Exhibit 99.2  Managements and Auditors Reports  Managements Report The consolidated financial statements for the years ended December 31,
2003 and 2002, are the responsibility of the management of Cascades Inc., and
have been reviewed by the Audit Committee and approved by the Board of
Directors. They were prepared in accordance with accounting principles
generally accepted in Canada and include some amounts, which are based on
managements estimates and judgement. Management is also responsible for all other
information included in this Annual Report and for ensuring that this
information is consistent with the Companys consolidated financial statements
and business activities.  The Management
of the Company is responsible for the design, establishment and maintenance of
appropriate internal controls and procedures for financial reporting, to ensure
that financial statements for external purposes are fairly presented in
conformity with generally accepted accounting principles. Such internal
controls systems are designed to provide reasonable assurance on the
reliability of the financial information and the safeguarding of assets.  External and
internal auditors have free and independent access to the Audit Committee,
which is comprised of outside independent directors. The Audit Committee, which
meets regularly throughout the year with members of the financial management
and the external and internal auditors, reviews the consolidated financial
statements and recommends their approval to the Board of Directors.  The financial
statements have been audited by PricewaterhouseCoopers LLP, whose report is
provided below.  (signed)
  
  (signed)Alain Lemaire
  
  André BelzilePresident and Chief Executive Officer
  
  Vice-President and Chief Financial OfficerKingsey Falls, Canada
  
  Kingsey Falls, CanadaFebruary 25, 2004
  
  February 25, 2004  Auditors Report to the Shareholders of
Cascades Inc.  We have audited the consolidated balance sheets of Cascades Inc. (the
Company) as at December 31, 2003 and 2002 and the consolidated statements of
earnings, retained earnings and cash flows for each of the years in the
three-year period ended December 31, 2003. These financial statements are the
responsibility of the Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.  We conducted
our audits in accordance with Canadian generally accepted auditing standards.
Those standards require that we plan and perform an audit to obtain reasonable
assurance whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.  In our
opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31,
2003 and 2002 and the results of its operations and its cash flows for each of
the years in the three-year period ended December 31, 2003 in accordance with
Canadian generally accepted accounting principles.  /s/ PricewaterhouseCoopers LLPChartered AccountantsMontréal, CanadaFebruary 25, 2004  30 
   Consolidated Financial Statements  Consolidated Balance Sheets  As at
  December 31, 2003 and 2002
  (in millions of Canadian dollars)
  
  Note
  
  2003
  
  2002AssetsCurrent assetsCash and cash equivalents
  
  
  
  27
  
  38Accounts receivable
  
  
  
  494
  
  500Inventories
  
  4
  
  501
  
  4781,022
  
  1,016Property, plant and equipment
  
  5
  
  1,636
  
  1,604Other assets
  
  6
  
  186
  
  260Goodwill
  
  6
  
  83
  
  792,927
  
  2,959Liabilities and Shareholders EquityCurrent liabilitiesBank loans and advances
  
  
  
  43
  
  100Accounts payable and accrued liabilities
  
  
  
  453
  
  483Current portion of long-term debt
  
  7
  
  18
  
  47514
  
  630Long-term debt
  
  7
  
  1,092
  
  1,048Other liabilities
  
  8
  
  265
  
  216Shareholders equityCapital stock
  
  9
  
  264
  
  268Retained earnings
  
  
  
  778
  
  749Cumulative translation adjustments
  
  
  
  14
  
  481,056
  
  1,0652,927
  
  2,959  The accompanying notes are an integral part of these consolidated
financial statements.  Approved by the Board of Directors  (signed)
  
  (signed)Bernard Lemaire
  
  Robert ChevrierDirector
  
  Director  31 
   Consolidated Financial Statements  Consolidated Statements of Retained Earnings  For the
  three-year period ended December 31, 2003
  (in millions of Canadian dollars)
  
  Note
  
  2003
  
  2002
  
  2001BalanceBeginning of yearAs previously reported
  
  
  
  749
  
  615
  
  505Changes in accounting policies
  
  2
  
  
  
  (21
  )
  (10
  )As restated
  
  
  
  749
  
  594
  
  495Net earnings for the year
  
  
  
  55
  
  169
  
  109Dividends on common shares
  
  
  
  (13
  )
  (10
  )
  (9
  )Dividends on preferred shares
  
  
  
  (1
  )
  (1
  )
  (1
  )Excess of common share redemption price on
  their
  paid-up capital
  
  
  
  (2
  )
  (3
  )
  Excess of redemption price of preferred
  shares of a subsidiary on their recorded capital
  
  9(b
  )
  (10
  )
  
  
  BalanceEnd of year
  
  
  
  778
  
  749
  
  594  Consolidated Statements of Earnings  For the
  three-year period ended December 31, 2003
  (in millions of Canadian dollars, except per share amounts)
  
  Note
  
  2003
  
  2002
  
  2001Sales
  
  
  
  3,449
  
  3,591
  
  3,217Cost of delivery
  
  
  
  222
  
  216
  
  194Net sales
  
  
  
  3,227
  
  3,375
  
  3,023Cost of sales and expensesCost of sales
  
  
  
  2,621
  
  2,592
  
  2,325Selling and administrative expenses
  
  
  
  356
  
  359
  
  318Depreciation and amortization
  
  
  
  145
  
  139
  
  1323,122
  
  3,090
  
  2,775Operating income
  
  
  
  105
  
  285
  
  248Interest expense
  
  
  
  83
  
  72
  
  86Foreign exchange loss (gain) on long-term
  debt
  
  
  
  (72
  )
  
  
  14Unusual losses (gains)
  
  11
  
  22
  
  4
  
  (7
  )72
  
  209
  
  155Provision for income taxes
  
  12
  
  14
  
  61
  
  49Share of results of significantly
  influenced companies
  
  10
  
  3
  
  (22
  )
  (3
  )Share of earnings attributed to
  non-controlling interests
  
  
  
  
  
  1
  
  Net earnings for the year
  
  
  
  55
  
  169
  
  109Basic net earnings per common share
  
  9(e
  )
  0.66
  
  2.07
  
  1.33Diluted net earnings per common share
  
  9(e
  )
  0.66
  
  2.05
  
  1.33Weighted average number of common shares
  outstanding during the year
  
  
  
  81,720,379
  
  81,482,507
  
  80,927,164  The accompanying notes are an integral part of these consolidated
financial statements.  32 
   Consolidated Financial Statements  Consolidated Statements of Cash Flows  For the
  three-year period ended December 31, 2003
  (in millions of Canadian dollars)
  
  Note
  
  2003
  
  2002
  
  2001Operating activitiesNet earnings for the year
  
  
  
  55
  
  169
  
  109Adjustments forDepreciation and amortization
  
  
  
  145
  
  139
  
  132Foreign exchange loss (gain) on long-term
  debt
  
  
  
  (72
  )
  
  
  14Unusual losses (gains)
  
  
  
  22
  
  4
  
  (3
  )Future income taxes
  
  
  
  (1
  )
  13
  
  2Share of results of significantly
  influenced companies
  
  
  
  3
  
  (22
  )
  (3
  )Share of earnings attributed to
  non-controlling interests
  
  
  
  
  
  1
  
  Others
  
  
  
  14
  
  9
  
  (2
  )166
  
  313
  
  249Changes in non-cash working capital
  components
  
  13(a
  )
  (26
  )
  12
  
  65140
  
  325
  
  314Investing activitiesPurchases of property, plant and equipment
  
  
  
  (122
  )
  (129
  )
  (116
  )Other assets
  
  
  
  (13
  )
  (21
  )
  (2
  )Business acquisitions, net of cash acquired
  
  3(a
  )
  (31
  )
  (131
  )
  (148
  )Business disposal, net of cash disposed
  
  3(b
  )
  
  
  4
  
  (166
  )
  (277
  )
  (266
  )Financing activitiesBank loans and advances
  
  
  
  (61
  )
  
  
  (16
  )Issuance of senior notes, net of related
  expenses
  
  
  
  974
  
  
  
  Change in revolving credit facilities, net
  of related expenses
  
  
  
  155
  
  
  
  Increase in other long-term debt
  
  
  
  52
  
  89
  
  53Payments of other long-term debt
  
  
  
  (1,054
  )
  (115
  )
  (82
  )Premium paid on redemption of long-term debt
  
  
  
  (16
  )
  
  
  Non-controlling interests
  
  
  
  
  
  (7
  )
  (5
  )Net proceeds from issuances of shares
  
  
  
  2
  
  3
  
  Redemption of common shares and preferred
  shares of a subsidiary
  
  
  
  (20
  )
  (3
  )
  Dividends
  
  
  
  (14
  )
  (11
  )
  (10
  )18
  
  (44
  )
  (60
  )Change in cash and cash equivalents during
  the year
  
  
  
  (8
  )
  4
  
  (12
  )Translation adjustments on cash and cash
  equivalents
  
  
  
  (3
  )
  3
  
  2Cash and cash equivalentsBeginning of year
  
  
  
  38
  
  31
  
  41Cash and cash equivalentsEnd of year
  
  
  
  27
  
  38
  
  31  The accompanying notes are an integral part of these consolidated
financial statements.  33 
   Segmented Information  For the three-year period ended December 31, 2003
(in millions of Canadian dollars)  The Companys operations are organized into and managed by three
segments: packaging products, tissue papers and fine papers. The classification
of these operating segments is based on the primary operations of the main
subsidiaries and joint ventures of the Company.  The Company
analyzes the performance of its operating segments based on their operating
income before depreciation and amortization, which is not a measure of
performance under Canadian generally accepted accounting principles (Canadian
GAAP); however, chief operating decision-makers use this performance measure
for assessing the operating performance of their reportable segments. Earnings
for each segment are prepared on the same basis as those of the Company.
Intersegment operations are recorded on the same basis as sales to third
parties, which is at fair market value.  Net sales of
the Company presented by the reportable segments are as follows:  Net sales  2003
  
  2002
  
  2001Packaging productsBoxboardManufacturing
  
  668
  
  702
  
  660Converting
  
  284
  
  258
  
  225Eliminations and others
  
  2
  
  (2
  )
  (31
  )954
  
  958
  
  854Containerboard(1)Manufacturing
  
  312
  
  346
  
  347Converting
  
  457
  
  468
  
  400Eliminations and others
  
  (191
  )
  (206
  )
  (196
  )578
  
  608
  
  551Specialty products
  
  458
  
  455
  
  444Eliminations
  
  (38
  )
  (40
  )
  (24
  )1,952
  
  1,981
  
  1,825Tissue papersManufacturing
  
  584
  
  600
  
  425Distribution
  
  83
  
  106
  
  105Eliminations
  
  (23
  )
  (24
  )
  (19
  )644
  
  682
  
  511Fine papersManufacturing
  
  357
  
  416
  
  418Distribution
  
  409
  
  419
  
  405Eliminations
  
  (63
  )
  (65
  )
  (77
  )703
  
  770
  
  746Eliminations
  
  (72
  )
  (58
  )
  (59
  )Total
  
  3,227
  
  3,375
  
  3,023  
 (1)The Companys containerboard sub-segment consists
entirely of its interest in Norampac Inc. (Norampac), a joint venture.  34 
   Segmented Information  For the three-year period ended December 31, 2003
(in millions of Canadian dollars)  The operating income before depreciation and amortization and the
depreciation and amortization of the Company presented by the reportable
segments are as follows:  Operating income before depreciation and
amortization and operating income  2003
  
  2002
  
  2001Packaging productsBoxboardManufacturing
  
  37
  
  79
  
  80Converting
  
  15
  
  7
  
  8Others
  
  3
  
  2
  
  (1
  )55
  
  88
  
  87Containerboard(1)Manufacturing
  
  18
  
  47
  
  67Converting
  
  52
  
  50
  
  38Others
  
  11
  
  9
  
  781
  
  106
  
  112Specialty products
  
  38
  
  54
  
  49174
  
  248
  
  248Tissue papersManufacturing
  
  72
  
  128
  
  86Distribution
  
  1
  
  8
  
  1073
  
  136
  
  96Fine papersManufacturing
  
  (5
  )
  27
  
  18Distribution
  
  11
  
  10
  
  136
  
  37
  
  31Corporate
  
  (3
  )
  3
  
  5Operating income before depreciation and
  amortization
  
  250
  
  424
  
  380Depreciation and amortizationBoxboard
  
  (49
  )
  (49
  )
  (47
  )Containerboard
  
  (37
  )
  (37
  )
  (35
  )Specialty products
  
  (21
  )
  (19
  )
  (20
  )Tissue papers
  
  (36
  )
  (32
  )
  (28
  )Fine papers
  
  (11
  )
  (11
  )
  (11
  )Corporate and eliminations
  
  9
  
  9
  
  9(145
  )
  (139
  )
  (132
  )Operating income
  
  105
  
  285
  
  248  
 (1)The Companys containerboard sub-segment
consists entirely of its interest in Norampac, a joint venture.  35 
   Segmented Information  For the three-year period ended December 31, 2003
(in millions of Canadian dollars)  Purchases of property, plant and equipment of the Company presented by
the reportable segments are as follows:  Purchases of property, plant and equipment  2003
  
  2002
  
  2001Packaging productsBoxboardManufacturing
  
  19
  
  18
  
  17Converting
  
  10
  
  7
  
  5Others
  
  5
  
  3
  
  134
  
  28
  
  23Containerboard(1)Manufacturing
  
  14
  
  18
  
  21Converting
  
  13
  
  10
  
  26Others
  
  2
  
  
  
  29
  
  28
  
  47Specialty products
  
  19
  
  20
  
  2082
  
  76
  
  90Tissue papersManufacturing
  
  25
  
  31
  
  16Distribution
  
  
  
  
  
  125
  
  31
  
  17Fine papersManufacturing
  
  7
  
  16
  
  10Distribution
  
  1
  
  1
  
  1Others
  
  2
  
  
  
  10
  
  17
  
  11Corporate
  
  5
  
  5
  
  4Total
  
  122
  
  129
  
  122  
 (1)The Companys containerboard sub-segment
consists entirely of its interest in Norampac, a joint venture.  36 
   Segmented Information  For the three-year period ended December 31, 2003
(in millions of Canadian dollars)  Identifiable assets and goodwill of the Company presented by the
reportable segments are as follows:  Identifiable assets  2003
  
  2002Packaging productsBoxboard
  
  946
  
  829Containerboard(1)
  
  717
  
  746Specialty products
  
  390
  
  3892,053
  
  1,964Tissue papers
  
  546
  
  609Fine papers
  
  363
  
  371Corporate
  
  114
  
  84Consolidation revaluation(2)
  
  (192
  )
  (205
  )Intersegment eliminations
  
  (51
  )
  (48
  )2,833
  
  2,775Investments
  
  94
  
  184Total assets
  
  2,927
  
  2,959  Goodwill  2003
  
  2002Packaging productsBoxboard
  
  5
  
  Containerboard(1)
  
  99
  
  101Specialty products
  
  7
  
  7111
  
  108Tissue papers
  
  10
  
  10Fine papers
  
  4
  
  4Consolidation revaluation(2)
  
  (42
  )
  (43
  )Total
  
  83
  
  79  
 (1)The Companys containerboard sub-segment
consists entirely of its interest in Norampac, a joint venture. (2)Consolidation revaluation includes
adjustments of assets resulting from business acquisitions. It also includes
the required adjustments resulting from the creation of Norampac, consisting
mainly of reduction in property, plant and equipment and goodwill. The
following table details the components of the consolidation revaluation
relating to identifiable assets:  2003
  
  2002Privatization of subsidiaries(a)
  
  (48
  )
  (52
  )Creation of Norampac(b)
  
  (80
  )
  (85
  )Creation of Norampac(c)
  
  (50
  )
  (55
  )Other
  
  (14
  )
  (13
  )(192
  )
  (205
  )  
 (a)Represents the impact of the privatization of
certain subsidiaries of the Company on December 31, 2000. The adjustment also
reflects the accounting impact of the privatization of Cascades S.A. in 2002. (b)With respect to the creation of Norampac, the
assets and liabilities that were contributed by the Company and Domtar Inc.,
the Companys joint venture partner in Norampac, were recorded at their fair
market value. However, upon proportionate consolidation of the joint venture,
the Company reduced its portion of the contributed assets and liabilities to
their original carrying value. (c)A portion of the gain realized on the
creation of Norampac was recognized against property, plant and equipment and
goodwill. The net book value of the deferred gain allocated against goodwill
was $22 million. For the years ended December 31, 2003 and 2002, the net book
value of the deferred gain allocated against goodwill was $17 million and $18
million, respectively.  The amounts shown for identifiable assets include a reduction of
goodwill for the years ended December 31, 2003 and 2002 amounting to $42
million and $43 million, respectively, which is shown separately in the table
above under goodwill.  37 
   Segmented Information  For the three-year period ended December 31, 2003
(in millions of Canadian dollars)  Sales, property, plant and equipment and goodwill of the Company presented
by the geographic segments are as follows:  2003
  
  2002
  
  2001By geographic segmentSalesCanadaWithin Canada
  
  1,660
  
  1,747
  
  1,659To the United States
  
  540
  
  636
  
  656Offshore
  
  51
  
  47
  
  472,251
  
  2,430
  
  2,362United StatesWithin the United States
  
  614
  
  596
  
  341To Canada
  
  36
  
  20
  
  9Offshore
  
  
  
  2
  
  650
  
  618
  
  350EuropeWithin Europe
  
  461
  
  460
  
  436To the United States
  
  8
  
  10
  
  10To other countries
  
  77
  
  71
  
  58546
  
  541
  
  504Mexico
  
  2
  
  2
  
  1Total
  
  3,449
  
  3,591
  
  3,217  2003
  
  2002Property, plant and equipmentCanada
  
  1,013
  
  1,003United States
  
  399
  
  361Europe
  
  224
  
  239Mexico
  
  
  
  1Total
  
  1,636
  
  1,604  2003
  
  2002GoodwillCanada
  
  60
  
  58United States
  
  23
  
  21Total
  
  83
  
  79  38 
   Notes to Consolidated Financial Statements  For the three-year period ended December 31, 2003
(tabular amounts in millions of Canadian dollars)  1 Accounting policies  Basis of presentation  The consolidated financial statements have been prepared in accordance
with Canadian GAAP and include the significant accounting policies listed
below.  Basis of consolidation  The consolidated financial statements include the accounts of the
Company and its subsidiaries. They also include the portion of the accounts of
the joint ventures accounted for through the proportionate consolidation
method. Investments in significantly influenced companies are accounted for
using the equity method.  Use of estimates  The preparation of financial statements in conformity with Canadian
GAAP requires the use of estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingencies at the
balance sheet date, as well as the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those estimates.
These estimates are reviewed periodically and, as adjustments become necessary,
are reported in earnings in the period in which they are known.  Revenue recognition  The Company recognizes its sales when goods are shipped and when the
significant risks and benefits of ownership are transferred.  Fair market value of financial instruments  The Company has estimated the fair market value of its financial
instruments based on current interest rates, market value and current pricing
of financial instruments with similar terms. Unless otherwise disclosed herein,
the carrying value of these financial instruments, especially those with
current maturities such as cash and cash equivalents, accounts receivable, bank
loans and advances, and accounts payable and accrued liabilities, approximates
their fair market value.  Derivative financial instruments  The Company uses derivative financial instruments in the management of
its foreign currency, commodity and interest rate exposures. Except for certain
interest rate swap agreements, the Companys policy is not to utilize
derivative financial instruments for trading or speculative purposes.  The Company
documents all relationships between hedging instruments and hedged items, as
well as its risk management objective and strategy for undertaking various
hedge transactions. This process includes linking all derivatives to specific
assets and liabilities on the balance sheet or to specific firm commitments or
forecasted transactions. The Company also assesses whether the derivatives that
are used in hedging transactions are effective in offsetting changes in fair
values or cash flows of hedged items.  Foreign exchange forward contracts   In order to reduce the potential adverse
effects of currency fluctuation, the Company enters into various foreign
exchange forward contracts. Foreign exchange translation gains and losses on
foreign currency denominated derivative financial instruments used to hedge
anticipated sales or purchases denominated in foreign currencies are recognized
as an adjustment of the sales or cost of sales when the sale or purchase is
recorded.  Commodity contracts   The Company enters into swap and forward
contracts whereby it may set the price on notional quantities of certain raw
materials or finished goods in order to reduce the potential adverse effects of
changes in the cost of its raw materials or in the selling prices of its
finished goods. Realized or unrealized gains and losses arising from these
contracts are recognized in sales or cost of sales when the sale or purchase of
the underlying commodity is recorded.  39 
   Notes to Consolidated Financial Statements  For the three-year period ended December 31, 2003
(tabular amounts in millions of Canadian dollars)  Interest rate swap agreements   The Company also enters into interest rate
swap agreements in order to reduce the impact of fluctuating interest rates on
a portion of its long-term debt. These swaps require the periodic exchange of
payments without the exchange of the notional principal amount on which the
payments are based. The Company designates these interest rate swap agreements
as hedges of the underlying debt. Interest expense on the debt is adjusted to
include the payments made or received under the interest rate swaps designated
as hedges.  Others   Realized and unrealized gains or losses
associated with derivative financial instruments, which have been terminated or
cease to be effective prior to maturity, are deferred under current or
long-term assets or liabilities and recognized in earnings in the period in
which the underlying original hedged transaction is recognized. In the event a
designated hedged item is sold, extinguished or matures prior to the
termination of the related derivative financial instrument, any realized or unrealized
gain or loss on such derivative financial instrument is recognized in earnings.  Derivative
financial instruments which are not designated as hedges or have ceased to be
effective prior to maturity are recorded at their estimated fair values under
current or long-term assets or liabilities with changes in their estimated fair
values recorded in earnings. Estimated fair value is determined using pricing
models incorporating current market prices and the contractual prices of the
underlying instruments, the time value of money and yield curves.  Cash and cash equivalents  Cash and cash equivalents include cash on hand, bank balances and
short-term liquid investments with original maturities of three months or less.  Inventories  Inventories of finished goods are valued at the lower of average
production cost and net realizable value. Inventories of raw materials and
supplies are valued at the lower of cost and replacement value. Cost of raw
materials and supplies is determined using the average cost and the first-in,
first-out methods respectively.  Property, plant and equipment, depreciation
and amortization  Property, plant and equipment are recorded at cost, including interest
incurred during the construction period of certain property, plant and equipment.
Depreciation and amortization are calculated on a straight-line basis at annual
rates varying from 3% to 5% for buildings, 5% to 10% for machinery and
equipment, and 15% to 20% for automotive equipment, determined according to the
estimated useful life of each class of property, plant and equipment.  Grants and investment tax credits  Grants and investment tax credits are accounted for using the cost
reduction method and are amortized to earnings as a reduction of depreciation
and amortization, using the same rates as those used to amortize the related
property, plant and equipment.  Other investments  Other investments are recorded at cost except when there is a decline
in value which is other than temporary, in which case they are reduced to their
estimated net realizable value.  Goodwill  The Company assesses periodically whether a provision for impairment in
the value of goodwill is required. This is accomplished mainly by determining
whether projected discounted future cash flows exceed the net book value of
goodwill of the respective business units. Goodwill is tested for impairment
annually on December 31, or when an event or circumstance occurs that could
potentially result in a permanent decline in value.  40 
   Notes to Consolidated Financial Statements  For the three-year period ended December 31, 2003
(tabular amounts in millions of Canadian dollars)  Deferred charges  Deferred charges are recorded at cost and include, in particular, the
issuance costs of long-term debt, which are amortized on a straight-line basis
over the anticipated period of repayment of the respective debt, and start-up
costs which are amortized on a straight-line basis over a period of three to
five years from the end of the start-up period.  Environmental costs  Environmental expenditures, including site rehabilitation costs, are
expensed or capitalized depending upon their future economic benefit.
Expenditures incurred to prevent future environmental contamination are capitalized
and amortized on a straight-line basis at annual rates varying from 3% to 10%.
Expenditures that relate to an existing condition caused by past operations,
and which do not contribute to current or future revenue generation, are
expensed. A provision for environmental costs is recorded when it is probable
that a liability has been incurred and the costs can be reasonably estimated.  Employee future benefits  Certain subsidiaries and joint ventures of the Company maintain defined
benefit pension plans which provide retirement benefits for certain employees,
based upon the length of service and, in certain cases, the final average
earnings of the employee. In addition, certain employees, are members of
defined contribution pension plans and group registered retirement savings
plans (RRSPs). The Company and its subsidiaries and joint ventures also
provide to their employees complementary retirement benefits and other
post-employment benefits, such as group life insurance and medical and dental
care plans.  The cost of
pensions and other retirement benefits earned by employees is actuarially
determined using the projected benefit method prorated on years of service and
managements best estimate of expected plan investment performance, salary
escalations, retirement ages of employees and expected health care costs.  For the
purpose of calculating the expected return on plan assets, those assets are
valued at fair value. Past service costs arising from a plan amendment are
amortized on a straight-line basis over the average remaining service period of
the group of employees active at the date of the amendment. The excess of the
net actuarial gain or loss over the greater of (a) 10% of the benefit
obligation at the beginning of the year, and (b) 10% of the fair value of plan
assets at the beginning of the year, is amortized over the average remaining
service period of active employees.  Income taxes  The Company uses the liability method in accounting for income taxes.
According to this method, future income taxes are determined using the
difference between the accounting and tax bases of assets and liabilities.
Future income tax assets and liabilities are measured using substantively
enacted tax rates in effect in the year in which these temporary differences are
expected to be recovered or settled. Future income tax assets are recognized
when it is more likely than not that the assets will be realized.  Foreign currency translation  Foreign currency transactions   Transactions denominated in foreign
currencies are recorded at the rate of exchange prevailing at the transaction
date. Monetary assets and liabilities denominated in foreign currencies are
translated at the rate of exchange prevailing at the balance sheet date. Gains
and losses related to the portion of the long-term debt designated as a hedge
of the net investment of the Company in self-sustaining operations are recorded
in the cumulative translation adjustments. Unrealized gains and losses on
translation of other monetary assets and liabilities are reflected in the
determination of the net results for the year.  Foreign operations   The Companys foreign operations are
defined as self-sustaining. The assets and liabilities of these operations are
translated into Canadian dollars at the rate of exchange prevailing at the
balance sheet date. Revenue and expenses are translated at the average exchange
rate for the year. Translation gains and losses are deferred and shown as a
separate component of shareholders equity as cumulative translation adjustments.  41 
   Notes to Consolidated Financial Statements  For the three-year period ended December 31, 2003
(tabular amounts in millions of Canadian dollars)  Stock-based compensation  The Company applies the fair value method of accounting for stock-based
compensation awards granted to officers and key employees. This method consists
of recording expenses to earnings based on the vesting period of the options
granted. The fair value is calculated based on the Black-Scholes option pricing
model. This model was developed for use in estimating the fair value of traded
options that have no vesting restrictions and are fully transferable. When
stock options are exercised, any consideration paid by employees is credited to
capital stock.  Amounts per common share  Amounts per common share are determined using the weighted average
number of common shares outstanding during the year. Diluted amounts per common
share are determined using the treasury stock method to evaluate the dilutive
effect of stock options, convertible instruments and equivalents, when
applicable. Under this method, instruments with a dilutive effect, basically
when the average market price of a share for the period exceeds the exercise
price, are considered to have been exercised at the beginning of the period and
the proceeds received are considered to have been used to redeem common shares
of the Company at the average market price for the period.  2 Changes in accounting policies  a) Guarantees  On January 1, 2003, the Company adopted the new guideline of the
Canadian Institute of Chartered Accountants (CICA) regarding the disclosure
of guarantees. Under this new guideline, entities are required to disclose key
information about certain types of guarantee contracts that require payments
contingent on specified types of future events. Disclosures include the nature
of the guarantee, how it arose, the events or circumstances that would trigger
performance under the guarantee, maximum potential future payments under the
guarantee, the carrying amount of the related liability and information about
recourse or collateral. Note 15(b) provides the required disclosure.  b) Long-lived and discontinued operations  The Company adopted the new guideline of the CICA regarding the
disposal of long-lived assets and discontinued operations, which applies to
disposal activities initiated on or after May 1, 2003. This new section sets
standards for recognition, measurement, presentation and disclosure of the
disposal of long-lived assets. It also sets standards for the presentation and
disclosure of discontinued operations. The adoption of this standard did not
impact the consolidated financial statements.  c) Goodwill and other intangible assets  The Company adopted the new recommendations of the CICA regarding
goodwill and other intangible assets. Under the new recommendations, goodwill
and intangible assets with indefinite life are no longer amortized and are
tested for impairment annually based on their fair value. Intangible assets
with definite useful lives continue to be amortized. However, no ceiling is
placed on the useful lives. These definite-life intangible assets are subject
to impairment review in accordance with existing standards. Upon adoption of
this recommendation, goodwill was tested for impairment as at January 1, 2002.
As a result of the tests performed, the Company concluded that no write-down
was necessary of goodwill as no impairment existed as at January 1, 2002.  d) Foreign currency translation  On January 1, 2002, the Company adopted retroactively with restatement
of the comparative figures the new recommendations of the CICA regarding
foreign currency translation. The new recommendations eliminate the deferral
and amortization of exchange gains and losses arising from the translation of
long-term debt and other similar monetary items. This change resulted in a
decrease in other assets and in retained earnings of $21 million as at January
1, 2002 and $10 million as at January 1, 2001. It also resulted in a decrease
in net earnings of $11 million ($0.14 per share) for the year ended December
31, 2001.  42 
   Notes to Consolidated Financial Statements  For the three-year period ended December 31, 2003
(tabular amounts in millions of Canadian dollars)  e) Stock-based compensation  On January 1, 2002, the Company adopted the new recommendations of the
CICA regarding stock-based compensation. Under this new standard, stock options
are to be recorded under the fair value method, which consists of recording
expenses based on the vesting period of the options granted. In accordance with
the transitional provisions of these new recommendations, the Company applied
the fair value method to stock options granted to its employees and those of
its joint ventures after January 1, 2002.  Accounting pronouncements not yet implemented  f) Hedging relationships  On January 1, 2004, the Company applied Accounting Guideline 13
(AcG-13) regarding hedge accounting. In compliance with the criteria required
by AcG-13, hedge accounting requires the Company to document the risk
management strategy used. Upon executing a hedging contract, management
documents the hedged item, namely asset, liability or anticipated transaction,
the characteristics of the hedging instrument used and the selected method of
assessing effectiveness. The current accounting policy will be maintained for
hedging relationships deemed to be effective. Consequently, realized and
unrealized gains and losses on hedges will continue to be deferred until the
hedged item is realized so as to allow matching of the designations in the
statement of earnings. When hedging relationships cease, the Company will use
the same accounting policies as those used for the year ended December 31,
2003. Hedge accounting will be applied as at January 1, 2004 for hedging
relationships existing as at December 31, 2003 that meet the conditions of
AcG-13. Hedging relationships existing as at December 31, 2003 that do not meet
the conditions of AcG-13 will be recorded at fair value as at January 1, 2004,
resulting in an increase in assets of $3.7 million and in liabilities of $0.1
million. The related unrealized gain of $3.6 million will be deferred and
presented under other liabilities on the balance sheet.  g) Asset retirement obligations  In March 2003, the CICA issued Section 3110, Asset Retirement Obligations, which will
be implemented by the Company on January 1, 2004. This standard requires that
the fair value of a liability for an asset obligation be recognized in the
period in which it is incurred if a reasonable estimate of fair value can be
made. The application of this standard will not have any significant impact on
the financial position or results of operations of the Company.  h) Variable interest entities  In June 2003, the CICA issued Accounting Guideline 15 (AcG-15), Consolidation of variable interest entities.
The new guideline requires companies to identify variable interest entities in
which they have an interest to determine whether they are the primary
beneficiary of such entities and, if so, to consolidate them. A variable
interest entity is defined as an entity in which the equity is not sufficient
to permit that entity to finance its activities without external support, or
the equity investors lack either voting control and the obligation to absorb
future losses or the right to receive future returns. Recently, the CICA
announced the deferral of the effective date of AcG-15 as it expects to make
certain amendments. Previously, AcG-15 was to be effective for interim and
annual periods starting on or after January 1, 2004. It is currently expected
to be effective for interim and annual periods beginning on or after November
1, 2004. Early adoption is still permitted. The application of this standard
will not have any impact on the financial position or results of operations of
the Company.  i) Generally accepted accounting principles  In July 2003, the CICA issued Section 1100, Generally Accepted Accounting Principles, and Section 1400,
General Standards for Financial Statement
Presentation, which are effective for fiscal years beginning on or
after October 1, 2003. Section 1100 clarifies the relative authority of various
accounting pronouncements and other sources of guidance within GAAP, whereas
Section 1400 clarifies what constitutes a fair presentation in accordance with
GAAP. In addition, under Section 1100, industry practice no longer plays a role
in establishing GAAP. As a result, the cost of delivery, which had been
subtracted from sales in accordance with industry practice, will no longer be
subtracted from sales, but rather will be included in cost of goods sold.  43 
   Notes to Consolidated Financial Statements  For the three-year period ended December 31, 2003
(tabular amounts in millions of Canadian dollars)  3 Business acquisitions and disposal  a) Acquisitions  On March 6, 2003, the Company acquired 50% of the assets of La
Compagnie Greenfield S.A. in its packaging products group for $0.6 million
(0.3 million). On April 14, 2003, a joint venture of the Company acquired a
corrugated products converting plant in its packaging products group, located
in Schenectady, New York. The aggregate purchase price, subject to certain
adjustments, is $32 million (US$22 million) and is comprised of $20 million
(US$14 million) in cash and all the operating assets of its Dallas-Fort Worth,
Texas plant valued at $12 million (US$8 million). The Companys 50% share in
the cash portion of the purchase price amounted to $10 million (US$7 million).  On October 1,
2003, the Company increased its investment from 40% to 50% in Dopaco, Inc., a
U.S. producer of boxboard packaging for the quick-service restaurant industry,
for a consideration of $17 million (US$12.4 million). The balance sheet and
results of Dopaco, Inc. are proportionally consolidated since October 1, 2003.  On December
22, 2003, the Company completed the acquisition of all shares in Scierie P. H.
Lemay ltée, a Canadian company operating a sawing and a planing plant for a
consideration of $3 million. Prior to this transaction, the Company had a 50%
holding in the company.  On January 2,
2002, one of the Companys joint ventures increased its investment in Metro
Waste Paper Recovery Inc. (Metro Waste), another joint venture, in exchange
for assets having a net value of $6 million. On January 21, 2002, one of the
Companys joint ventures acquired Star Leominster in the packaging products
segment for $50 million (US$31 million), the Companys share amounting to $25
million (US$15.5 million). On March 27, 2002, the Company acquired converting
operations from American Tissue in the tissue papers segment for an amount of
$30 million (US$19 million). On June 14, 2002, the Company completed the
acquisition of two manufacturing units of American Tissue for a consideration
of $66 million (US$43 million). Other acquisitions and price adjustments on
prior transactions amounted to $10 million.  On March 1,
2001, the Company acquired a folding carton plant in the packaging products
segment (Crown Packaging  Boxboard) from Crown Packaging Ltd. and 428959
B.C. Ltd. for a cash consideration of $11 million. On April 2, 2001, one of the
Companys joint ventures acquired all the assets of a containerboard mill and
eight paper recovery plants in the packaging products segment (Crown
PackagingContainerboard) from Crown Packaging Ltd. and 428959 B.C. Ltd. for a
cash consideration of $50 million, the Companys share amounting to $25 million.
On September 11, 2001, the Company acquired the assets of two production
facilities in the tissue paper segment from Plainwell Inc. (Plainwell) for a
cash consideration of $90 million (US$57 million). On November 12, 2001, one of
the Companys joint ventures acquired all the issued and outstanding shares of
Star Corrugated Box Co. (Star) in the packaging products segment for a cash
consideration of $44 million (US$28 million), the Companys share amounting to
$22 million (US$14 million). With respect to the latter, the joint venture may
pay additional consideration of $5 million (US$3 million) if certain specific
earnings objectives are met, the Companys share amounting to $2.5 million
(US$1.5 million).  These
acquisitions have been accounted for using the purchase method and the accounts
and results of operations of these entities have been included in the
consolidated financial statements since their respective dates of acquisition.
The following allocations of the purchase prices to the identifiable assets
acquired and liabilities assumed resulted in goodwill of $7 million as at
December 31, 2003 (2002$17 million; 2001$5 million). None of the
above-mentioned goodwill is expected to be deductible for tax purposes with the
exception of an amount of $4 million as at December 31, 2003.  44 
   Notes to Consolidated Financial Statements  For the three-year period ended December 31, 2003
(tabular amounts in millions of Canadian dollars)  Greenfield
  
  Schenectady
  
  Dopaco
  
  Scierie
  Lemay2003
  
  Packaging
  products
  
  Packaging
  products
  
  Packaging
  products
  
  Packaging
  products
  
  TotalAccounts receivable
  
  
  
  2
  
  19
  
  4
  
  25Inventories
  
  2
  
  2
  
  27
  
  9
  
  40Property, plant and equipment
  
  
  
  11
  
  107
  
  16
  
  134Other assets
  
  
  
  
  
  10
  
  4
  
  14Goodwill
  
  
  
  2
  
  4
  
  1
  
  72
  
  17
  
  167
  
  34
  
  220Bank loans and advances
  
  
  
  
  
  
  
  (5
  )
  (5
  )Accounts payable and accrued liabilities
  
  (1
  )
  (1
  )
  (22
  )
  (6
  )
  (30
  )Long-term debt
  
  
  
  
  
  (14
  )
  (10
  )
  (24
  )Other liabilities
  
  
  
  
  
  (32
  )
  (3
  )
  (35
  )1
  
  16
  
  99
  
  10
  
  126Less: Fair market value of assets exchanged
  
  
  
  (6
  )
  
  
  
  
  (6
  )Less: Investments realized in prior years
  
  
  
  
  
  (82
  )
  (7
  )
  (89
  )Total consideration
  
  1
  
  10
  
  17
  
  3
  
  31  American
  Tissue
  
  Star
  Leominster
  
  Metro
  Waste
  
  Others2002
  
  Tissue
  paper
  
  Packaging
  products
  
  Packaging
  products
  
  
  
  TotalAccounts receivable
  
  
  
  3
  
  2
  
  6
  
  11Inventories
  
  
  
  2
  
  
  
  3
  
  5Property, plant and equipment
  
  92
  
  9
  
  4
  
  13
  
  118Other assets
  
  4
  
  
  
  
  
  
  
  4Goodwill
  
  
  
  15
  
  2
  
  
  
  1796
  
  29
  
  8
  
  22
  
  155Accounts payable and accrued liabilities
  
  
  
  (2
  )
  (2
  )
  (3
  )
  (7
  )Other liabilities
  
  
  
  (2
  )
  
  
  
  
  (2
  )96
  
  25
  
  6
  
  19
  
  146Less: Fair market value of assets exchanged
  
  
  
  
  
  (6
  )
  
  
  (6
  )Less: Investments realized in prior years
  
  
  
  
  
  
  
  (9
  )
  (9
  )Total consideration
  
  96
  
  25
  
  
  
  10
  
  131  45 
   Notes to Consolidated Financial Statements  For the three-year period ended December 31, 2003
(tabular amounts in millions of Canadian dollars)  Plainwell
  
  Star
  
  Crown
  Packaging
  Boxboard
  
  Crown
  Packaging
  Containerboard2001
  
  Tissue
  paper
  
  Packaging
  products
  
  Packaging
  products
  
  Packaging
  products
  
  TotalAccounts receivable
  
  16
  
  7
  
  4
  
  5
  
  32Inventories
  
  16
  
  2
  
  5
  
  4
  
  27Property, plant and equipment
  
  68
  
  18
  
  5
  
  24
  
  115Goodwill
  
  
  
  5
  
  
  
  
  
  5100
  
  32
  
  14
  
  33
  
  179Accounts payable and accrued liabilities
  
  (10
  )
  (6
  )
  (3
  )
  (8
  )
  (27
  )Other liabilities
  
  
  
  (4
  )
  
  
  
  
  (4
  )Total consideration
  
  90
  
  22
  
  11
  
  25
  
  148  b) Disposal  In 2002, the Company sold its retail egg carton operation (packaging
products segment) located in Canada for a cash consideration of $4 million.  4 Inventories  2003
  
  2002Finished goods
  
  260
  
  257Raw materials
  
  104
  
  89Supplies
  
  137
  
  132501
  
  478  5 Property, plant and equipment  2003
  
  Cost
  
  Accumulated
  depreciation and
  amortization
  
  NetLands
  
  53
  
  
  
  53Buildings
  
  431
  
  129
  
  302Machinery and equipment
  
  2,271
  
  1,047
  
  1,224Automotive equipment
  
  53
  
  40
  
  13Others
  
  51
  
  7
  
  442,859
  
  1,223
  
  1,636  2002
  
  Cost
  
  Accumulated
  depreciation and
  amortization
  
  NetLands
  
  54
  
  
  
  54Buildings
  
  421
  
  116
  
  305Machinery and equipment
  
  2,085
  
  896
  
  1,189Automotive equipment
  
  49
  
  36
  
  13Others
  
  49
  
  6
  
  432,658
  
  1,054
  
  1,604  46 
   Notes to Consolidated Financial Statements  For the three-year period ended December 31, 2003
(tabular amounts in millions of Canadian dollars)  Property, plant and equipment
include assets under capital leases with a cost of $13 million and accumulated
amortization of$4
million as at December 31, 2003 (2002$32 million and $16 million
respectively). Other property, plant and equipment include items that are not
amortized, such as machinery and equipment in the process of installation with
a book value of $23 million (2002$20 million), deposits on purchases of
property, plant and equipment amounting to $2 million (2002$2 million) and
unused properties, machinery and equipment with a net book value of $15 million
(2002$17 million) which does not exceed their estimated net realizable value.  Depreciation and amortization
of property, plant and equipment amounted to $141 million for the year ended
December 31, 2003 (2002$131 million; 2001$119 million).  6 Other assets and goodwill  a) Other assets are detailed as follows:  Note
  
  2003
  
  2002Investments in significantly
  influenced companies
  
  
  
  85
  
  176Other investments
  
  
  
  9
  
  8Deferred charges
  
  6(d
  )
  36
  
  21Employee future benefits
  
  14(b
  )
  50
  
  52Other definite-life intangible assets
  
  6(d
  )
  6
  
  3186
  
  260  b) Goodwill fluctuated as
follows:  Packaging
  products2003
  
  Boxboard
  
  Containerboard
  
  Specialty
  products
  
  Sub-total
  
  Tissue
  papers
  
  TotalCarrying value of goodwillBeginning of period
  
  
  
  67
  
  2
  
  69
  
  10
  
  79Goodwill resulting from acquisitions
  
  5
  
  2
  
  
  
  7
  
  
  
  7Amortization of a deferred
  gain(1)
  
  
  
  1
  
  
  
  1
  
  
  
  1Foreign currency translation adjustment
  
  
  
  (4
  )
  
  
  (4
  )
  
  
  (4
  )Carrying value of goodwillEnd of period
  
  5
  
  66
  
  2
  
  73
  
  10
  
  83  Packaging
  products2002
  
  Boxboard
  
  Containerboard
  
  Specialty
  products
  
  Sub-total
  
  Tissue
  papers
  
  TotalCarrying value of goodwillBeginning of period
  
  1
  
  49
  
  8
  
  58
  
  10
  
  68Reclassification to definite-life intangible
  assets
  
  (1
  )
  
  
  (3
  )
  (4
  )
  
  
  (4
  )Goodwill resulting from acquisitions
  
  
  
  17
  
  
  
  17
  
  
  
  17Amortization of a deferred
  gain(1)
  
  
  
  1
  
  
  
  1
  
  
  
  1Decrease in goodwill resulting from
  disposal of a facility(2)
  
  
  
  
  
  (3
  )
  (3
  )
  
  
  (3
  )Carrying value of goodwillEnd of period
  
  
  
  67
  
  2
  
  69
  
  10
  
  79  
 (1)On December 30, 1997, the Company and Domtar
Inc. merged their respective containerboard and corrugated packaging operations
to form Norampac, a 50-50 joint venture. 
A portion of the gain realized on the transaction was recorded against
property, plant and equipment and goodwill. 
Under current accounting standards, the portion of deferred gain
allocated to goodwill is amortized on a straight-line basis over a period of 25
years. (2)In 2002, as described in note 3(b), the
Company disposed of its retail egg carton operation located in Canada. The
amount of $3 million represents the carrying value of the goodwill allocated to
this facility prior to the disposal.  47 
   Notes to Consolidated Financial Statements  For the three-year period ended December 31, 2003
(tabular amounts in millions of Canadian dollars)  c) The following table presents
a reconciliation of reported net earnings to adjusted net earnings as required
by the transitional provisions of the new recommendation of the CICA regarding
goodwill, implemented as at January 1, 2002 as described in note 2(c).  2003
  
  2002
  
  2001Reported net earnings
  
  55
  
  169
  
  109Adjustment:Goodwill amortization, net of related
  income taxes
  
  
  
  
  
  3Adjusted net earnings
  
  55
  
  169
  
  112Adjusted basic net earnings per common
  share
  
  0.66
  
  2.07
  
  1.37Adjusted diluted net earnings per common
  share
  
  0.66
  
  2.05
  
  1.37  d) Deferred charges and other
definite-life intangible assets are detailed as follows:  2003
  
  2002Cost
  
  Accumulated
  depreciation and
  amortization
  
  Net
  
  Cost
  
  Accumulated
  depreciation and
  amortization
  
  NetDeferred chargesStart-up cost
  
  31
  
  26
  
  5
  
  29
  
  23
  
  6Financing costs
  
  36
  
  10
  
  26
  
  17
  
  9
  
  8Other
  
  9
  
  4
  
  5
  
  13
  
  6
  
  776
  
  40
  
  36
  
  59
  
  38
  
  21Other definite-life intangible assets
  
  11
  
  5
  
  6
  
  6
  
  3
  
  3  Depreciation
and amortization of deferred charges and other definite-life intangible assets
amounted to $5 million for the year ended December 31, 2003 (2002$9 million;
2001$8 million).  The weighted
average amortization period is as follows (in number of years):  Start-up cost
  
  4Financing costs
  
  9Other
  
  7Deferred charges
  
  8Other definite-life intangible assets
  
  18  The estimated aggregate amount
of depreciation and amortization expense in each of the next five years is as
follows:  Years ending December 31,
  
  2004
  
  72005
  
  62006
  
  52007
  
  42008
  
  4  48 
   Notes to Consolidated Financial Statements  For the three-year period ended December 31, 2003
(tabular amounts in millions of Canadian dollars)  7
Long-term debt  Note
  
  2003
  
  2002Cascades Inc. and its subsidiariesRevolving credit facility, weighted average
  rate of 4.11% as at December 31, 2003, maturing in February 2007
  
  7(a
  )
  168
  
  7.25% Unsecured senior notes of US$550 million,
  maturing in 2013
  
  7(a), (d
  )
  711
  
  Redeemable preferred shares
  
  7(b
  )
  
  
  518.375% Senior notes, reimbursed during the
  year
  
  7(a
  )
  
  
  197Revolving credit facilities, reimbursed
  during the year
  
  7(a
  )
  
  
  502Other debts, reimbursed during the year
  
  7(a
  )
  
  
  114Capital lease obligations
  
  7(d), (h
  )
  13
  
  14Other debts
  
  
  
  23
  
  9915
  
  887Less: Current portion
  
  
  
  10
  
  22905
  
  865  Joint
ventures  The Companys proportionate
share of the following debts of joint ventures do not give to their holders any
recourse against the assets or general credit of Cascades Inc. and its
subsidiaries.  Note
  
  2003
  
  2002Revolving credit facility, weighted average
  rate of 3.97% as at December 31, 2003, maturing in May 2008
  
  7(c
  )
  11
  
  6.75% Unsecured senior notes of US$250
  million, maturing in 2013
  
  7(c), (d
  )
  161
  
  Revolving credit facilities, reimbursed
  during the year
  
  7(c
  )
  
  
  199.50% and 9.375% Senior notes, reimbursed
  during the year
  
  7(c
  )
  
  
  169Capital lease obligations
  
  7(d), (h
  )
  
  
  7Other debts
  
  
  
  23
  
  13195
  
  208Less: Current portion
  
  
  
  8
  
  25187
  
  183TotalLong-term debt
  
  
  
  1,110
  
  1,095Less: Current portion
  
  
  
  18
  
  471,092
  
  1,048  49 
   Notes to Consolidated Financial Statements  For the three-year period ended December 31, 2003
(tabular amounts in millions of Canadian dollars)  a) On February 5, 2003, the
Company completed a series of transactions to refinance substantially all of
its existing credit facilities, except those of its joint ventures. It secured
a new four-year revolving credit facility of CAN$500 million. Its obligations
under this new revolving credit facility are secured by all inventory and
receivables of Cascades and its North American subsidiaries and by the
property, plant and equipment of three of its mills. In addition, it issued new
unsecured senior notes for an aggregate amount of US$450 million. These notes,
bearing a 7.25% coupon, will mature in 2013 and are redeemable in all or in
part at the option of the Company under certain conditions and subject to
payment of a redemption premium. The aggregate proceeds of these two
transactions, combined with its available cash on hand, were used by the
Company to repay substantially all of the existing credit facilities. On March
12, 2003, the Company also redeemed the US$125 million 8.375% senior notes
originally due in 2007 issued by its subsidiary, Cascades Boxboard Group Inc.  On July 8,
2003, the Company completed a private placement of US$100 million of 7.25%
senior notes due in 2013, which are treated as part of the same series of 7.25%
senior notes due in 2013 issued in February, as described above. The issuance
of these senior notes was completed at a price of 104.50% or an effective
interest rate of 6.61%. The proceeds of this financing were used to reduce
indebtedness under the revolving credit facility of the Company.  b) The redeemable preferred
shares include 2,011,337 Class A preferred shares of a subsidiary. These shares
provide for a cumulative quarterly dividend of 1.25% of their accrued
redemption amount of $51 million, of which $1 million represents the dividends
accrued for the first three years following their issuance and payable upon
redemption. During the year, the Company purchased the remaining preferred
shares of this subsidiary for a consideration of $51 million.  c) On May 28, 2003, a joint
venture of the Company, Norampac Inc., completed a series of transactions to
substantially refinance all of its existing credit facilities. Norampac secured
a new five-year revolving credit facility of CAN$350 million. Its obligations
under this new revolving credit facility are secured by all inventory and
receivables of Norampac Inc. and its North American subsidiaries, and by the
property, plant and equipment of two of its mills and three of its converting
facilities. In addition, Norampac issued new unsecured senior notes for an
aggregate amount of US$250 million. These notes, bearing a 6.75% coupon, will
mature in 2013 and are redeemable in all or in part at the option of the
Company under certain conditions and subject to payment of a redemption
premium. The aggregate proceeds of these two transactions were used by the
joint venture to repay substantially all of the existing credit facilities and
to redeem both its US$150 million 9.50% and CAN$100 million 9.375% senior notes
originally due in 2008.  d) As at December 31, 2003, the
fair value of the senior notes and the capital lease obligations of Cascades
Inc. and its subsidiaries and joint ventures was estimated at $759 million and
$167 million respectively (December 31, 2002$211 million and $183 million
respectively) based on the market value of the senior notes and on discounted
future cash flows using interest rates available for issues with similar terms
and average maturities.  e) As at December 31, 2003, the
long-term debt included amounts denominated in foreign currencies of US$702
million and 24 million (December 31, 2002US$229 million and 44 million).  f) As at December 31, 2003,
accounts receivable and inventories totalling approximately $512 million as
well as property, plant and equipment totalling approximately $160 million were
pledged as collateral for the long-term debt of Cascades Inc. and its
subsidiaries.  Accounts
receivable and inventory totalling approximately $136 million as well as
property, plant and equipment totalling approximately $218 million were pledged
as collateral for the long-term debt of a joint venture.  50 
   Notes to Consolidated Financial Statements  For the three-year period ended December 31, 2003
(tabular amounts in millions of Canadian dollars)  g) The estimated aggregate
amount of repayments on long-term debt, excluding capital lease obligations, in
each of the next five years is as follows:  Cascades
  Inc.
  and its subsidiaries
  
  Joint
  venturesYears ending December 31,
  2004
  
  3
  
  82005
  
  3
  
  62006
  
  3
  
  32007
  
  174
  
  32008
  
  1
  
  12Thereafter
  
  718
  
  163  h) As at December 31, 2003,
future minimum payments under capital lease obligations are as follows:  Cascades
  Inc.
  and its subsidiaries
  
  Joint
  venturesYears ending December 31,
  2004
  
  8
  
  2005
  
  2
  
  2006
  
  2
  
  2007
  
  1
  
  2008
  
  1
  
  14
  
  Less:
  Interest (weighted average rate of 4.69%)
  
  1
  
  13
  
  Less:
  Current portion
  
  7
  
  6
  
    i) As at December 31, 2003, the
Company and joint ventures had unused credit facilities of $330 million and
$181 million respectively (December 31, 2002$232 million and $99 million
respectively).  8
Other liabilities  Note
  
  2003
  
  2002Employee future benefits
  
  14(b
  )
  80
  
  72Future income taxes
  
  12(c
  )
  182
  
  142Non-controlling interests
  
  
  
  3
  
  2265
  
  216  9
Capital stock  Note
  
  2003
  
  2002Common shares
  
  9(a
  )
  262
  
  261Preferred shares of a subsidiary
  
  9(b
  )
  
  
  6Adjustment relating to stock options
  
  9(c
  )
  2
  
  1264
  
  268  51 
   Notes to Consolidated Financial Statements  For the three-year period ended December 31, 2003
(tabular amounts in millions of Canadian dollars)  a) The authorized capital stock
of the Company consists of an unlimited number of common shares without nominal
value, and an unlimited number of Class A and B shares issuable in series
without nominal value. Over the past three years, the common shares have
fluctuated as follows:  Note
  
  2003
  
  2002
  
  2001Number of
  shares
  
  
  
  Number
  of shares
  
  
  
  Number
  of sharesBalanceBeginning of year
  
  
  
  81,826,272
  
  261
  
  80,987,466
  
  254
  
  80,900,663
  
  254Shares issued on exercise of stock options
  
  9(c
  )
  180,115
  
  2
  
  407,062
  
  3
  
  86,803
  
  Redemption of common shares
  
  9(d
  )
  (275,000
  )
  (1
  )
  (238,400
  )
  (1
  )
  
  
  Shares issued in connection with the 2000
  privatization
  
  
  
  
  
  
  
  670,144
  
  5
  
  
  
  BalanceEnd of year
  
  
  
  81,731,387
  
  262
  
  81,826,272
  
  261
  
  80,987,466
  
  254  b) The 4,300,000 Class B
preferred shares of a subsidiary are convertible into common shares of the
subsidiary, which will be exchanged, in accordance with an agreement with the
holders, for a total of 872,727 common shares of the Company. These preferred shares
provide for a cumulative quarterly dividend of 0.25% of their redemption price.
These shares are redeemable by the subsidiary at any time at a price of $25 per
share. In 2003, the Company purchased these preferred shares of a subsidiary
for a consideration of $16 million. The excess of the redemption price of $10
million over the recorded capital is included in retained earnings.  c) Under the terms of a share
option plan adopted on December 15, 1998 for officers and key employees of the
Company and its joint ventures, 6,681,154 common shares have been specifically
reserved for issuance. Each option will expire at a date not to exceed ten
years following the date the option was granted. The exercise price of an
option shall not be lower than the market value of the share at the date of
grant, determined as the average of the closing price of the share on the
Toronto Stock Exchange on the five trading days preceding the date of grant.
The terms for exercising the options are 25% of the number of shares under
option within twelve months after the date of grant, and up to an additional
25% each twelve months after the first, second and third anniversary dates of
grant. The options cannot be exercised if the market value of the share is
lower than its book value at the date of grant.  Changes in the number of
options outstanding as at December 31 are as follows:  2003
  
  2002
  
  2001Number
  of options
  
  Weighted
  average
  exercise
  price
  
  Number
  of options
  
  Weighted
  average
  exercise
  price
  
  Number
  of options
  
  Weighted
  average
  exercise
  price$
  
  
  
  $
  
  
  
  $Beginning of year
  
  1,378,610
  
  8.82
  
  1,492,652
  
  7.44
  
  1,166,337
  
  7.64Granted
  
  321,596
  
  13.04
  
  324,113
  
  13.24
  
  532,310
  
  6.82Exercised
  
  (180,115
  )
  7.92
  
  (407,062
  )
  7.13
  
  (86,803
  )
  3.43Forfeited
  
  (25,149
  )
  8.99
  
  (31,093
  )
  10.79
  
  (119,192
  )
  9.59End of year
  
  1,494,942
  
  9.83
  
  1,378,610
  
  8.82
  
  1,492,652
  
  7.44Options exercisableEnd of year
  
  935,011
  
  8.55
  
  886,413
  
  8.19
  
  840,313
  
  7.34  52 
   Notes to Consolidated Financial Statements  For the three-year period ended December 31, 2003
(tabular amounts in millions of Canadian dollars)  The following options were
outstanding as at December 31, 2003:  Options
  outstanding
  
  Options
  exercisableYear granted
  
  Number
  of options
  
  Weighted
  average
  exercise price
  
  Number
  of options
  
  Weighted
  average
  exercise price
  
  Expiration1996
  
  42,760
  
  6.70
  
  42,760
  
  6.70
  
  20061999
  
  371,295
  
  8.53
  
  371,295
  
  8.53
  
  20092000
  
  74,664
  
  7.78
  
  74,664
  
  7.78
  
  20102001
  
  404,566
  
  6.82
  
  303,425
  
  6.82
  
  20112002
  
  285,734
  
  13.24
  
  142,867
  
  13.24
  
  20122003
  
  315,923
  
  13.04
  
  
  
  
  
  20131,494,942
  
  
  
  935,011  The following assumptions were
used to estimate the fair value, at the date of grant, of each option issued to
employees:  2003
  
  2002Risk-free interest rate
  
  4.8
  %
  4.9
  %Expected dividend yield
  
  1.21
  %
  1.19
  %Expected life of the options
  
  6 years
  
  6 yearsExpected volatility
  
  28
  %
  26
  %  During the year ended December
31, 2003, the Company issued 321,596 options having a weighted average fair
value of $4.36 per option.  Accordingly,
$1 million has been recognized in expenses for the share option plan during the
years ended December 31, 2003 and 2002 as well as an adjustment to capital
stock for the equivalent amount.  d) In 2003, in the normal
course of business, the Company renewed its redemption program of a maximum of
4,091,424 common shares with the Toronto Stock
Exchange which represents approximately 5% of issued and outstanding common
shares. The redemption authorization is valid from March 11, 2003 to March 10,
2004.  In 2003, the Company redeemed
275,000 common shares under this redemption program for a consideration of
approximately $4 million.  e) The basic and diluted net
earnings per common share for the years ended December 31, 2003, 2002 and 2001
are calculated as follows:  2003
  
  2002
  
  2001Net earnings
  
  54.7
  
  169.5
  
  109.0DividendsPreferred shares
  
  (0.5
  )
  (1.1
  )
  (1.1
  )Net earnings available to common
  shareholders
  
  54.2
  
  168.4
  
  107.9Weighted average common shares
  
  81.7
  
  81.5
  
  80.9Dilution effect of stock options
  
  0.4
  
  0.8
  
  0.3Adjusted weighted average common shares
  
  82.1
  
  82.3
  
  81.2Basic net earnings per common share
  
  0.66
  
  2.07
  
  1.33Diluted net earnings per common share
  
  0.66
  
  2.05
  
  1.33  f) In July 2001, the Company
offered to its Canadian employees a share purchase plan of its common stock.
Employees can contribute, on a voluntary basis, up to a maximum of 5% of their
salary and, if certain conditions are met, the Company will contribute to the
plan 25% of the employees contribution.  The shares are
purchased on the market on a predetermined date each month.  For the years ended December 31, 2003 and
2002, the Companys contribution to the plan amounted to $0.6 million.  53 
   Notes to Consolidated Financial Statements  For the three-year period ended December 31, 2003
(tabular amounts in millions of Canadian dollars)  10
Share of earnings of significantly influenced companies  On February 20, 2002, a
significantly influenced company, Boralex Inc., sold seven power stations to an
income fund. The Company thus realized a gain of $18 million net of related
future income taxes of $5 million, representing its share of the net gain
realized by this significantly influenced company.  In 2003, this
gain was adjusted by Boralex Inc. The Company thus recorded its share of that
adjustment representing a loss of $3 million net of related future income
taxes.  11
Unusual losses (gains)  Note
  
  2003
  
  2002
  
  2001Loss on long-term debt refinancing
  
  11(a
  )
  22
  
  
  
  Gain on dilution and disposal of an
  investment
  
  11(b
  )
  
  
  (1
  )
  (30
  )Gain on expropriation of lands
  
  
  
  
  
  
  
  (4
  )Loss (gain) on business disposal
  
  11(c
  )
  
  
  5
  
  (2
  )Other expenses
  
  11(d
  )
  
  
  
  
  18Expenses related to business closures
  
  11(e
  )
  
  
  6
  
  11Other income
  
  11(f
  )
  
  
  (6
  )
  22
  
  4
  
  (7
  )  a) The Company realized a loss
of $12 million during the year, resulting from the refinancing of substantially
all of its long-term debt. This loss is attributable to an $8-million premium
paid to redeem the 8.375% senior notes of a subsidiary and the write-off of
related financing costs for an amount of $3 million. The Company also realized
a loss of $1 million following the payment of a penalty on the early redemption
of a subsidiarys fixed rate long-term debt.  A joint
venture of the Company realized a loss of $20 million in the second quarter
resulting from the refinancing of substantially all of its long-term debt. This
loss is attributable to a $14-million premium paid to redeem its CAN$100
million and US$150 million senior notes, in addition to the write-off of
related financing costs for an amount of $6 million. The Companys 50% share of
the loss amounted to $10 million.  b) In 2002, the Company
realized a gain of $1 million resulting from the dilution of its investments in
a significantly influenced company. In 2001, Boralex Inc., a significantly
influenced company, concluded two issuances of 4,000,000 common shares each,
resulting in a dilution of the Companys interest. In addition, in 2001, the
Company disposed of 2,000,000 shares of this entity for a consideration of $11
million. These transactions resulted in a gain of $30 million, of which $23
million represents the gain on dilution and $7 million the gain on disposal of
an investment.  c) In 2002, the Company sold
its retail egg carton operation located in Canada, realizing a loss of $5
million. In 1999, the Company had disposed of its 50% interest in a fluff pulp
mill located in France. The sale price included a contingent consideration of a
maximum amount of $10 million based on the profitability of the mill.
Accordingly, the Company realized a gain of $8 million in 2000 and $2 million
in 2001.  d) Other expenses included
provisions for impairment in value of certain long-term assets.  e) In 2002, the Company closed
one of its converting folding boxboard units located in Ontario, incurring
closing costs of $6 million. In 2001, the Company closed one of its converting
units in specialty products located in Richmond, Virginia, incurring closing
costs of $11 million.  f ) In 2002, the Court of First
Instance of the European Community reduced the amount of the fine imposed in
1994. The reduction in the fine and the related interest thereon have been
recorded as a gain amounting to approximately $6 million.  54 
   Notes to Consolidated Financial Statements  For the three-year period ended December 31, 2003
(tabular amounts in millions of Canadian dollars)  12
Income taxes  a) The provision for income
taxes is as follows:  2003
  
  2002
  
  2001Current
  
  15
  
  48
  
  47Future
  
  (1
  )
  13
  
  214
  
  61
  
  49  b) The income tax expense based
on the effective income tax rate differs from the income tax expense based on
the combined basic rate for the following reasons:  2003
  
  2002
  
  2001Income tax expense based on the combined
  basic Canadian and provincial income tax rate
  
  29
  
  90
  
  71Income tax expense (benefit) arising from
  the following:Deduction for manufacturing and processing
  and income from active businesses carried on in Quebec
  
  (3
  )
  (19
  )
  (18
  )Difference in foreign operations statutory
  income tax rate
  
  
  
  (3
  )
  (3
  )Unrecognized tax benefit arising from
  current losses of subsidiaries
  
  2
  
  2
  
  4Unrecognized tax benefit arising from
  foreign exchange loss on long-term debt
  
  
  
  
  
  5Non-taxable portion of foreign exchange
  gain on long-term debt
  
  (18
  )
  
  
  Recognized tax benefit arising from
  previously incurred losses of subsidiaries
  
  (9
  )
  (10
  )
  (6
  )Permanent differences
  
  1
  
  2
  
  3Large corporations tax
  
  4
  
  2
  
  3Increase (decrease) in future income taxes
  resulting from a substantively enacted change in tax rates
  
  5
  
  (1
  )
  (6
  )Others
  
  3
  
  (2
  )
  (4
  )(15
  )
  (29
  )
  (22
  )Income tax expense for the year
  
  14
  
  61
  
  49  55 
   Notes to Consolidated Financial Statements  For the three-year period ended December 31, 2003
(tabular amounts in millions of Canadian dollars)  c) Future income taxes include
the following items:  2003
  
  2002Future income tax assetsTax benefit arising from income tax losses
  
  108
  
  79Employee future benefits
  
  19
  
  18Exchange loss on long-term debt
  
  
  
  7Unused tax credits
  
  9
  
  9Others
  
  10
  
  6Valuation allowance
  
  (28
  )
  (33
  )118
  
  86Future income tax liabilitiesProperty, plant and equipment
  
  247
  
  193Exchange gain on long-term debt
  
  23
  
  Employee future benefits
  
  12
  
  16Other assets
  
  14
  
  14Others
  
  4
  
  5300
  
  228Future income taxes
  
  182
  
  142  d) Certain subsidiaries have
accumulated losses for income tax purposes amounting to approximately $284
million which may be carried forward to reduce taxable income in future years.
The future tax benefit resulting from the deferral of $242 million of these
losses has been recognized in the accounts as a future income tax asset. These
unused losses for income tax purposes may be claimed in years ending no later
than 2023 for an amount of $183 million and indefinitely for an amount of $101
million.  13
Additional information  a) Changes in non-cash working
capital components are detailed as follows:  2003
  
  2002
  
  2001Accounts receivable
  
  11
  
  27
  
  74Inventories
  
  2
  
  (21
  )
  7Accounts payable and accrued liabilities
  
  (39
  )
  6
  
  (16
  )(26
  )
  12
  
  65  b) Supplemental disclosure  2003
  
  2002
  
  2001Amortization of deferred financing costs
  included in interest expense
  
  4
  
  1
  
  Interest paid
  
  73
  
  78
  
  86Income taxes paid
  
  37
  
  62
  
  40Acquisition of property, plant and
  equipment under a capital lease
  
  
  
  
  
  6Business acquisition in exchange for
  non-monetary consideration
  
  6
  
  6
  
  Settlement with dissenting shareholders by
  issuance of common shares
  
  
  
  5
  
    c) Cost of sales  2003
  
  2002
  
  2001Foreign exchange gain (loss)
  
  (9
  )
  3
  
  3  56 
   Notes to Consolidated Financial Statements  For the three-year period ended December 31, 2003
(tabular amounts in millions of Canadian dollars)  14
Employee future benefits  a) The expense for employee
future defined benefits as at December 31 is as follows:  2003
  
  2002
  
  2001Pension
  plans
  
  Other
  plans
  
  Pension
  plans
  
  Other
  plans
  
  Pension
  plans
  
  Other
  plansCurrent service cost
  
  12
  
  2
  
  11
  
  2
  
  10
  
  2Interest cost on obligation
  
  30
  
  4
  
  28
  
  4
  
  27
  
  3Expected return on plan assets
  
  (30
  )
  
  
  (31
  )
  
  
  (32
  )
  Others
  
  2
  
  3
  
  
  
  
  
  
  
  Expense for the year
  
  14
  
  9
  
  8
  
  6
  
  5
  
  5  The expense recorded in 2003
for defined contribution plans (excluding group RRSPs) amounts to $2 million
(2002$2 million; 2001$1 million).  b) The funded status of the
defined benefit plans and the other complementary retirement benefit plans and
post-employment benefit plans are as follows as at December 31:  2003
  
  2002Pension
  plans
  
  Other
  plans
  
  Pension
  plans
  
  Other
  plansAccrued benefit obligationObligationBeginning of year
  
  440
  
  66
  
  414
  
  56Current service cost
  
  12
  
  2
  
  11
  
  2Interest cost
  
  30
  
  4
  
  28
  
  4Contributions by employees
  
  6
  
  
  
  6
  
  Actuarial losses
  
  8
  
  4
  
  4
  
  1Benefit payments
  
  (24
  )
  (2
  )
  (20
  )
  (3
  )Business acquisitions and disposals
  
  7
  
  
  
  (2
  )
  (1
  )Pension plan modifications
  
  3
  
  2
  
  (1
  )
  1Others
  
  (2
  )
  2
  
  
  
  6ObligationEnd of year
  
  480
  
  78
  
  440
  
  66Plan assetsFair valueBeginning of year
  
  411
  
  
  
  435
  
  Actual return on assets
  
  60
  
  
  
  (13
  )
  Contributions by the Company
  
  11
  
  
  
  9
  
  Contributions by employees
  
  6
  
  
  
  6
  
  Benefit payments
  
  (24
  )
  
  
  (20
  )
  Business acquisitions and disposals
  
  4
  
  
  
  (4
  )
  Others
  
  
  
  
  
  (2
  )
  Fair valueEnd of year
  
  468
  
  
  
  411
  
  Reconciliation of funded status (deficit)DeficitEnd of year
  
  (12
  )
  (78
  )
  (29
  )
  (66
  )Unamortized net actuarial loss
  
  51
  
  6
  
  74
  
  2Unamortized transitional obligation
  
  (2
  )
  
  
  (2
  )
  Unamortized past service cost
  
  3
  
  2
  
  1
  
  Net amount recognized
  
  40
  
  (70
  )
  44
  
  (64
  )  57 
   Notes to Consolidated Financial Statements  For the three-year period ended December 31, 2003
(tabular amounts in millions of Canadian dollars)  The net amount recognized as at
December 31 is detailed as follows:  2003
  
  2002Pension
  plans
  
  Other
  plans
  
  Total
  
  TotalEmployee future benefit asset
  
  50
  
  
  
  50
  
  52Employee future benefit liability
  
  (77
  )
  (3
  )
  (80
  )
  (72
  )(27
  )
  (3
  )
  (30
  )
  (20
  )  c) The following amounts relate
to plans that are not fully funded as at December 31:  2003
  
  2002Pension
  plans
  
  Other
  plans
  
  Pension
  plans
  
  Other
  plansAccrued benefit obligation
  
  (308
  )
  (78
  )
  (350
  )
  (66
  )Fair value of plan assets
  
  275
  
  
  
  304
  
  Funded deficit
  
  (33
  )
  (78
  )
  (46
  )
  (66
  )  d) The main actuarial
assumptions adopted in measuring the accrued benefit obligations and expenses
as at December 31, 2003 are as follows:  Pension
  plans
  
  Other
  plansDiscount rate
  
  6.25% to 6.75
  %
  6.25% to 6.75
  %Expected long-term rate of return on plan
  assets
  
  7.0% to 8.0
  %
  Salary escalation rate
  
  3.0% to 5.0
  %
  3.0% to 5.0
  %Rate increase in health care cost2000
  
  
  
  8.0% to 13.0
  %Ultimately
  
  
  
  4.3% to 8.0
  %  The discount rate used by most
subsidiaries and joint ventures of the Company for the valuation of the pension
and other plans is 6.25%.  15
Commitments and contingencies  a) Future minimum payments
under operating leases and other commercial commitments (mainly composed of raw
materials, natural gas, steam and electricity) for the next years are as
follows:  Operating
  leases
  
  Other
  commercial
  commitmentsYears ending December 31,
  2004
  
  35
  
  1122005
  
  30
  
  432006
  
  26
  
  292007
  
  21
  
  182008
  
  16
  
  1Thereafter
  
  36
  
  16  b) The Company has guaranteed
the payment of approximately $4 million under operating leases held by third
parties. The Company also guaranteed residual values at the expiration of lease
contracts of certain equipment for an approximate amount of $3 million.
Management of the Company does not believe that these guarantees are likely to
be called and, as such, no liability has been recognized in the consolidated
financial statements.  58 
   Notes to Consolidated Financial Statements  For the three-year period ended December 31, 2003
(tabular amounts in millions of Canadian dollars)  c) During the year, the Company
was informed that one of its divisions, Cascades Resources, is the subject of
an inquiry by the Canadian Commissioner of Competition as to whether Cascades
Resources and its competitors had colluded to unduly reduce market competition
between paper merchants in Canada. The Competition Bureau has not informed the
Company regarding the status of the inquiry or whether charges will be brought
against that division. As the inquiry is still in an early stage, the Companys
management is unable to assess what further action, if any, the Competition
Bureau may take or the possible impact of the outcome of the inquiry on the
Company. However, based on the information currently available, the Companys
management does not believe that this matter will have a material adverse
effect on the Companys business, results of operations or financial condition.  16
Financial instruments  The Company and some of its
subsidiaries utilize a variety of derivative financial instruments to limit
their exposure to foreign currency and commodity fluctuations as well as
changing interest rates but do not hold or issue such financial instruments for
trading purposes with the exception of certain interest rate swap agreements as
described below.  Currency
risks  The Company is exposed to
currency risks as a result of its export of goods produced in Canada, the
United States, France, Germany, Sweden, England and Mexico. These risks are
partially covered by purchases, debt service and forward exchange contracts.  The Company
and a joint venture entered into contracts to sell forward U.S. dollars in
exchange for Canadian dollars. As at December 31, 2003, the Company and a joint
venture held foreign exchange forward contracts with a notional amount of $130
million (2002$143 million) maturing in 2005, at a weighted average exchange
rate of 1.3732. As at December 31, 2003, the fair value of these instruments
represented an unrealized gain of $6.8 million. However, these instruments did
not represent any unrealized loss or gain as at December 31, 2002 and
represented an unrealized loss of $3.1 million as at December 31, 2001.  The European
subsidiaries entered into foreign exchange forward contracts maturing in less
than a year to hedge their currency risks resulting from sales and purchases in
European currencies, U.S. dollars, British pounds, Swedish krona and Canadian
dollars. As at December 31, 2003, the fair value of these instruments
represented an unrealized gain of $0.1 million (2002unrealized loss of $0.5
million; 2001unrealized loss of $0.5 million) on a notional amount of $20
million (2002$25 million and 2001$40 million).  Interest
rate risks  As at December 31, 2003,
approximately 18% (200252%) of the Companys long-term debt was at variable
rates. Interest rate swaps have been contracted to fix interest at a weighted
average rate of 6.94% on a notional amount of $50 million in 2002 and 2001.
These instruments which represent an unrealized loss of $1.5 million as at
December 31, 2002 (2001unrealized loss of $2.5 million) were terminated in
2003. Following the refinancing completed on February 5, 2003, these interest
rate swaps were not designated as hedges and a loss of $0.9 million was
recognized in earnings in 2003.  In addition, a
joint venture, Norampac Inc., holds certain interest rate swap agreements not
designated as hedges. These agreements, maturing from 2008 to 2012, have been
contracted to fix interest at a weighted average rate of 8.18% on a notional
amount of US$3 million. As at December 31, 2003, these agreements are recorded
as liabilities at their fair value of $0.6 million (2002$0.9 million).  Credit
risks  The Company is exposed to
credit risk on the accounts receivable from its customers. In order to reduce
this risk, the Companys credit policies include the analysis of the financial
position of its customers and the regular review of their credit limits. In
addition, the Company believes there is no particular concentration of credit
risks due to the geographic diversity of customers and the procedures for the
management of commercial risks. Derivative financial instruments include an
element of credit risk should the counterparty be unable to meet its
obligations. The Company reduces this risk by dealing with creditworthy
financial institutions.  59 
   Notes to Consolidated Financial Statements  For the three-year period ended December 31, 2003
(tabular amounts in millions of Canadian dollars)  In the context
of its credit risk management, in 2002, the Company entered into a transfer of
receivables agreement with a financial institution. This agreement allows the
Company to sell, on a continuous basis, its accounts receivable of a specific
client for an amount of up to $20 million. In the event of a late payment from
the client, the only recourse of the financial institution against the Company
is a penalty fee for which management believes that no payment will be required
in the future. The Company services the sold accounts receivable and no servicing
asset or liability is recognized, as management believes that the value of the
services rendered is equivalent to the benefits earned. As at December 31,
2002, the accounts receivable sold amounted to $11 million and were accounted
for as an inflow from accounts receivable in the consolidated statement of cash
flows. In 2002, the Company incurred expenses of $0.5 million with respect to
this agreement.  Commodity
price risk  The Company also entered into
swap contracts whereby it sets the price on notional quantities of sorted
office papers, old corrugated containers, bleached softwood kraft, electricity,
natural gas, 42-lb. kraft linerboard and 26-lb. semichemical corrugating
medium. Gains and losses arising from these contracts are charged to earnings
only when realized. The fair value of these contracts as at December 31, 2003
represented a net unrealized gain of $4.7 million (2002  net unrealized gain
of $1.5 million; 2001  net unrealized loss of $1.6 million).  17
Related party transactions  The Company entered into the
following transactions with related parties:  2003
  
  2002
  
  2001Joint ventures(1)Sales
  
  26
  
  19
  
  17Revenue from services
  
  21
  
  22
  
  22Purchases
  
  26
  
  24
  
  11Significantly influenced companiesSales
  
  48
  
  58
  
  44Purchases
  
  15
  
  13
  
  25Entity controlled by a related director of
  the CompanyPurchases
  
  7
  
  5
  
  5  These transactions occurred in
the normal course of operations and are measured at the exchange amount, which
is the amount of consideration established and agreed to by the related
parties.  The balance sheets as at
December 31 included the following balances with related parties:  2003
  
  2002Joint ventures(1)Accounts receivable
  
  6
  
  5Accounts payable
  
  3
  
  3Significantly influenced companiesAccounts receivable
  
  
  
  4Accounts payable
  
  
  
  1Entity controlled by a related director of
  the CompanyAccounts payable
  
  1
  
  1  
 (1) Represent the portion of
transactions or balances not eliminated upon proportionate consolidation of the
joint ventures.  60 
   Notes to Consolidated Financial Statements  For the three-year period ended December 31, 2003
(tabular amounts in millions of Canadian dollars)  18
Interests in joint ventures  The major components of the
interests in joint ventures in the consolidated financial statements are as
follows:  2003
  
  2002
  
  2001Consolidated balance sheetsCurrent assets
  
  237
  
  191
  
  173Long-term assets
  
  572
  
  465
  
  427Current liabilities
  
  121
  
  123
  
  107Long-term debt, net
  
  188
  
  182
  
  194Consolidated statements of earningsSales
  
  756
  
  712
  
  636Depreciation and amortization
  
  34
  
  29
  
  26Operating income
  
  61
  
  88
  
  92Financial expenses
  
  17
  
  19
  
  17Net earnings
  
  25
  
  46
  
  38Consolidated statements of cash flowsOperating activities
  
  42
  
  63
  
  70Investing activities
  
  (44
  )
  (58
  )
  (90
  )Financing activities
  
  2
  
  3
  
  6Additional informationCash and cash equivalents at end of period
  
  12
  
  13
  
  6Total assets
  
  809
  
  656
  
  600Total debt(1)
  
  211
  
  218
  
  213Dividends received by the Company from
  joint ventures
  
  16
  
  17
  
  22  
 (1) Includes bank loans and
advances, current portion of long-term debt, and long-term debt.  19
Summary of differences between Canadian and United States generally accepted
accounting principles  The consolidated financial
statements have been prepared in accordance with Canadian GAAP which differs in
certain respects from U.S. generally accepted accounting principles (U.S.
GAAP). Such differences, as they relate to the Company, are summarized below.  New
accounting policies under U.S. GAAP  a) Financial instruments  On July 1, 2003, the Company
applied SFAS 150, Accounting for Certain
Financial Instruments with Characteristics of Liabilities and Equity.
SFAS 150 requires mandatorily redeemable instruments to be classified as
liabilities if they embody an obligation outside the control of the issuer and
the holder to redeem the instrument, and if the obligation is required to be
redeemed at a specified or determinable date or upon an event certain to occur.
The adoption of this standard resulted in the reclassification of mandatorily redeemable
preferred shares amounting to $4.2 million from other liabilities
(non-controlling interest) to long-term debt. The measurement of these
instruments at fair value did not result in any significant adjustment.  b) Accounting for Asset
Retirement Obligation  On January 1, 2003, the Company
applied SFAS 143, Accounting for Asset
Retirement Obligation . This standard requires that the fair value
of a liability for an asset retirement obligation be recognized in the period
in which it is incurred if a reasonable estimate of fair value can be made. The
application of this standard did not have any impact on the financial position
or results of operations of the Company.  61 
   Notes to Consolidated Financial Statements  For the three-year period ended December 31, 2003
(tabular amounts in millions of Canadian dollars)  c) Costs Associated with Exit
or Disposal Activities  On January 1, 2003, the Company
applied SFAS 146, Accounting for Costs
Associated with Exit or Disposal Activities. The statement changes
the measurement and timing of recognition for exit costs, including
restructuring charges. The application of this standard did not have any impact
on the financial position or results of operations of the Company.  d) Guarantees  On January 1, 2003, the Company
applied FIN 45, Guarantors Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others. FIN 45 elaborates on the disclosure
requirements of a company with respect to its obligations under certain
guarantees. It also clarifies that a company is required to recognize, at the
inception of a guarantee, a liability for the fair value of the obligation then
undertaken whether or not payment is probable. Similar accounting guidelines
exist in Canada (refer to note 2(a)) but do not require liability recognition
at the inception. For U.S. GAAP purposes, no liabilities were recognized as at
January 1, 2003 and December 31, 2003 as a result of the application of FIN 45.  e) Goodwill and Other
Intangible Assets  On January 1, 2002, the Company
applied SFAS 142, Goodwill and Other
Intangible Assets. This standard is essentially the same as a
recently issued accounting standard of the CICA. Refer to note 2(c) for a
description of the impact on the Company of the implementation of this new
standard.  f ) Accounting for the
Impairment or Disposal of Long-Lived Assets  On January 1, 2002, the Company
applied SFAS 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. SFAS 144 addresses
financial accounting impairment or disposal of long-lived assets and requires
that one accounting model be used for long-lived assets to be disposed of by
sale. The standard also broadens the scope of businesses to be disposed of that
qualify for reporting as discontinued operations, and changes the timing for
recognizing losses on such operations. The adoption of this standard did not
have any impact on the financial position or results of operations of the
Company.  g) Accounting for Derivative
Instruments and Hedging Activities  On January 1, 2001, for U.S.
reporting purposes, the Company applied FASB Statement 133, Accounting for Derivative Instruments and Hedging
Activities, as amended by SFAS 137, Accounting for Derivative Instruments and Hedging ActivitiesDeferral
of Effective Date of FASB Statement 133, and by SFAS 138, Accounting for Certain Derivative Instruments and
Certain Hedging Activities. The presentation standards for
derivative instruments and hedging activities are described in these
statements. Under these statements, all derivative instruments are accounted
for at their fair value and recognized based on their anticipated use and
designation as a hedge. The application of this standard as at January 1, 2001
resulted in a charge of $0.2 million after tax to comprehensive earnings (note
19(t)). Subsequently, SFAS 133 was amended by SFAS 149, Amendment of Statement 133 on Derivative Instruments
and Hedging Activities, which applies to contracts entered into or
modified after June 30, 2003 and hedging relationships designated after June
30, 2003. The application of this amendment did not have any impact on the
financial portion or results of operations of the Company.  62 
   Notes to Consolidated Financial Statements  For the three-year period ended December 31, 2003
(tabular amounts in millions of Canadian dollars)  Reconciliation
of net earnings, shareholders equity and balance sheet  h) The following summary sets
out the material adjustments to the Companys reported net earnings,
shareholders equity and balance sheet which would be made in order to
reconcile to U.S. GAAP. It also sets out a reconciliation of shareholders
equity under U.S. GAAP:  Reconciliation
of net earnings  Note
  
  2003
  
  2002
  
  2001Net earnings under Canadian GAAP
  
  
  
  55
  
  169
  
  109U.S. GAAP adjustments:Start-up costs
  
  (i
  )
  
  
  4
  
  4Gain realized on formation of Norampac
  
  (j
  )
  (4
  )
  (5
  )
  (5
  )Unrealized exchange gains (losses) arising
  from foreign exchange forward contracts
  
  (k
  )
  7
  
  3
  
  (4
  )Unrealized gains arising from change in
  fair values of commodity-derivative financial instruments
  
  (l
  )
  3
  
  1
  
  Provision for derivative instruments
  currently in default
  
  
  
  
  
  2
  
  (2
  )Unrealized gains (losses) from interest
  rate swaps
  
  (m
  )
  1
  
  1
  
  (3
  )Employee future benefits
  
  (n
  )
  2
  
  1
  
  (1
  )Dividends on preferred shares of a
  subsidiary
  
  (p
  )
  1
  
  3
  
  4Stock-based compensation
  
  (q
  )
  
  
  
  
  (1
  )Tax effect on above adjustments
  
  
  
  (4
  )
  (3
  )
  3Income taxes
  
  (r
  )
  
  
  
  
  4Non-controlling interests
  
  
  
  (1
  )
  (3
  )
  (4
  )Net earnings under U.S. GAAP
  
  
  
  60
  
  173
  
  104Net earnings under U.S. GAAP per common
  shareBasic
  
  
  
  0.73
  
  2.11
  
  1.27Diluted
  
  
  
  0.73
  
  2.09
  
  1.27  63 
   Notes to Consolidated Financial Statements  For the three-year period ended December 31, 2003
(tabular amounts in millions of Canadian dollars)  2003
  
  2002
  
  2001Number of
  shares
  
  
  
  Number of
  shares
  
  
  
  Number of
  sharesCommon stockBalance at beginning of year
  
  81,826,272
  
  261
  
  80,987,466
  
  254
  
  80,900,663
  
  254Shares issued on exercise of stock options
  
  180,115
  
  2
  
  407,062
  
  3
  
  86,803
  
  Redemption of common shares
  
  (275,000
  )
  (1
  )
  (238,400
  )
  (1
  )
  
  
  Shares issued in connection with the 2000
  privatization
  
  
  
  
  
  670,144
  
  5
  
  
  
  Balance at end of year
  
  81,731,387
  
  262
  
  81,826,272
  
  261
  
  80,987,466
  
  254Adjustment relating to stock optionsBalance at beginning of year
  
  
  
  3
  
  
  
  2
  
  
  
  1Adjustment of the year
  
  
  
  1
  
  
  
  1
  
  
  
  1Balance at end of year
  
  
  
  4
  
  
  
  3
  
  
  
  2Retained earningsBalance at beginning of year
  
  
  
  788
  
  
  
  629
  
  
  
  535Net earnings for the year
  
  
  
  60
  
  
  
  173
  
  
  
  104Dividend on common shares
  
  
  
  (13
  )
  
  
  (10
  )
  
  
  (9
  )Dividend on preferred shares
  
  
  
  (1
  )
  
  
  (1
  )
  
  
  (1
  )Excess of common share redemption price
  over their paid-up capital
  
  
  
  (2
  )
  
  
  (3
  )
  
  
  Balance at end of year
  
  
  
  832
  
  
  
  788
  
  
  
  629Cumulative other comprehensive earningsBalance at beginning of year
  
  
  
  38
  
  
  
  12
  
  
  
  11Annual changesnet of tax Translation
  adjustments
  
  
  
  (34
  )
  
  
  32
  
  
  
  5Minimum pension liability
  
  
  
  
  
  
  
  (6
  )
  
  
  (3
  )Reclass to earnings of cumulative net loss
  on adoption of SFAS 133 and 138
  
  
  
  
  
  
  
  (1
  )
  
  
  1Rounding
  
  
  
  
  
  
  
  1
  
  
  
  (2
  )Balance at end of year
  
  
  
  4
  
  
  
  38
  
  
  
  12Rounding
  
  
  
  1
  
  
  
  
  
  
  
  1Shareholders equityEnd of year
  
  
  
  1,103
  
  
  
  1,090
  
  
  
  898  64 
   Notes to Consolidated Financial Statements  For the three-year period ended December 31, 2003
(tabular amounts in millions of Canadian dollars)  Reconciliation
of shareholders equity  Note
  
  2003
  
  2002
  
  2001Shareholders equity under Canadian GAAP
  
  
  
  1,056
  
  1,065
  
  870U.S. GAAP adjustments:Start-up costs
  
  (i
  )
  (5
  )
  (5
  )
  (9
  )Gain realized on formation of Norampac
  
  (j
  )
  62
  
  66
  
  71Unrealized exchange gains (losses) arising
  from foreign exchange forward contracts
  
  (k
  )
  7
  
  
  
  (3
  )Unrealized gains (losses) arising from
  change in fair values of commodity-derivative financial instruments net of
  provision for instruments currently in default
  
  (l
  )
  4
  
  1
  
  (1
  )Unrealized losses from interest rate swaps
  
  (m
  )
  
  
  (2
  )
  (3
  )Employee future benefits
  
  (n
  )
  (10
  )
  (12
  )
  (13
  )Minimum pension liability
  
  (o
  )
  (16
  )
  (15
  )
  (5
  )Privatization
  
  (s
  )
  
  
  (1
  )
  (1
  )Tax effect on above adjustments
  
  
  
  (5
  )
  (1
  )
  (2
  )Income taxes
  
  (r
  )
  
  
  
  
  Class B preferred shares
  
  (bb
  )
  
  
  (6
  )
  (6
  )Excess of redemption price of Class B
  preferred shares on their paid-up capital
  
  (bb
  )
  10
  
  
  
  Shareholders equity under U.S. GAAP
  
  
  
  1,103
  
  1,090
  
  898  Reconciliation
of balance sheet  Note
  
  2003
  
  2002Canadian GAAP
  
  U.S. GAAP
  
  Canadian
  GAAP
  
  U.S. GAAPProperty, plant and equipment
  
  (j)(s)(bb
  )
  1,636
  
  1,684
  
  1,604
  
  1,640Other assets and goodwill (long-term)
  
  (i) to (n) and (y
  )
  269
  
  297
  
  339
  
  358Accounts payable and accrued liabilities
  
  (k)(l)(m
  )
  453
  
  452
  
  483
  
  486Long-term debt, excluding current portion
  
  (p
  )
  1,092
  
  1,092
  
  1,048
  
  992Other liabilities (long-term)
  
  (i)(j)(k)(l)(n)(o)
  (p)(r)(s)(bb
  )
  265
  
  293
  
  216
  
  299Shareholders equity
  
  (i) to (s) and (bb
  )
  1,056
  
  1,103
  
  1,065
  
  1,090  The amounts presented in the
above table under both Canadian GAAP and U.S. GAAP include joint ventures
accounted for under the proportionate consolidation method as described in note
19(x).  65 
   Notes to Consolidated Financial Statements  For the three-year period ended December 31, 2003
(tabular amounts in millions of Canadian dollars)  i) Under Canadian GAAP,
start-up costs are deferred and amortized over a period not exceeding five
years. Under U.S. GAAP, start-up costs are accounted for under Statement of
Position (SOP) No. 985, Reporting on the
Costs of Start-up Activities, and are included in the statement of
earnings in the period they are incurred.  j) On December 30, 1997, the
Company and Domtar Inc. merged their respective containerboard and corrugated
packaging operations to form Norampac Inc., a 5050 joint venture. Under
Canadian GAAP, a portion of the gain realized on the transaction of an original
amount of approximately $58 million, net of tax, was recorded against property,
plant and equipment and goodwill. Under U.S. GAAP, this gain would have been
recognized in earnings on December 30, 1997.  In addition,
under U.S. GAAP, additional liabilities would have been included in the
allocation of the purchase price at the date of the transaction with respect to
employee future benefits with a corresponding adjustment to goodwill.  k) Under Canadian GAAP, gains
and losses arising from foreign exchange forward contracts used to hedge
anticipated sales or purchases are charged to earnings as an adjustment of
sales or cost of sales when the underlying sale or purchase is recorded. Under
U.S. GAAP, the foreign exchange forward contracts are not designated as hedges
as defined in SFAS 133, Accounting for
Derivative Instruments and Hedging Activities; therefore the
unrealized gains and losses from these contracts are charged to earnings as
they arise.  l) Under Canadian GAAP, gains
and losses arising from swap commodity contracts are charged to earnings only
when realized. Under U.S. GAAP, the unrealized gains and losses arising from
these contracts, which do not meet requirements of hedging as defined in SFAS
133, Accounting for Derivative Instruments
and Hedging Activities, are charged to earnings. However, the net
unrealized loss of $0.2 million after tax that existed upon the adoption of
SFAS 133 and SFAS 138 has been recorded to comprehensive earnings and is being
transferred to earnings as the contracts mature.  m) Under Canadian GAAP,
unrealized gains and losses on interest rate swaps designated as hedges are not
recognized in the financial statements. Under U.S. GAAP, these contracts are
not designated as hedges and therefore, the unrealized gains and losses are
charged to earnings. In addition, as described in note 16, the Company holds
certain interest rate swap agreements for speculative purposes. Under both
Canadian and U.S. GAAP, these instruments are marked to market on the balance
sheet through earnings.  n) Before the adoption of CICA
3461, Employee Future Benefits,
on January 1, 2000, the discount rate used in the measurement of pension costs
and obligations under U.S. GAAP differed from the one used under Canadian GAAP.
In addition, as allowed by Canadian GAAP before January 1, 2000, the Company
recognized post-employment costs and obligations using the cash basis of
accounting. Under CICA 3461, the treatment of pension costs is not materially
different from U.S. GAAP. The remaining adjustments result from the
amortization of actuarial gains and losses which arose prior to January 1,
2000.  o) Under U.S. GAAP, a minimum
pension liability adjustment must be recorded when the accumulated benefit
obligation of a plan is greater than the fair value of its assets. The excess
of its liability over the intangible asset, which can also be recorded for the
plan, is recorded in comprehensive earnings in shareholders equity.  66 
   Notes to Consolidated Financial Statements  For the three-year period ended December 31, 2003
(tabular amounts in millions of Canadian dollars)  p) Under Canadian GAAP,
dividends on mandatorily redeemable preferred shares of a subsidiary are
charged to earnings as interest expense. Under U.S. GAAP, declared dividends
prior to July 1, 2003 are charged to earnings but as non-controlling interests.
Since July 1, 2003, in accordance with SFAS 150, Accounting for Certain Financial Instruments with Characteristics of
Liabilities and Equity, dividends are charged to earnings as
interest expense.  In addition,
under U.S. GAAP, declared dividends prior to July 1, 2003 would have been shown
as a financing activity in the cash flows statement. Since July 1, 2003, these
dividends are shown as an operating activity, as they are under Canadian GAAP.  q) Under U.S. GAAP and in
accordance with SFAS 123, Accounting for
Stock-Based Compensation, and subsequently amended by SFAS 148, Accounting by Stock-Based Compensation Transition and
Disclosure, companies are permitted to apply the fair value method
of accounting for stock-based compensation awards granted to employees. Under
Canadian GAAP, the Company applied the recommendations of CICA 3870, Stock-Based Compensation and Other Stock-based
Payments, as described in note 2(e) which also permits the fair
value method of accounting for stock-based compensation awards granted to
employees. As a result, there is no Canadian GAAP to U.S. GAAP adjustment to
earnings for stock options granted after January 1, 2002. Prior to the adoption
of CICA 3870, under Canadian GAAP, compensation expense was not recognized for
stock options. Any consideration paid by employees on the exercise of stock
options is credited to share capital. Under U.S. GAAP, the fair value of
options issued prior to January 1, 2002 was estimated based on the following
weighted average assumptions:  Risk-free interest rate
  
  5.24
  %Expected dividend yield
  
  1.75
  %Expected life of the options
  
  6 yearsExpected volatility
  
  28
  %Weighted average fair value per option
  
  $2.16  r) Under Canadian GAAP, income
tax rates of substantively enacted tax laws can be used to calculate future
income tax assets and liabilities while under U.S. GAAP, only income tax rates
of enacted laws can be used.  s) On December 31, 2000, the
Company acquired shares held by non-controlling shareholders in three of its
subsidiaries (the privatized subsidiaries) in exchange for common shares of
the Company. Under Canadian GAAP, the fair value of $6.85 attributed to the
shares issued represents the quoted market value of the Companys shares at the
date of privatization. Under U.S. GAAP, the fair value attributed to the shares
issued would have been $6.67 which represents the quoted market value of the
Companys shares during a reasonable period before and after the date the
transaction was agreed upon and announced. Since the excess of the net book
value of the non-controlling interests over their purchase price has been
recorded under Canadian GAAP as a decrease of property, plant and equipment and
future income tax liabilities, the adjustment resulting from a different
measurement date as stated above would affect these accounts accordingly.  In addition,
Canadian GAAP to U.S. GAAP reconciliation items described in note 19(i) to (r)
and affecting the privatized subsidiaries prior to December 31, 2000 would
affect the computation of the net book value of the non-controlling interests
and therefore the adjustment to property, plant and equipment and future income
tax liabilities at the date of the privatization.  67 
   Notes to Consolidated Financial Statements  For the three-year period ended December 31, 2003
(tabular amounts in millions of Canadian dollars)  t) Comprehensive earnings  2003
  
  2002
  
  2001Net earnings under U.S. GAAP
  
  60
  
  173
  
  104Translation adjustments
  
  (34
  )
  32
  
  5Minimum pension liability adjustment, net
  of related income taxes(1)
  
  
  
  (6
  )
  (3
  )Cumulative net loss on adoption of SFAS 133
  and 138, net of related income taxes(2)
  
  
  
  
  
  Reclass to earnings of cumulative net loss
  on adoption of SFAS 133 and 138, net of related income taxes(3)
  
  
  
  (1
  )
  1Comprehensive earnings under U.S. GAAP
  
  26
  
  198
  
  107  
 (1)   The minimum pension
liability adjustment represents $0.3 million, $6.3 million and $3.4 million for
the years ended December 31, 2003, 2002 and 2001 respectively, net of related
income taxes of $0.1 million, $3.2 million and $1.8 million for the years ended
December 31, 2003, 2002 and 2001 respectively. (2)   The cumulative net loss on
adoption of SFAS 133 and 138 represents an adjustment of $0.2 million on
January 1, 2001, net of related income taxes of $0.2 million. (3)   The reclass to earnings of
cumulative net loss on adoption of SFAS 133 and 138 represents income of $0.1
million, income of $0.5 million and an expense of $0.6 million for the years
ended December 31, 2003, 2002 and 2001 respectively, net of related income
taxes of $0.04 million, $0.3 million and $0.3 million for the years ended
December 31, 2003, 2002 and 2001 respectively.  u) Accumulated other
comprehensive earnings  2003
  
  2002Cumulative translation adjustments
  
  14
  
  48Cumulative minimum pension liability
  adjustments, net of related income taxes
  
  (10
  )
  (10
  )4
  
  38  v) For pension plans where the
accumulated benefit obligation (ABO) exceeds the fair value of plan assets
under U.S. GAAP, the projected benefit obligation (PBO), ABO and fair value
of plan assets are as follows:  2003
  
  2002PBO
  
  126
  
  111ABO
  
  120
  
  106Fair value of plan assets
  
  102
  
  86  w) Under Canadian GAAP, cost of
delivery billed to customers is classified as a deduction from sales in
determining the amount of net sales, while under U.S. GAAP, delivery costs
billed to customers are classified as a component of cost of sales (see note
2(i)).  x) Under Canadian GAAP,
investments in joint ventures are accounted for using the proportionate
consolidation method. Under U.S. GAAP, investments in joint ventures are
accounted for using the equity method. The different accounting treatment
affects only the display and classification of financial statement items and
not net earnings or shareholders equity. Rules prescribed by the Securities
and Exchange Commission of the United States (SEC) permit the use of the
proportionate consolidation method in the reconciliation to U.S. GAAP provided
the joint venture is an operating entity and the significant financial
operating policies are, by contractual arrangement, jointly controlled by all
parties having an equity interest in the joint venture. In addition, the
Company discloses in note 18 the major components of its financial statements
resulting from the use of the proportionate consolidation method to account for
its interests in joint ventures.  68 
   Notes to Consolidated Financial Statements  For the three-year period ended December 31, 2003
(tabular amounts in millions of Canadian dollars)  y) Under Canadian GAAP, the
Companys deferred financing costs are amortized on a straight-line basis over
the anticipated period of repayment of the underlying debt. Under U.S. GAAP,
such costs are amortized under the interest method. Amortization under both
methods was not materially different for each of the periods presented.  z) Under U.S. GAAP, the
dilution gains of 2001 and 2002 amounting to $1 million and $23 million
respectively as described in note 11(b) would have been disclosed separately on
the statement of earnings.  aa) Under U.S. GAAP, the
premium paid on redemption of long-term debt would be classified as an
operating activity and not as cash flow used in financing activities. In
addition, under U.S. GAAP, financing charges incurred in 2003 amounting to $29
million would be classified as an operating activities rather than financing
activities.  bb) Under Canadian GAAP, the
Class B preferred shares of a subsidiary are included under capital stock (note
9(b)). Under U.S. GAAP, these preferred shares would be shown on the balance
sheet as a non-controlling interest. As described in note 9(b), in 2003, the
Company redeemed all of the outstanding Class B preferred shares of a
subsidiary for a consideration of $16 million. Under Canadian GAAP, the excess
of the redemption price of $10 million over the recorded capital was included
in retained earnings. Under U.S. GAAP, as these preferred shares represent a
non-controlling interest, the excess of $10 million would have been recorded as
an increase of $15 million in property, plant and equipment and an increase of
$5 million in future income tax liabilities. In addition, under U.S. GAAP, the
premium paid on redemption would be classified under investing activities
rather than financing activities.  Accounting
pronouncements not yet implemented under U.S. GAAP  cc) Variable interest entities  In January 2003, FASB issued
FIN 46, Consolidation of Variable Interest
Entities. The primary objective of this interpretation is to
provide guidance on the identification of, and financial reporting for,
entities over which control is achieved through means other than voting rights;
such entities are known as variable interest entities (VIEs). FIN 46 applied
immediately to all VIEs created after January 31, 2003. Recently, the FASB
announced the deferral of the effective date of FIN 46 for VIEs created prior
to February 1, 2003. Previously, FIN 46 was to be effective for the first
interim or annual period ending after December 15, 2003 for VIEs created prior
to February 1, 2003. It is now effective for fiscal years beginning on or after
July 1, 2004. The adoption of this standard will not have any impact on the
financial position or results of operations of the Company.  69