CCL Industries Inc
Annual Report 2013

Plain-text annual report

C C L I N D U S T R I E S I N C . 2 0 1 3 A N N U A L R E P O R T CCL IS A gLOBAL CCL’s three business segments are Label, Avery and SPECIALITy PACkA gINg COmPANy Container. Operating in more than 25 countries on hEADqUARTERED IN TORONTO, CANADA five continents, CCL employs more than 9,700 people at over 91 manufacturing facilities. C C L L ab eL aVeR Y C C L C o n t aIn eR CCL Label is the world’s largest converter of pressure sensitive and extruded film materials for decorative, instructional and functional applications for leading global customers in the consumer packaging, healthcare, automotive and consumer durable segments. Avery provides world-leading software solutions that help small businesses and consumers design online or download templates to digitally print labels, tags, dividers, badges and specialty card products from avery.com. Products are largely sold through distributors, mass market and specialty retailers alongside complementary office supplies. CCL Container, with plants in Canada, United States and Mexico, is a leading manufacturer of sustainable, impact extruded, aluminum aerosol containers and bottles for premium brands in the North American home and personal care and food and beverage markets. number of Plants (by location) number of Plants (by location) number of Plants (by location) North America – 26 Latin America – 5 Europe – 25 Asia – 11 Australia – 4 Russia – 3 Middle East – 5 North America – 2 Latin America – 2 Europe – 3 Australia – 1 North America – 2 Latin America – 2 CCL Label represents of total CCL sales. 71% avery represents of total CCL sales. 19% CCL Container represents of total CCL sales. 10% CAUTION ABOUT FORWARD-LOOKING INFORMATION This ANNUAL REPORT contains forward-looking information and forward-looking statements, as defined under applicable securities laws (hereinafter collectively referred to as “forward-looking statements”), that involve a number of risks and uncertainties. Forward-looking statements include all statements that are predictive in nature or depend on future events or conditions. Forward-looking statements are typically identified by, but not limited to, the words “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans” or similar expressions. Statements regarding the operations, business, financial condition, priorities, ongoing objectives, strategies and outlook of the Company, other than statements of historical fact, are forward-looking statements. Specifically, this ANNUAL REPORT contains forward-looking statements regarding the anticipated growth in sales, income and profitability of the Company’s segments; the Company’s improvement in market share; the Company’s capital spending levels and planned capital expenditures in 2014; the adequacy of the Company’s financial liquidity; the Company’s targeted return on equity, earnings per share, EBITDA growth rates and dividend payout; the Company’s effective tax rate; the Company’s ongoing business strategy; and the Company’s expectations regarding general business and economic conditions. Forward-looking statements are not guarantees of future performance. They involve known and unknown risks and uncertainties relating to future events and conditions including, but not limited to, the uncertainty of the recovery from the global financial crisis and its impact on the world economy and capital markets; the impact of competition; consumer confidence and spending preferences; general economic and geopolitical conditions; currency exchange rates; interest rates and credit availability; technological change; changes in government regulations; risks associated with operating and product hazards; and CCL’s ability to attract and retain qualified employees. Do not unduly rely on forward-looking statements as the Company’s actual results could differ materially from those anticipated in these forward-looking statements. Forward-looking statements are also based on a number of assumptions, which may prove to be incorrect, including, but not limited to, assumptions about the following: global economic recovery and higher consumer spending; improved customer demand for the Company’s products; continued historical growth trends, market growth in specific segments and entering into new segments; the Company’s ability to provide a wide range of products to multinational customers on a global basis; the benefits of the Company’s focused strategies and operational approach; the Company’s ability to implement its acquisition strategy and successfully integrate acquired businesses; the achievement of the Company’s plans for improved efficiency and lower costs, including the ability to pass on aluminum cost increases to its customers; the availability of cash and credit; fluctuations of currency exchange rates; the Company’s continued relations with its customers; and general business and economic conditions. Should one or more risks materialize or should any assumptions prove incorrect, then actual results could vary materially from those expressed or implied in the forward-looking statements. Further details on key risks can be found throughout this report and particularly in Section 4: “Risks and Uncertainties.” Except as otherwise indicated, forward-looking statements do not take into account the effect that transactions or non-recurring or other special items announced or occurring after the statements are made may have on the business. Such statements do not, unless otherwise specified by the Company, reflect the impact of dispositions, sales of assets, monetizations, mergers, acquisitions, other business combinations or transactions, asset write-downs or other charges announced or occurring after forward-looking statements are made. The financial impact of these transactions and non-recurring and other special items can be complex and depends on the facts particular to each of them and therefore cannot be described in a meaningful way in advance of knowing specific facts. The forward-looking statements are provided as of the date of this ANNUAL REPORT and the Company does not assume any obligation to update or revise the forward-looking statements to reflect new events or circumstances, except as required by law. Unless the context otherwise indicates, a reference to “CCL” or “the Company” means CCL Industries Inc., its subsidiary companies and equity accounted investments. T r a n s fo r m e d 2 0 1 3 Le t t eR t o S HaReHoL DeR S 2013 was a transformational year for CCL, marked by strong operating performance, solid organic growth and strategic acquisitions, including the largest transaction in our history with the addition of two new businesses from avery Dennison. We have significantly enhanced scale, broadened end use markets, including an important new consumer arm, and added new, innovative technologies plus a great group of people. CCL Industries is now stronger and more diversified. 2013 was also an exceptional year for shareholders with our stock price a t Ra nSf oRm atI Ve a CqU I S ItIo n more than doubling to a record high. Your Company is poised to enter a new phase of growth. Donald g. Lang Executive Chairman geoffrey t. martin President and Chief Executive Officer The strategic acquisition of Avery Dennison’s Office & Consumer Products (“OCP”) and Designed & Engineered Solutions (“DES”) businesses was a transformational event for your Company. It was the largest acquisition in our history, increasing pro forma annualized revenues to more than $2 billion for the first time and opening exciting new markets and opportunities. The OCP assets we acquired now form a new business segment for the Company we call “Avery”. The DES assets are being folded into the CCL Label segment with the majority creating a new sector we call “CCL Design”. S tRo n g o PeRatIn g P eRf oRm a nCe With the global economy continuing its slow recovery, CCL posted solid growth in both sales and profitability across all business segments and in most of the countries in which we operate. Sales increased by 44% and adjusted net earnings, excluding restructuring and transaction costs, were up by 55%. With all business segments contributing to our success, CCL reported a 52% increase in adjusted basic earnings per share* (“EPS”) from $2.91 in 2012 to $4.43 in 2013. Foreign currency translation augmented earnings by 12c EPS. As a result of the Avery Dennison acquisition and the decision to close our Canadian operation at CCL Container, the second half of 2013 included a number of restructuring charges totalling $40 million. Action programs associated with these charges will simplify our business, eliminate unprofitable operations and product lines, reduce costs and prepare us for an even stronger future. We are certainly on target to deliver the announced $40-50 million in savings relating to the Avery Dennison acquisition in 2014, with the degree of profit conversion subject only to our ability to stabilize revenue in our new Avery segment. Results in the second half of 2013 were encouraging at the acquired businesses and generally exceeded expectations. CCL InDUStRIeS InC. 2013 Annual Report 1 2 0 1 3 LE T T E R T O S hA R EhO L D E R S C C L L a b eL CCL Label is the world’s largest converter of pressure sensitive and extruded film materials for decorative, functional and the United States with a common shareholder. We expect this strategic transaction to strengthen CCL Label’s capabilities and market presence for labels and tubes. information labels used by large global customers. With sales In 2013, our healthcare & Specialty sector delivered mixed in excess of $1.3 billion and representing 71% of CCL’s total but solid global results; though overall slightly down from last revenue, this business segment delivers more than 77% of the year. In North America, lower sales to certain large healthcare Company’s operating income.* We service four main customer groups: home & Personal Care, healthcare & Specialty, Food & Beverage and the new CCL Design sector. Each of these four businesses now has a global footprint and represents a significant core component of CCL Label revenues. Today, CCL Label operates 81 state-of-the-art plants globally located to meet the sourcing needs of international customers. Operating in 25 countries, on five continents, this worldwide network has been built through acquisitions in developed regions, with greenfield sites and joint ventures in emerging and frontier markets. In 2013 we completed new plant projects in Bangkok, Thailand, Vinhedo, Brazil, Jeddah, Saudi Arabia and Novosibirsk, Russia. Through our commitment to investing in facilities, new markets and advanced technologies, we have developed the scale, specialized operations and capabilities necessary to support customers’ product launches, development innovations and supply-chain initiatives all around the world. Despite slow global economic growth, CCL Label outperformed, increasing sales by 19% over 2012. Emerging markets registered double-digit growth and now represent more than 21% of total segment revenue. Excluding the impact of currency translation, worldwide sales increased by 16% and profitability improved by 14% compared to 2012. CCL Label’s 22% EBITDA* margin continues to be at the high end of the range for the specialty packaging industry. most business sectors and geographic regions performed to expectations in 2013. home & Personal Care operations in North America were impacted by soft sales at key mass market customers for labels, augmented by market share gains for highly decorated tubes; while Europe improved significantly and we continued to deliver strong growth in emerging markets with China and mexico notable highlights. The sector globally experienced mid-single digit growth in line with results at key customers. Profits improved significantly on robust results from tubes and international markets. Subsequent to year-end, on January 21, 2014, we announced an agreement to acquire Sancoa and TubeDec, market leading private companies in 2 CCL InDUStRIeS InC. 2013 Annual Report customers impacted by quarantines imposed by the FDA significantly reduced profits; it was also a difficult year for folded literature as customers looked to lower packaging costs. Partly offsetting this was another solid year in the agricultural chemicals market. Internationally, results were strong in Europe and we continued to make progress in emerging markets, particularly with sales of Specialty products. healthcare & Specialty remains the highest margin CCL Label sector. The Food & Beverage sector was our strongest performer in the CCL Label segment for 2013, generating double-digit sales increases, significant profit improvement, good growth in emerging markets and great strategic progress in wine and spirits. Our new, state-of-the-art wine label plant in Sonoma, California is now fully operational and meeting expectations to build our position in North America. Subsequent to year- end, we increased our equity interest in our Santiago, Chile venture Acrus-CCL to 62.5%, as the operation moved into solid profitability in the second half of 2013. In the beer, juice and carbonated soft drinks market, we continued to find new opportunities all round the world for our patented, clear pressure-sensitive wash-off labels. Our 2013 acquisition of Advanced Packaging Films will be a significant strategic advantage for our Sleeve product lines going forward, adding proprietary innovative film extrusion capabilities. All in all, we are creating a growing presence in the Food & Beverage sector with consistent expansion and a heavy focus on faster growing international markets. Our CCL Design business, headquartered in germany, was significantly strengthened last year by our acquisition of munich- based INT Autotechnik, a leading producer of steel tread plates for german automotive OEms. global scope broadened dramatically with the addition of the Avery Dennison DES business in North America and Italy. This fourth dimension to CCL Label focuses on the durable goods market, including automobiles, domestic appliances, IT peripherals, consumer electronics and industrial machines, and brings to us a new portfolio of large global customers. With new technologies such as our patented Nano-Fusion™ Paint Protection Film and the development of unique pattern and surface coating capabilities to make long life products, we expect CCL Design to become a reaching its end user customers through Avery websites. In the significant sales and profit contributor in 2014 and beyond. United States alone, consumers completed 19 million designs Emerging markets continue to be a major success story for CCL Label, with sales exceeding 21% of total CCL Label revenues. Revenue in Latin America and Asia both significantly exceeded $100 million for the first time in 2013, as consumer demand in these regions continues at a premium to the developed world for many of our global customers. C C L C o n taIn eR for labels in 2013 using our online cloud based software tool and 18 million people downloaded printing templates for Avery products. This new segment transforms the diversity of your Company and opens up potential new revenue streams as this “Digital Revolution” of short run label printing continues. In the second half of 2013, we posted $27 million in charges to restructure the Avery segment globally, simplifying business processes, eliminating unprofitable operations and preparing Solid demand for aerosols continued in 2013, with sales for a profitable and growing future. As part of these changes increasing by 4% and profitability improving by 36% as our we are establishing a new state-of-the-art manufacturing and plants delivered significant operational gains. In the fourth distribution facility in Whitby, Ontario to supply the important quarter we took a difficult decision and announced the planned Canadian market. The restructuring exercise was largely closure of our aerosol container plant in Penetanguishene, complete by the end of 2013. Ontario. Although the site has been cash positive for the last three years, we have struggled to deliver earnings for S tRo n g f In a nC IaL P oS ItIo n shareholders. matters are compounded by limited Canadian- We believe that global economic growth rates will slowly based demand for aerosol filling with our entire output exported improve over the next few years as governments gradually to the United States. Capacity will be transferred over 2014 to resolve the many macroeconomic challenges left over from our world-class operations in Pennsylvania and mexico, which the great recession. In such times new opportunities often both posted strong profit results in 2013. We will add a new arise, and we continue to retain significant balance sheet production line in 2014 providing increased capacity and the capacity. Cash flow from operations reached $334 million in flexibility to manage this operational transition. In the fourth 2013, and our net debt to annualized EBITDA leverage ratio quarter of 2013, we booked an $11 million restructuring was 1.4 times at year-end, providing us with the financial charge for employee severances and fixed asset write downs in flexibility to pursue growth opportunities organically and by Penetanguishene and budgeted a further $4 million for move- acquisition. In 2013, we invested $114 million net of disposals related costs in 2014. We are targeting an annualized lift of to improve productivity, expand capabilities and add to our $10 million in segment EBITDA once the moves are completed geographic reach, particularly in emerging markets. We expect by early to mid-2015. aVeR Y capital expenditures to continue at or below depreciation for the foreseeable future. Our financial strength and stability underpins reliable dividends to shareholders without omission We’re very excited about the opportunities our new Avery or reduction for over 30 years. Dividends have more than business segment presents. Through this transaction, we doubled over the last decade and for the coming year increased acquired software solutions, internet-based marketing skills again by 16% to $1.00 per Class B share. In 2013—a year and operational infrastructure to produce specialty media for of both financial and operational transformation—CCL total digital printers. Our target customers are small businesses shareholder return was 87%. Over the past five years, CCL has and consumers who want professionally printed labels, tags, generated a total shareholder return of 352%. dividers, badges and specialty card products. While traditional analogue printing declines for this customer base, cloud based software driven digital printing continues to advance exponentially. We reach end users through an important combination of deep consumer understanding and relationships with large mass market retailers and distributors. The Avery brand name is synonymous with this category and has a dominant market position in many parts of the world; often With over 95% of our revenue coming from outside of Canada, CCL continues to provide shareholders with considerable geographic risk diversification. The recent decline in the value of the Canadian dollar relative to the US dollar and euro, if sustained or accelerated, should provide a tailwind in 2014 with a positive translation impact on both sales and earnings. Next year we will focus on leveraging the Avery and DES acquisitions. CCL InDUStRIeS InC. 2013 Annual Report 3 2 0 1 3 LE T T E R T O S hA R EhO L D E R S It will be about execution, performance and consolidation. We or Triple S®, decorate PET beverage containers without adhesive will have a full year of these operations without the abnormal or heat and allow for the easy removal of the label for bottle restructuring costs, transaction fees and acquisition accounting recycling. We developed new systems with our suppliers to close adjustments, which amounted to $47 million after tax in 2013. loop recycle liner waste for pressure-sensitive labels and down We will continue to focus on geographies and markets that can deliver growth and increased stakeholder value while maintaining our rigorous evaluation and diligence procedures around potential transactions. g Lo b aL L e aDeR S H I P , goVeRn a nCe a nD SU StaIn a bI L ItY With 91 operations in 25 countries on five continents, CCL continues to service customers around the world, but it is our leadership that lets us leverage these worldwide assets to their maximum potential. Our management team is geographically diverse and entrepreneurial with one common focus—our customers and consumers. Our operating philosophy is to “think global and act local,” enabling us to secure product supply for customers around the world while meeting specific market gauge to thinner face stocks for many of our label products. C C L t Ra nSf oRm eD Over the last decade CCL transformed itself into the largest label company in the world and the North American leader in highly decorated aluminum containers. In 2013, this transformation accelerated, as we completed the largest acquisition in our history with the purchase of the two Avery Dennison businesses. It has created an important and exciting fourth dimension for CCL Label, with CCL Design as a new initiative in a huge global market. Our new Avery business brings your Company to the world of consumers and small businesses using label products in their everyday life as they easily access the internet and cloud-based software to print on increasingly affordable digital colour printers. needs. Our acquisitions, joint ventures and licence agreements Towards the end of the year, we were embarking on two bring us knowledge of different cultures, new technologies and innovations, along with a frontier entrepreneurial spirit. People important new emerging market opportunities in Argentina and the Philippines. We also announced our first international foray are one of the key criteria for assessing acquisition opportunities. in tubes: a joint venture in Bangkok, Thailand, with Taisei kako In 2013, we hired a new Senior Vice-President of human of Japan. Asia is the largest regional market in the world for Resources, Bruce Bacon; promoted both Peter Fleissner to plastic tubes. the global head of CCL Design and Jim Sellors to lead the new Avery business in North America. On the Board front, we would like to thank george Bayly, who has stepped down as a Director, for his valuable service. CCL’s highly experienced Board of Directors continues to bring a diverse set of skills and knowledge to our deliberations, providing counsel to management and strong corporate governance. CCL is committed to developing initiatives to reduce the carbon footprint of our products and services. For example, we are generating solar power at our Raleigh plant and our superb going forward, we will continue our focus on providing new, innovative products, entering new geographies, providing world- class customer service to global customers and delivering on shareholder expectations. With our strong financial position and forward-thinking leadership, CCL is a truly global company with a clear and well-executed strategy. Finally, we would like to thank our customers and suppliers for their unwavering support and recognize and thank our employees around the world—now topping 9,700—for their commitment, creativity and ongoing desire to make CCL a new facility in Brazil was built to exacting standards to minimize success as well as a great place to work. carbon footprint and to become a sustainability model for future projects. most of our operations have moved to eliminate wooden pallets and corrugated boxes in collaborative logistic partnerships, using multi-trip returnable systems with suppliers and customers. Our patented wash-off technology facilitates multi-trip use of glass bottles decorated with pressure-sensitive labels reducing waste going to landfill. Our Super Stretch Sleeves, Donald g. Lang Executive Chairman geoffrey t. martin President and Chief Executive Officer * Non-IFRS measures. See section 5 of CCL’s management’s Discussion and Analysis for more detail. 4 CCL InDUStRIeS InC. 2013 Annual Report f In a nC IaL HIgH L IgHtS (In thousands of Canadian dollars, except per share and ratio data) Sales EBITDA* % of sales Restructuring and other items – net loss Net earnings % of sales basic earnings per Class b share Net earnings Diluted earnings Adjusted basic earnings per Class B share* Dividends At year end Total assets Net debt** Shareholders’ equity Net debt to total book capitalization Return on equity (before other expenses)* Book value per Class B share Number of employees * A non-IFRS measure; see “key Performance Indicators and Non-IFRS measures” in Section 5A. ** See table on page 23. 2013 2012 % Change $ 1,889,426 $ 1,308,551 $ 355,565 $ 254,619 18.8% $ 45,248 $ 103,588 $ $ 5.5% 19.5% – 97,490 7.5% $ $ $ $ 3.04 2.99 4.43 0.86 $ $ $ $ 2.91 2.86 2.91 0.78 $ 2,401,648 $ 502,954 $ 1,018,135 33.1% 15.8% 29.78 9,700 $ $ 1,602,359 $ 140,061 $ 887,187 13.6% 11.4% 26.35 6,600 $ 44.4% 39.7% 6.3% 9.5% 4.5% 52.2% 10.3% 49.9% 259.1% 14.8% 13.0% 47.0% CCL InDUStRIeS InC. 2013 Annual Report 5 ma n a g e m e n t ’S DI S C U S S Io n a nD an aLY S I S years ended December 31, 2013 and 2012 (Tabular amounts in millions of Canadian dollars, except per share data) This management’s Discussion and Analysis of the financial condition and results of operations (“mD&A”) of CCL Industries Inc. (“CCL” or “the Company”) relates to the years ended December 31, 2013 and 2012. In preparing this mD&A, the Company has taken into account information available until February 20, 2014, unless otherwise noted. This mD&A should be read in conjunction with the Company’s December 31, 2013, year-end consolidated financial statements, which form part of the CCL Industries Inc. 2013 Annual Report dated February 20, 2014. The financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) and, unless otherwise noted, both the financial statements and this mD&A are expressed in Canadian dollars as the reporting currency. The major measurement currencies of CCL’s operations are the Canadian dollar, Chilean peso, the U.S. dollar, the euro, the Argentinian peso, the Australian dollar, the Brazilian real, the Chinese renminbi, the Danish krone, the Japanese yen, the mexican peso, the Polish zloty, the Russian rouble, the South African rand, the Thai baht, the U.k. pound sterling and the Vietnamese dong. All per Class B non-voting share (“Class B share”) amounts in this document are expressed on an undiluted basis, unless otherwise indicated. CCL’s Audit Committee and its Board of Directors (the “Board”) have reviewed this mD&A to ensure consistency with the approved strategy of the Company and the results of the Company. F O R W A R D- L O OkI Ng IN F O RmAT I O N InDeX 7 B) Customers and markets 8 C) Strategy and Financial Targets 10 D) Recent Acquisitions and Dispositions 7 1. Corporate overview 7 A) The Company This mD&A contains forward-looking information and forward-looking statements as defined under applicable securities laws (hereinafter collectively referred to as “forward-looking statements”) that involve a number of risks and uncertainties. Forward-looking statements include all statements that are predictive in nature or depend on future events or conditions. Forward-looking statements are typically identified by, but not limited to, the words “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans” or similar expressions. Statements regarding the operations, business, financial condition, priorities, ongoing objectives, strategies and outlook of the Company, other than statements of historical fact, are forward-looking statements. Specifically, this mD&A contains forward- looking statements regarding the anticipated growth in sales, income and profitability of the Company’s segments; the Company’s improvement in market share; the Company’s capital spending levels and planned capital expenditures in 2014; the adequacy of the Company’s financial liquidity; the Company’s targeted return on equity, earnings per share, EBITDA growth rates and dividend payout; the Company’s effective tax rate; the Company’s ongoing business strategy; and the Company’s expectations regarding general business and economic conditions. 16 2. business Segment Review 16 A) General 18 B) Label Segment 21 C) Avery Segment 22 D) Container Segment 13 g) Seasonality and Fourth quarter Financial Results 11 F) Consolidated Annual Financial Results 11 E) Subsequent Event 23 3. financing and Risk management 23 A) Liquidity and Capital Resources 24 B) Cash Flow 25 C) Interest Rate, Foreign Exchange management and Other hedges 26 D) Equity and Dividends 27 E) Commitments and Other Contractual Obligations 28 F) Controls and Procedures 29 4. Risks and Uncertainties 34 5. accounting Policies and non-IfRS measures 34 A) key Performance Indicators and Non-IFRS measures 38 B) Accounting Policies and New Standards 39 C) Critical Accounting Estimates 39 D) Related Party Transactions 40 6. outlook 6 CCL InDUStRIeS InC. 2013 Annual Report Forward-looking statements are not guarantees of future performance. They involve known and unknown risks and uncertainties relating to future events and conditions including, but not limited to, the uncertainty of the recovery from the global financial crisis and its impact on the world economy and capital markets; the impact of competition; consumer confidence and spending preferences; general economic and geopolitical conditions; currency exchange rates; interest rates and credit availability; technological change; changes in government regulations; risks associated with operating and product hazards; and CCL’s ability to attract and retain qualified employees. Do not unduly rely on forward-looking statements as the Company’s actual results could differ materially from those anticipated in these forward-looking statements. Forward-looking statements are also based on a number of assumptions, which may prove to be incorrect, including, but not limited to, assumptions about the following: global economic recovery and higher consumer spending; improved customer demand for the Company’s products; continued historical growth trends, market growth in specific segments and entering into new segments; the Company’s ability to provide a wide range of products to multinational customers on a global basis; the benefits of the Company’s focused strategies and operational approach; the Company’s ability to implement its acquisition strategy and successfully integrate acquired businesses; the achievement of the Company’s plans for improved efficiency and lower costs, including the ability to pass on aluminum cost increases to its customers; the availability of cash and credit; fluctuations of currency exchange rates; the Company’s continued relations with its customers; and general business and economic conditions. Should one or more risks materialize or should any assumptions prove incorrect, then actual results could vary materially from those expressed or implied in the forward-looking statements. Further details on key risks can be found throughout this report and particularly in Section 4: “Risks and Uncertainties.” Except as otherwise indicated, forward-looking statements do not take into account the effect that transactions or non-recurring or other special items announced or occurring after the statements are made may have on the business. Such statements do not, unless otherwise specified by the Company, reflect the impact of dispositions, sales of assets, monetizations, mergers, acquisitions, other business combinations or transactions, asset write-downs or other charges announced or occurring after forward-looking statements are made. The financial impact of these transactions and non-recurring and other special items can be complex and depends on the facts particular to each of them and therefore cannot be described in a meaningful way in advance of knowing specific facts. The forward-looking statements are provided as of the date of this mD&A and the Company does not assume any obligation to update or revise the forward-looking statements to reflect new events or circumstances, except as required by law. Unless the context otherwise indicates, a reference to “CCL” or “the Company” means CCL Industries Inc., its subsidiary companies and equity accounted investments. Effective January 1, 2013, the Company changed its operating segments to incorporate all the entities previously reported within the Tube Segment in the Label Segment, to more closely represent the current management structure and reporting. Comparative information has been restated to conform with current year presentation. 1 . CoR PoRat e oVeR V IeW a) the Company CCL Industries Inc. is the world’s largest converter of pressure sensitive and extruded film materials for a wide range of decorative, instructional and functional applications for large global customers in the consumer packaging, healthcare, automotive and consumer durables markets. Extruded plastic tubes, folded instructional leaflets, precision printed and die cut metal components with LED displays and other complementary products and services are sold in parallel to specific end-use markets. Avery is the world’s largest supplier of labels, specialty converted media and software solutions to enable short run digital printing in businesses and homes alongside complementary office products sold through distributors and mass market retailers. CCL’s Container Segment is a leading producer of impact extruded aluminum aerosol cans and bottles for consumer packaged goods customers in the United States, Canada and mexico. Founded in 1951, the Company has been publicly listed under its current name since 1980. CCL’s corporate offices are located in Toronto, Canada, and Framingham, massachusetts, United States. The corporate offices provide executive and centralized services such as finance, accounting, internal audit, treasury, risk management, legal, tax, human resources, information technology and environmental, health and safety and oversight of operations. CCL employs approximately 9,700 people in 97 production facilities located in North America, Latin America, Europe, Australia, Asia and the middle East, including equity investments in Russia operating three facilities, the middle East operating four facilities, Chile operating one facility and Thailand operating one facility. The Company also has a label licence holder operating a plant in Turkey, and a label and tube licence holder operating two plants in Indonesia. b) Customers and markets CCL’s legacy customer base is comprised of a significant number of global consumer product, healthcare, chemical and durable goods companies. With the addition of Avery, CCL has diversified its customer base to include mass market merchandisers, retail superstores, wholesalers, “e-tailers” and contract stationers. A strategy of many CCL customers is a continuous focus on growing their global market positions. Recent industry trends include customer consolidation, even among the largest players, and a disproportionate growth in sales in emerging markets and relatively lower growth in the developed world. CCL InDUStRIeS InC. 2013 Annual Report 7 m A N A gEmE N T’S DI S C U S S I O N A N D AN A L y S I S years ended December 31, 2013 and 2012 (Tabular amounts in millions of Canadian dollars, except per share data) Demand for consumer staples and healthcare products generally remains consistent throughout economic cycles as the end use often requires daily consumption. These markets are less volatile than consumer durables and the information technology industry that have higher price points and can be impacted by changes in how society works. Products sold to retailers can be impacted by white collar employment levels and the trend towards a digital society. Certain markets, such as beverage, agro-chemical and back-to-school products, are more seasonal in nature and affect the variability of quarterly sales and profitability. The state of the global economy and geopolitical events can affect consumer demand and ultimately CCL’s customers’ plans to promote competitive activity in their categories by developing marketing and sales strategies including the introduction of new products. These factors directly influence the demand for CCL’s products. The Company’s growth expectations generally mirror the trends of each of the markets and product lines in which CCL’s customers compete and the growth of the economy in each geographic region. CCL anticipates improving its market share generally in each market and category over time, which is consistent with its overall historical trend. The label market is large and highly fragmented with many players but with no single competitor having the substantial operating breadth or global reach of CCL’s Label Segment. Avery has a dominant market-leading position for its products in North America, Europe and Australia. It also has a small developing presence in Latin America. The Container Segment operates only in North America including mexico. There are two direct competitors in the Container business in the United States and one in mexico. C) Strategy and financial targets CCL’s vision is to increase shareholder value through leading supply chain solutions and product innovations around the world. CCL builds on the strength of its people in marketing, manufacturing and product development; and nurtures strong relationships with its international, national, and regional customers and suppliers. The Company anticipates increasing its market share in most product categories by capitalizing on consumer insights and the growth of its customers, by following market developments such as globalization, new product innovation, branding and consumer trends. A key attribute of CCL’s strategy is maintaining its focus and discipline. The Company aspires to be the market leader and the highest value-added producer in each product line and region in which it chooses to compete. CCL’s primary objective is to invest in the growth of the Label Segment globally both organically and by acquisition. On July 1, 2013, CCL closed the largest acquisition in its history by purchasing the Office & Consumer Products (“OCP” or “Avery”) and Designed & Engineered Solutions (“DES”) businesses from Avery Dennison Corporation for US$486.7 million. The DES portion of the acquisition bolstered the Label Segment’s consumer durables operations, (“CCL Design”) adding a significant presence in North America, complementing the Company’s existing footprint in Europe (including “INT,” see below), and providing approximately $200 million in annualized sales. The Avery business is an adjacency to the Label Segment with core applications in labels and specialty converted media that enable short run digital printing in businesses and homes, with trailing revenues of approximately $700 million. In addition to this transformational acquisition, CCL also acquired INT Autotechnik gmbh (“INT”), a leading durables supplier to the german automotive industry based in munich, germany; and Advanced Packaging Films (“APF”), a specialty films producer to support CCL Label’s global Food & Beverage business in Schkopau, germany. In 2012, CCL acquired the Pharmaceutical Division of graphitype Printing Services (“graphitype”), a healthcare label and leaflet producer in Sydney, Australia; started a new wholly owned wine label plant in Sonoma, United States, and a new 50% owned wine label operation in Santiago, Chile. The Company recently increased its ownership in the Chilean operation to 62.5% in early 2014. Finally, CCL expects to continue improving the performance of the Container Segment, realizing further operational and financial advances subsequent to the completion of the $11.0 million restructuring plan announced in the fourth quarter of 2013. The Company’s strategic objective in the past decade has been the long-term growth of earnings through the building of a global business platform with investment in new plants and equipment, acquisitions and innovation in new product development. This approach is intended to allow the Company to increase market share and to grow internationally. The acquisition strategy includes seeking attractively priced companies within CCL’s core competencies and manufacturing capabilities that will be immediately accretive to earnings. In addition, such acquisitions should generally support its strategic geographic expansion plans and/or provide new technologies, and/or new customer relationships and products to CCL’s portfolio. The Company’s financial strategy is to be fiscally prudent and conservative. During good and difficult economic times, the Company has maintained high levels of cash on hand and unused lines of credit to reduce its financial risk and to provide flexibility when acquisition opportunities are available. The Company’s resilient financial results, ensuing strong free cash flow, have produced a solid balance sheet capable, if required, of supporting debt levels in excess of the current outstanding debt and the undrawn $236.8 million unsecured revolving line of credit. CCL has sufficient available liquidity and a secure financial foundation for the foreseeable future. 8 CCL InDUStRIeS InC. 2013 Annual Report Additionally, CCL has a continuous focus on minimizing its investment in working capital in order to maximize cash flow in support of the growth in the business. In addition, capital expenditures are approved when they are expected to be accretive to earnings and are selectively allocated towards the most attractive growth opportunities. A key financial target is return on equity before goodwill impairment loss, restructuring and other items and tax adjustments (“ROE,” a non-IFRS measure; see “key Performance Indicators and Non-IFRS measures” in Section 5A below). CCL continues to execute its strategy with a goal of achieving a comparable ROE level to its leading peers in specialty packaging. historically, the Company has achieved ROE levels in the low double-digit range. however, with the global economic downturn in 2009, ROE for comparable companies and for the industry as a whole was dramatically lowered. In 2013, ROE improved dramatically compared to the low posted in 2009 due to the significant earnings from the acquired Avery and DES businesses: Return on equity 2013 15.8% 2012 11.4% 2011 10.7% 2010 9.5% 2009 7.6% 2008 11.1% The Company believes that maintaining the current trend in ROE is dependent on the continued improvement in the global economy, and on the success of CCL’s business strategy. Another important and related financial target is the long-term growth rate of adjusted basic earnings per share, which excludes goodwill impairment loss, restructuring and other items, tax adjustments, gains on business dispositions and non-cash acquisition accounting adjustments (a non-IFRS measure; see “key Performance Indicators and Non-IFRS measures” in Section 5A below). management believes that, taking into account both the relatively stable overall demand for consumer staples and healthcare products globally and the continuing benefits from the Company’s focused strategies and operational approach, a positive growth rate in adjusted basic earnings per share is realistic under reasonable economic circumstances. CCL’s historical adjusted basic earnings per share achieved significant positive growth except for the 2009 and 2008 years: EPS growth rate 2013 52% 2012 13% 2011 18% 2010 23% 2009 (30%) 2008 2% In 2013, adjusted basic earnings increased by 52% to $4.43 per Class B share. The acquired businesses in 2013, in particular the new Avery Segment, contributed meaningfully to the strong improvement in adjusted basic earnings per share. Excluding the impact of currency translation, adjusted basic earnings per share increased 46%. The Company believes continuing growth in earnings per share is achievable in the future as the global economy improves, operating and cost improvements are solidified for the Avery and Container Segments post-restructuring, and CCL executes its business strategy in the large Label Segment of its business. The Company will continue to focus on generating cash and effectively utilizing the cash flow generated by operations and divestitures. Earnings before net finance cost, taxes, depreciation and amortization, excluding goodwill impairment loss, earnings in equity accounted investments, non-cash acquisition accounting adjustments, restructuring and other items (“EBITDA,” a non-IFRS measure; see “key Performance Indicators and non-IFRS measures” in Section 5A below) is considered a good indicator of cash flow and is used by many financial institutions and investment advisors to measure operating results and for business valuations. The Company believes that EBITDA is an important measure in evaluating its ongoing business in that it does not include the impact of interest, depreciation and amortization, income tax expenses and non-operating one-time items. As a key indicator of cash flow, EBITDA demonstrates the Company’s ability to incur or service existing debt, to invest in capital additions and to take advantage of organic growth opportunities and acquisitions that are accretive to earnings per share. historically, the Company has experienced positive growth in EBITDA, excluding discontinued operations, except for the 2009 year: EBITDA % of sales 2013 $ 355.6 19% 2012 2011 2010 2009 2008 $ 254.6 $ 239.1 $ 219.8 $ 207.9 $ 216.4 19% 19% 18% 17% 18% In 2013, EBITDA increased by approximately 36.2%, excluding the positive impact of foreign currency translation. CCL’s EBITDA margins remain at the top end of the range of the Company’s specialty packaging peers. The Company expects positive growth in EBITDA in the future as the global economy continues to recover and the Company carries out its global growth initiatives. CCL InDUStRIeS InC. 2013 Annual Report 9 m A N A gEmE N T’S DI S C U S S I O N A N D AN A L y S I S years ended December 31, 2013 and 2012 (Tabular amounts in millions of Canadian dollars, except per share data) If net cash flow periodically exceeds attractive acquisition opportunities available, CCL may also repurchase its shares provided that the repurchase is accretive to earnings per share, is at a valuation equal to or lower than valuations for acquisition opportunities, and will not materially increase financial leverage beyond targeted levels. The Company repurchased 50,000 Class B shares for cancellation during 2013. The framework supporting the above performance targets is an appropriate level of financial leverage. Based on the dynamics within the specialty packaging industry and the risks that higher leverage may bring, CCL has a comfort level up to a target of approximately 45% for its net debt to total book capitalization (a non-IFRS measure; see “key Performance Indicators and Non-IFRS measures” in Section 5A below). As at December 31, 2013, net debt to total book capitalization was 33.1%, despite the significant acquisitions during the year. This current level of leverage and profitability, including the expectation of significant future deleveraging from operating cash flow, would imply that CCL’s debt would be in the investment-grade category. This leverage level is below the target, primarily due to the Company’s conservative approach to financial risk and its ability to generate strong levels of free cash flow from operations (a non-IFRS measure; see “key Performance Indicators and Non-IFRS measures” in Section 5A below). The Board also believes that the dividend payout (a non-IFRS measure; see “key Performance Indicators and Non-IFRS measures” in Section 5A below) is an important metric. CCL has paid dividends quarterly for over thirty years without an omission or reduction and has more than doubled the dividend since 2003. The Board views this consistency and dividend growth as important factors in enhancing shareholder value. The Board’s target payout of dividends is approximately 25% of adjusted earnings, defined as earnings excluding gains on dispositions, goodwill impairment loss, restructuring and other items and tax adjustments. In 2013, the dividend payout ratio was 20% (2012 – 27%) of adjusted earnings. This dividend payout ratio, below the Board’s target range, reflects the strong cash flow generated by the newly acquired businesses in 2013. After careful review of the current year results and considering the cash flow and income budgeted for 2014, the Board has declared a 16% increase in the dividend; three and one half cents per Class B share per quarter, from $0.215 to $0.25 per Class B share per quarter ($1.00 per Class B share annualized). The Company believes that all of the above targets are mutually compatible and consequently should drive meaningful shareholder value over time. CCL’s strategy and its ability to grow and achieve attractive returns for its shareholders are shaped by key internal and external factors that are common to the businesses it operates. The key performance driver is the Company’s continuous focus on customer satisfaction, supported by its reputation for quality manufacturing, competitive price, product innovation, dependability, ethical business practices and financial stability. D) Recent acquisitions and Dispositions Over the past decade, CCL has transformed itself into a focused specialty packaging business and now with a new consumer arm. CCL is now a global company with increased diversification across the world economy including emerging markets, a broader customer base, new product lines and many different currencies and geographies. CCL continues to deploy its cash flow from operations into its core segments with both internal capital investments and strategic acquisitions. The following acquisitions were completed over the last two years: • In April 2013, INT, a privately owned company based in munich, germany, for $14.4 million. INT is a leading supplier to the german automotive original equipment manufacturers alongside CCL Design. • In July 2013, the OCP and DES businesses of Avery Dennison Corporation for US$486.7 million. The OCP business is now CCL’s new Avery Segment and the DES business has augmented the CCL Design business within CCL Label. • In October 2013, Advanced Packaging Films, a privately owned company based in Schkopau, germany, for $9.3 million. This new business trades as Advanced Performance Films and forms an integral part of the CCL Label global Food & Beverage business. • In July 2012, graphitype, a division of a privately owned label company located near Sydney, Australia, was purchased for $6.9 million. graphitype produces labels and patient instructional leaflets for leading pharmaceutical customers in Australia. Strategically, CCL has positioned itself as a growing specialty packaging company. The acquisitions completed over the past few years, in conjunction with the building of new plants in Thailand, Brazil, Saudi Arabia, Chile, Philippines, Russia and the United States, have positioned the Label Segment as the global leader for labels in the personal care, healthcare, food and beverage, durables and specialty categories. Furthermore with the addition of Avery, CCL is now the world’s largest supplier of labels, specialty converted media and software solutions to enable short run digital printing in businesses and homes alongside complementary office products. 10 CCL InDUStRIeS InC. 2013 Annual Report e) Subsequent event On January 21, 2014, CCL announced it had signed an agreement to acquire Sancoa and TubeDec, privately owned companies supplying labels and plastic tubes to home & Personal Care customers in North America. The purchase price, including the settlement of financial debts is US$71 million subject to customary closing adjustments. Closing is expected during the first quarter of 2014. These businesses had combined revenues of approximately US$82.5 million in 2013 and will expand CCL Label’s market penetration in the home & Personal Care sector adding new customers and market leading product innovation. f) Consolidated annual financial Results Selected financial Information Results of Consolidated Operations Sales Cost of sales Selling, general and administrative expenses Earnings in equity accounted investments Net finance cost Restructuring and other items – net loss Earnings before income taxes Income taxes Net earnings Net earnings per Class B share Restructuring and other items loss per Class B share Diluted earnings per Class B share Adjusted basic earnings per Class B share Dividends per Class B share Total assets Total non-current liabilities Comments on Consolidated Results 2013 $ 1,889.4 1,414.0 256.7 218.7 1.9 (25.6) (45.2) 149.8 46.2 103.6 3.04 1.03 2.99 4.43 0.86 $ $ $ $ $ $ $ 2,401.6 $ 839.0 2012 1,308.6 996.2 160.4 152.0 2.2 (20.9) — 133.3 35.8 97.5 2.91 — 2.86 2.91 0.78 1,602.4 393.0 $ $ $ $ $ $ $ $ $ 2011 1,268.5 975.0 154.6 138.9 1.2 (21.4) (0.8) 117.9 33.8 84.1 2.54 0.03 2.50 2.57 0.70 1,613.5 540.4 $ $ $ $ $ $ $ $ $ Sales were $1,889.4 million in 2013, an increase of 44.4% compared to $1,308.6 million recorded in 2012. The increase is primarily attributable to the Avery and DES acquisition, but included a 3.0% positive impact from foreign currency translation. On a comparative basis, 2013 versus 2012, sales were higher in the Label and Container Segments, pre-acquisitions, due to organic growth of 4.0%. Consistent with CCL’s 2012 year, approximately 5% of CCL’s 2013 sales to end use customers are denominated in Canadian dollars. Consequently, changes in foreign exchange rates can have a material impact on sales and profitability when translated into Canadian dollars for public reporting. While the impact of foreign exchange translation moderated over the last two years, compared to the trends of the last decade, 2013 results were positively impacted by a weakening of the Canadian dollar. The appreciation of the U.S. dollar, euro, and mexican peso by 3.0%, 6.5% and 6.2%, respectively, was partially offset by a 6.8% depreciation of the Brazilian real relative to the Canadian dollar in 2013 compared to average exchange rates in 2012. Partially offsetting this recent translation trend some of CCL’s foreign operations were negatively impacted by their local currency depreciation relative to the euro and U.S. dollar on transactions. Earnings after cost of goods sold and selling, general and administrative (“Sg&A”) expenses in 2013 were $218.7 million, up $66.7 million from $152.0 million in 2012; primarily reflecting the significant acquisitions made in 2013. Sg&A expenses were $256.7 million for 2013, compared to $160.4 million reported in 2012. The increase in Sg&A expenses in 2013 relates primarily to the significant acquisitions made in 2013 as well as higher corporate expenses. Corporate expenses for 2013 were $33.5 million, compared to $26.4 million for 2012. The increase in corporate expenses relative to those in 2012 relates predominantly to an increase in executive long-term compensation expenses and a significant increase in director equity compensation expense connected to their deferred share unit plan and is directly a result of the sizable gain in the Company’s share price in 2013. CCL InDUStRIeS InC. 2013 Annual Report 11 m A N A gEmE N T’S DI S C U S S I O N A N D AN A L y S I S years ended December 31, 2013 and 2012 (Tabular amounts in millions of Canadian dollars, except per share data) Operating income (a non-IFRS measure; see “key Performance Indicators and Non-IFRS measures” in Section 5A below) for 2013 was $252.2 million, an improvement of 41.4%. Excluding the $16.7 million non-cash acquisition accounting adjustment to fair value the acquired finished goods inventory for the acquired Avery and DES businesses, operating income improved 50.7%. Comparatively, operating income was $178.4 million for 2012. The acquired DES business, now included in the Label Segment, excluding its $2.1 million share of the non-cash fair value acquisition accounting adjustment to finished goods inventory, generated a higher than expected level of operating income for its six months under CCL ownership. Avery generated operating income of $55.0 million, excluding its $14.6 million share of the non-cash acquisition accounting adjustment to fair value the acquired finished goods inventory, well ahead of the same period pre-acquisition. Foreign currency translation positively impacted consolidated operating income by 3.3% for 2013 compared to 2012. The Label and Container Segments each improved operating income for 2013 by 17.4% and 36.4%, respectively compared to 2012. Further details on the business segments follow later in this report. Earnings before net finance costs, taxes, depreciation and amortization, excluding earnings in equity accounted investments, non-cash acquisition accounting adjustments, restructuring and other items (“EBITDA,” a non-IFRS measure; see “key Performance Indicators and Non-IFRS measures” in Section 5A below) in 2013 was $355.6 million, an improvement of 39.7% compared to $254.6 million recorded in 2012. Excluding the impact of currency translation, EBITDA increased by 36.2% over the prior year. Net finance cost was $25.6 million in 2013, an increase of $4.7 million from the $20.9 million recorded in 2012. The increase in net finance costs was attributable to the additional $383.0 million of outstanding debt at December 31, 2013, that was used to acquire the Avery and DES businesses from Avery Dennison Corporation. Prior to close of the aforementioned acquisition, CCL incurred $0.4 million of pre-close commitment fees corresponding to the new credit facility that was put in place in January of 2013 and not drawn upon until July 2, 2013. Furthermore, since the close of the Avery and DES acquisition was on July 1, 2013, a national holiday in Canada, the Company was compelled to borrow US$453.4 million on the Company’s pre-existing credit facility and deposit the cash in subsidiaries outside Canada. This resulted in interest expense of $0.2 million prior to the close of the acquisition. These pre-close acquisition finance costs of $0.6 million (“Avery & DES finance costs”) impacted basic earnings by $0.02 per Class B share for 2013. For the full year 2013, restructuring cost and other items represented a loss of $45.2 million ($35.1 million after tax) as follows: • For the Avery and DES acquisitions, $32.7 million ($22.8 million after tax) for severance, facility closure costs, transaction fees and duties and other associated costs with the acquisition and re-organization of the businesses. • For the Container Segment, $11.0 million ($11.0 million after tax) for severance and asset write downs to close the Canadian operation. • For a small label plant in France, $1.5 million ($1.3 million after tax) for severance costs to downsize the operation. The negative earnings impact of these restructuring and other items in 2013 was $1.03 per Class B share. No expenses for restructuring and other items were incurred for 2012. In 2013, the consolidated effective tax rate was 31.2%, compared to 27.3% in 2012, excluding earnings in equity accounted investments. The combined Canadian federal and provincial statutory tax rate was 25.3% for 2013 (2012 – 25.3%). The increase in the effective tax rate for 2013 is attributable to $11.0 million of restructuring charges recorded in Canada without any corresponding tax benefit. Also increasing the effective tax rate was a negative impact of $3.4 million (2012 – positive impact of $0.3 million) for the decrease in recorded accounting benefits of certain Canadian tax losses. As previously disclosed in prior years, the ability to benefit the Canadian tax losses is mainly dependent on the movement of the unrealized foreign exchange gains on the Company’s U.S. dollar-denominated debt. This benefit will fluctuate with the movement in the Canadian dollar versus the U.S. dollar and as such this benefit would reverse fully or in part in the future if the Canadian dollar weakens and would grow larger if it strengthens. Excluding these two tax items that impacted tax expense, the overall effective tax rates in 2013 and 2012 were 27.0% and 27.5%, respectively. Approximately 95% of CCL’s sales are from products sold to customers outside of Canada, and the income from these foreign operations is subject to varying rates of taxation. The Company’s effective tax rate varies from year to year as a result of the level of income in the various countries, recognition or reversal of tax losses, tax reassessments and income and expense items not subject to tax. The Company’s tax rate may increase in the future since the Company may not be able to tax-benefit its future tax losses in certain countries. Net earnings for 2013 were $103.6 million, an increase of 6.3% compared to $97.5 million recorded in 2012 due to the items described above. 12 CCL InDUStRIeS InC. 2013 Annual Report Basic earnings per Class B share were $3.04 for 2013 versus the $2.91 recorded for 2012. Diluted earnings per Class B share were $2.99 for 2013 and $2.86 for 2012. The movement in foreign currency exchange rates in 2013 versus 2012 had an estimated positive translation impact of $0.12 on basic earnings per Class B share. This estimated foreign currency impact reflects the currency translation in all foreign operations and the translation of U.S. dollar-denominated transactions in the Canadian Container operations, where almost all sales and a significant portion of input costs are U.S. dollar-denominated. Adjusted basic earnings per Class B share (a non-IFRS measure; see “key Performance Indicators and Non-IFRS measures” in Section 5A below) was $4.43 for 2013, up 52.2% from $2.91 in 2012. g) Seasonality and fourth quarter financial Results 2013 Sales Label Avery Container Total sales Segment operating income Label Avery Container Operating income Corporate expenses Restructuring and other items Earnings in equity accounted investments Finance cost, net Earnings before income taxes Income taxes Net earnings Per Class b share Basic earnings Diluted earnings Adjusted basic earnings qtr 1 qtr 2 qtr 3 qtr 4 Year $ $ $ $ $ $ $ 312.3 — 51.4 363.7 56.6 — 5.4 62.0 7.6 1.3 0.4 53.5 5.2 48.3 14.2 34.1 1.01 0.99 1.04 $ $ $ $ $ $ $ 309.9 — 51.5 361.4 45.0 — 5.2 50.2 6.9 1.4 0.2 42.1 5.9 36.2 9.8 26.4 0.77 0.76 0.82 $ $ $ $ $ $ $ 360.4 201.7 44.5 606.6 48.7 16.2 2.9 67.8 9.3 18.3 0.5 40.7 7.7 33.0 9.4 23.6 0.68 0.67 1.38 $ $ $ $ $ $ $ 361.6 153.8 42.3 557.7 $ 1,344.2 355.5 189.7 $ 1,889.4 45.0 24.2 3.0 72.2 9.7 24.2 0.8 39.1 6.8 32.3 12.8 19.5 0.58 0.57 1.19 $ 195.3 40.4 16.5 252.2 33.5 45.2 1.9 175.4 25.6 149.8 46.2 $ 103.6 $ $ $ 3.04 2.99 4.43 CCL InDUStRIeS InC. 2013 Annual Report 13 m A N A gEmE N T’S DI S C U S S I O N A N D AN A L y S I S years ended December 31, 2013 and 2012 (Tabular amounts in millions of Canadian dollars, except per share data) 2012 Sales Label Avery Container Total sales Segment operating income Label Avery Container Operating income Corporate expenses Earnings in equity accounted investments Finance cost, net Earnings before income taxes Income taxes Net earnings Per Class b share Basic earnings Diluted earnings Adjusted basic earnings fourth quarter Results qtr 1 qtr 2 qtr 3 qtr 4 year $ $ $ $ $ $ $ 295.3 — 46.1 341.4 50.2 — 2.4 52.6 6.5 0.8 46.9 5.2 41.7 11.3 30.4 0.91 0.89 0.91 $ $ $ $ $ $ $ 289.0 — 48.1 337.1 43.6 — 4.3 47.9 6.5 — 41.4 5.2 36.2 10.3 25.9 0.77 0.76 0.77 $ $ $ $ $ $ $ 270.7 — 45.9 316.6 35.6 — 3.7 39.3 6.1 0.3 33.5 5.3 28.2 6.9 21.3 0.64 0.63 0.64 $ $ $ $ $ $ $ 271.9 — 41.6 $ 1,126.9 — 181.7 313.5 $ 1,308.6 $ 36.9 — 1.7 38.6 7.3 1.1 32.4 5.2 27.2 7.3 19.9 $ 0.59 0.58 0.59 $ $ $ 166.3 — 12.1 178.4 26.4 2.2 154.2 20.9 133.3 35.8 97.5 2.91 2.86 2.91 Sales for the fourth quarter of 2013 were $557.7 million, compared to $313.5 million recorded in the 2012 fourth quarter. Excluding currency translation, sales for the fourth quarter of 2013 increased by 72.4% compared to the prior-year period. The new Avery Segment was the largest contributor to the increase; however organic growth also contributed 4.1% to the results. The Label Segment increased revenue 27.2% partially offset by a 2.2% decline for the Container Segment, for the fourth quarter of 2013 compared to the same period in 2012. Operating income (a non-IFRS measure; see “key Performance Indicators and Non-IFRS measures” in Section 5A below) in the fourth quarter of 2013 was $72.2 million, an increase of 87.0% from $38.6 million in the fourth quarter of 2012. For the fourth quarter of 2013 compared to the same period in 2012, the Label and Container Segments recorded improvements in operating income of 22.0% and 76.5%, respectively. The improvement in the Label Segment was driven by the acquired DES business, which generated its expected level of operating income as well as advancements in European and Emerging market operations, for the fourth quarter of 2013. Avery generated operating income of $24.2 million exceeding management’s expectations for the quarter. Foreign currency translation contributed an improvement of 6.2% to the consolidated operating income. EBITDA (a non-IFRS measure; see “key Performance Indicators and Non-IFRS measures” in Section 5A below) for the fourth quarter of 2013 was $96.1 million, an increase of 66.6% compared to the $57.7 million for 2012 comparable period. Corporate expenses were $9.7 million in the fourth quarter of 2013, an increase of $2.4 million from $7.3 million recorded in the prior- year period. The increase is directly attributable to the increase in directors’ deferred share unit expense and executive long-term and annual incentive accruals due to the out-performance in 2013. Net finance cost was $6.8 million for the fourth quarter of 2013 compared to $5.2 million for the fourth quarter of 2012. The increase was attributable to the additional interest expense associated with the additional drawn debt that was used to acquire the Avery and DES businesses from Avery Dennison Corporation. 14 CCL InDUStRIeS InC. 2013 Annual Report For the fourth quarter of 2013, restructuring cost and other items represented a loss of $24.2 million ($20.7 million after tax) as follows: • For the Avery and DES acquisition, $12.5 million ($9.1 million after tax) for severance, facility closure costs, transaction and other associated costs with the acquisition and re-organization of the businesses. • For the Container Segment, $11.0 million with no tax impact for severance and asset write downs to close the Canadian operation. • For a small label plant in France, $0.7 million ($0.6 million after tax) for severance costs to downsize the operation. The negative earnings impact of these restructuring and other items in 2013 was $0.61 per Class B share. No expense for restructuring and other items was recorded for the fourth quarter of 2012. Tax expense in the fourth quarter of 2013 was $12.8 million compared to $7.3 million in the prior year period. The effective tax rates for these two periods are 40.4% and 28.1%, respectively. The increase in the effective tax rate, excluding earnings in equity accounted investments, resulted from the aforementioned tax treatment of Canadian restructuring charges and a higher portion of the Company’s income being earned in higher tax jurisdictions, primarily the U.S. operations of the acquired businesses. The net earnings in the fourth quarter of 2013 were $19.5 million compared to net earnings of $19.9 million in last year’s fourth quarter. This decrease reflects the items described above. Basic earnings per Class B share were $0.58 in the fourth quarter of 2013 compared to $0.59 in the fourth quarter of 2012. The movement in foreign currency exchange rates in the fourth quarter of 2013 versus 2012 had an estimated positive impact on the translation of CCL’s basic earnings of $0.06 per Class B share. Adjusted basic earnings per Class B share (a non-IFRS measure; see “key Performance Indicators and Non-IFRS measures” in Section 5A below) were $1.19 for the fourth quarter of 2013, an improvement of 101.7% compared to $0.59 in the corresponding quarter of 2012. Summary of Seasonality and quarterly Results historically, the seasonality of the Label and Container Segments had evolved such that the first and second quarters were generally the strongest due to the number of work days and various customer-related activities. Also, there are many products that have a spring- summer bias in North America and Europe such as agricultural chemicals and certain beverage products, which generate additional sales volumes for CCL in the first half of the year. however with the addition of Avery, the third quarter will be the strongest for CCL sales as Avery benefits from the “back-to-school” surge in North America. The final quarter of the year is negatively affected from a sales perspective in the Northern hemisphere by Thanksgiving and globally by the Christmas and New year holiday season shutdowns. Sales and net earnings comparability between the quarters of 2013 and 2012, exclusive of the Avery and DES acquisition on July 1, 2013, were primarily affected by regional economic variances, the impact of dramatic foreign currency changes relative to the Canadian dollar, and the effect of restructuring, tax adjustments and other items. The Label Segment has generally experienced strong demand in its existing and newly acquired operations in the past few years. The Label Segment increased sales, excluding the impact of currency translation, in all four quarters of 2013, primarily driven by strong organic growth and augmented by the INT and DES acquisitions. Return on sales (a non-IFRS measure; see “key Performance Indicators and Non-IFRS measures” in Section 5A below) for the Label Segment in 2013 was 14.5% compared to 14.8% in 2012. The slight decline in margin reflects the results of the acquired DES business since the beginning of third quarter of this year. This level of return is still above CCL’s internal targets and reflects the Segment’s continued strategy of capitalizing each operation with world-class equipment, servicing its international customers on a global basis and meeting their unique product needs. Sales, excluding foreign currency translation, at the Container Segment increased 1.5% for 2013 compared to 2012. This improvement was driven by volume growth in the mexican operations, coupled with pricing controls and better mix in the United States. For the fourth quarter of 2013, sales decreased slightly, compared to the same period of 2012, due to comparatively lower aluminum prices passed through to customers. Net earnings in 2013 increased 6.3% compared to 2012. Significant restructuring charges for the acquired Avery and DES businesses along with the restructuring expense for the Canadian Container operation recorded in the third and fourth quarters of the year diminished the annual improvement in net earnings. Adjusted basic earnings per Class B share (a non-IFRS measure; see “key Performance Indicators and Non-IFRS measures” in Section 5A below), which excludes the impact of restructuring charges and other unique acquisition related items was $4.43 for 2013, up 52.2% from $2.91 in 2012. CCL InDUStRIeS InC. 2013 Annual Report 15 m A N A gEmE N T’S DI S C U S S I O N A N D AN A L y S I S years ended December 31, 2013 and 2012 (Tabular amounts in millions of Canadian dollars, except per share data) 2 . bU S In eS S Se g m e n t ReV IeW a) general Over the last decade all divisions have invested significant capital and management effort in their facilities in order to develop world-class manufacturing operations, with spending allocated to geographic expansion, cost-reduction projects, the development of innovative products and processes, the maintenance and expansion of existing capacity and the continuous improvement in health and safety in the workplace, including environmental activities. Also over the past decade, CCL has made numerous strategic acquisitions and invested significantly in order to build a global network in the Label Segment, take advantage of new market and product opportunities and improve infrastructure and operating performance across the Company. Since 2009, annual capital spending has been below annual depreciation and amortization expense as the global manufacturing platform in the Label Segment is now largely completed. The new Avery Segment is less capital intensive than CCL’s legacy business and annual capital spending is expected to be below annual depreciation expense. Further discussion on capital spending is provided in the “Business Segment Review” sections below. Although each Segment is a leader in market share or has a significant position in the markets it serves in each of its operating locales, it also operates generally in a mature and competitive environment. In recent years, consumer products and healthcare companies have experienced steady pressure to maintain or even reduce prices to their major retail and distribution channels, which has driven significant consolidation in CCL’s customer base. This has resulted in many customers seeking supply-chain efficiencies and cost savings in order to maintain profit margins. The global economic crisis experienced in 2008 and early 2009, the instability of the economic recovery that followed and its effect on the availability of capital accentuated this trend. Volatile commodity costs have also created challenges to manage pricing with customers. These dynamics have been an ongoing challenge for CCL and its competitors, requiring greater management and financial control and flexible cost structures. Unlike some of its competitors, CCL has the financial strength to invest in the equipment and innovation necessary to constantly strive to be the highest value-added producer in the markets that it serves. Avery reaches its consumers, including small businesses, through distribution channels that include mass-market merchandisers, retail superstores, wholesalers, “e-tailers” and contract stationers. merger activity in these distribution channels can lead to short term volume declines as customer inventory positions are consolidated. Avery is the leading brand in its core markets, with the principal competition being lower priced private label products. Avery has experienced secular decline in its core address label product as internet- based digital communication has grown rapidly. In response, Avery has developed innovative new products targeted at applications such as shipping labels and product identification. It is CCL’s expectation that growth in these new printable media products and in new markets for existing products will soon exceed the decline in volume for mailing applications and reestablish a growth rate for the Segment. It is also CCL’s expectation that Avery will open up new revenue streams in short run digital printing applications. The cost of many of the key raw material inputs for CCL, such as plastic films and resins, paper, specialty chemicals and aluminum, are largely dependent on the economics within the petrochemical and energy industries. The significant cost fluctuations for these inputs can have an impact on the Company’s profitability. CCL generally has the ability, due to its size and the use of long-term contracts with both its suppliers and its customers, to mitigate volatility in costs from its suppliers and, where necessary, to pass on price movements to its customers. The success of the Company is dependent on each business managing the cost-and-price equation with suppliers and customers. The cost of aluminum represents the largest component of the Container Segment’s product cost. The significant volatility in aluminum costs over the past few years has made it especially challenging to manage pricing with its customers who are generally accustomed to more stable pricing in other product lines. Consequently, the Container Segment successfully introduced pricing mechanisms in its customer contracts that pass through the fluctuations in the cost of aluminum as the commodity price changes on the London Metals Exchange (“LME”). most of CCL’s facilities are in locations with adequate skilled labour, resulting in moderate pressure on wage rates and employee benefits. CCL’s labour costs are competitive in each of its businesses. The Company uses a combination of annual and long-term incentive plans specifically designed for corporate, divisional and plant staff to focus key employees on the objectives of achieving annual business plans and creating shareholder value through growth, innovation, cost reductions and cash flow generation in the longer term. A driver common to all Segments for maximizing operating profitability is the discipline of pricing contracts based on size and complexity, including consideration for fluctuations in raw materials and packaging costs, manufacturing efficiency and available capacity. This approach facilitates effective asset utilization and relatively higher levels of profitability. Performance is generally measured by product against estimates used to calculate pricing, including targets for scrap and output efficiency. An analysis of total utilization versus capacity available per production line or facility is also used to manage certain divisions of the business. In most of the Company’s operations, the measurement of each sales order shipped is based on actual selling prices and production costs to calculate the amount of actual profit margin earned and its return on sales relative to the established benchmarks. This process ensures that pricing policies and production performance are aligned in attaining profit margin targets by order, by plant and by division. 16 CCL InDUStRIeS InC. 2013 Annual Report Performance measures used by the divisions that are critical to meeting their operating objectives and financial targets are return on sales, cash flow, days of working capital employed and return on investment. measures used at the corporate level include operating income, return on sales, EBITDA, net debt to total book capitalization, return on equity and adjusted basic earnings per Class B share (all of which are non-IFRS measures; see “key Performance Indicators and Non-IFRS measures” in Section 5A below). growth in earnings per share is a key metric. In addition, the Company monitors earnings per share before restructuring and other items since the timing and extent of restructuring and other items do not reflect or relate to the Company’s future ongoing operating performance. Performance measures are primarily evaluated against a combination of prior year, budget, industry standards and other internal benchmarks to promote continuous improvement in each business and process. management believes it has both the financial and non-financial resources, internal controls and reporting systems and processes in place to execute its strategic plan, to manage its key performance drivers and to deliver targeted financial results over time. In addition, the Company’s internal audit function provides another discipline to ensure that its disclosure controls and procedures and internal control over financial reporting will be assessed on a regular basis against current corporate standards of effectiveness and compliance. CCL is not particularly dependent upon specialized manufacturing equipment. most of the manufacturing equipment employed by the divisions can be sourced from many different suppliers. CCL, however, has the resources to invest in large-scale projects to build infrastructure in current and new markets because of its financial strength relative to that of many of its competitors. most of CCL’s direct competitors in the Label Segment are much smaller and may not have the financial resources to stay current in maintaining state-of-the-art facilities. Certain new manufacturing lines take many months for suppliers to construct, and any delays in delivery and commissioning can have an impact on customer expectations and the Company’s profitability. The Company also uses strategic partnerships as a method of obtaining proprietary technology in order to support growth plans and to expand its product offerings. CCL’s major competitive advantage is based on its strong customer service, process technology, the know-how of its people, market leading brand awareness and loyalty, and the ability to develop proprietary technologies and manufacturing techniques. The expertise of CCL’s employees is a key element in achieving the Company’s business plans. This know-how is broadly distributed throughout the Company and its 91 facilities throughout the world; therefore, the Company is generally not at risk of losing its competency through the loss of any particular employee or group of employees. Employee skills are constantly being developed through on-the- job training and external technical education, and are enhanced by CCL’s entrepreneurial culture of considering creative alternative applications and processes for the Company’s manufactured products. The nature of the research carried out by the Label and Container Segments can be characterized as application or process development. As a leader in specialty packaging, the Company spends meaningful resources on assisting customers to develop new and innovative products. While customers regularly come to CCL with concepts and request assistance to develop products, the Company also takes its own new ideas to the market. Company and customer information is protected through the use of confidentiality agreements and by limiting access to CCL’s manufacturing facilities. The Company values the importance of protecting its customers’ brands and products from fraudulent use and consequently is selective in choosing appropriate customer and supplier relationships. Avery has a strong commitment to understanding its ultimate end users, actively seeking product feedback and using consumer focus groups to drive product development initiatives. Furthermore, it leverages the Label Segment’s applications and technology to deliver product innovation that aligns with consumer printable media trends. The Company continues to invest time and capital to upgrade and expand its information technology systems. This investment is critical to keeping pace with customer requirements and in gaining or maintaining a competitive edge. Software packages are, in general, off-the-shelf systems customized to meet the needs of individual business locations. The Label Segment communicates with many customers and suppliers electronically, particularly with regard to supply-chain management solutions and when transferring and confirming design formats and colours. A core attribute of Avery’s printable media products is the customized software to enable short run digital printing in businesses and homes. Avery recognizes that it is critical to relentlessly innovate in its software solution to maintain its market leading position with consumers. Within the Avery Segment, all products are sold under the market-leading “Avery” brand and, with equal prominence, in german- speaking countries under the “Zweckform” brand name. The Company recognizes that to maintain the pre-eminent positions for Avery and Zweckform, it must continually invest in promoting these brands. Unique consumer insights result in successful easy-to-use products supported by the largest end user web site in CCL’s industry, advertising, promotions and other brand development activities in a variety of communication mediums. Product quality, innovation and performance are recognized attributes to the success of these brands. CCL InDUStRIeS InC. 2013 Annual Report 17 m A N A gEmE N T’S DI S C U S S I O N A N D AN A L y S I S years ended December 31, 2013 and 2012 (Tabular amounts in millions of Canadian dollars, except per share data) The Company has deployed many initiatives to reduce the carbon footprint of its products and services. These range from collaborative logistic partnerships with the Company’s customers and suppliers to reduce the usage of wooden pallets and corrugated boxes. CCL continues to develop unique products that help its customers reduce their carbon footprint such as CCL’s Super Stretch Sleeves that decorate PET beverage containers without adhesive or energy and CCL’s “wash off” labels for reusable bottles, which lowers the impact of glass going to landfill. The Company’s greenfield sites are designed and constructed to specific standards to reduce CCL’s carbon footprint and some plants have adopted the use of solar power to run their facilities. business Segment Results Segment sales Label Avery Container Total sales operating income* Label Avery Container Segment operating income 2013 2012 $ 1,344.2 355.5 189.7 $ 1,126.9 — 181.7 $ 1,889.4 $ 1,308.6 $ $ 195.3 40.4 16.5 252.2 $ — $ 166.3 12.1 178.4 * This is a non-IFRS measure. Refer to “key Performance Indicators and Non-IFRS measures” in Section 5A below. Comments on business Segments The above summary includes the results of acquisitions on reported sales and operating income from the date of acquisition. Operating income in 2013 was $252.2 million, an improvement of 41.4% compared to $178.4 million in 2012. The increase in operating income was attributable to the improvements in the Label and Container Segments in 2013 compared to 2012 as well as the acquisition of the new Avery Segment on July 1, 2013. Excluding the impact of foreign currency translation, operating income increased by 38.1% over the prior year. Return on sales (a non-IFRS measure; see “key Performance Indicators and Non-IFRS measures” in Section 5A below) declined slightly to 13.3% in 2013 compared to 13.6% in 2012 reflecting the lower margins from the acquired Avery and DES businesses. b) Label Segment overview The Label Segment is the leading global producer of innovative label solutions for consumer product marketing companies in the personal and beauty care, food and beverage, household, chemical and promotional segments of the industry, and also supplies major pharmaceutical, healthcare, durable goods and industrial chemical companies. The Segment’s product lines include pressure sensitive, shrink sleeve, stretch sleeve, in-mould, precision printed and die cut metal components, expanded content labels and pharmaceutical instructional leaflets. It currently operates 79 production facilities located in Canada, the United States (including Puerto Rico), Australia, Austria, Brazil, Chile, China, Denmark, Egypt, France, germany, Italy, Japan, mexico, the Netherlands, Oman, Philippines, Poland, Russia, Saudi Arabia, Thailand, United Arab Emirates, the United kingdom and Vietnam. The three plants in Russia, four plants in the middle East, one plant in Chile and a plant in Thailand are attributable to the equity investments in CCL-kontur, Pacman-CCL, Acrus-CCL and CCL-Taisei respectively, and are included in the above locations. This Segment operates within a sector of the packaging industry made up of a very large number of competitors that manufacture a vast array of decorative, product information and identification labels. There are some label categories that do not fall within the Segment’s target market. The Company believes that the Label Segment is the largest consolidated operator in its defined global label market sectors. Competition comes from single-plant businesses, often owned by private operators that compete in local markets with CCL. There are also a few multi-plant competitors in certain regions of the world and specialists in a single market segment globally. however, there is no major competitor that has the global reach and scale of CCL Label. 18 CCL InDUStRIeS InC. 2013 Annual Report CCL Label’s mission is to be the global supply-chain leader of innovative premium package and promotional label solutions for the world’s largest consumer product, healthcare and durable goods companies. It aspires to do this from regional facilities that focus on specific customer groups, products and manufacturing technologies in order to maximize management’s expertise and manufacturing efficiencies to enhance customer satisfaction. The Label Segment is expected to continue to grow and expand its global reach through acquisitions, joint ventures and greenfield start-ups as well as expand its product offerings in segments of the label industry that it has not yet entered (see “Corporate Overview” Section 1E – “Subsequent Event”). The Company has completed several label acquisitions over the past few years that have positioned the Label Segment as a global leader within its multinational customer base in the personal care, healthcare, household, food, beverage, durable goods and specialty label categories. The Segment considers customers’ demand levels, particularly in North America and Western Europe, to be reasonably mature and, as such, will continue to focus its expansion plans on innovative and higher growth product lines within those geographies with a view to improving overall profitability. In Asia, Latin America and other emerging markets, a higher level of economic growth is expected over the coming years, and this should provide opportunities for the Segment to improve market share and increase profitability in these regions. The Segment produces labels predominantly from polyolefin films and paper partly sourced from extruding, coating and laminating companies, using raw materials primarily from the petrochemical and paper industries. CCL Label is generally able to mitigate the cost volatility of these components due to a combination of purchasing leverage, agreements with suppliers and its ability to pass on these cost increases to customers. In the label industry, price changes regularly occur as specifications are constantly changed by the marketers and, as a result, the selling price for these labels is updated, reflecting current market costs and new shapes and designs. CCL Design now represents a significant fourth component of the Label Segment. The acquisitions of INT operating in germany, and DES with operations in North America and Italy, give CCL Design a global scope to support the durable goods market. There is a close alignment in label demand to consumer staples other than CCL Design which is completely aligned to the durable goods industry. management believes the Company will attain the sales volumes, geographic distribution and reach, mirroring those of its customers over the next few years through its focused strategy and by capitalizing on following customer trends. CCL Label’s global customers are requiring more of their suppliers, expecting a full range of product offerings in more geographic regions; further integration into their supply-chain at a global level and protection of their brands, particularly in markets where counterfeiting is rife. These requirements put many of CCL’s competitors at a disadvantage, as do the investment hurdles in converting equipment and technologies to deliver products, services and innovations. Trusted and reliable suppliers are important considerations for global consumer product companies, major pharmaceutical companies and OEms in the durable goods business. This is even more important in an uncertain economic environment when many smaller competitors encounter difficulties and customers want to ensure their suppliers are financially viable. Label Segment financial Performance Sales Operating income Return on sales 2013 % growth 2012 $ 1,344.2 195.3 $ 14.5% 19.3% 17.4% $ $ 1,126.9 166.3 14.8% Sales in the Label Segment for 2013 increased to $1,344.2 million, compared to $1,126.9 million in 2012. Foreign currency translation had a favourable impact of 3.0%. Excluding foreign currency translation, the Label Segment increased 4.4% from strong organic growth and 11.9% due to the positive benefit of the INT and DES acquisitions. Excluding the DES acquisition north american sales for 2013 increased modestly compared to 2012. healthcare & Specialty sales were significantly affected by U.S. FDA sanctions at certain pharmaceutical customers, but partially offset by improvements in sales to agricultural chemical and promotional label customers. The home & Personal Care sector was mixed with strong gains in tubes more than offset by soft end markets at large customers for labels. Wine & Spirits operations grew from a small base but Sleeve sales were impacted by loss of business due to competitive predatory pricing. The DES business performed better than expected, with its results closely linked to the strong North American automotive and consumer durable market. Profitability, excluding the DES acquisition, was down single digits as the FDA sanctions in the healthcare business, start-up costs at the new Wine & Spirits plant in Sonoma and poor results in Sleeves more than offset profitability gains in the other lines of business. CCL InDUStRIeS InC. 2013 Annual Report 19 m A N A gEmE N T’S DI S C U S S I O N A N D AN A L y S I S years ended December 31, 2013 and 2012 (Tabular amounts in millions of Canadian dollars, except per share data) european sales were up mid-single digits for 2013, excluding the INT and APF acquisitions compared to 2012. The home & Personal Care business continues to make market share gains and profitability improved significantly on strong operational execution. healthcare & Specialty sales in local currencies were up slightly compared to 2012; however, profitability improved on mix and cost reductions. Results in Food & Beverage were strong on continued solid performance in Sleeves and double digit sales gains in Beverage on export orders to emerging markets. Sales almost doubled for the CCL Design business due to the acquisitions of INT and a small Italian operation coming from DES; however profitability was only up low single digits due to soft sales in the European automotive market and delays in new model supply programs. During the year management decided to downsize the small in-mould label plant in Perigueux, France, and recognized a restructuring charge of $1.5 million. Overall, European operating income increased meaningfully in absolute terms and as a percentage of sales, compared to the prior year. Latin america recorded double digit improvement in sales and profitability in 2013 inclusive of the significant currency devaluation in Brazil to the Canadian dollar. Input cost pressure due to the devaluation of the Brazilian real and mexican peso to the U.S. dollar were offset by significant market share gains and strong demand increases in both mexico and Brazil compared to 2012. A successful startup of the third plant in Brazil only partially offset incremental profitability. In full, Latin America operating income increased significantly in absolute terms and as a percentage of sales, compared to the prior year; operating margin levels in the region remain above the CCL average. asia Pacific continued to post double-digit increases in sales and operating income in 2013 compared to 2012. Operations in China delivered substantial improvement in both sales and operating income on market share gains, strong domestic demand and reduced losses at the new plant in Tianjin. ASEAN customer demand declined at certain home & Personal Care customers exporting from Thailand, but this was more than offset by increases in Specialty and Food & Beverage, as well as good results in Vietnam. Australia and South Africa experienced mixed results with profit advances in Wine & Spirits operations almost entirely offset by poor results at one of the healthcare plants that experienced revenue and profitability decline. Beverage sales to beer companies in South Africa imported from Europe and sold through our sales company were strong and the Company divested its local Wine Label manufacturing plant. Overall, the Asia Pacific region substantially increased profitability in 2013 compared to 2012. Operating income for the Label Segment, excluding the $2.1 million non-cash acquisition accounting adjustment for the fair value of the acquired DES inventory in 2013 was $197.4 million, an increase of 18.7% compared to the $166.3 million recorded in 2012. Foreign currency translation had a positive effect of 3.2% on 2013 operating income compared to 2012. Operating income as a percentage of sales was 14.5% in 2013 compared to the 14.8% return generated in the prior year and still remains at the high end of CCL’s target range. On march 25, 2013, the Company announced the creation of a home & Personal Care joint venture, CCL-Taisei, in Thailand. CCL holds a 50% equity interest in the newly established Bangkok venture dedicated to making plastic tubes for global customers. In 2013, CCL made equity investments totaling $2.5 million, which were matched by its joint venture partner. Results from the 50% joint ventures in CCL-kontur, Russia; Pacman-CCL, middle East; Acrus-CCL, Chile; and CCL-Taisei, Thailand are not proportionately consolidated into the Label Segment but instead are accounted for as equity investments. CCL’s share of the joint ventures net income is disclosed in “Earnings in Equity Accounted Investments” in the consolidated income statement. Sales at CCL- kontur improved for 2013; however, results were impacted by start-up costs at a new plant in Siberia and the significant devaluation of the ruble relative to the euro. Pacman-CCL contributed significantly to overall earnings in 2013 but profits were lower due to start-up costs at a new plant in Saudi Arabia and the political situation in Egypt. Acrus-CCL posted breakeven operating profit compared to significant start-up losses for 2012. CCL-Taisei commenced construction of its new tube plant during the second half of the year and incurred a small start-up loss. The operation is not expected to trade until late 2014. Earnings in equity accounted investments amounted to $1.9 million for 2013 compared to $2.2 million for 2012. The Label Segment invested $97.7 million in capital spending in 2013 compared to $89.4 million last year. The most significant capital investments for 2013 were for the completion of new home & Personal Care operations in Brazil and Thailand, as well as the greenfield plant in the Philippines and capacity and capability investments in Wine & Spirits. Capital expenditures in the Label Segment are expected to continue in order to increase its capabilities, expand geographically and replace or upgrade existing plants and equipment. Depreciation and amortization for the Label Segment was $98.7 million in 2013 compared to $88.1 million in 2012. 20 CCL InDUStRIeS InC. 2013 Annual Report C) avery Segment Avery is the world’s largest supplier of labels, specialty converted media and software solutions to enable short run digital printing in businesses and homes alongside complementary office products sold through distributors and mass market retailers. The products are split into two primary lines, (1) Printable media including address labels, shipping labels, marketing and product identification labels, indexes & dividers, business cards, name badges and specialty media labels supported by customized software solutions, and (2) BOPWI including binders, sheet protectors and writing instruments. The majority of products in the Printable media category are used by businesses and individual consumers consistently throughout a year; however, in the BOPWI category, North American consumers engage in the back-to-school surge during the third quarter. All products are sold under the market-leading “Avery” brand, and, with equal prominence, in german-speaking countries, under the “Zweckform” brand name that is better known by consumers in this part of Europe. Avery operates seven manufacturing and five distribution facilities globally and acquired a new building in Argentina at the end of the year which is not yet operational. Sales for Avery are principally generated in North America, Europe and Australia with a market leading position. There is a small developing presence in Latin America. Avery markets its products to consumers and small businesses through many channels that include the mass-market merchandisers, retail superstores, wholesalers, “e-tailers” and contract stationers. The business reaches consumers through marketing activities including Avery.com. Subsequent to CCL’s acquisition on July 1, 2013, Avery implemented a comprehensive restructuring plan to right size operations and the management organization. In addition to headcount reductions throughout the acquired business, the Company is reducing its North American supply chain infrastructure; notably the closure of the two facilities in massachusetts. Operations from these two facilities will be reallocated to the remaining footprint in the United States and mexico, and a new state-of-the-art manufacturing and distribution facility in Whitby, Ontario, to service the Canadian market. The corresponding restructuring charges were taken in 2013, with the majority of the initiative complete. The final elements will not be finished until the end of 2014. Although Avery remains the clear market leader in its industry, over the last decade it has experienced secular declines in its core address label and related product lines as internet-based digital communication and storage mediums have grown rapidly. It is CCL’s expectation that at some point growth in new printable media products and new markets for existing products will exceed the decline in mailing volume and re-establish a growth rate for the Segment. CCL also expects new revenue streams to open up as digital printing expands around the world. avery Segment financial Performance Sales Operating income Return on sales $ $ 2013 355.5 40.4 11.4% % growth 2012 — — $ $ — — — Sales for the Avery Segment were $355.5 million for 2013 in line with CCL’s expectation. Seasonally, the back half of a year is busier than the first six months as North American consumers engage in the back-to-school surge during the third quarter, primarily in the BOPWI category. north american sales were in line with expectations as cost reductions, price increases and new marketing initiatives improved profitability levels in the Printable media sector. The BOPWI category makes all of its profits in the third quarter due to the seasonal back-to-school volume surge, but is unprofitable in all the other quarters. Excluding the non-cash acquisition accounting charge to fair value the finished goods inventory and other cost reduction initiatives, the North American business posted a better return on sales for 2013 than expected prior to the close of the transaction. International sales are mostly generated from products in the Printable media category. Sales in these geographies were approximately 20% of the total with the vast majority in Europe and Australia. Sales and profits were in line with expectations prior to the close of the transaction. Operating income for 2013 was $40.4 million. For the year, operating income would have been $55.0 million but was impacted by the $14.6 million non-cash acquisition accounting adjustment to fair value the finished goods inventory. The Avery Segment invested $12.3 million in capital spending for the six months ending December 31, 2013. The expenditures were information technology related, in order to decouple the business from the former parent, Avery Dennison Corporation; and the purchase of a new building to operate the business in Argentina. Depreciation and amortization for the Avery Segment was $6.6 million for the six-month period ended December 31, 2013. CCL InDUStRIeS InC. 2013 Annual Report 21 m A N A gEmE N T’S DI S C U S S I O N A N D AN A L y S I S years ended December 31, 2013 and 2012 (Tabular amounts in millions of Canadian dollars, except per share data) D) Container Segment overview The Container Segment is a leading manufacturer of aluminum specialty containers for the consumer products industry in North America, including mexico. The key product line is recyclable aluminum aerosol cans for the personal care, home care and cosmetic industries, plus shaped aluminum bottles for the beverage market. The Segment functions in a competitive environment, which includes imports and the ability of customers, in some cases, to shift a product to competing alternative technology. The Container Segment currently operates from four plants, one each in the United States and Canada and two in mexico. The Canadian operation for the last number of years has exported its entire output to the United States while posting operating losses since the economic downturn in 2009. During the fourth quarter of 2013 the decision was made to close the Canadian operation and redistribute the sales volume to the existing Container operations. Therefore the immediate plan for this Segment is to focus on improving overall profitability in the United States and growing CCL’s presence in mexico, while investing in the necessary infrastructure to absorb the Canadian operation. Product innovation remains a strategic focus for the Segment, investing significant resources in the development of innovatively shaped and highly decorated containers for existing and new customer applications. As the demand for these new, higher-value products has grown, the Segment has adapted existing production equipment and acquired new technology in order to meet expected overall market requirements and to maximize manufacturing efficiencies. Aluminum represents a significant variable cost for this Segment. Aluminum is a commodity that is supplied by a limited number of global producers and is traded in the market by financial investors and speculators. Aluminum prices have been extremely volatile in the past few years. Aluminum prices have continued to have the largest impact on manufacturing costs for the Container Segment and thereby requires increased focus on managing selling prices to CCL’s customers. Aluminum trades as a commodity on the LmE and the Container Segment in 2009 successfully introduced pricing mechanisms in its customer contracts that pass through the fluctuations in the cost of aluminum to its customers. In specific situations, the Container Segment will hedge some of its anticipated future aluminum purchases using futures contracts on the LmE if they are matched to specific fixed-price customer contracts. The Segment hedged 26.0% of its 2013 volume but has only hedged 18.2% of its expected 2014 requirements, and all, including matured 2013 hedges, were matched to fixed-price customer contracts. Existing hedges are priced in the US$1,700 to US$2,100 range per metric ton. The unrealized loss on the aluminum futures contracts as at December 31, 2013, was $0.6 million. Pricing for aluminum in 2013 ranged from US$1,600 to US$2,200 per metric ton, compared to US$1,900 to US$2,500 per metric ton in 2012. management believes that the aluminum container business can continue to improve levels of profitability in the coming years with increased demand, continued pricing discipline and by driving greater operational efficiencies with a newly reorganized manufacturing footprint in the United States and mexico. The aluminum container continues to be generally perceived as more esthetically pleasing by customers and consumers compared to tin plate containers. The biggest risk for the Segment’s business base relates to customers shifting their products into containers of other materials such as steel, glass or plastic, leading to a loss in market share. however, certain products and delivery systems can only be provided in an aluminum container. The relative cost of steel versus aluminum containers sometimes impacts the marketers’ choice of container and may cause volume gains or losses if customers decide to change from one product form to another. Aluminum costs remain the key factor in determining the level of growth in the market. In North America, there are two direct competitors in the United States and one in mexico in the impact-extruded aluminum container business. CCL believes that it is approximately the same size as its key United States competitor in the aerosol market and has about 50% market share. Other competition comes from South American, Asian and European imports; however, currency exchange rates and logistical issues, such as delivery lead times and costs, significantly impact their competitiveness. The success of new products promoted heavily in the market will have a material impact on the Segment’s sales and profitability. Beverage products packaged in CCL’s shaped re-sealable aluminum bottles, for example, are directly impacted by the success or failure of these new products in the market. Another growth opportunity is the possibility of acquiring market share from competitors in existing product lines. 22 CCL InDUStRIeS InC. 2013 Annual Report The plant in guanajuato, mexico, continues to grow as many global marketers that use aluminum containers have moved production of these products to mexico to achieve cost and logistics savings. Container Segment financial Performance Sales Operating income Return on sales $ $ 2013 189.7 16.5 8.7% % growth 4.4% 36.4% $ $ 2012 181.7 12.1 6.7% For 2013, the Container Segment posted sales of $189.7 million, an increase of 4.4% compared to $181.7 million in 2012. Foreign currency translation had a 2.9% positive impact on sales for 2013 compared to 2012. The Container Segment improved sales through better mix in the United States and solid market share gains in the mexican operations, partially offset by a decline in comparative aluminum prices passed through to customers. The Container Segment for 2013 posted operating income of $16.5 million, an increase of 36.4% compared to $12.1 million for 2012. The drivers of the operating income improvement were strong operational performances in the U.S. and mexican plants, partially offset by continuing operating losses at the Canadian operation. Return on sales improved to 8.7% for 2013 compared to 6.7% for 2012. During the fourth quarter the Container Segment recorded an $11.0 million restructuring charge for severance and asset write-downs to close the Canadian operations. The Company has budgeted a further $4.0 million of move costs to be recorded in 2014. Subsequent to the closure of the Canadian facility and redistribution of the business to the remaining plants, which is slated for completion by mid- 2015, management expects annualized operating improvements totaling $10.0 million. The Container Segment invested $6.0 million of capital in 2013 compared to $4.2 million last year. All of the 2013 expenditures were maintenance capital in nature. Depreciation and amortization in 2013 and 2012 were $14.1 million and $13.7 million, respectively. It is management’s expectation that capacity and infrastructure additions will total $25.0 million over the next two years to accommodate the redistribution of the Canadian operations to the United States and mexico. 3 . fIn a nC In g a nD R I S K m a n a g e m e n t a) Liquidity and Capital Resources The Company’s capital structure is as follows: Current debt Long-term debt Total debt* Cash and cash equivalents Net debt* Equity Net debt to total book capitalization* Dec 31, 2013 47.0 665.0 712.0 (209.1) $ $ $ $ $ 502.9 $ 1,018.1 Dec 31, 2012 84.7 244.3 329.0 (189.0) 140.0 887.2 $ $ $ $ $ $ 33.1% 13.6% * Total debt, net debt and net debt to total book capitalization are non-IFRS measures. See “key Performance Indicators and Non-IFRS measures” in Section 5A below. The Company’s debt structure at December 31, 2013, was comprised of three private debt placements completed in 1998, 2006 and 2008 for a total of US$239.0 million (C$254.2 million). During the second quarter of 2013, the Company increased its bilateral revolving line of credit from $200.0 million to US$460.0 million and the expiration date was set to July 2, 2013. On July 2, 2013, subsequent to the completion of the acquisition of Avery and DES, the Company’s new syndicated $400.0 million non-revolving and $300.0 million revolving facility replaced the bilateral arrangement. The Company drew down US$300.0 million and EUR61.6 million on the non- revolving facility and US$73.4 million on the revolving facility. In the third quarter of 2013, the Company drew down an additional US$84.7 million on the revolving facility to make its scheduled private placement debt repayments. In addition to US$20.0 million of repayments against the non-revolving facility, the Company’s made repayments of US$102.1 million against the revolving facility in 2013. There are no private placement repayments coming due in the next year and the Company expects to repay the $10.0 million of non-revolving debt coming due at the end of each quarter next year from its internal cash sources. CCL InDUStRIeS InC. 2013 Annual Report 23 m A N A gEmE N T’S DI S C U S S I O N A N D AN A L y S I S years ended December 31, 2013 and 2012 (Tabular amounts in millions of Canadian dollars, except per share data) Net debt (a non-IFRS financial measure; see “key Performance Indicators and Non-IFRS measures” in Section 5A below) was $502.9 million at December 31, 2013, $362.9 million higher than the net debt of $140.0 million at December 31, 2012. The increase in net debt was primarily attributable to $447.6 million of additional debt drawn on the Company’s syndicated credit facility to fund the acquisition of the Avery and DES businesses. Net debt to total book capitalization (a non-IFRS measure; see “key Performance Indicators and Non-IFRS measures” in Section 5A below) was 33.1% as at December 31, 2013, compared to 13.6% at the end of 2012, due to the aforementioned increase in net debt, but still within the Company’s acceptable target. Further information on equity follows in Section 3D. The Company’s overall average finance rate was 3.4% as at December 31, 2013, compared to 6.2% as at December 31, 2012. The decline in the average finance rate was caused by the lower interest rates applicable to the $447.6 million of additional debt drawn on the Company’s syndicated credit facilities, compared principally to the Company’s average private placement interest rates at December 31, 2012. Interest coverage (a non-IFRS measure; see “key Performance Indicators and Non-IFRS measures” in Section 5A below) continues at a high level, and was 8.5 times and 7.3 times in 2013 and 2012, respectively, despite higher net finance costs in 2013. The Company’s committed credit availability at December 31, 2013, was as follows: Lines of credit – committed, unused Standby letters of credit outstanding Total amounts available $ 240.5 (3.7) $ 236.8 In addition, the Company had uncommitted and unused lines of credit of approximately US$10.7 million at December 31, 2013. The Company’s uncommitted lines of credit do not have a commitment expiration date and may be cancelled at any time by the Company or the banks. The Company’s approach to managing liquidity risk is to ensure that it will always have sufficient liquidity to meet liabilities when they are due. The Company believes its liquidity will be satisfactory for the foreseeable future due to its significant cash balances, its expected positive operating cash flow and the availability of its unused revolving credit line. The Company anticipates funding all of its future commitments from the above sources but may raise further funds by entering into new debt financing arrangements or issuing further equity to satisfy its future additional obligations or investment opportunities. b) Cash flow Summary of Cash flows Cash provided by operating activities Cash provided by (used in) financing activities Cash used for investing activities Effect of exchange rates on cash Increase in cash and cash equivalents Cash and cash equivalents – end of year 2013 333.7 314.5 (642.3) 14.2 20.1 209.1 $ $ $ $ $ $ 2012 199.3 (46.3) (103.6) (1.1) 48.3 189.0 In 2013, cash provided by operating activities was $333.7 million, compared to $199.3 million in 2012. Free cash flow from operations (a non-IFRS measure; see “key Performance Indicators and Non-IFRS measures” in Section 5A below) reached $219.7 million for 2013 compared to $107.2 million in the prior year. The increase in operating cash flow and free cash flow from operations was primarily due to the increased cash flows attributable to the acquisitions of Avery and DES. The Company maintains a rigorous focus on its investment in non-cash working capital. Days of working capital employed (a non-IFRS measure; see “key Performance Indicators and Non-IFRS measures” in Section 5A below) were 11 and 15 at December 31, 2013, and December 31, 2012, respectively. 24 CCL InDUStRIeS InC. 2013 Annual Report Cash provided by financing activities in 2013 was $314.5 million, consisting of borrowings of $566.8 million primarily on the Company’s new syndicated credit facility, proceeds from the issuance of stock options of $16.9 million partially offset by repayments of debt of $223.0 million, repurchase CCL shares of $3.0 million and payment of dividends of $29.4 million. Cash used for investing activities in 2013 of $642.3 million was primarily for the acquisitions of Avery, DES, INT and APF totaling $528.3 million, and capital expenditures of $116.1 million (see below). Consequently, cash and cash equivalents increased by $20.1 million in 2013 to $209.1 million. Capital spending in 2013 amounted to $116.1 million compared to $93.6 million in 2012. This spending is in line with annual depreciation and reflects the planned expenditures for the year. Prior to 2009, the level of spending was significantly higher in order to take advantage of new market opportunities and to create a global, world-class manufacturing platform in the Label Segment. Capital expenditures in 2014 are planned at levels higher than 2013 to accommodate the significance of the acquisitions made in this year, but still below annual depreciation expense. The Company is continuing to seek investment opportunities to expand its business geographically, add capacity in its facilities and improve its competitiveness. As in previous years, capital spending will be monitored closely and adjusted based on the level of cash flow generated. Depreciation and amortization in 2013 amounted to $120.2 million, compared to $102.6 million in 2012. C) Interest Rate, foreign exchange management and other Hedges The Company periodically uses derivative financial instruments to hedge interest rate, foreign exchange and aluminum cost risks. The Company does not utilize derivative financial instruments for speculative purposes. As CCL operates internationally and only approximately 5% of its 2013 sales to end-use customers were denominated in Canadian dollars, the Company has exposure to market risks from changes in foreign exchange rates. The Company partially manages these exposures by contracting primarily in Canadian dollars, euros, U.k. pounds and U.S. dollars. Additionally, each subsidiary’s sales and expenses are primarily denominated in its local currency, further minimizing the foreign exchange impact on the operating results. The Company had periodically hedged a portion of its expected U.S. dollar cash inflows derived from sales into the United States from the Canadian operations, principally the Container plant in Penetanguishene, Ontario. The Company has not utilized forward contracts since 2009 and has not entered into any forward hedges for 2014. The Company also has exposure to market risks related to interest rate fluctuations on its debt. To mitigate this risk, the Company maintains a combination of fixed and floating rate debt. The Company uses interest rate swap agreements (“IRSAs”) to allocate notional debt between fixed and floating rates. The Company believes that a balance of fixed and floating rate debt can reduce overall interest expense and is in line with its investment in short-term assets such as working capital and long-term assets such as property, plant and equipment. During the third quarter of 2013, the Company entered into an IRSA to convert US$80.0 million of floating rate debt (hedging a portion of the non-revolving syndicated credit facility) into fixed rate debt as the majority of the Company’s debt is floating rate debt. This IRSA expires in September 2016. In 2003, the Company entered into an IRSA to convert a tranche of fixed rate debt to floating rate debt as the majority of the Company’s debt was fixed rate debt with U.S. financial institutions. This IRSA converted US$42.1 million of fixed rate debt (hedging 50% of the 1997 senior notes) into floating rate debt, based on three-month LIBOR. The notional amount of this IRSA decreased by US$4.7 million annually to match the decrease in the principal of the underlying senior notes. This IRSA expired on the final payment of the 1997 private placement in September of 2012. As the Company has developed into a global business, its financing strategy has been to leverage and hedge the assets and cash flows of each major country with debt denominated in the local currency. Since the Company has been primarily borrowing from U.S. institutions in U.S. dollars, the hedging of U.S. operations has been achieved. The Company has significantly increased its euro-based assets and, consequently, has used cross-currency interest rate swap agreements (“CCIRSAs”) as a means to convert U.S. dollar debt into euro debt to hedge a portion of its euro-based investment and cash flows. In 2006, the Company entered into two CCIRSAs with a Canadian financial institution, the effect of which was to convert US$28.1 million of 6.97% fixed rate debt (hedging 50% of the 1997 senior notes) into EUR21.3 million of floating rate debt, based on six-month EURIBOR. The notional amount of the euro leg decreased by EUR3.6 million annually, with the U.S. dollar-denominated leg decreasing by US$4.7 million annually to match the decrease in the principal of the underlying senior notes. This CCIRSA expired on the final payment of the 1997 private placement in September of 2012. CCL InDUStRIeS InC. 2013 Annual Report 25 m A N A gEmE N T’S DI S C U S S I O N A N D AN A L y S I S years ended December 31, 2013 and 2012 (Tabular amounts in millions of Canadian dollars, except per share data) The Company is potentially exposed to credit risk arising from derivative financial instruments if a counterparty fails to meet its obligations. CCL’s counterparties are large international financial institutions and, to date, no such counterparty has failed to meet its financial obligations to the Company. As at December 31, 2012, the Company’s exposure to credit risk arising from derivative financial instruments was nil. The effect of interest on these swap agreements was to increase net finance cost by $0.2 million in 2013 (2012 – reduced by $0.2 million). In July of 2013, the Company drew down EUR61.6 million under the new non-revolving credit facility to hedge a portion of its euro-based investment and cash flows. The only other material hedges in which the Company is involved are the aluminum futures contracts discussed in Section 2D: “Container Segment.” D) equity and Dividends Summary of Changes in equity For the years ended December 31 Net earnings Dividends Settlement of exercised stock options and executive share loans Purchase of shares held in trust, net of shares released Contributed surplus on expensing of stock options and stock-based compensation plans Book value of minority interest over purchase price Normal course issuer bid Defined benefit plan actuarial losses, net of tax Increase (decrease) in accumulated other comprehensive loss Increase in equity Equity Shares issued at December 31 – Class A (000s) – Class B (000s) Book value per share* $ 2013 103.6 (29.4) 20.1 (9.2) 2.3 — (3.0) (0.8) 47.3 $ 130.9 $ 1,018.1 2,368 32,021 29.78 $ 2012 97.5 (26.0) 3.9 4.1 (0.4) 0.6 — (3.0) (6.4) 70.3 887.2 2,369 31,451 26.35 $ $ $ $ * This is a non-IFRS measure; see “key Performance Indicators and Non-IFRS measures” in Section 5A below. On march 21, 2013, the Company announced a share repurchase program under a normal course issuer bid to purchase up to 2.1 million Class B non-voting shares, approximately 8.3% of the public float. As of December 31, 2013, the Company had repurchased 50,000 Class B shares for cancellation. In 2013, the Company declared dividends of $29.4 million, compared to $26.0 million declared in the prior year. As previously discussed, the dividend payout ratio in 2013 was 20% (27% in 2012) of adjusted earnings and below the Company’s targeted payout rate of approximately 25% of adjusted earnings. however, after careful review of the current year’s results and considering the cash flow and income budgeted for 2014, the CCL Board of Directors declared a 16% increase in the dividend; three and one half cents per Class B share per quarter, from $0.215 to $0.25 per Class B share ($1.00 per Class B share annualized). Book value per share (a non-IFRS measure; see “key Performance Indicators and Non-IFRS measures” in Section 5A below) as at December 31, 2013, was $29.78 compared to $26.35 at December 31, 2012. 26 CCL InDUStRIeS InC. 2013 Annual Report — — — — — — — — — — — — 10.0 24.1 e) Commitments and other Contractual obligations The Company’s obligations relating to debt, leases and other liabilities at the end of 2013 were as follows: Dec 31, 2012 Carrying Amount Carrying Amount Contractual Cash Flows 0–6 months 6–12 months Non-derivative financial liabilities Secured bank loans Unsecured bank loans Unsecured senior notes Finance lease liabilities Unsecured bank credit facility Other long-term obligations $ 1.4 8.9 316.7 1.9 — 0.1 $ 3.9 $ 4.9 253.7 0.7 447.6 1.2 3.9 4.9 254.2 0.7 447.6 1.2 $ $ 0.7 1.5 — 0.2 20.0 0.2 $ 0.7 3.4 — 0.1 20.0 0.2 1–2 years 1.2 — — 0.3 40.0 0.4 Dec 31, 2013 Payments Due by Period 2–5 years More than 5 years $ $ 1.3 — 254.2 0.1 367.6 0.4 Interest on unsecured senior notes Interest on unsecured bank credit facility Interest on other long-term debt Trade and other payables Derivative financial liabilities Outflow – CF hedges Interest on derivatives Accrued post-employment benefit liabilities Operating leases Total contractual cash obligations * * 52.4* 2.5 — — 226.2 — — 475.8 27.6* 0.8 475.8 3.0 0.3 475.8 0.4 * * — 1.4 * * — 0.6 1.8* 23.8* 70.6 0.4 0.3 0.7 6.0 8.0 4.1 0.2 — 0.2 0.3 0.7 6.0 15.9 26.0 8.2 0.2 — — 0.7 3.1 10.2 12.3 0.1 — — 0.5 9.3 24.3 $ 555.6 $ 1,189.2 $ 1,365.9 $ 511.6 $ 43.9 $ 80.2 $ 696.1 $ 34.1 * Accrued long-term employee benefit and post-employment benefit liability of $2.6 million, accrued interest of $6.5 million on unsecured senior notes and syndicated credit facility and accrued interest of nil on derivatives are reported in trade and other payables in 2013 (2012: $2.1 million, $6.8 million and nil, respectively). Defined benefit Post-employment Plan obligations The Company is the sponsor of a number of defined benefit plans in nine countries that give rise to accrued post-employment benefit obligations. The accrued benefit obligation for these plans at the end of 2013 was $123.2 million (2012 – $99.1 million) and the fair value of the plan assets was $25.1 million (2012 – $21.7 million), for a net deficit of $98.1 million, compared to $77.4 million at the end of 2012. In 2013 and 2012, the Company’s net earnings were $103.6 million and $97.5 million, respectively. At the end of 2013, the Company had $209.1 million of cash and cash equivalents on hand and significant unused lines of credit. Compared to the Company’s other financial obligations and its current financial resources, described above, these post-employment plan obligations are relatively small. In addition, the Company is not adding new members to the U.k. and Canadian plans so the risk of future growth in the liability of the plans and related financial exposure is materially reduced over time. The Company records all defined benefit post-employment plan actuarial gains or losses in other comprehensive income immediately. Certain key assumptions have been made to determine the accrued benefit obligation, future funding requirements and plan expenses. They are as follows and vary based on the country location and plan specifics: • Discount rate: 1.8% to 8.3% • Rate of compensation increase: 2.0% to 6.0% CCL InDUStRIeS InC. 2013 Annual Report 27 m A N A gEmE N T’S DI S C U S S I O N A N D AN A L y S I S years ended December 31, 2013 and 2012 (Tabular amounts in millions of Canadian dollars, except per share data) There are four significant components to the defined benefit post-employment plans: 1) The Canadian executive plans consist of one registered plan and three unfunded supplemental plans that provide for pensions to the executives in the registered plan but for amounts above the maximum benefit provided by the registered plan. The registered plan had $5.0 million in assets and a net deficit of $3.6 million at the end of 2013 ($4.5 million and $4.1 million, respectively, at the end of 2012). The net deficit of the unfunded supplemental plans was $18.4 million at the end of 2013 (2012 – $17.7 million). The Company anticipates paying these obligations over time out of cash on hand and cash generated from operations. 2) The unfunded U.S. deferred compensation plan had an accrued liability of $36.2 million at December 31, 2013 (2012 – $31.6 million). The Company anticipates paying these obligations over time out of cash on hand and cash generated from operations. 3) The U.k. plan had $20.0 million in plan assets and a net deficit of $8.9 million at the end of 2013 (2012 – $17.3 million and $8.3 million, respectively). There are no active employees enrolled as members of the plan as all of the members of the plan were employed by businesses previously owned by CCL. Consequently, the plan is capped with the exception of inflationary pension increases, movements in the actuarial liabilities of plan members and the market value of the assets of the plan. The Company continues to investigate ways to unwind this plan over time, including increasing its annual contributions. The Company anticipates that it will fund its obligation out of cash on hand and cash generated by operations in future years. 4) In germany, there are three salary-based annuity plans that are closed to new membership. There are only 11 active members remaining in these plans. There are also three cash balance plans for current employees. Two of these plans account for approximately half of the liability of the german plans. The german plans combined had a net deficit of $21.5 million at the end of 2013 (2012 – $8.7 million). The increase in the net deficit can be attributed to the additional plans associated with the Avery acquisition. The Company anticipates paying these obligations over time out of cash on hand and cash generated from operations. In 2013, pension expense for all of the plans was $5.1 million ($4.0 million in 2012) and funding was $3.1 million ($3.1 million in 2012). Actuarial losses recognized directly in equity in 2013 were $0.9 million ($3.6 million in 2012). The Company believes that its current financial resources combined with its expected future cash flows from operations will be sufficient to satisfy the obligations under these plans in future years even if there are unfavourable developments related to the key assumptions made to determine future funding requirements. other obligations and Commitments The Company has no material “off-balance sheet” financing obligations except for typical long-term operating lease agreements. The nature of these commitments is described in note 25 of the consolidated financial statements. Additionally, a majority of the Company’s post-employment obligations are defined contribution pension plans. There are no defined benefit plans funded with CCL stock. f) Controls and Procedures Disclosure controls and procedures are designed to provide reasonable assurance that all relevant information is gathered and reported to senior management, including the President and Chief Executive Officer (“CEO”) and the Senior Vice President and Chief Financial Officer (“CFO”), on a timely basis so that appropriate decisions can be made regarding public disclosure. CCL’s Disclosure Committee reviews all external reports and documents of CCL before publication to enhance the Company’s disclosure controls and procedures. As at December 31, 2013, based on the continued evaluation of the disclosure controls and procedures, the CEO and the CFO have concluded that CCL’s disclosure controls and procedures, as defined in National Instrument 52-109 Certificate of Disclosure in Issuers Annual and Interim Filings (“NI 52-109”), are effective to ensure that information required to be disclosed in reports and documents that CCL files or submits under Canadian securities legislation is recorded, processed, summarized and reported within the time periods specified. Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. management is responsible for establishing and maintaining adequate internal control over financial reporting. NI 52-109 requires CEOs and CFOs to certify that they are responsible for establishing and maintaining internal control over financial reporting for the issuer, that internal control has been designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with IFRS, that the internal control over financial reporting is effective, and that the issuer has disclosed any changes in its internal control during its most recent interim period that has materially affected or is reasonably likely to materially affect its internal control over financial reporting. 28 CCL InDUStRIeS InC. 2013 Annual Report Based on the evaluation of the design and operating effectiveness of CCL’s internal control over financial reporting, the CEO and the CFO concluded that the Company’s internal control over financial reporting was effective as at December 31, 2013. There were no material changes in internal control over financial reporting in the financial year ended December 31, 2013. 4 . R I S K S a nD UnCeR taIn tIeS The Company is subject to the usual commercial risks and uncertainties from operating as a Canadian public company and as a supplier of goods and services to the non-durable consumer packaging and consumer durables industries on a global basis. A number of these potential risks and uncertainties that could have a material adverse effect on the business, financial condition and results of operations of the Company are as follows: Uncertainty Resulting from Sustained global economic Crisis The Company is dependent on the global economy and overall consumer confidence, disposable income and purchasing trends. A global economic downturn or period of economic uncertainty can erode consumer confidence and may materially reduce consumer spending. Any decline in consumer spending may negatively affect the demand for customers’ products. This decline directly influences the demand for the Company’s packaging components used in its customers’ products, and may negatively affect the Company’s consolidated earnings. The global economic conditions have affected interest rates and credit availability, which may have a negative impact on earnings from higher interest costs or the inability to secure additional indebtedness to fund operations or refinance maturing obligations as they come due. In addition, the sustained global economic crisis may have an unpredictable adverse impact on the Company’s suppliers of manufacturing equipment and raw materials, which in turn may have a negative impact on the availability of manufacturing equipment and the cost of raw materials. Although the Company has a strong statement of financial position, diverse businesses and a broad geographic presence, it may not be able to manage a reduction in its earnings and cash flow that may arise from lower sales, increased cost of raw materials and decreased profits if the global economic environment deteriorates for an extended period. Potential Risks Relating to Significant operations in foreign Countries The Company operates plants in North America, Europe, Latin America, Asia, Australia and the middle East. Sales to customers located outside of Canada in 2013 were 95% of the Company’s total sales, a level similar to that in 2012. Non-Canadian operating results are translated into Canadian dollars at the average exchange rate for the period covered. The Company has significant operating bases in both the United States and Europe. In 2013, 48% and 29% of total sales were to customers in United States and Europe, respectively. The Company’s operating results and cash flows could be negatively impacted by slower or declining growth rates in these key markets. The sales from business units in Latin America, Asia, South Africa and Australia in 2013 were 18% of the Company’s total sales. In addition, the Company has equity accounted investments in Chile, Russia and the middle East. There are risks associated with operating a decentralized organization in 91 facilities in countries around the world with a variety of different cultures and values. Operations outside of Canada, the United States and Europe are perceived generally to have greater political and economic risks and include CCL’s operations in Latin America, Asia, Russia and the middle East. These risks include, but are not limited to, fluctuations in currency exchange rates, inflation, unexpected changes in foreign law and regulations, government nationalization of certain industries, currency controls, potential adverse tax consequences and locally accepted business practices and standards that may not be similar to accepted business practices and standards in North America and Europe. Although the Company has controls and procedures intended to mitigate these risks, these risks cannot be entirely eliminated and may have a material adverse effect on the consolidated financial results of the Company. Competitive environment The Company faces competition from other suppliers in all the markets in which it operates. There can be no assurance that the Company will be able to compete successfully against its current or future competitors or that such competition will not have a material adverse effect on the business, financial condition and results of operations of the Company. This competitive environment may preclude the Company from passing on higher material, labour and energy costs to its customers. Any significant increase in in-house manufacturing by customers of the Company could adversely affect the business, financial condition and results of operations of the Company. In addition, the Company’s consolidated financial results may be negatively impacted by competitors developing new products or processes that are of superior quality, fit CCL’s customers’ needs better, or have lower costs; or by consolidation within CCL’s competitors or further pricing pressure on the industry by the large retail chains. CCL InDUStRIeS InC. 2013 Annual Report 29 m A N A gEmE N T’S DI S C U S S I O N A N D AN A L y S I S years ended December 31, 2013 and 2012 (Tabular amounts in millions of Canadian dollars, except per share data) Sustainability of Profitability of the Container Segment The Company’s Container Segment operated at a substantial loss in 2009 and 2010; however, it posted a return to profitability in 2011 and continued its uptrend in 2012 and 2013. The main drivers of the previous losses were largely due to the higher sales mix of low-margin household products, the effect of the weaker U.S. dollar, and the negative impact of aluminum hedges and lower volumes. If the Segment is not able to sustain increased prices to maintain and improve its margins, pass cost increases on to its customers, improve operations, and maintain and grow sales volumes to utilize production capacity, this could have a material adverse effect on the business, financial condition and results of operations of the Company. In addition, foreign currency could have a material adverse effect on the Container Segment’s results, as the Canadian plant sells almost all of its production to the U.S. market in U.S. dollars. Lastly, the Container Segment has commenced a restructuring plan that encompasses the closure of its Canadian operations and redistribution of its operations to the Segment’s other locations in the United States and mexico. The success or failure of this restructuring initiative could have a material impact on the financial condition and results of operations of the Company. foreign exchange exposure and Hedging activities Sales of the Company’s products to customers outside Canada account for 95% of the revenue of the Company. Because the prices for such products are quoted in foreign currencies, any increase in the value of the Canadian dollar relative to such currencies, in particular the U.S. dollar and the euro, reduces the amount of Canadian dollar revenues and operating income reported by the Company in its consolidated financial statements. The Company also buys inputs for its products in world markets in several currencies. Exchange rate fluctuations are beyond the Company’s control and there can be no assurance that such fluctuations will not have a material adverse effect on the reported results of the Company. The use of derivatives to provide hedges of certain exposures, such as interest rate swaps, forward foreign exchange contracts and aluminum futures contracts could impact negatively on the Company’s operations. Retention of Key Personnel and experienced Workforce management believes that an important competitive advantage of the Company has been, and will continue to be, the know-how and expertise possessed by its personnel at all levels of the Company. While the machinery and equipment used by the Company are generally available to competitors of the Company, the experience and training of the Company’s workforce allows the Company to obtain a level of efficiency and a level of flexibility that management believes to be high relative to levels in the industries in which it competes. To date, the Company has been successful in recruiting, training and retaining its personnel over the long-term, and while management believes that the know-how of the Company is widely distributed throughout the Company, the loss of the services of certain of its experienced personnel could have a material adverse effect on the business, financial condition and results of operations of the Company. The operations of the Company are dependent on the abilities, experience and efforts of its senior management team. To date, the Company has been successful in recruiting and retaining competent senior management. Loss of certain members of the executive team of the Company could have a disruptive effect on the implementation of the Company’s business strategy and the efficient running of day-to-day operations. This could have a material adverse effect on the business, financial condition and results of operations of the Company. acquired businesses As part of its growth strategy, the Company continues to pursue acquisition opportunities where such transactions are economically and strategically justified. however, there can be no assurance that the Company will be able to identify attractive acquisition opportunities in the future or have the required resources to complete desired acquisitions, or that it will succeed in effectively managing the integration of acquired businesses. The failure to implement the acquisition strategy, to successfully integrate acquired businesses or joint ventures into the Company’s structure, or to control operating performance and achieve synergies may have a material adverse effect on the business, financial condition and results of operations of the Company. In addition, there may be liabilities that the Company has failed or was unable to discover in its due diligence prior to the consummation of the acquisition. In particular, to the extent that prior owners of acquired businesses failed to comply with or otherwise violated applicable laws, including environmental laws, the Company, as a successor owner, may be financially responsible for these violations. A discovery of any material liabilities could have a material adverse effect on the business, financial condition and results of operations of the Company. 30 CCL InDUStRIeS InC. 2013 Annual Report Integration and Restructuring of oCP and DeS Subsequent to the acquisition of OCP and DES on July 1, 2013, CCL announced and began implementation of a comprehensive integration and restructuring initiative for the acquired businesses. however, given the size of the acquisition, significant difficulties may be encountered during the integration and restructuring process. These difficulties include but are not limited to: • the integration and restructuring of OCP and DES while carrying on the existing CCL businesses; • the need to restructure the production facilities from a centralized operating model to discrete business units; • the challenges involved in combining different company cultures; • the learning curve, data changeover and costs associated with new information technology systems; and, • the difficulties new executives have managing a new workforce. A failure to integrate and restructure the acquired businesses in a timely and effective manner could have a material adverse effect on the business, financial condition and results of operations of the Company. Long-term growth Strategy The Company has experienced significant and steady growth since the global economic downturn of 2009. The Company’s organic growth initiatives coupled with its international acquisitions over the last number of years can place a strain on a number of aspects of its operating platform including: human infrastructure, operational capacity and information systems. The Company’s ability to continually adapt and augment all aspects of its operational platform is critical to realizing its long-term growth strategy. If the Company cannot adjust to its anticipated growth, results of operations may be materially adversely affected. exposure to Income tax Reassessments The Company operates in many countries throughout the world. Each country has its own income tax regulations and many of these countries have additional income and other taxes applied at state, provincial and local levels. The Company’s international investments are complex and subject to interpretation in each jurisdiction from a legal and tax perspective. The Company’s tax filings are subject to audit by local authorities and the Company’s positions in these tax filings may be challenged. The Company may not be successful in defending these positions and could be involved in lengthy and costly litigation during this process and could be subject to additional income taxes, interest and penalties. The Company may not be able to receive a tax benefit from its taxable losses in domestic or foreign jurisdictions, depending on the timing and extent of such losses. This outcome could have a material adverse effect on the business, financial condition and results of operations of the Company. fluctuations in operating Results While the Company’s operating results over the past several years have indicated a general upward trend in sales and net earnings, operating results within particular product forms, within particular facilities of the Company and within particular geographic markets have undergone fluctuations in the past and, in management’s view, are likely to do so in the future. Operating results may fluctuate in the future as a result of many factors in addition to global economic conditions, which include the volume of orders received relative to the manufacturing capacity of the Company, the level of price competition (from competing suppliers both in domestic and in other lower-cost jurisdictions), variations in the level and timing of orders, the cost of raw materials and energy, the ability to develop innovative solutions and the mix of revenue derived in each of the Company’s businesses. Operating results may also be impacted by the inability to achieve planned volumes through normal growth and successful renegotiation of current contracts with customers and by the inability to deliver expected benefits from cost reduction programs derived from the restructuring of certain business units. Any of these factors or a combination of these factors could have a material adverse effect on the business, financial condition and results of operations of the Company. Insurance Coverage management believes that insurance coverage of the Company’s facilities addresses all material insurable risks, provides coverage that is similar to that which would be maintained by a prudent owner/operator of similar facilities and is subject to deductibles, limits and exclusions that are customary or reasonable given the cost of procuring insurance and current operating conditions. however, there can be no assurance that such insurance will continue to be offered on an economically feasible basis or at current premium levels, that the Company will be able to pass through any increased premium costs or that all events that could give rise to a loss or liability are insurable, or that the amounts of insurance will at all times be sufficient to cover each and every loss or claim that may occur involving the assets or operations of the Company. CCL InDUStRIeS InC. 2013 Annual Report 31 m A N A gEmE N T’S DI S C U S S I O N A N D AN A L y S I S years ended December 31, 2013 and 2012 (Tabular amounts in millions of Canadian dollars, except per share data) Dependence on Customers The Company has a modest dependence on certain customers. The Company’s largest customer accounted for approximately 9% of consolidated revenue for fiscal 2013. The five largest customers of the Company represented approximately 31% of the total revenue for 2013 and the largest 15 customers represented approximately 45% of the total revenue. Several hundred customers make up the remainder of total revenue. Although the Company has strong partnership relationships with its customers, there can be no assurance that the Company will maintain its relationship with any particular customer or continue to provide services to any particular customer at current levels. A loss of any significant customer, or a decrease in the sales to any such customer, could have a material adverse effect on the business, financial condition and results of operations of the Company. Consolidation within the consumer products marketer base and office retail superstores could have a negative impact on the Company’s business, depending on the nature and scope of any such consolidation. environmental, Health and Safety Requirements and other Considerations The Company is subject to numerous federal, provincial, state and municipal statutes, regulations, by-laws, guidelines and policies, as well as permits and other approvals related to the protection of the environment and workers’ health and safety. The Company maintains active health and safety and environmental programs for the purpose of preventing injuries to employees and pollution incidents at its manufacturing sites. The Company also carries out a program of environmental compliance audits, including independent third-party pollution liability assessment for acquisitions, to assess the adequacy of compliance at the operating level and to establish provisions, as required, for environmental site remediation plans. The Company has environmental insurance for most of its operating sites, with certain exclusions for historical matters. Despite these programs and insurance coverage, further proceedings or inquiries from regulators on employee health and safety requirements, particularly in Canada, the United States and the European Economic Community (collectively, the “EhS Requirements”), could have a material adverse effect on the business, financial condition and results of operations of the Company. In addition, changes to existing EhS Requirements, the adoption of new EhS Requirements in the future, or changes to the enforcement of EhS Requirements, as well as the discovery of additional or unknown conditions at facilities owned, operated or used by the Company, could require expenditures that might materially affect the business, financial condition and results of operations of the Company, to the extent not covered by indemnity, insurance or a covenant not to sue. Furthermore, while the Company has generally benefited from increased regulations on its customers’ products, the demand for the services or products of the Company may be adversely affected by the amendment or repeal of laws or by changes to the enforcement policies of the regulatory agencies concerning such laws. operating and Product Hazards The Company’s revenues are dependent on the continued operation of its facilities and its customers. The operation of manufacturing plants involves many risks, including the failure or substandard performance of equipment, natural disasters, suspension of operations and new governmental statutes, regulations, guidelines and policies. The operations of the Company and its customers are also subject to various hazards incidental to the production, use, handling, processing, storage and transportation of certain hazardous materials. These hazards can cause personal injury, severe damage to and destruction of property and equipment and environmental damage. Furthermore, the Company may become subject to claims with respect to workplace exposure, workers’ compensation and other matters. The Company’s pharmaceutical and specialty food product operations are subject to stringent federal, state, provincial and local health, food and drug regulations and controls, and may be impacted by consumer product liability claims and the possible unavailability and/or expense of liability insurance. The Company prints information on its labels and containers that, if incorrect, could give rise to product liability claims. A determination by applicable regulatory authorities that any of the Company’s facilities are not in compliance with any such regulations or controls in any material respect may have a material adverse effect on the Company. A successful product liability claim (or a series of claims) against the Company in excess of its insurance coverage could have a material adverse effect on the business, financial condition and results of operations of the Company. There can be no assurance as to the actual amount of these liabilities or the timing thereof. The occurrence of material operational problems, including, but not limited to, the above events, could have a material adverse effect on the business, financial condition and results of operations of the Company. Decline in address mailing Labels Since the advent of email, traditional mail volumes have declined and more significantly over the past decade. Address labels that are used in traditional mail was a core product for the acquired Avery business. There is a direct correlation of address label sales volumes to the quantity of mail in circulation in each of the markets in which Avery operates. Accordingly, a further dramatic decline in traditional mail volume, without the introduction of offsetting new consumer printable media applications in Avery, could have a material adverse effect on the business, financial condition and results of operations of the Company. 32 CCL InDUStRIeS InC. 2013 Annual Report new Product Developments The packaging and printable media industries are continually evolving based on the ingenuity of the Company’s competitors, consumer preferences and new product identification and information technologies. To the extent that any such new developments result in the decrease in the use of any of the Company’s products, a material adverse effect on the business, financial condition and results of operations of the Company could occur. Labour Relations While labour relations between the Company and its employees have been stable in the recent past and there have been no material disruptions in operations as a result of labour disputes, the maintenance of a productive and efficient labour environment cannot be assured. Accordingly, a strike, lockout or deterioration of labour relationships could have a material adverse effect on the business, financial condition and results of operations of the Company. Legal Proceedings Any alleged failure by the Company to comply with applicable laws and regulations in the countries of operation may lead to the imposition of fines and penalties or the denial, revocation or delay in the renewal of permits and licences issued by governmental authorities. In addition, governmental authorities, as well as third parties, may claim that the Company is liable for environmental damages. A significant judgment against the Company, the loss of a significant permit or other approval or the imposition of a significant fine or penalty could have a material adverse effect on the business, financial condition and results of operations of the Company. moreover, the Company may from time to time be notified of claims that it may be infringing patents, copyrights or other intellectual property rights owned by other third parties. Any litigation could result in substantial costs and diversion of resources, and could have a material adverse effect on the business, financial condition and results of operations of the Company. In the future, third parties may assert infringement claims against the Company or its customers. In the event of an infringement claim, the Company may be required to spend a significant amount of money to develop a non-infringing alternative or to obtain licences. The Company may not be successful in developing such an alternative or obtaining a licence on reasonable terms, if at all. In addition, any such litigation could be lengthy and costly and could have a material adverse effect on the business, financial condition and results of operations of the Company. The Company may also be subject to claims arising from its failure to manufacture a product to the specifications of its customers or from personal injury arising from a consumer’s use of a product or component manufactured by the Company. While the Company will seek indemnity from its customers for claims made against the Company by consumers, and while the Company maintains what management believes to be appropriate levels of insurance to respond to such claims, there can be no assurance that the Company will be fully indemnified by its customers nor that insurance coverage will continue to be available or, if available, adequate to cover all costs arising from such claims. In addition, the Company could become subject to claims relating to its prior businesses, including environmental and tax matters. There can be no assurance that insurance coverage will be adequate to cover all costs arising from such claims. Defined benefit Post-employment Plans The Company is the sponsor of a number of defined benefit plans in nine countries that give rise to accrued post-employment benefit obligations. Although the Company believes that its current financial resources combined with its expected future cash flows from operations and returns on post-employment plan assets will be sufficient to satisfy the obligations under these plans in future years, the cash outflow and higher expenses associated with these plans may be higher than expected and may have a material adverse impact on the financial condition of the Company. Impairment in the Carrying Value of goodwill and Intangible assets As of December 31, 2013, the Company had over $701.8 million of goodwill and intangible assets on its statement of financial position, the value of which is reviewed for impairment at least annually. The assessment of the value of goodwill and intangible assets depends on a number of key factors requiring estimates and assumptions about earnings growth, operating margins, discount rates, economic projections, anticipated future cash flows and market capitalization. There can be no assurance that future reviews of goodwill and intangible assets will not result in an impairment charge. Although it does not affect cash flow, an impairment charge does have the effect of reducing the Company’s earnings, total assets and equity. CCL InDUStRIeS InC. 2013 Annual Report 33 m A N A gEmE N T’S DI S C U S S I O N A N D AN A L y S I S years ended December 31, 2013 and 2012 (Tabular amounts in millions of Canadian dollars, except per share data) Subsequent event On January 21, 2014, CCL announced it had signed an agreement to acquire Sancoa and TubeDec, privately owned companies supplying labels and plastic tubes to home & Personal Care customers in North America. The purchase price, including the settlement of financial debts, is US$71 million subject to customary closing adjustments. Closing is expected during the first quarter of 2014; however, there can be no certainty that this transaction will close within the predicted timeframe and/or with the terms announced. 5 . aC CoUn tIn g PoL I C IeS a nD n o n- IfR S m e aS U ReS a) Key Performance Indicators and non-IfRS measures CCL measures the success of the business using a number of key performance indicators, many of which are in accordance with IFRS as described throughout this report. The following performance indicators are not measurements in accordance with IFRS and should not be considered as an alternative to or replacement of net earnings or any other measure of performance under IFRS. These non- IFRS measures do not have any standardized meaning and may not be comparable to similar measures presented by other issuers. In fact, these additional measures are used to provide added insight into CCL’s results and are concepts often seen in external analysts’ research reports, financial covenants in banking agreements and note agreements, purchase and sales contracts on acquisitions and divestitures of the business, and in discussions and reports to and from the Company’s shareholders and the investment community. These non-IFRS measures will be found throughout this report and are referenced alphabetically in the definition section below. adjusted basic earnings per Class b Share – An important non-IFRS measure to assist in understanding the ongoing earnings performance of the Company excluding items of a one-time or non-recurring nature. It is not considered a substitute for basic net earnings per Class B share, but it does provide additional insight into the ongoing financial results of the Company. This non-IFRS measure is defined as basic net earnings per Class B share excluding gains on dispositions, goodwill impairment loss, Avery and DES finance costs, non-cash acquisition accounting adjustment for finished goods inventory, restructuring and other items and tax adjustments. Earnings per Class B Share Basic earnings Net loss from restructuring and other items Avery and DES finance costs Non-cash acquisition accounting adjustment for finished goods inventory Fourth quarter year-to-Date $ $ 2013 0.58 0.61 — — 2012 0.59 — — — $ 2013 3.04 1.03 0.02 0.34 4.43 $ 2012 2.91 — — — $ 2.91 Adjusted basic earnings $ 1.19 $ 0.59 $ book Value per Share – A measure of the equity at book value per the combined Class A and Class B shares. It is calculated by dividing equity by the actual number of Class A and Class B shares issued and outstanding, excluding amounts and shares related to shares held in trust and the executive share purchase plan. The following table reconciles the calculation of the book value per share using IFRS measures reported in the consolidated statement of financial position as at the periods ended as indicated. Book Value per Share At December 31 (in millions of Canadian dollars, except number of shares and per share data) Total equity, end of period Number of shares issued, end of period (000s) Less: Shares held in trust Total adjusted number of shares issued and outstanding (000s) Book value per share 2013 2012 $ 1,018.1 $ 887.2 34,389 (201) 34,188 33,820 (145) 33,675 $ 29.78 $ 26.35 34 CCL InDUStRIeS InC. 2013 Annual Report Days of Working Capital employed – A measure indicating the relative liquidity and asset intensity of the Company’s working capital. It is calculated by multiplying the net working capital by the number of days in the quarter and then dividing by the quarterly sales. Net working capital includes trade and other receivables, inventories, and prepaid expenses, trade and other payables, and income taxes recoverable and payable. The following table reconciles the net working capital used in the days of working capital employed measure to IFRS measures reported in the consolidated statements of financial position as at the periods ended as indicated. Days of Working Capital Employed At December 31 (in millions of Canadian dollars) Trade and other receivables Inventories Prepaid expenses Income taxes recoverable Trade and other payables Income taxes payable Net working capital Days in quarter Fourth quarter sales Days of working capital employed $ $ $ 2013 363.5 181.6 13.5 2.5 (475.8) (21.1) 64.2 92 557.7 11 $ $ $ 2012 191.5 90.2 6.2 — (226.2) (10.8) 50.9 92 313.5 15 Dividend Payout – The ratio of earnings paid out to the shareholders. It provides an indication of how well earnings support the dividend payments. Dividend payout is defined as dividends declared divided by earnings, excluding goodwill impairment loss, Avery and DES finance costs, non-cash acquisition accounting adjustment for finished goods inventory, restructuring and other items and tax adjustments, expressed as a percentage. Dividend Payout (in millions of Canadian dollars) Dividends declared per equity Adjusted net earnings Dividend payout 2013 29.4 151.0 $ $ year-to-Date 2012 26.0 97.5 $ $ 20% 27% earnings per Share growth Rate – A measure indicating the percentage change in adjusted basic earnings per Class B share (see definition above). ebItDa – A critical financial measure used extensively in the packaging industry and other industries to assist in understanding and measuring operating results. It is also considered as a proxy for cash flow and a facilitator for business valuations. This non-IFRS measure is defined as earnings before net finance cost, taxes, depreciation and amortization, goodwill impairment loss, earnings in equity accounted investments, non-cash acquisition accounting adjustments, restructuring and other items. The Company believes that EBITDA is an important measure as it allows the assessment of CCL’s ongoing business without the impact of net finance costs, depreciation and amortization and income tax expenses, as well as non-operating factors and one-time items. As a proxy for cash flow, it is intended to indicate the Company’s ability to incur or service debt and to invest in property, plant and equipment, and it allows comparison of CCL’s business to that of its peers and competitors who may have different capital or organizational structures. EBITDA is a measure tracked by financial analysts and investors to evaluate financial performance and is a key metric in business valuations. EBITDA is considered an important measure by lenders to the Company and is included in the financial covenants for CCL’s bank lines of credit. CCL InDUStRIeS InC. 2013 Annual Report 35 m A N A gEmE N T’S DI S C U S S I O N A N D AN A L y S I S years ended December 31, 2013 and 2012 (Tabular amounts in millions of Canadian dollars, except per share data) The following table reconciles EBITDA measures to IFRS measures reported in the consolidated income statements for the periods ended as indicated. EBITDA (in millions of Canadian dollars) Net earnings Corporate expense Earnings in equity accounted investments Finance cost, net Restructuring and other items – net loss Income taxes Operating income (a non-IFRS measure) Less: Corporate expense Add: Non-cash acquisition accounting adjustment to finished goods inventory Add: Depreciation and amortization EBITDA (a non-IFRS measure) Fourth quarter year-to-Date 2013 19.5 9.7 (0.8) 6.8 24.2 12.8 72.2 (9.7) — 33.6 96.1 $ $ $ $ $ $ 2012 19.9 7.3 (1.1) 5.2 — 7.3 38.6 (7.3) — 26.4 57.7 $ $ $ 2013 103.6 33.5 (1.9) 25.6 45.2 46.2 252.2 (33.5) 16.7 120.2 355.6 $ $ 2012 97.5 26.4 (2.2) 20.9 — 35.8 178.4 (26.4) — 102.6 $ 254.6 free Cash flow from operations – A measure indicating the relative amount of cash generated by the Company during the year and available to fund dividends, debt repayments and acquisitions. It is calculated as cash flow from operations less capital expenditures, net of proceeds from the sale of property, plant and equipment. The following table reconciles the free cash flow from operations measure to IFRS measures reported in the consolidated statements of cash flows for the periods ended as indicated. Free Cash Flow from Operations (in millions of Canadian dollars) Cash provided by operating activities Less: Additions to property, plant and equipment Add: Proceeds on disposal of property, plant and equipment Free cash flow from operations $ 2013 333.7 (116.1) 2.1 $ 2012 199.3 (93.6) 1.5 $ 219.7 $ 107.2 Interest Coverage – A measure indicating the relative amount of operating income earned by the Company compared to the amount of net finance cost incurred by the Company. It is calculated as operating income (see definition below), including discontinued items, less corporate expense, divided by net finance cost on a twelve-month rolling basis. The following table reconciles the interest coverage measure to IFRS measures reported in the consolidated statements of earnings for the periods ended as indicated. Interest Coverage (in millions of Canadian dollars) Operating income (a non-IFRS measure: see definition below) Less: Corporate expense Net finance costs on a 12-month rolling basis Interest coverage 36 CCL InDUStRIeS InC. 2013 Annual Report $ $ $ 2013 252.2 (33.5) 218.7 25.6 8.5 $ $ $ 2012 178.4 (26.4) 152.0 20.9 7.3 net Debt – A measure indicating the financial indebtedness of the Company assuming that all cash on hand is used to repay a portion of the outstanding debt. It is defined as current debt including cash advances, plus long-term debt, less cash and cash equivalents. net Debt to total book Capitalization – A measure that indicates the financial leverage of the Company. It measures the relative use of debt versus equity in the book capital of the Company. Net debt to total book capitalization is defined as net debt (see definition above) divided by net debt plus equity, expressed as a percentage. operating Income – A measure indicating the profitability of the Company’s business units defined as income before corporate expenses, net finance costs, goodwill impairment loss, earnings in equity accounted investments, restructuring and other items and tax. See the definition of EBITDA above for a reconciliation of operating income measures to IFRS measures reported in the consolidated statements of earnings for the periods ended as indicated. Restructuring and other Items and tax adjustments – A measure of significant non-recurring items that are included in net earnings. The impact of restructuring and other items and tax adjustments on a per share basis is measured by dividing the after-tax income of the restructuring and other items and tax adjustments by the average number of shares outstanding in the relevant period. management will continue to disclose the impact of these items on the Company’s results because the timing and extent of such items do not reflect or relate to the Company’s ongoing operating performance. management evaluates the operating income of its Segments before the effect of these items. Return on equity before goodwill Impairment Loss, Restructuring and other Items and tax adjustments (“Roe”) – A measure that provides insight into the effective use of shareholder capital in generating ongoing net earnings. ROE is calculated by dividing annual net income before goodwill impairment loss, restructuring and other items, Avery and DES finance costs, non-cash acquisition accounting adjustment to finished goods inventory, and tax adjustments by the average of the beginning and the end-of-year equity. The following table reconciles net earnings used in calculating the ROE measure to IFRS measures reported in the consolidated statements of financial position and in the consolidated income statements for the periods ended as indicated. Return on Equity (in millions of Canadian dollars, except per share data) Net earnings Restructuring and other items, Avery and DES finance costs, non-cash acquisition accounting adjustment to finished goods inventory (net of tax) Adjusted net earnings Average equity Return on equity 2013 $ 103.6 $ 47.4 151.0 952.7 $ $ $ $ year-to-Date 2012 97.5 — 97.5 852.0 15.8% 11.4% Return on Sales – A measure indicating relative profitability of sales to customers. It is defined as operating income (see above definition) divided by sales, expressed as a percentage. The following table reconciles the return on sales measure to IFRS measures reported in the consolidated statements of earnings in the industry segmented information as per note 4 of the Company’s annual financial statements for the periods ended as indicated. Return on Sales year-to-Date (in millions of Canadian dollars) Label Avery Container Total operations 2013 $ 1,344.2 355.5 189.7 $ 1,889.4 Sales 2012 $ 1,126.9 — 181.7 $ 1,308.6 Operating Income Return on Sales 2013 $ 195.3 40.4 16.5 $ 252.2 2012 $ 166.3 — 12.1 $ 178.4 2013 14.5% 11.4% 8.7% 13.3% 2012 14.8% — 6.7% 13.6% CCL InDUStRIeS InC. 2013 Annual Report 37 m A N A gEmE N T’S DI S C U S S I O N A N D AN A L y S I S years ended December 31, 2013 and 2012 (Tabular amounts in millions of Canadian dollars, except per share data) total Debt – A measure indicating the financial indebtedness of the Company. It is defined as current debt, including bank advances, plus long-term debt. The following table reconciles total debt used in the total debt measure to IFRS measures reported in the consolidated statement of financial position as at the periods ended as indicated. Total Debt At December 31 (in millions of Canadian dollars) Current debt, including bank advances Plus: Long-term debt Total debt 2013 47.0 665.0 712.0 $ $ 2012 84.7 244.3 329.0 $ $ total Debt to total book Capitalization – A measure that indicates the financial leverage of the Company. It measures the relative use of debt versus equity in the book capital of the Company. Total debt to total book capitalization is defined as total debt (see definition above) divided by total debt plus equity, expressed as a percentage. The following table reconciles the total debt to total book capitalization measure to IFRS measures reported in the consolidated statement of financial position as at the periods ended as indicated. Total Debt to Total Book Capitalization At December 31 (in millions of Canadian dollars) Total Debt (see above table) Equity Total debt to total book capitalization b) accounting Policies and new Standards accounting Policies 2013 $ 712.0 $ 1,018.1 $ $ 2012 329.0 887.2 41.2% 27.1% The above analysis and discussion of the Company’s financial condition and results of operation are based on its consolidated financial statements prepared in accordance with IFRS. A summary of the Company’s significant accounting policies is set out in note 3 of the consolidated financial statements. Recently Issued new accounting Standards, not Yet effective A revised accounting standard was recently issued by the International Accounting Standards Board (“IASB”) but is not yet effective. This standard has not been applied in preparing these consolidated financial statements. The Company is currently evaluating the impact of this standard on its consolidated financial statements. IFRS 9, Financial Instruments (“IFRS 9”) was issued by the IASB in November 2009 and amended in October 2010 and will replace IAS 39, Financial Instruments: Recognition and measurement (“IAS 39”). IFRS 9 uses a single approach to determine whether a financial asset is measured at amortized cost or fair value. The approach in IFRS 9 is based on how an entity manages its financial instruments in the context of its business model and the contractual cash flow characteristics of the financial assets. The new standard also requires a single impairment method to be used, replacing the multiple impairment methods in IAS 39. most of the requirements in IAS 39 for classification and measurement of financial liabilities were carried forward unchanged to IFRS 9. In November 2013, the IASB issued a new general hedge accounting standard, which forms part of IFRS 9, aligning hedge accounting more closely with risk management. This new standard does not fundamentally change the types of hedging relationships or the requirement to measure and recognize ineffectiveness, however it will provide more hedging strategies that are used for risk management to qualify for hedge accounting and introduce more judgment to assess the effectiveness of a hedging relationship. The mandatory effective date is not yet determined and although early adoption is permitted, Canadian reporting entities cannot early adopt until IFRS 9 has been approved by the Canadian Accounting Standards Board. The Company does not intend to adopt IFRS 9 in its consolidated financial statements for the annual period beginning January 1, 2014 and is currently evaluating the impact of IFRS 9 on its consolidated financial statements. 38 CCL InDUStRIeS InC. 2013 Annual Report C) Critical accounting estimates The presentation of financial statements requires management to make estimates and assumptions that affect the reported amounts of revenue and expenses during the year, and of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements. In particular, the amounts recorded for inventories, redundant assets, bad debts, derivatives, income taxes, restructuring, pension and other post-retirement benefits, contingencies and litigation, environmental matters, outstanding self-insured claims, depreciation and amortization of property, plant and equipment, and the valuation of goodwill are based on estimates. Actual results could differ from those estimates. goodwill and Indefinite Life Intangibles goodwill represents the excess of the purchase price of the Company’s interest in the businesses acquired over the fair value of the underlying net identifiable tangible and intangible assets arising on acquisitions. goodwill and indefinite life intangibles are not amortized but are required to be tested for impairment at least annually or if events or changes in circumstances indicate that the carrying amount may not be recoverable. The Company performs the annual impairment test in the fourth quarter of each year. Impairment testing for the Label and Container Segments was done by a comparison of the unit’s carrying amount to its estimated value in use, determined by discounting future cash flows from the continuing use of the unit. key assumptions used in the determination of the value in use include growth rates of 3.1%–4.4% for Container and Label and a discount rate ranging from 8.0%–9.5%. Discount rates reflect current market assumptions and risks related to the Segments and are based upon the weighted average cost of capital for the Segment. The Company’s historical growth rates are used as a basis in determining the growth rate applied for impairment testing. Significant management judgment is required in preparing the forecasts of future operating results that are used in the discounted cash flow method of valuation. In 2013 and 2012, it was determined that the carrying amount of goodwill and indefinite life intangibles was not impaired. Since the process of determining fair values requires management judgment regarding projected results and market multiples, a change in these assumptions could impact the fair value of the reporting units resulting in an impairment charge. Long-Lived assets Long-lived assets are reviewed for impairment when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Performance of this evaluation involves management estimates of the associated business plans, economic projections and anticipated cash flows. Specifically, management considers forecasted operating cash flows, which are subject to change due to economic conditions, technological changes or changes in operating performance. An impairment loss would be recognized if the carrying amount of the asset held for use exceeded the discounted cash flow or fair value. Changes in these estimates in the future may result in an impairment charge. employee benefits The Company accrues its obligation under employee benefit plans and related costs net of plan assets. Pension costs are determined periodically by independent actuaries. The actuarial determination of the accrued benefit obligations for the plans uses the projected unit credit method and incorporates management’s best estimate of future salary escalation, retirement age, inflation and other actuarial factors. The cost is then charged as services are rendered. Since these assumptions, which are disclosed in note 19 of the consolidated financial statements, involve forward-looking estimates and are long-term in nature, they are subject to uncertainty. Actual results may differ, and the differences may be material. D) Related Party transactions The Company has entered into a number of agreements with its subsidiaries that govern the management and commercial and cost- sharing arrangements with and among the subsidiaries. These inter-company structures are established on terms typical of arm’s length agreements. A summary of the Company’s related party transactions are set out in note 26 of the consolidated financial statements. CCL InDUStRIeS InC. 2013 Annual Report 39 m A N A gEmE N T’S DI S C U S S I O N A N D AN A L y S I S years ended December 31, 2013 and 2012 (Tabular amounts in millions of Canadian dollars, except per share data) 6 . oUtLo oK 2013 was a transformational year for CCL, the acquisition of the Avery and DES businesses from Avery Dennison Corporation was the largest in the Company’s history driving the annualized sales run rate past the $2.0 billion milestone. The DES business enhanced the Label Segment, most notably adding new capabilities and geographies to CCL Design. The Avery business offered a strategic adjacency to the Label Segment complementing CCL’s existing technology and know-how while providing a new broader customer base. This acquisition along with the strategic acquisitions of INT and APF, steadfast results from the legacy Label Segment, and continued operational improvements in the Container Segment culminated with a 52.2% increase and a record $4.43 in adjusted basic earnings per Class B share. The world economy crept forward in 2013. The Eurozone which started the year on shaky footings, finished with optimism moving into 2014, particularly in northern and central regions where CCL operates. The U.S. economy continued to progress throughout the year finishing with renewed promise in the automotive, labour and housing markets albeit demand for consumer staples remained soft. Current economic indicators point to continuing modest improvements in 2014 in the developed world. In Latin America, Asia and other emerging markets domestic demand continued to be robust and has so far offset weakness in exports. Emerging markets now account for over 21% of CCL Label’s revenue and are expected to continue outperforming the developed world economies. CCL in the coming year will continue to execute its global growth strategy for its Label Segment by pursuing expansion plans in new and existing markets with its core customers where the opportunity meets the Company’s long-term profitability objectives. The Company is confident this strategy will continue to generate strong cash flows that will support additional investment opportunities and allow CCL to further expand its geographic and market segment reach. The Label Segment expects that its new investments in the Philippines and the new joint venture in Thailand will commence commercial activities in the back half of 2014. CCL, subsequent to the acquisition, commenced the integration process for the Avery and DES businesses and recorded a restructuring charge of $32.8 million. The majority of the restructuring initiative is complete; however, the final operational aspects will not be finished until mid-2014. The Company remains committed to the $40 million to $50 million of targeted annual savings and synergies for next year. The degree to which these initiatives translate to future earnings will depend on management’s ability to stabilize acquired revenues in the Avery business, which had seen several consecutive years of decline prior to CCL ownership. Financial results for 2014 for the newly acquired DES business should continue to benefit from a strong North American automotive market. The Container Segment as a whole recorded another year of improvement for 2013, but the results were mixed, driven by the strong performance of the U.S. and mexican operations and the fourth consecutive year of losses from the Canadian operation. As a result, the decision was made to close the Canadian operation and redistribute the business into the U.S. and mexican operations. 2014 will be a year of transition as the Company commences its $25 million infrastructure investment plan while continuing to pursue further market share gains. CCL is committed to $10 million of incremental annual cash flow gains upon the completion of the restructuring initiative by mid-2015. The Company remains focused on vigilantly managing working capital and prioritizing capital to higher-growth organic opportunities or unique acquisitions that are expected to enhance shareholder value. The Company has significant cash on hand of $209 million and unused credit lines of $237 million. The Company expects capital expenditures for 2014 to be approximately $125 million. The immediate outlook for the first quarter of 2014 is supported by a good order backlog at year-end and solid intake during the first weeks of the new year. The continued decline of the Canadian dollar to most world currencies, in particular the U.S. dollar and the euro, should act as a tailwind to translated results. Finally, on January 21, 2014, CCL announced it had signed an agreement to acquire Sancoa and TubeDec, privately owned companies supplying labels and plastic tubes to home & Personal Care customers in North America. The purchase price, including the settlement of financial debts is US$71 million, subject to customary closing adjustments. Closing is expected during the first quarter of 2014. 40 CCL InDUStRIeS InC. 2013 Annual Report ma n a g e m e n t ’S R eS Po nS IbI L ItY f oR tHe f In a nC IaL S tat e m e n tS years ended December 31, 2005 and 2004 (In thousands of Canadian dollars except per share data) The accompanying consolidated financial statements of CCL Industries Inc. and all information in this Annual Report are the responsibility of management and have been approved by the Board of Directors. The consolidated financial statements have been prepared by management in accordance with International Financial Reporting Standards. When alternative accounting methods exist, management has chosen those it deems to be the most appropriate to ensure fair and consistent presentation. Financial statements are not precise since they include certain amounts based on estimates and judgments. management has determined such amounts on a reasonable basis in order to ensure that the consolidated financial statements are presented fairly in all material aspects. management has prepared the financial information presented elsewhere in this Annual Report and has ensured that it is consistent with the consolidated financial statements. CCL maintains financial and operating systems that include appropriate and effective internal controls. Such systems are designed to provide reasonable assurance that the financial information is reliable and relevant, and that CCL’s assets are appropriately accounted for and adequately safeguarded. The Board of Directors is responsible for ensuring that management fulfills its responsibilities for financial reporting and is ultimately responsible for reviewing and approving the consolidated financial statements. The Board of Directors carries out this responsibility through its Audit Committee. The Audit Committee is appointed by the Board of Directors and meets periodically with management, as well as the internal and external auditors, to discuss internal controls over the financial reporting process, auditing matters and financial reporting issues, to satisfy itself that each party is properly discharging its responsibilities, and to review the management’s Discussion and Analysis, the consolidated financial statements and the external auditors’ report. The Audit Committee reports its findings to the Board of Directors for consideration when approving the annual financial statements for issuance to the shareholders. The Audit Committee also considers, for review by the Board of Directors and approval by the shareholders, the engagement or re-appointment of the external auditors. The consolidated financial statements have been audited by kPmg LLP, the external auditors, in accordance with Canadian generally accepted auditing standards, on behalf of the shareholders. kPmg LLP have full and free access to, and meet periodically with, the Audit Committee. geoffrey t. martin President and Chief Executive Officer Sean P. Washchuk Senior Vice President and Chief Financial Officer February 20, 2014 CCL InDUStRIeS InC. 2013 Annual Report 41 InDePe nDe n t a U D It oR S’ R ePoR t years ended December 31, 2005 and 2004 (In thousands of Canadian dollars except per share data) To the Shareholders of CCL Industries Inc. We have audited the accompanying consolidated financial statements of CCL Industries Inc. (“the Company”), which comprise the consolidated statement of financial position as at December 31, 2013 and December 31, 2012, the consolidated income statements, statements of comprehensive income, changes in equity and cash flows for the years then ended, and notes, comprising 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 Standard, 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. auditors’ Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our 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, we consider 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 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 consolidated financial position of the Company as at December 31, 2013 and December 31, 2012, and of its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards. Chartered Professional accountants, Licensed Public accountants February 20, 2014 Toronto, Canada 42 CCL InDUStRIeS InC. 2013 Annual Report C o nSoL I Dat eD S tat e m e n tS o f f In a nC IaL PoS ItIo n (In thousands of Canadian dollars) As at December 31 assets Current assets Cash and cash equivalents Trade and other receivables Inventories Prepaid expenses Income taxes recoverable total current assets Property, plant and equipment Goodwill Intangible assets Deferred tax assets Equity accounted investments Other assets total non-current assets total assets Liabilities Current liabilities Trade and other payables Current portion of long-term debt Income taxes payable Derivative instruments total current liabilities Long-term debt Deferred tax liabilities Employee benefits Provisions and other long-term liabilities Derivative instruments total non-current liabilities total liabilities equity Share capital Contributed surplus Retained earnings Accumulated other comprehensive income (loss) total equity attributable to shareholders of the Company Acquisitions Commitments Subsequent events total liabilities and equity See accompanying explanatory notes to the consolidated financial statements. On behalf of the Board: Note 2013 2012 6 7 8 10 11, 12 11 14 9 13 17 23 17 14 19 23 28 5 25 30 $ 209,095 363,493 181,644 13,458 2,503 $ 188,972 191,538 90,194 6,205 — 770,193 856,001 494,231 207,569 4,115 47,363 22,176 476,909 679,857 353,350 29,620 2,962 42,878 16,783 1,631,455 1,125,450 $ 2,401,648 $ 1,602,359 $ 475,777 47,070 21,060 642 $ 226,248 84,701 10,771 435 544,549 664,976 42,661 109,068 21,511 748 838,964 1,383,513 237,189 11,919 768,738 289 1,018,135 322,155 244,332 58,883 81,082 8,720 — 393,017 715,172 226,702 9,584 697,937 (47,036) 887,187 $ 2,401,648 $ 1,602,359 Donald g. Lang Director geoffrey t. martin Director CCL InDUStRIeS InC. 2013 Annual Report 43 C o nSoL I Dat eD InCo m e S tat e m e n tS (In thousands of Canadian dollars, except per share information) years ended December 31 Sales Cost of sales gross profit Selling, general and administrative expenses Restructuring and other items Earnings in equity accounted investments Finance cost Finance income net finance cost earnings before income tax Income tax expense net earnings attributable to: Shareholders of the Company net earnings earnings per share Basic earnings per Class B share Diluted earnings per Class B share See accompanying explanatory notes to the consolidated financial statements. Note 2013 2012 $ 1,889,426 1,413,991 $ 1,308,551 996,111 475,435 256,740 45,248 (1,870) 175,317 26,290 (642) 25,648 149,669 46,081 312,440 160,385 — (2,165) 154,220 21,958 (1,039) 20,919 133,301 35,811 $ 103,588 $ 97,490 $ 103,588 $ 103,588 $ $ 3.04 2.99 $ $ $ $ 97,490 97,490 2.91 2.86 29 18 18 21 16 16 44 CCL InDUStRIeS InC. 2013 Annual Report C o nSoL I Dat eD S tat e m e n tS o f C o mP ReHe nS I Ve I nCo m e (In thousands of Canadian dollars) years ended December 31 net earnings other comprehensive income (loss), net of tax: Items that may subsequently be reclassified to income: Foreign currency translation adjustment for foreign operations, net of tax expense of $937 for the year ended December 31, 2013 (2012 – tax recovery of $579) Net gains (losses) on hedges of net investment in foreign operations, net of tax recovery of $3,876 for the year ended December 31, 2013 (2012 – tax expense of $951) Effective portion of changes in fair value of cash flow hedges, net of tax recovery of $557 for the year ended December 31, 2013 (2012 – tax expense of $22) Net change in fair value of cash flow hedges transferred to the income statement, net of tax recovery of $400 for the year ended December 31, 2013 (2012 – tax recovery of $373) Actuarial losses on defined benefit post-employment plans, net of tax recovery of $122 for the year ended December 31, 2013 (2012 – tax recovery of $663) other comprehensive income (loss), net of tax total comprehensive income attributable to: Shareholders of the Company total comprehensive income See accompanying explanatory notes to the consolidated financial statements. 2013 2012 $ 103,588 $ 97,490 74,402 (13,662) (26,279) (1,980) 1,182 (773) 46,552 6,413 (217) 1,103 (2,985) (9,348) $ 150,140 $ 88,142 $ 150,140 $ 150,140 $ $ 88,142 88,142 CCL InDUStRIeS InC. 2013 Annual Report 45 C o nSoL I Dat eD Stat e m e n tS o f C Ha n g eS In e qU ItY (In thousands of Canadian dollars) years ended December 31 Share capital Class A shares, beginning of year Conversion of Class A to Class B Class A shares, end of year Class B shares, beginning of year Normal course issuer bid Conversion of Class A to Class B Stock options exercised Class B shares, end of year Executive share purchase plan loans, beginning of year Repayment of executive share purchase plan loans Executive share purchase plan loans, end of year Shares held in trust, beginning of year Shares redeemed from trust Shares purchased and held in trust Shares held in trust, end of year Share capital, end of year Accumulated other comprehensive income (loss) Accumulated other comprehensive loss, beginning of year Other comprehensive income (loss) Accumulated other comprehensive income (loss), end of year Contributed surplus Contributed surplus, beginning of year Stock option expense Stock options exercised Stock-based compensation plan Income tax effect related to stock options Book value of minority interest over purchase price Contributed surplus, end of year Retained earnings, beginning of year Net earnings Defined benefit plan actuarial losses, net of tax Repurchase of shares Dividends: Class A Class B Total dividends to shareholders Retained earnings, end of year Total equity, end of year See accompanying explanatory notes to the consolidated financial statements. 46 CCL InDUStRIeS InC. 2013 Annual Report Note 2013 2012 $ 15 15 4,507 (3) 4,504 227,123 (364) 3 20,081 246,843 — — — (4,928) 4,500 (13,730) (14,158) 237,189 (47,036) 47,325 28,289 9,584 2,117 (3,144) (908) 4,270 — 11,919 697,937 103,588 (773) (2,656) (1,919) (27,439) (29,358) 768,738 $ 4,517 (10) 4,507 223,440 — 10 3,673 227,123 (233) 233 — (9,061) 4,321 (188) (4,928) 226,702 (40,673) (6,363) (47,036) 9,421 1,770 (516) (1,659) — 568 9,584 629,469 97,490 (2,985) — (1,732) (24,305) (26,037) 697,937 $ 1,018,135 $ 887,187 C o nSoL I Dat eD S tat e m e n tS o f C aS H f LoW S (In thousands of Canadian dollars) years ended December 31 Cash provided by (used for) operating activities Net earnings Adjustments for: Depreciation and amortization Earnings in equity accounted investments, net of dividends received Net finance costs Current income tax expense Deferred taxes Equity-settled share-based payment transactions gain on sale of property, plant and equipment Change in inventories Change in trade and other receivables Change in prepaid expenses Change in trade and other payables Change in income taxes payable Change in employee benefits Change in other assets and liabilities Interest paid Income taxes paid Cash provided by operating activities financing activities Proceeds on issuance of long-term debt Repayment of long-term debt Proceeds from issuance of shares Repayment of executive share purchase plan loans Purchase of shares held in trust Repurchase of shares Dividends paid Cash provided by (used for) financing activities Investing activities Additions to property, plant and equipment Proceeds on disposal of property, plant and equipment Business acquisitions Cash used for investing activities Net increase in cash and cash equivalents Cash and cash equivalents at beginning of year Translation adjustments on cash and cash equivalents Cash and cash equivalents at end of year See accompanying explanatory notes to the consolidated financial statements. 2013 2012 $ 103,588 $ 97,490 120,155 682 25,648 61,620 (15,539) 5,709 (377) 301,486 35,730 (5,343) (7,206) 73,704 757 27,986 (13,468) 413,646 (25,405) (54,503) 333,738 566,752 (223,036) 16,937 — (13,680) (3,018) (29,408) 314,547 (116,097) 2,107 (528,319) (642,309) 5,976 188,972 14,147 102,564 (593) 20,919 38,984 (3,173) 4,432 (297) 260,326 (3,029) 465 (901) (718) 5,127 2,384 (10,559) 253,095 (21,235) (32,538) 199,322 1,744 (19,299) 3,157 233 — — (32,088) (46,253) (93,555) 1,500 (11,591) (103,646) 49,423 140,698 (1,149) $ 209,095 $ 188,972 CCL InDUStRIeS InC. 2013 Annual Report CCL InDUStRIeS InC. 2013 Annual Report 47 47 no t eS t o tHe C o nSoL I Dat eD f In a nC IaL S tat e m e n tS years ended December 31, 2013 and 2012 (In thousands of Canadian dollars, except share and per share information) 1 . R ePoR tIn g e n tItY CCL Industries Inc. (the “Company”) is a public company, listed on the Toronto Stock Exchange, and is incorporated and domiciled in Canada. These consolidated financial statements of the Company as at and for the years ended December 31, 2013 and 2012, comprise the results of the Company and its subsidiaries and the Company’s interest in joint ventures and associates. The Company has manufacturing facilities around the world and is involved in the manufacture of labels, containers, and tubes as well as specialty converted media and software solutions to enable short run digital printing in businesses and homes and complementary office products sold through distributors and mass market retailers. 2 . baS I S o f P ReP aRatIo n (a) Statement of compliance These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) and its interpretations adopted by the International Accounting Standards Board (“IASB”). These consolidated financial statements were authorized for issue by the Company’s Board of Directors on February 20, 2014. (b) basis of measurement These consolidated financial statements have been prepared on the historical cost basis except for the following items in the statements of financial position: • derivative instruments are measured at fair value, • financial instruments at fair value through profit or loss are measured at fair value, • liabilities for cash-settled share-based payment arrangements are measured at fair value, and, • assets related to the defined benefit plans are measured at fair value and liabilities related to the defined benefit plans are calculated by qualified actuaries using the projected unit credit method. (c) functional and presentation currency These consolidated financial statements are presented in Canadian dollars, which is the Company’s functional currency. All financial information presented in Canadian dollars has been rounded to the nearest thousand, unless otherwise noted. (d) Use of estimates and judgments The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the application of accounting policies and the reported amounts of sales and expenses during the year and of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates. Judgment is used mainly in determining whether a balance or transaction should be recognized in the consolidated financial statements. Estimates and assumptions are used mainly in determining the measurement of recognized transactions and balances. In the process of applying the entity’s accounting policies, management makes various judgments, apart from those involving estimations, that can significantly affect the amounts it recognizes in the financial statements. Judgments, estimates and assumptions are continually evaluated and are based on historical experience and other factors including expectations of future events that are believed to be reasonable under the circumstances. The Company has applied judgment in its assessment of the classification of financial instruments, the recognition of tax losses and provisions, the determination of cash-generating units (“CgU”), the identification of the indicators of impairment for property and equipment and intangible assets, the level of componentization of property and equipment and the allocation of purchase price adjustments on business combinations. Estimates are used when determining the amounts recorded for depreciation and amortization of property, plant and equipment and intangible assets, outstanding self-insurance claims, pension and other post-employment benefits, income and other taxes, provisions, certain fair value measures including those related to the valuation of business combinations, share-based payments and financial instruments and in the valuation of goodwill. 48 CCL InDUStRIeS InC. 2013 Annual Report 3 . SIg nIfI Ca n t aC CoUn tIn g PoL I C IeS The accounting policies set out below have been applied consistently to all comparative information presented in these consolidated financial statements. (a) basis of consolidation (i) business combinations The Company measures goodwill as the fair value of the consideration transferred including the recognized amount of any non- controlling interest in the acquiree, less the net recognized amount (generally fair value) of the identifiable assets acquired and liabilities assumed, all measured as of the acquisition date. When the excess is negative, a bargain purchase gain is recognized immediately in profit or loss. The Company elects on a transaction-by-transaction basis to measure non-controlling interest either at its fair value or at its proportionate share of the recognized amount of the identifiable net assets at the acquisition date. Transaction costs, other than those associated with the issue of debt or equity securities, that the Company incurs in connection with a business combination are expensed as incurred. (ii) Subsidiaries Subsidiaries are entities controlled by the Company. Control exists when the Company is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. The accounting policies of subsidiaries have been changed, when necessary, to align them with the policies adopted by the Company. (iii) associates and joint arrangements The Company’s interests in equity accounted investees comprise interests in associates and joint ventures. Associates are those entities in which the Company has significant influence, but not control or joint control, over the financial and operating policies. Significant influence is presumed to exist when the Company holds between 20% and 50% of the voting power of another entity. The Company classifies its interest in joint arrangements as either joint operations (if the Company has rights to the assets, and obligations for the liabilities, relating to an arrangement) or joint ventures (if the Company has the rights only to the net assets of an arrangement). When making this assessment, the Company considers the structure of the arrangements, the legal form of any separate vehicles, the contractual terms of the arrangements and other facts and circumstances. Investments in associates and joint ventures are accounted for using the equity method and are recognized initially at cost. The Company’s investments include goodwill identified on acquisition, net of any accumulated impairment losses. The consolidated financial statements include the Company’s share of the income and expenses and equity movements of equity accounted investees, after adjustments to align the accounting policies with those of the Company, from the date that significant influence commences until the date that it ceases. When the Company’s share of losses exceeds its interest in an equity accounted investee, the carrying amount of that interest (including any long-term investments) is reduced to nil and the recognition of further losses is discontinued except to the extent that the Company has an obligation or has made payments on behalf of the investee. (iv) transactions eliminated on consolidation Inter-company balances and transactions, and any unrealized income and expenses arising from inter-company transactions, are eliminated in preparing the consolidated financial statements. Unrealized gains arising from transactions with equity accounted investees are eliminated against the investment to the extent of the Company’s interest in the investee. Unrealized losses are eliminated in the same way as are unrealized gains, but only to the extent that there is no evidence of impairment. CCL InDUStRIeS InC. 2013 Annual Report 49 NO T E S T O Th E CO N S O L I D AT E D FI N A N C I A L S TAT EmE N T S years ended December 31, 2013 and 2012 (In thousands of Canadian dollars, except share and per share information) (b) foreign currency (i) foreign currency transactions Transactions in foreign currencies are translated to the respective functional currencies of the Company’s entities using exchange rates at the dates of the transactions. monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to the functional currency using the exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between amortized cost in the functional currency at the beginning of the period, adjusted for effective interest and payments during the period, and the amortized cost in foreign currency translated at the exchange rate at the end of the period. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are translated to the functional currency at the exchange rate at the date that the fair value was determined. Foreign currency differences arising on translation are recognized in the income statement, except for differences arising on the translation of a financial liability designated as a hedge of the net investment in a foreign operation, or qualifying cash flow hedges, which are recognized directly in other comprehensive income (see note 3(b)(iii) below). Foreign currency-denominated non-monetary items, measured at historical cost, have been translated at the rate of exchange at the transaction date. (ii) foreign operations The financial statements of each of the Company’s subsidiaries are measured using the currency of the primary economic environment in which the entity operates. The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated into Canadian dollars using exchange rates at the reporting date. The income and expenses of foreign operations are translated into Canadian dollars using the average exchange rates for the period. Foreign currency differences are recognized directly in other comprehensive income and presented within the foreign currency translation adjustment. When a foreign operation is disposed of, the amount in other comprehensive income related to the foreign operation is fully transferred to the income statement. A disposal occurs when the entire interest in the foreign operation is disposed of, or in the case of a partial disposal, the partial disposal results in the loss of control of a subsidiary or the loss of significant influence. For any partial disposal of the Company’s interest in a subsidiary that includes a foreign operation, the Company re-attributes the proportionate share of the relevant amounts in other comprehensive income to non-controlling interests. For any other partial disposal of a foreign operation, the Company reclassifies to the income statement only the proportionate share of the relevant amount in other comprehensive income. Foreign exchange gains and losses arising from a monetary item receivable from or payable to a foreign operation, the settlement of which is neither planned nor likely in the foreseeable future, are considered to form part of a net investment in a foreign operation and are recognized directly in other comprehensive income and presented within the foreign currency translation adjustment. (iii) Hedge of net investment in foreign operation The Company applies hedge accounting to the foreign currency exposure arising between the functional currency of the foreign operation and the parent entity’s functional currency (Canadian dollars), regardless of whether the net investment is held directly or through an intermediate parent. Foreign currency differences arising on the translation of a financial liability designated as a hedge of a net investment in a foreign operation are recognized directly in other comprehensive income, to the extent that the hedge is effective. To the extent that the hedge is ineffective, such differences are recognized in the income statement. When the hedged part of a net investment is disposed of or partially disposed of, the associated cumulative amount in equity is transferred to the income statement as an adjustment to the income statement on disposal in accordance with the policy described in note 3(b)(ii) above. (c) financial instruments (i) non-derivative financial instruments Non-derivative financial instruments comprise cash and cash equivalents, trade and other receivables, trade and other payables and long-term debt. Non-derivative financial instruments are recognized initially at fair value plus, for instruments not at fair value through profit or loss, any directly attributable transaction costs. Subsequent to initial recognition non-derivative financial instruments are measured as described below. 50 CCL InDUStRIeS InC. 2013 Annual Report The carrying values of cash and cash equivalents, trade and other receivables, and trade and other payables approximate fair values due to the short-term maturities of these financial instruments. Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Company has a legal right to offset the amounts and intends either to settle on a net basis or to realize the asset and settle the liability simultaneously. Loans and receivables Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, loans and receivables are measured at amortized cost using the effective interest method, less any impairment losses. Loans and receivables comprise trade and other receivables. The carrying value of trade and other receivables is net of an allowance for doubtful accounts. The allowance is based upon the aging of the receivables, the Company’s knowledge of the financial condition of its customers, historical experience and the current business environment. Cash and cash equivalents comprise cash on hand and short-term investments with original maturity dates of 90 days or less. Financial assets at fair value through profit or loss An instrument is classified at fair value through profit or loss if it is held for trading or is designated as such upon initial recognition. Financial instruments are designated at fair value through profit or loss if the Company manages such investments and makes purchase and sale decisions based on their fair value in accordance with the Company’s documented risk management or investment strategy. Upon initial recognition, the attributable transaction costs are recognized in the income statement when incurred. Financial instruments at fair value through profit or loss are measured at fair value, and changes therein are recognized in the income statement. Available-for-sale financial assets Available-for-sale financial assets are non-derivative financial assets that are designated as available-for-sale, are not classified in any of the previous categories and are included in other assets. These items are initially recognized at fair value plus transaction costs and are subsequently carried at fair value with changes recognized in other comprehensive income. When an investment is derecognized the accumulated gain or loss recognized in other comprehensive income is transferred to the income statement. Non-derivative financial liabilities The Company initially recognizes debt securities issued and subordinated liabilities on the date that they are originated. All other financial liabilities (including liabilities designated at fair value through profit or loss) are recognized initially on the trade date at which the Company becomes a party to the contractual provisions of the instrument. The Company derecognizes a financial liability when its contractual obligations are discharged, are cancelled or expire. Financial liabilities are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition these financial liabilities are measured at amortized cost using the effective interest method. Fair value, which is determined for disclosure purposes, is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the reporting date. For finance leases the market rate of interest is determined by reference to similar lease agreements. (ii) Derivative financial instruments, including hedge accounting The Company uses derivative financial instruments to manage its foreign currency and interest rate risk exposure and price risk exposure related to the purchase of raw materials. Embedded derivatives are separated from the host contract and accounted for separately if the economic characteristics and risks of the host contract and the embedded derivative are not closely related, a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative, and the combined instrument is not measured at fair value through the income statement. CCL InDUStRIeS InC. 2013 Annual Report 51 NO T E S T O Th E CO N S O L I D AT E D FI N A N C I A L S TAT EmE N T S years ended December 31, 2013 and 2012 (In thousands of Canadian dollars, except share and per share information) On initial designation of the hedge, the Company formally documents the relationship between the hedging instrument(s) and hedged item(s), including the risk management objectives and strategy in undertaking the hedge transaction, together with the methods that will be used to assess the effectiveness of the hedging relationship. The Company makes an assessment, both at the inception of the hedging relationship and on an ongoing basis, whether the hedging instruments are expected to be “highly effective” in offsetting the changes in the fair value or cash flows of the respective hedged items during the period for which the hedge is designated, and whether the actual results of each hedge are within a range of 80% to 125%. For a cash flow hedge of a forecast transaction, the transaction should be highly probable to occur and should present an exposure to variations in cash flows that could ultimately affect reported net income. Derivatives are recognized initially at fair value; attributable transaction costs are recognized in profit or loss as incurred. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are accounted for as described below. The fair value of forward exchange contracts is based on their listed market price, if available. If a listed market price is not available, then fair value is estimated by discounting the difference between the contractual forward price and the current forward price for the residual maturity of the contract using a risk-free interest rate (based on government bonds). The fair value of interest rate swaps is based on broker quotes. Those quotes are tested for reasonableness by discounting estimated future cash flows based on the terms and maturity of each contract and using market interest rates for a similar instrument at the measurement date. Fair values reflect the credit risk of the instrument and include adjustments to take account of the credit risk of the group entity and counterparty when appropriate. Cash flow hedges When a derivative is designated as the hedging instrument in a hedge of the variability in cash flows attributable to a particular risk associated with a recognized asset or liability or a highly probable forecast transaction that could affect profit or loss, the effective portion of changes in the fair value of the derivative is recognized in other comprehensive income and presented in the hedging reserve in equity. The amount recognized in other comprehensive income is removed and included in profit or loss in the same period that the hedged cash flows affect profit or loss under the same line item in the statement of comprehensive income as the hedged item. Any ineffective portion of changes in the fair value of the derivative is recognized immediately in the income statement. If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated, exercised, or the designation is revoked, then hedge accounting is discontinued prospectively. The cumulative gain or loss previously recognized in other comprehensive income and presented in unrealized gains or losses on cash flow hedges in equity remains there until the forecast transaction affects profit or loss. When the hedged item is a non-financial asset, the amount recognized in other comprehensive income is transferred to the carrying amount of the asset when the asset is recognized. If the forecast transaction is no longer expected to occur, then the balance in other comprehensive income is recognized immediately in profit or loss. In other cases, the amount recognized in other comprehensive income is transferred to the income statement in the same period that the hedged item affects profit or loss. Fair value hedges Fair value hedges are hedges of the fair value of recognized assets, liabilities or unrecognized firm commitments. Changes in the fair value of derivatives that are designated as fair value hedges are recorded in the income statement together with any changes in the fair value of the hedged item that are attributable to the hedged risk. Separable embedded derivatives Changes in the fair value of separable embedded derivatives are recognized immediately in the income statement. 52 CCL InDUStRIeS InC. 2013 Annual Report (d) Property, plant and equipment (i) Recognition and measurement Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the assets to a working condition for their intended use, and the costs of dismantling and removing the items and restoring the site on which they are located. Purchased software that is integral to the functionality of the related equipment is capitalized as part of that equipment. The fair value of property, plant and equipment recognized as a result of a business combination is based on the amount for which a property could be exchanged on the date of valuation between knowledgeable, willing parties in an arm’s length transaction. Borrowing costs related to the acquisition, construction or production of qualifying assets are capitalized as part of the cost of the assets. When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment. gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment and are recognized within selling, general and administrative expenses in the income statement. The cost of replacing a part of an item of property, plant and equipment is recognized in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Company, and its cost can be measured reliably. The carrying amount of the replaced part is derecognized. The costs of the day-to-day servicing of property, plant and equipment are recognized in profit or loss as incurred. (ii) Depreciation Depreciation is calculated based on the cost of the asset, or other amount substituted for cost, less its residual value. Depreciation is recognized in profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment, since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Company will obtain ownership by the end of the lease term. The estimated useful lives for the current and comparative periods are as follows: • buildings Up to 40 years • machinery and equipment Up to 15 years • fixtures and fittings • minor components Up to 10 years Up to 5 years Depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate. (e) Intangible assets (i) goodwill goodwill arises on the acquisition of subsidiaries and is tested for impairment annually or more frequently if events or circumstances indicate that the carrying amount may not be recoverable. For measurement of goodwill at initial recognition, see note 3(a)(i). Subsequent measurement goodwill is measured at cost less accumulated impairment losses. In respect of equity accounted investments, the carrying amount of goodwill is included in the carrying amount of the investment. CCL InDUStRIeS InC. 2013 Annual Report 53 NO T E S T O Th E CO N S O L I D AT E D FI N A N C I A L S TAT EmE N T S years ended December 31, 2013 and 2012 (In thousands of Canadian dollars, except share and per share information) (ii) other intangible assets Intangible assets consist of patents, trademarks, brands, software and the value of acquired customer contracts and relationships. Impairment losses for intangible assets where the carrying value is not recoverable are measured based on fair value. Fair value is calculated by using discounted cash flows. The fair value of brands and customer relationships acquired in a business combination are determined using the multi-period excess earnings method, whereby the subject asset is valued after deducting a fair return on all other assets that are part of creating the related cash flows. Amortization is recognized in the income statement on a straight-line basis over the estimated useful lives of intangible assets, other than indefinite life intangible assets, such as brands and goodwill, from the date that they are available for use. The estimated useful lives for the current and comparative years are as follows: • patents and trademarks Up to 10 years • software • customer relationships • brands (f) Leased assets Up to 5 years Up to 15 years Indefinite useful life Leases for which the Company assumes substantially all the risks and rewards of ownership are classified as finance leases. Upon initial recognition, the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset. Assets under operating leases are not recognized in the Company’s statement of financial position. (g) Inventories Inventories are measured 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, production or conversion costs and other costs incurred in bringing them to their existing location and condition. In the case of manufactured inventories and work in progress, cost includes an appropriate share of production overheads based on normal operating capacity. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling. The fair value of inventories acquired in a business combination is determined based on the estimated selling price in the ordinary course of business less the estimated costs of completion and sale, and a reasonable profit margin based on the effort required to complete and sell the inventories. Estimates regarding obsolete and slow-moving inventory are also computed. (h) Impairment (i) financial assets, including receivables A financial asset not carried at fair value through the income statement is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have occurred after the initial recognition of the asset that have a negative effect on the estimated future cash flows of that asset that can be estimated reliably. The Company considers evidence of impairment for loans and receivables and held-to-maturity investment securities at both a specific asset and collective level. All individually significant loans and receivables and held-to-maturity investment securities are assessed for specific impairment. All individually significant loans and receivables and held-to-maturity investment securities found not to be specifically impaired are then collectively assessed for any impairment that has been incurred but not yet identified. In assessing collective impairment, the Company uses historical trends of the probability of default, timing of recoveries and amount of loss incurred, adjusted for management’s judgment as to whether current economic and credit conditions are such that the actual losses are likely to be greater or less than suggested by historical trends. 54 CCL InDUStRIeS InC. 2013 Annual Report An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows, discounted at the original effective interest rate and reflected in an allowance account against accounts receivable. Losses are recognized in the income statement. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss. An impairment loss in respect of an available-for-sale financial asset is calculated by reference to its fair value and is recognized by transferring the cumulative loss that has been recognized in other comprehensive income, and presented in unrealized gains or losses on available-for-sale financial assets in equity, to profit or loss. The cumulative loss that is removed from other comprehensive income and recognized in profit or loss is the difference between the acquisition cost, net of any principal repayment and amortization, and the current fair value, less any impairment loss previously recognized in profit or loss. An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognized. For financial assets measured at amortized cost and for available-for-sale financial assets that are debt securities, the reversal is recognized in the income statement. For available-for-sale financial assets that are equity securities, the reversal is recognized directly in other comprehensive income. (ii) non-financial assets The carrying amounts of non-financial assets, other than inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, the impairment would be recognized in the income statement. Impairments are recorded when the recoverable amount of assets is less than their carrying amount. The recoverable amount is the higher of an asset’s or a cash-generating unit’s fair value less cost to sell and its value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets. For the purposes of goodwill impairment testing, goodwill acquired in a business combination is allocated to the CgU, or the group of CgU, that is expected to benefit from the synergies of the combination. This allocation is subject to an operating segment ceiling test and reflects the lowest level at which that goodwill is monitored for internal reporting purposes. An impairment loss is recognized if the carrying amount of an asset or its CgU exceeds its estimated recoverable amount. Impairment losses are recognized in profit or loss. Impairment losses, other than those relating to goodwill, are evaluated for potential reversals when events or changes in circumstances warrant such consideration. The carrying values of finite-life intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. Additionally, the carrying values of goodwill and indefinite life intangibles are tested annually for impairment. An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognized in prior years are assessed at each reporting date for any indications that the losses have decreased or no longer exist. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. 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 recognized. goodwill that forms part of the carrying amount of an equity accounted investment is not recognized separately and therefore is not tested for impairment separately. Instead, the entire amount of the equity accounted investment is tested for impairment as a single asset when there is objective evidence that the equity accounted investment may be impaired. CCL InDUStRIeS InC. 2013 Annual Report 55 NO T E S T O Th E CO N S O L I D AT E D FI N A N C I A L S TAT EmE N T S years ended December 31, 2013 and 2012 (In thousands of Canadian dollars, except share and per share information) (i) employee benefits (i) Defined contribution plans A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are recognized as an employee benefit expense in the income statement in the period that the service is rendered by the employee. (ii) Defined benefit plans A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The Company’s net obligation in respect of defined benefit post-employment plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value using a discount rate comparable to high-quality corporate bonds. Any unrecognized past service costs and the fair value of any plan assets are deducted. The calculation is performed annually by a qualified actuary using the projected unit credit method. When the calculation results in a benefit to the Company, the recognized asset is limited to the total of any unrecognized past service costs and the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the plan. An economic benefit is available to the Company if it is realizable during the life of the plan, or on settlement of the plan liabilities. When the benefits of a plan are improved, the portion of the increased benefit relating to past service by employees is recognized in the income statement on a straight-line basis over the average period until the benefits become vested. To the extent that the benefits vest immediately, the expense is recognized immediately in the income statement. The Company recognizes all actuarial gains and losses arising from defined benefit plans directly in other comprehensive income immediately and reports them in retained earnings. The Company determines the net interest expense on the net defined benefit liability for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the then-net defined benefit liability, taking into account any changes in the net defined benefit liability during the period as a result of the contributions and benefit balances. Net interest expense and other expenses related to the defined benefit plans are recognized in profit or loss. Previously, interest income on plan assets were based on their long-term expected return. (iii) termination benefits Termination benefits are recognized as an expense when the Company is demonstrably committed, without realistic possibility of withdrawal, to a formal detailed plan to either terminate employment before the normal retirement date or provide termination benefits as a result of an offer made to encourage voluntary redundancy. Termination benefits for voluntary redundancies are recognized as an expense if the Company has made an offer of voluntary redundancy, it is probable that the offer will be accepted and the number of acceptances can be estimated reliably. If benefits are payable more than 12 months after the reporting period, then they are discounted to their present value. (iv) Short-term benefits Short-term employee benefit obligations are measured on an undiscounted basis and are recognized as the related service is provided. (v) Share-based payment transactions For equity-settled share-based plans, the grant date fair value of options granted to employees is recognized as an employee expense, with a corresponding increase in equity, over the period that the employees become unconditionally entitled to the options. The amount recognized as an expense is adjusted to reflect the actual number of share options for which the related service and non-market vesting conditions are expected to be met. The fair value of employee stock options is measured using the Black-Scholes model. measurement inputs include share price on measurement date, exercise price of the instrument, expected volatility, weighted average expected life of the instrument, expected dividends, and the risk-free interest rate. Service and non-market performance conditions attached to the transactions are not taken into account in determining fair value. The fair value of the amount payable for deferred share units (“DSU”), which are settled in cash, is recognized as an expense with a corresponding increase in liabilities when they are issued. The fair value of a DSU is measured using the average of the high and low trading prices of the Class B shares for the five trading days immediately preceding the date of issue and is remeasured, using a similar five-day average, at the financial statement date and at the settlement date. Any changes in the fair value of the liability are recognized as personnel expense in the income statement. The value of DSU received in lieu of dividends is also recognized as a personnel cost in the income statement. 56 CCL InDUStRIeS InC. 2013 Annual Report (j) Provisions A provision is recognized if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognized as a finance cost. (k) Revenue Revenue from sale of goods is measured at the fair value of the consideration received or receivable, net of returns, trade discounts and volume rebates. Revenue is recognized and related costs transferred to cost of sales when the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods, and the amount of revenue can be measured reliably. generally, this would be at the time the goods are shipped. At that time, persuasive evidence of an arrangement exists, the price to the customer is fixed and ultimate collection is reasonably assured. A provision for sales returns and allowances is recognized when the underlying products are sold. The provision is based on an evaluation of product currently under quality assurance review as well as historical sales returns experience. (l) Lease payments Payments made under operating leases are recognized in the income statement on a straight-line basis over the term of the lease. Lease incentives received are recognized as an integral part of the total lease expense, over the term of the lease. minimum lease payments made under finance leases are apportioned between the finance cost and the reduction of the outstanding liability. The finance cost is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. (m) finance income and costs Finance income comprises interest income on invested funds including available-for-sale financial assets, gains on the disposal of available-for-sale financial assets, changes in the fair value of financial assets at fair value through profit or loss, and gains on hedging instruments that are recognized in the income statement. Interest income is recognized as it accrues in the income statement, using the effective interest method. Finance costs comprise interest expense on borrowings, unwinding of the discount on provisions, changes in the fair value of financial assets at fair value through profit or loss, impairment losses recognized on financial assets, and losses on hedging instruments that are recognized in the income statement. All borrowing costs are recognized in the income statement using the effective interest method, except for those amounts capitalized as part of the cost of qualifying property, plant and equipment. (n) taxation Income tax expense comprises current and deferred tax. Income tax expense is recognized in the income statement except to the extent that it relates to items recognized either in other comprehensive income or directly in equity. In this case, the tax is also recognized in other comprehensive income or directly in equity, respectively. (i) Current tax Current tax expense is based on the results for the period as adjusted for items that are not taxable or not deductible. Current tax is calculated using tax rates and laws that were enacted or substantively enacted at the end of the reporting period and includes any adjustments to taxes payable in respect of previous years. management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. Provisions are established where appropriate on the basis of amounts expected to be paid to the tax authorities. (ii) Deferred tax Deferred tax is recognized, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated statement of financial position. Deferred tax is calculated using tax rates and laws that have been enacted or substantively enacted at the end of the reporting period and which are expected to apply when the related deferred tax asset is realized or the deferred tax liability is settled. CCL InDUStRIeS InC. 2013 Annual Report 57 NO T E S T O Th E CO N S O L I D AT E D FI N A N C I A L S TAT EmE N T S years ended December 31, 2013 and 2012 (In thousands of Canadian dollars, except share and per share information) (iii) Deferred tax liabilities Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred tax liabilities are recognized for taxable temporary differences arising on investments in subsidiaries and associates except where the reversal of the temporary difference can be controlled by the Company and it is probable that the temporary difference will not reverse in the foreseeable future. (iv) Deferred tax assets A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they 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 tax benefit will be realized. Deferred tax is not recognized for taxable temporary differences arising on the initial recognition of goodwill or in respect of temporary differences that arise on initial recognition of assets and liabilities acquired other than in a business combination and that affects neither accounting nor taxable profit or loss. (o) Share capital All shares are recorded as equity. When share capital is repurchased, the amount of the consideration paid, which includes directly attributable costs, net of any tax effect, is recognized as a deduction from equity. Repurchased shares are classified as treasury shares and are presented as a deduction from total equity. When repurchased shares are sold or reissued subsequently, the amount received is recognized as an increase in equity, and the resulting surplus or deficit on the transaction is transferred to retained earnings. (p) earnings per share The Company presents basic and diluted earnings per share (“EPS”) data for its Class B shares. Basic EPS is calculated by dividing the profit or loss attributable to shareholders of the Company by the weighted average number of shares outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to shareholders and the weighted average number of shares outstanding for the effects of all potentially dilutive shares, which primarily comprise share options granted to employees. (q) Segment reporting A segment is a distinguishable component of the Company that is engaged either in providing related products (business segment) or in providing products within a particular economic environment (geographical segment), which is subject to risks and returns that are different from those of other segments. Segment information is presented in respect of the Company’s business and geographical segments. The Company’s primary format for segment reporting is based on business segments. The business segments are determined based on the Company’s management and internal reporting structure. Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly other investments and related revenue, loans and borrowings and related expenses, corporate assets (primarily the Company’s headquarters) and head office expenses. Segment capital expenditure is the total cost incurred during the period to acquire property, plant and equipment and intangible assets, other than goodwill. (r) new accounting standards effective 2013 Effective January 1, 2013, the Company adopted the following IFRSs, which only had a nominal impact on the consolidated financial statements: • IFRS 10, Consolidated Financial Statements • IFRS 11, Joint Arrangements • IFRS 12, Disclosure of Interest in Other Entities • IFRS 13, Fair Value measurements • IAS 19R, Employee Benefits • IAS 1, Presentation of Financial Statement (amendments) • IAS 28, Investment in Associates (amendments) • IAS 36, Impairment of Assets (amendments) 58 CCL InDUStRIeS InC. 2013 Annual Report (s) new standards and interpretations not yet effective IFRS 9, Financial Instruments (“IFRS 9”) was issued by the IASB in November 2009 and amended in October 2010 and will replace IAS 39, Financial Instruments: Recognition and measurement (“IAS 39”). IFRS 9 uses a single approach to determine whether a financial asset is measured at amortized cost or fair value. The approach in IFRS 9 is based on how an entity manages its financial instruments in the context of its business model and the contractual cash flow characteristics of the financial assets. The new standard also requires a single impairment method to be used, replacing the multiple impairment methods in IAS 39. most of the requirements in IAS 39 for classification and measurement of financial liabilities were carried forward unchanged to IFRS 9. In November 2013, the IASB issued a new general hedge accounting standard, which forms part of IFRS 9, aligning hedge accounting more closely with risk management. This new standard does not fundamentally change the types of hedging relationships or the requirement to measure and recognize ineffectiveness, however it will provide more hedging strategies that are used for risk management to qualify for hedge accounting and introduce more judgment to assess the effectiveness of a hedging relationship. The mandatory effective date is not yet determined and although early adoption is permitted, Canadian reporting entities cannot early adopt until IFRS 9 has been approved by the Canadian Accounting Standards Board. The Company does not intend to adopt IFRS 9 in its consolidated financial statements for the annual period beginning January 1, 2014 and is currently evaluating the impact of IFRS 9 on its consolidated financial statements. 4 . S e g m e n t RePoR tIn g business segments The Company has three reportable segments, as described below, which are the Company’s main business units. The business units offer different products and services and are managed separately as they require different technology and marketing strategies. For each of the business units, the Company’s chief executive officer and the chief operating decision maker review internal management reports regularly. Effective January 1, 2013, the Company changed its operating segments to incorporate all the entities previously reported within the Tube Segment in the Label Segment, to more closely represent the current management structure and reporting. Comparative segment information has been restated to conform to the current year presentation. The Company’s reportable segments are: • Label – Includes the production of innovative label solutions for consumer product marketing companies in the personal and beauty care, food and beverage, battery, household, chemical and promotional segments of the industry, and it also supplies major pharmaceutical, healthcare, durable goods and industrial chemical companies. Label’s product lines include pressure sensitive, shrink sleeve, stretch sleeve, in-mould and expanded content labels and pharmaceutical instructional leaflets. • Avery – Includes the manufacturing and selling of various office and consumer products, including labels, binders, dividers, sheet protectors and writing instruments in North America, Latin America, Asia Pacific and Europe. • Container – Includes the manufacturing of specialty containers for the consumer products industry in North America, including mexico. The key product line is recyclable aluminum aerosol cans and bottles for the personal care, home care and cosmetic industries, plus shaped aluminum bottles for the beverage market. CCL InDUStRIeS InC. 2013 Annual Report 59 NO T E S T O Th E CO N S O L I D AT E D FI N A N C I A L S TAT EmE N T S years ended December 31, 2013 and 2012 (In thousands of Canadian dollars, except share and per share information) Label Avery Container Corporate expenses Restructuring and other items Earnings in equity accounted investments Finance cost Finance income Income tax expense Net earnings 2013 $ 1,344,206 355,548 189,672 Sales 2012 Operating Income 2013 2012 $ 1,126,871 — 181,680 $ 195,332 40,386 16,483 $ 166,300 — 12,118 $ 1,889,426 $ 1,308,551 $ 252,201 $ 178,418 (33,506) (45,248) 1,870 (26,290) 642 (46,081) (26,363) — 2,165 (21,958) 1,039 (35,811) $ 103,588 $ 97,490 Total Assets Total Liabilities Depreciation and Amortization Capital Expenditures 2013 2012 2013 2012 2013 2012 2013 2012 Label Avery Container Equity accounted investments Corporate $ 1,559,499 $ 1,249,677 $ 357,386 $ 290,100 $ 98,718 $ 88,033 $ 97,711 $ 89,387 — 4,168 6,560 39,437 14,074 — 205,154 49,607 — 12,293 6,047 201,444 141,056 104,502 13,686 — 47,363 452,286 42,878 205,302 — — 771,366 385,635 — 803 — 845 — 46 — — Total $ 2,401,648 $ 1,602,359 $ 1,383,513 $ 715,172 $ 120,155 $ 102,564 $ 116,097 $ 93,555 geographical segments The Label, Avery and Container segments are managed on a worldwide basis but operate in the following geographical areas: • Canada, • United States and Puerto Rico, • mexico and Brazil, • Europe, and, • Asia, Australia and Africa. Canada United States and Puerto Rico mexico and Brazil Europe Asia, Australia and Africa Consolidated 2013 $ 138,098 846,357 174,090 549,585 181,296 Sales 2012 $ 123,768 482,821 144,561 421,555 135,846 Property, Plant and Equipment and Goodwill 2013 $ 113,081 474,895 184,920 431,535 145,801 $ 2012 98,797 298,348 147,678 368,503 119,881 $ 1,889,426 $ 1,308,551 $ 1,350,232 $ 1,033,207 The geographical segment is determined by the location of the Company’s country of operation. 60 CCL InDUStRIeS InC. 2013 Annual Report 5 . a CqU I S ItIo nS On July 1, 2013, the Company completed the acquisition of the Office and Consumer Products (“OCP”) and Designed and Engineered Solutions (“DES”) businesses of Avery Denison Corporation (“OCP” and “DES” collectively referred to as the “Acquired Businesses”). OCP manufactures and sells various office and consumer products, including labels, binders, dividers, sheet protectors and writing instruments. DES is focused on developing and manufacturing high-performance pressure sensitive materials, films and adhesive product solutions for a broad range of applications in consumer packaging, electronics, retail display, automotive and appliance, and specialty industrial markets. The acquisition expands the Company’s product offerings and enhances its existing business. Total consideration for the Acquired Businesses was $511.0 million (US$486.7 million) paid in cash. The following table summarizes the allocation of the consideration to the fair value of the assets acquired and liabilities assumed on July 1, 2013: (In millions of Canadian dollars) Cash consideration Trade and other receivables Inventories Other current assets Property, plant and equipment Other long-term assets goodwill Intangible assets Trade and other payables Other long-term liabilities Net assets acquired $ 511.0 $ 159.5 123.0 3.7 125.4 4.4 112.9 178.9 (171.1) (25.7) $ 511.0 If new information obtained within one year of the acquisition date about facts and circumstances that existed at the acquisition date identifies adjustments to the above amounts, or any additional provisions that existed at the acquisition date, then the accounting for the acquisition will be revised. goodwill is comprised of the excess fair value of the consideration paid over the fair value of the net assets acquired. Factors that make up the amount of goodwill recognized include expected synergies from the acquisition, the expertise of the assembled workforce and cost saving opportunities in the delivery of certain shared administrative and other services. The amount of goodwill deductible for tax purposes is $79.5 million. The Acquired Businesses contributed sales of $462.7 million and earnings before income taxes, net finance costs, earnings in equity accounted investments and restructuring and other items of $52.3 million since the date of acquisition. Pro forma information The unaudited pro forma consolidated financial information below has been prepared following the accounting policies of the Company as if the Acquired Businesses were combined as of January 1, 2013. The unaudited pro forma consolidated financial information has been presented for illustrative purposes only and is not necessarily indicative of results of operations and financial position that would have been achieved had the pro forma events taken place on the dates indicated, or the future consolidated results of operations or financial position of the consolidated company. Future results may vary significantly from the pro forma results presented. The consolidated financial information has been adjusted in preparing the unaudited pro forma consolidated financial information to give effect to events that are: (i) directly attributable to the acquisition; (ii) factually supportable; and (iii) with respect to revenues and earnings, expected to have a continuing impact on the results of the Company. As such the effect of restructuring and other costs has been excluded from the pro forma results. The unaudited pro forma consolidated financial information does not reflect any cost savings (or associated costs to achieve such savings) from operating efficiencies, synergies or other restructuring that could result from the acquisition. CCL InDUStRIeS InC. 2013 Annual Report 61 NO T E S T O Th E CO N S O L I D AT E D FI N A N C I A L S TAT EmE N T S years ended December 31, 2013 and 2012 (In thousands of Canadian dollars, except share and per share information) The following table summarizes the sales and earnings of the Company combined with the Acquired Businesses as though the acquisition took place on January 1, 2013: (In millions of Canadian dollars) Sales Net earnings twelve months ended Dec 31, 2013 $ 2,277.8 $ 132.0 During 2013, the Company completed the acquisition of INT Autotechnik gmbh (“INT”) and Advanced Packaging Films gmbh (“APF”) for $11.7 million and $3.1 million, respectively. goodwill of $8.5 million and nil was recorded for INT and APF, respectively. 6 . C aS H a nD CaS H e qU I V aLe n tS Bank balances Short-term investments Cash and cash equivalents 7 . t RaDe a nD o tHeR ReCeI V a bLeS Trade receivables Other receivables Trade and other receivables 8 . I nVe n t oR IeS Raw material Work in progress Finished goods Total inventories Dec 31, 2013 Dec 31, 2012 $ 197,607 11,488 $ 111,388 77,584 $ 209,095 $ 188,972 Dec 31, 2013 Dec 31, 2012 $ 347,634 15,859 $ 179,171 12,367 $ 363,493 $ 191,538 Dec 31, 2013 Dec 31, 2012 $ 74,242 14,650 92,752 $ 38,204 8,042 43,948 $ 181,644 $ 90,194 The total amount of inventories recognized as an expense in 2013 was $1,414.0 million (2012 – $996.1 million), including depreciation of $112.1 million (2012 – $96.2 million). 9 . eqU ItY aC CoUn t eD InVeSt m e n tS Summary financial information for equity accounted investments, including joint ventures and associates, not adjusted for the percentage ownership held by the Company is as follows: at December 31, 2013 Net income Other comprehensive income (loss) Total comprehensive income (loss) Carrying amount of investments in associates and joint ventures Associates Joint Ventures Total $ $ $ 66 (642) (576) 19,640 $ $ $ 3,674 1,106 4,780 27,723 $ $ $ 3,740 464 4,204 47,363 62 CCL InDUStRIeS InC. 2013 Annual Report Associates Joint Ventures Total at December 31, 2012 Net income Other comprehensive income (loss) Total comprehensive income (loss) Carrying amount of investments in associates and joint ventures 1 0 . PRoPeR tY , P La n t a nD e qU I Pm e n t $ $ $ 1,389 (2,125) (736) 19,224 Cost Balance at January 1, 2012 Acquisitions through business combinations Other additions Disposals Effect of movements in exchange rates Land and Buildings Machinery and Equipment $ 258,550 — 5,227 (8) (2,868) $ 933,356 1,815 87,360 (5,622) (10,865) $ $ $ $ 2,941 91 3,032 23,654 $ $ $ 4,330 (2,034) 2,296 42,878 Fixtures, Fittings and Other 17,581 — 968 (101) (1,534) Total $ 1,209,487 1,815 93,555 (5,731) (15,267) Balance at December 31, 2012 260,901 1,006,044 16,914 1,283,859 Acquisitions through business combinations Other additions Disposals Effect of movements in exchange rates 76,942 19,846 (8) 18,159 56,420 94,640 (15,206) 42,440 2,529 1,611 (214) 937 135,891 116,097 (15,428) 61,536 balance at December 31, 2013 $ 375,840 $ 1,184,338 $ 21,777 $ 1,581,955 accumulated depreciation and impairment losses Balance at January 1, 2012 Depreciation for the year Disposals Effect of movements in exchange rates Balance at December 31, 2012 Depreciation for the year Disposals Effect of movements in exchange rates $ 70,262 10,112 (2) (1,604) 78,768 12,459 (1) 7,753 $ $ 439,877 84,876 (4,430) (6,492) 513,831 98,092 (13,500) 14,778 11,249 1,575 (96) (1,325) 11,403 1,804 (198) 765 $ 521,388 96,563 (4,528) (9,421) 604,002 112,355 (13,699) 23,296 balance at December 31, 2013 $ 98,979 $ 613,201 $ 13,774 $ 725,954 Carrying amounts At December 31, 2012 at December 31, 2013 $ 182,133 $ 276,861 $ 492,213 $ 571,137 $ $ 5,511 8,003 $ 679,857 $ 856,001 CCL InDUStRIeS InC. 2013 Annual Report 63 NO T E S T O Th E CO N S O L I D AT E D FI N A N C I A L S TAT EmE N T S years ended December 31, 2013 and 2012 (In thousands of Canadian dollars, except share and per share information) 1 1 . I n ta n gIbLe aS Se tS Customer Relationships Patents and Trademarks Software Brands Total goodwill Cost Balance at January 1, 2012 Additions Effect of movements in exchange rates Balance at December 31, 2012 $ 68,679 2,137 $ 6,961 101 $ 14,993 60 $ (1,824) 42 (4,825) 68,992 7,104 10,228 — — — — $ 90,633 2,298 $ 355,788 3,884 (6,607) (6,322) 86,324 353,350 Acquisitions through business combinations Additions Effect of movements in exchange rates 37,367 — 4,096 balance at December 31, 2013 $ 110,455 4,725 140 1,160 — 68 481 137,970 — 180,062 208 121,310 — 2,840 8,577 19,571 $ 13,129 $ 10,777 $ 140,810 $ 275,171 $ 494,231 $ 5,794 113 $ 14,112 50 $ (632) (3,975) 5,275 395 948 10,187 74 238 $ 6,618 $ 10,499 $ — — — — — — — $ 55,780 6,001 $ (5,077) 56,704 7,800 3,098 $ 67,602 $ — — — — — — — $ $ 1,829 6,511 $ $ 41 278 $ — $ 140,810 $ 29,620 $ 207,569 $ 353,350 $ 494,231 amortization and impairment losses Balance at January 1, 2012 Amortization for the year Effect of movements in exchange rates 35,874 5,838 $ (470) Balance at December 31, 2012 Amortization for the year Effect of movements in exchange rates 41,242 7,331 1,912 balance at December 31, 2013 $ 50,485 Carrying amounts At December 31, 2012 27,750 at December 31, 2013 $ 59,970 $ 64 CCL InDUStRIeS InC. 2013 Annual Report 1 2 . go oD W I L L Impairment testing for cash-generating units containing goodwill For the purpose of impairment testing, goodwill is allocated to the Company’s operating segments, which represent the lowest level within the Company at which the goodwill is monitored for internal management purposes. The aggregate carrying amounts of goodwill allocated to each unit are as follows: Goodwill Label Avery Container Indefinite-life intangible assets – brands Avery Dec 31, 2013 Dec 31, 2012 $ 406,857 74,629 12,745 $ 340,615 — 12,735 $ 494,231 $ 353,350 $ 140,810 $ — Impairment testing for the Label and Container Segments’ goodwill was done by a comparison of the unit’s carrying amount to its estimated value in use, determined by discounting future cash flows from the continuing use of the unit. key assumptions used in the determination of the value in use include growth rates of 3.1%-4.4%, and discount rates ranging from 8.0%-9.5%. Discount rates reflect current market assumptions and risks related to the segments and are based upon the weighted average cost of capital for the segment. The Company’s historical growth rates are used as a basis in determining the growth rate applied for impairment testing. The estimated value in use of Label and Container exceeded their carrying values. As a result, no goodwill impairment was recorded. goodwill has been recorded for the recent acquisition of the Avery businesses (note 5). The allocation of goodwill to CgUs has not been finalized, and therefore, an impairment test for the reported Avery goodwill has not been performed at December 31, 2013. Impairment testing for indefinite-life intangible assets related to Avery North America and Avery germany of $120.6 million and $20.2 million, respectively, was done by a comparison of the assets carrying amount to its estimated value in use, determined by discounting the CgUs future cash flows. key assumptions used in the determination of the value in use include growth rates of 3%-5% and discount rates ranging from 8.0%-9.5%. Discount rates reflect current market assumptions and risks related to the CgUs and are based upon the weighted average cost of capital. The Company’s growth rates are used as a basis in determining the growth rate applied for impairment testing. 1 3 . t RaDe a nD o tHeR P aYa bLeS Trade payables Other payables Dec 31, 2013 Dec 31, 2012 $ 228,262 247,515 $ 130,371 95,877 $ 475,777 $ 226,248 CCL InDUStRIeS InC. 2013 Annual Report 65 NO T E S T O Th E CO N S O L I D AT E D FI N A N C I A L S TAT EmE N T S years ended December 31, 2013 and 2012 (In thousands of Canadian dollars, except share and per share information) 1 4 . D e f eR ReD taX (a) Unrecognized deferred tax assets Deferred tax assets have not been recognized in respect of the following items: Deductible temporary differences Tax losses Income tax credits Dec 31, 2013 Dec 31, 2012 $ 9,579 24,481 987 $ 455 25,004 1,830 $ 35,047 $ 27,289 The unrecognized deferred tax assets on tax losses of $2,522 will expire between 2014 and 2026, $13,784 will expire beyond 2026 and $8,175 may be carried forward indefinitely. The deductible temporary differences do not expire under current tax legislation. Deferred tax assets have not been recognized in respect of these items because it is not probable that future taxable income will be available against which the Company can utilize the benefits therefrom. Income tax credits of $987 expire between 2014 and 2017. In 2012, $1,338 of previously unrecognized tax losses were recognized as management considered it probable that future taxable income will be available against which they can be utilized. An additional $79 of previously unrecognized tax losses were recognized in 2013, following a further change in the estimates of future taxable income. (b) Recognized deferred tax assets and liabilities Deferred tax assets and liabilities are attributable to the following: Dec 31, 2013 Dec 31, 2012 Dec 31, 2013 Dec 31, 2012 Dec 31, 2013 Dec 31, 2012 Assets Liabilities Net (Assets)/Liabilities $ Property, plant and equipment Intangible assets Derivatives Inventory reserves Employee benefit plans Share-based payments Provisions Other items Tax loss carry-forwards Balance before offset 1,573 64 196 5,045 35,660 6,018 14,417 404 7,735 71,112 Offset of tax (66,997) $ 2,037 872 449 1,797 24,111 3,309 7,253 — 14,858 54,686 (51,724) $ 56,665 50,113 2,880 — — — — — — $ 55,006 46,888 7,868 — — — — 845 — 109,658 (66,997) 110,607 (51,724) $ 55,092 50,049 2,684 (5,045) (35,660) (6,018) (14,417) (404) (7,735) 38,546 — $ 52,969 46,016 7,419 (1,797) (24,111) (3,309) (7,253) 845 (14,858) 55,921 — Balance after offset $ 4,115 $ 2,962 $ 42,661 $ 58,883 $ 38,546 $ 55,921 66 CCL InDUStRIeS InC. 2013 Annual Report Balance Dec 31, 2012 Liability/(Asset) Recognized in Income Statement Acquisitions Translation and Others Recognized in Other Comprehensive Income/Equity balance Dec 31, 2013 Liability/(asset) $ $ Property, plant and equipment Intangible assets Derivatives Inventory reserves Employee benefit plans Share-based payments Provisions Other items Tax loss carry-forwards 52,969 46,016 7,419 (1,797) (24,111) (3,309) (7,253) 845 (14,858) $ $ (4,379) 1,652 (1,547) (3,033) (7,460) (946) (5,838) (1,255) 7,267 3,299 639 — (35) (2,438) — (779) — — $ 3,203 1,742 (92) (180) (1,529) (93) (547) 6 (144) — — (3,096) — (122) (1,670) — — — $ 55,092 50,049 2,684 (5,045) (35,660) (6,018) (14,417) (404) (7,735) $ 55,921 $ (15,539) $ 686 $ 2,366 $ (4,888) $ 38,546 Balance Dec 31, 2011 Liability/(Asset) Recognized in Income Statement Acquisitions Translation and Others Recognized in Other Comprehensive Income Balance Dec 31, 2012 Liability/(Asset) $ Property, plant and equipment Intangible assets Derivatives Inventory reserves Employee benefit plans Share-based payments Provisions Other items Tax loss carry-forwards 56,592 46,006 7,159 (1,518) (25,363) (3,044) (7,067) 7,727 (15,817) $ $ (2,964) (32) (507) (300) 1,480 (289) (265) (1,236) 940 $ — 614 — — — — — — — $ (659) (572) — 21 435 24 79 (5,646) 19 — — 767 — (663) — — — — $ 52,969 46,016 7,419 (1,797) (24,111) (3,309) (7,253) 845 (14,858) $ 64,675 $ (3,173) $ 614 $ (6,299) $ 104 $ 55,921 The aggregate amount of temporary differences associated with investments in subsidiaries and joint ventures for which deferred tax liabilities have not been recognized as at December 31, 2013, is $538 million (2012 – $425 million). The aggregate amount of temporary differences associated with investments in subsidiaries and joint ventures for which deferred tax assets have not been recognized as at December 31, 2013, is $26 million (2012 – $33 million). CCL InDUStRIeS InC. 2013 Annual Report 67 NO T E S T O Th E CO N S O L I D AT E D FI N A N C I A L S TAT EmE N T S years ended December 31, 2013 and 2012 (In thousands of Canadian dollars, except share and per share information) 1 5 . SHaRe CaP ItaL Shares issued Shares (000s) Balance, January 1, 2012 Stock options exercised Conversion of Class A to Class B shares Balance, December 31, 2012 Stock options exercised Normal course issuer bid Conversion of Class A to Class B shares $ $ 2,374 — (5) 2,369 — — (1) Class A Amount 4,517 — (10) 4,507 — — (3) Shares (000s) 31,315 131 5 31,451 619 (50) 1 Class B Amount $ 223,440 3,673 10 $ 227,123 20,081 (364) 3 Total $ 227,957 3,673 — $ 231,630 20,081 (364) — Balance, December 31, 2013 2,368 $ 4,504 32,021 $ 246,843 $ 251,347 At December 31, 2013, the authorized share capital comprised an unlimited number of Class A voting shares and an unlimited number of Class B non-voting shares. The Class A and Class B shares have no par value. All issued shares are fully paid. Both Class A and Class B shares are classified as equity. (i) Class a The holders of Class A shares receive dividends set at $0.05 per share per annum less than Class B shares, are entitled to one vote per share at meetings of the Company and their shares are convertible at any time into Class B shares. (ii) Class b Class B shares rank equally in all material respects with Class A shares, except as follows: (a) The holders of Class B shares are entitled to receive material and attend, but not to vote at, regular shareholder meetings. (b) holders of Class B shares are entitled to voting privileges when consideration for the Class A shares, under a takeover bid when voting control has been acquired, exceeds 115% of the market price of the Class B shares. (c) holders of Class B shares are entitled to receive, or have set aside for payment, dividends declared by the Board of Directors from time to time, set at $0.05 per share per annum greater than Class A shares. Dividends The annual dividends per share were as follows: Class A share Class B share Shares held in trust 2013 0.81 0.86 $ $ 2012 0.73 0.78 $ $ During 2013, the Company granted awards totalling 190,300 Class B shares of the Company. Shares to be used to satisfy this obligation were purchased in the open market and are restricted in nature. These awards are dependent on the Company’s performance and continuing employment. The fair value of these stock awards are amortized over the vesting period and recognized as compensation expense as they are earned. 68 CCL InDUStRIeS InC. 2013 Annual Report 1 6 . eaRnIn gS PeR S HaRe basic earnings per share The calculation of basic earnings per share for the year ended December 31, 2013, was based on profit attributable to Class A shares of $7.1 million (2012 – $6.8 million) and Class B shares of $96.5 million (2012 – $90.7 million) and a weighted average number of Class A shares outstanding of 2,368,838 (2012 – 2,373,817) and Class B shares outstanding of 31,781,053 (2012 – 31,109,722). Weighted average number of shares Issued and outstanding shares at January 1 Effect of repayment of share purchase loans Conversion of Class A to Class B shares Effect of shares released from trust Effect of stock options exercised Effect of shares cancelled Effect of reciprocal shares purchased Effect of reciprocal shares vested Class a Shares 2,369,025 — (187) — — — — — 2013 Class b Shares 31,305,352 — 187 (68) 464,031 (39,583) (55,504) 106,638 Class A Shares 2012 Class B Shares 2,374,025 — (208) — — 31,019,221 23,958 208 (3,394) 64,224 — — — — — 5,505 Weighted average number of shares at December 31 2,368,838 31,781,053 2,373,817 31,109,722 Diluted earnings per share The calculation of diluted earnings per share for the year ended December 31, 2013, was based on profit attributable to Class A shares of $7.0 million (2012 – $6.7 million) and Class B shares of $96.6 million (2012 – $90.8 million) and a weighted average number of Class A shares outstanding of 2,368,838 (2012 – 2,373,817) and Class B shares outstanding of 32,349,184 (2012 – 31,722,762). Weighted average number of shares (diluted) Weighted average number of shares (basic) Effect of deferred share units on issue Effect of reciprocal shareholdings Effect of share options on issue Weighted average number of shares (diluted) Dec 31, 2013 Dec 31, 2012 34,149,891 100,692 96,544 370,895 33,483,539 86,027 263,783 263,230 34,718,022 34,096,579 The average market value of the Company’s shares for purposes of calculating the dilutive effect of share options was based on quoted market prices for the year that the options were outstanding. CCL InDUStRIeS InC. 2013 Annual Report 69 NO T E S T O Th E CO N S O L I D AT E D FI N A N C I A L S TAT EmE N T S years ended December 31, 2013 and 2012 (In thousands of Canadian dollars, except share and per share information) 1 7 . L o a nS a nD b oR RoW In gS This note provides information about the contractual terms of the Company’s interest-bearing loans and borrowings, which are measured at amortized cost. For more information about the Company’s exposure to interest rate, foreign currency and liquidity risk, see note 23. Current liabilities Current portion of unsecured syndicated bank credit facility Current portion of unsecured senior notes Current portion of finance lease liabilities Current portion of other loans Short-term operating credit lines available Short-term operating credit lines used non-current liabilities Unsecured syndicated bank credit facility Unsecured senior notes Finance lease liabilities Other loans Dec 31, 2013 Dec 31, 2012 $ $ $ $ 40,000 — 333 6,737 47,070 14,082 3,432 $ 407,646 253,672 327 3,331 $ $ $ $ $ — 79,565 480 4,656 84,701 17,792 — — 237,175 1,445 5,712 $ 664,976 $ 244,332 Interest rates charged on the credit lines are based on rates varying with London Interbank Offered Rate (“LIBOR”), the prime rate and similar market rates for other currencies. In July 2012, CCL signed an amended bilateral four-year revolving debt agreement, which replaced an agreement expiring in January 2013. Under the new agreement, CCL expanded the unsecured credit commitment from $95.0 million to $200.0 million, improved the terms and conditions with a more flexible structure and extended the expiration date to July 2016. In July 2013, subsequent to the completion of the Acquired Businesses acquisition, the Company entered into a new syndicated $400.0 million non-revolving and $300.0 million revolving facility that replaced the pre-existing bilateral credit facility. Amounts drawn on the revolving facility are due in full at maturity on July 2, 2017. The non-revolving facility has scheduled quarterly repayments of $10.0 million until maturity, with the remaining balance due at maturity on July 2, 2017. As at December 31, 2013, US$56.0 million (LIBOR plus 1.25%) was drawn under the revolving portion of the syndicated credit facility, US$200.0 million (LIBOR plus 1.25%) and EUR61.6 million (EURIBOR plus 1.25%) was drawn under the term portion of the syndicated credit facility. A further US$80.0 million was also drawn under the term portion of the syndicated credit facility; however, the LIBOR on this US$80.0 million was swapped into a fixed rate of 1.047% in mid-September 2013 for a term of three years. The syndicated credit facility spread, currently 1.25%, will continue to be paid on this swapped debt. There were no borrowings under the $200.0 million unsecured revolving line of credit as at December 31, 2012. Each of these facilities was also utilized to support letters of credit. The unused portion of the current syndicated credit facility was $236.8 million at December 31, 2013 (December 31, 2012 – $196.1 million). Other loans include term bank loans and industrial revenue bonds at various rates and repayment terms. In July 2013 and September 2013, the Company made scheduled debt repayments of US$28.0 million and US$52.0 million, respectively. In September 2012, the Company made a scheduled debt repayment of US$9.4 million. half of the US dollar amount had been converted into euro-based debt using cross-currency interest rate swaps agreements (“CCIRSAs”). The CCIRSAs matured the same day as the US$9.4 million payment. As at December 31, 2013, the carrying amount of financial and non-financial assets pledged as collateral, against $5.2 million of long- term debt, amounted to $18.8 million. 70 CCL InDUStRIeS InC. 2013 Annual Report 1 8 . f In a nCe InCo m e a nD CoSt Recognized in income statement Interest expense on financial liabilities measured at amortized cost Interest recognized on other financial instruments Finance cost Interest income on cash and cash equivalents Interest income on loans and receivables and other financial instruments Finance income Net finance cost recognized in income statement The above financial income and expense includes the following in respect of assets (liabilities) not at fair value through profit or loss: Total interest income on financial assets Total interest expense on financial liabilities $ 2013 24,096 2,194 26,290 490 152 642 $ 2012 21,463 495 21,958 904 135 1,039 $ 25,648 $ 20,919 $ $ 642 26,290 $ $ 1,039 21,958 1 9 . emP LoYe e b e n e fItS The Company has defined contribution post-employment plans in Canada, the U.S., Australia, Austria, Brazil, Denmark, germany, the Netherlands, Thailand, the U.k. and Vietnam. The Company also has long-term incentive plans with cash and share-based payments, long-service leave plans and jubilee plans in various countries around the world. The expense for the defined contribution post-employment plans for continuing operations was $19.6 million in 2013 (2012 – $10.9 million), of which $0.1 million (2012 – $0.1 million) was for key management personnel. The primary defined benefit post-employment plans maintained by the Company are as follows: (a) In Canada, the Company has a registered funded defined benefit pension plan for eight designated executives of which only one is an active employee of CCL. The remaining six members and one widow are receiving pension payments. It also maintains non- registered, unfunded supplemental retirement arrangements for one active Canadian executive, eight retired Canadian executives and three retired U.S. executives or their widows. The Company makes all required contributions to the plans. Benefits are based on employee earnings. An actuary is involved in measuring the obligation of the plans and in calculating the expense and any contributions required. The plans are closed to new members. The primary risk factors for these plans are longevity of plan beneficiaries and discount rate volatility. The Company has determined that any surplus in the plan after all obligations have been covered is fully available to the Company. (b) In the U.S., the Company has a post-employment unfunded deferred compensation plan for designated executives (“NqP”). Liabilities are based strictly on the contributions made to the plan. It allows executives to elect to defer specified portions of salary, cash bonuses and long-term incentive plan payments. The Company contributes a matching portion of the executive’s NqP deferred amount to a maximum of 8% of the executive’s base salary plus bonus. The Company may also contribute a discretionary annual company contribution based on a percentage of base salary and annual bonus. Contributions to the NqP for one of the executives vest immediately. For the other executives, immediate vesting of discretionary Company contributions and interest occurs on death, disability or change of control with normal vesting occurring at age 60 with 10 years’ service. The Company match portion and interest vests in the same manner as Company contributions in the 401k plan. Elective deferrals by the executive vest immediately. (c) In the U.k., the Company has a registered funded defined benefit pension plan that has no active members and is closed to new members. Benefits are based on final salary. All members of the plan are either deferred or retired and benefits are provided to spouses or dependents in the event of a member’s death before or after retirement. The Company is required to make payments of gBP650 thousand in deficit funding contributions annually. An actuary is involved in measuring the obligation of the plan and in calculating the expense and any contributions required. The primary risk factors for this plan are longevity of plan beneficiaries and discount rate volatility on the value of the obligation and market risk on the assets. The Company has determined that any surplus in the plan after all obligations have been covered is fully available to the Company. CCL InDUStRIeS InC. 2013 Annual Report 71 NO T E S T O Th E CO N S O L I D AT E D FI N A N C I A L S TAT EmE N T S years ended December 31, 2013 and 2012 (In thousands of Canadian dollars, except share and per share information) (d) In germany, the Company has several unfunded defined benefit plans. There are three salary-based annuity plans that are closed to new membership, but currently have 11 active members. All contributions and benefits are funded by the Company. The primary risk factors for these plans are longevity of plan beneficiaries and discount rate volatility. There are also three cash balance plans for current employees. Two of those plans, making up approximately half of the total liability of the german plans, require the Company to match a specific portion of employee contributions. Upon retirement, lump sum payments are made unless an employee requests an annuity. The third cash balance plan has employer and employee contributions and pays out in three instalments upon retirement. The primary risk factor for these three plans is discount rate volatility. CCL also has unfunded post-employment defined benefit plans in Austria, France, Italy, mexico and Thailand. Benefits are paid out in lump sums upon retirement, disability or death. There are no employee contributions in these plans. Benefits are based on salary and length of service with the Company. The most recent actuarial valuation for funding purposes for the executive defined benefit pension plan in Canada was as of January 1, 2012. The next required actuarial valuation will be as of January 1, 2015. The most recent actuarial valuation of the U.k. defined benefit pension plan for funding purposes was as of January 1, 2011. The next required valuation will be as of January 1, 2014. Dec 31, 2013 Dec 31, 2012 Present value of unfunded defined benefit obligations Present value of wholly or partly funded defined benefit obligations $ 85,638 37,553 $ Total present value of obligations Fair value of plan assets Recognized liability for defined benefit obligations Liability for long-service leave and jubilee plans Liability for long-term incentive plan Cash-settled share-based payment liability Total employee benefits Total employee benefits reported in other payables 123,191 (25,058) 98,133 3,085 2,557 7,888 111,663 2,595 65,026 34,073 99,099 (21,748) 77,351 1,782 — 4,051 83,184 2,102 Total employee benefits reported in non-current liabilities $ 109,068 $ 81,082 72 CCL InDUStRIeS InC. 2013 Annual Report Information for December 31 regarding the defined benefit post-employment plans, including the defined benefit pension plans, supplemental retirement plans and other post-employment defined benefit plans discussed previously, is as follows: Canada/U.S. U.k. germany Other total $ 58,697 $ 25,561 $ 8,673 $ 6,168 $ 99,099 2013 Accrued benefit obligation: Balance, beginning of year Opening balance from current year acquisitions Current service cost Interest cost Employee contributions Benefits paid Actuarial (gain)/loss Effect of movements in exchange rates — 440 2,370 1,019 (1,546) 723 2,406 — — 1,112 — (411) 266 2,380 9,760 676 512 — (390) 508 1,780 Balance, end of year $ 64,109 $ 28,908 $ 21,519 Plan assets: Fair value, beginning of year Expected return on plan assets Actuarial gains/(losses) Employee contributions Employer contributions Benefits paid Effect of movements in exchange rates Fair value, end of year Funded status, net deficit of plans Accrued benefit liability $ $ $ $ 4,462 167 432 — 1,524 (1,546) — 5,039 (59,070) (59,070) $ $ $ $ 17,286 772 (325) — 1,047 (411) 1,650 20,019 (8,889) (8,889) $ $ $ $ — — — 126 264 (390) — — (21,519) (21,519) 1,666 684 282 — (362) (496) 713 11,426 1,800 4,276 1,019 (2,709) 1,001 7,279 $ $ $ $ $ 8,655 $ 123,191 — — — — 285 (285) — — (8,655) (8,655) $ $ $ $ 21,748 939 107 126 3,120 (2,632) 1,650 25,058 (98,133) (98,133) CCL InDUStRIeS InC. 2013 Annual Report 73 NO T E S T O Th E CO N S O L I D AT E D FI N A N C I A L S TAT EmE N T S years ended December 31, 2013 and 2012 (In thousands of Canadian dollars, except share and per share information) Canada/U.S. U.k. germany Other Total 2012 Accrued benefit obligation: Balance, beginning of year Current service cost Interest cost Employee contributions Benefits paid Actuarial (gain)/loss Settlement loss Effect of movements in exchange rates $ 54,610 586 2,207 1,576 (1,430) 1,840 — (692) $ 25,562 — 1,169 — (1,527) (11) (233) 601 Balance, end of year $ 58,697 $ 25,561 Plan assets: Fair value, beginning of year Expected return on plan assets Actuarial gains Employee contributions Employer contributions Benefits paid Settlements Effect of movements in exchange rates Fair value, end of year Funded status, net deficit of plans Accrued benefit liability $ $ $ $ 4,281 275 — — 1,336 (1,430) — — 4,462 (54,235) (54,235) $ $ $ $ 16,422 931 27 — 1,307 (1,527) (277) 403 17,286 (8,275) (8,275) The Company’s net benefit plan expense is as follows: $ $ $ $ $ $ 7,055 212 316 — (281) 1,377 — (6) 8,673 — — — 106 175 (281) — — — (8,673) (8,673) $ $ $ $ $ $ 2013 Canada/U.S. U.k. germany Current service cost Net interest cost on net defined benefit $ 440 $ — $ 676 $ liability 2,203 Net defined benefit plan expense $ 2,643 Net defined benefit plan expense recorded in: Cost of sales $ Selling, general and administrative expenses Finance cost — 2,643 — $ $ Net defined benefit plan expense $ 2,643 $ 340 340 — 340 — 340 $ $ $ $ 512 1,188 456 732 — $ 1,188 $ 2012 Canada/U.S. U.k. germany 5,246 417 250 — (277) 469 — 63 $ 92,473 1,215 3,942 1,576 (3,515) 3,675 (233) (34) 6,168 $ 99,099 — — — — 277 (277) — — — (6,168) (6,168) Other 684 282 966 468 451 47 966 Other $ $ $ $ 20,703 1,206 27 106 3,095 (3,515) (277) 403 21,748 (77,351) (77,351) total $ 1,800 $ $ 3,337 5,137 924 4,166 47 $ 5,137 Total $ 586 $ — $ 212 $ 417 $ 1,215 Current service cost Net interest cost on net defined benefit liability Settlement loss 1,932 — Net defined benefit plan expense $ 2,518 Net defined benefit plan expense recorded in: Cost of sales $ Selling, general and administrative expenses — 2,518 $ $ Net defined benefit plan expense $ 2,518 $ 74 CCL InDUStRIeS InC. 2013 Annual Report 238 44 282 — 282 282 $ $ $ 316 — 528 $ 250 — 667 195 $ 391 333 528 $ 276 667 $ $ $ 2,736 44 3,995 586 3,409 3,995 Actuarial losses recognized directly in equity are as follows: Cumulative amount at January 1 Recognized during the year in other comprehensive income Cumulative amount at December 31 Experience gains/(losses) on plan liabilities Experience gains on plan assets Plan assets consist of the following: 2013 Equity securities Debt securities Real estate Other Total 2012 Equity securities Debt securities Real estate Other Total Canada/U.S. 57% 33% 0% 10% U.k. 53% 34% 7% 6% 100% 100% Canada/U.S. 48% 36% 0% 16% U.k. 53% 37% 7% 3% 100% 100% $ 2013 10,975 894 $ 2012 7,327 3,648 $ 11,869 $ 10,975 (13) 107 germany Other — — — — 0% — — — — 0% 430 27 total 54% 34% 6% 6% 100% germany Other Total — — — — 0% — — — — 52% 37% 6% 5% 0% 100% No plan assets are directly invested in the Company’s own shares or directly in any property occupied by, or other assets used by, the Company. The actual returns on plans assets are as follows: 2013 2012 Canada/U.S. $ $ 599 275 $ $ U.k. 447 958 germany Other $ $ — — $ $ — — $ $ total 1,046 1,233 The weighted average economic assumptions used to determine post-employment benefit obligations are as follows: Canada/U.S. U.k. germany Other December 31, 2013 Discount rate Expected rate of compensation increase December 31, 2012 Discount rate Expected rate of compensation increase 2.93% 3.00% 2.22% 3.00% 4.60% n.a. 4.40% n.a. 3.11% 2.00% 3.31% 2.00% 5.07% 3.51% 4.32% 2.97% total 3.48% 2.68% 3.02% 2.79% CCL InDUStRIeS InC. 2013 Annual Report 75 NO T E S T O Th E CO N S O L I D AT E D FI N A N C I A L S TAT EmE N T S years ended December 31, 2013 and 2012 (In thousands of Canadian dollars, except share and per share information) The weighted average economic assumptions used to determine post-employment plan expenses are as follows: Canada/U.S. U.k. germany Other December 31, 2013 Discount rate Expected rate of compensation increase December 31, 2012 Discount rate Expected rate of compensation increase 2.22% 3.00% 2.69% 3.00% 4.40% n.a. 4.70% n.a. 3.31% 2.00% 4.80% 2.00% 4.72% 3.25% 4.82% 2.87% total 3.03% 2.82% 3.54% 2.79% The sensitivity analysis on the defined benefit obligation is as follows, and is prepared by altering one assumption at a time and keeping the other assumptions unchanged. The resulting defined benefit obligation is then compared to the defined benefit obligation in the disclosures. Discount rate (increase 1%) Discount rate (decrease 1%) Longevity (+1 year) Inflation (+0.25%) Inflation (-0.25%) Salary (increase 1%) Salary (decrease 1%) Duration (years) Canada/U.S. U.k. germany (4,804) 5,535 942 — — 72 (72) 10 (5,782) 6,649 867 1,156 (1,156) — — 21 (2,711) 3,208 190 140 (134) — — 14 Other (931) 1,113 — — — 247 (215) 16 The Company expects to contribute $1.4 million to the funded defined benefit plans and pay $1.9 million in benefits for the unfunded plans in 2014. 2 0 . P eR So n n eL eX Pe nSeS Wages and salaries Compulsory social security contributions Contributions to defined contribution plans Expenses related to defined benefit plans Equity-settled share-based payment transactions 2013 2012 $ 379,242 33,149 19,555 5,137 5,709 $ 282,980 32,096 10,867 3,995 4,432 $ 442,792 $ 334,370 76 CCL InDUStRIeS InC. 2013 Annual Report 2013 2012 $ 61,620 $ 38,984 $ $ $ $ $ $ $ (14,569) (646) (324) (15,539) 46,081 2013 25.3% $ 103,588 46,081 1,870 147,799 (1,394) (522) (1,257) (3,173) 35,811 2012 25.3% 97,490 35,811 2,165 131,136 33,138 4,586 (522) 507 (1,257) 2,235 (2,876) 2 1 . I nCo m e taX eX Pe nSe Current tax expense Current tax on earnings before earnings in equity accounted investments for the year Deferred tax expense (benefit) (note 14) Origination and reversal of temporary differences Impact of tax rate reduction Recognition of previously unrecognized tax losses and deductible temporary differences Total income tax expense Reconciliation of effective tax rate Combined Canadian federal and provincial income tax rates The income tax expense on the Company’s earnings differs from the amount determined by the Company’s statutory rates as follows: Net earnings for the year Add: income tax expense Deduct: earnings in equity accounted investments Earnings before income tax and equity accounted investments Income tax using the Company’s domestic combined Canadian federal and provincial income tax rates Effect of tax rates in foreign jurisdictions Impact of tax rate reduction Capital gain offset against losses Recognition of previously unrecognized tax losses and deductible temporary differences Losses and deductible temporary differences for which no deferred tax asset was recognized Non-deductible expenses and other items 37,349 5,142 (646) 1,470 (324) 9,432 (6,342) Income tax (recovery) recognized directly in other comprehensive income Derivatives and foreign currency translation adjustments Actuarial gains and losses Total income tax recognized directly in other comprehensive income $ 46,081 $ 35,811 $ $ (3,096) (122) (3,218) $ $ 767 (663) 104 The Company is subject to income taxes in numerous jurisdictions. Significant judgment is required in determining the worldwide provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain. The Company recognizes liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. If the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred income tax assets and liabilities in the period in which such determination is made. CCL InDUStRIeS InC. 2013 Annual Report 77 NO T E S T O Th E CO N S O L I D AT E D FI N A N C I A L S TAT EmE N T S years ended December 31, 2013 and 2012 (In thousands of Canadian dollars, except share and per share information) 2 2 . SHaRe - b aSeD P aYm e n tS At December 31, 2013, the Company had three share-based compensation plans, which are described below: (i) employee stock option plan Under the employee stock option plan, the Company may grant options to employees, officers and inside directors of the Company for up to 4,500,000 Class B non-voting shares. The Company does not grant options to outside directors. The exercise price of each option equals the market price of the Company’s stock on the date of grant, and an option’s maximum term is 10 years. Current options vest 25% one year from the grant date and 25% each subsequent year. The term of these options is five years from the grant date. In general, the grants are conditional upon continued employment. No market conditions affect vesting. granted options are not entitled to dividends and may not be transferred or assigned by the option holder. There are several exceptions to the above vesting schedule. In 2008, an option grant of 25,000 shares was made upon the acquisition of Clear Image Labels Pty. Ltd. by the Company. These options vested after three years and expire after five years. In 2007 and 2008, options were granted for 125,000 shares as part of the Company’s long-term incentive plan. They vested based on 2008-2010 Company performance and continued employment, and expired in 2013. Of these options, 25,000 have been forfeited and, of the remaining 100,000 options, 50% vested in 2011 and 50% vested in 2012. For options and share awards granted for stock-based compensation, $5.7 million (2012 – $4.4 million) has been recognized in the financial statements as an expense with a corresponding offset to contributed surplus. The fair value of options granted has been estimated using the Black-Scholes model and the following assumptions: Risk-free interest rate Expected life Expected volatility Expected dividends 2013 1.40% 2012 1.43% 4.5 years 4.5 years 28% 0.86 $ 31% 0.78 $ A summary of the status of the Company’s Employee Stock Option Plan as of December 31, 2013 and 2012, and changes during the years ended on those dates, is presented below: Outstanding at beginning of year Granted Exercised Expired Outstanding at end of year Options exercisable at end of year 2013 Weighted average exercise Price $ $ $ 29.02 56.00 27.35 — 37.44 28.59 Shares (000s) 1,228 220 (619) — 829 284 2012 Weighted Average Exercise Price $ $ $ 26.93 35.65 24.24 44.25 29.02 27.70 Shares (000s) 1,094 275 (131) (10) 1,228 657 The weighted average share price at the date of exercise in 2013 was $60.51 (2012 – $36.55). 78 CCL InDUStRIeS InC. 2013 Annual Report The following table summarizes information about the employee stock options outstanding at December 31, 2013. Range of Exercisable Prices $25.48–$30.00 $30.01–$36.00 $36.01–$56.00 $25.48–$56.00 (ii) Deferred share units Options Outstanding Options Exercisable Options Outstanding (000s) Weighted Average Remaining Contractual Life Weighted Average Exercise Price Options Exercisable (000s) Weighted Average Exercise Price 331 278 220 829 1.5 years 3.1 years 4.1 years 2.8 years $ $ $ $ 26.89 35.30 56.00 37.44 225 59 — 284 $ $ $ 26.89 35.10 — 28.59 The Company maintains a deferred share unit plan. Under this plan, non-employee members of the Company’s Board of Directors may elect to receive DSUs, in lieu of cash remuneration, for director fees that would otherwise be payable to such directors or any portion thereof. The number of units received is equivalent to the fees earned and is based on the fair market value of a Class B non-voting share of the Company’s capital stock on the date of issue of the DSU. When dividends are paid on Class B non-voting shares of the Company, the equivalent value per DSU is calculated and the holder receives additional DSUs in lieu of actual cash dividends based on the fair market value of a Class B non-voting share of the Company. DSUs cannot be redeemed or paid out until such time as the director ceases to be a director. A DSU entitles the holder to receive, on a deferred payment basis, either the number of Class B non- voting shares of the Company equating to the number of his or her DSUs or, at the election of the Company, a cash amount equal to the fair market value of an equal number of Class B non-voting shares of the Company on the redemption date. The Company accounts for the DSUs as cash-settled share-based payment transactions. The Company had 100,296 DSUs outstanding as at December 31, 2013, valued at $7.9 million based on a five-day average of the Class B non-voting shares of the Company of $78.65. The amount recognized as an expense in 2013 totalled $4.3 million (2012 – $1.8 million). (iii) Restricted share units The Company has shares held in trust to be used to satisfy future employee benefits related to its long-term incentive plan as outlined in note 15. 2 3 . f In a nC IaL InStR Um e n tS (a) Cash flow hedges During the third quarter of 2013, the Company entered into an interest rate swap agreement (“IRSA”), the hedging item, in order to redistribute the Company’s exposure to fixed and floating interest rates with a view to reducing interest rates over the long term. The hedged item was US$80.0 million of the syndicated credit facility. Fair value of this IRSA was recorded in derivative instruments on the consolidated statements of financial position. Change in fair value of the IRSA and the change in fair value of the debt are recorded in other comprehensive income. No ineffectiveness was recognized in the consolidated income statement as this was a fully effective hedge. This swap matures in September 2016. Notional Principal Amount Paid (USD) Interest Rate Received (USD) Fair Value December 31 2013 (CAD) 2012 (CAD) maturity Effective Date USD80.0 million 1.047% 3-month LIBOR (747.7) — September 13, 2016 September 13, 2013 CCL InDUStRIeS InC. 2013 Annual Report 79 NO T E S T O Th E CO N S O L I D AT E D FI N A N C I A L S TAT EmE N T S years ended December 31, 2013 and 2012 (In thousands of Canadian dollars, except share and per share information) The Company has in place numerous aluminum derivative contracts (hedging item) that are used to fix the price the Company is required to pay for its anticipated aluminum manufacturing requirements (hedged item). Aluminum is the major raw material used in the Container segment. The Company uses these contracts along with fixed price customer contracts to minimize the impact of aluminum price fluctuations. The Company does not enter into these contracts for speculative purposes. The changes in value of the aluminum derivative contracts are recorded in other comprehensive income. Any ineffective portion is recorded in selling, general and administrative expenses. For 2013 and 2012, no ineffectiveness was recognized. Payments made or proceeds received upon the settlement of these contracts are recorded in cost of goods sold. Prices for aluminum fluctuate in response to changes in supply and demand, market uncertainty and a variety of other factors beyond the Company’s control. A USD100/mT increase (decrease) in the price of aluminum would have resulted in a $0.5 million (2012 – $0.5 million) decrease (increase) in other comprehensive income and no impact on the earnings from operations (2012 – nil) of the Company. This analysis assumes that all other variables, in particular foreign currency rates, remain constant. (b) fair value hedges During 2006, the Company entered into a CCIRSA (hedging item) that converted fixed rate unsecured U.S. dollar-denominated senior notes (hedged item) into Canadian dollar-denominated floating rate debt in order to reduce the Company’s exposure to the U.S. dollar- denominated debt and create a better balance between fixed and floating interest rate exposures. The fair value of the swap was recorded in derivative instruments on the consolidated statements of financial position. Change in fair value of the debt was accounted for in current and non-current liabilities and offset the swap fair value on the income statement. No ineffectiveness was recognized in the income statement as this was a fully effective hedge. This swap matured in September 2012. Notional Principal Amount Interest Rate Fair Value December 31 Fixed Rate Floating Rate Paid (CAD) Received (USD) 2013 (CAD) 2012 (CAD) maturity Effective Date USD28.1 million* CAD32.6 million 3-month BA + 2.01% * There was an annual principal payment on this swap. 6.97% — — September 16, 2012 December 29, 2006 During 2003, the Company entered into an IRSA, the hedging item, in order to redistribute the Company’s exposure to fixed and floating interest rates with a view to reducing interest costs over the long term. The hedged item was 50% of a fixed rate unsecured U.S. dollar- denominated senior note. Fair value of this IRSA was recorded in derivative instruments on the consolidated statements of financial position. Change in fair value of the debt was accounted for in current and non-current liabilities and offset the IRSA’s fair values on the income statement. No ineffectiveness was recognized in the income statement as this was a fully effective hedge. This swap matured in September 2012. Notional Principal Amount Currency Paid (USD) Received (USD) 2013 (CAD) 2012 (CAD) maturity Effective Date Interest Rate Fair Value December 31 3-month LIBOR + $42.1 million* USD 2.97% 6.97% — — September 16, 2012 December 16, 2003 * There was an annual principal payment on this swap. 80 CCL InDUStRIeS InC. 2013 Annual Report (c) Hedges of net investment in self-sustaining operations During 2006, the Company entered into a CCIRSA, the hedging item, that converted Canadian dollar-denominated floating rate debt into euro-denominated floating rate debt in order to hedge the Company’s exposure to its net investment in self-sustaining euro-denominated operations, with a view to reducing foreign exchange fluctuations and interest expense. Fair value of this CCIRSA was recorded in derivative instruments on the consolidated statements of financial position. The offset was recorded in other comprehensive income. This was a 100% fully effective hedge as the notional amount of the hedging item equalled the portion of the net investment balance being hedged. No ineffectiveness was recognized in the income statement. The CCIRSA matured in September 2012. Notional Principal Amount Interest Rate Fair Value December 31 Floating Rate Floating Rate Paid (EUR) Received (CAD) 2013 (CAD) 2012 (CAD) maturity Effective Date CAD32.6 million* EUR21.3 million 6-month EURIBOR + 1.99% 3-month BA + 2.01% * There was an annual principal payment on this swap. — — September 16, 2012 December 29, 2006 US$239.0 million (2012 – US$319.0 million) of unsecured U.S. dollar-denominated senior notes and US$336.0 million (2012 – nil) of the unsecured syndicated credit facility (hedging items) have been used to hedge the Company’s exposure to its net investment in self-sustaining U.S. dollar-denominated operations with a view to reducing foreign exchange fluctuations. The foreign exchange effect of the senior notes, the syndicated credit facility and the net investment in U.S. dollar-denominated subsidiaries is reported in other comprehensive income. These have been and continue to be 100% fully effective hedges as the notional amounts of the hedging items equal the portion of the net investment balance being hedged. No ineffectiveness has been recognized in the income statement. EUR61.6 million (2012 – nil) of the unsecured syndicated credit facility (hedging item) have been used to hedge the Company’s exposure to its net investment in self-sustaining euro-denominated operations with a view to reducing foreign exchange fluctuations. The foreign exchange effect of both the syndicated credit facility and the net investment in euro-denominated subsidiaries is reported in other comprehensive income. This has been and continues to be a 100% fully effective hedge as the notional amount of the hedging item equals the portion of the net investment balance being hedged. No ineffectiveness has been recognized in the income statement. (d) Credit risk exposure to credit risk The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was: Cash and cash equivalents Trade and other receivables Available-for-sale financial assets Impairment losses The aging of trade receivables at the reporting date was: Under 31 days Between 31 and 90 days greater than 90 days Dec 31, 2013 Dec 31, 2012 $ 209,095 363,493 12,884 $ 188,972 191,538 9,812 $ 585,472 $ 390,322 Dec 31, 2013 Dec 31, 2012 $ 240,441 106,422 14,580 $ 99,323 73,868 9,462 $ 361,443 $ 182,653 CCL InDUStRIeS InC. 2013 Annual Report 81 NO T E S T O Th E CO N S O L I D AT E D FI N A N C I A L S TAT EmE N T S years ended December 31, 2013 and 2012 (In thousands of Canadian dollars, except share and per share information) The movement in the allowance for impairment in respect of trade receivables during the year was as follows: Balance at January 1 Increase during the year Balance at December 31 Dec 31, 2013 Dec 31, 2012 $ $ 3,482 2,154 5,636 $ $ 3,326 156 3,482 Based on historical default rates, the Company believes that no impairment allowance is necessary in respect of trade receivables not past due. (e) Liquidity risk exposure to liquidity risk The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding the impact of netting agreements: (In millions of Canadian dollars) Dec 31, 2012 Carrying Amount Carrying Amount Contractual Cash Flows 0–6 months 6–12 months Non-derivative financial liabilities Secured bank loans Unsecured bank loans Unsecured senior notes Finance lease liabilities Unsecured bank credit facility Other long-term obligations $ 1.4 $ 8.9 316.7 1.9 — 0.1 3.9 $ 4.9 253.7 0.7 447.6 1.2 3.9 4.9 254.2 0.7 447.6 1.2 $ $ 0.7 1.5 — 0.2 20.0 0.2 $ 0.7 3.4 — 0.1 20.0 0.2 1–2 years 1.2 — — 0.3 40.0 0.4 Dec 31, 2013 Payments Due by Period 2–5 years More than 5 years $ $ 1.3 — 254.2 0.1 367.6 0.4 Interest on unsecured senior notes Interest on unsecured bank credit facility Interest on other long-term debt Trade and other payables Derivative financial liabilities Outflow – CF hedges Interest on derivatives Accrued post-employment benefit liabilities Operating leases Total contractual cash obligations * * 52.4* 2.5 — — 226.2 — — 475.8 27.6* 0.8 475.8 3.0 0.3 475.8 0.4 * * — 1.4 * * — 0.6 1.8* 23.8* 70.6 0.4 0.3 0.7 6.0 8.0 4.1 0.2 — 0.2 0.3 0.7 6.0 15.9 26.0 8.2 0.2 — — 0.7 3.1 10.2 12.3 0.1 — — 0.5 9.3 24.3 $ 555.6 $ 1,189.2 $ 1,365.9 $ 511.6 $ 43.9 $ 80.2 $ 696.1 $ 34.1 * Accrued long-term employee benefit and post-employment benefit liability of $2.6 million, accrued interest of $6.5 million on unsecured senior notes and syndicated credit facility and accrued interest of nil on derivatives are reported in trade and other payables in 2013 (2012: $2.1 million, $6.8 million and nil, respectively). 82 CCL InDUStRIeS InC. 2013 Annual Report — — — — — — — — — — — — — 10.0 24.1 The following tables indicate the periods in which the cash flows associated with derivatives that are cash flow hedges are expected to impact the income statement: Dec 31, 2012 Dec 31, 2013 Payments Due by Period Carrying Amount Carrying Amount Contractual Cash Flows 0–6 months 6–12 months $ — 0.4 $ — 0.6 $ 0.5 2.9 $ 0.1 0.8 $ 0.1 0.6 $ 1–2 years 0.2 0.9 2–5 years 0.1 0.6 $ $ (0.4) $ (0.6) $ (2.4) $ (0.7) $ (0.5) $ (0.7) $ (0.5) $ More than 5 years $ — — — Assets Liabilities Total (f) Currency risk exposure to currency risk The Company’s exposure to foreign currency risk was as follows based on notional amounts: Dec 31, 2013 Dec 31, 2012 U.S. Dollar 72,449 159,369 213,815 574,525 great britain Pound 8,971 12,607 8,932 — euro 51,543 56,769 77,533 65,483 U.S. Dollar 112,035 59,396 85,652 318,384 Great Britain Pound 6,245 6,646 4,325 — Euro 36,574 41,049 44,122 1,587 Cash and cash equivalents Trade and other receivables Trade and other payables Long-term debt Sensitivity analysis A five percent weakening of the Canadian dollar, as indicated below, against the following currencies at December 31 would have increased (decreased) equity and income by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant. Euro U.S. dollar great Britain pound 2013 7,281 2,346 7,941 Equity 2012 9,535 (630) 8,105 Income Statement 2013 560 94 (3) 2012 496 277 (3) A five percent strengthening of the Canadian dollar against the above currencies at December 31 would have had the equal but opposite effect on the above currencies to the amounts shown above, on the basis that all other variables remain constant. (g) Interest rate risk An increase of 100 basis points in interest rates at the reporting date would have increased net income by $0.1 million (2012 – $1.0 million) and have no impact on other comprehensive income. This analysis assumes that all other variables, in particular foreign currency rates, remain constant. CCL InDUStRIeS InC. 2013 Annual Report 83 NO T E S T O Th E CO N S O L I D AT E D FI N A N C I A L S TAT EmE N T S years ended December 31, 2013 and 2012 (In thousands of Canadian dollars, except share and per share information) (h) fair values versus carrying amounts The fair value of financial assets and liabilities, together with the carrying amounts shown in the statement of financial position, are as follows: Assets carried at fair value: Available-for-sale financial assets Assets carried at amortized cost: Loans and receivables Cash and cash equivalents Liabilities carried at fair value: Derivative financial liabilities Liabilities carried at amortized cost: Secured bank loans Unsecured senior notes Finance lease liabilities Unsecured bank loans Unsecured bank credit facility Other long-term loan Trade and other payables Dec 31, 2013 Dec 31, 2012 Carrying amount fair Value Carrying Amount Fair Value $ 12,884 $ 12,884 $ 9,812 $ 9,812 363,493 209,095 363,493 209,095 191,538 188,972 191,538 188,972 $ 572,588 $ 572,588 $ 380,510 $ 380,510 1,390 $ 1,390 $ 1,390 1,390 $ 435 435 $ 435 435 3,946 253,672 660 4,896 447,646 1,226 475,777 3,946 284,402 660 4,896 447,646 1,226 475,777 1,426 316,740 1,925 8,913 — 29 226,248 1,426 357,075 1,925 8,913 — 29 226,248 $ 1,187,823 $ 1,218,553 $ 555,281 $ 595,616 The basis for determining fair values is disclosed in note 3. The interest rates used to discount estimated cash flows for the unsecured senior notes are based on the government yield curve at the reporting date plus an adequate credit. 84 CCL InDUStRIeS InC. 2013 Annual Report (i) fair value hierarchy The table below summarizes level of hierarchy for financial assets and liabilities. It does not include fair value information for financial assets and financial liabilities not measured at fair value if the carrying value is a reasonable approximation of fair value. The different levels have been defined as follows: • Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities • Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices) • Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs) December 31, 2013 Available-for-sale financial assets Derivative financial liabilities Unsecured senior notes December 31, 2012 Available-for-sale financial assets Derivative financial liabilities Unsecured senior notes Level 1 Level 2 Level 3 total $ $ $ $ $ $ — — — — — — — — $ $ $ $ $ $ 12,884 1,390 — $ $ — — 284,402 $ $ 12,884 1,390 284,402 1,390 $ 284,402 $ 285,792 9,812 435 — 435 $ $ — — 357,075 $ $ 9,812 435 357,075 $ 357,075 $ 357,510 2 4 . f In a nC IaL R I S K m a n a g e m e n t The Company has exposure to the following risks from its use of financial instruments: • credit risk, • liquidity risk, and • market risk. This note presents information about the Company’s exposure to each of the above risks, the Company’s objectives, policies and processes for measuring and managing risk, and the Company’s management of capital. Further quantitative disclosures are included throughout these consolidated financial statements. The Company’s risk management policies are established to identify and analyze the risks faced by the Company, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Company’s activities. The Company, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations. Credit risk Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Company’s receivables from customers and investment securities. The Company has established a credit policy under which each new customer is analyzed individually for creditworthiness before the Company’s payment and delivery terms and conditions are offered. The Company’s review includes external ratings, where available, and in some cases bank references. Purchase limits are established for each customer, which represent the maximum open amount without requiring approval from senior management; these limits are reviewed quarterly. Customers that fail to meet the Company’s benchmark creditworthiness may transact with the Company only on a prepayment basis. The Company is potentially exposed to credit risk arising from derivative financial instruments if a counterparty fails to meet its obligations. These counterparties are large international financial institutions and, to date, no such counterparty has failed to meet its financial obligations to the Company. As at December 31, 2013, the Company did not have any exposure to credit risk arising from derivative financial instruments. CCL InDUStRIeS InC. 2013 Annual Report 85 NO T E S T O Th E CO N S O L I D AT E D FI N A N C I A L S TAT EmE N T S years ended December 31, 2013 and 2012 (In thousands of Canadian dollars, except share and per share information) Liquidity risk Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company manages liquidity by monitoring expected cash flows and ensuring the availability of credit to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when they are due. The financial obligations of the Company include trade and other payables, long-term debts and other long-term items. The contractual maturity of trade payables is six months or less. Long-term debts have varying maturities extending to 2018. market risk market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and commodity prices, will affect the Company’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return. The Company uses derivatives to manage market risks. generally the Company seeks to apply hedge accounting in order to manage volatility in profit or loss. The Company does not utilize derivative financial instruments for speculative purposes. (i) Currency risk The Company operates internationally, giving rise to exposure to market risks from changes in foreign exchange rates. The Company partially manages these exposures by contracting primarily in Canadian dollars, euros, U.k. pounds and U.S. dollars. Additionally, each subsidiary’s sales and expenses are primarily denominated in its local currency, further minimizing the foreign exchange impact on the operating results. In other cases, borrowings are done by non-Canadian-dollar-based subsidiaries in their own functional currencies such that the principal and interest are denominated in a currency that matches the cash flows generated by those subsidiaries. These provide natural hedges that do not require the application of hedge accounting. (ii) Interest rate risk The Company is exposed to market risks related to interest rate fluctuations on its debt. To mitigate this risk, the Company maintains a combination of fixed and floating rate debt. (iii) Commodity price risk Aluminum is the major raw material used in the Container Segment. Prices for aluminum fluctuate in response to changes in supply and demand, market uncertainty and a variety of other factors beyond the Company’s control. The Company uses customer specific aluminum derivative instruments (hedging items) along with fixed price contracts (hedged items) to minimize the impact of aluminum price fluctuations. Aluminum derivative contracts are accounted for as cash flow hedges and changes in value are recorded on the statement of financial position in other comprehensive income. Any ineffective portion is recorded in selling, general and administrative expenses. Payments made or proceeds received upon the settlement of these contracts are recorded in cost of goods sold. 86 CCL InDUStRIeS InC. 2013 Annual Report Capital management The Company’s objective is to maintain a strong capital base throughout the economic cycle so as to maintain investor, creditor and market confidence and to sustain the future development of the business. This capital structure supports the Company’s objective to provide an attractive financial return to its shareholders equal to that of its leading specialty packaging peers (between 12% and 14% up until 2009 but lower since the global recession). The Company defines capital as total equity and measures the return on capital (or return on equity) by dividing annual net earnings before goodwill impairment loss, restructuring and other items, finance costs related to the Acquired Businesses and non-cash finished goods inventory adjustments by the average of the beginning and the end-of-year shareholders’ equity. In 2013, the return on capital was 15.8% (2012 – 11.4%) and was well within the range of the Company’s leading specialty packaging peers. management and the Board maintain a balance between the expected higher return on capital that might be possible with a higher level of financial debt and the advantages and security afforded by a lower level of financial leverage. The Company believes that an optimum level of net debt (defined as current debt, including bank advances, plus long-term debt, less cash and cash equivalents) to total book capitalization (defined as net debt plus equity) is a maximum of 45%. This ratio was 33% at December 31, 2013 (2012 – 14%) and therefore the Company has further capacity to invest in the business with additional debt without exceeding the optimum level. In comparison, the weighted average interest rate on interest-bearing borrowings (excluding liabilities with imputed interest) was 3.4% (2012 – 6.2%). The Company has provided a growing level of dividends to its shareholders over the last few years, generally related to its growth in earnings. Dividends are declared bearing in mind the Company’s current earnings, cash flow and financial leverage. There were no changes in the Company’s approach to capital management during the year. The Company is subject to certain covenants on its unsecured senior notes. This includes a covenant requiring a minimum consolidated net worth. The Company monitors the ratios on a quarterly basis and at December 31, 2013, was in compliance with all its covenants. 2 5 . o PeRatIn g Le aSeS Non-cancellable operating lease rentals are payable as follows: Less than one year Between one and five years more than five years $ 2013 11,911 34,524 24,149 $ 2012 9,988 18,846 7,604 $ 70,584 $ 36,438 The Company enters into operating leases in the ordinary course of business, primarily for real property and equipment. Payments and other terms for these leases vary per agreement. During the year ended December 31, 2013, $14.3 million was recognized as an expense in the income statement in respect of operating leases (2012 – $11.2 million). 2 6 . R eLat eD P aR tIeS transactions with key management personnel In march 2008, a US$1.5 million interest-bearing unsecured demand loan was provided to an executive officer. During 2013, interest accrued on this loan at a rate of 4.13% (2012 – 4.17%). At December 31, 2013, the principal and accrued interest balance was US$1.9 million (2012 – US$1.9 million) and is included in other assets. beneficial ownership The directors and officers of CCL Industries Inc. as a group beneficially own, control, or direct, directly or indirectly, approximately 2,244,030 of the issued and outstanding Class A voting shares, representing 94.8% of the issued and outstanding Class A voting shares. CCL InDUStRIeS InC. 2013 Annual Report 87 NO T E S T O Th E CO N S O L I D AT E D FI N A N C I A L S TAT EmE N T S years ended December 31, 2013 and 2012 (In thousands of Canadian dollars, except share and per share information) 2 7 . K eY m a n a g e m e n t PeR So n n eL Co mPe nSatIo n Short-term employee compensation and benefits Share-based compensation Post-employment benefits 2 8 . a C C UmU Lat eD o tHeR Co mP ReHe nS I Ve InCo m e (LoS S) Unrealized foreign currency translation gains (losses), net of tax recovery of $1,532 (2012 – tax expense of $1,407) Losses on derivatives designated as cash flow hedges, net of tax recovery of $275 (2012 – tax recovery of $118) 2 9 . R eStR U CtU R In g a nD o tHeR It e mS Avery Segment restructuring Container Segment restructuring Label Segment restructuring Acquisition costs Total restructuring and other items $ 2013 9,455 11,173 61 $ 2012 8,692 1,953 416 $ 20,689 $ 11,061 2013 2012 $ 1,289 $ (46,834) (1,000) (202) $ 289 $ (47,036) $ 2013 27,930 11,000 1,495 4,823 $ $ 45,248 $ 2012 — — — — — In 2013, the Company recorded $27.9 million ($19.5 million, net of tax) in restructuring related to the acquisition of the Acquired Businesses, primarily relating to severance costs, and $4.8 million ($3.2 million, net of tax) in related transaction costs. In 2013, the Container Segment recorded $11.0 million with no tax effect for severance and asset impairments related to the closure of the Company’s aerosol container plant in Penetanguishene, Ontario. In 2013, as part of restructuring in the Label Segment, the Company recorded $1.5 million ($1.3 million, net of tax) for severance and closure costs. 3 0 . SUbSe qUe n t eVe n tS In January 2014, the Company announced that it had signed a binding agreement to acquire Sancoa and TubeDec for US$71.0 million cash subject to customary closing adjustments. The two businesses, which supply labels and plastic tubes to home and Personal Care customers in North America, had combined revenues of approximately US$82.5 million in the calendar year of 2013. The transaction is subject to regulatory approval and is expected to close during the first quarter of 2014. The Board of Directors has declared a dividend of $0.2500 per Class B non-voting share and $0.2375 per Class A voting share, which will be payable to shareholders of record at the close of business on march 17, 2014, to be paid on march 31, 2014. 88 CCL InDUStRIeS InC. 2013 Annual Report SI X Y e aR f In a nC IaL SUm m aR Y (In thousands of Canadian dollars, except per share and ratio data) 2013 2012 2011 2010 2009* 2008* Sales and net earnings Sales 1 Depreciation and amortization 1 Finance cost/ $ 1,889,426 $ 1,308,551 $ 1,268,477 $ 1,192,318 $ 1,198,984 $ 1,189,025 120,155 102,564 100,177 95,406 100,004 85,144 Interest expense1 Net earnings Basic net earnings per Class B share $ $ 25,648 103,5882 3.042 20,919 97,490 2.91 $ $ 21,384 84,1263 2.543 $ $ 25,285 71,0934 2.174 $ $ 29,323 42,1745 1.315 23,949 47,9866 1.506 $ $ $ $ financial Position Current assets Current liabilities Working capital7 Total assets Net debt Equity Net debt to equity ratio Net debt to total book capitalization $ 770,193 544,549 225,644 2,401,648 502,951 $ 1,018,135 0.49 $ 476,909 322,155 154,754 1,602,359 140,061 $ 887,187 0.16 $ 426,559 256,243 170,316 1,613,481 213,270 $ 816,880 0.26 $ 440,836 317,985 122,851 1,627,974 248,702 $ 769,327 0.32 $ 399,154 266,743 132,411 1,645,497 347,545 $ 752,757 0.46 $ 407,947 276,711 131,236 1,766,674 456,253 $ 750,518 0.61 33.1% 13.6% 20.7% 24.4% 31.6% 37.8% number of Shares (000s) Class A – Dec. 31 Class B – Dec. 31 Weighted average for the year 2,368 32,021 34,150 2,369 31,451 2,374 31,315 2,374 30,912 2,374 30,674 2,374 30,181 33,484 33,111 32,830 32,340 32,090 Cash flow Cash provided by operating activities $ Additions to plant, property and equipment Business acquisitions Dividends Dividends per Class B share $ 333,738 $ 199,322 $ 171,376 $ 168,399 $ 150,280 $ 216,348 116,097 528,319 29,408 93,555 11,591 32,088 81,447 25,156 23,343 85,794 1,246 20,730 99,310 5,327 18,964 192,801 40,677 17,512 0.86 $ 0.78 $ 0.70 $ 0.66 $ 0.60 $ 0.56 * Amounts presented are as reported under previous Canadian gAAP and have not been restated for IFRS. 1 Excluding discontinued operations 2 After pre-tax restructuring and other items – net loss of $45.2 million. 3 After pre-tax restructuring and other items – net loss of $0.8 million. 4 After pre-tax restructuring and other items – net loss of $0.2 million. 5 After pre-tax restructuring and other items – net loss of $7.3 million. 6 After pre-tax restructuring and other items – net loss of $3.1 million and goodwill impairment loss of $31.4 million . 7 Current assets minus current liabilities. CCL InDUStRIeS InC. 2013 Annual Report 89 2 0 1 3 b U S In eS S L e aDeR S H I P north america John Pedroli President, CCL Industries North America Charlotte, North Carolina, U.S.A ben Rubino President, home and Personal Care Worldwide Shelton, Connecticut, U.S.A. Jim Sellors President, Avery North America Brea, California, U.S.A. Lee Pretsell Vice President and General Manager, healthcare and Speciality North America Toronto, Ontario, Canada eric frantz Vice President and General Manager, CCL Container Hermitage, Pennsylvania andy Iseli Vice President and General Manager, CCL Tube Los Angeles, California, U.S.A. mark Cooper Vice President and managing Director, Avery Europe and Asia Pacific Maidenhead, U.K. bill goldsmith Vice President and General Manager, CCL Design US Schererville, Indiana, U.S.A. europe günther birkner President, Food and Beverage Worldwide Hohenems, Austria Peter fleissner group Vice President, CCL Design Worldwide Solingen, Germany tommy nielsen group Vice President, healthcare and Specialty CCL Label Europe Randers, Denmark Werner ehrmann Vice President, Technology Development Holzkirchen, Germany Scott mitchell-Harris Vice President and General Manager, healthcare and Specialty, U.k. France and Asia Pacific Paris, France Jamie Robinson managing Director, home and Personal Care Europe Castleford, U.K. thomas Summer Vice President and General Manager, Sleeves Central & Eastern Europe Hohenems, Austria asia Pacific Jim anzai Vice President and managing Director, CCL Label Asia Bangkok, Thailand guy Kiraly managing Director, CCL Label China Shanghai, PR China Latin america Luis Jocionis Vice President and managing Director, CCL South America Sao Paolo, Brazil ben Lilienthal Vice President and managing Director, CCL mexico Mexico City, Mexico 90 CCL InDUStRIeS InC. 2013 Annual Report 2 0 1 3 C C L of fI CeR S Donald g. Lang Executive Chairman geoffrey t. martin President and Chief Executive Officer bruce W. bacon Senior Vice President, Human Resources bohdan I. Sirota Senior Vice President, General Counsel and Secretary Susan V. Snelgrove Vice President, Risk and Environmental Management Lalitha Vaidyanathan Senior Vice President, Finance, Administration and IT CCL Operations Sean P. Washchuk Senior Vice President and Chief Financial Officer 2 0 1 3 bo aR D o f DI ReCt oR S Paul J. block Director since 1997 President and CEO, Brasil Beauté LLC New york, U.S.A. Philip m. gresh Director since 2012 Corporate Director Florida, U.S.A. edward g. guillet Director since 2008 Independent human Resources Consultant California, U.S.A. alan D. Horn Director since 2008 President and CEO, Rogers Telecommunications Limited and Chairman, Rogers Communications Inc. Ontario, Canada Donald g. Lang Director since 1991 Executive Chairman, CCL Industries Inc. Ontario, Canada Stuart W. Lang Director since 1991 Douglas W. muzyka Director since 2006 head Football Coach for guelph University Ontario, Canada Chief Science and Technology Officer, EI DuPont de Nemours Pennsylvania, U.S.A. geoffrey t. martin Director since 2005 President and CEO, CCL Industries Inc. Massachusetts, U.S.A. thomas C. Peddie Director since 2003 Executive Vice President and CFO, Corus Entertainment Inc. Ontario, Canada CCL InDUStRIeS InC. 2013 Annual Report 91 SHaReHoL DeR S’ I n f oRm atIo n auditors kPmg LLP Chartered Professional Accountants Legal Counsel McMillan LLP transfer agent CST Trust Company P.O. Box 700 Postal Station B montreal, qC h3B 3k3 Email: AnswerLine: (416) 682-3860 or inquiries@canstockta.com (800) 387-0825 Fax: (888) 249-6189 Website: www.canstockta.com financial Information annual meeting of Shareholders The Annual Meeting of Shareholders will be held on may 1, 2014 at 1:00 p.m. CCL Industries Inc. 105 Gordon Baker Road Suite 500 Toronto, ON M2H 3P8 Class b Share Information Stock Symbol CCL.B Listed tSX Opening price 2013 Closing price 2013 Number of trades Trading volume (shares) Trading value Annual dividends declared $ $ $ $ 43.97 79.22 56,336 11,939,099 771,069,816.43 0.86 Institutional investors, analysts and registered representatives requiring additional information may contact: Shares outstanding at December 31, 2013 Class A – Voting Class B – Non-Voting 2,367,525 32,021,371 Sean Washchuk Senior Vice President and CFO (416) 756-8526 Additional copies of this report can be obtained from: CCL Industries Inc. Investor Relations Department 105 Gordon Baker Road Suite 500 Toronto, ON M2H 3P8 (416) 756-8500 Tel: (416) 756-8555 Fax: ccl@cclind.com Email: Website: www.cclind.com m o c . r i m b . w w w o s s e d a r I s l l i M n a y r B r i m b y b d e n g i s e D 92 CCL InDUStRIeS InC. 2013 Annual Report This report is printed on recyclable, acid-free and chlorine free paper. Printed in Canada. Tr a n s fo r m e d The strategic acquisitions and unprecedented growth CCL experienced in 2013 have transformed your company structurally, operationally and financially. Our commitment to building value and enhancing shareholder returns continues. A larger, more dynamic, more diverse CCL can respond faster to opportunities, grow market share and continue to lead our industry in performance and innovation. For 2014, CCL plans to integrate and leverage its growing capabilities, optimize new synergies and take the promise of “CCL Transformed” to the next level. CCL Industries Inc. 105 Gordon Baker Rd., Suite 500 Toronto, Ontario M2H 3P8 Tel: (416) 756-8500 Fax: (416) 756-8555 Visit our website at www.cclind.com 

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