CCL Industries Inc
Annual Report 2016

Plain-text annual report

Securing ur future www.cclind.com 2016 A N N U A L R E P O R T The Company is divided into four reporting segments: Label, Avery, Container and Checkpoint. With approximately 19,000 dedicated employees, we operate 150 state-of-the-art manufacturing facilities in North America, Latin America, Europe, Asia, Australia and Africa. CCL Label Avery 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 electronics segments. 63% OF TOTAL SALES 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. 20% OF TOTAL SALES CCL Container Checkpoint 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. Checkpoint is a leading manufacturer of technology-driven, loss-prevention and inventory management labelling solutions, including radio-frequency identification based hardware and software to the global retail apparel industry. 63 20 7 11 Sales by Sector 20% 6% 11% 63% 6% OF TOTAL SALES 11% OF TOTAL SALES Sales by Geography 51% 28% 21% Label Avery Container Checkpoint North America Europe Emerging Markets 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 2017; 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. 51 28 21 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. Additional information relating to the Company, including the Company’s Annual Information Form, is available on SEDAR at www.sedar.com or on the Company’s website www.cclind.com. 2 0 1 6 L E T T E R T O S H A R E H O L D E R S CCL again delivered outstanding performance in 2016 with 7.2% organic sales growth and strong results in the core at CCL Label, further profit gains at Avery, a record year at CCL Container, plus accretive acquisitions. It was the biggest year in our history for acquisitions with announced transactions totalling $1.8 billion, including Checkpoint in March and Innovia in December. Checkpoint added meaningfully to our 2016 performance. Total sales reached almost $4 billion for the first time, free cash flow from operations* reached $339 million, and return on equity increased by 240 basis points to 23.5%. Our stock price increased from $126 at the end of 2014 to $275 late in 2016, moving market capitalization over $9 billion, making us the sixty-third largest company by that measure listed on the Toronto Stock Exchange (“TSX”). St ro ng Re sult s in a Vol ati le G l o bal Ec onomy Despite a challenging external environment, CCL overall delivered solid 4% organic sales growth with profitability improvement across all the end markets and major economic regions of the world in which the Company operates. Reported sales increased by 31%, and adjusted net earnings*, excluding restructuring and other unusual costs, approached $400 million. All four reporting segments contributed to a record year, with adjusted basic earnings per share* (“adjusted EPS”) increasing by 33% from $8.61 in 2015 to $11.41 in 2016. Foreign currency translation impacts were modest in 2016, although Mexico and the U.K. faced significant devaluations. Our business teams did a great job mitigating transactional impacts with natural hedging strategies in sourcing and pricing adjustments to customers. Restructuring charges and other expenses were $34.6 million in 2016, compared to $6.0 million in 2015, predominantly due to actions taken to improve the performance of recently acquired businesses, especially Checkpoint (acquired in May 2016) and Worldmark (acquired in November 2015). C CL La be l Segment sales reached $2.5 billion for the first time in 2016, operating as CCL Label in the consumer packaging markets for Home & Personal Care, Healthcare & Specialty, and Food & Beverage, and as CCL Design for Automotive & Electronics OEMs. We continue to invest in new facilities, markets and advanced technologies, giving us the scale, specialized operations and capabilities to support customers’ product launches, innovations and supply-chain initiatives worldwide. The segment outperformed again in 2016 with unusually strong 7.2% organic growth despite the fragile global economy. Emerging Markets represented approximately 25% of segment sales in a much changed business climate in many countries. Asia Pacific’s organic growth rate was up by high single digits, while double-digit rates continued in Latin America, Eastern Europe, and South Africa, as well as our joint ventures in Russia and the Middle East. In the developed world North America and Europe were both up by mid-single digits organically. Excluding the impact of currency translation, worldwide sales increased by 21.9%, and operating income* improved by 18.4% compared to 2015. All global market sectors and joint ventures performed at or above expectations. CCL Label’s 21.2% EBITDA* margin remains best in class for the public specialty packaging sector, albeit this was slightly below last year as margins at recently acquired businesses diluted the average. Donald G. Lang Executive Chairman Geoffrey T. Martin President and Chief Executive Officer 2016 Annual Report 1 2 0 1 6 L E T T E R T O S H A R E H O L D E R S Home & Personal Care operations faced slow-growth end markets in the United States, delivering modest sales growth in labels and strong share gains in tubes. Europe was flat and remains the most difficult part of the world for customers. Emerging Markets seem to have adjusted to new lower-growth-rate norms. Double-digit gains continued in the Middle East, Eastern Europe and Latin America, in the latter partly due to the rise of the U.S. dollar, especially in Mexico, which inflated the cost of raw materials in local currencies, driving price increases across the supply chain. Asia was mixed, with strong progress in ASEAN offset by slower markets in China. Globally the sector delivered organic growth broadly in line with the results of key customers in labels, but excelled in tubes. In 2017 a new greenfield label and tube plant comes on line in Columbus, Ohio, to support growth. Meaningful profit gains were posted everywhere, except Europe due to start-up costs in Turkey. The Healthcare & Specialty sector delivered moderate sales and profit improvement globally in 2016. The North American business had another strong year, especially in Canada, and our Agro-Chemical & Specialty business recovered significantly after a cyclical down period. The Sennett Security Products and Banknote Corporation of America acquisition performed to expectations in its first full year. Europe had a slow 2016 on soft demand in Scandinavia but was augmented by new acquisitions in Ireland and Germany, strategically important additional geographies. Emerging Markets profits increased on an acquisition in Brazil and on good results in China but were again significantly offset by ongoing poor performance in Australia, driven by a problematic consolidation of two plants. Food & Beverage delivered outstanding results again in 2016, generating double-digit organic sales growth and robust profit improvement. Gains were across the board in all product lines and geographic regions. The only dark cloud was at our wine acquisition in Germany, which had a tough year. Wine & Spirits elsewhere delivered improved results especially in the Americas and Australia. In the beer, juice, water and carbonated soft drinks markets, strong growth continued globally for our patented, clear pressure sensitive, wash-off labels for glass and PET bottles using our proprietary adhesive coating technology. The Sleeve business posted double-digit gains in sales and profits, especially in North America and Emerging Markets. Results in Europe were also good where we invested significantly, expanding operations in Austria and the U.K. The Closure Label business delivered sizable sales and profit gains as these applications gained traction with global customers. We invested heavily in the space to add capacity, building a new plant in Korea and buying land to do the same in Switzerland in 2017. CCL Design sales reached almost $600 million this year with solid organic growth augmented by a number of acquisitions, most notably Worldmark, which had a solid first year and a strong second half in the peak season for electronics customers. Along with the acquisition of Zephyr, we significantly increased our presence in the sector right across Asia. In robust European automotive markets, especially at exporting German OEMs, core sales were up by double digits. North America posted solid performance, despite signs of plateauing demand in the NAFTA region. In Mexico we completed construction of a new automotive label plant in Guanajuato and acquired land to build another label plant for electronics brand owners and their ODMs in Guadalajara. Both projects should commence production in 2017. Significant investments were also completed at our two large U.S. operations in 2016. While underlying profit growth in the base business was significant, operating margins in this sector are lower than the segment average; opportunities remain for margin expansion. Ave r y 2016 completed three good years in a row for our consumer arm. External conditions in North America driven by office superstore closures and the mass-market binder price war at all levels in the supply chain resulted in a mid-single-digit organic sales decline. International markets were up by low single digits where retail distribution channels are less important and we focus purely on the Printable Media product lines. Globally this area is where our brand and share position have meaningful strategic strength. Profits improved in all regions on new products, smart direct-to-consumer acquisitions, pricing, improved mix, and cost-reduction actions. The combination delivered excellent results: $167 million in operating income* on sales of $788 million, a margin of 21.2%, up by 170 basis points. Avery continues to generate the highest return on total capital* of CCL’s four reporting segments as detailed in our financial statements. 2 2016 Annual Report C CL C ont ai ner The year 2016 set another record with sales up by 3.4% organically to $230 million. Operating income* reached a record $30 million, and EBITDA* $46 million, a margin of almost 20% despite the weaker Mexican peso as U.S. dollar–denominated export sales naturally hedged our position. Late in the year an important Home Care customer moved a large brand out of aluminum aerosols into a new PET-based system. This low-margin application was the main stay of our Canadian operation, so we commenced the planned closure of the plant announced in 2013, expecting it to conclude in 2017. The transition will likely impact profitability in the near term, but the expansion of our Mexican operation will kick in mid-year on the back of new business awards in Latin America, plus the benefit of lower system-wide costs as the Canadian plant is wound down. Our joint venture with Rheinfelden commenced aluminum slug manufacturing in North Carolina, posting start-up losses while new furnaces and converting equipment build production to an optimum level. We expect the venture to contribute to profits in the latter part of 2017. C he ck point The acquisition of Checkpoint, announced in March, closed on May 13, 2016, for a purchase price net of cash acquired of $532 million. Sales for the 2016 part-year of just over seven months were $459 million in the seasonally strong retail sales cycle on which this business depends. We moved quickly to cut overhead costs in selling, general and administrative expenses, largely in corporate administration, simplifying organizational complexity. Restructuring costs were $20.7 million for the year. A new management team was installed – a combination of industry insiders and leadership with experience in the space transferred from CCL. Checkpoint’s people responded well to the changes and reported the best results the business had seen in many years. Operating income*, excluding the acquisition accounting impact of eliminating profit held in acquired finished goods, reached $60 million, a margin of 13.1%, while EBITDA* on the same basis reached almost $80 million. Profitability and cash flow measures were ahead of expectations. For 2017, shareholders should recall that Checkpoint lost money in the first months of prior years, the low retail “sale season” until the spring period commences and profits begin to flow. We remain excited about the possibilities for smart label and tagging solutions in the retail and apparel supply chain. De l i veri ng to Sha reh ol de rs CCL’s 55% compound annual growth in total shareholder return over the last five years makes us the leading stock amongst those with market capitalizations of more than $1 billion at the end of 2011 listed on the TSX. We continued to win in 2016, delivering $339 million free cash flow*. Despite a major acquisition, the Company’s leverage ratio* ended the year at a conservative 1.28 times. We expect CCL’s leverage ratio* to rise to an estimated 2.5 times on the closing of the Innovia transaction in the first quarter. Priorities for 2017 will be on acquisition integration, improving the core business, adding smaller bolt-on transactions, ensuring we remain investment grade, and paying down debt to build capacity for the future. Working capital results are best in class in our sector and remain an area of laser-like focus, especially at recent acquisitions. Net of disposals, we invested $225 million in 2016 in plant and equipment to improve productivity, expand capabilities and add to geographic reach, compared to $204 million in depreciation and amortization expense. Capital expenditures of $260 million are planned for 2017, compared to expected $233 million depreciation and amortization expense (excluding spending at Innovia, which we do not expect to exceed depreciation). While accretive acquisitions have always been our priority, the annualized dividend more than doubled over the decade to 2013, and doubled again from $1.00 in March 2014 to $2.00 per Class B share by March 2016. The Board approved a further increase of 15% to an annualized $2.30 with the first-quarter dividend payable in March 2017. With 96% of sales outside Canada, CCL continues to provide domestic shareholders with considerable geographic risk diversification. Gl ob al Le ade rsh i p, Govern an c e and Su st ainability With 146 manufacturing facilities in 35 countries on 6 continents, CCL’s leadership team reflects the diversity of the many cultures in which we do business. Our key people bring deep industry experience, cultural understanding and entrepreneurial sense: a combination of energy and ideas for new directions from the younger generation tempered by experience from wise old foxes who have been around for as long as 40 years. “Think global and act local” remains our management mantra, with authority and accountability decentralized under a common mission. Acquisitions and joint ventures bring perspectives in new countries, technologies and end markets. The corporate team remains agile, minimalist and technically excellent, serving the needs of all stakeholders. Leadership quality remains a key criteria when assessing acquisition opportunities. 2016 Annual Report 3 2 0 1 6 L E T T E R T O S H A R E H O L D E R S In 2016, we were pleased to welcome back Doug Muzyka, Chief Technology Officer of Dupont, to our Board. Vincent Galifi, Chief Financial Officer of Magna International, also joined us, adding automotive experience, global perspective and large- cap public-company financial skills to our deliberations. Erin Lang was appointed to bring long-term succession to the family stewardship now guiding CCL over three generations since her grandfather Gordon Lang founded the Company in 1951. Finally, Kathleen Keller-Hobson accepted the responsibilities of Lead Director, succeeding Alan Horn who does not plan to seek re-election at this year’s annual general meeting. We thank him for his wise counsel and 11 years of service to CCL. Our Board of Directors continues to provide strong corporate governance, acting in the interests of all shareholders, while adding broad-based advice and counsel to management. CCL remains committed to reducing the planetary impact of our products and services. Our factories are built to the latest environmental standards using renewable sources for energy and materials, while existing plants pursue ISO 14001 and 16001 certifications. CCL Design develops many products using low-energy LED lighting systems. Our plants replace wooden pallets and corrugated boxes with multi-trip returnable systems in collaborative logistic partnerships with suppliers and customers. CCL Label offers papers using preferred products from Forest Stewardship Council–certified suppliers. In high-volume Food & Beverage markets our patented, wash-off, clear film pressure sensitive labels facilitate multi-trip use of glass bottles, reducing waste going to landfill, while Triple S® sleeves decorate PET beverage containers without adhesive or heat, allowing easy label removal in bottle-recycling systems. Release liner recycling programs and our manufacturing process for aluminum containers generate zero landfill waste. Down-gauged films for pressure sensitive labels matched to bottle substrate enable post-consumer recycling, while CCL offers tubes manufactured with post-consumer plastic resins. CCL is serious about sustainability. 201 7 O u tlook In December 2016, we signed a binding agreement to acquire the Innovia group of companies headquartered in the U.K. for $1.13 billion, the largest transaction in our history. Subject to regulatory and certain change-of-control approvals, we expect the transaction to close in the first quarter of 2017. Innovia is a leading producer of biaxially oriented polypropylene films, using a proprietary technology. The films are widely used in the label industry and for specialty flexible packaging applications. The company is also the world’s leading producer of polymer banknote substrates with proprietary security features. Innovia’s Film business will become a publicly reportable segment for CCL Industries in 2017, including two small operations in the United States and Germany transferred from CCL Label. Innovia’s Security business will be added to the Sennett–Banknote Corporation of America acquisition included inside CCL Label since 2015, and the combination rebranded “CCL Secure,” focusing on security applications for governments and on brand-protection products for business. This will be a fifth component of the renamed CCL segment, which will also include the three market sector arms of CCL Label and CCL Design. We enter 2017 with some uncertainty about the world economy. Last year marked the seventh year of economic recovery since the Great Recession, the longest expansion in post-war history. Yet U.S. GDP growth remains stuck in the 2% range, far below its long-term average. Disruptive global politics seem the norm today, and, like many in the business community, we would prefer not to be confronting some of the uncertainties they bring. Our job, however, is to manage in the environment in which we find ourselves. The immediate priority is to sustain and build upon the dramatic, transformational improvements of the last three years, conscious that these achievements are also a floor for the investors that have most recently joined us. Finally, we would like to acknowledge our other stakeholders, customers and suppliers who partner with us in our adventures. Most of all, the amazing contributions of our employees around the world – that will top 20,000 after the Innovia transaction – their creativity, entrepreneurial spirit, hard work and commitment, have made CCL a dynamic and interesting place to work. Donald G. Lang Executive Chairman Geoffrey T. Martin President and Chief Executive Officer * Non-IFRS measures. See section 5A of CCL’s Management’s Discussion and Analysis for more detail. 4 2016 Annual Report F I N A N C I A L H I G H L I G H T S (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 Per Class B share Basic earnings Diluted earnings Adjusted basic earnings* Dividends As at December 31 Total assets Net debt* Total equity Net debt to EBITDA* Return on equity (before other expenses)* Number of employees * A non-IFRS measure; see “Key Performance Indicators and Non-IFRS Measures” in Section 5A. 2016 2015 $ 3,974,749 $ 3,039,112 $ 792,695 $ 608,413 % 30.8% 30.3% 20.0% 6,023 295,078 17.4% 19.9% 34,637 346,309 8.7% 9.90 9.77 11.41 2.00 $ $ $ $ $ $ $ $ $ $ $ $ 9.7% 8.50 8.38 8.61 1.50 16.5% 16.6% 32.5% 33.3% 30.6% 69.4% 9.5% $ 4,678,841 $ 1,016,216 $ 1,775,200 1.28 23.5% $ 3,582,305 $ 599,827 $ 1,621,878 0.99 21.1% 19,000 13,000 46.2% 2016 Annual Report 5 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Years ended December 31, 2016 and 2015 (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, 2016 and 2015. In preparing this MD&A, the Company has taken into account information available until February 23, 2017, unless otherwise noted. This MD&A should be read in conjunction with the Company’s December 31, 2016, year-end consolidated financial statements, which form part of the CCL Industries Inc. 2016 Annual Report dated February 23, 2017. 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, U.S. dollar, euro, Argentine peso, Australian dollar, Bangladeshi taka, Brazilian real, Chilean peso, Chinese renminbi, Danish krone, Indian rupee, Japanese yen, Malaysian ringgit, Mexican peso, Polish zloty, Russian ruble, Singaporean dollar, South African rand, Swiss franc, Thai baht, U.K. pound sterling and 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. I N D E X 7 1. Corporate Overview 7 A) The Company 8 B) Innovia Transaction 8 C) Customers and Markets 8 D) Strategy and Financial Targets 11 E) Recent Acquisitions and Dispositions 12 F) Consolidated Annual Financial Results 14 G) Seasonality and Fourth Quarter Financial Results 17 2. Business Segment Review 17 A) General 19 B) Label Segment 22 C) Avery Segment 23 D) Checkpoint Segment 24 E) Container Segment 26 F) Joint Ventures 27 3. Financing and Risk Management 27 A) Liquidity and Capital Resources 28 B) Cash Flow 28 C) Interest Rate, Foreign Exchange Management and Other Hedges 29 D) Equity and Dividends 30 E) Commitments and Other Contractual Obligations 31 F) Controls and Procedures 31 4. Risks and Uncertainties 38 5. Accounting Policies and Non-IFRS Measures 38 A) Key Performance Indicators and Non-IFRS Measures 42 B) Accounting Policies and New Standards 43 C) Critical Accounting Estimates 44 D) Related Party Transactions 45 6. Outlook 6 2016 Annual Report F O R WA R D - L O O K I N G I N F O R M AT I O N 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 2017; 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 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. Additional information relating to the Company, including the Company’s Annual Information Form, is available on SEDAR at www.sedar.com or on the Company’s website www.cclind.com. 1 . C O R P O R AT E OV E RV I E W 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 and chemicals, consumer durable, electronic device and automotive markets. Extruded and laminated plastic tubes, folded instructional leaflets, precision decorated and die cut components, electronic 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 products sold through distributors and mass-market retailers. The Checkpoint Segment is a leading manufacturer of technology- driven loss-prevention, inventory-management and labeling solutions, including radio-frequency (“RF”) and radio-frequency identification (“RFID”) based, to the retail and apparel industry. CCL Container is a leading producer of impact-extruded aluminum aerosol cans and bottles for consumer packaged goods customers in the United States and Mexico. CCL partly backward integrates into materials science with capabilities in polymer extrusion, adhesive development and coating, surface engineering and metallurgy that are deployed across all four business segments. 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, environmental, health and safety and oversight of operations. CCL employs approximately 19,000 people in 146 production facilities located in North America, Latin America, Europe, Australia, Asia and the Middle East, including equity investments in Russia operating five facilities, the Middle East operating five facilities, Chile operating one facility and two in the United States, operating an in-mould label facility and the other an aluminum slug facility supporting the Container Segment. The Company also has a label and tube licence holder operating two plants in Indonesia. 2016 Annual Report 7 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Years ended December 31, 2016 and 2015 (Tabular amounts in millions of Canadian dollars, except per share data) B) Innovia Transaction On December 19, 2016, CCL announced it had entered into a definitive agreement to acquire The Innovia Group of Companies (“Innovia”) for approximately $1.13 billion, debt free and net of cash acquired from a consortium of U.K. based private equity investors. The transaction is subject to regulatory and change-of-control approvals as well as customary completion procedures. The closing prerequisites are in place and the transaction is expected to complete no later than April 3, 2017. Innovia, headquartered in Wigton in the U.K., is a leading global producer of specialty, high-performance, multi-layer, surface- engineered biaxially oriented polypropylene (“BOPP”) films for label, packaging and security applications. The business has film extrusion, coating and metallizing facilities across the U.K., Belgium and Australia as well as high-security, specialized polymer banknote operations in the U.K., Australia and Mexico with 1,200 employees and sales offices in 16 countries around the world. C) Customers and Markets 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. Checkpoint has significant market positions in Europe, North America and Asia. Checkpoint sells directly to retailers and apparel manufacturers and competes with other global retail labeling companies. The Container Segment operates only in the NAFTA region; there are three direct competitors in the business in the United States and one in Mexico. D) Strategy and Financial Targets CCL’s vision is to increase shareholder value through leading supply-chain solutions and product innovations around the world, augmented by a global acquisition strategy. 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 market insights and the growth of its customers, and by following 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 customer sector 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. The Avery Segment has similar objectives aligned to applications in labels and specialty converted media that enable short-run digital printing in businesses and homes. 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 targets 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, customer relationships and products to CCL’s portfolio. On May 13, 2016, CCL closed the acquisition of Checkpoint Systems, Inc. (“Checkpoint”), purchasing all the outstanding public shares for $531.9 million, adding a significant new Segment to the Company. Checkpoint is an adjacency to CCL’s legacy Label Segment with core applications in technology-driven loss-prevention, inventory-management and labeling solutions to the retail and apparel labeling industries. In 2017 Checkpoint will complete its $30 million restructuring initiative that is expected to yield $40 million in synergies. It will then endeavour to develop its smart labeling and tagging solutions portfolio. Also in 2016, the Label Segment bolstered its Healthcare & Specialty business, expanding its footprint with acquisitions in Brazil, Germany and Ireland, and further augmented CCL Design with two acquisitions, increasing its product depth and geographic presence in the United States, Germany, China, Malaysia and Singapore. CCL expects to continue improving the performance of the Container Segment, realizing further operational and financial advances subsequent to the completion of the restructuring plan in mid-2017. Finally, with the Rheinfelden joint venture 8 2016 Annual Report commencing qualified aluminum slug production and reaching initial volume targets, the operation is ramping up capacity and production with the expectation of reaching profitability no later than 2018. The Company’s financial strategy is to be fiscally prudent and conservative. The Company reported resilient financial results, ensuring strong cash flow and resulting in a strong balance sheet. 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. As at December 31, 2016, CCL had $585.1 million of cash on its balance sheet, US$631.1 million of undrawn capacity on its unsecured revolving credit facility and a committed US$450.0 million, unsecured two year term loan with a syndicate of banks, pending the close of the Innovia acquisition. CCL maintains 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. The Company’s financial discipline and prudent allocation of capital have ensured sufficient available liquidity and a secure financial foundation for the foreseeable future. A key financial target is return on equity before goodwill impairment loss, restructuring and other items, tax adjustments, gains on business dispositions and non-cash acquisition accounting adjustments (“ROE,” a non-IFRS measure; see “Key Performance Indicators and Non-IFRS Measures” in Section 5A). CCL continues to execute its strategy with a goal of achieving a comparable ROE level to its leading peers in specialty packaging. Despite a substantial increase in the Company’s equity base from retained earnings over the last five years, ROE increased dramatically compared to 2011 due to significant accretive earnings from acquisitions, as well as improved results in its legacy operations. 2016 ROE of 23.5% was a record for CCL: Return on equity 2016 23.5% 2015 21.1% 2014 20.1% 2013 15.8% 2012 11.4% 2011 10.7% Another metric used by the investment community as a comparative measure is return on total capital before goodwill impairment loss, restructuring and other items, tax adjustments, gains on business dispositions and non-cash acquisition accounting adjustments (“ROTC,” a non-IFRS measure; see “Key Performance Indicators and Non-IFRS Measures” in Section 5A). The chart below details performance since 2011. CCL targets delivering returns in excess of its cost of capital and has improved its performance consistently since 2011. ROTC of 15.9% for 2016 was also a record despite the significant debt-financed acquisition of Checkpoint: Return on total capital 2016 15.9% 2015 15.4% 2014 14.1% 2013 11.9% 2012 9.5% 2011 8.3% The long-term growth rate of adjusted basic earnings per Class B share is another important and related financial target. This measure 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). Management believes that taking into account both the relatively stable overall demand for consumer staple 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 has achieved significant positive growth in its adjusted basic earnings per share since 2011: Adjusted EPS growth rate 33% 2016 2015 32% 2014 47% 2013 52% 2012 13% 2011 18% In 2016, adjusted basic earnings increased by 33% to a record $11.41 per Class B share. Improved earnings from acquired businesses over the past four years, in particular the new Avery and Checkpoint Segments, contributed meaningfully to the significant increase in adjusted basic earnings per share. Excluding the impact of currency translation, adjusted basic earnings per share increased 32%. The Company believes continuing growth in earnings per share is achievable in the future as the global economy stabilizes, as operating efficiencies are solidified for the Checkpoint and Container Segments post- restructuring and as CCL executes its global business strategies for the Label, Avery and Checkpoint Segments. 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 2016 Annual Report 9 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Years ended December 31, 2016 and 2015 (Tabular amounts in millions of Canadian dollars, except per share data) (“EBITDA,” a non-IFRS measure; see “Key Performance Indicators and Non-IFRS Measures” in Section 5A), 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. 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: 2016 2015 2014 2013 2012 EBITDA % of sales $ 792.7 $ 608.4 $ 481.6 $ 355.6 $ 254.6 $ 20% 20% 19% 19% 19% 2011 239.1 19% In 2016, EBITDA increased by approximately 29.3%, excluding the positive impact of foreign currency translation, to 20% of sales. 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 Company carries out its global growth initiatives. The framework supporting the above performance indicators 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 3.5 times net debt to EBITDA (a non-IFRS measure; see “Key Performance Indicators and Non-IFRS Measures” in Section 5A) with an appropriate deleveraging and liquidity profile to maintain its investment-grade ratings with Moody’s and Standard & Poors. As at December 31, 2016, net debt to EBITDA was 1.28 times, modestly higher than the 0.99 times at December 31, 2015, despite the $668.9 million in purchases for eight acquisitions in 2016. This leverage level is consistent with management’s conservative approach to financial risk and the Company’s 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). This leverage level also allows the Company the flexibility to quickly execute its acquisition growth strategy, including larger targets such as Innovia, without significantly exposing its credit quality. The Board does not have a target dividend payout ratio (a non-IFRS measure; see “Key Performance Indicators and Non-IFRS Measures” in Section 5A). However, CCL has paid dividends quarterly for over thirty years without an omission or reduction and has doubled the annualized rate since March 2014. The Board views this consistency and dividend growth as important factors in enhancing shareholder value. For 2016 the dividend payout ratio was 18% of adjusted earnings. This dividend payout ratio reflects the strong net earnings generated by newly acquired businesses in 2016 and 2015, as well as the improved results for the legacy operations of the Company. After careful review of the current year results, budgeted cash flow and income for 2017, as well as the pending acquisition of Innovia, the Board has declared a 15% increase in the annual dividend: an increase of $0.075 per Class B share per quarter, from $0.50 to $0.575 per Class B share per quarter ($2.30 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. 10 2016 Annual Report E) Recent Acquisitions and Dispositions CCL is a global company with significant diversification across the world economy including emerging markets, a broad customer base, distinct product lines and many different currencies. 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 January 2016, Woelco AG (“Woelco”), a privately owned company in Stuttgart, Germany, with subsidiaries in China and the United States, for approximately $21.7 million. Woelco has integrated into CCL Design and has expanded its depth in the industrial and automotive durable goods markets. • In January 2016, Label Art Ltd. and Label Art Digital Ltd. (collectively “LAL”), privately owned companies with common shareholders, based in Dublin, Ireland, for approximately $13.6 million. LAL expands CCL Label’s Healthcare & Specialty business in Ireland and the U.K. • In January 2016, CCL invested $6.0 million in cash to increase its stake from 50% to 75% in its tube manufacturing joint venture in Bangkok, Thailand, with Taisei Kako Co. Ltd. of Japan. Finally, in August 2016, CCL acquired the final 25% stake in the venture from its partner for $1.9 million. As a result of the change in control, 2016 financial results are no longer included in equity investments but fully consolidated with CCL Label’s Home & Personal Care business, without a portion of the earnings attributable to a non-controlling interest, since September 2016. • In February 2016, Zephyr Company Limited of Singapore, and its Malaysian subsidiaries in Penang and Johor (collectively “Zephyr”), privately owned companies with multiple shareholders, for approximately $40.9 million. Zephyr expands CCL Design’s presence within the electronics industry to the ASEAN region. • In March 2016, Powerpress Rotulo & Etiquetas Adesivas LTDA (“Powerpress”), a privately owned company based in Sao Paolo, Brazil, for approximately $11.4 million. Powerpress enhances CCL Label’s product offering in the Healthcare & Specialty business in South America. • In May 2016, the Company acquired all the outstanding shares of Checkpoint (NYSE:CKP) at an enterprise value of $531.9 million. Checkpoint is a leading global manufacturer and provider of hardware and software systems plus security labels and tags, providing inventory control and loss-prevention solutions to world leading retailers. Checkpoint has formed the new retail and apparel Checkpoint Segment of CCL. • In July 2016, CCL acquired Eukerdruck GmbH & Co. KG and Pharma Druck CDm GmbH (collectively “Euker”), privately held companies with common shareholders, and the associated facilities in Marburg and Dresden, Germany. Euker is a leading supplier of folded leaflets, specialty booklets and pressure sensitive labels to pharmaceutical companies in German- speaking Europe. The purchase price consideration, including debt assumed, was approximately $30.0 million. • In August 2016, CCL acquired Labelone Ltd. (“Label1”), a privately owned company based in Belfast, Northern Ireland, for approximately $17.5 million including assumed debt. Label1 expands CCL Label’s product offering in the Healthcare & Specialty business to Northern Ireland. • In February 2015, INT America LLC (“INTA”), a privately owned company based in Michigan, USA, for $2.9 million. INTA expanded CCL Design North America’s product offering in the automotive durable labels sector. • In February 2015, pc/nametag Inc. and Meetings Direct, LLC (“PCN”), privately owned companies with common shareholders, based in Wisconsin, USA, for $37.6 million. PCN added to Avery North America’s printable media depth in the meetings and events planning industry. • In July 2015, Fritz Brunnhoefer GmbH (“FritzB”), a privately owned company based in Nurnburg, Germany, for $7.6 million. This new business expanded CCL Design’s presence in the German industrial and aerospace durable goods markets. • In October 2015, the assets of privately owned Sennett Security Products LLC and its wholly owned subsidiary Banknote Corporation of America Inc. (“BCA”) based in North Carolina, USA, for $45.7 million. This acquisition broadened the Label Segment’s technology base and product offering to include security labels, cards and document components. • In November 2015, the global operations of private equity owned Worldmark Ltd. (“Worldmark”), headquartered in East Kilbride, Scotland, for approximately $255.7 million. Worldmark is a leading supplier of functional labels for the electronics sector. • In December 2015, Mabel’s Labels Inc. and Mabel’s Labels Retail Inc. (“Mabel’s”), privately owned companies with common shareholders based in Ontario, Canada, for approximately $12.0 million. Mabel’s expanded the Avery Segment’s printable media platform into web-to-print personalized identification labels for children and families. 2016 Annual Report 11 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Years ended December 31, 2016 and 2015 (Tabular amounts in millions of Canadian dollars, except per share data) 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 Argentina, Thailand, Philippines, Korea and Russia, 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. The new Checkpoint Segment has added technology-driven loss-prevention, inventory-management and labeling solutions, including RF and RFID-based, to the retail and apparel industry. 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 Basic earnings 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 2016 3,974.7 2,806.8 612.8 555.1 4.5 (37.9) (34.6) 487.1 140.8 346.3 9.90 9.77 11.41 2.00 4,678.8 1,996.6 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 2015 3,039.1 2,179.7 415.1 444.3 3.5 (25.6) (6.0) 416.2 121.1 295.1 8.50 8.38 8.61 1.50 3,582.3 1,047.6 $ $ $ $ $ $ $ $ 2014 2,585.6 1,891.5 358.9 335.2 3.7 (25.6) (9.1) 304.2 87.6 216.6 6.31 6.19 6.53 1.10 2,618.4 802.0 Sales were a record $3,974.7 million in 2016, an increase of 30.8% compared to $3,039.1 million recorded in 2015. This improvement in sales can be attributed to acquisition related growth of 25.5%, augmented by organic growth of 4.0%, and a positive 1.3% impact from foreign currency translation. Consistent with CCL’s 2015 year, approximately 96% of CCL’s 2016 sales to end-use customers are denominated in foreign currencies. Consequently, changes in foreign exchange rates can have a material impact on sales and profitability when translated into Canadian dollars for public reporting. The appreciation of the U.S. dollar and the euro by 3.6%, and 3.4%, respectively, was slightly offset by an 8.1%, 11.8% and 1.9% depreciation of the U.K. pound, Mexican peso and Chinese renminbi, respectively, relative to the Canadian dollar in 2016 compared to average exchange rates in 2015. Foreign operations experienced a mixture of transactional foreign currency gains and losses to movements in the U.S. dollar and euro with the net being immaterial. Earnings after cost of goods sold and selling, general and administrative (“SG&A”) expenses in 2016 were $555.1 million, up $110.8 million from $444.3 million in 2015, primarily reflecting the impact of 14 acquisitions made over the last two years and significant organic growth in legacy operations in the current year with the corresponding incremental profitability. SG&A expenses were $612.8 million for 2016, compared to $415.1 million reported in 2015. The increase in SG&A expenses in 2016 relates primarily to the significant acquisitions made over the last two years. Corporate expenses for 2016 were $48.2 million, compared to $52.3 million for 2015. The decrease in corporate expenses relative to those in 2015 relates predominantly to a decrease in director equity compensation expense connected to a change in the directors’ deferred share 12 2016 Annual Report unit (“DSU”) plan in the fourth quarter of 2015. CCL amended the DSU plan settlement method from a cash-settled plan to an equity-settled plan, specifically with treasury shares. Therefore, fair value will not be re-measured under the equity-settled plan, thereby no corresponding expense in 2016. Operating income (a non-IFRS measure; see “Key Performance Indicators and Non-IFRS Measures” in Section 5A) for 2016 was $603.3 million, an increase of 21.5% compared to $496.6 million for 2015. Excluding the $33.9 million non-cash accounting adjustment to fair value the acquired finished goods inventories, operating income improved 28.3%. Foreign currency translation positively impacted consolidated operating income by 1.1% for 2016 compared to 2015. The Label, Avery and Container Segments each improved operating income for 2016 by 19.2%, 9.2% and 13.9%, respectively, compared to 2015. The newly acquired Checkpoint Segment generated operating income of $60.1 million, excluding its $31.9 million share of the non-cash acquisition accounting adjustment to fair value the acquired finished goods inventory, which was above management’s expectations for the seven and a half months of ownership within CCL. Further details on the business segments follow later in this report. EBITDA (a non-IFRS measure; see “Key Performance Indicators and Non-IFRS Measures” in Section 5A) in 2016 was $792.7 million, an improvement of 30.3% compared to $608.4 million recorded in 2015. Excluding the impact of currency translation, EBITDA increased by 29.3% over the prior year. Net finance cost was $37.9 million for 2016, compared to $25.6 million for 2015, consisting of an increase in interest expense due to an increase in drawn debt, due to acquisitions, slightly offset by a lower average finance rate for the year. For the full year 2016, restructuring cost and other items represented an expense of $34.6 million ($27.8 million after tax) as follows: • For the Label Segment, $7.2 million ($6.3 million after tax), the majority of which was $4.2 million for the Worldmark reorganization but also included $3.0 million of acquisition-related costs for the seven Label Segment transactions closed in 2016. • For the Checkpoint Segment, $28.5 million ($21.8 million after tax), of which $20.7 million was for severance and other reorganization costs and the balance, $7.8 million, for acquisition-related expenditures. • For the Avery Segment, $2.0 million ($1.2 million after tax) reversal of the reorganization reserve as the Meridian, Mississippi, facility, that was scheduled to be shut down was repurposed as a distribution centre. • For Innovia, initial acquisition costs to date have amounted to $0.9 million ($0.9 million after tax). The negative earnings impact of these restructuring and other items in 2016 was $0.79 per Class B share. For the full year 2015, restructuring costs and other items represented an expense of $6.0 million ($3.7 million after tax) as follows: • For the Avery Segment, $4.6 million ($3.0 million after tax), the majority of which was for the closure of the Meridian, Mississippi, binder manufacturing plant and final European severance costs. • For the Label Segment, $1.4 million ($0.7 million after tax), of which $2.7 million related to severance and other costs associated with the Worldmark acquisition, $1.2 million to severance costs for the closure of a plant in France, $1.1 million to restructuring expenses related to the Bandfix acquisition partially offset by $3.6 million of forgone contingent consideration to be paid pertaining to the Dekopak acquisition. The negative earnings impact of these restructuring and other items in 2015 was $0.11 per Class B share. In 2016, the consolidated effective tax rate was 29.2%, compared to 29.3% in 2015, excluding earnings in equity accounted investments. The combined Canadian federal and provincial statutory tax rate was 25.3% for 2016 (2015 – 25.3%). The effective tax rate for 2016 reflects a higher portion of the Company’s taxable income being earned in higher-taxed jurisdictions, offset by the recognition of previously unrecognized deferred tax assets, due to improved profitability in historically challenging countries and other discrete tax deductions. The net impact of the aforementioned items was an approximately $3.5 million reduction in tax expense or $0.10 per Class B share. Over 96% 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 if the Company earns a higher percentage of its income in higher-tax jurisdictions or if the Company is not able to tax-benefit its future tax losses in certain countries. 2016 Annual Report 13 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Years ended December 31, 2016 and 2015 (Tabular amounts in millions of Canadian dollars, except per share data) Net earnings for 2016 were $346.3 million, an increase of 17.4% compared to $295.1 million recorded in 2015 due to the items described above. Basic earnings per Class B share were $9.90 for 2016 versus the $8.50 recorded for 2015. Diluted earnings per Class B share were $9.77 for 2016 and $8.38 for 2015. The diluted weighted average number of shares was 35,492,572 for 2016, compared to 35,209,844 for 2015. As of December 31, 2016, the Company had 2,367,475 Class A voting shares and 32,822,296 Class B non-voting shares issued and outstanding. In addition, the Company had outstanding stock options to purchase 615,365 Class B non-voting shares and had 87,894 deferred share units outstanding to issue 87,894 Class B non-voting shares. Adjusted basic earnings per Class B share (a non-IFRS measure; see “Key Performance Indicators and Non-IFRS Measures” in Section 5A) was $11.41 for 2016, up 32.5% from $8.61 in 2015. The movement in foreign currency exchange rates in 2016 versus 2015 had an estimated positive translation impact of $0.07 on adjusted 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 operation, where almost all sales and a significant portion of input costs are U.S. dollar-denominated. G) Seasonality and Fourth Quarter Financial Results 2016 Sales Label Avery Checkpoint Container Total sales Segment operating income (loss) Label Avery Checkpoint 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 1 622.3 179.6 n/a 64.9 866.8 103.9 35.4 n/a 10.6 149.9 10.8 3.0 (0.8) 136.9 7.9 129.0 39.3 89.7 2.57 2.54 2.65 $ $ $ $ $ $ $ Qtr 2 604.0 207.4 92.6 56.2 960.2 89.3 50.6 (4.7) 7.9 143.1 14.1 18.9 (1.1) 111.2 7.8 103.4 31.2 72.2 2.06 2.03 2.80 $ $ $ $ $ $ $ Qtr 3 639.5 220.2 175.5 54.1 1,089.3 94.1 45.3 5.6 4.7 149.7 12.3 6.0 (1.4) 132.8 10.0 122.8 36.7 86.1 2.47 2.44 2.98 $ $ $ $ $ $ $ Qtr 4 631.8 180.5 190.9 55.2 1,058.4 90.7 35.5 27.3 7.1 160.6 11.0 6.7 (1.2) 144.1 12.2 131.9 33.6 98.3 2.80 2.76 2.98 $ $ $ $ $ $ $ Year 2,497.6 787.7 459.0 230.4 3,974.7 378.0 166.8 28.2 30.3 603.3 48.2 34.6 4.5 525.0 37.9 487.1 140.8 346.3 9.90 9.77 11.41 14 2016 Annual Report 2015 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 Fourth Quarter Results $ $ $ $ Qtr 1 486.1 160.2 59.6 705.9 81.8 26.6 8.7 117.1 13.4 0.9 (0.5) 103.3 6.3 97.0 28.9 68.1 1.97 1.93 1.99 $ $ $ $ $ $ $ Qtr 2 468.9 198.2 54.4 721.5 71.9 45.3 5.4 122.6 13.0 — (0.2) 109.8 6.2 103.6 30.3 73.3 2.12 2.09 2.12 $ $ $ $ $ $ $ Qtr 3 522 2 233.1 57.6 812.9 81.6 46.5 6.2 134.3 12.4 0.9 (1.2) 122.2 6.3 115.9 34.1 81.8 2.36 2.33 2.34 $ $ $ $ $ $ $ Qtr 4 553.1 191.2 54.5 798.8 81.9 34.4 6.3 122.6 13.5 4.2 (1.6) 106.5 6.8 99.7 27.8 71.9 2.05 2.03 2.16 Year 2,030.3 782.7 226.1 3,039.1 317.2 152.8 26.6 496.6 52.3 6.0 (3.5) 441.8 25.6 416.2 121.1 295.1 8.50 8.38 8.61 $ $ $ $ $ $ $ Sales for the fourth quarter of 2016 improved 32.5% to $1,058.4 million, compared to $798.8 million recorded in the 2015 fourth quarter. Excluding currency translation, sales for the fourth quarter of 2016 increased by 34.6% compared to the prior- year period. This increase was due to 4.0% organic growth and 30.6% impact from acquisitions. The Label and Container Segments posted sales increases of 14.2%, and 1.3%, respectively, driven by solid organic growth rates for the quarter offsetting a 5.6% decline in Avery sales primarily due to an organic decline in North America. The new Checkpoint Segment added $190.9 million of sales for the fourth quarter. Operating income (a non-IFRS measure; see “Key Performance Indicators and Non-IFRS Measures” in Section 5A) in the fourth quarter of 2016 was $160.6 million, an increase of 31.0% from $122.6 million in the fourth quarter of 2015. For the fourth quarter of 2016 compared to the same period in 2015, the Label, Avery and Container Segments recorded improvements in operating income of 10.7%, 3.2% and 12.7%, respectively. The improvement in the Label Segment was largely driven by gains in North America and Europe, augmented by nine acquisitions made since the beginning of the fourth quarter of 2015. The Avery Segment also posted solid improvement for the fourth quarter of 2016, resulting in an up-tick in return on sales to 19.7% (a non- IFRS measure; see “Key Performance Indicators and Non-IFRS Measures” in Section 5A). Results for the Container Segment benefited from solid results in North America and a positive mix in Mexico. The new Checkpoint Segment generated operating income of $27.3 million, well ahead of management’s expectations. Foreign currency translation resulted in a negative impact of 2.8% to consolidated operating income. EBITDA (a non-IFRS measure; see “Key Performance Indicators and Non-IFRS Measures” in Section 5A) for the fourth quarter of 2016 was $204.3 million, an increase of 33.4% compared to the $153.2 million for the 2015 comparable period. Corporate expenses were $11.0 million in the fourth quarter of 2016, compared to $13.5 million recorded in the prior-year period. The change is attributable to a decrease in director equity compensation expense connected to the directors’ deferred share unit (“DSU”) plan compared to 2015. Net finance cost was $12.2 million for the fourth quarter of 2016 compared to $6.8 million for the fourth quarter of 2015. This increase was attributable to an increase in drawn debt resulting from the Checkpoint acquisition. 2016 Annual Report 15 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Years ended December 31, 2016 and 2015 (Tabular amounts in millions of Canadian dollars, except per share data) For the fourth quarter of 2016, restructuring costs and other items represented an expense of $6.7 million ($6.4 million after tax) as follows: • For the Label Segment, $2.5 million ($2.1 million after tax), the majority of which was for the Worldmark acquisition. • For the Checkpoint Segment, $5.3 million ($4.6 million after tax), primarily for severance costs. • For the Avery Segment, $2.0 million ($1.2 million after tax) reversal of the reorganization reserve as the Meridian, Mississippi facility that was scheduled to be shut down was repurposed as a distribution centre. • For Innovia initial acquisition costs have amounted to $0.9 million ($0.9 million after tax). The negative earnings impact of these restructuring and other items for the 2016 fourth quarter was $0.18 per Class B share. For the fourth quarter of 2015, restructuring costs and other items represented an expense of $4.2 million ($3.7 million after tax) entirely for the Label Segment. Severance costs of $2.8 million were associated with the Worldmark acquisition and severance costs of $1.4 million related to the closure of a plant in France. The negative earnings impact of these restructuring and other items for the 2015 fourth quarter was $0.11 per Class B share. Tax expense in the fourth quarter of 2016 was $33.6 million compared to $27.8 million in the prior-year period. The effective tax rates for these two periods were 25.7% and 28.4%, respectively. The decrease in the effective tax rate, excluding earnings in equity accounted investments, can be attributed to the recognition of previously unrecognized deferred tax assets, due to improved profitability in historically challenging countries and other discrete tax deductions, partially offset by an increase in taxable income in higher-taxed jurisdictions. The net impact of these fourth-quarter adjustments was an approximate $3.5 million reduction in tax expense or $0.10 per Class B share. The net earnings in the fourth quarter of 2016 were $98.3 million, compared to net earnings of $71.9 million in last year’s fourth quarter. This increase reflects the items described above. Basic earnings per Class B share were $2.80 in the fourth quarter of 2016 compared to $2.05 in the fourth quarter of 2015. The movement in foreign currency exchange rates in the fourth quarter of 2016 compared to 2015 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) were $2.98 for the fourth quarter of 2016, an improvement of 38.0% compared to $2.16 in the corresponding quarter of 2015. 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. For Avery, the third quarter has historically been its strongest, as it benefits from the increased demand related to back-to-school activities in North America. For the Checkpoint Segment, the second half of the calendar year is healthier as the business substantially follows the retail cycle of its customers, which traditionally experiences more consumer activity from September through to the end of the year and prepares for the same in its supply chain from mid-year on. 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 shut-downs. Sales and net earnings comparability between the quarters of 2016 and 2015 were primarily affected by regional economic variances, the impact of dramatic foreign currency changes relative to the Canadian dollar, the timing of acquisitions 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 Segment increased sales, excluding the impact of currency translation, in all four quarters of 2016, primarily driven by organic growth and acquisitions. The Avery Segment’s quarterly results mirrored its expected seasonal pattern for 2016, posting robust results for the third quarter of the year, reflecting the back-to-school intensity in North America. Since the Avery acquisition in July of 2013, management has implemented initiatives that have moderated the magnitude of the third-quarter back-to-school season by reducing market share in low-margin ring binder sales. Operating results for the other three quarters of 2016 improved over 2015. Return on sales for 2016 in the Avery segment was 21.2%, an improvement over the 19.5% posted for 2015. This seasonal pattern should continue in 2017. 16 2016 Annual Report Checkpoint’s results for the seven-and-a-half months of CCL’s ownership were consistent with the most active months in the annual retail cycle. The Container Segment’s quarterly results were true to its seasonal pattern, with stronger sales and profitability in the first half of the year compared to the second half of the year. 2 . B U S I N E S S S E G M E N T R E V I E W A) General Over the last decade, all divisions invested significant capital and management effort 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 management. CCL also makes strategic acquisitions for global competitive advantage, servicing large customers, taking advantage of new geographic markets, finding adjacent and new product opportunities, adding new customer segments, building infrastructure and improving operating performance across the Company. Since 2009, average annual capital spending has been broadly in line with annual depreciation and amortization expense. The Avery and Checkpoint Segments and the CCL Design business within the Label Segment are less capital intensive as a percentage of sales than CCL’s other businesses. 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. 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 supply and demand economics within the petrochemical, energy and base metals industries. The Checkpoint Segment purchases component parts including circuit boards, memory chips and other electronic modules from third parties. 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 run lengths 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. 2016 Annual Report 17 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Years ended December 31, 2016 and 2015 (Tabular amounts in millions of Canadian dollars, except per share data) Performance measures used by the divisions that are critical to meeting their operating objectives and financial targets are operating income, 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, leverage ratio, return on equity, return on total capital, free cash flow 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). Growth in adjusted earnings per Class B share is a key metric that the Company monitors. It represents 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. Consistent with the proposed Innovia acquisition, CCL has the strategic vision and financial capacity to develop its material science capabilities in non-commodity-oriented activities. 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 146 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. Checkpoint has always been an innovator for its industry with a strong dedication to research and development activities. It was the pioneer of RF electronic-article-surveillance hardware and consumables. Checkpoint has made further advances with the active enhancement and deployment of RFID solutions, including inventory management software, to the retail and apparel industry. 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 Avery, Label and Checkpoint Segments communicate 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 solutions to maintain its market-leading position with consumers. Avery launched WePrint™, expanding its direct-to-consumer software solutions, and acquired Nilles’, PCN’s and Mabel’s e-commerce platforms to leverage acquired digital print software into the pre-existing Avery suite. 18 2016 Annual Report Within the Avery Segment, most products are sold under the market-leading “Avery” brand and, with equal prominence in German-speaking countries, the “Zweckform” brand name. Within the Checkpoint Segment, products are predominantly sold under the Checkpoint brand and, for retail merchandising products in Europe and Asia Pacific, the Meto brand. The Company recognizes that in order to maintain the pre-eminent positions for Avery, Zweckform, Checkpoint and Meto, it must continually invest in promoting these brands. Product quality, innovation and performance are recognized attributes to the success of these brands. The Company has deployed many initiatives to reduce the carbon footprint of its products and services. These include 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 patented “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. In addition to CCL’s dedication to preserving the environment, the Company recognizes it must be a socially responsible organization. CCL is committed to fair labour practices, maintaining a safe workplace and giving back to its employees and the communities in which it operates. The Company’s confidential ethics hotline allows employees to safely voice concerns and CCL’s Employee Assistance Program provides reassuring advice and support for anxieties outside the workplace. Business Segment Results Segment sales Label Avery Checkpoint Container Total sales Operating income* Label Avery Checkpoint Container Segment operating income 2016 2015 $ $ $ $ $ $ 2,497.6 787.7 459.0 230.4 3,974.7 378.0 166.8 28.2 30.3 $ 603.3 $ 2,030.3 782.7 — 226.1 3,039.1 317.2 152.8 — 26.6 496.6 * This is a non-IFRS measure. Refer to “Key Performance Indicators and Non-IFRS Measures” in Section 5A. Comments on Business Segments The above summary includes the results of acquisitions on reported sales and operating income from the date of acquisition. B) Label Segment Overview The Label Segment is the leading global producer of innovative label solutions for consumer product marketing companies in the personal care, food & beverage, household chemical and promotional segments of the industry, and also supplies regulated labels to major pharmaceutical, healthcare and industrial chemical customers plus long-life labels to automotive, electronics and other durable goods companies. The Segment’s product lines include pressure sensitive, shrink sleeve, stretch sleeve, in-mould, precision printed and die cut metal and plastic components, expanded content labels, pharmaceutical instructional leaflets and plastic tubes. It currently operates 110 production facilities located in Canada, the United States (including Puerto Rico), Argentina, Australia, Austria, Brazil, Chile, China, Denmark, Egypt, France, Germany, Hungary, Ireland, Italy, Japan, Korea, Malaysia, Mexico, the Netherlands, Northern Ireland, Oman, Pakistan, Philippines, Poland, Russia, Saudi Arabia, Singapore, Switzerland, Thailand, Turkey, United Arab Emirates, the United Kingdom and Vietnam. The five plants in Russia, five plants in the Middle East, one plant in Chile and one plant in the United States are connected to the equity investments in CCL-Kontur, Pacman-CCL, Acrus-CCL and Korsini-CCL, respectively, and are included in the above locations. 2016 Annual Report 19 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Years ended December 31, 2016 and 2015 (Tabular amounts in millions of Canadian dollars, except per share data) 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 most of its defined global label market sectors. Competition largely comes from single-plant businesses, often owned by private operators who 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 product breadth, global reach and scale of CCL Label. 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 Company has completed numerous label acquisitions, strategic joint ventures and greenfield start-ups geographically and into new product offerings to position the Label Segment as a global leader within its multinational customer base in personal care, healthcare, household, food, beverage, automotive, electronics, durable goods and specialty categories. Although, CCL Design has participated in the automotive sub-sector of the broad durable goods category, it now represents a fourth equally significant financial and geographic market for CCL Label. Recent acquisitions of INTA, FritzB, Woelco, Zephyr and, most notably, Worldmark significantly enhanced technical capabilities and expanded CCL Design in the automotive, electronics and computer-peripheral sub-sectors globally. 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 also extrudes films and coats and laminates pressure sensitive materials and is generally able to mitigate the cost volatility of third-party- sourced materials 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 of these labels is updated, reflecting current market costs and new shapes and designs. 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. 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 still expected over the coming years, despite the slower conditions experienced in the past two years. This should provide opportunities for the Segment to improve market share and increase profitability in these regions. Furthermore, there is close alignment of label demand to consumer staples other than CCL Design, which is completely aligned to the automotive, electronics and durable goods industry. Management believes the Segment 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. Label Segment Financial Performance Sales Operating income Return on sales 2016 % Growth $ $ 2,497.6 378.0 15.1% 23.0% 19.2% $ $ 2015 2,030.3 317.2 15.6% Sales in the Label Segment for 2016 increased to $2,497.6 million, compared to $2,030.3 million in 2015. Foreign currency translation had a favourable impact of 1.1%. The Label Segment increased 7.1% from strong organic growth and 14.7% due to the positive benefit of seven acquisitions since the beginning of the 2016 year. 20 2016 Annual Report Sales in 2016 for North America increased mid-single digits compared to 2015, excluding the impact of currency translation and the acquisitions of BCA, Worldmark, and Woelco. Healthcare & Specialty results for the year were solid, with a modest improvement in Healthcare performance compared to a strong prior year augmented by Ag-Chem and Specialty markets recovering from a weak prior year. Profitability was also aided by a third-quarter gain from a favourable patent settlement. Home & Personal Care sales and profitability improved substantially on impactful market share gains in tubes supplemented by foreign currency translation, compared to 2015. Sales and profitability in the Food & Beverage sector improved significantly on market share wins in the Sleeve and Wine & Spirit operations. CCL Design sales growth, excluding the Worldmark and Woelco acquisitions, improved slightly but profitability improved significantly on mix and productivity gains in the legacy operations. Overall the impact of currency translation was nominal and profitability increased, while return on sales (“Return on Sales,” a non-IFRS financial measure; refer to the definition in Section 5A) was held in check for the year including the dilutive impact of acquisitions. European sales were up mid-single digits for 2016, excluding currency translation and the impact of acquisitions in the region compared to 2015. Home Personal Care sales were in line with a strong prior year in tough end markets for customers, and profitability declined on start-up costs of a new facility in Turkey. Healthcare & Specialty sales, excluding acquisitions, were down modestly compared to 2015 especially in Scandinavia, but profitability improved on mix and productivity. The newly acquired Healthcare businesses in Germany, and Ireland performed well, meeting management expectations. Results for Food & Beverage in local currencies were especially strong, with operating margins improving in both the Sleeve and Beverage label businesses. The Closures business posted solid results with restructuring, new business wins and productivity initiatives post the Bandfix acquisition taking hold. Sales at CCL Design, excluding acquisitions, grew meaningfully; however, profitability was down slightly due to operational challenges with a new program for one OEM, which has now been rectified. Overall, European operating income, excluding currency translation, increased substantially; however, return on sales declined slightly due to the dilutive impact of acquisitions and start-up operations. Sales in Latin America, excluding the Worldmark and Powerpress acquisitions and currency translation, increased strong double digits for 2016 compared to 2015. Sales improved in both Mexico and Brazil in all lines of business driven by market share gains and price increases to recover the impact of local currency declines and its impact on imported raw material costs, especially in Mexico. Operating income increased significantly in absolute terms and as a percent of sales, including start-up costs for CCL Design in Mexico and the new Home & Personal Care plant in Argentina. Results for the Latin American portion of the Worldmark acquisition were also strong. Asia Pacific sales, excluding acquisitions and currency translation, increased high single digits for 2016 compared to 2015. Sales in China increased with improvements in Beverage and CCL Design offsetting softness in Home & Personal Care; profitability improved overall driven by gains in Healthcare, CCL Design and Beverage. ASEAN sales increased on solid markets but profits were lower than the prior year, which benefited from significant foreign exchange gains on strong export sales from Thailand. Profitability in Vietnam improved significantly while start-up costs were incurred in Korea, the Philippines and the fully consolidated tube operation in Thailand. Australian results improved, although continuing losses in Healthcare were only partly offset by improved profits in Wine & Spirits. Beverage sales and profitability in South Africa increased meaningfully compared to 2015. The acquired Worldmark, Woelco and Zephyr operations met management’s anticipated sales and profitability targets for 2016, with opportunities for continued improvement in 2017. Operating income increased significantly but declined as a percentage of sales in the Asia Pacific region due to the margin dilution impact of acquisitions, start-up costs and prior year foreign exchange gains. Operating income for the Label Segment improved by 19.2% to $378.0 million for 2016 compared to $317.2 million for 2015. Foreign currency translation had a positive effect of 0.8% on 2016 operating income compared to 2015. Operating income as a percentage of sales was 15.1% in 2016 compared to the 15.6% return generated in the prior year. The decline in return on sales resulted from the $2.0 million non-cash acquisition accounting adjustment to fair value finished goods inventory and the dilutive impact of acquisitions. The Label Segment invested $194.8 million in capital spending in 2016 compared to $145.9 million last year. The most significant capital investments for 2016 related to equipment installations to support the Home & Personal Care and Healthcare businesses in North America, capacity additions for the Sleeve operations in Europe, and capacity additions and new plants for the Closures business globally and CCL Design in the United States and Asia. Capital expenditures in the Label Segment for 2017 are expected to be similar to the amount invested in 2016. Depreciation and amortization for the Label Segment was $152.6 million in 2016, compared to $132.8 million in 2015. 2016 Annual Report 21 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Years ended December 31, 2016 and 2015 (Tabular amounts in millions of Canadian dollars, except per share data) 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 and 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 the year; however, in the BOPWI category, North American consumers engage in the back-to-school surge during the third quarter. Avery operates eleven manufacturing and three distribution facilities. 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. Most 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, as well as the direct-to-consumer “pc/nametag” and, from 2016, “Mabel’s Labels” brands. Avery reaches its consumers, including small businesses, through distribution channels that include mass-market merchandisers, retail superstores, wholesalers, e-tailers, contract stationers, catalog retailing and direct-to-consumer e-commerce. Merger activity and store closures 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 mailing address label product as e-mail and 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. Avery has successfully launched its proprietary direct-to-consumer e-commerce label design software platform WePrint™. In 2014, the acquisitions of Label Connections Ltd. and Nilles expanded Avery’s digital print capabilities to the commercial graphic arts sector and e-commerce platform to custom designed roll fed labels in new markets around the world. In 2015, the acquisitions of PCN and Mabel’s further expanded Avery’s digital print offerings to the meetings and events planning industry and personalized identification labels for children and families. Growth in these new printable media products and in new markets for existing products has slightly exceeded the decline in volume for mailing applications and re-established a growth rate for the Segment ahead of CCL’s expectation. It is also CCL’s expectation that Avery will continue to open up new revenue streams in short-run digital printing applications. 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 reduced its North American supply-chain infrastructure, closing the two facilities in Massachusetts. Operations from these two facilities were re-allocated to the remaining footprint in the United States and Mexico and to a new state-of-the-art manufacturing and distribution facility in Whitby, Ontario. The final steps associated with this restructuring initiative were announced in late 2015, with a subsequent modification of the plan in 2016 to cease all manufacturing activities in Meridian, Mississippi, and convert the operation to a single-purpose distribution centre. The label and binder production from this facility was consolidated into the existing facility in Tijuana, Mexico, with the expectation of reducing annual costs for Avery by approximately $8.0 million from mid-2017 onward. Although Avery remains the clear market leader in its industry, over the last decade it has experienced secular declines in its core mailing address label and other product lines vulnerable to the rise of internet-based digital communication and data storage mediums. Avery Segment Financial Performance Sales Operating income Return on sales 2016 % Growth $ $ 787.7 166.8 21.2% 0.6% 9.2% $ $ 2015 782.7 152.8 19.5% Sales in the Avery Segment for 2016 were $787.7 million, an increase of 0.6% compared to the $782.7 million posted in 2015. Foreign currency translation had a favourable influence of 2.5% and acquisitions added 2.2%, offsetting an organic decline of 4.1% for 2016. 22 2016 Annual Report North American sales were down mid-single digits for 2016, excluding currency translation and the impact of acquisitions in the region, compared to 2015. The anticipated softness in the third-quarter back-to-school season impacted the full year sales principally in the BOPWI category with share loss in low-margin, mass market binders. Printable Media products declined at a lower rate, driven by sales in the superstore and commercial channels, offset by improvements in name badges and strong performance from the Mabel’s acquisition. Overall profitability improved across all categories due to price increases, cost cutting and productivity programs bolstered by excellent results from Mabel’s. Return on sales in this region remains above the Segment average. International sales are mostly generated from products in the Printable Media category, representing approximately 21.5% of the Avery Segment’s sales for 2016. Sales, excluding acquisitions and currency translation, increased low single digits with gains all in Latin America and Asia Pacific with Europe flat. A weaker euro and Australian dollar to the Canadian dollar also had a significant impact on absolute sales for 2016 compared to 2015. Pricing and margin challenges with the foreign exchange impact on the cost of imported materials affected the U.K. and Argentina. Profitability improved modestly compared to 2015 due to cost-reduction programs and productivity initiatives. Operating income for 2016 increased 9.2% to $166.8 million compared to $152.8 million in 2015. Return on sales improved to 21.2% for 2016, compared to 19.5% for 2015, reflecting the financial benefits achieved from post-acquisition restructuring initiatives, mix and the positive impact of acquisitions. The Avery Segment invested $16.2 million in capital spending for 2016, compared to $13.8 million for 2015. The expenditures in 2016 were primarily for Printable Media capacity additions in North America to support the planned consolidation of label manufacturing in Tijuana. In 2015, equipment additions were principally for North America to reduce supply-chain cost within the BOPWI category and equipment to support digital print capabilities for Printable Media. Depreciation and amortization for the Avery Segment was $16.1 million for 2016, compared to $15.1 million for 2015. D) Checkpoint Segment Overview The Checkpoint Segment was acquired May 13, 2016, when the Company acquired all the outstanding shares of Checkpoint (NYSE:CKP) at an enterprise value of $531.9 million. This Segment is a leading global manufacturer and provider of hardware and software systems plus security labels and tags providing inventory control and loss-prevention solutions to world-leading retailers. Checkpoint is a leading manufacturer of technology-driven loss-prevention, inventory-management and labeling solutions, including RF and RFID solutions, to the retail and apparel industry. The Segment has three primary product lines: Merchandise Availability Solutions (“MAS”), Apparel Labeling Solutions (“ALS”) and Retail Merchandising Solutions (“RMS”). The MAS line focuses on electronic-article-surveillance (“EAS”) systems; hardware, software, labels and tags for loss prevention and inventory control systems including RFID solutions. ALS products are apparel labels and tags, some of which are RFID capable. RMS, a small European-centric product line, includes hand-held pricing tools and labels and promotional in-store displays. All MAS and ALS products are sold under the Checkpoint brand, and RMS is sold under the Meto brand. Checkpoint is supported by 20 manufacturing facilities, 12 distribution facilities and four product and software development centres around the world. The Segment generates sales in 23 countries outside of its home market in North America across Europe, Latin America and Asia, where it generates approximately 70% of its revenue. Checkpoint sells directly to retailers or apparel manufacturers and competes with other global retail labeling companies. Despite Checkpoint’s market-leading position, strong brand recognition and product development pipeline, only modest growth is expected given the changing ‘brick and mortar’ retail landscape. Large contracts with retailers for hardware and software can create significant quarter-to-quarter and in some cases year-to-year revenue volatility. However, Checkpoint’s comprehensive solution of hardware and software also creates an important high-margin recurring revenue stream for its related consumables. Moreover, CCL is also confident that Checkpoint is well positioned to capture the evolving RFID market opportunity as retailers seek omni-channel fulfillment systems. Lastly, subsequent to CCL’s acquisition on May 13, 2016, Checkpoint implemented a comprehensive restructuring plan to streamline operations and right-size the management structure. In 2016, restructuring charges totalling $20.7 million were recorded, as part of the $30 million plan; however, the final elements will not be finished until the end of 2017 with the expectation of annualized savings of $40 million. 2016 Annual Report 23 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Years ended December 31, 2016 and 2015 (Tabular amounts in millions of Canadian dollars, except per share data) Checkpoint Segment Financial Performance Sales Operating income Return on sales 2016 % Growth $ $ 459.0 28.2 6.1% n.m. n.m. $ $ 2015 n/a n/a n/a Sales for the Checkpoint Segment were $459.0 million for 2016, in line with management expectations. Operating income for 2016 was $28.2 million and would have been $60.1 million but for a charge of $31.9 million for the non-cash acquisition accounting adjustment related to the elimination of profit from acquired finished goods inventory. The MAS product lines delivered all the profits for the Segment, exceeding management expectations, while ALS posted a loss in soft apparel markets; RMS results are not material. Excluding the impact of the non-cash acquisition accounting adjustment to finished goods inventory in 2016, Checkpoint generated a return on sales of 13.1% for the seven and a half months of CCL’s ownership, albeit the seasonally strongest months of a year for Checkpoint. The Checkpoint Segment invested $5.9 million in capital spending since May 13, 2016. Depreciation and amortization for the Checkpoint Segment was $18.7 million for the period of May 13, 2016, to December 31, 2016. E) 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 promotional applications in 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. In North America, there are three 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 Container Segment currently operates from five plants, two each in the United States and Mexico and one in Canada. 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 through 2013. Therefore, 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. 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 redeploying the equipment from the Canadian operation through mid-2017. In December 2014, CCL contributed a 50% equity investment in Rheinfelden Americas, LLC (“Rheinfelden”), a joint venture with Rheinfelden Semis GmbH, a leading German producer of aluminum slugs. This new facility in North Carolina will provide an alternate source of aluminum slugs in North America. The plant has posted start-up losses throughout 2016, which are expected to continue for the first half of 2017 until optimal capacity is reached. 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 and the associated “premiums” charged over and above for its supply have been extremely volatile in the past few years and continue to have the largest impact on manufacturing costs for the Container Segment, requiring disciplined focus on managing selling prices to CCL’s customers. Aluminum trades as a commodity on the LME and the Container Segment uses 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 14.3% of its 2016 volume and has hedged 13.1% of its expected 2017 requirements, and all the hedges, including matured 2016 hedges, were matched to fixed-price customer contracts. Existing 24 2016 Annual Report hedges are priced in the US$1,595 to US$1,745 range per metric ton. The unrealized gain on the aluminum futures contracts as at December 31, 2016, was nominal. Pricing for aluminum in 2016 ranged from US$1,450 to US$1,780 per metric ton, compared to US$1,420 to US$1,920 per metric ton in 2015. Management believes that the aluminum container business can continue to improve levels of profitability in the coming years with increased demand and continued pricing discipline and by driving greater operational efficiencies once the reorganized manufacturing footprint in the United States and Mexico has been completed. The aluminum container continues to be generally perceived as more aesthetically 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. 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. Container Segment Financial Performance Sales Operating income Return on sales 2016 % Growth $ $ 230.4 30.3 13.2% 1.9% 13.9% $ $ 2015 226.1 26.6 11.8% For 2016, the Container Segment posted sales of $230.4 million, compared to $226.1 million in 2015. The 1.9% increase in sales can be attributed to organic growth of 3.4% partially offset by a 1.5% negative impact from currency translation. North American volume was up mid-single digits, but lower aluminum cost pass through pricing held back organic sales growth. Lower operating costs and productivity improvements augmented operating income. Mexican volume was also up with rich mix, significant U.S. dollar–priced sales and excellent operating performance driving significant profit improvement. These gains were achieved despite start-up expenses for new capacity associated with the planned closure of the Canadian operation. As a result operating income improved 13.9%, and return on sales improved to 13.2% for 2016, compared to return on sales of 11.8% for 2015. When announcing, in late 2013, the closure of the Canadian facility and redistribution of the business to the remaining plants, management had expected annualized operating improvements totalling $10.0 million. These savings have now been realized through exchange rate benefits and other operational improvements. Late in 2016, a major Home Care customer finalized plans to move a large application from aluminum to a new PET-based dispensing system no longer requiring supply from CCL Container for this brand. This application amounted to approximately half the reduced volume of the Canadian plant. Therefore, management is now proceeding with the long planned closure of this operation with half of its capacity being closed down in the first quarter of 2017 and the balance over the remainder of the year. The lost application was low margin; therefore, Segment profitability will see limited impact once the closure of the plant has been completed. Profitability in the first half of 2017, however, will be impacted during the transition phase. The Container Segment invested $17.8 million of capital in 2016, compared to $12.5 million last year. The majority of the 2016 expenditures were for the installation of new manufacturing equipment at the U.S. operation to enable the efficient redistribution of part of the Canadian plant’s equipment. Depreciation and amortization in 2016 and 2015 were $15.3 million and $15.2 million, respectively. 2016 Annual Report 25 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Years ended December 31, 2016 and 2015 (Tabular amounts in millions of Canadian dollars, except per share data) F) Joint Ventures For the years ended December 31 Sales (at 100%) Label joint ventures Rheinfelden Earnings (losses) in equity accounted investments Label joint ventures Rheinfelden 2016 122.3 0.1 122.4 11.9 (3.2) 8.7 $ $ $ $ 2015 106.7 — 106.7 9.1 (2.4) 6.7 $ $ $ $ +/- 14.6% — 14.7% 30.8% (33.3)% 29.9% The following investments affected the financial comparisons for the year ended December 31, 2016: • In January 2016, CCL invested $6.0 million in cash to increase its stake from 50% to 75% in its tube manufacturing joint venture in Bangkok, Thailand, with Taisei Kako Co. Ltd. of Japan. In August of 2016, CCL acquired the final 25% stake in the venture from its partner for $1.9 million. As a result of the change in control, 2016 financial results are no longer included in equity investments but are fully consolidated with CCL Label’s Home & Personal Care business, without a portion of the earnings attributable to a non-controlling interest, since September 2016. • In July 2015, the Company signed a binding agreement with Korsini-SAF to create a North American “in-mould” label joint venture. The partners will invest approximately $20.0 million between them, in a combination of debt and equity, each owning 50% of the new company. The initial capital investment was completed in January of 2016, while trading is not expected to commence until mid-2017. Results from the joint ventures in CCL-Kontur, Russia; Pacman-CCL, Middle East; Acrus-CCL, Chile; Korsini-SAF and Rheinfelden Americas, United States, are not proportionately consolidated into the Label or Container 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 increased significantly at CCL-Kontur but profits dipped as new production capacity came on line during the year. Results included start-up losses at the new shrink sleeve manufacturing facility financed entirely by bank debt. Pacman-CCL posted significant increases in sales and profitability contributing meaningfully to overall earnings for 2016. Acrus-CCL posted solid improvement with incremental profitability exceeding revenue growth compared to 2015. Rheinfelden Americas, the aluminum slug joint venture, incurred expected start-up losses for the year, with the final tranche of investment expected to be completed by the end of 2017 and full production and profitability run-rate expected for 2018. Earnings in equity accounted investments amounted to $4.5 million for 2016, compared to $3.5 million for 2015. 26 2016 Annual Report 3 . F I N A N C I N G A N D R I S K M A N AG E M E N T A) Liquidity and Capital Resources The Company’s leverage ratio is as follows: For the years ended December 31 Current debt Long-term debt Total debt(1) Cash and cash equivalents Net debt(1) EBITDA Net debt to EBITDA(1) $ $ $ 2016 4.2 1,597.1 1,601.3 (585.1) 1,016.2 792.7 1.28 $ $ $ 2015 167.1 838.4 1,005.5 (405.7) 599.8 608.4 0.99 (1) Total debt, net debt and net debt to EBITDA are non-IFRS measures. See “Key Performance Indicators and Non-IFRS Measures” in Section 5A. In December of 2015, the Company signed an amended five-year US$1.2 billion revolving credit facility with a syndicate of banks. Outstanding debt on the previous revolving and non-revolving syndicated credit facilities was rolled into this amended facility. This amended facility incurs interest at the applicable domestic rate plus an interest rate margin linked to the Company’s net debt to EBITDA. In September 2016, the Company closed its initial public bond offering of US$500.0 million aggregate principal amount of 3.25% notes due October 2026. The notes are unsecured senior obligations. Net proceeds from the offering were used to repay amounts owing under the revolving credit facility. On March 7, 2016, US$110.0 million of private placement debt was repaid with a drawdown on the Company’s revolving credit facility; consequently, the current portion of long-term debt has decreased compared to December 31, 2015. The Company’s debt structure at December 31, 2016, was primarily comprised of the aforementioned public bonds of US$500.0 million (C$662.1 million), two private debt placements completed in 1998 and 2008 for a total of US$129.0 million (C$173.0 million), and outstanding debt totalling $756.6 million under the syndicated revolving credit facility. Outstanding contingent letters of credit totalled $4.1 million; accordingly there was US$631.1 million of unused availability on the revolving credit facility at December 31, 2016. In addition, the Company had uncommitted and unused lines of credit of approximately US$5.0 million at December 31, 2016. 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 bank. Net debt (a non-IFRS financial measure; see “Key Performance Indicators and Non-IFRS Measures” in Section 5A) was $1,016.2 million at December 31, 2016, $416.4 million higher than the net debt of $599.8 million at December 31, 2015. The increase in net debt was primarily attributable to the additional debt drawn to acquire Checkpoint and the translation impact on foreign currency–denominated debt, partially offset by the increase in cash and cash equivalents. Net debt to EBITDA (a non-IFRS measure; see “Key Performance Indicators and Non-IFRS Measures” in Section 5A) increased to 1.28 times as at December 31, 2016, compared to 0.99 times at the end of 2015, due to the increase in net debt relative to the increase in EBITDA. However, the measure remains very strong after closing eight acquisitions for proceeds of $566.5 million in 2016. The Company’s overall average finance rate was 3.0% as at December 31, 2016, compared to 3.1% as at December 31, 2015. The decrease in the average finance rate was caused by the Company’s new unsecured public bond, which resulted in a larger proportion of lower-cost fixed rate debt at December 31, 2016. Interest coverage (a non-IFRS measure; see “Key Performance Indicators and Non-IFRS Measures” in Section 5A) continues at a high level and was 14.6 times and 17.4 times in 2016 and 2015, respectively, indicative of higher net finance costs associated with the eight acquisitions in 2016. 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. Consequently, in support of the Innovia acquisition, a US$450.0 million, two-year, unsecured amortizing term loan contingent on the closing of the transaction has been committed by a syndicate of banks. 2016 Annual Report 27 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Years ended December 31, 2016 and 2015 (Tabular amounts in millions of Canadian dollars, except per share data) B) Cash Flow Summary of Cash Flows Cash provided by operating activities Cash provided by 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 2016 564.0 439.6 (796.8) (27.4) 179.4 585.1 $ $ $ 2015 475.3 190.8 (511.3) 29.0 183.8 405.7 $ $ $ In 2016, cash provided by operating activities was $564.0 million, compared to $475.3 million in 2015. Free cash flow from operations (a non-IFRS measure; see “Key Performance Indicators and Non-IFRS Measures” in Section 5A) reached $338.6 million for 2016, compared to $320.7 million in the prior year. The free cash flow from operations was primarily attributable to an increase in cash flow from operations, partially offset by an increase in capital additions for the year. 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) was 15 days at December 31, 2016 compared to 9 days at December 31, 2015. The increase in days working capital employed can be attributed to the impact of acquired businesses in 2016 which did not manage their working capital as efficiently as the legacy CCL businesses. Cash provided by financing activities in 2016 was $439.6 million, consisting of net debt borrowings of $533.0 million, primarily used to finance the Checkpoint acquisition and proceeds from the issuance of shares of $5.6 million due to the exercise of stock options partially offset by dividend payments of $70.2 million. In 2015, financing activities provided $190.8 million, primarily for the acquisition of Worldmark. Cash used for investing activities in 2016 of $796.8 million was primarily for the acquisitions totalling $571.5 million and net capital expenditures of $225.4 million (see below). Consequently, cash and cash equivalents increased by $179.4 million in 2016 to $585.1 million. Capital spending in 2016 amounted to $234.7 million and proceeds from capital dispositions were $9.3 million, resulting in net capital expenditures of $225.4 million, compared to $154.6 million in 2015. Net capital spending was slightly greater than annual depreciation and amortization 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 2016 amounted to $203.7 million, compared to $164.1 million in 2015. 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, less than 5% of its 2016 sales to end-use customers are 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 does not use financial instruments to hedge its U.S. dollar foreign exchange risk. Container Segment U.S. dollar–denominated sales to the United States from its Canadian operation are now largely balanced by U.S. dollar–denominated purchases at the Label and Avery Segment operations located in Canada. 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 periodically 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. As at December 31, 2016, the Company did not have any IRSAs in place. At December 31, 2015, there was an IRSA converting 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 was floating rate debt. This IRSA expired in September 2016. 28 2016 Annual Report 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, 2016, the Company’s exposure to credit risk arising from derivative financial instruments was nil. There was a negligible effect on interest due to swap agreements for 2016 (2015 – increase by $0.8 million). As at December 31, 2016, the Company had US$1,038.6 million, €64.0 million and ₤70.0 million drawn under the new public bonds, private debt placement and revolving credit facility, which are hedging a portion of its U.S. dollar-based, euro-based and pound-sterling-based investments and cash flows. The only other material hedges in which the Company is involved are the aluminum futures contracts discussed in Section 2E: “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 Shares released from trust, net of purchase of shares for trust Contributed surplus on expensing of stock options and stock-based compensation plans Defined benefit plan actuarial losses, net of tax Net impact of acquisition of non-controlling interest Increase in accumulated other comprehensive income (loss) Increase in equity Equity Shares issued at December 31 – Class A (000s) – Class B (000s) $ $ $ 2016 346.3 (70.0) 6.8 (22.3) 13.7 (9.0) 0.4 (112.6) 153.3 1,775.2 2,367 32,822 $ $ $ 2015 295.1 (52.1) 22.3 6.5 24.3 1.2 — 108.4 405.7 1,621.9 2,368 32,729 In 2016, the Company declared dividends of $70.0 million, compared to $52.1 million declared in the prior year. As previously discussed, the dividend payout ratio in 2016 was 18% (2015 – 17%) of adjusted earnings. After careful review of the current year results, budgeted cash flow and income for 2017 as well as the pending acquisition of Innovia, the Board has declared a 15% increase in the dividend: $0.075 per Class B share per quarter, from $0.50 to $0.575 per Class B share ($2.30 per Class B share annualized). If 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 did not repurchase any of its shares for cancellation in 2016. 2016 Annual Report 29 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Years ended December 31, 2016 and 2015 (Tabular amounts in millions of Canadian dollars, except per share data) E) Commitments and Other Contractual Obligations The Company’s obligations relating to debt, leases and other liabilities at the end of 2016 were as follows: December 31, 2015 December 31, 2016 Payments Due by Period Carrying Amount Carrying Amount Contractual Cash Flows 0–6 Months 6–12 Months 1–2 Years 2–5 Years More than 5 Years Non-derivative financial liabilities Secured bank loans $ Unsecured bank loans Unsecured senior notes Finance lease liabilities Unsecured notes Unsecured syndicated bank credit facility Other long-term obligations Interest on unsecured senior notes Interest on unsecured bank credit facility Interest on unsecured notes Interest on other long-term debt Trade and other payables Derivative financial liabilities – CF hedges Accrued post-employment benefit liabilities Operating leases 1.3 11.4 330.5 8.0 — 653.9 0.4 * — — — 711.0 1.4 * — $ $ 2.5 $ 1.4 173.0 5.6 662.1 2.5 1.4 173.2 5.6 671.3 $ 0.5 0.3 — 1.3 — — — 1.9 7.2 4.9 0.3 844.5 0.6 0.2 — 1.3 — — — 5.8 7.7 10.8 0.2 — — 0.7 14.3 $ $ 0.5 0.5 173.2 1.4 — 0.5 0.4 — 1.6 — $ 0.4 — — — 671.3 — — 7.7 15.4 21.8 0.2 — — 9.2 18.5 756.6 — — 30.4 65.5 0.1 — — 27.4 34.4 — — — — 103.6 — — — 52.6 21.1 756.6 — 15.4* 60.7* 206.6* 0.8 844.5 756.6 — * — — — 844.5 — * — — — 90.7* 102.6 0.8 14.3 Total contractual cash obligations $ 1,717.9 $ 2,445.7 $ 2,931.9 $ 876.0 $ 41.6 $ 248.4 $ 916.9 $ 849.0 * Accrued long-term employee benefit and post-employment benefit liability of $7.6 million, accrued interest of $10.8 million on unsecured senior notes, unsecured notes and unsecured syndicated credit facility, and accrued interest of nil on derivatives are reported in trade and other payables in 2016 (2015 – $2.1 million, $7.3 million and nil, respectively). Pension Obligations CCL sponsors a number of defined benefit plans in countries that give rise to accrued post-employment benefit obligations. The accrued benefit obligation for these plans at the end of 2016 was $342.0 million (2015 – $200.8 million) and the fair value of the plan assets was $66.7 million (2015 – $67.2 million), for a net deficit of $275.5 million (2015 – $133.6 million). Contributions to defined benefit plans during 2016 were $7.9 million (2015 – $5.2 million). The Company expects to contribute $22.7 million to the pension plans in 2017, inclusive of defined contribution plans. These estimated funding requirements will be adjusted annually, based on various market factors such as interest rates, expected returns and staffing assumptions, including compensation and mortality. The Company’s contributions are funded through cash flows generated from operations. Management anticipates that future cash flows from operations will be sufficient to fund expected future contributions. Details of the Company’s pension plans and related obligations are set out in note 19, “Employee Benefits,” of the consolidated financial statements. Other Obligations and Commitments The Company has provided various loan guarantees for its joint ventures and associates totalling $62.1 million. There are no other 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. There are no defined benefit plans funded with CCL stock. 30 2016 Annual Report 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, 2016, 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. In accordance with the provisions of NI 52-109, management, including the Chief Executive Officer, and the Chief Financial Officer, have limited the scope of their design of the Company’s disclosure controls and procedures and internal control over financial reporting to exclude controls, policies and procedures of Checkpoint. CCL acquired Checkpoint and its subsidiaries on May 13, 2016. Checkpoint’s contribution to the Company’s consolidated financial statements for the year ended December 31, 2016, was approximately 12% of consolidated sales. The scope limitation is primarily based on the time required to assess Checkpoint’s disclosure controls and procedures and internal control over financial reporting in a manner consistent with the Company’s other operations. The assessment on the design effectiveness of disclosure controls and procedures and internal control over financial reporting is on track for completion by the end of the second quarter of 2017 and the assessment of the operating effectiveness will be completed by the fourth quarter of 2017. Except for the preceding changes, 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, 2016. There were no material changes in internal control over financial reporting in the financial year ended December 31, 2016. 4 . R I S KS A N D U N C E R TA I N T I E S 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 a 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 due to 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 2016 Annual Report 31 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Years ended December 31, 2016 and 2015 (Tabular amounts in millions of Canadian dollars, except per share data) 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 2016 were 96% of the Company’s total sales, a level similar to that in 2015. 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 2016, 47% and 28% of total sales were to customers in the 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 2016 were 21% of the Company’s total sales. In addition, the Company has equity accounted investments in Chile, Russia, Thailand, the United States and the Middle East. There are risks associated with operating a decentralized organization in 146 manufacturing 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, parts of Asia, Russia and the Middle East. These risks include, but are not limited to, fluctuations in currency exchange rates, inflation, 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. Foreign Exchange Exposure and Hedging Activities Sales of the Company’s products to customers outside Canada account for approximately 96% 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. 32 2016 Annual Report 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. Integration and Restructuring of Checkpoint CCL acquired the global operations of Checkpoint on May 13, 2016, and immediately commenced detailed analysis of the restructuring that would be required at Checkpoint. Checkpoint has 4,300 employees with operations in 29 countries including 20 manufacturing plants and 46 go-to market units. The size, geographic scope and complexity of Checkpoint’s operations exceeded the typical acquisition of CCL and therefore the integration and restructuring initiative has been more complex and time consuming. The initial assessment resulted in severance-related restructuring charges of $20.7 million through to the end of 2016. The restructuring and integration initiative will continue through 2017. A failure to integrate and restructure the acquired business in a timely and effective manner could have a material adverse effect on CCL’s business, financial condition and results of operations. 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. Another key aspect to CCL’s growth strategy includes increased development of the Company’s presence in emerging markets that could create exposure to unstable political conditions, economic volatility and social challenges. If the Company cannot adjust to its anticipated growth, results of operations may be materially adversely affected. Lower than Anticipated Demand Although the Checkpoint Segment enjoys the advantage of significantly lower customer concentration than the rest of CCL they are heavily dependent on the retail marketplace. Changes in the economic environment including the liquidity and financial condition of its customers, the impact of online customer spending or reductions in retailer spending and new store openings could adversely affect the Segment’s sales. A reduction in the commitment for chain-wide installations due to decreased consumer spending that results in reduced spending on loss prevention by retail customers or CCL’s failure to develop new technology that entices the customer to maintain its commitment to Checkpoint’s loss prevention products and services may also have a material adverse effect on CCL’s business, financial condition and results of operations. 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. This outcome could have a material adverse effect on the business, financial condition and results of operations of the Company. Realization of Deferred Tax Assets The Company needs to generate sufficient taxable income in future periods in certain foreign and domestic tax jurisdictions to realize the tax benefit. If there is a significant change in the time period within which the underlying temporary difference or loss carry-forwards become taxable or deductible, the Company may have to revise its unrecognized deferred tax assets. This could result in an increase in the effective tax rate and could have a material adverse effect on future results. Changes in statutory tax rate may change the deferred tax asset or liability, with either a positive or negative impact on the effective 2016 Annual Report 33 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Years ended December 31, 2016 and 2015 (Tabular amounts in millions of Canadian dollars, except per share data) tax rate. The computation and assessment of the ability to realize the deferred tax asset balance is complex and requires significant judgment. New legislation or a change in underlying assumptions may have a material adverse effect on the business, financial condition and results 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 the global economic conditions, and they 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. Brexit In a non-binding referendum on the United Kingdom’s membership in the European Union (“E.U.”) in June 2016, a majority of those who voted approved the United Kingdom’s withdrawal from the European Union. Any withdrawal by the United Kingdom from the European Union (“Brexit”) would occur after, or possible concurrently with, a process of negotiation regarding the future terms of the United Kingdom’s relationship with the E.U., which could result in the U.K. losing access to certain aspects of the single E.U. market and the global trade deals negotiated by the E.U. on behalf of its members. The Brexit vote and the perceptions as to the impact of the withdrawal of the U.K. may adversely affect business activity, political stability and economic conditions in the U.K., the Eurozone, the E.U. and elsewhere. The economic outlook could be further adversely affected by (i) the risk that one or more other E.U. countries could come under increasing pressure to leave the E.U., (ii) the risk of a greater demand for independence by Scottish nationalists or for unification in Ireland, or (iii) the risk that the euro as the single currency of the Eurozone could cease to exist. Any of these developments, or the perception that any of these developments are likely to occur, could have a material adverse effect on economic growth or business activity in the UK, the Eurozone or the E.U. and could result in the relocation of businesses, cause business interruptions, lead to economic recession or depression, and impact the stability of the financial markets, availability of credit, political systems or financial institutions and the financial and monetary system. Given that CCL conducts a significant portion of its business in the E.U. and the U.K., any of these developments could have a material adverse effect on the business, financial position, liquidity and results of operations of the Company. Dependence on Customers The Company has a modest dependence on certain customers. The Company’s two largest customers combined accounted for approximately 11% of the consolidated revenue for the fiscal year 2016. The five largest customers of the Company represented approximately 21% of the total revenue for 2016 and the 25 largest customers represented approximately 43% of the total revenue. Several thousand 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. 34 2016 Annual Report 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 an 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 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 e-mail, traditional mail volumes have declined and more significantly over the past decade. Address labels used for traditional mail has historically been a core product for the 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. New Product Developments CCL’s markets are continually evolving based on the ingenuity of CCL and its competitors, consumer preferences and new product identification and information technologies. To the extent that any such new developments result in a decrease in the use of any of CCL’s products, a material adverse effect on CCL’s business, financial condition and results of operations could occur. Also within the Checkpoint Segment, CCL’s ability to create new products and to sustain existing products is affected by whether CCL can develop and fund technological innovations, such as those related to the next generation of product solutions, evolving RFID technologies, and other innovative security devices, software and systems initiatives. The failure to develop and launch successful new products could have a material adverse effect on the Company’s business, financial condition and results of operations. 2016 Annual Report 35 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Years ended December 31, 2016 and 2015 (Tabular amounts in millions of Canadian dollars, except per share data) 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 licenses 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 licenses. The Company may not be successful in developing such an alternative or obtaining a license 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 or that insurance coverage will continue to be available or, if available, will be 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 ten 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. Material Disruption of Information Technology Systems The Company is increasingly dependent on information technology (“IT”) systems to manufacture its products, process transactions, respond to customer questions, manage inventory, purchase, sell and ship goods on a timely basis and maintain cost-efficient operations as well as maintain its e-commerce websites. Any material disruption or slowdown of the systems, including a disruption or slowdown caused by CCL’s failure to successfully upgrade its systems, system failures, viruses or other causes could have a material adverse effect on the business, financial condition and results of operations of the Company. If changes in technology cause the Company’s information systems to become obsolete, or if CCL’s information systems are inadequate to handle the Company’s growth, CCL could incur losses and costs due to interruption of its operations. CCL maintains information within its IT networks and on the cloud to operate its business, as well as confidential personal employee and customer information. The secure maintenance of this information is critical to the operations and reputation of the Company. CCL invests in hardware and software to prevent the risk of intrusion, tampering and theft. Any such unauthorized breach of the Company’s IT infrastructure could compromise the data maintained, causing a significant disruption in operations or meaningful harm to CCL’s reputation, resulting in a material adverse effect on financial results. Impairment in the Carrying Value of Goodwill and Indefinite-life Intangible Assets As of December 31, 2016, the Company had over $1.4 billion of goodwill and indefinite-life 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. 36 2016 Annual Report Raw Materials and Component Parts Although CCL is a large customer to certain key suppliers, it is also an inconsequential buyer of some materials. The ability to grow earnings will be affected by inflationary and other increases in the cost of electronic sub-assemblies and raw materials, aluminum ingot, slugs and foils, resins, extruded films, pressure sensitive laminates, paper, binder rings and plastic components. Inflationary and other increases in the costs of raw materials, labour and energy have occurred in the past and are expected to recur, and CCL’s performance depends in part on its ability to pass these cost increases on to customers in the price of its products and to effect improvements in productivity. CCL may not be able to fully offset the effects of raw material costs and other sourced components through price increases, productivity improvements or cost-reduction programs. If the Company cannot obtain sufficient quantities of these items at competitive prices, of appropriate quality and on a timely basis, CCL may not be able to produce sufficient quantities of product to satisfy market demand, product shipments may be delayed, or CCL’s material or manufacturing costs may increase. Checkpoint’s supply chain relies significantly on components sourced from factories in Asia; therefore supply disruption and tariff changes could adversely affect sales and profitability. Overall, any of these problems could result in the loss of customers and revenue, provide an opportunity for competing products to gain market acceptance and have a material adverse effect on CCL’s business, financial condition and results of operations. Credit Ratings The credit ratings currently assigned to CCL by Moody’s Investors Service and S&P Global, or that may in the future be assigned to CCL by other rating agencies, are subject to amendment in accordance with each agency’s rating methodology and subjective modifiers driving the credit rating opinion. There is no assurance that any rating assigned to CCL will remain in effect for any given period of time or that any rating will not be revised or withdrawn entirely by a rating agency in the future. A downgrade in the credit rating assigned to CCL by one or more rating agencies could increase the Company’s cost of borrowing or impact the ability to renegotiate debt, and may have a material adverse effect on CCL’s financial condition and profitability. Share Price Volatility Changes in CCL’s stock price may affect the Company’s access to, or cost of, financing from capital markets and may affect stock-based compensation arrangements. CCL’s stock price has appreciated significantly over the last five years and is influenced by the financial results of the Company, changes in the overall stock market, demand for equity securities, relative peer group performance, market expectation of future financial performance and competitive dynamics among many other things. There is no assurance that CCL’s share price will not be volatile in the future. Increase in Interest Rates At December 31, 2016, approximately 47% of CCL’s outstanding debt was subject to variable interest rates. Increases in short-term interest rates would directly impact the amount of interest the Company pays. Significant increases in short-term interest rates will increase borrowing costs and could have a material adverse impact on the financial results of the Company. Dividends The declaration and payment of dividends is subject to the discretion of the Board of Directors taking into account current and anticipated cash flow, capital requirements, the general financial condition of the Company and global economy as well as the various risk factors set out above. The Board of Directors intends to pay a consistent dividend with consistent increases over time, however, the Board of Directors may in certain circumstances determine that it is in the best interests of the Company to reduce or suspend the dividend. In that situation the trading price of CCL’s Class A and Class B shares may be materially affected. Restructuring of the Container Segment 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. Innovia Acquisition On December 19, 2016, CCL announced it had entered into a definitive agreement to acquire The Innovia Group of Companies for approximately $1.13 billion, debt free and net of cash, from a consortium of U.K.-based private equity investors. CCL has arranged committed financing to support this acquisition subject to closing the purchase, which is expected to close no later than April 3, 2017. There can be no certainty that this transaction will close within the predicted time frame and/or with the terms announced. 2016 Annual Report 37 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Years ended December 31, 2016 and 2015 (Tabular amounts in millions of Canadian dollars, except per share data) 5. AC C O U N T I N G P O L I C I E S A N D N O N - I F R S M E A S U R E S 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, restructuring and other items and tax adjustments. Earnings per Class B Share Basic earnings Net loss from restructuring and other items Adjusted basic earnings Fourth Quarter Year-to-Date 2016 2.80 0.18 2.98 $ $ 2015 2.05 0.11 2.16 $ 2016 9.90 1.51 $ 11.41 $ $ 2015 8.50 0.11 8.61 $ $ 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, 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 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 38 2016 Annual Report $ $ $ 2016 672.3 351.5 25.8 26.2 (844.5) (58.3) 173.0 92 1,058.4 15 $ $ $ 2015 524.6 260.6 20.6 18.4 (711.0) (33.7) 79.5 92 798.8 9 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, restructuring and other items, and tax adjustments, expressed as a percentage. Dividend Payout Ratio Dividends declared per equity Adjusted earnings Dividend payout ratio 2016 70.0 399.2 $ $ Year-to-Date 2015 52.1 298.8 $ $ 18% 17% 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. The following table reconciles EBITDA measures to IFRS measures reported in the consolidated income statements for the periods ended as indicated. EBITDA Net earnings Corporate expense Earnings in equity accounted investments Finance cost, net Restructuring and other items – net loss Income taxes Less: Corporate expense Add: Depreciation and amortization Add: Non-cash accounting adjustment to finished goods inventory $ $ Fourth Quarter Year-to-Date $ $ 2016 98.3 11.0 (1.2) 12.2 6.7 33.6 160.6 (11.0) 54.7 — $ $ 2015 71.9 13.5 (1.6) 6.8 4.2 27.8 122.6 (13.5) 44.1 — $ $ 2016 346.3 48.2 (4.5) 37.9 34.6 140.8 603.3 (48.2) 203.7 33.9 2015 295.1 52.3 (3.5) 25.6 6.0 121.1 496.6 (52.3) 164.1 — EBITDA (a non-IFRS measure) $ 204.3 $ 153.2 $ 792.7 $ 608.4 2016 Annual Report 39 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Years ended December 31, 2016 and 2015 (Tabular amounts in millions of Canadian dollars, except per share data) 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 measure of free cash flow from operations 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 2016 564.0 (234.7) 9.3 $ 2015 475.3 (172.2) 17.6 338.6 $ 320.7 $ $ 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 income statements for the periods ended as indicated. Interest Coverage Operating income (a non-IFRS measure; see definition below) Less: Corporate expense Net finance cost Interest coverage $ $ $ 2016 603.3 (48.2) 555.1 37.9 14.6 $ $ $ 2015 496.6 (52.3) 444.3 25.6 17.4 Leverage Ratio (or “net debt to EBITDA”) is a measure that indicates the financial leverage of the Company. It indicates the Company’s ability to service its existing debt. 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. 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 income statements 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 earnings before goodwill impairment loss, restructuring and other items, non-cash acquisition accounting adjustments, and tax adjustments by the average of the beginning and the end-of-year equity. 40 2016 Annual Report 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 Net earnings Restructuring and other items, (net of tax) Non-cash acquisition accounting adjustment to finished goods inventory, (net of tax) Adjusted net earnings Average equity Return on equity 2016 346.3 27.8 25.1 399.2 1,698.5 23.5% Year-to-Date 2015 295.1 3.7 — 298.8 1,419.0 21.1% $ $ $ $ $ $ Return on Total Capital before goodwill impairment loss, restructuring and other items and tax adjustments (“ROTC”) – A measure of the returns the Company is achieving on capital employed. ROTC is calculated by dividing annual net income before goodwill impairment loss, restructuring and other items, non-cash acquisition accounting adjustments, and tax adjustments by the average of the beginning- and the end-of-year equity and net debt. The following table reconciles net earnings used in calculating the ROTC 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 Total Capital Net earnings Restructuring and other items (net of tax) Non-cash acquisition accounting adjustment to finished goods inventory, (net of tax) Adjusted net earnings Average total capital Return on total capital 2016 346.3 27.8 25.1 399.2 2,506.6 15.9% Year-to-Date 2015 295.1 3.7 — 298.8 1,937.6 15.4% $ $ $ $ $ $ 2016 Annual Report 41 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Years ended December 31, 2016 and 2015 (Tabular amounts in millions of Canadian dollars, except per share data) Return on Sales – A measure indicating relative profitability of sales to customers. It is defined as operating income (see definition above) 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 Sales Label Avery Checkpoint Container Total sales Operating income Label Avery Checkpoint Container Three Months Ended December 31 Twelve Months Ended December 31 $ $ $ 2016 631.8 180.5 190.9 55.2 1,058.4 90.7 35.5 27.3 7.1 $ $ $ 2015 553.1 191.2 — 54.5 798.8 81.9 34.4 — 6.3 $ $ $ 2016 2015 $ $ $ $ 2,497.6 787.7 459.0 230.4 3,974.7 378.0 166.8 28.2 30.3 603.3 15.1% 21.2% 6.1% 13.2% 15.2% 2,030.3 782.7 — 226.1 3,039.1 317.2 152.8 — 26.6 496.6 15.6% 19.5% — 11.8% 16.3% Total operating income $ 160.6 $ 122.6 $ Return on sales Label Avery Checkpoint Container Total return on sales 14.4% 19.7% 14.3% 12.9% 15.2% 14.8% 18.0% — 11.6% 15.3% Total Debt – A measure indicating the financial indebtedness of the Company. It is defined as current debt, including bank advances, plus long-term debt. B) Accounting Policies and New Standards Accounting Policies 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 In July 2014, the complete IFRS 9, Financial Instruments (“IFRS 9”), was issued by the International Accounting Standards Board (“IASB”). IFRS 9 introduces new requirements for the classification and measurement of financial assets. Under IFRS 9, financial assets are classified and measured based on the business model in which they are held and the characteristics of their contractual cash flows. The standard introduces additional changes relating to financial liabilities. It also amends the impairment model by introducing a new “expected credit loss” model for calculating impairment. IFRS 9 also includes a new general hedge accounting standard that aligns 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 for 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. This standard is effective for annual periods beginning on or after January 1, 2018. The Company is currently evaluating the impact of IFRS 9 on its consolidated financial statements, however initially, the Company does not expect the adoption of this standard to have a material impact on the financial statements. The Company will not be early adopting. 42 2016 Annual Report In May 2014, IFRS 15, Revenue from Contracts with Customers (“IFRS 15”), was issued and provides guidance on the timing and amount of revenue that should be recognized and also requires more informative and relevant disclosures. The standard provides a single, principles-based five-step model to be applied to all contracts with customers. This standard is effective for annual periods beginning on January 1, 2018. The Company will not be early adopting. The Company is currently evaluating the impact of IFRS 15 on its consolidated financial statements. As part of the evaluation process, the Company has reviewed the existing standard and compared it to the new standard in order to identify differences in application and disclosure requirements between the two. The Company has performed an initial assessment and developed a plan to analyze the impact of the new standard. The Company has identified three key phases with respect to the adoption of IFRS 15 to be preliminary scoping and planning, impact assessment, and implementation. The preliminary scoping and planning phase involves an initial analysis to determine which Segments, and contracts within, will be impacted by IFRS 15. The Avery, Label, and Container Segments generally do not enter into contracts with long-term performance obligations and for these Segments, performance obligations are generally satisfied when the products are shipped or received by the customer. However, the Company will need to assess whether contracts within these Segments, which have specific arrangements, including discounts, rebates and other incentives, are impacted by the new standard. The Checkpoint Segment, which was newly acquired in 2016, is expected to be impacted by the new standard as this Segment has contracts with multiple-element arrangements, although no quantitative determination, positive or negative, has been made as the preliminary scoping and planning phase is currently ongoing. The second phase, impact assessment, involves the collection, inventorying and analysis of contracts for the purposes of performing a detailed review and will continue throughout 2017, with the result being a determination of the financial impact of the standard. The conclusion of this phase will also result in the identification of the policy, system and control changes required. The third phase, implementation, will involve the rollout of required changes, as well as any system and policy changes to permit the compilation of information in compliance with IFRS 15 and will begin in the latter part of 2017. Although the Company has commenced work on the preliminary phase of its implementation of IFRS 15, it is not yet possible to make a reliable estimate of the impact of the new standard on the Company’s consolidated financial statements. In January 2016, IFRS 16, Leases (“IFRS 16”), was issued by the IASB. This standard introduces a single-lessee accounting model and requires a lessee to recognize assets and liabilities for all leases with a term of more than 12 months unless the underlying asset is of low value. A lessee is required to recognize a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. This standard substantially carries forward the lessor accounting requirements of IAS 17, while requiring enhanced disclosures to be provided by lessors. Other areas of the lease accounting model have been impacted, including the definition of a lease. The new standard is effective for annual periods beginning on or after January 1, 2019. The Company intends to adopt IFRS 16 in its financial statements for the annual period beginning on January 1, 2019, using the modified retrospective approach. Under this approach the Company will recognize transitional adjustments in retained earnings on the date of initial application (January 1, 2018), without restating prior periods. The Company is currently evaluating the impact of IFRS 16 on its consolidated financial statements and has begun collecting and cataloguing all existing leases in order to perform an initial assessment and develop a preliminary plan with respect to analyzing the impact of the new standard on existing leases. As such, it is not yet possible to make a reliable estimate of the impact of the new standard on the Company’s consolidated financial statements. C) Critical Accounting Estimates The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of sales and expenses during the year and the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements. In particular, 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 also in the valuation of goodwill and intangible assets. 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. 2016 Annual Report 43 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Years ended December 31, 2016 and 2015 (Tabular amounts in millions of Canadian dollars, except per share data) During the fourth quarter, the Company completed its impairment test as at September 30, 2016. Impairment testing for the cash-generating units (“CGU”), Label, Avery 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 2.0% to 5.0% and pre-tax discount rates ranging from 11.0% to 19.0%. 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 2016 and 2015, 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. Impairment testing for the Checkpoint CGU will be completed during fiscal 2017. 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 is set out in note 26 of the consolidated financial statements. 44 2016 Annual Report 6. O U T LO O K 2016 was another monumental year for CCL with a number of significant accomplishments: (1) posted its third consecutive year of record adjusted basic earnings per shares of $11.41, improving 32.5% over 2015; (2) closed the Checkpoint acquisition for $531.9 million adding a new Segment focused on smart labels for the retail and apparel industry; (3) announced the Innovia acquisition for $1.13 billion, the largest in the Company’s history, adding material science prowess and new expanded security printing capabilities for government markets; (4) closed seven tuck-in acquisitions, enhancing CCL Label’s capabilities and geographic reach consistent with its growth strategy; (5) posted solid earnings improvements at the Avery and Container Segments; and (6) achieved an estimated annualized revenue run rate of $5.0 billion. The 2016 year started with a solid U.S. housing and automotive market, nervous stability in Europe and growth rates in emerging markets subdued compared to the previous decade but still in excess of the developed world. However, Brexit created renewed political instability throughout Europe. Although U.S. unemployment rates are the strongest they have been in almost a decade, election results have polarized the country with uncertainty surrounding the ultimate legislative impact unknown to North America and the rest of the world. In particular, NAFTA renegotiations will be monitored closely. Emerging markets for CCL are expected to show continuing strength but at lower rates of growth than the past, especially in China. Continued focus will be given to monitoring volatile foreign currency markets; notwithstanding the current appreciation of the Canadian dollar to the U.S. dollar should act as a headwind to translated results. CCL in the coming year will continue to execute its global growth strategy for its Label Segment 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. At Avery, the final restructuring initiative was completed with the relocation of all the Meridian, Mississippi, production equipment to Tijuana, Mexico, and the repurposing of the location to a dedicated distribution facility for the U.S. market. By mid-2017, once the restructuring activities have stabilized, cost reductions and efficiency gains totalling $8.0 million annually should be realized. New product initiatives, consumer digital print momentum and cross-selling initiatives from Avery’s four acquisitions over the past three years provide incremental opportunities for growth in the Segment. It is management’s expectation that Avery will continue to find complementary acquisitions that add new territories, expand channels to market and complement the product offerings in the core digital print domain. CCL, subsequent to the acquisition, commenced the integration process for the Checkpoint business and recorded restructuring charges of $20.7 million for 2016, all part of the previously announced $30 million initiative. Final restructuring charges are expected in 2017 in order to yield $40 million in annualized savings for 2018. The degree to which these initiatives translate to future earnings will depend on management’s ability to stabilize acquired revenues and optimize production and supply chain operations. The 2017 year should be the final year of transition for the Container Segment. Redistribution of capacity from the Canadian operation to the U.S. and Mexico should be completed mid-year and the Canadian facility closed permanently. Furthermore, with the final tranche of investment into Rheinfelden completed by the end of 2017, a sustainable and profitable secondary source of aluminum slugs for its North American manufacturing requirements is expected. The Company remains focused on vigilantly managing working capital and prioritizing capital to higher-growth organic opportunities or unique acquisitions expected to enhance shareholder value. The Company expects capital expenditures for 2017 to be approximately $260 million in order to support the organic growth and new greenfield opportunities globally. Orders so far into the first weeks of 2017 remain solid. The Company concluded the year with a strong balance sheet positioned to complete the prospective Innovia acquisition. Cash on hand was $585.1 million, the unused availability on the revolving credit facility was US$631.1 million and an additional US$450.0 million term loan is committed, contingent on finalizing the Innovia transaction. Closing is expected no later than April 3, 2017, once the final few conditions have been satisfied. CCL’s aforementioned liquidity position is robust, leverage is low with a net debt leverage ratio of 1.28 times EBITDA at the end of the year. Leverage is expected to increase on close, but pre-announcements by the credit agencies supported CCL’s investment-grade credit rating and the Company is committed to using its free cash flow to reduce debt in the short term before re-engaging in large-scale acquisitions. 2016 Annual Report 45 KPMG LLP Bay Adelaide Centre 333 Bay Street Suite 4600 Toronto, ON M5H 2S5 Canada Telephone: (416) 777-8500 Fax: (416) 777-8818 Internet: www.kpmg.ca To the Shareholders of CCL Industries Inc. INDEPENDENT AUDITORS’ REPORT 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, 2016 and December 31, 2015, 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, 2016 and December 31, 2015, 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 22, 2017 Toronto, Canada KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. KPMG Canada provides services to KPMG LLP. 46 2016 Annual Report C O N S O L I D AT E D S TAT E M E N T S O F F I N A N C I A L P O S I T I O 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 Derivative instruments Total current assets Non-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 Non-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 Subsequent events Note 2016 2015 6 7 8 23 10 11,12 11 14 9 13 17 23 17 14 19 23 15 28 5 30 $ 585,077 672,253 351,480 25,760 26,231 68 $ 405,692 524,621 260,600 20,562 18,389 — 1,660,869 1,229,864 1,216,946 1,131,784 549,604 21,177 64,057 34,404 3,017,972 1,085,506 876,838 285,340 12,293 61,502 30,962 2,352,441 $ 4,678,841 $ 3,582,305 $ 844,510 4,213 58,301 — 907,024 1,597,080 67,825 279,228 52,484 — 1,996,617 $ 710,999 167,103 33,652 1,095 912,849 838,416 59,860 135,216 13,833 253 1,047,578 $ 2,903,641 $ 1,960,427 261,352 64,234 1,450,495 (881) 1,775,200 276,882 50,584 1,182,686 111,726 1,621,878 Total liabilities and equity $ 4,678,841 $ 3,582,305 See accompanying explanatory notes to the consolidated financial statements. On behalf of the Board: Donald G. Lang Director Geoffrey T. Martin Director 2016 Annual Report 47 C O N S O L I D AT E D I N C O M E S TAT E M E N T S (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 Non-controlling interest 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 2016 2015 $ 3,974,749 2,806,853 $ 3,039,112 2,179,694 29 18 18 21 16 16 1,167,896 612,825 34,637 (4,528) 524,962 41,772 (3,853) 37,919 487,043 140,734 346,309 346,753 (444) 346,309 9.90 9.77 $ $ $ $ $ 859,418 415,086 6,023 (3,477) 441,786 28,172 (2,535) 25,637 416,149 121,071 295,078 295,078 — 295,078 8.50 8.38 $ $ $ $ $ 48 2016 Annual Report C O N S O L I D AT E D S TAT E M E N T S O F C O M P R E H E N S I V E I N C O 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 recovery of $123 for the year ended December 31, 2016 (2015 – tax expense of $11,244) Net gains (losses) on hedges of net investment in foreign operations, net of tax expense of $3,528 for the year ended December 31, 2016 (2015 – tax recovery of $13,307) Effective portion of changes in fair value of cash flow hedges, net of tax expense of $267 for the year ended December 31, 2016 (2015 – tax recovery of $784) Net change in fair value of cash flow hedges transferred to the income statement, net of tax recovery of $143 for the year ended December 31, 2016 (2015 – tax recovery of $547) Actuarial gains (losses) on defined benefit post-employment plans, net of tax recovery of $2,022 for the year ended December 31, 2016 (2015 – tax expense of $535) Other comprehensive income (loss), net of tax Total comprehensive income Attributable to: Shareholders of the Company Non-controlling interest Total comprehensive income See accompanying explanatory notes to the consolidated financial statements. 2016 2015 $ 346,309 $ 295,078 (146,580) 209,278 32,968 (100,576) 716 289 (8,970) (121,577) 224,732 225,176 (444) 224,732 $ $ $ (1,446) 1,105 1,161 109,522 404,600 404,600 — 404,600 $ $ $ 2016 Annual Report 49 C O N S O L I D AT E D S TAT E M E N T S O F C H A N G E S I N E Q U I T Y (In thousands of Canadian dollars) Class A Shares (note 15) Class B Shares (note 15) Shares Held in Trust (note 15) Total Share Capital Contributed Surplus Accumulated Other Comprehensive Income (Loss) Retained Earnings Total Equity Attributable to Shareholders Non- controlling Interest Total Equity Balances, January 1, 2015 $ 4,504 $ 257,521 $ (13,938) $ 248,087 $ 26,241 $ 938,526 $ 3,365 $ 1,216,219 $ — $ 1,216,219 Net earnings Dividends declared Class A Class B Defined benefit plan actuarial gain, net of tax Stock-based compensation plan Shares redeemed from trust Shares purchased and held in trust Stock option expense Stock options exercised Income tax effect related to stock options Other comprehensive income Balances, December 31, 2015 Acquisition of shares in a subsidiary from the non-controlling interest (note 5(b)) Net earnings Dividends declared Class A Class B Defined benefit plan actuarial losses, net of tax Stock-based compensation plan Shares redeemed from trust Shares purchased and held in trust Stock option expense Stock options exercised Income tax effect related to stock options Other comprehensive loss Balances, December 31, 2016 — — — — — — — — — — — — — — — — — — — 22,286 — — — — — — — — — — — 7,091 — 7,091 (582) — — (582) — 22,286 — — — — — 295,078 — — — (3,433) (48,646) 1,161 22,738 (7,091) — 4,153 (3,970) 8,513 — — — — — — — — — — — — — — — — 295,078 (3,433) (48,646) 1,161 22,738 — (582) 4,153 18,316 8,513 — — 108,361 108,362 — — — — — — — — — — — 295,078 (3,433) (48,646) 1,161 22,738 — (582) 4,153 18,316 8,513 108,361 $ 4,504 $ 279,807 $ (7,429) $ 276,882 $ 50,584 $ 1,182,686 $ 111,726 $ 1,621,878 $ — $ 1,621,878 $ — $ — — $ — — $ — — $ — 148 $ — — 346,753 $ — $ — 148 346,753 $ 444 $ (444) 592 346,309 — — — (4,617) (65,357) (8,970) — — — — — — — — — — — — — — — — — 6,817 — — — — — — — — — 6,689 — 6,689 (29,036) — 6,817 (29,036) — — — — 9,794 (6,689) 200 5,873 (1,203) — — 5,527 — — — — — — — — — (4,617) (65,357) (8,970) 9,794 — (28,836) 5,873 5,614 — (112,607) 5,527 (112,607) — — — — — — — — — — (4,617) (65,357) (8,970) 9,794 — (28,836) 5,873 5,614 5,527 (112,607) — — — — — — — $ 4,504 $ 286,624 $ (29,776) $ 261,352 $ 64,234 $ 1,450,495 $ (881) $ 1,775,200 $ — $ 1 ,775,200 See accompanying explanatory notes to the consolidated financial statements. 50 2016 Annual Report C O N S O L I D AT E D S TAT E M E N T S O F C A S H F L O W 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 tax expense (recovery) 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 receivable and payable Change in employee benefits Change in other assets and liabilities Net 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 Purchase of shares held in trust Dividends paid Cash provided by financing activities Investing activities Additions to property, plant and equipment Proceeds on disposal of property, plant and equipment Business acquisitions and other long-term investments (note 5) 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. 2016 2015 $ 346,309 $ 295,078 203,692 (1,722) 37,919 125,928 14,806 15,381 (1,444) 740,869 61,380 22,834 (4,346) (100,148) (2,471) 16,633 (9,895) 724,856 (35,991) (124,829) 564,036 835,194 (302,219) 5,614 (28,836) (70,174) 439,579 (234,663) 9,331 (571,482) (796,814) 206,801 405,692 (27,416) 164,081 (618) 25,637 121,677 (606) 8,425 (2,863) 610,811 (38,268) (83,103) (225) 129,445 (6,608) (3,378) 2,827 611,501 (23,909) (112,332) 475,260 324,610 (99,845) 18,316 — (52,296) 190,785 (172,214) 17,595 (356,703) (511,322) 154,723 221,873 29,096 $ 585,077 $ 405,692 2016 Annual Report 51 N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S Years ended December 31, 2016 and 2015 (In thousands of Canadian dollars, except share and per share information) 1 . R E P O R T I N G E N T I T Y 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, 2016 and 2015, 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 primarily involved in the manufacture of labels, containers, consumer printable media products, and inventory management and loss-prevention solutions. 2 . B A S I S O F P R E PA R AT I O 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 23, 2017. (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 the reported amounts 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 Company’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 (“CGUs”), 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 also in the valuation of goodwill and intangible assets. 52 2016 Annual Report 3 . S I G N I F I C A N T AC C O U N T I N G P O L I C I E S 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 to measure, on a transaction-by-transaction basis, 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 has 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 unrealized gains, but only to the extent that there is no evidence of impairment. 2016 Annual Report 53 N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S Years ended December 31, 2016 and 2015 (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)). 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 a 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, 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). (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 any directly attributable transaction costs, for instruments not at fair value through profit or loss. Subsequent to initial recognition non-derivative financial instruments are measured as described below. 54 2016 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, 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. 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. 2016 Annual Report 55 N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S Years ended December 31, 2016 and 2015 (In thousands of Canadian dollars, except share and per share information) 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. (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. 56 2016 Annual Report 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 machinery and equipment fixtures and fittings minor components Up to 40 years Up to 15 years 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. (ii) Other intangible assets Intangible assets consist of patents, trademarks, brands, software and the value of acquired customer 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 software customer relationships Up to 10 years Up to 5 years Up to 15 years 2016 Annual Report 57 N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S Years ended December 31, 2016 and 2015 (In thousands of Canadian dollars, except share and per share information) (f) Leases 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. 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. Assets under operating leases are not recognized in the Company’s statement of financial position. 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. (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 a 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 the 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 those suggested by historical trends. 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. 58 2016 Annual Report (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 CGUs, 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. (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. 2016 Annual Report 59 N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S Years ended December 31, 2016 and 2015 (In thousands of Canadian dollars, except share and per share information) 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 the share price on measurement date, the exercise price of the instrument, the expected volatility, the weighted average expected life of the instrument, the 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. For equity settled share-based deferred share unit (“DSU”) plans, the grant date fair value of deferred share units is recognized as an employee expense with a corresponding increase in equity. The grant date fair value is not subsequently remeasured. The value of DSUs received in lieu of dividends is also recognized as a personnel cost in the income statement. For cash settled share-based DSU plans, the fair value of the amount payable for deferred share units 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 DSUs received in lieu of dividends is also recognized as a personnel cost in the income statement. (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 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 or services rendered. 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 products currently under quality assurance review as well as historical sales returns experience. For agreements that contain multiple deliverables, each element is treated as a separate unit for revenue recognition purposes. For these agreements, total consideration is allocated to each unit based on their relative fair values. Revenue is then recognized for each unit when the relevant recognition criteria are met. 60 2016 Annual Report (l) 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. (m) 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 such cases, 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. (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 affect neither accounting nor taxable profit or loss. (n) 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. (o) 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. 2016 Annual Report 61 N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S Years ended December 31, 2016 and 2015 (In thousands of Canadian dollars, except share and per share information) (p) 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) and that 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. (q) New accounting standards effective in 2016 Effective January 1, 2016, the Company adopted the IASB-issued amendments to IAS 1, Presentation of Financial Statements. The adoption of the amendments had no significant impact. (r) New standards and interpretations not yet effective In July 2014, the complete IFRS 9, Financial Instruments (“IFRS 9”), was issued by the IASB. IFRS 9 introduces new requirements for the classification and measurement of financial assets. Under IFRS 9, financial assets are classified and measured based on the business model in which they are held and the characteristics of their contractual cash flows. The standard introduces additional changes relating to financial liabilities. It also amends the impairment model by introducing a new “expected credit loss” model for calculating impairment. IFRS 9 also includes a new general hedge accounting standard that aligns 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 for 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. This standard is effective for annual periods beginning on or after January 1, 2018. The Company is currently evaluating the impact of IFRS 9 on its consolidated financial statements, however initially, the Company does not expect the adoption of this standard to have a material impact on the financial statements. The Company will not be early adopting. In May 2014, IFRS 15, Revenue from Contracts with Customers (“IFRS 15”), was issued and provides guidance on the timing and amount of revenue that should be recognized and also requires more informative and relevant disclosures. The standard provides a single, principles-based five-step model to be applied to all contracts with customers. This standard is effective for annual periods beginning on January 1, 2018. The Company will not be early adopting. The Company is currently evaluating the impact of IFRS 15 on its consolidated financial statements. As part of the evaluation process, the Company has reviewed the existing standard and compared it to the new standard in order to identify differences in application and disclosure requirements between the two. The Company has performed an initial assessment and developed a plan to analyze the impact of the new standard. The Company has identified three key phases with respect to the adoption of IFRS 15 to be preliminary scoping and planning, impact assessment, and implementation. The preliminary scoping and planning phase involves an initial analysis to determine which segments, and contracts within, will be impacted by IFRS 15. The Avery, Label, and Container Segments generally do not enter into contracts with long-term performance obligations and, for these segments, performance obligations are generally satisfied when the products are shipped or received by the customer. However, the Company will need to assess whether contracts within these segments that have specific arrangements, including discounts, rebates and other incentives, are impacted by the new standard. The Checkpoint Segment, which was newly acquired in 2016, is expected to be impacted by the new standard as this segment has contracts with multiple-element arrangements, although no quantitative determination, positive or negative, has been made as the preliminary scoping and planning phase is currently ongoing. The second phase, impact assessment, involves the collection, inventorying and analysis of contracts for the purposes of performing a detailed review and will continue throughout 2017 with the result being a determination of the financial impact of the standard. The conclusion of this phase will also result in the identification of the policy, system and control changes required. The third phase, implementation, will involve the rollout of required changes, as well as any system and policy changes to permit the compilation of information in compliance with IFRS 15, and will begin in the latter part of 2017. 62 2016 Annual Report Although the Company has commenced work on the preliminary phase of CCL’s implementation of IFRS 15, it is not yet possible to make a reliable estimate of the impact of the new standard on CCL’s consolidated financial statements. In January 2016, IFRS 16, Leases (“IFRS 16”), was issued by the IASB. This standard introduces a single-lessee accounting model and requires a lessee to recognize assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. A lessee is required to recognize a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. This standard substantially carries forward the lessor accounting requirements of IAS 17, while requiring enhanced disclosures to be provided by lessors. Other areas of the lease accounting model have been impacted, including the definition of a lease. The new standard is effective for annual periods beginning on or after January 1, 2019. The Company intends to adopt IFRS 16 in its financial statements for the annual period beginning on January 1, 2019, using the modified retrospective approach. Under this approach the Company will recognize transitional adjustments in retained earnings on the date of initial application (January 1, 2018), without restating prior periods. The Company is currently evaluating the impact of IFRS 16 on its consolidated financial statements and has begun collecting and cataloguing all existing leases in order to perform an initial assessment and develop a preliminary plan with respect to analyzing the impact of the new standard on existing leases. As such, it is not yet possible to make a reliable estimate of the impact of the new standard on the Company’s consolidated financial statements. 4 . S E G M E N T R E P O R T I N G (a) Business segments The Company has four 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. The Company’s reportable segments are: • Label – Includes the production 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 and laminated 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-user markets. • Avery – Includes the manufacturing and selling of various consumer products, including labels, binders, dividers, sheet protectors and writing instruments in North America, Latin America, Asia Pacific and Europe. • Checkpoint – Includes the manufacturing and selling of technology-driven, loss-prevention, inventory management and labelling solutions, including radio-frequency (“RF”) and radio-frequency identification-based (“RFID”), to the retail and apparel industry. • 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. Label Avery Checkpoint Container Corporate expenses Restructuring and other items Earnings in equity accounted investments Finance cost Finance income Income tax expense Net earnings 2016 $ 2,497,592 787,727 458,999 230,431 Sales 2015 $ $ 2,030,322 782,686 — 226,104 2016 378,028 166,732 28,204 30,290 Operating Income $ 2015 317,252 152,753 — 26,593 $ 3,974,749 $ 3,039,112 $ 603,254 $ 496,598 (48,183) (34,637) 4,528 (41,772) 3,853 (140,734) (52,266) (6,023) 3,477 (28,172) 2,535 (121,071) $ 346,309 $ 295,078 2016 Annual Report 63 N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S Years ended December 31, 2016 and 2015 (In thousands of Canadian dollars, except share and per share information) Total Assets Total Liabilities Depreciation and Amortization Capital Expenditures 2016 2015 2016 2015 2016 2015 2016 2015 Label Avery Checkpoint Container Equity accounted investments Corporate $ 2,451,904 $ 2,285,169 $ 639,546 $ 596,902 $ 152,603 $ 132,796 $ 194,754 $ 145,974 13,765 — 12,475 — — 230,293 — 50,929 — 1,578,738 1,082,303 566,569 935,802 156,114 64,057 504,395 16,229 5,892 17,788 — — 16,105 18,702 15,305 — 977 15,123 — 15,191 — 971 615,893 — 173,688 61,502 446,053 201,274 441,817 42,266 — Total $ 4,678,841 $ 3,582,305 $ 2,903,641 $ 1,960,427 $ 203,692 $ 164,081 $ 234,663 $ 172,214 (b) Geographical segments The Label, Avery, Checkpoint and Container Segments are managed on a worldwide basis but operate in the following geographical areas: • Canada; • United States and Puerto Rico; • Mexico, Brazil and Argentina; • Europe; and • Asia, Australia and Africa. Canada United States and Puerto Rico Mexico, Brazil and Argentina Europe Asia, Australia and Africa Consolidated $ 2016 194,654 1,829,215 261,793 1,122,029 567,058 $ Sales 2015 176,502 1,567,008 220,140 809,576 265,886 Property, Plant and Equipment and Goodwill $ 2016 91,762 856,904 191,493 873,758 334,813 $ 2015 130,594 787,173 183,296 537,574 323,707 $ 3,974,749 $ 3,039,112 $ 2,348,730 $ 1,962,344 The geographical segment is determined by the location of the Company’s country of operation. 64 2016 Annual Report 5. AC Q U I S I T I O N S (a) Acquisition of Checkpoint Systems, Inc. In May 2016, the Company completed the share acquisition of Checkpoint Systems, Inc. (“Checkpoint”) for $531.9 million. Checkpoint is a leading manufacturer of technology-driven, loss-prevention, inventory management and labelling solutions, including RF and RFID, to the retail and apparel industry. The Checkpoint acquisition was a strategic opportunity leveraging the Company’s deep capabilities in labels. (In millions of Canadian dollars) Cash consideration Trade and other receivables Inventories Property, plant and equipment Other assets Goodwill and intangible assets Deferred tax assets Trade and other payables Income taxes payable Employee benefits Provisions and other long-term liabilities Net assets acquired $ $ 531.9 146.4 137.7 101.5 4.3 483.1 30.9 (199.4) (20.9) (127.4) (24.3) $ 531.9 As a result of the inherent complexity associated with the valuation of non-current assets acquired, the determination of the fair value of assets and liabilities acquired is based upon preliminary estimates and assumptions. The Company will continue to review information prior to finalizing the fair value of the assets acquired and liabilities assumed. The actual fair values of the assets acquired and liabilities assumed may differ from the amounts noted above. Goodwill comprises 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 combining operations and expertise in smart-label products. The total amount of goodwill and intangibles for Checkpoint is $483.1 million and is not deductible for tax purposes. (b) Other acquisitions In January 2016, the Company acquired Woelco AG (“Woelco”), a privately owned company in Stuttgart, Germany, with subsidiaries in China and the United States, for approximately $21.7 million, net of cash acquired. Woelco has expanded CCL Label’s depth in the industrial and automotive durable goods market. In January 2016, the Company acquired Label Art Ltd. and Label Art Digital Ltd. (collectively referred to as “LAL”), two privately owned companies with common shareholders based in Dublin, Ireland, for approximately $13.6 million, net of cash acquired. LAL expanded CCL Label’s business in Ireland and the U.K. In February 2016, the Company acquired Zephyr Company Limited of Singapore, and its Malaysian subsidiaries in Penang and Johor (collectively referred to as “Zephyr”), from multiple private shareholders for approximately $40.9 million, net of cash acquired. Zephyr expanded CCL’s presence within the electronics industry to southeast Asia. In March 2016, the Company acquired the shares of Powerpress Rotulos & Etiquetas Adesivas LTDA (“Powerpress”), a privately owned company in Sao Paolo, Brazil, for approximately $11.4 million, net of cash acquired. Powerpress enhances CCL Label’s product offering in South America. In July 2016, the Company acquired the shares of Eukerdruck GmbH & Co. KG and Pharma Druck CDM GmbH (collectively referred to as “Euker”), two privately own companies with common shareholders owning plants in Marburg and Dresden, Germany, for approximately $30.0 million, net of cash acquired and assumed debt. Euker has expanded CCL’s presence with pharmaceutical companies in German-speaking countries. In August 2016, the Company acquired the shares of Labelone Ltd. (“Label1”), a privately held company based in Belfast, Northern Ireland, for approximately $17.5 million, net of cash acquired and assumed debt. Label1 will maximize opportunities in an important country for the Healthcare business in Europe. 2016 Annual Report 65 N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S Years ended December 31, 2016 and 2015 (In thousands of Canadian dollars, except share and per share information) In January 2016, the Company invested $6.0 million in cash to increase its interest from 50% to 75% in its tube manufacturing joint venture in Bangkok, Thailand, with Taisei Kako Co. Ltd. of Japan (“Taisei”), resulting in Taisei becoming a subsidiary of the Company as a result of the change in control. In August 2016, the Company acquired the remaining 25% interest for proceeds of $1.9 million. The following table summarizes the allocation of the consideration to the fair value of the assets acquired and liabilities assumed for the Woelco, LAL, Zephyr, Powerpress, Euker, Label1 and Taisei acquisitions: (In millions of Canadian dollars) Cash consideration Assumed debt Total consideration Trade and other receivables Inventories Other current assets Property, plant and equipment Other long-term assets Goodwill and intangibles Trade and other payables Long-term debt Deferred tax liabilities Provisions and other long-term liabilities Net assets acquired $ $ $ 126.1 10.9 137.0 23.5 14.6 0.8 45.6 0.4 92.9 (28.0) (1.0) (5.3) (6.5) $ 137.0 Goodwill comprises 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 combining operations, the expertise of the assembled workforce and cost-saving opportunities in the delivery of certain shared administrative and other services. The total amount of goodwill and intangible assets for the Woelco, LAL, Zephyr, Powerpress, Euker, Label1 and Taisei acquisitions amounted to $92.9 million and is not deductible for tax purposes. (c) Revenue and profit from acquirees The following table summarizes the combined sales and earnings that Checkpoint, Woelco, LAL, Zephyr, Powerpress, Euker, Label1 and Taisei have contributed to the Company since their respective acquisition dates: (In millions of Canadian dollars) Sales Net earnings (d) Pro forma information $ $ 564.8 7.2 The unaudited pro forma consolidated financial information below has been prepared following the accounting policies of the Company as if the acquisitions took place on January 1, 2016. The unaudited pro forma consolidated financial information has been presented for illustrative purposes only and is not necessarily indicative of the results of operations and financial position that would have been achieved had the pro forma events taken place on the dates indicated, or of 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 historical 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 impact from restructuring and acquisition-related expenses is not included in the accompanying unaudited pro forma consolidated financial information. 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. 66 2016 Annual Report The following table summarizes the sales and earnings of the Company combined with Checkpoint, Woelco, LAL, Zephyr, Powerpress, Euker and Label1 as though the acquisitions took place on January 1, 2016: (In millions of Canadian dollars) Sales Net earnings Year Ended December 31, 2016 $ $ 4,258.8 373.8 (e) Acquisition of pc/nametag Inc. and Meetings Direct, LLC In February 2015, the Company acquired pc/nametag Inc. and Meetings Direct, LLC (collectively referred to as “PCN”), two privately owned companies with common shareholders. PCN is an important addition to the Avery Segment, adding depth to its meeting supplies and promotional materials product offerings. The purchase price was $37.6 million net of cash acquired and inclusive of a $2.5 million promissory note due in February 2016. During the first quarter of 2016, the Company finalized the valuation of intangible assets, which resulted in an increase in brands of $6.8 million, a decrease in other intangible assets of $3.3 million, an increase in deferred taxes of $1.4 million and a decrease in goodwill of $2.2 million. Goodwill comprises 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 combining operations, the expertise of the assembled workforce and cost-saving opportunities in the delivery of certain shared administrative and other services. The total amount of goodwill is $17.8 million, of which $5.0 million is deductible for tax purposes. (f) Acquisition of Worldmark Ltd. In November 2015, the Company acquired Worldmark Ltd. (“Worldmark”), headquartered in Scotland, for approximately $255.7 million, net of cash received. Worldmark has six manufacturing facilities in China, one each in Mexico, Hungary and Scotland, and sales offices and prototyping design centres around the world. The Worldmark acquisition enhances CCL Label’s presence in the electronic device and IT sector. During the year, the Company completed its assessment of the fair market value of the assets and liabilities acquired. As a result of the assessment, inventories increased by $3.2 million, property, plant and equipment was reduced by $4.8 million, deferred tax liabilities of $9.0 million were recorded and goodwill and intangibles increased by $11.6 million. Goodwill comprises 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 and the knowledge of the assembled workforce, and cost-saving opportunities in the delivery of certain shared administrative and other services. Goodwill is not deductible for tax purposes. 2016 Annual Report 67 N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S Years ended December 31, 2016 and 2015 (In thousands of Canadian dollars, except share and per share information) (g) Summary of 2015 acquisitions The following table summarizes the allocation of the consideration to the fair value of the assets acquired and liabilities assumed for the acquisitions that occurred in 2015: (In millions of Canadian dollars) Cash consideration Promissory note Total consideration Trade and other receivables Inventories Other current assets Property, plant and equipment Other long-term assets Goodwill Intangible assets Trade and other payables Long-term debt Deferred tax Provisions and other long-term payables Worldmark $ $ $ $ $ 255.7 — 255.7 52.2 23.0 5.3 35.6 — 148.8 54.5 (51.2) — (9.0) (3.5) PCN 35.1 2.5 37.6 1.8 2.1 0.3 5.3 0.2 17.8 19.9 (2.1) — (7.7) — Other 65.9 — 65.9 $ $ $ $ 6.1 8.1 1.0 14.4 — 40.7 9.8 (6.9) (2.4) (1.8) (3.1) Net assets acquired $ 255.7 $ 37.6 $ 65.9 $ Total 356.7 2.5 359.2 60.1 33.2 6.6 55.3 0.2 207.3 84.2 (60.2) (2.4) (18.5) (6.6) 359.2 6. C A S H A N D C A S H E Q U I VA L E N T S Bank balances Restricted cash Short-term investments Cash and cash equivalents 7. T R A D E A N D OT H E R R E C E I VA B L E S Trade receivables Other receivables Trade and other receivables 8 . I N V E N TO R I E S Raw material Work in progress Finished goods Total inventories December 31, 2016 December 31, 2015 $ 546,214 3,215 35,648 $ 356,596 1,141 47,955 $ 585,077 $ 405,692 December 31, 2016 December 31, 2015 $ 630,536 41,717 $ 672,253 $ $ 494,080 30,541 524,621 December 31, 2016 December 31, 2015 $ 129,923 31,331 190,226 $ 115,535 23,157 121,908 $ 351,480 $ 260,600 The total amount of inventories recognized as an expense in 2016 was $2,806.9 million (2015 – $2,179.7 million), including depreciation of $178.6 million (2015 – $151.9 million). 68 2016 Annual Report 9. E Q U I T Y AC C O U N T E D I N V E S T M E N T S 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: Associates Joint Ventures Total At December 31, 2016 Net earnings Other comprehensive income (loss) Total comprehensive income (loss) Carrying amount of investments in associates and joint ventures At December 31, 2015 Net earnings Other comprehensive income Total comprehensive income Carrying amount of investments in associates and joint ventures 1 0. P R O P E R T Y, P L A N T A N D E Q U I P M E N T Cost Balance at January 1, 2015 Acquisitions through business combinations Other additions Disposals Effect of movements in exchange rates $ Land and Buildings 422,314 15,283 14,033 (10,942) 46,055 $ $ $ $ $ $ 1,558 4,288 5,846 24,027 $ $ $ 7,178 (8,344) (1,166) 40,030 Associates Joint Ventures 2,805 9,900 12,705 21,326 Machinery and Equipment 3,888 6,158 10,046 40,176 Fixtures, Fittings and Other $ $ $ $ $ $ $ $ $ $ 8,736 (4,056) 4,680 64,057 Total 6,693 16,058 22,751 61,502 Total $ 1,349,910 45,057 156,464 (22,850) 158,727 23,730 231 1,717 (481) 1,456 $ 1,795,954 60,571 172,214 (34,273) 206,238 Balance at December 31, 2015 $ 486,743 $ 1,687,308 $ 26,653 $ 2,200,704 Acquisitions through business combinations Other additions Disposals Effect of movements in exchange rates Balance at December 31, 2016 Accumulated depreciation and impairment losses Balance at January 1, 2015 Depreciation for the year Disposals Effect of movements in exchange rates 71,976 50,679 (8,344) (24,026) 75,643 180,105 (35,239) (102,339) 577,028 $ 1,805,478 107,202 18,568 (841) 16,013 $ 749,329 130,704 (18,355) 96,130 $ $ $ $ 2,451 3,879 (338) (1,219) 150,070 234,663 (43,921) (127,584) 31,426 $ 2,413,932 13,911 2,644 (345) 238 $ 870,442 151,916 (19,541) 112,381 Balance at December 31, 2015 $ 140,942 $ 957,808 $ 16,448 $ 1,115,198 Depreciation for the year Disposals Effect of movements in exchange rates Balance at December 31, 2016 Carrying amounts At December 31, 2015 At December 31, 2016 22,539 (3,269) (5,121) 152,382 (32,457) (54,124) 155,091 $ 1,023,609 345,801 421,937 $ $ 729,500 781,869 3,720 (308) (1,574) 178,641 (36,034) (60,819) 18,286 $ 1,196,986 10,205 13,140 $ 1,085,506 $ 1,216,946 $ $ $ $ $ $ 2016 Annual Report 69 N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S Years ended December 31, 2016 and 2015 (In thousands of Canadian dollars, except share and per share information) 1 1 . I N TA N G I B L E A S S E T S Customer Relationships Patents and Trademarks Software Brands Total Goodwill Cost Balance at January 1, 2015 Acquisitions through business combinations Additions Effect of movements in exchange rates Balance at December 31, 2015 Acquisitions through business combinations Additions Effect of movements in exchange rates Balance at December 31, 2016 $ 132,191 $ 8,017 $ 11,148 $ 150,903 $ 302,259 $ 563,730 31,380 — 15,058 — 236 1,383 — 103 758 — — 31,380 339 245,235 — 26,757 43,956 67,873 $ 178,629 $ 9,636 $ 12,009 $ 177,660 $ 377,934 $ 876,838 192,314 — 4,531 — 7,945 1,003 93,282 — 298,072 1,003 291,383 — (9,686) (1,174) (307) (2,300) (13,467) (36,437) $ 361,257 $ 12,993 $ 20,650 $ 268,642 $ 663,542 $ 1,131,784 Amortization and impairment losses Balance at January 1, 2015 $ Amortization for the year Effect of movements in exchange rates 59,291 11,803 2,773 $ 5,450 232 1,231 $ 10,951 130 $ 733 Balance at December 31, 2015 $ 73,867 $ 6,913 $ 11,814 $ 285 (848) 2,438 (369) — — — — — — $ 75,692 12,165 $ 4,737 $ 92,594 $ 25,051 (3,707) — — — — — — 6,350 $ 13,883 $ — $ 113,938 $ 1,131,784 2,723 6,643 $ $ 195 6,767 $ 177,660 $ 268,642 $ $ 285,340 549,604 876,838 $ $ 1,131,784 Amortization for the year Effect of movements in exchange rates Balance at December 31, 2016 Carrying amounts At December 31, 2015 At December 31, 2016 $ $ $ 22,328 (2,490) 93,705 104,762 267,552 $ $ $ 70 2016 Annual Report 1 2 . G O O DW I L L A N D I N D E F I N I T E - L I F E I N TA N G I B L E A S S E T S Impairment testing for cash-generating units containing goodwill and indefinite-life intangible assets For the purpose of impairment testing, goodwill and indefinite-life intangible assets are 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 Checkpoint Container Indefinite-life intangible assets – brands Avery Checkpoint December 31, 2016 December 31, 2015 $ 742,742 104,996 271,264 12,782 $ 747,629 116,423 — 12,786 $ 1,131,784 $ 876,838 $ $ 184,052 84,590 268,642 $ $ 177,660 — 177,660 Impairment testing for goodwill and indefinite-life intangible assets was done by a comparison of the asset’s 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 a growth rate of 2%–5%, and a pre-tax discount rate of 11%–19%. 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 historical growth rates are used as a basis in determining the growth rate applied for impairment testing. The Company completed its impairment testing as at September 30, 2016. The estimated value in use of Label, Avery, Checkpoint and Container assets exceeded their carrying values. As a result, no goodwill and indefinite-life intangible assets impairment was recorded. 1 3 . T R A D E A N D OT H E R PAYA B L E S Trade payables Other payables 1 4 . D E F E R R E D TA X (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 December 31, 2016 December 31, 2015 $ $ 452,909 391,601 $ 379,600 331,399 844,510 $ 710,999 December 31, 2016 December 31, 2015 $ 21,593 63,097 73,241 $ 9,778 39,337 436 $ 157,931 $ 49,551 2016 Annual Report 71 N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S Years ended December 31, 2016 and 2015 (In thousands of Canadian dollars, except share and per share information) The unrecognized deferred tax assets on tax losses of $19,535 will expire between 2016 and 2026, $5,930 will expire beyond 2026 and $37,632 may be carried forward indefinitely. The deductible temporary differences do not expire under current tax legislation. Income tax credits of $73,241 will expire between 2016 and 2025 and relates mainly to foreign tax credits in the United States. The increase in the unrecognized deferred tax assets relating to tax losses and foreign tax credits are due to current year acquisitions. 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. The losses and foreign tax credits are also subject to limitation under U.S. tax rules due to the change in ownership of Checkpoint. In 2016, $1,275 (2015 – $4,938) of previously unrecognized deferred tax assets in respect of tax losses were recognized as management considered it probable that future taxable income will be available against which they can be utilized. (b) Recognized deferred tax assets and liabilities Deferred tax assets and liabilities are attributable to the following: Assets Liabilities Net (Assets)/Liabilities December 31, 2016 December 31, 2015 December 31, 2016 December 31, 2015 December 31, 2016 December 31, 2015 $ Property, plant and equipment Intangible assets Derivatives Inventory reserves Employee benefit plans Share-based payments Capitalized research and development Provisions and other items Tax loss carry-forwards Foreign tax credit 5,319 14,351 460 15,872 57,887 18,734 29,486 29,572 31,649 9,399 $ $ $ 1,977 271 49 8,546 49,770 21,049 — 15,833 6,219 — $ 72,783 165,235 7,230 145 — — — 13,984 — — 73,638 77,593 24 — — — — 26 — — Balance before offset 212,729 Offset of tax (191,552) 103,714 (91,421) 259,377 (191,552) 151,281 (91,421) $ 67,464 150,884 6,770 (15,727) (57,887) (18,734) (29,486) (15,588) (31,649) (9,399) 46,648 — 71,661 77,322 (25) (8,546) (49,770) (21,049) — (15,807) (6,219) — 47,567 — Balance after offset $ 21,177 $ 12,293 $ 67,825 $ 59,860 $ 46,648 $ 47,567 Balance December 31, 2015 Liability/(Asset) Recognized in Income Statement Acquisitions Translation and Others Recognized in Other Comprehensive Income/Equity Balance December 31, 2016 Liability/(Asset) $ $ Property, plant and equipment Intangible assets Derivatives Inventory reserves Employee benefit plans Share-based payments Capitalized research and development Provisions and other items Tax loss carry-forwards Foreign tax credit 71,661 77,322 (25) (8,546) (49,770) (21,049) — (15,807) (6,219) — $ $ $ (2,631) 8,730 3,926 (2,043) (4,934) 3,257 3,975 14 4,512 — 643 68,142 (232) (5,530) (3,047) (1,558) (32,319) (1,505) (29,232) (9,058) (2,209) (3,310) 44 392 1,886 264 (1,142) 1,710 (710) (341) — — 3,057 — (2,022) 352 — — — — $ 67,464 150,884 6,770 (15,727) (57,887) (18,734) (29,486) (15,588) (31,649) (9,399) $ 47,567 $ 14,806 $ (13,696) $ (3,416) $ 1,387 $ 46,648 72 2016 Annual Report Balance December 31, 2014 Liability/(Asset) Recognized in Income Statement Acquisitions Translation and Others Recognized in Other Comprehensive Income/Equity Balance December 31, 2015 Liability/(Asset) $ $ Property, plant and equipment Intangible assets Derivatives Inventory reserves Employee benefit plans Share-based payments Provisions and other items Tax loss carry-forwards 61,231 55,654 1,250 (6,760) (41,899) (15,513) (12,137) (2,556) $ $ 1,086 5,686 1,043 (1,017) (1,928) (97) (2,001) (3,378) (40) 8,232 — (36) — — — — $ 9,384 7,750 (18) (733) (6,478) 3,074 (1,669) (285) $ — — (2,300) — 535 (8,513) — — 71,661 77,322 (25) (8,546) (49,770) (21,049) (15,807) (6,219) $ 39,270 $ (606) $ 8,156 $ 11,025 $ (10,278) $ 47,567 The aggregate amount of temporary differences associated with investments in subsidiaries and joint ventures for which deferred tax liabilities were not recognized as at December 31, 2016, is $1,026.7 million (2015 – $731.8 million). The aggregate amount of temporary differences associated with investments in subsidiaries and joint ventures for which deferred tax assets were not recognized as at December 31, 2016, is $15.3 million (2015 – $16.3 million). 1 5. S H A R E C A P I TA L Shares issued Balance, January 1, 2015 Stock options exercised Balance, December 31, 2015 Stock options exercised Shares converted from Class A to Class B Class A Shares (000s) $ $ 2,368 — 2,368 — (1) Balance, December 31, 2016 2,367 $ Amount 4,504 — 4,504 — — 4,504 Class B Shares (000s) Amount Total 32,325 404 32,729 92 1 $ $ 257,521 22,286 279,807 6,817 — $ $ 262,025 22,286 284,311 6,817 — 32,822 $ 286,624 $ 291,128 At December 31, 2016, 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 2016 1.95 2.00 $ $ 2015 1.45 1.50 $ $ 2016 Annual Report 73 N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S Years ended December 31, 2016 and 2015 (In thousands of Canadian dollars, except share and per share information) Shares held in trust 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 share awards are dependent on the Company’s performance and continuing employment. The grant date fair value of these stock awards was amortized over the vesting period and recognized as compensation expense. In 2016, 93,700 shares (2015 – 94,468) were distributed to employees. During 2016, the Company granted awards totalling 124,500 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 share awards are dependent on the Company’s performance and continuing employment. The grant date fair value of these stock awards is being amortized over the vesting period and recognized as compensation expense. 1 6. E A R N I N G S P E R S H A R E Basic earnings per share The calculation of basic earnings per share for the year ended December 31, 2016, was based on profit attributable to Class A shares of $23.3 million (2015 – $20.0 million) and Class B shares of $323.4 million (2015 – $275.1 million) and a weighted average number of Class A shares outstanding of 2,367,490 (2015 – 2,367,525) and Class B shares outstanding of 32,665,008 (2015 – 32,348,527). Weighted average number of shares Issued and outstanding shares at January 1 Effect of stock options exercised Effect of reciprocal shares purchased Effect of reciprocal shares vested Class A Shares 2,367,525 (35) — — 2016 Class B Shares 32,628,081 37,050 (74,053) 73,930 Class A Shares 2,367,525 — — — 2015 Class B Shares 32,132,729 181,464 (1,092) 35,426 Weighted average number of shares at December 31 2,367,490 32,665,008 2,367,525 32,348,527 Diluted earnings per share The calculation of diluted earnings per share for the year ended December 31, 2016, was based on profit attributable to Class A shares of $23.0 million (2015 – $19.7 million) and Class B shares of $323.7 million (2015 – $275.4 million) and a weighted average number of Class A shares outstanding of 2,367,490 (2015 – 2,367,525) and Class B shares outstanding of 33,125,082 (2015 – 32,842,319). 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) December 31, 2016 December 31, 2015 35,032,498 87,157 102,450 270,467 34,716,052 94,700 154,251 244,841 35,492,572 35,209,844 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. 74 2016 Annual Report 1 7. LOA N S A N D B O R R OW I N G S Current liabilities Current portion of unsecured senior notes (i) Current portion of finance lease liabilities Current portion of other loans (iv) Short-term operating credit lines available (v) Short-term operating credit lines used Non-current liabilities Unsecured syndicated bank credit facility (ii) Unsecured notes (iii) Unsecured senior notes (i) Finance lease liabilities Other loans (iv) (i) Senior notes December 31, 2016 December 31, 2015 $ $ $ $ $ — 3,205 1,008 4,213 30,884 3,231 756,597 662,124 173,016 3,051 2,292 $ $ $ $ $ 152,225 2,905 11,973 167,103 29,097 10,336 653,905 — 178,226 5,089 1,196 $ 1,597,080 $ 838,416 As at December 31, 2015, the Company had three private debt placements completed in 1998, 2006 and 2008 for a total of US$239.0 million ($330.8 million) with interest rates ranging from 5.57% to 7.09%. US$110.0 million matured and was repaid on March 7, 2016; US$51.0 million ($68.5 million) with an interest rate of 7.09% matures on July 8, 2018, and US$78.0 million ($104.7 million) with an interest rate of 6.62% matures on September 26, 2018. (ii) Syndicated bank credit facility In December 2015, the Company amended its syndicated bank credit facility. The amendment increased the revolving commitment to US$1.2 billion from $300.0 million, removed the $400.0 million non-revolving commitment with its scheduled repayments and rolled its borrowings into the amended facility. The maturity date was extended to December 23, 2020. Prior to the amendment, the non-revolving facility had scheduled quarterly repayments of US$10.0 million until maturity. As at December 31, 2016, US$409.6 million (LIBOR plus 1.2%), €64.0 million (EURIBOR plus 1.2%), ₤70.0 million (GBP LIBOR plus 1.2%) and $4.1 million of contingent letters of credits were drawn on the amended syndicated bank credit facility. As at December 31, 2015, US$128.0 million (LIBOR plus 1.0%), €61.6 million (EURIBOR plus 1.0%), ₤134.0 million (GBP LIBOR plus 1.0%) and $3.6 million of contingent letters of credit were drawn on the amended syndicated bank credit facility. A further US$80.0 million (LIBOR plus 1.0%) was also drawn under the syndicated bank credit facility; however, the interest rate, excluding the 1% spread, on this US$80.0 million was hedged, using a floating to fixed interest rate swap, for a fixed rate of 1.047% (note 23(a)). The unused portion of the syndicated bank credit facility was US$631.1 million at December 31, 2016 (December 31, 2015 – $720.4 million). (iii) Unsecured notes In September 2016, the Company issued US$500.0 million of 3.25% notes that come due on October 1, 2026. These are unsecured notes offered in a private placement in the United States to qualified institutional buyers. These notes bear interest payable semi-annually. The net proceeds were used to partially repay amounts borrowed under the unsecured syndicated bank credit facility to acquire Checkpoint (note 5(a)). (iv) Other loans Other loans include term bank loans at various rates and repayment terms. 2016 Annual Report 75 N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S Years ended December 31, 2016 and 2015 (In thousands of Canadian dollars, except share and per share information) (v) Operating credit lines Interest rates charged on the credit lines are based on rates varying with LIBOR, the prime rate and similar market rates for other currencies. As at December 31, 2016, the carrying amount of financial and non-financial assets pledged as collateral, against $6.4 million (2015 – $6.7 million) of long-term debt, amounted to $18.9 million (2015 – $19.4 million). (vi) Loan commitment In December 2016, a syndicate of banks committed to a two-year US$450.0 million unsecured non-revolving amortizing term credit facility. This commitment is contingent on certain conditions being met and, as such, is undrawn on December 31, 2016. 1 8 . F I N A N C E I N C O M E A N D C O S T Recognized in income statement Interest expense on financial liabilities measured at amortized cost Fees and 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 $ 2016 37,394 4,378 41,772 3,746 107 3,853 $ 2015 25,325 2,847 28,172 2,535 — 2,535 Net finance cost recognized in income statement $ 37,919 $ 25,637 The above financial income and expense are all with respect to assets (liabilities) not at fair value through profit or loss. 1 9. E M P LOY E E B E N E F I T S Present value of wholly unfunded defined benefit obligations Present value of partially funded defined benefit obligations 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 Total employee benefits Total employee benefits reported in other payables December 31, 2016 December 31, 2015 $ 249,745 92,258 342,003 (66,553) 275,450 4,481 6,966 286,897 7,669 $ 114,548 86,263 200,811 (67,247) 133,564 3,795 17,964 155,323 20,107 Total employee benefits reported in non-current liabilities $ 279,228 $ 135,216 76 2016 Annual Report (i) Defined contribution post-employment plans The Company sponsors defined contribution post-employment plans in Canada, the U.S., Thailand and the U.K. A post- employment plan is classified as a defined contribution plan if the Company pays fixed contributions into a fund at a separate entity and the Company has no further obligation to pay any further contributions if the fund does not hold sufficient assets to pay all employee benefits relating to employee service in the current and prior periods. The expense for company-sponsored defined contribution post-employment plans was $21.2 million in 2016 (2015 – $17.2 million) of which $0.1 million (2015 – $0.1 million) was for key management personnel. Company contributions into defined contribution state plans are included in the line “Compulsory social security contributions” of the table in note 20. (ii) Defined benefit post-employment plans The Company also has defined benefit post-employment plans in various countries of the world. Although some of these plans have elements common to defined contribution plans, the Company has accounted for these as defined benefit plans as they are not fully funded at a separate entity. Partially funded defined benefit obligations The Company’s defined benefit post-employment plans are not fully funded. The obligation of these plans, net of any assets is recorded in Non-Current Liabilities on the Statement of Financial Position in Employee Benefits or, for payments expected to be made within the next twelve months, in Trade and Other Payables in Current Liabilities. Fluctuations in the pension liabilities resulting from actuarial gains or losses due to changes in risk factors are recorded in Other Comprehensive Income. The primary partially funded plans are in Canada, the United Kingdom, Switzerland and the Netherlands. Details of these plans are as follows: (a) In Canada, the Company has a registered partially funded defined benefit pension plan for seven retired executives and one active employee of CCL. 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 plan and in calculating the expense and any contributions required. The plan is closed to new members. The primary risk factors for this plan 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.K., the Company has a registered partially 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 ₤650 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 for 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. (c) In Switzerland, CCL provides a mandatory legislated contribution-based cash balance plan for employees that is accounted for as a post-employment defined benefit plan. Benefits from the plan are paid out at retirement, disability or death. If an employee terminates from the Company prior to retirement, the vested benefit equal to the accumulated savings account balance is transferred to the pension plan of the new employer. The plan is governed by a foundation board that is legally responsible for the operation of the plan and includes employer and employee representation, in equal numbers. A legally required minimum level of retirement benefit is based on age-related savings contributions, an insured salary defined by law and a required rate of return set annually by the Swiss government. Contributions from both employers and employees are compulsory and vary according to age and salary. The primary risk factors for this plan are longevity of plan beneficiaries, discount rate volatility for the value of the obligation and market risk on the assets. Under Swiss pension law, any surplus assets technically belong to the pension plan and any reduction in contributions is at the discretion of the Board. (d) In the Netherlands, CCL provides a defined benefit career average pay plan for a small number of employees. An actuary is involved in measuring the obligation of the plan. Benefits from the plan are paid through retirement and at death, before or during retirement, to the spouse or dependents. If a member of the plan leaves CCL, the member may choose to have the benefits of the plan transferred into the plan of the new employer. The benefit formula is based on a percentage of each year’s pensionable salary up to a set maximum salary less a social security offset. Benefits are guaranteed by an insurance company and CCL is required to pay annual premiums on the insurance contract based on a contract interest rate. There are no employee contributions to the plan. The primary risk factors for this plan are longevity of plan beneficiaries and discount rate volatility. 2016 Annual Report 77 N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S Years ended December 31, 2016 and 2015 (In thousands of Canadian dollars, except share and per share information) The most recent actuarial valuation for funding purposes for the executive defined benefit pension plan in Canada was as of January 1, 2015. The next required actuarial evaluation will be as of January 1, 2018. The most recent actuarial valuation of the U.K. defined benefit pension plan for funding purposes was as of January 1, 2014. The next required valuation is as of January 1, 2017. Wholly unfunded defined benefit obligations For defined benefit post-employment plans that have no assets, the Company simply funds the plans as benefits are paid. The primary wholly unfunded plans are in Canada, the U.S. and Germany. Details of these plans are as follows: (a) In Canada, the Company maintains non-registered, wholly unfunded supplemental retirement arrangements for one active Canadian executive, eight retired Canadian executives and two 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. (b) In the U.S., the Company has a post-employment wholly unfunded deferred compensation plan for designated executives (“NQP”). Liabilities are based strictly on the contributions made to the plan, an established rate of return and are not subject to actuarial adjustments. 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’s match portion and interest vest in the same manner as Company contributions in the 401k plan. Elective deferrals by the executive vest immediately. (c) In Germany, the Company has several wholly unfunded defined benefit plans. There are four salary-based annuity plans that are closed to new members, but currently have approximately 130 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 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. (d) The Company has wholly 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. 78 2016 Annual Report The following table shows the reconciliation from the opening balances to the closing balances for the defined benefit post- employment plans, including the defined benefit pension plans, supplemental retirement plans and other post-employment defined benefit plans. 2016 Accrued benefit obligation: Balance, beginning of year Opening balance from current year acquisitions Current service cost Past service cost Interest cost Employee contributions Benefits paid Actuarial gains – experience Actuarial gains – demographic assumptions Actuarial loss – financial assumptions Reinstatements and transfers Settlement loss Effect of movements in exchange rates Balance, end of year Plan assets: Fair value, beginning of year Opening balance from current year acquisitions Expected return on plan assets Actuarial losses Employee contributions Employer contributions Benefits paid Reinstatements and transfers Effect of movements in exchange rates Fair value, end of year Funded status, net deficit of plans Accrued benefit liability Partially Funded Wholly Unfunded Total $ $ $ $ $ $ 86,263 7,006 1,576 — 2,027 850 (2,483) (680) (883) 8,276 — — (9,694) 92,258 67,247 5,096 1,471 (1,385) 850 2,504 (2,483) 22 (6,769) 66,553 (25,705) (25,705) $ $ $ $ $ $ 114,548 132,755 3,742 129 5,319 4,755 (5,445) (1,616) (260) 4,770 (44) 4 (8,912) 249,745 — — — — — 5,445 (5,445) — — — (249,745) (249,745) $ $ $ $ $ $ 200,811 139,761 5,318 129 7,346 5,605 (7,928) (2,296) (1,143) 13,046 (44) 4 (18,606) 342,003 67,247 5,096 1,471 (1,385) 850 7,949 (7,928) 22 (6,769) 66,553 (275,450) (275,450) 2016 Annual Report 79 N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S Years ended December 31, 2016 and 2015 (In thousands of Canadian dollars, except share and per share information) 2015 Accrued benefit obligation: Balance, beginning of year Current service cost Interest cost Employee contributions Benefits paid Actuarial gains – experience Actuarial gains – demographic assumptions Actuarial loss – financial assumptions Effect of curtailment Effect of movements in exchange rates Balance, end of year Plan assets: Fair value, beginning of year Expected return on plan assets Actuarial 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 Partially Funded Wholly Unfunded Total $ $ $ $ $ $ 82,290 1,430 2,235 853 (9,138) (2,377) (1,239) 1,213 — 10,996 86,263 63,005 1,587 (737) 853 2,543 (9,138) 9,134 67,247 (19,016) (19,016) $ $ $ $ $ $ 98,504 2,928 3,467 1,467 (2,760) (290) (400) 660 (243) 11,215 114,548 — — — 146 2,614 (2,760) — — (114,548) (114,548) $ $ $ $ $ $ 180,794 4,358 5,702 2,320 (11,898) (2,667) (1,639) 1,873 (243) 22,211 200,811 63,005 1,587 (737) 999 5,157 (11,898) 9,134 67,247 (133,564) (133,564) 80 2016 Annual Report The Company’s net defined benefit plan expense is as follows: 2016 Current service cost Past service cost Net interest cost on accrued benefit liability Net defined benefit plan expense Net defined benefit plan expense is recorded in: Cost of sales Selling, general and administrative expenses Finance cost Net defined benefit plan expense 2015 Current service cost Net interest cost on accrued benefit liability Net defined benefit plan expense Net defined benefit plan expense is recorded in: Cost of sales Selling, general and administrative expenses Finance cost Net defined benefit plan expense Partially Funded Wholly Unfunded $ $ $ $ $ $ $ 1,576 — 556 2,132 850 799 483 2,132 $ 3,742 129 5,319 9,190 1,833 7,248 109 9,190 $ $ $ Total 5,318 129 5,875 11,322 2,683 8,047 592 $ 11,322 Partially Funded Wholly Unfunded $ $ $ $ 1,430 648 2,078 907 1,171 — 2,078 $ $ $ $ $ $ 2,928 3,467 6,395 2,138 4,198 59 $ 6,395 $ Total 4,358 4,115 8,473 3,045 5,369 59 8,473 2016 Annual Report 81 N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S Years ended December 31, 2016 and 2015 (In thousands of Canadian dollars, except share and per share information) Actuarial gains/(losses) recognized directly in equity are as follows: Actuarial gains – experience Actuarial gains – demographic assumptions Actuarial loss – financial assumptions Experience losses on plan assets Recognized during the year in other comprehensive income Plan assets consist of the following: 2016 Equity securities Debt securities Real estate Other Total 2015 Equity securities Debt securities Real estate Other Total $ 2016 2,296 1,143 (13,046) (1,385) $ 2015 2,667 1,639 (1,873) (737) $ (10,992) $ 1,696 Partially Funded Wholly Unfunded Total 33% 38% 9% 20% 100% — — — — — Partially Funded Wholly Unfunded 49% 33% 9% 9% 100% — — — — — 33% 38% 9% 20% 100% Total 49% 33% 9% 9% 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: 2016 2015 Partially Funded Wholly Unfunded $ $ 86 850 — — $ $ Total 86 850 The weighted average economic assumptions used to determine post-employment benefit obligations are as follows: December 31, 2016 Discount rate Expected rate of compensation increase December 31, 2015 Discount rate Expected rate of compensation increase Partially Funded Wholly Unfunded Total 1.93% 1.60% 2.47% 2.16% 1.96% 2.52% 2.31% 2.57% 1.95% 2.31% 2.39% 2.44% 82 2016 Annual Report The weighted average economic assumptions used to determine post-employment plan expenses are as follows: December 31, 2016 Discount rate Expected rate of compensation increase December 31, 2015 Discount rate Expected rate of compensation increase Partially Funded Wholly Unfunded Total 2.47% 2.16% 2.55% 2.19% 2.31% 2.57% 2.44% 2.59% 2.39% 2.44% 2.50% 2.45% 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) Partially Funded Wholly Unfunded (17,849) 18,220 2,647 1,363 (1,557) 2,123 (1,803) 19 (24,908) 27,870 8,250 136 (183) 1,614 (1,372) 13 The Company expects to contribute $2.3 million to the partially funded defined benefit plans and pay $7.6 million in benefits for the wholly unfunded plans in 2017. (iii) Long-term incentive, long-service leave, jubilee and other plans The Company has long-term incentive plans with cash and share-based payments, long-service leave plans and jubilee plans in various countries around the world. As at December 31, 2016, none (2015 – $18.0 million) of the total obligation of $11.4 million (2015 – $21.8 million) is classified as current, and reported in other payables. During 2016, no share-based payments were settled for cash (2015 – $3.2 million). In 2015, $18.4 million was transferred to contributed surplus (note 22). The expense for these plans was $17.7 million in 2016 (2015 – $21.0 million). 2 0. P E R S O N N E L E X P E N S E S Wages and salaries Compulsory social security contributions Contributions to company-sponsored defined contribution plans Expenses related to defined benefit plans Equity-settled share-based payment transactions $ 2016 812,819 92,072 21,242 11,322 15,381 $ 2015 602,840 61,535 17,193 8,473 8,425 $ 952,836 $ 698,466 2016 Annual Report 83 N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S Years ended December 31, 2016 and 2015 (In thousands of Canadian dollars, except share and per share information) 2 1 . I N C O M E TA X E X P E N S E 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 changes 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 changes 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 Income tax recovery recognized directly in other comprehensive income Derivatives and foreign currency translation adjustments Actuarial gains and losses Total income tax expense/(recovery) recognized directly in other comprehensive income 2016 2015 $ $ $ $ 125,928 21,867 (472) (6,589) 14,806 140,734 2016 25.27% $ 346,309 140,734 4,528 482,515 121,932 17,945 (472) (6,589) 5,064 2,854 140,734 3,815 (2,022) 1,793 $ $ $ $ $ $ $ $ $ $ $ 121,677 14,964 108 (15,678) (606) 121,071 2015 25.27% 295,078 121,071 3,477 412,672 104,282 25,350 108 (15,678) 950 6,059 121,071 (2,300) 535 (1,765) 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. 84 2016 Annual Report 2 2 . S H A R E - B A S E D PAY M E N T S At December 31, 2016, 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 directors of the Company. The Company does not grant options to independent 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. For options and share awards granted for stock-based compensation, $15.4 million (2015 – $8.4 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 2016 0.69% 2015 0.73% 4.5 years 4.5 years 27% $ 2.00 $ 25% 1.50 A summary of the status of the Company’s Employee Stock Option Plan as of December 31, 2016 and 2015, and changes during the years ended on those dates, is presented below: Outstanding at beginning of year Granted Exercised Outstanding at end of year Options exercisable at end of year 2016 Weighted Average Exercise Price $ $ $ 92.96 219.50 60.27 131.32 87.43 Shares (000s) 546 162 (93) 615 137 2015 Weighted Average Exercise Price $ $ $ 56.00 137.39 45.34 92.96 79.75 Shares (000s) 755 195 (404) 546 120 The weighted average share price at the date of exercise in 2016 was $240.13 (2015 – $171.66). The following table summarizes information about the employee stock options outstanding at December 31, 2016. Range of Exercisable Prices $35.65–$87.17 $87.18–$137.39 $137.40–$219.50 $35.65–$219.50 Options Outstanding Options Exercisable Options Outstanding (000s) Weighted Average Remaining Contractual Life Weighted Average Exercise Price Options Exercisable (000s) Weighted Average Exercise Price 265 188 162 615 1.7 years 3.2 years 4.2 years 2.8 years $ $ $ $ 72.89 137.39 219.50 131.32 95 42 — 137 $ $ $ $ 65.35 137.39 — 87.43 2016 Annual Report 85 N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S Years ended December 31, 2016 and 2015 (In thousands of Canadian dollars, except share and per share information) (ii) Deferred share units 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 until DSU holdings of three times the base retainer have been achieved. 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, the number of Class B non-voting shares of the Company equating to the number of his or her DSUs on the redemption date. Prior to November 2015, the Company accounted for DSUs as cash-settled share-based payment transactions. In November 2015, the DSU plan was amended from a cash-settled plan to an equity-settled plan, with settlement in treasury shares. As a result, the Company accounts for the amended DSU plan as equity-settled share-based payment transactions. At the date of modification, the Company reclassified the liability of $18.4 million to contributed surplus. The Company had 87,984 DSUs outstanding as at December 31, 2016. The amount recognized as an expense in 2016 totalled $0.5 million (2015 – $8.7 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 I N A N C I A L I N S T R U M E N T S (a) Cash flow hedges The Company was party to an interest rate swap agreement (“IRSA”), the hedging item, in order to redistribute the Company’s December 31, 2015, exposure to fixed and floating interest rates with a view to reducing interest rates over the long term. The hedged item was US$80.0 million of the syndicated bank credit facility. Fair value of this IRSA was recorded in derivative instruments on the consolidated statements of financial position. Change in fair value of the IRSA and the change in fair value of the debt were recorded in other comprehensive income. No ineffectiveness was recognized in the consolidated income statement as this was a fully effective hedge. This swap matured in September 2016. Notional Principal Amount Paid (US$) Interest Rate Received (US$) Fair Value at December 31 2016 (C$) 2015 (C$) Maturity Effective Date US$80.0 million 1.047% 3-month LIBOR $ 0 $ (253.0) September 13, 2016 September 13, 2013 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). These derivative contracts have a fair value of $68 (2015 – ($1,358)), which is included in derivative instruments. 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 2016 and 2015, 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 US$100/MT increase (decrease) in the price of aluminum would have resulted in a $0.3 million (2015 – $0.6 million) decrease (increase) in other comprehensive income and no impact on the earnings from operations (2015 – nil) of the Company. This analysis assumes that all other variables, in particular foreign currency rates, remain constant. 86 2016 Annual Report (b) Hedges of net investment in self-sustaining operations US$129.0 million (2015 – US$239.0 million) of unsecured senior notes, US$500.0 million (2015 – nil) of unsecured notes and US$409.6 million (2015 – US$208.0 million) of the unsecured syndicated bank 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 unsecured senior notes, the unsecured notes, the unsecured syndicated bank 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. €64.0 million (2015 – €61.6 million) of the unsecured syndicated bank 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 unsecured syndicated bank 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. £70.0 million (2015 – £134.0 million) of the unsecured syndicated bank credit facility (hedging item) have been used to hedge the Company’s exposure to its net investment in self-sustaining U.K. pound sterling–denominated operations with a view to reducing foreign exchange fluctuations. The foreign exchange effect of both the unsecured syndicated bank credit facility and the net investment in U.K. pound sterling–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. 2016 Annual Report 87 N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S Years ended December 31, 2016 and 2015 (In thousands of Canadian dollars, except share and per share information) (c) 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 as follows: 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 as follows: Under 31 days Between 31 and 90 days Greater than 90 days December 31, 2016 December 31, 2015 $ 585,077 672,253 22,457 $ 405,692 524,621 21,016 $ 1,279,787 $ 951,329 December 31, 2016 December 31, 2015 $ 353,086 253,552 41,733 $ 299,639 187,463 22,125 $ 648,371 $ 509,227 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 December 31, 2016 December 31, 2015 $ $ 15,147 2,688 17,835 $ $ 12,405 2,742 15,147 Based on historical default rates, the Company believes that no impairment allowance is necessary in respect of trade receivables not past due. 88 2016 Annual Report (d) 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: December 31, 2015 December 31, 2016 Payments Due by Period (In millions of Canadian dollars) Carrying Amount Carrying Amount Contractual Cash Flows 0–6 Months 6–12 Months 1–2 Years 2–5 Years More than 5 Years $ Non-derivative financial liabilities Secured bank loans $ Unsecured bank loans Unsecured senior notes Finance lease liabilities Unsecured notes Unsecured syndicated bank credit facility Other long-term obligations Interest on unsecured senior notes Interest on unsecured bank credit facility Interest on unsecured notes Interest on other long-term debt Trade and other payables Derivative financial liabilities – CF hedges Accrued post-employment benefit liabilities Operating leases 1.3 11.4 330.5 8.0 — 653.9 0.4 * — — — 711.0 1.4 * — $ 2.5 1.4 173.0 5.6 662.1 756.6 — * — — — 844.5 — * — 2.5 1.4 173.2 5.6 671.3 756.6 — 15.4* 60.7* 206.6* 0.8 844.5 — 90.7* 102.6 $ 0.5 0.3 — 1.3 — — — 1.9 7.2 4.9 0.3 844.5 — 0.8 14.3 $ 0.6 0.2 — 1.3 — — — 5.8 7.7 10.8 0.2 — — 0.7 14.3 $ $ 0.5 0.5 173.2 1.4 — 0.5 0.4 — 1.6 — $ 0.4 — — — 671.3 — — 7.7 15.4 21.8 0.2 — — 9.2 18.5 756.6 — — 30.4 65.5 0.1 — — 27.4 34.4 — — — — 103.6 — — — 52.6 21.1 Total contractual cash obligations $ 1,717.9 $ 2,445.7 $ 2,931.9 $ 876.0 $ 41.6 $ 248.4 $ 916.9 $ 849.0 * Accrued long-term employee benefit and post-employment benefit liability of $7.6 million, accrued interest of $10.8 million on unsecured senior notes, unsecured notes and unsecured syndicated credit facility and accrued interest of nil on derivatives are reported in trade and other payables in 2016 (2015 – $2.1 million, $7.3 million and nil, respectively). 2016 Annual Report 89 N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S Years ended December 31, 2016 and 2015 (In thousands of Canadian dollars, except share and per share information) The following table indicates the periods in which the cash flows associated with derivatives that are cash flow hedges are expected to impact the income statement: (In millions of Canadian dollars) December 31, 2015 Carrying Amount Carrying Amount Contractual Cash Flows 0–6 Months 6–12 Months 1–2 Years 2–5 Years More than 5 Years December 31, 2016 Payments Due by Period Assets Liabilities Total $ — 1.1 $ 0.1 — $ $ (1.1) $ 0.1 $ 0.1 — 0.1 $ $ 0.1 — 0.1 $ — — $ — — $ — — $ — — $ — $ — $ — $ — (e) Currency risk Exposure to currency risk The Company’s exposure to foreign currency risk was as follows based on notional amounts: December 31, 2016 December 31, 2015 U.S. Dollar 148,679 241,053 256,302 1,038,911 U.K. Pound 11,610 18,393 12,426 70,049 Euro 104,865 116,452 151,817 68,970 U.S. Dollar 122,366 165,973 239,684 447,000 U.K. Pound 17,676 40,236 33,670 134,046 Euro 63,918 68,588 92,028 64,795 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 U.K. pound 2016 (4,583) (9,033) 2,948 Equity 2015 (4,655) 1,391 (2,898) Income Statement 2015 346 948 (4) 2016 818 5,338 40 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. (f) Interest rate risk An increase of 100 basis points in interest rates on the floating rate debt and cash as at the reporting date would decrease net income by $6.1 million (2015 – $2.0 million decrease) and have no impact on other comprehensive income. This analysis assumes that all other variables, in particular foreign currency rates, remain constant. 90 2016 Annual Report (g) Fair values versus carrying amounts The fair values 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 Derivative 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: Trade and other payables Unsecured notes Unsecured syndicated bank credit facility Unsecured senior notes Other loans Finance lease liabilities Fair Value 21,016 — 21,016 524,621 405,692 December 31, 2015 December 31, 2016 Fair Value $ $ 22,457 68 22,525 $ $ Carrying Amount 22,457 68 22,525 $ $ Carrying Amount 21,016 — 21,016 $ $ 672,253 585,077 672,253 585,077 524,621 405,692 $ 1,257,330 $ 1,257,330 $ 930,313 $ 930,313 — — $ — — $ 1,348 1,348 $ 1,348 1,348 $ 844,510 662,124 756,597 173,016 3,939 5,617 844,510 626,074 756,597 189,223 3,939 5,617 710,999 — 653,905 330,451 13,169 7,994 710,999 — 653,884 355,170 13,169 7,994 $ 2,445,803 $ 2,425,960 $ 1,716,518 $ 1,741,216 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 spread. 2016 Annual Report 91 N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S Years ended December 31, 2016 and 2015 (In thousands of Canadian dollars, except share and per share information) (h) Fair value hierarchy The table below summarizes the levels of hierarchy for financial assets and liabilities. It does not include the fair value information for financial assets and financial liabilities not measured at fair value if the carrying value is a reasonable approximation of the 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); and • Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs) December 31, 2016 Available-for-sale financial assets Derivative financial assets December 31, 2015 Available-for-sale financial assets Derivative financial liabilities Level 1 Level 2 Level 3 Total $ $ $ $ — — — Level 1 — — $ $ $ $ 22,457 68 22,525 Level 2 21,016 1,348 $ $ $ $ — — — Level 3 — — $ $ $ $ 22,457 68 22,525 Total 21,016 1,348 92 2016 Annual Report 2 4 . F I N A N C I A L R I S K M A N AG 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. (a) 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, 2016, the Company did not have any exposure to credit risk arising from derivative financial instruments. (b) 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 2026. The Company has capacity to discharge its current liabilities from the continued cash flows from operations of the business, and an additional $585.1 million of cash-on-hand and $631.1 million of available capacity within its syndicated bank credit facility at December 31, 2016. 2016 Annual Report 93 N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S Years ended December 31, 2016 and 2015 (In thousands of Canadian dollars, except share and per share information) (c) 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. (d) 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. 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 and restructuring and other items by the average of the beginning- and the end-of-year shareholders’ equity. In 2016, the return on capital was 23.5% (2015 – 21.1%) 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 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 financial covenants on its unsecured senior notes, unsecured notes, and its unsecured syndicated bank credit facility. This includes a covenant requiring a minimum consolidated net worth. The Company monitors the ratios on a quarterly basis and at December 31, 2016, was in compliance with all its covenants. 94 2016 Annual Report 2 5. C O M M I T M E N T S Non-cancellable operating lease rentals are payable as follows: Less than one year Between one and five years More than five years $ 2016 28,607 52,927 21,061 $ $ 102,595 $ 2015 21,586 50,572 22,934 95,092 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, 2016, $26.8 million was recognized as an expense in the income statement in respect of operating leases (2015 – $18.8 million). 2 6. R E L AT E D PA R T I E S (a) 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. (b) Loan guarantee The Company has provided various loan guarantees for its joint ventures and associates totalling $62.1 million. 2 7. K E Y M A N AG E M E N T P E R S O N N E L C O M P E N SAT I O N Short-term employee compensation and benefits Share-based compensation Post-employment benefits 2 8 . AC C U M U L AT E D OT H E R C O M P R E H E N S I V E I N C O M E / ( LO S S ) Unrealized foreign currency translation gains (losses), net of tax recovery of $1,491 (2015 – tax recovery of $4,896) Gains (losses) on derivatives designated as cash flow hedges, net of tax recovery of $36 (2015 – tax recovery of $374) $ 2016 10,995 22,679 562 $ $ 34,236 $ 2015 13,032 4,561 612 18,205 2016 2015 $ (1,028) $ 112,584 147 (858) $ (881) $ 111,726 2016 Annual Report 95 2 9. R E S T R U C T U R I N G A N D OT H E R I T E M S Checkpoint Segment restructuring (i) Label Segment restructuring (ii) Avery Segment restructuring (iii) Acquisition costs (iv) Contingent consideration (v) Total restructuring and other items $ $ 2016 20,708 5,477 (1,969) 10,421 — 2015 — 5,025 4,632 — (3,634) $ 34,637 $ 6,023 (i) In 2016, the Checkpoint Segment recorded $20.7 million ($14.0 million, net of tax) in restructuring, primarily related to severance costs. (ii) In 2016, the Label Segment recorded $5.5 million ($4.5 million, net of tax) in restructuring, primarily related to severance costs for Worldmark. In 2015, the Label Segment recorded $5.0 million ($4.4 million, net of tax) in restructuring costs, primarily related to severance and closure costs for the 2015 Worldmark and 2014 Bandfix AG acquisitions, as well as severance costs associated with the closing of a plant in France. (iii) In 2016, the Avery Segment reversed $2.0 million ($1.2 million, net of tax) of the restructuring reserve for the previously announced closure of the Avery Meridian, Mississippi, binder manufacturing facility, which will be repurposed and continue to operate as a distribution facility only. In 2015, the Avery Segment recorded $4.6 million ($3.0 million, net of tax) in restructuring costs for the previously announced closure of the Avery Meridian, Mississippi, binder manufacturing facility and for final European severance costs. (iv) In 2016, acquisition costs of $10.4 million ($10.4 million, net of tax) were recorded primarily for the Checkpoint and 2015 Worldmark acquisitions. (v) In 2015, the Company reversed $3.6 million, with no tax impact, of accrued contingent consideration related to the 2014 acquisition of DekoPak Ambalaj San. Ve Tic. A.S. 3 0. S U B S E Q U E N T E V E N T S The Board of Directors has declared a dividend of $0.575 per Class B non-voting share and $0.5625 per Class A voting share, which will be payable to shareholders of record at the close of business on March 17, 2017, to be paid on March 31, 2017. In December 2016, the Company announced that it had entered into a definitive agreement to acquire the Innovia Group of companies for approximately $1.13 billion. Subsequent to December 31, 2016, conditions to close have been satisfied and the transaction is scheduled to close no later than April 3, 2017. 96 2016 Annual Report S I X Y E A R F I N A N C I A L S U M M A R Y (In thousands of Canadian dollars, except per share and ratio data) 2016 2015 2014 2013 2012 2011 $ 3,974,749 $ 3,039,112 $ 2,585,637 $ 1,889,426 $ 1,308,551 $ 1,268,477 203,692 164,081 146,421 120,155 102,564 100,177 37,919 346,3091 9.90 $ $ 25,637 295,0782 8.502 25,553 216,5663 6.313 25,648 103,5884 3.044 $ $ $ $ $ $ $ $ $ $ 20,919 97,490 2.91 476,909 322,155 154,754 1,602,359 140,061 887,187 0.16 $ $ $ $ 21,384 84,1265 2.545 426,559 256,243 170,316 1,613,481 213,270 816,880 0.26 $ 1,229,864 912,849 317,015 3,582,305 599,827 $ 1,621,878 0.37 $ 821,883 600,197 221,686 2,618,375 437,196 $ 1,216,219 0.36 $ 770,193 544,549 225,644 2,401,648 502,951 $ 1,018,135 0.49 36.4% 27.0% 26.4% 33.1% 13.6% 20.7% 2,367 32,822 35,032 2,368 32,729 34,716 2,368 32,325 34,365 2,368 32,021 34,150 2,369 31,451 2,374 31,315 33,484 33,111 Sales and Net Earnings Sales Depreciation and amortization Finance cost/ Interest expense Net earnings Basic net earnings per Class B share Financial Position Current assets Current liabilities Working capital6 Total assets Net debt Shareholders’ equity Net debt to equity ratio Net debt to total book capitalization $ 1,660,869 907,024 753,845 4,678,841 1,016,216 $ 1,775,200 0.57 Number of Shares (000s) Class A – Dec. 31 Class B – Dec. 31 Weighted average for the year Cash Flow Cash provided by operating activities Additions to plant, property and equipment Business acquisitions Dividends Dividends per Class B share $ 564,036 $ 475,260 $ 403,530 $ 333,738 $ 199,322 $ 171,376 234,663 571,482 70,174 172,214 356,703 52,296 153,657 115,876 37,943 116,097 528,319 29,408 93,555 11,591 32,088 81,447 25,156 23,343 $ 2.00 $ 1.50 $ 1.10 $ 0.86 $ 0.78 $ 0.70 1 After pre-tax restructuring and other items – net loss of $34.6 million. 2 After pre-tax restructuring and other items – net loss of $6.0 million. 3 After pre-tax restructuring and other items – net loss of $9.1 million. 4 After pre-tax restructuring and other items – net loss of $45.2 million. 5 After pre-tax restructuring and other items – net loss of $0.8 million. 6 Current assets minus liabilities. 2016 Annual Report 97 Europe Asia Pacific Günther Birkner President, Food and Beverage Healthcare and Specialty Worldwide Hohenems, Austria Peter Fleissner President, CCL Design Worldwide Solingen, Germany Scott Mitchell-Harris Group Vice President, Checkpoint Europe and Asia Pacific, Apparel Labeling Solutions Worldwide Barcelona, Spain Erik Cardinaal Vice President and General Manager, Apparel Labeling Solutions, Europe, Middle East and Africa Terborg, the Netherlands Mark Cooper Vice President and Managing Director, Avery Europe and Asia Pacific Maidenhead, U.K. Jim Anzai Vice President and Managing Director, CCL Label Asia Singapore Da Gang Li Vice President and Managing Director, CCL Industries China Shanghai, PR China Mark Gentle Vice President and Managing Director, Checkpoint and Avery Australia and ASEAN Melbourne, Australia Kittipong Kulratanasinsuk Managing Director, CCL Label Thailand Bangkok, Thailand John O’Brien Managing Director, CCL Label Australia Adelaide, Australia Latin America Derek Cumming Vice President and Managing Director, CCL Design, Electronics Worldwide Luis Jocionis Vice President and Managing Director, CCL Industries South America Sao Paolo, Brazil Ben Lilienthal Vice President and Managing Director, CCL Industries, Central America Mexico City, Mexico East Kilbride, Scotland Werner Ehrmann Vice President, Technology Development Holzkirchen, Germany Mathias Maennel Vice President and Managing Director, Healthcare and Specialty Europe Oss, the Netherlands Jamie Robinson Vice President and Managing Director, Home and Personal Care Europe Castleford, U.K. Thomas Summer Vice President and Managing Director, Sleeves Europe Hohenems, Austria 2 0 1 6 B U S I N E S S L E A D E R S H I P North America John Dargan President, Checkpoint Worldwide Thorofare, New Jersey, USA Ben Rubino President, Home and Personal Care Worldwide Lumberton, New Jersey, USA Jim Sellors President, Avery North America Brea, California, USA Stephan Finke Vice President & General Manager Food & Beverage North America Sonoma, California, USA Eric Frantz Vice President Operations, Home and Personal Care North America Hermitage, Pennsylvania, USA Bill Goldsmith Vice President and General Manager, CCL Design North America Schererville, Indiana, USA Al Green Vice President, Technology Development Clinton, South Carolina, USA Andy Iseli Vice President and General Manager, CCL Tube Los Angeles, California, USA Allison Phillips Vice President and General Manager, Avery North America Printable Media Brea, California, USA Lee Pretsell Group Vice President, Healthcare and Speciality Worldwide Toronto, Ontario, Canada 98 2016 Annual Report 2 0 1 6 C C L O F F I C E R S Donald G. Lang Executive Chairman Geoffrey T. Martin President and Chief Executive Officer Anne Brayley Vice President, Internal Audit Kamal Kotecha Vice President, Taxation Mark McClendon Vice President and General Counsel Susan V. Snelgrove Vice President, Risk and Environmental Management Lalitha Vaidyanathan Senior Vice President, Finance-IT-Human Resources, CCL Industries Nick Vecchiarelli Vice President, Corporate Accounting Monika Vodermaier Vice President, Corporate Finance Europe and Asia Sean P. Washchuk Senior Vice President and Chief Financial Officer Thomas C. Peddie Director since 2003 Corporate Director Ontario, Canada Mandy Shapansky Director since 2014 Corporate Director Ontario, Canada 2 0 1 6 B O A R D O F D I R E C T O R S Paul J. Block Director since 1997 Chairman and CEO, Proteus Capital Associates New York, U.S.A. Vincent J. Galifi Director since 2016 Executive Vice President and Chief Financial Officer Magna International Inc. Ontario, Canada Edward E. 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 Kathleen L. Keller-Hobson Director since 2015 Corporate Director Ontario, Canada Donald G. Lang Director since 1991 Executive Chairman, CCL Industries Inc. Ontario, Canada Erin M. Lang Director since 2016 Managing Director, LUMAS Canada Ontario, Canada Stuart W. Lang Director since 1991 Corporate Director Ontario, Canada Geoffrey T. Martin Director since 2005 President and CEO, CCL Industries Inc. Massachusetts, U.S.A. Douglas W. Muzyka Director since 2016 Chief Science and Technology Officer, EI DuPont de Nemours Pennsylvania, U.S.A. 2016 Annual Report 99 2 0 1 6 S H A R E H O L D E R I N F O R M AT I O N Auditors KPMG LLP Chartered Accountants Legal Counsel McMillan LLP Transfer Agent CST Trust Company P.O. Box 700 Postal Station B Montreal, QC H3B 3K3 Email: AnswerLine: Fax: Website: inquiries@canstockta.com (416) 682-3860 or (800) 387-0825 (888) 249-6189 www.canstockta.com Financial Information Institutional investors, analysts and registered representatives requiring additional information may contact: 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 Tel: Fax: Email: Website: (416) 756-8500 (416) 756-8555 ccl@cclind.com www.cclind.com Annual and Special Meeting of Shareholders The Annual and Special Meeting of Shareholders will be held on: May 9, 2017 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 2016 Closing price 2016 Number of trades Trading volume (shares) Trading value Annual dividends declared Shares Outstanding at December 31, 2016 Class A voting shares Class B non-voting shares $224.07 $263.80 163,228 19,328,927 $4,359,744,617 $2.00 2,367,475 32,822,296 m o c . s l l i m n a y r b . w w w . d t L s l l i M n a y r B y b d e n g i s e D 100 2016 Annual Report This report is printed on recyclable, acid-free and chlorine free paper. Printed in Canada. CHECKPOINT’S COMPREHENSIVE INVENTORY MANAGEMENT SOLUTIONS START IN-STORE, WITH SMART LABELS, RFID ENABLED SCANNERS, and end in the back office with the most widely- deployed middleware platform in the world. Checkpoint’s RFID solution allows retailers the ability to monitor, manage and optimize processes for inventory management, omni-channel fulfillment and many other mission-critical systems real-time. Checkpoint is a leading global manufacturer and provider of hardware and software systems plus security labels and tags providing inventory control and loss prevention solutions to world leading retailers. Checkpoint provides end-to-end solutions enabling retailers to achieve accurate real-time inventory, accelerate the replenishment cycle, prevent out-of-stocks and reduce theft, thus improving merchandise availability and the shopper’s experience. Checkpoint’s solutions are built upon 45 years of radio frequency technology expertise, innovative high-theft and loss-prevention solutions, market-leading RFID hardware, RFID software and comprehensive labeling capabilities to brand, secure and track merchandise from source to shelf. Checkpoint’s customers benefit from increased sales and profits by implementing merchandise availability solutions, to ensure the right merchandise is available at the right place and time when consumers are ready to buy. This acquisition is another strategic building block in the CCL story expanding our capabilities into emerging technologies for “smart labels” while entering an important new vertical market: Retail & Apparel. We plan to realize synergies from our comprehensive restructuring initiative in the short term, while building an important new leg for the Company in the longer term. CCL Industries Inc. 105 Gordon Baker Road, Suite 500 Toronto, ON M2H 3P8, Canada Tel +1 (416) 756 8500 161 Worcester Road Framingham, MA 01701, USA Tel +1 (508) 872 4511 www.cclind.com 

Continue reading text version or see original annual report in PDF format above