Business News

Cascades reports third quarter results

Friday 07. November 2008 - Cascades Inc. ("Cascades") (CAS on the Toronto stock exchange) reports net earnings excluding specific items(1) of $6 million ($0.06 per share) compared to net earnings of $9 million ($0.09 per share) for the same quarter in 2007.

When including specific items(1), the net loss for the third quarter of 2008 amounted to $7 million ($0.07 per share) compared to net earnings of $16 million ($0.16 per share) for the same period in 2007.

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Financial Highlights

Selected consolidated information
(in millions of Canadian dollars, —————————-
except amounts per share) Q3/2008 Q3/2007 Q2/2008
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Sales 1,039 984 999
Operating income before depreciation and
amortization (OIBD)(1) 71 93 61
Operating income from continuing operations 17 38 8
Net earnings (loss) (7) 16 (25)
per common share $(0.07) $0.16 $(0.25)
Cash flow from operations (adjusted) from
continuing operations(1) 43 55 36
per common share(1) $0.43 $0.56 $0.37

Excluding specific items(1)
Operating income before depreciation
and amortization (OIBD) 88 95 63
Operating income from continuing
operations 34 40 10
Net earnings (loss) 6 9 (11)
per common share $0.06 $0.09 $(0.11)
Cash flow from operations (adjusted)
from continuing operations 47 56 42
per common share $0.47 $0.57 $0.43
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Note 1 – see the supplemental information on non-GAAP measures note.
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Commenting on the quarterly results, Mr. Alain Lemaire, President and Chief Executive Officer stated: “Following a first half of the year in which we faced very challenging business conditions, we are pleased with the significant sequential improvement in our operating income. In fact, this quarter was the first one of 2008 where increases in selling prices were not offset by higher fibre and energy costs. Additionally, we continued to profit from strong demand for our recycled tissue paper products and started to feel the benefits of the restructuring initiatives put in place in the last six months in our North American boxboard operations.”

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Additional highlights

– Increase in profitability compared to the second quarter mostly
explained by:
– Higher selling prices and slightly improved shipments;
– The depreciation of the Canadian dollar and lower energy costs.

– All operating segments showed a sequential improvement:
– The North American manufacturing boxboard OIBD (excluding specific
items) improved from a loss of $12 million to a loss of $3 million
as a result of restructuring initiatives and better market
fundamentals.
– The Specialty Products and Tissue Papers groups increased their
OIBD (excluding specific items) by 40% and 47% respectively.

– In comparison to the same period of last year, operating income
decreased as higher selling prices were not sufficient to offset the
increased cost of recycled fibres, energy and chemical products.

– In October, Cascades sold forward exchange derivatives contracts on its
US$ denominated debt for net cash proceeds of approximately $150
million which were applied to reduce its revolving credit facility,
thus increasing cash availability to close to $400 million.

– Cascades Tissue Group continues to gain market shares in Canada as
sales of the Cascades Enviro 100TM tissue paper brand increased by more
than 300% in the last twelve months. According to the most recent
ACNielsen’s data, the Cascades Enviro 100TM tissue paper brand is now
the no. 1 “green” tissue retail brand in Canada.

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Three-month period ended September 30, 2008
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In comparison with the same period last year, sales increased $55 million or 5.6% reflecting generally higher prices.

Operating income from continuing operations amounted to $17 million compared to $38 million achieved for the same period last year. When excluding specific items, operating income from continuing operations amounted to $34 million in comparison to $40 million for the same quarter in 2007. Specific items for the third quarter of 2008 include $4 million of closure and restructuring costs and $13 million of unrealized losses on financial instruments. Specific items for the third quarter of 2007 included $1 million in closure and restructuring costs as well as $1 million of unrealized losses on financial instruments.

The net loss for the third quarter of 2008 reflects the above mentioned specific items as well as a $4 million tax recovery associated to these items. The $0.16 net earnings per share for the third quarter of 2007 included an after-tax $11 million foreign exchange gain on $U.S. denominated debt ($0.11 per share).

Nine-month period ended September 30, 2008
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Sales remained relatively flat for first nine months of 2008 compared to the same period last year and amounted to $3.0 billion.

Operating income from continued operations amounted to $19 million compared to $125 million achieved for the same period last year. Operating income from continuing operations excluding specific items amounted to $52 million. This amount compares to $109 million achieved in the first nine months of 2007.

Specific items include $17 million of closure and restructuring costs, $6 million of unrealized losses on financial instruments, a $5 million loss on disposal of assets, a $3 million impairment loss on property, plant and equipment, and a $2 million negative inventory adjustment resulting from a business acquisition.

Near term outlook
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Mr. Alain Lemaire, President and Chief Executive Officer added: “Notwithstanding the current economic uncertainty and the potential impact on business activity, we are cautiously optimistic about the near future as we expect to benefit from the decrease in recycled paper prices, our main cost, as well as from the drop in energy costs and the recent depreciation of the Canadian dollar. In addition, with our recently improved liquidity situation and the diversified source of cash flows generated from our packaging and tissue businesses, we are now in a better position to face the current economic turmoil and the potential weakness that may arise in some of our markets.”

Dividend on Common Shares and normal course issuer bid
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The Board of Cascades declared a quarterly dividend of $0.04 per share to be paid December 17, 2008 to shareholders of record at the close of business on December 3, 2008. This dividend paid by Cascades is an “eligible dividend” as per the proposed changes to the Income Tax Act (Bill C-28, Canada). In addition, in the first nine months of the year, in accordance with its normal course issuer bid, Cascades has purchased for cancellation 461,600 common shares at an average price of $7.20 per share representing an aggregate amount of approximately $3.3 million.

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:

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(in millions of Canadian dollars) Q3/2008 Q3/2007 Q2/2008
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Net earnings (loss) (7) 16 (25)
Net earnings from discontinued operations – 6 1
Non-controlling interest 1 1 –
Share of results of significantly
influenced companies (2) (2) –
Provision for (recovery of) income taxes (2) 5 (9)
Foreign exchange loss (gain) on long-term
debt – (14) 15
Interest expense 27 26 26
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Operating income (loss) 17 38 8
Specific items :
Inventory adjustment resulting from
business acquisition – – 1
Impairment loss on property, plant and
equipment – – 3
Closure and restructuring costs 4 1 5
Unrealized loss (gain) on financial
instruments 13 1 (7)
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17 2 2
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Operating income – excluding specific items 34 40 10

Depreciation and amortization 54 55 53
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Operating income before depreciation and
amortization – excluding specific items 88 95 63
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Supplemental information on non-GAAP measures (cont’d)



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 Net earnings (loss)
per share) Net earnings (loss) per share(1)
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Q3/ Q3/ Q2/ Q3/ Q3/ Q2/
2008 2007 2008 2008 2007 2008
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As per GAAP (7) 16 (25) $(0.07) $0.16 $(0.25)
Specific items :
Inventory adjustment
resulting from business
acquisition – – 1 $ – $ – $ –
Impairment loss on
property, plant and
equipment – – 3 $ – $ – $0.02
Closure and
restructuring costs 4 1 5 $0.03 $0.01 $0.04
Unrealized loss (gain)
on financial
instruments 13 1 (7) $0.10 $0.01 $(0.06)
Foreign exchange loss
(gain) on long-term
debt – (14) 15 $ – $(0.11) $0.13
Loss included in
discontinued operations – 6 1 $ – $0.05 $0.01
Adjustment of statutory
tax rate – (3) – $ – $(0.03) $ –
Tax effect on specific
items (4) 2 (4)
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13 (7) 14 $0.13 $(0.07) $0.14
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Excluding specific items 6 9 (11) $0.06 $0.09 $(0.11)
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Note 1 – specific amounts per share are calculated on an after-tax basis.