Cascades reports First quarter 2011 results in accordance with IFRS

KINGSEY FALLS, QC, May 12 /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 financial results for the three-month period ended March 31, 2011.

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    Financial highlights
    --------------------

    - Financial results of 2011 and comparative figures of 2010 were prepared
      using accounting policies within the framework of International
      Financial Reporting Standards (IFRS).
    - Improving sales compared to the first quarter of 2010.
    - As expected, results reflect the unfavourable seasonality as well as
      the significant and rapid inflation of input costs and the Canadian
      dollar in the past 6 months.
    - Net earnings per share excluding specific items of $(0.01) compared
      to net earnings of $0.04 in the same period of last year. Including
      specific items, net loss per share of $(0.08) compared to net earnings
      of $0.01 in the corresponding period of last year.
    - Operating income before depreciation and amortization (EBITDA)
      excluding specific items of $37 million compared to $59 million in the
      first quarter of 2010. Including the discontinued operations and our
      share of results of associates and of joint ventures, EBITDA would
      have been $57 million in Q1 2011.

    Strategic initiatives
    ---------------------

    - The conclusion of the divestiture of Dopaco, Cascades' paper cup and
      carton converting business for the quick-service restaurant and
      foodservice industries, for US$400 million was announced on May 2,
      2011.
      The results of these activities were reclassified as discontinued
      operations in 2011 as well as in the comparative figures.
    - Increased ownership of Reno De Medici.
    - Start-up of a completely rebuilt tissue machine to produce Premium and
      Ultra quality tissue papers with a lower environmental footprint.
    - Divestiture of the Avot-Vallée, France, white-top linerboard mill.
    - Announcement of the consolidation of corrugated box operations in New
      England.

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

    (in millions of Canadian dollars,     ----------------------------------
     except amounts per share)               Q1/2011     Q1/2010     Q4/2010
    ------------------------------------------------------------------------
    Sales                                        774         759         783
    Excluding specific items (1)
      Operating income before depreciation
       and amortization (OIBD or EBITDA)          37          59          72
      Operating income                             1          19          34
      Net earnings                                 1           4          17
        per common share                       $0.01       $0.04       $0.17
      Cash flow from operations (adjusted)        15          43          41
    As reported
    Operating income before depreciation
     and amortization (OIBD or EBITDA) (1)        30          59          45
    Operating income (loss)                       (6)         19           7
    Net earnings (loss)                           (8)          1         (12)
      per common share                        $(0.08)      $0.01      $(0.12)
    Cash flow from operations (adjusted) (1)      15          40          41
    ------------------------------------------------------------------------
    Note 1 - see the supplemental information on non-IFRS measures.
    >>

Commenting on the first quarter results, Mr. Alain Lemaire, President and Chief Executive Officer stated: "Our first quarter results, while expected given the rising cost of waste paper and the appreciation of the Canadian dollar, are not acceptable. As we have demonstrated in recent years, we can and will adjust quickly. Recently, we have taken significant steps to improve our financial position through the disposition of non core or underperforming assets and cost cutting programs throughout the Company. These initiatives will be stepped up as we continue in our efforts to equip Cascades to meet these challenges."

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    Results analysis for the three-month period ended March 31, 2011
    ----------------------------------------------------------------
    (compared to the previous year, reflecting the adoption of IFRS and
    -------------------------------------------------------------------
    discontinued operations)
    ------------------------
    >>

In comparison with the same period last year, sales rose by 2% to $774 million as of result of higher selling prices partly offset by the 6% appreciation of the Canadian dollar and the impact of the divestiture of one our containerboard mills.

The operating income, excluding specific items, amounted to $1 million compared to $19 million in Q1 2010. Improved selling prices were unfortunately offset by the rise of all main variable costs, namely recycled fibre, pulp, energy, chemical products and freight, and again, the appreciation of the Canadian dollar. On a segmented basis, although all groups benefited from better prices and healthy operating rates, each sector posted weaker profitability due the rapid and sizeable run-up in variable costs. When including specific items, the operating loss amounted to $6 million in comparison to an operating income of $19 million in the same period of last year.

In the first quarter of 2011, these specific items impacted our operating income and/or net earnings (before tax):

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    - $3 million in closure and restructuring costs (impact on operating
      income and net earnings);
    - a $2 million unrealized loss on financial instruments (impact on
      operating income and net earnings);
    - a $1 million impairment loss (impact on operating income and net
      earnings);
    - a $1 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 gain included in discontinued operations (impact on net
      earnings).
    >>

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

Net earnings excluding specific items amounted to $1 million ($0.01 per share) in the first quarter of 2011 compared to net earnings of $4 million ($0.04 per share) for the same period of last year. Including specific items, the net loss amounted to $8 million ($0.08 per share) compared to net earnings of $1 million ($0.01 per share) for the same quarter in 2010. Financing and depreciation expenses were slightly lower while the recovery of income taxes and the share of results of associates and joint ventures were higher than in 2010.

As a result of lower profitability and the normal seasonal build-up in working capital, net debt increased to $1,445 million. This however does not take into account the impact of the divestiture of Dopaco, which occurred on May 2, 2011, for a net proceed of US$337 million.

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    Results analysis for the three-month period ended March 31, 2011
    ----------------------------------------------------------------
    (compared to the previous quarter, reflecting the adoption of IFRS and
    ----------------------------------------------------------------------
    discontinued operations)
    ------------------------
    >>

In comparison to the previous quarter, sales decreased mostly due the appreciation of the Canadian dollar and the impact of the divestiture of one our containerboard mills. Operating income and net earnings mainly declined as a result of the rise of input costs and the Canadian dollar. In the previous quarter, our operating income was also positively impacted by a $2 million change to the post-retirement benefits at one of our units and a $4 million positive property tax credit adjustment from prior years.

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

Mr. Alain Lemaire, President and Chief Executive Officer added: "Looking ahead to the second quarter, demand should continue and even slightly improve along with seasonality. In addition, selling price hikes are being implemented or announced for the months ahead in our boxboard, specialty products and tissue paper segments. Elevated input costs and the strong Canadian dollar should however continue to put pressure on our profitability.

With regards to the second half of the year, we anticipate an upturn in results in large measure due to restructuring initiatives, improved operating rates and efficiency, as well as price increases throughout most of our sectors."

Moreover, as recently disclosed, our ownership in Reno De Medici S.p.A. ("RDM") now stands at 41%. In addition to our stake, we also have a call option over RDM shares by virtue of which we are entitled to acquire up to a maximum 9.07% of its current corporate capital. Considering these facts, starting in the second quarter of 2011, our consolidated figures will include those of RDM at 100% and net results will be reported net of non-controlling interests.

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    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 June 9, 2011 to shareholders of record at the close of business on May 26, 2011. This dividend paid by Cascades is an "eligible dividend" as per the Income Tax Act (Bill C-28, Canada). In the first quarter of 2011, Cascades purchased for cancellation 173,863 shares at an average price of $7.20 representing an aggregate amount of approximately $1.3 million.

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    Transition to International Financial Reporting Standards (IFRS)
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    >>

All financial information, including comparative figures pertaining to Cascades' 2010 results, has been prepared in accordance with International Financial Reporting Standards (IFRS) contained within Part 1 of the Canadian Institute of Chartered Accountants Handbook. In previous periods, the Company 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). Comparative figures presented pertaining to Cascades' 2010 results have been restated to be in accordance with IFRS. A reconciliation of certain comparative figures from previous GAAP to IFRS is provided in the table below and the First Quarter results investor presentation. For further details, please refer to the investor presentation on the impact of adoption of IFRS and the 2010 annual report. The two presentations are available at www.cascades.com/investors.

The table below provides the reconciliation of the 2010 sales, the operating income and the operating income before depreciation and amortization, excluding specific items, reported under the previous GAAP and the IFRS:

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                        -----------------------------------------------------
                                                               Operating
                                                             income before
                                                              depreciation
                                                            and amortization
                                          Operating income,     (EBITDA),
                                              excluding         excluding
                            Sales (1)      spécific items    specific items
    (in millions of     -----------------------------------------------------
     Canadian dollars)  Q1/2010  Q4/2010  Q1/2010  Q4/2010  Q1/2010  Q4/2010
    -------------------------------------------------------------------------
    As reported in 2010
     (previous Can GAAP)    942      991       23       45       78       98
    Less: IFRS
     adjustments:
      Joint ventures        (82)     (98)      (4)      (6)      (8)     (10)
      Depreciation and
       amortization           -        -        5        4
      Others                  -        -        2        1        2        -
                        -----------------------------------------------------
    Including IFRS
     adjustment             860      893       26       44       72       88
      Less: discontinued
       operations          (101)    (110)      (7)     (10)     (13)     (16)
                        -----------------------------------------------------
    As reported (IFRS)      759      783       19       34       59       72
    -------------------------------------------------------------------------
    Note 1 - Sales of discontinued operations and joint ventures are net of
             intercompany
    >>

The following table provides the 2011 sales and operating income before depreciation and amortization, excluding specific items, including those of the discontinued operations and our joint ventures:

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                                                  --------------------------
                                                                 Operating
                                                                   income
                                                                   before
                                                                depreciation
                                                                    and
                                                                amortization
                                                                  (EBITDA),
                                                                  excluding
                                                                  specific
                                                      Sales (1)     items
                                                  --------------------------
    (in millions of Canadian dollars)                  Q1/2011       Q1/2011
    ------------------------------------------------------------------------
    As reported (IFRS)                                     774            37
    Add back:
      Discontinued operations                               95            11
      Joint ventures                                        99             9
                                                      ----------------------
    Including discontinued operations and
     joint ventures                                        968            57
    ------------------------------------------------------------------------
    Note 1 - Sales of discontinued operations and joint ventures are net of
             intercompany


    Supplemental information on non-IFRS 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 IFRS. 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 IFRS, 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 IFRS 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-IFRS 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-IFRS 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 IFRS 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 IFRS 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)        Q1/2011     Q1/2010     Q4/2010
    -------------------------------------------------------------------------
    Net earnings (loss)                           (8)          1         (12)
    Net earnings from discontinued
     operations                                   (6)         (6)         (1)
    Non-controlling interest                       -           -           -
    Share of results of associates and
     joint ventures                               (8)         (3)         (4)
    Recovery of income taxes                     (14)         (5)         (8)
    Foreign exchange loss on long-term
     debt and financial instruments                5           1           5
    Loss on long-term debt refinancing             -           3           -
    Financing expense                             25          28          27
                                          -----------------------------------
    Operating income (loss)                       (6)         19           7
    Specific items :
    Loss on disposal and others                    1           -           -
    Impairment loss                                1           -          28
    Closure and restructuring costs                3           -           -
    Unrealized loss (gain) on financial
     instruments                                   2           -          (1)
                                          -----------------------------------
                                                   7           -          27
                                          -----------------------------------
    Operating income - excluding
     specific items                                1          19          34
    Depreciation and amortization                 36          40          38
                                          -----------------------------------
    Operating income before depreciation
     and amortization (OIBD or EBITDA) -
     excluding specific items                     37          59          72
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    >>

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

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    (in millions of
     Canadian dollars,  -------------------------- --------------------------
     except amounts per                               Net earnings (loss)
     share)                Net earnings (loss)             per share 1
    ---------------------------------------------- --------------------------
                        Q1/2011  Q1/2010  Q4/2010  Q1/2011  Q1/2010  Q4/2010
                        -------------------------- --------------------------
    As per IFRS              (8)       1      (12)  $(0.08)   $0.01   $(0.12)
    Specific items :
    Loss on disposal
     and others               1        -        -    $0.01      $ -      $ -
    Impairment loss           1        -       28    $0.01      $ -    $0.19
    Closure and restruc-
     turing costs             3        -        -    $0.02      $ -      $ -
    Unrealized loss (gain)
     on financial
     instruments              2        -       (1)   $0.02      $ -   $(0.01)
    Loss on long-term debt
     refinancing              -        3        -      $ -    $0.02      $ -
    Foreign exchange loss
     on long-term debt
     and financial
     instruments              5        1        5    $0.04    $0.01    $0.04
    Share of results of
     associates and joint
     ventures                 -        -        1      $ -      $ -    $0.01
    Included in
     discontinued
     operations              (1)       -        8   $(0.01)     $ -    $0.06
    Tax effect on specific
     items                   (2)      (1)     (12)
                        -------------------------- --------------------------
                              9        3       29    $0.09    $0.03    $0.29
                        -------------------------- --------------------------
    Excluding specific
     items                    1       4       17     $0.01    $0.04    $0.17
    ---------------------------------------------- --------------------------
    Note 1 - specific amounts per share are calculated on an after-tax basis.
    >>

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

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                                          -----------------------------------
                                               Cash flow from operations
                                          -----------------------------------
    (in millions of Canadian dollars)        Q1/2011     Q1/2010     Q4/2010
    -------------------------------------------------------------------------
    Cash flow provided by (used from)
     operating activities                        (12)         25          87
    Changes in non-cash working capital
     components                                   27          15         (46)
                                          -----------------------------------
    Cash flow (adjusted) from operations          15          40          41
    Specific items, net of current
     income taxes :
    Loss on long-term debt refinancing             -           3           -
    Closure and restructuring costs                -           -           -
                                          -----------------------------------
    Excluding specific items                      15          43          41
    -------------------------------------------------------------------------
    >>

Founded in 1964, Cascades produces, converts and markets packaging and tissue products that are composed mainly of recycled fibres. The Company employs more than 11,000 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

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                                      ---------------------------------------
                                                   March  December   January
    (in millions of Canadian dollars)                 31,       31,        1,
    (unaudited)                                     2011      2010      2010
    -------------------------------------------------------------------------
    Assets
    Current assets
    Cash and cash equivalents                         10         6         8
    Accounts receivable                              466       490       456
    Current income tax assets                         27        21        13
    Inventories                                      409       476       467
    Financial assets                                  12        12        14
    Group of assets held for sale                    280         -         -
    -------------------------------------------------------------------------
                                                   1,204     1,005       958
    Long-term assets
    Investments in associates and
     joint ventures                                  314       296       274
    Property, plant and equipment                  1,374     1,553     1,637
    Intangible assets                                111       124       134
    Financial assets                                  14        14        19
    Other assets                                      64        50        50
    Deferred income tax assets                        79        82        74
    Goodwill                                         292       313       315
    -------------------------------------------------------------------------
                                                   3,452     3,437     3,461
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Liabilities and Shareholders'
     Equity
    Current liabilities
    Bank loans and advances                           45        42        50
    Accounts payable and accrued
     liabilities                                     393       440       395
    Current income tax liabilities                    13         2         1
    Provisions for contingencies
     and charges                                      17        23        24
    Current portion of financial
     liabilities and other liabilities                13        14         7
    Current portion of long-term debt                 10         7         6
    Liabilities directly associated
     with group of assets held for sale               77         -         -
    Revolving credit facility, renewed
     in 2011                                           -       394         -
    -------------------------------------------------------------------------
                                                     568       922       483
    Long-term liabilities
    Long-term debt                                 1,400       960     1,423
    Provisions for contingencies
     and charges                                      38        37        31
    Financial liabilities                             89        83        54
    Other liabilities                                179       196       166
    Deferred income tax liabilities                  113       167       192
    -------------------------------------------------------------------------
                                                   2,387     2,365     2,349
    -------------------------------------------------------------------------
    Equity attributable to Shareholders
    Capital stock                                    495       496       499
    Contributed surplus                               13        14        14
    Retained earnings                                564       576       575
    Accumulated other comprehensive
     income                                          (17)      (37)        3
    Accumulated other comprehensive income
     related to discontinued operations              (13)        -         -
    -------------------------------------------------------------------------
                                                   1,042     1,049     1,091
    Non-controlling interest                          23        23        21
    -------------------------------------------------------------------------
    Total equity                                   1,065     1,072     1,112
                                                 ----------------------------
                                                   3,452     3,437     3,461
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    The accompanying notes are an integral part of these unaudited interim
    consolidated financial statements.
    >>

Consolidated Statements of Earnings

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                                           ----------------------------------
    For the 3-month periods ended March 31,
    (in millions of Canadian dollars,
     except per share amounts and number
     of shares)(unaudited)                                  2011        2010
    -------------------------------------------------------------------------
    Sales                                                    774         759
    -------------------------------------------------------------------------
    Cost of sales and expenses
    Cost of sales (excluding depreciation
     and amortization)                                       661         614
    Depreciation and amortization                             36          40
    Selling and administrative expenses                       77          81
    Losses on disposal and other                               1           -
    Net impairment loss and other
     restructuring costs                                       4           -
    Foreign exchange loss                                      -           5
    Loss on financial instruments                              1           -
    -------------------------------------------------------------------------
                                                             780         740
    -------------------------------------------------------------------------
    Operating income (loss)                                   (6)         19
    Financing expense                                         25          28
    Loss on refinancing of long-term debt                      -           3
    Foreign exchange loss on long-term debt                    5           1
    -------------------------------------------------------------------------
                                                             (36)        (13)
    Recovery of income taxes                                 (14)         (5)
    Share of results of associates and
     joint ventures                                           (8)         (3)
    -------------------------------------------------------------------------
    Net loss from continuing operations
     including non-controlling interest
     for the period                                          (14)         (5)
    Net earnings from discontinued
     operations for the period                                 6           6
    -------------------------------------------------------------------------
    Net earnings (loss) including non-
     controlling interest for the period                      (8)          1
    Less: Non-controlling interest                             -           -
    -------------------------------------------------------------------------
    Net earnings (loss) attributable to
     Shareholders for the period                              (8)          1

    Net earnings (loss) from continuing
     operations per common share
      Basic                                               ($0.15)     ($0.05)
      Diluted                                             ($0.15)     ($0.05)
    Net earnings (loss) per common share
      Basic                                               ($0.08)      $0.01
      Diluted                                             ($0.08)      $0.01

    Weighted average basic number of
     common shares outstanding                        96,606,421  97,086.643
    -------------------------------------------------------------------------
    The accompanying notes are an integral part of these unaudited interim
    consolidated financial statements.
    >>

Consolidated Statements of Comprehensive Income (Loss)

    <<
                                                     ------------------------
    For the 3-month periods ended March 31,
    (in millions of Canadian dollars) (unaudited)         2011          2010
    -------------------------------------------------------------------------
    Net earnings (loss) including non-controlling
     interest for the period                                (8)            1
    -------------------------------------------------------------------------
    Other comprehensive income (loss)
      Translation adjustments
        Change in foreign currency translation
         of foreign subsidiaries                           (11)          (33)
        Change in foreign currency translation
         related to net investment hedging
         activities                                         15            16
      Cash flow hedges
        Change in fair value of foreign exchange
         forward contracts                                  (1)            3
        Change in fair value of interest rate
         swap agreements                                     1            (1)
        Change in fair value of commodity
         derivative financial instruments                    2            (6)
      Actuarial loss on post-employment
       benefit obligations                                   -             -
      Available-for-sale financial assets                    -             1
    -------------------------------------------------------------------------
                                                             6           (20)
    Comprehensive income (loss) including non-
     controlling interest for the period                    (1)          (19)
    Less: Comprehensive income attributable to
     non-controlling interest for the period                 -             -
    -------------------------------------------------------------------------
    Comprehensive income attributable to Shareholders       (2)          (19)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    >>

Consolidated Statements of Equity

    <<
                  -----------------------------------------------------------
                                 For the 3-month period ended March 31, 2011
                  -----------------------------------------------------------
                                            Accu-    Total
                                         mulated    equity
                                           other   attribu-
    (in millions         Contri-     Re-  compre-    table       Non-
     of Canadian          buted  tained  hensive    to the   control-
     dollars)     Capital   sur-    ear-  income     Share-     ling   Total
    (unaudited)     stock  plus   nings    (loss)  holders  interest  equity
    -------------------------------------------------------------------------
    Balance-
     Beginning
     of period        496    14     576      (37)    1,049        23   1,072
    Comprehensive
     income:
      Net loss for
       the period       -     -     (8)       -        (8)        -      (8)
      Other
       compre-
       hensive
       income           -     -       -        7         7         -       7
      Dividends         -     -      (4)       -        (4)        -      (4)
      Stock
       options          -    (1)      -        -        (1)        -      (1)
      Redemption
       of common
       shares          (1)    -       -        -        (1)        -      (1)
    -------------------------------------------------------------------------
    Balance-End of
     period           495    13     564      (30)    1,042        23   1,065
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                  -----------------------------------------------------------
                                 For the 3-month period ended March 31, 2010
                  -----------------------------------------------------------
                                            Accu-    Total
                                         mulated    equity
                                           other   attribu-
    (in millions         Contri-     Re-  compre-    table       Non-
     of Canadian          buted  tained  hensive    to the   control-
     dollars)     Capital   sur-    ear-  income     Share-     ling   Total
    (unaudited)     stock  plus   nings    (loss)  holders  interest  equity
    -------------------------------------------------------------------------
    Balance-
     Beginning
     of period        499    14     575        3     1,091        21   1,112
    Comprehensive
     income:
      Net
       earnings
       for the
       period           -     -       1        -         1         -       1
      Other
       compre-
       hensive
       income
       (loss)           -     -       -      (19)      (19)        -     (19)
      Dividends         -     -      (4)       -        (4)        -      (4)
      Stock
       options          -     -       -        -         -         -       -
      Redemption
       of common
       shares          (1)    -       -        -        (1)        -      (1)
    -------------------------------------------------------------------------
    Balance-End
     of period        498    14     572      (16)    1,068        21   1,089
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    >>

Consolidated Statements of Cash Flows

    <<
                                           ----------------------------------
    For the 3-month periods ended March 31,
    (in millions of Canadian dollars)
    (unaudited)                                             2011        2010
    -------------------------------------------------------------------------
    Operating activities from continuing
     operations
    Net earnings (loss) attributable to
     Shareholders for the period                              (8)          1
    Net earnings from discontinued
     operations for the period                                (6)         (6)
    -------------------------------------------------------------------------
    Net loss from continuing operations                      (14)         (5)
    Adjustments for
      Interest expense                                        25          28
      Depreciation and amortization                           36          40
      Losses on disposal and other                             1           -
      Net impairment loss and other
       restructuring costs                                     4           -
      Unrealized loss on financial
       instruments                                             2           -
      Foreign exchange loss on long-term
       debt and financial instruments                          5           1
      Income tax expense                                       2           3
      Deferred income taxes                                  (16)         (8)
      Share of results of associates
       and joint ventures                                     (8)         (3)
      Non-controlling interest                                 -           -
      Interest paid                                          (17)        (10)
      Income tax paid                                         (3)         (4)
      Others                                                  (2)         (2)
    -------------------------------------------------------------------------
                                                              15          40
    Changes in non-cash working
     capital components                                      (27)        (15)
    -------------------------------------------------------------------------
                                                             (12)         25
    -------------------------------------------------------------------------
    Investing activities from
     continuing operations
    Purchases of property, plant
     and equipment                                           (35)        (30)
    Increase in other assets and investment
     in associates and joint ventures                        (10)         (3)
    Business acquisitions, net of cash
     acquired                                                  -          (2)
    -------------------------------------------------------------------------
                                                             (45)        (35)
    -------------------------------------------------------------------------
    Financing activities from continuing
     operations
    Bank loans and advances                                    4          (3)
    Change in revolving credit facilities                     51         185
    Purchase of senior notes                                   -        (161)
    Increase in other long-term debt                           -           1
    Payments of other long-term debt                          (2)         (2)
    Redemption of common shares                               (1)         (2)
    Dividend paid to Company's shareholders                   (4)         (4)
    -------------------------------------------------------------------------
                                                              48          14
    -------------------------------------------------------------------------
    Change in cash and cash equivalents
     during the period from continuing
     operations                                               (9)          4
    Change in cash and cash equivalents
     from discontinued operations, including
     proceeds on disposal during the period                   13           3
    -------------------------------------------------------------------------
    Net change in cash and cash equivalents
     during the period                                         4           7
    Cash and cash equivalents-Beginning
     of period                                                 6           8
    -------------------------------------------------------------------------
    Cash and cash equivalents-End of period                   10          15
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    >>

Segmented Information

    <<
                                                  ---------------------------
                                                                       Sales
                                                  ---------------------------
                                                     For the 3-month periods
                                                              ended March 31,
                                                  ---------------------------
    (in millions of Canadian dollars) (unaudited)         2011          2010
    -------------------------------------------------------------------------
    Packaging products
    Boxboard
      Manufacturing                                        126           115
      Converting                                           144           151
      Intersegment sales                                   (11)          (9)
      Discontinued operations, net of
       intersegment sales                                 (105)         (111)
    -------------------------------------------------------------------------
                                                           153           146
    Containerboard
      Manufacturing                                        139           134
      Converting                                           195           194
      Intersegment sales                                   (80)          (73)
    -------------------------------------------------------------------------
                                                           254           255
    Specialty products
      Industrial packaging                                  30            27
      Consumer packaging                                    18            17
      Specialty papers                                      73            78
      Recovery and recycling                                83            72
      Intersegment sales                                    (2)           (2)
    -------------------------------------------------------------------------
                                                           202           192
    Intersegment sales                                     (28)          (26)
    -------------------------------------------------------------------------
                                                           581           567
    Tissue papers
      Manufacturing and converting                         199           197
    -------------------------------------------------------------------------
    Intersegment sales and others                           (6)           (5)
    -------------------------------------------------------------------------
    Total                                                  774           759
    -------------------------------------------------------------------------


                                                  ---------------------------
                                                      Operating income (loss)
                                                     before depreciation and
                                                                amortization
                                                  ---------------------------
                                                     For the 3-month periods
                                                              ended March 31,
                                                  ---------------------------
    (in millions of Canadian dollars) (unaudited)         2011          2010
    -------------------------------------------------------------------------
    Packaging products
    Boxboard
      Manufacturing                                          3             5
      Converting                                            12            15
      Others                                                 -             -
      Discontinued operations                               (8)          (13)
    -------------------------------------------------------------------------
                                                             4             7
    Containerboard
      Manufacturing                                          6            10
      Converting                                            10            21
      Others                                                (3)            1
    -------------------------------------------------------------------------
                                                            13            32
    Specialty products
      Industrial packaging                                   2             4
      Consumer packaging                                     -             1
      Specialty papers                                       -             5
      Recovery and recycling                                 4             6
      Others                                                 1             -
    -------------------------------------------------------------------------
                                                             7            16
    -------------------------------------------------------------------------
                                                            24            55
    -------------------------------------------------------------------------
    Tissue papers
      Manufacturing and converting                          10            19
    -------------------------------------------------------------------------
    Corporate                                               (4)          (15)
    -------------------------------------------------------------------------
    Operating income before depreciation
     and amortization                                       30            59
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Depreciation and amortization
    Boxboard                                                (7)           (9)
    Containerboard                                         (15)          (19)
    Specialty products                                      (6)           (6)
    Tissue papers                                          (10)          (11)
    Corporate and eliminations                              (2)           (1)
    Discontinued operations                                  4             6
    -------------------------------------------------------------------------
                                                           (36)          (40)
    Operating income                                        (6)           19
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                                  ---------------------------
                                                                Purchases of
                                                             property, plant
                                                               and equipment
                                                  ---------------------------
                                                     For the 3-month periods
                                                              ended March 31,
                                                  ---------------------------
    (in millions of Canadian dollars) (unaudited)         2011          2010
    -------------------------------------------------------------------------
    Packaging products
    Boxboard
      Manufacturing                                          2             2
      Converting                                             1             3
      Discontinued operations                               (1)           (3)
    -------------------------------------------------------------------------
                                                             2             2
    Containerboard
      Manufacturing                                          3             5
      Converting                                             4             4
    -------------------------------------------------------------------------
                                                             7             9
    Specialty products
      Industrial packaging                                   -             -
      Consumer packaging                                     -             1
      Specialty papers                                       4             1
      Recovery and recycling                                 2             1
    -------------------------------------------------------------------------
                                                             6             3
    -------------------------------------------------------------------------
                                                            15            14
    -------------------------------------------------------------------------
    Tissue papers
      Manufacturing and converting                           5             8
    -------------------------------------------------------------------------

    Corporate                                                2             4
    -------------------------------------------------------------------------
    Total purchases                                         22            26
    -------------------------------------------------------------------------

    Disposal of property, plant and equipment                -            (2)
    -------------------------------------------------------------------------
                                                            22            24
    Purchases of property, plant and equipment
     included in accounts payable
      Beginning of period                                   18            13
      End of period                                         (5)           (7)
    -------------------------------------------------------------------------
    Total investing activities                              35            30
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    >>

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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