Winpak Ltd — Interim / Quarterly Report 2022

Jul 21, 2022

Winpak Ltd. Interim Condensed Consolidated Financial Statements Second Quarter Ended: June 26, 2022

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

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7

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Winpak Ltd. Condensed Consolidated Balance Sheets

(thousands of US dollars) (unaudited)

Note		June 26 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 benef t plan assets Total assets Equity and Liabilities Current liabilities: Trade payables and other liabilities Contract liabilities Income taxes payable Derivative f nancial instruments Non-current liabilities: Employee benef t 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		369,028 211,417 9,797 260,306 9,419 859,967 516,067 33,857 13,791 563,715 1,423,682 125,848 1,807 7,054 541 135,250 10,587 18,055 12,576 66,386 107,604 242,854 29,195 (396) 1,115,414 1,144,213 36,615 1,180,828 1,423,682	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 fi nancial statements.

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8

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
	June 26 2022		June 27 2021	June 26 2022	June 27 2021
Revenue 6 Cost of sales Gross prof t 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	310,254 (221,000)		243,969 (174,279)	586,236 (415,452)	468,775 (333,250)
	89,254 (25,497) (10,498) (4,485) (518) (1,480)		69,690 (20,366) (7,670) (4,581) - 1,395	170,784 (48,287) (19,249) (8,750) (920) (889)	135,525 (39,957) (16,155) (8,611) - 1,948
	46,776 682 (855)		38,468 212 (464)	92,689 955 (1,411)	72,750 489 (907)
	46,603 (12,495)		38,216 (8,777)	92,233 (24,196)	72,332 (17,651)
	34,108		29,439	68,037	54,681
	33,671 437		28,520 919	67,541 496	53,015 1,666
	34,108		29,439	68,037	54,681
	52		44	104	82
	June 26 2022		June 27 2021	June 26 2022	June 27 2021
Net income for the period Items that are or may be reclassifed subsequently to the statements of income: Cash f ow hedge (losses) gains recognized Cash f ow hedge losses (gains) transferred to the statements of income 7 Income tax effect Other comprehensive (loss) income for the period - net of income tax Comprehensive income for the period Attributable to: Equity holders of the Company Non-controlling interests	34,108		29,439	68,037	54,681
	(948) 178 206		727 (623) (28)	(104) 278 (46)	1,215 (1,075) (38)
	(564)		76	128	102
	(564)		76	128	102
	33,544		29,515	68,165	54,783
	33,107 437		28,596 919	67,669 496	53,117 1,666
	33,544		29,515	68,165	54,783

See accompanying notes to condensed consolidated fi nancial statements.

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Winpak Ltd.

Condensed Consolidated Statements of Changes in Equity

(thousands of US dollars) (unaudited)

Note	Attributable to equity holders of the Company Non- Share Retained controlling capital Reserves earnings Total interests Total equity	Attributable to equity holders of the Company Non- Share Retained controlling capital Reserves earnings Total interests Total equity	Attributable to equity holders of the Company Non- Share Retained controlling capital Reserves earnings Total interests Total equity	Attributable to equity holders of the Company Non- Share Retained controlling capital Reserves earnings Total interests Total equity
	Share capital
Balance at December 28, 2020 Comprehensive income for the period Cash f ow hedge gains, net of tax Cash f ow hedge gains transferred to the statements of income, net of tax Other comprehensive income Net income for the period Comprehensive income for the period Dividends 11 Balance at June 27, 2021	29,195	834 1,103,435 1,133,464 33,579 1,167,043
	- -	889 - 889 - 889 (787) - (787) - (787)
	- -	102 -	- 102 - 102 53,015 53,015 1,666 54,681
	-	102	53,015 53,117 1,666 54,783
	-	-	(162,739) (162,739) - (162,739)
	29,195	936	993,711 1,023,842	35,245 1,059,087
Balance at December 27, 2021 Comprehensive income for the period Cash f ow hedge losses, net of tax Cash f ow hedge losses transferred to the statements of income, net of tax Other comprehensive income Net income for the period Comprehensive income for the period Dividends 11 Balance at June 26, 2022	29,195	(524) 1,050,949 1,079,620		36,119 1,115,739
	- -	(76) - (76) - (76) 204 - 204 - 204
	- -	128 -	- 128 67,541 67,541	- 128 496 68,037
	-	128	67,541 67,669	496 68,165
	-	-	(3,076) (3,076) - (3,076)
	29,195	(396)	1,115,414 1,144,213 36,615 1,180,828

See accompanying notes to condensed consolidated fi nancial statements.

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10

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
	June 26 2022	June 27 2021	June 26 2022	June 27 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 def ned benef t plan expenses Net f nance expense Income tax expense Other Cash f ow 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 def ned benef t 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	34,108 11,962 (428) 427 1,092 173 12,495 (8)	29,439 11,365 (407) 419 1,234 252 8,777 (1,502)	68,037 23,879 (854) 845 2,176 456 24,196 (2,859)	54,681 22,616 (791) 834 2,357 418 17,651 (2,824)
	59,821 (21,217) (49,242) 341 17,555 (816) (146) (10,774) 568 (785)	49,577 (3,949) (13,419) 257 10,158 (30) (883) (4,183) 184 (365)	115,876 (34,035) (73,248) (2,717) 34,111 (1,696) (1,640) (17,303) 735 (1,281)	94,942 (19,605) (25,043) (2,916) 12,450 2,109 (1,014) (11,539) 436 (719)
	(4,695)	37,347	18,802	49,101
	(11,555) (56)	(18,483) (82)	(23,491) (231)	(27,549) (185)
	(11,611)	(18,565)	(23,722)	(27,734)
	(220) (1,563)	(205) (1,550)	(428) (3,085)	(394) (3,068)
	(1,783)	(1,755)	(3,513)	(3,462)
	(18,089) 387,117	17,027 496,224	(8,433) 377,461	17,905 495,346
	369,028	513,251	369,028	513,251

See accompanying notes to condensed consolidated fi nancial statements.

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11

Notes to Condensed Consolidated Financial Statements For the periods ended June 26, 2022 and June 27, 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 offi ce is 100 Saulteaux Crescent, Winnipeg, Manitoba, Canada R3J 3T3.

2. Basis of Presentation

Statement of compliance

The unaudited interim condensed consolidated fi nancial statements were prepared in accordance with International Financial Reporting Standards (IFRS). The unaudited interim condensed consolidated fi nancial statements are in compliance with IAS 34. Accordingly, certain information and note disclosures normally included in annual consolidated 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 26, 2021, which are included in the Company’s 2021 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 2022 and 2021 fi scal years are both comprised of 52 weeks and each quarter of 2022 and 2021 are comprised of 13 weeks.

The unaudited interim condensed consolidated fi nancial statements were approved by the Audit Committee on behalf of the Board of Directors on July 21, 2022.

Coronavirus (COVID-19)

As a result of the ongoing effects of the COVID-19 pandemic, in particular the economic uncertainty, the Company continues to review the assumptions regarding the valuation of trade and other receivables and also monitor whether there is any indication that its cash-generating units (CGUs) might be impaired. For both the second quarter of 2022 and the year-to-date period ended June 26, 2022, the impact on expected credit losses in relation to trade and other receivables was immaterial (see note 14) and no CGU impairment losses were recorded.

3. Accounting Standards Implemented in 2022

The following accounting standards came into effect commencing in the Company’s 2022 fi scal 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 fi nancial statements.

(b) Onerous Contracts - Cost of Fulfi lling a Contract:

In May 2020, the IASB issued “Onerous Contracts - Cost of Fulfi lling a Contract (Amendments to IAS 37)”, which specifi es 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 fi nancial 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 signifi cant impact on the consolidated fi nancial statements when they are adopted in 2023.

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12

Notes to Condensed Consolidated Financial Statements For the periods ended June 26, 2022 and June 27, 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) fl exible packaging, b) rigid packaging and fl exible lidding and c) packaging machinery. Each is deemed to be a separate operating segment.

The fl exible packaging segment includes the modifi ed atmosphere packaging, specialty fi lms and biaxially oriented nylon product groups. Modifi ed 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 fi lms for converting applications. Specialty fi lms include a full line of barrier and non-barrier fi lms which are ideal for converting applications such as printing, laminating and bag making, including shrink bags. Biaxially oriented nylon fi lm 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, fl uid and viscous liquids, and industrial applications such as book covers and balloons.

The rigid packaging and fl exible 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 fi ll/seal machines for preformed containers and vertical form/fi ll/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 profi t margins, and having similar products, production processes, types of customers and distribution methods, the fl exible packaging and rigid packaging and fl exible 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:

	June 26 2022	December 26 2021
United States Canada Mexico	250,914 280,171 18,839 549,924	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 fulfi lled 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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13

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Notes to Condensed Consolidated Financial Statements For the periods ended June 26, 2022 and June 27, 2021 (thousands of US dollars, unless otherwise indicated) (Unaudited)

Disaggregation of Revenue

	Quarter Ended June 26 June 27 2022 2021 166,726 124,910 135,267 111,134 8,261 7,925 310,254 243,969 247,824 193,992 41,853 32,101 20,577 17,876 310,254 243,969	Year-To-Date Ended	Year-To-Date Ended
	June 26 2022	June 26 2022	June 27 2021
Operating segment Flexible packaging Rigid packaging and f exible lidding Packaging machinery Geographic segment United States Canada Mexico and other	166,726 135,267 8,261 310,254 247,824 41,853 20,577 310,254	313,586 255,274 17,376 586,236 471,748 76,337 38,151 586,236	240,786 214,000 13,989
			468,775
			374,819 59,806 34,150
			468,775

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 June 26, 2022 and June 27, 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 June 26 June 27 2022 2021 (1,302) 772 (178) 623 (1,480) 1,395	Year-To-Date Ended	Year-To-Date Ended
	June 26 2022	June 26 2022	June 27 2021
Foreign exchange (losses) gains Cash f ow hedge (losses) gains transferred from other comprehensive income	(1,302) (178) (1,480)	(611) (278) (889)	873 1,075
			1,948

8. Inventories

8. Inventories
	June 26 2022	December 26 2021
Raw materials Work-in-process Finished goods Spare parts	114,693 38,869 91,143 15,601 260,306	65,065 32,435 74,834 14,724
		187,058

During the second quarter of 2022, the Company recorded, within cost of sales, inventory write-downs for slow-moving and obsolete inventory of $1,914 (2021 - $833) and reversals of previously written-down items of $310 (2021 - $630). On a year-to-date basis, the Company recorded, within cost of sales, inventory write-downs for slow-moving and obsolete inventory of $3,864 (2021 - $2,435) and reversals of previously written-down items of $1,365 (2021 - $1,699).

9. Property, Plant and Equipment

At June 26, 2022, the Company has commitments to purchase plant and equipment of $27,998 (December 26, 2021 - $15,769). No impairment losses or impairment reversals were recognized during the year-to-date periods ended June 26, 2022 and June 27, 2021.

10. Leases

Extension Options

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Some leases of offi ce 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 fl exibility. 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 signifi cant event or signifi cant change in circumstances within its control. At June 26, 2022, potential future lease payments not included in lease liabilities totaled $4,538 on a discounted basis.

14

Notes to Condensed Consolidated Financial Statements For the periods ended June 26, 2022 and June 27, 2021 (thousands of US dollars, unless otherwise indicated) (Unaudited)

11. Dividends

During the second 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, 6 cents per common share were declared (2021 - 6 cents). In addition, on June 23, 2021, the Company declared a special dividend in Canadian dollars of $3.00 per common share, payable on July 9, 2021.

12. Earnings Per Share

	Quarter Ended June 26 June 27 2022 2021 33,671 28,520 65,000 65,000 52 44	Year-To-Date Ended	Year-To-Date Ended
	June 26 2022	June 26 2022	June 27 2021
Net income attributable to equity holders of the Company Weighted average shares outstanding (000’s) Basic and diluted earnings per share - cents	33,671 65,000 52	67,541 65,000 104	53,015 65,000
			82

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 classifi cation 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 classifi ed 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 fl ow 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 classifi cation of fi nancial instruments within the fair value hierarchy:

Financial Assets(Liabilities)	Level 1	Level 2	Level 3	Total
At June 26, 2022
Foreign currency forward contracts - net	-	(541)	-	(541)
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 June 26, 2022, the supplier rebate receivable balance that was offset was $6,942 (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 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.

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 June 26, 2022, a one-cent change in the period-end foreign exchange rate from 0.7756 to 0.7656 (CDN to US dollars) would have decreased net income by $256 for the second quarter of 2022. Conversely, a one-cent change in the period-end foreign exchange rate from 0.7756 to 0.7856 (CDN to US dollars) would have increased net income by $256 for the second quarter of 2022.

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15

Notes to Condensed Consolidated Financial Statements For the periods ended June 26, 2022 and June 27, 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 fi nancial institutions. All foreign currency contracts are designated as cash fl ow 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 signifi cant 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 identifi ed two sources of potential ineffectiveness: a) the timing of cash fl ow 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 fi nancial institutions.

Certain foreign currency contracts matured during the second quarter of 2022 and the Company realized pre-tax foreign exchange losses of $178 (year-to-date losses - $278) which were recorded in other (expenses) income. During the second quarter of 2021, the Company realized pre-tax foreign exchange gains of $623 (year-to-date gains - $1,075) which were recorded in other (expenses) income.

As at June 26, 2022, the Company had US to CDN dollar foreign currency forward contracts outstanding with a notional amount of US $30.0 million at an average exchange rate of 1.2682 maturing between July 2022 and March 2023. The fair value of these fi nancial instruments was negative $541 US and the corresponding unrealized loss has been recorded in other comprehensive income. The Company did not recognize any ineffectiveness on the hedging instruments for the year-to-date periods ended June 26, 2022 and June 27, 2021.

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 June 26, 2022 cash and cash equivalents balance of $369.0 million, a 1.0 percent increase/decrease in interest rate fl uctuations would increase/decrease income before income taxes by $3,690 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 June 26, 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 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 $369.0 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, payment of lease liabilities and dividend payments in the next twelve months. The Company’s trade payables and other liabilities and derivative fi nancial instrument liabilities are all due within twelve months.

Credit Risk

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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.

16

Notes to Condensed Consolidated Financial Statements For the periods ended June 26, 2022 and June 27, 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 fi nancial asset:

	June 26 2022	December 26 2021
Cash and cash equivalents Trade and other receivables	369,028 211,417 580,445	377,461 177,382
		554,843

Credit risk on cash and cash equivalents and other fi nancial 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 fi nancial institutions and/or governmental bodies that must be rated ‘AA’ or higher for CDN fi nancial institutions and ‘A-1’ or higher for US fi nancial 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 fi nancial instruments by only dealing with ‘AA’ rated or higher Schedule 1 CDN fi nancial 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 fi nancial 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 second quarter of 2022, the Company incurred costs on the sale of trade receivables of $762 (2021 - $346). Of these costs, $604 was recorded in fi nance expense (2021 - $243) and $158 was recorded in general and administrative expenses (2021 - $103). On a year-to-date basis, the Company incurred costs on the sale of trade receivables of $1,226 (2021 - $582). Of these costs, $978 was recorded in fi nance expense (2021 - $416) and $248 was recorded in general and administrative expenses (2021 - $166).

As at June 26, 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) 96 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) 28 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 40 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. In its assessment of the allowance for expected credit losses as at June 26, 2022, the Company considered the economic impact of the COVID-19 pandemic on its assessment, including the risk of default of its customers given the economic uncertainty caused by this pandemic. During the second quarter of 2022, the Company recorded impairment recoveries on trade and other receivables of $22 (2021 - $171 impairment recoveries). On a year-to-date basis, the Company recorded impairment losses on trade and other receivables of $8 (2021 - $295 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:
	June 26 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	180,377 24,094 4,740 3,177 212,388 (971) 211,417	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 fi rst quarter.

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