/s/ Alain Lemaire
    
    /s/ Allan HoggAlain Lemaire
    
    Allan HoggPresident and Chief Executive Officer
    
    Vice-President and Chief Financial OfficerKingsey Falls, Canada
    
    Kingsey Falls, Canada
 CASCADES  ANNUAL REPORT 2010  CONSOLIDATED FINANCIAL STATEMENTS
    
    40




---



##### 



Managements responsibility for the consolidated financial statements
  Auditors responsibility
    Opinion
  1
 
 
 1
    
    Chartered accountant auditor permit No. 19653 CASCADES  ANNUAL REPORT 2010  CONSOLIDATED FINANCIAL STATEMENTS
    
    41




---



##### 



As at December 31, 2010 and 2009(in millions of Canadian dollars)
    
    Note
    
    
    2010
    
    
    2009AssetsCurrent assetsCash and cash equivalents
    
    
    
    
    
    
    10
    
    
    
    19Accounts receivable
    
    
    
    
    
    
    561
    
    
    
    524Income taxes receivable
    
    
    
    
    
    
    21
    
    
    
    13Inventories
    
    
    6
    
    
    
    534
    
    
    
    520Future income tax assets
    
    
    
    
    
    
    7
    
    
    
    61,133
    
    
    
    1,082Property, plant and equipment
    
    
    7
    
    
    
    1,777
    
    
    
    1,912Intangible assets
    
    
    8
    (a)
    
    
    150
    
    
    
    165Other assets
    
    
    8
    (a)
    
    
    350
    
    
    
    317Goodwill
    
    
    8
    (b)
    
    
    314
    
    
    
    3163,724
    
    
    
    3,792Liabilities and EquityCurrent liabilitiesBank loans and advances
    
    
    
    
    
    
    64
    
    
    
    83Accounts payable and accrued liabilities
    
    
    
    
    
    
    569
    
    
    
    498Income taxes payable
    
    
    
    
    
    
    4
    
    
    
    1Future income tax liabilities
    
    
    
    
    
    
    5
    
    
    
    6Current portion of long-term debt
    
    
    9
    
    
    
    12
    
    
    
    10654
    
    
    
    598Long-term debt
    
    
    9
    
    
    
    1,383
    
    
    
    1,459Other liabilities
    
    
    10
    
    
    
    234
    
    
    
    207Future income tax liabilities
    
    
    
    
    
    
    172
    
    
    
    2032,443
    
    
    
    2,467Commitments and contingencies
    
    
    17Equity attributable to the ShareholdersCapital stock
    
    
    11
    (b)
    
    
    496
    
    
    
    499Contributed surplus
    
    
    
    
    
    
    14
    
    
    
    14Retained earnings
    
    
    
    
    
    
    701
    
    
    
    700Accumulated other comprehensive income
    
    
    19
    (a)
    
    
    46
    
    
    
    911,257
    
    
    
    1,304Non-controlling interest
    
    
    
    
    
    
    24
    
    
    
    21Total equity
    
    
    
    
    
    
    1,281
    
    
    
    1,3253,724
    
    
    
    3,792
   /s/ Alain Lemaire
    
    /s/ Robert ChevrierAlain Lemaire
    
    Robert ChevrierDirector
    
    Director
 CASCADES  ANNUAL REPORT 2010  CONSOLIDATED FINANCIAL STATEMENTS
    
    42




---



##### 



For the three-year period ended December 31, 2010(in millions of Canadian dollars, except per share amounts and number of shares)
    
    Note
    
    
    2010
    
    
    2009
    
    
    2008Sales
    
    
    
    
    
    
    3,959
    
    
    
    3,877
    
    
    
    4,017Cost of sales and expensesCost of sales (excluding depreciation and amortization)
    
    
    
    
    
    
    3,173
    
    
    
    2,991
    
    
    
    3,323Depreciation and amortization
    
    
    
    
    
    
    212
    
    
    
    218
    
    
    
    213Selling and administrative expenses
    
    
    
    
    
    
    395
    
    
    
    413
    
    
    
    389Losses on disposal and others
    
    
    12
    
    
    
    8
    
    
    
    1
    
    
    
    5Impairment and other restructuring costs
    
    
    13
    (a)
    
    
    50
    
    
    
    58
    
    
    
    43Loss (gain) on financial instruments
    
    
    18.4
    (a)
    
    
    (1
    )
    
    
    (18
    )
    
    
    283,837
    
    
    
    3,663
    
    
    
    4,001Operating income
    
    
    
    
    
    
    122
    
    
    
    214
    
    
    
    16Financing expense
    
    
    15
    (c)
    
    
    109
    
    
    
    101
    
    
    
    102Loss on refinancing of long-term debt
    
    
    
    
    
    
    3
    
    
    
    17
    
    
    
    Gain on purchase of senior notes
    
    
    
    
    
    
    
    
    
    
    (14
    )
    
    
    (2
    )Foreign exchange loss on long-term debt and financial instruments
    
    
    
    
    
    
    4
    
    
    
    45
    
    
    
    266
    
    
    
    65
    
    
    
    (110
    )Provision for (recovery of) income taxes
    
    
    14
    
    
    
    
    
    
    
    23
    
    
    
    (32
    )Share of earnings of significantly influenced companies
    
    
    
    
    
    
    (15
    )
    
    
    (17
    )
    
    
    (8
    )Net earnings (loss) from continuing operations including
non-controlling interest for the year
    
    
    
    
    
    
    21
    
    
    
    59
    
    
    
    (70
    )Net earnings (loss) from discontinued operations
    
    
    4
    
    
    
    (1
    )
    
    
    
    
    
    
    18Net earnings (loss) including non-controlling interest for the year
    
    
    
    
    
    
    20
    
    
    
    59
    
    
    
    (52
    )Less: Non-controlling interest income (loss)
    
    
    
    
    
    
    3
    
    
    
    (1
    )
    
    
    2Net earnings (loss) attributable to Shareholders for the year
    
    
    
    
    
    
    17
    
    
    
    60
    
    
    
    (54
    )Net earnings (loss) from continuing operations per common shareBasic
    
    
    
    
    
    
    0.18
    
    
    
    0.61
    
    
    
    (0.73
    )Diluted
    
    
    
    
    
    
    0.18
    
    
    
    0.60
    
    
    
    (0.73
    )Net earnings (loss) per common share
    
    
    11
    (g)Basic
    
    
    
    
    
    
    0.18
    
    
    
    0.61
    
    
    
    (0.55
    )Diluted
    
    
    
    
    
    
    0.18
    
    
    
    0.60
    
    
    
    (0.55
    )Weighted average number of common shares outstanding during the year
    
    
    
    
    
    
    96,807,032
    
    
    
    97,656,412
    
    
    
    98,804,536
  CASCADES  ANNUAL REPORT 2010  CONSOLIDATED FINANCIAL STATEMENTS
    
    43




---



##### 



For the three-year period ended December 31, 2010(in millions of Canadian dollars)
    
    2010
    
    
    2009
    
    
    2008Net earnings (loss) including non-controlling interest for the year
    
    
    20
    
    
    
    59
    
    
    
    (52
    )Other comprehensive income (loss)Translation adjustmentsChange in foreign currency translation of self-sustaining foreign subsidiaries
    
    
    (53
    )
    
    
    (128
    )
    
    
    176Change in foreign currency translation related to net investment hedging activities
    
    
    28
    
    
    
    87
    
    
    
    17Recovery of income taxes
    
    
    (4
    )
    
    
    (12
    )
    
    
    (3
    )Cash flow hedgesChange in fair value of foreign exchange forward contracts
    
    
    
    
    
    
    87
    
    
    
    (88
    )Change in fair value of interest rate swap agreements
    
    
    (1
    )
    
    
    
    
    
    
    (1
    )Change in fair value of commodity derivative financial instruments
    
    
    (23
    )
    
    
    (2
    )
    
    
    3Provision for (recovery of) income taxes
    
    
    8
    
    
    
    (26
    )
    
    
    24(45
    )
    
    
    6
    
    
    
    128Comprehensive income (loss) including non-controlling interest for the year
    
    
    (25
    )
    
    
    65
    
    
    
    76Less: Comprehensive income (loss) attributable to non-controlling interest
    
    
    3
    
    
    
    (1
    )
    
    
    2Comprehensive income (loss) attributable to Shareholders
    
    
    (28
    )
    
    
    66
    
    
    
    74
  CASCADES  ANNUAL REPORT 2010  CONSOLIDATED FINANCIAL STATEMENTS
    
    44




---



##### 



For the three-year period ended
December 31, 2010
(in millions of Canadian dollars)
    
    2010Accumulatedother
    
    
    Total equity
    
    
    Non-Contributed
    
    
    Retained
    
    
    comprehensive
    
    
    attributable to
    
    
    controlling
    
    
    TotalNote
    
    
    Capital stock
    
    
    surplus
    
    
    earnings
    
    
    income
    
    
    shareholders
    
    
    interest
    
    
    equityBalance  Beginning of year
    
    
    
    
    
    
    499
    
    
    
    14
    
    
    
    700
    
    
    
    91
    
    
    
    1,304
    
    
    
    21
    
    
    
    1,325Net earnings for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17
    
    
    
    
    
    
    
    17
    
    
    
    3
    
    
    
    20Other comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (45
    )
    
    
    (45
    )
    
    
    
    
    
    
    (45
    )Dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16
    )
    
    
    
    
    
    
    (16
    )
    
    
    
    
    
    
    (16
    )Stock options
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    1Redemption of common shares
    
    
    11
    (c)
    
    
    (3
    )
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    (4
    )
    
    
    
    
    
    
    (4
    )Balance  End of year
    
    
    
    
    
    
    496
    
    
    
    14
    
    
    
    701
    
    
    
    46
    
    
    
    1,257
    
    
    
    24
    
    
    
    1,281
 Accumulatedother
    
    
    Total equity
    
    
    Non-Contributed
    
    
    Retained
    
    
    comprehensive
    
    
    attributable to
    
    
    controlling
    
    
    TotalNote
    
    
    Capital stock
    
    
    surplus
    
    
    earnings
    
    
    income
    
    
    shareholders
    
    
    interest
    
    
    equityBalance  Beginning of year
    
    
    
    
    
    
    506
    
    
    
    9
    
    
    
    656
    
    
    
    85
    
    
    
    1,256
    
    
    
    22
    
    
    
    1,278Net earnings (loss) for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    60
    
    
    
    
    
    
    
    60
    
    
    
    (1
    )
    
    
    59Other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6
    
    
    
    6
    
    
    
    
    
    
    
    6Dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16
    )
    
    
    
    
    
    
    (16
    )
    
    
    
    
    
    
    (16
    )Stock options
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    2Redemption of common shares
    
    
    11
    (c)
    
    
    (7
    )
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    (4
    )
    
    
    
    
    
    
    (4
    )Balance  End of year
    
    
    
    
    
    
    499
    
    
    
    14
    
    
    
    700
    
    
    
    91
    
    
    
    1,304
    
    
    
    21
    
    
    
    1,325
 Accumulatedother
    
    
    Total equity
    
    
    Non-Contributed
    
    
    Retained
    
    
    comprehensive
    
    
    attributable to
    
    
    controlling
    
    
    TotalNote
    
    
    Capital stock
    
    
    surplus
    
    
    earnings
    
    
    income
    
    
    shareholders
    
    
    interest
    
    
    equityBalance  Beginning of year
    
    
    
    
    
    
    509
    
    
    
    8
    
    
    
    727
    
    
    
    (43
    )
    
    
    1,201
    
    
    
    25
    
    
    
    1,226Net earnings (loss) for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (54
    )
    
    
    
    
    
    
    (54
    )
    
    
    2
    
    
    
    (52
    )Other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    128
    
    
    
    128
    
    
    
    
    
    
    
    128Dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16
    )
    
    
    
    
    
    
    (16
    )
    
    
    
    
    
    
    (16
    )Stock options
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    1Redemption of common shares
    
    
    11
    (c)
    
    
    (3
    )
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    (4
    )
    
    
    
    
    
    
    (4
    )Dividend paid by a
non-controlling interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5
    )
    
    
    (5
    )Balance  End of year
    
    
    
    
    
    
    506
    
    
    
    9
    
    
    
    656
    
    
    
    85
    
    
    
    1,256
    
    
    
    22
    
    
    
    1,278
  CASCADES  ANNUAL REPORT 2010  CONSOLIDATED FINANCIAL STATEMENTS
    
    45




---



##### 



For the three-year period ended December 31, 2010(in millions of Canadian dollars)
    
    Note
    
    
    2010
    
    
    2009
    
    
    2008Operating activities from continuing operationsNet earnings (loss) attributable to Shareholders for the year
    
    
    
    
    
    
    17
    
    
    
    60
    
    
    
    (54
    )Loss (net earnings) from discontinued operations
    
    
    4
    
    
    
    1
    
    
    
    
    
    
    
    (18
    )Net earnings (loss) from continuing operations
    
    
    
    
    
    
    18
    
    
    
    60
    
    
    
    (72
    )Adjustments forDepreciation and amortization
    
    
    
    
    
    
    212
    
    
    
    218
    
    
    
    213Losses on disposal and others
    
    
    
    
    
    
    1
    
    
    
    1
    
    
    
    5Impairment and other restructuring costs
    
    
    
    
    
    
    49
    
    
    
    50
    
    
    
    16Unrealized loss (gain) on financial instruments
    
    
    
    
    
    
    6
    
    
    
    (26
    )
    
    
    27Loss on refinancing of long-term debt
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    Gain on purchase of senior notes
    
    
    
    
    
    
    
    
    
    
    (14
    )
    
    
    (2
    )Foreign exchange loss on long-term debt and financial instruments
    
    
    
    
    
    
    4
    
    
    
    45
    
    
    
    26Future income taxes
    
    
    
    
    
    
    (28
    )
    
    
    (7
    )
    
    
    (52
    )Share of earnings of significantly influenced companies
    
    
    
    
    
    
    (11
    )
    
    
    (17
    )
    
    
    (8
    )Non-controlling interest income (loss)
    
    
    
    
    
    
    3
    
    
    
    (1
    )
    
    
    2Early settlement of natural gas contracts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11Others
    
    
    
    
    
    
    (5
    )
    
    
    (8
    )
    
    
    (11
    )249
    
    
    
    305
    
    
    
    155Changes in non-cash working capital components
    
    
    15
    (a)
    
    
    (17
    )
    
    
    52
    
    
    
    (31
    )232
    
    
    
    357
    
    
    
    124Investing activities from continuing operationsPurchases of property, plant and equipment
    
    
    
    
    
    
    (131
    )
    
    
    (171
    )
    
    
    (179
    )Increase in other assets
    
    
    
    
    
    
    (37
    )
    
    
    (17
    )
    
    
    (4
    )Business acquisitions and joint venture disclosure
    
    
    5
    
    
    
    (3
    )
    
    
    (69
    )
    
    
    5(171
    )
    
    
    (257
    )
    
    
    (178
    )Financing activities from continuing operationsBank loans and advances
    
    
    
    
    
    
    (16
    )
    
    
    (18
    )
    
    
    20Change in revolving credit facilities
    
    
    
    
    
    
    243
    
    
    
    (250
    )
    
    
    (149
    )Issuance of senior notes, net of related expenses
    
    
    
    
    
    
    
    
    
    
    955
    
    
    
    Purchase of senior notes
    
    
    
    
    
    
    (165
    )
    
    
    (779
    )
    
    
    (2
    )Increase in other long-term debt
    
    
    
    
    
    
    1
    
    
    
    27
    
    
    
    2Payments of other long-term debt
    
    
    
    
    
    
    (109
    )
    
    
    (12
    )
    
    
    (5
    )Early settlement of foreign exchange contracts
    
    
    
    
    
    
    
    
    
    
    8
    
    
    
    150Dividend paid to a non-controlling interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5
    )Redemption of common shares
    
    
    11
    (c)
    
    
    (4
    )
    
    
    (4
    )
    
    
    (4
    )Dividends
    
    
    
    
    
    
    (16
    )
    
    
    (16
    )
    
    
    (16
    )(66
    )
    
    
    (89
    )
    
    
    (9
    )Change in cash and cash equivalents during the year from continuing operations
    
    
    
    
    
    
    (5
    )
    
    
    11
    
    
    
    (63
    )Change in cash and cash equivalents from discontinued operations,
including proceeds on disposal
    
    
    4
    
    
    
    (3
    )
    
    
    (3
    )
    
    
    50Net change in cash and cash equivalents during the year
    
    
    
    
    
    
    (8
    )
    
    
    8
    
    
    
    (13
    )Translation adjustments on cash and cash equivalents
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    (1
    )Cash and cash equivalentsBeginning of year
    
    
    
    
    
    
    19
    
    
    
    11
    
    
    
    25Cash and cash equivalentsEnd of year
    
    
    
    
    
    
    10
    
    
    
    19
    
    
    
    11
  CASCADES  ANNUAL REPORT 2010  CONSOLIDATED FINANCIAL STATEMENTS
    
    46




---



##### 



SALESFor the three-year period ended December 31, 2010(in millions of Canadian dollars)
    
    2010
    
    
    2009
    
    
    2008Packaging productsBoxboardManufacturing
    
    
    727
    
    
    
    706
    
    
    
    743Converting
    
    
    633
    
    
    
    692
    
    
    
    677Intersegment sales
    
    
    (85
    )
    
    
    (85
    )
    
    
    (97
    )1,275
    
    
    
    1,313
    
    
    
    1,323ContainerboardManufacturing
    
    
    584
    
    
    
    517
    
    
    
    615Converting
    
    
    839
    
    
    
    856
    
    
    
    921Intersegment sales
    
    
    (337
    )
    
    
    (311
    )
    
    
    (333
    )1,086
    
    
    
    1,062
    
    
    
    1,203Specialty productsIndustrial packaging
    
    
    195
    
    
    
    184
    
    
    
    211Consumer packaging
    
    
    77
    
    
    
    82
    
    
    
    79Specialty papers
    
    
    301
    
    
    
    312
    
    
    
    316Recovery and recycling
    
    
    318
    
    
    
    199
    
    
    
    269Intersegment sales
    
    
    (11
    )
    
    
    (8
    )
    
    
    (15
    )880
    
    
    
    769
    
    
    
    860Intersegment sales
    
    
    (115
    )
    
    
    (67
    )
    
    
    (100
    )3,126
    
    
    
    3,077
    
    
    
    3,286Tissue papersManufacturing and converting
    
    
    858
    
    
    
    840
    
    
    
    787Intersegment sales and others
    
    
    (25
    )
    
    
    (40
    )
    
    
    (56
    )Total
    
    
    3,959
    
    
    
    3,877
    
    
    
    4,017
 CASCADES  ANNUAL REPORT 2010  CONSOLIDATED FINANCIAL STATEMENTS
    
    47




---



##### 



OPERATING INCOME (LOSS) BEFORE DEPRECIATIONAND AMORTIZATIONFor the three-year period ended December 31, 2010 (in millions of Canadian dollars)
    
    2010
    
    
    2009
    
    
    2008Packaging productsBoxboardManufacturing
    
    
    32
    
    
    
    48
    
    
    
    (40
    )Converting
    
    
    58
    
    
    
    59
    
    
    
    50Others
    
    
    (13
    )
    
    
    (40
    )
    
    
    (13
    )77
    
    
    
    67
    
    
    
    (3
    )ContainerboardManufacturing
    
    
    49
    
    
    
    91
    
    
    
    57Converting
    
    
    82
    
    
    
    56
    
    
    
    53Others
    
    
    3
    
    
    
    (2
    )
    
    
    (7
    )134
    
    
    
    145
    
    
    
    103Specialty productsIndustrial packaging
    
    
    25
    
    
    
    20
    
    
    
    23Consumer packaging
    
    
    6
    
    
    
    11
    
    
    
    8Specialty papers
    
    
    14
    
    
    
    37
    
    
    
    11Recovery and recycling
    
    
    26
    
    
    
    6
    
    
    
    22Others
    
    
    (1
    )
    
    
    
    
    
    
    70
    
    
    
    74
    
    
    
    64281
    
    
    
    286
    
    
    
    164Tissue papersManufacturing and converting
    
    
    84
    
    
    
    153
    
    
    
    89Corporate
    
    
    (31
    )
    
    
    (7
    )
    
    
    (24
    )Operating income before depreciation and amortization
    
    
    334
    
    
    
    432
    
    
    
    229Depreciation and amortizationBoxboard
    
    
    (59
    )
    
    
    (75
    )
    
    
    (72
    )Containerboard
    
    
    (71
    )
    
    
    (63
    )
    
    
    (63
    )Specialty products
    
    
    (34
    )
    
    
    (34
    )
    
    
    (33
    )Tissue papers
    
    
    (41
    )
    
    
    (37
    )
    
    
    (35
    )Corporate and eliminations
    
    
    (7
    )
    
    
    (9
    )
    
    
    (10
    )(212
    )
    
    
    (218
    )
    
    
    (213
    )Operating income
    
    
    122
    
    
    
    214
    
    
    
    16
 CASCADES  ANNUAL REPORT 2010  CONSOLIDATED FINANCIAL STATEMENTS
    
    48




---



##### 



PURCHASES OF PROPERTY, PLANT AND EQUIPMENTFor the three-year period ended December 31, 2010(in millions of Canadian dollars)
    
    2010
    
    
    2009
    
    
    2008Packaging productsBoxboardManufacturing
    
    
    18
    
    
    
    30
    
    
    
    21Converting
    
    
    16
    
    
    
    29
    
    
    
    3634
    
    
    
    59
    
    
    
    57ContainerboardManufacturing
    
    
    15
    
    
    
    15
    
    
    
    17Converting
    
    
    16
    
    
    
    16
    
    
    
    2131
    
    
    
    31
    
    
    
    38Specialty productsIndustrial packaging
    
    
    2
    
    
    
    1
    
    
    
    4Consumer packaging
    
    
    5
    
    
    
    4
    
    
    
    1Specialty papers
    
    
    15
    
    
    
    12
    
    
    
    9Recovery and recycling
    
    
    9
    
    
    
    16
    
    
    
    2731
    
    
    
    33
    
    
    
    4196
    
    
    
    123
    
    
    
    136Tissue papersManufacturing and converting
    
    
    36
    
    
    
    33
    
    
    
    37Corporate
    
    
    17
    
    
    
    20
    
    
    
    8Total purchases
    
    
    149
    
    
    
    176
    
    
    
    181Disposal of property, plant and equipment
    
    
    (7
    )
    
    
    (6
    )
    
    
    (5
    )Acquisition under capital-lease agreement
    
    
    (4
    )
    
    
    
    
    
    
    138
    
    
    
    170
    
    
    
    176Purchases of property, plant and equipment included in accounts payableBeginning of year
    
    
    13
    
    
    
    14
    
    
    
    17End of year
    
    
    (20
    )
    
    
    (13
    )
    
    
    (14
    )Total investing activities
    
    
    131
    
    
    
    171
    
    
    
    179
  IDENTIFIABLE ASSETSAs at December 31, 2010 and 2009(in millions of Canadian dollars)
    
    2010
    
    
    2009Packaging productsBoxboard
    
    
    888
    
    
    
    932Containerboard
    
    
    1,298
    
    
    
    1,343Specialty products
    
    
    598
    
    
    
    5842,784
    
    
    
    2,859Tissue papers
    
    
    600
    
    
    
    619Corporate
    
    
    178
    
    
    
    167Intersegment eliminations
    
    
    (31
    )
    
    
    (20
    )3,531
    
    
    
    3,625Investments1
    
    
    193
    
    
    
    167Total
    
    
    3,724
    
    
    
    3,792
 1
    
    Investments include investments in significantly influenced companies, notes receivable,
other investments, project under development, and investments in shares held for trading. CASCADES  ANNUAL REPORT 2010  CONSOLIDATED FINANCIAL STATEMENTS
    
    49




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##### 



For the three-year period ended December 31, 2010(in millions of Canadian dollars)
    
    2010
    
    
    2009
    
    
    2008SalesOperations located in CanadaWithin Canada
    
    
    1,519
    
    
    
    1,454
    
    
    
    1,479To the United States
    
    
    530
    
    
    
    493
    
    
    
    552Offshore
    
    
    49
    
    
    
    40
    
    
    
    602,098
    
    
    
    1,987
    
    
    
    2,091Operations located in the United StatesWithin the United States
    
    
    1,205
    
    
    
    1,283
    
    
    
    1,260To Canada
    
    
    75
    
    
    
    58
    
    
    
    77Offshore
    
    
    2
    
    
    
    2
    
    
    
    21,282
    
    
    
    1,343
    
    
    
    1,339Operations located in other countriesWithin Europe
    
    
    512
    
    
    
    497
    
    
    
    537Other countries
    
    
    67
    
    
    
    50
    
    
    
    50579
    
    
    
    547
    
    
    
    587Total
    
    
    3,959
    
    
    
    3,877
    
    
    
    4,017
 As at December 31, 2010 and 2009(in millions of Canadian dollars)
    

    2010
    
    
    2009Property, plant and equipmentCanada
    
    
    1,164
    
    
    
    1,198United States
    
    
    442
    
    
    
    499Other countries
    
    
    171
    
    
    
    215Total
    
    
    1,777
    
    
    
    1,912
 As at December 31, 2010 and 2009(in millions of Canadian dollars)
    
    

    2010
    
    
    2009Goodwill, customer relationships and client lists and other finite-life intangible assetsCanada
    
    
    358
    
    
    
    364United States
    
    
    88
    
    
    
    97Other countries
    
    
    18
    
    
    
    20Total
    
    
    464
    
    
    
    481
 CASCADES  ANNUAL REPORT 2010  CONSOLIDATED FINANCIAL STATEMENTS
    
    50




---



##### 



Note 1
           Classification of financial instruments
  Held for trading
  Held to maturity
  CASCADES  ANNUAL REPORT 2010  CONSOLIDATED FINANCIAL STATEMENTS
    
    51




---



##### 



Available for sale
  Loans and receivables
  Other liabilities
  Derivatives
   Embedded derivatives
  Transaction costs
  Determination of fair value
  Hedging
      CASCADES  ANNUAL REPORT 2010  CONSOLIDATED FINANCIAL STATEMENTS
    
    52




---



##### 



CASCADES  ANNUAL REPORT 2010  CONSOLIDATED FINANCIAL STATEMENTS
    
    53




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##### 



Foreign Currency Transactions
  Foreign Operations
        Note 2
   2010
 a) Business combinations
  b) Consolidated financial statements and non-controlling interests
  CASCADES  ANNUAL REPORT 2010  CONSOLIDATED FINANCIAL STATEMENTS
    
    54




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##### 



c) Accounting changes
  2009
 d) Credit risk and the fair value of financial assets and financial liabilities
  e) Financial instrumentsDisclosures
   f) Financial instrumentsRecognition and measurement
  Note 3
  a) Goodwill
     b) Property, plant and equipment and intangible assets
      CASCADES  ANNUAL REPORT 2010  CONSOLIDATED FINANCIAL STATEMENTS
    
    55




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##### 



c) Income taxes
  Note 4
  a)
    
    In 2010, the Company recorded a $1 million charge related to its Thunder Bay, Ontario,
coated fine paper mill sold in 2007. Also, in 2003, the Company was informed that the fine
paper merchant division was the subject of an enquiry by the Canadian Commissioner of
Competition as to whether this division and its competitors had colluded to unduly reduce
market competition among paper merchants in Canada. On January 9, 2006, the Company entered a
guilty plea in Ontario Superior Court relating to sales of carbonless sheet paper in Ontario
and Québec. Pursuant to the plea, the Company has agreed to pay a total of $12.5 million in
equal installments over a period of six and a half years.b)
    
    In 2008, the Company sold its Greenfield SAS pulp mill for $41 million (28 million). This
transaction resulted in a gain of $24 million before related income taxes of $4 million. The
Company also sold in 2008 the assets of its Scierie Lemay sawmill for a cash consideration of
$6 million and a contingent consideration of $2 million. No gain or loss resulted from this
transaction.
  2008Condensed statement of earningsSales
    
    
    8Operating income
    
    
    22Financing expense
    
    
    1Provision for income taxes
    
    
    3Net earnings from discontinued operations
    
    
    18Net earnings per share from discontinued operations
    
    
    0.18Condensed statement of cash flowsOperating activities
    
    
    2Investing activities
    
    
    47Financing activities
    
    
    150
 Note 5
  a) 2010 Acquisition
  b) 2009 Acquisitions
     2010Acquired Company
    
    

    
    
    Atlas Paper BagCompany Ltd.Business segmentTissue PapersProperty, plant and equipment
    
    
    
    
    
    
    3Total consideration paid
    
    
    
    
    
    
    3
 CASCADES  ANNUAL REPORT 2010  CONSOLIDATED FINANCIAL STATEMENTS
    
    56




---



##### 



2009AtlanticAcquired company
    
    
    Others
    
    PackagingSpecialtyBusiness segment
    
    
    
    
    Products
    
    
    Tissue Papers
    
    
    TotalAccounts receivable
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    1Inventories
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    5Property, plant and equipment
    
    
    
    
    
    
    3
    
    
    
    44
    
    
    
    47Other assets
    
    
    
    
    
    
    
    
    
    
    29
    
    
    
    29Customer relationships and client lists
    
    
    
    
    
    
    5
    
    
    
    1
    
    
    
    69
    
    
    
    79
    
    
    
    88Accounts payable and accrued liabilities
    
    
    
    
    
    
    (1
    )
    
    
    (2
    )
    
    
    (3
    )Other liabilities
    
    
    
    
    
    
    
    
    
    
    (11
    )
    
    
    (11
    )8
    
    
    
    66
    
    
    
    74Less: Balance of purchase price
    
    
    
    
    
    
    
    
    
    
    (5
    )
    
    
    (5
    )Total consideration paid
    
    
    
    
    
    
    8
    
    
    
    61
    
    
    
    69
 Note 6
  2010
    
    
    2009Finished
goods
    
    
    236
    
    
    
    244Raw materials
    
    
    138
    
    
    
    124Supplies
    
    
    160
    
    
    
    152534
    
    
    
    520
   Note 7
  2010
    
    2009Accumulated
    
    
    
    
    
    
    
    
    
    
    AccumulatedCost
    
    
    depreciation
    
    
    Net
    
    
    Cost
    
    
    depreciation
    
    
    NetLands
    
    
    92
    
    
    
    
    
    
    
    92
    
    
    
    96
    
    
    
    
    
    
    
    96Buildings
    
    
    567
    
    
    
    206
    
    
    
    361
    
    
    
    555
    
    
    
    179
    
    
    
    376Machinery and equipment
    
    
    2,768
    
    
    
    1,588
    
    
    
    1,180
    
    
    
    2,743
    
    
    
    1,447
    
    
    
    1,296Automotive equipment
    
    
    68
    
    
    
    51
    
    
    
    17
    
    
    
    64
    
    
    
    48
    
    
    
    16Spare parts
    
    
    8
    
    
    
    3
    
    
    
    5
    
    
    
    9
    
    
    
    2
    
    
    
    7Others
    
    
    304
    
    
    
    182
    
    
    
    122
    
    
    
    282
    
    
    
    161
    
    
    
    1213,807
    
    
    
    2,030
    
    
    
    1,777
    
    
    
    3,749
    
    
    
    1,837
    
    
    
    1,912
   CASCADES  ANNUAL REPORT 2010  CONSOLIDATED FINANCIAL STATEMENTS
    
    57




---



##### 



Note 8
   2010
    
    2009Accumulated
    
    
    
    
    
    
    
    
    
    
    AccumulatedCost
    
    
    amortization
    
    
    Net
    
    
    Cost
    
    
    amortization
    
    
    NetIntangible assetsCustomer relationships and client lists
    
    
    157
    
    
    
    47
    
    
    
    110
    
    
    
    160
    
    
    
    36
    
    
    
    124Other finite-life intangible assets
    
    
    60
    
    
    
    20
    
    
    
    40
    
    
    
    49
    
    
    
    8
    
    
    
    41217
    
    
    
    67
    
    
    
    150
    
    
    
    209
    
    
    
    44
    
    
    
    165
 Note
    
    
    2010
    
    
    2009Investments in significantly influenced companies1
    
    
    
    
    
    
    156
    
    
    
    148Notes receivable
    
    
    
    
    
    
    5
    
    
    
    9Other investments
    
    
    
    
    
    
    9
    
    
    
    7Project under development2
    
    
    
    
    
    
    21
    
    
    
    Investments in shares held for trading
    
    
    
    
    
    
    2
    
    
    
    3Deferred financing costs
    
    
    
    
    
    
    4
    
    
    
    7Tax benefit related to investment tax credit
    
    
    
    
    
    
    34
    
    
    
    29Employee future benefits
    
    
    16
    (b)
    
    
    103
    
    
    
    97Fair value of derivative financial assets
    
    
    
    
    
    
    14
    
    
    
    19Others
    
    
    
    
    
    
    13
    
    
    
    12361
    
    
    
    331Less: Current portion, included in accounts receivable
    
    
    
    
    
    
    11
    
    
    
    14Total other assets
    
    
    
    
    
    
    350
    
    
    
    317
 1
    
    Investments in significantly influenced companies include a 35% interest in Boralex Inc.,
for a net book value of $118 million and a market value of $107 million (2009$114 million
and $125 million respectively). In 2010, the Companys share of earnings of Boralex includes
an amount of $8 million relating to a gain realized by Boralex following its acquisition of
Boralex Power Income Fund. In 2009, the Companys share of earnings of Boralex includes a net
dilution gain of $4 million and a net impairment charge of $1 million.2
    
    Project under development is recorded at cost and mainly include consulting fees, deposits on
property, plant and equipment and purchases of material related to the project. The Company
capitalizes costs for a project when it is more likely than not that it will be completed. If
this probability subsequently declines, capitalized costs related to the project are expensed.
  2010Packaging ProductsBoxboard
    
    
    Containerboard
    
    
    Specialty 
Products
    
    
    Sub-total
    
    
    Tissue Papers
    
    
    TotalCarrying value of goodwillBeginning of year
    
    
    22
    
    
    
    268
    
    
    
    16
    
    
    
    306
    
    
    
    10
    
    
    
    316Foreign currency translation and others
    
    
    (1
    )
    
    
    (1
    )
    
    
    
    
    
    
    (2
    )
    
    
    
    
    
    
    (2
    )Carrying value of goodwillEnd of year
    
    
    21
    
    
    
    267
    
    
    
    16
    
    
    
    304
    
    
    
    10
    
    
    
    314
 2009Packaging ProductsBoxboard
    
    Containerboard
    
    Specialty
 Products
    
    Sub-total
    
    Tissue Papers
    
    TotalCarrying value of goodwillBeginning of year
    
    
    25
    
    
    
    270
    
    
    
    16
    
    
    
    311
    
    
    
    10
    
    
    
    321Foreign currency translation and others
    
    
    (3
    )
    
    
    (2
    )
    
    
    
    
    
    
    (5
    )
    
    
    
    
    
    
    (5
    )Carrying value of goodwillEnd of year
    
    
    22
    
    
    
    268
    
    
    
    16
    
    
    
    306
    
    
    
    10
    
    
    
    316
 CASCADES  ANNUAL REPORT 2010  CONSOLIDATED FINANCIAL STATEMENTS
    
    58




---



##### 



c)
    
    Amortization of intangible and other assets, including amortization of deferred financing
costs, amounted to $25 million for the year ended December 31, 2010 (2009$19 million;
2008$14 million). Amortization of deferred financing costs is presented in financing
expenses.
 WeightedaverageamortizationAmortization
    
    
    periodperiod
    
    
    (in number of years)Intangible assetsBetweenCustomer relationships and client lists
    
    2 and 30 years
    
    
    16BetweenOther finite-life intangible assets
    
    2 and 20 years
    
    
    8Over the anticipated period of repayment of theDeferred financing costs
    
    respective credit facility
    
    
    4BetweenOthers
    
    2 and 20 years
    
    
    6
 Note 9
  Maturity
    
    
    Note
    
    
    2010
    
    
    2009Revolving credit facility, weighted average interest rate of 4.01%
as at December 31, 2010, of $345 million; US$nil and 37 million
(2009$59 million; US$53 million and 30 million)
    
    
    2015
    
    
    
    (a
    )
    
    
    394
    
    
    
    159Term credit facility, repaid during the year
    
    
    
    
    
    
    (a
    )
    
    
    
    
    
    
    1007.25% Unsecured senior notes of US$9 million (2009US$116 million)
    
    
    2013
    
    
    
    (b),
    (c)
    
    
    9
    
    
    
    1226.75% Unsecured senior notes of US$9 million (2009US$61 million)
    
    
    2013
    
    
    
    (c
    )
    
    
    9
    
    
    
    637.75% Unsecured senior notes of $200 million
    
    
    2016
    
    
    
    (c
    )
    
    
    198
    
    
    
    1977.75% Unsecured senior notes of US$500 million
    
    
    2017
    
    
    
    (c
    )
    
    
    491
    
    
    
    5167.875% Unsecured senior notes of US$250 million
    
    
    2020
    
    
    
    (c
    )
    
    
    245
    
    
    
    257Other debts of subsidiaries
    
    
    
    
    
    
    (f
    )
    
    
    14
    
    
    
    33Other debts without recourse to the Company
    
    
    
    
    
    
    (f
    )
    
    
    55
    
    
    
    421,415
    
    
    
    1,489Less: Unamortized financing costs
    
    
    
    
    
    
    
    
    
    
    20
    
    
    
    20Total long-term debt
    
    
    
    
    
    
    
    
    
    
    1,395
    
    
    
    1,469Less:Current portion of debts of subsidiaries
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    6Current portion of debts without recourse to the Company
    
    
    
    
    
    
    
    
    
    
    10
    
    
    
    412
    
    
    
    101,383
    
    
    
    1,459
 a)
    
    On December 30, 2010, the Company repaid in full its term credit in the amount of $100
million and consequently the term loan facility has been cancelled.On February 10, 2011, the Company entered into an agreement to amend and extend, until February
10, 2015, its existing $750 million revolving credit facility. Under the terms of the amendment,
the existing financial covenants, namely the maximum funded debt to capitalization ratio of 65%
and the minimum interest coverage ratio of 2.25x, will remain unchanged. As a result of the
amendment, the margin applicable to outstanding borrowings has been reduced from 2.750% to
2.125%.As at December 31, 2010, accounts receivable and inventories totaling approximately $736 million
(2009$729 million) as well as property, plant and equipment totaling approximately $250
million (2009$197 million) were pledged as collateral for the Companys revolving credit
facility.
 CASCADES  ANNUAL REPORT 2010  CONSOLIDATED FINANCIAL STATEMENTS
    
    59




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##### 



b)
    
    In 2009, the Company purchased US$26 million of nominal value of its 7.25% unsecured
senior notes for an amount of US$15 million ($18 million). These notes were not cancelled. The
gain resulting from the difference between the nominal value and the amount paid has been
recorded in earnings.c)
    
    On November 19, 2009, the Company issued US$500 million aggregate principal amount of 7.75%
senior notes due 2017 and $200 million aggregate principal amount of 7.75% senior notes due
2016. The US dollar Notes were issued at a price of 98.534% of their principal amount and the
Canadian dollar Notes were issued at a price of 98.670% of their principal amount, both
resulting in an effective yield of 8%. On December 9, 2009, the Company also completed a
US$250 million aggregate principal amount of 7.875% senior notes due 2020. These Notes were
issued at a price of 98.293% of their principal amount to yield 8.125%.The Company used the gross proceeds from these offerings of Notes to fund the purchase pursuant
to its tender offer of its outstanding senior notes maturing in 2013. The Company used the
remaining proceeds of the offerings to pay fees and expenses in connection with the offerings and
the tender offer and to reduce indebtedness outstanding under the revolving portion of its credit
facility.In 2009, the Company purchased for total consideration of US$732 million ($775 million),
including a premium of US$13 million ($13 million), a total of US$530 million ($559 million)
aggregate principal amount of 7.25% Notes and US$189 million ($203 million) aggregate principal
amount of 6.75% Notes due 2013, leaving outstanding approximately US$116 million ($122 million)
aggregate principal amount of 7.25% Notes and US$61 million ($63 million) aggregate principal
amount of 6.75% Notes at the end of 2009.In 2010, the Company purchased, for a total consideration of US$162 million ($168 million),
including a premium of US$3 million ($3 million), a total of US$107 million ($111 million)
aggregate principal amount of 7.25% Notes and US$52 million ($54 million) aggregate principal
amount of 6.75% Notes due 2013. Approximately US$9 million ($9 million) aggregate principal
amount of 7.25% Notes and approximately US$9 million ($9 million) aggregate principal amount of
6.75% Notes remain outstanding.d)
    
    As at December 31, 2010, the long-term debt included amounts denominated in foreign
currencies of US$763 million and 64 million (December 31, 2009US$974 million and 55
million).e)
    
    The estimated aggregate amounts of repayments on long-term debt in each of the next five
years are as follows:
 Years ending December 31,2011
    
    
    122012
    
    
    232013
    
    
    272014
    
    
    82015
    
    
    404Thereafter
    
    
    941
 f)
    
    In 2009, a 73%-owned subsidiary of the Company completed a long-term financing of its
activities and repaid the temporary loan that had been provided in 2008. During the second
quarter of 2009, the Company provided a limited guarantee for this financing, for a maximum
amount of $10 million. This guarantee has been cancelled during the fourth quarter of 2010.
 Note 10
  Note
    
    
    2010
    
    
    2009Employee future benefits
    
    
    16(b)
    
    
    
    125
    
    
    
    121Fair value of derivative financial liabilities
    
    
    18.3
    
    
    
    95
    
    
    
    60Others
    
    
    
    
    
    
    28
    
    
    
    34248
    
    
    
    215Less: Current portion, included in accounts payable and accrued liabilities
    
    
    
    
    
    
    14
    
    
    
    8Total other liabilities
    
    
    
    
    
    
    234
    
    
    
    207
 CASCADES  ANNUAL REPORT 2010  CONSOLIDATED FINANCIAL STATEMENTS
    
    60




---



##### 



Note 11
    2010
    
    
    2009Cash and cash equivalents
    
    
    (10
    )
    
    
    (19
    )Bank loans and advances
    
    
    64
    
    
    
    83Long-term debt, including current portion
    
    
    1,395
    
    
    
    1,4691,449
    
    
    
    1,533Equity attributable to the shareholders
    
    
    1,257
    
    
    
    1,304Total capital
    
    
    2,706
    
    
    
    2,837
  
    
    to safeguard its ability to continue as a going concern in order to provide returns to
shareholders;
    
    to maintain an optimal capital structure and reduce the cost of capital;
    
    to make proper capital investments that are significant to ensure the Company remains
competitive; and
    
    to redeem common shares based on an annual redemption program.
       CASCADES  ANNUAL REPORT 2010  CONSOLIDATED FINANCIAL STATEMENTS
    
    61




---



##### 



2010
    
    2009Note
    
    
    Number of shares
    
    
    $
    
    
    Number of shares
    
    
    $BalanceBeginning of year
    
    
    
    
    
    
    97,208,533
    
    
    
    499
    
    
    
    98,548,851
    
    
    
    506Shares issued on exercise of stock options
    
    
    (d
    )
    
    
    36,069
    
    
    
    
    
    
    
    
    
    
    
    Redemption of common shares
    
    
    (c
    )
    
    
    (638,181
    )
    
    
    (3
    )
    
    
    (1,340,318
    )
    
    
    (7
    )BalanceEnd of year
    
    
    
    
    
    
    96,606,421
    
    
    
    496
    
    
    
    97,208,533
    
    
    
    499
      2010
    
    2009
    
    2008Weighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    Weightedaverage
    
    
    
    
    
    
    average
    
    
    
    
    
    
    averageNumber
    
    
    exercise price
    
    
    Number
    
    
    exercise price
    
    
    Number
    
    
    exercise priceof options
    
    
    $
    
    
    of options
    
    
    $
    
    
    of options
    
    
    $Beginning of year
    
    
    4,603,595
    
    
    
    7.46
    
    
    
    2,903,506
    
    
    
    10.61
    
    
    
    2,459,056
    
    
    
    11.28Granted
    
    
    738,682
    
    
    
    6.43
    
    
    
    2,168,095
    
    
    
    3.77
    
    
    
    539,384
    
    
    
    7.81Exercised
    
    
    (36,069
    )
    
    
    7.03
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Forfeited
    
    
    (19,030
    )
    
    
    2.28
    
    
    
    (188,398
    )
    
    
    12.12
    
    
    
    (94,934
    )
    
    
    12.00Expired
    
    
    
    
    
    
    
    
    
    
    (279,608
    )
    
    
    8.22
    
    
    
    
    
    
    
    End of year
    
    
    5,287,178
    
    
    
    7.33
    
    
    
    4,603,595
    
    
    
    7.46
    
    
    
    2,903,506
    
    
    
    10.61Options exercisableEnd of year
    
    
    2,686,828
    
    
    
    9.54
    
    
    
    1,907,130
    
    
    
    11.03
    
    
    
    31,496
    
    
    
    8.29
 CASCADES  ANNUAL REPORT 2010  CONSOLIDATED FINANCIAL STATEMENTS
    
    62




---



##### 



Options outstanding
    
    
    Options exercisableWeighted average
    
    
    
    
    
    
    Weighted averageexercise price
    
    
    
    
    
    exercise priceYear granted
    
    Number of options
    
    
    $
    
    
    Number of options
    
    
    $
    
    
    Expiration date2001
    
    
    263,550
    
    
    
    6.82
    
    
    
    263,550
    
    
    
    6.82
    
    
    
    20112002
    
    
    160,515
    
    
    
    13.24
    
    
    
    160,515
    
    
    
    13.24
    
    
    
    20122003
    
    
    180,532
    
    
    
    13.04
    
    
    
    180,532
    
    
    
    13.04
    
    
    
    20132004
    
    
    288,891
    
    
    
    13.01
    
    
    
    288,891
    
    
    
    13.01
    
    
    
    20142005
    
    
    280,999
    
    
    
    12.73
    
    
    
    280,999
    
    
    
    12.73
    
    
    
    20152006
    
    
    336,315
    
    
    
    11.49
    
    
    
    336,315
    
    
    
    11.49
    
    
    
    20162007
    
    
    362,579
    
    
    
    11.83
    
    
    
    271,918
    
    
    
    11.83
    
    
    
    20172008
    
    
    532,393
    
    
    
    7.81
    
    
    
    266,191
    
    
    
    7.81
    
    
    
    20182009
    
    
    527,947
    
    
    
    2.28
    
    
    
    131,990
    
    
    
    2.28
    
    
    
    20192009
    
    
    1,478,465
    
    
    
    3.92
    
    
    
    369,617
    
    
    
    3.92
    
    
    
    20192009
    
    
    136,310
    
    
    
    8.14
    
    
    
    136,310
    
    
    
    8.14
    
    
    
    20122010
    
    
    738,682
    
    
    
    6.43
    
    
    
    
    
    
    
    
    
    
    
    20205,287,178
    
    
    
    
    
    
    
    2,686,828
  2010
    
    
    2009
    
    
    2008Risk-free interest rate
    
    
    2.8
    %
    
    
    2.2
    %
    
    
    4.1
    %Expected dividend yield
    
    
    2.40
    %
    
    
    4.31
    %
    
    
    2.14
    %Expected life of options
    
    7 years
    
    7 years
    
    6 yearsExpected volatility
    
    
    44
    %
    
    
    41
    %
    
    
    24
    %Weighted average fair value of issued options
    
    $
    2.49
    
    
    $
    1.05
    
    
    $
    1.73
 e)
    
    SHARE PURCHASE PLAN
   f)
    
    DEFERRED SHARE UNIT PLAN
   g)
    
    EARNINGS PER SHARE
  2010
    
    
    2009
    
    
    2008Net earnings (loss) attributable to Shareholders
    
    
    17
    
    
    
    60
    
    
    
    (54
    )Weighted average number of common shares
    
    
    96.8
    
    
    
    97.7
    
    
    
    98.8Dilution effect of stock options
    
    
    1.5
    
    
    
    1.2
    
    
    
    Adjusted weighted average number of common shares
    
    
    98.3
    
    
    
    98.9
    
    
    
    98.8Basic net earnings (loss) per common share
    
    
    0.18
    
    
    
    0.61
    
    
    
    (0.55
    )Diluted net earnings (loss) per common share
    
    
    0.18
    
    
    
    0.60
    
    
    
    (0.55
    )
 CASCADES  ANNUAL REPORT 2010  CONSOLIDATED FINANCIAL STATEMENTS
    
    63




---



##### 



Note 12
  a)
    
    Other gains and losses are detailed as follows:
 Note
    
    
    2010
    
    
    2009
    
    
    2008Legal settlement
    
    
    (b
    )
    
    
    7
    
    
    
    
    
    
    
    Supplemental Executive Retirement Plan
    
    
    (c
    )
    
    
    4
    
    
    
    
    
    
    
    Gains on disposal of property, plant and equipment and other assets
    
    
    (d
    )
    
    
    (3
    )
    
    
    (2
    )
    
    
    Pension plan  partial curtailment
    
    
    (e
    )
    
    
    
    
    
    
    3
    
    
    
    Loss on a contribution to a joint venture
    
    
    (f
    )
    
    
    
    
    
    
    
    
    
    
    58
    
    
    
    1
    
    
    
    5
 b)
    
    In 2010, the Company recorded a provision of $7 million following a class-action suit
related to labour considerations at one of its unit in the Boxboard Group. This situation is
still under negotiation as of December 31, 2010, and is expected to be settled in 2011.c)
    
    In 2010, the Company established a 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.d)
    
    In 2010, the Company sold its building and land of the 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.e)
    
    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.f)
    
    In 2008, the Company recorded a loss of $5 million upon the formation of its interests in
joint venture Reno de Medici S.p.A (RdM).
 Note 13
  2010
    2009
     CASCADES  ANNUAL REPORT 2010  CONSOLIDATED FINANCIAL STATEMENTS
    
    64




---



##### 



2008
     a)
    
    The impairment charges and closure and restructuring costs are detailed as follows:
 2010
    
    
    2009
    
    
    2008Closure and
    
    
    
    
    
    
    Closure and
    
    
    
    
    
    
    Closure andrestructuring
    
    
    
    
    
    
    restructuring
    
    
    
    
    
    
    restructuringImpairment
    
    
    costs
    
    
    Impairment
    
    
    costs
    
    
    Impairment
    
    
    costsBoxboard  Toronto
    
    
    9
    
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    6Boxboard  Corporate
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    6Boxboard  Fjordcell
    
    
    
    
    
    
    
    
    
    
    37
    
    
    
    
    
    
    
    
    
    
    
    Boxboard  Dopaco (Bakersfield)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    3Boxboard  Europe (LaRochette)
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Boxboard  RdM (Blendecques)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    3Boxboard  RdM (Marzabotto)
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Boxboard  Goodwill (manufacturing)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8
    
    
    
    Containerboard  Avot-Vallée
    
    
    21
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Containerboard  Leominster
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Containerboard  Red Rock and others
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    6Containerboard  Converting
    
    
    1
    
    
    
    
    
    
    
    4
    
    
    
    6
    
    
    
    
    
    
    
    Specialty products  East Angus
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Specialty productsOthers
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    2
    
    
    
    1TissueMaryland
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    TissueOthers
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    149
    
    
    
    1
    
    
    
    46
    
    
    
    12
    
    
    
    16
    
    
    
    27
 b)
    
    The following table shows the reconciliation of all closure and restructuring cost
provisions. It includes the provisions relating to discontinued operations:
 2010
    
    
    2009
    
    
    2008Balance  Beginning of year
    
    
    13
    
    
    
    22
    
    
    
    19Additional provisionsSeverance and pension liability
    
    
    1
    
    
    
    11
    
    
    
    26Others
    
    
    
    
    
    
    1
    
    
    
    1Non-monetary itemsPension liability adjustments and others
    
    
    (1
    )
    
    
    (5
    )
    
    
    Closure and restructuring cost payments
    
    
    (2
    )
    
    
    (16
    )
    
    
    (24
    )Balance  End of year
    
    
    11
    
    
    
    13
    
    
    
    22
 CASCADES  ANNUAL REPORT 2010  CONSOLIDATED FINANCIAL STATEMENTS
    
    65




---



##### 



Note 14
  a)
    
    The provision for (recovery of) income taxes is as follows:
 2010
    
    
    2009
    
    
    2008Current
    
    
    28
    
    
    
    30
    
    
    
    20Future
    
    
    (28
    )
    
    
    (7
    )
    
    
    (52
    )
    
    
    
    23
    
    
    
    (32
    )
 b)
    
    The provision for income taxes based on the effective income tax rate differs from the
provision for income taxes based on the combined basic rate for the following reasons:
 2010
    
    
    2009
    
    
    2008Provision for (recovery of) income taxes based on the combined basic Canadian and provincial income tax rate
    
    
    2
    
    
    
    20
    
    
    
    (35
    )Adjustment for income taxes arising from the following:Difference in statutory income tax rate of foreign operations
    
    
    5
    
    
    
    4
    
    
    
    (2
    )Unrecognized tax benefit arising from current losses    :
    
    
    
    
    
    
    1
    
    
    
    10Recognized tax benefit arising from capital losses
    
    
    (4
    )
    
    
    
    
    
    
    Non-taxable portion of foreign exchange gain (loss) on long-term debt
    
    
    1
    
    
    
    (12
    )
    
    
    38Permanent
differences1
    
    
    1
    
    
    
    16
    
    
    
    (32
    )Permanent differences  others
    
    
    
    
    
    
    
    
    
    
    (4
    )Decrease in future income taxes resulting from a substantively enacted change in tax rates
    
    
    
    
    
    
    (5
    )
    
    
    Others
    
    
    (5
    )
    
    
    (1
    )
    
    
    (7
    )(2
    )
    
    
    3
    
    
    
    3Provision for (recovery of) income taxes
    
    
    
    
    
    
    23
    
    
    
    (32
    )
 1
    
    The amount of $1 million for the year ended December 31, 2010 (2009  $16 million,
2008  $(32) million) represents the non-taxable portion of the gain (loss) realized on
various transactions in 2009 with respect mainly to foreign exchange derivative contracts (see
note 18).
 c)
    
    Future income taxes include the following items:
 2010
    
    
    2009Future income tax assetsTax benefit arising from income tax losses
    
    
    181
    
    
    
    165Employee future benefits
    
    
    28
    
    
    
    29Unused tax credits and expenses on research not deducted
    
    
    37
    
    
    
    31Valuation allowance
    
    
    (58
    )
    
    
    (64
    )Financial instruments
    
    
    37
    
    
    
    3Others
    
    
    15
    
    
    
    17240
    
    
    
    181Future income tax liabilitiesProperty, plant and equipment
    
    
    254
    
    
    
    251Foreign exchange gain on long-term debt
    
    
    59
    
    
    
    48Employee future benefits
    
    
    21
    
    
    
    22Other assets
    
    
    59
    
    
    
    31Others
    
    
    17
    
    
    
    32410
    
    
    
    384Future income taxes
    
    
    (170
    )
    
    
    (203
    )
 CASCADES  ANNUAL REPORT 2010  CONSOLIDATED FINANCIAL STATEMENTS
    
    66




---



##### 



d)
    
    The Company has accumulated losses for income tax purposes amounting to approximately $583
million that may be carried forward to reduce taxable income in future years. The future tax
benefit resulting from the deferral of $425 million of these losses has been recognized in the
accounts as a future income tax asset. Income tax losses as at December 31, 2010, are detailed as
follows:
 Unrecognized
    
    
    Recognized
    
    
    Totaltax losses
    
    
    tax losses
    
    
    tax losses
    
    
    MaturityCanada
    
    
    
    
    
    
    17
    
    
    
    17
    
    
    
    2014
    
    
    
    42
    
    
    
    42
    
    
    
    2015
    
    
    
    18
    
    
    
    18
    
    
    
    2026
    
    
    
    32
    
    
    
    32
    
    
    
    2027
    
    
    
    9
    
    
    
    9
    
    
    
    2028
    
    
    
    9
    
    
    
    9
    
    
    
    2029
    
    
    
    103
    
    
    
    103
    
    
    
    2030United States
    
    
    2
    
    
    
    3
    
    
    
    5
    
    
    
    2018
    
    
    
    13
    
    
    
    13
    
    
    
    2019
    
    
    
    5
    
    
    
    5
    
    
    
    2020
    
    
    
    6
    
    
    
    6
    
    
    
    2021
    
    
    
    4
    
    
    
    4
    
    
    
    2022
    
    
    
    18
    
    
    
    18
    
    
    
    2023Europe
    
    
    156
    
    
    
    146
    
    
    
    302
    
    
    Indefinitely158
    
    
    
    425
    
    
    
    583
 Note 15
  a)
    
    Changes in non-cash working capital components are detailed as follows:
 2010
    
    
    2009
    
    
    2008Accounts receivable
    
    
    (48
    )
    
    
    53
    
    
    
    28Income tax receivable
    
    
    (8
    )
    
    
    (10
    )
    
    
    (14
    )Inventories
    
    
    (27
    )
    
    
    21
    
    
    
    10Accounts payable and accrued liabilities
    
    
    63
    
    
    
    (11
    )
    
    
    (53
    )Income tax payable
    
    
    3
    
    
    
    (1
    )
    
    
    (2
    )(17
    )
    
    
    52
    
    
    
    (31
    )
 b)
    
    Additional information
 2010
    
    
    2009
    
    
    2008Interest paid
    
    
    97
    
    
    
    110
    
    
    
    97Income taxes paid
    
    
    20
    
    
    
    30
    
    
    
    22
 c)
    
    Financing expenses
 2010
    
    
    2009
    
    
    2008Interest on long-term debt, net of the impact of interest rate swaps
    
    
    100
    
    
    
    95
    
    
    
    100Interest income
    
    
    (1
    )
    
    
    (1
    )
    
    
    (2
    )Amortization of financing costs
    
    
    5
    
    
    
    4
    
    
    
    4Other interest and banking fees
    
    
    5
    
    
    
    3
    
    
    
    109
    
    
    
    101
    
    
    
    102
 CASCADES  ANNUAL REPORT 2010  CONSOLIDATED FINANCIAL STATEMENTS
    
    67




---



##### 



Note 16
  a)
    
    The expense for employee future benefits as at December 31 is as follows:
 2010
    
    
    2009Pension plans
    
    
    Other plans
    
    
    Pension plans
    
    
    Other plansCurrent service costs
    
    
    11
    
    
    
    3
    
    
    
    9
    
    
    
    2Interest cost
    
    
    33
    
    
    
    6
    
    
    
    35
    
    
    
    6Past service costs
    
    
    19
    
    
    
    
    
    
    
    1
    
    
    
    Actual return on plan assets
    
    
    (64
    )
    
    
    
    
    
    
    (86
    )
    
    
    Actuarial gains on accrued benefit obligation
    
    
    58
    
    
    
    4
    
    
    
    84
    
    
    
    13Curtailment and settlement
    
    
    
    
    
    
    2
    
    
    
    4
    
    
    
    Others
    
    
    (1
    )
    
    
    
    
    
    
    (2
    )
    
    
    (2
    )Benefit costs before adjustments to recognize long-term nature of employee future benefit costs
    
    
    56
    
    
    
    15
    
    
    
    45
    
    
    
    19Difference between expected return and actual return on plan assets for the year
    
    
    28
    
    
    
    
    
    
    
    53
    
    
    
    Difference between actuarial loss for the year and actuarial loss or gain on accrued benefit
obligation for the year
    
    
    (54
    )
    
    
    (4
    )
    
    
    (81
    )
    
    
    (13
    )Difference between amortization of past service costs and actual plan amendments for the year
    
    
    (14
    )
    
    
    
    
    
    
    1
    
    
    
    Others
    
    
    1
    
    
    
    (5
    )
    
    
    5
    
    
    
    4Adjustments to recognize long-term nature of employee future benefit costs
    
    
    (39
    )
    
    
    (9
    )
    
    
    (22
    )
    
    
    (9
    )Recognized costs for defined benefit pension plans
    
    
    17
    
    
    
    6
    
    
    
    23
    
    
    
    10Recognized costs for defined contribution pension plans
    
    
    21
    
    
    
    
    
    
    
    20
    
    
    
    Total expense for employee future benefits
    
    
    38
    
    
    
    6
    
    
    
    43
    
    
    
    10
   CASCADES  ANNUAL REPORT 2010  CONSOLIDATED FINANCIAL STATEMENTS
    
    68




---



##### 



b)
    
    The funded status of the defined benefit plans and the other complementary retirement
benefit plans and post-employment benefit plans as at December 31 are as follows:
 2010
    
    
    2009Pension plans
    
    
    Other plans
    
    
    Pension plans
    
    
    Other plansAccrued benefit obligationBeginning of year
    
    
    564
    
    
    
    105
    
    
    
    493
    
    
    
    92Current service costs
    
    
    11
    
    
    
    3
    
    
    
    9
    
    
    
    2Interest cost
    
    
    33
    
    
    
    6
    
    
    
    35
    
    
    
    6Employees contributions
    
    
    4
    
    
    
    
    
    
    
    4
    
    
    
    Actuarial losses
    
    
    58
    
    
    
    4
    
    
    
    84
    
    
    
    13Benefits paid
    
    
    (49
    )
    
    
    (7
    )
    
    
    (57
    )
    
    
    (6
    )Past service costs
    
    
    19
    
    
    
    
    
    
    
    1
    
    
    
    Others
    
    
    (2
    )
    
    
    (1
    )
    
    
    (5
    )
    
    
    (2
    )End of year
    
    
    638
    
    
    
    110
    
    
    
    564
    
    
    
    105Plan assetsBeginning of year
    
    
    531
    
    
    
    
    
    
    
    476
    
    
    
    Actual return on plan assets
    
    
    64
    
    
    
    
    
    
    
    86
    
    
    
    Employers contributions
    
    
    19
    
    
    
    7
    
    
    
    28
    
    
    
    6Employees contributions
    
    
    4
    
    
    
    
    
    
    
    4
    
    
    
    Benefits paid
    
    
    (49
    )
    
    
    (7
    )
    
    
    (57
    )
    
    
    (6
    )Business acquisitions, disposals and closures
    
    
    
    
    
    
    
    
    
    
    (4
    )
    
    
    Others
    
    
    (1
    )
    
    
    
    
    
    
    (2
    )
    
    
    End of year
    
    
    568
    
    
    
    
    
    
    
    531
    
    
    
    Reconciliation of funded statusFair value of plan assets
    
    
    568
    
    
    
    
    
    
    
    531
    
    
    
    Accrued benefit obligation
    
    
    638
    
    
    
    110
    
    
    
    564
    
    
    
    105Funded status of plandeficit
    
    
    (70
    )
    
    
    (110
    )
    
    
    (33
    )
    
    
    (105
    )Unrecognized net actuarial gains (losses)
    
    
    130
    
    
    
    2
    
    
    
    107
    
    
    
    (2
    )Unamortized transitional balance
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    (1
    )Unamortized past service costs
    
    
    27
    
    
    
    2
    
    
    
    13
    
    
    
    3Others
    
    
    (2
    )
    
    
    
    
    
    
    (4
    )
    
    
    (2
    )Accrued benefit asset (liability)End of year
    
    
    85
    
    
    
    (107
    )
    
    
    83
    
    
    
    (107
    )
  2010
    
    
    2009Pension plans
    
    
    Other plans
    
    
    Total
    
    
    Pension plans
    
    
    Other plans
    
    
    TotalEmployee future benefit asset, included in Other assets
    
    
    103
    
    
    
    
    
    
    
    103
    
    
    
    97
    
    
    
    
    
    
    
    97Employee future benefit liability, included in Other
liabilities
    
    
    (18
    )
    
    
    (107
    )
    
    
    (125
    )
    
    
    (14
    )
    
    
    (107
    )
    
    
    (121
    )85
    
    
    
    (107
    )
    
    
    (22
    )
    
    
    83
    
    
    
    (107
    )
    
    
    (24
    )
 c)
    
    The following amounts relate to plans that are not fully funded as at December 31:
 2010
    
    
    2009Pension plans
    
    
    Other plans
    
    
    Pension plans
    
    
    Other plansFair value of plan assets
    
    
    305
    
    
    
    
    
    
    
    144
    
    
    
    Accrued benefit obligation
    
    
    (395
    )
    
    
    (110
    )
    
    
    (202
    )
    
    
    (105
    )Funded deficit
    
    
    (90
    )
    
    
    (110
    )
    
    
    (58
    )
    
    
    (105
    )
 CASCADES  ANNUAL REPORT 2010  CONSOLIDATED FINANCIAL STATEMENTS
    
    69




---



##### 



d)
    
    The main actuarial assumptions adopted in measuring the accrued benefit obligation and expenses
as at December 31 are as follows:
 2010
    
    
    2009Pension plans
    
    
    Other plans
    
    
    Pension plans
    
    
    Other plansAccrued benefit obligation as at December 31Discount rate
    
    
    5.25
    %
    
    
    5.25
    %
    
    
    6.00
    %
    
    
    6.00
    %Rate of compensation increase
    
    2.25% to 3.50%
    
    2.25% to 3.50%
    
    3.00%  to 3.75%
    
    2.25% to 3.50%Benefit costs for years ended December 31Discount rate
    
    
    6.00
    %
    
    
    6.00
    %
    
    
    7.50
    %
    
    
    7.50
    %Expected long-term return on assets
    
    
    7.00
    %
    
    
    
    
    
    
    7.00
    %
    
    
    Rate of compensation increase
    
    3.00%  to 3.75%
    
    2.25%   to 3.50%
    
    2.50%    to 3.75%
    
    2.25% to 3.90%Assumed health care cost trend rates at December 31Rate increase in health care costs
    
    
    
    
    
    9.50%  to 10.00%
    
    
    
    
    
    9.00% to 9.50%Cost trend rates decline to
    
    
    
    
    
    
    5.00
    %
    
    
    
    
    
    
    5.00
    %Year the rate should stabilize
    
    
    
    
    
    
    2020
    
    
    
    
    
    
    
    2018
 e)
    
    Assumed rate increases in health care costs have a significant effect on the amounts
reported for the health care plans. A 1% change in assumed health care cost trend rates would
have the following effects for 2010:
 Increase of 1%
    
    
    Decrease of 1%Current service costs and interest cost
    
    
    
    
    
    
    Accrued benefit obligationEnd of year
    
    
    4
    
    
    
    (3
    )
 f)
    
    The plan assets allocation and investment target allocation as at December 31 are detailed
as follows:
 2010
    
    
    2009Plan assets allocationMoney market
    
    
    2
    %
    
    
    4
    %Debt securities
    
    
    35
    %
    
    
    34
    %Equity securities
    
    
    63
    %
    
    
    62
    %Total
    
    
    100
    %
    
    
    100
    %
  2010
    
    
    2009Investment target allocationDebt securities
    
    
    40
    %
    
    
    40
    %Equity securities
    
    
    60
    %
    
    
    60
    %Total
    
    
    100
    %
    
    
    100
    %
    CASCADES  ANNUAL REPORT 2010  CONSOLIDATED FINANCIAL STATEMENTS
    
    70




---



##### 



g)
    
    Estimated future benefit payments
 Future benefit payments for defined benefit pension plans and other post-employment benefits,
taking into consideration future participation, are estimated as follows:
 Pension plans
    
    
    Other plansYears ending December 31,2011
    
    
    39
    
    
    
    72012
    
    
    38
    
    
    
    82013
    
    
    37
    
    
    
    82014
    
    
    66
    
    
    
    102015
    
    
    37
    
    
    
    102016-2020
    
    
    203
    
    
    
    52
   a)
    
    Future minimum payments under operating leases and other commercial commitments (mainly
composed of raw materials, natural gas, steam and electricity) are as follows:
 Other commercialOperating leases
    
    
    commitmentsYears ending December 31,2011
    
    
    38
    
    
    
    612012
    
    
    30
    
    
    
    152013
    
    
    23
    
    
    
    32014
    
    
    17
    
    
    
    2015
    
    
    15
    
    
    
    Thereafter
    
    
    32
    
    
    
    
 b)
    
    In the normal course of operations, the Company is party to various legal actions and
contingencies, mostly related to contract disputes, environmental and product warranty claims,
and labour issues. While the final outcome with respect to legal actions outstanding or
pending as at December 31, 2010, cannot be predicted with certainty, it is managements
opinion that the outcome will not have a material adverse effect on the Companys consolidated
financial position, results of its operations or its cash flows.c)
    
    The Company has been working with representatives of the Ontario Ministry of the Environment
(MOE)  Northern Region regarding its potential responsibility for an environmental impact
identified at its former Thunder Bay facility (the Mill). The MOE has requested that the
Company look into a management site plan relating to the sediment quality adjacent to the
Mills lagoon. A study on the sediment quality and potential remediation options is in
progress and, at this point, the total costs relating to the current potential remediation
options fall within a large range and could be significant. However, as at December 31, 2010,
management believes that its share of the responsibility is not significant and has taken an
adequate provision.
 A significant level of uncertainty exists to estimate the Companys obligation relating to this
situation because of the related high level of uncertainty surrounding the extent of the
environmental impact, the remediation options that will be favoured and the related remediation
costs and the position of the MOE regarding the costs to be assumed by the Company, if any.
 AbitibiBowater Inc., a former owner of the Mill who filed for court protection in Canada and the
United States, is also a party to the environmental impact. On September 23, 2010, the Québec
Superior Court issued an order sanctioning the Plan of Reorganization and Compromise of
AbitibiBowater Inc. thereby extinguishing any liabilities of AbitibiBowater Inc. to the Company
in relation to the site.
 CASCADES  ANNUAL REPORT 2010  CONSOLIDATED FINANCIAL STATEMENTS
    
    71




---



##### 



18.1
    
    Classification of financial instruments
  2010
    
    
    2009Carrying
amount
    
    
    Fair value
    
    
    Carrying amount
    
    
    Fair valueFinancial assets held for tradingCash and cash equivalents (i)
    
    
    10
    
    
    
    10
    
    
    
    19
    
    
    
    19Derivatives (note 18.4)
    
    
    4
    
    
    
    4
    
    
    
    5
    
    
    
    5Financial assets available for saleOther investments
    
    
    9
    
    
    
    9
    
    
    
    7
    
    
    
    7Investment in share held for trading (ii)
    
    
    2
    
    
    
    2
    
    
    
    3
    
    
    
    3Loans and receivablesAccounts receivable (i)
    
    
    561
    
    
    
    561
    
    
    
    524
    
    
    
    524Notes receivables (i)
    
    
    5
    
    
    
    5
    
    
    
    9
    
    
    
    9Project under development (i)
    
    
    21
    
    
    
    21
    
    
    
    
    
    
    
    Financial liabilities held for tradingDerivatives (note 18.4)
    
    
    70
    
    
    
    70
    
    
    
    33
    
    
    
    33Other financial liabilitiesBank loans and advances (i)
    
    
    64
    
    
    
    64
    
    
    
    83
    
    
    
    83Accounts payable and accrued liabilities (i)
    
    
    564
    
    
    
    564
    
    
    
    491
    
    
    
    491Legal settlement (i)
    
    
    5
    
    
    
    5
    
    
    
    7
    
    
    
    7Long-term debt (iii)
    
    
    1,415
    
    
    
    1,436
    
    
    
    1,489
    
    
    
    1,483Derivatives designated as hedgeAsset derivatives
    
    
    10
    
    
    
    10
    
    
    
    14
    
    
    
    14Liability derivatives
    
    
    25
    
    
    
    25
    
    
    
    27
    
    
    
    27
 18.2
    
    Determining the fair value of financial instruments
  i)
    
    The fair values of cash and cash equivalents, accounts receivable, notes receivable, bank
loans and advances, accounts payable and accrued liabilities approximate their carrying
amounts due to their relatively short maturities.ii)
    
    The fair value of other investments is based on observable market data and mainly represents
the Companys investment in Junex Inc., which is quoted on the Canadian Stock Exchange.iii)
    
    The fair value of long-term debt is based on observable market data and on the calculation of
discounted cash flows. Discount rates were determined based on local government bond yields
adjusted for the risks specific to each of the borrowings and for the credit market liquidity
conditions.
 CASCADES  ANNUAL REPORT 2010  CONSOLIDATED FINANCIAL STATEMENTS
    
    72




---



##### 



18.3
    
    Hierarchy of financial assets and liabilities measured at fair value
  
    
    Level 1  Quoted prices in active markets for identical assets or liabilities.
    
    Level 2  Observable inputs other than quoted prices in active markets for identical
assets and liabilities, quoted prices for identical or similar assets or liabilities in
inactive markets, or other inputs that are observable or can be corroborated by observable
market data for substantially the full term of the assets or liabilities.
    
    Level 3  Inputs that are generally unobservable and typically reflect managements
estimates of assumptions that market participants would use in pricing the asset or liability.
 Quoted prices inactive markets
    
    
    
    
    
    Significantfor identical
    
    
    Significant
    
    
    unobservableDecember 31,
    
    
    assets
    
    
    observable inputs
    
    
    inputs2010
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Financial assetsCash and cash equivalents
    
    
    10
    
    
    
    10
    
    
    
    
    
    
    
    Other investments
    
    
    9
    
    
    
    9
    
    
    
    
    
    
    
    Investments in share held for trading
    
    
    2
    
    
    
    2
    
    
    
    
    
    
    
    Derivative financial assets
    
    
    14
    
    
    
    
    
    
    
    14
    
    
    
    Total
    
    
    35
    
    
    
    21
    
    
    
    14
    
    
    
    Financial liabilitiesDerivative financial liabilities
    
    
    95
    
    
    
    
    
    
    
    95
    
    
    
    Total
    
    
    95
    
    
    
    
    
    
    
    95
    
    
    
    
 Quoted prices inactive markets
    
    
    
    
    
    Significantfor identical
    
    
    Significant
    
    
    unobservableDecember 31,
    
    
    assets
    
    
    observable inputs
    
    
    inputs2009
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Financial assetsCash and cash equivalents
    
    
    19
    
    
    
    19
    
    
    
    
    
    
    
    Other investments
    
    
    7
    
    
    
    7
    
    
    
    
    
    
    
    Investments in share held for trading
    
    
    3
    
    
    
    3
    
    
    
    
    
    
    
    Derivative financial assets
    
    
    19
    
    
    
    
    
    
    
    19
    
    
    
    Total
    
    
    48
    
    
    
    29
    
    
    
    19
    
    
    
    Financial liabilitiesDerivative financial liabilities
    
    
    60
    
    
    
    
    
    
    
    60
    
    
    
    Total
    
    
    60
    
    
    
    
    
    
    
    60
    
    
    
    
 18.4
    
    Financial risk management
   a)
    
    Market risk
 i)
    
    CURRENCY RISK
  CASCADES  ANNUAL REPORT 2010  CONSOLIDATED FINANCIAL STATEMENTS
    
    73




---



##### 



2010Notional amount
    
    
    Fair valueExchange rate
    
    
    Maturity
    
    
    (in millions)
    
    
    (in millions)Repayment of long-term debtDerivatives designated as held for trading and reclassified into Income in Foreign exchange loss
(gain) on long-term debt (effective portion):Foreign exchange forward contracts (US$ for CAN$)
    
    
    1.1928
    
    
    February 2013
    
    US$ 310.0
    
    
    
    (51.3
    )Foreign exchange forward contracts (US$ for CAN$)
    
    
    1.1945
    
    
    May 2013
    
    US$ 50.0
    
    
    
    (8.2
    )Currency option sold to buy US$ (US$ for CAN$)
    
    
    1.0113
    
    
    February 2013
    
    US$ 37.5
    
    
    
    (2.3
    )Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (61.8
    )Loss on derivative financial instruments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (61.8
    )Forecasted salesDerivatives designated as cash flow hedges and reclassified into Income in Sales (effective portion):Foreign exchange forward contracts (US$ for CAN$)
    
    
    0.9946
    
    
    January 2011
    
    US$ 11.0
    
    
    
    Foreign exchange forward contracts (US$ for CAN$)
    
    
    1.1307
    
    
    0 to 12 months
    
    US$ 57.0
    
    
    
    7.4Foreign exchange forward contracts (US$ for CAN$)
    
    
    1.0727
    
    
    February 2012
    
    US$ 0.5
    
    
    
    Foreign exchange forward contracts ( for US$)
    
    
    1.3802
    
    
    0 to 12 months
    
    US$ 3.6
    
    
    
    0.1Foreign exchange forward contracts (GBP for SEK)
    
    
    10.92
    
    
    0 to 12 months
    
    GBP 3.4
    
    
    
    0.2Foreign exchange forward contracts ( for SEK)
    
    
    9.2933
    
    
    0 to 12 months
    
     3.6
    
    
    
    0.1Foreign exchange forward contracts (GBP for )
    
    
    1.1592
    
    
    0 to 12 months
    
    GBP 2.8
    
    
    Currency option instruments (GBP for )
    
    
    1.1261
    
    
    0 to 12 months
    
    GBP 0.4
    
    
    
    Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7.8Derivatives designated as held for trading and reclassified into Income in Sales (effective portion):Currency option instruments (US$ for CAN$)
    
    
    1.0803
    
    
    0 to 12 months
    
    US$ 7.5
    
    
    
    0.6Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.6Forecasted purchasesHedge of forecasted purchases designated as cash flow hedges and reclassified into Income in Cost of
sales (effective portion):Foreign exchange forward contracts (US$ for CAN$)
    
    
    1.1333
    
    
    0 to 12 months
    
    US$ 5.2
    
    
    
    (0.7
    )Foreign exchange forward contracts (US$ for CAN$)
    
    
    1.0457
    
    
    13 to 23 months
    
    US$ 2.2
    
    
    
    (0.1
    )Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.8
    )
 CASCADES  ANNUAL REPORT 2010  CONSOLIDATED FINANCIAL STATEMENTS
    
    74




---



##### 



2009Notional amount
    
    
    Fair valueExchange rate
    
    
    Maturity
    
    
    (in millions)
    
    
    (in millions)Repayment of long-term debt1Derivatives designated as cash flow hedges and reclassified into Income in Foreign exchange
loss (gain) on long-term debt (effective portion):Foreign exchange forward contracts (US$ for CAN$)
    
    
    1.1764
    
    
    February 2013
    
    US$ 110.0
    
    
    
    (12.0
    )Foreign exchange forward contracts (US$ for CAN$)
    
    
    1.1945
    
    
    May 2013
    
    US$ 50.0
    
    
    
    (6.2
    )Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (18.2
    )Derivatives designated as held for trading and
reclassified into Income in Foreign exchange
loss (gain) on long-term debt (effective portion):Foreign exchange forward contracts (US$ for CAN$)
    
    
    1.2018
    
    
    February 2013
    
    US$ 200.0
    
    
    
    (26.4
    )Currency option sold to buy US$(US$ for CAN$)
    
    
    1.0113
    
    
    February 2013
    
    US$ 37.5
    
    
    
    (3.0
    )Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (29.4
    )Gain (loss) on derivative financial instruments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (47.6
    )Forecasted salesDerivatives designated as cash flow hedges and
reclassified into Income in Sales (effective portion):Foreign exchange forward contracts (US$ for CAN$)
    
    
    1.0505
    
    
    January 2010
    
    US$ 165.0
    
    
    
    0.1Foreign exchange forward contracts (US$ for CAN$)
    
    
    1.1925
    
    
    
    0 to 12 months
    
    
    US$ 51.5
    
    
    
    7.1Foreign exchange forward contracts (US$ for CAN$)
    
    
    1.1596
    
    
    
    13 to 24 months
    
    
    US$ 40.0
    
    
    
    4.1Foreign exchange forward contracts ( for US$)
    
    
    1.4457
    
    
    
    0 to 12 months
    
    
    US$ 1.8
    
    
    
    Foreign exchange forward contracts (GBP for SEK)
    
    
    11.3533
    
    
    
    0 to 12 months
    
    
    GBP2.2
    
    
    
    Foreign exchange forward contracts ( for SEK)
    
    
    10.3926
    
    
    
    0 to 12 months
    
    
     9.6
    
    
    
    0.2Foreign exchange forward contracts (GBP for )
    
    
    1.1124
    
    
    
    0 to 12 months
    
    
    GBP1.0
    
    
    
    Currency option instruments (GBP for )
    
    
    1.1000
    
    
    
    0 to 12 months
    
    
    GBP0.9
    
    
    
    Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11.5Derivatives designated as held for trading and
reclassified into Income in Sales (effective portion):Currency option instruments (US$ for CAN$)
    
    
    1.2397
    
    
    
    0 to 12 months
    
    
    US$ 30.0
    
    
    
    5.5Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5.5Forecasted purchasesHedge of forecasted purchases designated as cash flow hedges and reclassified into Income
in Cost of sales (effective portion):Foreign exchange forward contracts (US$ for CAN$)
    
    
    1.2237
    
    
    
    0 to 12 months
    
    
    US$ 3.6
    
    
    
    (0.6
    )Foreign exchange forward contracts (US$ for CAN$)
    
    
    1.1640
    
    
    
    13 to 24 months
    
    
    US$ 3.9
    
    
    
    (0.4
    )Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1.0
    )
 1
    
    As a result of the repurchase of the 2013 unsecured senior notes in November and December
2009, as well as in the first quarter of 2010, described in note 9, the Company dedesignated
and reclassified from Accumulated other comprehensive income to Foreign exchange loss (gain)
on long-term debt an amount of $4 million since the hedged item ceased to exist in 2010 ($33
million in 2009).
  CASCADES  ANNUAL REPORT 2010  CONSOLIDATED FINANCIAL STATEMENTS
    
    75




---



##### 



Currency risk on translation of self-sustaining foreign subsidiaries
     2010
    
    
    2009(in millions of Canadian dollars)
    
    Before hedges
    
    
    Hedges
    
    
    Net impact
    
    
    Before hedges
    
    
    Hedges
    
    
    Net impact10% change in the CAN/U.S. rate
    
    
    65
    
    
    
    53
    
    
    
    12
    
    
    
    62
    
    
    
    56
    
    
    
    610% change in the CAN/euro rate
    
    
    14
    
    
    
    
    
    
    
    14
    
    
    
    20
    
    
    
    
    
    
    
    20
 CASCADES  ANNUAL REPORT 2010  CONSOLIDATED FINANCIAL STATEMENTS
    
    76




---



##### 



ii)
    
    Price risk
   2010Forecasted purchases
    
    Quantity
    
    
    Maturity
    
    
    Fair valueDerivatives designated as held for trading and reclassified in Cost of salesOld corrugated containers
    
    
    137,000 s.t.
    
    
    2011 to 2013
    
    
    2.4Sorted office papers
    
    
    44,500 s.t.
    
    
    2012
    
    
    0.7Derivatives designated as cash flow hedges and reclassified in Cost of sales (effective portion)Electricity
    
    
    412,320 MWh
    
    
    2011 to 2013
    
    
    (1.1
    )Oil Gulf cost
    
    
    125,025 baril
    
    
    2011 to 2012
    
    
    1.7Natural gas:Canadian portfolio
    
    
    8,118,400 GJ
    
    
    2011 to 2015
    
    
    (11.1
    )U.S. porfolio
    
    
    8,253,350 mmBtu
    
    
    2011 to 2015
    
    
    (11.6
    )2009Forecasted purchases
    
    Quantity
    
    
    Maturity
    
    
    Fair valueDerivatives designated as held for trading and reclassified in Cost of salesOld corrugated containers
    
    
    87,000 s.t.
    
    
    
    2010 to 2011
    
    
    
    (2.8
    )Sorted office papers
    
    
    3,600 s.t.
    
    
    
    2010
    
    
    
    Derivatives designated as cash flow hedges and reclassified in Cost of sales (effective portion)Electricity
    
    
    332,880 MWh
    
    
    
    2010 to 2012
    
    
    
    (0.1
    )Oil Gulf cost
    
    
    143,100 baril
    
    
    
    2010 to 2011
    
    
    
    3.2Natural gas:Canadian portfolio
    
    
    4,250,200 GJ
    
    
    
    2010 to 2014
    
    
    
    (2.4
    )U.S. porfolio
    
    
    5,374,780 mmBtu
    
    
    
    2010 to 2013
    
    
    
    (6.1
    )
     2010
    
    
    2009(in millions of Canadian dollars1)
    
    Before hedges
    
    
    Hedges
    
    
    Net impact
    
    
    Before hedges
    
    
    Hedges
    
    
    Net impactUS$15/s.t. change in recycled paper price
    
    
    33
    
    
    
    2
    
    
    
    31
    
    
    
    43
    
    
    
    2
    
    
    
    41US$30/s.t. change in commercial pulp price
    
    
    5
    
    
    
    
    
    
    
    5
    
    
    
    10
    
    
    
    
    
    
    
    10US$1/mmBtu. change in natural gas price
    
    
    9
    
    
    
    6
    
    
    
    3
    
    
    
    14
    
    
    
    11
    
    
    
    3US$1/MWh change in electricity
    
    
    2
    
    
    
    
    
    
    
    2
    
    
    
    3
    
    
    
    1
    
    
    
    2
 1
    
    Sensitivity calculated with an exchange rate of CAN$/US$1.00 (20091.25 CAN$/US$)
 CASCADES  ANNUAL REPORT 2010  CONSOLIDATED FINANCIAL STATEMENTS
    
    77




---



##### 



iii)
    
    INTEREST RATE RISK
      iv)
    
    LOSS (GAIN) ON DERIVATIVE FINANCIAL INSTRUMENTS IS AS FOLLOWS:
 2010
    
    
    2009
    
    
    2008Unrealized loss (gain) on derivative financial instruments
    
    
    6
    
    
    
    (26
    )
    
    
    27Realized loss (gain) on derivative financial instruments
    
    
    (7
    )
    
    
    8
    
    
    
    1(1
    )
    
    
    (18
    )
    
    
    28
 b)
    
    Credit risk
     CASCADES  ANNUAL REPORT 2010  CONSOLIDATED FINANCIAL STATEMENTS
    
    78




---



##### 



c) Liquidity risk
  2010Carrying
    
    
    Contractual
    
    
    Less than
    
    
    Between one
    
    
    Between two
    
    
    More thanamount
    
    
    cash flows
    
    
    one year
    
    
    and two years
    
    
    and five years
    
    
    five years$
    
    
    $
    
    
    $
    
    
    $
    
    
    $
    
    
    $Non-derivative financial liabilities:Bank loans and advances
    
    
    64
    
    
    
    64
    
    
    
    64
    
    
    
    
    
    
    
    
    
    
    
    Accounts payable and accrued liabilities
    
    
    558
    
    
    
    558
    
    
    
    558
    
    
    
    
    
    
    
    
    
    
    
    Revolving credit facility
    
    
    394
    
    
    
    459
    
    
    
    16
    
    
    
    16
    
    
    
    427
    
    
    
    Unsecured senior notes
    
    
    952
    
    
    
    1,492
    
    
    
    75
    
    
    
    75
    
    
    
    239
    
    
    
    1,103Other debts of subsidiaries
    
    
    14
    
    
    
    14
    
    
    
    2
    
    
    
    3
    
    
    
    6
    
    
    
    3Other debts without recourse to the Company
    
    
    55
    
    
    
    55
    
    
    
    10
    
    
    
    20
    
    
    
    21
    
    
    
    4Legal settlement
    
    
    5
    
    
    
    5
    
    
    
    3
    
    
    
    2
    
    
    
    
    
    
    
    Derivative instrument financial liabilities
    
    
    95
    
    
    
    95
    
    
    
    12
    
    
    
    5
    
    
    
    78
    
    
    
    --2,137
    
    
    
    2,742
    
    
    
    740
    
    
    
    121
    
    
    
    771
    
    
    
    1,110
  2009Carrying
    
    
    Contractual
    
    
    Less than
    
    
    Between one
    
    
    Between two
    
    
    More thanamount
    
    
    cash flows
    
    
    one year
    
    
    and two years
    
    
    and five years
    
    
    five years$
    
    
    $
    
    
    $
    
    
    $
    
    
    $
    
    
    $Non-derivative financial liabilities:Bank loans and advances
    
    
    83
    
    
    
    83
    
    
    
    83
    
    
    
    
    
    
    
    
    
    
    
    Accounts payable and accrued liabilities
    
    
    491
    
    
    
    491
    
    
    
    491
    
    
    
    
    
    
    
    
    
    
    
    Revolving credit facility
    
    
    159
    
    
    
    169
    
    
    
    5
    
    
    
    164
    
    
    
    
    
    
    
    Term credit facility
    
    
    100
    
    
    
    109
    
    
    
    3
    
    
    
    3
    
    
    
    103
    
    
    
    Unsecured senior notes
    
    
    1,155
    
    
    
    1,862
    
    
    
    91
    
    
    
    91
    
    
    
    435
    
    
    
    1,245Other debts of subsidiaries
    
    
    33
    
    
    
    33
    
    
    
    6
    
    
    
    6
    
    
    
    17
    
    
    
    4Other debts without recourse to the Company
    
    
    42
    
    
    
    42
    
    
    
    4
    
    
    
    8
    
    
    
    20
    
    
    
    10Legal settlement
    
    
    7
    
    
    
    7
    
    
    
    3
    
    
    
    3
    
    
    
    1
    
    
    
    Derivative instrument financial liabilities
    
    
    60
    
    
    
    60
    
    
    
    5
    
    
    
    4
    
    
    
    51
    
    
    
    2,130
    
    
    
    2,856
    
    
    
    691
    
    
    
    279
    
    
    
    627
    
    
    
    1,259
  d) Other risk
  CASCADES  ANNUAL REPORT 2010  CONSOLIDATED FINANCIAL STATEMENTS
    
    79




---



##### 



Note 19
   2010
    
    
    2009
    
    
    2008Foreign currency translation of
self-sustaining foreign subsidiaries,
net of hedging activities and related
income tax of $(58) million
(2009$(54) million)
    
    
    59
    
    
    
    88
    
    
    
    141Unrealized gains (losses) arising from
foreign exchange forward contracts
designated as cash flow hedges, net of
related income taxes of $(1) million
(2009$(1) million)
    
    
    4
    
    
    
    4
    
    
    
    (57
    )Unrealized losses arising from interest
rate swap agreements designated as cash
flow hedges net of related income tax of
$1 million (2009$1 million)
    
    
    (3
    )
    
    
    (2
    )
    
    
    (2
    )Unrealized gains arising from commodity
derivative financial instruments
designated as cash flow hedges, net of
related income taxes of $5 million
(2009$(3) million)
    
    
    (14
    )
    
    
    1
    
    
    
    346
    
    
    
    91
    
    
    
    85
  2010
    
    
    2009
    
    
    2008BalanceBeginning
of year
    
    
    88
    
    
    
    141
    
    
    
    (49
    )Effect of changes in exchange rates during the year:On net investment in self-sustaining foreign subsidiaries
    
    
    (53
    )
    
    
    (128
    )
    
    
    176On certain long-term debt denominated in foreign
currencies designated as a hedge of net investments in
self-sustaining foreign subsidiaries
    
    
    28
    
    
    
    87
    
    
    
    17Future income taxes on designated long-term debt
    
    
    (4
    )
    
    
    (12
    )
    
    
    (3
    )BalanceEnd
of year
    
    
    59
    
    
    
    88
    
    
    
    141
 Note 20
   2010
    
    
    2009
    
    
    2008Joint ventures1Sales
    
    
    33
    
    
    
    33
    
    
    
    30Revenue from services
    
    
    3
    
    
    
    4
    
    
    
    5Purchases
    
    
    8
    
    
    
    6
    
    
    
    7Significantly influenced companiesSales
    
    
    100
    
    
    
    90
    
    
    
    74Purchases
    
    
    57
    
    
    
    60
    
    
    
    48Purchases of services
    
    
    2
    
    
    
    3
    
    
    
    3
 
  CASCADES  ANNUAL REPORT 2010  CONSOLIDATED FINANCIAL STATEMENTS
    
    80




---



##### 



2010
    
    
    2009Joint ventures 1Accounts receivable
    
    
    6
    
    
    
    6Accounts payable
    
    
    2
    
    
    
    1Significantly influenced companiesAccounts receivable
    
    
    11
    
    
    
    10Accounts payable
    
    
    8
    
    
    
    8
 
 1
    
    Represent the portion of transactions or balances not eliminated upon proportionate
consolidation of the joint ventures. Key Management compensation
  2010Salaries and other short-term benefits
    
    
    7Post-employment benefits
    
    
    4Share-based payments
    
    
    213
 Note 21
   2010
    
    
    2009
    
    
    2008Consolidated balance sheetsCurrent assets
    
    
    134
    
    
    
    124
    
    
    
    148Long-term assets
    
    
    141
    
    
    
    153
    
    
    
    169Current liabilities
    
    
    58
    
    
    
    72
    
    
    
    144Long-term debt, net
    
    
    30
    
    
    
    35
    
    
    
    12Cash and cash equivalents at end of year
    
    
    3
    
    
    
    10
    
    
    
    5Total assets
    
    
    275
    
    
    
    277
    
    
    
    317Total debt1
    
    
    111
    
    
    
    100
    
    
    
    85Consolidated statements of earningsSales
    
    
    339
    
    
    
    322
    
    
    
    308Depreciation and amortization
    
    
    15
    
    
    
    15
    
    
    
    12Operating income
    
    
    19
    
    
    
    10
    
    
    
    7Financing expenses
    
    
    3
    
    
    
    4
    
    
    
    4Net earnings (loss)
    
    
    9
    
    
    
    1
    
    
    
    (9
    )Consolidated statements of cash flowsOperating activities
    
    
    14
    
    
    
    30
    
    
    
    (3
    )Investing activities
    
    
    (9
    )
    
    
    32
    
    
    
    2Financing activities
    
    
    (11
    )
    
    
    (57
    )
    
    
    2Additional informationDividends received by the Company from joint ventures
    
    
    12
    
    
    
    4
    
    
    
    5
 
 1
    
    Includes bank loans and advances, current portion of long-term debt, and long-term debt. CASCADES  ANNUAL REPORT 2010  CONSOLIDATED FINANCIAL STATEMENTS
    
    81




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##### 



Note 22
  a)
    
    On February 18, 2011, the Company sold its only European Containerboard Group white-top
linerboard mill located in Avot-Vallée, France. Total consideration is 11 million ($15
million), of which 5 million ($7 million) has been received at closing and the remaining
balance will be received over a maximum of 3 years. No gain or loss resulted from this
disposition.
 b)
    
    On March 11, 2011, the Company announced that it entered into an agreement for the sale of
Dopaco Inc., its converting business for the quick-service restaurant industry for a cash
consideration of US$400 million. The transaction is expected to close before the end of April
2011.
 2010 financial information relating to this division is as follows:
    
    2010Condensed balance sheetCurrent assets
    
    
    102Long-term assets
    
    
    200Current liabilities
    
    
    31Condensed statement of earningsSales (net of intercompany sales)
    
    
    434Depreciation and amortization
    
    
    25Operating income
    
    
    35
 Note 23
   1. U.S. GAAP Accounting Pronouncements
 1.1
    
    In December 2007, the Financial Accounting Standards Board (FASB) issued ASC 810-10,
Consolidation. ASC 810-10 established new guidance governing the accounting for and
reporting of non controlling interests (NCIs) in partially owned consolidated subsidiaries
and the loss of control of subsidiaries. Certain provisions of this standard indicate, among
other things, that NCIs (previously referred to as minority interests) be treated as a
separate component of equity, not as a liability (as was previously the case), that increases
and decreases in the parents ownership interest that leave control intact be treated as
equity transactions, rather than as step acquisitions or dilution gains or losses, and that
losses of a partially owned consolidated subsidiary be allocated to the NCI even when such
allocation might result in a deficit balance. This standard also required changes to certain
presentation and disclosure requirements. The Company adopted ASC 810-10 effective as of
January 1, 2009. The provisions of the standard were applied to all NCIs prospectively, except
for the presentation and disclosure requirements, which were applied retrospectively to all
periods presented. As a result, upon adoption, we retroactively reclassified the Minority
interests in subsidiaries balance previously included in other liabilities to a new component
of equity with respect to NCIs in consolidated subsidiaries. The adoption also impacted
certain captions previously used in our Consolidated Statements of Earnings (loss), largely
identifying net loss including NCI and net loss attributable to the Company. Additional
disclosures required by this standard are also reflected in our Consolidated Statement of
shareholders equity. Effective January 1st, 2009, and for the purpose of our reconciliation
to U.S. GAAP, the Company adopted the provisions of ASC 810-10 and as a result noncontrolling
interest are adequately reflected in the consolidated financial statements.
 1.2
    
    In June 2009, the FASB issued FASB Statement No. 166, Accounting for Transfers of Financial
Assets  an amendment of FASB Statement No. 140 (FAS 166), amending the guidance on transfers
of financial assets in order to address practice issues highlighted most recently by events
related to the economic downturn. The amendments include:
 (1)
    
    eliminating the qualifying special-purpose entity concept,(2)
    
    a new unit of account definition that must be met for transfers of portions of financial
assets to be eligible for sale accounting,(3)
    
    clarifications and changes to the derecognition criteria for a transfer to be accounted for
as a sale,(4)
    
    a change to the amount of recognized gain or loss on a transfer of financial assets
accounted for as a sale when beneficial interests are received by the transferor, and(5)
    
    extensive new disclosures.
 On January 1st, 2010, the Company prospectively adopted the new requirements which
resulted in the non recognition of the transfer of receivables. As a result, under U.S. GAAP,
the Company recognizes the accounts receivable for an amount of $14 million and recorded a
secured borrowing liability.
 CASCADES  ANNUAL REPORT 2010  CONSOLIDATED FINANCIAL STATEMENTS
    
    82




---



##### 



In June 2009, the FASB issued FASB Statement No. 167, Amendments to FASB Interpretation
No. 46(R) (FAS 167), amending the consolidation guidance for variable-interest entities under
FIN 46(R). The amendments include:(1) the elimination of the exemption for qualifying special purpose entities,(2) a new approach for determining who should consolidate a variable-interest entity, and(3) changes to when it is necessary to reassess who should consolidate a variable-interest
entity.The Company adopted the new requirements on January 1, 2010. The adoption of those amendments
did not have a material impact on the Companys consolidated financial statements.2.
    
    Recent accounting pronouncements under U.S. GAAP not yet adopted2.1
    
    In October 2009, the FASB issued ASC 605-25, Multiple-Element Arrangements for
arrangements with multiple deliverables under which a company is required to use its best
estimate of selling price for the deliverables in an arrangement when vendor specific
objective evidence or third party evidence of the selling price is not available. In addition,
the residual method of allocating arrangement consideration will no longer be permitted. Under
the new guidance, non-software components of tangible products and certain software components
of tangible products have been removed from the scope of existing software revenue recognition
guidance. Revenue for those products will be recognized in a manner similar to revenue for
other tangible products. The new guidance, including the requirement for expanded qualitative
and quantitative disclosures, is effective prospectively for fiscal years beginning on or
after June 15, 2010, which for the Company is January 1, 2011. The Company is assessing the
impact of this ASC on its consolidated financial statements.2.2
    
    In January 2010, the FASB issued an update of ASC 820-10, Fair Value Measurements and
Disclosures-Overall (formerly FAS 157, Fair Value Measurements) to add two new disclosures:(1) transfers in and out of Level 1 and 2 measurements and the reasons for the transfers, and
(2) a gross presentation of activity within the Level 3 roll forward.The updated ASC also includes clarifications to existing disclosure requirements on the level of
disaggregation and disclosures regarding inputs and valuation techniques. These modifications
are effective for interim and annual periods beginning after December 15, 2009, except for the
disclosures about purchases, sales, issuances, and settlements in the roll forward activity in
Level 3 fair value measurements. Those disclosures are effective for interim and annual periods
beginning after December 15, 2010. The Company is assessing the impact of this ASC on its
consolidated financial statements.2.3
    
    In April 2010, the FASB issued an update of ASC 718, CompensationStock Compensation,
which provides guidance on the classification of a share-based payment award as either equity
or a liability. A share-based payment award that contains a condition that is not a market,
performance, or service condition is required to be classified as a liability. This Update is
effective for fiscal years and interim periods beginning on or after December 15, 2010 with
early adoption permitted. The Company is assessing the impact of this ASC on its consolidated
financial statements.
 3.
    
    Reconciliation to United States generally accepted accounting principles (U.S. GAAP)
  3.1
    
    Reconciliation of consolidated net earnings (loss)
 Note
    
    
    2010
    
    
    2009
    
    
    2008Net earnings (loss) under Canadian GAAP
    
    
    
    
    
    
    17
    
    
    
    60
    
    
    
    (54
    )U.S. GAAP adjustments:Investment tax credit
    
    
    (a
    )
    
    
    2
    
    
    
    
    
    
    
    (1
    )Change in fair value arising from commodity derivative financial
instruments
    
    
    (c
    )
    
    
    
    
    
    
    
    
    
    
    1Excess of redemption price of Class B preferred shares on their
paid-up capital net of related taxes
    
    
    (f
    )
    
    
    (1
    )
    
    
    
    
    
    
    Gain on dilution
    
    
    (j
    )
    
    
    
    
    
    
    (5
    )
    
    
    Inventory costs
    
    
    (d
    )
    
    
    
    
    
    
    
    
    
    
    (1
    )Employee future benefits
    
    
    (e
    )
    
    
    2
    
    
    
    3
    
    
    
    (1
    )Accumulated translation adjustment
    
    
    (l
    )
    
    
    (2
    )
    
    
    
    
    
    
    Tax effect on U.S. GAAP adjustments
    
    
    
    
    
    
    (1
    )
    
    
    1
    
    
    
    7Net earnings (loss) under U.S. GAAP
    
    
    
    
    
    
    17
    
    
    
    59
    
    
    
    (49
    )Net earnings (loss) under U.S. GAAP from continuing operations
    
    
    
    
    
    
    18
    
    
    
    59
    
    
    
    (67
    )Net earnings (loss) under U.S. GAAP from discontinued operations
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    1817
    
    
    
    59
    
    
    
    (49
    )Basic net earnings (loss) under U.S. GAAP from continuing operations
per common share
    
    
    
    
    
    
    0.18
    
    
    
    0.60
    
    
    
    (0.67
    )Basic and diluted net earnings (loss) under U.S. GAAP per common share
    
    
    
    
    
    
    0.18
    
    
    
    0.60
    
    
    
    (0.49
    )Weighted average of common shares outstanding during the year
    
    
    
    
    
    
    96,807,032
    
    
    
    97,656,412
    
    
    
    98,804,536
 CASCADES  ANNUAL REPORT 2010  CONSOLIDATED FINANCIAL STATEMENTS
    
    83




---



##### 



3.2
    
    Statement of changes in consolidated shareholders equity under U.S. GAAP
 2010Accumulatedother
    
    
    
    
    
    
    
    
    
    
    TotalCommon
    
    
    Contributed
    
    
    comprehensive
    
    
    Retained
    
    
    Non controlling
    
    
    shareholdersstock
    
    
    surplus
    
    
    income (loss)
    
    
    earnings
    
    
    Interest
    
    
    equityBalance as at December 31, 2009
    
    
    492
    
    
    
    17
    
    
    
    21
    
    
    
    739
    
    
    
    21
    
    
    
    1,290Redemption of common shares
    
    
    (3
    )
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4
    )Dividends paid to Cascades shareholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16
    )
    
    
    
    
    
    
    (16
    )Net earnings for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17
    
    
    
    
    
    
    
    17Net changes in amounts attributable to
noncontrolling interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    3Stock-based compensation
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Other comprehensive income (loss) (net
of tax)
    
    
    
    
    
    
    
    
    
    
    (74
    )
    
    
    
    
    
    
    
    
    
    
    (74
    )Balance as at December 31, 2010
    
    
    489
    
    
    
    17
    
    
    
    (53
    )
    
    
    740
    
    
    
    24
    
    
    
    1,217
 2009Accumulatedother
    
    
    
    
    
    
    
    
    
    
    TotalCommon
    
    
    Contributed
    
    
    comprehensive
    
    
    Retained
    
    
    Non controlling
    
    
    shareholdersstock
    
    
    surplus
    
    
    income
    
    
    earnings
    
    
    Interest
    
    
    equityBalance as at December 31, 2008
    
    
    499
    
    
    
    12
    
    
    
    40
    
    
    
    696
    
    
    
    22
    
    
    
    1,269Redemption of common shares
    
    
    (7
    )
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4
    )Dividends paid to Cascades shareholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16
    )
    
    
    
    
    
    
    (16
    )Net earnings for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    59
    
    
    
    
    
    
    
    59Net changes in amounts attributable to
noncontrolling interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    (1
    )Stock-based compensation
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2Other
comprehensive income (loss) (net
of tax)
    
    
    
    
    
    
    
    
    
    
    (19
    )
    
    
    
    
    
    
    
    
    
    
    (19
    )Balance as at December 31, 2009
    
    
    492
    
    
    
    17
    
    
    
    21
    
    
    
    739
    
    
    
    21
    
    
    
    1,290
 2008Accumulatedother
    
    
    
    
    
    
    
    
    
    
    TotalCommon
    
    
    Contributed
    
    
    comprehensive
    
    
    Retained
    
    
    Non controlling
    
    
    shareholdersStock
    
    
    surplus
    
    
    income (loss)
    
    
    earnings
    
    
    Interest
    
    
    equityBalance as at December 31, 2007
    
    
    502
    
    
    
    11
    
    
    
    (79
    )
    
    
    762
    
    
    
    25
    
    
    
    1,219Redemption of common shares
    
    
    (3
    )
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    (4
    )Dividends paid to Cascades shareholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16
    )
    
    
    
    
    
    
    (16
    )Net loss for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (49
    )
    
    
    
    
    
    
    (49
    )Net changes in amounts attributable to
non controlling interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3
    )
    
    
    (3
    )Stock-based compensation
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Other comprehensive income (net of tax)
    
    
    
    
    
    
    
    
    
    
    119
    
    
    
    
    
    
    
    
    
    
    
    119Balance as at December 31, 2008
    
    
    499
    
    
    
    12
    
    
    
    40
    
    
    
    696
    
    
    
    22
    
    
    
    1,269
 CASCADES  ANNUAL REPORT 2010  CONSOLIDATED FINANCIAL STATEMENTS
    
    84




---



##### 



3.3
    
    Reconciliation of consolidated shareholders equity
 Note
    
    
    2010
    
    
    2009Shareholders equity under Canadian GAAP
    
    
    
    
    
    
    1,281
    
    
    
    1,325U.S. GAAP adjustments:Investment tax credit
    
    
    (a
    )
    
    
    7
    
    
    
    5Gain realized on formation of Norampac
    
    
    (b
    )
    
    
    44
    
    
    
    44Employee future benefits
    
    
    (e
    )
    
    
    (9
    )
    
    
    (11
    )Unrecognized actuarial gains and losses and past service costs on defined benefit pension and other benefit plans
    
    
    (e
    )
    
    
    (148
    )
    
    
    (103
    )Gain on dilution
    
    
    (j
    )
    
    
    (5
    )
    
    
    (5
    )Excess of redemption price of Class B preferred shares on their paid-up capital net of related taxes
    
    
    (f
    )
    
    
    6
    
    
    
    7Hedging of purchases of property, plant and equipment
    
    
    (k
    )
    
    
    1
    
    
    
    Tax effect on above adjustments
    
    
    
    
    
    
    40
    
    
    
    28Shareholders equity under U.S. GAAP
    
    
    
    
    
    
    1,217
    
    
    
    1,290
 3.4
    
    Reconciliation of consolidated balance sheets
 2010Note

    
    Canadian GAAP
    
    
    Adjustments
    
    
    RDM impact (h)
    
    
    U.S. GAAPCurrent assets
    
    
    (m)
    
    
    1,133
    
    
    
    14
    
    
    
    (112
    )
    
    
    1,035Property, plant and equipment
    
    
    (a) (b) (f) and (k)

    
    
    1,777
    
    
    
    37
    
    
    
    (105
    )
    
    
    1,709Intangible assets, other
assets and goodwill
    
    
    (b) (c) (e)  and (j)
    
    
    814
    
    
    
    (45
    )
    
    
    57
    
    
    
    826Total assets
    
    
    
    
    
    
    3,724
    
    
    
    6
    
    
    
    (160
    )
    
    
    3,570Current liabilities
    
    
    (m)
    
    
    654
    
    
    
    14
    
    
    
    (106
    )
    
    
    562Long-term debt
    
    
    (c)
    
    
    1,383
    
    
    
    19
    
    
    
    (29
    )
    
    
    1,373Other liabilities
    
    
    (a) (b) (e)  and (f)

    
    406
    
    
    
    37
    
    
    
    (25
    )
    
    
    418Total liabilities
    
    
    
    
    
    
    2,443
    
    
    
    70
    
    
    
    (160
    )
    
    
    2,353Shareholders equity
    
    
    (a) (b) (e) (f) (j) and (k)
    

    
    1,281
    
    
    
    (64
    )
    
    
    
    
    
    
    1,2172009Note

    
    Canadian GAAP
    
    
    Adjustments
    
    
    RDM impact (h)
    
    
    U.S. GAAPCurrent assets
    
    
    
    
    
    
    1,082
    
    
    
    
    
    
    
    (106
    )
    
    
    976Property, plant and equipment
    
    
    (a) (b) and (f)
    
    
    1,912
    
    
    
    35
    
    
    
    (110
    )
    
    
    1,837Intangible assets, other
assets and goodwill
    

    
    (b) (c) and (e)

    
    
    798
    
    
    
    (42
    )
    
    
    56
    
    
    
    812Total assets
    
    
    
    
    
    
    3,792
    
    
    
    (7
    )
    
    
    (160
    )
    
    
    3,625Current liabilities
    
    
    
    
    
    
    598
    
    
    
    
    
    
    
    (101
    )
    
    
    497Long-term debt
    
    
    (c)
    
    
    1,459
    
    
    
    20
    
    
    
    (34
    )
    
    
    1,445Other liabilities
    
    
    (a) (b) (e) and (f)
    
    
    410
    
    
    
    8
    
    
    
    (25
    )
    
    
    393Total liabilities
    
    
    
    
    
    
    2,467
    
    
    
    28
    
    
    
    (160
    )
    
    
    2,335Shareholders equity
    
    
    (a) (b) (e) and (f)
    
    
    1,325
    
    
    
    (35
    )
    
    
    
    
    
    
    1,290
 CASCADES  ANNUAL REPORT 2010  CONSOLIDATED FINANCIAL STATEMENTS
    
    85




---



##### 



3.5
    
    Reconciliation of consolidated statement of earnings (loss)
 2010Note
    
    
    Canadian GAAP
    
    
    Adjustments
    
    
    RDM impact (h)
    
    
    U.S. GAAPSales
    
    
    
    
    
    
    3,715
    
    
    
    
    
    
    
    (242
    )
    
    
    3,473Costs of sales and expenses
    
    (a) (e) (f) and (g)
    
    
    
    3,593
    
    
    
    2
    
    
    
    (234
    )
    
    
    3,361Operating income
    
    
    
    
    
    
    122
    
    
    
    (2
    )
    
    
    (8
    )
    
    
    112Interest expense
    
    
    
    
    
    
    112
    
    
    
    
    
    
    
    (3
    )
    
    
    109Foreign exchange loss on long term debt
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    46
    
    
    
    (2
    )
    
    
    (5
    )
    
    
    (1
    )Provision for income tax
    
    (a) (e) (f) and (g)
    
    
    
    
    
    
    
    (4
    )
    
    
    (2
    )
    
    
    (6
    )Share of results of significant
influence companies
    
    
    (l)
    
    
    
    (15
    )
    
    
    2
    
    
    
    (3
    )
    
    
    (16
    )Discountinued operations
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    (1
    )Net earnings including noncontrolling
interests
    
    
    
    
    
    
    20
    
    
    
    
    
    
    
    
    
    
    
    20Net earnings attributable to
noncontrolling interests
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    3Net earnings attributable to Cascades
inc.
    
    
    
    
    
    
    17
    
    
    
    
    
    
    
    
    
    
    
    172009Note
    
    
    Canadian GAAP
    
    
    Adjustments
    
    
    RDM impact (h)
    
    
    U.S. GAAPSales
    
    
    
    
    
    
    3,877
    
    
    
    
    
    
    
    (224
    )
    
    
    3,653Costs of sales and expenses
    
    (a) (e) and (g)
    
    
    
    3,663
    
    
    
    (2
    )
    
    
    (221
    )
    
    
    3,440Operating income
    
    
    
    
    
    
    214
    
    
    
    2
    
    
    
    (3
    )
    
    
    213Interest expense
    
    
    
    
    
    
    118
    
    
    
    
    
    
    
    (4
    )
    
    
    114Foreign exchange loss on long term debt
    
    
    
    
    
    
    31
    
    
    
    
    
    
    
    
    
    
    
    3165
    
    
    
    2
    
    
    
    1
    
    
    
    68Provision for income tax
    
    (a) (e) and (g)
    
    
    
    23
    
    
    
    (2
    )
    
    
    (2
    )
    
    
    19Share of results of significant
influence companies
    
    
    (j)
    
    
    
    (17
    )
    
    
    5
    
    
    
    3
    
    
    
    (9
    )Net earnings including noncontrolling
interests
    
    
    
    
    
    
    59
    
    
    
    (1
    )
    
    
    
    
    
    
    58Net loss attributable to
noncontrolling interests
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    (1
    )Net earnings attributable to Cascades
inc.
    
    
    
    
    
    
    60
    
    
    
    (1
    )
    
    
    
    
    
    
    59
 CASCADES  ANNUAL REPORT 2010  CONSOLIDATED FINANCIAL STATEMENTS
    
    86




---



##### 



2008RDM impactNote
    
    
    Canadian GAAP
    
    
    Adjustments
    
    
    (h)
    
    
    U.S. GAAPSales
    
    
    
    
    
    
    4,017
    
    
    
    
    
    
    
    (211
    )
    
    
    3,806Costs of sales and expenses
    
    (a) (d) (e) and (g)
    
    
    
    4,001
    
    
    
    7
    
    
    
    (219
    )
    
    
    3,789Operating income from continuing
operations
    
    
    
    
    
    
    16
    
    
    
    (7
    )
    
    
    8
    
    
    
    17Interest expense
    
    
    
    
    
    
    102
    
    
    
    
    
    
    
    (4
    )
    
    
    98Foreign exchange loss on long term debt
    
    
    
    
    
    
    24
    
    
    
    
    
    
    
    
    
    
    
    24(110
    )
    
    
    (7
    )
    
    
    12
    
    
    
    (105
    )Provision for income tax
    
    (a) (e) and (g)
    
    
    
    (32
    )
    
    
    (12
    )
    
    
    
    
    
    
    (44
    )Share of results of significant
influence companies
    
    
    
    
    
    
    (8
    )
    
    
    
    
    
    
    12
    
    
    
    4Net earnings from discontinued
operations
    
    
    
    
    
    
    (18
    )
    
    
    
    
    
    
    
    
    
    
    (18
    )Net loss including
non controlling interests
    
    
    
    
    
    
    (52
    )
    
    
    5
    
    
    
    
    
    
    
    (47
    )Net earnings attributable to
non controlling interests
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    2Net loss attributable to Cascades inc.
    
    
    
    
    
    
    (54
    )
    
    
    5
    
    
    
    
    
    
    
    (49
    )
 3.6
    
    Main adjustments explanations
 a)
    
    Under U.S. GAAP, investment tax credits are accounted for as a tax recovery. Under Canadian
GAAP, investment tax credits are accounted for as a reduction of the underlying investment.b)
    
    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 related taxes, 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. Therefore, an adjustment is required to adjust amortization expenses recorded under
Canadian GAAP. On December 29, 2006, the Company acquired the remaining outstanding common shares of Norampac. Therefore since this date, the goodwill is not amortized anymore and the
difference recorded before became a permanent difference. In addition, under U.S. GAAP,
additional liabilities 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.c)
    
    In 2007, the Company adopted sections 1530, 3251, 3855 and 3865 (referred to as the
Sections) of the CICA Handbook with respect to measurement and recognition of financial
instruments, hedges, equity and comprehensive income. These Sections essentially harmonized
Canadian GAAP and U.S. GAAP except for the classification of deferred financing costs. Under
Canadian GAAP, those costs are added to the carrying value of the related long-term debt.
Under U.S. GAAP, deferred financing costs are classified in other assets. As of December 31,
2010 the reclassification of those costs amounted to $19 million ($20 million in 2009). With
the exception of the latter, the adjustment resulting from the adoption of these Sections
effective January 1, 2007 under Canadian GAAP had no impact on U.S. GAAP. Under Canadian GAAP,
prior to January 1, 2007, gains and losses were charged to earnings in the same period as the
respective hedged item affected earnings.d)
    
    Prior to January 1, 2008, the cost of inventories under U.S. GAAP included, among other things,
an allocation of the depreciation expense on production equipment as well as other indirect
costs. For the year ended December 31, 2007, the Company recorded an amount of $6 million as
cumulative adjustment relating to the allocation of such costs as a component of inventory.
Starting January 1, 2008, the Company adopted, retroactively without restatements of prior
periods, Section 3031 of the CICA Handbook establishing new measurement requirements which
essentially harmonized Canadian and U.S. GAAP.e)
    
    Under U.S. GAAP in accordance with ASC 715, the Company recognizes the overfunded or
underfunded status of its defined benefits plans as an asset or liability with changes in that
funded status recognized through comprehensive income. Prior to the adoption of ASC 715, a
minimum pension liability adjustment was recorded in accumulated other comprehensive income
for plans whose accumulated benefit obligation exceeded the fair value of plan assets. The
excess of its liability over the intangible assets, which can also be recorded for the plan,
was recorded in comprehensive income. This adjustment is not required under Canadian GAAP.
Differences between Canadian and U.S. GAAP remain with respect to the amortization of
actuarial gains and losses arising prior to January 1, 2000.f)
    
    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 to property, plant and equipment and an
increase of $5 million in future income tax liabilities. The adjustment of $15 million to
property, plant and equipment is amortized on a straight-line basis over a period of 20 years.
In addition, under U.S. GAAP, the premium paid on redemption would be classified under
investing activities rather than financing activities.
 CASCADES  ANNUAL REPORT 2010  CONSOLIDATED FINANCIAL STATEMENTS
    
    87




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##### 



g)
    
    Under U.S. GAAP, income tax expense would be reduced by $5 million in 2010 (2009  $4
million; 2008  $8 million) for tax credits relating to research and development expenses,
which are recognized as a reduction of cost of sales under Canadian GAAP.h)
    
    Under Canadian GAAP, investments in joint ventures are accounted for using the proportionate
consolidation method. Under U.S. GAAP, they are accounted for using the equity method. The
different accounting treatments affect only the presentation and classification of financial
statement items and not net earnings or shareholders equity. Rules prescribed by the U.S.
Securities and Exchange Commission (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. As required, the
Company discloses in note 21 the major components of its financial statements resulting from
the use of the proportionate consolidation method to account for its interests in joint
ventures. For RDM, the exemption is not possible, therefore for reconciliation purposes the
joint venture has been accounted for under the equity method. The impacts are disclosed in the
column RDM Impact. For the other joint ventures, the exemption applies and even under US GAAP
they remain consolidated with the proportionate method.i)
    
    Under U.S. GAAP, the consolidated cash flows would not be significantly different from the
presentation under Canadian GAAP, except that RDM would be shown as an equity investment and
not proportionally consolidated. In addition, some total in operating activities under
Canadian GAAP would not be presented under U.S. GAAP.j)
    
    In 2009, Boralex inc., a significantly influenced company, recorded a gain on dilution as a
result of a change in ownership in one of its subsidiary, which did not result in a loss of
control. Under CICA 1600 Consolidated financial statements, such gain is recorded in net
earnings for the year. Under US GAAP a gain on dilution which did not result in a loss of
control is accounted for as equity transaction. As a result, the Company reclassified an
amount of $5 million from net earnings for the year to shareholders equity.k)
    
    In 2010, Boralex inc. entered into forward foreign exchange contracts as a hedge of
anticipated purchases of equipment in Euros relating to the construction of wind turbines in
Canada. Under Canadian GAAP, gains and losses on the forward contracts are recorded in
accumulated other comprehensive income and released to property, plant and equipment as
purchases are being made. Under U.S. GAAP, gains and losses in accumulated other comprehensive
income are realized through the statement of earnings as an adjustment to depreciation expense
over the life of the related equipment.l)
    
    In 2010, Boralex Inc., an equity accounted investment, recognized a loss equivalent to a
proportionate amount of the exchange loss accumulated in the separate component of
shareholders equity relating to a partial repayment of long-term advances which are
classified as part of Boralexs net investment in that foreign operation under Canadian GAAP.
Under U.S. GAAP, the loss resulting from the currency translation of such long-term advance is
not recognized on a partial repayment from the foreign operation as such gains and losses are
recognized only upon complete or substantially complete liquidation of the foreign operation.m)
    
    Under Canadian GAAP, the Companys factoring program qualifies for derecognition as a sale of
its accounts receivables. Under U.S. GAAP, sale of those receivables do not meet the
derecognition criterias of ASC 860. As a result, the Company reclassified an amount of $14
million from accounts receivable to accounts payable.
 CASCADES  ANNUAL REPORT 2010  CONSOLIDATED FINANCIAL STATEMENTS
    
    88