MANAGEMENTS
    DISCUSSION AND ANALYSIS OF

FINANCIAL POSITION AND OPERATING RESULTS  MANAGEMENTS
    DISCUSSION & ANALYSIS
        FINANCIAL
    OVERVIEW2008
    and/or
   1




---



##### 



Key
    performance indicators
    2006


2007


2008Total


Q1


Q2


Q3


Q4


Total


Q1


Q2


Q3


Q4


TotalOPERATIONALTotal shipments (in 000 of s.t.)PackagingBoxboard(1)


1,204



301



313



296



292



1,202



292



277



278



246



1,093Containerboard(2)


742



351



366



357



338



1,412



348



342



363



336



1,389Specialty products(3)


457



115



114



111



110



450



116



115



118



109



4582,403



767



793



764



740



3,064



756



734



759



691



2,940Tissue Papers


443



109



112



115



115



451



112



116



124



119



471Total


2,846



876



905



879



855



3,515



868



850



883



810



3,411Integration rate%PackagingBoxboard (North America)


32
%


27
%


29
%


31
%


26
%


29
%


30
%


32
%


34
%


27
%


31
%Containerboard (North America)


61
%


58
%


59
%


63
%


64
%


61
%


58
%


62
%


61
%


59
%


60
%Specialty products (paper only)


10
%


8
%


7
%


8
%


8
%


8
%


9
%


9
%


9
%


7
%


9
%Tissue Papers


59
%


60
%


59
%


53
%


52
%


56
%


55
%


55
%


52
%


55
%


54
%44
%


45
%


45
%


47
%


46
%


45
%


45
%


47
%


46
%


45
%


46
%Capacity utilization rate(4)%PackagingBoxboard(5)


95
%


89
%


94
%


89
%


85
%


89
%


87
%


82
%


82
%


68
%


80
%Containerboard


99
%


100
%


102
%


104
%


99
%


101
%


97
%


94
%


94
%


82
%


92
%Specialty products (paper only)


88
%


89
%


88
%


85
%


84
%


86
%


84
%


83
%


85
%


78
%


83
%Tissue Papers(6)


101
%


99
%


100
%


99
%


99
%


99
%


102
%


99
%


104
%


102
%


102
%Total


96
%


95
%


97
%


95
%


92
%


95
%


93
%


89
%


90
%


79
%


88
%Energy cons.(7)GJ/ton


10.33



10.94



9.46



9.55



10.29



10.05



10.39



9.54



9.25



11.06



10.09Work accidentsOSHA frequency rate


8.00



7.00



8.60



8.80



7.55



7.97



7.11



6.52



7.77



4.52



6.48FINANCIALReturn on assets (%)(8)PackagingBoxboard


5
%


4
%


4
%


4
%


4
%


4
%


4
%


3
%


3
%


3
%


3
%Containerboard


15
%


15
%


14
%


13
%


12
%


12
%


12
%


11
%


10
%


9
%


9
%Specialty products


11
%


12
%


11
%


10
%


10
%


10
%


8
%


9
%


10
%


11
%


11
%Tissue Papers


22
%


20
%


17
%


14
%


12
%


12
%


11
%


12
%


13
%


18
%


18
%Consolidated return on assets (%)


10.8
%


10.5
%


9.8
%


9.5
%


8.9
%


8.9
%


8.3
%


7.7
%


7.6
%


8.0
%


8.0
%Working capital(9)in millions of $, at end of period


598



659



685



701



616



616



682



652



675



694



694% of sales(10)


16.3
%


16.0
%


15.8
%


16.0
%


16.5
%


16.5
%


16.7
%


16.6
%


16.3
%


16.6
%


16.6
%  2




---



##### 



(1)
    
    Starting in Q1 2008, numbers take into account the merger of our
    European recycled boxboard assets with Reno De Medici.(2)
    
    The 2006 numbers include 50% of Norampac, while 2007 and 2008
    numbers include 100% of Norampac.(3)
    
    Kraft paper, uncoated board, specialty board, fine papers and
    papermill packaging shipments.(4)
    
    Defined as: Shipments/Practical capacity. Paper manufacturing
    only.(5)
    
    Starting in Q1 2008, capacity numbers were adjusted to take into
    account the merger of our European recycled boxboard assets with
    Reno De Medici.(6)
    
    Defined as: Manufacturing internal and external
    shipments/Practical capacity. Tissue practical capacity
    represents 80% of its theoretical capacity, which was disclosed
    in the Annual Information form.(7)
    
    Average energy consumption for manufacturing mills only.(8)
    
    Return on assets is a non-GAAP measure and is, defined as LTM
    OIBD excluding specific items/LTM Average of total quarterly
    assets.(9)
    
    Working capital includes accounts receivable plus inventories
    less accounts payable. Starting in 2006, this number excludes an
    unpaid provision for closure and restructuring costs in the
    amount of $19 million as at December 31, 2007 and
    $22 million as at December 31, 2008. It also excludes
    the current portion of derivatives financial instruments
    liabilities in the amount of $31 million
    (assets$11 million2007) and the current portion
    of future tax assets in the amount of $10 million
    (liabilities$1 million2007).(10)
    
    % of sales = LTM working capital/LTM sales.  Historical
    financial information
  2006


2007


2008Total


Q1


Q2


Q3


Q4


Total


Q1


Q2


Q3


Q4


Total(In millions of Canadian dollars, unless otherwise noted)SalesPackagingBoxboard(1)


1,359



344



352



332



315



1,343



329



331



332



331



1,323Containerboard


600



294



307



310



282



1,193



291



301



318



293



1,203Specialty products


691



215



211



206



202



834



209



218



224



209



860Inter-segment sales


(68
)


(27
)


(29
)


(26
)


(26
)


(108
)


(28
)


(25
)


(28
)


(19
)


(100
)2,582



826



841



822



773



3,262



801



825



846



814



3,286Tissue Papers


727



186



180



176



171



713



170



184



205



228



787Inter-segment sales and Corporate activities


(31
)


(12
)


(13
)


(14
)


(7
)


(46
)


(12
)


(10
)


(12
)


(22
)


(56
)3,278



1,000



1,008



984



937



3,929



959



999



1,039



1,020



4,017Operating income (loss) before depreciation and amortization
    (OIBD)(2)PackagingBoxboard(1)


57



33



12



15



9



69



(1
)


(1
)


6



(7
)


(3
)Containerboard


44



39



37



46



30



152



34



27



23



19



103Specialty products


45



18



11



15



15



59



9



14



21



20



64146



90



60



76



54



280



42



40



50



32



164Tissue Papers


116



19



16



16



15



66



12



14



22



41



89Corporate activities


(5
)


1



5



1



(1
)


6



(9
)


7



(1
)


(21
)


(24
)257



110



81



93



68



352



45



61



71



52



229 3




---



##### 



2006


2007


2008Total


Q1


Q2


Q3


Q4


Total


Q1


Q2


Q3


Q4


Total(In millions of Canadian dollars, unless otherwise noted)OIBD excluding specific items(2)PackagingBoxboard(1)


55



8



12



15



9



44



9



3



10



11



33Containerboard


91



40



44



48



44



176



37



30



32



31



130Specialty products


58



18



11



15



16



60



9



15



21



22



67204



66



67



78



69



280



55



48



63



64



230Tissue Papers


116



19



15



16



15



65



12



15



22



41



90Corporate activities


(5
)


1



5



1



(2
)


5



(8
)






3



(9
)


(14
)315



86



87



95



82



350



59



63



88



96



306Operating income (loss) from continuing operations


97



57



30



38



20



145



(6
)


8



17



(3
)


16Excluding specific items(2)


155



33



36



40



34



143



8



10



34



41



93Net earnings (loss)


4



22



45



16



13



96



(4
)


(25
)


(7
)


(18
)


(54
)Excluding specific items(2)


54



5



7



9



2



23



(9
)


(11
)


6



18



4Net earnings (loss) per share (in dollars)Basic

$
0.05


$
0.22


$
0.45


$
0.16


$
0.13


$
0.96


$
(0.04
)

$
(0.25
)

$
(0.07
)

$
(0.19
)

$
(0.55
)Basic, excluding specific items(2)

$
0.65


$
0.05


$
0.07


$
0.09


$
0.02


$
0.23


$
(0.09
)

$
(0.11
)

$
0.06


$
0.18


$
0.04Cash flow from operations (adjusted)(2)


183



41



46



55



36



178



17



36



43



59



155Excluding specific items


196



49



48



56



49



202



26



42



47



68



183Cash flow from operations (adjusted) per share (in
    dollars)(2)Basic

$
2.26


$
0.41


$
0.46


$
0.56


$
0.36


$
1.79


$
0.17


$
0.37


$
0.43


$
0.60


$
1.57Basic, excluding specific items

$
2.42


$
0.49


$
0.48


$
0.57


$
0.49


$
2.03


$
0.26


$
0.43


$
0.47


$
0.69


$
1.85Cascades North American US$ selling price index (2002 index =
    1,000)(3)


1,271



1,314



1,341



1,382



1,411



1,362



1,412



1,425



1,514



1,510



1,465Cascades North American US$ raw materials index (2002 index =
    300)(4)


361



438



465



497



521



480



542



536



524



366



492US$/CAN$

$
0.88


$
0.85


$
0.91


$
0.96


$
1.02


$
0.93


$
1.00


$
0.99


$
0.96


$
0.82


$
0.94Natural Gas Henry HubUS$/mmBtu

$
7.23


$
6.77


$
7.55


$
6.16


$
6.97


$
6.86


$
8.03


$
10.92


$
10.24


$
6.94


$
9.03Return on assets (%)(5)


10.8
%


10.5
%


9.8
%


9.5
%


8.9
%


8.9
%


8.3
%


7.7
%


7.6
%


8.0
%


8.0
%     Pulp & Paper Week, PPI, EUWID, Random
    Lengths and Cascades
  (1)
    
    The 2008 figures take into account the merger of our European
    boxboard assets with Reno de Medici.(2)
    
    See Supplemental Information on
    Non-GAAP Measures.(3)
    
    The Cascades North American selling prices index represents an
    approximation of the Companys manufacturing (excluding
    converted products) selling prices in North America. It is
    weighted according to shipments, and includes some of the main
    Cascades products for which prices are available in
    Pulp & Paper Week magazine and the Cascades Tissue
    Index. This index should only be used as a trend indicator, as
    it may differ from our actual selling prices and our product
    mix. The only non-manufacturing 4




---



##### 



prices reflected in the index are those for tissue. In fact, the
    tissue pricing indicator, which is blended into the Cascades
    North American selling prices index, is the Cascades tissue
    paper selling prices index, which represents a mix of primary
    and converted products.(4)
    
    The Cascades North American raw materials index represents the
    average weighted cost paid for some of our manufacturing raw
    materials, namely recycled fibre, virgin pulp and woodchips, in
    North America. It is weighted according to purchase volume (in
    tons). This index should only be used as a trend indicator and
    may differ from actual manufacturing purchasing costs and our
    purchase mix.(5)
    
    Return on assets is a non-GAAP measure, defined as LTM OIBD
    excluding specific items/LTM average of total quarterly assets.  Financial
    Results for the Year Ended December 31, 2008,
    Compared to the Year Ended December 31, 2007
  Sales
    Operating
    Income Before Depreciation and Amortization
    (OIBD)
      
  (1)
    
    The impacts of these estimated costs are based on production
    costs per unit, which are affected by yield, product mix changes
    and purchase and transfer prices. In addition to market pulp and
    recycled fiber, they 5




---



##### 



include purchases of external boards and parent rolls for the
    converting sector, and other raw materials such as plastics and
    woodchips.(2)
    
    The estimated impact of the exchange rate is based only on the
    Companys export sales less purchases that are impacted by
    the exchange rate fluctuations, mainly the CAN$/US$ variation.
    It also includes the impact of the exchange rate on the
    Companys working capital items and cash position. At the
    end of 2008, the Company changed its method for estimating the
    impact of the exchange rate compared to the previous period.(3)
    
    The impact of these estimated variable costs based on production
    costs per unit, which are affected by downtimes, efficiencies
    and product mix changes.(4)
    
    Includes all other costs such as repair and maintenance, selling
    and administration, and profit-sharing.(5)
    
    Includes change in OIBD for operating units that are not in the
    manufacturing or converting sector.    Specific
    Items Included in Operating Income Before Depreciation and
    Amortization
      For the Years Ended December 31 2008Specialty


Tissue


CorporateBoxboard


Containerboard


Products


Papers


Activities


Consolidated(In millions of canadian dollars)Operating income before depreciation and amortization


(3
)


103



64



89



(24
)


229Specific items:Inventory adjustment resulting from business acquisition


2



















2Loss on disposals and others


5



















5Impairment loss


9



5



2











16Closure and restructuring costs


19



6



1



1







27Unrealized loss on financial instruments


1



16











10



2736



27



3



1



10



77Operating income before depreciation and
    amortizationexcluding specific items


33



130



67



90



(14
)


306   6




---



##### 



For the Years Ended December 31 2007Specialty


Tissue


CorporateBoxboard


Containerboard


Products


Papers


Activities


Consolidated(In millions of Canadian dollars)Operating income before depreciation and amortization


69



152



59



66



6



352Specific items:Inventory adjustment resulting from business acquisition






6















6Loss (gain) on disposals and others


(25
)


10







(1
)


(1
)


(17
)Impairment loss






3















3Closure and restructuring costs






5



1











6(25
)


24



1



(1
)


(1
)


(2
)Operating income before depreciation and
    amortizationexcluding specific items


44



176



60



65



5



350   Gains and
    Losses on Disposal
    2008


2007Loss on contribution to a joint venture


5



Loss on disposal of property, plant and equipment






6Legal settlement






2Gain on business disposal






(25
)5



(17
)   
    In the first quarter of 2008, following the transaction with
    Reno De Medici S.p.A. (RdM), the Company recorded a
    loss of $5 million since the value of the shares received
    as a consideration was lower than the contributed book value of
    the assets transferred as at March 1, 2008.
    In the first quarter of 2007, the Company disposed of its
    investment in a joint venture (in the Boxboard segment) for a
    consideration of $38 million ($US32 million). The
    Company realized a gain of $25 million, before income taxes
    of $11 million.
    In the second quarter of 2007, the Company sold the building
    that housed its Toronto (Pickering) tissue converting facility,
    which had been closed in 2005, for an amount of $7 million.
    The Company realized a gain of $1 million.
    In the second quarter of 2007, the Company recorded a provision
    of $2 million as a settlement related to the action filed
    by ServiceCore Inc.
    In the fourth quarter of 2007, the Company sold an investment in
    a privately-held company affiliated to a related director for a
    cash consideration and a gain of $3 million.
    In the fourth quarter of 2007, the Company completed the sale of
    its Red Rock linerboard mill, located in Ontario, which had been
    indefinitely shut down. As a result of this agreement, the
    Company agreed to pay the purchaser $10 million in order to
    support the facilitys
    start-up. 7




---



##### 



Impairment
    Charges, Closure and Restructuring Costs
    2008


2007Closure and





Closure andImpairment


Restructuring


Impairment


RestructuringCharges


Costs


Charges


CostsBoxboardToronto mill






6







BoxboardDopaco (Bakersfield)






3







BoxboardEurope (Larochette)






1







BoxboardRdM (Blendecques)


1



3







BoxboardManufacturing Goodwill


8











BoxboardConverting and Corporate






6







ContainerboardRed Rock and others


5



6



3



5Specialty Products


2



1







1Tissue






1







16



27



3



6              8




---



##### 



2008


2007BalanceBeginning of year


19



47Additional provisionsSeverance and pension liability


26



7Writedown of inventories






4Others


1



16Non-monetary itemsWritedown of inventories






(4
)Pension liability adjustments and others






(7
)Payments


(24
)


(44
)BalanceEnd of year


22



19   Financial
    Instruments
      U.S.-denominated
  Inventory
    Adjustments Resulting from Business Acquisitions
   9




---



##### 



BUSINESS
    HIGHLIGHTS
      Closure,
    Restructuring and Disposal
  Boxboard
    Group
              Containerboard
    Group
      Specialty
    Products Group
    Business
    Acquisitions
  Merger
    Boxboard GroupEurope
       10




---



##### 



DISCONTINUED
    OPERATIONS
        2008


2007Condensed Statement of EarningsSales


8



104Depreciation and amortization






1Operating income (loss)(1)


22



(20
)Interest expense


1



4Provision for (recovery of) income taxes


3



(5
)Net earnings (loss) from discontinued operations


18



(19
)Net earnings (loss) per share from discontinued operations

$
0.18


$
(0.19
)Condensed Statement of Cash FlowsOperating activities


2



(36
)Investing activities


47



(2
)Financing activities


1



(2
)     (1)
    
    Operating loss includes the following items:  2008


2007Impairment charges and closure and restructuring costs


(1
)


(3
)Legal settlement






(1
)Loss on disposal of Thunder Bay assets






(5
)Gain on disposal of Greenfield pulp mill


24



Total


23



(9
)      11




---



##### 



BUSINESS
    SEGMENT REVIEW
  PackagingBoxboard
  Average


AverageSales


OIBD


Shipments(1)


selling price


selling price2008


2007


2008


2007


2008


2007


2008


2007


2008


2007(In millions


(In millions of dollars)


(In thousands of short tons)


(In Canadian dollars/unit)


(In U.S. dollarsof dollars)











or euro/unit)BoxboardManufacturingNorth America


267



317



(34
)


(12
)


383



459



705



691



660



643ManufacturingEurope(2)


476



463



(6
)


9



544



580



877



806



562



549Converting


677



691



50



76



285



295



2,363



2,275



2,217



2,118Others and eliminations


(97
)


(128
)


(13
)


(4
)


(119
)


(132
)1,323



1,343



(3
)


69



1,093



1,202Specific items










36



(25
)Excluding specific items










33



44     (1)
    
    Total shipments do not take into account the elimination of
    business sector intercompany shipments.(2)
    
    Include the Companys share of Reno de Medici, since
    March 1, 2008.  
  
 12




---



##### 



13




---



##### 



Europe
       14




---



##### 



North
    America
                PackagingContainerboard
  Average


AverageSales


OIBD


Shipments(1)


selling price


selling price2008


2007


2008


2007


2008


2007


2008


2007


2008


2007(In millions


(In millions


(In thousands


(In Canadian


(In U.S. dollars/unit)of dollars)


of dollars)


of short tons)


dollars/unit)ContainerboardManufacturing


615



599



57



59



1,172



1,217



527



493



494



459Converting


962



984



53



76



833
(2)


844
(2)


1,154
(2)


1,166
(2)


1,090
(2)


1,085
(2)Others and eliminations


(374
)


(390
)


(7
)


17



(616
)


(649
)1,203



1,193



103



152



1,389



1,412Specific items










27



24Excluding specific items










130



176     (1)
    
    Total shipments do not take into account the elimination of
    business sector intercompany shipments. 15




---



##### 



(2)
    
    Equal to 12,998 million square feet (msf), $CAN74/msf,
    $US70/msf in 2008, and to 13,378 msf, $CAN74/msf, $US68/msf in
    2007.  
  
  
  16




---



##### 



year-to-date
     17




---



##### 



PackagingSpecialty
    Products
  Average


AverageSales


OIBD


Shipments(1)


Selling Price


Selling Price2008


2007


2008


2007


2008


2007


2008


2007


2008


2007(In millions


(In millions


(in thousands


(In Canadian


(In U.S. dollars/unit)of dollars)


of dollars)


of short tons)


dollars/unit)Specialty productsManufacturing


315



318



10



6



344



360



920



887



863



826Converting


267



232



30



26



129



104Recovery and deinked


376



374



23



25



n/a



n/aOthers and eliminations


(98
)


(90
)


1



2



(15
)


(14
)860



834



64



59



458



450Specific items










3



1Excluding specific items










67



60     (1)
    
    Total shipments do not take into account the elimination of
    business sector intercompany shipments.  
  18




---



##### 



19




---



##### 



Tissue
    Papers
  Average


AverageSales


OIBD


Shipments(1)


Selling Price


Selling Price2008


2007


2008


2007


2008


2007


2008


2007


2008


2007(In millions


(In millions


(In thousands


(In Canadian


(In U.S. dollars/unit)of dollars)


of dollars)


of short tons)


dollars/unit)Tissue papersManufacturing and converting


787



713



89



66



471



451



1,649



1,547



1,544



1,440Specific items










1



(1
)Excluding specific items










90



65    (1)
    
    Total shipments do not take into account reflect the elimination
    of business sector intercompany shipments. 20




---



##### 



21




---



##### 



U.S.-dollar
    Corporate
    Activities
       22




---



##### 



OTHER
    ITEMS ANALYSIS
  Depreciation
    and Amortization
    Operating
    Income
      Interest
    Expense
      Foreign
    Exchange Loss (Gain) on Long-term Debt
           23




---



##### 



Provision
    for Income Taxes
      Share of
    Results of Significantly-influenced Companies and Dilution
    Gain
      Results
    of Discontinued Operations
    Net
    earnings
    LIQUIDITY
    AND CAPITAL RESOURCES
  Cash
    Flows from Operating Activities
       24




---



##### 



Investing
    Activities
      Boxboard
    ($57 million)
  
    $28 million to add converting equipment for the QSR business
    $1 million to install a pulper in the East Angus mill
    $2 million to install a new turbogenerator in the
    LaRochette, France mill
    $2 million in the Versailles mill, mainly for converting
    equipment and water treatment modifications  Containerboard
    ($38 million)
  
    $4 million for a new press in one converting facility in
    Ontario
    $16 million for various projects in the papermill
    manufacturing units
    $6 million for various projects in the converting units  Specialty
    Products ($41 million)
  
    $3 million for new equipment in the Birmingham papermill
    packaging plant
    $19 million for a new sorting facility in Calgary, for our
    recycling paper activities
    $6 million in the East Angus mill, to improve the kraft
    pulp process  Tissue
    ($37 million)
  
    $5 million to complete the new de-inking unit in Memphis,
    Tennessee
    $21 million for new converting equipment in Candiac,
    Lachute, Kingsey Falls, North Carolina, Waterford and Arizona,
    and for expansion of the Wisconsin converting facility
    $3 million for de-inked system and paper machines in
    Kingsey Falls, Pennsylvania and North Carolina  Corporate
    Activities ($8 million)
  
    Investments aimed at reducing energy consumption and new IT
    development in Finance     25




---



##### 



Financing
    Activities
          Settlement
    of Forward Exchange Contracts
      Liquidity
    from Discontinued Operations
    Debt
    Refinancing
  12-month
   26




---



##### 



Consolidated
    Financial Position as at December 31, 2008 and
    December 31, 2007
    2008


2007(In millions of Canadian dollars)Working capital(1)


694



616% of sales(2)


16.6
%


16.5
%Bank loan and advances


104



47Current portion of long-term debt


36



4Long-term debt


1,672



1,570Total debt


1,812



1,621Shareholders equity


1,256



1,198Total equity and debt


3,068



2,819Ratio of debt/total equity and debt


59.1
%


57.5
%Shareholders equity per share

$
12.74


$
12.08     (1)
    
    Working capital includes accounts receivable plus inventories
    less accounts payable. It excludes the unpaid provision for
    closure and restructuring costs in the amount of
    $22 million as at December 31, 2008 and
    $19 million as at December 31, 2007. It also excludes
    the current portion of derivative financial instruments
    liabilities in the amount of $31 million as at
    December 31, 2008 (assets$11 million in
    2007) and the current portion of future tax assets in the
    amount of $10 million as at December 31, 2008
    (liabilities$1 million in 2007).(2)
    
    % of sales = LTM Working Capital/LTM Sales.   27




---



##### 



COMMENTS
    ON THE FOURTH QUARTER OF 2008
              For the 3-Month Periods Ended December 31 2008Specialty


Tissue


CorporateBoxboard


Containerboard


Products


Papers


Activities


Consolidated(In millions of Canadian dollars)Operating income before depreciation and amortization


(7
)


19



20



41



(21
)


52Specific items:Impairment loss


9



3



1











13Closure and restructuring costs


8



1



1











10Unrealized loss on financial instruments


1



8











12



2118



12



2







12



44Operating income before depreciation and
    amortizationexcluding specific items


11



31



22



41



(9
)


96   For the 3-Month Periods Ended December 31 2007Specialty


Tissue


CorporateBoxboard


Containerboard


Products


Papers


Activities


Consolidated(In millions of Canadian dollars)Operating income before depreciation and amortization


9



30



15



15



(1
)


68Specific items:Loss (gain) on disposals






10











(3
)


7Impairment loss






2















2Closure and restructuring costs






2



1











3Unrealized loss on financial instruments


















2



2



14



1







(1
)


14Operating income before depreciation and
    amortizationexcluding specific items


9



44



16



15



(2
)


82  28




---



##### 



MANAGEMENT
    COMMENTS ON THE CURRENT ECONOMIC SITUATION
  General
      Financing
    North
    American Boxboard Group
   29




---



##### 



Pension
    Liabilities
          NEAR-TERM
    OUTLOOK
         30




---



##### 



CAPITAL
    STOCK INFORMATION
      sub-industry.
  CONTRACTUAL
    OBLIGATIONS AND OTHER COMMITMENTS
    Contractual
    Obligations
  Payment Due by PeriodYears 2010


Years 2012Total


Year 2009


and 2011


and 2013


Thereafter(In millions of dollars)Long-term debt, including capital and interests


2,126



141



642



1,339



4Capital lease


1



1











Operating lease


175



42



62



34



37Purchase obligations


347



130



110



41



66Legal settlement


9



3



3



3



Pension plans and other post-employement benefits


461



55



80



85



241Total contractual obligations


3,119



372



897



1,502



348   TRANSACTIONS
    WITH RELATED PARTIES
    OFF-BALANCE-SHEET
    ARRANGEMENTS
   31




---



##### 



CRITICAL
    ACCOUNTING ESTIMATES
    Impairment
    of Long-lived Assets and Goodwill
                 32




---



##### 



Valuation
    of Identifiable Intangible Assets
    Income
    Taxes
    Pension
    and Post-retirement Benefit Costs
   33




---



##### 



Environmental
    Clean-up
    Costs
  site-by-site
  Collectibility
    of Accounts Receivable
    INTRODUCTION
    OF NEW ACCOUNTING STANDARDS IN 2008
  Inventories
    Going
    Concern
    Goodwill
    and Intangible Assets
   34




---



##### 



start-up
  NEW
    ACCOUNTING STANDARDS NOT YET ADOPTED
  Credit
    Risk and the Fair Value of Financial Assets and Financial
    Liabilities
    Business
    Combinations
    Consolidated
    Financial Statements and Non-controlling Interests
    Accounting
    Changes
    Financial
    InstrumentsRecognition and Measurement
   35




---



##### 



Financial
    InstrumentsDisclosures
    International
    Financial Reporting Standards
          CONTROLS
    AND PROCEDURES
  Evaluation
    of the Effectiveness of Disclosure Controls and Procedures, and
    Internal Control Over Financial Reporting
       36




---



##### 



Form 40-F,
  Form 40-F
  CHANGES
    IN INTERNAL CONTROL OVER FINANCIAL REPORTING
    RISK
    MANAGEMENT
    (a)
    The markets for some of the Companys products tend to
    be cyclical in nature and prices for some of its products, as
    well as raw materials and energy costs, may fluctuate
    significantly, which can adversely affect its business,
    operating results, profitability and financial position.   37




---



##### 



North
    American Finished Products and Raw Materials Hedging
  Linerboard/old


Old


SortedCorrugated


Corrugated


OfficeContainers Spread


Containers


PaperQuantity hedge


57,000 st



141,000 st



10,800 st% of annual consumption hedged


5.6
%(1)


14
%


3
%Average price

$
US510/ST


$
US134/ST


$
US145/STFair value as of December 31, 2008


(1.5
)


(10.8
)(2)


(0.2
)     (1)
    
    Base on old corrugated containers consumption.(2)
    
    Base on diverse index.  North
    American Electricity Hedging
  United States


CanadaElectricity consumption


30
%


70
%Electricity consumption in a regulated market


58
%


80
%% of consumption hedged in a deregulated market


34
%


22
%Average price

US$
0.083/KWh


$
0.054/KWhFair value as of December 31, 2008


(3.4
)


   North
    American Natural Gas Hedging
  United States


CanadaNatural gas consumption


44
%


56
%% of consumption hedged


45
%


59
%Average price

US$
8.63/mmBtu


$
7.17/GJFair value as of December 31, 2008


(8.3
)


0.7   (b)
    Cascades faces significant competition and some of its
    competitors may have greater cost advantages or be able to
    achieve greater economies of scale or be able to better
    withstand periods of declining prices and adverse operating
    conditions, which could negatively affect the Companys
    market share and profitability.   38




---



##### 




    its ability to maintain high plant efficiencies and operating
    rates, and lower manufacturing costs
    the availability, quality and cost of raw materials,
    particularly recycled and virgin fibre, and labour, and
    the cost of energy.      (c)
    Because of the Companys international operations, it
    faces political, social and exchange rate risks that can
    negatively affect its business, operating results, profitability
    and financial condition.      
    the effective marketing of its products in other countries
    tariffs and other trade barriers, and
    different regulatory schemes and political environments
    applicable to the Companys operations, in areas such as
    environmental and health and safety compliance.   39




---



##### 



North
    American Foreign Exchange Hedging
  Sell Contracts and Options

2009


2010


2013Total amount in $US


114



33



547.5Estimated % of sales, net of expenses from Canadian operations


51
%


15
%


n/aEstimated % of US denominated debt


n/a



n/a



59
%Average rate ($CAN)


1.1257



1.2525



1.154Fair value as at December 31, 2008


(15.1
)


0.1



10.1   (d)
    The Companys operations are subject to comprehensive
    environmental regulation and involve expenditures that may be
    material in relation to its operating cash flow.    
    air emissions
    water discharges
    use and handling of hazardous materials
    use, handling and disposal of waste, and
    remediation of environmental contamination.  2 2
   40




---



##### 




    require site remediation or other costs to maintain compliance
    or correct violations of environmental laws and
    regulations, or
    result in governmental or private claims for damage to person,
    property or the environment.        (e)
    Cascades may be subject to losses that might not be covered
    in whole or in part by its insurance coverage.      (f)
    Labour disputes could have a material adverse effect on the
    Companys cost structure and ability to run its mills and
    plants.   41




---



##### 



(g)
    Cascades may make investments in entities that it does not
    control and may not receive dividends or returns from those
    investments in a timely fashion or at all.    
    three 50%-owned joint ventures with Sonoco Products Company, two
    of which are in Canada and one in the United States, that
    produce specialty paper packaging products such as headers,
    rolls and wrappers
    a 73%-owned interest in Metro Waste, a Canadian operator of
    wastepaper recovery and recycling operations
    a 34% interest in Boralex Inc., a public Canadian corporation
    and an independent producer of electric, thermal and wind power
    with operations in the Province of Québec, the northeastern
    United States and France, and
    a 33.17%-owned joint venture interest in RDM, a European
    manufacturer of recycled boxboard.     42




---



##### 



(h)
    Acquisitions have been and are expected to continue to be a
    substantial part of the Companys growth strategy, which
    could expose the Company to difficulties in integrating the
    acquired operation, diversion of management time and resources,
    and unforeseen liabilities, among other business risks.    
    difficulty in integrating and managing newly-acquired
    operations, and in improving their operating efficiency
    difficulty in maintaining uniform standards, controls,
    procedures and policies across all of the Companys
    businesses
    entry into markets in which Cascades has little or no direct
    prior experience
    the Companys ability to retain key employees of the
    acquired company
    disruptions to the Companys ongoing business and
    diversion of management time and resources.      (i)
    The
    Company undertakes impairment tests, which could result in a
    write-down of the value of assets and, as a result, could have a
    material adverse effect on the Company.    (j)
    Certain
    Cascades insiders collectively own a substantial percentage of
    the Companys common shares.   43




---



##### 




    elect all of the Companys directors and, as a result,
    control matters requiring board approval
    control matters submitted to a shareholder vote, including
    mergers, acquisitions and consolidations with third parties, and
    the sale of all or substantially all of the Companys
    assets and
    otherwise control or influence the Companys business
    direction and policies.    (k)
    If
    Cascades is not successful in retaining or replacing its key
    personnel, particularly if the Lemaires do not stay active in
    the Companys business, its business, financial condition
    or operating results could be adversely affected.    (l)
    Risks
    relating to the Companys indebtedness and
    liquidity  The significant amount of the Companys debt could
    adversely affect its financial health and prevent it from
    fulfilling the Companys obligations under its outstanding
    indebtedness.
      Credit Rating (Outlook)

Moodys

Standard & Poors2004

Ba1/Ba2/Ba3 (stable)

BBB-/BB+/BB+ (negative)2005/2006

Ba1/Ba2/Ba3 (stable)

BB+/BB/BB- (negative)2007

Baa3/Ba2/Ba3 (stable)

BBB-/BB/BB- (stable)2008

Baa3/Ba2/Ba3 (negative)

BB+/BB-/B+ (negative)         
    make it more difficult for the Company to satisfy its
    obligations with respect to its indebtedness 44




---



##### 




    increase the Companys vulnerability to competitive
    pressures and to general adverse economic or market conditions
    and require it to dedicate a substantial portion of its cash
    flow from operations to servicing debt, reducing the
    availability of its cash flow to fund working capital, capital
    expenditures, acquisitions and other general corporate purposes
    limit its flexibility in planning for, or reacting to, changes
    in its business and industry, and
    limit its ability to obtain additional sources of financing.    The
    Companys operations are substantially restricted by the
    terms of its debt, which could limit its ability to plan for or
    react to market conditions, or to meet its capital
    needs.
    
    borrow money
    pay dividends on stock or redeem stock or subordinated debt
    make investments
    sell capital stock in subsidiaries
    guarantee other indebtedness
    enter into agreements that restrict dividends or other
    distributions from restricted subsidiaries
    enter into transactions with affiliates
    create or assume liens
    enter into sale and leaseback transactions
    engage in mergers or consolidations, and
    enter into a sale of all or substantially all of our assets.      The
    Companys failure to comply with the covenants contained in
    its credit facilities and its senior note indenture, as a result
    of events beyond its control or due to other factors, could
    result in an event of default that could cause accelerated
    repayment of the debt.
   45




---



##### 



(m)
    Cascades
    is a holding company and depends on its subsidiaries to generate
    sufficient cash flow to meet its debt service
    obligations.    (n)
    Risks
    related to the common shares  The
    market price of the common shares may fluctuate and purchasers
    may not be able to resell the common shares at or above the
    offering price.
    (o)
    Cash-flow
    and fair-value interest rate risks   46




---



##### 



(p)
    Credit
    risk      SUPPLEMENTAL
    INFORMATION ON NON-GAAP MEASURES
       47




---



##### 



For the YearsEnded December 312008


2007(In millions of Canadian dollars)Net earnings (loss)


(54
)


96Net (earnings) loss from discontinued operations


(18
)


19Non-controlling interest


2



3Share of results of significantly influenced companies and
    dilution gain


(8
)


(27
)Provision for recovery of income taxes


(32
)


11Foreign exchange loss (gain) on long-term debt


24



(59
)Interest expense


102



102Operating income


16



145Specific items:Inventory adjustment resulting from business acquisition


2



6Loss (gain) on disposals


5



(17
)Impairment loss


16



3Closure and restructuring costs


27



6Unrealized loss on financial instruments


27



77



(2
)Operating incomeexcluding specific items


93



143Depreciation and amortization


213



207Operating income before depreciation and
    amortizationexcluding specific items


306



350  48




---



##### 



Net EarningsNet Earnings (Loss)


(Loss) per Share(1)For the Years


For the YearsEnded December 31


Ended December 312008


2007


2008


2007(In millions of Canadian dollars,except amount per share)As per GAAP


(54
)


96


$
(0.55
)

$
0.96Specific items:Inventory adjustment resulting from business acquisition


2



6


$
0.01


$
0.04Loss (gain) on disposals


5



(17
)

$
0.05


$
(0.09
)Impairment loss


16



3


$
0.13


$
0.02Closure and restructuring cost


27



6


$
0.19


$
0.04Unrealized loss on financial instruments


27






$
0.19



Foreign exchange loss (gain) on long-term debt


24



(59
)

$
0.21


$
(0.49
)Share of results of significantly influenced companies and
    dilution gain






(15
)





$
(0.15
)Loss (gain) included in discontinued operations


(23
)


9


$
(0.19
)

$
0.06Ajustment of statutory tax rate






(16
)





$
(0.16
)Tax effect on specific items


(20
)


1058



(73
)

$
0.59


$
(0.73
)Excluding specific items


4



23


$
0.04


$
0.23     (1)
    
    Specific amounts per share are calculated on an after-tax basis.    Cash Flow from


Cash Flow from OperationsOperations (Adjusted)


(Ajusted) per ShareFor the Years


For the YearsEnded December 31


Ended December 312008


2007


2008


2007(In millions of dollars, except amounts per share)Cash flow provided by operating activities


124



89Changes in non-cash working capital components


31



89Cash flow (adjusted) from operations


155



178


$
1.57


$
1.79Specific items:Inventory adjustment resulting from business acquisition


2



6


$
0.02


$
0.06Loss (gain) on disposals and other






12






$
0.12Closure and restructuring costs, net of current income tax


26



6


$
0.26


$
0.06Excluding specific items


183



202


$
1.85


$
2.03  49




---



##### 



For the YearsEnded December 312008


2007(In millions of dollars)Cash flow provided by operating activities


124



89Changes in non-cash working capital components


31



89Depreciation and amortization


(213
)


(207
)Current income taxes


20



33Interest expense (includes interest on long-term debt, other
    interest less interest income and capitalized interest)


102



102Gain (loss) on disposals and other


(5
)


29Impairment loss


(16
)


(3
)Unrealized loss on financial instruments


(27
)


Early retirement of natural gas contracts


(11
)


Other non-cash adjustments


11



13Operating income from continuing operations


16



145Depreciation and amortization


213



207Operating income before depreciation and amortization


229



352  50