2013 annual report
FOCUS PERFORM SUCCEED
TABLE OF CONTENTS
6 Message from Mario Plourde
10 Acting to Realize our Strategic Plan
12 To Understand our Corporation and our Results
14 Human Focus
16 Management’s Discussion & Analysis
18 Sensitivity Table
61 Management’s Report to
the Shareholders of Cascades Inc.
62 Independent Auditor’s Report to
the Shareholders of Cascades Inc.
63 Consolidated Balance Sheets
122 Historical Financial Information – 10 Years
124 Board of Directors
The annual general shareholders’ meeting
will be held on Thursday, May 8, 2014
at 11:00 a.m., at Théâtre des Grands Chênes
located at 356 Marie-Victorin Blvd.
in Kingsey Falls, Québec.
Cascades Inc.’s 2013 Annual Information
Form will be available, upon request, from
the Corporation’s head office as of March 31, 2014.
This report is also available on our website at:
www.cascades.com
TRANSFER AGENT AND REGISTRAR
Computershare Investor Services Inc.
Telephone: 1-800-564-6253
HEAD OFFICE
Cascades Inc.
404 Marie-Victorin Blvd.
Kingsey Falls, Québec
J0A 1B0 Canada
Telephone: 1-819-363-5100
Fax: 1-819-363-5155
INVESTOR RELATIONS
For more information, please contact:
Riko Gaudreault
Director, Investor Relations
Cascades Inc.
772 Sherbrooke Street West
Montréal, Québec
H3A 1G1 Canada
Telephone: 1-514-282-2697
Fax: 1-514-282-2624
www.cascades.com/investors
investisseur@cascades.com
On peut se procurer la version française
du présent rapport annuel en s’adressant
au siège social de la Société à l’adresse suivante :
Secrétaire corporatif
Cascades inc.
404, boul. Marie-Victorin
Kingsey Falls (Québec) J0A 1B0 Canada
Total return of
71%
on Cascades’ share
in 2013
Cascades share price in 2013
$7.00
$6.50
$6.00
$5.50
$5.00
$4.50
$4.00
$3.50
JAN
FEB
MAR
APR
MAY
JUN
JUL
AUG
SEP
OCT
NOV
DEC
CAS–TSX – Closing price ($)
Common shares outstanding
as at December 31, 2013
93.9 million
Market capitalization
as at December 31, 2013
$646 million
Total volume
traded in 2013
34.3 million shares
Intraday high
in 2013
$6.92
Intraday low
in 2013
$4.07
Quarterly dividend
per share paid in 2013
$0.04
Dividend yield
as at December 31, 2013
2.3%
Corporate credit ratings
as at December 31, 2013
Moody’s: Ba2 (stable)
S&P: B+ (stable)
Symbol CAS – TSX
(on the Toronto Stock Exchange)
S&P/ TSX CLEAN TECHNOLOGY INDEX
S&P/ TSX SMALL CAP INDEX
BMO SMALL CAP INDEX
Financial highlights
(In millions of Canadian dollars, unless otherwise noted)
Sales
Operating income before depreciation and amortization (OIBD or EBITDA)1
Operating income
Net earnings (loss)
per share
Dividend per share
Excluding specific items1
Operating income before depreciation and amortization (OIBD or EBITDA)1
Operating income
Net earnings (net loss)
per share
Return on assets1, 2
Return on capital employed1, 3
Financial position (as at December 31)
Total assets
Capital employed4
Net debt
Net debt/OIBD5, 8
Shareholders’ equity
per share
Working capital on sales
Key indicators
Total shipments (in ‘000 of s.t.)
Capacity utilization rate6
Spread between Cascades’ selling price index and raw material index7
US$/CAN$
2013
3,849
322
140
11
$0.11
$0.16
352
170
29
$0.31
9.3%
4.0%
3,831
3,193
1,612
4.6x
1,081
2012
3,645
274
75
(22)
$(0.23)
$0.16
304
118
5
$0.05
8.1%
2.8%
3,694
3,224
1,535
5.0x
978
$11.52
12.9%
$10.42
14.4%
3,359
90%
943
$0.97
3,243
88%
877
$1.00
2011
3,625
188
8
99
$1.03
$0.16
229
49
(14 )
$(0.14)
6.5%
1.3%
3,728
3,107
1,485
5.8x
1,029
$10.87
14.8%
3,159
88%
785
$1.01
6%
increase
in sales
OIBD1,8
Sales
9
4
8
3
,
2
5
3
4
0
3
16%
OIBD8
INCREASE
Return on capital
employed1, 3
Total shipments
and capacity
utilization rate6
Spread between
Cascades’ selling
price index and
raw material index7
Net debt/OIBD1, 5, 8
0
4
.
8
2
.
9
5
3
3
,
0
9
7
4
2
3
,
9
5
1
3
,
8
8
8
8
)
%
d
n
a
.
t
.
s
0
0
0
‘
(
3
4
9
7
7
8
5
8
) 7
$
S
U
(
x
8
5
.
x
0
5
.
x
6
4
.
5
4
6
3
,
5
2
6
3
,
)
$
N
A
C
M
(
9
2
2
)
$
N
A
C
M
(
3
1
.
%
11
13
12
11
1 See “Forward-looking statements and supplemental information on non-IFRS measures” on page 16.
2 Return on assets is a non-IFRS measure defined as LTM OIBD excluding specific items/LTM average of total quarterly assets.
13
12
13
12
11
12
11
13
11
12
13
11
12
13
See “Forward-looking statements and supplemental information on non-IFRS measures” on page 16.
3 Return on capital employed is a non-IFRS measure defined as the operating income excluding specific items after theorical tax charges of 30%/capital employed.
4 Capital employed is defined as the quarterly average over the last twelve-month period of total assets less non-interest bearing liabilities.
5 Adjusted ratio including discontinued operations and the results of Reno De Medici and Papersource on a pro-forma basis.
6 Capacity utilization rate is defined as: Shipments/Practical capacity. Paper manufacturing only.
7 For more information on the indices, see notes 1 and 2 on page 17.
8 Excluding specific items.
CASCADES 2013 ANNUAL REPORT
CASCADES
at a glance
$3,849M
of sales
$352M
of OIBD3
PACKAGING PRODUCTS
TISSUE PAPERS
CONTAINERBOARD
BOXBOARD EUROPE
SPECIALTY PRODUCTS
21%
of Sales1
13%
of OIBD2
2nd
producer
in Europe
20%
of Sales1
15%
of OIBD2
26%
of Sales1
34%
of OIBD2
1st
paper
collector
in Canada
1st
producer
in Canada
4th in
North America
33%
of Sales1
38%
of OIBD2
1st
PRODUCER OF
CONTAINERBOARD
in Canada
6th in
North America
1 Before inter-segment eliminations.
2 Excluding specific items and corporate activities.
3 Excluding specific items.
north America
Prince George, BC R
Vancouver, BC
R
Nanaimo, BC R
Victoria, BC R
R Kelowna, BC
R Surrey, BC
C
Richmond, BC
Tacoma, WA C
St. Helens, OR M
R Edmonton, AB
C
R Calgary, AB
St. John’s, NL C
C C R Winnipeg, MB
C Moncton, NB
Kingsey Falls, QC
C Granby, QC
Ottawa, ON R
Eau Claire, WI CM
Grand Rapids, MI C
Aurora, IL C
C Kingman, AZ
Warrenton, MO C
Brownsville, TN C
Memphis, TN M
Rockingham, NC C CM
C Kinston, NC
C Birmingham, AL
Québec
toronto area
M Saguenay
Cabano M
C Barrie
P Breakeyville
C Trois-Rivières
Berthierville C
C Victoriaville
Notre-Dame-du-Bon-Conseil C
M C Saint-Jérôme
Laval C
Vaudreuil C R Lachine
C Montréal
C C C
Drummondville
C Saint-Césaire
CM Candiac
M M CM C C C Kingsey Falls
M M East Angus
Vaughan
C
Mississauga C C M
Guelph C
C St. Marys C Kitchener
R Putnam R Brantford
C Toronto
R
R
C Belleville
M Trenton
Whitby M
C M R Scarborough
C Cobourg
EUROPE
Ronneby, SE M
M Blendecques, FR
M Arnsberg, DE
La Rochette, FR M
C Châtenois, FR
C Saulcy-sur-Meurthe, FR
Santa Giustina, IT M
M Ovaro, IT
M Almazan, ES
Villa Santa Lucia, IT M
Cascades
worldwide
LEGEND
Head Office
Containerboard Group
Boxboard Europe Group
Specialty Products Group
Tissue Papers Group
M Manufacturing facility
C Converting facility
CM Converting and manufacturing
facility
P Deinked pulp facility
R Recovery operations
3.8 billion in sales,
over 60% of which are outside of Canada
Northeastern united states
Property, plant
and equipment
2013 (%)
Sales from
(source)
2013 (%)
Sales to
(destination)
2013 (%)
Auburn, ME P
22
Niagara Falls, NY
M M
R Depew, NY
C Lancaster, NY
R Rochester, NY
Schenectady, NY C
M Mechanicville, NY
C Waterford, NY
R Albany, NY
C Thompson, CT
Ransom, PA CM
Pittston, PA CM
C Maspeth, NY
23
21
38
24
38
61
17
56
Canada
United States
Europe and others
Summary of production capacity (as at December 31, 2013)
SECTORS/SEGMENTS
REGION
TYPE OF OPERATION
MAIN MARKETS / PRODUCTION
PACKAGING PRODUCTS
CONTAINERBOARD
North
America
Manufacturing
Virgin and recycled linerboard and corrugating medium
White-top linerboard
Gypsum paper
Coated recycled boxboard (CRB)
Converting
BOXBOARD EUROPE
Europe
Manufacturing
SPECIALTY PRODUCTS
North
America
and
Europe
North
America
Industrial
Packaging
Specialty
Papers
Consumer
Packaging
Variety of corrugated packaging containers
Corrugated sheets
Specialized packaging
General folding cartons
Quick-service restaurant packaging
Coated virgin boxboard (coated duplex, GC)
Coated recycled boxboard (white-lined chipboard
duplex, GD)
Recycled linerboard
Uncoated board
Papermill packaging (roll headers and wrappers)
Honeycomb packaging products
Laminated boards
Fine papers
Kraft paper
Backing for vinyl flooring
Deinked pulp
Moulded pulp products
– Cup trays
– Filler flats
Plastic products
– Packaging for food industry (meat trays, translucent
containers, foam plates and bowls)
Outdoor furniture (deck board, benches and tables)
NUMBER
OF UNITS 1
CAPACITY 2
84
1,7654
25
13.4B sq.ft.
(2013 shipments,
including inter-
company sales)
83
1,2023
124
4484
6
7
598
57M kg4
TISSUE PAPERS
TOTAL
Recovery
Collection, sorting and recycling activities
20
1,522 (processed
in 2013)
North
America
Manufacturing
Parent rolls
Manufacturing
and converting
Retail market and away-from-home market
– Paper towels, paper hand towels, bathroom tissue,
facial tissue, paper napkins
Parent rolls
Converting
Retail market and away-from-home market
– Paper towels, paper hand towels, bathroom tissue,
facial tissue, paper napkins
Industrial wipes
5
7
7
245
421
N/A
105
4,2313
(manufacturing
only)
1 Production and sorting facilities units only; excluding sales offices, distribution and transportation hubs and corporate offices. Including the Greenpac mill with 540,000 short tons of production capacity,
which we own at 60%.
2 Thousands of short tons, unless otherwise noted. Theoretical capacity.
3 Including all the units of Reno De Medici S.p.A. of which we own an equity interest of 58%. Excluding the Magenta plant and sheeting centers.
4 Including 100% of the capacity of our joint ventures and our associates.
Message
Mario Plourde, President and Chief Executive Officer
Dear shareholders and partners,
As you review our financial results for 2013,
you will no doubt be pleased, as we are,
to see that the action plan that we have been
following since the end of 2011 has continued
to bear fruit. A marked improvement in
our performance has enabled us to post
better results for the second year in a row.
As you may recall, this plan consists of four main pillars:
modernization, optimization, innovation and restructuring. It seeks
to consolidate our position and ensure growth in our two key
sectors: packaging and tissue papers. In 2014, we will continue
on that same trajectory.
FOCUS ON PACKAGING AND TISSUE PAPERS
the two most promising sectors of our industry
In the tissue paper sector, the year 2013 was marked by increased
development in the away-from-home market and private brands in
the United States. We will continue this growth in 2014 thanks to
the acquisition, last September, of a paper machine on the same
site as our tissue paper machine in Oregon. This machine will be
converted to produce 55,000 tons of towelling paper annually
and will result in operating efficiencies for the mill as a whole.
6
CASCADES 2013 ANNUAL REPORT FOCUS perform SUCCEED
A marked
improvement in
our performance
has enabled us
to post higher
results for the
second year
in a row.
This is a concrete example of
our commitment to developing
our Tissue Papers Group in the
American market. In addition,
initiatives will be put in motion in
the coming year to boost our
converting capacity in the United
States, in order to expand our
presence and better service our
customers in those areas where
growth is proving to be stronger.
As far as our Containerboard Group is concerned, the major event
of 2013 was without a doubt the start-up of Greenpac, the largest
machine of its type in North America. Greenpac, the most ambitious
project carried out by Cascades to date, started on July 15, 2013
as scheduled and the ramp-up has proceeded as planned since
then. So far, we are pleased with the paper machine’s performance
and now that the construction risks are behind us, we expect a
positive contribution to earnings in 2014. We are also taking steps
to improve productivity in our corrugated board converting operations
following the investments we made in Ontario in 2012.
At the same time, we are currently in the process of upgrading
our information systems and re-engineering our business processes.
This transition will enable us to cut costs by streamlining our
organization to make it more efficient and more agile. We will also
continue to carefully track the performance of our operating units
to ensure that they meet our requirements in terms of profitability
and efficiency.
Our achievements in innovation and the proactive management of
our operating base will enable us to become more competitive
while improving our ability to offer products that better meet our
customers’ needs. We will thus be in a better position to benefit
from more favourable market conditions: higher prices for many of
our products and stable recycled fibre costs are taking us to more
rewarding levels of profitability. In addition, a weakening Canadian
dollar improves our competitive position in relation to foreign
competitors therefore creating an opportunity for improved results.
Finally, a stronger North American economy should enable us to
optimize the benefits of our modernized platform.
TAKE ACTION TO INCREASE OUR PROFITABILITY
in keeping with our financial capacity
It goes without saying that in all the initiatives we undertake, we are
mindful of the need to prudently manage our financial position.
Indeed, despite our level of indebtedness being adversely affected
by the depreciation of the Canadian dollar, we were able to improve
our financial ratios at the end of 2013 while investing to modernize
our assets. We are confident that we will be able to improve our
financial situation in the medium term, due mainly to better
financial performance and strict cash flow management.
7
CASCADES 2013 ANNUAL REPORTCASCADES 2013 ANNUAL REPORT Cascades will
celebrate its
50th anniversary
in 2014.
This is a time
of great pride
for all of us.
In my first year as President and
CEO, I met many members of
the financial community, including
shareholders,
fund managers,
lenders and other stakeholders.
This interaction gave me an
opportunity not only to share my
own vision, but to gain a better
understanding of their points of
view. The financial community seems to have recognized the
positive developments we have achieved during the past year
and the promising outlook for 2014, as indicated by our share
price which has improved by more than 60% in the space of a year.
While this is very encouraging, we know there is still much to do
and we will continue taking action to create greater value for our
shareholders and our community.
SUCCEED IN OUR OWN WAY
with respect for our employees, our partners
and the environment
Remaining faithful to our culture is key to these initiatives. After all
my years at Cascades, I am as impressed as ever by the dedication
and competence of our Cascaders, and I wish to express my heart-
felt thanks for their efforts. I also wish to reiterate that their health
and safety are of utmost importance to us. That is why we are doing
everything possible and establishing the necessary measures to
provide the best possible work environment.
Sustainable development is also a key component of our identity.
We are therefore proud that our efforts in 2013 were recognized
with the naming of Alain Lemaire as the Greenest CEO in Canada.
Cascades also received the “Environmental Strategy of the Year
Award” as part of the Pulp & Paper International Awards 2013, as
well as the “Innovative Product of the Year Award” for its MokaTM
product line. Our efforts in that direction are not over yet, and we are
currently implementing our new sustainable development plan for
2013-2015.
The coming year holds great promise, and we are confident that we
will be able to improve our results for a third straight year. Cascades
will also be celebrating its 50th anniversary in 2014, and numerous
activities will mark this important milestone in our history. This is a
time of great pride for all of us, and you will certainly be hearing
more about Cascades as the year unfolds.
I wish to thank you for being part of our story, and invite you to join
us in shaping a future that promises to be bright.
Mario Plourde
President and Chief Executive Officer
8
CASCADES 2013 ANNUAL REPORT OUR STRATEGIC PLAN’S
FOUR PILLARS:
MODERNIZE
OPTIMIZE
INNOVATE
RESTRUCTURE
Greenpac Mill, LLC
Niagara Falls, New York
9
CASCADES 2013 ANNUAL REPORT
2011
February 2011
Mario Plourde appointed
Chief Operating Officer
March 2011
Sale of Avot-Vallée (France)
linerboard plant
May 2011
Sale of Dopaco Inc.
Closure of corrugated box plant
in Leominster (Massachusetts)
June 2011
Sale of Versailles (Connecticut) and
Hebron (Kentucky) boxboard plants
October 2011
Closure of Le Gardeur (Québec)
corrugated box plant
November 2011
Acquisition of the remaining 50% interest
in Papersource Converting Mill Corp.,
Granby (Québec)
December 2011
Closure of Burnaby (British Columbia)
containerboard mill
2011
Beginning of construction of Greenpac Mill LLC
Installation of the ATMOS technology
at our Candiac (Québec) tissue paper mill
2012
February 2012
Closure of honeycomb plant in Toronto (Ontario)
April 2012
Acquisition of Bird Packaging Limited
corrugated box facilities in Guelph,
Kitchener and Windsor (Ontario)
Investments in Belleville, Vaughan, St. Marys
and Etobicoke (Ontario) plants, coupled with
closure of three Ontario corrugated box plants
August 2012
Closure of a tissue paper converting plant
in Scarborough (Ontario)
September 2012
Investments in boxboard facilities in
Montréal (Québec), Mississauga (Ontario),
Cobourg (Ontario) and Winnipeg (Manitoba)
Announcement of closure of Lachute (Québec)
folding carton plant
2012
Investment in our Cabano (Québec)
containerboard mill to increase capacity
Investment in our Industrial Packaging plant
in France to increase capacity
Investments in our mill La Rochette (France) and
Reno De Medici’s mill in Villa Santa Lucia (Italy)
to improve productivity
Installation of a new tissue converting line
at our Granby (Québec) plant and a new
bathroom tissue production line at our
Pennsylvania plant
10
CASCADES 2013 ANNUAL REPORTActing to realize our Strategic Plan 2013
May 2013
Mario Plourde appointed President
and Chief Executive Officer
June 2013
Ownership in Reno De Medici
increased to 58%
July 2013
Greenpac Mill LLC start-up
September 2013
Announcement of second
tissue paper machine investment
in St. Helens (Oregon)
November 2013
Creation of joint venture with
Maritime Paper Products Limited
(Maritimes) announced
Cascades Tissue Group
Lachute’s plant
11
CASCADES 2013 ANNUAL REPORT2013 TO UNDERSTAND OUR CORPORATION AND OUR RESULTS
Recycling, in our nature for the last 50 years
Giving a second life to waste paper: a simple idea that inspired the creation of Cascades 50 years ago. The Corporation is now the
largest collector of recycled papers in Canada, which is a strategic attribute in a world where foreign companies are now competing to
purchase waste paper in North America. Our business model has significantly evolved throughout the years but the common denominator
that defines our products remains that they are made from recycled materials. Our integration strategy, both upstream and downstream,
can be summarized by what we call the “closed-loop system1”.
Recycled fibre
consumed
1.77M s.t.
PULP
DEINKING
2 units
Deinked
pulp sold
0.04M s.t.
Deinked pulp
0.08M s.t.
PURCHASED
Recycled fibre
Europe
1.05M s.t.
Virgin fibre
0.48M s.t.
Virgin pulp
0.31M s.t.
MANUFACTURING
31 units1, 2
Recycled
fibre consumed
0.18M s.t.
RECYCLED
FIBRE
PROCUREMENT
Parent rolls
sold
2.15M st
(including 1.14M s.t.
in Europe)
marKET
Converted
products
sold
1.21M s.t.
Parent rolls
0.96M s.t.
Integration3:
49%
CONVERTING
58 units2
Recycled fibre
purchased
1.33M s.t.
GRADES
63%
Brown
White
27%
Groundwood 10%
Recycled
fibre sold
1.07M s.t.
RECOVERY
OPERATIONS
20 units
Recycled fibre
purchased
0.46M s.t.
Recycled fibre
purchased
0.09M s.t.
Integration3:
27%
1 2013 data including 100% of Reno De Medici; excluding the Greenpac mill, its production and its consumption
2 Including the integrated manufacturing and converting tissue paper units
3 North America only
12
Recycled fibre
processed & brokered
1.50M s.t.
CASCADES 2013 ANNUAL REPORT
Illustrative distribution of our sales
In 2006, we decided to focus on packaging and tissue papers, the two healthiest sectors of the paper industry.
This balanced business model has allowed us to withstand many challenges and grow to become one of
North America’s major converters of corrugated packaging containers, folding cartons, tissue papers and several
specialty products.
CONTAINERBOARD
By country (%)
29
71
Canada
United States
BOXBOARD
EUROPE
By country (%)
6
12
29
SPECIALTY
PRODUCTS
By country (%)
9
15
47
20
18
Overseas
Germany & Austria & Switzerland
Eastern Europe
Rest of Western Europe
France
Italy
44
Canada
United States
Others
TISSUE PAPERS
By country (%)
30
70
Canada
Retail 53%
Away-from-Home 47%
United States
Retail 52%
Away-from-Home 48%
By product-manufacturing (%)
By product (%)
By segment (%)
By market (%)
10
14
25
15
7
35
24
32
16
15
34
WLC1 – Other
FBB2
WLC1 – Linerboard
WLC1 – GT/GD
37
Industrial packaging
Consumer product packaging
Specialty papers
Recovery and recycling
36
Linerboard
Recycled medium
Semi-chem medium
SBS4 substitute
CRB3
By industry-corrugated boxes (%)
9
10
18
44
19
Agriculture and meat
Chemicals and plastics
Other industries
Papers and wood
Food and beverages
45
15
40
Parent rolls
Away-from-Home
Private label 44%
Branded 56%
Retail
Private label 86%
Branded 14%
1 WLC = White-lined chipboard (recycled)
2 FBB = Folding boxboard (virgin)
3 CRB = Coated recycled boxboard
4 SBS = Solid bleached sulfate board
13
CASCADES 2013 ANNUAL REPORTCASCADES 2013 ANNUAL REPORT
Cascades and its employees: total commitment
Our promise: to offer a career worthy of their skills.
Their motivation: to carry us even further. A winning combination for more than 50 years!
Occupational health and safety:
a matter of know-how
Our statistics tell the story: the health and safety
of our employees is integral to the values of
respect and sustainable development that
are at the core of our management philosophy.
OSHA frequency rate1
4
5
.
9
4
.
5
4
.
2
8
.
8
3
.
2
.
3
6
6
.
4
5
.
9
4
.
.
3
4
2
3
.
2009
2010
2011
2012
2013
1 Starting in Q1 2013, including Papersource
and Bird Packaging. Excluding Reno De Medici.
14
Green gold
Cascades and its
12,000 employees
are proud to be actively involved
in the community and in achieving
our greatest hopes. It is not only
an essential role to play, but also
a source of inspiration for us.
In 2013, nearly
$3 million
was allocated to several
hundred organizations
in our communities.
CASCADES 2013 ANNUAL REPORTHuman focus “ I am continually impressed with
the dedication and competence
of our Cascaders, and I want to
reiterate that their health and
safety is of utmost importance to us.
That is why we are doing everything
possible and establishing the neces-
sary measures to provide the best
possible work environment.”
Mario Plourde
President and Chief Executive Officer
15
CASCADES 2013 ANNUAL REPORT
MANAGEMENT'S DISCUSSION & ANALYSIS
FINANCIAL OVERVIEW - 2013
The year 2013 was highlighted by favourable market conditions as we benefited from higher selling prices in our containerboard activities,
stable recycled fibre prices and a favourable Canadian dollar. We were also able to increase our total shipments by 4%. On the other hand,
business conditions remained challenging in Europe and our operational efficiencies in some of our manufacturing facilities in North America
were not up to our normal standards. We also incurred additional costs related to our initiatives of upgrading our information systems and the
re-engineering of our business processes. As a result we improved our operating results for a second year in a row as our OIBD excluding
specific items increased by 16% over 2012.
For the year, the Corporation posted net earnings of $11 million, or $0.11 per share, compared to a net loss of $22 million, or $0.23 per share
in 2012. Excluding specific items, which are discussed in detail on pages 28 to 31, we posted net earnings of $29 million or $0.31 per share
during the year, compared to net earnings of $5 million or $0.05 per share in 2012. Sales increased by $204 million for the year, or 6%, to
reach $3,849 million, compared to $3,645 million in 2012. The Corporation recorded an operating income of $140 million during the year,
compared to $75 million last year, an increase of $65 million. Excluding specific items, operating income stood at $170 million, compared to
$118 million in 2012, an increase of $52 million (see the “Supplemental Information on Non-IFRS Measures” section for reconciliation of these
amounts).
FORWARD-LOOKING STATEMENTS AND SUPPLEMENTAL INFORMATION ON NON-IFRS MEASURES
The following is the annual financial report and management's discussion and analysis (“MD&A”) of the operating results and financial position of Cascades Inc.
(“Cascades” or “the Corporation”), and should be read in conjunction with the Corporation's consolidated financial statements and accompanying notes for the years
ended December 31, 2013 and 2012. Information contained herein includes any significant developments as at March 12, 2014, the date on which the MD&A was
approved by the Corporation's Board of Directors. For additional information, readers are referred to the Corporation's Annual Information Form (“AIF”), which is
published separately. Additional information relating to the Corporation is also available on SEDAR at www.sedar.com.
This MD&A is intended to provide readers with the information that Management believes is required to gain an understanding of Cascades' current results and to
assess the Corporation's future prospects. Accordingly, certain statements herein, including statements regarding future results and performance, are forward-
looking statements within the meaning of securities legislation, based on current expectations. The accuracy of such statements is subject to a number of risks,
uncertainties and assumptions that may cause actual results to differ materially from those projected, including, but not limited to, the effect of general economic
conditions, decreases in demand for the Corporation's products, the prices and availability of raw materials, changes in the relative values of certain currencies,
fluctuations in selling prices and adverse changes in general market and industry conditions. This MD&A also includes price indices, as well as variance and sensitivity
analysis that are intended to provide the reader with a better understanding of the trends related to our business activities. These items are based on the best
estimates available to the Corporation.
The financial information contained herein, including tabular amounts, is expressed in Canadian dollars unless otherwise specified, and is prepared in accordance
with International Financial Reporting Standards (IFRS). Unless otherwise indicated or if required by the context, the terms “we”, “our” and “us” refer to Cascades
Inc. and all of its subsidiaries and joint ventures. The financial information included in this analysis also contains certain data that are not measures of performance
under IFRS (“non-IFRS measures”). For example, the Corporation uses operating income before depreciation and amortization, or operating income before
depreciation and amortization excluding specific items (OIBD or OIBD excluding specific items) because it is the measure used by Management to assess the
operating and financial performance of the Corporation's operating segments. Moreover, we believe that OIBD is a measure often used by investors to assess a
Corporation's operating performance and its ability to meet debt service requirements. OIBD has limitations as an analytical tool, and it should not be considered
in isolation, or as a substitute for an analysis of our results as reported under IFRS. These limitations include the following:
•
•
•
•
•
•
OIBD excludes certain income tax payments that may represent a reduction in cash available to us.
OIBD does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments.
OIBD does not reflect changes in, or cash requirements for, our working capital needs.
OIBD does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments on our debt.
Although depreciation and amortization expenses are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the
future, and OIBD does not reflect any cash requirements for such replacements.
The specific items excluded from OIBD, operating income, financing expense, net earnings and cash flow from operations mainly include charges for (reversals
of) impairment of assets, charges for facility or machine closures, accelerated depreciation of assets due to restructuring measures, debt restructuring charges,
gains or losses on the acquisition or sale of a business unit, gains or losses on the share of results of associates and joint ventures, unrealized gains or losses
on derivative financial instruments that do not qualify for hedge accounting, unrealized gains or losses on interest rate swaps, foreign exchange gains or
losses on long-term debt and other significant items of an unusual or non-recurring nature. Although we consider these items to be non-recurring and less
relevant to evaluating our performance, some of them will continue to take place and will reduce the cash available to us.
Because of these limitations, OIBD should not be used as a substitute for net earnings or cash flows from operating activities as determined in accordance with
IFRS, nor is it necessarily indicative of whether or not cash flow will be sufficient to fund our cash requirements. In addition, our definitions of OIBD may differ from
those of other companies. Any such modification or reformulation may be significant. A reconciliation of OIBD to net earnings (loss) from continuing operations and
to net cash provided by (used in) operating activities, which we believe to be the closest IFRS performance and liquidity measure to OIBD, is set forth in the
“Supplemental Information on Non-IFRS Measures” section.
16
CASCADES MANAGEMENT'S DISCUSSION & ANALYSIS - RESULTS ANALYSIS
BUSINESS DRIVERS
As a packaging products and tissue paper company, our financial results are largely driven by the following factors:
SALES +
COSTS -
- Selling prices
- Demand for packaging products and tissue papers, mainly
made of recycled fibres
- Foreign exchange rates
- Population growth
- Industrial production
- Product mix, substitution and innovation
EXCHANGE RATES
Cascades' results are impacted by the relative valuation of
currencies, namely the Canadian dollar against the Euro and the
U.S. dollar. For the year 2013, the average value of the Canadian
dollar lost 3% against the American dollar, compared to the average
in 2012. Remember that each $0.01 change of the Canadian dollar
against its U.S. counterpart has an impact of $5 million on our annual
OIBD. Against the Euro, our currency depreciated by 6% during the
year, compared to 2012.
- Energy prices, mainly electricity and natural gas
- Fibre prices and availability (recycled papers, virgin pulp
and woodchips) and production recipes
- Foreign exchange rates
- Labour
- Freight
- Chemical product prices
- Capacity utilization rates and production downtime
MANUFACTURING SELLING PRICES AND RAW
MATERIAL COSTS
On the selling price front for our manufacturing operations, the
average of Cascades' North American price index increased in 2013
by 4%, compared to 2012. This was essentially caused by higher
average manufacturing prices for containerboard, which averaged
10% more in 2013 than in 2012. Lower average prices for specialty
papers and boxboard in North America offset this increase, as
average prices for our tissue paper products remained stable. At the
end of 2013, raw material costs were 5% higher than at the same
period last year. However, the average raw material costs for 2013
have been 4% lower than the average level of 2012.
ENERGY COSTS
With regards to energy costs, the average price of natural gas
increased by 31% in 2013 compared to 2012. In the case of crude
oil, the average price increased by 2% in 2013 compared to 2012.
1 The Cascades North American selling prices index represents an approximation of the Corporation’s manufacturing selling prices in North America (excluding converting). It is weighted according to
shipments and is based on publication prices. It includes some of Cascades’ main products, for which prices are available in PPI Pulp & Paper Week magazine and on the Cascades Tissue Index.
This index should only be used as a trend indicator, as it may differ from our actual selling prices and our product mix. The only non-manufacturing prices reflected in the index are those for tissue. In
fact, the tissue pricing indicator, which is blended into the Cascades North American selling prices index, is the Cascades tissue paper selling prices index, which represents a mix of primary and
converted products.
2 The Cascades North American raw materials index is based on publication prices and the average weighted cost paid for some of our manufacturing raw materials, namely recycled fibre, virgin pulp
and woodchips, in North America. It is weighted according to purchase volume (in tons). This index should only be used as a trend indicator, and it may differ from our actual manufacturing purchasing
costs and our purchase mix.
CASCADES MANAGEMENT'S DISCUSSION & ANALYSIS - RESULTS ANALYSIS
17
SENSITIVITY TABLE 1
The following table provides a quantitative estimate of the impact on Cascades’ annual operating income before depreciation and amortization
(OIBD) of potential changes in the prices of our main products, the costs of certain raw materials and energy, as well as the US$/CAN$
exchange rate, assuming, for each price change, that all other variables remain constant. This is based on Cascades’ 2013 manufacturing
and converting external shipments and consumption numbers. However, it is important to note that this table does not consider the risk
management hedging instruments used by the Corporation. In fact, Cascades’ hedging policies and portfolios (see “Risk Factors” section)
should also be considered in order to fully analyze the Corporation’s sensitivity to the highlighted factors.
With regards to the US$/CAN$ exchange rate, we do not consider Cascades’ indirect sensitivity. This sensitivity refers to the fact that some
of Cascades’ selling prices and raw material costs in Canada are based on reference prices and costs in U.S. dollars converted into Canadian
dollars. In other words, the exchange rate fluctuation can have a direct influence on sales and purchases in Canada from Canadian facilities.
However, because this fluctuation is difficult to measure precisely, we do not include it in the following table. The EURO€/CAN$ exchange
rate also impacts our results, as we have operations in Europe which results are translated in Canadian dollars.
SHIPMENTS/CONSUMPTION
('000 SHORT TONS, '000
MMBTU FOR NATURAL GAS)
INCREASE
(IN MILLIONS OF CAN$)
OIBD IMPACT
SELLING PRICE (MANUFACTURING AND CONVERTING) 2
North America
Containerboard
Specialty Products (Industrial Packaging and Specialty Papers
sectors only)
Tissue Papers
Europe
Boxboard
RAW MATERIALS 2
Recycled Papers
North America
Brown grades (OCC and others)
Groundwood grades (ONP and others)
White grades (SOP and others)
Europe
Brown grades (OCC and others)
Groundwood grades (ONP and others)
White grades (SOP and others)
Virgin pulp
North America
Europe
Natural gas
North America
Europe
Exchange rate 3
Sales less purchases in US$ from Canadian operations
U.S. subsidiaries translation
1,268
371
583
2,222
1,137
3,359
1,142
113
695
1,950
760
181
109
1,050
3,000
212
94
306
8,987
4,473
13,460
US$25/s.t.
US$25/s.t.
US$25/s.t.
€25/s.t.
US$15/s.t.
US$15/s.t.
US$15/s.t.
€15/s.t.
€15/s.t.
€15/s.t.
US$30/s.t.
€30/s.t.
US1.00/mmBtu
€1.00/mmBtu
US$/CAN$
0.01 change
US$/CAN$
0.01 change
33
10
15
39
97
(18)
(2)
(11)
(31)
(16)
(4)
(2)
(22)
(53)
(7)
(4)
(11)
(9)
(6)
(15)
(4)
(1)
(5)
1 Sensitivity calculated according to 2013 volumes or consumption, and with an exchange rate of US$/CAN$ 0.97 and €/CAN$ 0.73, excluding hedging programs and the
impact of related expenses such as discounts, commissions on sales and profit sharing.
2 Based on 2013 external manufacturing and converting shipments, as well as 2013 fibre and pulp consumption. including purchases from our subsidiary Cascades
Recovery.
3 As an example, from US$/CAN$ 0.97 to US$/CAN$ 0.98
18
CASCADES MANAGEMENT'S DISCUSSION & ANALYSIS - RESULTS ANALYSIS
BUSINESS HIGHLIGHTS
In 2014, 2013 and 2012, the Corporation completed several transactions (closure or acquisition of certain operating units) and announced
other restructuring measures and investments in order to optimize its asset base and streamline its cost structure. The following transactions
and announcements, which occurred in all three years, should be taken into consideration when reviewing the overall or segmented analysis
of the Corporation's results:
BUSINESS ACQUISITION, CLOSURES AND RESTRUCTURING
2014
BOXBOARD EUROPE
•
In February, the Corporation announced that its subsidiary, Cascades Djupafors, located in Ronneby, Sweden, started a consultation
process with the unions concerning the potential closure of the manufacturing activities.
2013
CONTAINERBOARD GROUP
•
On November 27, the Corporation announced the creation of a new joint venture in the Atlantic Provinces related, to our Newfoundland
and Moncton plants, with Maritime Paper Products Limited. The transaction was closed on February 1, 2014.
2012
CONTAINERBOARD GROUP
•
On April 1, the Corporation acquired Bird Packaging Limited's converting and warehousing facilities, located in Guelph, Kitchener and
Windsor, in Ontario.
•
•
On April 25, the Corporation announced, as part of a restructuring plan and concurrent investments of $30 million, the permanent closure
of three converting corrugated products plants, in Mississauga, North York and Peterborough, Ontario.
On September 5, the Corporation announced, as part of a restructuring plan and concurrent investments of $22 million, the closure of
its folding carton plant located in Lachute, Québec. The plant was closed at the beginning of the second quarter of 2013.
SPECIALTY PRODUCTS GROUP
•
On February 22, the Corporation announced the permanent closure of its honeycomb packaging facility located in Toronto, Ontario.
TISSUE PAPERS GROUP
•
On August 13, the Corporation announced the permanent closure of one of its converting plants located in Scarborough (McNicoll Street),
in Ontario.
SIGNIFICANT FACTS AND DEVELOPMENTS
i. During the third quarter of 2013, we announced plans to increase the tissue paper production capacity at our plant in St. Helens, Oregon.
The project, of which the total cost is estimated to be $35 million, consists in converting and starting up a second paper machine at our Oregon
plant. The retrofitting of an existing machine will allow us to bring additional capacity of 55,000 tons to this market at a lower capital cost and
on a faster timeline than if we were to build a new machine.
ii. Price increases
a) In the fourth quarter of 2012, our containerboard activities started implementing price increases of US$50 for its manufacturing and converting
products. These price increases were gradually implemented at the end of 2012 and in 2013. The 2013 results of this segment did benefit
from the full impact of these price increases.
b) In April 2013, our Containerboard Group announced price increases of US$50 per ton for our manufacturing products and of 10% for its
converting products. These price increases were gradually implemented in our corrugated products sector starting in May 2013 and completed
by the end of the third quarter.
CASCADES MANAGEMENT'S DISCUSSION & ANALYSIS - RESULTS ANALYSIS
19
c) During the third quarter of 2013, our North American boxboard activities announced price hikes on coated recycled paperboard (CRB) and
solid bleached sulfate (SBS) of US$40 and US$15, respectively. All of these price increases are gradually implemented and will continue to
impact our results in coming quarters.
d) In May 2013, our European recycled boxboard activities, Reno de Medici (RdM), announced a price hike of €50 per metric ton. Due to the
long order backlog and challenging market conditions, the positive impact of this price increase started to be felt at the end of the third quarter
and remained stable in the fourth quarter, net of the change in geographic mix.
iii. Since 2010, the Corporation has invested US$129 million ($130 million) (US$30 million ($32 million) in 2013) (including a bridge loan of
US$15 million ($15 million)) in Greenpac Mill LLC (Greenpac) in relation to the construction of a recycled containerboard mill in New York
State (U.S.A.), in partnership with third parties. The facility was built on the property located adjacent to the existing containerboard mill in
Niagara Falls, NY. Considered the most advanced in its category in North America, Greenpac produces a lightweight linerboard, made of 100-
per-cent-recycled fibre, on a 328-inch machine (8.33 meters), with an annual production capacity of 540,000 short tons. The mill successfully
started its production as planned on July 15. Our objective of achieving full capacity within 12 months still stands and the ramp-up has been
progressing according to plan. We are extremely satisfied with the efficiency of the board machine and the quality of the board. Average daily
production during the first six months was 639 short tons per day (799 short tons per day in the fourth quarter) with peaks at over 1,300 tons
on a nameplate capacity of 1,500 tons a day. In addition, positive operating income before depreciation was achieved in the fourth quarter.
The Corporation's interest in the project is 59.7% and except for the bridge loan, this investment is accounted for using the equity method.
The Corporation recorded its 59.7% share of the net results of Greenpac which includes start-up costs, depreciation and financing expenses.
The overall impact amounted to a net loss of $9 million including specific items for the year. Greenpac is a disregarded entity for tax purposes
and no income tax is included in our share of results of this investment.
The initial estimated cost of the Greenpac mill was US$430 million. The Corporation has entered into agreements to guarantee certain
obligations in relation to the construction of the mill. The Corporation has guaranteed cost overruns relating to the construction costs in excess
of the budgeted construction costs, which should remain in place until the ramp-up period is complete. The final costs of the project will be
determined at the end of the ramp-up period but we are estimating additional costs of approximately 10% over the initial project cost. The
necessary funding of these additional costs has been provided by the partners. In December 2013, the Corporation issued a letter of credit
in the amount of US$21 million in relation to the debt service reserve account of the project. This letter of credit will be reduced gradually, and
should be eliminated by the end of 2014. In August 2013, the Corporation filed a lawsuit against the former owner of the land where the
Greenpac mill has been built, for compensatory damages in relation to additional costs incurred to remediate contaminated soil.
iv. In 2010, The Corporation entered into a put and call agreement with Industria E Innovazione (“Industria”) whereby it had the option to buy
9.07% of the shares of Reno de Medici (RdM) (100% of the shares held by Industria) for €0.43 per share between March 1, 2011 and December
31, 2012. Industria also had the option of requiring the Corporation to purchase its shares for €0.41 per share between January 1, 2013 and
March 31, 2014. As the put option held by Industria became effective on January 1, 2013 and the Corporation expected it would be exercised
after the first quarter of 2013, an obligation in the amount of €14 million ($18 million) was recorded by the Corporation as at March 31, 2013.
Consequently, the non-controlling interest has been adjusted by 9.07% effective January 1, 2013, to 42.39%. Industria did raise the put option
in the second quarter of 2013, resulting in a cash payment for the Corporation of €14 million ($19 million). Our share in the equity of RdM, as
at December 31, 2013, stands at 57.61%.
v. On May 9, 2013, Mr. Mario Plourde was appointed as the new President and Chief Executive Officer (“CEO”) of the Corporation, following
a two-year transition as Chief Operating Officer.
20
CASCADES MANAGEMENT'S DISCUSSION & ANALYSIS - RESULTS ANALYSIS
NEW IFRS ADOPTED IN 2013
IAS 19 - EMPLOYEE BENEFITS
IAS 19 has been amended and includes significant changes to the recognition and measurement of the defined benefit pension expense and
termination benefits, and enhances the disclosure of all employee benefits. As such, the Corporation retroactively restated its 2012 consolidated
financial statements (for more details, see Note 3 of the consolidated financial statements). It is worth noting that it is a non-cash adjustment
and does not affect the Corporation's financial ratios related to its various credit agreements.
The following table summarizes the changes to the statement of earnings per quarter for 2012:
(in millions of Canadian dollars, unless otherwise noted)
Increase in interest expense on employee future benefits
Related income tax recovery
Net loss impact
Net earnings (loss) attributable to Shareholders for the period as reported
in 2012
Net earnings (loss) per share as reported (basic and diluted, in dollars)
Restated net earnings (loss) attributable to Shareholders for the
period
Restated net earnings (loss) per share (basic and diluted, in dollars)
Q1 2012
4
(1)
(3)
Q2 2012
3
(1)
(2)
Q3 2012
4
(1)
(3)
Q4 2012
4
(1)
(3)
6
0.06 $
3
0.03 $
7
0.08 $
5
0.05 $
5
0.05 $
2
0.02 $
(29)
(0.30) $
(32)
(0.33) $
$
$
2012
15
(4)
(11)
(11)
(0.11)
(22)
(0.23)
CASCADES MANAGEMENT'S DISCUSSION & ANALYSIS - RESULTS ANALYSIS
21
KEY PERFORMANCE INDICATORS
In order to achieve our long-term objectives while also monitoring our action plan, we use several key performance indicators, including the
following:
OPERATIONAL
Total shipments (in '000 s.t.) 1
Packaging Products
Containerboard
Boxboard Europe 2
Specialty Products 3
Tissue Papers 2
Total
Integration rate 4
Containerboard only (North
America)
Tissue Papers
Manufacturing capacity
utilization rate 5
Packaging Products
Containerboard
Boxboard Europe
Specialty Products (paper only)
Tissue Papers
Total
2011
TOTAL
1,372
897
377
2,646
513
3,159
Q1
Q2
Q3
Q4
TOTAL
Q1
Q2
Q3
Q4
TOTAL
2012
2013
302
277
98
677
130
807
297
285
97
679
146
825
298
261
99
658
147
805
293
281
91
665
141
806
1,190
1,104
385
2,679
564
3,243
296
299
94
689
143
832
324
301
94
719
149
868
334
260
93
687
153
840
314
277
90
681
138
819
1,268
1,137
371
2,776
583
3,359
62%
60%
64%
72%
66%
68%
67%
68%
64%
69%
65%
69%
62%
69%
57%
70%
55%
71%
51%
72%
56%
70%
91%
88%
77%
90%
88%
88%
92%
78%
94%
89%
85%
95%
77%
98%
90%
86%
86%
79%
97%
87%
86%
93%
72%
94%
88%
86%
92%
77%
96%
88%
87%
99%
76%
98%
91%
90%
99%
76%
98%
93%
88%
86%
74%
100%
88%
84%
91%
72%
93%
87%
87%
94%
75%
97%
90%
Energy cons.6 - GJ/ton
11.38
11.86
11.18
10.89
11.71
11.41
12.01
10.98
10.40
11.54
11.23
Work accidents 7 - OSHA
frequency rate
FINANCIAL
Return on assets 8
Packaging Products
Containerboard
Boxboard Europe
Specialty Products
Tissue Papers
Consolidated return on assets
Return on capital employed 9
Working capital 10
In millions of $, at end of period
% of sales 11
4.50
3.20
3.80
4.60
3.50
3.78
3.10
3.30
3.10
3.20
3.20
6%
7%
7%
11%
6.5%
1.3%
7%
7%
7%
11%
7.1%
1.9%
7%
6%
8%
15%
7.6%
2.3%
7%
6%
8%
17%
7.5%
2.3%
7%
6%
9%
19%
8.1%
2.8%
7%
6%
9%
19%
8.1%
2.8%
8%
6%
9%
18%
8.0%
2.8%
9%
6%
10%
18%
8.0%
2.9%
10%
6%
10%
18%
8.5%
3.2%
11%
7%
12%
18%
9.3%
4.0%
11%
7%
12%
18%
9.3%
4.0%
510
14.8%
536
14.8%
549
15.0%
524
14.8%
455
14.4%
455
14.4%
488
14.0%
544
13.5%
485
13.1%
455
12.9%
455
12.9%
1 Shipments do not take into account the elimination of business sector intercompany shipments.
2 Starting in the second quarter of 2011, shipments take into account the full consolidation of RdM. Starting in the fourth quarter of 2011, shipments take into account the acquisition of Papersource.
3 Industrial packaging and specialty papers shipments.
4 Defined as : Percentage of manufacturing shipments transferred to our converting operations. Containerboard excludes manufacturing shipments from our North American boxboard operations.
5 Defined as: Manufacturing internal and external shipments/Practical capacity.
6 Average energy consumption for manufacturing mills only, excluding RdM.
7 Starting in Q1 2013, the rate includes Papersource and Bird Packaging. Excluding RdM.
8 Return on assets is a non-IFRS measure defined as the last twelve months (“LTM”) OIBD excluding specific items/LTM average of total assets. It includes or excludes significant business
acquisitions and disposals, respectively, of the last twelve months on a pro-forma basis.
9 Return on capital employed is a non-IFRS measure and is defined as the after-tax (30%) amount of the LTM operating income excluding specific items/average LTM capital employed. Capital
employed is defined as the total assets less accounts payable and accrued liabilities. It includes or excludes significant business acquisitions and disposals, respectively, of the last twelve months
on a pro-forma basis.
10 Working capital includes accounts receivable (excluding the short-term portion of other assets) plus inventories less accounts payable and accrued liabilities. It includes or excludes significant
business acquisitions and disposals, respectively, of the last twelve months on a pro-forma basis.
11 % of sales = Average LTM working capital/LTM sales. It includes or excludes significant business acquisitions and disposals, respectively, of the last twelve months on a pro-forma basis.
22
CASCADES MANAGEMENT'S DISCUSSION & ANALYSIS - RESULTS ANALYSIS
HISTORICAL FINANCIAL INFORMATION
Q1
Q2
Q3
Q4
TOTAL
Q1
Q2
Q3
Q4
TOTAL
2012 RESTATED 1
2013
2011
TOTAL
1,293
745
851
(104)
2,785
871
(31)
3,625
(25)
10
(12)
(27)
52
(17)
8
85
42
34
161
72
(4)
229
99
(14)
(in millions of Canadian dollars, unless otherwise noted)
Sales
Packaging Products
Containerboard
Boxboard Europe
Specialty Products
Inter-segment sales
Tissue Papers
Inter-segment sales and Corporate
activities
Total
Operating income (loss)
Packaging Products
Containerboard
Boxboard Europe
Specialty Products
Tissue Papers
Corporate activities
Total
OIBD excluding specific items 2
Packaging Products
Containerboard
Boxboard Europe
Specialty Products
Tissue Papers
Corporate activities
Total
Net earnings (loss) 1
Excluding specific items 2
Net earnings (loss) per share (in
dollars) 1
Basic
Basic, excluding specific items 2
284
204
202
(18)
672
229
(10)
891
8
4
5
17
21
(9)
29
21
13
11
45
33
(6)
72
3
1
300
208
209
(19)
698
255
(9)
944
(1)
—
8
7
26
(4)
29
23
11
15
49
39
(4)
84
5
5
299
181
197
(17)
660
253
(7)
906
7
(1)
8
14
24
(2)
36
26
7
15
48
35
(5)
78
2
4
306
198
183
(14)
673
242
(11)
904
(29)
(2)
2
(29)
21
(11)
(19)
25
11
8
44
31
(5)
70
(32)
(5)
1,189
791
791
(68)
2,703
979
(37)
3,645
(15)
1
23
9
92
(26)
75
95
42
49
186
138
(20)
304
(22)
5
298
212
189
(14)
685
241
(12)
914
11
2
5
18
18
(16)
20
25
11
11
47
29
(8)
68
(8)
(4)
335
215
196
(17)
729
264
(11)
982
21
1
9
31
23
(16)
38
33
10
16
59
33
(9)
83
2
8
353
194
197
(15)
729
279
(13)
995
33
—
(12)
21
29
(13)
37
42
9
15
66
39
(9)
96
11
7
328
216
192
(15)
721
249
(12)
958
28
(10)
4
22
36
(13)
45
46
21
16
83
32
(10)
105
6
18
1,314
837
774
(61)
2,864
1,033
(48)
3,849
93
(7)
6
92
106
(58)
140
146
51
58
255
133
(36)
352
11
29
0.11
0.31
226
$
1.03 $
$ (0.14) $
0.03 $
0.01 $
.
0.05 $
0.05 $
0.02 $ (0.33) $ (0.23) $ (0.09) $
0.05 $ (0.04) $
0.05 $ (0.06) $
0.03 $
0.09 $
0.12 $
0.07 $
0.05 $
0.19 $
Cash flow from continuing operations 2
126
48
37
42
34
161
46
41
78
61
Net debt 3
1,485
1,524
1,585
1,542
1,535
1,535
1,581
1,675
1,601
1,612
1,612
Cascades North American US$ selling
price index (2005 index = 1,000) 4
Cascades North American US$ raw
materials index (2005 index = 300) 4
US$/CAN$
EURO€/CAN$
Natural Gas Henry Hub - US$/mmBtu
1,256
1,271
1,227
1,233
1,261
1,248
1,262
1,298
1,319
1,313
1,298
472
1.01 $
0.73 $
4.04 $
386
1.00 $
0.76 $
2.74 $
382
0.99 $
0.77 $
2.22 $
367
1.01 $
0.80 $
2.81 $
340
1.01 $
0.78 $
3.40 $
369
1.00 $
0.78 $
2.79 $
353
0.99 $
0.75 $
3.34 $
348
0.98 $
0.75 $
4.09 $
358
0.96 $
0.73 $
3.58 $
360
0.95 $
0.70 $
3.60 $
355
0.97
0.73
3.65
$
$
$
Sources: Bloomberg and Cascades.
1 The 2012 figures were restated to comply with IAS19 standard - Employee benefits (please refer to page 21 for more details)
2 See “Supplemental information on non-IFRS measures.”
3 Defined as total debt less cash and cash equivalents.
4 See Notes 1 and 2 on page 17.
CASCADES MANAGEMENT'S DISCUSSION & ANALYSIS - RESULTS ANALYSIS
23
SUPPLEMENTAL INFORMATION ON NON-IFRS MEASURES
Net earnings (net loss), a performance measure defined by IFRS, is reconciled below with operating income, operating income excluding
specific items and operating income before depreciation and amortization excluding specific items:
(in millions of Canadian dollars)
Net earnings (loss) attributable to Shareholders for the year
Net earnings (loss) attributable to non-controlling interest
Net loss (earnings) from discontinued operations
Provision for (recovery of) income taxes
Share of results of associates and joint ventures
Foreign exchange gain on long-term debt and financial instruments
Financing expense and interest on future employee benefits
Operating income
Specific items:
Loss (gain) on acquisitions, disposals and others
Impairment charges
Restructuring costs
Unrealized gain on financial instruments
Accelerated depreciation due to restructuring measures
Operating income - excluding specific items
Depreciation and amortization, excluding specific items
Operating income before depreciation and amortization - excluding specific items
2013
11
3
(2)
12
3
(2)
115
140
3
27
6
(6)
—
30
170
182
352
2012
(22)
(7)
5
(6)
(2)
(8)
115
75
(1)
29
7
(5)
13
43
118
186
304
The following table reconciles net earnings (net loss) and net earnings (net loss) per share with net earnings excluding specific items and net
earnings per share excluding specific items:
(in millions of Canadian dollars, except amount per share)
As per IFRS
Specific items :
Loss (gain) on acquisitions, disposals and others
Impairment charges
Restructuring costs
Unrealized gain on financial instruments
Accelerated depreciation due to restructuring measures
Unrealized gain on interest rate swaps
Foreign exchange gain on long-term debt and financial instruments
Share of results of associates and joint ventures
Included in discontinued operations, net of tax
Tax effect on specific items, other tax adjustments and attributable to
non-controlling interest 1
Excluding specific items
NET EARNINGS (LOSS)
2013
11
NET EARNINGS (LOSS) PER SHARE 1
2012
(0.23)
2013
0.11 $
2012
(22) $
3
27
6
(6)
—
(1)
(2)
(4)
(2)
(3)
18
29
(1) $
29 $
7 $
(5) $
13
— $
(8) $
(2) $
5 $
(11)
27 $
5 $
0.03 $
0.25 $
0.04 $
(0.04) $
— $
(0.01)
(0.02) $
(0.03) $
(0.02) $
—
0.20 $
0.31 $
(0.01)
0.22
0.05
(0.04)
0.10
—
(0.07)
(0.02)
0.05
—
0.28
0.05
1 Specific amounts per share are calculated on an after-tax basis and net of the portion attributable to non-controlling interest.
24
CASCADES MANAGEMENT'S DISCUSSION & ANALYSIS - RESULTS ANALYSIS
The following table reconciles cash flow provided by operating activities with operating income and operating income before depreciation and
amortization:
(in millions of Canadian dollars)
Cash flow provided by operating activities
Changes in non-cash working capital components
Depreciation and amortization
Income taxes paid (received)
Net financing expense paid
Gain (loss) on acquisitions, disposals and others
Impairment charges and restructuring costs
Unrealized gain on derivative financial instruments
Dividend received, employee future benefits and others
Operating income
Depreciation and amortization
Operating income before depreciation and amortization
2013
232
(6)
(182)
(5)
100
(3)
(30)
6
28
140
182
322
2012
203
(42)
(199)
17
99
1
(30)
5
21
75
199
274
CASCADES MANAGEMENT'S DISCUSSION & ANALYSIS - RESULTS ANALYSIS
25
FINANCIAL RESULTS FOR THE YEAR ENDED DECEMBER 31, 2013 COMPARED TO
THE YEAR ENDED DECEMBER 31, 2012
SALES
Sales increased by $204 million, or 6%, to $3,849 million in 2013 compared to $3,645 million in 2012 resulting from higher volumes of 4%
and from the 6% and 3% depreciation of the Canadian dollar against, respectively, the Euro and the U.S. dollar. That increase was partly
offset by the negative impacts of lower average selling prices and mix throughout most of our business segments.
Sales by geographic segment are as follows:
Sales from (in %)
Sales to (in %):
OPERATING INCOME FROM CONTINUING OPERATIONS
The Corporation generated an operating income of $140 million in 2013 compared to $75 million in 2012, an increase of $65 million. The
higher volume, lower energy costs, depreciation of the Canadian dollar and positive impacts of businesses acquired and closed were the
factors behind the increase in operating income but were partly offset by the negative impacts of lower average selling prices and unfavourable
mix throughout most of our business segments, higher raw materials costs due to outside purchases and other production costs such as
outside subcontracting and production inefficiencies. We also incurred additional costs related to our initiatives of upgrading our information
systems and the re-engineering of our business processes. Excluding specific items, the operating income stood at $170 million in 2013
compared to $118 million in the same period of 2012 (see the “Supplemental Information on non-IFRS measures” and ''Specific items included
in operating income, financing expense, discontinued operations and net earnings'' sections for reconciliation of these amounts).
Our 2013 operating income before depreciation was also impacted by the following items:
•
•
•
A loss of approximately $4 million during the third quarter following flooding incidents resulting in additional maintenance and repair
expenses, and unplanned downtime, for a shortfall of 5,800 tons at our existing containerboard mill in Niagara Falls, USA, and 4,000 tons
at our fine paper mill in St-Jérôme, Québec.
A $5 million gain resulting from a decrease in our post-retirement benefits liability following a change to our benefits program;
A $6 million gain resulting from energy savings certificates (''white certificates'') awarded at the end of 2013 by the Italian authorities to
our European recycled boxboard operations, following an energy efficiency improvement program for the years 2010, 2011 and 2012.
26
CASCADES MANAGEMENT'S DISCUSSION & ANALYSIS - RESULTS ANALYSIS
The main variances in sales and operating income in 2013, compared to 2012, are shown below:
Sales ($M)
Operating income ($M)
1 Raw materials: The impacts of these estimated costs are based on production costs per unit, which are affected by yield, product mix changes and purchase and transfer prices. In addition to market
pulp and recycled fibre, they include purchases of external boards and parent rolls for the converting sector, and other raw materials such as plastics and woodchips.
2 F/X CAN$: The estimated impact of the exchange rate is based only on the Corporation's export sales less purchases that are impacted by exchange rate fluctuations, mainly the US$/CAN$ variation.
It also includes the impact of the exchange rate on the Corporation's working capital items and cash position.
3 Other costs: Other costs include the impact of variable and fixed costs based on production costs per unit, which are affected by downtimes, efficiencies and product mix changes.
4 OIBD: Excluding specific items.
The operating income variance analysis by segment is shown in each business segment review (refer to pages 32 to 39).
CASCADES MANAGEMENT'S DISCUSSION & ANALYSIS - RESULTS ANALYSIS
27
SPECIFIC ITEMS INCLUDED IN OPERATING INCOME, FINANCING EXPENSE,
DISCONTINUED OPERATIONS AND NET EARNINGS
The Corporation incurred some specific items in 2013 and 2012 that adversely or positively affected its operating results. We believe that it
is useful for readers to be aware of these items, as they provide a measure of performance with which to compare the Corporation's results
between periods, notwithstanding these specific items.
The reconciliation of the specific items included in operating income by business group is as follows:
(in millions of Canadian dollars)
Operating income (loss)
Depreciation and amortization
Operating income (loss) before depreciation and
amortization
Specific items:
Loss (gain) on acquisitions, disposals and others
Impairment charges (reversal)
Restructuring costs
Unrealized loss (gain) on financial instruments
Operating income (loss) before depreciation and
amortization - excluding specific items
Operating income (loss) - excluding specific items
(in millions of Canadian dollars)
Operating income (loss)
Depreciation and amortization
Operating income (loss) before depreciation and
amortization
Specific items:
Gain on acquisitions, disposals and others
Impairment charges
Restructuring costs
Unrealized loss (gain) on financial instruments
Operating income (loss) before depreciation and
amortization - excluding specific items
Accelerated depreciation due to restructuring measures
Operating income (loss) - excluding specific items
Container-
board
93
60
Boxboard
Europe
(7)
37
Specialty
Products
6
26
Tissue
Papers
106
44
Corporate
Activities
(58)
15
2013
Consolidated
140
182
(43)
322
153
(2)
1
2
(8)
(7)
146
86
30
—
17
4
—
21
51
14
32
—
26
—
—
26
58
32
150
—
(17)
—
—
(17)
133
89
5
—
—
2
7
(36)
(51)
Container-
board
(15)
79
Boxboard
Europe
1
37
Specialty
Products
23
26
Tissue Papers
92
46
Corporate
Activities
(26)
11
64
(1)
25
6
1
31
95
12
28
38
—
3
1
—
4
42
—
5
49
—
—
—
—
—
49
—
23
138
(15)
274
—
—
—
—
—
138
1
93
—
1
—
(6)
(5)
(20)
—
(31)
(1)
29
7
(5)
30
304
13
118
3
27
6
(6)
30
352
170
2012
Consolidated
75
199
LOSS (GAIN) ON ACQUISITIONS, DISPOSALS AND OTHERS
In 2013 and 2012, the Corporation recorded the following gain and other charge:
(in millions of Canadian dollars)
Employment contracts
Gain on disposal of property, plant and equipment
2013
5
(2)
3
2012
—
(1)
(1)
28
CASCADES MANAGEMENT'S DISCUSSION & ANALYSIS - RESULTS ANALYSIS
2013
As part of the transition process related to the appointment of a new President and CEO, the Corporation entered into employment contracts
with the new President and CEO, and its Presidents of the Containerboard, Specialty Products and Tissue Papers business segments. The
fair value of the post-employment benefit obligation related to these employment contracts was evaluated at $5 million as at March 31, and
an equivalent charge has been recorded.
In the second quarter, the Containerboard Group sold a piece of land located at its New York City, U.S.A., containerboard plant and recorded
a gain of $2 million on the disposal.
2012
The Containerboard Group sold a vacant piece of land located next to the Vaudreuil, Québec corrugated containerboard plant and recorded
a gain of $1 million on the disposal.
IMPAIRMENT CHARGES (REVERSAL) AND RESTRUCTURING COSTS
In 2013 and 2012, the Corporation recorded the following impairment charges (reversal) and restructuring costs:
(in millions of Canadian dollars)
Containerboard Group
Boxboard Europe Group
Specialty Products Group
Tissue Papers Group
Corporate activities
2013
Impairment
charges
(reversal)
1
17
26
(17)
—
27
2013
Restructuring
costs
2
4
—
—
—
6
2012
Restructuring
costs
6
1
—
—
—
7
Impairment
charges
25
3
—
—
1
29
The Containerboard Group recorded an impairment charge of $1 million due to the reevaluation of notes receivable from 2011 business
disposals.
The Containerboard Group also recorded a $1 million provision relating to an onerous lease contract and additional severances provision
totaling $1 million in relation to the consolidation of its Ontario converting activities, announced in 2012.
The Boxboard Europe Group reviewed the recoverable amount of its Magenta and Marzabotto (both in Italy) and Iberica, Spain, recycled
boxboard manufacturing mills, and recorded impairment charges on property, plant and equipment totaling $7 million. The slow recovery of
the European economic environment since the 2009 financial crisis negatively impacted profitability of these mills and led to the consolidation
of our recycled boxboard activities in Europe.
The Boxboard Europe Group also recorded an impairment charge of $10 million on property, plant and equipment of its Djupafors, Sweden
virgin boxboard mill, due to sustained difficult market conditions and insufficient profitability.
The Boxboard Europe Group recorded severances totaling $4 million in relation to consolidation of its recycled boxboard activities in Italy and
Spain as well as its virgin boxboard mill located in Djupafors, Sweden.
The Specialty Product Group reviewed the recoverable amount of its East Angus, Québec, kraft paper mill and recorded impairment charges
of $16 million on property, plant and equipment and $4 million on spare parts. The strength of the Canadian dollar over the last few years,
combined with lower demand, reduced profitability.
The Specialty Group also reviewed the recoverable amount of its honeycomb activities CGU and recorded an impairment charge of $2 million
on a client list and $4 million on goodwill. Low shipments in this sector do not generate enough profitability to support the carrying value of
these intangible assets with a finite life.
CASCADES MANAGEMENT'S DISCUSSION & ANALYSIS - RESULTS ANALYSIS
29
The Tissue Papers Group recorded a $17 million reversal of impairment on its Memphis, Tennessee, manufacturing mill. The Corporation
had initially recorded an impairment charge of $22 million at transition date to IFRS on January 1, 2010, due to operational challenges. Since
then, the Corporation implemented a Group Best Practice program to maximize efficiency at all of its plants. These actions contributed to
solving operating difficulties at the Memphis mill.
2012
The Containerboard Group reviewed the recoverable value of its Mississauga manufacturing mill, and impairment charges of $21 million on
fixed assets and $2 million on intangible assets were recorded due to difficult market conditions. The Containerboard Group also recorded
additional impairment charges totaling $2 million on its Burnaby mill and Le Gardeur converting plant which were closed in 2011.
On April 25, the Corporation announced the closure of its North York, Peterborough and Mississauga units in Ontario. These plants are part
of the Containerboard Group. These closures resulted in the recognition of an onerous contract and severance provisions totaling $7 million.
On September 5, 2012, the Corporation announced the closure of its Lachute folding carton plant, part of the Containerboard Group. This
resulted in the recognition of severance provisions totaling $2 million and a curtailment gain on pension plan amounting to $2 million.
During the year, the Containerboard Group recorded a $1 million reversal of an environmental provision with regard to its Burnaby manufacturing
mill closed in 2011.
The Boxboard Europe Group reviewed the recoverable value of its temporarily closed Magenta manufacturing mill, and recorded impairment
charges of $2 million on fixed assets and $1 million on spare parts. It also recorded a severance provision of $1 million.
The Corporation also recorded an impairment charge of $1 million in its corporate activities due to the reevaluation of notes receivable from
business disposals realized in 2011.
DERIVATIVE FINANCIAL INSTRUMENTS
In 2013, the Corporation recorded an unrealized gain of $6 million, compared to an unrealized gain of $5 million in 2012, on financial instruments
related to currency hedging as well as commodities such as electricity, natural gas and recovered paper.
INTEREST RATE SWAPS
In 2013, the Corporation recorded an unrealized gain of $1 million on financial instruments on interest rate swaps (nil in 2012).
FOREIGN EXCHANGE GAIN ON LONG-TERM DEBT AND FINANCIAL INSTRUMENTS
In 2013, the Corporation recorded a gain of $2 million (2012 - gain of $8 million) on its US$-denominated debt and related financial instruments.
This is composed of a loss of $7 million (2012 - $4 million gain) on our US$-denominated long-term debt net of our net investment hedge in
the U.S. and forward exchange contracts designated as hedging instruments. It also includes a $9 million gain (2012 - $4 million gain) on
foreign exchange forward contracts not designated as hedging instruments.
SHARE OF RESULTS OF ASSOCIATES AND JOINT VENTURES
In 2013, the share of results of our associates, and joint ventures includes an unrealized gain of $5 million on financial instruments related to
commodity contracts. It also includes an impairment charge of $1 million on an investment in our European recycled boxboard activities.
DISCONTINUED OPERATIONS
On March 11, 2011, the Corporation announced that it had entered into an agreement for the sale of Dopaco Inc. and Dopaco Canada Inc.
(collectively Dopaco), its converting business for the quick-service restaurant industry, which was part of the Containerboard Group, to Reynolds
Group Holdings Limited.
2013
In 2013, we reversed a $2 million provision for which we retained liability following this transaction since it did not materialize.
30
CASCADES MANAGEMENT'S DISCUSSION & ANALYSIS - RESULTS ANALYSIS
2012
The Corporation also retained liability for certain pending litigation, namely a claim of damages in relation to the contamination of a site
previously used by Dopaco. In 2012, the Corporation recorded a provision of $2 million (net of related income tax of $1 million) regarding this
claim. Following the settlement of this claim, the Corporation paid $2 million. In 2012, the Corporation also recorded an income tax adjustment
of $3 million relating to the finalization of the income tax on the Dopaco gain.
ACCELERATED DEPRECIATION DUE TO RESTRUCTURING MEASURES
On April 25, 2012, the Corporation announced, in the Containerboard Group, the closure of its North York and Peterborough units as well as
the OCD plant in Mississauga. These closures resulted in accelerated depreciation of $3 million, due to the revaluation of the remaining useful
life and residual value of some equipment.
That same group also reviewed the useful life and residual value of its Trenton steam reformer and recorded accelerated depreciation totaling
$9 million.
On August 13, 2012, the Corporation announced the closure of its Tissue Papers Group plant located in Scarborough and reviewed the useful
life and residual value of its assets which resulted in accelerated depreciation of $1 million.
CASCADES MANAGEMENT'S DISCUSSION & ANALYSIS - RESULTS ANALYSIS
31
BUSINESS SEGMENT REVIEW
PACKAGING PRODUCTS - CONTAINERBOARD
Our Industry
U.S. containerboard industry production and capacity utilization rate 1
In 2013, the market remained relatively balanced. Total production slightly increased
to meet demand so the capacity utilization rate remained stable.
U.S. containerboard inventories at box plants and mills 2
The increase in inventories recorded in 2013 can be explained by new supply
coming to market in North America in the context of limited containerboard demand
growth in the US.
Canadian corrugated box industry
shipments 3
Shipments in Canada slightly decreased in 2013
compared to 2012 as the economic environment was
less favourable.
Reference prices - Recycled fibre 1
Reference prices - Containerboard 1
The average American Northeast reference price of
corrugated containers #11 slightly decreased in 2013
due to weak Asian demand and ample domestic
supply due to the Green Fence program in China.
Containerboard reference prices posted a second
increase of $50/ton in April 2013. Likewise, average
boxboard reference prices increased by $20/ton in
2013, due to higher demand.
1 Source: RISI
2 Source: Fiber box Association
3 Source: Paper Packaging Canada
Our Performance
Sales
OIBD and OIBD margin
(excluding specific items)
Shipments and manufacturing
capacity utilization rate
Average selling price
32
CASCADES MANAGEMENT'S DISCUSSION & ANALYSIS - RESULTS ANALYSIS
2012
2013
Change in %
Shipments 1 ('000 s.t.)
1,268
1,190
Average Selling Price 2
(CAN$/unit)
997
998
(US$/unit)
1,035
1,005
Sales ($M)
1,189
1,314
Operating income (loss) ($M)
(as reported)
(15)
(excluding specific items)
93
28
64
5%
OIBD ($M)
(as reported)
% of sales
86
153
12%
(excluding specific items)
146
95
% of sales
8%
11%
7%
4%
1%
11%
720%
207%
139%
54%
1 Shipments do not take into account the elimination of business sector
intercompany shipments.
2 Average selling price is a weighted average of containerboard and
boxboard shipments.
Shipments increased by 7%, or 78,000 s.t. to 1,268,000 s.t. in 2013, compared to
1,190,000 s.t. in 2012. The mills' external shipments went up by 80,000 s.t., coming
principally from containerboard mills that sold fewer tons internally in good part due to the
start-up of Greenpac, which took over a portion of the internal linerboard supply. Since our
participation in Greenpac is accounted for using the equity method, these purchases from
Greenpac are accounted for as external purchases for the Group. The mills’ external
shipments could have been 5,800 s.t. higher if it were not for a flood that affected the Niagara
Falls mill. The converting operations reported a solid performance in shipments in 2013.
In fact, their volume increased by 1.2% (same-plant basis), whereas the Canadian
corrugated products industry experienced a volume decrease of 0.6%.
The total average selling price went up by $38, or 4%, to $1,035 per s.t. in 2013 compared
to $997 in 2012. Both our primary mills and corrugated products units benefited from the
two latest containerboard selling price increases, as well as the weakening of the Canadian
dollar. The Group’s containerboard mills' average selling price went up by $65 per s.t., while
the corrugated products plants average selling price rose by $80 per s.t., although these
price increases were partially nullified by a change in the Group’s product mix. In fact, with
volume up by 18%, the primary mills increased their share of the Group’s total shipments
by 4%, which are sold at a lower price than converted products.
As a result, the Containerboard Group’s sales increased by $125 million, or 11%, to
$1,314 million in 2013 compared to $1,189 million in 2012. Except for the change in the
Group’s product mix highlighted above, which negatively impacted sales by $47 million, all
factors impacting the Group’s revenue line were positive. The higher volume registered in
the period added $96 million of sales, with the 3% depreciation in the value of the Canadian
dollar against the U.S. dollar adding another $16 million. In addition, the average selling
price increase and the acquisition of Bird Packaging in April 2012 resulted in supplemental
sales of, respectively, $53 million (excluding the effect of the mix of the products sold) and
$6 million.
Excluding specific items, operating income rose to $86 million in 2013 compared to
$28 million in 2012, an increase of $58 million. Variable costs declined by $36 million
following the increased portion of our primary mills’ activities, lower energy costs in the
manufacturing sub-sector and lower chemical costs in the converting segment resulting
from a reduction in the percentage of wax products sold. Higher volume contributed to
$32 million of additional income, while Management’s strategic decisions to close three
converting plants in Ontario, along with the Burnaby mill and also the acquisition of Bird
Packaging in 2012, provided an additional $14 million. In 2013, the Group’s decision to end
the medical insurance coverage of future retirees allowed us to reverse $5 million of the
post-retirement provision. On the other hand, the Group bought more paper on the market,
mainly from its Greenpac investment, to supply its converting units resulting in a negative
raw materials variance of $32 million. Finally, impairment charges and accelerated
depreciation recorded at the end of 2012 on containerboard assets resulted in a $19 million
reduction in the depreciation expense.
The main variances in sales and operating income (loss) for the Containerboard Group are shown below:
Sales ($M)
Operating income (loss) ($M)
For Notes 1 to 4, see definitions on page 27.
The Corporation incurred some specific items in 2013 and 2012 that adversely or positively affected its operating results. Please refer to pages 28 to 31 for more details and
reconciliation.
CASCADES MANAGEMENT'S DISCUSSION & ANALYSIS - RESULTS ANALYSIS
33
BUSINESS SEGMENT REVIEW (continued)
PACKAGING PRODUCTS - BOXBOARD EUROPE
Our Industry
European industry's order inflow of coated boxboard from Europe 1
The year 2013 was generally better for the European coated boxboard industry. Order inflows increased by 3% for both the WLC and FBB markets.
Coated recycled boxboard industry's order inflow from Europe 1
(White-lined chipboard (WLC) - 5-week weekly moving average)
Virgin coated duplex boxboard industry's order inflow from Europe 1
(Folding boxboard (FBB) - 5-week weekly moving average)
Reference prices - Boxboard Europe 4
Due to the weak economic environment in Europe, both the recycled WLC and FBB
reference prices have been decreasing since 2011. Announced price increase
during the year was only partially successful.
Reference prices - Recycled fibre in Europe 4, 5
In 2013, our recovered paper reference index in Europe remained relatively stable
due to lower Asian demand.
1 Source: CEPI Cartonboard
2 The Cascades recycled white-lined chipboard selling prices index represents an approximation of Cascades’ recycled grade selling prices in Europe. It is weighted by country. For each country, we
use an average of PPI Europe and EUWID prices for white-lined chipboard.
3 The Cascades virgin coated duplex boxboard selling prices index represents an approximation of Cascades’ virgin grade selling prices in Europe. It is weighted by country. For each country, we use
an average of PPI Europe and EUWID prices for coated duplex boxboard.
4 Source: RISI
5 The Cascades recovered mixed paper and board sorted prices index represents an approximation of Cascades’ recovered paper purchase prices in Europe. It is weighted by country. For each
country, we use an average of PPI Europe and EUWID prices for recovered mixed paper and board. This index should only be used as a trend indicator and may differ from our actual purchasing
costs and our purchase mix.
Our Performance
Sales
OIBD and OIBD margin
(excluding specific items)
Shipments and manufacturing
capacity utilization rate
Average selling price
34
CASCADES MANAGEMENT'S DISCUSSION & ANALYSIS - RESULTS ANALYSIS
2012
2013
Change in %
Shipments 1 ('000 s.t.)
1,137
1,104
Average Selling Price 2
(CAN$/unit)
717
558
791
(Euro€/unit)
Sales ($M)
736
538
837
Operating income (loss) ($M)
(as reported)
1
(7)
(excluding specific items)
5
38
5%
OIBD ($M)
(as reported)
% of sales
14
30
4%
(excluding specific items)
42
5%
% of sales
51
6%
3%
3%
-4%
6%
-800%
180%
-21%
21%
Shipments increased by 33,000 s.t., or 3%, to reach 1,137,000 s.t. in 2013, compared to
1,104,000 s.t. in 2012. The major part of that increase is related to the growth of European
demand for white-lined chipboard for packaging, from recycled fibres.
The total average selling price went up by $19, to $736 per s.t. in 2013, compared to $717
in 2012 resulting from a lower Canadian dollar. The average selling price in Euros decreased
due to the challenging economy and market environment in Europe, which caused an
average selling price decrease of €20, or 4%, to €538 in 2013, compared to €558 in 2012.
The recycled and virgin boxboard activities selling prices are down by €15 and €40
respectively in 2013, compared to 2012. The challenging economy and market conditions
prevailing during the first half of the year have been detrimental to our average selling price.
A price increase announcement of €50 made in May of this year was partially implemented
during the second half of the year. On the other hand, a change in geographic mix compared
to last year negatively impacted the average selling price. Our European activities should
continue to benefit from recently announced price increases (see the “Significant Facts and
Developments” section on page 20 for more details on price increases).
As a result, the Boxboard Europe Group’s sales increased by $46 million, or 6%, to
$837 million in 2013 compared to $791 million in 2012. The 6% depreciation of the Canadian
dollar against the Euro and higher volumes accounted, respectively, for $50 million and
$25 million of the increase. On the other hand, as explained above, lower average selling
prices partly offset the increase by $29 million.
Excluding specific items, operating income stood at $14 million in 2013 compared to
$5 million in 2012, an increase of $9 million. Lower energy costs combined with a gain on
certificates of energy efficiency issued by the Italian authorities for the promotion and the
reward of energy savings achieved through approved projects, accounted for $14 million of
the increase. Also, lower raw materials costs, as well as higher volumes accounted,
respectively, for $8 million and $6 million of the increase. As explained above, the lower
average selling price partly offset the increase and accounted for $29 million. In 2013, the
Boxboard Europe Group recorded some specific items and the most significant ones are
an impairment charge of $17 million and restructuring costs of $4 million.
1 Shipments do not take into account the elimination of business sector intercompany shipments.
2 Average selling price is a weighted average of virgin and recycled boxboard shipments.
The main variances in sales and operating income (loss) for the Boxboard Europe Group are shown below:
Sales ($M)
Operating income (loss) ($M)
For Notes 1 to 4, see definitions on page 27.
The Corporation incurred some specific items in 2013 and 2012 that adversely or positively affected its operating results. Please refer to pages 28 to 31 for more details and
reconciliation.
CASCADES MANAGEMENT'S DISCUSSION & ANALYSIS - RESULTS ANALYSIS
35
BUSINESS SEGMENT REVIEW (continued)
PACKAGING PRODUCTS - SPECIALTY PRODUCTS
Our Industry
Reference prices - Market pulp 1
The prices of all grades of pulp have increased in 2013. Our deinked pulp
operations benefited from this market environment, but, as we are integrated to a
certain extent, the positive impact was mitigated.
Reference prices - Specialty papers 1
The reference price for recycled boxboard has increased by 2% in 2013 compared
to 2012. As for the price for uncoated freesheet, it remained under pressure in 2013
due to excess production capacity.
U.S. recycled fibre exports to China 1
Our Specialty Products Group is impacted by the recovered paper market and Asian demand plays an important role in shipments and pricing dynamics. In 2013, Chinese
imports from the United States decreased by 6%. Mixed groundwood papers and old corrugated containers grades represented most of the decrease, with exports being lower
by 2% and 11% respectively over 2012. Old newspapers exports increased by 2% in 2013 after having decreased by 12% in the preceding year. Pulp substitutes experienced
an increase in exports of 1% in 2013 after having declined by 34% in 2012 compared to 2011.
Total U.S. exports of recycled papers to China - All grades
Major grades exported by the U.S.
Our Performance
Sales
OIBD and OIBD margin
(excluding specific items)
Industrial packaging and
specialty papers
manufacturing shipments and
manufacturing capacity
Average industrial packaging
and specialty papers
manufacturing selling price
36
CASCADES MANAGEMENT'S DISCUSSION & ANALYSIS - RESULTS ANALYSIS
Shipments decreased by 14,000 s.t., or 4%, to 371,000 s.t. in 2013 compared to 385,000 s.t.
in 2012. Lower shipments in both the Industrial Packaging and Specialty Papers sectors
accounted for the decrease. The Specialty Papers sector was affected in 2013 by a flood at
its St-Jérôme fine paper mill, resulting in a loss of 4,000 short tons.
The total average selling price for the Specialty Papers and Industrial Packaging sectors
went up by $7, or 1%, to $915 per s.t. in 2013 compared to $908 per s.t. in 2012 due to the
lower Canadian dollar. The average selling price in U.S. dollars slightly decreased due to an
unfavourable product mix.
As a result, the Specialty Products Group’s sales decreased by $17 million, or 2%, to
$774 million in 2013 compared to $791 million in 2012. The decrease was mainly driven by
lower fibre prices in the market, which impacted our Recovery operations sales. Lower volume
and lower average selling price accounted, respectively, for $31 million and $2 million of the
decrease. This was partly offset by the 3% depreciation of the Canadian dollar against the
U.S. dollar, for $16 million.
Excluding specific items, operating income stood at $32 million in 2013 compared to
$23 million in the same period of 2013, an increase of $9 million. Favourable exchange rates
and lower energy costs accounted, respectively, for $9 million and $2 million of the increase
and were partly offset by lower volumes and a lower average selling price that accounted for
$2 million each. The Specialty Papers sector was affected, during 2013, by a flood at its St-
Jérôme fine paper mill, resulting in a $1 million operating loss. In 2013, this group recorded
impairment charges of $26 million on the assets of its kraft paper mill and honeycomb
packaging activities.
2012
2013
Change in %
Shipments 1 ('000 s.t.)
371
385
Average Selling Price 2
(CAN$/unit)
908
908
791
(US$/unit)
Sales ($M)
915
888
774
Operating income ($M)
(as reported)
6
23
(excluding specific items)
32
23
OIBD ($M)
(as reported)
% of sales
32
4%
49
6%
(excluding specific items)
49
6%
% of sales
58
7%
-4%
1%
-2%
-2%
-74%
39%
-35%
18%
1 Industrial Packaging and Specialty Papers shipments only. Shipments do not take into account the elimination of business sector intercompany shipments.
2 Average selling price includes manufacturing shipments of Industrial Packaging and Specialty Papers sectors only.
The main variances in sales and operating income for the Specialty Products Group are shown below:
Sales ($M)
Operating income ($M)
For Notes 1 to 4, see definitions on page 27.
The Corporation incurred some specific items in 2013 and 2012 that adversely or positively affected its operating results. Please refer to pages 28 to 31 for more details and
reconciliation.
CASCADES MANAGEMENT'S DISCUSSION & ANALYSIS - RESULTS ANALYSIS
37
BUSINESS SEGMENT REVIEW (continued)
TISSUE PAPERS
Our Industry
U.S. tissue paper industry-production (parent rolls) and capacity
utilization rate 1
The decrease in the capacity utilization rate in 2013 is explained by additional
capacity gradually coming to market to meet increasing demand.
U.S. tissue paper industry converted product shipments 1
Both the retail and away-from-home markets continued to increase by 2% in 2013.
Reference prices - Parent rolls 1
The reference price for recycled parent rolls continued to decline in 2013 due to
additional capacity and favourable recovered paper prices. As for the reference
price for virgin parent rolls, it remained stable during the year as increasing virgin
pulp prices offset the impact of additional production capacity.
Reference prices - Recycled fibre 1
For a second consecutive year, the average reference price of Sorted Office Papers
no.37 has decreased, being 10% lower than in 2012.
1 Source: RISI
2 The Cascades tissue paper selling prices index represents a mix of primary and converted products, and is based on the product mix at the end of 2006.
Our Performance
Sales
OIBD and OIBD margin
(excluding specific items)
Shipments and manufacturing
capacity utilization rate
Average selling price 2
38
CASCADES MANAGEMENT'S DISCUSSION & ANALYSIS - RESULTS ANALYSIS
Shipments increased by 19,000 s.t., or 3%, to 583,000 s.t. in 2013 compared to 564,000 s.t.
in 2012. The manufacturing external shipments decreased by 4,000 s.t., or 2%, to 163,000 s.t.
in 2013, compared to 167,000 s.t. in 2012. The converting shipments increased by 23,000 s.t.,
or 6%, to 420,000 s.t. in 2013 compared to 397,000 s.t. in 2012. The increase is mainly driven
by strong growth in our U.S. retail business segment.
The total average selling price went up by $35, or 2%, to $1,772 per s.t. in 2013, compared
to $1,737 in 2012. A favourable currency impact, a better integration rate and a higher proportion
of consumer products sold have largely offset the negative impact of a Parent Roll price
reduction and a converted product price reduction mainly in the U.S. These prices erosion in
the U.S. is due to the current competitive market conditions and led to the decrease of 1% of
the average selling price in U.S. dollars in 2013 compared to 2012.
As a result, the Tissue Papers Group’s sales increased by $54 million, or 6%, to $1,033 million
in 2013, compared to $979 million in 2012. Higher volumes and the 3% decrease of the
Canadian dollar against the U.S. dollar accounted, respectively, for $35 million and $26 million
of the increase. As explained above, the effect of the total average selling price decrease during
the year compared to 2012 resulted in a $7 million decrease in sales.
Excluding specific items, operating income stood at $89 million in 2013 compared to
$93 million in the same period of 2012, a decrease of $4 million, or 4%. Higher volumes
accounted for a positive impact of $12 million but, on the other hand, higher production, freight
and subcontracting costs in the U.S. accounted for a negative impact of $24 million. These
subcontracting costs in the U.S., necessary to convert new sales volumes, will decrease during
the first quarter of 2014 as the Corporation is investing in a new manufacturing line in order to
increase its U.S converting capacity. Lower energy costs and favourable exchange rates
provided positive impacts of $7 million and $6 million respectively. The negative impact of the
average selling price, as explained above, negatively impacted operating income for $7 million.
An increase in the price and usage of virgin pulp, led to a negative raw materials impact of
$2 million. In 2013, the Tissue Papers Group recorded a $17 million reversal of impairment
on its Memphis, Tennessee, manufacturing mill.
2012
2013
Change in %
Shipments1 ('000 s.t.)
583
564
Average Selling Price
(CAN$/unit)
1,737
1,738
(US$/unit)
1,772
1,720
Sales ($M)
979
1,033
Operating income ($M)
(as reported)
92
106
(excluding specific items)
93
89
OIBD ($M)
(as reported)
% of sales
138
14%
150
15%
(excluding specific items)
133
138
% of sales
14%
13%
3%
2%
-1%
6%
15%
-4%
9%
-4%
1 Shipments do not take into account the elimination of business sector intercompany shipments.
The main variances in sales and operating income for the Tissue Papers Group are shown below:
Sales ($M)
Operating income ($M)
For Notes 1 to 4, see definitions on page 27.
The Corporation incurred some specific items in 2013 and 2012 that adversely or positively affected its operating results. Please refer to pages 28 to 31 for more details and
reconciliation.
CASCADES MANAGEMENT'S DISCUSSION & ANALYSIS - RESULTS ANALYSIS
39
CORPORATE ACTIVITIES
The operating loss in 2013 includes an unrealized loss of $2 million on derivative financial instruments compared to an unrealized gain of
$6 million in 2012. The Corporation recorded a $5 million charge due to the establishment of an unfunded supplemental executive retirement
allocation in favour of the new CEO and the three presidents, respectively, of its Containerboard, Specialty Products and Tissue business
segments. As well, the corporate activities incurred additional expenses related to our ERP system transformation, as most of the costs
associated with the implementation activities are no longer capitalized. As well, the operating loss for 2013 includes an amount of $2 million,
representing the direct cost incurred by the Corporation following flooding incidents at our Niagara Falls containerboard and St-Jérôme fine
paper mills. In 2012, the operating loss includes an impairment charge of $1 million due to the reevaluation of notes receivable from 2011
business disposals.
OTHER ITEMS ANALYSIS
DEPRECIATION AND AMORTIZATION
The depreciation and amortization expense decreased by $17 million, to $182 million, in 2013, compared to $199 million in 2012. The
impairment charges recorded in 2013 and 2012, and the accelerated amortization recorded in both the Containerboard and Tissue Papers
Groups in 2012 decreased the depreciation and amortization expense, but these have been partially offset by capital investments completed
during the last twelve months. The depreciation of the Canadian dollar against the Euro and the U.S. dollar increased the depreciation expense
coming from our European and U.S. operations.
FINANCING EXPENSE AND INTEREST ON FUTURE EMPLOYEE BENEFITS
The financing expense and interest on future employee benefits remained at $115 million in 2013 compared to 2012. The Corporation amended
its revolving credit facility during the second half of 2012 resulting in lower financing costs in the fourth quarter and for future periods. These
were offset, however, by the capital investment made during the year and the increase in the total debt.
During the second quarter of 2013, Standard & Poor's, a rating service agency, downgraded the long-term corporate credit rating of the
Corporation to ''B+'' from ''BB-'' on slower deleveraging, with a stable outlook. This has caused an increase, of 37.5 basis points, to the interest
rate on our revolving credit facility in the second half of 2013.
Interest expense on future employee benefits decreased by $1 million to $12 million in 2013, compared to $13 million in 2012. Due to the
good investment returns in 2013 and the change in the assumptions, the interest expense on future employee benefits is expected to decrease
by $4 million in 2014.This expense does not require any cash payment by the Corporation.
In 2013, the Corporation recorded an unrealized gain of $1 million on financial instruments related to interest rate swaps (nil in 2012).
PROVISION FOR (RECOVERY OF) INCOME TAXES
In 2013, the Corporation recorded an income tax provision of $12 million, for an effective tax rate of 52%. The provision for (recovery of)
income taxes based on the effective income tax rate differs from the provision for (recovery of) income taxes based on the combined basic
rate for the following reasons:
(in millions of Canadian dollars)
Provision for (recovery of) income taxes based on the combined basic Canadian and provincial
income tax rate
Adjustment of provision for (recovery of) income taxes arising from the following:
Difference in statutory income tax rate of foreign operations
Non-taxable portion of capital gain
Permanent differences - others
Change in unrecognized temporary differences
Provision for (recovery of) income taxes
2013
2012
7
5
—
(2)
2
5
12
(8)
2
(1)
(1)
2
2
(6)
In 2013, the income tax provision was mainly impacted by the weighted average of taxable income in each jurisdiction. The tax provisions for
the foreign exchange gain or loss on long-term debt and related financial instruments, and our share of results of our Canadian associates
and joint ventures are calculated at the rate of capital gain.
40
CASCADES MANAGEMENT'S DISCUSSION & ANALYSIS - RESULTS ANALYSIS
As for our United States-based joint ventures and associates, which are mostly composed of the Greenpac mill, our share of results is taxed
based on the statutory tax rate. Moreover, as Greenpac is a Limited Liability Company (LLC), partners agreed to account for it as a disregarded
entity. As such, income taxes at the United States statutory tax rate are fully integrated into each partner's consolidated income tax provision
based on its respective share in the LLC, and no income tax provision is included in Greenpac net earnings.
The effective tax rate and current income taxes are affected by the results of certain subsidiaries and joint ventures located in countries,
notably the United States, France and Italy, where the income tax rate is higher than in Canada. The normal effective tax rate is expected to
be in the range of 26% to 39%. In fact, the weighted-average applicable tax rate was 29.8% in 2013.
SHARE OF RESULTS OF ASSOCIATES AND JOINT VENTURES
The share of results of associates and joint ventures is partly represented by our 34.85% interest in Boralex Inc. (“Boralex”), a Canadian public
corporation that is a major electricity producer whose core business is the development and operation of power stations that generate renewable
energy, with operations in the north-eastern United States, Canada and France. We are also recording our share (59.7%) of the results of the
Greenpac mill, which started up its new production facility in July 2013. Prior to the start-up, the project incurred some costs that were not
capitalized.
No provision for income taxes is included in our Greenpac share of results (see ''Provision for income taxes'' for more details).
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS FROM CONTINUING OPERATING ACTIVITIES
Continuing operating activities generated $232 million in operating cash flow in 2013, compared to $203 million in 2012. Changes in non-
cash working capital components generated $6 million in liquidity in 2013, compared to $42 million in 2012. The first and second quarters of
the year normally require cash for working capital purposes, due to seasonal variations. During the first quarter of the year, we always notice
an increase in prepaid expenses and payment of year-end volume rebates. Moreover, inventory build-up normally takes place during the first
half of the year for the forthcoming summer. Recent price and volume increases, combined with a higher level of our raw materials inventory,
also led to cash flow requirements during the first six months of the year. During the second half of 2013, the working capital decreased due
to improved collection of accounts receivable. The Corporation is monitoring its working capital requirements and implementing measures to
reduce its capital needs. On a yearly basis, our average working capital of the last twelve months as a percentage of sales improved from
14.4% to 12.9%, representing an improvement of $55 million in the working capital requirement during the year.
Cash flow from continuing operating activities, excluding the change in non-cash working capital components, stood at $226 million in 2013,
compared to $161 million in the same period of 2012. This cash flow measurement is significant, since it positions the Corporation to pursue
its capital expenditures program and reduce its indebtedness.
INVESTING ACTIVITIES FROM CONTINUING OPERATIONS
Investment activities in 2013 required total cash resources of $181 million for capital expenditures totaling $136 million, net of disposals of
$12 million and other assets and investments in associates and joint ventures for an amount of $45 million.
CASCADES MANAGEMENT'S DISCUSSION & ANALYSIS - RESULTS ANALYSIS
41
PURCHASES OF PROPERTY, PLANT AND EQUIPMENT
Capital expenditure projects paid for in 2013 amounted to $148 million. New capital expenditure projects in 2013 amounted to $157 million.
The remaining amounts are related to the variation of purchases of property, plant and equipment included in ''Trade and other payables'' and
to capital-lease acquisitions.
New capital expenditure projects by sector were as follows, in 2013 (in M$):
The major capital projects initiated, in progress or completed in 2013 are as follows:
CONTAINERBOARD
•
$3 million to complete investments made in the folding carton and microlithography operations in 2012.
•
$3 million to complete the major investments made in 2012 in the consolidation of the corrugated products sector in Ontario at the
Vaughan, St.Mary's and Etobicoke plants.
TISSUE PAPERS
•
$12 million as part of the project recently announced of $35 million to convert and start up a second paper machine at our Oregon plant.
•
$7 million for a new towel line that will allow us to increase our production capacity in this fast-growing southeastern U.S. market.
CORPORATE
•
$4 million in energy efficiency projects in various plants in order to reduce our ecological footprint and to save on energy costs.
•
$4 million to acquire automotive assets in order to increase our transport capacity for eastern Canada and reduce external freight costs.
Other capital projects initiated, in progress or completed across the Corporation have been paid for in 2013 but are not significant enough to
be described.
PROCEEDS ON DISPOSAL OF PROPERTY, PLANT AND EQUIPMENT
In 2013, the $12 million proceeds on disposal of property, plant and equipment were as follows:
•
•
•
42
The Containerboard Group sold some property, plant and equipment assets related to the re-organization announced in 2012 in the
corrugated products plants in Ontario for $2 million. It also sold a vacant piece of land in New York City, U.S.A. for $2 million and other
property, plant and equipment for $2 million.
The Boxboard Europe Group, specifically RdM, sold some equipment coming from a plant that had been closed, for proceeds of $5 million.
The Specialty Products Group sold some equipment related to a recycling unit that had been closed, for proceeds of $1 million.
CASCADES MANAGEMENT'S DISCUSSION & ANALYSIS - RESULTS ANALYSIS
INCREASE IN OTHER ASSETS AND INVESTMENTS IN ASSOCIATES AND JOINT
VENTURES
In 2013, the Corporation also invested in other assets and made investments in associates and joint ventures for $45 million (2012 - $58 million).
The main investments are as follows:
$14 million (2012 - $29 million of which $9 million is financed through a loan agreement and will be reimbursed over a period of three years)
for the modernization of our financial information system to an ERP information technology system.
US$30 million ($32 million) (2012 - US$34 million ($34 million)), for our Greenpac project (see “Significant Facts and Developments’’ section
on page 20 for more details) in our Containerboard Group’s segment.
BUSINESS ACQUISITION
2012
$14 million paid for the acquisition of Bird Packaging. The Corporation also assumed $3 million of debt and recorded $8 million of capital-
lease obligations following the purchase price allocation (see Note 6 of the consolidated financial statement for more details).
FINANCING ACTIVITIES FROM CONTINUING OPERATIONS
In 2013, the Corporation repurchased US$4 million of its 7.25% unsecured senior notes for an amount of US$4 million ($4 million) and
US $6 million of its 6.75% unsecured senior notes, for an amount of US$6 million ($6 million). No gain or loss resulted from these transactions.
In 2013, the Corporation also paid US$4 million ($4 million) for the settlement of derivative financial instruments related to its 7.25% unsecured
senior notes and US$10 million ($10 million) for the settlement of derivative financial instruments related to its 6.75% unsecured senior notes.
The Corporation also redeemed 69,900 of its common shares on the open market in 2013, pursuant to a normal-course issuer bid, for an
amount of $0.3 million.
In 2013, as stated in the ''Significant Facts and Developments'' section, on page 20, Industria exercised its put option, increasing our ownership
of outstanding shares in RdM by 9.07%, for an amount of €14 million ($19 million). Our share in the equity of RdM, as at December 31, 2013,
stands at 57.61%. As we have fully consolidated RdM since the second quarter of 2011, the purchase of these shares is considered an
acquisition of non-controlling interest and accounted for as an equity transaction.
Including the $15 million in dividends paid out in 2013, financing activities from continuing operations, including debt repayment and the
change in our revolving facility, required $49 million in liquidity.
CASCADES MANAGEMENT'S DISCUSSION & ANALYSIS - RESULTS ANALYSIS
43
CONSOLIDATED FINANCIAL POSITION
AS AT DECEMBER 31, 2013, 2012 AND 2011
The Corporation's financial position and ratios are as follows:
(in millions of Canadian dollars, unless otherwise noted)
Cash and cash equivalents
Working capital 1
% of sales 2
Bank loans and advances
Current portion of long-term debt
Long-term debt
Total debt
Equity attributable to Shareholders
Total equity attributable to Shareholders and debt
Ratio of total debt/total equity attributable to Shareholders and debt
Shareholders' equity per share (in dollars)
2013
23
455
12.9%
56
39
1,540
1,635
1,081
2,716
60.2%
$11.52
2012
20
455
14.4%
80
60
1,415
1,555
978
2,533
61.4%
$10.42
2011
12
510
14.8%
90
49
1,358
1,497
1,029
2,526
59.3%
$10.87
1 Working capital includes accounts receivable (excluding the short-term portion of other assets) plus inventories less Trade and other payables.
2 % of sales = Average LTM working capital/LTM sales.
NET DEBT RECONCILIATION
The variances in the net debt (total debt less cash and cash equivalents) during 2013 are shown below (in M$), with the applicable financial
ratios included:
304
5.0
OIBD excluding specific items
Net debt/OIBD excluding specific items
352
4.6
Liquidity available via the Corporation's credit facilities, along with the expected cash flow generated by its operating activities, will provide
sufficient funds to meet its financial obligations and to fulfill its capital expenditure program. Capital expenditure requests for 2014 are initially
approved at $160 million. This amount is subject to change, depending on the Corporation’s operating results and on general economic
conditions. As at December 31, 2013, the Corporation had $221 million (net of letters of credit in the amount of $45 million, of which $12 million
has been canceled, in March 2014) available through its $750 million credit facility. During the second quarter of 2013, Standard & Poor's, a
rating service agency, downgraded the long-term corporate credit rating of the Corporation to ''B+'' from ''BB-'' on slower de-leveraging, with
a stable outlook.
In 2013, the Corporation issued $23 million in new letters of credit related to the Greenpac project which should decrease on a quarterly basis
in 2014.
In 2012, the Corporation amended its revolving credit facility. The changes resulted in future lower financing costs and extended maturity to
February 2016. Financial covenants were unchanged.
44
CASCADES MANAGEMENT'S DISCUSSION & ANALYSIS - RESULTS ANALYSIS
PENSION LIABILITIES
The Corporation’s future employee benefits assets and liabilities amounted to $624 million and $768 million respectively as at December 31,
2013, including an amount of $114 million for post-retirement benefits other than pension plans. These pension plans include an amount of
$53 million which does not require any funding by the Corporation until it is paid to the employees. This amount is not expected to increase,
as the Corporation is reviewing its benefits program to phase out some of them for the majority of future retirees.
With regards to pension plans, the Corporation’s risk is limited, as only less than 20% of its active employees are subject to a defined benefit
pension plan, while the remaining employees are part of the Corporation’s defined contribution plans, such as group RRSPs or 401 (K). Based
on their balances as at December 31, 2013, 45% of the Corporation pension plans have been evaluated on December 31, 2012 (55% in
2010). Where applicable, Cascades used the measurement relief allowed by law in order to reduce the impact of its increased current
contributions.
Considering the assumptions used and the asset ceiling limit, the deficit status for accounting purposes of its pension plans amounted to
$44 million as at December 31, 2013, compared to $138 million in 2012. The 2013 pension plan expense was $20 million and the cash outflow
was $27 million. Due to the good investment returns in 2013 and the change in the assumptions, the expense for these pension plans is
expected to decrease by $5 million in 2014. As for the cash flow requirement, these pension plans are expected to require a net contribution
of approximately $11 million in 2014. Finally, on a consolidated basis, the solvency ratio of the Corporation’s pension plans was 81% as of
December 31, 2012 and is expected to increase to slightly above 100% as at December 31, 2013.
COMMENTS ON THE FOURTH QUARTER OF 2013
Sales increased by $54 million, or 6%, to $958 million in the fourth quarter of 2013, compared to $904 million in the same period of 2012,
resulting from the decrease of the Canadian dollar of 10% against the Euro and of 6% against the U.S. dollar, and the 2% volume increase
in our shipments. Higher average selling price, especially in our containerboard and specialty products segments, also explains the increase.
The Corporation generated an operating income of $45 million in the fourth quarter of 2013, in comparison to an operating loss of $19 million
in the same period of last year, an increase of $64 million. Lower energy costs, the positive effects of the Canadian dollar's depreciation. as
explained above, and production efficiencies were the main factors behind the increase. On the other hand, higher raw materials costs,
especially in our containerboard sector, partly offset the increase. We also incurred additional costs related to our initiatives of upgrading our
information systems and the re-engineering our business processes. On a segmented basis, our containerboard, boxboard Europe and
specialty products operations posted better results, while our tissue papers operations results were almost stable. Excluding specific items,
the operating income stood at $57 million in the fourth quarter of 2013, compared to $22 million in the same period of 2012.
Our 2013 operating income before depreciation was also impacted by the following items:
•
•
A $5 million gain resulting from a decrease in our liabilities following a change to our future post-retirement benefits program; and
A $6 million gain resulting from energy savings certificates (“white certificates”) awarded at the end of 2013 by the Italian authorities to
our European boxboard operations, following an energy efficiency improvement program for the years 2010, 2011 and 2012.
Net earnings excluding specific items amounted to $18 million, or $0.19 per share, in the fourth quarter of 2013, compared to a net loss of $5
million, or $0.06 per share, for the same period last year. Including specific items, net earnings were $6 million, or $0.05, per share compared
to a net loss of $32 million, or $0.33 per share, for the same quarter in 2012.
The Corporation incurred some specific items in the fourth quarters of 2013 and 2012 that adversely or positively affected its operating results,
which are detailed as follows.
CASCADES MANAGEMENT'S DISCUSSION & ANALYSIS - RESULTS ANALYSIS
45
(in millions of Canadian dollars)
Operating income (loss)
Depreciation and amortization
Operating income (loss) before depreciation and
amortization
Specific items:
Impairment charges (reversal)
Restructuring costs
Unrealized gain on financial instruments
Operating income (loss) before depreciation and
amortization - excluding specific items
Operating income (loss) - excluding specific items
(in millions of Canadian dollars)
Operating income (loss)
Depreciation and amortization
Operating income (loss) before depreciation and
amortization
Specific items:
Impairment charges
Restructuring costs
Unrealized loss (gain) on financial instruments
Operating income (loss) before depreciation and
amortization - excluding specific items
Accelerated depreciation due to restructuring measures
Operating income (loss) - excluding specific items
For the 3-month period ended December 31,
2013
Container-
board
28
16
Boxboard
Europe
(10)
10
Specialty
Products
4
6
Tissue
Papers
36
13
Corporate
Activities
(13)
3
Consolidated
45
48
44
1
2
(1)
2
46
30
—
17
4
—
21
21
11
10
6
—
—
6
16
10
49
(17)
—
—
(17)
32
19
(10)
—
—
—
—
(10)
(13)
93
7
6
(1)
12
105
57
For the 3-month period ended December 31,
2012
Container-
board
(29)
28
Boxboard
Europe
(2)
10
Specialty
Products
2
6
Tissue Papers
21
11
Corporate
Activities
(11)
3
Consolidated
(19)
58
(1)
23
2
1
26
25
10
7
8
3
1
(1)
3
11
—
1
8
—
—
—
—
8
—
2
32
—
—
(1)
(1)
31
—
20
(8)
1
—
2
3
(5)
—
(8)
39
27
3
1
31
70
10
22
46
CASCADES MANAGEMENT'S DISCUSSION & ANALYSIS - RESULTS ANALYSIS
The main variances in sales and operating income (loss) in the fourth quarter of 2013, compared to the same period of 2012, are shown
below:
Sales ($M)
Operating income (loss) ($M)
For Notes 1 to 4, see definitions on page 27.
NEAR-TERM OUTLOOK
The second half of 2013 was marked by better business conditions, which led to improved results and allowed us to finish the year on a good
note. We are beginning 2014 with a certain seasonal slowdown and we will proceed to some preventive shutdowns if necessary. Despite this,
we are confident that we will increase our operating results and margins for a third consecutive year in 2014.
While the outlook is encouraging for most of our sectors, the tissue industry currently faces the short-tern impact of additional capacity. We
do not foresee important changes in the cost of recycled fibres and we should feel the impact of the depreciation of the Canadian dollar in
2014.
While facing normal logistical challenges associated with the start-up, the Greenpac paper machine is progressing according to the ramp-up
curve, We need to continue to improve the logistical aspect of the operations and we are on the right track to achieve these objectives.
CAPITAL STOCK INFORMATION
As at December 31, 2013, issued and outstanding capital stock consisted of 93,887,849 common shares (93,882,445 as at December 31,
2012), and 6,656,423 stock options were issued and outstanding (6,534,700 as at December 31, 2012). In 2013, 560,391 options were issued,
75,304 options were exercised, 32,063 options were forfeited and 331,301 options expired. As at March 12, 2014, issued and outstanding
capital stock consisted of 93,887,849 common shares and 6,656,423 stock options.
CASCADES MANAGEMENT'S DISCUSSION & ANALYSIS - RESULTS ANALYSIS
47
CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS
The Corporation’s principal contractual obligations and commercial commitments relate to outstanding debt, operating-leases and obligations
for its pension and post-employment benefit plans. The following table summarizes these obligations as at December 31, 2013:
CONTRACTUAL OBLIGATIONS
Payment due by period (in millions of Canadian dollars)
Long-term debt and capital-leases, including capital and
interest
Operating leases
Pension plans and other post-employment benefits 1
Total contractual obligations
TOTAL
1,995
72
2,191
4,258
LESS THAN A
YEAR
BETWEEN 1-2
YEARS
BETWEEN 2-5
YEARS
134
24
47
205
132
16
51
199
1,404
23
155
1,582
OVER 5
YEARS
325
9
1,938
1,582
1 These amounts represent all the benefits payable to current members during the following years and thereafter without limitations. The
majority of benefit payments are payable from trustee administered funds. The difference will come from future investment returns expected
on plan assets and future contributions that will be made by the Corporation for services rendered after December 31, 2013.
TRANSACTIONS WITH RELATED PARTIES
The Corporation has also entered into various agreements with its joint-venture partners, significantly influenced companies and entities that
are affiliated with one or more of its directors, for the supply of raw materials, including recycled paper, virgin pulp and energy as well as the
supply of unconverted and converted products, and other agreements entered into in the normal course of business. Aggregate sales by the
Corporation to its joint-venture partners and other affiliates totaled $106 million and $99 million for 2013 and 2012 respectively. Aggregate
sales to the Corporation from its joint-venture partners and other affiliates came to $114 million and $76 million for 2013 and 2012 respectively.
CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS
Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future
events that are believed to be reasonable under the circumstances.
CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with IFRS requires the use of estimates and assumptions that affect the reported amounts
of assets and liabilities in the financial statements and disclosure of contingencies at the balance sheet date, and the reported amounts of
revenues and expenses during the reporting period. On a regular basis and with the information available, Management reviews its estimates,
including those related to environmental costs, employee future benefits, collectability of accounts receivable, financial instruments,
contingencies, income taxes, useful life and residual value of property, plant and equipment and impairment of property, plant and equipment
and intangible assets. Actual results could differ from those estimates. When adjustments become necessary, they are reported in earnings
in the period in which they occur.
A. IMPAIRMENT OF LONG-LIVED ASSETS, INTANGIBLE ASSETS AND GOODWILL
In determining the recoverable amount of an asset or a CGU, the Corporation uses several key assumptions, based on external information
on the industry when available, and including production levels, selling prices, volume, raw materials costs, foreign exchange rates, growth
rates, discounting rates and capital spending.
The Corporation believes such assumptions to be reasonable. These assumptions involve a high degree of judgment and complexity and
reflect Management's best estimates based on available information at the assessment date. In addition, products are commodity products;
therefore, pricing is inherently volatile and often follows a cyclical pattern.
48
CASCADES MANAGEMENT'S DISCUSSION & ANALYSIS - RESULTS ANALYSIS
DESCRIPTION OF SIGNIFICANT IMPAIRMENT TESTING ASSUMPTIONS
GROWTH RATES
The assumptions used were based on the Corporation's internal budget. Revenues, operating margins and cash flows were projected for a
period of five years, and a perpetual long-term growth rate was applied thereafter. In arriving at its forecasts, the Corporation considered past
experience, economic trends such as gross domestic product growth and inflation, as well as industry and market trends.
DISCOUNT RATES
The Corporation assumed a discount rate in order to calculate the present value of its projected cash flows. The discount rate represents a
weighted average cost of capital ("WACC") for comparable companies operating in similar industries of the applicable CGU, group of CGUs
or reportable segment, based on publicly available information.
FOREIGN EXCHANGE RATES
Foreign exchange rates are determined using the financial institutions' average forecast for the first two years of forecasting. For the three
following years, the Corporation uses the last five years' historical average of the foreign exchange rate.
Considering the sensitivity of the key assumptions used, there is measurement uncertainty since adverse changes in one or a combination
of the Corporation's key assumptions could cause a significant change in the carrying amounts of these assets.
B. INCOME TAXES
The Corporation is required to estimate the income taxes in each jurisdiction in which it operates. This includes estimating a value for existing
tax losses based on the Corporation's assessment of its ability to use them against future taxable income before they expire. If the Corporation's
assessment of its ability to use the tax losses proves inaccurate in the future, more or less of the tax losses might be recognized as assets,
which would increase or decrease the income tax expense and, consequently, affect the Corporation's results in the relevant year.
C. EMPLOYEE BENEFITS
The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of
high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity
approximating the terms of the related pension liability.
The cost of pensions and other retirement benefits earned by employees is actuarially determined using the projected benefit method pro-
rated on years of service and Management's best estimate of expected plan investment performance, salary escalations, retirement ages of
employees and expected healthcare costs. The accrued benefit obligation is evaluated using the market interest rate at the evaluation date.
Due to the long-term nature of these plans, such estimates are subject to significant uncertainty. All assumptions are reviewed annually.
CRITICAL JUDGMENTS IN APPLYING THE CORPORATION'S ACCOUNTING POLICIES
SUBSIDIARIES AND EQUITY ACCOUNTED INVESTMENTS
Significant judgment is applied in assessing whether certain investment structures result in control, joint control or significant influence over
the operations of the investment. Management's assessment of control, joint control or significant influence over an investment will determine
the accounting treatment for the investment.The Corporation has a 59.7% interest in an associate ("Greenpac"). Because the Corporation
does not have the power over relevant activities of Greenpac, it is accounted for as an associate.
CHANGE IN ACCOUNTING POLICY AND DISCLOSURES
A) NEW IFRS ADOPTED
IFRS 10 — CONSOLIDATION
IFRS 10 requires an entity to consolidate an investee when it is exposed or has rights to variable returns from its involvement with the investee
and has the ability to affect those returns through its power over the investee. Under existing IFRS, consolidation is required when an entity
has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. IFRS 10 replaces SIC-12,
Consolidation - Special Purpose Entities, and parts of IAS 27, Consolidated and Separate Financial Statements. The Corporation evaluated
this standard and there is no impact on the consolidated financial statements.
CASCADES MANAGEMENT'S DISCUSSION & ANALYSIS - RESULTS ANALYSIS
49
IFRS 11 — JOINT ARRANGEMENTS
IFRS 11 requires a venturer to classify its interest in a joint arrangement as a joint venture or joint operation. Joint ventures will be accounted
for using the equity method of accounting whereas for a joint operation the venturer will recognize its share of the assets, liabilities, revenue
and expenses of the joint operation. Under existing IFRS, entities have the choice of proportionately consolidating or equity accounting for
interests in joint ventures. IFRS 11 supersedes IAS 31, Interests in Joint Ventures, and SIC-13, Jointly Controlled Entities - Non-monetary
Contributions by Venturers. The Corporation evaluated this standard and there is no impact on the consolidated financial statements.
IFRS 12 — DISCLOSURE OR INTERESTS IN OTHER ENTITIES
IFRS 12 establishes disclosure requirements for interests in other entities, such as joint arrangements, associates, special purpose vehicles
and off balance sheet vehicles. The standard carries forward existing disclosures and also introduces significant additional disclosure
requirements that address the nature of, and risks associated with, an entity's interests in other entities. The Corporation evaluated this
standard and it resulted in no impact on the consolidated financial statements. However, more information is required in the Notes to the
financial statements.
IFRS 13 — FAIR VALUE MEASUREMENT
IFRS 13 is a comprehensive standard for fair value measurement and disclosure requirements for use across all IFRS standards. The new
standard clarifies that fair value is the price that would be received to sell an asset, or paid to transfer a liability in an orderly transaction
between market participants, at the measurement date. It also establishes disclosures about fair value measurement. Under existing IFRS,
guidance on measuring and disclosing fair value is dispersed among the specific standards requiring fair value measurements and in many
cases does not reflect a clear measurement basis or consistent disclosures. The Corporation evaluated this standard and there is no impact
on the consolidated financial statements.
IAS 19 — EMPLOYEE BENEFITS
IAS 19 has been amended and includes significant changes to the recognition and measurement of defined benefit pension expense and
termination benefits and enhances the disclosure of all employee benefits. The amended standard requires immediate recognition of actuarial
gains and losses in the statement of other comprehensive income as they arise, without subsequent recycling to net income. Past service
costs (which now include curtailment gains and losses) are no longer recognized over a service period but are instead recognized immediately
in the period of a plan amendment. Pension benefit costs are split between: (i) the cost of benefits accrued in the current period (service costs)
and benefit changes (past service costs, settlements and curtailments); and (ii) finance expense or income. The finance expense or income
component is calculated based on the net defined benefit asset or liability. A number of other amendments have been made to recognition,
measurement and classification including redefining short-term and other long-term benefits, guidance on the treatment of taxes related to
benefit plans, guidance on the risk/cost sharing feature, and expanded disclosures. The impact of this standard on the interest expense on
employee future benefits for the year ended December 31, 2012, is $15 million ($11 million, or $0.11 per basic and diluted common share,
after related income tax). Other comprehensive income increased by $11 million (net of income tax of $4 million) for the year ended December
31, 2012. There is no impact on the employee benefit asset and liability and deferred income tax asset and liability.
IAS 1 — PRESENTATION OF FINANCIAL STATEMENTS
IAS 1 has been amended to require entities to separate items presented in the statement of other comprehensive income into two groups
based on whether or not items may be recycled in the future. Entities that choose to present other comprehensive income items before tax
will be required to show the amount of tax related to the two groups separately. The amendment is effective for annual periods beginning on
or after July 1, 2012, with earlier application permitted. The Corporation evaluated this standard and there is no financial impact although it
results in a different presentation of the consolidated statement of comprehensive income.
AMENDMENTS TO OTHER STANDARDS
In addition, there have been amendments to existing standards, including IAS 27, Separate Financial Statements, and IAS 28, Investments
in Associates and Joint Ventures. IAS 27 addresses accounting for subsidiaries, jointly controlled entities and associates in non-consolidated
financial statements. IAS 28 has been amended to include joint ventures in its scope and to address the changes in IFRS 10 to 13. The
Corporation evaluated these changes and there is no impact on the consolidated financial statements.
B) RECENT IFRS PRONOUNCEMENTS NOT YET ADOPTED
IFRS 9 — FINANCIAL INSTRUMENTS
IFRS 9 was issued in November 2009 and contains requirements for financial assets. This standard addresses classification and measurement
of financial assets and replaces the multiple category and measurement models for debt instruments in IAS 39, Financial Instruments:
Recognition and Measurement, with a new mixed measurement model having only two categories: amortized cost and fair value through
profit or loss. IFRS 9 also replaces the models for measuring equity instruments, and such instruments are recognized either at fair value
through profit or loss or at fair value through other comprehensive income. Where such equity instruments are measured at fair value through
50
CASCADES MANAGEMENT'S DISCUSSION & ANALYSIS - RESULTS ANALYSIS
other comprehensive income, dividends are recognized in profit or loss insofar as they do not clearly represent a return on investment; however,
other gains and losses (including impairments) associated with such instruments remain in accumulated comprehensive income indefinitely.
Requirements for financial liabilities were added in October 2010, and they largely carried forward existing requirements in IAS 39, except
that fair value changes due to credit risk for liabilities designated at fair value through profit and loss would generally be recorded in the
statement of other comprehensive income.
IFRS 9 was amended in November 2013, to (i) include guidance on hedge accounting, (ii) allow entities to early adopt the requirement to
recognize changes in fair value attributable to changes in an entity’s own credit risk, from financial liabilities designated under the fair value
option, in OCI, without having to adopt the remainder of IFRS 9, and to (iii) remove the previous mandatory effective date for adoption of
January 1, 2015, although the standard is available for early adoption.
IFRS 7 — FINANCIAL INSTRUMENTS DISCLOSURES
IFRS 7 requires disclosure of both gross and net information about financial instruments eligible for offset in the balance sheet and financial
instruments subject to master netting arrangements. Concurrent with the amendments to IFRS 7, the IASB also amended IAS 32, Financial
Instruments: Presentation to clarify the existing requirements for offsetting financial instruments in the balance sheet. The amendments to
IAS 32 are effective as of January 1, 2014. The Corporation is evaluating this standard and no significant impact on the consolidated financial
statements is expected.
IAS 36 — IMPAIRMENT OF NON-FINANCIAL ASSETS
In May 2013, the IASB amended IAS 36, Impairment of assets regarding disclosures for non-financial assets. This amendment removed
certain disclosures related to the recoverable amount of CGUs which had been included in IAS 36 by the issue of IFRS 13. The amendment
is not mandatory until January 1st, 2014, however; the Corporation has decided to early adopt the amendment as of December 31, 2013.
CONTROLS AND PROCEDURES
EVALUATION OF THE EFFECTIVENESS OF DISCLOSURE CONTROLS AND PROCEDURES, AND INTERNAL CONTROL OVER
FINANCIAL REPORTING
The Corporation’s President and Chief Executive Officer, and the Vice-President and Chief Financial Officer have designed, or caused to be
designed under their supervision, disclosure controls and procedures (DC&P) and internal controls over financial reporting (ICOFR) as defined
in National Instrument 52-109: “Certification of Disclosure in Issuer’s Annual and Interim Filings” in order to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with IFRS.
The DC&P have been designed to provide reasonable assurance that material information relating to the Corporation is made known to the
President and Chief Executive Officer, and the Vice-President and Chief Financial Officer by others, and that information required to be
disclosed by the Corporation in its annual filings, interim filings or other reports filed or submitted by the Corporation under securities legislation
is recorded, processed, summarized and reported within the time periods specified in securities legislation. The President and Chief Executive
Officer, and the Vice-President and Chief Financial Officer have concluded, based on their evaluation, that the Corporation’s DC&P were
effective as at December 31, 2013 for providing reasonable assurance that material information related to the issuer, is made known to them
by others within the Corporation.
The President and Chief Executive Officer and the Vice-President and Chief Financial Officer have assessed the effectiveness of the ICOFR
as at December 31, 2013, based on the framework established in the Internal Control — Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) (version 1992). Based on this assessment, they have concluded that the
Corporation’s ICOFR were effective as at December 31, 2013 and expect to certify the Corporation’s annual filings with the U.S. Securities
and Exchange Commission on Form 40-F, as required by the United States Sarbanes-Oxley Act.
During the quarter ended December 31, 2013, there were no changes to the Corporation’s ICOFR that have materially affected, or are
reasonably likely to materially affect, its ICOFR.
CASCADES MANAGEMENT'S DISCUSSION & ANALYSIS - RESULTS ANALYSIS
51
RISK FACTORS
As part of its ongoing business operations, the Corporation is exposed to certain market risks, including risks ensuing from changes in selling
prices for its principal products, costs of raw materials, interest rates and foreign currency exchange rates, all of which impact the Corporation’s
financial position, operating results and cash flows. The Corporation manages its exposure to these and other market risks through regular
operating and financing activities, and, on a limited basis, through the use of derivative financial instruments. We use these derivative financial
instruments as risk management tools, not for speculative investment purposes. The following is a discussion of key areas of business risks
and uncertainties that we have identified, and our mitigating strategies. The risk areas below are listed in no particular order, as risks are
evaluated based on both severity and probability. Readers are cautioned that the following is not an exhaustive list of all the risks we are
exposed to, nor will our mitigation strategies eliminate all risks listed.
a) The markets for some of the Corporation’s products tend to be cyclical in nature and prices for some of its products, as well as
raw materials and energy costs, may fluctuate significantly, which can adversely affect its business, operating results, profitability
and financial position.
The markets for some of the Corporation’s products, particularly containerboard and boxboard, are highly cyclical. As a result, prices for these
types of products and for its two principal raw materials, recycled paper and virgin fibre, have fluctuated significantly in the past and will likely
continue to fluctuate significantly in the future, principally due to market imbalances between supply and demand. Demand is heavily influenced
by the strength of the global economy and the countries or regions in which Cascades does business, particularly Canada and the United
States, the Corporation’s two primary markets. Demand is also influenced by fluctuations in inventory levels held by customers and consumer
preferences. Supply depends primarily on industry capacity and capacity utilization rates. In periods of economic weakness, reduced spending
by consumers and businesses results in decreased demand, which can potentially cause downward price pressure. Industry participants may
also, at times, add new capacity or increase capacity utilization rates, potentially causing supply to exceed demand and exerting downward
price pressure. Depending on market conditions and related demand, Cascades may have to take market-related downtime. In addition, the
Corporation may not be able to maintain current prices or implement additional price increases in the future. If Cascades is not able to do so,
its revenues, profitability and cash flows could be adversely affected. In addition, other participants may introduce new capacity or increase
capacity utilization rates, which could also adversely affect the Corporation’s business, operating results and financial position. Prices for
recycled and virgin fibre also fluctuate considerably. The costs of these materials present a potential risk to the Corporation’s profit margins,
in the event that it is unable to pass along price increases to its customers on a timely basis. Although changes in the price of recycled fibre
generally correlate with changes in the price of products made from recycled paper, this may not always be the case. If Cascades wasn’t able
to implement increases in the selling prices for its products to compensate for increases in the price of recycled or virgin fibre, the Corporation’s
profitability and cash flows would be adversely affected. In addition, Cascades uses energy, mainly natural gas and fuel oil, to generate steam,
which it then uses in the production process and to operate machinery. Energy prices, particularly for natural gas and fuel oil, have continued
to remain very volatile. Cascades continues to evaluate its energy costs and consider ways to factor energy costs into its pricing. However,
if energy prices were to increase, the Corporation’s production costs, competitive position and operating results would be adversely affected.
A substantial increase in energy costs would adversely affect the Corporation’s operating results and could have broader market implications
that could further adversely affect the Corporation’s business or financial results.
To mitigate price risk, our strategies include the use of various derivative financial instrument transactions, whereby it sets the price for notional
quantities of old corrugated containers, electricity and natural gas.
Additional information on our North American raw materials, electricity and natural gas hedging programs as at December 31, 2013, is set
out below:
NORTH AMERICAN FINISHED PRODUCTS AND RAW MATERIALS HEDGING
Quantity hedged (in s.t.)
% of annual consumption hedged
Average prices (in US$, per s.t.)
Fair value as at December 31, 2013 (in millions of CAN$) 1
1 Based on various indices.
OLD CORRUGATED
CONTAINERS
10,200
SORTED OFFICE
PAPERS
12,000
$
$
1%
$
131
(0.2)
2%
117
—
52
CASCADES MANAGEMENT'S DISCUSSION & ANALYSIS - RESULTS ANALYSIS
NORTH AMERICAN ELECTRICITY HEDGING
Electricity consumption
Electricity consumption in a regulated market
% of consumption hedged in a de-regulated market (2014)
Average prices (2014 - 2017) (in US$, per KWh)
Fair value as at December 31, 2013 (in millions of CAN$)
NORTH AMERICAN NATURAL GAS HEDGING
Natural gas consumption
% of consumption hedged (2014)
Average prices (2014 - 2017) (in US$, per mmBTU) (in CAN$, per GJ)
Fair value as at December 31, 2013 (in millions of CAN$)
UNITED STATES
28%
50%
21%
0.041
0.4
$
$
UNITED STATES
35%
56%
5.07
$
(5.2) $
$
$
$
$
CANADA
72%
75%
47%
0.027
(0.1)
CANADA
65%
59%
4.71
(12.7)
b) Cascades faces significant competition and some of its competitors may have greater cost advantages or be able to achieve
greater economies of scale, or be able to better withstand periods of declining prices and adverse operating conditions, which
could negatively affect the Corporation’s market share and profitability.
The markets for the Corporation’s products are highly competitive. In some of the markets in which Cascades competes, particularly in tissue
and boxboard, it competes with a small number of other producers. In some businesses, such as the containerboard industry, competition
tends to be global. In others, such as the tissue industry, competition tends to be regional. In the Corporation’s packaging products segment,
it also faces competition from alternative packaging materials, such as vinyl, plastic and styrofoam, which can lead to excess capacity,
decreased demand and pricing pressures. Competition in the Corporation’s markets is primarily based on price as well as customer service
and the quality, breadth and performance characteristics of its products. The Corporation’s ability to compete successfully depends on a
variety of factors, including:
•
•
•
its ability to maintain high plant efficiencies, operating rates and lower manufacturing costs
the availability, quality and cost of raw materials, particularly recycled and virgin fibre, and labour, and
the cost of energy.
Some of the Corporation’s competitors may, at times, have lower fibre, energy and labour costs, and less restrictive environmental and
governmental regulations to comply with than Cascades does. For example, fully integrated manufacturers, which are those whose
requirements for pulp or other fibre are met fully from their internal sources, may have some competitive advantages over manufacturers that
are not fully integrated, such as Cascades, in periods of relatively high raw materials pricing, in that the former are able to ensure a steady
source of these raw materials at costs that may be lower than prices in the prevailing market. In contrast, competitors that are less integrated
than Cascades may have cost advantages in periods of relatively low pulp or fibre prices because they may be able to purchase pulp or fibre
at prices lower than the costs the Corporation incurs in the production process. Other competitors may be larger in size or scope than Cascades
is, which may allow them to achieve greater economies of scale on a global basis or to better withstand periods of declining prices and adverse
operating conditions. In addition, there has been an increasing trend among the Corporation’s customers towards consolidation. With fewer
customers in the market for the Corporation’s products, the strength of its negotiating position with these customers could be weakened, which
could have an adverse effect on its pricing, margins and profitability.
To mitigate competition risk, Cascades’ targets are to offer quality products that meet customers’ needs at competitive prices and to provide
good customer service.
c) Because of the Corporation’s international operations, it faces political, social and exchange rate risks that can negatively affect
its business, operating results, profitability and financial condition.
Cascades has customers and operations located outside Canada. In 2013, sales outside Canada represented approximately 62% of the
Corporation’s consolidated sales, including 38% in the United States. In 2013, 32% of sales from Canadian operations were made to the
United States.
CASCADES MANAGEMENT'S DISCUSSION & ANALYSIS - RESULTS ANALYSIS
53
The Corporation’s international operations present it with a number of risks and challenges, including:
•
•
•
the effective marketing of its products in other countries
tariffs and other trade barriers, and
different regulatory schemes and political environments applicable to the Corporation’s operations, in areas such as environmental
and health and safety compliance.
In addition, the Corporation’s consolidated financial statements are reported in Canadian dollars, while a portion of its sales is made in other
currencies, primarily the U.S. dollar and the Euro. The appreciation of the Canadian dollar against the U.S. dollar over the last few years has
adversely affected the Corporation’s reported operating results and financial condition. This had a direct impact on export prices and also
contributed to reducing Canadian dollar prices in Canada, because several of the Corporation’s product lines are priced in U.S. dollars.
However, a substantial portion of the Corporation’s debt is also denominated in currencies other than the Canadian dollar. The Corporation
has senior notes outstanding and also some borrowings under its credit facility that are denominated in U.S. dollars and in Euros, in the
amounts of US$760 million and €175 million respectively as at December 31, 2013.
Moreover, in some cases, the currency of the Corporation’s sales does not match the currency in which it incurs costs, which can negatively
affect the Corporation’s profitability. Fluctuations in exchange rates can also affect the relative competitive position of a particular facility, where
the facility faces competition from non-local producers, as well as the Corporation’s ability to successfully market its products in export markets.
As a result, if the Canadian dollar were to remain permanently strong compared to the U.S. dollar and the Euro, it could affect the profitability
of the Corporation’s facilities, which could lead Cascades to shut down facilities either temporarily or permanently, all of which could adversely
affect its business or financial results. To mitigate the risk of currency rises from future commercial transactions, recognized assets and
liabilities, and net investments in foreign operations, which are partially covered by purchases and debt, Management has implemented a
policy for managing foreign exchange risk against the relevant functional currency.
The Corporation uses various foreign exchange forward contracts and related currency option instruments to anticipate sales net of purchases,
interest expenses and debt repayment. Gains or losses from the derivative financial instruments designated as hedges are recorded under
“Other comprehensive income (loss)” and are reclassified under earnings in accordance with the hedge items.
Additional information on our North American foreign exchange hedging program is set out below:
NORTH AMERICAN FOREIGN EXCHANGE HEDGING 1
Sell contracts and currency options on net exposure to $US:
Total amount (in millions of $US)
Estimated % of sales, net of expenses from Canadian operations
Average rate ($US/$CAN)
Fair value as at December 31, 2013 (in millions of $CAN)
1 See Note 27 of the audited consolidated financial statements for more details on derivatives.
$
2014
35
12%
$
2015
25
12%
0.9590
— $
0.9696
(1)
d) The Corporation’s operations are subject to comprehensive environmental regulations and involve expenditures that may be
material in relation to its operating cash flow.
The Corporation is subject to environmental laws and regulations imposed by the various governments and regulatory authorities in all countries
in which it operates. These environmental laws and regulations impose stringent standards on the Corporation regarding, among other things:
•
•
•
•
•
air emissions
water discharges
use and handling of hazardous materials
use, handling and disposal of waste, and
remediation of environmental contamination.
The Corporation is also subject to the U.S. Federal Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”)
as well as to other applicable legislation in the United States, Canada and Europe that holds companies accountable for the investigation and
remediation of hazardous substances. The Corporation’s European subsidiaries are also subject to the Kyoto Protocol, aimed at reducing
worldwide CO2 emissions. Each unit has been allocated emission rights (“CO2 quota”). On a calendar-year basis, the Corporation must buy
the necessary credits to cover its deficit, on the open market, if its emissions are higher than quota.
The Corporation’s failure to comply with applicable environmental laws, regulations or permit requirements may result in civil or criminal fines,
penalties or enforcement actions. These may include regulatory or judicial orders enjoining or curtailing operations, or requiring corrective
54
CASCADES MANAGEMENT'S DISCUSSION & ANALYSIS - RESULTS ANALYSIS
measures, the installation of pollution control equipment or remedial actions, any of which could entail significant expenditures. It is difficult
to predict the future development of such laws and regulations, or their impact on future earnings and operations, but these laws and regulations
may require capital expenditures to ensure compliance. In addition, amendments to, or more stringent implementation of, current laws and
regulations governing the Corporation’s operations could have a material adverse effect on its business, operating results or financial position.
Furthermore, although Cascades generally tries to plan for capital expenditures relating to environmental and health and safety compliance
on an annual basis, actual capital expenditures may exceed those estimates. In such an event, Cascades may be forced to curtail other capital
expenditures or other activities. In addition, the enforcement of existing environmental laws and regulations has become increasingly strict.
The Corporation may discover currently unknown environmental problems or conditions in relation to its past or present operations, or may
face unforeseen environmental liabilities in the future. These conditions and liabilities may:
•
•
require site remediation or other costs to maintain compliance or correct violations of environmental laws and regulations, or
result in governmental or private claims for damage to person, property or the environment.
Either of these could have a material adverse effect on the Corporation’s financial condition or operating results.
Cascades may be subject to strict liability and, under specific circumstances, joint and several (solidary) liability for the investigation and
remediation of soil, surface and groundwater contamination, including contamination caused by other parties, on properties that it owns or
operates, and on properties where the Corporation or its predecessors have arranged for the disposal of regulated materials. As a result, the
Corporation is involved from time to time in administrative and judicial proceedings and inquiries relating to environmental matters. The
Corporation may become involved in additional proceedings in the future, the total amount of future costs and other environmental liabilities
of which could be material.
To date, the Corporation is in compliance, in all material respects, with all applicable environmental legislation or regulations. However, we
expect to incur ongoing capital and operating expenses in order to achieve and maintain compliance with applicable environmental
requirements.
EMISSIONS MARKET
The Corporation is exposed to the emissions trading market and has to hold carbon credits equivalent to its emissions. Depending on
circumstances, the Corporation may have to buy credits on the market or could sell some in the future. These transactions would have no
significant effect on the financial position of the Corporation and it is not anticipated that it will change in the future.
e) Cascades may be subject to losses that might not be covered in whole or in part by its insurance coverage.
Cascades carries comprehensive liability, fire and extended coverage insurance on most of its facilities, with policy specifications and insured
limits customarily carried in its industry for similar properties. The cost of the Corporation’s insurance policies has increased over the past few
years. In addition, some types of losses, such as losses resulting from wars, acts of terrorism or natural disasters, are generally not insured
because they are either uninsurable or not economically practical. Moreover, insurers have recently become more reluctant to insure against
these types of events. Should an uninsured loss or a loss in excess of insured limits occur, Cascades could lose capital invested in that
property, as well as the anticipated future revenues derived from the manufacturing activities conducted on that property, while remaining
obligated for any mortgage indebtedness or other financial obligations related to the property. Any such loss could adversely affect its business,
operating results or financial condition.
To mitigate the risk subject to insurance coverage, the Corporation reviews its strategy annually with the Board of Directors and is seeking
different alternatives to achieve more efficient forms of insurance coverage, at the lowest costs possible.
f) Labour disputes could have a material adverse effect on the Corporation’s cost structure and ability to run its mills and
plants.
As at December 31, 2013, the Corporation had approximately 12,200 employees, of whom approximately 10,200 were employees of its
Canadian and United States operations. Approximately 41% of the Corporation’s employees are unionized under 40 separate collective
bargaining agreements. In addition, in Europe, some of the Corporation’s operations are subject to national industry collective bargaining
agreements that are renewed on an annual basis. The Corporation’s inability to negotiate acceptable contracts with these unions upon
expiration of an existing contract could result in strikes or work stoppages by the affected workers, and increased operating costs as a result
of higher wages or benefits paid to union members. If the unionized workers were to engage in a strike or another form of work stoppage,
Cascades could experience a significant disruption in operations or higher labour costs, which could have a material adverse effect on its
business, financial condition, operating results and cash flow. Of the Corporation’s 40 collective bargaining agreements in North America, 13
will expire in 2014 and 10 more in 2015.
CASCADES MANAGEMENT'S DISCUSSION & ANALYSIS - RESULTS ANALYSIS
55
The Corporation generally begins the negotiation process several months before agreements are due to expire and is currently in the process
of negotiating with the unions where the agreements have expired or will soon expire. However, Cascades may not be successful in negotiating
new agreements on satisfactory terms, if at all.
g) Cascades may make investments in entities that it does not control and may not receive dividends or returns from those
investments in a timely fashion or at all.
Cascades has established joint ventures, made minority interest investments and acquired significant participations in subsidiaries in order
to increase its vertical integration, enhance customer service and increase efficiencies in its marketing and distribution in the United States
and other markets. The Corporation’s principal joint ventures, minority investments and significant participations in subsidiaries are:
•
•
•
•
•
three 50%-owned joint ventures with Sonoco Products Corporation, of which two are in Canada and one in the United States, that produce
specialty paper packaging products such as headers, rolls and wrappers
a 73%-owned subsidiary, Cascades Recovery Inc., a Canadian operator of wastepaper recovery and recycling operations
a 34.85% interest in Boralex Inc., a Canadian public corporation and a major electricity producer whose core business is the development
and operation of power stations that generate renewable energy, with operations in Canada, the northeastern United States and France
a 57.61%-owned subsidiary, RdM, a European manufacturer of recycled boxboard, and
a 59.7% interest in Greenpac Mill LLC, an American corporation that manufactures a light-weight linerboard made with 100% recycled
fibres. The production began in July 2013.
Apart from Cascades Recovery and RdM, Cascades does not have effective control over these entities. The Corporation’s inability to control
entities in which it invests may affect its ability to receive distributions from those entities or to fully implement its business plan. The incurrence
of debt or entrance into other agreements by an entity not under the Corporation’s control may result in restrictions or prohibitions on that
entity’s ability to pay distributions to the Corporation. Even where these entities are not restricted by contract or by law from paying dividends
or making distributions to Cascades, the Corporation may not be able to influence the payout or timing of these dividends or distributions. In
addition, if any of the other investors in a non-controlled entity fails to observe its commitments, the entity may not be able to operate according
to its business plan or Cascades may be required to increase its level of commitment. If any of these events were to transpire, the Corporation’s
business, operating results, financial condition and ability to make payments on the notes could be adversely affected.
In addition, the Corporation has entered into various shareholder agreements relating to its joint ventures and equity investments. Some of
these agreements contain “shotgun” provisions, which provide that if one Shareholder offers to buy all the shares owned by the other parties
to the agreement, the other parties must either accept the offer or purchase all the shares owned by the offering Shareholder at the same
price and conditions. Some of the agreements also provide that in the event that a Shareholder is subject to bankruptcy proceedings or
otherwise defaults on any indebtedness, the non-defaulting parties to that agreement are entitled to invoke the ''shotgun'' provision or sell
their shares to a third party. The Corporation’s ability to purchase the other Shareholders’ interests in these joint ventures if they were to
exercise these ''shotgun'' provisions could be limited by the covenants in the Corporation’s credit facility and the indenture. In addition, Cascades
may not have sufficient funds to accept the offer or the ability to raise adequate financing should the need arise, which could result in the
Corporation having to sell its interests in these entities or otherwise alter its business plan.
On September 13, 2007, we entered into a Combination Agreement with RdM, a publicly traded Italian corporation that is the second-largest
recycled boxboard producer in Europe. The Combination Agreement was amended on June 12, 2009. It provided, among other things, that
RdM and Cascades were granted an irrevocable call option or put option, respectively, to purchase two European virgin boxboard mills of
Cascades (the “Virgin Assets”). RdM may exercise its call option 120 days after delivery of Virgin Assets financials for the year ended December
31, 2011, by Cascades to RdM. This option was not exercised by RdM and has expired. Cascades had the possibility to exercise its put option
120 days after delivery of Virgin Assets Financials for the year ended December 31, 2012, by Cascades to RdM. The call option price shall
be equal to 6.5 times the 2011 audited EBITDA of the Virgin Assets as per the Virgin Assets financials at December 31, 2011. The put option
price shall be equal to 6 times the 2012 audited EBITDA of the Virgin Assets as per the Virgin Assets financials for the year ended December
31, 2012. Cascades Europe was also granted the right to require that all of the call option price or put option price, as the case may be, be
paid in newly issued ordinary shares of RdM. In 2013, neither RdM nor Cascades exercised its call or put option to purchase the two European
virgin boxboard mills of Cascades. These options are no longer outstanding.
In 2010, the Corporation entered into a put and call agreement with Industria E Innovazione (“Industria”) whereby Cascades had the option
of buying 9.07% of the shares of RdM (100% of the shares held by Industria) for €0.43 per share between March 1, 2011 and December 31,
2012. Industria also has the option of requiring the Corporation to purchase its shares for €0.41 per share between January 1, 2013 and
March 31, 2014. Industria did raise the put option in the second quarter of 2013, resulting in a cash payment for the Corporation of €14 million
($19 million).
56
CASCADES MANAGEMENT'S DISCUSSION & ANALYSIS - RESULTS ANALYSIS
h) Acquisitions have been, and are expected to continue to be, a substantial part of the Corporation’s growth strategy, which could
expose the Corporation to difficulties in integrating the acquired operation, diversion of management time and resources, and
unforeseen liabilities, among other business risks.
Acquisitions have been a significant part of the Corporation’s growth strategy. Cascades expects to continue to selectively seek strategic
acquisitions in the future. The Corporation’s ability to consummate and to effectively integrate any future acquisitions on terms that are
favourable to it may be limited by the number of attractive acquisition targets, internal demands on its resources and, to the extent necessary,
its ability to obtain financing on satisfactory terms, if at all. Acquisitions may expose the Corporation to additional risks, including:
•
•
•
•
•
•
difficulty in integrating and managing newly acquired operations, and in improving their operating efficiency
difficulty in maintaining uniform standards, controls, procedures and policies across all of the Corporation’s businesses
entry into markets in which Cascades has little or no direct prior experience
the Corporation’s ability to retain key employees of the acquired Corporation
disruptions to the Corporation’s ongoing business, and
diversion of management time and resources.
In addition, future acquisitions could result in Cascades' incurring additional debt to finance the acquisition or possibly assuming additional
debt as part of it, as well as costs, contingent liabilities and amortization expenses. The Corporation may also incur costs and divert Management
attention for potential acquisitions that are never consummated. For acquisitions Cascades does consummate, expected synergies may not
materialize. The Corporation’s failure to effectively address any of these issues could adversely affect its operating results, financial condition
and ability to service debt, including its outstanding senior notes.
Although Cascades generally performs a due diligence investigation of the businesses or assets that it acquires, and anticipates continuing
to do so for future acquisitions, the acquired business or assets may have liabilities that Cascades fails or is unable to uncover during its due
diligence investigation and for which the Corporation, as a successor owner, may be responsible. When feasible, the Corporation seeks to
minimize the impact of these types of potential liabilities by obtaining indemnities and warranties from the seller, which may in some instances
be supported by deferring payment of a portion of the purchase price. However, these indemnities and warranties, if obtained, may not fully
cover the liabilities because of their limited scope, amount or duration, or the financial resources of the indemnitor or warrantor, or for other
reasons.
i) The Corporation undertakes impairment tests, which could result in a write-down of the value of assets and, as a result, have a
material adverse effect.
IFRS requires that Cascades regularly undertake impairment tests of long-lived assets and goodwill to determine whether a write-down of
such assets is required. A write-down of asset value as a result of impairment tests would result in a non-cash charge that reduces the
Corporation’s reported earnings. Furthermore, a reduction in the Corporation’s asset value could have a material adverse effect on the
Corporation’s compliance with total debt to capitalization tests under its current credit facilities and, as a result, limit its ability to access further
debt capital.
j) Certain Cascades insiders collectively own a substantial percentage of the Corporation’s common shares.
Messrs. Bernard, Laurent and Alain Lemaire (“the Lemaires”) collectively own 32.6% of the common shares as at December 31, 2013, and
there may be situations in which their interests and the interests of other holders of common shares will not be aligned. Because the Corporation’s
remaining common shares are widely held, the Lemaires may be effectively able to:
•
•
•
elect all of the Corporation’s directors and, as a result, control matters requiring Board approval
control matters submitted to a Shareholder vote, including mergers, acquisitions and consolidations with third parties, and the sale of all
or substantially all of the Corporation’s assets, and
otherwise control or influence the Corporation’s business direction and policies.
In addition, the Lemaires may have interests in pursuing acquisitions, divestitures or other transactions that, in their judgment, could enhance
the value of their equity investment, even though the transactions might involve increased risk to the holders of the common shares.
k) If Cascades is not successful in retaining or replacing its key personnel, particularly if the Lemaires do not stay active in the
Corporation’s business, its business, financial condition or operating results could be adversely affected.
The Lemaires are key to the Corporation’s management and direction. Although Cascades believes that the Lemaires will remain active in
the business and that Cascades will continue to be able to attract and retain other talented personnel, and replace key personnel should the
CASCADES MANAGEMENT'S DISCUSSION & ANALYSIS - RESULTS ANALYSIS
57
need arise, competition in recruiting replacement personnel could be significant. On May 9, 2013, Mr. Mario Plourde was appointed as the
new President and Chief Executive Officer (“CEO”) of the Corporation, following a two-year transition as Chief Operating Officer. Mr. Plourde
has more than 27 years of seniority within the Corporation. Cascades does not carry key man insurance on the Lemaires or on any other
members of its senior management.
l) Risks relating to the Corporation’s indebtedness and liquidity.
The significant amount of the Corporation’s debt could adversely affect its financial health and prevent it from fulfilling its obligations
under its outstanding indebtedness. The Corporation has a significant amount of debt. As of December 31, 2013, it had $1,635 million in
outstanding debt on a consolidated basis, including capital-lease obligations. The Corporation also had $221 million available under its revolving
credit facility. On the same basis, its consolidated ratio of total debt to capitalization as of December 31, 2013 was 60.2%. The Corporation’s
actual financing expense, including interest on employees' future benefits was $115 million for 2013. Cascades also has significant obligations
under operating leases, as described in its audited consolidated financial statements that are incorporated by reference herein.
During the second quarter of 2013, Standard & Poor's, a rating service agency, downgraded the long-term corporate credit rating of the
Corporation to ''B+'' from ''BB-'' on slower deleveraging, with a stable outlook. This has caused an increase, of 37.5 basis points, to the interest
rate on our revolving credit facility in the second half of 2013.
On September 4, 2012, the Corporation announced that it had entered into an agreement with its banking syndicate to extend an to extend
and amend certain conditions of its existing $750 million revolving credit facility. The amendment provides that the term of the facility was
extended by one year, to February 2016, and that the applicable pricing grid was adjusted to better reflect market conditions. The other existing
financial conditions remained unchanged.
In 2009, the Corporation refinanced a portion of its long-term debt to extend its maturity profile from 2013 to 2016, 2017 and 2020.
The Corporation has outstanding senior notes rated by Moody’s Investor Service (“Moody’s”) and Standard & Poor’s (“S&P”).
The following table reflects the Corporation’s secured debt rating/corporate rating/unsecured debt rating as at the date on which this MD&A
was approved by the Board of Directors, and the evolution of these ratings compared to past years:
Credit Rating (outlook)
2004
2005 - 2006
2007
2008
2009 - 2010
2011
2012
2013
MOODY'S
Ba1/Ba2/Ba3 (stable)
Ba1/Ba2/Ba3 (stable)
Baa3/Ba2/Ba3 (stable)
Baa3/Ba2/Ba3 (negative)
Baa3/Ba2/Ba3 (stable)
Baa3/Ba2/Ba3 (stable)
Baa3/Ba2/Ba3 (stable)
Baa3/Ba2/Ba3 (stable)
STANDARD & POOR'S
BBB-/BB+/BB+ (negative)
BB+/BB/BB- (negative)
BBB-/BB/BB- (stable)
BB+/BB-/B+ (negative)
BB+/BB-/B+ (stable)
BB+/BB-/B+ (positive)
BB+/BB-/B+ (negative)
BB/B+/B (stable)
This facility is in place with a core group of highly rated international banks. The Corporation may decide to enter into certain derivative
instruments to reduce interest rates and foreign exchange exposure.
The Corporation’s leverage could have major consequences for holders of its common shares. For example, it could:
• make it more difficult for the Corporation to satisfy its obligations with respect to its indebtedness
•
increase the Corporation’s vulnerability to competitive pressures and to general adverse economic or market conditions and require it
to dedicate a substantial portion of its cash flow from operations to servicing debt, reducing the availability of its cash flow to fund working
capital, capital expenditures, acquisitions and other general corporate purposes
limit its flexibility in planning for, or reacting to, changes in its business and industry, and
limit its ability to obtain additional sources of financing.
•
•
Cascades may incur additional debt in the future, which would intensify the risks it now faces as a result of its leverage as described
above. Even though we are substantially leveraged, we and our subsidiaries will be able to incur substantial additional indebtedness in the
future. Although our credit facility and the indentures governing the notes restrict us and our restricted subsidiaries from incurring additional
debt, these restrictions are subject to important exceptions and qualifications. If we or our subsidiaries incur additional debt, the risks that we
and they now face as a result of our leverage could intensify.
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CASCADES MANAGEMENT'S DISCUSSION & ANALYSIS - RESULTS ANALYSIS
The Corporation’s operations are substantially restricted by the terms of its debt, which could limit its ability to plan for or react to
market conditions, or to meet its capital needs. The Corporation’s credit facilities and the indenture governing its senior notes include a
number of significant restrictive covenants. These covenants restrict, among other things, the Corporation’s ability to:
borrow money
pay dividends on stock or redeem stock or subordinated debt
•
•
• make investments
•
•
•
•
•
•
•
•
sell capital stock in subsidiaries
guarantee other indebtedness
enter into agreements that restrict dividends or other distributions from restricted subsidiaries
enter into transactions with affiliates
create or assume liens
enter into sale and leaseback transactions
engage in mergers or consolidations, and
enter into a sale of all or substantially all of our assets.
These covenants could limit the Corporation’s ability to plan for or react to market conditions, or to meet its capital needs. The Corporation’s
current credit facility contains other, more restrictive covenants, including financial covenants that require it to achieve certain financial and
operating results, and maintain compliance with specified financial ratios. The Corporation’s ability to comply with these covenants and
requirements may be affected by events beyond its control, and it may have to curtail some of its operations and growth plans to maintain
compliance.
The restrictive covenants contained in the Corporation’s senior note indenture, along with the Corporation’s credit facility, do not apply to its
subsidiaries with non-controlling interest.
The Corporation’s failure to comply with the covenants contained in its credit facility or its senior note indenture, including as a
result of events beyond its control or due to other factors, could result in an event of default that could cause accelerated repayment
of the debt. If Cascades is not able to comply with the covenants and other requirements contained in the indenture, its credit facility or its
other debt instruments, an event of default under the relevant debt instrument could occur. If an event of default does occur, it could trigger
a default under its other debt instruments, Cascades could be prohibited from accessing additional borrowings and the holders of the defaulted
debt could declare amounts outstanding with respect to that debt, which would then be immediately due and payable. The Corporation’s
assets and cash flow may not be sufficient to fully repay borrowings under its outstanding debt instruments. In addition, the Corporation may
not be able to re-finance or re-structure the payments on the applicable debt. Even if the Corporation were able to secure additional financing,
it may not be available on favourable terms. A significant or prolonged downtime in general business and difficult economic conditions may
affect the Corporation’s ability to comply with its covenants, and could require it to take actions to reduce its debt or to act in a manner contrary
to its current business objectives.
m) Cascades is a holding corporation and depends on its subsidiaries to generate sufficient cash flow to meet its debt service
obligations.
Cascades is structured as a holding corporation, and its only significant assets are the capital stock or other equity interests in its subsidiaries,
joint ventures and minority investments. As a holding corporation, Cascades conducts substantially all of its business through these entities.
Consequently, the Corporation’s cash flow and ability to service its debt obligations are dependent on the earnings of its subsidiaries, joint
ventures and minority investments, and the distribution of those earnings to Cascades, or on loans, advances or other payments made by
these entities to Cascades. The ability of these entities to pay dividends or make other payments or advances to Cascades will depend on
their operating results and will be subject to applicable laws and contractual restrictions contained in the instruments governing their debt. In
the case of the Corporation’s joint ventures and minority investments, Cascades may not exercise sufficient control to cause distributions to
itself. Although its credit facility and the indenture, respectively, limit the ability of its restricted subsidiaries to enter into consensual restrictions
on their ability to pay dividends and make other payments to the Corporation, these limitations do not apply to its joint ventures or minority
investments. The limitations are also subject to important exceptions and qualifications. The ability of the Corporation’s subsidiaries to generate
cash flow from operations that is sufficient to allow the Corporation to make scheduled payments on its debt obligations will depend on their
future financial performance, which will be affected by a range of economic, competitive and business factors, many of which are outside of
the Corporation’s control. If the Corporation’s subsidiaries do not generate sufficient cash flow from operations to satisfy the Corporation’s
debt obligations, Cascades may have to undertake alternative financing plans, such as re-financing or re-structuring its debt, selling assets,
reducing or delaying capital investments, or seeking to raise additional capital. Re-financing may not be possible, and any assets may not be
able to be sold, or, if they are sold, Cascades may not realize sufficient amounts from those sales. Additional financing may not be available
on acceptable terms, if at all, or the Corporation may be prohibited from incurring it, if available, under the terms of its various debt instruments
in effect at the time. The Corporation’s inability to generate sufficient cash flow to satisfy its debt obligations, or to re-finance its obligations
CASCADES MANAGEMENT'S DISCUSSION & ANALYSIS - RESULTS ANALYSIS
59
on commercially reasonable terms, would have an adverse effect on its business, financial condition and operating results. The earnings of
the Corporation’s operating subsidiaries and the amount that they are able to distribute to the Corporation as dividends or otherwise may not
be adequate for the Corporation to service its debt obligations.
n) Risks related to the common shares.
The market price of the common shares may fluctuate, and purchasers may not be able to re-sell the common shares at or above
the purchase price. The market price of the common shares may fluctuate due to a variety of factors relative to the Corporation’s business,
including announcements of new developments, fluctuations in the Corporation’s operating results, sales of the common shares in the
marketplace, failure to meet analysts’ expectations, general conditions in all of our segments, or the worldwide economy. In recent years, the
common shares, the stock of other companies operating in the same sectors and the stock market in general have experienced significant
price fluctuations, which have been unrelated to the operating performance of the affected companies. There can be no assurance that the
market price of the common shares will not continue to experience significant fluctuations in the future, including fluctuations that are unrelated
to the Corporation’s performance.
o) Cash-flow and fair-value interest rate risks.
As the Corporation has no significant interest-bearing assets, its earnings and operating cash flows are substantially independent of changes
in market interest rates.
The Corporation’s interest rate risk arises from long-term borrowings. Borrowings issued at variable rates expose the Corporation to a cash-
flow interest rate risk. Borrowings issued at a fixed rate expose the Corporation to a fair-value interest rate risk.
p) Credit risk.
Credit risk arises from cash and cash equivalents, derivative financial instruments and deposits with banks and financial institutions. The
Corporation reduces this risk by dealing with creditworthy financial institutions.
The Corporation is exposed to credit risk on accounts receivable from its customers. In order to reduce this risk, the Corporation’s credit
policies include the analysis of a customer’s financial position and a regular review of its credit limits. The Corporation also believes that no
particular concentration of credit risks exists due to the geographic diversity of its customers and the procedures in place for managing
commercial risks. Derivative financial instruments include an element of credit risk, should the counterparty be unable to meet its obligations.
q) Enterprise Resource Planning (ERP) implementation.
The Corporation decided to modernize its financial information system with the implementation of an integrated Enterprise Resource Planning
(ERP) system. The Corporation identified the risks associated with said project and adopted a step-by-step plan to address any risks related
to the implementation process. The Corporation dedicated a project team, required corporate oversight with the appropriate skills and
knowledge, and retained the services of consultants to provide expertise and training. Supported by senior management and key personnel,
the Corporation undertook a detailed analysis of its requirements during 2010 and, in November of 2010, successfully completed a pilot project
in one of its plants. The project team has finalized a detailed blueprint for its manufacturing and some of its converting operations, and
implemented the solution in some business units as of December 31, 2012 and 2013. The project team is continuing to review the blueprint
and programming related to its remaining converting operations, and to evaluate its deployment strategy for the coming years, including the
human and capital resources required for the project.
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CASCADES MANAGEMENT'S DISCUSSION & ANALYSIS - RESULTS ANALYSIS
MANAGEMENT'S REPORT
TO THE SHAREHOLDERS OF CASCADES INC.
March 12, 2014
The accompanying consolidated financial statements are the responsibility of the management of Cascades Inc., and have been reviewed
by the Audit and Finance Committee and approved by the Board of Directors.
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as issued by the
International Accounting Standards Board (“IFRS”) and include certain estimates that reflect Management’s best judgment.
The Management of the Corporation is also responsible for all other information included in this Annual Report and for ensuring that this
information is consistent with the Corporation’s consolidated financial statements and business activities.
The Management of the Corporation is responsible for the design, establishment and maintenance of appropriate internal controls and
procedures for financial reporting, to ensure that financial statements for external purposes are fairly presented in conformity with IFRS. Such
internal control systems are designed to provide reasonable assurance on the reliability of the financial information and the safeguarding of
assets.
External and internal auditors have free and independent access to the Audit and Finance Committee, which comprises outside independent
directors. The Audit and Finance Committee, which meets regularly throughout the year with members of management and the external and
internal auditors, reviews the consolidated financial statements and recommends their approval to the Board of Directors.
The consolidated financial statements have been audited by PricewaterhouseCoopers LLP, whose report is provided below.
Mario Plourde
President and Chief Executive Officer - Kingsey Falls, Canada
Allan Hogg
Vice-President and Chief Financial Officer - Kingsey Falls, Canada
CASCADES 2013 ANNUAL REPORT - CONSOLIDATED FINANCIAL STATEMENTS
61
INDEPENDENT AUDITOR'S REPORT
TO THE SHAREHOLDERS OF CASCADES INC.
March 12, 2014
We have audited the accompanying consolidated financial statements of Cascades Inc. and its subsidiaries, which comprise the consolidated
balance sheets as at December 31, 2013 and 2012 and the consolidated statements of earnings (loss), comprehensive income (loss), equity
and cash flows for the years then ended, and the related notes, which comprise a summary of significant accounting policies and other
explanatory information.
Management’s responsibility for the consolidated financial statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International
Financial Reporting Standards, and for such internal control as Management determines is necessary to enable the preparation of consolidated
financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in
accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and
plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material
misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements.
The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated
financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the
entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes
evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by Management, as well
as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Cascades Inc. and its
subsidiaries as at December 31, 2013 and 2012 and their financial performance and their cash flows for the years then ended in accordance
with International Financial Reporting Standards.
Chartered Professional Accountants - Montréal, Canada
1 FCPA auditor, FCA, public accountancy permit No. A108517
62
CASCADES 2013 ANNUAL REPORT - CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(in millions of Canadian dollars)
Assets
Current assets
Cash and cash equivalents
Accounts receivable
Current income tax assets
Inventories
Financial assets
Long-term assets
Investments in associates and joint ventures
Property, plant and equipment
Intangible assets with finite useful life
Financial assets
Other assets
Deferred income tax assets
Goodwill and other intangible assets with indefinite useful life
Liabilities and Equity
Current liabilities
Bank loans and advances
Trade and other payables
Current income tax liabilities
Current portion of provisions for contingencies and charges
Current portion of financial liabilities and other liabilities
Current portion of long-term debt
Long-term liabilities
Long-term debt
Provisions for contingencies and charges
Financial liabilities
Other liabilities
Deferred income tax liabilities
Equity attributable to Shareholders
Capital stock
Contributed surplus
Retained earnings
Accumulated other comprehensive loss
Non-controlling interest
Total equity
NOTE
DECEMBER 31,
2013
DECEMBER 31,
2012
Restated - Note 3a)
7 and 15
8 and 15
27
9
10 and 15
11
27
12
18
11
13
14
16 and 27
15
15
14
27
16
18
19
20
21
23
512
34
543
2
1,114
261
1,684
196
17
108
118
333
3,831
56
590
2
2
11
39
700
1,540
37
39
212
109
2,637
482
17
642
(60)
1,081
113
1,194
3,831
20
513
22
497
15
1,067
222
1,659
200
13
70
128
335
3,694
80
551
1
6
74
60
772
1,415
33
36
264
80
2,600
482
16
567
(87)
978
116
1,094
3,694
The accompanying notes are an integral part of these consolidated financial statements.
Approved by the Board of Directors
Alain Lemaire
DIRECTOR
Georges Kobrynsky
DIRECTOR
CASCADES 2013 ANNUAL REPORT - CONSOLIDATED FINANCIAL STATEMENTS
63
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
For the years ended December 31 (in millions of Canadian dollars, except per share amounts and number of shares)
NOTE
Sales
Cost of sales and expenses
Cost of sales (including depreciation and amortization of $182 million; 2012— $199 million)
Selling and administrative expense
Loss (gain) on acquisitions, disposals and others
Impairment charges and restructuring costs
Foreign exchange loss (gain)
Gain on derivative financial instruments
Operating income
Financing expense
Interest expense on employee future benefits
Foreign exchange gain on long-term debt and financial instruments
Share of results of associates and joint ventures
Profit (loss) before income taxes
Provision for (recovery of) income taxes
Net earnings (loss) from continuing operations including non-controlling interest for the year
Net earnings (loss) from discontinued operations for the year
Net earnings (loss) including non-controlling interest for the year
Net earnings (loss) attributable to non-controlling interest
Net earnings (loss) attributable to Shareholders for the year
Net earnings (loss) from continuing operations per common share
Basic
Diluted
Net earnings (loss) per common share
Basic
Diluted
Weighted average basic number of common shares outstanding
Weighted average number of diluted common shares
Net earnings (loss) attributable to Shareholders:
Continuing operations
Discontinued operations
Net earnings (loss)
The accompanying notes are an integral part of these consolidated financial statements.
22
22
24
25
27
26
3 and 26
18
5
5
$
$
$
$
2013
3,849
3,277
406
3
33
(5)
(5)
3,709
140
103
12
(2)
3
24
12
12
2
14
3
11
0.09 $
0.09 $
0.11 $
0.11 $
2012
Restated - Note 3a)
3,645
3,157
382
(1)
36
2
(6)
3,570
75
102
13
(8)
(2)
(30)
(6)
(24)
(5)
(29)
(7)
(22)
(0.18)
(0.18)
(0.23)
(0.23)
93,885,402
94,694,761
94,157,726
94,595,401
9
2
11
(17)
(5)
(22)
64
CASCADES 2013 ANNUAL REPORT - CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the years ended December 31 (in millions of Canadian dollars)
Net earnings (loss) including non-controlling interest for the year
Other comprehensive income (loss)
Items that may be reclassified subsequently to earnings
Translation adjustments
Change in foreign currency translation of foreign subsidiaries
Change in foreign currency translation related to net investment hedging activities
Income taxes
Cash flow hedges
Change in fair value of foreign exchange forward contracts
Change in fair value of interest rate swaps
Change in fair value of commodity derivative financial instruments
Income taxes
21
21
Items that are reclassified to retained earnings
Actuarial gain (loss) on post-employment benefit obligations
17 and 22
Income taxes
Other comprehensive income (loss)
Comprehensive income (loss) including non-controlling interest for the year
Comprehensive income (loss) attributable to non-controlling interest for the year
Comprehensive income (loss) attributable to Shareholders for the year
Comprehensive income (loss) attributable to Shareholders:
Continuing operations
Discontinued operations
Comprehensive income (loss)
The accompanying notes are an integral part of these consolidated financial statements.
2013
14
52
(30)
4
(7)
13
9
(6)
35
97
(26)
71
106
120
12
108
106
2
108
2012
Restated - Note 3a)
(29)
(13)
9
(1)
6
(7)
4
—
(2)
(27)
7
(20)
(22)
(51)
(12)
(39)
(34)
(5)
(39)
CASCADES 2013 ANNUAL REPORT - CONSOLIDATED FINANCIAL STATEMENTS
65
CONSOLIDATED STATEMENTS OF EQUITY
(in millions of Canadian dollars)
Balance - Beginning of year
Comprehensive income
Net earnings
Other comprehensive income
Dividends
Stock options
Acquisition of non-controlling interest
Balance - End of year
(in millions of Canadian dollars)
Balance - Beginning of year
Comprehensive loss
Net loss
Other comprehensive loss
Dividends
Stock options
Redemption of common shares
Acquisition of non-controlling interest
Balance - End of year
For the year ended December 31, 2013
CAPITAL
STOCK
CONTRIBUTED
SURPLUS
RETAINED
EARNINGS
ACCUMULATED
OTHER
COMPREHENSIVE
LOSS
TOTAL EQUITY
ATTRIBUTABLE TO
SHAREHOLDERS
NON-
CONTROLLING
INTEREST
482
—
—
—
—
—
—
482
16
—
—
—
—
1
—
17
567
11
70
81
(15)
—
9
642
(87)
—
27
27
—
—
—
978
11
97
108
(15)
1
9
(60)
1,081
116
3
9
12
—
—
(15)
113
TOTAL
EQUITY
1,094
14
106
120
(15)
1
(6)
1,194
For the year ended December 31, 2012
Restated - Note 3a)
CAPITAL
STOCK
CONTRIBUTED
SURPLUS
RETAINED
EARNINGS
ACCUMULATED
OTHER
COMPREHENSIVE
LOSS
TOTAL EQUITY
ATTRIBUTABLE TO
SHAREHOLDERS
NON-
CONTROLLING
INTEREST
486
—
—
—
—
—
(4)
—
482
14
—
—
—
—
1
1
—
16
615
(22)
(16)
(38)
(15)
—
—
5
567
(86)
—
(1)
(1)
—
—
—
—
(87)
1,029
(22)
(17)
(39)
(15)
1
(3)
5
978
136
(7)
(5)
(12)
—
—
—
(8)
116
TOTAL
EQUITY
1,165
(29)
(22)
(51)
(15)
1
(3)
(3)
1,094
The accompanying notes are an integral part of these consolidated financial statements.
66
CASCADES 2013 ANNUAL REPORT - CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31 (in millions of Canadian dollars)
Operating activities from continuing operations
Net earnings (loss) attributable to Shareholders for the year
Net loss (earnings) from discontinued operations for the year
Net earnings (loss) from continuing operations
Adjustments for:
Financing expense and interest expense on employee future benefits
Depreciation and amortization
Loss (gain) on acquisitions, disposals and others
Impairment charges and restructuring costs
Unrealized gain on derivative financial instruments
Foreign exchange gain on long-term debt and financial instruments
Provision for (recovery of) income taxes
Share of results of associates and joint ventures
Net earnings (loss) attributable to non-controlling interest
Net financing expense paid
Income taxes received (paid)
Dividend received
Employee future benefits and others
Changes in non-cash working capital components
Investing activities from continuing operations
Investments in associates and joint ventures
Purchases of property, plant and equipment
Proceeds on disposals of property, plant and equipment
Investments in intangible and other assets
Business acquisition, net of cash acquired
Financing activities from continuing operations
Bank loans and advances
Change in revolving credit facilities
Purchase of senior notes
Increase in other long-term debt
Payments of other long-term debt
Settlement of derivative financial instruments
Redemption of common shares
Acquisition of non-controlling interest including dividend paid
Dividends paid to the Corporation's Shareholders
Change in cash and cash equivalents during the year from continuing operations
Change in cash and cash equivalents from discontinued operations
Net change in cash and cash equivalents during the year
Currency translation on cash and cash equivalents
Cash and cash equivalents - Beginning of the year
Cash and cash equivalents - End of the year
The accompanying notes are an integral part of these consolidated financial statements.
NOTE
2013
2012
Restated - Note 3a)
26
24
25
26
6
15
15
5
11
(2)
9
115
182
3
30
(6)
(2)
12
3
3
(100)
5
12
(40)
226
6
232
(32)
(148)
12
(13)
—
(181)
(31)
76
(10)
14
(50)
(14)
—
(19)
(15)
(49)
2
—
2
1
20
23
(22)
5
(17)
115
199
(1)
30
(5)
(8)
(6)
(2)
(7)
(99)
(17)
10
(31)
161
42
203
(19)
(161)
20
(39)
(14)
(213)
(11)
117
(8)
8
(63)
—
(3)
(3)
(15)
22
12
(4)
8
—
12
20
CASCADES 2013 ANNUAL REPORT - CONSOLIDATED FINANCIAL STATEMENTS
67
SEGMENTED INFORMATION
The Corporation analyzes the performance of its operating segments based on their operating income before depreciation and amortization,
which is not a measure of performance under International Financial Reporting Standards ("IFRS"); however, the chief operating decision-
maker ("CODM") uses this performance measure to assess the operating performance of each reportable segment. Earnings for each segment
are prepared on the same basis as those of the Corporation. Intersegment operations are recorded on the same basis as are sales to third
parties, which are at fair market value. The accounting policies of the reportable segments are the same as the Corporation’s accounting
policies described in Note 2.
The Corporation's operating segments are reported in a manner consistent with the internal reporting provided to the CODM. The Chief
Executive Officer has authority for resource allocation and management of the Corporation's performance, and is therefore the CODM.
The Corporation's operations are managed in four segments: Containerboard, Boxboard Europe, Specialty Products (which constitutes the
Packaging Products of the Corporation) and Tissue Papers.
For the years ended December 31 (in millions of Canadian dollars)
Packaging Products
Containerboard
Boxboard Europe
Specialty Products
Intersegment sales
Tissue Papers
Intersegment sales and others
Total
For the years ended December 31 (in millions of Canadian dollars)
Packaging Products
Containerboard
Boxboard Europe
Specialty Products
Tissue Papers
Corporate
Operating income before depreciation and amortization
Depreciation and amortization
Financing expense and interest expense on employee future benefits
Foreign exchange gain on long-term debt and financial instruments
Share of results of associates and joint ventures
Profit (loss) before income taxes
SALES
2013
1,314
837
774
(61)
2,864
1,033
(48)
3,849
2012
1,189
791
791
(68)
2,703
979
(37)
3,645
OPERATING INCOME (LOSS)
BEFORE DEPRECIATION AND AMORTIZATION
2013
2012
Restated - Note 3a)
153
30
32
215
150
(43)
322
(182)
(115)
2
(3)
24
64
38
49
151
138
(15)
274
(199)
(115)
8
2
(30)
68
CASCADES 2013 ANNUAL REPORT - SEGMENTED INFORMATION
For the years ended December 31 (in millions of Canadian dollars)
PURCHASES OF PROPERTY, PLANT AND EQUIPMENT
2013
2012
Packaging Products
Containerboard
Boxboard Europe
Specialty Products
Tissue Papers
Corporate
Total purchases
Proceeds on disposal of property, plant and equipment
Capital-lease acquisitions
Purchases of property, plant and equipment included in ''Trade and other payables''
Beginning of year
End of year
Purchases of property, plant and equipment net of proceeds on disposals
(in millions of Canadian dollars)
Packaging products
Containerboard
Boxboard Europe
Specialty Products
Tissue Papers
Corporate
Intersegment eliminations
Investments in associates and joint ventures
Other investments
Total assets
44
29
22
95
47
15
157
(12)
(4)
141
28
(33)
136
72
29
15
116
34
19
169
(20)
(5)
144
25
(28)
141
TOTAL ASSETS
DECEMBER 31,
2013
DECEMBER 31,
2012
1,312
712
469
2,493
755
358
(46)
3,560
261
10
3,831
1,256
676
502
2,434
722
345
(40)
3,461
222
11
3,694
CASCADES 2013 ANNUAL REPORT - SEGMENTED INFORMATION
69
2013
1,415
695
38
2,148
779
44
2
825
233
137
370
398
108
506
2012
1,339
674
42
2,055
723
43
2
768
211
121
332
377
113
490
3,849
3,645
DECEMBER 31,
2013
DECEMBER 31,
2012
1,022
297
306
59
1,684
1,066
239
297
57
1,659
DECEMBER 31,
2013
DECEMBER 31,
2012
471
50
8
529
476
51
8
535
SEGMENTED INFORMATION (CONTINUED)
Information by geographic segment is as follows :
For the years ended December 31 (in millions of Canadian dollars)
Sales
Operations located in Canada
Within Canada
To the United States
Offshore
Operations located in the United States
Within the United States
To Canada
Offshore
Operations located in Italy
Within Italy
Other countries
Operations located in other countries
Within Europe
Other countries
Total
(in millions of Canadian dollars)
Property, plant and equipment
Canada
United States
Italy
Other countries
Total
(in millions of Canadian dollars)
Goodwill, customer relationships and client lists, and other finite and indefinite useful life intangible assets
Canada
United States
Italy
Total
70
CASCADES 2013 ANNUAL REPORT - SEGMENTED INFORMATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For each of the years in the two-year period ended December 31, 2013
(tabular amounts in millions of Canadian dollars, except per-share and option amounts and number of shares and options)
NOTE 1
GENERAL INFORMATION
Cascades Inc. and its subsidiaries (together “Cascades” or the “Corporation”) produce, convert and market packaging and tissue products
composed mainly of recycled fibres. Cascades Inc. is incorporated and domiciled in Québec, Canada. The address of its registered office
is 404 Marie-Victorin Boulevard, Kingsey Falls. Its shares are listed on the Toronto Stock Exchange.
The Board of Directors approved the consolidated financial statements on March 12, 2014.
NOTE 2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The Corporation prepares its financial statements in accordance with Canadian generally accepted accounting principles (‘‘GAAP’’) as set
forth in Part 1 of the Chartered Professional Accountants of Canada (CPA Canada) Handbook – Accounting which incorporates International
Financial Accounting Standards (‘‘IFRS’’) as issued by the International Accounting Standards Board. The key accounting policies applied in
the preparation of these consolidated financial statements are described below. These policies have been consistently applied to all years
presented, unless otherwise stated.
BASIS OF MEASUREMENT
The consolidated financial statements have been prepared under the historical cost convention, except for the revaluation of certain financial
assets and liabilities, including derivative instruments which are measured at fair value.
BASIS OF CONSOLIDATION
These consolidated financial statements include the accounts of the Corporation, which include:
A. SUBSIDIARIES
Subsidiaries are all entities (including structured entities) over which the Corporation has power over decision about relevant activities. The
existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the
Corporation controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Corporation. They
are deconsolidated from the date on which control ceases. Accounting policies of subsidiaries have been changed, where necessary, to ensure
consistency with the policies adopted by the Corporation. The purchase method of accounting is used to account for the acquisition of
subsidiaries by the Corporation. Results of operations are consolidated since the date of acquisition. The purchase consideration is measured
as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange. The transaction
costs directly attributable to the acquisition are expensed. Identifiable assets acquired, as well as liabilities and contingent liabilities assumed
in a business combination, are measured initially at their fair values at the acquisition date, irrespective of the extent of any non-controlling
interest. The excess of the purchase consideration over the fair value of the Corporation's share of the identifiable net assets acquired is
recorded as goodwill. If the purchase consideration is less than the fair value of the net assets of the subsidiary acquired, the difference is
recognized directly in the consolidated statement of earnings. Intercompany transactions, balances and unrealized gains on transactions
between subsidiaries are eliminated.
The following are the principal subsidiaries of the Corporation:
Cascades Canada ULC
Cascades Fine Papers Group Inc.
Cascades Recovery Inc.
Cascades USA Inc.
Cascades S.A.S. (France)
Cascades Europe S.A.S.
Reno de Medici S.p.A.
PERCENTAGE OWNED (%)
JURISDICTION
100
100
73
100
100
100
57.61
Alberta, Canada
Canada
Canada
Delaware
France
France
Italy
CASCADES 2013 ANNUAL REPORT - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
71
NOTE 2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
B. TRANSACTIONS AND CHANGE IN OWNERSHIP
Acquisitions or disposals of equity interests that do not result in the Corporation obtaining or losing control are treated as equity transactions.
When the Corporation obtains or loses control, the revaluation of the previously held interest or the non-controlling interests that result in
gains or losses for the Corporation are recognized in the consolidated statement of earnings.
C. ASSOCIATES
Associates are all entities over which the Corporation has significant influence but not control, generally accompanying a shareholding of
between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method and are initially recognized
at cost. The Corporation's investment from associates includes goodwill identified on acquisition, net of any accumulated impairment loss.
Unrealized gains on transactions between the Corporation and its associates are eliminated to the extent of the Corporation's interest in the
associates. Accounting policies of associates have been adjusted where necessary to ensure consistency with the policies adopted by the
Corporation. Dilution gains and losses arising in investments in associates are recognized in the consolidated statement of earnings.
The Corporation assesses at each year-end whether there is any objective evidence that its interest in associates is impaired. If impaired,
the carrying value of the Corporation's share of the underlying assets of associates is written down to its estimated recoverable amount (being
the higher of fair value less cost of disposal or value in use) and charged to the consolidated statement of earnings.
D. JOINT VENTURES
A joint venture is an entity in which the Corporation holds a long-term interest and for which it shares joint control over decisions regarding
relevant activities. The Corporation reports its interests in joint ventures using the equity method. Accounting policies of joint ventures have
been adjusted where necessary to ensure consistency with the policies adopted by the Corporation.
REVENUE RECOGNITION
The Corporation recognizes its sales, which consist of product sales, when it is probable that the economic benefits will flow to the Corporation,
the goods are shipped and the significant risks and benefits of ownership are transferred, the price is fixed or determinable, and collection of
the resulting receivable is reasonably assured.
Revenue is measured based on the price specified in the sales contract, net of discounts and estimated returns at the time of sale. Historical
experience is used to estimate and provide for discounts and returns. Volume discounts are assessed based on anticipated annual sales.
FINANCIAL INSTRUMENTS AND HEDGING RELATIONSHIPS
Financial assets and financial liabilities are recognized when the Corporation becomes a party to the contractual provisions of the instrument.
Financial assets are derecognized when the rights to receive cash flows from the assets have expired or have been transferred and the
Corporation has transferred substantially all risks and rewards of ownership.
Financial assets and financial liabilities are offset and the net amount is reported in the consolidated balance sheet when there is a legally
enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the asset and settle the
liability simultaneously.
CLASSIFICATION
The Corporation classifies its financial instruments in the following categories: at fair value through profit or loss, held to maturity ("HTM"),
loans and receivables, available for sale ("AFS") and other liabilities. The classification depends on the purpose for which the financial
instruments were acquired or issued. Management determines the classification of its financial assets and financial liabilities at initial recognition.
Settlement date accounting is used by the Corporation for all financial assets.
A. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
A financial asset or financial liability is classified in this category if it is acquired principally for the purpose of selling or repurchasing in the
short term. Derivatives are also included in this category unless they are designated as hedges. Financial instruments in this category are
recognized initially and subsequently at fair value. Transaction costs are expensed in the consolidated statement of earnings. Gains and
losses arising from changes in fair value are presented in the consolidated statement of earnings in loss (gain) on acquisition, disposal and
others in the period in which they arise. Financial assets and financial liabilities at fair value through profit or loss are classified as current,
except for the portion expected to be realized or paid beyond 12 months of the consolidated balance sheet date, which is classified as long-
term.
B. HELD TO MATURITY
HTM financial assets are non-derivative financial assets with fixed or determinable payments and fixed maturities, other than loans and
receivables, AFS or fair value through profit or loss that the entity has the positive intention and ability to hold to maturity. These financial
assets are measured at amortized cost. The Corporation has no HTM financial assets as at December 31, 2013 and 2012.
72
CASCADES 2013 ANNUAL REPORT - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
C. AVAILABLE-FOR-SALE FINANCIAL ASSETS
AFS investments are non-derivative financial assets that are either designated in this category or not classified in any of the other categories.
AFS investments are recognized initially at fair value plus transaction costs and are subsequently carried at fair value. Gains or losses arising
from changes in fair value are recognized in the statement of other comprehensive income (loss). AFS investments are classified as long-
term, unless the investment matures within 12 months, or Management expects to dispose of them within 12 months.
Interest on AFS investments, calculated using the effective interest method, is recognized in the consolidated statement of earnings as part
of financing expense. Dividends on AFS equity instruments are recognized in the consolidated statement of earnings as part of loss (gain)
on disposal and others when the Corporation's right to receive payment is established. When an AFS investment is sold or impaired, the
accumulated gains or losses are moved from Accumulated other comprehensive income (loss) to the consolidated statement of earnings and
included in selling and administrative expense.
D. LOANS AND RECEIVABLES
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. The
Corporation's loans and receivables comprise accounts receivable, notes receivable from business disposals, the Greenpac bridge loan and
cash and cash equivalents. Loans and receivables are initially recognized at fair value. Subsequently, loans and receivables are measured
at amortized cost using the effective interest method less a provision for impairment.
E. FINANCIAL LIABILITIES AT AMORTIZED COST
Financial liabilities at amortized cost include bank loans and advances, trade and other payables, and long-term debt. Financial liabilities at
amortized cost are initially recognized at the amount required to be paid, less, when material, a discount to reduce the payables to fair value.
Subsequently, they are measured at amortized cost using the effective interest method. They are classified as current liabilities if payment is
due within 12 months. Otherwise, they are presented as long-term liabilities.
IMPAIRMENT OF FINANCIAL ASSETS
At each report date, the Corporation assesses whether there is objective evidence that a financial asset is impaired. If such evidence exists,
the Corporation recognizes an impairment loss, as follows:
i) Financial assets carried at amortized cost: The impairment loss is the difference between the amortized cost of the loan or receivable and
the present value of the estimated future cash flows, discounted using the instrument's original effective interest rate. The carrying amount
of the asset is reduced by this amount either directly or indirectly through the use of an allowance account.
ii) AFS financial assets: The impairment loss is the difference between the original cost of the asset and its permanent fair value decrease
at the measurement date, less any impairment losses previously recognized in the consolidated statement of earnings. This amount
represents the cumulative loss in ''Accumulated other comprehensive income (loss)'' that is reclassified to net earnings (loss).
Impairment losses on financial assets carried at amortized cost are reversed in subsequent periods if the amount of the loss decreases and
the decrease can be related objectively to an event occurring after the impairment was recognized. Impairment losses on AFS equity instruments
are not reversed.
DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
Derivative financial instruments are initially recognized at fair value on the date a derivative contract is entered into and are subsequently
remeasured at their fair value. The method of recognizing the resulting gain or loss depends on whether the derivative is designated as a
hedging instrument, and, if so, the nature of the item being hedged. The Corporation designates certain derivative financial instruments as
either:
i) hedges of the fair value of recognized assets or liabilities or a firm commitment (fair value hedge);
ii) hedges of a particular risk associated with a recognized asset or liability or a highly probable forecast transaction (cash flow hedge); or
iii) hedges of a net investment in a foreign operation (net investment hedge).
The Corporation formally documents at the inception of the transaction the relationship between hedging instruments and hedged items, as
well as its risk management objectives and strategy for undertaking various hedging transactions. The Corporation also documents its
assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly
effective in offsetting changes in fair values or cash flows of hedged items.
The full fair value of a hedging derivative is classified as a long-term asset or liability when the remaining maturity of the hedged item is more
than 12 months and as a current asset or liability when the remaining maturity of the hedged item is less than 12 months. Trading derivatives
are classified as current assets or liabilities.
A. CASH FLOW HEDGE
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognized in the
statement of other comprehensive income (loss). The gain or loss relating to the ineffective portion is recognized immediately in the consolidated
statement of earnings.
CASCADES 2013 ANNUAL REPORT - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
73
NOTE 2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Amounts accumulated in equity are reclassified to profit or loss in the period when the hedged item affects profit or loss (for example, when
the forecast sale that is hedged takes place). The gain or loss relating to the effective portion of interest rate swaps hedging variable rate
borrowings is recognized in the consolidated statement of earnings under ''Financing expense''. The gain or loss relating to the ineffective
portion is recognized in the consolidated statement of earnings. However, when the forecasted transaction that is hedged results in the
recognition of a non-financial asset (for example, inventory or property, plant and equipment), the gains and losses previously deferred in
equity are transferred from equity and included in the initial measurement of the cost of the asset. The deferred amounts are ultimately
recognized in Cost of goods sold in the case of inventory or in Depreciation in the case of property, plant and equipment.
When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or
loss existing in equity at that time remains in equity and is recognized when the forecast transaction is ultimately recognized in the consolidated
statement of earnings. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is
immediately transferred to the consolidated statement of earnings.
B. NET INVESTMENT HEDGE
Hedges of net investments in foreign operations are accounted for similarly to cash flow hedges.
Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognized in the statement of other comprehensive
income (loss). The gain or loss relating to the ineffective portion is recognized immediately in the consolidated statement of earnings.
Gains and losses accumulated in equity are included in the consolidated statement of earnings when the foreign operation is partially disposed
of or sold.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash on hand, bank balances and short-term liquid investments with original maturities of three months
or less.
ACCOUNTS RECEIVABLE
Accounts receivable are initially recognized at fair value and subsequently measured at amortized cost using the effective interest method,
less a provision for doubtful accounts that is based on expected collectability.
INVENTORIES
Inventories of finished goods are valued at the lower of cost, determined either by average production cost or retail method, or net realizable
value. Inventories of raw materials and supplies are valued at the lower of cost or replacement value, which is the best available measure of
their net realizable value. Cost of raw materials and supplies is determined using the average cost and first-in, first-out methods respectively.
Net realizable value is the estimated selling price in the ordinary course of business, less cost to complete and applicable variable selling
expenses.
PROPERTY, PLANT AND EQUIPMENT AND DEPRECIATION
Property, plant and equipment are recorded at cost less accumulated depreciation and net impairment losses, including interest incurred
during the construction period of certain property, plant and equipment. Depreciation is calculated on a straight-line basis over 20 to 33 years
for buildings, 7 to 20 years for machinery and equipment, 5 to 10 years for automotive equipment, and 3 to 10 years for other property, plant
and equipment, determined according to the estimated useful life of each class of property, plant and equipment. Repairs and maintenance
costs are charged to the consolidated statement of earnings during the period in which they are incurred.
Residual values, method of depreciation and useful lives of the assets are reviewed annually and adjusted if appropriate.
GRANTS AND INVESTMENT TAX CREDITS
Grants and investment tax credits are accounted for using the cost reduction method and are amortized to earnings as a reduction of
depreciation, using the same basis as that used to depreciate the related property, plant and equipment.
BORROWING COSTS
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take
a substantial period of time to get ready for their intended use, are added to the cost of those assets, until all the activities necessary to prepare
the asset for its intended use are complete.
All other borrowing costs are recognized in the consolidated statement of earnings in the period in which they are incurred.
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CASCADES 2013 ANNUAL REPORT - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INTANGIBLE ASSETS
Intangible assets consist primarily of customer relationships and client lists, application software and favourable leases. They are recorded
at cost less accumulated amortization and impairment losses and amortized on a straight-line basis, over the estimated useful lives as follows:
Customer relationships and client lists
Other finite-life intangible assets
Application software
Enterprise Resource Planning (ERP)
Favourable leases
Between 2 and 30 years
Between 2 and 20 years
Between 3 and 10 years
7 years
Term of the lease
Expenditure on research activities is recognized as an expense in the period in which it is incurred.
IMPAIRMENT
A. PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLE ASSETS WITH FINITE USEFUL LIFE
At the end of each reporting period, the Corporation assesses whether there is an indicator that the carrying amount of an asset or a group
of assets may be lower than its recoverable amount. For that purpose, assets are grouped at the lowest levels for which there are separately
identifiable cash inflows (cash generating units (CGUs)).
When the recoverable amount is lower than the carrying amount, the carrying amount is reduced to the recoverable amount. Impairment
losses are recorded immediately in the consolidated statement of earnings at the line item Impairment charges and restructuring costs.
Impairment losses are evaluated for potential reversals when events or changes in circumstances warrant such consideration. The revalued
carrying value is the greater of the estimated recoverable amount or the carrying amount that would have been determined had no impairment
loss been recognized and depreciation had been taken previously on the asset or CGU. A reversal of impairment loss is recorded directly in
the consolidated statement of earnings at the line item Impairment charges and restructuring costs.
B. GOODWILL AND OTHER INTANGIBLE ASSETS WITH AN INDEFINITE USEFUL LIFE
Goodwill and other intangible assets with an indefinite useful life are recognized at cost less any accumulated impairment losses. They have
an indefinite useful life due to their permanent nature since they are acquired rights or not subject to wear and tear. They are reviewed for
impairment annually on December 31 or when an event or a circumstance occurs and indicates that the value could be permanently impaired.
Goodwill and other intangible assets with an indefinite useful life are allocated to CGUs for the purpose of impairment testing based on the
level at which Management monitors it, which is not higher than an operating segment. The allocation is made to those CGUs that are expected
to benefit from the business combination in which the goodwill and other intangible assets with an indefinite useful life arose. Impairment loss
on goodwill is not reversed.
C. RECOVERABLE AMOUNTS
A recoverable amount is the higher of fair value less cost of disposal or value in use. In assessing value in use, the estimated future cash
flows are discounted to their present value using a discount rate that reflects current market assessment of the time value of money and the
risks specific to the asset or CGU. When determining fair value less cost of disposal, the Corporation considers if there is a market price for
the asset being evaluated. Otherwise, the Corporation uses the income approach.
LEASES
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases.
Payments made under operating leases are charged to the consolidated statement of earnings on a straight-line basis over the term of the
lease.
The Corporation leases certain property, plant and equipment. Leases of property, plant and equipment for which the Corporation has
substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalized at the lease's commencement
at the lower of the fair value of the leased property or the present value of the minimum lease payments. Property, plant and equipment
acquired under a finance lease are depreciated over the shorter of the estimated useful life of the asset or the lease term using the straight-
line method. Each lease payment is allocated between the liability and the financing expense so as to achieve a constant rate on the finance
balance outstanding. The corresponding rental obligations, net of financing expense, are included in long-term debt.
PROVISIONS FOR CONTINGENCIES AND CHARGES
Provisions for contingencies include mainly legal and other claims. A provision is recognized when the Corporation has a legal or constructive
obligation as a result of a past event and it is probable that settlement of the obligation will require a financial payment or cause a financial
loss, and a reliable estimate can be made of the amount of the obligation.
If some or all of the expenditure required to settle a provision is expected to be reimbursed by another party, the reimbursement is recorded
in the consolidated balance sheet as a separate asset, but only if it is virtually certain that the reimbursement will be received.
CASCADES 2013 ANNUAL REPORT - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
75
NOTE 2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a discount rate that
reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to
the passage of time is recognized as a financing expense.
ENVIRONMENTAL RESTORATION AND ENVIRONMENTAL COSTS
An obligation to incur restoration and environmental costs arises when environmental disturbance is caused by the development or ongoing
production of a plant or landfill site. Such costs arising from the installation of a plant and other site preparation work are provided for and
capitalized at the start of each project, or as soon as the obligation to incur such costs arises. Decommissioning costs are recorded at the
estimated amount at which the obligation could be settled at the consolidated balance sheet date, and are charged against profit over the life
of the operation, through the depreciation of the asset and the unwinding of the discount on the provision. The discount rate is the pre-tax
rate that reflects current market assessments of the time value of money and the risks specific to the liability. Costs for restoring subsequent
site damage which is created on an ongoing basis during production are provided for at their present values and charged against profit as
the obligation arises.
Changes in the measurement of a liability relating to the decommissioning of a plant or other site preparation work that result from changes
in the estimated timing or amount of the cash flow, or a change in the discount rate, are added to, or deducted from, the cost of the related
asset in the current year. If a decrease in the liability exceeds the carrying amount of the asset, the excess is recognized immediately in the
consolidated statement of earnings. If the asset value is increased and there is an indication that the revised carrying value is not recoverable,
an impairment test is performed in accordance with the accounting policy for impairment testing.
LONG-TERM DEBT
Long-term debt is recognized initially at fair value, net of financing costs incurred. Long-term debt is subsequently carried at amortized cost;
any difference between the proceeds (net of transaction costs) and the redemption value is recognized in the consolidated statement of
earnings over the period of the term of the debt using the effective interest method.
Financing costs paid on establishment of the revolving credit facility are recognized as deferred financing costs and amortized on a straight-
line basis over the anticipated period of the credit facility.
EMPLOYEE BENEFITS
The Corporation offers funded and unfunded defined benefit pension plans, defined contribution pension plans and group registered retirement
savings plans (RRSP) that provide retirement benefit payments for most of its employees. The defined benefit pension plans are usually
contributory and are based on the number of years of service and, in most cases the average salaries or compensation at the end of a career.
Retirement benefits are, in some cases, partially adjusted based on inflation. The Corporation also offers to its employees some post-
employment benefit plans, such as retirement allowance, group life insurance and medical and dental plans. However, these benefits, other
than pension plans, are not funded. Furthermore, the medical and dental plans upon retirement are being phased out and are no longer
offered to the majority of the new retirees, and the retirement allowance is not offered to those who do not meet certain criteria.
The liability recognized in the consolidated balance sheet in respect of defined benefit pension plans is the present value of the defined benefit
obligation at the end of the reporting period less the fair value of plan assets. The defined benefit obligation is calculated at least every three
years by independent actuaries using the projected unit credit method, and updated regularly by management for any material transactions
and changes in circumstances, including changes in market prices and interest rates up to the end of the reporting period.
Actuarial gains and losses that arise in calculating the present value of the defined benefit obligation and the fair value of plan assets are
recorded in the statement of other comprehensive income (loss) and recognized immediately in retained earnings without recycling to the
consolidated statement of earnings. Past service costs are recognized immediately in the consolidated statement of earnings.
When restructuring a plan results in a curtailment and settlement occurring at the same time, the curtailment is accounted for before the
settlement.
Interest costs on pension and other post-employment benefits are recognized in the consolidated statement of earnings as Interest expense
on employee future benefits. The measurement date of the employee future benefit plans is December 31 of each year. An actuarial evaluation
is performed at least every three years. Based on their balances as at December 31, 2013, 45% of the plans were evaluated on December
31, 2012 (55% in 2010).
INCOME TAXES
The Corporation uses the liability method to recognize deferred income taxes. According to this method, deferred income taxes are determined
using the difference between the accounting and tax bases of assets and liabilities. Deferred income tax assets and liabilities are measured
using enacted or substantively enacted tax rates at the consolidated balance sheet date and that are expected to apply when the deferred
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CASCADES 2013 ANNUAL REPORT - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
income taxes are expected to be recovered or settled. Deferred income tax assets are recognized when it is probable that the asset will be
realized.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax
liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority on either the
same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.
FOREIGN CURRENCY TRANSLATION
Items included in the financial statements of each of the Corporation's entities are measured using the currency of the primary economic
environment in which the entity operates (the "functional currency"). The consolidated financial statements are presented in Canadian dollars,
which is Cascades' functional currency.
A. FOREIGN CURRENCY TRANSACTIONS
Transactions denominated in currencies other than the business unit's functional currency are recorded at the rate of exchange prevailing at
the transaction date. Monetary assets and liabilities denominated in foreign currencies are translated at the rate of exchange prevailing at the
consolidated balance sheet date. Unrealized gains and losses on translation of monetary assets and liabilities are reflected in the consolidated
statement of earnings for the year.
B. FOREIGN OPERATIONS
The assets and liabilities of foreign operations are translated into Canadian dollars at the exchange rate prevailing at the consolidated balance
sheet date. Revenues and expenses are translated at the average exchange rate for the year. Translation gains or losses are deferred and
included in Accumulated other comprehensive income (loss).
SHARE-BASED PAYMENTS
The Corporation uses the fair value method of accounting for stock-based compensation awards granted to officers and key employees. This
method consists in recording expenses to earnings based on the vesting period of each tranche of options granted. The fair value of each
tranche is calculated based on the Black-Scholes option pricing model. This model was developed for use in estimating the fair value of traded
options that have no vesting restrictions and are fully transferable. When stock options are exercised, any considerations paid by employees,
as well as the related stock-based compensation, are credited to capital stock.
DIVIDEND DISTRIBUTION
Dividend distribution to the Corporation's Shareholders is recognized as a liability in the consolidated financial statements in the period in
which the dividends are approved by the Corporation's Board of Directors.
EARNINGS PER COMMON SHARE
Basic earnings per common share are determined using the weighted average number of common shares outstanding during the period.
Diluted earnings per common share are determined by adjusting the weighted average number of common shares outstanding for dilutive
instruments, which are primarily stock options, using the treasury stock method to evaluate the dilutive effect of stock options. Under this
method, instruments with a dilutive effect, which is when the average market price of a share for the period exceeds the exercise price, are
considered to have been exercised at the beginning of the period and the proceeds received are considered to have been used to redeem
common shares of the Corporation at the average market price for the period.
NOTE 3
CHANGES IN ACCOUNTING POLICY AND DISCLOSURES
A) NEW IFRS ADOPTED
IFRS 10 — CONSOLIDATION
IFRS 10 requires an entity to consolidate an investee when it is exposed or has rights to variable returns from its involvement with the investee
and has the ability to affect those returns through its power over the investee. Under existing IFRS, consolidation is required when an entity
has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. IFRS 10 replaces SIC-12,
Consolidation - Special Purpose Entities, and parts of IAS 27, Consolidated and Separate Financial Statements. The Corporation evaluated
this standard and there is no impact on the consolidated financial statements.
CASCADES 2013 ANNUAL REPORT - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
77
NOTE 3
CHANGES IN ACCOUNTING POLICY AND DISCLOSURES (CONTINUED)
IFRS 11 — JOINT ARRANGEMENTS
IFRS 11 requires a venturer to classify its interest in a joint arrangement as a joint venture or joint operation. Joint ventures will be accounted
for using the equity method of accounting whereas for a joint operation the venturer will recognize its share of the assets, liabilities, revenue
and expenses of the joint operation. Under existing IFRS, entities have the choice of proportionately consolidating or equity accounting for
interests in joint ventures. IFRS 11 supersedes IAS 31, Interests in Joint Ventures, and SIC-13, Jointly Controlled Entities - Non-monetary
Contributions by Venturers. The Corporation evaluated this standard and there is no impact on the consolidated financial statements.
IFRS 12 — DISCLOSURE OR INTERESTS IN OTHER ENTITIES
IFRS 12 establishes disclosure requirements for interests in other entities, such as joint arrangements, associates, special purpose vehicles
and off balance sheet vehicles. The standard carries forward existing disclosures and also introduces significant additional disclosure
requirements that address the nature of, and risks associated with, an entity's interests in other entities. The Corporation evaluated this
standard and it resulted in no impact on the consolidated financial statements. However, more information is required in the Notes to the
financial statements.
IFRS 13 — FAIR VALUE MEASUREMENT
IFRS 13 is a comprehensive standard for fair value measurement and disclosure requirements for use across all IFRS standards. The new
standard clarifies that fair value is the price that would be received to sell an asset, or paid to transfer a liability in an orderly transaction
between market participants, at the measurement date. It also establishes disclosures about fair value measurement. Under existing IFRS,
guidance on measuring and disclosing fair value is dispersed among the specific standards requiring fair value measurements and in many
cases does not reflect a clear measurement basis or consistent disclosures. The Corporation evaluated this standard and there is no impact
on the consolidated financial statements.
IAS 19 — EMPLOYEE BENEFITS
IAS 19 has been amended and includes significant changes to the recognition and measurement of defined benefit pension expense and
termination benefits and enhances the disclosure of all employee benefits. The amended standard requires immediate recognition of actuarial
gains and losses in the statement of other comprehensive income as they arise, without subsequent recycling to net income. Past service
costs (which now include curtailment gains and losses) are no longer recognized over a service period but are instead recognized immediately
in the period of a plan amendment. Pension benefit costs are split between: (i) the cost of benefits accrued in the current period (service costs)
and benefit changes (past service costs, settlements and curtailments); and (ii) finance expense or income. The finance expense or income
component is calculated based on the net defined benefit asset or liability. A number of other amendments have been made to recognition,
measurement and classification including redefining short-term and other long-term benefits, guidance on the treatment of taxes related to
benefit plans, guidance on the risk/cost sharing feature, and expanded disclosures. The impact of this standard on the interest expense on
employee future benefits for the year ended December 31, 2012, is $15 million ($11 million, or $0.11 per basic and diluted common share,
after related income tax). Other comprehensive income increased by $11 million (net of income tax of $4 million) for the year ended December
31, 2012. There is no impact on the employee benefit asset and liability and deferred income tax asset and liability.
IAS 1 — PRESENTATION OF FINANCIAL STATEMENTS
IAS 1 has been amended to require entities to separate items presented in the statement of other comprehensive income into two groups
based on whether or not items may be recycled in the future. Entities that choose to present other comprehensive income items before tax
will be required to show the amount of tax related to the two groups separately. The amendment is effective for annual periods beginning on
or after July 1, 2012, with earlier application permitted. The Corporation evaluated this standard and there is no financial impact although it
results in a different presentation of the consolidated statement of comprehensive income.
AMENDMENTS TO OTHER STANDARDS
In addition, there have been amendments to existing standards, including IAS 27, Separate Financial Statements, and IAS 28, Investments
in Associates and Joint Ventures. IAS 27 addresses accounting for subsidiaries, jointly controlled entities and associates in non-consolidated
financial statements. IAS 28 has been amended to include joint ventures in its scope and to address the changes in IFRS 10 to 13. The
Corporation evaluated these changes and there is no impact on the consolidated financial statements.
B) RECENT IFRS PRONOUNCEMENTS NOT YET ADOPTED
IFRS 9 — FINANCIAL INSTRUMENTS
IFRS 9 was issued in November 2009 and contains requirements for financial assets. This standard addresses classification and measurement
of financial assets and replaces the multiple category and measurement models for debt instruments in IAS 39, Financial Instruments:
Recognition and Measurement, with a new mixed measurement model having only two categories: amortized cost and fair value through
profit or loss. IFRS 9 also replaces the models for measuring equity instruments, and such instruments are recognized either at fair value
through profit or loss or at fair value through other comprehensive income. Where such equity instruments are measured at fair value through
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CASCADES 2013 ANNUAL REPORT - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
other comprehensive income, dividends are recognized in profit or loss insofar as they do not clearly represent a return on investment; however,
other gains and losses (including impairments) associated with such instruments remain in accumulated comprehensive income indefinitely.
Requirements for financial liabilities were added in October 2010, and they largely carried forward existing requirements in IAS 39, except
that fair value changes due to credit risk for liabilities designated at fair value through profit and loss would generally be recorded in the
statement of other comprehensive income.
IFRS 9 was amended in November 2013, to (i) include guidance on hedge accounting, (ii) allow entities to early adopt the requirement to
recognize changes in fair value attributable to changes in an entity’s own credit risk, from financial liabilities designated under the fair value
option, in OCI, without having to adopt the remainder of IFRS 9, and to (iii) remove the previous mandatory effective date for adoption of
January 1, 2015, although the standard is available for early adoption.
IFRS 7 — FINANCIAL INSTRUMENTS DISCLOSURES
IFRS 7 requires disclosure of both gross and net information about financial instruments eligible for offset in the balance sheet and financial
instruments subject to master netting arrangements. Concurrent with the amendments to IFRS 7, the IASB also amended IAS 32, Financial
Instruments: Presentation to clarify the existing requirements for offsetting financial instruments in the balance sheet. The amendments to
IAS 32 are effective as of January 1, 2014. The Corporation is evaluating this standard and no significant impact on the consolidated financial
statements is expected.
IAS 36 — IMPAIRMENT OF NON-FINANCIAL ASSETS
In May 2013, the IASB amended IAS 36, Impairment of assets regarding disclosures for non-financial assets. This amendment removed
certain disclosures related to the recoverable amount of CGUs which had been included in IAS 36 by the issue of IFRS 13. The amendment
is not mandatory until January 1st, 2014, however; the Corporation has decided to early adopt the amendment as of December 31, 2013.
NOTE 4
CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS
Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future
events that are believed to be reasonable under the circumstances.
CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with IFRS requires the use of estimates and assumptions that affect the reported amounts
of assets and liabilities in the financial statements and disclosure of contingencies at the balance sheet date, and the reported amounts of
revenues and expenses during the reporting period. On a regular basis and with the information available, Management reviews its estimates,
including those related to environmental costs, employee future benefits, collectability of accounts receivable, financial instruments,
contingencies, income taxes, useful life and residual value of property, plant and equipment and impairment of property, plant and equipment
and intangible assets. Actual results could differ from those estimates. When adjustments become necessary, they are reported in earnings
in the period in which they occur.
A. IMPAIRMENT OF LONG-LIVED ASSETS, INTANGIBLE ASSETS AND GOODWILL
In determining the recoverable amount of an asset or a CGU, the Corporation uses several key assumptions, based on external information
on the industry when available, and including production levels, selling prices, volume, raw materials costs, foreign exchange rates, growth
rates, discounting rates and capital spending.
The Corporation believes such assumptions to be reasonable. These assumptions involve a high degree of judgment and complexity and
reflect Management's best estimates based on available information at the assessment date. In addition, products are commodity products;
therefore, pricing is inherently volatile and often follows a cyclical pattern.
DESCRIPTION OF SIGNIFICANT IMPAIRMENT TESTING ASSUMPTIONS
GROWTH RATES
The assumptions used were based on the Corporation's internal budget. Revenues, operating margins and cash flows were projected for a
period of five years, and a perpetual long-term growth rate was applied thereafter. In arriving at its forecasts, the Corporation considered past
experience, economic trends such as gross domestic product growth and inflation, as well as industry and market trends.
DISCOUNT RATES
The Corporation assumed a discount rate in order to calculate the present value of its projected cash flows. The discount rate represents a
weighted average cost of capital ("WACC") for comparable companies operating in similar industries of the applicable CGU, group of CGUs
or reportable segment, based on publicly available information.
CASCADES 2013 ANNUAL REPORT - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
79
NOTE 4
CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS (CONTINUED)
FOREIGN EXCHANGE RATES
Foreign exchange rates are determined using the financial institutions' average forecast for the first two years of forecasting. For the three
following years, the Corporation uses the last five years' historical average of the foreign exchange rate.
Considering the sensitivity of the key assumptions used, there is measurement uncertainty since adverse changes in one or a combination
of the Corporation's key assumptions could cause a significant change in the carrying amounts of these assets.
B. INCOME TAXES
The Corporation is required to estimate the income taxes in each jurisdiction in which it operates. This includes estimating a value for existing
tax losses based on the Corporation's assessment of its ability to use them against future taxable income before they expire. If the Corporation's
assessment of its ability to use the tax losses proves inaccurate in the future, more or less of the tax losses might be recognized as assets,
which would increase or decrease the income tax expense and, consequently, affect the Corporation's results in the relevant year.
C. EMPLOYEE BENEFITS
The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of
high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity
approximating the terms of the related pension liability.
The cost of pensions and other retirement benefits earned by employees is actuarially determined using the projected benefit method pro-
rated on years of service and Management's best estimate of expected plan investment performance, salary escalations, retirement ages of
employees and expected healthcare costs. The accrued benefit obligation is evaluated using the market interest rate at the evaluation date.
Due to the long-term nature of these plans, such estimates are subject to significant uncertainty. All assumptions are reviewed annually.
CRITICAL JUDGMENTS IN APPLYING THE CORPORATION'S ACCOUNTING POLICIES
SUBSIDIARIES AND EQUITY ACCOUNTED INVESTMENTS
Significant judgment is applied in assessing whether certain investment structures result in control, joint control or significant influence over
the operations of the investment. Management's assessment of control, joint control or significant influence over an investment will determine
the accounting treatment for the investment.The Corporation has a 59.7% interest in an associate ("Greenpac"). Because the Corporation
does not have the power over relevant activities of Greenpac, it is accounted for as an associate.
NOTE 5
DISCONTINUED OPERATIONS
a. On March 11, 2011, the Corporation announced that it had entered into an agreement for the sale of Dopaco Inc. and Dopaco Canada
Inc. (collectively Dopaco), its converting business for the quick-service restaurant industry which was part of the Containerboard Group,
to Reynolds Group Holdings Limited.
2013
In 2013, we reversed a $2 million provision for which we retained liability following the transaction since it did not materialize.
2012
The Corporation retained liability for certain pending litigation, namely a claim of damages in relation to the contamination of a site
previously used by Dopaco. In 2012, the Corporation recorded a provision of $2 million (net of related income tax of $1 million) regarding
this claim. Following the settlement of this claim, the Corporation paid $2 million. In 2012, the Corporation also recorded an income tax
adjustment of $3 million relating to the finalization of the income tax on the Dopaco gain.
(in millions of Canadian dollars)
Results of the discontinued operations of Dopaco
Other expenses (revenues) and specific items
Income taxes
Net earnings (loss) from discontinued operations
Net earnings (loss) from discontinued operations per common share
Basic
Diluted
2013
2012
(2)
—
2
0.02 $
0.02 $
3
2
(5)
(0.05)
(0.05)
$
$
80
CASCADES 2013 ANNUAL REPORT - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
b. In 2012, the Corporation also paid $3 million in relation to a 2006 legal settlement in the fine paper distribution activities that were disposed
of in 2006.
NOTE 6
BUSINESS ACQUISITION
2012 ACQUISITION
On April 1, 2012, the Corporation purchased all of the outstanding shares of Bird Packaging Limited ("Bird'"), located in Ontario, for a cash
consideration of $14 million. Bird's assets include containerboard converting equipment as well as warehouses located in Guelph, Kitchener
and Windsor. This acquisition is part of the Containerboard Group. The excess of the consideration paid over the net fair value of the assets
acquired and the liabilities assumed resulted in non-deductible goodwill of $8 million and has been allocated to the Central Canada
containerboard converting plants Cash Generating Unit ("CGU"). This acquisition is expected to create synergies in the CGU.
The purchase price determination was finalized as at September 30, 2012.
Assets acquired and liabilities assumed were as follows:
(in millions of Canadian dollars)
Fair values of identifiable assets acquired and liabilities assumed:
Accounts receivable
Inventories
Property, plant and equipment
Capital-lease assets
Client list
Goodwill
Total assets
Bank loans and advances
Trade and other payables
Long-term debt
Capital-lease obligation
Deferred income tax liabilities
Net assets acquired
Cash paid
2012
BUSINESS SEGMENT:
CONTAINERBOARD
ACQUIRED COMPANY:
BIRD PACKAGING LIMITED
5
1
3
8
4
8
29
(1)
(3)
(2)
(8)
(1)
14
14
On a stand-alone basis, in 2012, the acquisition of Bird since the date of acquisition represented sales amounting to $21 million and net
earnings attributable to Shareholders is nil. Had the acquisition occurred on January 1, 2012, consolidated sales and net loss attributable to
Shareholders would have been $3,653 million and $21 million, respectively, for the year ended December 31, 2012. These estimates are
based on the assumption that the fair value adjustments that arose on the date of acquisition would have been the same had the acquisition
occurred on January 1, 2012.
CASCADES 2013 ANNUAL REPORT - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
81
NOTE 7
ACCOUNTS RECEIVABLE
(in millions of Canadian dollars)
Accounts receivable - Trade
Receivables from related parties
Less: provision for doubtful accounts
Trade receivables - net
Provisions for volume rebates
Other
NOTE
29
2013
2012
459
19
(13)
465
(27)
74
512
460
14
(12)
462
(23)
74
513
As of December 31, 2013, trade receivables of $155 million (December 31, 2012 - $161 million) were past due but not impaired. The aging
of these trade receivables at each reporting date is as follows:
(in millions of Canadian dollars)
Past due 1-30 days
Past due 31-60 days
Past due 61-90 days
Past due 91 days and over
Movements in the Corporation's allowance for doubtful accounts are as follows:
(in millions of Canadian dollars)
Balance at beginning of year
Provision for doubtful accounts, net of unused beginning balance
Receivables written off during the year as uncollectable
Balance at end of year
2013
118
23
9
5
155
2012
121
27
9
4
161
2013
2012
12
4
(3)
13
13
3
(4)
12
The increase and decrease of provision for doubtful accounts have been included in Selling and administrative expenses in the consolidated
statement of earnings.
The maximum exposure to credit risk at the reporting date approximates the carrying value of each class of receivable mentioned above.
NOTE 8
INVENTORIES
(in millions of Canadian dollars)
Finished goods
Raw materials
Supplies
2013
254
128
161
543
2012
222
114
161
497
As at December 31, 2013, finished goods, raw materials and supplies are adjusted for net realizable value ("NRV") of $1 million, nil and
$4 million, respectively (December 31, 2012 - $4 million, nil, $2 million). As at December 31, 2013, the carrying amount of inventory carried
at net realizable value consisted of $22 million in finished goods inventory, nil in raw materials inventory and $4 million in supplies (December
31, 2012 - $21 million, nil and $3 million).
The Corporation has sold all the goods that were written down in 2012. No reversal of previously written-down inventory occurred in 2013
and 2012. The cost of raw materials and supplies included in Cost of sales amounted to $1,473 million (2012 - $1,398 million).
82
CASCADES 2013 ANNUAL REPORT - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9
INVESTMENTS IN ASSOCIATES AND JOINT VENTURES
A.
INVESTMENTS IN ASSOCIATES AND JOINT VENTURES ARE DETAILED AS FOLLOWS:
(in millions of Canadian dollars)
Investments in associates
Investments in joint ventures
2013
230
31
261
2012
187
35
222
Investments in associates and joint ventures as at December 31, 2013, include goodwill of $20 million (December 31, 2012 - $20 million).
INVESTMENTS IN ASSOCIATES
B.
The following are the principal associates of the Corporation:
Boralex Inc.
Greenpac Holding LLC
PERCENTAGE OF EQUITY OWNED (%)
BUSINESS RELATIONSHIP
PRINCIPAL ESTABLISHMENT
34.85
59.7
Note 1
Note 2
Kingsey Falls, Canada
Niagara Falls, United States
Note 1: Boralex Inc., is a Canadian public corporation and a major electricity producer whose core business is the development and operation
of power stations that generate renewable energy, with operations in Canada, the northeastern United States and France.
Note 2: Greenpac Mill LLC is an American corporation that manufactures a light-weight linerboard made with 100% recycled fibres.
The Corporation's financial information from its principal associates is as follows:
(in millions of Canadian dollars)
Balance sheet
Cash and cash equivalents
Current assets
Long-term assets
Current liabilities
Current financial liabilities
Long-term liabilities
Long-term financial liabilities
Statements of earnings (loss)
Sales
Depreciation and amortization
Financing expense
Net earnings (loss) from continuing operations
Provision of income taxes
Other comprehensive income (loss)
Translation adjustment
Cash flow hedges
Available for sale asset
BORALEX INC.
2013
GREENPAC
HOLDING LLC
BORALEX INC.
2012
GREENPAC
HOLDING LLC
125
193
1,229
60
99
50
828
169
54
51
(5)
1
18
25
1
44
13
70
479
33
5
—
338
58
9
11
(18)
—
—
(10)
—
(10)
107
167
1,063
49
124
40
675
181
58
49
(9)
(2)
(1)
(4)
1
(4)
3
5
335
30
1
—
183
—
—
—
(1)
—
—
(12)
—
(12)
Investment in Boralex Inc. has a fair value of $142 million as at December 31, 2013 (December 31, 2012 - $121 million).
CASCADES 2013 ANNUAL REPORT - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
83
NOTE 9
INVESTMENTS IN ASSOCIATES AND JOINT VENTURES (CONTINUED)
INVESTMENT IN JOINT VENTURES
C.
The following are the principal joint ventures of the Corporation and the Corporation's percentage of equity owned:
Cascades Sonoco Inc.
Cascades Conversion Inc.
Converdis Inc.
PERCENTAGE EQUITY OWNED (%)
BUSINESS RELATIONSHIP
PRINCIPAL ESTABLISHMENT
50
50
50
Note 1
Note 1
Note 1
Birmingham and Tacoma, United States
Kingsey Falls, Canada
Berthierville, Canada
Note 1 : The joint ventures all produce specialty paper packaging products such as headers, rolls and wrappers.
The Corporation's joint ventures information is as follows:
(in millions of Canadian dollars)
Balance sheet
Cash and cash equivalents
Current assets
Long-term assets
Current liabilities
Current financial liabilities
Long-term liabilities
Statement of earnings (loss)
Sales
Depreciation and amortization
Net earnings (loss) from continuing operations
Provision of income taxes
Other comprehensive income
Translation adjustment
Cash flow
Dividend received from joint ventures
CASCADES SONOCO
INC.
CASCADES
CONVERSION INC.
CONVERDIS INC.
2013
4
20
12
4
3
3
97
1
7
3
1
1
6
2
17
21
5
—
2
62
1
6
2
—
—
3
—
5
5
2
—
1
24
—
1
—
—
—
—
84
CASCADES 2013 ANNUAL REPORT - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions of Canadian dollars)
Balance sheet
Cash and cash equivalents
Current assets
Long-term assets
Current liabilities
Current financial liabilities
Long-term liabilities
Statement of earnings (loss)
Sales
Depreciation and amortization
Net earnings (loss) from continuing operations
Provision of income taxes
Cash flow
Dividend received from joint ventures
CASCADES SONOCO
INC.
CASCADES
CONVERSION INC.
CONVERDIS INC.
2012
3
19
11
5
—
2
87
1
7
3
4
4
17
23
4
2
3
56
1
6
2
5
—
6
5
3
—
1
21
1
2
1
—
The Corporation received dividends of $1 million from its associate Niagara Sheet LLC as at December 31, 2012.
There are no contingent liabilities relating to the Corporation's interest in the joint ventures, and no contingent liabilities of the ventures
themselves.
D. SUBSIDIARIES WITH NON-CONTROLLING INTEREST
The Corporation's information for its subsidiaries with significant non-controlling interest is as follows:
(in millions of Canadian dollars, unless otherwise noted)
RENO DE MEDICI
S.p.A.
NORCAN FLEXIBLE
PACKAGING
CASCADES
RECOVERY INC.
RENO DE MEDICI
S.p.A.
NORCAN FLEXIBLE
PACKAGING
CASCADES
RECOVERY INC.
Principal establishment
Milan, Italy
Mississauga,
Canada
Toronto, Canada
Milan, Italy
Mississauga,
Canada
Toronto, Canada
2013
2012
% of shares held by non-controlling interest
42.39%
43.54%
27%
51.46%
43.54%
Net earnings (loss) attributable to non-controlling
interest
Non-controlling interest accumulated at the end of the
year
Subsidiaries financial information
Assets
Liabilities
Net earnings (loss)
Cash flows from operating activities
Cash flows from investing activities
Cash flows from financing activities
3
84
559
360
3
37
(17)
(21)
(1)
2
18
13
(1)
1
—
(1)
1
26
124
39
3
16
(5)
(16)
(7)
88
533
362
(7)
27
(21)
(5)
—
3
18
11
—
1
2
(3)
27%
1
25
151
57
4
14
(4)
(9)
In 2010, The Corporation entered into a put and call agreement with Industria E Innovazione (“Industria”) whereby it had the option to buy
9.07% (100% of the shares held by Industria) of the shares of Reno de Medici (RdM) for €0.43 per share between March 1, 2011 and December
31, 2012. Industria also had the option of requiring the Corporation to purchase its shares for €0.41 per share between January 1, 2013 and
March 31, 2014. As the put option held by Industria became effective on January 1, 2013, the non-controlling interest has been adjusted by
9.07% effective January 1, 2013, to 42.39%.
CASCADES 2013 ANNUAL REPORT - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
85
NOTE 9
INVESTMENTS IN ASSOCIATES AND JOINT VENTURES (CONTINUED)
E. NON-SIGNIFICANT ASSOCIATES AND JOINT VENTURES
The carrying value of investments in associates and joint ventures that are not significant, for the Corporation is as follow:
(in millions of Canadian dollars)
Non-significant associates
Niagara Sheet LLC
Groupe NBG
Corpap Inc.
Longhorn Paper Converting LLC
Abzac Canada Inc.
Pac Service SpA
Non-significant joint ventures
Metro Municipal Recycling Services Inc.
1525429 Ontario Limited
Manucor SpA
Best Diamond Packaging LLC
Fresh Bailiwick
Norpap Inc.
2013
2012
3
1
1
—
6
2
13
—
1
—
4
1
1
7
20
3
1
—
—
7
2
13
2
1
2
4
1
1
11
24
The Corporation received dividends of $3 million from the joint ventures of Cascades Recovery as at December 31, 2013.
The shares of results of non-significant associates and joint ventures, for the Corporation are as follows:
(in millions of Canadian dollars)
Non significant associates
Niagara Sheet LLC
Groupe NBG
Corpap Inc.
Longhorn Paper Converting LLC
Abzac Canada Inc.
Pac Service SpA
Non significant joint ventures
Metro Municipal Recycling Services Inc.
1525429 Ontario Limited
Manucor SpA
Best Diamond Packaging LLC
Fresh Bailiwick
Norpap Inc.
2013
2012
1
—
—
—
—
—
1
—
—
(2)
—
—
—
(2)
(1)
—
—
(1)
—
—
—
(1)
1
—
(3)
—
—
—
(2)
(3)
86
CASCADES 2013 ANNUAL REPORT - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10
PROPERTY, PLANT AND EQUIPMENT
(in millions of Canadian dollars)
As at January 1, 2012
Cost
Accumulated depreciation and impairment
Net book amount
Year ended December 31, 2012
Opening net book amount
Additions
Disposals
Depreciation
Business acquisitions
Impairment charge
Other
Exchange differences
Closing net book amount
As at December 31, 2012
Cost
Accumulated depreciation and impairment
Net book amount
Year ended December 31, 2013
Opening net book amount
Additions
Disposals
Depreciation
Impairment charge
Other
Exchange differences
Closing net book amount
As at December 31, 2013
Cost
Accumulated depreciation and impairment
Net book amount
NOTE
LAND
BUILDINGS
MACHINERY
AND
EQUIPMENT
AUTOMOTIVE
EQUIPMENT
OTHER
TOTAL
6
106
—
106
106
1
(2)
—
—
—
(1)
—
104
104
—
104
104
3
—
—
(2)
—
4
109
111
2
109
664
252
412
412
11
(1)
(25)
8
—
5
(2)
408
681
273
408
408
8
—
(25)
(13)
10
11
399
721
322
399
2,691
1,645
1,046
1,046
85
(3)
(139)
3
(24)
45
(6)
1,007
2,764
1,757
1,007
1,007
51
(8)
(123)
—
68
37
1,032
2,831
1,799
1,032
76
54
22
22
5
—
(6)
—
—
—
—
21
78
57
21
21
11
—
(7)
—
—
—
25
84
59
25
333
216
117
117
67
(3)
(11)
—
—
(50)
(1)
119
225
106
119
119
84
(2)
(9)
(1)
(76)
4
119
215
96
119
3,870
2,167
1,703
1,703
169
(9)
(181)
11
(24)
(1)
(9)
1,659
3,852
2,193
1,659
1,659
157
(10)
(164)
(16)
2
56
1,684
3,962
2,278
1,684
Other property, plant and equipment includes buildings and machinery and equipment in the process of construction or installation with a book
value of $60 million (December 31, 2012 - $55 million) and deposits on purchases of equipment amounting to $10 million (December 31,
2012 - $10 million). The carrying value of finance-lease assets is $16 million.
No interest has been capitalized in fixed assets in 2013. In 2012, $2 million of interest incurred on qualifying assets was capitalized. The
weighted average capitalization rate on funds borrowed in 2012 was 6.31%.
CASCADES 2013 ANNUAL REPORT - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
87
NOTE 11
GOODWILL AND OTHER INTANGIBLE ASSETS WITH A FINITE AND AN INDEFINITE USEFUL LIFE
(in millions of Canadian dollars)
As at January 1, 2012
Cost
Accumulated amortization and impairment
Net book amount
Year ended December 31, 2012
Opening net book amount
Additions
Business acquisitions
Impairment charge
Amortization
Exchange differences
Closing net book amount
As at December 31, 2012
Cost
Accumulated amortization and impairment
Net book amount
Year ended December 31, 2013
Opening net book amount
Additions
Impairment charge
Amortization
Exchange differences
Closing net book amount
As at December 31, 2013
Cost
Accumulated amortization and impairment
Net book amount
NOTE 12
OTHER ASSETS
(in millions of Canadian dollars)
Notes receivable from business disposals
Other investments
Other assets
Deferred financing costs
Employee future benefits
Less: Current portion, included in accounts receivables
Total other assets
APPLICATION
SOFTWARE AND
ERP
NOTE
CUSTOMER
RELATIONSHIPS
AND CLIENT
LISTS
OTHER
INTANGIBLE
ASSETS WITH
FINITE USEFUL
LIFE
TOTAL
INTANGIBLE
ASSETS WITH A
FINITE USEFUL
LIFE
OTHER
INTANGIBLE
ASSETS WITH
AN INDEFINITE
USEFUL LIFE
TOTAL
INTANGIBLE
ASSETS WITH
AN INDEFINITE
USEFUL LIFE
GOODWILL
6
50
15
35
35
31
—
—
(4)
—
62
81
19
62
62
15
—
(4)
—
73
97
24
73
175
42
133
133
—
4
—
(11)
—
126
179
53
126
126
—
(2)
(11)
1
114
180
66
114
41
24
17
17
—
—
(2)
(3)
—
12
41
29
12
12
—
—
(3)
—
9
41
32
9
266
81
185
185
31
4
(2)
(18)
—
200
301
101
200
200
15
(2)
(18)
1
196
318
122
196
322
—
322
322
—
8
—
—
(1)
329
329
—
329
329
—
(4)
—
1
326
330
4
326
7
1
6
6
—
—
—
—
—
6
7
1
6
6
—
—
—
1
7
8
1
7
329
1
328
328
—
8
—
—
(1)
335
336
1
335
335
—
(4)
—
2
333
338
5
333
NOTE
2013
2012
17
18
10
42
4
44
118
(10)
108
18
11
38
6
1
74
(4)
70
In 2012, the Corporation granted a US$15 million ($15 million) bridge loan to Greenpac Holding LLC (Greenpac Project). The loan is included
in Other assets will mature no later than 2021 and bears interest ranging from 7.5% to 12% depending on the stage of completion of the
Greenpac Project. Including accrued interest, the bridge loan stands at $20 million as at December 31, 2013. However, we expect the loan
to be repaid over the next 4 years through secured tax credits to be received by members of the project and operational cash flows. In 2013,
the Corporation also capitalized in Other assets $6 million worth of costs incurred for the supervision of the Greenpac Project construction
(2012 - $6 million). These costs are repaid to the Corporation by Greenpac Mill over an 8-year period.
88
CASCADES 2013 ANNUAL REPORT - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13
TRADE AND OTHER PAYABLES
(in millions of Canadian dollars)
Trade payables
Payables to related parties
Accrued expenses
Trade and other payables
NOTE 14
PROVISIONS FOR CONTINGENCIES AND CHARGES
NOTE
29
2013
484
14
92
590
2012
465
13
73
551
(in millions of Canadian dollars)
As at January 1, 2012
Additional provision
Reversal of provision
Payments
Revaluation
Others
As at December 31, 2012
Additional provision
Payments
Revaluation
Unwinding of discount
As at December 31, 2013
Analysis of total provisions:
(in millions of Canadian dollars)
Non-current
Current
ENVIRONMENTAL
RESTORATION
OBLIGATIONS
ENVIRONMENTAL
COSTS
LEGAL CLAIMS
SEVERANCES
ONEROUS
CONTRACT
OTHERS
TOTAL
PROVISIONS
6
—
—
—
1
1
8
—
—
—
—
8
14
3
(1)
(2)
—
(1)
13
1
(1)
—
—
13
11
2
—
(4)
—
(1)
8
2
(4)
—
—
6
4
4
—
(5)
—
(1)
2
4
(2)
—
—
4
2
4
—
(1)
—
—
5
1
(3)
—
1
4
1
1
—
(1)
—
2
3
—
(1)
2
—
4
2013
37
2
39
38
14
(1)
(13)
1
—
39
8
(11)
2
1
39
2012
33
6
39
ENVIRONMENTAL RESTORATION
The Corporation uses some landfill sites. A provision has been recognized at fair value for the costs to be incurred for the restoration of those
sites.
ENVIRONMENTAL COSTS
An environmental provision is recorded when the Corporation has an obligation caused by its ongoing and abandoned operations.
LEGAL CLAIMS
In the normal course of operations, the Corporation is party to various legal actions and contingencies related to contract disputes and labour
issues.
CASCADES 2013 ANNUAL REPORT - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
89
NOTE 15
LONG-TERM DEBT
(in millions of Canadian dollars)
Revolving credit facility, weighted average interest rate of 3.01% as at December 31, 2013, consists of
$291 million; US$10 million and €125 million (December 31, 2012 - $299 million; US$37 million and
€49 million)
7.25% Unsecured senior notes of US$4 million repurchased in 2013
6.75% Unsecured senior notes of US$6 million repurchased in 2013
7.75% Unsecured senior notes of $200 million
7.75% Unsecured senior notes of US$500 million
7.875% Unsecured senior notes of US$250 million
Other debts of subsidiaries
Other debts without recourse to the Corporation
Less: Unamortized financing costs
Total long-term debt
Less:
Current portion of 7.25% Unsecured senior notes
Current portion of 6.75% Unsecured senior notes
Current portion of debts of subsidiaries
Current portion of debts without recourse to the Corporation
MATURITY
2013
2012
2016
2013
2013
2016
2017
2020
484
—
—
199
527
263
39
80
1,592
13
1,579
—
—
15
24
39
401
4
6
198
493
245
53
90
1,490
15
1,475
4
6
20
30
60
1,540
1,415
a. In 2013, the Corporation repurchased US$4 million of its 7.25% unsecured senior notes for an amount of US$4 million ($4 million) and
US$6 million of its 6.75% unsecured senior notes for an amount of US$6 million ($6 million). No gain or loss resulted from these transactions.
b. In 2012, the Corporation repurchased US$3million of its 6.75% unsecured senior notes for an amount of US$3 million ($3 million) and US
$5 million of its 7.25% unsecured senior notes for an amount of US$5 million ($5 million). No gain or loss resulted from these transactions.
c. As at December 31, 2013, accounts receivable and inventories totaling approximately $655 million (December 31, 2012 - $611 million) as
well as property, plant and equipment totaling approximately $261 million (December 31, 2012 - $275 million) were pledged as collateral
for the Corporation's revolving credit facility.
d. The Corporation has finance leases for various items of property, plant and equipment. Renewals and purchase options are specific to
the entity that holds the lease. Lease liabilities are effectively secured as the rights to the leased asset revert to the lessor in the event of
default. Future minimum lease payments under finance leases together with the present value of the net minimum lease payments are as
follows:
(in millions of Canadian dollars)
Within one year
Later than 1 year but no later than 5 years
More than 5 years
Total minimum lease payments
Less: amounts representing finance charges
Present value of minimum lease payments
2013
2012
MINIMUM PAYMENTS
PRESENT VALUE OF
PAYMENTS
MINIMUM PAYMENTS
PRESENT VALUE OF
PAYMENTS
6
10
9
25
7
18
5
7
6
18
—
18
5
10
9
24
7
17
3
7
7
17
—
17
90
CASCADES 2013 ANNUAL REPORT - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16
OTHER LIABILITIES
(in millions of Canadian dollars)
Employee future benefits
Other
Less: Current portion, included in Trade and other payables
Total other liabilities
NOTE 17
EMPLOYEE FUTURE BENEFITS
NOTE
17
2013
202
11
213
(1)
212
2012
259
5
264
—
264
The Corporation operates various post-employment plans, including both defined benefit and defined contribution pension plans and post-
employment benefit plans, such as retirement allowance, group life insurance and medical and dental plans. The table below outlines where
the Corporation’s post-employment amounts and activity are included in the financial statements.
(in millions of Canadian dollars)
Balance sheet obligations for
Defined pension benefits
Post-employment benefits other than defined benefit pension plans
NOTE
17(a)
17(b)
Net liability in the balance sheet
Allocated as follow:
Short term
Long term
Net liability on balance sheet
Income statement charge
Defined pension benefits
Defined contribution benefits
Post-employment benefits other than defined benefit pension plans
Remeasurements for
Defined pension benefits
Post-employment benefits other than defined benefit pension plans
2013
2012
44
114
158
(6)
164
158
20
19
7
46
(89)
(8)
(97)
138
120
258
—
258
258
19
17
7
43
21
6
27
A. DEFINED BENEFIT PENSION PLANS
The Corporation offers funded and unfunded defined benefit pension plans, defined contribution pension plans and group registered retirement
savings plans (RRSP) that provide retirement benefit payments for most of its employees. The defined benefit pension plans are usually
contributory and are based on the number of years of service and, in most cases the average salaries or compensation at the end of a career.
Retirement benefits are, in some cases, partially adjusted based on inflation.
The majority of benefit payments are payable from a trustee administered funds; however, for the unfunded plans, the Corporation meets the
benefit payment obligation as it falls due. Plan assets held in trusts are governed by local regulations and practice in each country. Responsibility
for governance of the plans - overseeing all aspects of the plans including investment decisions and contribution schedules - lies with the
Corporation. The Corporation has established Investment Committees to assist in the management of the plans and has also appointed
experienced, independent professional experts such as investments managers, investment consultants, actuaries and custodians.
CASCADES 2013 ANNUAL REPORT - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
91
NOTE 17
EMPLOYEE FUTURE BENEFITS (CONTINUED)
The movement in the net defined benefit obligation and fair value of plan assets of pension plans over the year is as follows:
(in millions of Canadian dollars)
As at January 1, 2012
Current service cost
Interest expense (income)
Past service costs
Curtailments
Impact on profit or loss
Remeasurements
Return on plan assets, excluding amounts included in interest
expense (income)
Loss (gain) from change in financial assumptions
Impact of remeasurements on other comprehensive income
Exchange differences
Contributions
Employers
Plan participants
Benefit payments
As at December 31, 2012
Current service cost
Interest expense (income)
Impact on profit or loss
Remeasurements
Return on plan assets, excluding amounts included in interest
expense (income)
Loss (gain) from change in demographic assumptions
Loss (gain) from change in financial assumptions
Experience losses (gains)
Impact of remeasurements on other comprehensive income
Exchange differences
Contributions
Employers
Plan participants
Benefit payments
As at December 31, 2013
PRESENT VALUE OF
OBLIGATION
FAIR VALUE OF PLAN
ASSETS
672
12
31
1
(1)
43
—
44
44
(1)
—
3
(38)
723
12
29
41
—
17
(42)
(1)
(26)
3
—
3
(90)
654
(560)
—
(24)
—
—
(24)
(23)
—
(23)
—
(26)
(3)
38
(598)
—
(22)
(22)
(63)
—
—
—
(63)
(1)
(27)
(3)
90
(624)
TOTAL
112
12
7
1
(1)
19
(23)
44
21
(1)
(26)
—
—
125
12
7
19
(63)
17
(42)
(1)
(89)
2
(27)
—
—
30
IMPACT OF MINIMUM
FUNDING
REQUIREMENT (ASSET
CEILING)
13
—
—
—
—
—
—
—
—
—
—
—
—
13
—
1
1
—
—
—
—
—
—
—
—
—
14
TOTAL
125
12
7
1
(1)
19
(23)
44
21
(1)
(26)
—
—
138
12
8
20
(63)
17
(42)
(1)
(89)
2
(27)
—
—
44
92
CASCADES 2013 ANNUAL REPORT - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The defined benefit obligation and plan assets are composed by country and by sector as follows:
(in millions of Canadian dollars)
Present value of funded obligations
Fair value of plan assets
Deficit (surplus) of funded plans
Impact of minimum funding requirement (asset ceiling)
Present value of unfunded obligations
Net liability on balance sheet
CANADA
UNITED STATES
EUROPE
594
619
(25)
14
33
22
7
5
2
—
—
2
—
—
—
—
20
20
(in million of Canadian dollars)
CONTAINERBOARD
BOXBOARD EUROPE
Present value of funded obligations
Fair value of plan assets
Deficit (surplus) of funded plans
Impact of minimum funding requirement (asset
ceiling)
Present value of unfunded obligations
Net liability on balance sheet
386
424
(38)
11
7
(20)
—
—
—
—
20
20
SPECIALTY
PRODUCTS
186
173
13
3
2
18
TISSUE PAPERS
CORPORATE
28
25
3
—
2
5
1
2
(1)
—
22
21
(in millions of Canadian dollars)
Present value of funded obligations
Fair value of plan assets
Deficit (surplus) of funded plans
Impact of minimum funding requirement (asset ceiling)
Present value of unfunded obligations
Net liability on balance sheet
CANADA
UNITED STATES
EUROPE
665
594
71
13
33
117
7
4
3
—
—
3
—
—
—
—
18
18
(in millions of Canadian dollars)
CONTAINERBOARD BOXBOARD EUROPE
Present value of funded obligations
Fair value of plan assets
Deficit (surplus) of funded plans
Impact of minimum funding requirement (asset
ceiling)
Present value of unfunded obligations
Net liability on balance sheet
450
424
26
7
7
40
—
—
—
—
18
18
The significant actuarial assumptions are as follows:
Discount rate
Salary growth rate
Inflation rate
CANADA
UNITED STATES
4.75%
Between 1,5%
and 3%
2.5%
4.5%
N/A
N/A
SPECIALTY
PRODUCTS
193
151
42
6
2
50
2013
EUROPE
3.25%
—%
1.75%
TISSUE PAPERS
CORPORATE
28
21
7
—
2
9
1
2
(1)
—
22
21
CANADA
UNITED STATES
EUROPE
4.25%
Between 2% and
3,5%
2.5%
4%
N/A
N/A
3%
—
1.75%
2013
TOTAL
601
624
(23)
14
53
44
2013
TOTAL
601
624
(23)
14
53
44
2012
TOTAL
672
598
74
13
51
138
2012
TOTAL
672
598
74
13
51
138
2012
CASCADES 2013 ANNUAL REPORT - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
93
NOTE 17
EMPLOYEE FUTURE BENEFITS (CONTINUED)
Assumptions regarding future mortality are set based on actuarial advice in accordance with published statistics and experience in each
territory. For Canadian pension plans which represent 95% of all pension plans, these assumptions translate into an average life expectancy
in years for a pensioner retiring at age 65:
Retiring at the end of the year
Male
Female
Retiring 20 years after the end of the reporting year
Male
Female
2013
20.9
23.1
22.6
24.2
2012
19.8
22.1
21.3
22.9
The sensitivity of the defined benefit obligation to changes in assumptions is set out below. The effects on each plan of a change in an
assumption are weighted proportionately to the total plan obligations to determine the total impact for each assumption presented.
Discount rate
Salary growth rate
Life expectancy
IMPACT ON DEFINED BENEFIT OBLIGATION
CHANGE IN ASSUMPTION
INCREASE IN ASSUMPTION
DECREASE IN ASSUMPTION
0.25%
0.25%
(3)%
0.5%
3.1%
(0.5)%
INCREASE BY 1 YEAR IN ASSUMPTION
Plan assets, which are funding the Corporation’s defined pension plans, are comprised as follows:
(in millions of Canadian dollars)
Cash and short-term investments
Bonds
Canadian bonds
Shares
Canadian shares
Foreign shares
Mutual funds
Money market funds
Canadian bond mutual funds
Foreign bond mutual funds
Canadian equity mutual funds
Foreign equity mutual funds
Alternative investments funds
Other
Derivatives contract, net
LEVEL 1
LEVEL 2
LEVEL 3
28
115
113
13
—
—
—
—
—
—
6
275
1
97
—
—
11
11
2
49
176
2
—
349
—
—
—
—
—
—
—
—
—
—
—
—
94
CASCADES 2013 ANNUAL REPORT - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2.6%
2013
%
4.7 %
33.9 %
20.2 %
40.2 %
1 %
TOTAL
29
212
212
113
13
126
11
11
2
49
176
2
251
6
6
624
(in millions of Canadian dollars)
Cash and short-term investments
Bonds
Canadian bonds
Shares
Canadian shares
Foreign shares
Mutual funds
Money market funds
Canadian bond mutual funds
Foreign bond mutual funds
Canadian equity mutual funds
Foreign equity mutual funds
Alternative investments funds
LEVEL 1
LEVEL 2
LEVEL 3
14
123
116
63
—
—
—
28
—
—
344
—
58
—
—
10
43
2
5
122
14
254
—
—
—
—
—
—
—
—
—
—
—
2012
%
2.4 %
30.3 %
29.8 %
37.5 %
TOTAL
14
181
181
116
63
179
10
43
2
33
122
14
224
598
The plan assets do not include shares or debt securities of the Corporation. Annual benefit annuities of an approximate value of $11 million
are pledged by insurance contracts established by the Corporation.
CASCADES 2013 ANNUAL REPORT - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
95
NOTE 17
EMPLOYEE FUTURE BENEFITS (CONTINUED)
B. POST EMPLOYMENT BENEFITS OTHER THAN DEFINED BENEFIT PENSION PLANS
The Corporation also offers to its employees some post-employment benefit plans, such as retirement allowance, group life insurance and
medical and dental plans. However, these benefits, other than pension plans, are not funded. Furthermore, the medical and dental plans upon
retirement are being phased out and are no longer offered to the majority of the new retirees, and the retirement allowance is not offered to
the majority of employees hired after 2002.
The amounts recognized in the balance sheet composed by country and by sector are determined as follows:
(in millions of Canadian dollars)
Present value of unfunded obligations
Liability on balance sheet
CANADA
UNITED STATES
EUROPE
85
85
3
3
26
26
(in millions of Canadian dollars)
CONTAINERBOARD
BOXBOARD EUROPE
Present value of unfunded obligations
Liability on balance sheet
46
46
26
26
SPECIALTY
PRODUCTS
17
17
TISSUE PAPERS
CORPORATE
12
12
13
13
(in millions of Canadian dollars)
Present value of unfunded obligations
Liability on balance sheet
CANADA
UNITED STATES
EUROPE
92
92
3
3
25
25
(in millions of Canadian dollars)
CONTAINERBOARD
BOXBOARD EUROPE
Present value of unfunded obligations
Liability on balance sheet
56
56
25
25
.
SPECIALTY
PRODUCTS
19
19
TISSUE PAPERS
CORPORATE
12
12
8
8
2013
TOTAL
114
114
2013
TOTAL
114
114
2012
TOTAL
120
120
2012
TOTAL
120
120
96
CASCADES 2013 ANNUAL REPORT - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The movement in the net defined benefit obligation for post-employment benefits over the year is as follows:
(in millions of Canadian dollars)
As at January 1, 2012
Current service cost
Interest expense (income)
Curtailments
Impact on profit or loss
Remeasurements
Loss (gain) from change in financial assumptions
Experience losses (gains)
Impact of remeasurements on other comprehensive income
Contributions and premiums paid by the employer
Benefit payments
As at December 31, 2012
Current service cost
Interest expense (income)
Post-employment variation
Plan changes
Impact on profit or loss
Remeasurements
Loss (gain) from change in demographic assumptions
Loss (gain) from change in financial assumptions
Experience losses (gains)
Impact of remeasurements on other comprehensive income
Exchange differences
Contributions and premiums paid by the employer
Benefit payments
As at December 31, 2013
PRESENT VALUE OF
OBLIGATION
FAIR VALUE OF PLAN
ASSET
115
3
5
(1)
7
3
3
6
—
(8)
120
3
4
(1)
1
7
1
(11)
2
(8)
3
—
(8)
114
—
—
—
—
—
—
—
—
(8)
8
—
—
—
—
—
—
—
—
—
—
—
(8)
8
—
TOTAL
115
3
5
(1)
7
3
3
6
(8)
—
120
3
4
(1)
1
7
1
(11)
2
(8)
3
(8)
—
114
The method of accounting, assumptions relating to discount rate and life expectancy, and the frequency of valuations for post-employment
benefits are similar to those used for defined benefit pension plans, with the addition of actuarial assumptions relating to the long-term increase
in healthcare costs 4.75% a year (2012 - 5.0%).
The sensitivity of the defined benefit obligation to changes in assumptions is set out below. The effects on each plan of a change in an
assumption are weighted proportionately to the total plan obligations to determine the total impact for each assumption presented.
Discount rate
Salary growth rate
Health care cost increase
Life expectancy
IMPACT ON OBLIGATION FOR POST EMPLOYMENT BENEFITS
CHANGE IN ASSUMPTION
INCREASE IN ASSUMPTION
DECREASE IN ASSUMPTION
0.25%
0.25%
1%
(2)%
0.7 %
3 %
3.2 %
(0.7)%
(2.4)%
INCREASE BY 1 YEAR IN ASSUMPTION
1.34 %
CASCADES 2013 ANNUAL REPORT - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
97
NOTE 17
EMPLOYEE FUTURE BENEFITS (CONTINUED)
C. RISKS AND OTHER CONSIDERATIONS RELATIVE TO POST-EMPLOYMENT BENEFITS
Through its defined benefit plans, the Corporation is exposed to a number of risks, the most significant of which are detailed below.
Asset volatility
The plan liabilities are calculated using a discount rate set with reference to corporate bond yields; if plan assets underperform this yield, this
will create an experience loss. Both the Canada and US plans hold a proportion of equities, which are expected to outperform corporate bonds
in the long-term while contributing volatility and risk in the short-term.
For the Canadian pension plans, which represents 99% of funded pension plans, the Corporation intends to reduce the level of investment
risk by investing more in assets that better match the liabilities when the financial situation of the plans will improves and/or when the rate of
return on bonds used for solvency valuations will increases.
The first stage of this process was completed in 2013 with the sale of a number of equity holdings and the purchase of a mixture of government
and corporate bonds for smaller pension plans ($50 million or less); for larger pension plans, it has been done through future contracts. The
government bonds represent investments in Canadian government securities only. The corporate bonds are global securities with an emphasis
on Canada.
However, the Corporation believes that due to the long-term nature of the plan liabilities and the strength of the supporting group, a level of
continuing equity investment is an appropriate element of the Corporation’s long-term strategy to manage the plans efficiently. Plan assets
are diversified, so the failure of a title would not have a big impact of on the plan assets taken as a whole. The pension plans do not face a
significant currency risk.
Changes in bond yields
A decrease in corporate bond yields will increase plan liabilities, although this will be partially offset by an increase in the value of the plans’
bond holdings, particularly for plans in a good financial position that have a greater proportion of bonds.
Inflation risk
The majority of the plans’ benefit obligations are not linked to inflation since benefits paid are not indexed for the vast majority of the plans.
Therefore, this risk is not significant.
Life expectancy
The majority of the plans’ obligations are to provide benefits for the lifetime of the member, so increases in life expectancy will result in an
increase in the plans’ liabilities.
Each sensitivity analysis disclosed in this note is based on changing one assumption while holding all other assumptions constant. In practice,
this is unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit
obligation to variations in significant actuarial assumptions, the same method (present value of the defined benefit obligation calculated with
the projected unit credit method at the end of the reporting period) has been applied as for calculating the liability recognized in the statement
of financial position.
As at December 31, 2013, the aggregate surplus of the Corporation’s funded pension plans (mostly in Canada) amounted to $23 million (a
deficit of $74 million as at December 31, 2012). The Corporation will make special payments of $2 million for past service to fund the Canadian
pension plan deficit over ten years. Current agreed service contributions amount to $12 million and continue to be made in the normal course.
As for the cash flow requirement, these pension plans are expected to require a net contribution of approximately $11 million in 2014.
The weighted average duration of the defined benefit obligation is 13 years (2012 - 13.5 years).
Expected maturity analysis of undiscounted pension and other post-employment benefits:
(in millions of Canadian dollars)
Pension benefits
Post-employment benefits other than defined benefit pension plans
As at December 31, 2013
LESS THAN A YEAR BETWEEN 1-2 YEARS
BETWEEN 2-5 YEARS
OVER 5 YEARS
39
8
47
41
10
51
126
29
155
1,754
184
1,938
TOTAL
1,960
231
2,191
These amounts represent all the benefits payable to current members during the following years and thereafter without limitations. The majority
of benefit payments are payable from trustee administered funds. The difference will come from future investment returns expected on plan
assets and future contributions that will be made by the Corporation for services rendered after December 31, 2013.
98
CASCADES 2013 ANNUAL REPORT - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18
INCOME TAXES
a. The provision for (recovery of) income taxes is as follows:
(in millions of Canadian dollars)
Current tax
Deferred tax
2013
(3)
15
12
2012
15
(21)
(6)
b. The provision for (recovery of) income taxes based on the effective income tax rate differs from the provision for (recovery of) income
taxes based on the combined basic rate for the following reasons:
(in millions of Canadian dollars)
Provision for (recovery of) income taxes based on the combined basic Canadian and provincial income tax rate
Adjustment of provision for (recovery of) income taxes arising from the following:
Difference in statutory income tax rate of foreign operations
Non-taxable portion of capital gain
Permanent differences - others
Change in unrecognized temporary differences
Provision for (recovery of) income taxes
2013
7
5
—
(2)
2
5
12
2012
(8)
2
(1)
(1)
2
2
(6)
Weighted average income tax rate for the year ended December 31, 2013, was 28.9% (2012 - 28.5%).
c. The provision for (recovery of) income taxes relating to components of other comprehensive income is as follows:
(in millions of Canadian dollars)
Foreign currency translation related to hedging activities
Cash flow hedge
Included in other comprehensive income (loss) of associates
Actuarial gain (loss) on post-employment benefit obligations
The analysis of deferred tax assets and deferred tax liabilities is as follows:
(in millions of Canadian dollars)
Deferred income tax assets:
Deferred income tax assets to be recovered after more than 12 months
Deferred income tax assets to be recovered within 12 months
Deferred income tax liabilities:
Deferred income tax liabilities to be used after more than 12 months
Deferred income tax liabilities to be used within 12 months
2013
2012
(4)
1
—
26
23
1
2
(2)
(7)
(6)
2013
2012
333
7
340
331
—
331
9
313
22
335
285
2
287
48
CASCADES 2013 ANNUAL REPORT - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
99
NOTE 18
INCOME TAXES (CONTINUED)
The movement of the deferred income tax account is as follows:
(in millions of Canadian dollars)
As at January 1
Through statement of earnings (loss)
Variance of income tax credit, net of related income tax
Through statement of comprehensive income (loss)
Through business acquisitions and disposals
Exchange differences
As at December 31
NOTE
2013
2012
48
(15)
3
(23)
—
(4)
9
12
17
8
10
(1)
2
48
6
The movement in deferred income tax assets and liabilities during the year, without taking into consideration the offsetting of balances within
the same tax jurisdiction, is as follows:
DEFERRED INCOME TAX ASSET
(in millions of Canadian dollars)
As at January 1, 2012
Through statement of earnings (loss)
Variance of income tax credit
Through statement of comprehensive income (loss)
As at December 31, 2012
Through statement of earnings (loss)
Variance of income tax credit
Through statement of comprehensive loss
As at December 31, 2013
DEFERRED INCOME TAX LIABILITIES
(in millions of Canadian dollars)
As at January 1, 2012
Through statement of earnings (loss)
Through statement of comprehensive income
Included in comprehensive loss of associates
Through business acquisitions and disposals
Exchange differences
As at December 31, 2012
Through statement of earnings (loss)
Through statement of comprehensive loss
Exchange differences
As at December 31, 2013
RECOGNIZED
TAX BENEFIT
ARISING FROM
INCOME TAX
LOSSES
EMPLOYEE
FUTURE
BENEFITS
144
(3)
—
—
141
33
—
—
174
56
(4)
—
7
59
(1)
—
(26)
32
EXPENSE ON
RESEARCH
UNUSED TAX
CREDITS
FINANCIAL
INSTRUMENTS
OTHERS
TOTAL
52
4
—
—
56
7
—
—
63
51
(10)
8
—
49
2
3
—
54
16
2
—
(2)
16
(8)
—
(1)
7
13
1
—
—
14
(4)
—
—
10
332
(10)
8
5
335
29
3
(27)
340
PROPERTY,
PLANT AND
EQUIPMENT
CAPITAL GAIN
INTANGIBLE
ASSETS
INVESTMENTS
OTHERS
TOTAL
202
(40)
—
—
1
(2)
161
1
—
4
166
56
2
1
—
—
—
59
(12)
(4)
—
43
34
10
—
—
—
—
44
8
—
—
52
12
4
—
(2)
—
—
14
40
—
—
54
16
(7)
—
—
—
—
9
7
—
—
16
320
(31)
1
(2)
1
(2)
287
44
(4)
4
331
100
CASCADES 2013 ANNUAL REPORT - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Corporation has accumulated losses for income tax purposes amounting to approximately $759 million which may be carried forward to
reduce taxable income in future years. The future tax benefit resulting from the deferral of $593 million of these losses has been recognized
in the accounts as a deferred income tax asset. Deferred income tax assets are recognized for tax loss carry-forward to the extent that the
realization of the related tax benefits through future taxable profits is probable. Income tax losses as at December 31, 2013 are detailed as
follows:
(in millions of Canadian dollars)
Canada
United States
Europe
NOTE 19
CAPITAL STOCK
UNRECOGNIZED TAX
LOSSES
RECOGNIZED TAX
LOSSES
TOTAL TAX LOSSES
MATURITY
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
166
166
2
6
8
14
2
8
66
77
130
130
4
9
5
2
2
2
2
124
593
2
6
8
14
2
8
66
77
130
130
4
9
5
2
2
2
2
290
759
2014
2015
2026
2027
2028
2029
2030
2031
2032
2033
2018
2019
2020
2029
2031
2032
2033
Indefinitely
A. CAPITAL MANAGEMENT
Capital is defined as long-term debt, bank loans and advances net of cash and cash equivalents and Shareholders' equity which includes
capital stock.
(in millions of Canadian dollars)
Cash and cash equivalents
Bank loans and advances
Long-term debt, including current portion
Shareholders' equity
Total capital
2013
(23)
56
1,579
1,612
1,081
2,693
2012
(20)
80
1,475
1,535
978
2,513
to safeguard the Corporation's ability to continue as a going concern in order to provide returns to Shareholders;
to maintain an optimal capital structure and reduce the cost of capital;
to make proper capital investments that are significant to ensure the Corporation remains competitive; and
to redeem common shares based on an annual redemption program.
The Corporation's objectives when managing capital are:
•
•
•
•
The Corporation sets the amount of capital in proportion to risk. The Corporation manages its capital structure and makes adjustments to it
in the light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital
CASCADES 2013 ANNUAL REPORT - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
101
NOTE 19
CAPITAL STOCK (CONTINUED)
structure, the Corporation may adjust the amount of dividends paid to Shareholders, return capital to Shareholders, issue new shares and
acquire or sell assets to improve its financial performance and flexibility.
The Corporation monitors capital on a monthly and quarterly basis based on different financial ratios and non-financial performance indicators.
Also, the Corporation must conform to certain financial ratios under its various credit agreements. These ratios are calculated on an adjusted
consolidated basis of restricted subsidiaries only. These are a maximum ratio of funded debt to capitalization of 65% and a minimum interest
coverage ratio of 2.25x. The Corporation must also comply with a consolidated interest coverage ratio to incur additional debt. Funded debt
is defined as liabilities as per the consolidated balance sheet, including guarantees and liens granted in respect of funded debt of another
person but excluding other long-term liabilities, trade accounts payable, obligations under finance leases and other accrued obligations (2013
- $1,538 million; 2012 - $1,462 million). The capitalization ratio is calculated as "Shareholders' equity" as shown in the consolidated balance
sheet plus the funded debt. Shareholders' equity is adjusted to add back the effect of IFRS adjustments as at December 31, 2010 in the
amount of $208 million. The interest coverage ratio is defined as EBITDA to interest expense. The EBITDA is defined as net earnings of the
last four quarters plus interest expense, income taxes, amortization and depreciation, expense for stock options and dividends received from
a person who is not a credit party (2013 - $293 million; 2012 - $264 million). Excluded from net earnings are share of results of equity
investments and gains or losses from non-recurring items. Interest expense is calculated as interest and financial charges determined in
accordance with IFRS plus any capitalized interest but excluding the amortization of deferred financing costs, up-front and financing costs
and also unrealized gains or losses arising from hedging agreements. It also excludes any gains or losses on the translation of any long-term
debt denominated in a foreign currency. The consolidated interest coverage ratio to incur additional debt is calculated as defined in the Senior
notes indenture dated December 3, 2009.
As at December 31, 2013, the funded debt to capitalization ratio stood at 54.38% and the interest coverage ratio was 3.2x. The Corporation
is in compliance with the ratio requirements of its lenders. If cash is available, the Corporation will use it to reduce its revolving credit facility
utilization.
The Corporation's credit facility is subject to terms and conditions for loans of this nature, including limits on incurring additional indebtedness
and granting liens or selling assets without the consent of the lenders.
The unsecured senior notes are subject to customary covenants restricting the Corporation's ability to, among other things, incur additional
debt, pay dividends and make other restricted payments as defined in the Indenture dated December 3, 2009.
On a regular basis, the Corporation meets with the rating agencies. In 2013, Standard & Poor's, a rating service agency, downgraded the
long-term corporate credit rating of the Corporation to ''B+'' from ''BB-'' on slower deleveraging, with a stable outlook.
The Corporation normally invests between $100 million and $200 million yearly in purchases of property, plant and equipment. These amounts
are carefully reviewed during the course of the year in relation to operating results and strategic actions approved by the Board of Directors.
These investments, combined with annual maintenance, enhance the stability of the Corporation's business units and improve cost
competitiveness through new technology and improved process procedures.
The Corporation has an annual share redemption program in place to redeem its outstanding common shares when the market price is judged
appropriate by Management. In addition to limitations to the normal course issuer bid, the Corporation's ability to redeem common shares is
limited by its senior notes indenture.
ISSUED AND OUTSTANDING
B.
The authorized capital stock of the Corporation consists of an unlimited number of common shares, without nominal value, and an unlimited
number of Class A and B shares issuable in series without nominal value. Over the past two years, the common shares have fluctuated as
follows:
Balance - beginning of year
Shares issued on exercise of stock options
Redemption of common shares
Balance - end of year
2013
2012
NOTE
NUMBER OF SHARES
IN MILLIONS OF
CANADIAN DOLLARS
NUMBER OF SHARES
IN MILLIONS OF
CANADIAN DOLLARS
19(c)
93,882,445
75,304
(69,900)
93,887,849
482
—
—
482
94,647,165
8,666
(773,386)
93,882,445
486
—
(4)
482
C. REDEMPTION OF COMMON SHARES
In 2013, in the normal course of business, the Corporation renewed its redemption program of a maximum of 2,816,753 common shares with
the Toronto Stock Exchange, said shares representing approximately 3% of issued and outstanding common shares. The redemption
authorization is valid from March 15, 2013 to March 14, 2014. In 2013, the Corporation redeemed 69,900 common shares under this program
for a consideration of approximately $- million (2012 - $3 million).
102
CASCADES 2013 ANNUAL REPORT - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
D. EARNINGS (LOSS) PER SHARE
The basic and diluted net earnings (loss) per common share are calculated as follows:
Net earnings (loss) available to common shareholders (in millions of Canadian dollars)
Weighted average basic number of common shares outstanding (in millions)
Dilution effect of stock options (in millions)
Adjusted weighted average number of common shares (in millions)
Basic net earnings (loss) per common share (in Canadian dollars)
Diluted net earnings (loss) per common share (in Canadian dollars)
2013
11
93.9
0.8
94.7
0.11 $
0.11 $
2012
(22)
94.2
0.4
94.6
(0.23)
(0.23)
$
$
In calculating diluted net earnings (loss) per share for 2013 and 2012, stock options of 6,656,423 and 6,534,700 respectively were excluded
due to their antidilutive effect. As of March 12, 2014, the Corporation had not redeemed any shares since the beginning of the financial year.
E. DETAILS OF DIVIDENDS DECLARED PER SHARE ARE AS FOLLOWS:
Dividends declared per share
NOTE 20
STOCK-BASED COMPENSATION
$
2013
0.16 $
2012
0.16
a. Under the terms of a share option plan adopted on December 15, 1998, and amended on March 15, 2013, and approved by Shareholders
on May 8, 2013, for officers and key employees of the Corporation, a remaining balance of 2,612,903 common shares has been specifically
reserved for issuance. Each option will expire at a date not to exceed 10 years following the grant date of the option. The exercise price
of an option shall not be lower than the market value of the share at the date of grant, determined as the average of the closing price of
the share on the Toronto Stock Exchange on the five trading days preceding the date of grant. The terms for exercising the options are
25% of the number of shares under option within 12 months after the first anniversary date of grant, and up to an additional 25% every
12 months after the second, third and fourth anniversaries of grant date. Options cannot be exercised if the market value of the share
at exercise date is lower than the book value at the date of grant. Options exercised are settled in shares. The stock-based compensation
cost related to these options amounted to $1 million (2012 - $1 million).
Changes in the number of options outstanding as at December 31, 2013 and 2012 are as follows:
Beginning of year
Granted
Exercised
Expired
Forfeited
End of year
Options exercisable - end of year
2013
2012
NUMBER OF OPTIONS
WEIGHTED AVERAGE
EXERCISE PRICE $
NUMBER OF OPTIONS
WEIGHTED AVERAGE
EXERCISE PRICE $
6,534,700
560,391
(75,304)
(331,301)
(32,063)
6,656,423
4,727,343
6.54
5.18
2.39
11.69
4.46
6.22
6.65
5,693,429
1,361,314
(8,666)
(373,383)
(137,994)
6,534,700
4,093,105
7.25
4.55
2.28
10.86
4.75
6.54
7.48
The weighted-average share price at the time of exercise of the options was $4.97 (2012 - $4.14).
CASCADES 2013 ANNUAL REPORT - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
103
NOTE 20
STOCK-BASED COMPENSATION (CONTINUED)
The following options were outstanding as at December 31, 2013:
YEAR GRANTED
NUMBER OF OPTIONS
WEIGHTED AVERAGE
EXERCISE PRICE $
NUMBER OF OPTIONS
WEIGHTED AVERAGE
EXERCISE PRICE $
EXPIRATION DATE
OPTIONS OUTSTANDING
OPTIONS EXERCISABLE
2004
2005
2006
2007
2008
2009
2009
2010
2011
2012
2013
252,530
240,545
291,828
315,900
478,882
364,560
1,478,465
711,170
767,217
1,194,935
560,391
6,656,423
13.00
12.73
11.49
11.83
7.81
2.28
3.92
6.43
6.26
4.47
5.18
6.22
252,530
240,545
291,828
315,900
478,882
364,560
1,478,465
550,513
411,384
342,736
—
4,727,343
13.00
12.73
11.49
11.83
7.81
2.28
3.92
6.43
6.26
4.50
—
6.65
2014
2014-2015
2014-2016
2014-2017
2014-2018
2014-2019
2014-2019
2014-2020
2014-2021
2014-2022
2023
FAIR VALUE OF THE SHARE OPTIONS GRANTED
Options were priced using the Black-Scholes option pricing model. Expected volatility is based on the historical share price volatility over the
past five years. The following weighted-average assumptions were used to estimate the fair value of $1.75 (2012 - $1.32), as at the date of
grant, of each option issued to employees:
Grant date share price
Exercise price
Risk-free interest rate
Expected dividend yield
Expected life of options
Expected volatility
$
$
$
$
2013
5.15
5.18
1.75%
3.11%
6 years
47%
2012
4.34
4.55
1.37%
3.68%
6 years
42%
b. The Corporation offers its Canadian employees a share purchase plan for its common shares. Employees can voluntarily contribute up
to a maximum of 5% of their salary and, if certain conditions are met, the Corporation will contribute to the plan for 25% of the employee's
contribution.
The shares are purchased on the market on a predetermined date each month. For the year ended December 31, 2013, the Corporation's
contribution to the plan amounted to $1 million (2012 - $1 million).
c. The Corporation has a Deferred Share Unit Plan for the benefit of its external directors, allowing them to receive all or a portion of their
annual compensation in the form of Deferred Share Units (DSUs). A DSU is a notional unit equivalent in value to the Corporation's
common share. Upon resignation from the Board of Directors, participants are entitled to receive the payment of their cumulated DSUs
in the form of cash based on the average price of the Corporation's common shares as traded on the open market during the five days
before the date of the participant's resignation.
The DSU expense and the related liability are recorded as at the grant date. The liability is adjusted periodically to reflect any variation
in the market value of the common shares. As at December 31, 2013, the Corporation had a total of 227,415 DSUs outstanding (2012
- 243,355 DSUs), representing a long-term liability of $2 million (2012 - $1 million).
d.
In 2013, the Corporation put in place a Performance Share Unit (PSU) Plan for the benefit of officers and key employees, allowing them
to receive a portion of their annual compensation in the form of PSUs. A PSU is a notional unit equivalent in value to the Corporation's
common share.The vesting date will not be later than the end of the second fiscal year of the Corporation following the year during which
such PSU award is granted. Periodically, the number of PSUs forming part of the award shall be adjusted depending upon the three year
average return on capital employed of the Corporation (ROCE). Such adjusted number shall be obtained by multiplying the number of
PSUs forming part of the award by the applicable multiplier based on the ROCE level. Participants are entitled to receive the payment
of their PSUs in the form of cash based on the average price of the Corporation's common shares as traded on the open market during
the five days before the vesting date.
104
CASCADES 2013 ANNUAL REPORT - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The PSUs vest over a period of two years starting on the award date. The expense and the related liability are recorded during the vesting
period. The liability is adjusted periodically to reflect any variation in the market value of the common shares, the expected average
ROCE and the passage of time. As at December 31, 2013, the Corporation had a total of 560,391 PSUs outstanding , representing a
long-term liability of nil.
NOTE 21
ACCUMULATED OTHER COMPREHENSIVE LOSS
(in millions of Canadian dollars)
Foreign currency translation, net of hedging activities and related income tax of nil (December 31, 2012 - $(4) million)
Unrealized gain (loss) arising from foreign exchange forward contracts designated as cash flow hedges, net of related income
taxes of $1 million (December 31, 2012 - nil)
Unrealized loss arising from interest rate swap agreements designated as cash flow hedges, net of related income taxes of $8
million (December 31, 2012 - $13 million)
Unrealized loss arising from commodity derivative financial instruments designated as cash flow hedges, net of related
income taxes of $5 million (December 31, 2012 - $7 million)
Unrealized loss on available-for-sale financial assets, net of related income taxes of nil (December 31, 2012 - nil)
NOTE 22
COST OF SALES BY NATURE
(in millions of Canadian dollars)
Raw materials
Wages and employee benefits expenses
Energy
Delivery
Depreciation and amortization
Others
Total cost of sales
SELLING AND ADMINISTRATIVE EXPENSES BY NATURE
(in millions of Canadian dollars)
Wages and employee benefits expenses
Information technology
Publicity and marketing
Others
Total selling and administrative expenses
2013
(29)
(4)
(13)
(13)
(1)
(60)
2013
1,473
604
309
276
182
433
2012
(47)
2
(21)
(20)
(1)
(87)
2012
1,398
576
318
263
199
403
3,277
3,157
2013
292
24
11
79
406
2012
278
26
21
57
382
CASCADES 2013 ANNUAL REPORT - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
105
NOTE 23
EMPLOYEE BENEFITS EXPENSES
(in millions of Canadian dollars)
Wages and employee benefits expenses
Share options granted to directors and employees
Pension costs - defined contribution plans
Pension costs - defined benefit plans
Post employment benefits other than defined benefit pension plans
2013
896
1
19
20
7
943
2012
854
1
17
19
7
898
KEY MANAGEMENT COMPENSATION
Key management includes members of the Board of Directors, Presidents and Vice Presidents of the Corporation. The compensation paid
or payable to key management for their services is shown below:
(in millions of Canadian dollars)
Salaries and other short-term benefits
Post-employment benefits
Share-based payments
NOTE 24
LOSS (GAIN) ON ACQUISITIONS, DISPOSALS AND OTHERS
(in millions of Canadian dollars)
Employment contracts
Gain on disposal of property, plant and equipment
2013
2012
9
1
1
11
2013
5
(2)
3
9
1
1
11
2012
—
(1)
(1)
2013
As part of the transition process related to the appointment of a new President and CEO, the Corporation entered into employment contracts
with the new President and CEO and its Presidents of the Containerboard, Specialty Products and Tissue Papers business segments. The
fair value of the post-employment benefit obligation related to these employment contracts was evaluated at $5 million and an equivalent
charge has been recorded.
The Containerboard Group sold a piece of land located at its New York City, USA, containerboard plant and recorded a gain of $2 million on
the disposal.
2012
The Containerboard Group sold a vacant piece of land located next to the Vaudreuil, Québec, corrugated containerboard plant and recorded
a gain of $1 million on the disposal.
106
CASCADES 2013 ANNUAL REPORT - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 25
IMPAIRMENT CHARGES (REVERSAL) AND RESTRUCTURING COSTS
A.
IMPAIRMENT CHARGES (REVERSAL) ON PROPERTY, PLANT AND EQUIPMENT, INTANGIBLE ASSETS WITH A FINITE USEFUL
LIFE AND OTHER ASSETS
For the year ended December 31, 2013 and 2012, the Corporation recorded net impairment charges totaling $23 million and $29 million
respectively. The recoverable amount of CGUs was determined using a fair value less cost of disposal sell model based on the income
approach, unless otherwise indicated. Impairments are detailed as follows:
(in millions of Canadian dollars)
Property, plant & equipment
Spare parts
Intangible assets with finite useful life and other assets
Total
(in millions of Canadian dollars)
Machinery and equipment
Spare parts
Intangible assets with finite useful life and other assets
Total
PACKAGING PRODUCTS
CONTAINER-
BOARD
BOXBOARD
EUROPE
SPECIALTY
PRODUCTS
SUB-TOTAL
TISSUE
PAPERS
TOTAL
2013
—
—
1
1
17
—
—
17
16
4
2
22
33
4
3
40
(17)
—
—
(17)
16
4
3
23
2012
PACKAGING PRODUCTS
CONTAINER-
BOARD
BOXBOARD
EUROPE
SPECIALTY
PRODUCTS
SUB-TOTAL
CORPORATE
ACTIVITIES
TOTAL
22
1
2
25
2
1
—
3
—
—
—
—
24
2
2
28
—
—
1
1
24
2
3
29
2013
The Containerboard Group recorded an impairment charge of $1 million due to the reevaluation of notes receivable (in Other assets) from
2011 business disposals.
The Boxboard Europe Group reviewed the recoverable amount of its Magenta and Marzabotto (both in Italy) as well as its Iberica, Spain,
recycled boxboard manufacturing mills, and recorded impairment charges on property, plant and equipment totalling $7 million. The slow
recovery of the European economic environment since the 2009 financial crisis negatively impacted profitability of these mills and led to the
consolidation of our recycled boxboard activities in Europe. Recoverable amount was based on selling price of assets as it was higher than
the income approach.
The Boxboard Europe Group also recorded an impairment charge of $10 million on property, plant and equipment at its Djupafors (Sweden)
virgin boxboard mill. This impairment charge was recorded due to sustained difficult market conditions which led to insufficient profitability.
Recoverable amount was based on selling price of assets as it was higher than the income approach.
The Specialty Product Group reviewed the recoverable amount of its East Angus, Québec, kraft paper mill and recorded impairment charges
of $16 million on property, plant and equipment and $4 million on spare parts. The strength of the Canadian dollar over the last few years
combined with lower demand reduced profitability. The recoverable amount was based on the selling prices of assets as it was higher than
the income approach.
The Specialty Group also reviewed the recoverable amount of its honeycomb activities CGU and recorded an impairment charge of $2 million
on a client list. Low shipments in this sector does not generate enough profitability to support the carrying value of this intangible assets with
a finite life.
The Tissue Papers Group recorded a $17 million reversal of impairment on its Memphis, Tennessee, manufacturing mill. We had initially
recorded an impairment charge of $22 million at transition date to IFRS on January 1, 2010, due to operational challenges. Since then, the
Corporation implemented a Group best practices program to maximize efficiency at all of its plants. These actions contributed to solve operating
difficulties at the Memphis mill.
CASCADES 2013 ANNUAL REPORT - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
107
NOTE 25
IMPAIRMENT CHARGES (REVERSAL) AND RESTRUCTURING COSTS (CONTINUED)
2012
The Containerboard Group reviewed the recoverable value of its Mississauga manufacturing mill, and an impairment charges of $21 million
on property, plant and equipment and $2 million on intangible assets were recorded due to difficult market conditions. Recoverable amount
was based on selling price of assets as it was higher than the income approach. The Containerboard Group also recorded additional impairment
charges totalling $2 million on its Burnaby mill and Le Gardeur converting plant which were closed in 2011.
The Boxboard Europe Group reviewed the recoverable amount of its Magenta manufacturing mill, and an impairment charges of $2 million
on property, plant and equipment and $1 million on spare parts were recorded due to difficult market conditions.
The Corporation also recorded an impairment charge of $1 million for its corporate activities due to the reevaluation of notes receivable from
2011 business disposals.
B. GOODWILL AND OTHER INDEFINITE USEFUL LIFE INTANGIBLE ASSETS
Allocation of goodwill and other indefinite useful life intangible assets is as follows:
• Containerboard's goodwill of $275 million is allocated to all Containerboard's CGUs.
• Specialty Products' goodwill is allocated to all Cascades Recovery CGUs, $13 million, and partitioning activities CGU, $2 million.
• Tissue Papers' goodwill of $36 million and trademarks of $2 million are allocated to all Tissue Papers' CGUs.
• Water rights of $5 million are allocated to RdM's CGU.
The Corporation tested its Containerboard goodwill for impairment due to challenging market conditions in the past years. As a result of this
impairment test, the Corporation concluded that the recoverable amount of the CGUs was in excess of $313 million over their carrying amount,
thus no impairment charge was necessary. With all other variables held constant, a decrease in terminal growth rate of 6%; or a rise in
discounting rate of 3%, or a decrease in terminal shipments of 94,000 s.t., or a decrease in terminal exchange rate of $0.05 would reduce
the excess of $313 million to nil.
The Corporation applied the income approach in determining fair value less cost of disposal and used the following key assumptions:
Terminal growth rate
Discounting rate
Terminal exchange rate (CA$/US$)
Terminal shipments (manufacturing only)
2013
2012
CONTAINERBOARD
CONTAINERBOARD
2%
9.5%
$
1.10
$
2%
9.5%
1.10
903,000 s.t.
878,000 s.t.
The Corporation also tested its goodwill allocated to its honeycomb activities CGU. The Corporation used the income approach to determine
the recoverable amount and we concluded it was not enough to support the carrying value of the goodwill. Consequently, the Corporation
recorded an impairment charge of $4 million on the goodwill of this CGU.
With regards to other goodwill, there were no events noted in 2013 that would trigger an impairment loss given the significant excess of
recoverable amount compared to the carrying amount of the respective goodwill.
108
CASCADES 2013 ANNUAL REPORT - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
C. RESTRUCTURING COSTS1
Restructuring costs are detailed as follows:
(in millions of Canadian dollars)
Containerboard
Boxboard Europe
2013
2012
2
4
6
6
1
7
1
In addition to the restructuring costs, the Corporation also recorded accelerated depreciation expense of $13 million in 2012.
2013
The Containerboard Group recorded a $1 million provision relating to an onerous lease contract and additional severances provision totalling
$1 million relating to the consolidation of its Ontario converting activities announced in 2012.
The Boxboard Europe Group recorded severances totalling $4 million in relation to consolidation of its recycled boxboard activities in Italy
and Spain as well as its virgin boxboard mill located in Djupafors, Sweden.
2012
On April 25, 2012, the Corporation announced the closure of its North York and Peterborough units as well as the OCD plant in Mississauga,
Ontario. These plants are part of the Containerboard Group. These closures resulted in the recognition of an onerous contract and severance
provisions totalling $7 million and accelerated depreciation of $3 million due to the revaluation of the remaining useful life and residual value
of some equipments.
On September 5, 2012, the Corporation announced the closure of its Lachute folding carton plant, Québec, part of the Containerboard Group.
This resulted in the recognition of severance provisions totalling $2 million and a curtailment gain on pension plan amounting to $2 million.
The Containerboard Group also reviewed the useful life and residual value of its Trenton, Ontario, steam reformer and recorded accelerated
depreciation totalling $9 million.
In 2012, the Containerboard Group recorded a $1 million reversal of an environmental provision with regards to its Burnaby, British Columbia,
manufacturing mill which had been closed in 2011.
In 2012, the Boxboard Europe Group recorded a severance provisions of $1 million at one of its RdM manufacturing mills due to difficult
market conditions.
On August 13, 2012, the Corporation announced the closure of its Tissue Papers Group plant located in Scarborough, Ontario, and reviewed
the useful life and residual value of its assets which resulted in accelerated depreciation of $1 million.
CASCADES 2013 ANNUAL REPORT - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
109
NOTE 26
ADDITIONAL INFORMATION
A. CHANGES IN NON-CASH WORKING CAPITAL COMPONENTS ARE DETAILED AS FOLLOWS:
(in millions of Canadian dollars)
Accounts receivable
Current income tax assets
Inventories
Trade and other payables
Current income tax liabilities
B. FINANCING EXPENSE AND INTEREST EXPENSE ON EMPLOYEE FUTURE BENEFITS
(in millions of Canadian dollars)
Interest on long-term debt
Interest income
Amortization of financing costs
Other interest and banking fees
Interest on employee future benefits
Net financing expense
2013
2012
32
1
(26)
4
(5)
6
25
(2)
15
4
—
42
2013
2012
98
(4)
5
4
12
115
96
(2)
5
4
12
115
110
CASCADES 2013 ANNUAL REPORT - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 27
FINANCIAL INSTRUMENTS
27.1 FAIR VALUE OF FINANCIAL INSTRUMENTS
The classification of financial instruments as at December 31, 2013 and 2012, along with the respective carrying amounts and fair values, is
as follows:
(in millions of Canadian dollars)
NOTE
CARRYING AMOUNT
FAIR VALUE
CARRYING AMOUNT
FAIR VALUE
2013
2012
Financial assets at fair value through profit or loss
Derivatives
Financial assets available for sale
Other investments
Investments in shares
Financial liabilities at fair value through profit or loss
Derivatives
Financial liabilities at amortized cost
Long-term debt
Derivatives designated as hedge
Asset derivatives
Liability derivatives
27.4
27.4
9
6
1
35
9
6
1
35
16
5
4
81
16
5
4
81
1,579
1,640
1,475
1,545
9
14
9
14
8
29
8
29
27.2 DETERMINING THE FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of a financial instrument is the amount of consideration that would be received to sell an asset or paid to transfer a liability in
an orderly transaction between market participants as at the measurement date.
(i) The fair values of cash and cash equivalents, accounts receivable, notes receivable, bank loans and advances, trade and other payables
and provisions approximate their carrying amounts due to their relatively short maturities.
(ii) The fair value of investments in shares held for trading is based on observable market data and mainly represents the Corporation's
investment in Junex Inc., which is quoted on the Toronto Stock Exchange.
(iii) The fair value of long-term debt is based on observable market data and on the calculation of discounted cash flows. Discount rates were
determined based on local government bond yields adjusted for the risks specific to each of the borrowings and the credit market liquidity
conditions.
CASCADES 2013 ANNUAL REPORT - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
111
NOTE 27
FINANCIAL INSTRUMENTS (CONTINUED)
27.3 HIERARCHY OF FINANCIAL ASSETS AND LIABILITIES MEASURED AT FAIR VALUE
The following table presents information about the Corporation's financial assets and financial liabilities measured at fair value on a recurring
basis as at December 31, 2013 and 2012 and indicates the fair value hierarchy of the Corporation's valuation techniques to determine such
fair value. Three levels of inputs that may be used to measure fair value:
Level 1 - Quoted prices in active markets for identical assets or liabilities.
Level 2 - Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar
assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially
the full term of the assets or liabilities.
Level 3 - Inputs that are generally unobservable and typically reflect Management's estimates of assumptions that market participants would
use in pricing the asset or liability.
(in millions of Canadian dollars)
Financial assets
Other investments
Investments in shares held for trading
Derivative financial assets
Total
Financial liabilities
Derivative financial liabilities
Total
(in millions of Canadian dollars)
Financial assets
Other investments
Investments in shares held for trading
Derivative financial assets
Total
Financial liabilities
Derivative financial liabilities
Total
CARRYING AMOUNT
QUOTED PRICES IN
ACTIVE MARKETS FOR
IDENTICAL ASSETS
(LEVEL1)
SIGNIFICANT
OBSERVABLE INPUTS
(LEVEL 2)
SIGNIFICANT
UNOBSERVABLE
INPUTS (LEVEL 3)
2013
6
1
18
25
(49)
(49)
—
1
—
1
—
—
6
—
18
24
(49)
(49)
—
—
—
—
—
—
2012
CARRYING AMOUNT
QUOTED PRICES IN
ACTIVE MARKETS FOR
IDENTICAL ASSETS
(LEVEL1)
SIGNIFICANT
OBSERVABLE INPUTS
(LEVEL 2)
SIGNIFICANT
UNOBSERVABLE
INPUTS (LEVEL 3)
5
4
24
33
110
110
—
4
—
4
—
—
5
—
24
29
110
110
—
—
—
—
—
—
27.4 FINANCIAL RISK MANAGEMENT
The Corporation's activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk, cash flow
interest rate risk and price risk), credit risk and liquidity risk. The Corporation's overall risk management program focuses on the unpredictability
of the financial market and seeks to minimize potential adverse effects on the Corporation's financial performance. The Corporation uses
derivative financial instruments to hedge certain risk exposures.
Risk management is carried out by a central treasury department and management committee acting under policies approved by the Board
of Directors. They identify, evaluate and hedge financial risks in close cooperation with the business units. The Board provides guidance for
overall risk management, covering specific areas, such as foreign exchange risk, interest rate risk and credit risk, use of derivative financial
instruments and non-derivative financial instruments, and investment of excess liquidity.
112
CASCADES 2013 ANNUAL REPORT - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Summary
(in millions of Canadian dollars)
RISK
Currency risk
Price risk
Interest risk
Total
(in millions of Canadian dollars)
RISK
Currency risk
Price risk
Interest risk
Other risk
Total
A. MARKET RISK
NOTE
27.4 A) (i)
27.4 A) (ii)
27.4 A) (iii)
SHORT-TERM
—
ASSETS
LONG-TERM
9
2
—
2
7
—
16
TOTAL
9
9
—
18
SHORT-TERM
(1)
(8)
(1)
(10)
LIABILITIES
LONG-TERM
(28)
(11)
—
(39)
NOTE
27.4 A) (i)
27.4 A) (ii)
27.4 A) (iii)
27.4 D)
SHORT-TERM
12
ASSETS
LONG-TERM
8
TOTAL
20
SHORT-TERM
(56)
3
—
—
15
1
—
—
9
4
—
—
24
(17)
(1)
—
(74)
LIABILITIES
LONG-TERM
(8)
(15)
(1)
(12)
(36)
2013
TOTAL
(29)
(19)
(1)
(49)
2012
TOTAL
(64)
(32)
(2)
(12)
(110)
(i) Currency risk
The Corporation operates internationally and is exposed to foreign exchange risks arising from various currencies as a result of its export of
goods produced in Canada, the United States, France, Sweden, Italy and Germany. Foreign exchange risk arises from future commercial
transactions, recognized assets and liabilities, and net investments in foreign operations. These risks are partially covered by purchases and
debt.
The Corporation manages the foreign exchange exposure by entering into various foreign exchange forward contracts and currency option
instruments related to anticipated sales, purchases, interest expense and repayment of long-term debt. The Corporation may designate these
foreign exchange forward contracts as a cash flow hedge of future anticipated sales, purchases, interest expense and repayment of long-
term debt denominated in foreign currencies. Gains or losses from these derivative financial instruments designated as hedges are recorded
in Accumulated other comprehensive income (loss) net of related income taxes and are reclassified to earnings as adjustments to sales, cost
of sales, interest expense or foreign exchange loss (gain) on long-term debt in the period in which the respective hedged item affected earnings.
Management has implemented a policy to manage foreign exchange risk against its functional currency. The Corporation's risk management
policy is to hedge 25% to 90% of anticipated cash flows in each major foreign currency for the next 12 months and to hedge 0% to 75% for
the subsequent 24 months.
In 2013, approximately 32% of sales from Canadian operations were made to the United States and 15% of sales from French and Italian
operations were made in countries whose currencies were other than the Euro. The Corporation's operations in Sweden are also exposed to
currency risk, mainly the Euro and the British pound (GBP). Total sales for 2013 from the Corporation's Swedish operations impacted by the
Euro or the GBP were approximately CA $36 million.
CASCADES 2013 ANNUAL REPORT - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
113
NOTE 27
FINANCIAL INSTRUMENTS (CONTINUED)
The following table summarizes the Corporation's commitments to buy and sell foreign currencies as at December 31, 2013 and 2012:
EXCHANGE RATE
MATURITY
2013
NOTIONAL AMOUNT
(IN MILLIONS)
FAIR VALUE (IN
MILLIONS OF
CANADIAN DOLLARS)
Repayment of long-term debt
Derivatives designated as cash flow hedges and reclassified in Foreign
exchange gain on long-term debt (effective portion):
Foreign exchange forward contracts to buy (US$ for CA$)
0.9965
December 2017 US$
150
Subtotal
Derivatives designated as held for trading and reclassified in Foreign exchange
loss (gain) on long-term debt (effective portion):
Foreign exchange forward contracts to buy (US$ for CA$)
Currency option sold to sell US$ (US$ for CA$)
Currency option sold to sell US$ (US$ for CA$)
Currency option sold to buy US$ (US$ for CA$)
Subtotal
Forecasted sales
Derivatives designated as cash flow hedges and reclassified in Sales (effective
portion):
Foreign exchange forward contracts to sell (US$ for CA$)
Foreign exchange forward contracts to buy (€ for US$)
Foreign exchange forward contracts to sell (GBP for SEK)
Foreign exchange forward contracts to sell (€ for SEK)
Subtotal
Derivatives designated as held for trading and reclassified in Loss (gain) on
derivative financial instruments:
Currency option instruments to sell (US$ for CA$)
Currency option instruments to sell (US$ for CA$)
Subtotal
Total
1.06
January 2020 US$
1.1167
December 2017 US$
1.15
1.0225
January 2020 US$
January 2020 US$
1.0484
1.3399
10.736
9.001
0 to 12 months US$
0 to 12 months US$
0 to 12 months £
0 to 12 months €
1.0427
1.0314
0 to 12 months US$
13 to 24 months US$
50
300
100
200
15
2.4
2
2.8
35
25
13
13
1
(17)
(6)
(10)
(32)
—
—
—
—
—
—
(1)
(1)
(20)
In 2013, the Corporation also paid US$4 million ($4 million) for the settlement of derivative financial instruments related to its 7.25% unsecured
senior notes and US$10 million ($10 million) for the settlement of derivative financial instruments related to its 6.75% unsecured senior notes.
In 2013, the Corporation did offset $5 million in derivative assets against $22 million in derivative liabilities as we intend to settle the derivatives
on a net basis.
114
CASCADES 2013 ANNUAL REPORT - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
EXCHANGE RATE
MATURITY
NOTIONAL AMOUNT
(IN MILLIONS)
FAIR VALUE (IN
MILLIONS OF
CANADIAN DOLLARS)
2012
Repayment of long-term debt
Derivatives designated as cash flow hedges and reclassified in Foreign
exchange loss (gain) on long-term debt (effective portion):
Foreign exchange forward contracts to buy (US$ for CA$)
0.9987
December 2017 US$
200
Subtotal
Derivatives designated as held for trading and reclassified in Foreign exchange
loss (gain) on long-term debt (effective portion):
Foreign exchange forward contracts to buy (US$ for CA$)
Foreign exchange forward contracts to buy (US$ for CA$)
Currency option and forward contracts bought to sell US$ (US$ for CA$)
Currency option bought to sell US$ (US$ for CA$)
Currency option sold to buy US$ (US$ for CA$)
Currency option sold to buy US$ (US$ for CA$)
Subtotal
Forecasted sales
Derivatives designated as cash flow hedges and reclassified in Sales (effective
portion):
Foreign exchange forward contracts to sell (US$ for CA$)
Foreign exchange forward contracts to buy (€ for US$)
Foreign exchange forward contracts to sell (GBP for €)
Subtotal
Derivatives designated as held for trading and reclassified in Loss (gain) on
derivative financial instruments:
Currency option instruments to sell (US$ for CA$)
Currency option instruments to sell (US$ for CA$)
Foreign exchange forward contracts to buy (US$ for CA$)
Subtotal
Total
1.1928
1.1945
1.1700
1.1500
1.0113
1.0500
February 2013 US$
May 2013 US$
January to February
2013 US$
February to May
2013 US$
February 2013 US$
February to
December 2017 US$
1.045
1.3142
1.2567
0 to 12 months US$
0 to 12 months US$
0 to 12 months £
1.03
1.0426
0.9932
0 to 12 months US$
13 to 24 months US$
January 2013 US$
310
50
124
27
37.5
200
2.5
2.4
1.2
35
5
15
8
8
(61)
(10)
22
4
(1)
(8)
(54)
—
—
—
—
2
—
—
2
(44)
The fair values of foreign exchange forward contracts and currency options are determined using the discounted value of the difference
between the value of the contract at expiry calculated using the contracted exchange rate and the exchange rate the financial institution would
use if it renegotiated the same contract under the same conditions as at the consolidated balance sheet date. The discount rates are adjusted
for the credit risk of the Corporation or of the counterparty, as applicable. When determining credit risk adjustments, the Corporation considers
master netting agreements, if applicable.
In 2013, if the Canadian dollar had strengthened by $0.01 against the US dollar on average for the year with all other variables held constant,
operating income before depreciation for the year would have been approximately $5 million lower, based on the net exposure of total US
sales less US purchases of the Corporation's Canadian operations and operating income before depreciation of the Corporation's US operations
but excluding the effect of this change on the denominated working capital components. The interest expense would have been approximately
$1 million lower arising mainly from the Corporation's US dollar-denominated unsecured senior notes.
In 2013, if the Canadian dollar had strengthened by $0.01 against the Euro with all other variables held constant, operating income before
depreciation for the year would have been approximately $1 million lower following the translation of operating income of the Corporation's
European operations.
CASCADES 2013 ANNUAL REPORT - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
115
NOTE 27
FINANCIAL INSTRUMENTS (CONTINUED)
CURRENCY RISK ON TRANSLATION OF SELF-SUSTAINING FOREIGN SUBSIDIARIES
The Corporation has certain investments in foreign operations whose net assets are exposed to foreign currency translation risk. The
Corporation may designate part of its long-term debt denominated in foreign currencies as a hedge of the net investment in self-sustaining
foreign subsidiaries. Gains or losses resulting from the translation to Canadian dollars of long-term debt denominated in foreign currencies
and designated as net investment hedges are recorded in ''Accumulated other comprehensive income (loss)'', net of related income taxes.
The table below shows the effect on consolidated equity of a 10% change in the value of the Canadian dollar against the US dollar and the
Euro as at December 31, 2013 and 2012. The calculation includes the effect of currency hedges of net investment in US foreign entities and
assumes that no changes occurred other than a single currency exchange rate movement.
The exposures used in the calculations are the foreign currency-denominated equity and the hedging level as at December 31, 2013 and
2012, with the hedging instruments being the long-term debt denominated in US dollars.
Consolidated Shareholders' equity: Currency effect before tax of a 10% change
(in millions of Canadian dollars)
BEFORE HEDGES
HEDGES
NET IMPACT
BEFORE HEDGES
HEDGES
NET IMPACT
10% change in the CA$/US$ rate
10% change in the CA$/Euro rate
80
7
67
—
13
7
76
6
62
—
14
6
2013
2012
(ii) Price risk
The Corporation is exposed to commodity price risk on old corrugated containers, electricity and natural gas. The Corporation uses derivative
commodity contracts to help manage its production costs. The Corporation may designate these derivatives as cash flow hedges of anticipated
purchases of raw materials, natural gas and electricity. Gains or losses from these derivative financial instruments designated as hedges are
recorded in Accumulated other comprehensive income (loss) net of related income taxes and are reclassified to earnings as adjustments to
''Cost of sales'' in the same period as the respective hedged item affects earnings.
The fair value of these contracts is as follows:
Forecasted purchases
Derivatives designated as held for trading and reclassified in Cost of sales
Old corrugated containers
Sorted office papers
Electricity
Derivatives designated as cash flow hedges and reclassified in Cost of sales (effective portion)
Natural gas:
Canadian portfolio
US portfolio
Total
QUANTITY
MATURITY
10,200 s.t.
12,000 s.t.
2014
2014
375,888 MWh
2014 to 2017
11,525,060 GJ
4,776,300 mmBtu
2014 to 2018
2014 to 2018
2013
FAIR VALUE (IN
MILLIONS OF
CANADIAN DOLLARS)
—
—
—
(13)
(5)
(18)
116
CASCADES 2013 ANNUAL REPORT - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Forecasted purchases
Derivatives designated as held for trading and reclassified in Cost of sales
Old corrugated containers
Sorted office papers
Electricity
Derivatives designated as cash flow hedges and reclassified in Cost of sales (effective portion)
Natural gas:
Canadian portfolio
US portfolio
Total
QUANTITY
MATURITY
25,000 s.t.
21,000 s.t.
2013
2013
541,896 MWh
2013 to 2015
11,795,450 GJ
5,807,100 mmBtu
2013 to 2017
2013 to 2017
2012
FAIR VALUE (IN
MILLIONS OF
CANADIAN DOLLARS)
—
(1)
(1)
(20)
(10)
(32)
In 2011, as part of the sale of its Versailles boxboard mill, the Corporation also entered into an agreement to sell natural gas to the acquirer.
Maturity of the remaining contracts is 2014 to 2016 with a notional amount of 668,250 mmBtu (2012 - 1,752,768 mmBtu). The fair value of
this agreement is an asset of $1 million as at December 31, 2013 (2012 - $4 million asset).
In 2013, the Corporation entered into an agreement to purchase steam. The agreement includes an embedded derivative and the fair value
as at December 31, 2013 was $7 million.
The fair value of derivative financial instruments other than options is established utilizing a discounted future expected cash flows method.
Future expected cash flows are determined by reference to the forward price or rate prevailing on the assessment date of the underlying
financial index (exchange or interest rate or commodity price) according to the contractual terms of the instrument. Future expected cash
flows are discounted at an interest rate reflecting both the maturity of each flow and the credit risk of the party to the contract for which it
represents a liability (subject to the application of relevant credit support enhancements). The fair value of derivative financial instruments
that represent options is established utilizing similar methods that reflect the impact of the potential volatility of the financial index underlying
the option on future expected cash flows.
The table below shows the effect of changes in the price of old corrugated containers, natural gas and electricity as at December 31, 2013
and 2012. The calculation includes the effect of price hedges of these commodities and assumes that no changes occurred other than a single
change in price.
The exposures used in the calculations are the commodity consumption and the hedging level as at December 31, 2013 and 2012, with the
hedging instruments being derivative commodity contracts.
Consolidated commodity consumption: Price change effect before tax
(in millions of Canadian dollars1)
US$15/s.t. change in recycled paper price
US$30/s.t. change in commercial pulp price
US$1/mmBTU. change in natural gas price
US$1/MWh change in electricity price
1 Sensitivity calculated with an exchange rate of 0.97 US$/CA$ for 2013 and 1.00 US$/CA$ for 2012.
2013
2012
BEFORE
HEDGES
HEDGES
NET IMPACT
BEFORE
HEDGES
HEDGES
NET IMPACT
30
7
9
2
—
—
5
—
30
7
4
2
28
6
8
2
1
—
5
—
27
6
3
2
CASCADES 2013 ANNUAL REPORT - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
117
NOTE 27
FINANCIAL INSTRUMENTS (CONTINUED)
(iii) Interest rate risk
The Corporation has no significant interest-bearing assets.
The Corporation's interest rate risk arises from long-term borrowings. Borrowings issued at variable rates expose the Corporation to cash
flow interest rate risk. Borrowings issued at fixed rates expose the Corporation to fair value interest rate risk.
When appropriate, the Corporation analyzes its interest rate risk exposure. Various scenarios are simulated taking into consideration
refinancing, renewal of existing positions, alternative financing and hedging. Based on these scenarios, the Corporation calculates the impact
on earnings of a defined interest rate shift. For each simulation, the same interest rate shift is used for all currencies. The scenarios are run
only for liabilities that represent the major interest-bearing positions. As at December 31, 2013, approximately 33% (2012 - 30%) of the
Corporation's long-term debt was at variable rates.
Based on the outstanding long-term debt as at December 31, 2013 the impact on interest expense of a 100-basis point change in rate would
be approximately $5 million (impact on net earnings is approximately $4 million).
The Corporation has swaps maturing in 2014 and up to 2017 on a notional amount of $50 million. As at December 31, 2013, these agreements
are recorded as an asset at a fair value of nil (2012 - nil). The Corporation also holds interest rate swaps through RdM. These swaps are
contracted to fix the interest rate on a notional amount of €14 million and are maturing in 2015 and 2016. Fair value of these agreements is
a liability of $1 million as at December 31, 2013 (December 31, 2012 - $2 million liability).
(iv) Loss (gain) on derivative financial instruments is as follows:
(in millions of Canadian dollars)
Unrealized gain on derivative financial instruments
Realized loss (gain) on derivative financial instruments
2013
2012
(6)
1
(5)
(5)
(1)
(6)
B. CREDIT RISK
Credit risk arises from cash and cash equivalents, derivative financial instruments and deposits with banks and financial institutions. The
Corporation reduces this risk by dealing with creditworthy financial institutions.
The Corporation is exposed to credit risk on the accounts receivable from its customers. In order to reduce this risk, the Corporation's credit
policies include the analysis of the financial position of its customers and the regular review of their credit limits. In addition, the Corporation
believes there is no particular concentration of credit risk due to the geographic diversity of customers and the procedures for the management
of commercial risks. Derivative financial instruments include an element of credit risk should the counterparty be unable to meet its obligations.
Trade receivables are recognized initially at fair value and are subsequently measured at amortized cost using the effective interest method,
less provision for doubtful accounts. An allowance for doubtful accounts of trade receivables is established when there is objective evidence
that the Corporation will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties
of the debtor, probability that the debtor will enter into bankruptcy or financial reorganization, and default or delinquency in payments are
considered indicators that the trade receivable is impaired. Each trade receivable balance is evaluated separately to identify impairment. The
amount of the allowance for doubtful accounts is the difference between the asset's carrying amount and the present value of estimated cash
flows. The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recorded in the
consolidated statement of earnings in Selling and administrative expenses. When a trade receivable is uncollectable, it is written off against
the allowance for doubtful accounts. Subsequent recoveries of amounts previously written off are credited against Selling and administrative
expenses in the consolidated statement of earnings.
Loans and notes receivables from business disposals are recognized at fair value. There is no past due amount as at December 31, 2013.
118
CASCADES 2013 ANNUAL REPORT - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
C. LIQUIDITY RISK
Liquidity risk is the risk that the Corporation will not be able to meet its obligations as they fall due. The following are the contractual maturities
of financial liabilities as at December 31, 2013 and 2012:
(in millions of Canadian dollars)
Non-derivative financial liabilities:
Bank loans and advances
Trade and other payables
Revolving credit facility
Unsecured senior notes
Other debts of subsidiaries
Other debts without recourse to the Corporation
Derivative financial liabilities
(in millions of Canadian dollars)
Non-derivative financial liabilities:
Bank loans and advances
Trade and other payables
Revolving credit facility
Unsecured senior notes
Other debts of subsidiaries
Other debts without recourse to the Corporation
Derivative financial liabilities
CARRYING
AMOUNT
CONTRACTUAL
CASH FLOWS
LESS THAN
ONE YEAR
BETWEEN
ONE AND
TWO YEARS
BETWEEN
TWO AND
FIVE YEARS
56
590
484
989
39
80
49
56
590
514
1,354
46
80
49
56
590
14
78
17
25
10
—
—
15
77
9
30
7
—
—
485
890
10
19
18
2,287
2,689
790
138
1,422
CARRYING
AMOUNT
CONTRACTUAL
CASH FLOWS
LESS THAN
ONE YEAR
BETWEEN
ONE AND
TWO YEARS
BETWEEN
TWO AND
FIVE YEARS
80
551
401
946
53
90
110
2,231
80
551
436
1,366
60
85
110
2,688
80
551
11
84
20
30
74
—
—
11
74
15
19
21
—
—
414
900
14
33
15
850
140
1,376
2013
MORE THAN
FIVE YEARS
—
—
—
309
10
6
14
339
2012
MORE THAN
FIVE YEARS
—
—
—
308
11
3
—
322
As at December 31, 2013, the Corporation had unused credit facilities of $303 million (December 31, 2012 - $370 million), net of outstanding
letters of credit of $56 million (December 31, 2012 - $29 million).
The payments between two and five years include the maturity of the Corporation's revolving credit and facility of February 2016 and of its
unsecured senior notes of December 2017.
D. OTHER RISK
In 2010, the Corporation entered into a put and call agreement with Industria E Innovazione (“Industria”) whereby Cascades had the option
of buying 9.07% of the shares in RdM (100% of the shares held by Industria) for €0.43 per share between March 1, 2011 and December 31,
2012. Industria also has the option of requiring the Corporation to purchase its shares for €0.41 per share between January 1, 2013 and
March 31, 2014. The Corporation evaluated these options using the Black-Scholes model and had recorded a liability of $12 million as at
December 31, 2012. The option was exercised during the second quarter of 2013 resulting in a cash payment for the Corporation of €14
million ($19 million). Our share in the equity of RdM stands at 57.61% as at December 31, 2013.
FACTORING OF ACCOUNTS RECEIVABLE
The Corporation sells its accounts receivable from one of its European subsidiaries through a factoring contract with a financial institution.
The Corporation uses factoring of receivables as a source of financing by reducing its working capital requirements. When the receivables
are sold, the Corporations removes them from the balance sheet, recognizes the amount received as the consideration for the transfer and
records a loss on factoring which is included in ''Financing expense''. As at December 31, 2013, the off-balance sheet impact of the factoring
of receivables amounted to $47 million (€32 million). The Corporation expects to continue to sell receivables on an ongoing basis. Should it
decide to discontinue this contract, its working capital and bank debt requirements would increase.
CASCADES 2013 ANNUAL REPORT - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
119
NOTE 28
COMMITMENTS AND CONTINGENCIES
a. The Corporation leases various properties, vehicles and equipment under non-cancellable operating lease agreements.
Future minimum payments under operating leases are as follows:
(in millions of Canadian dollars)
No later than one year
Later than one year but no later than five years
More than five years
b. Capital commitments
2013
24
39
9
2012
27
53
10
Capital expenditures contracted at the end of the reporting date but not yet incurred are as follows:
(in millions of Canadian dollars)
No later than one year
Later than one year but no later than five years
2013
2012
PROPERTY, PLANT
AND EQUIPMENT
INTANGIBLE ASSETS
PROPERTY, PLANT
AND EQUIPMENT
INTANGIBLE ASSETS
13
1
14
2
2
4
6
1
7
2
—
2
c. The Corporation has entered into agreements to guarantee certain obligations in relation to the construction of a new linerboard mill
("Greenpac") near its Niagara Falls, New York site, in which the Corporation has an interest of 59.7%. The Corporation has guaranteed
cost overruns relating to the construction costs in excess of the budgeted construction costs, which should remain in place until the ramp-
up period is completed. The mill successfully started its production as planned on July 15. Our objective of achieving full capacity within
12 months still stands and the ramp-up has been progressing according to plan. In December 2013, the Corporation issued a letter of
credit in the amount of US$21 million in relation to the debt service reserve account of the project. This letter of credit will be reduce
gradually in 2014 and should be eliminated by the end of 2014.
d. In the normal course of operations, the Corporation is party to various legal actions and contingencies, mostly related to contract disputes,
environmental and product warranty claims, and labour issues. While the final outcome with respect to legal actions outstanding or pending
as at December 31, 2013 cannot be predicted with certainty, it is Management's opinion that the outcome will not have a material adverse
effect on the Corporation's consolidated financial position, the results its operations or its cash flows.
e. The Corporation is currently working with representatives of the Ontario Ministry of the Environment (MOE) - Northern Region and
Environment Canada - Great Lakes Sustainability Fund in Toronto, regarding its potential responsibility for an environmental impact identified
at its former Thunder Bay facility ("Thunder Bay"). Both authorities have requested that the Corporation look into a management site plan
relating to the sediment quality adjacent to Thunder Bay's lagoon. Several meetings have been held during the year with the MOE and
Environment Canada. A study on the sediment quality and potential remediation options has commenced. Although a loss is probable, it
is not possible at this time to estimate the Corporation's obligation because of the uncertainty surrounding the extent of the environmental
impact and the potential remediation alternatives.
The Corporation is also in discussions with representatives of the MOE, regarding its potential responsibility for an environmental impact
identified at Thunder Bay. This facility was sold to Thunder Bay Fine Papers Inc. ("Fine Papers") in 2007. Fine Papers has since sold the
facility to Superior Fine Papers Inc. ("Superior"). The MOE has requested that the Corporation together with the former owner Fine Papers
and the current owner Superior submit a closure plan for the Waste Disposal Site and a decommissioning plan for the closure and long-
term monitoring for the Sewage Works (the "Plans"). Although, the Corporation recognizes that where as a result of past events, there
may be an outflow of resources embodying future economic benefits in settlement of a possible obligation, it is not possible at this time to
estimate the Corporation's obligation, since Superior has not submitted all of the Plans and related costs to allow the Corporation to perform
an evaluation nor does the Corporation have access to the site. Moreover, the Corporation is unable to ascertain the value of the assets
remaining on its former site which may be available to fund this potential obligation. The Corporation is pursuing all available legal remedies
to resolve the situation. In any event, Management does not consider the Corporation's potential obligation to be significant.
The Corporation has recorded an environmental reserve to address its estimated exposure for these matters.
120
CASCADES 2013 ANNUAL REPORT - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 29
RELATED PARTY TRANSACTIONS
The Corporation entered into the following transactions with related parties:
(in millions of Canadian dollars)
2013
Sales to related parties
Purchases from related parties
2012
Sales to related parties
Purchases from related parties
JOINT VENTURES
ASSOCIATES
58
34
54
32
48
80
45
44
These transactions occurred in the normal course of operations and are measured at the exchange amount, which is the amount of consideration
established and agreed to by the related parties.
In addition to related party balance presented elsewhere in these consolidated financial statements, the following balances were outstanding
at the end of the reporting period:
(in millions of Canadian dollars)
Receivables from related parties
Joint ventures
Associates
Payables to related parties
Joint ventures
Associates
December 31,
2013
December 31,
2012
11
8
10
4
7
7
9
4
The receivables from related parties arise mainly from sale transactions. The receivables are unsecured in nature and bear no interest. There
are no provisions held against receivables from related parties. The payables to related parties arise mainly from purchase transactions. The
payables bear no interest.
CASCADES 2013 ANNUAL REPORT - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
121
HISTORICAL FINANCIAL INFORMATION - 10 YEARS
For the years ended December 31,
(in millions of Canadian dollars, except per share amounts and ratios) (unaudited)
Historical financial information are not adjusted to reclass the impact of discontinued operations and IFRS for years ended prior to 2011.
Highlights - Consolidated Results
Sales
Cost of sales and expenses
Operating income before depreciation and amortization (OIBD) excluding specific items
Depreciation and amortization
Operating income excluding specific items
Financing expense
Foreign exchange loss (gain) on long-term debt and financial instruments
Specific items
Provision for (recovery of) income taxes
Share of results of associates and joint ventures
Net earnings (loss) attributable to non-controlling interest
Net earnings (loss)
Net earnings (loss) per common share
Highlights - Consolidated Cash Flow
Cash flow generated by operating activities
Cash flow from operation
per common share
Purchases of property, plant and equipment net of proceeds on disposal
Business acquisitions and cash from a joint venture
Proceed from business disposals
Net change in long-term debt
Dividends on common shares
per common share
Dividend yield
Highlights - Consolidated Balance Sheet (As at December 31)
Current assets less current liabilities
Property, plant & equipment
Total assets
Total long-term debt
Non-controlling interests
Shareholders' equity
per common share
Stock Market Highlights
Shares issued and outstanding (in millions)
Trading volume (in millions)
Market capitalization
Closing price
High
Low
Key Financial Ratios
Net earnings (loss)/sales
Sales/total assets*
Total assets/average Shareholders' equity*
Return on Shareholder's equity*
Return on total assets (OIBD/average total assets)*
OIBD/sales
OIBD/interest
Current assets less current liabilities/sales*
Net funded debt/OIBD*
Total debt/total debt + Shareholders' equity
Price to earnings
Price to book value
* Prior to 2007, ratios are calculated excluding the impact of the Norampac acquisition.
122
CASCADES 2013 ANNUAL REPORT
IFRS
2013
3,849
3,497
352
182
170
115
(2)
28
29
12
3
3
11
0.11
$
$
232
226
2.41
136
—
—
(30)
15
IFRS
2012
3,645
3,341
304
199
105
115
(8)
33
(35)
(4)
(2)
(7)
(22)
(0.23)
199
154
1.64
141
14
—
(54)
15
0.16
$
2.3%
0.16
3.9 %
414
1,684
3,831
1,579
113
1,081
11.52
$
$
$
$
93.9
25.2
646
6.88
6.92
4.07
0.3%
1.0X
3.7X
1.1%
9.4%
9.1%
3.1X
10.8%
4.6X
60.2%
62.5%
0.6X
295
1,659
3,694
1,475
116
978
10.42
93.9
20.2
385
4.10
5.18
3.85
(0.6)%
1.0X
3.7X
(2.2)%
8.2 %
8.3 %
2.6X
8.1 %
5.0X
61.4 %
N/A
0.4X
$
$
$
$
$
$
$
HISTORICAL FINANCIAL INFORMATION - 10 YEARS (CONTINUED)
IFRS
2011
3,760
3,517
243
186
57
100
(4)
(148)
109
27
(14)
(3)
99
2010
3,959
3,561
398
212
186
112
4
65
5
—
(15)
3
17
2009
3,877
3,412
465
218
247
118
31
33
65
23
(17)
(1)
60
2008
4,025
3,720
305
213
92
103
24
54
(89)
(29)
(8)
2
(54)
2007
4,033
3,693
340
208
132
106
(59)
7
78
6
(27)
3
96
2006
2005
3,481
3,167
314
163
151
83
—
76
(8)
(3)
(8)
—
3
3,862
3,600
262
174
88
83
(10)
159
(144)
(40)
(7)
—
(97)
1.03
$
0.18
$
0.61
$
(0.55)
$
0.96
$
0.04
$
(1.19)
$
$
115
121
1.26
110
60
(292)
143
15
$
228
246
2.54
131
3
—
30
16
$
355
303
3.10
171
69
—
59
16
$
126
150
1.52
184
(5)
47
149
16
53
163
1.64
169
10
37
91
16
191
174
$
2.15
$
110
572
94
178
13
$
100
100
1.23
121
52
—
91
13
2004
3,692
3,433
259
161
98
79
(18)
13
24
3
(2)
—
23
0.28
157
164
2.01
130
120
14
107
13
0.16
$
3.6%
0.16
$
2.4%
0.16
$
1.8%
0.16
$
4.6 %
0.16
$
1.9%
0.16
$
1.2%
0.16
$
1.6 %
0.16
1.2%
400
1,703
3,728
1,407
136
1,029
10.87
$
$
$
$
94.6
33.8
419
4.43
7.75
3.51
2.6%
1.0x
3.3x
8.7%
6.5%
6.5%
2.4x
10.6%
6.1x
59.3%
4.3x
0.4x
479
1,777
3,724
1,395
24
1,257
13.01
96.6
57.7
647
6.70
9.80
5.71
$
$
$
$
0.4%
1.1x
2.9x
1.3%
10.6%
10.1%
3.6x
12.1%
3.6x
53.7%
37.2x
0.5x
484
1,912
3,792
1,469
21
1,304
13.41
$
$
$
$
97.2
79.8
869
8.94
9.10
1.70
1.5%
1.0x
3.0x
4.7%
11.9%
12.0%
3.9x
12.5%
3.3x
54.3%
14.7x
0.7x
522
2,030
4,031
1,708
22
1,256
12.74
98.5
39.8
339
3.44
8.90
3.00
$
$
$
$
(1.3)%
1.0x
3.3x
(4.4)%
7.8 %
7.6 %
3.0x
13.0 %
5.9x
59.1 %
N/A
0.3x
581
1,886
3,769
1,574
25
1,199
574
2,063
3,911
1,666
19
1,157
530
1,562
3,046
1,297
—
897
12.09
$
11.62
$
11.10
$
99.1
63.2
837
8.44
15.80
7.46
$
$
$
2.4%
1.1x
3.2x
8.1%
8.9%
8.4%
3.2x
14.4%
4.7x
57.5%
8.8x
0.7x
$
$
$
99.5
31.7
1,317
13.23
14.78
9.66
0.1%
1.2x
3.2x
0.3%
10.6%
9.0%
3.8x
13.3%
3.8x
59.6%
330.8x
1.1x
80.8
23.6
812
10.05
13.95
7.35
$
$
$
(2.5)%
1.3x
3.1x
(9.9)%
8.4 %
6.8 %
3.2x
13.7 %
5.0x
59.9 %
N/A
0.9x
502
1,700
3,144
1,226
—
1,059
13.02
81.4
24.6
1,090
13.40
14.80
11.21
0.6%
1.2x
3.0x
2.2%
8.5%
7%
3.3x
13.6%
4.8x
54.6%
47.9x
1.0x
$
$
$
$
$
$
$
CASCADES 2013 ANNUAL REPORT
123
BOARD OF DIRECTORS
Cascades’ Board of Directors (BoD) and management believe that quality corporate governance helps ensure that the Corporation
is effectively run and investor confidence maintained. In order to stay the course in this regard, Cascades regularly reviews its
governance practices to remain in compliance with applicable legislation and to improve the Corporation’s efficiency.
The composition of the Board of Directors must be carefully determined since its responsibilities include ensuring good corporate
governance, among other things. Cascades draws on the expertise of a highly experienced team of directors, and recognizes the
importance of independent directors. As of March 14, 2014, seven of the twelve Board members were independent. They meet
at least once yearly, in the absence of non-independent directors and senior management. New BoD members are also offered an
orientation and training program, to familiarize themselves with Cascades’ activities as well as the issues and challenges it faces.
1
5
9
2
6
10
3
7
11
4
8
12
1
Bernard Lemaire
Director
Kingsey Falls, Québec Canada
Director since 1964
Non-Independent
5
Louis Garneau
President
Louis Garneau Sports Inc.
Saint-Augustin-de-Desmaures
Québec Canada
Director since 1996
Independent
9
Georges Kobrynsky
Director of companies
Outremont, Québec Canada
Director since 2010
Independent
2
Laurent Lemaire
Executive Vice–Chairman
of the Board
Warwick, Québec Canada
Director since 1964
Non-Independent
6
Sylvie Lemaire
Director of companies
Otterburn Park, Québec Canada
Director since 1999
Non-Independent
10
Élise Pelletier
Management and Human
Resources Consultant
Saint-Bruno-de-Montarville
Québec Canada
Director since 2012
Independent
3
Alain Lemaire
Executive Chairman
of the Board
Kingsey Falls, Québec Canada
Director since 1967
Non-Independent
7
David McAusland
Partner
McCarthy Tétrault
Beaconsfield, Québec Canada
Director since 2003
Independent
11
Sylvie Vachon
President and Chief
Executive Officer of
The Montréal Port Authority
Montréal, Québec Canada
Director since 2013
Independent
4
Paul R. Bannerman
Chairman of the Board
Etcan International Inc.
Montréal, Québec Canada
Director since 1982
Non-Independent
8
James B.C. Doak
President and Managing Director
Megantic Asset Management Inc.
Toronto, Ontario Canada
Director since 2005
Independent
12
Laurence G. Sellyn
Executive Vice-President,
Chief Financial and
Administrative Officer,
Gildan Activewear Inc.
Montréal, Québec Canada
Director since 2013
Independent
124
CASCADES 2013 ANNUAL REPORT Matter
for
pride
In 2013, Cascades
launched its second triennial
sustainable development
plan for 2013-2015.
Since then, the actions
deployed have led to progress
in a number of areas.
Reduce the quantity of energy
purchased to make our products
(GJ/metric tonne)
Increase the
recovery of
waste materials
(kg of waste recovered)
Reduce the amount
of waste water
(m3/ metric tonne)
Source materials from
responsible suppliers
(volume of purchases considered responsible)
Develop and market
new products
(sales from new products)
Reduce occupational
injuries and illnesses
(OSHA frequency rate)
Increase the level of
employee commitment
(mobilization rate)
Increase our
contributions in the communities
(units having taken at least three initiatives)
Our efforts are ongoing. For more
information on our initiatives in
sustainable development:
www.cascades.com/
sustainable-development
Optimize the return
on capital employed
(return on capital employed)
RESULT
2013
2015
TARGET
RESULT
2013
2015
TARGET
RESULT
2013
2015
TARGET
RESULT
2013
2015
TARGET
RESULT
2013
2015
TARGET
RESULT
2013
2015
TARGET
RESULT
2013
2015
TARGET
RESULT
2013
2015
TARGET
RESULT
2013
2015
TARGET
10.74
10.6
72.8%
71%
12.5
10.6
35%
40%
4.8%
6%
3.2
2.5
55%
65%
50%
85%
4%
6%
Horizontal
100 %
Printed on Rolland Enviro100 Satin, 60 lb. Text and 80 lb. Cover, which contain 100% post-consumer fibre and is Processed Chlorine Free certified. The financial section printed
on Rolland Opaque Natural, 50 lb. Text, made with 30% post-consumer fibre. All papers are certified FSC and EcoLogo, as well as made using renewable biogas energy.
Vertical
Production: Communications Department of Cascades — Design: cgcom.com — Prepress and printing: L’Empreinte
Printed in Canada
100 %
Cascades’ 50th Anniversary
1964-2014
First, there were three, united by their innovative spirit and their values steeped in respect.
Now we are 12,000 strong, and proud to follow in their footsteps as we look toward the future.
No one could have predicted, in 1964, that their bold gamble would transform into a grand adventure
that would stand the test of time and have an impact all over North America and in parts of Europe.
But that is nevertheless exactly what happened, thanks to the vision and uniting force of brothers
Bernard, Laurent and Alain Lemaire. For the past 50 years, these trailblazers in recovery and recycling
and the Cascaders who carry on their legacy have been changing the face of the packaging and
paper industry, one small green step at a time.
This year, Cascades is paying tribute to the founding trio and to the thousands of men and women
who believed in their desire to do business differently.
Long live Cascades!