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.
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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.
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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.
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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.
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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
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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