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CCL Industries Inc. Interim / Quarterly Report 2021

Nov 10, 2021

43211_rns_2021-11-10_a67dd433-c722-472b-bd70-47d3e7d64b7c.pdf

Interim / Quarterly Report

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Consolidated Condensed Interim Financial Statements (In millions of Canadian dollars)

CCL INDUSTRIES INC.

Interim periods ended September 30, 2021 and 2020 Unaudited

1

CCL Industries Inc.

Consolidated condensed interim statements of financial position Unaudited

In millions of Canadian dollars

In millions of Canadian dollars
As at September 30 As at December 31
2021 2020
Assets
Current assets
Cash and cash equivalents $ 622.5 $ 703.7
Trade and other receivables 1,119.7 922.8
Inventories 669.8 533.5
Prepaid expenses 50.0 35.3
Income taxes recoverable 25.6 29.0
Derivative instruments 0.3 0.4
Total current assets 2,487.9 2,224.7
Non-current assets
Property, plant and equipment 1,857.1 1,882.7
Right-of-use assets 150.9 158.4
Goodwill 1,917.4 1,918.5
Intangible assets 966.1 1,007.6
Deferred tax assets 49.7 42.7
Equity-accounted investments 64.7 66.1
Other assets 27.7 26.8
Derivative instruments 14.5 9.2
Total non-current assets 5,048.1 5,112.0
Total assets $ 7,536.0 $ 7,336.7
Liabilities
Current liabilities
Trade and other payables $ 1,296.4 $ 1,135.7
Current portion of long-term debt (note 8) 35.4 51.8
Lease liabilities 33.2 34.2
Income taxes payable 42.4 40.3
Total current liabilities 1,407.4 1,262.0
Non-current liabilities
Long-term debt (note 8) 1,685.4 1,889.4
Lease liabilities 115.4 119.2
Deferred tax liabilities 287.8 270.8
Employee benefits 314.7 385.1
Provisions and other long-term liabilities 16.9 10.9
Derivative instruments 64.0 117.1
Total non-current liabilities 2,484.2 2,792.5
Total liabilities 3,891.6 4,054.5
Equity
Share capital 460.6 396.8
Contributed surplus 94.2 90.1
Retained earnings 3,319.0 2,937.5
Accumulated other comprehensive loss(note 5) (229.4) (142.2)
Total equity attributable to shareholders of the Company 3,644.4 3,282.2
Acquisitions (note 3)
Subsequent events (note 9)
Total liabilities and equity $ 7,536.0 $ 7,336.7

2

See accompanying selected explanatory notes to the consolidated condensed interim financial statements.

CCL Industries Inc.

Consolidated condensed interim income statements

Unaudited

In millions of Canadian dollars, except per share information

Three Months Ended Three Months Ended September 30 September 30 Nine Months Ended Nine Months Ended September 30
2021 2020 2021 2020
Sales $ 1,488.2 $ 1,373.4 $ 4,244.0 $ 3,891.7
Cost of sales 1,083.9 954.4 3,042.3 2,774.6
Gross profit 404.3 419.0 1,201.7 1,117.1
Selling, general and administrative expenses 190.7 185.0 561.6 537.2
Restructuring and other items (note 6) 0.7 16.2 3.3 21.8
Earnings in equity-accounted investments (2.4) (2.5) (6.4) (5.5)
215.3 220.3 643.2 563.6
Finance cost 13.5 15.4 41.0 46.4
Finance income (0.6) (0.6) (2.0) (1.9)
Interest on lease liabilities 1.3 1.6 4.0 4.9
Net finance cost 14.2 16.4 43.0 49.4
Earnings before income tax 201.1 203.9 600.2 514.2
Income tax expense 47.8 50.6 146.2 130.4
Net earnings for theperiod $ 153.3 $ 153.3 $ 454.0 $ 383.8
Basic earningsper Class B share $ 0.85 $ 0.86 $ 2.53 $ 2.15
Diluted earningsper Class B share $ 0.84 $ 0.86 $ 2.51 $ 2.14

See accompanying selected explanatory notes to the consolidated condensed interim financial statements.

3

CCL Industries Inc.

Consolidated condensed interim statements of comprehensive income Unaudited

In millions of Canadian dollars

2021
2020
2021
2020
Net earnings
153.3
$
153.3
$
454.0
$
383.8
$
Other comprehensive income (loss), net of tax:
29.3
7.1
(143.5)
54.0
(7.7)
(17.6)
56.4
(62.9)
0.1
0.3
0.9
(0.1)
(0.3)
-
(1.0)
0.4
5.7
(3.0)
40.7
(16.1)
Actuarial gains (losses) on defined benefit post-employment plans, net
of tax expense of $1.8 and $13.8 for the three-month and nine-month
periods ended September 30, 2021 (2020 – tax recovery of $0.1 and
$4.4)
Foreign currency translation adjustment for foreign operations, net
of tax recovery of $0.1 and $4.1 for the three-month and nine-
month periods ended September 30, 2021 (2020 – tax expense of
$1.1 and $6.3)
Net
gains
(losses)
on
hedges
of
net investment
in foreign
operations, net of tax recovery of $1.2 and tax expense of $8.5 for
the three-month and nine-month periods ended September 30,
2021 (2020 – tax recovery of $2.6 and $9.3)
Three Months Ended
September 30
Nine Months Ended
September 30
Net change in fair value of cash flow hedges transferred to the income
statement, net of tax expense of $0.1 and $0.3 for the three-month
and nine-month periods ended September 30, 2021 (2020 – tax of nil
and tax recovery of $0.1)
Items that may subsequently be reclassified to income:
Effective portion of changes in fair value of cash flow hedges, net of
tax of nil and tax expense of $0.3 for the three-month and nine-
month periods ended September 30, 2021 (2020 – tax expense of
$0.1 and nil)		 2021
2020
2021
2020
Net earnings
153.3
$
153.3
$
454.0
$
383.8
$
Other comprehensive income (loss), net of tax:
29.3
7.1
(143.5)
54.0
(7.7)
(17.6)
56.4
(62.9)
0.1
0.3
0.9
(0.1)
(0.3)
-
(1.0)
0.4
5.7
(3.0)
40.7
(16.1)
Actuarial gains (losses) on defined benefit post-employment plans, net
of tax expense of $1.8 and $13.8 for the three-month and nine-month
periods ended September 30, 2021 (2020 – tax recovery of $0.1 and
$4.4)
Foreign currency translation adjustment for foreign operations, net
of tax recovery of $0.1 and $4.1 for the three-month and nine-
month periods ended September 30, 2021 (2020 – tax expense of
$1.1 and $6.3)
Net
gains
(losses)
on
hedges
of
net investment
in foreign
operations, net of tax recovery of $1.2 and tax expense of $8.5 for
the three-month and nine-month periods ended September 30,
2021 (2020 – tax recovery of $2.6 and $9.3)
Three Months Ended
September 30
Nine Months Ended
September 30
Net change in fair value of cash flow hedges transferred to the income
statement, net of tax expense of $0.1 and $0.3 for the three-month
and nine-month periods ended September 30, 2021 (2020 – tax of nil
and tax recovery of $0.1)
Items that may subsequently be reclassified to income:
Effective portion of changes in fair value of cash flow hedges, net of
tax of nil and tax expense of $0.3 for the three-month and nine-
month periods ended September 30, 2021 (2020 – tax expense of
$0.1 and nil)		 2021
2020
2021
2020
Net earnings
153.3
$
153.3
$
454.0
$
383.8
$
Other comprehensive income (loss), net of tax:
29.3
7.1
(143.5)
54.0
(7.7)
(17.6)
56.4
(62.9)
0.1
0.3
0.9
(0.1)
(0.3)
-
(1.0)
0.4
5.7
(3.0)
40.7
(16.1)
Actuarial gains (losses) on defined benefit post-employment plans, net
of tax expense of $1.8 and $13.8 for the three-month and nine-month
periods ended September 30, 2021 (2020 – tax recovery of $0.1 and
$4.4)
Foreign currency translation adjustment for foreign operations, net
of tax recovery of $0.1 and $4.1 for the three-month and nine-
month periods ended September 30, 2021 (2020 – tax expense of
$1.1 and $6.3)
Net
gains
(losses)
on
hedges
of
net investment
in foreign
operations, net of tax recovery of $1.2 and tax expense of $8.5 for
the three-month and nine-month periods ended September 30,
2021 (2020 – tax recovery of $2.6 and $9.3)
Three Months Ended
September 30
Nine Months Ended
September 30
Net change in fair value of cash flow hedges transferred to the income
statement, net of tax expense of $0.1 and $0.3 for the three-month
and nine-month periods ended September 30, 2021 (2020 – tax of nil
and tax recovery of $0.1)
Items that may subsequently be reclassified to income:
Effective portion of changes in fair value of cash flow hedges, net of
tax of nil and tax expense of $0.3 for the three-month and nine-
month periods ended September 30, 2021 (2020 – tax expense of
$0.1 and nil)		 2021
2020
2021
2020
Net earnings
153.3
$
153.3
$
454.0
$
383.8
$
Other comprehensive income (loss), net of tax:
29.3
7.1
(143.5)
54.0
(7.7)
(17.6)
56.4
(62.9)
0.1
0.3
0.9
(0.1)
(0.3)
-
(1.0)
0.4
5.7
(3.0)
40.7
(16.1)
Actuarial gains (losses) on defined benefit post-employment plans, net
of tax expense of $1.8 and $13.8 for the three-month and nine-month
periods ended September 30, 2021 (2020 – tax recovery of $0.1 and
$4.4)
Foreign currency translation adjustment for foreign operations, net
of tax recovery of $0.1 and $4.1 for the three-month and nine-
month periods ended September 30, 2021 (2020 – tax expense of
$1.1 and $6.3)
Net
gains
(losses)
on
hedges
of
net investment
in foreign
operations, net of tax recovery of $1.2 and tax expense of $8.5 for
the three-month and nine-month periods ended September 30,
2021 (2020 – tax recovery of $2.6 and $9.3)
Three Months Ended
September 30
Nine Months Ended
September 30
Net change in fair value of cash flow hedges transferred to the income
statement, net of tax expense of $0.1 and $0.3 for the three-month
and nine-month periods ended September 30, 2021 (2020 – tax of nil
and tax recovery of $0.1)
Items that may subsequently be reclassified to income:
Effective portion of changes in fair value of cash flow hedges, net of
tax of nil and tax expense of $0.3 for the three-month and nine-
month periods ended September 30, 2021 (2020 – tax expense of
$0.1 and nil)		 2021
2020
2021
2020
Net earnings
153.3
$
153.3
$
454.0
$
383.8
$
Other comprehensive income (loss), net of tax:
29.3
7.1
(143.5)
54.0
(7.7)
(17.6)
56.4
(62.9)
0.1
0.3
0.9
(0.1)
(0.3)
-
(1.0)
0.4
5.7
(3.0)
40.7
(16.1)
Actuarial gains (losses) on defined benefit post-employment plans, net
of tax expense of $1.8 and $13.8 for the three-month and nine-month
periods ended September 30, 2021 (2020 – tax recovery of $0.1 and
$4.4)
Foreign currency translation adjustment for foreign operations, net
of tax recovery of $0.1 and $4.1 for the three-month and nine-
month periods ended September 30, 2021 (2020 – tax expense of
$1.1 and $6.3)
Net
gains
(losses)
on
hedges
of
net investment
in foreign
operations, net of tax recovery of $1.2 and tax expense of $8.5 for
the three-month and nine-month periods ended September 30,
2021 (2020 – tax recovery of $2.6 and $9.3)
Three Months Ended
September 30
Nine Months Ended
September 30
Net change in fair value of cash flow hedges transferred to the income
statement, net of tax expense of $0.1 and $0.3 for the three-month
and nine-month periods ended September 30, 2021 (2020 – tax of nil
and tax recovery of $0.1)
Items that may subsequently be reclassified to income:
Effective portion of changes in fair value of cash flow hedges, net of
tax of nil and tax expense of $0.3 for the three-month and nine-
month periods ended September 30, 2021 (2020 – tax expense of
$0.1 and nil)
Other comprehensive income(loss), net of tax
$		 27.1
$		 (13.2)
$		 (46.5)
$		 (24.7)
Total comprehensive income
$		 180.4
$		 140.1
$		 407.5
$		 359.1

See accompanying selected explanatory notes to the consolidated condensed interim financial statements.

4

CCL Industries Inc.

Consolidated condensed interim statements of changes in equity

Unaudited

In millions of Canadian dollars

Accumulated
other
Class A Class B Total share Contributed Retained comprehensive
shares shares capital surplus earnings loss Total equity
Balances, January 1, 2020 $ 4.5 $ 361.0 $ 365.5 $ 81.5 $ 2,540.0 $ (89.3) $ 2,897.7
Net earnings - - - - 383.8 - 383.8
Dividends declared
Class A - - - - (6.3) - (6.3)
Class B - - - - (90.1) - (90.1)
Defined benefit plan actuarial loss, net of tax - - - - (16.1) - (16.1)
Stock-based compensation plan - - - 6.5 - - 6.5
Stock options expense - - - 4.4 - - 4.4
Stock options exercised - 4.5 4.5 (0.8) - - 3.7
Income tax effect related to stock options - - - 0.1 - - 0.1
Other comprehensive loss - - - - - (8.6) (8.6)
Balances, September 30, 2020 $ 4.5 $ 365.5 $ 370.0 $ 91.7 $ 2,811.3 $ (97.9) $ 3,175.1
Accumulated
other
Class A Class B Total share Contributed Retained comprehensive
shares shares capital surplus earnings loss Total equity
Balances, January 1, 2021 $ 4.5 $ 392.3 $ 396.8 $ 90.1 $ 2,937.5 $ (142.2) $ 3,282.2
Net earnings - - - - 454.0 - 454.0
Dividends declared
Class A - - - - (7.4) - (7.4)
Class B - - - - (105.8) - (105.8)
Defined benefit plan actuarial gain, net of tax - - - - 40.7 - 40.7
Stock-based compensation plan - 3.5 3.5 11.9 - - 15.4
Stock options expense - - - 2.0 - - 2.0
Stock options exercised - 60.3 60.3 (11.0) - - 49.3
Income tax effect related to stock options - - - 1.2 - - 1.2
Other comprehensive loss - - - - - (87.2) (87.2)
Balances, September 30, 2021 $ 4.5 $ 456.1 $ 460.6 $ 94.2 $ 3,319.0 $ (229.4) $ 3,644.4

See accompanying selected explanatory notes to the consolidated condensed interim financial statements.

5

CCL Industries Inc.

Consolidated condensed interim statements of cash flows

Unaudited

In millions of Canadian dollars

Three Months Three Months Ended Nine Months Nine Months Ended
September 30 September 30
2021 2020 2021 2020
Cash provided by (used for)
Operating activities
Net earnings $ 153.3 $ 153.3 $ 454.0 $ 383.8
Adjustments for:
Property, plant and equipment depreciation 61.7 62.2 183.6 185.2
Right-of-use assets depreciation 9.7 10.6 29.2 31.1
Intangibles amortization 14.5 14.3 43.0 43.1
Earnings in equity-accounted investments,
net of dividends received (2.4) (2.5) (0.2) (2.0)
Net finance costs 14.2 16.4 43.0 49.4
Current income tax expense 50.3 45.6 157.6 112.6
Deferred tax expense (recovery) (2.4) 5.0 (11.4) 17.8
Equity-settled share-based payment transactions 4.4 3.5 18.6 11.0
Gain on sale of property, plant and equipment (0.6) - (2.7) (2.5)
302.7 308.4 914.7 829.5
Change in inventories (60.2) 19.8 (132.0) (62.9)
Change in trade and other receivables (48.4) (33.6) (182.7) (100.4)
Change in prepaid expenses 1.9 (3.2) (14.0) (0.9)
Change in trade and other payables 79.3 5.6 134.5 14.4
Change in income taxes receivable and payable 0.1 1.7 (0.6) 6.6
Change in employee benefits (0.7) 5.4 (15.9) 16.2
Change in other assets and liabilities 6.9 7.2 7.4 (27.7)
281.6 311.3 711.4 674.8
Net interest paid (1.9) (3.1) (26.0) (35.1)
Income taxes paid (55.8) (30.5) (153.6) (88.3)
Cashprovided by operating activities 223.9 277.7 531.8 551.4
Financing activities
Proceeds on issuance of long-term debt 4.1 14.9 6.0 875.3
Repayment of long-term debt (134.1) (52.4) (226.3) (955.9)
Repayment of lease liabilities (9.4) (10.3) (27.1) (34.0)
Proceeds from issuance of shares 22.5 0.4 49.3 3.7
Dividends paid (37.8) (32.1) (113.2) (96.4)
Cash used for financing activities (154.7) (79.5) (311.3) (207.3)
Investing activities
Additions to property, plant and equipment (74.1) (47.5) (206.2) (204.6)
Proceeds on disposal of property, plant and equipment 2.6 0.2 9.0 14.3
Business acquisitions and other long-term investments (note 3) (72.4) (10.9) (82.7) (111.2)
Cash used for investing activities (143.9) (58.2) (279.9) (301.5)
Net increase (decrease) in cash and cash equivalents (74.7) 140.0 (59.4) 42.6
Cash and cash equivalents at beginning of period 693.3 619.4 703.7 703.6
Translation adjustments on cash and cash equivalents 3.9 0.8 (21.8) 14.0
Cash and cash equivalents at end ofperiod $ 622.5 $ 760.2 $ 622.5 $ 760.2

See accompanying selected explanatory notes to the consolidated condensed interim financial statements.

6

CCL Industries Inc. Notes to consolidated condensed interim financial statements Unaudited

In millions of Canadian dollars, unless otherwise noted

1. Reporting entity

  • CCL Industries Inc. (the "Company") is a public company, listed on the Toronto Stock Exchange, and is incorporated and domiciled in Canada. These consolidated condensed interim financial statements of the Company as at and for the interim period ended September 30, 2021 and 2020, comprise the results of the Company, its subsidiaries and its interests in joint ventures and associates. The Company has manufacturing facilities around the world and is primarily involved in the manufacture of labels, consumer printable media products, technology-driven label solutions, polymer banknote substrates and specialty films.

2. Basis of preparation and presentation

(a) Statement of compliance

These consolidated condensed interim financial statements have been prepared in accordance with IAS 34, Interim Financial Reporting.

These consolidated condensed interim financial statements should be read in conjunction with the Company’s 2020 annual consolidated financial statements.

The accounting policies and methods of computation followed in the preparation of these consolidated condensed interim financial statements are consistent with those used in the preparation of the most recent annual report unless otherwise noted.

These consolidated condensed interim financial statements were authorized for issue by the Board of Directors on November 10, 2021.

  • (b) Basis of measurement These consolidated condensed interim financial statements have been prepared on the historical cost basis except for the following items in the consolidated condensed interim statement of financial position:

  • derivative financial instruments are measured at fair value

  • financial instruments at fair value through profit or loss are measured at fair value

  • 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) Presentation currency

These consolidated condensed interim financial statements are presented in Canadian dollars, which is the Company's presentation currency. All financial information, except per share information, is presented in millions of Canadian dollars, unless otherwise noted.

3. Acquisitions

  • (a) Acquisitions in 2021

In April 2021, the Company acquired the assets of Europack Packaging and Fluid Management GmbH (“Europack”) for approximately $0.9 million. Europack was added to the CCL Segment.

In May 2021, the Company acquired privately held Lux Global Label Asia Pte. Ltd. (“LUX”), based in Singapore for approximately $9.4 million, net of cash. LUX produces decorative labels for global consumer product customers in the ASEAN region. LUX now trades as “CCL Label Singapore.”

In July 2021, the Company acquired Plum Paper LLC (“Plum Paper”), a privately owned, direct-to-consumer ecommerce business based in Oceanside, California for approximately $26.3 million, net of cash acquired. Plum Paper is a leading supplier of personalized planners, journals and related stickers and has been added to Avery’s direct-to-consumer operations.

In July 2021, the Company acquired the Uniter Group of companies (“Uniter”), an apparel label manufacturer, based in A Coruña, Spain, with operations in Europe, Asia and North Africa for approximately $52.5 million, including debt assumed and net of cash acquired. Uniter has been added to the Checkpoint Segment.

7

CCL Industries Inc. Notes to consolidated condensed interim financial statements (continued) Unaudited

In millions of Canadian dollars, unless otherwise noted

3. Acquisitions (continued)

(a) Acquisitions in 2021 (continued)

The following table summarizes the allocation of the consideration to the fair value of the assets acquired and liabilities assumed for the Europack, LUX, Plum Paper and Uniter acquisitions:

Cash consideration, net of cash acquired
Assumed debt
Trade and other receivables
Inventories
Other current assets
Property, plant and equipment
Right-of-use assets
Goodwill
Intangible assets
Deferred tax assets
Trade and other payables
Lease liabilities
Deferred tax liabilities
Net assets acquired		 82.7
$ 6.4
89.1
$
14.6
$ 4.3
0.7
13.1
5.1
48.5
25.1
0.4
(11.4)
(5.0)
(6.3)
89.1
$

As a result of the inherent complexity associated with the valuation of net assets acquired, the determination of the fair value of assets and liabilities acquired for Uniter 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 value of the assets acquired and liabilities assumed may differ from the amounts noted above.

Goodwill is comprised of the excess fair value of the consideration paid over the fair value of the net assets acquired. Factors that make up the amount of goodwill recognized include expected synergies and employee knowledge of operations. The total amount of goodwill and intangible assets for Europack, LUX, Plum Paper and Uniter is $73.6 million, which is not deductible for tax purposes.

The following table summarizes the combined sales and net earnings that the newly acquired Europack, LUX, Plum Paper and Uniter have contributed to the Company for the current reporting period.

the current reporting period.
Sales
Net earnings		 Nine Months Ended
September30
$ 1.5
$ 15.3
  • (b) Pro Forma Information

The pro forma consolidated financial information below has been prepared following the accounting policies of the Company as if the acquisitions took place January 1, 2021.

The pro forma consolidated financial information has been presented for illustrative purposes only and is not necessarily indicative of results of operations and financial position that would have been achieved had the pro forma events taken place on the dates indicated, or the future consolidated results of operations or financial position of the consolidated company. Future results may vary significantly from the pro forma results presented.

The historical consolidated financial information has been adjusted in preparing the pro forma consolidated financial information to give effect to events that are: (i) directly attributable to the acquisitions; (ii) factually supportable; and (iii) with respect to sales and net earnings, expected to have a continuing impact on the results of CCL Industries Inc. As such, the impact from acquisition-related expenses is not included in the accompanying pro forma consolidated financial information. The 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 acquisitions.

The following table summarizes the sales and net earnings of the Company combined with Europack, LUX, Plum Paper and Uniter as though the acquisitions took place on January 1, 2021:

January 1, 2021:
Sales
Net earnings		 Nine Months Ended
September30
$ 459.9
$ 4,283.9

8

CCL Industries Inc. Notes to consolidated condensed interim financial statements (continued) Unaudited

In millions of Canadian dollars, unless otherwise noted

3. Acquisitions (continued)

  • (c) Acquisitions in 2020

In January 2020, the Company acquired IDentilam Limited ("IDentilam") based in Horsham, U.K., for approximately $2.9 million, net of cash acquired. The company designs and develops a range of software solutions for event badging and identification cards along with digital printing services. IDentilam was added to Avery’s direct-to-consumer operations.

In January 2020, the Company acquired I.D.&C. World Holdco Ltd ("ID&C"), with operations in Tunbridge Wells, U.K., and Bradenton, Florida, for approximately $35.5 million, net of cash acquired. ID&C is a global leader in live event badges and wristbands. ID&C was added to Avery’s direct-to-consumer operations.

In January 2020, the Company acquired privately owned Ibertex Etiquetaje Industrial S.L.U. and Eti-Textil Maroc S.a.r.l. AU ("Eti-Textil"), for approximately $20.1 million, net of cash and debt. Eti-Textil, headquartered in Elche, Spain, with satellite manufacturing in Tangier, Morocco, is an apparel label producer that was integrated into the Apparel Labeling Solutions business of Checkpoint.

In February 2020, the Company acquired the remaining 50% interest in its aluminum slug joint venture, Rheinfelden Americas, LLC ("Rheinfelden"), by assuming $18.8 million of net debt previously held in the venture. The business immediately changed its name to CCL Metal Science and reported within the CCL Segment.

In February 2020, the Company acquired Clinical Systems, Inc. (“CSI”), based in Garden City, New York, for approximately $19.7 million, net of cash acquired. CSI is a specialized provider to the U.S. clinical trials industry and operates as part of CCL Label’s Healthcare and Specialty business.

In March 2020, the Company acquired Flexpol Sp. z o.o. ("Flexpol"), a privately owned company based in Plock, Poland, for approximately $23.5 million, net of cash acquired. Flexpol is a leading producer of biaxially oriented polypropylene ("BOPP") film for the European market and was added to the Innovia Segment.

In July 2020, the Company acquired InTouch Labels and Packaging, Co., Inc. (“InTouch”), based near Boston, Massachusetts, for approximately $11.1 million, net of cash and debt. InTouch is a specialized short-run digital label converter and was added to Avery’s direct-to-consumer operations.

In October 2020, the Company acquired Graphic West International ApS (“GWI”), headquartered in Denmark, with operations in Europe and North America, for approximately $35.2 million, net of cash and debt. This new operation brings expanded capabilities and geographic reach in digitally printed cartons for the pharmaceutical industry. The company now trades as “CCL Specialty Cartons”.

In November 2020, the Company acquired privately owned Super Enterprises Printing (Malaysia) Sdn. Bnd. (“SEP”) for approximately $18.4 million, net of cash. SEP headquartered in Kuala Lumpur, with a second manufacturing operation in Guangzhou, China. SEP manufactures decorative panels, liquid crystal and touch-screen display covers and in-mould decorated components for the consumer electronics and automotive sectors across Asia. The company now trades as “CCL Design.”

The following table summarizes the allocation of the consideration to the fair value of the assets acquired and liabilities assumed for the IDentilam, ID&C, Eti-Textil, CSI, Rheinfelden, Flexpol, InTouch, GWI and SEP acquisitions:

Cash consideration, net of cash acquired
Assumed debt
Trade and other receivables
Inventories
Other current assets
Income tax recoverable
Property, plant and equipment
Right-of-use assets
Goodwill
Intangible assets
Trade and other payables
Lease liabilities
Deferred tax liabilities
Provisions and other long-term liabilities
Net assets acquired		 164.4
$ 20.8
185.2
$
30.5
$ 13.4
0.9
1.7
59.2
7.2
99.3
24.0
(34.2)
(4.7)
(9.3)
(2.8)
185.2
$

9

CCL Industries Inc. Notes to consolidated condensed interim financial statements (continued) Unaudited

In millions of Canadian dollars, unless otherwise noted

4. Segment reporting and disaggregation of revenue

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 CEO, the chief operating decision maker, reviews internal management reports regularly.

The Company's reportable segments:

  • CCL is a converter of pressure sensitive and specialty extruded film materials for a wide range of decorative, instructional, functional and security applications for government institutions and large global customers in the consumer packaging, healthcare & chemicals, consumer electronic device and automotive markets. Extruded & laminated plastic tubes, aluminum aerosols & specialty bottles, folded instructional leaflets, precision decorated & die cut components, electronic displays, polymer banknote substrate and other complementary products and services are sold in parallel to specific end-use markets.

  • Avery is a 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 three primary lines: (1) Printable Media, including address labels, shipping labels, marketing and product identification labels, business cards, and name badges supported by customized software solutions; (2) Organizational Products Group, including binders, sheet protectors, indexes & dividers and writing instruments; (3) Direct-to-Consumer digitally imaged media including labels, business cards, name badges, event badges, wristbands and family-oriented identification labels supported by unique web-enabled e-commerce URLs.

  • Checkpoint is a manufacturer of technology-driven loss-prevention, inventory-management and labeling solutions, including radio frequency and radio frequency identification (“RFID”) solutions, to the retail and apparel industry. The Segment has three primary product lines: Merchandise Availability Solutions (“MAS”), Apparel Labeling Solutions (“ALS”) and “Meto”. 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. Meto supplies hand-held pricing tools and labels and promotional in-store displays.

  • Innovia supplies specialty, high-performance, multi-layer, surface engineered BOPP films from facilities in Australia, Belgium, Mexico, Poland and the United Kingdom to customers in the pressure sensitive label materials, flexible packaging and consumer packaged goods industries worldwide. Additionally a small percentage of the total volume is sold internally to CCL Secure while two smaller non-BOPP facilities, in Germany and U.S., produce almost their entire output for CCL Label.

CCL
Avery
Checkpoint
Innovia
Total operations
Corporate expense
Restructuring and other items
Earnings in equity-accounted investments
Finance cost
Finance income
Interest on lease liabilities
Income tax expense
Net earnings		 2021
882.0
$ 209.7
189.3
207.2
S		 Three Months En 2021
2020
127.6
$ 160.8
$ 51.2
35.7
24.6
29.6
20.5
20.2
Operating income
ded September 30		 2021
2020
127.6
$ 160.8
$ 51.2
35.7
24.6
29.6
20.5
20.2
Operating income
ded September 30		 2021
2020
2,615.0
$ 2,497.4
$ 529.0
483.4
545.7
446.2
554.3
464.7
Nine Months En
Sales		 Nine Months En 2021
2020
424.3
$ 416.4
$ 110.4
86.3
79.1
48.1
68.7
59.4
ded September 30
Operating income		 2021
2020
424.3
$ 416.4
$ 110.4
86.3
79.1
48.1
68.7
59.4
ded September 30
Operating income
2020

877.0
$
178.4

169.7

148.3
ales
 2
$		 20
$
1,488.2
$ 1,373.4
$		 $ 223.9
246.3
$ 4,244.0
$ 3,891.7
$ (10.3)
(12.3)
(0.7)
(16.2)
2.4
2.5
(13.5)
(15.4)
0.6
0.6
(1.3)
(1.6)
(47.8)
(50.6)
153.3
153.3
$		 4,244.0
$ 3,891.7
$		 $ 682.5
610.2
$ (42.4)
(30.3)
(3.3)
(21.8)
6.4
5.5
(41.0)
(46.4)
2.0
1.9
(4.0)
(4.9)
(146.2)
(130.4)
$ $ 454.0
383.8
$
CCL
Avery
Checkpoint
Innovia
Equity-accounted investments
Corporate
Total		 September 30
2021
3,864.9
$ 750.6
1,080.6
1,210.8
64.7
564.4
Total A		 Total A December 31
2020
3,805.6
$ 707.1
975.1
1,145.9
66.1
636.9
ssets		 September 30
2021
1,052.3
$ 267.8
529.6
342.1
-
1,699.8
Total Lia		 Total Lia December 31
2020
1,066.8
$ $ 231.9
497.7
288.7
-
1,969.4
N
bilities		 N 2021
2020
2
170.0
173.4
$ $ 18.9
19.7
29.1
28.6
36.6
36.5
-
-
1.2
1.2
Nine
ine Months Ended September 30
Depreciation and Amortization		 Nine 021
2020
151.7
150.0
$ 6.1
14.9
19.1
17.5
29.3
22.2
-
-
-
-
Months Ended September 30
Capital Expenditures
7,536.0
$		 7,336.7
$		 3,891.6
$		 4,054.5
$ $		 255.8
259.4
$ $		 206.2
204.6
$

The quarterly financial results above are affected by the seasonality of the business Segments. The first and second quarters of a year are traditionally higher sales periods for the CCL and Innovia Segments as a result of the greater number of work days than the third and fourth quarters plus the seasonality of certain end markets. 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, in its recurring revenue streams, 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 the end of the year and prepares for the same in its supply chain from mid-year on. As a result of the impact of COVID-19 on the economy and the Company's businesses, historical seasonality trends could be adversely affected or temporarily improved.

All revenues are from products and services transferred at a point in time, except $18.5 million and $55.9 million for the three-month and nine-month periods ended September 30, 2021, respectively (September 30, 2020 - $17.9 million and $49.6 million), which are for installation and maintenance service arrangements within the Checkpoint Segment.

10

CCL Industries Inc. Notes to consolidated condensed interim financial statements (continued) Unaudited

In millions of Canadian dollars, unless otherwise noted

5. Accumulated other comprehensive loss

Restructuring and other items
2021
2020
Restructuring costs
$ 0.6
6.8
$ Acquisition costs
0.1
-
Other items
-
9.4
Total restructuring and other items
0.7
$ 16.2
$ September 30
Three Months Ended
Unrealized foreign currency translation losses, net of tax recovery of $0.8 (2020 – tax recovery of $5.2)
Gains on derivatives designated as cash flow hedges, net of tax expense of $0.1 (2020 – tax expense of $0.1)		 Restructuring and other items
2021
2020
Restructuring costs
$ 0.6
6.8
$ Acquisition costs
0.1
-
Other items
-
9.4
Total restructuring and other items
0.7
$ 16.2
$ September 30
Three Months Ended
Unrealized foreign currency translation losses, net of tax recovery of $0.8 (2020 – tax recovery of $5.2)
Gains on derivatives designated as cash flow hedges, net of tax expense of $0.1 (2020 – tax expense of $0.1)		 September 30
December 31
2021
2020
$ (229.7) $ (142.6)
0.3
0.4
$ (229.4) $ (142.2)
2021
2020
Nine Months Ended
September 30
$ 0.6
6.8
$ 0.1
-
-
9.4		 3.0
$ 12.0
$ 0.3
0.9
-
8.9
0.7
$ 16.2
$		 3.3
$ 21.8
$

6. Restructuring and other items

For the nine months ended September 30, 2021, the Company recorded $3.3 million ($2.6 million, net of tax) for restructuring and other items principally related to severance and acquisition transaction costs.

For the nine months ended September 30, 2020, the Company recorded $21.8 million ($16.3 million, net of tax) for restructuring and other items principally related to an expense of $9.4 million in excess of the amount originally accrued for the High Court of Australia’s final judgement in a pre-acquisition lawsuit against CCL Secure’s polymer banknote substrate business. The balance of restructuring expenses related to severance and acquisition transaction costs.

7. Financial instruments

(a) Fair value hierarchy

The table below summarizes level of hierarchy for financial assets and liabilities. It does not include fair value information for financial assets and financial liabilities not measured at fair value if the carrying value is a reasonable approximation of fair value.

The different levels have been defined as follows:

  • Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;

  • Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices); and

  • Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

September 30, 2021
Other assets
Derivative financial assets
Long-term debt
Derivative financial liabilities
December 31, 2020
Other assets
Derivative financial assets
Long-term debt
Derivative financial liabilities		 Level 1
Level 2
Level 3
Total
18.9
$ -
$ -
$ 18.9
$ -
14.8
-
14.8
-
(1,820.9)
-
(1,820.9)
-
(64.0)
-
(64.0)
18.9
$ (1,870.1)
$ -
$ (1,851.2)
$
19.6
$ -
$ -
$ 19.6
$ -
9.6
-
9.6
-
(2,121.3)
-
(2,121.3)
-
(117.1)
-
(117.1)
19.6
$ (2,228.8)
$ -
$ (2,209.2)
$

The methods and assumptions used to measure the fair value are as follows:

The fair value of derivative financial instruments generally reflects the estimated amounts that the Company would receive to sell favourable contracts, or pay to transfer unfavourable contracts, at the reporting date. The Company uses discounted cash flow analysis and market data such as interest rates, credit spreads and foreign exchange spot rates to estimate the fair value of forward agreements and interest-rate derivatives.

The fair value of long-term debt is estimated using public quotations, when available, or discounted cash flow analysis based on the current corresponding borrowing rate for similar types of borrowing arrangements.

(b) Fair values versus carrying amounts

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.

The fair value of financial liabilities together with carrying amounts shown in the consolidated condensed interim statement of financial position, are as follows:

Long-term debt
The interest rates used to discount estimated cash flows for the long-term debt are based on the
spread.		 Carrying
Amount
Fair Value
Carrying
Amount
Fair Value
December 31, 2020
September 30, 2021
1,720.8
$ 1,820.9
$ 1,941.2
$ 2,121.3
$
government yield curve at the reporting date plus an adequate credit

Fair value estimates are made at a specific point in time based on relevant market information and information about the financial instruments. The estimates are subjective in nature and involve uncertainties and matters of judgement.

11

CCL Industries Inc. Notes to consolidated condensed interim financial statements (continued) Unaudited

In millions of Canadian dollars, unless otherwise noted

8. Long-term debt

During the second quarter of 2020, the Company closed a rule 144A 3.05% private note offering due June 2030 in the principal amount of US$600.0 million. The proceeds of the offering were almost entirely used to repay borrowings on the Company’s unsecured syndicated revolving credit facility.

During the first quarter of 2020, the Company amended its syndicated bank credit facilities extending the tenor of the US$366.0 million term facility to February 2022 and extending the tenor of the US$1.2 billion revolving credit facility to February 2025.

During the first nine months 2021, debt repayments of $226.3 million were primarily made on syndicated term debt and a bilateral uncommitted credit facility in Australia.

The Company’s debt structure at September 30, 2021, was primarily comprised of 144A 3.05% private notes due June 2030 in the principal amount of US$600.0 million ($752.8 million), 144A 3.25% private notes due October 2026 in the principal amount of US$500.0 million ($629.3 million), the $300.0 million principal amount 3.864% Series 1 Notes due April 2028, and the term loan facility of US$17.0 million ($21.5 million). A bilateral uncommitted credit facility resident in Australia was $7.9 million.

The Company’s debt structure at December 31, 2020, was primarily comprised of the 144A 3.05% private notes due June 2030 in the principal amount of US$600.0 million ($754.8 million), 144A 3.25% private notes due October 2026 in the principal amount of US$500.0 million ($630.8 million), the $300.0 million principal amount 3.864% Series 1 Notes due April 2028, and the term loan facility of US$161.0 million ($204.8 million). The additional uncommitted loan facility resident in Australia was $50.2 million.

9. Subsequent events

The Board of Directors has declared a dividend of $0.21 per Class B non-voting share and $0.2075 per Class A voting share, which will be payable to shareholders of record at the close of business on December 15, 2021, to be paid on December 29, 2021.

In October 2021, the Company announced it had signed a binding agreement to acquire Desarrollo e Investigación S.A. de C.V. and Fuzetouch PTE LTD (Singapore) (collectively “D&F”) headquartered in San Luis Potosi, Mexico for approximately $50.7 million, net of cash and debt.

12

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