Cascades reports Fourth quarter and Full Year 2010 results

KINGSEY FALLS, QC, Feb. 24 /CNW Telbec/ - Cascades Inc. (TSX: CAS), a leader in the recovery of recyclable materials and the manufacturing of green packaging and tissue paper products, announces its unaudited financial results for the three-month period and the fiscal year ended December 31, 2010.

(All amounts in this press release are in Canadian dollars unless otherwise indicated.)

    <<
    Fiscal year highlights
    ----------------------

    - Good profitability despite average costs of recycled fibre and pulp
      being at historical highs and the strong Canadian dollar.
    - Total shipments up 6% compared to 2009 (excluding the impact of
      acquisitions).
    - Free cash flow(1) of $72 million and net debt down $84 million in
      comparison to 2009. Debt-to-capitalization ratio at its lowest level in
      6 years.
    - Net earnings per share excluding specific items of $0.65 compared to
      $1.13 in 2009. Including specific items, net earnings per share of
      $0.18 compared to $0.61 in 2009.
    - Operating income before depreciation and amortization (EBITDA)
      excluding specific items of $398 million compared to $465 million in
      2009 and $306 million in 2008.

    Fourth quarter highlights
    -------------------------

    - Net earnings per share excluding specific items of $0.14 compared to
      $0.29 in the previous quarter and $0.27 in the same period of last
      year. Including specific items, net loss per share of $0.35 compared to
      net earnings of $0.31 in the previous quarter and a net loss of $0.42
      in the corresponding period of last year.
    - EBITDA excluding specific items of $98 million compared to $110 million
      in Q4 2009.
    - Free cash flow1 of $45 million and net debt down $67 million in
      comparison to the previous quarter.

    Recent developments
    -------------------

    - Appointment of Mario Plourde as Chief Operating Officer.
    - Sale of the Avot-Vallée, France, white-top linerboard mill.
    - Amendment and renewal of the credit agreement with improved financing
      conditions. Consolidation of the existing revolving and term credit
      facilities into a new $750 million revolving credit facility maturing
      in February 2015.


    ----------------
    (1) Cascades defines free cash flow as cash flow provided by operating
        activities less purchases of property, plant and equipment, increase
        in other assets and dividends and share buybacks.


    Financial Summary
    -----------------

    Selected consolidated
     information (unaudited)
                               ----------------  ----------------------------
    (in millions of Canadian
     dollars, except amounts
     per share)                 2010      2009   Q4/2010   Q4/2009   Q3/2010
    -------------------------------------------------------------------------
    Sales                      3,959     3,877       991       952     1,028
    Excluding specific
     items(1)
      Operating income
       before depreciation
       and amortization
       (OIBD or EBITDA)          398       465        98       110       115
      Operating income           186       247        45        54        62
      Net earnings                63       110        14        26        28
        per common share       $0.65     $1.13     $0.14     $0.27     $0.29
      Cash flow from
       operations (adjusted)     260       327        65        77        83
    As reported
    Operating income before
     depreciation and
     amortization
     (OIBD or EBITDA)(1)         334       432        40        70       111
    Operating income (loss)      122       214       (13)       14        58
    Net earnings (loss)           17        60       (34)      (41)       30
      per common share         $0.18     $0.61    $(0.35)   $(0.42)    $0.31
    Cash flow from
     operations (adjusted)(1)    249       305        58        62        82
    -------------------------------------------  ----------------------------
    Note 1 - see the supplemental information on non-GAAP measures.
    >>

Commenting on the annual and fourth quarter results, Mr. Alain Lemaire, President and Chief Executive Officer stated: "Overall, we delivered solid results considering the strong headwinds we faced. In 2010, the cost of recycled fibres and pulp reached a new historical peak and the Canadian dollar averaged its highest value since 1976. Despite these negative factors, we continued to progress and posted our second-highest adjusted net earnings in the past 8 years. We also returned $20 million to our shareholders through dividends and share buybacks and, aligned with one of our main financial objectives, we generated more than $70 million in free cash flow to pay down debt. All in all, this performance clearly demonstrates the positive impact of our various strategic initiatives, our efforts in innovation, sales and marketing as well as our cost reduction and restructuring measures."

    <<
    Results analysis for the three-month period ended December 31, 2010
    -------------------------------------------------------------------
    (compared to the previous year)
    -------------------------------
    >>

In comparison with the same period last year, sales rose by 4% to $991 million resulting from higher selling prices, business acquisitions and a 1% increase in shipments (excluding the impact of acquisitions). This was partly offset by the 4% appreciation of the Canadian dollar.

The operating income excluding specific items amounted to $45 million compared to $54 million in Q4 2009. Higher volumes and selling prices were more than offset by the rise of raw material costs and the Canadian dollar. On a segmented basis, results of our containerboard segment improved while our other packaging and tissue segments posted weaker profitability. When including specific items, the operating loss amounted to $13 million in comparison to an operating income of $14 million in the same period of last year.

In the fourth quarter of 2010, these specific items impacted our operating income and/or net earnings (before tax):

    <<
    - a $48 million impairment loss (impact on operating income and net
      earnings);
    - a $10 million loss on disposal and others (impact on operating income
      and net earnings);
    - a $5 million foreign exchange loss on long-term debt and financial
      instruments (impact on net earnings);
    - a $1 million net loss from discontinued operations (impact on net
      earnings).
    >>

For further details, see the two following tables on GAAP and non-GAAP measures reconciliation.

Net earnings excluding specific items amounted to $14 million ($0.14 per share) in the fourth quarter of 2010 compared to $26 million ($0.27 per share) for the same period of last year. The financing expense was slightly higher than in Q4 2009 while the recovery of income taxes was lower. Including specific items, the net loss amounted to $34 million ($0.35 per share) compared to $41 million ($0.42 per share) for the same quarter in 2009.

As a result of the appreciation of the Canadian dollar and free cash flow generation, net debt decreased by $84 million compared to December 31st 2009.

    <<
    Results analysis for the three-month period ended December 31, 2010
    -------------------------------------------------------------------
    (compared to the previous quarter)
    ----------------------------------
    >>

In comparison to the previous quarter, sales decreased mostly due to the usual lower seasonal demand and the appreciation of the Canadian dollar. Operating income and net earnings also declined as a result of the previous factors combined with the rise of raw material and energy costs and an unfavourable sales mix in some of our sectors.

    <<
    Results analysis for the fiscal year ended December 31, 2010
    ------------------------------------------------------------
    >>

In comparison to last year, sales increased by 2% to $4 billion reflecting improved selling prices, business acquisitions as well as a 6% increase in shipments (excluding the impact of acquisitions) which more than offset the negative impact of a stronger Canadian dollar.

The operating income from continuing operations excluding specific items decreased to $186 million compared to $247 million last year mainly as a result of higher raw material and the appreciation of the Canadian dollar. These elements more than counterbalanced the impact of improved volumes and efficiency as well as better selling prices. On a segmented basis, results of our containerboard and specialty products segments improved while the profitability of our boxboard and tissue papers sectors declined. Operating income from continuing operations including specific items decreased by $92 million to $122 million.

For the fiscal year ended December 31, 2010, net earnings excluding specific items amounted to $63 million ($0.65 per share) compared to net earnings of $110 million ($1.13 per share) last year. Including specific items, net earnings reached $17 million ($0.18 per share) compared to $60 million ($0.61 per share) in 2009.

    <<
    Near-term outlook
    -----------------
    >>

Mr. Alain Lemaire, President and Chief Executive Officer added: "Looking ahead to the first quarter, demand should remain healthy and even slightly improve along with seasonality. High raw material costs and the strong Canadian dollar will however continue to put pressure on our profitability.

For 2011, we are well positioned to continue delivering good earnings and free cash flow as we should benefit from the ongoing economic recovery and the several selling price increases that were implemented in the previous year. In addition, our recently announced divestiture and refinancing will have a positive impact on our financing expenses and free cash flow and allow us to strategically invest in the development of our core packaging, tissue and recovery operations."

    <<
    Dividend on common shares and normal course issuer bid
    ------------------------------------------------------
    >>

The Board of Directors of Cascades declared a quarterly dividend of $0.04 per share to be paid March 25, 2011 to shareholders of record at the close of business on March 11, 2011. This dividend paid by Cascades is an "eligible dividend" as per the Income Tax Act (Bill C-28, Canada). In 2010, Cascades purchased for cancellation 638,181 shares at an average price of $7.17 representing an aggregate amount of approximately $4.6 million.

    <<
    International Financial Reporting Standards
    -------------------------------------------
    >>

In February 2008, the Accounting Standards Board ("AcSB") confirmed that the use of International Financial Reporting Standards ("IFRS") will replace Canadian Generally Accepted Accounting Principles ("GAAP") in 2011 for publicly accountable profit-oriented enterprises. The transition from current Canadian GAAP to IFRS will be applicable to the Company for the fiscal year beginning on January 1, 2011. The Company's first IFRS financial statements will be for the year ending December 31, 2011 including comparative figures and the opening balance sheet as at January 1, 2010. Beginning in the first quarter of 2011, the Company will provide unaudited consolidated financial statements in accordance with IFRS, also including the opening balance sheet as at the transition date and comparative figures for 2010.

The conversion to IFRS will impact the way the Company discloses its financial results. The first financial statements prepared using IFRS will require the inclusion of numerous notes disclosing extensive transitional information and full disclosure of all new IFRS accounting policies. The Company has prepared preliminary IFRS financial statements in accordance with IAS 1, Presentation of Financial Statements. Also, quarterly IFRS financial statements have been prepared in accordance with IAS 34, Interim Financial Reporting, and IFRS 1, First-time Adoption of International Financial Reporting Standards, and are currently under review by our auditors.

In its 2010 annual report, which should be available in the last week of March 2011, Cascades will disclose the highlights of the initial adjustments required to be made on adoption of IFRS in order to provide an opening balance sheet and the significant accounting policies required or expected to be applied by us subsequent to adoption that will be significantly different from our current accounting policies. When the annual report will be available, Cascades might also hold a conference call to discuss the impact of adoption of IFRS.

    <<
    Supplemental information on non-GAAP measures
    ---------------------------------------------
    >>

Operating income before depreciation and amortization, earnings before interests, taxes, depreciation and amortization, operating income and cash flow from operations are not measures of performance under Canadian GAAP. The Company includes operating income before depreciation and amortization, earnings before interests, taxes, depreciation and amortization, operating income and cash flow from operations because they are measures used by management to assess the operating and financial performance of the Company's operating segments. Additionally, the Company believes that these items provide additional measures often used by investors to assess a company's operating performance and its ability to meet debt service requirements. However, operating income before depreciation and amortization, earnings before interests, taxes, depreciation and amortization, operating income and cash flow from operations do not represent, and should not be used as a substitute for net earnings or cash flows from operating activities as determined in accordance with Canadian GAAP, and they are not necessarily an indication of whether cash flow will be sufficient to fund our cash requirements. In addition, our definition of operating income before depreciation and amortization, earnings before interests, taxes, depreciation and amortization, operating income and cash flow from operations may differ from those of other companies. Cash flow from operations is defined as cash flow from operating activities as determined in accordance with Canadian GAAP excluding the change in working capital components.

Operating income before depreciation and amortization excluding specific items, earnings before interests, taxes, depreciation and amortization excluding specific items, operating income excluding specific items, net earnings excluding specific items, net earnings per common share excluding specific items and cash flow from operations excluding specific items are non-GAAP measures. The Company believes that it is useful for investors to be aware of specific items that have adversely or positively affected its GAAP measures, and that the above mentioned non-GAAP measures provide investors with a measure of performance with which to compare its results between periods without regard to these specific items. The Company's measures excluding specific items have no standardized meaning prescribed by GAAP and are not necessarily comparable to similar measures presented by other companies and therefore should not be considered in isolation.

Specific items are defined to include charges for impairment of assets, charges for facility or machine closures, debt restructuring charges, gains or losses on sale of business unit, unrealized gains or losses on derivative financial instruments that do not qualify for hedge accounting, foreign exchange gains or losses on long-term debt and other significant items of an unusual or non-recurring nature.

Net earnings (loss), which is a performance measure defined by Canadian GAAP is reconciled below to operating income (loss), operating income excluding specific items and operating income before depreciation excluding specific items or earnings before interests, taxes, depreciation and amortization excluding specific items:

    <<
                               ----------------------------------------------
    (in millions of Canadian
     dollars)                   2010      2009   Q4/2010   Q4/2009   Q3/2010
    -------------------------------------------  ----------------------------

    Net earnings (loss)           17        60       (34)      (41)       30
    Net loss from
     discontinued operations       1         -         1         -         -
    Non-controlling interest       3        (1)        2         -         -
    Share of results of
     significantly influenced
     companies                   (15)      (17)       (2)       (7)      (11)
    Provision for (recovery
     of) income taxes              -        23       (12)      (16)        8
    Foreign exchange loss on
     long-term debt and
     financial instruments         4        45         5        37         4
    Gain on purchases of
     senior notes                  -       (14)        -         -         -
    Loss on long-term debt
     refinancing                   3        17         -        17         -
    Financing expense            109       101        27        24        27
                               ----------------  ----------------------------
    Operating income             122       214       (13)       14        58
    Specific items :
    Loss (gain) on disposal
     and others                   8          1        10         -        (2)
    Impairment loss              49         46        48        42         1
    Closure and restructuring
     costs                        1         12         -         2         1
    Unrealized loss (gain)
     on financial instruments     6        (26)        -        (4)        4
                               ----------------  ----------------------------
                                 64         33        58        40         4
                               ----------------  ----------------------------
    Operating income -
     excluding specific items   186        247        45        54        62
    Depreciation and
     amortization               212        218        53        56        53
                               ----------------  ----------------------------
    Operating income before
     depreciation and
     amortization (OIBD or
     EBITDA) - excluding
     specific items             398        465        98       110       115
    -------------------------------------------  ----------------------------
    >>

The following table reconciles net earnings (loss) and net earnings (loss) per share to net earnings excluding specific items and net earnings per share excluding specific items:

    <<
    ----------------------------------------------
    (in millions of Canadian
     dollars, except amounts                Net earnings (loss)
     per share)
    -------------------------------------------------------------------------
                                2010      2009   Q4/2010   Q4/2009   Q3/2010
                               ----------------  ----------------------------
    As per GAAP                   17        60       (34)      (41)       30
    Specific items :
    Loss (gain) on disposal
     and others                    8         1        10         -        (2)
    Impairment loss               49        46        48        42         1
    Closure and
     restructuring costs           1        12         -         2         1
    Unrealized loss (gain)
     on financial instruments      6       (26)        -        (4)        4
    Loss on long-term debt
     refinancing                   3        17         -        17         -
    Gain on purchase of
     senior notes                  -       (14)        -         -         -
    Foreign exchange loss
     on long-term debt and
     financial instruments         4        45         5        37         4
    Share of results of
     significantly
     influenced companies         (9)       (5)        -        (3)       (9)
    Net loss from
     discontinued operations       1         -         1         -         -
    Adjustment of statutory
     tax rate                      -        (6)        -        (2)        -
    Tax effect on specific
     items                       (17)      (20)      (16)      (22)       (1)
                               ----------------  ----------------------------
                                  46        50        48        67        (2)
                               ----------------  ----------------------------
    Excluding specific items      63       110        14        26        28
    -------------------------------------------  ----------------------------


                              ----------------------------------------------
    (in millions of Canadian         Net earnings (loss) per share(1)
     dollars, except amounts
     per share)
    -------------------------------------------  ----------------------------
                                2010      2009   Q4/2010   Q4/2009   Q3/2010
                              ----------------  ----------------------------
    As per GAAP                $0.18     $0.61    $(0.35)   $(0.42)    $0.31
    Specific items :
    Loss (gain) on disposal
     and others                $0.06       $ -     $0.07       $ -    $(0.01)
    Impairment loss            $0.38     $0.35     $0.37     $0.32     $0.01
    Closure and
     restructuring costs       $0.01     $0.09       $ -     $0.02     $0.01
    Unrealized loss (gain)
     on financial instruments  $0.06    $(0.19)      $ -    $(0.03)    $0.04
    Loss on long-term debt
     refinancing               $0.02     $0.11       $ -     $0.11       $ -
    Gain on purchase of
     senior notes                $ -    $(0.13)      $ -       $ -       $ -
    Foreign exchange loss
     on long-term debt and
     financial instruments     $0.03     $0.40     $0.04     $0.32     $0.03
    Share of results of
     significantly
     influenced companies     $(0.10)   $(0.05)      $ -    $(0.03)   $(0.10)
    Net loss from
     discontinued operations   $0.01       $ -     $0.01       $ -       $ -
    Adjustment of statutory
     tax rate                    $ -    $(0.06)      $ -    $(0.02)      $ -
    Tax effect on specific
     items
                               ----------------  ----------------------------
                               $0.47     $0.52     $0.49     $0.69    $(0.02)
                               ----------------  ----------------------------
    Excluding specific items   $0.65     $1.13     $0.14     $0.27     $0.29
    -------------------------------------------  ----------------------------
    Note 1 - specific amounts per share are calculated on an after-tax basis.
    >>

The following table reconciles cash flow provided by operating activities to cash flow (adjusted) from operations excluding specific items:

    <<
                               ----------------------------------------------
                                          Cash flow from operations
                               ----------------------------------------------
    (in millions of Canadian
     dollars)                   2010      2009   Q4/2010   Q4/2009   Q3/2010
    -------------------------------------------------------------------------

    Cash flow provided by
     operating activities        232       357       103        91        73
    Changes in non-cash
     working capital
     components                   17       (52)      (45)      (29)        9
                               -----------------  ---------------------------
    Cash flow (adjusted)
     from operations             249       305        58        62        82
    Specific items, net of
     current income taxes :
    Loss on disposal and
     others                        7         1         7         -         -
    Loss on long-term debt
     refinancing                   3        13         -        13         -
    Closure and restructuring
     costs                         1         8         -         2         1
                               -----------------  ---------------------------
    Excluding specific items     260       327        65        77        83
    --------------------------------------------  ---------------------------
    >>

Founded in 1964, Cascades produces, converts and markets packaging and tissue products that are composed mainly of recycled fibres. The Company employs close to 12,500 employees, who work in more than 100 units located in North America and Europe. Its management philosophy, its more than 45 years of experience in recycling and its continued efforts in research and development are strengths that enable Cascades to create new products for its customers. Cascades' shares trade on the Toronto Stock Exchange, under the ticker symbol CAS.

Certain statements in this release, including statements regarding future results and performance, are forward-looking statements (as such term is defined under the Private Securities Litigation Reform Act of 1995) based on current expectations. The accuracy of such statements is subject to a number of risks, uncertainties and assumptions that may cause actual results to differ materially from those projected, including, but not limited to, the effect of general economic conditions, decreases in demand for the Company's products, increases in raw material costs, fluctuations in selling prices and adverse changes in general market and industry conditions and other factors listed in the Company's Securities and Exchange Commission filings.

    <<
    Consolidated Balance Sheets
    (in millions of Canadian dollars)

                                                         As at         As at
                                                   December 31,  December 31,
                                                          2010          2009
                                                   --------------------------
    Assets                                          (unaudited)

    Current assets
    Cash and cash equivalents                               10            19
    Accounts receivable                                    589           543
    Inventories                                            534           520
    -------------------------------------------------------------------------
                                                         1,133         1,082
    Property, plant and equipment                        1,777         1,912
    Intangible assets                                      150           165
    Other assets                                           350           317
    Goodwill                                               314           316
    -------------------------------------------------------------------------
                                                         3,724         3,792
                                                   --------------------------
                                                   --------------------------
    Liabilities and Equity

    Current liabilities
    Bank loans and advances                                 64            83
    Accounts payable and accrued liabilities               578           505
    Current portion of long-term debt                       12            10
    -------------------------------------------------------------------------
                                                           654           598
    Long-term debt                                       1,383         1,459
    Other liabilities                                      406           410
    -------------------------------------------------------------------------
                                                         2,443         2,467
                                                   --------------------------

    Equity attributable to Shareholders
    Capital stock                                          496           499
    Contributed surplus                                     14            14
    Retained earnings                                      701           700
    Accumulated other comprehensive income                  46            91
    -------------------------------------------------------------------------
                                                         1,257         1,304
    Non-controlling interest                                24            21
    -------------------------------------------------------------------------
    Total equity                                         1,281         1,325
    -------------------------------------------------------------------------

                                                         3,724         3,792
                                                   --------------------------
                                                   --------------------------


    Consolidated Statements of Earnings (Loss)
    (in millions of Canadian dollars, except per share amounts and
     number of shares)
    (unaudited)

                                        For the
                                    3-month periods          For the years
                                   ended December 31,      ended December 31,
                                    2010        2009        2010        2009
                              -----------------------------------------------
    Sales                            991         952       3,959       3,877
    Cost of sales and expenses
    Cost of sales (excluding
     depreciation and
     amortization)                   802         737       3,173       2,991
    Depreciation and amortization     53          56         212         218
    Selling and administrative
     expenses                         97         104         395         413
    Losses on disposal and
     others                           10           -           8           1
    Impairment and other
     restructuring costs              48          44          50          58
    Gain on financial
     instruments                      (6)         (3)         (1)        (18)
    -------------------------------------------------------------------------
                                   1,004         938       3,837       3,663
    -------------------------------------------------------------------------
    Operating income (loss)          (13)         14         122         214

    Financing expense                 27          24         109         101
    Loss on refinancing of
     long-term debt                    -          17           3          17
    Gain on purchase of senior
     notes                             -           -           -         (14)
    Foreign exchange loss on
     long-term debt and
     financial instruments             5          37           4          45
    -------------------------------------------------------------------------
                                     (45)        (64)          6          65
    Provision for (recovery of)
     income taxes                    (12)        (16)          -          23
    Share of results of
     significantly influenced
     companies                        (2)         (7)        (15)        (17)
    -------------------------------------------------------------------------
    Net earnings (loss) from
     continuing operations
     including non-controlling
     interest for the period
                                     (31)        (41)         21          59
    Net loss from discontinued
     operations                       (1)          -          (1)          -
    -------------------------------------------------------------------------
    Net earnings (loss)
     including non-controlling
     interest for the period
                                     (32)        (41)         20          59
    Less : Non-controlling
     interest income (loss)            2           -           3          (1)
    -------------------------------------------------------------------------
    Net earnings (loss)
     attributable to
     Shareholders for the
     period                          (34)        (41)         17          60
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Net earnings (loss) from
     continuing operations per
     common share
    Basic                         ($0.34)     ($0.42)      $0.18       $0.61
                              -----------------------------------------------
                              -----------------------------------------------
    Diluted                       ($0.34)     ($0.42)      $0.18       $0.60
                              -----------------------------------------------
                              -----------------------------------------------
    Net earnings (loss) per
     common share
    Basic                         ($0.35)     ($0.42)      $0.18       $0.61
                              -----------------------------------------------
                              -----------------------------------------------
    Diluted                       ($0.35)     ($0.42)      $0.18       $0.60
                              -----------------------------------------------
                              -----------------------------------------------
    Weighted average
     number of common
     shares outstanding       96,608,106  97,283,958  96,807,032  97,656,412
                              -----------------------------------------------
                              -----------------------------------------------


    Consolidated Statements of Comprehensive Income (Loss)
    (in millions of Canadian dollars)
    (unaudited)
                                        For the
                                    3-month periods          For the years
                                   ended December 31,      ended December 31,

                                    2010        2009        2010        2009
                              -----------------------------------------------
    Net earnings (loss)
     including non-controlling
     interest for the period         (32)        (41)         20          59
                              -----------------------------------------------
    Other comprehensive
     income (loss)
    Translation adjustments
      Change in foreign
       currency translation
       of self-sustaining
       foreign subsidiaries          (32)        (23)        (53)       (128)
      Change in foreign
       currency translation
       related to hedging
       activities                     19          14          28          87
      Income taxes                    (2)         (2)         (4)        (12)
    Cash flow hedges
      Change in fair value
       of foreign exchange
       forward contracts              (2)         35          (1)         87
      Change in fair value
       of interest rate
      swaps agreements                 3           -           -           -
      Change in fair value
       of commodity derivative
      financial instruments            3          (1)        (21)         (2)
      Income taxes                    (1)         (9)          6         (26)
                              -----------------------------------------------
                                     (12)         14         (45)          6
                              -----------------------------------------------
    Comprehensive income
     (loss) including
     non-controlling interest
     for the period                  (44)        (27)        (25)         65
                              -----------------------------------------------
    Less: Comprehensive income
     (loss) attributable to
     non-controlling interest          2           -           3          (1)
                              -----------------------------------------------
    Comprehensive income
     (loss) attributable to
     Shareholders                    (46)        (27)        (28)         66
                              -----------------------------------------------
                              -----------------------------------------------


    Consolidated Statements of Equity
    (in millions of Canadian dollars)

                                              For the year ended December 31,
                                                                        2010
               --------------------------------------------------------------
                                                                  (unaudited)
                                                     Total
                                             Accu-  equity
                                          mulated  attribu-     Non-
                                      Re-   other    table  control-
                         Contri-  tained-  compre-      to     ling
               Capital    buted      ear- hensive    Share-    inte-   Total
                 stock  surplus    nings   income  holders     rest   equity
               --------------------------------------------------------------
    Balance -
     Beginning
     of year       499       14      700       91    1,304       21    1,325
    Net
     earnings
     for the
     year            -        -       17        -       17        3       20
    Other
     compre-
     hensive
     income
     (loss)          -        -        -      (45)     (45)       -      (45)
    Dividends        -        -      (16)       -      (16)       -      (16)
    Stock
     options         -        1        -        -        1        -        1
    Redemption
     of common
     shares         (3)      (1)       -        -       (4)       -       (4)
               --------------------------------------------------------------
    Balance -
     End of
     year          496       14      701       46    1,257       24    1,281
               --------------------------------------------------------------
               --------------------------------------------------------------


                                              For the year ended December 31,
                                                                        2009
               --------------------------------------------------------------
                                                     Total
                                             Accu-  equity
                                          mulated  attribu-     Non-
                                      Re-   other    table  control-
                         Contri-  tained-  compre-      to     ling
               Capital    buted      ear- hensive    Share-    inte-   Total
                 stock  surplus    nings   income  holders     rest   equity
               --------------------------------------------------------------
    Balance -
     Beginning
     of year       506        9      656       85    1,256       22    1,278
    Net
     earnings
     (loss)
     for the
     year            -        -       60        -       60       (1)      59
    Other
     compre-
     hensive
     income          -        -        -        6        6        -        6
    Dividends        -        -      (16)       -      (16)       -      (16)
    Stock
     options         -        2        -        -        2        -        2
    Redemption
     of common
     shares         (7)       3        -        -       (4)       -       (4)
               --------------------------------------------------------------
    Balance -
     End of
     year          499       14      700       91    1,304       21    1,325
               --------------------------------------------------------------
               --------------------------------------------------------------


    Consolidated Statements of Cash Flows
    (in millions of Canadian dollars)
    (unaudited)
                                        For the
                                    3-month periods          For the years
                                   ended December 31,      ended December 31,
                              -----------------------------------------------
                                    2010        2009        2010        2009
                              -----------------------------------------------
    OPERATING ACTIVITIES FROM
     CONTINUING OPERATIONS
    Net earnings (loss)
     attributable to
     Shareholders for the
     period                          (34)        (41)         17          60
    Net loss from discontinued
     operations                        1           -           1           -
    -------------------------------------------------------------------------
    Net earnings (loss) from
     continuing operations           (33)        (41)         18          60
    Adjustments for
      Depreciation and
       amortization                   53          56         212         218
      Losses on disposal and
       others                          3           -           1           1
      Impairment and other
       restructuring costs            48          42          49          50
      Unrealized loss (gain)
       on financial instruments        -          (4)          6         (26)
      Loss on refinancing of
       long-term debt                  -           4           -           4
      Gain on purchase of
       senior notes                    -           -           -         (14)
      Foreign exchange loss
       on long-term debt and
       financial instruments           5          37           4          45
      Future income taxes            (20)        (18)        (28)         (7)
      Share of results of
       significantly
       influenced companies,
       net of dividends
       received                        2          (7)        (11)        (17)
      Non-controlling interest         2           -           3          (1)
      Others                          (2)         (7)         (5)         (8)
    -------------------------------------------------------------------------
                                      58          62         249         305
    Change in non-cash working
     capital components               45          29         (17)         52
    -------------------------------------------------------------------------
                                     103          91         232         357
    -------------------------------------------------------------------------
    INVESTING ACTIVITIES FROM
     CONTINUING OPERATIONS
    Purchases of property,
     plant and equipment             (50)        (49)       (131)       (171)
    Increase in other assets         (10)         (8)        (37)        (17)
    Business acquisitions              -          (5)         (3)        (69)
    -------------------------------------------------------------------------
                                     (60)        (62)       (171)       (257)
    -------------------------------------------------------------------------
    FINANCING ACTIVITIES FROM
     CONTINUING OPERATIONS
    Bank loans and advances          (14)          4         (16)        (18)
    Change in revolving credit
     facilities                       68        (219)        243        (250)
    Issuance of senior notes,
     net of related expenses           -         955           -         955
    Purchase of senior notes           -        (761)       (165)       (779)
    Increase in other
     long-term debt                    1           -           1          27
    Payments of other
     long-term debt                 (103)         (4)       (109)        (12)
    Early settlement of
     foreign exchange
     contracts                         -           -           -           8
    Redemption of common
     shares                            -          (1)         (4)         (4)
    Dividends                         (4)         (4)        (16)        (16)
    -------------------------------------------------------------------------
                                     (52)        (30)        (66)        (89)
    -------------------------------------------------------------------------
    Change in cash and cash
     equivalents during the
     period from continuing
     operations
                                      (9)         (1)         (5)         11
    Change in cash and cash
     equivalents from
     discontinued operations          (1)          -          (3)         (3)
    -------------------------------------------------------------------------
    Net change in cash and
     cash equivalents during
     the period                      (10)         (1)         (8)          8
    Translation adjustments
     on cash and cash
     equivalents                      (1)          -          (1)          -
    Cash and cash equivalents
     - Beginning of period            21          20          19          11
    -------------------------------------------------------------------------
    Cash and cash equivalents
     - End of period                  10          19          10          19
                              -----------------------------------------------
    >>

Selected Segmented Information

(in millions of Canadian dollars)

(unaudited)

In 2010, the Company has modified its segmented information disclosure for its Specialty Products segments in order to reflect how management analyses this information. The Specialty Products segment is divided into four subsectors: Industrial packaging, Consumer packaging, Specialty papers and Recovery and recycling. The Company has reclassified comparative figures to conform to the presentation adopted.

    <<
                                        For the
                                    3-month periods          For the years
                                   ended December 31,      ended December 31,
                              -----------------------------------------------
                                    2010        2009        2010        2009
                              -----------------------------------------------
    Sales

    Packaging products
      Boxboard
        Manufacturing                189         178         727         706
        Converting                   158         160         633         692
        Intersegment sales           (20)        (18)        (85)        (85)
                              -----------------------------------------------
                                     327         320       1,275       1,313
      Containerboard
        Manufacturing                147         124         584         517
        Converting                   201         204         839         856
        Intersegment sales           (80)        (76)       (337)       (311)
                              -----------------------------------------------
                                     268         252       1,086       1,062
      Specialty products
        Industrial packaging          49          47         195         184
        Consumer packaging            19          20          77          82
        Specialty papers              71          73         301         312
        Recovery and recycling        90          62         318         199
        Intersegment sales            (4)         (2)        (11)         (8)
                              -----------------------------------------------
                                     225         200         880         769

        Intersegment sales           (30)        (22)       (115)        (67)
                              -----------------------------------------------
                                     790         750       3,126       3,077
    Tissue papers
      Manufacturing and
       converting                    213         212         858         840

    Intersegment sales and
     others                          (12)        (10)        (25)        (40)
    -------------------------------------------------------------------------
    Total                            991         952       3,959       3,877
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                        For the
                                    3-month periods          For the years
                                   ended December 31,      ended December 31,
                              -----------------------------------------------
                                    2010        2009        2010        2009
                              -----------------------------------------------
    Operating income (loss)
     before depreciation
     and amortization

    Packaging products
      Boxboard
        Manufacturing                  2          14          32          48
        Converting                     8          17          58          59
        Others                        (3)        (37)        (13)        (40)
                              -----------------------------------------------
                                       7          (6)         77          67
      Containerboard
        Manufacturing                 (5)         10          49          91
        Converting                    11          16          82          56
        Others                         6           3           3          (2)
                              -----------------------------------------------
                                      12          29         134         145
      Specialty products
        Industrial packaging
        Consumer packaging             5           5          25          20
        Specialty papers               1           2           6          11
        Recovery and recycling        (1)          7          14          37
        Others                         7           3          26           6
                                      (1)          1          (1)          -
                              -----------------------------------------------
                                      11          18          70          74

                              -----------------------------------------------

                                      30          41         281         286
    Tissue papers
      Manufacturing and
       converting                     17          34          84         153

    Corporate                         (7)         (5)        (31)        (7)
    -------------------------------------------------------------------------
    Operating income before
     depreciation and
     amortization                     40          70         334         432
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Depreciation and
     amortization
      Boxboard                       (15)        (18)        (59)        (75)
      Containerboard                 (17)        (15)        (71)        (63)
      Specialty products              (8)         (9)        (34)        (34)
      Tissue papers                  (10)        (10)        (41)        (37)
      Corporate and
       eliminations                   (3)         (4)         (7)         (9)
                              -----------------------------------------------
                                     (53)        (56)       (212)       (218)
                              -----------------------------------------------
    Operating income (loss)          (13)         14         122         214
    -------------------------------------------------------------------------


                                        For the
                                    3-month periods          For the years
                                   ended December 31,      ended December 31,
                              -----------------------------------------------
                                    2010        2009        2010        2009
                              -----------------------------------------------
    Purchases of property,
     plant and equipment

    Packaging products
      Boxboard
        Manufacturing                  7          10          18          30
        Converting                     6           6          16          29
                              -----------------------------------------------
                                      13          16          34          59
      Containerboard
        Manufacturing                  5           5          15          15
        Converting                     4           9          16          16
                              -----------------------------------------------
                                       9          14          31          31
      Specialty products
        Industrial packaging           1           -           2           1
        Consumer packaging             1           2           5           4
        Specialty papers              10           6          15          12
        Recovery and recycling         6           2           9          16
                              -----------------------------------------------
                                      18          10          31          33

                              -----------------------------------------------
                                      40          40          96         123
    Tissue papers
      Manufacturing and
       converting                     13           5          36          33

    Corporate                          3           7          17          20
    -------------------------------------------------------------------------
    Total purchases                   56          52         149         176

    Disposal of property,
     plant and equipment               -          (1)         (7)         (6)
    Acquisition under
     capital-lease agreement           -           -          (4)          -
    -------------------------------------------------------------------------
                                      56          51         138         170

    Purchases of property,
     plant and equipment
     included in accounts
     payable
        Beginning of period           14          11          13          14
        End of period                (20)        (13)        (20)        (13)
    -------------------------------------------------------------------------
    Total investing activities        50          49         131         171
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    >>

SOURCE CASCADES INC.

For further information: Media: Hubert Bolduc, Vice-President, Communications and Public Affairs, 514 912-3790; Investors: Didier Filion, Director, Investor relations, 514 282-2697; Source: Allan Hogg, Vice-President and Chief Financial Officer

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CASCADES INC.

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