Exhibit 13.3

Managements Discussion & Analysis

Transition to International Financial
Reporting Standards (IFRS)

All financial information, including comparative figures pertaining to Cascades 2010 results, has been
prepared in accordance with International Financial Reporting Standards (IFRS). In the previous year, the Corporation prepared its consolidated financial statements and interim consolidated financial statements in accordance with Canadian generally
accepted accounting principles (GAAP), in effect prior to January 1, 2011 (previous GAAP). A reconciliation of certain comparative figures from previous GAAP to IFRS is provided in the table below. The impacts of transition to IFRS at
January 1, 2010 and December 31, 2010 were disclosed in our first 2011 quarterly Management Discussion and Analysis (MD&A). For more details on IFRS adjustments at the transition date, please refer to note 30 of the consolidated
financial statements on page 58.

The table below provides the reconciliation of 2010 sales, operating income and operating income before
depreciation and amortization, excluding specific items, reported under previous GAAP and IFRS and including the effect of discontinued operations for the year ended December 31, 2011.



|                                    |  |       |       |   |                  |  |     |                                                   |  |  |     |  
|----------------------------------- |  | ----- | ----- | - | ---------------- |  | --- | ------------------------------------------------- |  |  | --- | -
|                                    |  | Sales |       |   | Operatingincome1 |  |     | Operatingincomebeforedepreciationandamortization1 | 
|(in millions of Canadian dollars)   |  | 2010  |       |   | 2010             |  |     | 2010                                              | 
|As reported in 2010 (previous GAAP) |  |       | 3,959 |   |                  |  | 186 |                                                   |  |  | 398 |  
|Less: IFRS adjustments:             |  |       |       |   |                  |  |     |                                                   |  |  |     |  
|Joint ventures                      |  |       | (350  | ) |                  |  | (20 | )                                                 |  |  | (35 | )
|Depreciation and amortization       |  |       |      |   |                  |  | 18  |                                                   |  |  |    |  
|Others                              |  |       |      |   |                  |  | 6   |                                                   |  |  | 6   |  
|                                    |  |       |       |   |                  |  |     |                                                   |  |  |     |  
|Including IFRS adjustments          |  |       | 3,609 |   |                  |  | 190 |                                                   |  |  | 369 |  
|Less: discontinued operations2      |  |       | (427  | ) |                  |  | (35 | )                                                 |  |  | (59 | )
|                                    |  |       |       |   |                  |  |     |                                                   |  |  |     |  
|As reported (IFRS)                  |  |       | 3,182 |   |                  |  | 155 |                                                   |  |  | 310 |  
|                                    |  |       |       |   |                  |  |     |                                                   |  |  |     |  



|1 | Excluding specific items.
|- | -------------------------

|2 | Discontinued operations are presented net of intercompany transactions.
|- | -----------------------------------------------------------------------

Year ended December 31, 2010: The transition to IFRS and the impact of discontinued operations1



|                                                             |  |              |       |   |                              |  |     |                          |  |  |                       |   |  |        |      |   |      |  |    |                         |  |  |            |   |  |  |      |   |  |  |       |  
|------------------------------------------------------------ |  | ------------ | ----- | - | ---------------------------- |  | --- | ------------------------ |  |  | --------------------- | - |  | ------ | ---- | - | ---- |  | -- | ----------------------- |  |  | ---------- | - |  |  | ---- | - |  |  | ----- | -
|                                                             |  |              |       |   | Effect of transition to IFRS |  |     |                          |  |  |                       |  
|(in millions of Canadian dollars)                            |  | PreviousGAAP |       |   | Impairment(Note 1)           |  |     | Employeebenefits(Note 2) |  |  | Jointventures(Note 3) |   |  | Others |      |   | IFRS |  |    | Discontinuedoperations2 |  |  | Asreported |  
|Sales                                                        |  |              | 3,959 |   |                              |  |    |                          |  |  |                      |   |  |        | (350 | ) |      |  |   |                         |  |  | 3,609      |   |  |  | (427 | ) |  |  | 3,182 |  
|Depreciation and amortization                                |  |              | 212   |   |                              |  | (18 | )                        |  |  |                      |   |  |        | (14  | ) |      |  |   |                         |  |  | 180        |   |  |  | (25  | ) |  |  | 155   |  
|Other operating expense                                      |  |              | 3,625 |   |                              |  | (18 | )                        |  |  | 7                     |   |  |        | (316 | ) |      |  |   |                         |  |  | 3,298      |   |  |  | (374 | ) |  |  | 2,924 |  
|Operating income (loss)                                      |  |              | 122   |   |                              |  | 36  |                          |  |  | (7                    | ) |  |        | (20  | ) |      |  |   |                         |  |  | 131        |   |  |  | (28  | ) |  |  | 103   |  
|Financing expense                                            |  |              | 109   |   |                              |  |    |                          |  |  | 2                     |   |  |        | (4   | ) |      |  |   |                         |  |  | 107        |   |  |  |     |   |  |  | 107   |  
|Recovery of income taxes                                     |  |              |      |   |                              |  | 8   |                          |  |  | (2                    | ) |  |        | (5   | ) |      |  |   |                         |  |  | 1          |   |  |  | (7   | ) |  |  | (6    | )
|                                                             |  |              |       |   |                              |  |     |                         
|Share of results of associates and joint ventures            |  |              | (15   | ) |                              |  |    |                          |  |  |                      |   |  |        | (11  | ) |      |  | (2 | )                       |  |  | (28        | ) |  |  | 1    |   |  |  | (27   | )
|Net earnings from discontinued operations                    |  |              | (1    | ) |                              |  |    |                          |  |  |                      |   |  |        |     |   |      |  |   |                         |  |  | (1         | ) |  |  | 22   |   |  |  | 21    |  
|Net earnings (loss) attributable to non-controlling interest |  |              |      |   |                              |  |    |                          |  |  |                      |   |  |        |     |   |      |  | (1 | )                       |  |  | (1         | ) |  |  |     |   |  |  | (1    | )
|Net earnings attributable to Shareholders                    |  |              | 17    |   |                              |  | 28  |                          |  |  | (7                    | ) |  |        |     |   |      |  | 3  |                         |  |  | 41         |   |  |  |     |   |  |  | 41    |  
|                                                             |  |              |       |   |                              |  |     |                          |  |  |                       |   |  |        |      |   |      |  |    |                         |  |  |            |   |  |  |      |   |  |  |       |  



|1 | Includes only line items impacted by IFRS adjustments and discontinued operations.
|- | ----------------------------------------------------------------------------------

|2 | Discontinued operations are presented net of intercompany transactions.
|- | -----------------------------------------------------------------------



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|CASCADES      2011 ANNUAL REPORT      MANAGEMENTS DISCUSSION & ANALYSIS |  |  | 1 | 



---

The Corporation made some modifications to its financial information system in order to accommodate the
required changes. In addition, the Corporations internal and disclosure control processes did not need significant modifications as a result of the conversion to IFRS. The changes required by IFRS have been communicated to the relevant
personnel in the organization, including plant controllers as well as the members of the Audit Committee. It is also important to note that our bank covenants are not impacted by these transitional adjustments. The most significant impacts are
summarized below.

NOTE 1

On
the transition date, the Corporation recorded impairment totalling $150 million on machinery and equipment and $8 million on intangible assets. These adjustments are due to a difference in the methodology used in evaluating the recoverable amount of
assets. The net impact on the consolidated statement of earnings for the year ended December 31, 2010 is an $18 million reduction of the Depreciation and amortization expense.

NOTE 2

On the transition date, the Corporation recorded an adjustment of $90 million
relating to employee benefits, thereby decreasing retained earnings. The adjustment decreased pension assets by $80 million while increasing pension obligations by $44 million and deferred income tax liabilities by $34 million. The net impact on the
year ended December 31, 2010 consolidated statement of earnings, including the recognition of a charge of $18 million relating to a supplemental executive retirement plan put in place for the founding shareholders of the Corporation during the
third quarter of 2010, is an increase of $7 million in Cost of sales.

NOTE 3

On the transition date, the Corporation elected to account for its joint ventures using the equity method as opposed to proportionate consolidation under
previous GAAP. Although all line items have been reduced, except for Share of results of associates and joint ventures, the net impact on Net earnings attributable to shareholders for the year is nil.

On March 11, 2011, the Corporation announced the sale of Dopaco Inc. and Dopaco Canada Inc. (collectively Dopaco). As such, the results of Dopaco
have been classified as discontinued operations, net of intercompany transactions, for both the current and comparative year. The transaction was closed on May 2, 2011, and the Corporation has consolidated the results of Dopaco up to that date.
For more details on discontinued operations, please refer to note 5 on page 23 of the consolidated financial statements.



|                                                                         |  |  |   | 
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|CASCADES      2011 ANNUAL REPORT      MANAGEMENTS DISCUSSION & ANALYSIS |  |  | 2 | 



---

FINANCIAL OVERVIEW2011

After posting OIBD excluding specific items of $310 million in 2010, the Corporation encountered many challenges in 2011 over which it did not have control. We continued to face challenging business
conditions as rapid inflation of our production costs was not offset by selling price increases. However, during the second half of the year, selling price increases were implemented in all of our segments except for Containerboard. The appreciation
of the Canadian dollar against the U.S. dollar was 4% stronger on average in 2011 compared to 2010. This increase had a significant impact on the Corporations sales when converted into Canadian dollars as a significant portion of our selling
prices is derived from U.S. dollar-based price indexes. In addition, recycled fibre costs continued to impact our operating margins and they reached historic highs during the third quarter as our cost price index increased by 12% in 2011 compared to
last year versus an increase of 6% of our selling price index. On the other hand, the Corporation benefited, in 2011, from the full consolidation of Reno de Medici S.p.A. (RdM) starting from the second quarter. Finally, action taken during the year
in accordance with our strategic plan should increase our profitability in the near term (see Significant facts and developments for more details).

In 2011, the Corporation posted net earnings of $99 million, or $1.03 per share, compared to net earnings of $41 million, or $0.43 per share in 2010. Excluding specific items, which are discussed in
detail on pages 10 to 14, we posted a net loss of $14 million or ($0.14) per share, compared to net earnings of $80 million or $0.83 per share in 2010. Sales in 2011 increased by $443 million, or 14%, to reach $3.625 billion, compared to $3.182
billion in 2010. The full consolidation of RdM and the net effect of business acquisitions and disposals increased sales by $404 million. The Corporation recorded operating income of $8 million compared to $103 million in 2010. Excluding specific
items, operating income decreased by $106 million to $49 million, compared to $155 million in 2010 (see Supplemental information on non-IFRS measures for reconciliation of these amounts).

SIGNIFICANT FACTS AND DEVELOPMENTS



| | i. | On March 1, 2011, the Corporation sold its European containerboard mill located in Avot-Vallée, France, for a total consideration of 10 million
($14 million), including the long-term debt assumed by the acquirer in the amount of 5 million ($7 million), and a selling price balance of 5 million ($7 million) which is receivable over a maximum of three years.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ii. | On March 10, 2011, the Corporation announced the consolidation of its Containerboard corrugated products operations in the New England (U.S.) region. The
restructuring resulted in the permanent closure of the Leominster plant in May 2011.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | iii. | On May 2, 2011, the Corporation sold Dopaco, its converting business for the quick-service restaurant industry, for a cash consideration of US$387 million ($367
million) net of transaction fees and working capital adjustment. Current income taxes resulting from this sale amounted to $79 million. Operating results and cash flows of Dopaco are presented as discontinued operations.
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | iv. | In 2011, the Corporation invested $44 million ($21 million in 2010) in Greenpac Mill LLC (Greenpac) in relation to the construction of its containerboard manufacturing
segment in New York State, (U.S.), in partnership with third parties. Once completed as planned, it will increase the Corporations market share in the containerboard industry and will confirm its position as one of the industry leaders.
The Greenpac mill will be built for an estimated cost of US$430 million on property located adjacent to an existing Containerboard Group facility in Niagara Falls, NY. Greenpac will manufacture a light-weight linerboard made with 100% recycled
fibres on a single machine measuring 328 inches wide with an annual production capacity of 540,000 short tons. This machine will be one of the largest in North America and will include numerous technological advances, making it a unique project of
its kind. Financing for the project was finalized at the end of June 2011 and the interest of the Corporation in the project stands at 59.7%. The first equity contribution was made in July. Total estimated contribution by the Corporation will be
US$99 million (including a temporary bridge loan of $15 million), which is expected to be paid by the end of the second quarter of 2012. This investment is accounted for using the equity method.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|CASCADES      2011 ANNUAL REPORT      MANAGEMENTS DISCUSSION & ANALYSIS |  |  | 3 | 



---

| | v. | In 2010 and 2011, the Corporation invested $22 million, net of government grants, for the installation and start-up of a new technology at the Candiac tissue paper
mill. In fact, Cascades is the first manufacturer in North America to use this technology to produce a superior quality of tissue paper and will be more efficient with the use of its recycled fibre.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | vi. | In 2007, the Corporation entered into a combination agreement with RdM, a publicly traded Italian corporation that is the second largest recycled boxboard producer in
Europe. The combination agreement was amended in 2009 and provides, among other things, that RdM and Cascades are granted an irrevocable call option or put option, respectively, to purchase two European virgin boxboard mills belonging to Cascades
(the Virgin Assets). RdM may exercise its call option 120 days after delivery of Virgin Assets financial statements for the year ended December 31, 2011, by Cascades to RdM. Cascades may exercise its put option 120 days after
delivery of Virgin Assets financials statements for the year ended December 31, 2012, by Cascades to RdM. The Corporation is also granted the right to require that all of the call option price or put option price, as the case may be, be paid in
newly issued common shares of RdM.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | vii. | In addition to this agreement, the Corporation entered, in 2010, into a put and call agreement with Industria E Innovazione (Industria) whereby Cascades has
the option to buy 9.07% of the shares of RdM (100% of the shares held by Industria) for 0.43 per share between March 1, 2011 and December 31, 2012. Industria also has the option to require the Corporation to purchase its shares
for 0.41 per share between January 1, 2013 and March 31, 2014. On April 7, 2011, the acquisition of RdM shares on the open market for a total interest of 40.95% combined with the enforceable call option triggered the
business combination of RdM into Cascades. As a result, the Corporation started to fully consolidate the results and financial position of RdM on that date with a non-controlling interest of 59%. Prior to the second quarter, our share of the results
of RdM was accounted for using the equity method. Our share in the equity of RdM now stood at 44.31% as at December 31, 2011. For more details on this business acquisition, please refer to note 6 on page 25 of the consolidated financial
statements.
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | viii. | On June 23, 2011, the Corporation sold its boxboard mill in Versailles as well as its Hebron boxboard converting plant both in the U.S. for a total consideration
of US$20 million ($20 million), net of transaction fees, including a selling price balance of US$10 million ($10 million), which will be received over a four-year period.
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ix. | On September 20, 2011, the Corporation announced the closure of its containerboard mill located in Burnaby, British Columbia. At the same time, we announced an
agreement regarding the sale of the land and building of the facility. The sale was completed in October for a cash consideration of $20 millions and the closure was effective on November 6, 2011.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | x. | On November 1, 2011, the Corporation announced that it had finalized the acquisition of the remaining 50% of shares it did not already own in Papersource
Converting Mill Corp. for a cash consideration of $60 million and the assumption of net debt in the amount of $28 million. The acquisition will strengthen the Corporations position as a seller of converted tissue paper products in the
Away-from-Home market and is an important step in the action plan to modernize our operations.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | xi. | The Corporation is also in the process of modernizing its financial information systems. In the context of the proposed implementation of an Enterprise Resource
Planning (ERP) system, the Corporation has dedicated a project team with the appropriate skills and knowledge and retained the services of consultants to provide expertise and training. Supported by senior management and key personnel, the
Corporation undertook a detailed analysis of its requirements during 2010 and successfully launched a pilot project in one of its plants in November 2010. Following these initiatives, management has decided to proceed with the project. The project
team finalized a detailed blueprint for its manufacturing operations and implemented the solution in one of its Tissue Group units at the beginning of November 2011. The project team is continuing to evaluate its deployment strategy for the coming
years, including the human and capital resources required for the project.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|CASCADES      2011 ANNUAL REPORT      MANAGEMENTS DISCUSSION & ANALYSIS |  |  | 4 | 



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KEY PERFORMANCE INDICATORS

In order to achieve our long-term objectives while also monitoring our action plan, we use several key performance indicators, including the following:



|                                                       |  |       |                   |   |      |  |       |      |  |  |       |   |  |    |       |   |       |  |       |    |  |  |       |   |  |    |       |   |    |  |       |       |  |  |       |   |  |  |       |   |  |  |       |  
|------------------------------------------------------ |  | ----- | ----------------- | - | ---- |  | ----- | ---- |  |  | ----- | - |  | -- | ----- | - | ----- |  | ----- | -- |  |  | ----- | - |  | -- | ----- | - | -- |  | ----- | ----- |  |  | ----- | - |  |  | ----- | - |  |  | ----- | -
|According to previous GAAP                             |  |       | According to IFRS |  
|                                                       |  | 2009  |                   |   | 2010 |  |       | 2011 | 
|                                                       |  | Total |                   |   | Q1   |  |       | Q2   |  |  | Q3    |   |  | Q4 |       |   | Total |  |       | Q1 |  |  | Q2    |   |  | Q3 |       |   | Q4 |  |       | Total | 
|OPERATIONAL                                            |  |       |                   |   |      |  |       |      |  |  |       |   |  |    |       |   |       |  |       |    |  |  |       |   |  |    |       |   |    |  |       |       |  |  |       |   |  |  |       |   |  |  |       |  
|Total shipments (in 000 of s.t.)11                    |  |       |                   |   |      |  |       |      |  |  |       |   |  |    |       |   |       |  |       |    |  |  |       |   |  |    |       |   |    |  |       |       |  |  |       |   |  |  |       |   |  |  |       |  
|Packaging                                              |  |       |                   |   |      |  |       |      |  |  |       |   |  |    |       |   |       |  |       |    |  |  |       |   |  |    |       |   |    |  |       |       |  |  |       |   |  |  |       |   |  |  |       |  
|Boxboard1                                              |  |       | 1,024             |   |      |  | 188   |      |  |  | 198   |   |  |    | 186   |   |       |  | 177   |    |  |  | 749   |   |  |    | 189   |   |    |  | 430   |       |  |  | 331   |   |  |  | 315   |   |  |  | 1,265 |  
|Containerboard                                         |  |       | 1,141             |   |      |  | 309   |      |  |  | 300   |   |  |    | 315   |   |       |  | 301   |    |  |  | 1,225 |   |  |    | 290   |   |    |  | 259   |       |  |  | 267   |   |  |  | 247   |   |  |  | 1,063 |  
|Specialty Products2                                    |  |       | 458               |   |      |  | 102   |      |  |  | 101   |   |  |    | 98    |   |       |  | 92    |    |  |  | 393   |   |  |    | 97    |   |    |  | 98    |       |  |  | 95    |   |  |  | 87    |   |  |  | 377   |  
|                                                       |  |       |                   |   |      |  |       |      |  |  |       |   |  |    |       |   |       |  |       |    |  |  |       |   |  |    |       |   |    |  |       |       |  |  |       |   |  |  |       |   |  |  |       |  
|                                                       |  |       | 2,623             |   |      |  | 599   |      |  |  | 599   |   |  |    | 599   |   |       |  | 570   |    |  |  | 2,367 |   |  |    | 576   |   |    |  | 787   |       |  |  | 693   |   |  |  | 649   |   |  |  | 2,705 |  
|Tissue Papers3                                         |  |       | 459               |   |      |  | 121   |      |  |  | 132   |   |  |    | 134   |   |       |  | 131   |    |  |  | 518   |   |  |    | 124   |   |    |  | 134   |       |  |  | 130   |   |  |  | 125   |   |  |  | 513   |  
|Discontinued operations, net of intercompany shipments |  |       | (133              | ) |      |  | (34   | )    |  |  | (37   | ) |  |    | (37   | ) |       |  | (37   | )  |  |  | (145  | ) |  |    | (37   | ) |    |  | (19   | )     |  |  |      |   |  |  |      |   |  |  | (56   | )
|                                                       |  |       |                   |   |      |  |       |      |  |  |       |   |  |    |       |   |       |  |       |    |  |  |       |   |  |    |       |   |    |  |       |       |  |  |       |   |  |  |       |   |  |  |       |  
|Total                                                  |  |       | 2,949             |   |      |  | 686   |      |  |  | 694   |   |  |    | 696   |   |       |  | 664   |    |  |  | 2,740 |   |  |    | 663   |   |    |  | 902   |       |  |  | 823   |   |  |  | 774   |   |  |  | 3,162 |  
|                                                       |  |       |                   |   |      |  |       |      |  |  |       |   |  |    |       |   |       |  |       |    |  |  |       |   |  |    |       |   |    |  |       |       |  |  |       |   |  |  |       |   |  |  |       |  
|Integration rate                                       |  |       |                   |   |      |  |       |      |  |  |       |   |  |    |       |   |       |  |       |    |  |  |       |   |  |    |       |   |    |  |       |       |  |  |       |   |  |  |       |   |  |  |       |  
|Packaging                                              |  |       |                   |   |      |  |       |      |  |  |       |   |  |    |       |   |       |  |       |    |  |  |       |   |  |    |       |   |    |  |       |       |  |  |       |   |  |  |       |   |  |  |       |  
|Boxboard (North America)                               |  |       | 30                | % |      |  | 28    | %    |  |  | 31    | % |  |    | 29    | % |       |  | 32    | %  |  |  | 30    | % |  |    | 32    | % |    |  | 25    | %     |  |  | 16    | % |  |  | 13    | % |  |  | 23    | %
|Containerboard (North America)                         |  |       | 66                | % |      |  | 60    | %    |  |  | 69    | % |  |    | 64    | % |       |  | 61    | %  |  |  | 63    | % |  |    | 61    | % |    |  | 63    | %     |  |  | 62    | % |  |  | 61    | % |  |  | 62    | %
|Tissue Papers4                                         |  |       | 57                | % |      |  | 56    | %    |  |  | 56    | % |  |    | 55    | % |       |  | 55    | %  |  |  | 56    | % |  |    | 58    | % |    |  | 57    | %     |  |  | 58    | % |  |  | 69    | % |  |  | 60    | %
|                                                       |  |       |                   |   |      |  |       |      |  |  |       |   |  |    |       |   |       |  |       |    |  |  |       |   |  |    |       |   |    |  |       |       |  |  |       |   |  |  |       |   |  |  |       |  
|                                                       |  |       | 48                | % |      |  | 45    | %    |  |  | 50    | % |  |    | 47    | % |       |  | 47    | %  |  |  | 47    | % |  |    | 47    | % |    |  | 46    | %     |  |  | 47    | % |  |  | 49    | % |  |  | 47    | %
|                                                       |  |       |                   |   |      |  |       |      |  |  |       |   |  |    |       |   |       |  |       |    |  |  |       |   |  |    |       |   |    |  |       |       |  |  |       |   |  |  |       |   |  |  |       |  
|Capacity utilization rate4                             |  |       |                   |   |      |  |       |      |  |  |       |   |  |    |       |   |       |  |       |    |  |  |       |   |  |    |       |   |    |  |       |       |  |  |       |   |  |  |       |   |  |  |       |  
|Packaging                                              |  |       |                   |   |      |  |       |      |  |  |       |   |  |    |       |   |       |  |       |    |  |  |       |   |  |    |       |   |    |  |       |       |  |  |       |   |  |  |       |   |  |  |       |  
|Boxboard                                               |  |       | 88                | % |      |  | 92    | %    |  |  | 97    | % |  |    | 88    | % |       |  | 85    | %  |  |  | 91    | % |  |    | 93    | % |    |  | 94    | %     |  |  | 86    | % |  |  | 85    | % |  |  | 89    | %
|Containerboard                                         |  |       | 84                | % |      |  | 94    | %    |  |  | 95    | % |  |    | 95    | % |       |  | 90    | %  |  |  | 93    | % |  |    | 92    | % |    |  | 87    | %     |  |  | 88    | % |  |  | 93    | % |  |  | 90    | %
|Specialty Products (paper only)                        |  |       | 82                | % |      |  | 85    | %    |  |  | 85    | % |  |    | 81    | % |       |  | 77    | %  |  |  | 82    | % |  |    | 80    | % |    |  | 79    | %     |  |  | 78    | % |  |  | 69    | % |  |  | 77    | %
|Tissue Papers5                                         |  |       | 91                | % |      |  | 93    | %    |  |  | 95    | % |  |    | 93    | % |       |  | 93    | %  |  |  | 93    | % |  |    | 91    | % |    |  | 93    | %     |  |  | 90    | % |  |  | 87    | % |  |  | 90    | %
|                                                       |  |       |                   |   |      |  |       |      |  |  |       |   |  |    |       |   |       |  |       |    |  |  |       |   |  |    |       |   |    |  |       |       |  |  |       |   |  |  |       |   |  |  |       |  
|Total                                                  |  |       | 86                | % |      |  | 92    | %    |  |  | 94    | % |  |    | 91    | % |       |  | 87    | %  |  |  | 91    | % |  |    | 90    | % |    |  | 90    | %     |  |  | 87    | % |  |  | 86    | % |  |  | 88    | %
|                                                       |  |       |                   |   |      |  |       |      |  |  |       |   |  |    |       |   |       |  |       |    |  |  |       |   |  |    |       |   |    |  |       |       |  |  |       |   |  |  |       |   |  |  |       |  
|Energy cons.6GJ/ton                                   |  |       | 10.36             |   |      |  | 11.97 |      |  |  | 10.50 |   |  |    | 10.60 |   |       |  | 11.39 |    |  |  | 11.11 |   |  |    | 12.64 |   |    |  | 10.65 |       |  |  | 10.50 |   |  |  | 12.90 |   |  |  | 11.38 |  
|Work accidentsOSHA frequency rate                     |  |       | 5.41              |   |      |  | 5.00  |      |  |  | 5.00  |   |  |    | 4.90  |   |       |  | 4.80  |    |  |  | 4.93  |   |  |    | 4.50  |   |    |  | 4.70  |       |  |  | 4.50  |   |  |  | 4.30  |   |  |  | 4.50  |  
|                                                       |  |       |                   |   |      |  |       |      |  |  |       |   |  |    |       |   |       |  |       |    |  |  |       |   |  |    |       |   |    |  |       |       |  |  |       |   |  |  |       |   |  |  |       |  
|FINANCIAL                                              |  |       |                   |   |      |  |       |      |  |  |       |   |  |    |       |   |       |  |       |    |  |  |       |   |  |    |       |   |    |  |       |       |  |  |       |   |  |  |       |   |  |  |       |  
|Return on assets7                                      |  |       |                   |   |      |  |       |      |  |  |       |   |  |    |       |   |       |  |       |    |  |  |       |   |  |    |       |   |    |  |       |       |  |  |       |   |  |  |       |   |  |  |       |  
|Packaging                                              |  |       |                   |   |      |  |       |      |  |  |       |   |  |    |       |   |       |  |       |    |  |  |       |   |  |    |       |   |    |  |       |       |  |  |       |   |  |  |       |   |  |  |       |  
|Boxboard                                               |  |       | 11                | % |      |  | 12    | %    |  |  | 13    | % |  |    | 14    | % |       |  | 14    | %  |  |  | 14    | % |  |    | 13    | % |    |  | 10    | %     |  |  | 7     | % |  |  | 6     | % |  |  | 9     | %
|Containerboard                                         |  |       | 10                | % |      |  | 10    | %    |  |  | 10    | % |  |    | 11    | % |       |  | 12    | %  |  |  | 12    | % |  |    | 12    | % |    |  | 10    | %     |  |  | 9     | % |  |  | 7     | % |  |  | 7     | %
|Specialty Products                                     |  |       | 13                | % |      |  | 14    | %    |  |  | 14    | % |  |    | 14    | % |       |  | 13    | %  |  |  | 13    | % |  |    | 11    | % |    |  | 10    | %     |  |  | 8     | % |  |  | 7     | % |  |  | 7     | %
|Tissue Papers                                          |  |       | 27                | % |      |  | 23    | %    |  |  | 20    | % |  |    | 17    | % |       |  | 15    | %  |  |  | 15    | % |  |    | 14    | % |    |  | 13    | %     |  |  | 12    | % |  |  | 11    | % |  |  | 11    | %
|                                                       |  |       |                   |   |      |  |       |      |  |  |       |   |  |    |       |   |       |  |       |    |  |  |       |   |  |    |       |   |    |  |       |       |  |  |       |   |  |  |       |   |  |  |       |  
|Consolidated return on assets                          |  |       | 11.9              | % |      |  | 11.5  | %    |  |  | 11.2  | % |  |    | 11.0  | % |       |  | 10.6  | %  |  |  | 10.6  | % |  |    | 9.9   | % |    |  | 8.7   | %     |  |  | 7.4   | % |  |  | 6.5   | % |  |  | 6.5   | %
|                                                       |  |       |                   |   |      |  |       |      |  |  |       |   |  |    |       |   |       |  |       |    |  |  |       |   |  |    |       |   |    |  |       |       |  |  |       |   |  |  |       |   |  |  |       |  
|Return on capital employed8                            |  |       | 5.1               | % |      |  | 4.6   | %    |  |  | 4.4   | % |  |    | 4.1   | % |       |  | 3.8   | %  |  |  | 3.8   | % |  |    | 3.4   | % |    |  | 2.6   | %     |  |  | 2.1   | % |  |  | 1.3   | % |  |  | 1.3   | %
|Working capital9 in millions of $, at end of period    |  |       | 552               |   |      |  | 516   |      |  |  | 575   |   |  |    | 574   |   |       |  | 526   |    |  |  | 526   |   |  |    | 542   |   |    |  | 581   |       |  |  | 583   |   |  |  | 530   |   |  |  | 530   |  
|% of sales10                                           |  |       | 14.2              | % |      |  | 14.7  | %    |  |  | 16.3  | % |  |    | 16.1  | % |       |  | 14.6  | %  |  |  | 14.6  | % |  |    | 15.0  | % |    |  | 14.8  | %     |  |  | 15.0  | % |  |  | 13.7  | % |  |  | 13.7  | %



|                                                                         |  |  |   | 
|------------------------------------------------------------------------ |  |  | - | 
|CASCADES      2011 ANNUAL REPORT      MANAGEMENTS DISCUSSION & ANALYSIS |  |  | 5 | 



---

|1 | Starting in Q2 2011, shipments take into account the full consolidation of RdM.
|- | -------------------------------------------------------------------------------

|2 | Industrial packaging and specialty papers shipments.
|- | ----------------------------------------------------

|3 | Starting in Q4 2011, shipments take into account the acquisition of Papersource.
|- | --------------------------------------------------------------------------------

|4 | Defined as: Shipments/Practical capacity. Paper manufacturing only.
|- | -------------------------------------------------------------------

|5 | Defined as: Manufacturing internal and external shipments/Practical capacity.
|- | -----------------------------------------------------------------------------

|6 | Average energy consumption for manufacturing mills only. Starting in Q1-2011, the calculation method has been modified. 2010 comparative figures have been restated to
conform to the 2011 calculation method.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|7 | Return on assets is a non-IFRS measure defined as the last twelve months (LTM) OIBD excluding specific items/LTM Average of total assets. Starting in the
second quarter of 2011, it excludes the results of Dopaco and includes RdM. LTM numbers for the 2010 calculation have not been restated for IFRS adjustments.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|8 | Return on capital employed is a non-IFRS measure and is defined as the after-tax (30%) amount of the LTM operating income excluding specific items/average LTM
Capital employed. Capital employed is defined as the total assets less accounts payable and accrued liabilities. Starting in the second quarter of 2011, it excludes the results of Dopaco and includes RdM.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|9 | Working capital includes accounts receivable (excluding the short-term portion of other assets) plus inventories less accounts payable and accrued liabilities. For the
first quarter of 2011, it is not restated for discontinued operations that have a working capital of $60 million. Starting in Q2 2011, it excludes Dopaco and includes RdM. LTM numbers for the 2010 calculation have not been restated for IFRS
adjustments.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10 | % of sales = Working capital end of period/LTM sales. Starting in the second quarter of 2011, it excludes the results of Dopaco and includes RdM.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------

|11 | Shipments do not take into account the elimination of business sector intercompany shipments.
|-- | ---------------------------------------------------------------------------------------------

HISTORICAL FINANCIAL INFORMATION



|                                                           |  |       |                   |   |      |  |      |      |  |  |      |   |  |    |      |   |       |  |      |    |  |  |       |   |  |    |     |   |    |  |     |       |  |  |     |   |  |  |     |   |  |  |       |  
|---------------------------------------------------------- |  | ----- | ----------------- | - | ---- |  | ---- | ---- |  |  | ---- | - |  | -- | ---- | - | ----- |  | ---- | -- |  |  | ----- | - |  | -- | --- | - | -- |  | --- | ----- |  |  | --- | - |  |  | --- | - |  |  | ----- | -
|According to previous GAAP                                 |  |       | According to IFRS |  
|(in millions of Canadian dollars, unless otherwised noted) |  | 2009  |                   |   | 2010 |  |      | 2011 | 
|                                                           |  | Total |                   |   | Q1   |  |      | Q2   |  |  | Q3   |   |  | Q4 |      |   | Total |  |      | Q1 |  |  | Q2    |   |  | Q3 |     |   | Q4 |  |     | Total | 
|Sales                                                      |  |       |                   |   |      |  |      |      |  |  |      |   |  |    |      |   |       |  |      |    |  |  |       |   |  |    |     |   |    |  |     |       |  |  |     |   |  |  |     |   |  |  |       |  
|Packaging                                                  |  |       |                   |   |      |  |      |      |  |  |      |   |  |    |      |   |       |  |      |    |  |  |       |   |  |    |     |   |    |  |     |       |  |  |     |   |  |  |     |   |  |  |       |  
|Boxboard                                                   |  |       | 1,313             |   |      |  | 247  |      |  |  | 259  |   |  |    | 254  |   |       |  | 251  |    |  |  | 1,011 |   |  |    | 248 |   |    |  | 388 |       |  |  | 289 |   |  |  | 273 |   |  |  | 1,198 |  
|Containerboard                                             |  |       | 1,062             |   |      |  | 255  |      |  |  | 271  |   |  |    | 292  |   |       |  | 268  |    |  |  | 1,086 |   |  |    | 254 |   |    |  | 243 |       |  |  | 249 |   |  |  | 233 |   |  |  | 979   |  
|Specialty Products                                         |  |       | 769               |   |      |  | 192  |      |  |  | 198  |   |  |    | 195  |   |       |  | 201  |    |  |  | 786   |   |  |    | 202 |   |    |  | 219 |       |  |  | 224 |   |  |  | 206 |   |  |  | 851   |  
|Inter-segment sales                                        |  |       | (67               | ) |      |  | (26  | )    |  |  | (25  | ) |  |    | (26  | ) |       |  | (28  | )  |  |  | (105  | ) |  |    | (28 | ) |    |  | (30 | )     |  |  | (27 | ) |  |  | (24 | ) |  |  | (109  | )
|                                                           |  |       |                   |   |      |  |      |      |  |  |      |   |  |    |      |   |       |  |      |    |  |  |       |   |  |    |     |   |    |  |     |       |  |  |     |   |  |  |     |   |  |  |       |  
|                                                           |  |       | 3,077             |   |      |  | 668  |      |  |  | 703  |   |  |    | 715  |   |       |  | 692  |    |  |  | 2,778 |   |  |    | 676 |   |    |  | 820 |       |  |  | 735 |   |  |  | 688 |   |  |  | 2,919 |  
|Tissue Papers                                              |  |       | 840               |   |      |  | 197  |      |  |  | 218  |   |  |    | 226  |   |       |  | 212  |    |  |  | 853   |   |  |    | 199 |   |    |  | 218 |       |  |  | 221 |   |  |  | 233 |   |  |  | 871   |  
|Inter-segment sales and Corporate activities               |  |       | (40               | ) |      |  | (5   | )    |  |  | (3   | ) |  |    | (2   | ) |       |  | (12  | )  |  |  | (22   | ) |  |    | (6  | ) |    |  | (7  | )     |  |  | (9  | ) |  |  | (8  | ) |  |  | (30   | )
|Discontinued operations, net of intercompany sales         |  |       | (467              | ) |      |  | (101 | )    |  |  | (110 | ) |  |    | (107 | ) |       |  | (109 | )  |  |  | (427  | ) |  |    | (95 | ) |    |  | (40 | )     |  |  |    |   |  |  |    |   |  |  | (135  | )
|                                                           |  |       |                   |   |      |  |      |      |  |  |      |   |  |    |      |   |       |  |      |    |  |  |       |   |  |    |     |   |    |  |     |       |  |  |     |   |  |  |     |   |  |  |       |  
|                                                           |  |       | 3,410             |   |      |  | 759  |      |  |  | 808  |   |  |    | 832  |   |       |  | 783  |    |  |  | 3,182 |   |  |    | 774 |   |    |  | 991 |       |  |  | 947 |   |  |  | 913 |   |  |  | 3,625 |  
|                                                           |  |       |                   |   |      |  |      |      |  |  |      |   |  |    |      |   |       |  |      |    |  |  |       |   |  |    |     |   |    |  |     |       |  |  |     |   |  |  |     |   |  |  |       |  
|Operating income (loss)                                    |  |       |                   |   |      |  |      |      |  |  |      |   |  |    |      |   |       |  |      |    |  |  |       |   |  |    |     |   |    |  |     |       |  |  |     |   |  |  |     |   |  |  |       |  
|Packaging                                                  |  |       |                   |   |      |  |      |      |  |  |      |   |  |    |      |   |       |  |      |    |  |  |       |   |  |    |     |   |    |  |     |       |  |  |     |   |  |  |     |   |  |  |       |  
|Boxboard                                                   |  |       | (8                | ) |      |  | 11   |      |  |  | 17   |   |  |    | 3    |   |       |  | (3   | )  |  |  | 28    |   |  |    | 5   |   |    |  | 5   |       |  |  | (6  | ) |  |  | (13 | ) |  |  | (9    | )
|Containerboard                                             |  |       | 82                |   |      |  | 13   |      |  |  | 21   |   |  |    | 36   |   |       |  | 5    |    |  |  | 75    |   |  |    | (2  | ) |    |  | 14  |       |  |  | 3   |   |  |  | (15 | ) |  |  |      |  
|Specialty Products                                         |  |       | 40                |   |      |  | 10   |      |  |  | 9    |   |  |    | 12   |   |       |  | 5    |    |  |  | 36    |   |  |    | 1   |   |    |  | 2   |       |  |  | 2   |   |  |  | (17 | ) |  |  | (12   | )
|                                                           |  |       |                   |   |      |  |      |      |  |  |      |   |  |    |      |   |       |  |      |    |  |  |       |   |  |    |     |   |    |  |     |       |  |  |     |   |  |  |     |   |  |  |       |  
|                                                           |  |       | 114               |   |      |  | 34   |      |  |  | 47   |   |  |    | 51   |   |       |  | 7    |    |  |  | 139   |   |  |    | 4   |   |    |  | 21  |       |  |  | (1  | ) |  |  | (45 | ) |  |  | (21   | )
|Tissue Papers                                              |  |       | 116               |   |      |  | 8    |      |  |  | 14   |   |  |    | 15   |   |       |  | 8    |    |  |  | 45    |   |  |    |    |   |    |  | 7   |       |  |  | 8   |   |  |  | 37  |   |  |  | 52    |  
|Corporate activities                                       |  |       | (16               | ) |      |  | (16  | )    |  |  | (7   | ) |  |    | (25  | ) |       |  | (5   | )  |  |  | (53   | ) |  |    | (6  | ) |    |  | (5  | )     |  |  |    |   |  |  | (6  | ) |  |  | (17   | )
|Discontinued operations                                    |  |       | (31               | ) |      |  | (7   | )    |  |  | (9   | ) |  |    | (9   | ) |       |  | (3   | )  |  |  | (28   | ) |  |    | (4  | ) |    |  | (2  | )     |  |  |    |   |  |  |    |   |  |  | (6    | )
|                                                           |  |       |                   |   |      |  |      |      |  |  |      |   |  |    |      |   |       |  |      |    |  |  |       |   |  |    |     |   |    |  |     |       |  |  |     |   |  |  |     |   |  |  |       |  
|                                                           |  |       | 183               |   |      |  | 19   |      |  |  | 45   |   |  |    | 32   |   |       |  | 7    |    |  |  | 103   |   |  |    | (6  | ) |    |  | 21  |       |  |  | 7   |   |  |  | (14 | ) |  |  | 8     |  
|                                                           |  |       |                   |   |      |  |      |      |  |  |      |   |  |    |      |   |       |  |      |    |  |  |       |   |  |    |     |   |    |  |     |       |  |  |     |   |  |  |     |   |  |  |       |  



|                                                                         |  |  |   | 
|------------------------------------------------------------------------ |  |  | - | 
|CASCADES      2011 ANNUAL REPORT      MANAGEMENTS DISCUSSION & ANALYSIS |  |  | 6 | 



---

|                                                                       |  |       |                   |   |      |   |       |      |  |   |       |   |  |    |       |   |       |   |       |    |  |   |       |   |  |    |       |   |    |   |       |       |  |   |       |   |  |   |       |   |  |   |       |  
|---------------------------------------------------------------------- |  | ----- | ----------------- | - | ---- | - | ----- | ---- |  | - | ----- | - |  | -- | ----- | - | ----- | - | ----- | -- |  | - | ----- | - |  | -- | ----- | - | -- | - | ----- | ----- |  | - | ----- | - |  | - | ----- | - |  | - | ----- | -
|According to previous GAAP                                             |  |       | According to IFRS |  
|(in millions of Canadian dollars, unlessotherwised noted)              |  | 2009  |                   |   | 2010 |   |       | 2011 | 
|                                                                       |  | Total |                   |   | Q1   |   |       | Q2   |  |   | Q3    |   |  | Q4 |       |   | Total |   |       | Q1 |  |   | Q2    |   |  | Q3 |       |   | Q4 |   |       | Total | 
|OIBD excluding specific items1                                         |  |       |                   |   |      |   |       |      |  |   |       |   |  |    |       |   |       |   |       |    |  |   |       |   |  |    |       |   |    |   |       |       |  |   |       |   |  |   |       |   |  |   |       |  
|Packaging                                                              |  |       |                   |   |      |   |       |      |  |   |       |   |  |    |       |   |       |   |       |    |  |   |       |   |  |    |       |   |    |   |       |       |  |   |       |   |  |   |       |   |  |   |       |  
|Boxboard                                                               |  |       | 115               |   |      |   | 20    |      |  |   | 26    |   |  |    | 19    |   |       |   | 17    |    |  |   | 82    |   |  |    | 16    |   |    |   | 20    |       |  |   | 13    |   |  |   | 10    |   |  |   | 59    |  
|Containerboard                                                         |  |       | 145               |   |      |   | 29    |      |  |   | 37    |   |  |    | 50    |   |       |   | 40    |    |  |   | 156   |   |  |    | 19    |   |    |   | 21    |       |  |   | 24    |   |  |   | 19    |   |  |   | 83    |  
|Specialty Products                                                     |  |       | 74                |   |      |   | 16    |      |  |   | 17    |   |  |    | 18    |   |       |   | 12    |    |  |   | 63    |   |  |    | 7     |   |    |   | 12    |       |  |   | 13    |   |  |   | 2     |   |  |   | 34    |  
|                                                                       |  |       |                   |   |      |   |       |      |  |   |       |   |  |    |       |   |       |   |       |    |  |   |       |   |  |    |       |   |    |   |       |       |  |   |       |   |  |   |       |   |  |   |       |  
|                                                                       |  |       | 334               |   |      |   | 65    |      |  |   | 80    |   |  |    | 87    |   |       |   | 69    |    |  |   | 301   |   |  |    | 42    |   |    |   | 53    |       |  |   | 50    |   |  |   | 31    |   |  |   | 176   |  
|Tissue Papers                                                          |  |       | 154               |   |      |   | 19    |      |  |   | 24    |   |  |    | 24    |   |       |   | 23    |    |  |   | 90    |   |  |    | 10    |   |    |   | 16    |       |  |   | 18    |   |  |   | 28    |   |  |   | 72    |  
|Corporate activities                                                   |  |       | (23               | ) |      |   | (12   | )    |  |   | (4    | ) |  |    | (2    | ) |       |   | (4    | )  |  |   | (22   | ) |  |    | (4    | ) |    |   | (3    | )     |  |   | 11    |   |  |   | (8    | ) |  |   | (4    | )
|Discontinued operations                                                |  |       | (57               | ) |      |   | (13   | )    |  |   | (15   | ) |  |    | (15   | ) |       |   | (16   | )  |  |   | (59   | ) |  |    | (11   | ) |    |   | (4    | )     |  |   |      |   |  |   |      |   |  |   | (15   | )
|                                                                       |  |       |                   |   |      |   |       |      |  |   |       |   |  |    |       |   |       |   |       |    |  |   |       |   |  |    |       |   |    |   |       |       |  |   |       |   |  |   |       |   |  |   |       |  
|                                                                       |  |       | 408               |   |      |   | 59    |      |  |   | 85    |   |  |    | 94    |   |       |   | 72    |    |  |   | 310   |   |  |    | 37    |   |    |   | 62    |       |  |   | 79    |   |  |   | 51    |   |  |   | 229   |  
|                                                                       |  |       |                   |   |      |   |       |      |  |   |       |   |  |    |       |   |       |   |       |    |  |   |       |   |  |    |       |   |    |   |       |       |  |   |       |   |  |   |       |   |  |   |       |  
|Net earnings (loss)                                                    |  |       | 60                |   |      |   | 1     |      |  |   | 28    |   |  |    | 24    |   |       |   | (12   | )  |  |   | 41    |   |  |    | (8    | ) |    |   | 122   |       |  |   | (20   | ) |  |   | 5     |   |  |   | 99    |  
|Excluding specific items1                                              |  |       | 110               |   |      |   | 4     |      |  |   | 26    |   |  |    | 33    |   |       |   | 17    |    |  |   | 80    |   |  |    | 1     |   |    |   | (9    | )     |  |   | (2    | ) |  |   | (4    | ) |  |   | (14   | )
|Net earnings (loss) per share (in dollars)                             |  |       |                   |   |      |   |       |      |  |   |       |   |  |    |       |   |       |   |       |    |  |   |       |   |  |    |       |   |    |   |       |       |  |   |       |   |  |   |       |   |  |   |       |  
|Basic                                                                  |  | $     | 0.61              |   |      | $ | 0.01  |      |  | $ | 0.29  |   |  | $  | 0.25  |   |       | $ | (0.12 | )  |  | $ | 0.43  |   |  | $  | (0.08 | ) |    | $ | 1.27  |       |  | $ | (0.21 | ) |  | $ | 0.05  |   |  | $ | 1.03  |  
|Basic, excluding specific items1                                       |  | $     | 1.13              |   |      | $ | 0.04  |      |  | $ | 0.27  |   |  | $  | 0.35  |   |       | $ | 0.17  |    |  | $ | 0.83  |   |  | $  | 0.01  |   |    | $ | (0.09 | )     |  | $ | (0.02 | ) |  | $ | (0.04 | ) |  | $ | (0.14 | )
|Cash flow from operations (adjusted)1including discontinued operations |  |       | 305               |   |      |   | 51    |      |  |   | 54    |   |  |    | 84    |   |       |   | 54    |    |  |   | 243   |   |  |    | 22    |   |    |   | 14    |       |  |   | 60    |   |  |   | 35    |   |  |   | 131   |  
|Cash flow from discontinued operations (adjusted)1                     |  |       | (46               | ) |      |   | (11   | )    |  |   | (13   | ) |  |    | (13   | ) |       |   | (13   | )  |  |   | (50   | ) |  |    | (7    | ) |    |   | 2     |       |  |   |      |   |  |   |      |   |  |   | (5    | )
|                                                                       |  |       |                   |   |      |   |       |      |  |   |       |   |  |    |       |   |       |   |       |    |  |   |       |   |  |    |       |   |    |   |       |       |  |   |       |   |  |   |       |   |  |   |       |  
|Cash flow from continuing operations (adjusted)1                       |  |       | 259               |   |      |   | 40    |      |  |   | 41    |   |  |    | 71    |   |       |   | 41    |    |  |   | 193   |   |  |    | 15    |   |    |   | 16    |       |  |   | 60    |   |  |   | 35    |   |  |   | 126   |  
|Excluding specific items                                               |  |       | 281               |   |      |   | 43    |      |  |   | 41    |   |  |    | 72    |   |       |   | 41    |    |  |   | 197   |   |  |    | 15    |   |    |   | 17    |       |  |   | 61    |   |  |   | 40    |   |  |   | 133   |  
|Net
Debt2                                                              |  |       | 1,533             |   |      |   | 1,454 |      |  |   | 1,508 |   |  |    | 1,462 |   |       |   | 1,397 |    |  |   | 1,397 |   |  |    | 1,445 |   |    |   | 1,298 |       |  |   | 1,370 |   |  |   | 1,485 |   |  |   | 1,485 |  
|                                                                       |  |       |                   |   |      |   |       |      |  |   |       |   |  |    |       |   |       |   |       |    |  |   |       |   |  |    |       |   |    |   |       |       |  |   |       |   |  |   |       |   |  |   |       |  
|Cascades North American US$ selling price index (2005 index = 1,000)3  |  |       | 1,109             |   |      |   | 1,106 |      |  |   | 1,180 |   |  |    | 1,223 |   |       |   | 1,234 |    |  |   | 1,186 |   |  |    | 1,238 |   |    |   | 1,250 |       |  |   | 1,267 |   |  |   | 1,267 |   |  |   | 1,256 |  
|Cascades North American US$ raw materials index (2005 index = 300)3    |  |       | 258               |   |      |   | 426   |      |  |   | 409   |   |  |    | 397   |   |       |   | 451   |    |  |   | 421   |   |  |    | 470   |   |    |   | 492   |       |  |   | 512   |   |  |   | 409   |   |  |   | 471   |  
|US$/CAN$                                                               |  | $     | 0.88              |   |      | $ | 0.96  |      |  | $ | 0.97  |   |  | $  | 0.96  |   |       | $ | 0.99  |    |  | $ | 0.97  |   |  | $  | 1.01  |   |    | $ | 1.03  |       |  | $ | 1.02  |   |  | $ | 0.98  |   |  | $ | 1.01  |  
|Natural Gas Henry HubUS$/mmBtu                                        |  | $     | 3.99              |   |      | $ | 5.30  |      |  | $ | 4.09  |   |  | $  | 4.38  |   |       | $ | 3.80  |    |  | $ | 4.39  |   |  | $  | 4.10  |   |    | $ | 4.31  |       |  | $ | 4.19  |   |  | $ | 3.55  |   |  | $ | 4.04  |  

Sources: Bloomberg and Cascades.

|1 | See Supplemental information on non-IFRS measures.
|- | ----------------------------------------------------

|2 | Defined as total debt less cash and cash equivalents.
|- | -----------------------------------------------------

|3 | See note 1 page 68.
|- | -------------------

SUPPLEMENTAL
INFORMATION ON NON-IFRS MEASURES

Net earnings, a performance measure defined by IFRS, is reconciled below with operating income, operating
income excluding specific items and operating income before depreciation and amortization excluding specific items:



|                                                                         |  |      |      |   |      |  |     |  
|------------------------------------------------------------------------ |  | ---- | ---- | - | ---- |  | --- | -
|(in millions of Canadian dollars)                                        |  | 2011 |      |   | 2010 | 
|Net earnings attributable to shareholders                                |  |      | 99   |   |      |  | 41  |  
|Earnings from discontinued operations                                    |  |      | (114 | ) |      |  | (21 | )
|Non-controlling interest                                                 |  |      | (3   | ) |      |  | 2   |  
|Share of results of associates and joint ventures                        |  |      | (14  | ) |      |  | (27 | )
|Recovery of income taxes                                                 |  |      | (56  | ) |      |  | (6  | )
|Foreign exchange loss (gain) on long-term debt and financial instruments |  |      | (4   | ) |      |  | 4   |  
|Loss on refinancing of long-term debt                                    |  |      |     |   |      |  | 3   |  
|Financing expense                                                        |  |      | 100  |   |      |  | 107 |  



|                                                                         |  |  |   | 
|------------------------------------------------------------------------ |  |  | - | 
|CASCADES      2011 ANNUAL REPORT      MANAGEMENTS DISCUSSION & ANALYSIS |  |  | 7 | 



---

|                                                                               |  |      |     |   |      |  |     | 
|------------------------------------------------------------------------------ |  | ---- | --- | - | ---- |  | --- | 
|(in millions of Canadian dollars)                                              |  | 2011 |     |   | 2010 | 
|Operating income                                                               |  |      | 8   |   |      |  | 103 | 
|Specific items:                                                                |  |      |     |   |      |  |     | 
|Loss (gain) on disposal and others                                             |  |      | (48 | ) |      |  | 15  | 
|Inventory adjustment resulting from business acquisition                       |  |      | 10  |   |      |  |    | 
|Impairment change                                                              |  |      | 59  |   |      |  | 29  | 
|Closure and restructuring costs                                                |  |      | 8   |   |      |  | 1   | 
|Unrealized loss on financial instruments                                       |  |      | 12  |   |      |  | 7   | 
|                                                                               |  |      |     |   |      |  |     | 
|                                                                               |  |      | 41  |   |      |  | 52  | 
|                                                                               |  |      |     |   |      |  |     | 
|Operating incomeexcluding specific items                                      |  |      | 49  |   |      |  | 155 | 
|Depreciation and amortization                                                  |  |      | 180 |   |      |  | 155 | 
|                                                                               |  |      |     |   |      |  |     | 
|Operating income before depreciation and amortizationexcluding specific items |  |      | 229 |   |      |  | 310 | 
|                                                                               |  |      |     |   |      |  |     | 

The following table reconciles net earnings and net earnings per share with net earnings excluding specific items and net
earnings per share excluding specific items:



|                                                                            |  |                     |      |   |                                |  |     |      |  |  |       |   |  |  |       |  
|--------------------------------------------------------------------------- |  | ------------------- | ---- | - | ------------------------------ |  | --- | ---- |  |  | ----- | - |  |  | ----- | -
|(in millions of Canadian dollars, except amounts per share)                 |  | Net earnings (loss) |      |   | Net earnings (loss) per share1 | 
|                                                                            |  | 2011                |      |   | 2010                           |  |     | 2011 |  |  | 2010  |  
|As per IFRS                                                                 |  |                     | 99   |   |                                |  | 41  |      |  |  | 1.03  |   |  |  | 0.43  |  
|Specific items:                                                             |  |                     |      |   |                                |  |     |      |  |  |       |   |  |  |       |  
|Loss (gain) on disposal and others                                          |  |                     | (48  | ) |                                |  | 15  |      |  |  | (0.55 | ) |  |  | 0.12  |  
|Inventory adjustment resulting from business acquisition                    |  |                     | 10   |   |                                |  |    |      |  |  | 0.08  |   |  |  |      |  
|Impairment change                                                           |  |                     | 59   |   |                                |  | 29  |      |  |  | 0.45  |   |  |  | 0.20  |  
|Closure and restructuring costs                                             |  |                     | 8    |   |                                |  | 1   |      |  |  | 0.06  |   |  |  | 0.01  |  
|Unrealized loss on financial instruments                                    |  |                     | 12   |   |                                |  | 7   |      |  |  | 0.11  |   |  |  | 0.07  |  
|Loss on refinancing of long-term debt                                       |  |                     |     |   |                                |  | 3   |      |  |  |      |   |  |  | 0.02  |  
|Foreign exchange loss (gain) on long-term debt and financial instruments    |  |                     | (4   | ) |                                |  | 4   |      |  |  | (0.04 | ) |  |  | 0.03  |  
|Share of results of associates, joint ventures and non-controlling interest |  |                     | (3   | ) |                                |  | (10 | )    |  |  | (0.03 | ) |  |  | (0.11 | )
|Included in discontinued operations, net of tax                             |  |                     | (108 | ) |                                |  | 8   |      |  |  | (1.13 | ) |  |  | 0.06  |  
|Tax effect on specific items and other tax adjustments1                     |  |                     | (39  | ) |                                |  | (18 | )    |  |  | (0.12 | ) |  |  |      |  
|                                                                            |  |                     |      |   |                                |  |     |      |  |  |       |   |  |  |       |  
|                                                                            |  |                     | (113 | ) |                                |  | 39  |      |  |  | (1.17 | ) |  |  | 0.40  |  
|                                                                            |  |                     |      |   |                                |  |     |      |  |  |       |   |  |  |       |  
|Excluding specific items                                                    |  |                     | (14  | ) |                                |  | 80  |      |  |  | (0.14 | ) |  |  | 0.83  |  
|                                                                            |  |                     |      |   |                                |  |     |      |  |  |       |   |  |  |       |  



|1 | Specific amounts per share are calculated on an after-tax basis. Per share amounts of line item Tax effect on specific items and other tax adjustments only
include the effect of tax adjustments.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The following table reconciles cash flow from operations (adjusted) with cash flow from
operations (adjusted) excluding specific items:



|                                               |  |      |     |  |      |  |     | 
|---------------------------------------------- |  | ---- | --- |  | ---- |  | --- | 
|(in millions of Canadian dollars)              |  | 2011 |     |  | 2010 | 
|Cash flow provided by operating activities     |  |      | 104 |  |      |  | 170 | 
|Changes in non-cash working capital components |  |      | 22  |  |      |  | 23  | 
|                                               |  |      |     |  |      |  |     | 
|Cash flow (adjusted) from operations           |  |      | 126 |  |      |  | 193 | 
|Specific items, net of current income tax:     |  |      |     |  |      |  |     | 
|Loss on refinancing of long-term debt          |  |      |    |  |      |  | 3   | 
|Closure and restructuring costs                |  |      | 7   |  |      |  | 1   | 
|                                               |  |      |     |  |      |  |     | 
|Excluding specific items                       |  |      | 133 |  |      |  | 197 | 
|                                               |  |      |     |  |      |  |     | 

The following table reconciles cash flow provided by operating activities with operating income and operating income
before depreciation and amortization:



|                                                                         |  |  |   | 
|------------------------------------------------------------------------ |  |  | - | 
|CASCADES      2011 ANNUAL REPORT      MANAGEMENTS DISCUSSION & ANALYSIS |  |  | 8 | 



---

|                                                      |  |      |      |   |      |  |      |  
|----------------------------------------------------- |  | ---- | ---- | - | ---- |  | ---- | -
|(in millions of Canadian dollars)                     |  | 2011 |      |   | 2010 | 
|Cash flow provided by operating activities            |  |      | 104  |   |      |  | 170  |  
|Changes in non-cash working capital components        |  |      | 22   |   |      |  | 23   |  
|Depreciation and amortization                         |  |      | (180 | ) |      |  | (155 | )
|Income taxes paid                                     |  |      | 2    |   |      |  | 16   |  
|Financing expense paid                                |  |      | 97   |   |      |  | 94   |  
|Loss on refinancing of long-term debt                 |  |      |     |   |      |  | 3    |  
|Gain (loss) on disposal and others                    |  |      | 48   |   |      |  | (15  | )
|Net impairment loss and other restructuring costs     |  |      | (60  | ) |      |  | (29  | )
|Unrealized loss on financial instruments              |  |      | (12  | ) |      |  | (7   | )
|Other non-cash adjustments and dividends received     |  |      | (13  | ) |      |  | 3    |  
|                                                      |  |      |      |   |      |  |      |  
|Operating income from continuing operations           |  |      | 8    |   |      |  | 103  |  
|Depreciation and amortization                         |  |      | 180  |   |      |  | 155  |  
|                                                      |  |      |      |   |      |  |      |  
|Operating income before depreciation and amortization |  |      | 188  |   |      |  | 258  |  
|                                                      |  |      |      |   |      |  |      |  

FINANCIAL RESULTS FOR THE YEAR ENDED DECEMBER 31, 2011, COMPARED TO THE YEAR ENDED DECEMBER 31, 2010

Sales

Sales rose by $443
million to $3.625 billion versus $3.182 billion in 2010. Net average selling prices in U.S. dollars increased in all of our segments but were partly offset by the 4% appreciation of the Canadian dollar over the U.S. dollar. Business acquisitions
including the effect of RdMs full consolidation starting from the second quarter of 2011, net of disposal, accounted for $404 million of the increase. Excluding the effect of RdMs full consolidation and the effect of sold and temporarily
closed operations, total shipments decreased by 4.6% due in part to the disposal of the Avot-Vallée containerboard mill, Versailles boxboard mill and its Hebron converting activities.

Operating income from continuing operations

The Corporation generated an operating income
of $8 million in 2011 compared to an operating income of $103 million in 2010, resulting mainly from higher raw material costs and other production costs, namely labour, freight and chemicals. These negative impacts were partly offset by higher
selling prices and business acquisitions. The operating income margin for the year of 2011 stood at 0.4%, compared to 3.2% in 2010. Excluding specific items, the operating income stood at $49 million in 2011, compared to $155 million in 2010, a
decrease of $106 million.



LOGO



|1 | The impacts of these estimated costs are based on production costs per unit, which are affected by yield, product mix changes and purchase and transfer prices. In
addition to market pulp and recycled fibre, they include purchases of external boards and parent rolls for the converting sector, and other raw materials such as plastics and woodchips.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2 | The estimated impact of the exchange rate is based only on the Corporations export sales less purchases that are impacted by the exchange rate fluctuations,
mainly the CAN$/US$ variation. It also includes the impact of the exchange rate on the Corporations working capital items and cash position.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3 | Cost improvements and other items includes the impact of variable costs based on production costs per unit, which are affected by downtimes, efficiencies and product
mix changes. It also includes all other costs, such as repair and maintenance, selling and administration, profit-sharing and change in operating income for operating units that are not in the manufacturing and converting sectors. Operating income
of businesses acquired or disposed of are also included.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4 | Excluding specific items.
|- | -------------------------

The operating income
variance analysis by segment is shown in each business segment review (refer to pages 14 to 21).



|                                                                         |  |  |   | 
|------------------------------------------------------------------------ |  |  | - | 
|CASCADES      2011 ANNUAL REPORT      MANAGEMENTS DISCUSSION & ANALYSIS |  |  | 9 | 



---

SPECIFIC ITEMS INCLUDED IN OPERATING INCOME AND DISCONTINUED OPERATIONS

The Corporation incurred some specific items in 2011 and 2010 that adversely or positively affected its operating results. We believe that it is useful
for readers to be aware of these items, as they provide a measure of performance with which to compare the Corporations results between periods, notwithstanding these specific items.

The reconciliation of the specific items by business group is as follows:



|                                                                                      |  |          |    |   |                 |  |    |                   |  |  |              |   |  |                     |     |   |                        |  |     |              |  |  |     |   |  |  |     |  
|------------------------------------------------------------------------------------- |  | -------- | -- | - | --------------- |  | -- | ----------------- |  |  | ------------ | - |  | ------------------- | --- | - | ---------------------- |  | --- | ------------ |  |  | --- | - |  |  | --- | -
|                                                                                      |  | 2011     |   
|(in millions of Canadian dollars)                                                     |  | Boxboard |    |   | Container-board |  |    | SpecialtyProducts |  |  | TissuePapers |   |  | CorporateActivities |     |   | DiscontinuedOperations |  |     | Consolidated | 
|Operating income (loss)                                                               |  |          | (9 | ) |                 |  |   |                   |  |  | (12          | ) |  |                     | 52  |   |                        |  | (17 | )            |  |  | (6  | ) |  |  | 8   |  
|Depreciation and amortization                                                         |  |          | 47 |   |                 |  | 61 |                   |  |  | 28           |   |  |                     | 41  |   |                        |  | 9   |              |  |  | (6  | ) |  |  | 180 |  
|                                                                                      |  |          |    |   |                 |  |    |                   |  |  |              |   |  |                     |     |   |                        |  |     |              |  |  |     |   |  |  |     |  
|Operating income (loss) before depreciation and amortization                          |  |          | 38 |   |                 |  | 61 |                   |  |  | 16           |   |  |                     | 93  |   |                        |  | (8  | )            |  |  | (12 | ) |  |  | 188 |  
|Specific items:                                                                       |  |          |    |   |                 |  |    |                   |  |  |              |   |  |                     |     |   |                        |  |     |              |  |  |     |   |  |  |     |  
|Losses (gains) on disposal and others                                                 |  |          | (1 | ) |                 |  | (7 | )                 |  |  | 1            |   |  |                     | (37 | ) |                        |  | (1  | )            |  |  | (3  | ) |  |  | (48 | )
|Inventory adjustment resulting from business acquisition                              |  |          | 6  |   |                 |  |   |                   |  |  |             |   |  |                     | 4   |   |                        |  |    |              |  |  |    |   |  |  | 10  |  
|Net impairment loss                                                                   |  |          | 10 |   |                 |  | 23 |                   |  |  | 15           |   |  |                     | 11  |   |                        |  |    |              |  |  |    |   |  |  | 59  |  
|Closure and restructuring costs                                                       |  |          | 1  |   |                 |  | 5  |                   |  |  | 2            |   |  |                     |    |   |                        |  |    |              |  |  |    |   |  |  | 8   |  
|Unrealized loss on financial instruments                                              |  |          | 5  |   |                 |  | 1  |                   |  |  |             |   |  |                     | 1   |   |                        |  | 5   |              |  |  |    |   |  |  | 12  |  
|                                                                                      |  |          |    |   |                 |  |    |                   |  |  |              |   |  |                     |     |   |                        |  |     |              |  |  |     |   |  |  |     |  
|                                                                                      |  |          | 21 |   |                 |  | 22 |                   |  |  | 18           |   |  |                     | (21 | ) |                        |  | 4   |              |  |  | (3  | ) |  |  | 41  |  
|                                                                                      |  |          |    |   |                 |  |    |                   |  |  |              |   |  |                     |     |   |                        |  |     |              |  |  |     |   |  |  |     |  
|Operating income (loss) before depreciation and amortizationexcluding specific items |  |          | 59 |   |                 |  | 83 |                   |  |  | 34           |   |  |                     | 72  |   |                        |  | (4  | )            |  |  | (15 | ) |  |  | 229 |  
|                                                                                      |  |          |    |   |                 |  |    |                   |  |  |              |   |  |                     |     |   |                        |  |     |              |  |  |     |   |  |  |     |  
|Operating income (loss)excluding specific items                                      |  |          | 12 |   |                 |  | 22 |                   |  |  | 6            |   |  |                     | 31  |   |                        |  | (13 | )            |  |  | (9  | ) |  |  | 49  |  
|                                                                                      |  |          |    |   |                 |  |    |                   |  |  |              |   |  |                     |     |   |                        |  |     |              |  |  |     |   |  |  |     |  



|                                                                                      |  |          |    |  |                 |  |     |                   |  |  |              |  |  |                     |    |  |                        |  |     |              |  |  |     |   |  |  |     | 
|------------------------------------------------------------------------------------- |  | -------- | -- |  | --------------- |  | --- | ----------------- |  |  | ------------ |  |  | ------------------- | -- |  | ---------------------- |  | --- | ------------ |  |  | --- | - |  |  | --- | 
|                                                                                      |  | 2010     |   
|(in millions of Canadian dollars)                                                     |  | Boxboard |    |  | Container-board |  |     | SpecialtyProducts |  |  | TissuePapers |  |  | CorporateActivities |    |  | DiscontinuedOperations |  |     | Consolidated | 
|Operating income (loss)                                                               |  |          | 28 |  |                 |  | 75  |                   |  |  | 36           |  |  |                     | 45 |  |                        |  | (53 | )            |  |  | (28 | ) |  |  | 103 | 
|Depreciation and amortization                                                         |  |          | 36 |  |                 |  | 69  |                   |  |  | 27           |  |  |                     | 39 |  |                        |  | 8   |              |  |  | (24 | ) |  |  | 155 | 
|                                                                                      |  |          |    |  |                 |  |     |                   |  |  |              |  |  |                     |    |  |                        |  |     |              |  |  |     |   |  |  |     | 
|Operating income (loss) before depreciation and amortization                          |  |          | 64 |  |                 |  | 144 |                   |  |  | 63           |  |  |                     | 84 |  |                        |  | (45 | )            |  |  | (52 | ) |  |  | 258 | 
|Specific items:                                                                       |  |          |    |  |                 |  |     |                   |  |  |              |  |  |                     |    |  |                        |  |     |              |  |  |     |   |  |  |     | 
|Losses (gains) on disposal and others                                                 |  |          | 7  |  |                 |  | (3  | )                 |  |  |             |  |  |                     |   |  |                        |  | 18  |              |  |  | (7  | ) |  |  | 15  | 
|Net impairment loss                                                                   |  |          | 3  |  |                 |  | 20  |                   |  |  |             |  |  |                     | 6  |  |                        |  |    |              |  |  |    |   |  |  | 29  | 
|Closure and restructuring costs                                                       |  |          | 1  |  |                 |  |    |                   |  |  |             |  |  |                     |   |  |                        |  |    |              |  |  |    |   |  |  | 1   | 
|Unrealized loss (gain) on financial instruments                                       |  |          | 7  |  |                 |  | (5  | )                 |  |  |             |  |  |                     |   |  |                        |  | 5   |              |  |  |    |   |  |  | 7   | 
|                                                                                      |  |          |    |  |                 |  |     |                   |  |  |              |  |  |                     |    |  |                        |  |     |              |  |  |     |   |  |  |     | 
|                                                                                      |  |          | 18 |  |                 |  | 12  |                   |  |  |             |  |  |                     | 6  |  |                        |  | 23  |              |  |  | (7  | ) |  |  | 52  | 
|                                                                                      |  |          |    |  |                 |  |     |                   |  |  |              |  |  |                     |    |  |                        |  |     |              |  |  |     |   |  |  |     | 
|Operating income (loss) before depreciation and amortizationexcluding specific items |  |          | 82 |  |                 |  | 156 |                   |  |  | 63           |  |  |                     | 90 |  |                        |  | (22 | )            |  |  | (59 | ) |  |  | 310 | 
|                                                                                      |  |          |    |  |                 |  |     |                   |  |  |              |  |  |                     |    |  |                        |  |     |              |  |  |     |   |  |  |     | 
|Operating income (loss)excluding specific items                                      |  |          | 46 |  |                 |  | 87  |                   |  |  | 36           |  |  |                     | 51 |  |                        |  | (30 | )            |  |  | (35 | ) |  |  | 155 | 
|                                                                                      |  |          |    |  |                 |  |     |                   |  |  |              |  |  |                     |    |  |                        |  |     |              |  |  |     |   |  |  |     | 



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LOSS (GAIN) ON DISPOSALS AND OTHERS

In 2011 and 2010, the Corporation recorded the following loss or gain:



|                                                  |  |      |     |   |      |  |    |  
|------------------------------------------------- |  | ---- | --- | - | ---- |  | -- | -
|(in millions of Canadian dollars)                 |  | 2011 |     |   | 2010 | 
|Net gain related to business acquisitions         |  |      | (48 | ) |      |  |   |  
|Gain on disposal of property, plant and equipment |  |      | (7  | ) |      |  | (3 | )
|Loss on disposal of businesses                    |  |      | 7   |   |      |  |   |  
|Supplemental executive retirement plan            |  |      |    |   |      |  | 18 |  
|                                                  |  |      |     |   |      |  |    |  
|                                                  |  |      | (48 | ) |      |  | 15 |  
|                                                  |  |      |     |   |      |  |    |  

2011

On
March 1, 2011, the Corporation sold its European containerboard mill located in Avot-Vallée, France, for a total consideration of 10 million ($14 million), including the debt assumed by the acquirer in the amount of
5 million ($7 million) and the selling price balance of 5 million ($7 million), which will be received over a maximum of three years. The Corporation recorded a loss of $2 million on the disposal.

On April 7, 2011, the Corporation purchased outstanding shares of RdM on the open market, which triggered a business acquisition. A net gain of
9 million ($12 million) resulted from this transaction.

Also during the second quarter, our Specialty Products Group recorded a
loss of $1 million resulting from the business acquisition of NorCan Flexible Packaging Inc. of which we hold 50% of the outstanding shares.

On June 23, 2011, the Corporation sold its Versailles boxboard mill and its Hebron boxboard conversion unit, both located in the U.S., for a total
consideration of US$20 million ($20 million), including a selling price balance of US$10 million ($10 million) which will be received over a period of four years. The Corporation recorded a loss of $8 million on the disposal.

In June 2011, the Corporation completed the sale of a piece of land in Montréal, Québec, pertaining to a corrugated converting plant closed
in 2005 for a cash consideration of $9 million. A gain of $7 million was recorded on the disposal.

On September 20, 2011, the
Corporation announced the closure and the sale of the land and building of its containerboard mill located in Burnaby, British Columbia. The closure resulted in a $3 million gain upon the reversal of an environmental provision.

On November 1, 2011, the Corporation announced that it had finalized the acquisition of 50% of the shares that it does not already hold in its
affiliated company Papersource Converting Mill Corp (Papersource), located in Granby, Québec. The cash consideration of the transaction is $60 million. A net gain of $37 million resulted from this transaction.

2010

In the third quarter of 2010, the
Corporation sold the building and land of its Québec City-based corrugated products plant closed in 2009 and recorded a gain of $3 million.

In 2010, the Corporation established an unfunded supplemental executive retirement plan in favour of its founding shareholders, Bernard, Laurent and Alain Lemaire. The actuarial deficit of the plan was
evaluated at $18 million as at December 31, 2010, and an equivalent charge was recorded.

Please refer to note 24 of the consolidated
financial statements on page 45 for more details on business disposals and acquisitions.



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IMPAIRMENT CHARGES, CLOSURE AND OTHER RESTRUCTURING COSTS

The following impairment charges and closure and restructuring costs were recorded in 2011 and 2010:



|                                         |  |                   |    |  |                               |  |   |                   |  |  |                               |  |  |  |   | 
|---------------------------------------- |  | ----------------- | -- |  | ----------------------------- |  | - | ----------------- |  |  | ----------------------------- |  |  |  | - | 
|                                         |  | 2011              |    |  | 2010                          | 
|(in millions of Canadian dollars)        |  | Impairmentcharges |    |  | Closure andrestructuringcosts |  |   | Impairmentcharges |  |  | Closure andrestructuringcosts | 
|ContainerboardLeominster and others     |  |                   |   |  |                               |  | 3 |                   |  |  | 20                            |  |  |  |  | 
|ContainerboardBurnaby and Trenton       |  |                   | 23 |  |                               |  | 2 |                   |  |  |                              |  |  |  |  | 
|Boxboard Toronto, Lachute and others     |  |                   | 10 |  |                               |  | 1 |                   |  |  | 3                             |  |  |  | 1 | 
|Specialty Products East Angus, St-Jérôme |  |                   | 15 |  |                               |  | 2 |                   |  |  |                              |  |  |  |  | 
|Tissue PapersToronto and others         |  |                   | 11 |  |                               |  |  |                   |  |  | 6                             |  |  |  |  | 
|                                         |  |                   |    |  |                               |  |   |                   |  |  |                               |  |  |  |   | 
|                                         |  |                   | 59 |  |                               |  | 8 |                   |  |  | 29                            |  |  |  | 1 | 
|                                         |  |                   |    |  |                               |  |   |                   |  |  |                               |  |  |  |   | 

2011

In
the Containerboard segment, the closure of converting plants of Leominster in New England, U.S. and Le Gardeur, Québec resulted in closure and restructuring costs totalling $3 million. On September 20, 2011, the Corporation announced the
closure of its Burnaby mill in British Columbia and that it had reached an agreement to sell the land and the mill. An impairment charge of $8 million and closure and restructuring costs of $2 million were recorded. The Corporation reviewed the net
realizable value of its Trenton manufacturing mill and an impairment charge of $15 million was recorded.

In the Boxboard Group, the
Corporation recorded an impairment charge of $10 million for its closed boxboard mill in Toronto, Ontario, and for its converting plant in Lachute, Québec, as well as for other intangible assets. We also recorded a charge of $1 million in our
European operations.

In the Specialty Products segment, the Corporation closed its old East Angus pulping facility in Québec and
recorded closure and restructuring costs totalling $2 million as well as an impairment charge of $3 million. The Corporation reviewed the net realizable value of its St-Jérôme Fine Paper mill and an impairment charge of $11 million was
recorded. The Corporation recorded a $1 million impairment charge for other assets that were closed.

The Tissue Group reviewed the net
realizable value of its Toronto manufacturing mill and an impairment charge of $9 million was recorded. Another impairment charge was recorded in the amount of $2 million for other assets no longer in use.

2010

Following low profitability at its
U.S.-based Leominster corrugated plant and its Avot-Vallée, France, containerboard mill, the Containerboard Group recorded total impairment charges of $18 million to value these assets to their net realizable value. This Group also recorded
additional impairment charges totalling $2 million on some assets of its converting activities.

In 2010, the Corporation reviewed the status
of some of the equipment at the Toronto mill in the Boxboard Group and in the Tissue Group that were not in service and concluded that reopening was unlikely to occur and recorded impairment charges of $3 million and $6 million respectively on these
units. Restructuring charges of $1 million were also recorded at the Boxboard mill in La Rochette, France.

DERIVATIVE FINANCIAL
INSTRUMENTS

In 2011, the Corporation recorded an unrealized loss of $12 million on certain financial instruments not designated as hedging
instruments. The loss includes a $7 million loss on financial instruments on currency hedging as well as on commodities such as electricity, natural gas and waste paper. It also includes a $5 million loss resulting from a put and call agreement
reached between the Corporation and Industria E Innovazione (see the Significant facts and developments section for more details on this agreement).

In 2010, the Corporation recorded an unrealized loss of $7 million on certain financial instruments that were not designated as hedging instruments. More specifically, the 2010 loss includes a $5 million
loss on foreign exchange forward derivatives as well as a gain of $5 million on commodity financial instruments. It also includes a $7 million loss resulting from a put and call agreement reached between the Corporation and Industria E Innovazione.
(See Significant facts and developments section for more details.)



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INVENTORY ADJUSTMENT RESULTING FROM BUSINESS ACQUISITION

As a consequence of the allocation of the combination value on the RdM and Papersource transactions, 2011 operating results were reduced by $10 million
since the inventory acquired at the time of the combination was recognized at fair value and no profit was recorded on its subsequent sale.

DISCONTINUED OPERATIONS

On May 2,
2011, the Corporation concluded the sale of Dopaco and realized a net gain of $110 million. The Corporation also incurred a loss of $2 million following the amendment of a health benefit plan prior to the sale.

BUSINESS HIGHLIGHTS

Over the past two
years, the Corporation completed several transactions (closure or sale of certain operating units and acquisitions) in order to optimize its asset base and streamline its cost structure.

The following transactions that occurred in 2010 and 2011 should be taken into consideration when reviewing the overall or segmented analysis of the Corporations results:

CLOSURE, RESTRUCTURING AND DISPOSAL

Containerboard Group

On March 10,
2011, the Group announced the closure of its Leominster converting plant and the consolidation of its New England (U.S.) converting activities. The Leominster plant was closed in May and production was transferred to other containerboard converting
plants.

On March 1, 2011, the Corporation sold its European containerboard mill located in Avot-Vallée, France.

On September 20, 2011, the Corporation announced the closure of its containerboard mill located in Burnaby, British Columbia. The closure was
effective on December 1, 2011, and the production was redirected to other Containerboard Group facilities. The Burnaby mill land and building were sold on October 17, 2011.

On October 12, 2011, the Group announced the closure of its Le Gardeur converting plant. The production was transferred to other containerboard converting plants.

Boxboard Group

On May 2, 2011, the
Corporation completed the sale of Dopaco, its converting business for the quick-service restaurant industry.

On June 23, 2011, the
Corporation sold its Versailles mill and its Hebron converting activities.

BUSINESS ACQUISITIONS

Boxboard Group

On April 7, 2011,
the Corporation reached a share ownership of 40.95% in RdM, a recycled boxboard manufacturing leader based in Europe. Since the second quarter, the Corporation has fully consolidated RdM with a non-controlling interest, as at December 31, 2011,
of 55.69%. In 2011, the Corporation acquired an additional 4.65% of RdMs outstanding shares on the open market. The Corporations share in the equity of RdM stood at 44.31% at the end of 2011.

Specialty Products Group

On
April 6, 2011, the Corporation acquired the flexible film for packaging product activities of NorCan Flexible Packaging Inc., based in Ontario. Total interest held in the subsidiary is now 50% of outstanding shares with a non-controlling
interest of 50%.



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On May 31, 2011, the Corporation acquired the recovery and recycling activities of Genor Recycling
Services Limited, based in Ontario.

On September 15, 2011, the Corporation acquired the uncoated partition board manufacturing assets of
Packaging Dimensions Inc., located in Illinois, U.S.

Tissue Group

On November 1, 2011, the Group announced that it had finalized the acquisition of 50% of the shares that it did not hold already in its affiliated company Papersource Converting Mill Corp
(Papersource), located in Granby, Québec.

Please refer to notes 5 and 6 of the consolidated financial statements on pages 23 to 27 for
more details on business disposals and acquisitions.

BUSINESS SEGMENT REVIEW

PACKAGING

Boxboard



|                         |  |                               |                       |   |                         |      |      |                         |            |  |                             |                        |  |                           |                 |   |                                |  |     |                                |  |  |      |   |  |      |       |   |      |  |      |      |  |  |      |  |  |      |     |  |      |   |     |  |  |   |     |  |  |   |     |  |  |   |     | 
|------------------------ |  | ----------------------------- | --------------------- | - | ----------------------- | ---- | ---- | ----------------------- | ---------- |  | --------------------------- | ---------------------- |  | ------------------------- | --------------- | - | ------------------------------ |  | --- | ------------------------------ |  |  | ---- | - |  | ---- | ----- | - | ---- |  | ---- | ---- |  |  | ---- |  |  | ---- | --- |  | ---- | - | --- |  |  | - | --- |  |  | - | --- |  |  | - | --- | 
|                         |  |                               | Operatingincome(loss) |   |                         | OIBD |      |                         | Shipments1 |  |                             | Average selling price2 |  |                           | Pricereference2 |  
|                         |  | Sales(in millionsof 
dollars) |                       |   | (in millionsof dollars) |      |      | (in millionsof dollars) |            |  | (in thousandsof short tons) |                        |  | (in Canadiandollars/unit) |                 |   | (in U.S. dollarsor euros/unit) |  |     | (in U.S. dollarsor euros/unit) | 
|                         |  | 2011                          |                       |   | 2010                    |      |      | 2011                    |            |  | 2010                        |                        |  | 2011                      |                 |   | 2010                           |  |     | 2011                           |  |  | 2010 |   |  | 2011 |       |   | 2010 |  |      | 2011 |  |  | 2010 |  |  | 2011 |     |  | 2010 |  
|North America            |  |                               | 466                   |   |                         |      | 846  |                         |            |  | (23                         | )                      |  |                           | 23              |   |                                |  | (8  | )                              |  |  | 56   |   |  |      | 382   |   |      |  | 578  |      |  |  | 746  |  |  |      | 705 |  |      |   | 754 |  |  |   | 684 |  |  |   | 909 |  |  |   | 828 | 
|Europe                   |  |                               | 745                   |   |                         |      | 208  |                         |            |  | 14                          |                        |  |                           | 5               |   |                                |  | 46  |                                |  |  | 8    |   |  |      | 897   |   |      |  | 212  |      |  |  | 831  |  |  |      | 979 |  |      |  | 604 |  |  |  | 716 |  |  |  | 736 |  |  |  | 955 | 
|Discontinued operations  |  |                               | (148                  | ) |                         |      | (470 | )                       |            |  | (6                          | )                      |  |                           | (28             | ) |                                |  | (12 | )                              |  |  | (52  | ) |  |      | (70   | ) |      |  | (186 | )    |  |  | n/a  |  |  |      | n/a |  |      |   | n/a |  |  |   | n/a |  |  |   | n/a |  |  |   | n/a | 
|                         |  |                               |                       |   |                         |      |      |                         |            |  |                             |                        |  |                           |                 |   |                                |  |     |                                |  |  |      |   |  |      |       |   |      |  |      |      |  |  |      |  |  |      |     |  |      |   |     |  |  |   |     |  |  |   |     |  |  |   |     | 
|                         |  |                               | 1,063                 |   |                         |      | 584  |                         |            |  | (15                         | )                      |  |                           |                |   |                                |  | 26  |                                |  |  | 12   |   |  |      | 1,209 |   |      |  | 604  |      |  |  |      |  |  |      |     |  |      |   |     |  |  |   |     |  |  |   |     |  |  |   |     | 
|Specific items           |  |                               |                       |   |                         |      |      |                         |            |  | 18                          |                        |  |                           | 11              |   |                                |  | 18  |                                |  |  | 11   |   |  |      |       |   |      |  |      |      |  |  |      |  |  |      |     |  |      |   |     |  |  |   |     |  |  |   |     |  |  |   |     | 
|                         |  |                               |                       |   |                         |      |      |                         |            |  |                             |                        |  |                           |                 |   |                                |  |     |                                |  |  |      |   |  |      |       |   |      |  |      |      |  |  |      |  |  |      |     |  |      |   |     |  |  |   |     |  |  |   |     |  |  |   |     | 
|Excluding specific items |  |                               |                       |   |                         |      |      |                         |            |  | 3                           |                        |  |                           | 11              |   |                                |  | 44  |                                |  |  | 23   |   |  |      |       |   |      |  |      |      |  |  |      |  |  |      |     |  |      |   |     |  |  |   |     |  |  |   |     |  |  |   |     | 



|1 | Shipments do not take into account the elimination of business sector intercompany shipments.
|- | ---------------------------------------------------------------------------------------------

|2 | Average selling price and Price reference include RdM recycled boxboard activities starting in Q2-2011. Average selling price and Price reference are a weighted average
of virgin and recycled boxboard shipments.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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LOGO

For notes 1 to 4, see definition on page 9.

North America

Sales decreased by $58 million to reach $318 million in 2011 compared
to $376 million in 2010. Excluding the sale in June 2011 of the Versailles mill and the Hebron folding carton plant, sales would have increased by $3 million. Both sectors experienced an increase in their average Canadian dollar selling price
despite a stronger Canadian dollar. On the other hand, shipments were 5.3% lower counterbalancing the price increase impact. Finally, the appreciation of the Canadian dollar resulted in a reduction of $9 million in sales.

The mills saw their sales decrease by $42 million to $215 million. Excluding the impact of the sale of the Versailles mill, sales would have increased by
$3 million. Indeed, the mills benefited from price increases



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in the boxboard market, thus creating $14 million of additional revenue. However, a decrease of 2% in shipments and the appreciation of the Canadian dollar negatively impacted sales by $4 and $7
million respectively. Lower shipments in this sector reflect the contribution of the Versailles mills for six months only. In fact, the two remaining mills recorded an increase of 1% in their shipments.

In the converting activities, sales decreased by $20 million to $138 million. The sale of the Hebron folding carton plant accounts for $16 million of the
reduction. Average selling prices slightly increased but were not sufficient to reverse the negative impact of a 2% reduction in volume, essentially tied to a single unit. In fact, all the units posted better shipments except one that lost a major
client at the end of 2010. The volume of this customer is progressively being replaced by smaller and more profitable accounts.

Operating
income decreased by $24 million to an operating loss of $29 million for 2011 compared to an operational loss of $5 million for 2010. Excluding specific items, operating income decreased by $13 million to an operating loss of $8 million. As
stated before, the Group benefited from price increases in both sectors (manufacturing and converting), resulting in a favourable variance of $17 million. However, it was not sufficient to counterbalance the increase in raw material prices, lower
volumes and an increase in both variable and fixed costs. In the manufacturing sector, following an increase in recycled fiber prices as well as a change in the type of fiber used in one of the mills, the average raw material price increased by
CAN$34/s.t. The converting units also experienced an increase in the cost of their external board. Combined with a rise in the price of raw material, it contributed to a reduction in the Groups operating income of $6 million. The
above-mentioned volume decline of 5.3% lowered the operating profit by $4 million. Chemicals costs and usage in the manufacturing sector and an increase in freight costs both led to a negative impact of $4 million. In 2011, as part of continuous
improvement programs, the mills invested an additional $3 million in maintenance and repairs. Finally, the strength of the Canadian dollar in 2011 resulted in a loss of profit of $2 million when compared to last year.

Europe

European operations
sales increased to $745 million compared to $208 million in 2010. The full consolidation of RdM is responsible for $526 million of the increase. Excluding the impact of RdM, selling prices in Euros and Canadian dollars were slightly higher compared
to 2010 following announced price increases, which were applied to cover raw material and other variable cost increases while volumes slightly declined.

In 2011, operating income was negatively impacted by other variable cost such as chemicals and freight. However, the full consolidation of RdM, higher selling prices and improvements in other fixed costs
more than offset these negative variances and positively contributed to profitability. All these factors combined with the contribution of RdM led to a $9 million increase in operating income compared to 2010.

The Corporation incurred some specific items in 2011 and 2010 that adversely or positively affected its operating results. Please refer to pages 28 to 31
for more details and reconciliation.

BUSINESS SEGMENT REVIEW

PACKAGING

Containerboard



|                         |  |                               |                        |  |                         |      |       |                         |            |  |                             |                      |  |                           |                |  |                       |  |    |                       |  |  |      |  |  |      |       |  |      |  |       |      |  |  |      |  |  |      |     |  |      |  |     |  |  |  |     |  |  |  |     |  |  |  |     | 
|------------------------ |  | ----------------------------- | ---------------------- |  | ----------------------- | ---- | ----- | ----------------------- | ---------- |  | --------------------------- | -------------------- |  | ------------------------- | -------------- |  | --------------------- |  | -- | --------------------- |  |  | ---- |  |  | ---- | ----- |  | ---- |  | ----- | ---- |  |  | ---- |  |  | ---- | --- |  | ---- |  | --- |  |  |  | --- |  |  |  | --- |  |  |  | --- | 
|                         |  |                               | Operatingincome (loss) |  |                         | OIBD |       |                         | Shipments1 |  |                             | Averageselling price |  |                           | Pricereference | 
|                         |  | Sales(in millionsof 
dollars) |                        |  | (in millionsof dollars) |      |       | (in millionsof dollars) |            |  | (in thousandsof short tons) |                      |  | (in Canadiandollars/unit) |                |  | (in U.S.dollars/unit) |  |    | (in U.S.dollars/unit) | 
|                         |  | 2011                          |                        |  | 2010                    |      |       | 2011                    |            |  | 2010                        |                      |  | 2011                      |                |  | 2010                  |  |    | 2011                  |  |  | 2010 |  |  | 2011 |       |  | 2010 |  |       | 2011 |  |  | 2010 |  |  | 2011 |     |  | 2010 | 
|As reported              |  |                               | 979                    |  |                         |      | 1,086 |                         |            |  |                            |                      |  |                           | 75             |  |                       |  | 61 |                       |  |  | 144  |  |  |      | 1,063 |  |      |  | 1,225 |      |  |  | 487  |  |  |      | 493 |  |      |  | 492 |  |  |  | 479 |  |  |  | 640 |  |  |  | 625 | 
|Specific items           |  |                               |                        |  |                         |      |       |                         |            |  | 22                          |                      |  |                           | 12             |  |                       |  | 22 |                       |  |  | 12   |  |  |      |       |  |      |  |       |      |  |  |      |  |  |      |     |  |      |  |     |  |  |  |     |  |  |  |     |  |  |  |     | 
|                         |  |                               |                        |  |                         |      |       |                         |            |  |                             |                      |  |                           |                |  |                       |  |    |                       |  |  |      |  |  |      |       |  |      |  |       |      |  |  |      |  |  |      |     |  |      |  |     |  |  |  |     |  |  |  |     |  |  |  |     | 
|Excluding specific items |  |                               |                        |  |                         |      |       |                         |            |  | 22                          |                      |  |                           | 87             |  |                       |  | 83 |                       |  |  | 156  |  |  |      |       |  |      |  |       |      |  |  |      |  |  |      |     |  |      |  |     |  |  |  |     |  |  |  |     |  |  |  |     | 



|1 | Elimination of business sector intercompany shipments are excluded from shipments.
|- | ----------------------------------------------------------------------------------



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LOGO

For notes 1 to 4, see definition on page 27.

The Containerboard Groups sales decreased by $107 million to $979 million in 2011 compared to $1,086 million in 2010. The sale of the Avot-Vallée mill on March 1, 2011 accounts for
$74 million of the reduction while the closure of the Burnaby mill and Leominster corrugated products plant had a combined effect of $22 million. Also, the temporary closure of the Trenton mill in June and July 2011 had a negative impact of $11
million. Excluding the impact of these divestitures and closures, sales remained stable. The appreciation of the Canadian dollar had a major impact on the Groups sales. Indeed, the impact of the strength of the Canadian dollar nullified the
favourable contribution related to higher U.S. dollar selling prices. Sales of the Canadian entities were lower by $18 million due to the rise of the Canadian dollar, while the U.S. entities sales were reduced by $9 million due to the translation
effect.



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In the North American manufacturing segment, sales decreased by $97 million to $487 million. Excluding the
impact of the divestitures and closures described above, revenues generated by our mills decreased by $9 million as the average U.S. dollar selling price increased by US$20/s.t., which was offset by the appreciation of the Canadian dollar. Thus, the
Canadian mills saw their average Canadian dollar selling price decrease by CAN$5/s.t. As for shipments, the mills registered a decrease of 22,000 s.t. (2.2%) creating an unfavourable impact of $3 million on sales. To adjust to weaker market
demand, the mills took 22,000 short tons (68 days) of downtime compared to 12,000 short tons (33 days) in 2010.

In the converting sector,
sales decreased by $38 million. The Leominster plant closure accounts for half of the reduction. The other half is mainly attributable to the appreciation of the Canadian dollar. In fact, the strength of the Canadian dollar reduced sales in the U.S.
plants by $6 million and by $15 million for the Canadian units. Excluding the foreign exchange effect, the average selling price of the converting units would have increased by CAN$15/s.t. U.S. industry shipments increased by 0.5% while Canadian
industry shipments decreased by 0.7%. As for our converting units, an increase of 0.6% was recorded in the U.S., while the Canadian operations saw a decline of 1.7%. In Canada, we experienced a decline in shipments that was higher than the industry
due to the loss of an important client in the food sector and to weaker demand in the farmers business. However, this situation should improve as new business recently developed is expected to contribute positively in 2012.

Operating income fell from $75 million to nil in 2011. Excluding specific items, operating income fell by $65 million to $22 million in 2011.
Approximately 75% of the variance is tied to the increase in raw material cost. Indeed, average fiber price in the mills increased by CAN$27/s.t. while the converting sector recorded an increase of CAN$30/s.t. The appreciation of the Canadian dollar
also had a negative impact of $9 million on the groups operating income. The latter was also reduced by higher freight and energy costs. The groups administrative expenses also negatively contributed to income due to spending associated
with the Greenpac project. Finally, as stated before, better US$ selling prices and better shipments contributed positively to the operating income but were far from being sufficient to reverse the impact of the fibre price.

The Corporation incurred some specific items in 2011 and 2010 that adversely or positively affected its operating results. Please refer to pages 10 to 14
for more details and reconciliation.

BUSINESS SEGMENT REVIEW

PACKAGING

Specialty Products



|                         |  |                         |     |  |                         |  |     |                         |  |  |                             |   |  |                           |    |  |                                |  |    |                                |  |  |      |  |  |      |     |  |      |  |     |      |  |  |      |  |  |      |     |  |      |  |     |  |  |  |     |  |  |  |     |  |  |  |     | 
|------------------------ |  | ----------------------- | --- |  | ----------------------- |  | --- | ----------------------- |  |  | --------------------------- | - |  | ------------------------- | -- |  | ------------------------------ |  | -- | ------------------------------ |  |  | ---- |  |  | ---- | --- |  | ---- |  | --- | ---- |  |  | ---- |  |  | ---- | --- |  | ---- |  | --- |  |  |  | --- |  |  |  | --- |  |  |  | --- | 
|                         |  | Sales                   |     |  | Operatingincome (loss)  |  |     | OIBD                    |  |  | Shipments1                  |   |  | Averageselling price2     |    |  | Price reference                | 
|                         |  | (in millionsof dollars) |     |  | (in millionsof dollars) |  |     | (in millionsof dollars) |  |  | (in thousandsof short tons) |   |  | (in Canadiandollars/unit) |    |  | (in U.S. dollarsor euros/unit) |  |    | (in U.S. dollarsor euros/unit) | 
|                         |  | 2011                    |     |  | 2010                    |  |     | 2011                    |  |  | 2010                        |   |  | 2011                      |    |  | 2010                           |  |    | 2011                           |  |  | 2010 |  |  | 2011 |     |  | 2010 |  |     | 2011 |  |  | 2010 |  |  | 2011 |     |  | 2010 | 
|As reported              |  |                         | 851 |  |                         |  | 786 |                         |  |  | (12                         | ) |  |                           | 36 |  |                                |  | 16 |                                |  |  | 63   |  |  |      | 377 |  |      |  | 393 |      |  |  | 920  |  |  |      | 924 |  |      |  | 930 |  |  |  | 897 |  |  |  | 899 |  |  |  | 855 | 
|Specific items           |  |                         |     |  |                         |  |     |                         |  |  | 18                          |   |  |                           |   |  |                                |  | 18 |                                |  |  |     |  |  |      |     |  |      |  |     |      |  |  |      |  |  |      |     |  |      |  |     |  |  |  |     |  |  |  |     |  |  |  |     | 
|                         |  |                         |     |  |                         |  |     |                         |  |  |                             |   |  |                           |    |  |                                |  |    |                                |  |  |      |  |  |      |     |  |      |  |     |      |  |  |      |  |  |      |     |  |      |  |     |  |  |  |     |  |  |  |     |  |  |  |     | 
|Excluding specific items |  |                         |     |  |                         |  |     |                         |  |  | 6                           |   |  |                           | 36 |  |                                |  | 34 |                                |  |  | 63   |  |  |      |     |  |      |  |     |      |  |  |      |  |  |      |     |  |      |  |     |  |  |  |     |  |  |  |     |  |  |  |     | 



|1 | Elimination of business sector intercompany shipments are excluded from shipments.
|- | ----------------------------------------------------------------------------------

|2 | Average selling price is for paper manufacturing mills only.
|- | ------------------------------------------------------------



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|CASCADES      2011 ANNUAL REPORT      MANAGEMENTS DISCUSSION & ANALYSIS |  |  | 18 | 



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LOGO

For notes 1 to 4, see definition on page 9.

Specialty Products Group sales increased by $65 million to reach $851 million compared to $786 million in 2010. $50 million of this increase is attributable to the Recovery and Recycling sector, which
benefited from higher volume and increased waste paper prices. Sales in the Industrial Packaging sector increased by $9 million mainly resulting from higher volume and average selling price experienced by our European units. Sales in the Specialty
Papers sector decreased by $14 million in 2011 compared to 2010 due to lower demand and an unfavourable exchange rate. For the Group, business acquisitions have positively impacted sales by $22 million.

Operating income decreased by $48 million, from $36 million in 2010 to a loss of $12 million in 2011. Excluding specific items, operating income fell by
$30 million to $6 million in 2011. Again, most of this decrease comes from our Specialty Papers business as they have been strongly impacted by lower demand, higher raw material costs, competitive market conditions and the appreciation of the
Canadian dollar. Profitability decline in the Industrial Packaging sector is mainly attributable to less favourable product mix and exchange rate as well as higher energy and raw material prices.

The Corporation incurred some specific items in 2011 and 2010 that adversely or positively affected its operating results. Please refer to pages 10 to 14
for more details.



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|CASCADES      2011 ANNUAL REPORT      MANAGEMENTS DISCUSSION & ANALYSIS |  |  | 19 | 



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BUSINESS SEGMENT REVIEW

TISSUE PAPERS



|                         |  |                         |     |  |                         |  |     |                         |  |  |                             |   |  |                           |    |  |                       |  |     |                       |  |  |      |  |  |      |     |  |      |  |     |      |  |  |       |  |  |      |       |  |      |  |       |  |  |  |       |  |  |  |       |  |  |  |       | 
|------------------------ |  | ----------------------- | --- |  | ----------------------- |  | --- | ----------------------- |  |  | --------------------------- | - |  | ------------------------- | -- |  | --------------------- |  | --- | --------------------- |  |  | ---- |  |  | ---- | --- |  | ---- |  | --- | ---- |  |  | ----- |  |  | ---- | ----- |  | ---- |  | ----- |  |  |  | ----- |  |  |  | ----- |  |  |  | ----- | 
|                         |  | Sales                   |     |  | Operatingincome (loss)  |  |     | OIBD                    |  |  | Shipments1                  |   |  | Averageselling price      |    |  | Pricereference        | 
|                         |  | (in millionsof dollars) |     |  | (in millionsof dollars) |  |     | (in millionsof dollars) |  |  | (in thousandsof short tons) |   |  | (in Canadiandollars/unit) |    |  | (in U.S.dollars/unit) |  |     | (in U.S.dollars/unit) | 
|                         |  | 2011                    |     |  | 2010                    |  |     | 2011                    |  |  | 2010                        |   |  | 2011                      |    |  | 2010                  |  |     | 2011                  |  |  | 2010 |  |  | 2011 |     |  | 2010 |  |     | 2011 |  |  | 2010  |  |  | 2011 |       |  | 2010 | 
|As reported              |  |                         | 871 |  |                         |  | 853 |                         |  |  | 52                          |   |  |                           | 45 |  |                       |  | 93  |                       |  |  | 84   |  |  |      | 513 |  |      |  | 518 |      |  |  | 1,697 |  |  |      | 1,646 |  |      |  | 1,713 |  |  |  | 1,598 |  |  |  | 1,707 |  |  |  | 1,619 | 
|Specific items           |  |                         |     |  |                         |  |     |                         |  |  | (21                         | ) |  |                           | 6  |  |                       |  | (21 | )                     |  |  | 6    |  |  |      |     |  |      |  |     |      |  |  |       |  |  |      |       |  |      |  |       |  |  |  |       |  |  |  |       |  |  |  |       | 
|                         |  |                         |     |  |                         |  |     |                         |  |  |                             |   |  |                           |    |  |                       |  |     |                       |  |  |      |  |  |      |     |  |      |  |     |      |  |  |       |  |  |      |       |  |      |  |       |  |  |  |       |  |  |  |       |  |  |  |       | 
|Excluding specific items |  |                         |     |  |                         |  |     |                         |  |  | 31                          |   |  |                           | 51 |  |                       |  | 72  |                       |  |  | 90   |  |  |      |     |  |      |  |     |      |  |  |       |  |  |      |       |  |      |  |       |  |  |  |       |  |  |  |       |  |  |  |       | 



|1 | Shipments do not take into account the elimination of business sector intercompany shipments.
|- | ---------------------------------------------------------------------------------------------



LOGO

For notes 1 to 4, see definition on page 9.

Tissue Group sales increased by $18 million, or 2%, to $871 million in 2011, compared to $853 million in 2010 despite a negative currency impact of 3% (-$26 million). Organic sales rose 4% (+$34 million),
driven by an increase of 3% in average selling prices (+$27 million), a 2.4% impact related to a more favourable product mix (+$20 million) and a positive contribution of 1.3% from business acquisitions (+$11 million). These were partially offset by
a decrease of 1.6% in shipments (-$13 million).

The shipments decline of 5,000 tons was mainly due to lower parent roll sales resulting from
non recurring production issues in 2011. However, our Away From Home (AFH) and Consumer Product segments grew by 4% (+11,000 tons), mainly in the U.S. The growth in bath tissue and perforated roll towel categories were the main drivers behind the
AFH business increase. On the Consumer Product side, we exceeded our targeted growth objectives, and this was sufficient to compensate for overall softer demand caused by slower economic activity.

Despite the unfavourable currency impact of 3%, the average selling price increased by 3% (+$51/s.t.) in 2011 primarily due to the implementation of
price increases in all our market segments. The increase in parent roll sales price has contributed to a 2.2% growth (+$19 million), while AFH and Consumer Product grew by 1% (+$7 million). Also, a higher rate for converting of parent rolls into
finished products resulted in a more favourable product mix and an average selling price that was 2.4% higher (+$20 million). The acquisition of Papersource also positively impacted the average selling price by 0.6% (+$5 million) due to a higher
converting rate.



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The Tissue Groups operating income stood at $52 million for 2011 compared to $45 million in 2010.
Excluding specific items, operating income reached $31 million in 2011, down by $20 million versus $51 million generated in 2010. Inflation in key costs, including manufacturing, transportation and recycled fibre costs accounted for over $62
million of cost increases in 2011, combined with a $7 million loss on foreign exchange and a $4 million loss related to lower volume. Favourable variance such as $47 million related to higher selling prices and better product mix, $5 million due to
SG&A and manufacturing overhead cost reduction were not sufficient to offset the unfavourable cost inflation.

The Corporation incurred
some specific items in 2011 and 2010 that adversely or positively affected its operating results. Please refer to pages 10 to 14 for more details and reconciliation.

CORPORATE ACTIVITIES

Operating income for the year ended December 31, 2011, includes
a foreign exchange gain of $3 million on working capital items following the rapid depreciation of the Canadian dollar at the end of the third quarter combined with foreign exchange gain in the amount of approximately $14 million in the third
quarter on the US$ consideration received from the sale of Dopaco. As well, 2011 operating income includes an unrealized loss of $5 million on financial instruments compared to a loss of $5 million in 2010. Corporate operating income also includes a
loss of $4 million resulting from a flood at one of our Tissue Groups operating units during the third quarter.

Operating income for
2010 includes a loss of $2 million resulting from a fire at one of our Specialty Products Groups units in the United States during the first quarter. In 2010, operating income also includes a foreign exchange loss of $4 million following the
appreciation of the Canadian dollar and a charge of $18 million following the establishment of a supplemental executive retirement plan (SERP) in favour of the Corporations founding shareholders.

OTHER ITEMS ANALYSIS

DEPRECIATION
AND AMORTIZATION

The depreciation and amortization expense increased to $180 million in 2011, compared to $155 million in 2010. The
increase is due to the full consolidation of RdM that started during the second quarter of 2011 which contributed to a depreciation and amortization expense of $28 million. The appreciation of the Canadian dollar against the U.S. dollar and the sale
of our Versailles, Hebron and Avot-Vallée units as well as the closure of our Leominster plant all reduced the depreciation and amortization expense. The impairment charges recorded at the end of 2010 also decreased the depreciation and
amortization expense but these were partially offset by capital investments completed in the last twelve months and by acquisitions in our Specialty Products Group and the acquisition of Papersource during the fourth quarter of 2011.

FINANCING EXPENSE

The financing expense
decreased to $100 million in 2011, compared to $107 million in 2010. The appreciation of the Canadian dollar against the U.S. dollar and the lower level of our debt following the sale of Dopaco in 2011 led to a decrease in financing expenses. Also,
the Corporation benefited from the renegotiated and amended revolving credit agreement, which decreased the interest rate as well as standby fees on our revolving credit facility. However, these favourable impacts were partly offset by the full
consolidation of RdM that started during the second quarter of 2011 and the payment for the Papersource acquisition.



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LOSS ON REFINANCING OF LONG-TERM DEBT

During the first quarter of 2010, the Corporation purchased, for a total consideration of US$162 million ($168 million), including a premium of US$3 million ($3 million), a total US$107 million ($111
million) aggregate principal amount of 7.25% unsecured senior notes and a US$52 million ($54 million) aggregate principal amount of 6.75% unsecured senior notes due in 2013. The Corporation recorded a $3 million loss resulting from this transaction.

FOREIGN EXCHANGE LOSS ON LONG-TERM DEBT AND FINANCIAL INSTRUMENTS

In 2011, the Corporation recorded a gain of $4 million on its US$-denominated debt compared to a loss of $4 million in 2010. This is composed of a loss of $3 million (2010$13 million gain) on our
US$-denominated long-term debt net of our net investment hedge the U.S. and forward exchange contracts designated as hedging instruments. It also includes a gain of $7 million (2010$13 million loss) on its foreign exchange forward contracts
not designated as hedging instruments. The 2010 loss also includes a loss of $4 million resulting from the recognition of charges previously recorded under Accumulated other comprehensive income upon the termination of the hedge
accounting of foreign exchange contracts.

PROVISION FOR INCOME TAXES

In 2011, the Corporation recorded income tax recovery of $56 million for an effective tax rate of 64%. The income tax recovery was impacted by specific items that are tax affected at different rates than
normal income, prior period adjustments as well as valuation of tax benefits arising from income tax losses. Excluding these unfavourable impacts and other specific items, the income tax rate would have been approximately 31% for 2011.

The effective tax rate and current income taxes are affected by the results of certain subsidiaries and joint ventures located in countriesnotably
Europe and the United Stateswhere the income tax rate is higher than in Canada. The normal effective tax rate is expected to be in the range of 27% to 35%.

SHARE OF RESULTS OF ASSOCIATES AND JOINT VENTURES

The share of results of associates and
joint ventures is partly represented by our 35% interest in Boralex Inc. (Boralex), a Canadian public corporation that is a major electricity producer and whose core business is the development and operation of power stations that
generate renewable energy, with operations in the northeastern United States, Canada and France. It also includes the results of our joint ventures, including our interest in RdM until the first quarter of 2011. During the second quarter of 2011,
the Corporation started to fully consolidate RdM and consequently ceased to record its share of results (please refer to notes 6 and 9 of the consolidated financial statements for more details).

RESULTS OF DISCONTINUED OPERATIONS

Results of discontinued operations mainly include the results of Dopaco, for which the sale transaction was closed on May 2, 2011. It includes the
net gain on disposal of Dopaco of $110 million ($192 million before taxes) and a $2 million loss ($3 million before taxes) following the amendment of a health benefit plan. It also includes the normal results of operations until the date of
disposal.

Results of Dopaco were as follows:



|                                                                     |  |      |     |  |      |  |     |  
|-------------------------------------------------------------------- |  | ---- | --- |  | ---- |  | --- | -
|(in millions of Canadian dollars)                                    |  | 2011 |     |  | 2010 | 
|Results of discontinued operations                                   |  |      |     |  |      |  |     |  
|Sales                                                                |  |      | 148 |  |      |  | 470 |  
|Cost of sales and expenses (excluding depreciation and amortization) |  |      | 124 |  |      |  | 377 |  
|Depreciation and amortization                                        |  |      | 6   |  |      |  | 24  |  
|Other expenses and specific items                                    |  |      | 12  |  |      |  | 41  |  
|Net earnings before income tax of discontinued operations            |  |      | 6   |  |      |  | 28  |  
|Income tax                                                           |  |      | 2   |  |      |  | 7   |  
|Share of results of associates and joint ventures                    |  |      |    |  |      |  | (1  | )



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|                                          |  |      |     |  |      |  |    | 
|----------------------------------------- |  | ---- | --- |  | ---- |  | -- | 
|(in millions of Canadian dollars)         |  | 2011 |     |  | 2010 | 
|Net earnings from operations              |  |      | 4   |  |      |  | 22 | 
|Gain on disposal, net of income taxes     |  |      | 110 |  |      |  |   | 
|                                          |  |      |     |  |      |  |    | 
|Net earnings from discontinued operations |  |      | 114 |  |      |  | 22 | 
|                                          |  |      |     |  |      |  |    | 

NET EARNINGS

For the year ended December 31, 2011, net earnings stood at $99 million, or $1.03 per share, compared to net earnings of $41 million, or $0.43 per share in 2010. After excluding certain specific
items, the Corporation realized a net loss of $14 million, or ($0.14) per share, compared to net earnings of $80 million, or $0.83 per share in 2010 (see Supplemental information on non-IFRS measures for reconciliation of these
amounts).

LIQUIDITY AND CAPITAL RESOURCES

CASH FLOWS FROM CONTINUING OPERATING ACTIVITIES

Continuing operating activities generated
$104 million in liquidity in 2011, compared to $170 million in 2010. Changes in non-cash working capital components required $22 million in funds, compared to $23 million in 2010. Lower operating income in 2011 compared to 2010 partly led to
this deterioration. As well, price increases were implemented or announced in our Boxboard, Specialty Products and Tissue groups, which contributed to increased working capital requirements. The ending of a factoring program of accounts receivable
in Europe for an amount of $14 million (11 million) also increased working capital.

Cash flow from continuing operating activities,
excluding the change in non-cash working capital components, stood at $126 million for 2011 compared to $193 million in 2010.

This cash flow
measure is significant, since it positions the Corporation to pursue its capital expenditures program and reduces its indebtedness.

INVESTING ACTIVITIES FROM CONTINUING OPERATIONS

Investment activities in 2011 used total cash of $229 million, mainly for net capital expenditure projects ($141 million) and other assets and investments in associates and joint ventures ($65 million).
The Corporation also received $32 million from the disposal of assets and $4 million from business disposal and recorded a net cash outflow of $60 million on business acquisitions.

Business acquisitions

On April 6, 2011, the Corporation increased from 10% to 50% its
investments in NorCan Flexible Packaging Inc. (Mississauga, Ontario), which designs, manufactures, distributes and sells flexible film for packaging products, for a cash consideration of $2 million.

Since April 7, 2011, the Corporation is deemed to have control of RdM as it increased its ownership to 40.95% when considering the effect of
potential voting rights. Cash consideration to gain control of RdM is nil and the Corporation acquired cash in the amount of $4 million.

On
May 31, 2011, the Corporation purchased all of the outstanding shares of Genor Recycling Services Ltd. and 533784 Ontario Limited (Genor) for a total consideration of $9 million, consisting of a cash consideration of $3 million, net of cash
acquired of $1 million, and a balance of purchase price of $5 million. Genor recycles corrugated cardboard and other paper grades in Ontario, Canada.

On September 15, 2011, the Corporation acquired the uncoated partition board manufacturing assets of Packaging Dimensions Inc., located in Illinois, U.S., for a total consideration of $6 million,
consisting of a cash consideration of $3 million and a balance of purchase price of $3 million.

On November 1, 2011, the Group announced
that it had finalized the acquisition of 50% of the shares that it did not hold in its affiliated company Papersource Converting Mill Corp (Papersource), located in Granby, Québec, for a cash consideration of $56 million net of cash acquired
of $4 million and the assumption of debts in the amount of $28 million.



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Disposal of businesses

On March 1, 2011, the Corporation sold its white-top linerboard mill located in Avot-Vallée, France, for a total consideration of 10 million ($14 million), including the long-term
debt assumed by the acquirer in the amount of 5 million ($7 million) and a balance of sale price of 5 million ($7 million), which will be received over a maximum of three years. The Corporation realized a loss of $2 million
before income taxes. The Corporation had to pay $1 million during the year in various fees in order to complete the transaction.

On
June 23, 2011, the Corporation sold two of its boxboard facilities, namely the Versailles mill located in Connecticut and the Hebron converting plant located in Kentucky for a total consideration of US$20 million ($20 million), of which
US$5 million ($5 million) was received at closing.

PURCHASES OF PROPERTY PLANT AND EQUIPMENT

Capital expenditure projects paid during the year amount to $141 million. Capital expenditures by sector are as follows:



LOGO

The major capital projects in 2011 are as follows:

Boxboard

$2 million for a new gluer replacing three old ones at our Winnipeg facility that
will increase productivity, reduce labour costs and reduce discharges and maintenance.

$1 million for new scanners in Jonquière to
perform better quality analysis and reduce claims from customers.

$2 million for new equipment at our La Rochette facility to automate
processes and reduce labour costs.

$1 million for new equipment in La Rochette in order to save steam per tonne of cardboard produced.

Containerboard

$8 million
for two new presses, replacing four old ones, installed at our St. Marys and Richmond converting plants to upgrade our equipment. These presses will reduce set-up time, labour costs and increase speed of rotation thereby improving productivity.

$5 million to expand our facility in Cabano. This investment will improve our production capacity and productivity.

$3 million for a electrostatic precipitator at our facility in Cabano that will significantly reduce the air emissions of the boilers well below the new
government standards (Québec Ministère du Développement durable, de lenvironnement et des Parcs).

Specialty Products

$3 million for a new
extruder at our recently acquired Norcan Flexible Packaging subsidiary in order to increase our production of flexible film for packaging.



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$3 million to expand our plastics facility in Drummondville, enabling us to reduce external warehousing
costs and allowing future development projects such as new thermomoulding equipment.

$2 million for a new pulper installed at our Kraft paper
mill in East Angus in order to migrate from virgin to recycled pulp, enabling us to reduce costs.

$2 million for a disperger at our Auburn
facility to improve the pulp quality, increase productivity and the sales volume.

$1 million for a new winder at St-Jérôme to
reduce discharges and improve productivity.

Tissue Papers

$6 million for the replacement of two lines of hygienic tissue at our plant in Pennsylvania. This equipment is more efficient and will increase our production capacity and offer a wider variety of
products.

$3 million for the purchase of manufacturing equipment for conventional and pocket size handkerchiefs at our factory in Kingsey
Falls. This investment will increase our production capacity dedicated to this market.

$2 million for napkin manufacturing equipment at our
plant in Laval. This acquisition will allow us to expand our range of product offerings, including our new brand SERVONE.

$2 million for various equipment at our Candiac facility in order to start a new technology to produce better quality paper.

$1 million for various equipment in Toronto to optimize the pulp recipe and improve quality.

PROCEEDS OF PROPERTY PLANT AND EQUIPMENT

In June 2011, the Corporation completed the sale
of a piece of land in Montréal, Québec, pertaining to a corrugated converting plant closed in 2005 for a cash consideration of $9 million.

In September 2011, the Corporation announced the closure of its containerboard mill located in Burnaby, British Columbia. At the same time, we announced an agreement regarding the sale of the land and
building of the facility. The sale was completed in October for a cash consideration of $20 million and the closure was effective on November 6, 2011.

Increase in other assets and investment in associated and joint ventures

The main
investments are as follows:

$19 million for modernization of our financial information system to an ERP information technology system of
which $14 million is financed through a loan agreement which will be reimbursed over a period of three years.

$45 million for our Greenpac
project in partnership with third parties in our Containerboard manufacturing segment.

FINANCING ACTIVITIES FROM CONTINUING OPERATIONS

Revolving and term facilities

On February 10, 2011, the Corporation 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%.

On December 30, 2010, the Corporation repaid in full its term loan in the amount of
$100 million, and consequently the term loan facility has been cancelled.

These ratios are calculated on an adjusted consolidated basis. With
regards to these two financial ratios, Cascades remains in compliance and expects to do so in 2012.



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|CASCADES      2011 ANNUAL REPORT      MANAGEMENTS DISCUSSION & ANALYSIS |  |  | 25 | 



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Unsecured senior notes

Following the refinancing of its long-term debt in 2009, the Corporation purchased during the first quarter of 2010, 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 in 2013. As of December 30, 2011, 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 expiring in 2013 remains outstanding.

The Corporation also concluded, in the first quarter of 2010, an agreement with the majority of the remaining holders of the 7.25% and 6.75% notes outstanding, pursuant to which said holders have
consented in writing to eliminate substantially all of the restrictive covenants contained in the indentures and to eliminate certain events of default contained in the indentures.

The Corporation also redeemed 2,057,563 of its common shares on the open market, pursuant to a normal-course issuer bid, for an amount of $11 million.

In 2011, we continued to increase our ownership in RdM by acquiring 4.65% of the outstanding shares for an amount of $3 million. Our ownership, excluding
any other agreements, stood at 44.31% as at December 31, 2011. Since we have fully consolidated RdM since the second quarter, the purchase of these shares is considered an acquisition of non-controlling interest and accounted for as an equity
transaction.

Including the $15 million in dividends paid out during the year, financing activities from continuing operations required $169
million in liquidity. Cash consideration received on the Dopaco disposal was applied to reduce our revolving credit facility.

LIQUIDITY
FROM DISCONTINUED OPERATIONS

Cash flows from Dopaco discontinued operations are as follows:



|                                                             |  |      |     |   |      |  |     |  
|------------------------------------------------------------ |  | ---- | --- | - | ---- |  | --- | -
|(in millions of Canadian dollars)                            |  | 2011 |     |   | 2010 | 
|Cash flows from discontinued operations                      |  |      |     |   |      |  |     |  
|Cash flows generated (used) from:                            |  |      |     |   |      |  |     |  
|Operating activities                                         |  |      | 14  |   |      |  | 51  |  
|Investing activities                                         |  |      | (1  | ) |      |  | (13 | )
|Consideration received on disposal, net of transaction costs |  |      | 288 |   |      |  |    |  
|                                                             |  |      |     |   |      |  |     |  
|Total                                                        |  |      | 301 |   |      |  | 38  |  
|                                                             |  |      |     |   |      |  |     |  

During the first quarter of 2011, the Corporation also paid $3 million ($2 million in 2010) in relation to a 2006 legal
settlement in the fine paper distribution activities that were disposed of in 2006.

In 2010, the corporation recorded a $1 million change
related to its Thunder Bay, Ontario, coated fine paper mill sold in 2007.

CONSOLIDATED FINANCIAL POSITION AS AT DECEMBER 31, 2011 AND
2010

The Corporations financial position and ratios are as follows:



|                                                                                |  |      |      |   |      |  |      |  
|------------------------------------------------------------------------------- |  | ---- | ---- | - | ---- |  | ---- | -
|(in millions of Canadian dollars, unless otherwise noted)                       |  | 2011 |      |   | 2010 | 
|Working capital1                                                                |  |      | 530  |   |      |  | 526  |  
|% of sales2                                                                     |  |      | 13.7 | % |      |  | 14.6 | %
|Bank loans and advances                                                         |  |      | 90   |   |      |  | 42   |  
|Current portion of long-term debt and revolving credit facility renewed in 2011 |  |      | 49   |   |      |  | 401  |  



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|                                                                       |  |      |       |   |      |  |       |  
|---------------------------------------------------------------------- |  | ---- | ----- | - | ---- |  | ----- | -
|(in millions of Canadian dollars, unless otherwise noted)              |  | 2011 |       |   | 2010 | 
|Long-term debt                                                         |  |      | 1,358 |   |      |  | 960   |  
|Total debt                                                             |  |      | 1,497 |   |      |  | 1,403 |  
|Equity attributable to shareholders                                    |  |      | 1,029 |   |      |  | 1,049 |  
|Total equity attributable to shareholders and debt                     |  |      | 2,526 |   |      |  | 2,452 |  
|Ratio of total debt/total equity attributable to shareholders and debt |  |      | 59.3  | % |      |  | 57.2  | %
|                                                                       |  |      |       |   |      |  |       |  
|Shareholders equity per share (in dollars)                            |  |      | 10.87 |   |      |  | 10.86 |  
|                                                                       |  |      |       |   |      |  |       |  



|1 | Working capital includes accounts receivable (excluding the short-term portion of other assets) plus inventories less accounts payable and accrued liabilities.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

|2 | % of sales = Working capital end of period/LTM sales. Starting in the second quarter of 2011, it excludes the results of Dopaco and includes RdM.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------

Liquidity available via the Corporations new amended and restated credit facilities, along with the expected cash flow
generated by its operating activities, will provide sufficient funds to meet its financial obligations, fulfill its capital expenditure program and pay for its investment in Greenpac. Capital expenditure requests for 2012 are initially approved at
approximately $150 million. This amount is subject to change depending on the Corporations operating results and on general economic conditions. The Corporation has capital projects in the works that could be approved if business conditions
are favourable, which could lead to capital expenditures in the range of $225 to $250 million in 2012. As at December 31, 2011, the Corporation had $458 million (net of letters of credit in the amount of $10 million) available through its
$750 million credit facility.

PENSION LIABILITIES

The Corporations future employee benefits assets and liabilities amounted to $560 million and $787 million respectively as at December 31, 2011. These liabilities include an amount of $115
million for post-retirement benefits other than pension plans and $39 million for pension plans, which do not require any funding by the Corporation until they are paid to the employees. This amount is not expected to increase, as the Corporation is
reviewing its benefits program to phase out some of them for the majority of future and current employees.

With regards to pension plans, the
Corporations risk is limited, as only approximately 25% of its active employees are subject to a defined benefit contribution pension plan while the remaining employees are part of the Corporations defined contribution plans, such as
group RRSPs or 401 (K). As at December 31, 2010, almost all of the Corporations pension plans (97%) have had an actuarial valuation performed. Where applicable, Cascades used the measurement relief allowed by law in order to reduce
the impact of its increased current contributions.

Considering the assumptions used and the asset ceiling limit, the deficit status for
accounting purposes of its pension plans amounted to $125 million as at December 31, 2011, compared to $78 million in 2010. The 2011 pension plan expense was $6 million and the cash outflow was $27 million. Excluding specific events, the
expense for these pension plans is expected to remain stable at $5 million in 2012. As for the cash flow requirement, these pension plans are expected to require a contribution of approximately $26 million in 2012. Finally, on a consolidated
basis, the solvency ratio of the Corporations pension plans is expected to decrease from 89% as at December 31, 2010, to approximately 78% as at December 31, 2011, due to changes in discount rates and the mortality table.

In September 2011, the Canadian Institute of Actuaries issued an Educational Note. This Educational Note offers advice to pension actuaries who are hired
to provide guidance to a pension plan sponsor on the selection of the discount rate for a Canadian pension plan under Canadian, U.S., or international accounting standards. After analyzing the recently announced Guidance, the Corporation has decided
to retain the current methodology. The new accounting standard IAS19 effective in 2013 may have a significant impact on the valuation of our future pension expense. In addition, recent relief measures allowed by law may have a significant impact on
our cash flow requirements if not pursued in the future.

COMMENTS ON THE FOURTH QUARTER OF 2011

In comparison to 2010, sales rose by 17% to $913 million in the fourth quarter of 2011 resulting from higher selling prices, the net contribution of
business acquisitions over divestitures and the full consolidation of the results of RdM.



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The operating income excluding specific items was nil, compared to $34 million in Q4 2010. Higher selling
prices and the contribution of business acquisitions were more than offset by the negative impacts of lower shipments and higher raw material costs. On a segmented basis, our tissue and European boxboard segments posted better results while our
containerboard and specialty products segments experienced weaker profitability. When including specific items, the operating loss amounted to $14 million in comparison to an operating income of $7 million in the same period of last year.

Net loss excluding specific items amounted to $4 million ($0.04 per share) in the fourth quarter of 2011 compared to net earnings of $17
million ($0.17 per share) for the same period last year. Financing expenses were slightly lower than in Q4 2010 while the recovery of income taxes was significantly higher. Including specific items, net earnings were $5 million ($0.05 per share)
compared to a net loss of $12 million ($0.12 per share) for the same quarter in 2010. The Corporation incurred some specific items in the fourth quarter of 2011 and 2010 that adversely or positively affected its operating results which are
detailed below.

The reconciliation of the specific items by business group is as follows:



|                                                                                      |  |           |     |   |                 |  |     |                   |  |  |              |   |  |                     |     |   |                        |  |     |              |  |  |   |  |  |  |     |  
|------------------------------------------------------------------------------------- |  | --------- | --- | - | --------------- |  | --- | ----------------- |  |  | ------------ | - |  | ------------------- | --- | - | ---------------------- |  | --- | ------------ |  |  | - |  |  |  | --- | -
|                                                                                      |  | Q4 - 2011 |    
|(in millions of Canadian dollars)                                                     |  | Boxboard  |     |   | Container-board |  |     | SpecialtyProducts |  |  | TissuePapers |   |  | CorporateActivities |     |   | DiscontinuedOperations |  |     | Consolidated | 
|Operating income (loss)                                                               |  |           | (13 | ) |                 |  | (15 | )                 |  |  | (17          | ) |  |                     | 37  |   |                        |  | (6  | )            |  |  |  |  |  |  | (14 | )
|Depreciation and amortization                                                         |  |           | 13  |   |                 |  | 15  |                   |  |  | 7            |   |  |                     | 13  |   |                        |  | 3   |              |  |  |  |  |  |  | 51  |  
|                                                                                      |  |           |     |   |                 |  |     |                   |  |  |              |   |  |                     |     |   |                        |  |     |              |  |  |   |  |  |  |     |  
|Operating income (loss) before depreciation and amortization                          |  |           |    |   |                 |  |    |                   |  |  | (10          | ) |  |                     | 50  |   |                        |  | (3  | )            |  |  |  |  |  |  | 37  |  
|Specific items:                                                                       |  |           |     |   |                 |  |     |                   |  |  |              |   |  |                     |     |   |                        |  |     |              |  |  |   |  |  |  |     |  
|Gain on disposal and others                                                           |  |           |    |   |                 |  |    |                   |  |  |             |   |  |                     | (37 | ) |                        |  | (1  | )            |  |  |  |  |  |  | (38 | )
|Inventory adjustment resulting from business acquisition                              |  |           |    |   |                 |  |    |                   |  |  |             |   |  |                     | 4   |   |                        |  |    |              |  |  |  |  |  |  | 4   |  
|Impairment charge                                                                     |  |           | 7   |   |                 |  | 15  |                   |  |  | 12           |   |  |                     | 10  |   |                        |  |    |              |  |  |  |  |  |  | 44  |  
|Closure and restructuring costs                                                       |  |           | 1   |   |                 |  | 2   |                   |  |  |             |   |  |                     |    |   |                        |  |    |              |  |  |  |  |  |  | 3   |  
|Unrealized loss (gain) on financial instruments                                       |  |           | 2   |   |                 |  | 2   |                   |  |  |             |   |  |                     | 1   |   |                        |  | (4  | )            |  |  |  |  |  |  | 1   |  
|                                                                                      |  |           |     |   |                 |  |     |                   |  |  |              |   |  |                     |     |   |                        |  |     |              |  |  |   |  |  |  |     |  
|                                                                                      |  |           | 10  |   |                 |  | 19  |                   |  |  | 12           |   |  |                     | (22 | ) |                        |  | (5  | )            |  |  |  |  |  |  | 14  |  
|Operating income (loss) before depreciation and amortizationexcluding specific items |  |           | 10  |   |                 |  | 19  |                   |  |  | 2            |   |  |                     | 28  |   |                        |  | (8  | )            |  |  |  |  |  |  | 51  |  
|                                                                                      |  |           |     |   |                 |  |     |                   |  |  |              |   |  |                     |     |   |                        |  |     |              |  |  |   |  |  |  |     |  
|Operating income (loss)excluding specific items                                      |  |           | (3  | ) |                 |  | 4   |                   |  |  | (5           | ) |  |                     | 15  |   |                        |  | (11 | )            |  |  |  |  |  |  |    |  
|                                                                                      |  |           |     |   |                 |  |     |                   |  |  |              |   |  |                     |     |   |                        |  |     |              |  |  |   |  |  |  |     |  



|                                                                                      |  |           |    |   |                 |  |    |                   |  |  |              |  |  |                     |    |  |                        |  |    |              |  |  |     |   |  |  |    |  
|------------------------------------------------------------------------------------- |  | --------- | -- | - | --------------- |  | -- | ----------------- |  |  | ------------ |  |  | ------------------- | -- |  | ---------------------- |  | -- | ------------ |  |  | --- | - |  |  | -- | -
|                                                                                      |  | Q4 - 2010 |   
|(in millions of Canadian dollars)                                                     |  | Boxboard  |    |   | Container-board |  |    | SpecialtyProducts |  |  | TissuePapers |  |  | CorporateActivities |    |  | DiscontinuedOperations |  |    | Consolidated | 
|Operating income (loss)                                                               |  |           | (3 | ) |                 |  | 5  |                   |  |  | 5            |  |  |                     | 8  |  |                        |  | (5 | )            |  |  | (3  | ) |  |  | 7  |  
|Depreciation and amortization                                                         |  |           | 9  |   |                 |  | 17 |                   |  |  | 7            |  |  |                     | 9  |  |                        |  | 2  |              |  |  | (6  | ) |  |  | 38 |  
|                                                                                      |  |           |    |   |                 |  |    |                   |  |  |              |  |  |                     |    |  |                        |  |    |              |  |  |     |   |  |  |    |  
|Operating income (loss) before depreciation and amortization                          |  |           | 6  |   |                 |  | 22 |                   |  |  | 12           |  |  |                     | 17 |  |                        |  | (3 | )            |  |  | (9  | ) |  |  | 45 |  
|Specific items:                                                                       |  |           |    |   |                 |  |    |                   |  |  |              |  |  |                     |    |  |                        |  |    |              |  |  |     |   |  |  |    |  
|Loss on disposal and others                                                           |  |           | 7  |   |                 |  |   |                   |  |  |             |  |  |                     |   |  |                        |  |   |              |  |  | (7  | ) |  |  |   |  
|Impairment charge                                                                     |  |           | 3  |   |                 |  | 19 |                   |  |  |             |  |  |                     | 6  |  |                        |  |   |              |  |  |    |   |  |  | 28 |  
|Unrealized loss (gain) on financial instruments                                       |  |           | 1  |   |                 |  | (1 | )                 |  |  |             |  |  |                     |   |  |                        |  | (1 | )            |  |  |    |   |  |  | (1 | )
|                                                                                      |  |           |    |   |                 |  |    |                   |  |  |              |  |  |                     |    |  |                        |  |    |              |  |  |     |   |  |  |    |  
|                                                                                      |  |           | 11 |   |                 |  | 18 |                   |  |  |             |  |  |                     | 6  |  |                        |  | (1 | )            |  |  | (7  | ) |  |  | 27 |  
|Operating income (loss) before depreciation and amortizationexcluding specific items |  |           | 17 |   |                 |  | 40 |                   |  |  | 12           |  |  |                     | 23 |  |                        |  | (4 | )            |  |  | (16 | ) |  |  | 72 |  
|                                                                                      |  |           |    |   |                 |  |    |                   |  |  |              |  |  |                     |    |  |                        |  |    |              |  |  |     |   |  |  |    |  
|Operating income (loss)excluding specific items                                      |  |           | 8  |   |                 |  | 23 |                   |  |  | 5            |  |  |                     | 14 |  |                        |  | (6 | )            |  |  | (10 | ) |  |  | 34 |  
|                                                                                      |  |           |    |   |                 |  |    |                   |  |  |              |  |  |                     |    |  |                        |  |    |              |  |  |     |   |  |  |    |  

The main variances in operating income (loss) in 2011 compared to 2010 are shown below:



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LOGO

For notes 1 to 4, see definition on page 9.

NEAR-TERM OUTLOOK

Entering 2012, economic indicators suggest positive development in North
America and point to an unstable environment in Europe. Demand for our products remains volatile but we should improve our performance in comparison to the same period last year. In particular, we should benefit from the full consolidation of Reno
de Medici and Papersource in 2012.

We expect to continue to face challenges in relation to the volatility of raw material costs and the value
of the Canadian dollar but we believe there are reasons to be optimistic in 2012 and future years. Indeed, since the latter part of 2011, we have witnessed more favourable market conditions. From a strategic perspective, our plan still stands:
modernize, restructure, optimize and innovate. We expect to begin benefiting from decisions taken as part of our strategic plan, particularly with respect to the acquisition of Papersource and the consolidation of some of our operational centers.

To execute our strategy, we plan to invest to improve our operational performance. However we will deploy our capital in a prudent and
gradual way to equip Cascades with a portfolio of assets that are competitive from a manufacturing cost and product offering perspective while maintaining an acceptable level of debt. We wish to maintain our financial flexibility and expect to
increase it from return generated on capital invested, working capital reduction efforts and supply chain optimization. This will allow us to pursue our growth initiatives and return value to our shareholders, as we have done in the past.

CAPITAL STOCK INFORMATION

As at December 31, 2011, issued and outstanding capital stock consisted of 94,647,165 common shares (96,606,421 as at December 31, 2010), and
5,693,429 stock options were issued and outstanding (5,287,178 as at December 31, 2010). In 2011, 757,170 options were issued at an exercise price of $6.26, 98,307 options were exercised, 25,019 were forfeited and 227,593 expired.

As at March 19, 2012, issued and outstanding capital stock consisted of 94,219,265 common shares and 5,436,816 stock options.

CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS

The Corporations principal contractual obligations and commercial commitments relate to outstanding debt, leases and purchase obligations for its normal business operations. The following table
summarizes these obligations as at December 31, 2011:



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Contractual obligations



|                                                        |  |       |       |  |           |  |     |                    |  |  |                    |  |  |            |     |  |  |  |       | 
|------------------------------------------------------- |  | ----- | ----- |  | --------- |  | --- | ------------------ |  |  | ------------------ |  |  | ---------- | --- |  |  |  | ----- | 
|Payment due by period (in millions of Canadian dollars) |  | Total |       |  | Year 2012 |  |     | Years 2013and 2014 |  |  | Years 2015and 2016 |  |  | Thereafter |    
|Long-term debt, including capital and interests         |  |       | 1,942 |  |           |  | 139 |                    |  |  | 254                |  |  |            | 671 |  |  |  | 878   | 
|Leases                                                  |  |       | 100   |  |           |  | 27  |                    |  |  | 34                 |  |  |            | 22  |  |  |  | 17    | 
|Legal settlement                                        |  |       | 2     |  |           |  | 2   |                    |  |  |                   |  |  |            |    |  |  |  |      | 
|Pension plans and other post-employment benefits        |  |       | 533   |  |           |  | 44  |                    |  |  | 126                |  |  |            | 97  |  |  |  | 266   | 
|                                                        |  |       |       |  |           |  |     |                    |  |  |                    |  |  |            |     |  |  |  |       | 
|Total contractual obligations                           |  |       | 2,577 |  |           |  | 212 |                    |  |  | 414                |  |  |            | 790 |  |  |  | 1,161 | 
|                                                        |  |       |       |  |           |  |     |                    |  |  |                    |  |  |            |     |  |  |  |       | 

TRANSACTIONS WITH RELATED PARTIES

The Corporation has also entered into various agreements with its joint-venture partners, significantly influenced companies and entities that are affiliated with one or more of its directors for the
supply of raw materials, including recycled paper, virgin pulp and energy as well as the supply of unconverted and converted products, and other agreements entered into in the normal course of business. Aggregate sales by the Corporation to its
joint-venture partners and other affiliates totalled $174 million and $170 million for 2011 and 2010 respectively. Aggregate sales to the Corporation from its joint-venture partners and other affiliates came to $58 million and $66 million for 2011
and 2010 respectively.

CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements in conformity with IFRS requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and
disclosure of contingencies at the balance sheet date, and the reported amounts of revenues and expenses during the reporting period. On a regular basis and with the information available, management reviews its estimates, including those related to
environmental costs, employee future benefits, collectability of accounts receivable, financial instruments, contingencies, income taxes and related valuation allowance, useful life and residual value of property, plant and equipment and impairment
of property, plant and equipment and intangible assets. Actual results could differ from those estimates. When adjustments become necessary, they are reported in earnings in the period in which they occur.

A) IMPAIRMENT

In determining the
recoverable amount of an asset or a Cash Generating Unit (CGU), the Corporation uses several key assumptions, based on external information on the industry when available and including, among others, production levels, selling prices, volume, raw
material costs, foreign exchange rates, growth rates, discounting rates and capital spending.

The Corporation believes such assumptions to be
reasonable. These assumptions involve a high degree of judgment and complexity and reflect managements best estimates based on available information on the assessment date. In addition, products are commodity products; therefore, pricing is
inherently volatile and often follows a cyclical pattern.

Description of significant impairment testing assumptions

Growth rates

The assumptions used
were based on our internal budget. We projected revenues, operating margins and cash flows for a period of five years, and applied a perpetual long-term growth rate thereafter. In arriving at our forecasts, we considered past experience, economic
trends such as Gross Domestic Product (GDP) growth and inflation, as well as industry and market trends.

Discount rates

The Corporation assumed a discount rate in order to calculate the present value of its projected cash flows. The discount rate
represents a weighted average cost of capital (WACC) for comparable companies operating in similar industries of the applicable CGU, group of CGUs or reportable segment, based on publicly available information.



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Foreign exchange rates

Foreign exchange rates are determined using banks average forecast for the first two years of forecasting. For the three following years, the Corporation uses the last five years historical
average of foreign exchange rates.

Considering the sensitivity of the key assumptions used, there is measurement uncertainty since adverse
changes in one or a combination of our key assumptions could cause a significant change in the carrying amounts of these assets.

B) INCOME
TAXES

The Corporation is required to estimate the income taxes in each jurisdiction in which it operates. This includes estimating a value
for existing net operating losses based on the Corporations assessment of its ability to use them against future taxable income before they expire. If the Corporations assessment of its ability to use the net operating losses proves
inaccurate in the future, more or less of the net operating losses might be recognized as assets, which would increase or decrease the income tax expense and, consequently, affect the Corporations results in the relevant year.

C) EMPLOYEE BENEFITS

The present value
of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to
maturity approximating the terms of the related pension liability.

The cost of pensions and other retirement benefits earned by employees is
actuarially determined using the projected benefit method pro-rated on years of service and managements best estimate of expected plan investment performance, salary escalations, retirement ages of employees and expected healthcare costs. The
accrued benefit obligation is evaluated using the market interest rate at the evaluation date.

Due to the long-term nature of these plans,
such estimates are subject to significant uncertainty.

D) ENVIRONMENTAL CLEAN-UP COSTS

The Corporation expenses environmental disbursements related to existing conditions caused by past or current operations from which no future benefit is
discernible. The Corporations estimated environmental remediation costs are based upon an evaluation of currently available facts pertaining to each individual site, including the results of environmental studies and testing, and taking into
consideration existing technology, applicable laws and regulations, and prior experience in contaminated site remediation. Expenditures that extend the life of the related property, or mitigate or prevent future environmental contamination, are
capitalized. The Corporation determines its liability on a site-by-site basis and records a liability when one is probable and can be reasonably estimated. The contingencies take into account the anticipated participation of other potentially
responsible parties when it is probable that such parties are legally responsible or financially capable of paying their respective shares of the relevant costs. Actual costs to be incurred in future periods at the identified sites may differ from
the estimates, given the inherent uncertainties in evaluating environmental exposures. Future information and developments may require the Corporation to reassess the expected impact of these environmental matters.

E) COLLECTIBILITY OF ACCOUNTS RECEIVABLE

In order to record its accounts receivable at their net realizable value, the Corporation must assess their collectibility. A considerable
amount of judgment is required in making this assessment, including a review of the receivables aging and each customers current creditworthiness. The Corporation has recorded allowances for receivables that it feels are uncollectible.
However, if the financial condition of the Corporations customers were to deteriorate, their ability to make required payments may become further impaired, and increases in these allowances would be required.



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NEW ACCOUNTING STANDARDS NOT YET ADOPTED

IFRS 9FINANCIAL INSTRUMENTS

IFRS 9 was issued in November 2009 and contain
requirements for financial assets. This standard addresses classification and measurement of financial assets and replaces the multiple category and measurement models in IAS 39 for debt instruments with a new mixed measurement model having only two
categories: amortized cost and fair value through profit or loss. IFRS 9 also replaces the models for measuring equity instruments, and such instruments are either recognized at fair value through profit or loss or at fair value through other
comprehensive income. Where such equity instruments are measured at fair value through other comprehensive income, dividends are recognized in profit or loss insofar as they do not clearly represent a return of investment; however, other gains and
losses (including impairments) associated with such instruments remain in accumulated comprehensive income indefinitely.

Requirements for
financial liabilities were added in October 2010 and they largely carried forward existing requirements in IAS 39, Financial InstrumentsRecognition and Measurement, except that fair value changes due to credit risk for liabilities designated
at fair value through profit and loss would generally be recorded in other comprehensive income.

This standard is required to be applied for
accounting periods beginning on or after January 1, 2015, with earlier adoption permitted. The Corporation has not yet assessed the impact of the standard or determined whether it will adopt the standard early.

In May 2011, the IASB issued the following standards which have not yet been adopted by the Corporation: IFRS 10, Consolidated Financial Statements (IFRS
10), IFRS 11, Joint Arrangements (IFRS 11), IFRS 12, Disclosure of Interests in Other Entities (IFRS 12), IAS 27, Separate Financial Statements (IAS 27), IFRS 13, Fair Value Measurement (IFRS 13) and amended IAS 28, Investments in Associates and
Joint Ventures (IAS 28). Each of the new standards is effective for annual periods beginning on or after January 1, 2013 with early adoption permitted. The Corporation has not yet begun the process of assessing the impact that the new and
amended standards will have on its financial statements or whether to early adopt any of the new requirements.

The following is a brief
summary of the new standards:

IFRS 10CONSOLIDATION

IFRS 10 requires an entity to consolidate an investee when it is exposed or has rights to variable returns from its involvement with the investee and has the ability to affect those returns through its
power over the investee. Under existing IFRS, consolidation is required when an entity has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. IFRS 10 replaces SIC-12
ConsolidationSpecial Purpose Entities and parts of IAS 27 Consolidated and Separate Financial Statements.

IFRS 11JOINT
ARRANGEMENTS

IFRS 11 requires a venturer to classify its interest in a joint arrangement as a joint venture or joint operation. Joint
ventures will be accounted for using the equity method of accounting whereas for a joint operation the venturer will recognize its share of the assets, liabilities, revenue and expenses of the joint operation. Under existing IFRS, entities have the
choice to proportionately consolidate or equity account for interests in joint ventures. IFRS 11 supersedes IAS 31, Interests in Joint Ventures, and SIC-13, Jointly Controlled EntitiesNon-monetary Contributions by Venturers.



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|CASCADES      2011 ANNUAL REPORT      MANAGEMENTS DISCUSSION & ANALYSIS |  |  | 32 | 



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IFRS 12DISCLOSURE OF INTERESTS IN OTHER ENTITIES

IFRS 12 establishes disclosure requirements for interests in other entities, such as joint arrangements, associates, special purpose vehicles and off
balance sheet vehicles. The standard carries forward existing disclosures and also introduces significant additional disclosure requirements that address the nature of, and risks associated with, an entitys interests in other entities.

IFRS 13FAIR VALUE MEASUREMENT

IFRS 13 is a comprehensive standard for fair value measurement and disclosure requirements for use across all IFRS standards. The new standard clarifies that fair value is the price that would be received
to sell an asset, or paid to transfer a liability in an orderly transaction between market participants, at the measurement date. It also establishes disclosures about fair value measurement. Under existing IFRS, guidance on measuring and disclosing
fair value is dispersed among the specific standards requiring fair value measurements and in many cases does not reflect a clear measurement basis or consistent disclosures.

IAS 19EMPLOYEE BENEFITS

IAS 19, Employee Benefits, has been amended to make
significant changes to the recognition and measurement of defined benefit pension expense and termination benefits and to enhance the disclosure of all employee benefits. The amended standard requires immediate recognition of actuarial gains and
losses in other comprehensive income as they arise, without subsequent recycling to net income. This is consistent with the Corporations current accounting policy. Past service cost (which will now include curtailment gains and losses) will no
longer be recognized over a service period but instead will be recognized immediately in the period of a plan amendment. Pension benefit cost will be split between (i) the cost of benefits accrued in the current period (service cost) and
benefit changes (past service cost, settlements and curtailments); and (ii) finance expense or income. The finance expense or income component will be calculated based on the net defined benefit asset or liability. A number of other amendments
have been made to recognition, measurement and classification, including redefining short-term and other long-term benefits, guidance on the treatment taxes related to benefit plans, guidance on risk/cost sharing features, and expanded disclosures.

IAS 1PRESENTATION OF FINANCIAL STATEMENTS

IAS 1, Presentation of Financial Statements, has been amended to require entities to separate items presented in OCI into two groups based on whether or not items may be recycled in the future. Entities
that choose to present OCI items before tax will be required to show the amount of tax related to the two groups separately. The amendment is effective for annual periods beginning on or after July 1, 2012, with earlier application permitted.

AMENDMENTS TO OTHER STANDARDS

In addition, there have been amendments to existing standards, including IAS 27, Separate Financial Statements (IAS 27), and IAS 28, Investments in
Associates and Joint Ventures (IAS 28). IAS 27 addresses accounting for subsidiaries, jointly controlled entities and associates in non-consolidated financial statements. IAS 28 has been amended to include joint ventures in its scope and to address
the changes in IFRS 10 to 13.

IFRS 7FINANCIAL INSTRUMENTS DISCLOSURES

IFRS 7 requires disclosure of both gross and net information about financial instruments eligible for offset in the balance sheet and financial instruments subject to masternetting arrangements.
Concurrent with the amendments to IFRS 7, the IASB also amended IAS 32, Financial Instruments: Presentation to clarify the existing requirements for offsetting financial instruments in the balance sheet. The amendments to IAS 32 are
effective as of January 1, 2014.



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CONTROLS AND PROCEDURES

EVALUATION OF THE EFFECTIVENESS OF DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROL OVER FINANCIAL REPORTING

The Corporations President and Chief Executive Officer and the Vice-President and Chief Financial Officer have designed, or caused to be designed under their supervision, disclosure controls and
procedures (DC&P) and internal controls over financial reporting (ICOFR) as defined in National Instrument 52-109 Certification of Disclosure in Issuers Annual and Interim Filings in order to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with IFRS. They have limited the scope of their design of disclosure controls and procedures and internal control over financial
reporting to exclude controls, policies and procedures of Reno de Medici S.p.A. (RdM). The design and evaluation of the operating effectiveness of RdMs disclosure controls and procedures and internal control over financial
reporting will be completed within a 12-month period from the date of acquisition.

Audited financial information pertaining to RdM and
included in the Corporations audited consolidated financial statements as at December 31, 2011, is as follows:



|                                                          |  |  |     |  
|--------------------------------------------------------- |  |  | --- | -
|For the 9-month period ended December 31, 2011, unaudited |  |  |    
|Results of RdM:                                           |  |  |     |  
|Sales                                                     |  |  | 526 |  
|Cost of sales and expenses                                |  |  | 507 |  
|Depreciation and amortization                             |  |  | 28  |  
|Operating loss                                            |  |  | (9  | )
|Financing expense                                         |  |  | 5   |  
|Loss before income tax and other                          |  |  | (14 | )
|Recovery of income tax                                    |  |  | (7  | )
|Share of results of associates and joint ventures         |  |  | (1  | )
|                                                          |  |  |     |  
|Net loss                                                  |  |  | (8  | )
|                                                          |  |  |     |  



|                                                          |  |  |     |  
|--------------------------------------------------------- |  |  | --- | -
|For the 9-month period ended December 31, 2011, unaudited |  |  |    
|Cash flows from RdM:                                      |  |  |     |  
|Cash flows generated (used) from:                         |  |  |     |  
|Operating activities                                      |  |  | 39  |  
|Investing activities                                      |  |  | (19 | )
|Financing activities                                      |  |  | (16 | )
|                                                          |  |  |     |  
|Total                                                     |  |  | 4   |  
|                                                          |  |  |     |  



|                                   |  |  |     | 
|---------------------------------- |  |  | --- | 
|As at December 31, 2011, unaudited |  |  |    
|Balance sheet of RdM:              |  |  |     | 
|Current assets                     |  |  | 237 | 
|Long-term assets                   |  |  | 325 | 
|Current liabilities                |  |  | 240 | 
|Long-term liabilities              |  |  | 134 | 
|Non-controlling interest           |  |  | 108 | 
|                                   |  |  |     | 

Further details on this acquisition are disclosed in note 6 of the Corporations consolidated financial statements.

Subject to the limitation hereinabove mentioned, the DC&P have been designed to provide reasonable assurance that material information
relating to the Corporation is made known to the President and Chief Executive Officer and the Vice-President and Chief Financial Officer by others and that information required to be disclosed by the Corporation in its annual filings, interim
filings or other reports filed or submitted by the Corporation under securities legislation is recorded, processed, summarized and



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---

reported within the time periods specified in securities legislation. The President and Chief Executive Officer and the Vice-President and Chief Financial Officer have evaluated the effectiveness
of the Corporations disclosure controls and procedures related to the preparation of Managements discussion and analysis and the consolidated financial statements. They have concluded that the design and operation of disclosure controls
were effective as at December 31, 2011.

The President and Chief Executive Officer and the Vice-President and Chief Financial Officer
have assessed the effectiveness of ICOFR as at December 31, 2011 based on the framework established in the Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based
on this assessment, they have concluded that the Corporations internal control over financial reporting was effective as at December 31, 2011 and expect to certify the Corporations annual filings with the U.S Securities and Exchange
Commission on Form 40-F, as required by the United States Sarbanes Oxley Act.

No changes were made to the Corporations internal
controls over financial reporting during the quarter ended December 31, 2011, that have materially affected, or are reasonably likely to materially affect, its ICOFR.

RISK FACTORS

As part of its ongoing business operations, the Corporation is exposed to
certain market risks, including risks ensuing from changes in selling prices for its principal products, costs of raw materials, interest rates and foreign currency exchange rates, all of which impact the Corporations financial position,
operating results and cash flows. The Corporation manages its exposure to these and other market risks through regular operating and financing activities and, on a limited basis, through the use of derivative financial instruments. We use these
derivative financial instruments as risk management tools, not for speculative investment purposes. The following is a discussion of key areas of business risks and uncertainties that we have identified, and our mitigating strategies. The risk areas
below are listed in no particular order, as risks are evaluated based on both severity and probability. Readers are cautioned that the following is not an exhaustive list of all the risks we are exposed to, nor will our mitigation strategies
eliminate all risks listed.



|a) | The markets for some of the Corporations products tend to be cyclical in nature and prices for some of its products, as well as raw materials and energy costs,
may fluctuate significantly, which can adversely affect its business, operating results, profitability and financial position.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The markets for some of the Corporations products, particularly containerboard and boxboard, are highly cyclical. As a result, prices for these types of products and for its two principal raw
materials, recycled paper and virgin fibre, have fluctuated significantly in the past and will likely continue to fluctuate significantly in the future, principally due to market imbalances between supply and demand. Demand is heavily influenced by
the strength of the global economy and the countries or regions in which Cascades does business, particularly Canada and the United States, the Corporations two primary markets. Demand is also influenced by fluctuations in inventory levels
held by customers and consumer preferences. Supply depends primarily on industry capacity and capacity utilization rates. In periods of economic weakness, reduced spending by consumers and businesses results in decreased demand, which can
potentially cause downward price pressure. Industry participants may also, at times, add new capacity or increase capacity utilization rates, potentially causing supply to exceed demand and exerting downward price pressure. Depending on market
conditions and related demand, Cascades may have to take market-related downtime. In addition, the Corporation may not be able to maintain current prices or implement additional price increases in the future. If Cascades is not able to do so, its
revenues, profitability and cash flows could be adversely affected. In addition, other participants may introduce new capacity or increase capacity utilization rates, which could also adversely affect the Corporations business, operating
results and financial position. Prices for recycled and virgin fibre also fluctuate considerably. The costs of these materials present a potential risk to the Corporations profit margins, in



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the event that it is unable to pass along price increases to its customers on a timely basis. Although changes in the price of recycled fibre generally correlate with changes in the price of
products made from recycled paper, this may not always be the case. If Cascades wasnt able to implement increases in the selling prices for its products to compensate for increases in the price of recycled or virgin fibre, the
Corporations profitability and cash flows would be adversely affected. In addition, Cascades uses energy, mainly natural gas and fuel oil, to generate steam, which it then uses in the production process and to operate machinery. Energy prices,
particularly for natural gas and fuel oil, have continued to remain very volatile. Cascades continues to evaluate its energy costs and consider ways to factor energy costs into its pricing. However, if energy prices were to increase, the
Corporations production costs, competitive position and operating results would be adversely affected. A substantial increase in energy costs would adversely affect the Corporations operating results and could have broader market
implications that could further adversely affect the Corporations business or financial results.

To mitigate price risk, our strategies
include the use of various derivative financial instrument transactions, whereby it sets the price for notional quantities of old corrugated containers, electricity and natural gas.

Additional information on our North American raw material, electricity and natural gas hedging programs as at December 31, 2011, is set out below:

North American Finished Products and Raw Materials Hedging



|                                                                     |  |                          |              |    |                    |     |             |  
|-------------------------------------------------------------------- |  | ------------------------ | ------------ | -- | ------------------ | --- | ----------- | -
|                                                                     |  | Old corrugatedcontainers |              |    | Sorted officepaper |    
|Quantity hedge                                                       |  |                          | 160,000 s.t. |    |                    |     | 14,500 s.t. |  
|% of annual consumption hedged                                       |  |                          | 7            | %  |                    |     | 4           | %
|Average prices                                                       |  | US$                      | 120/s.t.     |    |                    | US$ | 187/s.t.    |  
|Fair value as at December 31, 2011 (in millions of Canadian dollars) |  |                          | (0.8         | )1 |                    |     | (0.1        | )



|1 | Based on various indexes.
|- | -------------------------

North American
Electricity Hedging



|                                                                     |  |               |          |   |        |   |           |  
|-------------------------------------------------------------------- |  | ------------- | -------- | - | ------ | - | --------- | -
|                                                                     |  | United States |          |   | Canada |  
|Electricity consumption                                              |  |               | 28       | % |        |   | 72        | %
|Electricity consumption in a regulated market                        |  |               | 53       | % |        |   | 76        | %
|% of consumption hedged in a deregulated market (2012)               |  |               | 36       | % |        |   | 23        | %
|Average prices (20122014)                                           |  | US$           | 0.41/KWh |   |        | $ | 0.039/KWh |  
|Fair value as at December 31, 2011 (in millions of Canadian dollars) |  |               | (0.7     | ) |        |   | (1.5      | )

North American Natural Gas Hedging



|                                                                     |  |               |            |   |        |   |         |  
|-------------------------------------------------------------------- |  | ------------- | ---------- | - | ------ | - | ------- | -
|                                                                     |  | United States |            |   | Canada |  
|Natural gas consumption                                              |  |               | 37         | % |        |   | 63      | %
|% of consumption hedged (2012)                                       |  |               | 62         | % |        |   | 44      | %
|Average prices (20122017)                                           |  | US$           | 5.99/mmBtu |   |        | $ | 5.28/GJ |  
|Fair value as at December 31, 2011 (in millions of Canadian dollars) |  |               | (10.2      | ) |        |   | (21.1   | )



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

The markets for the Corporations products are highly competitive. In some of its markets in which Cascades competes, particularly in tissue and boxboard, it competes with a small number of other
producers. In some businesses, such as the containerboard industry, competition tends to be global. In others, such as the tissue industry, competition tends to be regional. In the Corporations packaging products segment, it also faces
competition from alternative packaging materials, such as vinyl, plastic and styrofoam, which can lead to excess capacity, decreased demand and pricing pressures. Competition in the Corporations markets is primarily based on price as well as
customer service and the quality, breadth and performance characteristics of its products. The Corporations ability to compete successfully depends on a variety of factors, including:



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| |  | its ability to maintain high plant efficiencies, operating rates and lower manufacturing costs;
|- |  | -----------------------------------------------------------------------------------------------



| |  | the availability, quality and cost of raw materials, particularly recycled and virgin fibre, and labour; and
|- |  | ------------------------------------------------------------------------------------------------------------



| |  | the cost of energy.
|- |  | -------------------

Some
of the Corporations competitors may, at times, have lower fibre, energy and labour costs, and less restrictive environmental and governmental regulations to comply with than Cascades does. For example, fully integrated manufacturers, which are
those whose requirements for pulp or other fibre are met fully from their internal sources, may have some competitive advantages over manufacturers that are not fully integrated, such as Cascades, in periods of relatively high raw materials pricing,
in that the former are able to ensure a steady source of these raw materials at costs that may be lower than prices in the prevailing market. In contrast, competitors that are less integrated than Cascades may have cost advantages in periods of
relatively low pulp or fibre prices because they may be able to purchase pulp or fibre at prices lower than the costs the Corporation incurs in the production process. Other competitors may be larger in size or scope than Cascades is, which may
allow them to achieve greater economies of scale on a global basis or allow them to better withstand periods of declining prices and adverse operating conditions. In addition, there has been an increasing trend among the Corporations customers
towards consolidation. With fewer customers in the market for the Corporations products, the strength of its negotiating position with these customers could be weakened, which could have an adverse effect on its pricing, margins and
profitability.

To mitigate competition risk, Cascades targets are to offer quality products that meet customers needs at
competitive prices and to provide good customer service.



|c) | Because of the Corporations international operations, it faces political, social and exchange rate risks that can negatively affect its business, operating
results, profitability and financial condition.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Cascades has customers and operations located outside Canada. In 2011,
sales outside Canada represented approximately 60% of the Corporations consolidated sales, including 37% to the United States. In 2011, 29% of sales from Canadian operations were made to the United States.

The Corporations international operations present it with a number of risks and challenges, including:



| |  | the effective marketing of its products in other countries;
|- |  | -----------------------------------------------------------



| |  | tariffs and other trade barriers; and
|- |  | -------------------------------------



| |  | different regulatory schemes and political environments applicable to the Corporations operations, in areas such as environmental and health and
safety compliance.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

In addition, the Corporations consolidated financial statements are reported in Canadian dollars,
while a portion of its sales is made in other currencies, primarily the U.S. dollar and the euro. The appreciation of the Canadian dollar against the U.S. dollar over the last few years has adversely affected the Corporations reported
operating results and financial condition. This had a direct impact on export prices and also contributed to reducing Canadian dollar prices in Canada, because several of the Corporations product lines are priced in U.S. dollars. However, a
substantial portion of the Corporations debt is also denominated in currencies other than the Canadian dollar.

The Corporation has
senior notes outstanding and also some borrowings under its credit facility that are denominated in U.S. dollars and in euros in the amount of US$809 million and 98 million respectively.

Moreover, in some cases, the currency of the Corporations sales does not match the currency in which it incurs costs, which can negatively affect
the Corporations profitability. Fluctuations in exchange rates can also affect the relative competitive position of a particular facility, where the facility faces competition from non-local producers, as well as the Corporations ability
to successfully market its products in export markets. As a result, the continuing appreciation of the Canadian dollar can affect the profitability of the Corporations facilities, which could lead Cascades to shut down facilities either
temporarily or permanently, all of which could adversely affect its business or financial results.



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To mitigate the risk of currency rises from future commercial transactions, recognized assets and
liabilities and net investments in foreign operations, which are partially covered by purchases and debt, management has implemented a policy for managing foreign exchange risk against the relevant functional currency.

The Corporation uses various foreign-exchange forward contracts and related currency option instruments to anticipate sales net of purchases, interest
expenses and debt repayment. Gains or losses from the derivative financial instruments designated as hedges are recorded under Accumulated other comprehensive income and are reclassified under earnings in accordance with the hedge items.

Additional information on our North American foreign exchange hedging program is set out below:

North American foreign exchange hedging1



|                                                                     |  |      |        |   |      |  |        |      |  |  |        |   |  |  |        |  
|-------------------------------------------------------------------- |  | ---- | ------ | - | ---- |  | ------ | ---- |  |  | ------ | - |  |  | ------ | -
|Sell contracts and options:                                          |  | 2012 |        |   | 2013 |  |        | 2013 |  |  | 2017   |  
|Total amount in millions of U.S. dollars                             |  |      | 66     |   |      |  | 20     |      |  |  | 324    |   |  |  | 200    |  
|Estimated % of Sales, net of expenses from Canadian operations       |  |      | 25     | % |      |  | 8      | %    |  |  | n/a    |   |  |  | n/a    |  
|Estimated % of US$ denominated debt                                  |  |      | n/a    |   |      |  | n/a    |      |  |  | n/a    |   |  |  | 27     | %
|Average rate (CAN$)                                                  |  |      | 1.0305 |   |      |  | 1.0250 |      |  |  | 1.1930 |   |  |  | 0.9987 |  
|                                                                     |  |      |        |   |      |  |        |      |  |  |        |   |  |  |        |  
|Fair value as at December 31, 2011 (in millions of Canadian dollars) |  |      | 0.7    |   |      |  | 0.0    |      |  |  | (44.1  | ) |  |  | (7.6   | )
|                                                                     |  |      |        |   |      |  |        |      |  |  |        |   |  |  |        |  



|1 | See note 27 of the consolidated financial statements for more details on derivatives.
|- | -------------------------------------------------------------------------------------



|d) | The Corporations operations are subject to comprehensive environmental regulations and involve expenditures that may be material in relation to its operating
cash flow.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The Corporation is subject to environmental laws and regulations imposed by the various governments and
regulatory authorities in all countries in which it operates. These environmental laws and regulations impose stringent standards on the Corporation regarding, among other things:



| |  | air emissions;
|- |  | --------------



| |  | water discharges;
|- |  | -----------------



| |  | use and handling of hazardous materials;
|- |  | ----------------------------------------



| |  | use, handling and disposal of waste; and
|- |  | ----------------------------------------



| |  | remediation of environmental contamination.
|- |  | -------------------------------------------

The Corporation is also subject to the U.S. Federal Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) as well as to other applicable legislation in the United
States, Canada and Europe that holds companies accountable for the investigation and remediation of hazardous substances. The Corporations European subsidiaries are also subject to the Kyoto protocol, aimed at reducing worldwide CO2emissions. Each unit has been allocated emission rights (CO2quota). On a calendar-year basis, the Corporation must buy the
necessary credits to cover its deficit, on the open market, if its emissions are higher than quota.

The Corporations failure to comply
with applicable environmental laws, regulations or permit requirements may result in civil or criminal fines, penalties or enforcement actions. These may include regulatory or judicial orders enjoining or curtailing operations or requiring
corrective measures, the installation of pollution control equipment or remedial actions, any of which could entail significant expenditures. It is difficult to predict the future development of such laws and regulations, or their impact on future
earnings and operations, but these laws and regulations may require capital expenditures to ensure compliance. In addition, amendments to, or more stringent implementation of, current laws and regulations governing the Corporations operations
could have a material adverse effect on its business, operating results or financial position. Furthermore, although Cascades generally tries to plan for capital expenditures relating to environmental and health and safety compliance on an annual
basis, actual capital expenditures may exceed those estimates. In such an event, Cascades may be forced to curtail other capital expenditures or other activities. In addition, the enforcement of existing environmental laws and regulations has become
increasingly strict. The Corporation may discover currently unknown environmental problems or conditions in relation to its past or present operations, or may face unforeseen environmental liabilities in the future. These conditions and liabilities
may:



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|CASCADES      2011 ANNUAL REPORT      MANAGEMENTS DISCUSSION & ANALYSIS |  |  | 38 | 



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| |  | require site remediation or other costs to maintain compliance or correct violations of environmental laws and regulations; or
|- |  | ------------------------------------------------------------------------------------------------------------------------------



| |  | result in governmental or private claims for damage to person, property or the environment.
|- |  | -------------------------------------------------------------------------------------------

Either of these could have a material adverse effect on the Corporations financial condition or operating results.

Cascades may be subject to strict liability and, under specific circumstances, joint and several (solidary) liability for the investigation and
remediation of soil, surface and groundwater contamination, including contamination caused by other parties, at properties that it owns or operates, and at properties where the Corporation or its predecessors have arranged for the disposal of
regulated materials. As a result, the Corporation is involved from time to time in administrative and judicial proceedings and inquiries relating to environmental matters. The Corporation may become involved in additional proceedings in the future,
the total amount of future costs and other environmental liabilities of which could be material.

To date, the Corporation is in compliance,
in all material respects, with all applicable environmental legislation or regulations. However, we expect to incur ongoing capital and operating expenses in order to achieve and maintain compliance with applicable environmental requirements.



|e) | Cascades may be subject to losses that might not be covered in whole or in part by its insurance coverage.
|-- | ----------------------------------------------------------------------------------------------------------

Cascades carries comprehensive liability, fire and extended coverage insurance on most of its facilities, with policy specifications and insured limits
customarily carried in its industry for similar properties. The cost of the Corporations insurance policies has increased over the past few years. In addition, some types of losses, such as losses resulting from wars, acts of terrorism or
natural disasters, are generally not insured because they are either uninsurable or not economically practical. Moreover, insurers have recently become more reluctant to insure against these types of events. Should an uninsured loss or a loss in
excess of insured limits occur, Cascades could lose capital invested in that property, as well as the anticipated future revenues derived from the manufacturing activities conducted at that property, while remaining obligated for any mortgage
indebtedness or other financial obligations related to the property. Any such loss could adversely affect its business, operating results or financial condition.

To mitigate the risk subject to insurance coverage, the Corporation reviews its strategy annually with the Board of Directors and is seeking different alternatives to achieve more efficient forms of
insurance coverage, at the lowest costs possible.



|f) | Labour disputes could have a material adverse effect on the Corporations cost structure and ability to run its mills and plants.
|-- | ---------------------------------------------------------------------------------------------------------------------------------

As at December 31, 2011, the Corporation had approximately 12,150 employees, of whom approximately 10,000 were employees of its Canadian and United
States operations. Approximately 43% of the Corporations employees are unionized under 43 separate collective bargaining agreements. In addition, in Europe, some of the Corporations operations are subject to national industry collective
bargaining agreements that are renewed on an annual basis. The Corporations inability to negotiate acceptable contracts with these unions upon expiration of an existing contract could result in strikes or work stoppages by the affected workers
and increased operating costs as a result of higher wages or benefits paid to union members. If the unionized workers were to engage in a strike or another form of work stoppage, Cascades could experience a significant disruption in operations or
higher labour costs, which could have a material adverse effect on its business, financial condition, operating results and cash flow. Of the Corporations 43 collective bargaining agreements in North America, 15 will expire in 2012 and 7 more
in 2013. The Corporation generally begins the negotiation process several months before agreements are due to expire and is currently in the process of negotiating with the unions where the agreements have expired or will soon expire. However,
Cascades may not be successful in negotiating new agreements on satisfactory terms, if at all.



|g) | Cascades may make investments in entities that it does not control and may not receive dividends or returns from those investments in a timely fashion or at all.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



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Cascades has established joint ventures and made minority interest investments to increase its vertical
integration, enhance customer service and increase efficiencies in its marketing and distribution in the United States and other markets. The Corporations principal joint ventures and minority investments include:



| |  | three 50%-owned joint ventures with Sonoco Products Corporation, two of which are in Canada and one in the United States, that produce specialty paper
packaging products such as headers, rolls and wrappers;
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | a 73%-owned interest in Cascades Recovery Inc., a Canadian operator of wastepaper recovery and recycling operations;
|- |  | --------------------------------------------------------------------------------------------------------------------



| |  | a 35% interest in Boralex Inc., a Canadian public corporation and a major electricity producer whose core business is the development and operation of
power stations that generate renewable energy, with operations in Canada, the northeastern United States and France; and
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | a 44.31%-owned joint venture interest in RdM, a European manufacturer of recycled boxboard.
|- |  | -------------------------------------------------------------------------------------------

Apart from Cascades Recovery, Cascades does not have effective control over these entities. The Corporations inability to control entities in which
it invests may affect its ability to receive distributions from those entities or to fully implement its business plan. The incurrence of debt or entrance into other agreements by an entity not under the Corporations control may result in
restrictions or prohibitions on that entitys ability to pay distributions to the Corporation. Even where these entities are not restricted by contract or by law from paying dividends or making distributions to Cascades, the Corporation may not
be able to influence the making or timing of these dividends or distributions. In addition, if any of the other investors in a non-controlled entity fails to observe its commitments, the entity may not be able to operate according to its business
plan or Cascades may be required to increase its level of commitment. If any of these events were to transpire, the Corporations business, operating results, financial condition and ability to make payments on the Notes could be adversely
affected.

In addition, the Corporation has entered into various shareholder agreements relating to its joint ventures and equity investments.
Some of these agreements contain shotgun provisions, which provide that if one shareholder offers to buy all the shares owned by the other parties to the agreement, the other parties must either accept the offer or purchase all the
shares owned by the offering shareholder at the same price and conditions. Some of the agreements also provide that in the event that a shareholder is subject to bankruptcy proceedings or otherwise defaults on any indebtedness, the non-defaulting
parties to that agreement are entitled to invoke the shotgun provision or sell their shares to a third party. The Corporations ability to purchase the other shareholders interests in these joint ventures if they were to exercise these
shotgun provisions could be limited by the covenants in the Corporations credit facility and the indenture. In addition, Cascades may not have sufficient funds to accept the offer or the ability to raise adequate financing should the need
arise, which could result in the Corporation having to sell its interests in these entities or otherwise alter its business plan.

On
September 13, 2007, we entered into a Combination Agreement with RdM, a publicly traded Italian corporation that is the second largest recycled boxboard producer in Europe. The Combination Agreement was amended on June 12, 2009. It
provides, among other things, that RdM and Cascades are granted an irrevocable call option or put option, respectively, to purchase two European virgin boxboard mills of Cascades (the Virgin Assets). RdM may exercise its call option 120
days after delivery of Virgin Assets Financials for the year ended December 31, 2011, by Cascades to RdM. Cascades may exercise its put option 120 days after delivery of Virgin Assets Financials for the year ended December 31, 2012, by
Cascades to RdM. The call option price shall be equal to 6.5 times the 2011 audited EBITDA of the Virgin Assets as per the Virgin Assets Financials at December 31, 2011. The put option price shall be equal to 6 times the 2012 audited EBITDA of
the Virgin Assets as per the Virgin Assets Financials for the year ended December 31, 2012. Cascades Europe is also granted the right to require that all of the call option price or put option price, as the case may be, be paid in newly issued
ordinary shares of RdM.

In 2010, the Corporation entered into a put and call agreement with Industria E Innovazione (Industria)
whereby Cascades has the option to buy 9.07% of the shares of RdM (100% of the shares held by Industria) for 0.43 per share between March 1, 2011 and December 31, 2012. Industria also has the option to require the Corporation to
purchase its shares for 0.41 per share between January 1, 2013 and March 31, 2014.



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|h) | Acquisitions have been and are expected to continue to be a substantial part of the Corporations growth strategy, which could expose the Corporation to
difficulties in integrating the acquired operation, diversion of management time and resources, and unforeseen liabilities, among other business risks.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Acquisitions have been a significant part of the Corporations growth strategy. Cascades expects to continue to selectively seek strategic acquisitions in the future. The Corporations ability
to consummate and to integrate effectively any future acquisitions on terms that are favourable to it may be limited by the number of attractive acquisition targets, internal demands on its resources and, to the extent necessary, its ability to
obtain financing on satisfactory terms, if at all. Acquisitions may expose the Corporation to additional risks, including:



| |  | difficulty in integrating and managing newly acquired operations and in improving their operating efficiency;
|- |  | -------------------------------------------------------------------------------------------------------------



| |  | difficulty in maintaining uniform standards, controls, procedures and policies across all of the Corporations businesses;
|- |  | --------------------------------------------------------------------------------------------------------------------------



| |  | entry into markets in which Cascades has little or no direct prior experience;
|- |  | ------------------------------------------------------------------------------



| |  | the Corporations ability to retain key employees of the acquired Corporation;
|- |  | ------------------------------------------------------------------------------



| |  | disruptions to the Corporations ongoing business; and
|- |  | ------------------------------------------------------



| |  | diversion of management time and resources.
|- |  | -------------------------------------------

In addition, future acquisitions could result in Cascades incurring additional debt to finance the acquisition or possibly assuming additional debt as part of it, as well as costs, contingent liabilities
and amortization expenses. The Corporation may also incur costs and divert management attention for potential acquisitions that are never consummated. For acquisitions Cascades does consummate, expected synergies may not materialize. The
Corporations failure to effectively address any of these issues could adversely affect its operating results, financial condition and ability to service debt, including its outstanding senior notes.

Although Cascades generally performs a due diligence investigation of the businesses or assets that it acquires, and anticipates continuing to do so for
future acquisitions, the acquired business or assets may have liabilities that Cascades fails or is unable to uncover during its due diligence investigation and for which the Corporation, as a successor owner, may be responsible. When feasible, the
Corporation seeks to minimize the impact of these types of potential liabilities by obtaining indemnities and warranties from the seller, which may in some instances be supported by deferring payment of a portion of the purchase price. However,
these indemnities and warranties, if obtained, may not fully cover the liabilities because of their limited scope, amount or duration, the financial resources of the indemnitor or warrantor, or other reasons.



|i) | The Corporation undertakes impairment tests, which could result in a write-down of the value of assets and, as a result, have a material adverse effect.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------

IFRS requires that Cascades regularly undertake impairment tests of long-lived assets and goodwill to determine whether a
write-down of such assets is required. A write-down of asset value as a result of impairment tests would result in a non-cash charge that reduces the Corporations reported earnings. Further, a reduction in the Corporations asset value
could have a material adverse effect on the Corporations compliance with total debt to capitalization tests under its current credit facilities and, as a result, limit its ability to access further debt capital.



|j) | Certain Cascades insiders collectively own a substantial percentage of the Corporations common shares.
|-- | -------------------------------------------------------------------------------------------------------

Messrs. Bernard, Laurent and Alain Lemaire (the Lemaires) collectively own 33.1% of the common shares (94,647,165), and there may be
situations in which their interests and the interests of other holders of common shares will not be aligned. Because the Corporations remaining common shares are widely held, the Lemaires may be effectively able to:



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| |  | elect all of the Corporations directors and, as a result, control matters requiring Board approval;
|- |  | ----------------------------------------------------------------------------------------------------



| |  | control matters submitted to a shareholder vote, including mergers, acquisitions and consolidations with third parties, and the sale of all or
substantially all of the Corporations assets; and
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | otherwise control or influence the Corporations business direction and policies.
|- |  | ---------------------------------------------------------------------------------

In addition, the Lemaires may have interests in pursuing acquisitions, divestitures or other transactions that, in their judgment, could enhance the
value of their equity investment, even though the transactions might involve increased risk to the holders of the common shares.



|k) | If Cascades is not successful in retaining or replacing its key personnel, particularly if the Lemaires do not stay active in the Corporations business, its
business, financial condition or operating results could be adversely affected.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The Lemaires are key to the
Corporations management and direction. Although Cascades believes that the Lemaires will remain active in the business and that Cascades will continue to be able to attract and retain other talented personnel and replace key personnel should
the need arise, competition in recruiting replacement personnel could be significant. However, the appointment of Mario Plourde, in February 2011, as new Chief Operating Officer (COO) is a part of the transition process. The new COO has more than 25
years of seniority within the Corporation. Cascades does not carry key man insurance on the Lemaires or any other members of its senior management.



|l) | Risks relating to the Corporations indebtedness and liquidity.
|-- | ---------------------------------------------------------------

The significant amount of the Corporations debt could adversely affect its financial health and prevent it from fulfilling its obligations under its outstanding indebtedness. The
Corporation has a significant amount of debt. As of December 31, 2011, it had $1.497 billion in outstanding debt on a consolidated basis, including capital-lease obligations. The Corporation also had approximately $540 million available under
its revolving credit facility and those of its subsidiaries. On the same basis, its consolidated ratio of total debt to capitalization as of December 31, 2011, was 59.3%. The Corporations actual financing expense for 2011 was $100
million. Cascades also has significant obligations under operating leases, as described in its audited consolidated financial statements that are incorporated by reference herein.

On February 10, 2011, the Corporation entered into an agreement to amend and extend, for 4 years, its existing bank credit agreement. Under the terms of the amendment, the existing financial
covenants will remain unchanged. As a result of the amendment, the interest rate applicable to borrowings outstanding will be reduced from 2.750% to 2.125%. Also, the amendment did not include the renewal of the term loan in the amount of $100
million as it was repaid in full on December 30, 2010.

In 2009, the Corporation refinanced a portion of its long-term debt to extend its
maturity profile from 2013 to 2016, 2017 and 2020.

The Corporation has outstanding senior notes rated by Moodys Investor Service
(Moodys) and Standard & Poors (S&P).

The following table reflects the Corporations
secured debt rating/corporate rating/unsecured debt rating as at the date on which this MD&A was approved by the Board of Directors, and the evolution of these ratings compared to past years:



|                        |  |                         |  |                        
|----------------------- |  | ----------------------- |  | -----------------------
|Credit Rating (outlook) |  | Moodys                 |  | Standard & Poors      
|                        |  |                        
|2004                    |  | Ba1/Ba2/Ba3 (stable)    |  | BBB-/BB+/BB+ (negative)
|                        |  |                        
|20052006               |  | Ba1/Ba2/Ba3 (stable)    |  | BB+/BB/BB-(negative)   
|                        |  |                        
|2007                    |  | Baa3/Ba2/Ba3 (stable)   |  | BBB-/BB/BB-(stable)    
|                        |  |                        
|2008                    |  | Baa3/Ba2/Ba3 (negative) |  | BB+/BB-/B+ (negative)  
|                        |  |                        
|20092010               |  | Baa3/Ba2/Ba3 (stable)   |  | BB+/BB-/B+ (stable)    
|                        |  |                        
|2011                    |  | Baa3/Ba2/Ba3 (stable)   |  | BB+/BB-/B+ (positive)  



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This facility is in place with a core group of highly rated international banks. The Corporation may decide
to enter into certain derivative instruments to reduce interest rates and foreign exchange exposure.

The Corporations leverage could
have major consequences for holders of its common shares. For example, it could:



| |  |  | make it more difficult for the Corporation to satisfy its obligations with respect to its indebtedness;
| | - |  | -------------------------------------------------------------------------------------------------------



| |  |  | increase the Corporations vulnerability to competitive pressures and to general adverse economic or market conditions and require it to dedicate
a substantial portion of its cash flow from operations to servicing debt, reducing the availability of its cash flow to fund working capital, capital expenditures, acquisitions and other general corporate purposes;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | limit its flexibility in planning for, or reacting to, changes in its business and industry; and
| | - |  | ------------------------------------------------------------------------------------------------



| |  |  | limit its ability to obtain additional sources of financing.
| | - |  | ------------------------------------------------------------

Cascades may incur additional debt in the future, which would intensify the risks it now faces as a result of its leverage as described above. Even
though we are substantially leveraged, we and our subsidiaries will be able to incur substantial additional indebtedness in the future. Although our credit facility and the indentures governing the notes restrict us and our restricted subsidiaries
from incurring additional debt, these restrictions are subject to important exceptions and qualifications. If we or our subsidiaries incur additional debt, the risks that we and they now face as a result of our leverage could intensify.

The Corporations operations are substantially restricted by the terms of its debt, which could limit its ability to plan for or react
to market conditions, or to meet its capital needs. The Corporations credit facilities and the indenture governing its senior notes include a number of significant restrictive covenants. These covenants restrict, among other
things, the Corporations ability to:



| |  |  | borrow money;
| | - |  | -------------



| |  |  | pay dividends on stock or redeem stock or subordinated debt;
| | - |  | ------------------------------------------------------------



| |  |  | make investments;
| | - |  | -----------------



| |  |  | sell capital stock in subsidiaries;
| | - |  | -----------------------------------



| |  |  | guarantee other indebtedness;
| | - |  | -----------------------------



| |  |  | enter into agreements that restrict dividends or other distributions from restricted subsidiaries;
| | - |  | --------------------------------------------------------------------------------------------------



| |  |  | enter into transactions with affiliates;
| | - |  | ----------------------------------------



| |  |  | create or assume liens;
| | - |  | -----------------------



| |  |  | enter into sale and leaseback transactions;
| | - |  | -------------------------------------------



| |  |  | engage in mergers or consolidations; and
| | - |  | ----------------------------------------



| |  |  | enter into a sale of all or substantially all of our assets.
| | - |  | ------------------------------------------------------------

These covenants could limit the Corporations ability to plan for or react to market conditions, or to meet its capital needs. The Corporations current credit facility contains other, more
restrictive covenants, including financial covenants that require it to achieve certain financial and operating results and maintain compliance with specified financial ratios. The Corporations ability to comply with these covenants and
requirements may be affected by events beyond its control, and it may have to curtail some of its operations and growth plans to maintain compliance.

The restrictive covenants contained in the Corporations senior note indenture along with the Corporations credit facility do not apply to its joint ventures. However, for financial reporting
purposes, Cascades consolidates these entities results and financial position based on its proportionate ownership interest.

The
Corporations failure to comply with the covenants contained in its credit facility or its senior note indenture, including as a result of events beyond its control or due to other factors, could result in an event of default that could cause
accelerated repayment of the debt. If Cascades is not able to comply with the covenants and other requirements contained in the indenture, its credit facility or its other debt instruments, an event of default under the relevant debt
instrument could occur. If an event of default does occur, it could trigger a default under its other debt instruments, Cascades could be prohibited from accessing additional borrowings and the holders of the defaulted debt could declare amounts
outstanding with respect to that debt, which would then be immediately due and payable. The Corporations assets



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|CASCADES      2011 ANNUAL REPORT      MANAGEMENTS DISCUSSION & ANALYSIS |  |  | 43 | 



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and cash flow may not be sufficient to fully repay borrowings under its outstanding debt instruments. In addition, the Corporation may not be able to refinance or restructure the payments on the
applicable debt. Even if the Corporation were able to secure additional financing, it may not be available on favourable terms. A significant or prolonged downtime in general business and difficult economic conditions may affect the
Corporations ability to comply with its covenants and could require it to take actions to reduce its debt or to act in a manner contrary to its current business objectives.



|m) | Cascades is a holding corporation and depends on its subsidiaries to generate sufficient cash flow to meet its debt service obligations.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------

Cascades is structured as a holding corporation, and its only significant assets are the capital stock or other equity
interests in its subsidiaries, joint ventures and minority investments. As a holding corporation, Cascades conducts substantially all of its business through these entities. Consequently, the Corporations cash flow and ability to service its
debt obligations are dependent on the earnings of its subsidiaries, joint ventures and minority investments, and the distribution of those earnings to Cascades, or on loans, advances or other payments made by these entities to Cascades. The ability
of these entities to pay dividends or make other payments or advances to Cascades will depend on their operating results and will be subject to applicable laws and contractual restrictions contained in the instruments governing their debt. In the
case of the Corporations joint ventures and minority investments, Cascades may not exercise sufficient control to cause distributions to itself. Although its credit facility and the indenture respectively limit the ability of its restricted
subsidiaries to enter into consensual restrictions on their ability to pay dividends and make other payments to the Corporation, these limitations do not apply to its joint ventures or minority investments. The limitations are also subject to
important exceptions and qualifications. The ability of the Corporations subsidiaries to generate cash flow from operations that is sufficient to allow the Corporation to make scheduled payments on its debt obligations will depend on their
future financial performance, which will be affected by a range of economic, competitive and business factors, many of which are outside of the Corporations control. If the Corporations subsidiaries do not generate sufficient cash flow
from operations to satisfy the Corporations debt obligations, Cascades may have to undertake alternative financing plans, such as refinancing or restructuring its debt, selling assets, reducing or delaying capital investments or seeking to
raise additional capital. Refinancing may not be possible, and any assets may not be able to be sold, or, if they are sold, Cascades may not realize sufficient amounts from those sales. Additional financing may not be available on acceptable terms,
if at all, or the Corporation may be prohibited from incurring it, if available, under the terms of its various debt instruments in effect at the time. The Corporations inability to generate sufficient cash flow to satisfy its debt
obligations, or to refinance its obligations on commercially reasonable terms, would have an adverse effect on its business, financial condition and operating results. The earnings of the Corporations operating subsidiaries and the amount that
they are able to distribute to the Corporation as dividends or otherwise may not be adequate for the Corporation to service its debt obligations.



|n) | Risks related to the common shares.
|-- | -----------------------------------

The market price of the common shares may fluctuate, and purchasers may not be able to resell the common shares at or above the purchase
price. The market price of the common shares may fluctuate due to a variety of factors relative to the Corporations business, including announcements of new developments, fluctuations in the Corporations operating results, sales
of the common shares in the marketplace, failure to meet analysts expectations, general conditions in all of our segments, or the worldwide economy. In recent years, the common shares, the stock of other companies operating in the same sectors
and the stock market in general have experienced significant price fluctuations, which have been unrelated to the operating performance of the affected companies. There can be no assurance that the market price of the common shares will not continue
to experience significant fluctuations in the future, including fluctuations that are unrelated to the Corporations performance.



|o) | Cash-flow and fair-value interest rate risks.
|-- | ---------------------------------------------

As the Corporation has no significant interest-bearing assets, its earnings and operating cash flows are substantially independent of changes in market interest rates.



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|CASCADES      2011 ANNUAL REPORT      MANAGEMENTS DISCUSSION & ANALYSIS |  |  | 44 | 



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The Corporations interest rate risk arises from long-term borrowings. Borrowings issued at variable rates expose the Corporation to a cash-flow interest rate risk. Borrowings issued at a
fixed rate expose the Corporation to a fair-value interest rate risk.



|p) | Credit risk.
|-- | ------------

Credit risk arises from
cash and cash equivalents, derivative financial instruments and deposits with banks and financial institutions. The Corporation reduces this risk by dealing with creditworthy financial institutions.

The Corporation is exposed to credit risk on accounts receivable from its customers. In order to reduce this risk, the Corporations credit policies
include the analysis of a customers financial position and a regular review of its credit limits. The Corporation also believes that no particular concentration of credit risks exists due to the geographic diversity of its customers and the
procedures in place for managing commercial risks. Derivative financial instruments include an element of credit risk, should the counterparty be unable to meet its obligations.



|q) | Enterprise Resource Planning (ERP) implementation.
|-- | --------------------------------------------------

The Corporation decided to modernize its financial information system with the implementation of an integrated Enterprise Resource Planning (ERP) system. The Corporation identified the risks associated
with said project and adopted a step-by-step plan to address any risks related to the implementation process. The Corporation dedicated a project team and required corporate oversight with the appropriate skills and knowledge and retained the
services of consultants to provide expertise and training. Supported by senior management and key personnel, the Corporation undertook a detailed analysis of its requirements during 2010, and in November of 2010 successfully completed a pilot
project in one of its plant. The project team has finalized a detailed blueprint for its manufacturing operations and implemented the solution in one of its Tissue Group units at the beginning of November 2011. The project team is continuing to
review the blueprint and programming related to its converting operations and to evaluate its deployment strategy for the coming years, including the human and capital resources required for the project.



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