Tembec Financial Report 2015 En

8/17/2019 Tembec Financial Report 2015 En

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Rooted in tomorrow.

2015F i n a n c i a l R e p or t


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The covers are printed on 10pt. FSC-certified Kallima® Coated Cover C2S,

manufactured by Tembec’s Temiscaming, Quebec, coated bleached board mill.

Tembec Inc.

© 2015 All rights reserved

Printed in Canada

Tembec Financial Report 2015

1 Message to Shareholders

3 Management’s Discussion and Analysis

48 Management Responsibility

49 Independent Auditors’ Report

50 Consolidated Financial Statements

95 Directors and Officers

96 Shareholder Information

Appendix Sustainability Report Summary


3/103

1Tembec Financial Report

Temiscaming Energy Project

TheCompanycompletedthemillionenergyprojectinearly

fiscalandstartedtheunitinJanuaryTheHydro-Québec

commercial-in-servicetestwascompletedveryquicklyin

thefirstmonthofoperationwhichqualifiedtheCompanyto

receivethecontractedpaymentrateforelectricityproduced

Theoverallstart-upandoptimizationoftheboilerturbineand

relatedequipmentcontinuedthroughoutthebalanceofthe

fiscalyear

Theenergyprojectwillprovidebenefitsinthreeareas

Reductioninenergycosts

Pulpmill productivityimprovements

Reductioninoperatingcosts

Wearepleasedtoreportthatthesebenefitsarenowbeing

achievedandwillsignificantlyimpactthefinancialresultsofthe

SpecialtyCellulosePulpsegmentgoingforward

Forest Products

TheslowandsteadyincreaseinUShousingstartscontinued

inandthistrendisexpectedtocontinueagainin

WhileUShousingstartsaresolidlyabovemillionunitsper

yeartheyremainfarbelowthelong-termtrendofmillion

peryearLumberpriceimprovementshavebeenmuteddespite

thegrowthinNorthAmericandemandduetoproduction

increasesthroughoutthecontinentTheprofitabilityofthis

businessisexpectedtocontinuetoimproveastheanticipated

increaseindemandtranslatesintohighersellingprices

TheSoftwoodLumberAgreement(SLA)betweenCanadaand

theUnitedStatesexpiredonOctoberTheSLAprovided

foraone-yearstandstillperiodthatpreventstheUnitedStates

frominitiatingnewtradeactionsagainstCanadaTheCompany

expectsthatthetwogovernmentswillengageinnegotiationsin

todevelopareplacementfortheexpiredagreement

Message to Shareholders

Fiscal was a challenging year for the Company Certain internal issues negatively affected financial results in

addition to adverse market conditions in certain segments Despite these challenges the Company did experiencepositive tailwinds in the final quarter of the year that should carry over into fiscal

Tembec’s journey towards world-class health and safety performance continued The OSHA Incident Rate (OIR)

did not improve in However substantial improvements were achieved in the lost time incident rate and total

severity rate Simply put the types of safety incidents that occurred were much less severe than in previous years

The Company will continue its journey to become a world-class health and safety organization and strive to eliminate

all incidents and injuries

The drop in adjusted EBITDA in from the previous year was disappointing and unexpected The Specialty

Cellulose Pulp segment was the primary cause of the lower profitability A combination of operating factors andmarket issues caused results for this business to be below expectations Lumber prices were also below the Company’s

forecast and impacted the fiscal results


4/103

2 Tembec Financial Report

JAMESMLOPEZ JAMESVCONTINENZA

PresidentandChiefExecutiveOfficer ExecutiveChairmanoftheBoard

Message to Shareholders

Specialty Cellulose

TheSpecialtyCellulosePulpsegmentexperiencedadeclinein

profitabilityduetotwoyearsofUSdollarandeuropricedeclines

inbothspecialtyandcommoditygradesAdditionallyoperatingperformancewaspoorinTemiscamingduetoan-daylabour

stoppageandanextendedannualmaintenanceoutage

Thespecialtygrademarketssufferedfromsurpluscapacity

broughtonbyacompetitor’sconversionofafluffpulpmillto

producespecialtygradesThiscreatedaverycompetitivemarket

situationandanintensecompetitionformarketshareInthe

secondhalfofcalendarthiscompetitorannouncedthat

theadditionalspecialtycapacitywasbeingconvertedbackto

producefluffpulpandcommodityviscosepulpTheCompany

anticipatesthatthiscapacitychangeshouldre-balancethe

marketandmitigatetheneedforfurtherpricedeclines

Thecommodityviscosepulpmarketsbottomedoutinearly

calendarandpriceshaveimprovedinthesecondhalfofthe

calendaryearThefundamentalsfortheviscosefibremarkethave

improvedleadingtobetterdemandandprices

Paper Pulp

DemandfortheCompany’shigh-yieldpulpdeclinedinfiscal

Whilethedemandforpaperwasdowninmostmarketsleading

toademanddeclineforpaperpulpthiswasmostprevalentin

Chinawherethepaperandpackagingbusinessisoverbuiltfor

thedomesticdemandOurcustomers’millstooksignificant

downtimetoreducetheirinventoriestherebyreducingtheir

ordersforhigh-yieldpulpItisexpectedthatdemandandprices

willbeginaslowrecoveryincalendar

Paper

ThePapersegmentoperatesinthecoatedbleachedboard

marketandthenewsprintmarketThecoatedbleachedboard

demandandUSdollarpriceswerestableinfiscalleadingtogoodprofitabilityinthisbusinessAdditionalcompetitioninthe

NorthAmericanmarketsfromEuropeanproducersinhas

beguntoputpressureonUSdollarsellingpricesThereisthe

potentialforpriceweaknessinfiscalHoweverthebusiness

isstillexpectedtobeveryprofitable

Thenewsprintsectorcontinuestobeaffectedbyastructural

declineindemandwhichhasputdownwardpressureon

USdollarpricesTheweakeningoftheCanadiandollarhas

mitigatedmuchoftheUSdollarpricedeclinegivingmillsin

thiscountryacompetitiveadvantageHoweverprofitability

throughoutthesectorisexpectedtoremainpoorTheCompany’snewsprintfacilityhasarelativelylowcostpositionandshould

bemodestlyprofitable

General

TheCompanyisexperiencingsometailwindsthatshouldleadto

ayear-over-yearimprovementinprofitabilityThenewenergy

projectinTemiscamingwillgenerateadditionaladjustedEBITDA

Aswelloperatingperformanceandproductivityisexpectedto

improveandexternalvariablessuchasforeignexchangerates

andsellingpriceswilllikelycontributetoimprovedfinancial

performance


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TheMD&Aincludes“forward-lookingstatements”withinthemeaningofsecuritieslawsSuchstatementsrelatewithout

limitationtotheCompany’sormanagement’sobjectives

projectionsestimatesexpectationsorpredictionsofthefuture

andcanbeidentifiedbywordssuchas“may”“will”“could”

“anticipate”“estimate”“expect”and“project”thenegativeor

variationsthereofandexpressionsofsimilarnatureForward-

lookingstatementsarebasedoncertainassumptionsand

analysesmadebytheCompanyinlightofitsexperience

informationavailabletoitanditsperceptionoffuture

developmentsSuchstatementsaresubjecttoanumberofrisks

anduncertaintiesincludingbutnotlimitedtochangesinforeign

exchangeratesproductsellingpricesrawmaterialandoperating

costsandotherfactorsidentifiedintheCompany’speriodicfilings

withsecuritiesregulatoryauthoritiesincludingunderthe“risk

factors”sectionoftheCompany’smostrecentAnnualInformation

FormManyoftheserisksarebeyondthecontroloftheCompany

andthereforemaycauseactualactionsorresultstomaterially

differfromthoseexpressedorimpliedhereinTheforward-

lookingstatementscontainedhereinreflecttheCompany’s

expectationsasofthedatehereofandaresubjecttochangeafter

suchdateTheCompanydisclaimsanyintentiontoupdateor

reviseanyforward-lookingstatementswhetherasaresultofnew

informationfutureeventsorotherwiseunlessrequiredbyapplicablesecuritieslegislationTheinformationinthisMD&Ais

asatNovemberDisclosurecontainedinthisdocument

iscurrenttothatdateunlessotherwisestated

ThroughouttheMD&A“Tembec”or“Company”meansTembecInc

anditsconsolidatedsubsidiariesTembec’soperationsconsistof

fivereportablebusinesssegmentsForestProductsSpecialty

CellulosePulpPaperPulpPaperandCorporateOnSeptember

theCompanyhadapproximatelyemployeesas

comparedtoattheendofthepriorfiscalyearTheCompany

operatesmanufacturingfacilitiesinQuebecOntariothestateof

OhioaswellasinSouthernFrancePrincipalfacilitiesare

describedinsubsequentsectionsoftheMD&A

Management’s Discussion and AnalysisasatNovember

The Management’s Discussion and Analysis (MD&A) section provides a review of the significant developments andissues that influenced Tembec Inc’s financial performance during the fiscal year ended September as

compared to the fiscal year ended September The MD&A should be read in conjunction with the audited

consolidated financial statements for the fiscal year ended September Financial data has been prepared

in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting

Standards Board (IASB) All financial references are stated in Canadian dollars unless otherwise noted All references

to quarterly information relate to Tembec’s fiscal quarters Adjusted EBITDA net debt to total capitalization free

cash flow and certain other financial measures utilized in the MD&A are non-IFRS financial measures As they have

no standardized meaning prescribed by IFRS they may not be comparable to similar measures presented by other

companies Non-IFRS financial measures are described in the section “Use of non-IFRS financial measures”


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Management’s Discussion and Analysis


vs

Financial summary

(inmillionsofdollarsunlessotherwisenoted)

Sales

Freightandotherdeductions

Lumberexporttaxes –

Costofsales(excludingdepreciationandamortization)

SG&A

Share-basedcompensation ()

AdjustedEBITDA

Depreciationandamortization

Otheritems () ()

Operatingearnings

Interestforeignexchangeandother

Lossonrefinancingoflong-termdebt –

Exchangelossonlong-termdebt

Earnings(loss)beforeincometaxes ()

Incometaxexpense

Netearnings(loss) ()

Basicanddilutednetearnings(loss)indollarspershare ()

Totalcomprehensiveloss () ()

Totalassets(atyear-end)

Totallong-termdebt(atyear-end)() Totallong-termliabilities(atyear-end)

()Includescurrentportion


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0

500

1,000

1,500

2,000

20152014201320122011

Consolidated sales

(in millions of dollars)

1,743 1,666 1,534 1,491 1,418

17 67 6 21 12 21 13 38

0

25

50

75

100

Adjusted EBITDA by segment


20152014

Forest Products

Specialty Cellulose Pulp

Forest Products


Forest Products


Paper Pulp

Paper

Paper Pulp

Paper

Paper Pulp

Paper

Financial performance

0

50

100

150

201520142013201220110%

5%

10%

15%

98 64 97 90 70

Fiscal 2011 and 2012 results are not restated for IAS 19Fiscal 2011 and 2012 results are not restated for IAS 19Fiscal 2011 and 2012 results are not restated for IAS 19

Adjusted EBITDA $ millions (left scale)

Adjusted EBITDA % sales (right scale)





Forest Products


Forest Products


Forest Products


Paper Pulp

Paper

Paper Pulp

Paper

Paper Pulp

Paper

Consolidated sales by segment


339

281

503

368

337

272

434

375

2014 2015


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SalesdecreasedbymillionfromtheprioryearCurrencywas

apositivefactorastheCanadiandollaraveragedUSan

decreasefromUSintheprioryearForestProductssegmentsalesincreasedbymillionasaresultofhigherprices

SpecialtyCellulosePulpsegmentsalesdecreasedbymillion

duetolowershipmentsandpricesPaperPulpsegmentsales

declinedbymillionduetolowershipmentsPapersegment

salesdeclinedbymillionduetolowershipmentslargelyoffset

byhigherprices

IntermsofgeographicaldistributiontheUSremainedthe

Company’sprincipalmarketwithofconsolidatedsales

infiscalunchangedfromtheprioryearCanadiansalesrepresentedofsalescomparedtointheprioryearSales

outsideoftheUSandCanadarepresentedtheremainingin

fiscalascomparedtoayearago

AdjustedEBITDAdecreasedbymillionfromtheprior

yearForestProductssegmentadjustedEBITDAdecreasedby

millionduetohighercostspartiallyoffsetbyhigherprices

SpecialtyCellulosePulpsegmentadjustedEBITDAdeclined

bymillionduetohighercostsandlowerpricesPaper

PulpsegmentadjustedEBITDAincreasedbymilliondueto

higherpricesandlowercostsPapersegmentadjustedEBITDA

increasedbymillionduetohigherpricespartiallyoffsetby

highercostsThedeclineinCorporatesegmentcostswasdue

primarilytoamillionreductioninshare-basedcompensation

Adjusted EBITDA

Total Price Cost&(inmillionsofdollars) variance variance volumevariance

ForestProducts () ()

SpecialtyCellulosePulp () () ()

PaperPulp

Paper ()

Corporate () () –

() ()

Sales

Total Price Volume&(inmillionsofdollars) variance variance mixvariance

ForestProducts ()

SpecialtyCellulosePulp () () ()

PaperPulp () ()

Paper () ()

Corporate () – ()

() ()

Lessintersegmentsales () ()

Sales ()


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TheCompanygeneratedoperatingearningsofmillion

comparedtooperatingearningsofmillioninfiscal

TheForestProductssegmentgeneratedoperatingearningsofmillionascomparedtooperatingearningsofmillionin

theprioryearThepreviouslynoteddecreaseinadjustedEBITDA

ledtothedeclineinoperatingresultspartiallyoffsetbylower

depreciationandamortizationexpenseTheprioryearresults

includedanassetimpairmentchargeofmillionthatwas

reversedinfiscal

TheSpecialtyCellulosePulpsegmentgeneratedanoperatingloss

ofmillionascomparedtooperatingearningsofmillionin

theprioryearThepreviouslynoteddeclineinadjustedEBITDA

reducedoperatingresultsDepreciationexpenseincreasedby

millionastheCompanybegandepreciatingthenewboilerand

turbineattheTemiscamingspecialtycellulosemillinFebruary

ThePaperPulpsegmentgeneratedoperatingearningsof

millioncomparedtoanoperatinglossofmillionintheprior

yearThepreviouslynotedincreaseinadjustedEBITDAledtothe

improvementinoperatingresults

ThePapersegmentgeneratedoperatingearningsofmillion

ascomparedtooperatingearningsofmillionintheprior

yearTheincreaseinadjustedEBITDAledtothehigheroperating

profitability

Corporatesegmentresultsdeclinedbymillionprimarilydue

to“Otheritems”whichmorethanoffsetthepreviouslynoted

improvementinadjustedEBITDATheprioryearresultsincluded

againofmillionrelatingtolandsales

Amoredetailedanalysisofsegmentvariancesisincludedinthe

analysisthatfollows

Operating earnings (loss)

Adjusted Other

Total EBITDA Depreciation items

(inmillionsofdollars) variance variance variance variance

ForestProducts () () –SpecialtyCellulosePulp () () () () –

PaperPulp () – –

Paper () –

Corporate () () – ()

() () () ()


10/103



Segment review – vs

Forest Products

(inmillionsofdollars)

Sales()


Lumberexporttaxes –

Costofsales

SG&A

AdjustedEBITDA

AdjustedEBITDAmarginonsales


Operatingearnings

Identifiableassets

()Includesintersegmentsaleseliminatedonconsolidation

TheForestProductssegmentisdividedintotwomainareas

ofactivityforestresourcemanagementandmanufacturing

operations

TheForestResourceManagementgroupisresponsiblefor

managingalloftheCompany’sCanadianforestryoperationsThis

includestheharvestingoftimbereitherdirectlyorbycontractual

agreementsandsilvicultureandregenerationworkrequired

toensureasustainablesupplyforthemanufacturingunits

Thegroupisalsoresponsibleforthirdpartytimberpurchases

whichareneededtosupplementtotalrequirementsThegroup’s

mainobjectiveistheoptimizationoftheflowoftimberinto

variousmanufacturingunitsAstheCompany’sforestactivity

inCanadaisconductedprimarilyonCrownlandstheForest

ResourceManagementgroupworkscloselywithprovincial

governmentstoensureharvestingplansandoperationscomply

withestablishedregulationsandthatstumpagechargedbythe

provincesisreasonableandreflectsthefairvalueofthetimber

beingharvestedDuringfiscaltheCompany’soperations

harvestedanddeliveredmillioncubicmetresoftimber

comparedtomillioncubicmetresintheprioryearAdditional

supplyofapproximatelymillioncubicmetreswassecured

mainlythroughpurchasesandexchangeswiththirdparties

unchangedfromtheprioryear

TheForestProductssegmentincludesoperationslocatedin

QuebecandOntarioTheSPFlumberoperationscanproduce

approximatelymillionboardfeetoflumberThespecialty

woodoperationscanannuallyproducemillionboardfeetof

hardwoodlumberTheCompany’sengineeredwoodoperations

consistofafingerjointlumberplantwhichwasidleforallof

fiscalandfiscal


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Thefollowingsummarizesthecurrentannualcapacityofeachfacilitybyproductgroup

SPF lumber mbf

Studlumber–LaSarreQC

Studlumber–SenneterreQC

Studlumber–CochraneON

Studlumber–KapuskasingON

Randomlumber–BéarnQC

Randomlumber–ChapleauON

Randomlumber–HearstON

Specialty wood mbf

Hardwoodlumber–HuntsvilleON

Engineered wood mbf

Engineeredfingerjointlumber–LaSarreQC

ThesegmentisdominatedbySPFlumberwhichrepresented

ofbuildingmaterialsalesinfiscalunchangedfromthe

prioryearThevolumeofSPFlumbersoldinfiscalincreased

bymillionboardfeetorTheshipmenttocapacityratio

wasinfiscalcomparedtointheprioryearMarket

conditionsforlumberweresimilaryear-over-year

Specialtywoodrepresentedofbuildingmaterialsalesin

fiscalunchangedfromtheprioryearPricesdecreasedby

permbfor

Therewerenoengineeredwoodsalesinfiscaland

Thefingerjointfacilitywasidleforalloffiscaland

fiscal

TheSPFsawmillsproducedandshippedtonnesofwood

chipsinfiscalofwhichweredirectedtotheCompany’s

pulpandpaperoperationsInthesawmillsproduced

tonnesandshippedofthisvolumetotheCompany’s

pulpandpapermillsTheinternaltransferpriceofwoodchipsis

basedoncomparablearms-lengthtransactions

Totalsalesforthissegmentreachedmillionanincreaseof

millionovertheprioryearAftereliminatinginternalsalesthe

ForestProductssegmentgeneratedofCompanyconsolidated

salesupfromintheprioryearThesegment’smainmarket

isNorthAmericawhichrepresentedofconsolidatedsalesin

fiscalunchangedfromtheprioryear


12/103



Sales Shipments Sellingprices

(millions) (units) (unit)

SPF lumber (mbf)

Specialty wood Hardwood(mbf)

Total building materials

Woodchips(bonedrytonnes)

Logsandby-products

Total sales

Internalwoodchipsandothersales () ()

Consolidated sales

Markets

TheCompanymarketsitslumberwithitsowninternalsalesforce

ThebenchmarkrandomlengthEasternSPFaveragelumberprice

(andbetterdeliveredGreatLakes)decreasedfromUSper

mbfinfiscaltoUSpermbfinfiscalThereference

priceforstudlumberdecreasedaswellwiththeEasternaverage

lumberprice(deliveredGreatLakes)downfromUSper

mbftoUSpermbfThepricegapbetweenthetwogrades

narrowedasexpectedCurrencywasfavourableastheCanadian

dollaraveragedUSandeclinefromUSin

theprioryearAsaresulttheaveragesellingpriceofSPFlumber

increasedbyapproximatelypermbfHousingstartsinthe

USonaseasonallyadjustedbasisaveragedunitsinfiscalaincreaseovertheunitsinfiscal

Howevertheseremainbelowthemilliontomillionaverage

thatwouldbeindicativeofnormalmarketconditionsHousing

startsinCanadaonaseasonallyadjustedbasisaveraged

unitsthesamelevelasintheprioryearDuringfiscal

theCompanyshippedmbforofitsvolumeinto

theUSmarketThebalanceofmbforofits

volumewassoldinCanadaIntheprioryeartheCompanyhad

shippedmbforofitsvolumeintotheUSmarket

Thebalanceofmbforofitsvolumewassold

inCanada

EffectiveOctoberthegovernmentsofCanadaandthe

UnitedStatesimplementedanagreementforthesettlementof

thesoftwoodlumberdisputeTheSoftwoodLumberAgreement

(SLA)requiresthatanexporttaxbecollectedbytheGovernment

ofCanadawhichisbasedonthepriceandvolumeoflumber

shippedSincethatdatetheCompany’ssawmillshavebeen

subjecttoexportquotalimitationsandavariableexporttax

rateonlumbershippedtotheUSTheSLAprovidesthatduring

periodsofrelativelyhighpricestheexporttaxratedeclinesIn

fiscaltheaveragetaxrateonlumbershippedtotheUS

wasandthetotalcostwasmillionInfiscalthe

averagetaxrateonlumbershippedtotheUSwasandthe

totalcostwasTherateincreasewasduetothelower

USdollarsellingprices

Quarterly prices – Eastern SPF delivered

(US $ per mbf)

Tembec average

KD #2 and better del. Great L akes

KD stud del. Great Lakes

Tembec average



Tembec average



382 391 392 411 396 368 339 328

0

100

200

300

400

500

43214321

2014 2015


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InfiscaladjustedEBITDAwasmillioncomparedto

adjustedEBITDAofmillionintheprioryearSPFlumber

profitabilitydeclinedbymillionyear-over-yearThepreviously

notedhighersellingpricesforlumberincreasedadjustedEBITDA

bymillionThehigherpriceswereprimarilycausedbycurrencyastheCanadiandollaraveragedlowerthanintheprior

yearThepreviouslynotedincreaseinexporttaxesonlumber

shippedtotheUSdecreasedadjustedEBITDAbymillion

Sawmillmanufacturingcostsincreasedbymillionprimarily

duetoincreasedfibrecostsThemilliondeclineinother

segmentitemswasdueprimarilytolowerprofitabilityinthe

specialtywoodoperationsThesegmentadjustedEBITDAmargin

tototalsaleswascomparedtointheprioryear

Thefollowingsummarizesoperatingresultsvariancesbymajor

element

Variance

favourable

(inmillionsofdollars) (unfavourable)

AdjustedEBITDA ()

Depreciation

andamortization

Operatingearnings ()

TheForestProductssegmentgeneratedoperatingearningsof

millionascomparedtooperatingearningsofmillionin

fiscalThepreviouslynoteddecreaseinadjustedEBITDA

ledtothedeclineinoperationsresultspartiallyoffsetbylower

depreciationandamortizationexpenseTheprioryearresults

includedanassetimpairmentchargeofmillionthatwas

reversedinfiscal

Operating results

ThefollowingsummarizesadjustedEBITDAvariancesbymajorelement

Variance–favourable(unfavourable) Export Mill InventoryNRV

(inmillionsofdollars) Price taxes costs adjustments Freight Other TOTAL

SPFlumber () () () () () ()

Othersegmentitems – – – – – () ()

() () () () () ()


14/103





Sales–Pulp()

Sales–Chemicals


Costofsales

SG&A

AdjustedEBITDA



Operatingearnings(loss) ()

Identifiableassets


TheSpecia ltyCel lu losePulpsegmentconsistsof two

manufacturingfacilitieswhichproducespecialtycellulose

pulpsThespecialtycellulosepulpmillshaveanannualrated

capacityoftonnesperyearThepulpproducedat

thetwopulpmillsisahigh-puritycelluloseutilizedinawide

varietyofspecializedproductssuchaspharmaceuticalsfood

additivesandindustrialchemicalsTheTemiscamingmill

alsoproduces“viscose”gradepulpwhichisutilizedinthe

productionofviscosestaplefibrewhichinturnisusedto

producerayonforthetextileindustry

Thespecialtycellulosemillsgenerateligninasaby-productof

thesulphiteprocessaportionofwhichissoldtothirdparties

TheTemiscamingmillpreviouslyoperatedafacilitythat

producedethanolasaby-productthatwassoldtothirdparties

TheethanolplantwaspermanentlyidledinOctober

Thesegmentalsoincludesastand-aloneresinbusiness

whichproducespowderandliquidphenolicresinsattwo

operatingsitesinQuebecTemiscamingandLongueuil

TheCompanyalsooperatesathirdfacilitylocatedinToledo

Ohiowhichmanufacturespowderandliquidamino-resins

Thechemicalbusinessperiodicallypurchasesandre-sells

thirdpartypulpmillby-productchemicals

Thefollowingsummarizestheannualoperatingcapacityof

eachfacility

Specialty cellulose tonnes

Specialtycellulose–TemiscamingQC

Specialtycellulose–TartasFrance

Chemicals tonnes

Resinandrelatedproducts

–TemiscamingandLongueuilQCToledoOhio

Lignin–TemiscamingQCTartasFrance

TotalsalesfortheSpecialtyCellulosePulpsegmentwere

millionadecreaseofmillionfromtheprioryear

Themilliondecreaseinpulpsaleswasduetolower

shipmentsandpricesofspecialtygradepulppartiallyoffset

byhighershipmentsandpricesofviscoseandothergrades

Themilliondecreaseinchemicalsaleswasduetolower

volumesofethanolligninandresinproductsTheSpecialty

CellulosePulpsegmentgeneratedofCompanyconsolidated

salesdownfromintheprioryearTheSpecialtyCellulose

PulpsegmentisaglobalbusinessInfiscalof

consolidatedsalesweregeneratedoutsideofCanadaandthe

UScomparedtoinfiscal


15/103




(millions) (units) (unit)

Specialty pulp

Specialtycellulose(tonnes)

Viscoseandothergrades(tonnes)

Chemicals

Resinandrelatedproducts(tonnes)

Lignin(tonnes)

Ethanol(litres)

Otherchemicalsales

Total sales

Internalpulpsales – ()

Consolidated sales

Markets

TheCompanymarketsitspulponaworld-widebasisprimarily

throughitsownsalesforcePermanentsalesofficesaremaintained

inTorontoCanadaandDaxFranceContractualarrangements

withthirdpartyrepresentativesarealsoutilized

Theshipmenttocapacityratioforspecialtypulpwasin

fiscalversusintheprioryearThedecreaseinshipment

ratiowasduetoadecreaseoftonnesofspecialtygrade

pulppartiallyoffsetbyatonnesincreaseinshipmentsof

viscoseandothergradesofpulpInadditiontothepreviously

noteddeclineinspecialtygradepulpdemandshipmentsin

fiscalwereimpactedbyan-dayproductionstoppage

attheTemiscamingpulpmillduetoalabourdisputewiththe

unionizedworkforceThestoppagebeganinlate-November

andcontinueduntilmid-DecemberTheTemiscamingmill

producedfewertonnesthaninfiscalThereduced

demandforspecialtygradeswasaccompaniedbylowerUSdollar

andeuropriceswhichdeclinedby-fromtheprioryear

CurrencywasnotasignificantmitigatingfactorastheCanadian

dollarweakenedversustheUSdollarbutstrengthenedvis-à-visthe

euroOverallCanadiandollarequivalentpricesforspecialtygrades

declinedbypertonneorapproximatelyWhileUSdollar

pricesforviscoseandothergradesdeclinedbyUSpertonne

thiswasmorethanoffsetbytheweakerCanadiandollarThenet

effectwasapertonneincreaseintheCanadiandollarselling

priceofviscoseandothergradesTheCompanyhasastrategyof

graduallyreducingitsexposuretotheviscosemarketbyproducing

additionalspecialtygradevolumeTherelativelyweakdemandfor

specialtygradesinfiscalledtoanincreaseinnon-specialty

gradeshipmentsSpecialtygradevolumesrepresentedofpulp

shipmentsinfiscalcomparedtointheprioryear


16/103



FiscaladjustedEBITDAwasmillioncomparedto

millionintheprioryearadecreaseofmillionAsnoted

previouslythedeclineinthesellingpriceofspecialtygradepulp

ledtoanunfavourablepricevarianceofmillionThiswas

partiallyoffsetbyamillionfavourablepricevarianceonviscose

andothergradesThemillionincreaseinmillcostswascaused

bytheTemiscamingmillwhichrecordedanegativevarianceof

millionforunabsorbedfixedcostsresultingfromthepreviously

notedlabourdisruptionThemillalsoincurredhighercostsfor

chemicalsmaintenancematerialandsuppliesTheincreasewas

partiallyoffsetbyamillionreductioninenergycostsduetothe

newboilerandturbineLowersalesofspecialtypulpcombined

withincreasedsalesofviscoseandothergradesgeneratedan

unfavourablesalesvolumeandmixvariancereducingadjusted

EBITDAbymillion

Operating results


Variance–favourable(unfavourable)

Mill Mix&

(inmillionsofdollars) Price costs Freight volume Other TOTAL

Specialtycellulose () () () () () ()

Chemicals () – – – –

() () () () () ()

1 ,7 70 1 ,8 02 1 ,7 25 1 ,6 97 1,682 1,577 1,514 1,577

0

250

500

750

1,000

1,250

1,500

1,750

2,000

43214321

Quarterly prices – Specialty cellulose

(CDN $ per tonne)

Tembec average – Specialty celluloseTembec average – Specialty celluloseTembec average – Specialty cellulose

2014 2015

865 924 873 884 921 985 972 1,040

0

250

500

750

1,000

1,250

43214321

Quarterly prices – Viscose grade

(CDN $ per tonne)

Tembec average – Viscose gradeTembec average – Viscose gradeTembec average – Viscose grade

2014 2015


17/103



Themillionfavourablechemicalspricevariancewasdueto

higherligninpricespartiallyoffsetbylowerresinpricesHowever

lignincostsincreasedandprofitabilityremainedunchanged

year-over-year

Overalllowerpricesandaweakerpulpsalesmixreducedsegment

adjustedEBITDAmarginsfromintoin

TheTemiscamingspecialtycellulosemillpurchasedapproximately

bonedrytonnesofwoodchipsinfiscaldownfrom

intheprioryearOfthisamountapproximatelywas

suppliedbytheCompany’sForestProductssegmentcompared

tointheprioryearTheremainingrequirementswere

purchasedfromthirdpartiesundercontractsandagreements

ofvariousdurationsThepulpmilllocatedinSouthernFrance

purchasedbonedrytonnesofwoodinfiscalas

comparedtobonedrytonnesintheprioryearThefibreissourcedfrommanyprivatelandowners

Thefollowingsummarizesoperatingresultsvariancesby

majorelement

Variancefavourable


AdjustedEBITDA ()

Depreciationand

amortization ()

Operatingearnings(loss) () ()

TheSpecialtyCellulosePulpsegmentgeneratedanoperating

lossofmillionduringthemostrecentlycompletedfiscalyear

comparedtooperatingearningsofmillionintheprioryear

ThepreviouslynoteddeclineinadjustedEBITDAledtothelower

operatingresultsDepreciationexpenseincreasedbymillionastheCompanybegandepreciatingthenewboilerandturbine

attheTemiscamingspecialtypulpmillinFebruary


18/103



Paper Pulp


Sales()


Costofsales

SG&A

AdjustedEBITDA




Identifiableassets


ThePaperPulpsegmentconsistsoftwohigh-yieldpulp

manufacturingfacilitiesThepulpmillsproducepulpwith

acombinationofmechanicalandchemicalprocesses

TheCompanyproduceshardwoodgradesmadefrommaple

aspenandbirchHigh-yieldpulpshavealowertensileandtear

strengththankraftpulpsbuttheyofferadvantagesonbulk

andopacityTheycompeteagainstotherhardwoodor“short

fibre”gradeswithBleachedEucalyptusKraft(BEK)beingthe

mostprominent

Thefollowingsummarizestheannualcapacityofeachfacility

High-yield pulp tonnes

Hardwoodhigh-yield–TemiscamingQC

Hardwoodhigh-yield–MataneQC

Thissegmentshippedtonnesofhigh-yieldpulp

infiscalcomparedtotonnesintheprioryear

High-yieldpulpshipmentsincludetonnesconsumed

bytheCompany’spaperboardoperationsascomparedto

tonnesintheprioryear

TotalsalesforthePaperPulpsegmentweremillion

adecreaseofmillionfromtheprioryearAftereliminating

internalsalesthePaperPulpsegmentgeneratedofCompany

consolidatedsalesunchangedfromtheprioryearThePaper

Pulpsegmentismoreexportorientedthantheotherbusiness

segmentswithintheCompanyInofconsolidated

paperpulpsalesweregeneratedoutsideofCanadaandtheUS

ascomparedtointheprioryearChinaaloneaccountedfor

ofsalescomparedtoinfiscal


19/103



Markets

TheCompanymarketsitspulponaworld-widebasisprimarily

throughitsownsalesforceSalesofficesaremaintainedin

TorontoCanadaandDaxFranceContractualarrangementswith

thirdpartyrepresentativesarealsoutilized

Marketconditionsforpaperpulpwererelativelyweakinboth

fiscalandPulpshipmentsfromthetwohigh-yield

pulpmillswereequaltoofcapacityascomparedtointheprioryearThefiscalshipmentswereimpactedbya-day

productionstoppageattheTemiscaminghigh-yieldpulpmilldue

toalabourdisputewiththeunionizedworkforceThestoppage

beganinlate-Novemberandcontinueduntilmid-December

TheTemiscamingpulpmillshippedfewertonnesin

fiscalascomparedtotheprioryearThebenchmarkprice

forBEKincreasedbyUSpertonneHoweverthisincrease

didnotcarryoverintothehigh-yieldpulpmarketwhereprices

decreasedbyUSpertonneovertheprioryearCurrencywas

apositivefactorastheCanadiandollaraveragedUSan

declinefromtheprioryearOverallCanadiandollarprices

forhigh-yieldpulpimprovedbypertonneInventorylevels

endedtheyearatdaysofsupplyascomparedtodaysat

theendoffiscal

Quarterly prices – High-yield pulp

(US $ per tonne)

Tembec average

BEK (del. China) published price

Tembec average


Tembec average


570 568 569 535 523 508 498 468

0

200

400

600

800

43214321

2014 2015

4321


(millions) (tonnes) ( tonne)

Hardwoodhigh-yieldpulp

Internalsales () () () ()

Consolidated sales


20/103




millionintheprioryearThepreviouslynotedincrease

inhigh-yieldpulpsellingpricesincreasedadjustedEBITDAby

millionMilllevelcostsatthetwohigh-yieldpulpmills

decreasedbymillionprimarilyduetolowerfibreandenergycosts

Thetwopulpmillspurchasedapproximatelybonedry

tonnesofwoodinfiscaldownfromtonnesinthe

prioryearOfthisamountapproximatelywassuppliedby

theForestProductssegmentcomparedtointheprioryear

Theremainingrequirementswerepurchasedfromthirdparties

undercontractsandagreementsofvariousdurations

Overallhigherhigh-yieldpulppricesandlowercostsled

toimprovedprofitabilitywithanadjustedEBITDAmarginof

infiscalcomparedtointheprioryear


majorelement

Variance

favourable


AdjustedEBITDA

Depreciation

andamortization –


ThePaperPulpsegmentgeneratedoperatingearningsof

millionduringthemostrecentlycompletedfiscalyear

comparedtoanoperatinglossofmillionintheprioryear

ThepreviouslynotedincreaseinadjustedEBITDAledtothe

improvementinoperatingresults

Operating results


Variance–favourable(unfavourable) Mill InventoryNRV Volume&

(inmillionsofdollars) Price costs adjustments Freight Other TOTAL

High-yieldpulp () ()

Othersegmentitems – – – –

() ()


21/103



Paper


Sales


Costofsales

SG&A

AdjustedEBITDA



Operatingearnings

Identifiableassets

ThePapersegmentcurrentlyincludestwopapermanufacturingfacilitieswithatotalofthreepapermachinesThemilllocated

inKapuskasingOntarioproducesnewsprintontwomachines

ThefacilitylocatedinTemiscamingQuebecproducesmulti-ply

coatedbleachedboardononemachineTheboardmillispartially

integratedwithahigh-yieldpulpmillThetotalcapacityofthe

Papersegmentistonnes

Thefollowingsummarizestheproductsandcapacityof

eachfacility

Coated bleached board tonnes

TemiscamingQC

Newsprint tonnes

KapuskasingON

CoatedbleachedboardshipmentsrepresentedofPapersegmentshipmentsinfiscalascomparedto

intheprioryearAsapercentageoftotalsegmentsales

coatedbleachedboardrepresentedofsalescomparedto

intheprioryearNewsprintshipmentsrepresented

ofPapersegmentshipmentsinfiscalascomparedto

intheprioryearIntermsoftotalsegmentsalesnewsprint

representedofsalescomparedtointheprioryear

SalesforthePapersegmenttotalledmillionascompared

tomillionintheprioryearThesegmentgenerated

ofCompanyconsolidatedsalesascomparedtoin

fiscalThefocusofthepaperbusinessisNorthAmerica

whichaccountedforofconsolidatedsalesin

unchangedfromtheprioryearTheUSaloneaccountedfor

ofsalesinfiscalunchangedfromtheprioryear


(millions) (tonnes) ( tonne)

Coatedbleachedboard(rollsandsheets)

Newsprint

Consolidated sales


22/103



Markets

Thebenchmarkreferencepriceforcoatedbleachedboardrolls

(point)averagedUSpershorttoninfiscalan

USpershorttonincreaseovertheprioryearTheshipment

tocapacityratioforcoatedbleachedboardwasinfiscalcomparedtointheprioryearFiscalshipmentswere

impactedbya-dayproductionstoppageattheTemiscaming

coatedbleachedboardmillduetoalabourdisputewiththe

unionizedworkforceCurrencywasapositivefactorasthe

CanadiandollaraveragedUSandecreasefrom

USintheprioryearOverallaveragesellingpricesfor

coatedbleachedboardrollsandsheetsincreasedbyper

tonneTheinventorylevelatyear-endwasatdayscompared

todaysattheendoftheprioryear

ThenewsprintmarketremainedweakThebenchmarknewsprint

price(gram—EastCoast)averagedUSpertonneinfiscaladecreaseofUSpertonnefromtheprioryear

TheweakerCanadiandollaroffsetthisdecreaseandaverage

newsprintpriceswererelativelyunchangedyear-over-yearThe

shipmenttocapacityratiofornewsprintwasascompared

tointheprioryearFinishedgoodsinventoriesofnewsprint

wereatapproximatelydaysofsupplyatyear-endcompared

todaysattheendoftheprioryear

Quarterly prices – Coated bleached board

(US $ per short ton)

Tembec average – rolls

16 PT SBS – transaction price





971 1,012 1,008 9851 , 00 3 1 , 00 5 1 , 00 6 994

0

200

400

600

800

1,000

1,200

1,400

43214321

2014 2015

Quarterly prices – Newsprint

(US $ per tonne)

Tembec average – newsprint

Newsprint published price (48.8 g – East Coast)





563582 563 561 552 513 480 458

0

100

200

300

400

500

600

700

800

43214321

2014 2015


23/103




millionintheprioryearThepreviouslynotedimprovement

incoatedbleachedboardpricesincreasedadjustedEBITDAby

millionThecoatedbleachedboardmilllevelcostsincreasedbymillionprimarilyforpurchasedexternalpulpandenergy

FreightanddistributioncostsincreasedbymillionCanadian

dollarnewsprintpriceswererelativelyunchangedyear-over-year

Newsprintmillmanufacturingcostsalsoheldatsimilarlevelswith

higherfixedcostsbeingoffsetbylowerenergycostsOverall

higherpricesmorethanoffsethighercostsandsegmentadjusted

EBITDAmarginsimprovedfromto

Thecoatedbleachedboardmillutilizesacombinationof

chemicalkraftandhigh-yieldpulptoproduceathree-plysheet

Duringfiscalthemillutilizedtonnesofhigh-yield

pulpsuppliedbytheTemiscaminghigh-yieldpulpmillversus

tonnessuppliedinfiscalThebalanceofpulp

requirementswaspurchasedfromthirdparties

Thenewsprintmillutilizesvirginfibreprimarilyintheform

ofwoodchipsDuringfiscaltheoperationsconsumed

bonedrytonnesofvirginfibreofwhichwas

internallysourcedIntheprioryearbonedrytonnesofvirginfibrewereconsumedwithbeingsourcedinternally


majorelement

Variance

favourable


AdjustedEBITDA

Depreciation

andamortization ()

Operatingearnings

ThePapersegmentgeneratedoperatingearningsofmillion

comparedtooperatingearningsofmillionintheprioryear

ThepreviouslynotedincreaseinadjustedEBITDAledtothe

higheroperatingearnings

Operating results


Variance–favourable(unfavourable) Mill

(inmillionsofdollars) Price costs Freight Other TOTAL

Coatedbleachedboard () ()

Newsprint – – – – –

Othersegmentcosts – – –

() ()


24/103



TheCompanyrecordeda millioncreditforshare-based

compensationinfiscalascomparedtoamillionchargein

theprioryearSeniorexecutivescurrentlyparticipateinalong-term

incentiveplanwhichentitlesparticipantstopotentiallyreceive

unitsthatareequalinvaluetoonecommonshareTheunits

haveadefinedvestingperiodandaresubjecttoperformance

conditionsthatultimatelydeterminetheamountofunitsthatvest

andareearnedbyplanparticipantsNon-executivemembersofthe

BoardofDirectorsreceiveaportionoftheirfeesintheformof

“DeferredShareUnits”(DSU)TheDSUsvestatspecifieddatesThe

periodcreditexpensefortheshare-basedcompensationplanconsists

ofnormalperiodicvariationinthenumberofunitsbasedonanticipated

ornormalvestingandthechangeinthevalueoftheCompany’s

shareprice

TheCorporatesegment’s“otheritems”includeexpensesrelatingto

severalpermanentlyidledfacilitiesThecostsrelatetocustodialsite

securitylegalpensionadministrationandremediationactivities

These“legacy”itemstotalledmillioninthemostrecentyear

comparedtoamillionexpenseayearago

InfiscaltheCompanycompletedalandsaleforproceedsof

millionandrecordedagainofmillionIntheprioryearthe

Companycompletedsixlandsaletransactionsfortotalconsideration

ofmillionandrecordedagainofmillion

InfiscaltheCompanyrecordedagainofmillionrelated

tothesettlementofanon-recoursedebtobligationThedebtis

securedbyachargeagainsttheKirklandLakeOntariofinger-joint

plantwhichhasbeenidlesince

Thefiscalresultsalsoincludeamillionchargerelatingtothe

impairmentofaloanreceivablefromTemlamIncThelatterowned

anidledlaminatedveneerlumber(LVL)manufacturingfacility

locatedinAmosQuebecTheCompanyhadasecuredinterest

inthefacilityTheCompanyreducedthecarryingvalueofitsloan

receivablebymilliontoreflectthetotalnetproceedsofmillion

receivedwhenTemlamIncsoldthefacilityinJanuary

InfiscaltheCompanynegotiatedanewcollectiveagreement

withtheTemiscamingQuebecunionizedworkforceTheagreement

includedaprovisiontoincreasepensionpaymentstoretireeswhich

increasedtheestimatedpresentvalueofpensionobligationsby

millionwitharelatedchargetooperatingearnings

InfiscaltheCompanycompletedthesaleoftheChetwynd

BritishColombia(BC)high-yieldpulpmillforanominalamount

Thesalegeneratedamilliongainasthebuyerassumedcertain

liabilitiesassociatedwiththefacilityTheCompanyterminateditsBC

definedbenefitpensionplanandrecordedachargeofmillion

TheCompanyenteredintoanagreementwithaninsurancecompany

tosettleamillionpensionobligationforanamountofmillion

whichwasequivalenttotheamountofplanassetsheldintrustat

thetimeofthesettlementTheCompanyalsoreorganizedcertain

functionsandrolesandrecordedachargeofmillionrelatingto

severanceandsalarycontinuancecostsassociatedwithpersonnel

reductions

Corporate


Generalandadministrativeexpenses

Share-basedcompensation ()


Otheritems

Custodial–idledfacilities

Gainonsaleofland () ()

Gainonsettlementofnon-recoursedebtobligation – ()

Impairmentloss–Temlamloanreceivable –

Pastservicecost–definedbenefitpensionplan –

GainonsaleofChetwyndpulpmill () –

LossonterminationofBCdefinedbenefitpensionplan –

Reorganization–severancecosts –

Operatingloss(earnings) ()


25/103



Non-operating items

Interest, foreign exchange and other

Fiscalinterestexpenserelatesprimarilytointerestonthe

USmillion—seniorsecurednotesmaturingin

DecemberFiscalinterestexpenserelatesprimarilytointerestontheUSmillion—seniorsecurednotes

Themillionincreaseininterestexpenseisdueprimarilytonew

projectdebtincurredtofundtheTemiscamingQCspecialty

cellulosecogenerationprojectwhichtotalledmillionatthe

endofSeptemberCapitalizedinterestisalsorelatedto

theTemiscamingQCspecialtycellulosecogenerationproject

InterestcapitalizationceasedattheendofSeptember

Foreignexchangeitemsareprimarilycausedbygainsorlosses

onthetranslationofUSdollarnetmonetaryassetsThecharge

foremployeefuturebenefitsrelatestointerestaccretiononnet

unfundedobligations

Loss on refinancing of long-term debt

OnOctobertheCompanycompletedaprivatedebt

offeringofUSmillion—seniorsecurednotesduein

DecemberAportionoftheproceedsfromtheoffering

wasutilizedtoredeemalloftheCompany’sUSmillion—

seniorsecurednotesdueinDecemberaswellas

anearlyprepaymentpenaltyofmillion(USmillion)

InadditiontheCompanyabsorbedamillionchargerelated

totheeliminationofpreviouslydeferredfinancingcosts

Translation of foreign debt

DuringfiscaltheCompanyrecordedalossofmillionon

thetranslationofitsUSdollardenominateddebtastherelativevalue

oftheCanadiandollardecreasedfromUStoUS

DuringfiscaltheCompanyrecordedalossofmillionon

thetranslationofitsUSdollardenominateddebtastherelativevalue

oftheCanadiandollardecreasedfromUStoUS

Income taxes

Thefollowingtablereconcilestheanticipatedincometax

expenserecoverybasedonthestatutoryratetotheactual

incometaxexpense


Earnings(loss)beforeincometaxes ()

Anticipatedincometax

expense(recovery) ()

Differenceinstatutoryrates

Unrecognizedtaxasset

arisingfromperiodlosses

Non-deductibleportionofforeign

exchangelossontranslationofdebt

Permanentdifferencesand

othertaxadjustments ()

Incometaxexpense

(inmillionsofdollars) Interestondebt

Capitalizedinterest () –

Foreignexchangeitems () ()

Employeefuturebenefits

Bankchargesandother


26/103



Comprehensive loss

Thefollowingtablesummarizestheimpactofitemsaffectingthereportedtotalcomprehensivelossduringthelasttwofiscalyears


Netearnings(loss) ()

Employeefuturebenefitloss () ()

Foreigncurrencytranslationgainonforeignoperations

Totalcomprehensiveloss () ()

Net earnings (loss)

TheCompanygeneratedanetlossofmillionorpersharefortheyearendedSeptembercomparedtonetearnings

ofmillionorpersharefortheyearendedSeptember

DuringfiscaltheCompanyrecordedanincometaxexpense

ofmilliononalossbeforeincometaxesofmillionThe

incometaxexpensereflectedamillionunfavourablevariance

versusananticipatedincometaxrecoveryofmillionbased

ontheCompany’seffectivetaxrateofThedifferenceinstatutoryincometaxratesincreasedtheincometaxexpense

bymillionThiswascausedbythehighercorporatetaxrate

applicabletotheCompany’sFrenchoperationsTheincometax

expensewasincreasedbymillionastheresultoflossesfor

whichnodeferredtaxassetwasrecognizedTheCompanyhas

asignificantbalanceofunrecognizedtaxassetsrelatingtoits

Canadianoperationssinceithasnotbeendeterminedthatthe

futurerealizationoftheseassetsisprobableThenon-deductible

portionoftheforeignexchangelossontranslationofdebt

increasedtheincometaxexpensebymillionPermanent

differencesandothertaxadjustmentsincreasedtheincometax

expensebymillion

DuringfiscaltheCompanyrecordedanincometaxexpense

ofmilliononearningsbeforeincometaxesofmillion

Theincometaxexpensereflectedamillionunfavourable

varianceversusananticipatedincometaxexpenseof

millionbasedontheCompany’seffectivetaxrateofThedifferenceinstatutoryincometaxratesincreasedthe

incometaxexpensebymillionThiswascausedbythehigher

corporatetaxrateapplicabletotheCompany’sFrenchoperations

TheCompanyabsorbedamillionunfavourablevariancerelated

toperiodlossesforwhichnodeferredtaxassetwasrecognized

TheCompanyhasasignificantbalanceofunrecognizedtax

assetsrelatingtoitsCanadianoperationssinceithasnotbeen

determinedthatthefuturerealizationoftheseassetsisprobable

Thenon-deductibleportionoftheforeignexchangeloss

ontranslationofdebtincreasedtheincometaxexpenseby

millionPermanentdifferencesandothertaxadjustments

reducedtheincometaxexpensebymillion


27/103



DuringfiscaltheCompanyrecognizedalossofmillion

relatingtotheincreaseoftheestimatednetobligationfor

employeefuturebenefitsTheaveragediscountrateapplied

toestimatethepresentvalueoffutureobligationsincreased

fromtotherebyreducingthenetobligationbymillionThereturnonplanassetsexceededtheexpected

returndecreasingthenetobligationbymillionDuetothe

absenceofcurrentservicecostsincertainlegacypensionplans

theCompanyislimitedinitsabilitytorecognizeallplanassets

heldintrustThisincreasedthenetobligationbymillion

Changestodemographicassumptionsandplanexperience

increasedthenetobligationbymillion

DuringfiscaltheCompanyrecognizedalossofmillion

relatingtotheincreaseoftheestimatednetobligationfor

employeefuturebenefitsTheaveragediscountrateapplied

toestimatethepresentvalueoffutureobligationsdecreasedfromtotherebyincreasingthenetobligationby

millionThereturnonplanassetsexceededtheexpected

returnbymillionreducingthenetobligationDuetothe



heldintrustThisincreasedthenetobligationbymillionChangestodemographicassumptionsandplanexperience

increasedthenetobligationbymillion

Comprehensiveitemsincludegainsorlossesrelatedtothe

currencytranslationoftheassetsandliabilitiesoftheCompany’s

FrenchandUSoperationsThegainsorlossesaregenerated

bychangesintheendofperiodexchangeratesDuring

fiscalthecurrencytranslationoftheFrenchoperations

generatedagainofmillionandthecurrencytranslationofthe

USoperationsgeneratedalossofmillionDuringfiscal

thecurrencytranslationoftheFrenchoperationsgenerated

againofmillion

Subsequent event

OnNovembertheCompanyannouncedthatithad

enteredintoanewasset-basedloan(ABL)whichconsistsof

amillionrevolvingcreditfacility(revolvingloan)anda

USmillion“first-inlastout”termloan(FILOloan)Thenew

ABLreplacedtheCompany’sexistingmillionABLrevolving

creditfacility

TherevolvingloanwillexpireonNovemberprovided

severalconditionsaremetincludingrepaymentoftheFILO

loanpriortoMarchfailingwhichthematuritywould

beacceleratedtoanearlierdatebutnotearlierthanMarch

Therevolvingloanhasafirstprioritychargeoverthe

receivablesandinventoriesoftheCompany’sCanadianand

USoperationsTheFILOloanissecuredbythesamecollateral

astherevolvingloanandrankssecondinrepaymentpriority

relativetotherevolvingloanTheFILOloanisalsosecuredbya

firstprioritychargeonthefixedassetsofoneoftheCompany’s

USsubsidiaries

TheCompanyutilizedborrowingsunderthenewABLtorepaythe

amountsoutstandingunderthepriorABLrevolvingcreditfacility

andpaytransactionfeesandexpensesAftergivingeffecttothe

refinancingtheCompany’stotalliquidityatNovember

wasapproximatelymillioncomparedtomillionatthe

endoftheSeptemberquarter


28/103



Fourth quarter analysis

TheCompanyreportedanetlossofmillionorper

shareinthefourthquarterendedSeptembercompared

tonetearningsofmillionorpershareinthesame

quarteroffiscalTheweightedaveragenumberofcommon

sharesoutstandingwasmillionunchangedfromtheprior

yearquarter

Salesincreasedbymillionfromthesamequarterayearago

CurrencywasapositivefactorastheCanadiandollaraveraged

USadecreasefromUSintheyearago

quarterForestProductssegmentsalesdecreasedbymillion

asaresultoflowerpricesandshipmentsSpecialtyCellulose

Pulpsegmentsalesdecreasedbymillionduetolower

pricesPaperPulpsegmentsalesincreasedbymilliondueto

highershipmentsandpricesPapersegmentsalesincreasedby

millionduetohigherpricespartiallyoffsetbylowershipments

AdjustedEBITDAincreasedbymillionfromtheprioryear

quarterForestProductssegmentadjustedEBITDAdecreased

bymillionduetolowerpricesandhighercostsSpecialty

CellulosePulpsegmentadjustedEBITDAdeclinedbymillion

duetolowerpricespartiallyoffsetbylowercostsPaperPulp

segmentadjustedEBITDAincreasedbymillionduetohigher

pricesandlowercostsPapersegmentadjustedEBITDAincreased

bymillionduetohigherpricespartiallyoffsetbyhighercosts

TheCompanygeneratedoperatingearningsofmillion

comparedtooperatingearningsofmillioninthesamequarter

ayearagoInadditiontothepreviouslynotedimprovement

inadjustedEBITDAtheSeptemberquarteralsosawa

millionunfavourablevarianceinotheritemsTheprioryear

quarterresultsincludedamilliongainrelatedtolandsales

TheinterestexpenserelatesprimarilytointerestontheUSdollar

denominatedseniorsecurednotesCapitalizedinterestisrelated

totheTemiscamingQCspecialtycellulosecogenerationproject

InterestcapitalizationceasedattheendofSeptember

Foreignexchangeitemsareprimarilycausedbygainsorlosses

onthetranslationofUSdollarnetmonetaryassetsThecharge

foremployeefuturebenefitsrelatestointerestaccretiononnet

unfundedobligations

DuringtheSeptemberquartertheCompanyrecordeda

lossofmilliononthetranslationofitsUSdollardenominated

debtastherelativevalueoftheCanadiandollardecreasedfrom

UStoUS

DuringtheSeptemberquartertheCompanyrecordeda

lossofmilliononthetranslationofitsUSdollardenominated

debtastherelativevalueoftheCanadiandollardecreasedfrom

UStoUS

Quarterly financial information

(inmillionsofdollarsexceptpershareamounts)

Dec March June Sept Dec March June SeptSales

AdjustedEBITDA


Otheritems () () () () –


Netearnings(loss) () () () () ()

Basicandfullydilutednet

earnings(loss)pershare() () () () () ()

Comprehensiveearnings(loss) () () () () ()


29/103



DuringtheSeptemberquartertheCompanyrecordedan

incometaxexpenseofmilliononalossbeforeincometaxes

ofmillionTheincometaxexpensereflectedanmillion

unfavourablevarianceversusananticipatedincometaxrecovery

ofmillionbasedontheCompany’seffectivetaxrateofTheincometaxexpensewasincreasedbymillionasthe

resultoflossesforwhichnodeferredtaxassetwasrecognized

TheCompanyhasasignificantbalanceofunrecognizedtax

assetsrelatingtoitsCanadianoperationssinceithasnot

beendeterminedthatthefuturerealizationoftheseassetsis

probableThenon-deductibleportionoftheforeignexchange

lossontranslationofdebtincreasedtheincometaxexpenseby

million

DuringtheSeptemberquartertheCompanyrecordedan

incometaxexpenseofmilliononearningsbeforeincome

taxesofmillionTheincometaxexpensereflectedamillionunfavourablevarianceversusananticipatedincome

taxexpenseofmillionbasedontheCompany’seffective

taxrateofThedifferenceinstatutoryincometaxrates

increasedtheincometaxexpensebymillionThiswascaused

bythehighercorporatetaxrateapplicabletotheCompany’s

FrenchoperationsTheincometaxexpensewasincreased

bymillionastheresultoflossesforwhichnodeferredtax

assetwasrecognizedTheCompanyhasasignificantbalanceof

unrecognizedtaxassetsrelatingtoitsCanadianoperationssince

ithasnotbeendeterminedthatthefuturerealizationofthese

assetsisprobableThenon-deductibleportionoftheforeign

exchangelossontranslationofdebtincreasedtheincome

taxexpensebymillionPermanentdifferencesandother

taxadjustmentsreducedtheincometaxexpensebymillion

DuringtheSeptemberquartertheCompanyrecognizeda

lossofmillionrelatingtotheincreaseoftheestimatednet

obligationforemployeefuturebenefitsTheaveragediscount

rateappliedtoestimatethepresentvalueoffutureobligations

increasedfromtotherebyreducingthenetobligation

bymillionThereturnonplanassetswaslessthantheexpected

returnincreasingthenetobligationbymillionDuetothe



heldintrustTherecognitionofpreviouslyunrecognizedassetsreducedthenetobligationbymillionChangestodemographic

assumptionsandplanexperiencereducedthenetobligationby

million

DuringtheSeptemberquartertheCompanyrecognizeda

lossofmillionrelatingtotheincreaseoftheestimatednet

obligationforemployeefuturebenefitsTheaveragediscount

rateappliedtoestimatethepresentvalueoffutureobligations

decreasedfromtotherebyincreasingthenet

obligationbymillionThereturnonplanassetsdidnotmeet

theexpectedreturnincreasingthenetobligationbymillion

DuetotheabsenceofcurrentservicecostsincertainlegacypensionplanstheCompanyislimitedinitsabilitytorecognize

allplanassetsheldintrustThisincreasedthenetobligation

bymillionChangestodemographicassumptionsandplan

experiencereducedthenetobligationbymillion

Comprehensiveitemsincludegainsorlossesrelatedtothe

currencytranslationoftheassetsandliabilitiesoftheCompany’s

FrenchandUSoperationsThegainsorlossesaregenerated

bychangesintheendofperiodexchangeratesDuringthe

SeptemberquarterthecurrencytranslationoftheFrench

operationsgeneratedagainofmillionThecurrency

translationoftheUSoperationsgeneratedalossofmillion

IntheSeptemberquarterthecurrencytranslationofthe

Frenchoperationsgeneratedalossofmillion

ThefourthquarterinterimMD&AissuedonNovember

providesamoreextensiveanalysisofitemshavingimpacted

theCompany’sfourthquarterfinancialresults


30/103



Summary of quarterly results

Onaquarterlybasissalesandmarginswerenegativelyimpacted

byrelativelylowlumberpaperpulpandnewsprintUSdollar

pricesThemovementincurrencyrateswasbeneficialtoCanadianoperationsastheCanadiandollardeclinedfromUSatthe

endofSeptembertoUSattheendofSeptember

averagingUSoverthelasteightquarters

TheForestProductssegmentgeneratedadjustedEBITDAof

millionduringthelasteightquartersThisrepresentsan

averagemarginofonsalesofmillionTheCompany’s

lumbershipmenttocapacityratioaveragedTheUShousing

marketimprovedmodestlybutlumberpricesdeclinedThe

previouslynotedweakerCanadiandollaroffsetthedeclinein

USdollarpricesandsellingpricesandmarginsfortheCompany

remainedrelativelyunchangedyear-over-year

TheSpecialtyCellulosePulpsegmentgeneratedadjustedEBITDA

ofmillionduringthelasteightquartersThisrepresentsan

averagemarginofonsalesofmillionSellingprices

forspecialtypulpgenerallyweakenedinthelasteightquarters

Averagemarginsdeclinedfrominfiscaltoin

fiscal

ThePaperPulpsegmentgeneratedadjustedEBITDAofmillion

duringthelasteightquartersThisrepresentsamarginofon

salesofmillionThemarketforpaperpulphasbeenweak

overthelasttwoyearsNewhardwoodcapacityexpansionsin

SouthAmericaandtherestartofidledhigh-yieldpulpcapacityin

CanadahaveledtolowerUSdollarsellingprices

ThePapersegmentgeneratedadjustedEBITDAofmillion

overthelasteightquartersThisrepresentsanaveragemarginof

onsalesofmillionHigherUSdollarpricesforcoated

bleachedboardhaveoffsetlowernewsprintUSdollarpricesover

thelasttwoyearsSegmentfinancialresultshaveimproveddue

totheweakerCanadiandollar

CorporategeneralandadministrativeexpensesoftheCompany

haveaveragedapproximatelymillionperquarteroverthe

lasttwoyearsandtherehasbeennosignificantchangesinthe

compositionofthoseexpenses

OveralltheCompanygeneratedadjustedEBITDAofmillion

inthelasteightquartersThisrepresentsanaveragemarginof

approximatelyonconsolidatedsalesofbillion

CorporateotheritemsincreasedtheCompany’soperating

earningsbymillionduringthelasteightquartersWhilethere

wereseveraloffsettingfavourableandunfavourableitemsthe

mostsignificantfavourableitemwasamilliongainfromland

salesThiswaspartiallyoffsetbymillionspentoncustodial

costsforidledfacilitiesandamillionchargeforthetermination

ofadefinedbenefitpensionplan

TheCompanyrecordedalossofmilliononthetranslation

ofitsforeign-denominateddebtoverthelasttwoyearsHowever

theimpactofthequarterlyUSdebttranslationgainsandlosses

addedconsiderablevolatilitytothefinancialresultswiththe

impactrangingfromagainofmillionintheJunequarter

toalossofmillionintheSeptemberquarter

DuringthelasttwoyearstheCompanyhasrecordedanincome

taxexpenseofmillionTheexpenserelatesprimarilytoits

FrenchoperationsastheCanadianoperationshavesignificant

amountsofunrecognizedtaxassets


31/103



Cashflowfromoperationsbeforeworkingcapitalchangesin

fiscalwasmillioncomparedtomillionintheprior

yearTheincreaseincashflowfromoperationswasduetoa

milliondecreaseinincometaxespaidforourFrenchoperationsandamilliondecreaseinexcesscashcontributionsforemployee

futurebenefitsThesefavourableitemsmorethanoffsetthe

milliondeclineinadjustedEBITDAAfterallowingforcapital

expendituresofmillionandinterestondebtofmillion

freecashflowinfiscalwasnegativemillioncompared

tonegativemillionintheprioryear

Infiscalnon-cashworkingcapitalitemsusedmillion

Theincreaseinworkingcapitalwascausedprimarilybya

millionincreaseininventorieswithPapersegmentinventories

(million)andPaperPulpsegmentinventories(million)accountingforthebulkoftheincreaseAsaresultcashflowfrom

operationsdeclinedfrommillioninfiscaltomillion

infiscal

Capital spending


ForestProducts

SpecialtyCellulosePulp–Cogenproject

Construction

Start-up

SpecialtyCellulosePulp–Other

PaperPulp

Paper

Netcapitalexpenditures

Asaofconsolidatedsales

Asaofdepreciation

Financial position and liquidity

Free cash flow


Cashflowfromoperationsbeforeworkingcapitalchanges

Less

Additionstopropertyplantandequipment

Interestondebt

Freecashflow(negative) () ()


32/103



Duringfiscalcapitalexpenditurestotalledmillion

ascomparedtomillionintheprioryearThelowerlevelof

capitalexpendituresrelatestoonerelativelylargecapitalprojectIn

MarchtheCompanyannouncedamajorcapitalinvestment

toupgradeitsspecialtycellulosemillinTemiscamingQuebecTheprojectinvolvedthereplacementofthreelow-pressureboilerswith

asinglenewhigh-pressureboilerdesignedtoburnwastesulphite

liquorgeneratedbythespecialtycellulosemanufacturingprocess

Theprojectalsoincludedtheinstallationofanew-megawatt

electricalturbineDuringfiscalmillionwasspenton

theprojectconstructioncostsbringingtotalcumulativeproject

expenditurestomillionTheCompanyalsoincurredmillion

ofstart-upcostsrelatedtotheprojectinfiscalbringing

cumulativecapitalizedstart-upcoststomillionTheprojectisnow

completeandcapitalspendinghasceased

Commissioningoftheboileronnaturalgasbeganinlate-NovemberCommissioningoftheturbinebeganinearly

JanuaryatwhichtimetheCompanygenerateditsfirstelectricity

sales In late January the Company successfully met the “commercial-

in-service”testsetforthinthepowerpurchaseagreementwiththe

publicutilityandbegansellingelectricityatthehigher“green”power

rateDuringthemonthofFebruarytheCompanybeganthe

firingofpulpmillresidualliquorinthenewboilerSincethattime

asignificantamountofeffortandresourceshasbeendedicatedto

rampingupthevolumeofliquorburnedandoptimizingtheexhaust

gasscrubbersystemandrelatedequipmentIntheSeptember

quarterthenewboilerincineratedapproximatelyofthetargeted

quantityofliquorandcombinedwiththeturbinegeneratedin

excessofmillionofnetenergybenefitascomparedtothesame

quarterayearagoBasedonboilerandturbineoperationstodate

theCompanyisconfidentitwillattainthemillionofprojected

annualenergybenefitsTheCompanyhasalsosetatargetof

millionperyearinoperatingandmaintenancecostreductionsor

millionperquarterDuringtheSeptemberquarterthe

Companycontinuedtoperiodicallyoperatetheoldboilersandwas

requiredtomaintainthemonoperationalreadinessAssuchthe

Companyestimatesthatverylittleoftheprojectedoperatingand

maintenancesavingswererealizedintheSeptemberquarter

Theabilitytotaketheolderboilerspermanently“offline”willdictate

thetimingofthesesavingsFinallytheCompanyhasguidedfora

potentialmillionperyearproductivityandmarginenhancement

associatedwiththeproductionincreaseoftonnesofspecialty

pulpWhilethepreviouslynotedenergyandcostbenefitsarenear

termitemstheproductivityandmarginenhancementbenefitwillbe

dependentontheCompany’sabilitytogenerateadditionalspecialty

pulpsalesvolumeswhichmayrequireanextendedperiodoftime

TheCompanyestimatesthatannualcapitalexpendituresof

milliontomillionarerequiredtoadequatelymaintainits

facilities

Acquisitions, investments and divestitures

InMarchtheCompanycompletedthesaleoftheChetwynd

BChigh-yieldpulpmillforanominalamountThesalegenerated

amilliongainasthebuyerassumedcertainliabilitiesassociated

withthefacility

Financing activities

TheCompany’slong-termobjectiveistomaintainthenetdebt

tototalcapitalizationratioatorlessAstrongbalancesheet

providestheCompanywiththeabilitytoaccesscapitalmarkets

atfavourableratesThenetdebttototalcapitalizationratioofthe

CompanywasasatSeptemberascomparedtoat

theendofthepriorfiscalyearTheincreaseisdueprimarilyto

increaseddebtlevelstofinancethepreviouslynotedTemiscaming

specialtycellulosecogenerationprojectaswellasmillionof

foreigncurrencytranslationincreasesonoutstandingUSdollar

denominateddebtTheCompanyanticipatesthatthenetdebt

tototalcapitalizationratiowillgraduallydecreaseasthenew

boilerandturbineinstalledattheTemiscamingspecialtycellulose

millgeneratetheprojectedincrementaladjustedEBITDA

TheCompanyshouldalsobenefitfromtheimpactofaweaker

Canadiandollarintermsofsellingpricesandcompetitiveness

graduallyoffsettingthenegativeimpactofthepreviouslynoted

translationlossesonUSdollardenominateddebt

0%

10%

20%

30%

40%

50%

60%

70%

80%

20152014201320122011

Net debt to total capitalization

27% 45% 52% 59% 76%

Actual

Objective < 40%

Actual

Objective < 40%

Actual

Objective < 40%


33/103



InOctobertheCompanycompletedaprivatedebtoffering

ofUSmillion—seniorsecurednotesThesecurednotes

matureinDecemberAsignificantportionoftheproceeds

wasutilizedtopurchaseandredeemUSmillion—

seniorsecurednotesinadditiontopayingUSmillion

ofaccruedinterestandanearlyprepaymentpenaltyof

USmillion

InMarchtheCompanyenteredintoamilliontermloan

facilitytoassistwiththefinancingofthepreviouslymentioned

TemiscamingQuebecspecialtycellulosecogenerationproject

TheinterestrateonthefacilityisTheloanhasa-year

termconsistingofa-monthconstructionordrawdownperiod

followedbya-yearmonthlyamortizationperiodbeginning

inAprilThetermoftheloanwillbeshortenedbythree

yearsiftheCompanydoesnotcompletecertainfuturecapital

expendituresattheTemiscamingspecialtycellulosemillTheloan

issecuredbyasecondrankingchargeontheprojectassetsThe

Companyhasalsograntedthelenderafive-yearoptionstarting

onthefirstloandisbursementdatetoacquiremillioncommon

sharesofTembecatapriceofpershareThisoptionexpires

onAugustDuringtheSeptemberquarterthe

Companynegotiatedanadditionaltrancheofprojectfinancing

effectivelyincreasingthetotalfundingfromthelenderto

millionThissecondmilliontrancheisalsosecuredby

asecondrankingchargeonprojectassetsandtheinterestrate

remainsatThissecondtrancheisrepayableinequal

monthlyinstalmentsbeginninginAprilInconnection

withtheadditionalfundingtheCompanygrantedthelendera

five-yearoptiontoacquirecommonsharesofTembecat

apriceofpershareThisoptionexpiresonDecember

AsattheendofSeptembertheCompanyhaddrawn

theentiremillion

Long-term debt


TembecIndustries–USmillionseniorsecurednotesdueDecember – TembecIndustries–USmillionseniorsecurednotesdueDecember –

Temiscamingprojectfinancing–securedtermloan

Temiscamingprojectfinancing–securedtermloan–tranche

Temiscamingprojectfinancing–securedtermloan–tranche

Frenchoperations

KirklandLakeEngineeredWoodProductsInc –

Otherdebt

Totallong-termdebt

Lessunamortizedfinancingcosts

Currentportionincludedinabove


34/103



InJunetheCompanyenteredintoamillionterm

loanfacilitytoassistwiththefinancingofthepreviouslynoted

specialtycellulosecogenerationprojectinTemiscamingQuebec

Theinterestrateonthisloanisthegreaterofandtheyield

onequivalenttermsGovernmentofCanadabondsplusatthedatethefundsareadvancedTheloanissecuredbyafirst

rankingchargeontheprojectassetsInJulytheCompany

receivedmillionrepresentingthefirstadvanceunderthe

facilityTheinterestrateonthisadvancewassetatDuring

theSeptemberquartertheCompanyincreasedthesizeof

thefacilitytomillionAspartoftheloanamendmentthe

termsoftheremainingmilliontobedrawnontheoriginal

facilitywereamendedtocorrespondtothoseofthenew

millioninfundingTheinitialmilliondrawninJuly

isrepayableinblendedmonthlyinstalmentsoveraneight-year

periodbeginninginJulywitha“balloon”paymentof

milliontoberepaidinJulyDuringtheDecemberquartertheCompanyreceivedtheremainingmilliononthe

facilityThissecondtranchebearsinterestatarateofand

isrepayableinblendedmonthlyinstalmentsoveraperiodofeight

yearsbeginninginNovemberwitha“balloon”payment

ofmilliontoberepaidinOctoberAsattheendof

SeptembertheCompanyhasrepaidmillionofprincipal

relatedtothetermloanandmillionremainedoutstanding

ThedebtoftheFrenchoperationsrelatestotheCompany’s

specialtycellulosepulpmillThedecreaseindebtwasdueto

scheduledamortizationpayments

DuringfiscaltheCompanyarrivedatasettlementagreement

withthesecuredlendersofKirklandLakeEngineeredWood

ProductsInc(KLEWP)KLEWPisawholly-ownedsubsidiaryof

Tembecwhichownsawoodproductsfacilitythathasbeenidle

forseveralyearsThedebtisnon-recourseinnatureInexchange

fortheextinguishmentofthisobligationTembecandthesecured

lendershaveagreedtosellthefacilityonan“asis”basisandto

dividethenetproceedsbasedonapre-arrangedformulaAttime

ofwritingthefacilityhadnotyetbeensold

Moody’sInvestorsService(Moody’s)hasassignedaBratingto

theseniorsecurednotesandthesamelevelfortheCompany’s

corporatecreditratingMoody’shasa“negative”outlookwith

respecttoitsratingStandardandPoor’s(S&P)hasassigneda

B-ratingtotheseniorsecurednotesandthesamelevelfortheCompany’scorporatecreditratingS&Phasa“negative”outlook

withrespecttoitsrating

TheCompanyhassetanobjectiveofmaintainingaminimum

liquidityofmil l iontomil l ionAttheendof

SeptembertheCompanyhadtotalcashincludingrestricted

cashofmillionplusunusedoperatinglinesofmillionfor

totalliquidityofmillionAtSeptembertheCompany

hadnetcashofmillionandunusedoperatinglinesof

millionfortotalliquidityofmillionSubsequenttotheend

offiscalonNovembertheCompanyannounced

thatithadenteredintoanewABL(seeSubsequentEvent)AftergivingeffecttotherefinancingtheCompany’stotalliquidityat

NovemberwasapproximatelymillionWhiletotal

liquidityremainedbelowitsobjectivetheloweron-goingcapital

expendituresaswellastheprojectedincrementaladjustedEBITDA

oftheTemiscamingcogenerationprojectwillpositivelyimpact

cashflowandliquidityinfutureperiods

Operating lines

Thefollowingtablesummarizestheunusedoperatinglinesattheend

ofthelasttwofiscalyears


Borrowingbase

Lesspermanentavailabilityreserve – ()

Lessvariableavailabilityreserve () ()

Netavailability

Outstandinglettersofcredit () ()

Amountdrawn () ()

Unusedamount


35/103



AttheendoffiscaltheCompanyhadamillionABL

facilityexpiringinMarchTheABLhadafirstprioritycharge

overthereceivablesandinventoriesoftheCompany’sCanadian

operationsAsatSeptemberanamountofmillion

wasdrawnontheABLfacilityandafurthermillionwasutilizedtoissuelettersofcreditAsnotedpreviouslytheABLfacility

wasrefinancedonNovember(seeSubsequentEvent)

ThenewABLconsistsofamillionrevolvingloananda

USmillionFILOloanTherevolvingloanwillexpireon

Novemberprovidedseveralconditionsaremet

includingrepaymentoftheFILOloanpriortoMarch

failingwhichthematuritywouldbeacceleratedtoanearlier

datebutnotearlierthanMarchTherevolvingloanhas

afirstprioritychargeoverthereceivablesandinventoriesof

theCompany’sCanadianandUSoperationsTheFILOloanis

securedbythesamecollateralastherevolvingloanandranks

secondinrepaymentpriorityrelativetotherevolvingloanTheFILOloanisalsosecuredbyafirstprioritychargeonthefixed

assetsofoneoftheCompany’sUSsubsidiaries

TheCompanyalsohasadedicatedunsecuredcreditfacilitythat

canonlybeutilizedtoissuelettersofcreditAsatSeptember

thereweremillionofoutstandinglettersofcreditissuedon

thisfacility

TheFrenchoperationsaresupportedby“receivablefactoring”

agreementsAssuchtheborrowingbasefluctuatesperiodically

dependingonshipmentsandcashreceiptsAsatSeptember

anamountofmillionwasdrawnonthesefacilities

Theoutstandinglettersofcreditconstitutesecurityfor

variousoperatingitemsprincipallytheunfundedportionof

supplementaryretirementplansfuturelandfillclosureliabilities

andperformanceguaranteesrelatedtoelectricitygeneration

agreements

Common shares

(inmillions)

Sharesoutstanding–opening

Sharesoutstanding–ending

Therewerenosharesissuedinfiscalandfiscal

PursuanttooptionsgrantedunderthepriorLong-Term

IncentivePlan(LTIP)anadditionalsharesmaybeissuedTheweightedaverageexercisepriceoftheoptionswasper

shareasatSeptemberandtheywillexpireinAs

atSeptemberalloftheoptionswereexercisable

Inconnectionwiththemillionsecondrankingtermloan

facilitytheCompanyhasgrantedthelenderanoptionto

acquiremillioncommonsharesoftheCorporationataprice

ofpershareThewarrantsexpireonAugust

Inconnectionwiththemillionsecondrankingtermloan

facilitytheCompanyhasgrantedthelenderanoptiontoacquire

commonsharesoftheCorporationatapriceof

pershareThewarrantsexpireonDecember


36/103



Thecarryingvaluesforcashandcashequivalentsrestrictedcash

tradeandotherreceivablesloansreceivableoperatingbank

loanstradeotherpayablesandaccruedchargesandinterest

payableapproximatetheirfairvaluesduetothenear-term

maturityoftheseinstruments

Thefairvalueofthelong-termdebtwasreducedbymillion

astheCompany’sUSmillionseniornotesweretradingbelow

paratyear-endThebalanceofthedifferencerelatesprimarilyto

unamortizedfinancingcostsofmillionwhichwerenetted

againstthelong-termdebtcarryingvalue

Financial risks

Credit risk

Creditriskarisesfromthepossibilitythatentitiestowhichthe

Companysellsproductsmayexperiencefinancialdifficultyand

beunabletofulfilltheircontractualobligationsTheCompany

doesnothaveasignificantexposuretoanyindividualcustomer

orcounterpartyTheCompanyreviewsanewcustomer’scredit

historybeforeextendingcreditandconductsregularreviewsof

itsexistingcustomers’creditperformanceAllcreditlimitsare

subjecttoevaluationandrevisionatanytimebasedonchanges

inlevelsofcreditworthinessandmustbereviewedatleastonce

peryearSalesorderscannotbeprocessedunlessacreditlimit

hasbeenproperlyapprovedTheCompanymayrequirepayment

guaranteessuchaslettersofcreditorobtaincreditinsurance

coverageBaddebtexpensehasnotbeensignificantinthepast

TheallowancefordoubtfulaccountsatSeptemberwas

negligibleascomparedtomillionattheendoftheprioryear

Liquidity risk

LiquidityriskarisesfromthepossibilitythattheCompanywill

notbeabletomeetitsfinancialobligationsastheyfalldue

TheCompanyhasanobjectiveofmaintainingliquidityequalto

monthsofmaintenancecapitalexpendituresinterestand

principalrepaymentsandseasonalworkingcapitalrequirements

whichwouldrequireapproximatelymilliontomillion

ofliquidityAsnotedpreviouslytheCompanyhadtotalcashof

millionplusunusedoperatinglinesofmillionfortotal

liquidityofmillionasatSeptemberSubsequent

totheendoffiscalonNovembertheCompany

announcedthatithadenteredintoanewABL(seeSubsequent

Event)AftergivingeffecttotherefinancingtheCompany’stotal

liquidityatNovemberwasapproximatelymillion

Whiletotalliquidityremainedbelowitsobjectivethelower

on-goingcapitalexpendituresaswellastheprojectedincremental

adjustedEBITDAoftheTemiscamingcogenerationprojectwill

positivelyimpactcashflowandliquidityinfutureperiods

Financial instruments and contractual obligations

Financial assets and liabilities

AsatSeptember

(inmillionsofdollars) Carryingvalue Fairvalue

Financialassets

Cashandcashequivalents

Restrictedcash

Tradeandotherreceivables

Loansreceivable

Financialliabilities

Operatingbankloans

Tradeotherpayablesandaccruedcharges

Interestpayable

Long-termdebt(includingcurrentportion)


37/103



TheCompany’sliquidityisdependentongeneratingasufficient

amountofadjustedEBITDAandcashflowfromoperationsBased

onexistingliquiditycurrentinitiativestoobtainadditionalliquidity

andanticipatedfutureoperatingcashflowtheCompanybelieves

thatitwillbeabletoadequatelyfunditsoperationsandmeetitsfutureobligationsastheybecomedueThisdeterminationcould

beimpactedbyeconomicfinancialcompetitivelegislativeand

regulatoryfactorsaswellasothereventsthatarebeyondthe

Company’scontrol

Foreign currency risk

Thisitemisdiscussedindetailinasubsequentsectionofthe

MD&A“SignificantRisksandUncertainties”

Interest rate risk

Interestrateriskistheriskthatthefairvalueorfuturecashflows

ofafinancialinstrumentwillfluctuatebecauseofchangesin

marketinterestratesThiswillhavelittleimpactontheCompany’s

financialresultssincethemajorityoftheCompany’sdebtsareatfixedinterestrates

Commodity price and operational risk

Theseitemsarediscussedindetailinasubsequentsectionofthe

MD&A“SignificantRisksandUncertainties”

Contractual obligations

ThefollowingtableshowstheCompany’scontractualobligations

asatSeptemberTheCompanyhaslong-termdebtwith

contractualmaturitiesandapplicableinterestPensionobligations

pastservicecostsincludeestimatedsolvencyandgoingconcern

amortizationpayments

Othercontractualobligationsnotincludedinthetableaboveare

• Operatingleaseobligationstotallingmillionrelatedprimarily

topropertyandequipmentrentalsenteredintothenormal

courseofbusiness

• Outstandingpayableandaccrualsofmillionrelatedtocapital

expenditures

• Purchaseobligationsrelatedtoongoingnormalcommercial

commitmentstopurchasetimberfibreenergychemicalsand

otheroperatinginputsManyoftheobligationsaresubject

to“forcemajeure”clausesandmayvarysignificantlyfrom

contractedamountsdependingontheCompany’srequirements

Within – – After

(inmillionsofdollars) Total year years years years

Long-termdebt

Interestonlong-termdebt

Pensionobligations–pastservicecosts


38/103



Inthissectioncurrentyearreferstofiscalandprioryear

referstofiscal

Salesdecreasedbymillioncomparedtotheprioryear

CurrencywasapositivefactorastheCanadiandollaraveraged

USadecreasefromUSayearagoForest

Productssegmentsalesincreasedbymillionasaresultof

highersellingpricespartiallyoffsetbylowershipmentsSpecialty

CellulosePulpsegmentsalesincreasedbym

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