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Rooted in tomorrow.
2015F i n a n c i a l R e p or t
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The covers are printed on 10pt. FSC-certified Kallima® Coated Cover C2S,
manufactured by Tembec’s Temiscaming, Quebec, coated bleached board mill.
Tembec Inc.
© 2015 All rights reserved
Printed in Canada
Tembec Financial Report 2015
1 Message to Shareholders
3 Management’s Discussion and Analysis
48 Management Responsibility
49 Independent Auditors’ Report
50 Consolidated Financial Statements
95 Directors and Officers
96 Shareholder Information
Appendix Sustainability Report Summary
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1Tembec Financial Report
Temiscaming Energy Project
TheCompanycompletedthemillionenergyprojectinearly
fiscalandstartedtheunitinJanuaryTheHydro-Québec
commercial-in-servicetestwascompletedveryquicklyin
thefirstmonthofoperationwhichqualifiedtheCompanyto
receivethecontractedpaymentrateforelectricityproduced
Theoverallstart-upandoptimizationoftheboilerturbineand
relatedequipmentcontinuedthroughoutthebalanceofthe
fiscalyear
Theenergyprojectwillprovidebenefitsinthreeareas
Reductioninenergycosts
Pulpmill productivityimprovements
Reductioninoperatingcosts
Wearepleasedtoreportthatthesebenefitsarenowbeing
achievedandwillsignificantlyimpactthefinancialresultsofthe
SpecialtyCellulosePulpsegmentgoingforward
Forest Products
TheslowandsteadyincreaseinUShousingstartscontinued
inandthistrendisexpectedtocontinueagainin
WhileUShousingstartsaresolidlyabovemillionunitsper
yeartheyremainfarbelowthelong-termtrendofmillion
peryearLumberpriceimprovementshavebeenmuteddespite
thegrowthinNorthAmericandemandduetoproduction
increasesthroughoutthecontinentTheprofitabilityofthis
businessisexpectedtocontinuetoimproveastheanticipated
increaseindemandtranslatesintohighersellingprices
TheSoftwoodLumberAgreement(SLA)betweenCanadaand
theUnitedStatesexpiredonOctoberTheSLAprovided
foraone-yearstandstillperiodthatpreventstheUnitedStates
frominitiatingnewtradeactionsagainstCanadaTheCompany
expectsthatthetwogovernmentswillengageinnegotiationsin
todevelopareplacementfortheexpiredagreement
Message to Shareholders
Fiscal was a challenging year for the Company Certain internal issues negatively affected financial results in
addition to adverse market conditions in certain segments Despite these challenges the Company did experiencepositive tailwinds in the final quarter of the year that should carry over into fiscal
Tembec’s journey towards world-class health and safety performance continued The OSHA Incident Rate (OIR)
did not improve in However substantial improvements were achieved in the lost time incident rate and total
severity rate Simply put the types of safety incidents that occurred were much less severe than in previous years
The Company will continue its journey to become a world-class health and safety organization and strive to eliminate
all incidents and injuries
The drop in adjusted EBITDA in from the previous year was disappointing and unexpected The Specialty
Cellulose Pulp segment was the primary cause of the lower profitability A combination of operating factors andmarket issues caused results for this business to be below expectations Lumber prices were also below the Company’s
forecast and impacted the fiscal results
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2 Tembec Financial Report
JAMESMLOPEZ JAMESVCONTINENZA
PresidentandChiefExecutiveOfficer ExecutiveChairmanoftheBoard
Message to Shareholders
Specialty Cellulose
TheSpecialtyCellulosePulpsegmentexperiencedadeclinein
profitabilityduetotwoyearsofUSdollarandeuropricedeclines
inbothspecialtyandcommoditygradesAdditionallyoperatingperformancewaspoorinTemiscamingduetoan-daylabour
stoppageandanextendedannualmaintenanceoutage
Thespecialtygrademarketssufferedfromsurpluscapacity
broughtonbyacompetitor’sconversionofafluffpulpmillto
producespecialtygradesThiscreatedaverycompetitivemarket
situationandanintensecompetitionformarketshareInthe
secondhalfofcalendarthiscompetitorannouncedthat
theadditionalspecialtycapacitywasbeingconvertedbackto
producefluffpulpandcommodityviscosepulpTheCompany
anticipatesthatthiscapacitychangeshouldre-balancethe
marketandmitigatetheneedforfurtherpricedeclines
Thecommodityviscosepulpmarketsbottomedoutinearly
calendarandpriceshaveimprovedinthesecondhalfofthe
calendaryearThefundamentalsfortheviscosefibremarkethave
improvedleadingtobetterdemandandprices
Paper Pulp
DemandfortheCompany’shigh-yieldpulpdeclinedinfiscal
Whilethedemandforpaperwasdowninmostmarketsleading
toademanddeclineforpaperpulpthiswasmostprevalentin
Chinawherethepaperandpackagingbusinessisoverbuiltfor
thedomesticdemandOurcustomers’millstooksignificant
downtimetoreducetheirinventoriestherebyreducingtheir
ordersforhigh-yieldpulpItisexpectedthatdemandandprices
willbeginaslowrecoveryincalendar
Paper
ThePapersegmentoperatesinthecoatedbleachedboard
marketandthenewsprintmarketThecoatedbleachedboard
demandandUSdollarpriceswerestableinfiscalleadingtogoodprofitabilityinthisbusinessAdditionalcompetitioninthe
NorthAmericanmarketsfromEuropeanproducersinhas
beguntoputpressureonUSdollarsellingpricesThereisthe
potentialforpriceweaknessinfiscalHoweverthebusiness
isstillexpectedtobeveryprofitable
Thenewsprintsectorcontinuestobeaffectedbyastructural
declineindemandwhichhasputdownwardpressureon
USdollarpricesTheweakeningoftheCanadiandollarhas
mitigatedmuchoftheUSdollarpricedeclinegivingmillsin
thiscountryacompetitiveadvantageHoweverprofitability
throughoutthesectorisexpectedtoremainpoorTheCompany’snewsprintfacilityhasarelativelylowcostpositionandshould
bemodestlyprofitable
General
TheCompanyisexperiencingsometailwindsthatshouldleadto
ayear-over-yearimprovementinprofitabilityThenewenergy
projectinTemiscamingwillgenerateadditionaladjustedEBITDA
Aswelloperatingperformanceandproductivityisexpectedto
improveandexternalvariablessuchasforeignexchangerates
andsellingpriceswilllikelycontributetoimprovedfinancial
performance
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3Tembec Financial Report
TheMD&Aincludes“forward-lookingstatements”withinthemeaningofsecuritieslawsSuchstatementsrelatewithout
limitationtotheCompany’sormanagement’sobjectives
projectionsestimatesexpectationsorpredictionsofthefuture
andcanbeidentifiedbywordssuchas“may”“will”“could”
“anticipate”“estimate”“expect”and“project”thenegativeor
variationsthereofandexpressionsofsimilarnatureForward-
lookingstatementsarebasedoncertainassumptionsand
analysesmadebytheCompanyinlightofitsexperience
informationavailabletoitanditsperceptionoffuture
developmentsSuchstatementsaresubjecttoanumberofrisks
anduncertaintiesincludingbutnotlimitedtochangesinforeign
exchangeratesproductsellingpricesrawmaterialandoperating
costsandotherfactorsidentifiedintheCompany’speriodicfilings
withsecuritiesregulatoryauthoritiesincludingunderthe“risk
factors”sectionoftheCompany’smostrecentAnnualInformation
FormManyoftheserisksarebeyondthecontroloftheCompany
andthereforemaycauseactualactionsorresultstomaterially
differfromthoseexpressedorimpliedhereinTheforward-
lookingstatementscontainedhereinreflecttheCompany’s
expectationsasofthedatehereofandaresubjecttochangeafter
suchdateTheCompanydisclaimsanyintentiontoupdateor
reviseanyforward-lookingstatementswhetherasaresultofnew
informationfutureeventsorotherwiseunlessrequiredbyapplicablesecuritieslegislationTheinformationinthisMD&Ais
asatNovemberDisclosurecontainedinthisdocument
iscurrenttothatdateunlessotherwisestated
ThroughouttheMD&A“Tembec”or“Company”meansTembecInc
anditsconsolidatedsubsidiariesTembec’soperationsconsistof
fivereportablebusinesssegmentsForestProductsSpecialty
CellulosePulpPaperPulpPaperandCorporateOnSeptember
theCompanyhadapproximatelyemployeesas
comparedtoattheendofthepriorfiscalyearTheCompany
operatesmanufacturingfacilitiesinQuebecOntariothestateof
OhioaswellasinSouthernFrancePrincipalfacilitiesare
describedinsubsequentsectionsoftheMD&A
Management’s Discussion and AnalysisasatNovember
The Management’s Discussion and Analysis (MD&A) section provides a review of the significant developments andissues that influenced Tembec Inc’s financial performance during the fiscal year ended September as
compared to the fiscal year ended September The MD&A should be read in conjunction with the audited
consolidated financial statements for the fiscal year ended September Financial data has been prepared
in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting
Standards Board (IASB) All financial references are stated in Canadian dollars unless otherwise noted All references
to quarterly information relate to Tembec’s fiscal quarters Adjusted EBITDA net debt to total capitalization free
cash flow and certain other financial measures utilized in the MD&A are non-IFRS financial measures As they have
no standardized meaning prescribed by IFRS they may not be comparable to similar measures presented by other
companies Non-IFRS financial measures are described in the section “Use of non-IFRS financial measures”
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Management’s Discussion and Analysis
4 Tembec Financial Report
vs
Financial summary
(inmillionsofdollarsunlessotherwisenoted)
Sales
Freightandotherdeductions
Lumberexporttaxes –
Costofsales(excludingdepreciationandamortization)
SG&A
Share-basedcompensation ()
AdjustedEBITDA
Depreciationandamortization
Otheritems () ()
Operatingearnings
Interestforeignexchangeandother
Lossonrefinancingoflong-termdebt –
Exchangelossonlong-termdebt
Earnings(loss)beforeincometaxes ()
Incometaxexpense
Netearnings(loss) ()
Basicanddilutednetearnings(loss)indollarspershare ()
Totalcomprehensiveloss () ()
Totalassets(atyear-end)
Totallong-termdebt(atyear-end)() Totallong-termliabilities(atyear-end)
()Includescurrentportion
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Management’s Discussion and Analysis
5Tembec Financial Report
0
500
1,000
1,500
2,000
20152014201320122011
Consolidated sales
(in millions of dollars)
1,743 1,666 1,534 1,491 1,418
17 67 6 21 12 21 13 38
0
25
50
75
100
Adjusted EBITDA by segment
(in millions of dollars)
20152014
Forest Products
Specialty Cellulose Pulp
Forest Products
Specialty Cellulose Pulp
Forest Products
Specialty Cellulose Pulp
Paper Pulp
Paper
Paper Pulp
Paper
Paper Pulp
Paper
Financial performance
0
50
100
150
201520142013201220110%
5%
10%
15%
98 64 97 90 70
Fiscal 2011 and 2012 results are not restated for IAS 19Fiscal 2011 and 2012 results are not restated for IAS 19Fiscal 2011 and 2012 results are not restated for IAS 19
Adjusted EBITDA $ millions (left scale)
Adjusted EBITDA % sales (right scale)
Adjusted EBITDA $ millions (left scale)
Adjusted EBITDA % sales (right scale)
Adjusted EBITDA $ millions (left scale)
Adjusted EBITDA % sales (right scale)
Forest Products
Specialty Cellulose Pulp
Forest Products
Specialty Cellulose Pulp
Forest Products
Specialty Cellulose Pulp
Paper Pulp
Paper
Paper Pulp
Paper
Paper Pulp
Paper
Consolidated sales by segment
(in millions of dollars)
339
281
503
368
337
272
434
375
2014 2015
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Management’s Discussion and Analysis
6 Tembec Financial Report
SalesdecreasedbymillionfromtheprioryearCurrencywas
apositivefactorastheCanadiandollaraveragedUSan
decreasefromUSintheprioryearForestProductssegmentsalesincreasedbymillionasaresultofhigherprices
SpecialtyCellulosePulpsegmentsalesdecreasedbymillion
duetolowershipmentsandpricesPaperPulpsegmentsales
declinedbymillionduetolowershipmentsPapersegment
salesdeclinedbymillionduetolowershipmentslargelyoffset
byhigherprices
IntermsofgeographicaldistributiontheUSremainedthe
Company’sprincipalmarketwithofconsolidatedsales
infiscalunchangedfromtheprioryearCanadiansalesrepresentedofsalescomparedtointheprioryearSales
outsideoftheUSandCanadarepresentedtheremainingin
fiscalascomparedtoayearago
AdjustedEBITDAdecreasedbymillionfromtheprior
yearForestProductssegmentadjustedEBITDAdecreasedby
millionduetohighercostspartiallyoffsetbyhigherprices
SpecialtyCellulosePulpsegmentadjustedEBITDAdeclined
bymillionduetohighercostsandlowerpricesPaper
PulpsegmentadjustedEBITDAincreasedbymilliondueto
higherpricesandlowercostsPapersegmentadjustedEBITDA
increasedbymillionduetohigherpricespartiallyoffsetby
highercostsThedeclineinCorporatesegmentcostswasdue
primarilytoamillionreductioninshare-basedcompensation
Adjusted EBITDA
Total Price Cost&(inmillionsofdollars) variance variance volumevariance
ForestProducts () ()
SpecialtyCellulosePulp () () ()
PaperPulp
Paper ()
Corporate () () –
() ()
Sales
Total Price Volume&(inmillionsofdollars) variance variance mixvariance
ForestProducts ()
SpecialtyCellulosePulp () () ()
PaperPulp () ()
Paper () ()
Corporate () – ()
() ()
Lessintersegmentsales () ()
Sales ()
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Management’s Discussion and Analysis
7Tembec Financial Report
TheCompanygeneratedoperatingearningsofmillion
comparedtooperatingearningsofmillioninfiscal
TheForestProductssegmentgeneratedoperatingearningsofmillionascomparedtooperatingearningsofmillionin
theprioryearThepreviouslynoteddecreaseinadjustedEBITDA
ledtothedeclineinoperatingresultspartiallyoffsetbylower
depreciationandamortizationexpenseTheprioryearresults
includedanassetimpairmentchargeofmillionthatwas
reversedinfiscal
TheSpecialtyCellulosePulpsegmentgeneratedanoperatingloss
ofmillionascomparedtooperatingearningsofmillionin
theprioryearThepreviouslynoteddeclineinadjustedEBITDA
reducedoperatingresultsDepreciationexpenseincreasedby
millionastheCompanybegandepreciatingthenewboilerand
turbineattheTemiscamingspecialtycellulosemillinFebruary
ThePaperPulpsegmentgeneratedoperatingearningsof
millioncomparedtoanoperatinglossofmillionintheprior
yearThepreviouslynotedincreaseinadjustedEBITDAledtothe
improvementinoperatingresults
ThePapersegmentgeneratedoperatingearningsofmillion
ascomparedtooperatingearningsofmillionintheprior
yearTheincreaseinadjustedEBITDAledtothehigheroperating
profitability
Corporatesegmentresultsdeclinedbymillionprimarilydue
to“Otheritems”whichmorethanoffsetthepreviouslynoted
improvementinadjustedEBITDATheprioryearresultsincluded
againofmillionrelatingtolandsales
Amoredetailedanalysisofsegmentvariancesisincludedinthe
analysisthatfollows
Operating earnings (loss)
Adjusted Other
Total EBITDA Depreciation items
(inmillionsofdollars) variance variance variance variance
ForestProducts () () –SpecialtyCellulosePulp () () () () –
PaperPulp () – –
Paper () –
Corporate () () – ()
() () () ()
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Management’s Discussion and Analysis
8 Tembec Financial Report
Segment review – vs
Forest Products
(inmillionsofdollars)
Sales()
Freightandotherdeductions
Lumberexporttaxes –
Costofsales
SG&A
AdjustedEBITDA
AdjustedEBITDAmarginonsales
Depreciationandamortization
Operatingearnings
Identifiableassets
()Includesintersegmentsaleseliminatedonconsolidation
TheForestProductssegmentisdividedintotwomainareas
ofactivityforestresourcemanagementandmanufacturing
operations
TheForestResourceManagementgroupisresponsiblefor
managingalloftheCompany’sCanadianforestryoperationsThis
includestheharvestingoftimbereitherdirectlyorbycontractual
agreementsandsilvicultureandregenerationworkrequired
toensureasustainablesupplyforthemanufacturingunits
Thegroupisalsoresponsibleforthirdpartytimberpurchases
whichareneededtosupplementtotalrequirementsThegroup’s
mainobjectiveistheoptimizationoftheflowoftimberinto
variousmanufacturingunitsAstheCompany’sforestactivity
inCanadaisconductedprimarilyonCrownlandstheForest
ResourceManagementgroupworkscloselywithprovincial
governmentstoensureharvestingplansandoperationscomply
withestablishedregulationsandthatstumpagechargedbythe
provincesisreasonableandreflectsthefairvalueofthetimber
beingharvestedDuringfiscaltheCompany’soperations
harvestedanddeliveredmillioncubicmetresoftimber
comparedtomillioncubicmetresintheprioryearAdditional
supplyofapproximatelymillioncubicmetreswassecured
mainlythroughpurchasesandexchangeswiththirdparties
unchangedfromtheprioryear
TheForestProductssegmentincludesoperationslocatedin
QuebecandOntarioTheSPFlumberoperationscanproduce
approximatelymillionboardfeetoflumberThespecialty
woodoperationscanannuallyproducemillionboardfeetof
hardwoodlumberTheCompany’sengineeredwoodoperations
consistofafingerjointlumberplantwhichwasidleforallof
fiscalandfiscal
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Management’s Discussion and Analysis
9Tembec Financial Report
Thefollowingsummarizesthecurrentannualcapacityofeachfacilitybyproductgroup
SPF lumber mbf
Studlumber–LaSarreQC
Studlumber–SenneterreQC
Studlumber–CochraneON
Studlumber–KapuskasingON
Randomlumber–BéarnQC
Randomlumber–ChapleauON
Randomlumber–HearstON
Specialty wood mbf
Hardwoodlumber–HuntsvilleON
Engineered wood mbf
Engineeredfingerjointlumber–LaSarreQC
ThesegmentisdominatedbySPFlumberwhichrepresented
ofbuildingmaterialsalesinfiscalunchangedfromthe
prioryearThevolumeofSPFlumbersoldinfiscalincreased
bymillionboardfeetorTheshipmenttocapacityratio
wasinfiscalcomparedtointheprioryearMarket
conditionsforlumberweresimilaryear-over-year
Specialtywoodrepresentedofbuildingmaterialsalesin
fiscalunchangedfromtheprioryearPricesdecreasedby
permbfor
Therewerenoengineeredwoodsalesinfiscaland
Thefingerjointfacilitywasidleforalloffiscaland
fiscal
TheSPFsawmillsproducedandshippedtonnesofwood
chipsinfiscalofwhichweredirectedtotheCompany’s
pulpandpaperoperationsInthesawmillsproduced
tonnesandshippedofthisvolumetotheCompany’s
pulpandpapermillsTheinternaltransferpriceofwoodchipsis
basedoncomparablearms-lengthtransactions
Totalsalesforthissegmentreachedmillionanincreaseof
millionovertheprioryearAftereliminatinginternalsalesthe
ForestProductssegmentgeneratedofCompanyconsolidated
salesupfromintheprioryearThesegment’smainmarket
isNorthAmericawhichrepresentedofconsolidatedsalesin
fiscalunchangedfromtheprioryear
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Management’s Discussion and Analysis
10 Tembec Financial Report
Sales Shipments Sellingprices
(millions) (units) (unit)
SPF lumber (mbf)
Specialty wood Hardwood(mbf)
Total building materials
Woodchips(bonedrytonnes)
Logsandby-products
Total sales
Internalwoodchipsandothersales () ()
Consolidated sales
Markets
TheCompanymarketsitslumberwithitsowninternalsalesforce
ThebenchmarkrandomlengthEasternSPFaveragelumberprice
(andbetterdeliveredGreatLakes)decreasedfromUSper
mbfinfiscaltoUSpermbfinfiscalThereference
priceforstudlumberdecreasedaswellwiththeEasternaverage
lumberprice(deliveredGreatLakes)downfromUSper
mbftoUSpermbfThepricegapbetweenthetwogrades
narrowedasexpectedCurrencywasfavourableastheCanadian
dollaraveragedUSandeclinefromUSin
theprioryearAsaresulttheaveragesellingpriceofSPFlumber
increasedbyapproximatelypermbfHousingstartsinthe
USonaseasonallyadjustedbasisaveragedunitsinfiscalaincreaseovertheunitsinfiscal
Howevertheseremainbelowthemilliontomillionaverage
thatwouldbeindicativeofnormalmarketconditionsHousing
startsinCanadaonaseasonallyadjustedbasisaveraged
unitsthesamelevelasintheprioryearDuringfiscal
theCompanyshippedmbforofitsvolumeinto
theUSmarketThebalanceofmbforofits
volumewassoldinCanadaIntheprioryeartheCompanyhad
shippedmbforofitsvolumeintotheUSmarket
Thebalanceofmbforofitsvolumewassold
inCanada
EffectiveOctoberthegovernmentsofCanadaandthe
UnitedStatesimplementedanagreementforthesettlementof
thesoftwoodlumberdisputeTheSoftwoodLumberAgreement
(SLA)requiresthatanexporttaxbecollectedbytheGovernment
ofCanadawhichisbasedonthepriceandvolumeoflumber
shippedSincethatdatetheCompany’ssawmillshavebeen
subjecttoexportquotalimitationsandavariableexporttax
rateonlumbershippedtotheUSTheSLAprovidesthatduring
periodsofrelativelyhighpricestheexporttaxratedeclinesIn
fiscaltheaveragetaxrateonlumbershippedtotheUS
wasandthetotalcostwasmillionInfiscalthe
averagetaxrateonlumbershippedtotheUSwasandthe
totalcostwasTherateincreasewasduetothelower
USdollarsellingprices
Quarterly prices – Eastern SPF delivered
(US $ per mbf)
Tembec average
KD #2 and better del. Great L akes
KD stud del. Great Lakes
Tembec average
KD #2 and better del. Great L akes
KD stud del. Great Lakes
Tembec average
KD #2 and better del. Great L akes
KD stud del. Great Lakes
382 391 392 411 396 368 339 328
0
100
200
300
400
500
43214321
2014 2015
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Management’s Discussion and Analysis
11Tembec Financial Report
InfiscaladjustedEBITDAwasmillioncomparedto
adjustedEBITDAofmillionintheprioryearSPFlumber
profitabilitydeclinedbymillionyear-over-yearThepreviously
notedhighersellingpricesforlumberincreasedadjustedEBITDA
bymillionThehigherpriceswereprimarilycausedbycurrencyastheCanadiandollaraveragedlowerthanintheprior
yearThepreviouslynotedincreaseinexporttaxesonlumber
shippedtotheUSdecreasedadjustedEBITDAbymillion
Sawmillmanufacturingcostsincreasedbymillionprimarily
duetoincreasedfibrecostsThemilliondeclineinother
segmentitemswasdueprimarilytolowerprofitabilityinthe
specialtywoodoperationsThesegmentadjustedEBITDAmargin
tototalsaleswascomparedtointheprioryear
Thefollowingsummarizesoperatingresultsvariancesbymajor
element
Variance
favourable
(inmillionsofdollars) (unfavourable)
AdjustedEBITDA ()
Depreciation
andamortization
Operatingearnings ()
TheForestProductssegmentgeneratedoperatingearningsof
millionascomparedtooperatingearningsofmillionin
fiscalThepreviouslynoteddecreaseinadjustedEBITDA
ledtothedeclineinoperationsresultspartiallyoffsetbylower
depreciationandamortizationexpenseTheprioryearresults
includedanassetimpairmentchargeofmillionthatwas
reversedinfiscal
Operating results
ThefollowingsummarizesadjustedEBITDAvariancesbymajorelement
Variance–favourable(unfavourable) Export Mill InventoryNRV
(inmillionsofdollars) Price taxes costs adjustments Freight Other TOTAL
SPFlumber () () () () () ()
Othersegmentitems – – – – – () ()
() () () () () ()
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Management’s Discussion and Analysis
12 Tembec Financial Report
Specialty Cellulose Pulp
(inmillionsofdollars)
Sales–Pulp()
Sales–Chemicals
Freightandotherdeductions
Costofsales
SG&A
AdjustedEBITDA
AdjustedEBITDAmarginonsales
Depreciationandamortization
Operatingearnings(loss) ()
Identifiableassets
()Includesintersegmentsaleseliminatedonconsolidation
TheSpecia ltyCel lu losePulpsegmentconsistsof two
manufacturingfacilitieswhichproducespecialtycellulose
pulpsThespecialtycellulosepulpmillshaveanannualrated
capacityoftonnesperyearThepulpproducedat
thetwopulpmillsisahigh-puritycelluloseutilizedinawide
varietyofspecializedproductssuchaspharmaceuticalsfood
additivesandindustrialchemicalsTheTemiscamingmill
alsoproduces“viscose”gradepulpwhichisutilizedinthe
productionofviscosestaplefibrewhichinturnisusedto
producerayonforthetextileindustry
Thespecialtycellulosemillsgenerateligninasaby-productof
thesulphiteprocessaportionofwhichissoldtothirdparties
TheTemiscamingmillpreviouslyoperatedafacilitythat
producedethanolasaby-productthatwassoldtothirdparties
TheethanolplantwaspermanentlyidledinOctober
Thesegmentalsoincludesastand-aloneresinbusiness
whichproducespowderandliquidphenolicresinsattwo
operatingsitesinQuebecTemiscamingandLongueuil
TheCompanyalsooperatesathirdfacilitylocatedinToledo
Ohiowhichmanufacturespowderandliquidamino-resins
Thechemicalbusinessperiodicallypurchasesandre-sells
thirdpartypulpmillby-productchemicals
Thefollowingsummarizestheannualoperatingcapacityof
eachfacility
Specialty cellulose tonnes
Specialtycellulose–TemiscamingQC
Specialtycellulose–TartasFrance
Chemicals tonnes
Resinandrelatedproducts
–TemiscamingandLongueuilQCToledoOhio
Lignin–TemiscamingQCTartasFrance
TotalsalesfortheSpecialtyCellulosePulpsegmentwere
millionadecreaseofmillionfromtheprioryear
Themilliondecreaseinpulpsaleswasduetolower
shipmentsandpricesofspecialtygradepulppartiallyoffset
byhighershipmentsandpricesofviscoseandothergrades
Themilliondecreaseinchemicalsaleswasduetolower
volumesofethanolligninandresinproductsTheSpecialty
CellulosePulpsegmentgeneratedofCompanyconsolidated
salesdownfromintheprioryearTheSpecialtyCellulose
PulpsegmentisaglobalbusinessInfiscalof
consolidatedsalesweregeneratedoutsideofCanadaandthe
UScomparedtoinfiscal
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Management’s Discussion and Analysis
13Tembec Financial Report
Sales Shipments Sellingprices
(millions) (units) (unit)
Specialty pulp
Specialtycellulose(tonnes)
Viscoseandothergrades(tonnes)
Chemicals
Resinandrelatedproducts(tonnes)
Lignin(tonnes)
Ethanol(litres)
Otherchemicalsales
Total sales
Internalpulpsales – ()
Consolidated sales
Markets
TheCompanymarketsitspulponaworld-widebasisprimarily
throughitsownsalesforcePermanentsalesofficesaremaintained
inTorontoCanadaandDaxFranceContractualarrangements
withthirdpartyrepresentativesarealsoutilized
Theshipmenttocapacityratioforspecialtypulpwasin
fiscalversusintheprioryearThedecreaseinshipment
ratiowasduetoadecreaseoftonnesofspecialtygrade
pulppartiallyoffsetbyatonnesincreaseinshipmentsof
viscoseandothergradesofpulpInadditiontothepreviously
noteddeclineinspecialtygradepulpdemandshipmentsin
fiscalwereimpactedbyan-dayproductionstoppage
attheTemiscamingpulpmillduetoalabourdisputewiththe
unionizedworkforceThestoppagebeganinlate-November
andcontinueduntilmid-DecemberTheTemiscamingmill
producedfewertonnesthaninfiscalThereduced
demandforspecialtygradeswasaccompaniedbylowerUSdollar
andeuropriceswhichdeclinedby-fromtheprioryear
CurrencywasnotasignificantmitigatingfactorastheCanadian
dollarweakenedversustheUSdollarbutstrengthenedvis-à-visthe
euroOverallCanadiandollarequivalentpricesforspecialtygrades
declinedbypertonneorapproximatelyWhileUSdollar
pricesforviscoseandothergradesdeclinedbyUSpertonne
thiswasmorethanoffsetbytheweakerCanadiandollarThenet
effectwasapertonneincreaseintheCanadiandollarselling
priceofviscoseandothergradesTheCompanyhasastrategyof
graduallyreducingitsexposuretotheviscosemarketbyproducing
additionalspecialtygradevolumeTherelativelyweakdemandfor
specialtygradesinfiscalledtoanincreaseinnon-specialty
gradeshipmentsSpecialtygradevolumesrepresentedofpulp
shipmentsinfiscalcomparedtointheprioryear
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Management’s Discussion and Analysis
14 Tembec Financial Report
FiscaladjustedEBITDAwasmillioncomparedto
millionintheprioryearadecreaseofmillionAsnoted
previouslythedeclineinthesellingpriceofspecialtygradepulp
ledtoanunfavourablepricevarianceofmillionThiswas
partiallyoffsetbyamillionfavourablepricevarianceonviscose
andothergradesThemillionincreaseinmillcostswascaused
bytheTemiscamingmillwhichrecordedanegativevarianceof
millionforunabsorbedfixedcostsresultingfromthepreviously
notedlabourdisruptionThemillalsoincurredhighercostsfor
chemicalsmaintenancematerialandsuppliesTheincreasewas
partiallyoffsetbyamillionreductioninenergycostsduetothe
newboilerandturbineLowersalesofspecialtypulpcombined
withincreasedsalesofviscoseandothergradesgeneratedan
unfavourablesalesvolumeandmixvariancereducingadjusted
EBITDAbymillion
Operating results
ThefollowingsummarizesadjustedEBITDAvariancesbymajorelement
Variance–favourable(unfavourable)
Mill Mix&
(inmillionsofdollars) Price costs Freight volume Other TOTAL
Specialtycellulose () () () () () ()
Chemicals () – – – –
() () () () () ()
1 ,7 70 1 ,8 02 1 ,7 25 1 ,6 97 1,682 1,577 1,514 1,577
0
250
500
750
1,000
1,250
1,500
1,750
2,000
43214321
Quarterly prices – Specialty cellulose
(CDN $ per tonne)
Tembec average – Specialty celluloseTembec average – Specialty celluloseTembec average – Specialty cellulose
2014 2015
865 924 873 884 921 985 972 1,040
0
250
500
750
1,000
1,250
43214321
Quarterly prices – Viscose grade
(CDN $ per tonne)
Tembec average – Viscose gradeTembec average – Viscose gradeTembec average – Viscose grade
2014 2015
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Themillionfavourablechemicalspricevariancewasdueto
higherligninpricespartiallyoffsetbylowerresinpricesHowever
lignincostsincreasedandprofitabilityremainedunchanged
year-over-year
Overalllowerpricesandaweakerpulpsalesmixreducedsegment
adjustedEBITDAmarginsfromintoin
TheTemiscamingspecialtycellulosemillpurchasedapproximately
bonedrytonnesofwoodchipsinfiscaldownfrom
intheprioryearOfthisamountapproximatelywas
suppliedbytheCompany’sForestProductssegmentcompared
tointheprioryearTheremainingrequirementswere
purchasedfromthirdpartiesundercontractsandagreements
ofvariousdurationsThepulpmilllocatedinSouthernFrance
purchasedbonedrytonnesofwoodinfiscalas
comparedtobonedrytonnesintheprioryearThefibreissourcedfrommanyprivatelandowners
Thefollowingsummarizesoperatingresultsvariancesby
majorelement
Variancefavourable
(inmillionsofdollars) (unfavourable)
AdjustedEBITDA ()
Depreciationand
amortization ()
Operatingearnings(loss) () ()
TheSpecialtyCellulosePulpsegmentgeneratedanoperating
lossofmillionduringthemostrecentlycompletedfiscalyear
comparedtooperatingearningsofmillionintheprioryear
ThepreviouslynoteddeclineinadjustedEBITDAledtothelower
operatingresultsDepreciationexpenseincreasedbymillionastheCompanybegandepreciatingthenewboilerandturbine
attheTemiscamingspecialtypulpmillinFebruary
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Paper Pulp
(inmillionsofdollars)
Sales()
Freightandotherdeductions
Costofsales
SG&A
AdjustedEBITDA
AdjustedEBITDAmarginonsales
Depreciationandamortization
Operatingearnings(loss) ()
Identifiableassets
()Includesintersegmentsaleseliminatedonconsolidation
ThePaperPulpsegmentconsistsoftwohigh-yieldpulp
manufacturingfacilitiesThepulpmillsproducepulpwith
acombinationofmechanicalandchemicalprocesses
TheCompanyproduceshardwoodgradesmadefrommaple
aspenandbirchHigh-yieldpulpshavealowertensileandtear
strengththankraftpulpsbuttheyofferadvantagesonbulk
andopacityTheycompeteagainstotherhardwoodor“short
fibre”gradeswithBleachedEucalyptusKraft(BEK)beingthe
mostprominent
Thefollowingsummarizestheannualcapacityofeachfacility
High-yield pulp tonnes
Hardwoodhigh-yield–TemiscamingQC
Hardwoodhigh-yield–MataneQC
Thissegmentshippedtonnesofhigh-yieldpulp
infiscalcomparedtotonnesintheprioryear
High-yieldpulpshipmentsincludetonnesconsumed
bytheCompany’spaperboardoperationsascomparedto
tonnesintheprioryear
TotalsalesforthePaperPulpsegmentweremillion
adecreaseofmillionfromtheprioryearAftereliminating
internalsalesthePaperPulpsegmentgeneratedofCompany
consolidatedsalesunchangedfromtheprioryearThePaper
Pulpsegmentismoreexportorientedthantheotherbusiness
segmentswithintheCompanyInofconsolidated
paperpulpsalesweregeneratedoutsideofCanadaandtheUS
ascomparedtointheprioryearChinaaloneaccountedfor
ofsalescomparedtoinfiscal
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Markets
TheCompanymarketsitspulponaworld-widebasisprimarily
throughitsownsalesforceSalesofficesaremaintainedin
TorontoCanadaandDaxFranceContractualarrangementswith
thirdpartyrepresentativesarealsoutilized
Marketconditionsforpaperpulpwererelativelyweakinboth
fiscalandPulpshipmentsfromthetwohigh-yield
pulpmillswereequaltoofcapacityascomparedtointheprioryearThefiscalshipmentswereimpactedbya-day
productionstoppageattheTemiscaminghigh-yieldpulpmilldue
toalabourdisputewiththeunionizedworkforceThestoppage
beganinlate-Novemberandcontinueduntilmid-December
TheTemiscamingpulpmillshippedfewertonnesin
fiscalascomparedtotheprioryearThebenchmarkprice
forBEKincreasedbyUSpertonneHoweverthisincrease
didnotcarryoverintothehigh-yieldpulpmarketwhereprices
decreasedbyUSpertonneovertheprioryearCurrencywas
apositivefactorastheCanadiandollaraveragedUSan
declinefromtheprioryearOverallCanadiandollarprices
forhigh-yieldpulpimprovedbypertonneInventorylevels
endedtheyearatdaysofsupplyascomparedtodaysat
theendoffiscal
Quarterly prices – High-yield pulp
(US $ per tonne)
Tembec average
BEK (del. China) published price
Tembec average
BEK (del. China) published price
Tembec average
BEK (del. China) published price
570 568 569 535 523 508 498 468
0
200
400
600
800
43214321
2014 2015
4321
Sales Shipments Sellingprices
(millions) (tonnes) ( tonne)
Hardwoodhigh-yieldpulp
Internalsales () () () ()
Consolidated sales
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FiscaladjustedEBITDAwasmillioncomparedto
millionintheprioryearThepreviouslynotedincrease
inhigh-yieldpulpsellingpricesincreasedadjustedEBITDAby
millionMilllevelcostsatthetwohigh-yieldpulpmills
decreasedbymillionprimarilyduetolowerfibreandenergycosts
Thetwopulpmillspurchasedapproximatelybonedry
tonnesofwoodinfiscaldownfromtonnesinthe
prioryearOfthisamountapproximatelywassuppliedby
theForestProductssegmentcomparedtointheprioryear
Theremainingrequirementswerepurchasedfromthirdparties
undercontractsandagreementsofvariousdurations
Overallhigherhigh-yieldpulppricesandlowercostsled
toimprovedprofitabilitywithanadjustedEBITDAmarginof
infiscalcomparedtointheprioryear
Thefollowingsummarizesoperatingresultsvariancesby
majorelement
Variance
favourable
(inmillionsofdollars) (unfavourable)
AdjustedEBITDA
Depreciation
andamortization –
Operatingearnings(loss) ()
ThePaperPulpsegmentgeneratedoperatingearningsof
millionduringthemostrecentlycompletedfiscalyear
comparedtoanoperatinglossofmillionintheprioryear
ThepreviouslynotedincreaseinadjustedEBITDAledtothe
improvementinoperatingresults
Operating results
ThefollowingsummarizesadjustedEBITDAvariancesbymajorelement
Variance–favourable(unfavourable) Mill InventoryNRV Volume&
(inmillionsofdollars) Price costs adjustments Freight Other TOTAL
High-yieldpulp () ()
Othersegmentitems – – – –
() ()
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Paper
(inmillionsofdollars)
Sales
Freightandotherdeductions
Costofsales
SG&A
AdjustedEBITDA
AdjustedEBITDAmarginonsales
Depreciationandamortization
Operatingearnings
Identifiableassets
ThePapersegmentcurrentlyincludestwopapermanufacturingfacilitieswithatotalofthreepapermachinesThemilllocated
inKapuskasingOntarioproducesnewsprintontwomachines
ThefacilitylocatedinTemiscamingQuebecproducesmulti-ply
coatedbleachedboardononemachineTheboardmillispartially
integratedwithahigh-yieldpulpmillThetotalcapacityofthe
Papersegmentistonnes
Thefollowingsummarizestheproductsandcapacityof
eachfacility
Coated bleached board tonnes
TemiscamingQC
Newsprint tonnes
KapuskasingON
CoatedbleachedboardshipmentsrepresentedofPapersegmentshipmentsinfiscalascomparedto
intheprioryearAsapercentageoftotalsegmentsales
coatedbleachedboardrepresentedofsalescomparedto
intheprioryearNewsprintshipmentsrepresented
ofPapersegmentshipmentsinfiscalascomparedto
intheprioryearIntermsoftotalsegmentsalesnewsprint
representedofsalescomparedtointheprioryear
SalesforthePapersegmenttotalledmillionascompared
tomillionintheprioryearThesegmentgenerated
ofCompanyconsolidatedsalesascomparedtoin
fiscalThefocusofthepaperbusinessisNorthAmerica
whichaccountedforofconsolidatedsalesin
unchangedfromtheprioryearTheUSaloneaccountedfor
ofsalesinfiscalunchangedfromtheprioryear
Sales Shipments Sellingprices
(millions) (tonnes) ( tonne)
Coatedbleachedboard(rollsandsheets)
Newsprint
Consolidated sales
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Markets
Thebenchmarkreferencepriceforcoatedbleachedboardrolls
(point)averagedUSpershorttoninfiscalan
USpershorttonincreaseovertheprioryearTheshipment
tocapacityratioforcoatedbleachedboardwasinfiscalcomparedtointheprioryearFiscalshipmentswere
impactedbya-dayproductionstoppageattheTemiscaming
coatedbleachedboardmillduetoalabourdisputewiththe
unionizedworkforceCurrencywasapositivefactorasthe
CanadiandollaraveragedUSandecreasefrom
USintheprioryearOverallaveragesellingpricesfor
coatedbleachedboardrollsandsheetsincreasedbyper
tonneTheinventorylevelatyear-endwasatdayscompared
todaysattheendoftheprioryear
ThenewsprintmarketremainedweakThebenchmarknewsprint
price(gram—EastCoast)averagedUSpertonneinfiscaladecreaseofUSpertonnefromtheprioryear
TheweakerCanadiandollaroffsetthisdecreaseandaverage
newsprintpriceswererelativelyunchangedyear-over-yearThe
shipmenttocapacityratiofornewsprintwasascompared
tointheprioryearFinishedgoodsinventoriesofnewsprint
wereatapproximatelydaysofsupplyatyear-endcompared
todaysattheendoftheprioryear
Quarterly prices – Coated bleached board
(US $ per short ton)
Tembec average – rolls
16 PT SBS – transaction price
Tembec average – rolls
16 PT SBS – transaction price
Tembec average – rolls
16 PT SBS – transaction price
971 1,012 1,008 9851 , 00 3 1 , 00 5 1 , 00 6 994
0
200
400
600
800
1,000
1,200
1,400
43214321
2014 2015
Quarterly prices – Newsprint
(US $ per tonne)
Tembec average – newsprint
Newsprint published price (48.8 g – East Coast)
Tembec average – newsprint
Newsprint published price (48.8 g – East Coast)
Tembec average – newsprint
Newsprint published price (48.8 g – East Coast)
563582 563 561 552 513 480 458
0
100
200
300
400
500
600
700
800
43214321
2014 2015
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FiscaladjustedEBITDAwasmillioncomparedto
millionintheprioryearThepreviouslynotedimprovement
incoatedbleachedboardpricesincreasedadjustedEBITDAby
millionThecoatedbleachedboardmilllevelcostsincreasedbymillionprimarilyforpurchasedexternalpulpandenergy
FreightanddistributioncostsincreasedbymillionCanadian
dollarnewsprintpriceswererelativelyunchangedyear-over-year
Newsprintmillmanufacturingcostsalsoheldatsimilarlevelswith
higherfixedcostsbeingoffsetbylowerenergycostsOverall
higherpricesmorethanoffsethighercostsandsegmentadjusted
EBITDAmarginsimprovedfromto
Thecoatedbleachedboardmillutilizesacombinationof
chemicalkraftandhigh-yieldpulptoproduceathree-plysheet
Duringfiscalthemillutilizedtonnesofhigh-yield
pulpsuppliedbytheTemiscaminghigh-yieldpulpmillversus
tonnessuppliedinfiscalThebalanceofpulp
requirementswaspurchasedfromthirdparties
Thenewsprintmillutilizesvirginfibreprimarilyintheform
ofwoodchipsDuringfiscaltheoperationsconsumed
bonedrytonnesofvirginfibreofwhichwas
internallysourcedIntheprioryearbonedrytonnesofvirginfibrewereconsumedwithbeingsourcedinternally
Thefollowingsummarizesoperatingresultsvariancesby
majorelement
Variance
favourable
(inmillionsofdollars) (unfavourable)
AdjustedEBITDA
Depreciation
andamortization ()
Operatingearnings
ThePapersegmentgeneratedoperatingearningsofmillion
comparedtooperatingearningsofmillionintheprioryear
ThepreviouslynotedincreaseinadjustedEBITDAledtothe
higheroperatingearnings
Operating results
ThefollowingsummarizesadjustedEBITDAvariancesbymajorelement
Variance–favourable(unfavourable) Mill
(inmillionsofdollars) Price costs Freight Other TOTAL
Coatedbleachedboard () ()
Newsprint – – – – –
Othersegmentcosts – – –
() ()
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TheCompanyrecordeda millioncreditforshare-based
compensationinfiscalascomparedtoamillionchargein
theprioryearSeniorexecutivescurrentlyparticipateinalong-term
incentiveplanwhichentitlesparticipantstopotentiallyreceive
unitsthatareequalinvaluetoonecommonshareTheunits
haveadefinedvestingperiodandaresubjecttoperformance
conditionsthatultimatelydeterminetheamountofunitsthatvest
andareearnedbyplanparticipantsNon-executivemembersofthe
BoardofDirectorsreceiveaportionoftheirfeesintheformof
“DeferredShareUnits”(DSU)TheDSUsvestatspecifieddatesThe
periodcreditexpensefortheshare-basedcompensationplanconsists
ofnormalperiodicvariationinthenumberofunitsbasedonanticipated
ornormalvestingandthechangeinthevalueoftheCompany’s
shareprice
TheCorporatesegment’s“otheritems”includeexpensesrelatingto
severalpermanentlyidledfacilitiesThecostsrelatetocustodialsite
securitylegalpensionadministrationandremediationactivities
These“legacy”itemstotalledmillioninthemostrecentyear
comparedtoamillionexpenseayearago
InfiscaltheCompanycompletedalandsaleforproceedsof
millionandrecordedagainofmillionIntheprioryearthe
Companycompletedsixlandsaletransactionsfortotalconsideration
ofmillionandrecordedagainofmillion
InfiscaltheCompanyrecordedagainofmillionrelated
tothesettlementofanon-recoursedebtobligationThedebtis
securedbyachargeagainsttheKirklandLakeOntariofinger-joint
plantwhichhasbeenidlesince
Thefiscalresultsalsoincludeamillionchargerelatingtothe
impairmentofaloanreceivablefromTemlamIncThelatterowned
anidledlaminatedveneerlumber(LVL)manufacturingfacility
locatedinAmosQuebecTheCompanyhadasecuredinterest
inthefacilityTheCompanyreducedthecarryingvalueofitsloan
receivablebymilliontoreflectthetotalnetproceedsofmillion
receivedwhenTemlamIncsoldthefacilityinJanuary
InfiscaltheCompanynegotiatedanewcollectiveagreement
withtheTemiscamingQuebecunionizedworkforceTheagreement
includedaprovisiontoincreasepensionpaymentstoretireeswhich
increasedtheestimatedpresentvalueofpensionobligationsby
millionwitharelatedchargetooperatingearnings
InfiscaltheCompanycompletedthesaleoftheChetwynd
BritishColombia(BC)high-yieldpulpmillforanominalamount
Thesalegeneratedamilliongainasthebuyerassumedcertain
liabilitiesassociatedwiththefacilityTheCompanyterminateditsBC
definedbenefitpensionplanandrecordedachargeofmillion
TheCompanyenteredintoanagreementwithaninsurancecompany
tosettleamillionpensionobligationforanamountofmillion
whichwasequivalenttotheamountofplanassetsheldintrustat
thetimeofthesettlementTheCompanyalsoreorganizedcertain
functionsandrolesandrecordedachargeofmillionrelatingto
severanceandsalarycontinuancecostsassociatedwithpersonnel
reductions
Corporate
(inmillionsofdollars)
Generalandadministrativeexpenses
Share-basedcompensation ()
Depreciationandamortization
Otheritems
Custodial–idledfacilities
Gainonsaleofland () ()
Gainonsettlementofnon-recoursedebtobligation – ()
Impairmentloss–Temlamloanreceivable –
Pastservicecost–definedbenefitpensionplan –
GainonsaleofChetwyndpulpmill () –
LossonterminationofBCdefinedbenefitpensionplan –
Reorganization–severancecosts –
Operatingloss(earnings) ()
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Non-operating items
Interest, foreign exchange and other
Fiscalinterestexpenserelatesprimarilytointerestonthe
USmillion—seniorsecurednotesmaturingin
DecemberFiscalinterestexpenserelatesprimarilytointerestontheUSmillion—seniorsecurednotes
Themillionincreaseininterestexpenseisdueprimarilytonew
projectdebtincurredtofundtheTemiscamingQCspecialty
cellulosecogenerationprojectwhichtotalledmillionatthe
endofSeptemberCapitalizedinterestisalsorelatedto
theTemiscamingQCspecialtycellulosecogenerationproject
InterestcapitalizationceasedattheendofSeptember
Foreignexchangeitemsareprimarilycausedbygainsorlosses
onthetranslationofUSdollarnetmonetaryassetsThecharge
foremployeefuturebenefitsrelatestointerestaccretiononnet
unfundedobligations
Loss on refinancing of long-term debt
OnOctobertheCompanycompletedaprivatedebt
offeringofUSmillion—seniorsecurednotesduein
DecemberAportionoftheproceedsfromtheoffering
wasutilizedtoredeemalloftheCompany’sUSmillion—
seniorsecurednotesdueinDecemberaswellas
anearlyprepaymentpenaltyofmillion(USmillion)
InadditiontheCompanyabsorbedamillionchargerelated
totheeliminationofpreviouslydeferredfinancingcosts
Translation of foreign debt
DuringfiscaltheCompanyrecordedalossofmillionon
thetranslationofitsUSdollardenominateddebtastherelativevalue
oftheCanadiandollardecreasedfromUStoUS
DuringfiscaltheCompanyrecordedalossofmillionon
thetranslationofitsUSdollardenominateddebtastherelativevalue
oftheCanadiandollardecreasedfromUStoUS
Income taxes
Thefollowingtablereconcilestheanticipatedincometax
expenserecoverybasedonthestatutoryratetotheactual
incometaxexpense
(inmillionsofdollars)
Earnings(loss)beforeincometaxes ()
Anticipatedincometax
expense(recovery) ()
Differenceinstatutoryrates
Unrecognizedtaxasset
arisingfromperiodlosses
Non-deductibleportionofforeign
exchangelossontranslationofdebt
Permanentdifferencesand
othertaxadjustments ()
Incometaxexpense
(inmillionsofdollars) Interestondebt
Capitalizedinterest () –
Foreignexchangeitems () ()
Employeefuturebenefits
Bankchargesandother
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Comprehensive loss
Thefollowingtablesummarizestheimpactofitemsaffectingthereportedtotalcomprehensivelossduringthelasttwofiscalyears
(inmillionsofdollars)
Netearnings(loss) ()
Employeefuturebenefitloss () ()
Foreigncurrencytranslationgainonforeignoperations
Totalcomprehensiveloss () ()
Net earnings (loss)
TheCompanygeneratedanetlossofmillionorpersharefortheyearendedSeptembercomparedtonetearnings
ofmillionorpersharefortheyearendedSeptember
DuringfiscaltheCompanyrecordedanincometaxexpense
ofmilliononalossbeforeincometaxesofmillionThe
incometaxexpensereflectedamillionunfavourablevariance
versusananticipatedincometaxrecoveryofmillionbased
ontheCompany’seffectivetaxrateofThedifferenceinstatutoryincometaxratesincreasedtheincometaxexpense
bymillionThiswascausedbythehighercorporatetaxrate
applicabletotheCompany’sFrenchoperationsTheincometax
expensewasincreasedbymillionastheresultoflossesfor
whichnodeferredtaxassetwasrecognizedTheCompanyhas
asignificantbalanceofunrecognizedtaxassetsrelatingtoits
Canadianoperationssinceithasnotbeendeterminedthatthe
futurerealizationoftheseassetsisprobableThenon-deductible
portionoftheforeignexchangelossontranslationofdebt
increasedtheincometaxexpensebymillionPermanent
differencesandothertaxadjustmentsincreasedtheincometax
expensebymillion
DuringfiscaltheCompanyrecordedanincometaxexpense
ofmilliononearningsbeforeincometaxesofmillion
Theincometaxexpensereflectedamillionunfavourable
varianceversusananticipatedincometaxexpenseof
millionbasedontheCompany’seffectivetaxrateofThedifferenceinstatutoryincometaxratesincreasedthe
incometaxexpensebymillionThiswascausedbythehigher
corporatetaxrateapplicabletotheCompany’sFrenchoperations
TheCompanyabsorbedamillionunfavourablevariancerelated
toperiodlossesforwhichnodeferredtaxassetwasrecognized
TheCompanyhasasignificantbalanceofunrecognizedtax
assetsrelatingtoitsCanadianoperationssinceithasnotbeen
determinedthatthefuturerealizationoftheseassetsisprobable
Thenon-deductibleportionoftheforeignexchangeloss
ontranslationofdebtincreasedtheincometaxexpenseby
millionPermanentdifferencesandothertaxadjustments
reducedtheincometaxexpensebymillion
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DuringfiscaltheCompanyrecognizedalossofmillion
relatingtotheincreaseoftheestimatednetobligationfor
employeefuturebenefitsTheaveragediscountrateapplied
toestimatethepresentvalueoffutureobligationsincreased
fromtotherebyreducingthenetobligationbymillionThereturnonplanassetsexceededtheexpected
returndecreasingthenetobligationbymillionDuetothe
absenceofcurrentservicecostsincertainlegacypensionplans
theCompanyislimitedinitsabilitytorecognizeallplanassets
heldintrustThisincreasedthenetobligationbymillion
Changestodemographicassumptionsandplanexperience
increasedthenetobligationbymillion
DuringfiscaltheCompanyrecognizedalossofmillion
relatingtotheincreaseoftheestimatednetobligationfor
employeefuturebenefitsTheaveragediscountrateapplied
toestimatethepresentvalueoffutureobligationsdecreasedfromtotherebyincreasingthenetobligationby
millionThereturnonplanassetsexceededtheexpected
returnbymillionreducingthenetobligationDuetothe
absenceofcurrentservicecostsincertainlegacypensionplans
theCompanyislimitedinitsabilitytorecognizeallplanassets
heldintrustThisincreasedthenetobligationbymillionChangestodemographicassumptionsandplanexperience
increasedthenetobligationbymillion
Comprehensiveitemsincludegainsorlossesrelatedtothe
currencytranslationoftheassetsandliabilitiesoftheCompany’s
FrenchandUSoperationsThegainsorlossesaregenerated
bychangesintheendofperiodexchangeratesDuring
fiscalthecurrencytranslationoftheFrenchoperations
generatedagainofmillionandthecurrencytranslationofthe
USoperationsgeneratedalossofmillionDuringfiscal
thecurrencytranslationoftheFrenchoperationsgenerated
againofmillion
Subsequent event
OnNovembertheCompanyannouncedthatithad
enteredintoanewasset-basedloan(ABL)whichconsistsof
amillionrevolvingcreditfacility(revolvingloan)anda
USmillion“first-inlastout”termloan(FILOloan)Thenew
ABLreplacedtheCompany’sexistingmillionABLrevolving
creditfacility
TherevolvingloanwillexpireonNovemberprovided
severalconditionsaremetincludingrepaymentoftheFILO
loanpriortoMarchfailingwhichthematuritywould
beacceleratedtoanearlierdatebutnotearlierthanMarch
Therevolvingloanhasafirstprioritychargeoverthe
receivablesandinventoriesoftheCompany’sCanadianand
USoperationsTheFILOloanissecuredbythesamecollateral
astherevolvingloanandrankssecondinrepaymentpriority
relativetotherevolvingloanTheFILOloanisalsosecuredbya
firstprioritychargeonthefixedassetsofoneoftheCompany’s
USsubsidiaries
TheCompanyutilizedborrowingsunderthenewABLtorepaythe
amountsoutstandingunderthepriorABLrevolvingcreditfacility
andpaytransactionfeesandexpensesAftergivingeffecttothe
refinancingtheCompany’stotalliquidityatNovember
wasapproximatelymillioncomparedtomillionatthe
endoftheSeptemberquarter
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Fourth quarter analysis
TheCompanyreportedanetlossofmillionorper
shareinthefourthquarterendedSeptembercompared
tonetearningsofmillionorpershareinthesame
quarteroffiscalTheweightedaveragenumberofcommon
sharesoutstandingwasmillionunchangedfromtheprior
yearquarter
Salesincreasedbymillionfromthesamequarterayearago
CurrencywasapositivefactorastheCanadiandollaraveraged
USadecreasefromUSintheyearago
quarterForestProductssegmentsalesdecreasedbymillion
asaresultoflowerpricesandshipmentsSpecialtyCellulose
Pulpsegmentsalesdecreasedbymillionduetolower
pricesPaperPulpsegmentsalesincreasedbymilliondueto
highershipmentsandpricesPapersegmentsalesincreasedby
millionduetohigherpricespartiallyoffsetbylowershipments
AdjustedEBITDAincreasedbymillionfromtheprioryear
quarterForestProductssegmentadjustedEBITDAdecreased
bymillionduetolowerpricesandhighercostsSpecialty
CellulosePulpsegmentadjustedEBITDAdeclinedbymillion
duetolowerpricespartiallyoffsetbylowercostsPaperPulp
segmentadjustedEBITDAincreasedbymillionduetohigher
pricesandlowercostsPapersegmentadjustedEBITDAincreased
bymillionduetohigherpricespartiallyoffsetbyhighercosts
TheCompanygeneratedoperatingearningsofmillion
comparedtooperatingearningsofmillioninthesamequarter
ayearagoInadditiontothepreviouslynotedimprovement
inadjustedEBITDAtheSeptemberquarteralsosawa
millionunfavourablevarianceinotheritemsTheprioryear
quarterresultsincludedamilliongainrelatedtolandsales
TheinterestexpenserelatesprimarilytointerestontheUSdollar
denominatedseniorsecurednotesCapitalizedinterestisrelated
totheTemiscamingQCspecialtycellulosecogenerationproject
InterestcapitalizationceasedattheendofSeptember
Foreignexchangeitemsareprimarilycausedbygainsorlosses
onthetranslationofUSdollarnetmonetaryassetsThecharge
foremployeefuturebenefitsrelatestointerestaccretiononnet
unfundedobligations
DuringtheSeptemberquartertheCompanyrecordeda
lossofmilliononthetranslationofitsUSdollardenominated
debtastherelativevalueoftheCanadiandollardecreasedfrom
UStoUS
DuringtheSeptemberquartertheCompanyrecordeda
lossofmilliononthetranslationofitsUSdollardenominated
debtastherelativevalueoftheCanadiandollardecreasedfrom
UStoUS
Quarterly financial information
(inmillionsofdollarsexceptpershareamounts)
Dec March June Sept Dec March June SeptSales
AdjustedEBITDA
Depreciationandamortization
Otheritems () () () () –
Operatingearnings(loss) ()
Netearnings(loss) () () () () ()
Basicandfullydilutednet
earnings(loss)pershare() () () () () ()
Comprehensiveearnings(loss) () () () () ()
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DuringtheSeptemberquartertheCompanyrecordedan
incometaxexpenseofmilliononalossbeforeincometaxes
ofmillionTheincometaxexpensereflectedanmillion
unfavourablevarianceversusananticipatedincometaxrecovery
ofmillionbasedontheCompany’seffectivetaxrateofTheincometaxexpensewasincreasedbymillionasthe
resultoflossesforwhichnodeferredtaxassetwasrecognized
TheCompanyhasasignificantbalanceofunrecognizedtax
assetsrelatingtoitsCanadianoperationssinceithasnot
beendeterminedthatthefuturerealizationoftheseassetsis
probableThenon-deductibleportionoftheforeignexchange
lossontranslationofdebtincreasedtheincometaxexpenseby
million
DuringtheSeptemberquartertheCompanyrecordedan
incometaxexpenseofmilliononearningsbeforeincome
taxesofmillionTheincometaxexpensereflectedamillionunfavourablevarianceversusananticipatedincome
taxexpenseofmillionbasedontheCompany’seffective
taxrateofThedifferenceinstatutoryincometaxrates
increasedtheincometaxexpensebymillionThiswascaused
bythehighercorporatetaxrateapplicabletotheCompany’s
FrenchoperationsTheincometaxexpensewasincreased
bymillionastheresultoflossesforwhichnodeferredtax
assetwasrecognizedTheCompanyhasasignificantbalanceof
unrecognizedtaxassetsrelatingtoitsCanadianoperationssince
ithasnotbeendeterminedthatthefuturerealizationofthese
assetsisprobableThenon-deductibleportionoftheforeign
exchangelossontranslationofdebtincreasedtheincome
taxexpensebymillionPermanentdifferencesandother
taxadjustmentsreducedtheincometaxexpensebymillion
DuringtheSeptemberquartertheCompanyrecognizeda
lossofmillionrelatingtotheincreaseoftheestimatednet
obligationforemployeefuturebenefitsTheaveragediscount
rateappliedtoestimatethepresentvalueoffutureobligations
increasedfromtotherebyreducingthenetobligation
bymillionThereturnonplanassetswaslessthantheexpected
returnincreasingthenetobligationbymillionDuetothe
absenceofcurrentservicecostsincertainlegacypensionplans
theCompanyislimitedinitsabilitytorecognizeallplanassets
heldintrustTherecognitionofpreviouslyunrecognizedassetsreducedthenetobligationbymillionChangestodemographic
assumptionsandplanexperiencereducedthenetobligationby
million
DuringtheSeptemberquartertheCompanyrecognizeda
lossofmillionrelatingtotheincreaseoftheestimatednet
obligationforemployeefuturebenefitsTheaveragediscount
rateappliedtoestimatethepresentvalueoffutureobligations
decreasedfromtotherebyincreasingthenet
obligationbymillionThereturnonplanassetsdidnotmeet
theexpectedreturnincreasingthenetobligationbymillion
DuetotheabsenceofcurrentservicecostsincertainlegacypensionplanstheCompanyislimitedinitsabilitytorecognize
allplanassetsheldintrustThisincreasedthenetobligation
bymillionChangestodemographicassumptionsandplan
experiencereducedthenetobligationbymillion
Comprehensiveitemsincludegainsorlossesrelatedtothe
currencytranslationoftheassetsandliabilitiesoftheCompany’s
FrenchandUSoperationsThegainsorlossesaregenerated
bychangesintheendofperiodexchangeratesDuringthe
SeptemberquarterthecurrencytranslationoftheFrench
operationsgeneratedagainofmillionThecurrency
translationoftheUSoperationsgeneratedalossofmillion
IntheSeptemberquarterthecurrencytranslationofthe
Frenchoperationsgeneratedalossofmillion
ThefourthquarterinterimMD&AissuedonNovember
providesamoreextensiveanalysisofitemshavingimpacted
theCompany’sfourthquarterfinancialresults
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Summary of quarterly results
Onaquarterlybasissalesandmarginswerenegativelyimpacted
byrelativelylowlumberpaperpulpandnewsprintUSdollar
pricesThemovementincurrencyrateswasbeneficialtoCanadianoperationsastheCanadiandollardeclinedfromUSatthe
endofSeptembertoUSattheendofSeptember
averagingUSoverthelasteightquarters
TheForestProductssegmentgeneratedadjustedEBITDAof
millionduringthelasteightquartersThisrepresentsan
averagemarginofonsalesofmillionTheCompany’s
lumbershipmenttocapacityratioaveragedTheUShousing
marketimprovedmodestlybutlumberpricesdeclinedThe
previouslynotedweakerCanadiandollaroffsetthedeclinein
USdollarpricesandsellingpricesandmarginsfortheCompany
remainedrelativelyunchangedyear-over-year
TheSpecialtyCellulosePulpsegmentgeneratedadjustedEBITDA
ofmillionduringthelasteightquartersThisrepresentsan
averagemarginofonsalesofmillionSellingprices
forspecialtypulpgenerallyweakenedinthelasteightquarters
Averagemarginsdeclinedfrominfiscaltoin
fiscal
ThePaperPulpsegmentgeneratedadjustedEBITDAofmillion
duringthelasteightquartersThisrepresentsamarginofon
salesofmillionThemarketforpaperpulphasbeenweak
overthelasttwoyearsNewhardwoodcapacityexpansionsin
SouthAmericaandtherestartofidledhigh-yieldpulpcapacityin
CanadahaveledtolowerUSdollarsellingprices
ThePapersegmentgeneratedadjustedEBITDAofmillion
overthelasteightquartersThisrepresentsanaveragemarginof
onsalesofmillionHigherUSdollarpricesforcoated
bleachedboardhaveoffsetlowernewsprintUSdollarpricesover
thelasttwoyearsSegmentfinancialresultshaveimproveddue
totheweakerCanadiandollar
CorporategeneralandadministrativeexpensesoftheCompany
haveaveragedapproximatelymillionperquarteroverthe
lasttwoyearsandtherehasbeennosignificantchangesinthe
compositionofthoseexpenses
OveralltheCompanygeneratedadjustedEBITDAofmillion
inthelasteightquartersThisrepresentsanaveragemarginof
approximatelyonconsolidatedsalesofbillion
CorporateotheritemsincreasedtheCompany’soperating
earningsbymillionduringthelasteightquartersWhilethere
wereseveraloffsettingfavourableandunfavourableitemsthe
mostsignificantfavourableitemwasamilliongainfromland
salesThiswaspartiallyoffsetbymillionspentoncustodial
costsforidledfacilitiesandamillionchargeforthetermination
ofadefinedbenefitpensionplan
TheCompanyrecordedalossofmilliononthetranslation
ofitsforeign-denominateddebtoverthelasttwoyearsHowever
theimpactofthequarterlyUSdebttranslationgainsandlosses
addedconsiderablevolatilitytothefinancialresultswiththe
impactrangingfromagainofmillionintheJunequarter
toalossofmillionintheSeptemberquarter
DuringthelasttwoyearstheCompanyhasrecordedanincome
taxexpenseofmillionTheexpenserelatesprimarilytoits
FrenchoperationsastheCanadianoperationshavesignificant
amountsofunrecognizedtaxassets
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Cashflowfromoperationsbeforeworkingcapitalchangesin
fiscalwasmillioncomparedtomillionintheprior
yearTheincreaseincashflowfromoperationswasduetoa
milliondecreaseinincometaxespaidforourFrenchoperationsandamilliondecreaseinexcesscashcontributionsforemployee
futurebenefitsThesefavourableitemsmorethanoffsetthe
milliondeclineinadjustedEBITDAAfterallowingforcapital
expendituresofmillionandinterestondebtofmillion
freecashflowinfiscalwasnegativemillioncompared
tonegativemillionintheprioryear
Infiscalnon-cashworkingcapitalitemsusedmillion
Theincreaseinworkingcapitalwascausedprimarilybya
millionincreaseininventorieswithPapersegmentinventories
(million)andPaperPulpsegmentinventories(million)accountingforthebulkoftheincreaseAsaresultcashflowfrom
operationsdeclinedfrommillioninfiscaltomillion
infiscal
Capital spending
(inmillionsofdollars)
ForestProducts
SpecialtyCellulosePulp–Cogenproject
Construction
Start-up
SpecialtyCellulosePulp–Other
PaperPulp
Paper
Netcapitalexpenditures
Asaofconsolidatedsales
Asaofdepreciation
Financial position and liquidity
Free cash flow
(inmillionsofdollars)
Cashflowfromoperationsbeforeworkingcapitalchanges
Less
Additionstopropertyplantandequipment
Interestondebt
Freecashflow(negative) () ()
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Duringfiscalcapitalexpenditurestotalledmillion
ascomparedtomillionintheprioryearThelowerlevelof
capitalexpendituresrelatestoonerelativelylargecapitalprojectIn
MarchtheCompanyannouncedamajorcapitalinvestment
toupgradeitsspecialtycellulosemillinTemiscamingQuebecTheprojectinvolvedthereplacementofthreelow-pressureboilerswith
asinglenewhigh-pressureboilerdesignedtoburnwastesulphite
liquorgeneratedbythespecialtycellulosemanufacturingprocess
Theprojectalsoincludedtheinstallationofanew-megawatt
electricalturbineDuringfiscalmillionwasspenton
theprojectconstructioncostsbringingtotalcumulativeproject
expenditurestomillionTheCompanyalsoincurredmillion
ofstart-upcostsrelatedtotheprojectinfiscalbringing
cumulativecapitalizedstart-upcoststomillionTheprojectisnow
completeandcapitalspendinghasceased
Commissioningoftheboileronnaturalgasbeganinlate-NovemberCommissioningoftheturbinebeganinearly
JanuaryatwhichtimetheCompanygenerateditsfirstelectricity
sales In late January the Company successfully met the “commercial-
in-service”testsetforthinthepowerpurchaseagreementwiththe
publicutilityandbegansellingelectricityatthehigher“green”power
rateDuringthemonthofFebruarytheCompanybeganthe
firingofpulpmillresidualliquorinthenewboilerSincethattime
asignificantamountofeffortandresourceshasbeendedicatedto
rampingupthevolumeofliquorburnedandoptimizingtheexhaust
gasscrubbersystemandrelatedequipmentIntheSeptember
quarterthenewboilerincineratedapproximatelyofthetargeted
quantityofliquorandcombinedwiththeturbinegeneratedin
excessofmillionofnetenergybenefitascomparedtothesame
quarterayearagoBasedonboilerandturbineoperationstodate
theCompanyisconfidentitwillattainthemillionofprojected
annualenergybenefitsTheCompanyhasalsosetatargetof
millionperyearinoperatingandmaintenancecostreductionsor
millionperquarterDuringtheSeptemberquarterthe
Companycontinuedtoperiodicallyoperatetheoldboilersandwas
requiredtomaintainthemonoperationalreadinessAssuchthe
Companyestimatesthatverylittleoftheprojectedoperatingand
maintenancesavingswererealizedintheSeptemberquarter
Theabilitytotaketheolderboilerspermanently“offline”willdictate
thetimingofthesesavingsFinallytheCompanyhasguidedfora
potentialmillionperyearproductivityandmarginenhancement
associatedwiththeproductionincreaseoftonnesofspecialty
pulpWhilethepreviouslynotedenergyandcostbenefitsarenear
termitemstheproductivityandmarginenhancementbenefitwillbe
dependentontheCompany’sabilitytogenerateadditionalspecialty
pulpsalesvolumeswhichmayrequireanextendedperiodoftime
TheCompanyestimatesthatannualcapitalexpendituresof
milliontomillionarerequiredtoadequatelymaintainits
facilities
Acquisitions, investments and divestitures
InMarchtheCompanycompletedthesaleoftheChetwynd
BChigh-yieldpulpmillforanominalamountThesalegenerated
amilliongainasthebuyerassumedcertainliabilitiesassociated
withthefacility
Financing activities
TheCompany’slong-termobjectiveistomaintainthenetdebt
tototalcapitalizationratioatorlessAstrongbalancesheet
providestheCompanywiththeabilitytoaccesscapitalmarkets
atfavourableratesThenetdebttototalcapitalizationratioofthe
CompanywasasatSeptemberascomparedtoat
theendofthepriorfiscalyearTheincreaseisdueprimarilyto
increaseddebtlevelstofinancethepreviouslynotedTemiscaming
specialtycellulosecogenerationprojectaswellasmillionof
foreigncurrencytranslationincreasesonoutstandingUSdollar
denominateddebtTheCompanyanticipatesthatthenetdebt
tototalcapitalizationratiowillgraduallydecreaseasthenew
boilerandturbineinstalledattheTemiscamingspecialtycellulose
millgeneratetheprojectedincrementaladjustedEBITDA
TheCompanyshouldalsobenefitfromtheimpactofaweaker
Canadiandollarintermsofsellingpricesandcompetitiveness
graduallyoffsettingthenegativeimpactofthepreviouslynoted
translationlossesonUSdollardenominateddebt
0%
10%
20%
30%
40%
50%
60%
70%
80%
20152014201320122011
Net debt to total capitalization
27% 45% 52% 59% 76%
Actual
Objective < 40%
Actual
Objective < 40%
Actual
Objective < 40%
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InOctobertheCompanycompletedaprivatedebtoffering
ofUSmillion—seniorsecurednotesThesecurednotes
matureinDecemberAsignificantportionoftheproceeds
wasutilizedtopurchaseandredeemUSmillion—
seniorsecurednotesinadditiontopayingUSmillion
ofaccruedinterestandanearlyprepaymentpenaltyof
USmillion
InMarchtheCompanyenteredintoamilliontermloan
facilitytoassistwiththefinancingofthepreviouslymentioned
TemiscamingQuebecspecialtycellulosecogenerationproject
TheinterestrateonthefacilityisTheloanhasa-year
termconsistingofa-monthconstructionordrawdownperiod
followedbya-yearmonthlyamortizationperiodbeginning
inAprilThetermoftheloanwillbeshortenedbythree
yearsiftheCompanydoesnotcompletecertainfuturecapital
expendituresattheTemiscamingspecialtycellulosemillTheloan
issecuredbyasecondrankingchargeontheprojectassetsThe
Companyhasalsograntedthelenderafive-yearoptionstarting
onthefirstloandisbursementdatetoacquiremillioncommon
sharesofTembecatapriceofpershareThisoptionexpires
onAugustDuringtheSeptemberquarterthe
Companynegotiatedanadditionaltrancheofprojectfinancing
effectivelyincreasingthetotalfundingfromthelenderto
millionThissecondmilliontrancheisalsosecuredby
asecondrankingchargeonprojectassetsandtheinterestrate
remainsatThissecondtrancheisrepayableinequal
monthlyinstalmentsbeginninginAprilInconnection
withtheadditionalfundingtheCompanygrantedthelendera
five-yearoptiontoacquirecommonsharesofTembecat
apriceofpershareThisoptionexpiresonDecember
AsattheendofSeptembertheCompanyhaddrawn
theentiremillion
Long-term debt
(inmillionsofdollars)
TembecIndustries–USmillionseniorsecurednotesdueDecember – TembecIndustries–USmillionseniorsecurednotesdueDecember –
Temiscamingprojectfinancing–securedtermloan
Temiscamingprojectfinancing–securedtermloan–tranche
Temiscamingprojectfinancing–securedtermloan–tranche
Frenchoperations
KirklandLakeEngineeredWoodProductsInc –
Otherdebt
Totallong-termdebt
Lessunamortizedfinancingcosts
Currentportionincludedinabove
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InJunetheCompanyenteredintoamillionterm
loanfacilitytoassistwiththefinancingofthepreviouslynoted
specialtycellulosecogenerationprojectinTemiscamingQuebec
Theinterestrateonthisloanisthegreaterofandtheyield
onequivalenttermsGovernmentofCanadabondsplusatthedatethefundsareadvancedTheloanissecuredbyafirst
rankingchargeontheprojectassetsInJulytheCompany
receivedmillionrepresentingthefirstadvanceunderthe
facilityTheinterestrateonthisadvancewassetatDuring
theSeptemberquartertheCompanyincreasedthesizeof
thefacilitytomillionAspartoftheloanamendmentthe
termsoftheremainingmilliontobedrawnontheoriginal
facilitywereamendedtocorrespondtothoseofthenew
millioninfundingTheinitialmilliondrawninJuly
isrepayableinblendedmonthlyinstalmentsoveraneight-year
periodbeginninginJulywitha“balloon”paymentof
milliontoberepaidinJulyDuringtheDecemberquartertheCompanyreceivedtheremainingmilliononthe
facilityThissecondtranchebearsinterestatarateofand
isrepayableinblendedmonthlyinstalmentsoveraperiodofeight
yearsbeginninginNovemberwitha“balloon”payment
ofmilliontoberepaidinOctoberAsattheendof
SeptembertheCompanyhasrepaidmillionofprincipal
relatedtothetermloanandmillionremainedoutstanding
ThedebtoftheFrenchoperationsrelatestotheCompany’s
specialtycellulosepulpmillThedecreaseindebtwasdueto
scheduledamortizationpayments
DuringfiscaltheCompanyarrivedatasettlementagreement
withthesecuredlendersofKirklandLakeEngineeredWood
ProductsInc(KLEWP)KLEWPisawholly-ownedsubsidiaryof
Tembecwhichownsawoodproductsfacilitythathasbeenidle
forseveralyearsThedebtisnon-recourseinnatureInexchange
fortheextinguishmentofthisobligationTembecandthesecured
lendershaveagreedtosellthefacilityonan“asis”basisandto
dividethenetproceedsbasedonapre-arrangedformulaAttime
ofwritingthefacilityhadnotyetbeensold
Moody’sInvestorsService(Moody’s)hasassignedaBratingto
theseniorsecurednotesandthesamelevelfortheCompany’s
corporatecreditratingMoody’shasa“negative”outlookwith
respecttoitsratingStandardandPoor’s(S&P)hasassigneda
B-ratingtotheseniorsecurednotesandthesamelevelfortheCompany’scorporatecreditratingS&Phasa“negative”outlook
withrespecttoitsrating
TheCompanyhassetanobjectiveofmaintainingaminimum
liquidityofmil l iontomil l ionAttheendof
SeptembertheCompanyhadtotalcashincludingrestricted
cashofmillionplusunusedoperatinglinesofmillionfor
totalliquidityofmillionAtSeptembertheCompany
hadnetcashofmillionandunusedoperatinglinesof
millionfortotalliquidityofmillionSubsequenttotheend
offiscalonNovembertheCompanyannounced
thatithadenteredintoanewABL(seeSubsequentEvent)AftergivingeffecttotherefinancingtheCompany’stotalliquidityat
NovemberwasapproximatelymillionWhiletotal
liquidityremainedbelowitsobjectivetheloweron-goingcapital
expendituresaswellastheprojectedincrementaladjustedEBITDA
oftheTemiscamingcogenerationprojectwillpositivelyimpact
cashflowandliquidityinfutureperiods
Operating lines
Thefollowingtablesummarizestheunusedoperatinglinesattheend
ofthelasttwofiscalyears
(inmillionsofdollars)
Borrowingbase
Lesspermanentavailabilityreserve – ()
Lessvariableavailabilityreserve () ()
Netavailability
Outstandinglettersofcredit () ()
Amountdrawn () ()
Unusedamount
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AttheendoffiscaltheCompanyhadamillionABL
facilityexpiringinMarchTheABLhadafirstprioritycharge
overthereceivablesandinventoriesoftheCompany’sCanadian
operationsAsatSeptemberanamountofmillion
wasdrawnontheABLfacilityandafurthermillionwasutilizedtoissuelettersofcreditAsnotedpreviouslytheABLfacility
wasrefinancedonNovember(seeSubsequentEvent)
ThenewABLconsistsofamillionrevolvingloananda
USmillionFILOloanTherevolvingloanwillexpireon
Novemberprovidedseveralconditionsaremet
includingrepaymentoftheFILOloanpriortoMarch
failingwhichthematuritywouldbeacceleratedtoanearlier
datebutnotearlierthanMarchTherevolvingloanhas
afirstprioritychargeoverthereceivablesandinventoriesof
theCompany’sCanadianandUSoperationsTheFILOloanis
securedbythesamecollateralastherevolvingloanandranks
secondinrepaymentpriorityrelativetotherevolvingloanTheFILOloanisalsosecuredbyafirstprioritychargeonthefixed
assetsofoneoftheCompany’sUSsubsidiaries
TheCompanyalsohasadedicatedunsecuredcreditfacilitythat
canonlybeutilizedtoissuelettersofcreditAsatSeptember
thereweremillionofoutstandinglettersofcreditissuedon
thisfacility
TheFrenchoperationsaresupportedby“receivablefactoring”
agreementsAssuchtheborrowingbasefluctuatesperiodically
dependingonshipmentsandcashreceiptsAsatSeptember
anamountofmillionwasdrawnonthesefacilities
Theoutstandinglettersofcreditconstitutesecurityfor
variousoperatingitemsprincipallytheunfundedportionof
supplementaryretirementplansfuturelandfillclosureliabilities
andperformanceguaranteesrelatedtoelectricitygeneration
agreements
Common shares
(inmillions)
Sharesoutstanding–opening
Sharesoutstanding–ending
Therewerenosharesissuedinfiscalandfiscal
PursuanttooptionsgrantedunderthepriorLong-Term
IncentivePlan(LTIP)anadditionalsharesmaybeissuedTheweightedaverageexercisepriceoftheoptionswasper
shareasatSeptemberandtheywillexpireinAs
atSeptemberalloftheoptionswereexercisable
Inconnectionwiththemillionsecondrankingtermloan
facilitytheCompanyhasgrantedthelenderanoptionto
acquiremillioncommonsharesoftheCorporationataprice
ofpershareThewarrantsexpireonAugust
Inconnectionwiththemillionsecondrankingtermloan
facilitytheCompanyhasgrantedthelenderanoptiontoacquire
commonsharesoftheCorporationatapriceof
pershareThewarrantsexpireonDecember
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Thecarryingvaluesforcashandcashequivalentsrestrictedcash
tradeandotherreceivablesloansreceivableoperatingbank
loanstradeotherpayablesandaccruedchargesandinterest
payableapproximatetheirfairvaluesduetothenear-term
maturityoftheseinstruments
Thefairvalueofthelong-termdebtwasreducedbymillion
astheCompany’sUSmillionseniornotesweretradingbelow
paratyear-endThebalanceofthedifferencerelatesprimarilyto
unamortizedfinancingcostsofmillionwhichwerenetted
againstthelong-termdebtcarryingvalue
Financial risks
Credit risk
Creditriskarisesfromthepossibilitythatentitiestowhichthe
Companysellsproductsmayexperiencefinancialdifficultyand
beunabletofulfilltheircontractualobligationsTheCompany
doesnothaveasignificantexposuretoanyindividualcustomer
orcounterpartyTheCompanyreviewsanewcustomer’scredit
historybeforeextendingcreditandconductsregularreviewsof
itsexistingcustomers’creditperformanceAllcreditlimitsare
subjecttoevaluationandrevisionatanytimebasedonchanges
inlevelsofcreditworthinessandmustbereviewedatleastonce
peryearSalesorderscannotbeprocessedunlessacreditlimit
hasbeenproperlyapprovedTheCompanymayrequirepayment
guaranteessuchaslettersofcreditorobtaincreditinsurance
coverageBaddebtexpensehasnotbeensignificantinthepast
TheallowancefordoubtfulaccountsatSeptemberwas
negligibleascomparedtomillionattheendoftheprioryear
Liquidity risk
LiquidityriskarisesfromthepossibilitythattheCompanywill
notbeabletomeetitsfinancialobligationsastheyfalldue
TheCompanyhasanobjectiveofmaintainingliquidityequalto
monthsofmaintenancecapitalexpendituresinterestand
principalrepaymentsandseasonalworkingcapitalrequirements
whichwouldrequireapproximatelymilliontomillion
ofliquidityAsnotedpreviouslytheCompanyhadtotalcashof
millionplusunusedoperatinglinesofmillionfortotal
liquidityofmillionasatSeptemberSubsequent
totheendoffiscalonNovembertheCompany
announcedthatithadenteredintoanewABL(seeSubsequent
Event)AftergivingeffecttotherefinancingtheCompany’stotal
liquidityatNovemberwasapproximatelymillion
Whiletotalliquidityremainedbelowitsobjectivethelower
on-goingcapitalexpendituresaswellastheprojectedincremental
adjustedEBITDAoftheTemiscamingcogenerationprojectwill
positivelyimpactcashflowandliquidityinfutureperiods
Financial instruments and contractual obligations
Financial assets and liabilities
AsatSeptember
(inmillionsofdollars) Carryingvalue Fairvalue
Financialassets
Cashandcashequivalents
Restrictedcash
Tradeandotherreceivables
Loansreceivable
Financialliabilities
Operatingbankloans
Tradeotherpayablesandaccruedcharges
Interestpayable
Long-termdebt(includingcurrentportion)
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TheCompany’sliquidityisdependentongeneratingasufficient
amountofadjustedEBITDAandcashflowfromoperationsBased
onexistingliquiditycurrentinitiativestoobtainadditionalliquidity
andanticipatedfutureoperatingcashflowtheCompanybelieves
thatitwillbeabletoadequatelyfunditsoperationsandmeetitsfutureobligationsastheybecomedueThisdeterminationcould
beimpactedbyeconomicfinancialcompetitivelegislativeand
regulatoryfactorsaswellasothereventsthatarebeyondthe
Company’scontrol
Foreign currency risk
Thisitemisdiscussedindetailinasubsequentsectionofthe
MD&A“SignificantRisksandUncertainties”
Interest rate risk
Interestrateriskistheriskthatthefairvalueorfuturecashflows
ofafinancialinstrumentwillfluctuatebecauseofchangesin
marketinterestratesThiswillhavelittleimpactontheCompany’s
financialresultssincethemajorityoftheCompany’sdebtsareatfixedinterestrates
Commodity price and operational risk
Theseitemsarediscussedindetailinasubsequentsectionofthe
MD&A“SignificantRisksandUncertainties”
Contractual obligations
ThefollowingtableshowstheCompany’scontractualobligations
asatSeptemberTheCompanyhaslong-termdebtwith
contractualmaturitiesandapplicableinterestPensionobligations
pastservicecostsincludeestimatedsolvencyandgoingconcern
amortizationpayments
Othercontractualobligationsnotincludedinthetableaboveare
• Operatingleaseobligationstotallingmillionrelatedprimarily
topropertyandequipmentrentalsenteredintothenormal
courseofbusiness
• Outstandingpayableandaccrualsofmillionrelatedtocapital
expenditures
• Purchaseobligationsrelatedtoongoingnormalcommercial
commitmentstopurchasetimberfibreenergychemicalsand
otheroperatinginputsManyoftheobligationsaresubject
to“forcemajeure”clausesandmayvarysignificantlyfrom
contractedamountsdependingontheCompany’srequirements
Within – – After
(inmillionsofdollars) Total year years years years
Long-termdebt
Interestonlong-termdebt
Pensionobligations–pastservicecosts
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Inthissectioncurrentyearreferstofiscalandprioryear
referstofiscal
Salesdecreasedbymillioncomparedtotheprioryear
CurrencywasapositivefactorastheCanadiandollaraveraged
USadecreasefromUSayearagoForest
Productssegmentsalesincreasedbymillionasaresultof
highersellingpricespartiallyoffsetbylowershipmentsSpecialty
CellulosePulpsegmentsalesincreasedbym