Fortress Paper Ltd. operates internationally in three distinct business segments: dissolving pulp, specialty papers, and security paper products. The statement of financial position and statement of income (statement of operations) from Fortress€™s 2013 annual report are presented in Exhibits 10-16A and B.

Required:
a. Calculate the debt to equity ratio, the net debt as a percentage of total capitalization ratio, and the interest coverage ratio for 2013 and 2012.
b. Identify the major factors that contributed to the changes in these ratios.
c. Write a short report commenting on the results of the ratio calculations that you did in part €œa.€ Be sure to comment from the perspectives of an existing shareholder and a potential lender of long- term debt.

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ECXHIBIT 10-16A FORTRESS PAPER LTD. 'S 2013 CONSOLIDATED STATEMENTS OF FINANCIAL POSITION FORTRESS PAPER LTD. CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (Canadian dollars, amounts in thousands) December 31, 2013 December 31, 2012 Note ASSETS Current Cash and cash equivalents Restricted cash Trade accounts receivable Other accounts receivable Inventories Prepaid expenses 61,888 14,934 12,446 8,751 62,390 8,486 168,895 412,949 581,844 31,491 2,600 13,835 28,403 53,064 8,334 137,727 440,227 577,954 7 13 Property, plant and equipment Total assets 10 LIABILITIES AND SHAREHOLDERS' EQUITY Current Accounts payable and accrued liabilities Income taxes payable Current portion of long-term debt 34,044 79,806 3,123 7,761 90,690 248,140 2,154 5,528 1,773 348,285 12 14,572 48,616 213,558 4,734 7,921 4,737 279,566 Long-term debt Deferred income taxes Provisions and other long-term liabilities Employee future benefits Total liabilities Shareholders' equity Share capital Contributed surplus Retained earnings Accumulated other comprehensive income Total shareholders' equity Total liabilities and shareholders' equity 13 12 180,040 25,950 75,368 20,920 302,278 581,844 178,052 26,078 23,387 2,152 229,669 577,954 FORTRESS PAPER LTD.'S 2013 CONSOLIDATED STATEMENTS OF OPERATIONS EXHIBIT 10-16B FORTRESS PAPER LTD. CONSOLIDATED STATEMENTS OF OPERATIONS For the years ended (Canadian dollars, amounts in thousands) December 31, 2013 December 31, 2012 Note Sales Costs and expenses Manufacturing and product costs Freight and other distribution costs Amortization Selling, general and administration Stock-based compensation Operating loss Other income (expense) Finance expense Finance income Gain on sale of property, plant and equipment Impairment of property plant and equipment Foreign exchange (loss) Net loss from continuing operations before income taxes Income tax (expense) recovery Net loss from continuing operations Net income from discontinued operations Net income (loss) 207,785 163,923 (202,980) (3,750) (19,732) (41,180) (1,905) (61,762) (178,036) (1,674) (15,669) (29,208) (3,516) (64,180) 17 (11,153) 326 19,297 (16,970) 298 5,242 (32,907) (138) (106,237) (1,586) (107,823) 162,408 54,585 18 10 10 (66) (55,776) 13,439 (42,337) 20,669 (21,668) 12