ANNUAL REPORT
2011
Committed to Excellence
À la recherche de l'excellence
2011
RAPPORT ANNUEL
IN ALL SUCCESSFUL BUSINESSES THE KEY TO
SUCCESS RELIES ON MANAGEMENT’S ABILITY TO
MASTER THREE FUNDAMENTALS:
> COMMITMENT TO CUSTOMER
> CLEAR VISION OF GOALS
> CORRECT TIMING OF ACTIONS
OUR SENIOR MANAGEMENT
TEAM KNOWS,
UNDERSTANDS AND LIVES BY THESE PILLARS OF
BUSINESS FUNDAMENTALS.
AFFAIRES.
VIT EN ACCORD AVEC CES PRINCIPES ESSENTIELS EN
NOTRE ÉQUIPE DE DIRECTION CONNAÎT, COMPREND ET
> DES ACTIONS PRISES AU MOMENT PROPICE
> UNE VISION CLAIRE DES OBJECTIFS
> L’ENGAGEMENT ENVERS LE CLIENT
PRINCIPES DE GESTION :
DU SUCCÈS RÉSIDE DANS LA MAÎTRISE DE TROIS
DANS TOUTES LES ENTREPRISES PROSPÈRES, LA CLÉ
R E P O R T T O S H A R E H O L D E R S
ANNUAL REPORT - DECEMBER 31, 2011
Management is pleased to report the rationalization of the company’s production capacity to reduce costs has
allowed the company to return to profitability in 2011 albeit in a modest fashion. This turnaround, coupled with
the continued reduction of long term debt and the injection of capital through two private placements allowed our
Imaflex USA subsidiary to acquire a going concern in the first quarter of the new year. This asset purchase alters
the Imaflex USA business model vastly improving the Company’s U.S. operations that have been a challenge thus
far. We expect this acquisition will create profitability in the USA which has thus far eluded us. We finally have the
model which permits management to plan for growth, in revenues and profits.
In conjunction with this business model change at Imaflex USA, management is pleased to report that its R&D
expenses have culminated with the filing of a joint patent application. This patent is co-owned by Imaflex Inc.
and Bayer Innovation GmbH of Germany. Though the initial filing is in the USA, the intent is to file for patent
protection worldwide. With Bayer, we have developed a revolutionary multilayered film capable of releasing active
ingredients, using only water as a catalyst, to grow crops in a safer and more sustainable manner. The active
ingredients replace many chemicals now used to grow our food, and do it in a manner which benefits our world’s
resources; its water table, and its atmosphere. The product’s uniqueness, and its ability to simultaneously reduce
costs for the growers while helping our environment, practically ensures that its initial launch will be successful.
Management is hopeful that it can market this film by year end, and is confident that once it is introduced in the
marketplace, its adoption by growers will increase in an exponential fashion.
Management feels confident that going into the future our new film will be the driver which sees Imaflex Inc.
become a major player in the worldwide segment of PlastiCulture market. It is a 3 trillion pound market as at
2007, and Management aspires to capitalize on the film’s potential as quickly and as completely as it can. It will
realize its vision via a combination of the strategic and geographical acquisitions of Companies who possess the
equipment capable of manufacturing this soon to be patented product or by licensing the technology to companies
which can produce it if Management feels that they do not make suitable acquisition targets.
Management’s vision of creating a fast growing public company with a constant revenue stream and superior
profitability has always been in place. However, monetary restraints, forced upon us by debt payments on
machinery that was not contributing to profitability, and the recent recession simply did not permit Management
to execute its plan.
Last year I stated that success was around the corner, and that I believed that the time had come. It has.
I extend special thanks to our polymer engineers, including those at Bayer who succeeded in creating this exciting
“game changer”. A special thanks to our suppliers and our employees for their dedication and support in helping
us achieve our objectives. Lastly, I would like to thank our patient shareholders for their continued trust. Soon
time will show that it was well founded. Management’s focus , which was diverted for many reasons for many years,
can now be focused on moving forward with confidence to create the Company that has always been envisioned.
1
F I N A N C I A L H I G H L I G H T S
ANNUAL REPORT - DECEMBER 31, 2011
($ thousands, except
per share data)
Operating summary
Sales
Net profit (loss)
Profit (loss) per share
EBIT(1)
EBITDA(2)
EBITDA per share
Financial Position
Working Capital
Capital assets
Total assets
Total long-term debt
(including finance leases)
Shareholder’s equity
Year ended
December 31,
2011
Year ended
December 31,
2010
Year ended
December 31,
2009
Year ended
December 31,
2008
Year ended
December 31,
2007
$ 46,959
74
0.002
832
2,141
0.053
1,748
14,602
31,102
3,133
14,926
$ 46,489
(1,751)
(0.044)
(1,158)
189
0.005
(550)
15,663
33,005
5,573
14,026
$ 48,190
(403)
(0.010)
420
3,512
0.089
249
16,631
35,515
7,196
15,944
$ 54,570
(2,091)
(0.056)
(495)
2,901
0.078
(2,419)
20,337
39,468
11,250
16,591
$ 46,840
(56)
(0.002)
1,176
3,822
0.102
6,525
22,900
39,301
13,717
18,130
(1) Earnings before interest and taxes
(2) Earnings before interest, taxes, depreciation and amortization
Q U A R T E R L Y F I N A N C I A L I N F O R M A T I O N
SALES
NET PROFIT (LOSS)
2010
$ 12,043
11,747
10,893
11,806
$ 46,489
2011
$ 117
70
82
(195)
2010
$ 144
(89)
(834)
(972)
$ 74
$ (1,751)
EBITDA
PROFIT (LOSS) PER SHARE
2010
$ 769
392
(448)
(524)
2011
2010
$ 0.003
0.002
0.002
(0.005)
$ 0.004
(0.002)
(0.021)
(0.025)
$ 189
$ 0.002
$ (0.044)
2011
$ 14,343
11,554
10,461
10,601
$ 46,959
2011
$ 742
686
615
98
$ 2,141
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S ( “ M D & A ” )
ANNUAL REPORT - DECEMBER 31, 2011
As required by regulators, the purpose of this MD&A is to explain management’s point of view on Imaflex Inc.’s (the
“Company” or “Imaflex”) past performance and future outlook. This report also provides information to improve
the reader’s understanding of the consolidated financial statements and related notes. Please refer to the audited
consolidated financial statements for the period ending December 31, 2011 when reading this MD&A. Unless otherwise
indicated, all financial data in this document is prepared in accordance with International Financial Reporting Standards
(“IFRS” hereafter) and all amounts are expressed in Canadian dollars. In this MD&A we also use financial measures
that are not defined by IFRS. Please refer to the section entitled “Non-IFRS Measures” for a complete description
of these measures. The consolidated financial statements include the accounts of the Company, those of its
wholly-owned subsidiary, Imaflex USA, Inc. (“Imaflex USA”) and its divisions, Canguard Packaging (“Canguard”)
and Canslit (“Canslit”). To facilitate the reading of this report, the terms “Imaflex”, “Company”, “we”, “our”, “us”
all refer to Imaflex Inc. together with its subsidiary. This MD&A is prepared in conformity with National Instrument
51-102 and Form 51-102F1 and has been approved by the board of directors prior to its release.
FORWARD LOOKING STATEMENTS
From time to time, we make forward-looking statements within the meaning of certain securities laws, including
the “safe harbor” provisions of the Securities Act (Ontario). We may make such statements in this document, in
other filings with Canadian regulators, in reports to shareholders or in other communications. These forward-looking
statements include, among others, statements regarding the business and anticipated financial performance of the
Company. The words “may”, “could”, “should”, “would”, “outlook”, “believe”, “plan”, “anticipate”, “expect”, “intend”,
“objective,” the use of the conditional tense and words and expressions of similar nature are intended to identify
forward-looking statements.
By their very nature, forward-looking statements involve inherent risks and uncertainties, both general and specific,
which give rise to the possibility that predictions, forecasts, projections and other forward-looking statements will not
be achieved. We caution readers not to place undue reliance on these statements, as a number of important factors
could cause our actual results to differ materially from the beliefs, plans, objectives, expectations, anticipations,
estimates and intentions expressed in such forward-looking statements. These factors include, but are not limited to,
the length and severity of the current economic downturn, management of credit, market dynamics, liquidity, funding
and operational risks; the strength of the Canadian and U.S. economies in which we conduct business; the impact of
the movement of the Canadian dollar relative to other currencies, particularly the U.S. dollar; the effects of changes
in interest rates; the effects of competition in the markets in which we operate; our ability to successfully align our
organization, resources, and processes; the availability and price of raw materials; failure to achieve planned growth
associated with the U.S. expansion and future sales; changes in accounting policies and methods we use to report our
financial condition, including uncertainties associated with critical accounting assumptions and estimates; operational
and infrastructure risks; other factors may affect future results including, but not limited to, timely development and
introduction of new products and services, changes in tax laws, technological changes, new regulations; the possible
impact on our businesses from public-health emergencies, international conflicts and other developments; and our
success in anticipating and managing the foregoing risks.
We caution our readers that the foregoing list of important factors that may affect future results is not exhaustive.
When relying on our forward-looking statements to make decisions with respect to the Company, investors and others
should carefully consider the foregoing factors and other uncertainties and potential events. Unless otherwise required
by the securities authorities, we do not undertake to update any forward-looking statement that may be made from time
to time by us or on our behalf. The forward-looking statements contained herein are based on information available
as of April 19, 2012.
3
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S ( “ M D & A ” )
( C O N T I N U E D )
ANNUAL REPORT - DECEMBER 31, 2011
COMPANY OVERVIEW
The Company operates in one reportable segment being the development, manufacture and sale of packaging materials.
The results include those of Imaflex located in Montréal (Québec), its divisions Canguard and Canslit located in
Victoriaville (Québec), and its wholly owned subsidiary, Imaflex USA, located in Thomasville (North Carolina). All
intercompany balances and transactions have been eliminated on consolidation.
Imaflex and Imaflex USA specialize in the manufacture and sale of custom-made polyethylene films suited for various
packaging needs of our customers. Canguard specializes in the manufacture and sale of polyethylene garbage bags
for both the retail and industrial markets. Canslit specializes in the metallization of polyethylene film.
The Class A shares of the Company are listed for trading on the TSX Venture Exchange under the symbol “IFX.A”. The
Company’s head office is located in Montréal (Québec).
NON-IFRS MEASURES
The Company’s management uses a non-IFRS measure in this MD&A, namely EBITDA. Management wishes to
specify that in the performance of the Company’s financial results, EBITDA is shown as “Earnings before interest,
taxes, depreciation and amortization”. The reader may refer to the table below for the reconciliation of the EBITDA used
by the Company to its reported profit (loss).
Reconciliation of EBITDA to profit (loss)
($ thousands,
except per share data)
Three months ended
Year ended
December 31
2011
December 31
2010
December 31
2011
December 31
2010
Profit (loss)
$ (195)
$ (972)
$ 74
$ (1,751)
Plus:
Income taxes
Finance expense
Depreciation and amortization
Change in fair value of derivative
financial instrument
(144)
122
329
(14)
9
165
305
(26)
EBITDA
$ 98
Basic and diluted EBITDA per share * $ 0.002
$ (519)
$ (0.013)
264
556
1,309
(62)
$ 2,141
$ 0.053
76
573
1,347
(51)
$ 194
$ 0.005
*(Basic and diluted weighted average number of shares outstanding for the quarter of 40,665,791 and
40,706,240 respectively (2010 - 39,350,002) and 40,103,426 and 40,127,696 respectively for the year (2010 -
39,350,002).
While EBITDA is not a standard IFRS measure, management, analysts, investors and others use it as an indicator
of the Company’s financial and operating management and performance. EBITDA should not be construed as an
alternative to profit (loss) determined in accordance with IFRS as an indicator of the Company’s performance. The
Company’s method of calculating EBITDA may be different from those used by other companies.
4
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S ( “ M D & A ” )
( C O N T I N U E D )
ANNUAL REPORT - DECEMBER 31, 2011
BUSINESS OVERVIEW
Imaflex is primarily a provider of polyethylene films to converters, who process our film into a finished product.
The converting process involves printing the required information on the film that Imaflex supplies them based on
their end-customer’s needs. Imaflex also manufactures bags on rolls that are sold for a variety of uses, including
garbage bags. Additionally, the Company produces specialized metallized film for specific agricultural usage.
Imaflex operates three manufacturing facilities, two of which are located in the Province of Quebec, in Montreal and
in Victoriaville, and one is located in Thomasville, North Carolina, in the United States. The three facilities cover a
total area of approximately 20,000 square meters or 200,000 square feet.
MARKET OPPORTUNITY
The North American flexible packaging market is valued at approximately $25 billion. Although this market is
highly fragmented and commoditized in terms of pricing, there are niches within this larger market that offer the
opportunity of increased profitability.
Management believes that four factors will contribute to Imaflex’s long term growth and its ability to properly
position itself within the industry in which it operates.
The first is continued investment in research and development efforts allowing our research teams to develop on a
timely basis new products for highly profitable niche markets as the older niches gradually become price sensitive
with the entry of new participants.
The second is the efficiency of our equipment, and our commitment to sustain this efficiency with the required
capital investments. This will allow us to remain cost competitive in the marketplace.
The third is our access to capital. Being a publicly traded company we have the ability to tap into the equity markets
if the right opportunity comes along. This is in addition to the credit facilities currently provided to the Company
by its banks.
The fourth is our manufacturing presence in both Canada and the United States which confers to the Company a
competitive advantage in terms of logistics, currency, and manufacturing flexibility.
OUTSOURCING
Our industry is capital intensive. Labour is only a minor component in the total cost of production. As a result,
outsourcing production to countries with lower wages would not have a material impact on the cost of production,
especially when factoring in expenses related to freight and duty.
Furthermore the risks associated with quality and on-time delivery would far outweigh any minimal benefit
that would be generated by lower labour costs. Accordingly, management does not currently contemplate the
establishment of an outsourcing strategy.
5
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S ( “ M D & A ” )
( C O N T I N U E D )
ANNUAL REPORT - DECEMBER 31, 2011
BUSINESS STRATEGY
Imaflex is focused on providing its customers the highest quality products on a timely basis and at competitive
prices. This strategy has been the backbone of our growth and it has served us well.
Some competitors, experiencing idle operations or producing at below average capacity levels, may attempt to gain
market share through reduced pricing, particularly during difficult economic times.
Imaflex still believes that maintaining its focus on the quality of its products and the excellence of its customer
service remains its best long term strategy, as these two characteristics define our position and reputation in the
market, and this regardless of the fluctuations in the economic cycle.
GROWING CUSTOMER BASE
In our market it becomes essential to sell value-added products and avoid producing highly commoditized
products generating lower margins. The key to the success of this strategy is to identify and build relationships with
customers having specific needs and eventually develop products that address their customized specifications.
Our sales force’s primary mandate is to find such clients.
RISK FACTORS
The Company is involved in a competitive industry and marketplace in which there are a number of participants. To
accommodate and effectively manage future growth, the Company continues to improve its operational, financial
and management information systems, as well as its production procedures and controls. The Company’s success
is largely the result of the continued contributions of its employees and the Company’s ability to attract and retain
qualified management, sales and operational personnel.
The market the Company competes in has historically shown resiliency and growth even at the worst economic
times. The Company’s customers operate predominantly in the food packaging and agriculture markets. This fact,
coupled with the expanding product lines and reliance on newer and faster equipment should help it weather the
potential volatility caused by uncertainty in the North American economic climate.
Factors which can impact the Company include, but are not limited to: management of credit, market dynamics,
liquidity, funding and operational risks; the strength of the Canadian and U.S. economies in which we conduct
business; the impact of the movement of the Canadian dollar relative to other currencies, particularly the U.S.
dollar; the effects of changes in interest rates; the effects of competition in the markets in which we operate; our
ability to successfully align our organization, resources, and processes; the availability and price of raw materials;
failure to achieve planned growth associated with the U.S. expansion; changes in accounting policies and methods
we use to report our financial condition, including uncertainties associated with critical accounting assumptions
and estimates; operational and infrastructure risks; other factors may affect future results including, but not limited
to, timely development and introduction of new products and services, changes in tax laws, technological changes,
new regulations; the possible impact on our businesses from public-health emergencies, international conflicts
and other developments; and our success in anticipating and managing the foregoing.
6
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S ( “ M D & A ” )
( C O N T I N U E D )
ANNUAL REPORT - DECEMBER 31, 2011
GENERAL SITUATION OF THE POLYETHYLENE BLOWN FILM MARKET
The latter part of 2011 was impacted by a decrease in the price of resin, which came close to the pricing in late
2010. The increased competition in the market kept margins low, and the industry experienced slow sales in many
sectors of the market.
LOSS OF BUSINESS FROM A SIGNIFICANT CUSTOMER
One of our business strategies has been to limit the purchases of any particular customer to 15% of our revenues.
This strategy ensures us that our profitability and financial well-being are not dependent on any one client.
COMPETITION FROM OTHER COMPANIES
Competition in our market is at the moment quite intense due to the imbalance between supply and demand.
Nevertheless, because we are dealing in a $25 billion market; because we have highly skilled teams that are
quick to respond to customer needs; because we have a diversified manufacturing base; and because the bulk
of our customers deal in food related products, we believe that we have a competitive edge. It may not always
translate into a greater net profit, but it certainly does translate into customer loyalty should we decide to match
our competitors’ prices.
SEASONALITY OF OPERATIONS
Our operations in Victoriaville and in Thomasville are subject to seasonality as a result of their partial manufacturing
focus in the production of agricultural film products sold to fruit and vegetable growers. Customer demand in this
market segment peaks twice yearly. It is imperative to build inventory during the low seasons to be in a position to
respond to customer demand when it peaks. We believe to have sufficient finished goods in inventory to respond
to the near term demand of our customers.
However, because these locations also manufacture products that are destined for other markets which are not
affected by seasonal downturns, these two plants are still able to operate all year, albeit at lower capacity levels.
EXPOSURE TO PRODUCT LIABILITY
Due to the nature of its operations, which consist of manufacturing polyethylene films transformed by our
customers for their end-customers, Imaflex’s exposure to product liability is low. Imaflex is not exposed to liability
for personal injury or death arising from negligence in the manufacturing of the films either.
The only market segment that exposes the Company to potential product liability claims is the agricultural market.
In this market, proof of negligence in our manufacturing process could entail some form of compensation in the
event that the expected crop yields do not materialize.
Although the likelihood of a claim in this market is low, we are nonetheless covered by a product liability insurance
policy in the amount of $25,000,000.
7
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S ( “ M D & A ” )
( C O N T I N U E D )
ANNUAL REPORT - DECEMBER 31, 2011
FLUCTUATIONS IN OPERATING RESULTS
It is important to note that profitability may vary from quarter to quarter, irrespective of quarterly sales. This is due
to many factors, including and not limited to: competitive conditions in the businesses in which the Company
participates; general economic conditions and normal business uncertainty; product mix; fluctuations in foreign
currency exchange rates; the availability and costs of raw materials; changes in the Company’s relationship with its
suppliers; and interest rate fluctuations and other changes in borrowing costs.
EXPOSURE TO INTEREST RATE FLUCTUATIONS
We have not, nor do we expect to have, a significant increase in borrowing costs. Although the expected increase
in interest rates will impact our interest expense, the decrease in our outstanding long term debt should offset the
increase in interest rates.
ABILITY TO ATTRACT AND RETAIN QUALIFIED PERSONNEL
Imaflex’s core operational management team has been stable over the past years and was able to keep key
competencies within the Company. This is because the three founders, who have more than 100 years of
combined experience in management and R & D, were and remain at the core of its management team. However
as the Company has grown, we have strengthened our team with the addition of individuals having a variety of
competencies, be it accounting, operations, or engineering.
This has resulted in a work environment that allows for the free exchange of ideas in an effort to ensure that the
Company remains at the forefront of our industry. We are confident that we can retain and, if need be, attract
qualified individuals that will contribute to our quest of building shareholder value.
MANAGEMENT OF GROWTH
Imaflex’s history attests to its management’s ability to create and manage growth and to successfully adapt to
prevailing and continuously changing market conditions. Management believes that future success will also lie in
the ability to properly manage growth whether it comes from new markets and products, acquisitions, mergers, or
a combination of any or all three. This success will depend on the Company’s ability to seek out new opportunities
and to position itself such that it will be able to take advantage of them when they present themselves. Past
decisions have been made bearing this in mind and the Company is now in a better position to make this happen.
FOREIGN EXCHANGE FLUCTUATIONS
A portion of the Company’s sales and expenses as well as accounts receivable and payable are denominated in US
dollars. A portion of the revenue stream in US dollars acts as a natural hedge to cover expenses denominated in US
dollars. The Company does not use forward foreign exchange contracts to manage its residual foreign exchange
exposure.
ENVIRONMENTAL HAZARDS
The company’s raw materials, processes and finished goods do not have any hazardous implications. However we
do buy a few items which are used in our production equipment such as cooling products which may be hazardous,
but their use and manipulation are controlled. Though these products actually pose very little risk, they are handled
in a manner that fully complies with existing safety regulations.
8
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S ( “ M D & A ” )
( C O N T I N U E D )
ANNUAL REPORT - DECEMBER 31, 2011
RESULTS OF OPERATIONS (CONTINUED)
Quarterly Review
Overall, the profitability of the sales was much greater in 2011 than it was in 2010, due in part to the gross margin
on the products sold and in part to a lower cost of production. Administrative expenses increased mainly due to an
adjustment of the provision for doubtful accounts in 2010.
Management’s outlook for 2012 remains positive, as new products developed in 2010 and 2011 will start
contributing to sales, movements in the commodity markets should tend to stabilize and the Company’s customer
base is expected to grow.
($ thousands)
Three months ended
Year ended
December 31
2011
December 31
2010
December 31
2011
December 31
2010
Sales
$ 10,601
$ 11,806
$ 46,959
$ 46,489
In the fourth quarter, sales continued to struggle and decreased over 2010, mainly due to the decrease in sales
of polyester and garbage bags, offset by the increase in sales of agricultural mulch film. The Company is slowly
regaining the sales of garbage bags lost in the third and fourth quarters in order to return to the sales level
experienced in the first and second quarters. Moreover, the current stability in the pricing of polyester indicates that
the Company can regain part of those sales as well in 2012, which should enable sales to grow in 2012.
Over the twelve month period, sales increased slightly over 2010, as lower sales in the second half of the year
were offset by a much stronger first half of the year. Sales of polyethylene film increased and sales of metallized
polyester decreased due to market conditions varying considerably throughout the year in the polyester market. As
the Company is replacing normal customer attrition that occurred during the year and as new products are being
commercialized, management expects to return to the sales levels experienced during the first half of the year in
2011.
9
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S ( “ M D & A ” )
( C O N T I N U E D )
ANNUAL REPORT - DECEMBER 31, 2011
RESULTS OF OPERATIONS (continued)
($ thousands)
Three months ended
Year ended
December 31
2011
December 31 December 31
2011
2010
December 31
2010
Gross Profit ($)
before amortization of production equipment
%
Amortization of production equipment
Gross profit ($)
Gross profit (%)
$ 1,202
$ 773
$ 6,093
$ 4,894
11.3%
$ 264
$ 938
8.8%
6.5%
$ 225
$ 548
4.6%
13.0%
$ 992
$ 5,101
10.9%
10.5%
$ 987
$ 3,907
8.4%
Gross profit before amortization
Gross profit before amortization of production equipment increased by $429,000 in the fourth quarter of 2011
compared to 2010, going from $773,000 to $1,202,000. This increase is mainly attributable to higher profit
margins on the products sold as well as increased production efficiencies due to a lighter cost structure. The
Company’s gross margin before amortization of production equipment increased from 6.5% in 2010 to 11.3% in
2011, reflecting the considerable improvement in operations.
Over the twelve month period, the gross profit before amortization of production equipment increased by
$1,199,000, to $6,093,000 up from $4,894,000 in 2010. The improvement in profitability is due to more efficient
operations and better cost control. The sales mix was also more favourable as the sale of mulch film increased in
2011, regaining part of the sales lost in 2010.
($ thousands)
Three months ended
Year ended
December 31
2011
December 31 December 31
2011
2010
December 31
2010
Selling and administrative
As a % of sales
$ 978
9.2 %
$ 934
7.9 %
$ 4,005
8.5%
$ 4,164
9.0%
Selling and administrative expenses remained fairly stable over the three and twelve month periods. The selling
and administrative expenses in the fourth quarter increased in 2011 mainly due to the release of the provision for
doubtful accounts in 2010. In 2010, the Company’s exposure had decreased throughout the year requiring a lower
provision whereas the Company’s exposure remained relatively constant in 2011.
Over the twelve month period, despite the release in provision in 2010, selling and administrative expenses
decreased compared to 2010 due to the rationalization of the selling costs and administrative expenses.
($ thousands)
Three months ended
Year ended
December 31
2011
December 31 December 31
2011
2010
December 31
2010
Amortization – excluding
production equipment
$ 66
$ 80
$ 318
$ 360
Amortization of assets not used in production remained fairly constant for the three months ended December 31,
2011 but decreased slightly due to the decrease of the depreciable asset base during the course of 2011.
10
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S ( “ M D & A ” )
( C O N T I N U E D )
ANNUAL REPORT - DECEMBER 31, 2011
RESULTS OF OPERATIONS (continued)
($ thousands)
Three months ended
Year ended
December 31
2011
December 31 December 31
2011
2010
December 31
2010
Finance expense
$ 122
$ 165
$ 556
$ 573
Finance expense, excluding the revaluation of the interest rate swap, decreased for the three month period ending
December 31, 2011 due to a lower usage of the line of credit as well as lower balances in the long term debt.
For the twelve month period ending December 31, 2011, finance expense decreased due to a lower usage of the
line of credit in the latter part of the year and lower outstanding balances of long term borrowings. This was offset
by a higher usage of the line of credit early in 2011 and the issuance of long term borrowings late in 2010.
($ thousands)
Three months ended
Year ended
December 31
2011
December 31 December 31
2011
2010
December 31
2010
Foreign exchange loss (gain)
$ 193
$ 182
$ (95)
$ 213
Foreign exchange movements in the quarter remained fairly constant as the Canadian dollar weakened against the
US dollar causing a foreign exchange loss for the Company. Over the twelve month period, movements in foreign
exchange amounted to only a $95,000 gain in 2011 compared to a $213,000 loss in 2010.
($ thousands)
Three months ended
Year ended
December 31
2011
December 31 December 31
2011
2010
December 31
2010
Income taxes
As a % of profit (loss) before taxes
$ (144)
42.6%
$ 9
(0.9)%
$ 264
78.2%
$ 76
(4.5)%
The losses incurred in the fourth quarter resulted in an income tax recovery in 2011 whereas low taxable income
in 2010 resulted in a $9,000 income tax provision in 2010, for a net variance of $153,000 year over year. For the
twelve months ended December 31, 2011 the expenses for future income tax as well as positive net income in the
Canadian entity required an income tax expense of $264,000. In 2010, the Company’s losses resulted in an income
tax recovery, which was more than offset by the deferred tax expense for a net expense of $76,000.
11
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S ( “ M D & A ” )
( C O N T I N U E D )
ANNUAL REPORT - DECEMBER 31, 2011
RESULTS OF OPERATIONS (continued)
($ thousands)
Three months ended
Year ended
December 31
2011
December 31 December 31
2011
2010
December 31
2010
Profit (loss)
$ (195)
Basic and diluted earnings (loss) per share $ (0.005)
$ (972)
$ (0.025)
$ 74
$ 0.002
$ (1,751)
$ (0.044)
The loss in the fourth quarter improved from a loss of $972,000 in 2010 to a loss of $195,000 in 2011. This is
mainly explained by improvements in the Company’s gross profit and a lower provision for income taxes offset
by increased selling and administrative expenses of approximately $44,000. Despite lower sales in 2011, the
Company was able to decrease its loss due to more efficient operations.
For the twelve month period ending December 31, 2011, the loss decreased from $1,751,000 in 2010 to a profit of
$74,000 in 2011. This improvement is mainly explained by the reduction of operating costs in Imaflex USA enabling
the Company to achieve a much lighter cost structure. In the Canadian operations, operating efficiencies were
achieved by reallocating production in order to produce at a lower cost. Although the Company faced challenges
through the loss of sales of garbage bags and polyester, the increased sales of agricultural film and polyethylene
contributed to increased profitability.
The Company’s current plan to regain the market share that it lost in 2011 coupled with the increased sales of agricul-
tural film should yield better results in 2012.
Financial Position
December 31, 2011 vs. December 31, 2010
From December 31, 2010 to December 31, 2011, current assets decreased by $842,530 mainly due to a decrease
in inventories, offset by an increase in trade receivables and cash balances. The Company has sold inventory that it
kept for its agricultural film business and has optimized cash flow by keeping the level of resin inventory as low as
possible. The increase in receivables is mainly explained by the higher sales late in the quarter as well as extended
terms given to certain customers.
Current liabilities decreased by $3,140,791 during the period mainly due to long term debt decreasing by a total
of $2,385,009 and bank indebtedness decreasing by $711,516, for a total decrease of $3,096,525. Trade and other
payables remained fairly stable and the balance for finance leases decreased by $13,356. The current tax liability
increased by $111,145 due to a higher profit in 2011 compared to 2010.
The inclusion of the portion of long term debt not payable within the next twelve months in current liabilities is due
to the Company not respecting its interest bearing debt to EBITDA covenant under its banking agreement. Although
the Company’s profitability improved considerably in 2011, its profitability is still under what it could be making if
all revenue streams had materialized over the year and with the production assets it has. As profitability increases
and long term borrowings decrease, the Company should come closer to meeting the covenants included in its
banking agreement at the end of 2012. Given the improvement in profitability in 2011, the Company does not
believe it will be required to pay back the portion of the long term borrowings not payable within the next twelve
months, despite the presentation in current liabilities. Management’s expectations of revenue streams would bring
profitability closer to what the Company is able of achieving.
12
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S ( “ M D & A ” )
( C O N T I N U E D )
ANNUAL REPORT - DECEMBER 31, 2011
SUMMARY OF QUARTERLY RESULTS
Summary financial data derived from the Company’s unaudited quarterly financial statements and audited financial
statements for each of the eight most recently completed quarters are as follows:
For the quarters ending March, June, September and December
($ thousands, except per share data)
Q4/11 Q3/11
Q2/11 Q1/11
Q4/10
Q3/10
Q2/10 Q1/10
10,601
10,461
11,554
14,343
11,806
10,893
11,747
12,043
(195)
82
70
117
(972)
(834)
(89)
144
Sales
Profit (loss)
Earnings (loss) per share:
Basic and diluted
(0.005)
0.002
0.002
0.003
(0.025)
(0.021)
(0.002)
0.004
It is important to note that profitability may vary from quarter to quarter, irrespective of quarterly sales due to
many factors. These factors include and are not limited to: competitive conditions in the businesses in which the
Company participates; general economic conditions and normal business uncertainty; product mix; fluctuations in
foreign currency rates; the availability and costs of raw materials; changes in the Company’s relationship with its
suppliers; and interest rate fluctuations and other changes in borrowing costs.
LIQUIDITY
Working capital as at December 31, 2011 was $1,748,337 compared with working capital of ($549,924) at
December 31, 2010. IFRS standards required all debt to be presented as short term in the statements of financial
position as at December 31, 2011 and 2010 as well as for January 1, 2010. However, management does not believe
that the Company will be required to pay the portion of its borrowings not due within the next twelve months in
2012. If the non-current portion of long term debt would have been presented as non-current liabilities, working
capital would have been $4,129,123 in 2011 compared to $2,600,345 in 2010. The improvement in working capital
is mainly attributable to the decreased long term debt and bank indebtedness. The increased profitability in 2011
enabled the Company to cover repayments on long term borrowings through operating cash flow. Liquidity was
also improved due to the issuance of 1,315,789 units for a total consideration of $500,000 in June 2011, each
unit consisting of one Class A share and a warrant entitling the holder to purchase an additional Class A share for
$0.45 within three years after the closing of the transaction. The Company also received $250,000 in advance for
an issuance of shares that closed in February of 2012 and issued $165,000 of subordinated debt.
Cash Flows from Operating Activities
Cash flows from operating activities were $786,196 in the fourth quarter of 2011, down from a cash inflow of
$1,980,184 in 2010. For the twelve month period ended December 31 2011, cash flow from operating activities
increased from $1,043,919 to $2,458,313. Whereas cash flow was mostly generated through working capital
management in 2010, $1,392,184, only $1,049,037 was generated through working capital management in 2011,
the remainder being mostly attributable to increased profitability. Inventory levels decreased as the Company is
selling the inventory of agricultural film. Trade receivables have increased mainly due to extended terms agreed to
with certain customers.
13
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S ( “ M D & A ” )
( C O N T I N U E D )
ANNUAL REPORT - DECEMBER 31, 2011
LIQUIDITY (CONTINUED)
Cash Flows from Financing Activities
During the three month period ending December 31, 2011, the Company had cash outflows from financing activities
of $494,921 for 2011 compared to cash outflows of $1,868,905 in 2010, the variance being mainly explained by an
amount of $250,000 received in December of 2011 for a share issuance that was closed on February 1, 2012, the
issuance of $165,000 in subordinated debt in the fourth quarter of 2011 as well as the lower repayment on the line
of credit in 2011. During the quarter the company reimbursed $550,226 on its existing long term debt, $2,778 on its
finance leases and indebtedness on its line of credit decreased by $356,918.
For the twelve month period ended December 31, 2011, the Company had cash outflows of $2,212,611 compared
to cash outflows of $1,084,749 in 2010. The Company repaid $2,403,711 on its borrowings, $13,105 on its finance
leases and decreased borrowings from the line of credit by $710,795. The cash outflows were offset by the issuance
of shares and warrants for $500,000, the receipt in advance of funds for the share issuance closed in February and
the issuance of subordinated debt. In 2010, the Company issued long term debt for $1,093,999 for small equipment
originally financed by working capital and repaid $2,504,152 on its borrowings, $54,156 on its finance leases and
increased borrowings from its line of credit by $379,560.
Cash Flows from Investing Activities
During the quarter ended December 31, 2011, the Company incurred cash outflows of $47,465 for minor improvements
to equipment and incurred cash outflows of $81,441 for the twelve months ending December 31, 2011. In 2010, the
Company invested $96,846 during the quarter and $829,406 for the twelve months. The level of activity in 2011 did
not require important investments in capital assets, the cash outflows mainly representing adjustments and installation
of machinery already purchased in 2010.
CONTRACTUAL OBLIGATIONS
The contractual obligations as at December 31, 2011 were as follows:
($ thousands)
Long-term debt
Finance leases
Operating leases
Bank Indebtedness
Interest rate swap
Payments due by period
Total
Less than 1 year
1 – 5 years
After 5 years
$ 3,610
$ 865
$ 2,745
$ -
46
3,676
5,627
51
18
741
5,627
41
28
2,120
-
10
-
815
-
-
Total contractual obligations $ 13,010
$ 7,292
$ 4,903
$ 815
These contractual obligations are sensitive to the fluctuation of interest rates. These obligations are based on
interest rates and foreign exchange rates effective as at December 31, 2011.
14
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S ( “ M D & A ” )
( C O N T I N U E D )
ANNUAL REPORT - DECEMBER 31, 2011
CAPITAL RESOURCES
The Company has an operating line of credit with its bankers to a maximum of $8,500,000 bearing interest at a rate of
prime plus 2.30%. The line of credit is secured by trade receivables, inventories and property plant and equipment. At
December 31, 2011, the Company had drawn $5,627,248 on its line of credit ($6,338,764 as at December 31 2010 and
$5,959,204 as at January 1 2010). The Company’s working capital position improved during the course of 2011 due to
its increased profitability. During the second quarter, it issued 1,315,789 units, each comprising of one class A share
and one class A share purchase warrant entitling the holder to acquire one additional common share for $0.45, for a
consideration of $500,000 to an insider of the Company. During the fourth quarter, the Company received $250,000 in
advance for a share issuance that closed on February 1, 2012 and issued subordinated debt for $165,000. Management
believes that the Company will have sufficient liquidity to fund its operations in the short term. In order to improve its
working capital position further, management continuously monitors its capital structure in order to optimize the level
of borrowings and equity, managing risk and cost of capital. During the fourth quarter of 2011, a long term note came
to term, with two more maturing in the first two quarters of 2012. This will slowly bring the Company’s indebtedness
to levels closer to what its past earnings would justify and to a low level based on the earnings management expects.
Moreover, it will increase the free cash flow the Company generates through operations.
RELATED PARTY TRANSACTIONS
In the normal course of operations, the Company had routine transactions with related parties. These transactions
are measured at fair value, which is the amount of consideration established and agreed to by the related parties.
The following table reflects the related party transactions as disclosed in note 25, Related party transactions, of the
“Notes to the consolidated financial statements”.
($ thousands)
Three months ended
Year ended
December 31
2011
December 31 December 31
2011
2010
December 31
2010
Management fees
Rent
(a)
(b)
$ 51
$ 182
$ 45
$ 181
$ 177
$ 724
$ 158
$ 727
(a) Gerald R. Phelps, Imaflex’s Vice-President – Operations, is the controlling shareholder of Polytechnomics Inc.
(“Polytech”). The Company has an agreement with Polytech for the provision of consulting, management, and technical
services. The agreement is presented to and approved by the Company’s Board of Directors on an annual basis.
(b) Joseph Abbandonato, Imaflex’s President, Chief Executive Officer and Chairman of the Board, is the controlling
shareholder of Roncon Consultants Inc. (“Roncon”). The Company’s production facilities at Imaflex, Canslit, and
Imaflex USA are leased from Roncon and parties related to Roncon under long-term operating lease agreements
(see “Contractual Obligations”).
15
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S ( “ M D & A ” )
( C O N T I N U E D )
ANNUAL REPORT - DECEMBER 31, 2011
CRITICAL ACCOUNTING POLICIES
The Company’s significant accounting policies are disclosed in note 2, Significant accounting policies, of the
consolidated financial statements for the period ended December 31, 2011. This note explains the Company’s
accounting policies under IFRS. Note 28, Adoption and transition to International Financial Reporting Standards, of its
consolidated financial statements explains the impact of the transition from Canadian Generally Accepted Accounting
Principles to International Financial Reporting Standards (“IFRS”). These are the Company’s first annual financial
statements prepared in accordance with IFRS.
FINANCIAL INSTRUMENTS
Please refer to note 21, Financial instruments, of the consolidated financial statements for the year ended
December 31, 2011 for disclosure on the Company’s financial instruments as well as note 23, Risk management, for
a discussion on the risks the Company is exposed to and how they are managed.
As at December 31, 2011, the fair value of the interest rate swap was $49,068 (December 31 2010 – $110,781)
has been recorded on the consolidated statement of financial position under derivative financial instrument, with
a charge to the consolidated statement of comprehensive income under other gains and losses for all movements
in the fair value of the swap since December 31, 2010. As at December 31, 2011, the Company is not using any
other swap, forward or hedge accounting.
During the second quarter, the Company issued 100,000 share options to purchase Class A shares of the Company.
These options have been recorded in reserves in equity.
MANAGEMENT OUTLOOK
During the course of 2011, management addressed the issue of low profitability and brought the Company back to a
positive net profit in order to plan for growth.
Management believes that the asset purchase of the going concern in Imaflex USA should resolve the challenging
issues of profitability in this subsidiary. There exists one more challenge, the return to profitability for our Canslit
division, which is a goal management has set for 2012.
With the introduction of new products on the market after several years of research, the Company will finally reap the
benefits of its past investments in research and development.
OUTSTANDING SHARE DATA
As of the date of this report, the Company had 40,665,791 Class A shares outstanding.
EVENTS AFTER THE REPORTING PERIOD
On February 1st, 2012, the Company announced that it completed a non-brokered private placement of 1,935,485
Units at a price of $0.38 per Unit for gross proceeds of $735,484. Each Unit is comprised of one Class A share and
one Class A share purchase warrant entitling its holder to acquire one additional Class A share of Imaflex at a price of
$0.45 per Class A share until February 1, 2015.
On February 29 2012, the Company, through its wholly owned subsidiary Imaflex USA, completed a $1,883,596 asset
purchase of production equipment that will enable partial vertical integration of its activities. This acquisition will permit
a higher usage of the Company’s extrusion equipment in its Thomasville, North Carolina plant and will generate savings
to the acquired assets’ production. The acquisition of these assets was strategically important in order to compete in
the southern United States and permit the Thomasville plant to increase its production capacity usage. Please refer to
Note 26, Subsequent events, of the consolidated financial statements, for more information on this acquisition.
16
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S ( “ M D & A ” )
( C O N T I N U E D )
ANNUAL REPORT - DECEMBER 31, 2011
RISK FACTORS
The Company is involved in a competitive industry and marketplace in which there are a number of participants.
To effectively manage future growth, the Company continues to improve its operational, financial and management
information systems, procedures and controls. The Company’s success is largely the result of the continued
contributions of its employees and the Company’s ability to attract and retain qualified management, sales and
operational personnel.
The 25 billion dollar market the Company competes in has historically shown resiliency and growth even at the worst
economic times. The Company’s customers operate predominantly in the food packaging and agricultural markets.
This fact, coupled with the expanding product lines and reliance on newer and faster equipment should help it weather
the potential volatility caused by uncertainty in the North American economic climate.
Factors which can impact the Company include, but are not limited to: management of credit, market dynamics,
liquidity, funding and operational risks; the strength of the Canadian and U.S. economies in which we conduct
business; the impact of the movement of the Canadian dollar relative to other currencies, particularly the U.S. dollar;
the effects of changes in interest rates; the effects of competition in the markets in which we operate; our ability
to successfully align our organization, resources, and processes; the availability and price of raw materials; failure
to achieve planned growth associated with the U.S. expansion; changes in accounting policies and methods we
use to report our financial condition, including uncertainties associated with critical accounting assumptions and
estimates; operational and infrastructure risks; other factors may affect future results including, but not limited to,
timely development and introduction of new products and services, changes in tax laws, technological changes, new
regulations; the possible impact on our businesses from public-health emergencies, international conflicts and other
developments; and our success in anticipating and managing the foregoing risks.
Additional information relating to our Company, including our Annual Report, can be found on SEDAR at
www.sedar.com.
Joseph Abbandonato
Giancarlo Santella, CA
President and Chief Executive Officer
Corporate Controller
April 19, 2012
For investor information, contact
JOSEPH ABBANDONATO
President and Chief Executive Officer
514 935-5710
17
5710 Notre-Dame West, Montreal, Quebec, Canada H4C 1V2
Telephone: 514 935-5710 | Fax: 514 935-0264
Email: info@imaflex.com
www.imaflex.com
Consolidated Financial Statements of
IMAFLEX INC.
Years ended December 31, 2011 and 2010
18
Deloitte & Touche LLP
1 Place Ville Marie
Suite 3000
Montreal QC H3B 4T9
Canada
Tel: 514-393-5194
Fax: 514-390-4104
www.deloitte.ca
INDEPENDENT AUDITOR’S REPORT
To the Shareholders of Imaflex Inc.
We have audited the accompanying consolidated financial statements of Imaflex Inc., which comprise the
consolidated statements of financial position as at December 31, 2011, December 31, 2010 and January 1,
2010, and the consolidated statements of comprehensive income (loss), consolidated statements of
changes in equity and consolidated statements of cash flows for the years ended December 31, 2011 and
December 31, 2010, and a summary of significant accounting policies and other explanatory information.
Management's Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial
statements in accordance with International Financial Reporting Standards, and for such internal control
as management determines is necessary to enable the preparation of consolidated financial statements that
are free from material misstatement, whether due to fraud or error.
Auditor's Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing standards. Those
standards require that we comply with ethical requirements and plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are free from material
misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the consolidated financial statements. The procedures selected depend on the auditor's judgment,
including the assessment of the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error. In making those risk assessments, the auditor considers internal control
relevant to the entity's preparation and fair presentation of the consolidated financial statements in order
to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing
an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of accounting estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide
a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial
position of Imaflex Inc. as at December 31, 2011, December 31, 2010 and January 1, 2010, and its
financial performance and its cash flows for the years ended December 31, 2011 and December 31, 2010
in accordance with International Financial Reporting Standards.
____________________
1 Chartered accountant auditor permit No. 13556
April 19, 2012
Consolidated statements of comprehensive income (loss)
for the years ended
(in Canadian dollars)
Revenue
Cost of sales
Gross profit
Expenses:
Selling
Administrative
Finance
Other gains and losses
Other expenses
Profit (loss) before income tax
Income taxes
PROFIT (LOSS)
Other comprehensive income
Exchange differences on translating foreign
operation
TOTAL COMPREHENSIVE INCOME
(LOSS)
Earnings per share
Basic and diluted
(Note 5.1)
(Note 8)
(Note 9)
December 31,
2011
2010
$ 46,958,781
41,857,705
5,101,076
$ 46,488,527
42,581,629
3,906,898
1,232,916
3,089,853
555,875
(156,889)
41,843
4,763,598
1,664,642
2,859,088
573,055
161,669
322,807
5,581,261
337,478
(1,674,363)
(Note 10)
263,827
76,153
73,651
(1,750,516)
66,499
(167,615)
$140,150 $ (1,918,131)
(Note 11)
$ 0.002
$ (0.044)
The accompanying notes are an integral part of these consolidated financial statements.
21
Consolidated statements of financial position
As at
December 31,
2011
December 31,
2010
January 1,
2010
(in Canadian dollars)
Assets
Current assets
Cash
Trade and other receivables
Inventories
Prepaid expenses
Total current assets
Non-current assets
(Note 12)
(Note 13)
$ 243,808
9,351,624
6,891,805
12,589
16,499,826
$ 82,031
8,284,584
8,962,205
13,536
17,342,356
$ 964,188
7,066,890
10,833,855
18,788
18,883,721
Property, plant and equipment
(Notes 14, 5.2)
14,602,453
15,662,776
16,631,471
Total assets
Equity and liabilities
Current liabilities
Bank Indebtedness
Trade and other payables
Derivative financial instrument
Current tax liabilities
Long-term debt, current portion
Finance leases, current portion
Provisions
Total current liabilities
Non-current liabilities
(Note 16)
(Note 15)
(Note 16)
(Note 16)
(Note 17)
Deferred tax liabilities
Long-term debt, non-current portion
Total liabilities
(Note 10)
(Note 16)
Capital and reserves
Share capital
Reserves
Retained earnings
Total equity
(Note 18)
(Note 19)
$ 31,102,279
$ 33,005,132
$ 35,515,192
5,627,248
5,750,591
49,068
150,387
3,132,577
41,618
-
14,751,489
1,259,393
165,000
16,175,882
8,092,323
718,625
6,115,449
14,926,397
$ 6,338,764
5,715,933
110,781
39,242
5,517,586
54,974
115,000
17,892,280
$ 5,959,204
4,982,341
168,763
328,423
7,093,715
102,515
-
18,634,961
1,087,004
-
18,979,284
936,252
-
19,571,213
7,829,165
154,885
6,041,798
14,025,848
7,829,165
322,500
7,792,314
15,943,979
Total equity and liabilities
$ 31,102,279
$ 33,005,132
$ 35,515,192
The accompanying notes are an integral part of these consolidated financial statements.
(s) Joseph Abbandonato
Joseph Abbandonato
Director
(s) Gilles Émond
Gilles Émond
Director
22
Consolidated statements of changes in equity
(in Canadian dollars)
Reserves
Accumulated
Foreign
currency
translation Warrants
-
$
$
-
Share-based
compensation
$ 322,500
Share
capital
$7,829,165
Balance at January 1, 2010
Net loss for the year
Exchange differences on translating
foreign operation
Total comprehensive (loss)
Balance at December 31, 2010
-
-
-
-
-
7,829,165
-
-
322,500
(167,615)
(167,615)
(167,615)
Profit for the year
Exchange differences on translating
foreign operation
Total comprehensive income
-
-
-
Issuance of share capital (Note 18)
Issuance of warrants (Note 18)
Share-based compensation (Note 19)
Future issuance of shares and warrants
263,158
-
-
-
-
-
-
-
10,399
-
66,499
66,499
-
-
-
-
236,842
-
-
-
-
-
-
-
-
Other
$
Total
Reserves
$322,500
Retained
Earnings
$ 7,792,314 $15,943,979
Total
-
(1,750,516)
(1,750,516)
(167,615)
(167,615)
154,885
-
(1,750,516)
6,041,798
(167,615)
(1,918,131)
14,025,848
-
73,651
73,651
66,499
66,499
-
236,842
10,399
-
73,651
-
-
-
66,499
140,150
263,158
236,842
10,399
-
-
-
-
-
-
-
-
-
-
-
(Note 20)
Balance at December 31, 2011
-
$8,092,323
-
$ 332,899
-
$(101,116)
-
$ 236,842
250,000
$250,000
250,000
$718,625
250,000
$6,115,449 $14,926,397
-
The accompanying notes are an integral part of these consolidated financial statements.
23
Consolidated statements of cash flows
for the years ended
(in Canadian dollars)
Cash flows from operating activities:
Profit (loss) for the period
Deferred income tax expense
Change in fair value of derivative financial instrument
Depreciation of property, plant and equipment
Interest expense
Share-based compensation
Profits on disposal of assets and other gains
Unrealized foreign exchange (gain) loss
Movements in working capital
(Increase) in trade and other receivables
Decrease in inventories
Decrease in prepaid expenses
Increase (decrease) in current income tax liabilities
(Decrease) increase in trade payables and provisions
Cash generated by operations
Interest paid
Net income taxes received (paid)
Net cash generated by operating activities
Cash flows from investing activities:
Payments for property, plant and equipment
Increase in deposits for property and equipment
Proceed from disposal of property and equipment
Net cash used in investing activities
Cash flows from financing activities:
(Decrease) increase in bank indebtedness
Increase in long-term debt
Repayment of long-term debt
Issuance of share capital
Issuance of warrants
Future issuance of shares and warrants
Repayment of finance leases
Net cash (used in) financing activities
Net increase (decrease) in cash
Cash, beginning of the year
Effects of exchange rate changes on the balance of cash
held in foreign currencies
Cash, end of the year
December 31,
2011
2010
$ 73,651
172,389
(62,352)
1,309,689
555,875
10,399
-
(134,500)
1,925,151
(1,032,073)
2,127,925
1,711
76,700
(125,226)
1,049,037
2,974,188
(550,980)
35,105
2,458,313
$ (1,750,516)
150,752
(51,136)
1,347,016
573,055
-
(14,975)
32,165
286,361
(1,217,694)
1,634,691
5,251
(39,262)
1,009,198
1,392,184
1,678,545
(494,481)
(140,145)
1,043,919
(69,206)
(12,235)
-
(81,441)
(844,381)
-
14,975
(829,406)
(710,795)
165,000
(2,403,711)
263,158
236,842
250,000
(13,105)
(2,212,611)
379,560
1,093,999
(2,504,152)
-
-
-
(54,156)
(1,084,749)
164,261
(870,236)
82,031
964,188
(2,484)
(11,921)
$ 243,808
$ 82,031
The accompanying notes are an integral part of these consolidated financial statements.
24
Notes to the consolidated financial statements
for the years ended December 31 2011 and 2010
1. General information
Imaflex Inc. (“Imaflex” or “the Company”) is incorporated under the Canada Business Corporations Act. Its
registered office and headquarters are located at 5710 Notre-Dame Street West, Montreal, Quebec, Canada.
The principal activities of the Company and its subsidiary are described in note 5. The Class A shares of the
Company are listed for trading on the TSX Venture Exchange under the symbol “IFX.A”.
2. Significant accounting policies
The accounting policies set out below have been applied consistently to all periods presented in these
consolidated financial statements. They also have been applied in preparing an opening IFRS consolidated
statement of financial position as at January 1, 2010 for the purposes of the transition to International
Financial Reporting Standards (“IFRS”), as required by IFRS 1, First Time Adoption of International
Financial Reporting Standards ("IFRS 1"). The impact of the transition from Canadian Generally Accepted
Accounting Principles (“GAAP”) to IFRS is explained in Note 28.
2.1 Statement of compliance
The consolidated financial statements have been prepared in accordance with International Financial
Reporting Standards (“IFRS”) issued by the International Account Standards Board (“IASB”). The
designation IFRS also includes the revised International Accounting Standards (“IAS”) and the
interpretations of the International Financial Reporting Interpretations Committee (“IFRIC”).
2.2 Basis of preparation
The consolidated financial statements have been prepared using the historical cost basis except for the
revaluation of certain financial instruments at their fair value. Historical cost is generally based on the fair
value of the consideration given in exchange for assets. The Company elected to present the statement of
income and the statement of comprehensive income in the same statement and chose to present expenses by
function, which is how information is presented for internal reporting purposes and is consistent with how
management views and manages expenses in its operations. The statement of cash flows has been prepared
using the indirect method. The principal accounting policies are set out below.
2.3 Basis of consolidation
The consolidated financial statements include the accounts of the Company and its subsidiary Imaflex USA
Inc. (“Imaflex USA”), a wholly owned entity. All intercompany transactions and balances are eliminated on
consolidation.
2.4 Foreign currencies
The individual financial statements of each entity of the Company and its subsidiary are prepared in the
currency of the primary economic environment in which the entity operates (its functional currency). For the
purpose of the consolidated financial statements, the results and financial position are expressed in Canadian
dollars (“CAD”), which is the functional currency of Imaflex Inc. and the presentation currency for the
consolidated financial statements.
25
Notes to the consolidated financial statements
for the years ended December 31 2011 and 2010
2. Significant accounting policies (continued)
2.4 Foreign currencies (continued)
The functional currency of the Company’s foreign subsidiary, Imaflex USA, is the US dollar (USD). The
financial statements of Imaflex USA are translated as follows: assets and liabilities are translated at the
exchange rate in effect at the date of the consolidated statement of financial position and revenues and
expenses are translated at the exchange rates in effect on the dates on which such items are recognized into
income during the period. Exchange gains or losses arising from the translation of Imaflex USA’s financial
statements are recognized in other comprehensive income.
In preparing the financial statements of the individual entities, transactions in currencies other than the
entity’s functional currency are recognized at the average exchange rates for the periods during the year,
unless exchange rates fluctuated significantly during those periods, in which case the exchange rates at the
dates of the transactions are used. At the end of each reporting period, monetary items denominated in
foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items carried at fair
value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the
fair value was determined.
2.5 Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable.
Revenue from the sale of goods is recognized when all the following conditions are satisfied:
•
•
•
•
•
Imaflex has transferred to the buyer the significant risks and rewards of ownership of the goods;
Imaflex retains neither continuing managerial involvement to the degree usually associated with
ownership nor effective control over the goods sold;
the amount of revenue can be measured reliably;
it is probable that the economic benefits associated with the transaction will flow to the Company; and
the costs incurred or to be incurred in respect of the transaction can be measured reliably.
2.6 Income Tax
Income tax expense represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as
reported in the consolidated statement of comprehensive income because of items of income or expense that
are taxable or deductible in other years and items that are never taxable or deductible. The Company’s
liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the
end of the reporting period.
Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in
the financial statements and the corresponding tax basis used in the computation of taxable profit. Deferred
tax liabilities are generally recognized for all taxable temporary differences. Deferred tax assets are generally
recognized for all deductible temporary differences to the extent that it is probable that taxable profits will be
available against which those deductible temporary differences can be utilized.
26
Notes to the consolidated financial statements
for the years ended December 31 2011 and 2010
2. Significant accounting policies (continued)
2.6 Income Tax (continued)
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in
which the liability is settled or the asset realized, based on tax rates that have been enacted or substantively
enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the
tax consequences that would follow from the manner in which the Company expects, at the end of the
reporting period, to recover or settle the carrying amount of its assets and liabilities.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax
assets against current tax liabilities and when they relate to income taxes levied by the same taxation
authority and the Company intends to settle its current tax assets and liabilities on a net basis.
Current and deferred taxes are recognized as an expense or income in profit or loss, except when they relate
to items that are recognized outside profit or loss (whether in other comprehensive income or directly in
equity), in which case the tax is also recognized outside profit or loss.
2.7 Earnings per share
Earnings per share is calculated by dividing net earnings available for common shareholders by the weighted
average number of common shares outstanding during the period. Diluted earnings per share is calculated
taking into account the dilution that would occur if options, warrants or other agreements for the issuance of
common shares were exercised or converted into common shares at the later of the beginning of the period
or the issuance date.
2.8 Financial assets and financial liabilities
Financial assets and liabilities are recognized when the Company becomes a party to the contractual
provisions of the instrument. Financial assets and financial liabilities are initially measured at fair value.
Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial
liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to
or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial
recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities
at fair value through profit or loss are recognized immediately in profit or loss.
Financial assets are classified into the following specified categories:
•
•
•
fair value through profit or loss (FVTPL)
available-for-sale (AFS)
loans and receivables
The classification depends on the nature and purpose of the financial assets and is determined at the time of
initial recognition.
Financial assets are classified as FVTPL when the financial asset is either held for trading or it is designated
as FVTPL. The Company’s cash and trade receivables are classified as loans and receivables. Loans and
receivables are measured at amortized cost using the effective interest method, less any impairment.
27
Notes to the consolidated financial statements
for the years ended December 31 2011 and 2010
2. Significant accounting policies (continued)
2.8 Financial assets and financial liabilities (continued)
Impairment of financial assets
Financial assets, other than those at FVTPL, are assessed for indicators of impairment on a regular basis.
Financial assets are considered to be impaired when there is objective evidence that, as a result of one or
more events that occurred after the initial recognition of the financial asset, the estimated future cash flows
of the asset have been affected.
Trade receivables that are assessed not to be impaired individually are, in addition, assessed for impairment
on a collective basis. Objective evidence of impairment for a portfolio of receivables could include past
experience of collecting payments, an increase in the number of delayed payments in the portfolio past the
average credit period, as well as observable changes in economic conditions that correlate with default on
receivables.
The carrying amount for most financial assets is reduced by the impairment loss directly. For trade
receivables, the carrying amount is reduced through the use of an allowance account. When a trade
receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries
of amounts previously written off are credited against the allowance account. Changes in the carrying
amount of the allowance account are recognized in profit or loss.
Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the
substance of the contractual arrangement. Financial liabilities are classified into the following specified
categories:
•
• other financial liabilities
at FVTPL
Other financial liabilities, including long term debt, are initially measured at fair value, net of transaction
costs, and then decreased by any principal payment made.
The Company derecognizes financial liabilities when, and only when, the Company’s obligations are
discharged, cancelled or they expire.
The issuance cost of debt is included as part of long term debt and is recorded at amortized cost, using the
effective interest method. The issuance cost of equity is presented in the statement of changes in equity as a
reduction of the proceeds received.
2.9 Inventories
Inventories are stated at the lower of cost and net realizable value. Costs, including an appropriate portion of
fixed and variable overhead expenses, are assigned to inventories by the method most appropriate to the
particular class of inventory, being valued on a first-in-first-out basis. Net realizable value represents the
estimated selling price for inventories less all estimated costs of completion and necessary to make the sale.
2.10 Property, plant and equipment
Production equipment, office equipment, computer software and equipment are stated at cost less
accumulated depreciation and accumulated impairment losses. Depreciation of these assets, on the same
basis as other property assets, commences when the assets are ready for their intended use.
28
Notes to the consolidated financial statements
for the years ended December 31 2011 and 2010
2. Significant accounting policies (continued)
2.10 Property, plant and equipment (continued)
Depreciation is recognized so as to write off the cost of assets less their residual values over their useful
lives, using the straight-line method. The estimated useful lives, residual values and depreciation method are
reviewed at each year end, with the effect of any changes in estimate accounted for on a prospective basis.
Asset
Production equipment
Office equipment
Computer software and equipment
Basis
Straight-line
Straight-line
Straight-line
Period
20 years
5 years
3 years
Leasehold improvements are amortized on a straight-line basis over the lesser of the terms of the leases or
their useful lives.
Effective January 1, 2010, the Company revised the estimated useful life of its production equipment from
10 and 15 years to 20 years. The changes in estimates, which were applied prospectively, resulted in a
reduction in depreciation of $1,525,851 ($1,497,142 for the year ended December 31 2010).
An item of property, plant and equipment is derecognised upon disposal or when no future economic
benefits are expected to arise from the continued use of the asset. The gain or loss arising on the disposal or
retirement of an item of property, plant and equipment is determined as the difference between the sales
proceeds and the carrying amount of the asset and is recognized in profit or loss.
Assets under finance lease
Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned
assets or, where shorter, the term of the relevant lease.
Impairment
At each reporting date, or sooner if there is an indication that an asset may be impaired, the Company
reviews the carrying amounts of its assets to determine whether there is any indication that those assets have
suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in
order to determine the extent of the impairment loss (if any).
The recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in
use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that
reflects current market assessments of the time value of money and the risks specific to the assets for which
the estimates of future cash flows have not been adjusted. If the recoverable amount of the assets is
estimated to be less than their carrying amount, the carrying amount is reduced to the recoverable amount.
An impairment loss is recognized immediately in profit or loss.
Where an impairment loss subsequently reverses, the carrying amount of the assets is increased to the
revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the
carrying amount that would have been determined had no impairment loss been recognized for the asset in
prior years. A reversal of an impairment loss is recognized immediately in profit or loss.
29
Notes to the consolidated financial statements
for the years ended December 31 2011 and 2010
2. Significant accounting policies (continued)
2.11 Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are
assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the
cost of those assets, until such time as the assets are substantially ready for their intended use or sale.
Investment income earned on the temporary investment of specific borrowings pending their expenditure on
qualifying assets is deducted from the borrowing costs eligible for capitalization.
All other borrowing costs are recognized in profit or loss in the period in which they are incurred.
2.12 Business combinations
Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a
business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of
the assets transferred by the Company, liabilities incurred by the Company to the former owners of the acquiree
and the equity interests issued by the Company in exchange for control of the acquiree. Acquisition-related costs
are generally recognized in profit or loss as incurred.
At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognized at their fair
value.
Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling
interests in the acquiree, and the fair value of the acquirer's previously held equity interest in the acquiree (if any)
over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed.
When the consideration transferred by the Company in a business combination includes assets or liabilities
resulting from a contingent consideration arrangement, the contingent consideration is measured at its acquisition-
date fair value and included as part of the consideration transferred in a business combination. Changes in the fair
value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively,
with corresponding adjustments against goodwill. Measurement period adjustments are adjustments that arise from
additional information obtained during the ‘measurement period’ (which cannot exceed one year from the
acquisition date) about facts and circumstances that existed at the acquisition date.
The subsequent accounting for changes in the fair value of the contingent consideration that do not qualify as
measurement period adjustments depends on how the contingent consideration is classified. Contingent
consideration that is classified as equity is not remeasured at subsequent reporting dates and its subsequent
settlement is accounted for within equity. Contingent consideration that is classified as an asset or a liability is
remeasured at subsequent reporting dates.
30
Notes to the consolidated financial statements
for the years ended December 31 2011 and 2010
2. Significant accounting policies (continued)
2.13 Goodwill
Goodwill arising on an acquisition of a business is carried at cost as established at the date of acquisition of the
business less accumulated impairment losses, if any.
For the purposes of impairment testing, goodwill is allocated to each of the Company's cash-generating units (or
groups of cash-generating units) that is expected to benefit from the synergies of the combination.
A cash-generating unit to which goodwill has been allocated is tested for impairment annually, or more frequently
when there is indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less
than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill
allocated to the unit and then to the other assets of the unit pro rata based on the carrying amount of each asset in
the unit. Any impairment loss for goodwill is recognized directly in profit or loss in the consolidated statement of
comprehensive income. An impairment loss recognized for goodwill is not reversed in subsequent periods.
2.14 Derivative financial instruments
The interest rate swap is a derivative financial instrument which was initially recognized at fair value at the
date the derivative contract was entered into and is subsequently remeasured to fair value at the end of each
reporting period. The resulting gain or loss is recognized in profit or loss immediately.
When the derivative has a positive fair value it is recognized as a financial asset and when it has a negative
fair value is recognized as a financial liability.
2.15 Leasing
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and
rewards of ownership to the lessee. All other leases are classified as operating leases.
The Company as lessee
Assets held under finance leases are initially recognized as assets of the Company at their fair value at the
inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability
to the lessor is included in the consolidated statement of financial position as a finance lease obligation.
Lease payments are apportioned between finance expenses and reduction of the lease obligation so as to achieve a
constant rate of interest on the remaining balance of the liability. Finance expenses are recognized immediately in
profit or loss, unless they are directly attributable to qualifying assets, in which case they are capitalized in
accordance with the Company's general policy on borrowing costs. Contingent rentals are recognized as expenses
in the periods in which they are incurred.
Operating lease payments are recognized as an expense on a straight-line basis over the lease term, except where
another systematic basis is more representative of the time pattern in which economic benefits from the leased
asset are consumed. Contingent rentals arising under operating leases are recognized as an expense in the period in
which they are incurred.
31
Notes to the consolidated financial statements
for the years ended December 31 2011 and 2010
2. Significant accounting policies (continued)
2.16 Provisions
Provisions are recognized when the Company has a present obligation, legal or constructive, as a result of a
past event, it is probable that the Company will be required to settle the obligation, and a reliable estimate
can be made of the amount of the obligation. The amount recognized as a provision is the best estimate of
the consideration required to settle the present obligation at the end of the reporting period, taking into
account the risks and uncertainties surrounding the obligation.
2.17 Share-based compensation
Equity-settled share-based compensation to employees is measured at the fair value of the financial
instruments at the grant date, using the Black-Scholes option pricing model. Details regarding the
determination of the fair value of equity-settled share-based compensation are set out in note 19.
The fair value determined at the grant date of the equity-settled share-based compensation is expensed
during the period with a corresponding increase in contributed surplus.
Imaflex did not issue any share-based compensation to non-employees nor did it issue any share-based
compensation to be settled in cash.
3. Future accounting changes
The following new and revised IFRS have been issued but are not yet effective and are not yet applied by the
Company.
Financial instruments
The amendments to IFRS 7 increase the disclosure requirements for transactions involving transfers of financial
assets. These amendments are intended to provide greater transparency around risk exposures when a financial
asset is transferred but the transferor retains some level of continuing exposure in the asset. The amendments also
require disclosures where transfers of financial assets are not evenly distributed throughout the period.
The Company does not anticipate that these amendments to IFRS 7 will have an effect on the Company’s
disclosures.
IFRS 9 issued in November 2009 introduces new requirements for the classification and measurement of financial
assets. IFRS 9 amended in October 2010 includes the requirements for the classification and measurement of
financial liabilities and for derecognition.
IFRS 9 will be effective for our fiscal years beginning on January 1, 2015, with earlier application permitted.
We have not yet assessed the impact of the adoption of this standard on our consolidated financial
statements.
32
Notes to the consolidated financial statements
for the years ended December 31 2011 and 2010
3. Future accounting changes (continued)
Consolidation
In May 2011, the IASB released IFRS 10, Consolidated financial statements, which replaces SIC-12,
Consolidation - special purpose entities, and parts of IAS 27, Consolidated and separate financial
statements related to the preparation and the presentation of consolidated financial statements. The new
standard builds on existing principles by identifying the concept of control as the determining factor in
whether an entity should be included in a company’s consolidated financial statements. The standard
provides additional guidance to assist in the determination of control where it is difficult to assess. IFRS 10
will be effective for our fiscal years beginning on January 1, 2013, with earlier application permitted. We do
not expect this standard to have a material impact on our consolidated financial statements.
Joint arrangements
In May 2011, the IASB released IFRS 11, Joint arrangements, which supersedes IAS 31, Interests in joint
ventures, and SIC-13, Jointly controlled entities—non-monetary contributions by venturers. IFRS 11 focuses
on the rights and obligations of a joint arrangement, rather than its legal form as is currently the case under
IAS 31. The standard addresses inconsistencies in the reporting of joint arrangements by requiring the equity
method to account for interests in joint ventures. IFRS 11 will be effective for fiscal years beginning on
January 1, 2013, with earlier application permitted. We do not expect this standard to have a material impact
on our consolidated financial statements.
Disclosure of interests in other entities
In May 2011, the IASB released IFRS 12, Disclosure of interests in other entities. IFRS 12 is a new and
comprehensive standard on disclosure requirements for all forms of interests in other entities, including
subsidiaries, joint arrangements, associates, special purpose vehicles and other off-balance sheet vehicles.
The standard requires an entity to disclose information regarding the nature and risks associated with its
interests in other entities and the effects of those interests on its financial position, financial performance and
cash flows.
IFRS 12 will be effective for our fiscal years beginning on January 1, 2013, with earlier application
permitted. We do not expect this standard to have a material impact on our consolidated financial statements.
Fair value measurement
In May 2011, the IASB released IFRS 13, Fair value measurement. IFRS 13 will improve consistency and
reduce complexity by providing a precise definition of fair value and a single source of fair value
measurement and disclosure requirements for use across IFRS. The standard will be effective for fiscal years
beginning on January 1, 2013, with earlier application permitted. We have not yet assessed the impact of the
adoption of this standard on our consolidated financial statements.
33
Notes to the consolidated financial statements
for the years ended December 31 2011 and 2010
3. Future accounting changes (continued)
Financial statement presentation
In June 2011, the IASB amended IAS 1, Presentation of financial statements. The principal change resulting
from the amendments to IAS 1 is a requirement to group together items within other comprehensive income
(“OCI”) that may be reclassified to the statement of income. The amendments also reaffirm existing
requirements that items in OCI and net profit or loss should be presented as either a single statement or two
consecutive statements. The amendment to IAS 1 will be effective for fiscal years beginning on January 1,
2013, with earlier application permitted. We do not expect any material changes to our consolidated
financial statement presentation from this standard.
4. Critical accounting judgements and key sources of estimation uncertainty
The preparation of these financial statements in conformity with IFRS and the application of the Company’s
accounting policies described in note 2, required management to make judgements, estimates and
assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other
sources. The estimates and associated assumptions are based on historical experience and other factors that
are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting
estimates are recognized in the period in which the estimate is revised if the revision affects only that period,
or in the period of the revision and future periods if the revision affects both current and future periods.
4.1 Critical judgements in applying accounting policies
The following are the critical judgements, apart from those involving estimations, that management has made in
the process of applying the Company's accounting policies and that have the most significant effect on the
amounts recognized in the consolidated financial statements.
Cash generating units
Management has identified only one cash generating unit (“CGU”) for Imaflex. Revenue generated by the
Company’s various product lines and facilities are generated through a single sales force whose ability to
cross sell products influences the level of sale for each product line.
34
Notes to the consolidated financial statements
for the years ended December 31 2011 and 2010
4. Critical accounting judgements and key sources of estimation uncertainty (continued)
4.2 Key sources of estimation uncertainty
The following are the key assumptions concerning the future, and other key sources of estimation
uncertainty at the end of the reporting period that have a significant risk of causing a material adjustment to
the carrying amounts of assets and liabilities within the next financial year.
Allowance for doubtful accounts
The Company analyzes its trade receivables on an account by account basis and on a portfolio basis. Any
impairment recognized on these assets is based on historical experience and management’s best estimate of
the recoverability of the account receivable.
Inventory
The Company analyzes its inventory in order to assess the carrying amount of inventory. This assessment is
based on management’s knowledge of the market and experience regarding obsolescence and valuation of
inventory.
Useful lives of property, plant and equipment
The Company reviews the estimated useful lives of property, plant and equipment at the end of each annual
reporting period. For the financial year 2010, management determined that the useful lives of all the
production equipment should be extended from the estimates used in 2009.
Impairment of long-lived assets
The Company performs impairment tests on its long-lived assets by comparing the carrying amount of the
assets to their recoverable amount, which is calculated as the higher of the asset’s fair value less costs to sell
and its value in use. Value in use is calculated based on a discounted cash flow analysis, which requires the
use of estimates of future cash flow and discount rates.
Income taxes
Management uses judgment and estimates in determining the appropriate rates and amounts in recording
deferred income taxes, giving consideration to timing and probability of realization. Actual taxes could
significantly vary from these estimates as a result of a variety of factors including future events, changes in
income tax laws or the outcome of reviews by tax authorities and related appeals. The resolution of these
uncertainties and the associated final taxes payable may result in adjustments to the Company’s deferred and
current tax assets and liabilities.
Warrants
The company issues from time to time equity instruments, comprised of common shares and warrants.
Estimates based on market inputs are required in determining the attribution of gross proceeds received
between the different instruments issued.
5. Segment information
The Company operates in one reportable segment, comprising the development, manufacture and sale of
packaging materials.
35
Notes to the consolidated financial statements
for the years ended December 31 2011 and 2010
5. Segment Information (continued)
5.1 Revenues by geographical end market
The following is the Company’s revenues by geographical end market.
Canada
United States
Other
Total
Year ended
December
31, 2011
$ 27,453,846
19,098,568
406,367
$ 46,958,781
December 31,
2010
$ 28,289,038
17,615,117
584,372
$ 46,488,527
5.2 Property, plant and equipment, net, per geographic location
December 31,
2011
December 31,
2010
January 1,
2010
$ 6,816,452
7,786,001
$ 7,562,029
8,100,747
$ 8,906,155
7,725,316
$ 14,602,453
$ 15,662,776
$ 16,631,471
Canada
United States
Total
6. Depreciation and amortization
The Company’s consolidated statement of comprehensive income includes depreciation of production
equipment of $991,819 for the year ended December 31, 2011 ($987,111in 2010) classified in cost of sales.
Depreciation of other property, plant and equipment of $317,870 for the year ended December 31, 2011
($359,905 in 2010) is included in administrative expenses.
7. Employee Benefits
The Company does not offer any employee benefit plan to its employees. The Company contributes to state-
run pension plans, employment insurance, group insurance and social security. The costs incurred for the
employee benefits noted above amounted to $1,291,115 during the year ended December 31, 2011
($1,281,959 in 2010). These payments are expensed as incurred and the Company does not recognize any
gains or losses subsequent to the payment of these benefits. These transactions do not result in any asset or
liability on the consolidated statement of financial position.
36
Notes to the consolidated financial statements
for the years ended December 31 2011 and 2010
8. Finance costs
Year ended
December 31,
2011
December 31,
2010
$ 551,775
4,100
$ 555,875
$ 567,125
5,930
$ 573,055
Year ended
December 31,
2011
December 31,
2010
$ (94,537)
$ 212,805
(62,352)
(51,136)
$ (156,889)
$ 161,669
Interest on bank indebtedness and long term debt
Interest on obligations under finance leases
9. Other gains and losses
Foreign exchange (gain) loss
Change in fair value of derivative financial
instrument
10. Income taxes
10.1 Income tax recognized in profit or loss
Tax expense comprises:
Current tax expense (recovery) in respect of the current year
Adjustments recognized in the current year related to prior years
Deferred tax expense relating to the origination and reversal of
temporary differences
Effect of changes in tax rates and laws
Total tax expense
Year ended
December 31,
2011
December 31,
2010
$ 136,617
(45,179)
$(107,476)
32,877
170,904
262,342
1,485
150,752
76,153
-
$ 263,827
$ 76,153
37
Notes to the consolidated financial statements
for the years ended December 31 2011 and 2010
10. Income taxes (continued)
10.2 Reconciliation of the income tax rate
The expense for the year is reconciled as follows:
Profit (loss) before taxes
Year ended
December 31,
2011
December 31,
2010
$ 337,478
$ (1,674,363)
Income tax expense (recovery) calculated at 28.4% (30.9% - 2010)
Permanent differences
Effect of unrecognized benefit of Imaflex USA’s losses
Adjustments to deferred income tax
Effect of different tax rates of subsidiaries operating in other jurisdictions
Non-taxable portion of income tax on investments
95,844
(20,360)
251,800
52,261
(60,286)
-
(517,378)
20,715
689,175
(25,983)
(133,764)
8,683
Other
(55,432)
34,705
Income tax expense recognized in profit or loss
$ 263,827
$ 76,153
The tax rate used for the 2011 reconciliations above is the corporate tax rate of 28.4% (30.9% in 2010)
payable by corporate entities in Quebec, Canada on taxable profits under tax law in those jurisdictions.
10.3 Deferred tax balances
2011
Temporary differences
Assets
Finance leases
Provisions
Other assets
Liabilities
Opening
balance
Recognized
in profit or
loss
Adjustment
to prior year
balance
Closing
balance
$ 13,140
28,127
7,695
48,962
$ (2,128)
(26,642)
(538)
(29,308)
$ (5)
(1,485)
-
(1,490)
$ 11,007
-
7,157
18,164
Property, plant & equipment
ITCs used but taxed next year
(1,135,966)
-
(1,135,966)
(74,852)
(15,970)
(90,822)
(50,769)
-
(50,769)
(1,261,587)
(15,970)
(1,277,557)
Deferred tax asset (liability)
$(1,087,004)
$ (120,130)
$ (52,259)
$(1,259,393)
38
Notes to the consolidated financial statements
for the years ended December 31 2011 and 2010
10. Income taxes (continued)
10.3 Deferred tax balances (continued)
Temporary differences
2010
Assets
Finance leases
Provisions
Other assets
Losses carried forward
Liabilities
Opening
balance
$ (884,000)
776,780
12,918
116,000
Recognized
in profit or
loss
$ 897,140
(710,288)
2,473
(116,000)
Adjustment
prior year
balance
$ -
(38,365)
(7,696)
-
Closing
balance
$ 13,140
28,127
7,695
-
$ 21,698
$ 73,325
$ (46,061)
$ 48,962
Property, plant & equipment
Exchange difference on foreign
operations
$ (954,135)
$ (253,874)
$ 72,043
$ (1,135,966)
(3,815)
(957,950)
3,815
(250,059)
-
72,043
-
(1,135,966)
Deferred tax asset (liability)
$ (936,252)
$ (176,734)
$ 25,982
$ (1,087,004)
10.4 Unrecognized deferred tax assets
The Company's subsidiary, Imaflex USA, has non-capital losses available to carry forward to reduce future
taxable income of approximately $11,818,253 in 2011 and $10,643,295 in 2010 for which a deferred tax
asset has not been recognized ( $2,652,084 in 2011 and $2,522,916 in 2010) that expire as follows:
Expiring in
December 31,
2011
December 31,
2010
January 1,
2010
2025
2026
2027
2028
2029
2030
2031
$ 88,172
1,477,792
1,015,817
2,193,456
2,376,085
3,374,727
1,292,204
$11,818,253
$ 86,230
1,445,242
993,443
2,145,144
2,323,751
3,649,485
-
$10,643,295
$ 90,000
1,432,000
1,166,000
2,414,000
1,096,000
-
-
$6,198,000
39
Notes to the consolidated financial statements
for the years ended December 31 2011 and 2010
11. Earnings per share
Year ended
December 31,
2011
December 31,
2010
Profit (loss) for basic and diluted earnings per
$ 73,651
$ (1,750,516)
share
Weighted average number of common shares
outstanding
Dilutive effect of share-based compensation
Diluted weighted average common shares
outstanding
40,103,426
24,269
39,350,002
-
40,127,695
39,350,002
Basic and diluted net earnings per common share
$ 0.002
$ (0.044)
12. Trade and other receivables
December 31,
2011
December 31,
2010
January 1,
2010
Trade receivables
Allowance for doubtful accounts
$ 9,599,496
(527,876)
9,071,620
$ 8,741,871
(495,651)
8,246,220
$ 7,482,898
(906,351)
6,576,547
Other
280,004
38,364
490,343
$ 9,351,624
$ 8,284,584
$ 7,066,890
Movement in the allowance for doubtful accounts
Year ended
December 31,
2011
December 31,
2010
Balance, beginning of year
Impairment losses and adjustments recognized on
trade receivables
Amounts written off during the year as uncollectible
Foreign exchange variance
Balance, end of year
$ (495,651)
$ (906,351)
(40,290)
10,623
(2,558)
$ (527,876)
327,648
81,758
1,294
$ (495,651)
40
Notes to the consolidated financial statements
for the years ended December 31 2011 and 2010
12. Trade and other receivables (continued)
The Company’s maximum exposure to credit risk is limited to the carrying amount of the receivable in the
consolidated financial statements as the Company does not make any guarantees above the carrying value.
When a counterparty is bankrupt, insolvent or placed under receivership, the allowance for doubtful
accounts attributed to the customer is written-off against the account.
Credit risk management
In the Company’s normal credit risk management process, the Company uses an external credit service to
assess the potential customer’s credit quality and defines credit limits by customer. The Company uses
Export development Canada to insure trade receivables. As at December 31 2011, $4,065,338 ($4,309,883
as at December 31, 2010 and $3,754,720 as at January 1, 2010) of the total trade receivables is insured.
Concentration of credit risk management
Based on customers’ ordering habits, seasonality of business and financial position, concentration of credit
risk varies throughout the year. On December 31, 2011, the Company’s two highest customer balances total
$1,234,529, representing approximately 13.6% of the Company’s trade receivables ($1,105,259 as at
December 31 2010, representing 13.4% of total trade accounts receivable, and $952,734 as at
January 1, 2010, representing 14.5% of total trade accounts receivable).
Trade receivables past due but not impaired
Trade receivables disclosed above include amounts that are past due at the end of the reporting period but not
impaired, because the amounts are still considered recoverable based on the Company’s analysis of the
reasons for delay in payments and the customer’s plans for reimbursements. In situations where the
Company believes there may be increased credit risk, netting agreements are signed in order to be able to
settle any payables to the same customer on a net basis. At the end of the reporting period, there were
$2,678,238 of past due receivables that weren’t impaired ($2,424,851 in 2010 and $1,583,030 as at January
1, 2010). Of that amount, $1,456,298 was over 90 days ($981,749 as at December 31, 2010 and $661,554 as
at January 1, 2010).
The concentration of credit risk is limited due to the customer base being large and unrelated. Based on the
status of the customer’s plans of recapitalization, the Company does not believe that these accounts should
be provisioned beyond what has been already provided for.
13. Inventories
December 31,
2011
December 31,
2010
January 1,
2010
Raw materials and supplies
Finished Goods
Total
$ 4,337,113
2,554,692
$ 6,891,805
$ 4,794,647
4,167,558
$ 8,962,205
$ 6,500,191
4,333,664
$ 10,833,855
The cost of inventories recognized as an expense during the year was $28,400,577 ($28,629,206 in 2010).
The cost of inventories recognized as an expense includes $64,493 (2010 - nil) in respect of write-downs of
inventory to net realizable value.
41
Notes to the consolidated financial statements
for the years ended December 31 2011 and 2010
14. Property, plant and equipment
Production
equipment
Leasehold
improvement
Office
equipment
Computer
equipment
Equipment
under
finance
lease
Total
At cost,
January 1, 2010
Transfers
Additions
Foreign exchange
December 31, 2010
Additions
Foreign exchange
$35,908,190
-
760,246
(597,899)
36,070,537
65,541
242,139
$1,278,960
-
38,655
(13,473)
1,304,142
15,900
5,351
$18,837
-
22,937
(787)
40,987
-
313
$ 39,197
330,910
14,768
(142)
384,733
-
260
$ 401,410
(330,910)
-
-
$ 37,646,594
-
836,606
(612,301)
70,500
-
-
37,870,899
81,441
248,063
December 31, 2011
$36,378,217
$1,325,393
$41,300
$384,993
$ 70,500
$ 38,200,403
Accumulated depreciation
January 1, 2010
Transfers
Depreciation expense
Foreign Exchange
$(20,054,065)
-
(987,111)
137,538
$ (867,816)
-
(209,789)
15,532
$ (12,906)
-
(6,243)
751
$ (8,734)
(55,152)
(129,773)
195
$ (71,602)
55,152
(14,100)
-
$(21,015,123)
-
(1,347,016)
154,016
December 31, 2010
Depreciation expense
Foreign exchange
(20,903,638)
(991,819)
(73,665)
(1,062,073)
(166,634)
(5,833)
(18,398)
(9,036)
(313)
(193,464)
(128,100)
(327)
(30,550)
(14,100)
-
(22,208,123)
(1,309,689)
(80,138)
December 31, 2011
$(21,969,122)
$(1,234,540)
$ (27,747)
$(321,891)
$ (44,650)
$(23,597,950)
Net book value, as at
January 1, 2010
$ 15,854,125
$ 411,144
$ 5,931
$ 30,463
$ 329,808
$ 16,631,471
December 31, 2010
15,166,899
242,069
22,589
191,269
39,950
15,662,776
December 31, 2011
$ 14,409,095
$ 90,853
$ 13,553
$ 63,102
$ 25,850
$ 14,602,453
The Company’s production equipment with a carrying amount of approximately $12,043,929 (December 31,
2010: approximately $13,167,766, January 1, 2010: approximately $15,083,097) is pledged as collateral for
the Company’s operating lines of credit and long-term debt.
42
Notes to the consolidated financial statements
for the years ended December 31 2011 and 2010
15. Trade and other payables
Trade payables
Other payables and accrued liabilities
16. Credit facilities
Bank indebtedness (a)
Bank loans (b)
Subordinated debt (c)
Total long-term debt
Finance lease liabilities
Total borrowings
Current
Non-current
December 31,
2011
December 31,
2010
January 1,
2010
$ 4,577,653
1,172,938
$ 5,750,591
$ 4,446,997
1,268,936
$ 5,715,933
$ 3,775,246
1,207,095
$ 4,982,341
December 31,
2011
December 31,
2010
January 1,
2010
$ 5,627,248
$ 6,338,764
$ 5,959,204
3,132,577
165,000
3,297,577
5,517,586
-
5,517,586
7,093,715
-
7,093,715
41,618
54,974
102,515
8,966,443
8,801,443
165,000
$ 8,966,443
11,911,324
11,911,324
-
$11,911,324
13,155,434
13,155,434
-
$13,155,434
Interest on long-term debt amounted to $ 230,537 for the year ended December 31, 2011 (2010:
$300,052).
(a) The Company has an operating line of credit with its bankers to a maximum of $8,500,000, bearing
interest at prime plus 2.3% (5.3% effective interest rate at the end of the year). The line of credit is
secured by trade receivables, inventories and property, plant and equipment. The line of credit may be
reviewed periodically by the bank and is repayable on demand. The operating line of credit is subject to
working capital, debt to equity, fixed coverage and interest bearing debt to EBITDA covenants. As at
December 31, 2011, the Company had drawn $ 5,627,248 (2010 - $6,338,764) on its line of credit.
As at December 31, 2011, the Company was in breach of the interest bearing debt to EBITDA covenant
related to credit facilities representing bank indebtedness of $ 5,627,248 and term debt of $ 50,000.
Consequently, the utilization of the line of credit may be subject to limitations.
43
Notes to the consolidated financial statements
for the years ended December 31 2011 and 2010
16. Credit facilities (continued)
(b) The Company’s bank loans are comprised of the following :
Loan (December 31 2011 US$1,075,000, December 31 2010
US$1,689,286, January 1 US$2,303,618), bearing interest at the
30-day LIBOR rate (0.26% as at December 31, 2011), reset
monthly, plus 1.24%, repayable in monthly principal installments
of $52,060 (US$51,190) up to September 2013 and secured by
production equipment. (i)
Loan, bearing interest at prime plus 1.50%, repayable in monthly
principal installments of $50,000 to January 2012 and secured by
production equipment. Furthermore, the loan is secured by an
additional hypothec of $3,000,000 on all present and future
properties of the Canslit division of the Company, movables and
immovable, corporeal and incorporeal, including machinery,
equipment, inventory and receivables.
Loan, bearing interest at the lender’s base rate (5.00% as at
December 31, 2011) plus 0.25%, repayable in monthly principal
installments of $43,460 to September 2016, secured by
production equipment.
Loans, bearing interest at rates varying between prime plus
0.50% and 2.00% and at the 30-day LIBOR rate plus 2.00%,
retired or refinanced during the year.
Loan (December 31 2011 US$33,040, December 31 2010
US$127,782, January 1 US$215,970), bearing interest at the 30-
day LIBOR rate, reset monthly, plus 2.00%, repayable in blended
monthly installments of $8,520 (US$8,378) up to April 2012 and
secured by production equipment and a full corporate guarantee
from Imaflex Inc.
Current portion of long-term debt (ii)
Long term portion of long-term debt
December 31,
2011
December 31,
2010
January 1,
2010
$ 1,093,275
$ 1,680,164
$ 2,421,103
50,000
650,000
1,250,000
1,955,700
2,477,220
-
-
583,111
3,195,628
33,602
127,091
226,984
3,132,577
(3,132,577)
5,517,586
(5,517,586)
7,093,715
(7,093,715)
$ -
$ -
$ -
i. On September 28, 2006, the Company borrowed from Wachovia Corporation US$4,300,000 at a
variable interest rate for seven years, as a result of a long-term debt facility entered into to fund its
capital expenditures. The Company then entered into an interest rate swap for the same amount and
maturity. Under the terms of this interest rate swap, the Company receives, on a monthly basis, a
variable interest rate and pays a fixed interest rate of 6.54%. The Company uses this derivative financial
instrument to manage the risk from fluctuations in interest rates. The intent is to fix the interest cost on
this long-term debt.
ii. As at December 31, 2011, the Company was in breach of the interest bearing debt to EBITDA covenant
relating to bank indebtedness of $5,627,248 and term debt totalling $50,000. All of the Company’s credit
agreements for term-debt and finance leases, with the exception of subordinated debt, include cross
default provisions, giving the right to demand repayment of the loan prior to the scheduled maturity.
Accordingly, the term debt, except subordinated debt, has been presented with the current portion of
long-term debt. On December 31 2010 and on January 1, 2010, in addition to not respecting the interest
bearing debt to EBITDA ratio, the Company did not respect the fixed charge ratio.
44
Notes to the consolidated financial statements
for the years ended December 31 2011 and 2010
16. Credit Facilities (continued)
The aggregate scheduled repayment of long-term debt is as follows, without taking into consideration the
right of repayment on demand:
Not later than one year
$ 751,791
Later than one year and not later than five years 2,380,786
-
Later than five years
$ 3,132,577
c) On December 5, 2011, the Company received a subordinated loan of $165,000 from a significant
shareholder and officer of the Company pursuant to the Company’s agreement with a creditor. This loan
does not bear interest and matures on June 30, 2013, and may be prepaid by the Company with no
penalties subject to certain conditions.
17. Obligations under finance leases
The Company has financed certain assets by entering into finance lease arrangements for lift trucks expiring
on August 18, 2013 and October 28, 2013. Finance lease payments are as follows:
Not later than one year
Later than one year and not later than five years
Later than five years
Total minimum lease payments
$ 17,745
28,426
-
46,171
Less amount representing interest at approximately 9.1%
(4,553)
Present value of minimum lease payments
Less current portion (Note 16(b)ii)
41,618
(41,618)
$ -
The fair value of the finance lease liabilities is approximately equal to their carrying amount.
18. Share Capital
The Company’s outstanding share capital consists of an unlimited number of Class A shares, voting,
participating, without par value; unlimited number of Class B shares, non-voting, participating, without par
value, issuable at any time and in one or more series; and an unlimited number of Class B Series 1 shares,
convertible at the option of the holder to Class A shares subject to the restriction that the percentage of Class
A shares in the hands of public security holders following such conversion must not be less than 20% of the
total issued and outstanding Class A shares.
At December 31 2011, there were 40,665,791 Class A shares outstanding (39,350,002 at December 31, 2010
and January 1, 2010).
During the year, the Company issued, through a non-brokered private placement, 1,315,789 units to a
significant shareholder and officer of the Company for cash consideration of $500,000. Each unit consists of
one Class A share and one Class A share purchase warrant, entitling the holder to acquire one additional
Class A share of Imaflex at a price of $0.45 per Class A share until June 6, 2014.
45
Notes to the consolidated financial statements
for the years ended December 31 2011 and 2010
18. Share Capital (continued)
Each share issued was attributed a value of $0.20, for a total consideration for shares of $263,158, which
corresponds to the share price on the date of issuance. Each warrant issued was attributed a value of $0.18,
for a total consideration for warrants of $236,842.
19. Share-based compensation
Pursuant to the Stock Option Plan (the “Plan”) of the Company, ten percent (10%) of the Class A shares
issued and outstanding from time to time are reserved for options. The Plan provides that the term of the
options shall be fixed by directors. Officers and employees of the Company or its subsidiary are eligible to
receive options. Options are granted at an exercise price of not less than the fair value of the Company’s
shares on the date the options are granted. Options may be exercisable for a period no longer than five (5)
years and the exercise price must be paid in full upon exercise of the option.
The opening balance as at January 1, 2010 relates to stock options issued prior to 2009, which expired
unexercised. On May 27 2011, the Company issued 100,000 options to an officer of the Company, each
option entitling the holder to acquire, from the grant date, one Class A share of Imaflex at $0.125 for a
period of 5 years. These options, none of which were exercised, are the only options outstanding as at
December 31, 2011.
At the grant date, the fair value of the options was $10,399 ($0.10 per option) and was recognized as an
expense with a corresponding increase to the share-based compensation reserve. Options were valued using
the Black-Scholes option pricing model using assumptions based on management’s best estimate of when
the options are expected to be exercised. Expected volatility is based on the historic volatility of Imaflex’s
shares.
Fair value assumptions
Expected life of options
Expected share price volatility
Dividend yield
Risk free rate
Exercise price
Share price on grant date
May 27, 2011
issue
2.5 years
172.86%
0%
1.67%
$0.125
$0.125
20. Payment for future issuance of shares and warrants
On February 1, 2012, the Company announced it completed a non-brokered private placement (of
1,935,485 Units for proceeds of $735,484, of which $250,000 had been received in advance in
contemplation of this transaction on December 30, 2011. Each Unit is comprised of one Class A share and
one Class A share purchase warrant entitling its holder to acquire one additional Class A share at a price of
$0.45 per Class A share until February 1, 2015.
46
Notes to the consolidated financial statements
for the years ended December 31 2011 and 2010
21. Financial Instruments
21.1 Categories of financial instruments
Financial assets
Cash
Trade and other receivables
Financial liabilities
December 31,
2011
December 31,
2010
January 1,
2010
$ 243,808
9,351,624
$ 82,031
8,284,584
$ 964,188
7,066,890
Derivative financial instrument (note 16)
49,068
110,781
168,763
Other financial liabilities
Bank Indebtedness
Long term debt and finance leases
Trade and other payables and provisions
21.2 Fair value of financial instruments
5,627,248
3,339,195
$ 5,750,591
6,338,764
5,572,560
$5,830,933
5,959,204
7,196,230
$4,982,341
Fair value estimates are made as of the date of the consolidated statement of financial position, using
available information about the financial instrument. These estimates are subjective in nature and often
cannot be determined with precision. The Company has determined that the fair value of its current financial
assets and liabilities approximates their respective carrying amounts as at the date of the consolidated
statement of financial position because of the short-term maturity of those instruments. The fair value of the
long-term debt and finance leases, which bear interest at floating rates, approximates their carrying amounts
due to the nature of the financial liability and the Company’s ability to contract debt with similar rates and
conditions.
22. Operating lease arrangements
22.1 Leasing arrangements
The Company leases its premises for all three manufacturing locations from related parties under operating
leases. Rent is paid monthly on a triple net basis. There are no restrictions imposed on the Company under
these leasing arrangements. There is no contingent lease under those leasing agreements and no sublease
payments received by the Company. The leases expire at various dates to August 2020, and include renewal
provisions.
22.2 Payments recognized as an expense
Minimum lease payments for premises
Office equipment
Year ended
December 31,
2011
$ 724,129
$ 6,688
December 31,
2010
$ 727,306
$ 6,688
47
Notes to the consolidated financial statements
for the years ended December 31 2011 and 2010
22. Operating lease arrangements (continued)
22.3 Non-cancellable operating lease commitments
Not later than 1 year
Later than 1 year and not later than 5 years
Later than 5 years
23. Risk management
23.1 Capital management
December 31,
2011
December 31,
2010
$ 741,186
2,120,373
814,973
$ 3,676,532
$ 733,407
2,532,454
1,092,705
$4,358,566
The Company’s objective in managing capital is to ensure sufficient liquidity to pursue its growth while at
the same time taking a conservative approach towards financial leverage and financial risk.
The Company’s capital is composed of net debt and shareholders’ equity. Net debt consists of interest-
bearing debt less cash. The Company’s primary uses of capital are to finance increases in non-cash working
capital and capital expenditures for capacity expansion and integration.
The Company’s primary measure to monitor financial leverage is Debt to Earnings before Interest, Taxes,
Depreciation and Amortization (“EBITDA”).
Credit facility arrangements require that the Company meet certain financial ratios at fixed points in time.
The financial ratios are:
- Working capital ratio, defined as current assets to current liabilities, of at least 1.1 to 1;
- Debt to equity ratio, defined as total debt excluding deferred taxes to equity, of no more than 3 to 1;
- Fixed charge coverage ratio, including all capital and interest payments on borrowings, of more than
1.5 to 1; and
- Interest bearing debt to EBITDA ratio of less than 3 to 1.
At the end of the reporting period, the interest bearing debt to EBITDA ratio was not met.
23.2 Foreign currency risk management
The Company faces foreign currency risk, given the Company has a portion of sales denominated in CAD
whereas an important portion of the costs of raw material for these sales are in USD. The Company’s sales
in USD act as a hedge against this risk reducing overall exposure.
The Company also faces foreign currency risk through its foreign subsidiary Imaflex USA, whose functional
currency is the USD. Imaflex does not specifically hedge this foreign currency risk.
The Company also has a portion of its long term debt in USD. The majority of the cash flows generated by
the assets financed by these borrowings in USD are in USD.
The Company’s management has decided not to hedge its foreign currency risks. The decision of whether or
not to hedge its foreign currency risk is determined by the Company’s net exposure, expected movements in
the main currencies in which the Company transacts, important changes in the mix of currencies in which
the Company transacts, the expected net cash flow in foreign currencies as well as availability of derivative
financial instruments or additional debt in foreign currency at reasonable terms.
48
Notes to the consolidated financial statements
for the years ended December 31 2011 and 2010
23. Risk management (continued)
23.2 Foreign currency risk management (continued)
As at December 31, 2011, the Company had the following financial assets and liabilities denominated in
currencies other than its functional currency in its statement of financial position:
Cash
Trade receivables
Trade payables
Derivative financial instrument
Long term debt
Gross financial position exposure
Foreign currency sensitivity analysis:
December 31,
2011
$ 53,890
4,043,946
(3,491,025)
(49,068)
(1,126,877)
$ (569,134)
December 31,
2010
$ 273,683
3,449,015
(2,980,227)
(110,781)
(2,344,366)
$(1,712,676)
January 1,
2010
$ 1,046,288
2,860,506
(2,583,745)
(168,763)
(3,748,113)
$(2,593,827)
The Company is exposed to fluctuations in the USD. A 5% appreciation of the CAD against the USD would
impact its financial position by $28,456 for December 31, 2011 (December 31, 2010 - $85,634, January 1,
2010 – $129,691). Conversely a 5% depreciation of the CAD against the USD would have the opposite
effect.
The sensitivity analysis above does not take into account the full impact of a change in the exchange rate
between the CAD and the USD. The Company’s sales to the United States tend to increase with a
strengthening of the USD because Canadian goods are relatively cheaper to American customers. Also, the
market for mulch film is primarily located in the United States and, as a consequence, trade receivables in
American dollars would be greater if sales to growers in the United States increase.
23.3 Interest rate risk management
The Company’s exposure to interest rate fluctuations is with respect to its short-term and long-term
financing, which bear interest at floating rates.
At the reporting date, the carrying value of the Company’s interest-bearing financial liabilities was as
follows:
Variable rate instruments
Financial liabilities
Derivative financial instrument
Interest rate swap
Gross financial position exposure
Sensitivity analysis
December 31,
2011
December 31,
2010
January 1,
2010
$ 8,924,825
$ 11,856,350
$ 13,052,919
49,068
$ 8,973,893
110,781
$ 11,967,131
168,763
$ 13,221,682
The Company is exposed to interest rate risk with respect to its variable rate non-derivative financial
instruments and its interest rate swap. A 100 basis point increase in interest rates at the reporting date would
result in an increase in cash outflows for the year ended December 31 2012 of approximately $83,671.
Conversely a decrease would have the opposite effect.
49
Notes to the consolidated financial statements
for the years ended December 31 2011 and 2010
23. Risk management (continued)
23.4 Liquidity risk management
Liquidity risk, the risk that the Company will not be able to meet its financial obligations as they fall due, is
managed through the Company’s capital structure and financial leverage. The Company obtains financing
through a mix of share issuance on the capital markets and borrowing from financial institutions. An
analysis of financial leverage is used to determine the required mix between the different sources of liquidity
offered to the Company while keeping an acceptable risk level in the Company’s leverage.
The Company ensures that it maintains sufficient cash flow to pay its obligations within the next 12 months.
Cash flows generated from operations are matched to the liquidity required to meet its financial obligations
for the sources of financing used to generate that cash flow.
The Company has an operating line of credit of up to $8,500,000, of which an amount of $5,627,248 was
utilized as at December 31, 2011. Borrowings under the Company’s operating line of credit bear interest at
the bank’s prime rate plus 2.3%. In order to ensure that this line of credit is sufficient to fund the Company’s
obligations, management follows the movements in the collateral against which the line of credit is given.
As at December 31, 2011, the carrying amount and undiscounted contractual cash flows for the Company's
financial liabilities are as follows:
Carrying
amount
Contractual
cash flow
1 year or less
2-5 years More than 5
years
Non-derivative financial
liabilities
Bank indebtedness
Long term debt
Interest on borrowings (1)
Finance leases (2)
Trade Payables (3)
Derivative financial liabilities
Interest rate swap (1,4)
$5,627,248
3,297,577
-
41,618
5,750,591
$ 5,627,248
3,297,577
312,428
46,171
5,750,591
$5,627,248
751,790
112,930
17,745
5,750,591
$ -
2,545,787
199,498
28,426
-
49,068
$14,766,102
51,077
41,165
$15,085,092 $12,301,469
9,912
$ 2,783,623
$ -
-
-
-
-
-
$ -
(1) The interest on the long term debt and derivative is based on prevailing interest rates at the date of the
consolidated statement of financial position.
(2) The contractual cash flow for finance leases includes interest on the borrowings.
(3) The accounts payable exclude the interest rate swap, presented separately and with payments settled on
a net basis.
(4) The interest rate swap’s undiscounted contractual cash flow is based on net settlements and assumes that
the derivative financial instrument will be held until maturity.
50
Notes to the consolidated financial statements
for the years ended December 31 2011 and 2010
23. Risk management (continued)
23.5 Fair value hierarchy
Financial instruments recorded at fair value on the consolidated statement of financial position are classified
using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The
fair value hierarchy has the following levels:
Level–1 - valuation based on quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level–2 - valuation techniques based on inputs other than quoted prices included in Level 1 that are
observable for the asset or liability, either directly (ie as prices) or indirectly (ie derived from prices);
Level–3 - valuation techniques using inputs for the asset or liability that are not based on observable market
data (unobservable inputs).
The fair value hierarchy requires the use of observable market inputs whenever such inputs exist. A financial
instrument is classified to the lowest level of the hierarchy for which a significant input has been considered
in measuring fair value.
The Company has determined its interest rate swap using level 2 valuation techniques using forward interest
rates.
24. Subsidiaries
Details of the Company’s subsidiaries at January 1, 2010, December 31 2010 and 2011 are as follows.
Name of subsidiary Principal activity
Place of incorporation
and operation
Proportion of ownership
interest and voting power held
Imaflex USA
Manufacturing of plastic film North Carolina, USA
100%
25. Related party transactions
Transactions with related parties
During the year, in the normal course of business, the Company had routine transactions with entities owned
by shareholders of the Company. These transactions are measured at fair value, which is the amount of
consideration established and agreed to by the related parties. Details of these transactions not disclosed
elsewhere in these financial statements, are as follows:
Rent
Management fees
Twelve months ended
December 31,
2011
$ 724,129
177,251
$ 901,380
December 31,
2010
$ 727,306
157,554
$ 884,860
Rent is paid on the first day of the month for the following month and the management fees are paid upon
receipt of the invoice, therefore there are rarely any amounts outstanding to related parties.
51
Notes to the consolidated financial statements
for the years ended December 31 2011 and 2010
25. Related party transactions (continued)
Compensation of key management personnel
The table below details the compensation paid to the four key members of management, which include the
Company’s chief executive officer, the vice-president of operations, the production director and the
corporate controller.
Salary
Management fees
Short-term employee benefits
Share based compensation
Post-employment benefits – State-run plans
Other benefits
26. Subsequent events
Twelve months ended
December 31,
2011
$ 429,623
177,251
2,981
10,399
8,093
26,065
$ 654,412
December 31,
2010
$ 485,550
157,554
2,944
-
9,137
21,787
$ 676,972
On February 29 2012, Imaflex USA acquired the operations of a North Carolina-based converter through an
asset purchase of production equipment that will enable partial vertical integration of its activities for a total
consideration of $1,883,596 (USD$1,903,584). This acquisition is expected to permit a higher usage of the
Company’s extrusion equipment in its Thomasville, North Carolina plant and will generate savings to the
acquired assets’ production.
The acquisition is comprised of an immediate cash payment of $989,500 (USD$1,000,000), a non-interest
bearing balance of sale of $894,096 (USD$904,584), payable on the two-year anniversary date of the
acquisition. The balance of sale can be settled in cash or through the issuance of shares of the Company at a
fixed value of $1 per share. Based on the Company’s current trading price, it is currently estimated that the
balance of sale will be recorded as a liability. The Company also repaid debt relating to the purchased
equipment for a total of $27,820.
The purchase price was calculated as follows:
Immediate cash payment
Balance of sale
$ 989,500
894,096
$1,883,596
The allocation of the purchase price to assets acquired, on a provisional basis, pending the completion of the
valuation of assets acquired, is as follows:
Accounts receivable
Inventory
Production equipment
Customer relationships
Goodwill
Liabilities assumed:
Debt related to equipment
Accounts payable
$ 573,574
330,076
1,088,450
272,036
389,632
(27,820)
(742,352)
$1,883,596
52
Notes to the consolidated financial statements
for the years ended December 31 2011 and 2010
26. Subsequent events (continued)
Based on the seller’s past history in collecting accounts receivable, all acquired accounts receivable are
expected to be collected. The Asset Purchase Agreemen (“PA”) provides for a deduction from the balance of
sale for any material amount of uncollectable accounts receivable. Based on the open orders on hand, the
inventory is expected to be realizable in its entirety. The production equipment includes all the equipment
that the seller was using at its production facility.
The customer relationships represent the value of the seller’s current business which is expected to continue
after the acquisition date. The goodwill includes the value of the assembled workforce, the current
organization of the plant for which the Company does not have to incur any additional expenses and the
synergies that can be created through the combination of the production assets through cost savings.
27. Approval of the consolidated financial statements
The consolidated financial statements were approved by the board of directors and authorized for issue on
April 19, 2012.
28. Adoption and transition to International Financial Reporting Standards (“IFRS”)
Standards and Interpretations affecting amounts reported
As a consequence of the replacement of GAAP by IFRS for publicly accountable enterprises, Imaflex’s
consolidated financial statements for the years ending December 31, 2011 and 2010 were prepared in
accordance with applicable international accounting standards. These are the first annual consolidated
financial statements prepared in accordance to IFRS. These consolidated financial statements have been
prepared in accordance with IFRS 1 First-time adoption of IFRS and IAS 1 Presentation of financial
statements.
IFRS 1 requires first-time adopters to retrospectively apply all IFRS effective at the end of the first annual
financial statements under IFRS, which for Imaflex are those for the year ended December 31, 2011 after
taking into consideration the applicable exemptions and exceptions to retrospective application. As a result,
the accounting policies described in note 2 are based on IFRS effective as at December 31, 2011 and have
been applied in preparing the consolidated financial statements for the year ended December 31, 2011, the
comparative information for the year ended December 31, 2010 and the opening consolidated statement of
financial position at January 1, 2010, our transition to IFRS.
Exemptions from full retrospective application of IFRS
Under IFRS 1, the Company elected to apply the following exemptions:
Business combinations – IFRS 3, Business Combinations:
Imaflex has elected to apply the requirements of IFRS 3, Business Combinations prospectively as of the
transition date.
Cumulative translation differences
Retrospective application of IFRS would have required Imaflex to determine cumulative currency translation
differences in accordance with IAS 21, The Effects of Changes in Foreign Exchange Rates, from the date a
subsidiary was formed or acquired. IFRS 1 permits cumulative translation gains or losses to be reset to zero
at the transition date. Imaflex elected to reset all cumulative translation gains and losses to zero as at
January 1st 2010 through a reclassification to opening retained earnings at the transition date.
53
Notes to the consolidated financial statements
for the years ended December 31 2011 and 2010
28. Adoption and transition to International Financial Reporting Standards (“IFRS”) (continued)
Borrowing Costs
IAS 23 Borrowing Costs (Revised 2007) requires an entity to capitalize the borrowing costs related to all the
qualifying assets for which the commencement date for capitalization is on or after January 1, 2009. Early
adoption is permitted. IFRS 1 permits adoption of IAS 23 as of the transition date if later than January 1,
2009. Imaflex elected to use this option, thus borrowing costs related to the qualifying assets for which the
commencement date is prior to January 1, 2010 are expensed, and those with a commencement date
subsequent to January 1, 2010, are capitalized.
Fair value as deemed cost
IFRS 1 provides a choice between measuring property, plant and equipment at its fair value at the date of
transition and using those amounts as deemed cost. Imaflex continued to apply the cost model for property,
plant and equipment. As such, we did not restate property, plant and equipment to fair value under IFRS.
Mandatory Exceptions
Estimates
Hindsight is not used to create or revise estimates. The estimates previously made under GAAP cannot be
revised for the application of IFRS except where necessary to reflect any difference in accounting policies.
Reconciliation of opening statement of financial position from GAAP to IFRS
Impact on consolidated statement of comprehensive income (loss) – The transition to IFRS did not have any
material impact to the consolidated statement of comprehensive income (loss) for the year ended December
31, 2010 except for the presentation by function.
Impact on consolidated statement of cash flow – The transition to IFRS did not have a material impact on
the Company’s consolidated cash flow statement for the year ended December 31, 2010, with the exception
of the current income tax expense, which is now included as an adjustment to the profit for the period, while
it was previously included in the movements of non-cash working capital and with the exception of the
interest paid, which is now presented separately in the cash flows from operating activities.
54
Notes to the consolidated financial statements
for the years ended December 31 2011 and 2010
28. Adoption and transition to International Financial Reporting Standards (“IFRS”) (continued)
The following table provides details of the reconciliation of the opening financial position from GAAP to
IFRS as at January 1, 2010.
GAAP Adjustment Note
Assets
Current assets
Cash and bank balances
Trade and other receivables
Inventories
Prepaid expenses
Total current assets
Non-current assets
January 1,
2010
$ 964,188
7,066,890
10,833,855
18,788
18,883,721
Property, plant and equipment
16,631,471
Total assets
$35,515,192
-
-
-
-
-
-
Equity and liabilities
Current liabilities
Bank indebtedness
Trade and other payables
Derivative financial instrument
Current tax liabilities
Long-term debt, current portion
Finance leases, current portion
Non-current liabilities
Long-term debt, non-current portion
Finance leases, non-current portion
Deferred tax liabilities
Total non-current liabilities
Capital and reserves
$ 5,959,204
5,151,104
328,423
2,922,419
53,686
14,414,836
-
(168,763) A
A
168,763
-
4,171,296
48,829
4,171,296 (4,171,296)
(48,829)
-
48,829
936,252
5,156,377
C
C
C
C
E
E
D
D
Share Capital
Contributed Surplus
Reserves
Accumulated other comprehensive loss
Retained earnings
Total equity
Total equity and liabilities
7,829,165
322,500
-
(244,090)
8,036,404
15,943,979
$ 35,515,192
-
(322,500)
322,500
244,090
(244,090)
IFRS
January 1, 2010
$ 964,188
7,066,890
10,833,855
18,788
18,883,721
16,631,471
$35,515,192
$ 5,959,204
4,982,341
168,763
328,423
7,093,715
102,515
18,634,961
-
-
936,252
936,252
7,829,165
-
322,500
-
7,792,314
15,943,979
$35,515,192
55
Notes to the consolidated financial statements
for the years ended December 31 2011 and 2010
28. Adoption and transition to International Financial Reporting Standards (“IFRS”) (continued)
The following table provides details of the reconciliation of the opening financial position from GAAP to
IFRS as at December 31, 2010.
GAAP Adjustment
Note
IFRS
December 31,
2010
December 31,
2010
Assets
Current assets
Cash and bank balances
Trade and other receivables
Inventories
Prepaid expenses
Total current assets
Non-current assets
Property, plant and equipment
Total assets
Equity and liabilities
Current liabilities
Bank Indebtedness
Trade and other payables
Derivative financial instrument
Income taxes payable
Long-term debt, current portion
Finance leases, current portion
Provisions
Total non-current liabilities
Non-current liabilities
Long-term debt, non-current portion
Finance leases, non-current portion
Deferred tax liabilities
Total non-current liabilities
Capital and reserves
Share Capital
Contributed Surplus
Reserves
$ 82,031
8,284,584
8,962,205
13,536
17,342,356
15,662,776
$33,005,132
$ 6,338,764
5,941,714
-
39,242
2,409,829
12,462
-
14,742,011
3,107,757
42,512
1,087,004
4,237,273
7,829,165
322,500
-
Accumulated other comprehensive loss
(411,705)
Retained earnings
Total equity
Total equity and liabilities
6,285,888
14,025,848
$33,005,132
-
-
-
-
-
-
-
(110,781)
(115,000)
110,781
-
3,107,757
42,512
115,000
A
B
A
C
C
B
(3,107,757)
(42,512)
-
C
C
-
(322,500)
322,500
(167,615)
244,090
167,615
(244,090)
E
E
E
D
E
D
$ 82,031
8,284,584
8,962,205
13,536
17,342,356
15,662,776
$33,005,132
$ 6,338,764
5,715,933
110,781
39,242
5,517,586
54,974
115,000
17,892,280
-
-
1,087,004
1,087,004
7,829,165
-
154,885
-
6,041,798
14,025,848
$33,005,132
56
Notes to the consolidated financial statements
for the years ended December 31 2011 and 2010
28. Adoption and transition to International Financial Reporting Standards (“IFRS”) (continued)
The following table reconciles total equity as at January 1, 2010 and December 31, 2010.
Total equity as reported under previous GAAP
Reclass of cumulative translation adjustments losses
from accumulated other comprehensive income
Reclass of cumulative translation adjustments losses
to retained earnings
Reclass from contributed surplus to reserves
Reclass of contributed surplus to reserves
Reclass of accumulated other comprehensive
income to reserves
January 1,
2010
December 31,
2010
Note
$ 15,943,979
$ 14,025,848
D, E
244,090
411,705
D
E
E
E
(244,090)
(322,500)
322,500
(244,090)
(322,500)
322,500
-
(167,615)
Total equity as reported under IFRS
$ 15,943,979
$ 14,025,848
A- The Company as at the date of transition recognized its financial derivative to a separate item in the
consolidated statement of financial position, under GAAP, it was included in trade and other payables.
B- The Company as at the date of transition recognized the provision to a separate item in the consolidated
statement of financial position, under GAAP, it was included in trade and other payables.
C– As at January 1, 2010, the Company was in breach of certain covenants relating to its credit facilities.
IFRS requires a Company to have obtained, on or before the end of the reporting period, an unconditional
right to defer settlement for at least twelve months after that date. The waiver covering fiscal 2009 was only
obtained on March 3, 2010, after the January 1, 2010 reporting period. Consequently, all long term debt and
obligations under capital leases were reclassed to current liabilities.
As at December 31, 2010, the Company was in breach of certain covenants relating to its credit facilities.
On April 21, 2011, the Company renewed its credit facility under which terms the Company was not in
breach. Consequently, the long term debt and obligations under capital leases that were presented as long
term in the Company’s consolidated financial statements for the year ended December 31, 2010 under
GAAP were reclassed to short term liabilities.
D – In accordance with IFRS 1, Imaflex elected to reset all cumulative translation gains and losses to zero at
the transition date. As a result, the balance of the cumulative translation losses was reclassed to retained
earnings on January 1, 2010.
E- In accordance with IAS 1, Imaflex reclassed amounts presented as contributed surplus and accumulated
other comprehensive income to various reserve accounts as at the date of transition.
57
ANNUAL REPORT - DECEMBER 31, 2011
SHAREHOLDER INFORMATION
Audit and Compensation Committee: Gilles
Émond, CMA, CA, Chairman; Michel Baril;
Philip Nolan
Auditors: Deloitte & Touche LLP, Montréal,
Québec
Legal Counsel: Lavery, de Billy, Montréal,
Québec
Listing: Imaflex Inc. shares are listed as IFX.A
on the TSX Venture Exchange
Transfer Agent: Computershare Investor
Services
Head office:
Telephone:
Fax:
E-mail:
Website:
Imaflex Inc.
5710 Notre Dame West
Montréal, Québec, Canada
H4C 1V2
(514) 935 – 5710
(514) 935 – 0264
info@imaflex.com
www.imaflex.com
Subsidiaries:
Imaflex USA, Inc.
ANNUAL MEETING OF SHAREHOLDERS
The Annual Meeting of Shareholders will be
held on Thursday, June 21st, 2012 at 3 p.m. at
the Hyatt Regency Montreal, Creation Room,
level 6, 1255 Jeanne-Mance, Montreal, Quebec
H5B 1E5
OFFICERS
Joseph Abbandonato,
President and Chief Executive Officer
Tony Abbandonato,
Production Director and Secretary
Gerry Phelps,
Vice-President, Operations
Giancarlo Santella, CA
Corporate Controller
BOARD OF DIRECTORS
The Board of Directors establishes the objectives and the
long-term direction of the Company. The Board meets
regularly throughout the year to review progress towards
achievement of the Company’s goals and to recommend
policies and procedures directed at optimizing performance.
Joseph Abbandonato,
Chairman and President
Consolato Gattuso,
Partner, Mitchell Gattuso, General Partnership
Camillo Lisio,
Corporate Director
Michel Baril,
Corporate Director
Philip Nolan,
Partner, Lavery, de Billy
Gerry Phelps,
Vice-President, Operations
Gilles Émond, CMA, CA
Corporate Director