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## MANAGEMENT’S DISCUSSION AND ANALYSIS 

Years ended December 31, 2011 and 2010 (Tabular amounts in millions of Canadian dollars, except per share data) 

Company’s overall operating income improvement in 2011. The results for these two operations can be attributed to effective cost controls, plant productivity initiatives, better mix and improved pricing. The Mexican operations for the Container Segment increased sales largely due to volume from market share gains but operating income was significantly impacted by an abnormal non-cash foreign exchange loss of $0.8 million on a U.S. dollar-denominated non-trade liability due to the devaluation of the Mexican peso relative to the U.S. dollar, and additional depreciation from the start-up of the new third line in Guanajuato. Despite the foreign exchange loss, the Mexican operation still posted solid operating income for 2011. Should the Mexican peso strengthen versus the U.S. dollar, foreign exchange gains may be recorded in the future periods on the revaluation of this liability. 

The Container Segment invested $3.1 million of capital in 2011 compared to $12.3 million in the same period last year. The majority of the 2011 expenditures related to final additions to the capacity expansion at the Guanajuato, Mexico facility. Depreciation and amortization in 2011 and 2010 were $14.2 million and $13.9 million, respectively. 

## D) Tube Segment 

## Overview 

The Tube Segment is a leading manufacturer of highly decorated extruded plastic tubes for the personal care and cosmetics industry in North America. It operates from two plants located in the United States. The Segment operates in a dynamic competitive environment, which includes imports and the ability of customers to shift a product to an alternative package or to other manufacturers. 

The strategic plan for the Tube Segment is based on market share growth through manufacturing excellence, exceeding customer expectations, and innovation. The Segment has invested in equipment that improves the quality of the tube, particularly options for high-end graphic designs that appeal to marketers. 

There are a handful of competitors to the Tube Segment in North America. CCL believes that it is the largest of three leading suppliers in the U.S. and has approximately 20% market share in North America. 

Polypropylene caps and closures, and to a lesser extent polyolefin resins, represent significant variable costs for this Segment. Although resin costs fluctuate significantly, the Segment relies on contracts with suppliers to control costs and on contracts with customers to manage pricing and to pass on price increases for movements in resins. The Company has traditionally been able to pass on these cost increases over a period of time. 

The Segment has improved significantly over the past three years and become a market leader in the U.S. extruded tube business, highly recognized for superior product and service by its customers. The Tube Segment shares many common points of contact at key customers with the Label Segment. 

## Tube Segment Financial Performance 

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Sales in the Tube Segment were at $80.5 million for 2011, an increase of 7.6% compared to $74.8 million for 2010. Foreign currency translation had an unfavourable impact of 4.5%. Excluding foreign currency translation, sales for the Tube Segment increased by 12.1% due to market share gains in highly decorated tubes for the premium personal care and cosmetic sector. 

The Tube Segment posted operating income of $12.0 million, a 36.4% improvement from the $8.8 million achieved in 2010. Return on sales reached 14.9% in 2011 compared to an 11.8% return in the prior year. The Tube Segment continued to capitalize on market share gains across both plants but this was most evident at the Wilkes-Barre, Pennsylvania facility that is closer to the larger customers based in the northeastern region of the U.S. 

The Tube Segment invested $3.3 million in 2011 compared to $1.2 million in 2010, most of which related to new decorating equipment. Depreciation and amortization was approximately $7.5 million in both 2011 and 2010. 

