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Cascades reports third quarter results


News provided by

CASCADES INC.

Nov 12, 2010, 06:00 ET

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KINGSEY FALLS, QC, Nov. 12 /PRNewswire-FirstCall/ - Cascades Inc. (CAS on the Toronto stock exchange), 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 months ended September 30, 2010.

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

    Third quarter highlights
    ------------------------

    - Net earnings per share excluding specific items of $0.29 compared to
      $0.22 in the previous quarter and $0.36 in the same period of last
      year. Including specific items, net earnings per share of $0.31
      compared to $0.22 in the previous quarter and $0.35 in the
      corresponding period of last year.
    - Operating income before depreciation and amortization (EBITDA)
      excluding specific items of $115 million, up 7% in comparison to
      Q2 2010. EBITDA excluding specific items amounted to $127 million in
      the third quarter of 2009.
    - Cash flow from operations (adjusted) of $82 million compared to
      $71 million in the second quarter of 2010 and $94 million in the same
      period of last year.
    - Net debt down $37 million and $54 million in comparison to the previous
      period and to the third quarter of last year respectively. Debt-to-
      capitalization ratio at its lowest level in 6 years.
    - Total shipments up 5% compared to the third quarter of 2009 (excluding
      the impact of acquisitions).
    - Highest quarterly EBITDA of containerboard operations since 2006.

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

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

    Selected consolidated information
    (in millions of Canadian dollars, except     ----------------------------
     amounts per share)                          Q3/2010   Q3/2009   Q2/2010
    -------------------------------------------------------------------------

    Sales                                          1,028       974       998
    Excluding specific items(1)
      Operating income before depreciation
       and amortization (OIBD or EBITDA)             115       127       107
      Operating income                                62        74        56
      Net earnings attributable to shareholders
       for the period                                 28        35        21
        per common share                           $0.29     $0.36     $0.22
      Cash flow from operations (adjusted)            83        95        71
    As reported
    Operating income before depreciation and
     amortization (OIBD or EBITDA)(1)                111       129       101
    Operating income                                  58        76        50
    Net earnings attributable to shareholders
     for the period                                   30        34        21
      per common share                             $0.31     $0.35     $0.22
    Cash flow from operations (adjusted)(1)           82        94        71
    -------------------------------------------------------------------------
    Note 1 - see the supplemental information on non-GAAP measures.

Commenting on the third quarter results, Mr. Alain Lemaire, President and Chief Executive Officer stated: "As anticipated, our results continued to recover sequentially after hitting a soft patch in the first three months of the year. Demand remained solid, in line with the usual seasonality and a moderate and uncertain economic recovery. Our North American and European packaging operations benefited from selling price increases implemented during or prior to the third quarter. Of particular note is the fact that our containerboard segment posted its highest quarterly EBITDA since we acquired the full ownership of Norampac in 2006. This achievement is significant considering that the Canadian dollar was around 88 U.S. cents and recycled fibre costs were more than 30% lower in 2006.

In our tissue operations, as a result of very competitive retail markets, we were unable to fully offset the cost inflation through better selling prices. However, all in all, given our diversified business mix and the numerous restructuring measures realized over the years, I am pleased that Cascades continues to generate good net earnings and free cash flow to pay down debt despite high recycled fibre costs and a strong Canadian dollar."

    Results analysis for the three-month period ended Sept 30, 2010 (compared
    -------------------------------------------------------------------------
    to the previous year)
    ---------------------

In comparison with the same period last year, sales rose by 6% to $1,028 million resulting from higher selling prices, business acquisitions and a 5% increase in shipments (excluding the impact of the acquisition of the tissue assets of Atlantic Packaging). This was partly offset by the 6% appreciation of the Canadian dollar.

The operating income excluding specific items amounted to $62 million compared to $74 million in Q3 2009. Improved volumes and selling prices were more than offset by the rise of raw material costs and the Canadian dollar. When including specific items, operating income amounted to $58 million in comparison to $76 million in the same period of last year. The improved results in our containerboard segment were more than offset by a lower operating income in our tissue and corporate segments.

Net earnings excluding specific items amounted to $28 million ($0.29 per share) in the third quarter of 2010 compared to $35 million ($0.36 per share) for the same period of last year. Including specific items, net earnings amounted to $30 million ($0.31 per share) compared to $34 million ($0.35 per share) for the same quarter in 2009. Net earnings of the third quarter of 2010 include a $3 million favorable adjustment for income tax provisions of prior periods.

As a result of the appreciation of the Canadian dollar and free cash flow generation, net debt decreased by $37 million compared to June 30th 2010 and by $54 million year-over-year.

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

    - $4 million in unrealized loss on financial instruments (impact on
      operating income and net earnings);
    - $2 million gain on disposal and others (impact on operating income and
       net earnings);
    - $1 million impairment loss (impact on operating income and net
      earnings);
    - $1 million in closure and restructuring costs (impact on operating
      income and net earnings);
    - $9 million gain resulting mainly from our share of the gain realized by
      Boralex following its acquisition of Boralex Power Income Fund (impact
      on net earnings).
    - $4 million foreign exchange loss on long-term debt and financial
      instruments (impact on net earnings).

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

    Results analysis for the three-month period ended Sept 30, 2010 (compared
    -------------------------------------------------------------------------
    to the previous quarter)
    ------------------------

In comparison to the previous quarter, sales, operating income as well as net earnings improved mostly due to higher selling prices. Total shipments remained relatively stable mainly as a result of lower seasonal demand in our boxboard operations and raw material costs continued to negatively impact profitability.

    Fourth quarter outlook
    ----------------------

Mr. Alain Lemaire, President and Chief Executive Officer added: "Looking ahead to the fourth quarter, despite selling price inflation in some of our sectors, we expect a sequential decrease in profitability as a result of lower volumes due to normal seasonality and planned maintenance downtimes. In addition, recycled fibre costs and the Canadian dollar have recently begun to trend up and might remain higher than in the previous quarter until the end of the year."

    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 December 17, 2010 to shareholders of record at the close of business on December 3, 2010. This dividend paid by Cascades is an "eligible dividend" as per the Income Tax Act (Bill C-28, Canada). In addition, in the third quarter of 2010, in accordance with its normal course issuer bid program, Cascades purchased for cancellation 70,000 shares at an average price of $6.28 representing an aggregate amount of approximately $0.4 million. After nine months in 2010, Cascades purchased for cancellation 633,181 shares at an average price of $7.18 representing an aggregate amount of approximately $4.5 million

    Supplemental information on non-GAAP measures
    ---------------------------------------------

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

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

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

Net earnings attributable, which is a performance measure defined by Canadian GAAP is reconciled below to operating income, 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)            Q3/2010   Q3/2009   Q2/2010
    -------------------------------------------------------------------------
    Net earnings attributable to shareholders
     for the period                                   30        34        21
    Non-controlling interest                           -         -         1
    Share of results of significantly influenced
     companies                                       (11)       (3)        -
    Provision for income taxes                         8        17         7
    Foreign exchange loss (gain) on long-term
     debt and financial instruments                    4         3        (6)
    Financing expense                                 27        25        27
                                                 ----------------------------
    Operating income                                  58        76        50
    Specific items :
    Gain on disposal and others                       (2)        -         -
    Impairment loss                                    1         1         -
    Closure and restructuring costs                    1         5         -
    Unrealized loss (gain) on financial
     instruments                                       4        (8)        6
                                                 ----------------------------
                                                       4        (2)        6
                                                 ----------------------------
    Operating income - excluding specific items       62        74        56

    Depreciation and amortization                     53        53        51
                                                 ----------------------------
    Operating income before depreciation and
     amortization (OIBD or EBITDA) - excluding
     specific items                                  115       127       107
    -------------------------------------------------------------------------

The following table reconciles net earnings attributable to shareholders for the period and net earnings per share attributable to shareholders for the period to net earnings attributable to shareholders for the period excluding specific items and net earnings per share attributable to shareholders for the period excluding specific items:

                        -------------------------- --------------------------
    (in millions of         Net earnings (loss)        Net earnings (loss)
     Canadian dollars,        attributable to        per share attributable
     except amounts          shareholders for          to shareholders for
     per share)                 the period                the period(1)
    -------------------------------------------------------------------------
                        Q3/2010  Q3/2009  Q2/2010  Q3/2010  Q3/2009  Q2/2010
                        -------------------------- --------------------------

    As per GAAP              30       34       21    $0.31    $0.35    $0.22
    Specific items :
    Gain on disposal
     and others              (2)       -        -   $(0.01)     $ -      $ -
    Impairment loss           1        1        -    $0.01    $0.01      $ -
    Closure and
     restructuring costs      1        5        -    $0.01    $0.03      $ -
    Unrealized loss
     (gain) financial
     instruments              4       (8)       6    $0.04   $(0.06)   $0.05
    Foreign exchange
     loss (gain) on
     long-term debt
     and financial
     instruments              4        3       (6)   $0.03    $0.03   $(0.05)
    Share of results
     of significantly
     influenced companies    (9)       -        -   $(0.10)     $ -      $ -
    Tax effect on
     specific items          (1)       -        -
                        -------------------------- --------------------------
                             (2)       1        -   $(0.02)   $0.01      $ -
                        -------------------------- --------------------------
    Excluding specific
     items                   28       35       21    $0.29    $0.36    $0.22
    ---------------------------------------------- --------------------------
    ---------------------------------------------- --------------------------
    Note 1 - specific amounts per share are calculated on an after-tax basis.

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

                                                 ----------------------------
                                                  Cash flow from operations
                                                 ----------------------------
    (in millions of Canadian dollars)            Q3/2010   Q3/2009   Q2/2010
    -------------------------------------------------------------------------

    Cash flow provided by operating activities        73       117        22
    Changes in non-cash working capital
     components                                        9       (23)       49
                                                 ----------------------------
    Cash flow (adjusted) from operations              82        94        71
    Specific item :
    Closure and restructuring costs, net of
     current income tax                                1         1         -
                                                 ----------------------------

    Excluding specific items                          83        95        71
    -------------------------------------------------------------------------

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

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

    Consolidated Balance Sheets
    (in millions of Canadian dollars)

                                                         As at         As at
                                                  September 30,  December 31,
                                                          2010          2009
                                                  ---------------------------
    Assets                                          (unaudited)

    Current assets
    Cash and cash equivalents                               21            19
    Accounts receivable                                    633           543
    Inventories                                            533           520
    -------------------------------------------------------------------------
                                                         1,187         1,082
    Property, plant and equipment                        1,843         1,912
    Intangible assets                                      152           165
    Other assets                                           353           317
    Goodwill                                               316           316
    -------------------------------------------------------------------------
                                                         3,851         3,792
                                                  ---------------------------
                                                  ---------------------------
    Liabilities and Equity

    Current liabilities
    Bank loans and advances                                 79            83
    Accounts payable and accrued liabilities               567           505
    Current portion of long-term debt                       11            10
    -------------------------------------------------------------------------
                                                           657           598
    Long-term debt                                       1,447         1,459
    Other liabilities                                      418           410
    -------------------------------------------------------------------------
                                                         2,552         2,467
                                                  ---------------------------
    Commitments and Contingencies
    Equity attributable to the Shareholders
    Capital stock                                          496           499
    Contributed surplus                                     14            14
    Retained earnings                                      739           700
    Accumulated other comprehensive income                  58            91
    -------------------------------------------------------------------------
                                                         1,307         1,304
    Non-controlling interest                                22            21
    -------------------------------------------------------------------------
    Total equity                                         1,329         1,325
    -------------------------------------------------------------------------

                                                         3,851         3,792
                                                  ---------------------------
                                                  ---------------------------

    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 3-month         For the 9-month
                                     periods ended           periods ended
                                      September 30,           September 30,
                                    2010        2009        2010        2009
                              -----------------------------------------------
    Sales                          1,028         974       2,968       2,925
    Cost of sales and expenses
    Cost of sales (excluding
     depreciation and
     amortization)                   814         752       2,371       2,254
    Depreciation and
     amortization                     53          53         159         162
    Selling and administrative
     expenses                         99          93         298         309
    Loss (gain) on disposal
     and others                       (2)          -          (2)          1
    Impairment and other
     restructuring costs               2           6           2          14
    Loss (gain) on financial
     instruments                       4          (6)          5         (15)
    -------------------------------------------------------------------------
                                     970         898       2,833       2,725
    -------------------------------------------------------------------------
    Operating income                  58          76         135         200

    Financing expense                 27          25          82          77
    Loss on refinancing of
     long-term debt                    -           -           3           -
    Gain on purchases of
     senior notes                      -           -           -         (14)
    Foreign exchange loss
     (gain) on long-term debt
     and financial instruments         4           3          (1)          8
    -------------------------------------------------------------------------
                                      27          48          51         129
    Provision for income taxes         8          17          12          39
    Share of results of
     significantly influenced
     companies                       (11)         (3)        (13)        (10)
    -------------------------------------------------------------------------
    Net earnings including
     non-controlling interest
     for the period                   30          34          52         100
    Non-controlling interest           -           -           1          (1)
    -------------------------------------------------------------------------
    Net earnings attributable
     to Shareholders for the
     period                           30          34          51         101
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Net earnings from
     continuing operations
     per common share
    Basic                          $0.31       $0.35       $0.53       $1.03
                              -----------------------------------------------
                              -----------------------------------------------
    Diluted                        $0.30       $0.34       $0.52       $1.02
                              -----------------------------------------------
                              -----------------------------------------------

    Weighted average number
     of common shares
     outstanding              96,645,061  97,430,683  96,874,069  97,781,928
                              -----------------------------------------------
                              -----------------------------------------------

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


    Consolidated Statements of Equity
    (in millions of Canadian dollars)
    (unaudited)

                             For the 9-month period ended September 30, 2010
               --------------------------------------------------------------
                                                     Total
                                             Accu-  equity
                                          mulated  attribu-     Non-
                                      Re-   other    table  control-
                         Contri-  tained   compre-  to the     ling
               Capital    buted      ear- hensive    share-    inte-   Total
                 stock  surplus    nings   income  holders     rest   equity
               --------------------------------------------------------------
    Balance -
     Beginning
     of period     499       14      700       91    1,304       21    1,325
    Compre-
     hensive
     income
     (loss):
      Net
       earnings
       for the
       period        -        -       51        -       51        1       52
      Change in
       other
       compre-
       hensive
       income
       (loss)        -        -        -      (33)     (33)       -      (33)
                                                   --------------------------
    Compre-
     hensive
     income
     (loss)
     for the
     period                                             18        1       19
                                                   --------------------------
    Dividends        -        -      (12)       -      (12)       -      (12)
    Stock
     options         -        1        -        -        1        -        1
    Redemption
     of common
     shares         (3)      (1)       -        -       (4)       -       (4)
               --------------------------------------------------------------
    Balance
     - End of
     period        496       14      739       58    1,307       22    1,329
               --------------------------------------------------------------
               --------------------------------------------------------------

                             For the 9-month period ended September 30, 2009
               --------------------------------------------------------------
                                                     Total
                                             Accu-  equity
                                          mulated  attribu-     Non-
                                      Re-   other    table  control-
                         Contri-  tained   compre-  to the     ling
               Capital    buted      ear- hensive    share-    inte-   Total
                 stock  surplus    nings   income  holders     rest   equity
               --------------------------------------------------------------
    Balance -
     Beginning
     of period     506        9      656       85    1,256       22    1,278
    Compre-
     hensive
     income:
      Net
       earnings
       (loss)
       for the
       period        -        -      101        -      101       (1)     100
      Change in
       other
       compre-
       hensive
       income
       (loss)        -        -        -       (8)      (8)       -       (8)
                                                   --------------------------
    Compre-
     hensive
     income
     (loss)
     for the
     period                                             93       (1)      92
                                                   --------------------------
    Dividends        -        -      (12)       -      (12)       -      (12)
    Stock
     options         -        1        -        -        1        -        1
    Redemption
     of common
     shares         (6)       3        -        -       (3)       -       (3)
               --------------------------------------------------------------
    Balance
     - End of
     period        500       13      745       77    1,335       21    1,356
               --------------------------------------------------------------
               --------------------------------------------------------------

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


    Consolidated Statements of Comprehensive Income (Loss)
    (in millions of Canadian dollars)
    (unaudited)

                                    For the 3-month         For the 9-month
                                     periods ended           periods ended
                                      September 30,           September 30,
                                    2010        2009        2010        2009
                              -----------------------------------------------
    Net earnings including
     non-controlling interest
     for the period                   30          34          52         100
                              -----------------------------------------------
    Other comprehensive income
     (loss)
      Translation adjustments
      Foreign currency
       translation of
       self-sustaining foreign
       subsidiaries                   (6)        (61)        (21)       (105)
      Change in foreign currency
       translation related to
       hedging activities             17          48           9          73
      Income taxes                    (3)         (7)         (2)        (10)
      Cash flow hedges
      Change in fair value of
       foreign exchange forward
       contracts                       3          23           1          52
      Change in fair value of
       interest rate swaps             -           -          (3)          -
      Change in fair value of
       commodity derivative
       financial instruments         (13)         (1)        (24)         (1)
      Income taxes                     2          (7)          7         (17)
                              -----------------------------------------------
                                       -          (5)        (33)         (8)
                              -----------------------------------------------
    Comprehensive income (loss)
     including non-controlling
     interest for the period          30          29          19          92
                              -----------------------------------------------
    Less: Comprehensive income
     (loss) attributable to
     non-controlling interest          -           -           1          (1)
                              -----------------------------------------------
    Comprehensive income
     (loss) attributable to
     Shareholders                     30          29          18          93
                              -----------------------------------------------
                              -----------------------------------------------

    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 3-month         For the 9-month
                                         periods                 periods
                                    2010        2009        2010        2009
                              -----------------------------------------------
                                                                   (restated
                                                                   - note 1a)
    OPERATING ACTIVITIES FROM
     CONTINUING OPERATIONS
    Net earnings attributable
     to Shareholders for the
     period                           30          34          51         101
    Adjustments for
      Depreciation and
       amortization                   53          53         159         162
      Loss (gain) on disposal
       and others                     (2)          -          (2)          1
      Impairment and other
       restructuring costs             1           5           1           8
      Unrealized loss (gain) on
       financial instruments           4          (8)          6         (22)
      Gain on purchases of
       senior notes                    -           -           -         (14)
      Foreign exchange loss
       (gain) on long-term
       debt and financial
       instruments                     4           3          (1)          8
      Future income taxes              4          12          (8)         11
      Share of results of
       significantly influenced
       companies                     (11)         (3)        (13)        (10)
      Non-controlling interest         -           -           1          (1)
      Others                          (1)         (2)         (3)         (1)
    -------------------------------------------------------------------------
                                      82          94         191         243
    Change in non-cash working
     capital components               (9)         23         (62)         23
    -------------------------------------------------------------------------
                                      73         117         129         266
    -------------------------------------------------------------------------
    INVESTING ACTIVITIES FROM
     CONTINUING OPERATIONS
    Purchases of property,
     plant and equipment             (25)        (52)        (81)       (122)
    Increase in other assets         (16)         (1)        (27)         (9)
    Business acquisitions              -         (61)         (3)        (64)
    -------------------------------------------------------------------------
                                     (41)       (114)       (111)       (195)
    -------------------------------------------------------------------------
    FINANCING ACTIVITIES FROM
     CONTINUING OPERATIONS
    Bank loans and advances           (2)         (3)         (2)        (22)
    Change in revolving credit
     facilities                      (26)         14         175         (31)
    Purchases of senior notes          -           -        (165)        (18)
    Change in other long-term
     debt                              -           2           -          27
    Payments of other long-term
     debt                             (1)         (3)         (6)         (8)
    Early settlement of foreign
     exchange contracts                -           -           -           8
    Redemption of common shares        -          (1)         (4)         (3)
    Dividends                         (4)         (4)        (12)        (12)
    -------------------------------------------------------------------------
                                     (33)          5         (14)        (59)
    -------------------------------------------------------------------------
    Change in cash and cash
     equivalents during the
     period from continuing
     operations                       (1)          8           4          12
    Change in cash and cash
     equivalents from
     discontinued operations           -           -          (2)         (3)
    -------------------------------------------------------------------------
    Net change in cash and
     cash equivalents during
     the period                       (1)          8           2           9
    Translation adjustments on
     cash and cash equivalents         -           -           -           -
    Cash and cash equivalents
     - Beginning of period            22          12          19          11
    -------------------------------------------------------------------------

    Cash and cash equivalents
     - End of period                  21          20          21          20
                              -----------------------------------------------
                              -----------------------------------------------

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


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

As at June 30, 2010, the Company has modified its segmented information disclosure for its Specialty Products segments in order to reflect how management analyses this information. The Specialty Products segment is divided into four subsectors: Industrial packaging, Consumer packaging, Specialty papers and Recovery and recycling. The Company has reclassified comparative figures to conform to the presentation adopted.

                                    For the 3-month         For the 9-month
                                     periods ended           periods ended
                                      September 30,           September 30,
                                    2010        2009        2010        2009
                              -----------------------------------------------
    Sales
    Packaging products
      Boxboard
        Manufacturing                181         170         538         528
        Converting                   160         170         475         532
        Intersegment sales           (22)        (19)        (65)        (67)
                              -----------------------------------------------
                                     319         321         948         993
      Containerboard
        Manufacturing                155         132         437         393
        Converting                   227         222         638         652
        Intersegment sales           (90)        (82)       (257)       (235)
                              -----------------------------------------------
                                     292         272         818         810
      Specialty products
        Industrial packaging          51          45         146         137
        Consumer packaging            20          21          58          62
        Specialty papers              74          78         230         239
        Recovery and recycling        77          53         228         137
        Intersegment sales            (2)         (2)         (7)         (6)
                              -----------------------------------------------
                                     220         195         655         569

        Intersegment sales           (28)        (17)        (85)        (45)
                              -----------------------------------------------
                                     803         771       2,336       2,327
    Tissue papers
      Manufacturing and
       converting                    227         210         645         628

    Intersegment sales and other      (2)         (7)        (13)        (30)
    -------------------------------------------------------------------------
    Total                          1,028         974       2,968       2,925
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                    For the 3-month         For the 9-month
                                     periods ended           periods ended
                                     September 30,           September 30,
                                    2010        2009        2010        2009
                              -----------------------------------------------
    Operating income (loss)
     before depreciation
     and amortization

    Packaging products
      Boxboard
        Manufacturing                  2           8          24          33
        Converting                    18          14          50          42
        Others                        (2)          -          (4)         (2)
                              -----------------------------------------------
                                      18          22          70          73
      Containerboard
        Manufacturing                 29          20          54          81
        Converting                    24          22          71          40
        Others                         -           -          (3)         (5)
                              -----------------------------------------------
                                      53          42         122         116

      Specialty products
        Industrial packaging           7           5          20          15
        Consumer packaging             2           3           5           9
        Specialty papers               5           9          15          29
        Recovery and recycling         7           4          19           4
        Others                         -           -           -          (1)
                              -----------------------------------------------
                                      21          21          59          56

                              -----------------------------------------------
                                      92          85         251         245
    Tissue papers
      Manufacturing and
       converting                     25          38          67         119

    Corporate                         (6)          6         (24)         (2)
    -------------------------------------------------------------------------
    Operating income before
     depreciation and
     amortization                    111         129         294         362
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Depreciation and
     amortization
      Boxboard                       (15)        (19)        (44)        (57)
      Containerboard                 (18)        (16)        (54)        (48)
      Specialty products              (8)         (8)        (26)        (25)
      Tissue papers                  (11)         (9)        (31)        (27)
      Corporate and
       eliminations                   (1)         (1)         (4)         (5)
                              -----------------------------------------------
                                     (53)        (53)       (159)       (162)
                              -----------------------------------------------
    Operating income                  58          76         135         200
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                    For the 3-month         For the 9-month
                                     periods ended           periods ended
                                      September 30,           September 30,
                                    2010        2009        2010        2009
                              -----------------------------------------------

    Purchases of property,
     plant and equipment
    Packaging products
      Boxboard
        Manufacturing                  5           7          11          20
        Converting                     4          10          10          23
                              -----------------------------------------------
                                       9          17          21          43
      Containerboard
        Manufacturing                  -           3          10          10
        Converting                     4           3          12           7
                              -----------------------------------------------
                                       4           6          22          17
      Specialty products
        Industrial packaging           1           -           1           1
        Consumer packaging             2           1           4           2
        Specialty papers               2           3           5           6
        Recovery and recycling         1           2           3          14
                              -----------------------------------------------
                                       6           6          13          23

                              -----------------------------------------------
                                      19          29          56          83
    Tissue papers
      Manufacturing and
       converting                     12          13          23          28

    Corporate                          8          11          14          13
    -------------------------------------------------------------------------
    Total purchases                   39          53          93         124

    Disposal of property, plant
     and equipment                    (4)         (2)         (7)         (5)
    Acquisition under
     capital-lease agreement          (4)          -          (4)          -
    -------------------------------------------------------------------------
                                      31          51          82         119

    Purchases of property,
     plant and equipment
     included in accounts
     payable
      Beginning of period              8          12          13          14
      End of period                  (14)        (11)        (14)        (11)
    -------------------------------------------------------------------------
    Total investing activities        25          52          81         122
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

SOURCE CASCADES INC.

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