WINPAK LTD.
TSX : WPK

WINPAK LTD.

October 22, 2009 15:59 ET

Winpak Reports Third Quarter Earnings

WINNIPEG, MANITOBA--(Marketwire - Oct. 22, 2009) - Winpak Ltd. (TSX:WPK) today reports consolidated results in US dollars for the third quarter of 2009, which ended on September 27, 2009.



September 27 September 28
Year-To-Date Ended 2009 2008
--------------------------

(thousands of US dollars, except per share
amounts)

Sales 370,527 382,347
--------------------------
--------------------------

Net earnings 31,446 20,470
--------------------------
--------------------------

Minority interest 1,386 171
Provision for income taxes 15,905 10,157
Interest (income) expense (9) 916
Depreciation and amortization 19,172 19,297
--------------------------

EBITDA (1) 67,900 51,011
--------------------------
--------------------------

Basic and fully diluted net earnings per share 48 31
(cents)
--------------------------
--------------------------


September 27 September 28
Third Quarter Ended 2009 2008
----------------------------------------------------------------------------
(thousands of US dollars, except per share
amounts)

Sales 125,267 131,419
--------------------------
--------------------------

Net earnings 9,889 7,288
--------------------------
--------------------------

Minority interest 511 92
Provision for income taxes 4,913 3,559
Interest (income) expense (18) 244
Depreciation and amortization 6,680 6,565
--------------------------

EBITDA (1) 21,975 17,748
--------------------------
--------------------------

Basic and fully diluted net earnings per share 15 11
(cents)
--------------------------
--------------------------


Winpak Ltd. 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.

(1)EBITDA is not a recognized measure under Canadian GAAP. Management believes that in addition to net earnings, this measure provides useful supplemental information to investors including an indication of cash available for distribution prior to debt service, capital expenditures and income taxes. Investors should be cautioned, however, that this measure should not be construed as an alternative to net earnings, determined in accordance with GAAP, as an indicator of the Company's performance. The Company's method of calculating this measure may differ from other companies, and, accordingly, the results may not be comparable.

Management's Discussion and Analysis

(presented in US dollars)

Forward-looking statements: 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, we disclaim 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.

Results of Operations

Net earnings for the third quarter of 2009 were $9.9 million or 15 cents per share compared to $7.3 million or 11 cents per share in the corresponding period of 2008, an increase of 35.6 percent. This represented the highest third quarter net earnings performance in the Company's history. Aided by lower raw material costs, strengthened gross profit margins improved net earnings per share by approximately 6 cents, while modest volume growth contributed an additional 1 cent per share. This was offset in part by the unfavorable impact of foreign exchange on net earnings of nearly 3 cents per share.

On a year-to-date basis, net earnings progressed by 53.2 percent to $31.4 million or 48 cents per share from $20.5 million or 31 cents per share in the first nine months of 2008. With one exception, the current net earnings performance after only three quarters betters any previous full year result. Gross profit margin improvement, primarily as a result of lower raw material costs, was the main factor behind the earnings growth, enhancing net earnings per share by approximately 21 cents whereas volume growth augmented net earnings by an additional 1 cent per share. Increased earnings attributable to the minority shareholder resulted in an offset of about 2 cents in net earnings per share while the unfavorable impact of foreign exchange reduced net earnings by 3 cents per share.

Sales

Third quarter sales of $125.3 million were $6.1 million or 4.6 percent lower than sales in the corresponding quarter in 2008. Overall volumes increased by 4.7 percent with sales volumes of lidding material continuing the strength exhibited in the second quarter in both coffee and yogurt lidding. Modified atmosphere packaging and rigid containers experienced modest growth of less than 5 percent. Both specialty films and biaxially oriented nylon film volumes improved in relation to the second quarter of the current year but declined marginally by less than 3 percent in comparison to the third quarter of 2008. The economic recession had a greater impact on machinery sales volumes, however, which declined by just over 15 percent. Lower overall selling prices, in response to decreased raw material costs, reduced sales by 7.9 percent. The weaker Canadian dollar lowered reported sales by a further 1.4 percent in comparison to the third quarter of 2008.

For the first three quarters of 2009, sales declined by $11.8 million to $370.5 million from $382.3 million recorded in the same period of 2008, a decrease of 3.1 percent. Volume growth of 2.3 percent was achieved and was strongest in lidding followed by modified atmosphere packaging and rigid containers. Minimal contraction was evident in specialty films and machinery while biaxially oriented nylon experienced more significant demand shrinkage. The weaker Canadian dollar was responsible for a reduction of 2.7 percent in sales versus 2008. Furthermore, lower selling prices reduced sales by an additional 2.7 percent.

Gross profit margins

Gross profit margins improved to 29.7 percent of sales in the third quarter of 2009, significantly increased from the 24.6 percent of sales recorded in the corresponding quarter in 2008. Just over half of the increase in gross profit percentage is due to an improved spread between raw material costs and selling prices. This is in contrast to the past several years when raw material costs were escalating and selling prices did not keep pace, putting pressure on margins. Unfavorable manufacturing variances had only a minor negative effect on the gross profit margin in the quarter. The remaining improvement in the reported gross profit percentage reflects the fact that in an environment of falling raw material costs and selling prices, the gross profit percentage will increase even though gross profit in dollar terms is unchanged.

For the first nine months of 2009, gross profit margins of 30.3 percent of sales were 5.7 percentage points greater than the level achieved in the corresponding period in 2008. The reduction in raw material costs and the resultant increased spread between those costs and selling prices was the main reason for the gross profit margin improvement over 2008.

For reference, the following presents the weighted indexed purchased cost of Winpak's eight primary raw materials in the reported quarter and each of the preceding eight quarters, where base year 2001 equals 100.



----------------------------------------------------------------------------
Quarter and Year 3/07 4/07 1/08 2/08 3/08 4/08 1/09 2/09 3/09
----------------------------------------------------------------------------
Purchase Price Index 158.3 161.8 167.9 174.6 190.7 160.3 128.0 124.9 131.2
----------------------------------------------------------------------------


The index in the third quarter, although significantly lower than a year prior, increased by 5 percent from the second quarter of 2009. With the exception of polypropylene which increased by over 30 percent, all other raw materials within the index either experienced modest increases or minor declines in the quarter. The overall trend in pricing appears to be upward although at a gradual rate.

Expenses and Other

Excluding the negative impact of foreign exchange due to the strengthening Canadian dollar, operating expenses for the third quarter of 2009 declined in relation to the corresponding period in 2008, contributing approximately 1 cent in net earnings per share. Lower freight costs were the main driving factor behind the reduced operating expenses. This was offset in full by an increase in net earnings attributable to the minority shareholder.

On a year-to-date basis, operating expenses increased in comparison to 2008 due in large part to employee compensation costs including higher incentive accruals, resulting in a reduction in net earnings per share of approximately 1 cent. An additional decrease of 2 cents in net earnings per share was due to an increase in net earnings attributable to the minority shareholder while the elimination of all bank debt resulted in a reduction in interest expense, improving net earnings per share by approximately 1 cent.

Capital Resources, Cash Flow and Liquidity

During the third quarter of 2009, the Company continued to generate significant cash flow from operations and has accumulated a net cash position of $50.7 million at September 27, 2009, an increase of $9.8 million in the quarter. Strong cash flow from operating activities before changes in working capital generated $18.4 million in cash in the third quarter, which in part was utilized to fund an increase in working capital of $2.7 million. During the quarter, cash was also utilized for plant and equipment additions of $5.0 million, dividends of $1.7 million, defined benefit pension payments of $0.2 million, and purchases of intangibles of $0.1 million. There was also a favorable foreign exchange adjustment on cash of $1.1 million.

Year-to-date, Winpak's cash position has improved by $30.9 million, after retirement of all of the Company's long-term debt of $17.0 million in the first quarter of 2009. Substantial cash flow generated from operating activities of $55.3 million and working capital reductions of $9.2 million were more than sufficient to fund all capital expenditures, dividends, and defined benefit plan payments. The Company remains confident that sufficient financial resources are in place to fund cash requirements for the foreseeable future and with its healthy balance sheet, is poised to take advantage of strategic acquisition opportunities.



Summary of Quarterly Results
----------------------------

Thousands of U.S. dollars, except per share amounts (U.S. cents)

Quarter Ended
---------------------------------------------------------------------
---------------------------------------------------------------------
Sept- June March Dec- Sept- Dec-
ember ember ember June March ember
27 28 29 28 28 29 30 30
2009 2009 2009 2008 2008 2008 2008 2007
---------------------------------------------------------------------
---------------------------------------------------------------------

Sales 125,267 125,322 119,938 129,690 131,419 127,582 123,346 126,638
Net
earn-
ings 9,889 11,896 9,661 8,882 7,288 7,231 5,951 6,157

EPS 15 18 15 14 11 11 9 10
---------------------------------------------------------------------
---------------------------------------------------------------------


Looking Forward

The Company is well on its way to recording the most profitable year in Winpak's history. Although demand is still fragile due to the state of the overall North American economy, the Company is cautiously optimistic about the future. As the economy improves, volumes should be favorably impacted accordingly. On the cost side, raw material pricing has reversed its downward trend of the past few quarters and started to rebound. However, the increases for the most part have been moderate and are expected to continue in that vein for the foreseeable future. The overall long-term outlook for the supply and corresponding price of natural gas, from which most of the Company's resins are derived, has improved substantially with recent new discoveries and there is also significant new resin production ready to come on stream in the near future. Gross profit margins are unlikely to exceed the current year-to-date average of 30 percent in upcoming quarters but are expected to remain above levels reported in recent years. In terms of capital spending, expenditures in the final quarter of 2009 should be in the range of $10 to $15 million, depending on the timing of progress payments and equipment deposits. Winpak is also actively seeking acquisition opportunities that would complement the Company's core competencies. To date, a number of opportunities have been evaluated and as this is a long-term strategic decision, the Company will remain patient until the right opportunity presents itself.

Accounting Policy Changes

As more fully described in Note 2 to the Consolidated Financial Statements, the Company adopted the Canadian Institute of Chartered Accountants' (CICA) Handbook Section 3064. The changes were adopted retroactively and comparative figures were restated. This new standard had no significant impact on the Company's Consolidated Financial Statements.

Future Accounting Standards

International Financial Reporting Standards

In February 2008, the Canadian Accounting Standards Board confirmed that Publicly Accountable Enterprises will be required to adopt International Financial Reporting Standards ("IFRS") for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011. The transition from Canadian generally accepted accounting principles ("GAAP") to IFRS will be applicable for the Company's first quarter of 2011, at which time the Company will prepare both its fiscal 2011 and fiscal 2010 comparative financial information using IFRS. The Company expects the transition to IFRS to impact financial reporting, business processes, disclosure controls, internal controls over financial reporting and information systems.

The Company formally commenced its IFRS conversion project in the second quarter of 2008 and has engaged the services of an external advisor with IFRS expertise to work with management. Regular reporting is provided to the Company's senior management and Audit Committee of the Board of Directors. The Company's conversion project consists of three phases: diagnostic assessment, design and development, and implementation. To date, the initial diagnostic assessment phase of the project has been completed and a detailed IFRS implementation plan has been developed for fiscal 2009. As of September 27, 2009, the project is on schedule in accordance with the implementation plan. A detailed review of the major differences between Canadian GAAP and current IFRS has been undertaken and at this time, the Company has determined that the differences with the highest potential impact to the Company's accounting policies are related to: property, plant and equipment; financial instruments and hedges; impairments; functional currency; employee defined benefit plans; income taxes; financial statement disclosures; as well as the initial adoption of IFRS under the provisions of IFRS 1, First-Time Adoption of IFRS. The potential impact of these changes on the Company's future financial position and results of operations has yet to be determined as accounting policy choices under IFRS are subject to a number of accounting alternatives which have not been fully evaluated by the Company. To date, the project leaders have received training with respect to IFRS through attendance at seminars and through working with various specialists from the external advisory firm. Winpak will continue to invest in training and external advisor resources throughout the transition to facilitate a timely and successful conversion.

Business Combinations, Consolidated Financial Statements and Non-Controlling Interests

As more fully described in Note 3 to the Consolidated Financial Statements, the CICA has issued three new accounting standards in January 2009: Section 1582 Business Combinations, Section 1601 Consolidated Financial Statements, and Section 1602 Non-Controlling Interests, which apply commencing with the Company's 2011 fiscal year. The Company is in the process of evaluating the requirements of the new standards.

Controls and Procedures

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 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 as of September 27, 2009 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 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 as of September 27, 2009 to provide reasonable assurance that the financial information being reported is materially accurate. During the third quarter ended September 27, 2009, 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.

Winpak Ltd.
Interim Consolidated Financial Statements
Third Quarter Ended: September 27, 2009

These interim consolidated financial statements have not been audited or reviewed by the Company's independent external auditors, PricewaterhouseCoopers LLP.



Winpak Ltd.
Consolidated Balance Sheets
(thousands of US dollars) (unaudited)
September 27 December 28
2009 2008
---------------------------
Assets

Current Assets:
Cash $ 50,670 $ 19,796
Accounts receivable (note 8) 65,848 64,570
Inventory (note 4) 72,640 68,117
Prepaid expenses 2,441 2,060
Future income taxes 2,762 3,363
---------------------------
194,361 157,906

Property, plant and equipment (net) (note 2) 229,931 225,473

Other assets 12,576 11,259

Intangible assets (net) (note 2) 6,310 7,690

Goodwill 16,900 16,082
---------------------------
$ 460,078 $ 418,410
---------------------------
---------------------------

Liabilities and Shareholders' Equity

Current Liabilities:
Accounts payable and accrued liabilities $ 40,686 $ 34,693
Income taxes payable 4,258 2,017
---------------------------
44,944 36,710

Long-term debt - 17,000

Deferred credits 11,194 10,860

Future income taxes 30,573 28,390

Postretirement benefits 1,647 1,624
---------------------------
88,358 94,584

Minority interest 15,455 14,069

Shareholders' equity:
Share capital 29,195 29,195

Retained earnings 276,385 249,990
Accumulated other comprehensive income
(note 5) 50,685 30,572
---------------------------
327,070 280,562
---------------------------
356,265 309,757
---------------------------
$ 460,078 $ 418,410
---------------------------
---------------------------

See accompanying notes to consolidated financial statements.


Winpak Ltd.
Consolidated Statements of Earnings and Retained Earnings
(thousands of US dollars, except per share amounts)(unaudited)

Third Quarter Ended Year-To-Date Ended
--------------------------------------------------------
September 27 September 28 September 27 September 28
2009 2008 2009 2008
--------------------------------------------------------
Sales $ 125,267 $ 131,419 $ 370,527 $ 382,347

Cost of sales 88,038 98,631 258,217 288,428
--------------------------------------------------------
Gross profit 37,229 32,788 112,310 93,919

Expenses
Selling, general &
administrative
(note 6) 18,778 18,923 54,645 53,679
Research and
technical 3,156 2,682 8,874 7,737
Pre-production - - 63 789
--------------------------------------------------------
Earnings from
operations 15,295 11,183 48,728 31,714
Interest (income)
expense (18) 244 (9) 916
--------------------------------------------------------
Earnings before
income taxes and
minority interest 15,313 10,939 48,737 30,798
Provision for income
taxes 4,913 3,559 15,905 10,157
Minority interest 511 92 1,386 171
--------------------------------------------------------
Net earnings $ 9,889 $ 7,288 $ 31,446 $ 20,470
--------------------------------------------------------
--------------------------------------------------------

Retained earnings,
beginning of period 268,282 237,321 249,990 227,978
Net earnings 9,889 7,288 31,446 20,470
Dividends declared (1,786) (1,888) (5,051) (5,727)
--------------------------------------------------------
Retained earnings,
end of period $ 276,385 $ 242,721 $ 276,385 $ 242,721
--------------------------------------------------------
--------------------------------------------------------

Earnings per share
Basic and fully
diluted earnings per
share (cents) 15 11 48 31
--------------------------------------------------------
--------------------------------------------------------

Average number of
shares outstanding
(000's) 65,000 65,000 65,000 65,000
--------------------------------------------------------
--------------------------------------------------------


Consolidated Statements of Comprehensive Income
(thousands of US dollars) (unaudited)

Third Quarter Ended Year-To-Date Ended
--------------------------------------------------------
--------------------------------------------------------
September 27 September 28 September 27 September 28
2009 2008 2009 2008
--------------------------------------------------------
Net earnings $ 9,889 $ 7,288 $ 31,446 $ 20,470

Unrealized gains
(losses) on
translation of
financial
statements of
operations with CDN
dollar functional
currency to US
dollar reporting
currency 10,485 (3,709) 18,653 (9,233)
Unrealized gains
(losses) on
derivatives
designated as
cash flow
hedges, net of
income tax (2009 -
$209 and $492)
(2008 - $9
and $(57)) 455 18 1,069 (103)

Realized (gains)
losses on
derivatives
designated as cash
flow hedges in
prior periods
transferred to net
earnings in
the current period,
net of income tax
(2009 - $(113) and
$228) (2008 - $15
and $10) (246) 27 391 19
--------------------------------------------------------
Other comprehensive
income (loss) - net
of income
tax (note 5) 10,694 (3,664) 20,113 (9,317)
--------------------------------------------------------
Comprehensive income $ 20,583 $ 3,624 $ 51,559 $ 11,153
--------------------------------------------------------
--------------------------------------------------------

See accompanying notes to consolidated financial statements.


Winpak Ltd. Consolidated Statements of Cash Flows
(thousands of US dollars) (unaudited)

Third Quarter Ended Year-To-Date Ended
--------------------------------------------------------
--------------------------------------------------------
September September September September
27 28 27 28
2009 2008 2009 2008
--------------------------------------------------------
Cash provided by
(used in):

Operating
activities:
Net earnings for the
period $ 9,889 $ 7,288 $ 31,446 $ 20,470
Items not involving
cash:
Depreciation
(note 2) 6,076 5,934 17,381 17,442
Amortization -
intangible assets
(note 2) 604 631 1,791 1,855
Defined benefit
plan costs 965 625 2,594 1,909
Future income
taxes 335 226 452 1,035
Foreign exchange
loss on long-term
debt - 378 559 911
Minority interest 511 92 1,386 171
Other - 16 (319) (168)
--------------------------------------------------------
Cash flow from
operating
activities
before the
following 18,380 15,190 55,290 43,625

Change in working
capital:
Accounts (542) (3,935) 2,080 (9,104)
receivable
Income taxes - 3,010 - 4,493
receivable
Inventory (1,969) (6,794) (921) (11,435)
Prepaid expenses 505 170 (192) (561)
Accounts payable
and accrued
liabilities (1,689) (2,974) 6,112 (138)
Income taxes
payable 991 - 2,088 -
Defined benefit plan
payments (242) (499) (2,619) (4,149)
--------------------------------------------------------
15,434 4,168 61,838 22,731
--------------------------------------------------------

Investing activities:
Acquisition of
plant and equipment (4,986) (4,340) (10,485) (11,530)
Acquisition of
intangible assets (79) (772) (296) (814)
--------------------------------------------------------
(5,065) (5,112) (10,781) (12,344)
--------------------------------------------------------

Financing
activities:
Repayments of - - (17,000) (5,000)
long-term debt
Dividends paid (1,689) (1,930) (4,878) (5,828)
Investment by
minority shareholder
in subsidiary - - - 2,940
--------------------------------------------------------
(1,689) (1,930) (21,878) (7,888)
--------------------------------------------------------

Foreign exchange
translation
adjustment on cash 1,095 208 1,695 430
--------------------------------------------------------
Change in cash
position 9,775 (2,666) 30,874 2,929
Cash (bank
indebtedness),
beginning of period 40,895 558 19,796 (5,037)
--------------------------------------------------------
Cash (bank
indebtedness), end
of period $ 50,670 $ (2,108) $ 50,670 $ (2,108)
--------------------------------------------------------
--------------------------------------------------------

Supplemental
disclosure of cash
flow information:
--------------------
Cash paid during the
period for:
Interest expense $ 16 $ 289 $ 67 $ 1,359
Income tax expense 3,433 474 12,096 3,752

See accompanying notes to consolidated financial statements.


Notes to Consolidated Financial Statements
For the periods ended September 27, 2009 and September 28, 2008
(thousands of US dollars) (Unaudited)


1. Basis of Presentation
The unaudited interim consolidated financial statements have been
prepared by the Company in accordance with Canadian Generally Accepted
Accounting Principles (GAAP) and have been prepared on a basis
consistent with the same accounting policies and methods of
application as disclosed in the Company's audited consolidated
financial statements for the year ended December 28, 2008 except as
described in Note 2.

These unaudited interim consolidated financial statements do not
include all of the information and notes to the financial statements
required by GAAP for annual financial statements and therefore should
be read in conjunction with the audited consolidated financial
statements and notes included in the Company's Annual Report for the
year ended December 28, 2008.

The preparation of the interim consolidated financial statements in
accordance with GAAP requires management to make estimates and
assumptions that affect: the reported amounts of assets and
liabilities; the disclosure of contingent assets and liabilities at
the date of the consolidated financial statements; and the reported
amounts of revenue and expenses in the reporting period. Management
believes that the estimates and assumptions used in preparing its
interim consolidated financial statements are reasonable and prudent,
however, actual results could differ from these estimates.

2. Accounting Policy Change
Effective December 29, 2008, the Company adopted the Canadian
Institute of Chartered Accountants' (CICA) Section 3064 Goodwill and
Intangible Assets. As a result of adopting the standard, certain
computer software costs previously recorded as property, plant and
equipment are now recorded as intangible assets. Accordingly, $1,707
of net book value at December 28, 2008 was reclassified from property,
plant and equipment to intangible assets. The related amortization
expense is being recorded within selling, general and administrative
expenses, consistent with the presentation of this item prior to the
adoption of Section 3064. On the consolidated statement of cash flows,
amortization - intangible assets increased by $193 for the third
quarter of 2008, with a corresponding decrease to depreciation (2008
year-to-date - $590).

3. Future Accounting Standards
The CICA has issued three new accounting standards in January 2009:
Section 1582 Business Combinations, Section 1601 Consolidated
Financial Statements, and Section 1602 Non-Controlling Interests,
which apply commencing with the Company's 2011 fiscal year.

Section 1582 replaces Section 1581 Business Combinations and
establishes standards for the accounting for a business combination.
It provides the Canadian equivalent to International Financial
Reporting Standards - IFRS 3 - Business Combinations. The section
applies prospectively to business combinations for which the
acquisition date is on or after January 1, 2011. Sections 1601 and
1602 together replace Section 1600 Consolidated Financial Statements.
Section 1601 establishes standards for the preparation of consolidated
financial statements. Section 1602 establishes standards for
accounting for a non-controlling interest in a subsidiary in
consolidated financial statements subsequent to a business combination
and is equivalent to the corresponding provision of International
Financial Reporting Standards - IAS 27 - Consolidated and Separate
Financial Statements.

The Company is in the process of evaluating the requirements of the
new standards.

4. Inventory


September 27 December 28
2009 2008
-----------------------------------------------------------
Raw materials 23,319 23,935
Work-in-process 13,896 12,390
Finished goods 31,967 28,806
Spare parts 3,458 2,986
-----------------------------------------------------------
72,640 68,117
-----------------------------------------------------------


During the third quarter of 2009, the Company recorded inventory write-downs
to net realizable value of $1,186 (2008- $1,356) and reversals of previously
written-down items of $70 (2008- $12). For the first nine months of 2009,
the Company recorded inventory write-downs to net realizable value of $4,306
(2008- $3,884) and reversals of previously written-down items of $615 (2008-
$509).



5. Accumulated Other Comprehensive Income
The accumulated other comprehensive income account represents the net
changes due to foreign exchange rate fluctuations in the net
investment in the Canadian dollar functional currency operations and
the unrealized gains (losses) on derivatives designated as cash flow
hedges.

Third Quarter Ended Year-To-Date Ended
------------------------------------------------------
------------------------------------------------------
September 27 September 28 September 27 September 28
2009 2008 2009 2008
------------------------------------------------------

Balance, beginning
of period 39,991 59,280 30,572 64,933
Other comprehensive
income (loss) 10,694 (3,664) 20,113 (9,317)
------------------------------------------------------
Balance, end of period 50,685 55,616 50,685 55,616
------------------------------------------------------
------------------------------------------------------

The accumulated
balances for each
component of other
comprehensive income,
net of income taxes,
are comprised of the
following:
-----------------------

Unrealized gains on
translation of
financial statements
of subsidiaries with
Canadian dollar
functional currency
to US dollar reporting
currency 49,847 55,624
Unrealized gains (losses)
on derivatives designated
as cash flow hedges 838 (8)
--------------------
Balance, end of period 50,685 55,616
--------------------
--------------------


6. Selling, General & Administrative Expenses
Included within selling, general & administrative expenses are the
following amounts:

Third Quarter Ended Year-To-Date Ended
---------------------------------------------------------------------------
September 27 September 28 September 27 September 28
2009 2008 2009 2008
---------------------------------------------------------------------------

Foreign exchange
translation loss 1,282 630 3,420 909

Defined benefit plan
costs 965 625 2,594 1,909


Foreign exchange translation losses represent the realized and
unrealized foreign exchange differences recognized upon translation of
monetary assets and liabilities, including long-term debt. The amounts
include realized foreign exchange losses (gains) on cash flow hedges
arising from transfers of these amounts from other comprehensive income
to net earnings.


7. Financial Instruments
The following table presents the carrying value and fair value of
financial instruments and non-financial derivatives as at September
27, 2009:

(Carried at Cost / Amortized Cost) (Carried at Fair Value)
Assets Carrying Fair Carrying
(Liabilities) Value Value Value
---------------------------------------------------------------------------
Cash 50,670 50,670 -
Accounts
receivable 64,624 64,624 -
Cash flow
hedging
derivative 1,224
Accounts payable
and accrued
liabilities (40,686) (40,686) -
---------------------------------------------------------------------------


The Company's financial instruments are classified as follows: cash -
held for trading, accounts receivable - loans and receivables, accounts
payable and accrued liabilities - other financial liabilities, cash flow
hedging derivative - derivatives designated as effective hedges.

Fair value is based on quoted market prices when available. However,
when financial instruments lack an available trading market, fair
value is determined using management's estimates and is calculated
using market factors with similar characteristics and risk profiles.
These amounts represent point-in-time estimates and may not reflect fair
value in the future. These calculations are subjective in nature,
involve uncertainties and are a matter of judgment.


The following summarizes the methods and assumptions used in
estimating the fair value of the Company's financial instruments:
a) Short-term financial instruments approximate their carrying amount
due to the relatively short period to maturity. These include
cash, accounts receivable and accounts payable and accrued
liabilities.
b) Foreign exchange contracts, designated as a cash flow hedge, have
been determined by valuing those contracts to market against
prevailing forward foreign exchange rates as at the reporting
date.

8. Financial Risk Management
The Company's risk management program focuses on the
unpredictability of financial markets and seeks to minimize
potential adverse effects on the Company's financial performance.
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.

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

The Company operates primarily in Canada and the Unites States. The
functional currency of the parent company is CDN dollars and the
reporting currency is U.S. dollars. All operations in the United
States and American Biaxis Inc. operate with the U.S. dollar as the
functional currency, while all Canadian operations, excluding
American Biaxis Inc., operate with the CDN dollar as the functional
currency. Most of the Company's business is conducted in U.S.
dollars. However, approximately 17 percent of sales are invoiced in
CDN dollars and approximately 27 percent of costs are incurred in
the same currency, resulting in a net outflow of costs in CDN
dollars. Consequently, the Company records foreign currency
differences on transactions.

In addition, 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 selling, general & administrative expenses. As a
result of the Company's U.S. dollar net monetary position within the
CDN dollar functional currency operations as at September 27, 2009,
a one-cent change in the period end foreign exchange rate from
1.0917 to 1.0817 (US to CDN dollars) would have decreased net
earnings by $256 for the third quarter of 2009. Conversely, a one-cent
change in the period end foreign exchange rate from 1.0917 to 1.1017
(US to CDN dollars) would have increased net earnings by $256 for the
third quarter of 2009.

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 on hand and forward or zero-cost option foreign
exchange contracts. Transactions are only conducted with certain
approved Schedule 1 Canadian financial institutions. All foreign
exchange contracts are designated as cash flow hedges. Certain
foreign currency contracts matured during the third quarter of 2009
and the Company realized pre-tax foreign exchange gains of $359
(year-to-date - realized pre-tax foreign exchange losses of $619).
These foreign exchange gains and losses were recorded in selling,
general & administrative expenses. As at September 27, 2009, the
Company had foreign currency contracts outstanding with a notional
amount of $11.0 million US at an average exchange rate of 1.2030 (US
to CDN dollars), maturing between October 2009 and May 2010 and the
fair value of the notional amount of these contracts was $12.224
million US as of September 27, 2009. An unrealized foreign exchange
gain during the quarter of $664 (pre- tax) (year-to-date -
unrealized foreign exchange gain of $1,561 (pre-tax)) was recorded
in other comprehensive income.

Commodity Price Risk

Manufacturing costs for the Company's products 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 not immediately reflected in selling price
adjustments, there is a slight time lag. For the three months ended
September 27, 2009, 45% (year-to-date - 44%) of sales were to
customers with formal selling price-indexing agreements. 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

Credit risk arises from cash held with banks, derivative financial
instruments (foreign exchange forward and option contracts and interest
rate swaps with positive fair values), as well as credit exposure to
customers, including outstanding accounts receivable. The maximum
exposure to credit risk is equal to the carrying value of the financial
assets.

The Company has developed an investment policy to manage its credit risk
in regards to its cash on hand. The policy requires that the Company
manage its risk by investing its excess cash on hand on a short term
basis, up to a maximum of six months, with several financial
institutions and/or governmental bodies that must be rated 'AA' or
higher by a recognized rating agency or insured 100% by a 'AAA' rated
CDN or US government.

The objective of managing counterparty credit risk is to prevent losses
on financial assets. 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. As at September 27,
2009, 14% of the Company's total accounts receivable balance was insured
against credit losses.

The Company's exposure to individual customers is limited and the ten
largest customers as at September 27, 2009, on aggregate, accounted for
28% of the Company's total accounts receivable balance.

The carrying amount of accounts receivable is reduced through the use of
an allowance account and the amount of the loss is recognized in the
earnings statement within selling, general, & 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 selling, general, &
administrative expenses in the earnings statement.


The following table details the aging of the Company's receivables and
related allowance for doubtful accounts:


September 27 December 28
2009 2008
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Current 52,441 46,424
Past due amounts:
-----------------
1 - 60 days 14,221 18,688
Greater than 60 days 1,243 1,121
Less: Allowance for doubtful accounts (2,057) (1,663)
-----------------------------------
Total accounts receivable, net 65,848 64,570
-----------------------------------
-----------------------------------


Liquidity Risk
Investments to drive growth can require significant financial
resources. A range of funding alternatives is available to the
Company including cash flow provided by operations, additional debt,
the issuance of equity or a combination thereof. The Company's
strong financial position and an informal investment grade credit
rating allow the Company to enjoy relatively low interest rates. The
Company has determined that total current credit facilities of $38
million (unsecured) in operating lines and cash on hand of $50.7
million, are adequate for current needs. Of the total credit
facilities, $38 million was unused as at September 27, 2009. The
Company has remained within all bank debt covenants. The Company has
the ability to arrange additional financing if required.

The 2009 remaining requirements for capital expenditures and working
capital can be financed from cash on hand, cash flow provided by
operating activities and unused credit facilities if necessary. The
Company enters into contractual obligations in the normal course of
business operations. As at September 27, 2009, these obligations
have not changed significantly from the amounts reported in the
Company's 2008 Annual Report.

9. Seasonality
The Company experiences seasonal variation in sales, with sales
typically being the highest in the second and fourth quarters, and
lowest in the first quarter.

10. Comparative Amounts
Certain comparative amounts have been reclassified to conform with
the presentation in the current period.


Contact Information

  • Winpak Ltd.
    K.P. Kuchma
    Vice President and CFO
    (204) 831-2254
    or
    Winpak Ltd.
    B.J. Berry
    President and CEO
    (204) 831-2216