2016 Annual Report
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CONTAINERBOARD
PACKAGING GROUP
A Canadian leader
largest producer in North America
6 TH
34% OF SALES AND 45% OF ADJUSTED OIBD IN 20161
884
facilities across Canada,
the United States and Europe
SALES
$4,001 M
Paper collector
in Canada
SPECIALTY
PRODUCTS GROUP
A North American leader
in industrial packaging products2
15% OF SALES AND 13% OF ADJUSTED OIBD IN 20161
2.6
short tons
of recycled fibre
saved from landfills
~
11,000
EMPLOYEES in 5 countries
$237 M
invested in property, plant and
equipment, business acquisitions
and in our ERP platform
TISSUE GROUP
A Canadian leader
largest producer in North America
5 TH
32% OF SALES AND 31% OF ADJUSTED OIBD IN 20161
ADJUSTED OIBD3
$403 M
(10% margin)
NET DEBT
REDUCED BY
to $1,532 M
BOXBOARD
EUROPE GROUP5
2ND
largest producer of coated
recycled boxboard in Europe
1 Before inter-segment sales and corporate activities.
2 Through our joint venture Cascades Sonoco.
3 Please refer to the “Forward-looking Statements and Supplemental Information on Non-IFRS Measures’’ section on page 35 for more details.
4 Including associates and joint ventures.
5 Via our 57.7% equity ownership in Reno de Medici S.p.A., a public Italian company traded on the Milan and Madrid stock exchanges.
6 OSHA frequency rate: Number of accidents with lost time or temporary assignments or medical treatments X 200,000 hours/hours worked.
19% OF SALES AND 11% OF ADJUSTED OIBD IN 20161
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(In million of Canadian dollars, unless otherwise noted)
SALES
Operating income before depreciation and amortization (OIBD)1
% of sales
Operating income
% of sales
Net earnings (loss)
per common share
Dividend per share
ADJUSTED1
Operating income before depreciation and amortization (OIBD)1
% of sales
Operating income
% of sales
Net earnings
per common share
Return on assets1, 2
Return on capital employed1, 3
FINANCIAL POSITION (AS AT DECEMBER 31)
Total assets
Capital employed3
Net debt1
Net debt/adjusted OIBD1, 4
Equity attributable to shareholders’
per common share
Working capital as a % of sales7
KEY INDICATORS
Total shipments (in ‘000 s.t.)5
Manufacturing capacity utilization rate6
US$/CAN$ - Average exchange rate
2016
4,001
413
10.3%
221
5.5%
135
$1.42
$0.16
403
10.1%
211
5.3%
114
$1.21
10.6%
5.2%
3,813
3,191
1,532
3.8x
984
$10.41
11.0%
2,999
92%
$0.75
2015
3,861
343
8.9%
153
4.0%
(65)
$(0.69)
$0.16
426
11.0%
236
6.1%
112
$1.18
11.2%
5.6%
3,848
3,206
1,721
4.0x
867
$9.09
11.3%
2,992
92%
$0.78
2014
3,561
311
8.7%
137
3.8%
(147)
$(1.57)
$0.16
340
9.5%
166
4.7%
20
$0.21
9.4%
4.1%
3,673
3,226
1,613
4.7x
893
$9.48
12.3%
2,924
93%
$0.91
1 See “Forward-looking Statements and Supplemental Information on Non-IFRS Measures” on page 35 for more details.
2 Return on assets is a non-IFRS measure defined as the last twelve months’ (“LTM”) adjusted OIBD/LTM quarterly average of total assets. It includes or excludes significant
business acquisitions and disposals, respectively, of the last twelve months. Not adjusted for discontinued operations.
3 Return on capital employed is a non-IFRS measure and is defined as the after-tax (30%) amount of the LTM adjusted operating income, including our share of core joint
ventures divided by the LTM quarterly average of capital employed. Capital employed is defined as the total assets less trade and other payables. It includes or excludes
significant business acquisitions and disposals, respectively, of the last twelve months. Not adjusted for assets of disposal group classified as held for sale. Starting
in Q1 2015, it includes our investment in Greenpac on a LTM basis. Not adjusted for discontinued operations.
4 Adjusted ratio including discontinued operations.
5 Shipments do not take into account the elimination of business sector inter-company shipments.
6 Defined as: Manufacturing internal and external shipments/practical capacity. Excluding discontinued operations and Specialty Products Group manufacturing activities.
7 % of sales = Average LTM working capital/LTM sales. It includes or excludes significant business acquisitions and disposals, respectively, completed during the last twelve
months. Not adjusted for assets of disposal group classified as held for sale. Not adjusted for discontinued operations.
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Symbol:
CAS – TSX
(ON THE TORONTO STOCK EXCHANGE)
S&P/ TSX
CLEAN TECHNOLOGY INDEX
S&P/ TSX
SMALL CAP INDEX
BMO
SMALL CAP INDEX
94.5 MILLION
COMMON SHARES
OUTSTANDING
as at December 31, 2016
79 million
TOTAL NUMBER OF COMMON
SHARES TRADED
in 2016
$0.04
QUARTERLY DIVIDEND
PER SHARE
in 2016
1.3%
ANNUAL
DIVIDEND YIELD
as at December 31, 2016
$13.67
INTRADAY HIGH
in 2016
$7.72
INTRADAY LOW
in 2016
$1,144 MILLION
MARKET CAPITALIZATION
as at December 31, 2016
Moody’s: ba2 (stable)
S&P: BB- (stable)
CORPORATE CREDIT RATINGS
as at December 31, 2016
CASCADES’ SHARE PRICE PERFORMANCE
IN 2016
$12.10
as at December 31, 2016
$14.00
$13.00
$12.00
$11.00
$10.00
$9.00
$8.00
$7.00
$6.00
Jan
Feb
Mar
Apr
May
June
July
Aug
Sept
Oct
Nov
Dec
CAS–TSX – Closing price ($)
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CONTAINERBOARD
PACKAGING GROUP
34%
SALES OF
$4,001 M
TISSUE
GROUP
32%
SPECIALTY
PRODUCTS GROUP
15%
BOXBOARD
EUROPE GROUP
19%
The diversification of our sales across several markets reflects
Cascades’ balanced approach and complementary product offering.
The focus of our business activities within two growth sectors—
packaging products and tissue papers—has allowed us to generate
positive results despite economic fluctuations. Our diverse product
lines meet the needs of a wide variety of industries and markets,
and uphold our committment to our core values of quality,
sustainability and accountability to our shareholders, customers
and the community.
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How can we successfully merge growth with the responsible use of
resources? How can we adapt to an economic environment that is
constantly being transformed without renouncing our core values?
Above all, how can we build on our past successes to encourage
and stimulate a culture of continuous improvement and innova-
tion? These questions remain at the center of our strategic thinking.
Over the past five years, Cascades has reconnected with our true
nature, refocusing on packaging, tissue papers and recovery as the
main drivers of our competitiveness. As an organization, we have
accomplished our priorities, and carried out strategic investments
to update our most productive assets, increase our efficiency and
improve our competitive positioning in our key markets. An impor-
tant re-engineering of our business processes was also born from
the desire to generate positive financial benefits by making the
most of our human and material resources. Begun in 2014, the
purpose of this initiative was to strengthen our customer approach
and better align the everyday efforts of our employees with
Cascades’ long-term objectives and vision.
With a strong and distinctive brand, new value-added green
products, and sound financial results in 2016, we believe that
Cascades has benefitted from this strategic approach. We owe our
success to the close ties that link every step of our value chain and
to the teamwork that drives Cascaders, as it is these elements
which allow the organization to propel itself toward the future
with confidence.
For Cascades, transforming material means drawing inspiration
from its strengths and doing business differently. It also means
transforming our intrinsic values into levers that help increase the
return for our partners. By following this path, Cascades is creating
value and changing the face of the industry, one green act at a time.
6
8
table of contents
MESSAGE FROM THE EXECUTIVE
CHAIRMAN OF THE BOARD: ALAIN LEMAIRE
CREATING MEANINGFUL POTENTIAL
FOR GROWTH BY MEETING CHALLENGES
MESSAGE FROM THE PRESIDENT AND CHIEF
EXECUTIVE OFFICER: MARIO PLOURDE
TRANSFORMING OUR VALUES INTO RESULTS
12
OUR FOUR BUSINESS SEGMENTS
CREATING VALUE THROUGH SYNERGY
22
24
26
INVESTMENT AND GROWTH
SOUND INVESTMENTS TO PROPEL GROWTH
INNOVATION
FOCUSED ON MAKING CUSTOMERS
THE CENTRE OF OUR STRATEGY
SUSTAINABLE DEVELOPMENT
AND SOCIAL COMMITMENT
CREATING VALUE BY APPLYING THE PRINCIPLES
OF THE CIRCULAR ECONOMY
30 FINANCIAL INFORMATION
MANAGEMENT’S DISCUSSION AND ANALYSIS,
MANAGEMENT’S REPORT, INDEPENDENT
AUDITOR’S REPORT AND CONSOLIDATED
FINANCIAL STATEMENTS
146 RECYCLABLE MATERIALS, RECYCLED
PRODUCTS AND MARKET DISTRIBUTION
OF OUR OPERATIONS
148 CASCADES WORLDWIDE
The annual general shareholders’ meeting will be held on Wednesday, May 10,
2017 at 10 am, at the Musée d’art contemporain de Montréal, located
at 185 Sainte-Catherine Street West, Montréal (Québec).
Cascades Inc.’s 2016 Annual Information Form will be available, upon request,
from the Corporation’s head office as of March 31, 2017.
This report is also available on our website at: www.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, boulevard Marie-Victorin
Kingsey Falls (Québec) J0A 1B0 Canada
INVESTOR RELATIONS
For more information, please contact:
Investor Relations
Cascades Inc.
772 Sherbrooke Street West
Montréal, Québec
H3A 1G1 Canada
Telephone: 514-282-2697
Fax: 514-282-2624
www.cascades.com/investors
Jennifer Aitken, MBA
Director, Investor Relations
jennifer_aitken@cascades.com
TRANSFER AGENT
AND REGISTRAR
Computershare
Shareholder Services
1500 Robert-Bourasse Boulevard,
Suite 700
Montréal, Québec
H3A 3S8 Canada
Telephone: 514-982-7555
Toll-Free (Canada): 1-800-564-6253
service@computershare.com
HEAD OFFICE
Cascades Inc.
404 Marie-Victorin Blvd.
Kingsey Falls, Québec
J0A 1B0 Canada
Telephone: 819-363-5100
Fax: 819-363-5155
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ALAIN LEMAIRE
EXECUTIVE CHAIRMAN OF THE BOARD
CREATING MEANINGFUL
POTENTIAL FOR GROWTH
BY MEETING CHALLENGES
Dear fellow shareholders,
Continued long term growth and success can only be realized by cultivating the essential building
blocks of human capital, productivity, flexibility, innovation, and strategic investments. This has certainly
been the case for Cascades in the past, and remains true today. It is with these fundamental principles
in mind that the Board of Directors reviews, discusses and debates the investment proposals, business
performance, and capital allocation strategies put forward by management. In doing so, the Board
carries out its central role of oversight, thus ensuring that management is accountable, implements
strategy and plans successfully, and remains focused on increasing competitiveness and shareholder
value over the long term. I am proud of our track record in 2016. Mario and the management team as
a whole have shown both agility and willingness to be proactive in their response to ever-changing
market dynamics.
Like all companies, Cascades is facing both challenges and oppor-
tunities going forward. I would be concerned if it were otherwise, as
it would signal that there was no room to create and grow value for
stakeholders, no ways in which the company could improve its
performance, increase its offerings to customers, implement new
sustainability initiatives or create meaningful potential for growth.
I am confident that the strategic direction that Cascades has been
pursuing over recent years will serve both the immediate and future
needs of the business, and permit Cascades to successfully adapt
to the ever-changing business environments in which it operates.
Sustainable development has been a fundamental part of
Cascades since my brothers and I founded the company over
50 years ago. I am proud that this culture has been successfully
nurtured over the years, and that these business practices continue
to be an integral part of Cascades’ philosophy to this day under
Mario’s leadership. We have grown from a single plant in Kingsey
Falls, Québec, into a diversified and balanced packaging and tissue
paper company with approximately 11,000 employees, and close
to 90 facilities across 2 continents. This growth is the direct
result of the commitment, focus and ambition of each and every
Cascader, and on behalf of both myself and the Board of Directors,
I would like to thank them for their dedication, hard work and
ability to think outside the box throughout the years.
While I point with pride to Cascades’ past accomplishments, mana-
gement and the members of the Board understand there is more to
do. Each day brings a new challenge, and we must never become
complacent or stop striving to improve and to innovate. As we
embark on a new year, we remain focused on being disciplined in
the implementation of business strategies, and will continue to
deliberately challenge the what, how, why, when and where of our
strategic direction to ensure that the optimal decisions are being
made. In doing so, Cascades will be well positioned to continue
creating important value for our shareholders and stakeholders
over both the mid and long-term.
On behalf of myself and the Board of Directors of Cascades, thank
you for your continued support.
Sincerely,
Alain Lemaire
Executive Chairman of the Board
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MARIO PLOURDE
PRESIDENT AND CHIEF EXECUTIVE OFFICER
TRANSFORMING OUR
VALUES INTO RESULTS
Dear shareholders,
For over five decades, Cascades has been breathing new life into recycled materials, converting what
would have gone into a landfill into new products for residential, commercial, and industrial use. In
many ways, this commitment to sustainable development is more paramount today than when the
company was founded 52 years ago. We are proud of this legacy, and continue to hold ourselves
accountable to high standards of corporate responsibility on a daily basis. While 2016 was no different
on this front, the year brought with it the successful culmination of important internal milestones
on other fronts, and the company now stands poised at a new juncture.
Several years ago, we made the commitment to ourselves and to our
stakeholders that we would reorganize our asset base and deleverage
our balance sheet. I am pleased that we continue to deliver on both
counts. Since 2011, we have successfully reduced our leverage ratio
from 5.8x to 3.8x and increased both sales and adjusted OIBD, while
making some difficult but strategically important decisions to divest or
close non-core and less profitable operations. Cascades is stronger as
a result, and these strategic choices have enabled us to position our
asset portfolio for meaningful profitable future growth. An important
part of this remains our diversification, which we believe provides a
more robust operational foundation and expanded opportunities for
growth, which are central to our efforts to drive profitability and deliver
long-term value for shareholders.
FINANCIAL PERFORMANCE
The past year was one of both challenges and achievements. In the
case of the latter, our North American operations performed well
within the context of the competitive packaging and tissue paper
marketplaces, and margin pressure due to fluctuating material
costs and market pricing. On the challenging side, results from our
European division fared less well in 2016, as difficult market condi-
tions persisted and resulted in lower topline and adjusted OIBD
contributions from this segment. Despite these challenges, I am
pleased that all of our businesses are operating well on a day-to-
day basis and are positioned to respond to evolving marketplace
dynamics. As has been the case for over 50 years, the driving force
behind our continued success is our employees. It is thanks to their
day to day commitment, adaptability and hard work that Cascades
has been able to implement our growth initiatives, transform our
internal platforms and execute our strategies. In short, Cascades
is what and where we are today as a result of their dedication
and ingenuity.
9
As we begin a new year, let me end with this. We are resolute in our
efforts to not only successfully adapt but to thrive in our ever-chan-
ging business environments, to lead with innovation, and to provide
our shareholders with long-term profitable growth. On this front, we
acknowledge investor feedback, and are working hard to be able to
provide more strategic clarity in 2017. We are focused not on what
Cascades is today, but on what it can and will be tomorrow. We look
forward to providing you with greater detail regarding our future plans
and strategies, and our roadmap for continuing to marry responsible
stewardship with our resolve to deliver long-term profitable growth to
all of our stakeholders.
On behalf of myself, the entire Cascades management team, and our
employees, we thank you for your continued trust and support.
Regards,
Mario Plourde
President and Chief Executive Officer
CAPITAL ALLOCATION AND RETURN
ON CAPITAL EMPLOYED
Financial flexibility plays an integral and fundamental role in the
realization of Cascades’ medium and long term ambitions. Our focus
is on cash flow generation, protecting our financial capacity for
strategic investments, ensuring that our capital allocation is both dis-
ciplined and effective, and that we continue to improve operational
efficiency to further bolster our ability to adapt, prioritize and
innovate. To this end, we made good progress on our objective to
deleverage our balance sheet in 2016, and have successfully
increased return on capital employed from 2.8% in 2012 to 5.2% in
2016. Going forward, we remain dedicated to allocating a minimum
of $100 million of free cash flow toward debt repayment annually
to maintain a sound balance sheet, and on increasing the return
we generate on our capital investments.
OUTLOOK
Many people have asked what will change at Cascades in 2017 and
beyond. As I mentioned earlier, Cascades is at a new juncture, and
the strategic work we have been pursuing in recent years has rein-
forced our foundation, and positioned the company for strength and
endurance within the context of an ever-changing and competitive
marketplace. Looking ahead to 2017 and beyond, I see more bold
moves as we evaluate and pursue new opportunities, and proactively
respond to the changing needs of our customers. In other ways,
however, many important things that define Cascades will stay
the same. We will continue to champion sustainable development,
and will continue to invest in our operations, our people, and local
programs that support families and the communities in which
we operate.
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SALES ($M)
ADJUSTED OIBD AND ADJUSTED OIBD MARGIN1 ($M and %)
4,001
3,861
3,561
500
400
300
200
100
0
426
11.0%
403
10.1%
340
9.5%
20%
15%
10%
5%
0%
2014
2015
2016
2014
2014
2015
2015
2016
2016
RETURN ON CAPITAL EMPLOYED1
NET DEBT / ADJUSTED OIBD1
5.6 %
5.2%
4.1 %
4.7x
4.0x
3.8x
6.0x
5.0x
4.0x
3.0x
2.0x
1.0x
0.0x
2014
2015
2016
2014
2015
2016
TOTAL SHIPMENTS AND CAPACITY
UTILIZATION RATE (’000 s.t. and %)
ADJUSTED FREE CASH FLOW PER COMMON SHARE1
2,924
93%
2,992
2,999
92%
92%
$1.58
$1.20
$0.86
100%
95%
90%
85%
80%
75%
$2.00
$1.50
$1.00
$0.50
$0.00
4,100
4,000
3,900
3,800
3,700
3,600
3,500
3,400
3,300
6.0 %
5.0 %
4.0 %
3.0 %
2.0 %
1.0 %
0.0 %
3,200
3,000
2,800
2,600
2,400
2,200
2014
2015
2016
2014
2015
2016
1 See “Forward-looking Statements and Supplemental Information on Non-IFRS Measures” on page 35 for more details.
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Our fou r b u s iness seg
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Cascades’ success is driven by our four business groups, whose ope-
rations, and production and converting facilities extend throughout
North America and Europe. Three of our groups are focused on
packaging products: Containerboard Packaging, Specialty Products,
and Boxboard Europe (via our 57.7% ownership of Reno de Medici
S.p.A.). These operations have established Cascades as one of the
largest packaging manufacturers in Canada, and a leading producer
of containerboard and corrugated board. Our fourth business
segment is our Tissue Group. Through this segment, we offer a wide
range of manufactured and converted paper products and dispen-
sers that showcase Cascades’ innovative capabilities, and our
commitment to ingraining sustainable development within the very
fibre of our products.
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CONTAINERBOARD
PACKAGING GROUP
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Charles Malo
President and Chief Operating Officer
Containerboard Packaging Group
26 years with Cascades
The Containerboard Packaging Group has more than 3,400 employees,
and operates five linerboard and corrugated medium mills and eighteen
converting plants across Canada and the Northeastern United States. The
Group produces a broad range of products from recycled materials for
North American customers operating in a variety of industries, including
food, beverage and consumer products.
GREENPAC MILL1
Our Group oversees the operations of the Greenpac Mill, a part-
nership in which Cascades owns 59.7%. The mill, a state-of-the-art
linerboard facility with annual production of 540,000 short tons,
manufactures one of the leading linerboards in North America.
The Greenpac Mill is located in Niagara Falls, NY, and employs
roughly 140 people.
SALES
BY COUNTRY
Canada — 71%
United States — 28%
Others — 1%
OUR STRENGTHS
– A Canadian leader and the 6th largest producer in North America
– Flexible and adaptable operations to meet diverse needs
of customers
– Products manufactured are primarily composed of recycled
materials
– Industry-leading sustainable development practices
OUR STRATEGIC PRIORITIES
– Grow our U.S. operational platform
– Continue to improve performance of our mills and facilities
– Increase the rate of integration between our manufacturing
and converting facilities
– Innovate and develop new products that respond to the current
and future needs of our customers
MANUFACTURING
SALES BY
PRODUCT
Semi-chemical medium — 43%
Recycled medium — 33%
Linerboard — 24%
OUR RESULTS
1,181
13.9%
1,301
17.8%
1,370
15.8%
164
231
216
1,400
1,050
700
350
0
25%
20%
15%
10%
5%
0%
2014
2015
2016
Sales ($M)
Adjusted OIBD ($M)
Adjusted OIBD Margin
1 Results of Greenpac are not consolidated in our financial statements but are included in the “Share of results of associates and joint ventures” line of the consolidated statement of earnings.
15
TISSUE GROUP
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Jean Jobin
President and Chief Operating Officer
Tissue Group
24 years with Cascades
The Tissue Group manufactures, converts and markets a wide variety of
tissue paper products intended for the away-from-home and consumer
products markets. The Group operates seven manufacturing facilities,
nine converting facilities1, four facilities with both manufacturing and
converting activities and employs more than 2,200 people.
NEW AWAY-FROM-HOME PRODUCTS BRAND
In 2016, the Tissue Group rebranded its away-from-home product offering,
and launched the new Cascades PRO brands at the end of the year with
a new slogan:
OUR STRENGTHS
– A Canadian leader and the 5th largest North American
producer of tissue products
– Diverse product offering in both the away-from-home
and consumer products markets
– Market innovator in the manufacturing of products
made primarily of recycled materials
– Important player in the private label tissue space
OUR STRATEGIC PRIORITIES
– Ensure our geographic footprint in the United States
meets changing population dynamics
– Increase the integration of our manufacturing
and converting activities
– Develop and grow the Cascades PRO brand in North
America
– Continue to improve our financial performance
to generate higher margins
SALES
BY COUNTRY
SALES
BY MARKET
Canada — 25%
- Consumer products — 58%
- Away-from-home products — 42%
United Sates — 75%
- Consumer products — 53%
- Away-from-home products — 47%
Consumer products — 46%
- Branded — 9%
- Private label — 91%
Away-from-home products — 37%
- Branded — 59%
- Private label — 41%
Parent rolls — 17%
1,500
1,200
900
600
300
0
OUR RESULTS
1,054
9.1%
1,236
9.6%
1,305
11.5%
96
119
150
2014
2015
2016
Sales ($M)
Adjusted OIBD ($M)
Adjusted OIBD Margin
16%
12%
8%
4%
0%
1 Including associates and joint ventures.
17
SPECIALTY
PRODUCTS GROUP
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Luc Langevin
President and Chief Operating Officer
Specialty Products Group
21 years with Cascades
The Specialty Products Group operates in three main sub-segments,
namely industrial packaging, consumer products packaging, and recovery
and recycling. This Group operates thirty-eight facilities1 in North America
and Europe, including nineteen recovery centers across Canada and the
Northeastern United States, and employs more than 2,200 people.
CASCADES RECOVERY+
The newly formed business unit within our Specialty Products
Group was created via the merger of our recovery operations and
the corporate recycled fibre buying group. This unit manages all of
the company’s recycled fibre requirements.
SALES
BY COUNTRY
Canada — 53%
United States — 38%
Others — 9%
SALES
BY MARKET
Recovery and recycling — 46%
Industrial packaging — 30%
Consumer products packaging — 24%
OUR STRENGTHS
– Canada’s largest recycled papers collector
– A North American leader in industrial packaging sector
– Developer of innovative products made with recycled materials
OUR STRATEGIC PRIORITIES
– Continue to secure strategic sources of recovered materials
– Increase integration rate within the Group’s operations
– Capitalize on the growth potential of consumer product
packaging segments
OUR RESULTS
800
600
400
200
0
568
7.0%
2014
579
10.0%
620
10.5%
40
58
65
2015
2016
16%
12%
8%
4%
0%
Sales ($M)
Adjusted OIBD ($M)
Adjusted OIBD Margin
1 Including associates and joint ventures.
19
BOXBOARD
EUROPE GROUP1
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Michele Bianchi
President and Chief Executive Officer
Reno de Medici S.p.A.
Joined the Corporation in 2016
Cascades holds a 57.7% investment in Reno de Medici S.p.A., the second
largest European producer of coated recycled boxboard. Reno de Medici
operates five recycled boxboard mills, one virgin boxboard mill,
two sheeting centers, and employs approximately 1,170 people.
Reno de Medici is a publicly traded company listed on the Milan and
Madrid stock exchanges.
RENO DE MEDICI’S NEW LOGO
Our new logo reflects our updated selling proposition and organization
following the integration of the virgin fibre boxboard mill in La Rochette,
France, within our operations.
SALES
BY COUNTRY
Italy — 32%
France — 21%
Overseas — 12%
Eastern Europe — 12%
Rest of Western Europe — 12%
Germany, Austria and Switzerland — 11%
OUR STRENGTHS
– 2nd largest European producer of coated recycled boxboard
– International footprint with operations in three European countries
– Diverse product portfolio
– Newly appointed CEO with extensive industry experience
OUR STRATEGIC PRIORITIES
– Enhance service and product quality
– Promote the “one Reno de Medici” culture
– Continue to translate operational progress into healthy financials
– Minimize the environmental impact of our cartonboard production
SALES
BY MARKET
Coated recycled boxboard — 78%
Coated virgin boxboard — 22%
1,000
800
600
400
200
0
OUR RESULTS
841
8.6%
825
7.6%
796
6.7%
72
63
53
2014
2015
2016
Sales ($M)
Adjusted OIBD ($M)
Adjusted OIBD Margin
20%
15%
10%
5%
0%
1 Via our 57.7% equity ownership in Reno de Medici S.p.A., a public Italian company traded on the Milan and Madrid stock exchanges.
21
SOUND INVESTMENTS
TO PROPEL GROWTH
$237 M
is the total amount that we invested in property, plant and equip-
ment, in the implmentation of our ERP system, and in business
acquisitions in 2016. These investments will help Cascades to
continue to improve its operational and financial performance, and
to preserve and create new employment opportunities. In short,
our investments are an integral part of our objective to remain
a leader in the recovery and manufacturing of green packaging
and tissue products.
$16 M
invested in acquiring a corrugated box plant in
Newtown, Connecticut from the U.S. company
Rand-Whitney LLC. This acquisition increased our converting capa-
city and reinforced our leadership position in the Northeastern
United States.
$15 M
spent on the ongoing implementation of an ERP
system in our production facilities and business
operations, increasing the processing speed of production and of our
financial data.
$7 M
invested to replace a section of the Arnsberg mill
improvement
paper machine
increased both the speed and the capacity of the mill in the
production of coated recycled boxboard.
in Europe. This
In 2016, we also invested in marketing initiatives to rejuvenate
the branding of our Tissue Group’s away-from-home activities
(Cascades PRO) and Canadian retail activities (Cascades Fluff
& Tuff TM).
$46 M
invested to date in the construction of a
state-of-the-art tissue paper converting facility
in Scappoose, Oregon. This new plant will allow Cascades to create
important synergies with our tissue paper mill located in St. Helens,
Oregon, 15 minutes away, and will increase Cascades’ footprint
on the West Coast of the US.
THE NEW STATE-OF-THE-ART TISSUE PAPER CONVERTING
FACILITY IN SCAPPOOSE, OREGON
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ANNUAL PRODUCTION CAPACITY
OF 5.2 M CASES
LATEST TECHNOLOGY
ON THE MARKET
SYNERGIES WITH
THE ST. HELENS MILL
– Volume integrated at 40%
– Proximity
– Perfect trims
St. Helens, OR
Washington
OREGON
~12 km
Scappoose, OR
OREGON, UNITED STATES
23
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INNOVATION
FOCUSED ON MAKING
CUSTOMERS THE CENTRE
OF OUR STRATEGY
Innovation is part of our culture, from the offices of our senior
management team to our plant floors, and plays an integral role
in every strategic decision taken at Cascades.
Focused on synergy and a drive for excellence, more than 100
technicians, engineers and scientists execute the Cascades CS+
mission, which revolves around four pillars: products, processes,
projects and the repurposing of used equipment. This group
includes individuals with experience and expertise in over 20 fields
both inside and outside the paper industry, which further broadens
Cascades’ influence and exposure.
By combining the expertise of its service centres, Cascades pro-
vides its plants with a one-stop resource for all of their technical
and scientific services, and is able to tailor these services to meet
specific needs at a very competitive cost. Thanks to this unique
integrated project management service offering, Cascades is also
winning over a growing number of external clients who are seeking
out the innovative ideas and collaborative approach of our experts.
THE NEW FLATBED DIGITAL PRINTER
THE CASCADES INNOVATION CENTRE: TURNING INNOVATIVE
IDEAS INTO COMMERCIAL SUCCESS
Established in 2016, Cascades’ innovation hub reinforces our com-
mitment to ensuring that our customers are at the centre of
our business strategy. It is both a move forward and a return to our
roots: when Cascades was founded in 1964, we chose to make
paper from recycled fibres, and to set ourselves apart from
our competitors by exploring and developing new methods.
The creation of the Cascades Innovation Centre (CIC) is beneficial
for all of the company’s stakeholders. The CIC facilitates interaction
between the company’s various cells of innovation experts, whose
specialties range from industrial design to marketing. Plus, it allows
the company to identify strategic business opportunities and offer
customers highly integrated solutions. Now more than ever, our cus-
tomers are directly connected to our organization, and we have
more resources with which to seek out their opinions and expertise
in the field so that we can anticipate their needs and find sustai-
nable solutions for their product and process challenges.
For our business partners, the added value Cascades generates by
focusing on innovation translates into a definite competitive edge.
CASCADES CS+: STRENGTH IN NUMBERS
Collaboration within our teams of experts is what brings raw
materials to life. Behind the cutting-edge services that have helped
the organization carve out its place in the market lies its research
and development centre—the Canadian pulp and paper industry’s
largest private research centre. Since last summer, the strength of
this innovation hub has been increased tenfold through its merger
with the energy, engineering and used equipment divisions.
Grouped together, these four multidisciplinary teams now make
up Cascades CS+, a leader in engineering, and also in industrial
project management and execution.
24
A STATE-OF-THE-ART FLATBED PRINTER
INNOVATION
FOCUSED ON MAKING
CUSTOMERS THE CENTRE
OF OUR STRATEGY
AN EXTREMELY VERSATILE CUTTING TABLE
AN EXAMPLE OF A VALUE-ADDED, CUSTOMIZED PRODUCT
INVESTING IN INNOVATION AT CASCADES
CONTAINERBOARD PACKAGING – VICTORIAVILLE
As part of its ongoing focus to provide customers with innovative
packaging solutions, Cascades Containerboard Packaging has pur-
chased a flatbed digital printer for its Victoriaville plant. This $500,000+
investment, combined with the use of a versatile cutting table, allows
a wide range of value-added, customized products to be printed in a
very short space of time.
25
CREATING VALUE BY APPLYING
THE PRINCIPLES OF
THE CIRCULAR ECONOMY
Dare to do things differently and innovate: this approach has contributed to Cascades' success for
more than 50 year. On top of implementing special coporate practices, the company has also sought
out ways to optimize its entire value chain. The objective is simple: to provide added value to our pro-
ducts and services. This value is created during every step from the initial idea behind a product, to the
end of its useful life. At Cascades, this value chain is neither vertical nor horizontal, but rather circular.
Our sustainable development strategy is based on this approach, and it allows us to improve the limits of our environmental, financial
and social performance. We believe that our stakeholders—from customers to suppliers, along with shareholders, employees and
communities—all benefit from this added value.
The 2016–2020 sustainable development plan focuses on 10 priorities identified for their applicability and relevance, as well as the impact
they can have throughout the entire value chain, especially with regards to cost control and risk management.
REDUCE THE QUANTITY OF ENERGY PURCHASED
TO MAKE OUR PRODUCTS
DEVELOP AND MARKET NEW PRODUCTS THAT ARE
INNOVATIVE AND ECO-RESPONSIBLE
REDUCE GREENHOUSE GAS EMISSIONS
OPTIMIZE THE RETURN ON CAPITAL EMPLOYED
INCREASE THE BENEFICIAL USE OF RESIDUALS
REDUCE THE NUMBER OF ACCIDENTS
REDUCE THE AMOUNT OF WASTE WATER
INCREASE THE LEVEL OF EMPLOYEE COMMITMENT
OBTAIN SUPPLIES FROM RESPONSIBLE SUPPLIERS
INCREASE OUR INVOLVEMENT
IN THE COMMUNITIES AROUND US
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26
COMMUNITY INVOLVEMENT: CASCADES’
ADDED VALUE FOR COMMUNITIES...
AND THE EMPLOYEES
Giving back to the community has always come natually to the
Lemaire brothers, the founders of Cascades, since they first began in
business. Their modest background certainly forged some of their
character traits, but also contributed to implementing a real business
culture where sharing and collegiality are present. After all, strong,
healthy communities, on both the human and economic levels, offer
a pool of qualified employees, as well as committed customers and
consumers.
This tradition of giving back to others continues to be deeply rooted
in the organizations's values to this day, and is an important reason
why community involvement remains a priority in our sustainable
development action plan. While involvement used to be measured in
the number of actions carried out, in our 2016-2020 plan, it will be
monitored using the the number of hours of employee volunteering.
Considerable amounts will continue to be granted to organizations
working in the territories where Cascades is present, but now this
involvement will also rely on employees’ participation. It will allow
Cascades to simultaneously work on two aspects: its positive
influence in its communities and the engagement rate of its
employees. This is called employer-supported volunteering (ESV). This
increasingly popular trend is based on numerous studies that have
shown the benefits of volunteerism for a company’s human capital:
improved morale and emotional competencies, increased producti-
vity, better perception of employer, aptitude for teamwork, etc.
Cascades only sees benefits in this new practice.
“Workplaces with ESV programs have also benefited from
increased legitimacy and trust within the community over the
long-term, which helps secure loyal customers and build the
brand1.”
PARTNERSHIPS IN LINE WITH THE COMPANY’S VALUES
In 2016, Cascades reached a three-year agreement with the David
Suzuki Foundation. Cascades is pleased to be able to unite
its voice with that of a recognized and respected environmental
organization to help increase public awareness of environmentally
friendly living practices. Cascades’ employees will also be invited
to work as volunteers for the Foundation’s activities, which will
promote the ESV program.
David Suzuki (in the centre) accompanied by members of Cascades’ Board of Directors,
Management Committee and Sustainable Development team.
PHOTO CREDIT: TORIE GERVAIS
For several decades now, Cascades has supported Centraide’s
mission, specifically that of its Centre-du-Québec division, since a
significant portion of our employees are located in this area
(approximately 20%). A record amount of $525,000 was given to
Centraide in 2016, proving once again the excellent work by the
campaign’s ambassadors (who are volunteers), but most of all, the
generosity of all our employees.
Cascades employees once again show great generosity by collecting a record amount during
the corporate campaign for the benefit of Centraide Centre-du-Québec.
1 Bowen et al. analyzed 200 academic and practitioner sources on corporate community engagement strategies.
Bowen, F., Newenham-Kahindi, A., and I., Herremans. 2010. ‘When Suites Meet Roots:
The Antecedents and Consequences of Community Engagement Strategy’ Journal of Business Ethics, 95 (2): 297-318.
27
OUR SUSTAINABLE DEVELOPMENT ACTIONS:
GENERATING BENEFITS AT EACH STEP
The value proposition of the 10 priorities of Cascades’
2016-2020 Sustainable Development Plan.
M A R K E T AND POLICY CONTEXT
P M E N T
O
L
E
V
E
RESEARCH – DESIG N – D
MANUFACTURING
PRODUCTION
SOURCING
COLLECTION
SORTING
CONSUMPTION
USE
RECYCLING
REPURPOSING
DISPOSAL
NATURAL
RESOURCES
M
A
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C
H
A
SI
N
G
–
S
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A
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D
S
–
C
E
R
T
I
F
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C
A
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N
DISTRIBUTION
PACKAGING
LOGISTICS
SALES
MARKETING
SERVICE
B L E C O N SU M PTION
A
A I N
T
S
U
S
Source:
Adapted from the Circular Economy Framework
from the Circular Economy Lab, an initiative of
The Natural Step Canada.
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28
POSITIVE ECONOMIC AND ENVIRONMENTAL IMPACTS
Founded by entrepreneurs who chose to use old paper to design their
products, Cascades has always been concerned with the sound
management of resources. Well aware that residuals can become raw
materials, the company is trying to recover as much of its own waste
as possible. Since energy and water are resources that are used in
large quantities in our manufacturing processes, a reduction in their
use not only results in positive economic benefits, but environmental
ones as well. While energy costs are low right now, Cascades
understands that it is subject to the volatility of market prices, and as
such, we know that continuously reducing our energy consumption is
the best tool to protect ourselves. As for greenhouse gases, carbon
regulation costs have become a reality in Canada, and Cascades
closely follows this variable so as to include it in our decision-making
processes.
OPTIMIZE TRAVEL LOGISTICS
While not an official target in our 2016–2020 Plan, Cascades
has worked toward optimizing all of our transportation activities (for
both goods and our employees). This optimization will certainly have a
positive effect at both the economic and the environmental level.
In this regard, Cascades closely follows new developments detailed in
the impact studies related to transportation, climate change and
fossil energy markets.
A COMMITMENT TO INNOVATIVE PRODUCTS
Cascades’ innovation team has a clearly defined priority: focus its
efforts in the sectors where the company excels, and develop solu-
tions that always deliver added value for our customers. This strategy
bears witness to our focus on understanding and anticipating our
clients’ needs – both consumers and industrial clients – at every step
of a product’s life cycle. Cascades believes in innovation and relies
on the development of solutions that will allow us to remain a leader
in our sectors of activity.
ENHANCED FINANCIAL PERFORMANCE
In the wake of the significant strategic changes that we have imple-
mented over the last few years, Cascades continues to spare no effort
to remain a leader in its industry. The general improvement of our
financial performance is an essential element to our success, and a
key part of providing value for our stakeholders, and particularly
our shareholders.
NOTHING IS LOST, EVERYTHING IS TRANSFORMED
Most of the products that we sell on the market can then be recove-
red and used as raw materials for our plants. By operating sorting
centres, and recovering materials from both our customers and
others, Cascades successfully meets a challenge that many compa-
nies can only dream of: we have closed the loop in our value chain
and established a circular economy.
SECURING OUR SUPPLIES
Recycled fibre is the most widely used raw material at Cascades; in
2016, it accounted for 81% of our total raw material purchases.
With recycled fibre facing growing demand in the market, Cascades
made a strategic decision in 2015 to purchase 100% of the activi-
ties of our subsidiary, Cascades Recovery, of which Cascades had
previously owned 73%. This business segment allows Cascades
to optimize and strengthen its efforts to successfully meet its
raw material requirements for all of its operations.
COMMITTED SUPPLIERS
Procurement, which had been previously decentralized, was recently
migrated into a new structure that delivers benefits from economies
of scale, while allowing the needs of all our plants to be met. As part
of our sustainable development strategy, Cascades mapped the
source of our purchases to identify both risks and opportunities. On
this front, Cascades has been working with a third party since 2012
to assess our suppliers’ performance in matters of social responsibi-
lity. In this way, the company ensures that the various players in our
supply chain share our commitment to adopting the best social and
environmental practices possible. This initiative results in a greater
range of more environmentally friendly purchasing options, since
it allows suppliers to understand Cascades’ interests and, therefore,
to better align themselves with our values.
OUR EMPLOYEES: A PRECIOUS RESOURCE
Human resources are a key asset throughout our organization. Our
employees ensure our day-to-day success and contribute and drive
our competitive edge. The company is dedicated to treating
our employees with care and respect, and providing them with a
stimulating and safe working environment is a priority. Our Human
Resources teams actively work to make employees accountable
for occupational health and safety. Training follow-up, personal and
professional development, competency based management and
recognition are some of the measures put forward so that employees
feel equipped on a daily basis. We believe that these approaches
will increase our employees’ level of commitment to the company,
and will also provide beneficial effects on productivity levels.
29
FINA N C I a
l informatio
n
201 6
30
32
81
82
MANAGEMENT’S
DISCUSSION AND ANALYSIS
MANAGEMENT’S REPORT
TO THE SHAREHOLDERS
OF CASCADES INC.
INDEPENDENT AUDITOR’S
REPORT TO THE SHAREHOLDERS
OF CASCADES INC.
83
CONSOLIDATED FINANCIAL
STATEMENTS
88 SEGMENTED INFORMATION
91
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
143 BOARD OF DIRECTORS
144 HISTORICAL FINANCIAL
INFORMATION — 10 YEARS
31
OUR BUSINESS
Cascades Inc. is a paper and packaging company that produces, converts and sells packaging and tissue products composed primarily of
recycled fibres. Established in 1964 in Kingsey Falls, Québec, the company was founded by the Lemaire brothers, who saw the economic
and social potential of building a company focused primarily on the sustainable development principles of reusing, recovering and recycling.
More than fifty years later, Cascades is a multinational business with close to 90 operating facilities1 and nearly 11,000 employees across
Canada, the United States and Europe. The Corporation currently operates four business segments:
(Business segments)
PACKAGING PRODUCTS
Containerboard
Boxboard Europe3
Specialty Products
TISSUE PAPERS
Number of
Facilities1
2016 Sales2
(in M$)
2016 Adjusted OIBD2
(in M$)
2016 Adjusted OIBD
Margin (%)
24
6
38
20
1,370
796
620
1,305
216
53
65
150
16%
7%
10%
11%
BUSINESS DRIVERS
Cascades' results may be impacted by fluctuations in the following:
SALES
- Selling prices
- Demand for packaging products and tissue papers, mainly
made of recycled fibres
- Foreign exchange rates
- Population growth
- Industrial production
- Product mix, substitution and innovation
COSTS
- Energy prices, mainly electricity and natural gas
- Fibre prices and availability (recycled papers, virgin pulp
and woodchips) and production recipes
- Foreign exchange rates
- Labour
- Freight
- Chemical product prices
- Capacity utilization rates and production downtime
EXCHANGE RATES
The average value of the Canadian dollar declined by 4% and 3%
in 2016 against the US dollar and the euro, respectively, compared
to 2015.
ENERGY COSTS
The average price of natural gas decreased 8% in 2016 compared
to the previous year. In the case of crude oil, the average price was
15% lower in 2016 than in 2015.
1 Including associates and joint ventures.
2 Excluding associates and joint ventures not included in consolidated results. Refer to Note 9 of the 2016 audited consolidated financial statements for more informations on associates and joint
ventures.
3 Via our 57.7% equity ownership in Reno de Medici S.p.A., a public company traded on the Milan and Madrid stock exchanges.
32
32
CASCADES 2016 ANNUAL REPORT / MANAGEMENT’S DISCUSSION & ANALYSIS / RESULTS ANALYSIS HISTORICAL MARKET PRICES OF MAIN PRODUCTS AND RAW MATERIAL
These indices should only be used as trend indicators; they may differ from our actual selling
prices and purchasing costs.
Q1
Q2
Q3
Q4
Year
Q1
Q2
Q3
Q4
Year Change
%
2015
2016
2016 vs.
2015
Selling prices (average)
PACKAGING PRODUCTS
Containerboard (US$/short ton)
Linerboard 42-lb. unbleached kraft, Eastern US (open market)
630
630
630
630
630
615
615
615
655
625
(5)
(1)%
Corrugating medium 26-lb. semichemical, Eastern US (open
market)
Boxboard Europe (euro/metric ton)
563
560
560
545
557
518
515
505
540
520
(37)
(7)%
Recycled white-lined chipboard (WLC) index 1
656
658
679
676
667
664
659
652
649
656
Virgin coated duplex boxboard (FBB) index 2
1,061
1,061
1,061
1,061
1,061
1,049
1,044
1,043
1,043
1,045
(11)
(16)
(2)%
(2)%
Specialty Products (US$/short ton)
Uncoated recycled boxboard - 20-pt. bending chip
(transaction)
TISSUE PAPERS (US$/short ton)
700
700
700
735
709
735
725
725
715
725
16
2 %
Parent rolls, recycled fibres (transaction)
955
979
994
1,013
985
1,016
1,012
1,017
1,008
1,013
Parent rolls, virgin fibres (transaction)
1,228
1,244
1,259
1,279
1,252
1,273
1,273
1,287
1,287
1,280
28
28
3 %
2 %
Raw material prices (average)
RECYCLED PAPER
North America (US$/short ton)
Special news, No. 8 (ONP - Northeast average)
Old corrugated containers, No. 11 (OCC - Northeast average)
59
81
58
78
58
88
58
86
58
83
58
83
63
88
Sorted office papers, No. 37 (SOP - Northeast average)
158
155
150
137
150
138
142
76
101
153
78
102
168
69
93
11
10
19 %
12 %
150
— —
Europe (euro/metric ton)
Recovered paper index 3
VIRGIN PULP (US$/metric ton)
106
116
123
117
115
115
124
135
134
127
12
10 %
Northern bleached softwood kraft, Canada
Bleached hardwood kraft, mixed, Canada/US
995
843
980
873
967
880
945
880
972
869
943
873
980
847
998
842
992
825
978
847
6
1 %
(22)
(3)%
Source: RISI and Cascades.
1 The Cascades Recycled White-Lined Chipboard Selling Price Index is based on published indices and represents an approximation of Cascades' recycled-grade selling prices in Europe. It is weighted
by country and has been rebalanced as at January 1, 2016.
2 The Cascades Virgin Coated Duplex Boxboard Selling Price Index is based on published indices and represents an approximation of Cascades' virgin-grade selling prices in Europe. It is weighted
by country and has been rebalanced as at January 1, 2016.
3 The Cascades Recovered Paper Index is based on published indices and represents an approximation of Cascades' recovered paper purchase prices in Europe. It is weighted by country, based on
the recycled fibre supply mix and has been rebalanced as at January 1, 2016.
33
33
MANAGEMENT'S DISCUSSION & ANALYSIS
FINANCIAL OVERVIEW - 2015
Led by prior year efforts and initiatives, our 2015 operating results were the highest ever achieved on a comparable asset base, as operations
benefited from favourable exchange rates, higher volumes and lower fibre costs. The first two quarters were challenging for our Tissue Papers
Group activities given the ramp-up of two new sites in the U.S., destocking efforts and production downtimes for equipment maintenance and
upgrades. However, this sector showed solid results in the second half of the year as sales and operational improvement initiatives led to
better profit margins. Our Containerboard Packaging Group improved its results with higher average selling prices and lower fibre costs, and
a positive contribution from the Greenpac mill, which continued to improve its performance. Profitability from our Boxboard Europe Group
decreased, mainly due to higher raw material costs, while our Specialty Products Group achieved strong results compared to the prior year
as a result of lower fibre costs and a favourable currency impact.
FINANCIAL OVERVIEW - 2016
The Corporation's 2016 financial results reflect sales and operating results growth in the Tissue Group and the Specialty Products Group, in
addition to increased sales in the Containerboard Packaging Group. This was offset by higher corporate costs, related to the implementation
of our ERP system and other business process optimization initiatives, lower contribution from the Boxboard Europe division due to the
persistent challenging market environment, and reduced contribution from the Containerboard Packaging Group attributable to higher
production and raw material costs.
Sales increased by 4%, or $140 million, to $4,001 million in 2016, compared to $3,861 million in 2015. The 4% and 3% average depreciation
of the Canadian dollar against the U.S. dollar and the euro, respectively, largely explains this increase. Higher volumes in all of our North
American sectors also increased sales in 2016 compared to 2015. As well, the favourable impact of average selling prices in our containerboard
and tissue papers activities more than offset the decrease in other segments, which also contributed to the increase in sales.
The following graphics show the breakdown of sales, before inter-segment eliminations, and adjusted operating income before depreciation
and amortization by business segment:
SALES BREAKDOWN1
ADJUSTED OPERATING INCOME BEFORE DEPRECIATION
AND AMORTIZATION BREAKDOWN2
1 Excluding inter-segment sales and Corporate activities.
2 Excluding Corporate activities. Please refer to ''Supplemental Information on Non-IFRS Measures'' for a complete reconciliation.
For the full year 2016, the Corporation posted net earnings of $135 million, or $1.42 per common share, compared to a net loss of $65 million,
or $0.69 per common share in 2015. On an adjusted basis, discussed in detail on pages 38 to 40, the Corporation generated net earnings of
$114 million during 2016, or $1.21 per common share, compared to net earnings of $112 million or $1.18 per common share in 2015. The
Corporation recorded an operating income of $221 million during the year, compared to $153 million in 2015. On an adjusted basis, operating
income stood at $211 million during the year, compared to $236 million in 2015 (see the “Supplemental Information on Non-IFRS Measures”
section for reconciliation of these amounts).
34
34
CASCADES 2016 ANNUAL REPORT / MANAGEMENT’S DISCUSSION & ANALYSIS / RESULTS ANALYSIS The $2.11 increase in our net earnings per share in 2016 compared to 2015, can be explained by the following factors:
(in Canadian dollars)
Change in specific items (see reconciliation in Supplemental information on non-IFRS measures on page 43)
Change in net earnings from continuing operations normalized at a 30% income tax rate
Change in tax provision - Other items (see other items analysis on page 58)
Change in share of results of associates and joint ventures - net of income taxes - and change in non-controlling interests
Change in net earnings from discontinued operations - net of income taxes
Increase in net earnings per share
$
$
$
$
$
$
2.08
(0.16)
0.05
0.13
0.01
2.11
FORWARD-LOOKING STATEMENTS AND SUPPLEMENTAL INFORMATION ON NON-IFRS MEASURES
The following document is the quarterly 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, 2016 and 2015. Information contained herein includes any significant developments as at March 1, 2017, 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 information that Management believes is necessary for an understanding of Cascades' current results and to assess
the Corporation's future prospects. Consequently, 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, prices and availability of raw material, changes in relative values of certain currencies, fluctuations in selling prices and
adverse changes in general market and industry conditions. Cascades disclaims any intention or obligation to update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise, except as required under applicable securities regulations. 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 with respect 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 specified. Unless otherwise specified or if required by context, the terms “we”, “our” and
“us” refer to Cascades Inc. and all of its subsidiaries, joint ventures and associates. The financial information included in this analysis also contains certain data that
are not performance measures under IFRS (“non-IFRS measures”). For example, the Corporation uses net debt, working capital and working capital as a percentage
of sales, return on capital employed, consolidated return on assets, operating income, operating income before depreciation and amortization (OIBD) as these are
the measures 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 should not be considered on its own 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 decline in available liquidity.
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 interest expense, or the cash requirements needed to service interest and 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.
Due to these limitations, OIBD should not be used as a substitute for net earnings or cash flow from operating activities from continuing operations 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 corporations. Any such modification or reformulation may be significant. A reconciliation of OIBD to net earnings and a reconciliation of
OIBD to net cash flow from operating activities from continuing operations, which we believe to be the closest IFRS performance and liquidity measure to OIBD, is
outlined in “Supplemental Information on Non-IFRS Measures” section.
To provide more information for evaluating the Corporation's performance, OIBD, operating income, net earnings, share of results of associates and joint ventures
and cash flow from operating activities from continuing operations are also calculated on an adjusted basis, which excludes specific items such as charges for (reversals
of) impairment of assets, restructuring gains or costs, loss on refinancing of long-term debt, some deferred tax assets provisions or reversals, premiums paid on long-
term debt refinancing, 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, specific items of discontinued operations and other significant items of an unusual or non-recurring nature. Although we consider these
items to be less relevant to evaluating our performance, some of them may arise in the future and may reduce the cash available to us. Our definition of specific items
may differ from those of other corporations.
35
35
SENSITIVITY TABLE1
The following table provides a quantitative estimate of the impact of potential changes in the prices of our main products, the costs of certain
raw material, energy and the exchange rates on Cascades’ annual OIBD assuming, for each price change, that all other variables remain
constant. Estimates are based on Cascades’ 2016 manufacturing and converting external shipments and consumption quantities. It is important
to note that this table does not consider the Corporations' use of hedging instruments for risk management. These hedging policies and
portfolios (see the “Risk Factors” section) should also be considered in order to fully analyze the Corporation’s sensitivity to the highlighted
factors.
Potential indirect sensitivity to the CAN$/US$ exchange rate is not considered in this table. Some of Cascades’ selling prices and raw material
costs in Canada are based on U.S. dollar reference prices and costs that are then converted into Canadian dollars. Consequently, fluctuations
in the exchange rate may have a direct impact on the value of sales and purchases of Canadian facilities in Canada. However, because it is
difficult to measure the precise impact of this fluctuation, we do not take it into consideration in the following table. The impact of the exchange
rate on the working capital items and cash positions denominated in currencies other than CAN$ at the Corporations' Canadian units is also
excluded. Fluctuations in foreign exchange rates may also impact the translation of the results of our non-Canadian units into CAN$.
SHIPMENTS/CONSUMPTION
('000 SHORT TONS, '000
MMBTU FOR NATURAL GAS)
INCREASE
OIBD IMPACT
(IN MILLIONS OF CAN$)
SELLING PRICE (MANUFACTURING AND CONVERTING)2
North America
Containerboard
Tissue Papers
Europe
Boxboard
RAW MATERIAL2
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 rate3
Sales less purchases in US$ from Canadian operations
U.S. subsidiaries translation
European subsidiaries translation
1,140
610
1,750
1,070
2,820
1,050
60
550
1,660
760
160
60
980
2,640
150
70
220
8,600
4,600
13,200
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$30/s.t.
€30/s.t.
US1.00/mmBtu
€1.00/mmBtu
CAN$/US$ 0.01 change
CAN$/US$ 0.01 change
CAN$/€ 0.02 change
38
20
58
39
97
(21)
(1)
(11)
(33)
(17)
(4)
(1)
(22)
(55)
(6)
(3)
(9)
(11)
(7)
(18)
2
1
1
1 Sensitivity calculated according to 2016 volumes or consumption, excluding discontinued operations, with an exchange rate of CAN$/US$ 1.33 and CAN$/€ 1.47, excluding hedging programs and
the impact of related expenses such as discounts, commissions on sales and profit-sharing.
2 Based on 2016 external manufacturing and converting shipments, as well as fibre and pulp consumption. Including purchases from our subsidiary Cascades Recovery.
3 As an example, from CAN$/US$ 1.33 to CAN$/US$ 1.34 and from CAN$/€ 1.47 to CAN$/€ 1.49.
36
36
CASCADES 2016 ANNUAL REPORT / MANAGEMENT’S DISCUSSION & ANALYSIS / RESULTS ANALYSIS KEY PERFORMANCE INDICATORS
We use several key performance indicators to monitor our action plan and analyze the progress we are making toward achieving our long-
term objectives. These include the following:
2014
TOTAL
Q1
Q2
Q3
Q4
2015
TOTAL
Q1
Q2
Q3
Q4
2016
TOTAL
OPERATIONAL
Total shipments (in '000 s.t.)1
Packaging Products
Containerboard
Boxboard Europe
Specialty Products2
Tissue Papers
Total
Integration rate3
Containerboard
Tissue Papers
Manufacturing capacity utilization rate4
Packaging Products
Containerboard
Boxboard Europe
Tissue Papers
Consolidated total
FINANCIAL
Return on assets5
Packaging Products
Containerboard
Boxboard Europe
Specialty Products
Tissue Papers
Consolidated return on assets
Return on capital employed6
Working capital7
In millions of $, at end of period
As a % of sales8
1,104
1,093
160
2,357
567
2,924
268
296
41
605
136
741
282
286
44
612
154
766
296
266
45
607
162
769
268
263
40
571
146
717
1,114
1,111
170
2,395
598
2,993
277
278
45
600
143
743
284
267
48
599
158
757
294
258
48
600
163
763
283
263
46
592
144
736
1,138
1,066
187
2,391
608
2,999
52%
70%
51%
68%
49%
64%
50%
64%
54%
70%
51%
67%
52%
70%
53%
65%
54%
65%
51%
72%
52%
68%
91%
91%
95% 101%
83%
93%
93%
93%
91%
97%
90%
93%
95%
91%
94%
93%
89%
89%
90%
89%
92%
94%
89%
92%
93%
97%
87%
93%
93%
92%
89%
91%
96%
89%
93%
93%
91%
91%
83%
89%
93%
92%
88%
92%
13%
10%
13%
12%
9.4%
4.1%
18%
10%
15%
12%
16%
10%
14%
11%
17%
15%
9%
10%
20%
14%
11%
16%
9.7% 10.0% 10.8% 11.2% 11.2% 11.6% 11.9% 11.1% 10.6% 10.6%
5.2%
4.4%
17%
9%
20%
16%
19%
10%
18%
15%
19%
10%
17%
13%
19%
10%
19%
17%
18%
9%
19%
17%
19%
10%
17%
13%
5.2%
5.4%
5.6%
5.5%
5.6%
5.9%
6.1%
4.8%
409
379
406
12.3% 11.9% 11.6% 11.3% 11.3% 11.3% 11.3% 11.4% 11.3% 11.0% 11.0%
475
428
472
406
456
326
460
326
1 Shipments do not take into account the elimination of business sector inter-segment shipments.
2 Industrial Packaging shipments only.
3 Defined as: Percentage of manufacturing shipments transferred to our converting operations.
4 Defined as: Manufacturing internal and external shipments/practical capacity. Excluding discontinued operations and Specialty Products Group manufacturing activities.
5 Return on assets is a non-IFRS measure defined as the last twelve months' (“LTM”) adjusted OIBD/LTM quarterly average of total assets. It includes or excludes significant business acquisitions and disposals,
respectively, of the last twelve months. Not adjusted for discontinued operations.
6 Return on capital employed is a non-IFRS measure and is defined as the after-tax (30%) amount of the LTM adjusted operating income, including our share of core joint ventures, divided by the LTM quarterly
average of capital employed. Capital employed is defined as the total assets less trade and other payables. It includes or excludes significant business acquisitions and disposals, respectively, of the last twelve
months. Not adjusted for assets of disposal group classified as held for sale. Starting in Q1 2015, it includes our investment in Greenpac on an LTM basis. Not adjusted for discontinued operations.
7 Working capital includes accounts receivable (excluding the short-term portion of other assets) plus inventories less trade and other payables. Not adjusted for assets of a disposal group classified as held for sale.
Not adjusted for discontinued operations.
8 % of sales = Average LTM working capital/LTM sales. It includes or excludes significant business acquisitions and disposals, respectively, of the last twelve months. Not adjusted for assets of a disposal group
classified as held for sale. Not adjusted for discontinued operations.
37
37
HISTORICAL FINANCIAL INFORMATION
(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
Adjusted OIBD1
Packaging Products
Containerboard
Boxboard Europe
Specialty Products
Tissue Papers
Corporate activities
Total
Net earnings (loss)
Adjusted1
Net earnings (loss) per common share (in
dollars)
Basic
Basic, adjusted1
Net earnings (loss) from continuing
operations per basic common share (in
dollars)
Cash flow from operating activities from
continuing operations (excluding changes
in non-cash working capital components)
2014
TOTAL
1,181
841
568
(49)
2,541
1,054
(34)
3,561
108
29
6
143
48
(54)
137
164
72
40
276
96
(32)
340
(147)
20
Q1
Q2
Q3
Q4
TOTAL
Q1
Q2
Q3
Q4
TOTAL
2015
2016
300
216
135
(12)
639
274
(3)
910
39
9
5
53
2
(27)
28
52
17
10
79
15
(9)
85
(35)
17
322
202
146
(13)
657
299
(6)
950
41
9
9
59
10
(8)
61
55
19
14
88
23
(8)
103
24
24
353
205
151
(15)
694
341
(9)
1,026
58
5
6
69
30
(22)
77
68
14
18
100
43
(9)
134
22
49
326
202
147
(15)
660
322
(7)
975
32
(51)
11
(8)
22
(27)
(13)
56
13
16
85
38
(19)
104
(76)
22
1,301
825
579
(55)
2,650
1,236
(25)
3,861
336
219
149
(15)
689
320
(6)
1,003
170
(28)
31
173
64
(84)
153
231
63
58
352
119
(45)
426
(65)
112
40
8
9
57
19
(3)
73
55
16
14
85
34
(13)
106
75
34
342
197
157
(14)
682
324
(8)
998
46
7
16
69
18
(22)
65
60
17
16
93
39
(20)
112
36
35
356
189
158
(16)
687
342
(8)
1,021
44
1
12
57
26
(33)
50
58
9
18
85
47
(29)
103
20
30
336
191
156
(16)
667
319
(7)
979
28
3
14
45
12
(24)
33
43
11
17
71
30
(19)
82
4
15
1,370
796
620
(61)
2,725
1,305
(29)
4,001
158
19
51
228
75
(82)
221
216
53
65
334
150
(81)
403
135
114
$ (1.57) $ (0.37) $ 0.25 $ 0.24 $ (0.81) $ (0.69) $ 0.79 $ 0.38 $ 0.21 $ 0.04 $ 1.42
$ 0.21 $ 0.18 $ 0.25 $ 0.52 $ 0.23 $ 1.18 $ 0.35 $ 0.38 $ 0.32 $ 0.16 $ 1.21
$ (0.68) $ (0.39) $ 0.27 $ 0.24 $ (0.82) $ (0.70) $ 0.79 $ 0.38 $ 0.21
0.04 $ 1.42
244
35
70
110
107
322
56
107
68
85
316
Net debt2
1,613
1,691
1,693
1,741
1,721
1,721
1,684
1,664
1,625
1,532
1,532
US$/CAN$ - Average rate
US$/CAN$ End of period rate
EURO€/CAN$ - Average rate
EURO€/CAN$ End of period rate
Natural Gas Henry Hub - US$/mmBtu
$ 0.91 $ 0.81 $ 0.81 $ 0.76 $ 0.75 $ 0.78 $ 0.73 $ 0.78 $ 0.77 $ 0.75 $ 0.75
$ 0.86 $ 0.79 $ 0.80 $ 0.75 $ 0.72 $ 0.72 $ 0.77 $ 0.77 $ 0.76 $ 0.74 $ 0.74
$ 0.68 $ 0.72 $ 0.74 $ 0.69 $ 0.68 $ 0.70 $ 0.66 $ 0.69 $ 0.69 $ 0.70 $ 0.68
$ 0.71 $ 0.73 $ 0.72 $ 0.67 $ 0.67 $ 0.67 $ 0.68 $ 0.70 $ 0.68 $ 0.71 $ 0.71
$ 4.42 $ 2.98 $ 2.64 $ 2.77 $ 2.27 $ 2.67 $ 2.09 $ 1.95 $ 2.80 $ 2.98 $ 2.46
Sources: Bloomberg and Cascades.
1 See “Forward-looking statements and supplemental information on non-IFRS measures” for more details.
2 Defined as total debt less cash and cash equivalents. Refer to ''Supplemental information on non-IFRS measures'' for a reconciliation of this amount for current and comparative periods.
38
38
CASCADES 2016 ANNUAL REPORT / MANAGEMENT’S DISCUSSION & ANALYSIS / RESULTS ANALYSIS BUSINESS HIGHLIGHTS
From time to time, the Corporation enters into transactions to optimize its asset base and streamline its cost structure. The following transactions
should be taken into consideration when reviewing the overall and segmented analysis of the Corporation's 2016 and 2015 results.
BUSINESS ACQUISITION, DISPOSAL AND CLOSURE
CONTAINERBOARD PACKAGING GROUP
•
•
On June 1, 2016, the Corporation announced the completion of a transaction with US-based company Rand-Whitney Container LLC for
the acquisition of its plant in Newtown, Connecticut. In return, Cascades transferred equipment and the customer list from its Thompson
plant, located in Connecticut, and paid US$12 million ($15 million) to Rand-Whitney.
On December 11, 2014, the Corporation announced that it had reached an agreement for the sale of its North American boxboard
manufacturing and converting assets. The transaction was closed on February 4, 2015. Results and cash flows are classified as
discontinued operations.
SPECIALTY PRODUCTS GROUP
•
On June 22, 2016, the Corporation announced the closure of its de-inked pulp mill located in Auburn, Maine. The plant closed on
July 15, 2016.
TISSUE GROUP
•
On May 13, 2016, the Corporation decided to close the tissue papers converting operations in its Toronto, Ontario plant, in order to
optimize its supply chain and to maximize its profitability. The Corporation transferred some of the assets to other facilities.
SIGNIFICANT FACTS AND DEVELOPMENTS
i. On June 30, 2016, the Corporation completed the transfer of its virgin fibre boxboard mill located in La Rochette, France, to its 57.7%-owned
subsidiary Reno de Medici, for a consideration of €19 million ($27 million). The transaction combined the Corporation’s virgin and recycled
boxboard activities in Europe. Apart from higher non-controlling interests after the closing, no impact was recorded on the Corporation’s
financial statements, as both entities had been fully consolidated prior to the transaction.
ii. On June 16, 2016, the Corporation announced construction of a new tissue converting plant in Scappoose, Oregon. The total investment
is planned to reach US$64 million ($83 million). The facility will house three new state-of-the-art converting lines that are scheduled for
commissioning at the end of the first quarter of 2017. The plant will manufacture virgin and recycled bathroom tissue products and paper hand
towels for the Cascades Pro (Away-From-Home) market. The plant will be supplied by the CorporatIons' tissue papers plant located
12 kilometers away in St. Helens, which is expected to generate synergies.
iii. On May 6, 2016, the Corporation announced that its associate company Greenpac, located in Niagara Falls, NY, successfully refinanced
its debt. The debt package included a term loan and a revolving credit facility. The five-year agreement allows the mill to reduce its financing
costs by approximately 225 basis points, increasing its flexibility to successfully address future market fluctuations.
iv. On November 27, 2015, the Corporation entered into an agreement to acquire the remaining 27% minority interest of Cascades Recovery
that it did not previously own for a cash consideration of $32 million, payable over a 10-year period. This transaction consolidated the
Corporations' leading position in the Canadian recovery and recycling sector.
v. On July 7, 2015, the Corporation entered into an agreement with its lenders to extend and amend its existing $750 million credit facility.
The amendment extended the term of the facility to July 2019. The applicable pricing grid was slightly lowered to better reflect market conditions,
while other existing financial conditions remained essentially unchanged.
vi. On May 19, 2015, the Corporation issued US$250 million ($305 million) in aggregate principal amount 5.75% senior notes due in 2023.
The Corporation used the proceeds from this offering of notes to repurchase a total of US$250 million aggregate principal amount of 7.875%
senior notes due in 2020 for a total consideration of US$250 million ($305 million). The Corporation also paid premiums of US$11 million
($13 million) to repurchase the 2020 notes as well as fees and expenses in connection with the offering and the tender offer totalling $5 million.
The refinancing of these notes reduces future interest expense by approximately US$6 million annually.
39
39
SPECIFIC ITEMS INCLUDED IN OPERATING INCOME AND NET EARNINGS (LOSS)
The Corporation incurred some specific items during 2016 and 2015 that adversely or positively affected its operating results. We believe 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 (loss) by business segment is as follows:
Containerboard
Boxboard
Europe
Specialty
Products
Tissue Papers
Corporate
Activities
Consolidated
2016
(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 (reversals)
Restructuring costs (gains)
Unrealized loss (gain) on financial instruments
Adjusted operating income (loss) before depreciation and
amortization
Adjusted operating income (loss)
158
56
214
—
2
(1)
1
2
216
160
(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 (gains)
Unrealized loss (gain) on financial instruments
Adjusted operating income (loss) before depreciation and
amortization
Adjusted operating income (loss)
Containerboard
170
63
233
(1)
—
—
(1)
(2)
231
168
GAIN ON ACQUISITIONS, DISPOSALS AND OTHERS
The Corporation recorded the following gains during 2016 and 2015:
19
32
51
—
—
2
—
2
53
21
Boxboard
Europe
(28)
34
6
—
56
1
—
57
63
29
51
20
71
(4)
(3)
1
—
(6)
65
45
75
64
139
—
4
7
—
11
150
86
(82)
20
(62)
—
—
—
(19)
(19)
(81)
(101)
221
192
413
(4)
3
9
(18)
(10)
403
211
Specialty
Products
Tissue Papers
Corporate
Activities
Consolidated
2015
31
21
52
—
11
(5)
—
6
58
37
64
55
119
—
—
—
—
—
119
64
(84)
17
(67)
—
2
1
19
22
(45)
(62)
153
190
343
(1)
69
(3)
18
83
426
236
2016
In the fourth quarter, the Specialty Products Group recorded a $3 million gain on the sale of pieces of land of its former fine paper plant located
in St-Jérôme, Québec. The Group also recorded a $3 million environmental provision related to plants in Québec, closed in previous years.
In the second quarter, the Specialty Products Group recorded a $4 million gain on the sale of assets following the closure of its de-inked pulp
mill located in Auburn, Maine.
2015
In the third quarter, the Containerboard Packaging Group sold a warehouse in Québec City and recorded a $1 million gain.
40
40
CASCADES 2016 ANNUAL REPORT / MANAGEMENT’S DISCUSSION & ANALYSIS / RESULTS ANALYSIS IMPAIRMENT CHARGES AND RESTRUCTURING COSTS
The following impairment charges (reversals) and restructuring costs (gains) were recorded in 2016 and 2015:
2016
In the fourth quarter, the Specialty Products Group sold the building of its de-inked pulp mill located in Auburn, Maine, and recorded a $2 million
reversal of impairment.
In the third quarter, the Tissue Group incurred $2 million of impairment charges related to the revaluation of some equipment following the
closure of its Toronto converting plant in the second quarter. The Group also recorded a $3 million provision related to an onerous lease due
to the closure.
In the second quarter, the Containerboard Packaging Group recorded a $1 million gain on the reversal of a provision for an onerous lease
contract related to the restructuring of its Ontario converting activities in 2012. In the same quarter, the Group recorded a $2 million impairment
charge on assets from the Connecticut converting plant that were not part of the transfer associated with the Rand-Whitney Newtown plant
acquisition.
In the second quarter, the Boxboard Europe Group recorded $2 million of restructuring costs related to the reorganization of its activities
following the transfer of the virgin fibre boxboard mill located in La Rochette, France, to the Corporation's partly-owned Reno de Medici
subsidiary.
In the second quarter, the Specialty Products Group recorded $1 million of restructuring costs following the closure of its de-inked pulp mill
located in Auburn, Maine. The Group also sold a piece of land related to a closed plant and recorded a $1 million reversal of impairment.
In the second quarter, the Tissue Group incurred $4 million of severance costs following the transfer of the Toronto plant converting operations
to other Tissue Group sites. This transfer resulted in $2 million of impairment charges due to the revaluation of some equipment that was not
transferred.
2015
In the fourth quarter, the Boxboard Europe Group reviewed the recoverable value of its virgin boxboard mill located in France and recorded
impairment charges of $42 million on fixed assets and $11 million on spare parts. In 2015, the Group also recorded impairment charges of
$3 million and a severance provision of $1 million related to plants that were closed over past years.
Also in the fourth quarter, Corporate activities reviewed the recoverable amount of a note receivable related to the sale of a plant in 2014 and
recorded an impairment charge of $2 million.
In the third quarter, the Specialty Products Group reviewed the recoverable value of one of its plants and recorded impairment charges of
$10 million on fixed assets and $1 million on spare parts.
In the third quarter, the Specialty Products Group proceeded with the legal restructuring of its Norcan Flexible Packaging subsidiary, which
was owned at 62.1%. As a result of the restructuring, the Corporation now owns 100% of the net assets of this business through its Cascades
Flexible Packaging subsidiary. The Corporation recorded a gain of $5 million on the extinguishment of some liabilities following the transaction
(including $2 million attributable to non-controlling interest).
The Corporate activities segment incurred $1 million of severance costs in relation to the reorganization of its activities.
DERIVATIVE FINANCIAL INSTRUMENTS
In 2016, the Corporation recorded an unrealized gain of $18 million, compared to an unrealized loss of $18 million in 2015, on certain derivative
financial instruments not designated for hedge accounting. The 2016 unrealized gain is mainly attributable to the reclassification of last year's
unrealized loss on foreign exchange hedging contracts in 2016 unadjusted results as they were realized during the year (see note 27 of the
2016 audited consolidated financial statements for more details). The appreciation of the Canadian dollar at the beginning of 2016 also had
a positive impact.
LOSS ON REFINANCING OF LONG-TERM DEBT
Following refinancing of the Corporation's 2020 unsecured senior notes during the second quarter of 2015, the Corporation recorded premiums
of $13 million to repurchase and redeem notes prior to maturity. The Corporation similarly wrote off financing costs and discounts related to
the redeemed notes for an amount totaling $6 million.
41
41
INTEREST RATE SWAPS
In 2016, the Corporation recorded an unrealized gain of $1 million on interest rate swaps which is included in financing expense, compared
to an unrealized loss of $1 million in 2015.
FOREIGN EXCHANGE LOSS (GAIN) ON LONG-TERM DEBT AND FINANCIAL INSTRUMENTS
In 2016, the Corporation recorded a gain of $22 million on its US$-denominated debt and related financial instruments, compared to a loss
of $91 million during 2015. This is composed of a gain of $13 million in 2016, compared to a loss of $76 million in 2015, on our US$-denominated
long-term debt, net of our net investment hedges in the U.S. and Europe and forward exchange contracts designated as hedging instruments,
if any. It also includes a gain of $9 million during the year, compared to a loss of $15 million in 2015, on foreign exchange forward contracts
not designated for hedge accounting.
SHARE OF RESULTS OF ASSOCIATES AND JOINT VENTURES
2016
On May 6, 2016, the Corporation announced that its associate company Greenpac, located in Niagara Falls, New York, successfully refinanced
its debt. The Corporations' share of the fees related to this debt refinancing amounted to $7 million. In 2015, the Corporation also recorded
its share of an unrealized gain of $1 million on certain derivative financial instruments not designated for hedge accounting.
2015
In September 2015, Boralex redeemed or converted all of its 6.75% convertible unsecured subordinated debentures. As a result, the
Corporation's participation in Boralex decreased from 27.43% to 20.29%, which resulted in a dilution gain of $15 million for the Corporation.
In February 2015, Boralex acquired the non-controlling interests in Boralex Europe and became its sole shareholder. The $51 million amount
paid over carrying value was accounted for by Boralex as a decrease in net assets and retained earnings. Our $14 million share of the decrease
is recorded as a loss under share of results of associates and joint ventures in the consolidated statement of earnings.
In January 2015, Boralex proceeded with a public offering of common shares in order to fully repay a bridge loan in connection with its
acquisition of Enel Green Power France SAS in December 2014. The Corporation's participation in Boralex decreased to 27.44%, compared
to 34.23% as at December 31, 2014, which resulted in a dilution gain of $9 million for the Corporation.
In 2015, the Corporation reviewed the recoverable amount of some investments and recorded impairment charges of $2 million in the share
of results of associates and joint ventures in the consolidated statement of earnings.
PROVISION FOR INCOME TAXES
2016
The Corporation recorded a $2 million income tax provision adjustment related to the sale of one of its businesses over the past years.
2015
The provision for income taxes included $18 million of deferred tax assets reversal following the impairment charge on our virgin boxboard
mill in France.
DISCONTINUED OPERATIONS
2015
On December 11, 2014, the Containerboard Group announced that it had reached an agreement for the sale of its boxboard activities in North
America to Graphic Packaging Holding Company. The sale was completed on February 4, 2015, and the Corporation received a payment of
$46 million in the first quarter of 2015. A selling price adjustment of $8 million was agreed on, of which $6 million was paid during the year.
The Corporation recorded a loss of $4 million. The Containerboard Group also recorded a $4 million gain in the first quarter on the reversal
of a post-employment benefit liability, which was not part of the transaction, but settled as a consequence of the sale.
On June 30, 2014, we sold the fine papers activities of the Specialty Products Group to Les Entreprises Rolland, a subsidiary of H.I.G. Capital.
The Corporation finalized the working capital selling price adjustment related to this transaction and recorded a $1 million gain in the second
quarter of 2015 by reducing its final selling price adjustment provision to $2 million, which was paid during the third quarter. The Corporation
also sold a piece of land which was not part of the transaction and recorded a $1 million reversal of impairment in the second quarter.
42
42
CASCADES 2016 ANNUAL REPORT / MANAGEMENT’S DISCUSSION & ANALYSIS / RESULTS ANALYSIS
SUPPLEMENTAL INFORMATION ON NON-IFRS MEASURES
Net earnings (loss), a performance measure defined by IFRS, is reconciled below with operating income, adjusted operating income and
adjusted operating income before depreciation and amortization:
(in millions of Canadian dollars)
Net earnings (loss) attributable to Shareholders for the year
Net earnings attributable to non-controlling interests
Net earnings from discontinued operations
Provision for income taxes
Share of results of associates and joint ventures
Foreign exchange loss (gain) on long-term debt and financial instruments
Financing expense and interest expense on employee future benefits and loss on refinancing of long-term debt
Operating income
Specific items:
Gain on acquisitions, disposals and others
Impairment charges
Restructuring costs (gains)
Unrealized loss (gain) on derivative financial instruments
Adjusted operating income
Depreciation and amortization
Adjusted operating income before depreciation and amortization
2016
135
2
—
45
(32)
(22)
93
221
(4)
3
9
(18)
(10)
211
192
403
2015
(65)
9
(1)
40
(37)
91
116
153
(1)
69
(3)
18
83
236
190
426
The following table reconciles net earnings (loss) and net earnings (loss) per common share, as per IFRS, with adjusted net earnings and
adjusted net earnings per common share:
NET EARNINGS (LOSS)
NET EARNINGS (LOSS) PER COMMON SHARE1
(in millions of Canadian dollars, except amount per common share)
As per IFRS
Specific items:
Gain on acquisitions, disposals and others
Impairment charges
Restructuring costs (gains)
Unrealized loss (gain) on derivative financial instruments
Loss on refinancing of long-term debt
Unrealized loss (gain) on interest rate swaps
Foreign exchange loss (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 interests1
Adjusted
2016
135
(4)
3
9
(18)
—
(1)
(22)
7
—
5
(21)
114
2015
(65) $
(1) $
69 $
(3) $
18 $
19
1 $
91 $
(9) $
(2)
(6) $
177 $
112 $
2016
1.42 $
(0.03) $
0.03 $
0.06 $
(0.14) $
— $
(0.01) $
(0.19) $
0.05 $
— $
0.02 $
(0.21) $
1.21 $
2015
(0.69)
(0.01)
0.67
(0.03)
0.14
0.15
0.01
0.83
(0.07)
(0.02)
0.20
1.87
1.18
1 Specific amounts per common share are calculated on an after-tax basis and are net of the portion attributable to non-controlling interests. Per share amounts in line item ''Tax effect on specific items,
other tax adjustments and attributable to non-controlling interests'' only include the effect of tax adjustments. The $0.02 impact in 2016 is related to an income tax provision adjustment on past years
sale of assets. The $0.20 impact in 2015 is related to the $18 million deferred tax assets reversal following the revaluation of our virgin boxboard mill in France.
43
43
The following table reconciles cash flow from operating activities from continuing operations with operating income and operating income
before depreciation and amortization:
(in millions of Canadian dollars)
Cash flow from operating activities from continuing operations
Changes in non-cash working capital components
Depreciation and amortization
Net income taxes paid (received)
Net financing expense paid
Premium paid on long-term debt refinancing
Gain on acquisitions, disposals and others
Impairment charges and restructuring costs
Unrealized gain (loss) on financial instruments
Dividend received, employee future benefits and others
Operating income
Depreciation and amortization
Operating income before depreciation and amortization
2016
372
(56)
(192)
(10)
89
—
4
(4)
18
—
221
192
413
2015
284
38
(190)
14
89
13
1
(64)
(18)
(14)
153
190
343
The following table reconciles cash flow from operating activities from continuing operations with cash flow from operating activities from
continuing operations (excluding changes in non-cash working capital components) and adjusted cash flow from operating activities from
continuing operations:
(in millions of Canadian dollars)
Cash flow from operating activities from continuing operations
Changes in non-cash working capital components
Cash flow from operating activities from continuing operations (excluding changes in non-cash working
capital components)
Specific items, net of current income taxes if applicable:
Restructuring costs
Premium paid on long-term debt refinancing
Adjusted cash flow from operating activities from continuing operations
2016
372
(56)
316
8
—
324
2015
284
38
322
2
13
337
The following table reconciles total debt and net debt with the ratio of net debt to adjusted operating income before depreciation and amortization
(adjusted OIBD):
(in millions of Canadian dollars)
Long-term debt
Current portion of long-term debt
Bank loans and advances
Total debt
Less: Cash and cash equivalents
Net debt
Adjusted OIBD
Net debt / Adjusted OIBD ratio
December 31, 2016
December 31, 2015
1,530
36
28
1,594
62
1,532
403
3.8
1,710
34
37
1,781
60
1,721
426
4.0
44
44
CASCADES 2016 ANNUAL REPORT / MANAGEMENT’S DISCUSSION & ANALYSIS / RESULTS ANALYSIS FINANCIAL RESULTS FOR THE YEAR ENDED DECEMBER 31, 2016, COMPARED TO
THE YEAR ENDED DECEMBER 31, 2015
SALES
Sales increased by 4%, or $140 million, to $4,001 million in 2016, compared to $3,861 million in 2015. The 4% and 3% average depreciation
of the Canadian dollar against the U.S. dollar and the euro, respectively, contributed $95 million to the increase. A strong performance from
our recovery and recycling activities5 increased sales by $32 million compared to last year. Despite a decrease in shipments from our European
boxboard activities, higher volumes from our three North American sectors contributed a total net amount of $12 million to sales compared
to the prior year. Higher average selling prices in the tissue and containerboard segments more than offset the decrease in the Boxboard
Europe Group, and had a net positive impact of $8 million on sales compared to last year.
Sales by geographic segment are as follows, along with the location of our plants and employees around the world:
Sales from (in %):
Sales to (in %):
Production units and sorting facilities (in %)1
Count of employees worldwide (in %)
1 Excluding sales offices, distribution and transportation hubs and corporate offices. Including the main associates and joint ventures.
OPERATING INCOME FROM CONTINUING OPERATIONS
The Corporation generated operating income of $221 million in 2016, $68 million higher than the $153 million reported in 2015. Specific items
recorded in both years (please refer to the ''Specific Items Included in Operating Income and Net Earnings (loss)'' section for more details)
increased operating income by $93 million, which was partly offset by a $25 million decrease in adjusted operating income. Adding to the
benefit derived from increased sales, discussed above, were lower energy costs, which added $23 million to operating income. The 4% and
3% average depreciation of the Canadian dollar against the U.S. dollar and the euro, respectively, also added $7 million to operating income.
Offsetting these benefits were higher corporate activities costs related to expenses associated with the implementation of our ERP system
and business process optimization initiatives, and costs of $2 million stemming from a fire at our containerboard mill in Mississauga, Ontario.
Variations in the mix of products sold in 2016, which generated higher sales, also resulted in corresponding higher production and logistics
costs during the year, primarily in the containerboard and tissue papers segments.
45
45
Adjusted operating income was $211 million in 2016, compared to $236 million in 2015 (see the “Supplemental Information on Non-IFRS
Measures” and ''Specific Items Included in Operating Income and Net Earnings (Loss)'' sections for reconciliations of these amounts).
The main variances in sales and operating income in 2016, compared to 2015, are shown below:
Sales ($M)
Operating income ($M)
1 Raw material: The impacts of these estimated costs are based on production costs per unit shipped externally or inter-segment, which are affected by yield, product mix changes, and purchase and
transfer prices. In addition to market pulp and recycled fibre, they include purchases of external boards and parent rolls for the converting sector, and other raw material such as plastic and wood
chips.
2 F/X CAN$: The estimated impact of the exchange rate is based on the Corporation's Canadian export sales less purchases, denominated in US$, that are impacted by exchange rate fluctuations,
and by the translation of our non-Canadian subsidiaries OIBD into CAN$. It also includes the impact of exchange rate fluctuations on the Corporation's Canadian units in currency other than the CAN
$ working capital items and cash positions, as well as our hedging transactions. It excludes indirect sensitivity (please refer to page 34 for further details).
3 Other costs: ''Other costs'' include the impact of variable and fixed costs based on production costs per unit shipped externally, which are affected by downtimes, efficiency and product mix changes.
4 OIBD: Adjusted (excluding specific items).
5 Recovery and Recycling activities: While this segment is integrated within the other segments of the Corporation, any variation in the results of Recovery and Recycling activities are presented
separately and on a global basis in the charts.
The analysis of variances in segment operating income appear within each business segment review (please refer to pages 47 to 58).
46
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CASCADES 2016 ANNUAL REPORT / MANAGEMENT’S DISCUSSION & ANALYSIS / RESULTS ANALYSIS BUSINESS SEGMENT REVIEW
PACKAGING PRODUCTS - CONTAINERBOARD
Our Industry
U.S. containerboard industry production and capacity utilization rate 1
Total U.S.containerboard production increased by 1% for a second consecutive year
in 2016. Over the past three years, the industry's capacity utilization rate has remained
stable at approximately 96%.
U.S. containerboard inventories at box plants and mills 2
The average inventory level decreased by 3% in 2016 due to strong demand levels
for corrugated boxes. The number of weeks of supply in inventory averaged 4.1 for
the year.
U.S corrugated box industry shipments 2
Total U.S. corrugated box shipments increased by 2% in 2016, representing the largest
increase since 2010. The growing importance of e-commerce and the recovery of
agriculture on the American West Coast were two main contributing factors.
Canadian corrugated box industry shipments 3
Canadian corrugated box shipments increased for a third consecutive year. The 2%
year-over-year increase in 2016 was mainly due to the weakness of the Canadian
dollar, which increased demand for Canadian corrugated boxes from U.S. customers.
Reference prices - containerboard 1
Market softness at the beginning of the year negatively impacted containerboard
prices. Demand
the year, and
containerboard producers were able to increase prices by US$40/s.t. in October.
Overall, the linerboard and corrugating medium reference prices declined by 1% and
7%, respectively, in 2016.
for corrugated products
increased
through
Reference prices - recovered papers (brown grade) 1
The average reference price of old corrugated containers no.11 ("OCC") increased by
12% in 2016. This reflects a combination of strong exports, steady to good demand
from domestic mills, and new containerboard capacity added to the market. These
items resulted in a tightening of supply in the domestic market.
1 Source: RISI
2 Source: Fibre Box Association
3 Source: Canadian Corrugated and Containerboard Association
47
47
Our Performance
Adjusted OIBD and adjusted OIBD margin
Sales
Shipments and manufacturing capacity utilization rate
Average selling price
The main variances in sales and operating income for the Containerboard Packaging Group in 2016, compared to 2015, are shown below:
Sales ($M)
Operating income ($M)
For Notes 1 to 4, see definitions on page 46.
The Corporation incurred certain specific items in 2016 and 2015 that adversely or positively affected its operating results. Please refer to pages 40 to 42 for reconciliation
statements and further details.
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CASCADES 2016 ANNUAL REPORT / MANAGEMENT’S DISCUSSION & ANALYSIS / RESULTS ANALYSIS 2015
2016
Change in %
Shipments1 ('000 s.t.)
1,114
1,138
Average Selling Price
(CAN$/unit)
1,169
1,204
Sales ($M)
1,301
1,370
Operating income ($M)
(as reported)
170
168
233
18%
231
18%
(adjusted)
OIBD ($M)
(as reported)
% of sales
(adjusted)
% of sales
158
160
214
16%
216
16%
2%
3%
5%
-7%
-5%
-8%
-6%
1 Shipments do not take into account the elimination of business sector inter-
company shipments. Including 11.7 billion square feet in 2015 compared to 12.2
billion square feet in 2016.
2 The Corporation's interest in Greenpac is booked using the equity method. All
transactions are therefore treated as external.
External mill shipments decreased by 5,000 s.t., or 1%, although the
manufacturing capacity utilization rate rose 1%. This is explained by the
greater number of tons shipped internally, which resulted in the mill
integration rate increasing to 52% in 2016 compared to 51% in 2015. When
including paper sold to our associated companies, the integration rate
increased to 67% from 64% last year. On the converting side, shipments
increased by 4% or 29,000 s.t. year-over-year. Excluding the 19,000 s.t.
of supplementary shipments stemming from the transaction concluded
with US-based company Rand-Whitney (please refer to the ''Business
Highlights'' section for further details) in the second quarter of 2016,
shipments for the converting activities increased by 2%. This performance
is in line with the Canadian and US industries, which both recorded an
increase of 2%.
The 3% average selling price increase reflects the combination of a 1%
average selling price decrease in our primary products, 3% increase in our
converted products and the favorable impact stemming from the
depreciation of the Canadian dollar.
The 5% increase in sales reflects increased volume, which added
$28 million (including $22 million stemming from the transaction concluded
with US-based company Rand-Whitney) to sales. The 4% depreciation of
the Canadian dollar and higher average selling price added $16 million
and $13 million, respectively. The higher percentage of converted products
in the product mix positively impacted sales by $11 million.
The 5% decrease in adjusted operating income is mainly explained by a
$28 million increase in other costs. This is partly attributable to an increase
in production costs linked to higher repair and maintenance and chemical
expenses, and increased logistics and warehousing costs. In addition, the
higher percentage of converted products sold, generating higher
contribution to operating income, also contributed to the increase in other
production costs on a per ton basis. Depreciation of the Canadian dollar
and lower energy costs respectively added $3 million and $1 million to
operating income, while higher average raw material costs subtracted
$18 million from operating income compared to last year. Lower
depreciation and amortization, which decreased by $7 million compared
to the prior year, positively impacted operating income. This followed major
equipment modernization efforts in 2015, which triggered the revaluation
of the remaining useful life of some assets. On the other hand, better
average selling price and mix denominated in Canadian dollars and higher
volume, positively impacted our results of $24 million and $2 million
respectively.
The Containerboard Packaging Group recorded a $1 million gain during
2016 on the reversal of a provision for an onerous lease contract related
to the 2012 restructuring of its Ontario converting activities. As well, the
Group recorded a $2 million impairment charge related to assets from the
Connecticut converting plant that were not part of the transfer associated
with the Rand-Whitney Newtown, CT, plant acquisition. Finally, the Group
recorded a $1 million unrealized loss on embedded derivative financial
instruments. In 2015, the Containerboard Packaging Group sold a
warehouse in Québec City and recorded a $1 million gain. Also, the Group
recorded a $1 million unrealized gain on certain derivative financial
instruments not designated for hedge accounting.
Finally, the Corporation's net earnings include our share of results from
our associate Greenpac2 mill (59.7%). On an adjusted basis, Greenpac's
contribution to earnings before income taxes was $23 million in 2016,
compared to $18 million in 2015.
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49
PACKAGING PRODUCTS - BOXBOARD EUROPE
Our Industry
European industry order inflow of coated boxboard 1
In Europe, order inflows of white-lined chipboard decreased by 4% in 2016 compared to 2015, reflecting particularly high demand in the first eight months of 2015. Notably, order
inflows of white-lined chipboard were 6% higher in 2016 than in 2014. Order inflow improved toward the end of 2016, and the industry experienced the best fourth quarter of the
last ten years with orders of approximately 790,000 tonnes. Order inflows for folding boxboard in 2016 were 2% lower than in 2015.
Coated recycled boxboard industry's order inflow from Europe
(White-lined chipboard (WLC) - 5-week weekly moving average)
Coated virgin boxboard industry's order inflow from Europe
(Folding boxboard (FBB) - 5-week weekly moving average)
Reference prices - boxboard in Europe 2
White-lined chipboard reference prices decreased for a second consecutive year in
Western European countries. Challenging market conditions resulted in a 2% decline
in the average price in 2016 compared to 2015. Folding boxboard reference prices
eroded at the beginning of 2016 in some European countries, and then remained
relatively stable for the remainder of the year, resulting in a 2% decrease in 2016
compared to 2015.
Reference prices - recovered papers in Europe 2
Recovered paper prices were under pressure in 2016 due to strong demand and
exports. As a result, the recovered paper reference index in Europe was 10% higher
in 2016 than in 2015, reflecting an increase in average prices for brown, white and
groundwood grades.
1 Source: CEPI Cartonboard
2 Source: RISI
3 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 prices for white-lined chipboard.
4 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 prices for coated duplex boxboard.
5 The recovered paper 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
prices for recovered papers. This index should only be used as a trend indicator and may differ from our actual purchasing costs and our purchase mix.
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50
CASCADES 2016 ANNUAL REPORT / MANAGEMENT’S DISCUSSION & ANALYSIS / RESULTS ANALYSIS Our Performance
Adjusted OIBD and adjusted OIBD margin
Sales
Shipments and manufacturing capacity utilization rate
Average selling price
The main variances in sales and operating income (loss) for the Boxboard Europe Group in 2016, compared to 2015, are shown below:
Sales ($M)
Operating income (loss) ($M)
For Notes 1 to 4, see definitions on page 46.
The Corporation incurred certain specific items in 2016 and 2015 that adversely or positively affected its operating results. Please refer to pages 40 to 42 for reconciliation
statements and further details.
51
51
2015
2016
Change in %
Shipments1 ('000 s.t.)
1,111
1,066
Average Selling Price2
(CAN$/unit)
743
523
(Euro€/unit)
746
509
Sales ($M)
825
796
Operating income (loss) ($M)
(as reported)
(28)
29
(adjusted)
OIBD ($M)
(as reported)
% of sales
(adjusted)
% of sales
6
1%
63
8%
19
21
51
6%
53
7%
-4%
—
-3%
-4%
168%
-28%
750%
-16%
1 Shipments do not take into account the elimination of business sector inter-company
shipments.
2 Average selling price is a weighted average of virgin and recycled boxboard shipments.
The decrease in shipments is mostly attributable to lower recycled
boxboard shipments, which declined 43,000 s.t. or 5% to 904,000 s.t.
during the year, while shipments of virgin boxboard marginally
decreased by 1%. The decrease in shipments is mainly a reflection of
the challenging economic environment in Europe.
The average selling price remained stable in 2016, as the impact of a
3% decrease in the average selling price in euros was offset by a 3%
average depreciation of the Canadian dollar against the euro. The
decrease in the 2016 average selling price in euros reflects lower
demand and unfavourable geographic sales mix. When compared to
2015, the average selling price in recycled boxboard activities declined
€17, or 3%, while the average selling price in virgin boxboard activities
decreased €18, or 2%, in 2016. On a consolidated basis, however, the
average selling price decreased by a less pronounced €14 year-over-
year, reflecting the greater proportion of higher priced virgin boxboard
sold in 2016.
Sales decreased 4% in 2016 to $796 million. This reflects lower volumes
from recycled boxboard activities and a lower average selling price,
which decreased sales by $37 million and $26 million, respectively.
Partially offsetting this was the benefit from the 3% average depreciation
of the Canadian dollar against the euro, which increased sales by
$34 million in 2016.
Adjusted operating income decreased by $8 million in 2016, reflecting
a lower average selling price, lower volumes from recycled boxboard
activities and higher material costs, which negatively impacted
operating income by $26 million, $9 million, and $5 million, respectively.
Partially offsetting these impacts were a $18 million decrease in
production costs, savings of $11 million related to lower energy costs
in France and Italy, and a $1 million currency exchange benefit due to
the 3% average depreciation of the Canadian dollar against the euro.
In 2016,
the Boxboard Europe Group recorded $2 million of
restructuring costs relating to the reorganization of our activities
following the transfer of our fully-owned virgin fibre boxboard mill located
in La Rochette, France, to our Reno de Medici partially-owned
subsidiary.
In 2015, the Boxboard Europe Group reviewed the recoverable value
of its virgin boxboard mill located in France and recorded impairment
charges of $42 million on fixed assets and $11 million on spare parts.
The Group also recorded impairment charges of $3 million and
severance provisions of $1 million in 2015 related to plants that were
closed in previous years.
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52
CASCADES 2016 ANNUAL REPORT / MANAGEMENT’S DISCUSSION & ANALYSIS / RESULTS ANALYSIS PACKAGING PRODUCTS - SPECIALTY PRODUCTS
Our Industry
Reference prices - uncoated recycled boxboard 1
The reference price for uncoated recycled boxboard was higher in early 2016 as a
result of a price increase at the end of 2015. The price softened as the year progressed,
which resulted in a 2% increase in 2016 compared to 2015.
Reference prices - fibre costs in North America 1
The white grade recycled paper No. 37 (sorted office papers) annual price remained
stable in 2016 compared to 2015. The brown grade recycled paper No. 11 (old
corrugated containers) annual price was 12% higher in 2016 due to strong demand.
The annual price for recycled paper No. 8 (special news) increased 19% in 2016
compared to 2015 after two years relatively stable.
U.S. recycled fibres exports to China 1
The relationship between recovered paper supply and demand, particularly from Asia, plays an important role in pricing dynamics. U.S. exports of recycled fibres to China
declined by 3% in 2016. Old corrugated container and mixed paper exports decreased by 2% and 23% respectively, over 2015, while old newspaper and other grades increased
by 7% and 69% over the same period. The global percentage of total U.S exports to China decreased slightly in 2016 to 67% from 69% in 2015.
Total U.S. exports of recycled papers to China - all grades
Major grades exported by the U.S.
Chinese imports of recycled fibre 1
Total Chinese imports fell by 3% in 2016 compared to 2015 as the second half of the year was affected by the bankruptcy of an important ocean freight carrier. On a more detailed
basis, old corrugated container imports were essentially flat as were other grades, while mixed paper and old newspaper imports fell by 6% and 9%, respectively.
Total Chinese imports of recycled papers - all grades
Major grades imported by China
1 Source: RISI
53
53
Our Performance
Adjusted OIBD and adjusted OIBD margin
Sales
Shipments
The main variances in sales and operating income for the Specialty Products Group in 2016, compared to 2015, are shown below:
Sales ($M)
Operating income ($M)
For Notes 1 to 5, see definitions on page 46.
The Corporation incurred certain specific items in 2016 and 2015 that adversely or positively affected its operating results. Please refer to pages 40 to 42 for reconciliation
statements and further details.
54
54
CASCADES 2016 ANNUAL REPORT / MANAGEMENT’S DISCUSSION & ANALYSIS / RESULTS ANALYSIS 2015
2016
Change in %
Shipments1 ('000 s.t.)
187
170
Sales ($M)
579
620
Operating income ($M)
(as reported)
31
37
52
9%
58
10%
(adjusted)
OIBD ($M)
(as reported)
% of sales
(adjusted)
% of sales
51
45
71
11%
65
10%
10%
7%
65%
22%
37%
12%
1 Industrial packaging shipments only. Shipments do not take into account the elimination of business
sector inter-company shipments.
2 Recovery and Recycling activities: Given the level of integration of this segment within the other segments
of the Corporation, variances in results are presented excluding the impact of this segment.
The variations of this segment are presented separately on a global basis.
Shipments for the Specialty Products Group increased in all sectors,
with the exception of Recovery and Recycling activities2. Shipments in
the Industrial Packaging sector, primarily our uncoated recycled board
mill, increased by 10% in 2016 compared to 2015.
The 7% year-over-year increase in sales is the result of increased
shipments, higher selling prices in Recovery and Recycling activities2
and the Industrial Packaging sector, and a favourable exchange rate.
These positive factors were partly offset by lower average selling prices
in the Consumer Product Packaging sector and the loss of revenues
following the closure of the mill in Auburn, Maine, in the second quarter
of 2016.
Adjusted operating income increased by 22% in 2016. This reflects
higher realized spreads (average selling price and raw material costs)
in Recovery and Recycling activities2, improved volumes in all
packaging sectors, and a favourable exchange rate. These factors were
counterbalanced by higher administrative and maintenance costs
during the year as well as a lower average selling price in Consumer
Products packaging.
In 2016, the Specialty Products Group recorded a $3 million gain on
the sale of pieces of land close to its former fine paper plant located at
St-Jérôme, Québec. As well, the Group recorded a $4 million gain on
the sale of assets and $1 million in restructuring costs following the
closure of its de-inked pulp mill located in Maine, and also recorded a
$3 million reversal of impairment following mainly the sale of a building
related to this closure. Finally, the Group recorded a $3 million
environmental provision related to plants closed in Québec in prior
years.
In 2015, the Specialty Products Group reviewed the recoverable value
of one of its plants and recorded impairment charges of $10 million on
fixed assets and $1 million on spare parts. Also during the year, the
Group proceeded with the legal restructuring of its Norcan Flexible
Packaging subsidiary, which was owned at 62.1%. As a result of the
restructuring, 100% of the net assets of this business were acquired
through the Cascades Flexible Packaging subsidiary. The Corporation
recorded a gain of $5 million on the extinguishment of some liabilities
following the transaction (including $2 million attributable to non-
controlling interests).
55
55
TISSUE PAPERS
Our Industry
U.S. tissue paper industry production (parent rolls) and capacity
utilization rate 1
Total parent roll production increased by 2% for a second consecutive year in 2016.
The average capacity utilization rate fell by approximately 1% to 93% in 2016 compared
to 2015, due to new capacity additions in the market.
U.S. tissue paper industry converted product shipments 1
In 2016, shipments for the retail and the away-from-home markets increased by 2%
and 3%, respectively, compared to 2015.
U.S. producer price index - annual changes in converted tissue
prices 2
In the U.S., prices for retail toilet tissue increased in the second half of 2016. Prices
for industrial paper towels surged at the beginning of the year and then dramatically
declined towards year-end. Prices for retail paper towels were down significantly in
2016 compared to 2015.
Reference prices - parent rolls 1
In 2016, the reference price for recycled parent rolls increased by 3% compared to
2015, while the reference price for virgin parent rolls rose by 2% during the year.
Reference prices - recovered papers (white grade) 1
Despite an upward trend between May and December caused by lower levels of
material generation, the reference price of Sorted office papers no.37 ("SOP")
remained stable in 2016 compared to 2015.
Reference prices - market pulp 1
In 2016, the reference price for NBSK rose by 1% compared to 2015 due to limited
domestic supply and strong Chinese demand. The NBHK reference price fell by 3%
in 2016 as a result of weak supply and demand fundamentals.
1 Source: RISI
2 Source: U.S. Bureau of Labor Statistics
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56
CASCADES 2016 ANNUAL REPORT / MANAGEMENT’S DISCUSSION & ANALYSIS / RESULTS ANALYSIS Our Performance
Adjusted OIBD and adjusted OIBD margin
Sales
Shipments and manufacturing capacity utilization rate
Average selling price
The main variances in sales and operating income for the Tissue Group in 2016, compared to 2015, are shown below:
Sales ($M)
Operating income ($M)
For Notes 1 to 4, see definitions on page 46.
The Corporation incurred certain specific items in 2016 and 2015 that adversely or positively affected its operating results. Please refer to pages 40 to 42 for reconciliation
statements and further details.
57
57
2015
2016
Change in %
Shipments1 ('000 s.t.)
608
598
Average Selling Price
(CAN$/unit)
2,065
2,146
Sales ($M)
1,236
1,305
Operating income ($M)
(as reported)
64
64
119
10%
119
10%
(adjusted)
OIBD ($M)
(as reported)
% of sales
(adjusted)
% of sales
75
86
139
11%
150
11%
2%
4%
6%
17%
34%
17%
26%
1 Shipments do not take into account the elimination of business sector inter-company
shipments.
to 2015. Converting shipments
External manufacturing shipments decreased by 7,000 s.t., or 3%, in
2016 compared
increased by
17,000 s.t., or 4%, year-over-year in 2016, with this increase primarily
reflecting higher shipments in Canada in both the Away-from-Home and
the Consumer Products sectors. Please note that Cascades' Away-
from-Home sector product line has been rebranded as "Cascades Pro".
The average selling price was positively impacted by price increases
in both the Pro and the Consumer Products sectors, but was partially
offset by price decreases in parent rolls.
The increase in total sales was largely driven by a $19 million favourable
volume impact, a $14 million beneficial impact related to the change in
the mix of products sold, and the higher average selling price as detailed
above. In addition, the depreciation of the Canadian dollar against the
U.S. dollar positively impacted sales by $36 million.
On an adjusted basis, operating income was largely driven by the sales
increase as detailed above. Improved operational efficiency, lower raw
material costs stemming from lower purchases of externally sourced
jumbo rolls, and reduced energy prices all positively contributed to
operating income. These improvements were partially offset by
increased marketing investments in both the Consumer Products and
Pro markets, project expenses related to the start-up of our new Oregon
converting plant, and additional market related downtime at year end.
In 2016, the Tissue Group incurred impairment charges of $4 million
related to the revaluation of some equipment following the transfer of
the Toronto plant converting operations to other sites. Also related to
this closure, the Group recorded a $3 million provision related to an
onerous lease contract, and $4 million in severance costs.
58
58
CASCADES 2016 ANNUAL REPORT / MANAGEMENT’S DISCUSSION & ANALYSIS / RESULTS ANALYSIS CORPORATE ACTIVITIES
Operating income in 2016 includes an unrealized gain of $19 million on financial instruments, in addition to a $6 million foreign exchange loss
that is mainly related to hedging contracts. This compares to an unrealized loss of $19 million on financial instruments and a $1 million foreign
exchange loss in 2015.
2016 results also include a $2 million loss related to a fire which occurred at our containerboard mill in Mississauga, Ontario, in early July.
Comparable 2015 results included $8 million of insurance refunds related to a 2014 fire at our Niagara Falls, New York, containerboard mill.
Also in 2015, the company entered into employment contracts with some members of Senior Management, and recorded a liability of
$3 million. Finally, in 2015, we incurred $1 million of severance costs related to the reorganization of Corporate activities.
Activities related to our ERP system and business process re-engineering increased our costs in 2016 compared to 2015. These higher costs
reflect the implementation of our ERP platform in twice as many plants compared to last year, and costs associated with efforts to optimize
several internal processes such as planning, logistics and procurement during the year. These activities are expected to reduce future cost
levels, and will require average quarterly investments of approximately $7 million until they are completed at the end of 2017.
STOCK-BASED COMPENSATION EXPENSE
Share-based compensation expense recognized in the Corporate Activities results amounted to $4 million in 2016 compared to $8 million in
2015. For more details on stock-based compensation please refer to Note 20 of the 2016 audited consolidated financial statements.
OTHER ITEMS ANALYSIS
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense increased by $2 million to $192 million in 2016 from $190 million in 2015. Impairment charges recorded
in 2016 and 2015 decreased depreciation and amortization expense for 2016, but were more than offset by the depreciation of the Canadian
dollar and capital investments completed during the same period. The 4% and 3% average depreciation of the Canadian dollar against the
U.S. dollar and the euro, respectively, increased annual depreciation expense by $2 million in 2016. Recently completed property, plant and
equipment projects and the revision of the useful life of some assets mainly explains the increase of depreciation and amortization expense
for the Tissue Group by $9 million in 2016 compared to 2015. For the same reasons, the Corporation incurred $11 million of depreciation and
amortization expense in 2015.
Other intangible asset amortization expense increased by $4 million in 2016 compared to 2015 as a result of the accelerated ERP platform
implementation during the year.
FINANCING EXPENSE AND INTEREST ON EMPLOYEE FUTURE BENEFITS
The financing expense and interest on employee future benefits decreased by $4 million to $93 million in 2016, from $97 million in 2015. The
4% and 3% average depreciation of the Canadian dollar, against the U.S. dollar and the euro, respectively, increased the interest expense
by $2 million in 2016 compared to 2015. This was more than offset by the 2015 refinancing of senior notes at lower interest rates (see the
''Business Highlights'' section for more details), which decreased our interest expense by $3 million in 2016 compared to 2015. Our lower net
indebtedness also reduced interest expense.
Interest expense on employee future benefit obligations stood at $5 million in 2016 compared to $6 million in 2015.
59
59
PROVISION FOR INCOME TAXES
In 2016, the Corporation recorded an income tax provision of $45 million, for an effective tax rate of 25%. This compared to $40 million in
2015. The provision for 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
Reassessment
Reversal of deferred tax assets on tax losses
Permanent differences - others
Change in unrecognized to recognized tax asset in operating losses
Tax rates changes
Change in temporary differences
Provision for income taxes
2016
48
2
1
—
(5)
(3)
2
—
(3)
45
2015
(4)
(4)
5
18
7
—
—
18
44
40
The Corporation did not record any deferred tax on the $53 million impairment charge related to our Boxboard mill in France during 2015. In
addition, deferred tax assets of $18 million were reversed following reassessment of the value of the mill. The tax provision or recovery on
foreign exchange gains or losses on long-term debt and related financial instruments, in addition to some share of results of Canadian
associates and joint ventures, are calculated at the rate of capital gains.
The Corporation's share of results for our United States-based joint ventures and associates, which are mostly composed of the Greenpac
mill, 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 for tax purposes. As such, income taxes at the United States statutory tax rate are fully integrated into each partners'
consolidated income tax provision based on its respective share in the LLC, and no income tax provision is included in Greenpac's net earnings.
The effective tax rate and 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%. The weighted-average applicable tax rate was 26.2% in 2016.
SHARE OF RESULTS OF ASSOCIATES AND JOINT VENTURES
The share of results of associates and joint ventures includes our 20.12% interest in Boralex Inc. (“Boralex”), a Canadian public corporation.
Boralex is a producer of electricity whose core business is the development and operation of power stations that generate renewable energy,
with operations in the Northeastern United States, Canada and France. To finance its acquisition of Enel Green Power France SAS in December
2014, Boralex issued common shares in January 2015, which diluted our participation from 34.23% to 27.44%. In September 2015, Boralex
redeemed or converted all of its 6.75% convertible unsecured subordinated debentures. As a result, the Corporation's participation in Boralex
decreased from 27.43% to 20.29%.
On January 18, 2017, Boralex proceeded with the closing of its financing following the acquisition of the interest of Enercon Canada Inc in
Niagara Region Wind Farm in Southern Ontario, Canada. The acquisition was financed partly through subscription receipts issued in December
2016 and were exchanged for common shares at the closing. Following this transaction, our participation in Boralex now stands at 17.37%.
The Corporation records its 59.7% share of the results of our associate Greenpac mill. In 2016, on an adjusted basis, Greenpac's contribution
to our share of results was $23 million compared to $18 million in 2015. No provision for income taxes is included in our Greenpac share of
results, as it is a disregarded entity for tax purposes (see the ''Provision for income taxes'' section above for more details). For more information
on specific items, please refer to section ''Specific items included in operating income and net earnings''.
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CASCADES 2016 ANNUAL REPORT / MANAGEMENT’S DISCUSSION & ANALYSIS / RESULTS ANALYSIS LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS FROM OPERATING ACTIVITIES FROM CONTINUING OPERATIONS
Continuing operating activities generated $372 million of operating cash flow in 2016, compared to $284 million in 2015. Changes in non-
cash working capital components produced $56 million of liquidity in 2016, versus liquidity requirements of $38 million in 2015. The first half
of the year normally requires cash for working capital purposes due to seasonal variations, and prepaid expenses and payments of year-end
volume rebates are also more elevated in the first three months of the year. Moreover, inventory build-up normally takes place during the first
half of the year in preparation for the seasonally stronger summer. Higher sales in 2016 combined with increased efficiencies of our finance
shared services led to good cash inflow in the second half of the year. As at December 31, 2016, working capital as a percentage of LTM
sales stands at 11.0% compared to 11.3% as at December 31, 2015.
Cash flow from operating activities from continuing operations, excluding changes in non-cash working capital components, stood at
$316 million in 2016, which compared to $322 million in 2015. In 2016, we incurred $8 million of cash cost following the closure of some
plants, compared to $2 million in 2015. In 2015, we also incurred $13 million of premium payments associated with the refinancing of long-
term debt. This cash flow measurement is relevant to the Corporation's ability to pursue its capital expenditure program and reduce its
indebtedness.
INVESTING ACTIVITIES FROM CONTINUING OPERATIONS
Investment activities amounted to $185 million in 2016, compared to $153 million in 2015. Capital expenditure payments accounted for in
2016 totaled $182 million, compared to $163 million in 2015. We also paid $16 million (including transaction fees) for the acquisition of the
Rand-Whitney plant located in Newtown, Connecticut (please refer to the ''Business Highlights'' section for more details).
PAYMENTS FOR PROPERTY, PLANT AND EQUIPMENT
Total capital expenditure payments in 2016 were $182 million, compared to $163 million in 2015. However, new capital expenditure projects
amounted to $206 million in 2016, up 25% compared to the comparable $165 million in 2015. The variance in amounts is related to purchases
of property, plant and equipment included in ''Trade and Other Payables'' and to capital-lease acquisitions and other debt financing.
New capital expenditure projects by sector were as follows (in $M):
The major capital projects that were initiated, are in progress or were completed in 2016 are as follows:
CONTAINERBOARD PACKAGING GROUP
•
•
Converting capacity investments at the Drummondville, Québec, plant;
Installation of a new water pulp process at the Cabano, Québec, mill to increase the return on wood-chips and reduce chemical usage
and atmospheric emissions;
New rotary equipment at the converting plant in Winnipeg, Manitoba, which will increase efficiency and capacity;
•
BOXBOARD EUROPE
•
Rebuilding of some sections of the equipment at the Arnsberg, Germany, mill, which will increase production capacity, efficiency and
savings throughout the production process;
SPECIALTY PRODUCTS GROUP
•
A new sorting line for the collection of household and commercial recyclable materials for the Ottawa, Ontario, recovery facility;
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61
TISSUE GROUP
•
Investments associated with the new tissue converting plant in Scappoose, Oregon. Please refer to the ''Significant Facts and
Developments'' section for more details;
•
Upgrading of equipment at the Wagram, North Carolina, converting plant.
INVESTMENTS IN INTANGIBLE, OTHER ASSETS, ASSOCIATES & JOINT VENTURES
Investments in intangible and other assets and in associated and joint ventures led to cash inflow of $8 million in 2016, compared to an outflow
of $6 million in 2015.
In 2016, we received amounts from our associate company Greenpac that were related to a bridge loan from the Corporation, and management
fees that were due. In addition, we collected an amount that was no longer required to be held in trust, and also received payments for property,
plant and equipment sold in prior years. The amounts received were partly offset by the investments made in our ERP information technology
system, for software needed to support our business process re-engineering efforts, and by investments made in our associates companies.
In 2015, similar investments were made in our ERP information technology system and in software to support our business process re-
engineering. Amounts were received from our associate company Greenpac related to a bridge loan and management fees that were due to
the Corporation. We also received an amount related to the reimbursement of notes receivable from a business that had been sold in 2011.
FINANCING ACTIVITIES FROM CONTINUING OPERATIONS
Financing activities from continuing operations, including $15 million of dividend payments, debt repayment and the change in our revolving
facility, required $182 million in liquidity in 2016, compared to $129 million required in 2015.
In 2016, Cascades purchased for cancellation 1,047,243 common shares at an average price of $8.62 representing an aggregate amount of
$9 million. We also issued 262,836 common shares and received $1 million in 2016 following options that were exercised and we also paid
dividends to non-controlling interests of Reno de Medici for a total amount of $1 million. During the year, the Corporation also received $3 million
related to the settlement of a portion of its 2017 derivatives related to repayment of long-term debt.
DEBT REFINANCING
On May 19, 2015, the Corporation issued US$250 million ($305 million) in aggregate principal amount of 5.75% senior notes due in 2023.
The Corporation used the proceeds from this offering of notes to repurchase a total of US$250 million aggregate principal amount of 7.875%
senior notes due in 2020 for a total consideration of US$250 million ($305 million). The Corporation also paid premiums of US$11 million
($13 million) to repurchase the 2020 notes, as well as fees and expenses in connection with the offering and the tender offer totaling $5 million.
Issuance proceeds and the credit facility were used as follows:
(in millions of Canadian dollars)
Debt issuance
Offering and tender offer fees
Refinanced debt repurchase
Premium paid on refinanced debt
Increase of credit facility
2015
305
(5)
(305)
(13)
18
On July 7, 2015, the Corporation entered into an agreement with its lenders to extend and amend its existing $750 million credit facility. The
amendment provides that the term of the facility is extended to July 2019, and that the applicable pricing grid is slightly lowered to better reflect
market conditions. Other existing financial conditions remained essentially unchanged.
In 2015, we entered into agreements to acquire the 37.9% and 27% minority interests of Norcan Flexible Packaging and Cascades Recovery,
respectively, for a total amount of $5 million paid in 2015. An additionnal $30 million purchase price balance of Cascades Recovery is payable
over a ten-year period.
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CASCADES 2016 ANNUAL REPORT / MANAGEMENT’S DISCUSSION & ANALYSIS / RESULTS ANALYSIS CASH FLOWS FROM DISCONTINUED OPERATIONS
The Corporation generated cash flows of $30 million from discontinued operations in 2015. In 2015, the Containerboard Packaging Group
sold its North American boxboard activities and received $40 million and the Specialty Products Group paid $6 million for the settlement of
the pension plan of its East Angus, Québec, kraft paper mill closed in 2014. This Group also paid $2 million for the final selling price adjustment
related to its fine paper activities sold in 2014 for an amount of $36 million.
CONSOLIDATED FINANCIAL POSITION
AS AT DECEMBER 31, 2016, 2015 AND 2014
The Corporation's financial position and ratios are as follows:
(in millions of Canadian dollars, unless otherwise noted)
Cash and cash equivalents
Working capital1
As a % of sales2
Bank loans and advances
Current portion of long-term debt
Long-term debt
Total debt
Net debt (total debt less cash and cash equivalents)
Equity attributable to Shareholders
Non-controlling interests
Total equity
Total equity and net debt
December 31, 2016
December 31, 2015
December 31, 2014
62
326
11.0%
28
36
1,530
1,594
1,532
984
90
1,074
2,606
60
406
11.3%
37
34
1,710
1,781
1,721
867
96
963
2,684
29
379
12.3%
46
40
1,556
1,642
1,613
893
110
1,003
2,616
61.7%
9.48
Ratio of net debt/(total equity and net debt)
Shareholders' equity per common share (in dollars)
$
58.8%
10.41
$
64.1%
9.09
$
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. It includes or excludes significant business acquisitions and disposals, respectively, of the last twelve months. Not adjusted for assets of disposal group classified
as held for sale. Not adjusted for discontinued operations.
NET DEBT RECONCILIATION
The variances in the net debt (total debt less cash and cash equivalents) in 2016 are shown below (in millions of dollars), with the applicable
financial ratios included (see the “Supplemental Information on Non-IFRS Measures” section for reconciliation of these figures):
426
4.0
Adjusted OIBD (last twelve months)
Net debt/Adjusted OIBD
403
3.8
63
63
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 our financial obligations and to fulfill our capital expenditure program for at least the next twelve months. Capital
expenditures for 2017 have been budgeted at approximately $200 million. This amount is subject to change, depending on the Corporation’s
operating results and on general economic conditions. As at December 31, 2016, the Corporation had $647 million (net of letters of credit in
the amount of $13 million) available through its $750 million credit facility (excluding our subsidiary Reno de Medici credit facility).
EMPLOYEE FUTURE BENEFITS
The Corporation’s employee future benefits assets and liabilities amounted to $460 million and $588 million respectively as at
December 31, 2016, including an amount of $106 million for post-retirement benefits other than pension plans. The pension plans include an
amount of $61 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 has reviewed its benefits program to phase out some of them for future retirees.
With regard to pension plans, the Corporation’s risk is limited, since all defined benefit pension plans are closed to new employees and less
than 10% of its active employees are subject to those pension plans, 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, 2016, 18% of the Corporation pension plans
have been evaluated on December 31, 2015 (17% in 2014). 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
$22 million as at December 31, 2016, compared to $36 million in 2015. The 2016 pension plan expense was $7 million and the cash outflow
was $7 million. Due to the good investment returns in 2016 and the change in the assumptions, the expected expense for these pension plans
is $6 million in 2017. As for the cash flow requirements, these pension plans are expected to require a net contribution of approximately
$7 million in 2017. Finally, on a consolidated basis, the solvency ratio of the Corporation’s pension plans has remained stable at around 100%.
COMMENTS ON THE FOURTH QUARTER OF 2016
Sales increased by $4 million to $979 million in the fourth quarter of 2016, compared to $975 million in the same period of 2015. This reflects
higher sales from Recovery and Recycling activities and higher volumes from our containerboard packaging activities. Partially offsetting
these increases were lower average selling prices, primarily in our boxboard Europe and containerboard activities.
The Corporation generated operating income of $33 million in the fourth quarter of 2016, an increase of $46 million from the comparable
operating loss of $13 million in the same period of 2015. This increase is largely due to the beneficial impact of the $61 million variance in
specific items recorded in the both periods.
On an adjusted basis, fourth quarter 2016 operating income stood at $32 million compared to $47 million in the same period of 2015. The
decrease is due to higher raw material costs in each business segment, higher repair and maintenance and logistics costs, as well as additional
marketing initiatives in our Tissue Papers Group. Lower average selling prices from our boxboard Europe and containerboard activities during
the fourth quarter of 2016 also contributed to the reduction in operating income year-over-year. On the other hand, the $7 million decrease
in the depreciation and amortization expense in the fourth quarter of 2016 compared to 2015, following major equipment modernization efforts
in 2015, which triggered the revaluation of the remaining useful life of some assets, partly offset these factors.
The main specific items, before income taxes, that impacted our fourth quarter 2016 operating income and/or net earnings were:
•
•
•
a $2 million impairment reversal related to a building sold after the closure of our de-inked pulp mill located in Auburn, Maine
a $1 million unrealized loss on derivative financial instruments
a $13 million foreign exchange loss on long-term debt and financial instruments
Adjusted net earnings amounted to $15 million, or $0.16 per share, in the fourth quarter of 2016, compared to net earnings of $22 million, or
$0.23 per share, for the same period of 2015. As reported, net earnings stood at $4 million, or $0.04 per share in the fourth quarter of 2016,
compared to a net loss of $76 million, or $0.81 per share, for the same period of 2015.
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CASCADES 2016 ANNUAL REPORT / MANAGEMENT’S DISCUSSION & ANALYSIS / RESULTS ANALYSIS The reconciliation of the specific items included in operating income (loss) by business segment is as follows:
(in millions of Canadian dollars)
Operating income (loss)
Depreciation and amortization
Operating income (loss) before depreciation and amortization
Specific items :
Impairment reversal
Unrealized loss on financial instruments
Adjusted operating income (loss) before depreciation and
amortization
Adjusted operating income (loss)
(in millions of Canadian dollars)
Operating income (loss)
Depreciation and amortization
Operating income (loss) before depreciation and amortization
Specific items :
Impairment charges
Restructuring gain
Unrealized loss on financial instruments
Adjusted operating income (loss) before depreciation and
amortization
Adjusted operating income (loss)
Containerboard
Boxboard
Europe
Specialty
Products
Tissue Papers
Corporate
Activities
Consolidated
For the 3-month period ended December 31, 2016
28
14
42
—
1
1
43
29
3
8
11
—
—
—
11
3
14
5
19
(2)
—
(2)
17
12
12
18
30
—
—
—
30
12
(24)
5
(19)
—
—
—
(19)
(24)
33
50
83
(2)
1
(1)
82
32
Containerboard
Boxboard
Europe
Specialty
Products
Tissue Papers
Corporate
Activities
Consolidated
For the 3-month period ended December 31, 2015
32
23
55
—
—
1
1
56
33
(51)
9
(42)
55
—
—
55
13
4
11
5
16
—
—
—
—
16
11
22
16
38
—
—
—
—
38
22
(27)
4
(23)
2
(1)
3
4
(19)
(23)
(13)
57
44
57
(1)
4
60
104
47
The main variances in sales and operating income (loss) in the fourth quarter of 2016, compared to the same period of 2015, are shown
below:
Sales ($M)
Operating income (loss) ($M)
For Notes 1 to 5, see definitions on page 46.
65
65
NEAR-TERM OUTLOOK
Looking ahead, we expect near-term financial performance to reflect recent increases in raw material costs and the usual seasonal trends in
our business segments. In Europe, favourable order inflow trends at the beginning of 2017, and the recently announced €60 April price increase
suggest early signs of improvement in market dynamics compared to the softness seen in 2016. On a segmented basis, we expect the fall
2016 price increase announcement to benefit our Containerboard Packaging division in the first quarter, and to be fully implemented as of
the end of the second quarter. However, recent raw material price increases will counterbalance the benefit. We recently announced a second
price increase in Containerboard, which should start to take effect in the second quarter, and be fully realized during the second half of the
year. In our Tissue Group, the combination of lower marketing costs, recent product repositioning efforts and the beneficial impact of price
increases announced in 2016 are expected to support performance going forward. On a positive note, our new Tissue converting facility in
Scappoose, Oregon, began operating its first line last month, as planned. The facility will continue ramping up, and will add two new converting
lines through the second quarter. Finally, we anticipate our Specialty Products Group to maintain its positive momentum built over the past
two years. On the cost side, tight market dynamics, including strong demand, are expected to continue putting pressure on the price of our
input materials in the near-term.
Corporate investments are expected to remain elevated through the end of this year. However, we look forward to completing the implementation
of our ERP platform and other initiatives undertaken to modernize our internal processes in 2017. In addition, we will continue our efforts to
deleverage our balance sheet, and to analyze our strategic options with the view of creating additional value for our shareholders. As always,
our strategic efforts will be guided by our commitment to increase operational efficiency, execution and flexibility through targeted investments
and growth initiatives.
CAPITAL STOCK INFORMATION
SHARE TRADING
Cascades' stock is traded on the Toronto Stock Exchange under the CAS ticker. From January 1, 2016 to December 31, 2016, Cascades'
share price fluctuated between $7.72 and $13.67. During the same period, 43.6 million Cascades' shares were traded on the Toronto Stock
Exchange. On December 31, 2016, Cascades shares closed at $12.10. This compares to a closing price of $12.71 on the same day last year.
COMMON SHARES OUTSTANDING
As at December 31, 2016, the Corporation's issued and outstanding capital stock consisted of 94,526,516 common shares (95,310,923 as
at December 31, 2015), and 5,093,536 issued and outstanding stock options (5,262,796 as at December 31, 2015). In 2016, the Corporation
repurchased for cancellation 1,047,243 common shares, and 262,836 options were exercised. As at March 1, 2017, issued and outstanding
capital stock consisted of 94,606,610 common shares and 5,013,442 stock options.
NORMAL COURSE ISSUER BID PROGRAM
The current normal course issuer bid enables the Corporation to purchase for cancellation up to 1,907,173 common shares between
March 17, 2016 and March 16, 2017. During the period from March 17, 2016 to March 1, 2017, Cascades purchased and canceled
902,738 common shares at a weighted average price of $8.65 per common share, representing an aggregate amount of approximately
$7.8 million.
DIVIDEND POLICY
On March 1, 2017, Cascades' Board of Directors declared a quarterly dividend of $0.04 per share to be paid on April 3, 2017, to shareholders
of record at the close of business on March 24, 2017. This $0.04 per share dividend is in-line with the previous quarter and the same quarter
last year. On March 1, 2017, dividend yield was 1.2%.
TSX Ticker: CAS
Common shares outstanding (in millions) 1
Q1
94.2
Q2
94.4
Q3
94.5
2015
Q4
95.3
Q1
95.4
Q2
94.5
Q3
94.4
2016
Q4
94.5
Closing price 1
Average daily volume 2
Dividend yield 1
1 On the last day of the quarter.
2 Average daily volume on the Toronto Stock Exchange.
$
7.63
$
7.15
$
8.61
$
12.71
$
8.57
$
9.15
$
12.83
$
12.10
171,939
121,917
123,487
218,204
291,483
166,510
118,987
118,554
2.1%
2.2%
1.9%
1.3%
1.9%
1.7%
1.2%
1.3%
66
66
CASCADES 2016 ANNUAL REPORT / MANAGEMENT’S DISCUSSION & ANALYSIS / RESULTS ANALYSIS CASCADES' SHARE PRICE FOR THE PERIOD STARTING JANUARY 1, 2015 TO DECEMBER 31, 2016
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, 2016:
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 benefits1
Total contractual obligations
TOTAL
2,011
65
1,096
3,172
LESS THAN A
YEAR
118
BETWEEN 1-2
YEARS
113
BETWEEN 2-5
YEARS
624
23
38
179
13
37
163
20
119
763
OVER 5
YEARS
1,156
9
902
2,067
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, 2016.
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 Corporation 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, 2016, the off-balance sheet impact of the factoring
of receivables amounted to $31 million (€22 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.
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67
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 material, 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 $240 million and $189 million for 2016 and 2015 respectively. Aggregate
sales to the Corporation from its joint-venture partners and other affiliates came to $182 million and $196 million for 2016 and 2015 respectively.
Starting in June 2013, the Corporation entered into a take-or-pay agreement with its associate Greenpac. For a period of eight years, the
Corporation has the obligation to purchase a minimum quantity of 340,000 short tons per year from Greenpac. If the Corporation fails to
purchase the minimum quantity, it must compensate Greenpac for the lost gross margin on those short tons. Included in related party transaction
in Note 29 is the minimum amount to be paid to Greenpac, which corresponds to the potential lost gross margin on 340,000 tons.
CHANGES IN ACCOUNTING POLICY AND DISCLOSURES
A) NEW IFRS ADOPTED
IAS 1 - PRESENTATION OF FINANCIAL STATEMENTS
In December 2014, the IASB issued amendments to IAS 1, Presentation of Financial Statements (IAS 1 amendments). The IAS 1 amendments
provide guidance on the application of judgment in the preparation of financial statements and disclosures. The IAS 1 amendments are
effective for annual periods beginning on or after January 1, 2016. The application of the standard did not result in significant changes.
B) RECENT IFRS PRONOUNCEMENTS NOT YET ADOPTED
IFRS 15 — REVENUE RECOGNITION
In May 2014, the International Accounting Standards Board (IASB) issued IFRS 15 - Revenue from Contracts with Customers. IFRS 15
replaces all previous revenue recognition standards, including IAS 18 - Revenue, and related interpretations such as IFRIC 13 - Customer
Loyalty Programs. The standard sets out the requirements for recognizing revenue. Specifically, the new standard introduces a comprehensive
framework with the general principle being that an entity recognizes revenue to depict the transfer of promised goods and services in an
amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard
introduces more prescriptive guidance than was included in previous standards and may result in changes in classification and disclosure in
addition to changes in the timing of recognition for certain types of revenues. The new standard is effective for annual periods beginning on
or after January 1, 2018 with early adoption permitted. At this time, the Corporation is reviewing the impact that this standard will have on its
consolidated financial statements.
IFRS 9 — FINANCIAL INSTRUMENTS
In July 2014, the IASB released the final version of IFRS 9, Financial Instruments. 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
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 carry 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. It also includes
guidance on hedge accounting. The standard is effective for annual periods beginning on or after January 1, 2018, with earlier application
permitted. The Corporation is currently evaluating the impact of the standard on its consolidated financial statements.
IFRS 16 — LEASES
In January 2016, the IASB released IFRS 16, Leases, which supersedes IAS 17, Leases, and the related interpretations on leases: IFRIC 4,
Determining whether an arrangement contains a lease, SIC 15, Operating Leases - Incentives and SIC 27, Evaluating the substance of
transactions in the legal form of a lease. The standard is effective for annual periods beginning on or after January 1, 2019, with earlier
application permitted for companies that also apply IFRS 15, Revenue from Contracts with Customers. The Corporation is currently evaluating
the impact of the standard on its consolidated financial statements. As at December 31, 2016, the Corporation has $65 million of operating
lease commitments.
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68
CASCADES 2016 ANNUAL REPORT / MANAGEMENT’S DISCUSSION & ANALYSIS / RESULTS ANALYSIS IAS 7 - STATEMENT OF CASH FLOWS
In January 2016, the IASB published amendments to IAS 7, Statement of Cash Flows. The amendments are intended to clarify IAS 7 to
improve information provided to users of financial statements about an entity’s financing activities. They are effective for annual periods
beginning on or after January 1, 2017, with earlier application being permitted. The Corporation is currently evaluating the impact of IAS 7 on
its consolidated financial statements.
IAS 12 - INCOME TAXES
In February 2016, the IASB issued amendments to IAS 12, Income Taxes regarding the recognition of deferred tax assets for unrealized
losses, effective for annual periods beginning on or after January 1, 2017. The amendments clarify how to account for deferred tax assets
related to debt instruments measured at fair value. The Corporation is currently evaluating the impact of these amendments on its consolidated
financial statements.
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 estimated production levels, selling prices, volume, raw material costs, foreign exchange rates,
growth rates, discounting rates and capital spending.
The Corporation believes its assumptions are reasonable. Based on available information at the assessment date, however these assumptions
involve a high degree of judgment and complexity. Management believes that the following assumptions are the most susceptible to change
and therefore could impact the valuation of the assets in the next year.
DESCRIPTION OF SIGNIFICANT IMPAIRMENT TESTING ASSUMPTIONS (see Notes 5 and 25 of consolidated financial statements)
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 considers 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
When estimating the fair value less cost of disposal, foreign exchange rates are determined using the financial institutions' average forecast
for the first two years of forecasting. For the following three years, the Corporation uses the last five years' historical average of the foreign
exchange rate. Terminal rate is based on historical data of the last 20 years and adjusted to reflect management's best estimate.
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.
69
69
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"). Greenpac's Shareholders
agreement requires a majority of 80% for all decision-making related to relevant activities. Consequently, the Corporation does not have
power over relevant activities of Greenpac and its participation is accounted for as an associate.
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70
CASCADES 2016 ANNUAL REPORT / MANAGEMENT’S DISCUSSION & ANALYSIS / RESULTS ANALYSIS 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 its 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 (ICFR) 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 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, 2016, 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 ICFR
as at December 31, 2016, based on the control framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(2013 COSO Framework). Based on this assessment, they have concluded that the Corporation’s ICFR were effective as at December 31,
2016 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, 2016, there were no changes to the Corporation's ICFR that materially affected, or are reasonably
likely to materially affect, its ICFR.
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71
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 material, 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 material 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 cyclical. As a result, prices for these types
of products and for its two principal raw material, 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 unable 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 material 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,
should energy prices 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 electricity and natural gas hedging programs as at December 31, 2016 is set out below:
NORTH AMERICAN ELECTRICITY HEDGING
Electricity consumption
Electricity consumption in a regulated market
% of consumption hedged in a de-regulated market (2016)
Average prices (2017 - 2018) (in US$, per KWh)
Fair value as at December 31, 2016 (in millions of CAN$)
UNITED STATES
CANADA
40%
56%
23%
0.04
(1)
$
$
60%
65%
—
—
—
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72
CASCADES 2016 ANNUAL REPORT / MANAGEMENT’S DISCUSSION & ANALYSIS / RESULTS ANALYSIS NORTH AMERICAN NATURAL GAS HEDGING
Natural gas consumption
% of consumption hedged (2016)
Average prices (2017 - 2021) (in US$, per mmBTU) (in CAN$, per GJ)
Fair value as at December 31, 2016 (in millions of CAN$)
UNITED STATES
CANADA
42%
46%
3.29
$
(1) $
58%
47%
3.75
(4)
$
$
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, such as tissue
papers, 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 efficiency, operating rates and lower manufacturing costs
the availability, quality and cost of raw material, 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. For example, fully integrated manufacturers, or 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 material pricing, in that the former are able to ensure a steady source of these raw material
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, 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 2016, sales outside Canada, in Canadian dollars, represented
approximately 61% of the Corporation’s consolidated sales, including 39% in the United States. In 2016, 25% of sales from Canadian operations
were made to the United States.
The Corporation’s international operations present it with a number of risks and challenges, including:
•
•
•
effective product marketing 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.
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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 variation of the Canadian dollar against the U.S. dollar may adversely or positively
affect the Corporation’s reported operating results and financial condition. This has a direct impact on export prices and also contributes to
the impact on Canadian dollar prices in Canada, because several of the Corporation’s product lines are priced in U.S. dollars. As well, 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$889 million and €73 million respectively as at December 31, 2016.
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 (excluding subsidiaries with non-controlling interests)
Average rate (US$/CAN$)
Fair value as at December 31, 2016 (in millions of CAN$)
1 See Note 27 of the audited consolidated financial statements for more details on financial instruments.
2017
2018
$ 48 to 92
$ 15 to 40
29% to 55%
0.77 to 0.79
9% to 24%
0.74 to 0.77
$
(6) $
(2)
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 and some of our Québec plants are also subject to an
emissions market, 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
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.
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CASCADES 2016 ANNUAL REPORT / MANAGEMENT’S DISCUSSION & ANALYSIS / RESULTS ANALYSIS 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. At short or medium term, these
transactions would have no significant effect on the financial position of the Corporation and it is not anticipated that this 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. 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, 2016, the Corporation had nearly 11,000 employees, of whom approximately 9,000 were employees of its Canadian and
United States operations. Approximately 28% of the Corporation’s Canadian and United States employees are unionized under 27 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 27 collective bargaining agreements in North America, 2
are expired and are currently under negotiation, 6 will expire in 2017 and 6 more will expire in 2018.
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.
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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 investments in associates and acquired significant participation in subsidiaries in order to
increase its vertical integration, enhance customer service and increase efficiency in its marketing and distribution in the United States and
other markets. The Corporation’s principal joint ventures, associates and significant participations in subsidiaries are:
•
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•
two 50%-owned joint ventures with Sonoco Products Corporation, of which one are in Canada (two plants) and one in the United States
(two plants), that produce specialty paper packaging products such as headers, rolls and wrappers;
a 20.12% 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 North-eastern United States and France.;
a 57.7%-owned subsidiary, Reno de Medici S.p.A. (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.
Apart from 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 these 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 stipulate 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.
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's 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.
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CASCADES 2016 ANNUAL REPORT / MANAGEMENT’S DISCUSSION & ANALYSIS / RESULTS ANALYSIS 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 29.8% of the common shares as at December 31, 2016, and
there may be situations in which their interests and the interests of other holders of common shares do not align. 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 an interest 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.
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 need arise, competition in recruiting replacement personnel could be
significant. 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 at December 31, 2016, it had $1,532 million in
outstanding total net debt on a consolidated basis, including capital-lease obligations. The Corporation also had $647 million available under
its revolving credit facility. On the same basis, its consolidated ratio of net debt to total equity as of December 31, 2016 was 58.8%. The
Corporation’s actual financing expense, including interest on employees' future benefits, was $93 million. Cascades also has significant
obligations under operating leases, as described in its audited consolidated financial statements that are incorporated by reference herein.
On July 7, 2015, the Corporation entered into an agreement with its lenders to extend and amend its existing $750 million credit facility. The
amendment provides that the term of the facility is extended to July 2019, and that the applicable pricing grid is slightly lowered to better reflect
market conditions. The other existing financial conditions were essentially unchanged.
On May 19, 2015, the Corporation issued US$250 million ($305 million) in aggregate principal amount 5.75% senior notes due in 2023. The
Corporation used the proceeds from this offering of notes to repurchase a total of US$250 million aggregate principal amount of 7.875% senior
notes due in 2020 for a total consideration of US$250 million ($305 million). The Corporation also paid premiums of US$11 million ($13 million)
to repurchase the 2020 notes as well as fees and expenses in connection with the offering and the tender offer totaling $5 million. The
refinancing of these notes reduces future interest expense by approximately US$6 million annually.
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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
2014
2015
2016
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)
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)
BB/B+/B+ (stable)
BB/B+/B+ (stable)
BB+/BB-/BB- (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.
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 assets, including 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.
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CASCADES 2016 ANNUAL REPORT / MANAGEMENT’S DISCUSSION & ANALYSIS / RESULTS ANALYSIS 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 interests.
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, associates 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,
associates 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
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 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.
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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) Cyber Security
The Corporation relies on information technology to process, transmit and store electronic data in its daily business activities. Any potential
information technology security incident as a result of malicious misbehavior or involuntary in nature could have negative repercussions on
business activities, intellectual property, operating results and financial position of the Corporation. Cyber security represents a Company-
wide challenge and the related risks are part of the corporate risk management program that is presented to the Audit and Finance committee
of the Corporation. To limit Corporation exposure to incidents that may affect confidentiality, integrity and availability of information, the
Corporation has put in place control measures that are based on industry best practices.
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CASCADES 2016 ANNUAL REPORT / MANAGEMENT’S DISCUSSION & ANALYSIS / RESULTS ANALYSIS MANAGEMENT'S REPORT
TO THE SHAREHOLDERS OF CASCADES INC.
March 1, 2017
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 (“IFRS”) as issued
by the International Accounting Standards Board 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.
Independent auditor 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
81
81
INDEPENDENT AUDITOR'S REPORT
TO THE SHAREHOLDERS OF CASCADES INC.
March 1, 2017
We have audited the accompanying consolidated financial statements of Cascades Inc. and its subsidiaries, which comprise the consolidated
balance sheets as at December 31, 2016 and 2015 and the consolidated statement 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 (“IFRS”), 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, 2016 and 2015 and their financial performance and their cash flows for the years then ended in accordance
with International Financial Reporting Standards.
Montréal, Canada
1 CPA auditor, CA, public accountancy permit No. A126402
82
82
CASCADES 2016 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 long-term debt
Current portion of provisions for contingencies and charges
Current portion of financial liabilities and other liabilities
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 interests
Total equity
The accompanying notes are an integral part of these consolidated financial statements.
Approved by the Board of Directors
NOTE
December 31,
2016
December 31,
2015
7 and 15
8 and 15
27
9
10 and 15
11
27
12 and 27
18
11
13
15
14
16 and 27
15
14
27
16
18
19
20
21
62
524
12
477
3
1,078
335
1,618
171
10
72
179
350
3,813
28
661
1
36
9
27
762
1,530
34
16
178
219
2,739
487
16
512
(31)
984
90
1,074
3,813
60
540
30
494
1
1,125
322
1,608
174
12
80
181
346
3,848
37
613
1
34
5
37
727
1,710
34
47
178
189
2,885
490
17
387
(27)
867
96
963
3,848
Alain Lemaire
DIRECTOR
Georges Kobrynsky
DIRECTOR
83
83
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
For the years ended December 31 (in millions of Canadian dollars, except per common share amounts and number of common shares)
NOTE
Sales
Cost of sales and expenses
Cost of sales (including depreciation and amortization of $192 million; 2015 — $190 million)
Selling and administrative expenses
Gain on acquisitions, disposals and others
Impairment charges and restructuring costs
Foreign exchange gain
Loss (gain) on derivative financial instruments
Operating income
Financing expense
Interest expense on employee future benefits
Loss on refinancing of long-term debt
Foreign exchange loss (gain) on long-term debt and financial instruments
Share of results of associates and joint ventures
Earnings (loss) before income taxes
Provision for income taxes
Net earnings (loss) from continuing operations including non-controlling interests for the year
Net earnings from discontinued operations
Net earnings (loss) including non-controlling interests for the year
Net earnings attributable to non-controlling interests
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
26
15
9
18
5
5
2016
4,001
3,380
402
(4)
12
(4)
(6)
3,780
221
88
5
—
(22)
(32)
182
45
137
—
137
2
135
$
$
$
$
1.42
1.39
1.42
1.39
$
$
$
$
2015
3,861
3,261
360
(1)
66
(6)
28
3,708
153
91
6
19
91
(37)
(17)
40
(57)
1
(56)
9
(65)
(0.70)
(0.70)
(0.69)
(0.69)
94,709,048
96,877,848
94,384,308
96,261,484
135
—
135
(66)
1
(65)
84
84
CASCADES 2016 ANNUAL REPORT / CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the years ended December 31 (in millions of Canadian dollars)
NOTE
Net earnings (loss) including non-controlling interests 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
Cash flow hedges
Change in fair value of foreign exchange forward contracts
Change in fair value of commodity derivative financial instruments
Available-for-sale financial assets
Share of other comprehensive income of associates
Provision for (recovery of) income taxes
Items that are reclassified to retained earnings
Actuarial gain on post-employment benefit obligations
Income taxes
Other comprehensive income (loss)
Comprehensive income including non-controlling interests for the year
Comprehensive income (loss) attributable to non-controlling interests 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.
21
21
18
17
18
2016
137
(33)
21
—
10
(2)
—
(6)
(10)
11
(3)
8
(2)
135
(4)
139
139
—
139
2015
(56)
115
(101)
2
2
2
14
8
42
25
(7)
18
60
4
16
(12)
(13)
1
(12)
85
85
CONSOLIDATED STATEMENTS OF EQUITY
(in millions of Canadian dollars)
Balance - Beginning of year
Comprehensive income (loss)
Net earnings
Other comprehensive income
(loss)
Dividends
Stock options
Issuance of common shares
Redemption of common shares
Dividends paid to non-controlling
interests and acquisition of non-
controlling interests
Balance - End of year
(in millions of Canadian dollars)
Balance - Beginning of year
Comprehensive income (loss)
Net earnings (loss)
Other comprehensive income
Dividends
Stock options
Issuance of common shares
Acquisition of non-controlling
interests
Balance - End of year
For the year ended December 31, 2016
CAPITAL
STOCK
CONTRIBUTED
SURPLUS
RETAINED
EARNINGS
ACCUMULATED
OTHER
COMPREHENSIVE
LOSS
TOTAL EQUITY
ATTRIBUTABLE TO
SHAREHOLDERS
NON-
CONTROLLING
INTERESTS
490
—
—
—
—
1
1
(5)
—
487
17
—
—
—
—
—
—
(1)
—
16
387
135
8
143
(15)
—
—
(3)
—
512
(27)
—
(4)
(4)
—
—
—
—
—
(31)
867
135
4
139
(15)
1
1
(9)
—
984
96
2
(6)
(4)
—
—
—
—
(2)
90
TOTAL
EQUITY
963
137
(2)
135
(15)
1
1
(9)
(2)
1,074
For the year ended December 31, 2015
CAPITAL
STOCK
CONTRIBUTED
SURPLUS
RETAINED
EARNINGS
ACCUMULATED
OTHER
COMPREHENSIVE
LOSS
TOTAL EQUITY
ATTRIBUTABLE TO
SHAREHOLDERS
NON-
CONTROLLING
INTERESTS
483
—
—
—
—
2
5
—
490
18
—
—
—
—
(1)
—
—
17
454
(65)
18
(47)
(15)
—
—
(5)
387
(62)
—
35
35
—
—
—
—
(27)
893
(65)
53
(12)
(15)
1
5
(5)
867
110
9
7
16
—
—
—
(30)
96
TOTAL
EQUITY
1,003
(56)
60
4
(15)
1
5
(35)
963
The accompanying notes are an integral part of these consolidated financial statements.
86
86
CASCADES 2016 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 earnings from discontinued operations
Net earnings (loss) from continuing operations
Adjustments for:
Financing expense and interest expense on employee future benefits
Loss on refinancing of long-term debt
Depreciation and amortization
Gain on acquisitions, disposals and others
Impairment charges and restructuring costs
Unrealized loss (gain) on derivative financial instruments
Foreign exchange loss (gain) on long-term debt and financial instruments
Provision for income taxes
Share of results of associates and joint ventures
Net earnings attributable to non-controlling interests
Net financing expense paid
Premium paid on long-term debt refinancing
Net 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
Payments for property, plant and equipment
Proceeds on disposals of property, plant and equipment
Change in intangible and other assets
Business acquisition
Financing activities from continuing operations
Bank loans and advances
Change in revolving credit facilities
Issuance of senior notes, net of related expenses
Repayment of senior notes
Increase in other long-term debt
Payments of other long-term debt
Settlement of derivative financial instruments
Issuance of common shares
Redemption of common shares
Dividends paid to non-controlling interests and acquisition of non-controlling interests
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 during the year 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 year
Cash and cash equivalents - End of year
The accompanying notes are an integral part of these consolidated financial statements.
87
NOTE
2016
2015
5
26
24
25
18
9
15
9
26
6
15
15
19
19
9
19
5
135
—
135
93
—
192
(4)
4
(18)
(22)
45
(32)
2
(89)
—
10
18
(18)
316
56
372
(6)
(182)
5
14
(16)
(185)
(8)
(146)
—
—
40
(47)
3
1
(9)
(1)
(15)
(182)
5
—
5
(3)
60
62
(65)
(1)
(66)
97
19
190
(1)
64
18
91
40
(37)
9
(89)
(13)
(14)
17
(3)
322
(38)
284
(2)
(163)
4
8
—
(153)
(14)
(120)
300
(305)
73
(48)
—
5
—
(5)
(15)
(129)
2
30
32
(1)
29
60
87
N
O
I
T
A
M
R
O
F
N
I
D
E
T
N
E
M
G
E
S
/
T
R
O
P
E
R
L
A
U
N
N
A
6
1
0
2
S
E
D
A
C
S
A
C
88
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
Corporation's Packaging Products) and Tissue Papers.
SALES
2016
1,370
796
620
(61)
2,725
1,305
(29)
4,001
2015
1,301
825
579
(55)
2,650
1,236
(25)
3,861
OPERATING INCOME (LOSS)
BEFORE DEPRECIATION AND AMORTIZATION (OIBD)
2016
2015
214
51
71
336
139
(62)
413
(192)
(93)
—
22
32
182
233
6
52
291
119
(67)
343
(190)
(97)
(19)
(91)
37
(17)
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 Corporate activities
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
Loss on refinancing of long-term debt
Foreign exchange gain (loss) on long-term debt and financial instruments
Share of results of associates and joint ventures
Earnings (loss) before income taxes
88
For the years ended December 31 (in millions of Canadian dollars)
PAYMENTS FOR PROPERTY, PLANT AND EQUIPMENT
2016
2015
Packaging Products
Containerboard
Boxboard Europe
Specialty Products
Tissue Papers
Corporate
Total acquisitions
Proceeds on disposals of property, plant and equipment
Capital-lease acquisitions and included in other debts
Acquisitions of property, plant and equipment included in “Trade and other payables”
Beginning of year
End of year
Payments for 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
51
26
26
103
77
26
206
(5)
(18)
183
19
(25)
177
64
23
14
101
57
7
165
(4)
(3)
158
20
(19)
159
TOTAL ASSETS
December 31,
2016
December 31,
2015
1,285
567
336
2,188
922
400
(37)
3,473
335
5
3,813
1,277
620
330
2,227
940
381
(29)
3,519
322
7
3,848
89
89
Information by geographic segment is as follows:
For the years ended December 31 (in millions of Canadian dollars)
2016
2015
1,511
505
14
2,030
1,065
45
2
1,112
241
140
381
399
79
478
1,376
542
21
1,939
976
62
6
1,044
234
149
383
426
69
495
4,001
3,861
December 31,
2016
December 31,
2015
830
505
179
104
1,618
838
464
199
107
1,608
December 31,
2016
December 31,
2015
441
71
9
521
447
64
9
520
N
O
I
T
A
M
R
O
F
N
I
D
E
T
N
E
M
G
E
S
/
T
R
O
P
E
R
L
A
U
N
N
A
6
1
0
2
S
E
D
A
C
S
A
C
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
(in millions of Canadian dollars)
Property, plant and equipment
Canada
United States
Italy
Other countries
(in millions of Canadian dollars)
Goodwill, customer relationships and client lists, and other finite and indefinite useful life intangible assets
Canada
United States
Italy
90
90
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in millions of Canadian dollars, except per common share and option amounts and number of common 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 1, 2017.
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 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 over which the Corporation has control, where control is defined as the power to direct decisions about relevant
activities. The Corporation does not have any interest in a structured entity. The existence and effect of potential voting rights that are 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
commencing on 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 interests. 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 Recovery Inc.
Cascades USA Inc.
Cascades Europe S.A.S.
Reno de Medici S.p.A.
PERCENTAGE OWNED (%)
JURISDICTION
100
100
100
100
57.7
Canada
Canada
Delaware
France
Italy
91
91
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 results in
gains or losses for the Corporation is 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 amount of revenue can be measured reliably,
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 AND LIABILITIES 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 had no HTM financial assets as at December 31, 2016 and 2015.
92
92
CASCADES 2016 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 derivative financial instruments 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 loss (gain) on derivative financial instruments.
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 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.
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A. FAIR VALUE HEDGE
The periodic change in fair value of the hedging derivative is recorded in net income. The periodic change in the cumulative gain or loss on
the hedged item is recorded as an adjustment to its carrying amount on the balance sheet and is also recorded in net income. Hedging
ineffectiveness is automatically recorded to net income as the difference between the above amounts recorded in net income. Realized gains
and losses on the hedging item, resulting from the difference between the interest payments on the receive leg and the pay leg of the hedging
derivative, are recorded on an accrual basis in net income as interest income or expense.
If the hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of a hedged item for which the effective
interest method is used is amortized to profit or loss over the period to maturity using a recalculated effective interest rate.
B. 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.
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 on the same line as the hedged item. The gain or loss relating to the
ineffective portion is recognized in the consolidated statement of earnings as part of loss (gain) on derivative financial instruments. 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.
C. 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.
The Corporation also uses cross-currency interest rate swaps to manage the currency fluctuations risk associated with forecasted cash flows
in foreign currency. These cross-currency interest rate swaps are designated as foreign exchange hedge of its net investment in foreign
operations. The portion of the gains and losses arising from the translation of those derivatives that are determined to be an effective hedge
are recognized in Other Comprehensive Income, counterbalancing gains and losses arising from the translation of the Corporation's net
investment in its foreign operations.
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 by either average production cost or retail method, or net realizable
value. Inventories of raw material 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 material 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 the estimated costs of completion and the estimated
costs necessary to make the sale.
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CASCADES 2016 ANNUAL REPORT / NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 qualifying 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.
Depreciation is calculated on a straight-line basis as follows:
Buildings
Machinery and equipment
Automotive equipment
Other property, plant and equipment Between 3 and 10 years
Between 10 and 33 years
Between 7 and 30 years
Between 5 and 10 years
GRANTS AND INVESTMENT TAX CREDITS
Grants and investment tax credits for property, plant and equipment 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.
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 20 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 higher than its recoverable amount which is described in section C hereunder. 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 in 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 lower of the estimated recoverable amount and 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 in the line item Impairment charges and restructuring costs.
B. GOODWILL AND OTHER INTANGIBLE ASSETS WITH 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 is 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 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.
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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 of the amount of the obligation can be made.
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.
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 OBLIGATIONS 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 which 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.
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CASCADES 2016 ANNUAL REPORT / NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 not adjusted based on inflation. The Corporation also offers its employees some post-employment benefit plans, such
as a 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 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.
As well, when an asset is recorded for a pension plan, its carrying value cannot be greater than the future economic benefit that the Corporation
will get from the asset. The future economic benefit includes the suspension of contribution if the pension plan provisions allow for it under
the minimum funding requirements. When there is a minimum funding requirement, it can increase the liability recorded. All special contributions
legally required to fund a plan deficit are considered. For plans for which an actuarial evaluation is required as at December 31, 2016, a
schedule of contributions is estimated to establish the minimum funding requirement. For other plans, we have used contributions from the
most recent actuarial report.
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 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, 2016, 18% of the plans were evaluated on
December 31, 2015 (17% in 2014).
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 that are expected to apply when the deferred 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 monthly exchange rate. Translation gains or losses are deferred and
included in Accumulated other comprehensive income.
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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
IAS 1 - PRESENTATION OF FINANCIAL STATEMENTS
In December 2014, the IASB issued amendments to IAS 1, Presentation of Financial Statements (IAS 1 amendments). The IAS 1 amendments
provide guidance on the application of judgment in the preparation of financial statements and disclosures. The IAS 1 amendments are
effective for annual periods beginning on or after January 1, 2016. The application of the standard did not result in significant changes.
B) RECENT IFRS PRONOUNCEMENTS NOT YET ADOPTED
IFRS 15 — REVENUE RECOGNITION
In May 2014, the International Accounting Standards Board (IASB) issued IFRS 15 - Revenue from Contracts with Customers. IFRS 15
replaces all previous revenue recognition standards, including IAS 18 - Revenue, and related interpretations such as IFRIC 13 - Customer
Loyalty Programs. The standard sets out the requirements for recognizing revenue. Specifically, the new standard introduces a comprehensive
framework with the general principle being that an entity recognizes revenue to depict the transfer of promised goods and services in an
amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard
introduces more prescriptive guidance than was included in previous standards and may result in changes in classification and disclosure in
addition to changes in the timing of recognition for certain types of revenues. The new standard is effective for annual periods beginning on
or after January 1, 2018 with early adoption permitted. At this time, the Corporation is reviewing the impact that this standard will have on its
consolidated financial statements.
IFRS 9 — FINANCIAL INSTRUMENTS
In July 2014, the IASB released the final version of IFRS 9, Financial Instruments. 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
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 carry 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. It also includes
guidance on hedge accounting. The standard is effective for annual periods beginning on or after January 1, 2018, with earlier application
permitted. The Corporation is currently evaluating the impact of the standard on its consolidated financial statements.
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CASCADES 2016 ANNUAL REPORT / NOTES TO CONSOLIDATED FINANCIAL STATEMENTS IFRS 16 — LEASES
In January 2016, the IASB released IFRS 16, Leases, which supersedes IAS 17, Leases, and the related interpretations on leases: IFRIC 4,
Determining whether an arrangement contains a lease, SIC 15, Operating Leases - Incentives and SIC 27, Evaluating the substance of
transactions in the legal form of a lease. The standard is effective for annual periods beginning on or after January 1, 2019, with earlier
application permitted for companies that also apply IFRS 15, Revenue from Contracts with Customers. The Corporation is currently evaluating
the impact of the standard on its consolidated financial statements. As at December 31, 2016, the Corporation has $65 million of operating
lease commitments.
IAS 7 - STATEMENT OF CASH FLOWS
In January 2016, the IASB published amendments to IAS 7, Statement of Cash Flows. The amendments are intended to clarify IAS 7 to
improve information provided to users of financial statements about an entity’s financing activities. They are effective for annual periods
beginning on or after January 1, 2017, with earlier application being permitted. The Corporation is currently evaluating the impact of IAS 7 on
its consolidated financial statements.
IAS 12 - INCOME TAXES
In February 2016, the IASB issued amendments to IAS 12, Income Taxes regarding the recognition of deferred tax assets for unrealized
losses, effective for annual periods beginning on or after January 1, 2017. The amendments clarify how to account for deferred tax assets
related to debt instruments measured at fair value. The Corporation is currently evaluating the impact of these amendments on its consolidated
financial statements.
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 estimated production levels, selling prices, volume, raw material costs, foreign exchange rates,
growth rates, discounting rates and capital spending.
The Corporation believes its assumptions are reasonable. Based on available information at the assessment date, however these assumptions
involve a high degree of judgment and complexity. Management believes that the following assumptions are the most susceptible to change
and therefore could impact the valuation of the assets in the next year.
DESCRIPTION OF SIGNIFICANT IMPAIRMENT TESTING ASSUMPTIONS (see Notes 5 and 25 of consolidated financial statements)
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 considers 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.
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FOREIGN EXCHANGE RATES
When estimating the fair value less cost of disposal, foreign exchange rates are determined using the financial institutions' average forecast
for the first two years of forecasting. For the following three years, the Corporation uses the last five years' historical average of the foreign
exchange rate. Terminal rate is based on historical data of the last 20 years and adjusted to reflect management's best estimate.
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"). Greenpac's Shareholders
agreement requires a majority of 80% for all decision-making related to relevant activities. Consequently, the Corporation does not have
power over relevant activities of Greenpac and its participation is accounted for as an associate.
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CASCADES 2016 ANNUAL REPORT / NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 5
DISCONTINUED OPERATIONS AND DISPOSALS
CONSOLIDATED NET EARNINGS FROM DISCONTINUED OPERATIONS
(in millions of Canadian dollars)
Condensed net earnings from discontinued operations
Condensed net earnings from discontinued operations per common share
Basic and diluted
CONSOLIDATED CASH FLOW FROM DISCONTINUED OPERATIONS
(in millions of Canadian dollars)
Consolidated cash flow from discontinued operations
Cash flow from (used for):
Operating activities
Investing activities
Financing activities
2016
—
— $
2015
1
0.01
2016
2015
—
—
—
—
(14)
45
(1)
30
Containerboard Packaging Group
On December 11, 2014, the Containerboard Packaging Group announced that it had reached an agreement for the sale of its boxboard
activities in North America to Graphic Packaging Holding Company. The sale was completed on February 4, 2015, and the Corporation
received $46 million in the first quarter. A selling price adjustment of $8 million was agreed on, of which $6 million was paid in 2015. The
Corporation recorded a loss of $4 million 2015.
The Containerboard Packaging Group also recorded a $4 million gain in the first quarter of 2015 on the reversal of a post-employment benefit
liability, which was not part of the boxboard activities transaction, but settled as a consequence of the sale.
Assets and liabilities of the North American Boxboard activities at the time of disposal were as follows:
BUSINESS SEGMENT
CONTAINERBOARD
PACKAGING
North American
Boxboard Activities
(in millions of Canadian dollars)
Accounts receivable
Inventories
Property, plant and equipment
Other assets
Total assets
Trade and other payables
Other liabilities
Total liabilities
Loss on disposal before tax
Selling price adjustment liability as at December 31, 2015
Total consideration received
27
27
19
3
76
28
6
34
42
(4)
2
40
101
101
The operating results and cash flow from these activities are presented as discontinued operations.
(in millions of Canadian dollars)
Results of the discontinued operations of North American boxboard activities
Sales, net of intercompany transactions
Cost of sales and expenses (excluding depreciation and amortization), net of intercompany transactions
Selling and administrative expenses
Loss on acquisitions, disposals and others
Impairment charges and restructuring gain
Foreign exchange gain
Net earnings from discontinued operations
(in millions of Canadian dollars)
Net cash flow of discontinued operations of North American boxboard activities
Cash flow from :
Investing activities
2016
2015
—
—
—
—
—
—
—
24
22
3
4
(4)
(1)
—
2016
2015
—
40
Boxboard Europe Group
On June 15, 2014, following the announcement made in 2013, the Corporation definitively ceased the operation of its virgin boxboard mill
located in Sweden.
The operating results from this activity are nil while cash flows are presented as discontinued operations.
(in millions of Canadian dollars)
Net cash flow of the discontinued operations of Swedish virgin boxboard activities
Cash flow from (used for):
Operating activities
Investing activities
2016
2015
—
—
—
(4)
1
(3)
Specialty Products Group
On June 30, 2014, we sold our fine papers activities of the Specialty Products Group to Les Entreprises Rolland, a subsidiary of H.I.G. Capital.
The Corporation finalized the working capital selling price adjustment related to this transaction and recorded a $1 million gain in 2015 by
reducing its final selling price adjustment provision to $2 million. In 2015, the Corporation also sold a piece of land that was not part of the
transaction and recorded a $1 million reversal of impairment.
On September 26, 2014, we ceased the operation of our kraft papers manufacturing activities of the Specialty Products Group located in
East Angus, Québec. In 2015, the Group paid $6 million for the settlement of the pension plan.
The operating results and cash flows from these activities, which constituted the specialty papers sectors, are presented as discontinued
operations.
(in millions of Canadian dollars)
Results of the discontinued operations of specialty papers sector
Selling and administrative expenses
Gain on acquisitions, disposals and others
Impairment reversal
Operating income
Recovery of income tax
Net earnings from discontinued operations
2016
2015
—
—
—
—
—
—
2
(1)
(1)
—
(1)
1
102
102
CASCADES 2016 ANNUAL REPORT / NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in millions of Canadian dollars)
Net cash flow of discontinued operations of specialty papers sector
Cash flow from (used for):
Operating activities
Investing activities
Financing activities
NOTE 6
BUSINESS ACQUISITION
2016
2015
—
—
—
—
(10)
4
(1)
(7)
On May 31, 2016, the Containerboard Packaging Group purchased from Rand-Whitney Container LLC its corrugated products plant located
in Newtown, Connecticut. A total consideration of $18 million was paid by the Corporation and consisted of $15 million (US$12 million) in cash
and certain assets of our corrugated containerboard plant located in Thompson, Connecticut, valued at $3 million. The excess of the
consideration paid over the net fair value of the assets acquired resulted in a tax deductible goodwill of $7 million and has been allocated to
Containerboard Packaging Group CGU. This acquisition is expected to create synergies. The purchase price was finalized on September 30,
2016.
Assets acquired were as follows:
(in millions of Canadian dollars)
Fair values of identifiable assets acquired:
Property, plant and equipment
Client list
Goodwill
Cash paid
Fair market value of assets exchanged
Total consideration
BUSINESS SEGMENT:
2016
CONTAINERBOARD
PACKAGING
ACQUIRED COMPANY:
Rand-Whitney Newtown Plant
10
1
7
18
15
3
18
In addition to the purchase price paid to Rand-Whitney, the Corporation also incurred transaction fees amounting to $1 million.
On a stand-alone basis, Newtown, since the date of acquisition, represents sales amounting to $35 million and the contribution to net earnings
attributable to Shareholders is nil. Had the acquisition occurred on January 1, 2016, consolidated sales would have been $60 million higher
and consolidated net earnings attributable to Shareholders would have remained unchanged for the year ended December 31, 2016. These
estimates are based on the assumption that fair value adjustments made as at the acquisition date would have been the same had the
acquisition occurred on January 1, 2016.
103
103
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
2016
465
39
(6)
498
(35)
61
524
As at December 31, 2016, trade receivables of $118 million (December 31, 2015 - $164 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
2016
69
22
8
19
118
2015
494
30
(12)
512
(35)
63
540
2015
114
27
13
10
164
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
2016
2015
12
(3)
(3)
6
12
4
(4)
12
The change in the provision for doubtful accounts has 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 material
Supplies and spare parts
2016
219
107
151
477
2015
230
113
151
494
As at December 31, 2016, finished goods, raw material and supplies and spare parts were adjusted to net realizable value (“NRV”) by $7 million,
nil and nil, respectively (December 31, 2015 - $7 million, nil, and nil). As at December 31, 2016, the carrying amount of inventory carried at
net realizable value consisted of $9 million in finished goods inventory, nil in raw material inventory and nil in supplies and spare parts (December
31, 2015 - $15 million, nil and nil).
The Corporation has sold all the goods that were written down in 2015. No reversal of previously written-down inventory occurred in 2016 or
2015. The cost of raw material and supplies and spare parts included in Cost of sales amounted to $1,612 million (2015 - $1,532 million).
104
104
CASCADES 2016 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
2016
281
54
335
2015
275
47
322
Investments in associates and joint ventures as at December 31, 2016, include goodwill of $28 million (December 31, 2015 - $29 million).
INVESTMENTS IN ASSOCIATES
B.
The following are the principal associates of the Corporation:
Boralex Inc.1
Greenpac Holding LLC2
PERCENTAGE OF EQUITY
OWNED (%)
20.12
PRINCIPAL ESTABLISHMENT
Kingsey Falls, Québec, Canada
59.7
Niagara Falls, New York, United States
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. On January 18, 2017, Boralex issued common shares to partly finance the acquisition of the interest of Enercon Canada Inc in Niagara Region
Wind Farm. Following this transaction, the Corporation's participation stands at 17.37%.
2 Greenpac Holding 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 (100%), and translated in millions of Canadian dollars if required, is as
follows:
(in millions of Canadian dollars)
Balance sheet
Cash and cash equivalents
Current assets (other than cash and cash equivalents and current financial
assets)
Current financial assets
Long-term assets (other than long-term financial assets)
Long-term financial assets
Current liabilities (other than current financial liabilities)
Current financial liabilities
Long-term liabilities (other than long-term financial liabilities)
Long-term financial liabilities
Statements of earnings (loss)
Sales
Depreciation and amortization
Financing expense
Recovery of income taxes
Net earnings (loss)
Other comprehensive income (loss)
Translation adjustment
Cash flow hedges
Total comprehensive income (loss)
Cash flow
Dividend received from associates
BORALEX INC.
GREENPAC HOLDING LLC
BORALEX INC.
GREENPAC HOLDING LLC
2016
2015
100
288
1
2,311
2
131
321
131
1,605
299
116
76
(9)
2
(12)
—
(12)
(10)
7
28
103
1
513
11
41
19
—
251
340
28
27
—
22
—
4
4
26
—
100
100
1
2,241
—
94
187
163
1,446
266
97
74
(1)
(8)
14
(2)
12
4
7
69
71
1
554
11
53
49
—
275
314
26
30
—
32
(2)
(1)
(3)
29
—
Investment in Boralex Inc. has a fair value of $252 million as at December 31, 2016 (December 31, 2015 - $190 million).
105
105
On May 6, 2016, the Corporation announced that its associate company Greenpac, located in Niagara Falls, NY, successfully refinanced its
debt. The debt package included a term loan and a revolving credit facility. The five-year agreement allows the mill to reduce its financing
costs by approximately 225 basis points, increasing its flexibility to successfully address future market fluctuations.
In September 2015, Boralex redeemed or converted all of its 6.75% convertible unsecured subordinated debentures. As a result, the
Corporation's participation in Boralex decreased to 20.29% from 27.43%, which resulted in a dilution gain of $15 million for the Corporation.
In February 2015, Boralex acquired the non-controlling interests in Boralex Europe and became its sole shareholder. The $51 million amount
paid over carrying value was accounted for by Boralex as a decrease in net assets and retained earnings. Our $14 million share of the decrease
is recorded as a loss under share of results of associates and joint ventures in the consolidated statement of earnings.
In January 2015, Boralex proceeded with a public offering of common shares in order to fully repay a bridge loan in connection with its
acquisition of Enel Green Power France SAS in December 2014. The Corporation's participation in Boralex decreased to 27.44%, compared
to 34.23% as at December 31, 2014, which resulted in a dilution gain of $9 million for the Corporation.
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 US Inc.1
Cascades Sonoco inc.1
Maritime Paper Products Limited Partnership (MPPLP)2
1 Joint ventures producing specialty paper packaging products such as headers, rolls and wrappers.
2 MPPLP is a Canadian corporation converting containerboard.
PERCENTAGE EQUITY
OWNED (%)
PRINCIPAL ESTABLISHMENT
50
50
40
Birmingham, Alabama and Tacoma, Washington,
United States
Kingsey Falls and Berthierville, Québec, Canada
Dartmouth, Nova Scotia, Canada
The Corporation's joint ventures information (100%), translated in millions of Canadian dollar if required, is as follows:
(in millions of Canadian dollars)
Balance sheet
Cash and cash equivalents
Current assets (other than cash and cash equivalents and current financial assets)
Long-term assets (other than long-term financial assets)
Current liabilities (other than current financial liabilities)
Current financial liabilities
Long-term liabilities (other than long-term financial liabilities)
Long-term financial liabilities
Statement of earnings
Sales
Depreciation and amortization
Financing expense
Provision for income taxes
Net earnings
Other comprehensive income (loss)
Translation adjustment
Total comprehensive income
Cash flow
Dividend received from joint ventures
CASCADES SONOCO US
INC. (Formerly Cascades
Sonoco Inc.)
CASCADES SONOCO INC.
(Formerly Cascades
Conversion Inc. and Converdis
Inc.)
2016
MARITIME PAPER
PRODUCTS LIMITED
PARTNERSHIP
5
26
16
9
1
4
1
119
2
1
4
9
(1)
8
4
3
23
18
9
—
3
1
88
2
—
2
6
—
6
4
3
20
28
6
1
—
5
96
2
1
—
8
—
8
—
106
106
CASCADES 2016 ANNUAL REPORT / NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in millions of Canadian dollars)
Balance sheet
Cash and cash equivalents
Current assets (other than cash and cash equivalents and current financial
assets)
Long-term assets (other than long-term financial assets)
Current liabilities (other than current financial liabilities)
Current financial liabilities
Long-term liabilities (other than long-term financial liabilities)
Long-term financial liabilities
Statement of earnings (loss)
Sales
Depreciation and amortization
Financing expense
Provision for income taxes
Net earnings (loss)
Other comprehensive income (loss)
Translation adjustment
Total comprehensive income (loss)
Cash flow
Dividend received from joint ventures
CASCADES SONOCO INC.
CASCADES CONVERSION
INC.
CONVERDIS INC.
2015
MARITIME PAPER
PRODUCTS LIMITED
PARTNERSHIP
2
26
15
5
1
4
1
120
1
1
4
9
5
14
4
2
14
21
3
1
2
—
64
1
—
2
7
—
7
3
1
7
5
2
2
1
—
25
—
—
—
1
—
1
—
—
18
32
5
3
—
12
96
2
1
—
(1)
—
(1)
—
There are no contingent liabilities relating to the Corporation's interest in the joint ventures, and no contingent liabilities of the ventures
themselves.
107
107
D. SUBSIDIARIES WITH NON-CONTROLLING INTERESTS
The Corporation's information for its subsidiaries with significant non-controlling interests is as follows:
(in millions of Canadian dollars, unless otherwise noted)
RENO DE MEDICI S.p.A.
RENO DE MEDICI S.p.A.
PACKAGING CASCADES RECOVERY INC.
As at December 31,
2016
As at December 31, 2015
NORCAN FLEXIBLE
Principal establishment
% of shares held by non-controlling interests
Net earnings attributable to non-controlling interests
Non-controlling interests accumulated at the end of the year
Dividends paid to non-controlling interests
Balance sheet
Cash and cash equivalents
Current assets (other than cash and cash equivalents and current financial
assets)
Long-term assets (other than long-term financial assets)
Current liabilities (other than current financial liabilities)
Current financial liabilities
Long-term liabilities (other than long-term financial liabilities)
Long-term financial liabilities
Statement of earnings
Sales
Depreciation and amortization
Provision for income taxes
Net earnings
Cash flow
Cash flows from operating activities
Cash flows used for investing activities
Cash flows from (used for) financing activities
Milan, Italy
42.30%
Milan, Italy
42.39%
2
90
1
41
231
299
178
23
68
82
702
32
5
5
56
(39)
(9)
6
96
—
35
214
305
159
24
61
81
655
32
5
13
41
(24)
12
Mississauga, Ontario,
Canada
Toronto, Ontario,
Canada
—%
1
N/A
—
N/A
N/A
N/A
N/A
N/A
N/A
N/A
16
1
—
4
1
—
—
—%
2
N/A
—
N/A
N/A
N/A
N/A
N/A
N/A
N/A
222
8
3
8
12
(6)
(7)
In the third quarter of 2015, the Specialty Products Group proceeded with the legal restructuring of its Norcan Flexible Packaging subsidiary,
which was owned at 62.1%. As a result of the restructuring, the Corporation now owns 100% of the net assets of this business through its
Cascades Flexible Packaging subsidiary. The Corporation recorded a gain of $5 million on the extinguishment of some liabilities following the
transaction (including $2 million attributable to non-controlling interests). The Corporation paid $2 million for the purchase of the non-controlling
interests and is attributed to retained earnings.
On November 27, 2015, the Corporation entered into an agreement for the acquisition of the 27% minority interest of Cascades Recovery for
a cash consideration of $32 million, payable over a 10-year period, and a $1 million contingent consideration. The $3 million excess of the
consideration over the carrying value of the non-controlling interests was attributed to retained earnings.This transaction consolidates our
leading position in recovery and recycling activities in Canada.
108
108
CASCADES 2016 ANNUAL REPORT / NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 follows:
(in millions of Canadian dollars)
Non-significant associates
Non-significant joint ventures
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
Non-significant joint ventures
2016
16
14
30
2016
2
4
6
2015
14
10
24
2015
1
4
5
The Corporation received dividends of $3 million from these associates and joint ventures as at December 31, 2016 (December 31, 2015 -
$3 million).
In 2015, the Corporation reviewed the recoverable amount of some of its other investments and recorded impairment charges of $2 million
in the share of results of associates and joint ventures in the consolidated statement of earnings.
109
109
NOTE 10
PROPERTY, PLANT AND EQUIPMENT
(in millions of Canadian dollars)
As at January 1, 2015
Cost
Accumulated depreciation and impairment
Net book amount
Year ended December 31, 2015
Opening net book amount
Additions
Disposals
Depreciation
Impairment charges
Other
Exchange differences
Closing net book amount
As at December 31, 2015
Cost
Accumulated depreciation and impairment
Net book amount
Year ended December 31, 2016
Opening net book amount
Additions
Disposals
Depreciation
Business acquisition, net of assets transferred
Reversal of impairment (charges)
Other
Exchange differences
Closing net book amount
As at December 31, 2016
Cost
Accumulated depreciation and impairment
Net book amount
NOTE
LAND
BUILDINGS
MACHINERY AND
EQUIPMENT
AUTOMOTIVE
EQUIPMENT
OTHER
TOTAL
110
3
107
107
—
—
—
—
—
4
111
113
2
111
111
—
(1)
—
1
—
1
(2)
110
110
—
110
681
313
368
368
4
(1)
(25)
(9)
11
18
366
717
351
366
366
5
—
(28)
7
2
39
(4)
387
740
353
387
2,554
1,587
967
967
32
(2)
(130)
(43)
66
63
953
2,675
1,722
953
953
45
(1)
(116)
—
(3)
55
(22)
911
2,553
1,642
911
93
60
33
33
11
—
(9)
—
1
1
37
104
67
37
37
25
—
(13)
—
—
6
—
55
126
71
55
195
97
98
98
118
(2)
(8)
(3)
(74)
12
141
272
131
141
141
131
(3)
(13)
—
(2)
(98)
(1)
155
282
127
155
3,633
2,060
1,573
1,573
165
(5)
(172)
(55)
4
98
1,608
3,881
2,273
1,608
1,608
206
(5)
(170)
8
(3)
3
(29)
1,618
3,811
2,193
1,618
25
6
25
Other property, plant and equipment include buildings and machinery and equipment in the process of construction or installation with a book
value of $90 million (December 31, 2015 - $94 million) and deposits on purchases of equipment amounting to $7 million (December 31, 2015 -
$5 million). The carrying value of finance-lease assets is $24 million (December 31, 2015 - $22 million).
In 2016, $2 million (2015 - $1 million) of interest incurred on qualifying assets was capitalized. The weighted average capitalization rate on
funds borrowed in 2016 was 5.56% (2015 - 5.84%).
110
110
CASCADES 2016 ANNUAL REPORT / NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 11
GOODWILL AND OTHER INTANGIBLE ASSETS WITH FINITE AND INDEFINITE USEFUL LIFE
APPLICATION
SOFTWARE AND
ERP
NOTE
CUSTOMER
RELATIONSHIPS
AND CLIENT
LISTS
OTHER
INTANGIBLE
ASSETS WITH
FINITE USEFUL
LIFE
TOTAL
INTANGIBLE
ASSETS WITH
FINITE USEFUL
LIFE
OTHER
INTANGIBLE
ASSETS WITH
INDEFINITE
USEFUL LIFE
TOTAL
INTANGIBLE
ASSETS WITH
INDEFINITE
USEFUL LIFE
GOODWILL
102
28
74
74
9
(7)
—
76
110
34
76
76
17
—
(10)
—
—
83
126
43
83
170
68
102
102
—
(10)
—
92
170
78
92
92
—
1
(9)
—
—
84
171
87
84
35
28
7
7
—
(1)
—
6
35
29
6
6
—
—
(3)
1
—
4
35
31
4
307
124
183
183
9
(18)
—
174
315
141
174
174
17
1
(22)
1
—
171
332
161
171
332
4
328
328
—
—
11
339
343
4
339
339
—
7
—
—
(2)
344
349
5
344
6
8
1
7
7
—
—
—
7
8
1
7
7
—
—
—
(1)
—
6
7
1
6
340
5
335
335
—
—
11
346
351
5
346
346
—
7
—
(1)
(2)
350
356
6
350
(in millions of Canadian dollars)
As at January 1, 2015
Cost
Accumulated amortization and impairment
Net book amount
Year ended December 31, 2015
Opening net book amount
Additions
Amortization
Exchange differences
Closing net book amount
As at December 31, 2015
Cost
Accumulated amortization and impairment
Net book amount
Year ended December 31, 2016
Opening net book amount
Additions
Business acquisition
Amortization
Other
Exchange differences
Closing net book amount
As at December 31, 2016
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
Employee future benefits
NOTE
2016
2015
17
9
5
27
46
87
(15)
72
12
7
43
33
95
(15)
80
Less: Current portion, included in accounts receivables
In 2012, the Corporation granted a US$15 million ($15 million) bridge loan to Greenpac Holding LLC (Greenpac) bearing interest ranging
from 7.5% to 9.5% depending on the mill debt/OIBD ratio. In May 2016, following the refinancing of its debt, Greenpac repaid the entire bridge
loan and accrued interest. As at December 31, 2015 the balance of the bridge loan was $8 million including accrued interest and was included
in Other assets. Deferred revenue for the supervision of Greenpac Mill, recorded in Other assets, stands at $12 million as at December 31, 2016
(December 31, 2015 - $17 million). These costs are repayable to the Corporation by Greenpac Mill over a five-year period.
111
111
NOTE 13
TRADE AND OTHER PAYABLES
(in millions of Canadian dollars)
Trade payables
Payables to related parties
Accrued expenses
NOTE 14
PROVISIONS FOR CONTINGENCIES AND CHARGES
NOTE
29
2016
472
44
145
661
2015
440
31
142
613
(in millions of Canadian dollars)
As at January 1, 2015
Additional provision
Reversal of provision
Payments
Revaluation
Exchange differences
As at December 31, 2015
Additional provision
Reversal of provision
Payments
Revaluation
As at December 31, 2016
Analysis of total provisions:
(in millions of Canadian dollars)
Long-term
Current
ENVIRONMENTAL
RESTORATION
OBLIGATIONS
ENVIRONMENTAL
COSTS
LEGAL CLAIMS
SEVERANCES
ONEROUS
CONTRACT
OTHER
TOTAL
PROVISIONS
8
—
—
(1)
2
—
9
—
—
(3)
2
8
14
1
—
(1)
—
—
14
5
(1)
(2)
—
16
3
—
—
(1)
—
1
3
1
—
(1)
—
3
5
2
—
(6)
1
—
2
7
—
(6)
—
3
7
4
(1)
(4)
—
—
6
4
—
(3)
—
7
7
—
(1)
(1)
—
—
5
3
(1)
(1)
—
6
2016
34
9
43
44
7
(2)
(14)
3
1
39
20
(2)
(16)
2
43
2015
34
5
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 these
sites.
ENVIRONMENTAL COSTS
An environmental provision is recorded when the Corporation has an obligation caused by its ongoing or 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.
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, 2016, 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 of its operations or its cash flows.
112
112
CASCADES 2016 ANNUAL REPORT / NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 site management plan relating to the
sediment quality adjacent to Thunder Bay's lagoon. Several meetings have been held during the last years with the MOE and Environment
Canada and a management plan based on sediment dredging has been proposed by a third party consultant. Both governments are looking
at this proposal with stakeholders to agree on this remediation action plan that would likely be implemented in the coming years.
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 material.
The Corporation has recorded an environmental reserve to address its estimated exposure for these matters.
NOTE 15
LONG-TERM DEBT
(in millions of Canadian dollars)
Revolving credit facility, weighted average interest rate of 2.30% as at December 31, 2016, consists of
$(19) million; US$82 million and €(1) million (December 31, 2015 - $(11) million; US$151 million and
€27 million)
5.50% Unsecured senior notes of $250 million
5.50% Unsecured senior notes of US$550 million
5.75% 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 debts of subsidiaries
Current portion of debts without recourse to the Corporation
MATURITY
2016
2015
2019
2021
2022
2023
90
250
738
336
62
105
1,581
15
1,566
13
23
36
1,530
238
250
761
346
61
106
1,762
18
1,744
10
24
34
1,710
a. On May 19, 2015, the Corporation issued US$250 million ($305 million) aggregate principal amount of 5.75% senior notes due in 2023. The
Corporation used the proceeds from this offering of notes to repurchase a total of US$250 million aggregate principal amount of 7.875%
senior notes due in 2020 for a total consideration of US$250 million ($305 million). The Corporation also paid premiums of US$11 million
($13 million) to repurchase the 2020 notes, as well as fees and expenses in connection with the offering and the tender offer totalling $5 million.
Issuance proceeds and credit facility were used as follows:
(in millions of Canadian dollars)
Debt issuance
Offering and tender offer fees
Refinanced debt repurchase
Premium paid on refinanced debt
Increase of credit facility
2015
305
(5)
(305)
(13)
18
113
113
b. On July 7, 2015, the Corporation entered into an agreement with its lenders to extend and amend its existing $750 million credit facility. The
amendment provides that the term of the facility is extended to July 2019, and that the applicable pricing grid is slightly lowered to better
reflect market conditions. The other existing financial conditions are essentially unchanged.
c. As at December 31, 2016, accounts receivable and inventories totaling approximately $715 million (December 31, 2015 - $672 million) as
well as property, plant and equipment totaling approximately $250 million (December 31, 2015 - $265 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
NOTE 16
OTHER LIABILITIES
(in millions of Canadian dollars)
Employee future benefits
Other
Less: Current portion, included in Trade and other payables
MINIMUM PAYMENTS
2016
PRESENT VALUE OF
PAYMENTS
MINIMUM PAYMENTS
2015
PRESENT VALUE OF
PAYMENTS
8
19
7
34
6
28
7
15
6
28
—
28
NOTE
17
5
16
8
29
6
23
2016
174
8
182
(4)
178
4
13
6
23
—
23
2015
174
9
183
(5)
178
114
114
CASCADES 2016 ANNUAL REPORT / NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 17
EMPLOYEE FUTURE BENEFITS
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
Net long-term liabilities on balance sheet
Income statement charge for
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
NOTE
17(a)
17(b)
17(a)
17(b)
2016
22
106
128
7
20
5
32
(13)
2
(11)
2015
36
105
141
9
20
8
37
(22)
(3)
(25)
A. DEFINED BENEFIT PENSION PLANS
The Corporation offers funded and unfunded defined benefit pension plans, defined contribution pension plans and group RRSPs 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 not
partially adjusted based on inflation.
The majority of benefit payments are payable from 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 practices 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.
115
115
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, 2015
Current service cost
Interest expense (income)
Impact on profit or loss
Remeasurements
Return on plan assets, excluding amounts included in interest expense (income)
Gain from change in financial assumptions
Experience gains
Change in asset ceiling, excluding amounts included in interest expense
Impact of remeasurements on other comprehensive income
Exchange differences
Business disposal
Contributions
Employers
Plan participants
Benefit payments
As at December 31, 2015
Current service cost
Interest expense (income)
Impact on profit or loss
Remeasurements
Return on plan assets, excluding amounts included in interest expense (income)
Loss from change in financial assumptions
Experience gains
Change in asset ceiling, excluding amounts included in interest expense
Impact of remeasurements on other comprehensive income
Exchange differences
Contributions
Employers
Plan participants
Benefit payments
As at December 31, 2016
PRESENT VALUE
OF OBLIGATION
FAIR VALUE OF
PLAN ASSETS
512
6
18
24
—
(10)
(2)
—
(12)
3
—
—
2
(45)
484
5
18
23
—
11
(9)
—
2
(1)
—
2
(28)
482
(453)
—
(15)
(15)
(16)
—
—
—
(16)
(1)
2
(14)
(2)
45
(454)
—
(16)
(16)
(9)
—
—
—
(9)
—
(7)
(2)
28
(460)
IMPACT OF
MINIMUM
FUNDING
REQUIREMENT
(ASSET CEILING)
—
TOTAL
59
TOTAL
59
6
3
9
(16)
(10)
(2)
—
(28)
2
2
(14)
—
—
30
5
2
7
(9)
11
(9)
—
(7)
(1)
(7)
—
—
22
—
—
—
—
—
—
6
6
—
—
—
—
—
6
—
—
—
—
—
—
(6)
(6)
—
—
—
—
—
6
3
9
(16)
(10)
(2)
6
(22)
2
2
(14)
—
—
36
5
2
7
(9)
11
(9)
(6)
(13)
(1)
(7)
—
—
22
116
116
CASCADES 2016 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
Present value of unfunded obligations
Liabilities (assets) on balance sheet
(in millions of Canadian dollars)
Present value of funded obligations
Fair value of plan assets
Deficit (surplus) of funded plans
Present value of unfunded obligations
Liabilities (assets) on balance sheet
CANADA
UNITED STATES
EUROPE
411
454
(43)
37
(6)
10
6
4
—
4
—
—
—
24
24
CONTAINERBOARD
385
427
(42)
8
(34)
BOXBOARD
EUROPE
—
SPECIALTY
PRODUCTS
—
—
—
24
24
—
—
2
2
TISSUE PAPERS
CORPORATE
35
32
3
2
5
1
1
—
25
25
(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
Liabilities on balance sheet
CANADA
UNITED STATES
EUROPE
413
448
(35)
6
36
7
10
6
4
—
—
4
—
—
—
—
25
25
(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
Liabilities (assets) on balance sheet
CONTAINERBOARD
388
422
(34)
6
8
(20)
BOXBOARD
EUROPE
—
SPECIALTY
PRODUCTS
—
—
—
—
25
25
—
—
—
1
1
TISSUE PAPERS
CORPORATE
34
30
4
—
2
6
1
2
(1)
—
25
24
2016
TOTAL
421
460
(39)
61
22
2016
TOTAL
421
460
(39)
61
22
2015
TOTAL
423
454
(31)
6
61
36
2015
TOTAL
423
454
(31)
6
61
36
Effective on January 1, 2016, the Corporation uses different discount rates to determine the obligation and the current service cost. The
significant actuarial assumptions are as follows:
Discount rate obligation (ending period)
Discount rate obligation (beginning period)
Discount rate (current service cost)
Salary growth rate
Inflation rate
2016
2015
CANADA
UNITED STATES
EUROPE
CANADA
UNITED STATES
EUROPE
3.7%
3.9%
4.1%
Between
1.75% and 3%
Between
2.25% and
2.5%
3.73%
3.9%
3.9%
N/A
1.9%
2.1%
2.1%
—
N/A
1.75%
3.9%
3.75%
3.75%
Between
1.75% and 3%
Between
2.25% and
2.5%
3.9%
3.62%
3.62%
N/A
2.1%
1.9%
1.9%
—
N/A
1.75%
117
117
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 93% 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
2016
21.6
24.1
22.7
25
2015
21.6
24
22.7
25
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%
(3.1)%
0.4 %
3.1 %
(0.4)%
INCREASE / DECREASE BY 1 YEAR IN ASSUMPTION
2.8 %
2016
%
2.0 %
TOTAL
9
114
24.8 %
71
14
85
2
19
109
21
151
94
7
101
460
18.5 %
32.8 %
21.9 %
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
Foreign bond mutual funds
Canadian equity mutual funds
Foreign equity mutual funds
Alternative investments funds
Other
Insured annuities
Derivatives contract, net
LEVEL 1
LEVEL 2
LEVEL 3
9
47
71
14
—
16
—
—
—
7
164
—
67
—
—
2
3
109
21
94
—
296
—
—
—
—
—
—
—
—
—
—
—
118
118
CASCADES 2016 ANNUAL REPORT / NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in millions of Canadian dollars)
Cash and short-term investments
Bonds
Canadian bonds
Shares
Canadian shares
Foreign shares
Mutual funds
Foreign bond mutual funds
Canadian equity mutual funds
Foreign equity mutual funds
Alternative investments funds
Other
Insured annuities
Derivatives contract, net
LEVEL 1
LEVEL 2
LEVEL 3
17
57
65
15
—
—
—
—
—
7
161
—
72
—
—
2
18
118
20
63
—
293
—
—
—
—
—
—
—
—
—
—
—
TOTAL
17
2015
%
3.8 %
129
28.4 %
65
15
80
2
18
118
20
158
63
7
70
454
17.6 %
34.8 %
15.4 %
The plan assets include shares of the Corporation for an amount of less than $1 million. These shares were bought by one of the asset
managers. Annual benefit annuities of an approximate value of $94 million are pledged by insurance contracts.
B. POST-EMPLOYMENT BENEFITS OTHER THAN DEFINED BENEFIT PENSION PLANS
The Corporation also offers 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 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
Liabilities on balance sheet
(in millions of Canadian dollars)
Present value of unfunded obligations
Liabilities on balance sheet
(in millions of Canadian dollars)
Present value of unfunded obligations
Liabilities on balance sheet
CANADA
UNITED STATES
EUROPE
78
78
4
4
24
24
CONTAINERBOARD
41
41
BOXBOARD
EUROPE
24
24
SPECIALTY
PRODUCTS
6
6
TISSUE PAPERS
CORPORATE
13
13
22
22
CANADA
UNITED STATES
EUROPE
77
77
4
4
24
24
(in millions of Canadian dollars)
CONTAINERBOARD
Present value of unfunded obligations
Liabilities on balance sheet
42
42
.
119
BOXBOARD
EUROPE
24
24
SPECIALTY
PRODUCTS
6
6
TISSUE PAPERS
CORPORATE
13
13
20
20
2016
TOTAL
106
106
2016
TOTAL
106
106
2015
TOTAL
105
105
2015
TOTAL
105
105
119
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, 2015
Current service cost
Interest expense
Plan changes
Impact on profit or loss
Remeasurements
Gain from change in financial assumptions
Experience gains
Impact of remeasurements on other comprehensive income
Exchange differences
Business disposal
Contributions and premiums paid by the employer
Benefit payments
As at December 31, 2015
Current service cost
Interest expense
Impact on profit or loss
Remeasurements
Loss from change in financial assumptions
Impact of remeasurements on other comprehensive income
Exchange differences
Contributions and premiums paid by the employer
Benefit payments
As at December 31, 2016
PRESENT VALUE OF
OBLIGATION FAIR VALUE OF PLAN ASSET
—
109
2
4
3
9
(1)
(2)
(3)
2
(4)
—
(8)
105
2
3
5
2
2
(1)
—
(5)
106
—
—
—
—
—
—
—
—
—
(8)
8
—
—
—
—
—
—
—
(5)
5
—
TOTAL
109
2
4
3
9
(1)
(2)
(3)
2
(4)
(8)
—
105
2
3
5
2
2
(1)
(5)
—
106
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 of 4.50% a year (2015 - 4.50%).
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%
1.0%
(2.4)%
0.6 %
2.3 %
2.5 %
(0.6)%
(1.9)%
INCREASE / DECREASE BY 1 YEAR IN ASSUMPTION
1.3 %
120
120
CASCADES 2016 ANNUAL REPORT / NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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; and if plan assets underperform this yield,
it will create an experience loss. Both the Canadian and U.S. 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 Canadian pension plans, which represent 98% 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 improves and/or the rate of return on bonds
used for solvency valuations increases.
The first step 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, this 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. As at December 31, 2016, 59% of the plan's assets are invested in bonds, in kind or through futures. The second step
began in 2014 with the purchase of annuities from a life insurance company for some pensioners. In September 2016, the Corporation
continues the process by purchasing annuities for other groups of retirees. As at December 31, 2016, the total value of insured annuities is
$94 million.
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 an individual stock would not have a big impact 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 benefits paid are not indexed. Only future benefits for active members are based on salaries. Therefore, this risk is not significant.
Life expectancy
The majority of the plans’ obligations are to provide benefits for the member's lifetime, 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 using
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, 2016, the aggregate surplus of the Corporation’s funded pension plans (mostly in Canada) amounted to $39 million (a
surplus of $31 million as at December 31, 2015). The Corporation will make special payments of $1 million for past service to fund the Canadian
pension plan deficit over ten years. Current agreed expected service contributions amount to $3 million and will be made in the normal course.
As for the cash flow requirement, these pension plans are expected to require a net contribution of approximately $7 million in 2017.
The weighted average duration of the defined benefit obligation is 12 years (2015 - 12 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, 2016
LESS THAN A
YEAR
29
BETWEEN 1-2
YEARS
30
BETWEEN 2-5
YEARS
91
9
38
7
37
28
119
OVER 5 YEARS
772
130
902
TOTAL
922
174
1,096
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, 2016.
121
121
NOTE 18
INCOME TAXES
a. The provision for (recovery of) income taxes is as follows:
(in millions of Canadian dollars)
Current taxes
Deferred taxes
2016
11
34
45
2015
(1)
41
40
b. The provision for 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
Reassessment
Reversal of deferred tax assets on tax losses
Permanent differences - others
Change in unrecognized to recognized tax asset in operating losses
Tax rates changes
Change in temporary differences
Provision for income taxes
2016
48
2
1
—
(5)
(3)
2
—
(3)
45
Weighted average income tax rate for the year ended December 31, 2016, was 26.2% (2015 - 26.8%).
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
Actuarial gain on post-employment benefit obligations
2016
3
3
3
9
2015
(4)
(4)
5
18
7
—
—
18
44
40
2015
(13)
1
7
(5)
d. The analysis of deferred tax assets and deferred tax liabilities, without taking into consideration the offsetting of balances within the
same tax jurisdiction, 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 liabilities:
Deferred income tax liabilities to be used after more than 12 months
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)
Included in discontinued operations
Exchange differences
As at December 31
122
122
2016
2015
279
319
(40)
297
305
(8)
2016
2015
(8)
(34)
5
(9)
—
6
(40)
47
(41)
—
5
1
(20)
(8)
CASCADES 2016 ANNUAL REPORT / NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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, 2015
Through statement of earnings (loss)
Through statement of comprehensive
income (loss)
Exchange differences
As at December 31, 2015
Through statement of earnings (loss)
Variance of income tax credit
Through statement of comprehensive
income (loss)
Exchange differences
As at December 31, 2016
RECOGNIZED
TAX BENEFIT
ARISING FROM
INCOME TAX
LOSSES
EMPLOYEE
FUTURE
BENEFITS
EXPENSE ON
RESEARCH
UNUSED TAX
CREDITS
FINANCIAL
INSTRUMENTS
FOREIGN
EXCHANGE
LOSS ON LONG-
TERM DEBT
OTHERS
TOTAL
163
(24)
—
2
141
19
—
—
(1)
159
34
(3)
(7)
1
25
2
—
(3)
—
24
70
(32)
—
—
38
(23)
—
—
—
15
39
(1)
—
1
39
(3)
5
—
—
41
8
7
—
1
16
(8)
—
(3)
—
5
—
23
—
—
23
(2)
—
(3)
1
19
14
1
—
—
15
1
—
—
—
16
328
(29)
(7)
5
297
(14)
5
(9)
—
279
DEFERRED INCOME TAX LIABILITIES
(in millions of Canadian dollars)
As at January 1, 2015
Through statement of earnings (loss)
Through statement of comprehensive loss
Included in discontinued operations
Exchange differences
As at December 31, 2015
Through statement of earnings (loss)
Exchange differences
As at December 31, 2016
PROPERTY,
PLANT AND
EQUIPMENT
FOREIGN
EXCHANGE
GAIN ON LONG-
TERM DEBT
INTANGIBLE
ASSETS
INVESTMENTS
OTHERS
TOTAL
134
22
—
—
13
169
14
(3)
180
17
(5)
(12)
—
—
—
—
—
—
51
(1)
—
—
1
51
3
(1)
53
68
5
—
—
11
84
3
(2)
85
11
(9)
—
(1)
—
1
—
—
1
281
12
(12)
(1)
25
305
20
(6)
319
When taking into consideration the offsetting of balances within the same tax jurisdiction, the net deferred tax liability of $40 million is presented
on the balance sheet as $179 million of deferred income tax asset amounts and $219 million of deferred income tax liabilities.
123
123
e. The Corporation has recognized accumulated losses for income tax purposes amounting to approximately $575 million, which may be
carried forward to reduce taxable income in future years. The future tax benefit of $159 million resulting from the deferral 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, 2016 are detailed as follows:
(in millions of Canadian dollars)
Canada
United States
Europe
NOTE 19
CAPITAL STOCK
RECOGNIZED TAX LOSSES
MATURITY
7
14
2
16
69
135
82
123
16
60
2
2
2
3
2
1
13
1
25
575
2026
2027
2029
2030
2031
2032
2033
2034
2035
2036
2020
2029
2031
2032
2033
2034
2035
2036
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
Total equity
Total capital
2016
(62)
28
1,566
1,532
1,074
2,606
2015
(60)
37
1,744
1,721
963
2,684
The Corporation's objectives when managing capital are:
•
•
•
•
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 that the Corporation remains competitive; and
to redeem common shares based on an annual redemption program.
The Corporation sets the amount of capital in proportion to risk. The Corporation manages its capital structure and makes adjustments to it
in light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital
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.
124
124
CASCADES 2016 ANNUAL REPORT / NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 operating leases and other accrued obligations
(2016 - $1,512 million; 2015 - $1,711 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 OIBD to interest expense. The OIBD 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 (2016 - $379 million; 2015 - $364 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 unrealized gains or losses arising from hedging agreements. It also excludes any gains or losses on the translation of 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 indentures dated June 19, 2014 and May 19, 2015.
As at December 31, 2016, the funded debt-to-capitalization ratio stood at 55.91% and the interest coverage ratio was 4.52x. The Corporation
is in compliance with the ratio requirements of its lenders.
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 Indentures dated June 19, 2014 and May 19, 2015.
The Corporation historically invests between $100 million and $200 million annually on 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 on 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:
NOTE
NUMBER OF COMMON
SHARES
IN MILLIONS OF CANADIAN
DOLLARS
NUMBER OF COMMON
SHARES
IN MILLIONS OF CANADIAN
DOLLARS
2016
2015
Balance - beginning of year
Common shares issued on exercise of stock options
19(d)
Reversal of contributed surplus on exercise of stock
options
Redemption of common shares
Balance - end of year
19(c)
95,310,923
262,836
—
(1,047,243)
94,526,516
490
1
1
(5)
487
94,186,474
1,168,349
—
(43,900)
95,310,923
483
5
2
—
490
125
125
C. REDEMPTION OF COMMON SHARES
In 2016, in the normal course of business, the Corporation renewed its redemption program of a maximum of 1,907,173 common shares with
the Toronto Stock Exchange, said shares representing approximately 2% of issued and outstanding common shares. The redemption
authorization is valid from March 17, 2016 to March 16, 2017. In 2016, the Corporation redeemed 1,047,243 common shares under this
program for an amount of $9 million (2015 - 43,900 common shares for a non-significant consideration).
D. COMMON SHARE ISSUANCE
The Corporation issued 262,836 common shares upon the exercise of options for an amount of $1 million (2015 - $5 million for
1,168,349 common shares issued).
E. NET EARNINGS (LOSS) PER COMMON SHARE
The basic and diluted net earnings (loss) per common share is calculated as follows:
Net earnings (loss) available to common shareholders (in millions of Canadian dollars)
Weighted average number of basic common shares outstanding (in millions)
Weighted average number of diluted common shares outstanding (in millions)
Basic net earnings (loss) per common share (in Canadian dollars)
Diluted net earnings (loss) per common share (in Canadian dollars)
2016
135
95
97
1.42 $
1.39 $
2015
(65)
94
94
(0.69)
(0.69)
$
$
As at December 31, 2016 and 2015, no stock option had an antidilutive effect. As of March 1, 2017, no common share had been redeemed
by the Corporation since the beginning of the financial year.
F. DETAILS OF DIVIDENDS DECLARED PER COMMON SHARE ARE AS FOLLOWS
Dividends declared per common share
NOTE 20
STOCK-BASED COMPENSATION
$
2016
0.16 $
2015
0.16
a. Under the terms of a share option plan adopted on December 15, 1998, amended on March 15, 2013, and approved by Shareholders on
May 8, 2013, a remaining balance of 2,368,580 common shares has been specifically reserved for issuance for officers and key employees
of the Corporation. 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 (2015 - $1 million).
Changes in the number of options outstanding as at December 31, 2016 and 2015 are as follows:
Beginning of year
Granted
Exercised
Expired
Forfeited
End of year
Options exercisable - end of year
NUMBER OF OPTIONS
2016
WEIGHTED AVERAGE
EXERCISE PRICE $
NUMBER OF OPTIONS
2015
WEIGHTED AVERAGE
EXERCISE PRICE $
5,262,796
351,461
(262,836)
(257,885)
—
5,093,536
4,086,275
6.16
9.75
5.51
11.49
—
6.17
5.79
6,432,328
462,644
(1,168,349)
(258,090)
(205,737)
5,262,796
4,027,950
5.96
7.66
4.44
11.85
5.92
6.16
6.17
The weighted average share price at the time of exercise of the options was $12.14 (2015 - $10.35).
126
126
CASCADES 2016 ANNUAL REPORT / NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following options were outstanding as at December 31, 2016:
YEAR GRANTED
NUMBER OF OPTIONS
WEIGHTED AVERAGE
EXERCISE PRICE $
NUMBER OF OPTIONS
WEIGHTED AVERAGE
EXERCISE PRICE $
EXPIRATION DATE
OPTIONS OUTSTANDING
OPTIONS EXERCISABLE
2007
2008
2009
2009
2010
2011
2012
2013
2014
2015
2016
282,383
359,236
24,298
968,333
444,124
512,622
832,726
464,284
453,647
400,422
351,461
5,093,536
11.83
7.81
2.28
3.92
6.43
6.26
4.46
5.18
6.10
7.66
9.75
282,383
359,236
24,298
968,333
444,124
512,622
832,726
347,574
221,977
93,002
—
4,086,275
11.83
7.81
2.28
3.92
6.43
6.46
4.46
5.18
6.10
7.66
—
2017
2018
2019
2019
2020
2021
2017 & 2022
2017 & 2023
2017 & 2024
2025
2026
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 $2.75 (2015 - $2.05), 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
$
$
2016
10.09
9.75
$
$
1.04%
1.58%
6 years
31%
2015
7.76
7.66
1.29%
2.06%
6 years
32%
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 25% of the employee's contribution to
the plan.
The shares are purchased on the market on a predetermined date each month. For the year ended December 31, 2016, the Corporation's
contribution to the plan amounted to $1 million (2015 - $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 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, 2016, the Corporation had a total of 205,773 DSUs outstanding (2015 -
185,041 DSUs), representing a long-term liability of $3 million (2015 - $3 million). On January 15, 2017, the Corporation issued 41,503 DSUs
and had a total of 247,276 DSUs outstanding.
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. 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.
127
127
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, 2016, the Corporation had a total of 761,367 PSUs outstanding (2015 - 931,786 PSUs),
representing a liability of $5 million (2015 - $7 million). In 2016, the Corporation made payments totaling $5 million in relation to PSUs (2015
- $2 million).
NOTE 21
ACCUMULATED OTHER COMPREHENSIVE LOSS
(in millions of Canadian dollars)
2016
2015
Foreign currency translation, net of hedging activities and related income tax of $16 million (December 31, 2015 -
$19 million)
Unrealized loss arising from commodity derivative financial instruments designated as cash flow hedges, net of related
income taxes of $2 million (December 31, 2015 - $5 million)
Unrealized gain (loss) on available-for-sale financial assets, net of related income taxes of nil (December 31, 2015 -
nil)
Unrealized loss on share of other comprehensive income of associates, net of related income taxes of $9 million
(December 31, 2015 - $9 million)
NOTE 22
COST OF SALES BY NATURE
(in millions of Canadian dollars)
Raw material
Wages and employee benefits expenses
Energy
Delivery
Depreciation and amortization
Other
SELLING AND ADMINISTRATIVE EXPENSES BY NATURE
(in millions of Canadian dollars)
Wages and employee benefits expenses
Information technology
Publicity and marketing
Other
(13)
(5)
(1)
(12)
(31)
2016
1,612
662
248
269
192
397
3,380
2016
271
46
15
70
402
(4)
(12)
1
(12)
(27)
2015
1,532
641
266
259
190
373
3,261
2015
244
28
16
72
360
128
128
CASCADES 2016 ANNUAL REPORT / NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 benefit plans
Pension costs - defined contribution plans
Post-employment benefits other than defined benefit pension plans
NOTE
22
20(a)
17
17
17
2016
933
1
7
20
5
966
2015
885
1
9
20
8
923
KEY MANAGEMENT COMPENSATION
Key management includes the members of the Board of Directors, Presidents and Vice Presidents of the Corporation (same as disclosed
in annual information form in section 8.3). 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
Share-based payments
NOTE 24
GAIN ON ACQUISITIONS, DISPOSALS AND OTHERS
(in millions of Canadian dollars)
Gain on disposal of assets
2016
11
4
15
2015
11
4
15
2016
(4)
2015
(1)
2016
Fourth quarter
• The Specialty Products Group recorded a $3 million gain on the sale of pieces of land close to the former fine paper plant located in St-
Jérôme, Québec. The Group also recorded a $3 million environmental provision mainly related to closed plants in Québec, closed in previous
years.
Second quarter
• The Specialty Products Group recorded a $4 million gain on the sale of assets following the closure of its de-inked pulp mill located in
Auburn, Maine.
2015
Third quarter
• The Containerboard Packaging Group sold a warehouse in Québec City and recorded a $1 million gain.
129
129
NOTE 25
IMPAIRMENT CHARGES AND RESTRUCTURING COSTS
A.
IMPAIRMENT CHARGES (REVERSALS) ON PROPERTY, PLANT AND EQUIPMENT, INTANGIBLE ASSETS WITH FINITE USEFUL
LIFE AND OTHER ASSETS
The Corporation recorded net impairment charges totaling $3 million in 2016 and net impairment charges of $69 million in 2015. 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.
Level 2 inputs are used to measure fair value. Impairments are detailed as follows:
(in millions of Canadian dollars)
Property, plant and equipment
CONTAINER-
BOARD
BOXBOARD
EUROPE
SPECIALTY
PRODUCTS
SUB-TOTAL
TISSUE PAPERS
CORPORATE
ACTIVITIES
2
—
(3)
(1)
4
—
PACKAGING PRODUCTS
2016
TOTAL
3
2015
PACKAGING PRODUCTS
(in millions of Canadian dollars)
Property, plant and equipment
Spare parts
Intangible assets with finite useful life and other
assets
CONTAINER-
BOARD
BOXBOARD
EUROPE
SPECIALTY
PRODUCTS
SUB-TOTAL
TISSUE PAPERS
CORPORATE
ACTIVITIES
TOTAL
—
—
—
—
45
11
—
56
10
1
—
11
55
12
—
67
—
—
—
—
—
—
2
2
55
12
2
69
2016
Fourth quarter
•
The Specialty Products Group sold the building of its closed de-inked pulp mill located in Auburn, Maine, and recorded a $2 million
reversal of impairment.
Third quarter
•
The Tissue Group incurred an additional impairment charge of $2 million related to the revaluation of some equipment following the
closure of its Toronto converting plant in the second quarter.
The Containerboard Packaging Group recorded a $2 million impairment charge on the assets of its converting plant in Connecticut which
were not part of the disposal related to the Rand-Whitney - Newtown plant acquisition.
The Specialty Products Group sold a piece of land related to a closed plant and recorded a $1 million reversal of impairment.
As a result of the transfer of the converting operations of the Toronto plant to other sites, the Tissue Group recorded an impairment
charge of $2 million related to the revaluation of some equipment that was not transferred. The recoverable amount was based on the
selling price of assets.
Second quarter
•
2015
Fourth quarter
•
•
•
•
The Boxboard Europe Group reviewed the recoverable value of its virgin boxboard mill located in France and allocated impairment
charges of $42 million on fixed assets and $11 million on spare parts. Sustained difficult market conditions led to insufficient profitability
to support the carrying value of these assets. The Group also recorded impairment charges of $2 million on fixed assets of plants that
were closed over past years.
Corporate activities reviewed the recoverable amount of a note receivable related to the sale of a plant in 2014 and recorded an impairment
charge of $2 million.
Third quarter
•
The Specialty Products Group reviewed the recoverable value of one of its plant and recorded impairment charges of $10 million on
fixed assets and $1 million on spare parts. Sustained difficult market conditions led to insufficient profitability to support the carrying value
of these assets. The recoverable amount was based on the selling price of assets.
Second quarter
•
The Boxboard Europe Group recorded impairment charges of $1 million related to closed plants. The recoverable amount was based
on the selling price of assets.
130
130
CASCADES 2016 ANNUAL REPORT / NOTES TO CONSOLIDATED FINANCIAL STATEMENTS B. GOODWILL AND OTHER INDEFINITE USEFUL LIFE INTANGIBLE ASSETS
Allocation of goodwill and other indefinite useful life intangible assets is as follows:
• Packaging Containerboard Group goodwill of $292 million is allocated to all Containerboard CGUs;
• Specialty Products Group goodwill is allocated to all Cascades Recovery CGUs, $13 million, and the Partitioning activities CGU, $3 million;
• Tissue Group goodwill of $36 million is allocated to all Tissue CGUs;
• Water rights of $6 million are allocated to RdM's CGU.
Annually, the Corporation must test all of its goodwill for impairment, except if the following three conditions are met:
•
•
the assets and liabilities making up the unit have not changed significantly since the most recent recoverable amount calculation;
the most recent recoverable amount calculation resulted in an amount that exceeded the carrying amount of the unit by a substantial
margin; and
• based on an analysis of events that have occurred and circumstances that have changed since the most recent recoverable amount
calculation, the likelihood that a current recoverable amount determination would be less than the current carrying amount of the unit is
remote.
Given all three conditions were met for all goodwill, the Corporation did not perform impairment testing in 2016.
C. RESTRUCTURING COSTS (GAINS)
Restructuring costs (gains) are detailed as follows:
(in millions of Canadian dollars)
Containerboard Packaging Group
Boxboard Europe Group
Specialty Products Group
Tissue Group
Corporate activities
2016
2015
(1)
2
1
7
—
9
—
1
(5)
—
1
(3)
2016
Third quarter
•
The Tissue Group recorded a $3 million provision for an onerous lease as a consequence of the closure of its Toronto converting plant
in the second quarter.
Second quarter
•
The Containerboard Packaging Group recorded a $1 million gain on the reversal of a provision for an onerous lease contract in relation
to the restructuring of its Ontario converting activities in 2012.
The Boxboard Europe Group recorded restructuring costs of $2 million in relation to the reorganization of its activities following the
transfer of the virgin fibre boxboard mill located in La Rochette, France, to our Reno de Medici subsidiary.
The Specialty Products Group recorded restructuring costs of $1 million following the closure of its de-inked pulp mill located in Auburn,
Maine.
The Tissue Group incurred $4 million of severance costs following the transfer of the converting operations of the Toronto plant to other
Tissue Group sites.
•
•
•
131
131
2015
Third quarter
•
The Specialty Products Group proceeded with the legal restructuring of its Norcan Flexible Packaging subsidiary, which was owned at
62.1%. As a result of the restructuring, the Corporation now owns 100% of the net assets of this business through its Cascades Flexible
Packaging subsidiary. The Corporation recorded a gain of $5 million on the extinguishment of some liabilities following the transaction
(including $2 million attributable to non-controlling interests).
Second quarter
•
The Boxboard Europe Group recorded severance provision adjustments totalling $1 million related to plants closed over the past years.
The Corporate activities segment incurred $1 million of severance costs in relation to the reorganization of its activities.
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
2016
2015
(6)
(1)
(2)
66
(1)
56
(57)
(3)
(9)
33
(2)
(38)
2016
2015
83
(1)
3
3
5
93
88
(4)
4
3
6
97
132
132
CASCADES 2016 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, 2016 and 2015, 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
2016
2015
Financial assets at fair value through profit or
loss
Derivatives
Financial assets available for sale
Other investments
Investments in shares held for trading
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
10
1
1
(31)
10
1
1
(31)
13
2
1
(63)
13
2
1
(63)
(1,566)
(1,612)
(1,744)
(1,729)
2
(8)
2
(8)
—
(16)
—
(16)
133
133
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 upon the sale of 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.
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, 2016 and 2015 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 are:
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
Financial liabilities
Derivative financial liabilities
(in millions of Canadian dollars)
Financial assets
Other investments
Investments in shares held for trading
Derivative financial assets
Financial liabilities
Derivative financial liabilities
CARRYING AMOUNT
QUOTED PRICES IN ACTIVE
MARKETS FOR IDENTICAL
ASSETS (LEVEL1)
SIGNIFICANT
OBSERVABLE INPUTS
(LEVEL 2)
SIGNIFICANT
UNOBSERVABLE INPUTS
(LEVEL 3)
2016
1
1
12
14
(39)
(39)
—
1
—
1
—
—
1
—
12
13
(39)
(39)
—
—
—
—
—
—
2015
CARRYING AMOUNT
QUOTED PRICES IN ACTIVE
MARKETS FOR IDENTICAL
ASSETS (LEVEL1)
SIGNIFICANT
OBSERVABLE INPUTS
(LEVEL 2)
SIGNIFICANT
UNOBSERVABLE INPUTS
(LEVEL 3)
2
1
13
16
(79)
(79)
—
1
—
1
—
—
2
—
13
15
(79)
(79)
—
—
—
—
—
—
134
134
CASCADES 2016 ANNUAL REPORT / NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 a 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.
Summary
(in millions of Canadian dollars)
ASSETS
LIABILITIES
2016
RISK
Currency risk
Price risk
NOTE
SHORT-TERM
LONG-TERM
TOTAL
SHORT-TERM
LONG-TERM
TOTAL
27.4 A) (i)
27.4 A) (ii)
2
1
3
—
9
9
2
10
12
(20)
(3)
(23)
(13)
(3)
(16)
(33)
(6)
(39)
2015
(in millions of Canadian dollars)
ASSETS
LIABILITIES
RISK
Currency risk
Price risk
Interest risk
A. MARKET RISK
NOTE
SHORT-TERM
LONG-TERM
TOTAL
SHORT-TERM
LONG-TERM
TOTAL
27.4 A) (i)
27.4 A) (ii)
27.4 A) (iii)
—
1
—
1
1
11
—
12
1
12
—
13
(23)
(9)
—
(32)
(38)
(8)
(1)
(47)
(61)
(17)
(1)
(79)
(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, 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. Management has implemented a
policy for managing 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. 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.
In 2016, approximately 25% of sales from Canadian operations were made to the United States and 15% of sales from European operations
were made in countries whose currencies were other than the euro.
135
135
The following table summarizes the Corporation's commitments to buy and sell foreign currencies as at December 31, 2016 and 2015:
EXCHANGE RATE
MATURITY
NOTIONAL AMOUNT (IN
MILLIONS)
FAIR VALUE (IN MILLIONS
OF CANADIAN DOLLARS)
2016
Repayment of long-term debt
Derivatives at fair value through profit or loss and classified in
Foreign exchange loss (gain) on long-term debt:
Foreign exchange forward contracts to buy (US$ for CAN$)
Currency option sold to sell US$ (US$ for CAN$)
Currency option sold to sell US$ (US$ for CAN$)
Currency option sold to buy US$ (US$ for CAN$)
Cross currency swap (US$ for CAN$)
Net investment hedge
Cross currency swap (CAN$ for €)
Forecasted sales
Derivatives at fair value through profit or loss and classified in
Loss on derivative financial instruments:
Foreign exchange forward contracts to buy (US$ for CAN$)
1.06
1.15
1.15
1.0225
1.329
January 2020 US$
December 2017 US$
January 2020 US$
January 2020 US$
July 2023 US$
1.4263
December 2018 €
50
75
100
200
102
95
1.3543
0 to 12 months US$
20
Currency option instruments to sell (US$ for CAN$)
1.2709 to 1.2962
0 to 12 months US$ 48 to 92
Currency option instruments to sell (US$ for CAN$)
1.3042 to 1.3461
13 to 24 months US$ 15 to 40
13
(14)
(19)
(2)
(2)
(24)
1
—
(6)
(2)
(8)
(31)
In 2016, the Corporation offset $12 million in derivative assets against $19 million in derivative liabilities as we intend to settle the derivatives
on a net basis with one counterparty. During the year, the Corporation also received $3 million related to the settlement of a portion of its 2017
derivatives related to repayment of long-term debt.
EXCHANGE RATE
MATURITY
NOTIONAL AMOUNT (IN
MILLIONS)
FAIR VALUE (IN MILLIONS
OF CANADIAN DOLLARS)
2015
Repayment of long-term debt
Derivatives at fair value through profit or loss and classified in
Foreign exchange loss (gain) on long-term debt:
Foreign exchange forward contracts to buy (US$ for CAN$)
Foreign exchange forward contracts to buy (US$ for CAN$)
Currency option sold to sell US$ (US$ for CAN$)
Currency option sold to sell US$ (US$ for CAN$)
Currency option sold to buy US$ (US$ for CAN$)
Cross currency swap (€ for US$)
Forecasted sales
Derivatives designated as cash flow hedges and reclassified in
Sales (effective portion):
Foreign exchange forward contracts to sell (GBP for €)
Foreign exchange forward contracts to sell (€ for US$)
Derivatives at fair value through profit or loss and classified in
Loss on derivative financial instruments:
Foreign exchange forward contracts to sell (US$ for CAN$)
0.9997
1.06
1.1167
1.15
1.0225
1.05
December 2017 US$
January 2020 US$
December 2017 US$
January 2020 US$
January 2020 US$
February 2016 €
1.3141
1.0892
0 to 12 months €
0 to 12 months €
1.3882
0 to 12 months US$
150
50
300
100
200
80
1
1
20
Currency option instruments to sell (US$ for CAN$)
1.1434 to 1.1701
0 to 12 months US$ 45 to 90
Currency option instruments to sell (US$ for CAN$)
1.2675 to 1.2839
13 to 24 months US$ 35 to 60
Currency option instruments to sell (US$ for CAN$)
1.3705 to 1.4213
25 to 36 months US$ 5 to 20
54
14
(75)
(21)
(2)
(4)
(34)
—
—
—
—
(19)
(6)
(1)
(26)
(60)
136
136
CASCADES 2016 ANNUAL REPORT / NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In 2015, the Corporation offset $14 million in derivative assets against $22 million in derivative liabilities as we intend to settle the derivatives
on a net basis with one counterparty. For the same reason, the Corporation also offset $53 million of derivative liabilities against $54 million
in derivative assets with another counterparty
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 2016, 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 $3 million lower. This is 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 excludes the effect of this change on the denominated working capital components. The interest expense would have remained
relatively stable.
In 2016, if the Canadian dollar had strengthened by $0.02 against the euro with all other variables held constant, operating income before
depreciation for the year would have been approximately $1 million lower following the translation of operating income of the Corporation's
European operations.
CURRENCY RISK ON TRANSLATION OF SELF-SUSTAINING FOREIGN SUBSIDIARIES
The Corporation has certain investments in foreign operations whose net assets are exposed to foreign currency translation risk. The
Corporation may designate part of its long-term debt denominated in foreign currencies as a hedge of the net investment in self-sustaining
foreign subsidiaries. Gains or losses resulting from the translation to Canadian dollars of long-term debt denominated in foreign currencies
and designated as net investment hedges are recorded in Accumulated other comprehensive income (loss), net of related income taxes.
The table below shows the effect on consolidated equity of a 10% change in the value of the Canadian dollar against the US dollar and the
euro as at December 31, 2016 and 2015. The calculation includes the effect of currency hedges of net investment in US foreign entities and
assumes that no changes occurred other than a single currency exchange rate movement.
The exposures used in the calculations are the foreign currency-denominated equity and the hedging level as at December 31, 2016 and
2015, with the hedging instruments being the long-term debt denominated in US dollars.
Consolidated Shareholders' equity: Currency effect before tax of a 10% change:
(in millions of Canadian dollars)
10% change in the CAN$/US$ rate
10% change in the CAN$/euro rate
BEFORE HEDGES
HEDGES
107
13
73
13
2016
NET IMPACT
34
—
BEFORE HEDGES
HEDGES
111
1
64
—
2015
NET IMPACT
47
1
(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 material, 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.
137
137
The fair value of these contracts is as follows:
QUANTITY
MATURITY
2016
FAIR VALUE (IN MILLIONS
OF CANADIAN DOLLARS)
Forecasted purchases
Derivatives designated as held for trading and reclassified in Cost of sales
Electricity
109,500 MWh
2017 to 2018
Derivatives designated as cash flow hedges and reclassified in Cost of sales (effective
portion)
Natural gas:
Canadian portfolio
US portfolio
4,658,660 GJ
4,722,800 mmBtu
2017 to 2021
2017 to 2021
(1)
(4)
(1)
(6)
QUANTITY
MATURITY
2015
FAIR VALUE (IN MILLIONS
OF CANADIAN DOLLARS)
Forecasted purchases
Derivatives designated as held for trading and reclassified in Cost of sales
Electricity
127,284 MWh
2016 to 2017
Derivatives designated as cash flow hedges and reclassified in Cost of sales (effective
portion)
Natural gas:
Canadian portfolio
US portfolio
7,735,000 GJ
4,004,100 mmBtu
2016 to 2019
2016 to 2020
(1)
(9)
(7)
(17)
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, 2016 was $10 million (2015 - $11 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, 2016
and 2015. 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, 2016 and 2015, with the
hedging instruments being derivative commodity contracts.
Consolidated commodity consumption: Price change effect before tax:
(in millions of Canadian dollars1)
BEFORE HEDGES
HEDGES
NET IMPACT
BEFORE HEDGES
HEDGES
NET IMPACT
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$1/MWh change in electricity price
32
6
12
2
—
—
6
—
32
6
6
2
33
7
12
2
—
—
6
—
33
7
6
2
1 Sensitivity calculated with an exchange rate of 1.33 CAN$/US$ for 2016 and 1.38 CAN$/US$ for 2015.
2016
2015
138
138
CASCADES 2016 ANNUAL REPORT / NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (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, 2016, approximately 9% (2015 - 16%) of the
Corporation's long-term debt was at variable rates.
Based on the outstanding long-term debt as at December 31, 2016 the impact on interest expense of a 1% change in rate would be approximately
$1 million (impact on net earnings is approximately $1 million).
The Corporation holds interest rate swaps through RdM. These swaps are contracted to fix the interest rate on a notional amount of €38 million
and are maturing from 2020 to 2023. Fair value of these agreements is nil as at December 31, 2016 (December 31, 2015 - nil). In 2015, the
Corporation also had swaps for its North American operations (liability of $1 million).
(iv) Loss (gain) on derivative financial instruments is as follows:
(in millions of Canadian dollars)
Unrealized loss (gain) on derivative financial instruments
Realized loss on derivative financial instruments
2016
(18)
12
(6)
2015
18
10
28
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 credit worthy 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.
139
139
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 not collectable, it is written off against
the Provision 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, 2016.
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, 2016 and 2015:
(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
MORE THAN FIVE
YEARS
2016
28
661
90
28
661
95
1,324
1,735
62
105
39
71
110
39
2,309
2,739
28
661
2
74
14
28
23
830
—
—
2
74
13
24
5
118
—
—
91
464
25
44
9
633
—
—
—
1,123
19
14
2
1,158
2015
CARRYING
AMOUNT
CONTRACTUAL
CASH FLOWS
LESS THAN ONE
YEAR
BETWEEN ONE
AND TWO
YEARS
BETWEEN TWO
AND FIVE
YEARS
MORE THAN FIVE
YEARS
37
613
238
37
613
271
1,357
1,854
61
106
79
67
106
79
2,491
3,027
37
613
10
76
12
25
32
805
—
—
10
76
10
24
35
155
—
—
251
226
22
46
12
557
—
—
—
1,476
23
11
—
1,510
As at December 31, 2016, the Corporation had unused credit facilities of $768 million (December 31, 2015 - $621 million), net of outstanding
letters of credit of $26 million (December 31, 2015 - $26 million).
140
140
CASCADES 2016 ANNUAL REPORT / NOTES TO CONSOLIDATED FINANCIAL STATEMENTS D. OTHER RISK
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 Corporation 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, 2016, the off-balance sheet impact of the factoring
of receivables amounted to $31 million (€22 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.
NOTE 28
COMMITMENTS
a. The Corporation leases various properties, vehicles, equipment and others 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 and raw material commitments
2016
23
33
9
Capital expenditures and raw material 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
More than five years
NOTE
29
29
29
PROPERTY,
PLANT AND
EQUIPMENT
36
—
—
36
2016
INTANGIBLE
ASSETS
RAW MATERIAL
2
3
1
6
73
258
—
331
PROPERTY,
PLANT AND
EQUIPMENT
24
1
—
25
INTANGIBLE
ASSETS
RAW MATERIAL
2
4
1
7
75
301
38
414
2015
24
39
11
2015
141
141
NOTE 29
RELATED PARTY TRANSACTIONS
The Corporation entered into the following transactions with related parties:
(in millions of Canadian dollars)
2016
Sales to related parties
Purchases from related parties
2015
Sales to related parties
Purchases from related parties
JOINT VENTURES
ASSOCIATES
151
14
112
21
89
168
77
175
These transactions occurred in the normal course of operations and are measured at fair value.
In addition to related party balance presented in note 12, 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,
2016
December 31,
2015
18
21
2
42
17
13
9
22
The receivables from related parties arise mainly from sale transactions. The receivables are unsecured in nature and bear no interest. There
are no provision held against receivables from related parties. The payables to related parties arise mainly from purchase transactions. The
payables bear no interest.
Starting in June 2013, the Corporation entered into a take-or-pay agreement with its associate Greenpac. For a period of eight years, the
Corporation has the obligation to purchase a minimum quantity of 340,000 short tons per year from Greenpac. If the Corporation fails to
purchase the minimum quantity, it must compensate Greenpac for the lost gross margin on those short tons. Included in commitments in
Note 28 is the minimum amount to be paid to Greenpac, which corresponds to the potential lost gross margin on 340,000 tons.
142
142
CASCADES 2016 ANNUAL REPORT / NOTES TO CONSOLIDATED FINANCIAL STATEMENTS BOARD OF DIRECTORS
Cascades’ Board of Directors (BoD) and management believe that quality corporate governance helps ensure that the Corporation
is run efficiently and investor confidence is 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 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 while recognizing the
importance of independent directors. As of December 31, 2016, eight of the twelve Board members were independent. They meet at
least once yearly with no non-independent directors or senior managers present. 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
Alain Lemaire
Executive Chairman
of the Board
Kingsey Falls, Québec Canada
Director since 1967
Non-Independent
2
Louis Garneau
President
Louis Garneau Sports Inc.
Saint-Augustin-de-Desmaures
Québec Canada
Director since 1996
Independent
3
Sylvie Lemaire
Director of companies
Otterburn Park, Québec Canada
Director since 1999
Non-Independent
4
David McAusland
Partner
McCarthy Tétrault
Beaconsfield, Québec Canada
Director since 2003
Independent
5
Georges Kobrynsky
Director of companies
Outremont, Québec Canada
Director since 2010
Independent
6
Élise Pelletier
Director
Chambly, Québec Canada
Director since 2011
Independent
7
Sylvie Vachon
President and Chief
Executive Officer of
The Montréal Port Authority
Longueuil, Québec Canada
Director since 2013
Independent
8
Laurence G. Sellyn
Business Advisor and Consultant,
Corporate DIrector
Beaconsfield, Québec Canada
Director since 2013
Independent
9
Mario Plourde
President and Chief Executive
Officer of Cascades Inc.
Kingsey Falls, Québec Canada
Director since 2014
Non-Independent
10
Michelle Cormier
Consultant, Wynnchurch
Capital Canada
Montréal, Québec Canada
Director since 2016
Independent
11
Martin Couture
President and Chief Executive
Officer, Sanimax Inc. (Canada)
Montréal, Québec Canada
Director since 2016
Independent
12
Patrick Lemaire
President and Chief Executive
Officer, Boralex Inc.
Kingsey Falls, Québec Canada
Director since 2016
Non-Independent
143
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HISTORICAL FINANCIAL INFORMATION - 10 YEARS
For the years ended December 31,
(in millions of Canadian dollars, except per-common share amounts and ratios) (unaudited)
Financial information is not adjusted to reclassify the impact of discontinued operations, if any, and IFRS for years ended prior to 2011.
Highlights - Consolidated Results
Sales
Cost of sales and expenses
Adjusted operating income before depreciation and amortization (OIBD adjusted)
Depreciation and amortization
Adjusted operating income
Financing expense and interest expense on employee future benefits
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 interests
Net earnings (loss)
Net earnings (loss) per common share
Highlights - Consolidated Cash Flow
Cash flow generated by operating activities
Cash flow from operations
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 debt/OIBD*
Total debt/total debt + Shareholders' equity
Price to earnings
Price to book value
144
143
IFRS
2016
4,001
3,598
403
192
211
93
(22)
(10)
150
45
(32)
2
135
1.42
372
316
3.34
177
16
—
153
15
$
$
0.16
$
1.3%
316
1,618
3,813
1,566
90
984
10.41
$
94.5
43.5
1,144
12.10
13.67
7.72
$
$
$
3.4%
1.0x
4.1x
14.6%
10.5%
10.1%
4.3x
7.9%
3.8x
61.8%
8.5x
1.2x
IFRS
2015
3,885
3,462
423
190
233
97
91
99
(54)
39
(37)
9
(65)
(0.69)
270
307
3.28
156
—
(40)
100
15
0.16
1.3 %
398
1,608
3,848
1,744
96
867
9.10
95.3
39.7
1,211
12.71
13.00
6.49
(1.7)%
1.0x
4.4x
(7.4)%
11.2 %
10.9 %
4.4x
10.2 %
4.1x
67.3 %
N/A
1.4x
$
$
$
$
$
$
$
$
$
$
$
$
$
$
IFRS
2014
3,953
3,595
358
183
175
108
30
191
(154)
(11)
—
4
(147)
IFRS
2013
3,849
3,497
352
182
170
115
(2)
28
29
12
3
3
11
IFRS
2012
3,645
3,341
304
199
105
115
(8)
33
(35)
(4)
(2)
(7)
(22)
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)
(1.57)
$
0.11
$
(0.23)
$
1.03
$
0.18
$
0.61
$
(0.55)
$
$
250
251
2.67
172
—
(36)
88
15
$
232
226
2.41
136
—
—
(30)
15
$
199
154
1.64
141
14
—
(54)
15
$
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
2007
4,033
3,693
340
208
132
106
(59)
7
78
6
(27)
3
96
0.96
53
163
1.64
169
10
37
91
16
0.16
$
2.3 %
0.16
$
2.3%
0.16
$
3.9 %
0.16
$
3.6%
0.16
$
2.4%
0.16
$
1.8%
0.16
$
4.6 %
0.16
1.9%
308
1,592
3,673
1,596
110
893
9.48
$
94.2
45.0
661
7.02
7.60
5.64
$
$
$
(3.7)%
1.1x
3.7x
(14.9)%
9.5 %
9.1 %
3.3x
7.8 %
4.5x
64.8 %
N/A
0.7x
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%
62.5x
0.6x
295
1,659
3,694
1,475
116
978
400
1,703
3,728
1,407
136
1,029
479
1,777
3,724
1,395
24
1,257
484
1,912
3,792
1,469
21
1,304
10.42
$
10.87
$
13.01
$
13.41
$
$
$
$
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
$
$
$
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
$
$
$
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
$
$
$
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
144
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
12.09
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
145
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It’s not enough to give recovered materials a second life;
we also need to be thinking of their third, fourth, fifth
lives... and so on. This is the foundation of the Cascades
business model—the “closed-loop system1”—which, over
time, has become a key strategic asset. Recovered mate-
rials are converted into product, the product is then recy-
cled and once again becomes recovered materials. This
wheel, in its never-ending cycle, is what has enabled the
Corporation to establish its position as leader in the
North American recovered paper industry. Just another
green success by Cascades.
– Today, we manufacture and sell our wide range of products
to customers across North America and Europe.
– Our sales are divided as follow: 39% in Canada,
39% in the United States and 22% in Europe.
M ARKET
– 1.2M s.t. of recycled material are purchased
externally (68% brown, 23% white, 9%
groundwood)
– We collect 1.4M s.t. of recycled material via
our 19 recovery units. We use 29% of this
internally sourced material in our
manufacturing processes, and broker and
sell the rest externally.
CUSTOMERS
Our customers operate in
many business segments
including food services and
processing, health, education,
hospitality, government, industrial
manufacturing, and in the retail and
consumer business segments.
We operate 42 facilities2 in North
America and in Europe that convert
jumbo rolls into 1.2M s.t. of end user
products. We currently operate
11 Tissue, 18 Containerboard
Packaging, and 13 Specialty
Products converting
facilities.
C
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RECYCLIN
G A
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Our recovery units and
procurement team collect
and purchase 2.6M s.t. of
recycled fibre in North America
annually. We use 62% in our
manufacturing facilities, and sell the
remaining 38% of the material to our
external customers and clients.
E
C
O
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E
R
Y
Our 18 facilities2 in N.A. manufacture
1.6M s.t. of jumbo rolls and parent
rolls. We use approximately 55% of
this tonnage in our converting
operations, and sell the rest
externally. Our 6 facilities
in Europe manufacture
and sell 1.1M s.t.
of jumbo rolls.
M A N UFACTURING
– Our tissue products serve both the retail
and away-from-home markets.
– Our Containerboard Packaging Group makes industrial,
commercial and food packaging products.
– Products made by our Specialty Products Group
cater to the industrial and consumer products
packaging industries.
– We use 1.6 M s.t. of recycled fibre in our
North American business annually as well
as 0.2 M s.t. of virgin pulp.
– Our European Boxboard business uses
an additional 1.0 M s.t.of recycled fibre
and 0.1 M s.t. of virgin pulp.
146
1 2016 including 100% of Reno de Medici, a public Italian company, in which the Corporation holds a 57.7% equity interest. Excluding associates and joint ventures.
2 Including the integrated tissue paper manufacturing and converting facilities.
Prince George, BC
Edmonton, AB
Nanaimo, BC
Victoria, BC
Vancouver, BC
Surrey, BC
C
Richmond, BC
C
Calgary, AB
Kelowna, BC
Tacoma, WA
C
St. Helens, OR
Scappoose, OR*
M
C
C
Winnipeg, MB
Kingsey Falls, QC
C
Eau Claire, WI
CM
Grand Rapids, MI
C
Aurora, IL
C
Warrenton, MO
C
C
Kingman, AZ
Brownsville, TN
Memphis, TN
M
C
Rockingham, NC
C
M
C
C
Kinston, NC
Wagram, NC
C
Grand Prairie, TX
C
Birmingham, AL
NORTH AMERICA
LEGEND
Head Office
Containerboard Packaging Group
Boxboard Europe Group1
Specialty Products Group
Tissue Group
—
M Manufacturing facility
C Converting facility
CM Converting and
manufacturing facility
R Recovery facility
* Startup expected in Q1-2017
ONTARIO
E
D
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W
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R
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W
S
E
D
A
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S
A
C
Ottawa
Whitby
M
Belleville
C
Trenton
M
Barrie
C
Vaughan
C
Mississauga
C
Guelph
St. Marys
M
C
C
Putnam
Brantford
Scarborough
C
M
Toronto
C
1 Via our 57.7% equity ownership in Reno de Medici S.p.A., a public Italian company traded on the Milan and Madrid stock exchanges.
Québec
M
Trois-Rivières
Berthierville
C C
Lachute
CM
Laval
Vaudreuil
C
C
C
CM
Lachine
Montréal
Candiac
C
C
C
Drummondville
C
C
Saint-Césaire
Granby
Cabano
M
C
M
Victoriaville
C
C
CM
M
C
Kingsey Falls
Niagara Falls, NY
M M
Rochester, NY
Depew, NY
Lancaster, NY
C
Schenectady, NY
C
Mechanicville, NY
M
C
Albany, NY
Waterford, NY
Ransom, PA
C
Pittston, PA
M
C
Newtown, CT
C
Maspeth, NY
NORTHEASTERN
UNITED STATES
EUROPE
M
Arnsberg, DE
M
Blendecques, FR
C
Châtenois, FR
Saulcy-sur-Meurthe, FR
C
Santa Giustina, IT
M
M
Ovaro, IT
La Rochette, FR
M
Villa Santa Lucia, IT
M
By concentrating our activities in two sectors with strong
future prospects, we are able to weather market fluctua-
tions with greater confidence. Our diversified portfolio
gives us the latitude to invest in the most promising areas
within our industries, thus strengthening our position as an
important North American manufacturer and converter of
corrugated board, tissue papers and specialty packaging
products.
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1 Before inter-segment sales and corporate activities.
2 Before corporate activities.
3 Including associates and joint ventures.
4 Via our 57.7% equity ownership in Reno de Medici S.p.A., a public Italian company traded on the Milan and Madrid stock exchanges.
* Specialty Products Group
Canada 39%europe4 22%Tissue 32%SPG* 15%EUROPE4 19%$4,001 MBy segment1ToFromcontainerboard packaging 34%united states 39%canada 51%united states 28%europe4 21%88 facilities3By segmentBy countrycontainerboard packaging (24)europe4 (6)SPG* (38)tissuE (20)Canada (52)united states (28)europe4 (8) By segment2By countrycontainerboard packaging 45%TissuE 31%SPG* 13%EUROPE4 11%$403 MCanada 56%europe4 15%united states 29%
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cascades.com
Printed on Rolland EnviroMC Satin, 60 lb. Text and Rolland EnviroMC Print, 80 lb. The cover is certified Processed Chlorine Free and is made from 100% postconsumer
fibre. All papers are certified FSC® and EcoLogo and are made from renewable biogas energy.
Production: Communications Department of Cascades — Design: absolu — Prepress and printing: Impart Litho
Photography: Brühmüller photographe
Printed in Canada