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Cascades Announces Third Quarter 2017 Results; Approaches target debt leverage ratio

KINGSEY FALLS, QC, Nov. 9, 2017 /PRNewswire/ - Cascades Inc. (TSX: CAS) reports its unaudited financial results for the three-month period ended September 30, 2017.

Q3 2017 Highlights

  • Sales of $1,103 million
    (compared to $1,130 million in Q2 2017 (-2%) and $1,021 million in Q3 2016 (+8%))
  • As reported4 (including specific items)
    • Operating income of $51 million
      (compared to $48 million in Q2 2017 (+6%) and $50 million in Q3 2016 (+2%))
    • Operating income before depreciation and amortization (OIBD)1 of $104 million
      (compared to $104 million in Q2 2017 and $98 million in Q3 2016 (+6%))
    • Net earnings per common share of $0.35
      (compared to net earnings of $2.70 in Q2 2017 and net earnings of $0.21 in Q3 2016)
  • Adjusted (excluding specific items)1
    • Operating income of $53 million
      (compared to $51 million in Q2 2017 (+4%) and $55 million in Q3 2016 (-4%))
    • OIBD of $106 million
      (compared to $107 million in Q2 2017 (-1%) and $103 million in Q3 2016 (+3%))
    • Net earnings per common share of $0.20
      (compared to net earnings of $0.25 in Q2 2017 and net earnings of $0.32 in Q3 2016)
  • Announced construction of a new US$80 million state of the art corrugated packaging plant in Piscataway, New Jersey.
  • Announced the closure of our Maspeth, New York, packaging plant. Property put up for sale for US$72 million.
  • Net debt2 of $1,469 million as at September 30, 2017 (compared to $1,780 million as at June 30, 2017) and net debt to adjusted OIBD ratio2 at 3.6x on a pro-forma basis3 (compared to 4.2x as at June 30, 2017 on a pro-forma basis3).

1

OIBD = Operating income before depreciation and amortization.

2

For further details, please refer to the "Supplemental Information on non-IFRS Measures" section.

3

Pro-forma basis to include Greenpac on a LTM basis.

4

The purchase price allocation of Greenpac was finalized during the third quarter of 2017. The preliminary estimated deemed consideration of $371 million was revised to $304 million. This change impacted the calculation of the gain on the deemed disposal of the previously held interest and goodwill allocated in the purchase price determination for an amount of $67 million. Adjustments to the preliminary purchase price allocation were recorded retrospectively to the acquisition date as required by IFRS 3. Net earnings per common share disclosed in the second quarter were consequently adjusted to $2.70 per common share from $3.41 per common share (please refer to Note 4 of the 2017 third quarter unaudited condensed interim consolidated financial statements for more details).



Mr. Mario Plourde, President and Chief Executive Officer, commented: "We delivered improvements in consolidated reported operating income year-over-year during the third quarter in what was a challenging environment, due to disruptions by the hurricanes and increasingly difficult market conditions in the tissue sector. Strategically, we are confident that the plan we are implementing step by step, and which is focused on improved profitability through increasing integration, modernizing our manufacturing facilities and improving logistics by optimizing our geographic footprint, will provide our business segments with the platform to more successfully execute in times of increased business headwinds.

Looking at the performance of our business sectors, our Containerboard segment increased both sales and operating income year-over-year during the third quarter. This reflects the consolidation of Greenpac results beginning in the second quarter, higher selling prices following the final deployment of announced price increases, and a more favourable sales mix. These benefits were partially offset by higher raw material prices year-over-year, and the foreign exchange impact related to the appreciation of the Canadian dollar. Results similarly reflect slightly lower volumes that are attributable to North American transport grid disturbances following inclement weather combined with short-term inefficiencies following the final deployment of our new centralized transportation processes.

The lower results generated by our Tissue segment during the quarter reflect several factors. Key among these were higher raw material prices, a less favourable sales mix, lower volumes due to additional capacity coming to the market, higher transportation costs, weather-related network disruptions, and a lower than anticipated contribution from the Oregon converting plant due to slower market penetration.

The European Boxboard segment performed well during the quarter, with year-over-year results reflecting the stronger economic environment, improvements in volumes and average selling prices coupled with lower maintenance and energy costs, the benefits of which more than offset the negative impact of higher raw material prices. Finally, third quarter results from our Specialty Products segment declined slightly year-over-year. This reflects a lower contribution from recovery and recycling activities related to the appreciation of the Canadian dollar, higher raw material costs most notably resin, and slightly lower volumes, the effects of which were only partially offset by higher selling prices in industrial and consumer products.

At the corporate level, we are pleased with the progress of our internal transformation initiatives and ERP system implementation, which we expect will be finalized by the end of the year, as planned, after which we will turn our focus toward optimization. We are similarly pleased with the advancements made in our strategic plan, which include the solidifying of our Containerboard platform in the Northeastern US via the closure of our New York packaging plant and planned sale of the related property, and construction of a new state of the art containerboard converting facility in New Jersey. Finally, we have continued to make progress on our commitment to decrease our leverage ratio to within a range of 3.0x - 3.5x, which, when including results from Greenpac over the last 12 months, now stands at 3.6x on a pro-forma basis."

Financial Summary

Selected consolidated information








(in millions of Canadian dollars, except amounts per common share) (unaudited)

Q3 2017


Q2 2017


Q3 2016









Sales

1,103


1,130


1,021


As Reported








Operating income before depreciation and amortization (OIBD)1

104


104


98



Operating income

51


48


50



Net earnings

33


256


20




per common share

$

0.35


$

2.70


$

0.21


Adjusted1








Operating income before depreciation and amortization (OIBD)

106


107


103



Operating income

53


51


55



Net earnings

19


24


30




per common share

$

0.20


$

0.25


$

0.32



Margin (OIBD)

9.6

%

9.5

%

10.1

%

1 - Refer to the "Supplemental Information on Non-IFRS Measures" section.

Segmented Operating Income as reported





(in millions of Canadian dollars)

Q3 2017

Q2 2017

Q3 2016





Packaging Products





Containerboard

50

30

44


Boxboard Europe

5

13

1


Specialty Products

10

14

12





Tissue Papers

9

17

26





Corporate Activities

(23)

(26)

(33)

Operating income as reported

51

48

50

Segmented adjusted OIBD1





(in millions of Canadian dollars) (unaudited)

Q3 2017

Q2 2017

Q3 2016




Packaging Products




Containerboard

72

56

58


Boxboard Europe

14

21

9


Specialty Products

15

20

18




Tissue Papers

24

35

47




Corporate Activities

(19)

(25)

(29)

Adjusted OIBD

106

107

103

1 - Refer to the "Supplemental Information on Non-IFRS Measures" section.

Analysis of results for the three-month period ended September 30, 2017 (compared to the same period last year)

Sales of $1,103 million increased by $82 million or 8% compared to the same period last year, reflecting the consolidation of results from the Greenpac Mill beginning in the second quarter, improved pricing and sales mix in all four of the Corporation's business segments, and additional sales from recovery and recycling activities due to higher recycled fibre pricing. These benefits were partially offset by lower volumes in our North American operations, and the stronger Canadian dollar which resulted in a less favourable CAD/USD exchange rate.

Third quarter operating income stood at $51 million, a slight improvement from $50 million last year. This performance reflects the inclusion of Greenpac in the current quarter, price increases mainly in Containerboard, and lower Corporate activities costs related to lower stock-based compensation expense. These were offset by higher raw material costs, and higher production costs in Containerboard and Tissue, due to freight and logistics, and increased use of outside contracting. Specific items recorded in the current period (please refer to the ''Supplemental Information on Non-IFRS Measures'' section for more details) decreased operating income by $2 million. On an adjusted basis, third quarter operating income stood at $53 million, down slightly from $55 million in the prior year period.

The main specific items, before income taxes, that impacted our third quarter 2017 operating income and/or net earnings were:

  • a $2 million impairment charge related to the revaluation of unused assets (operating income, net earnings)
  • a $2 million restructuring cost related to severance expense following the announced planned closure of the New York Containerboard converting plant (operating income, net earnings)
  • a $2 million unrealized gain on derivative financial instruments (operating income, net earnings)
  • an $18 million gain on fair-value revaluation of our investment in Boralex prior to its sale (net earnings)
  • an $8 million foreign exchange gain on long-term debt and financial instruments (net earnings)

For the third quarter of 2017, the Corporation posted net earnings of $33 million, or $0.35 per common share, compared to net earnings of $20 million, or $0.21 per common share in the same period of 2016. On an adjusted basis, the Corporation generated net earnings of $19 million during the third quarter of 2017, or $0.20 per common share, compared to net earnings of $30 million or $0.32 per common share in the same period of 2016. Please see the "Supplemental Information on Non-IFRS Measures" section for reconciliation of the amounts detailed above.

Near-Term Outlook

Discussing the outlook for Cascades, Mr. Plourde commented: "We are confident that the execution of our strategic plan will reinforce our business platform and our positioning within our two primary markets of packaging and tissue going forward. The North American landscape remains competitive in both segments, and demands that producers like Cascades enhance efficiency, productivity, innovation and pro-active execution to meet changing customer needs and challenging market conditions. This will be particularly true for our tissue segment in the near term as new capacity comes on-line. To this end, we believe that our focus on increasing our level of integration, upgrading our platform through targeted investments in state-of-the-art equipment and improving logistics by optimizing our geographic footprint will reinforce our platform and put us in a strong position for the future.

Within the context of the seasonally slower fourth quarter, we expect near-term performance of our Containerboard division to benefit from the strong North American industry demand trends, the addition of Greenpac results, and impact of the liner and medium price increases as of the end of the third quarter. The most significant potential headwind for this segment remains raw material pricing, most notably OCC. While we anticipate pricing fluctuations to continue, we expect results in the fourth quarter to benefit from a lower average OCC price following the cumulative $65/st decrease in the index price over September to November. Our European Boxboard activities are expected to continue to benefit from positive trends in demand through the end of 2017, in addition to a more favourable geographic sales mix and the continued gradual roll-out of announced price increases. Our Specialty Products segment performance will reflect the variances in its recovery and recycling activities that mirror changes in market pricing, and continued positive momentum in its other packaging activities. Finally, near-term results from our Tissue activities are expected to remain under pressure as a result of a combination of higher raw material pricing, most notably virgin pulp, ongoing weakness in the hand towel jumbo roll market, and the seasonally weaker fall and winter season. The slower than anticipated ramp-up in sales levels at our new tissue converting operation in Oregon, due in part to the timing of customer bid processes, is also expected to dampen results in tissue over the upcoming quarters."

Dividend on common shares and normal course issuer bid

The Board of Directors of Cascades declared a quarterly dividend of $0.04 per common share to be paid on December 1, 2017, to shareholders of record at the close of business on November 22, 2017. This dividend is an "eligible dividend" as per the Income Tax Act (R.C.S. (1985), Canada). Cascades did not purchase any common shares for cancellation during the third quarter of 2017.

2017 Third Quarter Results Conference Call Details

Management will discuss the 2017 third quarter financial results during a conference call at 10:00 a.m. ET. The call can be accessed by dialing 1-888-231-8191 (international: 1-647-427-7450). The conference call, including the investor presentation, will be broadcast live on the Cascades website (www.cascades.com under the "Investors" section). A replay of the call will be available on the Cascades website and may also be accessed by phone until December 9, 2017 by dialing 1-855-859-2056, access code 95573278.

Founded in 1964, Cascades produces, converts and markets packaging and tissue products that are composed mainly of recycled fibres. The Corporation employs 11,000 employees, who work in close to 90 units located in North America and Europe. With its management philosophy, half a century of experience in recycling, and continuous efforts in research and development as driving forces, Cascades continues to serve its clients with innovative products. Cascades' shares trade on the Toronto Stock Exchange, under the ticker symbol CAS. Certain statements in this release, including statements regarding future results and performance, are forward-looking statements (as such term is defined under the Private Securities Litigation Reform Act of 1995) 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, increases in raw material costs, fluctuations in selling prices and adverse changes in general market and industry conditions and other factors listed in the Corporation's Securities and Exchange Commission filings.

CONSOLIDATED BALANCE SHEETS




(in millions of Canadian dollars) (unaudited)

September 30,
2017

December 31,
2016

Assets


Current assets


Cash and cash equivalents

192

62

Accounts receivable

588

524

Current income tax assets

14

12

Inventories

568

477

Current portion of financial assets

9

3

Assets held for sale

13


1,384

1,078

Long-term assets


Investments in associates and joint ventures

77

335

Property, plant and equipment

2,017

1,618

Intangible assets with finite useful life

208

171

Financial assets

25

10

Other assets

73

72

Deferred income tax assets

142

179

Goodwill and other intangible assets with indefinite useful life

521

350


4,447

3,813

Liabilities and Equity


Current liabilities


Bank loans and advances

33

28

Trade and other payables

636

661

Current income tax liabilities

6

1

Current portion of long-term debt

53

36

Current portion of provisions for contingencies and charges

7

9

Current portion of financial liabilities and other liabilities

93

27


828

762

Long-term liabilities


Long-term debt

1,575

1,530

Provisions for contingencies and charges

37

34

Financial liabilities

26

16

Other liabilities

175

178

Deferred income tax liabilities

233

219


2,874

2,739

Equity attributable to Shareholders


Capital stock

489

487

Contributed surplus

16

16

Retained earnings

952

512

Accumulated other comprehensive loss

(36)

(31)


1,421

984

Non-controlling interests

152

90

Total equity

1,573

1,074


4,447

3,813

CONSOLIDATED STATEMENTS OF EARNINGS





For the 3-month periods ended
September 30,

For the 9-month periods ended
September 30,

(in millions of Canadian dollars, except per common share amounts and number of common shares) (unaudited)

2017

2016

2017

2016

Sales

1,103

1,021

3,239

3,022

Cost of sales and expenses




Cost of sales (including depreciation and amortization of $53 million for 3-month period (2016 — $48 million) and $156 million for 9-month period (2016 — $142 million))

940

859

2,775

2,539

Selling and administrative expenses

106

105

330

296

Gain on acquisitions, disposals and others

(8)

(4)

Impairment charges and restructuring costs

4

5

18

14

Foreign exchange loss

3

2

Loss (gain) on derivative financial instruments

(1)

2

(8)

(11)


1,052

971

3,109

2,834

Operating income

51

50

130

188

Financing expense

25

23

70

67

Interest expense on employee future benefits

1

1

3

4

Foreign exchange loss (gain) on long-term debt and financial instruments

(8)

7

(27)

(35)

Fair value revaluation gain on investments

(18)

(315)

Share of results of associates and joint ventures

(3)

(10)

(36)

(25)

Earnings before income taxes

54

29

435

177

Provision for (recovery of) income taxes

19

9

(24)

43

Net earnings including non-controlling interests for the period

35

20

459

134

Net earnings attributable to non-controlling interests

2

9

3

Net earnings attributable to Shareholders for the period

33

20

450

131

Net earnings per common share





Basic

$

0.35

$

0.21

$

4.75

$

1.38


Diluted

$

0.34

$

0.21

$

4.61

$

1.35

Weighted average basic number of common shares outstanding

94,718,891

94,415,335

94,658,949

94,783,533

Weighted average number of diluted common shares

97,773,147

96,604,351

97,609,266

96,891,428

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME





For the 3-month periods ended
September 30,

For the 9-month periods ended
September 30,

(in millions of Canadian dollars) (unaudited)

2017

2016

2017

2016

Net earnings including non-controlling interests for the period

35

20

459

134

Other comprehensive income (loss)




Items that may be reclassified subsequently to earnings





Translation adjustments






Change in foreign currency translation of foreign subsidiaries

(34)

16

(56)

(37)




Change in foreign currency translation related to net investment hedging activities

30

(11)

45

34



Cash flow hedges






Change in fair value of foreign exchange forward contracts

1

1




Change in fair value of commodity derivative financial instruments

1

(1)

6



Available-for-sale financial assets

(19)

(1)

(3)



Share of other comprehensive income of associates

21

(9)



Provision for (recovery of) income taxes

(2)

2

(15)

(3)


(23)

6

(5)

(12)



Items that are reclassified to retained earnings






Actuarial gain (loss) on post-employment benefit obligations

8

3

3

(31)




Provision for (recovery of) income taxes

(2)

(1)

(1)

8


6

2

2

(23)

Other comprehensive income (loss)

(17)

8

(3)

(35)

Comprehensive income including non-controlling interests for the period

18

28

456

99

Comprehensive income attributable to non-controlling interests for the period

2

9

Comprehensive income attributable to Shareholders for the period

18

26

447

99

CONSOLIDATED STATEMENTS OF EQUITY




For the 9-month period ended September 30, 2017

(in millions of Canadian dollars) (unaudited)

CAPITAL
STOCK

CONTRIBUTED
SURPLUS

RETAINED
EARNINGS

ACCUMULATED
OTHER
COMPREHENSIVE
LOSS

TOTAL EQUITY
ATTRIBUTABLE TO
SHAREHOLDERS

NON-
CONTROLLING
INTERESTS

TOTAL
EQUITY

Balance - Beginning of period

487

16

512

(31)

984

90

1,074

Comprehensive income (loss)






Net earnings

450

450

9

459


Other comprehensive income (loss)

2

(5)

(3)

(3)


452

(5)

447

9

456

Business combination

57

57

Dividends

(11)

(11)

(11)

Exercise of stock options

1

1

1

Issuance of common shares

1

1

1

Partial disposal of a subsidiary to non-controlling interests

(1)

(1)

1

Dividends paid to non-controlling interests

(5)

(5)

Balance - End of period

489

16

952

(36)

1,421

152

1,573







For the 9-month period ended September 30, 2016

(in millions of Canadian dollars) (unaudited)

CAPITAL
STOCK

CONTRIBUTED
SURPLUS

RETAINED
EARNINGS

ACCUMULATED
OTHER
COMPREHENSIVE
LOSS

TOTAL EQUITY
ATTRIBUTABLE TO
SHAREHOLDERS

NON-
CONTROLLING
INTERESTS

TOTAL
EQUITY

Balance - Beginning of period

490

17

387

(27)

867

96

963

Comprehensive income (loss)






Net earnings

131

131

3

134


Other comprehensive loss

(23)

(9)

(32)

(3)

(35)


108

(9)

99

99

Dividends

(12)

(12)

(12)

Exercise of stock options

1

1

1

Redemption of common shares

(4)

(2)

(2)

(8)

(8)

Dividends paid to non-controlling interests and acquisition of non-controlling interests

(2)

(2)

Balance - End of period

486

16

481

(36)

947

94

1,041

CONSOLIDATED STATEMENTS OF CASH FLOWS





For the 3-month periods ended
September 30,

For the 9-month periods ended
September 30,

(in millions of Canadian dollars) (unaudited)

2017

2016

2017

2016

Operating activities



Net earnings attributable to Shareholders for the period

33

20

450

131

Adjustments for:




Financing expense and interest expense on employee future benefits

26

24

73

71


Depreciation and amortization

53

48

156

142


Gain on acquisitions, disposals and others

(8)

(5)


Impairment charges and restructuring costs

2

5

13

6


Unrealized gain on derivative financial instruments

(2)

(10)

(19)


Foreign exchange loss (gain) on long-term debt and financial instruments

(8)

7

(27)

(35)


Provision for (recovery of) income taxes

19

9

(24)

43


Fair value revaluation gain on investments

(18)

(315)


Share of results of associates and joint ventures

(3)

(10)

(36)

(25)


Net earnings attributable to non-controlling interests

2

9

3


Net financing expense paid

(40)

(38)

(88)

(85)


Net income taxes received (paid)

2

(6)

10


Dividend received

3

3

8

12


Employee future benefits and others

(6)

(2)

(12)

(18)


61

68

183

231

Changes in non-cash working capital components

(43)

22

(105)

(37)


18

90

78

194

Investing activities



Investments in associates and joint ventures

(16)

(2)

Payments for property, plant and equipment

(38)

(23)

(136)

(125)

Proceeds from disposals of property, plant and equipment

1

14

3

Change in intangible and other assets

283

6

272

16

Cash acquired in (paid for) a business combination

34

(15)


245

(16)

168

(123)

Financing activities



Bank loans and advances

7

(2)

5

(4)

Change in revolving credit facilities

(133)

(51)

(80)

(47)

Increase (decrease) in other long-term debt

5

(4)

11

11

Payments of other long-term debt

(10)

(5)

(29)

(31)

Settlement of derivative financial instruments

(2)

(9)

Issuance of common shares

1

Redemption of common shares

(8)

Dividends paid to non-controlling interests and acquisition of non-controlling interests

(2)

(5)

(1)

Dividends paid to the Corporation's Shareholders

(3)

(4)

(11)

(12)


(138)

(66)

(117)

(92)

Change in cash and cash equivalents during the period

125

8

129

(21)

Currency translation on cash and cash equivalents

1

(2)

Cash and cash equivalents - Beginning of period

67

29

62

60

Cash and cash equivalents - End of period

192

37

192

37

SEGMENTED INFORMATION

The Corporation analyzes the performance of its operating segments based on their operating income before depreciation and amortization, which is not a measure of performance under International Financial Reporting Standards ("IFRS"); however, the chief operating decision-maker ("CODM") uses this performance measure to assess the operating performance of each reportable segment. Earnings for each segment are prepared on the same basis as those of the Corporation. Intersegment operations are recorded on the same basis as sales to third parties, which are at fair market value. The accounting policies of the reportable segments are the same as the Corporation's accounting policies described in its most recent audited consolidated financial statements for the year ended December 31, 2016.

The Corporation's operating segments are reported in a manner consistent with the internal reporting provided to the CODM. The Chief Executive Officer has authority for resource allocation and management of the Corporation's performance, and is therefore the CODM.

The Corporation's operations are managed in four segments: Containerboard, Boxboard Europe, Specialty Products (which constitutes the Corporation's Packaging Products) and Tissue Papers.


SALES


For the 3-month periods ended
September 30,

For the 9-month periods ended
September 30,

(in millions of Canadian dollars) (unaudited)

2017

2016

2017

2016

Packaging Products




Containerboard

438

356

1,212

1,034


Boxboard Europe

202

189

626

605


Specialty Products

181

158

542

464


Intersegment sales

(32)

(16)

(81)

(45)


789

687

2,299

2,058

Tissue Papers

323

342

967

986

Intersegment sales and Corporate activities

(9)

(8)

(27)

(22)


1,103

1,021

3,239

3,022






OPERATING INCOME (LOSS)
BEFORE DEPRECIATION AND AMORTIZATION (OIBD)


For the 3-month periods ended
September 30,

For the 9-month periods ended
September 30,

(in millions of Canadian dollars) (unaudited)

2017

2016

2017

2016

Packaging Products




Containerboard

69

57

165

172


Boxboard Europe

14

9

48

40


Specialty Products

15

18

53

52


98

84

266

264

Tissue Papers

22

42

78

109

Corporate

(16)

(28)

(58)

(43)

Operating income before depreciation and amortization

104

98

286

330

Depreciation and amortization

(53)

(48)

(156)

(142)

Financing expense and interest expense on employee future benefits

(26)

(24)

(73)

(71)

Foreign exchange gain (loss) on long-term debt and financial instruments

8

(7)

27

35

Fair value revaluation gain on investments

18

315

Share of results of associates and joint ventures

3

10

36

25

Earnings before income taxes

54

29

435

177






PAYMENTS FOR PROPERTY, PLANT AND EQUIPMENT


For the 3-month periods ended
September 30,

For the 9-month periods ended
September 30,

(in millions of Canadian dollars) (unaudited)

2017

2016

2017

2016

Packaging Products




Containerboard

13

1

28

26


Boxboard Europe

8

7

20

20


Specialty Products

8

7

17

19


29

15

65

65

Tissue Papers

9

14

53

47

Corporate

3

4

11

21

Total acquisitions

41

33

129

133

Proceeds from disposals of property, plant and equipment

(1)

(14)

(3)

Capital-lease acquisitions

(6)

(7)

(17)


41

26

108

113

Acquisitions of property, plant and equipment included in "Trade and other payables"




Beginning of period

8

6

25

19


End of period

(11)

(10)

(11)

(10)

Payments for property, plant and equipment net of proceeds from disposals

38

22

122

122

SUPPLEMENTAL INFORMATION ON NON-IFRS MEASURES

SPECIFIC ITEMS

The Corporation incurs some specific items that adversely or positively affected its operating results. We believe it is useful for readers to be aware of these items, as they provide additional information to measure the performance, compare the Corporation's results between periods and to assess operating results and liquidity, notwithstanding these specific items. Management believes these specific items are not necessarily reflective of the Corporation underlying business operations in measuring and comparing its performance and analyzing future trends. Our definition of specific items may differ from those of other corporations and some of them may arise in the future and may reduce the cash available to us.

They include, but are not limited to, charges for (reversals of) impairment of assets, restructuring gains or costs, loss on refinancing of long-term debt, some deferred tax assets provisions or reversals, premiums paid on long-term debt refinancing, gains or losses on the acquisition or sale of a business unit, gains or losses on the share of results of associates and joint ventures, unrealized gains or losses on derivative financial instruments that do not qualify for hedge accounting, unrealized gains or losses on interest rate swaps, foreign exchange gains or losses on long-term debt, specific items of discontinued operations and other significant items of an unusual, non-cash or non-recurring nature.

RECONCILIATION OF NON-IFRS MEASURES

To provide more information for evaluating the Corporation's performance, the financial information included in this analysis contains certain data that are not performance measures under IFRS ("non-IFRS measures") which are also calculated on an adjusted basis to exclude specific items. We believe that providing certain key performance measures and non-IFRS measures is useful to both management and investors as they provide additional information to measure the performance and financial position of the Corporation. It also increases the transparency and clarity of the financial information. The following non-IFRS measures are used in our financial disclosures:

  • Operating income before depreciation and amortization (OIBD): Used to assess operating performance and contribution of each segment when excluding depreciation & amortization. OIBD is widely used by investors as a measure of a corporation ability to incur and service debt and as an evaluation metric.
  • Adjusted OIBD: Used to assess operating performance and contribution of each segment on a comparable basis.
  • Adjusted operating income: Used to assess operating performance of each segment on a comparable basis.
  • Adjusted net earnings: Used to assess the Corporation's consolidated financial performance on a comparable basis.
  • Adjusted free cash flow: Used to assess the Corporation's capacity to generate cash flows to meet financial obligation and/or discretionary items such as share repurchase, dividend increase and strategic investments.
  • Net debt to adjusted OIBD ratio: Used to measure the Corporation's credit performance and evaluate the financial leverage.
  • Net debt to adjusted OIBD ratio on a pro forma basis: Used to measure the Corporation's credit performance and evaluate the financial leverage on a comparable basis including significant business acquisitions and excluding significant business disposals, if any.

Non-IFRS measures are mainly derived from the consolidated financial statements but do not have meanings prescribed by IFRS. These measures have limitations as an analytical tool, and should not be considered on their own or as a substitute for an analysis of our results as reported under IFRS. In addition, our definitions of non-IFRS measures may differ from those of other corporations. Any such modification or reformulation may be significant.

The reconciliation of operating income (loss) to OIBD, to adjusted operating income (loss) and to adjusted OIBD by business segment is as follows:


Q3 2017

(in millions of Canadian dollars)

Containerboard

Boxboard
Europe

Specialty
Products

Tissue
Papers

Corporate
Activities

Consolidated

Operating income (loss)

50

5

10

9

(23)

51

Depreciation and amortization

19

9

5

13

7

53

Operating income (loss) before depreciation and amortization

69

14

15

22

(16)

104

Specific items:








Impairment charges

2

2


Restructuring costs

2

2


Unrealized loss (gain) on derivative financial instruments

1

(3)

(2)


3

2

(3)

2

Adjusted operating income (loss) before depreciation and amortization

72

14

15

24

(19)

106

Adjusted operating income (loss)

53

5

10

11

(26)

53






Q2 2017

(in millions of Canadian dollars)

Containerboard

Boxboard
Europe

Specialty
Products

Tissue
Papers

Corporate
Activities

Consolidated

Operating income (loss)

30

13

14

17

(26)

48

Depreciation and amortization

21

8

6

16

5

56

Operating income (loss) before depreciation and amortization

51

21

20

33

(21)

104

Specific items :








Gain on acquisitions, disposals and others

(7)

(1)

(8)


Inventory adjustment resulting from business acquisition

2

2


Impairment charges

11

11


Restructuring costs

2

2


Unrealized gain on derivative financial instruments

(1)

(3)

(4)


5

2

(4)

3

Adjusted operating income (loss) before depreciation and amortization

56

21

20

35

(25)

107

Adjusted operating income (loss)

35

13

14

19

(30)

51






Q3 2016

(in millions of Canadian dollars)

Containerboard

Boxboard
Europe

Specialty
Products

Tissue
Papers

Corporate
Activities

Consolidated

Operating income (loss)

44

1

12

26

(33)

50

Depreciation and amortization

13

8

6

16

5

48

Operating income (loss) before depreciation and amortization

57

9

18

42

(28)

98

Specific items :








Impairment charges

2

2


Restructuring costs

3

3


Unrealized loss (gain) on derivative financial instruments

1

(1)


1

5

(1)

5

Adjusted operating income (loss) before depreciation and amortization

58

9

18

47

(29)

103

Adjusted operating income (loss)

45

1

12

31

(34)

55

Net earnings, as per IFRS, is reconciled below with operating income, adjusted operating income and adjusted operating income before depreciation and amortization:





(in millions of Canadian dollars)

Q3 2017

Q2 2017

Q3 2016

Net earnings attributable to Shareholders for the period

33

256

20

Net earnings attributable to non-controlling interests

2

5

Provision for (recovery of) income taxes

19

(70)

9

Fair value revaluation gain of investments

(18)

(152)

Share of results of associates and joint ventures

(3)

(5)

(10)

Foreign exchange loss (gain) on long-term debt and financial instruments

(8)

(11)

7

Financing expense and interest expense on employee future benefits

26

25

24

Operating income

51

48

50

Specific items:




Gain on acquisitions, disposals and others

(8)


Inventory adjustment resulting from business combination

2


Impairment charges

2

11

2


Restructuring costs

2

2

3


Unrealized gain on derivative financial instruments

(2)

(4)


2

3

5

Adjusted operating income

53

51

55

Depreciation and amortization

53

56

48

Adjusted operating income before depreciation and amortization

106

107

103

The following table reconciles net earnings and net earnings per common share, as per IFRS, with adjusted net earnings and adjusted net earnings per common share:





NET EARNINGS

NET EARNINGS PER COMMON SHARE1

(in millions of Canadian dollars, except amount per common share)

Q3 2017

Q2 2017

Q3 2016

Q3 2017

Q2 2017

Q3 2016

As per IFRS

33

256

20

$

0.35

$

2.70

$

0.21

Specific items:







Gain on acquisitions, disposals and others

(8)

$

(0.06)


Inventory adjustment resulting from business combination

2

$

0.01


Impairment charges

2

11

2

$

0.02

$

0.07

$

0.02


Restructuring costs

2

2

3

$

0.01

$

0.02

$

0.02


Unrealized gain on derivative financial instruments

(2)

(4)

$

(0.01)

$

(0.04)


Foreign exchange loss (gain) on long-term debt and financial instruments

(8)

(11)

7

$

(0.08)

$

(0.09)

$

0.07


Fair value revaluation gain of investments

(18)

(152)

$

(0.17)

$

(2.35)


Share of results of associates and joint ventures

(2)

$

(0.01)


Tax effect on specific items, other tax adjustments and attributable to non-controlling interests1

10

(70)

(2)

$

0.08


(14)

(232)

10

$

(0.15)

$

(2.45)

$

0.11

Adjusted

19

24

30

$

0.20

$

0.25

$

0.32

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.

The following table reconciles cash flow from operating activities with operating income and operating income before depreciation and amortization:





(in millions of Canadian dollars)

Q3 2017

Q2 2017

Q3 2016

Cash flow from operating activities

18

66

90

Changes in non-cash working capital components

43

23

(22)

Depreciation and amortization

(53)

(56)

(48)

Net income taxes paid (received)

1

(2)

Net financing expense paid

40

10

38

Gain on acquisitions, disposals and others

8

Impairment charges and restructuring costs

(2)

(11)

(5)

Unrealized gain on derivative financial instruments

2

4

Dividend received, employee future benefits and others

3

3

(1)

Operating income

51

48

50

Depreciation and amortization

53

56

48

Operating income before depreciation and amortization

104

104

98

The following table reconciles cash flow from operating activities with cash flow from operating activities (excluding changes in non-cash working capital components) and adjusted cash flow from operating activities. It also reconciles adjusted cash flow from operating activities to adjusted free cash flow which is also calculated on a per common share basis:





(in millions of Canadian dollars, except amount per common share or otherwise mentioned)

Q3 2017

Q2 2017

Q3 2016

Cash flow from operating activities

18

66

90

Changes in non-cash working capital components

43

23

(22)

Cash flow from operating activities (excluding changes in non-cash working capital components)

61

89

68

Specific items, net of current income taxes if applicable:



Restructuring costs

2

2

Adjusted cash flow from operating activities

63

91

68

Capital expenditures & other assets1 and capital lease payments, net of disposals

(46)

(32)

(27)

Dividends

(3)

(4)

(4)

Adjusted free cash flow

14

55

37

Adjusted free cash flow per common share

$

0.15

$

0.58

$

0.40

Weighted average basic number of common shares outstanding

94,718,891

94,702,041

94,415,335

1

Excluding increase in investments

The following table reconciles total debt and net debt with the ratio of net debt to adjusted operating income before depreciation and amortization (adjusted OIBD):





(in millions of Canadian dollars)

September 30,
2017

December 31,
2016

September 30,
2016

Long-term debt

1,575

1,530

1,594

Current portion of long-term debt

53

36

36

Bank loans and advances

33

28

32

Total debt

1,661

1,594

1,662

Less: Cash and cash equivalents

192

62

37

Net debt

1,469

1,532

1,625

Adjusted OIBD (last twelve months)

370

403

425

Net debt / Adjusted OIBD ratio

4.0

3.8

3.8

Net debt / Adjusted OIBD ratio on a pro forma basis1

3.6

N/A

N/A

1

Pro forma basis to add Greenpac adjusted OIBD from Q4 2016 to Q1 2017 for the LTM period ended September 30, 2017.

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SOURCE Cascades Inc.