign currency forward contracts, designated as cash flow hedges, has been determined by valuing those contracts to market against prevailing forward foreign exchange rates as at the reporting date.

The following table presents the classification of financial instruments within the fair value hierarchy:

Financial Assets(Liabilities)		Level 1				Level 2				Level 3				Total
At December 29, 2019
Foreign currency forward contracts - net		-				519				-				519
At December 30, 2018
Foreign currency forward contracts - net		-				(2,697)				-				(2,697)

When the Company has a legally enforceable right to set off supplier rebates receivable against supplier trade payables and intends to settle the amount on a net basis or simultaneously, the balance is presented as an offset within ‘Trade payables and other liabilities’ on the consolidated balance sheet. At December 29, 2019, the supplier rebate receivable balance that was offset was $4,036 (December 30, 2018 - $5,166).

14. 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 financial instruments, insurance, a system of internal and disclosure controls and sound business practices. The Company does not purchase any derivative financial instruments for speculative purposes.

Financial risk management is primarily the responsibility of the Company’s corporate finance function. Significant 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.

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 December 29, 2019, a one-cent change in the period-end foreign exchange rate from 0.7644 to 0.7544 (CDN to US dollars) would have decreased net income by $163 for 2019. Conversely, a one-cent change in the period-end foreign exchange rate from 0.7644 to 0.7744 (CDN to US dollars) would have increased net income by $163 for the 2019.

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 and special dividend payments will be settled in foreign currencies. Transactions are only conducted with certain approved Schedule 1 Canadian financial institutions. All foreign currency contracts are designated as cash flow hedges of the highly probable CDN dollar expenditures. These derivatives meet the hedge effectiveness criteria as a result of the following factors:

a) An economic relationship exists between the hedged item and the hedging instrument as notional amounts match and both the hedged item and hedging instrument fair values move in response to the same risk - foreign exchange rates. There are no significant reasons or causes for the designated hedged item and hedging instrument to be mismatched since the hedging instrument matures during the same month as the expected hedged expenditures are incurred. The correlation between the foreign exchange rate of the hedged item and the hedging instrument should be highly correlated and closely aligned as the maturity and the notional amount are the same.

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Notes to Condensed Consolidated Financial Statements For the periods ended December 29, 2019 and December 30, 2018 (thousands of US dollars, unless otherwise indicated) (Unaudited)

b) The hedge ratio is one to one for this hedging relationship as the hedged item is foreign currency risk that is hedged with a foreign currency hedging instrument.

c) Credit risk is not material in the fair value of the hedging instrument.

The Company has identified two sources of potential ineffectiveness: a) the timing of cash flow differences between the expenditure and the related derivative and b) the inclusion of credit risk in the fair value of the derivative not replicated in the hedged item. The Company expects the impact of these sources of hedge ineffectiveness to be minimal. The timing of hedge settlements and incurred expenditures are closely aligned as they are expected to occur within 30 days of each other. Credit risk is not a material component of the fair value of the Company’s hedging instruments as all counterparties are Schedule 1 Canadian financial institutions, which are highly rated.

Certain foreign currency contracts matured during the fourth quarter of 2019 and the Company realized pre-tax foreign exchange losses of $80 (yearto-date losses - $1,641). Of these foreign exchange differences, losses of $56 were recorded in other income (expenses) (year-to-date losses - $951) and losses of $24 were recorded in property, plant and equipment (year-to-date losses - $690). During the fourth quarter of 2018 the Company realized pre-tax foreign exchange losses of $496 (year-to-date - realized foreign exchange losses of $378). Of these foreign exchange differences, losses of $269 were recorded in other income (expenses) (year-to-date losses - $331) and losses of $227 were recorded in property, plant and equipment (yearto-date losses - $47).

As at December 29, 2019, the Company had US to CDN dollar foreign currency forward contracts outstanding with a notional amount of US $35.0 million at an average exchange rate of 1.3260 maturing between January and November 2020. The fair value of these financial instruments was $519 US and the corresponding unrealized gain has been recorded in other comprehensive income. The Company did not recognize any ineffectiveness on the hedging instruments during 2019 or 2018.

Interest Rate Risk

The Company’s interest rate risk arises from interest rate fluctuations on the finance 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 December 29, 2019 cash and cash equivalents balance of $397.2 million, a 1.0 percent increase/decrease in interest rate fluctuations would increase/decrease income before income taxes by $3,972 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 reflected in selling price adjustments but there is a slight time lag. For 2019, 69 percent of revenue was generated from 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 fluctuations according to conditions pertaining to their markets.

Liquidity Risk

Liquidity risk is the risk that the Company would not be able to meet its financial obligations as they come due. Management believes that the liquidity risk is low due to the strong financial condition of the Company. This risk assessment is based on the following: (a) cash and cash equivalents amounts of $397.2 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 financing to fund an acquisition, if needed, (e) an informal investment grade credit rating and (f) the Company’s ability to generate positive cash flows from ongoing operations. Management believes that the Company’s cash flows are more than sufficient to cover its operating costs, working capital requirements, capital expenditures, payment of lease liabilities and dividend payments in 2020. The Company’s trade payables and other liabilities and derivative financial instrument liabilities are all due within twelve months.

Credit Risk

The Company is exposed to credit risk from its cash and cash equivalents held with banks and financial institutions, derivative financial 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 financial asset:

	December 29 2019	December 30 2018
Cash and cash equivalents Trade and other receivables Foreign currency forward contracts	397,159 141,855 527 539,541	344,322 131,851 -
		476,173

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Notes to Condensed Consolidated Financial Statements For the periods ended December 29, 2019 and December 30, 2018 (thousands of US dollars, unless otherwise indicated) (Unaudited)

Credit risk on cash and cash equivalents and other financial instruments arises in the event of non-performance by the counterparties when the Company is entitled to receive payment from the counterparty who fails to perform. The Company has established an investment policy to manage its cash. The policy requires that the Company manage its risk by investing its excess cash on hand on a short-term basis, up to a maximum of six months, with several financial institutions and/or governmental bodies that must be rated ‘AA’ or higher for CDN financial institutions and ‘A-1’ or higher for US financial institutions by recognized international credit rating agencies or insured 100 percent by the US government or a ‘AAA’ rated CDN federal or provincial government. The Company manages its counterparty risk on its financial instruments by only dealing with Schedule 1 Canadian financial institutions.

In the normal course of business, the Company is exposed to credit risk on its trade and other receivables from customers. To mitigate such risk, the Company performs ongoing customer credit evaluations and assesses their credit quality by taking into account their financial position, past experience and other pertinent factors. Management regularly monitors customer credit limits, performs credit reviews and, in certain cases insures trade and other receivables against credit losses.

During the fourth quarter of 2019, the Company incurred costs on the sale of trade receivables of $894 (2018 - $1,224). Of these costs, $780 was recorded in finance expense (2018 - $884) and $114 was recorded in general and administrative expenses (2018 - $340). During 2019, the Company incurred costs on the sale of trade receivables of $4,388 (2018 - $4,843). Of these costs, $3,191 was recorded in finance expense (2018 - $3,456) and $1,197 was recorded in general and administrative expenses (2018 - $1,387).

As at December 29, 2019, the Company believes that the credit risk for trade and other receivables is mitigated due to the following: a) a broad customer base which is dispersed across varying market sectors and geographic locations, b) 97 percent of the gross trade and other receivables balance is within 30 days of the agreed upon payment terms with customers, c) the sale of certain extended term trade receivables without recourse to a third party and d) 32 percent of the trade and other receivables balance is insured against credit losses. The Company’s exposure to the ten largest customer balances, on aggregate, accounted for 36 percent of the total trade and other receivables balance.

The carrying amount of trade and other receivables is reduced through the use of an allowance for expected credit losses and the amount of the loss is recognized in the statement of income within general and administrative expenses. When a receivable balance is considered uncollectible, it is written off against the allowance for expected credit losses. Subsequent recoveries of amounts previously written off are credited against general and administrative expenses in the statement of income. During the fourth quarter of 2019, the Company recorded impairment losses on trade and other receivables of $611 (2018 - $34). During 2019, the Company recorded impairment losses on trade and other receivables of $675 (2018 - $256).

The following table sets out the aging details of the Company’s trade and other receivables balances outstanding based on when the receivable was due and payable and related allowance for expected credit losses:

and payable and related allowance for expected credit losses:
	December 29 2019	December 30 2018
Current (not past due) 1 - 30 days past due 31 - 60 days past due More than 60 days past due Less: Allowance for expected credit losses Total trade and other receivables, net	119,227 19,840 2,364 1,822 143,253 (1,398) 141,855	112,953 16,636 2,022 1,196
		132,807 (956)
		131,851

15. Seasonality

The Company experiences seasonal variation in revenue, with revenue typically being the highest in the second and fourth quarters, and lowest in the first quarter.

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