20-F 1 a2139181z20-f.htm 20-F
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 20-F

(Mark One)

o	Registration Statement pursuant to Section 12(b) or 12(g) of the Securities Exchange Act of 1934
OR
ý	Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2003
OR
o	Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission file number 333-8550

NORAMPAC INC.
(Exact Name of Registrant as Specified in Its Charter)

Not Applicable
(Translation of Registrant's Name Into English)

Canada
(Jurisdiction of Incorporation or Organization)

752 Sherbrooke Street West, Montreal, Quebec, Canada, H3A 1G1
(Address of Principal Executive Offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Not Applicable.

Securities registered or to be registered pursuant to Section 12(g) of the Act:

Not Applicable.

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

6³/4% Senior Notes due 2013

Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report.

20,000,200 common shares

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

ý Yes o No

Indicate by check mark which financial statement item the registrant has elected to follow.

o Item 17 ý Item 18

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

o Yes o No

NORAMPAC INC.
FORM 20-F
For the year ended December 31, 2003

TABLE OF CONTENTS

		Page
Part I
Item 1. Identity of Directors, Senior Management and Advisors		1
Item 2. Offer Statistics and Expected Timetable		1
Item 3. Key Information		1
	Selected Financial Data	1
	Exchange Rate Data	6
	Risk Factors	6
Item 4. Information on the Company		14
	Business Overview	14
	Our History and Development	15
	Our Shareholders	16
	Industry Overview	16
	Mills, Plants and Equipment	16
	Marketing, Sales and Distribution	20
	Raw Materials	21
	Research and Development; Intellectual Property	21
	Competition	22
	Environmental and Other Governmental Regulations	22
	Quality Assurance	23
	Properties	23
	Subsidiaries and Investments	24
	Legal Proceedings	24
Item 5. Operating and Financial Review and Prospects		25
	Overview	25
	Recent Market Conditions	26
	Recent Transactions	27
	Critical Accounting Policies	28
	Results of Operations	31
	Segmented Information	34
	Impact of Inflation and Seasonality	35
	Liquidity and Capital Resources	35
	Off-Balance Sheet Arrangements	37
	Contractual Obligations and Other Commitments	38
	Reconciliation of Canadian GAAP to U.S. GAAP	38
	New Accounting Standards Not Yet Applied in 2003	39
	Change in Accounting Policy	40
Item 6. Directors, Senior Management and Employees		41
	Directors and Senior Management	41
	Biographies	42
	Compensation	43
	Pension Plan	44
	Short Term Incentive Plan	44
	Stock Option Plans	44

TABLE OF CONTENTS
(continued)

		Page
	Employment Agreements	45
	Board Practices	45
	Employees	45
	Share Ownership by Officers and Directors	46
Item 7. Major Shareholders and Related Party Transactions		46
	Related Party Transactions	46
Item 8. Financial Information		51
	Consolidated Statements and Other Financial Information	51
Item 9. Market Information		51
Item 10. Additional Information		51
	Material Contracts	52
	Exchange Controls	52
	Taxation	52
	Where You Can Find More Information	53
Item 11. Quantitative and Qualitative Disclosures About Market Risk		54
	Foreign Currency Risk	54
	Interest Rate Risk	55
	Commodity Price Risk	56
Item 12. Descriptions of Securities Other than Equity Securities		57
Part II
Item 13. Defaults, Dividend Arrearages and Delinquencies		58
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds		58
Item 15. Controls and Procedures		58
Item 16. [Reserved]		58
Item 16A. Audit Committee Financial Expert		58
Item 16B. Code of Ethics		58
Item 16C. Principal Accountant Fees and Services		59
Item 16D. Exemptions from the Listing Standards for Audit Committees		59
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers		59
Part III
Item 17. Financial Statements		60
Item 18. Financial Statements		60
Item 19. Exhibits and Financial Statement Schedule		60

FORWARD-LOOKING STATEMENTS

This Form 20-F contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. You should not place undue reliance on these statements. Forward-looking statements include information concerning possible or assumed future results of operations, capital expenditures, the outcome of pending legal proceedings and claims, goals and objectives for future operations, including descriptions of our business strategies and purchase commitments from customers, among other things. These statements are typically identified by words such as "believe," "anticipate," "expect," "plan," "intend," "estimate" and similar expressions. We base these statements on particular assumptions that we have made in light of our industry experience, as well as our perception of historical trends, current conditions, expected future developments and other factors that we believe are appropriate under the circumstances. As you read and consider the information in this Form 20-F, you should understand that these statements are not guarantees of performance or results. They involve risks, uncertainties and assumptions. Although we believe that these forward-looking statements are based on reasonable assumptions, you should be aware that many factors could affect our actual financial results or results of operations and could cause actual results to differ materially from those expressed in the forward-looking statements, some of which are described under "Item 3. Key Information—Risk Factors" and many of which are beyond our control. These factors include, among other things:

•: cyclical changes in the demand for some of our products;
•: changes in pricing policies by us or some of our competitors;
•: changes in the cost of virgin or recycled fiber, our principal raw material;
•: changes in the cost of labor or energy, our two most significant manufacturing costs, excluding raw materials;
•: the effects of acquisitions we might make;
•: our level of debt;
•: changes in operating expenses or the need for additional capital expenditures;
•: changes in our strategy; and
•: general economic conditions.

In light of these risks and uncertainties, there can be no assurance that the results and events contemplated by the forward-looking information contained in this Form 20-F will in fact transpire. Readers are cautioned not to place undue reliance on these forward-looking statements. We do not undertake any obligation to update or revise any forward-looking statement. All subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these risks and uncertainties, including those described under "Item 3. Key Information—Risk Factors."

PRELIMINARY NOTE

Unless otherwise indicated, all financial information set forth in this Form 20-F is presented in Canadian dollars and is derived from financial statements prepared in accordance with generally accepted accounting principles in Canada, or Canadian GAAP. References to "$" are to Canadian dollars and references to "US$" are to U.S. dollars. We have also included some convenience translations of Canadian dollars to U.S. dollars or U.S. dollars to Canadian dollars. These translations are solely for informational purposes and are based on the noon buying rate of the Bank of Canada on December 31, 2003 of $1.2924 to US$1.00. Unless otherwise indicated or required by the context, as used in this Form 20-F, the terms "we," "our," and "us" refer to Norampac Inc. and all of its subsidiaries that are consolidated under Canadian GAAP. Under Canadian GAAP, joint ventures are proportionately consolidated.

iii

Part I

Item 1. Identity of Directors, Senior Management and Advisors

Not applicable.

Item 2. Offer Statistics and Expected Timetable

Not applicable.

Item 3. Key Information

Selected Financial Data

The following table presents our selected historical financial information as of and for the years ended December 31, 1999, 2000, 2001, 2002 and 2003. The historical financial data as of December 31, 2003 and 2002 and for the years ended December 31, 2001, 2002 and 2003 are derived from and should be read together with our audited consolidated financial statements, and accompanying notes, included elsewhere in this Form 20-F. The historical financial data as of December 31, 1999, 2000 and 2001 and for the years ended December 31, 1999 and 2000 are derived from and should be read in conjunction with our audited consolidated financial statements, and accompanying notes, which have not been included in this Form 20-F but which have been previously filed with the U.S. Securities and Exchange Commission, copies of which can be obtained as described in "Item. 10. Additional Information—Where You Can Find More Information." All of the following historical financial information should also be read together with "Item 5. Operating and Financial Review and Prospects."

Our historical consolidated financial statements have been prepared in accordance with Canadian GAAP. In certain respects, Canadian GAAP differs from U.S. GAAP. See "Item 5. Operating and Financial Review and Prospects—Reconciliation of Canadian GAAP to U.S. GAAP" and note 23 to our audited consolidated financial statements, included elsewhere in this Form 20-F, for a description of the material differences between Canadian GAAP and U.S. GAAP as they relate to our audited consolidated financial statements and the following selected financial data.

We did not declare any dividends on our outstanding common shares during 1999 and 2000. On July 26, 2001, March 31, 2002, March 31, 2003 and March 31, 2004 we paid dividends of $40 million, $32 million, $28 million and $24 million, respectively. These dividends were paid in equal parts to our two shareholders, Cascades Inc. and Domtar Inc.

SELECTED HISTORICAL FINANCIAL INFORMATION
NORAMPAC INC.
(in thousands of Canadian dollars, unless otherwise noted)

		Year ended December 31,
		1999			2000			2001			2002			2003
Statement of Earnings Data:
Sales		$	1,005,206		$	1,154,029		$	1,188,981		$	1,315,122		$	1,258,634
Cost of delivery			80,167			81,625			87,942			99,559			103,797

Net sales			925,039			1,072,404			1,101,039			1,215,563			1,154,837

Cost of goods sold and expenses
	Cost of goods sold		654,031			707,888			753,951			854,745			848,675
	Selling and administrative expenses		104,828			114,301			124,272			149,193			146,719
	Depreciation and amortization		64,046			63,907			71,101			73,038			74,048

			822,905			886,096			949,324			1,076,976			1,069,442

Operating income			102,134			186,308			151,715			138,587			85,395

Financial expenses
	Interest on total debt (a)		39,768			35,410			33,986			35,756			30,105
	Interest income on short-term investments		—			(1,354	)		(2,061	)		(312	)		(425	)
	Other interest expense		893			546			167			603			1,203
	Amortization of financing costs		1,290			1,290			1,290			1,290			1,448
	Unrealized exchange loss (gain) on long-term debt		(13,080	)		8,535			13,861			(520	)		(12,057	)
	Realized exchange gain on long-term debt		—			—			—			—			(6,921	)
	Capitalized interest for property, plant & equipment		—			—			(1,410	)		—			—
	Unusual items (b)		—			—			—			—			19,854

			28,871			44,427			45,833			36,817			33,207
			73,263			141,881			105,882			101,770			52,188
Income tax expense			24,261			52,449			37,063			33,513			21,425

			49,002			89,432			68,819			68,257			30,763
Share of income of equity-accounted investments			1,194			2,125			780			289			163
Net income for the year		$	50,196		$	91,557		$	69,599		$	68,546		$	30,926

SELECTED HISTORICAL FINANCIAL INFORMATION
NORAMPAC INC.
(in thousands of Canadian dollars, unless otherwise noted)

		Year ended December 31,
		1999			2000			2001			2002			2003
Balance Sheet Data (at end of year):
Working capital		$	117,055		$	164,055		$	116,239		$	114,699		$	159,275
Property, plant and equipment			753,639			794,204			913,658			925,881			887,184
Total assets			1,240,593			1,317,763			1,435,054			1,495,477			1,438,996
Total debt (a)			403,574			352,817			376,382			398,028			353,600
Shareholders' equity			592,741			656,059			691,483			731,608			728,987
Other Financial Data:
Net cash provided by (used in):
	Operating activities	$	85,457		$	228,130		$	177,204		$	147,045		$	90,933
	Financing activities		(47,087	)		(82,162	)		(23,108	)		(23,936	)		(20,894	)
	Investing activities		(38,370	)		(108,040	)		(179,973	)		(109,720	)		(80,633	)
Capital expenditures, net			38,632			86,740			82,619			56,800			58,485
Business acquisition, net of cash acquired			—			20,425			93,328			54,382			21,101
Gross margin (c)			29.3	%		34.0	%		31.5	%		29.7	%		26.5	%
Ratio of earnings to fixed charges (d)			2.6x			4.6x			3.8x			3.4x			2.4x
Operating income before depreciation and amortization (e)			166,180			250,215			222,816			211,625			159,443
Operating income before depreciation and amortization margin (f)			18.0	%		23.3	%		20.2	%		17.4	%		13.8	%
U.S. GAAP Consolidated Financial Data:
Net income for the year			60,743			102,644			86,240			75,764			56,580
Shareholder's equity			227,486			329,901			380,266			428,737			452,709
Operating Data:
	(unaudited)
Production:
	Linerboard (short tons) (g)		697,876			719,025			756,573			777,855			761,103
	Corrugating medium (short tons) (g)		589,003			593,935			611,727			669,556			681,197
Shipments:
	Corrugated containers (thousands of square feet) (h)		9,269,905			9,791,775			10,482,523			12,755,048			13,398,706

(See footnotes on following page.)

NOTES TO SELECTED HISTORICAL FINANCIAL INFORMATION NORAMPAC INC.

(a): Total debt consists of long-term debt, including the current portion.
(b): During the year, the Company had unusual expenses of $19.9 million. The expenses included a $14.4 million call premium paid to redeem both the 9.5% senior notes and the 9.375% senior notes, a write-off of related financing costs for an amount of $4.7 million and a $0.8 million exchange loss as a result of the refinancing.
(c): Gross margin is calculated as net sales less the cost of goods sold expressed as a percentage of net sales.
(d): Earnings consist of pre-tax income plus fixed charges, excluding capitalized interest. Fixed charges consist of (i) interest, whether expended or capitalized, (ii) amortization of debt expense, including any discount or premium, whether expended or capitalized, and (iii) a portion of rental expense representing the interest factor, which is estimated to be one-third of rental expense under operating leases. For the year ended December 31, 2003, we had an unusual item of $19.9 million, as described in footnote (b) above which had an impact on the ratio of earnings to fixed charges. Without this item, Ratio of earnings to fixed charges would have been 2.9x.
(e): Operating income before depreciation and amortization is not a measure of performance under Canadian GAAP or U.S. GAAP. We believe that, in addition to cash flow from operations, operating income and net income, operating income before depreciation and amortization is a useful financial performance measurement for assessing operating performance as it provides investors with an additional basis to evaluate our operating performance and ability to incur and service debt and to fund capital expenditures. In addition, our chief operating decision makers use operating income before depreciation and amortization as a measure of evaluating the performance of our operating segments. In evaluating operating income before depreciation and amortization, we believe that investors should consider, among other things, the amount by which operating income before depreciation and amortization exceeds interest costs for the period, how operating income before depreciation and amortization compares to principal repayments on debt for the period and how operating income before depreciation and amortization compares to capital expenditures for the period. To evaluate operating income before depreciation and amortization, the components of operating income before depreciation and amortization, such as revenues and operating expenses and the variability of such components over time, should also be considered. Investors should be cautioned, however, that operating income before depreciation and amortization should not be construed as an alternative to operating income (as determined in accordance with Canadian GAAP or U.S. GAAP) as an indicator of our operating performance, or as an alternative to cash flows from operating, investing and financing activities (as determined in accordance with Canadian GAAP or U.S. GAAP) as a measure of liquidity or our ability to meet all our cash needs. Our method of calculating operating income before depreciation and amortization may differ from the methods used by other companies and, as a result, the operating income before depreciation and amortization presented may not be comparable. Set forth below is a reconciliation of operating income before depreciation and amortization to net income and net

cash provided by (used in) operating activities, which we believe to be the closest GAAP performance and liquidity measures to operating income before depreciation and amortization:

		Year Ended December 31,
		1999			2000			2001			2002			2003
		(in millions of Canadian dollars)
Net income		$	50		$	92		$	70		$	69		$	31
Share of income of equity-accounted investments.			(1	)		(2	)		(1	)		—			—
Income tax expense			24			52			37			33			21
Unusual items			—			—			—			—			20
Financial costs
	Interest on total debt		40			35			34			36			30
	Interest income on short-term investments		—			(1	)		(2	)		—			—
	Other interest expense		1			1			—			1			1
	Amortization of financing costs		1			1			1			1			1
	Unrealized exchange loss (gain) on long-term debt		(13	)		8			14			(1	)		(19	)
	Capitalized interest for property, plant and equipment		—			—			(1	)		—			—

Operating income			102			186			152			139			85
Depreciation and amortization			64			64			71			73			74

Operating income before depreciation and amortization		$	166		$	250		$	223		$	212		$	159

	Year Ended December 31,
	1999			2000			2001			2002			2003
	(in millions of Canadian dollars)
Net cash provided by operating activities	$	85		$	228		$	177		$	147		$	91
Changes in non-cash working capital components including income taxes		33			(20	)		(14	)		4			25
Depreciation and amortization		(64	)		(64	)		(71	)		(73	)		(74	)
Current income tax expense		3			8			29			28			14
Interest expense (includes interest on long-term debt, other interest, less interest income and capitalized interest)		40			35			31			36			31
Other non-cash adjustments		3			(1	)		1			(2	)		(1	)
Disposal of property plant and equipment		2			—			(1	)		(1	)		(1	)

Operating income		102			186			152			139			85
Depreciation and amortization		64			64			71			73			74

Operating income before depreciation and amortization	$	166		$	250		$	223		$	212		$	159

: See "Item 5. Operating and Financial Review and Prospects" for a discussion of other measures of operating performance and liquidity.
(f): Operating income before depreciation and amortization margin, which is calculated by dividing operating income before depreciation and amortization by net sales, expressed as a percentage, is used by our chief operating decision makers to assess the operating performance of our operating segments and create a budget for the following fiscal year. We believe the closest GAAP measure to operating income before depreciation and amortization margin is net income divided by net sales. For a reconciliation of operating income before depreciation and amortization, see footnote (e) above.
(g): Includes internal shipments of linerboard and corrugating medium to our corrugated products plants.

(h): Includes internal shipments of corrugated sheets to our sheet plants.

Exchange Rate Data

The following tables sets forth information about exchange rates based upon the noon buying rate in New York City for cable transfers as certified for customs purposes by the Federal Reserve Bank of New York. These rates are set forth as Canadian dollars per US$1.00.

	Year ended December 31,
	1999	2000	2001	2002	2003
Average for period (a)	1.4827	1.4871	1.5519	1.5702	1.3916
Period end	1.4440	1.4995	1.5925	1.5800	1.2923

(a): Calculated by taking the average of the exchange rates on the last day of each month in the applicable period.

	2003	2004
	December	January	February	March	April	May
High for period	1.3405	1.3340	1.3442	1.3480	1.3711	1.3970
Low for period	1.2923	1.2690	1.3108	1.3080	1.3095	1.3580

On June 9, 2004, the noon buying rate was $1.3541 per US$1.00.

See also "Item 11. Quantitative and Qualitative Disclosures About Market Risk—Foreign Currency Risks" and note 16 to our audited consolidated financial statements, included elsewhere in this Form 20-F, for more information about our management of risks associated with foreign exchange.

Risk Factors

There are a number of factors, including those discussed below, which may adversely affect our business, results of operations or financial position. Additional risks that we do not know about or that we currently view as immaterial may also impair our business, results of operations or financial condition.

Risks Relating to Our Business

The markets for containerboard and corrugated products tend to be cyclical in nature and prices for our products, as well as raw material and energy costs, may fluctuate significantly, which may adversely affect our operating results, profitability and financial position.

The markets for containerboard and corrugated products are highly cyclical. As a result, prices for our products and for recycled fiber have fluctuated significantly in the past and will likely continue to fluctuate significantly in the future, principally due to market imbalances between supply and demand. Demand is heavily influenced by the strength of the global economy and the economies of the countries or regions in which we do business, particularly in Canada and the United States, our two primary markets. Demand is also influenced by fluctuations in inventory levels held by customers and consumer preferences. Supply depends primarily on industry capacity and capacity utilization rates. In periods of economic weakness, reduced spending by consumers and businesses results in decreased demand, potentially causing downward price pressure. Industry participants may also, at times, add new capacity or increase capacity utilization rates, potentially causing supply to exceed demand and exerting downward price pressure.

In the second half of 2000, economic growth in North America began to slow. As a result, between the second half of 2000 and the end of 2001, demand for our products slowed and selling prices declined. To adjust our production to demand, we took market-related downtime for some of our products. Market conditions in 2002 and 2003 remained relatively slow due to a weaker U.S. economy. The prevailing slow economic conditions in 2003 led to a decrease in box shipments for a fourth consecutive year while North American containerboard operating rates were approximately 90%. Based on the first quarter of 2004, economic conditions have improved as box shipments rose and inventory levels declined while North American containerboard operating rates were approximately 93%. Depending on market conditions and related demand, we may have to take further market-related downtime in the future. In addition, we may not be able to maintain current prices or implement additional price increases in the future. If we are not able to do so, our revenues and profitability could be adversely affected. In addition, other participants may introduce new capacity or increase capacity utilization rates, which also could adversely affect our business, operating results and financial position.

Prices for recycled fiber have also fluctuated considerably since 1999. The cost of this raw material presents a potential risk to our profit margins to the extent that we are unable to pass along price increases to our customers on a timely basis. The price of old corrugated containers began in 1999 at a relatively low level and increased significantly throughout the year and into the first half of 2000. During the latter half of 2000 net exports of old corrugated containers from North America declined significantly, placing downward pressure on prices, which remained relatively low until the second quarter of 2002. During the second and third quarter of 2002, a substantial increase in foreign demand for recycled fiber resulted in a sharp decline in available North American supply and a significant increase in the market price of old corrugated containers. In the fourth quarter of 2002, prices decreased to an average for the quarter of US$58 from a high of US$115 in July 2002, as the pressure on the export market eased again. Increased activity in the export market again began to put pressure on the price of old corrugated containers towards June 2003 and reduced subsequently mainly due to a reduction in foreign demand. In 2003 most of the mills increased their old corrugated containers inventory level in order to limit potential price variation and helped to keep the price of old corrugated containers to an average of US$65 for the fourth quarter of 2003. In the first quarter of 2004, an increase in foreign demand began to put pressure on the price of old corrugated containers. The average list price for the first quarter of 2004 was US$75. To the extent we are not able to implement increases in the selling prices for our products to compensate for increases in the price of recycled fiber, our profitability would be adversely affected.

In addition, we use natural gas and fuel oil to generate steam, which we use in the production process and to operate machinery. Energy prices, particularly for natural gas and fuel oil, increased steadily throughout 2000, peaking in the first quarter of 2001, with a corresponding effect on our production costs. Prices for energy began to increase again in the first quarter of 2003 and were high throughout the rest of the year. Energy prices in 2003 were on average approximately 11% higher than 2002. We continue to evaluate our energy costs and consider ways to improve our energy efficiency. However, if energy prices were to increase, our production costs, competitive position and results of operations would be adversely affected. In addition, continued instability in the Middle East could lead to an increase in the cost of energy. A substantial increase in energy costs would adversely affect our operating results and could have broader market implications that could further adversely affect our business or financial results.

The markets for our products are highly competitive and some of our competitors may have greater cost advantages, be able to achieve greater economies of scale or be able to better withstand periods of declining prices and adverse operating conditions which could negatively affect our market share and profitability.

Competition tends to be global for containerboard and regional for corrugated products and is primarily based upon the quality, product performance and characteristics, customer service and price. We compete with a number of other containerboard and corrugated products producers. We also compete against producers of alternative forms of packaging such as plastic containers, plastic film, boxboard and other material. Our ability to compete successfully depends upon a variety of factors, including:

•: our ability to maintain plant efficiencies and operating rates and lower manufacturing costs;
•: the availability, quality and cost of raw materials, particularly recycled and virgin fiber; and
•: the cost of labor and energy.

Some of our competitors may, at times, have lower fiber, energy and labor costs and less restrictive environmental and governmental regulations to comply with than we do. For example, fully integrated manufacturers, which are those manufacturers whose requirements for pulp or other fiber are met fully from their internal sources, may have some competitive advantages over manufacturers that are not fully integrated, such as us, in periods of relatively high prices for raw materials, in that the former are able to ensure a steady source of these raw materials at costs that may be lower than prices in the prevailing market. In contrast, competitors that are less integrated than we are may have cost advantages in periods of relatively low pulp or fiber prices because they may be able to purchase pulp or fiber at prices lower than the costs we incur in the production process. Other competitors may be larger in size or scope than we are, which may allow them to achieve greater economies of scale on a global basis or allow them to better withstand periods of declining prices and adverse operating conditions.

We face risks related to our international operations which can negatively affect our business, operating results, profitability and financial condition.

We have customers and operations located outside Canada and the United States. In 2003, sales outside Canada and the United States represented approximately $145.0 million, or 12% of our sales. Our international operations present us with a number of risks and challenges, including:

•: the effective marketing of our products in other countries;
•: tariffs and other trade barriers; and
•: different regulatory schemes and political environments applicable to our operations in areas such as environmental and health and safety compliance.

The strength of the Canadian dollar relative to the U.S. dollar may negatively impact the revenues we realize on sales of our products.

The prices for our containerboard products, which represent approximately 40% of our net sales before intersegment eliminations, and certain raw materials, including old corrugated containers, are determined mainly by reference to the delivered U.S. market price. Although we purchase certain quantities of raw materials in U.S. dollars, a majority of our operating costs are incurred in Canadian dollars. A strong Canadian dollar relative to the U.S. dollar reduces the amount of Canadian dollar revenues that we realize on sales of our products. A strong Canadian dollar relative to the currencies of Canada's major trading partners, particularly the United States, may also weaken demand in such jurisdictions for corrugated products, which could have a material adverse effect on our business, financial condition and results of operations.

Depending on the exchange rate for U.S. dollars and Canadian dollars at the time our hedging obligations mature and the fixed exchange rate at which we purchased the hedging obligations, we may incur a loss from the difference in the two exchange rates.

We currently use foreign exchange forward contracts to manage some of our exposure to foreign currency risk at our operating units. Based on our estimates of U.S. dollar sales, we regularly enter into foreign exchange forward contracts, which generally range from US$150,000 to US$500,000. At the time each of these contracts matures, we pay the amount of the contract in U.S. dollars to the bank from whom the contracts were purchased. In turn, the bank pays us the corresponding Canadian dollar amount at an exchange rate agreed upon at the time the contract was purchased. Depending on the exchange rate for U.S. dollars and Canadian dollars at the time each contract matures and the fixed exchange rate at which we purchased the contract, we may benefit or incur a loss from the difference in the two exchange rates.

We currently use swap contracts to manage some of our exposure to fluctuation in production costs, including costs of raw materials, particularly old corrugated containers, and electricity. At the time each of the contracts matures, we pay to a counterparty the price as established in the swap contract. In turn, the counterparty pays us the price as published by an agreed to index. Depending on the price published by the index at the time each contract matures and the fixed price as determined in the contract, we may benefit or incur a loss from the difference in the two prices.

In addition, we currently use swap contracts to manage some of our exposure to fluctuation in the selling price of certain containerboard products. At the time each of these contracts mature, we receive from a counterparty the price as established in the swap contract. In turn, the counterparty receives from us the price as published by an agreed to index. Depending on the price published by the index at the time each contract matures and the fixed price as determined in the contract, we may benefit or incur a loss from the difference in the two prices.

Our operations are subject to comprehensive environmental regulation and involve expenditures which may be material in relation to our financial conditions and operations.

Our operations are subject to extensive environmental, health and safety laws and regulations promulgated by federal, provincial, state and local governments in the various jurisdictions in which we have operations. These environmental laws and regulations impose stringent standards on us regarding, among other things:

•: air emissions;
•: water discharges;
•: use and handling of hazardous materials;

•: use, handling treatment and disposal of waste; and
•: remediation of environmental contamination.

Our failure to comply with applicable environmental laws, regulations or permit requirements may result in civil or criminal fines or penalties or enforcement actions. These may include regulatory or judicial orders enjoining or curtailing operations or requiring corrective measures, installing pollution control equipment or remedial actions, any of which could entail significant expenditures. We believe our operations are in material compliance with the applicable environment requirements. However, it is difficult to predict the future development of such laws and regulations or their impact on future earnings and operations, but we anticipate that these laws and regulations will continue to require capital expenditures to ensure continuing compliance. In addition, amendments to, or more stringent implementation of, current laws and regulations governing our operations could have a material adverse effect on our business, results of operations or financial position. In addition, although we generally try to plan for capital expenditures relating to environmental and health and safety compliance on an annual basis, actual capital expenditures may exceed those estimates. In such an event, we may be forced to curtail other capital expenditures or other activities.

In addition, enforcement of existing environmental laws and regulations has become increasingly strict. We may discover currently unknown environmental problems or conditions in relation to our past or present operations, or we may face unforeseen environmental liabilities in the future. These may require site or other remediation costs to maintain compliance or correct violations of environmental laws and regulations or result in governmental or private claims for damage to person, property or the environment, which could have a material adverse effect on our financial condition and results of operations.

We are subject to strict liability and, under specific circumstances, joint and several liability for the investigation and remediation of the contamination of soil, surface and ground water, including contamination caused by other parties, at properties that we own or operate and at properties where we or our predecessors have arranged for the disposal of regulated materials. As a result, we are involved from time to time in administrative and judicial proceedings and inquiries relating to environmental matters. See "Item 4. Information on the Company—Environmental and Other Governmental Regulations and —Legal Proceedings." We may become involved in additional proceedings in the future or that the total amount of future costs and other environmental liabilities associated with pending or future proceedings will not be material.

We may be subject to losses that might not be covered in whole or in part by our insurance coverage.

We carry comprehensive liability, fire and extended coverage insurance on most of our facilities, with policy specifications and insured limits customarily carried in our industry for similar properties. For example, in August 2002, a section of our mill at Red Rock was damaged by a structural fire. Although the damage was covered by our insurance policy, we had to pay the $1.0 million deductible and, as a security measure, we had to shut down production at that mill for three days. Also, in August 2002, our Burnaby mill was damaged by a fire in the raw material external storage area and we had to pay the $1.0 million deductible. Such events may occur in the future and disrupt our operations or have a material adverse effect on our business.

The cost of our insurance policies has increased recently. In addition, some types of losses, such as losses resulting from wars, acts of terrorism, or natural disasters, generally are not insured because they are either uninsurable or not economically practical. Moreover, insurers recently have become more reluctant to insure against these types of events. Should an uninsured loss or a loss in excess of insured limits occur, we could lose capital invested in that property, as well as the anticipated future revenues derived from the manufacturing activities conducted at that property, while remaining obligated for any

mortgage indebtedness or other financial obligations related to the property. Any such loss could adversely impact our business, results of operations or financial condition.

Labor disputes could have a material adverse effect on our cost structure and ability to run our mills and plants.

As of December 31, 2003, we had over 4,700 full-time employees, of whom approximately 4,500 are employees of our Canadian and United States operations. Approximately 2,200 of our Canadian and U.S. full-time employees are represented by unions under 21 separate collective bargaining agreements. These agreements are limited to individual facilities or groups of employees within the facilities. Approximately 60% of the unionized employees belong to the Communications, Energy and Paperworkers Union of Canada, approximately 20% belong to the Independent Paperworkers of Canada and the remaining 20% belong to a number of different unions. In addition, in Europe, some of our operations are subject to national collective bargaining agreements that are renewed on an annual basis. Our inability to negotiate acceptable contracts with these unions upon expiration of an existing contract could result in strikes or work stoppages by the affected workers and increased operating costs as a result of higher wages or benefits paid to union members. If the unionized workers were to engage in a strike or other work stoppage, or other employees were to become unionized, we could experience a significant disruption in operations or higher labor costs, which could have a material adverse effect on our business, financial condition, results of operations and cash flow.

Certain collective bargaining agreements for our Vaudreuil, Winnipeg, Richmond, Peterborough and New York corrugated products plants and our Niagara Falls and Burnaby mills, which cover 531 employees in the aggregate, were in negotiation during 2003. As of May 31, 2004, the only negotiations outstanding were the Niagara Falls mill where negotiations were ongoing and the Burnaby mill where negotiations had stopped following a strike vote by the employees on April 10, 2004. For 2004, we are currently negotiating a new agreement for the 110 employees at our Moncton corrugated products plant and we will be negotiating the agreements at our corrugated products plant located in Etobicoke and our mills located in Red Rock and Trenton, which cover 628 employees in the aggregate. As is typical in France, agreements covering, in the aggregate, approximately 160 employees at the Avot-Vallée mill are renegotiated in May of each year. We cannot assure you, however, that we will be successful in negotiating new agreements at any of these locations on satisfactory terms, if at all.

We may make investments in entities in which we share control or that we do not control.

We have made investments to increase our vertical integration, enhance customer service and increase efficiencies in our marketing and distribution in the United States and other markets. Our principal investments include:

•: a 46.0% interest in Metro Waste Paper Recovery Inc., a Canadian operator of waste paper recovery and recycling operations;
•: a 42.9% interest in Montcorr Packaging Ltd., a Canadian sheet feeder plant; and
•: a 20.0% interest in Groupe NBG Inc., an entity created to operate a Canadian sawmill.

We may share control or not control these entities and they are not restricted under our indenture governing our outstanding notes. The indenture governing the notes limits, but does not prohibit, our ability to continue making these types of investments, and we anticipate continuing to do so.

Our inability to control, or the sharing of control of, entities in which we invest may affect our ability to receive distributions from those entities or to fully implement our business plan. The incurrence of debt or entering into other agreements by such an entity may result in restrictions or prohibitions on that entity's ability to pay distributions to us. Even where these entities are not restricted by contract or by law from paying dividends or making distributions to us, we may not be

able to influence the making or timing of these dividends or distributions. In addition, if any of the other investors in a non-controlled or jointly-controlled entity fail to observe their commitments, that entity may not be able to operate according to its business plan or we may be required to increase our level of commitment. If any of these events were to transpire, our business, results of operations, financial condition and ability to make payments on the notes could be adversely affected.

Acquisitions have been and are expected to continue to be a substantial part of our growth strategy, which could expose us to difficulties in integrating the acquired operations, diversion of management time and resources and unforeseen liabilities among other business risks.

Acquisitions have been a significant part of our growth strategy. We expect to continue to selectively seek strategic acquisitions in the future. Our ability to consummate and to integrate effectively any future acquisitions on terms that are favorable to us may be limited by the number of attractive acquisition targets, internal demands on our resources and, to the extent necessary, our ability to obtain financing on satisfactory terms, if at all. Acquisitions may expose us to additional risks, including:

•: difficulties in integrating and managing newly acquired operations and improving their operating efficiency;
•: entry into markets in which we have little or no direct prior experience;
•: our ability to retain key employees of the acquired company;
•: disruptions to our ongoing business; and
•: diversion of management time and resources.

In addition, future acquisitions could result in the incurrence of additional debt, costs, contingent liabilities and amortization expenses. We may also incur costs and divert management attention for potential acquisitions which are never consummated. For acquisitions we do consummate, expected synergies may not materialize. Our failure to effectively address any of these issues could adversely affect our results of operations, financial condition and ability to service debt, including our outstanding notes.

Although we generally perform a due diligence investigation of the businesses or assets that we acquire, and anticipate continuing to do so for future acquisitions, there may be liabilities of the acquired business or assets that we fail or are unable to uncover during our due diligence investigation and for which we, as a successor owner, may be responsible. When feasible, we seek to minimize the impact of these types of potential liabilities by obtaining indemnities and warranties from the seller, which may in some instances be supported by deferring payment of a portion of the purchase price. However, these indemnities and warranties, if obtained, may not fully cover the liabilities because of their limited scope, amount or duration, the financial resources of the indemnitor or warrantor or other reasons.

Cascades and Domtar each own 50% of our issued and outstanding stock and a disagreement among our shareholders could result in a deadlock which could adversely affect our day-to-day operations.

Cascades and Domtar each own 50% of our issued and outstanding common shares. Under a shareholders' agreement between Cascades and Domtar, each shareholder has the right to nominate four members to our board of directors and joint approval of certain matters is required. The shareholders' agreement also restricts the ability of Cascades and Domtar to transfer their equity interests in us. Because neither Cascades nor Domtar effectively controls us and due to the restrictions on transfer contained in the shareholders' agreement, a disagreement among the shareholders may result in a deadlock, which could affect our day-to-day operations and growth strategy. If our

operations are stalled, even temporarily, it would have a material adverse effect on the business, financial condition and our results of operations. See "Item 7. Major Shareholders and Related Party Transactions."

The shareholders' agreement also contains a "shot gun" provision, which provides that if one shareholder offers to buy all the shares owned by the other party, the party must either accept the offer or purchase all the shares owned by the offering shareholder at the same price and conditions. In addition, under the shareholders' agreement, in the event a shareholder is subject to bankruptcy proceedings or other default on any indebtedness, the non-defaulting party to the agreement is entitled to invoke the "shot gun" provision or sell its shares to a third party. For more information, see "Item 7. Major Shareholders and Related Party Transactions."

Risks Relating to Our Indebtedness

A significant amount of debt could adversely affect our financial health and prevent us from fulfilling our obligations under the outstanding notes.

In 2003, we refinanced substantially all of our existing indebtedness. As part of this refinancing, we entered into a $350 million five-year revolving credit facility and issued US$250 million ten-year senior notes while redeeming our outstanding Canadian dollar denominated and U.S. dollar denominated senior notes. After giving effect to the refinancing, we continue to have a substantial amount of debt. We also have significant obligations under operating leases, the annual obligations of which are described in note 16 to our audited consolidated financial statements included elsewhere in this Form 20-F.

Our leverage could have important consequences to you. For example, it could:

•: limit our ability to obtain additional debt financing in the future for working capital, capital expenditures, acquisitions or other corporate purposes;
•: require us to dedicate a substantial portion of our cash flow from operations to debt service, reducing the availability of our cash flow to use for other purposes; and
•: increase our vulnerability to economic downturns, limit our ability to capitalize on significant business opportunities and restrict our flexibility to react to changes in market or industry conditions.

Our ability to satisfy our debt obligations will depend upon our future operating performance, which will be affected by prevailing economic conditions and financials, business and other factors, many of which are beyond our control. We anticipate that our operating cash flow, together with borrowings under our new revolving credit facility will be sufficient to meet our anticipated operating expenses and to service our debt obligations as they become due. However, we may not generate sufficient cash flow for these purposes. If we are unable to service our indebtedness, we will be forced to adopt an alternative strategy that may include actions such as reducing or delaying capital expenditures, selling assets, restructuring or refinancing our indebtedness or seeking equity capital. These strategies may not be instituted on satisfactory terms, if at all.

We may incur additional debt in the future which would intensify the risks we now face as a result of our leverage as described above.

Even though we continue to be fairly leveraged following the refinancing, we and our subsidiaries will be able to incur substantial additional indebtedness in the future. Although our new revolving credit facility and the indenture governing our new senior notes restrict us and our restricted subsidiaries from incurring additional debt, these restrictions are subject to important exceptions and

qualifications. If we or our subsidiaries incur additional debt, the risks that we and they now face as a result of our leverage could intensify.

Our operations will be restricted by the terms of our debt, which could adversely affect us and increase your credit risk.

Our revolving credit facility and the indenture governing the new senior notes include a number of significant restrictive covenants. These covenants restrict, among other things, our ability, and the ability of our restricted subsidiaries, to:

•: incur additional debt;
•: make restricted payments;
•: pay dividends or distributions on our capital stock or repurchase our capital stock;
•: make investments;
•: create liens on our assets to secure debt;
•: merge or consolidate with another company; and
•: enter into transactions with affiliates.

These covenants could limit our ability to plan for or react to market conditions or to meet our capital needs.

Our new revolving credit facility contains other and more restrictive covenants, including financial covenants that require us to achieve certain financial and operating results and maintain compliance with specified financial ratios, which are described in "Item 5. Operating and Financial Review and Prospects." Our ability to comply with these covenants and requirements may be affected by events beyond our control and we may have to curtail some of our operations and growth plans to maintain compliance.

Our failure to comply with the covenants contained in our new revolving credit facility or the indenture, including as a result of events beyond our control, could result in an event of default which could cause payment of our debt to be accelerated.

If we are not able to comply with the covenants and other requirements contained in the indenture, our new revolving credit facility or our other debt instruments, an event of default under the relevant debt instrument could occur. If an event of default does occur, it could trigger a default under our other debt instruments, we could be prohibited from accessing additional borrowings and the holders of the defaulted debt could declare amounts outstanding with respect to that debt to be immediately due and payable. Our assets or cash flow may not be sufficient to fully repay borrowings under our outstanding debt instruments. In addition, we may not be able to refinance or restructure the payments on those debt securities. Even if we are able to secure additional financing, it may not be available on favorable terms.

Item 4. Information on the Company

Business Overview

We are among the top ten manufacturers of containerboard in North America and the largest containerboard manufacturer in Canada. We are also an industry leader in corrugated products in North America and one of the largest producers of corrugated products in Canada. We offer a complete line of customized packaging products for a wide variety of uses. With more than thirty production facilities in Canada, the United States and France, we enjoy a strong presence in these strategic markets. Our products range from everyday boxes, to point-of-purchase displays and

specialized boxes for merchandise requiring optimal protection, such as produce, furniture and appliances, small electronic components and large car parts. In 2003, we had sales of $1.3 billion, operating income of $85.4 million and operating income before depreciation and amortization of $159.4 million. In 2003, approximately 65% of our sales were in Canada, 23% were in the United States and 12% were in other, primarily European, countries.

We have eight containerboard mills, six of which are located in Ontario, Quebec and British Columbia, one in Niagara Falls, New York, and one in northern France, which have a current total annual production capacity of more than 1.6 million short tons. These mills use a mix of recycled and virgin fiber to produce both standard and high-performance grades of virgin and recycled linerboard, semichemical and recycled corrugating medium and gypsum board in a wide range of basis weights. We also produce a wide variety of specialty and value-added products, such as white-top, colored and coated linerboard and wrapper grades. In 2003, we converted approximately 61% of our North American containerboard production into corrugated products. The remaining containerboard production was sold to other converters in North America, Europe and other export markets.

Our network of 25 corrugated products plants, strategically located throughout Canada and the United States, produces a broad range of products for sale to both regional and national customers in a variety of industries, including the food, beverage and consumer products industries. In 2003, our corrugated products plants shipped approximately 13.4 billion square feet of corrugated containers, including shipments of corrugated sheets to our own sheet plants. Our corrugated products plants produce a wide range of products, from corrugated boxes and containers for shipping and packaging to specialty products, such as intricate die-cut irregular size boxes, moisture resistant wax-coated and wax impregnated boxes, corrugated pallets, protective packaging products and litholaminated point-of-purchase displays. Our corrugated products plants also provide customers with services such as graphic design and computer-aided sample making. Essentially all of the containerboard requirements of our corrugated products plants are supplied directly or indirectly by our containerboard mills.

Our History and Development

Norampac Inc. was incorporated on November 27, 1997 to facilitate the reorganization and combination of all of the containerboard and corrugated products operations of Cascades Inc. and Domtar Inc., as well as the recycling operations of Domtar. On December 30, 1997, we completed the acquisitions of these operations. Prior to this merger, we had no operations and Cascades' containerboard group and Domtar's packaging sector operated independently. We are a corporation organized under the federal laws of Canada with our registered office and principal executive office located at 752 Sherbrooke Street West, Montreal, Quebec, Canada, H3A 1G1. The main phone number at the registered office and principal executive office is (514) 282-2635.

On February 3, 2003, we completed the acquisition of a sawmill owned by Bowater Guérette Inc. located in Rivière-Bleue, Quebec. This acquisition allows us to further secure proper fiber supply to our containerboard mill located in Cabano. Our equity participation was established at 20% as we entered into an agreement with four other partners who contributed both financial resources and lumber industry expertise. The new entity operates under the name of Groupe NBG Inc.

On April 14, 2003, in an asset exchange, we acquired Georgia-Pacific's corrugated products plant located in Schenectady, New York. The aggregate purchase consideration, subject to certain adjustments, was approximately $32 million and was comprised of $20 million in cash and all of the operating assets of our former Dallas-Fort Worth, Texas plant.

On May 7, 2003, we acquired the assets of a corrugated products plant in Saskatoon, Saskatchewan. This acquisition increases our presence in the Western Canadian Market.

As of December 31, 2003, we sold our corrugated products plant in Monterrey, Mexico to its local management team.

On April 2, 2004, we completed the acquisition of Johnson Corrugated Products Corp., a corrugated products plant in Thompson, Connecticut which has an annual production capacity of more than 750 million square feet. This investment will allow us to increase our integration level and increase our presence in the Northeastern United States. The name of the corporation has since been changed to Norampac Thompson Inc.

On May 19, 2004, we announced the scheduled closure in the first quarter 2005 of our corrugated products plant located in Concord, Ontario in an effort to optimize the operations of our corrugated products plants in Ontario. The Concord operations will be redistributed to our Etobicoke and St. Marys Divisions.

Our Shareholders

We are owned by Cascades and Domtar, with each company owning 50% of our equity. Cascades is a worldwide leader in manufacturing, converting and marketing packaging products, tissue papers and fine papers. In 2003, Cascades had net sales of $3.2 billion. Domtar is the third largest producer of uncoated freesheet paper in North America. It is a leading manufacturer of business papers, commercial printing and publication papers, and technical and specialty papers. Domtar produces also lumber and other wood products. In 2003, Domtar had net sales of $4.8 billion.

Industry Overview

Containerboard, which refers to both linerboard and corrugating medium, is used to make corrugated containers, which are the most common form of packaging utilized in the transportation of manufactured and bulk goods. Corrugated containers are manufactured by combining corrugating medium and linerboard into corrugated sheets, which are then converted into the finished packaging products. Corrugated sheets are produced by a corrugator, which flutes and laminates a sheet of corrugating medium between two sheets of linerboard, which form the inner and outer facings, or liners, of the finished corrugated sheet. The corrugated sheets are then printed, cut, folded and glued at corrugated products plants to produce corrugated containers. Containerboard can be manufactured from either virgin fiber, recycled fiber or a combination of the two. Containerboard and corrugated containers represent the largest segment of the global paperboard industry by volume and sales.

Growth in containerboard demand is generally influenced by economic conditions and, in particular, by growth in industrial output and consumer spending. Containerboard prices tend to be highly cyclical and are influenced by, among other things, market supply and demand and containerboard inventory levels of producers (containerboard mills) and consumers (corrugated products plants). The North American containerboard sector has been adversely affected by overcapacity and the economic slowdown since the second half of 2000. However, continued industry consolidation, rationalization of inefficient containerboard mill capacity and market-related downtime have helped to better balance supply with demand and create a less volatile pricing environment. In addition, industry consolidation has increased the top five producers' production capacity of containerboard from 14.7 million tons in 1995 to 25.5 million tons in 2002. This consolidation has helped accelerate the rationalization of inefficient containerboard mill capacity. Since 1998, approximately 12% of North American containerboard mill capacity has been shut down. Furthermore, the industry has generally adopted a model of balancing supply with current demand as opposed to maximizing capacity utilization. As a result, operating rates in the industry in recent years more closely reflect the current economic environment. Overall, market consolidation and rationalization have helped to create a less volatile and more stable industry pricing environment.

Mills, Plants and Equipment

We operate eight containerboard mills and 25 corrugated products plants.

The following table lists our production facilities and their operations. Except as otherwise indicated in the table, we own all of these facilities.

Location			Products	Annual Production Capacity or Shipments (1)
*Mills* (in short tons)
	Ontario
		Red Rock	Kraft linerboard	450,000
		Trenton	Semi-chemical corrugating medium	199,000
		Mississauga (2)	Recycled linerboard	156,000
	Quebec
		Cabano (2)	Semi-chemical corrugating medium	233,000
		Kingsey Falls	Recycled linerboard	94,000
	British Columbia
		Burnaby	Recycled corrugating medium and gypsum paper	127,000
	United States
		Niagara Falls, New York (Norampac Industries Inc.) (3)	Recycled corrugating medium	225,000
France
	Blendecques (Norampac Avot-Vallée S.A.S.)		Recycled linerboard and corrugating medium	140,000

				1,624,000

*Converting Plants* (in thousands of square feet) (4)
	Maritimes
		Moncton, New Brunswick	Corrugated containers	458,000
		St. John's, Newfoundland (Newfoundland Containers Ltd.)	Corrugated containers	174,000
	Quebec
		Montreal	Corrugated containers	684,000
		Vaudreuil	Corrugated containers	734,000
		Quebec City	Corrugated containers	482,000
		Drummondville (2)	Corrugated containers	815,000
	Ontario
		Vaughan (2)	Corrugated containers	1,685,000
		Mississauga (OCD) (3)	Corrugated containers	1,109,000
		St. Marys	Corrugated containers	872,000
		Etobicoke	Corrugated containers	537,000
		Concord	Corrugated containers	490,000
		Scarborough (Lithotech) (3)	Single-face laminate	197,000
		North York (3)	Corrugated containers, co-packaging and displays	45,000
	West
		Calgary, Alberta (2)	Corrugated containers	562,000
		Richmond, British Columbia	Corrugated containers	444,000
		Winnipeg, Manitoba	Corrugated containers	558,000

	United States
		Buffalo, New York (Norampac Industries Inc.)	Corrugated containers	407,000
		Dallas—Fort Worth, Texas (Norampac Dallas-Fort Worth LP) (3) (5)	Single-face laminate	17,000	(1)
		Maspeth, New York (Norampac New York City Inc.) (3)	Corrugated containers	1,045,000
		Leominster, Massachusetts (Norampac Leominster Inc.) (3)	Corrugated containers	819,000
		Schenectady, New York (Norampac Schenectady Inc.) (5)	Corrugated containers	566,000	(1)
		Thompson, Connecticut (Norampac Thompson Inc.) (3) (8)	Corrugated containers	n/a	(1)

				12,700,000

*Sheet Plants* (in thousands of square feet)
	Quebec
		Victoriaville	Corrugated containers	378,000
	Ontario
		Barrie (Jellco)	Corrugated containers	134,000
		Peterborough	Corrugated containers	99,000
	West
		Saskatoon, Saskatchewan (3) (6)	Corrugated containers	38,000
	Mexico
		Guadalupe (Norampac Monterrey Division S.A. de C.V.) (3) (7)	Corrugated containers	47,000

				696,000

(1): Except as otherwise noted, quantities presented for containerboard mills are in short tons (rounded to the nearest thousand) and reflect production capacity at the end of 2003. Quantities presented for corrugated products plants are in thousands of square feet (rounded to the nearest thousand) and reflect actual 2003 shipments for the entire year, except for the Schenectady plant which represents shipments from April 14, 2003 to December 31, 2003 and the Dallas—Fort Worth plant which represents shipments from January 1, 2003 to April 14, 2003, when it was exchanged. We have not presented quantities for the Thompson, Connecticut plant, which was acquired in April 2004.
(2): All of the property, plant and equipment of this facility are pledged as security for our obligations under our new revolving credit facility.
(3): These represent facilities that we currently lease. Only a portion of the Maspeth, New York property is leased.
(4): We own a 42.9% interest in Montcorr Packaging Limited, a sheet feeder plant with the remaining 57.1% owned by four other partners. We do not manage the operation of this facility. In 2003, 42.9% of this plant's annual shipments represented 296,000 thousand square feet.
(5): On April 14, 2003, we completed an asset exchange agreement with Georgia Pacific Corporation. In this transaction, we acquired a corrugated products plant located in Schenectady, New York in exchange for our Dallas-Fort Worth plant and cash.
(6): The capacity includes the assets we acquired in May 2003.
(7): On December 31, 2003, we completed the sale of our Monterrey Division in Mexico.
(8): On April 2, 2004, we completed the acquisition of Johnson Corrugated Products Corp. (now known as Norampac Thompson Inc.) located in Thompson, Connecticut.

Containerboard Mills. Our mills produce a wide range of standard and high-performance containerboard, including kraft and recycled brown linerboard, recycled white-top linerboard, semichemical and recycled corrugating medium, as well as certain other value-added products. Our

linerboard production is approximately 53% kraft and 47% recycled and our corrugating medium and gypsum production is approximately 55% semichemical and 45% recycled. Linerboard and corrugating medium are produced in basis weights of 100 to 337 grams per square meter (20 to 69 pounds per thousand square feet) and 87 to 195 grams per square meter (18 to 40 pounds per thousand square feet), respectively.

The Red Rock mill is our largest facility. This mill produces unbleached kraft linerboard made from approximately 80% virgin fiber and 20% recycled fiber. At our Red Rock mill we possess two machines, with one machine dedicated to lightweight linerboard and the other machine dedicated to heavyweight linerboard. In September 2003, we temporarily shutdown the mill to install a pick-up roll on our machine dedicated to heavyweight linerboard, which increased its production efficiency.

At our Mississauga mill, we operate one machine that produces recycled linerboard. Our Mississauga mill produces primarily light to mid-weight brown and white-top linerboard, with white-top constituting approximately 19% of its production in 2003. Strategically located near Toronto, the Mississauga mill benefits from its close proximity to customers and to readily available sources of recycled fiber. The Mississauga mill uses 100% recycled fiber in its production. In 2004, we will be completing our waste water treatment project in order to lower our production costs.

Our Kingsey Falls mill operates one machine that produces recycled linerboard. The Kingsey Falls mill is one of only two mills in North America with the ability to produce value-added custom colored linerboard directly on the paper machine. The Kingsey Falls mill can also produce coated white top linerboard. In 2003, we improved our paper machine wet end in order to improve paper quality mainly for white top linerboard.

Our Trenton mill produces semichemical corrugating medium and a wide range of standard and high-performance grades, as well as lightweight medium for fine flute applications. This mill operates one machine. Over the course of the last two years, a steam reformer was installed at the mill and the start up began in September 2003. This will allow us to reduce energy, chemicals and environmental costs and will also increase the quality of our products. The Trenton mill is the only integrated pulp and paper mill in North America with a closed-loop water system, virtually eliminating any effluent from the production process.

At our Cabano mill we operate one machine that produces semichemical corrugating medium and can produce value-added grades of corrugating medium such as "wet strength," which has moisture resistant characteristics and is used primarily for packaging foods. Located near a deep-water harbor, the Cabano mill has year-round access to shipping networks. In addition, the Cabano mill has a bark boiler which provides heating and steam, thus reducing our energy costs at this facility. A second bark boiler will be installed at the Cabano mill in 2004. The two bark boilers will generate approximately 90% of the Cabano mill's steam requirements and will help to keep production costs low thus maintaining its competitiveness in the market.

Our Niagara Falls mill operates two machines, which produce recycled corrugating medium in a full range of basis weights, as well as value-added products such as superflute medium for fine flute applications. The mill is located within 200 miles of approximately 75% of its customers and, as a result, transportation and shipping costs are relatively low. In June 2003, we completed our project to install a pipeline in order to use the steam from a steam generator located near the mill allowing us to cease using the gas boiler. This project helps us avoid natural gas cost variation and will reduce our operating costs.

Our only European mill is strategically located in Blendecques, France (Norampac Avot-Vallée S.A.S.), to serve customers in France and other Western European countries. At this mill we operate three machines, two of which produce recycled white-top linerboard, and one of which produces recycled corrugating medium. In 2003, the mill's production was 70% recycled white top linerboard and

30% recycled corrugating medium. This mill is the largest producer of recycled white-top linerboard in France and the fourth largest in Europe. This mill also operates two de-inking plants, allowing it to produce 100% of its requirements for the bleached pulp used to make the top layer of white-top linerboard and enabling it to decrease its costs by using lower grades of waste paper in the production process.

Our Burnaby mill, purchased from Crown Packaging Ltd. on April 2, 2001, is a major manufacturer of 100% recycled containerboard in Western Canada. Improvements were made in the stock preparation system which enable the mill to be a high quality producer of recycled corrugating medium, gypsum paper and brown and white linerboard. The mill is one of only a few mills in Western Canada which will be able to offer all these recycled products.

Converting Operations. We operate a network of 25 corrugated products plants located throughout Canada and the United States. In 2003, our converting facilities shipped approximately 13.4 billion square feet of corrugated containers, including shipments of corrugated sheets to our own sheet plants.

Our converting operations consist primarily of traditional corrugated products plants, which utilize corrugators to combine linerboard and corrugating medium into corrugated sheets that are then printed, cut, folded and glued at the same plant into corrugated containers, as well as one sheet feeder that produces only corrugated sheets. We operate four sheet plants which purchase corrugated sheets either from our own corrugated products plants or on the open market and then cut, fold and glue these corrugated sheets into finished packaging products.

Our converting operations provide our customers with graphic design, computer-aided sample making and distribution services. Mostly all of our products are made to order. These plants produce a wide range of products, from corrugated boxes and containers for shipping and packaging to specialty products, such as intricate die-cut irregular size boxes, moisture resistant wax-coated and wax impregnated boxes, corrugated pallets, litho-laminated boxes and point-of-purchase products, foam and protective packaging products as well as single-face and single-face laminate. In addition, many of our customers require high quality multi-color graphics for their boxes and point-of-purchase corrugated display units. We are able to service this portion of the market through our conversion of preprinted linerboard, flexographic printing directly on containers and lithographic printing of labels.

Marketing, Sales and Distribution

Our sales for 2001, 2002 and 2003 were as follows:

		2001		2002		2003
		(in millions of Canadian dollars)
Canada		$	777.8	$	870.5	$	820.4
United States			280.0		314.6		293.5
France			27.9		27.0		32.4
All other markets			103.3		103.0		112.3
	Total	$	1,189.0	$	1,315.1	$	1,258.6

No other country represented 10% or more of sales. All other markets principally include European and Latin American countries.

In 2003, containerboard constituted approximately 40% of our sales before intersegment eliminations and corrugated products constituted 56% of our sales before intersegment eliminations.

In 2003, our converting operations utilized approximately 61% of our own North American containerboard production. The balance of our North American containerboard production is sold on the Canadian, U.S. and export markets. Our only European mill, located in Blendecques, France, sells its products primarily in Europe.

We sell our corrugated products to over 20,000 customers, primarily in Canada and the United States, with no single customer accounting for more than 10% of our 2003 sales.

In order to ensure a high level of customer service in our corrugated products sector, we maintain a decentralized sales force organized around geographic regions with sales personnel at each plant. In contrast, in our containerboard sector, which is less influenced by regional market share, we favor a centralized sales force at our headquarters in order to benefit from inter-division synergies. However, we maintain a sales administrator for each of our containerboard mills who is responsible for coordinating sales and customer needs with the mill's containerboard production.

Our corrugated products plants are strategically located in geographic proximity to our customers due to the significant cost of transportation and the importance of prompt delivery to customers. Most of our corrugated products production is shipped by a leased truck fleet or other common carriers to customers generally within a 200-mile radius of each plant. All of our mills are strategically located in close proximity to customers or major transportation highway, rail or shipping networks.

Raw Materials

Our principal raw materials are recycled fiber, sawdust and shavings, hardwood logs and wood chips, as well as certain chemicals, all of which are cyclical in both price and supply to varying degrees. The cyclical nature of pricing for certain of these raw materials presents a potential risk to our profit margins to the extent that we are unable to pass along price increases to its customers on a timely basis. In addition, we also use significant amounts of fossil fuels.

We believe we have security of supply for our two principal raw materials: recycled and virgin fiber. We also have three Sustainable Forest Licenses with the Ministry of Natural Resources in Ontario. These licenses, which were previously held by Domtar, ensure the supply of virgin fiber for our Red Rock and Trenton mills. Pursuant to a Wood Fiber Supply and Management Agreement entered into with Domtar, Domtar manages the supply of virgin fiber for our Red Rock and Trenton mills. The Cabano mill secures approximately 60% of its supply of virgin fiber from four regional wood fiber suppliers. All of the remaining virgin fiber supply requirements for our mills are secured from private land and crown land managed by Domtar, sawmills affiliated with Domtar and us or pursuant to contracts with other private and public sources.

Approximately 60% of the raw materials we utilize in our containerboard production consists of recycled fiber. Metro Waste, together with Cascades' recycling operations, supply approximately 34% of our North American recycled fiber needs. The remainder of our recycled fiber requirements is met through an existing network of generators of waste paper and old corrugated containers, such as supermarkets, and, depending on supply and pricing, brokers of recycled materials. Approximately 30% of the recycled fiber we purchase on the open market in North America is subject to long-term contracts, while the remainder of our needs are purchased on the open market at prevailing market rates.

Research and Development; Intellectual Property

We focus our research and development efforts on improving manufacturing efficiencies and developing new and innovative products designed to improve the performance characteristics of our containerboard and corrugated products. Most of our research and development activities are performed at the Research Center of Cascades located in Kingsey Falls, Quebec. We also maintain our own testing and technical division in Mississauga, Ontario, which provides certain of our operating divisions with research and development. The synergy between the two facilities is accomplished through research and development consortiums, research and development focus groups and common management. They operate on a project-by-project basis. Moreover, some of the research and development activities are performed directly on-site at our mills or plants. Although we have

trademarks, trade names and patents, we do not consider any of them, individually or in the aggregate, to be material.

Competition

The markets for containerboard and corrugated products are highly competitive. Competition in our markets is based principally on quality, product performance and characteristics, service and price as they relate to customers' needs.

Competition in the containerboard sector tends to be global. Additionally, the containerboard industry remains one of the most fragmented segments of the pulp and paper industry despite the recent consolidation trend in the industry and, as a result, we compete with a large number of competitors. However, manufacturing containerboard is capital intensive with high barriers to entry as new facilities require substantial capital and generally take at least two years to design, engineer and construct.

In contrast to the containerboard sector of the industry, the corrugated products sector has lower barriers to entry. Competition in corrugated products is primarily regional, and proximity to customers is an important factor in minimizing shipping costs and facilitating the quick order turnaround and on time delivery demanded by customers. We compete with a varying number of competitors in each of our markets. Many of these competing facilities are owned by other integrated producers, although we also compete with a number of non-integrated converters operating on a regional level.

In addition, alternative forms of packaging made from materials such as plastic, plastic film, boxboard and other materials also compete with corrugated products and containerboard products. Our management believes that our continued focus on providing customers with high quality products, combined with our increasing focus on high-performance grades, value-added products and superior customer service, will enable us to continue to compete favorably in our markets.

Environmental and Other Governmental Regulations

As is the case with the entire pulp and paper industry, we are subject to stringent general and industry-specific environmental laws and regulations imposed by national, provincial and local authorities in Canada, the United States and Europe. The cost of maintaining compliance with applicable environmental laws in conjunction with required upgrades of our facilities to comply with new regulations has been and is expected to continue to be significant. During 2003, we provided for or incurred approximately $22 million for environmental issues, $18 million of which was expensed and $4 million of which was capitalized. For more information see "—Legal Proceedings" in this section. These expenditures were attributable to an effort to comply with environmental permits, to conduct environmental investigations and perform remedial actions to address environmental compliance. During the next three years, apart from recurring expenditures of approximately $20 million annually, we anticipate capital expenditures for environmental matters to total approximately $28 million, including approximately $14 million to upgrade air pollution control equipment at Red Rock, Ontario, Canada, and approximately $4.6 million to upgrade the waste-water treatment system at our facility in Mississauga, Ontario, Canada. In 2004, we expect expenditures for environmental issues to be approximately $30 million ($12 million expensed and $18 million capitalized). While we believe these estimates are reasonable, there can be no assurance that actual expenditures will not exceed the estimated amounts.

In the ordinary course of business, we are subject to frequent inspections and monitoring by government enforcement authorities. There can be no guarantee that fines will not be imposed in the future in connection with these inspections.

We have incurred, and may in the future incur, costs and liabilities to investigate and clean-up waste or contamination at current or former facilities, related in part to historical practices or waste disposed of prior to the purchase of facilities by us.

Certain environmental laws provide for strict, and in some circumstances, joint and several liability for investigation and remediation of spills and other releases of hazardous substances and for liability for related damages to natural resources. Such laws may impose liability on certain classes of persons, including the current and former owners and operators of contaminated facilities and companies (and their corporate successors) that arranged for disposal, or for transport for treatment or disposal, of regulated materials at a facility or otherwise caused the contamination. There can be no assurance that we will not incur such liability in a manner that would have a material adverse effect on our business, financial condition or our results of operations. See "—Legal Proceedings" described below.

Quality Assurance

In 2003, we invested approximately $58.5 in net capital expenditures in our facilities to reduce unit production costs, improve quality, increase capacity (through debottlenecking projects) and meet environmental regulations. Except for the Montreal, North York, Buffalo, Saskatoon, Maspeth, Leominster and Thompson plants and our Mississauga and Burnaby mills, all of our corrugated products plants and six of our eight mills are ISO certified. In addition, our Concord, St. Marys, Etobicoke and Vaughan plants, located in Ontario, and our Kingsey Falls mill, located in Quebec, have achieved ISO certification for their environmental management systems.

Properties

We maintain manufacturing facilities in three countries. Our operations are strategically located in geographic proximity to our customers due to significant transportation costs and the importance of prompt delivery to customers. Most of our production is shipped by a leased truck fleet or other common carriers to customers generally within a 200-mile radius of each plant.

Our principal manufacturing facilities as of May 31, 2004 are:

		Number of Facilities
		Number of Facilities			Lease Expiration Dates
		Total	Owned	Leased	Lease Expiration Dates
North America:
	Mills	7	6	1	2017
	Corrugated products plants	21	16	5	2008 - 2018	(a)
	Sheet plants	4	3	1	2008	(a)
Europe:
	Mills	1	1	n/a

(a): Some of our leases are subject to one or more options to renew.

We also maintain office space for our headquarters in Montreal.

Subsidiaries and Investments

Our principal subsidiaries are as follows:

Name of Company	Primary Operations	Jurisdiction of Incorporation	Percentage of Common Shares Owned
Norampac Holding US Inc.	Holding Company	Delaware	100	%
Norampac New York City Inc.	Owns and operates our Maspeth, New York plant	New York	100	%
Norampac Leominster Inc.	Owns and operates our Leominster, Massachusetts plant	Massachusetts	100	%
Norampac Industries Inc.	Owns and operates our Niagara Falls, New York mill and Buffalo, New York plant	New York	100	%
Norampac Thompson Inc.	Owns and operates our Thompson, Connecticut plant	Connecticut	100	%
Norampac Dallas-Fort Worth L.P.	Owns the equipment for our Schenectady, New York plant	Texas	100	%
Norampac Avot-Vallée S.A.S.	Owns and operates our mill in Blendecques, France	France	99.9	%
Norampac Schenectady Inc.	Owns land and building and operates our Schenectady, New York plant	New York	100	%
1426835 Ontario Inc.	Holds the land for our Vaughan plant	Ontario	100	%
Newfoundland Containers Limited	Owns and operates our St. John's plant	Newfoundland	100	%

We also have investments in several entities, including:

•: a 46.0% interest in Metro Waste Paper Recovery Inc., a Canadian operator of waste paper recovery and recycling operations;
•: a 42.9% interest in Montcorr Packaging Ltd., a Canadian sheet feeder plant; and
•: a 20.0% interest in Groupe NBG Inc., an entity created to operate a Canadian sawmill.

Legal Proceedings

We are the owner of a property located in Depew, New York. Recycling operations were conducted by us at this site prior to the sale of such operations in December 1998 to Metro Waste, which now leases the site from us. During 1998 and 1999, environmental assessments were conducted by us to address certain environmental concerns raised by the New York Department of Environmental Conservation, or the Department, regarding the site. The overall conclusion of these assessments was that the site had been contaminated by metals from foundry operations conducted by a former owner of the site. In 1999, the Department issued, with our consent, an Order on Consent, the objective of which was to determine the terms and conditions upon which we would develop and implement an Interim Remedial Measure, or IRM, Program and a Remedial Investigation/Feasibility Study, or RI/FS. In conformity with the Order on Consent, an IRM Program was implemented at the site in July 1999. Through the implementation of this measure, actual exposure to contamination at and from the site has become negligible. We submitted the RI/FS to the Department on April 6, 2001 for its review. We submitted the final draft of the RI/FS to the Department on November 4, 2002. It delineates the nature and extent of contamination on-site, evaluates alternatives to address on-site contamination and recommends a preferred remedy. The Department may not approve our recommended remedy. Final remediation costs cannot be estimated until the Department selects the remedy. In addition, we completed an investigation of the off-site contamination and submitted those results to the Department. Nevertheless, in March 2003, the Department advised us that it will not review the RI/FS or select a

remedy for on-site contamination until N.L. Industries, Inc., or N.L., the former site owner which we believe is responsible for its contamination, executes an agreement with the Department to remediate off-site contamination. No such agreement has been reached. In April 2003, the Department referred the off-site remedy to the federal Environmental Protection Agency for funding and implementation. We have since renewed our request to the Department to review and approve the RI/FS and our recommended on-site remedy. Also, we are currently involved in negotiations with N.L. regarding allocation of costs. We intend to pursue appropriate legal remedies in the event that negotiations with N.L. do not result in a settlement that allows us to recover a large part of the costs associated with this matter. However, we could incur material costs and N.L. may not satisfy all of its obligations.

There are currently no other material legal or administrative proceedings pending against us that we expect to have a material adverse effect on our financial condition or results of operations. See note 16 to our audited consolidated financial statements, included elsewhere in this Form 20-F.

Item 5. Operating and Financial Review and Prospects

The following discussion should be read in conjunction with the financial statements and the accompanying notes, included elsewhere in this Form 20-F. The discussion set forth below is based upon, and such financial statements have been prepared in accordance with, Canadian GAAP, which differs from U.S. GAAP. See note 23 to our audited consolidated financial statements included elsewhere in this Form 20-F, for a discussion of the material differences between Canadian GAAP and U.S. GAAP as it relates to us. A summary of these differences is also included below in this section. The following discussion also contains forward-looking statements, which reflect the expectations, beliefs, plans and objectives of management about future financial performance and assumptions underlying our judgments concerning the matters discussed below. These statements, accordingly, involve estimates, assumptions, judgments and uncertainties. In particular, this pertains to management's comments on financial resources, capital spending and the outlook for our business. Our actual results could differ from those discussed in the forward-looking statements. Factors that could cause or contribute to any differences include, but are not limited to, those discussed below and elsewhere in this Form 20-F, particularly in "Item 3. Key Information."

Overview

We are an industry leader in corrugated products solutions and offer a complete line of customized packaging products for a wide variety of uses. Our products range from everyday boxes, point-of-purchase displays and specialized boxes for merchandise requiring optimal protection, such as produce, furniture and appliances, small electronic components or large car parts. Our close relationship with our parent companies, Cascades and Domtar, both of which are major pulp and paper producers, allows us to enhance our offerings and provide a wide range of integrated complementary services.

Our operations are organized into two segments:

•: Containerboard, which constitutes approximately 40% of our sales before intersegment eliminations, and includes the manufacturing of standard and high performance grades of linerboard and corrugating medium in a wide range of basis weights from a mix of recycled and virgin fibers; and
•: Corrugated Products, which constitutes 56% of our sales before intersegment eliminations, and includes the conversion of containerboard into corrugated containers and other packaging related products.

Recent Market Conditions

Although we believe that our product, market and geographic diversification helps to mitigate the effects of adverse industry conditions, the markets for containerboard and corrugated products are subject to cyclical changes in the economy and changes in industry capacity, both of which can significantly impact selling prices and our profitability. These markets are heavily influenced by changes in the North American and global economies, industry capacity and inventory levels maintained by our customers, all of which affect selling prices and our profitability. Market conditions generally improved from 1999 to the first half of 2000 over previous periods. However, economic growth in North America began to slow in 2001. Market conditions in 2002 and 2003 remained relatively slow due to a weaker U.S. economy. To adjust our production levels to demand, we took market-related downtime equal to 9.0%, 6.9% and 8.0% of our total North American capacity in 2001, 2002 and 2003, respectively. Other major manufacturers also demonstrated production discipline and, despite the economic downturn, inventory levels and containerboard product pricing remained stable.

The prevailing slow economic conditions in 2003 led to a decrease in industry box shipments for a fourth consecutive year while North American containerboard operating rates were approximately 90%. In addition, selling prices for our products have decreased. The following table indicates the historical movements of average benchmark list prices for our key products:

Product		1999			2000			2001			2002			2003
Linerboard-unbleached kraft, 42-lb. Eastern U.S. (US$/short ton)		$	401		$	468		$	444		$	426		$	420
Corrugated Medium (US$/short ton)		$	361		$	446		$	404		$	383		$	376

Recycled and virgin fiber are the principal raw materials used in the manufacture of our products and represent the largest cost of production. Prices for recycled fiber have also fluctuated considerably since 1999. The cost of this raw material presents a potential risk to our profit margins to the extent that we are unable to pass along price increases to our customers on a timely basis. The following table indicates the historical movements of the listed publication price for old corrugated containers:

Product			1999			2000			2001			2002			2003
Recycled Paper
	Old corrugated containers (US$/short ton)		$	63		$	74		$	36		$	63		$	63

After the cost of fiber, labor and energy are our most significant production costs. Although labor costs have remained relatively steady on a per ton basis, our energy costs have fluctuated significantly. Energy prices, particularly for natural gas and fuel oil, increased steadily throughout 2000, peaking in the first quarter of 2001, with a corresponding effect on our production costs. Prices for energy began to increase again in the first quarter of 2003 and remained high resulting in significantly higher energy costs in 2003 over 2002. We continue to evaluate our energy costs and consider ways to improve our energy efficiency.

The prices for our containerboard products, which represent approximately 40% of our sales before intersegment eliminations, are determined mainly by reference to the delivered U.S. market price. While we purchase certain quantities of raw materials in U.S. dollars, a majority of our operating costs are incurred in Canadian dollars. A strong Canadian dollar relative to the U.S. dollar reduces the amount of Canadian dollar revenues realized by us on sales of our products. A strong Canadian dollar relative to the currencies of Canada's major trading partners, particularly the United States, also weakens demand in such jurisdictions for corrugated products, which could have a material adverse effect on our business, financial condition and results of operations. In 2003, the average exchange rate for the Canadian dollar strengthened against the U.S. dollar compared to previous years. For more information about the risks relating to exchange rate fluctuations and how we manage those risks, see

"Item 11. Quantitative and Qualitative Disclosures About Market Risk" and note 17 to our audited consolidated financial statements, included elsewhere in this Form 20-F.

Recent Transactions

We have grown significantly through acquisitions, particularly in 2001, and through our startup of new facilities. However, in order to maximize efficiency and to allow us to concentrate our efforts in the containerboard and corrugated products industries, we also relocated one corrugated products plant, transferred some of our assets and closed one of our divisions. Since the creation of Norampac until 2003, we have generated free cash flow of $224.1 million taking into account business acquisitions of $189.2 million and capital expenditures of $363.4 million while reducing our net debt to capitalization ratio from 46.6% in 1998 to 31.5% in 2003. The following table shows the most important transactions affecting our business and financial results:

Transaction Description	Date	Location	Transaction Value (in millions of Canadian dollars) (a)
Acquisition of corrugated products plant in Buffalo, New York from Armor Box Corporation	October 2000	U.S.	$	20.4
Startup of sheet plant in Saskatoon, Saskatchewan	February 2001	Canada		1.3
Acquisition of containerboard mill in Burnaby, British Columbia and nine paper recovery plants located in British Columbia, Alberta and Manitoba from Crown Packaging Ltd. (b)	April 2001	Canada		48.8
Startup of sheet plant in Monterrey, Mexico	April 2001	Mexico		1.9
Startup of corrugated products plant in Dallas-Fort Worth, Texas (c)	June 2001	U.S.		7.3
Purchase of assets and business of PolyFab, which specializes in the converting of polyethylene foam for protective packaging	June 2001	Canada		0.4
Acquisition of Norseman S.A. de C.V., Monterrey, Mexico which specializes in the converting of polyethylene foam for protective packaging in Mexico	August 2001	Mexico		—
Relocation of corrugated products plant from Toronto (Leaside), Ontario to a newly constructed facility in Vaughan, Ontario	August 2001	Canada		54.4
Acquisition of corrugated products plant in Maspeth, New York from Star Corrugated Packaging Co., Inc.	November 2001	U.S.		45.6
Transfer of assets of our paper recovery divisions to Metro Waste (b)	January 2002	Canada		13.5
Acquisition of corrugated products plant in Leominster, Massachusetts from Star Container Corporation	January 2002	U.S.		50.5
Closed CMC Division in Scarborough, Ontario (d)	September 2002	Canada		0.8
Acquisition of sawmill in Rivière-Bleue, Quebec from Bowater Guérette Inc. (e)	February 2003	Canada		0.5
Acquisition of corrugated products plant in Schenectady, New York from Georgia Pacific Corp. (c)	April 2003	U.S.		32.0
Acquisition of assets of Instabox Saskatchewan Inc. in Saskatoon, Saskatchewan	May 2003	Canada		0.7

Sale of our sheet plant in Monterrey, Mexico		December 2003		Mexico			0.3
Acquisition of corrugated products plant in Thompson, Connecticut (f)		April 2004		U.S.			15.0

(a): For our startups, the transaction value shown represents the amount we invested.
(b): We transferred the nine paper recovery plants located in British Columbia, Alberta and Manitoba that had been purchased from Crown Packaging Ltd. earlier in the year, together with our containerboard mill located in Burnaby, British Columbia, to Metro Waste, our joint venture with Cascades Inc. and Metauro Holdings Inc. In exchange for these assets, we increased our equity participation in Metro Waste from 27.5% to 46.0%.
(c): On April 14, 2003, we completed an asset exchange agreement with Georgia Pacific. In this transaction, we acquired a corrugated products plant located in Schenectady, New York in exchange for our Dallas-Fort Worth plant and approximately $20.4 million in cash.
(d): Production was redistributed among our other Ontario facilities. The transaction value shown represents our estimated closing costs.
(e): We have entered into an agreement with four other partners who contribute both financial resources and lumber industry expertise. The new operating entity does business under the name of Groupe NBG Inc. and the partners have agreed to assign management of daily mill operations to Gestion BGF Inc., which is affiliated with lumber industry operator Bégin & Bégin Inc.
(f): On April 2, 2004, we completed the acquisition of Johnson Corrugated Products Corp. (now known as Norampac Thompson Inc.), a corrugated products plant in Thompson, Connecticut. The transaction value shown represents an approximate amount.

For more information about some of these acquisitions, see note 4 to our audited consolidated financial statements, included elsewhere in this Form 20-F.

Critical Accounting Policies

Management's discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in Canada. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. We evaluate our estimates on an ongoing basis, including those related to bad debts, inventories, intangible assets, pensions and other post-retirement benefits, income taxes, contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements. See note 2 of our audited consolidated financial statements included elsewhere in this Form 20-F, for a further discussion on the application of these and other accounting policies.

Accounts Receivable Allowance for Doubtful Accounts. We evaluate the collectibility of our accounts receivable on a case-by-case basis, and make adjustments to the bad debt reserve for expected losses accordingly. We consider such factors as ability to pay, bankruptcy, credit ratings and payment history. In addition, we estimate reserves for bad debts based on historical experience and past due status of the accounts.

Useful Life of Tangible and Definite Life Intangible Assets. We calculate depreciation and amortization of tangible and definite life intangible assets on a straight-line basis so as to write off the cost of the assets over their expected useful lives. The economic life of an asset is determined based on expected physical wear and tear, economic and technical aging, legal or other limits on the use of assets and obsolescence. If an asset were to deteriorate materially at a pace inconsistent with our determination, resulting in a reduction in the period over which an asset is expected to generate future cash flows, we may accelerate depreciation and amortization to reflect the remaining useful life or record an impairment loss.

Contingent Liabilities. We accrue contingent liabilities which include, but are not limited to, environmental matters. We recognize a liability for environmental remediation when we believe it is more likely than not that a liability has been incurred and the amount can be reasonably estimated.

The liabilities are estimated based on currently available information and reflect the participation of other potentially responsible parties, depending on the parties' financial condition and probable contribution. The accruals are recorded at undiscounted amounts and are reflected as liabilities on the accompanying consolidated balance sheets.

As the valuation of accruals requires significant estimates, our future results could be affected if our current estimates change.

Valuation of Identifiable Intangible Assets and Goodwill. We account for our business acquisitions under the purchase method of accounting. The total cost of an acquisition is allocated to the underlying net assets based on their respective estimated fair values. As part of this allocation process, we must identify and attribute values and estimated lives to the intangible assets acquired. While we may employ an expert to assist us with these matters, such determinations involve considerable judgment, and often involve the use of significant estimates and assumptions, including those with respect to future cash inflows and outflows, discount rates and asset lives.

Prior to January 1, 2002, we determined impairment by comparing the undiscounted amount of expected future operating cash flows with the carrying amounts of such assets. Expected future cash flows are based upon our best estimate given the facts and circumstances at that time. Impairments in the carrying amount of identifiable intangible assets and goodwill are expensed.

Effective January 1, 2002, we adopted the provisions of the Canadian Institute of Chartered Accountants (CICA) Handbook Section 3062, "Goodwill and Other Intangible Assets." Accordingly, we test identifiable intangible assets with indefinite useful lives and goodwill by comparing carrying amounts to their fair values at least annually. The determination of fair value involves significant management judgment. Impairments in the carrying amounts of identifiable intangible assets with indefinite lives and goodwill will be expensed.

As the valuation of identifiable intangible assets and goodwill requires significant estimates and judgment about future performance and fair value, our future results could be affected if our current estimates of future performance and fair value change.

Income taxes. We are required to estimate our income taxes in each of the jurisdictions in which we operate. This includes estimating a value for our existing net operating losses and investment tax credit based on our assessment of our ability to utilize them against future taxable income before they expire. If our assessment of our ability to use our net operating losses and investment tax credits proves

inaccurate in the future, we might be required to recognize more or less of the net operating losses as assets, which would increase or decrease our income tax expense in the relevant year and this would affect our earnings in that year.

Pension and Post-retirement Benefit Costs. We account for pension and other employee future benefits in accordance with CICA recommendations. As such, assumptions are made regarding the valuation of benefit obligations and performance of plan assets. Deferred recognition of differences between actual results and those assumed is a guiding principle of these recommendations. This approach allows for a gradual recognition of changes in benefit obligations and plan performance over the expected average remaining service life of the active employee group covered by the plans.

Pension and other employee future benefits assumptions include the discount rate, the expected long-term rate of return on plan assets, the rate of compensation increase, health care cost trend rates, mortality rates, employee early retirements and terminations or disabilities. Changes in these assumptions result in actuarial gains or losses which, in accordance with CICA recommendations, we have elected to amortize over the expected average remaining service life of the active employee group covered by the plans only to the extent that the unrecognized net actuarial gains and losses are in excess of 10% of the greater of the accrued benefit obligation and the market value of plan assets as of the beginning of the year. The future effect on our results of operations is dependent on economic conditions, employee demographics, mortality rates and investment performance.

The following table provides a sensitivity analysis of the key weighted average economic assumptions used in measuring the projected pension benefit obligation and related net periodic benefit cost for 2003. The sensitivity analysis should be used with caution as it is hypothetical and changes in each key assumption may not be linear. The sensitivities in each key variable have been calculated independently of each other.

		Change in Pension Benefit Obligation Increase (Decrease)		Change in Net Periodic Benefit Cost Increase (Decrease)
		(in millions of Canadian dollars)
Expected rate of return on assets
Impact of	1% increase	—		(2.5	)
	1% decrease	—		1.9
Discount rate
Impact of	1% increase	(31.2	)	(0.8	)
	1% decrease	29.8		1.1

Results of Operations

The following table sets forth information about our results of operations as a percentage of net sales:

		Year Ended December 31,
		2001		2002		2003
Results of Operations:
Net sales		100.0	%	100.0	%	100.0	%
Cost of delivery		8.0		8.2		8.9
Costs of goods sold and expenses
	Cost of goods sold	68.5		70.3		73.5
	Selling and administrative expenses	11.3		12.3		12.7
	Depreciation and amortization	6.5		6.0		6.4
Operating income		13.7		11.4		7.4
Financial costs
	Interest on total debt	3.1		2.9		2.6
	Interest income on short-term investments	(0.2	)	—		—
	Amortization of financing costs	0.1		0.1		0.1
	Unrealized exchange loss (gain) on long-term debt	1.2		—		(1.0	)
	Realized exchange loss (gain) on long-term debt	—		—		(0.6	)
	Capitalized interest to property, plant and equipment	(0.1	)	—		—
	Unusual items	—		—		1.7
Income tax expense		3.4		2.8		1.9
Share of income of equity-accounted investments		0.1		—		—

Net income		6.3	%	5.6	%	2.7	%

Other Data:
Operating income before depreciation and amortization (a)		20.2	%	17.4	%	13.8	%

(a): Operating income before depreciation and amortization is not a measure of performance under Canadian GAAP or U.S. GAAP. We believe that, in addition to cash flow from operations, operating income and net income, operating income before depreciation and amortization is a useful financial performance measurement for assessing operating performance as it provides investors with an additional basis to evaluate operating performance and our ability to incur and service debt and to fund capital expenditures. In evaluating operating income before depreciation and amortization, we believe that investors should consider, among other things, the amount by which operating income before depreciation and amortization exceeds interest costs for the period, how operating income before depreciation and amortization compares to principal repayments on debt for the period and how operating income before depreciation and amortization compares to capital expenditures for the period. In addition, our chief operating decision makers use operating income before depreciation and amortization as a measure of evaluating the performance of our operating segments. To evaluate operating income before depreciation and amortization, the components of operating income before depreciation and amortization, such as revenues and operating expenses and the variability of such components over time, should also be considered. Investors should be cautioned, however, that operating income before depreciation and amortization should not be construed as an alternative to operating income (as determined in accordance with Canadian GAAP or U.S. GAAP) as an indicator of our operating performance, or as an alternative to cash flows from operating, investing and financing activities (as determined in accordance with Canadian GAAP or U.S. GAAP) as a measure of liquidity or our ability to meet all its cash needs. For a reconciliation of operating income before depreciation and amortization to

net income and net cash provided by (used in) operating activities, which we believe to be the closest GAAP performance and liquidity measures to operating income before depreciation and amortization, see footnote (e) to our selected historical consolidated financial statements on pages 4 and 5. See the discussion below for other measures of liquidity and operations that are covered by our consolidated financial statements.

Year Ended December 31, 2003 Compared to Year Ended December 31, 2002

Net sales. Net sales for 2003 were $1.15 billion compared to $1.21 billion for 2002. The decrease of 5% is mainly due to a stronger Canadian dollar, which had a direct impact on the average reported net Canadian selling prices in both containerboard and corrugated products segments. This decrease has been partially offset by additional volume from the acquisition of Schenectady corrugated products plant acquired in April 2003. Containerboard shipments remained approximately at the same level while corrugated products shipments increased by 5.0%. Average net selling prices decreased by 8.8% for containerboard and 6.6.% for corrugated products. Our North American integration level increased to 61% up from 59% in 2002.

Cost of goods sold. Cost of goods sold for 2003 decreased to $848.7 million from $854.7 million for 2002. Gross margin, which is calculated as net sales less cost of goods sold expressed as a percentage of net sales, was 26.5% for 2003 compared to 29.7% for 2002, mainly due to a decrease in net selling price for both containerboard and corrugated products segments and higher energy costs, partially offset by a decrease in the cost of recycled fiber, particularly old corrugated containers and a reduction in profit sharing paid to employees.

Selling and administrative expenses. Selling and administrative expenses decreased by 1.7% to $146.7 million for 2003 from $149.2 million for 2002. Selling and administrative expenses as a percentage of sales amounted to 12.7% for 2003, compared to 12.3% for 2002. The percentage increased as a result of lower sales prices.

Operating income. We generated operating income of $85.4 million for 2003, representing a decrease of $53.2 million or 38.4% over operating income of $138.6 million for 2002. The decrease is largely due to lower average net selling prices for both containerboard and corrugated products segments, as well as higher energy costs, partially offset by lower recycled fiber costs, particularly old corrugated containers due in part to more favorable exchange rates, reduction in profit sharing paid to employees and additional shipments from the corrugated products segment mainly due to the Schenectady corrugated products plant acquired in April 2003.

Financing expenses. Financing expenses were $32.3 million for 2003 compared to $37.3 million for 2002. The reduction in financing expenses is mainly attributable to expected savings from the refinancing completed in May 2003, lower foreign exchange rates and lower borrowing levels.

Exchange gain on long term debt amounted to $19 million due to the translation of our U.S dollar denominated senior notes on which a portion of $6.9 million has been realized due to the refinancing. In addition, the unrealized gain was minimized due to the designation since January 1, 2002 of a portion of our U.S. dollar denominated senior notes as a hedge of the net investment of our subsidiaries whose functional currency is the U.S. dollar. Any unrealized gain (loss) on the hedged portion after that date has been, and will continue to be, offset against cumulative translation adjustments, net of related income taxes.

Unusual items. Due to the refinancing we incurred unusual expenses of $19.9 million which includes a $14.4 million call premium paid to redeem both the 9.5% senior notes and the 9.375% senior notes that we issued in 1998, a write-off of related financing costs for an amount of $4.7 million and a $0.8 million exchange loss.

Income tax expense. Our income tax expense for 2003 was $21.4 million, reflecting an effective tax rate of 41.1%, compared to income tax expense of $33.5 million, or an effective tax rate of 32.9%, in the prior period. In 2003, an increase in statutory enacted income tax rates which caused a revaluation of future income tax liabilities resulted in a $7 million increase in income tax expense. Excluding this increase, and the effects of any income which is not tax effected, such as the cumulative unrealized gain on our U.S. dollar denominated senior notes, the effective tax rate for 2003 would have been 34.4% compared to 33.5% for 2002. The increase in the effective tax rate also reflects a different tax jurisdiction mix.

Net income. As a result of the preceding factors, our net income decreased to $30.9 million for 2003 compared to net income of $68.5 million for 2002.

Year Ended December 31, 2002 Compared to Year Ended December 31, 2001

Net sales. Net sales for 2002 were $1.2 billion compared to $1.1 billion for 2001. The increase of 10.4% is mainly due to additional volume from our Leominster and New York corrugated products plants acquired in 2002 and 2001, respectively, which increased our North American integration level to approximately 58%, and from the acquisition of our Burnaby containerboard mill in April 2001. Containerboard and corrugated products shipments increased 6.6% and 21.7%, respectively. Excluding the recently acquired Leominster and New York corrugated products facilities, shipments of corrugated products increased by 4.5%. The increase in shipments was offset by a decrease in selling prices for both containerboard and corrugated products. Average net selling prices decreased by 6.5% for containerboard and 1.9% for corrugated products, excluding our recently acquired corrugated products plants.

Cost of goods sold. Cost of goods sold for 2002 increased to $854.7 million from $754.0 million for 2001. The increase of 13.4% was mainly due to the volume impact attributable to the acquisitions of the Leominster and New York corrugated products facilities and our Burnaby containerboard mill, as well as the increase in the cost of recycled fiber, particularly old corrugated containers. Gross margin, which is calculated as net sales less cost of goods sold expressed as a percentage of net sales, was 29.7% for 2002 compared to 31.5% for 2001, mainly due to a decrease in the net selling price for containerboard segment, the increase in the cost of recycled fiber, particularly old corrugated containers offset by a reduction in profit sharing paid to employees.

Selling and administrative expenses. Selling and administrative expenses increased 20% to $149.2 million for 2002 from $124.3 million for 2001, mainly due to additional sales from the recently acquired Leominster and New York corrugated products facilities and our Burnaby containerboard mill. Excluding the new operating facilities, selling and administrative expenses increased by 2.7%, and as a percentage of net sales amounted to 12% for 2002, compared to 11.5% for 2001. In addition, selling and administrative costs for 2002 included a loss of $1.2 million due to the change in the fair market value of our interest rate swap agreement.

Operating income. We generated operating income of $138.6 million for 2002, representing a decrease of $13.1 million, or 8.6%, over operating income of $151.7 million for 2001. The decrease is largely due to lower average net selling prices, higher recycled fiber costs, particularly old corrugated containers, and higher depreciation and amortization, partially offset by additional sales volume in both of our operating segments.

Financing expenses. Financing costs were $36.8 million for 2002 compared to $45.8 million for 2001. The reduction in financing costs is mainly attributable to an unrealized exchange loss of $13.9 million in 2001 on our U.S. dollar denominated senior notes that were issued in 1998 and were redeemed as part of the refinancing in 2003, compared to an unrealized gain of $0.5 million in 2002. The loss in 2001 is a result of a greater weakening of the Canadian dollar against the U.S. dollar in

2000. In addition, the unrealized loss was minimized due to the designation on January 1, 2002 of a portion of our U.S. dollar denominated senior notes as a hedge of the net investment of our self-sustaining subsidiaries whose functional currency is the U.S. dollar. Any unrealized gain (loss) on the hedged portion after that date has been, and will continue to be, offset against cumulative translation adjustments. Included in financing costs is interest on long-term debt, which was $35.8 million for 2002, an increase of $1.8 million compared to 2001.

Income tax expense. Our income tax expense for 2002 was $33.5 million in 2002, reflecting an effective tax rate of 33%, compared to income tax expense of $37.1 million, or an effective tax rate of 35%, in the prior period. In 2001, a reduction in statutory enacted income tax rates and a revaluation of future income tax assets had resulted in an $8.5 million reduction in income tax expense. Excluding this reduction, and the effects of any income which is not tax effected, such as the cumulative unrealized loss on our U.S. dollar denominated senior notes, the effective tax rate for 2002 would have been 33.5% compared to 35.5% for 2001. The reduction in the effective tax rate also reflects tax planning initiatives and a different tax jurisdiction mix.

Net income. As a result of the preceding factors, we generated a net income of $68.5 million for 2002 compared to net income of $69.6 million for 2001, representing a slight reduction of $1.1 million.

Segmented Information

Containerboard Segment. In 2003, our containerboard segment generated $679.9 million in sales compared to $748.4 million for 2002 due to decreased selling prices and a stronger Canadian dollar. The average list price from industry sources for linerboard in 2003 was approximately US$420 per short ton compared to US$426 per short ton in 2002. For corrugating medium the list price was approximately US$376 per short ton compared to US$383 per short ton in 2002.

Total containerboard shipments decreased by 0.4% in 2003 to 1,442,000 short tons from 1,447,000 short tons in 2002, mainly as a result of an increase in market-related downtime. During 2003, we took 121,900 short tons of market-related downtime compared with 106,400 short tons in 2002.

In 2003, our containerboard segment generated operating income before depreciation and amortization of $36.2 million, a decrease of $57.6 million over operating income before depreciation and amortization of $93.8 million generated in 2002. The decrease is largely due to lower selling prices and higher energy costs, which were partially offset by a decrease in virgin and recycled fiber costs attributable to a stronger Canadian dollar in comparison to the U.S. dollar and a reduction of profit sharing paid to employees. List prices for old corrugated containers averaged approximately US$63 per short ton during 2003, which was the same price level as in 2002. Without considering any hedging of the cost of old corrugated containers, a fluctuation of US$10 per short ton in the price of old corrugated containers has an impact of approximately $11.9 million on operating income before depreciation and amortization for our containerboard segment.

Corrugated Products Segment. In 2003, our corrugated products segment generated $958.8 million in sales, a decrease of 1.8% over the sales of $976.8 million in 2002. The decrease is due mainly to lower net selling prices partially offset by additional shipments from the Schenectady corrugated product plant acquired in April 2003.

Corrugated products shipments increased by 5% to 13.4 billion square feet in 2003 compared to 12.8 billion square feet in 2002, mainly as a result of volume generated from our recently acquired Schenectady corrugated products plant. Excluding this acquisition, shipments increased by 0.6% in 2003 over 2002.

In 2003, operating income before depreciation and amortization for our corrugated products segment was $103.8 million, an increase of $3.2 million over operating income before depreciation and

amortization of $100.6 million realized in 2002. The increase is mainly a result of increased shipments and a reduction in raw material costs, which were partially offset by lower average selling prices. As a result, operating income before depreciation and amortization as a percentage of net sales increased to 11.4% in 2003 from 10.7% in 2002.

Impact of Inflation and Seasonality

During the past several years, the rate of general inflation in Canada has been relatively low and has not had a material impact on our results of operations. Although we do experience a degree of seasonality in our operating results, particularly in our corrugated products segment, in which sales are higher in the summer, seasonality has not been material to our business as a whole.

Liquidity and Capital Resources

We have historically funded cash requirements through cash flows from operations of $115.9 million in 2003, $151.0 million in 2002 and $163.4 million in 2001.

In 2003, changes in non-cash working capital components decreased cash flows by $25.0 million due to a decrease of income and other taxes payable of $4.1 million, a decrease of trade accounts payable and accrued liabilities of $13.3 million, an increase of inventories of $1.8 million and an increase of accounts receivable and prepaid expenses of $5.7 million. As a result, operating activities generated net funds of $90.9 million in 2003.

In 2002, changes in non-cash working capital components decreased cash flows by $4.0 million due to a decrease of income and other taxes payable of $9.1 million, a decrease of trade accounts payable and accrued liabilities of $1.7 million and an increase of inventories of $3.6 million, partially offset by a decrease of accounts receivable and prepaid expenses of $10.4 million. As a result, operating activities generated net funds of $147.0 million in 2002.

In 2001, changes in non-cash working capital components increased cash flows by $13.8 million due to a decrease in accounts receivable and prepaid expenses and an increase in income and other taxes payable. These cash inflows were partially offset by an increase in inventories and a decrease in accounts payable and accrued liabilities. As a result, operating activities generated net funds of $177.2 million in 2001.

Financing activities used $20.9 million in 2003 principally as a result of repayments of $308.5 million of long-term debt related to the refinancing done in May 2003, a premium paid on redemption of unsecured senior notes of $14.3 million, debt issue costs of $11.0 million, a dividend paid to our shareholders of $28.0 million, and a decrease of borrowings under our revolving credit facility of $16.2 million. These amounts were partially offset by the issuance of our new 6³/4% senior notes of $346.7 million and a net increase of outstanding checks over bank balances of $8.8 million.

Financing activities used $23.9 million in 2002 principally as a result of a dividend paid to our shareholders of $32.0 million and a decrease of $10.0 million in the amount by which outstanding checks exceeded bank balances. These amounts, however, were partially offset by increased borrowings under our revolving credit facilities of $18.8 million.

Financing activities used $23.1 million in 2001 principally as a result of a dividend paid to our shareholders of $40.0 million net of an increase in the amount by which outstanding checks exceeded bank balances of $19.2 million.

Investing activities used $80.6 million in 2003, principally for capital expenditures of $58.5 million and for business acquisitions totaling $21.1 million. The $58.5 million of capital expenditures, net of proceeds on disposal of $3.4 million, were primarily for profit improvement and environmental projects

of which $28.2 million was invested in our containerboard segment, $27.2 million in our corrugated products segment and $6.5 million representing our share of Metro Waste's capital expenditures.

In our containerboard segment, we invested $5.7 million at our Trenton mill to complete our steam reformer project, $2.6 million at our Kingsey Falls mill to improve our paper machine wet end, $2.2 million for a pick-up roll on a paper machine at our Red Rock mill, $1.1 million on a waste water treatment project at our Mississauga mill and $1.4 million on a bark boiler at our Cabano mill. In our corrugated products segment, we invested $1.6 million at our Montreal plant on a corrugator dry-end upgrade, $5.8 million at our Vaughan plant for a mid-size flexo and robot and a sheet line upgrade, $1.7 million at our Mississauga (OCD) plant for a new 98" dual single facer and $4.3 million at our Winnipeg plant for a corrugator dry-end upgrade, building expansion and a new flexo press.

Investing activities used $109.7 million in 2002, principally for capital expenditures of $56.8 million and for business acquisitions totaling $54.4 million. The $56.8 million of capital expenditures were primarily for profit improvements and environmental projects of which $36.2 million was invested in our containerboard segment and $19.5 million in our corrugated products segment.

In our containerboard segment, we invested $16.8 million at our Trenton mill on a steam reformer, $1.7 million at our Kingsey Falls mill on a paper formation table and head box and $1.1 million for a pick-up roll on a paper machine at our Red Rock mill. In our corrugated products segment, we invested $1.4 million at our St. Marys plant on a BHS single facer, $3.7 million at our Drummondville plant on a warehouse and a slitter, $3.3 million at our Vaughan corrugated products plant for plant expansion, a ventilation system, a robotic auto load former and other new equipment to complete our Vaughan project and $2.2 million at our Etobicoke plant on a BHS single facer and corrugator upgrade.

Investing activities used $180.0 million in 2001, principally for capital expenditures of $82.6 million and for business acquisitions totaling $93.3 million. The $82.6 million of capital expenditures were primarily for profit and quality improvements of which $28.1 million, excluding capital leases of $13.0 million, was invested in the containerboard segment and $52.4 million in our corrugated products segment.

In our containerboard segment, we entered into a capital lease of $13.0 million at our Avot-Vallée mill, which has since been modified and is no longer considered a capital lease, for a new energy plant to help reduce energy costs, invested $7.9 million at our Trenton mill on a steam reformer, $1.6 million at our Kingsey Falls mill on a coater to manufacture white-top linerboard and $1.4 million at our Mississauga mill to enable it to use 100% of old corrugated containers in its production, reducing this mill's fiber costs and improving the quality of finished products. In our corrugated products segment, we invested approximately $30.0 million to complete the construction of our new corrugated products plant in Vaughan and we invested $13.0 million to purchase and install new equipment at our Winnipeg, Moncton, Vaudreuil, Mexico and Dallas corrugated products plants.

In May 2003, we refinanced substantially all of our outstanding indebtedness. As part of the refinancing, we entered into a new $350 million revolving credit facility, which replaced our than existing revolving credit facility, and issued new ten-year senior notes while redeeming all of our than outstanding senior notes. The refinancing resulted in lower interest rates and extended our debt maturities, providing us with improved liquidity and flexibility to meet our future capital requirements. As at December 31, 2003, $320 million was available under the new revolving credit facility.

Two of our subsidiaries, Norampac Avot-Vallée S.A.S. and Norampac Holding US Inc., are eligible to borrow directly under the new revolving credit facility subject to a sublimit. The new revolving credit facility is guaranteed by our material Canadian and U.S. subsidiaries. Our non-Canadian and non-U.S. subsidiaries will only be required to deliver guarantees and security in their inventory and accounts receivable to the extent possible or permitted under applicable local law. The new revolving credit

facility is secured by a first priority security interest in all of the borrowers' and the guarantors' inventory and accounts receivable as well as a first priority security interest in our Cabano and Mississauga containerboard mills and our Drummondville, Calgary and Vaughan corrugated products plants.

The indenture governing our new ten-year senior notes and the agreements governing our new revolving credit facility will impose limitations on our ability to, among other things:

•: incur additional indebtedness;
•: make restricted payments;
•: pay dividends or distributions on our capital stock or repurchase our capital stock;
•: make investments;
•: create liens on our assets to secure debt;
•: merge or consolidate with another company; and
•: enter into transactions with affiliates.

In addition, our new revolving credit facility requires that we meet and maintain certain financial ratios and tests, including a debt to capitalization ratio, which requires our maximum funded debt to capitalization to be 60% in year one, 57.5% in years two and three, 55% in year four and 50% in year five and an interest coverage ratio which will be 2.5x for all periods. Our ability to comply with these covenants and to meet and maintain such financial ratios and tests may be affected by a variety of factors, many of which may be beyond our control, such as those described under "Item 3. Key Information—Risk Factors."

Based upon current operations and the historical results of our subsidiaries, we believe that our cash flow from operations, together with available borrowings under our new revolving credit facility, will be adequate to meet our anticipated requirements for working capital, capital expenditures, lease payments, and scheduled interest payments and to fund our future growth for at least the next twelve months. If we are unable to obtain the capital we require to implement our business strategy, or to obtain the capital we will require on acceptable terms or in a timely manner, we would attempt to take appropriate responsive actions to tailor our activities to our available financing, including revising our business strategy and future growth plans to accommodate the amount of financing then available to us.

Off-Balance Sheet Arrangements

Our off-balance sheet arrangements are our operating leases, foreign exchange forward contracts and commodity swap contracts. Please refer to notes 16 and 17 of our audited consolidated financial statements, included elsewhere in this Form 20-F which should be read together with "Item 11. Quantitative and Qualitative Disclosures About Market Risk."

Contractual Obligations and Other Commitments

Our principal contractual obligations and other commitments that relate to our existing revolving credit facilities, our outstanding senior notes, operating leases and other commercial commitments are as follows:

	Actual Anticipated Payment Dates
Contractual Obligations (a)	Actual Anticipated Payment Dates
Contractual Obligations (a)	Total	2004	2005	2006	2007	2008	Thereafter
Long-term debt (b)	353,600	1,142	877	883	893	22,844	326,961
Capital lease obligation (excluding interest portion) (c)	—	—	—	—	—	—	—
Operating leases (b)	56,797	12,980	10,588	7,575	6,055	5,368	14,231
Other commercial commitments (d)	151,901	68,627	30,278	21,996	10,839	4,702	15,459
Total Contractual Cash Obligations	562,298	80,749	41,743	30,454	17,787	32,914	356,651

(a): Represents amounts in Canadian dollars as well as the Canadian dollar equivalent of U.S. dollars based on an exchange rate of $1.2924 to US$1.00 on December 31, 2003 and the Canadian dollar equivalent of EURO dollars based on an exchange rate of $1.628 to EURO$1.00 on December 31, 2003
(b): For long-term debt refer to note 9 and for operating leases refer to note 16 of our audited consolidated financial statements, included elsewhere in this Form 20-F.
(c): During the first quarter of 2003, our sole contract which was considered a capital lease was modified and, as such, the new contract does not meet the conditions of a capital lease under both Canadian GAAP and U.S. GAAP. As of January 1, 2003, the related asset and capital lease obligations were removed. Going forward, payments under the new agreement will be part of our operating costs.
(d): Represents commitments in the ordinary course of business to purchase natural gas, wood chips, sawdust and shavings, recycled fiber, electricity and fixed assets.

The shareholders' agreement between our shareholders, Cascades and Domtar, also contains a "shot gun" provision, which provides that if one shareholder offers to buy all the shares owned by the other party to the agreement, the party must either accept the offer or purchase all the shares owned by the offering shareholder at the same price and conditions. In addition, under the shareholders' agreement, in the event a shareholder is subject to bankruptcy proceedings or other default on any indebtedness, the non-defaulting party to the agreement is entitled to invoke the "shot gun" provision or sell its shares to a third party. For more information, see "Related Party Transactions and Other Material Contracts."

Reconciliation of Canadian GAAP to U.S. GAAP

Our consolidated financial statements have been prepared in accordance with Canadian GAAP, which differs in some respects from U.S. GAAP. The major differences, as they relate to our operations, are summarized below:

Foreign exchange forward contracts. Under Canadian GAAP, unrealized gains and losses arising from foreign exchange forward contracts used to hedge anticipated future sales are charged to earnings only once the hedge transaction occurs. Under U.S. GAAP, these unrealized gains and losses are charged to earnings as they arise.

Commodity swap contracts. Under Canadian GAAP, gains and losses arising from commodity swap contracts designated as a hedge are charged to income only once the contracts have matured.

Under U.S. GAAP, the unrealized gains and losses arising from these contracts, which do not meet requirements of hedging as defined in Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," are charged to income.

Revaluation of assets. Under Canadian GAAP, upon the creation of Norampac, which is a joint venture, the contributed assets and liabilities were accounted for at their fair market value at the time of the transfer. Under U.S. GAAP, only non-monetary assets were contributed to the joint venture, therefore the assets acquired and liabilities assumed were accounted for at their historical cost. The purpose of the adjustment is to adjust the assets to their depreciated historical cost.

Cost of delivery. Under Canadian GAAP financial statements, cost of delivery billed to customers is classified as a deduction from sales in determining the amount of net sales, while under U.S. GAAP financial statements, delivery costs billed to customers are classified in revenue and cost of delivery as a component of cost of sales. Beginning in 2004, this difference will be eliminated as Canadian GAAP will no longer allow the deduction from sales.

Joint ventures. Under Canadian GAAP, investments in joint ventures are accounted for using the proportionate consolidation method. Under U.S. GAAP, investments in joint ventures are accounted for using the equity method. The different accounting treatment affects only the display and classification of financial statement items and not net earnings or shareholders' equity. Rules prescribed by the U.S. Securities and Exchange Commission permit the use of the proportionate consolidation method in the reconciliation to U.S. GAAP by non-U.S. issuers provided the joint venture is an operating entity and the significant financial operating policies are, by contractual arrangement, jointly controlled by all parties having an equity interest in the joint venture. In addition, we disclose in note 22 to our audited consolidated financial statements, included elsewhere in this Form 20-F, the major components of our financial statements affected by the use of the proportionate consolidation method to account for our interests in joint ventures.

Had we used U.S. GAAP in respect of the aforementioned items and the conditional items discussed in note 23 to our audited consolidated financial statements, included elsewhere in this Form 20-F, net earnings in 2003 would have been $57 million, or $26 million more than as reported under Canadian GAAP, in 2002 would have been $76 million, or $7 million more than as reported under Canadian GAAP and net earnings in 2001 would have been $86 million, or $16 million more than as reported under Canadian GAAP. Under U.S. GAAP, our shareholders' equity as at December 31, 2003 would have been $453 million, or $276 million less than as reported under Canadian GAAP, and $429 million as at December 31, 2002, or $303 million less than as reported under Canadian GAAP.

For more information, see note 23 to our audited consolidated financial statements, included elsewhere in this Form 20-F.

New Accounting Standards Not Yet Applied in 2003

Canadian GAAP

Hedging Relationship. On January 1, 2004, we applied Guideline 13 ("AcG-13") regarding hedge accounting. In compliance with the criteria required by AcG-13, hedge accounting requires us to document the risk management strategy that we use. Upon executing a hedging contract, management documents the hedge item, namely an asset, liability or anticipated transaction, the characteristics of the hedging instrument used and the selected method of assessing effectiveness. The current accounting policy will be maintained for hedging relationships deemed to be effective. Consequently, realized and unrealized gains and losses on hedges will continue to be deferred until the hedged item is realized so as to allow matching of the descriptions in the statement of earnings. When hedging relationships cease, we will use the same agreements as those used for the year ended December 31, 2003.

Hedging relationships existing as at December 31, 2003 that do not meet the conditions of AcG-13 will be recorded at fair value as at January 1, 2004. As a result, the consolidated assets will increase by $7,480, consolidated liabilities will increase by $258 and the associated unrealized net gain of $7,222 will be deferred in other liabilities in the consolidated balance sheet and will be recognized when the initially designated transaction occurs.

Asset retirement Obligations. In March 2003, the CICA issued Section 3110, "Asset Retirement Obligations", which was implemented by us on January 1, 2004. This standard requires that the fair value of a liability for an asset obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The application of this standard will not have any impact on our financial position or results of operations.

Generally accepted accounting principles. In July 2003, the CICA issued Section 1100, "Generally Accepted Accounting Principles", and Section 1400, "General Standards for Financial Statement Presentation", which are effective for fiscal years beginning on or after October 1, 2003. Section 1100 clarifies the relative authority of various accounting pronouncements and other sources of guidance within GAAP, whereas Section 1400 clarifies what constitutes a fair presentation in accordance with GAAP. In addition, under Section 1100, industry practice no longer plays a role in establishing GAAP. As a result, the cost of delivery, which had been subtracted from sales in accordance with industry practice, will no longer be subtracted from sales, but rather will be included in sales and cost of goods sold, which is consistent with U.S. GAAP. We are reviewing other potential effects of adopting Sections 1100 and 1400.

U.S. GAAP

No new accounting standards not yet applied.

Change in Accounting Policy

Canadian GAAP

Long-Lived Assets. In 2002, the CICA issued Section 3475, "Disposal of Long-Lived Assets and Discontinued Operations", which applies to disposal activities initiated on or after May 1, 2003. This new section establishes standards for the recognition, measurement, presentation and disclosure of the disposal of long-lived assets. It also establishes standards for the presentation and disclosure of discontinued operations. The CICA also issued Section 3063, "Impairment of Long-lived Assets", which is effective for fiscal years beginning on or after April 1, 2003. This section establishes standards for the recognition, measurement and disclosure of the impairment of long-lived assets. Sections 3475 and 3063 are essentially the same as SFAS No. 144, which we adopted on January 1, 2002 for U.S. GAAP purposes. The adoption of this standard did not have any impact on our financial position or results of operations.

Guarantees. In February 2003, the CICA issued guideline AcG 14, "Disclosure of Guarantees", which requires entities to disclose key information about certain types of guarantee contracts that require payments contingent on specified types of future events. Disclosures include the nature of the guarantee, how it arose, the events or circumstances that would trigger performance under the guarantee, the maximum potential future payments under the guarantee, and the carrying amount of the related liability, and information about recourse or collateral. We adopted the guideline in the first quarter of the year. The adoption of this guideline did not have any impact on our financial position or results of operations.

U.S. GAAP

Accounting for Asset Retirement Obligation. In June 2001, FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligation", which we implemented on January 1, 2003. This standard requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which

it is incurred if a reasonable estimate of fair value can be made. The adoption of this standard did not have any impact on our financial position or results of operations.

Costs Associated with Exit or Disposal Activities. In June 2002, FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities". This standard changes the measurement and timing of recognition for exit costs, including restructuring charges, and was effective for any such activities initiated after December 31, 2002. The adoption of this standard did not have any impact on our financial position or results of operations.

Guarantees. In November 2002, FASB issued FIN 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees Including Indirect Guarantees of Indebtedness of Others", which is effective for guarantees issued or modified after December 31, 2002. However, the disclosure requirements of this interpretation were effective for financial statements issued for the periods ending on or after December 15, 2002. For our disclosure regarding the guarantee of our indebtedness please see note 23(f) to our audited consolidated financial statements included elsewhere in this form 20-F. FIN 45 elaborates on the disclosure requirements of a company with respect to its obligation under certain guarantees. It also clarifies that a company is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation then undertaken. We adopted this new standard effective January 1, 2003. The adoption of this standard did not have any impact on our financial position or results of operations.

Item 6. Directors, Senior Management and Employees

Directors and Senior Management

The following table sets forth information with respect to our executive officers and directors as of May 31, 2004:

Name	Age	Position
Raymond Royer	65	Chairman of the Board and Director
Marc-André Dépin	39	President and Chief Executive Officer
Patrick Lemaire	40	Vice President and Chief Operating Officer, Containerboard
Charles Malo	38	Vice President and Chief Operating Officer, Corrugated Products
Charles Smith	45	Vice President and Chief Financial Officer
Jules Bernier	49	Vice President, Human Resources
François Guité	35	Vice President Sales and Marketing, Containerboard
Robert F. Hall	47	Secretary
Lucie-Claude Lalonde	45	General Counsel and Assistant Secretary
Paul R. Bannerman	60	Director
Daniel Buron	40	Director
George Kobrynsky	57	Director
Alain Lemaire	57	Director
Bernard Lemaire	68	Director
Laurent Lemaire	65	Director
Gilles Pharand	60	Director

Bernard, Laurent and Alain Lemaire are brothers and Patrick Lemaire is the son of Bernard Lemaire and the nephew of Alain Lemaire and Laurent Lemaire.

Officers are elected annually by the board of directors and hold office at the pleasure of the board of directors until the next annual selection of officers or until their successors are elected and qualified.

Biographies

Raymond Royer has been our Chairman of the Board and a Director since December 1997. Since September 1996, he has served as President and Chief Executive Officer of Domtar. Mr. Royer is a director of Domtar, Power Financial Corporation, a Canadian holding company, and Shell Canada Limited, an integrated petroleum company.

Marc-André Dépin has been our President and Chief Executive Officer since December 8, 2003. From September 2001 until his most recent nomination, he served as Executive Vice President. Previously, he served as our Vice President and Chief Operating Officer, Corrugated Products and as Vice President, Sales and Marketing.

Patrick Lemaire has been our Vice President and Chief Operating Officer, Containerboard since September 2001. From May 1998 to September 2001, he served as General Manager for several of our containerboard mills. From August 1993 to May 1998, he occupied the position of Mill Manager in several of our and Cascades' containerboard mills.

Charles Malo has been our Vice President and Chief Operating Officer, Corrugated Products since October 2001. From March 2000 to October 2001, he served as General Manager of several of our corrugated products plants, and from December 1997 to March 2000, he served as Director of Administration, Corrugated Products.

Charles Smith has been our Vice President and Chief Financial Officer since November 2002. Before joining Norampac, between 1987 and 2002, he was employed by Bombardier, where he served as Vice President of Finance and Administration for the Sea-Doo/Ski-Doo Division, as Vice President of Finance for the Canadair Division and most recently, as Vice President, Controller, for the Aerospace Division. Before joining Bombardier, Mr. Smith worked as a chartered accountant for Ernst & Young.

Jules Bernier has been our Vice President, Human Resources since May 2001. From 1998 to May 2001, he served as our Corporate Director, Human Resources. Prior to this, he was the Human Resources Manager of Compagnie des Bauxites de Guinée since 1995.

François Guité has been our Vice President Sales and Marketing, Containerboard since September 2001. Prior to this, he served as our General Manager, Sales of Containerboard from May 1999 to September 2001. From 1994 to 1999, he was Export Sales Manager at Group Lactel, a Canadian dairy products company.

Robert F. Hall serves as our Corporate Secretary pursuant to the management agreement we have with Cascades. From our incorporation, on November 27, 1997, to December 30, 1997, he served as a Director and he also served as our Vice President, Legal Affairs until 2003. Mr. Hall also serves as Vice President, Legal Affairs and Corporate Secretary of Cascades, a position he has held since March 1994, and as Corporate Secretary of Boralex Inc. and the Boralex Power Income Fund. From 1992 to 1994, Mr. Hall was a partner at Byers Casgrain, now Fraser Milner Casgrain LLP, a Canadian law firm.

Lucie-Claude Lalonde has been our General Counsel and Assistant Secretary since July 2003. Between 2002 and 2003, she served as Vice President Legal Affairs for Cirque du Soleil Group Inc., an entertainment company. From 1994 to 2001, she held the position of Vice President, Legal Affairs and Secretary of The Canam Manac Group Inc., a steel component and semi-trailer manufacturer.

Paul R. Bannerman has been a Director since December 1997. He was a director of Paperboard Industries International Inc., a subsidiary of Cascades, from 1992 to 2001, and has been a director of

Cascades since 1982. He also served as President of Etcan, International Inc. from 1978 until 2002, and currently remains the Chairman of Etcan, International Inc.

Daniel Buron has been a Director since May 2004. He has been Senior Vice President, Finance of Domtar since May 2004. His other positions at Domtar included Vice President, Finance and Business Development of the Pulp and Paper Sales, Marketing and Customer Relations Group from September 2002 to May 2004, Vice President and Controller from June 2000 to September 2002 and Manager—Corporate Finance from June 1999 to June 2000.

George Kobrynsky has been a Director since December 1997. Since June 2001, he has been the Senior Vice President, Pulp and Paper Sales, Marketing and Customer Relations Group of Domtar. He had been the Senior Vice-President, Communication Papers Division of Domtar since 1995.

Alain Lemaire has been a Director since December 1997. He was our President and Chief Executive Officer from our incorporation in November 1997 until December 8, 2003. Between 1992 and 2003, he served as Executive Vice President of Cascades. Since July 1, 2003, he has been President and Chief Executive Officer of Cascades and continues to be a director of Cascades.

Bernard Lemaire has been a Director since December 1997. He is currently Chairman of the Board of Cascades, a position he has held since April 1992, and is also currently the Chairman of the Board and Chief Executive Officer of Boralex Inc., an independent producer of electric and thermal power. Prior to serving as Chairman of Cascades, he served as President and Chief Executive Officer of Cascades. Mr. Lemaire is also a director of Groupe Laperrière & Verreault Inc., a Canadian manufacturer of machinery for the pulp and paper industry.

Laurent Lemaire has been a Director since our incorporation in November 1997. He also served as President and Chief Executive Officer of Cascades between 1992 and 2003. Mr. Lemaire has been Executive Vice Chairman of the Board of Cascades since July 2003 and also serves as a director of a Canadian Schedule I chartered bank and Junex Inc., a Canadian company specializing in natural gas exploration.

Gilles Pharand has been a Director since May 1998. He has served as Senior Vice President, Corporate Affairs and General Counsel of Domtar since 1994, and also served as Secretary of Domtar from 1994 until May 2003.

Compensation

Directors are not paid an annual fee for their service on our Board or their service on a committee.

The aggregate amount of compensation paid by us to our executive officers, Marc-André Dépin, Patrick Lemaire, Charles Malo, Charles Smith, Jules Bernier, François Guité and Lucie-Claude Lalonde and our former executive officers, Alain Lemaire, Élise Pelletier and Brigitte Dufour, for services rendered during 2003 was approximately $2.7 million, including salaries, commissions, bonuses and amounts paid under our short-term incentive plan. The amount of compensation that we paid to Alain Lemaire represents approximately 33% of his total compensation for 2003, the remainder of which is paid by Cascades.

Costs related to the compensation of Mr. Robert F. Hall are included in the management fee payable by us to Cascades under the management agreement.

Pension Plan

The Norampac Group Retirement Savings Plan

All of our executive officers are eligible to participate in the Norampac Group Retirement Savings Plan. The Norampac Group Retirement Savings Plan for all salaried employees in Canada, which is similar to a defined contribution pension plan, was established to enable employees to accumulate capital for retirement. We contribute 2.25% of an employee's base salary. We also contribute a certain percentage, ranging from 0% to 3%, depending on our profitability in the prior fiscal year. In 2003, our contribution based on our profitability was 1% of an employee's base salary. If an employee makes additional contributions, we match 100% of those contributions up to 1.0%, 3.0% or 4.0% of the employee's base salary, depending on that employee's years of service of one year, five years or fifteen years, respectively. In 2003, the aggregate amount set aside or accrued by us under the plan for our executive officers was approximately $62,000.

For our employees hired before 1995, including the executive officers, upon their retirement between the ages 57 and 64, a retirement allowance is payable based on years of service and the employee's base salary the year before retirement. Because the retirement allowance formula is based on an employee's date of hire, the following table shows approximate retirement allowance:

Years of service/ Earnings		15 years ($)	20 years ($)	25 years ($)	30 years ($)	35 years ($)
$	100,000	30,000	40,000	50,000	60,000	70,000
$	200,000	60,000	80,000	100,000	120,000	140,000
$	300,000	90,000	120,000	150,000	180,000	210,000
$	400,000	120,000	160,000	200,000	240,000	280,000
$	500,000	150,000	200,000	250,000	300,000	350,000

Short Term Incentive Plan

Under our short-term incentive plan, employees, including the executive officers, are eligible to participate in our profit sharing plan. Our profit sharing plan is based on our financial results. This plan allows officers who directly supervise the operations of the different divisions and subsidiaries to participate in the sharing of the profits generated by these divisions and subsidiaries. In addition, under the plan, executive officers working at the corporate level receive a percentage of the profits generated at that level, according to personal performance.

Stock Option Plans

During 2003, Domtar granted to certain of our executive officers, namely Marc-André Dépin, Patrick Lemaire, Charles Malo, Charles Smith, Jules Bernier and François Guité and our former executive officer, Alain Lemaire, options to purchase, in the aggregate, 39,600 of Domtar common shares pursuant to the rules of its stock option plan. The options have an exercise price of $15.95 and will expire March 3, 2013. During 2003, Cascades also granted to certain of our executive officers, namely Marc-André Dépin, Patrick Lemaire, Charles Malo, Jules Bernier and François Guité, and our former executive officer Alain Lemaire, options to purchase, in the aggregate, 69,546 of Cascades common shares pursuant to the rules of its stock option plan. The options granted to Alain Lemaire by Cascades are not considered part of his compensation for his services as our former President and Chief Executive Officer. The options have an exercise price of $13.04 and will expire March 17, 2013.

Employment Agreements

With the exception of the management agreement we have entered into with Cascades, we do not generally enter into employment agreements with our senior management. For more information about the Cascades management agreement see "Item 7. Related Party Transactions."

Board Practices

We are managed under the direction of our board of directors. In accordance with our charter and by-laws, our Board of Directors may consist of up to 12 directors. Our current Board of Directors consists of eight directors. Each director holds office until the next annual general shareholders meeting or until the election of a successor unless the director resigns or the directorship becomes vacant by reason of the director's death, removal or other cause.

The shareholders' agreement currently provides that our Board of Directors consist of eight directors and requires that each of Cascades and Domtar vote their shares in order that four members of our Board of Directors be representatives nominated by Cascades and four be representatives nominated by Domtar. In addition, Domtar is entitled to propose, for approval by our Board of Directors, the candidate to act as our Chairman of the Board.

Our Board of Directors has established three directorate committees—an executive committee, an audit committee and a human resources committee.

Executive Committee. Our executive committee consists of two members, currently Raymond Royer and Alain Lemaire. The executive committee meets only in circumstances when convening a meeting of the entire Board of Directors is neither convenient nor practical. Under such circumstances, the executive committee may exercise all the powers of our Board of Directors, except those specifically reserved by law for the entire Board of Directors.

Audit Committee. Our audit committee consists of three members, currently Daniel Buron, who is our financial expert, Laurent Lemaire and Gilles Pharand. The audit committee reviews the professional services provided by our independent auditors and the independence of such auditors from our management. The audit committee also reviews the scope of the audit by our independent auditors, our annual financial statements, our system of internal accounting controls and such other matters with respect to the accounting, auditing and financial reporting practices and procedures as it finds appropriate or as are brought to its attention, and meets from time to time with members of our internal accounting staff.

Human Resources Committee. Our human resources committee consists of two members, currently Gilles Pharand and Laurent Lemaire. The human resources committee reviews and makes recommendations to our Board of Directors regarding certain subjects relating to human resources and remuneration. These subjects include the remuneration and evaluation of our President and Chief Executive Officer and our other senior officers; our organizational and salary structures and remuneration programs; and management of our retirement plans and benefits.

Our board of directors has not yet adopted a code of ethics, however, our Board is currently in the process of developing a code.

Employees

As of December 31, 2003, we had 4,765 full-time employees, including 3,819 of our employees in Canada, 767 employees in the United States and 179 employees in Mexico and France. Approximately 2,200 of our Canadian and U.S. employees are subject to 21 separate collective bargaining agreements. Such agreements are limited to individual plants and groups of employees within such plants. Approximately 60% of our unionized employees belong to Communications, Energy and Paperworkers

Union of Canada, approximately 20% to Independent Paperworkers of Canada and the remaining approximate 20% belong to a number of different unions. As of December 31, 2003, our employees were distributed by function as follows:

Function		Number of Employees
Executives		7
Operations		4,175
Commercial		121
Sales and Marketing		180
Finance and Administration		252
Human Resources		30
Total		4,765

We are committed to fostering a dynamic and creative work environment for our employees. Our profit-sharing plan for our employees links their annual bonuses to the profitability achieved by different divisions depending on the employee's level within our organization. This plan is intended to stimulate and develop team spirit and strengthen our employees' commitment by involving them in our financial growth. We emphasize employee accountability, encourage an entrepreneurial environment and seek to promote from within our organization.

Share Ownership by Officers and Directors

None of our officers or directors owns any shares of our capital stock. However, certain officers and directors own shares, or have been granted options exercisable for shares, of Cascades and/or Domtar.

Item 7. Major Shareholders and Related Party Transactions

As of May 31, 2004, we had 20,000,200 common shares outstanding. Cascades and Domtar each own 50% of our outstanding common shares. In connection with the merger of the former containerboard, corrugated products and recycling operations of Cascades and Domtar, our shareholders entered into an agreement. This shareholders' agreement requires that the Board of Directors consist of eight directors and ensures that four members of the Board of Directors be representatives nominated by Cascades and four be representatives nominated by Domtar. In addition, Domtar is entitled to propose the candidate to act as the Chairman of the Board, which then must be approved by the Board. A more detailed description of the terms of the shareholders' agreement follows in the next section, "Item 7. Related Party Transactions."

The shareholders' agreement also contains a "shot gun" provision, which provides that if one shareholder offers to buy all the shares owned by the other party to the agreement, the party must either accept the offer or purchase all the shares owned by the offering shareholder at the same price and conditions. In addition, under the shareholders' agreement, in the event a shareholder is subject to bankruptcy proceedings or other default on any indebtedness, the non-defaulting party to the agreement is entitled to invoke the "shot gun" provision or sell its shares to a third party. For more information, see "Item 7. Related Party Transactions."

Related Party Transactions

Cascades and Domtar

Shareholders' Agreement. Concurrently with the consummation of the acquisitions of the Cascades Containerboard Group and the Domtar Packaging Division, we entered into a shareholders' agreement with Cascades and Domtar.

The shareholders' agreement provides that our Board of Directors consists of eight directors and further requires that each of Cascades and Domtar vote their shares such that four members of the Board of Directors are representatives nominated by Cascades and four are representatives nominated by Domtar. In addition, Domtar is entitled to propose, for approval by the Board of Directors, the candidate to act as Chairman of the Board of Directors. The shareholders' agreement also requires that, subject to applicable statutory and contractual restrictions, including those contained in the indenture governing the notes and in our new revolving credit facility, 20% of our excess available cash flow (as determined in accordance with Canadian GAAP consistently applied, less mandatory debt repayment) be paid as a dividend to Cascades and Domtar, provided that any such dividend would not have a negative impact on our financial situation and the Board of Directors determines that the payment of such dividend would not be imprudent. In 2004, Cascades and Domtar agreed to the payment of a dividend which exceeds the amount that would have been payable under the shareholders' agreement. On March 31, 2002, 2003 and 2004, we paid dividends of $32 million, $28 million and $24 million respectively. These dividends were paid in equal parts to our two shareholders, Cascades and Domtar.

The shareholders' agreement further provides that certain of our acts, in addition to those required by law, be approved by the Board of Directors. These decisions include: (i) our strategic orientation; (ii) the evaluation and review of our objectives and goals; (iii) the election of our President and Chief Executive Officer, as well as the compensation and conditions of employment relating thereto; (iv) our general policies with respect to the hiring, evaluation, compensation and development of our management team; (v) certain financial matters, including approval of our annual budget, financial statements, employment of capital, borrowings and certain other financial activities; (vi) our risk management practices and policies; (vii) capital expenditures exceeding $2.5 million and not otherwise provided for in our annual budget; (viii) any transactions outside the normal course of our business where the amount of our related obligations will exceed $2.5 million; (ix) any substantial change in the nature of our business; (x) any acquisition, divestiture, restructuring, or other reorganization financing by us; (xi) certain related party transactions; and (xii) the issuance and sale of any of our capital shares. Finally, the shareholders' agreement provides for certain restrictions on the transfer of our shares.

Finally, the shareholders' agreement provides for certain restrictions on the transfer of our shares. Neither Cascades nor Domtar is permitted to transfer (except to an affiliate thereof) any equity interest in us without the prior consent of the other except as follows: (i) a holder of shares may pledge or grant a security interest in such shares to any financial institution; (ii) a holder of shares may sell all, but not less than all, of such holder's shares in a public offering, subject to a right of first refusal in favor of the non-selling holder to purchase either all of such selling holder's shares or up to 30% of such holder's shares, in each case, at a price per share equal to the average of the minimum and maximum prices at which the selling holder proposes to offer such shares to the public; (iii) since December 30, 2000, being the third anniversary of the date of the shareholders' agreement, the holders of the shares may sell all, but not less than all, of such shares, pursuant to a bona fide offer from a third party with whom the selling holder deals at arm's length, subject to a right of first refusal in favor of the non-selling holder to purchase all of such shares at a price per share equal to the price proposed to be paid by such third party; and (iv) either of the holders of the shares has the right, which it may exercise since December 30, 2001, being the fourth anniversary of the date of the shareholders' agreement, to offer to purchase all, but not less than all, of the other holder's shares at a price per share set forth in such offer and the other holder may elect to sell such shares or buy all, but not less than all, of the offering holder's shares, in each case, at such price; provided that, if it is the offeror who purchases the shares, such offeror will be restricted from transferring the shares so purchased for a period of three years following the date of such purchase.

Management Agreement. Concurrently with the consummation of the acquisitions of the Cascades Containerboard Group and the Domtar Packaging Division, we entered into a Management Agreement

with Cascades. In the course of the performance of its obligations pursuant to the Management Agreement, Cascades presented to the Board of Directors and implemented an organizational and restructuring plan with respect to, among other things, the creation and implementation of our permanent and autonomous organizational structure and the restructuring, reorganizing and rationalizing of our business and our employees. Robert F. Hall, who is an employee of Cascades serves as an interim officer for us, until the earlier of the appointment of a successor or the expiration or termination of the Management Agreement.

For its services under the Management Agreement, Cascades receives a fee, payable quarterly, in an amount equal to 1% of our earnings before depreciation, amortization and income taxes for the preceding calendar quarter. In addition, Cascades is entitled to reimbursement for all out-of-pocket expenses (excluding salaries, benefits or bonuses) reasonably incurred by Cascades related to the services of the interim officer in discharging its obligations under the Management Agreement. For 2003, the management fee paid by us to Cascades under the Management Agreement was $1.3 million.

Under the Management Agreement, we agreed to indemnify Cascades and its directors, officers, employees and representatives against all claims arising from services performed by Cascades or such directors, officers, employees and representatives thereunder, except in the event of fault or negligence on the part of Cascades or such directors, officers, employees and representatives. The Management Agreement's initial term expired on December 31, 1999 but has been renewed until December 31, 2005.

The Management Agreement may be terminated: (i) by us, in the event Cascades sells all of its equity interest in us; (ii) by mutual consent of Cascades and us; (iii) by the non-defaulting party upon 30 days' prior written notice, or such further period as is reasonably required, if a party fails to perform or fulfill any material obligation under the agreement; (iv) by either party upon certain events of bankruptcy or insolvency of the other party; and (v) if Messrs. Bernard, Laurent and Alain Lemaire or their successors, including the Lemaire Foundation, are no longer effectively able to elect a majority of the board of directors of Cascades.

Non-Competition Agreements. Domtar and Cascades have each entered into a non-competition agreement in our favor, restricting each of them, and, in the case of clause (iii), their respective affiliates, from: (i) disclosing any confidential information relating to us or our business; (ii) soliciting our employees during a period of two years following the date of the applicable non-competition agreement; and (iii) competing directly or indirectly, with us in the manufacture, distribution and sale of corrugating medium, linerboard and corrugated boxes in any jurisdiction where such activities may be competitive with us for as long as they are a shareholder and for a period of two years thereafter.

The non-competition agreements, however, do not prohibit Cascades or Domtar, as the case may be, from participating in a business which targets the same markets in which we compete, provided it does not produce corrugating medium, linerboard or corrugated boxes. Furthermore, the non-competition agreements allow the purchase by Cascades or Domtar, as the case may be, of another business, operating principally in a different business from us but with operations similar to ours, provided that if gross sales from those operations during the last completed fiscal year of the Business exceeded 20% of the gross sales of that business, we will be offered the right to purchase those operations at fair market value. In the event we decline to purchase those operations, Cascades or Domtar, as the case may be, will be required to use its best efforts to sell those operations to a third party on commercially reasonable terms.

In addition, we have entered into a non-competition agreement in favor of Cascades and Cascades East Angus Inc. (now known as Cascades Canada Inc.) that restricts us and our affiliates within North America from, directly or indirectly, engaging or participating in any entity which manufactures kraft paper from virgin or recycled fiber, and converts the same into paper bags used for packaging for as long as Domtar is a shareholder and for a period of two years thereafter. However, we may

manufacture kraft paper for paper bags provided that all production therefrom is distributed exclusively through Cascades East Angus Inc. (now known as Cascades Canada Inc.).

Wood Fiber Supply and Management Agreement. We have entered into a wood fiber supply and management agreement with Domtar pursuant to which Domtar agreed to manage the supply of virgin fiber for the Red Rock mill under three Sustainable Forest Licenses with the Province of Ontario and to supply certain of the other virgin fiber requirements of the Trenton and Red Rock mills. Prices for the virgin fiber supplied by Domtar under the wood fiber supply and management agreement are based on prices negotiated on an arm's length basis with Domtar. The initial term of the wood fiber supply and management agreement is 20 years. This is a renewable agreement, for price only, as the fiber supply is guaranteed in perpetuity by our evergreen agreement with the Province of Ontario. Only the management agreement may be terminated by Domtar or us by written notice no less than two years prior to the then applicable expiration date. The three Sustainable Forest Licenses that we hold have been renewed by the Province of Ontario.

Gas Supply Agreement. We entered into an agreement with Domtar Inc. dated June 5, 2002, in which Domtar agreed to provide us with management services relating to the supply of natural gas and heavy oil for our packaging operations. Additionally, during the term of the agreement, Domtar is to act as our agent for natural gas and heavy oil purchase contracts. In the event we close a certain packaging operation, we would still be responsible for our share of obligations arising from the contracts or for the losses incurred from a resale of either natural gas or heavy oil. We have agreed to indemnify Domtar, its employees, directors and administrators against any third party claims arising from the services to be provided under the agreement. Under the agreement, we paid for 2001, 2002 and 2003 approximately $164,000, $200,000 and $260,000, respectively, for Domtar's services to us. The agreement will expire on December 31, 2004. The agreement is renewable at the completion of the term for additional one-year terms.

Purchase of Goods. In the normal course of business, transactions for the purchase of raw materials or finished goods among Cascades, Domtar and us, as well as our respective subsidiaries may occur. We expect that any such transaction would be conducted on market-based terms. See note 18 of our audited consolidated financial statements included elsewhere in this Form 20-F, for more details on related party transactions.

Directors and Officers. All of our directors are also directors, officers or employees of Cascades and Domtar and are therefore in positions involving possible conflicts of interest. However, our directors and officers are subject to fiduciary obligations to act in our best interest. In addition, policies adopted by securities regulatory authorities are designed to impose restrictions on significant transactions between related parties by subjecting them to enhanced disclosure, independent valuation and minority approval requirements in prescribed circumstances. Cascades maintains with a third party insurer, for our benefit liability insurance against certain liabilities incurred by such directors and officers in such capacity.

Metro Waste

We entered into a shareholders' agreement with Cascades Boxboard Inc. (now known as Cascades Canada Inc.), Metauro Group Holdings Inc., and Metro Waste Paper Recovery Inc. ("Metro Waste"), dated December 31, 1998, setting forth the rights and obligations of the shareholders of Metro Waste. The shareholders' agreement provides for access of each shareholder to Metro Waste's financial and other records.

The board of directors consists of seven directors, two of which are nominated by Cascades, two by Metauro, and three by us. Each shareholder must be represented by at least one director at each board meeting. In addition, certain decisions, such as the sale or lease of significant assets, significant

acquisitions of assets, certain issuance of debt, the appointment and dismissal of certain officers or the entering into non-arm's-length transactions, require unanimous approval of all directors.

The shareholders' agreement provides that the shareholders will cause their nominees on the board to cause a declaration of annual dividends of 50% of net cumulative profits, provided that payment of the dividend does not cause Metro Waste's working capital ratio to be less than 1.15 to 1 and such declaration or payment does not result in a default under any agreement executed by Metro Waste. However, shareholders may cause their respective nominees to cause Metro Waste not to declare dividends in order for the amount to be used for Metro Waste's operations and development.

The shareholders' agreement prohibits the transfer of shares of Metro Waste except (a) to affiliated corporations of the transferor, and (b) to a third party that had offered at arm's length to buy all the shares of one shareholder for cash as long as such shareholder has communicated such offer to the other shareholders, offering them its shares upon the same terms, and the other shareholders have not accepted such offer. Shareholders not having accepted such offer would have a tag-along right. The shareholders' agreement also contains a "shot gun" provision. Under this provision, if any shareholder offers to buy all the shares of Metro Waste from any other shareholder, the offeree must either accept the offer, or in turn offer to purchase, on a pro rata basis in the event all shareholders elect to acquire the shares of the offeror, all the shares of Metro Waste owned by the offeror upon the same terms. In the event that only one shareholder refuses the offer, such shareholder must offer to purchase the shares of the offeror and the shares of the other party that has accepted the offer. In the event of a bankruptcy proceedings or Metauro Group Holdings Inc. ceasing to be controlled by certain individuals, or a transfer in violation of the shareholders' agreement's provisions, or a default under any indebtedness of any party to the shareholders' agreement, the defaulting shareholder shall be deemed to have offered for sale to the other shareholders its shares in Metro Waste and the other shareholders shall have the opportunity to purchase such shares at fair market value.

Boralex

We entered into a gas supply agreement with Boralex Inc. and Industelec Services S.A., dated June 25, 1999. Our subsidiary, Norampac Avot-Vallée S.A.S., entered into the second amendment to this agreement on March 3, 2003 with Boralex Blendecques S.A.S., as successor to the original signatory, Boralex Inc. The agreement provides that Boralex will sell, and we will purchase, steam produced by Boralex. The term of the agreement runs for 20 years, through February 20, 2022, consisting of two periods. The first period runs from February 21, 2002 to March 31, 2013 and the second period runs from April 1, 2013 to February 22, 2022. The periods are distinguished by the level of steam that we are required to either take or pay for, and the minimum amounts that Boralex is required to provide to us. The amount of steam to be provided is determined according to our needs. The price of the steam is equal to the amount it would cost us to produce the steam on our own, which is agreed upon by Boralex and us.

The agreement is renewable at the completion of the term for an additional one-year term. Upon an event of default under the agreement, such as failure to pay a bill after 15 days written notice from Boralex, we must pay Boralex an indemnity fee determined by reference to the date upon which the event of default occurred.

Other Agreements and Arrangements

We have also entered into various agreements including some of those described above with our shareholders and their subsidiaries, affiliates and joint ventures, as well as Metro Waste for the supply and management of raw materials, including recycled paper, virgin pulp and energy, supply of unconverted and converted products, the sale and lease of equipment and other agreements in the ordinary course of business. The aggregate amount of sales from us to Cascades and Domtar and their

subsidiaries and affiliates was $57.1 million, $77.7 million and $70.5 million in 2001, 2002 and 2003, respectively. The aggregate amount of purchases by us from Cascades and Domtar and their subsidiaries and affiliates was $45.8 million, $51.5 million and $51.5 million in 2001, 2002 and 2003, respectively. In 2003, we purchased $12.3 million of raw materials from Metro Waste. A number of our officers and directors are also officers and directors of our shareholders and their affiliates, as well as entities in which we have made minority investments.

As at December 31, 2003, the amount owed by Cascades and Domtar and their subsidiaries and affiliates to us was $6.2 million and the amount owed by us to those entities was $14.2 million.

As at December 31, 2003, the amount owed by Metro Waste to us was $1.2 million and the amount owed by us to Metro Waste was $0.8 million.

Item 8. Financial Information

Consolidated Statements and Other Financial Information

See "Item 18. Financial Statements."

Item 9. Market Information

In May 2003, we sold our 6³/4% senior notes due 2013 in a private placement followed by a registered exchange offer. Neither our existing notes nor any of our other securities are listed or quoted on any U.S. or Canadian national securities exchange, The Nasdaq Stock Market Inc. or any automated quotation system. Certain securities dealers may make a market in the senior notes from time to time, although they are under no obligation to do so.

Item 10. Additional Information

By-Law number 1, being our general by-laws, provides that a director who is in any way, whether directly or indirectly, interested in a material contract or a proposed material contract with us shall disclose in writing to us or request to have entered in the minutes of the meetings of the directors the nature and extent of his interest at the meeting of our directors. The by-laws further generally prohibit a director from voting in respect of any contract or proposed contract in which he is so interested and if he does so vote his vote shall not be counted, except in certain limited circumstances. Our articles provide that the directors may, without authorization of the shareholders, by authentic deed, in particular but without limitation, for the purpose of securing any bonds, debentures or debenture stock which we are by law entitled to issue, hypothecate, mortgage, pledge, cede or transfer any property, moveable or immovable, present or future, which we may own.

Our authorized share capital consists of an unlimited number of preferred shares without par value and an unlimited number of common shares without par value. The holders of the preferred shares, in priority to the common shares, shall be entitled to receive and we shall pay thereon, as and when declared by the Board of Directors out of our assets properly applicable to the payment of dividends, non-cumulative cash dividends at the rate of 3.5% per share, per annum of the amount paid up thereon. Except with the consent in writing of the holders of all the preferred shares outstanding, no dividend shall at any time be declared and paid on or declared and set apart for payment on the common shares for any financial year unless the non-cumulative cash dividends on the preferred shares then issued and outstanding in respect of such financial year shall have been declared and paid or set apart for payment. Subject to the prior rights of the holders of the preferred shares, the Board of Directors may declare and cause to be paid dividends to the holders of the common shares from any assets at the time properly applicable to the payment of dividends. Except as otherwise provided by law, the holders of the preferred shares shall not be entitled as such to receive notice of, or to attend, any meeting of our shareholders and shall not be entitled to vote at any such meeting. The holders of

the common shares shall be entitled to receive a notice of and to attend any meeting of our shareholders shall be entitled to one vote in respect of each common share held at such meetings, except at meetings of holders of a particular class of shares other than the common shares who are entitled to vote separately as a class at such meeting. In the event of our liquidation, dissolution or winding up or other distribution of our assets among shareholders for the purpose of winding up our affairs, the holders of the preferred shares shall be entitled to receive from our assets a sum equivalent to the aggregate redemption amount (as hereinafter defined) of all the preferred shares held by them, respectively, before any amount shall be paid or any of our assets distributed to the holders of any common shares. After payment to the holders of the preferred shares of the amounts payable to them as above provided, they shall not be entitled to share in any further distribution of our assets. The holders of the common shares shall be entitled to receive our remaining assets. We may, subject to the requirements of applicable law, upon giving notice, redeem at any time the whole, or from time to time any part, of the then outstanding preferred shares on payment of the redemption price of CDN$100 per share plus all declared and unpaid non-cumulative cash dividends thereon, the whole constituting and being herein referred to as the "redemption amount." Any holder of preferred shares shall be entitled to require us to redeem, subject to the requirements of applicable law, at any time or times all or any of the preferred shares registered in the name of such holder on our books at a price equal to the redemption amount for each such preferred share being redeemed. Our by-laws provide that the annual meeting of our shareholders shall be held on such date and at such time as may be determined by the directors but not later than 18 months after we come into existence and thereafter not later than 15 months after the last meeting. A special meeting of shareholders may be called for any day upon the order of the directors or upon the written request of shareholders holding at least 5% of the issued and outstanding shares of our capital stock carrying voting rights at such time. At least 15 days' and not more than 35 days' notice in writing of the time and place of any meeting of shareholders shall be given to each shareholder entitled to vote at such meeting. For the purposes of determining shareholders entitled to receive a notice of a meeting of shareholders, the directors may by law fix in advance a date as the record date for such determination of shareholders, but such record date shall not precede by more than 50 days or by less than 21 days the date on which the meeting is to be held. If no record date is fixed, the record date for the determination of shareholders entitled to receive notice of a meeting of shareholders shall be at the close of business on the day immediately preceding the day on which the notice is given or if no notice is given, the day on which the meeting is held.

Material Contracts

See "Item 7. Major Shareholders and Related Party Transactions."

Exchange Controls

There are no Canadian foreign exchange controls applicable to our outstanding securities or to the notes.

The Investment Canada Act requires that a non-Canadian file notice with Investment Canada and in certain circumstances obtain governmental approval prior to acquiring control of a Canadian business. Otherwise, there are no limitations, under the laws of Canada or in our charter relating to the right of a non-Canadian to hold or vote our securities.

Taxation

The following summarizes the Canadian federal income tax considerations as of the date of this Form 20-F under the Income Tax Act (Canada) (the "Canadian Tax Act"), the Canada-United States Income Tax Convention as amended through such date (the "Reciprocal Tax Treaty") and the administrative practice of the Canada Customs and Revenue Agency generally applicable to a United States holder of our outstanding senior notes. The Canadian federal income tax treatment of United

States holders of senior notes is more favorable under the Canadian Tax Act than under the Reciprocal Tax Treaty. Therefore, the Canadian Tax Act controls and is the basis for the following discussion.

This summary is based upon the provisions of the Canadian Tax Act in force on the date hereof and the regulations adopted thereunder (the "Regulations"), proposed amendments to the Canadian Tax Act and the Regulations publicly announced prior to the date hereof by the Minister of Finance (Canada) and current published administrative practices and assessing policies of the Canada Customs and Revenue Agency. This summary does not otherwise take into account or anticipate any other changes in law, whether by legislative, governmental or judicial action, nor does it take into account provincial or foreign income tax considerations. This summary of Canadian federal income tax considerations is of a general nature only and is not, and should not be construed to be, advice to any particular holder of senior notes. Prospective holders should consult their tax advisors for advice regarding the income tax considerations applicable to them.

The following discussion is applicable to a holder who, for purposes of the Canadian Tax Act, deals at arm's length with us, is not and is not deemed to be a resident of Canada and who does not use or hold, and is not deemed to use or hold, the senior notes in the course of carrying on a business in Canada and, in the case of a person who carries on an insurance business in Canada and elsewhere, establishes that the senior notes are not effectively connected with such insurance business carried on in Canada and are not "designated insurance property" for such insurer under the Canadian Tax Act (a "Non-Resident Holder").

The payment by us of interest, principal or premium on the senior notes to a Non-Resident Holder will be exempt from Canadian withholding tax.

No other tax on income (including taxable capital gains) will be payable by a Non-Resident Holder under the Canadian Tax Act in respect of the holding, sale, redemption or other disposition of the senior notes, or the receipt of interest or premium thereon.

Where You Can Find More Information

Although not subject to the information requirements of the Exchange Act, we file or furnish reports, including annual reports on Form 20-F, reports on Form 6-K, and other information with the U.S. Securities and Exchange Commission (the "SEC"), as applicable to a foreign private issuer who is subject to those requirements. These reports and other information filed by us can be inspected at, and subject to the payment of any required fees, copies may be obtained from, the public reference facilities maintained by the SEC as described above. These reports and other information may also be inspected and copied at the offices of the New York Stock Exchange, 20 Broad Street, New York, New York 10005. As a foreign private issuer, however, we are exempt from the proxy requirements of Section 14 of the Exchange Act and from the short-swing profit recovery rules of Section 16 of the Exchange Act.

The SEC maintains a website at http://www.sec.gov that contains reports, proxy and information statements, and other information regarding registrants that make electronic filings with the SEC using its EDGAR system. As a foreign private issuer, we are presently required to use the EDGAR system and do so in order to make our reports available over the internet.

Additionally, documents referred to in this Form 20-F may be inspected at our corporate offices, which is located at 752 Sherbrooke Street West, Montreal, Quebec, Canada, H3A 1G1.

Our website is located at http://www.norampac.com. The information on the website is not part of this Annual Report.

Item 11. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to certain market risks as part of our ongoing business operations, including risks from changes in selling prices for our main products, costs of raw materials, interest rates and foreign currency exchange rates, all of which impact our financial condition, results of operations and cash flows. We manage our exposure to these and other market risks through regular operating and financing activities and, on a limited basis, through the use of derivative financial instruments. We use these derivative financial instruments as risk management tools and not for speculative investment purposes, except for the interest rate swap inherited as part of the Star Corrugated Box Company acquisition, which is being held for speculative purposes.

The following chart provides a quantitative illustration of the impact on our operating income before depreciation and amortization and net earnings of possible changes in the prices of our principal products, the cost of raw materials and energy and the exchange rate of the U.S. dollar based on 2003 shipments and results:

	Price Changes	Changes in Operating Income before Depreciation and Amortization		Net Earnings
		(in millions of Canadian dollars)
Containerboard	+ US$10/short ton	20.2		13.5
Recycled papers	+ US$10/short ton	(11.9	)	(8.0	)
Natural gas	+ US$0.10/mmbtu	(1.0	)	(0.7	)
US$	+ US$0.01 vs. $1.00	2.0		1.3

For purpose of this analysis, we have assumed an exchange rate of $1.401 to US$1.00 and, for purposes of this table, the change in net earnings equals the after tax change in operating income before depreciation and amortization.

For a reconciliation of operating income before depreciation and amortization to net income and net cash provided by (used in) operating activities, which we believe to be the closest GAAP performance and liquidity measures to operating income before depreciation and amortization, see footnote (e) to our selected historical consolidated financial information on pages 4 and 5.

To reduce our vulnerability to selling price fluctuations, we have implemented risk management programs. Furthermore, we use future contracts on selling prices to cover part of the risk related to price fluctuations. We also sometimes use future contracts to protect ourselves against increases in the cost of recycled fiber, particularly old corrugated containers and the cost of electricity, primarily in the province of Ontario, in Canada.

Foreign Currency Risk

We are exposed to foreign exchange risk as a portion of our sales is denominated in foreign currencies other than Canadian dollars. These risks are partially offset by foreign currency denominated purchases, interest and principal payments on foreign denominated debt and the utilization of forward exchange contracts for other than trading purposes.

In addition, a portion of our operations are located outside Canada. Accordingly, movements in exchange rates and translation effects may have an impact on the financial condition and results of operations of our foreign subsidiaries which are located in the United States and France.

Our investment in our French subsidiary, which has a functional currency other than the Canadian dollar, is not hedged. We designated a portion of our U.S. senior notes as a hedge of the net investment of our self-sustaining subsidiaries whose functional currency is the U.S. dollar. Any

unrealized gain or loss on the hedged portion after that date has been, and will be, offset against cumulative translation adjustments. As at December 31, 2003, the net assets in foreign subsidiaries translated into Canadian dollars using the year-end exchange rates were approximately $201 million. Excluding the effect of any hedge, the potential loss in fair value resulting from a hypothetical 10% adverse change in foreign currency exchange rates would be approximately $20 million as of December 31, 2003. Any loss in fair value would be reflected as cumulative translation adjustments and would not impact our net income.

In 2001, 2002 and 2003, the average exchange rates for the U.S. dollar and Euro strengthened (weakened) against the Canadian dollar as follows:

	Year Ended December 31,
	2001		2002		2003
U.S. dollar	4.3	%	1.4	%	(10.8	)%
Euro	1.2	%	7.0	%	6.6	%

The table below summarizes additional information on our material financial instruments and transactions that are sensitive to foreign currency exchange rates:

	As of December 31, 2003 (in thousands of Canadian dollars) Expected Maturity Date
	2004	2005	2006	2007	2008	There- After	Total	Fair Value
Cdn$Functional Currency:
Long-term debt:
Fixed Rate (US$) (6.75% Average Interest Rate)	—	—	—	—	—	323,100	323,100	334,829
Forward Exchange Agreements:
Cdn$Functional Currency: (Receive Cdn$/Pay US$)
Contract Amount (in Cdn$):	34,458	—	—	—	—	—	34,458
Average Contractual Exchange Rate	1.4357	—	—	—	—	—

The fair value of derivative financial instruments generally reflects our estimated amounts that we would have received or paid to settle the contracts at year-end. As of December 31, 2003 the forward exchange agreements had a favorable fair value of $3 million.

Effective January 1, 2002, we designated a portion of the long-term debt as a hedge of the net investment of our self-sustaining operations. Any unrealized gains or losses on the hedged portion after that date have been and will be offset against cumulative translation adjustments.

Interest Rate Risk

We are exposed to changes in interest rates, primarily as a result of our long-term debt with both fixed and variable interest rates. A change in the interest rate of fixed rate debt will impact the fair value of the debt whereas a change in the interest rate on the variable rate debt will impact interest expense and cash flows. In 2003, we did not utilize any type of derivatives to hedge our interest rate exposure except as part of the acquisition of the New York converting facility from Star Corrugated Box Company. As part of that acquisition, we assumed the interest rate swap agreement between Star Corrugated Box Company and a financial institution. We are holding this derivative financial

instrument for speculative purposes. As of December 31, 2003, the derivative is recorded in other liabilities at its fair value of $1.2 million. Details of the interest rate swap agreement are as follows:

Pay fixed interest on the notional amount of US$3.3 million (2002-US$3.5 million), maturity 2008		2003
	Average fixed rate paid	7.25	%
	Average floating rate received	2.70	%
Pay fixed interest on the notional amount of US$2.5 million (2002-US$2.5 million), maturity 2012(a)
	Average fixed rate paid	9.47	%
	Average floating rate received	2.75	%

(a): Contract commenced on October 21, 2002.

The table below presents principal amounts by year of anticipated maturity for our debt obligations and related weighted average interest rates at the end of the period. Variable interest rates disclosed do not attempt to project future interest rates. This information should be read together with note 9 of our audited consolidated financial statements included elsewhere in this 20-F.

Long-term Debt Outstanding as of December 31, 2003
(in thousands of Canadian dollars)

	Expected Maturity Date
	Expected Maturity Date										There- After				Fair Value
	2004		2005		2006		2007		2008		There- After		Total		Fair Value
Liabilities:
Long term debt, including current portion:
Fixed Rate (6.7% average interest rate)		951		686		692		702		822		326,634		330,487		342,216
Variable Interest (4% average interest rate)		—		—		—		—		—		21,830		21,830		21,830
Non interest bearing		191		191		191		191		191		328		1,283		1,283
Total Debt	$	1,142	$	877	$	883	$	893	$	1,013	$	348,792	$	353,600	$	365,329

Commodity Price Risk

Electricity. We have entered into swap contracts with counterparties whereby we set the purchase price on notional quantities of electricity. These contracts will be settled in cash. Resulting gains and losses are recognized when matured and are recorded in cost of goods sold. As at December 31, 2003, we had commitments under swap contracts expiring in 2004 through 2007 for 224,854 megawatts (2002 - 323,260). The fair value of these financial instruments as at December 31, 2003 represents an unrealized gain of $0.8 million (2002—$1.5 million).

Old corrugated containers. We have entered into swap contracts with counterparties whereby we set the purchase price on notional quantities of old corrugated containers. These contracts will be settled in cash. As at December 31, 2003, we had commitments under swap contracts expiring in 2004 through 2007 for 774,000 tons of old corrugated containers (2002 - 879,700; 2001 - 32,400). The fair value of these financial instruments as at December 31, 2003 represents an unrealized gain of $7.1 million (2002—unrealized loss of $1.5 million; 2001—unrealized loss of $1.2 million).

Unbleached 42-lb kraft linerboard. We have entered into swap contracts with counterparties whereby we set the selling price on notional quantities of unbleached 42-lb kraft linerboard. These contracts will be settled in cash. As at December 31, 2003, we had commitments under swap contracts expiring in 2004 through 2006 for 165,000 tons of unbleached 42-lb kraft linerboard (2002—97,200; 2001—319,500). The fair value of these financial instruments as at December 31, 2003 represents an unrealized loss of $0.3 million (2002—unrealized loss of $2.0 million; 2001—unrealized gain of $10.1 million).

In 2002, the unrealized loss of $2.0 million (2001—unrealized gain of $10.1 million) included an unrealized gain of $0.4 million (2001—unrealized gain of $5.4 million) with a counterparty which was in default on several swap contracts and therefore, will never be realized. There were no more outstanding contracts with that counterparty in 2003.

26-lb semichemical medium. We have entered into swap contracts with counterparties whereby we set the selling price on notional quantities of 26-lb semichemical medium. These contracts will be settled in cash. As at December 31, 2003, the we had commitments under swap contracts expiring in 2004 through 2005 for 17,000 tons of 26-lb semichemical medium (2002—29,000; 2001—nil). The fair value of these financial instruments as at December 31, 2003 represents an unrealized gain of $0.4 million (2002—$0.5 million; 2001—nil).

Item 12. Descriptions of Securities Other than Equity Securities

Not applicable.

Part II

Item 13. Defaults, Dividend Arrearages and Delinquencies

None.

Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds

None.

Item 15. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company's Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of the design and operation of the Company's "disclosure controls and procedures" (as defined in the Securities Exchange Act of 1934 Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934) as of December 31, 2003 (the "Evaluation Date"). Based on that evaluation, these officers have concluded that as of the Evaluation Date, the Company's disclosure controls and procedures were effective to ensure that material information relating to the Company and the Company's consolidated subsidiaries would be made known to them by others within those entities.

It should be noted that while the Company's Chief Executive Officer and Chief Financial Officer believe that the Company's disclosure controls and procedures provide a reasonable level of assurance that they are effective, they do not expect that the Company's disclosure controls and procedures or internal control over financial reporting will prevent all errors and fraud. A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

While we believe our controls provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements, we have not yet completed or undergone a Section 404 audit. We are currently reviewing and testing our material internal control systems, processes and procedures in compliance with the requirements of Section 404. There can be no assurances that such a review will not result in the identification of significant control deficiencies or that our auditors will be able to attest to the adequacy of our internal controls.

Changes in Internal Controls

There were no significant changes in the Company's internal controls or, to the Company's knowledge, in other factors that could significantly affect the Company's internal controls subsequent to the Evaluation Date. There were no significant deficiencies or material weaknesses in the Company's internal controls and as a result, no corrective actions were required or undertaken.

Item 16. [Reserved]

Item 16A. Audit Committee Financial Expert

Our audit committee consists of three members, including Daniel Buron, who serves as our financial expert. Mr. Buron is the Senior Vice President, Finance of Domtar, one of our parent companies, and is not "independent," as such term is defined in the listing standards of the New York Stock Exchange.

Item 16B. Code of Ethics

Our board of directors has not yet adopted a code of ethics, however, our Board is currently in the process of developing a code.

Item 16C. Principal Accountant Fees and Services

External Auditor Service in Canadian dollars:

	Year Ended December 31, 2003		Year Ended December 31, 2002
Audit Fees	$	952,630	$	440,072
Audit Related Fees	$	20,964	$	20,364
Tax Fees	$	26,337	$	7,700
All Other Fees		—	$	1,370
Total	$	999,931	$	469,506

The nature of each category of fees is described below:

Audit Fees: Includes services provided by the independent auditor in connection with statutory and regulatory filings and audit of the annual financial statements and also includes services provided by the independent auditor in connection with the issuance of our senior notes.

Audit Related Fees: Includes services provided by the independent auditor in connection with the audit of the pension plans.

Tax Fees: Includes services rendered by the independent auditor mainly for tax compliance.

All other Fees: Includes fees for subscription to the independent auditor's accounting publications.

Audit And Non-Audit Services Pre-Approval Policy

In 2003, the Company implemented a pre-approval policy which provides that the Audit Committee regularly review and determine whether specific projects or expenditures with the Company's independent auditors, PricewaterhouseCoopers LLP and their affiliates, potentially affect their independence. The Audit Committee's policy is to pre-approve all audit and permissible non-audit services provided by PricewaterhouseCoopers LLP. Pre-approval is generally provided by the Audit Committee for up to one year, is detailed as to the particular service or category of services to be rendered, and is generally subject to a specific budget. The Audit Committee may also pre-approve additional services or specific engagements on a case-by-case basis. Management is required to provide quarterly updates to the Audit Committee regarding the extent of any services provided in accordance with this pre-approval.

Item 16D. Exemptions from the Listing Standards for Audit Committees

Not applicable.

Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers

Not applicable.

Part III

Item 17. Financial Statements

Not applicable.

Item 18. Financial Statements

Our historical financial statements, which are filed with this Form 20-F, are set forth in the "Index to Historical Financial Statements" on page F-1, which immediately precedes such financial statements.

Item 19. Exhibits and Financial Statement Schedule

(a): Exhibits

Exhibit 31.1		Certification of the President and Chief Executive Officer required by Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended.
Exhibit 31.2		Certification of the Vice President and Chief Financial Officer required by Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended.
Exhibit 32.1		Certification of the President and Chief Executive Officer and the Vice President and Chief Financial Officer required by Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended and 18 U.S.C. ss 1350.

(b): Financial Statement Schedule

A schedule of Valuation and Qualifying Accounts and Reserves has been included in this Form 20-F on page F-59.

SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign the annual report on its behalf.

		NORAMPAC INC.

		By:	/s/ CHARLES SMITH Charles Smith Vice President and Chief Financial Officer

Date: June 29, 2004

INDEX TO HISTORICAL FINANCIAL STATEMENTS

		Page
Financial Statements of the Company
Independent Auditors' Report		F-2
Comments by Auditors for U.S. Readers on Canada - U.S. Reporting Difference		F-3
Consolidated Balance Sheets as at December 31, 2002 and December 31, 2003		F-4
Consolidated Statements of Income for the years ended December 31, 2001, 2002 and 2003		F-5
Consolidated Statements of Retained Earnings for the years ended December 31, 2001, 2002 and 2003		F-6
Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2002 and 2003		F-7
Notes to Consolidated Financial Statements		F-8
Financial Statement Schedule
Independent Auditors' Report on Financial Statement Schedule		F-58
Schedule II, Valuation and Qualifying Accounts and Reserves		F-59

F-1

PricewaterhouseCoopers LLP
Chartered Accountants
1250 René-Lévesque Boulevard West
Suite 2800
Montréal, Quebec
Canada H3B 2G4
Telephone +1 (514) 205 5000
Facsimile +1 (514) 205 5675

Independent Auditors' Report

To the Shareholders of
Norampac Inc.

We have audited the consolidated balance sheets of Norampac Inc. as at December 31, 2003 and 2002 and the consolidated statements of income, retained earnings and cash flows for each of the years in the three-year period ended December 31, 2003. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with Canadian and United States generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2003 and 2002 and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2003 in accordance with Canadian generally accepted accounting principles.

Chartered Accountants

Montreal, Canada
February 23, 2004

PricewaterhouseCoopers refers to the Canadian firm of PricewaterhouseCoopers LLP and the other member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.

F-2

PricewaterhouseCoopers LLP
Chartered Accountants
1250 René-Lévesque Boulevard West
Suite 2800
Montréal, Quebec
Canada H3B 2G4
Telephone +1 (514) 205 5000
Facsimile +1 (514) 876 1502
Direct Tel. +1 (514) 205-5333
Direct Fax +1 (514) 205-5675

Comments by Auditors for U.S. Readers
On Canada U.S. Reporting Difference

In the United States, reporting standards for auditors require the addition of an explanatory paragraph (following the opinion paragraph) when there is a change in accounting principles that has a material effect on the comparability of the company's financial statements, such as the changes described in Note 3 to the consolidated financial statements. Our report to the Shareholders dated February 23, 2004 is expressed in accordance with Canadian reporting standards which do not require a reference to such changes in accounting principles in the auditors' report when the changes are properly accounted for an adequately disclosed in the financial statements.

Chartered Accountants

Montréal, Canada
February 23, 2004

F-3

Norampac Inc.

Consolidated Balance Sheets

As at December 31
(in thousands of Canadian dollars, unless otherwise noted)

	Note		2003	2002
Assets
Current assets
Cash and cash equivalents			12,286	25,747
Accounts receivable and prepaid expenses	18		181,392	184,824
Inventories	5		129,753	130,591

			323,431	341,162
Property, plant and equipment	6		887,184	925,881
Goodwill	7		197,438	202,589
Other assets	8		30,943	25,845

			1,438,996	1,495,477

Liabilities and Shareholders' Equity
Current liabilities
Excess of outstanding cheques over bank balances			18,694	9,861
Trade accounts payable and accrued liabilities	18		142,375	166,402
Income and other taxes payable			1,945	9,783
Current portion of long-term debt	9		1,142	40,417

			164,156	226,463
Long-term debt	9		352,458	357,611
Future income taxes	12		154,362	142,959
Other liabilities	10		39,033	36,836
Commitments and contingencies	16
Shareholders' equity
Capital stock	14	(a)	560,000	560,000
Contributed surplus	14	(b)	341	136
Retained earnings			166,517	163,591
Cumulative translation adjustments	21		2,129	7,881

			728,987	731,608

			1,438,996	1,495,477

The accompanying notes are an integral part of the consolidated financial statements.

F-4

Norampac Inc.

Consolidated Statements of Income

Years ended December 31
(in thousands of Canadian dollars, unless otherwise noted)

	Note		2003		2002		2001
Sales			1,258,634		1,315,122		1,188,981
Cost of delivery			103,797		99,559		87,942

Net sales			1,154,837		1,215,563		1,101,039
Cost of goods sold and expenses
Cost of goods sold			848,675		854,745		753,951
Selling and administrative expenses			146,719		149,193		124,272
Depreciation and amortization			74,048		73,038		71,101

			1,069,442		1,076,976		949,324

Operating income			85,395		138,587		151,715
Financial expenses	11	(a)	32,331		37,337		31,972
Exchange loss (gain) on long term-debt	11	(b)	(18,978	)	(520	)	13,861
Unusual items	13		19,854		—		—

			52,188		101,770		105,882
Income tax expense	12		21,425		33,513		37,063

			30,763		68,257		68,819
Share of income of equity-accounted investments			163		289		780

Net income for the year			30,926		68,546		69,599

The accompanying notes are an integral part of the financial statements.

F-5

Norampac Inc.

Consolidated Statements of Retained Earnings

Years ended December 31
(in thousands of Canadian dollars, unless otherwise noted)

	2003		2002		2001
Balance, beginning of year	163,591		127,045		97,446
Net income for the year	30,926		68,546		69,599
Dividend paid during the year	(28,000	)	(32,000	)	(40,000	)

Balance, end of year	166,517		163,591		127,045

The accompanying notes are an integral part of the financial statements.

F-6

Norampac Inc.

Consolidated Statements of Cash Flows

Years ended December 31,
(in thousands of Canadian dollars, unless otherwise noted)

	Note		2003		2002		2001
Cash flows from:
Operating activities
Net income for the year			30,926		68,546		69,599
Adjustments for:
Depreciation and amortization			74,048		73,038		71,101
Future income taxes	12		7,074		5,302		8,642
Loss on disposal of property, plant and equipment			379		1,699		939
Foreign exchange loss (gain) on long-term debt			(18,978	)	(520	)	13,861
Share of income of equity-accounted investments			(163	)	(289	)	(780	)
Other			2,749		3,265		63
Unusual items	13		19,854		—		—

Cash flow from operating activities			115,889		151,041		163,425
Changes in non-cash working capital components	20	(a)	(24,956	)	(3,996	)	13,779

			90,933		147,045		177,204

Financing activities
Net change in revolving bank credit facility			(16,237	)	18,818		(2,001	)
Increase in long-term debt			1,732		889		—
Issuance of senior notes			346,650		—		—
Repayments of long-term debt			(308,500	)	(1,575	)	(344	)
Cost related to debt issue costs			(11,028	)	—		—
Premium paid on redemption of unsecured senior notes			(14,345	)	—		—
Net change in excess of outstanding cheques over bank balances			8,834		(10,068	)	19,237
Dividend paid			(28,000	)	(32,000	)	(40,000	)

			(20,894	)	(23,936	)	(23,108	)

Investing activities
Business acquisitions, net of cash and cash equivalents acquired	4		(21,101	)	(54,382	)	(93,328	)
Additions to property, plant and equipment, net			(58,485	)	(56,800	)	(82,619	)
Other assets, net			(1,047	)	1,462		(4,026	)

			(80,633	)	(109,720	)	(179,973	)

Net change in cash and cash equivalents during the year			(10,594	)	13,389		(25,877	)
Translation adjustments with respect to cash and cash equivalents			(2,867	)	212		(35	)
Cash and cash equivalents, beginning of year			25,747		12,146		38,058

Cash and cash equivalents, end of year			12,286		25,747		12,146

For other supplemental information refer to note 20(b).
The accompanying notes are an integral part of the financial statements.

F-7

Norampac Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2003, 2002 and 2001
(in thousands of Canadian dollars, unless otherwise noted)

1. Incorporation of the Company

Norampac Inc. is a joint venture 50% owned each by Cascades Inc. and Domtar Inc. Norampac Inc. was formed by Cascades Inc. to acquire most of the assets and liabilities of Cascades Inc.'s containerboard and corrugated packaging businesses. 3441989 Canada Inc. was formed by Domtar Inc. in order to acquire most of the assets and liabilities of Domtar's containerboard and corrugated packaging businesses. On December 30, 1997, Norampac Inc. and 3441989 Canada Inc. were amalgamated under the Canada Business Corporations Act and have continued their operations under the corporate name of Norampac Inc. ("the "Company"). The contributed assets and liabilities were recorded at their fair market value at the amalgamation date.

The Company commenced operations on January 1, 1998.

2. Significant accounting policies

The consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles which, in the case of the Company, differ in certain respects from U.S. generally accepted accounting principles, as explained in Note 23.

Basis of consolidation

The consolidated financial statements include the accounts of the Company and its subsidiaries. The Company's interest in a joint venture is accounted for using the proportionate consolidation method. Investments in companies subject to significant influence are accounted for using the equity method. Other investments are recorded at cost, except where a permanent decline in value occurs, in which case they are reduced to their estimated net realizable value.

Use of estimates

The preparation of financial statements in accordance with generally accepted accounting principles requires the use of estimates that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the balance sheet date as well as the reported amounts of revenue and expense items for the reporting period. Actual results could differ from those estimates.

Cash and cash equivalents

Cash and cash equivalents are comprised of cash on hand and investments in money market instruments with original maturities at the time of purchase not exceeding three months.

Inventories

Inventories of finished goods are valued at the lower of average production cost and net realizable value and include the cost of raw materials, direct labour and manufacturing overhead expenses. Inventories of raw materials and supplies are valued at the lower of cost and replacement value. The cost of raw materials and supplies is determined using the average cost method and the first-in, first-out method, respectively.

F-8

Property, plant and equipment and depreciation

Property, plant and equipment are stated at cost and include interest incurred during the construction period of certain assets. Depreciation is calculated on a straight-line basis according to the useful life of each class of assets at annual rates ranging from 2.5% to 5% for buildings, from 5% to 10% for machinery and equipment, and from 15% to 20% for automotive equipment

Grants and investment tax credits

Grants and investment tax credits are accounted for using the cost reduction method and are included in income as a reduction of depreciation using the same rates as those used to depreciate the related property, plant and equipment.

Goodwill

Effective January 1, 2002, goodwill is no longer amortized and instead is subject to an annual goodwill impairment test to determine if any goodwill is impaired. The Company has adopted the discounted future cash flow method as its goodwill impairment methodology test. This methodology compares discounted future cash flows with the carrying value of the respective business units.

Until the implementation of the new recommendation of the CICA on January 1, 2002, as described in Note 3(a), goodwill related to business combinations initiated or completed prior to July 1, 2001 was amortized on a straight-line basis over a period of 25 years. Goodwill related to business combinations initiated or completed after June 30, 2001 was not amortized.

Deferred financing costs

Long-term debt issue expenses are deferred and amortized on a straight-line basis over the expected repayment term of the related debt.

Environmental costs

Environmental costs, including site restoration costs, are expensed or capitalized depending upon their future economic benefit. Expenditures incurred to prevent future environmental contamination are capitalized in property, plant and equipment and amortized on a straight-line basis at annual rates ranging from 2.5% to 10%. Expenditures that relate to an existing condition caused by past operations and do not contribute to current or future revenue generation are expensed. A provision for environmental costs is recorded when it is likely that a liability has been incurred and the costs can be reasonably estimated.

Revenue recognition

Sales are recognized in accordance with the delivery terms and when the significant risks and benefits of ownership are transferred.

F-9

Income taxes

The Company uses the liability method to account for income taxes. Under this method, future income taxes are determined based on the difference between the carrying amount and the tax basis of assets and liabilities, using enacted or substantively enacted tax rates at the balance sheet date. Future tax assets arising from losses carried forward and temporary differences are recognized when it is more likely than not that the assets will be realized.

Foreign currency translation

•: Foreign currency transactions

Transactions denominated in foreign currencies are recorded at the rate of exchange prevailing at the transaction date. Monetary assets and liabilities denominated in foreign currencies are translated into the fonctionnal currency at the rate of exchange in effect at the balance sheet date. Unrealized gains or losses on translation of monetary assets and liabilities are included in income for the year except for gains and losses related to the portion of the long-term debt designated as a hedge of the Company's net investment of its self-sustaining operations which are offset against the cumulative translation adjustments in Shareholders' Equity.

•: Foreign operations

The Company's foreign operations are defined as self-sustaining. The assets and liabilities of these operations are translated into Canadian dollars at the rate of exchange in effect at the balance sheet date. Revenues and expenses are translated at the average exchange rate for the year. Translation gains or losses are recorded in the cumulative translation adjustments account.

Employee future benefits

The Company maintains defined benefit pension plans in Canada that are generally contributory. In Canada, the plans provide retirement benefits based mainly upon the length of service and, in certain cases, upon the final average earnings of the employee.

The Company also provides other employee benefits to its active and retired employees, such as group life insurance, health care and dental plans and certain post-employment benefits.

Employee future benefit costs are determined with the assistance of independent actuaries.

For the Company-sponsored defined benefit pension plans and the other benefits earned by employees for services rendered during the year, the expense is determined using the projected benefit method prorated on services and is based on management's best estimates with respect to the future rate of return of plan assets, interest rates, salary reviews and health and dental care costs.

For defined benefit pension plans, the future rate of return of plan assets is based on the expected long-term rate of return of plan assets and the market value of the plan assets.

Past service costs arising from amendments to defined benefit pension plans are amortized over the average remaining service period of active employees.

F-10

For defined benefit pension plans, actuarial gains or losses exceeding 10% of the greater of (a) the accrued benefit obligation at the beginning of the year, or (b) the fair market value of plan assets at the beginning of the year, are amortized over the average remaining service period of active employees.

The Company also contributes to several defined contribution plans in Canada and to certain of its employees' 401(K) plans in the United States. The pension expense for these plans is equal to the Company's contribution.

Financial instruments

Derivative financial instruments are utilized by the Company in the management of its foreign currency and commodity. Except for the interest rate derivatives, the Company's policy is not to utilize derivative financial instruments for trading or speculative purposes.

The Company's policy is to designate each derivative financial instrument as a hedge of specifically identified assets and liabilities on the balance sheet or to specific firm commitments or forecasted transactions. The Company also assesses whether the derivatives that are used in hedging transactions are effective in offsetting changes in fair values or cash flows of hedged items.

Foreign exchange forward contracts

The Company has negotiated foreign exchange forward contracts to cover anticipated future sales in U.S. dollars in order to reduce the potential adverse effects of an increase in the Canadian dollar exchange rate. Unrealized gains or losses on foreign exchange forward contracts used to hedge anticipated future sales are deferred and accounted for in net sales when such future sales are realized.

Commodity swap contracts

Raw materials

The Company has entered into swap contracts with counterparties whereby it sets the price on notional quantities of old corrugated containers and electricity in order to reduce the potential effects of fluctuations in the cost of its raw materials and production costs. These contracts will be settled in cash. Resulting gains and losses are recognized when realized and recorded in cost of sales.

Finished goods

The Company has entered into swap contracts with counterparties whereby it sets the price on notional quantities of unbleached 42-lb kraft linerboard and 26-lb semi-chem medium in order to reduce the potential effects of fluctuations in the selling prices of its finished goods. These contracts will be settled in cash. Resulting gains and losses are recognized when realized and recorded in net sales.

Interest rate swap agreements

The Company is holding these derivative financial instruments for speculative purposes. The interest rate swap agreements involve the periodic exchange of payments without the exchange of the

F-11

notional principal amount upon which the payments are based, and are recorded as an adjustment to interest expense. The change in fair values of these agreements are recorded in selling and administration expenses.

Fair value

The Company has estimated the fair market value of its financial instruments based on current interest rates, market value and current pricing of financial instruments with similar terms. Unless otherwise disclosed herein, the carrying value of these financial instruments, especially those with current maturities such as cash and cash equivalents, accounts receivable, excess of outstanding cheques over bank balances, and trade accounts payable and accrued liabilities, approximates their fair value.

New accounting standards not yet applied

Hedging relationships

On January 1, 2004, the Company applied Guideline 13 ("AcG-13") regarding hedge accounting. In compliance with the criteria required by AcG-13, hedge accounting requires the Company to document the risk management strategy used. Upon executing a hedging contract, management documents the hedge item, namely an asset, liability or anticipated transaction, the characteristics of the hedging instrument used and the selected method of assessing effectiveness.

The current accounting policy will be maintained for hedging relationships deemed to be effective. Consequently, realized and unrealized gains and losses on hedges will continue to be deferred until the hedged item is realized so as to allow matching of the descriptions in the statement of earnings. When hedging relationships cease, the Company will use the same agreements as those used for the year ended December 31, 2003.

Hedging relationship existing as at December 31, 2003 that do not meet the conditions of AcG-13 will be recorded at fair value as at January 1, 2004. As a result, the consolidated assets will increase by $7,480, consolidated liabilities will increase by $258 and the associated unrealized net gain of $7,222 will be deferred in other liabilities in the consolidated balance sheet and will be recognized when the initially designated transaction occurs.

Asset retirement obligations

In March 2003, the CICA issued Section 3110, "Asset Retirement Obligations", which will be implemented by the Company on January 1, 2004. This standard requires that the fair value of a liability for an asset obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The application of this standard will not have any impact on the financial position or results of operations of the Company.

Generally accepted accounting principles

In July 2003, the CICA issued Section 1100, "Generally Accepted Accounting Principles", and Section 1400, "General Standards for Financial Statement Presentation", which are effective for fiscal

F-12

years beginning on or after October 1, 2003. Section 1100 clarifies the relative authority of various accounting pronouncements and other sources of guidance within GAAP, whereas Section 1400 clarifies what constitutes a fair presentation in accordance with GAAP. In addition, under Section 1100, industry practice no longer plays a role in establishing GAAP. As a result, the cost of delivery, which had been subtracted from sales in accordance with industry practice, will no longer be subtracted from sales, but rather will be included in sales and cost of goods sold, which is consistent with U.S. GAAP. The Company is reviewing other potential effects of adopting Sections 1100 and 1400.

3. Changes in accounting policies

a) 2003

Long-lived assets

In 2002, the CICA issued Section 3475, "Disposal of Long-Lived Assets and Discontinued Operations", which applies to disposal activities initiated on or after May 1, 2003. This new section establishes standards for the recognition, measurement, presentation and disclosure of the disposal of long-lived assets. It also establishes standards for the presentation and disclosure of discontinued operations.

The CICA also issued Section 3063, "Impairment of Long-lived Assets", which is effective for fiscal years beginning on or after April 1, 2003. This section establishes standards for the recognition, measurement and disclosure of the impairment of long-lived assets.

Sections 3475 and 3063 are essentially the same as SFAS No. 144, which was adopted by the Company on January 1, 2002 for U.S. GAAP purposes. The adoption of this standard did not have any impact on the financial position or results of operations of the Company.

Guarantees

In February 2003, the CICA issued guideline AcG 14, "Disclosure of Guarantees", which requires entities to disclose key information about certain types of guarantee contracts that require payments contingent on specified types of future events. Disclosures include the nature of the guarantee, how it arose, the events or circumstances that would trigger performance under the guarantee, the maximum potential future payments under the guarantee, and the carrying amount of the related liability, and information about recourse or collateral. The Company adopted the guideline in the first quarter of the year. The adoption of this guideline did not have any impact on the financial position or results of operations of the Company.

b) 2002

Goodwill and other intangible assets

Effective January 2002, the Company adopted the requirements of CICA Handbook Section 3062, "Goodwill and Other Intangible Assets". Section 3062 requires the use of a non-amortization approach to account for purchased goodwill and indefinite-lived intangibles. Under the non-amortization

F-13

approach, goodwill and indefinite-lived intangibles are not amortized, but instead reviewed annually for impairment and written down and charged to earnings only in the periods in which the recorded value of goodwill and indefinite-lived intangibles exceeds their fair value. The adoption of Section 3062 requires the Company to use the non-amortization approach for goodwill related to business combinations initiated prior to July 1, 2001. The Company has adopted the discounted future cash flow method as its new goodwill impairment methodology and has determined that as at January 1, 2002, there was no goodwill impairment.

Foreign currency translation

In November 2001, the CICA amended Section 1650, "Foreign Currency Translation", to eliminate the deferral and amortization method for unrealized gains and losses on non-current monetary assets and liabilities, thereby eliminating a GAAP difference between Canadian and U.S. GAAP. The new recommendations were effective for fiscal year 2002 and were applied retroactively with restatement in 2002.

Designation of a hedge

Effective January 1, 2002, the Company designated a portion of the long-term debt as a hedge of the net investment of its self-sustaining operations. Consequently, since January 1, 2002, any unrealized gains or losses on the designated portion of the long-term debt are recorded in cumulative translation adjustments.

Stock-based compensation

On January 1, 2002, the Company adopted the new recommendations of the CICA regarding stock-based compensation. Under this new standard, stock options granted after January 1, 2002 by the Company's shareholders' to the Company's employees are to be recorded under the fair value method, which consists of recording expenses to income until these stock options are vested. In accordance with the transitional provisions, this new recommendation applies to options granted after January 1, 2002.

c) 2001

In July 2001, the CICA issued Handbook Section 1581, "Business Combinations". Section 1581 requires business combinations initiated after June 30, 2001 to be accounted for using the purchase method of accounting. This section also broadens the criteria for recording intangible assets separately from goodwill.

4. Business acquisitions

2003 Acquisitions

On April 14, 2003, the Company purchased Georgia-Pacific's corrugated products converting plant located in Schenectady, New York ("Schenectady"). The aggregate purchase price was $32,095 (US$ 22,006) and consisted of $20,428 (US$ 14,006) in cash and all of the operating assets of the company's Dallas Fort Worth, Texas plant valued at $11,667 (US$ 8,000).

F-14

On May 7, 2003, the Company purchased the assets of Instabox Saskatchewan Inc. ("Instabox"), a corrugated products converting plant located in Saskatoon, Saskatchewan. The aggregate purchase price was approximately $673.

The above transactions have been accounted for using the purchase method and the accounts and results of operations have been included in the consolidated financial statements since their respective acquisition date. The allocation of the purchase price for the above acquisitions is as follows:

		Schenectady		Instabox		Total
Net assets acquired (liabilities assumed):
Current assets		8,059		188		8,247
Property, plant and equipment		22,197		505		22,702
Other assets		583		—		583
Goodwill (deductible for tax)		2,956		—		2,956
Current liabilities		(1,700	)	(20	)	(1,720	)

	Purchase price	32,095		673		32,768

Less:
Fair market value of assets exchanged		11,667		—		11,667

Cash paid net of cash and cash equivalents acquired		20,428		673		21,101

2002 Acquisitions

On January 2, 2002, the Company transferred the assets of its Paper Recovery Division which were acquired on April 12, 2001 from Crown Packaging Ltd., to Metro Waste Paper Recovery Inc. ("Metro Waste") in exchange for an additional 18.5% interest in the common shares of Metro Waste. The Company's participation in Metro Waste increased from 27.5% to 46%.

On January 21, 2002, the Company acquired all the issued and outstanding shares of Star Container Corp. ("Leominster"), a corrugated products converting plant located in Leominster, Massachusetts, near Boston, USA, for a total consideration of approximately $50,489 (US$ 31,310).

During the year 2002, the Company finalized the purchase price allocation of Star Corrugated Box Co. for $1,524. Also Metro Waste, a joint venture, acquired the assets of two recycling businesses for a total consideration of $5,150 (the Company's proportionate share being $2,369). The two transactions aggregated to $3,893 which amount is shown as "Other" in the table below.

F-15

		Metro Waste		Leominster		Other		Total
Net assets acquired (liabilities assumed):
Working capital		1,700		5,140		1,837		8,677
Property, plant and equipment		8,642		18,771		1,568		28,981
Other assets		—		139		60		199
Goodwill (not tax deductible)		3,551		30,021		431		34,003

Future income taxes		—		(3,582	)	(3	)	(3,585	)
Other long-term liabilities		(365	)	—		—		(365	)

	Purchase price	13,528		50,489		3,893		67,910

Less:
Transfer of assets in exchange for non-monetary assets		13,528		—		—		13,528

Cash paid net of cash and cash equivalents acquired		—		50,489		3,893		54,382

2001 Acquisitions

On April 2, 2001, the Company acquired from Crown Packaging Ltd. and 428959 B.C. Ltd. (formerly Crown Packaging Holdings Ltd.) all the assets of a containerboard mill and eight paper recovery plants ("Burnaby") located in British Columbia, Alberta and Manitoba for a total cash consideration of $48,818.

On November 12, 2001, the Company acquired all the issued and outstanding shares of Star Corrugated Box Co. ("Star") a corrugated products converting plant located in Queensborough, New York, for a total consideration of $47,296 (US$ 29,701).

Also, in 2001, the Company acquired from Magnifoam Technology Inc. all the assets of its Polyfab Division, located in Ontario, Canada, and from Norseman Allforam Inc. all the assets of its Mexico Division, Norseman, S.A. de C.V. ("Other"). Both businesses are specialized in protective packaging. Total aggregate cash consideration for these acquisitions was $434.

The above acquisitions have been accounted for using the purchase method and the accounts and results of operations of these entities have been included in the consolidated financial statements since their respective acquisition date.

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The allocation of the purchase price for the 2001 acquisitions is as follows:

		Burnaby		Star(1)		Other		Total
Net assets acquired (liabilities assumed):
	Working capital	4,137		8,712		(287	)	12,562
	Property, plant and equipment	46,779		36,617		566		83,962
	Other assets	—		193		155		348
	Goodwill (not tax deductible)	—		9,212				9,212
	Future income taxes	—		(5,604	)	—		(5,604	)
	Other liabilities	(2,098	)	(1,834	)	—		(3,932	)

	Purchase price	48,818		47,296		434		96,548

Less:
	Balance of purchase price payable	—		2,932		—		2,932
	Cash and cash equivalents acquired	—		288		—		288

Cash paid net of cash and cash equivalents acquired		48,818		44,076		434		93,328

(1): The purchase price for Star was finalized in 2002 for $1,524 and is reflected in "Other" in the 2002 table. The total purchase price of Star including the 2002 adjustments was $45,600. In addition, the Company may pay additional consideration upon the achievement of specific profitability objectives by Star. The achievement of these objectives would result in an increase in the purchase price of Star and would increase the goodwill recorded on the acquisition. The maximum contingent consideration is US$ 3 million. As at December 31, 2003, no contingent amount was payable.

5. Inventories

As at December 31

	2003	2002
Containerboard
Raw materials	11,846	8,689
Finished goods	20,718	22,209
Supplies and spare parts	40,047	38,531

	72,611	69,429

Corrugated products
Raw materials	27,012	32,265
Finished goods	18,669	18,259
Supplies and spare parts	11,461	10,638

	57,142	61,162

	129,753	130,591

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6. Property, plant and equipment

As at December 31, 2003

	Cost	Accumulated depreciation	Net book value
Land	38,587	—	38,587
Buildings	180,799	35,715	145,084
Machinery and equipment	1,002,671	316,137	686,534
Automotive equipment	15,158	8,053	7,105
Other	11,359	1,485	9,874

	1,248,574	361,390	887,184

As at December 31, 2002

	Cost	Accumulated depreciation	Net book value
Land	39,989	—	39,989
Buildings	168,328	30,050	138,278
Machinery and equipment	953,688	269,411	684,277
Machinery and equipment under capital lease	15,188	607	14,581
Automotive equipment	13,584	6,654	6,930
Other	43,167	1,341	41,826

	1,233,944	308,063	925,881

As at December 31, 2003, other property, plant and equipment includes, among others, machinery and equipment in the process of installation of $5,561 (2002 - $35,748), assets under construction of $20 (2002 - $1,731) and deposits on purchase of assets of $2,001 (2002 - $1,070).

7. Goodwill

The changes in the carrying amount of goodwill are as follows:

	Note	Containerboard		Corrugated Products		Total
Balance at December 31, 2001		95,104		73,057		168,161
Goodwill acquired during the year	4	19,068		14,935		34,003
Foreign currency translation adjustments and other		791		(366	)	425

Balance at December 31, 2002		114,963		87,626		202,589
Goodwill acquired during the year	4	1,478		1,478		2,956
Foreign currency translation adjustments and other		(4,017	)	(4,090	)	(8,107	)

Balance at December 31, 2003		112,424		85,014		197,438

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The following table presents a reconciliation of the reported net earnings to adjusted net income as required by the transitional provisions of the new recommendations of the CICA regarding goodwill, as described in Note 3(b).

	2003	2002	2001
Reported net income for the year	30,926	68,546	69,599
Add back: Goodwill amortization, net of tax	—	—	7,221

Adjusted net income	30,926	68,546	76,820

8. Other assets

As at December 31

	Note		2003	2002
Accrued benefit asset	15	(a)	14,288	13,690
Deferred financing costs			10,199	5,319
Investments accounted for under the equity method			3,553	3,628
Other investments			2,091	869
Other deferred charges			812	2,339

			30,943	25,845

As at December 31, 2003, accumulated amortization of deferred financing costs and other deferred charges was $829 (2002 - $6,365) and $1,349 (2002 - $2,077), respectively.

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9. Long-term debt

Long-term debt includes the following:

	Note		2003	2002
US$250,000 Senior notes, bearing interest semi-annually at a fixed rate of 6.75%, maturing in 2013	9	(a)	323,100	—
US$150,000 Senior notes, bearing interest semi-annually at a fixed rate of 9.50%, refinanced during the year			—	236,940
Senior notes, bearing interest semi-annually at a fixed rate of 9.375%, refinanced during the year			—	100,000
Reducing revolving credit facility refinanced during the year Drawdown, bearing interest at a floating rate, refinanced during the year (2002 - €7,650 at a rate of 3.75%)	9	(b)	—	12,671
Revolving credit facility	9	(b)	21,830	25,836
Drawdown of $20,000 and €1,124 (2002 - $20,000, US$781 and €2,778), bearing interest at a floating rate varying from 3.06% to 4.05% (2002 - 3.46% to 4.25%)
US$3,990 Municipal debenture (2002 - US$4,219), bearing interest at a fixed rate of 3.0%, maturing in 2017			5,156	6,664
Loans of €788 (2002 - €906), non-interest bearing, maturing in 2010			1,283	1,500
Capital lease obligation, eliminated in 2003 following changes in the contract (2002 - €8,402)	20	(b)	—	13,918

Company's proportionate share of debt in its Metro Waste joint venture			2,231	499
			353,600	398,028

Less: Current portion			1,142	40,417

			352,458	357,611

On May 28, 2003, the Company completed a series of financial transactions to substantially refinance all of its existing credit facilities, except those of its joint venture. The Company secured a new five-year revolving credit facility. In addition, the Company issued new senior notes.

The aggregate proceeds of these two transactions were used to repay existing credit facilities totalling approximately $67.0 million at the time of the refinancing and to redeem both the Company's US$150 million aggregate principal amount of the 9.5% and the Company's $100 million aggregate principal amount of the 9.375% senior notes which were due in 2008.

(a): The new unsecured senior notes issued in 2003 are redeemable in whole or in part at the Company's option under certain conditions and subject to payment of a redemption premium.

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(b): The Company has authorized a credit facility of $350,000 maturing on May 27, 2008 (2002 - $228,750 under the old credit facilities comprised of a reducing revolving facility of $78,750 and a revolving credit facility of $150,000).

Advances under this credit facility bear interest at floating rates plus a borrowing margin based on the Company's rating from Standard and Poors and Moody's.

First movable hypothecs on all of the inventory and accounts receivable of Norampac Inc. and its North American subsidiaries and immovable hypothecs on property, plant and equipment of two containerboard mills and three converting facilities of the Company having a net carrying value of $435,000 have been given as collateral for the revolving credit facilities.

As at December 31, 2003, the Company had issued letters of credit under its revolving credit facilities for an amount of $8,556 (December 31, 2002 - $8,229).

The available unused balance under this revolving credit facility was $319,966 as at December 31, 2003 (December 31, 2002 - $182,014 under the old credit facilities).

Standby fees are payable on the Company's available unused credit lines at an annual rate that varies according to the Company's rating from Standard and Poors and Moody's.

As at December 31, 2003, the Company's joint venture has available unused balances under its credit facilities of $2,879 (December 31, 2002 - $4,400). The Company's joint venture had also issued letters of credit for an amount $670. These amounts represent the Company's share of its joint venture.

(c): The estimated aggregate amount of repayments of long-term debt in each of the next five years are as follows:

Years ending December 31
	2004	1,142
	2005	877
	2006	883
	2007	893
	2008	22,844

10. Other liabilities

As at December 31

	Note		2003	2002
Other employee benefits	15	(c)	32,684	30,753
Accrued benefit liability	15	(a)	3,672	2,077
Other			2,677	4,006

			39,033	36,836

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11. Financial expenses and Exchange loss (gain) on long term-debt

		2003		2002		2001
a)
	Interest on long-term debt	30,105		35,756		33,986
	Interest income on short-term investments	(425	)	(312	)	(2,061	)
	Other interest expense	1,203		603		167
	Amortization of financing costs	1,448		1,290		1,290
	Capitalized interest to property, plant and equipment	—		—		(1,410	)

		32,331		37,337		31,972

b)
	Unrealized exchange loss (gain) on long-term debt	(12,057	)	(520	)	13,861
	Realized exchange gain on long-term debt	(6,921	)	—		—

		(18,978	)	(520	)	13,861

12. Income taxes

The effective income tax rate on income before share of income of equity-accounted investments is detailed as follows:

	2003		2002		2001
Income tax expense based on the Canadian combined federal and provincial basic tax rates	19,759		40,687		45,318
Income tax expense (benefit) arising from the following items:
Amortization of goodwill	—		—		2,111
Large corporations tax	1,983		1,337		1,215
Canadian manufacturing and processing tax credit	(1,411	)	(4,085	)	(6,340	)
Deduction for active business income in Quebec	(1,024	)	(1,752	)	(1,866	)
Unrecognized benefit from losses of a subsidiary	844		534		596
Difference in tax rates for foreign operations	(2,909	)	(3,493	)	(2,292	)
Future tax expense (benefit) resulting from an increase (reduction) in tax rates	7,060		(169	)	(8,451	)
Non taxable foreign exchange loss (gain) on long-term debt	(3,408	)	(79	)	2,365
Change in unrecognized benefit from unrealized exchange loss on long term debt	(848	)	(79	)	2,365
Other	1,379		612		2,042

Income tax expense	21,425		33,513		37,063

F-22

The income tax expense on income before share of income of equity-accounted investments is detailed as follows:

Year ended December 31, 2003

		Canada	Foreign		Total
Income before income taxes and share of income of equity-accounted investments		50,036	2,152		52,188

Income tax expense (recovery):
	Current	14,721	(370	)	14,351
	Future	544	(530	)	14
	Future income tax expense resulting from an increase in tax rates	7,060	—		7,060

Total income tax expense (recovery)		22,325	(900	)	21,425

Net income before share of income of equity-accounted investments		27,711	3,052		30,763

Year ended December 31, 2002

		Canada		Foreign	Total
Income before income taxes and share of income of equity-accounted investments		87,247		14,523	101,770

Income tax expense:
	Current	25,562		2,649	28,211
	Future	4,808		663	5,471
	Future income tax benefit resulting from a reduction in tax rates	(169	)	—	(169	)

Total income tax expense		30,201		3,312	33,513

Net income before share of income of equity-accounted investments		57,046		11,211	68,257

Year ended December 31, 2001

	Canada		Foreign	Total
Income before income taxes and share of income of equity-accounted investments	89,949		15,933	105,882

Income tax expense:
Current	26,540		1,881	28,421
Future	13,046		4,047	17,093
Future income tax benefit resulting from a reduction in tax rates	(8,451	)	—	(8,451	)

Total Income tax expense	31,135		5,928	37,063

Net income before share of income of equity-accounted investments	58,814		10,005	68,819

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Future income tax expense included the following items:

	2003		2002		2001
Difference between property, plant and equipment amortization for tax purposes and accounting purposes	2,053		7,421		11,914
Employee future benefits	(919	)	332		439
(Benefit) utilization of tax losses	(1,344	)	(2,638	)	1,191
Net tax expense (benefit) resulting from exchange gain or loss on long-term debt	1,609		79		(2,365	)
Minimum tax credits	—		(146	)	3,022
Other	(1,918	)	(1,995	)	(844	)
Unrecognized tax benefits	533		2,418		3,736

	14		5,471		17,093
Adjustment to future tax liabilities resulting from an increase (reduction) in tax rates	7,060		(169	)	(8,451	)

Future income tax expense	7,074		5,302		8,642

Future income taxes include the following items:

	2003		2002
Future tax assets:
Tax benefit arising from losses of subsidiaries	3,475		4,120
Investment tax credits of subsidiaries	6,227		6,006
Employee future benefits	6,677		5,341

Exchange loss on long-term debt	—		3,177
Minimum tax credits	2,018		2,324
Other	3,686		3,059
Valuation allowance	(6,981	)	(8,247	)

	15,102		15,780
Future tax liabilities:
Property, plant and equipment	(163,687	)	(154,137	)
Exchange gain on long-term debt	(4,357	)	—
Other assets	(2,413	)	(2,561	)
Other	993		(2,041	)

	(169,464	)	(158,739	)

Future income taxes	(154,362	)	(142,959	)

Certain subsidiaries have accumulated losses for income tax purposes amounting to $10,247 (2002 - $6,232), which may be carried forward to reduce taxable income in future years. A future tax benefit resulting from the deferral of certain of these losses has been recognized in the account as a future income tax asset of $1,449 (2002 - $1,001). These unused losses for income tax purposes may be claimed in years ending no later than 2023.

F-24

Certain subsidiaries have also accumulated investment tax credits for income tax purposes amounting to $6,227 (2002 - $6,006) for which a future tax benefit has been recognized in the account as a future income tax asset of $1,272 (2002 - $2,667). These tax credits may be carried forward from 2004 to 2018.

13. Unusual items

During the year, the Company had unusual expenses of $19.9 million. The expenses included a $14.4 million call premium paid to redeem both the 9.5% senior notes and the 9.375% senior notes, a write-off of related financing costs for an amount of $4.7 million and a $0,8 million exchange loss as a result of the refinancing.

14. Capital stock

(a) Common shares

Authorized

Unlimited number of common shares without par value

			2002		2001
Issued
	20,000,200 Common shares		560,000		560,000

(b) Stock-based compensation

The shareholders of the Company grant stock options of their respective shares to certain officers of the Company. The stock options granted are issued and governed according to the terms and conditions as determined by each respective shareholder. The Company will not compensate the respective shareholders for any stock options granted to its officers and as such, the granting of stock options by its shareholders to the officers is treated as a capital contribution. The Company applies the fair value method of accounting for stock-based compensation awards granted to its officers. The fair value is calculated based on the Black-Scholes option pricing model. This model was developed for use

F-25

in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. The following options were outstanding as at December 31, 2003:

Year granted	Number of options	Weighted average exercise price	Number of unvested options outstanding	Vesting period
Cascades Inc.
1999	67,495	8.19	—	1999-2002
2001	27,830	6.82	6,958	2001-2004
2002	30,515	13.24	15,258	2002-2005
2003	18,702	13.04	14,027	2003-2006
Domtar Inc.
1999	20,106	9.48	—	2000-2003
2000	27,000	16.40	6,750	2001-2004
2001	31,750	12.10	15,875	2002-2005
2002	43,000	16.52	32,250	2003-2006
2003	43,000	15.95	39,600	2004-2007

15. Employee future benefits

(a) Defined benefit pension plans

Net plan costs

The components of the net defined benefit pension plan costs are as follows:

	2003		2002		2001
Current service cost	5,895		5,729		5,519
Interest on projected benefit obligations	16,174		15,231		15,132
Expected return on plan assets	(16,947	)	(17,091	)	(16,359	)
Other(1)	1,601		—		—
Net amortization of experience loss (gain) and past service costs	317		(99	)	33

Net periodic pension plan expense	7,040		3,770		4,325

(1): Non-recurring adjustment expense to recognize other obligations under the plan for certain retired employees.

Funding

The Company's funding policy with respect to defined benefit pension plans is to contribute annually the amount required to provide for benefits earned in the year and to fund past service liabilities over periods not exceeding those permitted by the applicable regulatory authorities. Past

F-26

service liabilities result primarily from amendments to plan benefits. The funded status of the defined benefit pension plans is as follows:

	2003		2002
Benefit obligation, beginning of year	235,467		223,041
Current service cost	5,895		5,729
Interest on projected benefit obligations	16,174		15,231
Employee contributions	4,165		3,890
Plan modifications	764		(981	)
Other	508		11
Actuarial loss	10,839		—
Benefits paid	(12,143	)	(11,454	)

Benefit obligation, end of year	261,669		235,467

Fair value of plan assets, beginning of year	225,657		228,174
Actual return on plan assets	32,559		(1,355	)
Employer contributions	6,039		6,291
Employee contributions	4,165		3,890
Other	(805	)	111
Benefits paid	(12,143	)	(11,454	)

Fair value of plan assets, end of year	255,472		225,657

Funded status of plans, end of year	(6,197	)	(9,810	)
Unrecognized actuarial loss	16,546		21,980
Unrecognized past service cost loss (gain)	267		(557	)

Net amount recognized	10,616		11,613

The net amount recognized of $10,616 (2002—$11,613) is comprised of an accrued benefit asset of $14,288 (2002—$13,690) and an accrued benefit liability of $3,672 (2002—$2,077).

Supplemental disclosures with respect to plans for which accumulated benefits exceed plan assets are as follows:

	2003	2002
Projected benefit obligation	2,793	6,358
Accumulated benefit obligation	721	4,965
Fair value of plan assets	—	3,928

F-27

Supplemental disclosures with respect to plans for which plan assets exceed accumulated benefits are as follows:

	2003	2002
Projected benefit obligation	258,876	229,109
Accumulated benefit obligation	230,758	204,140

Fair value of plan assets	255,472	221,729

(b) Defined contribution pension plans

The defined contribution pension plan expense is equal to the contributions made by the Company. This expense totalled $4,904 for 2003 (2002—$5,195; 2001—$3,451).

(c) Other employee benefits

The components of other employee benefit costs are as follows:

	2003	2002	2001
Current service cost	739	691	502
Interest on projected benefit obligation	2,176	2,075	1,822
Other(2)	977	—	—

Net periodic expense related to other employee benefits	3,892	2,766	2,324

(2): Non-recurring adjustment expense to recognize other employee's benefits obligations.

Other employee benefit plans are not funded.

The variation in the other employee benefit obligation is as follows:

	Note	2003		2002
Benefit obligation, beginning of year		32,229		30,805
Current service cost		739		691
Other		977		—
Interest on projected benefit obligation		2,176		2,075
Actuarial loss		1,941		—
Benefits paid		(1,961	)	(1,342	)

Benefit obligation, end of year		36,101		32,229

Funded status of the plans		(36,101	)	(32,229	)
Unrecognized actuarial loss		3,417		1,476

Net amount recognized	10	(32,684	)	(30,753	)

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The components of the accrued benefit obligation with respect to other employee benefits are as follows:

	2003	2002
Post-employment	1,765	1,611
Retirement allowances	6,471	5,923
Retired employees	15,758	14,666
Fully eligible active plan members	3,855	3,194
Other active plan members	8,252	6,835

	36,101	32,229

For valuation purposes, a 7.6% (2002 - 7.3%) annual rate of increase in the per capita cost of covered health care benefits was assumed for 2003; the rate was assumed to decrease gradually to 4.7% in 2012 and to remain at that level thereafter. As at December 31, 2003, a 1% increase in this annual cost trend would have increased the accrued employee benefit obligation by approximately $3,172 (2002—$2,561), while a 1% decrease in this trend would have decreased the accrued obligation by $2,448 (2002—$2,087). As at December 31, 2003, a 1% increase in this annual cost trend would have increased the employee benefit expense by $327 (2002—$263), while a 1% decrease in this trend would have decreased the expense by $251 (2002—$230).

The significant actuarial assumptions used in determining the defined benefit pension plan obligation and the other employee benefit obligation are as follows:

	2003	2002
Rate of increase in future compensation	3.5%	3.5%
Discount rate	6.25%	6.75%
Expected long-term rate of return on plan assets	7%	7.5%
Average remaining service period of active employees	8 to 12 years	8 to 14 years

16. Commitments and contingencies

Litigation

The Company is a party to various legal actions and contingencies arising in the normal course of business. Management believes that the settlement of the actions and claims in which it is involved will not have a material adverse impact on the Company's financial position, the results of its operations or its cash flows.

The Company's operations and facilities are also subject to extensive federal, provincial and local legislation, regulations and standards relating to environmental protection and occupational health and safety. Management believes that the settlement of the actions and claims in which it is involved will not have a material adverse impact on the Company's financial position, the results of its operations or its cash flows.

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Other commitments

The future minimum payments required under operating leases in future years are as follows:

Years ending December 31
	2004	12,980
	2005	10,588
	2006	7,575
	2007	6,055
	2008	5,368
	Thereafter	14,231

17. Financial instruments

Foreign exchange risk

The Company is exposed to foreign exchange risk as a result of its export of goods manufactured in Canada, the United States and France. These risks are partially offset by purchases, debt service and foreign exchange arrangements.

Interest rate risk

The Company's exposure to interest rate risk is as follows:

Long-term debt
Maturing in 1 year or less: $951		Fixed interest rate
Maturing in 1 year or less: $191		Non-interest bearing
Maturing in 2 to 5 years: $21,830		Floating rate
Maturing in 2 to 5 years: $2,902		Fixed interest rate
Maturing in 2 to 5 years: $764		Non-interest bearing
Maturing in 6 years or more: $326,634		Fixed interest rate
Maturing in 6 years or more: $328		Non-interest bearing

Credit risk

The Company is exposed to credit risk on the accounts receivable from its customers. In order to reduce this risk, the Company's credit policies include the analysis of the financial position of its customers and a regular review of their credit limits. The Company believes there are no significant concentrations of credit risk due to the North American and European distribution of the Company's customers and its procedures for the management of credit risk.

The Company is also exposed to credit risk in the event of non-performance by counterparties to its derivative financial instrument. The Company minimizes this exposure by entering into contracts with counterparties which are believed to be highly rated and by distributing the transactions among several selected institutions.

F-30

Fair value of financial instruments

The carrying value and the fair value of debt instruments and of the revolving credit facilities are as follows:

	2003		2002
	Carrying value	Fair value	Carrying value	Fair value
Senior notes	323,100	334,829	336,940	353,119
Credit facilities	21,830	21,830	38,507	38,507
Others	8,670	8,670	22,581	22,581

	353,600	365,329	398,028	414,207

Derivative financial instruments

Foreign exchange forward contracts

As at December 31, the Company had entered into various foreign exchange arrangements as follows:

As at December 31, 2003

Currency			Average rate		Contractual amounts
Foreign exchange forward contracts
	0 - 12 months (Sell US$ for CA$)		1.4357		US$	24,000

As at December 31, 2002

Currency		Average rate	Contractual amounts
Foreign exchange forward contracts
	0 - 12 months (Sell US$ for CA$)	1.5787	US$	42,200
	0 - 12 months (Sell US$ for €)	1.0301	US$	500

Foreign exchange forward contracts are contracts whereby the Company has the obligation to sell/purchase the above contractual amounts at a specific rate. Currency options purchased are contracts whereby the Company has the right, but not the obligation, to sell U.S. dollars at the strike rate if the U.S. dollar trades below that rate. Currency options sold are contracts whereby the Company has the obligation to sell U.S. dollars at the strike rate if the U.S. dollar trades above a specific rate.

F-31

The fair value of derivative financial instruments generally reflects the estimated amounts the Company would have received or paid to settle the contracts at year-end. As at December 31, the fair value of the above-mentioned derivative financial instruments were as follows:

		2003	2002
Foreign exchange forward contracts
	Favourable	3,013	215
	Unfavourable	—	(498	)

Commodity swap contracts

Raw materials

Electricity

The Company has entered into swap contracts with counterparties whereby it sets the purchase price on notional quantities of electricity. These contracts will be settled in cash. Resulting gains and losses are recognized when matured and are recorded in cost of goods sold. As at December 31, 2003, the Company had commitments under swap contracts expiring in 2004 through 2007 for 224,854 megawatts (2002 - 323,260). The fair value of these financial instruments as at December 31, 2003 represents an unrealized gain of $0.8 million (2002—$1.5 million).

Old corrugated containers

The Company has entered into swap contracts with counterparties whereby it sets the purchase price on notional quantities of old corrugated containers. These contracts will be settled in cash. As at December 31, 2003, the Company had commitments under swap contracts expiring in 2004 through 2007 for 774,000 tonnes of old corrugated containers (2002 - 879,700; 2001 - 32,400). The fair value of these financial instruments as at December 31, 2003 represents an unrealized gain of $7.1 million (2002—unrealized loss of $1.5 million; 2001—unrealized loss of $1.2 million).

Finished goods

Unbleached 42-lb kraft linerboard

The Company has entered into swap contracts with counterparties whereby it sets the selling price on notional quantities of unbleached 42-lb kraft linerboard. These contracts will be settled in cash. As at December 31, 2003, the Company had commitments under swap contracts expiring in 2004 through 2006 for 165,000 tonnes of unbleached 42-lb kraft linerboard (2002—97,200; 2001—319,500). The fair value of these financial instruments as at December 31, 2003 represents an unrealized loss of $0.3 million (2002—unrealized loss of $2.0 million; 2001—unrealized gain of $10.1 million).

In 2002, the unrealized loss of $2.0 million (2001—unrealized gain of $10.1 million) included an unrealized gain of $0.4 million (2001—unrealized gain of $5.4 million) with a counterparty which was in default on several swap contracts and therefore, had not be realized by the Company. There were no more outstanding contracts with that counterparty in 2003.

F-32

26-lb Semi-chem medium

The Company has entered into swap contracts with counterparties whereby it sets the selling price on notional quantities of 26-lb semi-chem medium. These contracts will be settled in cash. As at December 31, 2003, the Company had commitments under swap contracts expiring in 2004 through 2005 for 17,000 tonnes of 26-lb semi-chem medium (2002—29,000; 2001—nil). The fair value of these financial instruments as at December 31, 2003 represents an unrealized gain of $0.4 million (2002—$0.5 million; 2001—nil).

Interest rates swap agreements

As part of the acquisition of Star Corrugated Box Company in 2001, the Company assumed the interest rate swap agreements between Star and a financial institution. The Company is holding these derivative financial instruments for speculative purposes. As at December 31, 2003, the derivates are recorded in other liabilities at their fair value of $1.2 million (2002—$1.8 million). Details of the interest rate swap agreements are as follows:

		2003		2002
Notional amount of US$3.3 million (2002—US$3.5 million), maturity 2008
	Fixed rate paid	7.25	%	7.25	%
	Average floating rate received	2.70	%	3.30	%

Notional amount of US$2.5 million (2002—US$2.5 million), maturity 2012(1)
	Fixed rate paid	9.47	%	9.47	%
	Average floating rate received	2.75	%	3.34	%

(1): Contract commenced on October 21, 2002.

F-33

18. Related party transactions

During the year, the Company entered into the following related party transactions:

	2003	2002	2001
Joint venture(1)
Purchases of raw materials from joint venture	12,257	14,354	—
Sale of raw materials to joint venture	—	774	—
Shareholders
Sales of finished goods	14,064	18,815	14,379
Purchases of raw materials and services	33,534	31,334	28,665
Management fees to Cascades Inc.	1,319	3,557	3,864
Other	3,877	4,682	6,832
Shareholders' subsidiaries and affiliates
Sales of finished goods	56,461	58,892	42,730
Purchases of raw materials and services	17,942	20,177	17,128
Other	1,221	1,349	1,227

These transactions were entered into in the normal course of business and were measured at the exchange amount, which is the consideration agreed to by the related parties.

The following related party transaction amounts are included in the consolidated balance sheets:

	2003	2002
Accounts receivable
Joint venture(1)	1,210	323
Shareholders	2,246	2,026
Shareholders' subsidiaries and affiliates	3,919	8,537
Trade accounts payable and accrued liabilities
Joint venture(1)	774	860
Shareholders	13,150	14,945
Shareholders' subsidiaries	1,073	2,738

(1): Represent the portion of transactions or balances not eliminated upon proportionate consolidation of the joint venture.

19. Segmented disclosures

The Company organizes its business, assesses its performance and operates in two reportable segments as follows:

Containerboard—manufacturing of standard and high performance grades of linerboard and corrugating medium in a wide range of basis weights from a mix of recycled and virgin fiber.

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Corrugated products—conversion of containerboard into corrugated containers and other packaging-related products.

In 2003 and 2002, other activities consist of operations from Metro Waste Paper Recovery Inc. ("Metro Waste"). In 2001, other activities consisted of operations from the paper recovery division, which were acquired on April 2, 2001 from Crown Packaging Ltd. and transferred to Metro Waste on January 2, 2002 for an additional 18.5% equity participation (see Note 4).

The accounting policies of the reportable segments are the same as those described in Note 2 except for consolidated assets, which do not include the allocation of the purchase price to assets acquired at the incorporation date and goodwill. The Company assesses performance based on operating income before depreciation and amortization. Intersegment sales are entered into at the exchange value. Segment assets are those assets that are directly used in segment operations before allocation of the purchase price to the assets acquired at the incorporation date and the allocation of goodwill.

	2003		2002		2001
Gross sales
Containerboard	679,913		748,385		747,926
Corrugated products	958,796		976,815		831,819

Total of reportable segments	1,638,709		1,725,200		1,579,745
Other activities and unallocated amounts	62,134		61,022		30,136
Intersegment sales	(442,209	)	(471,100	)	(420,900	)

Consolidated gross sales	1,258,634		1,315,122		1,188,981

Operating income before depreciation and amortization
Containerboard	36,169		93,820		133,950
Corrugated products	103,828		100,559		75,183

Total of reportable segments	139,997		194,379		209,133
Other activities and unallocated amounts	19,446		17,246		13,683

Consolidated operating income before depreciation and amortization	159,443		211,625		222,816
Depreciation and amortization	74,048		73,038		71,101

Consolidated operating income	85,395		138,587		151,715

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Additions to property, plant and equipment, net
Containerboard	28,152	36,160	41,133
Corrugated products	27,198	19,500	52,367

Total of reportable segments	55,350	55,660	93,500
Other activities and unallocated amounts	3,135	1,140	1,459

Consolidated additions to property, plant and equipment, net	58,485	56,800	94,959

	2003	2002
Segment assets
Containerboard	569,855	575,441
Corrugated products	427,926	458,187

Total of reportable segments	997,781	1,033,628
Other activities and unallocated amounts	47,311	46,379
Goodwill	197,438	202,589
Allocation of purchase price to assets acquired at incorporation date	196,466	212,881

Consolidated assets	1,438,996	1,495,477

Geographical data

	2003	2002	2001
Gross sales(a)
Canada
Domestic sales	810,276	861,190	770,869
U.S. sales	99,271	113,767	207,605
Sales outside North America	67,762	54,699	63,407

	977,309	1,029,656	1,041,881
United States
Domestic sales	194,217	200,842	72,402
Canadian sales	10,127	9,333	6,960
Mexican sales	—	4,504	—

	204,344	214,679	79,362

F-36

France
Domestic sales	32,432	27,013	27,916
Other EU sales	25,424	28,862	31,534
Sales outside the EU	14,502	10,229	6,724

	72,358	66,104	66,174
Mexico
Domestic sales	4,623	4,683	1,564

	1,258,634	1,315,122	1,188,981

(a): Sales are allocated based on the location of external customers.

	2003	2002
Property, plant and equipment and goodwill
Canada	869,868	878,332
United States	171,144	189,432
France	43,265	59,545
Mexico	345	1,161

	1,084,622	1,128,470

20. Cash flow supplemental information

(a) Changes in operating working capital

		2003		2002		2001
Decrease (increase) in:
	Accounts receivable and prepaid expenses	(5,723	)	10,393		35,245
	Inventories	(1,784	)	(3,629	)	(13,210	)
Increase (decrease) in:
	Trade accounts payable and accrued liabilities	(13,322	)	(1,631	)	(28,082	)
	Income and other taxes payable	(4,127	)	(9,129	)	19,826

		(24,956	)	(3,996	)	13,779

F-37

(b) Other supplemental information

		Note	2003		2002	2001
Cash and cash equivalents paid for:
	Interest		41,698		36,262	33,289
	Income taxes		18,957		40,880	7,812
Non-cash investing and financing activities
Transfer of asset in exchange for non-monetary assets		4	11,667		13,528	—
Eliminated capital lease			(12,516	)	—	13,037
Conversion of debt to property, plant and equipment grant			(1,403	)	—	(697	)

21. Cumulative translation adjustments

	2003		2002	2001
Balance beginning of year	7,881		4,438	(1,387	)
Effect of changes in exchange rates during the year:
On net investment in self-sustaining foreign subsidiaries	(35,677	)	2,013	5,825
On certain long-term debt denominated in foreign currencies designated as a hedge of net investment in self-sustaining foreign subsidiaries, net of tax of $3,595 (2002—nil)	29,925		1,430	—

Balance, end of year	2,129		7,881	4,438

F-38

22. Interest in joint venture

The following amounts represent the Company's proportionate interest in its Metro Waste joint venture:

	2003		2002
Assets
Current assets	11,888		10,444
Long-term assets	16,590		13,578
Liabilities
Current liabilities	7,845		6,025
Long-term liabilities	2,942		659
Income
Net sales	59,561		58,547
Operating income	1,141		3,324
Financial expenses	389		58
Net income for the year	450		1,780
Cash Flows
Cash flows provided by operating activities	655		3,631
Cash flows provided by (used for) financing activities	1,732		(157	)
Cash flows used for investing activities	(6,485	)	(3,698	)

23. United States generally accepted accounting principles

The consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles ("Canadian GAAP") which, in the case of the Company, conform, in all material respects, to United States generally accepted accounting principles ("U.S. GAAP"), except for the items mentioned below.

Change in Accounting Policy under U.S. GAAP

New accounting policies under U.S. GAAP

2003

Accounting for Asset Retirement Obligation

In June 2001, FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligation", which was implemented by the Company on January 1, 2003. This standard requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The adoption of this standard did not have any impact on the financial position or results of operations of the Company.

F-39

Costs Associated with Exit or Disposal Activities

In June 2002, FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities". This standard changes the measurement and timing of recognition for exit costs, including restructuring charges, and was effective for any such activities initiated after December 31, 2002. The adoption of this standard did not have any impact on the financial position or results of operations of the Company.

Guarantees

In November 2002, FASB issued FIN 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees Including Indirect Guarantees of Indebtedness of Others", which is effective for guarantees issued or modified after December 31, 2002. However, the disclosure requirements of this interpretation were effective for financial statements issued for the periods ending on or after December 15, 2002 (Note 23(f)). FIN 45 elaborates on the disclosure requirements of a company with respect to its obligation under certain guarantees. It also clarifies that a company is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation then undertaken. The Company adopted this new standard effective January 1, 2003. The adoption of this standard did not have any impact on the financial position or results of operations of the Company.

2002

Goodwill and Other Intangible Assets

On January 1, 2002, the Company applied SFAS No. 142, "Goodwill and Other Intangible Assets". This standard is not materially different from the recently issued accounting standard of the CICA (Note 3(b)), except that the amount of annual goodwill amortization under U.S. GAAP was approximately $644.

Accounting for the Impairment or Disposal of Long-Lived Assets

On January 1, 2002, the Company applied SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". SFAS No. 144 addresses financial accounting impairment or disposal of long-lived assets and requires that one accounting model be used for long-lived assets to be disposed of by sale. The standard also broadens the scope of businesses to be disposed of that qualify for reporting as discontinued operations, and changes the timing of recognizing losses on such operations. The adoption of this standard did not have any impact on the financial position or results of operations of the Company.

2001

Accounting for Derivative Instruments and Hedging Activities

On January 1, 2001, for U.S. reporting purposes, the Company adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", as amended by SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities". The presentation

F-40

standards for derivative instruments and hedging activities are described in this standard. Under this standard, all derivative instruments are accounted for at their fair value and recognized based on their anticipated use and their designation as a hedge. The application of this standard as at January 1, 2001 resulted in a charge of $3.2 million after tax to comprehensive income (Note 23(i)).

Adjustments to statement of earnings and balance sheet

(a) Adjustments to statement of income

	Note	2003		2002		2001
Net income under Canadian GAAP		30,926		68,546		69,599
Unrealized exchange gains (losses) arising from foreign exchange forward contracts	(1)	3,296		1,512		(725	)
Unrealized gains (losses) arising from commodity derivative instruments	(2)	9,403		(12,481	)	11,640
Reversal of provision (provision) for derivative instruments currently in default		—		3,837		(4,200	)
Depreciation and write-down of property, plant and equipment	(3)	16,415		16,415		16,923
Amortization of goodwill	(3)	—		—		6,833
Other employee future benefits	(5)	440		429		295
Pension costs	(5)	(202	)	(511	)	(811	)
Other		1,393		1,838		(1,018	)
Tax effect of above adjustments		(5,091	)	(3,821	)	(12,296	)

Net income under U.S. GAAP		56,580		75,764		86,240

(b) Adjustments to balance sheet

As at December 31, 2003

	Note	Under Canadian GAAP		Under U.S. GAAP
Property, plant and equipment	(3)	887,184		690,718
Goodwill	(3)	197,438		52,356
Other assets excluding accrued benefit asset	(2),(3)	16,655		25,536
Accrued benefit asset	(5)	14,288		—
Trade accounts payable and accrued liabilities	(1)	(142,375	)	(142,633	)
Other long-term liabilities	(5),(6)	(39,033	)	(40,886	)

Future income taxes	(7)	(154,362	)	(81,574	)

F-41

As at December 31, 2002

	Note	Under Canadian GAAP		Under U.S. GAAP
Property, plant and equipment	(3)	925,881		713,000
Goodwill	(3)	202,589		57,507
Other assets excluding accrued benefit asset	(2),(3)	12,155		9,708
Accrued benefit asset	(5)	13,690		—
Trade accounts payable and accrued liabilities	(1)	(166,402	)	(170,047	)
Other long-term liabilities	(5),(6)	(36,836	)	(40,224	)
Future income taxes	(7)	(142,959	)	(64,697	)

(1): Under Canadian GAAP, unrealized gains or losses on foreign exchange contracts used to hedge anticipated future sales are deferred and accounted for in net sales when such future sales are realized. Under U.S. GAAP, the unrealized gains and losses arising from these contracts, which do not meet the requirement for hedge accounting as defined in SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", are charged to income.
(2): Under Canadian GAAP, gains and losses arising from commodity swap contracts designated as a hedge are charged to income only when the hedged transaction occurs. Under U.S. GAAP, the unrealized gains and losses arising from these contracts, which do not meet the requirements for hedge accounting as defined in SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", are charged to income. However, the net unrealized loss of $3.2 million after tax that existed upon the adoption of SFAS No. 133 and SFAS 138 has been recorded to comprehensive income and has been transferred to earnings as the contracts matured.
(3): Under Canadian GAAP, upon the creation of the Company, which is a joint venture, the contributed assets and liabilities were accounted for at the fair market value at the time of the transfer. Under U.S. GAAP, only non-monetary assets were contributed to the joint venture. Therefore, under U.S. GAAP, the assets acquired and liabilities assumed were accounted for at their historical cost. The purpose of the adjustment is to adjust the assets to their depreciated historical cost.

F-42

(4): The following table sets out the material adjustments that would be made to the Company's shareholders' equity in order to conform to U.S. GAAP, including the use of the historical cost basis as described above.

		Note	2003		2002
Shareholders' equity under Canadian GAAP			728,987		731,608
U.S. GAAP adjustments:
	Property, plant and equipment	(3)	(196,466	)	(212,881	)
	Goodwill	(3)	(145,082	)	(145,082	)
	Other assets excluding accrued benefit asset	(2),(3)	8,881		(2,447	)
	Accrued benefit asset	(5)	(14,288	)	(13,690	)
	Trade accounts payable and accrued liabilities	(1),(2)	(258	)	(3,645	)
	Other long-term liabilities	(5),(6)	(1,853	)	(3,388	)
	Future income taxes	(7)	72,788		78,262

Shareholders' equity under U.S. GAAP			452,709		428,737

(5): Before the adoption of the new CICA standard on January 1, 2000, concerning employee future benefits, the discount rate used in the measurement of pension costs and obligations under U.S. GAAP differed from the one used under Canadian GAAP. In addition, as allowed by Canadian GAAP before January 1, 2000, the Company recognized post-employment costs and obligations using the cash basis of accounting. Under U.S. GAAP, the Company was required to recognize employee future benefit costs and obligations under the accrual method using actuarial assumptions. Under CICA Section 3461, the treatment of pension costs is not materially different from the treatment under U.S. GAAP. The remaining adjustments result from the amortization of actuarial gains and losses, which arose prior to January 1, 2000.
(6): Under U.S. GAAP, a minimum pension liability adjustment must be recorded when the accumulated benefit obligation of a plan is greater than the fair value of its assets. The excess of the liability over the intangible asset is recorded in comprehensive income in shareholders' equity.
(7): The Company has applied the accounting standard of the CICA to recognize income taxes in its opening balance sheet. This accounting standard is not materially different from the standard under U.S. GAAP. Under U.S. GAAP, because of the use of the historical cost for the assets acquired, the effect of applying this accounting standard at the opening balance sheet date would have been shown as an increase in shareholders' equity.
(8): Under U.S. GAAP, the premium on redemption of the Company's unsecured senior notes and the financing cost of the new credit facility would be classified as an operating activity and not as a cash flow used in financing activities.
(9): Under U.S. GAAP, there would not have been a sub-total "cash flow from operating activities" in the consolidated statements of cash flows.

F-43

Future income taxes under U.S. GAAP are as follows:

		2003		2002
Future tax assets:
	Tax benefit arising from losses of subsidiaries	3,475		4,120
	Investment tax credits of subsidiaries	6,227		6,006
	Exchange loss on long-term debt	—		3,177
	Pension and other employee benefits	12,067		10,700
	Minimum tax credits	2,018		2,324
	Other assets	1,604		4,013
	Other	1,909		3,153

		27,300		33,493
Valuation allowance		(6,981	)	(8,247	)

		20,319		25,246
Future tax liabilities:
	Property, plant and equipment	(97,536	)	(87,398	)
	Exchange gain on long-term debt	(4,357	)	—
	Other	—		(2,545	)

		(101,893	)	(89,943	)

Future income taxes		(81,574	)	(64,697	)

The valuation allowance results from the unlikelihood of the realization of the tax benefit related to the investment tax credits and loss carryforwards of certain subsidiaries of the Company and to the unrealized exchange losses arising from the translation of long-term debt.

F-44

Supplementary information

(c) Disclosure of the following items is required under U.S. GAAP:

		2003		2002		2001
Payments under operating leases		14,948		15,056		11,484

	2003		2002
Accounts receivable	165,371		167,246
Allowance for doubtful accounts	(5,688	)	(5,087	)
Accounts receivable from affiliated companies	7,375		10,886
Other accounts receivable	10,035		7,779
Prepaid expenses	4,299		4,000

	181,392		184,824

Trade accounts payable	81,052		91,451
Accounts payable to affiliated companies	14,997		18,543
Accrued personnel costs	26,901		24,274
Interest payable	1,825		13,572
Accounts payable for capital expenditures	6,782		10,877
Other	10,819		7,685

	142,376		166,402

(d) Cost of delivery

Under Canadian GAAP, cost of delivery billed to customers is classified as a deduction from gross sales in determining the amount of net sales, whereas under U.S. GAAP, delivery costs billed to customers are classified in revenue and cost of delivery as a component of cost of sales.

(e) Joint venture

Under Canadian GAAP, investments in joint ventures are accounted for using the proportionate consolidation method. Under U.S. GAAP, investments in joint ventures are accounted for using the equity method. The different accounting treatment affects only the display and classification of financial statement items and not the net income or shareholders' equity. Rules prescribed by the Securities and Exchange Commission of the United States ("SEC") permit the use of the proportionate consolidation method in the reconciliation to U.S. GAAP provided the joint venture is an operating entity and the significant financial operating policies are, by contractual arrangement, jointly controlled by all parties having an equity interest in the joint venture. As required by the SEC, the Company discloses in Note 21 the major components of its financial statements resulting from the use of the proportionate consolidation method to account for its interest in the joint venture.

F-45

(f) Guarantees

For the year 2002, the Company had guaranteed the payment of approximately $947 under an operating lease held by a third party. Management of the Company did not believe that it was likely to be invoked and as such, no liability was recognized in the financial statements at that moment. The guarantee expired during the year and no amount was incurred by the Company. The Company, as at December 31, 2003, does not have any guarantee to disclose.

For disclosure of letter of credits see Note 9.

(g) Pension plans

The components of net pension plan costs under U.S. GAAP are as follows:

	2003		2002		2001
Current service cost	5,895		5,729		5,519
Interest on projected benefit obligations	16,174		15,231		15,132
Expected return on plan assets	(16,947	)	(17,091	)	(16,359	)
Net amortization of experience loss and past service costs	2,120		412		844

Net periodic pension plan expense	7,242		4,281		5,136

The funded status of the plans under U.S. GAAP is as follows:

	2003		2002
Funded status of plans under Canadian GAAP	(6,197	)	(9,810	)
Unrecognized past service cost	4,719		4,308
Other unrecognized items	(3,090	)	2,082
Minimum pension liability adjustment	—		(699	)

Net amount recognized under U.S. GAAP	(4,568	)	(4,119	)

(h) Other employee benefits

The components of other employee benefit cost under U.S. GAAP are as follows:

	2003	2002		2001
Current service cost	739	691		502
Interest on projected benefit obligation	2,171	2,075		1,822
Net amortization of experience loss and past service costs	542	(429	)	(295	)

Net periodic expense related to other employee benefits	3,452	2,337		2,029

F-46

The funded status of other employee benefit cost under U.S. GAAP is as follows:

	2003		2002
Funded status of plans under Canadian GAAP	(36,101	)	(32,229	)
Unrecognized actuarial loss	5,611		3,703
Unrecognized past service gains	(3,098	)	(3,572	)

Net amount recognized under U.S. GAAP	(33,588	)	(32,098	)

(i) Consolidated comprehensive income and accumulated other comprehensive income

Consolidated comprehensive income

	2003		2002		2001
Net income under U.S. GAAP	56,580		75,764		86,240
Foreign currency translation on net investment in self-sustaining foreign subsidiaries	(35,677	)	2,013		5,825
Foreign currency translation on certain long-term debt denominated in foreign currencies designated as a hedge of net investment in self-sustaining foreign subsidiaries, net of tax of $3,595 (2002—nil; 2001—nil)	29,925		1,430		—
Minimum pension liability adjustment, net of a tax recovery of $219 (2002—tax of $219; 2001—nil)	480		(480	)	—
Cumulative loss on adopting SFAS Nos. 133 and 138, net of tax of $1,800 in 2001	—		—		(3,200	)
Reclass to earnings of cumulative loss on adopting SFAS Nos. 133 and 138, net of tax recovery of $759	297		1,402		1,501

Consolidated comprehensive income under U.S. GAAP	51,605		80,129		90,366

Accumulated other comprehensive income

	2003		2002		2001
On net investment in self-sustaining foreign subsidiaries	(29,226	)	6,451		4,438
On certain long-term debt denominated in foreign currencies designated as a hedge of net investment in self-sustaining foreign subsidiaries	31,355		1,430		—
Minimum pension liability adjustment	—		(480	)	—
Cumulative loss on adopting SFAS Nos. 133 and 138	—		(297	)	(1,699	)

Accumulated other comprehensive income	2,129		7,104		2,739

F-47

24. Supplemental condensed consolidating financial information

As described in note 9, the Company completed a private offering of debt securities. The debt securities issued are fully and unconditionally guaranteed on a joint and several basis by the Company's material subsidiaries located in Canada and the United States (the "Guarantor Subsidiaries"). The debt securities are not guaranteed by the Company's other subsidiaries or by its joint ventures (the "Non-guarantor Subsidiaries"). The following supplemental condensed consolidating financial information sets forth, on an unconsolidated basis, the balance sheets as at December 31, 2003 and 2002 and the statement of income, retained earnings and cash flows for each of the years in the three-year period ended December 31, 2003 for Norampac Inc. (the "Parent Company"), and on a combined basis for the Guarantor Subsidiaries and the Non-guarantor Subsidiaries. The supplemental condensed consolidating financial information reflects the investments of the Parent Company in the Guarantor Subsidiaries and the Non-guarantor Subsidiaries using the equity method.

F-48

a): Condensed consolidating balance sheets

	Balance Sheet as at December 31, 2003
	Parent Company $	Guarantor Subsidiaries $		Non-guarantor Subsidiaries $		Elimination adjustements $		Consolidated $
Assets
Current assets
Cash and cash equivalents	1,608	6,094		5,440		(856	)	12,286
Accounts receivables and prepaid expenses	153,282	26,667		27,498		(26,055	)	181,392
Income taxes receivable	—	3,092		370		(3,462	)	—
Inventories	102,614	17,645		10,161		(667	)	129,753

	257,504	53,498		43,469		(31,040	)	323,431
Property, plant and equipment	679,274	123,659		61,335		22,916		887,184
Goodwill	142,120	39,752		—		15,566		197,438
Investments in subsidiaries	292,438	136,629		131,082		(560,149	)	—
Other assets	31,032	41,839		976		(42,904	)	30,943

	1,402,368	395,377		236,862		(595,611	)	1,438,996

Liabilities and Shareholders' Equity
Excess of outstanding cheques over bank balances	15,229	—		4,183		(718	)	18,694
Trade accounts payable and accrued liabilities	106,593	35,398		26,406		(26,022	)	142,375
Income and other taxes payable	5,300	40		—		(3,395	)	1,945
Current portion of long-term debt	—	305		1,977		(1,140	)	1,142

	127,122	35,743		32,566		(31,275	)	164,156
Long-term debt	384,457	135,932		24,346		(192,277	)	352,458
Future income taxes	126,369	13,736		5,509		8,748		154,362
Other liabilities	35,433	2,543		1,081		(24	)	39,033
Shareholders' Equity
Capital Stock	560,000	201,118		161,944		(363,062	)	560,000
Contributed Surplus	341	—		—		—		341
Retained Earnings	166,517	31,389		36,090		(67,479	)	166,517
Cumulative translation adjustements	2,129	(25,084	)	(24,674	)	49,758		2,129

	728,987	207,423		173,360		(380,783	)	728,987

	1,402,368	395,377		236,862		(595,611	)	1,438,996

F-49

a): Condensed consolidating balance sheets . . . continued

	Balance Sheet as at December 31, 2002
	Parent Company $	Guarantor Subsidiaries $	Non-guarantor Subsidiaries $	Elimination adjustments $		Consolidated $
Assets
Current assets
Cash and cash equivalents	2,414	16,283	7,240	(190	)	25,747
Accounts receivable and prepaid expenses	156,875	32,063	29,170	(33,284	)	184,824
Inventories	97,421	23,350	9,872	(52	)	130,591

	256,710	71,696	46,282	(33,526	)	341,162
Property, plant and equipment	689,955	135,724	75,248	24,954		925,881
Goodwill	142,235	44,998	—	15,356		202,589
Investments in subsidiaries	310,406	207,540	150,518	(668,464	)	—
Other assets	24,796	—	1,424	(375	)	25,845

	1,424,102	459,958	273,472	(662,055	)	1,495,477

Liabilities and Shareholders' Equity
Excess of outstanding cheques over bank balances	6,753	3,120	225	(237	)	9,861
Trade accounts payable and accrued liabilities	123,726	38,826	36,768	(32,918	)	166,402
Income and other taxes payable	9,470	120	340	(147	)	9,783
Current portion of long-term debt	20,000	1,944	18,899	(426	)	40,417

	159,949	44,010	56,232	(33,728	)	226,463
Long-term debt	387,440	156,975	14,292	(201,096	)	357,611
Future income taxes	111,970	15,916	5,842	9,231		142,959
Other liabilities	33,135	2,815	983	(97	)	36,836
Shareholders' Equity
Capital Stock	560,000	212,729	162,034	(374,763	)	560,000
Contributed Surplus	136	—	—	—		136
Retained Earnings	163,591	22,830	30,143	(52,973	)	163,591
Cumulative translation adjustments	7,881	4,683	3,946	(8,629	)	7,881

	731,608	240,242	196,123	(436,365	)	731,608

	1,424,102	459,958	273,472	(662,055	)	1,495,477

F-50

b): Condensed consolidating statements of retained earnings

	Statement of Retained Earnings For the year ended December 31, 2003
	Parent Company $		Guarantor Subsidiaries $		Non-guarantor Subsidiaries $	Elimination adjustements $		Consolidated $
Balance, beginning of year	163,591		22,830		30,143	(52,973	)	163,591
Net income for the period	30,926		8,759		5,947	(14,706	)	30,926
Dividend paid during the period	(28,000	)	(200	)	—	200		(28,000	)

Balance, end of year	166,517		31,389		36,090	(67,479	)	166,517

	Statement of Retained Earnings For the year ended December 31, 2002
	Parent Company $		Guarantor Subsidiaries $		Non-guarantor Subsidiaries $	Elimination adjustments $		Consolidated $
Balance, beginning of year	127,045		9,054		20,737	(29,791	)	127,045
Net income for the year	68,546		13,898		9,406	(23,304	)	68,546
Dividend paid during the year	(32,000	)	(122	)	—	122		(32,000	)

Balance, end of year	163,591		22,830		30,143	(52,973	)	163,591

	Statement of Retained Earnings For the year ended December 31, 2001
	Parent Company $		Guarantor Subsidiaries $		Non-guarantor Subsidiaries $	Elimination adjustments $		Consolidated $
Balance, beginning of year	97,446		15,751		11,808	(27,559	)	97,446
Net income for the year	69,599		12,365		3,998	(16,363	)	69,599
Dividend paid during the year	(40,000	)	(207	)	—	207		(40,000	)
Capitalization of Retained Earnings	—		(16,819	)	—	16,819		—

Balance, end of year	127,045		11,090		15,806	(26,896	)	127,045

F-51

c): Condensed consolidating statements of income

	Statement of Income For the year ended December 31, 2003
	Parent Company $		Guarantor Subsidiaries $		Non-guarantor Subsidiaries $		Elimination adjustements $		Consolidated $
Sales	986,652		237,861		139,080		(104,959	)	1,258,634
Cost of delivery	(79,036	)	(17,663	)	(7,098	)	—		(103,797	)

Net Sales	907,616		220,198		131,982		(104,959	)	1,154,837

Cost of goods sold and expenses
Cost of goods sold	661,561		174,278		115,861		(103,025	)	848,675
Selling and administration expenses	105,617		30,476		11,557		(931	)	146,719
Depreciation and amortization	56,003		9,954		6,089		2,002		74,048

	823,181		214,708		133,507		(101,954	)	1,069,442

Operating income	84,435		5,490		(1,525	)	(3,005	)	85,395
Financial expenses	6,275		6,016		(8,081	)	9,143		13,353

	78,160		(526	)	6,556		(12,148	)	72,042
Unusual Item	19,854		—		—		—		19,854

	58,306		(526	)	6,556		(12,148	)	52,188
Income tax expense	21,918		(427	)	609		(675	)	21,425

	36,388		(99	)	5,947		(11,473	)	30,763
Share of income of equity-accounted investments	(5,462	)	8,858		—		(3,233	)	163

Net Income for the year	30,926		8,759		5,947		(14,706	)	30,926

F-52

c): Condensed consolidating statements of income . . . continued

	Statement of Income For the year ended December 31, 2002
	Parent Company $		Guarantor Subsidiaries $		Non-guarantor Subsidiaries $		Elimination adjustments $		Consolidated $
Sales	1,023,830		267,060		132,126		(107,894	)	1,315,122
Cost of delivery	(77,677	)	(15,618	)	(6,264	)	—		(99,559	)

Net Sales	946,153		251,442		125,862		(107,894	)	1,215,563

Cost of goods sold and expenses
Cost of goods sold	661,836		194,048		106,560		(107,699	)	854,745
Selling and administration expenses	107,313		32,580		9,796		(496	)	149,193
Depreciation and amortization	54,616		10,097		6,416		1,909		73,038

	823,765		236,725		122,772		(106,286	)	1,076,976

Operating income	122,388		14,717		3,090		(1,608	)	138,587
Financial expenses	38,701		6,173		(8,057	)	—		36,817

	83,687		8,544		11,147		(1,608	)	101,770
Income tax expense	28,831		3,817		1,741		(876	)	33,513

	54,856		4,727		9,406		(732	)	68,257
Share of income of equity-accounted investments	13,690		9,171		—		(22,572	)	289

Net Income for the year	68,546		13,898		9,406		(23,304	)	68,546

F-53

c): Condensed consolidating statements of income . . . continued

	Statement of Income For the year ended December 31, 2001
	Parent Company $		Guarantor Subsidiaries $		Non-guarantor Subsidiaries $		Elimination adjustments $		Consolidated $
Sales	1,015,550		208,343		67,921		(102,833	)	1,188,981
Cost of delivery	(72,053	)	(12,159	)	(3,816	)	86		(87,942	)

Net Sales	943,497		196,184		64,105		(102,747	)	1,101,039

Cost of goods sold and expenses
Cost of goods sold	650,833		153,294		53,159		(103,335	)	753,951
Selling and administration expenses	102,764		18,212		4,245		(949	)	124,272
Depreciation and amortization	58,516		7,275		3,006		2,304		71,101

	812,113		178,781		60,410		(101,980	)	949,324

Operating income	131,384		17,403		3,695		(767	)	151,715
Financial expenses	45,987		3,102		(3,252	)	(4	)	45,833

	85,397		14,301		6,947		(763	)	105,882
Income tax expense	29,626		5,797		2,949		(1,309	)	37,063

	55,771		8,504		3,998		546		68,819
Share of income of equity-accounted investments	13,828		3,861		—		(16,909	)	780

Net Income for the year	69,599		12,365		3,998		(16,363	)	69,599

F-54

d): Condensed consolidating statements of cash flows

		Statement of Cash Flows For the year ended December 31, 2003
		Parent Company $		Guarantor Subsidiaries $		Non-guarantor Subsidiaries $		Elimination adjustements $		Consolidated $
Cash flow from:
Operating activities
Net income for the year		30,926		8,759		5,947		(14,706	)	30,926
Adjustments for:
	Depreciation and amortization	56,003		9,954		6,089		2,002		74,048
	Future income taxes	8,016		63		(222	)	(783	)	7,074
	Loss (gain) on investment	383						(383	)	—
	Loss (gain) on disposal of property, plant and equipment	—		—		(4	)	383		379
	Unrealized exchange loss (gain) on long-term debt	(28,122	)	—		—		9,144		(18,978	)
	Share of income of equity-accounted investments	5,462		(8,858	)	—		3,396		—
	Other	3,178		(1,999	)	1,339		68		2,586
	Unusal items	19,854		—		—		—		19,854

Cash flow from operating activities		95,700		7,919		13,149		(879	)	115,889
Change in non-cash working capital components		(31,866	)	(1,528	)	(3,760	)	12,198		(24,956	)

		63,834		6,391		9,389		11,319		90,933

Financing activities
Change in revolving bank credit facility		—		(1,009	)	(15,003	)	(225	)	(16,237	)
Increase in long-term debt		—		—		2,070		(338	)	1,732
Issuance of Senior Notes		346,650		7,983		16,631		(24,614	)	346,650
Repayments of long-term debt		(307,990	)	(321	)	(526	)	337		(308,500	)
Costs related to refinancing of long-term debt		(11,028	)	—		—		—		(11,028	)
Premium paid on redeption of unsecured senior notes		(14,345	)	—		—		—		(14,345	)
Additions to contributed capital of subsidiaries		—		2,759		—		(2,759	)	—
Change in excess of outstanding cheques over bank balances		8,476		—		4,183		(3,825	)	8,834
Dividend paid		(28,000	)	(200	)	—		200		(28,000	)

		(6,237	)	9,212		7,355		(31,224	)	(20,894	)

Investing activities
Business acquisitions, net of cash and cash equivalents acquired		(673	)	(20,428	)	—		—		(21,101	)
Increase in Investment in Subsidaries		(12,331	)	—		(8,472	)	20,803		—
Additions to property, plant and equipment, net		(44,052	)	(5,909	)	(8,538	)	14		(58,485	)
Other assets, net		(1,347	)	—		28		272		(1,047	)

		(58,403	)	(26,337	)	(16,982	)	21,089		(80,633	)

Change in cash and cash equivalents during the year		(806	)	(10,734	)	(238	)	1,184		(10,594	)
Translation adjustments with respect to cash and cash equivalents		—		(993	)	(1,337	)	(537	)	(2,867	)
Cash and cash equivalents, beginning of year		2,414		17,821		7,015		(1,503	)	25,747

Cash and cash equivalents, end of year		1,608		6,094		5,440		(856	)	12,286

F-55

d): Condensed consolidating statements of cash flows . . . continued

		Statement of Cash Flows For the year ended December 31, 2002
		Parent Company $		Guarantor Subsidiaries $		Non-guarantor Subsidiaries $		Elimination adjustments $		Consolidated $
Cash flow from:
Operating activities
Net income for the year		68,546		13,898		9,406		(23,304	)	68,546
Adjustments for:
	Depreciation and amortization	54,616		10,097		6,416		1,909		73,038
	Future income taxes	5,541		868		(315	)	(792	)	5,302
	Loss (gain) on disposal of property, plant and equipment	220		396		583		500		1,699
	Unrealized exchange loss (gain) on long-term debt	(520	)	—		—		—		(520	)
	Share of income of equity-accounted investments	(13,690	)	(9,171	)	—		22,572		(289	)
	Other	2,126		1,509		252		(622	)	3,265

Cash flow from operating activities		116,839		17,597		16,342		263		151,041
Change in non-cash working capital components		(4,282	)	(2,650	)	2,082		854		(3,996	)

		112,557		14,947		18,424		1,117		147,045

Financing activities
Change in revolving bank credit facility		20,000		1,234		(2,416	)	—		18,818
Increase in long-term debt		—		35,189		889		(35,189	)	889
Repayments of long-term debt		—		(2,240	)	(1,217	)	1,882		(1,575	)
Additions to contributed capital in subsidiaries		—		39,344		24,289		(63,633	)	—
Change in excess of outstanding cheques over bank balances		(17,917	)	3,120		(50	)	4,779		(10,068	)
Dividend paid		(32,000	)	(122	)	—		122		(32,000	)

		(29,917	)	76,525		21,495		(92,039	)	(23,936	)

Investing activities
Business acquisitions, net of cash and cash equivalents acquired		—		(52,013	)	(2,369	)	—		(54,382	)
Increase in Investment in Subsidiaries		(42,080	)	(24,181	)	(30,124	)	96,385		—
Additions to property, plant and equipment, net		(47,359	)	(6,179	)	(3,264	)	2		(56,800	)
Other assets, net		1,270		188		4		—		1,462

		(88,169	)	(82,185	)	(35,753	)	96,387		(109,720	)

Change in cash and cash equivalents during the year		(5,529	)	9,287		4,166		5,465		13,389
Translation adjustments with respect to cash and cash equivalents		—		24		188		—		212
Cash and cash equivalents, beginning of year		7,943		6,972		2,886		(5,655	)	12,146

Cash and cash equivalents, end of year		2,414		16,283		7,240		(190	)	25,747

F-56

d): Condensed consolidating statements of cash flows . . . continued

		Statement of Cash Flows For the year ended December 31, 2001
		Parent Company $		Guarantor Subsidiaries $		Non-guarantor Subsidiaries $		Elimination adjustments $		Consolidated $
Cash flow from:
Operating activities
Net income for the year		69,599		12,365		3,998		(16,363	)	69,599
Adjustments for:
	Depreciation and amortization	58,516		7,275		3,006		2,304		71,101
	Future income taxes	4,014		3,431		2,832		(1,635	)	8,642
	Loss (gain) on disposal of property, plant and equipment	961		(23	)	—		1		939
	Unrealized exchange loss (gain) on long-term debt	13,861		—		—		—		13,861
	Share of income of equity-accounted investments	(13,828	)	(3,861	)	—		16,909		(780	)
	Other	1,174		(253	)	(643	)	(215	)	63

Cash flow from operating activities		134,297		18,934		9,193		1,001		163,425
Change in non-cash working capital components		6,610		8,805		2,470		(4,106	)	13,779

		140,907		27,739		11,663		(3,105	)	177,204

Financing activities
Change in revolving bank credit facility		—		—		(2,001	)	—		(2,001	)
Increase in long-term debt		50,500		30,769		—		(81,269	)	—
Repayments of long-term debt		—		(7,389	)	—		7,045		(344	)
Additions to contributed capital in subsidiaries		—		190,849		78,860		(269,709	)	—
Change in excess of outstanding cheques over bank balances		25,355		—		(417	)	(5,701	)	19,237
Dividend paid		(40,000	)	(207	)	—		207		(40,000	)

		35,855		214,022		76,442		(349,427	)	(23,108	)

Investing activities
Business acquisitions, net of cash and cash equivalents acquired		(433	)	(92,895	)	—		—		(93,328	)
Increase in Investment in Subsidiaries		(134,812	)	(79,713	)	(80,055	)	294,580		—
Intercompany loan to parent		—		(49,525	)	—		49,525		—
Additions to property, plant and equipment, net		(70,945	)	(10,749	)	(4,393	)	3,468		(82,619	)
Other assets, net		(2,335	)	(89	)	(906	)	(696	)	(4,026	)

		(208,525	)	(232,971	)	(85,354	)	346,877		(179,973	)

Change in cash and cash equivalents during the year		(31,763	)	8,790		2,751		(5,655	)	(25,877	)
Translation adjustments with respect to cash and cash equivalents		—		164		(199	)	—		(35	)
Cash and cash equivalents, beginning of year		34,512		3,212		334		—		38,058

Cash and cash equivalents, end of year		2,749		12,166		2,886		(5,655	)	12,146

As disclosed in note 23, the consolidated financial statements of the Company have been prepared in accordance with Canadian GAAP. The supplemental condensed consolidating financial information have also been prepared in accordance with Canadian GAAP which differs in certain respects from US GAAP. There are no material differences as they relate to the Guarantor Subsidiaries.

F-57

PricewaterhouseCoopers LLP
Chartered Accountants
1250 René-Lévesque Boulevard West
Suite 2800
Montréal, Quebec
Canada H3B 2G4
Telephone +1 514 205 5000
Facsimile +1 514 876 1502

Independent Auditors' Report on Financial Statement Schedule

To the Board of Directors of
Norampac Inc.

Our audits on the consolidated financial statements referred to in our report dated February 23, 2004 appearing on page F-2 of this Form 20-F also included an audit of the financial statement schedule appearing on page F-59 of this Form 20-F. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.

Chartered Accountants
Montréal, Quebec
February 23, 2004

F-58

Norampac Inc.

Schedule II—Valuation and Qualifying Accounts and Reserves
(in thousands of Canadian dollars, unless otherwise noted)

	2003
Description	Balance- Beginning of period	Additions charged to expenses		Deductions		Balance- End of period
Allowance for doubtful accounts	5,087	2,955		(2,354	)	5,688
Valuation allowance for tax purposes	8,247	533	(1)	(1,799	)(2)	6,981

	2002
Description	Balance- Beginning of period	Additions charged to expenses		Deductions		Balance- End of period
Allowance for doubtful accounts	5,950	1,703		(2,566	)	5,087
Valuation allowance for tax purposes	6,141	2,106	(1)	—		8,247

(1): The increase in the valuation allowance for tax purposes is detailed as follows:

	2003		2002
Unrecognized tax benefit arising from current losses of subsidiaries	896		534
Unrecognized tax benefit arising from investment tax credits	485		1,963
Change in unrecognized tax benefit arising from exchange loss on long-term debt	(848	)	(391	)

	533		2,106

(2): The decrease in the valuation allowance for tax purposes is detailed as follows:

	2003		2002
Unrecognized tax benefit arising from current losses of subsidiaries	—		—
Unrecognized tax benefit arising from investment tax credits	531		—
Change in unrecognized tax benefit arising from exchange loss on long-term debt	(2,330	)	—

	(1,799	)	—

F-59

EXHIBIT INDEX

Exhibit 31.1		Certification of the President and Chief Executive Officer required by Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended.
Exhibit 31.2		Certification of the Vice President and Chief Financial Officer required by Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended.
Exhibit 32.1		Certification of the President and Chief Executive Officer and the Vice President and Chief Financial Officer required by Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended, and 18 U.S.C. ss 1350.

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