MANAGEMENTS DISCUSSION & ANALYSIS
 FINANCIAL OVERVIEW2010
      
 
 
   Significant developments
     CASCADES  ANNUAL REPORT 2010  MANAGEMENTS DISCUSSION & ANALYSIS
    
    1




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CASCADES  ANNUAL REPORT 2010  MANAGEMENTS DISCUSSION & ANALYSIS
    
    2




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Key performance indicators
  2008
    
    
    2009
    
    
    2010Total
    
    
    Q1
    
    
    Q2
    
    
    Q3
    
    
    Q4
    
    
    Total
    
    
    Q1
    
    
    Q2
    
    
    Q3
    
    
    Q4
    
    
    TotalOPERATIONAL9Total shipments (in 000 of s.t.)10PackagingBoxboard
    
    
    1,093
    
    
    
    250
    
    
    
    255
    
    
    
    251
    
    
    
    268
    
    
    
    1,024
    
    
    
    281
    
    
    
    290
    
    
    
    276
    
    
    
    278
    
    
    
    1,125Containerboard
    
    
    1,374
    
    
    
    261
    
    
    
    288
    
    
    
    300
    
    
    
    292
    
    
    
    1,141
    
    
    
    308
    
    
    
    298
    
    
    
    314
    
    
    
    299
    
    
    
    1,219Specialty products1
    
    
    458
    
    
    
    110
    
    
    
    113
    
    
    
    119
    
    
    
    116
    
    
    
    458
    
    
    
    122
    
    
    
    122
    
    
    
    119
    
    
    
    112
    
    
    
    4752,925
    
    
    
    621
    
    
    
    656
    
    
    
    670
    
    
    
    676
    
    
    
    2,623
    
    
    
    711
    
    
    
    710
    
    
    
    709
    
    
    
    689
    
    
    
    2,819Tissue Papers2
    
    
    471
    
    
    
    106
    
    
    
    109
    
    
    
    120
    
    
    
    124
    
    
    
    459
    
    
    
    119
    
    
    
    130
    
    
    
    132
    
    
    
    130
    
    
    
    511Total
    
    
    3,396
    
    
    
    727
    
    
    
    765
    
    
    
    790
    
    
    
    800
    
    
    
    3,082
    
    
    
    830
    
    
    
    840
    
    
    
    841
    
    
    
    819
    
    
    
    3,330Integration rate%PackagingBoxboard (North America)
    
    
    31
    %
    
    
    28
    %
    
    
    31
    %
    
    
    33
    %
    
    
    28
    %
    
    
    30
    %
    
    
    28
    %
    
    
    31
    %
    
    
    29
    %
    
    
    32
    %
    
    
    30
    %Containerboard (North America)
    
    
    60
    %
    
    
    65
    %
    
    
    65
    %
    
    
    66
    %
    
    
    66
    %
    
    
    66
    %
    
    
    60
    %
    
    
    69
    %
    
    
    64
    %
    
    
    61
    %
    
    
    63
    %Tissue Papers2
    
    
    54
    %
    
    
    60
    %
    
    
    60
    %
    
    
    56
    %
    
    
    54
    %
    
    
    57
    %
    
    
    56
    %
    
    
    56
    %
    
    
    55
    %
    
    
    55
    %
    
    
    56
    %Total
    
    
    45
    %
    
    
    47
    %
    
    
    47
    %
    
    
    49
    %
    
    
    47
    %
    
    
    48
    %
    
    
    45
    %
    
    
    50
    %
    
    
    47
    %
    
    
    44
    %
    
    
    47
    %Capacity utilization rate3%PackagingBoxboard
    
    
    83
    %
    
    
    86
    %
    
    
    89
    %
    
    
    86
    %
    
    
    92
    %
    
    
    88
    %
    
    
    98
    %
    
    
    102
    %
    
    
    95
    %
    
    
    95
    %
    
    
    98
    %Containerboard
    
    
    92
    %
    
    
    73
    %
    
    
    82
    %
    
    
    91
    %
    
    
    89
    %
    
    
    84
    %
    
    
    94
    %
    
    
    95
    %
    
    
    95
    %
    
    
    90
    %
    
    
    93
    %Specialty products (paper only)
    
    
    83
    %
    
    
    79
    %
    
    
    82
    %
    
    
    86
    %
    
    
    81
    %
    
    
    82
    %
    
    
    85
    %
    
    
    85
    %
    
    
    81
    %
    
    
    76
    %
    
    
    82
    %Tissue Papers4
    
    
    94
    %
    
    
    92
    %
    
    
    89
    %
    
    
    92
    %
    
    
    89
    %
    
    
    91
    %
    
    
    93
    %
    
    
    95
    %
    
    
    93
    %
    
    
    93
    %
    
    
    93
    %Total
    
    
    88
    %
    
    
    81
    %
    
    
    85
    %
    
    
    89
    %
    
    
    89
    %
    
    
    86
    %
    
    
    94
    %
    
    
    96
    %
    
    
    93
    %
    
    
    90
    %
    
    
    93
    %Energy cons.5GJ/ton
    
    
    10.48
    
    
    
    10.75
    
    
    
    10.23
    
    
    
    10.30
    
    
    
    10.41
    
    
    
    10.36
    
    
    
    10.46
    
    
    
    9.47
    
    
    
    9.60
    
    
    
    10.27
    
    
    
    9.95Work accidents
OSHA frequency rate
    
    
    6.48
    
    
    
    6.25
    
    
    
    5.10
    
    
    
    5.30
    
    
    
    5.00
    
    
    
    5.41
    
    
    
    4.90
    
    
    
    5.26
    
    
    
    4.54
    
    
    
    4.50
    
    
    
    4.80FINANCIAL9Return on assets (%)6PackagingBoxboard
    
    
    3
    %
    
    
    5
    %
    
    
    7
    %
    
    
    9
    %
    
    
    11
    %
    
    
    11
    %
    
    
    12
    %
    
    
    12
    %
    
    
    12
    %
    
    
    11
    %
    
    
    11
    %Containerboard
    
    
    9
    %
    
    
    9
    %
    
    
    10
    %
    
    
    10
    %
    
    
    10
    %
    
    
    10
    %
    
    
    10
    %
    
    
    10
    %
    
    
    11
    %
    
    
    12
    %
    
    
    12
    %Specialty products
    
    
    11
    %
    
    
    12
    %
    
    
    13
    %
    
    
    13
    %
    
    
    13
    %
    
    
    13
    %
    
    
    14
    %
    
    
    14
    %
    
    
    13
    %
    
    
    13
    %
    
    
    13
    %Tissue papers
    
    
    18
    %
    
    
    22
    %
    
    
    26
    %
    
    
    28
    %
    
    
    27
    %
    
    
    27
    %
    
    
    23
    %
    
    
    19
    %
    
    
    16
    %
    
    
    15
    %
    
    
    15
    %Consolidated return on assets (%)
    
    
    7.8
    %
    
    
    8.9
    %
    
    
    10.4
    %
    
    
    11.4
    %
    
    
    11.9
    %
    
    
    11.9
    %
    
    
    11.4
    %
    
    
    11.1
    %
    
    
    10.8
    %
    
    
    10.5
    %
    
    
    10.5
    %Working capital7In millions of $, at end of period
    
    
    664
    
    
    
    662
    
    
    
    645
    
    
    
    593
    
    
    
    552
    
    
    
    552
    
    
    
    546
    
    
    
    599
    
    
    
    601
    
    
    
    540
    
    
    
    540% of sales8
    
    
    16.5
    %
    
    
    16.4
    %
    
    
    16.1
    %
    
    
    15.0
    %
    
    
    14.2
    %
    
    
    14.2
    %
    
    
    14.2
    %
    
    
    15.5
    %
    
    
    15.3
    %
    
    
    13.6
    %
    
    
    13.6
    %
 
 1
    
    Industrial packaging and specialty papers shipments.2
    
    Starting in Q3 2009, shipments take into account the acquisition of Atlantic Packaging Products Ltd.3
    
    Defined as: Shipments/Practical capacity. Paper manufacturing only.4
    
    Defined as: Manufacturing internal and external shipments/Practical capacity. Tissue
practical capacity represents 85% of its theoretical capacity. During the second quarter of
2009, the theoretical capacity had been reviewed and revised upward. Prior to the review, the
practical capacity was 80% of the theoretical capacity. Since August 31, 2009, it includes the
new capacity resulting from the acquisition of Atlantic Packaging tissue assets.5
    
    Average energy consumption for manufacturing mills
only.6
    
    Return on assets is a non-GAAP measure and is defined as the last twelve months (LTM) OIBD
excluding specific items/LTM Average of total assets.7

Working capital includes accounts receivable plus inventories less accounts payable. It
excludes the unpaid provision for closure and restructuring costs in the amount of $11 million
as at December 31, 2010 ($13 million in 2009). It also excludes the current portion of net
derivative financial instrument in the amount of $ million as at December 31, 2010 (net
assets of $9 million in 2009), $3 million of other liabilities in 2010 ($2 million in 2009),
the net income taxes receivable in the amount of $17 million ($12 million in 2009) and the
current portion of net future tax asset in the amount of $2 million as at December 31, 2010
(nil in 2009).8
    
    % of sales = Working capital end of period/LTM sales.9
    
    Certain comparative figures have been adjusted to conform to the new basis of calculation adopted in 2010.10
    
    Shipments do not take into account the elimination of business sector intercompany shipments. CASCADES  ANNUAL REPORT 2010  MANAGEMENTS DISCUSSION & ANALYSIS
    
    3




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##### 



Historical financial information
 2008
    
    
    2009
    
    
    2010Total
    
    
    Q1
    
    
    Q2
    
    
    Q3
    
    
    Q4
    
    
    Total
    
    
    Q1
    
    
    Q2
    
    
    Q3
    
    
    Q4
    
    
    Total(In millions of Canadian dollars, unless otherwise noted)SalesPackagingBoxboard
    
    
    1,323
    
    
    
    336
    
    
    
    336
    
    
    
    321
    
    
    
    320
    
    
    
    1,313
    
    
    
    310
    
    
    
    319
    
    
    
    319
    
    
    
    327
    
    
    
    1,275Containerboard
    
    
    1,203
    
    
    
    263
    
    
    
    275
    
    
    
    272
    
    
    
    252
    
    
    
    1,062
    
    
    
    255
    
    
    
    271
    
    
    
    292
    
    
    
    268
    
    
    
    1,086Specialty products
    
    
    860
    
    
    
    186
    
    
    
    188
    
    
    
    195
    
    
    
    200
    
    
    
    769
    
    
    
    215
    
    
    
    220
    
    
    
    220
    
    
    
    225
    
    
    
    880Inter-segment sales
    
    
    (100
    )
    
    
    (13
    )
    
    
    (15
    )
    
    
    (17
    )
    
    
    (22
    )
    
    
    (67
    )
    
    
    (29
    )
    
    
    (28
    )
    
    
    (28
    )
    
    
    (30
    )
    
    
    (115
    )3,286
    
    
    
    772
    
    
    
    784
    
    
    
    771
    
    
    
    750
    
    
    
    3,077
    
    
    
    751
    
    
    
    782
    
    
    
    803
    
    
    
    790
    
    
    
    3,126Tissue Papers
    
    
    787
    
    
    
    211
    
    
    
    207
    
    
    
    210
    
    
    
    212
    
    
    
    840
    
    
    
    198
    
    
    
    220
    
    
    
    227
    
    
    
    213
    
    
    
    858Inter-segment sales and Corporate activities
    
    
    (56
    )
    
    
    (13
    )
    
    
    (10
    )
    
    
    (7
    )
    
    
    (10
    )
    
    
    (40
    )
    
    
    (7
    )
    
    
    (4
    )
    
    
    (2
    )
    
    
    (12
    )
    
    
    (25
    )4,017
    
    
    
    970
    
    
    
    981
    
    
    
    974
    
    
    
    952
    
    
    
    3,877
    
    
    
    942
    
    
    
    998
    
    
    
    1,028
    
    
    
    991
    
    
    
    3,959Operating income (loss)PackagingBoxboard
    
    
    (75
    )
    
    
    3
    
    
    
    10
    
    
    
    3
    
    
    
    (24
    )
    
    
    (8
    )
    
    
    9
    
    
    
    14
    
    
    
    3
    
    
    
    (8
    )
    
    
    18Containerboard
    
    
    40
    
    
    
    19
    
    
    
    23
    
    
    
    26
    
    
    
    14
    
    
    
    82
    
    
    
    12
    
    
    
    21
    
    
    
    35
    
    
    
    (5
    )
    
    
    63Specialty products
    
    
    31
    
    
    
    5
    
    
    
    13
    
    
    
    13
    
    
    
    9
    
    
    
    40
    
    
    
    9
    
    
    
    11
    
    
    
    13
    
    
    
    3
    
    
    
    36(4
    )
    
    
    27
    
    
    
    46
    
    
    
    42
    
    
    
    (1
    )
    
    
    114
    
    
    
    30
    
    
    
    46
    
    
    
    51
    
    
    
    (10
    )
    
    
    117Tissue Papers
    
    
    54
    
    
    
    30
    
    
    
    33
    
    
    
    29
    
    
    
    24
    
    
    
    116
    
    
    
    8
    
    
    
    14
    
    
    
    14
    
    
    
    7
    
    
    
    43Corporate activities
    
    
    (34
    )
    
    
    (8
    )
    
    
    (4
    )
    
    
    5
    
    
    
    (9
    )
    
    
    (16
    )
    
    
    (11
    )
    
    
    (10
    )
    
    
    (7
    )
    
    
    (10
    )
    
    
    (38
    )16
    
    
    
    49
    
    
    
    75
    
    
    
    76
    
    
    
    14
    
    
    
    214
    
    
    
    27
    
    
    
    50
    
    
    
    58
    
    
    
    (13
    )
    
    
    122OIBD excluding specific items1PackagingBoxboard
    
    
    33
    
    
    
    24
    
    
    
    32
    
    
    
    26
    
    
    
    33
    
    
    
    115
    
    
    
    23
    
    
    
    29
    
    
    
    25
    
    
    
    24
    
    
    
    101Containerboard
    
    
    130
    
    
    
    36
    
    
    
    38
    
    
    
    41
    
    
    
    30
    
    
    
    145
    
    
    
    28
    
    
    
    39
    
    
    
    50
    
    
    
    37
    
    
    
    154Specialty products
    
    
    67
    
    
    
    13
    
    
    
    20
    
    
    
    22
    
    
    
    19
    
    
    
    74
    
    
    
    18
    
    
    
    20
    
    
    
    21
    
    
    
    16
    
    
    
    75230
    
    
    
    73
    
    
    
    90
    
    
    
    89
    
    
    
    82
    
    
    
    334
    
    
    
    69
    
    
    
    88
    
    
    
    96
    
    
    
    77
    
    
    
    330Tissue Papers
    
    
    90
    
    
    
    39
    
    
    
    42
    
    
    
    38
    
    
    
    35
    
    
    
    154
    
    
    
    19
    
    
    
    24
    
    
    
    24
    
    
    
    23
    
    
    
    90Corporate activities
    
    
    (14
    )
    
    
    (5
    )
    
    
    (11
    )
    
    
    
    
    
    
    (7
    )
    
    
    (23
    )
    
    
    (10
    )
    
    
    (5
    )
    
    
    (5
    )
    
    
    (2
    )
    
    
    (22
    )306
    
    
    
    107
    
    
    
    121
    
    
    
    127
    
    
    
    110
    
    
    
    465
    
    
    
    78
    
    
    
    107
    
    
    
    115
    
    
    
    98
    
    
    
    398Net earnings (loss)
    
    
    (54
    )
    
    
    37
    
    
    
    30
    
    
    
    34
    
    
    
    (41
    )
    
    
    60
    
    
    
    
    
    
    
    21
    
    
    
    30
    
    
    
    (34
    )
    
    
    17Excluding
specific items1
    
    
    4
    
    
    
    21
    
    
    
    28
    
    
    
    35
    
    
    
    26
    
    
    
    110
    
    
    
    
    
    
    
    21
    
    
    
    28
    
    
    
    14
    
    
    
    63Net earnings (loss) per share
(in dollars)Basic
    
    $
    (0.55
    )
    
    $
    0.38
    
    
    $
    0.30
    
    
    $
    0.35
    
    
    $
    (0.42
    )
    
    $
    0.61
    
    
    $
    
    
    
    $
    0.22
    
    
    $
    0.31
    
    
    $
    (0.35
    )
    
    $
    0.18Basic, excluding specific items1
    
    $
    0.04
    
    
    $
    0.22
    
    
    $
    0.28
    
    
    $
    0.36
    
    
    $
    0.27
    
    
    $
    1.13
    
    
    $
    
    
    
    $
    0.22
    
    
    $
    0.29
    
    
    $
    0.14
    
    
    $
    0.65Cash flow from operations (adjusted)1
    
    
    155
    
    
    
    68
    
    
    
    81
    
    
    
    94
    
    
    
    62
    
    
    
    305
    
    
    
    38
    
    
    
    71
    
    
    
    82
    
    
    
    58
    
    
    
    249Excluding specific items
    
    
    183
    
    
    
    70
    
    
    
    85
    
    
    
    95
    
    
    
    77
    
    
    
    327
    
    
    
    41
    
    
    
    71
    
    
    
    83
    
    
    
    65
    
    
    
    260Net debt
    
    
    1,800
    
    
    
    1,805
    
    
    
    1,658
    
    
    
    1,569
    
    
    
    1,533
    
    
    
    1,533
    
    
    
    1,508
    
    
    
    1,554
    
    
    
    1,516
    
    
    
    1,449
    
    
    
    1,449Cascades North American US$ selling price index
(2005 index = 1,000)2
    
    
    1,198
    
    
    
    1,166
    
    
    
    1,121
    
    
    
    1,080
    
    
    
    1,070
    
    
    
    1,109
    
    
    
    1,126
    
    
    
    1,180
    
    
    
    1,223
    
    
    
    1,234
    
    
    
    1,186Cascades North American US$ raw materials index
(2005 index = 300)3
    
    
    379
    
    
    
    206
    
    
    
    220
    
    
    
    280
    
    
    
    324
    
    
    
    258
    
    
    
    426
    
    
    
    409
    
    
    
    397
    
    
    
    451
    
    
    
    421US$/CAN
    
    $
    $0.94
    
    
    $
    0.80
    
    
    $
    0.86
    
    
    $
    0.91
    
    
    $
    0.95
    
    
    $
    0.88
    
    
    $
    0.96
    
    
    $
    0.97
    
    
    $
    0.96
    
    
    $
    0.99
    
    
    $
    0.97Natural Gas Henry Hub  US$/mmBtu
    
    $
    9.03
    
    
    $
    4.89
    
    
    $
    3.50
    
    
    $
    3.39
    
    
    $
    4.17
    
    
    $
    3.99
    
    
    $
    5.30
    
    
    $
    4.09
    
    
    $
    4.38
    
    
    $
    3.80
    
    
    $
    4.39Return on assets (%)4
    
    
    7.8
    %
    
    
    8.9
    %
    
    
    10.4
    %
    
    
    11.4
    %
    
    
    11.9
    %
    
    
    11.9
    %
    
    
    11.4
    %
    
    
    11.1
    %
    
    
    10.8
    %
    
    
    10.5
    %
    
    
    10.5
    %
 
 Source: Bloomberg and Cascades1
    
    See Supplemental Information on Non-GAAP Measures.2
    
    The Cascades North American selling prices index represents an approximation of the
Companys manufacturing selling price in North America (excluding converting). It is
weighted according to shipments and is based on publication prices. It includes some of
Cascades main products for which prices are available in PPI Pulp & Paper magazine
and the Cascades Tissue Index. This index should only be used as a trend indicator, as it
may differ from our actual selling prices and our product mix. The only non-manufacturing
prices reflected in the index are those for tissue. In fact, the tissue pricing
indicator, which is blended into the Cascades North American selling prices index, is the
Cascades tissue paper selling prices index, which represents a mix of primary and
converted products. CASCADES  ANNUAL REPORT 2010  MANAGEMENTS DISCUSSION & ANALYSIS
    
    4




---



##### 



3
    
    The Cascades North American raw materials index is based on publication prices and the
average weighted cost paid for some of our manufacturing raw materials, namely
recycled fibre, virgin pulp and woodchips, in North America. It is weighted according to
purchase volume (in tons). This index should only be used as a trend indicator, and it may
differ from our actual manufacturing purchasing costs and our purchase mix.4
    
    Return on assets is a non-GAAP measure, defined as LTM OIBD excluding specific items/LTM average of total assets. Financial results for the year ended December 31, 2010,  compared to the year ended December 31, 2009
 Sales
  Operating income from continuing operations
   
 1
    
    The impacts of these estimated costs are based on production costs per unit, which are
affected by yield, product mix changes and purchase and transfer prices. In addition to market
pulp and recycled fibre, they include purchases of external boards and parent rolls for the
converting sector, and other raw materials such as plastics and woodchips.2
    
    The estimated impact of the exchange rate is based only on the Companys export sales less
purchases that are impacted by the exchange rate fluctuations, mainly the CAN$/US$ variation.
It also includes the impact of the exchange rate on the Companys working capital items and
cash position.3
    
    Cost improvements and other items include the impact of variable costs based on production
costs per unit, which are affected by downtimes, efficiencies and product mix changes. It also
includes all other costs, such as repair and maintenance, selling and administration,
profit-sharing and change in operating income for operating units that are not in the
manufacturing and converting sectors. Operating income of businesses acquired or disposed of
are also included.4
    
    Excluding specific items.
  CASCADES  ANNUAL REPORT 2010  MANAGEMENTS DISCUSSION & ANALYSIS
    
    5




---



##### 



Specific items included in operating income
   2010Specialty
    
    
    Tissue
    
    
    CorporateBoxboard
    
    
    Containerboard
    
    
    Products
    
    
    Papers
    
    
    Activities
    
    
    Consolidated(In millions of Canadian dollars)Operating income (loss)
    
    
    18
    
    
    
    63
    
    
    
    36
    
    
    
    43
    
    
    
    (38
    )
    
    
    122Depreciation and amortization
    
    
    59
    
    
    
    71
    
    
    
    34
    
    
    
    41
    
    
    
    7
    
    
    
    212Operatingincome (loss) before depreciation and amortization
    
    
    77
    
    
    
    134
    
    
    
    70
    
    
    
    84
    
    
    
    (31
    )
    
    
    334Specific itemsLosses (gains) on disposal
and others
    
    
    7
    
    
    
    (3
    )
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    8Impairment loss
    
    
    10
    
    
    
    28
    
    
    
    5
    
    
    
    6
    
    
    
    
    
    
    
    49Closure and restructuring costs
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Unrealized loss (gain) on financial instruments
    
    
    6
    
    
    
    (5
    )
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    624
    
    
    
    20
    
    
    
    5
    
    
    
    6
    
    
    
    9
    
    
    
    64Operating income (loss) before depreciation and
amortization  excluding specific items
    
    
    101
    
    
    
    154
    
    
    
    75
    
    
    
    90
    
    
    
    (22
    )
    
    
    398Operating income (loss) 
excluding specific items
    
    
    42
    
    
    
    83
    
    
    
    41
    
    
    
    49
    
    
    
    (29
    )
    
    
    186
 2009Specialty
    
    
    Tissue
    
    
    CorporateBoxboard
    
    
    Containerboard
    
    
    Products
    
    
    Papers
    
    
    Activities
    
    
    Consolidated(In millions of Canadian dollars)Operating income (loss)
    
    
    (8
    )
    
    
    82
    
    
    
    40
    
    
    
    116
    
    
    
    (16
    )
    
    
    214Depreciation and amortization
    
    
    75
    
    
    
    63
    
    
    
    34
    
    
    
    37
    
    
    
    9
    
    
    
    218Operating income (loss) before depreciation and
amortization
    
    
    67
    
    
    
    145
    
    
    
    74
    
    
    
    153
    
    
    
    (7
    )
    
    
    432Specific itemsLosses (gains) on disposal
and others
    
    
    3
    
    
    
    
    
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    1Impairment loss
    
    
    39
    
    
    
    4
    
    
    
    2
    
    
    
    1
    
    
    
    
    
    
    
    46Closure and restructuring costs
    
    
    6
    
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12Unrealized gain on financial instruments
    
    
    
    
    
    
    (10
    )
    
    
    
    
    
    
    
    
    
    
    (16
    )
    
    
    (26
    )48
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    (16
    )
    
    
    33Operating income (loss) before depreciation and
amortization  excluding specific items
    
    
    115
    
    
    
    145
    
    
    
    74
    
    
    
    154
    
    
    
    (23
    )
    
    
    465Operating income (loss)  excluding specific items
    
    
    40
    
    
    
    82
    
    
    
    40
    
    
    
    117
    
    
    
    (32
    )
    
    
    247
 CASCADES  ANNUAL REPORT 2010  MANAGEMENTS DISCUSSION & ANALYSIS
    
    6




---



##### 



Losses (gains) on disposal and others
  (in millions of Canadian dollars)
    
    2010
    
    
    2009Legal settlement
    
    
    7
    
    
    
    Supplemental executive retirement plan
    
    
    4
    
    
    
    Gains on disposal of property, plant and equipment and other assets
    
    
    (3
    )
    
    
    (2
    )Pension plan  partial curtailment
    
    
    
    
    
    
    38
    
    
    
    1
 
    
    In 2010, the Company recorded a provision of $7 million following a class-action suit
related to labour consideration at one of its units in the Boxboard Group.
    
    In 2010, the Company established an unfunded supplemental executive retirement plan in
favour of its founding shareholders, Bernard, Laurent and Alain Lemaire. The actuarial deficit
of the plan is evaluated at $18 million as at December 31, 2010, and a charge of $4 million
has been recorded for the year.
    
    In 2010, the Company sold its building and land of its Québec City based corrugated
products plant closed in 2009 and recorded a gain of $3 million. In 2009, the Company recorded
a gain of $2 million on disposal of assets in the Specialty Products Group for a mill in
Europe that had been closed in 2006.
    
    In 2009, the Company recorded a $3 million charge that was incurred to settle a partial
curtailment of one of its employee future benefit pension plans.
 Impairment charges, closure and restructuring costs
  2010
    
    
    2009Closure and
    
    
    
    
    
    
    Closure andImpairment
    
    
    restructuring
    
    
    
    
    
    restructuring(in millions of Canadian dollars)
    
    Charges
    
    
    costs
    
    
    Impairment
    
    
    costsBoxboard  Toronto
    
    
    9
    
    
    
    
    
    
    
    
    
    
    
    5Boxboard  Corporate
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    Boxboard  Fjordcell
    
    
    
    
    
    
    
    
    
    
    37
    
    
    
    Boxboard  Dopaco (Bakersfield)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Boxboard  Europe (LaRochette)
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    Boxboard  RdM (Marzabotto)
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Containerboard  Avot-Vallée
    
    
    21
    
    
    
    
    
    
    
    
    
    
    
    Containerboard  Leominster
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    Containerboard  Converting
    
    
    1
    
    
    
    
    
    
    
    4
    
    
    
    6Specialty Products  East Angus
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    Specialty Products  Others
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    Tissue  Maryland
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    Tissue  Others
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    49
    
    
    
    1
    
    
    
    46
    
    
    
    12
 2010
 
    
    In 2010, the Company reviewed the status of some equipment in the Tissue Group and of its
Toronto mill in the Boxboard Group that was not in service and concluded that the reopening
was unlikely to occur and recorded impairment charges of $6 million and $9 million
respectively on these units. An impairment charge of $1 million representing the Companys
share of an impairment recorded by its European joint venture following the closure of one of
its plants was also recorded in the Boxboard Group. Restructuring charges of $1 million were
also recorded at the Boxboard mill in LaRochette, France.
    
    The Company upgraded its pulping equipment at its East Angus mill in the Specialty Products
Group. The new equipment will be put in operation during 2011 and, as a result, the Company
reviewed its estimate of the useful life of the old pulping equipment and recorded an
impairment of $5 million.
    
    Following low profitability at its U.S.-based Leominster corrugated plant and its
Avot-Vallée, France, containerboard mill, the Container-board Group recorded impairment
charges of $6 million and $21 million respectively to value these assets to their net
realizable value. This Group also recorded additional impairment charges totalling $1 million on
some assets of its converting activities.
 CASCADES  ANNUAL REPORT 2010  MANAGEMENTS DISCUSSION & ANALYSIS
    
    7




---



##### 



2009
 
    
    In 2009, the Company recorded a charge of $1 million to terminate the lease of the building
used for the Bakersfield operation, which had been closed in 2008. The Company also recorded
additional charges of $5 million in 2009 following the closure of its Toronto recycled
boxboard mill in 2008.
    
    In 2009, the Company announced the closure of its Québec City corrugated product plant and
recorded an impairment charge of $3 million on property, plant and equipment and inventories,
and a charge for severance costs of $4 million.
    
    In 2009, the Company reviewed the status of the Fjordcell pulp mill that was temporarily
closed in 2006 and concluded that the reopening was unlikely to occur and thus recorded an
impairment charge on the assets of $37 million.
    
    The Company also incurred impairment and restructuring charges totalling $2 million in the
Boxboard sector and $3 million in the Containerboard converting sector. Finally, the Company
recorded an impairment charge of $3 million on certain equipment in the Specialty Products and
Tissue Papers sectors. Restructuring action plans and assets put out of service led to these
charges.
 Derivative Financial Instruments
    BUSINESS HIGHLIGHTS
   Closure, Restructuring and Disposal
 Containerboard Group
   Business Acquisitions
 Tissue Group
   Specialty Products Group
  CASCADES  ANNUAL REPORT 2010  MANAGEMENTS DISCUSSION & ANALYSIS
    
    8




---



##### 



BUSINESS SEGMENT REVIEW
 Packaging  Boxboard
 Operating
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Average selling priceSales
    
    
    income (loss)
    
    
    OIBD
    
    
    Shipments1
    
    
    Average selling price
    
    
    (in U.S. dollars or(in millions of dollars)
    
    
    (in millions of dollars)
    
    
    (in millions of dollars)
    
    
    (in thousands of short tons)
    
    
    (in Canadian dollars/unit)
    
    
    euros/unit)2010
    
    
    2009
    
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009BoxboardManufacturing 
North America
    
    
    257
    
    
    
    249
    
    
    
    (5
    )
    
    
    9
    
    
    
    5
    
    
    
    24
    
    
    
    365
    
    
    
    331
    
    
    
    705
    
    
    
    750
    
    
    
    684
    
    
    
    657Manufacturing  Europe
    
    
    470
    
    
    
    457
    
    
    
    9
    
    
    
    2
    
    
    
    27
    
    
    
    24
    
    
    
    597
    
    
    
    523
    
    
    
    787
    
    
    
    875
    
    
    
    575
    
    
    
    552Converting
    
    
    633
    
    
    
    692
    
    
    
    27
    
    
    
    25
    
    
    
    58
    
    
    
    59
    
    
    
    273
    
    
    
    269
    
    
    
    2,321
    
    
    
    2,573
    
    
    
    2,254
    
    
    
    2,254Others and eliminations
    
    
    (85
    )
    
    
    (85
    )
    
    
    (13
    )
    
    
    (44
    )
    
    
    (13
    )
    
    
    (40
    )
    
    
    (110
    )
    
    
    (99
    )1,275
    
    
    
    1,313
    
    
    
    18
    
    
    
    (8
    )
    
    
    77
    
    
    
    67
    
    
    
    1,125
    
    
    
    1,024Specific items
    
    
    
    
    
    
    
    
    
    
    24
    
    
    
    48
    
    
    
    24
    
    
    
    48Excluding specific items
    
    
    
    
    
    
    
    
    
    
    42
    
    
    
    40
    
    
    
    101
    
    
    
    115
 
 1
    
    Shipments do not take into account the elimination of business sector intercompany shipments. 
 
 
   North America
     CASCADES  ANNUAL REPORT 2010  MANAGEMENTS DISCUSSION & ANALYSIS
    
    9




---



##### 



Europe
    CASCADES  ANNUAL REPORT 2010  MANAGEMENTS DISCUSSION & ANALYSIS
    
    10




---



##### 



Packaging  Containerboard
 OperatingSales
    
    
    income (loss)
    
    
    OIBD
    
    
    Shipments1
    
    
    Average selling price
    
    
    Average selling price2010
    
    
    2009
    
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009(in millions of dollars)
    
    
    (in millions of dollars)
    
    
    (in millions of dollars)
    
    
    (in thousands of short tons)
    
    
    (in Canadian dollars/unit)
    
    
    (in U.S. dollars/unit)ContainerboardManufacturing
    
    
    584
    
    
    
    517
    
    
    
    10
    
    
    
    67
    
    
    
    49
    
    
    
    91
    
    
    
    1,184
    
    
    
    1,067
    
    
    
    493
    
    
    
    485
    
    
    
    479
    
    
    
    425Converting
    
    
    839
    
    
    
    856
    
    
    
    56
    
    
    
    30
    
    
    
    82
    
    
    
    56
    
    
    
    685
    2
    
    
    673
    2
    
    
    1,225
    2
    
    
    1,273
    2
    
    
    1,190
    2
    
    
    1,115
    2Others and eliminations
    
    
    (337
    )
    
    
    (311
    )
    
    
    (3
    )
    
    
    (15
    )
    
    
    3
    
    
    
    (2
    )
    
    
    (650
    )
    
    
    (599
    )1,086
    
    
    
    1,062
    
    
    
    63
    
    
    
    82
    
    
    
    134
    
    
    
    145
    
    
    
    1,219
    
    
    
    1,141Specific items
    
    
    
    
    
    
    
    
    
    
    20
    
    
    
    
    
    
    
    20
    
    
    
    Excluding specific items
    
    
    
    
    
    
    
    
    
    
    83
    
    
    
    82
    
    
    
    154
    
    
    
    145
 
 1
    
    Shipments do not take into account the elimination of business sector intercompany shipments.2
    
    Equal to 11,276 million square feet (msf), CAN$74/msf, US$72/msf in 2010, and to 11,159msf,
CAN$77/msf, US$67/msf in 2009. 
 
 
        CASCADES  ANNUAL REPORT 2010  MANAGEMENTS DISCUSSION & ANALYSIS
    
    11




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##### 



CASCADES  ANNUAL REPORT 2010  MANAGEMENTS DISCUSSION & ANALYSIS
    
    12




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##### 



Packaging  Specialty Products
 Operating
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Average selling
    
    
    Average sellingSales
    
    
    income (loss)
    
    
    OIBD
    
    
    Shipments1
    
    
    price2
    
    
    price22010
    
    
    2009
    
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009(in millions of dollars)
    
    
    (in millions of dollars)
    
    
    (in millions of dollars)
    
    
    (in thousands of short tons)
    
    
    (in Canadian dollars/unit)
    
    
    (in U.S. dollars/unit)Specialty ProductsIndustrial packaging
    
    
    195
    
    
    
    184
    
    
    
    18
    
    
    
    14
    
    
    
    25
    
    
    
    20
    
    
    
    225
    
    
    
    222Consumer packaging
    
    
    77
    
    
    
    82
    
    
    
    3
    
    
    
    7
    
    
    
    6
    
    
    
    11Specialty papers
    
    
    301
    
    
    
    312
    
    
    
    
    
    
    
    22
    
    
    
    14
    
    
    
    37
    
    
    
    269
    
    
    
    250Recovery and recycling
    
    
    318
    
    
    
    199
    
    
    
    17
    
    
    
    (2
    )
    
    
    26
    
    
    
    6Others and eliminations
    
    
    (11
    )
    
    
    (8
    )
    
    
    (2
    )
    
    
    (1
    )
    
    
    (1
    )
    
    
    
    
    
    
    (19
    )
    
    
    (14
    )880
    
    
    
    769
    
    
    
    36
    
    
    
    40
    
    
    
    70
    
    
    
    74
    
    
    
    475
    
    
    
    458
    
    
    
    925
    
    
    
    957
    
    
    
    898
    
    
    
    839Specific items
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    5
    
    
    
    Excluding specific items
    
    
    
    
    
    
    
    
    
    
    41
    
    
    
    40
    
    
    
    75
    
    
    
    74
 
 1
    
    Shipments do not take into account the elimination of business sector intercompany shipments.2
    
    Average selling prices are for paper manufacturing mills only. 
 
 
       CASCADES  ANNUAL REPORT 2010  MANAGEMENTS DISCUSSION & ANALYSIS
    
    13




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##### 



CASCADES  ANNUAL REPORT 2010  MANAGEMENTS DISCUSSION & ANALYSIS
    
    14




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##### 



Tissue Papers
 Sales
    
    
    Operating income
    
    
    OIBD
    
    
    Shipments1
    
    
    Average selling price
    
    
    Average selling price2010
    
    
    2009
    
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009(in millions of dollars)
    
    
    (in millions of dollars)
    
    
    (in millions of dollars)
    
    
    (in thousands of short tons)
    
    
    (in Canadian dollars/unit)
    
    
    (in U.S. dollars/unit)Tissue PapersManufacturing and
converting
    
    
    858
    
    
    
    840
    
    
    
    43
    
    
    
    116
    
    
    
    84
    
    
    
    153
    
    
    
    511
    
    
    
    459
    
    
    
    1,643
    
    
    
    1,785
    
    
    
    1,594
    
    
    
    1,568Specific items
    
    
    
    
    
    
    
    
    
    
    6
    
    
    
    1
    
    
    
    6
    
    
    
    1Excluding specific items
    
    
    
    
    
    
    
    
    
    
    49
    
    
    
    117
    
    
    
    90
    
    
    
    154
 
 1
    
    Shipments do not take into account the elimination of business sector intercompany shipments. 
 
 
       CASCADES  ANNUAL REPORT 2010  MANAGEMENTS DISCUSSION & ANALYSIS
    
    15




---



##### 



CASCADES  ANNUAL REPORT 2010  MANAGEMENTS DISCUSSION & ANALYSIS
    
    16




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##### 



Corporate activities
   Other items analysis
 Depreciation and amortization
  Financing expense
  Loss on refinancing of long-term debt
  Gain on purchases of senior notes
  Foreign exchange loss on long-term debt and financial instruments
   Provision for income taxes
   CASCADES  ANNUAL REPORT 2010  MANAGEMENTS DISCUSSION & ANALYSIS
    
    17




---



##### 



Share of earnings of significantly influenced companies
    Results of discontinued operations
  Net earnings
  LIQUIDITY AND CAPITAL RESOURCES
 Cash Flows from Operating Activities
    Investing activities
  
  CASCADES  ANNUAL REPORT 2010  MANAGEMENTS DISCUSSION & ANALYSIS
    
    18




---



##### 



Boxboard ($34 million)
 
    
    $12 million in our QSR activities for equipment upgrades.
    
    $12 million in European plants, including our share of RdM.
 Containerboard ($31 million)
 
    
    $3 million for the upgrade of dryer equipment at our Kingsey Falls mill.
    
    $1 million for new IT equipment.
 Specialty Products ($31 million)
 
    
    $7 million for new pulping equipment to use recycled fibre at the East Angus mill. Total project cost is estimated at
$10 million. The new equipment will be operational during the first quarter of 2011.
 Tissue ($36 million)
 
    
    $20 million, net of government grants, for the installation and start-up of a new technology at the Candiac tissue
paper mill. In fact, Cascades will be the only manufacturer in North America to have this technology to produce a
superior quality of tissue paper and will be more efficient with the use of its recycled fibre.
 Corporate activities ($17 million)
 
    
    $5 million for investment to reduce energy consumption.
    
    $4 million for new leased IT equipment.
 In 2010, the Company also completed the following significant projects that started in previous years:
 
    
    $2 million for a corrugator dry-end at a Containerboard Group plant in Ontario.
    
    $8 million for the completion of the investment in the bark boiler at the Trenton containerboard mill.
    
    $2 million for moulded pulp production equipment at our Kingsey Falls plant in the Specialty Products Group.
 In 2010, the Company also invested in other assets for $37 million. The main investments are as follows:
 
    
    $6 million for modernization of our financial information system to an ERP information technology system.
    
    $21 million for a project in development in partnership with third parties in our Containerboard manufacturing segment.
    
    $6 million investment to increase our share position in RdM and Boralex. In 2010, the Company acquired 13.3 million
            shares in RdM on the open market (2009-11.2 million), which represents 3.51% (2009-3%) of the outstanding shares, for
a cash consideration of $4 million (3 million) (2009-$3.9 million (2.5 million)). As of December 31, 2010, our
investments in RdM stood at 39.66%. The Company also acquired on the open market 0.8% of the outstanding shares of
Boralex for a cash consideration of $2 million.
 Business acquisitions ($3 million)
 
    
    On March 10, 2010, the Company acquired the converting tissue business assets of Atlas Paper Bag Company Limited,
based in Ontario, for total cash consideration of $3 million.
  Financing activities
    Unsecured senior notes
     CASCADES  ANNUAL REPORT 2010  MANAGEMENTS DISCUSSION & ANALYSIS
    
    19




---



##### 



Settlement of Forward Exchange Contracts
   Liquidity from Discontinued Operations
  Consolidated Financial Position as at December 31, 2010 and 2009
  2010
    
    2009(in millions of Canadian dollars,unless otherwise noted)Working capital1
    
    
    540
    
    
    
    552% of sales2
    
    
    13.6
    %
    
    
    14.2
    %Bank loans and advances
    
    
    64
    
    
    
    83Current portion of long-term debt
    
    
    12
    
    
    
    10Long-term debt
    
    
    1,383
    
    
    
    1,459Total debt
    
    
    1,459
    
    
    
    1,552Equity attributable to Shareholders
    
    
    1,257
    
    
    
    1,304Total equity attributable to Shareholders and debt
    
    
    2,716
    
    
    
    2,856Ratio of total debt/total equity attributable to Shareholders and debt
    
    
    53.7
    %
    
    
    54.3
    %Shareholders equity per share (in dollars)
    
    $
    13.01
    
    
    $
    13.41
 
 1
    
    Working capital includes accounts receivable plus inventories less accounts payable. It
excludes the unpaid provision for closure and restructuring costs in the amount of $11 million
as at December 31, 2010 ($13 million in 2009). It also excludes the current portion of net
derivative financial instrument in the amount of $ million as at December 31, 2010 (net
asset of $9 million in 2009), $3 million of other liabilities in 2010 ($2 million in 2009),
the net income taxes receivable in the amount of $17 million ($12 million in 2009) and the
current portion of net future tax asset in the amount of $2 million as at December 31, 2010
(nil in 2009).2
    
    % of sales = LTM Working Capital/LTM Sales.  Pension Liabilities
   CASCADES  ANNUAL REPORT 2010  MANAGEMENTS DISCUSSION & ANALYSIS
    
    20




---



##### 



COMMENTS ON THE FOURTH QUARTER OF 2010
     2010Specialty
    
    
    
    
    
    
    CorporateBoxboard
    
    
    Containerboard
    
    
    Products
    
    
    Tissue Papers
    
    
    Activities
    
    
    Consolidated(in millions of Canadian dollars)Operating income (loss)
    
    
    (8
    )
    
    
    (5
    )
    
    
    3
    
    
    
    7
    
    
    
    (10
    )
    
    
    (13
    )Depreciation and amortization
    
    
    15
    
    
    
    17
    
    
    
    8
    
    
    
    10
    
    
    
    3
    
    
    
    53Operating income (loss) before depreciation
and amortization
    
    
    7
    
    
    
    12
    
    
    
    11
    
    
    
    17
    
    
    
    (7
    )
    
    
    40Specific itemsLoss on disposal and others
    
    
    7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    10Impairment loss
    
    
    10
    
    
    
    27
    
    
    
    5
    
    
    
    6
    
    
    
    
    
    
    
    48Unrealized loss (gain) on financial instruments
    
    
    
    
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    17
    
    
    
    25
    
    
    
    5
    
    
    
    6
    
    
    
    5
    
    
    
    58Operating income (loss) before depreciation and
amortization  excluding specific items
    
    
    24
    
    
    
    37
    
    
    
    16
    
    
    
    23
    
    
    
    (2
    )
    
    
    98Operating income (loss) 
excluding specific items
    
    
    9
    
    
    
    20
    
    
    
    8
    
    
    
    13
    
    
    
    (5
    )
    
    
    45
 2009Specialty
    
    
    
    
    
    
    CorporateBoxboard
    
    
    Containerboard
    
    
    Products
    
    
    Tissue Papers
    
    
    Activities
    
    
    Consolidated(in millions of Canadian dollars)Operating income (loss)
    
    
    (24
    )
    
    
    14
    
    
    
    9
    
    
    
    24
    
    
    
    (9
    )
    
    
    14Depreciation and amortization
    
    
    18
    
    
    
    15
    
    
    
    9
    
    
    
    10
    
    
    
    4
    
    
    
    56Operating income (loss) before depreciation
and amortization
    
    
    (6
    )
    
    
    29
    
    
    
    18
    
    
    
    34
    
    
    
    (5
    )
    
    
    70Specific itemsImpairment loss
    
    
    39
    
    
    
    1
    
    
    
    1
    
    
    
    1
    
    
    
    
    
    
    
    42Closure and restructuring costs
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2Unrealized gain on financial instruments
    
    
    
    
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    (4
    )39
    
    
    
    1
    
    
    
    1
    
    
    
    1
    
    
    
    (2
    )
    
    
    40Operating income (loss) before
depreciation and amortization  excluding
specific items
    
    
    33
    
    
    
    30
    
    
    
    19
    
    
    
    35
    
    
    
    (7
    )
    
    
    110Operating income (loss) 
excluding specific items
    
    
    15
    
    
    
    15
    
    
    
    10
    
    
    
    25
    
    
    
    (11
    )
    
    
    54
 CASCADES  ANNUAL REPORT 2010  MANAGEMENTS DISCUSSION & ANALYSIS
    
    21




---



##### 



NEAR-TERM OUTLOOK
   CAPITAL STOCK INFORMATION
   CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS
   Payment due by periodYears 2012
    
    
    Years 2014Total
    
    
    Year 2011
    
    
    and 2013
    
    
    and 2015
    
    
    Thereafter(in millions of Canadian dollars)Long-term debt, including capital and interests
    
    
    1,492
    
    
    
    75
    
    
    
    166
    
    
    
    146
    
    
    
    1,103Leases
    
    
    155
    
    
    
    38
    
    
    
    53
    
    
    
    32
    
    
    
    32Purchase obligations
    
    
    79
    
    
    
    61
    
    
    
    18
    
    
    
    
    
    
    
    Legal settlement
    
    
    5
    
    
    
    3
    
    
    
    2
    
    
    
    
    
    
    
    Pension plans and other post-employment benefits
    
    
    515
    
    
    
    46
    
    
    
    91
    
    
    
    123
    
    
    
    255Total contractual obligations
    
    
    2,246
    
    
    
    223
    
    
    
    330
    
    
    
    301
    
    
    
    1,390
 TRANSACTIONS WITH RELATED PARTIES
  CASCADES  ANNUAL REPORT 2010  MANAGEMENTS DISCUSSION & ANALYSIS
    
    22




---



##### 



OFF-BALANCE-SHEET ARRANGEMENTS
 Factoring of Accounts Receivable
   CRITICAL ACCOUNTING ESTIMATES
  Impairment of Long-lived Assets and Goodwill
         CASCADES  ANNUAL REPORT 2010  MANAGEMENTS DISCUSSION & ANALYSIS
    
    23




---



##### 



Valuation of Identifiable Intangible Assets
  Income Taxes
  Pension and Post-retirement Benefit Costs
  Environmental Clean-up Costs
  Collectibility of Accounts Receivable
  ADOPTION OF NEW ACCOUNTING STANDARDS IN 2010
 Business Combinations
  Consolidated Financial Statements and Non-controlling Interests
  CASCADES  ANNUAL REPORT 2010  MANAGEMENTS DISCUSSION & ANALYSIS
    
    24




---



##### 



Accounting Changes
  NEW ACCOUNTING STANDARDS NOT YET ADOPTED
 Financial Instruments  Recognition and Measurement
  INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)
  Impact of Adoption On Our Company
 Presentation of Financial Statements Interim Financial
Reporting First-time Adoption of International Financial Reporting Standards
     First-time Adoption of International
Financial Reporting Standards
 IFRS 1: First-time Adoption of International Financial Reporting Standards
 First-time Adoption of International
Financial Reporting Standards
 IFRS Exemption Options
 1.
    
    Business combinationsIFRS 1 provides the option to apply IFRS 3, Business
Combinations, retrospectively or prospectively from the Transition Date. The retrospective
basis would require restatement of all business combinations that occurred prior to the
Transition Date. The Company elected not to retrospectively apply IFRS 3 to business
combinations that occurred prior to its Transition Date, and such business combinations have
not been restated.
 CASCADES  ANNUAL REPORT 2010  MANAGEMENTS DISCUSSION & ANALYSIS
    
    25




---



##### 



2.
    
    Employee benefitsIFRS 1 provides the option to retrospectively apply the corridor
approach under IAS 19, Employee Benefits, for the recognition of actuarial gains and losses,
or recognize all cumulative gains and losses deferred under Canadian GAAP in opening retained
earnings at the Transition Date. The Company elected to recognize all cumulative actuarial
gains and losses that existed at its Transition Date in opening retained earnings for all of
its employee benefit plans.3.
    
    Currency translation differences (CTA) Retrospective application of IFRS would require
the Company to determine cumulative currency translation differences in accordance with IAS
21, The Effects of Changes in Foreign Exchange Rates, from the date a subsidiary or equity
method investee was formed or acquired. IFRS 1 permits cumulative translation gains and losses
to be reset to zero at Transition Date. The Company elected to reset all cumulative
translation gains and losses to zero in opening retained earnings at its Transition Date.4.
    
    Fair value as deemed costIFRS 1 allows an entity to adopt a fair value method for any
elements of property, plant and equipment at the Companys discretion and designate fair value
as deemed cost as at the Transition Date under IFRS 1. An entity may also elect to recalculate
original cost and amortization terms previously determined under Canadian GAAP retrospectively
in accordance with IAS 16 Property, Plant and Equipment. The Company elected to record
property, plant and equipment at cost at the Transition Date.5.
    
    Asset retirement obligationsIFRIC 1 Changes in Existing Decommissioning, Restoration and
Similar Liabilitiesrequires an entity to determine the obligation to dismantle, remove and
restore items of property, plant and equipment in accordance with IFRS from the acquisition
date of the asset. IFRS 1 allows an entity to apply prospectively the requirement of IFRIC 1.
In accounting for changes in asset retirement obligations, the guidance in IFRS requires
changes in such obligations to be added to or deducted from the cost of the asset to which it
relates. The adjusted depreciable amount of the asset is then depreciated prospectively over
its remaining useful life. The Company elected to measure the liability and the related
depreciation effects at the Transition Date.6.
    
    Designation of previously recognized financial instrumentsIFRS 1 allows an entity to
designate, at the Transition Date, a financial asset as Available For Sale (AFS). After the
Transition Date, any gain or loss arising from a change in fair value of a financial asset
classified as AFS is recognized in Other Comprehensive Income OCI, except for impairment
losses and foreign exchange gains and losses. The cumulative gain and loss recognized in OCI
is recycled through profit or loss when the financial asset is derecognized. The Company
elected to apply this exemption to a financial asset previously designed as Held For Trading.7.
    
    Borrowing costsIFRS 1 provides the option to apply IAS 23, Borrowing costs,
retrospectively or prospectively from the Transition Date. IAS 23 requires an entity to
capitalize borrowing costs that are directly attributable to the acquisition, construction or
production of a qualifying asset as part of the cost of that asset. A qualifying asset is an
asset that necessarily takes a substantial period of time to get ready for its intended use or
sale. The Company elected to apply this exemption prospectively from its Transition Date.
 IFRS Mandatory Exceptions
  1.
    
    Hedge accountingHedge accounting can only be applied prospectively from the Transition
Date to transactions that satisfy the hedge accounting criteria in IAS 39, Financial
Instruments: Recognition and Measurement, at that date. Hedging relationships cannot be
designated retrospectively and the supporting documentation cannot be created retrospectively.
As a result, only hedging relationships that satisfy the hedge accounting criteria as of the
Transition Date are recorded as hedges in the Companys results under IFRS. All derivatives,
whether they meet IAS 39 criteria for hedge accounting or not, were fair valued and recorded
in the statement of financial position.
 2.
    
    EstimatesHindsight is not used to create or revise estimates. The estimates previously
made by the Company under Canadian GAAP were not revised for application of IFRS.
 3.
    
    Derecognition of financial assets and liabilitiesFinancial assets and liabilities
derecognized before January 1, 2004, are not re-recognized under IFRS. The application of the
exemption from restating comparative figures for IAS 32 and IAS 39 means that the Company
recognized from January 1, 2010, any financial asset and financial liability derecognized
since January 1, 2004, that does not meet the IAS 39 derecognition criteria. The Company did
not choose to apply the IAS 39 derecognition criteria to an earlier date.
 CASCADES  ANNUAL REPORT 2010  MANAGEMENTS DISCUSSION & ANALYSIS
    
    26




---



##### 



Preliminary impactsIAS 19
    
    
    
    
    
    
    
    
    
    
    IAS 31Employee
    
    
    IAS 36
    
    
    IAS 21
    
    
    IAS 39
    
    
    Joint
    
    
    DisclosureIFRS Opening balance sheet
    
    
    
    
    
    benefits
    
    
    Impairment
    
    
    CTA
    
    
    Factoring
    
    
    Ventures
    
    
    and othersAs at January 1, 2010
    
    CDN GAAP
    
    
    Note 1
    
    
    Note 2
    
    
    Note 3
    
    
    Note 4
    
    
    Note 5
    
    
    Note 6
    
    
    IFRS(In millions of Canadian dollars)AssetsCurrent assetsCash and cash equivalents
    
    
    19
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11
    )
    
    
    
    
    
    
    8Accounts receivable
    
    
    524
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15
    
    
    
    (69
    )
    
    
    (14
    )
    
    
    456Current income tax assets
    
    
    13
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13Inventories
    
    
    520
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (53
    )
    
    
    
    
    
    
    467Financial assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14
    
    
    
    14Future income tax assets
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6
    )
    
    
    1,082
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15
    
    
    
    (133
    )
    
    
    (6
    )
    
    
    958Long-term assetsProperty, plant and equipment
    
    
    1,912
    
    
    
    
    
    
    
    (149
    )
    
    
    
    
    
    
    
    
    
    
    (125
    )
    
    
    (1
    )
    
    
    1,637Intangible assets
    
    
    165
    
    
    
    
    
    
    
    (9
    )
    
    
    
    
    
    
    
    
    
    
    (22
    )
    
    
    
    
    
    
    134Other assets
    
    
    317
    
    
    
    (80
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6
    )
    
    
    (167
    )
    
    
    64Goodwill
    
    
    316
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    315Investments in associates and joint ventures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    116
    
    
    
    144
    
    
    
    260Financial assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19
    
    
    
    19Future income tax assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    74
    
    
    
    743,792
    
    
    
    (80
    )
    
    
    (158
    )
    
    
    
    
    
    
    15
    
    
    
    (171
    )
    
    
    63
    
    
    
    3,461Liabilities and Shareholders equityCurrent liabilitiesBank loans and advances
    
    
    83
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (33
    )
    
    
    
    
    
    
    50Accounts payable and accrued liabilities
    
    
    498
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15
    
    
    
    (71
    )
    
    
    (40
    )
    
    
    402Provisions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24
    
    
    
    24Current income taxes liabilities
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Future income tax liabilities
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6
    )
    
    
    Current portion of long-term debt
    
    
    10
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4
    )
    
    
    
    
    
    
    6598
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15
    
    
    
    (108
    )
    
    
    (22
    )
    
    
    483Long-term liabilitiesLong-term debt
    
    
    1,459
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (36
    )
    
    
    
    
    
    
    1,423Future income tax liabilities
    
    
    203
    
    
    
    (34
    )
    
    
    (38
    )
    
    
    
    
    
    
    
    
    
    
    (12
    )
    
    
    73
    
    
    
    192Provisions for contingencies and charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31
    
    
    
    31Financial liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    55
    
    
    
    54Other liabilities
    
    
    207
    
    
    
    44
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14
    )
    
    
    (71
    )
    
    
    1662,467
    
    
    
    10
    
    
    
    (38
    )
    
    
    
    
    
    
    15
    
    
    
    (171
    )
    
    
    66
    
    
    
    2,349Equity attributable to ShareholdersCapital stock
    
    
    499
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    499Contributed surplus
    
    
    14
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14Retained earnings
    
    
    700
    
    
    
    (90
    )
    
    
    (120
    )
    
    
    88
    
    
    
    
    
    
    
    
    
    
    
    (3
    )
    
    
    575Accumulated other comprehensive income
    
    
    91
    
    
    
    
    
    
    
    
    
    
    
    (88
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31,304
    
    
    
    (90
    )
    
    
    (120
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3
    )
    
    
    1,091Non-controlling interest
    
    
    21
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21Total equity
    
    
    1,325
    
    
    
    (90
    )
    
    
    (120
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3
    )
    
    
    1,1123,792
    
    
    
    (80
    )
    
    
    (158
    )
    
    
    
    
    
    
    15
    
    
    
    (171
    )
    
    
    63
    
    
    
    3,461
 CASCADES  ANNUAL REPORT 2010  MANAGEMENTS DISCUSSION & ANALYSIS
    
    27




---



##### 



CHANGES IN ACCOUNTING POLICIES
  Note 1: Employee future benefits
  Actuarial gains and losses
 Canadian GAAP
 IFRS
 Past service costs
 Canadian GAAP
 IFRS
 Limit on accrued benefit asset
 Canadian GAAP
 IFRS
  Minimum funding requirements
 Canadian GAAP
 IFRS
 CASCADES  ANNUAL REPORT 2010  MANAGEMENTS DISCUSSION & ANALYSIS
    
    28




---



##### 



Note 2: Impairment
 Grouping of assets
 Canadian GAAP
 IFRS
 Recoverable amount
 Canadian GAAP
 IFRS
 Reversal of impairment
 Canadian GAAP
 IFRS
 Note 3: Foreign currency translation adjustment
  Note 4: Factoring
 Canadian GAAP
 IFRS
 Note 5: Joint ventures
 Accounting method
 Canadian GAAP
 IFRS
 Note 6: Presentation and others
  Income taxes
 Accounting for uncertainty in income tax positions
 Canadian GAAP
 IFRS
 CASCADES  ANNUAL REPORT 2010  MANAGEMENTS DISCUSSION & ANALYSIS
    
    29




---



##### 



Deferred tax
 Canadian GAAP
 IFRS
 Income tax effect of other reconciling differences between Canadian GAAP and IFRS
  Provisions and contingent liabilities
 Canadian GAAP
 IFRS
 Derivative instruments and hedging activities
  Hedge accounting
 Canadian GAAP
 IFRS
 Ongoing IFRS to Canadian GAAP differences
 Joint venture
 Interests in Joint Ventures
 CONTROLS AND PROCEDURES
 Evaluation of the effectiveness of disclosure controls and procedures, and internal control
over financial reporting
     RISK MANAGEMENT
  CASCADES  ANNUAL REPORT 2010  MANAGEMENTS DISCUSSION & ANALYSIS
    
    30




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##### 



a)
    
    The markets for some of the Companys products tend to be cyclical in nature and prices for
some of its products, as well as raw materials and energy costs, may fluctuate significantly,
which can adversely affect its business, operating results, profitability and financial
position.
    North American Finished Products and Raw Materials Hedging
 OldCorrugated
    
    
    SortedContainers
    
    
    Office PaperQuantity hedge
    
    
    137,000 s.t.
    
    
    
    44,500 s.t.% of annual consumption hedged
    
    
    5
    %
    
    
    4
    %Average price
    
    $US111/s.t.
    
    
    $US187/s.t.Fair value as at December 31, 2010 (in millions of Canadian dollars)
    
    
    2.4
    1
    
    
    0.7
 
 1
    
    Based on diverse index. North American Electricity Hedging
 United States
    
    
    CanadaElectricity consumption
    
    
    28
    %
    
    
    72
    %Electricity consumption in a regulated market
    
    
    48
    %
    
    
    77
    %% of consumption hedged in a deregulated market
    
    
    37
    %
    
    
    27
    %Average price
    
    US$
    0.045/KWh
    
    
    $0.042/KWhFair value as at December 31, 2010 (in millions of Canadian dollars)
    
    
    (0.7
    )
    
    
    (0.4
    )
 North American Natural Gas Hedging
 United States
    
    
    CanadaNatural gas consumption
    
    
    45
    %
    
    
    55
    %% of consumption hedged
    
    
    69
    %
    
    
    31
    %Average price
    
    US$
    6.33/mmBtu
    
    
    $5.78/GJFair value as at December 31, 2010 (in millions of Canadian dollars)
    
    
    (11.6
    )
    
    
    (11.1
    )
 CASCADES  ANNUAL REPORT 2010  MANAGEMENTS DISCUSSION & ANALYSIS
    
    31




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##### 



b)
    
    Cascades faces significant competition and some of its competitors may have greater cost
advantages or be able to achieve greater economies of scale or be able to better withstand
periods of declining prices and adverse operating conditions, which could negatively affect
the Companys market share and profitability.
  
    
    its ability to maintain high plant efficiencies, operating rates and lower manufacturing
costs;
    
    the availability, quality and cost of raw materials, particularly recycled and virgin
fibre, and labour; and
    
    the cost of energy.
   c)
    
    Because of the Companys international operations, it faces political, social and exchange
rate risks that can negatively affect its business, operating results, profitability and
financial condition.
   
    
    the effective marketing of its products in other countries;
    
    tariffs and other trade barriers; and
    
    different regulatory schemes and political environments applicable to the Companys
operations, in areas such as environmental and health and safety compliance.
      CASCADES  ANNUAL REPORT 2010  MANAGEMENTS DISCUSSION & ANALYSIS
    
    32




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##### 



North American foreign exchange hedging
 Sell contracts and options
    
    2011
    
    2012
    
    2013Total amount in millions of U.S. dollars
    
    
    64.5
    
    
    
    0.5
    
    
    
    397.5Estimated % of Sales, net of expenses from Canadian operations
    
    
    30
    %
    
    
    n/a
    
    
    
    n/aEstimated % of US$ denominated debt
    
    
    n/a
    
    
    
    n/a
    
    
    
    52
    %Average rate (CAN$)
    
    
    1.1249
    
    
    
    1.0727
    
    
    
    1.1759Fair value as at December 31, 2010 (in millions of Canadian dollars)
    
    
    8.0
    
    
    
    
    
    
    
    (61.8
    )
 d)
    
    The Companys operations are subject to comprehensive environmental regulations and involve
expenditures that may be material in relation to its operating cash flow.
  
    
    air emissions;
    
    water discharges;
    
    use and handling of hazardous materials;
    
    use, handling and disposal of waste; and
    
    remediation of environmental contamination.
 2 2
  
    
    require site remediation or other costs to maintain compliance or correct violations of
environmental laws and regulations; or
    
    result in governmental or private claims for damage to person, property or the environment.
    e)
    
    Cascades may be subject to losses that might not be covered in whole or in part by its
insurance coverage.
   f)
    
    Labour disputes could have a material adverse effect on the Companys cost structure and
ability to run its mills and plants.
 CASCADES  ANNUAL REPORT 2010  MANAGEMENTS DISCUSSION & ANALYSIS
    
    33




---



##### 



g)
    
    Cascades may make investments in entities that it does not control and may not receive
dividends or returns from those investments in a timely fashion or at all.
  
    
    three 50%-owned joint ventures with Sonoco Products Company, two of which are in Canada and
one in the United States, that produce specialty paper packaging products such as headers,
rolls and wrappers;
    
    a 73%-owned interest in Cascades Recovery Inc., a Canadian operator of wastepaper recovery
and recycling operations;
    
    a 35% interest in Boralex Inc., a public Canadian corporation and a major electricity
producer whose core business is the development and operation of power stations that generate
renewable energy with operations in Canada, the northeastern United States and France; and
    
    a 39.66%-owned joint venture interest in RdM, a European manufacturer of recycled boxboard.
     h)
    
    Acquisitions have been and are expected to continue to be a substantial part of the Companys
growth strategy, which could expose the Company to difficulties in integrating the acquired
operation, diversion of management time and resources, and unforeseen liabilities, among other
business risks.
  
    
    difficulty in integrating and managing newly acquired operations and in improving their
operating efficiency;
    
    difficulty in maintaining uniform standards, controls, procedures and policies across all
of the Companys businesses;
 CASCADES  ANNUAL REPORT 2010  MANAGEMENTS DISCUSSION & ANALYSIS
    
    34




---



##### 




    
    entry into markets in which Cascades has little or no direct prior experience;
    
    the Companys ability to retain key employees of the acquired company;
    
    disruptions to the Companys ongoing business; and
    
    diversion of management time and resources.
   i)
    
    The Company undertakes impairment tests, which could result in a write-down of the value of
assets and, as a result, could have a material adverse effect.
  j)
    
    Certain Cascades insiders collectively own a substantial percentage of the Companys common
shares.
  
    
    elect all of the Companys directors and, as a result, control matters requiring Board
approval;
    
    control matters submitted to a shareholder vote, including mergers, acquisitions and
consolidations with third parties, and the sale of all or substantially all of the Companys
assets; and
    
    otherwise control or influence the Companys business direction and policies.
  k)
    
    If Cascades is not successful in retaining or replacing its key personnel, particularly if
the Lemaires do not stay active in the Companys business, its business, financial condition
or operating results could be adversely affected.
  l) Risks relating to the Companys indebtedness and liquidity
 The significant amount of the Companys debt could adversely affect its financial health and
prevent it from fulfilling the Companys obligations under its outstanding indebtedness.
    CASCADES  ANNUAL REPORT 2010  MANAGEMENTS DISCUSSION & ANALYSIS
    
    35




---



##### 



Credit Rating (outlook)
    
    Moodys
    
    Standard & Poors2004
    
    Ba1/Ba2/Ba3 (stable)
    
    BBB-/BB+/BB+ (negative)2005/2006
    
    Ba1/Ba2/Ba3 (stable)
    
    BB+/BB/BB- (negative)2007
    
    Baa3/Ba2/Ba3 (stable)
    
    BBB-/BB/BB- (stable)2008
    
    Baa3/Ba2/Ba3 (negative)
    
    BB+/BB-/B+ (negative)2009
    
    Baa3/Ba2/Ba3 (stable)
    
    BB+/BB-/B+ (stable)2010
    
    Baa3/Ba2/Ba3 (stable)
    
    BB+/BB-/B+ (stable)
   
    
    make it more difficult for the Company to satisfy its obligations with respect to its
indebtedness;
    
    increase the Companys vulnerability to competitive pressures and to general adverse
economic or market conditions and require it to dedicate a substantial portion of its cash
flow from operations to servicing debt, reducing the availability of its cash flow to fund
working capital, capital expenditures, acquisitions and other general corporate purposes;
    
    limit its flexibility in planning for, or reacting to, changes in its business and
industry; and
    
    limit its ability to obtain additional sources of financing.
 Cascades may incur additional debt in the future, which would intensify the risks it now faces as a
result of its leverage as described above.
 The Companys operations are substantially restricted by the terms of its debt, which could limit
its ability to plan for or react to market conditions, or to meet its capital needs.
  
    
    borrow money;
    
    pay dividends on stock or redeem stock or subordinated debt;
    
    make investments;
    
    sell capital stock in subsidiaries;
    
    guarantee other indebtedness;
    
    enter into agreements that restrict dividends or other distributions from restricted
subsidiaries;
    
    enter into transactions with affiliates;
    
    create or assume liens;
    
    enter into sale and leaseback transactions;
    
    engage in mergers or consolidations; and
    
    enter into a sale of all or substantially all of our assets.
   The Companys failure to comply with the covenants contained in its credit facility or its senior
note indenture, including as a result of events beyond its control or due to other factors, could
result in an event of default that could cause accelerated repayment of the debt.
  CASCADES  ANNUAL REPORT 2010  MANAGEMENTS DISCUSSION & ANALYSIS
    
    36




---



##### 



m)
    
    Cascades is a holding company and depends on its subsidiaries to generate sufficient cash
flow to meet its debt service obligations.
  n)
    
    Risks related to the common shares
 The market price of the common shares may fluctuate, and purchasers may not be able to resell the
common shares at or above the offering price.
  o)
    
    Cash-flow and fair-value interest rate risks
   p)
    
    Credit risk
   q)
    
    Our obligation to adopt IFRS effective January 1, 2011, may impact the calculation of certain
defined terms and covenants under the indentures governing the Notes and our existing notes.
  r)
    
    Enterprise Resource Planning (ERP) implementation
  CASCADES  ANNUAL REPORT 2010  MANAGEMENTS DISCUSSION & ANALYSIS
    
    37




---



##### 



SUPPLEMENTAL INFORMATION ON NON-GAAP MEASURES
     For the Yearsended December 312010
    
    
    2009(in millions of Canadian dollars)Net earnings
    
    
    17
    
    
    
    60Net loss from discontinued operations
    
    
    1
    
    
    
    Non-controlling interest
    
    
    3
    
    
    
    (1
    )Share of earnings of significantly influenced companies
    
    
    (15
    )
    
    
    (17
    )Provision for income taxes
    
    
    
    
    
    
    23Foreign exchange loss on long-term debt and financial instruments
    
    
    4
    
    
    
    45Gain on purchases of senior notes
    
    
    
    
    
    
    (14
    )Loss on long-term debt refinancing
    
    
    3
    
    
    
    17Financing expense
    
    
    109
    
    
    
    101Operating income
    
    
    122
    
    
    
    214Specific itemsLosses on disposal and others
    
    
    8
    
    
    
    1Impairment loss
    
    
    49
    
    
    
    46Closure and restructuring costs
    
    
    1
    
    
    
    12Unrealized loss (gain) on financial instruments
    
    
    6
    
    
    
    (26
    )64
    
    
    
    33Operating income  excluding specific items
    
    
    186
    
    
    
    247Depreciation and amortization
    
    
    212
    
    
    
    218Operating income before depreciation and amortization 
excluding specific items
    
    
    398
    
    
    
    465
 CASCADES  ANNUAL REPORT 2010  MANAGEMENTS DISCUSSION & ANALYSIS
    
    38




---



##### 



Net earnings (Loss)Net earnings (Loss)
    
    

per
share1For the Years
    
    
    For the YearsEnded December 31
    
    
    Ended December 312010
    
    
    2009
    
    
    2010
    
    
    2009(In millions of Canadian dollars,except amount per share)As per GAAP
    
    
    17
    
    
    
    60
    
    
    $
    0.18
    
    
    $
    0.61Specific itemsNet loss from discontinued operations
    
    
    1
    
    
    
    
    
    
    $
    0.01
    
    
    
    Losses on disposal and others
    
    
    8
    
    
    
    1
    
    
    $
    0.06
    
    
    
    Impairment loss
    
    
    49
    
    
    
    46
    
    
    $
    0.38
    
    
    $
    0.35Closure and restructuring costs
    
    
    1
    
    
    
    12
    
    
    $
    0.01
    
    
    $
    0.09Unrealized loss (gain) on financial instruments
    
    
    6
    
    
    
    (26
    )
    
    $
    0.06
    
    
    $
    (0.19
    )Loss on long-term debt refinancing
    
    
    3
    
    
    
    17
    
    
    $
    0.02
    
    
    $
    0.11Gain on purchases of senior notes
    
    
    
    
    
    
    (14
    )
    
    
    
    
    
    $
    (0.13
    )Foreign exchange loss on long-term debt and financial instruments
    
    
    4
    
    
    
    45
    
    
    $
    0.03
    
    
    $
    0.40Share of earnings of significantly influenced companies
    
    
    (9
    )
    
    
    (5
    )
    
    $
    (0.10
    )
    
    $
    (0.05
    )Adjustment of statutory tax rate
    
    
    
    
    
    
    (6
    )
    
    
    
    
    
    $
    (0.06
    )Tax effect on specific items
    
    
    (17
    )
    
    
    (20
    )46
    
    
    
    50
    
    
    $
    0.47
    
    
    $
    0.52Excluding specific items
    
    
    63
    
    
    
    110
    
    
    $
    0.65
    
    
    $
    1.13
 
 1
    
    Specific amounts per share are calculated on an after-tax basis.  For the YearsEnded December 312010
    
    
    2009(In millions of Canadian dollars)Cash flow provided by operating activities
    
    
    232
    
    
    
    357Changes in non-cash working capital components
    
    
    17
    
    
    
    (52
    )Cash flow (adjusted) from operations
    
    
    249
    
    
    
    305Specific items, net of current income taxLosses on disposals and others
    
    
    7
    
    
    
    1Loss on refinancing on long-term debt
    
    
    3
    
    
    
    13Closure and restructuring costs
    
    
    1
    
    
    
    8Excluding specific items
    
    
    260
    
    
    
    327
  For the YearsEnded December 312010
    
    
    2009(In millions of Canadian dollars)Cash flow provided by operating activities
    
    
    232
    
    
    
    357Changes in non-cash working capital components
    
    
    17
    
    
    
    (52
    )Depreciation and amortization
    
    
    (212
    )
    
    
    (218
    )Current income taxes
    
    
    28
    
    
    
    30Financing expense
    
    
    109
    
    
    
    101Loss on long-term debt refinancing
    
    
    3
    
    
    
    13Losses on disposal and others
    
    
    (1
    )
    
    
    (1
    )Impairment loss and other restructuring costs
    
    
    (49
    )
    
    
    (50
    )Unrealized gain (loss) on financial instruments
    
    
    (6
    )
    
    
    26Other non-cash adjustments
    
    
    1
    
    
    
    8Operating income from continuing operations
    
    
    122
    
    
    
    214Depreciation and amortization
    
    
    212
    
    
    
    218Operating income before depreciation and amortization
    
    
    334
    
    
    
    432
 CASCADES  ANNUAL REPORT 2010  MANAGEMENTS DISCUSSION & ANALYSIS
    
    39