The ever-growing positive trend prevails! Winpak registered yet another banner year in 2012, recording net income attributable to common shareholders
of $72.4 million or $1.11 per share. This amount eclipsed the 2011 figure by 13.5 percent or $0.13 per share. Such a milestone marks the first time
that earnings per share outpaced the $1.00 threshold since the Company’s stock split of ten for one. Of notable merit, quarterly earnings per share for
each of the past 19 consecutive quarters have equaled or surpassed the prior years’ achievements for the same timeframe. This success was further
complemented by the Company’s revenues which reached $670.1 million, exceeding the 2011 number by $18.0 million or 2.8 percent.
In 2012, the Company continued to ensure its future through an ongoing aggressive capital expenditure program, including building expansions and
new capacity; while conscientiously scrutinizing the profit expectations of its product offerings. The result of this latter endeavor saw the Company exit
certain less lucrative business, allowing it to focus primarily on end-use market applications encompassing the more technically advanced and proprietary
products which are Winpak’s forte. The success of these initiatives is reflected in the Company’s enviable earnings performance.
A most noteworthy accomplishment of the year 2012 was the completion of a new state-of-the-art 267,000 square foot building in Sauk Village, Illinois.
This edifice presently houses new advanced equipment needed to keep pace with the growth of the Company’s rapidly increasing coextruded rigid
material business. This is now the third manufacturing site producing such products. The other two are located in Toronto, Ontario and South Chicago
Heights, Illinois. In accordance with the Company’s mandate to concentrate mainly on sophisticated, high-barrier items, the decision was made to sell the
assets of its drink cup business, which was finalized in the fourth quarter of 2012. The steps taken to augment capacity and pinpoint definitive market
focus should bode well for the revenues and profits of rigid materials.
Not to be outdone, Winpak’s lidding operations proceeded with a major undertaking at its Vaudreuil, Quebec location. Although this project was somewhat
delayed by government bureaucracy, it is now on track to be up and running in the second quarter of 2013. This 105,000 square foot building expansion
will house a massive one of a kind, coextrusion coating line, which will enable Winpak to remain a dominant player in advanced technology geared to
materials for its lidding and health-care markets. Concurrent to this, the Company started production in a leased facility in Querétaro, Mexico, specializing
in converting die-cut lids to target this appealing geographic region. Further to the burgeoning success in its lidding operations and health-care ventures,
in-roads are being realized in certain liquid food markets that are reliant on the Company’s proprietary foil-based products.
Winpak’s Winnipeg, Manitoba site, which excels in the manufacture of modified atmosphere packaging materials, also oversaw a sizeable capital program
in 2012 with the installation of a coextrusion coating line. This equipment will be operational in the second quarter of 2013 and will provide the Company
an opportunity to produce items more cost effectively, particularly for certain segments of the cheese industry, where Winpak is not currently a major
participant. This will also enhance the Company’s product offerings for some of its more traditional end-use market applications. With this addition,
Winpak moves another step closer to fulfilling its goal of supplying one-stop shopping for those products required by its existing and prospective modified
atmosphere packaging customers. A previous decision to enlarge the Winnipeg plant by approximately 80,000 square feet was put on hold due to an
unprecedented spike in construction costs in the city of Winnipeg. Such levels have since subsided and this project will now commence with an estimated
completion date of late 2013.
Since Winpak’s 2006 entry into the North American shrink bag arena with licensed proprietary technology provided by Asahi Corporation of Japan, the
Company has systematically added production equipment to satisfy the pressing demands of the marketplace. The year 2012 was no exception as the
Company installed new extrusion and converting machinery at its Senoia, Georgia based specialty films plant. In addition to Winpak’s success with shrink
bags, its offering of coextruded materials for liquid packaging applications is gaining favor and is being actively marketed in conjunction with Winpak’s
San Bernardino, California packaging machinery division. As the Company fortifies its position in these specialty markets, it will continue to decrease its
dependency on less lucrative commodity items and thereby elevate profit levels. This follows in concert with the Company’s overall strategic plan.
From the time that Winpak entered into a business venture with the Sojitz Corporation of Japan to manufacture biaxially-oriented nylon films, the
Company has benefited both through the sale of products on the open market, as well as providing capacity for Winpak’s internal consumption. The
above-mentioned new production lines being installed at the Winpak facilities in Quebec and Manitoba are slated to produce materials for novel end-use
applications in which one of the key components of the final structure is biaxially-oriented nylon. Along with improved efficiencies, this opportunity will
allow the Company to be self-sufficient and less challenged by the volatility of the global marketplace, expressly impacting biaxially-oriented nylon. This, in
unison with the fact that the Company’s biaxially-oriented nylon material continued to outperform the competition, should create a situation where capacity
is more fully utilized and thus provides opportunities to maximize profits.
Winpak’s main purpose for engaging in the packaging machinery business was to establish another promising avenue for the sale of the Company’s
flexible and rigid packaging materials. Said strategy has boosted revenues, while at the same time, strengthened the existing partnerships the Company
enjoys with its customers. More and more of Winpak’s principal customers are relying on suppliers for ongoing technical and service support. With
Winpak being in a position to offer system sales, it becomes a most attractive enhancement to solidify relationships. This is yet another stride to Winpak’s
goal of becoming a one-stop for the packaging needs of its customers. In 2012, this process continued to be at the forefront of the Company’s efforts
with rewarding results logged to date.
Coming off a strong year in 2012 and with the various Board approved long-term projects in play, Winpak has a firm foundation for future growth, both in
sales and profitability. The fact that the population demographics favor health-care and food products that lend themselves to convenient packages, using
materials of the types manufactured by Winpak, also adds further credence to the Company’s strategic aspirations. The investments made in recent years
will provide the necessary capacity for the Company to move closer to attaining its billion dollar sales commitment. Most of all, it will ultimately be the
enthusiasm, dedication and efforts of the entire Winpak community which will ensure that the Company continues to thrive and strive to greater heights!
B.J. Berry
President & Chief Executive Officer
Winnipeg, Canada
February 13, 2013
1
REPORT TO SHAREHOLDERS REVIEW
(Values expressed in US dollars)
Operating results ($ million except earnings per share)
Revenue
Income from operations
EBITDA (2)
Net income attributable to equity holders of the Company
Earnings per share (cents)
Investments and assets ($ million)
Investments in property, plant and equipment
Total assets
Financial position
2012
2011
2010
2009 (1)
2008 (1)
670.1
103.5
129.7
72.4
111
68.4
634.6
652.1
95.0
122.6
63.8
98
48.9
567.6
579.4
79.0
105.0
55.3
85
39.0
507.7
506.0
512.0
66.0
92.0
42.9
66
46.3
71.7
29.4
45
21.4
483.1
14.7
418.4
Total debt to equity attributable to equity holders of the Company (3)
Net return on opening equity attributable to equity holders of the Company
Return on opening invested capital (4)
0.0%
16.5%
28.9%
0.0%
16.3%
27.1%
0.0%
16.1%
23.8%
0.0%
13.8%
18.3%
0.0%
9.1%
11.6%
Revenue: Ten-year compound average growth rate ("CAGR") 8.0%
$ U.S. million
700
600
500
400
300
200
100
0
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
(1) Amounts are as previously reported under Canadian GAAP.
(2) EBITDA (income before interest, tax, depreciation and amortization) is not a recognized measure under International Financial Reporting Standards
(IFRS). Management believes that in addition to net income attributable to equity holders of the Company, EBITDA is a useful supplemental measure as
it provides investors with an indication of cash available for distribution prior to debt service, capital expenditures and income taxes. Investors should be
cautioned, however, that EBITDA should not be construed as an alternative to net income attributable to equity holders of the Company determined in
accordance with IFRS as an indicator of the Company’s performance. The Company’s method of calculating EBITDA may differ from other companies
and, accordingly, EBITDA may not be comparable to measures used by other companies.
equivalents exceeded long-term debt plus bank overdrafts.
net deferred tax liability, and accumulated goodwill amortization.
2
Certain statements made in the following Management’s Discussion and Analysis contain forward-looking statements including, but not limited to,
statements concerning possible or assumed future results of operations of the Company. Forward-looking statements represent the Company’s intentions,
plans, expectations and beliefs, and are not guarantees of future performance. Such forward-looking statements represent Winpak’s current views based
on information as at the date of this report. They involve risks, uncertainties and assumptions and the Company’s actual results could differ, which in
some cases may be material, from those anticipated in these forward-looking statements. Unless otherwise required by applicable securities law, Winpak
disclaims any intention or obligation to publicly update or revise this information, whether as a result of new information, future events or otherwise. The
Company cautions investors not to place undue reliance upon forward-looking statements.
General Information
The following discussion and analysis dated February 13, 2013 was prepared by management and should be read in conjunction with the consolidated
financial statements prepared in accordance with International Financial Reporting Standards (IFRS). The following discussion and analysis is presented
in US dollars except where otherwise noted. The consolidated financial statements include the accounts of all subsidiaries. The Company’s functional
and reporting currency is the US dollar. The Company has filed a separate Management’s Discussion and Analysis for its fourth quarter of 2012, which
is available on SEDAR at www.sedar.com.
Company Overview
Winpak is an integrated converter operating in the packaging materials segment. The Company utilizes manufacturing technology focused on the core
competency of sophisticated extrusion and conversion of plastic and aluminum foil materials. The business encompasses three product groups produced
in ten manufacturing facilities located in North America. Winpak distributes products to customers primarily in North America for use in the packaging of
perishable foods, beverages and in health-care applications.
Selected Financial Information
Millions of US dollars, except per share and margin amounts
Net income attributable to equity holders of the Company
Income from operations
Revenue
Gross profit margin
Earnings per share (cents)
Dividends declared per common share (Canadian cents)
Total assets
Cash and cash equivalents
Net income
Income tax expense
Net finance income
Depreciation and amortization
EBITDA
2012
72.4
103.5
670.1
2011
63.8
95.0
652.1
29.7%
28.8%
111
12
634.6
133.3
72.8
31.7
(1.0)
26.2
129.7
98
12
567.6
126.9
64.9
30.7
(0.6)
27.6
122.6
3
MANAGEMENT’S DISCUSSION AND ANALYSIS
Overall Performance
∆ Revenue grew by $18.0 million or 2.8 percent from 2011 levels, due mainly to a rise in volumes of 4.0 percent, representing $26.3 million in
revenue. Offsetting this revenue advancement was a decline in overall selling prices and a weaker Canadian dollar which resulted in revenue
decreases of $7.0 million and $1.3 million respectively.
∆ Gross profit margins expanded by nearly one percentage point from the prior year to 29.7 percent of revenue. Although there was some
narrowing of the spread between selling prices and raw material costs, this was more than offset by improved manufacturing performance.
∆ Net income attributable to equity holders of the Company reached $72.4 million, up $8.6 million or 13.5 percent from the 2011 level of $63.8
million. This advancement was due primarily to improved sales volumes, enhanced manufacturing performance, and lower income taxes.
∆ Cash position improved by $6.4 million to end the year at $133.3 million, led by strong cash flow from operating activities. The Company has
no bank overdrafts or long-term debt outstanding.
Highlights
∆ Raw materials: Raw material costs in total were fairly stable during 2012, remaining within a narrow band of plus or minus three percentage
points of the average for the year.
∆ Manufacturing performance: Lower waste levels and enhanced production efficiencies, due in part to recent capital improvement projects,
drove further gains in manufacturing performance over and above those attained in the last couple of years. These helped to propel gross
profit margins to higher levels.
∆ Income taxes: A reduction in the Canadian federal corporate income tax rate as well as a larger proportion of net income being earned in lower
tax jurisdictions resulted in a betterment in earnings per share of approximately 3.0 cents.
∆ Foreign exchange: In 2012, the average exchange rate of the Canadian dollar depreciated against the US dollar when compared to the
prior year by 1.1 percent and combined with greater foreign exchange gains in 2012 on translation of Canadian dollar net monetary items,
contributed to a positive impact on net income attributable to equity holders of the Company of approximately $0.7 million or 1.0 cent per share
in comparison to 2011.
∆ Capital expenditures: Capital expenditures in 2012 totaled an all-time high of $68.4 million. This significant expenditure on property,
plant and equipment is part of the Company’s Billion Dollar Commitment (BDC) organic growth program, aimed at advancing revenue to a
level approaching $1 billion by the end of 2015.
∆ Financing and investing: During 2012, Winpak generated $83.9 million in cash flow from operating activities, which was more than sufficient to
fund $68.4 million in capital projects, $7.8 million in dividends, and $1.3 million of other items, leaving a year-end net cash position of $133.3
million. The Company will utilize its cash resources on hand and generate additional cash flow from operations to fund its investing and
financing activities in 2013. In addition, management will continue to evaluate strategic acquisition opportunities in concert with implementing
the BDC plan, all focused on enhancing long-term shareholder value.
4
MANAGEMENT’S DISCUSSION AND ANALYSIS
Results of Operations
Components of total increase in earnings per share
Organic growth
Gross profit margins
Expenses, income taxes and non-controlling interests
Initial recognition of withdrawal liability on defined benefit multiemployer pension plan
Foreign exchange
Total increase in earnings per share (cents)
2012
4.0
4.0
4.0
-
1.0
13.0
2011
5.5
4.0
3.5
7.0
(7.0)
13.0
Ongoing operations
Organic growth is the impact on net income due exclusively to increased sales volume and excludes the influence of acquisitions, divestitures and foreign
exchange. In 2012, this added 4.0 cents to earnings per share in comparison to the prior year. It should be noted that the Company’s fiscal year ends on
the last Sunday of the calendar year and as such, the 2012 fiscal year includes 53 weeks instead of the more customary 52 weeks. The additional week
included in the 2012 fiscal year was essentially the last week of the 2011 calendar year which contained several statutory holidays. As a consequence,
it is estimated that 2012 sales volumes were positively affected by approximately 1 percentage point.
Despite a narrowing of the spread between selling prices and raw material costs in 2012, the Company was able to more than offset this negative impact
on gross profit margins primarily through improved manufacturing performance, resulting in an addition of 4.0 cents in earnings per share.
As a result of a lower effective income tax rate in the current year, earnings per share was enhanced by 3.0 cents. Furthermore, a lesser amount
attributable to non-controlling interests supplemented earnings per share in 2012 by an additional 1.0 cent.
On average, in 2012 versus 2011, the Canadian dollar was weaker compared to its US counterpart, positively impacting net income when the Company’s
net Canadian dollar disbursements were translated into US funds. This, along with foreign translation exchange gains on Canadian net monetary assets
in the current year, were the main drivers behind a 1.0 cent rise in earnings per share in relation to 2011 due to foreign exchange impacts.
Revenue
Revenue Change
Volume increase
Price and mix (losses) gains
Foreign exchange (loss) gain
Total increase in revenue
Millions of US dollars
2011
38.4
30.0
4.2
72.6
2012
26.3
(7.0)
(1.3)
18.0
2010
51.5
12.6
9.4
73.5
Revenue expanded to $670.1 million in 2012, an increase of $18.0 million or 2.8 percent from the prior year. Volumes grew by 4.0 percent or $26.3 million
in relation to 2011. The product lines of rigid containers, modified atmosphere packaging, specialty films and lidding all experienced mid-single-digit
volume expansions. While modest, this level of growth exceeded the industry norm which was generally flat to slightly negative in the North American
market. The general muted performance of the overall economy had a more pronounced effect on the biaxially-oriented nylon and packaging machinery
product groups, which experienced declines in demand from the prior year with a combined negative impact on revenue of $3.6 million. In the fourth
quarter of 2012, the Company’s rigid group divested its drink cup product line representing approximately $7 million in revenue on an annualized basis.
The impact on 2012 revenues is minimal as customers increased orders in the third quarter to cover for the transition period; the negative effect on
revenues will be felt in 2013. The combination of product mix and lower selling prices in response to a decrease in raw material costs negatively impacted
revenue by 1.0 percent or $7.0 million. The conversion of Canadian dollar sales into US funds at a lower average exchange rate in 2012 versus 2011
resulted in a revenue contraction of 0.2 percent or $1.3 million.
Gross profit margins
In 2012, gross profit margins of 29.7 percent of revenue surpassed the 2011 result of 28.8 percent of revenue by nearly one full percentage point. There
was some pressure on margins as the spread between selling prices and raw material costs narrowed, resulting in a reduction of gross profit margins of
0.5 percentage points. However, this was more than offset by enhanced manufacturing performance as a result of greater efficiencies and lower waste
5
levels which bolstered 2012 gross profit margins and as a result, earnings per share by 4.0 cents.
Winpak’s raw material index, which represents the weighted cost of a basket of the Company’s eight principal raw materials, fell by 3.0 percent during
2012. Price stability was a hallmark of the current year, as the raw material index remained within a narrow band around the mean of plus or minus
three percentage points. This allowed for some cost predictability for the Company as well as its customers. In addition, the Company has a partial
natural hedge against rising raw material costs in that approximately two-thirds of the Company’s revenues are subject to formal selling price-indexing
agreements, whereby selling prices are adjusted as raw material costs change, albeit with a time lag.
Raw Material Index
Average annual index: weighted cost of a basket of Winpak’s eight
principal raw materials , where base year 2001 = 100
(Decrease) Increase in index compared to prior year
2012
2011
2010
172.0
(3.0%)
177.4
15.3%
153.8
17.9%
Expenses
After adjusting for foreign exchange, operating expenses in total advanced in tandem with the rise in sales volumes over the prior year, with essentially no
effect on net income in 2012. Higher freight costs and a greater expense for research and development trials were offset by a reduction in the withdrawal
liability of the defined benefit multiemployer pension plan in which the Company had previously participated. The reduction in net income attributed to
non-controlling interests resulted in an additional 1.0 cent in earnings per share compared to 2011 while a lower overall effective income tax rate in 2012,
due primarily to a reduction in the Canadian federal corporate income tax rate as well as a larger proportion of net income being earned in lower tax
jurisdictions, increased earnings per share by a further 3.0 cents.
Foreign Exchange
Year-end exchange rate of CDN dollar to US dollar
Year-end exchange rate of US dollar to CDN dollar
Appreciation (depreciation) of CDN dollar vs. US dollar year-end
exchange rate compared to the prior year
Average exchange rate of CDN dollar to US dollar
Average exchange rate of US dollar to CDN dollar
(Depreciation) appreciation of CDN dollar vs. US dollar average
2012
1.004
0.997
2.4%
0.999
1.001
2011
0.980
1.021
(1.1%)
1.010
0.991
2010
0.991
1.009
4.1%
0.966
1.035
exchange rate compared to the prior year
(1.1%)
4.6%
11.0%
Winpak utilizes the US currency as both its reporting and functional currency. However, with more than half of its production capacity located in Canada,
it is exposed to foreign exchange risks and records foreign currency differences on transactions and translations denominated in Canadian dollars as
well as other foreign currencies. With a small production facility located in Mexico, the Company is also exposed to foreign exchange risks on costs
denominated in Mexican pesos but these are negligible.
In total, foreign exchange had a positive impact on earnings per share of approximately 1.0 cent in 2012 compared to 2011. Approximately 15 percent
of revenues in the current year are denominated in Canadian dollars and approximately 25 percent of costs are incurred in the same currency. The net
outflow of Canadian dollars exposes Winpak to transaction differences arising from exchange rate fluctuations. The depreciation in the average exchange
rate of the Canadian dollar in relation to the US dollar in 2012 increased earnings per share by approximately 0.5 cents compared to the prior year. In
addition, translation differences arise when primarily Canadian dollar monetary assets and liabilities are translated at exchange rates that change over
time. The change in spot conversion rate of the Canadian dollar from the start to the end of the year increased earnings per share in 2012 by 1.5 cents
in comparison to 2011. Although gains were realized on the maturation of foreign exchange contracts entered into as part of the Company’s foreign
exchange policy, the gains were lower than in 2011, decreasing earnings per share by 1.0 cent in 2012 versus the prior year.
6
MANAGEMENT’S DISCUSSION AND ANALYSIS
Summary of quarterly results
Thousands of US dollars, except earnings per share (e.p.s.) amounts (cents)
Quarter ended
Revenue
Net income*
e.p.s.
Quarter ended
Revenue
Net income*
e.p.s.
2012
2011
April 1
July 1
September 30
December 30
171,805
159,648
165,399
173,226
670,078
16,961
16,002
17,078
22,335
72,376
March 27
June 26
September 25
December 25
26
25
26
34
111
148,537
161,340
170,670
171,516
652,063
14,694
16,195
14,408
18,486
63,783
23
25
22
28
98
*attributable to equity holders of the Company
Various factors affect timing of the Company’s income during the course of a year. Typically, seasonal factors contribute to stronger revenue and net
income in the second and fourth quarters compared to the first and third quarters. Factors influencing seasonal trends are the higher demand for certain
food products in advance of the summer season and the greater number of holidays in the fourth quarter. During the third quarter, revenue and net
income are typically lower due to reduced order levels and plant maintenance shutdowns scheduled to coincide with the summer. Sudden and substantial
changes in the rate of exchange between the Canadian and US dollars from one quarter to another may cause revenue and net income to vary from the
historic trend. Similarly, sudden and significant changes in the cost of raw materials consumed from one quarter to another can be expected to increase
or decrease net income in a manner that does not conform to the normal pattern. Furthermore, unexpected adverse weather conditions could influence
the supply and price of raw materials or customer order levels, and the timing of startup of new manufacturing equipment can cause revenue and net
income to depart from established trends.
The following items influenced the timing of the Company’s reported results beyond historic trends. The fiscal year of the Company ends on the last
Sunday of the calendar year. Consequently, the 2012 fiscal year comprised 53 weeks versus 52 weeks and the first quarter of 2012 included 14 weeks
versus the customary 13 weeks. This favorably impacted both revenue and net income for the first quarter of 2012 and deviated from the more normal
pattern. Revenue and net income were curtailed in the second quarter of 2012 due to a realignment of inventory levels by a major specialty beverage
customer that resulted in reduced order levels in the three-month period. In 2011, net income followed the established historical pattern whereas revenue
in the third quarter was elevated due to selling price increases and an atypical surge in demand in rigid containers in the period.
Cash Flow, Liquidity and Capital Resources
At December 30, 2012, Winpak’s cash position totaled $133.3 million, an increase of $6.4 million from the prior year-end. This improvement reflected total
funds provided by operating activities of $83.9 million less disbursements for investing activities of $69.2 million and financing activities of $8.3 million.
Operating activities
Cash flow provided by operating activities totaled $83.9 million, a reduction of $11.5 million from 2011 due primarily to higher working capital levels. The
cash flow derived from operating activities, before changes in working capital, improved by $7.4 million from the prior year to $131.5 million, due almost
exclusively to the expansion in net income in 2012 of $7.9 million. The investment in working capital for the year advanced by $16.3 million, with the
addition to inventory levels accounting for $12.2 million. Raw material inventories accounted for 73 percent of the increased inventory levels. Accounts
receivable grew by $2.9 million or 3.4 percent, or just slightly greater than the percentage increase in revenue for the year compared to 2011. Accounts
payable levels remained steady despite the increase in inventory levels as the prior year-end accounts payable balance was elevated due to property,
plant and equipment additions in progress at year-end. Payments were made to employee defined benefit plans during the year totaling $4.7 million,
$0.5 million less than in 2011. In addition, income tax payments totalled $25.8 million, up $3.4 million from the prior year due to increased profitability.
Investing activities
Investing activities in 2012 climbed to $69.2 million, an increase of $19.8 million over 2011, and consisted primarily of property, plant and equipment
purchases at an all-time high amount of $68.4 million. This significant expenditure on property, plant and equipment is part of the Company’s announced
Billion Dollar Commitment (BDC) organic growth program. This past year saw the completion of a new 267,000 square foot rigid packaging facility in
Sauk Village, Illinois and the start of construction of a 105,000 square foot expansion to the Company’s Vaudreuil, Quebec plant. Equipment additions
in 2012 were focused on augmenting extrusion capacity in modified atmosphere packaging, lidding, specialty films and rigid containers. The majority of
these equipment installations will be commercialized in the first half of 2013. Over the long term, Winpak’s expenditures for equipment enhancements in
maintaining existing capacity have averaged approximately 2 percent of revenue.
Financing activities
Financing activities in 2012 consisted of dividends to common shareholders of $7.8 million and a dividend payment to a non-controlling interest in a
7
subsidiary totaling $0.5 million. The quarterly common share dividends were paid at the rate of CDN $0.03 per share which, based on the December 30,
2012 closing share price of CDN $14.75, provides a dividend yield of 0.8 percent.
Resources
Investments to drive growth can be sizeable, requiring substantial financial resources. A range of funding alternatives is available including cash and
cash equivalents, cash flow provided by operations, additional debt, issuance of equity or a combination thereof. An informal investment grade credit
rating allows the Company access to relatively low interest rates on debt. The Company currently has operating lines of $38 million, which are believed
adequate for liquidity purposes. None of the lines were utilized as at December 30, 2012. Based on formal and informal discussions with various financial
institutions, Winpak is confident that additional credit can be arranged from banks and other major lenders as the need arises. The Company believes that
all 2013 requirements for capital expenditures, working capital, and dividend payments can be financed from cash resources, cash provided by operating
activities and unused credit facilities.
Risks and Financial Instruments
The Company recognizes that net income is exposed to changes in market interest rates, foreign exchange rates, prices of raw materials and risks
regarding the financial condition of customers and financial counterparties. These market conditions are regularly monitored and actions are taken, when
appropriate, according to Winpak’s policies established for the purpose. Despite the methods employed to manage these risks, future fluctuations in
interest rates, exchange rates, raw material costs and counterparty financial condition can be expected to impact net income.
Winpak’s policy regarding interest expense is to fix interest rates on between one- and two-thirds of any long-term debt outstanding. The Company may
enter into derivative contracts or fixed-rate debt to minimize the risk associated with interest rate fluctuations.
With respect to foreign exchange risk, Winpak employs hedging programs to minimize risks associated with changes in the value of the Canadian dollar
relative to the US dollar. To the extent possible, the Company maximizes natural currency hedging by matching inflows from revenue in either currency
with outflows of costs and expenses denominated in the same currency. For the remaining exposure, the Company’s foreign exchange policy requires
that between 50 and 80 percent of the Company’s net requirement of Canadian dollars for the ensuing 9 to 15 months will be hedged at all times with
forward or zero-cost option contracts. The Company may also enter into forward foreign currency contracts when equipment purchases will be settled in
other foreign currencies. Purchases of foreign exchange products for the purpose of speculation are not permitted. Transactions are only conducted with
certain approved Schedule I Canadian financial institutions.
Fluctuations in foreign exchange rates represent a material exposure for the Company’s financial results. Hedging programs employed may mitigate
a portion of exposures to short-term fluctuations in foreign currency exchange rates. However, the Company’s financial results over the long-term will
inevitably be affected by sizeable changes in the value of the Canadian dollar relative to the US dollar. Winpak estimates that each time the exchange
rate strengthens or weakens by one Canadian cent against the US dollar, net income, with respect to transaction differences, will decrease or increase,
respectively, by approximately one-half of a US cent per share.
During 2012, certain foreign currency forward contracts matured and the Company realized pre-tax foreign exchange losses of $0.4 million. As at
December 30, 2012, the Company had US to CDN dollar foreign currency forward contracts outstanding with a notional amount of $20.0 million, a US
dollar to Swiss franc foreign currency forward contract outstanding with a notional amount of $1.1 million, and US dollar to Euro foreign currency forward
contracts outstanding with a notional amount of $0.4 million. The pre-tax unrealized foreign exchange gain on these contracts of $0.3 million was
recorded in other comprehensive income.
Winpak has not participated in any derivatives market for raw materials. Winpak is not aware of any instrument that fully mitigates fluctuations in raw
material costs over the long term. To manage this risk, Winpak has entered into formal selling price-indexing agreements with certain customers whereby
changes in raw material prices are reflected in selling price adjustments, albeit with a slight time lag. By the end of 2012, approximately 67 percent of
Winpak’s revenues were governed by selling price-indexing agreements. For all other customers, the Company responds to changes in raw material
costs by adjusting selling prices on a customer-by-customer basis. However, market conditions can have an impact on these price adjustments such that
the combined impact of selling price adjustments and changes in raw material costs can be significant to Winpak’s net income.
Credit risk arises from cash and cash equivalents held with banks, derivative financial instruments (foreign currency forward and option contracts), as
well as credit exposure to customers, including outstanding accounts receivable. The Company assesses the credit quality of counterparties, taking into
account their financial position, past experience and other factors. Management regularly monitors customer credit limits, performs credit reviews and,
in certain cases, insures accounts receivable balances against credit losses. The Company invests its excess cash on a short-term basis, to a maximum
of six months, with financial institutions and/or governmental bodies that must be AA rated or higher by a recognized international credit rating agency
or insured 100 percent by the US government or a AAA rated Canadian federal or provincial government. Nonetheless, unexpected deterioration in the
financial condition of a counterparty can have a negative impact on the Company’s net income in the case of default.
8
MANAGEMENT’S DISCUSSION AND ANALYSIS
The Company enters into contractual obligations in the normal course of business operations. These obligations, as at December 30, 2012, are
summarized below.
Contractual Obligations
Payment due, by period (thousands of US dollars)
Operating leases
Purchase obligations
Total contractual obligations
Accounting Policy Changes
Total
1 year
2 - 3 years
4 - 5 Years
After 5 years
3,208
11,189
14,397
1,406
11,189
12,595
1,788
-
1,788
-
14
14
-
-
-
Effective December 26, 2011, the Company adopted the amendments to IFRS 7 “Financial Instruments: Disclosures”. The amendments relate to required
disclosures for transfers of financial assets to help users of financial statements evaluate the risk exposures relating to such transfers and the effect of
those risks on an entity’s financial position. The amendments had no impact on the Company’s consolidated financial statements.
Future Accounting Changes
As more fully described in Note 6 to the Consolidated Financial Statements, various new accounting standards have been issued which apply as follows:
IFRS 10 “Consolidated Financial Statements”, IFRS 11 “Joint Arrangements”, IFRS 12 “Disclosure of Interests in Other Entities”, IFRS 13 “Fair Value
Measurement”, amended IAS 27 “Separate Financial Statements”, and amended IAS 28 “Investments in Associates and Joint Ventures”, effective for
annual periods beginning January 1, 2013; amended IAS 32 “Financial Instruments: Presentation”, effective for annual periods beginning January 1,
2014; and IFRS 9 “Financial Instruments”, effective for annual periods beginning January 1, 2015. None of these standards is expected to have a
significant impact on the Company’s consolidated financial statements.
The International Accounting Standards Board (IASB) issued an amendment to IAS 1 “Financial Statement Presentation” regarding the presentation of
items of other comprehensive income. This amendment is effective for annual periods beginning on or after July 1, 2012 and is not expected to have a
significant impact on the Company’s consolidated financial statements.
The IASB also issued an amended standard effective for annual periods beginning January 1, 2013: IAS 19 “Employee Benefits” which is a comprehensive
set of amendments dealing with the manner in which pensions and other employee benefits are recorded, classified and disclosed in the financial
statements. Upon implementation of these amendments in 2013, the Company estimates the impact on the 2012 comparative annual figures in the 2013
consolidated financial statements will be an increase to net finance costs of $1.0 million to $1.5 million and a decrease to net income of $0.7 million to
$1.0 million. This would be offset by a corresponding decrease in other comprehensive loss.
In May 2012, the IASB also issued the Annual Improvements project, which contains amendments to IAS 1 “Financial Statement Presentation”, IAS 16
“Property, Plant and Equipment”, IAS 32 “Financial Instruments: Presentation”, and IAS 34 “Interim Financial Reporting”. These amendments result in
accounting changes for presentation, recognition and disclosure purposes and are applicable for annual periods beginning on or after January 1, 2013.
Management does not expect the amendments to have a significant impact on the Company’s consolidated financial statements.
Looking Forward
The Company is cautiously optimistic as it enters 2013, after a strong finish to 2012. Sales volumes improved in the fourth quarter and will remain the
prime focus for the organization throughout 2013 as it strives to move ever closer to its billion dollar revenue goal. Raw material cost stability was a feature
of 2012. With the initial cost trend in 2013 pointing upward, the Company will be challenged to protect the spread between selling prices and raw material
costs. Fortunately, the organization’s margins are partly insulated from erosion in that approximately two-thirds of the Company’s revenues are subject to
selling price indexing agreements whereby selling prices to customers are adjusted via formula to changes in raw material costs.
The Company remains committed to its internal capital investment program. Significant effort was devoted in 2012 to add capacity for the future and
expansions initiated in 2012 are scheduled for completion in the first half of 2013, providing a foundation for growth. With nearly $70 million expended
on capital projects in 2012, a similar amount is also planned for 2013. This will include the completion of the Company’s expansion of the Vaudreuil
lidding facility, a building expansion at the Winnipeg modified atmosphere packaging plant, as well as extrusion equipment additions at the rigid container,
modified atmosphere packaging, specialty film and lidding sites. However, as this new capacity becomes available, costs may temporarily increase as
product development expenses peak and capacity is under-utilized as sales are added on a gradual but steady basis. Margins, however, are not expected
to deviate from historical levels by more than a few percentage points during that period. In the year ahead, the Company will also continue to seek out
acquisition opportunities in its core competencies of food and health-care packaging. With Winpak’s extremely solid financial footing, it has the resources
necessary to complete a significant acquisition while remaining strongly committed to the organic growth capital investment plan.
9
Critical Accounting Estimates
The Company believes the following accounting estimates are critical to determining and understanding the operating results and the financial position
of the Company.
Impairment of property, plant and equipment and intangible assets – An integral component of impairment testing is determining the asset’s recoverable
amount. The determination of the recoverable amount involves significant management judgment, including projections of future cash flows and
appropriate discount rates. The cash flows are derived from the financial forecast for the next five years and do not include restructuring activities that
the Company is not yet committed to or significant future investments that will enhance the asset’s performance of the cash-generating unit (CGU) being
tested. Qualitative factors, including market presence and trends, strength of customer relationships, strength of local management, strength of debt
and capital markets, and degree of variability in cash flows, as well as other factors, are considered when making assumptions with regard to future cash
flows and the appropriate discount rate. The recoverable amount is most sensitive to the discount rate used for the discounted cash flow model as well as
the expected future cash inflows and the growth rate used for extrapolation purposes. A change in any of the significant assumptions or estimates could
result in a material change in the recoverable amount. The company has eight CGUs, of which the carrying values for two include goodwill and must be
tested for impairment annually.
Employee benefit plans – Accounting for employee benefit plans requires the use of actuarial assumptions. The assumptions include the discount rate,
expected rate of return on plan assets, rate of compensation increase and health-care costs. These assumptions depend on underlying factors such as
economic conditions, government regulations, investment performance, employee demographics and mortality rates. These assumptions could change
in the future and may result in material adjustments to employee benefit plan assets or liabilities.
Disclosure Controls and Internal Controls
Disclosure controls
Management is responsible for establishing and maintaining disclosure controls and procedures in order to provide reasonable assurance that material
information relating to the Company is made known to them in a timely manner and that information required to be disclosed is reported within time periods
prescribed by applicable securities legislation. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures,
including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls
and procedures can only provide reasonable assurance of achieving their control objectives. Based on management’s evaluation of the design and
effectiveness of the Company’s disclosure controls and procedures, the Company’s Chief Executive Officer and Chief Financial Officer have concluded
that these controls and procedures are designed and operating effectively as of December 30, 2012 to provide reasonable assurance that the information
being disclosed is recorded, summarized and reported as required.
Internal controls over financial reporting
Management is responsible for establishing and maintaining adequate internal controls over financial reporting to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with Canadian generally accepted
accounting principles. Internal control systems, no matter how well designed, have inherent limitations and therefore can only provide reasonable
assurance as to the effectiveness of internal controls over financial reporting, including the possibility of human error and the circumvention or overriding
of the controls and procedures. Management used the Internal Control – Integrated Framework published by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO) as the control framework in designing its internal controls over financial reporting. Based on management’s design
and testing of the effectiveness of the Company’s internal controls over financial reporting, the Company’s Chief Executive Officer and Chief Financial
Officer have concluded that these controls and procedures are designed and operating effectively as of December 30, 2012 to provide reasonable
assurance that the financial information being reported is materially accurate. During the fourth quarter ended December 30, 2012, there have been no
changes in the design of the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect,
its internal controls over financial reporting.
Other
Additional information relating to the Company is available on SEDAR at www.sedar.com, including the Annual Information Form dated February 13, 2013.
10
MANAGEMENT’S DISCUSSION AND ANALYSIS
Management’s Report to the Shareholders
The accompanying consolidated financial statements, management’s discussion and analysis (MD&A) and other information in the Annual Report are
the responsibility of management. The financial statements have been prepared by management and include the selection of appropriate accounting
principles, judgments and estimates necessary to prepare these statements in accordance with International Financial Reporting Standards. The MD&A
and financial information contained in this Annual Report are consistent with the financial statements.
To provide reasonable assurance that assets are safeguarded and that relevant and reliable financial information is being reported, management has
developed and maintains a system of internal controls. An integral part of the system is the requirement that employees maintain the highest standard
of ethics in their activities. Business reviews and internal audits are performed by corporate executives and an internal audit team to evaluate internal
controls, systems and procedures.
The Board of Directors, acting through the Audit Committee, is responsible for determining that management fulfills its responsibilities in the preparation
of financial statements and MD&A, and in the financial control of operations. The Board recommends the appointment of the independent auditor to the
shareholders. The Audit Committee meets regularly with financial management and the independent auditor to discuss internal controls, auditing matters
and financial reporting issues and presents its findings to the Board. The Audit Committee reviews the consolidated financial statements, MD&A and
material financial announcements with management and the external auditor prior to submission to the Board for approval.
The consolidated financial statements have been audited on behalf of the shareholders by the independent external auditor, PricewaterhouseCoopers
LLP, whose report follows.
B.J. Berry
President and Chief Executive Officer
Winnipeg, Canada
February 13, 2013
K.P. Kuchma
Vice President and Chief Financial Officer
Winnipeg, Canada
February 13, 2013
11
REPORTING Auditor’s Report to the Shareholders
Independent Auditor’s Report
To the Shareholders of Winpak Ltd.
We have audited the accompanying consolidated financial statements of Winpak Ltd. and its subsidiaries, which comprise the consolidated balance
sheets as at December 30, 2012 and December 25, 2011 and the consolidated statements of income, comprehensive income, changes in equity, and
cash flows for the years then ended, and the related notes, which comprise 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 audits 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 Winpak Ltd. and its subsidiaries as at
December 30, 2012 and December 25, 2011 and its financial performance and its cash flows for the years then ended in accordance with International
Financial Reporting Standards.
Chartered Accountants
Winnipeg, Canada
February 13, 2013
12
REPORTING Years ended December 30, 2012 and December 25, 2011
(thousands of US dollars, except per share amounts)
Note
Revenue
Cost of sales
Gross profit
Sales, marketing and distribution expenses
General and administrative expenses
Research and technical expenses
Pre-production expenses
Other income (expenses)
Income from operations
Finance income
Finance expense
Income before income taxes
Income tax expense
Net income for the year
Attributable to:
Equity holders of the Company
Non-controlling interests
Basic and fully diluted earnings per share - cents
9
10
10
11
23
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years ended December 30, 2012 and December 25, 2011
(thousands of US dollars)
Net income for the year
Cash flow hedge gains (losses) recognized
Cash flow hedge gains transferred to the statement of income
Cash flow hedge losses (gains) transferred to property, plant and equipment
Actuarial losses on employee benefit plans
Income tax relating to applicable components of other comprehensive income
Other comprehensive loss for the year - net of income tax
Comprehensive income for the year
Attributable to:
Equity holders of the Company
Non-controlling interests
See accompanying notes to consolidated financial statements.
13
9
17
11
2012
(Note 2)
670,078
(471,050)
199,028
(55,550)
(27,199)
(13,933)
(650)
1,796
103,492
4,715
(3,704)
104,503
(31,692)
72,811
72,376
435
72,811
111
2012
(Note 2)
72,811
498
(173)
557
(3,944)
1,089
(1,973)
70,838
70,403
435
70,838
2011
652,063
(464,299)
187,764
(53,043)
(26,345)
(12,606)
(240)
(520)
95,010
4,417
(3,865)
95,562
(30,653)
64,909
63,783
1,126
64,909
98
2011
64,909
(167)
(996)
(60)
(11,771)
3,990
(9,004)
55,905
54,779
1,126
55,905
CONSOLIDATED STATEMENTS OF INCOME (thousands of US dollars)
Assets
Current assets:
Cash and cash equivalents
Trade and other receivables
Income taxes receivable
Inventories
Prepaid expenses
Derivative financial instruments
Non-current assets:
Property, plant and equipment
Intangible assets
Deferred tax assets
Total assets
Equity and Liabilities
Current liabilities:
Trade payables and other liabilities
Provisions
Income taxes payable
Derivative financial instruments
Non-current liabilities:
Employee benefit plan liabilities
Deferred income
Provisions
Deferred tax liabilities
Total liabilities
Equity:
Share capital
Reserves
Retained earnings
Total equity attributable to equity holders of the Company
Non-controlling interests
Total equity
Total equity and liabilities
See accompanying notes to consolidated financial statements.
On behalf of the Board:
December 30
December 25
Note
2012
2011
12
13
14
15
16
18
19
20
17
20
18
22
22
133,303
86,797
389
90,246
3,864
288
314,887
301,678
14,551
3,448
319,677
634,564
59,184
427
5,417
-
65,028
14,511
11,475
7,399
20,063
53,448
118,476
29,195
250
470,925
500,370
15,718
516,088
634,564
126,879
83,935
33
78,018
2,769
242
291,876
256,938
15,076
3,729
275,743
567,619
59,294
592
4,988
836
65,710
12,504
10,243
8,423
17,116
48,286
113,996
29,195
(426)
409,008
437,777
15,846
453,623
567,619
Director
Director
14
CONSOLIDATED BALANCE SHEETS
(thousands of US dollars)
Attributable to Equity Holders of the Company
Share
Retained
Non-
Controlling
Note
Capital
Reserves
Earnings
Total
Interests
Total
Equity
Balance at December 27, 2010
29,195
441
361,128
390,764
16,533
407,297
Comprehensive (loss) income for the year
Cash flow hedge losses, net of tax
Cash flow hedge gains transferred to the statement
of income, net of tax
Cash flow hedge gains transferred to property, plant and
equipment
Actuarial losses on employee benefit plans, net of tax
Other comprehensive loss
Net income for the year
Comprehensive (loss) income for the year
Preferred share redemption
Dividends
22
-
-
-
-
-
-
-
-
-
(109)
(714)
(44)
-
(867)
-
(867)
-
-
-
-
-
(8,137)
(8,137)
63,783
55,646
(109)
(714)
(44)
(8,137)
(9,004)
63,783
54,779
-
-
-
-
-
1,126
1,126
(109)
(714)
(44)
(8,137)
(9,004)
64,909
55,905
-
-
(7,766)
(7,766)
(980)
(833)
(980)
(8,599)
Balance at December 25, 2011
29,195
(426)
409,008
437,777
15,846
453,623
Balance at December 26, 2011
29,195
(426)
409,008
437,777
15,846
453,623
Comprehensive income for the year
Cash flow hedge gains, net of tax
Cash flow hedge gains transferred to the statement
of income, net of tax
Cash flow hedge losses transferred to property, plant and
equipment
Actuarial losses on employee benefit plans, net of tax
Other comprehensive income (loss)
Net income for the year
Comprehensive income for the year
Dividends
22
-
-
-
-
-
-
-
-
252
(133)
557
-
676
-
676
-
-
-
(2,649)
(2,649)
72,376
69,727
252
(133)
557
(2,649)
(1,973)
72,376
70,403
-
-
-
-
-
435
435
252
(133)
557
(2,649)
(1,973)
72,811
70,838
-
(7,810)
(7,810)
(563)
(8,373)
Balance at December 30, 2012
29,195
250
470,925
500,370
15,718
516,088
See accompanying notes to consolidated financial statements.
15
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY Years ended December 30, 2012 and December 25, 2011
(thousands of US dollars)
Cash provided by (used in):
Operating activities:
Net income for the year
Items not involving cash:
Depreciation
Amortization - deferred income
Amortization - intangible assets
Employee defined benefit plan expenses
Net finance income
Income tax expense
Other
Cash flow from operating activities before the following
Change in working capital:
Trade and other receivables
Inventories
Prepaid expenses
Trade payables and other liabilities
Provisions
Employee defined benefit plan payments
Income tax paid
Interest received
Interest paid
Net cash from operating activities
Investing activities:
Acquisition of property, plant and equipment - net
Acquisition of intangible assets
Financing activities:
Dividends paid
Change in non-controlling interests in subsidiary
Change in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
See accompanying notes to consolidated financial statements.
16
Note
2012
(Note 2)
2011
72,811
26,151
(1,215)
1,261
3,331
(1,011)
31,692
(1,478)
64,909
26,789
(1,223)
2,049
2,928
(552)
30,653
(1,433)
131,542
124,120
(2,862)
(12,228)
(1,095)
(140)
(1,326)
(4,671)
(25,756)
474
(31)
83,907
(68,412)
(745)
(69,157)
(7,763)
(563)
(8,326)
6,424
126,879
133,303
(6,676)
(1,943)
(485)
6,756
795
(5,148)
(22,347)
309
(20)
95,361
(48,906)
(462)
(49,368)
(7,789)
(1,813)
(9,602)
36,391
90,488
126,879
15
16
17
10
11
17
16
12
CONSOLIDATED STATEMENTS OF CASH FLOWS (thousands of US dollars, unless otherwise indicated)
1. General
Winpak Ltd. is incorporated under the Canada Business Corporations Act. The Company manufactures and distributes high-quality packaging materials
and related packaging machines. The Company’s products are used primarily for the packaging of perishable foods, beverages and in health-care
applications. The address of the Company’s registered office is 100 Saulteaux Crescent, Winnipeg, Manitoba, Canada R3J 3T3. The ultimate controlling
party of Winpak Ltd. is Wihuri Oy of Helsinki, Finland, a privately held Company.
2. Basis of presentation
The Company prepares its consolidated financial statements in accordance with Canadian generally accepted accounting principles as set out in Part 1 of
the Handbook of the Canadian Institute of Chartered Accountants (CICA). The fiscal year of the Company ends on the last Sunday of the calendar year.
As a result, the Company’s fiscal year is usually 52 weeks in duration, but includes a 53rd week every five to six years. The 2012 fiscal year comprised
53 weeks and the 2011 fiscal year comprised 52 weeks.
The Company’s functional and reporting currency is the US dollar. The US dollar is the reporting currency as more than three-quarters of the Company’s
business is conducted in US dollars thereby increasing transparency by significantly reducing volatility of reported results due to fluctuations in the rate of
exchange between the Canadian and US currencies.
The consolidated financial statements have been prepared under the historical-cost convention, except that certain financial instruments, employee
benefit plans, share-based payments and provisions are stated at their fair value.
The consolidated financial statements were approved by the Board of Directors on February 13, 2013.
3. Accounting policy changes
Effective December 26, 2011, the Company adopted the amendments to IFRS 7 “Financial Instruments: Disclosures”. The amendments relate to required
disclosures for transfers of financial assets to help users of financial statements evaluate the risk exposures relating to such transfers and the effect of
those risks on an entity’s financial position. The amendments had no impact on the Company’s consolidated financial statements.
4. Significant accounting policies
(a) Principles of consolidation:
The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries: Winpak Portion Packaging Ltd., Winpak
Heat Seal Packaging Inc., Winpak Holdings Ltd., Winpak Inc., Winpak Films Inc., Winpak Portion Packaging, Inc., Winpak Lane, Inc., Winpak Heat Seal
Corporation, Grupo Winpak De Mexico, S.A. De C.V., Embalajes Winpak De Mexico, S.A. De C.V., and Administracion Winpak De Mexico, S.A. De C.V.,
and its majority-owned subsidiary American Biaxis Inc. Subsidiaries are entities controlled by the Company. Control exists when the Company has the
power to govern the financial and operating policies so as to obtain benefits from its activities. In assessing control, potential voting rights that presently
are exercisable or convertible are taken into account. Subsidiaries are fully consolidated from the date on which control is obtained until the date that
control ceases. The financial statements of all subsidiaries are prepared as of the same reporting date using consistent accounting policies. All inter-
company balances and transactions, including any unrealized income arising from inter-company transactions have been eliminated.
(b) Business combinations:
Business combinations are accounted for using the acquisition method of accounting. The consideration transferred for the acquisition of a subsidiary is
the fair values of the assets transferred, the liabilities incurred by the former owners of the acquiree and the equity interests issued by the Company. The
consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition costs incurred
are expensed and included in general and administrative expenses. Any contingent consideration to be transferred by the acquirer will be recognized at
fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or liability will be
recognized in accordance with IAS 39 either in the statement of income or as a change to other comprehensive income. Contingent consideration that is
classified as equity is not re-measured, and its subsequent settlement is accounted for within equity.
Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at
the acquisition date, irrespective of the extent of any non-controlling interest. Goodwill is initially measured as the excess of the aggregate of the
consideration transferred over the net identifiable assets acquired and liabilities assumed. If this consideration is less than the fair value of the net assets
of the subsidiary acquired, the difference is recognized directly in the statement of income.
(c) Non-controlling interests:
Non-controlling interests represent equity interests in American Biaxis Inc. owned by third parties. The share of net assets attributable to non-controlling
interests is presented as a component of equity. Their share of net income and other comprehensive income is recognized directly in equity.
17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (d) Foreign currency translation:
The financial statements for the Company and its subsidiaries are prepared using their functional currency, that being the US dollar. The functional
currency is the currency of the primary economic environment in which the Company and its subsidiaries operate. Foreign currency transactions are
translated into the functional currency using exchange rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in
foreign currencies at the reporting date are translated to the functional currency at the exchange rate at that date. Foreign currency differences arising
on translation are recognized directly to the statement of income. Non-monetary assets and liabilities arising from transactions in foreign currencies are
translated to the functional currency at the exchange rate prevailing at the date of the transaction.
(e) Revenue:
Revenue from the sale of goods is measured at the fair value of the consideration received or receivable, net of returns, rebates and discounts. Revenue
is recognized when the risks and rewards of ownership have transferred to the customer. No revenue is recognized if there are significant uncertainties
regarding recovery of the consideration due, the costs incurred or to be incurred cannot be measured reliably, or there is continuing management
involvement with the goods.
(f) Research and technical expenses:
Research and technical expenses are expensed in the period in which the costs are incurred.
(g) Government grants:
Grants from government are recognized at their fair value when there is a reasonable assurance that the grant will be received and/or earned and any
specified conditions will be met.
Grants received in relation to the purchase and construction of plant and equipment are included in non-current liabilities as deferred income and are
credited to the statement of income on a straight-line basis over the estimated useful life of the related asset. Grants received in relation to research and
development activities are recorded to reduce these costs when it is determined there is reasonable assurance the tax credits will be realized.
(h) Leases:
Rental income received from packaging machine operating leases is recognized on a straight-line basis over the term of the corresponding lease.
Payments made under operating leases are recognized in the statement of income on a straight-line basis over the term of the lease, while any lease
incentive received is recognized as a reduction of the total lease expense, over the term of the lease.
Inventories:
(i)
Inventories are stated at the lower of cost and net realizable value. The cost of inventories is based on the first-in first-out principle and includes
expenditures incurred in acquiring the inventories and bringing them to their existing location and condition. In the case of manufactured inventories,
cost includes an appropriate share of variable and fixed overheads based on normal operating capacity. Any excess, unallocated, fixed overhead costs
are expensed as incurred. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion
and selling expenses.
(j) Cash and cash equivalents:
Cash and cash equivalents include cash on hand, cash invested in interest-bearing money market accounts and short-term deposits with maturities of
less than three months. Cash equivalents are all highly liquid investments. Bank overdrafts are shown within current liabilities. Bank overdrafts that are
repayable on demand and form an integral part of the Company’s cash management are included as a component of cash and cash equivalents for the
purpose of the statement of cash flows.
(k) Property, plant and equipment:
Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. All costs directly attributable to
bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management are included in the
carrying value of the asset. When the Company has a legal right or constructive obligation to restore a site on which an asset is located either through
make-good provisions in lease agreements or decommissioning of environmental risks, the present value of the estimated costs of dismantling and
removing the asset and restoring the site are included in the carrying value of the asset with a corresponding increase to provisions. Borrowing costs
directly attributable to the acquisition, construction or production of qualifying property, plant and equipment that takes an extended period of time to be
placed into service are added to the cost of the assets, until such time as the assets are substantially ready for their intended use. See note 4(o) on
impairment.
When parts of an item of plant and equipment have different useful lives, they are accounted for as separate items (major components). The cost of
replacing a component of an item of plant and equipment is recognized in the carrying amount of the item if it is probable that the future economic benefits
of the item will occur and its cost can be measured reliably. The costs of day-to-day maintenance of plant and equipment are recognized directly in the
statement of income.
Depreciation is computed using the straight-line method over the estimated useful lives of the assets, commencing the date the assets are ready for use
as follows:
Buildings 20 - 40 years
Equipment 4 - 20 years
Packaging machines 3 - 7 years
18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Depreciation methods, useful lives and residual values are reassessed annually or more frequently when there is an indication that they have changed.
The gain or loss on the retirement of an item of property, plant and equipment is the difference between the net sale proceeds and the carrying amount of
the asset and is recognized in the statement of income.
(l) Pre-production expenses:
Pre-production costs relating to installations of major new production equipment are expensed in the period in which occurred.
(m) Intangible assets:
Intangible assets are stated at cost less accumulated amortization and accumulated impairment losses. See note 4(o) on impairment. Computer software
that is integral to a related item of hardware is included with plant and equipment. All other computer software is treated as an intangible asset. The
cost of intangible assets acquired in an acquisition is the fair value at the acquisition date. The cost of separately acquired intangible assets, including
computer software, comprises the purchase price and any directly attributable costs of preparing the asset for use. Amortization is computed using the
straight-line method over the estimated useful lives of the assets, as follows:
Patents 8 - 17 years
Customer-related 10 years
Marketing-related 2 - 10 years
Computer software 3 - 12 years
(n) Goodwill:
Goodwill represents the excess of the consideration transferred over the Company’s interest in the fair value of the net identifiable assets, including
intangible assets, and liabilities of the acquiree at the date of acquisition. At the date of acquisition, goodwill is allocated to cash-generating units (CGUs)
for the purpose of impairment testing. A CGU is the smallest group of assets that generates cash inflows that are largely independent of the cash inflows
from other assets or groups of assets. Goodwill is tested at least annually for impairment at the CGU level and is carried at cost less accumulated
impairment losses (see note 4(o)).
Impairment:
(o)
The carrying amount of the Company’s property, plant and equipment and intangible assets (other than goodwill) are reviewed at each reporting date to
determine whether there is any indication of impairment. Goodwill is tested for impairment annually or at any time if an indicator of impairment exists. If
any such indication exists, the applicable asset’s recoverable amount is estimated.
The recoverable amount of the Company’s assets are calculated as the value-in-use, being the present value of future cash flows, using a pre-tax discount
rate that reflects the current assessment of the time value of money, or the fair value less costs to sell, if greater. For an asset that does not generate
largely independent cash flows, the recoverable amount is determined for the CGU to which it belongs. The Company bases its impairment calculation on
detailed financial forecasts, which are prepared separately for each of the Company’s CGUs to which the individual assets are allocated. These financial
forecasts are generally covering a period of five years. For longer periods, a long-term growth rate is calculated and applied to project future cash flows
after the fifth year.
An impairment loss is recognized whenever the carrying amount of an asset or its CGU exceeds its recoverable amount. Impairment losses are
recognized in the statement of income. Impairment losses recognized in respect of CGUs are allocated first to reduce the carrying amount of any goodwill
allocated to the CGU and then, to reduce the carrying amount of other assets in the CGU on a pro rata basis.
Impairment losses in respect of goodwill are not reversed. In respect of property, plant and equipment and intangible assets, an impairment loss is
reversed if there has been an indication that an impairment loss recognized in prior periods may no longer exist or may have decreased. An impairment
loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of
depreciation or amortization, if no impairment loss had been previously recognized.
(p) Employee benefit plans:
The Company maintains five funded non-contributory defined benefit pension plans in Canada and the US and one funded non-contributory supplementary
income postretirement plan for certain CDN-based executives. A market discount rate is used to measure the benefit obligations based on the yield
of high quality corporate bonds denominated in the same currency in which the benefits are expected to be paid and with terms to maturity that, on
average, match the terms of the benefit obligations. The cost of providing the benefits is actuarially determined using the projected unit credit method.
Actuarial valuations are conducted, at a minimum, on a triennial basis with interim valuations performed as deemed necessary. Consideration is given
to any event that could impact the benefit plan assets or obligation up to the balance sheet date where interim valuations are performed. For financial
reporting purposes, the Company measures the benefit obligations and fair value of assets for the defined benefit plans as of the year-end date. Current
service costs are charged to the statement of income and included in the same line items as the related compensation cost. Interest costs on the benefit
obligation are charged to the statement of income as finance expense. Likewise, the expected return on benefit plan assets is presented in the statement
of income as finance income. Actuarial gains and losses are recognized directly in equity within other comprehensive income. Gains and losses on
the curtailment or settlement of a plan are recognized in the statement of income when the Company is demonstrably committed to the curtailment or
settlement. Past service costs are recognized immediately in the statement of income to the extent that the benefits are already vested, and are otherwise
amortized on a straight-line basis over the average period until the amended benefits become vested. The amount recognized in the balance sheet at
each year-end reporting date represents the present value of the benefit obligation, adjusted for unrecognized past service costs, and reduced by the fair
value of benefit plan assets. Any recognized asset or surplus is limited to the present value of economic benefits available in the form of any future refunds
from the plan or reductions in future contributions. To the extent that there is uncertainty regarding entitlement to the surplus, no asset is recorded. The
Company’s funding policy is in compliance with statutory regulations and amounts funded are deductible for income tax purposes.
19
One of the Company’s subsidiaries maintains one unfunded contributory defined benefit postretirement plan for health-care benefits for a limited group
of US individuals. A market discount rate is used to measure the benefit obligation based on the yield of high quality corporate bonds denominated in
the same currency in which the benefits are expected to be paid and with terms to maturity that, on average, match the terms of the benefit obligation.
The cost of providing the benefits is actuarially determined using the projected unit credit method. Current service costs are charged to the statement of
income as they accrue and are included in general and administrative expenses. Interest costs on the benefit obligation are charged to the statement
of income as finance expense. Actuarial gains and losses are recognized directly in equity within other comprehensive income. Past service costs are
recognized immediately to the extent that the benefits are already vested, and are otherwise amortized on a straight-line basis over the average period
until the amended benefits become vested. The amount recognized in the balance sheet at each year-end reporting date represents the present value
of the benefit obligation, adjusted for unrecognized past service costs.
The Company participated in one multiemployer defined benefit pension plan providing benefits to certain unionized employees in the US. The
administration of the plan and investment of its assets are controlled by a board of independent trustees. The Company’s responsibility to make
contributions was the amount established pursuant to its collective agreement. This multiemployer defined benefit pension plan was accounted for
using the accounting standards for defined contribution plans as there was insufficient information to apply defined benefit pension plan accounting.
Accordingly, the Company’s pension expense charged to the statement of income was the annual funding contribution and the Company did not reflect its
share of a plan surplus or deficit. As a consequence of withdrawing from the plan, the Company is required to make monthly payments over a twenty year
period. Changes in estimates with respect to the withdrawal liability are recorded to the statement of income. For further information on the Company’s
withdrawal from the plan, refer to note 20.
The Company maintains seven defined contribution pension plans in Canada and the US. The pension expense charged to the statement of income for
these plans is the annual funding contribution by the Company.
Termination benefits are recognized as an expense in the statement of income when the Company is committed to a formal detailed plan to terminate
employment before the normal retirement date.
Short-term benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognized for the
amount expected to be paid under short-term cash bonus or profit-sharing plans if the Company has a legal or constructive obligation to pay this amount
as a result of past service provided by the employee.
Income taxes:
(q)
Income tax expense comprises current and deferred tax. Income tax expense is recognized in the statement of income except to the extent that it relates
to items recorded directly to other comprehensive income or equity, in which case it is recognized directly in other comprehensive income or equity,
respectively.
Current income tax expense is the expected income tax payable on the taxable income for the period, using income tax rates enacted or substantively
enacted in the jurisdictions the Company is required to pay income tax at the reporting date, and any income adjustments to income taxes payable in
respect of previous periods. Current income tax expense is adjusted by changes in deferred tax assets and liabilities attributable to temporary differences
between the tax bases of assets and liabilities and their carrying amounts in the financial statements, and by the availability of unused income tax losses.
Deferred tax expense is recognized using the balance sheet method in which temporary differences are calculated based on the carrying amounts
of assets and liabilities for financial reporting purposes and the tax bases of assets and liabilities for income taxation purposes. Deferred tax is not
recognized for the following temporary timing differences: the initial recognition for both goodwill and assets and liabilities in a transaction that is not a
business combination and that affects neither accounting nor taxable income; and differences relating to investments in subsidiaries to the extent that it
is probable that they will not reverse in the foreseeable future. Deferred tax is measured at the income tax rates that are expected to be applied when
the temporary difference reverses, that is, when the asset is realized or the liability is settled, based on the income tax laws that have been enacted or
substantively enacted at the reporting date.
Deferred tax assets are recognized only to the extent that it is probable that future taxable income will be available against which the assets can be
utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related income tax
benefit will be realized.
Current tax assets and liabilities are offset when the Company and its subsidiaries have a legally enforceable right to offset the amounts and intend to
either settle on a net basis, or to realize the asset and settle the liability simultaneously. Deferred tax assets and liabilities are offset when there is a
legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income tax assets and liabilities relate to income
taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balance
on a net basis.
Management periodically evaluates positions taken in income tax returns with respect to situations in which applicable income tax regulation is subject to
interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to income tax authorities.
20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (r) Provisions:
A provision is recognized when there is a legal or constructive obligation as a result of a past event and it is probable that a future outlay of cash will be
required to settle the obligation, and the amount can be reliably estimated. Provisions are determined by discounting the expected future cash flows at a
pre-income tax rate that reflects the current market assessments of the time value of money and the risks specific to the obligation. When some or all of
the monies required to settle a provision are expected to be recovered from a third party, the recovery is recognized as an asset when it is virtually certain
that the recovery will be received.
When the Company has a legal right or constructive obligation to restore a site on which an asset is located either through make-good provisions in lease
agreements or decommissioning of environmental risks, the present value of the estimated costs of dismantling and removing the asset and restoring the
site is recognized as a provision with a corresponding increase to the related item of property, plant and equipment. At each reporting date, the obligation
is re-measured in line with changes in discount rates, estimated cash flows and the timing of those cash flows. Any changes in the obligation are added
or deducted from the related asset. The change in the present value of the obligation due to the passage of time is recognized as a finance expense in
the statement of income.
At each reporting date, other provisions are re-measured in line with changes in discount rates, estimated cash flows and the timing of those cash flows.
Any changes in the provision are recognized in the statement of income. The change in the present value of the provision due to the passage of time is
recognized as a finance expense in the statement of income.
(s) Financial assets and liabilities:
Derivative financial instruments are measured at fair value, even when they are part of a hedging relationship. The Company’s financial instruments are
classified as follows: a) cash and cash equivalents - loans and receivables, b) trade and other receivables - loans and receivables, c) trade payables and
other liabilities - other financial liabilities and d) derivative financial instruments - derivatives designated as effective hedges. All financial instruments,
including derivatives, are included in the consolidated balance sheet and are measured at fair value except loans and receivables and other financial
liabilities, which are measured at amortized cost. All changes in fair value are recorded to the statement of income unless cash flow hedge accounting is
used, in which case changes in fair value are recorded in other comprehensive income to the extent the derivatives are deemed to be effective hedges.
(t) Derivative financial instruments:
The Company operates principally in Canada and the United States, which gives rise to risks that its income and cash flows may be adversely impacted
by fluctuations in foreign exchange rates. The Company enters into foreign currency forward contracts to manage foreign exchange exposures on
anticipated labor, overhead, and property, plant and equipment expenditures to be incurred in Canadian dollars and equipment expenditures to be
incurred in other foreign currencies.
All foreign currency forward contracts are designated as cash flow hedges. The fair value of each contract is included on the balance sheet within
derivative financial instrument assets or liabilities, depending on whether the fair value was in an asset or liability position. In the case of labor and
overhead expenditures, changes in the fair value of these contracts are initially recorded in other comprehensive income and subsequently recorded in
the statement of income when the hedged item affects income or loss. In the case of property, plant and equipment expenditures, changes in the fair
value of these contracts are initially recorded in other comprehensive income and upon settlement of the contract, the gain or loss is included in the cost
of the corresponding asset.
(u) Share-based payments:
The Company maintains a share-based compensation plan, which provides restricted share units under the President’s Incentive Plan. Units under the
plan vest immediately, and are paid in cash during the fourth quarter of the third year or the first quarter of the fourth year after the date of grant based upon
the quoted market value of the common shares of the Company on the day prior to the date of payment. The fair value of the units granted is recognized
as a personnel expense, with a corresponding increase in liabilities, over the period that the units pertain. The liability is re-measured at each reporting
date. Any changes in the fair value of the liability are recognized as a personnel expense in the statement of income.
(v) Earnings per share:
Basic earnings per share are calculated by dividing the net income attributable to equity holders of the Company for the period by the weighted average
number of common shares outstanding during the period. Fully diluted earnings per share are calculated on the same basis as there are no potentially
dilutive common shares.
5. Critical accounting estimates and judgments
The Company makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the actual
results. The estimates and assumptions that are critical to the determination of carrying value of assets and liabilities are addressed below.
Impairment of property, plant and equipment and intangible assets:
(a)
An integral component of impairment testing is determining the asset’s recoverable amount. The determination of the recoverable amount involves
significant management judgment, including projections of future cash flows and appropriate discount rates. The cash flows are derived from the financial
forecast for the next five years and do not include restructuring activities that the Company is not yet committed to or significant future investments that will
enhance the asset’s performance of the CGU being tested. Qualitative factors, including market presence and trends, strength of customer relationships,
strength of local management, strength of debt and capital markets, and degree of variability in cash flows, as well as other factors, are considered when
making assumptions with regard to future cash flows and the appropriate discount rate. The recoverable amount is most sensitive to the discount rate
21
used for the discounted cash flow model as well as the expected future cash inflows and the growth rate used for extrapolation purposes. A change in
any of the significant assumptions or estimates could result in a material change in the recoverable amount.
The Company has eight CGUs, of which the carrying values for two include goodwill and must be tested for impairment annually.
(b) Employee benefit plans:
Accounting for employee benefit plans requires the use of actuarial assumptions. The assumptions include the discount rate, expected rate of return on
benefit plan assets, rate of compensation increase and health-care costs. These assumptions depend on underlying factors such as economic conditions,
government regulations, investment performance, employee demographics and mortality rates. These assumptions could change in the future and may
result in material adjustments to employee benefit plan assets or liabilities.
6. Future accounting standards
In May 2011, the International Accounting Standards Board (IASB) issued the following standards: IFRS 10 “Consolidated Financial Statements”, IFRS
11 “Joint Arrangements”, IFRS 12 “Disclosure of Interests in Other Entities”, IFRS 13 “Fair Value Measurement” and amended IAS 27 “Separate Financial
Statements” and IAS 28 “Investments in Associates and Joint Ventures”. Each of the new standards is effective for annual periods beginning on or
after January 1, 2013 with early adoption permitted. The Company has assessed the impact of the new and amended standards and management
has determined that the standards will not have a significant impact on the Company’s consolidated financial statements. They will be adopted by the
Company in 2013. The following is a brief summary of the new standards:
(a) Consolidation:
IFRS 10 “Consolidated Financial Statements” requires an entity to consolidate an investee when it is exposed, or has rights, to variable returns from its
involvement with the investee and has the ability to affect those returns through its power over the investee. Under existing IFRS, consolidation is required
when an entity has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. IFRS 10 replaces SIC
12 “Consolidation – Special Purpose Entities” and parts of IAS 27 “Consolidated and Separate Financial Statements”.
(b) Joint arrangements:
IFRS 11 “Joint Arrangements” requires a venturer to classify its interest in a joint arrangement as a joint venture or joint operations. Joint ventures will be
accounted for using the equity method of accounting whereas for a joint operation the venturer will recognize its share of the assets, liabilities, revenue
and expenses of the joint operation. Under existing IFRS, entities have the choice to proportionately consolidate or equity account for interests in joint
ventures. IFRS 11 supersedes IAS 31 “Interests in Joint Ventures” and SIC 13 “Jointly Controlled Entities - Non-monetary Contributions by Venturers”.
(c) Disclosure of interests in other entities:
IFRS 12 “Disclosure of Interests in Other Entities” establishes disclosure requirements for interests in other entities, such as joint arrangements,
associates, special purpose vehicles and off balance sheet vehicles. The standard carries forward existing disclosures and also introduces significant
additional disclosure requirements that address the nature of, and risks associated with, an entity’s interests in other entities.
(d) Fair value measurement:
IFRS 13 “Fair Value Measurement” is a comprehensive standard for fair value measurement and disclosure requirements for use across all IFRS
standards. The new standard clarifies that fair value is the price that would be received to sell an asset, or paid to transfer a liability in an orderly
transaction between market participants, at the measurement date. It also establishes disclosures about fair value measurement. Under existing IFRS,
guidance on measuring and disclosing fair value is dispersed among the specific standards requiring fair value measurements and in many cases does
not reflect a clear measurement basis or consistent disclosures.
(e) Amendments to other standards:
There have been amendments to existing standards, including IAS 27 “Separate Financial Statements” and IAS 28 “Investments in Associates and Joint
Ventures”. IAS 27 addresses accounting for subsidiaries, jointly controlled entities and associates in non-consolidated financial statements. IAS 28 has
been amended to include joint ventures in its scope and to address the changes in IFRS 10, 11, and 12 as explained above.
(f) Financial instruments:
IFRS 9 “Financial Instruments” was issued in November 2009, introducing new requirements for the classification and measurement of financial assets.
IFRS 9 was amended in October 2010 to include requirements for the classification and measurement of financial liabilities and for derecognition. IFRS
9 retains but simplifies the mixed measurement model and establishes two primary measurement categories for financial assets: amortized cost and fair
value. The basis of classification depends on an entity’s business model and the contractual cash flow of the financial asset. Classification is made at the
time the financial asset is initially recognized, namely when the entity becomes a party to the contractual provisions of the instrument. With regard to the
measurement of financial liabilities designated as fair value through profit or loss, IFRS 9 requires that the amount of the change in the fair value of the
financial liability, that is attributable to changes in the credit risk of that liability, is presented in other comprehensive income, unless the recognition of the
effects of changes in the liability’s credit risk in other comprehensive income would create or enlarge an accounting mismatch in the statement of income.
Changes in fair value attributable to a financial liability’s credit risk are not subsequently reclassified to the statement of income. Previously, the entire
amount of the change in the fair value of the financial liability designated as fair value through profit or loss was presented in the statement of income.
IFRS 9 is effective for annual periods beginning on or after January 1, 2015. While the Company is currently assessing the impact of this new standard,
management does not expect the standard to have a significant impact on the Company’s consolidated financial statements.
22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In June 2011, the IASB amended IAS 1 “Financial Statement Presentation” and IAS 19 “Employee Benefits”.
(g) Financial statement presentation:
The amendments to IAS 1 “Financial Statement Presentation” requires entities to separate items presented in other comprehensive income into two
groups, based on whether or not they may be recycled to the statement of income in the future. Items that will not be recycled such as re-measurements
resulting from amendments to IAS 19 will be presented separately from items that may be recycled in the future, such as deferred gains and losses on
cash flow hedges. Entities that presented other comprehensive income items before tax will be required to show the amount of tax related to the two
groups separately. The amendment is effective for annual periods beginning on or after July 1, 2012. Early adoption is permitted and full retrospective
application is required. Beginning in 2013, the Company will be separating the items disclosed in other comprehensive income.
(h) Employee benefits:
The amendments to IAS 19 “Employee Benefits” makes significant changes to the recognition and measurement of defined benefit pension expense and
termination benefits, and to the disclosure for all employee benefits. Actuarial gains and losses are renamed re-measurements and will be recognized
immediately in other comprehensive income. Re-measurements recognized in other comprehensive income will not be recycled through the statement
of income in subsequent periods. The amendments also accelerate the recognition of past service costs whereby they are recognized in the period of
a plan amendment. The annual expense for a defined benefit plan will be computed based on the application of the discount rate to the net defined
benefit plan asset or liability. The amendments to IAS 19 will also impact the presentation of pension expense as benefit costs will be split between (i)
the cost of benefits accrued in the current period (service cost) and benefit changes (past service cost, settlements and curtailments); and (ii) finance
expense or income. The amendment is effective for periods beginning on or after January 1, 2013. Early adoption is permitted. The amendment should
be applied retrospectively, except for changes to the carrying value of assets that include benefit costs in the carrying amount. The amended standard
will be adopted by the Company in 2013. The Company estimates the impact on the 2012 comparative annual figures in the 2013 consolidated financial
statements, relating to the calculation of the expected return on benefit plan assets being based on the rate used to discount the benefit obligation will
be an increase to net finance costs of $1.0 million to $1.5 million and a decrease to net income of $0.7 million to $1.0 million. This would be offset by
a corresponding decrease in other comprehensive loss. Management is still in the process of assessing the full impact of the above amount and the
remaining amendments to this standard.
(i) Financial instruments - presentation:
In December 2011, the IASB issued an amendment to the application guidance in IAS 32 “Financial Instruments: Presentation” to clarify some of the
requirements for offsetting financial assets and financial liabilities on the statement of financial position. As a result, the IASB has also published an
amendment to IFRS 7 “Financial Instruments: Disclosures”. The amendments do not change the current offsetting model in IAS 32 but instead clarify
that the right of offset must not be contingent on a future event. It also must be legally enforceable for all counterparties in the normal course of business,
as well as in the event of default, insolvency or bankruptcy. The amendments also clarify that gross settlement mechanisms with features that both (i)
eliminate credit and liquidity risk and (ii) process receivables and payables in a single settlement process, are effectively equivalent to net settlement.
The offsetting disclosures in IFRS 7 are to be retrospectively applied, with an effective date for annual periods beginning on or after January 1, 2013.
However, the clarifications to the application guidance in IAS 32 are to be retrospectively applied, with an effective date for annual periods beginning on
or after January 1, 2014. While the Company is currently assessing the impact of this new standard, management does not expect the standard to have
a significant impact on the Company’s consolidated financial statements. The new standard will be adopted by the Company in 2013.
In May 2012, the IASB issued the Annual Improvements project, which contains amendments that result in accounting changes for presentation,
recognition and disclosure purposes. The amendments are applicable for annual periods beginning on or after January 1, 2013. Early adoption is
permitted. The following is a brief summary of the amended standards:
(j) Financial statement presentation:
IAS 1 “Financial Statement Presentation” was amended to clarify that no additional note disclosure is required when an entity provides a third balance
sheet in accordance with IFRS 8 “Accounting Policies”. However, if an entity provides a third balance sheet voluntarily it should provide supporting note
disclosures.
(k) Property, plant and equipment:
IAS 16 “Property, Plant and Equipment” was amended to clarify that spare parts and servicing equipment are classified as property, plant and equipment
rather than inventory if they meet the definition of property, plant and equipment.
(l) Financial instruments - presentation:
IAS 32 “Financial Instruments: Presentation” was amended to clarify the treatment of income tax relating to distributions and transaction costs. Income
tax related to distributions is recognized in the statement of income and income tax related to the cost of equity transactions is recognized in equity.
(m) Interim financial reporting:
IAS 34 “Interim Financial Reporting” was amended to clarify the disclosure requirements for segment assets and liabilities in interim financial statements.
A measure of total assets and liabilities is required for an operating segment in interim financial statements if such information is regularly provided to the
chief operating decision maker and there has been a material change in those measures since the last annual financial statements.
While the Company is currently assessing the impact of the aforementioned amended standards, management does not expect the amendments to have
a significant impact on the Company’s consolidated financial statements. They will be adopted by the Company in 2013.
23
7. Expenses by nature:
Raw materials and consumables used
Depreciation and amortization
Personnel expenses (note 8)
Freight
Other expenses
Net foreign exchange and cash flow hedge gains transferred from other comprehensive income (note 9)
8. Personnel expenses:
Wages and salaries
Social security
Expenses related to defined benefit plans
Contribution to defined contribution plans and defined benefit multiemployer pension plan
Withdrawal liability on defined benefit multiemployer pension plan
Share-based payments
9. Other income (expenses):
Foreign exchange gain (loss)
Cash flow hedge gains transferred from other comprehensive income
Withdrawal liability on defined benefit multiemployer pension plan
10. Finance income and expense:
Finance income on cash and cash equivalents
Expected return on benefit plan assets
Finance income
Finance expense on bank overdrafts and other
Finance expense on benefit plan obligation
Unwinding of discount rates on provisions
Finance expense
Net finance income
2012
(343,343)
(26,197)
(145,992)
(19,207)
(32,619)
772
(566,586)
2012
(127,391)
(11,272)
(3,331)
(3,434)
1,024
(1,588)
2011
(337,074)
(27,615)
(138,661)
(17,750)
(36,228)
275
(557,053)
2011
(119,742)
(11,120)
(2,928)
(3,115)
(795)
(961)
(145,992)
(138,661)
2012
599
173
1,024
1,796
2012
506
4,209
4,715
(47)
(3,520)
(137)
(3,704)
1,011
2011
(721)
996
(795)
(520)
2011
328
4,089
4,417
(48)
(3,579)
(238)
(3,865)
552
24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 11. Income tax expense:
Current tax expense
Current year
Deferred tax expense
Origination and reversal of temporary differences
Total income tax expense
Income tax (expense) recovery recognized in other comprehensive income
Cash flow hedges
Actuarial losses
Reconciliation of effective income tax rate
Combined Canadian federal and provincial income tax rate
United States income taxed at rates higher than Canadian tax rates
Permanent differences and other
Effective income tax rate
Effective January 1, 2012, the Canadian federal income tax rate dropped from 16.5 percent to 15.0 percent.
12. Cash and cash equivalents:
Bank balances
Money market and short-term deposits
13. Trade and other receivables:
Trade receivables
Less: Allowance for doubtful accounts
Net trade receivables
Other receivables
2012
2011
(27,375)
(29,424)
(4,317)
(31,692)
(206)
1,295
1,089
26.6%
4.4
(0.7)
30.3%
(1,229)
(30,653)
356
3,634
3,990
28.2%
4.5
(0.6)
32.1%
December 30
December 25
2012
19,322
113,981
133,303
2011
17,320
109,559
126,879
December 30
December 25
2012
77,600
(1,112)
76,488
10,309
86,797
2011
81,811
(1,446)
80,365
3,570
83,935
25
14. Inventories:
Raw materials
Work-in-process
Finished goods
Spare parts
December 30
December 25
2012
31,527
13,738
39,943
5,038
90,246
2011
22,584
13,753
37,367
4,314
78,018
During 2012, the Company recorded, within cost of sales, inventory write-downs for slow-moving and obsolete inventory of $5,373 (2011 - $6,080) and
reversals of previously written-down items of $3,270 (2011 - $1,688).
15. Property, plant and equipment:
Land
Buildings
Equipment
Machines
In Progress
Total
Packaging
Capital
Net book value
At December 27, 2010
Cost
Accumulated depreciation
2011 Activity
Additions
Disposals
Transfers
Depreciation
At December 25, 2011
At December 25, 2011
Cost
Accumulated depreciation
Net book value
At December 26, 2011
Cost
Accumulated depreciation
2012 Activity
Additions
Disposals
Transfers
Depreciation
At December 30, 2012
At December 30, 2012
Cost
Accumulated depreciation
2,565
-
2,565
-
-
-
-
2,565
2,565
-
2,565
2,565
-
2,565
4,386
-
2,322
-
9,273
83,508
350,472
(23,368)
(182,694)
60,140
167,778
28,305
(25,778)
2,527
1,787
-
1,787
466,637
(231,840)
234,797
377
38,204
2,014
-
-
(3,078)
59,076
8,598
(263)
1,376
(22,881)
154,608
-
-
(830)
2,074
85,522
356,074
(26,446)
(201,466)
59,076
154,608
28,134
(26,060)
2,074
-
(1,376)
-
38,615
38,615
-
38,615
49,193
(263)
-
(26,789)
256,938
510,910
(253,972)
256,938
85,522
356,074
(26,446)
(201,466)
59,076
154,608
28,134
(26,060)
2,074
38,615
-
38,615
510,910
(253,972)
256,938
4,954
(34)
12,995
(3,309)
73,682
22,180
(900)
14,598
(22,075)
168,411
571
39,734
-
-
(767)
1,878
-
(29,915)
-
48,434
71,825
(934)
-
(26,151)
301,678
9,273
103,375
378,258
-
9,273
(29,693)
(209,847)
73,682
168,411
27,718
(25,840)
1,878
48,434
-
48,434
567,058
(265,380)
301,678
26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Government grants in respect of property, plant and equipment were recognized within deferred income totaling $2,449 in 2012 (2011 - $249). No
impairment losses or impairment reversals were recorded during 2012 and 2011. No borrowing costs were capitalized during 2012 and 2011.
16. Intangible assets:
Net book value
At December 27, 2010
Cost
Accumulated amortization and impairment
2011 Activity
Additions
Disposals
Amortization
At December 25, 2011
At December 25, 2011
Cost
Accumulated amortization and impairment
Net book value
At December 26, 2011
Cost
Accumulated amortization and impairment
2012 Activity
Additions
Disposals
Amortization
At December 30, 2012
At December 30, 2012
Cost
Accumulated amortization and impairment
Goodwill
Software
Patents
Related
Related
Total
Customer
Marketing
31,546
(18,780)
12,766
-
-
-
12,766
31,546
(18,780)
12,766
31,546
(18,780)
12,766
-
-
-
12,766
31,546
(18,780)
12,766
7,056
(5,977)
1,079
461
(3)
(676)
861
7,510
(6,649)
861
7,510
(6,649)
861
719
(9)
(324)
1,247
8,013
(6,766)
1,247
4,026
(3,954)
72
1
-
(29)
44
4,027
(3,983)
44
4,027
(3,983)
44
26
-
(17)
53
433
(380)
53
11,996
(9,554)
2,442
-
-
(1,160)
1,282
11,996
(10,714)
1,282
11,996
(10,714)
1,282
-
-
(797)
485
881
(396)
485
1,924
(1,617)
307
-
-
(184)
123
1,924
(1,801)
123
1,924
(1,801)
123
-
-
(123)
-
-
-
-
56,548
(39,882)
16,666
462
(3)
(2,049)
15,076
57,003
(41,927)
15,076
57,003
(41,927)
15,076
745
(9)
(1,261)
14,551
40,873
(26,322)
14,551
The amortization of software and patents is included within general and administrative expenses and the amortization of customer related and marketing
related intangibles is included within sales, marketing and distribution expenses.
As of December 30, 2012, there were no indefinite life intangible assets other than goodwill.
The 2012 goodwill balance of $12,766 (2011 - $12,766) includes $12,542 (2011 - $12,542) related to the lidding CGU. The impairment testing for this
CGU was conducted under the value-in-use approach, using a pre-tax discount rate of 12.1 percent (2011 - 12.4 percent). Cash flows were projected
based on actual operating results and the five-year business plan. Average volume growth for the next five years was 7.0 percent (2011 - 4.1 percent)
and the average gross profit percentage over the same time-frame was three percentage points (2011 - two percentage points) lower than the actual gross
profit percentage attained in the current year. Cash flows after the five year period were assumed to increase at a terminal growth rate of 1.5 percent
(2011 - 1.5 percent).
No impairment losses or impairment reversals were recorded during 2012 and 2011.
27
17. Employee benefit plans:
The Company maintains five funded non-contributory defined benefit pension plans, one funded non-contributory supplementary income postretirement
plan for certain CDN-based executives, one unfunded contributory defined benefit postretirement plan for health-care benefits for a limited group of US
individuals, one multiemployer defined benefit pension plan for certain unionized employees in the US and seven defined contribution pension plans.
Effective January 1, 2005, all defined benefit pension plans were frozen to new entrants except one, which was frozen effective January 1, 2009. All new
CDN employees are required, and all new US employees have the option, to participate in defined contribution plans upon satisfaction of certain eligibility
requirements.
Total amounts paid by the Company on account of all benefit plans, consisting of: defined benefit pension plans, supplementary income postretirement
plan, direct payments to beneficiaries for the unfunded postretirement plan, the multiemployer defined benefit pension plan and the defined contribution
plans, amounted to $8,173 (2011 - $8,328).
Defined benefit plans
For financial reporting purposes, the Company measures the benefit obligations and fair value of the benefit plan assets as of the year-end date. The
most recent actuarial valuations for funding purposes for the funded non-contributory plans were completed as at the following dates: January 1, 2010 for
one plan, December 31, 2010 for two plans, January 1, 2012 for one plan, and October 31, 2011 for one frozen plan. The most recent actuarial valuations
for funding purposes for the supplementary income postretirement plan and the postretirement plan for health-care benefits were dated December 30,
2012 and January 1, 2011, respectively. The next required actuarial valuations for all of the Company’s defined benefit plans are three years from the
aforementioned dates. Based on the most recent actuarial valuations, the Company expects to contribute $3,548 in cash to its defined benefit plans in
2013.
The following presents the financial position of the Company’s defined benefit pension plans and other post retirement benefits, which include the
supplementary income plan and the postretirement plan for health-care benefits:
Change in benefit obligation
Benefit obligation, beginning of year
Current service cost
Finance expense
Actuarial losses recognized in other comprehensive income
Benefits paid
Foreign exchange
Benefit obligation, end of year
Change in benefit plan assets
Fair value of benefit plan assets, beginning of year
Expected return on benefit plan assets
Actuarial gains (losses) recognized in other comprehensive income
Employer contributions
Benefits paid
Foreign exchange
Fair value of benefit plan assets, end of year
Funded status
Present value of funded obligations
Fair value of benefit plan assets
Status of funded obligations
Present value of unfunded obligations
Total funded status of obligations
Assets not recognized due to pension plan asset ceiling limit
28
December 30
December 25
2012
2011
77,551
3,331
3,520
6,345
(2,759)
1,233
89,221
65,117
4,209
2,364
4,671
(2,759)
1,142
74,744
(87,379)
74,744
(12,635)
(1,842)
(14,477)
(34)
(14,511)
65,769
2,928
3,579
8,099
(2,162)
(662)
77,551
62,911
4,089
(4,125)
5,148
(2,162)
(744)
65,117
(75,659)
65,117
(10,542)
(1,892)
(12,434)
(70)
(12,504)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Amounts recognized in the balance sheet
Employee benefit plan liabilities
Benefit plan assets
The following represents the weighted average allocation of benefit plan assets:
Asset category
Equity securities
Debt securities
Cash
Total
Net benefit plan expense
Current service cost
Finance expense on benefit obligation
Expected return on benefit plan assets
Current service cost is recognized in the following line items in the statement of income:
Cost of sales
Sales, marketing and distribution expenses
General and administrative expenses
Research and technical expenses
Actual return on benefit plan assets
Amounts recognized in other comprehensive income
Actuarial losses
Assets not recognized due to pension plan asset ceiling limit
Cumulative actuarial (losses) / gains recognized in other comprehensive income
Cumulative amount, beginning of year
Recognized during the year
Cumulative amount, end of year
December 30
December 25
2012
2011
(14,511)
(12,504)
62%
32%
6%
100%
2012
(3,331)
(3,520)
4,209
(2,642)
(1,514)
(493)
(1,063)
(261)
(3,331)
6,573
(3,981)
37
(3,944)
(11,369)
(3,944)
(15,313)
62%
32%
6%
100%
2011
(2,928)
(3,579)
4,089
(2,418)
(1,364)
(459)
(870)
(235)
(2,928)
(36)
(12,224)
453
(11,771)
402
(11,771)
(11,369)
Historical information
Fair value of benefit plan assets
Present value of benefit obligations
Deficit in the plans
Experience adjustments arising on benefit plan assets
Experience adjustments arising on benefit plan liabilities
December 30
December 25
December 26
2012
2011
2010
74,744
(89,221)
(14,477)
2,364
(290)
65,117
(77,551)
(12,434)
(4,125)
584
62,911
(65,769)
(2,858)
1,186
-
29
Significant assumptions
The following weighted averages were used:
Benefit obligations as of the year-end date:
Discount rate
Rate of compensation increase
Net benefit plan expense for the year:
Discount rate
Expected return on benefit plan assets
Rate of compensation increase
2012
2011
4.0%
3.5%
4.5%
6.2%
3.8%
4.5%
3.7%
5.4%
6.4%
3.9%
The defined benefit pension plans do not invest in the shares of the Company. The expected rate of return on the benefit plan assets is based on historical
and projected rates of return for each asset category measured over a four-year time period. The objective of the asset allocation policy is to manage
the funded status of the plans at an appropriate level of risk, giving consideration to the security of the assets and the potential volatility of market returns.
The long-term rate of return is targeted to exceed the return indicated by a benchmark portfolio by at least 1 percent annually.
The postretirement benefit plan assumed health-care cost trend rate is 8.1 percent with the rate declining to 4.5 percent by 2028. A one-percentage point
change in the assumed health-care cost trend rate would affect the net benefit plan expense by approximately $5 and the benefit obligation by $127.
Multiemployer defined benefit pension plan
The Company participated in one multiemployer defined benefit pension plan providing benefits to certain unionized employees in the US. The
administration of the plan and investment of its assets are controlled by a board of independent trustees. The trustees have determined that this plan is
in a critical status position from a funding perspective. During 2011, the Company filed the necessary paperwork with the plan trustees to withdraw from
the plan. Pursuant to US federal legislation, an employer who withdraws from a plan with unfunded vested benefits is responsible for a share of that
underfunding. See note 20 for the details on the accounting for the withdrawal liability. This multiemployer defined benefit pension plan was accounted
for using the accounting standards for defined contribution plans as there was insufficient information to apply defined benefit pension plan accounting.
Accordingly, the Company’s pension expense in respect to this plan of $0 (2011 - $135) was the annual funding contribution and the Company did not
recognize its share of a plan surplus or deficit.
Defined contribution pension plans
The Company maintains four defined contribution plans for employees in Canada and three savings retirement plans (401(k) Plans) for employees in the
United States. The Company’s total expense for these plans was $3,434 (2011 - $2,980).
18. Deferred tax assets and liabilities:
The following are the components of the deferred tax assets and liabilities recognized by the Company:
Assets
Liabilities
Net
December 30
December 25
December 30
December 25
December 30
December 25
Trade and other receivables
Inventories
Prepaid expenses
Derivative financial instruments
Property, plant and equipment
Intangible assets
Employee benefit plans
Trade payables and other liabilities
Provisions
Tax assets (liabilities)
Set off of tax
Net tax assets (liabilities)
2012
2011
-
-
(59)
(38)
(32,915)
(664)
-
(133)
-
(33,809)
13,746
(20,063)
-
-
(76)
-
(30,762)
(449)
-
(121)
-
(31,408)
14,292
(17,116)
2012
349
3,328
(59)
(38)
(29,470)
38
4,785
1,547
2,905
2011
447
3,147
(76)
168
(27,036)
516
4,446
1,490
3,511
(16,615)
(13,387)
-
-
(16,615)
(13,387)
2012
349
3,328
-
-
3,445
702
4,785
1,680
2,905
2011
447
3,147
-
168
3,726
965
4,446
1,611
3,511
17,194
(13,746)
3,448
18,021
(14,292)
3,729
30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Movement in deferred tax assets and liabilities:
2011
Trade and other receivables
Inventories
Prepaid expenses
Derivative financial instruments
Property, plant and equipment
Intangible assets
Employee benefit plans
Trade payables and other liabilities
Provisions
2012
Trade and other receivables
Inventories
Prepaid expenses
Derivative financial instruments
Property, plant and equipment
Intangible assets
Employee benefit plans
Trade payables and other liabilities
Provisions
Opening
Recognized
Recognized
Balance
In Income
In Equity
Ending
Balance
498
2,608
(74)
(188)
(51)
539
(2)
-
(25,351)
(1,685)
484
1,644
1,486
2,745
32
(832)
4
766
-
-
-
356
-
-
3,634
-
-
447
3,147
(76)
168
(27,036)
516
4,446
1,490
3,511
(16,148)
(1,229)
3,990
(13,387)
447
3,147
(76)
168
(98)
181
17
-
(27,036)
(2,434)
516
4,446
1,490
3,511
(478)
(956)
57
(606)
-
-
-
(206)
-
-
1,295
-
-
349
3,328
(59)
(38)
(29,470)
38
4,785
1,547
2,905
(13,387)
(4,317)
1,089
(16,615)
Deferred tax assets have been recognized where it is probable that they will be recovered. In recognizing deferred tax assets, the Company has
considered if it is probable that sufficient future income will be available to absorb temporary differences.
No deferred tax liability has been recognized in respect of temporary differences associated with investments in subsidiaries where the Company controls
the timing of the reversal and it is probable that such temporary differences will not reverse in the foreseeable future. The aggregate amount of temporary
differences associated with investments in domestic and foreign subsidiaries for which a deferred tax liability has not been recognized is $228,075 (2011
- $190,659). Temporary differences relating to unremitted earnings of foreign subsidiaries which would be subject to withholding and other taxes totalled
$139,783 (2011 - $114,821).
19. Trade payables and other liabilities:
Trade payables
Other current liabilities and accrued expenses
December 30
December 25
2012
33,654
25,530
59,184
2011
32,138
27,156
59,294
31
20. Provisions:
Balance at December 26, 2011
Current liabilities
Non-current liabilities
2012 Annual activity
Payments
Finance expense (income) - unwinding of discount
Reversals
Change in discount rates
Balance at December 30, 2012
At December 30, 2012
Current liabilities
Non-current liabilities
Multiemployer
Asset
Withdrawal
Retirement
Liability
Obligations
Total
491
7,632
8,123
(214)
145
(1,102)
78
7,030
427
6,603
7,030
101
791
892
(20)
(8)
(68)
-
796
-
796
796
592
8,423
9,015
(234)
137
(1,170)
78
7,826
427
7,399
7,826
Multiemployer withdrawal liability
The Company participated in one multiemployer defined benefit pension plan providing benefits to certain unionized employees in the US. The
administration of the plan and investment of its assets are controlled by a board of independent trustees. The trustees communicated to both the
Company and the Union in 2010 that this plan was in a critical status position from a funding perspective. During the fourth quarter of 2010, the Company
analyzed its options with the assistance of external consultants. Management determined that the only economically feasible alternative was to withdraw
from the plan and therefore, in the first quarter of 2011, reached an agreement with the Union to proceed. In addition, the Company filed the necessary
paperwork with the plan trustees to withdraw from the plan. Pursuant to US federal legislation, an employer who withdraws from a plan with unfunded
vested benefits is responsible for a share of that underfunding. As a consequence of withdrawing from the plan, the Company is required to make monthly
payments at a constant dollar value of $36, or $427 on an annual basis, over a twenty year period until June 2032. A one-percentage point increase in
the discount rates would have decreased the December 30, 2012 liability by $577 and increased income before income taxes by $577.
Asset retirement obligations
For certain building leases, the Company is required to remove all equipment and restore the premises at the end of the lease.
21. Share-based payments:
Effective January 1, 2004, the Board of Directors established the President’s Incentive Plan (Plan), whereby the Company grants to B.J. Berry (President)
60,000 restricted share units (RSUs) upon completion of each year of service. There is no cost to the President for the RSUs and the RSUs vest
immediately. The Company pays to the President the cash value of the RSUs based on the closing share price on a date selected by the President during
the fourth quarter of the third year or the first quarter of the fourth year subsequent to the year the RSUs were granted. A date cannot be selected during
periods in which insiders may not trade Winpak shares. In the event of the termination of the President’s employment for any reason, the cash value of
the RSUs shall be paid immediately to the President or his personal representative, as the case may be. The cash value of a RSU is the market value of
the common shares of the Company on the day prior to the date of payment. In addition, the Company is required to pay the President an amount equal
to the dividends paid on the common shares of the Company with respect to each RSU if, as and when, declared and paid.
Details of RSUs issued and outstanding during the current and prior year are as follows:
Outstanding, beginning of year
Settled
Granted
Outstanding, end of year
Available for settlement, end of year
32
2012
240,000
(60,000)
60,000
240,000
60,000
2011
240,000
(60,000)
60,000
240,000
60,000
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The 240,000 RSUs outstanding at the end of 2012 mature 60,000 annually from 2013 through 2016 and the 240,000 RSUs outstanding at the end of 2011
mature 60,000 annually from 2012 through 2015.
The fair value of the RSUs at the grant date and each subsequent reporting date is determined based upon the market value of the Company’s common
shares.
The personnel expense recorded in the statement of income under the Plan was $1,588 (2011 - $961). The settlement price in 2012 was $15.40 US per
RSU (2011 - $14.72 US). At December 30, 2012, the carrying value of the liability, as well as the intrinsic value of the vested liability in respect of the
Plan, was $3,552 (2011 - $2,856).
22. Share capital and reserves:
Share capital
At December 30, 2012, the authorized voting common shares were unlimited (2011 - unlimited). The issued and fully paid voting common shares at
December 30, 2012 were 65,000,000 (2011 - 65,000,000). The shares have no par value. The Company has no stock option plans in place.
Reserves
Reserves comprise the effective portion of the cumulative net change in the fair value of cash flow hedging instruments related to the hedged transactions
that have not yet occurred.
Dividends
During 2012, dividends in Canadian dollars of 12 cents per common share were declared (2011 - 12 cents).
23. Earnings per share:
Net income attributable to equity holders of the Company
Weighted average shares outstanding (000’s)
Basic and fully diluted earnings per share - cents
24. Financial instruments:
The following sets out the classification and the carrying/fair value of financial instruments:
Assets (Liabilities)
Cash and cash equivalents
Trade and other receivables
Classification
Loans and receivables
Loans and receivables
Derivative financial instrument assets
Derivatives designated as effective hedges
Trade payables and other liabilities
Other financial liabilities
2012
72,376
65,000
111
2011
63,783
65,000
98
Carrying /
Fair Value
133,303
86,797
288
(59,184)
The fair value of cash and cash equivalents, trade and other receivables, trade payables and other liabilities approximate their carrying value because
of the short-term maturity of these instruments. The fair value of foreign currency forward contracts, designated as cash flow hedges, have been
determined by valuing those contracts to market against prevailing forward foreign exchange rates as at the year-end reporting date. The inputs used
for fair value measurements, including their classification within the required three levels of the fair value hierarchy that prioritizes the inputs used for fair
value measurement, are as follows:
Level 1 - unadjusted quoted prices in active markets for identical assets or liabilities;
Level 2 - inputs other than quoted prices that are observable for the asset or liability either directly or indirectly; and
Level 3 - inputs that are not based on observable market data.
33
The following table presents the classification of financial instruments within the fair value hierarchy as at December 30, 2012:
Financial Assets (Liabilities)
Foreign currency forward contracts
25. Commitments and guarantees:
Level 1
-
Level 2
288
Level 3
-
Total
288
Commitments:
At December 30, 2012, the Company has commitments to purchase property, plant and equipment of $11,189 (2011 - $35,184).
The Company rents premises and equipment under operating leases that expire at various dates until November 30, 2017. The aggregate minimum
rentals payable for these leases are as follows:
Year
Amount
2013
1,406
2014
1,220
2015
568
2016
13
2017
Thereafter
1
-
Total
3,208
During 2012, $1,558 was recognized as an expense in the statement of income in respect of operating leases (2011 - $1,767).
Guarantees:
Directors and officers
The Company and its subsidiaries have entered into indemnification agreements with their respective directors and officers to indemnify them, to the
extent permitted by law, against any and all amounts paid in settlement and damages incurred by the directors and officers as a result of any lawsuit, or
any judicial, administrative or investigative proceeding involving the directors and officers. Indemnification claims will be subject to any statutory or other
legal limitation period. The Company has purchased directors’ and officers’ liability insurance to mitigate losses from any such claims.
Leased real property
The Company and its subsidiaries enter into operating leases in the ordinary course of business for real property. In certain instances, the Company and
its subsidiaries have indemnified the landlord from any obligations that may arise from any occurrences of personal bodily injury, loss of life and property
damages. The Company’s property and liability insurance coverage mitigates losses from any such claims.
Pension plan
The Company has indemnified the Manitoba Pension Commission from any and all claims that may be made by any beneficiary under a certain defined
benefit pension plan. The indemnity relates to the transfer of a portion of the surplus in the respective pension plan to a non-contributory supplementary
income plan.
Given the nature of the aforementioned indemnification agreements, the Company is unable to reasonably estimate its maximum potential liability under
these agreements. The Company believes the likelihood of a material payment pursuant to these indemnification agreements is remote. No amounts
have been recorded in the consolidated financial statements with respect to these indemnification agreements.
26. Financial risk management:
In the normal course of business, the Company has risk exposures consisting primarily of foreign exchange risk, interest rate risk, commodity price risk,
credit risk and liquidity risk. The Company manages its risks and risk exposures through a combination of derivative financial instruments, insurance,
a system of internal and disclosure controls and sound business practices. The Company does not purchase any derivative financial instruments for
speculative purposes.
Financial risk management is primarily the responsibility of the Company’s corporate finance function. Significant risks are regularly monitored and
actions are taken, when appropriate, according to the Company’s approved policies, established for that purpose. In addition, as required, these risks are
reviewed with the Company’s Board of Directors.
Foreign exchange risk
Translation differences arise when foreign currency monetary assets and liabilities are translated at foreign exchange rates that change over time. These
foreign exchange gains and losses are recorded in other income (expenses). As a result of the Company’s CDN dollar net asset monetary position as
at December 30, 2012, a one-cent change in the year-end foreign exchange rate from 1.0035 to 0.9935 (CDN to US dollars) would have decreased net
income by $101 for 2012. Conversely, a one-cent change in the year-end foreign exchange rate from 1.0035 to 1.0135 (CDN to US dollars) would have
increased net income by $101 for 2012.
34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company’s foreign exchange policy requires that between 50 and 80 percent of the Company’s net requirement of CDN dollars for the ensuing 9 to
15 months will be hedged at all times with a combination of cash and cash equivalents and forward or zero-cost option foreign currency contracts. The
Company may also enter into forward foreign currency contracts when equipment purchases will be settled in other foreign currencies. Transactions
are only conducted with certain approved Schedule I Canadian financial institutions. All foreign currency contracts are designated as cash flow hedges.
Certain foreign currency forward contracts matured during the year and the Company realized pre-tax foreign exchange losses of $384. Of these foreign
exchange differences, gains of $173 were recorded in other income (expenses) and losses of $557 were recorded in property, plant and equipment.
As at December 30, 2012, the Company had US to CDN dollar foreign currency forward contracts outstanding with a notional amount of US $20.0
million at an average exchange rate of 1.0118 maturing between January and August 2013, a US dollar to Swiss franc foreign currency forward contract
outstanding with a notional amount of US $1.1 million at an exchange rate of 0.934 (US dollars to Swiss francs) maturing in April 2013 and US dollar
to Euro foreign currency forward contracts outstanding with a notional amount of US $0.4 million at an exchange rate of 0.7650 (US dollars to Euros)
maturing in January 2013. The fair value of these financial instruments was $288 US and the corresponding unrealized gain has been recorded in other
comprehensive income.
Interest rate risk
The Company’s interest rate risk arises from interest rate fluctuations on the finance income that it earns on its cash invested in money market accounts
and short-term deposits. The Company developed and implemented an investment policy, which was approved by the Company’s Board of Directors,
with the primary objective to preserve capital, minimize risk and provide liquidity. Regarding the December 30, 2012 cash and cash equivalents balance
of $133.3 million, a 1.0 percent increase/decrease in interest rate fluctuations would increase/decrease income before income taxes by $1,333 annually.
Commodity price risk
The Company’s manufacturing costs are affected by the price of raw materials, namely petroleum-based and natural gas-based plastic resins and
aluminum. In order to manage its risk, the Company has entered into selling price-indexing programs with certain customers. Changes in raw material
prices for these customers are reflected in selling price adjustments but there is a slight time lag. For 2012, 67 percent (2011 - 62 percent) of revenue
was to customers with selling price-indexing programs. For all other customers, the Company’s preferred practice is to match raw material cost changes
with selling price adjustments, albeit with a slight time lag. This matching is not always possible, as customers react to selling price pressures related to
raw material cost fluctuations according to conditions pertaining to their markets.
Credit risk
The Company is exposed to credit risk from its cash and cash equivalents held with banks and financial institutions, derivative financial instruments
(foreign currency forward contracts), as well as credit exposure to customers, including outstanding trade and other receivable balances.
The following table details the maximum exposure to the Company’s counterparty credit risk which represents the carrying value of the financial asset:
Cash and cash equivalents
Trade and other receivables
Foreign currency forward contracts
December 30
December 25
2012
133,303
86,797
288
220,388
2011
126,879
83,935
242
211,056
Credit risk on cash and cash equivalents and financial instruments arises in the event of non-performance by the counterparties when the Company
is entitled to receive payment from the counterparty who fails to perform. The Company has established an investment policy to manage its cash. The
policy requires that the Company manage its risk by investing its excess cash on hand on a short-term basis, up to a maximum of six months, with
several financial institutions and/or governmental bodies that must be ‘AA’ rated, or higher, by a recognized international credit rating agency or insured
100 percent by the US government or a ‘AAA’ rated CDN federal or provincial government. The Company manages its counterparty risk on its financial
instruments by only dealing with CDN Schedule I financial institutions.
In the normal course of business, the Company is exposed to credit risk on its trade and other receivables from customers. The Company’s current
credit exposure is higher in the weakened North American economic environment. To mitigate such risk, the Company performs ongoing customer credit
evaluations and assesses their credit quality by taking into account their financial position, past experience and other pertinent factors. Management
regularly monitors customer credit limits, performs credit reviews and, in certain cases insures trade receivable balances against credit losses.
As at December 30, 2012, the Company believes that the credit risk for trade and other receivables is mitigated due to the following: (a) a broad customer
base which is dispersed across varying market sectors and geographic locations, (b) 98 percent (2011 - 97 percent) of gross trade and other receivable
balances are outstanding for less than 60 days, (c) 21 percent (2011 - 20 percent) of the trade and other receivables balance are insured against credit
losses, and (d) the Company’s exposure to individual customers is limited and the ten largest customer balances, on aggregate, accounted for 32 percent
(2011 - 35 percent) of the total trade and other receivables balance.
35
The carrying amount of trade and other receivables is reduced through the use of an allowance account and the amount of the loss is recognized in
the statement of income within general and administrative expenses. When a receivable balance is considered uncollectible, it is written off against the
allowance for doubtful accounts. Subsequent recoveries of amounts previously written off are credited against general and administrative expenses in
the statement of income.
The following table sets out the aging details of the Company’s trade and other receivables balances outstanding based on the status of the receivable in
relation to when the receivable was due and payable and related allowance for doubtful accounts:
December 30
December 25
Current - neither impaired nor past due
Not impaired but past the due date:
Within 30 days
31 - 60 days
Over 60 days
Less: Allowance for doubtful accounts
Total trade and other receivables, net
The following table details the continuity of the allowance for doubtful accounts:
Balance, beginning of year
Provisions for the year, net of recoveries
Uncollectible amounts written off
Foreign exchange impact
Balance, end of year
2012
70,882
15,639
967
421
87,909
(1,112)
86,797
2012
(1,446)
328
7
(1)
(1,112)
2011
66,890
15,606
1,841
1,044
85,381
(1,446)
83,935
2011
(1,628)
(90)
272
-
(1,446)
Liquidity risk
Liquidity risk is the risk that the Company would not be able to meet its financial obligations as they come due. Management believes that the liquidity
risk is low due to the strong financial condition of the Company. This risk assessment is based on the following: (a) cash and cash equivalents amounts
of $133.3 million, (b) no outstanding bank loans, (c) unused credit facilities comprised of unsecured operating lines of $38 million, (d) the ability to obtain
term-loan financing to fund an acquisition, if needed, (e) an informal investment grade credit rating, and (f) the Company’s ability to generate positive cash
flows from ongoing operations. Management believes that the Company’s cash flows are more than sufficient to cover its operating costs, working capital
requirements, capital expenditures and dividend payments in 2013. The Company’s trade payables and other liabilities and derivative financial instrument
liabilities are virtually all due within twelve months.
Capital management
The Company’s objectives in managing capital are to ensure the Company will continue as a going concern and have sufficient liquidity to pursue its
strategy of organic growth combined with strategic acquisitions and to deploy capital to provide an appropriate return on investment to its shareholders.
The Company also strives to maintain an optimal capital structure to reduce the overall cost of capital.
In the management of capital, the Company includes bank overdrafts, bank loans and shareholders’ equity. The Board of Directors has established
quantitative return on capital criteria for management and year-over-year sustainable earnings growth targets. The Board of Directors also reviews, on a
regular basis, the level of dividends paid to the Company’s shareholders.
The Company has externally imposed capital requirements as governed through its bank operating line credit facilities. The Company monitors capital
on the basis of funded debt to EBITDA (income before interest, income taxes, depreciation and amortization) and debt service coverage. Funded debt
is defined as the sum of bank loans and bank overdrafts less cash and cash equivalents. The funded debt to EBITDA is calculated as funded debt, as
at the financial reporting date, over the 12-month rolling EBITDA. This ratio is to be maintained under 3.00:1. As at December 30, 2012, the ratio was
0.00:1. Debt service coverage is calculated as a 12-month rolling income from operations over debt service. Debt service is calculated as the sum of
one-sixth of bank loans outstanding plus annualized finance expense and dividends. This ratio is to be maintained over 1.50:1. As at December 30,
2012, the ratio was 15.42:1.
There were no changes in the Company’s approach to capital management during 2012.
36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 27. Segment reporting:
The Company operates in one operating segment being the manufacture and sale of packaging materials. The Company operates principally in Canada
and the United States. The following summary presents key information by geographic segment:
2012
Revenue
Property, plant and equipment and intangible assets
2011
Revenue
Property, plant and equipment and intangible assets
United
States
Canada
Other
Consolidated
523,736
141,259
106,663
173,328
503,643
122,351
110,462
149,663
39,679
1,642
37,958
-
670,078
316,229
652,063
272,014
Major customer
During 2012, the Company reported revenue to one customer representing 13 percent of total revenue (2011 - 14 percent).
28. Contingencies:
In the normal course of business activities, the Company may be subject to various legal actions. Management contests these actions and believes
resolution of the actions will not have a material adverse impact on the Company’s financial condition.
29. Related party transactions:
The Company had revenue of $0 (2011 - $0) and purchases of $3,323 (2011 - $3,811) with its majority shareholder company. Trade and other receivables
and trade payables and other liabilities include amounts of $63 (2011 - $39) and $99 (2011 - $0) respectively with the majority shareholder company.
These transactions were completed at market values with normal payment terms.
Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Company.
The Board of Directors and Executive Committee are key management personnel. The following table details the compensation earned by these key
management personnel:
Salaries, fees and short-term benefits
Post-employment benefits
Share-based payments
2012
(4,889)
(453)
(1,588)
(6,930)
2011
(4,680)
(370)
(961)
(6,011)
No loans were advanced to key management personnel during the year.
The aggregate remuneration earned by the Board of Directors in 2012 was $493 (2011 - $500). As a group, the Board of Directors hold, directly or
indirectly 52.6 percent (2011 - 52.6 percent) of the outstanding shares of the Company. The members of the Executive Committee hold, directly or
indirectly, 0.4 percent (2011 - 0.4 percent) of the outstanding shares of the Company.
37
Annual Meeting
The Annual Meeting of Shareholders will be held on Wednesday, April 24, 2013 at 4:30 p.m.
at The National Club, Toronto, Canada
Listing
Winpak Ltd. shares are listed WPK on the Toronto Stock Exchange
Transfer Agent
Computershare Investor Services Inc.
Annual Information Form
The most recent version of the Annual Information Form for Winpak Ltd.
is available by contacting Winpak’s Corporate Office
100 Saulteaux Crescent, Winnipeg, Canada R3J 3T3
info@winpak.com
Board of Directors
Chairman, A.I. Aarnio-Wihuri (2), Helsinki, Finland; Chairman, Wihuri Oy
Vice Chairman, J.M. Hellgren (2), Helsinki, Finland; President and Chief Executive Officer, Wihuri Oy
M.H. Aarnio-Wihuri, Helsinki, Finland
J.R. Lavery (2), Niagara-on-the-Lake, Canada
D.R.W. Chatterley (1), Winnipeg, Canada
J.S. Pollard (1), Winnipeg, Canada; Co-Chief Executive Officer, Pollard Banknote Limited
I.T. Suominen (1), Helsinki, Finland; Vice President and Chief Financial Officer, Wihuri Oy
(1) Member of the Audit Committee
(2) Member of the Compensation, Governance and Nominating Committee
Executive Committee
The Executive Committee, in consultation with the Board of Directors, establishes the objectives and the long-term direction of the Company. The
Committee meets regularly throughout the year to review progress towards achievement of the Company’s goals and to implement policies and
procedures directed at optimizing performance.
B.J. Berry, President and Chief Executive Officer, Winpak Ltd.
K.M. Byers, President, Winpak Films Inc.
D.A. Johns, President, Winpak Division, a division of Winpak Ltd.
T.L. Johnson, President, Winpak Heat Seal Packaging
K.P. Kuchma, Vice President and Chief Financial Officer, Winpak Ltd.
J.R. McMacken, President, Winpak Portion Packaging
O.Y. Muggli, Vice President, Technology, Winpak Ltd.
D.J. Stacey, President, Winpak Lane, Inc. and Vice President, Corporate Development, Winpak Ltd.
Auditor
PricewaterhouseCoopers LLP, Winnipeg, Canada
Legal Counsel
Thompson Dorfman Sweatman LLP, Winnipeg, Canada
Jones Day, Atlanta, U.S.A.
38
CORPORATE INFORMATION W
PACKAGING SOLUTIONS
WINPAK LTD. CORPORATE OFFICE, 100 SAULTEAUX CRESCENT, WINNIPEG, MB, CANADA R3J 3T3
T: (204) 889-1015 F: (204) 888-7806
WWW.WINPAK.COM
WINPAK GROUP WWW.WINPAK.COM
WINPAK DIVISION,
A DIVISION OF WINPAK LTD.
100 SAULTEAUX CRESCENT
WINNIPEG, MB R3J 3T3
CANADA
T: (204) 889-1015
F: (204) 832-7781
AMERICAN BIAXIS INC.
100 SAULTEAUX CRESCENT
WINNIPEG, MB R3J 3T3
CANADA
T: (204) 837-0650
F: (204) 837-0659
WINPAK INC.
P.O. BOX 14748
MINNEAPOLIS, MN 55414
U.S.A.
T: (204) 889-1015
F: (204) 832-7781
EMBALAJES WINPAK
DE MÉXICO, S.A. DE C.V
AV. DE LA MONTAÑA #112 EDIFICIO MT1,
MÓDULO 2 PARQUE INDUSTRIAL QUERÉTARO
76220, SANTO ROSA JÁUREGUI
QUERÉTARO, QUERÉTARO
MÉXICO
T: (52) 442-256-1900
WINPAK PORTION PACKAGING LTD.
26 TIDEMORE AVENUE
TORONTO, ON M9W 7A7
CANADA
T: (416) 741-6182
F: (416) 741-2918
WINPAK PORTION PACKAGING, INC.
3345 BUTLER AVENUE
SOUTH CHICAGO HEIGHTS, IL 60411-5590
U.S.A.
T: (708) 755-4483
F: (708) 755-7257
WINPAK PORTION PACKAGING, INC.
828A NEWTOWN-YARDLEY ROAD, SUITE 101
NEWTOWN, PA 18940-1785
U.S.A.
T: (267) 685-8200
F: (267) 685-8243
WINPAK PORTION PACKAGING, INC.
1111 WINPAK WAY
SAUK VILLAGE, IL 60411
U.S.A.
T: (708) 753-5700
F: (708) 757-2447
WINPAK HEAT SEAL PACKAGING INC.
21919 DUMBERRY ROAD
VAUDREUIL-DORION, QC J7V 8P7
CANADA
T: (450) 424-0191
F: (450) 424-0563
WINPAK HEAT SEAL CORPORATION
1821 RIVERWAY DRIVE
PEKIN, IL 61554
U.S.A.
T: (309) 477-6600
F: (309) 477-6699
WINPAK FILMS INC.
219 ANDREWS PARKWAY
SENOIA, GA 30276-9703
U.S.A.
T: (770) 599-6656
F: (770) 599-8387
WINPAK LANE, INC.
998 S. SIERRA WAY
SAN BERNARDINO, CA 92408
U.S.A.
T: (909) 885-0715
F: (909) 381-1934
WIHURI OY, HEAD OFFICE, WIHURINAUKIO 2, FI-00570 HELSINKI, FINLAND
T: +358 20 510 10 F: +358 20 510 2658
WWW.WIHURI.COM
WIPAK GROUP WWW.WIPAK.COM
WIPAK OY
WIPAKTIE 2, POB 45
FI-15561 NASTOLA
FINLAND
T: +358 20 510 311
F: +358 20 510 3300
WIPAK VALKEAKOSKI OY
KAIVOLANKATU 5
FI-37630 VALKEAKOSKI
FINLAND
T: +358 20 510 311
F: +358 20 510 3444
WIPAK GRYSPEERT S.A.S.
ZONE DES BOIS, BP 60006 BOUSBECQUE
FR-59558 COMINES CÉDEX
FRANCE
T: +33 320 115 656
F: +33 320 115 670
WIPAK UK LTD.
UNIT 3, BUTTINGTON BUSINESS PARK
UK-WELSHPOOL, POWYS SY21 8SL
GREAT BRITAIN
T: +44 1938 555 255
F: +44 1938 555 277
WIPAK POLSKA SP. Z O.O.
UI. SIKORSKIEGO 20
PL-49-340 LEWIN BRZESKI
POLAND
T: +48 77 404 2000
F: +48 77 404 2001
BIAXIS OY LTD.
TEKNIKONKATU 2
FI-15520 LAHTI
FINLAND
T: +358 20 510 312
F: +358 20 510 3500
WIPAK BORDI S.R.L.
VIA UNGARETTI
IT-20912 CAORSO
ITALY
T: +39 523 821 382
F: +39 523 822 185
WIPAK IBERICA S.L.
C/SANT CELONI, N076
P.I. CAN PRAT
08450 LLINARS DEL VALLÉS
BARCELONA
SPAIN
T: +34 937 812 020
F: +34 937 812 033
WIPAK WALSRODE GMBH & CO. KG
POB 1661
DE-29656 WALSRODE
GERMANY
T: +49 5161 443 903
F: +49 5161 441 43903
WIPAK B.V.
NIEUWSTADTERWEG 17
NL-6136 KN SITTARD
NETHERLANDS
T: +31 46 420 2999
F: +31 46 458 1311
38
3939
Wpk Annual Report.indd 39
13-02-20 2:50 PM
PACKAGING SOLUTIONS