2022
Annual
Report
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Head Office
Cascades Inc.
404 Marie-Victorin Blvd.
Kingsey Falls, Québec J0A 1B0 Canada
Telephone: 819-363-5100
Fax: 819-363-5155
Investor Relations
Cascades Inc.
Jennifer Aitken, MBA
Director, Investor Relations
investor@cascades.com
Telephone: 514-282-2697
www.cascades.com/investors
Cascades Inc.’s 2022 Annual Information Form
will be available, upon request, from the Corporation’s
head office as of March 30, 2023.
This document will also be accessible via the Corporation’s website
(www.cascades.com) and will be filed on SEDAR
(www.sedar.com) as of this date.
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
Table of Contents
Message from the President and Chief Executive Officer ............................................................................4
Management’s Discussion & Analysis
Financial snapshot ..................................................................................................................................8
Our business ............................................................................................................................................9
Business highlights .............................................................................................................................. 10
Near-term outlook ................................................................................................................................ 11
Business drivers ................................................................................................................................... 12
Operational performance indicators ................................................................................................... 13
Historical market prices of main products and raw materials .......................................................... 14
Sensitivity table .................................................................................................................................... 15
Financial overview ................................................................................................................................ 16
Business segment review .................................................................................................................... 19
Corporate activities .............................................................................................................................. 26
Liquidity and capital resources
Consolidated financial position as of December 31, 2022, 2021 and 2020 ..................................... 28
Employee future benefits ..................................................................................................................... 30
Comments on the fourth quarter of 2022
Capital stock information .................................................................................................................... 32
Contractual obligations and other commitments .............................................................................. 33
Transactions with related parties
Changes in accounting policies
Critical accounting estimates and judgments .................................................................................... 34
Controls and procedures ..................................................................................................................... 35
Risk factors ........................................................................................................................................... 36
Contingencies ....................................................................................................................................... 45
Supplemental Information on non-IFRS measures and other financial measures ............................ 46
Discontinued operations ...................................................................................................................... 52
Historical financial information ........................................................................................................... 53
Audited Consolidated Financial Statements
Management report ............................................................................................................................. 54
Independent auditor report .................................................................................................................. 55
Consolidated balance sheets .............................................................................................................. 59
Consolidated statements of earnings (loss) ...................................................................................... 60
Consolidated statements of comprehensive income ........................................................................ 61
Consolidated statements of equity ..................................................................................................... 62
Consolidated statements of cash flow ............................................................................................... 63
Segmented information ....................................................................................................................... 64
Notes to consolidated financial statements ...................................................................................... 66
3
2022 Annual Report
Mario
Plourde
President and Chief
Executive Officer
4
2022 Annual Report
2022 Annual Report Dear fellow shareholders,
In my letter last year, I discussed how Cascades’ operating landscape and financial performance was being impacted by
significant cost escalation, workforce constraints, and supply chain and logistics challenges. These same conditions
intensified in 2022. In fact, the volatility and breadth of these conditions were such that this past year our operations
faced more than $475 million of additional costs, a level that was without parallel in our history. Of course, Cascades was
not alone in navigating these significant macro headwinds. Yet amidst this challenging business environment, Cascades
returned $57 million to shareholders via dividends and share repurchases, and remained steadfast in our belief that
“difficulties mastered are opportunities won”. The launch of our 2022-2024 Strategic Plan in February 2022 is testimony
of this resolve to act upon the opportunities that have been identified to drive strategic growth and profitability across
our business segments.
realignment of our
We made significant progress with this plan in 2022, generating
substantial returns from these wide-ranging measures that
included pricing adjustments, production and operational
efficiency enhancements,
logistics
framework, and optimization of our customer base and
product catalogue. While extensive, the full benefit of these
initiatives takes time to implement and flow through our
results, and those that were monetized within the calendar
year did not keep pace with the unparalleled cost environment.
This timing disconnect was most apparent in the results of our
Tissue Papers segment throughout the year, for which price
rebalancing efforts differ from those of our packaging
businesses, where pricing adjustments are often contractually
imbedded. Structurally, this adds a significant amount of
complexity and time to implement these countermeasures
across our customer base. It also means that benefits realized
from these actions will always lag the immediate impact that
these headwinds have on financial performance.
While always essential, good navigation, a competitively
positioned operational platform, and a committed workforce
are even more crucial when the macroeconomic environment
becomes challenging. Not only are these elements most
within your control, but they determine your maneuverability,
your capacity to weather a storm, and your ability to not only
set the path you take, but your chances and the speed with
which you arrive at your destination. There are, however, an
equal number of external factors that you can’t control, and
your operating reality can be affected in numerous ways and
to different degrees by the repercussions that these external
factors have on your cost base, customer demand levels,
ability to attract and retain talent, and your suppliers. Resolute
navigation, competitive equipment and a strong, engaged, and
well-trained workforce are the pillars that allow any business
to weather these storms.
Navigating the Headwinds of 2022
The initiatives outlined in our Strategic Plan gained traction as
the year progressed. This is evident in the trajectory of the
Company’s consolidated EBITDA (A)1 margin, which increased
from 5.6% in the first quarter to 10.2% in the fourth quarter.
Notwithstanding the challenging operating environment of
2022, we are encouraged by this progress, and remain focused
on implementing the 2024 objectives laid out in the plan.
Our Containerboard segment was the largest contributor to
Cascades’ consolidated 2022 performance. This business
increased sales levels by 13% annually, a testament to the
success of targeted sales strategies and tailwinds from
favourable index pricing trends throughout the year. Despite
the volatility and elevated level of operating costs of the past
year, this business generated an EBITDA (A)1 margin of 18% in
2022 and the addition of the Bear Island facility to its
operational platform beginning in the first quarter of 2023 will
improve the financial performance of this segment once this
facility is operational.
Our Specialty Products segment performed well throughout
2022, generating solid topline and EBITDA (A)1 growth in the
year. While also faced with cost inflation and workforce
limitations, strong demand levels for this segment’s innovative
sustainable packaging solutions and contracted cost escalator
clauses mitigated their impact, resulting in annual sales
increasing 19% and an EBITDA (A)1 margin of 14% in 2022.
Navigating the uncharted waters of 2022 was challenging for
our Tissue Papers segment, as it weathered unrelenting cost
headwinds, industry-specific market challenges, and internal
production constraints. What was unique to this business was
the unparalleled scope of additional costs related to higher
in 2022. Combined, these factors
raw material prices
1 Some information represents Non-IFRS financial measures, other financial measures or Non-IFRS ratios which are not standardized under IFRS and
therefore might not be comparable to similar financial measures disclosed by other corporations. Please refer to the “Supplemental Information on
Non-IFRS Measures and Other Financial Measures” section for a complete reconciliation.
2022 Annual Report
5
2022 Annual Report to
amounted
total cost headwinds of approximately
$170 million. As I mentioned earlier, corrective measures, and
in particular pricing adjustments, take time in the tissue
industry.
initiatives,
Along with revenue management
increasing
production volumes is central to the Tissue Paper segment’s
profitability plan. The 2022 objective of producing 65 to
70 million cases of converted products was not met, and this
shortfall contributed to this segment’s financial performance
in the year. This was largely driven by the impact that labour
shortages had on our ability to reach our targeted efficiency
levels during the year. These factors also further extended the
time needed to ramp-up our new converting equipment,
installed across our US platform in 2019 and 2020, and
integrate the Orchids Paper assets acquired at the end of
2019. We continue to make progress on all these fronts, as
demonstrated by the positive momentum of the last two
quarters of 2022. The benefits from our initiatives are expected
to grow in both momentum and scope as they continue to be
rolled-out in 2023 and with early indications that pressure is
easing in the labour market, we remain intently focused on
escalating the efficiency and production levels across our
tissue platform.
Modernizing our Operational Platform
Cascades has completed a significant amount of
modernization and strategic investments over the past decade
and today the Company’s asset base is more modern and well-
positioned from a competitive standpoint than at any other
time in our history. While the macro environment remains
difficult and unpredictable, we are confident that we will see
growing operational and financial improvements from these
investments.
The Bear Island conversion project, the largest in Cascades’
history in terms of capital investment, is a continuation of the
Company’s drive to position our operational platform for long-
term growth and improve our competitive position in the
containerboard industry. With an annual capacity of 465,000
short tons of 100% recycled lightweight containerboard, this
facility’s production will meet the growing market demand for
sustainable lightweight solutions and will be amongst the top
tier of the industry from both a cost-curve and product quality
standpoint. While supply chain disruptions delayed its start-up
by approximately three months and significant inflationary
headwinds
the underlying
total cost
investment thesis for this project remains intact in current
market conditions, and we expect positive contribution from
this facility in the coming years.
increased
levels,
Enhancing Value for our Employees
The 10,000 talents who work in our 80 facilities across North
America are both the engine and the heart of Cascades. 2022
was a challenging year on many fronts, requiring commitment
and flexibility from every Cascader as
the Company
implemented a wide spectrum of changes to counteract the
high-cost environment. There is no question that workforce
availability was a headwind for our operations during the year.
But against this backdrop, our teams rolled up their sleeves,
expanded the value offering for our employees, and tackled
obstacles head on. We are immensely proud and thankful of
their level of adaptability, determination, and dedication
throughout the year.
The Horizon
Cascades’ horizon is long-term, and we regularly adjust with
this in sight. We gauge our short-term quarterly performance
within the context of this longer-term focus, and make changes
that are required, allocate additional resources when and
where needed, and implement operational and financial
strategies to realign shorter-term performance with our long-
term profitability and performance objectives. 2022 was
challenging, but we are encouraged by the level of success we
had in mitigating the unparalleled cost headwinds faced by our
operations throughout the year.
Our top priorities for 2023 are ramping-up our 100% recycled
containerboard Bear Island facility in Virginia and monetizing
important financial and operational benefits from our tissue
profitability plan. Looking further ahead, we will continue to
execute the initiatives outlined in our 2022-2024 Strategic Plan
and will provide a comprehensive update of the plan in
May 2023 when our first quarter results are released. We are
optimistic about the future and remain confident that the
important modernization investments we have completed
together with our ongoing strategic initiatives will drive
sustainable long-term value creation.
On behalf of myself and Cascades’ management team, I would
like to thank you, our shareholders, for your continued trust in
our ability to create long-term value for you. This thanks
extends equally to our customers, employees, suppliers, and
other stakeholders for their unwavering support that has been,
and will continue to be, instrumental in the growth of Cascades.
We look forward to doing more in 2023 and beyond.
6
6
2022 Annual Report
2022 Annual Report Our Achievements
Recognized for the fourth year in a row as one of the
100 most responsible companies in the world
by Corporate Knights, Cascades ranked 20th among
more than 6,000 organizations analyzed
and ranked 1st in its sector (Packaging).
Cascades received an MSCI ESG Ratings of AA.
MSCI provides in-depth research, ratings and
analysis of the environmental, social
and governance-related business practices
of thousands of companies worldwide.
Cascades ranked 8th in the Corporate Knights’
Best 50 Corporate Citizens in Canada and
ranked 1st in its sector (Containers & Packaging).
The Company has been included in this list since 2007.
For a twelfth consecutive year, Cascades was
recognized as the most responsible company by
Quebecers according to the Baromètre de la
consommation responsable, a report published by
UQAM’s École des sciences de la gestion, Observatoire
de la consommation responsable.
Since 2017, Cascades has been recognized as a
GIGA-GURU supplier by Walmart for its leadership
towards reducing greenhouse gas emissions.
Certified Bronze Parity for a third year in a row by
La Gouvernance au Féminin, Cascades was among
the 64 Canadian companies recognized.
Cascades has been named one of Canada’s
Top 100 Employers for the fourth year in a row.
Cascades is listed in The Career Directory as
a great place to start a career for new graduates.
2022 Annual Report
7
2022 Annual Report MANAGEMENT'S DISCUSSION & ANALYSIS
FINANCIAL SNAPSHOT
(in millions of Canadian dollars, unless otherwise noted) (unaudited)
Sales
Operating income
EBITDA (A) (Adjusted earnings before interest, taxes, depreciation and amortization)1
EBITDA (A) as a percentage of sales1
Net earnings (loss)
As reported
Adjusted1
Net earnings (loss) per common share (basic) (in Canadian dollars)
As reported
Adjusted1
Dividends declared per common share (in Canadian dollars)
FINANCIAL POSITION (as of December 31)
Total assets
Net debt1
Net debt / EBITDA (A) ratio1
Equity attributable to Shareholders
per common share (in Canadian dollars)
Working capital as a percentage of sales1, 4
KEY INDICATORS
Total shipments (in '000 of s.t.)2
Manufacturing capacity utilization rate3
US$/CAN$ - Average rate
2022
4,466
33
376
8.4%
(34)
37
($0.34)
$0.37
$0.48
5,053
1,966
5.2x
1,871
$18.64
10.5%
2,027
89%
$0.77
2021
3,956
50
389
9.8%
162
27
$1.60
$0.26
$0.48
4,566
1,351
3.5x
1,879
$18.63
2020
4,105
292
546
13.3%
198
187
$2.04
$1.95
$0.32
5,412
1,679
2.5x
1,753
$17.14
8.6%
8.8%
2,075
90%
$0.80
2,189
92%
$0.75
FORWARD-LOOKING
The following document is the annual financial report and Management’s Discussion and Analysis (“MD&A”) of the operating results and financial position of
Cascades Inc. (“Cascades” or “the Corporation”) and should be read in conjunction with the Corporation’s Audited Consolidated Financial Statements and
accompanying notes for the years ended December 31, 2022 and 2021. Information contained herein includes any significant developments as of
February 22, 2023, 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 the
SEDAR website 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) as issued by the International Accounting Standards Board (IASB), 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 materials, 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.
1 Some information represents Non-IFRS financial measures, other financial measures or Non-IFRS ratios which are not standardized under IFRS and therefore might not be comparable to
similar financial measures disclosed by other corporations. Please refer to the “Supplemental Information on Non-IFRS Measures and Other Financial Measures” section for a
complete reconciliation.
2 Shipments do not take into account the elimination of business sector inter-segment shipments. Shipments from our Specialty Products segment are not presented, as different units
of measure are used.
3 Defined as: Manufacturing internal and external shipments/practical capacity. Excluding Specialty Products segment manufacturing activities.
4 Percentage of sales = Average quarterly last twelve months (LTM) working capital / LTM sales (Not adjusted for retrospective reclassification of discontinued operations).
8
2022 Annual Report
MANAGEMENT'S DISCUSSION & ANALYSIS
FINANCIAL SNAPSHOT
(in millions of Canadian dollars, unless otherwise noted) (unaudited)
Sales
Operating income
EBITDA (A) as a percentage of sales1
Net earnings (loss)
EBITDA (A) (Adjusted earnings before interest, taxes, depreciation and amortization)1
Net earnings (loss) per common share (basic) (in Canadian dollars)
Dividends declared per common share (in Canadian dollars)
FINANCIAL POSITION (as of December 31)
As reported
Adjusted1
As reported
Adjusted1
Total assets
Net debt1
Net debt / EBITDA (A) ratio1
Equity attributable to Shareholders
per common share (in Canadian dollars)
Working capital as a percentage of sales1, 4
KEY INDICATORS
Total shipments (in '000 of s.t.)2
Manufacturing capacity utilization rate3
US$/CAN$ - Average rate
2022
2021
2020
8.4%
9.8%
13.3%
3,956
50
389
162
27
$1.60
$0.26
$0.48
4,566
1,351
3.5x
1,879
$18.63
4,105
292
546
198
187
$2.04
$1.95
$0.32
5,412
1,679
2.5x
1,753
$17.14
8.6%
8.8%
2,075
90%
$0.80
2,189
92%
$0.75
4,466
33
376
(34)
37
($0.34)
$0.37
$0.48
5,053
1,966
5.2x
1,871
$18.64
10.5%
2,027
89%
$0.77
FORWARD-LOOKING
The following document is the annual financial report and Management’s Discussion and Analysis (“MD&A”) of the operating results and financial position of
Cascades Inc. (“Cascades” or “the Corporation”) and should be read in conjunction with the Corporation’s Audited Consolidated Financial Statements and
accompanying notes for the years ended December 31, 2022 and 2021. Information contained herein includes any significant developments as of
February 22, 2023, 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 the
SEDAR website 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) as issued by the International Accounting Standards Board (IASB), 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 materials, 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.
1 Some information represents Non-IFRS financial measures, other financial measures or Non-IFRS ratios which are not standardized under IFRS and therefore might not be comparable to
similar financial measures disclosed by other corporations. Please refer to the “Supplemental Information on Non-IFRS Measures and Other Financial Measures” section for a
2 Shipments do not take into account the elimination of business sector inter-segment shipments. Shipments from our Specialty Products segment are not presented, as different units
complete reconciliation.
of measure are used.
3 Defined as: Manufacturing internal and external shipments/practical capacity. Excluding Specialty Products segment manufacturing activities.
4 Percentage of sales = Average quarterly last twelve months (LTM) working capital / LTM sales (Not adjusted for retrospective reclassification of discontinued operations).
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, Canada, 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 55 years later, Cascades is a multinational business with close to 80 operating facilities1 and approximately
10,000 employees1 across Canada and the United States. The Corporation currently operates three business segments:
(Business segments) (unaudited)
PACKAGING PRODUCTS
Containerboard
Specialty Products
TISSUE PAPERS
Number of
Facilities1
2022 Sales2
(in $M)
% of sales
2022
Operating
income (loss)
(in $M)
2022
EBITDA (A)2, 3
(in $M)
2022
EBITDA (A)
Margin2, 3 (%)
% of
EBITDA (A)
25
20
14
2,265
654
1,422
52.2%
15.1%
32.7%
266
86
(175)
401
92
(13)
17.7%
14.1%
(0.9%)
83.5%
19.2%
(2.7%)
The locations of our facilities4 and employees by geographic segments in North America are as follows:
Our facilities
Our employees
13
17%
20
26%
16
21%
28
36%
Canada - Québec
United States
Canada - Ontario
Canada - Other provinces
2,188
22%
928
9%
2,575
26%
4,163
42%
Canada - Québec
United States
Canada - Ontario
Canada - Other provinces
1 Including 50% owned joint ventures. The Corporation also has 18 Recovery and Recycling facilities which are included in Corporate Activities.
2 Excluding associates and joint ventures not included in consolidated results. Refer to Note 8 of the 2022 Audited Consolidated Financial Statements for more information on associates and
joint ventures.
3 Please refer to the “Supplemental Information on Non-IFRS Measures and Other Financial Measures” section for a complete reconciliation.
4 Excluding sales offices, distribution and transportation hubs and corporate offices. Including main joint ventures.
2022 Annual Report
9
BUSINESS HIGHLIGHTS
STRATEGIC PLAN 2022-2024
As part of the annual review of its corporate strategy, the Corporation analyzes its overall business and the environment in which it
competes, sets objectives for the following year and the years ahead and approves its budgets, all with a view to enhancing shareholder
value. On February 24, 2022, Management and the Board of Directors disclosed its strategic plan update for the years 2022 to 2024. We
will provide a comprehensive update of our 2022 to 2024 Strategic Plan in conjunction with our Q1 2023 results on May 11, 2023.
The following is an update on two of the major initiatives of the strategic plan:
TISSUE PAPERS SEGMENT PROFITABILITY PLAN
The plan is closely monitored by Management and is progressing with initiatives directed towards production efficiency, net revenue
management and cost savings. We believe these initiatives will mitigate significant and unprecedented cost headwinds that this segment is
facing while also solidifying the Corporation's foundation for future success.
On February 24, 2022, the following objectives were disclosed for our Tissue Papers segment:
(in millions of Canadian dollars, unless otherwise noted) (unaudited)
Volume (in millions of cases)
Sales
EBITDA (A)1
2022 Target
2024 Target
65 - 70
~$1.5B
~$60M - $80M
75 - 80
~$1.7B
~$150M
In 2022, the Tissue Papers segment recorded sales of $1,422 million and a negative EBITDA (A)1 of $13 million. The combination of
persistent cost escalation and lower than anticipated sales volumes, largely due to lower productivity and delays in the implementation of
industry announced price increases, resulted in this segment lower than expected EBITDA (A)1 performance for the year. The unplanned
and temporary closure of one paper machine at our St. Helens, Oregon paper mill in September also affected performance for the year.
Production of the St. Helens paper machine resumed in mid-February 2023. These impacts were partially offset by profitability initiatives,
which have begun to generate positive results, the cadence of which will continue throughout 2023.
The impacts of cost headwinds in 2022 reflect the following:
•
•
•
•
•
Raw materials – virgin pulp price index (NBHK) increased by approximately 23%, or US$285/ton;
Raw materials – white grades recycled fibre index increased by approximately 75%, or US$100/ton;
Energy – natural gas increased by approximately 73%, or US$2.80/mmBtu;
Higher costs for transportation, including fuel surcharges, chemical products and production supplies;
Converted product sales volumes of 59 million cases in 2022 were more than 10% lower than our targeted range of 65 to
70 million cases for the year.
The benefits realized in 2022 from ongoing profitability initiatives are summarized as follows:
•
•
Price increases (Retail/Away-from-Home tissue) – May 2022 and July 2022: ~$115 million;
Logistics and other cost savings: ~$15 million.
While selling price increases take longer to be realized in our Tissue Papers segment, we are encouraged by the progress being made and
expect continued benefits to be generated from additional operational and profitability initiatives across our operations.
1 Please refer to the “Supplemental Information on Non-IFRS Measures and Other Financial Measures” section for a complete reconciliation.
10
2022 Annual Report
BEAR ISLAND PROJECT
The Bear Island strategic investment in the conversion of assets to recycled containerboard production is progressing well despite the
current environment of important cost inflation and delays in the completion of certain construction milestones due to labour and material
availability. The initial total investment of $475 million (US$380 million) was revised upward in the second quarter of 2022 to a range of
$595 - $615 million (US$470 - US$485 million) following significant inflationary pressure on construction costs and supply chain constraints
causing delays in the delivery of materials. The cost of the project is now revised to $675 - $690 million (US$515 - US$525 million) due to
delays and additional work required to complete the project.
The announced start-up date of the facility was planned for December 14, 2022. However, these factors continued to persist in the third
quarter and as a result, the start-up of the project is scheduled for the end of March 2023. The Corporation is working closely with
contractors to mitigate further potential delay caused by these elements.
Since 2018 we have invested a total of $512 million ($335 million in 2022). The project incurred $12 million of operational costs in 2022
and $6 million in 2021.
The important capital investments for this project combined with our lower consolidated financial results in 2022 led to a notable increase in
our net debt to EBITDA (A) ratio1. This course is expected to be reversed with improved business performance in the coming months and
positive cash flows from the Bear Island project following the facility's start-up.
BUSINESS START-UP, ACQUISITION, DISPOSAL AND CLOSURE
The following transactions should be taken into consideration when reviewing the overall and segmented analysis of the Corporation’s
2022 and 2021 results.
BOXBOARD EUROPE
•
On October 26, 2021, the Corporation closed the sale transaction of its Boxboard Europe segment. The operations are presented as
discontinued operations since the second quarter of 2021 with reclassification of the first quarter of 2021, as well as the comparative
year 2020.
SIGNIFICANT FACTS AND DEVELOPMENTS
2022
•.
On October 19, 2022, the Corporation entered into an agreement with its lenders for its existing credit agreement to increase its
authorized term loan to US$260 million from US$160 million and to extend the maturity from December 2025 to December 2027.
Concurrently, the Corporation extended its existing $750 million revolving credit facility maturity from July 2025 to July 2026. The
financial conditions of both facilities remain unchanged. The Corporation incurred $2 million in capitalizable transaction fees related to
the refinancing.
2021
•
On November 9, 2021, the Corporation completed the partial redemption of its unsecured senior notes. The transaction was settled
on November 10, 2021 and the Corporation redeemed US$144 million ($180 million) and US$155 million ($192 million) of its 2026
and 2028 unsecured senior notes, respectively, and paid an early repurchase premium totaling US$18 million ($22 million).
•
On August 5, 2021, the Corporation announced an increase of its quarterly dividend from $0.08 to $0.12 per common share.
NEAR-TERM OUTLOOK
We are remaining prudent in our outlook, as macro-economic conditions continue to be challenging and unpredictable, and inflationary
pressures on costs, while easing, continue. Despite this, we have started 2023 in a good position to drive growth throughout the year. We
expect sequentially lower results in our Containerboard segment in Q1. This reflects the $5 million partial insurance settlement received in
the current quarter and a continuation of slightly softer volume and selling prices, the impacts of which will not be offset by lower raw
material cost tailwinds. The Specialty Products business is expected to generate moderately stronger results in the first quarter, as
favourable trends in pricing and volume counter the persistently higher production cost environment. Lastly, we expect results in our Tissue
Papers segment to slightly improve sequentially. While we anticipate continued positive momentum from operational and profitability
initiatives, more favourable raw material prices, and good demand from retail tissue products, our tempered outlook for this segment
reflects softer demand for Away-from-Home products, and the delayed restart of the machine at our St. Helens, Oregon facility that
occurred on February 10.
1 Please refer to the “Supplemental Information on Non-IFRS Measures and Other Financial Measures” section for a complete reconciliation.
11
2022 Annual Report
BUSINESS DRIVERS
Cascades’ results may be impacted by fluctuations in the following areas:
EXCHANGE RATES
On a year-over-year basis, the average value of the Canadian
dollar decreased by 4% compared to the US dollar in 2022.
ENERGY COSTS
On a year-over-year basis, the average price of natural gas
increased by 73% in 2022. In the case of crude oil, the average
price was 44% higher in 2022 than in 2021.
0.85
0.80
0.75
0.70
(unaudited)
9.00
7.50
6.00
4.50
3.00
1.50
—
120.00
100.00
80.00
60.00
40.00
20.00
—
Q1
20
Q2
20
Q3
20
Q4
20
Q1
21
Q2
21
Q3
21
Q4
21
Q1
22
Q2
22
Q3
22
Q4
22
Q1
20
Q2
20
Q3
20
Q4
20
Q1
21
Q2
21
Q3
21
Q4
21
Q1
22
Q2
22
Q3
22
Q4
22
US$/CAN$
Natural gas (US$/mmBtu)
Crude oil (US$/barrel)
2020
YEAR
Q1
Q2
Q3
Q4
YEAR
Q1
Q2
Q3
Q4
YEAR
2021
2022
US$/CAN$ - Average rate
$0.75
$0.79
$0.81
$0.79
$0.79
$0.80
$0.79
$0.78
$0.77
$0.74
$0.77
US$/CAN$ - End of the period rate
$0.79
$0.80
$0.81
$0.79
$0.79
$0.79
$0.80
$0.78
$0.72
$0.74
$0.74
Natural Gas Henry Hub - US$/mmBtu
$2.08
$2.69
$2.83
$4.01
$5.83
$3.84
$4.95
$7.17
$8.20
$6.26
$6.64
Crude oil (US$/barrel)
Source: Bloomberg
RAW MATERIALS
$40.54
$54.16
$62.01
$67.60
$76.84
$65.15
$82.49
$109.25
$101.05
$83.39
$94.04
Reference prices - recycled fibre costs in North America1
The brown grade recycled paper No. 11 (old corrugated containers, OCC)
annual index price decreased by 17% while the recycled paper No. 56
(sorted residential papers, SRP) increased by 1%, in 2022 compared to
2021. The white grade recycled paper No. 37 (sorted office papers, SOP)
annual index price increased by 75% in 2022 compared to 2021.
Reference prices - virgin pulp in North America1
In 2022, the reference price for NBSK and NBHK increased by 15% and
23% respectively, compared to 2021, reflecting global demand supply
dynamics.
280
240
200
160
120
80
40
0
Q1
20
Q2
20
Q3
20
Q4
20
Q1
21
Q2
21
Q3
21
Q4
21
Q1
22
Q2
22
Q3
22
Q4
22
Recycled paper No. 37 (SOP) (Northeast) (US$/s.t.)
Recycled paper No. 11 (OCC) (Northeast) (US$/s.t.)
Recycled paper No. 56 (SRP) (Northeast) (US$/s.t.)
1 Source: RISI, excluding mixed papers
1,800
1,600
1,400
1,200
1,000
800
Q1
20
Q2
20
Q3
20
Q4
20
Q1
21
Q2
21
Q3
21
Q4
21
Q1
22
Q2
22
Q3
22
Q4
22
Bleached hardwood kraft, mixed, Canada / US (US$/m.t.)
Northern bleached softwood kraft, Canada (US$/m.t.)
12
2022 Annual Report
OPERATIONAL PERFORMANCE INDICATORS
We use several operational performance indicators to monitor our action plan and analyze the progress we are making toward achieving
our long-term objectives. These include the following:
(unaudited)
OPERATIONAL
Total shipments (in ’000 s.t.)1
Packaging Products
Containerboard
Tissue Papers
Total
Integration rate2
Containerboard
Tissue Papers
Manufacturing capacity utilization rate3
Containerboard
Tissue Papers
Consolidated total
FINANCIAL
Working capital
In millions of CAN$, at the end of period4
As a percentage of sales4, 5
2020
2021
2022
YEAR
Q1
Q2
Q3
Q4
YEAR
Q1
Q2
Q3
Q4
YEAR
1,544
391
385
377
368
1,521
372
379
391
364
1,506
645
123
138
148
145
554
131
133
134
123
521
2,189
514
523
525
513
2,075
503
512
525
487
2,027
56%
75%
96%
83%
92%
57%
79%
97%
80%
92%
57%
69%
96%
78%
90%
58%
71%
94%
84%
91%
58%
76%
89%
85%
88%
58%
74%
94%
82%
90%
57%
79%
93%
84%
90%
57%
82%
96%
81%
92%
52%
85%
93%
88%
91%
53%
87%
83%
81%
83%
55%
83%
91%
83%
89%
367
376
377
410
297
297
424
493
561
397
397
8.8%
8.4%
8.4%
8.5%
8.6%
8.6%
9.3%
9.6%
10.2%
10.5%
10.5%
1 Shipments do not take into account the elimination of business sector inter-segment shipments. Shipments from our Specialty Products segment are not presented, as different units
of measure are used.
2 Defined as: Percentage of manufacturing shipments transferred to our converting operations.
3 Defined as: Manufacturing internal and external shipments/practical capacity. Excluding Specialty Products segment manufacturing activities.
4 Some information represents Non-IFRS financial measures, other financial measures or Non-IFRS ratios which are not standardized under IFRS and therefore might not be comparable to
similar financial measures disclosed by other corporations. Please refer to the “Supplemental Information on Non-IFRS Measures and Other Financial Measures” section for a
complete reconciliation.
5 Percentage of sales = Average quarterly last twelve months (LTM) working capital / LTM sales (Not adjusted for retrospective reclassification of discontinued operations).
13
2022 Annual Report
HISTORICAL MARKET PRICES OF MAIN PRODUCTS AND RAW MATERIALS
These indexes should only be used as trend indicators. They may
differ from our actual selling prices and purchasing costs.
(unaudited)
Selling prices (average)
PACKAGING PRODUCTS
Containerboard (US$/short ton)
Linerboard 42-lb. unbleached kraft,
Eastern US (open market)
Corrugating medium 26-lb. semichemical,
Eastern US (open market)
Specialty Products (US$/short ton)
Uncoated recycled boxboard - bending chip,
20-pt. (series B)
TISSUE PAPERS (US$/short ton)
2020
2021
2022
2022 vs. 2021
YEAR
Q1
Q2
Q3
Q4
YEAR
Q1
Q2
Q3
Q4
YEAR Change
%
723
772
825
858
875
833
895
935
935
915
920
87
10%
623
675
735
775
795
745
818
865
865
832
845
100
13%
708
740
793
867
980
845
1,027
1,067
1,100
1,100
1,073
228
27%
Parent rolls, recycled fibres (transaction)
1,120
1,115
1,159
1,170
1,178
1,156
1,213
1,271
1,291
1,290
1,266
Parent rolls, virgin fibres (transaction)
1,428
1,453
1,550
1,544
1,511
1,515
1,504
1,597
1,644
1,631
1,594
110
79
10%
5%
Raw materials prices (average)
RECYCLED PAPER
North America (US$/short ton)
Sorted residential papers, No. 56 (SRP -
Northeast average)
Old corrugated containers, No. 11 (OCC -
Northeast average)
Sorted office papers, No. 37 (SOP -
Northeast average)
24
61
109
44
79
94
VIRGIN PULP (US$/metric ton)
59
108
108
80
98
107
98
102
162
167
127
140
137
109
23
35
81
1
1%
105
(22)
(17%)
117
153
173
134
205
235
252
248
235
101
75%
Northern bleached softwood kraft, Canada
1,141
1,302
1,598
1,542
1,472
1,478
1,527
1,743
1,800
1,745
1,704
Bleached hardwood kraft, mixed, Canada/US
883
1,037
1,297
1,320
1,262
1,229
1,312
1,517
1,620
1,608
1,514
226
285
15%
23%
Sources: RISI and Cascades
14
2022 Annual Report
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 materials, energy and the exchange rates may have on Cascades’ annual operating income, assuming, for each price change,
that all other variables remain constant. Estimates are based on Cascades’ 2022 manufacturing and converting external shipments and
consumption quantities. It is important to note that this table does not consider the Corporation's 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 US 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 Corporation's
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$.
(unaudited)
SELLING PRICE (MANUFACTURING AND CONVERTING)2
Packaging
Linerboard 42-lb. unbleached kraft, Eastern US
Corrugating medium 26-lb. semichemical, Eastern US
Uncoated recycled boxboard - bending chip, 20-pt., Eastern US
Converting products (cartonboard based only)
Tissue Papers
RAW MATERIALS2
Packaging
Brown grades (OCC and others)
Groundwood grades (SRP and others)
Tissue Papers
Virgin pulp
Brown grades (OCC and others)
White grades (SOP and others)
NATURAL GAS
Packaging
Tissue Papers
EXCHANGE RATE3
U.S. subsidiaries translation
SHIPMENTS/
CONSUMPTION ('000
SHORT TONS, '000 MMBTU
FOR NATURAL GAS)
INCREASE
OPERATING INCOME
IMPACT
(IN MILLIONS OF CAN$)
390
310
130
820
1,650
520
2,170
1,480
80
1,560
190
180
290
660
3,700
4,300
8,000
US$25/s.t.
US$25/s.t.
US$25/s.t.
US$25/s.t.
US$25/s.t.
US$25/s.t.
US$25/s.t.
US$25/s.t.
US$25/s.t.
US$25/s.t.
US$1.00/mmBtu
US$1.00/mmBtu
CAN$/US$ 0.01 change
13
10
4
28
55
18
73
(50)
(3)
(53)
(6)
(6)
(10)
(22)
(5)
(6)
(11)
1
1 Sensitivity calculated according to 2022 volumes or consumption with year-end closing exchange rate of CAN$/US$ 1.35, excluding hedging programs and the impact of related expenses
such as discounts, commissions on sales and profit-sharing.
2 Based on 2022 external manufacturing and converting shipments, as well as fibre and pulp consumption. Including purchases sourced internally from our recovery and recycling operations.
Adjusted to reflect acquisitions, disposals and closures, if needed.
3 As an example, from CAN$/US$ 1.35 to CAN$/US$ 1.36.
15
2022 Annual Report
FINANCIAL OVERVIEW - 2022
SALES
For the year ended December 31, 2022, consolidated sales totaled $4,466 million, an increase of $510 million, or 13%, compared to
$3,956 million in 2021. This reflects higher selling prices and mix and the positive impact of the foreign exchange rate. This was partially
offset by lower volume in all segments.
Sales by geographic segments are as follows:
Sales from (in %)
Sales to (in %)
44%
56%
52%
48%
United States
Canada
United States
Canada
The main variances in sales in 2022, compared to 2021, are shown below:
(in millions of Canadian dollars)
SALES ($M)
467
108
53
(2)
(116)
4,466
3,956
1
2
0
2
l
s
e
a
S
e
c
i
r
P
X
F
/
$
N
A
C
i
x
M
&
y
r
e
v
o
c
e
R
s
m
e
t
i
r
e
h
t
O
d
n
a
g
n
i
l
c
y
c
e
R
e
m
u
o
V
l
2
2
0
2
l
s
e
a
S
16
2022 Annual Report
OPERATING INCOME AND EBITDA (A)1
For the year ended December 31, 2022, the Corporation recorded an operating income of $33 million, compared to $50 million in 2021.
The Corporation recorded an EBITDA (A)1 of $376 million in 2022, compared to $389 million in 2021. The decrease largely reflects the
significant inflationary pressure on all costs and lower volume for all segments, which were counterbalanced by higher selling prices in all
segments.
The main variances in operating income and in EBITDA (A)1 in 2022, compared to 2021, are shown below:
(in millions of Canadian dollars)
OPERATING INCOME AND EBITDA (A) ($M)
467
14
(18)
(51)
(84)
87
389
252
(170)
376
(171)
(91)
50
1
2
0
2
e
m
o
c
n
i
g
n
i
t
a
r
e
p
O
i
n
o
i
t
a
c
e
r
p
e
D
n
o
i
t
a
z
i
t
r
o
m
a
d
n
a
Raw materials
(EBITDA (A)1)
F/X CAN$
(EBITDA (A)1)
s
m
e
t
i
c
i
f
i
c
e
p
S
e
c
i
r
P
1
2
0
2
)
A
(
A
D
T
B
E
I
r
e
h
t
O
s
n
o
i
t
a
i
r
a
v
g
n
i
l
c
y
c
e
R
&
y
r
e
v
o
c
e
R
y
g
r
e
n
E
i
t
h
g
e
r
F
.
d
o
r
P
s
t
s
o
c
w
a
R
l
s
a
i
r
e
t
a
m
2
2
0
2
)
A
(
A
D
T
B
E
I
s
m
e
t
i
c
i
f
i
c
e
p
S
33
2
2
0
2
e
m
o
c
n
i
g
n
i
t
a
r
e
p
O
(252)
i
n
o
i
t
a
c
e
r
p
e
D
n
o
i
t
a
z
i
t
r
o
m
a
d
n
a
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, inbound freight costs and purchase and transfer prices. In addition to market pulp and recycled fibre, these costs include purchases of
external boards and parent rolls for the converting sector, and other raw materials such as plastic and wood chips.
The estimated impact of the exchange rate is based on the Corporation’s Canadian export sales less purchases, denominated in US$, that are
impacted by exchange rate fluctuations and by the translation of our non-Canadian subsidiaries EBITDA (A)1 into CAN$. It also includes the impact of
exchange rate fluctuations on the Corporation’s Canadian units in currency other than the CAN$ on working capital items and cash positions, as well
as our hedging transactions. It excludes indirect sensitivity (please refer to the “Sensitivity Table” section for further details).
Other production costs
(EBITDA (A)1)
Recovery and Recycling activities
(Sales and EBITDA (A)1)
These costs include the impact of variable and fixed costs based on production costs per unit shipped externally, which are affected by downtime and
efficiency.
While this sub-segment is integrated within the other segments of the Corporation, all variations in the results of Recovery and Recycling activities
are presented separately and on a global basis in the charts.
The sales and EBITDA (A)1 variances analysis by segment is shown in each business segment review (please refer to “Business Segment
Review” for more details).
DEPRECIATION AND AMORTIZATION
The depreciation and amortization expense was stable at $252 million in 2022. This reflects the depreciation of the Canadian dollar which
increased the depreciation cost in 2022 by $6 million ($4 million in 2021). While the impairment recorded over the year offset this impact.
1 Please refer to the “Supplemental Information on Non-IFRS Measures and Other Financial Measures” section for a complete reconciliation.
17
2022 Annual Report
FINANCING EXPENSE
The financing expense amounted to $88 million in 2022, compared to $106 million in 2021, a decrease of $18 million. Higher capitalized
interests on major investment projects and lower level of debt at the beginning of the year partially offset by a higher interest rate and the
increasing level of debt throughout the year, resulted in a variance of $10 million. The average interest rate on our revolving credit facility
increased to 6.18% in 2022 from 3.95% in 2021. As of December 31, 2022, 37% of the Corporation's total long-term debt was at a variable
rate and 63% was at a fixed rate. The remaining variance of $8 million resulted from various financial costs, mainly a higher loss on foreign
exchange on long-term debt and financial instruments of $12 million in 2022 compared to 2021, offset by a positive variance on loss on
repurchase of long-term debt of $20 million in 2021 and nil in 2022.
SHARE OF RESULTS OF ASSOCIATES AND JOINT VENTURES
Share of results of associates and joint ventures amounted to $19 million in 2022, compared to $18 million in 2021. Please refer to Note 8
of the 2022 Audited Consolidated Financial Statements for more information on associates and joint ventures.
PROVISION FOR (RECOVERY OF) INCOME TAXES
In 2022, the Corporation recorded a recovery of income taxes of $22 million, which compares to a provision for income taxes of $9 million
in 2021.
(in millions of Canadian dollars) (unaudited)
Recovery of income taxes based on the combined basic Canadian and provincial income tax rate
Adjustment for income taxes arising from the following:
Prior years reassessment
Reversal of deferred income tax assets related to prior year losses
Permanent differences
Other
Provision for (recovery of) income taxes
2022
(10)
(6)
—
(6)
—
(12)
(22)
2021
(10)
4
18
(2)
(1)
19
9
In 2022, the Corporation recorded a $3 million deferred tax benefit as a result of a tax election related to the discontinued operations
realized in 2021.
In 2021, the Corporation recorded the reversal of $18 million in tax assets related to prior-year loss of one of its subsidiaries as it does not
expect to be able to use them before they expire.
Greenpac is a limited liability company (LLC) and partners agreed to account for it as a disregarded entity for tax purposes. Consequently,
income taxes associated with Greenpac net earnings are proportionately recorded by each partner based on its respective share in the
LLC and no income tax provision is included in Greenpac’s net earnings. As such, although Greenpac is fully consolidated in the
Corporation’s results, only 92% of pre-tax book income is considered for tax provision purposes.
The effective tax rate and income taxes are affected by the results of certain subsidiaries and joint ventures located in countries where the
income tax rates are different from those in Canada, notably the United States. The normal effective tax rate is expected to be in the range
of 21% to 27%. The weighted-average applicable tax rate was 24.3% in 2022.
RESULTS FROM DISCONTINUED OPERATIONS
Results from discontinued operations amounted to $234 million in 2021. Results from discontinued operations attributable to Shareholders
amounted to $221 million in 2021. Please refer to the “Discontinued Operations” section and Note 5 of the 2022 Audited Consolidated
Financial Statements for all details on results from discontinued operations.
NET EARNINGS (LOSS)
For the year ended December 31, 2022, the Corporation posted a net loss of $(34) million, or ($0.34) per common share, compared to net
earnings of $162 million, or $1.60 per common share, in 2021. On an adjusted basis1, the Corporation generated net earnings of
$37 million in 2022, or $0.37 per common share, compared to net earnings of $27 million, or $0.26 per common share, in 2021.
1 Please refer to the “Supplemental Information on Non-IFRS Measures and Other Financial Measures” section for a complete reconciliation.
18
2022 Annual Report
BUSINESS SEGMENT REVIEW
PACKAGING PRODUCTS - CONTAINERBOARD
Our Industry
U.S. containerboard industry production and capacity utilization rate1
Total U.S. containerboard production amounted to 37.8 million short tons
in 2022, a decrease of 6% compared to 2021, reflecting lower demand
related to the post-COVID-19 pandemic. As a result, the industry's
capacity utilization rate decreased to 89% in 2022 from 95% in 2021.
U.S. containerboard inventories at box plants and mills2
The average inventory level increased by 12% year-over-year in 2022,
reflecting lower demand related to the post-COVID-19 pandemic. The
number of weeks of supply in inventory averaged 4.4x for the year, up
from 3.8x in 2021.
38,064
94%
40,092
95%
45,000
40,000
35,000
30,000
25,000
20,000
37,797
89%
100%
95%
90%
85%
80%
3,000
2,500
2,000
1,500
1,000
500
—
2020
2021
2022
2,470
2,528
3.8
2020
3.8
2021
2,838
4.4
2022
5.0
4.5
4.0
3.5
3.0
Total production ('000 s.t.)
Capacity utilization rate
Average inventory level ('000 s.t.)
Weeks of supply
U.S corrugated box industry shipments2
Total U.S. corrugated box shipments decreased by 4% in 2022 compared
to 2021. This reflects lower demand related to the post-COVID-19
pandemic destocking by end users and high price inflation in the U.S. for
general goods and merchandise.
Canadian corrugated box industry shipments3
Canadian corrugated box shipments decreased by 2% in 2022 compared
to 2021.
406.8
416.2
400.5
450.0
400.0
350.0
300.0
40.0
35.0
30.0
25.0
35.2
36.5
35.6
2020
2021
2022
2020
2021
2022
Total shipments (Billion sq. ft.)
Total shipments (Billion sq. ft.)
Reference prices - containerboard1
2022 reference prices for linerboard and corrugating medium increased by
10% and 13%, respectively, compared to 2021.
Reference prices - recovered papers (brown grade)1
The average reference price of old corrugated containers no.11 (“OCC̑
decreased by 17% in 2022 compared to 2021.
̑”)
1,000
900
800
700
600
833
845
920
723
745
623
2020
2021
2022
Corrugating medium 26-lb. semichemical, Eastern U.S. (open market) (US$/s.t.)
Linerboard 42-lb. unbleached kraft, Eastern U.S. (open market) (US$/s.t.)
127
105
140
120
100
80
60
40
20
—
61
2020
2021
2022
Old corrugated containers, no. 11 (OCC - Northeast average) (US$/s.t.)
1 Source: RISI
2 Source: Fibre Box Association
3 Source: Canadian Corrugated and Containerboard Association
19
2022 Annual Report
Our Performance
EBITDA (A)1 ($M)
Sales ($M) and EBITDA (A) margin1
150
100
50
0
400
350
300
250
108
100
94
80
70
119
99
103
503
497
507
502
534
569
595
567
600
500
400
300
200
30%
25%
20%
15%
10%
Q1
21
Q2
21
Q3
21
Q4
21
Q1
22
Q2
22
Q3
22
Q4
22
Q1
21
Q2
21
Q3
21
Q4
21
Q1
22
Q2
22
Q3
22
Q4
22
EBITDA (A) ($M)
SALES ($M)
EBITDA (A) margin (% of sales)
Shipments and manufacturing capacity
utilization rate
391 385
377 368
372 379
391
364
100%
95%
90%
85%
80%
1,600
1,500
1,400
1,300
1,200
Average selling price
Q1
21
Q2
21
Q3
21
Q4
21
Q1
22
Q2
22
Q3
22
Q4
22
Q1
21
Q2
21
Q3
21
Q4
21
Q1
22
Q2
22
Q3
22
Q4
22
Shipments ('000 s.t.)
Utilization rate
(CAN$/s.t.)
(US$/s.t.)
1,200
1,100
1,000
900
The main variances2 in sales and EBITDA (A)1 for the Containerboard Packaging segment in 2022, compared to 2021, are shown below:
(in millions of Canadian dollars)
SALES ($M)
EBITDA (A) ($M)
54
239
2,265
(17)
(20)
2,009
1
2
0
2
l
s
e
a
S
e
c
i
r
P
X
F
/
$
N
A
C
i
x
M
e
m
u
o
V
l
2
2
0
2
l
s
e
a
S
239
14
372
1
2
0
2
)
A
(
A
D
T
B
E
I
e
c
i
r
P
X
F
/
$
N
A
C
(15)
(29)
(34)
(47)
401
(99)
i
x
M
&
e
m
u
o
V
l
w
a
R
l
s
a
i
r
e
t
a
m
y
g
r
e
n
E
i
t
h
g
e
r
F
.
d
o
r
P
s
t
s
o
c
2
2
0
2
)
A
(
A
D
T
B
E
I
1 Please refer to the “Supplemental Information on Non-IFRS Measures and Other Financial Measures” section for a complete reconciliation.
2 For definitions of certain sales and EBITDA (A)1 variation categories, please refer to the "Financial Overview” section for more details.
20
2022 Annual Report
2021
2022
Change in %
Shipments2 (’000 s.t.)
1,521
1,506
Average Selling Price
(CAN$/unit)
1,321
1,504
-1%
14%
Sales ($M)
2,009
2,265
13%
EBITDA (A)1
% of sales
372
19%
401
18%
8%
1 Please refer to the “Supplemental Information on Non-IFRS Measures and Other
Financial Measures” section for a complete reconciliation.
2 Shipments do not take into account the elimination of business sector inter-segment
shipments.
3 Including sales to other partners in Greenpac.
Total shipments decreased by 15,000 s.t., or 1%, in 2022 compared
to 2021.
in
the second quarter and
External parent roll shipments increased by 6,000 s.t., or 1%,
compared to 2021. This reflects lower volumes in 2021 as a result of
an issue with the water effluent treatment system at our Niagara
Falls, NY complex
transportation
limitations towards the end of the year. The manufacturing utilization
rate decreased by 3% to 91%, largely as a result of the medium
production downtime taken to manage inventory during the last six
months of the year. The mill integration rate decreased by 3% to
55%, due to higher parent roll shipments to external customers in
preparation for the Bear Island start-up in 2023. Including sales to
other partners3, the integration rate was 72% in 2022, slightly below
the 73% level in 2021.
Annual shipments
from converting activities decreased by
21,000 s.t., or 3%. In terms of square feet, our volume decreased by
3% to 13.8 billion in 2022 from 14.2 billion in 2021. This reflects a 5%
decrease in our Canadian converted products shipments, compared
to a 2% decline for the Canadian industry. This performance reflects
a more difficult beginning of the year, following stronger demand in
2021, in addition to profitability initiatives that resulted in erosion of
shipments and lower demand from some key customers. These were
offset by a 4% year-over-year increase in our US converted product
shipments in 2022, which outperformed the broader market decline
of 4%.
The average selling price increased by 14% in 2022, reflecting a 19%
increase for parent rolls and a 13% increase for converted products.
Sales increased by $256 million, or 13%, in 2022 compared to 2021.
The higher average selling price added $239 million to sales while
the 4% average depreciation of the Canadian dollar compared to the
US dollar contributed $54 million to sales. These benefits were partly
offset by negative impacts of $20 million related to lower volume and
$17 million related to a less favourable sales mix.
EBITDA (A)1 increased by $29 million, or 8%, reflecting the
annualized benefit of the 2021 price increases and 2022 price
increase realizations. Higher average selling price, lower volumes
and a less favourable sales mix had a net positive impact of
$224 million while the depreciation of the Canadian dollar added
$14 million. These were offset by a negative raw material cost impact
of $29 million and higher logistics and distribution costs that
subtracted an additional $47 million. Inflationary pressure on other
production costs, including chemicals, repair and maintenance,
labour and other costs, had a combined negative impact of
$99 million. This amount also
includes operational costs of
$12 million related to the Bear Island project in 2022 compared to
$6 million for the same period in 2021. Higher energy prices
impacted results by a further $34 million compared to last year.
21
2022 Annual Report
BUSINESS SEGMENT REVIEW
PACKAGING PRODUCTS - SPECIALTY PRODUCTS
Our Performance
EBITDA (A)1 ($M)
Sales ($M) and EBITDA (A) margin1
18
18
17
21
22
25
25
20
30
25
20
15
10
5
0
144
151
122
131
157
168
168
161
200
150
100
50
0
20%
15%
10%
5%
0%
Q1
21
Q2
21
Q3
21
Q4
21
Q1
22
Q2
22
Q3
22
Q4
22
Q1
21
Q2
21
Q3
21
Q4
21
Q1
22
Q2
22
Q3
22
Q4
22
EBITDA (A) ($M)
SALES ($M)
EBITDA (A) margin (% of sales)
The main variances2 in sales and EBITDA (A)1 for the Specialty Products segment in 2022, compared to 2021, are shown below:
(in millions of Canadian dollars)
SALES ($M)
17
110
654
(21)
548
1
2
0
2
l
s
e
a
S
e
c
i
r
P
X
F
/
$
N
A
C
e
m
u
o
V
l
2
2
0
2
l
s
e
a
S
2021
548
74
14%
Sales ($M)
EBITDA (A)1
% of sales
2022
654
92
14%
Change in %
19%
24%
110
3
EBITDA (A) ($M)
(3)
(5)
(8)
74
1
2
0
2
)
A
(
A
D
T
B
E
I
e
c
i
r
P
X
F
/
$
N
A
C
y
g
r
e
n
E
i
x
M
&
e
m
u
o
V
l
(34)
92
(45)
i
t
h
g
e
r
F
.
d
o
r
P
s
t
s
o
c
w
a
R
l
s
a
i
r
e
t
a
m
2
2
0
2
)
A
(
A
D
T
B
E
I
Sales increased by $106 million, or 19%, in 2022 compared to
2021. Higher average selling prices for all sub-segments
increased sales levels by $110 million in the year. In addition,
the 4% average depreciation of the Canadian dollar compared
to the US dollar had a positive impact of $17 million on sales.
Volume was lower in the second half of the year for all of our
market sub-segments due to market softening, while the egg
packaging sub-segment was impacted throughout the year
primarily as a result of the avian flu outbreak.
EBITDA (A)1 increased by $18 million, or 24%. The solid
performance reflects the beneficial impacts from higher realized
spreads (selling price less raw materials) and depreciation of the
Canadian dollar, which contributed $65 million and $3 million,
respectively. These were partially offset by higher
transportation, operating, energy, production supplies and other
costs, which negatively impacted results by $45 million. In
addition, lower volume decreased results by $5 million.
1 Please refer to the “Supplemental Information on Non-IFRS Measures and Other Financial Measures” section for a complete reconciliation.
2 For definitions of certain sales and EBITDA (A)1 variation categories, please refer to the "Financial Overview” section for more details.
22
2022 Annual Report
BUSINESS SEGMENT REVIEW
TISSUE PAPERS
Our Industry
U.S. tissue paper industry production (parent rolls) and capacity
utilization rate1
Total parent roll production increased by 1% in 2022. The average capacity
utilization rate of 92% in 2021 increased by 1% compared to 93% in 2022.
U.S. tissue paper industry converted product shipments1
In 2022, shipments for the Retail and the Away-from-Home markets decreased by
2% and increased by 3%, respectively, compared to 2021.
11,000
10,000
9,000
8,000
7,000
9,890
97%
2020
9,401
9,484
92%
2021
93%
2022
100%
98%
96%
94%
92%
90%
8,000
6,000
4,000
2,000
—
7,013
6,483
6,383
2,719
2,879
2,976
2020
2021
2022
Total parent roll production ('000 s.t.)
Capacity utilization rate
Shipments - Away-from-Home market ('000 s.t.)
Shipments - Retail market ('000 s.t.)
Reference prices - parent rolls1
In 2022, the reference price for recycled and virgin parent rolls respectively
increased by 10% and 5%, compared to 2021.
Reference prices - recovered papers (white grade)1
The reference price of sorted office papers No.37 (“SOP”) increased by 75% in 2022
compared to 2021.
250
200
150
100
50
—
235
109
134
2020
2021
2022
Sorted office papers, no. 37 (SOP - Northeast average) (US$/s.t.)
1,428
1,120
1,515
1,156
1,594
1,266
2,000
1,500
1,000
500
—
2020
2021
2022
Recycled parent roll (average publication price) (US$/s.t.)
Virgin parent roll (average publication price) (US$/s.t.)
Reference prices - market pulp1
In 2022, the reference price for NBSK and NBHK increased by 15% and 23%,
respectively, compared to 2021, reflecting global demand supply dynamics.
2,000
1,500
1,000
500
—
1,478
1,229
1,704
1,514
1,141
883
2020
2021
2022
Bleached hardwood kraft, mixed, Canada / U.S. (US$/m.t.)
Northern bleached softwood kraft, Canada (US$/m.t.)
1 Source: RISI
23
2022 Annual Report
Our Performance
EBITDA (A)1 ($M)
Sales ($M) and EBITDA (A) margin1
30
20
10
0
-10
-20
200
150
100
50
0
20
12
1
Q1
21
Q2
21
Q3
21
8
4
Q3
22
Q4
22
(6)
Q4
21
(8)
Q2
22
(17)
Q1
22
EBITDA (A) ($M)
Shipments and manufacturing capacity
utilization rate
123 138
148 145
131 133
134 123
100%
90%
80%
70%
400
300
200
100
0
3,200
3,000
2,800
2,600
2,400
2,200
2,000
344
339
342
314
292
297
382
384
20%
10%
0%
-10%
Q1
21
Q2
21
Q3
21
Q4
21
Q1
22
Q2
22
Q3
22
Q4
22
SALES ($M)
EBITDA (A) margin (% of sales)
Average selling price
2,400
2,200
2,000
1,800
1,600
1,400
Q1
21
Q2
21
Q3
21
Q4
21
Q1
22
Q2
22
Q3
22
Q4
22
Q1
21
Q2
21
Q3
21
Q4
21
Q1
22
Q2
22
Q3
22
Q4
22
Shipments ('000 s.t.)
Utilization rate
(CAN$/s.t.)
(US$/s.t.)
The main variances2 in sales and EBITDA (A)1 for the Tissue Papers segment in 2022, compared to 2021, are shown below:
(in millions of Canadian dollars)
SALES ($M)
EBITDA (A) ($M)
19
118
(6)
(13)
(29)
(32)
37
70
1,422
27
(75)
118
1,272
(97)
(13)
.
d
o
r
P
s
t
s
o
c
w
a
R
l
s
a
i
r
e
t
a
m
2
2
0
2
)
A
(
A
D
T
B
E
I
1
2
0
2
l
s
e
a
S
e
c
i
r
P
i
x
M
X
F
/
$
N
A
C
e
m
u
o
V
l
2
2
0
2
l
s
e
a
S
1
2
0
2
)
A
(
A
D
T
B
E
I
e
c
i
r
P
i
x
M
&
e
m
u
o
V
l
X
F
/
$
N
A
C
y
g
r
e
n
E
i
t
h
g
e
r
F
1 Please refer to the “Supplemental Information on Non-IFRS Measures and Other Financial Measures” section for a complete reconciliation.
2 For definitions of certain sales and EBITDA (A)1 variation categories, please refer to the "Financial Overview” section for more details.
24
2022 Annual Report
2021
2022
Change in %
Shipments2 (’000 s.t.)
521
554
Average Selling Price
(CAN$/unit)
2,299
2,731
-6%
19%
Sales ($M)
1,272
1,422
12%
EBITDA (A)1
% of sales
27
2%
(13)
(1)%
-148%
1 Please refer to the “Supplemental Information on Non-IFRS Measures and Other
Financial Measures” section for a complete reconciliation.
2 Shipments do not take into account the elimination of business sector inter-segment
shipments.
Shipments decreased by 33,000 s.t., or 6%, in 2022 compared
to 2021.
Converted product shipments increased by 17,000 s.t., or 4%, in
2022 compared to 2021. In terms of cases, shipments increased by
2.4 million cases, or 4%, to 58.8 million cases in 2022 compared to
2021. This is the result of higher demand in both Retail Consumer
Products (+3%) and Away-from-Home (+6%) markets following lower
production levels in 2021 that were driven by COVID-19 labour
shortages and variable demand patterns. External manufacturing
shipments of parent rolls decreased by 50,000 s.t., or 37%, in 2022
compared to 2021 mainly due to higher converted products demand
and major repair and maintenance at our St. Helens mill in the fourth
quarter of 2022 which had a negative impact of approximately
15,000 s.t.. The integration rate increased to 83% during the period,
up from 74% in 2021.
The 19% increase in the average selling price was primarily due to
price increase initiatives in both the Away-from-Home and Retail
Consumer Products markets, the 4% average depreciation of the
Canadian dollar compared to the US dollar and a favourable sales
mix due to a higher proportion of converted products.
Sales increased by $150 million, or 12%, in 2022 compared to 2021.
This was driven by beneficial impacts of $118 million from a higher
average selling price, $70 million from a favourable mix as explained
above, and $37 million related to the favourable exchange rate.
These benefits were partially offset by lower volumes, which
negatively impacted sales by $75 million.
EBITDA (A)1 decreased by $40 million, or 148%, and was mainly due
to a $97 million impact from higher raw material costs, a $29 million
impact from higher transportation costs and a $32 million impact from
higher production costs stemming in part from inflationary pressure.
Higher energy prices also had a negative impact of $13 million year-
over-year. The price increases were not sufficient to fully offset
rapidly increasing costs during the year but will continue to have a
positive impact going forward.
25
2022 Annual Report
CORPORATE ACTIVITIES
CORPORATE ACTIVITIES
Corporate Activities recorded an EBITDA (A)1 of $(104) million in 2022, compared to $(84) million in 2021. The EBITDA (A)1 of our
Corporate Activities recorded an EBITDA (A)1 of $(104) million in 2022, compared to $(84) million in 2021. The EBITDA (A)1 of our
Recovery and Recycling activities was $18 million lower in 2022 due to lower volume and raw material index prices. Corporate Activities
Recovery and Recycling activities was $18 million lower in 2022 due to lower volume and raw material index prices. Corporate Activities
also incurred additional costs to support the profitability improvement initiatives in the Tissue Papers segment.
also incurred additional costs to support the profitability improvement initiatives in the Tissue Papers segment.
STOCK-BASED COMPENSATION EXPENSE
STOCK-BASED COMPENSATION EXPENSE
Stock-based compensation expense recognized in Corporate Activities amounted to $5 million in 2022, compared to $5 million in 2021. For
Stock-based compensation expense recognized in Corporate Activities amounted to $5 million in 2022, compared to $5 million in 2021. For
more details on stock-based compensation, please refer to Note 21 of the 2022 Audited Consolidated Financial Statements.
more details on stock-based compensation, please refer to Note 21 of the 2022 Audited Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS FROM OPERATING ACTIVITIES FROM CONTINUING OPERATIONS
CASH FLOWS FROM OPERATING ACTIVITIES FROM CONTINUING OPERATIONS
Cash flows from operating activities from continuing operations, excluding changes in non-cash working capital components, stood at
Cash flows from operating activities from continuing operations, excluding changes in non-cash working capital components, stood at
$260 million in 2022, compared to $247 million in 2021. This cash flow measurement is relevant to the Corporation’s ability to pursue its
$260 million in 2022, compared to $247 million in 2021. This cash flow measurement is relevant to the Corporation’s ability to pursue its
capital expenditure program and reduce its indebtedness.
capital expenditure program and reduce its indebtedness.
Cash flows from operating activities from continuing operations generated $144 million in liquidity in 2022, compared to $211 million
Cash flows from operating activities from continuing operations generated $144 million in liquidity in 2022, compared to $211 million
generated in 2021. The decrease is driven by lower profitability and the significant increase in the non-cash working capital compared to
generated in 2021. The decrease is driven by lower profitability and the significant increase in the non-cash working capital compared to
2021. The Corporation paid $87 million of financing expense in 2022, compared to $96 million in 2021. The variance is mainly explained by
2021. The Corporation paid $87 million of financing expense in 2022, compared to $96 million in 2021. The variance is mainly explained by
the early payment of $6 million of interest paid in 2021 following the partial redemption of unsecured senior notes. On November 9, 2021,
the early payment of $6 million of interest paid in 2021 following the partial redemption of unsecured senior notes. On November 9, 2021,
the Corporation completed the partial redemption of its unsecured senior notes and paid transaction fees of $2 million and an early
the Corporation completed the partial redemption of its unsecured senior notes and paid transaction fees of $2 million and an early
repurchase premium totaling US$18 million ($22 million) (see “Business Highlights” section for more details). The Corporation also paid
repurchase premium totaling US$18 million ($22 million) (see “Business Highlights” section for more details). The Corporation also paid
$5 million of income taxes in 2022, compared to $2 million received in 2021. Other elements include payments totaling $12 million in 2022
$5 million of income taxes in 2022, compared to $2 million received in 2021. Other elements include payments totaling $12 million in 2022
for severances and other restructuring costs related to closures and margin improvement initiatives, compared to $25 million in 2021.
for severances and other restructuring costs related to closures and margin improvement initiatives, compared to $25 million in 2021.
Changes in non-cash working capital components used $116 million in liquidity in 2022, compared to $36 million used in 2021. General
Changes in non-cash working capital components used $116 million in liquidity in 2022, compared to $36 million used in 2021. General
supply chain challenges led to higher inventory levels to mitigate impacts on service level. Ongoing inflation also had a negative impact
supply chain challenges led to higher inventory levels to mitigate impacts on service level. Ongoing inflation also had a negative impact
through the cash converting cycle as it first hits accounts payable and inventory before going through selling price increases and accounts
through the cash converting cycle as it first hits accounts payable and inventory before going through selling price increases and accounts
receivable. As of December 31, 2022, average quarterly LTM working capital as a percentage of LTM sales1 stood at 10.5%, which
receivable. As of December 31, 2022, average quarterly LTM working capital as a percentage of LTM sales1 stood at 10.5%, which
compares to 8.6% as of December 31, 2021.
compares to 8.6% as of December 31, 2021.
INVESTING ACTIVITIES FROM CONTINUING OPERATIONS
INVESTING ACTIVITIES FROM CONTINUING OPERATIONS
Investing activities from continuing operations used $486 million in liquidity in 2022, compared to $247 million used in 2021.
Investing activities from continuing operations used $486 million in liquidity in 2022, compared to $247 million used in 2021.
ASSOCIATES AND JOINT VENTURES
ASSOCIATES AND JOINT VENTURES
In 2022, the Corporation received $1 million from an advance made to an associate.
In 2022, the Corporation received $1 million from an advance made to an associate.
In 2021, the Corporation sold its participation in an associate for an amount of $1 million.
In 2021, the Corporation sold its participation in an associate for an amount of $1 million.
PAYMENTS FOR PROPERTY, PLANT AND EQUIPMENT
PAYMENTS FOR PROPERTY, PLANT AND EQUIPMENT
(in millions of Canadian dollars) (unaudited)
2022
2022
619
619
(31)
(31)
(87)
(87)
501
501
(19)
(19)
482
482
2021
2021
373
373
(44)
(44)
(43)
(43)
286
286
(53)
(53)
233
233
(in millions of Canadian dollars) (unaudited)
Total acquisitions
Total acquisitions
Variation of acquisitions for property, plant and equipment included in “Trade and other payables”
Variation of acquisitions for property, plant and equipment included in “Trade and other payables”
Right-of-use assets acquisitions and of property, plant and equipment included in other debts
Right-of-use assets acquisitions and of property, plant and equipment included in other debts
Payments for property, plant and equipment
Payments for property, plant and equipment
Proceeds from disposals of property, plant and equipment
Proceeds from disposals of property, plant and equipment
Payments for property, plant and equipment net of proceeds from disposals
Payments for property, plant and equipment net of proceeds from disposals
1 Please refer to the “Supplemental Information on Non-IFRS Measures and Other Financial Measures” section for a complete reconciliation.
1 Please refer to the “Supplemental Information on Non-IFRS Measures and Other Financial Measures” section for a complete reconciliation.
26
2022 Annual Report
New capital expenditure projects, including right-of-use assets, by segment in 2022 were as follows:
(in millions of Canadian dollars)
87
41
29
36
426
Tissue Papers
Containerboard
Corporate Activities
Specialty Products
Right-of-use assets
The major capital projects that were initiated, are in progress or were completed in 2022 are as follows:
CONTAINERBOARD PACKAGING
•
Bear Island assets in Virginia, USA for site preparation and conversion of equipment to recycled containerboard manufacturing (see
“Business Highlights” section for more details).
SPECIALTY PRODUCTS
•
Investment in equipment to increase recycled pulp production for internal usage and converting capacity in cardboard operations.
TISSUE PAPERS
•
Investment in equipment to optimize the capacity of our converting lines.
CORPORATE ACTIVITIES
•
Investment in the modernization of the water treatment system at the Kingsey Falls complex in Québec, Canada.
PROCEEDS FROM DISPOSALS OF PROPERTY, PLANT AND EQUIPMENT
The main disposals of property, plant and equipment are as follows:
2022
The Specialty Products segment received $15 million from the sale of lands and a building related to closed plants in Canada. An
additional amount of $1 million deposited in escrow will be released under certain conditions.
2021
The Tissue Papers segment received $51 million from the sale of assets of closed plants in the USA and in Canada.
CHANGE IN INTANGIBLE AND OTHER ASSETS
In 2022, the Corporation invested $3 million, compared to $12 million in 2021, in its ERP information technology system and other
software developments. In 2022, the Corporation invested an additional $2 million ($1 million in 2021) for other assets, including deposits
related to a warehousing centralization initiative as part of the distribution network optimization.
FINANCING ACTIVITIES FROM CONTINUING OPERATIONS
Financing activities from continuing operations generated $272 million in 2022, compared to $529 million used in the same period of 2021,
including $48 million ($41 million in 2021) in dividend payments to the Corporation's Shareholders.
INCREASE IN TERM LOAN
On October 19, 2022, the Corporation entered into an agreement with its lenders for its existing credit agreement to increase its authorized
term loan to US$260 million from US$160 million and to extend the maturity from December 2025 to December 2027. The increase portion
of the term loan was used to reduce the borrowings under the revolving credit facility.
27
2022 Annual Report
REDEMPTION OF UNSECURED SENIOR NOTES
On November 9, 2021, the Corporation completed the partial redemption of its unsecured senior notes. The transaction was settled on
November 10, 2021 and the Corporation redeemed US$144 million ($180 million) and US$155 million ($192 million) of its 2026 and
2028 unsecured senior notes, respectively, and paid an early repurchase premium totaling US$18 million ($22 million). The Corporation
incurred transaction fees of $2 million, wrote off $4 million of unamortized financing costs and $8 million of unamortized issuance premium
related to these notes. The Corporation also paid US$5 million ($6 million) of interest accrued on these notes.
Partial redemption was used as follows:
(in millions of Canadian dollars) (unaudited)
Transaction fees
Repurchase of 2026 and 2028 Notes
Premium paid on long-term debt redemption
Decrease of credit facility
2021
(2)
(372)
(22)
(396)
ISSUANCE OF COMMON SHARES UPON EXERCISE OF STOCK OPTIONS AND REDEMPTION OF COMMON SHARES
The Corporation issued 355,686 common shares at an average price of $4.47 as a result of the exercise of stock options in 2022,
representing an aggregate amount of $1 million (in 2021 - $2 million for 235,732 common shares issued at an average price of $6.50).
The Corporation purchased 854,421 common shares for cancellation at an average price of $11.07 for $9 million in 2022 (in 2021 -
$26 million for 1,651,600 common shares for cancellation at an average price of $15.45).
DIVIDENDS PAID TO NON-CONTROLLING INTERESTS AND ACQUISITION OF NON-CONTROLLING INTERESTS
Dividends paid to non-controlling interests in Greenpac and Falcon Packaging (distributor in the Specialty Products segment) amounted to
$13 million in 2022 ($14 million in 2021). In 2022, the Corporation also increased its participation in Falcon Packaging for a contribution of
$3 million ($2 million in 2021).
CASH FLOWS FROM DISCONTINUED OPERATIONS
In 2021, the Boxboard Europe segment received $4 million from the sale of the land of a closed plant. The Boxboard Europe segment
received €5 million ($7 million) from the sale of its French subsidiary that produced virgin based boxboard. The €7 million ($11 million) cash
balance of this subsidiary was also disposed of, resulting in a net cash balance decrease of €2 million ($4 million). The Boxboard Europe
segment completed two business acquisitions and paid a total of €141 million ($210 million).
On July 5, 2021, the Corporation announced the monetization of its 57.6% controlling equity interest in Reno de Medici S.p.A. (RDM) for
an amount per share of €1.45, or $462 million including foreign exchange contracts and before related transaction fees of $12 million.
Please refer to the “Discontinued Operations” section and Note 5 of the 2022 Audited Consolidated Financial Statements for all details on
cash flows from discontinued operations.
CONSOLIDATED FINANCIAL POSITION
AS OF DECEMBER 31, 2022, 2021 AND 2020
The Corporation’s financial position and ratios are as follows:
(in millions of Canadian dollars, unless otherwise noted) (unaudited)
December 31, 2022
December 31, 2021
Cash and cash equivalents
Total assets
Total debt1
Net debt1
Equity attributable to Shareholders
Non-controlling interests
Total equity
Total equity and net debt1
Ratio of net debt/(total equity and net debt)1
Shareholders' equity per common share (in Canadian dollars)
102
5,053
2,068
1,966
1,871
57
1,928
3,894
174
4,566
1,525
1,351
1,879
48
1,927
3,278
50.5%
$18.64
41.2%
$18.63
December 31, 20202
384
5,412
2,063
1,679
1,753
204
1,957
3,636
46.2%
$17.14
1 Some information represents Non-IFRS financial measures, other financial measures or Non-IFRS ratios which are not standardized under IFRS and therefore might not be comparable to
similar financial measures disclosed by other corporations. Please refer to the “Supplemental Information on Non-IFRS Measures and Other Financial Measures” section for a
complete reconciliation.
2 Not adjusted for retrospective reclassification of discontinued operations.
28
2022 Annual Report
The following table reflects the Corporation’s secured debt rating/corporate rating/unsecured debt rating:
Credit rating (outlook)
December 31, 2021
December 31, 2022
MOODY'S
Baa3/Ba2/Ba3 (stable)
Baa3/Ba2/Ba3 (stable)
STANDARD & POOR'S
BB+/BB-/BB- (positive)
BB+/BB-/BB- (stable)
During the first quarter of 2022, STANDARD & POOR'S revised the Corporation's outlook to stable from positive on cost headwinds and
reaffirmed its 'BB-' rating.
NET DEBT1 RECONCILIATION
The variances in the net debt1 (total debt1 less cash and cash equivalents) in 2022 are shown below, with the applicable financial
ratios included:
(in millions of Canadian dollars)
7
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87
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EBITDA (A)1 (last twelve months) ($M)
Net debt / EBITDA (A) ratio1
501
1,966
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Liquidity available via the Corporation’s credit facilities, cash and cash equivalent balance and the anticipated cash flow generated by its
operating activities are expected to provide sufficient funds to meet our financial obligations and to fulfill our capital expenditure program
for at least the next twelve months. 2023 capital expenditures are forecasted to be approximately $325 million, encompassing $175 million
for the Bear Island containerboard conversion project in Virginia, USA. As of December 31, 2022, the Corporation had $385 million (net of
letters of credit in the amount of $15 million) available on its $750 million credit facility (excluding the credit facilities of our subsidiary
Greenpac). Cash and cash equivalents as of December 31, 2022 are comprised as follows: $54 million in the parent company and
restricted subsidiaries (as defined in the credit agreement) and $48 million in unrestricted subsidiaries, mainly Greenpac.
1 Please refer to the “Supplemental Information on Non-IFRS Measures and Other Financial Measures” section for a complete reconciliation.
29
2022 Annual Report
EMPLOYEE FUTURE BENEFITS
The Corporation’s employee future benefits assets and liabilities amounted to $399 million and $437 million, respectively, as of
December 31, 2022, including an amount of $65 million for post-employment benefits other than pension plans. The pension plans include
an amount of $27 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
fewer 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).
The measurement date of the employee future benefits plans is December 31 of each year. An actuarial evaluation is performed at least
every three years. Based on their liabilities balances as of December 31, 2022, 19% of the Corporation plans have been evaluated on
December 31, 2021 (20% in 2020). Plans with higher liability balances were last evaluated in 2019 and will be evaluated again in 2023 for
the year ended December 31, 2022.
Considering the assumptions used and the asset ceiling limit, the surplus status for accounting purposes of its pension plans amounted to
$10 million as of December 31, 2022, compared to a deficit of $10 million in 2021. The 2022 pension plan expense was $5 million and the
cash outflow was $5 million. Due to the investment returns in 2022 and the change in the assumptions, the expected expense for these
pension plans is $3 million in 2023. As for the cash flow requirements, these pension plans are expected to require a net contribution of
approximately $3 million in 2023. Finally, on a consolidated basis, the solvency ratio of the Corporation’s funded pension plans has
increased to approximately 105%.
COMMENTS ON THE FOURTH QUARTER OF 2022
SALES
Sales of $1,135 million increased by $107 million, or 10%, in the fourth quarter of 2022 compared to $1,028 million in the same period of
2021. Higher selling prices, better sales mix and a favourable foreign exchange rate had a positive impact on sales. These factors were
partially offset by lower volume in all business segments and lower sales from our Recovery and Recycling activities.
OPERATING LOSS AND EBITDA (A)1
The Corporation generated an operating loss of $(20) million in the fourth quarter of 2022, compared to $(90) million in the same period of
2021. The Corporation recorded an EBITDA (A)1 of $116 million in the fourth quarter of 2022, compared to $62 million in the same period
of 2021, an increase of $54 million. The increase reflects higher selling prices, lower raw material costs in our Containerboard segment and
a favourable foreign exchange rate which were offset by significant inflationary pressure on all operational costs.
1 Please refer to the “Supplemental Information on Non-IFRS Measures and Other Financial Measures” section for a complete reconciliation.
30
2022 Annual Report
The main variances1 in sales, in operating loss and in EBITDA (A)2 in the fourth quarter of 2022, compared to the same period of 2021, are
shown below:
(in millions of Canadian dollars)
SALES ($M)
54
22
117
(13)
1,135
(73)
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OPERATING LOSS AND EBITDA (A) ($M)
117
5
2
92
62
(11)
(11)
(11)
(11)
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NET EARNINGS (LOSS)
For the 3-month period ended December 31, 2022, the Corporation posted a net loss of $(27) million, or $(0.27) per common share,
compared to net earnings of $105 million, or $1.04 per common share, for the same period in 2021. On an adjusted basis2, the Corporation
generated net earnings of $22 million in the fourth quarter of 2022, or $0.22 per common share, compared to a net loss of $(9) million, or
$(0.09) per common share, in the same period in 2021.
1 For definitions of certain sales and EBITDA (A)2 variation categories, please refer to the "Financial Overview” section for more details.
2 Please refer to the “Supplemental Information on Non-IFRS Measures and Other Financial Measures” section for a complete reconciliation.
31
2022 Annual Report
CAPITAL STOCK INFORMATION
COMMON SHARE TRADING
Cascades’ stock is traded on the Toronto Stock Exchange under the ticker symbol “CAS”. From January 1, 2022 to December 31, 2022,
Cascades' common share price fluctuated between $7.77 and $14.14. During the same period, 68.7 million Cascades common shares
were traded on the Toronto Stock Exchange. On December 31, 2022, Cascades' common shares closed at $8.46. This compares with a
closing price of $13.97 on the same closing day last year.
COMMON SHARES OUTSTANDING
As of December 31, 2022, the Corporation’s issued and outstanding capital stock consisted of 100,361,627 common shares (100,860,362
as of December 31, 2021) and 2,794,344 issued and outstanding stock options (2,373,416 as of December 31, 2021). In 2022, the
Corporation purchased 854,421 common shares for cancellation, while 355,686 stock options were exercised, 785,532 options
were granted and 8,918 stock options were forfeited.
As of February 22, 2023, issued and outstanding capital stock consisted of 100,361,627 common shares and 2,791,041 stock options.
NORMAL COURSE ISSUER BID PROGRAM
The normal course issuer bid announced on March 17, 2021 enabled the Corporation to purchase for cancellation up to 2,045,621
common shares between March 19, 2021 and March 18, 2022. During that period, the Corporation purchased 2,045,621 common shares
for cancellation at an average price of $14.98 for $31 million.
The current normal course issuer bid announced on March 17, 2022 enables the Corporation to purchase for cancellation up to
2,015,053 common shares between March 19, 2022 and March 18, 2023. During the period between March 19, 2022 and
February 22, 2023, the Corporation purchased 460,400 common shares for cancellation at an average price of $9.38 for $4 million.
DIVIDEND POLICY
On February 22, 2023, Cascades’ Board of Directors declared a quarterly dividend of $0.12 per common share to be paid on
March 24, 2023 to shareholders of record at the close of business on March 10, 2023. On February 22, 2023, dividend yield was 4.9%.
TSX Ticker: CAS
Common shares outstanding (in millions)1
Closing price (in Canadian dollars)1
Average daily volume2
Dividend yield1
2020
2021
Q1
94.3
Q2
95.0
Q3
95.0
Q4
102.3
Q1
102.3
Q2
102.3
Q3
100.9
Q4
100.9
Q1
100.5
Q2
100.8
2022
Q4
Q3
100.4
100.4
$12.57
$14.79
$16.84
$14.55
$15.73
$15.26
$15.67
$13.97
$12.82
$10.13
$8.04
$8.46
256,827
298,267
257,710
363,795
342,616
433,394
278,277
272,438
250,944
299,332
293,260
259,071
2.5%
2.2%
1.9%
2.2%
2.0%
2.1%
3.1%
3.4%
3.7%
4.7%
6.0%
5.7%
1 On the last day of the quarter
2 Average daily volume on the Toronto Stock Exchange
CASCADES’ COMMON SHARE PRICE FOR THE PERIOD FROM JANUARY 1, 2020 TO DECEMBER 31, 2022
(in Canadian dollars)
$18.00
$16.00
$14.00
$12.00
$10.00
$8.00
32
Q1
20
Q2
20
Q3
20
Q4
20
Q1
21
Q2
21
Q3
21
Q4
21
Q1
22
Q2
22
Q3
22
Q4
22
2022 Annual Report
CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS
The Corporation’s principal contractual obligations and commercial commitments relate to outstanding debt, capital expenditures, raw
materials and supplies, intangible assets, service agreements, leases and obligations for its pension and post-employment benefit plans.
The following table summarizes these obligations as of December 31, 2022:
CONTRACTUAL OBLIGATIONS
Payment due by period (in millions of Canadian dollars) (unaudited)
Long-term debt, including capital and interest
Commitments for capital expenditures, raw materials and supplies
and intangible assets
Service agreements and exempted leases
Leases not yet commenced but already signed
Pension plans and other post-employment benefits1
Total contractual obligations
TOTAL
2,578
153
38
2
901
3,672
LESS THAN
ONE YEAR
BETWEEN ONE
AND FIVE YEARS
OVER FIVE YEARS
246
134
22
—
36
438
1,626
19
14
1
157
1,817
706
—
2
1
708
1,417
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, 2022.
TRANSACTIONS WITH RELATED PARTIES
The Corporation has also entered into various agreements with its joint-venture partners, significantly influenced companies and entities
that are affiliated with one or more of its directors for the supply of raw materials, including recycled paper, virgin pulp and energy, as well
as the supply of unconverted and converted products and other agreements entered into in the normal course of business. Aggregate
sales by the Corporation to its joint-venture partners and other affiliates totaled $367 million and $324 million for 2022 and 2021,
respectively. Aggregate purchases to the Corporation from its joint-venture partners and other affiliates came to $146 million and
$126 million for 2022 and 2021, respectively.
CHANGES IN ACCOUNTING POLICY AND DISCLOSURES
A. NEW IFRS ADOPTED
Amendment to IAS 16
In May 2020, the IASB issued an amendment to IAS 16 Property, Plant and Equipment which seeks to clarify the way entities should
account for the proceeds from the sale and related production costs, of items produced by an asset prior to it being available for its
intended use. The modification requires that sales proceeds recognized before the related asset is available for use be recognized in profit
or loss together with the costs associated with the items sold, rather than by adjusting the cost of the asset under construction.
The standard became effective on January 1, 2022 and had no impact on the Corporation's Consolidated Financial Statements.
B. RECENT IFRS STANDARD NOT YET ADOPTED
IFRS 17 Insurance Contracts was issued in May 2017 as replacement for IFRS 4 Insurance Contracts. The amendments deferred the
application date of IFRS 17 to January 1, 2023. IFRS 17 Insurance Contracts, applies to insurance contracts regardless of the entity that
issues them and so it does not apply only to traditional insurance entities. IFRS 17 Insurance Contracts defines an insurance contract as
an agreement where one party, the insurer, accepts significant insurance risk from another party, the policy holder, by agreeing to
compensate the policy holder if a specified uncertain future event adversely affects the policy holder. The Corporation is currently
evaluating the impact of this standard on its Consolidated Financial Statements.
33
2022 Annual Report
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.
IMPAIRMENT OF PROPERTY, PLANT AND EQUIPMENT, INTANGIBLE ASSETS AND GOODWILL
A.
In determining the recoverable amount of an asset or CGU, based on the market approach, Management uses the value of comparable
assets on the market. In determining the recoverable amount of an asset or CGU, based on the income approach, Management uses
several key assumptions, including estimated shipment levels, foreign exchange rates, revenue growth rates, adjusted earnings before
interest, taxes, depreciation and amortization (EBITDA) (A) margins, discount rates, capitalization rate and capital expenditures.
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 23 of the 2022 Audited Consolidated Financial Statements)
REVENUES, ADJUSTED EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION (EBITDA (A)) MARGINS,
CASH FLOWS AND GROWTH RATES
The assumptions used for revenues were based on the segment's internal budget and were projected for a period of five years and a long-
term growth rate of 2% was applied thereafter. The assumption used for EBITDA (A) margin was based on the segment's historical
performance and was kept constant. 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.
CAPITALIZATION RATES
The Corporation assumed a capitalization rate in order to calculate the present value of its property cash flows. The capitalization rate
represents a real estate valuation measure used to compare different real estate investments. The capitalization rate is calculated as the
ratio between the annual rental income produced by a real estate asset to its current market value.
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 twenty years and adjusted to reflect Management's
best estimate of market participants expectations.
SHIPMENTS
The assumptions used are based on the Corporation's internal budget for the next year and are usually held constant for the established
capacity, for new capacity the ramp up is considered over the forecast period. In arriving at its budgeted shipments, the Corporation
considers past experience, economic, 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.
34
2022 Annual Report
INCOME TAXES
B.
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 determined by actuaries 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.
D. GOODWILL, INTANGIBLE ASSETS AND BUSINESS COMBINATIONS
Goodwill and client lists have arisen as a result of business combinations. The acquisition method, which also requires significant
estimates and judgments, is used to account for these business combinations. As part of the allocation process in a business combination,
estimated fair values are assigned to the net assets acquired. These estimates are based on forecasts of future cash flows, estimates of
economic fluctuations and an estimated discount rate. The excess of the purchase price over the estimated fair value of the net assets
acquired is then assigned to goodwill. In the event that actual net assets fair values are different from estimates, the amounts allocated to
the net assets could differ from what is currently reported. This would then have a direct impact on the carrying value of goodwill.
Differences in estimated fair values would also have an impact on the amortization of definite life intangibles.
CONTROLS AND PROCEDURES
EVALUATION OF THE EFFECTIVENESS OF DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROLS 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”.
The purpose of internal controls over financial reporting (“ICFR”) is to provide reasonable assurance regarding the reliability of the
Corporation's financial reporting and the preparation of financial statements in accordance with IFRS. The President and Chief Executive
Officer and the Vice-President and Chief Financial Officer certify disclosures in annual and interim filings under Regulation 52-109 using
the internal control framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
During the year ended December 31, 2022, there were no changes in the Corporation’s ICFR that materially affected or are reasonably
likely to materially affect the Corporation’s ICFR.
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2022 Annual Report
RISK FACTORS
As part of its ongoing business operations, the Corporation is exposed to certain market risks, including risks ensuing from changes in
selling prices for its principal products, costs of raw materials, interest rates and foreign currency exchange rates, all of which impact the
Corporation’s financial position, operating results and cash flows. The Corporation manages its exposure to these and other market risks
through regular operating and financing activities and, on a limited basis, through the use of derivative financial instruments. We use these
derivative financial instruments as risk management tools, not for speculative investment purposes. The following is a discussion of key
areas of business risks and uncertainties that we have identified and our mitigating strategies. The risk areas below are listed in no
particular order, as risks are evaluated based on both severity and probability. Readers are cautioned that the following is not an
exhaustive list of all the risks we are exposed to, nor will our mitigation strategies eliminate all risks listed.
Risks relating to the Corporation’s business
Macroeconomic risks
Inflation surged during the year ending December 31, 2022 at levels unseen in the last decade, at least, and it represents a significant risk
to macroeconomic stability. The inflation phenomenon results in rising energy and commodity costs, global equity and capital markets may
experience significant volatility and weakness. The duration and impact are unknown at this time, nor is the impact on our operations and
the market for our securities. Prolonged periods of inflation could increase our costs and impact our profitability, which could have a
material adverse effect on our business and financial condition. High levels of inflation may subject us to significant cost pressures. As a
result, governments may adopt initiatives to combat inflation (for example, raising the benchmark interest rate), thus increasing our cost of
borrowing and decreasing the liquidity of capital markets. Our clients may have difficulty and may delay their payment for the acquired
goods. High inflation can lead to increased costs of labour and our employee compensation expenses. If our costs become subject to
significant inflationary pressures, we may not be able to fully offset such higher costs through price increases and there is no assurance
that our revenues will increase at the same rate to maintain the same level of profitability.
Although Cascades does not have direct activities in Russia or Ukraine, a prolonged armed conflict between the two countries or an
expansion of the armed conflict to other countries could have a materially adverse effect on world economies and on the Corporation in a
variety of ways, including: (i) a general decrease in consumer spending from lower confidence levels; (ii) severe price inflation;
(iii) disruptions in capital and financial markets; and (iv) an increase in cyber security risk.
If the Corporation does not successfully manage the demand, supply and operational challenges associated with the effects of
the pandemic or other similar widespread public health concerns, our results will be negatively impacted.
The Corporation’s business may be negatively impacted by the fear of exposure to, actual effects of, or government response to, the
pandemic, such as travel restrictions, business shutdowns or limitations, shelter-in-place orders, recommendations or mandates from
governmental authorities to avoid large gatherings or to self-quarantine as a result of the pandemic, or other shutdowns and restrictions.
These impacts include, but are not limited to:
•
•
•
•
Significant reductions in demand or significant volatility in demand for one or more of the Corporation’s products, which may be
caused by, among other things: quarantine or other travel restrictions, financial hardship, shifts in demand away from one or
more of the Corporation’s products, including our Away-from-Home products or our industrial packaging products, or consumer
stockpiling activity which may result in a decrease in demand for our products in one period as a result of excessive purchases of
the Corporation’s products in another period. If prolonged, these events further increase the difficulty of planning for operations
and may adversely impact the Corporation’s results;
Inability to meet the Corporation’s customers’ needs and achieve cost targets due to disruptions in the Corporation’s
manufacturing and supply arrangements caused by constrained workforce capacity or the loss or disruption of other significant
manufacturing or supply materials such as raw materials or other finished product components, transportation, or other
manufacturing and distribution capability. While the Corporation has not been required to do so to date, in the future the
Corporation may be required to limit or shutdown our manufacturing facilities to comply with any future, more stringent
government mandates, which may adversely impact the Corporation’s results;
Failure of third parties on which the Corporation relies, including its suppliers, contract manufacturers, distributors and other
contractors, to meet their obligations to the Corporation, or significant disruptions in their ability to do so, which may be caused
by their own financial or operational difficulties or their inability to deliver goods or services based on governmental restrictions or
other mandates and may adversely impact the Corporation’s operations;
Increased expenses related to the implementation of procedures to comply with governmental regulations and recommendations
and maintain the health and safety of the Corporation’s employees such as remote working (which, in turn, creates additional
cyber security risks), health screenings and enhanced cleaning and sanitation protocols. The Corporation could continue to incur
costs related to its mitigation efforts and it may have to enact additional, more expensive measures to continue to comply with
governmental regulations and recommendations, which may become more stringent in the future, in order to ensure the health
and safety of its employees; or
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2022 Annual Report
•
Government actions in one or more of the jurisdictions in which Cascades operates, resulting in Cascades no longer having the
benefits of being deemed an “essential business” (or other government actions undertaken to restrict the business activities of
businesses deemed essential) and, as a result, forcing the Corporation to scale back its operations or halt them entirely, or
government action resulting in any of our suppliers, contract manufacturers, distributors and other contractors no longer being
deemed essential and thus impacting the Corporation’s ability to deliver its products and services to its customers, which may
adversely impact its operations and results.
Despite the Corporation’s efforts to manage and remedy these impacts to the Corporation, their ultimate impact also depends on factors
beyond its control, including the duration and severity of the pandemic, as well as third-party actions taken to contain its spread and
mitigate its public health effects. The adverse effects described above may also apply to other epidemics, pandemics and other public
health emergencies.
To the extent the pandemic adversely affects the Corporation’s business, operations, financial condition and operating results, it may also
have the effect of heightening many of the other risks described in this “Risk Factors” section, such as those relating to the Corporation’s
high level of indebtedness, its need to generate sufficient cash flows to service its indebtedness, and its ability to comply with the
covenants contained in the agreements that govern its indebtedness.
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, are cyclical. As a result, prices for these types of products
and for its two principal raw materials, recycled paper and virgin fibre, have fluctuated significantly in the past and will likely continue to
fluctuate significantly in the future, principally due to market imbalances between supply and demand. Demand is heavily influenced by the
strength of the global economy and the countries or regions in which Cascades does business, particularly Canada and the United States,
the Corporation’s two primary markets. Demand is also influenced by fluctuations in inventory levels held by customers and consumer
preferences. Supply depends primarily on industry capacity and capacity utilization rates. In periods of economic weakness, reduced
spending by consumers and businesses results in decreased demand, which can potentially cause downward price pressure. Industry
participants may also, at times, add new capacity or increase capacity utilization rates, potentially causing supply to exceed demand and
exerting downward price pressure. In addition, in the event of depressed market prices for recycled paper, the availability of recycled paper
may decrease.
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 materials present a potential risk to the Corporation’s
profit margins in the event that it is unable to pass along price increases to its customers on a timely basis. Although changes in the price
of recycled fibre generally correlate with changes in the price of products made from recycled paper, this may not always be the case. If
Cascades were unable 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.
Cascades faces significant competition and some of its competitors may have greater cost advantages, 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 plastic and Styrofoam, which can lead to excess capacity, decreased
demand and pricing pressures.
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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:
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•
the Corporation’s ability to maintain high plant efficiencies, operating rates and lower manufacturing costs;
the availability, quality and cost of raw materials, particularly recycled and virgin fibre, as well as 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 materials at costs that may be lower than prices in the prevailing market. In contrast, competitors that are less integrated than
Cascades may have cost advantages in periods of relatively low pulp or fibre prices because they may be able to purchase pulp or fibre at
prices lower than the costs the Corporation incurs in the production process. Other competitors may be larger in size or scope than
Cascades, 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.
Because of the Corporation’s international operations, it faces political, social and exchange rate risks that can negatively affect
its supply chain, manufacturing capabilities, distribution activities, operating results, net earnings and financial condition.
The Corporation’s international operations present it with a number of risks and challenges, including:
•
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effective marketing of its products in other countries;
tariffs and other trade barriers;
different regulatory schemes and political environments applicable to the Corporation’s operations in areas such as
environmental and health and safety compliance; and
exposure to health epidemics and pandemics such as the ongoing coronavirus outbreak and other highly communicable
diseases or viruses.
Cascades has customers and operations located outside Canada. In 2022, approximately 52% of the Corporation’s consolidated sales
were in the United States. In 2022, 19% of sales from Canadian operations were made to the United States.
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. A decrease of the Canadian dollar against the U.S. dollar could adversely affect the
Corporation’s operating results and financial condition. As of December 31, 2022, the Corporation had, on a consolidated basis, total U.S.
dollar-denominated debt of US$1,320 million.
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 US dollar, it could affect
the profitability of the Corporation’s facilities, which could lead Cascades to shutdown facilities either temporarily or permanently, all of
which could adversely affect its business or financial results.
The Corporation uses various foreign exchange forward contracts and related currency option instruments to anticipate sales net of
purchases, interest expenses and debt repayment. These hedging instruments may not be effective in offsetting risks, may generate
losses or otherwise may adversely affect the Corporation’s financial results as compared to what its results would have been had the
hedges not been implemented.
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2022 Annual Report
The Corporation’s operations are subject to comprehensive environmental regulations and involve expenditures which 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:
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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 and Canada that holds companies accountable for the investigation and
remediation of hazardous substances. The Corporation, for some of our Québec plants, is 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. 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:
•
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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 persons, property or the environment.
Either of these possibilities 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, the
Corporation expects to incur ongoing capital and operating expenses in order to achieve and maintain compliance with applicable
environmental requirements.
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 all 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.
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2022 Annual Report
Labour disputes or shortages could have a material adverse effect on the Corporation’s cost structure and ability to run its mills
and plants as it depends on attracting and retaining qualified personnel.
As of December 31, 2022, the Corporation had approximately 10,000 employees, with approximately 30% of its workforce unionized. The
Corporation’s inability to negotiate acceptable contracts with its 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 flows. Of the 29 collective bargaining agreements, 8 have expired and are currently under negotiation, 9 will expire in 2023 and 8 will
expire in 2024.
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.
Cascades's success depends in part upon its ability to continue to attract and retain qualified management, regulatory, technical, and sales
and marketing executives and personnel in various geographical locations. The failure to attract, integrate, motivate and retain skilled and
qualified personnel could have a material adverse effect on the business. The Corporation competes for such personnel against numerous
companies. There can be no assurance that it will be successful in attracting or retaining such personnel and the failure to do so could
have a material adverse effect on our financial condition and results of operations.
Cascades may make investments in entities that it does not fully 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 participation in subsidiaries are:
•
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two 50%-owned joint ventures with Sonoco Products Corporation, of which one is in Canada (two plants) and one is in the United
States (two plants), that produce specialty paper packaging products such as headers, rolls and wrappers; and
a 79.90%-owned subsidiary, Greenpac Holding LLC, a North American manufacturer of linerboard. The percentage including
indirect ownership stands at 86.35% for consolidation and accounting purposes (see Note 8 of the 2022 Audited Consolidated
Financial Statements for more details).
Apart from Greenpac Holding LLC, Cascades does not have 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 fail to observe their 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 indebtedness 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.
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2022 Annual Report
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:
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difficulties in integrating and managing newly acquired operations and improving their operating efficiency;
difficulties 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 company;
disruptions to the Corporation’s ongoing business; and
diversion of management time and resources.
In addition, future acquisitions could result in Cascades' incurring additional debt to finance the acquisition or possibly assuming additional
debt as part of it, as well as costs, contingent liabilities and amortization expenses. The Corporation may also incur costs and divert
Management's attention for potential acquisitions that are never consummated. For acquisitions Cascades does consummate, expected
synergies may not materialize. The Corporation’s failure to effectively address any of these issues could adversely affect its operating
results, financial condition and ability to service debt, including its outstanding senior notes.
Although Cascades performs a due diligence investigation of the businesses or assets that it acquires and anticipates continuing to do so
for future acquisitions, the acquired business or assets may have liabilities that Cascades fails or is unable to uncover during its due
diligence investigation and for which the Corporation, as a successor owner, may be responsible. When feasible, the Corporation seeks to
minimize the impact of these types of potential liabilities by obtaining indemnities and warranties from the seller, which may in some
instances be supported by deferring payment of a portion of the purchase price. However, these indemnities and warranties, if obtained,
may not fully cover the liabilities because of their limited scope, amount or duration, or the financial resources of the indemnitor or
warrantor, or for other reasons.
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 undertakes 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.
Messrs. Bernard, Laurent and Alain Lemaire and their families (the “Lemaires”) collectively own a significant percentage of the
common shares.
The Lemaires collectively own a significant percentage of the common shares of the Corporation and there may be situations in which their
interests and the interests of other holders of shares do not align. There is no formal agreement among the Lemaires with respect to the
voting of their common shares and, over the past few years, the control of their shares has become more dispersed within their respective
families. However, because the Corporation’s remaining shares are widely held, the Lemaires may still effectively be able to influence:
•
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•
the election of all of the Corporation’s directors and, as a result, control matters requiring board approval;
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
the Corporation’s business direction and policies.
If Cascades is not successful in retaining or replacing its key personnel, including its President and Chief Executive Officer, its
Vice-President and Chief Financial Officer, its Chief of Strategy and Legal Affairs, 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.
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2022 Annual Report
Cascades’ business activities, intellectual property, operating results and financial position could suffer if Cascades is unable to
protect its information systems against, or effectively respond to, cyber-attacks or other cyber incidents.
The Corporation relies on information technology, other computer resources and its employees to process, transmit and store electronic
data in its daily business activities and to carry out important operational and marketing activities. Despite the implementation of security
measures, the Corporation’s technology systems and those of third parties on which it relies, are vulnerable to damage, disability or failure
due to computer viruses, malware or other harmful circumstance, intentional penetration or disruption of the Corporation’s information
technology resources by a third party, natural disasters, hardware or software corruption or failure or error (including a failure of security
controls incorporated into or applied to such hardware or software), telecommunications system failure, service provider error or failure,
intentional or unintentional personnel actions (including the failure to follow its security protocols), or lost connectivity to its networked
resources. A significant and extended disruption in the functioning of these resources would result in an interruption of the Corporation’s
operations and could damage its reputation and cause the Corporation to lose customers, sales and revenue.
In addition, security breaches involving the Corporation’s systems or third-party providers may occur, such as unauthorized access, denial
of service, computer viruses and other disruptive problems caused by hackers. This could result in the unintended public disclosure or the
misappropriation of proprietary, personal and confidential information or in the inability to access company data (including due to
ransomware), and require the Corporation to incur significant expense to address and resolve these kinds of issues. The release of
confidential information may also lead to identity theft and related fraud, litigation or other proceedings against the Corporation by affected
individuals and/or business partners and/or by regulators and the outcome of such proceedings, which could include penalties or fines,
could have a material and adverse effect on its business activities, intellectual property, operating results and financial condition. The
occurrence of any of these incidents could result in adverse publicity, loss of consumer confidence or employees, and reduced sales and
profits. In addition, the costs of maintaining adequate protection against such threats, including potentially higher insurance costs, as they
develop rapidly in the future (or as legal requirements related to data security increase) could be material. Cyber security represents a
company-wide challenge and the related risks are part of the enterprise risk management program that is presented to the Corporation’s
audit and finance committee.
As a result of the foregoing, the Corporation may have to modify its business systems and practices with the goal of further improving data
security, which would result in increased expenditures and operating complexity. Although the Corporation has to date not experienced any
material losses relating to cyber-attacks or other information security breaches, there can be no assurance that it will not incur such losses
in the future. The Corporation’s risk and exposure to these matters cannot be fully mitigated because of, among other things, the evolving
nature of these threats. As cyber threats continue to evolve, the Corporation may be required to expend additional resources to continue to
modify or enhance protective measures or to investigate and remediate any security vulnerabilities.
Climate change could negatively affect Cascades’ business and operations.
There is concern that carbon dioxide and other greenhouse gases in the atmosphere have an adverse impact on global temperatures,
weather patterns and the frequency and severity of extreme weather and natural disasters. 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 or extreme weather conditions, such as a
hurricane, tornado, earthquake or flooding, may disrupt the productivity of the Corporation’s facilities or the operation of its supply chain
and unfavourably impact the demand for or its consumers’ ability to purchase, its products. Further, climate changes could require higher
remediation and insurance costs for the Corporation.
Concern over climate change may result in new or increased regional, federal and/or global legal and regulatory requirements to reduce or
mitigate the effects of greenhouse gases or to limit or impose additional costs on commercial water use due to local water scarcity
concerns. In the event that such regulation is more stringent than current regulatory obligations or the measures that the Corporation is
currently undertaking to monitor and improve its energy efficiency and water conservation, the Corporation may experience disruptions in,
or significant increases in its costs of, operation and delivery and the Corporation may be required to make additional investments in
facilities and equipment or relocate its facilities. In particular, increasing regulation of fuel emissions could substantially increase the cost of
energy, including fuel, required to operate the Corporation’s facilities or transport and distribute its products, thereby substantially
increasing the distribution and supply chain costs associated with its products. As a result, the effects of climate change could negatively
affect the Corporation’s business and operations.
There is also increased focus, including by governmental and non-governmental organizations, investors, customers and consumers on
environmental sustainability matters, including deforestation, land use, climate impact, water use and recyclability or recoverability of
packaging, including plastic. The Corporation’s reputation could be damaged if it or others in its industry do not act, or are perceived not to
act, responsibly with respect to the Corporation’s impact on the environment.
42
2022 Annual Report
Risks relating to the Corporation’s indebtedness
The significant amount of the Corporation’s debt could adversely affect its financial health and prevent it from fulfilling its
obligations under its outstanding indebtedness.
The Corporation has a significant amount of debt. As of December 31, 2022, it had $1,966 million of net debt1 outstanding on a
consolidated basis, including lease obligations of $208 million and net cash and cash equivalents of $102 million.
The Corporation’s leverage could have major consequences for holders of its 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.
The Corporation’s ability to service its indebtedness will depend on its ability to generate cash in the future. The Corporation cannot
provide assurance that its business will generate sufficient cash flow from operations or that future borrowings will be available in an
amount sufficient to enable it to service its indebtedness or to fund other liquidity needs. Additionally, if the Corporation is not in compliance
with the covenants and obligations under its debt instruments, it would be in default, and the lenders could call the debt, which would have
a material adverse effect on its business.
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 the Corporation is substantially leveraged, it and its subsidiaries will be able to incur substantial additional indebtedness in the
future. Although its credit facility and the indentures governing the notes restrict the Corporation and its restricted subsidiaries from
incurring additional debt, these restrictions are subject to important exceptions and qualifications. As of December 31, 2022, the
Corporation had $385 million (net of letters of credit in the amount of $15 million) available on its $750 million revolving credit facility
(excluding the credit facilities of our subsidiary Greenpac). If the Corporation or its subsidiaries incur additional debt, the risks that it and
they now face as a result of its 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:
•
•
•
•
•
•
•
•
•
•
•
incur debt;
pay dividends on stock, repurchase stock or redeem 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 (solely in the case of the
Corporation’s credit facility);
enter into transactions with affiliates;
create or assume liens securing debt;
sell or transfer lease back transactions;
engage in mergers or consolidations; and
enter into a sale of all or substantially all of our assets.
1 Please refer to the “Supplemental Information on Non-IFRS Measures and Other Financial Measures” section for a complete reconciliation.
43
2022 Annual Report
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
joint ventures, minority investments and unrestricted subsidiaries.
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 refinance or restructure the payments on the applicable debt. Even if the Corporation were able to secure additional financing, it
might 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 the covenants in its debt instruments and could require it to take actions to reduce its debt or
to act in a manner contrary to its current business objectives.
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, minority investments or unrestricted subsidiaries. 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 refinancing or re-structuring its debt, selling assets, reducing or delaying capital investments, or seeking to raise
additional capital. Refinancing 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 refinance 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.
44
2022 Annual Report
Variable rate indebtedness subjects Cascades to interest rate risk, which could cause its debt service obligations to
increase significantly.
The Corporation’s borrowings under its credit facility bear interest at variable rates and, accordingly, expose the Corporation to interest rate
risk. If interest rates increase, our debt service obligations on our variable rate indebtedness could increase even though the amount
borrowed remained the same and our net income could decrease. The applicable margin with respect to the loans under the Corporation’s
credit facility is a percentage per annum equal to a reference rate plus the applicable margin. In order to manage its exposure to interest
rate risk, the Corporation may in the future enter into derivative financial instruments, typically interest rate swaps and caps, involving the
exchange of floating for fixed rate interest payments. If the Corporation is unable to enter into interest rate swaps, it may adversely affect
its cash flow and may impact its ability to make required principal and interest payments on its indebtedness.The LIBOR, as a benchmark
for establishing the applicable interest rate, will be abandoned in July 2023 and is being replaced by the Secured Overnight Financing Rate
(SOFR). For all the outstanding variable rate indebtedness agreements, except one, the Corporation adopted SOFR for establishing its
interest rate, this did not have any significant impact on the cost of servicing the debt. The only agreement left to transition to SOFR from
LIBOR, is the loan that matures on December 11, 2023 and bears interest at a rate determined by the leverage ratio of the subsidiary
holding the debt as defined in its credit agreement.
Risks related to the common shares
The market price of the common shares may fluctuate and purchasers may not be able to resell the common shares at or above
the Offering 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 and related uncertainty, many of
which are beyond the Corporation’s control. 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.
Payments of dividends
Any decision to pay dividends on the common shares is subject to the discretion of the Board of Directors and based on, among other
things, Cascades’ earnings and financial requirements for operations, the satisfaction of applicable solvency tests for the declaration and
payment of dividends and other conditions existing from time to time. As a result, no assurance can be given as to whether Cascades will
declare and pay any dividends in the future, or the frequency or amount of any such dividend.
Potential dilution
The Corporation’s articles permit the issuance of an unlimited number of common shares and an unlimited number of Class A and Class B
preferred shares, issuable in series. In order to successfully complete targeted acquisitions or to fund its other activities, the Corporation
may issue additional equity securities that could dilute share ownership. The dilutive effect of these issuances may adversely affect the
Corporation’s ability to obtain additional capital or impair the Corporation’s share price.
CONTINGENCIES
ENVIRONMENTAL COSTS
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 lead the working group and they are developing 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 has recorded an environmental reserve to address its estimated exposure for this matter.
LEGAL CLAIMS
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 of December 31, 2022 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.
45
2022 Annual Report
SUPPLEMENTAL INFORMATION ON NON-IFRS MEASURES AND OTHER FINANCIAL
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 that of other corporations and some of these items 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 repurchase of long-term debt, 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 and option fair value revaluation, foreign exchange gains or losses on long-term debt and financial instruments, fair value
revaluation gains or losses on investments, specific items of discontinued operations and other significant items of an unusual, non-cash or
non-recurring nature.
RECONCILIATION AND USES OF NON-IFRS AND OTHER FINANCIAL 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 and capital measures, as well as 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. This also increases the transparency and clarity of the financial information. The following non-IFRS measures and other
financial measures are used in our financial disclosures:
Non-IFRS measures
•
•
•
•
Adjusted earnings before interest, taxes, depreciation and amortization or EBITDA (A): Used to assess operating performance and
the contribution of each segment on a comparable basis.
Adjusted net earnings: Used to assess the Corporation’s consolidated financial performance on a comparable basis.
Adjusted cash flow: Used to assess the Corporation’s capacity to generate cash flows to meet financial obligations and/or
discretionary items such as share repurchase, dividend increase and strategic investments.
Free cash flow: Used to measure the excess cash the Corporation generates by subtracting capital expenditures (excluding strategic
projects) from the EBITDA (A).
• Working capital: Used to assess the short-term liquidity of the Corporation.
Other financial measures
•
Total debt: Used to calculate all the Corporation’s debt, including long-term debt and bank loans. Often put in relation to equity to
calculate the debt-to-equity ratio.
Net debt: Used to calculate the Corporation’s total debt less cash and cash equivalents. Often put in relation to EBITDA (A) to
calculate net debt to EBITDA (A) ratio.
•
Non-IFRS ratios
•
•
•
Net debt to EBITDA (A) ratio: Used to assess the Corporation’s ability to pay its debt and evaluate financial leverage.
EBITDA (A) margin: Used to assess operating performance and the contribution of each segment on a comparable basis calculated
as a percentage of sales.
Adjusted net earnings per common share: Used to assess the Corporation’s consolidated financial performance on a
comparable basis.
Net debt / Net debt + Shareholders’ equity: Used to evaluate the Corporation’s financial leverage and thus the risk to Shareholders.
•
• Working capital as a percentage of sales: Used to assess the Corporation’s operating liquidity performance.
•
•
Adjusted cash flow per common share: Used to assess the Corporation’s financial flexibility.
Free cash flow ratio: Used to measure the liquidity and efficiency of how much more cash the Corporation generates than it uses to
run the business by subtracting capital expenditures (excluding strategic projects) from the EBITDA (A) calculated as a percentage
of sales.
46
2022 Annual Report
Non-IFRS and other financial 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 and other financial measures may differ from
those of other corporations. Any such modification or reformulation may be significant.
During the year ended December 31, 2022, the CODM assesses the performance of each reportable segment based on sales and
earnings before interest, taxes, depreciation and amortization, adjusted to exclude specific items (EBITDA (A)). The CODM considers
EBITDA (A) to be the best performance measure of the Corporation's activities.
The reconciliation of operating income (loss) to EBITDA (A) by business segment is as follows:
(in millions of Canadian dollars) (unaudited)
Operating income (loss)
Depreciation and amortization
Impairment charges
Gain on acquisitions, disposals and others
Restructuring costs
Unrealized gain on derivative financial instruments
EBITDA (A)
(in millions of Canadian dollars) (unaudited)
Operating income (loss)
Depreciation and amortization
Impairment charges
Gain on acquisitions, disposals and others
Restructuring costs
Unrealized loss (gain) on derivative financial instruments
EBITDA (A)
(in millions of Canadian dollars) (unaudited)
Operating income (loss)
Depreciation and amortization
Impairment charges
Gain on acquisitions, disposals and others
Restructuring costs
Unrealized loss (gain) on derivative financial instruments
EBITDA (A)
(in millions of Canadian dollars) (unaudited)
Operating income (loss)
Depreciation and amortization
Impairment charges
Gain on acquisitions, disposals and others
Restructuring costs
Unrealized loss on derivative financial instruments
EBITDA (A)
For the 3-month period ended December 31, 2022
Containerboard
Specialty
Products
Tissue Papers
Corporate
Activities
Consolidated
85
30
8
—
—
(4)
119
22
5
3
(10)
—
—
20
(86)
(41)
17
75
—
2
—
8
10
—
—
—
—
(31)
(20)
62
86
(10)
2
(4)
116
For the 3-month period ended December 31, 2021
Containerboard
Specialty
Products
Tissue Papers
Corporate
Activities
Consolidated
43
28
1
—
—
(2)
70
17
4
—
—
—
—
21
(115)
(35)
17
87
(1)
6
—
(6)
11
—
—
—
1
(23)
(90)
60
88
(1)
6
(1)
62
2022
Containerboard
Specialty
Products
Tissue Papers
Corporate
Activities
Consolidated
266
118
10
—
—
7
401
86
19
3
(16)
—
—
92
(175)
(144)
74
89
(4)
3
—
(13)
41
—
—
—
(1)
(104)
33
252
102
(20)
3
6
376
Containerboard
Specialty
Products
Tissue Papers
230
120
1
—
4
17
372
59
15
—
—
—
—
74
(108)
70
88
(40)
17
—
27
Corporate
Activities
(131)
47
—
—
—
—
(84)
2021
Consolidated
50
252
89
(40)
21
17
389
47
2022 Annual Report
The following table reconciles net earnings (loss) and net earnings (loss) per common share, as reported, with adjusted net earnings (loss)
and adjusted net earnings (loss) per common share:
(in millions of Canadian dollars, except per common share amounts and number
of common shares) (unaudited)
As reported
Specific items:
Impairment charges
Gain on acquisitions, disposals and others
Restructuring costs
Unrealized loss (gain) on derivative financial instruments
Loss on repurchase of long-term debt
Unrealized loss on options fair value
Foreign exchange loss (gain) on long-term debt and
financial instruments
Included in discontinued operations, net of tax
Tax effect on specific items, other tax adjustments and
attributable to non-controlling interests1
Adjusted
Weighted average basic number of common shares
outstanding
NET EARNINGS (LOSS)
NET EARNINGS (LOSS)
PER COMMON SHARE1
For the 3-month periods
ended December 31,
For the years
ended December 31,
For the 3-month periods
ended December 31,
For the years
ended December 31,
2022
(27)
2021
105
2022
(34)
2021
162
2022
($0.27)
2021
$1.04
2022
($0.34)
2021
$1.60
86
(10)
2
(4)
—
—
(3)
—
(22)
49
22
88
(1)
6
(1)
20
1
—
(204)
(23)
(114)
(9)
102
(20)
89
$0.64
$0.74
$0.76
$0.75
(40)
($0.09)
($0.01)
($0.17)
($0.32)
3
6
—
—
9
—
21
17
20
1
$0.02
$0.04
($0.03)
($0.01)
—
—
$0.13
—
—
(3)
($0.02)
(224)
—
($2.02)
$0.03
$0.04
—
—
$0.08
—
$0.15
$0.11
$0.13
—
($0.02)
($2.14)
(29)
(16)
($0.03)
—
($0.03)
—
71
37
(135)
27
$0.49
$0.22
($1.13)
($0.09)
$0.71
$0.37
($1.34)
$0.26
100,361,627 100,858,870 100,647,972 101,884,051
The following table reconciles cash flow from operating activities from continuing operations with EBITDA (A):
(in millions of Canadian dollars) (unaudited)
Cash flow from operating activities from continuing operations
Changes in non-cash working capital components
Net income taxes paid (received)
Net financing expense paid
Premium and transaction fees paid on long-term debt redemption
Provisions for contingencies and charges and other liabilities, net of dividends received
EBITDA (A)
For the 3-month periods
ended December 31,
For the years
ended December 31,
2022
196
(96)
—
15
—
1
116
2021
69
(49)
—
11
24
7
62
2022
144
116
5
87
—
24
376
2021
211
36
(2)
96
24
24
389
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 (recovery of) income taxes” section
for more details.
48
2022 Annual Report
The following table reconciles cash flow from operating activities from continuing operations with cash flow from operating activities from
continuing operations (excluding changes in non-cash working capital components) and adjusted cash flow from operating activities from
continuing operations. It also reconciles adjusted cash flow from operating activities from continuing operations to adjusted cash flow used,
which is also calculated on a per common share basis:
For the 3-month periods
ended December 31,
For the years
ended December 31,
(in millions of Canadian dollars, except per common share amounts or as otherwise noted) (unaudited)
Cash flow from operating activities from continuing operations
Changes in non-cash working capital components
Cash flow from operating activities from continuing operations (excluding
changes in non-cash working capital components)
Restructuring costs paid
Premium and transaction fees paid on long-term debt redemption
Specific items paid
Adjusted cash flow from operating activities from continuing operations
Payments for property, plant and equipment
Change in intangible and other assets
Lease obligation payments
Proceeds from disposals of property, plant and equipment
Dividends paid to non-controlling interests
Dividends paid to the Corporation's Shareholders
Adjusted cash flow used
2022
196
(96)
100
3
—
3
103
(160)
(2)
(15)
11
(63)
(4)
(12)
(79)
2021
69
(49)
20
7
24
31
51
(95)
(1)
(12)
2
(55)
(4)
(12)
(71)
Adjusted cash flow used per common share (in Canadian dollars)
($0.79)
($0.70)
2022
144
116
260
12
—
12
272
(501)
(5)
(55)
19
(270)
(13)
(48)
(331)
($3.29)
2021
211
36
247
25
24
49
296
(286)
(15)
(47)
53
1
(14)
(41)
(54)
($0.53)
Weighted average basic number of common shares outstanding
100,361,627
100,858,870
100,647,972
101,884,051
The following table reconciles payments for property, plant and equipment, excluding strategic projects and free cash flow. It also provides
these two metrics as a percentage of sales:
(in millions of Canadian dollars) (unaudited)
Sales
EBITDA (A)
Payments for property, plant and equipment
Less: strategic projects included above1
Payments for property, plant and equipment, excluding strategic projects
Free cash flow: EBITDA (A) less payments for property plant and equipment, excluding strategic projects
Free cash flow / Sales
Payments for property, plant and equipment, excluding strategic projects / Sales
2022
4,466
376
501
(335)
166
210
4.7%
3.7%
2021
3,956
389
286
(101)
185
204
5.2%
4.7%
1 Strategic projects include the investment for the Bear Island construction project.
49
2022 Annual Report
The following table reconciles working capital as reported:
(in millions of Canadian dollars) (unaudited)
Accounts receivable
Inventories
Trade and other payables
Working capital
December 31, 2022
December 31, 2021
556
587
(746)
397
510
494
(707)
297
December 31, 20201
659
569
(861)
367
The following table reconciles total debt and net debt with the ratio of net debt to adjusted earnings before interest, taxes, depreciation and
amortization (EBITDA (A)):
(in millions of Canadian dollars, except ratios) (unaudited)
Long-term debt
Current portion of other debts without recourse to the Corporation to be refinanced
Current portion of long-term debt
Bank loans and advances
Total debt
Less: Cash and cash equivalents
Net debt as reported
Last twelve months EBITDA (A) (before discontinued operations for the year ended December 31, 2020)
Net debt / EBITDA (A) ratio
SPECIFIC ITEMS
The Corporation incurred the following specific items in 2022 and 2021:
December 31, 2022
December 31, 2021
1,931
67
67
3
2,068
(102)
1,966
376
5.2x
1,450
—
74
1
1,525
(174)
1,351
389
3.5x
December 31, 20201
1,949
—
102
12
2,063
(384)
1,679
675
2.5x
IMPAIRMENT CHARGES
2022
The Containerboard Packaging segment recorded an impairment charge of $10 million ($8 million in the fourth quarter) on some property,
plant and equipment related to the closure of a plant in Canada and to unused assets in Canada and the USA. The recoverable amount
was determined using the market approach of comparable assets on the market.
The Specialty Products segment recorded an impairment charge of $3 million in the fourth quarter on goodwill, related to the closure of a
plant in USA. The recoverable amount of goodwill was determined using an income approach.
The Tissue Papers segment recorded an impairment charge of $4 million on spare parts and $10 million on some property, plant and
equipment related to the permanent closure of a plant in the USA. The recoverable amount was determined using the market approach of
comparable assets on the market.
The Tissue Papers segment also recorded, in the fourth quarter, an impairment charge of $55 million on machinery and equipment related
to assets acquired in 2019 in the USA due to slower ramp-up and lower efficiency than expected. The recoverable amount was determined
using the market approach of comparable assets on the market. For the same plants, an impairment charge related to buildings of
$20 million was recorded. The recoverable amount was established using the income method over a period of 20 years and a
capitalization rate of 7.25%.
2021
The Containerboard Packaging segment recorded an impairment charge of $1 million in the fourth quarter on an asset that became idle
following the introduction of a new technology. The recoverable amount was lower than its carrying amount, which was based on its fair
value less cost of disposal determined using the market approach of comparable assets on the market.
The Tissue Papers segment recorded an impairment charge of $1 million on spare parts related to closed plants.
1 Not adjusted for retrospective reclassification of discontinued operations.
50
2022 Annual Report
The market dynamic led to lower than usual volumes in the Tissue Papers segment. Specifically, volume impacts in the Away-from-Home
market began in the second quarter of 2020, while lower volumes in the Consumer Products market started in the second quarter of 2021
following higher than usual demand in the prior year. The current market dynamic led the Corporation to record an impairment charge
totaling $71 million in the fourth quarter on goodwill and other intangible assets reflecting uncertainty about the recoverable amount of the
segment compared to its carrying value. The Tissue Papers segment also recorded an impairment charge of $16 million in the fourth
quarter on property, plant and equipment of one of its United States CGUs due to sustained difficult market conditions and assets
underperformance. The recoverable amount of these assets was determined using the market approach of comparable assets on the
market EBITDA multiple or an income approach.
GAIN ON ACQUISITIONS, DISPOSALS AND OTHERS
2022
The Specialty Products segment recorded a $16 million ($10 million in the fourth quarter) gain from the sale of lands and a building related
to closed plants in Canada.
The Tissue Papers segment recorded a $4 million gain from the settlement of a supply agreement.
2021
The Tissue Papers segment recorded a $40 million ($1 million in the fourth quarter) gain from the sale of buildings related to closed plants
in the USA and in Canada.
RESTRUCTURING COSTS
2022
The Tissue Papers segment recorded additional costs totaling $3 million ($2 million in the fourth quarter) related to asset relocation and
severances.
2021
The Containerboard Packaging segment recorded severance charges totaling $3 million as part of the margin improvement program.
The Containerboard Packaging segment also recorded closure costs totaling $1 million related to the closure of plants in Ontario, Canada.
The Tissue Papers segment recorded additional costs totaling $17 million ($6 million in the fourth quarter) related to asset relocation and
severances.
UNREALIZED LOSS ON DERIVATIVE FINANCIAL INSTRUMENTS
In 2022, the Corporation recorded an unrealized loss of $6 million ($4 million unrealized gain in the fourth quarter), compared to an
unrealized loss of $17 million ($1 million unrealized gain in the fourth quarter) in 2021, on certain derivative financial instruments not
designated for hedge accounting. The Containerboard Packaging segment recorded an unrealized loss of $7 million in 2022 and
$17 million in 2021 is due to a steam contract embedded derivatives related to our Niagara Falls containerboard complex. Corporate
Activities recorded an unrealized gain of $1 million in 2022 due to the financial hedging contracts for natural gas purchases.
LOSS ON REPURCHASE OF LONG-TERM DEBT
In the fourth quarter of 2021, the Corporation redeemed US$144 million ($180 million) and US$155 million ($192 million) of its 2026 and
2028 unsecured senior notes, respectively, and paid an early repurchase premium totaling US$18 million ($22 million) and wrote off
$4 million of unamortized financing costs and $8 million of unamortized issuance premium related to these notes. The Corporation also
paid transaction fees totaling $2 million.
UNREALIZED LOSS ON OPTIONS FAIR VALUE
In the fourth quarter of 2021, the Corporation recorded an unrealized loss of $1 million, pertaining to a call option granted to the
Corporation by one of the minority shareholders of Falcon Packaging LLC.
FOREIGN EXCHANGE LOSS (GAIN) ON LONG-TERM DEBT AND FINANCIAL INSTRUMENTS
In 2022, the Corporation recorded a loss of $9 million ($3 million gain in the fourth quarter) on its US$ denominated debt and related
financial instruments, compared to a gain of $3 million (nil in the fourth quarter) in 2021. This is composed of foreign exchange forward
contracts not designated for hedge accounting.
SPECIFIC ITEMS INCLUDED IN RECOVERY OF INCOME TAXES
In the fourth quarter of 2022, the Corporation recorded a $3 million deferred tax benefit as a result of a tax election related to the
discontinued operations realized in 2021.
51
2022 Annual Report
SPECIFIC ITEMS INCLUDED IN DISCONTINUED OPERATIONS
2021
The Boxboard Europe segment recorded a $2 million loss from the sale of all the shares of its French subsidiary which produces virgin
fibre-based boxboard. The Boxboard Europe segment also recorded an $18 million gain from a business acquisition. The segment also
recorded an unrealized gain on financial instruments of $6 million (before income tax of $2 million).
In the fourth quarter, the Corporate Activities recorded a gain of $228 million (before income tax of $24 million) from the sale of its 57.6%
controlling equity interest in Reno de Medici S.p.A. (RDM).
Please refer to the “Discontinued Operations” section and Note 5 of the 2022 Audited Consolidated Financial Statements for more details.
DISCONTINUED OPERATIONS
On July 5, 2021, the Corporation announced the monetization of its 57.6% controlling equity interest in Reno de Medici S.p.A. (RDM) for
an amount per share of €1.45, or $462 million including foreign exchange contracts and before related transaction fees of $12 million. The
transaction closed on October 26, 2021. The Corporation recorded a gain of $228 million before income taxes of $24 million. The
Corporation used tax assets to offset this tax expense, resulting in no income tax payable on this transaction. The operations are
presented as discontinued operations since the second quarter of 2021 with reclassification of the first quarter of 2021, as well as the
comparative years.
On February 15, 2021, the Boxboard Europe segment, via its ownership in Reno de Medici S.p.A., announced the sale of all the shares of
its French subsidiary which produces virgin fibre-based boxboard. The transaction was closed on April 30, 2021 and resulted in a loss of
$2 million, which is presented within the results from discontinued operations of the Boxboard Europe segment.
See the “Business Highlights” section and Note 5 of the 2022 Audited Consolidated Financial Statements for all details regarding the
discontinued operations.
52
2022 Annual Report HISTORICAL FINANCIAL INFORMATION
(in millions of Canadian dollars, unless otherwise noted) (unaudited)
Sales
Packaging Products
Containerboard
Specialty Products
Inter-segment sales
Tissue Papers
Inter-segment sales and Corporate Activities
Total
2020
2021
2022
YEAR
Q1
Q2
Q3
Q4
YEAR
Q1
Q2
Q3
Q4
YEAR
1,918
473
(18)
2,373
1,615
117
4,105
503
122
(7)
618
292
32
942
497
131
(7)
621
297
38
956
507
144
(10)
641
344
45
1,030
502
151
(8)
645
339
44
1,028
2,009
548
(32)
2,525
1,272
159
3,956
534
157
(8)
683
314
41
1,038
569
168
(10)
727
342
50
1,119
595
168
(11)
752
382
40
1,174
567
161
(7)
721
384
30
1,135
2,265
654
(36)
2,883
1,422
161
4,466
Operating income (loss)
292
44
23
73
(90)
50
(4)
32
25
(20)
33
EBITDA (A)1
Packaging Products
Containerboard
Specialty Products
Tissue Papers
Corporate Activities
Total
Margin (EBITDA (A) / Sales) (%)1
Net earnings (loss)
Adjusted1
Net earnings (loss) from continuing operations per basic
common share (in Canadian dollars)
Net earnings (loss) from discontinued operations per
basic common share (in Canadian dollars)
Net earnings (loss) per common share (in Canadian
dollars)
Basic
Diluted
Basic, adjusted1
403
60
463
175
(92)
546
108
18
126
20
(24)
122
13.3%
13.0%
100
18
118
1
(21)
98
10.3%
94
17
111
12
(16)
107
10.4%
70
21
91
(6)
(23)
62
6.0%
372
74
446
27
(84)
389
9.8%
80
22
102
(17)
(27)
58
5.6%
99
25
124
(8)
(25)
91
8.1%
103
25
128
4
(21)
111
119
20
139
8
(31)
116
401
92
493
(13)
(104)
376
9.5%
10.2%
8.4%
198
187
22
29
3
8
32
(1)
105
(9)
162
27
(15)
(15)
10
10
(2)
20
(27)
22
(34)
37
$1.74
$0.17
$0.04
$0.18
($0.98)
($0.59)
($0.15)
$0.10
($0.02)
($0.27)
($0.34)
$0.30
$0.05
($0.02)
$0.14
$2.02
$2.19
—
—
—
—
—
$2.04
$2.02
$1.95
$0.22
$0.22
$0.29
$0.02
$0.02
$0.07
$0.32
$0.32
($0.01)
$1.04
$1.03
($0.09)
$1.60
$1.59
$0.26
($0.15)
($0.15)
($0.15)
—
$0.10
$0.10
$0.10
($0.02)
($0.02)
$0.20
($0.27)
($0.27)
$0.22
($0.34)
($0.34)
$0.37
Cash flow from operating activities (excluding
changes in non-cash working capital components)
Net debt1
Net debt / EBITDA (A) (LTM) ratio1,2
458
1,679
82
1,654
87
1,707
58
1,760
20
1,351
247
1,351
19
1,549
81
1,712
60
2,011
100
1,966
260
1,966
2.5x
2.5x
3.5x
3.8x
3.5x
3.5x
4.8x
5.4x
6.2x
5.2x
5.2x
1 Please refer to the “Supplemental Information on Non-IFRS Measures and Other Financial Measures” section for a complete reconciliation.
2 LTM (last twelve months) and before discontinued operations for the year ended December 31,2020.
53
2022 Annual Report
MANAGEMENT REPORT
TO THE SHAREHOLDERS OF CASCADES INC.
February 22, 2023
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 (IASB) 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.
An 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.
/s/ Mario Plourde
MARIO PLOURDE
/s/ Allan Hogg
ALLAN HOGG
PRESIDENT AND CHIEF EXECUTIVE OFFICER
KINGSEY FALLS, CANADA
VICE-PRESIDENT AND CHIEF FINANCIAL OFFICER
KINGSEY FALLS, CANADA
54
2022 Annual Report
Independent auditor report
To the Shareholders of Cascades Inc.
Our opinion
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of
Cascades Inc. and its subsidiaries (together, the Corporation) as at December 31, 2022 and 2021, and its financial performance and its
cash flows for the years then ended in accordance with International Financial Reporting Standards as issued by the International
Accounting Standards Board (IFRS).
What we have audited
The Corporation’s consolidated financial statements comprise:
•
•
•
•
•
•
the consolidated balance sheets as at December 31, 2022 and 2021;
the consolidated statements of earnings (loss) for the years then ended;
the consolidated statements of comprehensive income for the years then ended;
the consolidated statements of equity for the years then ended;
the consolidated statements of cash flows for the years then ended; and
the notes to consolidated financial statements, which include significant accounting policies and other explanatory information.
Basis for opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards
are further described in the Auditor’s responsibilities for the audit of the consolidated financial statements section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We are independent of the Corporation in accordance with the ethical requirements that are relevant to our audit of the consolidated
financial statements in Canada. We have fulfilled our other ethical responsibilities in accordance with these requirements.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial
statements for the year ended December 31, 2022. These matters were addressed in the context of our audit of the consolidated financial
statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
Key audit matter
Impairment assessment of property, plant and equipment
Refer to note 2 – Summary of significant accounting policies, note
4 – Critical accounting estimates and judgments and note 23 –
Impairment charges, restructuring costs and other loss (gain).
Total net book value of property, plant and equipment amounted to
$2,945 million as at December 31, 2022. At the end of each
reporting period, management 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. When the recoverable
amount of an asset or cash-generating unit (CGU) is lower than the
carrying amount, the carrying amount is reduced to the recoverable
amount. A CGU is the lowest level of a group of assets for which
there are separately identifiable cash inflows. The recoverable
amount is the higher of fair value less cost of disposal and value in
use of an asset or CGU. The recoverable amount of each asset or
CGU is determined by management using the fair value less cost
of disposal based on the market approach if a market exists or the
income approach. In determining the recoverable amount of an
asset or CGU based on the market approach, management used
the value of comparable assets on the market and applied a high
degree of judgment in determining the value of comparable assets
on the market.
How our audit addressed the key audit matter
Our approach to addressing the matter included the following
procedures, among others:
• Tested how management determined the recoverable amounts
of the assets or CGUs related to property, plant and equipment
for which an indicator of impairment was identified, which
included the following:
◦ Tested the appropriateness of the methods and approach
used, including the mathematical accuracy of the recoverable
amount calculations.
◦ Tested the underlying data used in the recoverable amount
calculations.
◦ For assets or CGUs where the market approach was used by
management, professionals with specialized skill and
knowledge in the field of valuation assisted in testing the
reasonableness of the value of comparable assets on the
market identified by management.
◦ For assets or CGUs where the income approach was used by
management, professionals with specialized skill and
knowledge in the field of valuation assisted in developing an
independent point estimate of the recoverable amount of each
of these assets or CGUs, and compared each independent
point estimate to management’s estimate of the recoverable
amount to evaluate the reasonableness of management’s
estimate.
55
2022 Annual Report
How our audit addressed the key audit matter
Our approach to addressing the matter included the following
procedures, among others:
• Tested how management determined the recoverable amount of
at
the
December 31, 2022, which included the following:
◦ Tested the appropriateness of the method and approach used
and the mathematical accuracy of the recoverable amount
calculation.
Containerboard
Packaging
segment
as
◦ Tested the underlying data used in the recoverable amount
calculation.
◦ Tested the reasonableness of the assumptions related to
estimated shipment levels, foreign exchange rates, revenue
growth rates, EBITDA (A) margins and capital expenditures by
considering (i) the budget approved by the Board of Directors,
(ii) the current and past performance of the segment and (iii)
external market and
these
assumptions were consistent with evidence obtained in other
areas of the audit, as applicable.
industry data, and whether
◦ Professionals with specialized skill and knowledge in the field
of valuation assisted in testing the reasonableness of the
discount rate applied by management based on available data
of comparable companies.
the
Key audit matter
In determining the recoverable amount of an asset or CGU, based
income approach, management uses several key
on
assumptions, including the capitalization rate. For the year ended
December 31, 2022, management determined the recoverable
amounts of certain assets or CGUs related to property, plant and
equipment for which an indicator of impairment was identified were
lower than the carrying amounts and recorded impairment charges
of $95 million for property, plant and equipment.
We considered this a key audit matter due to the high degree of
judgment required by management in determining the recoverable
amounts of assets or CGUs related to property, plant and
equipment for which indicators of impairment were identified,
including the determination of the value of comparable assets on
the market and the use of key assumptions. This has resulted in
significant audit effort and a high degree of subjectivity and
complexity in performing procedures to test the recoverable
amounts of assets or CGUs determined by management.
Professionals with specialized skill and knowledge in the field of
valuation assisted us in performing the procedures.
Impairment assessment of goodwill – Containerboard
Packaging segment
Refer to note 2, Summary of significant accounting policies, note 4,
Critical accounting estimates and
judgments and note 23,
Impairment charges, restructuring costs and other loss (gain).
Management performs an impairment assessment of goodwill
annually, or more frequently if events or circumstances indicate
that the carrying value may be impaired. Goodwill is allocated to
CGUs for the purpose of impairment assessment based on the
level at which management monitors it, which is not higher than an
operating segment. An impairment loss is recognized if the carrying
amount of a CGU or group of CGUs exceeds its recoverable
amount. The recoverable amount is the higher of fair value less
cost of disposal and value in use.
recoverable amount of
Total net book value of goodwill as at December 31, 2022
amounted to $487 million and was allocated to the Containerboard
Packaging segment. Management performed its annual goodwill
impairment test for the Containerboard Packaging segment as at
December 31, 2022. The
the
Containerboard Packaging segment was determined using the fair
value less cost of disposal based on the income approach. In
determining the fair value less cost of disposal, management
applied a high degree of judgment in developing several key
assumptions,
foreign
including estimated shipment
exchange rates, revenue growth rates, adjusted earnings before
interest,
taxes, depreciation and amortization (EBITDA) (A)
margins, the discount rate and capital expenditures. No impairment
was recognized as a result of the 2022 impairment assessment.
levels,
the recoverable amount of
judgment required by management
We considered this a key audit matter due to the significance of the
goodwill balance of the Containerboard Packaging segment and
the high degree of
in
determining
the Containerboard
Packaging segment as at December 31, 2022, including the use of
key assumptions. This has resulted in significant audit effort and a
high degree of subjectivity and complexity
in performing
procedures to test the recoverable amount. Professionals with
specialized skill and knowledge in the field of valuation assisted us
in performing the procedures.
56
2022 Annual Report
Other information
Management is responsible for the other information. The other information comprises the Management’s Discussion and Analysis.
Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance
conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other information identified above and,
in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge
obtained in the audit, or otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to
report that fact. We have nothing to report in this regard.
Responsibilities of management and those charged with governance for the consolidated financial statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with 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.
In preparing the consolidated financial statements, management is responsible for assessing the Corporation’s ability to continue as a
going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless
management either intends to liquidate the Corporation or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Corporation’s financial reporting process.
Auditor’s responsibilities for the audit of the consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high
level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will
always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if,
individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of
these consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain
professional skepticism throughout the audit. We also:
•
•
•
•
•
Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error,
design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to
provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one
resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal
control.
Obtain an understanding of internal control relevant to the audit 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 Corporation’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related
disclosures made by management.
Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit
evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the
Corporation’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw
attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s
report. However, future events or conditions may cause the Corporation to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and
whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair
presentation.
57
2022 Annual Report
•
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the
Corporation to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and
performance of the group audit. We remain solely responsible for our audit opinion.
•
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the
significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
Corporation to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and
performance of the group audit. We remain solely responsible for our audit opinion.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and
independence, and where applicable, related safeguards.
significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
From the matters communicated with those charged with governance, we determine those matters that were of most significance in the
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding
audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in
independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our
our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we
independence, and where applicable, related safeguards.
determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be
expected to outweigh the public interest benefits of such communication.
From the matters communicated with those charged with governance, we determine those matters that were of most significance in the
audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in
The engagement partner on the audit resulting in this independent auditor’s report is Jean-François Lecours.
our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we
determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be
/s/ PricewaterhouseCoopers LLP1
expected to outweigh the public interest benefits of such communication.
The engagement partner on the audit resulting in this independent auditor’s report is Jean-François Lecours.
/s/ PricewaterhouseCoopers LLP1
Montréal, Québec
February 22, 2023
Montréal, Québec
February 22, 2023
[1] CPA auditor, public accountancy permit No. A126402
[1] CPA auditor, public accountancy permit No. A126402
58
2022 Annual Report
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
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 other debts without recourse to the Corporation to be refinanced
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
Capital stock
Contributed surplus
Retained earnings
Accumulated other comprehensive income (loss)
Equity attributable to Shareholders
Non-controlling interests
Total equity
The accompanying notes are an integral part of these Audited Consolidated Financial Statements.
NOTE
December 31,
2022
December 31,
2021
24
6
7
16
8
9 and 14
10
16
11
19
10
24
12
13 and 24
13 and 24
15
16 and 17
13 and 24
15
16
17 and 18
19
20
21
5
5 and 8
102
556
11
587
9
1,265
94
2,945
73
4
70
114
488
5,053
3
746
4
67
67
8
22
917
1,931
41
7
97
132
3,125
611
14
1,212
34
1,871
57
1,928
5,053
174
510
19
494
1
1,198
87
2,522
88
6
54
138
473
4,566
1
707
12
—
74
12
16
822
1,450
47
6
122
192
2,639
614
14
1,274
(23)
1,879
48
1,927
4,566
59
2022 Annual Report
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
For the years ended December 31 (in millions of Canadian dollars, except per common share
amounts and number of common shares)
NOTE
Sales
Supply chain and logistic
Wages and employee benefits expenses
Depreciation and amortization
Maintenance and repair
Other
Impairment charges
Gain on acquisitions, disposals and others
Restructuring costs
Unrealized loss on derivative financial instruments
Operating income
Financing expense
Share of results of associates and joint ventures
Loss before income taxes
Provision for (recovery of) income taxes
Net loss from continuing operations including non-controlling interests for the year
Results from discontinued operations
Net earnings (loss) including non-controlling interests for the year
Net earnings attributable to non-controlling interests
Net earnings (loss) attributable to Shareholders for the year
Net loss from continuing operations per common share
Basic
Diluted
Net earnings (loss) per common share
Basic
Diluted
22
23
23
23
16 and 23
13 and 24
8
19
5
8
2022
4,466
2,836
992
252
217
45
102
(20)
3
6
33
88
(19)
(36)
(22)
(14)
—
(14)
20
(34)
($0.34)
($0.34)
($0.34)
($0.34)
2021
3,956
2,382
947
252
184
54
89
(40)
21
17
50
106
(18)
(38)
9
(47)
234
187
25
162
($0.59)
($0.59)
$1.60
$1.59
Weighted average basic number of common shares outstanding
Weighted average number of diluted common shares
100,647,972
101,092,352
101,884,051
102,902,364
Net earnings (loss) attributable to Shareholders:
Continuing operations
Discontinued operations
Net earnings (loss)
The accompanying notes are an integral part of these Audited Consolidated Financial Statements.
5
(34)
—
(34)
(59)
221
162
60
2022 Annual Report
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the years ended December 31 (in millions of Canadian dollars)
Net earnings (loss) including non-controlling interests for the year
Other comprehensive income (loss)
Items that may be reclassified subsequently to earnings
Translation adjustments
Change in foreign currency translation of foreign subsidiaries
Change in foreign currency translation of foreign subsidiaries from discontinued operations
Change in foreign currency translation related to net investment hedging activities
Change in foreign currency translation related to net investment hedging activities from
discontinued operations
Cash flow hedges
Change in fair value of commodity derivative financial instruments
Recovery of (provision for) income taxes
Provision for income taxes from discontinued operations
Items that are not released to earnings
Actuarial gain on employee future benefits
Provision for income taxes
Other comprehensive income
Comprehensive income including non-controlling interests for the year
Comprehensive income attributable to non-controlling interests for the year
Comprehensive income attributable to Shareholders for the year
Comprehensive income (loss) attributable to Shareholders:
Continuing operations
Discontinued operations
Comprehensive income
The accompanying notes are an integral part of these Audited Consolidated Financial Statements.
NOTE
2022
(14)
2021
187
5
5
19
5
18
19
5
78
—
(23)
—
3
2
—
60
33
(8)
25
85
71
23
48
48
—
48
(8)
(18)
11
9
2
(2)
(1)
(7)
29
(7)
22
15
202
13
189
(33)
222
189
61
2022 Annual Report
CONSOLIDATED STATEMENTS OF EQUITY
For the year ended December 31, 2022
(in millions of Canadian
dollars)
NOTE
CAPITAL STOCK
CONTRIBUTED
SURPLUS
RETAINED
EARNINGS
ACCUMULATED
OTHER
COMPREHENSIVE
INCOME (LOSS)
TOTAL EQUITY
ATTRIBUTABLE TO
SHAREHOLDERS
NON-
CONTROLLING
INTERESTS
Balance - Beginning of year
614
Comprehensive income
Net earnings (loss)
Other comprehensive
income
Dividends
Stock options expense
Issuance of common shares
upon exercise of stock
options
Redemption of common
shares
Acquisitions of non-controlling
interests
Balance - End of year
20
20
—
—
—
—
—
2
(5)
—
611
14
—
—
—
—
1
(1)
—
—
14
1,274
(23)
1,879
(34)
25
(9)
(48)
—
—
(4)
(1)
1,212
—
57
57
—
—
—
—
—
34
(34)
82
48
(48)
1
1
(9)
(1)
1,871
48
20
3
23
(13)
—
—
—
(1)
57
TOTAL EQUITY
1,927
(14)
85
71
(61)
1
1
(9)
(2)
1,928
For the year ended December 31, 2021
(in millions of Canadian
dollars)
NOTE
CAPITAL STOCK
CONTRIBUTED
SURPLUS
RETAINED
EARNINGS
ACCUMULATED
OTHER
COMPREHENSIVE
LOSS
TOTAL EQUITY
ATTRIBUTABLE TO
SHAREHOLDERS
NON-
CONTROLLING
INTERESTS
Balance - Beginning of year
Comprehensive income (loss)
Net earnings
Other comprehensive
income (loss)
Dividends
Dividends paid to non-
controlling interests from
discontinued operations
Stock options expense
Issuance of common shares
upon exercise of stock
options
Redemption of common
shares
Acquisitions of non-controlling
interests
Disposals of non-controlling
interests
Balance - End of year
5
20
20
5
622
—
—
—
—
—
—
2
(10)
—
—
614
13
—
—
—
—
—
1
—
—
—
—
14
1,146
(28)
1,753
162
22
184
(41)
—
—
—
(16)
1
—
—
5
5
—
—
—
—
—
—
—
162
27
189
(41)
—
1
2
(26)
1
—
1,274
(23)
1,879
204
25
(12)
13
(14)
(3)
—
—
—
(1)
(151)
48
TOTAL EQUITY
1,957
187
15
202
(55)
(3)
1
2
(26)
—
(151)
1,927
The accompanying notes are an integral part of these Audited Consolidated Financial Statements.
62
2022 Annual Report
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31 (in millions of Canadian dollars)
Operating activities from continuing operations
Net earnings (loss) attributable to Shareholders for the year
Results from discontinued operations
Results from discontinued operations attributable to non-controlling interests
Net loss from continuing operations
Adjustments for:
Financing expense
Depreciation and amortization
Impairment charges
Gain on acquisitions, disposals and others
Restructuring costs
Unrealized loss on derivative financial instruments
Provision for (recovery of) income taxes
Share of results of associates and joint ventures
Net earnings attributable to non-controlling interests
Net financing expense paid
Premium and transaction fees paid on long-term debt redemption
Net income taxes received (paid)
Dividends received
Provisions for contingencies and charges and other liabilities
Changes in non-cash working capital components
Investing activities from continuing operations
Disposals 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
Financing activities from continuing operations
Bank loans and advances
Change in credit facilities
Increase in term loan
Payments of term loan
Repurchase of unsecured senior notes
Increase in other long-term debt
Payments of other long-term debt, including lease obligations
Issuance of common shares upon exercise of stock options
Redemption of common shares
Dividends paid to non-controlling interests
Acquisition of non-controlling interests
Dividends paid to the Corporation’s Shareholders
Change in cash and cash equivalents during the year from continuing operations
Change in cash and cash equivalents from discontinued operations, including reclassification
of beginning of year cash and cash equivalents in 2021
Net change in cash and cash equivalents during the year
Currency translation on cash and cash equivalents
Cash and cash equivalents - Beginning of the year
Cash and cash equivalents - End of the year
The accompanying notes are an integral part of these Audited Consolidated Financial Statements.
NOTE
2022
5
5
24
23
23
23
16 and 23
19
8
8
13 and 24
8
15, 17 and 18
24
24
13 and 24
13 and 24
13 and 24
13 and 24
13 and 24
13, 14 and 24
20
20
8
8
5
(34)
—
—
(34)
88
252
102
(20)
3
6
(22)
(19)
20
(87)
—
(5)
12
(36)
260
(116)
144
1
(501)
19
(5)
(486)
2
323
355
(219)
—
—
(117)
1
(9)
(13)
(3)
(48)
272
(70)
—
(70)
(2)
174
102
2021
162
(234)
13
(59)
106
252
89
(40)
21
17
9
(18)
12
(96)
(24)
2
11
(35)
247
(36)
211
1
(286)
53
(15)
(247)
(11)
5
—
(6)
(372)
5
(69)
2
(26)
(14)
(2)
(41)
(529)
(565)
356
(209)
(1)
384
174
63
2022 Annual Report
SEGMENTED INFORMATION
The Corporation's operations are managed in three segments: Containerboard and Specialty Products (which constitutes the Corporation’s
Packaging Products) and Tissue Papers. 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 chief operating
decision-maker (CODM). The Chief Executive Officer has authority for resource allocation and management of the Corporation's
performance and is therefore the CODM. During the year ended December 31, 2022, the CODM assesses the performance of each
reportable segment based on sales and earnings before interest, taxes, depreciation and amortization, adjusted to exclude specific items
(EBITDA (A)). The CODM considers EBITDA (A) to be the best performance measure of the Corporation's activities.
Sales for each segment are prepared on the same basis as those of the Corporation. Inter-segment operations are recorded on the same
basis as sales to third parties, which are at fair market value.
EBITDA (A) does not have a standardized meaning under IFRS; accordingly, it may not be comparable to similarly named measures used
by other companies. Investors should not view EBITDA (A) as an alternative measure to, for example, net earnings, or as a measure of
operating results, which are IFRS measures.
For the years ended December 31 (in millions of Canadian dollars)
2022
Canada
2021
United States
Other countries
2022
2021
2022
2021
2022
Packaging Products
Containerboard
Specialty Products
Inter-segment sales
Tissue Papers
Inter-segment sales and Corporate Activities
1,326
236
1,239
202
938
417
769
346
(18)
(14)
(18)
(18)
1,544
1,427
1,337
1,097
449
138
385
145
973
22
887
14
2,131
1,957
2,332
1,998
1
1
—
2
—
1
3
1
—
—
1
—
—
1
2,265
654
(36)
2,883
1,422
161
4,466
Total
2021
2,009
548
(32)
2,525
1,272
159
3,956
SALES TO
EBITDA (A) by business segment is reconciled to IFRS measure, namely operating income (loss), and is presented in the following table:
NOTE Containerboard
Specialty
Products
Tissue Papers
Corporate
Activities
Consolidated
2022
23
23
23
23
266
118
10
—
—
7
401
86
19
3
(16)
—
—
92
(175)
(144)
74
89
(4)
3
—
(13)
41
—
—
—
(1)
(104)
33
252
102
(20)
3
6
376
2021
NOTE
Containerboard
Specialty
Products
Tissue Papers
Corporate
Activities
Consolidated
23
23
23
23
230
120
1
—
4
17
372
59
15
—
—
—
—
74
(108)
(131)
70
88
(40)
17
—
27
47
—
—
—
—
(84)
50
252
89
(40)
21
17
389
(in millions of Canadian dollars)
Operating income (loss)
Depreciation and amortization
Impairment charges
Gain on acquisitions, disposals and others
Restructuring costs
Unrealized loss (gain) on derivative financial instruments
EBITDA (A)
(in millions of Canadian dollars)
Operating income (loss)
Depreciation and amortization
Impairment charges
Gain on acquisitions, disposals and others
Restructuring costs
Unrealized loss on derivative financial instruments
EBITDA (A)
64
2022 Annual Report
For the years ended December 31 (in millions of Canadian dollars)
PAYMENTS FOR PROPERTY, PLANT AND
EQUIPMENT
2022
2021
Packaging Products
Containerboard
Specialty Products
Tissue Papers
Corporate Activities
Total acquisitions
Right-of-use assets acquisitions and of property, plant and equipment included in other debts
Acquisitions for property, plant and equipment included in “Trade and other payables”
Beginning of the year
End of the year
Payments for property, plant and equipment
Proceeds from disposals of property, plant and equipment
Payments for property, plant and equipment net of proceeds from disposals
(in millions of Canadian dollars)
Packaging Products
Containerboard
Specialty Products
Tissue Papers
Corporate Activities
Intersegment eliminations
Investments in associates and joint ventures
Other investments
Information by geographic segment is as follows:
(in millions of Canadian dollars)
Canada
United States
(in millions of Canadian dollars)
Canada
United States
481
40
521
55
43
619
(87)
532
75
(106)
501
(19)
482
236
42
278
49
46
373
(43)
330
31
(75)
286
(53)
233
December 31,
2022
TOTAL ASSETS
December 31,
2021
2,789
365
3,154
1,216
641
(55)
4,956
94
3
5,053
2,308
318
2,626
1,176
766
(91)
4,477
87
2
4,566
PROPERTY, PLANT AND EQUIPMENT
December 31,
2022
December 31,
2021
1,005
1,940
2,945
974
1,548
2,522
GOODWILL, CUSTOMER RELATIONSHIPS
AND CLIENT LISTS, AND OTHER FINITE AND
INDEFINITE USEFUL LIFE INTANGIBLE
ASSETS
December 31,
2022
December 31,
2021
277
284
561
291
270
561
65
2022 Annual Report
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts are 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 common shares are listed on the Toronto Stock Exchange under the ticker
symbol “CAS”.
The Board of Directors approved the Consolidated Financial Statements on February 22, 2023.
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
International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). The key accounting
policies applied in the preparation of these Consolidated Financial Statements are described below.
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 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 unconsolidated 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 LLC1
1 Including indirect ownership, percentage stands at 86.35% for accounting purposes. See Note 8 for more details.
PERCENTAGE OWNED (%)
JURISDICTION
100
100
79.90
Canada
Delaware
Delaware
66
2022 Annual Report
B. TRANSACTIONS AND CHANGE IN OWNERSHIP
Acquisitions or disposals of equity interests in subsidiaries 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.
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 from changes in the level of 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 investment 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.
JOINT VENTURES
D.
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.
E. STRUCTURED ENTITIES
Structured entities are entities controlled by the Corporation which were designed so that voting or similar rights are not the dominant factor
in deciding who controls the entity. Structured entities are consolidated if, based on an evaluation of the substance of its relationship with
the Corporation, the Corporation concludes that it controls the structured entity. Structured entities controlled by the Corporation were
established under terms that impose strict limitations on the decision-making powers of the structured entities’ management and that
results in the Corporation receiving the majority of the benefits related to the structured entities’ operations and net assets, being exposed
to the majority of risks incident to the structured entities’ activities, and retaining the majority of the residual or ownership risks related to
the structured entities or their assets.
REVENUE FROM CONTRACT WITH CUSTOMERS
The revenues of the Corporation come mainly from sales of packaging and tissue products that are recognized at a point in time. Sales of
goods in the consolidated statement of earnings are recognized by the Corporation when control of the goods has been transferred, being
when the goods are delivered to customers and when all performance obligations have been fulfilled.
The amounts recognized as sales of goods represent the fair values of the considerations received or receivable from third parties on the
sales of goods to customers, net of returns, volume rebates and discounts, at which time there are no conditions for the payment to
become due other than the passage of time. Accumulated experience is used to estimate and provide for discounts and returns (expected
value method), whereas volume discounts are assessed based on anticipated annual sales (most likely amount method). The transaction
price is not adjusted for the time value of money since all sales are due within twelve months.
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 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.
A. CLASSIFICATION
On initial recognition, the Corporation determines the financial instruments classification as per the following categories:
•
•
•
instruments measured at amortized cost;
instruments measured at fair value through other comprehensive income (FVOCI);
instruments measured at fair value through net income (FVTPL)
67
2022 Annual Report
The financial instruments' classification under IFRS 9 is based on the business model in which a financial asset is managed and on its
contractual cash flow characteristics. Derivatives embedded in contracts where the host is a financial instrument in the scope of the
standard are never separated. Instead, the hybrid financial instrument as a whole is assessed for classification.
A financial asset is measured at amortized cost if it meets both of the following conditions and is not designated at FVTPL:
•
•
it is held within a business model whose objective is to hold assets to collect contractual cash flows; and
its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal
amount outstanding.
Equity investments not subject to significant influence and held for trading are classified as FVTPL. The Corporation, on initial recognition,
may irrevocably elect to present subsequent changes in the investment's fair value in other comprehensive income (OCI). This election is
made on an investment-by-investment basis.
Financial liabilities are measured at amortized cost unless they must be measured at FVTPL (such as derivatives) or if the Corporation
elects to measure them at FVTPL.
B. EVALUATION
Financial instruments at amortized cost
Financial instruments at amortized cost are initially measured at fair value and subsequently at amortized cost, using the effective interest
method, less any impairment loss. Interest income, foreign exchange gains and losses and impairment are recognized in the consolidated
statement of earnings.
Financial instruments at fair value
Financial instruments are initially and subsequently measured at fair value and transaction costs are accounted for in the consolidated
statement of earnings. When the Corporation elects to measure a financial liability at FVTPL, gains or losses related to the Corporation's
own credit risk are accounted for in the consolidated statement of earnings.
IMPAIRMENT
C.
The Corporation prospectively estimates the expected credit losses associated with the debt instruments accounted for at amortized cost
or FVOCI. The impairment methodology used depends on whether there is a significant increase in the credit risk or not. For trade
receivables, the Corporation measures loss allowances at an amount equal to lifetime expected credit loss (ECL) as allowed by IFRS 9
under the simplified method.
D. DERECOGNITION
Financial assets
The Corporation derecognizes a financial asset when and only when the contractual rights to the cash flows from the financial asset have
expired or when contractual rights to the cash flows have been transferred.
Financial liabilities
The Corporation derecognizes a financial liability when and only when it is extinguished, meaning when the obligation specified in the
contract is discharged, cancelled or expired. The difference between the carrying amount of the extinguished financial liability and the
consideration paid or payable, including non-cash assets transferred or liabilities assumed, is recognized in the consolidated statement
of earnings.
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:
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.
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2022 Annual Report
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 twelve months and as a current asset or liability when the remaining maturity of the hedged item is less than twelve 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 earnings. 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 earnings.
Hedging ineffectiveness is automatically recorded in net earnings as the difference between the above amounts recorded in net earnings.
Realized gains and losses on the hedging item, resulting from the difference between the payments on the receive leg and the pay leg of
the hedging derivative, are recorded on an accrual basis in net earnings.
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
consolidated 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 earnings against the gain (loss) on the hedged item when the latter is realized (for
example, when the forecasted sale that is hedged takes place).
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 forecasted 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 consolidated 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 and forward contracts to manage the currency fluctuations risk associated
with forecasted cash flows in foreign currency. These cross-currency interest rate swaps are designated as a 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 an expected credit loss allowance that is based on expected collectability.
INVENTORIES
Inventories of finished goods are valued at the lower of cost, which is established using the average production cost, and net realizable
value. Inventories of raw materials as well as supplies and spare parts are valued at the lower of cost and replacement value, which is the
best available measure of their net realizable value. Cost for both raw materials and supplies and spare parts is determined using the
average cost. 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, including capitalized interest incurred during the construction period of qualifying
assets, less accumulated depreciation and net impairment losses. 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.
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2022 Annual Report
Depreciation is calculated on a straight-line basis as follows:
Between 10 and 33 years
Buildings
Between 3 and 30 years
Machinery and equipment
Automotive equipment
Between 5 and 10 years
Other property, plant and equipment Between 3 and 10 years
Right-of-use assets
Lease term
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. The
grants related to any other operational activities and/or economic circumstances are accounted as reduction of the costs they refer to.
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. The capitalized borrowing costs for major acquisition, construction or production of
qualifying assets, which are financed through non directly attributable sources, are calculated using the actual interest rate, if not available
the Cascades' long-term incremental borrowing rate. 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, as well as application software. 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:
Application software
Enterprise Resource Planning (ERP)
Customer relationships and client lists
Other intangible assets with finite useful life
Between 3 and 10 years
7 years
Between 2 and 20 years
Between 2 and 20 years
Expenditure on research activities is recognized as an expense in the period in which it is incurred.
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.
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”. 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”.
B. GOODWILL AND OTHER INTANGIBLE ASSETS WITH INDEFINITE USEFUL LIFE
Goodwill and other intangible assets are assessed 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 assessment
based on the level at which Management monitors it, which is not higher than an operating segment. The allocation is made to CGUs that
are expected to benefit from the business combination in which the goodwill and other intangible assets with an indefinite useful life arose.
Impairment loss on goodwill is not reversed.
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2022 Annual Report
C. RECOVERABLE AMOUNTS
A recoverable amount is the higher of fair value less cost of disposal and value in use. To determine the recoverable amount of each asset
or CGU, the Corporation uses the fair value less cost of disposal calculation based on the market approach, if a market exists for the asset
or CGU, or the income approach.
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 in the consolidated balance
sheet under intangible assets with finite useful life and are amortized on a straight-line basis over the anticipated period of the
credit facility.
LEASES
The Corporation recognizes, in the consolidated balance sheet, a lease liability and a corresponding right-of-use asset at the date at which
the leased asset is available for use. Subsequently, lease payments are allocated between the liability and finance cost. Right-of-use
assets are depreciated over the lease term on a straight-line basis.
The lease liability equals the net present value of the lease payments discounted using the interest rate implicit in the lease or the
Corporation’s incremental borrowing rate, which is determined for each lease.
Right-of-use assets are measured at cost, which includes the initial lease liability amount, lease payments made at or before the lease
commencement date less lease incentives, initial direct costs and restoration costs.
The Corporation uses the low-value exception, as well as the short-term exception on all categories of assets, except buildings.
The Corporation does not apply IFRS 16 to leases of intangible assets.
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 in the consolidated statement of earnings.
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 earnings
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 that is created on an ongoing basis during production are provided for at their present values and charged against
earnings as the obligation arises.
Changes in the measurement of a liability relating to the decommissioning of a plant or other site preparation work resulting 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.
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2022 Annual Report
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 salary 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 regularly updated 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 of
December 31, 2022, 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 consolidated 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 pensions and other post-employment benefits are recognized in the consolidated statement of earnings as “Financing
expense”. The measurement date of the employee future benefits plans is December 31 of each year. An actuarial evaluation is performed
at least every three years. Based on their balances as of December 31, 2022, 19% of the Corporation plans were evaluated on
December 31, 2021 (20% in 2020).
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 business unit 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.
B. FOREIGN OPERATIONS
The assets and liabilities of foreign operations are translated into Canadian dollars at the exchange rate prevailing at the consolidated
balance sheet date. Revenues and expenses are translated at the average monthly exchange rate. Translation gains or losses are
deferred and included in “Accumulated other comprehensive income”.
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2022 Annual Report
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 of 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
Amendment to IAS 16
In May 2020, the IASB issued an amendment to IAS 16 Property, Plant and Equipment which seeks to clarify the way entities should
account for the proceeds from the sale and related production costs, of items produced by an asset prior to it being available for its
intended use. The modification requires that sales proceeds recognized before the related asset is available for use be recognized in profit
or loss together with the costs associated with the items sold, rather than by adjusting the cost of the asset under construction.
The standard became effective on January 1, 2022 and had no impact on the Corporation's Consolidated Financial Statements.
B. RECENT IFRS STANDARD NOT YET ADOPTED
IFRS 17 Insurance Contracts was issued in May 2017 as replacement for IFRS 4 Insurance Contracts. The amendments deferred the
application date of IFRS 17 to January 1, 2023. IFRS 17 Insurance Contracts, applies to insurance contracts regardless of the entity that
issues them and so it does not apply only to traditional insurance entities. IFRS 17 Insurance Contracts defines an insurance contract as
an agreement where one party, the insurer, accepts significant insurance risk from another party, the policy holder, by agreeing to
compensate the policy holder if a specified uncertain future event adversely affects the policy holder. The Corporation is currently
evaluating the impact of this standard on its Consolidated Financial Statements.
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2022 Annual Report
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.
IMPAIRMENT OF PROPERTY, PLANT AND EQUIPMENT, INTANGIBLE ASSETS AND GOODWILL
A.
In determining the recoverable amount of an asset or CGU, based on the market approach, Management uses the value of comparable
assets on the market. In determining the recoverable amount of an asset or CGU, based on the income approach, Management uses
several key assumptions, including estimated shipment levels, foreign exchange rates, revenue growth rates, adjusted earnings before
interest, taxes, depreciation and amortization (EBITDA) (A) margins, discount rates, capitalization rate and capital expenditures.
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 23)
REVENUES, ADJUSTED EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION (EBITDA (A)) MARGINS,
CASH FLOWS AND GROWTH RATES
The assumptions used for revenues were based on the segment's internal budget and were projected for a period of five years and a long-
term growth rate of 2% was applied thereafter. The assumption used for EBITDA (A) margin was based on the segment's historical
performance and was kept constant. 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.
CAPITALIZATION RATES
The Corporation assumed a capitalization rate in order to calculate the present value of its property cash flows. The capitalization rate
represents a real estate valuation measure used to compare different real estate investments. The capitalization rate is calculated as the
ratio between the annual rental income produced by a real estate asset to its current market value.
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 twenty years and adjusted to reflect Management's
best estimate of market participants expectations.
SHIPMENTS
The assumptions used are based on the Corporation's internal budget for the next year and are usually held constant for the established
capacity, for new capacity the ramp up is considered over the forecast period. In arriving at its budgeted shipments, the Corporation
considers past experience, economic, 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.
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2022 Annual Report
INCOME TAXES
B.
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 determined by actuaries 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.
D. GOODWILL, INTANGIBLE ASSETS AND BUSINESS COMBINATIONS
Goodwill and client lists have arisen as a result of business combinations. The acquisition method, which also requires significant
estimates and judgments, is used to account for these business combinations. As part of the allocation process in a business combination,
estimated fair values are assigned to the net assets acquired. These estimates are based on forecasts of future cash flows, estimates of
economic fluctuations and an estimated discount rate. The excess of the purchase price over the estimated fair value of the net assets
acquired is then assigned to goodwill. In the event that actual net assets fair values are different from estimates, the amounts allocated to
the net assets could differ from what is currently reported. This would then have a direct impact on the carrying value of goodwill.
Differences in estimated fair values would also have an impact on the amortization of definite life intangibles.
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2022 Annual Report
NOTE 5
DISCONTINUED OPERATIONS AND DISPOSAL
On July 5, 2021, the Corporation announced the monetization of its 57.6% controlling equity interest in Reno de Medici S.p.A. (RDM) for
an amount per share of €1.45, or $462 million including foreign exchange contracts and before related transaction fees of $12 million. The
transaction closed on October 26, 2021. The Corporation recorded a gain of $228 million before income taxes of $24 million. The
Corporation used tax assets to offset this tax expense, resulting in no income tax payable on this transaction.
Assets and liabilities of Reno de Medici S.p.A. (RDM) activities at the time of disposal were as follows:
(in millions of Canadian dollars)
Cash and cash equivalents
Accounts receivable
Inventories
Current income tax 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
Total assets
Bank loans and advances
Trade and other payables
Current portion of long-term debt
Long-term debt
Provisions for contingencies and charges
Financial liabilities
Other liabilities
Deferred income tax liabilities
Total liabilities
Net assets
Non-controlling interests
Net assets attributable to Shareholders
Other items
Financial instruments on currency and cumulated currency translation adjustment of a foreign subsidiary
Gain on disposal, before income taxes
Consideration received on disposal, net of transaction fees
76
BUSINESS SEGMENT:
Boxboard Europe
37
211
166
2
1
430
24
6
23
5
135
1,040
40
338
36
196
9
1
51
10
681
359
(151)
208
14
222
228
450
2022 Annual Report
DISCONTINUED OPERATIONS BOXBOARD EUROPE SEGMENT
CONSOLIDATED RESULTS FROM DISCONTINUED OPERATIONS
(in millions of Canadian dollars)
Results from the discontinued operations
Sales
Operating expenses (excluding depreciation and amortization)
Depreciation and amortization
Gain on acquisitions, disposals and others
Gain on derivative financial instruments
Operating income
Financing expense
Earnings before income taxes
Provision for income taxes
Gain on disposal, net of income tax
Results from discontinued operations
Results from discontinued operations attributable to non-controlling interest
Results from discontinued operations attributable to Shareholders
Results from discontinued operations per common share
Basic
Diluted
CONSOLIDATED CASH FLOWS FROM DISCONTINUED OPERATIONS
(in millions of Canadian dollars)
Net cash flow from discontinued operations
Cash flow from (used for):
Operating activities
Investing activities
Financing activities
Change in cash and cash equivalent during the year
Currency translation on cash and cash equivalents
Cash and cash equivalents - Beginning of year
Cash and cash equivalents at disposal
Change in cash and cash equivalents during the year from discontinued operations
Dividends paid to the Corporation
Consideration received on disposal, net of transaction fees
Change in cash and cash equivalents from discontinued operations
2021
894
843
38
(16)
(6)
35
4
31
(1)
204
234
(13)
221
$2.19
$2.18
2021
31
(243)
156
(56)
(5)
98
37
(98)
4
450
356
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2022 Annual Report
NOTE 6
ACCOUNTS RECEIVABLE
(in millions of Canadian dollars)
Accounts receivable - Trade
Receivables from related parties
Less: expected credit loss allowance
Trade receivables - net
Other
NOTE
26
2022
505
24
(4)
525
31
556
2021
460
23
(4)
479
31
510
As of December 31, 2022, trade receivables of $132 million (December 31, 2021 - $115 million) were past due.
Movements in the Corporation's expected credit loss allowance are as follows:
(in millions of Canadian dollars)
Balance at beginning of year
Provision for expected credit loss allowance
Receivables written off during the year as uncollectable
Business disposal
Balance at end of year
NOTE
2022
2021
4
1
(1)
—
4
14
1
(3)
(8)
4
5
The change in the expected credit loss allowance has been included in “Other” in the consolidated statement of earnings.
The maximum exposure to credit risk at the reporting period approximates the carrying value of each class of receivable mentioned above.
NOTE 7
INVENTORIES
(in millions of Canadian dollars)
Finished goods
Raw materials
Supplies and spare parts
2022
238
135
214
587
2021
204
116
174
494
As of December 31, 2022, finished goods, raw materials and supplies and spare parts inventories have been adjusted to their net
realizable value (NRV) requiring a provision of $9 million, $4 million and $8 million, respectively (December 31, 2021 - $7 million, $2 million
and $6 million).
In 2022, the Corporation reversed no provision that gets recorded against spare parts inventories ($2 million in 2021). No reversal of
previously written-down finished goods or raw inventory occurred in 2022 or 2021. The cost of raw materials and supplies and spare parts
included in “Supply chain and logistic” amounted to $1,611 million (2021 - $1,362 million).
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2022 Annual Report
NOTE 8
INVESTMENTS IN ASSOCIATES AND JOINT VENTURES AND SUBSIDIARIES WITH NON-
CONTROLLING INTERESTS
A.
INVESTMENTS IN ASSOCIATES AND JOINT VENTURES ARE DETAILED AS FOLLOWS:
(in millions of Canadian dollars)
Investments in associates
Investments in joint ventures
2022
25
69
94
2021
20
67
87
INVESTMENTS IN ASSOCIATES
B.
The Corporation did not hold any significant participation in associates in 2022 and 2021.
INVESTMENTS 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 Corporation3
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.
2022-2021
PERCENTAGE EQUITY
OWNED (%)
50
50
40
33.33
PRINCIPAL ESTABLISHMENT
Birmingham, Alabama and Tacoma, Washington,
United States
Kingsey Falls and Berthierville, Québec, Canada
Dartmouth, Nova Scotia, Canada
Brampton, Ontario, Canada
The Corporation's joint ventures information (100%), translated in millions of Canadian dollars, is as follows:
(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 (recovery of) income taxes
Net earnings (loss)
Other comprehensive income (loss)
Translation adjustment
Total comprehensive income (loss)
Dividends received from joint ventures
CASCADES SONOCO US INC.
CASCADES SONOCO INC.
2022
MARITIME PAPER
PRODUCTS LIMITED
PARTNERSHIP
TENCORR HOLDINGS
CORPORATION
1
28
39
13
2
5
6
108
5
1
2
7
3
10
3
4
30
15
11
1
2
2
112
2
—
5
13
—
13
4
1
33
30
4
—
—
—
138
3
—
—
4
—
4
—
17
21
10
27
4
3
—
138
1
—
(2)
(1)
—
(1)
—
79
2022 Annual Report
(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
Translation adjustment
Total comprehensive income
Dividends received from joint ventures
CASCADES SONOCO US INC.
CASCADES SONOCO INC.
2021
MARITIME PAPER
PRODUCTS LIMITED
PARTNERSHIP
TENCORR HOLDINGS
CORPORATION
7
25
40
18
2
6
8
95
5
2
1
7
—
7
4
1
31
13
13
—
2
1
91
2
—
3
8
—
8
4
6
27
29
6
—
—
—
116
3
—
—
8
—
8
1
15
29
9
32
4
3
—
164
1
—
4
5
—
5
—
Commitments of the joint ventures are less than a million dollars in 2022 and 2021.
D. NON-SIGNIFICANT ASSOCIATES AND JOINT VENTURES
The carrying value of investments in associates and joint ventures that do not have a significant impact on 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
2022
25
9
34
2022
5
2
7
2021
20
12
32
2021
3
2
5
The Corporation received dividends of $5 million from these associates and joint ventures as of December 31, 2022 (December 31, 2021 -
$2 million).
80
2022 Annual Report
E. 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)
Principal establishment
FALCON
PACKAGING LLC
Ohio,
United States
2022
GREENPAC
HOLDING LLC
New York,
United States
FALCON
PACKAGING LLC
Ohio,
United States
2021
GREENPAC
HOLDING LLC
New York,
United States
Percentage of shares held by non-controlling interests (accounting basis)
14.00%
13.65%
22.00%
13.65%
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)
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
Net earnings
Condensed cash flow
Cash flows from operating activities
Cash flows used for investing activities
Cash flows used for financing activities
2
3
1
7
20
33
15
1
—
4
207
1
10
12
—
(10)
18
54
12
34
127
522
51
75
1
18
569
39
139
178
(6)
(159)
2
3
2
5
17
29
13
3
—
—
174
1
9
9
—
(8)
10
45
12
20
112
507
51
11
2
111
470
36
78
118
(5)
(119)
In 2022, the Corporation increased its participation in Falcon Packaging LLC in the Specialty Products segment for a contribution of
$3 million (2021 - $2 million).
81
2022 Annual Report
NOTE 9
PROPERTY, PLANT AND EQUIPMENT
(in millions of Canadian dollars)
As of January 1, 2021
Cost
Accumulated depreciation and impairment
Net book amount
Year ended December 31, 2021
Opening net book amount
Additions
Disposals
Depreciation
Discontinued operations
Impairment charges
Others
Exchange differences
Closing net book amount
As of December 31, 2021
Cost
Accumulated depreciation and impairment
Net book amount
Year ended December 31, 2022
Opening net book amount
Additions
Disposals
Depreciation
Impairment charges
Others
Exchange differences
Closing net book amount
As of December 31, 2022
Cost
Accumulated depreciation and impairment
Net book amount
NOTE
LAND
BUILDINGS
MACHINERY AND
EQUIPMENT
AUTOMOTIVE
EQUIPMENT
OTHERS
RIGHT-OF-USE
ASSETS
(Note 14)
5
23
23
183
2
181
181
1
(2)
—
(68)
—
—
—
112
112
—
112
112
1
—
—
—
—
4
117
117
—
117
1,023
408
615
615
39
(9)
(17)
(44)
—
(5)
(2)
577
929
352
577
577
106
—
(18)
(22)
(1)
27
669
1,068
399
669
3,931
2,216
1,715
1,715
277
(1)
(135)
(229)
(17)
3
(7)
1,606
3,369
1,763
1,606
1,606
411
(1)
(139)
(73)
13
83
1,900
3,858
1,958
1,900
133
89
44
44
9
—
68
32
36
36
2
—
(12)
(9)
—
—
2
—
43
132
89
43
43
14
—
—
—
6
—
35
73
38
35
35
—
—
(10)
(9)
—
—
—
47
143
96
47
—
—
2
28
75
47
28
285
104
181
181
45
(4)
(50)
(23)
—
—
—
149
277
128
149
149
87
(2)
(56)
—
1
5
184
359
175
184
TOTAL
5,623
2,851
2,772
2,772
373
(16)
(223)
(364)
(17)
6
(9)
2,522
4,892
2,370
2,522
2,522
619
(3)
(232)
(95)
13
121
2,945
5,620
2,675
2,945
Property, plant and equipment includes assets in the process of construction or installation with a book value of $694 million
(December 31, 2021 - $269 million) of which $575 million (December 31, 2021 - $170 million) is for the new Bear Island containerboard
mill. Deposits on purchases of machinery and equipment represent an amount less than a million dollars (December 31, 2021 - $13 million
of which $8 million was for Bear Island).
In 2022, $15 million (2021 - $5 million) of interest incurred on qualifying assets was capitalized. The weighted average capitalization rate
on funds borrowed in 2022 was 4.88% (2021 - 4.86%).
The Corporation recorded impairment charges of $95 million in 2022 (2021 - $17 million), for further details please refer to Note 23
Impairment charges, restructuring cost and other loss (gain).
82
2022 Annual Report
NOTE 10
GOODWILL AND OTHER INTANGIBLE ASSETS WITH FINITE AND INDEFINITE USEFUL LIFE
(in millions of Canadian dollars)
As of January 1, 2021
Cost
Accumulated amortization and impairment
Net book amount
Year ended December 31, 2021
Opening net book amount
Additions
Discontinued operations
Impairment charges
Amortization
Exchange differences
Closing net book amount
As of December 31, 2021
Cost
Accumulated amortization and impairment
Net book amount
Year ended December 31, 2022
Opening net book amount
Additions
Impairment charges
Amortization
Exchange differences
Closing net book amount
As of December 31, 2022
Cost
Accumulated amortization and impairment
Net book amount
APPLICATION
SOFTWARE
AND ERP
CUSTOMER
RELATIONSHIPS
AND
CLIENT LISTS
NOTE
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
23
23
174
101
73
73
12
(16)
—
(16)
—
53
161
108
53
53
2
—
(16)
—
39
163
124
39
215
131
84
84
—
(3)
(35)
(12)
—
34
207
173
34
34
—
—
(3)
2
33
209
176
33
9
6
3
3
—
(2)
—
—
—
1
4
3
1
1
—
—
—
—
1
4
3
1
398
238
160
160
12
(21)
(35)
(28)
—
88
372
284
88
88
2
—
(19)
2
73
376
303
73
526
9
517
517
—
(7)
(36)
—
(2)
472
516
44
472
472
—
(3)
—
18
487
533
46
487
6
1
5
5
—
(4)
—
—
—
1
1
—
1
1
—
—
—
—
1
1
—
1
532
10
522
522
—
(11)
(36)
—
(2)
473
517
44
473
473
—
(3)
—
18
488
534
46
488
The Corporation recorded impairment charges of $3 million in 2022 (2021 - $36 million), for further details please refer to Note 23
Impairment charges, restructuring cost and other loss (gain).
NOTE 11
OTHER ASSETS
(in millions of Canadian dollars)
Long-term notes receivable
Other investments
Other assets
Employee future benefits
An amortization expense of $1 million (2021 - $1 million) was booked against other assets.
NOTE
2022
2021
8
3
19
40
70
18
8
2
15
29
54
83
2022 Annual Report
NOTE 12
TRADE AND OTHER PAYABLES
(in millions of Canadian dollars)
Trade payables
Payables to related parties
Provisions for volume rebates
Accrued expenses
Movements in the Corporation's provision for volume rebates are as follows:
(in millions of Canadian dollars)
Balance at beginning of year
Provision for volume rebates
Volume rebates payments
Exchange differences
Balance at end of year
NOTE 13
LONG-TERM DEBT
(in millions of Canadian dollars)
NOTE
26
2022
532
6
72
136
746
2022
64
124
(118)
2
72
2021
518
6
64
119
707
2021
72
106
(114)
—
64
NOTE
MATURITY
2022
2021
Revolving credit facility, weighted average interest rate of 6.18% as of December 31, 2022
and consists of US$258 million (December 31, 2021 - US$4 million)
5.125% Unsecured senior notes of $175 million
5.125% Unsecured senior notes of US$206 million
5.375% Unsecured senior notes of US$445 million and $6 million of unamortized premium
as of December 31, 2022 (December 31, 2021 - US$445 million and $7 million of
unamortized premium)
Term loan of US$260 million, interest rate of 6.42% as of December 31, 2022
(December 31, 2021 - US$160 million)
Lease obligations with recourse to the Corporation
Other debts with recourse to the Corporation
Lease obligations without recourse to the Corporation
Other debts without recourse to the Corporation
Less: Unamortized financing costs
Total long-term debt
Less:
2026
2025
2026
2028
2027
13(a)
13(b)
13(b)
13(a)
13(c)
13(c)
Current portion of other debts without recourse to the Corporation to be refinanced
13(d)
Less :
Current portion of lease obligations with recourse to the Corporation
Current portion of other debts with recourse to the Corporation
Current portion of lease obligations without recourse to the Corporation
Current portion of other debts without recourse to the Corporation
350
175
279
610
352
186
31
22
69
2,074
9
2,065
67
46
12
8
1
67
6
175
260
570
202
161
35
9
117
1,535
11
1,524
—
36
23
7
8
74
1,931
1,450
a. On October 19, 2022, the Corporation entered into an agreement with its lenders for its existing credit agreement to increase its
authorized term loan to US$260 million from US$160 million and to extend the maturity from December 2025 to December 2027.
Concurrently, the Corporation extended its existing $750 million revolving credit facility maturity from July 2025 to July 2026. The
financial conditions of both facilities remain unchanged. The Corporation incurred $2 million in capitalizable transaction fees related to
the refinancing.
84
2022 Annual Report
As of December 31, 2022, accounts receivable and inventories totaling approximately $987 million (December 31, 2021 - $888 million)
and property, plant and equipment having a net book value of $243 million (December 31, 2021 - $246 million) were pledged as
collateral for the Corporation's revolving credit facility.
b. On November 9, 2021, the Corporation completed the partial redemption of its unsecured senior notes. The transaction was settled on
November 10, 2021 and the Corporation redeemed US$144 million ($180 million) and US$155 million ($192 million) of its 2026 and
2028 unsecured senior notes, respectively, and paid an early repurchase premium totaling US$18 million ($22 million). The Corporation
incurred transaction fees of $2 million, wrote off $4 million of unamortized financing costs and $8 million of unamortized issuance
premium related to these notes. The Corporation also paid US$5 million ($6 million) of interest accrued on these notes.
c. The Corporation has leases for various items of property, plant and equipment. Lease obligations are secured, as the rights to the
leased asset revert to the lessor in the event of default. For more details on future payments, see Note 16.4 C.
d. The loan matures on December 11, 2023 and bears interest at a rate determined by the leverage ratio of the subsidiary holding the debt
as defined in its credit agreement. The loan is repayable on a quarterly basis.
NOTE 14
LEASES
a. The consolidated balance sheet includes, in “Property, plant and equipment”, the amounts hereunder as right-of-use assets relating to
leases. 2022 and 2021 right-of-use assets under IFRS 16 are as follows:
(in millions of Canadian dollars)
Land
Buildings
Machinery and equipment
Automotive equipment
Others
Net book amount
Additions to the right-of-use assets during the 2022 financial year were $87 million (2021 - $45 million).
b. The consolidated statements of earnings include the following amounts relating to leases:
(in millions of Canadian dollars)
Depreciation and amortization of right-of-use assets
Buildings
Machinery and equipment
Automotive equipment
Others
Financing expense (included in “Financing expense”)
2022
2
130
1
50
1
184
2021
—
111
3
34
1
149
2022
2021
33
1
21
1
56
7
26
3
21
—
50
6
Expenses relating to short-term leases, low-value assets and variable lease payments not included in the lease obligation were
$1 million in 2022 (less than a million dollars in 2021).
c. The total cash outflow for leases, including the interest, in 2022 was $62 million (2021 - $54 million).
d. Refer to Note 13 for liabilities and to Note 16.4 C for future contractual payments of lease obligations.
85
2022 Annual Report
e. The future cash flows arising from leases not yet commenced but already signed are the following as of December 31, 2022 and 2021:
(in millions of Canadian dollars)
No later than one year
Later than one year but no later than five years
More than five years
2022
AUTOMOTIVE EQUIPMENT
2021
BUILDINGS
—
1
1
2
5
19
1
25
NOTE 15
PROVISIONS FOR CONTINGENCIES AND CHARGES
(in millions of Canadian dollars)
As of January 1, 2021
Additional provision
Payments
Revaluation
Unwinding of discount
Discontinued operations
As of December 31, 2021
Additional provision
Payments
Revaluation
Unwinding of discount
As of December 31, 2022
Analysis of total provisions:
(in millions of Canadian dollars)
Long-term
Current
ENVIRONMENTAL
RESTORATION
OBLIGATIONS
NOTE
ENVIRONMENTAL
COSTS
LEGAL CLAIMS
SEVERANCES
OTHERS
TOTAL
PROVISIONS
5
23
—
—
(4)
1
(2)
18
—
—
(4)
1
15
26
4
(6)
—
—
—
24
2
(6)
—
—
20
3
4
—
—
—
(1)
6
1
(4)
—
—
3
10
2
—
—
—
(4)
8
1
—
—
—
9
9
5
(9)
—
—
(2)
3
1
(2)
—
—
2
2022
41
8
49
71
15
(15)
(4)
1
(9)
59
5
(12)
(4)
1
49
2021
47
12
59
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.
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 lead the working group and they are developing 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 has recorded an environmental reserve to address its estimated exposure for this matter.
LEGAL CLAIMS
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 of December 31, 2022 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.
86
2022 Annual Report
NOTE 16
FINANCIAL INSTRUMENTS
16.1 FAIR VALUE OF FINANCIAL INSTRUMENTS
The classification of financial instruments as of December 31, 2022 and 2021, 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
2022
2021
Financial assets at fair value through profit
or loss
Derivatives
Equity 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
16.4
7
3
7
3
16.4
(14)
(14)
5
2
(6)
5
2
(6)
(2,065)
(1,969)
(1,524)
(1,558)
6
(1)
6
(1)
2
—
2
—
16.2 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 of the measurement date.
i.
ii.
The fair value of cash and cash equivalents, accounts receivable, notes receivable, bank loans and advances, trade and other
payables and provisions approximates their carrying amounts due to their relatively short maturities.
The fair value of investment in shares is based on observable market data and is quoted on the Toronto Stock Exchange and
classified as level 1.
iii. The fair value of long-term debt and some other liabilities 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 for the credit market liquidity conditions and are classified as levels 1 and 3.
iv. The fair value of derivative instruments, which include forward contracts, swap agreements and embedded derivatives accounted
for separately, is calculated as the present value of the estimated future cash flows using an appropriate interest rate yield curve
and a forward foreign exchange rate. Assumptions are based on market conditions prevailing at each reporting date and are
classified as level 2. The fair value of derivative instruments reflects the estimated amounts that the Corporation would receive or
pay to settle the contracts at the reporting date.
16.3 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 of December 31, 2022 and 2021 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.
87
2022 Annual Report
(in millions of Canadian dollars)
Financial assets
Equity investments
Derivative financial assets
Financial liabilities
Derivative financial liabilities
(in millions of Canadian dollars)
Financial assets
Equity 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)
2022
SIGNIFICANT
UNOBSERVABLE INPUTS
(LEVEL 3)
3
13
16
(15)
(15)
3
—
3
—
—
—
13
13
(15)
(15)
—
—
—
—
—
CARRYING AMOUNT
QUOTED PRICES IN ACTIVE
MARKETS FOR IDENTICAL
ASSETS (LEVEL1)
SIGNIFICANT
OBSERVABLE INPUTS
(LEVEL 2)
2021
SIGNIFICANT
UNOBSERVABLE INPUTS
(LEVEL 3)
2
7
9
(6)
(6)
2
—
2
—
—
—
7
7
(6)
(6)
—
—
—
—
—
16.4 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
2022
RISK
Currency risk
Price risk
NOTE
SHORT-TERM
LONG-TERM
TOTAL
SHORT-TERM
LONG-TERM
TOTAL
16.4 A (i)
16.4 A (ii)
2
7
9
—
4
4
2
11
13
(3)
(5)
(8)
—
(7)
(7)
(3)
(12)
(15)
2021
(in millions of Canadian dollars)
ASSETS
LIABILITIES
RISK
Currency risk
Price risk
NOTE
SHORT-TERM
LONG-TERM
TOTAL
SHORT-TERM
LONG-TERM
TOTAL
16.4 A (i)
16.4 A (ii)
—
1
1
5
1
6
5
2
7
—
—
—
(6)
—
(6)
(6)
—
(6)
88
2022 Annual Report
A. MARKET RISK
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 and in the United States. 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 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 twelve months and to hedge 0% to 75% for the subsequent
twenty-four months. The Corporation may designate these foreign exchange forward contracts as a cash flow hedge of future anticipated
sales, cost of sales, 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.
In 2022, approximately 19% of sales from Canadian operations were made to the United States.
The following table summarizes the Corporation's commitments to buy and sell foreign currencies as of December 31, 2022 and 2021:
EXCHANGE RATE
MATURITY
NOTIONAL AMOUNT
(IN MILLIONS)
FAIR VALUE (IN MILLIONS
OF CANADIAN DOLLARS)
2022
Repayment of long-term debt
Derivatives at fair value through profit or loss and classified in
Foreign exchange loss (gain) on long-term debt:
Currency option to sell US$ for CAN$
Foreign exchange forward contracts to buy US$ for CAN$
Forecasted sales and purchases
1.3290
1.3290
July 2023
July 2023
US$113
US$102
Currency put option instrument to sell US$ for CAN$
1.3971
0 to 12 months
US$26
(3)
2
(1)
—
(1)
2021
Repayment of long-term debt
Derivatives at fair value through profit or loss and classified in
Foreign exchange loss (gain) on long-term debt:
Currency option to sell US$ for CAN$
Foreign exchange forward contracts to buy US$ for CAN$
EXCHANGE RATE
MATURITY
NOTIONAL AMOUNT
(IN MILLIONS)
FAIR VALUE (IN MILLIONS
OF CANADIAN DOLLARS)
1.3290
1.3290
July 2023
July 2023
US$122
US$102
5
(6)
(1)
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 of 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 2022, 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 for the year would have been less than a million dollars lower. This is based on the net exposure of total US
sales less US purchases of the Corporation's Canadian operations and operating income of the Corporation's US operations, but excludes
the effect of this change on the denominated working capital components. The interest expense would have been approximately
$1 million higher.
CURRENCY RISK ON TRANSLATION OF SELF-SUSTAINING FOREIGN SUBSIDIARIES
The Corporation has certain investments in foreign operations whose net assets are exposed to foreign currency translation risk. The
Corporation may designate part of its long-term debt denominated in foreign currencies as a hedge of the net investment in self-sustaining
foreign subsidiaries. Gains or losses resulting from the translation to Canadian dollars of long-term debt denominated in foreign currencies
and designated as net investment hedges are recorded in “Accumulated other comprehensive income”, net of related income taxes.
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2022 Annual Report
The table below shows the effect on consolidated equity of a 10% change in the value of the Canadian dollar against the US dollar as of
December 31, 2022 and 2021. The calculation includes the effect of currency hedges of net investment in US foreign entities and assumes
that no changes occurred other than a single currency exchange rate movement.
The exposures used in the calculations are the foreign currency-denominated equity and the hedging level as of December 31, 2022
and 2021, with the hedging instruments being the long-term debt denominated in US dollars.
Consolidated Shareholders' equity: Currency effect before tax of a 10% change:
(in millions of Canadian dollars)
10% change in the CAN$/US$ rate
BEFORE HEDGES
HEDGES
2022
NET IMPACT
BEFORE HEDGES
HEDGES
2021
NET IMPACT
83
34
49
77
32
45
Price risk
ii.
The Corporation is exposed to commodity price risk on old corrugated containers, commercial pulp, 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 energy. 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 “Supply chain and logistic” in the same period, as the respective hedged item affects earnings.
The fair value of these contracts is as follows:
Forecasted purchases
Derivatives designated as held for trading and reclassified in “Supply chain and logistic”
Natural gas:
Canadian portfolio
US portfolio
Derivatives designated as cash flow hedges and reclassified in
“Supply chain and logistic" (effective portion)
Natural gas:
US portfolio
Forecasted purchases
Derivatives designated as held for trading and reclassified in “Supply chain and logistic”
Natural gas:
US portfolio
Derivatives designated as cash flow hedges and reclassified in
"Supply chain and logistic" (effective portion)
Natural gas:
US portfolio
QUANTITY
MATURITY
2022
FAIR VALUE (IN MILLIONS
OF CANADIAN DOLLARS)
292,000 mmBtu
823,000 mmBtu
2023
2023 to 2025
3,050,290 mmBtu
2023 to 2025
—
1
1
5
6
QUANTITY
MATURITY
2021
FAIR VALUE (IN MILLIONS
OF CANADIAN DOLLARS)
958,750 mmBtu
2022 to 2025
5,009,665 mmBtu
2022 to 2025
—
2
2
In 2013, the Corporation entered into an agreement to purchase steam. The agreement includes an embedded derivative and the fair
value as of December 31, 2022 was a deficit of $1 million (2021 - less than a million dollars). Greenpac also has an agreement to purchase
steam that includes an embedded derivative with a negative value of $6 million as of December 31, 2022 (2021 - less than
a million dollars).
90
2022 Annual Report
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 natural gas and electricity as of December 31, 2022 and 2021. 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 of December 31, 2022 and 2021, with
the hedging instruments being derivative commodity contracts.
Consolidated commodity consumption: Price change effect before tax:
(in millions of Canadian dollars1)
US$25/s.t. change in commercial pulp price
US$1/mmBtu. change in natural gas price
US$1/MWh change in electricity price
2022
2021
BEFORE HEDGES
HEDGES
NET IMPACT
BEFORE HEDGES
HEDGES
NET IMPACT
6
11
2
—
4
—
6
7
2
5
10
2
—
2
—
5
8
2
1 Sensitivity calculated with an exchange rate of 1.35 CAN$/US$ for 2022 and 1.25 CAN$/US$ for 2021.
Interest rate risk
iii.
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 of December 31, 2022, approximately 37% (2021 - 21%) of
the Corporation's long-term debt was at variable rates.
Based on the outstanding long-term debt as of December 31, 2022, the impact on interest expense of a 1% change in rate would be
approximately $8 million (impact on net earnings is approximately $6 million).
iv. Loss on derivative financial instruments is as follows:
(in millions of Canadian dollars)
Unrealized loss on derivative financial instruments
NOTE
23
2022
6
2021
17
B. CREDIT RISK
Credit risk arises from cash and cash equivalents, derivative financial instruments and deposits with banks and financial institutions. The
Corporation reduces this risk by dealing with credit-worthy financial institutions.
The Corporation is exposed to credit risk on the accounts receivable from its customers. In order to reduce this risk, the Corporation's
credit policies include the analysis of the financial position of its customers and the regular review of their credit limits. In addition, the
Corporation believes there is no particular concentration of credit risk due to the geographic diversity of customers and the procedures for
the management of commercial risks. Derivative financial instruments include an element of credit risk should the counterparty be unable
to meet its obligations.
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2022 Annual Report
Trade receivables are recognized initially at fair value and are subsequently measured at amortized cost using the effective interest
method, less loss allowance. An expected credit loss allowance 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 trades receivable is evaluated considering the collection history to identify
impairment. The amount of the expected credit loss allowance represents the estimated credit loss. 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
“Other”. When a trade receivable is not collectible, it is written off against the loss allowance. Subsequent recoveries of amounts previously
written off are credited against “Other” in the consolidated statement of earnings.
Loans and notes receivables from business disposals are recognized at fair value, there are no past due amounts as of
December 31, 2022.
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 of December 31, 2022 and 2021:
(in millions of Canadian dollars)
Non-derivative financial liabilities:
Bank loans and advances
Trade and other payables
Revolving credit facility
Unsecured senior notes
Term loan
Lease obligations with recourse to the Corporation
Other debts with recourse to the Corporation
Lease obligations without recourse to the Corporation
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
Term loan
Lease obligations with recourse to the Corporation
Other debts with recourse to the Corporation
Lease obligations without recourse to the Corporation
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
3
746
350
1,057
352
186
31
22
69
15
3
746
426
1,331
466
227
32
23
73
15
3
746
22
56
23
52
13
9
71
8
—
—
22
56
23
45
8
7
—
4
—
—
382
586
420
57
11
7
2
3
2,831
3,342
1,003
165
1,468
2022
MORE THAN
FIVE YEARS
—
—
—
633
—
73
—
—
—
—
706
2021
CARRYING
AMOUNT
CONTRACTUAL
CASH FLOWS
LESS THAN
ONE YEAR
BETWEEN
ONE AND
TWO YEARS
BETWEEN
TWO AND
FIVE YEARS
MORE THAN
FIVE YEARS
1
707
6
998
202
161
35
9
117
6
1
707
6
1,307
219
201
36
9
122
6
1
707
—
53
11
42
17
7
10
—
2,242
2,614
848
—
—
—
53
10
35
6
1
112
6
223
—
—
6
581
198
55
6
1
—
—
847
—
—
—
620
—
69
7
—
—
—
696
As of December 31, 2022, the Corporation had unused credit facilities of $438 million (December 31, 2021 - $746 million), net of
outstanding letters of credit of $15 million (December 31, 2021 - $14 million).
D. OTHER RISK
STOCK-BASED COMPENSATION
The Corporation entered into an agreement to hedge the share price volatility related to its Deferred Share Units and Performance Share
Unit plans. As of December 31, 2022, the agreement's notional amount was 1,066,000 shares at a price of $8.34 (December 31, 2021 -
notional amount: 766,000, share price: $13.43). The fair value as of December 31, 2022 was a receivable of less than a million dollars
(December 31, 2021 - receivable: less than a million dollars).
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2022 Annual Report
NOTE 17
OTHER LIABILITIES
(in millions of Canadian dollars)
Employee future benefits
Other
Less: Current portion
NOTE
18
21
2022
95
16
111
(14)
97
2021
118
20
138
(16)
122
As of December 31, 2022, the balance on the line “Other” includes an amount of $2 million (December 31, 2021 - $4 million) pertaining to a
call option granted to the Corporation by one of the minority shareholders of Falcon Packaging LLC.
NOTE 18
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 - Assets (Surplus)
Defined pension benefits - Liabilities
Post-employment benefits other than defined benefit pension plans
Net long-term liabilities on consolidated balance sheet
Expenses recorded in consolidated statement of earnings for
Defined pension benefits
Defined contribution benefits
Post-employment benefits other than defined benefit pension plans
Defined pension benefits included in discontinued operations
Consolidated other comprehensive (income) loss remeasurements for
Defined pension benefits
Post-employment benefits other than defined benefit pension plans
NOTE
2022
2021
18 A
18 B
18 A
18 B
(40)
30
(10)
65
55
5
37
4
—
46
(20)
(13)
(33)
(29)
39
10
79
89
6
35
6
1
48
(24)
(5)
(29)
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 salary 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 investment managers, investment consultants, actuaries
and custodians.
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2022 Annual Report
The movement in the net defined benefit obligation and fair value of plan assets of defined benefit pension plans over the year is
as follows:
(in millions of Canadian dollars)
As of January 1, 2021
Current service cost
Interest expense (income)
Impact on consolidated profit or loss
Remeasurements
Return on plan assets, excluding amounts included in interest income
Gain from change in financial assumptions
Change in asset ceiling, excluding amounts included in interest expense
Impact of remeasurements on consolidated other comprehensive income (loss)
Discontinued operations
Contributions
Employers
Plan participants
Benefit payments
As of December 31, 2021
Current service cost
Interest expense (income)
Impact on consolidated profit or loss
Remeasurements
Return on plan assets, excluding amounts included in interest income
Gain from change in demographic assumptions
Gain from change in financial assumptions
Experience loss
Impact of remeasurements on consolidated other comprehensive income (loss)
Contributions
Employers
Plan participants
Benefit payments
As of December 31, 2022
PRESENT VALUE
OF OBLIGATION
FAIR VALUE OF
PLAN ASSETS
551
4
13
17
—
(29)
—
(29)
(35)
—
1
(30)
475
4
14
18
—
(1)
(93)
1
(93)
—
1
(29)
372
(495)
—
(11)
(11)
1
—
—
1
(1)
(5)
(1)
30
(482)
—
(13)
(13)
73
—
—
—
73
(5)
(1)
29
(399)
TOTAL
56
4
2
6
1
(29)
—
(28)
(36)
(5)
—
—
(7)
4
1
5
73
(1)
(93)
1
(20)
(5)
—
—
(27)
IMPACT OF
MINIMUM
FUNDING
REQUIREMENT
(ASSET CEILING)
13
—
—
—
—
—
4
4
—
—
—
—
17
—
—
—
—
—
—
—
—
—
—
—
17
TOTAL
69
4
2
6
1
(29)
4
(24)
(36)
(5)
—
—
10
4
1
5
73
(1)
(93)
1
(20)
(5)
—
—
(10)
94
2022 Annual Report
The defined benefit obligation and plan assets are composed by country as follows:
(in millions of Canadian dollars)
Present value of funded obligations
Fair value of plan assets
Deficit (surplus) of funded plans
Impact of minimum funding requirement (asset ceiling)
Present value of unfunded obligations
Liabilities (assets) on consolidated balance sheet
(in millions of Canadian dollars)
Present value of funded obligations
Fair value of plan assets
Deficit (surplus) of funded plans
Impact of minimum funding requirement (asset ceiling)
Present value of unfunded obligations
Liabilities on consolidated balance sheet
The significant actuarial assumptions are as follows:
Discount rate obligation (ending period)
Discount rate obligation (beginning period)
Discount rate (current service cost)
Salary growth rate
Inflation rate
CANADA
UNITED STATES
337
393
(56)
17
27
(12)
8
6
2
—
—
2
CANADA
UNITED STATES
432
475
(43)
17
33
7
10
7
3
—
—
3
2022
TOTAL
345
399
(54)
17
27
(10)
2021
TOTAL
442
482
(40)
17
33
10
CANADA
5.20%
3.00%
5.20%
Between 2.00%
and 2.50%
2.00%
2022
UNITED STATES
4.90%
2.40%
4.90%
N/A
N/A
CANADA
3.00%
2.50%
3.30%
Between 2.00%
and 2.50%
2.00%
2021
UNITED STATES
2.40%
2.00%
2.40%
N/A
N/A
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 98% 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 reporting period
Male
Female
Retiring 20 years after the end of the reporting period
Male
Female
2022
22.0
24.4
23.0
25.3
2021
22.0
24.3
23.0
25.3
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.
Discount rate
Salary growth rate
Life expectancy
IMPACT ON DEFINED BENEFIT OBLIGATION
CHANGE IN ASSUMPTION
INCREASE IN ASSUMPTION
DECREASE IN ASSUMPTION
0.25%
0.25%
(2.10%)
0.30%
2.20%
(0.30%)
INCREASE / DECREASE BY ONE YEAR IN ASSUMPTION
2.50%
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2022 Annual Report
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
Foreign bonds
Shares
Canadian shares
Foreign shares
Mutual funds
Foreign bond mutual funds
Canadian equity mutual funds
Foreign equity mutual funds
Alternative investment funds
Other
Insured annuities
(in millions of Canadian dollars)
Cash and short-term investments
Bonds
Canadian bonds
Foreign bonds
Shares
Canadian shares
Foreign shares
Mutual funds
Foreign bond mutual funds
Canadian equity mutual funds
Foreign equity mutual funds
Alternative investment funds
Other
Insured annuities
LEVEL 1
LEVEL 2
LEVEL 3
7
54
—
54
13
3
16
—
2
—
—
2
—
—
79
—
46
1
47
—
—
—
5
1
45
32
83
190
190
320
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
LEVEL 1
LEVEL 2
LEVEL 3
5
72
—
72
16
3
19
—
4
—
—
4
—
—
100
—
52
1
53
—
—
—
6
1
50
29
86
243
243
382
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2022
%
1.8%
25.3%
4.0%
21.3%
47.6%
2021
%
1.1%
25.9 %
3.9%
18.7%
50.4%
TOTAL
7
100
1
101
13
3
16
5
3
45
32
85
190
190
399
TOTAL
5
124
1
125
16
3
19
6
5
50
29
90
243
243
482
The plan assets do not include any shares of the Corporation. The Corporation has purchased annuity contracts of an approximate value
of $190 million to fulfill future benefits payments.
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2022 Annual Report
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 are determined as follows:
(in millions of Canadian dollars)
Present value of unfunded obligations
Liabilities on consolidated balance sheet
(in millions of Canadian dollars)
Present value of unfunded obligations
Liabilities on consolidated balance sheet
CANADA
UNITED STATES
61
61
4
4
CANADA
UNITED STATES
75
75
4
4
The movement in the net defined benefit obligation for post-employment benefits over the year is as follows:
(in millions of Canadian dollars)
As of January 1, 2021
Current service cost
Past service cost
Interest expense
Impact on consolidated profit or loss
Remeasurements
Gain from change in demographic assumptions
Gain from change in financial assumptions
Experience gain
Impact of remeasurements on consolidated other comprehensive income (loss)
Discontinued operations
Benefit payments
As of December 31, 2021
Current service cost
Interest expense
Impact on consolidated profit or loss
Remeasurements
Gain from change in financial assumptions
Experience gain
Impact of remeasurements on consolidated other comprehensive income (loss)
Benefit payments
As of December 31, 2022
PRESENT VALUE OF
OBLIGATION FAIR VALUE OF PLAN ASSET
105
2
2
2
6
(1)
(3)
(1)
(5)
(23)
(4)
79
2
2
4
(12)
(1)
(13)
(5)
65
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2022
TOTAL
65
65
2021
TOTAL
79
79
TOTAL
105
2
2
2
6
(1)
(3)
(1)
(5)
(23)
(4)
79
2
2
4
(12)
(1)
(13)
(5)
65
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 4.81% a year on average (2021 - 4.81%).
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2022 Annual Report
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%
(2.10%)
0.50%
1.50%
1.80%
(0.50%)
(1.20%)
INCREASE / DECREASE BY ONE YEAR IN ASSUMPTION
1.40%
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. Most of the pension 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 of December 31, 2022, 66% of the plan's invested assets are in fixed income. As of December 31, 2022, the total value of insured
annuities is $190 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.
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 of December 31, 2022, the aggregate net surplus of the Corporation’s funded pension plans (mostly in Canada) amounted to
$54 million (a surplus of $40 million as of December 31, 2021). Current agreed expected service contributions amount to $3 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 $2 million in 2023, since $1 million of employer service contribution will be paid from plan surplus.
The weighted average duration of the defined benefit obligation is 9 years (2021 - 12 years).
98
2022 Annual Report
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 of December 31, 2022
ONE YEAR
TWO YEARS
BETWEEN THREE
AND FIVE YEARS
BETWEEN SIX
AND TEN YEARS
30
6
36
30
12
42
91
24
115
632
76
708
TOTAL
783
118
901
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, 2022.
NOTE 19
INCOME TAXES
a. The provision for (recovery of) income taxes is as follows:
(in millions of Canadian dollars)
Current taxes
Deferred taxes
2022
11
(33)
(22)
2021
9
—
9
b. The provision for (recovery of) income taxes based on the effective income tax rate differs from the recovery of income taxes based on
the combined basic rate for the following reasons:
(in millions of Canadian dollars)
Recovery of income taxes based on the combined basic Canadian and provincial income tax rate
Adjustment for income taxes arising from the following:
Prior years reassessment
Reversal of deferred income tax assets related to prior year losses
Permanent differences
Other
Provision for (recovery of) income taxes
2022
(10)
(6)
—
(6)
—
(12)
(22)
Weighted average income tax rate for the year ended December 31, 2022 was 24.27% (2021 - 26.03%).
c. The provision for income taxes relating to components of consolidated other comprehensive income (loss) is as follows:
(in millions of Canadian dollars)
Foreign currency translation related to hedging activities
Foreign currency translation related to hedging activities from discontinued operations
Cash flow hedge
Actuarial gain (loss) on post-employment benefit obligations
Provision for income taxes
2022
(3)
—
1
8
6
2021
(10)
4
18
(2)
(1)
19
9
2021
1
1
1
7
10
99
2022 Annual Report
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
Jurisdiction legal entities reclassification
Deferred income tax liabilities:
Deferred income tax liabilities to be used after more than twelve months
Jurisdiction legal entities reclassification
e. The movement of the deferred income tax account is as follows:
(in millions of Canadian dollars)
Balance at beginning of year
Through consolidated statements of earnings (loss)
Variance of income tax credit, net of related income tax
Through consolidated statements of comprehensive income
Through business disposal and discontinued operations
Exchange differences
Balance at end of year
2022
372
(258)
114
390
(258)
132
(18)
2022
(54)
33
13
(6)
—
(4)
(18)
2021
299
(161)
138
353
(161)
192
(54)
2021
(40)
—
11
(10)
(16)
1
(54)
NOTE
5
f. 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)
NOTE
RECOGNIZED
TAX BENEFIT
ARISING
FROM
INCOME TAX
LOSSES
EMPLOYEE
FUTURE
BENEFITS
EXPENSE ON
RESEARCH
UNUSED TAX
CREDITS
FINANCIAL
INSTRUMENTS
LONG-TERM
DEBT
LONG TERM
DEBT
FINANCE
LEASES
As of January 1, 2021
Through consolidated statements of
earnings (loss)
Variance of income tax credit
Through consolidated statements of
comprehensive income
Through business disposal and
discontinued operations
As of December 31, 2021
Through consolidated statements of
earnings (loss)
Variance of income tax credit
Through consolidated statements of
comprehensive income
Others
Exchange differences
As of December 31, 2022
140
12
—
—
5
(25)
127
19
—
—
—
7
153
36
(4)
—
(7)
(2)
23
(5)
—
(6)
—
—
12
10
65
(4)
(4)
—
—
—
6
24
—
—
—
—
30
11
—
(1)
71
2
13
—
—
2
88
—
—
—
—
—
—
3
—
—
—
—
3
—
3
—
—
—
3
38
2
—
—
—
40
(3)
(13)
—
—
—
—
—
—
—
21
1
49
OTHERS
42
TOTAL
331
(8)
—
—
(5)
29
6
—
—
—
2
37
(3)
11
(7)
(33)
299
33
13
(6)
21
12
372
100
2022 Annual Report
DEFERRED INCOME TAX LIABILITIES
(in millions of Canadian dollars)
As of January 1, 2021
Through consolidated statements of earnings (loss)
Through consolidated statements of comprehensive income
Through business disposal and discontinued operations
5
Exchange differences
As of December 31, 2021
Through consolidated statements of earnings (loss)
Others
Exchange differences
As of December 31, 2022
PROPERTY,
PLANT AND
EQUIPMENT
NOTE
LONG-TERM
DEBT
INTANGIBLE
ASSETS
FINANCIAL
INSTRUMENTS
INVESTMENTS
OTHERS
312
19
—
(17)
(2)
312
7
21
15
355
8
(8)
—
—
—
—
—
—
—
—
35
(12)
—
—
—
23
(9)
—
—
14
—
(1)
16
(2)
3
—
1
3
—
—
3
—
—
—
14
3
—
1
18
—
1
—
—
—
1
(1)
—
—
—
TOTAL
371
(3)
3
(17)
(1)
353
—
21
16
390
g. The Corporation has recognized accumulated losses for income tax purposes amounting to approximately $611 million, which may be
carried forward to reduce taxable income in future years. The future tax benefit of $153 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.
NOTE 20
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
Net debt
Total equity
Total capital
2022
(102)
3
2,065
1,966
1,928
3,894
2021
(174)
1
1,524
1,351
1,927
3,278
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.
101
2022 Annual Report
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 (2022 - $1,933 million; 2021 - $1,357 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 of December 31, 2010 in the amount of $208 million. The interest coverage ratio is defined as earnings before interest, taxes,
depreciation and amortization (EBITDA) to financing expense. The EBITDA 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 (2022 - $279 million; 2021 - $360 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 November 26, 2019.
As of December 31, 2022, the funded debt-to-capitalization ratio stood at 48.18% and the interest coverage ratio was 3.27x. 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 November 26, 2019.
In the past five years, the Corporation has invested between $125 million and $200 million annually on purchases of property, plant and
equipment, excluding major strategic projects. These amounts are carefully reviewed during the course of the year in relation to operating
results and strategic actions approved by the Board of Directors. These investments, combined with annual maintenance, enhance the
stability of the Corporation's business units and improve cost competitiveness through new technology and improved process procedures.
The Corporation has an annual share redemption program in place to redeem its outstanding common shares when the market price is
judged appropriate by Management. In addition to limitations on the normal course issuer bid, the Corporation's ability to redeem common
shares is limited by its senior notes indenture.
ISSUED AND OUTSTANDING
B.
The authorized capital stock of the Corporation consists of an unlimited number of common shares without nominal value and an unlimited
number of Class A and B shares issuable in series without nominal value. Over the past two years, the common shares have fluctuated
as follows:
NOTE
NUMBER OF
COMMON SHARES
IN MILLIONS OF
CANADIAN DOLLARS
NUMBER OF
COMMON SHARES
IN MILLIONS OF
CANADIAN DOLLARS
2022
2021
Balance at beginning of year
Common shares issued on exercise of stock options
Redemption of common shares
Balance at end of year
20 D
20 C
100,860,362
355,686
(854,421)
100,361,627
614
2
(5)
611
102,276,230
235,732
(1,651,600)
100,860,362
622
2
(10)
614
C. REDEMPTION OF COMMON SHARES
In 2022, in the normal course of business, the Corporation renewed its redemption program of a maximum of 2,015,053 common shares
with the Toronto Stock Exchange, said shares representing approximately 2% of issued and outstanding common shares. The redemption
authorization is valid from March 19, 2022 to March 18, 2023. In 2022, the Corporation redeemed 854,421 common shares under this
program for an amount of $9 million (2021 - $26 million for 1,651,600 common shares).
102
2022 Annual Report
D. COMMON SHARE ISSUANCE
The Corporation issued 355,686 common shares upon the exercise of options for an amount of $1 million (2021 - $2 million for
235,732 common shares issued).
E. NET EARNINGS (LOSS) PER COMMON SHARE
The basic and diluted net earnings (loss) per common share are calculated as follows:
Net loss from continuing operations available to Shareholders (in millions of Canadian dollars)
Net earnings (loss) available to 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 loss from continuing operations per common share (in Canadian dollars)
Diluted net loss from continuing operations per common share (in Canadian dollars)
Basic net earnings (loss) per common share (in Canadian dollars)
Diluted net earnings (loss) per common share (in Canadian dollars)
2022
(34)
(34)
101
101
($0.34)
($0.34)
($0.34)
($0.34)
2021
(59)
162
102
103
($0.59)
($0.59)
$1.60
$1.59
As of December 31, 2022, 1,922,125 stocks options have an antidilutive effect (2021 - 382,999 stocks options). As of February 22, 2023,
no common share had been redeemed by the Corporation since the beginning of the 2023 financial year.
F. DETAILS OF DIVIDENDS DECLARED PER COMMON SHARE ARE AS FOLLOWS:
Dividends declared per common share (in Canadian dollars)
NOTE 21
STOCK-BASED COMPENSATION
2022
$0.48
2021
$0.48
A. OPTIONS
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 606,052 common shares is specifically reserved for issuance to 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 twelve months after the first anniversary date of grant and up to an additional 25% every twelve
months after the second, third and fourth anniversaries of grant date. Options cannot be exercised if the market value of the share at the
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 2022 (2021 - $1 million).
Changes in the number of options outstanding as of December 31, 2022 and 2021 are as follows:
Balance at beginning of year
Granted
Exercised
Forfeited
Balance at end of year
Options exercisable - at end of year
NUMBER OF OPTIONS
WEIGHTED AVERAGE
EXERCISE PRICE ($)
NUMBER OF OPTIONS
WEIGHTED AVERAGE
EXERCISE PRICE ($)
2022
2021
2,373,416
785,532
(355,686)
(8,918)
2,794,344
1,740,282
9.10
10.26
4.47
11.21
10.01
9.27
2,433,090
189,752
(235,732)
(13,694)
2,373,416
1,920,056
8.42
14.67
6.50
10.76
9.10
8.01
The weighted average share price at the time of exercise of the options was $10.15 (2021 - $14.81).
103
2022 Annual Report
The following options were outstanding as of December 31, 2022:
YEAR GRANTED
NUMBER OF OPTIONS
OPTIONS OUTSTANDING
WEIGHTED AVERAGE
EXERCISE PRICE ($)
NUMBER OF OPTIONS
OPTIONS EXERCISABLE
WEIGHTED AVERAGE
EXERCISE PRICE ($)
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
304,203
297,030
270,986
244,654
194,810
149,981
188,702
178,768
186,610
778,600
2,794,344
5.18
6.10
7.66
9.75
14.28
12.39
11.97
13.95
14.67
10.26
304,203
297,030
270,986
244,654
194,810
149,981
142,188
89,790
46,640
—
1,740,282
5.18
6.10
7.66
9.75
14.28
12.39
11.97
13.95
14.67
10.26
EXPIRATION DATE
2023
2023 - 2024
2023 - 2025
2023 - 2026
2023 - 2027
2023 - 2028
2023 - 2029
2023 - 2030
2031
2032
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 $2.37 (2021 - $4.09) as of 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
2022
$10.29
$10.26
2.68%
4.66%
6.25 years
36%
2021
$14.94
$14.67
1.07%
3.21%
6 years
39%
B. SHARE PURCHASE PLAN
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, 2022, the Corporation's
contribution to the plan amounted to $2 million (2021 - $2 million).
C. PERFORMANCE SHARE UNIT PLAN
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 (ROCE) of the Corporation and for 2022 grants and after, a greenhouse gas emissions indicator (the expected average on two
years of greenhouse gas emissions reduction in kg of CO2). 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 and by the applicable multiplier based on greenhouse gas
emission indicator 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 periodically adjusted to reflect any variation in the market value of the common shares, the expected average ROCE,
the expected average greenhouse gas emission indicator and the passage of time. As of December 31, 2022, the Corporation had a total
of 848,292 PSUs outstanding (2021 - 611,847 PSUs) for a fair value of $1 million (2021 - $2 million). In 2022, the Corporation made
payment of $1 million in relation to PSUs (2021 - $2 million).
104
2022 Annual Report
D. DEFERRED SHARE UNIT PLAN
The Corporation has a Deferred Share Unit Plan for the benefit of its external directors, officers and key employees, 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 or the Corporation, 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 periodically adjusted to reflect any variation in the
market value of the common shares. As of December 31, 2022, the Corporation had a total of 1,033,303 DSUs outstanding (2021 -
759,927 DSUs), representing a liability of $11 million (2021 - $13 million). In 2022, the Corporation made payment of less than a million
dollars in relation to DSUs (2021 - $2 million). On January 15, 2023, the Corporation issued 129,161 DSUs.
E. RESTRICTED SHARE UNIT PLAN
The Corporation has a Restricted Share Unit (RSU) Plan for the benefit of officers and key employees, allowing them to receive a portion
of their annual compensation in the form of RSUs. A RSU is a notional unit equivalent in value to the Corporation's common share.
Participants are entitled to receive the payment of their RSUs 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 vesting date.
The RSUs vest over a period of three years starting on the award date. The expense and the related liability are recorded during the
vesting period. The liability is periodically adjusted to reflect any variation in the market value of the common shares and the passage of
time. As of December 31, 2022, the corporation had a total of 23,605 RSUs outstanding for a fair value of less than a million dollars.
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
NOTE
21 A
18
18
18
2022
945
1
5
37
4
992
2021
899
1
6
35
6
947
In 2022, the Corporation received no funds from the “Canada Emergency Wage Subsidy” grant program. In 2021, $1 million was received
and was accounted in “Wages and employee benefits expenses”.
KEY MANAGEMENT COMPENSATION
Key management includes the members of the Board of Directors, President and Vice Presidents of the Corporation. The compensation
paid or payable to key management for their services is shown below:
(in millions of Canadian dollars)
Salaries and other short-term benefits
Post-employment benefits
Share-based payments
2022
12
2
3
17
2021
14
2
3
19
105
2022 Annual Report
NOTE 23
IMPAIRMENT CHARGES, RESTRUCTURING COSTS AND OTHER LOSS (GAIN)
(in millions of Canadian dollars)
Impairment charges
Spare parts
Property, plant and equipment
Goodwill and other intangible assets with indefinite useful life
Gain on acquisitions, disposals and others
Restructuring costs
Unrealized loss (gain) on derivative financial instruments
(in millions of Canadian dollars)
Impairment charges
Spare parts
Property, plant and equipment
Customer relationships and client list
Goodwill and other intangible assets with indefinite useful life
Gain on acquisitions, disposals and others
Restructuring costs
Unrealized loss on derivative financial instruments
PACKAGING PRODUCTS
CONTAINER-
BOARD
SPECIALTY
PRODUCTS
SUB-TOTAL
TISSUE PAPERS
CORPORATE
ACTIVITIES
—
10
—
10
—
—
7
17
—
—
3
3
(16)
—
—
(13)
—
10
3
13
(16)
—
7
4
4
85
—
89
(4)
3
—
88
—
—
—
—
—
—
(1)
(1)
PACKAGING PRODUCTS
CONTAINER-
BOARD
SPECIALTY
PRODUCTS
SUB-TOTAL
TISSUE PAPERS
CORPORATE
ACTIVITIES
—
1
—
—
1
—
4
17
22
—
—
—
—
—
—
—
—
—
—
1
—
—
1
—
4
17
22
1
16
35
36
88
(40)
17
—
65
—
—
—
—
—
—
—
—
—
2022
TOTAL
4
95
3
102
(20)
3
6
91
2021
TOTAL
1
17
35
36
89
(40)
21
17
87
IMPAIRMENT CHARGES
2022
The Containerboard Packaging segment recorded an impairment charge of $10 million on some property, plant and equipment related to
the closure of a plant in Canada and to unused assets in Canada and the USA. The recoverable amount was determined using the market
approach of comparable assets on the market.
The Specialty Products segment recorded an impairment charge of $3 million on goodwill, related to the closure of a plant in USA. The
recoverable amount of goodwill was determined using an income approach.
The Tissue Papers segment recorded an impairment charge of $4 million on spare parts and $10 million on some property, plant and
equipment related to the permanent closure of a plant in the USA. The recoverable amount was determined using the market approach of
comparable assets on the market.
The Tissue Papers segment also recorded an impairment charge of $55 million on machinery and equipment related to assets acquired in
2019 in the USA due to slower ramp-up and lower efficiency than expected. The recoverable amount was determined using the market
approach of comparable assets on the market. For the same plants, an impairment charge related to buildings of $20 million was recorded.
The recoverable amount was established using the income method over a period of 20 years and a capitalization rate of 7.25%.
106
2022 Annual Report
2021
The Containerboard Packaging segment recorded an impairment charge of $1 million on an asset that became idle following the
introduction of a new technology. The recoverable amount was lower than its carrying amount, which was based on its fair value less cost
of disposal determined using the market approach of comparable assets on the market.
The Tissue Papers segment recorded an impairment charge of $1 million on spare parts related to closed plants.
The market dynamic led to lower than usual volumes in the Tissue Papers segment. Specifically, volume impacts in the Away-from-Home
market began in the second quarter of 2020, while lower volumes in the Consumer Products market started in the second quarter of 2021
following higher than usual demand in the prior year. The current market dynamic led the Corporation to record an impairment charge of
$35 million on customer relationships and client lists and of $36 million on the goodwill of this segment, reflecting uncertainty about the
recoverable amount of the segment compared to its carrying value. The recoverable amount for the customer relationship and client lists
was determined using a market approach. The most significant assumption used was the EBITDA multiple of 7x. The recoverable amount
of goodwill was determined using an income approach. The most significant assumptions used were the discount rate, shipment levels,
foreign exchange rates, revenue growth rate, EBITDA margins and capital expenditures.
The Tissue Papers segment also recorded an impairment charge of $16 million on property, plant and equipment of one of its
United States CGUs due to sustained difficult market conditions and assets underperformance. The recoverable amount of these assets
was determined using the market approach of comparable assets on the market.
GOODWILL AND OTHER INDEFINITE USEFUL LIFE INTANGIBLE ASSETS IMPAIRMENT TEST
Allocation of goodwill and other indefinite useful life intangible assets is as follows:
• Containerboard Packaging segment goodwill of $487 million is allocated to the Containerboard segment.
Annually, the Corporation must test all of its goodwill for impairment.
The Corporation tested its Containerboard Packaging segment goodwill for impairment. As a result of this impairment test, the Corporation
concluded that the recoverable amount of the segment exceeded its carrying amount, thus no impairment charge was necessary. The key
assumptions used by the Corporation are the adjusted earnings before interest, taxes, depreciation and amortization margin (EBITDA (A)
margin), capital expenditures, the foreign exchange rate and shipments based on historical and expected levels.
The Corporation applied the income approach in determining fair value less cost of disposal (level 2 inputs).
With all other variables held constant, a rise reasonably possible in the discounting rate of 1.8% would reduce the excess to nil.
Discounting rate
CONTAINERBOARD
PACKAGING
11.5%
GAIN ON ACQUISITIONS, DISPOSALS AND OTHERS
2022
The Specialty Products segment recorded a $16 million gain from the sale of lands and a building related to closed plants in Canada.
The Tissue Papers segment recorded a $4 million gain from the settlement of a supply agreement.
2021
The Tissue Papers segment recorded a $40 million gain from the sale of buildings related to closed plants in the USA and in Canada.
RESTRUCTURING COSTS
2022
The Tissue Papers segment recorded additional costs totaling $3 million related to asset relocation and severances.
107
2022 Annual Report
2021
The Containerboard Packaging segment recorded severance charges totaling $3 million as part of the margin improvement program.
The Containerboard Packaging segment also recorded closure costs totaling $1 million related to the closure of plants in Ontario, Canada.
The Tissue Papers segment recorded additional costs totaling $17 million related to asset relocation and severances.
UNREALIZED LOSS ON DERIVATIVE FINANCIAL INSTRUMENTS
In 2022, the Corporation recorded an unrealized loss of $6 million, compared to an unrealized loss of $17 million in 2021, on certain
derivative financial instruments not designated for hedge accounting. The Containerboard Packaging segment recorded an unrealized loss
of $7 million in 2022 and $17 million in 2021 is due to a steam contract embedded derivatives related to our Niagara Falls containerboard
complex. Corporate Activities recorded an unrealized gain of $1 million in 2022 due to the financial hedging contracts for natural
gas purchases.
NOTE 24
ADDITIONAL INFORMATION
A. CHANGES IN NON-CASH WORKING CAPITAL COMPONENTS ARE DETAILED AS FOLLOWS:
(in millions of Canadian dollars)
Accounts receivable
Current income tax assets
Inventories
Trade and other payables
Current income tax liabilities
B. FINANCING EXPENSE
(in millions of Canadian dollars)
Interest on long-term debt (including lease obligations interest)
Interest income
Amortization of financing costs
Other interest and banking fees
Interest expense on employee future benefits
Loss on repurchase of long-term debt
Unrealized loss on options fair value
Foreign exchange loss (gain) on long-term debt and financial instruments
2022
(30)
9
(69)
(12)
(14)
(116)
2022
69
—
2
5
3
—
—
9
88
2021
17
4
(91)
46
(12)
(36)
2021
79
(1)
3
3
4
20
1
(3)
106
NOTE
14(b)
LOSS ON REPURCHASE OF LONG-TERM DEBT
In 2021, the Corporation redeemed US$144 million ($180 million) and US$155 million ($192 million) of its 2026 and 2028 unsecured senior
notes, respectively, and paid an early repurchase premium totaling US$18 million ($22 million) and wrote off $4 million of unamortized
financing costs and $8 million of unamortized issuance premium related to these notes. The Corporation also paid transaction fees totaling
$2 million.
UNREALIZED LOSS ON OPTIONS FAIR VALUE
In 2021, the Corporation recorded an unrealized loss of $1 million, pertaining to a call option granted to the Corporation by one of the
minority shareholders of Falcon Packaging LLC.
FOREIGN EXCHANGE LOSS (GAIN) ON LONG-TERM DEBT AND FINANCIAL INSTRUMENTS
In 2022, the Corporation recorded a loss of $9 million on its US$ denominated debt and related financial instruments, compared to a gain
of $3 million in 2021. This is composed of foreign exchange forward contracts not designated for hedge accounting.
108
2022 Annual Report
C. TOTAL NET DEBT FROM FINANCING ACTIVITIES
(in millions of Canadian dollars)
As of January 1, 2021
Cash flow
Change in cash and cash equivalents
Bank loans and advances
Change in credit facilities
Payments of term loan
Repurchase of unsecured senior notes
Increase in other long-term debt
Payments of other long-term debt, including lease
obligations
Business disposal included in discontinued operations
Non-cash changes
Business disposal included in discontinued operations
Foreign exchange translation on long-term debt and
financial instruments
Right-of-use assets acquisitions and of property, plant and
equipment included in other debts
Right-of-use assets disposals
Amortization of financing costs in long-term debt
Write off of unamortized financing costs following
repurchase of unsecured senior notes
Other
Exchange differences
As of December 31, 2021
Cash flow
Change in cash and cash equivalents
Bank loans and advances
Change in credit facilities
Increase in term loan
Payments of term loan
Payments of other long-term debt, including lease
obligations
Non-cash changes
Foreign exchange translation on long-term debt and
financial instruments
Right-of-use assets acquisitions and of property, plant and
equipment included in other debts
Right-of-use assets disposals
Amortization of financing costs in long-term debt
Other
Exchange differences
As of December 31, 2022
NOTE
CASH AND
CASH EQUIVALENT
BANK LOANS
AND ADVANCES
13
13
5
5
13
13
(384)
565
—
—
—
—
—
—
(454)
98
—
—
—
—
—
—
1
(174)
70
—
—
—
—
—
—
—
—
—
—
2
(102)
12
—
(11)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1
—
2
—
—
—
—
—
—
—
—
—
—
3
LONG-TERM DEBT
2,051
NET DEBT
1,679
—
—
5
(6)
(372)
5
(69)
—
(111)
(11)
45
(4)
2
(4)
(1)
(6)
1,524
—
—
323
355
(219)
(117)
32
87
(2)
2
3
77
565
(11)
5
(6)
(372)
5
(69)
(454)
(13)
(11)
45
(4)
2
(4)
(1)
(5)
1,351
70
2
323
355
(219)
(117)
32
87
(2)
2
3
79
2,065
1,966
109
2022 Annual Report
NOTE 25
COMMITMENTS
CAPITAL EXPENDITURES, INTANGIBLE ASSETS, RAW MATERIALS AND SUPPLIES AND SERVICE AGREEMENTS
Capital expenditures, intangible assets, raw materials and supplies and service agreements contracted at the end of the reporting period
but not yet incurred are presented in the following table:
(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
INTANGIBLE
ASSETS
RAW MATERIALS
AND SUPPLIES
2022
SERVICE
AGREEMENTS
AND EXEMPTED
LEASES
PROPERTY,
PLANT AND
EQUIPMENT
INTANGIBLE
ASSETS
RAW MATERIALS
AND SUPPLIES
107
—
—
107
9
—
—
9
18
19
—
37
22
14
2
38
104
—
—
104
8
—
—
8
4
19
4
27
2021
SERVICE
AGREEMENTS
AND EXEMPTED
LEASES
29
9
1
39
Raw materials and supplies commitments include an amount of $25 million in 2022 ($27 million in 2021) spread over five years with
an associate.
NOTE 26
RELATED PARTY TRANSACTIONS
The Corporation entered into the following transactions with related parties:
(in millions of Canadian dollars)
For the year ended December 31, 2022
Sales to related parties
Purchases from related parties
For the year ended December 31, 2021
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
284
112
263
89
83
34
61
37
December 31,
2022
December 31,
2021
9
15
4
2
15
8
5
1
The receivables from related parties arise mainly from sale transactions. The receivables are unsecured in nature and bear no interest.
There are no provisions held against receivables from related parties. The payables to related parties arise mainly from purchase
transactions. The payables bear no interest.
110
2022 Annual Report
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