Winpak Ltd — Interim / Quarterly Report 2023

Oct 26, 2023

Winpak Ltd. Interim Condensed Consolidated Financial Statements Third Quarter Ended: October 1, 2023

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

Winpak Ltd.

Condensed Consolidated Balance Sheets (thousands of US dollars) (unaudited)

		October 1	December 25
	Note	2023	2022
Assets
Current assets:
Cash and cash equivalents		513,021	398,673
Trade and other receivables	15	189,376	204,040
Income taxes receivable		4,224	3,573
Inventories	8	241,750	288,118
Prepaid expenses		10,875	5,602
Derivative fi nancial instruments		128	-
		959,374	900,006
Non-current assets:
Property, plant and equipment	9	527,835	518,590
Intangible assets and goodwill		32,223	33,110
Employee benefi t plan assets	10	11,119	10,783
		571,177	562,483
Total assets		1,530,551	1,462,489
Equity and Liabilities
Current liabilities:
Trade payables and other liabilities		84,576	102,382
Contract liabilities		757	2,621
Income taxes payable		3,988	18,393
Derivative fi nancial instruments		335	1,328
		89,656	124,724
Non-current liabilities:
Employee benefi t plan liabilities	10	8,388	8,334
Deferred income		17,347	17,946
Provisions and other long-term liabilities		11,355	12,062
Deferred tax liabilities		55,964	60,648
		93,054	98,990
Total liabilities		182,710	223,714
Equity:
Share capital		29,195	29,195
Reserves		(132)	(972)
Retained earnings		1,283,484	1,174,551
Total equity attributable to equity holders of the Company		1,312,547	1,202,774
Non-controlling interests		35,294	36,001
Total equity		1,347,841	1,238,775
Total equity and liabilities		1,530,551	1,462,489

Winpak Ltd.

Condensed Consolidated Statements of Income

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

		Quarter Ended (Note 2)		Year-To-Date Ended (Note 2)
		October 1	September 25	October 1	September 25
	Note	2023	2022	2023	2022
Revenue	6	273,790	302,532	865,770	888,768
Cost of sales		(193,781)	(221,051)	(611,010)	(636,503)
Gross profi t		80,009	81,481	254,760	252,265
Sales, marketing and distribution expenses		(22,564)	(23,881)	(70,517)	(72,168)
General and administrative expenses		(10,647)	(9,524)	(30,758)	(28,773)
Research and technical expenses		(4,980)	(4,380)	(14,738)	(13,130)
Pre-production expenses		-	(1,995)	-	(2,915)
Other (expenses) income	7	(1,057)	(2,394)	235	(3,283)
Income from operations		40,761	39,307	138,982	131,996
Finance income		6,697	1,847	17,150	2,802
Finance expense		(1,664)	(1,379)	(4,599)	(2,790)
Income before income taxes		45,794	39,775	151,533	132,008
Income tax expense		(11,970)	(10,425)	(38,956)	(34,621)
Net income for the period		33,824	29,350	112,577	97,387
Attributable to:
Equity holders of the Company		33,991	29,567	113,284	97,108
Non-controlling interests		(167)	(217)	(707)	279
		33,824	29,350	112,577	97,387
Basic and diluted earnings per share - cents	13	52	45	174	149

Condensed Consolidated Statements of Comprehensive Income

(thousands of US dollars) (unaudited)

					Quarter Ended (Note 2)		Year-To-Date Ended (Note 2)
		October 1	September 25	October 1	September 25
	Note	2023	2022	2023	2022
Net income for the period		33,824	29,350	112,577	97,387
Items that will not be reclassifi ed to the statements of income:
Cash fl ow hedge (losses) gains recognized		(633)	-	133	-
Cash fl ow hedge gains transferred to property, plant and equipment		(42)	-	(59)	-
		(675)	-	74	-
Items that are or may be reclassifi ed subsequently to the statements of income:
Cash fl ow hedge (losses) gains recognized		(863)	(1,575)	91	(1,679)
Cash fl ow hedge losses transferred to the statements of income	7	37	263	955	541
Income tax effect		222	351	(280)	305
		(604)	(961)	766	(833)
Other comprehensive (loss) income for the period - net of income tax		(1,279)	(961)	840	(833)
Comprehensive income for the period		32,545	28,389	113,417	96,554
Attributable to:
Equity holders of the Company		32,712	28,606	114,124	96,275
Non-controlling interests		(167)	(217)	(707)	279
		32,545	28,389	113,417	96,554

Winpak Ltd.

Condensed Consolidated Statements of Changes in Equity

(thousands of US dollars) (unaudited)

			Attributable to equity holders of the Company
	Note	Sharecapital	Reserves	Retainedearnings	Total	Noncontrollinginterests	Total equity
Balance at December 27, 2021		29,195	(524)	1,050,949	1,079,620	36,119	1,115,739
Comprehensive (loss) income for the periodCash fl ow hedge losses, net of taxCash fl ow hedge losses transferred to the statements		-	(1,230)	-	(1,230)	-	(1,230)
of income, net of taxOther comprehensive loss		--	397(833)	--	397(833)	--	397(833)
Net income for the periodComprehensive (loss) income for the period		--	-(833)	97,10897,108	97,10896,275	279279	97,38796,554
Dividends	12	-	-	(4,512)	(4,512)	-	(4,512)
Balance at September 25, 2022		29,195	(1,357)	1,143,545	1,171,383	36,398	1,207,781
Balance at December 26, 2022		29,195	(972)	1,174,551	1,202,774	36,001	1,238,775
Comprehensive income (loss) for the periodCash fl ow hedge gains, net of taxCash fl ow hedge losses transferred to the statements		-	199	-	199	-	199
of income, net of taxCash fl ow hedge gains transferred to property, plant and		-	700	-	700	-	700
equipmentOther comprehensive income		--	(59)840	--	(59)840	--	(59)840
Net income (loss) for the period		-	-	113,284	113,284	(707)	112,577
Comprehensive income (loss) for the period		-	840	113,284	114,124	(707)	113,417
Dividends	12	-	-	(4,351)	(4,351)	-	(4,351)
Balance at October 1, 2023		29,195	(132)	1,283,484	1,312,547	35,294	1,347,841

Winpak Ltd. Condensed Consolidated Statements of Cash Flows

(thousands of US dollars) (unaudited)

		Quarter Ended (Note 2)		Year-To-Date Ended (Note 2)
		October 1	September 25	October 1	September 25
	Note	2023	2022	2023	2022
Cash provided by (used in):
Operating activities:
Net income for the period		33,824	29,350	112,577	97,387
Items not involving cash:
Depreciation		11,930	11,912	35,969	35,791
Amortization - deferred income		(461)	(429)	(1,300)	(1,283)
Amortization - intangible assets		397	428	1,243	1,273
Employee defi ned benefi t plan expenses		623	1,149	2,446	3,325
Net fi nance income		(5,033)	(468)	(12,551)	(12)
Income tax expense		11,970	10,425	38,956	34,621
Other		76	523	(2,178)	(2,336)
Cash fl ow from operating activities before the following		53,326	52,890	175,162	168,766
Change in working capital:
Trade and other receivables		8,970	5,181	14,664	(28,854)
Inventories		26,003	(20,451)	46,368	(93,699)
Prepaid expenses		(1,530)	1,987	(5,273)	(730)
Trade payables and other liabilities		3,009	(15,692)	(18,003)	18,419
Contract liabilities		(29)	(1,647)	(1,864)	(3,343)
Employee defi ned benefi t plan contributions		(1,523)	(35)	(2,308)	(1,675)
Income tax paid		(10,407)	(902)	(56,780)	(18,205)
Interest received		6,700	1,703	16,782	2,438
Interest paid		(1,547)	(1,293)	(4,509)	(2,574)
Net cash from operating activities		82,972	21,741	164,239	40,543
Investing activities:
Acquisition of property, plant and equipment - net		(22,921)	(11,801)	(44,506)	(35,292)
Acquisition of intangible assets		(70)	(22)	(356)	(253)
		(22,991)	(11,823)	(44,862)	(35,545)
Financing activities:
Payment of lease liabilities		(234)	(219)	(680)	(647)
Dividends paid	12	(1,472)	(1,512)	(4,349)	(4,597)
		(1,706)	(1,731)	(5,029)	(5,244)
Change in cash and cash equivalents		58,275	8,187	114,348	(246)
Cash and cash equivalents, beginning of period		454,746	369,028	398,673	377,461
Cash and cash equivalents, end of period		513,021	377,215	513,021	377,215

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 25, 2022, which are included in the Company's 2022 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 53rd week every fi ve to six years. The 2023 fi scal year comprises 53 weeks and the 2022 fi scal year comprised 52 weeks. Each quarter of 2023 and 2022 comprises 13 weeks with the exception of the fi rst quarter of 2023, which comprised 14 weeks.

The unaudited interim condensed consolidated fi nancial statements were approved by the Audit Committee on behalf of the Board of Directors on October 26, 2023.

3. Accounting Standards Implemented in 2023

The following accounting standards came into effect commencing in the Company's 2023 fi scal year:

(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 were implemented with retrospective application, effective December 26, 2022. The amendments had no impact on the Company's unaudited interim condensed consolidated fi nancial statements.

4. Future Accounting Standards

(a) 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. The Company does not expect the amendments to have a signifi cant impact on the consolidated fi nancial statements when they are adopted in 2024.

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.

Notes to Condensed Consolidated Financial Statements For the periods ended October 1, 2023 and September 25, 2022 (thousands of US dollars, unless otherwise indicated) (Unaudited)

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, pet food, 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:

	October 12023	December 252022
United States	253,167	249,075
Canada	288,867	284,019
Mexico	18,024	18,606
	560,058	551,700

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.

Disaggregation of Revenue

		Quarter Ended		Year-To-Date Ended
	October 1	September 25		September 25
	2023	2022	2023	2022
Operating segment
Flexible packaging	146,251	167,033	461,418	480,619
Rigid packaging and fl exible lidding	121,034	127,486	380,242	382,760
Packaging machinery	6,505	8,013	24,110	25,389
	273,790	302,532	865,770	888,768
Geographic segment
United States	215,886	244,980	686,548	716,728
Canada	37,734	36,536	116,748	112,873
Mexico and other	20,170	21,016	62,474	59,167
	273,790	302,532	865,770	888,768

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 October 1, 2023 and September 25, 2022. Other markets include medical, pharmaceutical, nutraceutical, personal care, industrial and other consumer goods.

7. Other (Expenses) Income

		Quarter Ended		Year-To-Date Ended
Amounts shown on a net basis	October 12023	September 252022	October 12023	September 252022
Foreign exchange (losses) gains	(1,020)	(2,131)	1,484	(2,742)
Cash fl ow hedge losses transferred from othercomprehensive income	(37)	(263)	(955)	(541)
	(1,057)	(2,394)	529	(3,283)
Employee benefi t plan settlement expense (Note 10)	-	-	(294)	-
	(1,057)	(2,394)	235	(3,283)

8. Inventories

	October 1	December 25
	2023	2022
Raw materials	94,537	128,371
Work-in-process	42,433	46,022
Finished goods	86,467	97,163
Spare parts	18,313	16,562
	241,750	288,118

During the third quarter of 2023, the Company recorded, within cost of sales, inventory write-downs for slow-moving and obsolete inventory of $3,323 (2022 - $3,438) and reversals of previously written-down items of $497 (2022 - $461). On a year-to-date basis, the Company recorded, within cost of sales, inventory write-downs for slow-moving and obsolete inventory of $7,993 (2022 - $7,302) and reversals of previously written-down items of $3,584 (2022 - $1,826).

9. Property, Plant and Equipment

At October 1, 2023, the Company has commitments to purchase plant and equipment of $99,006 (December 25, 2022 - $31,061). No impairment losses or impairment reversals were recognized during the year-to-date periods ended October 1, 2023 and September 25, 2022.

10. Employee Benefi t Plans

On April 25, 2023, the Company entered into a contract to purchase annuities totaling $12,794 with respect to certain retired members of the US defi ned benefi t pension plan. The corresponding benefi t obligation relating to these plan members was $12,500, resulting in a loss on settlement of $294 which was recorded in other (expenses) income.

11. Leases

Extension Options

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 October 1, 2023, potential future lease payments not included in lease liabilities totalled $4,407 on a discounted basis.

12. Dividends

During the third quarter of 2023, dividends in Canadian dollars of 3 cents per common share were declared (2022 - 3 cents) and on a year-to-date basis, 9 cents per common share were declared (2022 - 9 cents).

13. Earnings Per Share

		Quarter Ended		Year-To-Date Ended
	October 1	September 25		September 25
	2023	2022	2023	2022
Net income attributable to equity holders of the Company	33,991	29,567	113,284	97,108
Weighted average shares outstanding (000's)	65,000	65,000	65,000	65,000
Basic and diluted earnings per share - cents	52	45	174	149
	13

14. 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 October 1, 2023Foreign currency forward contracts - net	-	(207)	-	(207)
At December 25, 2022Foreign currency forward contracts - net	-	(1,328)	-	(1,328)

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 October 1, 2023, the supplier rebate receivable balance that was offset was $5,967 (December 25, 2022 - $7,002).

15. 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 October 1, 2023, a one-cent change in the period-end foreign exchange rate from 0.7366 to 0.7266 (CDN to US dollars) would have decreased net income by $157 for the third quarter of 2023. Conversely, a one-cent change in the period-end foreign exchange rate from 0.7366 to 0.7466 (CDN to US dollars) would have increased net income by $157 for the third quarter of 2023.

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 for special dividend payments made in CDN dollars and when equipment purchases will be settled in other foreign currencies such as the Euro dollar. 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.

Notes to Condensed Consolidated Financial Statements For the periods ended October 1, 2023 and September 25, 2022 (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 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 third quarter of 2023 and the Company realized pre-tax foreign exchange gains of $5 (year-to-date losses - $896). Of these foreign exchange differences, losses of $37 were recorded in other (expenses) income (year-to-date losses - $955) and gains of $42 were recorded in property, plant and equipment (year-to-date gains $59). During the third quarter of 2022, the Company realized pre-tax foreign exchange losses of $263 (year-to-date losses - $541) which were recorded in other (expenses) income.

As at October 1, 2023, the Company had US to CDN dollar foreign currency forward contracts outstanding with a notional amount of US $58.4 million at an average exchange rate of 1.3479 maturing between October 2023 and August 2024. The fair value of these fi nancial instruments was negative $207 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 October 1, 2023 and September 25, 2022.

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 October 1, 2023 cash and cash equivalents balance of $513.0 million, a 1.0 percent increase/decrease in interest rate fl uctuations would increase/decrease income before income taxes by $5,130 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 October 1, 2023, 76 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 $513.0 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

The Company is exposed to credit risk from its cash and cash equivalents held with banks and fi nancial institutions, derivative fi nancial instruments (foreign currency forward contracts), as well as credit exposure to customers, including outstanding trade and other receivable balances.

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

December 25
2022
398,673
204,040
-
602,713

Notes to Condensed Consolidated Financial Statements For the periods ended October 1, 2023 and September 25, 2022 (thousands of US dollars, unless otherwise indicated) (Unaudited)

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 third quarter of 2023, the Company incurred costs on the sale of trade receivables of $1,554 (2022 - $1,294). Of these costs, $1,452 was recorded in fi nance expense (2022 - $965) and $102 was recorded in general and administrative expenses (2022 - $329). On a year-to-date basis, the Company incurred costs on the sale of trade receivables of $4,482 (2022 - $2,521). Of these costs, $4,179 was recorded in fi nance expense (2022 - $1,943) and $303 was recorded in general and administrative expenses (2022 - $578).

As at October 1, 2023, 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) 31 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. During the third quarter of 2023, the Company recorded impairment losses on trade and other receivables of $97 (2022 - $34 impairment recoveries). On a year-to-date basis, the Company recorded impairment losses on trade and other receivables of $206 (2022 - $26 impairment recoveries).

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:

	October 12023	December 252022
Current (not past due)	165,606	176,720
1 - 30 days past due	20,572	22,119
31 - 60 days past due	1,552	3,145
More than 60 days past due	3,632	3,573
	191,362	205,557
Less: Allowance for expected credit losses	(1,986)	(1,517)
Total trade and other receivables, net	189,376	204,040

16. 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.