The Tube Segment had an exceptional year with organic sales growth of 12.1% for 2011, excluding foreign currency translation. All four quarters of 2011 experienced sales growth, excluding foreign currency translation compared to the same quarters of 2010. The Segment capitalized on market share gains in highly decorated tubes for the premium personal care and cosmetic sector coupled with targeted operational initiatives that improved operating income in each quarter of 2011 compared to 2010. Return on sales in the Tube Segment was 14.9% for 2011, a significant improvement compared to the 11.8% achieved in 2010. These margins in the Tube Segment are now in line with the target levels of the Label Segment. Net earnings in 2011 were up 18.3% compared to 2010 due primarily to higher operating income in the Container and Tube Segments lower net finance expense and income taxes, partially offset by higher corporate expenses. Excluding the effect of currency translation, all four quarters in 2011 had higher net earnings than the comparable quarters in prior year. Over the last decade all divisions have invested significant capital and management effort in their facilities in order to develop world- class manufacturing operations, with spending allocated to geographic expansion, cost-reduction projects, the development of innovative products and processes, the maintenance and expansion of existing capacity and the continuous improvement in health and safety in the workplace, including environmental activities. Also over the past decade, CCL has made numerous strategic acquisitions and invested significantly in excess of its depreciation expense in order to build a global network in the Label Segment, take advantage of new market and product opportunities and improve infrastructure and operating performance across the Company. Annual capital spending in 2010 and 2011, however, was below annual depreciation expense as the global manufacturing platform in the Label Segment is now largely completed. Further discussion on capital spending is provided in the Business Segment sections below. Although each Segment is a leader in market share or has a significant position in the markets it serves in each of its operating locales, it also operates generally in a mature and competitive environment. In recent years, consumer products and healthcare companies have experienced steady pressure to maintain or even reduce prices to their major retail and distribution channels, which has driven significant consolidation in CCL’s customer base. This has resulted in many customers seeking supply-chain efficiencies and cost savings in order to maintain profit margins. The global economic crisis experienced in 2008 and early 2009, the instability of the economic recovery that followed and the sovereign debt predicament and its effect on the availability of capital accentuated this trend. Volatile commodity costs have also created challenges to manage pricing with customers. These dynamics have been an ongoing challenge for CCL and its competitors, requiring greater management and financial control and flexible cost structures. Unlike some of its competitors, CCL has the financial strength to invest in the equipment and innovation necessary to constantly strive to be the highest value-added producer in the markets that it serves. The cost of many of the key raw material inputs for CCL, such as plastic films and resins, paper, specialty chemicals and aluminum, are largely dependent on the economics within the petrochemical and energy industries. The significant cost fluctuations for these inputs can have an impact on the Company’s profitability. CCL generally has the ability, due to its size and the use of long-term contracts with both its suppliers and its customers, to mitigate volatility in costs from its suppliers and, where necessary, to pass on price movements to its customers. The success of the Company is dependent on each business managing the cost-and-price equation with suppliers and customers. The cost of aluminum represents the largest component of the Container Segment’s product cost. The significant volatility in aluminum costs over the past few years has made it especially challenging to manage pricing with its customers who are generally accustomed to more stable pricing in other product lines. Most of CCL’s facilities are in locations with adequate skilled labour, resulting in moderate pressure on wage rates and employee benefits. CCL’s labour costs are competitive in each of its businesses. The Company uses a combination of annual and long-term incentive plans specifically designed for corporate, divisional and plant staff to focus key employees on the objectives of achieving annual business plans and creating shareholder value through growth, innovation, cost reductions and cash flow generation in the longer term. A driver common to all Segments for maximizing operating profitability is the discipline of pricing orders based on size and complexity, including consideration for fluctuations in raw materials and packaging costs, manufacturing efficiency and available capacity. This approach facilitates effective asset utilization and relatively higher levels of profitability. Performance is generally measured by product against estimates used to calculate pricing, including targets for scrap and output efficiency. An analysis of total utilization versus capacity available per production line or facility is also used to manage certain divisions of the business. In 16 CCL Industries Inc. 2011 Annual Report 2. BUSINESS SEGMENT REVIEW A) General MANAGEMENT’S DISCUSSION AND ANALYSIS Years ended December 31, 2011 and 2010 (Tabular amounts in millions of Canadian dollars, except per share data)