WINPAK LTD.
TSX : WPK

WINPAK LTD.

April 24, 2007 15:58 ET

Winpak Reports First Quarter Earnings

WINNIPEG, MANITOBA--(CCNMatthews - April 24, 2007) - Winpak Ltd. (TSX:WPK) today reports consolidated results in US dollars for the first quarter of 2007, which ended on April 1, 2007.



April 1 April 2
For The Period Ended 2007 2006
-------------------- ------- -------
(thousands of US dollars, except per share amounts)
Sales 108,760 113,069
------- -------
------- -------
Net earnings 7,504 6,445
------- -------
------- -------
Minority interest (91) 71
Provision for income taxes 3,967 3,354
Interest 475 624
Depreciation and amortization 5,535 4,968
------- -------
EBITDA (1) 17,390 15,462
------- -------
------- -------
Basic and fully diluted net earnings per share (cents) 12 10
------- -------


Winpak Ltd. manufactures and distributes high-quality packaging materials and related packaging machines. The Company's products are used primarily for the protection of perishable foods, beverages and in health care applications.

For further information, ,;, ,

(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 our 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 in the first quarter of 2007 were 16.4 percent higher despite a decline in sales of 3.8 percent, when compared to the initial three months of 2006. The improved net earnings arise principally through lower cost of sales, partly offset by the impact of lower sales volumes.

First quarter sales were weaker as orders and shipments slowed nearly 5 percent due to changes in customer order patterns, although average pricing improved slightly. Certain customers of rigid and lidding products and biaxially oriented nylon (BOPA) film delayed orders expecting lower pricing, others reacted to high stocking levels with cancelled orders, and a few changed suppliers. Sales of drink cups and packaging machines were as anticipated, but were lower when compared to the first quarter of 2006. Sales of new products under development have yet to impact volumes and flexible packaging products should benefit from a healthy order backlog.

Compared to the first quarter of 2006 gross profit margins advanced by 2.1 percent due to slightly higher average selling prices, assisted by lower raw material costs. Raw material costs decreased due to movements in foreign exchange rates and to a lesser extent, purchases made in the immediately preceding quarter at lower prices than in the first quarter of 2006.

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. The index was rebalanced as of January 1, 2007.



--------------------------------------------------------------------------
Quarter and Year 1/05 2/05 3/05 4/05 1/06 2/06 3/06 4/06 1/07
--------------------------------------------------------------------------
Purchase Price Index 144.1 140.5 135.4 153.0 149.5 146.8 155.4 148.8 146.0
--------------------------------------------------------------------------


The 1.9 percent retreat in the index compared to the immediately preceding quarter included minor reductions in the price of polyethylene, polypropylene and polystyrene, which were partially offset by increases in aluminum foil.

Capital Resources, Cash Flow and Liquidity

The Company utilized cash resources of $14.5 million in the first quarter. Of this amount, $11.0 million was expended on the current year's plant and equipment acquisition program and certain related amounts deferred from the fourth quarter of 2006. The remaining $3.5 million included $2.2 million used in operating activities. Increased working capital requirements and defined benefit plan payments exceeded cash flow from operating activities before changes in working capital and defined benefit plan payments. Inventory was built during the quarter to support customer requirements and $2.0 million, in addition to the minimum requirement, was invested in an underfunded defined benefit pension plan.

Winpak is confident that sufficient financial resources are in place to fund cash needs for the foreseeable future.

Accounting Policy Changes

As more fully described in Note 2 to the Consolidated Financial Statements, the Company adopted the Canadian Institute of Chartered Accountants' Handbook Sections 3855, 3861, 3865, 1530 and 3251. The changes were adopted prospectively from January 1, 2007, except for the retroactive change to the cumulative currency translation adjustments account, which is now included in accumulated other comprehensive income. These new standards had no significant impact on the Company's financial statements and none on the Consolidated Statement of Earnings.



Summary of Quarterly Results Thousands of U.S. dollars, except
---------------------------- per share amounts (U.S. cents)

Quarter ended
--------------------------------------------------------------------
April 1 December October July 2 April 2 January 1 October 2 July 3
2007 31 2006 1 2006 2006 2006 2006 2005 2005
--------------------------------------------------------------------

Sales 108,760 113,088 111,638 109,325 113,069 109,666 111,625 109,979

Net
earn-
ings 7,504 6,579 7,841 11,711 6,445 6,192 5,322 6,306

Earn-
ings
per
share 12 10 12 18 10 10 8 10
----------------------------------------------------------------

Winpak Ltd.
Interim Consolidated Financial Statements
First Quarter Ended: April 1, 2007


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)
(April 1, 2007 Unaudited)
April 1 December 31
2007 2006
-------- -----------
Assets

Current Assets:
Cash $ - $ 2,994
Accounts receivable 52,646 53,656
Inventories 76,706 69,469
Prepaid expenses 3,184 1,747
Future income taxes 3,095 2,869
-------- -----------
135,631 130,735

Property, plant and equipment (net) 233,040 225,113

Other assets 8,173 5,105

Intangible assets (net) 8,157 8,707

Goodwill 16,473 16,336
-------- -----------
$ 401,474 $ 385,996
--------- -----------
--------- -----------

Liabilities and Shareholders' Equity

Current Liabilities:
Bank indebtedness (unsecured) $ 11,520 $ -
Accounts payable and accrued liabilities 34,579 40,950
--------- -----------
46,099 40,950

Long-term debt 22,000 22,000

Deferred credits 10,832 10,896

Future income taxes 26,938 25,781

Postretirement benefits 1,484 1,481
--------- -----------
107,353 101,108

Minority interest 11,048 11,139

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

Retained earnings 217,795 211,139
Accumulated other comprehensive income (note 5) 36,083 33,415
--------- -----------
253,878 244,554
--------- -----------
283,073 273,749
--------- -----------

--------- -----------
$ 401,474 $ 385,996
--------- -----------
--------- -----------


Winpak Ltd.
Consolidated Statements of Earnings and Retained Earnings
(thousands of US dollars, except per share amounts)
(Unaudited) For The Period Ended
----------------------
----------------------
April 1 April 2
2007 2006
---------- ----------
Sales $ 108,760 $ 113,069
Cost of sales 78,837 84,303
---------- ----------
Gross profit 29,923 28,766
Expenses
Selling, general & administrative (note 3) 15,659 15,649
Research and technical 2,306 2,120
Pre-production 103 428
Loss on sale of assets (note 4) - 75
---------- ----------
Earnings from operations 11,855 10,494
Interest 475 624
---------- ----------
---------- ----------
Earnings before income taxes and minority interest 11,380 9,870
Provision for income taxes 3,967 3,354
Minority interest (91) 71
---------- ----------
Net earnings $ 7,504 $ 6,445
---------- ----------
---------- ----------
Retained earnings, beginning of period $ 211,139 $ 181,319
Net earnings 7,504 6,445
Dividends declared (848) (678)
---------- ----------
Retained earnings, end of period $ 217,795 $ 187,086
---------- ----------

Earnings per share
Basic and fully diluted earnings per share (cents) 12 10
---------- ----------
---------- ----------
Average number of shares outstanding (000's) 65,000 65,000
---------- ----------
---------- ----------
Consolidated Statements of Comprehensive Income
(thousands of US dollars)
(Unaudited) For The Period Ended
----------------------
----------------------
April 1 April 2
2007 2006
--------- ----------
--------- ----------
Net earnings $ 7,504 $ 6,445
Unrealized gains (losses) on translation of
financial statements of subsidiaries with 2,638 (1,307)
Canadian dollar functional currency to US dollar
reporting currency
Unrealized gains on derivatives designated as cash
flow hedges, net of tax of $16 30 -
--------- ----------
Other comprehensive income - net of income tax 2,668 (1,307)
--------- ----------
Comprehensive income $ 10,172 $ 5,138
--------- ----------
--------- ----------


Winpak Ltd.
Consolidated Statements of Cash Flows
(thousands of US dollars)
(Unaudited)
For The Period Ended
---------------------
---------------------
April 1 April 2
2007 2006
---------- --------

Cash provided by (used in):

Operating activities:
Net earnings for the period $ 7,504 $ 6,445
Items not involving cash:
Depreciation 4,985 4,409
Amortization - intangible assets 550 559
Defined benefit plan costs 842 958
Future income taxes 631 (590)
Foreign exchange loss on long-term debt - 130
Minority interest (91) 71
Loss on sale of assets - 75
Other 117 14
---------- --------

Cash flow from operating activities before the
following 14,538 12,071

Change in working capital:
Accounts receivable 1,461 (4,395)
Inventories (6,488) 6,743
Prepaid expenses (1,401) (622)
Accounts payable and accrued liabilities (6,505) (4,154)

Defined benefit plan payments (3,760) (1,821)
---------- --------
(2,155) 7,822
---------- --------

Investing activities:
Acquisition of property, plant and equipment (11,010) (7,250)
Proceeds from sale of assets - 282
---------- --------
(11,010) (6,968)
---------- --------

Financing activities:
Dividends paid (833) (841)
---------- --------

(833) (841)
---------- --------

Foreign exchange translation adjustment on cash (516) 71
---------- --------

Change in cash position (14,514) 84

Cash, beginning of period 2,994 4,942
---------- --------

(Bank indebtedness) cash, end of period $ (11,520) $ 5,026
---------- --------
---------- --------

Supplemental disclosure of cash flow information:

Cash paid during the period for:
Interest expense $ 679 $ 1,053
Income tax expense 3,083 4,013


See accompanying notes to consolidated financial statements.


Notes to Consolidated Financial Statements
For the periods ended April 1, 2007 and April 2, 2006
(thousands of US dollars) (Unaudited)

1. Basis of presentation:

The unaudited consolidated interim financial statements have been prepared in accordance with Canadian Generally Accepted Accounting Principles "GAAP". They have been prepared using the same accounting policies and methods of application as disclosed in the Company's audited consolidated financial statements for the year ended December 31, 2006 except as described in Note 2.

These unaudited consolidated interim 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 31, 2006.

2. Accounting policy changes:

Financial instruments, comprehensive income and hedges:

Effective January 1, 2007, the Company adopted the Canadian Institute of Chartered Accountants (CICA) handbook section 3855, Financial instruments - recognition and measurement; section 3861, Financial instruments - disclosure and presentation; section 3865, Hedges; section 1530, Comprehensive income and section 3251, Equity. The adoption of these new standards resulted in changes in the accounting policies for financial instruments and hedges. The comparative interim consolidated financial statements have not been restated, except for the retroactive restatement of the unrealized foreign exchange gains or losses on the translation of the financial statements of subsidiaries with the Canadian dollar as the functional currency to US dollar reporting (note 5).

The principal changes in accounting policies, financial statement reporting and disclosure recommendations for comprehensive income and its components and the presentation of equity are described below.

Financial instruments - recognition and measurement:

The Company initially recognizes all financial assets and liabilities and non-financial derivatives at fair value unless exempted from derivative treatment. Subsequently, financial assets are measured at either amortized cost or fair value depending on the type of instrument and any optional designations by the Company. Financial liabilities are subsequently measured at amortized cost, or at fair value if they are classified as held for trading purposes. Derivative financial instruments are measured at fair value, even when they are part of a hedging relationship. All changes in fair value are recorded in earnings unless cash flow hedge accounting is used, in which case changes in fair value are recorded in other comprehensive income.

The Company has selected January 1, 2003 as its transition date to apply fair value accounting for all embedded derivatives. An embedded derivative is a component of a financial instrument or another contract of which the characteristics are similar to a derivative. The Company has determined that all of its embedded derivatives are exempt from fair value accounting.

Comprehensive income:

Comprehensive income is comprised of net earnings and other comprehensive income and is now disclosed by the Company in the consolidated statements of comprehensive income. Comprehensive income is the change in a Company's net assets resulting from transactions or events from sources other than the Company's shareholders. Other comprehensive income includes unrealized foreign exchange gains or losses on translation of the financial statements of subsidiaries with the Canadian dollar as the functional currency to US dollar reporting and gains or losses on the effective portion of derivatives designated as cash flow hedges, net of income taxes.

Hedge accounting:

Newly adopted section 3865 replaces and expands upon Accounting Guideline 13 - Hedging Relationships. At the inception of a hedging relationship, the Company documents the relationship between the hedging instrument and the hedged item, which includes linking all derivatives to specific assets and liabilities or to specific firm commitments or forecasted transactions. The Company operates principally in Canada and the United States, which gives rise to risks that its earnings and cash flows may be adversely impacted by fluctuations in foreign exchange rates. The Company enters into foreign currency forward contracts to hedge certain foreign exchange exposures on anticipated sales.

Hedges must be designated as either fair value or cash flow hedges or as a hedge of a net investment in a subsidiary with the Canadian dollar as the functional currency. For a fair value hedge, the gain or loss on the hedging item is recognized in earnings in the period of change together with the offsetting change attributable to the hedged risk. For a cash flow hedge, as well as a hedge of a net investment in a subsidiary with the Canadian dollar as the functional currency, the effective portion of the gain or loss on the hedging item is initially accumulated in other comprehensive income and subsequently recognized in earnings (recorded within selling, general & administrative expenses) when the hedged item affects earnings.

When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in other comprehensive income at that time remains in other comprehensive income as long as the forecasted transaction may occur and would be recognized in the consolidated statement of earnings in the period the hedged transaction impacts earnings. When a forecasted transaction is no longer expected to occur, the cumulative gain or loss that was reported in other comprehensive income is immediately transferred to the consolidated statement of earnings.

Financial instruments - valuation:

The following table presents the carrying value and fair value of financial instruments and non-financial derivatives as at April 1, 2007:



(Carried at Cost/ (Carried at
Amortized Cost) Fair Value)

Carrying Fair Carrying
Assets (Liabilities) Value Value Value
--------------------------------------------------------------------------
Accounts receivable 52,600 52,600
Cash flow hedging derivative 46
Bank indebtedness (11,520) (11,520)
Accounts payable and accrued
liabilities (36,052) (36,052)
Long-term debt (22,000) (22,000)
--------------------------------------------------------------------------


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, bank indebtedness and accounts payable and accrued liabilities.

b) Long-term debt with a variable interest rate is carried at cost, which reflects fair value as the interest rate is the current market rate available to the Company.

c) Derivatives are valued based on closing market quotations.

Risk management policies:

The Company manages risk and risk exposures through a combination of insurance, derivative financial instruments, a system of internal and disclosure controls and sound business practices. The Company may use certain derivative financial instruments to manage risks of fluctuation in interest rates and foreign exchange rates. The Company may enter into interest rate swap agreements in order to limit exposure to increases in interest rates and fix interest rates on certain portions of long-term debt. The Company may enter into foreign currency forward and option (floor and cap) contracts to limit exposure on certain anticipated future U.S. dollar cash flows in Canadian dollar functional currency companies. The Company is exposed to credit risk from its customers primarily in relation to accounts receivable. This risk is minimized by the Company's diverse customer base. The Company regularly performs credit assessments of its customers and provides allowances for potentially uncollectible accounts receivable.



3. Selling, general & administrative expenses:

Included within selling, general & administrative expenses are
the following amounts:
For The Period Ended
----------------------
April 1 April 2
2007 2006
----------------------
Foreign exchange translation gain (271) (38)
Defined benefit plan costs 842 958


Foreign exchange translation gains and losses represent the realized and unrealized foreign exchange differences recognized upon translation of monetary assets and liabilities, including long-term debt.

4. Sale of business, related assets and associated costs:

In 2005, the Company ceased normal operations formerly based at the Laird Drive Toronto, Ontario premises. Consequently, in 2005 the Company incurred employee termination and pension plan curtailment and settlement costs. The Company made employee termination payments totaling $252 during the first quarter of 2007, leaving a liability of $659, a majority of which is to be paid by the end of fiscal 2007. The pension plan curtailment and settlement cost liability of $902 should be paid in the second half of fiscal 2007.

5. Accumulated other comprehensive income:



April 1 April 2
2007 2006
------- -------
------- -------
Balance, beginning of period, as previously reported - -
Unrealized gains on translation of financial statements
of subsidiaries with Canadian dollar functional
currency to US dollar reporting currency 33,415 35,326
Unrealized gains (losses) on derivatives designated as
cash flow hedges - -
------- -------
Restated balance, beginning of period 33,415 35,326
Other comprehensive income 2,668 (1,307)
------- -------
------- -------
Balance, end of period 36,083 34,019
------- -------
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 36,053 34,019
Unrealized gains on derivatives designated as cash flow
hedges 30 -
------- -------
------- -------
Balance, end of period 36,083 34,019
------- -------


6. Future accounting standards:

In December 2006, the CICA issued three handbook sections, which apply to fiscal years beginning on or after October 1, 2007.

Financial instruments - disclosures:

Section 3862 describes the required disclosures related to the significance of financial instruments on the Company's financial position and performance and the nature and extent of risks arising for financial instruments to which the entity is exposed and how the entity manages those risks. This section compliments existing handbook section 3855, Financial instruments - recognition and measurement, section 3863, Financial instruments - presentation and 3865, Hedges.

Financial instruments - presentation:

Section 3863 establishes standards for presentation of financial instruments and non-financial derivatives. This section complements the existing handbook section 3861, Financial instruments - disclosure and presentation.

Capital disclosures:

Section 1535 establishes standards for disclosing information about a Company's capital and how it is managed to enable users of financial statements to evaluate the Company's objectives, policies and procedures for managing capital.

The Company is currently evaluating the impact of these new handbook sections on the consolidated financial statements and will adopt the sections commencing fiscal 2008.

7. 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.

8. Comparative interim amounts:

Certain comparative interim amounts have been reclassified to conform with the presentation in the current period.

Contact Information

  • Winpak Ltd.
    M.G. Johnston
    Vice President and CFO
    (204) 831-2254
    or
    Winpak Ltd.
    B.J. Berry
    President and CEO
    (204) 831-2216