Stock Symbol: TSX - CCL.A and CCL.NV.B
TORONTO, Feb. 16 /CNW/ -
Dear Shareholder:
Please find enclosed the Fourth Quarter 2005 financial results and
related public disclosures for CCL Industries Inc. This shareholder package
provides detailed information about your Company's financial performance and
business activities.
Since the sale of CCL's North American Custom Manufacturing business last
May, your Company has been very active in investing the proceeds from this
disposition in its core operations. We are particularly pleased with CCL's
expansion into a new continent, South America, with the acquisition of
Prodesmaq in January 2006. This world-class pressure-sensitive label business
located in Brazil will further enhance CCL's position as a supplier to our
large multinational customers in the consumer products industry through our
global network.
The Board of Directors continues to be pleased with your Company's
investments in its specialty packaging businesses. This combination of capital
spending on organic growth opportunities combined with key acquisitions such
as Prodesmaq are further steps towards the attainment of CCL's long-term
strategic goals.
Your Board of Directors is also pleased to approve a quarterly dividend
payable on March 31, 2006. This dividend will be paid at the same level as the
prior quarter and is a continuation of CCL's record of paying consecutive
quarterly dividends for 25 years without a reduction. The dividend is
$0.10 per Class B non-voting share and $0.0875 per Class A voting share.
Conference calls with our stakeholders are always held following the
release of our quarterly results. These calls are made to ensure that all
stakeholders can gain further insight into our business in keeping with good
corporate governance practices. Presentation materials used during the
conference calls and the annual Investors' Day are posted on our web site and
audio recordings of the meetings are also available there. Instructions for
accessing these services are set out at the end of this earnings release.
We encourage all shareholders to access our web site www.cclind.com on a
regular basis for investor and company news including scheduled dates for
future earnings releases. If you would like to have future Press Releases
e-mailed to you at the time they are issued, please complete the Information
Request Form under the Investor Relations Section on our Web Site or write to
us at CCL to the attention of Christene Duncan.
Yours truly,
Jon K. Grant
Chairman of the Board
Investor Update
---------------
1. Fourth Quarter 2005 Results and Dividend Release
2. Consolidated Statements of Earnings and Retained Earnings
3. Consolidated Balance Sheets
4. Consolidated Statements of Cash Flows
5. Notes to Consolidated Financial Statements
6. Fourth Quarter 2005 Management's Discussion and Analysis
7. Press Release re: CCL's purchase of Prodesmaq - January 11, 2006
8. Press Release re: CCL's divestiture of CCL Dispensing closure
business - January 24, 2006
<<
Results Summary For Periods Ended December 31st
-----------------------------------------------------
Fourth Quarters Twelve Months
-----------------------------------------------------
(Restated) (Restated)
(in millions of Cdn ---------- ----------
dollars, except per % %
share data) 2005 2004 Change 2005 2004 Change
---- ---- ------ ---- ---- ------
Sales $ 282.4 $ 221.2 27.7 $1,110.1 $ 913.9 21.5
------- ------- ------- -------
------- ------- ------- -------
Unusual items -
net loss $ (2.4) $ (2.3) $ (17.9) $ (0.9)
------- ------- ------- -------
------- ------- ------- -------
Net earnings from
continuing
operations $ 13.5 $ 9.8 37.8 $ 50.0 $ 44.0 13.6
Net earnings from
discontinued
operations, net
of tax - 4.1 5.3 15.2
Gain on sale of
discontinued
operations, net
of tax 1.5 - 108.5 -
------- ------- ------ -------
Net earnings $ 15.0 $ 13.9 $ 163.8 $ 59.2
------- ------- ------ -------
------- ------- ------ -------
Per Class B shares
Continuing
operations $ 0.43 $ 0.30 43.3 $ 1.57 $ 1.36 15.4
Discontinued
operations - 0.13 0.17 0.48
Gain on sale of
discontinued
operations 0.05 - 3.36 -
------- ------- ------ -------
Class B - net
earnings $ 0.48 $ 0.43 $ 5.10 $ 1.84
------- ------- ------ -------
------- ------- ------ -------
Diluted earnings
per Class B $ 0.46 $ 0.43 $ 4.97 $ 1.81
------- ------- ------ -------
------- ------- ------ -------
Unusual items and
tax benefit on
previously
unrecognized tax
losses that are
included in
continuing
operations - net
gain (loss) $ (0.07) $ (0.07) $ (0.42) $ 0.06
------- ------- ------ -------
------- ------- ------ -------
Number of
outstanding shares
(in 000s)
Weighted average
for the period 32,171 32,290
Actual at period
end 32,511 32,461
Toronto, February 16, 2006 - CCL Industries Inc., a world leader in
developing manufacturing, packaging and labelling solutions for the consumer
products industry, announced today its financial results for the fourth
quarter ended December 31, 2005 and the declaration of its quarterly dividend.
Sales from continuing operations for the fourth quarter of 2005 of
$282.4 million were 28% ahead of the $221.2 million recorded in the fourth
quarter of 2004, while sales for the full year 2005 of $1,110.1 million were
22% ahead of last year's $913.9 million. Financial comparisons to the prior
year's results in all Divisions have continued to be negatively affected by
the appreciation of the Canadian dollar relative to the U.S. dollar, the Euro
and most other currencies. Business acquisitions have positively impacted
comparisons to prior periods. Sales volume has also grown organically in the
Label Division and both the aluminum and plastic units of the Container
Division have exceeded prior year levels as CCL continues to benefit from
strong demand, particularly in the personal care and healthcare markets with
its multinational customers and with new product offerings. The performance of
the recent acquisitions and CCL's expansion into new markets has also been
positive. Sales volumes in the ColepCCL joint venture were similar to last
year's level.
Net earnings from continuing operations for the fourth quarter of 2005 of
$13.5 million were up by 38% from the $9.8 million recorded in the fourth
quarter of 2004. Net earnings were impacted by a net loss from unusual items
of $2.4 million before tax (also $2.4 million after tax) in the fourth quarter
of 2005 versus a net loss from unusual items of $2.3 million before tax
($1.9 million after tax) in the fourth quarter of 2004. Net earnings from
continuing operations for the year 2005 were $50.0 million, up 14% from the
$44.0 million earned in 2004. Net earnings for 2005 were negatively affected
by unusual losses of $17.9 million ($17.8 million after tax) but were
partially offset by a tax benefit from previously unrecognized tax losses of
$4.3 million. For the year 2004, net earnings were affected by a net loss from
unusual items of $0.9 million before tax (a net gain of $2.0 million after
tax).
Net earnings in the second quarter of 2005 included the gain on disposal
and the operating results of the discontinued North American Custom
Manufacturing Division ("Custom") totaling $112.3 million. In the fourth
quarter, the resolution of certain contingency items provided for on the sale
was settled with a net after tax gain of $1.5 million. In 2004, Custom's net
earnings were $4.1 million and $15.2 million for the fourth quarter and the
year, respectively.
Earnings per Class B share from continuing operations were $0.43 in the
fourth quarter of 2005 compared to $0.30 earned in the same period last year.
Unusual items in the fourth quarter 2005 and 2004 decreased earnings per Class
B share by $0.07 in each quarter. Earnings per share from discontinued
operations were $0.13 in the fourth quarter of 2004. The gain on sale in the
fourth quarter of 2005 was $0.05 per share. Diluted earnings per Class B share
were $0.46 in the fourth quarter of 2005 and $0.43 in last year's fourth
quarter.
Earnings per Class B share for the year 2005 were $5.10 compared to the
$1.84 earned in 2004, an increase of 177%. Earnings per Class B share from
continuing operations for all of 2005 were $1.57 per share and earnings from
discontinued operations were $3.53 per share, which included the gain on sale
of $3.36. Included in earnings per share from continuing operations for 2005
were unusual items and a tax benefit for a net loss of $0.42 per share. In
2004, earnings per Class B share from continuing operations were $1.36 and it
included $0.06 in earnings from unusual items. Earnings per share from
discontinued operations for 2005 were $0.17 compared to $0.48 in the same
period of 2004. Diluted earnings per Class B share were $4.97 in 2005 and
$1.81 in 2004.
On May 17, 2005, CCL completed the sale of Custom to KCP Income Fund for
gross proceeds of Cdn $273 million. This Division is recorded as a
Discontinued Operation and consequently, its sales and income contribution are
excluded from Continuing Operations. Historical financial information on
Continuing Operations has been restated to reflect this change.
Donald G. Lang, Vice Chairman and Chief Executive Officer said, "We are
pleased by the performance of our business across all divisions in the fourth
quarter, finishing up another record year in earnings for CCL. Our earnings
per share from continuing operations, excluding unusual items, in the fourth
quarter were 35% higher than last year's comparable period despite
unfavourable currency effects. In fact, we have more than replaced the
earnings from our recently disposed North American Custom Manufacturing
Division with organic and acquisition growth in our specialty packaging core
since the disposition. Many of our multinational customers are enjoying higher
sales levels than last year and we are continuing to grow with them in new
markets and geographies, as we expand our services to meet their needs.
"In the Label Division, results continue to be strong as our strategy to
invest in high-end equipment, new plants and accretive acquisitions such as
Steinbeis and Inprint Systems, are generating significant earnings momentum.
We are particularly pleased with the January 2006 acquisition of Prodesmaq in
Brazil. This addition expands our reach into South America as we continue to
further develop our label network with our global marketer base. The aluminum
business unit of the Container Division also continues to run full out despite
significant capacity expansion as it strives to meet the high growth
requirements of its personal care and beverage marketers. The Plastic
Packaging unit of the Container Division is running much more effectively and
generated a profit in 2005, a turnaround from a loss in 2004. The sale of the
closure business, CCL Dispensing, in February 2006 will facilitate a greater
focus on high-potential plastic tubes. Our ColepCCL joint venture, which was
created just over a year ago, continues to perform reasonably well and is in a
good position to grow further in 2006."
Mr. Lang added, "Going forward, we are separating our Container Division
into two business segments with distinct leaders and management teams: CCL
Container and CCL Tube. The creation of these segments will allow for more
transparent reporting of these two different businesses in 2006. This change
was facilitated by an early retirement, the sale of CCL Dispensing, and the
filling of the leadership vacancies in these two segments."
Mr. Lang concluded, "We will no doubt look back on 2005 as a watershed
year for CCL with the sale of the North American Custom Manufacturing Division
and the evolution of CCL into a focused global specialty packaging business.
Our outlook for 2006 is good, as we have got off to a strong start in the
first quarter. We are in a solid cash position and our financial leverage is
conservative. Your Board of Directors has declared the payment of a dividend
of $0.10 on the Class B non-voting shares and $0.0875 on the Class A voting
shares to shareholders of record at the close of business on March 17th, 2006
payable on March 31st, 2006. CCL continues its record of paying quarterly
dividends without reduction or omission for 25 years."
The Company's financial position is very solid. At the end of December
2005, cash and cash equivalents amounted to $120 million compared to
$71 million at December 31, 2004. Net debt amounted to $282 million at the end
of 2005, which is $73 million lower than the $355 million level from a year
ago. Net debt to total capitalization at December 31, 2005 was 33.3%, down
from 44.2% at the end of 2004. Book value per share is now up to $17.63 at
December 31, 2005, up 27% from $13.89 a year earlier.
CCL Industries Inc. manufactures pressure-sensitive labels, aluminum
containers and plastic tubes providing state-of-the-art specialty packaging
solutions to global producers of consumer brands in the home and personal
care, healthcare and specialty food and beverage sectors. With headquarters in
Toronto, Canada, CCL Industries employs approximately 4,600 people and
operates 46 production facilities in North America, Europe, Latin America and
Asia.
Statements contained in this Press Release, other than statements of
historical facts, are forward-looking statements subject to a number of
uncertainties that could cause actual events or results to differ
materially from some statements made.
Note: CCL will hold a conference call at 4:00 p.m. EST on Thursday,
---- February 16, 2006 to discuss these results.
To access this call, please dial Toll-Free North America -
1-800-377-5794 or Domestic and International - 416-641-6652.
Post-View service will be available from Thursday, February 16,
2006 at 6:00 p.m. EST until Sunday, March 19, 2006 at
11:59 p.m. EST.
Dial: Toll-Free - 1-800-558-5253 - Access Code: 21281856.
For more details on CCL, visit our web site - www.cclind.com
Financial Tables follow ...
CCL INDUSTRIES INC.
2005 Fourth Quarter
Consolidated Statements of Earnings and Retained Earnings
Three months ended Twelve months ended
December 31st December 31st
-------------------------------------------------------------------------
Unaudited Unaudited
(in millions of Cdn
dollars, except per % %
share data) 2005 2004 Change 2005 2004 Change
--------- --------- ------ --------- --------- ------
Sales $ 282.4 $ 221.2 27.7 $1,110.1 $ 913.9 21.5
-----------------------------------------------------
Income before
undernoted items 39.7 31.4 26.4 170.6 129.6 31.6
Depreciation and
amortization 16.3 10.5 65.4 54.3
Interest expense,
net 4.9 4.5 19.9 18.3
-----------------------------------------------------
18.5 16.4 12.8 85.3 57.0 49.6
Unusual items - net
loss (note 5) (2.4) (2.3) (17.9) (0.9)
-----------------------------------------------------
Earnings before
income taxes 16.1 14.1 14.2 67.4 56.1 20.1
Income taxes 2.6 4.3 17.4 12.1
-----------------------------------------------------
Net earnings from
continuing
operations 13.5 9.8 37.8 50.0 44.0 13.6
Net earnings from
discontinued
operations, net
of tax (note 4) - 4.1 5.3 15.2
Gain on sale of
discontinued
operations, net
of tax (note 4) 1.5 - 108.5 -
-----------------------------------------------------
Net earnings 15.0 13.9 163.8 59.2
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Retained earnings,
beginning of period 401.2 262.0 272.7 227.1
Net earnings 15.0 13.9 163.8 59.2
Repurchase of shares - - (10.7) (1.1)
-----------------------------------------------------
416.2 275.9 425.8 285.2
Less dividends:
Class A shares 0.3 0.2 0.9 0.8
Class B shares 2.9 3.0 11.9 11.7
-----------------------------------------------------
3.2 3.2 12.8 12.5
-----------------------------------------------------
Retained earnings,
end of period $ 413.0 $ 272.7 $ 413.0 $ 272.7
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings per share
Class B -
Continuing
operations $ 0.43 $ 0.30 43.3 $ 1.57 $ 1.36 15.4
Discontinued
operations $ - $ 0.13 $ 0.17 $ 0.48
Gain on sale of
discontinued
operations $ 0.05 $ - $ 3.36 $ -
-----------------------------------------------------
Class B -
Net earnings $ 0.48 $ 0.43 $ 5.10 $ 1.84
Class A(x) $ 0.47 $ 0.42 $ 5.05 $ 1.79
-------------------------------------------------------------------------
Diluted earnings
per share
Class B -
Continuing
operations $ 0.41 $ 0.30 36.7 $ 1.52 $ 1.34 13.4
Discontinued
operations $ - $ 0.13 $ 0.16 $ 0.47
Gain on sale of
discontinued
operations $ 0.05 $ - $ 3.29 $ -
-----------------------------------------------------
Class B - Net
earnings $ 0.46 $ 0.43 $ 4.97 $ 1.81
Class A(x) $ 0.45 $ 0.42 $ 4.92 $ 1.76
-------------------------------------------------------------------------
(x) Earnings per class A shares are $0.01 lower than Class B shares for
the fourth quarters ($0.05 year-to-date) for 2004 and 2005.
See notes to interim consolidated financial statements.
Certain 2004 and 2005 figures have been restated (note 4) for
discontinued operations.
CCL INDUSTRIES INC.
2005 Fourth Quarter
Consolidated Balance Sheets
December December
31st 31st
-------------------------------------------------------------------------
(in millions of Cdn dollars) 2005 2004
---------- ----------
Assets
Current assets
Cash and cash equivalents $ 120.2 $ 71.4
Accounts receivable - trade 162.2 194.3
Other receivables and prepaid expenses 20.7 29.5
Inventories 102.1 125.3
----------------------
405.2 420.5
Capital assets 534.7 471.8
Other assets 29.2 38.8
Intangible assets 27.9 27.5
Goodwill 371.9 315.5
-------------------------------------------------------------------------
Total assets $ 1,368.9 $ 1,274.1
-------------------------------------------------------------------------
Liabilities
Current liabilities
Bank advances $ 8.8 $ 39.4
Accounts payable and accrued liabilities 249.4 271.4
Income and other taxes payable 24.3 8.1
Current portion of long-term debt 17.3 19.3
----------------------
299.8 338.2
Long-term debt 376.5 367.7
Other long-term items 42.3 32.3
Future income taxes 84.5 86.9
-------------------------------------------------------------------------
Total liabilities 803.1 825.1
-------------------------------------------------------------------------
Shareholders' equity
Share capital (note 2) 188.7 188.0
Contributed surplus 2.0 0.2
Retained earnings 413.0 272.7
Foreign currency translation adjustment (37.9) (11.9)
-------------------------------------------------------------------------
Total shareholders' equity 565.8 449.0
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 1,368.9 $ 1,274.1
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See notes to interim consolidated financial statements.
Certain 2004 figures have been restated for comparative purposes.
CCL INDUSTRIES INC.
2005 Fourth Quarter
Consolidated Statements of Cash Flows
Three months ended Twelve months ended
December 31st December 31st
-------------------------------------------------------------------------
(in millions of Cdn dollars) 2005 2004 2005 2004
Cash provided by (used for) -------- -------- -------- --------
Unaudited Unaudited
Operating activities
Net earnings $ 15.0 $ 13.9 $ 163.8 $ 59.2
Earnings from discontinued
operations - (4.1) (5.3) (15.2)
Gain on sale of discontinued
operations (1.5) - (108.5) -
Items not requiring cash:
Depreciation and
amortization 16.3 10.5 65.4 54.3
Stock-based compensation 0.5 - 1.8 0.2
Future income taxes (2.9) 4.5 (1.2) 8.1
Unusual items (note 5) 2.4 1.9 17.8 (2.0)
-----------------------------------------------------------------------
29.8 26.7 133.8 104.6
Net change in non-cash
working capital 13.9 27.8 (24.0) 1.1
-----------------------------------------------------------------------
Cash provided by continuing
operations 43.7 54.5 109.8 105.7
Cash provided by (used for)
discontinued operations (0.9) 7.5 2.3 29.3
-----------------------------------------------------------------------
Cash provided by operating
activities 42.8 62.0 112.1 135.0
-------------------------------------------------------------------------
Financing activities
Proceeds on issuance of
long-term debt 3.2 9.4 44.2 9.4
Retirement of long-term debt (11.8) (5.6) (28.5) (20.0)
Increase (decrease) in
bank advances (0.7) (1.3) (26.9) 5.0
Issue of shares 0.8 0.2 4.7 2.3
Repurchase of shares - - (14.1) (1.7)
Purchase of shares held in
trust (note 2) - - (5.5) -
Dividends (3.2) (3.2) (12.8) (12.5)
-----------------------------------------------------------------------
Cash used for financing
activities (11.7) (0.5) (38.9) (17.5)
-------------------------------------------------------------------------
Investing activities
Additions to capital assets (38.0) (29.3) (155.9) (111.7)
Proceeds on disposals - (0.7) 272.8 17.0
Business acquisitions
(note 3) - (2.6) (139.4) (26.9)
Other 7.9 (0.3) 5.7 (2.5)
-----------------------------------------------------------------------
Cash used for investing
activities (30.1) (32.9) (16.8) (124.1)
-------------------------------------------------------------------------
Effect of exchange rate changes
on cash (0.1) (2.5) (7.6) (3.8)
-------------------------------------------------------------------------
Increase (decrease) in cash 0.9 26.1 48.8 (10.4)
Cash and cash equivalents at
beginning of period 119.3 45.3 71.4 81.8
-------------------------------------------------------------------------
Cash and cash equivalents at
end of period $ 120.2 $ 71.4 $ 120.2 $ 71.4
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cash and cash equivalents are defined as cash and short-term investments.
See notes to interim consolidated financial statements.
Certain 2004 and 2005 figures have been restated (note 4) for
discontinued operations.
CCL INDUSTRIES INC.
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Periods ended December 31, 2005 AND 2004
(Tabular amounts in millions of Cdn dollars except share data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The disclosures contained in these unaudited interim consolidated
financial statements do not include all of the requirements of
generally accepted accounting principles for annual financial
statements. The unaudited interim consolidated financial statements
should be read in conjunction with the annual consolidated financial
statements for the year ended December 31, 2004.
The unaudited interim consolidated financial statements are based
upon accounting principles consistent with those used and described
in the annual consolidated statements, except that: starting
January 1, 2005, the Company adopted the Canadian Institute of
Chartered Accountants amendments to Emerging Issues Committee
("EIC") - 144, "Accounting by a Customer (Including a Reseller) for
Certain Consideration Received from a Vendor" related to recording of
vendor rebates by a purchaser. The EIC reached a consensus that the
customer should measure the rebate based on the estimated amount of
the rebate that is expected to be received for the underlying
transactions that have occurred and that result in progress by the
customer toward achieving the specified requirement to receive the
rebate. This change to EIC - 144 did not have a material impact on
the Company. Accounting Guideline - 15, "Consolidation of Variable
Interest Entities", is effective for periods beginning on or after
November 1, 2004. The Guideline did not have any effect on the
Company as it is not party to any variable interest entities.
Comparative figures have been restated to reflect discontinued
operations (note 4) and reclassified where necessary to correspond
with the current period's presentation.
2. SHARE CAPITAL
Issued and outstanding
December December
31, 31,
----------- -----------
2005 2004
----------- -----------
Issued share capital $ 196.1 $ 189.8
Less: Executive share purchase plan loans (1.8) (1.8)
Shares held in trust (5.6) -
-----------------------
Total $ 188.7 $ 188.0
-----------------------
-----------------------
During 2005, the Company granted a restricted share award of 200,000
shares of the Company. 80,000 shares will vest in 2009 dependent on
continuing employment, and 120,000 shares will vest in 2007 dependent
on performance conditions. The Company purchased 200,000 shares in
the open market and has placed them in trust until the restricted
stock is fully vested. The fair value of the restricted share award
is being amortized over the vesting period.
Actual number of shares:
December December
31, 31,
----------- -----------
2005 2004
----------- -----------
Class A 2,422,204 2,439,187
Class B 30,088,789 30,021,756
----------- -----------
Subtotal 32,510,993 32,460,943
Less: Executive share purchase plan shares (150,000) (150,000)
Shares held in trust (200,000) -
-----------------------
Total 32,160,993 32,310,943
-----------------------
-----------------------
December December
31, 31,
----------- -----------
2005 2004
----------- -----------
Year-to-date weighted average number
of shares 32,171,433 32,290,097
-----------------------
-----------------------
Year-to-date weighted average diluted
number of shares 33,010,605 32,848,536
-----------------------
-----------------------
During the year, 0.6 million shares (2004 - 0.1 million) were
repurchased for $14.1 million (2004 - $1.7 million). The excess of
the purchase price over the paid-up capital of $10.7 million (2004 -
$1.1 million) was charged to retained earnings.
3. ACQUISITIONS
In September 2005, the Company purchased Inprint Systems based in
Ashford, England, for $63.4 million, net of cash acquired. Inprint
Systems, through its plants in the Netherlands, United Kingdom, Italy
and the USA, manufactures specialty label products. The Company is
reviewing the valuation of the net assets acquired, including
intangible assets, therefore, certain items disclosed below may
change when the review is completed.
Details of the transaction are as follows :
Current assets $ 10.8
Current liabilities (8.9)
Non-current assets at assigned values 22.9
Long-term liabilities (1.3)
Future taxes (0.6)
Goodwill 40.5
-----------
Net assets purchased $ 63.4
-----------
-----------
Total consideration:
Cash, less cash acquired of $3.5 million $ 63.4
-----------
-----------
In August 2005, the Company purchased the remaining 49% of its
European joint venture, CCL-Pachem. CCL entered the joint venture
with Pachem AG, based in Austria, in 2003, by purchasing a 51%
interest. CCL-Pachem, through its plants in Austria, France and the
United Kingdom, produces pressure-sensitive, shrink sleeve and
in-mould labels for the global market.The Company paid cash of
$6.3 million net of cash acquired, issued 200,000 shares of
restricted shares worth $5.0 million and assumed debt of
$12.1 million as consideration. The restricted shares are price
protected and cannot be sold until December 31, 2008. The Company is
reviewing the valuation of the net assets acquired, therefore,
certain items disclosed below may change when the review is
completed.
Details of the transaction are as follows :
Current assets $ 9.2
Current liabilities (11.9)
Non-current assets at assigned values 15.2
Goodwill 11.3
Long-term liabilities (0.4)
-----------
Net assets purchased $ 23.4
-----------
-----------
Total consideration:
Cash, less cash acquired of $0.4 million $ 6.3
Restricted shares 5.0
Assumed debt 12.1
-----------
$ 23.4
-----------
-----------
In August 2005, the Company purchased the assets of Merroc Ltd. a
privately owned label converter based in Cumbernauld, Scotland.
Details of the transaction are as follows :
Current assets $ 0.2
Non-current assets at assigned values 2.0
-----------
Net assets purchased $ 2.2
-----------
-----------
Total consideration:
Cash $ 2.2
-----------
-----------
In July 2005, the Company purchased the remaining 30% of its U.S.
plastic closure joint venture, CCL Dispensing Systems, LLC for
$3.4 million cash.
Details of the transaction are as follows :
Current assets $ 1.8
Current liabilities (4.3)
Non-current assets at assigned values 3.1
Goodwill 2.8
-----------
Net assets purchased $ 3.4
-----------
-----------
Total consideration:
Cash $ 3.4
-----------
-----------
In January 2005, the Company purchased Steinbeis Packaging based in
Holzkirchen, Germany, for $64.1 million, net of cash acquired. The
purchase price was financed by cash on hand and bridge bank financing
denominated in Euros. In addition, the Company intends to exercise
its option to purchase the Holzkirchen building and land right for
$4.0 million Euros in February 2006. Steinbeis Packaging, through its
plants in the U.S., France, Germany and China, supplies battery
labels on a global basis and provides premium decorative label
solutions for the European consumer products market.
Details of the transaction are as follows :
Current assets $ 34.9
Current liabilities (39.2)
Non-current assets at assigned values 44.8
Long-term liabilities (7.6)
Future taxes (4.6)
Intangible assets 3.7
Goodwill 32.1
-----------
Net assets purchased $ 64.1
-----------
-----------
Total consideration:
Cash, less cash acquired of $4.8 million $ 64.1
-----------
-----------
In July 2004, the Company entered into its joint venture with RAR -
Sociedade de Controle (Holding), S.A., (RAR), based in Portugal. This
transaction merged CCL's Custom Manufacturing European operations
with COLEP - Embalagens, Produtos, Enchimentos e Equipamentos, S.A.,
a wholly owned subsidiary of RAR. CCL contributed each of its plants
in the U.K. and Germany, and cash of $22.6 million for its 40%
interest in the joint venture. RAR contributed each of its plants
located in Portugal and Poland, and its two in Spain for its 60%
interest in the joint venture. This new European entity, ColepCCL,
Embalagens e Enchimentos S.A., is a contract manufacturer servicing
the personal care, cosmetic, over-the-counter medication and
household care products industries. In addition, it is a manufacturer
of metal packaging. As a joint venture, the investment is accounted
for using proportionate consolidation and the gain on transfer of net
assets to the joint venture is deferred. The cost of the acquisition
includes $3.9 million accrued in relation to the closure of one of
the Spanish plants that occurred in the 2005.
Details of the transaction are as follows :
Current assets $ 46.9
Current liabilities (28.0)
Non-current assets at assigned values 45.7
Future income taxes (5.4)
Intangible assets, primarily customer contracts and
relationships 10.8
Goodwill 37.5
-----------
Net assets purchased $ 107.5
-----------
-----------
Cash, including net cash disposed $1.3 million $ 23.9
Net book value of net assets contributed (60%) 49.9
Assumed debt 33.7
-----------
Total consideration $ 107.5
-----------
-----------
In July 2004, the Company purchased Graphiques Apex Inc., based in
Boucherville, Quebec, a manufacturer of instructional leaflets for
leading companies in the pharmaceutical industry, for $3.2 million in
cash and assumed debt of $0.8 million.
Details of the transaction are as follows :
Current assets $ 1.5
Current liabilities (1.0)
Non-current assets at assigned values 1.3
Goodwill 2.2
-----------
Net assets purchased $ 4.0
-----------
-----------
Cash $ 2.9
Note payable 0.3
Assumed debt 0.8
-----------
Total consideration $ 4.0
-----------
-----------
4. DISCONTINUED OPERATIONS
In May 2005, the Company sold its North American Custom Manufacturing
Division for $272.8 million in cash to KCP Income Fund, a Toronto
based contract manufacturer of private label household products. The
sale resulted in a gain of $131.0 million ($108.5 million after tax).
The disposition is reported as discontinued operations and the
results are as follows:
Three months ended Twelve months ended
December 31st December 31st
---------------------------------------------------------------------
2005 2004 2005 2004
-------- -------- -------- --------
Sales from discontinued
operations $ - $ 151.5 $ 246.8 $ 604.6
-----------------------------------------
Income before undernoted
items - 10.2 14.0 39.8
Depreciation and
amortization - 3.4 5.1 14.1
Interest expense, net - 0.7 1.0 3.2
-----------------------------------------
Earnings before income
taxes $ - $ 6.1 $ 7.9 $ 22.5
Income taxes - 2.0 2.6 7.3
-----------------------------------------
Net earnings from
discontinued operations $ - $ 4.1 $ 5.3 $ 15.2
-----------------------------------------
Gain on sale of
discontinued operations $ 1.5 $ - $ 108.5 $ -
---------------------------------------------------------------------
Interest expense is reported in discontinued operations by the
allocation of total interest expense based on the ratio of net assets
sold to total net assets. Income tax expense has been based on the
effective income tax rate in the local country.
The Company has indemnified the purchasers against defined claims
from the past conduct of the business. It is not possible to quantify
the maximum potential liability in relation to the indemnities,
however, the Company has made a provision for estimated
indemnification claims. During the three months ended December 31,
2005, certain adjustments were made to these provisions resulting in
additional gain of $1.2 million ($1.5 million net of tax benefit).
5. UNUSUAL ITEMS
Three months ended Twelve months ended
December 31 December 31
Division 2005 2004 2005 2004
-------- -------- -------- -------- --------
Impairment in
non-operational
property ColepCCL $ (1.4) $ - $ (1.4)
Mexico
Container
business
restructuring
and asset
write-down Container - - (3.8) -
Impairment of
IntraPac L.P.
investment Corporate (1.0) - (12.7) -
Repatriation
of capital Corporate - (1.0) (1.0)
Sale of Leeds
property Label - (1.3) - 7.4
Plastic
Packaging
business
restructuring
and asset
write-down Container - - - (9.6)
Label Division
asset
write-down Label - - - (2.1)
Sale of Winnipeg
business Label - - - 4.4
-----------------------------------------
Loss $ (2.4) $ (2.3) $ (17.9) $ (0.9)
-----------------------------------------
-----------------------------------------
Tax recovery on
unusual items $ - $ 0.4 $ 0.1 $ 2.9
-----------------------------------------
-----------------------------------------
In December 2005, the Company provided for its share of an impairment
in a ColepCCL non-operational property in the amount of $1.4 million
with no tax benefit.
In June 2005, the Company completed an evaluation of its Plastic
Packaging business within the Container Division in Mexico and
recorded a provision for impairment of related capital assets and
inventory write-downs that amounted to $3.8 million, with no tax
benefit.
In June 2005, the Company provided for an impairment of its equity
investment in IntraPac L.P. in the amount of $12.7 million
($12.6 million after tax). The investment was sold in October 2005
and the estimated loss on disposal was adjusted.
In November 2004, the Company repatriated capital from certain
foreign operations, which resulted in a net foreign exchange loss of
$1.0 million. Gains and losses arise from the difference between the
exchange rate in effect on the date the capital was returned to
Canada compared to the historical rate in effect when the capital
was invested. These gains or losses on foreign exchange did not give
rise to any tax effect.
In September 2004, the Company sold its Leeds, U.K. property for
$11.1 million cash and realized a gain of $7.4 million ($5.9 million
after tax) net of $1.3 million ($0.9 million after tax) in moving
costs incurred in the fourth quarter to relocate the Leeds plant.
In September 2004 the Company recorded provisions for restructuring
and capital assets and inventory write-downs within its Plastic
Packaging business which is under new management that amounted to
$9.6 million ($6.0 million after tax). Capital asset write-downs
related to assets no longer in use and assets to be sold within six
months at their fair value of $1.2 million.
In September 2004 the Company recorded capital asset write-downs
within its Label Division for $2.1 million ($1.3 million after tax)
relating to assets no longer in use.
In July 2004, the Company sold its label manufacturing business in
Winnipeg, Manitoba to a privately held company for $7.2 million. The
gain on this disposition was $4.4 million and did not give rise to
any tax effect due to the utilization of capital losses carried
forward.
6. EMPLOYEE FUTURE BENEFITS
The expense for the defined benefit plans in the fourth quarter is
$0.3 million (2004 - $0.4 million) and year-to-date $1.5 million
(2004 - $1.4 million). In addition, the second quarter gain on
disposal of discontinued operations included $1.3 million of
settlement losses.
7. INCOME TAXES
As a result of the gain realized on the sale of the North American
Custom Manufacturing Division, the Company reduced its valuation
allowance against tax losses carried forward by $4.3 million in the
second quarter.
8. SEGMENTED INFORMATION
Industry segments
As a result of the disposal of the North American Custom
Manufacturing Division, the Custom segment consists of the European
Custom Manufacturing business now conducted through the ColepCCL
joint venture.
Three months ended December 31st
---------------------------------------------------------------------
Sales Operating income
----------------------------------------------
2005 2004 2005 2004
---------- ---------- ---------- ----------
Restated Restated
-------- --------
Note 4 Note 4
------ ------
Label 175.3 119.8 15.2 15.9
Container 65.2 53.3 6.4 4.2
ColepCCL/Custom
Manufacturing Europe $ 41.9 $ 48.1 $ 2.8 $ 2.6
----------------------------------------------
Total operations $ 282.4 $ 221.2 24.4 22.7
----------------------
Corporate expense (1.0) (1.8)
----------------------
23.4 20.9
Interest expense, net 4.9 4.5
----------------------
18.5 16.4
Unusual items - net loss (2.4) (2.3)
----------------------
Earnings before income
taxes 16.1 14.1
Income taxes 2.6 4.3
----------------------
Net earnings from
continuing operations 13.5 9.8
Net earnings from
discontinued
operations, net of tax - 4.1
Gain on sale of
discontinued
operations, net of tax 1.5 -
----------------------
Net earnings $ 15.0 $ 13.9
---------------------------------------------------------------------
---------------------------------------------------------------------
Twelve months ended December 31st
---------------------------------------------------------------------
Sales Operating income
----------------------------------------------
2005 2004 2005 2004
---------- ---------- ---------- ----------
Restated Restated
-------- --------
Note 4 Note 4
------ ------
Label 669.0 505.5 72.7 55.0
Container 253.5 212.7 26.6 17.2
ColepCCL/Custom
Manufacturing Europe $ 187.6 $ 195.7 $ 15.9 $ 10.6
----------------------------------------------
Total operations $ 1,110.1 $ 913.9 115.2 82.8
----------------------
Corporate expense (10.0) (7.5)
----------------------
105.2 75.3
Interest expense, net 19.9 18.3
----------------------
85.3 57.0
Unusual items - net loss (17.9) (0.9)
----------------------
Earnings before income
taxes 67.4 56.1
Income taxes 17.4 12.1
----------------------
Net earnings from
continuing operations 50.0 44.0
Net earnings from
discontinued
operations, net of tax 5.3 15.2
Gain on sale of
discontinued
operations, net of tax 108.5 -
----------------------
Net earnings $ 163.8 $ 59.2
---------------------------------------------------------------------
---------------------------------------------------------------------
---------------------------------------------------------------------
---------------------------------------------------------------------
Identifiable Assets Goodwill
------------------- --------
December December December December
31st 31st 31st 31st
2005 2004 2005 2004
---------- ---------- ---------- ----------
Label 756.2 512.6 276.7 198.1
Container 295.2 261.7 53.1 51.5
ColepCCL/Custom
Manufacturing $ 163.3 $ 411.9 $ 42.1 $ 65.9
Corporate 154.2 87.9 - -
----------------------------------------------
Total $ 1,368.9 $ 1,274.1 $ 371.9 $ 315.5
---------------------------------------------------------------------
---------------------------------------------------------------------
---------------------------------------------------------------------
---------------------------------------------------------------------
Depreciation & Amortization Capital Expenditures
--------------------------- --------------------
Twelve months ended Twelve months ended
December 31st December 31st
------------------- -------------------
2005 2004 2005 2004
---------- ---------- ---------- ----------
Continuing operations
---------------------
Label 39.1 28.6 96.0 46.7
Container 17.8 17.7 45.8 44.9
ColepCCL/Custom
Manufacturing $ 7.8 $ 6.9 $ 10.4 $ 19.8
Corporate 0.7 1.1 3.7 0.3
----------------------------------------------
Total $ 65.4 $ 54.3 $ 155.9 $ 111.7
---------------------------------------------------------------------
---------------------------------------------------------------------
9. SUBSEQUENT EVENT
On January 11, 2006, the Company announced its purchase of Prodesmaq,
based in Vinhedo, Brazil. Prodesmaq, through its two state-of-the-art
plants, is a leading supplier in Brazil of pressure-sensitive labels
for many global companies in the home and personal care, healthcare
and premium food and beverage markets. The purchase price is
approximately $64 million on a debt-free basis.
On January 24, 2006, the Company announced the sale of CCL Dispensing
Systems, LLC, its dispensing closure business based in Libertyville,
Illinois. The sale price is approximately $24 million cash.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Fourth Quarters ended December 31, 2005 and 2004
This document has been prepared for the purpose of providing Management's
Discussion and Analysis (MD&A) of the financial condition and results of
operations for the three and twelve month periods ended December 31, 2005 and
2004 and an update to the 2004 Annual MD&A document. The information in this
interim MD&A is current to February 16, 2006 and should be read in conjunction
with the Company's December 31, 2005 unaudited fourth quarter financial
statements released on February 16, 2006 and the 2004 Annual MD&A document,
which forms part of the CCL INDUSTRIES INC. 2004 Annual Report, dated
February 10, 2005.
The financial statements have been prepared in accordance with Canadian
generally accepted accounting principles and in accordance with the
requirements of section 1751 of the CICA Handbook. Unless otherwise noted,
both these financial statements and this interim MD&A are expressed in
Canadian dollars as the reporting currency. The measurement currencies of
CCL's operations are primarily the Canadian dollar, the U.S. dollar, the Euro,
the Danish krone, the U.K. pound sterling, the Mexican peso, the Thailand
baht, the Chinese renminbi and the Polish zloty. CCL's Audit Committee and its
Board of Directors have reviewed this interim MD&A to ensure consistency with
the current approved strategy and actual results of the Company.
Management's Discussion and Analysis contains forward-looking statements,
including statements concerning possible or assumed future results of
operations of the Company. Forward-looking statements typically are preceded
by, followed by or include the words "believes", "expects", "anticipates",
"estimates", "intends", "plans" or similar expressions. Forward-looking
statements are not guarantees of future performance. They involve risks,
uncertainties and assumptions, including, but not limited to: the impact of
competition; consumer confidence and spending preferences; general economic
conditions; currency exchange rates; and CCL's ability to attract and retain
qualified employees and, as such, the Company's results could differ
materially from those anticipated in these forward-looking statements.
Overview of Business Conditions
-------------------------------
The markets in which CCL's customers operate have continued to be
generally positive through the fourth quarter of 2005. CCL has experienced
modest growth in most of its product categories in line with its customers'
performance. Higher energy and commodity costs on consumers and the supply
chain continue to have an impact but despite these forces, the economy
continues to grow. The Federal Reserve continues to raise short-term interest
rates in the United States in its attempt to soften the impact of potential
inflation, the weakening of the U.S. dollar and the U.S. trade and fiscal
deficits. Europe is experiencing a somewhat weaker economy overall, although
there appear to be signs of improvement, despite substantially lower and more
stable interest rates while Asian markets continue to grow rapidly.
Most of CCL's international marketing customers have been benefiting from
higher sales volumes than last year. As a result, CCL has experienced good
growth in a number of specific product categories and regions. Overall,
customer demand for CCL's products softened slightly in the fourth quarter of
2005 compared to prior quarters. The month of December was affected in
particular by lengthy plant shutdowns during the holiday season in certain
countries for CCL and its customers. With all of the acquisitions in the last
year primarily outside of North America and in many new product categories,
the seasonality of CCL's business continues to change. However, the first
quarter of 2006 appears overall to be off to a strong start.
The impact of higher material prices on our customers' products and the
supply chain's ability to access raw materials continues to be a major
challenge. All CCL business units are direct or indirect users of
hydrocarbon-based commodities and energy. The costs of many raw materials used
to manufacture CCL's products have recently reached all-time highs. Management
has been able to generally control these costs and maintain profit margins
with price increases to customers. Managing these record high input costs and
the timing and size of negotiated customer selling price increases in
response, will continue to be a cause for concern and diligence in 2006.
The current demand for new and existing products in CCL's aluminum
container business persists and despite additional new manufacturing capacity,
is still surpassing our ability to supply our customers in a satisfactory
manner. However, order backlogs have come down over the last few months due to
our higher production output and some reduction in order intake in certain
products and in specific sizes. This lower demand has also reduced the need to
outsource certain production to other suppliers in support of our customers.
The Plastic Packaging business unit of the Container Division is experiencing
a steady turnaround in sales volumes with good unit volume growth in the last
quarter of 2005. The Label business continues to enjoy good volume growth as
customers are expanding product lines and realizing the benefits of our
international network as they roll out products on a worldwide basis. CCL's
40% owned joint venture, ColepCCL, which was formed in July 2004, is
maintaining good volume levels in most categories, although certain product
lines have seen some weakness in the fourth quarter. Further details on
divisional sales trends can be found later in this report.
Review of Consolidated Continuing Operations
--------------------------------------------
Sales for the fourth quarter of 2005 of $282.4 million were 28% ahead of
the $221.2 million recorded in the fourth quarter of 2004 for continuing
operations, while sales for the full year 2005 of $1,110.1 million were 22%
ahead of last year's $913.9 million. Financial comparisons to the prior year's
results have continued to be negatively affected by the appreciation of the
Canadian dollar relative to the U.S. dollar, the Euro, and most other
currencies. In addition, business acquisitions have impacted the comparison to
prior periods. Sales increased for the quarter by 34% (year-to-date 28%) due
to acquisitions and organic growth, partially offset by a decrease of 6%
(year-to-date 6%) due to foreign exchange. On a comparative basis with last
year's fourth quarter, sales volumes increased in all Divisions with the
exception of ColepCCL where volumes were similar to the prior year level.
The following acquisitions, divestitures and merger affected financial
comparisons in the fourth quarter and in the year 2005:
On July 12, 2004, CCL completed the merger of its European Custom
Manufacturing operations with COLEP Europe to create the largest contract
manufacturing company in Europe of personal care, cosmetic and
over-the-counter medication and household care products. COLEP contributed its
four contract manufacturing plants including its metal packaging business to
the joint venture and CCL contributed its two European plants and $24 million
to acquire a 40% investment in the joint venture named ColepCCL. CCL is
proportionately consolidating its interest in the joint venture.
Also in July 2004, the Label Division acquired Graphiques Apex Inc.
located in Boucherville, QuDebec for $4 million and divested its non-core
Winnipeg label business for $7 million.
On January 31, 2005, the Label Division acquired Steinbeis Packaging,
based in Holzkirchen, Germany for $64 million. Steinbeis supplies battery
labels on a global basis and produces premium decorative label solutions for
the European consumer products market.
Effective July 1, 2005, the Plastic Packaging unit acquired the remaining
30% of CCL Dispensing Systems that it did not already own for $3 million.
On August 2, 2005, the Label Division acquired the remaining 49% of the
CCL-Pachem European joint venture for $23 million including debt assumed and,
in addition, purchased the assets of Merroc Ltd., a label converter located in
Cumbernauld, Scotland for $2 million.
On September 13, 2005, the Label Division acquired the business of
Inprint Systems headquartered in Ashford, England with plants in the United
Kingdom, the Netherlands, Italy and the USA for approximately $63 million.
Net earnings from continuing operations for the fourth quarter of 2005 of
$13.5 million were up by 38% from the $9.8 million recorded in the fourth
quarter of 2004. Net earnings were impacted by a net loss from unusual items
of $2.4 million before tax ($2.4 million after tax) in the fourth quarter of
2005 versus a net loss from unusual items of $2.3 million before tax
($1.9 million after tax) in the fourth quarter of 2004. Operating income
improved from last year's fourth quarter by 8% due to a substantially stronger
performance in the Container Division (in both the Aluminum Container and
Plastic Packaging units), and slightly higher income from the ColepCCL joint
venture in 2005 than 2004 and a lower tax rate. These improvements were partly
offset by the negative effect of currency translation and transactions due to
the depreciation of the U.S. dollar and the Euro relative to the Canadian
dollar.
Net interest expense allocated to continuing operations was $0.4 million
higher than last year in the quarter due in part to higher floating interest
rates. Since the sale of the North American Custom Manufacturing Division
("Custom") in mid-May, all interest expense and the interest income received
on the cash from the sale of Custom are included in continuing operations.
Corporate expenses for the quarter were $0.8 million lower than last year. The
overall effective income tax rate for continuing operations was 16% for the
quarter compared to 30% in the fourth quarter of 2004 due in part to the
unusual items. The tax rate is lower in this year's fourth quarter due to
significant earnings improvements in countries with lower tax rates, the
utilization of a previously unrecognized tax-loss carry forward, and a
reduction in effective tax rates in certain jurisdictions.
For the full year 2005, net earnings from continuing operations were
$50.0 million, up 14% from the $44.0 million in 2004. Net earnings for full
year 2005 were affected by the unusual losses of $17.9 million ($17.8 million
after tax). For 2004, net earnings were affected by a net loss from unusual
items of $0.9 million before tax (gain of $2.0 million after tax, due to the
non-taxable nature of certain gains). Operating income for the year improved
in all divisions, compared to 2004, but was partially offset by the negative
effect of currency translation and transactions due to the weaker U.S. dollar
and Euro.
Net interest expense allocated to continuing operations before unusual
items for the year was up $1.6 million compared to last year, due to higher
floating interest rates. The tax rate for continuing operations for the year
was 26% but would have been 32% excluding the benefit ($4.3 million) of
utilizing previously unrecognized tax losses as a result of the gain on the
disposition of Custom in the second quarter. The tax rate for continuing
operations for 2004 was 22%. The tax rate is higher this year due primarily to
the unusual items in both years. This tax rate is lower than the combined
Canadian federal and provincial tax rates of 34.1% for the year 2005 due to
the benefit of lower tax rates in foreign subsidiaries net of income and
expense items not subject to tax expense or tax recovery.
Earnings from continuing operations per Class B share were $0.43 in the
fourth quarter of 2005 compared to the $0.30 earned in the same period last
year, an increase of 43%. Unusual items in 2005 decreased the fourth quarter's
earnings per Class B share by $0.07, while in the fourth quarter of 2004
unusual items also decreased earnings per Class B share by $0.07. For
comparative purposes, if the unusual items were excluded, net earnings from
continuing operations increased by 38% in the fourth quarter 2005 versus a
very strong fourth quarter in 2004. The impact of the unusual items on a per
share basis is measured by dividing the after-tax income of the unusual items
by the average number of shares outstanding in the relevant period. Management
will continue to disclose the impact of significant unusual items on its
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 divisions before the effect of unusual items. Diluted
earnings per Class B share were $0.02 lower than the basic earnings per
Class B share in the fourth quarter of 2005 but diluted earnings and basic
earnings for the fourth quarter 2004 were equivalent.
For the full year 2005, earnings from continuing operations per Class B
share were $1.57 compared to $1.36 in 2004, a 15% increase from the previous
year. Unusual items reduced earnings per share by $0.55 for the full year 2005
but was partially offset by the tax benefit from unrecognized tax losses that
positively impacted earnings per share by $0.13 for 2005. Unusual items in the
full year 2004 increased earnings per Class B share by $0.06. Diluted earnings
per Class B share from continuing operations were $0.05 lower than the basic
earnings for 2005 and $0.02 lower on the same comparative basis for 2004.
There were three unusual items in 2005 for a total loss of $17.9 million
($17.8 million after tax) as follows:
- IntraPac LP - in 2003, the Company sold four non-core business
units in its Container Division to IntraPac L.P. for $71.5 million
and retained a 50% equity interest. The value of this equity
interest had been impaired and had been written-down by
$11.7 million ($11.6 million after tax) to its net expected
realizable value in the second quarter of 2005. In October 2005,
CCL divested all of its interest in IntraPac L.P. primarily in
exchange for certain real estate of the business. There was a
further unusual loss recorded on this transaction in the fourth
quarter based on final settlement of $1.0 million with no tax
benefit.
- ColepCCL property held for sale - in the fourth quarter of 2005,
the Company wrote down its share of the value of a property held
for sale in ColepCCL by $1.4 million with no tax benefit.
- Mexico Plastic Container - the Company restructured its Mexican
Plastic Container business in the second quarter of 2005, giving
rise to the impairment of certain equipment and inventory
write-downs. This unusual expense was $3.8 million with no tax
benefit recognized.
The earnings impact of these unusual items was $0.55 per Class B share
for the full year 2005.
The unusual items in the fourth quarter of 2004 were a loss of
$2.3 million ($1.9 million after tax). This loss consisted of the relocation
of the Leeds, U.K. facility to a new facility in Wakefield, U.K. of
$1.3 million ($0.9 million after tax) and a foreign exchange loss on capital
repatriated from foreign subsidiaries of $1.0 million with no tax benefit.
Earnings per Class B share for the year 2005 were $5.10 compared to $1.84
earned in 2004, an increase of 177%. Diluted earnings per Class B share were
$4.97 in 2005 and $1.81 in 2004.
On May 17, 2005, CCL completed the sale of Custom to KCP Income Fund for
$273 million in cash, resulting in an after-tax gain of $107.0 million. In the
fourth quarter of 2005, the resolution of certain contingency items that were
originally provided for on the sale were settled with a net after tax gain of
$1.5 million, increasing the total gain on the sale to $108.5 million. This
transaction completed the transformation of CCL into a focused specialty
packaging company. The proceeds of the sale are continuing to fund the
expansion of CCL's higher growth Label and Container businesses through
further accretive acquisitions and capital spending for organic internal
growth and technology enhancements.
CCL has recorded this divestiture as a Discontinued Operation and
consequently, the sales and income contribution from Custom have been excluded
from the disclosure of Continuing Operations.
The following table is presented to provide context to the change in the
Company's business in 2005 as a result of the sale of Custom. CCL's strategy
is to replace the income previously generated by Custom. The plan to replace
this income by the end of 2006 includes investing in its existing businesses
by capital expenditures and accretive acquisitions, generating interest income
on the cash proceeds from the sale, paying down debt and potentially
repurchasing stock at appropriate prices. The progress of the replacement of
the Custom income is of primary importance to our shareholders and the
financial community. This progress is measured based on earnings per Class B
share from the following table. The gain from the sale of the Custom business
in 2005 is excluded for this purpose. If the net negative impact of unusual
items and the tax benefit from previously unrecognized tax losses is excluded
from these results, there is meaningful improvement over the prior year
performance.
(in Canadian dollars)
---------------------
Three Months Full Year
--------------------------------------
Earnings per Class B shares 2005 2004 2005 2004
---------------------------
From Continuing Operations $ 0.43 $ 0.30 $ 1.57 $ 1.36
From Discontinued Operations - $ 0.13 $ 0.17 $ 0.48
Net (loss) gain from Unusual Items
and Tax Benefit included in
Continuing Operations $(0.07) $(0.07) $(0.42) $ 0.06
--------------------------------------
The sale of Custom required a restatement of results including allocating
certain costs between Continuing and Discontinued Operations. Interest expense
was allocated based on the ratio of the net assets employed in the business
(not the proceeds from the sale) to the total net assets of CCL. The income
tax expense was based on Custom operating as an independent business in Canada
and the USA and incurring income tax at the appropriate federal, provincial
and state tax rates.
The following is selected financial information for the eight most
recently completed quarters.
(in millions of Canadian dollars, except per share amounts)
-----------------------------------------------------------
Qtr 1 Qtr 2 Qtr 3 Qtr 4 Total
----- ----- ----- ----- -----
Sales - Continuing
Operations
2005 $ 265.7 $ 280.1 $ 281.9 $ 282.4 $1,110.1
2004 240.7 232.0 220.0 221.2 913.9
Net earnings -
Continuing Operations
2005 16.1 5.1 15.3 13.5 50.0
2004 11.5 9.1 13.6 9.8 44.0
Net earnings
2005 19.7 113.8 15.3 15.0 163.8
2004 14.8 11.9 18.6 13.9 59.2
Net earnings per
Class B share
Continuing Operations
Basic
2005 $ 0.50 $ 0.16 $ 0.48 $ 0.43 $ 1.57
2004 0.36 0.28 0.42 0.30 1.36
Diluted
2005 0.49 0.16 0.46 0.41 1.52
2004 0.35 0.27 0.42 0.30 1.34
Net earnings per
Class B share
Basic
2005 0.61 3.53 0.48 0.48 5.10
2004 0.46 0.37 0.58 0.43 1.84
Diluted
2005 0.60 3.45 0.46 0.46 4.97
2004 0.45 0.36 0.57 0.43 1.81
Unusual items and
one-time tax benefit
and gains
2005 - 2.96 - (0.02) 2.94
2004 - - 0.13 (0.07) 0.06
-------------------------------------------------------------------------
The impact on net earnings per Class B share of unusual items and the
gain on sale of Custom in 2005 are included in the table above. Net earnings
per Class B share have fluctuated significantly due to these items.
Nearly 90% of CCL's sales from continuing operations are generated
outside of Canada in foreign currencies and are then translated into Canadian
dollars for reporting purposes. The United States dollar is the functional
currency for 40% of CCL's total sales from continuing operations and it
depreciated 4% on average compared to the Canadian dollar in the fourth
quarter 2005 versus last year's fourth quarter. In addition, European
currencies are now the measurement currencies for 43% of CCL's sales and the
Euro has substantially weakened by 12% compared to the Canadian dollar versus
the prior year quarter. Changes in foreign exchange rates have reduced
earnings per share from continuing operations due to currency translation by
$0.03 in the fourth quarter compared to 2004 and $0.11 year-to-date.
Additionally, CCL has a hedging program to lock in a portion of its
expected U.S. dollar revenues earned in Canada. These hedge transactions were
at an average rate of $1.35 (US$ 2.0 million sold forward) for the fourth
quarter of 2004 but, due to the decline in the U.S. dollar over the last year,
the average rate on the 2005 hedges was $1.23 (US$ 6.8 million sold forward)
for the fourth quarter of 2005. The change in the rates on U.S. currency
transactions reduced comparative income for continuing operations by
$0.9 million in the fourth quarter of 2005 ($3.1 million for the full year)
and reduced comparative earnings per share by $0.03 for the quarter ($0.09 for
the full year). In addition, during the second quarter of 2005, the Company
cancelled foreign exchange contracts for the Custom business at a cost of
$0.9 million, which was expensed against the gain on disposition. As at
December 31, 2005, outstanding foreign exchange contracts for 2006 had a
positive fair value of $1.2 million.
Net interest expense for continuing operations was $4.9 million for the
fourth quarter of 2005, up from $4.5 million from the comparable period last
year due to higher floating interest rates. However, the depreciation of the
U.S. dollar and the Euro partially offset this increase as CCL's borrowings
are primarily denominated in U.S. dollars in the form of private placements
from U.S. institutional investors. Net interest expense is net of interest
earned on both short-term investments and interest rate swaps. The Interest
Rate Swap Agreements ("IRSA") have had the effect of converting U.S. dollar
fixed rate debt into U.S. dollar floating rate debt. The Company is also
amortizing a gain realized on the sale of an IRSA in 2001. In addition, the
Company entered into two Cross Currency Interest Rate Swap Agreements
("CCIRSA") in June 2005 that had the effect of converting U.S.$ 68.5 million
dollar fixed rate debt into Euro floating rate debt for a notional amount of
56.6 million Euros. These two CCIRSA's reflect the terms of the Company's
existing U.S. dollar borrowings and are a hedge against CCL's European
investments and cash flow. The CCIRSA's expire in 2010 and 2012.
The unrealized loss on all of the above agreements as at December 31,
2005 amounted to approximately $1.5 million. The effect of these four IRSAs
and two CCIRSA's has been to reduce interest expense by $0.8 million in the
fourth quarter of 2005 compared to a reduction of $1.3 million in the fourth
quarter of 2004. For the year, the impact was a reduction of $3.5 million in
2005 and $6.6 million in 2004. Interest coverage (defined as operating income
before unusual items and net interest expense divided by net interest expense
calculated on a 12-month rolling basis) improved to 5.5 times in 2005 compared
to 4.7 times in 2004.
The Company's financial position is very solid. As of December 31, 2005,
cash and cash equivalents amounted to $120 million compared to $71 million at
December 31, 2004. Net debt amounted to $282 million at December 31, 2005,
$73 million lower than the net debt of $355 million at the end of 2004. The
decrease in net debt since December 31, 2004 is primarily due to the Custom
divestiture offset in part by the previously noted acquisitions and capital
spending. Capital spending in the fourth quarter of $38.0 million compared to
$29.3 million last year. The major capital expenditures in the fourth quarter
were for further payments on the two production lines and the plant expansion
in the Container Hermitage operation, many new presses for the Label Division,
and new plant installations and equipment in Poland, Thailand and China.
Working capital decreased $13.9 million in the fourth quarter of 2005 due to
the typical seasonal slowdown during the holiday season. The reduction in the
fourth quarter of 2004 was $27.8 million.
In June 2005, the Company announced its intention to acquire, via a
Normal Course Issuer Bid ("Bid"), up to 10,000 Class A voting shares and
2,100,000 of its issued and outstanding Class B non-voting shares between
June 16, 2005 and June 15, 2006. This Bid represents 0.4% of the issued and
outstanding Class A shares and 9.8% of the public float of the Class B shares.
As of today's date, no shares have been acquired under this Bid. Under its
previous Bid that expired on May 24, 2005, the Company repurchased 2,200
Class A shares and 658,500 Class B shares at an average price of $23.91 per
share in the 12-month period. During the second quarter of 2005, the Company
repurchased 560,000 Class B shares under the previous Bid at an average price
of $25.16.
During the fourth quarters of 2005 and 2004, the Company generated cash
from all operations of $42.8 million and $62.0 million, respectively. The
reduction is primarily due to less cash provided by working capital in 2005
($13.9 million) compared to 2004 ($27.8 million). In 2004, seasonal working
capital reduced significantly in the discontinued Custom business. In
addition, $38.0 million was spent on capital additions in the fourth quarter
versus $29.3 million last year as described earlier. This level of capital
spending was higher than the $16.3 million of depreciation and amortization in
the fourth quarter of 2005.
Net debt to total capitalization, defined as net debt divided by net debt
plus shareholders' equity, at December 31, 2005 was 33.3%, down from 44.2% at
the end of 2004 primarily due to the Custom sale. Book value per share,
defined as shareholders' equity divided by total period end shares, was $17.63
at the end of the fourth quarter of 2005, 27% above $13.89 at year-end 2004.
The increase is primarily the result of earnings retained in the Company,
including the significant gain on the sale of Custom offset in part by the
reduction in shareholders' equity due to the foreign currency translation
adjustment.
Discussion of Divisional Business Segments
------------------------------------------
Label
-----
Sales for the Label Division of $175.3 million for the fourth quarter
were up 46% from $119.8 million in the same quarter last year. For the year
2005, sales were $669.0 million in 2005, up 32% from the $505.5 million of the
comparable prior year period. Sales increased for the quarter by 46% (for the
year 32%) split between acquisitions of 47% (30% for the year) and organic
growth of 6% (9% for the year) partially offset by foreign exchange of 7% (7%
for the year).
Sales growth in the fourth quarter was predominantly due to the
Steinbeis, Inprint and Pachem acquisitions, but the business also experienced
a continuation of the positive volume trends in its other businesses seen
since late last year. North American personal care volume was slightly ahead
of last year for the quarter, with continued improvements in Mexico. Sales to
two major customers were lower than expectations as they ran down inventories
in preparation for two re-launches of major brands in the first half of 2006.
Specialty products in local currency were slightly ahead of last year's fourth
quarter with good growth in agricultural chemical labels partially offset by a
slow promotional label market. The North American healthcare business recorded
strong sales growth, particularly in inserts, as the business has made good
advances with customers in the pharmaceutical industry.
In Europe, sales were disappointing in personal care compared to last
year, but there was good growth in food and beverage, primarily in shrink
sleeves. Healthcare volume was soft but the recently acquired battery business
showed strong performance. The Steinbeis, Merroc, and Inprint acquisitions
along with the increased ownership of Pachem significantly improved CCL's
European position in all categories. Sales in Thailand were over 20% ahead of
last year with further growth expected, and the plant in Hefei, China
performed well. Product is now being shipped from CCL's new plant in Poznan,
Poland with new personal care volume expected, and the Guangzhou, China
operation will commence trading in the first quarter of 2006. The business
continues to benefit from its international presence dealing with large
multinational customers. There are many new opportunities for growth in the
developing countries and from new product introductions.
Operating income for the fourth quarter of 2005 was $15.2 million, down
4% from the $15.9 million in the exceptionally profitable fourth quarter of
2004. Operating income was negatively affected by currency translation, an
executive severance, and non-recurring acquisition related charges. Operating
income as a percentage of sales at 8.6% continues to meet our internal targets
if the non-recurring items were excluded. For the 2005 year, operating income
was $72.7 million versus $55.0 million last year, up 32%. Operating income as
a percentage of sales was 10.9% for the 2005 year, equal to the 2004 level.
CCL acquired Inprint Systems on September 13, 2005 for approximately
$63 million in cash. Inprint, based in Ashford, England, primarily produces
specialty healthcare labels and rounds out CCL's European presence in this
business with plants in England, the Netherlands, Italy and the USA. At the
beginning of August 2005, the Label Division acquired the 49% of the
Austrian-based CCL-Pachem joint venture it did not already own for
$23 million, paid in a combination of cash, 200,000 CCL Class B shares and
debt assumed. At the same time, CCL also acquired the assets of Merroc Ltd.
located in Cumbernauld, Scotland for $2 million in cash. Merroc provides
leading European paint manufacturers with pressure-sensitive colour chip
labels.
The Steinbeis Packaging business was acquired by CCL on January 31, 2005
for approximately $64 million in cash. The transaction was paid for with cash
on hand and a bridge bank line of credit. Steinbeis Packaging, based in
Germany, supplies battery labels on a global basis and provides premium
product decorating solutions for the European consumer products market.
Steinbeis' plants are located in Germany, France, the United States and China.
Incremental sales and operating income in the fourth quarter for the
above noted four acquisitions were $56.3 million and $5.1 million,
respectively.
In July 2004, the Division acquired Graphiques Apex Inc. in Boucherville,
QuDebec for $4 million to expand its healthcare offerings. Also, in the
beginning of July 2004, the non-core Winnipeg business was sold for
$7 million.
In January 2006, the Label Division acquired the label converting assets
of Prodesmaq and its subsidiaries for approximately $64 million in cash on a
debt-free basis. Prodesmaq is Brazil's largest supplier of pressure-sensitive
labels in the home and personal care, healthcare and premium food and beverage
categories. In the 2005 year, Prodesmaq had sales of $37 million and operated
with exceptional profit margins.
Sales backlogs for the label business are generally low due to short
customer lead times, but indications are that customers' orders will be firm
through the first quarter of 2006. There is seasonality in the overall label
business with the first quarter generally stronger than the other three
quarters. This seasonality is a result of summer vacations primarily in
Europe, strong agchem label production before the spring planting season, and
then increased battery label production in the late summer and fall for the
Christmas season. Certain locations are particularly impacted by the lengthy
holiday season at year-end. Raw material pricing and our ability to pass on
cost increases and maintain profit margins continue to be a challenge into
2006.
The Label Division invested $21.2 million in capital in the fourth
quarter of 2005 compared to $9.8 million in the same period last year. The
capital was spent throughout the Division to maintain and expand its
manufacturing base by adding presses in strategic locations, including the
construction of new plants in Poland and China and the beginning of the plant
construction for the new relocated Robbinsville, NJ operation. The Division
expects to continue to spend capital to increase its capabilities, expand
geographically, and replace or upgrade existing plants and equipment to
improve efficiencies over the next few years. Depreciation and amortization
for the Label Division were $10.0 million for the fourth quarter of 2005 and
$5.4 million in the comparable 2004 period.
Container
---------
Sales in the fourth quarter were $65.2 million, up 22% from $53.3 million
last year and for the year 2005 were $253.5 million, up 19% from the
$212.7 million last year. Sales increased for the quarter by 25% (for the year
25%) due to internal growth and the increased ownership of CCL Dispensing
offset in part by a decrease of 3% (for the year 6%) due to foreign exchange
translation.
The Aluminum Container unit of the Container Division continued to
benefit in the fourth quarter from the strong demand for aluminum aerosol
containers and other new applications for shaped-can technology with sales up
28% over last year. Personal care volume in the aerosol format continued to
grow. The impact of added internal capacity and lower demand for smaller
diameter products has resulted in the Division reducing its backlogs to more
acceptable levels and also reducing the outsourcing of production to overseas
suppliers in support of customer requirements. The beverage business continues
to be dependent on a few customers and volumes were up about 5% from a year
ago despite reduced orders from a beer customer. Mexican aerosol container
sales were also substantially higher in the fourth quarter compared to last
year.
In the Plastic Packaging unit of the Container Division, sales were up
12% in the fourth quarter compared to last year, due primarily to the
inclusion of the remaining 30% of the CCL Dispensing joint venture acquired in
July 2005, offset in part by unfavourable currency translation. The demand for
plastic tubes continues to show modest improvement in the quarter and new
orders to be manufactured in the next few months appear to be reasonable.
Plastic closure sales volumes were up over last year's performance.
Operating income for the Container Division for the fourth quarter of
2005 was $6.4 million, up 52% from $4.2 million in the fourth quarter of 2004
despite the unfavourable foreign exchange impact. The improvement in operating
income is due to the higher aluminum container volumes and improved
operational performance in the Plastic Packaging business. Plastic Packaging
operated at a profit in the fourth quarter of 2005 with a return on sales of
4% compared to a loss in the prior year quarter, a turnaround of $1.3 million
reflecting overhead reductions and improvements in manufacturing. For the 2005
full year, operating income for the Container Division was $26.6 million
versus $17.2 million last year, up 55%.
The aluminum container plant in Penetanguishene, Ontario sells a large
part of its production to the United States market. During 2004, this
operation hedged a portion of its sales by selling forward the U.S. dollar
into Canadian dollars at the rate of $1.35. However, as the U.S. dollar has
weakened, the contracts for 2005 were transacted at only $1.23, which further
reduced the Division's comparable income by $0.9 million for the quarter and
$3.1 million for the year relative to last year.
After a review of the Mexican Container plant's profitability and its
investment base, the operation was restructured to concentrate on profitable
product lines only and, consequently, certain machinery and inventory,
primarily in the plastic tube side of the business, were written off in the
second quarter. The Mexican operation's metal container business is now
profitable and plans for significant investment in this business are under
consideration.
In early February 2006, the Company divested the assets of its CCL
Dispensing business in Libertyville, IL for approximately $24 million in cash
to AptarGroup, Inc. This business was deemed to be non-core as it is a small
player in the global closures market. Operating income contribution from this
business in 2005 was approximately $1 million. The gain or loss on the sale of
this business is anticipated to be relatively immaterial.
The Container Division invested $11.4 million in capital in the fourth
quarter of 2005 compared to $13.7 million last year, to maintain and expand
its manufacturing base and reduce its production costs. Depreciation and
amortization for the fourth quarters of 2005 and 2004 was $4.1 million. The
Division has successfully installed four new aluminum container lines in the
last two years and has now installed a fifth new line which was operational in
early February 2006. A sixth new line is to be installed in the second quarter
of 2006. The seventh new line is on order for early 2007 although its
destination has not yet been determined.
The Container Division continues to hedge some of its anticipated future
aluminum purchases through futures contracts. The fair value of these futures
at December 31, 2005 was a positive $11.3 million.
ColepCCL Joint Venture/Custom Manufacturing - Europe
----------------------------------------------------
The ColepCCL joint venture was created in mid-July 2004. For the fourth
quarter of 2005, CCL's proportionate share of the joint venture's sales was
$41.9 million. This sales level was 13% lower than the comparative sales last
year of $48.1 million due to the 12% decline in the value of the Euro for the
comparable quarter. In local currency, sales were flat compared to the same
quarter a year ago. For all of 2005, CCL's share of the joint venture sales
was $187.6 million; this is 4% less than the $195.7 million of sales from our
former operations and the joint venture in 2004. Comparative sales for the
year have been reduced by the 7% average decline in the value of the Euro
compared to last year. Otherwise, there was modest sales growth over 2004 in
local currency.
Operating income in the seasonally slower fourth quarter of 2005 for
ColepCCL was $2.8 million, indicating a return on sales of 6.7%, and in the
fourth quarter of 2004, operating income was $2.6 million, indicating a return
on sales of 5.4%. Operating income for the year was $15.9 million in 2005
versus $10.6 million from CCL's former operations and the joint venture in
2004, reflecting the synergies of the merger and CCL's share of the income
derived from Colep's more profitable operations despite the impact of
unfavourable currency translation.
Sales growth for the joint venture in local currency was 3% higher than
the combined former operations for the year 2005 versus 2004 with higher
volumes in the Contract Manufacturing operations due to the synergies of this
business combination. Metal Packaging sales were ahead of last year but have
been impacted by conversions from steel to aluminum aerosols by its customers,
due to the high cost of tinplate. Profitability from these operations has been
strong, with Contract Manufacturing operations benefiting from the volume
increase and Metal Packaging benefiting from significant price increases that
have more than offset the added tinplate costs.
In June 2005, ColepCCL completed the closure of its plant in Madrid,
Spain. Some of its production lines were moved to the U.K., Poland and
Portugal. Significant closing costs that were accrued as part of the formation
of the joint venture of $6.3 million were incurred on this closure. The land
and building are up for sale. This plant closure is expected to improve
overall profitability in ColepCCL going forward. Direct closing costs that
were expensed in the quarter were immaterial.
In the fourth quarter, ColepCCL recognized a write-down on a property
held for sale contributed by CCL to the joint venture in 2004. CCL had
provided a guarantee on the value of this property when the joint venture was
formed. The unusual loss for this write-down was $1.4 million with no tax
benefit. Both the Madrid property and the property contributed by CCL to the
joint venture continue to be for sale. Further gains or losses may be realized
when the properties are sold.
Liquidity and Capital Structure
-------------------------------
The Company's debt structure is primarily comprised of three private debt
placements completed in 1996, 1997 and 1998 totaling US$ 295.5 million
(Cdn$ 343.7 million) at December 31, 2005. The US$ 120 million notes issued in
1996 are due to be repaid on March 15, 2006. The Company's overall average
interest rate is 5.9%, after factoring in the related Interest Rate and Cross
Currency Swap Agreements.
Repayment of these notes is expected to come from a new private placement
totaling US$ 170 million and expected to close on March 7, 2006, subject to
final due diligence by the potential note holders. The new series of notes
will have two tranches: US$ 60 million for 5 years at 5.29% and
US$ 110 million for 10 years at 5.57%. The Company expects to convert the
5-year notes effectively into a 5-year fixed rate Euro debt by entering into a
cross-currency interest rate swap agreement with a financial institution. The
intent of this transaction would be to more effectively hedge CCL's assets and
cash flows in Europe. This transaction is expected to reduce the effective
rate on the 5-year notes to below 4%. The additional borrowed funds will be
used for general corporate purposes and for funding future growth
opportunities.
The summary of net debt is as follows:
December 31, December 31,
$ Millions 2005 2004
---------- ------------ ------------
Total debt $ 402.6 $ 426.4
Cash on hand 120.2 71.4
--------- ---------
Net debt $ 282.4 $ 355.0
--------- ---------
--------- ---------
Net debt has decreased from 2004 year-end, primarily due to the Custom
sale, offset in part by acquisitions and our extensive capital expenditure
program. For the year 2005, cash provided by operations was $112.1 million
compared to $135.0 million in 2004. This was due to non-cash working capital
increasing by $24.0 million in 2005 versus a reduction of $1.1 million in
2004. The major impact on working capital was due to the disposition of
Custom, as it was sold in May 2005 when working capital was higher than the
traditionally lower level of year-end 2004.
For the 2005 year, capital spending of $155.9 million is substantially
higher than the $111.7 million spent in 2004. Capital spending also exceeded
this year's depreciation and amortization of $65.4 million. This major capital
expenditure program was to provide for increased capacity and geographic
reach, to implement cost reduction programs, and to maintain the existing
business and asset base. Plans for capital spending in 2006 are expected to be
about the same level as 2005, as the Company continues to expand its business
base into new markets, and invest in assets to add capacity and improve its
competitiveness.
Dividends declared in 2005 and 2004 were $12.8 million and $12.5 million,
respectively. The total number of shares outstanding at December 31, 2005 of
32.5 million is at the same level as the 32.5 million outstanding a year ago
due to the exercise of stock options and the issuance of shares for the Pachem
acquisition, offsetting the shares repurchased under Normal Course Issuer
Bids. The current annualized dividend rate is $0.35 per Class A share and
$0.40 per Class B share. The Company has historically paid out dividends at a
rate of 20-25% of normalized earnings. Since the Company's cash flow is
strong, the Board approved a continuation of the quarterly dividend rate of
$0.0875 per Class A share and $0.10 per Class B share to shareholders as of
March 17, 2006 and payable on March 31, 2006.
Effective January 1, 2005, the Company has adopted the Canadian Institute
of Chartered Accountants ("CICA") amendments to the Emerging Issues Committee
rules with respect to the recording of vendor rebates by a purchaser. The
adoption of this change did not have a material impact on the Company. A new
CICA guideline on the consolidation of variable interest entities had no
impact on the Company, since it is not a party to any variable interest
entities.
The Company has no material "off-balance sheet" financing obligations
except for typical long-term operating lease agreements. The nature of these
commitments is described in note 14 of the December 31, 2004 Annual
Consolidated Financial Statements. The Company does not have any material
related party transactions. There are no defined benefit plans funded with CCL
stock.
Risks and Strategies
--------------------
The 2004 Management's Discussion and Analysis in the Annual Report
detailed the risks to the Company's business and the strategies that were
planned for 2005 and beyond. The disposition of the North American Custom
Manufacturing business has eliminated or reduced certain risks applicable to
that business segment. CCL will have less dependence on the international
competitiveness of North American manufacturing; less reliance on the
long-term currency effects of the U.S. dollar relative to the Canadian dollar
and less overall dependence on a concentrated number of consumer products
companies. CCL will now be more dependent on the inherent risks associated
with running a more internationally diverse specialty packaging business
without the diversification effect of the divested business. The Company will
also have more dependence on the European, Latin American and Asian economies
and their currencies. These non-Canadian risks were described in the 2004
Management's Discussion and Analysis.
Outlook
-------
The Company will be more focused on the growth prospects of its specialty
packaging business and the prudent management and reinvestment of the cash
generated from the disposition of Custom with a view to improving shareholder
value in 2006. CCL will also be integrating and reorganizing the large number
of recent acquisitions it has made to improve profitability and simplify
administration. The Company is continuing to investigate mid-sized potential
acquisition candidates that meet its criteria of core products and customers,
and the expectation of earnings accretion in the first year of ownership. The
organic growth in sales and income experienced in 2005 is anticipated to
continue into 2006 as the Company is focused on replacing the Custom income
and growing as a specialty packaging business. There are challenges expected
in 2006 associated with managing the balance between cost increases due to the
significant inflation and volatility of energy and packaging components and
the Company's ability to recover these cost increases by higher selling prices
to its customers. The strength of the Canadian dollar relative to the
currencies of CCL's foreign operations may continue to negatively impact
earnings compared to 2005 performance levels.
Stock Symbol: TSX - CCL.A and CCL.NV.B
CCL Industries Acquires Market Leading Label Company in Brazil
Toronto, January 11, 2006 - CCL Industries Inc., a world leader in
specialty packaging solutions for the consumer products and healthcare
industries, announced today that it has acquired the label converting assets
of Prodesmaq and its subsidiaries. Prodesmaq is Brazil's largest supplier of
pressure-sensitive labels for many of the same leading global companies in the
home and personal care, healthcare and premium food and beverage categories as
CCL Label. Located in Vinhedo in the state of Sao Paulo, Prodesmaq operates
two state-of-the-art plants and is regarded as the market leader in this
sector in the Mercosur region of Latin America.
Prodesmaq had revenues of C$37 million in calendar year 2005 and an
adjusted EBITDA of approximately C$16 million. The cash purchase price is
approximately C$64 million on a debt-free basis.
Donald Lang, Vice Chairman and CEO of CCL Industries, commented, "This
acquisition fits our strategy to redeploy cash into value enhancing
transactions that are immediately accretive. In addition, Prodesmaq has many
common customers with CCL Label, and alongside our existing rapidly growing
business in Mexico, positions us as the leading player in all of Latin
America."
Geoffrey Martin, President and COO of CCL Industries, said, "We have
known the Jocionis family for a number of years and have watched and admired
them as they built Prodesmaq into not only the leading player in Brazil, but
one of the best managed label businesses in the world. I am very pleased that
Luis Carlos Jocionis and Nilson Barrantes have agreed to remain with the
company to help us bring Brazil and the Mercosur region into the CCL Label
supply chain network for our large global customers."
CCL Industries Inc. provides state-of-the-art specialty packaging
solutions to some of the world's largest producers of consumer brands in
personal care, cosmetic, healthcare, household and specialty food and beverage
products. CCL is the world's largest supplier of innovative and secure
labelling solutions to leading global companies in the consumer product and
healthcare sectors and supplies aluminium containers and plastic tubes and
closures for major consumer brands of personal care, household products and
specialty beverages. With headquarters in Toronto, Canada, CCL Industries
employs approximately 4,700 people and operates 47 production facilities in
North America, Europe, Latin America and Asia.
Statements contained in this Press Release, other than statements of
historical facts, are forward-looking statements subject to a number of
uncertainties that could cause actual events or results to differ materially
from some statements made.
For more information, contact:
Steve Lancaster Executive Vice President 416-756-8517
and Chief Financial Officer
For more details on CCL, visit our web site - www.cclind.com
Stock Symbol: TSX - CCL.A and CCL.NV.B
CCL INDUSTRIES DIVESTS DISPENSING CLOSURE BUSINESS
Toronto, January 24, 2006 - CCL Industries Inc., a world leader in
specialty packaging solutions for the consumer products and healthcare
industries, announced today that it has signed a binding agreement to divest
the assets of its dispensing closure business in Libertyville, IL to
AptarGroup, Inc.
CCL Dispensing had revenues of approximately C$26 million in calendar
year 2005 and an Operating Income contribution of approximately C$1 million in
the same period. The purchase price of approximately C$24 million will be paid
in cash. Closing for the transaction is anticipated in early February.
Donald Lang, Vice Chairman and CEO of CCL Industries, commented, "CCL
Dispensing is a small player in the global closures market and I am delighted
that a world leading company in the industry is interested in further
developing the operation."
Geoffrey Martin, President and COO of CCL Industries, said, "This
divestiture will allow us to focus on the decorated plastic tube segment of
our plastic packaging business where we have an interesting market opportunity
in North America."
CCL Industries Inc. manufactures pressure-sensitive labels, aluminum
containers and plastic tubes providing state-of-the-art specialty packaging
solutions to global producers of consumer brands in the home and personal
care, healthcare and specialty food and beverage sectors. With headquarters in
Toronto, Canada, CCL Industries employs approximately 4,700 people and
operates 47 production facilities in North America, Europe, Latin America and
Asia.
Statements contained in this Press Release, other than statements of
historical facts, are forward-looking statements subject to a number of
uncertainties that could cause actual events or results to differ materially
from some statements made.
For more information, contact:
Steve Lancaster Executive Vice President 416-756-8517
and Chief Financial Officer
For more details on CCL, visit our web site - www.cclind.com
>>
