Winpak Ltd — Interim / Quarterly Report 2022

Oct 21, 2022

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Winpak Ltd. Interim Condensed Consolidated Financial Statements Third Quarter Ended: September 25, 2022

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	September 25 2022	December 26 2021
Assets Current assets: Cash and cash equivalents Trade and other receivables 14 Income taxes receivable Inventories 8 Prepaid expenses Non-current assets: Property, plant and equipment 9 Intangible assets and goodwill Employee beneft plan assets Total assets Equity and Liabilities Current liabilities: Trade payables and other liabilities Contract liabilities 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	377,215 206,236 6,101 280,757 7,432 877,741 516,062 33,454 12,515 562,031 1,439,772 110,201 160 13,381 1,852 125,594 11,032 17,730 12,345 65,290 106,397 231,991 29,195 (1,357) 1,143,545 1,171,383 36,398 1,207,781 1,439,772	377,461 177,382 9,825 187,058 6,702
		758,428 515,247 34,472 13,547
		563,266
		1,321,694
		91,717 3,503 1,102 715
		97,037 9,837 17,685 13,029 68,367
		108,918
		205,955
		29,195 (524) 1,050,949
		1,079,620 36,119
		1,115,739
		1,321,694

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)

Winpak Ltd. Condensed Consolidated Statements of Income (thousands of US dollars, except per share amounts) (unaudited)
Note	Quarter Ended		Year-To-Date Ended
	September 25 2022	September 26 2021	September 25 2022	September 26 2021
Revenue 6 Cost of sales Gross proft Sales, marketing and distribution expenses General and administrative expenses Research and technical expenses Pre-production expenses Other (expenses) income 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	302,532 (221,051)	254,166 (192,138)	888,768 (636,503)	722,941 (525,388)
	81,481 (23,881) (9,524) (4,380) (1,995) (2,394)	62,028 (21,187) (7,863) (4,519) - (144)	252,265 (72,168) (28,773) (13,130) (2,915) (3,283)	197,553 (61,144) (24,018) (13,130) - 1,804
	39,307 1,847 (1,379)	28,315 237 (434)	131,996 2,802 (2,790)	101,065 726 (1,341)
	39,775 (10,425)	28,118 (6,768)	132,008 (34,621)	100,450 (24,419)
	29,350	21,350	97,387	76,031
	29,567 (217)	20,762 588	97,108 279	73,777 2,254
	29,350	21,350	97,387	76,031
	45	32	149	114
	September 25 2022	September 26 2021	September 25 2022	September 26 2021
Net income for the period Items that will not be reclassifed to the statements of income: Cash fow hedge losses recognized Items that are or may be reclassifed subsequently to the statements of income: Cash fow hedge (losses) gains recognized Cash fow hedge losses (gains) transferred to the statements of income 7 Income tax effect Other comprehensive loss for the period - net of income tax Comprehensive income for the period Attributable to: Equity holders of the Company Non-controlling interests	29,350	21,350	97,387	76,031
	-	(867)	-	(867)
	-	(867)	-	(867)
	(1,575) 263 351	(933) (540) 394	(1,679) 541 305	282 (1,615) 356
	(961)	(1,079)	(833)	(977)
	(961)	(1,946)	(833)	(1,844)
	28,389	19,404	96,554	74,187
	28,606 (217)	18,816 588	96,275 279	71,933 2,254
	28,389	19,404	96,554	74,187

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 December 28, 2020 Comprehensive (loss) income for the period Cash fow hedge gains (losses), net of tax Cash fow hedge gains transferred to the statements of income, net of tax Other comprehensive loss Net income for the period Comprehensive (loss) income for the period Dividends 11 Balance at September 26, 2021	29,195 834 1,103,435 1,133,464 33,579 1,167,043
	- 206 (867) (661) - (661) - (1,183) - (1,183) - (1,183)
	- (977) (867) (1,844) - (1,844) - - 73,777 73,777 2,254 76,031
	- (977) 72,910 71,933 2,254 74,187
	- - (163,213) (163,213) - (163,213)
	29,195 (143) 1,013,132 1,042,184 35,833 1,078,017
Balance at December 27, 2021 Comprehensive (loss) income for the period Cash fow hedge losses, net of tax Cash fow hedge losses transferred to the statements of income, net of tax Other comprehensive loss Net income for the period Comprehensive (loss) income for the period Dividends 11 Balance at September 25, 2022	29,195 (524) 1,050,949 1,079,620 36,119 1,115,739
	- (1,230) - (1,230) - (1,230) - 397 - 397 - 397
	- (833) - (833) - (833) - - 97,108 97,108 279 97,387
	- (833) 97,108 96,275 279 96,554
	- - (4,512) (4,512) - (4,512)
	29,195 (1,357) 1,143,545 1,171,383 36,398 1,207,781

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)

Winpak Ltd. Condensed Consolidated Statements of Cash Flows (thousands of US dollars) (unaudited)
Note	Quarter Ended		Year-To-Date Ended
	September 25 2022	September 26 2021	September 25 2022	September 26 2021
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) expense 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 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	29,350 11,912 (429) 428 1,149 (468) 10,425 523	21,350 11,390 (718) 412 1,135 197 6,768 (370)	97,387 35,791 (1,283) 1,273 3,325 (12) 34,621 (2,336)	76,031 34,006 (1,509) 1,246 3,492 615 24,419 (3,194)
	52,890 5,181 (20,451) 1,987 (15,692) (1,647) (35) (902) 1,703 (1,293)	40,164 (7,362) (12,662) (995) (879) (1,405) (31) (5,174) 204 (331)	168,766 (28,854) (93,699) (730) 18,419 (3,343) (1,675) (18,205) 2,438 (2,574)	135,106 (26,967) (37,705) (3,911) 11,571 704 (1,045) (16,713) 640 (1,050)
	21,741	11,529	40,543	60,630
	(11,801) (22)	(11,296) -	(35,292) (253)	(38,845) (185)
	(11,823)	(11,296)	(35,545)	(39,030)
	(219) (1,512)	(205) (160,987)	(647) (4,597)	(599) (164,055)
	(1,731)	(161,192)	(5,244)	(164,654)
	8,187 369,028	(160,959) 513,251	(246) 377,461	(143,054) 495,346
	377,215	352,292	377,215	352,292

See accompanying notes to condensed consolidated financial statements.

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Notes to Condensed Consolidated Financial Statements For the periods ended September 25, 2022 and September 26, 2021 (thousands of US dollars, unless otherwise indicated) (Unaudited)

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1. General

Winpak Ltd. (the “Company” or “Winpak”) 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

Statement of compliance

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 26, 2021, which are included in the Company’s 2021 Annual Report.

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 2022 and 2021 fiscal years are both comprised of 52 weeks and each quarter of 2022 and 2021 are comprised of 13 weeks.

The unaudited interim condensed consolidated financial statements were approved by the Audit Committee on behalf of the Board of Directors on October 20, 2022.

3. Accounting Standards Implemented in 2022

The following accounting standards came into effect commencing in the Company’s 2022 fiscal year:

(a) Property, Plant and Equipment: Proceeds Before Intended Use:

In May 2020, the IASB issued “Property, Plant and Equipment: Proceeds Before Intended Use (Amendments to IAS 16)”, which prohibits deducting amounts received from selling items produced while preparing the asset for its intended use from the cost of property, plant and equipment. Instead, such sales proceeds and related costs will be recognized within the statement of income. The amendments were implemented with retrospective application, effective December 27, 2021. The amendments had no impact on the Company’s unaudited interim condensed consolidated financial statements.

(b) Onerous Contracts - Cost of Fulfilling a Contract:

In May 2020, the IASB issued “Onerous Contracts - Cost of Fulfilling a Contract (Amendments to IAS 37)”, which specifies which costs a company includes when assessing whether a contract will be loss-making. The amendments were implemented, effective December 27, 2021. The amendments had no impact on the Company’s unaudited interim condensed consolidated financial statements.

4. Future Accounting Standards

(a) Deferred Taxes Related to Assets and Liabilities Arising from a Single Transaction:

In May 2021, the IASB issued “Deferred Taxes Related to Assets and Liabilities Arising from a Single Transaction (Amendments to IAS 12)”, which introduces an exception to the initial recognition exemption for deferred tax on transactions such as leases and decommissioning obligations. Applying this exception, a company does not apply the initial recognition exemption for transactions that give rise to equal taxable and deductible temporary differences. The amendments are effective for annual reporting periods beginning on or after January 1, 2023 and are to be applied retrospectively. The Company does not expect the amendments to have a significant impact on the consolidated financial statements when they are adopted in 2023.

(b) Lease Liability in a Sale and Leaseback:

In September 2022, the IASB issued “Lease Liability in a Sale and Leaseback (Amendments to IFRS 16)”, that requires a seller-lessee to subsequently measure lease liabilities arising from a leaseback in a way that it does not recognize any amount of the gain or loss that relates to the right of use it retains. The amendments are effective for annual reporting periods beginning on or after January 1, 2024 and are to be applied retrospectively. Early adoption is permitted. The Company does not expect the amendments to have a significant impact on the consolidated financial statements when they are adopted in 2024.

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Notes to Condensed Consolidated Financial Statements For the periods ended September 25, 2022 and September 26, 2021 (thousands of US dollars, unless otherwise indicated) (Unaudited)

5. Segment Reporting

Operating segments and product groups

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

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.

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.

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 flexible packaging and rigid packaging and flexible lidding 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 3 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, intangible assets and goodwill information by geographic segment:

	September 25 2022	December 26 2021
United States Canada Mexico	248,693 282,118 18,705 549,516	258,001 272,552 19,166
		549,719

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 September 25, 2022 and September 26, 2021 (thousands of US dollars, unless otherwise indicated) (Unaudited)

Disaggregation of Revenue

	Quarter Ended September 25 September 26 2022 2021 167,033 131,930 127,486 113,185 8,013 9,051 302,532 254,166 244,980 206,411 36,536 30,747 21,016 17,008 302,532 254,166	Year-To-Date Ended	Year-To-Date Ended
	September 25 2022	September 25 2022	September 26 2021
Operating segment Flexible packaging Rigid packaging and fexible lidding Packaging machinery Geographic segment United States Canada Mexico and other	167,033 127,486 8,013 302,532 244,980 36,536 21,016 302,532	480,619 382,760 25,389 888,768 716,728 112,873 59,167 888,768	372,716 327,185 23,040
			722,941
			581,230 90,553 51,158
			722,941

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 the year-to-date periods ended September 25, 2022 and September 26, 2021. Other markets include medical, pharmaceutical, nutraceutical, personal care, industrial and other consumer goods.

7. Other (Expenses) Income

Amounts shown on a net basis	Quarter Ended September 25 September 26 2022 2021 (2,131) (684) (263) 540 (2,394) (144)	Year-To-Date Ended	Year-To-Date Ended
	September 25 2022	September 25 2022	September 26 2021
Foreign exchange (losses) gains Cash fow hedge (losses) gains transferred from other comprehensive income	(2,131) (263) (2,394)	(2,742) (541) (3,283)	189 1,615
			1,804

8. Inventories

8. Inventories
	September 25 2022	December 26 2021
Raw materials Work-in-process Finished goods Spare parts	127,635 40,055 96,988 16,079 280,757	65,065 32,435 74,834 14,724
		187,058

During the third quarter of 2022, the Company recorded, within cost of sales, inventory write-downs for slow-moving and obsolete inventory of $3,438 (2021 - $2,334) and reversals of previously written-down items of $461 (2021 - $570). On a year-to-date basis, the Company recorded, within cost of sales, inventory write-downs for slow-moving and obsolete inventory of $7,302 (2021 - $4,769) and reversals of previously written-down items of $1,826 (2021 - $2,269).

9. Property, Plant and Equipment

At September 25, 2022, the Company has commitments to purchase plant and equipment of $30,120 (December 26, 2021 - $15,769). No impairment losses or impairment reversals were recognized during the year-to-date periods ended September 25, 2022 and September 26, 2021.

10. Leases

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 September 25, 2022, potential future lease payments not included in lease liabilities totaled $4,338 on a discounted basis.

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Notes to Condensed Consolidated Financial Statements For the periods ended September 25, 2022 and September 26, 2021 (thousands of US dollars, unless otherwise indicated) (Unaudited)

11. Dividends

During the third quarter of 2022, dividends in Canadian dollars of 3 cents per common share were declared (2021 - 3 cents) and on a year-to-date basis, 9 cents per common share were declared (2021 - 9 cents). In addition, the Company paid a special dividend in Canadian dollars of $3.00 per common share on July 9, 2021.

12. Earnings Per Share

	Quarter Ended September 25 September 26 2022 2021 29,567 20,762 65,000 65,000 45 32	Year-To-Date Ended	Year-To-Date Ended
	September 25 2022	September 25 2022	September 26 2021
Net income attributable to equity holders of the Company Weighted average shares outstanding (000’s) Basic and diluted earnings per share - cents	29,567 65,000 45	97,108 65,000 149	73,777 65,000
			114

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 September 25, 2022						(1,852)								(1,852)
Foreign currency forward contracts - net		-								-
At December 26, 2021
Foreign currency forward contracts - net		-				(715)				-				(715)

When the Company has a legally enforceable right to set off supplier rebates accounts 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 September 25, 2022, the supplier rebate receivable balance that was offset was $6,111 (December 26, 2021 - $6,972).

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 (expenses) income. As a result of the Company’s CDN dollar net asset monetary position as at September 25, 2022, a one-cent change in the period-end foreign exchange rate from 0.7368 to 0.7268 (CDN to US dollars) would have decreased net income by $174 for the third quarter of 2022. Conversely, a one-cent change in the period-end foreign exchange rate from 0.7368 to 0.7468 (CDN to US dollars) would have increased net income by $174 for the third quarter of 2022.

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Notes to Condensed Consolidated Financial Statements For the periods ended September 25, 2022 and September 26, 2021 (thousands of US dollars, unless otherwise indicated) (Unaudited)

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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 foreign currency forward contracts when equipment purchases and special dividend payments will be settled in foreign currencies. Transactions are only conducted with certain approved ‘AA’ rated or higher Schedule 1 CDN 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.

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 ‘AA’ rated or higher Schedule 1 CDN financial institutions.

Certain foreign currency contracts matured during the third quarter of 2022 and the Company realized pre-tax foreign exchange losses of $263 (year-todate losses - $541) which were recorded in other (expenses) income. During the third quarter of 2021, the Company realized pre-tax foreign exchange losses of $327 (year-to-date gains - $748) of which gains of $540 were recorded in other (expenses) income (year-to-date gains - $1,615) and losses of $867 were recorded directly to equity (year-to-date losses - $867).

As at September 25, 2022, the Company had US to CDN dollar foreign currency forward contracts outstanding with a notional amount of US $33.0 million at an average exchange rate of 1.2814 maturing between October 2022 and July 2023. The fair value of these financial instruments was negative $1,852 US and the corresponding unrealized loss has been recorded in other comprehensive loss. The Company did not recognize any ineffectiveness on the hedging instruments for the year-to-date periods ended September 25, 2022 and September 26, 2021.

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 September 25, 2022 cash and cash equivalents balance of $377.2 million, a 1.0 percent increase/decrease in interest rate fluctuations would increase/decrease income before income taxes by $3,772 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 the year-to-date period ended September 25, 2022, 71 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 $377.2 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 the next twelve months. 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.

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Notes to Condensed Consolidated Financial Statements For the periods ended September 25, 2022 and September 26, 2021 (thousands of US dollars, unless otherwise indicated) (Unaudited)

The following table details the maximum exposure to the Company’s counterparty credit risk which represents the carrying value of the financial asset:

	September 25 2022	December 26 2021
Cash and cash equivalents Trade and other receivables	377,215 206,236 583,451	377,461 177,382
		554,843

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 ‘AA’ rated or higher Schedule 1 CDN 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 third quarter of 2022, the Company incurred costs on the sale of trade receivables of $1,294 (2021 - $334). Of these costs, $965 was recorded in finance expense (2021 - $230) and $329 was recorded in general and administrative expenses (2021 - $104). On a year-to-date basis, the Company incurred costs on the sale of trade receivables of $2,521 (2021 - $917). Of these costs, $1,943 was recorded in finance expense (2021 - $646) and $578 was recorded in general and administrative expenses (2021 - $271).

As at September 25, 2022, 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) 27 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 39 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 third quarter of 2022, the Company recorded impairment recoveries on trade and other receivables of $34 (2021 - $222 impairment recoveries). On a year-to-date basis, the Company recorded impairment recoveries on trade and other receivables of $26 (2021 - $73 impairment losses).

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:
	September 25 2022	December 26 2021
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	179,796 20,932 2,807 3,715 207,250 (1,014) 206,236	149,824 22,504 3,351 2,710
		178,389 (1,007)
		177,382

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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