Kingsey Falls, QC - Cascades Inc., a leader in the recovery of recyclable materials and the manufacturing of green packaging and tissue paper products, announces its unaudited financial results for the three-month period and the fiscal year ended December 31, 2010.

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

Fiscal year highlights

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

Fourth quarter highlights

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

Recent developments

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

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

Results analysis for the three-month period ended December 31, 2010

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

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

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

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

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

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

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

Results analysis for the three-month period ended December 31, 2010

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

Results analysis for the fiscal year ended December 31, 2010

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

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

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

Near-term outlook

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

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

Dividend on common shares and normal course issuer bid

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

International Financial Reporting Standards

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

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

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

Supplemental information on non-GAAP measures

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

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

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