Cascades reports second quarter results



    KINGSEY FALLS, QC, Aug. 7 /CNW Telbec/ - Cascades Inc. ("Cascades")
(Symbol: CAS-TSX) reports net earnings of $45 million ($0.45 per share) for
the quarter ended June 30, 2007. This compares with net earnings of
$33 million ($0.41 per share) for the same period in 2006. When excluding
specific items(1), net earnings for the second quarter of 2007 amounted to
$7 million ($0.07 per share) compared to net earnings of $16 million
($0.20 per share) for the same quarter in 2006.

    
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    Financial Highlights

    Selected consolidated information
                                        -------------------------------------
    (in millions of Canadian dollars,
     except amounts per share)           Q2/2007       Q2/2006       Q1/2007
    -------------------------------------------------------------------------
    Sales                                  1,041           841         1,027
    Operating income before depreciation
     and amortization (OIBD)(1)               79            85           108
    Operating income from continuing
     operations                               27            44            55
    Net earnings                              45            33            22
      per common share                     $0.45         $0.41         $0.22
    Cash flow from operations from
     continuing operations(1)                 43            56            38
      per common share(1)                  $0.43         $0.69         $0.38

    Excluding specific items(1)
      Operating income before depreciation
       and amortization (OIBD)                85            84            84
      Operating income from continuing
       operations                             33            43            31
      Net earnings                             7            16             5
        per common share                   $0.07         $0.20         $0.05
      Cash flow from operations from
       continuing operations                  45            56            46
        per common share                   $0.45         $0.69         $0.46
    -------------------------------------------------------------------------
    Note 1 - see the supplemental information on non-GAAP measures note.
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Additional highlights

    - Net earnings of $0.45 per share for the second quarter of 2007 which
      mainly include a foreign exchange gain on long-term debt of $0.21 per
      share as well as a $0.15 per share gain reflecting the dilution of our
      equity investment in Boralex.;

    - Improved sales and net earnings in comparison to Q1 2007 due to higher
      shipments and average selling prices in our packaging segment despite
      an important appreciation of fibre costs and the $CA, which increased
      7% against the $US.;

    - Cascades continues to deliver on its strategic plan, announcing a
      potential business combination of its European boxboard operations with
      those of Reno de Medici S.p.A., thus reinforcing its packaging
      segment.; and

    - Cascades recently named amongst the best 50 corporate citizens in
      Canada by Corporate Knights magazine.

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    Commenting on the quarterly results, Mr. Alain Lemaire, President and
Chief Executive Officer stated: "Our results were negatively impacted by the
rapid appreciation of the Canadian dollar and by the increase in the cost of
recycled papers. On the other hand, we were able to improve our sales and
earnings in comparison to the first quarter due to seasonally higher shipments
as well as better prices mainly in our packaging segment.
    In addition, we continued delivering on our strategic plan with a proposed
business combination involving the second largest European producer of
recycled boxboard. The closing of this transaction will appreciably improve
the situation of Cascades in Europe given the creation of an operationally and
financially stronger company better able to address the demands of global
customers."

    Three-month period ended June 30, 2007
    --------------------------------------

    Sales increased 24% during the second quarter of 2007 amounting to
$1.041 billion as a result of acquisitions realized in 2006. Operating income
from continuing operations amounted to $27 million compared to $44 million
achieved for the same period last year.
    Operating income from continuing operations excluding specific elements
amounted to $33 million which excludes a $4 million loss on financial
derivatives instruments as well as a $2 million legal settlement. This amount
compares to $43 million achieved for the same period last year.
    Net earnings for the quarter include a $21 million foreign exchange gain
on U.S. denominated debt as well as a $15 million dilution gain reflecting the
adjustment of our equity investment in Boralex (BLX-TSX) following their
recent issuance of equity.

    Six-month period ended June 30, 2007
    ------------------------------------

    Sales increased 25% during the first six months of 2007 amounting to
$2.068 billion as a result of acquisitions realized in 2006. Operating income
from continued operations amounted to $82 million compared to $75 million
achieved for the same period last year.
    Operating income from continuing operations excluding specific items
amounted to $64 million compared to $72 million last year and mainly excludes
a gain of $25 million on the sale, in the first quarter of 2007, of our
joint-venture interest in GSD Packaging, LLC (Boxboard) in addition to other
specific items in the amount of $7 million.

    Outlook
    -------

    Mr. Alain Lemaire, President and Chief Executive Officer added: "We expect
business conditions will continue to be challenging as a result of high fiber
costs, the continuous increase in the value of the $CA and the risk of slower
economic growth in the U.S.. Given these conditions and with the support of
our employees, we will continue to focus on lowering our costs and improving
our product offering. Also, we will continue to address less-performing assets
and to seek ways to maintain our leadership position in in the area of
sustainable development. Finally, in regards to the possible combination with
Reno de Medici S.p.A. in Europe, we are progressing as expected and we
anticipate definitive agreements to be signed by the end of 2007 and the
merger to be effective early in 2008 upon expiry of applicable statutory
delays."

    Dividend on Common Shares
    --------------------------

    The Board of Cascades declared a quarterly dividend of $0.04 per share to
be paid September 19, 2007 to shareholders of record at the close of business
on September 6, 2007. This dividend paid by Cascades is an "eligible dividend"
as per the proposed changes to the Income Tax Act (Bill C-28, Canada).

      Supplemental information on non-GAAP measures

    Operating income, cash flow from operations and cash flow from operations
per share are not measures of performance under Canadian GAAP. The Company
includes operating income, cash flow from operations and cash flow from
operations per share 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,
cash flow from operations and cash flow from operations per share does 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, cash flow from operations and cash flow from operations per
share 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 and cash
flow from operations per share is determined by dividing cash flow from
operations by the weighted average number of common shares of the period.
    Operating income excluding specific items, net earnings excluding specific
items, net earnings per common share excluding specific items, cash flow from
operations excluding specific items and cash flow from operations per share
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:

                                        -------------------------------------
    (in millions of Canadian dollars)    Q2/2007       Q2/2006       Q1/2007
    -------------------------------------------------------------------------

    Net earnings                              45            33            22
    Net loss (earnings) from
     discontinued operations                  (3)            1             -
    Non-controlling interest                   -             -             1
    Share of results of signifi-
     cantlyinfluenced companies              (17)           (1)           (4)
    Provision for income taxes                 -             4            13
    Foreign exchange gain on long-
     term debt                               (25)          (14)           (4)
    Interest expense                          27            21            27
                                        -------------------------------------

    Operating income                          27            44            55
    Specific items :
    Inventory adjustment resulting
     from the Norampac acquisition             -             -             6
    Unusual losses (gains)                     1             -           (25)
    Closure and restructuring costs            1             -             2
    Unrealized loss (gain) on
     commodity derivative financial
     instruments                               4            (1)           (7)
                                        -------------------------------------
                                               6            (1)          (24)
                                        -------------------------------------

    Operating income - excluding
     specific items                           33            43            31

    Depreciation and amortization             52            41            53
                                        -------------------------------------

    Operating income before
     depreciation and amortization
     - excluding specific items               85            84            84
                                        -------------------------------------
                                        -------------------------------------


    Supplemental information on non-GAAP measures (cont'd)

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

    (in millions of
     Canadian dollars,
     except amounts
     per share)           Net earnings            Net earnings per share(1)
    ------------------------------------------  -----------------------------
                   Q2/2007   Q2/2006   Q1/2007   Q2/2007   Q2/2006   Q1/2007
                   ---------------------------  -----------------------------

    As per GAAP         45        33        22    $ 0.45    $ 0.41    $ 0.22
    Specific items :
    Inventory
     adjustment
     resulting
     from the
     Norampac
     acquisition         -         -         6    $    -    $    -    $ 0.04
    Unusual losses
     (gains)             1         -       (25)   $    -    $    -    $(0.14)
    Closure and
     restructuring
     costs               1         -         2    $ 0.01    $    -    $ 0.01
    Unrealized
     loss (gain)
     on commodity
     derivative
     financial
     instruments         4        (1)       (7)   $ 0.03    $(0.01)   $(0.05)
    Foreign exchange
     gain on long-
     term debt         (25)      (14)       (4)   $(0.21)   $(0.15)   $(0.03)
    Share of
     results of
     significantly
     influenced
     companies         (15)        -         -    $(0.15)   $    -    $    -
    Included in
     discontinued
     operations         (3)        1         -    $(0.03)   $ 0.01    $    -
    Adjustment of
     statutory tax
     rate               (3)       (5)        -    $(0.03)   $(0.06)   $    -
    Tax effect
     on specific
     items               2         2        11
                   ---------------------------  -----------------------------
                       (38)      (17)      (17)   $(0.38)   $(0.21)   $(0.17)
                   ---------------------------  -----------------------------

    Excluding
     specific items      7        16         5    $ 0.07    $ 0.20    $ 0.05
    ------------------------------------------  -----------------------------
    ------------------------------------------  -----------------------------
    Note 1 - specific amounts per share are calculated on an after-tax basis.


    The following table reconciles cash flow from operations and cash flow
from operations per share to cash flow from operations excluding specific
items and cash flow from operations per share excluding specific items:

    ------------------------------------------  -----------------------------
                    Cash flow from operations     Cash flow from operations
                                                              per share
                   ---------------------------  -----------------------------
    (in millions
     of dollars,
     except
     amounts
     per share)    Q2/2007   Q2/2006   Q1/2007   Q2/2007   Q2/2006   Q1/2007
    ------------------------------------------  -----------------------------

    Cash flow
     provided by
     (used for)
     operating
     activities         (4)       34       (44)
    Changes in
     non-cash
     working
     capital
     components         47        22        82
                   ---------------------------  -----------------------------
    Cash flow
     from
     operations         43        56        38    $ 0.43    $ 0.69    $ 0.38
    Specific items :
    Inventory
     adjustment
     resulting
     from the
     Norampac
     acquisition         -         -         6         -         -    $ 0.06
    Unusual loss         2         -         -    $ 0.02         -         -
    Closure and
     restructuring
     costs, net
     of current
     income tax          -         -         2         -         -    $ 0.02
                   ---------------------------  -----------------------------

    Excluding
     specific
     items              45        56        46    $ 0.45    $ 0.69    $ 0.46
    ------------------------------------------  -----------------------------
    ------------------------------------------  -----------------------------


    Founded in 1964, Cascades produces, transforms and markets packaging and
tissue products composed mainly of recycled fibres. Cascades employs close to
14 000 employees who work in more than 100 modern and flexible production
units located in North -America and Europe. Cascades' management philosophy,
its more than 40 years of experience in recycling, its continued efforts in
research and development are strengths which enable the company to create new
products for its customers. The 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
                                                       June 30,  December 31,
                                            Note          2007          2006
                                     ----------------------------------------
    Assets                                          (unaudited)

    Current assets
    Cash and cash equivalents                               19            34
    Accounts receivable                                    683           650
    Inventories                                            569           548
    -------------------------------  ----------------------------------------
                                                         1,271         1,232
    Property, plant and equipment                        1,968         2,063
    Other assets                               7           297           303
    Goodwill                                               301           313
    -------------------------------  ----------------------------------------
                                                         3,837         3,911
                                     ----------------------------------------
                                     ----------------------------------------

    Liabilities and shareholders'
     equity

    Current liabilities
    Bank loans and advances                                 53            42
    Accounts payable and
     accrued liabilities                                   564           607
    Current portion of
     long-term debt                            8             6             9
    -------------------------------  ----------------------------------------
                                                           623           658
    Long-term debt                             8         1,607         1,657
    Other liabilities                          9           427           439
                                     ----------------------------------------
                                                         2,657         2,754

    Shareholders' equity
    Capital stock                             11           517           517
    Retained earnings                                      706           649
    Accumulated other
     comprehensive income                     12           (43)           (9)
                                     ----------------------------------------
                                                         1,180         1,157
    -------------------------------  ----------------------------------------
                                                         3,837         3,911
                                     ----------------------------------------
                                     ----------------------------------------

    The accompanying notes are an integral part of these unaudited interim
    consolidated financial statements.


    Consolidated Statements of Earnings
    (in millions of Canadian dollars, except per share amounts)
    (unaudited)
                                        For the                 For the
                                    3-month periods         6-month periods
                                     ended June 30,          ended June 30,
                           Note     2007        2006        2007        2006
                                 --------------------------------------------

    Sales                          1,041         841       2,068       1,659
    Cost of sales
     and expenses
    Cost of sales
     (exclusive of
     depreciation and
     amortization
     shown below)            10      860         680       1,712       1,353
    Depreciation and
     amortization                     52          41         105          81
    Selling and
     administrative
     expenses                         97          76         197         151
    Unusual losses
     (gains)             5, 6(b)       1           -         (24)          -
    Closure and
     restructuring
     costs                    3        1           -           3           4
    Loss (gain) on
     commodity
     derivatives
     financial
     instruments              4        3           -          (7)         (5)
    -------------------------------------------------------------------------
                                   1,014         797       1,986       1,584
    -------------------------------------------------------------------------
    Operating income
     from continuing
     operations                       27          44          82          75

    Interest expense                  27          21          54          42
    Foreign exchange
     gain on long-
     term debt                       (25)        (14)        (29)        (14)
    -------------------------------------------------------------------------
                                      25          37          57          47
    Provision for
     income taxes                      -           4          13           8
    Share of
     results of
     significantly
     influenced
     companies              5(c)     (17)         (1)        (21)         (4)
    Non-controlling
     interest                          -           -           1           -
    -------------------------------------------------------------------------
    Net earnings
     from continuing
     operations                       42          34          64          43
    Net earnings (loss)
     from discontinued
     operations             5(d)       3          (1)          3          (4)
    -------------------------------------------------------------------------
    Net earnings for
     the period                       45          33          67          39
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Basic and diluted
     net earnings
     from continuing
     operations
     per common share              $0.42       $0.42       $0.64       $0.53
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Basic and diluted
     net earnings
     per common share              $0.45       $0.41       $0.67       $0.48
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Weighted average
     number of common
     shares outstanding       99,291,649  80,797,384  99,379,774  80,803,314
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    The accompanying notes are an integral part of these unaudited interim
    consolidated financial statements.


    Consolidated Statement of Shareholders' Equity
    (in millions of Canadian dollars)
    (unaudited)

                                        For the 6-month period ended June 30,
                                                                        2007
                                 --------------------------------------------
                                                          Accumu-
                                                           lated
                                                           other
                                                          compre-      Share-
                           Note  Capital    Retained     hensive     holders'
                                   stock    earnings      income      equity
                                 --------------------------------------------

    Balance -
     beginning
     of period                       517         649          (9)      1,157
    Cumulative impact
     of accounting
     changes             1(c)(f)       -           -           1           1
                                 --------------------------------------------
    Restated balance,
     beginning of
     period                          517         649          (8)      1,158
    Comprehensive
     income:
      Net earnings
       for the period                  -          67           -          67
      Change in
       foreign
       currency
       translation of
       self-sustaining
       foreign subsi-
       diaries, net
       of related
       hedging acti-
       vities                          -           -         (39)        (39)
      Change in fair
       value of foreign
       exchange forward
       contracts
       designated as cash
       flow hedges, net
       of related income
       taxes and re-
       classification
       adjustments                     -           -           3           3
      Change in fair
       value of commo-
       dity derivative
       financial
       instruments
       designated as
       cash flow hedges,
       net of related
       income taxes and
       reclassification
       adjustments                     -           -           1           1
                                                                  -----------
    Comprehensive income
     for the period                                                       32
                                                                  -----------

    Dividends                          -          (8)          -          (8)
    Adjustment related
     to stock options                  2           -           -           2
    Redemption of common shares       (2)         (2)          -          (4)
                                 --------------------------------------------
    Balance - end of period          517         706         (43)      1,180
                                 --------------------------------------------
                                 --------------------------------------------


                                        For the 6-month period ended June 30,
                                                                        2006
                                 --------------------------------------------
                                                          Accumu-
                                                           lated
                                                           other
                                                          compre-      Share-
                                 Capital    Retained     hensive     holders'
                                   stock    earnings      income      equity
                                 --------------------------------------------

    Balance - beginning
     of period                       264         669         (36)        897
    Comprehensive income:
      Net earnings for the
       period                          -          39           -          39
      Change in foreign
       currency translation of
       self-sustaining foreign
       subsidiaries, net of
       related hedging
       activities                      -           -           3           3
                                                                  -----------
    Comprehensive income for
     the period                                                           42
                                                                  -----------

    Dividends                          -          (7)          -          (7)
    Adjustment related to
     stock options                     2           -           -           2
                                 --------------------------------------------
    Balance - end of period          266         701         (33)        934
                                 --------------------------------------------
                                 --------------------------------------------
    The accompanying notes are an integral part of these unaudited interim
    consolidated financial statements.


    Consolidated Statements of Cash Flows
    (in millions of Canadian dollars)
    (unaudited)

                                        For the                 For the
                                    3-month periods         6-month periods
                                     ended June 30,          ended June 30,
                           Note     2007        2006        2007        2006
    -------------------------------------------------------------------------

    OPERATING ACTIVITIES
     FROM CONTINUING
     OPERATIONS
    Net earnings
     from continuing
     operations                       42          34          64          43
    Adjustments for:
      Depreciation and
       amortization                   52          41         105          81
      Unusual gains                   (1)          -         (26)          -
      Closure and restruc-
       turing costs                    1           -           1           -
      Unrealized
       loss (gain) on
       commodity deri-
       vative financial
       instruments                     4          (1)         (3)         (7)
      Foreign exchange
       gain on long-term
       debt                          (25)        (14)        (29)        (14)
      Future income taxes             (8)         (4)         (5)         (8)
      Share of results of
       significantly
       influenced
       companies                     (17)         (1)        (21)         (4)
      Non-controlling
       interest                        -           -           1           -
      Others                          (5)          1          (6)          3
    -------------------------------------------------------------------------
                                      43          56          81          94
    Change in non-cash
     working capital
     components                      (47)        (22)       (129)        (55)
    -------------------------------------------------------------------------
                                      (4)         34         (48)         39
    -------------------------------------------------------------------------
    INVESTING ACTIVITIES
     FROM CONTINUING
     OPERATIONS
    Purchases of
     property, plant
     and equipment                   (34)        (27)        (68)        (44)
    Proceed from
     disposal of
     property, plant
     and equipment          5(a)       7           -           7           -
    Increase in other
     assets                            1           1           -           1
    Business acquisitions,
     net of cash acquired              -         (14)          -         (14)
    Business disposal,
     net of cash disposed   6(b)       -           -          37           -
    -------------------------------------------------------------------------
                                     (26)        (40)        (24)        (57)
    -------------------------------------------------------------------------
    FINANCING ACTIVITIES
     FROM CONTINUING
     OPERATIONS
    Bank loans and advances            4          14          12           4
    Change in revolving
     credit facilities                23         (21)         67         (52)
    Increase in other
     long-term debt                    -           -           -           1
    Payments of other
     long-term debt                   (1)         (2)         (4)         (6)
    Net proceeds from
     issuance of common
     shares                            1           -           1           1
    Redemption of
     common shares           11       (1)         (1)         (4)         (1)
    Dividends                         (4)         (4)         (8)         (7)
    -------------------------------------------------------------------------
                                      22         (14)         64         (60)
    -------------------------------------------------------------------------
    Change in cash
     and cash equi-
     valents during the
     period from conti-
     nuing operations                 (8)        (20)         (8)        (78)
    Change in cash and
     cash equivalents
     from discontinued
     operations,
     including proceeds
     on disposal           10(d)       -           -           -          57
    -------------------------------------------------------------------------
    Change in cash and
     cash equivalents
     during the period                (8)        (20)         (8)        (21)
    Translation
     adjustments on cash
     and cash equivalents             (6)         (2)         (7)         (3)
    Cash and cash
     equivalents -
     Beginning of period              33          41          34          43
    -------------------------------------------------------------------------

    Cash and cash
     equivalents -
     End of period                    19          19          19          19
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    The accompanying notes are an integral part of these unaudited interim
    consolidated financial statements.


    Notes to Interim Consolidated Financial Statements
    (tabular amounts in millions of Canadian dollars,
     except amount per share)
    (unaudited)

    NOTE 1 - ACCOUNTING POLICIES

    These unaudited interim consolidated financial statements and the notes
thereto have been prepared in accordance with Canadian generally accepted
accounting principles ("GAAP") with the exception that they do not conform in
all material respects to the requirement of GAAP for annual financial
statements. These financial statements should be read in conjunction with the
most recent annual financial statements of the Company as they have been
prepared using the same accounting policies except for the following:

    a) Comprehensive income

    On January 1, 2007, the Company adopted Section 1530 of the Canadian
Institute of Chartered Accountants ("CICA") Handbook, "Comprehensive Income".
It describes reporting and disclosure recommendations with respect to
comprehensive income and its components. Comprehensive income represents
changes in net assets arising from transactions, events and circumstances not
related to shareholders.

    b) Equity

    On January 1, 2007, the Company adopted Section 3251 of the CICA Handbook,
"Equity" which describes standards for presentation of changes in equity. As a
result of the adoption of Sections 3251 and 1530 described above, the Company
is now presenting a consolidated statement of shareholders' equity, which
includes information about comprehensive income and accumulated other
comprehensive income. The comparative consolidated financial statements were
restated to reclassify an amount of $9 million as at January 1, 2007
($36 million as of January 1, 2006 for the purpose of the comparative
financial information) previously recorded in the cumulative translation
adjustment to the accumulated other comprehensive income.

    c) Financial Instruments - Recognition and Measurement

    On January 1, 2007, the Company adopted Section 3855 of the CICA Handbook,
"Financial Instruments - Recognition and Measurement". It describes the
standards for recognizing and measuring financial instruments in the financial
statements. Under this Section, financial assets available for sale, assets
and liabilities held for trading and derivatives financial instruments, when
part of a hedging relationship or not, are measured and accounted for at fair
value. Certain derivatives embedded in other contracts are also measured and
accounted for at fair value. The Company selected January 1, 2003 as its
transition date for embedded derivatives.
    Upon the adoption of this Section, the Company made the following
classifications:

      - Cash and cash equivalents are classified as financial assets held for
        trading and are measured at fair value. Resulting gains and losses
        are recorded in earnings.
      - Accounts receivable, other investments, bank loans and advances,
        accounts payables and accrued liabilities and long-term debt are
        classified as loans and receivable and are initially recorded at fair
        value. Subsequently, they are recorded at amortized costs using the
        effective interest rate method. Under this classification, deferred
        financing costs related to Unsecured Senior Notes are now presented
        as a reduction of the carrying value of the respective debt.

    This Section was applied retroactively without restating the comparatives
figures and resulted in the following adjustments as of January 1, 2007:

                                                                           $
    Other assets                                                         (12)
                                                                 ------------

    Long-term debt                                                       (17)
    Other liabilities                                                      3
                                                                 ------------
                                                                         (14)
                                                                 ------------
    Net change                                                             2
                                                                 ------------
                                                                 ------------

    Impact on accumulated other comprehensive income                       1
    Impact on retained earnings                                            1
                                                                 ------------
                                                                           2
                                                                 ------------
                                                                 ------------


    d) Hedges

    On January 1, 2007, the Company adopted Section 3865 of the CICA Handbook,
"Hedges". It expands the guidelines required by Accounting Guideline 13
(AcG-13), "Hedging Relationships". This Section describes when and how hedge
accounting can be applied as well as the disclosure requirements. Hedge
accounting enables the recording of gains, losses, revenues and expenses from
the derivative financial instruments in the same period as for those related
to the hedged item. However, any ineffective portion of a hedging relationship
is recorded directly to earnings. The Company elected to apply hedge
accounting for the following items as of January 1, 2007:

    -------------------------------------------------------------------------
    Item               Nature of hedging relationship  Implication
    -------------------------------------------------------------------------
    Foreign exchange   Cash flow hedge of future       Gains or losses from
    forward contracts  anticipated sales, purchases    these derivatives
    and currency       and interest expenses           financial instruments
    option             denominated in foreign          are recorded in
    instruments.       currencies.                     accumulated other
                                                       comprehensive income
                                                       net of related income
                                                       taxes and are
                                                       reclassified to
                                                       earnings as adjustment
                                                       to sales, cost of
                                                       sales or interest
                                                       expense in the same
                                                       period as the
                                                       respective hedged item
                                                       affects earnings.
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Interest rate      Fair value hedge on a portion   Gains or losses from
    swap agreement of  of the Company's                these derivatives
    a notional amount  6.75% Unsecured Senior Notes.   financial instruments
    of US$50 million,                                  are recorded to
    maturing in 2013.                                  earnings as interest
                                                       expense. However, a
                                                       corresponding amount
                                                       is recorded as an
                                                       adjustment to the
                                                       carrying value of the
                                                       6.75% Unsecured Senior
                                                       Notes and interest
                                                       expense.
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Commodity swap     Cash flow hedges of             Gains or losses from
    agreements on      anticipated purchases of        these derivatives
    natural gas and    natural gas and electricity.    financial instruments
    electricity.                                       are recorded in
                                                       accumulated other
                                                       comprehensive income
                                                       net of related income
                                                       taxes and are
                                                       reclassified to
                                                       earnings as adjustment
                                                       to cost of sales in
                                                       the same period as the
                                                       respective hedged item
                                                       affects earnings.
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Long-term debt     Hedge of the net investment of  Gains or losses
    denominated in     the Company in self-sustaining  resulting from the
    foreign            foreign subsidiaries.           translation to
    currencies.                                        Canadian dollars of
                                                       long-term debt
                                                       denominated in foreign
                                                       currencies and
                                                       designated as net
                                                       investment hedges are
                                                       recorded in
                                                       accumulated other
                                                       comprehensive income
                                                       net of related income
                                                       taxes.
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    As in previous years, the Company continued not applying hedge accounting
to certain derivatives financial instruments including interest rate swap
agreements of notional amounts totaling US$5.2 million maturing between 2008
and 2012 and commodity swap agreements on old corrugated containers.
Accordingly, gains and losses from these derivatives financial instruments are
recorded directly to earnings. The adoption of Section 3865 had no impact on
the consolidated financial statements of the Company as at January 1, 2007.
    During the second quarter of 2007, the Company entered into foreign
exchange forward contracts and currency option instruments to fix a notional
amount of US$150 million of its U.S.- denominated debt. The Company elected
not to apply hedge accounting to these instruments and they are recorded at
fair value in earnings against the foreign exchange gains or losses on
long-term debt.

    e) Accounting changes

    As at January 1, 2007, the Company adopted Section 1506 "Accounting
changes". This Section establishes criteria to be met in order to change,
together with the accounting treatment and disclosure required when there is a
change in accounting policies, estimates and correction of errors. The
adoption of this Section had no impact on the consolidated financial position
and results of operations of the Company.

    f) Others

    As at January 1, 2007, Boralex Inc. "Boralex", a significantly influenced
company, changed its depreciation method with respect to some operating units.
This change resulted in a decrease in retained earnings of $1 million (the
Company's share). As at January 1, 2007, Boralex also adopted Sections 1530,
3251, 3855 and 3865 of the CICA Handbook. The impact on the Company following
the adoption of these Sections by Boralex is reflected in notes a), b) and c)
above.

    g) New accounting standards not yet adopted

    Capital disclosures - In December 2006, the CICA published Section 1535,
"Capital Disclosures". This new standard established disclosure requirements
concerning capital such as: qualitative information about its objectives,
policies and processes for managing capital; quantitative data about what it
regards as capital; whether it has complied with any externally imposed
capital requirements and, if not, the consequences of such non-compliance. The
new requirements will be effective starting January 1, 2008. The Company is
presently evaluating the impact of this new standard.
    Financial instruments - disclosures and presentation - In December 2006,
the CICA published two new sections: Section 3862, "Financial Instruments -
Disclosures", and Section 3863, "Financial Instruments - Presentation". These
new standards replace Section 3861, "Financial Instruments - Disclosure and
Presentation", revising and enhancing its disclosure requirements, and
carrying forward unchanged its presentation requirements. These new standards
will be effective starting January 1, 2008. The Company is presently
evaluating the impact of these new standards.
    Inventories - In June 2007, the CICA published Section 3031,
"Inventories". This new standard established measurement and disclosure
requirements concerning inventories. The new requirements will be effective
starting January 1, 2008. The Company is presently evaluating the impact of
this new standard.

    NOTE 2 - MEASUREMENT UNCERTAINTY

    The Company evaluates the net book value of its long-lived assets when
events or changes in circumstances indicate that the net book value of the
assets may not be recoverable. To evaluate long-lived assets, the Company
determines if the undiscounted future cash flows from operating activities
exceed the net book value of the assets at the valuation date. Estimates of
future cash flows and fair value are based on judgment and could change.
    Given the sensitivity of certain key assumptions used, such as exchange
rates, selling prices and costs of raw materials and energy, there is a
measurement uncertainty regarding certain operating units because it is
possible that variations in future conditions could require a modification of
the stated amount of long-lived assets.

    NOTE 3 - CLOSURE AND RESTRUCTURING COSTS

    In 2005 and 2006, the Company announced the permanent or temporary
shutdown of certains operating units and production equipment. The following
table provides a reconciliation of all closure and restructuring cost
provisions.

                                        For the                 For the
                                    3-month periods         6-month periods
                                     ended June 30,          ended June 30,
                                    2007        2006        2007        2006
                                 --------------------------------------------

    Balance at beginning of
     period                           36          41          47          55
    Additionnal (reversal)
     provision - severance
     and pension liability            (4)          1          (2)          7
    Non-monetary items                (1)          -          (1)          -
    Payments                          (3)         (3)        (16)        (23)
    -------------------------------------------------------------------------

    Balance at end of period          28          39          28          39
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    NOTE 4 - COMMODITY DERIVATIVES FINANCIAL INSTRUMENTS

                                        For the                 For the
                                    3-month periods         6-month periods
                                     ended June 30,          ended June 30,
                                    2007        2006        2007        2006
                                 --------------------------------------------
    Realized loss (gain) on
     commodity derivatives
     financial instruments            (1)          1          (4)          2
    Unrealized loss (gain)
     on commodity derivatives
     financial instruments             4          (1)         (3)         (7)
    -------------------------------------------------------------------------
                                       3           -          (7)         (5)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    NOTE 5 - UNUSUAL GAINS AND LOSSES

    a) On May 1, 2007, the Company sold the building of its Toronto
(Pickering) tissue converting facility, closed in 2005, for an amount of
$7 million. The Company realized a gain of $1 million.
    b) In the second quarter of 2007, the Company recorded a provision of
$3 million related to the action filed by ServiceCore, Inc. and to the class
actions filed following the infractions of 2006 under the Competition Act
relating to the sale of carbonless paper sheets by Cascades Fine Papers Group,
Inc. An amount of $1 million of this provision is presented in discontinued
operations.
    c) In the second quarter of 2007, the Company recorded a dilution gain of
$15 million resulting from the decreased of its participation in Boralex from
43% to 34% as a result of a public equity offering of 7.3 million common
shares by Boralex at a price of $15.00. This gain is presented in the share of
results of significantly influenced companies.
    d) In the second quarter of 2007, the Company recorded a gain of
$5 million related to the settlement of a portion of the pension plan of the
Thunder Bay coated fine paper mill, closed in January 2006. This gain and the
provision of $1 million discussed in b) above are recorded in discontinued
operations net of related income taxes of $1 million.

    NOTE 6 - BUSINESS ACQUISITION AND DISPOSAL

    a) On December 29, 2006, the Company acquired the remaining outstanding
common shares (50%) of Norampac Inc. "Norampac" held by Domtar Inc. for a
total purchase price of $561 million. The balance sheet and results of
Norampac are fully consolidated since that date as they were proportionally
consolidated prior to the acquisition. The purchase price allocations for the
Norampac acquisition have not yet been completed mainly with respect to the
identification and valuation of property, plant and equipment and other
potential intangible assets. The final allocation of the purchase price could
result in significant changes.
    b) On January 25, 2007, the Company sold its 40% interest in GSD
Packaging, LLC, a U.S. food pail manufacturing company of the Boxboard Group,
to Rock-Tenn Company for a cash consideration of $38 million (US$32 million).
The Company realized a gain of $25 million before income tax of $11 million.
    Assets and liabilities at the time of disposal where as follows:

    Business segment                                                Boxboard
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Accounts receivable                                                    2
    Inventories                                                            4
    Property, plant and equipment                                          2
    Goodwill                                                               6
    -------------------------------------------------------------------------
                                                                          14
    Accounts payable and accrued liabilities                              (2)
    -------------------------------------------------------------------------
                                                                          12
    Gain on disposal                                                      25
    -------------------------------------------------------------------------
    Total consideration received, net of cash disposed of
     $1 million                                                           37
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    c) On June 20, 2007, Reno De Medici S.p.A. ("RdM") and Cascades Inc.
announced the signing of a Letter of Intent for the negotiation of the terms
and conditions of a possible combination of RdM and the european recycled
cartonboard business of Cascades S.A. Concurrently with the proposed merger,
Cascades S.A. and a group of current shareholders of RdM are expected to enter
into a three-year shareholders' agreement covering matters relating to
corporate governance (where Cascades S.A., on the one hand, and a group of
current shareholders of RdM, on the other hand, would be equally represented
in the board of directors of RdM), and providing for an 18-month lock-up and
thereafter reciprocal first refusal and tag-along rights.
    The combination is subject to several conditions including reciprocal due
diligence, the negotiation and signing of definitive agreements, Board
approval, the approval of the shareholders of RdM by special resolution at a
meeting to be called specifically for this purpose, the approval of the
appropriate antitrust and regulatory authorities, to the transaction not being
subject to mandatory tender offer requirements for RdM shares in Italy and in
Spain, and to customary closing conditions. The merger is expected to be
effective at the beginning of 2008 upon expiry of applicable statutory delays.
The impact on the financial statements of the Company will be determined upon
the final closing of the transaction.


    NOTE 7 - OTHER ASSETS
                                                         As at         As at
                                                       June 30,  December 31,
                                                          2007          2006
                                                      -----------------------

    Investments in significantly influenced
     companies                                             116           107
    Other investments                                       12            12
    Deferred charges                                        16            34
    Employee future benefits                                60            52
    Fair value of derivatives financial instruments          8             7
    Customer relationship and client lists                  71            77
    Other finite-life intangible assets                     14            14
    -------------------------------------------------------------------------
                                                           297           303
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    NOTE 8 - LONG-TERM DEBT
                                                         As at         As at
                                                       June 30,  December 31,
                                                          2007          2006
                                                      -----------------------

    7.25% and 6.75% unsecured senior notes
     (US$925 million, net of deferred financing costs)     976         1,078
    Revolving and term credit facilities                   619           557
    Other debt from subsidiaries                            15            28
    Other debt from joint ventures                           3             3
    -------------------------------------------------------------------------
                                                         1,613         1,666
    Current portion                                          6             9
    -------------------------------------------------------------------------
                                                         1,607         1,657
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    On June 27, 2007, the Company amended its credit facility to add a new
12-month unsecured revolving credit facilty in the amount of $100 million to
provide additional availability of funds.


    NOTE 9 - OTHER LIABILITIES
                                                         As at         As at
                                                       June 30,  December 31,
                                                          2007          2006
                                                      -----------------------

    Employee future benefits                               108           107
    Future income taxes                                    272           286
    Fair value of derivatives financial instruments          6             2
    Legal settlement                                         9            11
    Non-controlling interest                                21            19
    Others                                                  11            14
    -------------------------------------------------------------------------
                                                           427           439
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    NOTE 10 - ADDITIONAL INFORMATION

                                        For the                 For the
                                    3-month periods         6-month periods
                                     ended June 30,          ended June 30,
                                    2007        2006        2007        2006
                                 --------------------------------------------

    (a) Cost of sales
          Foreign exchange
           gain                        3           -           3           -

    (b) Employee future
         benefits expenses
          Defined benefit
           pension plans               3           3           5           6
          Other employee
           future benefit
           plans                       3           2           5           4
          Defined
           contribution
           pension plans               1           1           2           2

    (c) Supplemental
         disclosure
          Depreciation of
           property, plant
           and equipment              49          39         100          78
          Amortization of
           other assets                3           2           5           3
          Amortization of
           deferred financing
           cost included in
           interest expense            1           1           2           2
          Interest paid               18           7          55          40
          Income taxes paid           16          10          26           4

    (d) Discountinued
         operations
          Cash and cash
           equivalents
           provided by
           discountinued
           operations
           including proceeds
           on disposal                 -           -           -          57


    NOTE 11 - CAPITAL STOCK

    As at June 30, 2007, the capital stock issued and outstanding consisted of
99,341,651 common shares (99,533,654 as at December 31, 2006). As at June 30,
2007, 2,555,537 stock options were issued and outstanding (2,315,391 as at
December 31, 2006). During the period, 103,397 options were exercised and
78,525 were forfeited. In addition, the Company issued 422,068 stock options
during the period at an exercise price of $11.83.
    In 2007, in the normal course of business, the Company renewed its share
repurchase program of a maximum of 4,970,094 common shares with the Toronto
Stock Exchange which represents approximately 5% of issued and outstanding
common shares. The program is valid from March 13, 2007 to March 12, 2008. As
of June 30, 2007, the Company repurchased 295,400 common shares under this
program for a consideration of approximately $3.9 million.

    NOTE 12 - ACCUMULATED OTHER COMPREHENSIVE INCOME

                                                         As at         As at
                                                       June 30,  December 31,
                                                          2007          2006
                                                      -----------------------
    Foreign currency translation of self-sustaining
     foreign subsidiaries, net of hedging activities       (48)           (9)
    Unrealized gains arising from foreign exchange
     forward contracts designated as cash flow hedges,
     net of related income taxes                             3             -
    Unrealized gains arising from commodity
     derivatives financial instruments designated as
     cash flow hedges, net of related income taxes           2             -
    -------------------------------------------------------------------------
                                                           (43)           (9)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Selected Segmented Information
    (in millions of Canadian dollars)
    (unaudited)

                                        For the                 For the
                                    3-month periods         6-month periods
                                     ended June 30,          ended June 30,
                                    2007        2006        2007        2006
                                 --------------------------------------------
    Sales
    Packaging products
      Boxboard
        Manufacturing                206         167         407         339
        Converting                   177         185         346         369
        Eliminations and others      (28)        (15)        (52)        (27)
                                 --------------------------------------------
                                     355         337         701         681
      Containerboard
        Manufacturing                152          86         306         168
        Converting                   256         131         495         251
        Eliminations and others     (101)        (62)       (200)       (120)
                                 --------------------------------------------
                                     307         155         601         299
      Specialty products
        Manufacturing                 81          85         167         170
        Converting                    58          57         117         111
        Recovery, deinked pulp
         and eliminations             94          53         187         103
                                 --------------------------------------------
                                     233         195         471         384

      Eliminations                   (29)        (21)        (57)        (41)
                                 --------------------------------------------
                                     866         666       1,716       1,323
    Tissue papers
      Manufacturing and
       converting                    180         182         366         351

    Eliminations and others           (5)         (7)        (14)        (15)
    -------------------------------------------------------------------------
    Consolidated total             1,041         841       2,068       1,659
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                        For the                 For the
                                    3-month periods         6-month periods
                                     ended June 30,          ended June 30,
                                    2007        2006        2007        2006
                                 --------------------------------------------
    Operating income (loss)
     before depreciation and
     amortization from
     continuing operations
     and operating income
     from continuing operations

    Packaging products
      Boxboard
        Manufacturing                 (1)          -          (5)          4
        Converting                    13          16          51          32
        Others                        (1)         (2)         (3)         (5)
                                 --------------------------------------------
                                      11          14          43          31
      Containerboard
        Manufacturing                 14          12          35          20
        Converting                    20          12          35          23
        Others                         3           2           6           1
                                 --------------------------------------------
                                      37          26          76          44

      Specialty products
        Manufacturing                 (1)          5           3           3
        Converting                     5           8          12          14
        Recovery, deinked pulp
         and others                    6           2          12           8
                                 --------------------------------------------
                                      10          15          27          25
                                 --------------------------------------------
                                      58          55         146         100
    Tissue papers
      Manufacturing and
       converting                     16          29          35          58

    Corporate                          5           1           6          (2)
    -------------------------------------------------------------------------
    Operating income before
     depreciation and
     amortization from
     continuing operations            79          85         187         156
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Depreciation and amortization
      Boxboard                       (17)        (16)        (34)        (33)
      Containerboard                 (16)        (10)        (32)        (19)
      Specialty products              (8)         (7)        (16)        (14)
      Tissue papers                   (9)        (10)        (18)        (19)
      Corporate and eliminations      (2)          2          (5)          4
                                 --------------------------------------------
                                     (52)        (41)       (105)        (81)
                                 --------------------------------------------
    Operating income from
     continuing operations            27          44          82          75
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                        For the                 For the
                                    3-month periods         6-month periods
                                     ended June 30,          ended June 30,
                                    2007        2006        2007        2006
                                 --------------------------------------------
    Purchases of property, plant
     and equipment
    Packaging products
      Boxboard
        Manufacturing                  4           1           7           2
        Converting                     9           7          18          12
        Others                         -           1           -           1
                                 --------------------------------------------
                                      13           9          25          15
      Containerboard
        Manufacturing                  4           6           5           8
        Converting                     1           3           4           6
        Others                         -           -           -           -
                                 --------------------------------------------
                                       5           9           9          14
      Specialty products
        Manufacturing                  2           2           5           3
        Converting                     2           1           4           2
        Recovery, deinked pulp
         and others                    1           2           2           3
                                 --------------------------------------------
                                       5           5          11           8
                                 --------------------------------------------
                                      23          23          45          37
    Tissue papers
      Manufacturing and
       converting                      9           3          19           5

    Corporate                          2           1           4           2
    -------------------------------------------------------------------------
    Consolidated total                34          27          68          44
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Additional information
    (in millions of Canadian dollars, except shipments and share information)
    (unaudited)
                                        For the                 For the
                                    3-month periods         6-month periods
                                     ended June 30,          ended June 30,
                                    2007        2006        2007        2006
                                 --------------------------------------------

    Common shares -
     Toronto Stock Exchange
                        High      $13.05      $11.99      $15.80      $11.99
                         Low      $11.00      $10.51      $11.00       $9.66
                      Volume  20,318,000   5,246,000  39,764,000  10,801,000
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Shipments of manufacturing and converting products
      (in thousands of short tons)
    Packaging products
      Boxboard                       313         276         614         569
      Containerboard                 367         190         717         378
      Specialty products             114         117         229         232
    Tissue papers                    112         114         221         218
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Supplemental information on non-GAAP measure

    Operating income before depreciation and amortization and operating income
are not measures of performance under Canadian GAAP. The Company includes
operating income before depreciation and amortization and operating income
because they are the measures used by management to assess the operating and
financial performance of the Company's operating segments. As well, the
Company believes that operating income before depreciation and amortization
and operating income provides an additional measure 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
and operating income do not represent, and should not be used as a substitute
for net earnings or cash flows from operations as determined in accordance
with Canadian GAAP and operating income before depreciation and amortization
and operating income 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 and operating income
may differ from that of other companies.
    Net earnings, which is a performance measure defined by Canadian GAAP is
reconcilied below to operating income and to operating income before
depreciation and amortization:

                                       For the                 For the
                                    3-month periods         6-month periods
                                     ended June 30,          ended June 30,
                                    2007        2006        2007        2006
                                 --------------------------------------------
    Net earnings for the
     period                           45          33          67          39
    Net loss (earnings) from
     discontinued operations          (3)          1          (3)          4
    Non-controlling interest           -           -           1           -
    Share of results of
     significantly influenced
     companies                       (17)         (1)        (21)         (4)
    Provision for income
     taxes                             -           4          13           8
    Foreign exchange gain
     on long-term debt               (25)        (14)        (29)        (14)
    Interest expense                  27          21          54          42
                                 --------------------------------------------

    Operating income from
     continuing operations            27          44          82          75

    Depreciation and
     amortization                     52          41         105          81
                                 --------------------------------------------
    Operating income before
     depreciation and
     amortization
                                      79          85         187         156
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    




For further information:

For further information: Media: Ms. Christine Beaulieu, Manager,
Communications, (819) 350-0793; Investors: Mr. Marc Jasmin, C.M.A., Director,
Investor relations, Cascades Inc., (514) 282-2681; Source: Mr. Christian Dubé,
Vice-President and Chief Financial Officer, Cascades Inc.


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