T
R
O
P
E
R
L
A
U
N
N
A
7
1
0
2
S
E
D
A
C
S
A
C
POSITIONED
FOR GROWTH
2017
ANNUAL
REPORT
CASCADES
AT A GLANCE
2017
CLOSE TO $300 M
invested in property, plant and equipment, business
acquisitions and in our management systems
CONTAINERBOARD
PACKAGING
A Canadian leader
largest producer in North America
6TH
TISSUE
PAPERS
A Canadian leader
largest producer in North America
5TH
Our MISSION is to improve the well-being of people, communities and the
planet by providing sustainable and innovative solutions that create value.
WE CARE.
WE INNOVATE.
WE CREATE VALUE.
Our VISION is to be a key contributor to our customers’ success by
leading the way for sustainable packaging, hygiene and recovery solutions.
SALES
$4,321 M
1
fibre collector
in Canada
OPERATING INCOME
$175 M
ADJUSTED OIBD2
$393 M
2.9 M
short tons
of recycled fibre
saved from landfills
OSHA
RATE
2.25
923
facilities across Canada,
the United States and Europe
11,000
employees
in 5 countries
1 Through our joint venture Cascades Sonoco.
2 Please refer to the “Forward-looking Statements” and “Supplemental Information
on Non-IFRS Measures’’ sections for more details.
3 Including main associates and joint ventures.
4 Via our 57.8% equity ownership in Reno de Medici S.p.A., a public Italian company traded
on the Milan and Madrid stock exchanges.
5 OSHA frequency rate: Number of accidents with lost time or temporary assignments
or medical treatments X 200,000 hours/hours worked.
SPECIALTY
PRODUCTS
A North American leader in industrial
and food packaging products1
BOXBOARD
EUROPE4
2ND largest producer of coated
recycled boxboard in Europe
T
O
H
S
P
A
N
S
L
A
I
C
N
A
N
I
F
(In millions of Canadian dollars, unless otherwise noted)
SALES
Operating income
% of sales
Operating income before depreciation and amortization (OIBD)1
% of sales
Net earnings (net loss)
per common share
Dividend per share
ADJUSTED1
Operating income
% of sales
Operating income before depreciation and amortization (OIBD)1
% of sales
Net earnings
per common share
Return on assets1, 2
Return on capital employed1, 3
FINANCIAL POSITION (AS AT DECEMBER 31)
Total assets
Capital employed3
Net debt1
Net debt/adjusted OIBD1, 4
Equity attributable to shareholders
per common share
Working capital as a % of sales7
KEY INDICATORS
Total shipments (in thousands of short tons (s.t.))5
Manufacturing capacity utilization rate6
US$/CAN$ - Average exchange rate
2017
4,321
175
4.0%
390
9.0%
507
$5.35
$0.16
178
4.1%
393
9.1%
68
$0.72
9.2%
3.7%
4,382
3,646
1,522
3.6 x
1,455
$15.32
10.1%
3,114
93%
$0.77
2016
4,001
221
5.5%
413
10.3%
135
$1.42
$0.16
211
5.3%
403
10.1%
114
$1.21
10.8%
5.2%
3,813
3,142
1,532
3.8 x
984
$10.41
10.6%
2,812
92%
$0.75
2015
3,861
153
4.0%
343
8.9%
(65)
$(0.69)
$0.16
236
6.1%
426
11.0%
112
$1.18
11.3%
5.7%
3,848
3,170
1,721
4.0 x
867
$9.09
10.9%
2,823
92%
$0.78
1 See “Forward-looking statements” and “Supplemental information on non-IFRS measures” sections 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 less cash and cash equivalents. Not adjusted
for discontinued operations. Starting in Q2 2017, including Greenpac on a consolidated basis.
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 associates and joint
ventures, divided by the LTM quarterly average of capital employed. Capital employed is defined as the quarterly average of total assets less trade and other payables and cash and cash equiva-
lents. Not adjusted for discontinued operations. Including Greenpac as an associate up to Q1 2017 and on a consolidated basis starting in Q2 2017.
4 Adjusted ratio including discontinued operations. For 2017, including business combinations on a pro-forma basis.
5 Shipments do not take into account the elimination of business sector inter-segment shipments. Starting in Q2 2017, including Greenpac. Shipments from our Specialty Products segment
are not presented as they use different units of measure.
6 Defined as: Manufacturing internal and external shipments/practical capacity. Excluding discontinued operations and Specialty Products segment manufacturing activities. Starting in Q2 2017,
including Greenpac.
7 % 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 discontinued
operations. Starting in Q2 2017, including Greenpac.
SYMBOL:
CAS−TSX
(ON THE TORONTO STOCK EXCHANGE)
S&P / TSX
INDICES
- COMPOSITE
- SMALL CAP
- DIVIDEND
- CLEAN TECHNOLOGY
- COMPOSITE CANADA REVENUE
EXPOSURE
BMO INDICES
- SMALL CAP
- SMALL CAP QUÉBEC
S
T
H
G
I
L
H
G
I
H
L
A
I
C
N
A
N
I
F
95 MILLION
COMMON SHARES
OUTSTANDING
as at December 31, 2017
97 MILLION
TOTAL NUMBER OF COMMON
SHARES TRADED
in 2017
$0.04
QUARTERLY DIVIDEND
PER SHARE
in 2017
1.2%
ANNUAL
DIVIDEND YIELD
as at December 31, 2017
$18.20
INTRADAY HIGH
in 2017
$11.43
INTRADAY LOW
in 2017
$1,294 MILLION
MARKET CAPITALIZATION
as at December 31, 2017
Moody’s: ba2 (stable)
S&P: BB- (stable)
CORPORATE CREDIT RATINGS
as at December 31, 2017
CASCADES’ SHARE PRICE PERFORMANCE
IN 2017
$13.62
as at December 31, 2017
$19.00
$18.00
$17.00
$16.00
$15.00
$14.00
$13.00
$12.00
$11.00
$10.00
Jan
Feb
March
April
May
June
July
Aug
Sept
Oct
Nov
Dec
CAS–TSX – Closing price ($)
4
6
10
20
22
24
table of contents
MESSAGE FROM THE EXECUTIVE
CHAIRMAN OF THE BOARD: ALAIN LEMAIRE
A STRONG FOUNDATION,
A POSITIVE OUTLOOK
MESSAGE FROM THE PRESIDENT AND CHIEF
EXECUTIVE OFFICER: MARIO PLOURDE
WELL POSITIONED TO GENERATE GROWTH
FOUR BUSINESS SEGMENTS
CONTRIBUTING TO OUR
CUSTOMERS’ SUCCESS
INVESTMENT AND GROWTH
INVESTING IN OUR AMBITIONS
INNOVATION
AT CASCADES: A SUCCESSFUL APPROACH!
SUSTAINABLE DEVELOPMENT
AND SOCIAL COMMITMENT
A LEADING POSITION,
A SUSTAINABLE OUTLOOK
26 FINANCIAL INFORMATION
MANAGEMENT’S DISCUSSION AND ANALYSIS,
MANAGEMENT’S REPORT, INDEPENDENT
AUDITOR’S REPORT AND CONSOLIDATED
FINANCIAL STATEMENTS
142 RECYCLABLE MATERIALS, RECYCLED
PRODUCTS AND MARKET DISTRIBUTION
OF OUR OPERATIONS
144 CASCADES WORLDWIDE
The annual general shareholders’ meeting will be held
on Thursday, May 10, 2018, at 11 am, at the Alexandra Pier,
Cruise Terminal 1 (Entrance - Door 15), located at 200
de la Commune Street West, Montréal (Québec)
(in front of the Pointe-à-Callière Museum).
Cascades Inc.’s 2017 Annual Information Form will be available, upon request,
from the Corporation’s head office as of March 30, 2018.
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
Cover page: the 51,000 square foot warehouse at the Cascades
Inopak plant, in Drummondville, Québec, specializing in the manu-
facturing of innovative food packaging. In 2017, this plant bene-
fited from a $15-million investment, used to expand the existing
building and to install a high-performance manufacturing line,
unique in Canada, which includes a built-in, cutting-edge deconta-
mination unit. This made it possible to significantly increase the
production capacity of IntegralTM packaging, which is recyclable
and allows food in certain markets—such as fresh protein—to be kept
for twice the amount of time, thus reducing food waste.
TRANSFER AGENT
AND REGISTRAR
Computershare
Shareholders Services
1500 Robert-Bourasse Boulevard,
Suite 700
Montréal, Québec
H3A 3S8 Canada
Telephone: 514-982-7555
Toll-Free (Canada): 1-800-564-6253
Fax: 514-982-7635
service@computershare.com
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
HEAD OFFICE
Cascades Inc.
404 Marie-Victorin Blvd.
Kingsey Falls, Québec
J0A 1B0 Canada
Telephone: 819-363-5100
Fax: 819-363-5155
3
EXECUTIVE CHAIRMAN
OF THE BOARD
ALAIN LEMAIRE
A STRONG FOUNDATION,
A POSITIVE OUTLOOK
Dear fellow shareholders,
We are very proud of Cascades’ 53-year legacy. The Company has built
a solid foundation by taking advantage of opportunities, expanding
into new markets, adopting an innovative approach, and successfully
adjusting to new economic and competitive realities. These successes,
along with an ingrained entrepreneurial spirit and an unwavering belief
in sustainable development, are attributes that we celebrate at
Cascades, and ones we will champion as we continue to build long-term
value for our stakeholders.
Certainly, the company has faced some obstacles along the way –
all companies do. Cascades’ resilience and ability to successfully
respond and adapt to challenges stems from its most important
asset – our employees. Their collective ingenuity, dedication, focus
and energy have been the driving force behind our long-term
successes, and have transformed the company into an important
multinational packaging, tissue and recovery business.
As Cascades moves forward in 2018 and beyond, the Board of
Directors will continue to question, challenge and support manage-
ment. We are charged with supplying oversight, guidance, objective
counsel and counterbalancing perspectives based on our business,
governance, operational and financial experiences. Within this
framework, we provide input as needed and support management
as they endeavour to generate the sustainable economic value that
is fundamental to the interests of all of Cascades’ stakeholders. A
key element of Board stewardship involves risk management, be it
industry-wide, company-specific or risks related to environmental
and sustainability practices. In this regard, the collective experience
of the Board members brings additional perspective to the external
factors that could impact the company, and the optimal path forward
when navigating both opportunities and challenges.
As a multinational company with over a half century of operational
history, Cascades recognizes the importance and need for good
corporate governance and a long-term perspective. Implementing
best-in-class governance practices is an ongoing process however,
not a one-time event, and one whose value grows with time. The
Board of Directors is committed to reinforcing the sustainability of
Cascades’ business model and its operations, weighing both
external factors and internal business protocols that could impact
daily activities, all within the context of quality governance oversight.
By providing a framework that supports early identification of future
strategic needs, untapped opportunities and potential risks,
Cascades’ Board of Directors strives to further strengthen the
alignment between the company’s strategy, governance practices
and the interests of all our shareholders.
On behalf of myself and the members of the Board of Directors,
thank you for your continued interest, trust and support.
Alain Lemaire
Executive Chairman of the Board of Directors of Cascades
5
PRESIDENT AND CHIEF
EXECUTIVE OFFICER
MARIO PLOURDE
WELL POSITIONED
TO GENERATE GROWTH
Dear fellow shareholders,
Six years ago, we embarked on an important strategic realignment
of our operations to position ourselves within business segments
where we could drive future growth. In doing so, we refocused our
activities on markets with favourable long-term growth prospects,
namely packaging, hygiene and recovery solutions, and exited several
sectors that we felt offered less opportunity for sustainable growth.
Over the same timeframe, we invested extensively in modern equip-
ment and optimized our capital allocation processes, including our
annual working capital needs. Because of these efforts, Cascades is
more focused and well-balanced in its diversification, and is equipped
with an operational base that is stronger and better positioned
to generate future growth opportunities.
tissue converting
We continued to improve our operations and processes in 2017.
In addition to increasing our ownership in our Greenpac Mill
and consolidating its results, we sold our equity interest in Boralex
under favourable terms, announced the construction of a new world
class containerboard converting facility in New Jersey, successfully
rebranded many of our tissue products and inaugurated a new
state-of-the-art
in Oregon, and
strengthened our containerboard platform with an acquisition of
converting assets in Ontario. Additionally, we continued to deliver on
our commitment to lower our debt, culminating with the repurchase
of US$200 million of our fixed rate US-denominated debt, and I am
pleased to note that our leverage ratio stood at 3.6x1 as of the
end of 2017. Finally, our European operations, via our subsidiary
Reno de Medici, saw operational momentum improve throughout
2017 amid encouraging market fundamentals.
facility
On the administrative side, we made excellent progress in
the implementation of our ERP system and the realignment of
our business processes. These initiatives, which we will continue
to optimize over the coming months, are improving the way we
operate and the way we serve our customers, providing greater
operational clarity, responsiveness and flexibility. The deployment of
these systems will help drive our future growth by equipping us with
strong alignment tools to help our team focus on what’s important,
act and react efficiently, and identify key performance indicators
to improve operational performance.
Successfully executing a strategy while also delivering results
can be a challenge and a delicate balance. I am pleased with how
Cascades has navigated these extensive internal changes within
the context of 2017’s challenging market conditions and volatile
raw material prices, and I am proud of our team’s dedication
to achieving our ambitious goals. The Cascades story over the past
6 years has been one of restructuring and realignment of our
business focus and processes. Going forward, our story will be
one of positioning for long-term sustainable growth, driven by
our 2017-2022 strategic plan.
1 Please refer to the “Forward looking Statements and Supplemental Information on Non-IFRS Measures” section for more details.
The leverage ratio is defined as net debt/adjusted OIBD on a pro-forma basis (operating income before depreciation).
7
Looking to 2018 and beyond, we will continue to invest in our people,
our platform, our products and our processes. We are focused on
growth, and long-term differentiation and profitability. I am convinced
that this vision, along with our diversified portfolio and our passion for
sustainability and innovation, is the key to our success. Our path
forward will involve building on our past while positioning for the future,
and we will do so by continuing to marry the strengths of our 50-year
entrepreneurial culture with the expanded capabilities and resources
inherent in the multinational Cascades of today. We look to the future
with both great confidence and sincere determination. We see
promising perspectives in each of our business segments, and we
are steadfastly determined to take full advantage of them.
On behalf of myself and the entire Cascades team, I would like to thank
you, our shareholders, for your ongoing support as we continue this
great adventure.
Mario Plourde
President and Chief Executive Officer
POSITIONING OUR BUSINESS PLATFORMS FOR THE FUTURE
A central pillar of this plan is upgrading and modernizing our opera-
tions, to position our platforms to be more relevant and competitive.
This will involve accelerating the modernization of our operational base
via organic growth and replacing older equipment. In parallel with this,
we are focused on increasing our integration rate1 to 85%, by adding
new conversion capacity both organically and through targeted
strategic acquisitions, thereby reducing our exposure to risks inherent
in primary markets. While our objective to equip our operations with
state-of-the-art machinery and technologies encompasses our entire
platform, the core of our investments will target the optimization of our
operational presence and geographic footprint in the US. To this end,
we intend to invest $250 to $300 million, which will include strategic
projects in 2018, and are planning additional investments in tissue
over the next several years that will modernize the retail and away-from-
home business platforms, and equip this segment with an asset base
that is competitively positioned for long-term growth.
CREATING SUSTAINABLE VALUE
Our second strategic priority is value creation, the foundation of which
lies on building and maintaining profitable and sustainable long-term
growth for our stakeholders. To achieve this, we will focus on initiatives
aimed at increasing profitability across all business sectors, employing
a very disciplined capital allocation strategy, while continuing to reduce
debt. Improved profitability will be driven by future investments, poten-
tial acquisitions, operational and financial improvements stemming
from our recent restructuring and ongoing business realignment, and
benefits generated by our extensive internal business process transfor-
mations and gradual elimination of the associated implementation
costs. On the capital allocation side, our investments will focus on
long-term market leadership and return, exceeding our cost of capital.
Finally, we will continue to be vigilant in our debt reduction initiatives
and are now targeting a longer-term leverage ratio of 2.5x2.
FOCUSING ON INNOVATION AND THE FUTURE NEEDS
OF OUR CUSTOMERS
The third and final pillar of our 2017-2022 strategic plan is intensifying
innovation and customer focus. Cascades has a long history of
creating and delivering solutions that provide our customers with
innovative, sustainable and competitive market alternatives. We have
set an aggressive target of generating 20% of our sales from new
innovative products in 2020, products which reinforce preferred
partner relationships with our customers and can drive long-term
differentiation and profitability. We are cultivating a customer-centric
culture, and have established mixed teams in each of our business
segments made up of specialists in marketing, innovation, sales and
production, with a clear mandate to develop pioneering, competitive,
industry-leading and sustainable quality solutions for our customers.
1 Integration rate is defined as the percentage of manufacturing shipments transferred to our converting operations
2 Please refer to the “Forward looking Statements” and “Supplemental Information on Non-IFRS Measures” sections for more details.
The leverage ratio is defined as net debt/adjusted OIBD (operating income before depreciation).
8
4,321
4,001
3,861
SALES ($M)
4,400
4,300
4,200
4,100
4,000
3,900
3,800
3,700
3,600
3,500
3,400
3,300
OPERATING INCOME AND ADJUSTED OIBD1 ($M)
ADJUSTED OIBD MARGIN1 (%)
426
11.0%
153
403
393
221
10.1%
175
9.1%
500
400
300
200
100
0
2015
2016
2017
2015
2016
2017
RETURN ON CAPITAL EMPLOYED1
OPERATING INCOME
ADJUSTED OIBD
TOTAL SHIPMENTS AND MANUFACTURING CAPACITY
UTILIZATION RATE (’000 s.t. and %)
5.7%
5.2%
3.7%
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
3,114
93%
92%
2,823
92%
2,812
3,200
3,000
2,800
2,600
2,400
2,200
2015
2016
2017
2015
2016
2017
NET DEBT / ADJUSTED OIBD1
CASH FLOW FROM OPERATING ACTIVITIES ($M)
ADJUSTED FREE CASH FLOW1 ($/common share)
4.0x
3.8x
3.6x2
5.0x
4.0x
3.0x
2.0x
1.0x
0.0x
400
300
200
100
0
322
$1.53
316
$1.18
260
$0.55
$0.50
2015
2016
2017
2015
2016
2017
1 Please refer to the “Forward-looking Statements” and “Supplemental Information on Non-IFRS Measures” sections for more details.
2 Pro-forma basis to include 2017 business combinations on a LTM basis.
$0.00
9
20%
15%
10%
5%
0%
100%
95%
90%
85%
80%
75%
$2.00
$1.50
$1.00
FOUR BUSINESS
SEGMENTS
CONTRIBUTING TO OUR CUSTOMERS’ SUCCESS
CONTAINERBOARD
PACKAGING
TISSUe
papers
BOXBOARD
europe
SPECIALTY
PRODUCTS
CONTAINERBOARD
PACKAGING E-COMMERCE GENERATES A STRONG
DEMAND FOR INNOVATIVE PACKAGING
SOLUTIONS. THE FUTURE IS PROMISING.
Cascades’ Containerboard Packaging segment is
the largest corrugated box producer in Canada, and
a leading North American player. This segment
produces containerboard (linerboard and corrugated
medium), 66%1 of which is then transformed into
a variety of products by the company’s converting
facilities and sold to our clients. The remaining 34%
of the parent roll production tonnage is sold to
external customers for conversion. 65% of this
segment’s sales are generated in Canada, and the
remaining 35% are generated in the U.S.
Charles malo
PRESIDENT AND CHIEF OPERATING OFFICER
27 years with Cascades
OUR OPERATIONS
3,980 employees in Canada and the U.S.
6 manufacturing facilities: 4 in Canada and 2 in U.S. –
1.53 million s.t. annual capacity
21 converting facilities: 17 in Canada and 4 in U.S. –
13.4 billion of square feet2 of annual production
OUR FOCUS
EXECUTE: increase profitability via ongoing cost management
and improved efficiency
INTEGRATE: increase integration rate to 85% through targeted
investments
INNOVATE: focus on value-added products offering sustainability,
performance and competitive positioning
OPTIMIZE: continued focus on reducing waste, optimizing
production capacity and efficiency of operations
SAFETY: provide our employees with a safe and attractive
working environment
1 Including associates and joint ventures.
2 Including business acquisitions on a LTM basis.
RAW
MATERIAL
USED
(±1.7 M S.T.)
Brown recycled fibre — 82%
Wood — 15%
Recycled groundwood fibre — 2%
Pulp — 1%
SALES
BY PRODUCT
($1,652 million:
35% U.S. / 65% CAN)
Converted products — 70%
(78% CAN / 22% U.S.)
Recycled linerboard — 17%
Semi-chemical medium — 7%
Recycled medium — 6%
13
BOXBOARD
EUROPE OUR LARGE PRODUCT PORTFOLIO
SATISFIES OUR CUSTOMERS’
REQUIREMENTS AND CONTRIBUTES
TO THEIR SUCCESS.
Cascades owns a 57.8% equity stake in the publicly
traded Italian company Reno de Medici (RDM Group),
which is listed on the Milan and Madrid stock
exchanges. RDM Group is the 2nd largest coated
recycled boxboard producer in Europe.
Michele bianchi
PRESIDENT AND CHIEF EXECUTIVE OFFICER
19 years of industry experience
OUR OPERATIONS
1,5201 employees in Italy, France and Germany
6 manufacturing facilities: 3 in Italy, 2 in France
and 1 in Germany
Annual capacity of 1,050,000 metric tonnes (m.t.):
5 recycled cardboard mills (885,000 m.t.),
1 virgin cardboard mill (165,000 m.t.)
2 sheeting centers in Italy with an annual
processing capacity of 120,000 m.t.
OUR FOCUS
BECOME THE PARTNER OF CHOICE by offering superb products
and services, optimizing costs and maximizing stakeholders
satisfaction
PROMOTE THE “ONE COMPANY” CULTURE: this mindset
targets continuous improvements within RDM Group, with the aim
of maximizing the satisfaction of all stakeholders
TRANSLATE OPERATIONAL PROGRESS INTO HEALTHY
FINANCIALS: Information technology investments allow for
supply chain optimization and more effective execution of orders
MINIMIZE THE ENVIRONMENTAL IMPACT OF CARTONBOARD
PRODUCTION: RDM Group is committed to reducing carbon
emissions, recycling resources and increasing operational
efficiency
1 Including interim employees.
SALES BY
MARKET
($838 M / €569 M)
Coated recycled boxboard — 80%
Coated virgin boxboard — 20%
SALES
BY COUNTRY
($838 M / €569 M)
Italy — 33%
France — 20%
Eastern Europe — 13%
Rest of western Europe — 12%
Germany, Austria and Switzerland — 11%
Overseas — 11%
15
SPECIALTY
PRODUCTS DEEPLY COMMITTED
TO PROVIDING INNOVATIVE,
VALUE-ADDED SOLUTIONS
FOR OUR CUSTOMERS.
Cascades’ Specialty Products segment produces
specialized industrial and food packaging in manu-
facturing facilities in Canada, the U.S. and Europe.
In addition, it operates the company’s recovery
and recycling operations, which are the largest
fibre collectors in Canada. This segment generates
56% of its annual sales in Canada, while 35%
are generated in the U.S., and the remaining 9%
are generated
in other countries, primarily
in Europe.
Luc langevin
PRESIDENT AND CHIEF OPERATING OFFICER
22 years with Cascades
OUR OPERATIONS1
2,340 employees in Canada, the U.S. and Europe
6 consumer products manufacturing facilities: 4 in Canada
and 2 in the U.S.
13 industrial packaging manufacturing facilities: 7 in Canada,
4 in the U.S. and 2 in Europe
19 recovery facilities: 16 in Canada and 3 in the U.S.
OUR FOCUS
GROW OUR MARKET PRESENCE by focusing investment
and resources on strategic arenas
INCREASE OUR SHARE IN SPECIFIC AND HIGHER MARGIN
MARKETS where value-added proposition is heightened
LEVERAGE CASCADES’ POSITION with strategic customers
CONTINUE TO DEVELOP new innovative
and sustainable products
BUILD ON OUR CIRCULAR COMPANY APPROACH
ENSURE TARGETED AND STRATEGIC ORGANIC
AND M&A GROWTH
RAW
MATERIAL
USED2
(±161,000 S.T.)
Brown recycled fibre — 48%
Recycled groundwood fibre — 33%
Resin— 17%
Pulp— 2%
SALES BY
SUB-SEGMENT2
($703 million:
56% CAN / 35% U.S./
9% OTHERS)
Recovery & Recycling — 52%
Industrial Packaging — 28%
Consumer Product Packaging — 20%
1 Including Cascades Sonoco US Inc. and Cascades Sonoco inc.
2 Excluding Cascades Sonoco US Inc. and Cascades Sonoco inc.
17
TISSUE
PAPERS OUR WIDE VARIETY
OF TISSUE PRODUCTS
HAVE BEEN MADE FOR YOU
AND FOR NATURE.
Cascades’ Tissue Papers segment is the 5th largest
tissue manufacturer in North America. It produces,
converts and markets branded and private label
tissue products for both the consumer retail
segment and
industrial
market. 74% of this segment’s sales are generated
in the U.S., and 26% are generated in Canada.
the away-from-home
Jean Jobin
PRESIDENT AND CHIEF OPERATING OFFICER
25 years with Cascades
OUR OPERATIONS1
2,225 employees in Canada and the U.S.
7 manufacturing facilities: 2 in Canada and 5 in U.S. –
380,000 s.t. annual capacity
10 converting facilities: 2 in Canada and 8 in U.S.
4 manufacturing/converting facilities: 3 in Canada
and 1 in U.S. – 270,000 s.t. annual capacity
OUR FOCUS
INTEGRATE: Increase integration rate to 85% through targeted
investments
MODERNIZE: Continue to modernize our operational base
to increase efficiency
OPTIMIZE: Enhance productivity of new facilities and optimize
geographic footprint of our platform
INNOVATE: Focus on value-added segments, under-served
markets, and quality of products
RAW
MATERIAL
USED
(± 785 000 s.t.)
White recycled fibre — 62%
Pulp — 21%
Brown recycled fibre — 17%
SALES
BY MARKET
($1,268 million:
74% U.S. / 26% CAN)
Retail / Branded — 3%
Retail / private label — 41%
Away-from-home / Branded — 22%
Away-from-home / Private label — 19%
Parent rolls — 15%
(Retail — 67% U.S. / 33% CAN)
(Away-from-home — 73% U.S. / 27% CAN)
1 Including joint ventures.
19
INVESTING
IN OUR
AMBITIONS
ENERGY EFFICIENCY PROJECTS
Cascades, supported by the Québec government, announces an
$11 million investment in two energy efficiency projects at its
Témiscouata-sur-le-Lac, Québec, containerboard mill.
LAUNCH OF FLUFFTM AND TUFFTM
Cascades launches a brand-new consumer line of toilet paper
and paper towels: Cascades FluffTM and Cascades TuffTM. Among
the softest and strongest on the market, they maintain all of the
eco-friendly properties our products are famous for. Cascades’ team
worked for over two years reviewing each step in the manufacturing
process to deliver the superior quality of FluffTM and TuffTM products.
FEBRUARY 10, 2017
MARCH 14, 2017
JANUARY 9, 2017
APRIL 5, 2017
INVESTMENTS AT OUR ST. MARYS PLANT
Cascades Containerboard Packaging announces major investments
totalling $13.5 million in St. Marys, Ontario. The project expands the
plant and includes new, state-of-the-art equipment, including a new
press.
INCREASING OF OWNERSHIP IN GREENPAC
Cascades increases its ownership stake in the Greenpac mill from
59.7% to 62.5% following the acquisition of a minority stake
in Containerboard Partners, one of Greenpac’s shareholders,
for US$12 million.
20
PHOTO CREDIT: HEATHER BELLINI PHOTOGRAPHY
INAUGURATION OF A NEW PLANT IN OREGON
Cascades inaugurates its new state-of-the-art tissue paper converting
plant in Scappoose, Oregon. The plant is equipped with best-in-class
converting lines, high-speed rewinders and folders, and one of
the fastest bath tissue lines in the world. This new US$64 million facility
extends the breadth of our national coverage, and will enable us to
better serve our customers in the southern and western United States.
INVESTMENTS IN FOOD PACKAGING
Cascades invests $21 million to increase its production of innovative and
environmentally friendly packaging for fresh foods in its Cascades Inopak
plant in Drummondville and Plastiques Cascades plant in Kingsey Falls.
JULY 18, 2017
OCTOBER 30, 2017
AUGUST 3, 2017
DECEMBER 4, 2017
ACQUISITION OF THREE PLANTS IN ONTARIO
Cascades announces the acquisition of three plants in Ontario to
strengthen its position in the containerboard packaging sector,
and the purchase of an ownership position in Tencorr Holdings
Corporation. The company also announces an increase from 62.5%
to 66.1% in its equity holding of the Greenpac mill. The total cost
of the transaction amounts to $49 million.
NEW PLANT IN PISCATAWAY
investment of
Cascades announces an
US$80 million for the construction of a new
containerboard packaging plant in Piscataway,
New Jersey.
21
INNOVATION
AT CASCADES:
A SUCCESSFUL APPROACH!
Cascades has been an innovative company since the beginning.
Indeed, an outside-the-box mindset has existed since the company’s
creation, when a great deal of ingenuity and innovation was needed
by the Lemaire family to support its recovery and recycling operations
well before sustainable development became anchored in our
collective thoughts and actions. This mindset was also a driving
factor behind the company’s forward-thinking human resources
management and profit-sharing approaches.
Over the past three years, Cascades has focused on transforming
and optimizing its business practices to be more competitive
and to better serve its target markets. In doing so, the company
emphasizes innovation to accelerate profitable growth, stand out in
a fiercely competitive marketplace and create value for its cus-
tomers and shareholders. An ambitious goal has been set for 2020,
by when 20%1 of Cascades’ sales will come from new products
launched over the previous five years. To meet this target, we rely
on teams dedicated to innovation, technology support provided by
the Cascades Research and Development Centre and rigorous
processes in line with best industry practices. The development of
our innovative solutions is driven by our willingness to go beyond
the needs of our customers to help them succeed.
Already, several projects resulting from innovation efforts have
proved successful. A good example of this is the launch of
Cascades FluffTM & TuffTM brand, which was favourably received
by consumers and by our customers, resulting in a strong increase
in demand and in our market share. The work done by our teams
has also been recognized in Canada and internationally, winning
among other things the prestigious Pulp & Paper International (PPI)
Award in the Tissue – Innovation category.
innovation
in 2017 was northboxTM: a great
Another
example of our ability to seize an opportunity in an emerging
market segment. The northboxTM—a unique and
innovative
concept, combining elements of many Cascades units—reflects our
ability to offer an innovative, durable product. Its success
has been recognized via the Food Innovation Award from
the Conseil de la transformation alimentaire du Québec (CTAQ)
(food processing council of Québec) in the Packaging category.
Many other promising projects are under development and are
due to be completed in 2018 and 2019. Cascades can already
look forward to more successes!
1 Based on 20% of North American consolidated packaging products sales and tissue
papers converted products sales.
23
MC
TM
A LEADING
POSITION,
A SUSTAINABLE
OUTLOOK
A true pioneer of recovery, recycling and the circular economy, Cascades continues
to work tirelessly to improve its footprint, 53 years after its creation. To maintain its
leadership position and pursue its environmental, social and economic development,
Cascades has been setting specific objectives since 2010 as part of its sustainable
development plan. The current plan, covering the 2016-2020 period, comprises
10 priorities established after consultations with our stakeholders. The results
are posted in the Sustainable Development section of our website, and they reflect
our company’s ongoing efforts to improve its performance.
GREENHOUSE
GAS EMISSIONS
-50% SINCE 1990
ENERGY CONSUMPTION
-15% SINCE 2010
WATER CONSUMPTION
-20% SINCE 2010
24
transparent
Concerned with providing comprehensive and
information regarding environmental, social and governance (ESG)
matters, Cascades now makes additional data available to investors
and the public on a larger number of indicators recognized by
the Sustainability Accounting
independent groups, such as
Standards Board (SASB).
To find out more, go to cascades.com.
FOCUS ON ELECTRIFICATION
In 2017, Cascades launched an innovative pilot project targeting
1,400 employees at its Kingsey Falls campus. This program aims to
encourage employees to purchase an electric car by providing
financial incentives of up to $2,000 per employee and by deploying
a network of charging stations. This project, which will help reduce
employee greenhouse gas emissions, was introduced by Mario
Plourde, Cascades President and Chief Executive Officer, as part of
the Salon du véhicule électrique de Saint-Hyacinthe trade show.
The company will report the program’s results after the first full year,
and it plans to extend the initiative to all its units across North
America!
Alain Lemaire and Mario Plourde, with André Fortin, Minister of Transport, Sustainable
Mobility and Transport Electrification, Isabelle Melançon, Minister of Sustainable
Development, the Environment and the Fight Against Climate Change, Daniel Breton, energy
and transportation electrification consultant, organizer of the Salon du véhicule électrique
de Saint-Hyacinthe trade show, at the announcement of the new Cascades transportation
electrification program on November 24, 2017.
FOCUS ON FOOD
Concerned with food waste and the decline of pollinating insect
populations that play a key role in the food chain, Cascades,
in collaboration with partners such as Food Banks of Québec, the
David Suzuki Foundation and Alvéole, has supported initiatives
aimed at recovering supermarket surpluses, redistributing food
items and protecting and promoting pollinating insects.
Alain Lemaire and Mario Plourde standing beside the fast charging station installed at the
Cascades head office in Kingsey Falls, and made available to the community free of charge.
A beekeeper from Alvéole harvesting and extracting honey from our hives at our Brossard,
Québec offices.
25
FINANCIAL
INFORMATION
28
79
80
MANAGEMENT’S
DISCUSSION AND ANALYSIS
MANAGEMENT’S REPORT
TO THE SHAREHOLDERS
OF CASCADES INC.
INDEPENDENT AUDITOR’S
REPORT TO THE SHAREHOLDERS
OF CASCADES INC.
81
CONSOLIDATED FINANCIAL
STATEMENTS
86 SEGMENTED INFORMATION
89
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
139 BOARD OF DIRECTORS
140 HISTORICAL FINANCIAL
INFORMATION — 10 YEARS
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 Corporation 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 50 years later, Cascades is a multinational business with more than 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
2017 Sales2
(in M$)
2017 Operating
income2 (in M$)
2017 Adjusted
OIBD2,5 (in M$)
2017 Adjusted
OIBD Margin (%)
27
6
38
21
1,652
838
703
1,268
164
34
46
28
247
68
67
94
15%
8%
10%
7%
The location of our plants and employees around the world are as follows:
Production units and sorting facilities (in %)4
Count of employees worldwide (in %)
1 Including associates and joint ventures.
2 Excluding associates and joint ventures not included in consolidated results. Refer to Note 8 of the 2017 audited consolidated financial statements for more information on associates and joint
ventures.
3 Via our 57.8% equity ownership in Reno de Medici S.p.A., a public company traded on the Milan and Madrid stock exchanges.
4 Excluding sales offices, distribution and transportation hubs and corporate offices. Including main associates and joint ventures.
5 Please refer to the “Supplemental Information on Non-IFRS Measures” section for a complete reconciliation.
28
2
BUSINESS DRIVERS
Cascades' results may be impacted by fluctuations in the following:
EXCHANGE RATES
On a year-over-year basis, the average value of the Canadian dollar
increased by 2% when compared to the US dollar and remained
stable compared to the euro in 2017.
ENERGY COSTS
The average price of natural gas increased 26% in 2017 compared
to the previous year. In the case of crude oil, the average price was
19% higher in 2017 than in 2016.
2015
TOTAL
Q1
Q2
Q3
Q4
2016
TOTAL
Q1
Q2
Q3
Q4
2017
TOTAL
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
$
$
$
$
$
0.78 $
0.73 $
0.78 $
0.77 $
0.75 $
0.75 $
0.76 $
0.74 $
0.80 $
0.79 $
0.72 $
0.77 $
0.77 $
0.76 $
0.74 $
0.74 $
0.75 $
0.77 $
0.80 $
0.80 $
0.71 $
0.66 $
0.69 $
0.69 $
0.70 $
0.68 $
0.71 $
0.68 $
0.68 $
0.67 $
0.67 $
0.68 $
0.70 $
0.68 $
0.71 $
0.71 $
0.70 $
0.68 $
0.68 $
0.66 $
2.67 $
2.09 $
1.95 $
2.81 $
2.98 $
2.46 $
3.32 $
3.18 $
3.00 $
2.93 $
0.77
0.80
0.68
0.66
3.11
3
29
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.
Year
Q1
Q2
Q3
Q4
Year
Q1
Q2
Q3
Q4
Year
Change
%
2015
2016
2017
2017 vs.
2016
Selling prices (average)
PACKAGING PRODUCTS
Containerboard (US$/short ton)
Linerboard 42-lb. unbleached kraft, Eastern US (open
market)
Corrugating medium 26-lb. semichemical, Eastern US
(open market)
Boxboard Europe (euro/metric ton)
630
615
615
615
655
625
655
705
705
705
693
557
518
515
505
540
520
540
590
617
620
592
68
72
11 %
14 %
Recycled white-lined chipboard (WLC) index1
667
664
659
652
649
656
649
680
680
680
672
16
2 %
Virgin coated duplex boxboard (FBB) index2
1,061
1,049
1,044
1,043
1,043
1,045
1,031
1,031
1,031
1,031
1,031
(14)
(1)%
Specialty Products (US$/short ton)
Uncoated recycled boxboard - 20-pt. bending chip
(serie B)
TISSUE PAPERS (US$/short ton)
589
615
605
605
595
605
622
660
660
640
645
40
7 %
Parent rolls, recycled fibres (transaction)
985
1,016
1,012
1,017
1,008
1,013
1,023
1,040
1,053
1,057
1,043
Parent rolls, virgin fibres (transaction)
1,252
1,273
1,273
1,287
1,287
1,280
1,297
1,320
1,334
1,339
1,323
Raw material prices (average)
RECYCLED PAPER
North America (US$/short ton)
Sorted residential papers, No. 56 (SRP - Northeast
average)
Old corrugated containers, No. 11 (OCC - Northeast
average)
Sorted office papers, No. 37 (SOP - Northeast
average)
58
83
58
83
63
88
76
78
101
102
69
93
92
76
86
142
148
162
63
99
79
138
150
138
142
153
168
150
173
172
170
160
169
30
43
3 %
3 %
10
45
19
14 %
48 %
13 %
Europe (euro/metric ton)
Recovered paper index3
VIRGIN PULP (US$/metric ton)
115
115
124
135
134
127
147
138
147
135
142
15
12 %
Northern bleached softwood kraft, Canada
Bleached hardwood kraft, mixed, Canada/US
972
869
943
873
980
847
998
842
992
825
978
1,033
1,093
1,110
1,183
1,105
847
853
942
985
1,052
958
127
111
13 %
13 %
Source: RISI and Cascades.
1 The Cascades Recycled White-Lined Chipboard Selling Price Index is based on published indices and represents an approximation of Cascades' recycled-grade selling prices in Europe. It is weighted
by country and has been rebalanced as at January 1, 2017.
2 The Cascades Virgin Coated Duplex Boxboard Selling Price Index is based on published indices and represents an approximation of Cascades' virgin-grade selling prices in Europe. It is weighted
by country and has been rebalanced as at January 1, 2017.
3 The Cascades Recovered Paper Index is based on published indices and represents an approximation of Cascades' recovered paper purchase prices in Europe. It is weighted by country, based on
the recycled fibre supply mix and has been rebalanced as at January 1, 2017.
30
4
SENSITIVITY TABLE1
The following table provides a quantitative estimate of the impact that potential changes in the prices of our main products, the costs of certain
raw material, energy and the exchange rates may have on Cascades’ annual OIBD, assuming, for each price change, that all other variables
remain constant. Estimates are based on Cascades’ 2017 manufacturing and converting external shipments and consumption quantities. It
is important to note that this table does not consider the Corporations' use of hedging instruments for risk management. These hedging policies
and portfolios (see the “Risk Factors” section) should also be considered in order to fully analyze the Corporation’s sensitivity to the highlighted
factors.
Potential indirect sensitivity to the CAN$/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 (SRP and others)
White grades (SOP and others)
Europe
Brown grades (OCC and others)
Groundwood grades (SRP 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
1,490
590
2,080
1,120
3,200
1,560
90
480
2,130
780
170
80
1,030
3,160
150
80
230
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$/€ 0.02 change
47
19
66
42
108
(29)
(2)
(9)
(40)
(18)
(4)
(2)
(24)
(64)
(6)
(4)
(10)
(11)
(7)
(18)
2
1
1
1 Sensitivity calculated according to 2017 volumes or consumption with year-end closing exchange rate of CAN$/US$ 1.26 and CAN$/€ 1.51, excluding hedging programs and
the impact of related expenses such as discounts, commissions on sales and profit-sharing.
2 Based on 2017 external manufacturing and converting shipments, as well as fibre and pulp consumption. Including purchases from our subsidiary Cascades Recovery. Including shipments and
consumption of Greenpac for the last twelve months.
3 As an example, from CAN$/US$ 1.26 to CAN$/US$ 1.27 and from CAN$/€ 1.51 to CAN$/€ 1.53.
5
31
SUPPLEMENTAL INFORMATION ON NON-IFRS MEASURES
SPECIFIC ITEMS
The Corporation incurs some specific items that adversely or positively affect its operating results. We believe it is useful for readers to be
aware of these items, as they provide additional information to measure performance, compare the Corporation's results between periods
and assess operating results and liquidity, notwithstanding these specific items. Management believes these specific items are not necessarily
reflective of the Corporation's underlying business operations in measuring and comparing its performance and analyzing future trends. Our
definition of specific items may differ from those of other corporations, and some of them may arise in the future and may reduce the Corporation's
available cash.
They include, but are not limited to, charges for (reversals of) impairment of assets, restructuring gains or costs, loss on refinancing and
repurchase of long-term debt, some deferred tax asset 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, non-cash or non-
recurring nature.
SPECIFIC ITEMS INCLUDED IN OPERATING INCOME AND NET EARNINGS
The Corporation incurred the following specific items in 2017 and 2016:
GAIN ON ACQUISITIONS, DISPOSALS AND OTHERS
2017
In the second quarter, the Containerboard Packaging segment sold a piece of land in Ontario, Canada, and recorded a gain of $7 million.
In the second quarter, the Corporate Activities realized a $1 million gain from the sale of some assets.
2016
The Specialty Products segment recorded a $3 million gain on the sale of pieces of land of its former fine paper plant located in St-Jérôme,
Québec. This segment also recorded a $3 million environmental provision related to plants in Québec closed in previous years. Finally, the
segment recorded a $4 million gain on the sale of assets following the closure of its de-inked pulp mill located in Auburn, Maine.
INVENTORY ADJUSTMENT RESULTING FROM A BUSINESS COMBINATION
2017
In the second quarter, operating results of the Containerboard Packaging segment were negatively impacted by $2 million relating to the
inventory acquired at the time of the Greenpac consolidation, which was recognized at fair value and no profit was recorded on its subsequent
sale.
IMPAIRMENT CHARGES AND RESTRUCTURING COSTS
2017
In the fourth quarter, the Corporate Activities recorded a $2 million reversal of impairment following the collection of a note receivable that
had been written off in previous years. As well, the Corporate Activities recorded a severance cost of $1 million following the closure of a sales
division.
In the third quarter, the Tissue Papers segment incurred a $2 million impairment charge from the re-evaluation of some unused assets.
In the third quarter, the Containerboard Packaging segment announced the forthcoming closure of its New York converting plant and recorded
severance expenses totaling $2 million (please refer to the “Significant Facts and Developments” section for more details).
32
6
In the second quarter, the Containerboard Packaging segment recorded an impairment charge of $11 million on deferred revenues related
to the Greenpac management agreement that has been in place since the beginning of the mill's construction and recorded in “Other assets.”
Following the acquisition and consolidation of Greenpac described in Note 5 of the 2017 audited consolidated financial statements, expected
future cash flows related to this asset will not materialize on a consolidated basis.
In the second quarter, the Tissue Papers segment incurred $2 million of restructuring costs following the review of provisions related to the
transfer of the converting operations of the Toronto plant to other Tissue segment sites announced in 2016.
In the first quarter, the Boxboard Europe segment recorded severances costs of $1 million following the restructuring of its sales activities.
2016
The Containerboard Packaging segment 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. As well, the segment recorded a $2 million impairment charge on assets of our
converting plant in Connecticut which were not part of the disposal in relation to the Rand-Whitney - Newtown plant acquisition.
The Boxboard Europe segment 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 (please refer to the “Significant Facts and
Developments” section for more details).
The Specialty Products segment recorded restructuring costs of $1 million following the closure of its de-inked pulp mill located in Auburn,
Maine. The building of the mill was subsequently sold and a $2 million reversal of impairment was recorded. The segment also sold a piece
of land related to another closed plant and recorded a $1 million reversal of impairment.
The Tissue Papers segment recorded a $3 million provision for an onerous lease as a consequence of the closure of its Toronto converting
plant. This segment also incurred $4 million of severance costs and recorded an impairment charge of $4 million.
DERIVATIVE FINANCIAL INSTRUMENTS
In 2017, the Corporation recorded an unrealized gain of $8 million, compared to an unrealized gain of $18 million in 2016, on certain derivative
financial instruments not designated for hedge accounting. Both the 2017 and 2016 unrealized gains reflect the appreciation of the Canadian
dollar during their respective periods. The 2016 unrealized gain also reflects the reversal of the previous year's unrealized loss, which was
realized and included in recurring results.
LOSS ON REPURCHASE OF LONG TERM DEBT
The Corporation purchased US$200 million of its unsecured senior notes and recorded early repurchase premiums of $11 million and wrote
off $3 million of unamortized financing costs related to these notes.
INTEREST RATE SWAPS
In 2017 and 2016, the Corporation recorded an unrealized gain of $2 million in 2017, compared to an unrealized gain of $1 million in 2016
on interest rate swaps, and are included in financing expense.
FOREIGN EXCHANGE GAIN ON LONG-TERM DEBT AND FINANCIAL INSTRUMENTS
In 2017, the Corporation recorded a gain of $23 million on its US$-denominated debt and related financial instruments, compared to a gain
of $22 million during 2016. This is composed of a gain of $11 million in 2017, compared to a gain of $13 million in 2016, on our US$-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 $12 million during the year, compared to a gain of $9 million in 2016, on foreign exchange forward contracts
not designated for hedge accounting.
7
33
FAIR VALUE REVALUATION GAIN ON INVESTMENTS AND SHARE OF RESULTS OF ASSOCIATES AND JOINT VENTURES
2017
Containerboard
On April 4, 2017, Cascades and its partners in Greenpac Holding LLC (Greenpac) agreed to modify the equity holders' agreement. These
modifications enable Cascades to direct decisions about relevant activities. Therefore, from an accounting standpoint, Cascades now has
control over Greenpac, which triggers its deemed acquisition and thus fully consolidates Greenpac starting April 4, 2017. The Corporation
recorded a revaluation gain on previously held interest of $156 million in the second quarter. As a consequence of the acquisition, accumulated
other comprehensive loss components of Greenpac totaling $4 million and included in our consolidated balance sheet prior to the acquisition
were reclassified to net earnings. These two items are presented in line item “Fair value revaluation gain on investments” in the consolidated
statement of earnings.
The Corporation also recorded its share of $3 million on an unrealized gain on certain derivative financial instruments not designated for
hedge accounting prior to the acquisition of Greenpac.
Boralex
On January 18, 2017, Boralex issued common shares to partly finance the acquisition of the interest of Enercon Canada Inc. in the Niagara
Region Wind Farm. As a result, the Corporations' participation in Boralex decreased to 17.37%, which resulted in a dilution gain of $15 million
that is included in line item “Share of results of associates and joint ventures” in the consolidated statement of earnings.
On March 10, 2017, Boralex announced the appointment of a new Chairman of the Board. This change in Board composition combined with
the decrease of our participation discussed above triggered the loss of significant influence of the Corporation over Boralex. Therefore, our
investment in Boralex was no longer classified as an associate and considered an available-for-sale financial asset, which is classified in
“Other assets”. Consequently, our investment in Boralex was re-evaluated at fair value on March 10, 2017, and we recorded a gain of
$155 million. At the same time, accumulated other comprehensive loss components of Boralex totaling $10 million and included in our
consolidated balance sheet were released to net earnings. These two items are presented in line item “Fair value revaluation gain on
investments” in the consolidated statement of earnings. Subsequent fair value revaluation of this investment was recorded in accumulated
other comprehensive income until the investment disposal.
On July 27, 2017, Cascades announced the sale of all of its shares in Boralex to the Caisse de Dépôt et Placement du Québec for an amount
of $288 million. The increase in fair value of $18 million from March 10 to July 27, 2017, recorded in accumulated other comprehensive income
materialized and the Corporation recorded a gain of $18 million in the third quarter in line item “Fair value revaluation gain on investments”
in the consolidated statement of earnings.
2016
On May 6, 2016, the Corporation announced that its then associate company Greenpac, located in Niagara Falls, NY, successfully refinanced
its debt. The Corporations' share of the cost related to this debt refinancing amounted to $7 million.
PROVISION FOR INCOME TAXES
2017
Following the US tax reform adopted in December 2017, the Corporation revalued the net deferred tax liability of its entities in the USA and
recorded a gain of $57 million.
The income tax provision on Boralex revaluation gain was calculated at the rate of capital gains. Also, consequently with the sale of its
participation in Boralex in July 2017, the Corporation has reassessed the probability of recovering unrealized capital losses on long-term debt
due to foreign exchange fluctuations. As a result, $6 million of tax assets was derecognized and recorded in the statement of earnings.
In conjunction with the acquisition of Greenpac, the Corporation recorded an income tax recovery of $70 million representing deferred income
taxes on its investment prior to the acquisition on April 4, 2017. Also, there was no income tax provision recorded on the gain of $156 million
generated by the business combination of Greenpac, since it is included in the fair value of assets and liabilities acquired as described in
Note 5 of the 2017 audited consolidated financial statements.
2016
The Corporation recorded a $2 million income tax provision adjustment related to the sale of one of its businesses over the past years.
34
8
RECONCILIATION OF NON-IFRS MEASURES
To provide more information for evaluating the Corporation's performance, the financial information included in this analysis contains certain
data that are not performance measures under IFRS (“non-IFRS measures”), which are also calculated on an adjusted basis to exclude
specific items. We believe that providing certain key performance measures and non-IFRS measures is useful to both management and
investors as they provide additional information to measure the performance and financial position of the Corporation. It also increases the
transparency and clarity of the financial information. The following non-IFRS measures are used in our financial disclosures:
•
•
•
•
•
•
•
Operating income before depreciation and amortization (OIBD): Used to assess operating performance and contribution of each segment
when excluding depreciation & amortization. OIBD is widely used by investors as a measure of a corporation's ability to incur and service
debt and as an evaluation metric.
Adjusted OIBD: Used to assess operating performance and contribution of each segment on a comparable basis.
Adjusted operating income: Used to assess operating performance of each segment on a comparable basis.
Adjusted net earnings: Used to assess the Corporation's consolidated financial performance on a comparable basis.
Adjusted free cash flow: Used to assess the Corporation's capacity to generate cash flows to meet financial obligation and/or discretionary
items such as share repurchase, dividend increase and strategic investments.
Net debt to adjusted OIBD ratio: Used to measure the Corporation's credit performance and evaluate the financial leverage.
Net debt to adjusted OIBD ratio on a pro-forma basis: Used to measure the Corporation's credit performance and evaluate the financial
leverage on a comparable basis including significant business acquisitions and excluding significant business disposals, if any.
Non-IFRS measures are mainly derived from the consolidated financial statements but do not have meanings prescribed by IFRS. These
measures have limitations as an analytical tool, and should not be considered on their own or as a substitute for an analysis of our results as
reported under IFRS. In addition, our definitions of non-IFRS measures may differ from those of other corporations. Any such modification or
reformulation may be significant.
The reconciliation of operating income (loss) to OIBD, to adjusted operating income (loss) and to adjusted OIBD by business segment is as
follows:
(in millions of Canadian dollars)
Operating income
Depreciation and amortization
Operating income (loss) before depreciation and amortization
Specific items:
Gain on acquisitions, disposals and others
Inventory adjustment resulting from business acquisition
Impairment charges (reversals)
Restructuring costs
Unrealized loss (gain) 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
2017
164
74
238
(7)
2
11
2
1
9
247
173
34
33
67
—
—
—
1
—
1
68
35
46
21
67
—
—
—
—
—
—
67
46
28
62
90
—
—
2
2
—
4
94
32
(97)
25
(72)
(1)
—
(2)
1
(9)
(11)
(83)
(108)
175
215
390
(8)
2
11
6
(8)
3
393
178
2016
(in millions of Canadian dollars)
Operating income
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)
Containerboard
Boxboard
Europe
Specialty
Products
Tissue Papers
Corporate
Activities
Consolidated
158
56
214
—
2
(1)
1
2
216
160
19
32
51
—
—
2
—
2
53
21
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
9
35
Net earnings, as per 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 attributable to Shareholders for the year
Net earnings attributable to non-controlling interests
Provision for (recovery of) income taxes
Fair value revaluation gain on investments
Share of results of associates and joint ventures
Foreign exchange gain on long-term debt and financial instruments
Financing expense, interest expense on employee future benefits and loss on repurchase of long-term debt
Operating income
Specific items:
Gain on acquisitions, disposals and others
Inventory adjustment resulting from business acquisition
Impairment charges
Restructuring costs
Unrealized gain on derivative financial instruments
Adjusted operating income
Depreciation and amortization
Adjusted operating income before depreciation and amortization
2017
507
15
(81)
(315)
(39)
(23)
111
175
(8)
2
11
6
(8)
3
178
215
393
2016
135
2
45
—
(32)
(22)
93
221
(4)
—
3
9
(18)
(10)
211
192
403
The following table reconciles net earnings and net earnings per common share, as per IFRS, with adjusted net earnings and adjusted net
earnings per common share:
NET EARNINGS
NET EARNINGS PER COMMON SHARE1
(in millions of Canadian dollars, except amount per common share)
As per IFRS
Specific items:
Gain on acquisitions, disposals and others
Inventory adjustment resulting from business acquisition
Impairment charges
Restructuring costs
Unrealized gain on derivative financial instruments
Loss on repurchase of long-term debt
Unrealized gain on interest rate swaps
Foreign exchange gain on long-term debt and financial
instruments
Fair value revaluation gain on investments
Share of results of associates and joint ventures
Tax effect on specific items, other tax adjustments and
attributable to non-controlling interest1
Adjusted
2017
507
(8)
2
11
6
(8)
14
(2)
(23)
(315)
(18)
(98)
(439)
68
2016
135 $
(4) $
— $
3 $
9 $
(18) $
— $
(1) $
(22) $
— $
7 $
5 $
(21) $
114 $
2017
5.35 $
(0.06) $
0.01
0.08 $
0.05 $
(0.07) $
0.10
(0.01) $
(0.21) $
(3.85)
(0.15) $
(0.52) $
(4.63) $
0.72 $
2016
1.42
(0.03)
—
0.03
0.06
(0.14)
—
(0.01)
(0.19)
—
0.05
0.02
(0.21)
1.21
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 common 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. Please refer to “Provision for income taxes” prior in this section for more details.
36
10
The following table reconciles cash flow from operating activities with operating income and operating income before depreciation and
amortization:
(in millions of Canadian dollars)
Cash flow from operating activities
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 repurchase
Gain on acquisitions, disposals and others
Impairment charges and restructuring costs
Unrealized gain on derivative financial instruments
Dividend received, employee future benefits and others
Operating income
Depreciation and amortization
Operating income before depreciation and amortization
2017
173
87
(215)
10
99
11
8
(11)
8
5
175
215
390
2016
372
(56)
(192)
(10)
89
—
4
(4)
18
—
221
192
413
The following table reconciles cash flow from operating activities with cash flow from operating activities (excluding changes in non-cash
working capital components) and adjusted cash flow from operating activities. It also reconciles adjusted cash flow from operating activities
to adjusted free cash flow, which is also calculated on a per common share basis:
(in millions of Canadian dollars, except amount per share or otherwise mentioned)
Cash flow from operating activities
Changes in non-cash working capital components
Cash flow from operating activities (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 repurchase
Adjusted cash flow from operating activities
Capital expenditures, other assets1 and capital lease payments, net of disposals
Dividends paid to the Corporation's shareholders and to non-controlling interests
Adjusted free cash flow
Adjusted free cash flow per common share
2017
173
87
260
6
11
277
(205)
(20)
52
$
0.55 $
2016
372
(56)
316
8
—
324
(196)
(16)
112
1.18
Weighted average basic number of common shares outstanding
94,680,598
94,709,048
1 Excluding increase in investments
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 (last twelve months)
Net debt / Adjusted OIBD ratio
Net debt / Adjusted OIBD ratio on a pro forma basis1
1 Pro forma to include adjusted OIBD of Greenpac and other business combinations on a Last Twelve Month basis.
December 31, 2017
December 31, 2016
1,517
59
35
1,611
89
1,522
393
3.9
3.6
1,530
36
28
1,594
62
1,532
403
3.8
N/A
11
37
MANAGEMENT'S DISCUSSION & ANALYSIS
FINANCIAL OVERVIEW - 2016
The Corporation's 2016 financial results reflected sales and operating results growth in the Tissue and the Specialty Products segments, in
addition to increased sales in the Containerboard Packaging segment. 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 segment due to the
persistent challenging market environment in 2016, and reduced contribution from the Containerboard Packaging segment attributable to
higher production and raw material costs.
FINANCIAL OVERVIEW - 2017
Results for the year reflect strong sales driven by year-over-year increases in shipments for the Boxboard Europe segment and higher average
selling prices from all three packaging segments on a same plant basis. Beginning in the second quarter, the consolidation of Greenpac
benefited both sales and operating income levels. However, a sharp increase in raw material costs impacted the performance of all our
segments, the effects of which were partially offset by the corresponding stronger results generated by our recovery and recycling activities.
Results from our Tissue segment include costs related to the start-up of the new converting plant on the West Coast of the US, as well as
additional costs related to new branding and repositioning efforts of its product lines. Increased capacity in the Tissue market also had a
negative impact on shipments. Finally, ERP implementation and business process optimization initiatives at the corporate level also required
a higher level of resources during 2017 compared to 2016, but will decrease in 2018.
Sales increased by $320 million to reach $4,321 million in 2017, compared to $4,001 million in 2016. The increase was mainly driven by the
acquisition of Greenpac, higher selling prices in all segments and additional contribution from our recovery and recycling activities. On the
other hand, the 2% appreciation of the Canadian dollar against the American dollar had a negative impact on North American segments.
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
OPERATING INCOME BREAKDOWN2
ADJUSTED OPERATING INCOME
BEFORE DEPRECIATION AND
AMORTIZATION BREAKDOWN2,3
Containerboard Packaging
Tissue papers
Boxboard Europe
Specialty Products
1 Excluding inter-segment sales and Corporate activities.
2 Excluding Corporate activities.
3 Please refer to the “Supplemental Information on Non-IFRS Measures” section for a complete reconciliation.
38
12
For 2017, the Corporation posted net earnings of $507 million, or $5.35 per common share, compared to net earnings of $135 million, or
$1.42 per common share in 2016. On an adjusted basis, discussed in detail in the “Supplemental Information on Non-IFRS Measures” section,
the Corporation generated net earnings of $68 million during 2017, or $0.72 per common share, compared to net earnings of $114 million or
$1.21 per common share in 2016. The Corporation recorded an operating income of $175 million during the year, compared to $221 million
in 2016. On an adjusted basis, operating income stood at $178 million during the year, compared to $211 million in 2016 (see the “Supplemental
Information on Non-IFRS Measures” section for reconciliation of these amounts).
The $3.93 increase in our net earnings per share in 2017 compared to 2016, can be explained by the following factors:
(in Canadian dollars)
Change in specific items (see reconciliation in the “Supplemental Information on Non-IFRS Measures” section)
Change in net earnings from operating activities normalized at a 30% income tax rate
Change in tax provision - Other items (see the analysis on the “Other Items Analysis” section)
Change in share of results of associates and joint ventures - net of income taxes - and change in non-controlling interests
Increase in net earnings per share
$
$
$
$
$
4.41
(0.28)
0.06
(0.26)
3.93
FORWARD-LOOKING STATEMENTS
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, 2017 and 2016. Information contained herein includes any
significant developments as at February 28, 2018, 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.
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.
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.
13
39
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:
2015
TOTAL
Q1
Q2
Q3
Q4
2016
TOTAL
Q1
Q2
Q3
2017
Q4 TOTAL
OPERATIONAL
Total shipments (in '000 s.t.)1
Packaging Products
Containerboard
Boxboard Europe
Tissue Papers
Total
Integration rate2
Containerboard
Tissue Papers
Manufacturing capacity
utilization rate3
Packaging Products
Containerboard
Boxboard Europe
Tissue Papers
Consolidated total
FINANCIAL
Return on assets4
Packaging Products
Containerboard
Boxboard Europe
Specialty Products
Tissue Papers
Consolidated return on assets
Return on capital employed5
Working capital6
In millions of $, at end of period
As a % of sales7
1,114
1,111
2,225
598
2,823
277
278
555
143
698
284
267
551
158
709
294
258
552
163
715
283
263
546
144
690
1,138
1,066
2,204
608
2,812
285
296
581
139
720
375
283
658
151
809
369
271
640
157
797
372
270
642
146
788
1,401
1,120
2,521
593
3,114
51%
67%
52%
70%
53%
65%
54%
65%
51%
72%
53%
68%
51%
71%
51%
69%
55%
67%
52%
66%
53%
68%
92%
94%
89%
92%
93%
97%
87%
93%
93%
92%
89%
91%
96%
89%
93%
93%
91%
91%
83%
89%
93%
92%
88%
92%
96%
102%
86%
96%
94%
98%
89%
95%
91%
94%
90%
92%
92%
93%
84%
91%
93%
97%
87%
93%
19%
10%
18%
15%
19%
10%
17%
13%
17%
10%
20%
16%
11.3% 11.8% 12.0% 11.3% 10.8% 10.8%
5.2%
5.7%
19%
10%
19%
17%
18%
10%
20%
17%
17%
10%
20%
16%
6.0%
6.2%
5.5%
5.2%
16%
10%
20%
15%
9.8%
4.5%
14%
10%
21%
14%
9.1%
3.9%
13%
11%
19%
12%
8.9%
3.7%
14%
12%
18%
10%
9.2%
3.7%
14%
12%
18%
10%
9.2%
3.7%
443
389
10.9% 10.9% 10.9% 10.9% 10.6% 10.6% 10.2%
309
439
458
309
385
429
9.9%
474
442
9.9% 10.1% 10.1%
442
1 Shipments do not take into account the elimination of business sector inter-segment shipments. Starting in Q2 2017, including Greenpac. Shipments from our Specialty Products segment are not presented
as they use different units of measure.
2 Defined as: Percentage of manufacturing shipments transferred to our converting operations. Starting in Q2 2017, including Greenpac.
3 Defined as: Manufacturing internal and external shipments/practical capacity. Excluding discontinued operations and Specialty Products segment manufacturing activities. Starting in Q2 2017, including
Greenpac.
4 Return on assets is a non-IFRS measure defined as the last twelve months' (“LTM”) adjusted OIBD/LTM quarterly average of total assets less cash and cash equivalents. Not adjusted for discontinued operations.
Including Greenpac on a consolidated basis starting in Q2 2017.
5 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 associates and joint ventures, divided by
the LTM quarterly average of capital employed. Capital employed is defined as the quarterly total average assets less trade and other payables and cash and cash equivalents. Not adjusted for discontinued
operations. Including Greenpac as an associate up to Q1 2017 and on a consolidated basis starting in Q2 2017.
6 Working capital includes accounts receivable (excluding the short-term portion of other assets) plus inventories less trade and other payables. Not adjusted for discontinued operations. Starting in Q2 2017,
including Greenpac.
7 % of sales = Average LTM working capital/LTM sales. It includes or excludes significant business acquisitions and disposals. Not adjusted for discontinued operations. Starting in Q2 2017, including Greenpac.
40
14
HISTORICAL FINANCIAL INFORMATION
(in millions of Canadian dollars, unless otherwise noted)
2015
TOTAL
Q1
Q2
Q3
Q4
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 common share (in
dollars)
Cash flow from operating activities
from continuing operations
(excluding changes in non-cash
working capital components)
Net debt1
Sources: Bloomberg and Cascades.
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
2016
TOTAL
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
Q1
Q22
Q3
Q4
346
211
173
(22)
708
306
428
213
188
(27)
802
338
438
202
181
(32)
789
323
440
212
161
(24)
789
301
(8)
1,006
(10)
1,130
(9)
1,103
(8)
1,082
33
5
13
51
8
(28)
31
45
14
18
77
23
(25)
75
161
12
30
13
14
57
17
(26)
48
56
21
20
97
35
(25)
107
256
24
50
5
10
65
9
(23)
51
72
14
15
101
24
(19)
106
33
19
51
11
9
71
(6)
(20)
45
74
19
14
107
12
(14)
105
57
13
2017
TOTAL
1,652
838
703
(105)
3,088
1,268
(35)
4,321
164
34
46
244
28
(97)
175
247
68
67
382
94
(83)
393
507
68
$ (0.69) $
1.18 $
$
0.79 $
0.35 $
0.38 $
0.38 $
0.21 $
0.32 $
0.04 $
0.16 $
1.42 $
1.21 $
1.70 $
0.13 $
2.70 $
0.25 $
0.35 $
0.20 $
0.60 $
0.14 $
5.35
0.72
$ (0.70) $
0.79 $
0.38 $
0.21 $
0.04 $
1.42 $
1.70 $
2.70 $
0.35 $
0.60 $
5.35
322
1,721
56
1,684
107
1,664
68
1,625
85
1,532
316
1,532
33
1,617
89
1,780
61
1,469
77
1,522
260
1,522
1 Please refer to the “Supplemental Information on Non-IFRS Measures” section for reconciliation of these figures.
2 Including Greenpac on a consolidated basis starting in Q2 2017. The purchase price allocation of Greenpac was finalized during the third quarter of 2017. The preliminary estimated deemed consideration of
$371 million was revised to $304 million. This change impacted the calculation of the gain on the deemed disposal of the previously held interest and goodwill allocated in the purchase price determination for an
amount of $67 million. Adjustments to the preliminary purchase price allocation were recorded retrospectively to the acquisition date as required by IFRS 3. Net earnings per common share disclosed in the second
quarter were consequently adjusted to $2.70 per common share from $3.41 per common share.
15
41
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 2017 and 2016 results.
BUSINESS ACQUISITION, DISPOSAL AND CLOSURE
CONTAINERBOARD PACKAGING
•
•
•
On December 4, 2017, the Corporation announced that it had acquired three converting plants from the Coyle Group in Ontario, Canada,
to strengthen its position in the containerboard packaging sector.
On April 5, 2017, the Corporation announced that results from the Greenpac Mill LLC (Greenpac) would be consolidated with those of
the Corporation following changes to the Greenpac equity holders agreement. As a result, the Corporation began consolidating Greenpac
results on April 4, 2017. The agreement did not involve any cash consideration.
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.
SPECIALTY PRODUCTS
•
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
•
•
During the first quarter of 2017, the Corporation successfully began production at its new tissue converting facility in Scappoose, Oregon,
which houses three new state-of-the-art converting lines. The plant manufactures virgin and recycled bathroom tissue products and
paper hand towels for the Cascades Pro brand (Away-from-Home market). The plant is supplied by the Corporation's tissue paper plant
located 12 kilometers away in St. Helens.
On May 13, 2016, the Corporation decided to close the tissue paper converting operations in its Toronto, Ontario plant in order to optimize
its supply chain and maximize its profitability. The Corporation transferred some of the assets to other facilities.
42
16
SIGNIFICANT FACTS AND DEVELOPMENTS
•
•
•
•
•
•
•
On January 1, 2018, the Corporation, through its 57.8% equity ownership in Reno de Medici S.p.A., acquired 66.67% of
PAC Service S.p.A., a boxboard converter for the packaging, publishing, cosmetics and food industries. The Corporation already had a
33.33% equity participation before the transaction.
On December 12, 2017, the Corporation announced the results of tender offers and proceeded with the purchase of US$150 million of
its 5.500% unsecured senior notes due 2022 and US$50 million of its 5.75% unsecured senior notes due 2023.
On March 21, 2017, the Corporation acquired 23% of Containerboard Partners (Ontario) Inc. for a consideration of US$12 million
($16 million ). This company is a member of Greenpac Holding LLC, of which it owns 12.1%. On November 30, 2017, the Corporation
acquired an additional 30% of Containerboard Partners (Ontario) Inc. for a consideration of $19 million. These transactions add an indirect
participation of 6.4% in Greenpac Holding LLC bringing total ownership to 66.1%.
On August 3, 2017, as part of its modernization and optimization efforts in the Northeastern United States, the Corporation announced
an investment of US$80 million for the construction of a new containerboard packaging plant in Piscataway, New Jersey. This new plant
will manufacture corrugated packaging products. The operation is planned to start in the second quarter of 2018. In addition, the Corporation
announced on August 10, 2017, that it will close its containerboard converting plant in Maspeth, New York. On January 31, 2018, the
Corporation completed the sale of the building and land of its Maspeth plant, NY, for US$72 million ($90 million) of which US$68 million
($85 million) was received at closing and US$4 million ($5 million) is held in escrow. Release of the escrow is contingent upon certain
conditions being met over the next three years. The Corporation will continue to use the facility until December 31, 2018, the date the
plant is scheduled to close. The volumes will be progressively redeployed to other Cascades units over the course of the year.
On July 27, 2017, the Corporation announced the sale of its 17.3% equity holding in Boralex to the Caisse de Dépôt et Placement du
Québec for $288 million.
On June 30, 2016, the Corporation completed the transfer of its virgin fibre boxboard mill located in La Rochette, France, to its 57.8%-
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.
On June 1, 2017, the Corporation entered into an agreement with its lenders to extend and amend its existing $750 million credit facility.
The amendment extends the term of the facility to July 2021. The financial conditions remain essentially unchanged.
17
43
FINANCIAL RESULTS FOR THE YEAR ENDED DECEMBER 31, 2017, COMPARED TO
THE YEAR ENDED DECEMBER 31, 2016
SALES
Sales increased by $320 million, or 8%, to reach $4,321 million in 2017, compared to $4,001 million in 2016. Sales in the Containerboard
business increased by 21% compared to the prior year, driven by the inclusion of results from the Greenpac Mill and the implementation of
higher average selling price during the year. Sales levels increased 5% in the Boxboard Europe segment as a result of improvements in
volumes. The Specialty Products segment generated a 13% sales increase, reflecting higher average selling prices and additional sales from
recovery and recycling activities due to the higher recycled fibre pricing in 2017. Finally, in the Tissue Papers segment, sales decreased by
3%, driven by lower volume, particularly in the parent roll market. These negative impacts were partly offset by a favourable sales mix and
higher selling prices. The 2% appreciation of the Canadian dollar against the American dollar had a negative impact on North American
segments.
Sales by geographic segment are as follows:
Sales from (in %):
Sales to (in %):
The main variances in sales in 2017, compared to 2016, are shown below (in $M):
44
18
OPERATING INCOME FROM OPERATIONS
The Corporation generated operating income of $175 million in 2017, compared to $221 million reported in 2016. Variance of specific items
recorded in both periods (please refer to the “Supplemental Information on Non-IFRS Measures” section for more details) decreased operating
income by $13 million. The decrease, despite the $320 million increase is sales described above, reflects higher raw material costs that
negatively impacted contribution levels from all four segments, higher production costs from all three North American segments as well as
higher corporate costs related to the continuing ERP platform and business process review implementations. Our Boxboard Europe segment
benefited from lower energy and production costs. On the other hand, the Tissue Papers segment's results were negatively impacted by the
start-up of the new plant on the West Coast. The depreciation and amortization expense increased by $23 million, mainly due to Greenpac
and to the implementation our ERP system now in most of our facilities.
Adjusted operating income1 was $178 million in 2017, compared to $211 million in 2016.
The main variances in operating income in 2017, compared to 2016, are shown below (in $M):
Adjusted OIBD (Operating
income)
Please refer to “Supplemental Information on Non-IFRS Measures” section for reconciliation of these figures.
Raw Material (Operating income) The impacts of these estimated costs are based on production costs per unit shipped externally or inter-segment, which are affected by yield, product mix changes,
and purchase and transfer prices. In addition to market pulp and recycled fibre, they include purchases of external boards and parent rolls for the converting
sector, and other raw material such as plastic and wood chips.
F/X CAN$ (Operating income)
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 "Sensitivity Table" section for further details).
Other production costs
(Operating income)
These 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.
Recovery and Recycling
activities (Sales and Operating
income)
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 the section "Business
Segment Review" for more details).
19
45
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 3% in 2017 due to favourable market
conditions in part driven by e-commerce. The industry's capacity utilization rate rose
to 97.8% in 2017 from 95.6% in 2016.
U.S. containerboard inventories at box plants and mills 2
The average inventory level decreased by 4% in 2017 due to strong demand levels
for corrugated boxes. The number of weeks of supply in inventory averaged 3.8 for
the year.
U.S corrugated box industry shipments 2
Total U.S. corrugated box shipments increased by 3% in 2017 due to the strong
economic environment coupled with the growing importance of e-commerce.
Canadian corrugated box industry shipments 3
Canadian corrugated box shipments increased for a fourth consecutive year.
Favourable market conditions explain the 1% year-over-year increase in 2017.
Reference prices - containerboard 1
After a price increase implemented in October 2016, producers of containerboard were
able to implement a US$50 per short ton linerboard and corrugating medium price
increase last April due to strong supply and demand fundamentals, partially driven by
e-commerce. It was followed by a US$30 per short ton corrugating medium price
increase later in the year. As a results, the 2017 reference prices for linerboard and
corrugating medium increased by 11% and 14%, respectively, compared to 2016.
Reference prices - recovered papers (brown grade) 1
The average reference price of old corrugated containers no.11 ("OCC") increased by
48% in 2017. OCC index prices were particularly volatile during the year. In the first
quarter of 2017, index prices surged due to strong domestic and foreign demand. This
was followed by a sharp decrease in index prices in October following China's restriction
on recovered paper import permits, which resulted in an increase in domestic supply.
1 Source: RISI
2 Source: Fibre Box Association
3 Source: Canadian Corrugated and Containerboard Association
46
20
Our Performance
The main variances in sales and operating income for the Containerboard Packaging segment in 2017, compared to 2016, are shown below:
Sales ($M)1
Operating income ($M)1
1 For definitions of certain sales and operating income variations categories, please refer to the section "Financial results for the year ended December 31, 2017, compared to
the year ended December 31, 2016" for more details.
The Corporation incurred certain specific items in 2017 and 2016 that adversely or positively affected its operating results. Please refer to section "Supplemental Information for
Non-IFRS Measures" for reconciliations and details.
21
47
2016
2017
Change in %
Shipments2 ('000 s.t.)
1,138
1,401
Average Selling Price
(CAN$/unit)
1,204
1,179
Sales ($M)
1,370
1,652
Operating income ($M)
(as reported)
158
160
214
16%
216
16%
(adjusted)1
OIBD1 ($M)
% of sales
(adjusted)1
% of sales
164
173
238
14%
247
15%
23%
-2%
21%
4%
8%
11%
14%
1 Please refer to the “Supplemental Information on Non-IFRS Measures” section for
reconciliation of these figures.
2 Shipments do not take into account the elimination of business sector inter-
company shipments. Including 12.5 billion square feet in 2017 compared to
12.2 billion square feet in 2016.
3 Up to Q1 2017, the Corporation's interest in Greenpac was recorded under the
equity method. All transactions were therefore accounted for as external.
4 Starting in Q2 2017, including sales to other partners in Greenpac.
Shipments increased by 263,000 s.t., or 23%, in 2017. This reflects the
258,000 s.t., or 59%, increase in year-to-date external shipments from
containerboard mills, which is primarily attributable to the addition of
Greenpac (please refer to the “Business Highlights” section for more details).
The mill integration rate also remained stable at 53% in 2017 compared to
last year. Including sales to associates, the 2017 integration rate4 was 66%
compared to 67% in 2016. On the converting side, shipments increased by
5,000 s.t., compared to last year. Excluding the shipments arising from the
transaction completed with US-based company Rand-Whitney in 2016 and
the acquisition of three facilities in Ontario in 2017, converting activities
shipments increased by 1% in MSF (thousand square feet).
The lower average selling price reflects a less favourable product mix
compared to the same period last year. More specifically, the inclusion of
Greenpac increased by 11% the proportion of sales of parent rolls which
are sold at a lower price than our converted products. However, the average
selling price denominated in Canadian dollars increased by $80 per s.t., or
12%, for our primary products, and by $75 per s.t. or 5%, in our converting
sector.
Sales increased by $282 million, or 21%, year-over-year, with the 2017 and
2016 business acquisitions contributing $216 million to this increase.
Excluding the impact of these transactions on sales mix, the higher average
selling price denominated in Canadian dollars added $92 million to sales.
The average 2% appreciation of the Canadian dollar and the lower volume
on a same plant basis, negatively impacted sales by $15 million and $11
million, respectively.
Operating income increased by $6 million, or 4%, compared to last year.
This increase is mainly explained by higher average selling prices on a same
plant basis which added $92 million year-over-year. However, higher
average raw material costs subtracted $69 million from operating income
while other production costs subtracted a further $43 million. These
increased costs are attributable to freight, energy, subcontracting and repair
& maintenance. The segment also incurred a one-time litigation settlement
charge with a client. Moreover, higher labour, training and warehousing costs
related to ERP and business process optimization had a negative impact
on operating income. Business acquisitions increased depreciation and
amortization expense and contributed positively to operating income. Also,
the average 2% appreciation of the Canadian dollar and the lower volume
on a same plant basis both reduced operating income by $3 million
respectively.
The segment incurred some specific items1 in 2017 and 2016 that adversely
or positively affected its operating income. Adjusted operating income1
reached $173 million in 2017, compared to $160 million in 2016.
Finally, the Corporation's results for 2017 include its share of results of its
associate Greenpac3 Mill (59.7%) prior to the consolidation announced on
April 5, 2017. In the first quarter of 2017, contribution stood at $7 million. In
2016, Greenpac contributed $15 million, including our $7 million share of
fees related to the debt refinancing completed in the second quarter of 2016.
48
22
PACKAGING PRODUCTS - BOXBOARD EUROPE
Our Industry
European industry order inflow of coated boxboard 1
In Europe, order inflows of white-lined chipboard increased by 8% in 2017 compared to 2016, reflecting a strong demand throughout the year. As a result, the industry experienced
its best year of the last ten years with orders of approximately 3.2 million tonnes. The folding boxboard industry also experienced a strong year as order inflows reached more
than 2.2 million tonnes, representing an increase of 11% in 2017 over 2016.
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 prices increased for the first time in three years in Western
European countries. Strong demand for recycled boxboard resulted in a 2% increase
in the 2017 average reference price compared to 2016. Folding boxboard prices
remained stable throughout the year, suggesting that new market capacity was
counterbalanced by the 11% growth in order inflow levels. However, the average
reference price for folding boxboard was 1% lower in 2017 than in 2016.
Reference prices - recovered papers in Europe 2
Recovered paper prices continued to be under pressure in 2017 due to strong demand.
As a result, our recovered paper reference index in Europe was 12% higher in 2017
than in 2016, reflecting important increases in brown and white 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.
23
49
Our Performance
The main variances in sales and operating income for the Boxboard Europe segment in 2017, compared to 2016, are shown below:
Sales ($M)1
Operating income ($M)1
1 For definitions of certain sales and operating income variations categories, please refer to the section "Financial results for the year ended December 31, 2017, compared to
the year ended December 31, 2016" for more details.
The Corporation incurred certain specific items in 2017 and 2016 that adversely or positively affected its operating results. Please refer to section "Supplemental Information for
Non-IFRS Measures" for reconciliations and details.
50
24
Recycled boxboard shipments increased by 55,000 s.t., or 6%, to
959,000 s.t. in 2017, from 904,000 in 2016, while shipments of virgin
boxboard remained stable year-over-year at 161,000 s.t. The increase
in shipments
is mainly attributable to the stronger economic
environment in Europe.
The 2017 average selling price increased slightly in both euros and
Canadian dollars compared to 2016. This reflects the slight average
year-over-year appreciation of the Canadian dollar compared to the
euro, in addition to some increases in selling prices that were
implemented for our products. When compared to 2016, the average
2017 selling price in recycled boxboard activities increased by €8, or
2%, while the average 2017 selling price in virgin boxboard activities
decreased by €13, or 2%.
The increase in sales reflects the higher volumes coming from the
recycled boxboard activities, in addition to the slightly higher average
selling price during the year.
Operating income increased by $15 million, or 79%, in 2017, largely
due to lower energy costs. The higher volumes, lower repair and
maintenance costs due to shorter seasonal downtime, also positively
contributed to operating income. These benefits were partially offset by
higher raw material prices.
The segment incurred some specific items1 in 2017 and 2016 that
adversely or positively affected its operating income. Adjusted operating
income1 was $35 million in 2017, compared to $21 million in 2016.
2016
2017
Change in %
Shipments2 ('000 s.t.)
1,066
1,120
Average Selling Price3
(CAN$/unit)
746
509
(Euro€/unit)
748
511
Sales ($M)
796
838
Operating income ($M)
(as reported)
19
21
51
6%
53
7%
(adjusted)1
OIBD1 ($M)
% of sales
(adjusted)1
% of sales
34
35
67
8%
68
8%
5%
—
—
5%
79%
67%
31%
28%
1 Please refer to the “Supplemental Information on Non-IFRS Measures” section for reconciliation
of these figures.
2 Shipments do not take into account the elimination of business sector inter-company shipments.
3 Average selling price is a weighted average of virgin and recycled boxboard shipments.
25
51
PACKAGING PRODUCTS - SPECIALTY PRODUCTS
Our Industry
Reference prices - uncoated recycled boxboard 1
The reference price for uncoated recycled boxboard increased by 7% in 2017
compared to 2016 due to better market conditions, which resulted in a series of price
increases at the beginning of 2017.
Reference prices - fibre costs in North America 1
The white grade recycled paper No. 37 (sorted office papers), the brown grade recycled
paper No. 11 (old corrugated containers) and the recycled paper No. 56 (sorted
residential papers) annual index prices increased by 13%, 48% and 14%, respectively,
in 2017 compared to 2016. Old corrugated containers index prices were particularly
volatile last year. In the first quarter of 2017, index prices surged to US$175 per short
ton due to strong domestic and foreign demand. It was followed by a sharp drop in
October to US$100 per short ton as China banned recovered paper import permits.
U.S. recycled fibres exports to China 1
The relationship between recovered paper supply and demand, particularly from Asia, plays an important role in pricing dynamics. U.S. exports of recycled fibres to China
decreased by 7% in 2017 due to the ban on recovered paper import permits by the Chinese government in the last quarter of 2017. As a result, old corrugated container, old
newspaper, mixed paper and other exports decreased by 23%, 4%, 15% and 65% respectively, compared to 2016. The percentage of total U.S exports to China fell to 59% in
2017, from 67% in 2016.
Total U.S. exports of recycled papers to China - all grades
Major grades exported by the U.S.
Chinese imports of recycled fibre 1
Total Chinese imports fell by 10% in 2017 compared to 2016 as explained above. On a more detailed basis, old corrugated container and mixed paper imports were the most
impacted, registering decreases of 10% and 14%, respectively, while old newspaper imports decreased by 6% and imports of other grades fell by 4%.
Total Chinese imports of recycled papers - all grades
Major grades imported by China
1 Source: RISI
52
26
Our Performance
The main variances in sales and operating income for the Specialty Products segment in 2017, compared to 2016, are shown below:
Sales ($M)1
Operating income ($M)1
1 For definitions of certain sales and operating income variations categories, please refer to the section "Financial results for the year ended December 31, 2017, compared to
the year ended December 31, 2016" for more details.
The Corporation incurred certain specific items in 2017 and 2016 that adversely or positively affected its operating results. Please refer to section "Supplemental Information for
Non-IFRS Measures" for reconciliations and details.
27
53
2016
620
Sales ($M)
2017
703
Operating income ($M)
(as reported)
51
45
71
11%
65
10%
(adjusted)1
OIBD1 ($M)
(as reported)
% of sales
(adjusted)1
% of sales
46
46
67
10%
67
10%
Change in %
13%
Shipments in the Specialty Products segment increased in most sub-
including Recovery and Recycling.2 More specifically,
sectors,
shipments in the Industrial Packaging sector increased by 17% in 2017.
This strong performance reflects improving market dynamics and the
strengthening of our European paper mill packaging facility.
-10%
2%
-6%
3%
In addition to higher volumes, higher selling prices in our Recovery and
Recycling activities2 contributed $89 million to the increase in sales.
Higher selling prices, mostly in our Industrial and Consumer Products
packaging sectors, also added $18 million to sales. These positive
factors were partly offset by the $19 million reduction in sales following
the closure of our pulp plant in Auburn, Maine, at the end of the second
quarter in 2016.
Operating income decreased by $5 million in 2017. Higher realized
spreads (between average selling prices and raw material costs)
resulted in a $6 million positive impact in our Recovery and Recycling
activities2 and $8 million for the other businesses of the specialty
products segment. These were offset by lower volume in our Consumer
Product segment, and higher operating costs, labour, freight, and selling
and administrative costs that were mainly related to lower productivity
in our packaging activities.
The segment incurred some specific items1 in 2016 that adversely or
positively affected its operating income. Adjusted operating income1
was $46 million in 2017, compared to $45 million in 2016.
1 Please refer to the “Supplemental Information on Non-IFRS Measures” section for
reconciliation of these figures.
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.
54
28
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 third consecutive year in 2017. The
average capacity utilization rate remained stable at 93% in 2017 compared to 2016.
New capacity additions in the market are the main factor for these metrics.
U.S. tissue paper industry converted product shipments 1
In 2017, shipments for the retail and the away-from-home markets increased by 1%
and 3%, respectively, compared to 2016.
U.S. producer price index - annual changes in converted tissue
prices 2
In the U.S., prices for retail toilet tissue followed a downward trend in 2017. Prices for
retail paper towels remained relatively stable throughout the year. Prices for industrial
paper towels were very volatile in 2017, suggesting aggressive marketing and pricing
strategies.
Reference prices - parent rolls 1
In 2017, the reference price for both recycled and virgin parent rolls increased by 3%
compared to 2016, partially due to rising input costs.
Reference prices - recovered papers (white grade) 1
The reference price of Sorted office papers no.37 (“SOP”) remained relatively stable
in 2017, fluctuating between US$160 and US$175. The average price stood at
US$169 in 2017, a 13% increase compared to 2016.
Reference prices - market pulp 1
In 2017, the reference price for NBSK and NBHK both rose by 13% compared to 2016
due to a solid demand globally.
1 Source: RISI
2 Source: U.S. Bureau of Labor Statistics
29
55
Our Performance
The main variances in sales and operating income for the Tissue Papers segment in 2017, compared to 2016, are shown below:
Sales ($M)1
Operating income ($M)1
1 For definitions of certain sales and operating income variations categories, please refer to the section "Financial results for the year ended December 31, 2017, compared to
the year ended December 31, 2016" for more details.
The Corporation incurred certain specific items in 2017 and 2016 that adversely or positively affected its operating results. Please refer to section "Supplemental Information for
Non-IFRS Measures" for reconciliations and details.
56
30
2016
2017
Change in %
Shipments2 ('000 s.t.)
593
608
Average Selling Price
(CAN$/unit)
2,146
2,138
Sales ($M)
1,305
1,268
Operating income ($M)
(as reported)
75
86
139
11%
150
11%
(adjusted)1
OIBD1 ($M)
% of sales
(adjusted)1
% of sales
28
32
90
7%
94
7%
-2%
—
-3%
-63%
-63%
-35%
-37%
1 Please refer to the “Supplemental Information on Non-IFRS Measures” section
for reconciliation of these figures.
2 Shipments do not take into account the elimination of business sector inter-company
shipments.
External manufacturing shipments decreased by 14,000 s.t., or 8%,
year-over-year in 2017. This was due to difficult overall market
conditions, most notably in hand towels, and upgrades completed at
the St-Helens, Oregon, manufacturing facility to align production
parameters with market demand and the requirements of the new
converting plant in Scappoose, Oregon. The integration rate remained
stable year-over-year at 68%.
The slight decrease in the average Canadian dollar selling price was
largely due to the 2% average appreciation of the Canadian dollar
compared to the U.S. dollar. This was partially offset by a more
favourable sales mix as a higher proportion of converted products were
sold in 2017 compared to 2016.
Sales for 2017 decreased by 3% compared to the prior year. This reflects
a $20 million negative impact related to lower volumes and a $19 million
unfavourable foreign exchange impact. On the other hand the
favourable mix of product sold generated an additional $6 million of
sales compared to last year.
The decrease in operating income is mainly attributable to lower overall
volumes, a significant increase in recycled and virgin fibre costs, and
an increase in virgin pulp usage. Benefits realized from improved
operational efficiencies in 2017 were offset by higher transportation
costs, increased marketing expenses related to brand repositioning in
both Consumer Products and AFH, and higher outsourcing costs due
to variations in our customer mix.
The start-up costs for the new Oregon converting plant negatively
impacted 2017 profitability levels compared to last year. While start-up
of the facility was successful and is now behind us, new market
penetration has been more challenging than anticipated due to current
market conditions in this area and the timing of customer bid processes.
These start-up costs combined with the lower production at the St-
Helens mill as discussed above, impacted operating income by
$7 million (including $1 million in depreciation) during 2017.
The segment incurred some specific items1 in 2017 and 2016 that
adversely or positively affected its operating income. Adjusted operating
income1 was $32 million in 2017, compared to $86 million in 2016.
31
57
CORPORATE ACTIVITIES
Operating income in 2017 includes an unrealized gain of $9 million on financial instruments. This compares to an unrealized gain of
$19 million in 2016 following the fluctuation of the Canadian dollar in both years. Corporate activities realized a foreign exchange gain of $6
million in 2017 compared to a loss of $6 million in 2016.
In 2017, a gain of $1 million on sale of assets is also included in operating income during the second quarter. We also recorded a reversal of
impairment of $2 million following the collection of a note receivable that was written off in prior years and $1 million of restructuring costs
following the closure of a sales division.
Activities related to our ERP system and business process optimization increased our costs by $10 million in 2017 compared to 2016. These
higher costs reflect the accelerated implementation of our ERP platform since the second half of 2016, and additional costs associated with
the optimization of internal processes such as planning, logistics and procurement. The implementation phase of these initiatives is complete,
and costs are expected to be lower in 2018 as efforts are focused on stabilization and optimization.
STOCK-BASED COMPENSATION EXPENSE
Share-based compensation expense recognized in the Corporate Activities results amounted to $5 million in 2017 compared to $4 million in
2016. For more details on stock-based compensation, please refer to Note 19 of the 2017 audited consolidated financial statements.
OTHER ITEMS ANALYSIS
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense increased by $23 million to $215 million in 2017, compared to $192 million in 2016. The increase is
mainly attributable to the Greenpac acquisition and to our ERP system which is now implemented in most of our plants.
FINANCING EXPENSE AND INTEREST ON EMPLOYEE FUTURE BENEFITS
The financing expense and interest on employee future benefits amounted to $111 million in 2017, compared to $93 million in 2016. The
Corporation recorded $11 million of premiums and wrote off $3 million of capitalized financing fees following the purchase of US$200 million
of unsecured senior notes. The addition of Greenpac also increased interest expense during the year while a dividend revenue of $2 million
from our participation in Boralex was recorded in 2017, as the investment was reclassified as an available-for-sale financial asset at the end
of the first quarter of 2017 up to its subsequent disposal in the third quarter.
RECOVERY OF INCOME TAXES
In 2017, the Corporation recorded an income tax recovery of $81 million. This compares to an income tax provision of $45 million in the same
period of 2016.
(in millions of Canadian dollars)
Provision for income taxes based on the combined basic Canadian and provincial income tax rate
Adjustment for income taxes arising from the following:
Difference in statutory income tax rate of foreign operations
Prior years reassessment
Reversal of deferred income tax liabilities related to our previously held investment in Greenpac
Permanent difference on revaluation of previously held equity interest - Greenpac associate
Non-taxable portion of capital gain on revaluation of previously held equity interest - Boralex associate
Change in future income taxes resulting from enacted tax rate change
Unrealized capital gain on long-term debt
Permanent differences
Change in deferred income tax assets relating to capital tax loss
Provision for (recovery of) income taxes
2017
117
10
3
(70)
(57)
(24)
(57)
(3)
(6)
6
(198)
(81)
2016
48
2
1
—
—
—
2
—
(5)
(3)
(3)
45
In conjunction with the acquisition of Greenpac, the Corporation recorded an income tax recovery of $70 million representing deferred income
taxes on its investment prior to the acquisition on April 4, 2017. Also, there was no income tax provision recorded on the gain of $156 million
generated by the business combination of Greenpac, since it is included in the fair value of assets and liabilities acquired as described in
Note 5 of the 2017 audited consolidated financial statements.
58
32
Following the US tax reform adopted in December 2017, the Corporation revalued the net deferred tax liability of its US entities and recorded
a gain of $57 million.
The income tax provision on the Boralex revaluation gain was calculated at the rate of capital gains. Also, consequently with the sale of its
participation in Boralex in July 2017, the Corporation has reassessed the probability of recovering unrealized capital losses on long-term debt
due to foreign exchange fluctuations. As a result, $6 million of tax assets was unrecognized in the consolidated statement of earnings.
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 up to the first quarter of 2017, 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 30%. The weighted-average applicable tax rate was 28.6% in 2017.
SHARE OF RESULTS OF ASSOCIATES AND JOINT VENTURES
Until March 10, 2017, the share of results of associates and joint ventures included our 17.37% 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.
On January 18, 2017, Boralex issued common shares to partly finance the acquisition of the interest of Enercon Canada Inc. in the Niagara
Region Wind Farm. As a result, the Corporation's participation in Boralex decreased to 17.37%. This resulted in a dilution gain of $15 million,
which is included in line item “Share of results of associates and joint ventures” in the consolidated statement of earnings.
On March 10, 2017, Boralex announced the appointment of a new Chairman of the Board. This change in the Board composition combined
with the decrease of our participation discussed above triggered the loss of significant influence of the Corporation over Boralex. Therefore,
our investment in Boralex was no longer classified as an associate and considered an available-for-sale financial asset, which is classified in
“Other assets.” Consequently, our investment in Boralex was re-evaluated at fair value on March 10, 2017, and we recorded a gain of
$155 million. At the same time, accumulated other comprehensive loss components of Boralex totaling $10 million and included in our
consolidated balance sheet were released to net earnings. These two items are presented in line item “Fair value revaluation gain on
investments” in the consolidated statement of earnings.
On July 27, 2017, Cascades announced the sale of all of its shares in Boralex to the Caisse de Dépôt et Placement du Québec for an amount
of $288 million. The increase in fair value of $18 million from March 10 to July 27, 2017, recorded in accumulated other comprehensive income
materialized and the Corporation recorded a gain of $18 million in the third quarter in line item “Fair value revaluation gain on investments”
in the consolidated statement of earnings.
On April 5, 2017, the Corporation announced the acquisition of Greenpac's for accounting purposes. The transaction resulted in a gain of
$156 million on the revaluation of previously held interests. As a result of the acquisition, accumulated other comprehensive loss components
of Greenpac totaling $4 million and included in our consolidated balance sheet prior to the acquisition were reclassified to net earnings. These
two items are presented in line item “Fair value revaluation gain on investments” in the consolidated statement of earnings (please refer to
Note 5 of the 2017 audited consolidated financial statements for more details).
Prior to the announcement, the Corporation recorded its 62.5% share of the Greenpac Mill results as an associate. As such, in the first quarter
of 2017, contribution stood at $7 million. For the year 2016, Greenpac had a contribution of $15 million, including our $7 million share of costs
related to the debt refinancing completed in the second quarter of 2016. No provision for income taxes was 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 the “Supplemental Information on Non-IFRS Measures” section.
33
59
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS FROM OPERATING ACTIVITIES
Cash flows from operating activities generated $173 million of liquidity in 2017, compared to $372 million generated in 2016. Changes in non-
cash working capital components used $87 million of liquidity in 2017, versus $56 million generated in 2016. In 2017, higher inventory levels
in our Containerboard and Tissue segments in addition to higher accounts receivable due to higher sales following business combinations in
Containerboard and to lower trade and other payables are the main factors leading to the use of liquidity. As at December 31, 2017, working
capital as a percentage of LTM sales stood at 10.1%, compared to 10.6% as at December 31, 2016.
Cash flow from operating activities, excluding changes in non-cash working capital components, stood at $260 million in 2017, compared to
$316 million in 2016. In 2017, we paid $11 million in premiums related to the repurchase of unsecured senior notes. This cash flow measurement
is relevant to the Corporation's ability to pursue its capital expenditure program and reduce its indebtedness.
INVESTING ACTIVITIES
Investment activities generated $70 million in 2017, compared to $185 million used in 2016. Payments for property, plant and equipment
totaled $193 million in 2017, compared to $182 million in 2016. Proceeds from disposals of property, plant and equipment stood at $15 million
compared to $5 million in 2016. Investments in associates & joint ventures and change in intangible and other assets generated $239 million
including the proceeds from the disposal of our investment in Boralex for $288 million, compared to $8 million generated last year. Business
combinations added $9 million through cash acquired, net of consideration paid. Refer to the “Supplemental Information on Non-IFRS
Measures” section for more details.
PAYMENTS FOR PROPERTY, PLANT AND EQUIPMENT
Payments for property, plant and equipment in 2017 were $193 million, compared to $182 million in 2016. However, new capital expenditure
projects amounted to $207 million , compared to $206 million in 2016. The variance in the amounts is related to purchases of property, plant
and equipment included in “Trade and Other Payables” and to capital-lease acquisitions.
New capital expenditure projects by segment in 2017 were as follows (in $M):
The major capital projects that were initiated, are in progress or were completed in 2017 are as follows:
CONTAINERBOARD PACKAGING
•
Investment for the construction of a new containerboard packaging plant in Piscataway, New Jersey, United States (please refer to the
“Significant Facts and Developments” section for more details).
BOXBOARD EUROPE
•
Installation of new shoe press equipment at the Blendecques, France, recycled boxboard mill.
60
34
SPECIALTY PRODUCTS
•
Plant extension and a new extruder at the rigid plastic packaging facility located in Drummondville, Québec.
TISSUE
•
Investments associated with the new tissue converting plant in Scappoose, Oregon. Please refer to the “Business Highlights” section
for more details.
INVESTMENTS IN ASSOCIATES & JOINT VENTURES AND CHANGE IN INTANGIBLE
AND OTHER ASSETS
The main items were as follows:
In 2017, we sold our investment in Boralex for an amount of $288 million (please refer to the “Significant Facts and Developments” section
for more details).
At the end of the first quarter of 2017, the Corporation announced the acquisition of a minority stake in Containerboard Partners, which owns
12.1% of Greenpac, for a consideration of US$12 million ($16 million). This transaction increased the Corporation's total participation in
Greenpac by 2.8% to 62.5%.
Also in 2017, the Corporation invested in its ERP information technology system and additional software needed to support our business
process optimization for $23 million.
Effective January 1, 2018, the Corporation, through its 57.8% equity ownership in Reno de Medici S.p.A., acquired 66.67% of
PAC Service S.p.A., a boxboard converter for the packaging, publishing, cosmetics and food industries. The Corporation already had a 33.33%
equity participation. The consideration for the acquisition of the remaining 66.67% shares consisted of cash totaling €10 million ($15 million)
and was deposited on December 19, 2017 and recorded in other assets at year-end.
In 2016, we received amounts from 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 minor investments made in our associates companies.
FINANCING ACTIVITIES
Financing activities, including $15 million of dividend payments to Shareholders, debt repayment and the change in our revolving facility, used
$218 million in liquidity in 2017, compared to $182 million used in 2016. We issued 461 442 common shares at an average price of $6.41 as
a result of the exercise of stock options in 2017, representing an aggregate amount of $4 million received. In 2017, the Corporation also paid
$12 million for the settlement of its 2017 derivative financial instruments on long-term debt. Dividends paid to non-controlling interests amounted
to $5 million in 2017 compared to $1 million in 2016. These payments are the results of dividends paid to the non-controlling shareholders of
Greenpac and Reno de Medici.
On December 4, 2017, the Corporation announced the acquisition of an additional 30% interest in Containerboard Partners (Ontario) Inc.,
for a consideration of US$15 million ($19 million). This transaction increased the Corporation's total participation in Greenpac by 3.6% to
66.1%. Containerboard Partners is now fully consolidated in our financial statements.
On December 12, 2017, the Corporation repurchased US$150 million of its 5.50% unsecured senior notes due in 2022 for an amount of
$193 million and US$50 million of its 5.75% unsecured senior notes due in 2023 for an amount of $64 million.
35
61
CONSOLIDATED FINANCIAL POSITION
AS AT DECEMBER 31, 2017, 2016 AND 2015
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, 2017
December 31, 2016
December 31, 2015
89
442
10.1%
35
59
1,517
1,611
1,522
1,455
146
1,601
3,123
62
309
10.6%
28
36
1,530
1,594
1,532
984
90
1,074
2,606
60
389
10.9%
37
34
1,710
1,781
1,721
867
96
963
2,684
64.1%
9.09
Ratio of net debt/(total equity and net debt)
Shareholders' equity per common share (in dollars)
$
48.7%
15.32
$
58.8%
10.41
$
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 discontinued operations.
NET DEBT1 RECONCILIATION
The variances in the net debt (total debt less cash and cash equivalents) in 2017 are shown below (in millions of dollars), with the applicable
financial ratios included.
403
3.8
Adjusted OIBD1,2 (last twelve months)
Net debt/Adjusted OIBD1,2
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. Net capital
expenditures are expected to be in a range of $250-$300 million in 2018. This amount is subject to change, depending on the Corporation’s
operating results and on general economic conditions. As at December 31, 2017, the Corporation had $541 million (net of letters of credit in
the amount of $14 million) available through its $750 million credit facility (excluding our subsidiaries Greenpac and Reno de Medici's credit
facilities). Cash and cash equivalent as at December 31, 2017, is composed as follow: $2 million in the Parent Company, $67 million in
Greenpac and Reno de Medici and $20 million in other subsidiaries.
393
3.6
1 Please refer to the “Supplemental Information on Non-IFRS Measures” section for reconciliation of these figures.
2 2017 Adjusted OIBD including the first quarter of 2017 of Greenpac and other business combinations of 2017 on a pro forma basis.
62
36
EMPLOYEE FUTURE BENEFITS
The Corporation’s employee future benefits assets and liabilities amounted to $472 million and $609 million respectively as at
December 31, 2017, including an amount of $101 million for post-retirement benefits other than pension plans. The pension plans include an
amount of $65 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, 2017, 87% of the Corporation pension plans
have been evaluated on December 31, 2016 (18% in 2015). Where applicable, we 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
$36 million as at December 31, 2017, compared to $22 million in 2016. The 2017 pension plan expense was $7 million and the cash outflow
was $8 million. Due to the investment returns in 2017 and the change in the assumptions, the expected expense for these pension plans is
$8 million in 2018. As for the cash flow requirements, these pension plans are expected to require a net contribution of approximately
$9 million in 2018. 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 2017
Sales of $1,082 million increased by $103 million or 11% compared to the same period last year. This was driven by the consolidation of
results from the Greenpac Mill beginning in the second quarter, improvements realized in pricing and sales mix in all of the Corporation's
business segments with the exception of tissue, and improved volumes in the European boxboard and tissue segments. These benefits were
partially offset by a less favourable sales and pricing mix in the tissue segment, and less advantageous foreign exchange rates.
Fourth quarter operating income stood at $45 million, a notable improvement from the $33 million generated last year. This increase is largely
attributable to the consolidation of Greenpac and a more favourable pricing and sales mix in the containerboard segment. Partially offsetting
these benefits were higher raw material costs in all business segments, and higher amortization and depreciation expense as a result of
business combinations. On an adjusted basis, fourth quarter operating income stood at $46 million, versus $32 million in the prior year.
On an adjusted basis, fourth quarter 2017 operating income stood at $46 million compared to $32 million in the same period of 2016.
The main specific items, before income taxes, that impacted our fourth quarter 2017 operating income and/or net earnings were:
•
•
•
•
•
•
$2 million reversal of impairment (operating income and net earnings).
$1 million restructuring costs associated with the closure of a sales unit (operating income and net earnings).
$2 million unrealized loss on financial instruments (operating income and net earnings).
$4 million foreign exchange loss on long-term debt and financial instruments (net earnings).
$14 million loss related to the early repurchase of long-term debt (net earnings).
$57 million income tax gain resulting mainly from the U.S. tax reform announced at the end of 2017 (net earnings).
Adjusted net earnings amounted to $13 million, or $0.14 per share, in the fourth quarter of 2017, compared to net earnings of $15 million, or
$0.16 per share, for the same period of 2016. As reported, net earnings stood at $57 million, or $0.60 per share in the fourth quarter of 2017,
compared to net earnings of $4 million, or $0.04 per share, for the same period of 2016.
37
63
The reconciliation of operating income (loss) to OIBD, to adjusted operating income (loss) and to adjusted OIBD by business segment is as
follows:
(in millions of Canadian dollars)
Operating income
Depreciation and amortization
Operating income (loss) before depreciation and amortization
Specific items:
Impairment reversal
Restructuring costs
Unrealized loss on financial instruments
Adjusted operating income (loss) before depreciation and
amortization
Adjusted operating income (loss)
Containerboard
Boxboard
Europe
Specialty
Products
Tissue Papers
Corporate
Activities
Consolidated
For the 3-month period ended December 31, 2017
51
22
73
—
—
1
1
74
52
11
8
19
—
—
—
—
19
11
9
5
14
—
—
—
—
14
9
(6)
18
12
—
—
—
—
12
(6)
(20)
6
(14)
(2)
1
1
—
(14)
(20)
45
59
104
(2)
1
2
1
105
46
(in millions of Canadian dollars)
Operating income
Depreciation and amortization
Operating income (loss) before depreciation and amortization
Specific items:
Impairment reversal
Unrealized loss on financial instruments
Adjusted operating income (loss) before depreciation and
amortization
Adjusted operating income (loss)
Containerboard
Boxboard
Europe
Specialty
Products
Tissue Papers
Corporate
Activities
Consolidated
For the 3-month period ended December 31, 2016
28
14
42
—
1
1
43
29
3
8
11
—
—
—
11
3
14
5
19
(2)
—
(2)
17
12
12
18
30
—
—
—
30
12
(24)
5
(19)
—
—
—
(19)
(24)
33
50
83
(2)
1
(1)
82
32
The main variances in sales and operating income in the fourth quarter of 2017, compared to the same period of 2016, are shown below:
Sales ($M)1
Operating income ($M)1
1 For definitions of certain sales and operating income variations categories, please refer to the section "Financial results for the year ended December 31, 2017, compared to
the year ended December 31, 2016" for more details.
64
38
NEAR-TERM OUTLOOK
We expect several external factors to support results in the near term. The first of these is the combined beneficial impact on our operational
performance of the current lower average price for OCC, which accounts for a large portion of the raw materials we use across our operations,
and the price increases in linerboard, medium and corrugated products announced for March 5, 2018 in our containerboard segment. The
second is the recent corporate tax reform in the US, which will reduce our US corporate tax rate to approximately 25% for 2018, from 38%
previously. In addition, underlying industry fundamentals remain positive for both the containerboard business in North America and boxboard
operations in Europe. Our tissue division, however, continues to face difficult market conditions, new industry capacity additions, and a slower
than anticipated ramp-up of the new Oregon converting facility. On this last point, we are pleased to report that our increased sales and
marketing efforts on the West Coast are making inroads in this new end market, and we are confident that this facility will evolve into a solid
contributor to our tissue division performance.
As we move forward, we will continue to focus on optimizing our new business platform, and harvesting the gains in productivity, efficiency
and cost savings generated through our more customer-centric and efficient processes. On a broader scale, we will continue to advance our
strategic plan to position Cascades for the long-term. To this end, in the coming year we intend to invest $250 to $300 million, which will
include strategic projects focused on increasing integration, improving operational performance through investments in modern equipment,
and optimizing our geographic footprint. Furthermore, we are planning additional investments in tissue over the next several years that will
modernize the retail and away-from-home business platforms, and equip this segment with an asset base that is competitively positioned for
long-term growth. Each and every investment decision will be made with the goal of delivering quality, innovative and competitive products
to our customers within a framework focused on optimal capital allocation, long-term market leadership and return while remaining fully
committed to our objective of reducing leverage.
CAPITAL STOCK INFORMATION
SHARE TRADING
Cascades' stock is traded on the Toronto Stock Exchange under the ticker symbol “CAS”. From January 1, 2017 to December 31, 2017,
Cascades' share price fluctuated between $11.43 and $18.20. During the same period, 60.5 million Cascades shares were traded on the
Toronto Stock Exchange. On December 31, 2017, Cascades shares closed at $13.62. This compares to a closing price of $12.10 on the same
day last year.
COMMON SHARES OUTSTANDING
As at December 31, 2017, the Corporation's issued and outstanding capital stock consisted of 94,987,958 common shares (94,526,516 as
at December 31, 2016), and 4,990,120 issued and outstanding stock options (5,216,063 as at December 31, 2016). For the full year of 2017,
there were no common shares repurchased by the Corporation, 461 442 stock options were exercised and 5,381 stocks options were forfeited.
As at February 28, 2018, issued and outstanding capital stock consisted of 95,050,828 common shares and 4,912,991 stock options.
NORMAL COURSE ISSUER BID PROGRAM
The current normal course issuer bid enables the Corporation to purchase for cancellation up to 946,066 common shares between
March 17, 2017 and March 16, 2018. During the period from March 17, 2017 to February 28, 2018, there were no common shares repurchased
by the Corporation.
DIVIDEND POLICY
On February 28, 2018, Cascades' Board of Directors declared a quarterly dividend of $0.04 per common share to be paid on March 28, 2018,
to shareholders of record at the close of business on March 14, 2018. This $0.04 per common share dividend is in line with the previous
quarter and the same quarter last year. On February 28, 2018, dividend yield was 1.0%.
TSX Ticker: CAS
Common shares outstanding (in millions) 1
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.
2015
Q4
95.3
Q1
95.4
Q2
94.5
Q3
94.4
2016
Q4
94.5
Q1
94.7
Q2
Q3
94.7
94.7
2017
Q4
95.0
$ 12.71
$
8.57
$
9.15
$ 12.83
$ 12.10
$ 13.71
$ 17.69
$ 14.96
$ 13.62
218,204
291,483
166,510
118,987
118,554
182,011
362,191
214,545
208,984
1.3%
1.9%
1.7%
1.2%
1.3%
1.2%
0.9%
1.1%
1.2%
39
65
CASCADES' SHARE PRICE FOR THE PERIOD JANUARY 1, 2016 TO DECEMBER 31, 2017
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, 2017:
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
1,908
70
1,042
3,020
LESS THAN A
YEAR
123
BETWEEN 1-2
YEARS
116
BETWEEN 2-5
YEARS
1,372
28
34
185
14
37
167
23
113
1,508
OVER 5
YEARS
297
5
858
1,160
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, 2017.
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, 2017, the off-balance sheet impact of the factoring
of receivables amounted to $39 million (€26 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.
66
40
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 $268 million and $244 million for 2017 and 2016 respectively. Aggregate
sales to the Corporation from its joint-venture partners and other affiliates came to $106 million and $181 million for 2017 and 2016 respectively.
CHANGES IN ACCOUNTING POLICY AND DISCLOSURES
A) NEW IFRS ADOPTED
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. To comply with the new requirements, a reconciliation of total liabilities arising from financing activities has been
added to Note 25.
B) RECENT IFRS PRONOUNCEMENTS NOT YET ADOPTED
IFRS 15 REVENUE FROM CONTRACTS WITH CUSTOMERS
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 new standard
is effective for annual periods beginning on or after January 1, 2018. The standard will not have a significant impact on the timing of the
Corporation's revenues since there is typically only one performance obligation per customer contract. The adoption of the standard will,
however, have an impact on the contract liabilities classification. which can no longer be presented against accounts receivable. As well,
IFRS 15 will require further disclosure, such as a disaggregation of revenues from contracts with customers in categories that depict how the
nature, amount, timing and uncertainty of revenues and cash flows are affected by economic factors. To comply with this requirement, the
Corporation will segregate its four segments' sales by country on a quarterly basis. The Corporation will apply the new standard retrospectively.
Apart from the balance sheet reclassification discussed above, this standard has no material impact on the Corporation's 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 new standard will have no material impact on the Corporation's consolidated financial statements.
41
67
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. The new standard requires lessees to recognize a lease liability reflecting
future lease payments and a “right-of-use asset” for virtually all lease contracts, and record it on the balance sheet, except with respect to
lease contracts that meet limited exception criteria, such as when the underlying asset is of low value or the maturity of the lease is short
term. The Corporation is currently evaluating the impact of the standard on its consolidated financial statements. As at December 31, 2017,
operating lease commitments would have translated into an estimated additional lease liability of $70 million.
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 cash generating unit (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 Note 24 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 institution's 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.
SHIPMENTS
The assumptions used are based on the Corporation's internal budget for the next year and are usually held constant for the forecast period.
In arriving at its budgeted shipments, the Corporation considers past experience, economic trends as well as industry and market trends.
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.
68
42
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 health care 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. In 2016, the Corporation had a 59.7% interest in an associate (Greenpac). Greenpac's
Shareholders agreement required a majority of 80% for all decision making related to relevant activities. Consequently, the Corporation did
not have power over relevant activities of Greenpac and its participation was accounted for as an associate. On April 4, 2017, Cascades and
its partners in Greenpac Holding LLC (Greenpac) agreed to modify the equity holders' agreement. These modifications enable Cascades to
direct decisions about relevant activities. Therefore, from an accounting standpoint, Cascades now has control over Greenpac, which triggered
its deemed acquisition and thus fully consolidates Greenpac since April 4, 2017. Please refer to Notes 5 and 8 of the consolidated financial
statements for more details.
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, 2017, 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, 2017, 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,
2017 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, 2017, there were no changes to the Corporation's ICFR that materially affected, or are reasonably
likely to materially affect, its ICFR.
43
69
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 weren'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, 2017 is set out below:
NORTH AMERICAN ELECTRICITY HEDGING
Electricity consumption
Electricity consumption in a regulated market
% of consumption hedged in a de-regulated market (2017)
Average prices (2017 - 2018) (in US$, per KWh)
Fair value as at December 31, 2017 (in millions of CAN$)
UNITED STATES
CANADA
47%
42%
37%
0.03
(1)
$
$
53%
65%
—
—
—
70
44
NORTH AMERICAN NATURAL GAS HEDGING
Natural gas consumption
% of consumption hedged (2017)
Average prices (2017 - 2021) (in US$, per mmBTU) (in CAN$, per GJ)
Fair value as at December 31, 2017 (in millions of CAN$)
UNITED STATES
CANADA
45%
44%
3.05
$
(1) $
55%
50%
3.72
(5)
$
$
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 2017, sales outside Canada, in Canadian dollars, represented
approximately 61% of the Corporation’s consolidated sales, including 40% in the United States. In 2017, 23% 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.
45
71
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$939 million and €62 million respectively as at December 31, 2017.
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 $US:
Total amount (in millions of US$)
2018
2019
2020
$ 58 to 80
$ 33 to 60
$ 10 to 20
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, 2017 (in millions of CAN$)
1 See Note 26 of the audited consolidated financial statements for more details on financial instruments.
35% to 49%
0.75 to 0.76
3
20% to 37%
0.75
—
6%
0.77
—
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.
72
46
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, 2017, the Corporation employed approximately 11,000 employees, of which roughly 9,500 were employees of its Canadian
and United States operations. Approximately 33% of the Corporation's Canadian and United States workforce is unionized under 30 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 30 collective bargaining agreements in North America, 4 are expired and
are currently under negotiation, 7 will expire in 2018 and 8 will expire in 2019.
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.
47
73
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:
•
•
•
two 50%-owned joint ventures with Sonoco Products Corporation, of which one is 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 57.8%-owned subsidiary, Reno de Medici S.p.A. (RDM), a European manufacturer of recycled boxboard; and
a 66.1%-owned subsidiary, Greenpac Holding LLC, a North American manufacturer of linerboard (including indirect ownership).
Apart from RDM and Greenpac, 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's 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.
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
74
48
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 29.7% of the common shares as at December 31, 2017, 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, including its Chief Executive Officer, its Vice-president
and Chief Financial Officer, its Chief Legal Officer and Corporate secretary and its Executive Chairman of the Board and co-founder
Alain Lemaire, the Corporation's business, financial condition or operating results could be adversely affected.
Although Cascades believes that its key personnel 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 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, 2017, it had $1,522 million in
outstanding total net debt on a consolidated basis, including capital-lease obligations. The Corporation also had $541 million available under
its revolving credit facility. On the same basis, its consolidated ratio of net debt to total equity as of December 31, 2017 was 48.7%. The
Corporation’s actual financing expense, including interest on employees' future benefits and loss on repurchase of long-term debt, was
$111 million. Cascades also has significant obligations under operating leases, as described in its audited consolidated financial statements
that are incorporated by reference herein.
On December 12, 2017, the Corporation announced the results of tender offers and proceeded with the purchase of US$150 million of its
5.500% unsecured senior notes due 2022 and US$50 million of its 5.75% unsecured senior notes due 2023.
On June 1, 2017, the Corporation entered into an agreement with its lenders to extend and amend its existing $750 million credit facility. The
amendment extends the term of the facility to July 2021. The financial conditions remain essentially unchanged.
The Corporation has outstanding senior notes rated by Moody’s Investor Service (“Moody’s”) and Standard & Poor’s (“S&P”).
49
75
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
2017
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)
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)
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.
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.
76
50
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.
51
77
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.
r) Climate change
The Corporation operates plants and delivers products to clients in locations that may be subject to climate stress events such as sea-level
rise and increased storm frequency or intensity. Caused by climate change or not, the occurrence of one or more natural disasters, such as
hurricanes, fires or floods, could cause considerable damage to our buildings, disrupt operations, increase operating costs such as freight
and energy and have a negative impact on sales. Climate changes could require higher remediation and insurance costs for the Corporation.
78
52
MANAGEMENT'S REPORT
TO THE SHAREHOLDERS OF CASCADES INC.
February 28, 2018
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
53
79
INDEPENDENT AUDITOR'S REPORT
TO THE SHAREHOLDERS OF CASCADES INC.
February 28, 2018
We have audited the accompanying consolidated financial statements of Cascades Inc. and its subsidiaries, which comprise the consolidated
balance sheets as at December 31, 2017 and 2016 and the consolidated statement of earnings, comprehensive income, 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, 2017 and 2016 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
80
54
CONSOLIDATED BALANCE SHEETS
(in millions of Canadian dollars)
Assets
Current assets
Cash and cash equivalents
Accounts receivable
Current income tax assets
Inventories
Current portion of financial assets
Assets held for sale
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,
2017
December 31,
2016
25
6 and 14
7 and 14
26
29
8
9 and 14
10
26
11, 26 and 29
17
10
25
12
14, 25 and 26
13
15 and 26
14, 25 and 26
13
26
15
17
18
19
20
8
89
563
18
523
9
13
1,215
78
2,104
212
22
74
149
528
4,382
35
638
6
59
7
101
846
1,517
36
18
178
186
2,781
492
16
982
(35)
1,455
146
1,601
4,382
62
524
12
460
3
—
1,061
335
1,635
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
Alain Lemaire
Georges Kobrynsky
55
81
CONSOLIDATED STATEMENTS OF EARNINGS
(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 $215 million (2016 — $192 million)
Selling and administrative expenses
Gain on acquisitions, disposals and others
Impairment charges and restructuring costs
Foreign exchange gain
Gain on derivative financial instruments
Operating income
Financing expense
Interest expense on employee future benefits
Loss on repurchase of long-term debt
Foreign exchange gain on long-term debt and financial instruments
Fair value revaluation gain on investments
Share of results of associates and joint ventures
Earnings before income taxes
Provision for (recovery of) income taxes
Net earnings including non-controlling interests for the year
Net earnings attributable to non-controlling interests
Net earnings attributable to Shareholders for the year
Net earnings per common share
Basic
Diluted
Weighted average basic number of common shares outstanding
Weighted average number of diluted common shares
The accompanying notes are an integral part of these consolidated financial statements.
21
21
23
24
26
25
25
14, 25 and 26
5 and 8
8
17
8
$
$
2017
4,321
3,708
440
(8)
17
(5)
(6)
4,146
175
92
5
14
(23)
(315)
(39)
441
(81)
522
15
507
5.35
5.19
$
$
94,680,598
97,598,900
2016
4,001
3,380
402
(4)
12
(4)
(6)
3,780
221
88
5
—
(22)
—
(32)
182
45
137
2
135
1.42
1.39
94,709,048
96,933,338
82
56
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions of Canadian dollars)
Net earnings 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
Recovery of income taxes
Items that are reclassified to retained earnings
Actuarial gain (loss) on employee future benefits
Provision for (recovery of) income taxes
Other comprehensive loss
Comprehensive income including non-controlling interests for the year
Comprehensive income (loss) attributable to non-controlling interests for the year
Comprehensive income attributable to Shareholders for the year
The accompanying notes are an integral part of these consolidated financial statements.
NOTE
20
20
8
5 and 8
16
17
2017
522
2016
137
(43)
33
1
1
(1)
21
(13)
(1)
(13)
3
(10)
(11)
511
18
493
(33)
21
—
10
(2)
—
(6)
(10)
11
(3)
8
(2)
135
(4)
139
57
83
CONSOLIDATED STATEMENTS OF EQUITY
For the year ended December 31, 2017
(in millions of Canadian dollars) NOTE
Balance - Beginning of year
Comprehensive income (loss)
Net earnings
Other comprehensive
income (loss)
Business combinations
5
Dividends
Stock options expense
Issuance of common share
upon exercise of stock
options
Partial disposal of a subsidiary
to non-controlling interests
Acquisition of non-controlling
interests
Dividends paid to non-
controlling interests
Balance - End of year
(in millions of Canadian dollars)
Balance - Beginning of year
Comprehensive income (loss)
Net earnings
Other comprehensive
income (loss)
Dividends
Stock options expense
Issuance of common share
upon exercise of stock
options
Redemption of common
shares
Dividends paid to non-
controlling interests and
acquisition of non-
controlling interests
Balance - End of year
CAPITAL
STOCK
CONTRIBUTED
SURPLUS
RETAINED
EARNINGS
487
—
—
—
—
—
—
5
—
—
—
492
16
—
—
—
—
—
1
(1)
—
—
—
16
512
507
(10)
497
—
(15)
—
—
(1)
(11)
—
982
ACCUMULATED
OTHER
COMPREHENSIVE
LOSS
(31)
—
(4)
(4)
—
—
—
—
—
—
—
TOTAL EQUITY
ATTRIBUTABLE TO
SHAREHOLDERS
NON-
CONTROLLING
INTERESTS
984
507
(14)
493
—
(15)
1
4
(1)
(11)
—
TOTAL
EQUITY
1,074
522
(11)
511
57
(15)
1
4
—
(26)
(5)
1,601
90
15
3
18
57
—
—
—
1
(15)
(5)
146
(35)
1,455
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
—
—
—
—
—
2
(5)
—
487
17
—
—
—
—
1
(1)
(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
The accompanying notes are an integral part of these consolidated financial statements.
84
58
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions of Canadian dollars)
Operating activities
Net earnings attributable to Shareholders for the year
Adjustments for:
Financing expense and interest expense on employee future benefits
Loss on repurchase of long-term debt
Depreciation and amortization
Gain on acquisitions, disposals and others
Impairment charges and restructuring costs
Unrealized gain on derivative financial instruments
Foreign exchange gain on long-term debt and financial instruments
Provision for (recovery of) income taxes
Fair value revaluation gain on investments
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 repurchase
Net income taxes received (paid)
Dividends received
Employee future benefits and others
Changes in non-cash working capital components
Investing activities
Investments in associates and joint ventures
Payments for property, plant and equipment
Proceeds from disposals of property, plant and equipment
Change in intangible and other assets
Cash acquired in (paid for) a business combinations
Financing activities
Bank loans and advances
Change in revolving credit facilities
Repurchase of unsecured 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
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.
NOTE
2017
2016
25
14, 25 and 26
23
24
17
5 and 8
8
8
14
8
25
8
8
5
14, 25 and 26
18
18
8
507
97
14
215
(8)
11
(8)
(23)
(81)
(315)
(39)
15
(99)
(11)
(10)
12
(17)
260
(87)
173
(17)
(193)
15
256
9
70
8
114
(257)
11
(47)
(12)
4
—
(24)
(15)
(218)
25
2
62
89
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
(3)
60
62
59
85
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.
2017
1,652
838
703
(105)
3,088
1,268
(35)
4,321
SALES
2016
1,370
796
620
(61)
2,725
1,305
(29)
4,001
OPERATING INCOME (LOSS) BEFORE DEPRECIATION
AND AMORTIZATION
2017
2016
238
67
67
372
90
(72)
390
(215)
(97)
(14)
23
315
39
441
214
51
71
336
139
(62)
413
(192)
(93)
—
22
—
32
182
(in millions of Canadian dollars)
Packaging Products
Containerboard
Boxboard Europe
Specialty Products
Intersegment sales
Tissue Papers
Intersegment sales and Corporate Activities
(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 repurchase of long-term debt
Foreign exchange gain on long-term debt and financial instruments
Fair value revaluation gain on investments
Share of results of associates and joint ventures
Earnings before income taxes
86
60
(in millions of Canadian dollars)
Packaging Products
Containerboard
Boxboard Europe
Specialty Products
Tissue Papers
Corporate
Total acquisitions
Proceeds from disposals of property, plant and equipment
Capital lease acquisitions
Acquisitions for 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 from 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
PAYMENTS FOR PROPERTY, PLANT AND EQUIPMENT
2017
2016
65
27
32
124
64
19
207
(15)
(11)
181
25
(28)
178
51
26
26
103
77
26
206
(5)
(18)
183
19
(25)
177
December 31,
2017
TOTAL ASSETS
December 31,
2016
1,995
609
383
2,987
919
459
(68)
4,297
78
7
4,382
1,285
567
336
2,188
922
400
(37)
3,473
335
5
3,813
61
87
Information by geographic segment is as follows:
For the years ended December 31 (in millions of Canadian dollars)
2017
2016
Sales
Operations located in Canada
Within Canada
To the United States
Other countries
Operations located in the United States
Within the United States
To Canada
Other countries
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
88
62
1,629
488
11
2,128
1,217
73
1
1,291
279
138
417
411
74
485
1,511
505
14
2,030
1,065
45
2
1,112
241
140
381
399
79
478
4,321
4,001
December 31,
2017
December 31,
2016
840
967
183
114
2,104
840
512
179
104
1,635
December 31,
2017
December 31,
2016
449
278
13
740
441
71
9
521
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 February 28, 2018.
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 I 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 USA Inc.
Greenpac Holding LLC 1
Reno de Medici S.p.A. (RDM)
1 For accounting purposes, percentage stands at 82.83% including indirect ownership.See Note 5 for more details.
PERCENTAGE OWNED (%)
JURISDICTION
100
100
59.7
57.8
Canada
Delaware
Delaware
Italy
63
89
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 unrecognized 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 derivative financial
instruments” 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. 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. AFS investments are classified as long-term,
unless the investment matures within 12 months, or Management expects to dispose of them within 12 months.
90
64
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 financing
expense 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” to the consolidated statement of earnings and included in “Loss (gain)
on derivative financial instruments”.
C. 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.
D. 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” that is reclassified to net earnings.
Impairment losses on financial assets carried at amortized cost are reversed in subsequent periods if the amount of the loss decreases and
the decrease can be related objectively to an event occurring after the impairment was recognized. Impairment losses on AFS equity instruments
are not reversed.
DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
Derivative financial instruments are initially recognized at fair value on the date a derivative contract is entered into and are subsequently
remeasured at their fair value. The method of recognizing the resulting gain or loss depends on whether the derivative is designated as a
hedging instrument, and, if so, the nature of the item being hedged. The Corporation designates certain derivative financial instruments as
either:
i) hedges of the fair value of recognized assets or liabilities or a firm commitment (fair value hedge);
ii) hedges of a particular risk associated with a recognized asset or liability or a highly probable forecast transaction (cash flow hedge); or
iii) hedges of a net investment in a foreign operation (net investment hedge).
The Corporation formally documents, at the inception of the transaction, the relationship between hedging instruments and hedged items, as
well as its risk management objectives and strategy for undertaking various hedging transactions. The Corporation also documents its
assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly
effective in offsetting changes in fair values or cash flows of hedged items.
The full fair value of a hedging derivative is classified as a long-term asset or liability when the remaining maturity of the hedged item is more
than 12 months and as a current asset or liability when the remaining maturity of the hedged item is less than 12 months. Trading derivatives
are classified as current assets or liabilities.
A. 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.
65
91
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. 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. 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
is 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, and net realizable
value. Inventories of raw material and supplies are valued at the lower of cost and 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.
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.
92
66
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 3 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)). If there is any indication that an individual
asset may be impaired, the recoverable amount shall be estimated for the individual asset.
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.
67
93
C. RECOVERABLE AMOUNTS
A recoverable amount is the higher of fair value less cost of disposal and 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 that result from changes
in the estimated timing or amount of the cash flow, or a change in the discount rate, are added to, or deducted from, the cost of the related
asset in the current year. If a decrease in the liability exceeds the carrying amount of the asset, the excess is recognized immediately in the
consolidated statement of earnings. If the asset value is increased and there is an indication that the revised carrying value is not recoverable,
an impairment test is performed in accordance with the accounting policy for impairment testing.
LONG-TERM DEBT
Long-term debt is recognized initially at fair value, net of financing costs incurred. Long-term debt is subsequently carried at amortized cost;
any difference between the proceeds (net of transaction costs) and the redemption value is recognized in the consolidated statement of
earnings over the period of the term of the debt using the effective interest method.
Financing costs paid on establishment of the revolving credit facility are recognized as deferred financing costs and amortized on a straight-
line basis over the anticipated period of the credit facility.
94
68
EMPLOYEE BENEFITS
The Corporation offers funded and unfunded defined benefit pension plans, defined contribution pension plans and group registered retirement
savings plans (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 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, 2017, 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 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, 2017, 87% of the plans were evaluated on
December 31, 2016 (18% in 2015).
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”.
69
95
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 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. To comply with the new requirements, a reconciliation of total liabilities arising from financing activities has been
added to Note 25.
B) RECENT IFRS PRONOUNCEMENTS NOT YET ADOPTED
IFRS 15 REVENUE FROM CONTRACTS WITH CUSTOMERS
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 new standard
is effective for annual periods beginning on or after January 1, 2018. The standard will not have a significant impact on the timing of the
Corporation's revenues since there is typically only one performance obligation per customer contract. The adoption of the standard will,
however, have an impact on the contract liabilities classification. which can no longer be presented against accounts receivable. As well,
IFRS 15 will require further disclosure, such as a disaggregation of revenues from contracts with customers in categories that depict how the
nature, amount, timing and uncertainty of revenues and cash flows are affected by economic factors. To comply with this requirement, the
Corporation will segregate its four segments' sales by country on a quarterly basis. The Corporation will apply the new standard retrospectively.
Apart from the balance sheet reclassification discussed above, this standard has no material impact on the Corporation's consolidated financial
statements.
96
70
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 new standard will have no material impact on the Corporation's 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. The new standard requires lessees to recognize a lease liability reflecting
future lease payments and a “right-of-use asset” for virtually all lease contracts, and record it on the balance sheet, except with respect to
lease contracts that meet limited exception criteria, such as when the underlying asset is of low value or the maturity of the lease is short
term. The Corporation is currently evaluating the impact of the standard on its consolidated financial statements. As at December 31, 2017,
operating lease commitments would have translated into an estimated additional lease liability of $70 million.
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 cash generating unit (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 Note 24 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.
71
97
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 institution's 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.
SHIPMENTS
The assumptions used are based on the Corporation's internal budget for the next year and are usually held constant for the forecast period.
In arriving at its budgeted shipments, the Corporation considers past experience, economic trends as well as industry and market trends.
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 health care 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. In 2016, the Corporation had a 59.7% interest in an associate (Greenpac). Greenpac's
Shareholders agreement required a majority of 80% for all decision making related to relevant activities. Consequently, the Corporation did
not have power over relevant activities of Greenpac and its participation was accounted for as an associate. On April 4, 2017, Cascades and
its partners in Greenpac Holding LLC (Greenpac) agreed to modify the equity holders' agreement. These modifications enable Cascades to
direct decisions about relevant activities. Therefore, from an accounting standpoint, Cascades now has control over Greenpac, which triggered
its deemed acquisition and thus fully consolidates Greenpac since April 4, 2017. Please refer to Notes 5 and 8 of the consolidated financial
statements for more details.
98
72
NOTE 5
BUSINESS COMBINATIONS
2017
Coyle containerboard converting plants
On November 30, 2017, the Containerboard Packaging segment purchased, from the Coyle family, three converting plants located in Ontario
and specialized in the manufacturing of boxes and specialty products. Total consideration was $30 million and consisted of $25 million in
cash, a non-cash provision of $1 million as at December 31, 2017, for working capital purchase price adjustment and $4 million of assumed
debts. The excess of the consideration paid over the net fair value of the assets acquired resulted in a tax-deductible goodwill of $3 million
and has been allocated to Containerboard Packaging segment CGU. The transaction is expected to create synergies since a significant
portion of their procurement is realized through our newly acquired Tencorr joint venture, which has a supply agreement with Greenpac.
The $12 million fair value of accounts receivables is equal to gross contractual cash flows, which are all expected to be collected.
The purchase price is preliminary as of December 31, 2017.
Assets acquired and liabilities assumed were as follows:
(in millions of Canadian dollars)
Fair values of identifiable assets acquired and liabilities assumed:
Accounts receivable
Inventories
Property, plant and equipment
Intangible assets with finite useful life (client list)
Goodwill
Total assets
Trade and other payables
Current portion of long-term debt
Long-term debt
Net assets acquired
Cash paid
Non-cash provision for working capital purchase price adjustment
Total consideration
BUSINESS SEGMENT:
2017
CONTAINERBOARD
PACKAGING
ACQUIRED COMPANY:
Coyle Plants
12
1
10
7
4
34
(4)
(1)
(3)
26
25
1
26
On a stand-alone basis, the acquired business, since the date of acquisition, represents sales amounting to $4 million and the contribution
to net earnings attributable to Shareholders is nil. Had the acquisition occurred on January 1, 2017, consolidated sales would have been
$4,369 million and consolidated net earnings attributable to Shareholders would have been $506 million. 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, 2017.
73
99
Greenpac Holding LLC
On April 4, 2017, Cascades and its partners in Greenpac Holding LLC (Greenpac) agreed to modify the equity holders' agreement. These
modifications enable Cascades to direct decisions about relevant activities. Therefore, from an accounting standpoint, Cascades now has
control over Greenpac, which triggers its deemed acquisition and thus fully consolidates Greenpac starting April 4, 2017.
There is no cash consideration for the acquisition and there is no change of participation of each partner in Greenpac. Consideration transferred
for the acquisition was the fair value of Cascades' investment in Greenpac based on the income approach less net liabilities with acquiree,
which settled as a result of the transaction. The excess of the consideration over the net fair value of the assets acquired and the liabilities
assumed resulted in a non-deductible goodwill of $190 million and has been allocated to the Containerboard Packaging segment CGU. The
consolidation enables Cascades to better reflect its presence in the North American containerboard market.
One of the partners in Greenpac has a put option whereby the partner can require other partners or Greenpac itself to repurchase its shares
at a price including a predetermined return on its investment. Under IFRS, this option gives the equity participation of this partner the
characteristics of liability more than equity. As such, this partner's participation is classified in the current portion of other liabilities at an initial
fair value of $85 million at the acquisition date.
For accounting purposes, the Corporation's share of Greenpac stands at 82.83% as at December 31, 2017, (78.3% for the period of April 4
to November 30, 2017) while legal ownership is 59.7%. The Corporation records income taxes on 71.8% of Greenpac's profit before taxes,
as it is a flow-through entity for tax purposes (62.5% for the period of April 4 to November 30, 2017). See Note 8 for details.
The change in control provides for the revaluation of the previously held interest to its fair market value. As such, a gain of $156 million was
recognized in the consolidated statement of earnings in the second quarter. Also, consequent to the acquisition, our share of accumulated
other comprehensive loss components of Greenpac totaling $4 million on and included in Cascades' consolidated balance sheet prior to the
acquisition were reclassified to net earnings. These two items are presented in line item “Fair value revaluation gain on investments” in the
consolidated statement of earnings.
The Corporation has reversed its deferred income tax liability related to its Greenpac investment and recorded an income tax recovery of
$70 million. The investment in Greenpac is considered as the consideration transferred for the Greenpac acquisition and, as a result, is
accounted for as a deemed disposal for tax accounting purposes.
Since the date of acquisition, Greenpac has generated sales of $200 million and net earnings of $17 million. Had the acquisition occurred on
January 1, 2017, consolidated sales year-to-date would have been $4,392 million while consolidated net earnings attributable to Shareholders
would have been approximately the same, since the Corporation was previously recording its share of results in Greenpac. These estimates
are based on the assumption that the fair value adjustments that arose on the date of acquisition would have been the same had the acquisition
occurred on January 1, 2017.
The $20 million fair value of accounts receivables is equal to gross contractual cash flows, which are all expected to be collected.
The purchase price allocation of Greenpac was finalized during the third quarter of 2017.
100
74
Assets acquired and liabilities assumed were as follows:
(in millions of Canadian dollars)
Fair values of identifiable assets acquired and liabilities assumed:
Cash and cash equivalents
Accounts receivable
Inventories
Current portion of financial assets
Property, plant and equipment
Financial assets
Intangible assets with finite useful life (client list)
Goodwill
Total assets
Trade and other payables
Current portion of long-term debt
Current portion of financial liabilities and other liabilities
Long-term debt
Financial liabilities
Deferred income tax liabilities
Net assets acquired
Non-controlling interests
Total non-cash consideration
Previously held interest
Revaluation gain on previously held interest on April 4, 2017
Settlement of net liabilities with acquiree before the transaction
BUSINESS SEGMENT:
2017
CONTAINERBOARD
PACKAGING
ACQUIRED COMPANY:
Greenpac Holding LLC
34
20
23
4
512
16
39
190
838
(39)
(15)
(90)
(238)
(4)
(91)
361
(57)
304
187
156
(39)
304
On November 30, 2017, the Corporation increased its participation in Containerboard Partners (Ontario) Inc. from 23% to 53% through the
acquisition of 90 common shares for a cash consideration of US$15 million ($19 million). The transaction increases the Corporation's indirect
ownership in Greenpac to 6.4% from 3.6%. Since there are no activities in Containerboard Partners (Ontario) Inc. other than its investment
in Greenpac, the transaction is accounted as the acquisition of a non-controlling interest.
75
101
2016
Rand-Whitney Newtown Plant
On May 31, 2016, the Containerboard Packaging segment 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 segment CGU. This acquisition was concluded 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.
In 2016, on a stand-alone basis and since the date of acquisition, Newtown generated sales amounting to $35 million and the contribution to
net earnings attributable to Shareholders was 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. 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.
NOTE 6
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
28
2017
526
35
(7)
554
(45)
54
563
As at December 31, 2017, trade receivables of $143 million (December 31, 2016 - $118 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
102
76
2017
73
30
10
30
143
2016
465
39
(6)
498
(35)
61
524
2016
69
22
8
19
118
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
2017
2016
6
2
(1)
7
12
(3)
(3)
6
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 7
INVENTORIES
(in millions of Canadian dollars)
Finished goods
Raw material
Supplies and spare parts
2017
249
124
150
523
2016
219
107
134
460
As at December 31, 2017, finished goods, raw material and supplies and spare parts were adjusted to net realizable value (NRV) by
$8 million, $1 million and nil, respectively (December 31, 2016 - $7 million, nil, and nil). As at December 31, 2017, the carrying amount of
inventory carried at net realizable value consisted of $14 million in finished goods inventory, nil in raw material inventory and nil in supplies
and spare parts (December 31, 2016 - $9 million, nil and nil).
The Corporation has sold all the goods that were written down in 2017. No reversal of previously written-down inventory occurred in 2017 or
2016. The cost of raw material and supplies and spare parts included in “Cost of sales” amounted to $1,751 million (2016 - $1,612 million).
77
103
NOTE 8
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
2017
16
62
78
2016
281
54
335
Investments in associates and joint ventures as at December 31, 2017, include goodwill of $3 million (December 31, 2016 - $28 million).
INVESTMENTS IN ASSOCIATES
B.
The following were the principal associates of the Corporation:
Boralex
On January 18, 2017, Boralex issued common shares to partly finance the acquisition of the interest of Enercon Canada Inc. in the Niagara
Region Wind Farm. As a result, the Corporation's participation in Boralex decreased to 17.37%, which resulted in a dilution gain of $15 million
and is included in line item “Share of results of associates and joint ventures” in the consolidated statement of earnings.
On March 10, 2017, Boralex announced the appointment of a new Chairman of the Board. This change in the Board composition combined
with the decrease of its participation discussed above triggered the loss of significant influence of the Corporation over Boralex. Since
March 10, 2017, the investment in Boralex was no longer classified as an associate and is considered as an available-for-sale financial asset.
Consequently, the Corporation's investment in Boralex was re-evaluated at fair value on March 10, 2017, and a gain of $155 million was
recorded. At the same time, accumulated other comprehensive loss components of Boralex totaling $10 million and included in our consolidated
balance sheet were reclassified to net earnings. These two items are presented in line item “Fair value revaluation of investment” in the
consolidated statement of earnings. Subsequent fair value revaluation of this investment is recorded in ”Accumulated other
comprehensive income”.
On July 27, 2017, Cascades announced the sale of all of its shares in Boralex to the Caisse de Dépôt et Placement du Québec for an amount
of $288 million. The increase in fair value of $18 million from March 10 to July 27, 2017, recorded in “Accumulated other comprehensive
income” materialized, and the Corporation recorded a gain of $18 million in the third quarter in line item “Fair value revaluation gain on
investments” in the consolidated statement of earnings. The Corporation also received $2 million of dividends while Boralex was considered
an available-for-sale financial assets.
Greenpac Holding LLC
On April 4, 2017, the Corporation gained control over its associates Greenpac, which triggered its acquisition for accounting purposes. See
Note 5 for more details.
On March 21, 2017, the Corporation acquired 23% of Containerboard Partners (Ontario) Inc. for a consideration of US$12 million ($16 million).
This company is a member of Greenpac Holding LLC, of which it owns 12.1%. On November 30, 2017, the Corporation acquired an additional
30% of Containerboard Partners (Ontario) for a consideration of $19 million. These transactions add an indirect participation of 6.4% in
Greenpac Holding LLC, bringing total legal ownership to 66.1%. However, in line with the deemed acquisition of Greenpac discussed above,
the portion of our Containerboard Partners (Ontario) share of results pertaining to Greenpac is reversed for consolidation purposes.
On May 6, 2016, the Corporation announced that its then 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.
104
78
The Corporation's financial information from its principal associates (100%), and translated in millions of Canadian dollars if required, is as
follows:
2017
2016
(in millions of Canadian dollars)
Condensed 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
Condensed statements of earnings
Sales
Depreciation and amortization
Financing expense
Provision for (recovery of) income taxes
Net earnings
Other comprehensive income (loss)
Translation adjustment
Cash flow hedges
Total comprehensive income (loss)
Condensed cash flow
Dividends received from associates
BORALEX INC.
GREENPAC HOLDING LLC
(results up to April 4, 2017)
(results up to March 10, 2017)
BORALEX INC.
GREENPAC HOLDING LLC
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
96
31
19
6
13
1
(1)
—
13
2
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
99
7
3
—
9
—
1
1
10
—
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
—
Investment in Boralex Inc. had a fair value of $252 million as at December 31, 2016.
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
Tencorr Holdings Corporation 3
1 Joint ventures producing specialty paper packaging products such as headers, rolls and wrappers.
2 MPPLP is a Canadian corporation converting containerboard.
3 Tencorr Holdings Corporation operates as a supplier of corrugated sheet stock.
PERCENTAGE EQUITY
OWNED (%)
PRINCIPAL ESTABLISHMENT
Birmingham, Alabama and Tacoma, Washington,
United States
50
50 Kingsey Falls and Berthierville, Québec, Canada
40
33.3
Dartmouth, Nova Scotia, Canada
Brampton, Ontario, Canada
Tencorr Holdings Corporation
On November 30, 2017, the Corporation acquired 33.3% of the outstanding shares of Tencorr Holdings Corporation (Tencorr), a corrugated
sheets manufacturer, for a consideration of $5 million, of which $3 million is payable as at December 31, 2017. Tencorr is classified as a joint
venture, and accordingly our share of results is recorded using the equity method.
79
105
The Corporation's joint ventures information (100%), translated in millions of Canadian dollar if required, is as follows:
(in millions of Canadian dollars)
Condensed balance sheet
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
Condensed statement of earnings
Sales
Depreciation and amortization
Financing expense
Provision for income taxes
Net earnings
Other comprehensive income (loss)
Translation adjustment
Total comprehensive income
Condensed cash flow
Dividends received from joint ventures
(in millions of Canadian dollars)
Condensed 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
Condensed statement of earnings
Sales
Depreciation and amortization
Financing expense
Provision for income taxes
Net earnings
Other comprehensive income (loss)
Translation adjustment
Total comprehensive income
Condensed cash flow
Dividends received from joint ventures
CASCADES SONOCO
US INC.
CASCADES SONOCO INC.
MARITIME PAPER
PRODUCTS LIMITED
PARTNERSHIP
TENCORR HOLDINGS
CORPORATION
2017
30
31
10
2
4
14
119
2
1
1
8
(2)
6
4
28
17
6
1
3
3
96
2
—
1
4
—
4
1
25
28
4
1
—
4
20
12
14
5
—
1
102
111
2
—
—
7
—
7
1
2
—
—
1
—
1
—
CASCADES SONOCO
US INC.
CASCADES SONOCO 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
—
There are no contingent liabilities relating to the Corporation's interest in the joint ventures, and no contingent liabilities of the ventures
themselves.
106
80
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.
GREENPAC HOLDING LLC
(since April 4, 2017)
RENO DE MEDICI S.p.A.
2017
2016
Milan, Italy
42.18%
New York,
United States
17.17%
Milan, Italy
42.30%
Principal establishment
Percentage of shares held by non-controlling interests (accounting basis)
Net earnings attributable to non-controlling interests
Non-controlling interests accumulated at the end of the year
Dividends paid to non-controlling interests
Condensed 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
Condensed statement of earnings
Sales
Depreciation and amortization
Provision for income taxes
Net earnings
Condensed cash flow
Cash flows from operating activities
Cash flows used from investing activities
Cash flows used for financing activities
9
105
1
29
254
—
335
—
195
30
72
67
838
33
9
21
49
(48)
(17)
5
42
4
38
100
3
568
14
31
106
—
209
278
22
—
21
39
(3)
(30)
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
2017
16
16
32
2017
1
3
4
The Corporation received dividends of $2 million from these associates and joint ventures as at December 31, 2017 (December 31, 2016 -
$3 million).
81
107
2
90
1
41
231
—
299
—
178
23
68
82
702
32
5
5
56
(39)
(9)
2016
17
14
31
2016
2
4
6
NOTE 9
PROPERTY, PLANT AND EQUIPMENT
(in millions of Canadian dollars)
As at January 1, 2016
Cost
Accumulated depreciation and impairment
Net book amount
Year ended December 31, 2016
Opening net book amount
Additions
Disposals
Depreciation
Business combination, net of assets transferred
Reversal of impairment (charges)
Others
Exchange differences
Closing net book amount
As at December 31, 2016
Cost
Accumulated depreciation and impairment
Net book amount
Year ended December 31, 2017
Opening net book amount
Additions
Disposals
Depreciation
Business combinations
Assets held for sale
Impairment charges
Others
Exchange differences
Closing net book amount
As at December 31, 2017
Cost
Accumulated depreciation and impairment
Net book amount
NOTE
LAND
BUILDINGS
MACHINERY AND
EQUIPMENT
AUTOMOTIVE
EQUIPMENT
OTHERS
TOTAL
5
24
5
29
24
113
2
111
111
—
(1)
—
1
—
1
(2)
110
110
—
110
110
11
(3)
—
7
(1)
—
(1)
1
124
124
—
124
717
351
366
366
5
—
(28)
7
2
39
(4)
387
740
353
387
387
6
(2)
(31)
90
(8)
—
48
(11)
479
824
345
479
2,675
1,722
953
953
45
(1)
(116)
—
(3)
55
(22)
911
2,553
1,642
911
911
24
(1)
(132)
397
—
—
84
(29)
1,254
2,966
1,712
1,254
104
67
37
37
25
—
(13)
—
—
6
—
55
126
71
55
55
18
(1)
(15)
1
—
—
1
(1)
58
140
82
58
289
131
158
158
131
(3)
(13)
—
(2)
(98)
(1)
172
299
127
172
172
148
(1)
(11)
27
(4)
(2)
(133)
(7)
189
311
122
189
3,898
2,273
1,625
1,625
206
(5)
(170)
8
(3)
3
(29)
1,635
3,828
2,193
1,635
1,635
207
(8)
(189)
522
(13)
(2)
(1)
(47)
2,104
4,365
2,261
2,104
Other property, plant and equipment include buildings and machinery and equipment in the process of construction or installation with a book
value of $81 million (December 31, 2016 - $90 million) and deposits on purchases of machinery and equipment amounting to $18 million
(December 31, 2016 - $7 million). The carrying value of finance-lease assets is $31 million (December 31, 2016 - $24 million).
In 2017, $2 million (2016 - $2 million) of interest incurred on qualifying assets was capitalized. The weighted average capitalization rate on
funds borrowed in 2017 was 5.56% (2016 - 5.56%).
108
82
NOTE 10
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
5
5
110
34
76
76
17
—
(10)
—
—
83
126
43
83
83
24
—
(13)
—
94
150
56
94
170
78
92
92
—
1
(9)
—
—
84
171
87
84
84
—
46
(11)
(3)
116
208
92
116
35
29
6
6
—
—
(3)
1
—
4
35
31
4
4
—
—
(2)
—
2
32
30
2
315
141
174
174
17
1
(22)
1
—
171
332
161
171
171
24
46
(26)
(3)
212
390
178
212
343
4
339
339
—
7
—
—
(2)
344
349
5
344
344
—
194
—
(17)
521
523
2
521
8
1
7
7
—
—
—
(1)
—
6
7
1
6
6
—
—
—
1
7
7
—
7
351
5
346
346
—
7
—
(1)
(2)
350
356
6
350
350
—
194
—
(16)
528
530
2
528
(in millions of Canadian dollars)
As at January 1, 2016
Cost
Accumulated amortization and impairment
Net book amount
Year ended December 31, 2016
Opening net book amount
Additions
Business combinations
Amortization
Others
Exchange differences
Closing net book amount
As at December 31, 2016
Cost
Accumulated amortization and impairment
Net book amount
Year ended December 31, 2017
Opening net book amount
Additions
Business combinations
Amortization
Exchange differences
Closing net book amount
As at December 31, 2017
Cost
Accumulated amortization and impairment
Net book amount
NOTE 11
OTHER ASSETS
(in millions of Canadian dollars)
Notes receivable from business disposals
Other investments
Other assets
Employee future benefits
NOTE
2017
2016
16
6
7
30
37
80
(6)
74
9
5
27
46
87
(15)
72
Less: Current portion, included in accounts receivables
Other assets include deferred revenue for the supervision of Greenpac Mill totaling $12 million as at December 31, 2016 and nil at the end
of 2017. The Corporation did receive $1 million before the acquisition of Greenpac described in Note 5, while the balance of $11 million was
written off since expected future cash flows related to this asset will not materialize on a consolidated basis following the Greenpac acquisition.
In December 2017, the Corporation deposited €10 million ($15 million) for the acquisition of PAC Service S.p.A in the Boxboard Europe
segment. See Note 29 for more details.
83
109
NOTE 12
TRADE AND OTHER PAYABLES
(in millions of Canadian dollars)
Trade payables
Payables to related parties
Accrued expenses
NOTE 13
PROVISIONS FOR CONTINGENCIES AND CHARGES
NOTE
28
2017
488
7
143
638
2016
472
44
145
661
(in millions of Canadian dollars)
As at January 1, 2016
Additional provision
Reversal of provision
Payments
Revaluation
As at December 31, 2016
Additional provision
Payments
Others
As at December 31, 2017
Analysis of total provisions:
(in millions of Canadian dollars)
Long-term
Current
ENVIRONMENTAL
RESTORATION
OBLIGATIONS
ENVIRONMENTAL
COSTS
LEGAL CLAIMS
SEVERANCES
ONEROUS
CONTRACT
OTHERS
TOTAL
PROVISIONS
9
—
—
(3)
2
8
(1)
—
—
7
14
5
(1)
(2)
—
16
—
—
—
16
3
1
—
(1)
—
3
2
(1)
—
4
2
7
—
(6)
—
3
5
(5)
—
3
6
4
—
(3)
—
7
2
(2)
3
10
5
3
(1)
(1)
—
6
—
(3)
—
3
2017
36
7
43
39
20
(2)
(16)
2
43
8
(11)
3
43
2016
34
9
43
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, 2017, 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.
110
84
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. 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 past 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 that
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 14
LONG-TERM DEBT
(in millions of Canadian dollars)
NOTE
MATURITY
2017
2016
Revolving credit facility, weighted average interest rate of 3.39% as at December 31, 2017, consists
of $5 million and US$151 million (December 31, 2016 - $(19) million; US$82 million and
€(1) million)
5.50% Unsecured senior notes of $250 million
5.50% Unsecured senior notes of US$400 million (December 31,2016 - US$550 million)
5.75% Unsecured senior notes of US$200 million (December 31, 2016 - US$250 million)
14(b)
14(a)
14(a)
2021
2021
2022
2023
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
195
250
503
252
66
320
1,586
10
1,576
14
45
59
1,517
90
250
738
336
62
105
1,581
15
1,566
13
23
36
1,530
a. On December 12, 2017, the Corporation repurchased US$150 million of its 5.50% unsecured senior notes due in 2022 for an amount of
US$156 million ($201 million) and US$50 million of its 5.75% unsecured senior notes due in 2023 for an amount of US$52 million
($67 million), including premiums of US$6 million ($8 million) and US$2 million ($3 million). The Corporation also wrote off $3 million of
unamortized financing costs related to these notes.
b. On June 1, 2017, the Corporation entered into an agreement with its lenders to extend and amend its existing $750 million credit facility.
The amendment extends the term of the facility to July 2021. The financial conditions remain essentially unchanged.
c. As at December 31, 2017, accounts receivable and inventories totaling approximately $748 million (December 31, 2016 - $715 million) as
well as property, plant and equipment totaling approximately $237 million (December 31, 2016 - $250 million) were pledged as collateral for
the Corporation's revolving credit facility.
d. As a result of the Greenpac acquisition described in Note 5, current portion of long-term debt and long-term debt increased by respectively
$15 million and $235 million on April, 4, 2017 (net of $3 million settlement of intercompany debt with Cascades prior to the transaction).
85
111
e. 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:
MINIMUM PAYMENTS
2017
PRESENT VALUE OF
PAYMENTS
MINIMUM PAYMENTS
2016
PRESENT VALUE OF
PAYMENTS
11
22
6
39
6
33
9
18
6
33
—
33
NOTE
16
8
19
7
34
6
28
2017
174
80
6
260
(82)
178
7
15
6
28
—
28
2016
174
—
8
182
(4)
178
(in millions of Canadian dollars)
Within one year
Later than one year but no later than five years
More than five years
Total minimum lease payments
Less: amounts representing finance charges
Present value of minimum lease payments
NOTE 15
OTHER LIABILITIES
(in millions of Canadian dollars)
Employee future benefits
Greenpac equity holder put option (see Note 5 for more details)
Other
Less: Current portion
NOTE 16
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 consolidated financial statements.
(in millions of Canadian dollars)
Consolidated balance sheet obligations for
Defined pension benefits
Post-employment benefits other than defined benefit pension plans
Net long-term liabilities on consolidated 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
16(a)
16(b)
16(a)
16(b)
2017
36
101
137
7
21
4
32
14
(1)
13
2016
22
106
128
7
20
5
32
(13)
2
(11)
112
86
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.
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, 2016
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
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 demographic assumptions
Loss from change in financial assumptions
Experience loss
Impact of remeasurements on other comprehensive income
Exchange differences
Contributions
Employers
Plan participants
Benefit payments
As at December 31, 2017
PRESENT VALUE
OF OBLIGATION
FAIR VALUE OF
PLAN ASSETS
484
5
18
23
—
11
(9)
—
2
(1)
—
2
(28)
482
5
17
22
—
2
14
12
28
1
—
2
(27)
508
(454)
—
(16)
(16)
(9)
—
—
—
(9)
—
(7)
(2)
28
(460)
—
(15)
(15)
(14)
—
—
—
(14)
—
(8)
(2)
27
(472)
IMPACT OF
MINIMUM
FUNDING
REQUIREMENT
(ASSET CEILING)
6
TOTAL
30
TOTAL
36
5
2
7
(9)
11
(9)
—
(7)
(1)
(7)
—
—
22
5
2
7
(14)
2
14
12
14
1
(8)
—
—
36
—
—
—
—
—
—
(6)
(6)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
5
2
7
(9)
11
(9)
(6)
(13)
(1)
(7)
—
—
22
5
2
7
(14)
2
14
12
14
1
(8)
—
—
36
87
113
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 on consolidated balance sheet
CANADA
UNITED STATES
EUROPE
433
466
(33)
37
4
10
6
4
—
4
—
—
—
28
28
(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 consolidated balance sheet
CONTAINERBOARD
405
437
(32)
8
(24)
BOXBOARD
EUROPE
—
SPECIALTY
PRODUCTS
—
—
—
28
28
—
—
2
2
TISSUE PAPERS
CORPORATE
37
34
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
Present value of unfunded obligations
Liabilities (assets) on consolidated balance sheet
CANADA
UNITED STATES
EUROPE
411
454
(43)
37
(6)
10
6
4
—
4
—
—
—
24
24
(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 consolidated balance sheet
CONTAINERBOARD
385
427
(42)
8
(34)
The significant actuarial assumptions are as follows:
TISSUE PAPERS
CORPORATE
35
32
3
2
5
1
1
—
25
25
BOXBOARD
EUROPE
—
SPECIALTY
PRODUCTS
—
—
—
24
24
—
—
2
2
2017
2017
TOTAL
443
472
(29)
65
36
2017
TOTAL
443
472
(29)
65
36
2016
TOTAL
421
460
(39)
61
22
2016
TOTAL
421
460
(39)
61
22
2016
Discount rate obligation (ending period)
Discount rate obligation (beginning period)
Discount rate (current service cost)
Salary growth rate
Inflation rate
CANADA
UNITED STATES
EUROPE
CANADA
UNITED STATES
EUROPE
3.40%
3.70%
3.50%
Between
2.00% and
2.75%
3.31%
3.73%
3.73%
N/A
1.60%
1.90%
1.90%
N/A
2.25%
N/A
1.75%
3.70%
3.90%
3.90%
Between
1.75% and
3.00%
Between
2.25% and
2.50%
3.73%
3.90%
3.90%
N/A
1.90%
2.10%
2.10%
N/A
N/A
1.75%
114
88
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
2017
21.7
24.1
22.8
25.1
2016
21.6
24.1
22.7
25
The sensitivity of the Canadian 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.
IMPACT ON DEFINED BENEFIT OBLIGATION
CHANGE IN ASSUMPTION
INCREASE IN ASSUMPTION
DECREASE IN ASSUMPTION
0.25%
0.25%
(2.90)%
0.40 %
3.10 %
(0.30)%
INCREASE / DECREASE BY 1 YEAR IN ASSUMPTION
Discount rate
Salary growth rate
Life expectancy
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
LEVEL 1
LEVEL 2
LEVEL 3
5
92
34
6
—
7
—
—
—
144
—
81
—
—
6
1
54
22
164
328
—
—
—
—
—
—
—
—
—
—
3.00 %
2017
%
1.1 %
TOTAL
5
173
36.7 %
34
6
40
6
8
54
22
90
164
164
472
8.5 %
19.1 %
34.6 %
89
115
(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
—
—
—
—
—
—
—
—
—
—
—
TOTAL
9
2016
%
2.0 %
114
24.8 %
71
14
85
2
19
109
21
151
94
7
101
460
18.5 %
32.8 %
21.9 %
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 $164 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 consolidated balance sheet composed by country and by sector are determined as follows:
(in millions of Canadian dollars)
Present value of unfunded obligations
Liabilities on consolidated balance sheet
CANADA
UNITED STATES
EUROPE
73
73
4
4
24
24
(in millions of Canadian dollars)
CONTAINERBOARD
Present value of unfunded obligations
Liabilities on consolidated balance sheet
38
38
BOXBOARD
EUROPE
24
24
SPECIALTY
PRODUCTS
6
6
TISSUE PAPERS
CORPORATE
12
12
21
21
(in millions of Canadian dollars)
Present value of unfunded obligations
Liabilities on consolidated balance sheet
CANADA
UNITED STATES
EUROPE
78
78
4
4
24
24
(in millions of Canadian dollars)
CONTAINERBOARD
Present value of unfunded obligations
Liabilities on consolidated balance sheet
116
41
41
.
90
BOXBOARD
EUROPE
24
24
SPECIALTY
PRODUCTS
6
6
TISSUE PAPERS
CORPORATE
13
13
22
22
2017
TOTAL
101
101
2017
TOTAL
101
101
2016
TOTAL
106
106
2016
TOTAL
106
106
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, 2016
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
Current service cost
Interest expense
Curtailments
Impact on profit or loss
Remeasurements
Loss from change in financial assumptions
Experience gains
Impact of remeasurements on other comprehensive income
Exchange differences
Contributions and premiums paid by the employer
Benefit payments
As at December 31, 2017
PRESENT VALUE OF
OBLIGATION
105
2
3
5
2
2
(1)
—
(5)
106
2
3
(1)
4
1
(2)
(1)
1
—
(9)
101
FAIR VALUE OF PLAN ASSET
—
—
—
—
—
—
—
(5)
5
—
—
—
—
—
—
—
—
—
(9)
9
—
TOTAL
105
2
3
5
2
2
(1)
(5)
—
106
2
3
(1)
4
1
(2)
(1)
1
(9)
—
101
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 health care costs of 4.50% a year (2016 - 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%
1.00%
(2.20)%
0.50 %
2.00 %
2.30 %
(0.40)%
(1.70)%
INCREASE / DECREASE BY 1 YEAR IN ASSUMPTION
0.80 %
91
117
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.
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.
As at December 31, 2017, 65% of the plan's assets are invested in bonds. In 2014, the Corporation decided to purchase annuities from a life
insurance company for some pensioners according to the market and financial situation of the plans. As at December 31, 2017, the total value
of insured annuities is $164 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 consolidated
balance sheet.
As at December 31, 2017, the aggregate surplus of the Corporation’s funded pension plans (mostly in Canada) amounted to $29 million (a
surplus of $39 million as at December 31, 2016). 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 $8 million and will be made in the normal course
of business. As for the cash flow requirement, these pension plans are expected to require a net contribution of approximately $9 million
in 2018.
The weighted average duration of the defined benefit obligation is 11 years (2016 - 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, 2017
LESS THAN A
YEAR
29
BETWEEN ONE
AND TWO YEARS
29
BETWEEN TWO
AND FIVE YEARS
89
5
34
8
37
24
113
OVER FIVE
YEARS
743
115
858
TOTAL
890
152
1,042
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, 2017.
118
92
NOTE 17
INCOME TAXES
a. The provision for (recovery of) income taxes is as follows:
(in millions of Canadian dollars)
Current taxes
Deferred taxes
2017
10
(91)
(81)
2016
11
34
45
b. The provision for (recovery of) income taxes based on the effective income tax rate differs from the provision for income taxes based on
the combined basic rate for the following reasons:
(in millions of Canadian dollars)
Provision for income taxes based on the combined basic Canadian and provincial income tax rate
Adjustment for income taxes arising from the following:
Difference in statutory income tax rate of foreign operations
Prior years reassessment
Reversal of deferred income tax liabilities related to our previously held investment in Greenpac
Permanent difference on revaluation of previously held equity interest - Greenpac associate
Non-taxable portion of capital gain on revaluation of previously held equity interest - Boralex
associate
Change in future income taxes resulting from enacted tax rate change
NOTE
5
5
8
Unrealized capital gain on long-term debt
Permanent differences
Change in deferred income tax assets relating to capital tax loss
Provision for (recovery of) income taxes
2017
117
10
3
(70)
(57)
(24)
(57)
(3)
(6)
6
(198)
(81)
2016
48
2
1
—
—
—
2
—
(5)
(3)
(3)
45
Weighted average income tax rate for the year ended December 31, 2017, was 28.6% (2016 - 27.4%).
In conjunction with the acquisition of Greenpac, the Corporation recorded an income tax recovery of $70 million representing deferred income
taxes on its investment prior to the acquisition on April 4, 2017. Also, there was no income tax provision recorded on the gain of $156 million
generated by the business combination of Greenpac, since it is included in the fair value of assets and liabilities acquired as described in
Note 5.
The income tax provision on Boralex revaluation gain was calculated at the rate of capital gains. Also, consequently with the sale of its
participation in Boralex in July 2017, the Corporation has reassessed the probability of recovering unrealized capital losses on long-term debt
due to foreign exchange fluctuations. As a result, $6 million of tax assets was unrecognized and recorded in the consolidated statement of
earnings.
Under the Tax Cuts and Jobs Act, which was substantially enacted on December 22, 2017, the U.S. statutory federal income tax rate was
reduced to 21% from the previous rate of 35%. The impact of the change in tax rate resulted in a reduction of $57 million of the net deferred
tax liability position for the year ended December 31, 2017.
c. The provision for income taxes relating to components of other comprehensive income is as follows:
(in millions of Canadian dollars)
Foreign currency translation related to hedging activities
Cash flow hedge
Included in share of other comprehensive income of associates
Actuarial gain (loss) on post-employment benefit obligations
2017
2016
4
—
3
(3)
4
3
3
—
3
9
93
119
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 twelve months
Deferred income tax liabilities:
Deferred income tax liabilities to be used after more than twelve 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
Variance of income tax credit, net of related income tax
Through statement of comprehensive income
Through business combinations
Others
Exchange differences
As at December 31
2017
2016
223
260
(37)
279
319
(40)
NOTE
2017
2016
5
(40)
91
4
(4)
(91)
(7)
10
(37)
(8)
(34)
5
(9)
—
—
6
(40)
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, 2016
Through statement of earnings
Variance of income tax credit
Through statement of
comprehensive income
Exchange differences
As at December 31, 2016
Through statement of earnings
Variance of income tax credit
Through statement of
comprehensive income
As at December 31, 2017
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
141
19
—
—
(1)
159
(25)
—
—
134
25
2
—
(3)
—
24
(6)
—
3
21
38
(23)
—
—
—
15
(10)
—
—
5
39
(3)
5
—
—
41
(6)
4
—
39
16
(8)
—
(3)
—
5
(5)
—
1
1
23
(2)
—
(3)
1
19
(12)
—
(5)
2
15
1
—
—
—
16
5
—
—
21
297
(14)
5
(9)
—
279
(59)
4
(1)
223
120
94
DEFERRED INCOME TAX LIABILITIES
(in millions of Canadian dollars)
As at January 1, 2016
Through statement of earnings
Exchange differences
As at December 31, 2016
Through statement of earnings
Included in share of other comprehensive income of associates
Through business combinations
Others
Exchange differences
As at December 31, 2017
5
PROPERTY,
PLANT AND
EQUIPMENT
NOTE
INTANGIBLE
ASSETS
INVESTMENTS
OTHERS
169
14
(3)
180
(51)
—
80
5
(9)
205
51
3
(1)
53
(14)
—
11
2
(1)
51
84
3
(2)
85
(85)
3
—
—
—
3
1
—
—
1
—
—
—
—
—
1
TOTAL
305
20
(6)
319
(150)
3
91
7
(10)
260
When taking into consideration the offsetting of balances within the same tax jurisdiction, the net deferred tax liability of $37 million is presented
on the consolidated balance sheet as $149 million of “Deferred income tax asset” amounts and $186 million of “Deferred income tax liabilities”.
e. The Corporation has recognized accumulated losses for income tax purposes amounting to approximately $515 million, which may be
carried forward to reduce taxable income in future years. The future tax benefit of $134 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, 2017 are detailed as follows:
(in millions of Canadian dollars)
Canada
United States
Europe
RECOGNIZED TAX LOSSES
MATURITY
8
14
2
1
77
82
126
63
53
3
429
7
5
2
2
3
2
13
1
46
81
5
515
2026
2027
2029
2030
2032
2033
2034
2035
2036
2037
2019
2020
2029
2031
2032
2033
2035
2036
2037
Indefinitely
95
121
NOTE 18
CAPITAL STOCK
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
2017
(89)
35
1,576
1,522
1,601
3,123
2016
(62)
28
1,566
1,532
1,074
2,606
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.
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
(2017 - $1,307 million; 2016 - $1,512 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 operating income before depreciation and amortization (OIBD) to
financing expense. The OIBD is defined as net earnings of the last four quarters plus financing expense, income taxes, amortization and
depreciation, expense for stock options and dividends received from a person who is not a credit party (2017 - $296 million;
2016 - $379 million). Excluded from net earnings are the share of results of equity investments and gains or losses from non-recurring items.
Financing 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, 2017, the funded debt-to-capitalization ratio stood at 44.01% and the interest coverage ratio was 3.88x. 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 $150 million and $250 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.
122
96
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:
Balance - beginning of year
Common shares issued on exercise of stock options
Redemption of common shares
Balance - end of year
NOTE
18(d)
18(c)
NUMBER OF COMMON
SHARES
IN MILLIONS OF CANADIAN
DOLLARS
NUMBER OF COMMON
SHARES
IN MILLIONS OF CANADIAN
DOLLARS
2017
2016
94,526,516
461,442
—
94,987,958
487
5
—
492
95,310,923
262,836
(1,047,243)
94,526,516
490
2
(5)
487
C. REDEMPTION OF COMMON SHARES
In 2017, in the normal course of business, the Corporation renewed its redemption program of a maximum of 946,066 common shares with
the Toronto Stock Exchange, said shares representing approximately 1% of issued and outstanding common shares. The redemption
authorization is valid from March 17, 2017 to March 16, 2018. In 2017, the Corporation redeemed no common share under this program
(2016 - 1,047,243 common shares for an amount of $9 million).
D. COMMON SHARE ISSUANCE
The Corporation issued 461,442 common shares upon the exercise of options for an amount of $4 million (2016 - $2 million for 262,836 common
shares issued).
E. NET EARNINGS PER COMMON SHARE
The basic and diluted net earnings per common share are calculated as follows:
Net earnings 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 per common share (in Canadian dollars)
Diluted net earnings per common share (in Canadian dollars)
2017
507
95
98
5.35 $
5.19 $
2016
135
95
97
1.42
1.39
$
$
As at December 31, 2017, 240,880 stock options have an antidilutive effect (2016 - nil). As of February 28, 2018, 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 19
STOCK-BASED COMPENSATION
$
2017
0.16 $
2016
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 1,990,554 common shares is 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 in 2017 (2016 - $1 million).
97
123
Changes in the number of options outstanding as at December 31, 2017 and 2016 are as follows:
Beginning of year
Granted
Exercised
Expired
Forfeited
End of year
Options exercisable - end of year
NUMBER OF OPTIONS
2017
WEIGHTED AVERAGE
EXERCISE PRICE ($)
NUMBER OF OPTIONS
2016
WEIGHTED AVERAGE
EXERCISE PRICE ($)
5,216,063
240,880
(461,442)
—
(5,381)
4,990,120
4,170,259
6.16
14.28
8.28
—
9.75
6.35
5.63
5,385,323
351,461
(262,836)
(257,885)
—
5,216,063
4,166,339
6.15
9.75
5.51
11.49
—
6.16
5.78
The weighted average share price at the time of exercise of the options was $14.23 (2016 - $12.14).
The following options were outstanding as at December 31, 2017:
YEAR GRANTED
NUMBER OF OPTIONS
OPTIONS OUTSTANDING
WEIGHTED AVERAGE
EXERCISE PRICE ($)
NUMBER OF OPTIONS
OPTIONS EXERCISABLE
WEIGHTED AVERAGE
EXERCISE PRICE ($)
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
95,064
326,166
968,333
444,124
492,432
842,524
426,392
423,974
390,185
340,046
240,880
4,990,120
11.83
7.81
3.92
6.43
6.26
4.46
5.18
6.10
7.66
9.75
14.28
95,064
326,166
968,333
444,124
492,432
842,524
426,392
308,134
185,244
81,846
—
4,170,259
11.83
7.81
3.92
6.43
6.26
4.46
5.18
6.10
7.66
9.75
—
EXPIRATION DATE
2018
2018
2019
2020
2020 - 2021
2018 - 2022
2018 - 2023
2020 - 2024
2020 - 2025
2020 - 2026
2027
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 six years. The following weighted average assumptions were used to estimate the fair value of $4.22 (2016 - $2.75) 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
$
$
2017
14.26
14.28
$
$
1.77%
1.12%
6 years
32%
2016
10.09
9.75
1.04%
1.58%
6 years
31%
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, 2017, the Corporation's
contribution to the plan amounted to $1 million (2016 - $1 million).
124
98
c. The Corporation has 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.
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, 2017, the Corporation had a total of 581,785 PSUs outstanding (2016 - 761,367 PSUs),
representing a liability of $1 million (2016 - $5 million). In 2017, the Corporation made payments totaling $7 million in relation to PSUs
(2016 - $5 million).
d. 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, 2017, the Corporation had a total of 247,276 DSUs outstanding
(2016 - 205,773 DSUs), representing a long-term liability of $4 million (2016 - $3 million). On January 15, 2018, the Corporation issued
44,579 DSUs and had a total of 291,855 DSUs outstanding.
NOTE 20
ACCUMULATED OTHER COMPREHENSIVE LOSS
(in millions of Canadian dollars)
Foreign currency translation, net of hedging activities and related income tax of $12 million (December 31, 2016 -
$16 million)
Unrealized gain arising from foreign exchange forward contracts designated as cash flow hedges, net of related
income taxes of nil (December 31, 2016 - nil)
Unrealized loss arising from commodity derivative financial instruments designated as cash flow hedges, net of related
income taxes of $2 million (December 31, 2016 - $2 million)
Unrealized loss on available-for-sale financial assets, net of related income taxes of nil (December 31, 2016 - nil)
Unrealized loss on share of other comprehensive income of associates, net of related income taxes of nil
(December 31, 2016 - $9 million)
NOTE 21
COST OF SALES BY NATURE
(in millions of Canadian dollars)
Raw material
Wages and employee benefits expenses
Energy
Delivery
Depreciation and amortization
Other
2017
(30)
1
(4)
(2)
—
(35)
2017
1,751
689
259
331
215
463
3,708
2016
(13)
—
(5)
(1)
(12)
(31)
2016
1,612
662
248
269
192
397
3,380
99
125
SELLING AND ADMINISTRATIVE EXPENSES BY NATURE
(in millions of Canadian dollars)
Wages and employee benefits expenses
Information technology
Publicity and marketing
Other
NOTE 22
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
2017
287
60
16
77
440
2017
976
1
7
21
4
1,009
2016
271
46
15
70
402
2016
933
1
7
20
5
966
NOTE
21
19(a)
16
16
16
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
Post-employment benefits
Share-based payments
NOTE 23
GAIN ON ACQUISITIONS, DISPOSALS AND OTHERS
(in millions of Canadian dollars)
Gain on disposal of assets
2017
11
1
6
18
2016
11
—
4
15
2017
(8)
2016
(4)
2017
The Containerboard Packaging segment sold a piece of land in Ontario, Canada, and recorded a gain of $7 million.
The Corporate Activities realized a $1 million gain from the sale of some assets.
2016
The Specialty Products segment 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 segment also recorded a $3 million environmental provision mainly related to closed plants in Québec, closed in previous
years. Finally, the segment recorded a $4 million gain on the sale of assets following the closure of its de-inked pulp mill located in Auburn,
Maine.
126
100
NOTE 24
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 $11 million in 2017 and net impairment charges of $3 million in 2016. 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
Intangible assets with finite useful life and other
assets
PACKAGING PRODUCTS
CONTAINER-
BOARD
BOXBOARD
EUROPE
SPECIALTY
PRODUCTS
SUB-TOTAL
TISSUE PAPERS
CORPORATE
ACTIVITIES
—
11
11
—
—
—
—
—
—
—
11
11
2
—
2
—
(2)
(2)
(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
2017
TOTAL
2
9
11
2016
TOTAL
3
2017
The Containerboard Packaging segment recorded an impairment charge of $11 million on deferred revenues related to the management
agreement of Greenpac since the beginning of the mill construction, which was recorded in “Other assets”. Following the acquisition and
consolidation of Greenpac described in Note 5, expected future cash flows related to this asset will not materialize on a consolidated basis.
The Tissue Papers segment incurred a $2 million impairment charge on unused assets following the reassessment of its recoverable amount
based on estimated selling price.
The Corporate Activities recorded a $2 million reversal of impairment following the collection of a note receivable that had been written off in
previous years.
2016
The Containerboard Packaging segment 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 segment sold the building of its closed de-inked pulp mill located in Auburn, Maine, and recorded a $2 million reversal
of impairment. This segment also sold a piece of land related to a closed plant and recorded a $1 million reversal of impairment.
The Tissue Papers segment incurred an additional impairment charge of $4 million related to the revaluation of some equipment following the
closure of its Toronto converting plant in the second quarter.
B. GOODWILL AND OTHER INDEFINITE USEFUL LIFE INTANGIBLE ASSETS
Allocation of goodwill and other indefinite useful life intangible assets is as follows:
• Containerboard Packaging segment goodwill of $469 million is allocated to all Containerboard CGUs;
• Specialty Products segment goodwill is allocated to all Cascades Recovery CGUs, $13 million, and the Partitioning activities CGU,
$3 million;
• Tissue Papers segment goodwill of $36 million is allocated to all Tissue Papers CGUs;
• Water rights of $7 million are allocated to Reno de Medici CGU.
101
127
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.
All three conditions were met for all goodwill but Tissue's. Therefore, the Corporation tested its Tissue Papers segment goodwill for impairment.
As a result of this impairment test, the Corporation concluded that the recoverable amount of the CGUs was in excess of $305 million over
their carrying amount, thus no impairment charge was necessary. With all other variables held constant, a rise in the discounting rate of 3%
would reduce the excess of $305 million to nil.
The Corporation applied the income approach in determining fair value less cost of disposal and used the following key assumptions
(level 2 inputs):
Discounting rate
Terminal exchange rate (CA$/US$)
Terminal shipments
C. RESTRUCTURING COSTS (GAINS)
Restructuring costs (gains) are detailed as follows:
(in millions of Canadian dollars)
Containerboard
Boxboard Europe
Specialty Products
Tissue Papers
Corporate Activities
$
TISSUE PAPERS
9.75%
1.25
673,000 s.t.
2017
2016
2
1
—
2
1
6
(1)
2
1
7
—
9
2017
The Containerboard Packaging segment announced the forthcoming closure of its New York converting plant and recorded severance expenses
totaling $2 million.
The Boxboard Europe segment recorded severances costs of $1 million following the restructuring of its sales activities.
The Tissue Papers segment incurred $2 million of restructuring costs following the review of provisions related to the transfer of the converting
operations of the Toronto plant to other Tissue segment sites announced in 2016.
The Corporate Activities recorded a severance cost of $1 million following the closure of a sales division.
2016
The Containerboard Packaging segment 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 segment 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 segment recorded restructuring costs of $1 million following the closure of its de-inked pulp mill located in Auburn, Maine.
The Tissue Papers segment recorded a $3 million provision for an onerous lease as a consequence of the closure of its Toronto converting
plant. This segment also incurred $4 million of severance costs following the transfer of the converting operations of the Toronto plant to other
Tissue Papers segment sites.
128
102
2017
2016
31
—
(46)
(71)
(1)
(87)
(6)
(1)
(2)
66
(1)
56
2017
2016
89
(3)
3
3
5
97
83
(1)
3
3
5
93
NOTE 25
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. FNANCING 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 expense on employee future benefits
C. TOTAL LIABILITIES FROM FINANCING ACTIVITIES
(in millions of Canadian dollars)
As at January 1, 2016
Cash flow
Change in cash and cash equivalents
Bank loans and advances
Change in revolving credit facilities
Increase in other long-term debt
Payments of other long-term debt
Non-cash changes
Foreign exchange gain on long-term debt and financial
instruments
Capital lease acquisitions
Amortization of financing costs
Other
Exchange differences
As at December 31, 2016
Cash flow
Change in cash and cash equivalents
Bank loans and advances
Change in revolving credit facilities
Repurchase of unsecured senior notes
Increase in other long-term debt
Payments of other long-term debt
Non-cash changes
Business combinations
Foreign exchange gain on long-term debt and financial
instruments
Capital lease acquisitions
Amortization of financing costs
Write off of unamortized financing costs following repurchase of
unsecured senior notes
Other
Exchange differences
As at December 31, 2017
CASH AND CASH
EQUIVALENT
(60)
BANK LOANS AND
ADVANCES
37
LONG-TERM DEBT
1,744
NET DEBT
1,721
(5)
—
—
—
—
—
—
—
—
3
(62)
(25)
—
—
—
—
—
—
—
—
—
—
—
(2)
(89)
—
(8)
—
—
—
—
—
—
—
(1)
28
—
8
—
—
—
—
—
—
—
—
—
—
(1)
35
—
—
(146)
40
(47)
(35)
18
2
3
(13)
1,566
—
—
114
(257)
11
(47)
257
(62)
11
2
3
(1)
(21)
1,576
(5)
(8)
(146)
40
(47)
(35)
18
2
3
(11)
1,532
(25)
8
114
(257)
11
(47)
257
(62)
11
2
3
(1)
(24)
1,522
103
129
NOTE 26
FINANCIAL INSTRUMENTS
26.1 FAIR VALUE OF FINANCIAL INSTRUMENTS
The classification of financial instruments as at December 31, 2017 and 2016, 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
2017
2016
Financial assets at fair value through profit or
loss
Derivatives
Financial assets available for sale
Other investments
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
26.4
26.4
27
1
(4)
27
1
(4)
10
2
(31)
10
2
(31)
(1,576)
(1,626)
(1,566)
(1,612)
4
(33)
4
(33)
2
(8)
2
(8)
26.2 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 investment in shares is based on observable market data and 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.
26.3 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, 2017 and 2016, 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
Available-for-sale investments
Derivative financial assets
Financial liabilities
Derivative financial liabilities
130
CARRYING AMOUNT
QUOTED PRICES IN ACTIVE
MARKETS FOR IDENTICAL
ASSETS (LEVEL1)
SIGNIFICANT
OBSERVABLE INPUTS
(LEVEL 2)
SIGNIFICANT
UNOBSERVABLE INPUTS
(LEVEL 3)
2017
1
—
1
—
—
—
31
31
(37)
(37)
—
—
—
—
—
1
31
32
(37)
(37)
104
(in millions of Canadian dollars)
Financial assets
Available-for-sale investments
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
2
12
14
(39)
(39)
1
—
1
—
—
1
12
13
(39)
(39)
—
—
—
—
—
26.4 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
2017
RISK
Currency risk
Price risk
Interest risk
NOTE
SHORT-TERM
LONG-TERM
TOTAL
SHORT-TERM
LONG-TERM
TOTAL
26.4 A) (i)
26.4 A) (ii)
26.4 A) (iii)
5
4
—
9
1
21
—
22
6
25
—
31
(10)
(7)
(2)
(19)
(15)
(1)
(2)
(18)
(25)
(8)
(4)
(37)
2016
(in millions of Canadian dollars)
ASSETS
LIABILITIES
RISK
Currency risk
Price risk
A. MARKET RISK
NOTE
SHORT-TERM
LONG-TERM
TOTAL
SHORT-TERM
LONG-TERM
TOTAL
26.4 A) (i)
26.4 A) (ii)
2
1
3
—
9
9
2
10
12
(20)
(3)
(23)
(13)
(3)
(16)
(33)
(6)
(39)
(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” 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.
105
131
In 2017, approximately 23% of sales from Canadian operations were made to the United States and 13% of sales from European operations
were made in countries whose currencies were other than the euro.
The following table summarizes the Corporation's commitments to buy and sell foreign currencies as at December 31, 2017 and 2016:
EXCHANGE RATE
MATURITY
NOTIONAL AMOUNT (IN
MILLIONS)
FAIR VALUE (IN MILLIONS
OF CANADIAN DOLLARS)
2017
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$ for CAN$
Currency option sold to buy 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$
Foreign exchange forward contracts to buy US$ for CAN$
Currency option instruments to sell US$ for CAN$
Currency option instruments to sell US$ for CAN$
1.06
1.15
1.0225
1.33
January 2020 US$
January 2020 US$
January 2020 US$
July 2023 US$
1.4263
December 2018 €
1.3260
1.3260
1.3171
1.3214
0 to 12 months US$
13 to 24 months US$
0 to 12 months US$ 48 to 70
13 to 36 months US$ 43 to 80
50
100
200
102
95
10
5
9
(11)
(1)
(12)
(15)
(6)
1
—
2
—
3
(18)
In 2017, the Corporation offset $9 million in derivative assets against $11 million in derivative liabilities as we intend to settle the derivatives
on a net basis with one counterparty. During the year, the Corporation also paid $12 million related to the settlement of a portion of its 2017
derivatives related to repayment of long-term debt.
EXCHANGE RATE
MATURITY
NOTIONAL AMOUNT (IN
MILLIONS)
FAIR VALUE (IN MILLIONS
OF CANADIAN DOLLARS)
2016
Repayment of long-term debt
Derivatives at fair value through profit or loss and classified in
Foreign exchange loss (gain) on long-term debt:
Foreign exchange forward contracts to buy US$ for CAN$
Currency option sold to sell US$ for CAN$
Currency option sold to sell US$ for CAN$
Currency option sold to buy 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)
132
106
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 on related to the settlement of a portion of its
2017 derivatives related to repayment of long-term debt.
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 2017, 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 2017, 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 $1 million lower following the translation of operating income of the Corporation's
European operations.
CURRENCY RISK ON TRANSLATION OF SELF-SUSTAINING FOREIGN SUBSIDIARIES
The Corporation has certain investments in foreign operations whose net assets are exposed to foreign currency translation risk. The
Corporation may designate part of its long-term debt denominated in foreign currencies as a hedge of the net investment in self-sustaining
foreign subsidiaries. Gains or losses resulting from the translation to Canadian dollars of long-term debt denominated in foreign currencies
and designated as net investment hedges are recorded in “Accumulated other comprehensive income”, net of related income taxes.
The table below shows the effect on consolidated equity of a 10% change in the value of the Canadian dollar against the US dollar and the
euro as at December 31, 2017 and 2016. The calculation includes the effect of currency hedges of net investment in US foreign entities and
assumes that no changes occurred other than a single currency exchange rate movement.
The exposures used in the calculations are the foreign currency-denominated equity and the hedging level as at December 31, 2017 and
2016, with the hedging instruments being the long-term debt denominated in US dollars.
Consolidated Shareholders' equity: Currency effect before tax of a 10% change:
(in millions of Canadian dollars)
10% change in the CAN$/US$ rate
10% change in the CAN$/euro rate
BEFORE HEDGES
HEDGES
75
16
75
14
2017
NET IMPACT
—
2
BEFORE HEDGES
HEDGES
107
13
73
13
2016
NET IMPACT
34
—
(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” 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.
107
133
The fair value of these contracts is as follows:
QUANTITY
MATURITY
2017
FAIR VALUE (IN MILLIONS
OF CANADIAN DOLLARS)
Forecasted purchases
Derivatives designated as held for trading and reclassified in “Cost of sales”
Electricity
197,100 MWh
2018 to 2019
Derivatives designated as cash flow hedges and reclassified in “Cost of sales” (effective
portion)
Natural gas:
Canadian portfolio
US portfolio
3,095,029 GJ
4,847,660 mmBtu
2018 to 2022
2018 to 2023
(1)
(5)
(1)
(7)
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)
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, 2017 was $8 million (2016 - $10 million). Greenpac also has an agreement to purchase steam that includes an embedded
derivative with a fair value of $16 million as at December 31, 2017.
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, 2017
and 2016. 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, 2017 and 2016, 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 brown grades recycled paper price
US$30/s.t. change in commercial pulp price
US$1/mmBTU. change in natural gas price
US$1/MWh change in electricity price
29
6
10
2
—
—
5
—
29
6
5
2
32
6
12
2
—
—
6
—
32
6
6
2
1 Sensitivity calculated with an exchange rate of 1.26 CAN$/US$ for 2017 and 1.33 CAN$/US$ for 2016.
2017
2016
134
108
(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, 2017, approximately 29% (2016 - 9%) of the
Corporation's long-term debt was at variable rates.
Based on the outstanding long-term debt as at December 31, 2017, the impact on interest expense of a 1% change in rate would be
approximately $5 million (impact on net earnings is approximately $4 million).
The Corporation holds interest rate swaps through RDM and Greenpac. RDM swaps are contracted to fix the interest rate on a notional amount
of €32 million and are maturing from 2020 to 2023. Greenpac swaps are contracted to fix the interest rate on a notional amount of
US$81 million maturing in 2020. Some of these swaps have decreasing notional amount to match expected debt level. Fair value of these
agreements is a liability of $3 million as at December 31, 2017 (December 31, 2016 - nil).
(iv) Gain on derivative financial instruments is as follows:
(in millions of Canadian dollars)
Unrealized gain on derivative financial instruments
Realized loss on derivative financial instruments
B. CREDIT RISK
2017
(8)
2
(6)
2016
(18)
12
(6)
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.
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, 2017.
109
135
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, 2017 and 2016:
(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
2017
35
638
195
35
638
218
1,004
1,284
66
321
37
77
329
37
2,296
2,618
35
638
7
56
16
44
19
815
—
—
6
56
13
41
2
—
—
205
906
31
230
4
118
1,376
—
—
—
266
17
14
12
309
2016
CARRYING
AMOUNT
CONTRACTUAL
CASH FLOWS
LESS THAN ONE
YEAR
BETWEEN ONE
AND TWO
YEARS
BETWEEN TWO
AND FIVE
YEARS
MORE THAN FIVE
YEARS
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
As at December 31, 2017, the Corporation had unused credit facilities of $651 million (December 31, 2016 - $768 million), net of outstanding
letters of credit of $24 million (December 31, 2016 - $26 million).
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 accounts receivable as a source of financing by reducing its working capital requirements. When the accounts
receivable 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, 2017, the off-balance sheet impact of
the factoring of accounts receivable amounted to $39 million (€26 million). The Corporation expects to continue to sell accounts receivable
on an ongoing basis. Should it decide to discontinue this contract, its working capital and bank debt requirements would increase.
136
110
NOTE 27
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
2017
28
37
5
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
PROPERTY,
PLANT AND
EQUIPMENT
51
—
—
51
2017
INTANGIBLE
ASSETS
8
14
—
22
PROPERTY,
PLANT AND
EQUIPMENT
36
—
—
36
INTANGIBLE
ASSETS
RAW MATERIAL
2
3
1
6
73
258
—
331
2016
23
33
9
2016
c. In 2017, the Corporation entered into a lease agreement for the building of its new containerboard converting plant in New Jersey. The
building is currently under construction by the lessor and the lease will commence upon delivery of the building in 2018 for a period of
20 years. The lease will be accounted for as a finance lease and total payments will be $96 million for the duration of the lease.
NOTE 28
RELATED PARTY TRANSACTIONS
The Corporation entered into the following transactions with related parties:
(in millions of Canadian dollars)
2017
Sales to related parties
Purchases from related parties
2016
Sales to related parties
Purchases from related parties
These transactions occurred in the normal course of operations and are measured at fair value.
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
JOINT VENTURES
ASSOCIATES
183
16
155
13
85
90
89
168
December 31,
2017
December 31,
2016
13
22
3
4
18
21
2
42
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.
111
137
NOTE 29
EVENTS AFTER THE REPORTING PERIOD
On January 1, 2018, the Corporation acquired PAC Service S.p.A., a boxboard converter for the packaging, publishing, cosmetics and food
industries and will be fully consolidated. The Corporation already had a 33.33% equity participation through its 57.8% equity ownership in
Reno de Medici S.p.A., in the Boxboard Europe segment. The consideration for the acquisition of the remaining 66.67% shares consists of
cash totaling €10 million ($15 million) and was deposited on December 19, 2017. Due to the limited period of time between the acquisition of
PAC Service S.p.A and the publication of the audited consolidated financial statements of the Corporation, certain items required for the
disclosure of asset acquisitions have not been provided, particularly the preliminary purchase price allocation. The Corporation is currently
assessing the fair value of assets acquired and liabilities assumed and will publish the preliminary purchase price allocation in its 2018 first
quarter unaudited condensed interim consolidated financial statements.
On January 31, 2018, the Corporation completed the sale of the building and land of its plant located in Maspeth, New York, for US$72 million
($90 million) of which US$68 million ($85 million) was received at closing and US$4 million ($5 million) is held in escrow. Release of the
escrow is contingent upon certain conditions being met over the next three years. The Corporation will continue to use the facility until
December 31, 2018, the date the plant is scheduled to close. The book value of $13 million of the building and land of the facility are classified
as “Assets held for sale” on the consolidated balance sheet. The volumes will be progressively redeployed to other Cascades units over the
course of the year.
138
112
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, 2017, 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
Baie d’Urfé, 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 Sellyn
Business Advisor and Consultant,
Corporate Director
Pointe-Claire, 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
139
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
Payments for property, plant and equipment net of proceeds from disposals
Business combinations 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
140
113
IFRS
2017
4,321
3,928
393
215
178
97
(23)
(298)
402
(81)
(39)
15
507
5.35
173
260
2.75
178
9
—
179
15
$
$
0.16
$
1.2%
356
2,117
4,382
1,576
146
1,455
15.35
$
95.0
57.5
1,294
13.62
18.20
11.43
$
$
$
11.7%
1.0x
3.6x
41.4%
9.6%
9.1%
4.1x
8.2%
3.9x
52.5%
2.5x
0.9x
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
1,635
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)
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
(0.69)
$
(1.57)
$
0.11
$
(0.23)
$
1.03
$
0.18
$
0.61
$
$
270
307
3.28
156
—
(40)
100
15
$
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
0.16
$
1.3 %
0.16
$
2.3 %
0.16
$
2.3%
0.16
$
3.9 %
0.16
$
3.6%
0.16
$
2.4%
0.16
$
1.8%
398
1,625
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
308
1,592
3,673
1,596
110
893
414
1,684
3,831
1,579
113
1,081
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
9.48
$
11.52
$
10.42
$
10.87
$
13.01
$
13.41
$
$
$
$
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
$
$
$
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
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
$
$
$
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
$
$
$
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
114
2008
4,025
3,720
305
213
92
103
24
54
(89)
(29)
(8)
2
(54)
(0.55)
126
150
1.52
184
(5)
47
149
16
0.16
4.6 %
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
141
RECYCLABLE
MATERIALS
RECYCLED PRODUCTS
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 materials are converted
into product, the product is then recycled and once again becomes recove-
red materials. This wheel, in its never-ending cycle, is what has enabled the
Corporation to establish its position as leader in the North American reco-
vered paper industry. Just another green success by Cascades.
fibre purchased & brokered
in north america & europe
~4.7 Million s.t.
fibre consumption
in north america & europe
~3.8 Million s.t.
Brown recycled fibre — 39%
White recycled fibre — 11%
Groundwood recycled fibre — 5%
Recycled fibre collected &
USED by CAS in N.A. — 9%
Recycled fibre collected &
SOLD by CAS in N.A. — 21%
Pulp — 6%
Wood — 9%
Brown recycled fibre — 61%
White recycled fibre — 13%
Groundwood recycled fibre — 7%
Pulp — 7%
Wood Chips — 12%
Shipments
~3.8 Million s.t.
Containerboard — 45%
Boxboard Europe — 36%
Tissue Papers — 19%
142
1 2017 including 100% of Reno de Medici, a public Italian company, in which the Corporation holds a 57.8% equity interest. Excluding associates and joint ventures.
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
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
Lachute
Laval
Vaudreuil
NORTH AMERICA
CASCADES
WORLDWIDE1
LEGEND
Head Office
Containerboard
Packaging
Boxboard
Europe2
Specialty
Products
M Manufacturing facility
C Converting facility
CM Converting and
manufacturing facility
R Recovery facility
Tissue Papers
* Startup expected in Q2-2018
Ottawa
Belleville
C
Trenton
M
Scarborough
Whitby
C
M
Etobicoke
M
C
Barrie
C
Vaughan
C
CC
C
Burlington
Mississauga
C
St. Marys
Guelph
C M
C
Putnam
Brantford
ONTARIO
1 Including main associates and joint ventures.
2 Via our 57.8% equity ownership in Reno de Medici S.p.A., a public Italian company traded on the Milan and Madrid stock exchanges.
Témiscouata-sur-le-Lac
M
92 production
facilities1
B Y SEGMENT
container
b
o
a
r
d
p
a
c
k
a
g
i
n
g
-
2
7
2 - 6
europe
5
5
-
a
d
a
n
Ca
tissuE - 21
B Y MARKET
- 8
2
e
p
o
r
e u
U
ni
t
e
d
S
t
a
t
e
s
-
2
9
SPG* - 38
M
Trois-Rivières
Berthierville
C
C
C
C
Drummondville
C
C
M
M
Victoriaville
CM
C
C
C
Kingsey Falls
C
Montréal
Candiac
C
CM
Lachine
Lachute
CM
Laval
Vaudreuil
C
QUÉBEC
C
Saint-Césaire
C
Granby
1 Including main associates and joint ventures.
2 Via our 57.8% equity ownership in Reno de Medici S.p.A.,
a public Italian company traded on the Milan and Madrid
stock exchanges.
* Specialty Products segment
M
Arnsberg, DE
M
Blendecques, FR
Châtenois, FR
C
Saulcy-sur-Meurthe, FR
C
Santa Giustina, IT
M
M
Ovaro, IT
La Rochette, FR
M
Villa Santa Lucia, IT
M
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
Maspeth, NY
C
C
Piscataway, NJ*
NORTHEASTERN
UNITED STATES
EUROPE
MARKET
DISTRIBUTION
OF OUR OPERATIONS
sales
$4,321 million
B Y SEGMENT1
TissuE - 28%
TO
F ROM
1 %
europe3 - 2 1 %
3 - 2
europe
u
n
i
t
e
d
s
t
co
n
t
ai
n
C
a
n
a
d
a
-
3
9
%
e
r
b
o
a
r
d
p
a
c
k
a
g
i
n
g
-
3
7
%
c
a
n
a
d
a
-
4
9
%
u
n
i
t
e
a
t
es - 30%
d states - 40%
S
P
G
*
- 1
6
%
EU R O P E 3
%
9
- 1
B Y S EGMENT2
operating
income
$175 million
B Y MARKET5
%
TissuE - 1 0
3 - 2 4 %
ope
r
u
e
S
P
G
*
-
1
7
%
u
n
i
t
e
d states - 16%
E
U
R
OPE3
- 13%
B Y S EGMENT2
%
B Y MARKET5
TissuE - 2 0
europe3 - 1 9 %
oibd adjusted4
$393 million
S
P
G
*
-
1
4
%
u
n
i
t
e
d
s
t
a
t
e
s - 29%
1 Before inter-segment sales and corporate activities.
2 Percentage excluding corporate activities.
3 Via our 57.8% equity ownership in Reno de Medici S.p.A., a public Italian company
traded on the Milan and Madrid stock exchanges.
4 Please refer to the “Forward-looking Statements” and “Supplemental Information
on Non-IFRS Measures’’ sections for more details.
5 Including corporate activities.
* Specialty Products segment
E
U
R
OPE3
- 14%
C
a
n
a
d
a
-
6
0%
c
o
n
t
a
i
n
e
r
b
o
a
r
d
p
a
c
k
a
gin
g - 60%
C
a
n
a
d
a
-
5
2
%
c
o
n
t
a
i
n
e
r
b
o
a
r
d
p
a
c
k
a
gin
g - 52%
T
R
O
P
E
R
L
A
U
N
N
A
7
1
0
2
S
E
D
A
C
S
A
C
cascades.com
FSC
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