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
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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
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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
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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
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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