KINGSEY FALLS, QC, Nov. 8 /CNW Telbec/ - Cascades Inc. ("Cascades")
(Symbol: CAS-TSX) reports net earnings of $16 million ($0.16 per share) for
the quarter ended September 30, 2007. This compares with net earnings of
$10 million ($0.12 per share) for the same period in 2006. When excluding
specific items(1), net earnings for the third quarter of 2007 amounted to
$9 million ($0.09 per share) compared to net earnings of $17 million ($0.21
per share) for the same quarter in 2006.-------------------------------------------------------------------------
-------------------------------------------------------------------------
Financial Highlights
Selected consolidated information
(in millions of Canadian dollars, -----------------------------------
except amounts per share) Q3/2007 Q3/2006 Q2/2007
-------------------------------------------------------------------------
Sales 1,043 868 1,041
Operating income before
depreciation and
amortization (OIBD)(1) 85 75 79
Operating income from continuing
operations 30 34 27
Net earnings 16 10 45
per common share $0.16 $0.12 $0.45
Cash flow from operations from
continuing operations(1) 52 53 43
per common share (1) $0.53 $0.66 $0.43
Excluding specific items(1)
Operating income before
depreciation and amortization
(OIBD) 94 82 85
Operating income from
continuing operations 39 41 33
Net earnings 9 17 7
per common share $0.09 $0.21 $0.07
Cash flow from operations from
continuing operations 54 57 45
per common share $0.55 $0.71 $0.45
-------------------------------------------------------------------------
Note 1 - see the supplemental information on non-GAAP measures note.
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Additional highlights
- Improved operating income and net earnings compared to Q2 2007
explained by higher average selling prices offsetting fibre cost
increases and the 5% appreciation of the $CA over the period.;
- The shareholders of Reno de Medici S.p.A recently approved the merger
with Cascades' European boxboard operations. This transaction, subject
to the approval of local competition authorities, will reinforce
Cascades' packaging segment and is expected to be completed during the
first quarter of 2008.; and
- After quarter-end, Cascades fixed the remaining portion of its $US
denominated debt to secure a cumulative foreign exchange gain of
approximately $CA 400 million. A portion of this gain has been already
recognized in prior years as an unrealized foreign exchange gain on its
long-term debt.
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Commenting on the quarterly results, Mr. Alain Lemaire, President and
Chief Executive Officer stated: "We are pleased with these results, achieved
in the midst of very challenging business conditions. Despite being
continuously confronted by increased competition, extreme currency volatility
and high fibre costs, we continue to execute well and to deliver specific
milestones our strategic plan. With the ongoing support of our employees and
quality assets in our packaging and tissue groups, we intend to continue in
this direction, making the necessary strategic and operational adjustments
that will make us a stronger company going forward."
Three-month period ended September 30, 2007
-------------------------------------------
Sales increased 20% during the third quarter of 2007 amounting to
$1.04 billion as a result of acquisitions realized in 2006. Operating income
from continuing operations amounted to $30 million compared to $34 million
achieved for the same period last year.
Operating income from continuing operations excluding specific elements
amounted to $39 million. Specific items include a $6 million impairment of the
Scierie Lemay assets (Boxboard group) as well as $2 million of severance and
other closure costs in regards to Scierie Lemay and the Red Rock linerboard
mill (Containerboard group). This compares to operating income from continuing
operations excluding specific elements of $41 million realized last year. Net
earnings for the third quarter include an after-tax $11 million foreign
exchange gain on $U.S. denominated debt.
Nine-month period ended September 30, 2007
------------------------------------------
Sales increased 23% during the first nine months of 2007 amounting to $3.1
billion as a result of acquisitions realized in 2006. Operating income from
continued operations amounted to $112 million compared to $109 million
achieved for the same period last year.
Operating income from continuing operations excluding specific items
amounted to $103 million compared to $113 million last year. Specific items
include a gain of $25 million on the sale, in the first quarter of 2007, of
our joint-venture interest in GSD Packaging (Boxboard), the $6 million
impairment of assets associated with Scierie Lemay (Boxboard) and a charge of
$5 million of severance and other closure costs recorded in the third quarter
(Boxboard and Containerboard). In addition, other specific items amounted to a
loss of $5 million.
Outlook
-------
Mr. Alain Lemaire, President and Chief Executive Officer added: "We expect
business conditions will continue to be very challenging going forward as a
result of high fiber costs, the continuing appreciation of the $CA and the
level of demand in an uncertain economic environment. In addition, fourth
quarter results will be impacted by the normal seasonal patterns and the usual
downtime for normal maintenance."
Dividend on Common Shares and normal course issuer bid
-------------------------------------------------------
The Board of Cascades declared a quarterly dividend of $0.04 per share to
be paid December 17, 2007 to shareholders of record at the close of business
on December 3, 2007. This dividend paid by Cascades is an "eligible dividend"
as per the proposed changes to the Income Tax Act (Bill C-28, Canada).
Pursuant to its normal course issuer bid, the Company purchased during the
third quarter 65,100 of its common shares at an average price of $9.64 for a
total of 360,500 shares purchased for the first nine months of the year.
Supplemental information on non-GAAP measures
Operating income, cash flow from operations and cash flow from operations
per share are not measures of performance under Canadian GAAP. The Company
includes operating income, cash flow from operations and cash flow from
operations per share because they are measures used by management to assess
the operating and financial performance of the Company's operating segments.
Additionally, the Company believes that these items provide additional
measures often used by investors to assess a company's operating performance
and its ability to meet debt service requirements. However, operating income,
cash flow from operations and cash flow from operations per share does not
represent, and should not be used as a substitute for net earnings or cash
flows from operating activities as determined in accordance with Canadian
GAAP, and they are not necessarily an indication of whether cash flow will be
sufficient to fund our cash requirements. In addition, our definition of
operating income, cash flow from operations and cash flow from operations per
share may differ from those of other companies. Cash flow from operations is
defined as cash flow from operating activities as determined in accordance
with Canadian GAAP excluding the change in working capital components and cash
flow from operations per share is determined by dividing cash flow from
operations by the weighted average number of common shares of the period.
Operating income excluding specific items, net earnings excluding specific
items, net earnings per common share excluding specific items, cash flow from
operations excluding specific items and cash flow from operations per share
excluding specific items are non-GAAP measures. The Company believes that it
is useful for investors to be aware of specific items that have adversely or
positively affected its GAAP measures, and that the above mentioned non-GAAP
measures provide investors with a measure of performance with which to compare
its results between periods without regard to these specific items. The
Company's measures excluding specific items have no standardized meaning
prescribed by GAAP and are not necessarily comparable to similar measures
presented by other companies and therefore should not be considered in
isolation.
Specific items are defined to include charges for impairment of assets,
charges for facility or machine closures, debt restructuring charges, gains or
losses on sale of business unit, unrealized gains or losses on derivative
financial instruments that do not qualify for hedge accounting, foreign
exchange gains or losses on long-term debt and other significant items of an
unusual or non-recurring nature.
Net earnings (loss), which is a performance measure defined by Canadian
GAAP is reconciled below to operating income (loss), operating income
excluding specific items and operating income before depreciation excluding
specific items:
-----------------------------------
(in millions of Canadian dollars) Q3/2007 Q3/2006 Q2/2007
-------------------------------------------------------------------------
Net earnings 16 10 45
Net earnings from discontinued
operations - - (3)
Non-controlling interest 1 - -
Share of results of significantly
influenced companies (2) (2) (17)
Provision for income taxes 2 5 -
Foreign exchange gain on
long-term debt (14) - (25)
Interest expense 27 21 27
-----------------------------------
Operating income 30 34 27
Specific items :
Unusual losses (gains) - (4) 1
Impairment loss on property, plant
and equipment 6 7 -
Closure and restructuring costs 2 4 1
Unrealized loss on commodity
derivative financial instruments 1 - 4
-----------------------------------
9 7 6
-----------------------------------
Operating income - excluding
specific items 39 41 33
Depreciation and amortization 55 41 52
-----------------------------------
Operating income before depreciation
and amortization - excluding
specific items 94 82 85
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The following table reconciles net earnings and net earnings per share to
net earnings excluding specific items and net earnings per share excluding
specific items:
------------------------- --------------------------
(in millions of
Canadian dollars,
except amounts
per share) Net earnings Net earnings per share 1
-------------------------------------------- --------------------------
Q3/2007 Q3/2006 Q2/2007 Q3/2007 Q3/2006 Q2/2007
------------------------- --------------------------
As per GAAP 16 10 45 $0.16 $0.12 $0.45
Specific items:
Unusual losses
(gains) - (4) 1 $ - $(0.02) $ -
Impairment loss
on property,
plant and
equipment 6 7 - $0.04 $0.08 $ -
Closure and
restructuring
costs 2 4 1 $0.02 $0.04 $0.01
Unrealized loss
on commodity
derivative
financial
instruments 1 - 4 $0.01 $ - $0.03
Foreign exchange
gain on long-term
debt (14) - (25) $(0.11) $(0.01) $(0.21)
Share of results
of significantly
influenced
companies - - (15) $ - $ - $(0.15)
Included in
discontinued
operations - - (3) $ - $ - $(0.03)
Adjustment of
statutory tax
rate (3) - (3) $(0.03) $ - $(0.03)
Tax effect on
specific items 1 - 2
------------------------- --------------------------
(7) 7 (38) $(0.07) $0.09 $(0.38)
------------------------- --------------------------
Excluding
specific items 9 17 7 $0.09 $0.21 $0.07
------------------------------------------- --------------------------
------------------------------------------- --------------------------
Note 1 - specific amounts per share are calculated on an after-tax basis.
The following table reconciles cash flow from operations and cash flow
from operations per share to cash flow from operations excluding specific
items and cash flow from operations per share excluding specific items:
(in millions
of dollars, Cash flow from
except amounts Cash flow from operations
per share) operations per share
-------------------------------------------- --------------------------
Q3/2007 Q3/2006 Q2/2007 Q3/2007 Q3/2006 Q2/2007
------------------------- --------------------------
Cash flow
provided by
(used for)
operating
activities 25 67 (4)
Changes in non-
cash working
capital
components 27 (14) 47
------------------------- --------------------------
Cash flow from
operations 52 53 43 $0.53 $0.66 $0.43
Specific items :
Unusual loss - - 2 - - $0.02
Closure and
restructuring
costs, net of
current income
tax 2 4 - $0.02 $0.05 -
------------------------- --------------------------
Excluding specific
items 54 57 45 $0.55 $0.71 $0.45
------------------------------------------- --------------------------
Founded in 1964, Cascades produces, transforms and markets packaging and
tissue products composed mainly of recycled fibres. Cascades employs close to
14 000 employees who work in more than 100 modern and flexible production
units located in North-America and Europe. Cascades' management philosophy,
its more than 40 years of experience in recycling, its continued efforts in
research and development are strengths which enable the company to create new
products for its customers. The 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 Company'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 Company's Securities and Exchange Commission filings.
Consolidated Balance Sheets
(in millions of Canadian dollars)
As at As at
September 30, December 31,
Note 2007 2006
--------------------------
Assets (unaudited)
Current assets
Cash and cash equivalents 26 34
Accounts receivable 703 650
Inventories 563 548
-------------------------------------------------------------------------
1,292 1,232
Property, plant and equipment 1,924 2,063
Other assets 7 292 303
Goodwill 304 313
-------------------------------------------------------------------------
3,812 3,911
---------------------------
---------------------------
Liabilities and shareholders' equity
Current liabilities
Bank loans and advances 52 42
Accounts payable and accrued
liabilities 550 607
Current portion of long-term debt 8 5 9
-------------------------------------------------------------------------
607 658
Long-term debt 8 1,602 1,657
Other liabilities 9 424 439
-------------------------------------------------------------------------
2,633 2,754
Shareholders' equity
Capital stock 11 517 517
Retained earnings 718 649
Accumulated other comprehensive income 12 (56) (9)
---------------------------
1,179 1,157
-------------------------------------------------------------------------
3,812 3,911
---------------------------
---------------------------
The accompanying notes are an integral part of these unaudited interim
consolidated financial statements.
Consolidated Statements of Earnings
(in millions of Canadian dollars, except per share amounts)
(unaudited)
For the 3-month For the 9-month
periods periods
ended September 30, ended September 30,
Note 2007 2006 2007 2006
-------------------------------------------------
Sales 1,043 868 3,111 2,527
Cost of sales
and expenses
Cost of sales
(exclusive of
depreciation
and amorti-
zation shown
below) 10 850 708 2,562 2,061
Depreciation and
amortization 55 41 160 122
Selling and
administrative
expenses 100 78 297 229
Unusual gains 5,6(b) - (4) (24) (4)
Impairment loss
on property,
plant and
equipement 2 6 7 6 7
Closure and
restructuring
costs 3 2 4 5 8
Gain on commodity
derivatives
financial
instruments 4 - - (7) (5)
-------------------------------------------------------------------------
1,013 834 2,999 2,418
-------------------------------------------------------------------------
Operating income
from continuing
operations 30 34 112 109
Interest expense 27 21 81 63
Foreign exchange
gain on long-term
debt (14) - (43) (14)
-------------------------------------------------------------------------
17 13 74 60
Provision for
income taxes 2 5 15 13
Share of results
of significantly
influenced
companies 5(c) (2) (2) (23) (6)
Non-controlling
interest 1 - 2 -
-------------------------------------------------------------------------
Net earnings from
continuing
operations 16 10 80 53
Net earnings
(loss) from
discontinued
operations 3 - - 3 (4)
-------------------------------------------------------------------------
Net earnings for
the period 16 10 83 49
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Basic and diluted
net earnings from
continuing
operations per
common share $0.16 $0.12 $0.80 $0.65
-------------------------------------------------
-------------------------------------------------
Basic and diluted
net earnings per
common share $0.16 $0.12 $0.83 $0.60
-------------------------------------------------
-------------------------------------------------
Weighted average
number of common
shares outstanding 99,328,314 80,796,541 99,362,432 80,801,031
-------------------------------------------------
-------------------------------------------------
The accompanying notes are an integral part of these unaudited interim
consolidated financial statements.
Consolidated Statement of Shareholders' Equity
(in millions of Canadian dollars)
(unaudited)
For the 9-month period ended September 30,
2007
---------------------------------------------
Accumulated
other
compre- Share
Capital Retained hensive holders'
Note stock earnings income equity
---------------------------------------------
Balance - beginning
of period 517 649 (9) 1,157
Cumulative impact
of accounting
changes 1(c)(f) - - 1 1
---------------------------------------------
Restated balance,
beginning of
period 517 649 (8) 1,158
Comprehensive income:
Net earnings for the
period - 83 - 83
Change in foreign
currency trans-
lation of self-
sustaining foreign
subsidiaries, net
of related hedging
activities - - (52) (52)
Change in fair
value of foreign
exchange forward
contracts designated
as cash flow hedges,
net of related income
taxes and reclas-
sification adjustments - - 5 5
Change in fair value
of commodity deri-
vative financial
instruments desig-
nated as cash flow
hedges, net of
related income taxes
and reclassification
adjustments - - (1) (1)
-----------
Comprehensive income for
the period 35
-----------
Dividends - (12) - (12)
Adjustment related to
stock options 2 - - 2
Redemption of common
shares (2) (2) - (4)
-------------------------------------------------------
Balance -
end of period 517 718 (56) 1,179
-------------------------------------------------------
-------------------------------------------------------
For the 9-month period ended September 30,
2006
---------------------------------------------
Accumulated
other
compre- Share
Capital Retained hensive holders'
stock earnings income equity
---------------------------------------------
Balance -
beginning of
period 264 669 (36) 897
Comprehensive
income:
Net earnings
for the period - 49 - 49
Change in
foreign cur-
rency trans-
lation of
self-sustaining
foreign sub-
sidiaries, net
of related
hedging
activities - - 3 3
-------------
Comprehensive
income for the
period 52
-------------
Dividends - (10) - (10)
Adjustment
related to
stock
options 3 - - 3
Redemption
of common
shares - (1) - (1)
---------------------------------------------
Balance -
end of
period 267 707 (33) 941
---------------------------------------------
---------------------------------------------
The accompanying notes are an integral part of these unaudited interim
consolidated financial statements.
Consolidated Statements of Cash Flows
(in millions of Canadian dollars)
(unaudited)
For the 3-month For the 9-month
periods periods
ended September 30, ended September 30,
Note 2007 2006 2007 2006
------------------------------------------------
OPERATING ACTIVITIES
FROM CONTINUING
OPERATIONS
Net earnings from
continuing
operations 16 10 80 53
Adjustments for:
Depreciation and
amortization 55 41 160 122
Unusual gains - (4) (26) (4)
Impairment
loss on pro-
perty, plant
and equipement 6 7 6 7
Closure and
restructuring
costs - - 1 -
Unrealized loss
(gain) on
commodity
derivative
financial
instruments 1 - (2) (7)
Foreign exchange
gain on long-
term debt (14) - (43) (14)
Future income
taxes (9) (1) (14) (9)
Share of results
of significantly
influenced
companies (2) (2) (23) (6)
Non-controlling
interest 1 - 2 -
Others (2) 2 (8) 5
-------------------------------------------------------------------------
52 53 133 147
Change in non-cash
working capital
components (27) 14 (156) (41)
-------------------------------------------------------------------------
25 67 (23) 106
-------------------------------------------------------------------------
INVESTING ACTIVITIES
FROM CONTINUING
OPERATIONS
Purchases of property,
plant and equipment (41) (31) (109) (75)
Proceed from disposal
of property, plant
and equipment 5(a) - - 7 -
Increase in other
assets (3) (11) (3) (10)
Business acquisitions,
net of cash acquired 6(d) (10) (16) (10) (30)
Business disposal,
net of cash
disposed 6(b) - 8 37 8
-------------------------------------------------------------------------
(54) (50) (78) (107)
-------------------------------------------------------------------------
FINANCING ACTIVITIES FROM CONTINUING OPERATIONS
Bank loans
and advances (1) 4 11 8
Change in revolving
credit facilities 58 (14) 125 (66)
Increase in
other long-
term debt - 1 - 2
Payments of other
long-term debt (4) (2) (8) (8)
Net proceeds
from issuance
of common shares - - 1 1
Redemption of
common shares 11 - - (4) (1)
Dividends (4) (3) (12) (10)
-------------------------------------------------------------------------
49 (14) 113 (74)
-------------------------------------------------------------------------
Change in cash
and cash equivalents
during the period
from continuing
operations 20 3 12 (75)
Change in cash and
cash equivalents
from discontinued
operations,
including
proceeds on
disposal 10(d) (16) (1) (16) 56
-------------------------------------------------------------------------
Change in cash
and cash
equivalents
during the
period 4 2 (4) (19)
Translation
adjustments
on cash and
cash equi-
valents 3 2 (4) (1)
Cash and cash
equivalents-
Beginning of
period 19 19 34 43
-------------------------------------------------------------------------
Cash and cash
equivalents -
End of period 26 23 26 23
---------------------------------------------
---------------------------------------------
The accompanying notes are an integral part of these unaudited interim
consolidated financial statements.
Notes to Interim Consolidated Financial Statements
(tabular amounts in millions of Canadian dollars, except amount per
share)
(unaudited)
NOTE 1 - ACCOUNTING POLICIES
These unaudited interim consolidated financial statements and the notes
thereto have been prepared in accordance with Canadian generally accepted
accounting principles ("GAAP") with the exception that they do not conform in
all material respects to the requirement of GAAP for annual financial
statements. These financial statements should be read in conjunction with the
most recent annual financial statements of the Company as they have been
prepared using the same accounting policies except for the following:
a) Comprehensive income
On January 1, 2007, the Company adopted Section 1530 of the Canadian
Institute of Chartered Accountants ("CICA") Handbook, "Comprehensive Income".
It describes reporting and disclosure recommendations with respect to
comprehensive income and its components. Comprehensive income represents
changes in net assets arising from transactions, events and circumstances not
related to shareholders.
b) Equity
On January 1, 2007, the Company adopted Section 3251 of the CICA Handbook,
"Equity" which describes standards for presentation of changes in equity. As a
result of the adoption of Sections 3251 and 1530 described above, the Company
is now presenting a consolidated statement of shareholders' equity, which
includes information about comprehensive income and accumulated other
comprehensive income. The comparative consolidated financial statements were
restated to reclassify an amount of $9 million as at January 1, 2007 ($36
million as of January 1, 2006 for the purpose of the comparative financial
information) previously recorded in the cumulative translation adjustment to
the accumulated other comprehensive income.
c) Financial Instruments - Recognition and Measurement
On January 1, 2007, the Company adopted Section 3855 of the CICA Handbook,
"Financial Instruments - Recognition and Measurement". It describes the
standards for recognizing and measuring financial instruments in the financial
statements. Under this Section, financial assets available for sale, assets
and liabilities held for trading and derivatives financial instruments, when
part of a hedging relationship or not, are measured and accounted for at fair
value. Certain derivatives embedded in other contracts are also measured and
accounted for at fair value. The Company selected January 1, 2003 as its
transition date for embedded derivatives.
Upon the adoption of this Section, the Company made the following
classifications:
- Cash and cash equivalents are classified as financial assets held for
trading and are measured at fair value. Resulting gains and losses are
recorded in earnings.
- Accounts receivable, other investments, bank loans and advances,
accounts payables and accrued liabilities and long-term debt are
classified as loans and receivable or other liabilities and are
initially recorded at fair value. Subsequently, they are recorded at
amortized costs using the effective interest rate method. Under this
classification, deferred financing costs related to Unsecured Senior
Notes are now presented as a reduction of the carrying value of the
respective debt.
This Section was applied retroactively without restating the comparatives
figures and resulted in the following adjustments as of January 1, 2007:
$
Other assets (12)
---------
Long-term debt (17)
Other liabilities 3
---------
(14)
---------
Net change 2
---------
---------
Impact on accumulated other comprehensive income 1
Impact on retained earnings 1
---------
2
---------
---------
d) Hedges
On January 1, 2007, the Company adopted Section 3865 of the CICA Handbook,
"Hedges". It expands the guidelines required by Accounting Guideline 13
(AcG-13), "Hedging Relationships". This Section describes when and how hedge
accounting can be applied as well as the disclosure requirements. Hedge
accounting enables the recording of gains, losses, revenues and expenses from
the derivative financial instruments in the same period as for those related
to the hedged item. However, any ineffective portion of a hedging relationship
is recorded directly to earnings. The Company elected to apply hedge
accounting for the following items as of January 1, 2007:
-------------------------------------------------------------------------
Nature of hedging
Item relationship Implication
-------------------------------------------------------------------------
Foreign exchange Cash flow hedge of Gains or losses from
forward contracts future anticipated these derivatives
and currency option sales, purchases financial instruments
instruments. and interest expenses are recorded in
denominated in foreign accumulated other
currencies. comprehensive income
net of related income
taxes and are
reclassified to
earnings as adjustment
to sales, cost of
sales or interest
expense in the same
period as the respective
hedged item affects
earnings.
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Interest rate swap Fair value hedge on a Gains or losses from
agreement of a portion of the these derivatives
notional amount of Company's 6.75% financial
US$50 million, Unsecured Senior Notes. instruments are
maturing in 2013. recorded to earnings
as interest expense.
However, a
corresponding amount
is recorded as an
adjustment to the
carrying value of
the 6.75% Unsecured
Senior Notes and
interest expense.
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Commodity swap Cash flow hedges of Gains or losses from
agreements on anticipated these derivatives
natural gas and purchases of natural financial
electricity. gas and electricity. instruments are
recorded in
accumulated other
comprehensive income
net of related
income taxes and are
reclassified to
earnings as
adjustment to cost
of sales in the same
period as the
respective hedged
item affects
earnings.
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Long-term debt Hedge of the net Gains or losses
denominated in investment of the resulting from the
foreign currencies. Company in self- translation to
sustaining foreign Canadian dollars of
subsidiaries. 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.
-------------------------------------------------------------------------
As in previous years, the Company continued not applying hedge accounting
to certain derivatives financial instruments including interest rate swap
agreements of notional amounts totaling US$5.2 million maturing between 2008
and 2012 and commodity swap agreements on old corrugated containers.
Accordingly, gains and losses from these derivatives financial instruments are
recorded directly to earnings. The adoption of Section 3865 had no impact on
the consolidated financial statements of the Company as at January 1, 2007.
In 2007, the Company entered into foreign exchange forward contracts and
currency option instruments to fix a notional amount of US$200 million of its
U.S.- denominated debt at an average rate of $0.958 $CAN/$U.S.. The Company
elected not to apply hedge accounting to these instruments and they are
recorded at fair value in earnings against the foreign exchange gains or
losses on long-term debt.
e) Accounting changes
As at January 1, 2007, the Company adopted Section 1506 "Accounting
changes". This Section establishes criteria to be met in order to change,
together with the accounting treatment and disclosure required when there is a
change in accounting policies, estimates and correction of errors. The
adoption of this Section had no impact on the consolidated financial position
and results of operations of the Company.
f) Others
As at January 1, 2007, Boralex Inc. "Boralex", a significantly influenced
company, changed its depreciation method with respect to some operating units.
This change resulted in a decrease in retained earnings of $1 million (the
Company's share). As at January 1, 2007, Boralex also adopted Sections 1530,
3251, 3855 and 3865 of the CICA Handbook. The impact on the Company following
the adoption of these Sections by Boralex is reflected in notes a), b) and c)
above.
g) New accounting standards not yet adopted
Capital disclosures - In December 2006, the CICA published Section 1535,
"Capital Disclosures". This new standard established disclosure requirements
concerning capital such as: qualitative information about its objectives,
policies and processes for managing capital; quantitative data about what it
regards as capital; whether it has complied with any externally imposed
capital requirements and, if not, the consequences of such non-compliance. The
new requirements will be effective starting January 1, 2008. The Company is
presently evaluating the impact of this new standard.
Financial instruments - disclosures and presentation - In December 2006,
the CICA published two new sections: Section 3862, "Financial Instruments -
Disclosures", and Section 3863, "Financial Instruments - Presentation". These
new standards replace Section 3861, "Financial Instruments - Disclosure and
Presentation", revising and enhancing its disclosure requirements, and
carrying forward unchanged its presentation requirements. These new standards
will be effective starting January 1, 2008. The Company is presently
evaluating the impact of these new standards.
Inventories - In June 2007, the CICA published Section 3031,
"Inventories". This new standard established measurement and disclosure
requirements concerning inventories. The new requirements will be effective
starting January 1, 2008. The Company is presently evaluating the impact of
this new standard.
General Standards of financial Statements Presentation - In June 2007, the
CICA amended Section 1400 to include requirements to assess an entity's
ability to continue as a going concern and disclose any material uncertainties
that cast doubt on its ability to continue as a going concern. This new
requirement will be effective for interim period and annual financial
statement starting January 1, 2008. The application of this standard does not
expect to have a material impact on the financial position on results of
operations of the Company.
NOTE 2 - MEASUREMENT UNCERTAINTY
The Company evaluates the net book value of its long-lived assets when
events or changes in circumstances indicate that the net book value of the
assets may not be recoverable. To evaluate long-lived assets, the Company
determines if the undiscounted future cash flows from operating activities
exceed the net book value of the assets at the valuation date. Estimates of
future cash flows and fair value are based on judgment and could change.
Given the sensitivity of certain key assumptions used, such as exchange
rates, selling prices and costs of raw materials and energy, there is a
measurement uncertainty regarding certain operating units because it is
possible that variations in future conditions could require a modification of
the stated amount of long-lived assets.
During the third quarter of 2007, an impairment charge of $6 million was
recorded to bring the net book value of the property, plant and equipment and
other assets of the Scierie Lemay (Boxboard Group) to its fair value. This
sawmill was temporary shut down in October 2006.
NOTE 3 - CLOSURE AND RESTRUCTURING COSTS
In 2005 and 2006, the Company announced the permanent or temporary
shutdown of certains operating units and production equipment. The following
table provides a reconciliation of all closure and restructuring cost
provisions.
For the 3-month For the 9-month
periods periods
ended September 30, ended September 30,
2007 2006 2007 2006
---------------------------------------------
Balance at beginning of
period 28 39 47 55
Additional (reversal)
provision - severance
and pension liability 1 4 (1) 11
Non-monetary items - - (1) -
Payments (15) (3) (31) (26)
-------------------------------------------------------------------------
Balance at end of period 14 40 14 40
-------------------------------------------------------------------------
-------------------------------------------------------------------------
In 2007, the Company recorded additional closure and restructuring
provision relating to the permanent closure of its Red Rock containerboard
mill and Montreal corrugated products converting plant for an amount of
$4 million. The Company, also recorded in the third quarter of 2007, a
severance provision of $1 million related to its Scierie Lemay sawmill
temporary closed in 2006.
In 2007, the Company recorded a gain of $6 million related to the
settlement of a portion of the pension plan of the Thunder Bay coated fine
paper mill, closed in January 2006. This gain and the provision of $1 million
discussed in note 5b) are recorded in discontinued operation net of related
income taxes of $2 million.
NOTE 4 - COMMODITY DERIVATIVES FINANCIAL INSTRUMENTS
---------------------------------------------
For the 3-month For the 9-month
periods periods
ended September 30, ended September 30,
2007 2006 2007 2006
---------------------------------------------
Realized loss (gain) on
commodity derivatives
financial instruments (1) - (5) 2
Unrealized loss (gain) on
commodity derivatives
financial instruments 1 - (2) (7)
-------------------------------------------------------------------------
- - (7) (5)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
NOTE 5 - UNUSUAL GAINS AND LOSSES
a) On May 1, 2007, the Company sold the building of its Toronto
(Pickering) tissue converting facility, closed in 2005, for an amount of
$7 million. The Company realized a gain of $1 million.
b) In the second quarter of 2007, the Company recorded a provision of
$3 million related to the action filed by ServiceCore, Inc. and to the class
actions filed following the infractions of 2006 under the Competition Act
relating to the sale of carbonless paper sheets by Cascades Fine Papers Group,
Inc. An amount of $1 million of this provision is presented in discontinued
operations.
c) In the second quarter of 2007, the Company recorded a dilution gain of
$15 million resulting from the decreased of its participation in Boralex from
43% to 34% as a result of a public equity offering of 7.3 million common
shares by Boralex at a price of $15.00. This gain is presented in the share of
results of significantly influenced companies.
NOTE 6 - BUSINESS ACQUISITIONS AND DISPOSAL
a) On December 29, 2006, the Company acquired the remaining outstanding
common shares (50%) of Norampac Inc. "Norampac" held by Domtar Inc. for a
total purchase price of $561 million. The balance sheet and results of
Norampac are fully consolidated since that date as they were proportionally
consolidated prior to the acquisition. The purchase price allocations for the
Norampac acquisition have not yet been completed mainly with respect to the
identification and valuation of property, plant and equipment and other
potential intangible assets. The final allocation of the purchase price could
result in significant changes.
b) On January 25, 2007, the Company sold its 40% interest in GSD
Packaging, LLC, a U.S. food pail manufacturing company of the Boxboard Group,
to Rock-Tenn Company for a cash consideration of $38 million (US $32 million).
The Company realized a gain of $25 million before income tax of $11 million.
Assets and liabilities at the time of disposal where as follows:
Business segment Boxboard
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Accounts receivable 2
Inventories 4
Property, plant and equipment 2
Goodwill 6
-------------------------------------------------------------------------
14
Accounts payable and accrued liabilities (2)
-------------------------------------------------------------------------
12
Gain on disposal 25
-------------------------------------------------------------------------
Total consideration received, net of cash disposed of $1 million 37
-------------------------------------------------------------------------
-------------------------------------------------------------------------
c) On June 20, 2007, Reno De Medici S.p.A. ("RdM") and Cascades Inc.
announced the signing of a Letter of Intent for the negotiation of the terms
and conditions of a possible combination of RdM and the european recycled
cartonboard business of Cascades S.A. Concurrently with the proposed merger,
Cascades S.A. and a group of current shareholders of RdM were expected to
enter into a three-year shareholders' agreement covering matters relating to
corporate governance (where Cascades S.A., on the one hand, and a group of
current shareholders of RdM, on the other hand, would be equally represented
in the board of directors of RdM), and providing for an 18-month lock-up and
thereafter reciprocal first refusal and tag-along rights.
On September 14, 2007, Cascades Inc. announced the signature of the
definitive combination agreement and shareholders agreement. The combination
was subject to certain conditions, including, approval of the appropriate
regulatory authorities as well as the approval by shareholders of RdM at a
special meeting. On October 29, 2007, the combination was approved by the
shareholders of RdM. The transaction is expected to be completed at the
beginning of 2008. The impact on the financial statements of the Company will
be determined upon the final closing of the transaction.
d) On August, 1 2007, the Company acquired certain assets of Honeycomb
Products of Michigan inc. a Honeycomb board mill located in Grand Rapids,
Michigan for a purchase price of $11 million (US$10.4 million).
The acquisition have been accounted for using the purchase method and the
accounts and results of operations of that acquisition have been included in
the consolidated financial statements since the date of acquisition. The
purchase price allocation has not yet been completed mainly with respect to
the identification and valuation of other potential intangible assets.The
following preliminary allocation of the purchase price to the identifiable
assets acquired, resulted in a goodwill of $7 million which is tax deductible.
The final allocation of the purchase price could result in significant
changes.
Business segment Specialty products
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Account receivable 1
Inventories 1
Property, plant and equipment 2
Goodwill 7
-------------------------------------------------------------------------
11
Less : Balance of purchase price (1)
-------------------------------------------------------------------------
Total consideration paid 10
-------------------------------------------------------------------------
-------------------------------------------------------------------------
NOTE 7 - OTHER ASSETS
As at As at
September 30, December 31,
2007 2006
---------------------------
Investments in significantly influenced
companies 117 107
Other investments 14 12
Deferred charges 14 34
Employee future benefits 63 52
Fair value of derivatives financial instruments 4 7
Customer relationship and client lists 68 77
Other finite-life intangible assets 12 14
-------------------------------------------------------------------------
292 303
-------------------------------------------------------------------------
-------------------------------------------------------------------------
NOTE 8 - LONG-TERM DEBT
As at As at
September 30, December 31,
2007 2006
---------------------------
7.25% and 6.75% unsecured senior notes
(US$925 million, net of deferred
financing costs) 915 1,078
Revolving and term credit facilities 677 557
Other debt from subsidiaries 13 28
Other debt from joint ventures 2 3
-------------------------------------------------------------------------
1,607 1,666
Current portion 5 9
-------------------------------------------------------------------------
1,602 1,657
-------------------------------------------------------------------------
-------------------------------------------------------------------------
On June 27, 2007, the Company amended its credit facility to add a new
12-month unsecured revolving credit facilty in the amount of $100 million to
provide additional availability of funds.
NOTE 9 - OTHER LIABILITIES
As at As at
September 30, December 31,
2007 2006
---------------------------
Employee future benefits 108 107
Future income taxes 261 286
Fair value of derivatives financial
instruments 12 2
Legal settlement 9 11
Non-controlling interest 21 19
Others 13 14
-------------------------------------------------------------------------
424 439
-------------------------------------------------------------------------
-------------------------------------------------------------------------
NOTE 10 - ADDITIONAL INFORMATION
For the 3-month For the 9-month
periods periods
ended September 30, ended September 30,
2007 2006 2007 2006
---------------------------------------------
(a) Cost of sales
Foreign exchange loss (4) - (1) -
(b) Employee future benefits
expenses
Defined benefit pension
plans 2 3 7 9
Other employee future
benefit plans 2 2 7 6
Defined contribution
pension plans 2 1 4 3
(c) Supplemental disclosure
Depreciation of property,
plant and equipment 53 39 153 117
Amortization of other
assets 2 2 7 5
Amortization of deferred
financing cost
included in interest
expense 1 1 3 3
Interest paid 37 32 92 72
Income taxes paid
(received) (12) (2) 14 2
(d) Discontinued operations
Cash and cash
equivalents provided
by discontinued
operations including
proceeds on disposal (16) (1) (16) 56
NOTE 11 - CAPITAL STOCK
As at September 30, 2007, the capital stock issued and outstanding
consisted of 99,276,551 common shares (99,533,654 as at December 31, 2006). As
at September 30, 2007, 2,508,812 stock options were issued and outstanding
(2,315,391 as at December 31, 2006). During the period, 103,397 options were
exercised and 125,250 were forfeited. In addition, the Company issued
422,068 stock options during the period at an exercise price of $11.83.
In 2007, in the normal course of business, the Company renewed its share
repurchase program of a maximum of 4,970,094 common shares with the Toronto
Stock Exchange which represents approximately 5% of issued and outstanding
common shares. The program is valid from March 13, 2007 to March 12, 2008. As
of September 30, 2007, the Company repurchased 360,500 common shares under
this program for a consideration of approximately $4 million.
NOTE 12 - ACCUMULATED OTHER COMPREHENSIVE INCOME
As at As at
September 30, December 31,
2007 2006
---------------------------
Foreign currency translation of self-
sustaining foreign subsidiaries, net of
hedging activities (61) (9)
Unrealized gains arising from foreign exchange
forward contracts designated as cash flow
hedges, net of related income taxes 5 -
-------------------------------------------------------------------------
(56) (9)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
NOTE 13 - CONTINGENCY AND SUBSEQUENT EVENT
During the third quarter of 2007, The Company announced the signing of a
letter of intent for the sale of its Red Rock linerboard mill located in
Ontario which is temporarily shutdown. Upon the execution of a final sale
agreement, the Company will pay to the purchaser an amount of $10 million. On
October 31, 2007, the parties completed the transaction of the final sale
agreement. The Company also signed a letter of intent for the sale of its
permanently closed coated fine paper mill located in Thunder Bay, Ontario.
Upon the execution of a final sale agreement, the company will pay to the
purchaser an amount of $4 million. Discussions relating to this sale remain
ongoing and the amounts payable will be recorded to earnings at closing.
After the closing of the third quarter, the Company entered into foreign
exchange forward contracts and currency option instruments to fix the
remaining portion of its U.S.- denominated debt for a notional amount of
US$725 million at an average exchange rate of $1,036 $US./CAN.
Selected Segmented Information
(in millions of Canadian dollars)
(unaudited)
For the 3-month For the 9-month
periods periods
ended September 30, ended September 30,
2007 2006 2007 2006
---------------------------------------------
Sales
Packaging products
Boxboard
Manufacturing 195 187 602 526
Converting 166 186 512 555
Eliminations and
others (24) (23) (76) (50)
---------------------------------------------
337 350 1,038 1,031
Containerboard
Manufacturing 150 87 456 255
Converting 252 132 747 383
Eliminations and others (92) (64) (292) (184)
---------------------------------------------
310 155 911 454
Specialty products
Manufacturing 78 82 245 252
Converting 57 57 174 168
Recovery, deinked
pulp and eliminations 92 54 279 157
---------------------------------------------
227 193 698 577
Eliminations (27) (15) (84) (56)
---------------------------------------------
847 683 2,563 2,006
Tissue papers
Manufacturing and
converting 176 194 542 545
Eliminations and others 20 (9) 6 (24)
---------------------------------------------
Consolidated total 1,043 868 3,111 2,527
---------------------------------------------
---------------------------------------------
For the 3-month For the 9-month
periods periods
ended September 30, ended September 30,
2007 2006 2007 2006
---------------------------------------------
Operating income (loss)
before depreciation and
amortization from
continuing operations and
operating income from
continuing operations
Packaging products
Boxboard
Manufacturing 4 (3) (1) 1
Converting 12 18 63 50
Others (9) (4) (12) (9)
---------------------------------------------
7 11 50 42
Containerboard
Manufacturing 19 12 54 32
Converting 22 12 57 35
Others 5 4 11 5
---------------------------------------------
46 28 122 72
Specialty products
Manufacturing 3 (7) 6 (4)
Converting 6 8 18 22
Recovery, deinked pulp
and others 6 4 18 12
---------------------------------------------
15 5 42 30
---------------------------------------------
68 44 214 144
Tissue papers
Manufacturing and
converting 16 34 51 92
Corporate 1 (3) 7 (5)
-------------------------------------------------------------------------
Operating income before
depreciation and
amortization from
continuing operations 85 75 272 231
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Depreciation and amortization
Boxboard (17) (16) (51) (49)
Containerboard (18) (9) (50) (28)
Specialty products (8) (9) (24) (23)
Tissue papers (9) (9) (27) (28)
Corporate and eliminations (3) 2 (8) 6
-------------------------------------------------------------------------
(55) (41) (160) (122)
-------------------------------------------------------------------------
Operating income from continuing
operations 30 34 112 109
-------------------------------------------------------------------------
-------------------------------------------------------------------------
For the 3-month For the 9-month
periods periods
ended September 30, ended September 30,
2007 2006 2007 2006
---------------------------------------------
Purchases of property, plant
and equipment
Packaging products
Boxboard
Manufacturing 6 2 13 4
Converting 5 7 23 19
Others 3 - 3 1
---------------------------------------------
14 9 39 24
Containerboard
Manufacturing 2 1 7 9
Converting 3 2 7 8
Others - - - -
---------------------------------------------
5 3 14 17
Specialty products
Manufacturing 1 3 6 6
Converting 2 2 6 4
Recovery, deinked pulp
and others 2 1 4 4
---------------------------------------------
5 6 16 14
---------------------------------------------
24 18 69 55
Tissue papers
Manufacturing and
converting 16 11 35 16
Corporate 1 2 5 4
-------------------------------------------------------------------------
Consolidated total 41 31 109 75
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Additional information
(in millions of Canadian dollars, except shipments and share information)
(unaudited)
For the 3-month For the 9-month
periods periods
ended September 30, ended September 30,
2007 2006 2007 2006
---------------------------------------------
Common shares - Toronto
Stock Exchange
High $12.52 $12.85 $15.80 $12.85
Low $8.23 $11.09 $8.23 $9.66
Volume 11,586,000 8,606,000 46,957,000 19,407,000
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Shipments of manufacturing
and converting products
(in thousands of
short tons)
Packaging products
Boxboard 296 311 910 880
Containerboard 357 186 1,074 564
Specialty products 111 113 340 345
Tissue papers 115 118 336 336
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Supplemental information on non-GAAP measure
Operating income before depreciation and amortization and operating income
are not measures of performance under Canadian GAAP. The Company includes
operating income before depreciation and amortization and operating income
because they are the measures used by management to assess the operating and
financial performance of the Company's operating segments. As well, the
Company believes that operating income before depreciation and amortization
and operating income provides an additional measure often used by investors to
assess a company's operating performance and its ability to meet debt service
requirements. However, operating income before depreciation and amortization
and operating income do not represent, and should not be used as a substitute
for net earnings or cash flows from operations as determined in accordance
with Canadian GAAP and operating income before depreciation and amortization
and operating income are not necessarily an indication of whether cash flow
will be sufficient to fund our cash requirements. In addition, our definition
of operating income before depreciation and amortization and operating income
may differ from that of other companies.
Net earnings, which is a performance measure defined by Canadian GAAP is
reconcilied below to operating income and to operating income before
depreciation and amortization:
For the 3-month For the 9-month
periods periods
ended September 30, ended September 30,
2007 2006 2007 2006
---------------------------------------------
Net earnings for the period 16 10 83 49
Net loss (earnings) from
discontinued operations - - (3) 4
Non-controlling interest 1 - 2 -
Share of results of
significantly influenced
companies (2) (2) (23) (6)
Provision for income taxes 2 5 15 13
Foreign exchange gain on
long-term debt (14) - (43) (14)
Interest expense 27 21 81 63
---------------------------------------------
Operating income from
continuing operations 30 34 112 109
Depreciation and
amortization 55 41 160 122
---------------------------------------------
Operating income before
depreciation and
amortization 85 75 272 231
-------------------------------------------------------------------------
For further information: M Hubert Bolduc, Vice-president,
Communications, (819) 350-0793; Mr. Marc Jasmin, C.M.A. Director, Investor
relations, Cascades Inc., (514) 282-2681; Source: Mr. Christian Dubé,
Vice-President and Chief Financial Officer, Cascades Inc.
