6-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934

For the month of November, 2012

Commission File Number: 333-172078-02

Tembec Inc.
(Translation of registrant's name into English)

800, René-Lévesque Boulevard West, Suite 1050, Montréal, Québec, Canada, H3B 1X9
(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

[] Form 20-F   [ x ] Form 40-F

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): []

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): []

SUBMITTED HEREWITH

Exhibits

99.1	Consolidated Financial Statements
99.2	Management's Discussion and Analysis
99.3	Form 52-109F2 - Certification of Interim Filings - CEO
99.4	Form 52-109F2 - Certification of Interim Filings - CFO
99.5	News Release dated November 15, 2012
99.6	Supplemental Condensed Consolidating Financial Information

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	TEMBEC INC.
	(Registrant)
Date: November 16, 2012	By:	/s/ Patrick LeBel
		Patrick LeBel
	Title:	Vice President, General Counsel and Corporate Secretary

EX-99.1

Exhibit 99.1

TEMBEC INC.
CONSOLIDATED BALANCE SHEETS

(unaudited) (in millions of Canadian dollars)

		Sept. 29,			Sept. 24,			Sept. 26,
		2012			2011			2010
ASSETS
Current assets:
Cash and cash equivalents	$	87		$	99		$	68
Cash held in trust		5			6			6
Trade and other receivables		200			182			209
Inventories (note 4)		255			261			255
Prepaid expenses		7			6			7
		554			554			545
Property, plant and equipment (note 5)		485			491			496
Biological assets		4			4			7
Employee future benefits		-			1			-
Other long-term receivables		12			28			28
Deferred tax assets		4			15			27
	$	1,059		$	1,093		$	1,103
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Operating bank loans (note 6)	$	68		$	6		$	1
Trade, other payables and accrued charges		230			240			233
Interest payable		10			8			3
Income tax payable		3			6			-
Provisions (note 8)		3			8			5
Current portion of long-term debt (note 7)		16			18			17
		330			286			259
Long-term debt (note 7)		323			271			271
Provisions (note 8)		17			16			17
Employee future benefits		285			285			248
Other long-term liabilities		2			2			8
		957			860			803
Shareholders' equity:
Share capital (note 9)		564			564			564
Deficit		(453	)		(333	)		(264	)
Accumulated other comprehensive earnings (loss)		(9	)		2			-
		102			233			300
	$	1,059		$	1,093		$	1,103

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

- 1 -

TEMBEC INC.
CONSOLIDATED STATEMENTS OF NET EARNINGS (LOSS)

Quarters and years ended September 29, 2012 and September 24, 2011
(unaudited) (in millions of Canadian dollars, unless otherwise noted)

		Quarters						Years
		2012			2011			2012			2011
Sales	$	443		$	421		$	1,666		$	1,743
Freight and other deductions		63			57			232			237
Lumber export taxes		1			3			7			13
Cost of sales (excluding depreciation and amortization)		337			331			1,290			1,321
Selling, general and administrative		20			17			74			72
Share-based compensation (note 9)		(1	)		(6	)		(1	)		2
Depreciation and amortization		13			12			46			48
Other items (note 11)		51			2			50			3
Operating earnings (loss)		(41	)		5			(32	)		47
Interest, foreign exchange and other		14			3			41			31
Exchange loss (gain) on long-term debt		(13	)		11			(13	)		1
Net finance costs (note 12)		1			14			28			32
Earnings (loss) before income taxes		(42	)		(9	)		(60	)		15
Income tax expense (note 13)		5			8			22			20
Net loss	$	(47	)	$	(17	)	$	(82	)	$	(5	)
Basic and diluted net loss in dollars per share (note 9)	$	(0.47	)	$	(0.17	)	$	(0.82	)	$	(0.05	)

TEMBEC INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (LOSS)

Quarters and years ended September 29, 2012 and September 24, 2011
(unaudited) (in millions of Canadian dollars)

		Quarters						Years
		2012			2011			2012			2011
Net loss	$	(47	)	$	(17	)	$	(82	)	$	(5	)
Other comprehensive earnings (loss), net of income taxes:
Defined benefit pension plans		(42	)		(64	)		(42	)		(64	)
Other benefit plans		4			-			4			-
Foreign currency translation differences for foreign operations		(1	)		(2	)		(11	)		2
Total comprehensive loss	$	(86	)	$	(83	)	$	(131	)	$	(67	)

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

- 2 -

TEMBEC INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

Quarters ended September 29, 2012 and September 24, 2011
(unaudited) (in millions of Canadian dollars)

		Quarter ended September 29, 2012
				Translation
		Share		of foreign						Shareholders'
		capital		operations			Deficit			equity
Balance - beginning of period, June 23, 2012	$	564	$	(8	)	$	(368	)	$	188
Net loss for the period		-		-			(47	)		(47	)
Other comprehensive earnings (loss), net of income taxes:
Defined benefit pension plans		-		-			(42	)		(42	)
Other benefit plans		-		-			4			4
Foreign currency translation differences for foreign operations		-		(1	)		-			(1	)
Balance - end of period, September 29, 2012	$	564	$	(9	)	$	(453	)	$	102
		Quarter ended September 24, 2011
				Translation
		Share		of foreign						Shareholders'
		capital		operations			Deficit			equity
Balance - beginning of period, June 25, 2011	$	564	$	4		$	(252	)	$	316
Net loss for the period		-		-			(17	)		(17	)
Other comprehensive earnings (loss), net of income taxes:
Defined benefit pension plans		-		-			(64	)		(64	)
Other benefit plans		-		-			-			-
Foreign currency translation differences for foreign operations		-		(2	)		-			(2	)
Balance - end of period, September 24, 2011	$	564	$	2		$	(333	)	$	233

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

- 3 -

TEMBEC INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

Years ended September 29, 2012 and September 24, 2011
(unaudited) (in millions of Canadian dollars)

		Year ended September 29, 2012
				Translation
		Share		of foreign						Shareholders'
		capital		operations			Deficit			equity
Balance - beginning of year, September 24, 2011	$	564	$	2		$	(333	)	$	233
Net loss for the year		-		-			(82	)		(82	)
Other comprehensive earnings (loss), net of income taxes:
Defined benefit pension plans		-		-			(42	)		(42	)
Other benefit plans		-		-			4			4
Foreign currency translation differences for foreign operations		-		(11	)		-			(11	)
Balance - end of year, September 29, 2012	$	564	$	(9	)	$	(453	)	$	102
		Year ended September 24, 2011
				Translation
		Share		of foreign						Shareholders'
		capital		operations			Deficit			equity
Balance - beginning of year, September 26, 2010	$	564	$	-		$	(264	)	$	300
Net loss for the year		-		-			(5	)		(5	)
Other comprehensive earnings (loss), net of income taxes:
Defined benefit pension plans		-		-			(64	)		(64	)
Other benefit plans		-		-			-			-
Foreign currency translation differences for foreign operations		-		2			-			2
Balance - end of year, September 24, 2011	$	564	$	2		$	(333	)	$	233

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

- 4 -

TEMBEC INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

Quarters and years ended September 29, 2012 and September 24, 2011
(unaudited) (in millions of Canadian dollars)

		Quarters						Years
		2012			2011			2012			2011
Cash flows from operating activities:
Net loss	$	(47	)	$	(17	)	$	(82	)	$	(5	)
Adjustments for:
Depreciation and amortization		13			12			46			48
Net finance costs (note 12)		1			14			28			32
Income tax expense (note 13)		5			8			22			20
Income tax paid		(1	)		(1	)		(14	)		(1	)
Excess cash contributions over employee future benefits expense		(11	)		(7	)		(34	)		(22	)
Provisions		3			-			12			1
Impairment loss (note 11)		50			-			67			-
Gain on sale of assets and deconsolidation of a subsidiary		-			-			(30	)		(7	)
Other		(2	)		4			(2	)		(2	)
		11			13			13			64
Changes in non-cash working capital:
Trade and other receivables		(9	)		19			(30	)		33
Inventories		9			4			(40	)		(7	)
Prepaid expenses		3			2			(1	)		1
Trade, other payables and accrued charges		3			23			(14	)		8
		6			48			(85	)		35
		17			61			(72	)		99
Cash flows from investing activities:
Additions to property, plant and equipment		(33	)		(36	)		(108	)		(65	)
Proceeds from sale of net assets (note 11)		-			-			84			17
Other		(7	)		2			(1	)		2
		(40	)		(34	)		(25	)		(46	)
Cash flows from financing activities:
Change in operating bank loans		-			4			62			5
Cash held in trust		(4	)		-			-			-
Increase in long-term debt		19			3			74			8
Repayments of long-term debt		(2	)		(1	)		(11	)		(8	)
Interest paid		(1	)		(1	)		(34	)		(25	)
Other		-			1			-			(2	)
		12			6			91			(22	)
		(11	)		33			(6	)		31
Foreign exchange loss on cash and cash equivalents held in foreign currencies		(2	)		-			(6	)		-
Net increase (decrease) in cash and cash equivalents		(13	)		33			(12	)		31
Cash and cash equivalents, beginning of period		100			66			99			68
Cash and cash equivalents, end of period	$	87		$	99		$	87		$	99

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

- 5 -

TEMBEC INC.
BUSINESS SEGMENT INFORMATION

Quarters and years ended September 29, 2012 and September 24, 2011
(unaudited) (in millions of Canadian dollars)

The Forest Products segment consists primarily of forest and sawmills operations, which produce lumber and building materials. The Specialty Cellulose and Chemical Pulp segment consists primarily of manufacturing and marketing activities of specialty cellulose and chemical pulps including the transformation and sale of resins and pulp by-products. A significant portion of chemical product sales are related to by-products generated by the two specialty cellulose pulp mills. The High-Yield Pulp segment includes the manufacturing and marketing activities of high-yield pulps. The Paper segment consists primarily of production and sales of coated bleached board and newsprint. Intersegment transfers of wood chips, pulp and other services are recorded at transfer prices agreed to by the parties, which are intended to approximate fair market value. The basis of presentation and the accounting policies used in these business segments are the same as those described in notes 2 and 3.

The financial performance of each segment is measured based on earnings before interest, income taxes, depreciation and amortization, and other specific or non-recurring items (adjusted EBITDA). This measure is included in the internal reports that are reviewed by senior management. Segment adjusted EBITDA is used to measure performance as management believes that such information is the most relevant in evaluating financial results relative to other entities that operate within similar businesses. Net finance costs and income tax are not allocated to operating segments.

- 6 -

TEMBEC INC.
BUSINESS SEGMENT INFORMATION

Quarters ended September 29, 2012 and September 24, 2011
(unaudited) (in millions of Canadian dollars)

		Quarter ended September 29, 2012
				Specialty
				Cellulose		High-
		Forest		& Chemical		Yield								Consolidation
		Products		Pulp		Pulp			Paper		Corporate			adjustments			Consolidated
Sales:
External	$	90	$	165	$	92		$	96	$	-		$	-		$	443
Internal		18		2		8			-		5			(33	)		-
		108		167		100			96		5			(33	)		443
Freight and other deductions		9		18		23			13		-			-			63
Lumber export taxes		1		-		-			-		-			-			1
Cost of sales		86		127		85			67		5			(33	)		337
Selling, general and administrative		4		6		1			2		7			-			20
Share-based compensation		-		-		-			-		(1	)		-			(1	)
Earnings (loss) before the following (adjusted EBITDA):		8		16		(9	)		14		(6	)		-			23
Depreciation and amortization		2		7		3			1		-			-			13
Other items (note 11)		-		-		50			-		1			-			51
Operating earnings (loss)	$	6	$	9	$	(62	)	$	13	$	(7	)	$	-		$	(41	)
Additions to property, plant and equipment	$	4	$	36	$	2		$	2	$	1		$	-		$	45
Total assets	$	216	$	544	$	156		$	120	$	23		$	-		$	1,059

		Quarter ended September 24, 2011
					Specialty
					Cellulose		High-
		Forest			& Chemical		Yield								Consolidation
		Products			Pulp		Pulp			Paper		Corporate			adjustments			Consolidated
Sales:
External	$	96		$	174	$	67		$	84	$	-		$	-		$	421
Internal		25			6		9			-		2			(42	)		-
		121			180		76			84		2			(42	)		421
Freight and other deductions		12			17		17			11		-			-			57
Lumber export taxes		3			-		-			-		-			-			3
Cost of sales		112			128		66			65		2			(42	)		331
Selling, general and administrative		4			5		1			2		5			-			17
Share-based compensation		-			-		-			-		(6	)		-			(6	)
Earnings (loss) before the following (adjusted EBITDA):		(10	)		30		(8	)		6		1			-			19
Depreciation and amortization		2			5		3			1		1			-			12
Other items (note 11)		-			-		-			-		2			-			2
Operating earnings (loss)	$	(12	)	$	25	$	(11	)	$	5	$	(2	)	$	-		$	5
Additions to property, plant and equipment	$	4		$	19	$	3		$	3	$	-		$	-		$	29
Total assets	$	267		$	491	$	173		$	122	$	40		$	-		$	1,093

- 7 -

TEMBEC INC.
BUSINESS SEGMENT INFORMATION

Years ended September 29, 2012 and September 24, 2011
(unaudited) (in millions of Canadian dollars)

		Year ended September 29, 2012
					Specialty
					Cellulose		High-
		Forest			& Chemical		Yield								Consolidation
		Products			Pulp		Pulp			Paper		Corporate			adjustments			Consolidated
Sales:
External	$	348		$	650	$	322		$	346	$	-		$	-		$	1,666
Internal		84			12		30			-		13			(139	)		-
		432			662		352			346		13			(139	)		1,666
Freight and other deductions		41			68		77			46		-			-			232
Lumber export taxes		7			-		-			-		-			-			7
Cost of sales		385			481		298			252		13			(139	)		1,290
Selling, general and administrative		15			21		6			11		21			-			74
Share-based compensation		-			-		-			-		(1	)		-			(1	)
Earnings (loss) before the following (adjusted EBITDA):		(16	)		92		(29	)		37		(20	)		-			64
Depreciation and amortization		10			21		13			2		-			-			46
Other items (note 11)		(22	)		-		50			-		22			-			50
Operating earnings (loss)	$	(4	)	$	71	$	(92	)	$	35	$	(42	)	$	-		$	(32	)
Additions to property, plant and equipment	$	12		$	91	$	8		$	7	$	2		$	-		$	120
Total assets	$	216		$	544	$	156		$	120	$	23		$	-		$	1,059

		Year ended September 24, 2011
					Specialty
					Cellulose		High-
		Forest			& Chemical		Yield								Consolidation
		Products			Pulp		Pulp			Paper		Corporate			adjustments			Consolidated
Sales:
External	$	375		$	681	$	348		$	339	$	-		$	-		$	1,743
Internal		96			12		30			-		7			(145	)		-
		471			693		378			339		7			(145	)		1,743
Freight and other deductions		47			66		79			45		-			-			237
Lumber export taxes		13			-		-			-		-			-			13
Cost of sales		441			464		299			255		7			(145	)		1,321
Selling, general and administrative		17			23		3			10		19			-			72
Share-based compensation		-			-		-			-		2			-			2
Earnings (loss) before the following (adjusted EBITDA):		(47	)		140		(3	)		29		(21	)		-			98
Depreciation and amortization		14			19		11			3		1			-			48
Other items (note 11)		3			-		-			-		-			-			3
Operating earnings (loss)	$	(64	)	$	121	$	(14	)	$	26	$	(22	)	$	-		$	47
Additions to property, plant and equipment	$	10		$	38	$	5		$	5	$	-		$	-		$	58
Total assets	$	267		$	491	$	173		$	122	$	40		$	-		$	1,093

- 8 -

TEMBEC INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(unaudited) (in millions of Canadian dollars, unless otherwise noted)

1.	Reporting entity and nature of operations
	Tembec Inc. (the “Corporation”) and its subsidiaries (collectively “Tembec” or the “Company”) operate an integrated forest products business.
	The Corporation is incorporated and domiciled in Canada and listed on the Toronto Stock Exchange under the symbol TMB. The address of the Company's registered office is 800 René-Lévesque Blvd. West, Suite 1050, Montreal, Quebec, Canada, H3B 1X9.
2.	Basis of presentation
	Statement of compliance
	Effective September 26, 2010, the Company fully adopted International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) as the basis for preparation of financial information and accounting.
	These unaudited interim consolidated financial statements and the notes thereto have been prepared in accordance with IFRS applicable to the preparation of interim financial statements, including International Accounting Standard (IAS) 34, Interim Financial Reporting, and IFRS 1, First-time Adoption of IFRS. These unaudited interim consolidated financial statements have not been reviewed by the Company’s auditors and should be read in conjunction with the Company’s 2011 annual consolidated financial statements prepared under previous Canadian Generally Accepted Accounting Principles (GAAP) and in consideration of the IFRS transition disclosures included in notes 2, 3 and 17 to these unaudited interim consolidated financial statements.
	An explanation of how the transition to IFRS has affected the reported financial position, financial performance and cash flows of the Company is provided in note 17. This note includes reconciliations of equity and total comprehensive income for prior periods reported under the previous Canadian GAAP to those reported for those periods under IFRS.
	These unaudited interim consolidated financial statements were authorized for issue by the Board of Directors on November 15, 2012.
	Basis of measurement
	The interim consolidated financial statements have been prepared on the historical cost basis, except for the following items in the consolidated balance sheet:

• the defined benefit liability is recognized as the net total of the present value of the defined benefit obligation less the fair value of the plan assets

• biological assets are measured at fair value less costs to sell

• asset retirement obligations and reforestation obligations are measured at the discounted value of expected future cash flows

• liabilities for cash-settled share-based payment arrangements are measured at fair value

• warrants classified as liabilities are measured at fair value

• embedded and freestanding derivative financial instruments are measured at fair value.

Functional and presentation currency

These interim consolidated financial statements are presented in Canadian dollars, which is the Company’s functional currency. Management believes that the Canadian dollar best reflects the currency of the primary economic environment in which Tembec operates. All financial information presented has been rounded to the nearest million, unless otherwise noted.

Use of estimates and judgements

The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates.

- 9 -

TEMBEC INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(unaudited) (in millions of Canadian dollars, unless otherwise noted)

2.	Basis of presentation (continued)
	Use of estimates and judgements (continued)
	Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.
	Significant areas requiring the use of management estimates in applying accounting policies that have the most significant effect on the amounts recognized in the interim consolidated financial statements and that may result in material adjustments to the carrying amounts within the next fiscal year include the determination of the net realizable value of inventories, provisions, recoverability of deferred tax assets, the measurement of defined benefit obligations and the valuation of pension plan assets.
	Other areas requiring the use of management estimates include the determination of the value of biological assets, financial instruments, guarantees, commitments, and contingencies. It also includes collectability of accounts receivable, estimating the useful life and residual value of property, plant and equipment, as well as assessing the recoverability of property, plant and equipment, and long-term receivables.
3.	Significant accounting policies
	The accounting policies set out below have been applied consistently to all periods presented in the interim consolidated financial statements and in preparing the opening IFRS balance sheet at September 26, 2010 (the “Transition Date”), for the purposes of the transition to IFRS.
	Basis of consolidation
	These interim consolidated financial statements include the accounts of the Company. Investments over which the Corporation has effective control are fully consolidated. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. The accounting policies of subsidiaries have been changed when necessary to align them with the policies adopted by the Company.
	Foreign currency
	Foreign currency transactions
	Transactions in foreign currencies are translated to the respective functional currencies of each operation using exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to the functional currency using the exchange rate at that date. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are translated to the functional currency using the exchange rate at the date that the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Foreign currency differences arising on translation are recognized in profit or loss.
	Foreign operations
	The assets and liabilities of foreign operations with functional currencies other than the Canadian dollar are translated to Canadian dollars using the exchange rates at the reporting date. The income and expenses of foreign operations are translated to Canadian dollars using the average exchange rates during the reporting period.
	Foreign currency differences are recognized in other comprehensive income. When a foreign operation is disposed of, in part or in full, the relevant amount in the foreign currency translation reserve is transferred to the statement of earnings (loss) as part of the gain or loss on disposal.
	Financial instruments
	Non-derivative financial assets and liabilities
	Cash and cash equivalents, trade and other receivables and long-term receivables are classified as loans and receivables, which is the Company’s only non-derivative financial asset. Operating bank loans, trade and other payables, interest payable and long-term debt are classified as other liabilities, which is the Company’s only non-derivative financial liability.

- 10 -

TEMBEC INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(unaudited) (in millions of Canadian dollars, unless otherwise noted)

3.	Significant accounting policies (continued)
	Financial instruments (continued)
	The Company initially recognizes all financial assets and liabilities on the date that they are originated. Subsequent to initial recognition at fair value, the financial assets are accounted for on an amortized cost basis using the effective interest rate method. Subsequent to initial recognition at fair value plus any directly attributable transaction costs, the financial liabilities are accounted for on an amortized cost basis using the effective interest rate method.
	Transaction costs incurred upon the issuance of debt instruments or modification of a financial liability are deducted from the financial liability and are amortized using the effective interest method over the expected life of the related liability.
	Derivative financial instruments
	The Company may manage, from time to time, its foreign exchange exposure on anticipated net cash inflows, principally U.S. dollars and euros, through the use of options and forward contracts.
	The Company may manage, from time to time, its exposure to commodity price risk associated with sales of lumber, pulp and newsprint through the use of cash-settled hedge (swap) contracts. The Company does not hold or issue derivative financial instruments for trading or speculative purposes.
	The Company does not currently apply hedge accounting.
	The Company has also previously issued liability-classified derivatives over its own equity, all of which expired on February 29, 2012.
	All derivatives are recognized initially at fair value. Attributable transaction costs are recognized in profit or loss as incurred. Subsequent to initial recognition, derivatives are measured at fair value and changes therein are accounted for in net finance costs.
	Common shares
	Common shares are classified as equity. Incremental costs directly attributable to the issue of common shares are recognized as a deduction from equity, net of any tax effects.
	Inventories
	Finished goods, work-in-process, wood chips, logs, and other raw materials are valued at the lower of cost, determined on an average cost basis, and net realizable value. In the case of manufactured inventories and work-in-process, cost includes expenditure incurred in acquiring raw materials, production or conversion costs and other costs incurred in bringing the inventory to their existing location and conditions as well as an appropriate share of production overheads based on normal operating capacity. For all raw materials to be used in the production of finished goods, net realizable value is determined on an as-converted-to-finished-goods basis. Operating, maintenance and spare parts inventories are valued at lower of average cost and net realizable value.
	Property, plant and equipment
	Recognition and measurement
	Property, plant and equipment are recorded at cost, after deducting investment tax credits and government assistance, less accumulated depreciation and accumulated impairment losses.
	Cost includes expenditures that are directly attributable to acquiring and bringing the assets to a working condition for their intended use. The Company capitalizes borrowing costs, which are directly attributable to the acquisition, construction or production of qualifying assets, unless development activities on these qualifying assets are suspended, in which case borrowing costs are expensed.

- 11 -

TEMBEC INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(unaudited) (in millions of Canadian dollars, unless otherwise noted)

3. Significant accounting policies (continued)

Property, plant and equipment (continued)

Subsequent costs

The cost of replacing a component of an item of property, plant and equipment is recognized in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Company, and its cost can be measured reliably. The carrying amount of the replaced component is derecognized. The costs of the day-today servicing of property, plant and equipment are recognized in profit or loss as incurred.

Depreciation

Depreciation is calculated over the depreciable amount, which is the cost of an asset less its residual value. Depreciation is recognized in profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment.

The estimated useful lives of the current and comparative periods are as follows:

Assets	Period
Buildings	20 - 30 years
Production equipment:
Pulp and paper	20 - 30 years
Sawmill	10 - 15 years
Forest access roads	3 - 20 years

Assets under construction are recognized at cost and are not depreciated as the assets are not available for use. Repairs and maintenance as well as planned shutdown maintenance are charged to expense as incurred.

Depreciation methods, useful lives and residual values are reviewed at each financial year-end and adjusted if appropriate.

Biological assets

Standing timber on privately held forest land that is managed for timber production is characterized as a biological asset. Accordingly, on each balance sheet date, the biological asset is valued at its fair value less costs to sell with any change therein, as a result of growth, harvest and change in valuation assumptions recognized in net income (loss) for the period. Standing timber is transferred to inventory at its fair value less costs to sell at the date the logs are removed from the forest. Land under standing timber is measured at cost and included in property, plant and equipment.

Leased assets

Leases in terms of which the Company assumes substantially all the risks and rewards of ownership are classified as finance leases. Upon initial recognition, the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset.

Other leases are operating leases and the leased assets are not recognized in the Company’s balance sheet.

Impairment

Financial assets (including receivables)

A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably.

Impairment losses recognized in prior periods are assessed at each balance sheet date for any indication that the loss has decreased or no longer exists. For financial assets measured at amortized cost, the reversal is recognized in profit or loss.

- 12 -

TEMBEC INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(unaudited) (in millions of Canadian dollars, unless otherwise noted)

3.	Significant accounting policies (continued)
	Impairment (continued)
	Non-financial assets
	The carrying amounts of the Company’s non-financial assets, other than biological assets, inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated.
	The recoverable amount of an asset or cash-generating unit (CGU) is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre- tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or the CGU. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets.
	An impairment loss is recognized if the carrying amount of an asset or CGU exceeds its estimated recoverable amount. Impairment losses are recognized in profit or loss. Impairment losses recognized in respect of CGUs reduce the carrying amounts of the assets in the unit that is subject to the impairment test on a pro rata basis.
	An impairment loss recognized in prior periods is assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.
	Provisions
	A provision is recognized if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognized as finance cost.
	Environmental costs
	The Company is subject to environmental laws and regulations enacted by federal, provincial, state and local authorities. Environmental expenditures that relate to current operations are expensed or capitalized as appropriate. Expenditures that relate to an existing condition caused by past operations and that are not expected to contribute to current or future operations are expensed. Liabilities are recorded when environmental assessments and/or remedial efforts are likely, and when the costs, based on a specific plan of action in terms of the technology to be used and the extent of the corrective action required, can be reasonably estimated.
	Reforestation
	Forestry legislation in British Columbia requires the industry to assume the cost of reforestation on certain harvest licences. Accordingly, the Company records a liability for the costs of reforestation in the period in which the timber is harvested. In periods subsequent to the initial measurement, changes in the liability resulting from the passage of time and revisions to management’s estimates are recognized in net income as they occur.
	Site restoration
	In accordance with the Company’s published environmental policy and applicable legal requirements, a provision for site restoration in respect of contaminated land, and the related expense, is recognized when the land is contaminated.
	Restructuring
	A provision for restructuring is recognized when the Company has approved a detailed and formal restructuring plan, and the restructuring either has commenced or has been announced publicly. Future operating costs and losses are recognized on the same basis as if they arose independently of the restructuring.

- 13 -

TEMBEC INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(unaudited) (in millions of Canadian dollars, unless otherwise noted)

3.	Significant accounting policies (continued)
	Provisions (continued)
	Onerous contracts
	A provision for onerous contracts is recognized when the expected benefits to be derived by the Company from a contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the Company recognizes any impairment loss on the assets associated with that contract.
	Contingent liability
	A contingent liability is a possible obligation that arises from past events and of which the existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not within the control of the Company, or a present obligation that arises from past events (and therefore exists), but is not recognized because it is not probable that a transfer or use of assets, provision of services or any other transfer of economic benefits will be required to settle the obligation, or the amount of the obligation cannot be estimated reliably.
	Employee future benefits
	Employee future benefits include pension plans and other benefit plans. Other benefit plans include post-employment life insurance programs, healthcare and dental care benefits as well as certain other long-term benefits provided to disabled employees.
	Defined contribution pension plans
	A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are recognized as an employee benefit expense in profit or loss in the periods during which services are rendered by employees.
	Defined benefit pension plans
	A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The Company’s net obligation in respect of defined benefit pension plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value. Any unrecognized past service costs and the fair value of any plan assets are deducted. The discount rate is the yield at the reporting date on AA credit-rated bonds that have maturity dates approximating the terms of the Company’s obligations and that are denominated in the same currency in which the benefits are expected to be paid. The calculation is performed annually by a qualified actuary using the projected unit credit method. When the calculation results in a benefit to the Company, the recognized asset is limited to the total of any unrecognized past service costs and the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the plan. In order to calculate the present value of economic benefits, consideration is given to any minimum funding requirements that apply to any plan in the Company. An economic benefit is available to the Company if it is realisable during the life of the plan, or on settlement of the plan liabilities.
	When the benefits of a plan are improved, the portion of the increased benefit relating to past service by employees is recognized in profit or loss on a straight-line basis over the average period until the benefits become vested. To the extent that the benefits vest immediately, the expense is recognized immediately in the statement of earnings (loss).
	The Company recognizes the current service cost in the employee future benefit costs. Interest cost and the expected return on plan assets are recognized in interest, foreign exchange and other. The actuarial gains and losses arising from defined benefit plans are recognized in other comprehensive income.

- 14 -

TEMBEC INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(unaudited) (in millions of Canadian dollars, unless otherwise noted)

3.	Significant accounting policies (continued)
	Employee future benefits (continued)
	Other benefit plans
	The Company’s net obligation in respect of long-term employee benefits, other than pension plans, is the amount of future benefit that employees have earned in return for their service in the current and prior periods. That benefit is discounted to determine its present value, and the fair value of any related assets is deducted. The discount rate is the yield at the reporting date on AA credit-rated bonds that have maturity dates approximating the terms of the Company’s obligations. The calculation is performed using the projected unit credit method. Any actuarial gains and losses are recognized in the statement of comprehensive earnings (loss) in the period in which they arise.
	Other employee benefits
	Short-term employee benefits
	Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided.
	A liability is recognized for the amount expected to be paid under the short-term incentive plan if the Company has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be estimated reliably.
	Share-based compensation transactions
	The Company uses the fair value based approach of accounting for all share options granted to its employees, whereby a compensation expense is recognized over the vesting period of the options, with a corresponding increase to contributed surplus. The Company bases the accruals of compensation cost on the best available estimate of the number of options that are expected to vest and revises that estimate if subsequent information indicates that actual forfeitures are likely to differ from initial estimates. Any consideration paid by plan participants in the exercise of share options or purchase of shares is credited to share capital. The contributed surplus component of share-based compensation is transferred to share capital upon the issuance of common shares.
	Deferred Share Units (DSU) are recognized in compensation expense and accrued liabilities as they are earned. DSUs are remeasured at each reporting period at fair value, until settlement.
	Performance-Conditioned Restricted Share Units (PCRSU) and Performance-Conditioned Share Units (PCSU) are recognized in compensation expense and accrued liabilities when it is likely that the performance conditions attached to the unit will be met. Compensation cost is prorated based on the underlying service period and the liability is remeasured at each reporting period at fair value, until settlement.
	Termination benefits
	Termination benefits are recognized as an expense when the Company is committed demonstrably, without realistic possibility of withdrawal, to a formal detailed plan to either terminate employment before the normal retirement date, or to provide termination benefits as a result of an offer made to encourage voluntary redundancy. Termination benefits for voluntary redundancies are recognized as an expense if the Company has made an offer of voluntary redundancy, it is probable that the offer will be accepted, and the number of acceptances can be estimated reliably. If benefits are payable more than 12 months after the reporting period, then they are discounted to their present value.
	Sales
	Sale of goods is measured at the fair value of the consideration received or receivable, net of returns, trade discounts and volume rebates. Revenue is recognized when persuasive evidence exists, usually in the form of an executed sales agreement, that the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods, and the amount of revenue can be measured reliably. If it is probable that discounts will be granted and the amount can be measured reliably, then the discount is recognized as a reduction of revenue as the sales are recognized.

- 15 -

TEMBEC INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(unaudited) (in millions of Canadian dollars, unless otherwise noted)

3.	Significant accounting policies (continued)
	Investment tax credit and government assistance
	Amounts received resulting from government assistance programs, including grants and investment tax credits for scientific research and experimental development, are reflected as a reduction of the cost of the asset or expense to which they relate at the time the eligible expenditure is incurred. Government financial assistance is recorded when there is reasonable assurance that the Company will comply with relevant conditions. Investment tax credits are recognized when the Company has made the qualifying expenditures and there is reasonable assurance that the credits will be realized.
	Finance costs and finance income
	Finance costs comprise interest expense on borrowings, unwinding of the discount on provisions and the amortization of other related transactions costs. Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognized in profit or loss using the effective interest method.
	Foreign currency gains and losses, gain or loss on embedded and freestanding derivative instruments, and interest on employee future benefit obligations and pension plan assets are reported on a net basis as finance cost or finance income.
	Income taxes
	Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognized in profit or loss except to the extent that it relates to a business combination, or items recognized directly in equity or in other comprehensive income.
	Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.
	Deferred tax is recognized using the balance sheet method, with respect to temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized for the following temporary differences: the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss, and differences relating to investments in subsidiaries and associates to the extent that it is probable that they will not reverse in the foreseeable future. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.
	A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.
	Freight and other deductions
	Freight associated with shipping products to customer and handling finished goods as well as discounts on prompt payment are included in Freight and other deductions in the consolidated statements of net earnings (loss).
	New standards and interpretation not yet adopted
	IFRS 7 Financial Instruments – Disclosures
	In December 2011, the IASB amended the standard IFRS 7, Financial Instruments – Disclosures, to provide additional information about offsetting of financial assets and financial liabilities. IFRS 7 has been amended to require disclosures that will enable users of financial statements to evaluate the effect or potential effect of netting arrangements, including rights of set-off associated with an entity’s recognized financial assets and recognized financial liabilities, on the entity’s balance sheet. An entity provides information including the gross amounts subject to rights of set-off, amounts set off in accordance with the offsetting criteria, amounts of financial instruments subject to master netting arrangements or similar agreements, and the related net amounts to meet the disclosure objective.

- 16 -

TEMBEC INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(unaudited) (in millions of Canadian dollars, unless otherwise noted)

3.	Significant accounting policies (continued)
	New standards and interpretation not yet adopted (continued)
	These amendments are effective for annual periods beginning on or after January 1, 2013. The Company has not yet begun the process of assessing the impact that the new standard will have on its financial statements and does not plan to early adopt the new requirement.
	IFRS 9 Financial Instruments
	In November 2009, the IASB issued IFRS 9, Financial Instruments (IFRS 9), and in October 2010, the IASB published amendments to IFRS 9 (IFRS 9 R).
	IFRS 9 R supersedes IFRS 9 and is effective for annual periods beginning on or after January 1, 2015, with early adoption permitted. For annual periods beginning before January 1, 2015, either IFRS 9 or IFRS 9 R may be applied. This standard provides guidance on the classification and measurement of financial liabilities and the presentation of gains and losses on financial liabilities designated at fair value through profit and loss. When an entity elects to measure a financial liability at fair value, gains or losses due to changes in the credit risk of the instrument must be recognized in other comprehensive income. The Company has not yet begun the process of assessing the impact that the new standard will have on its financial statements and does not plan to early adopt the new requirement.
	IFRS 13 Fair Value Measurement
	In May 2011, the IASB issued the standard, IFRS 13, Fair Value Measurement. The new standard is effective for annual periods beginning on or after January 1, 2013, with early adoption permitted. IFRS 13 is a comprehensive standard for fair value measurement and disclosure requirements for use across all IFRS standards. The new standard clarifies that fair value is the price that would be received to sell an asset, or paid to transfer a liability in an orderly transaction between market participants, at the measurement date. It also establishes disclosures about fair value measurement. Under existing IFRS, guidance on measuring and disclosing fair value is dispersed among the specific standards requiring fair value measurements and in many cases does not reflect a clear measurement basis or consistent disclosures. This new standard is not expected to have an impact on the amounts recorded in the financial statements. The Company does not plan to early adopt the standard.
	IAS 1 Presentation of Financial Statements
	IAS 1 has been amended to require entities to separate items presented in other comprehensive income into two groups, based on whether or not items may be recycled to net income in the future. Entities that choose to present other comprehensive income items before tax will be required to show the amount of tax related to the two groups separately. The amendment is effective for annual periods beginning on or after July 1, 2012, with earlier application permitted. IAS 1 is not expected to have an impact on amounts recorded in the financial statements of the Company. The Company does not plan to early adopt the standard.
	Amendments to IAS 19 Employee Benefits
	In June 2011, the IASB published an amended version of IAS 19, Employee Benefits. Adoption of the amendment is required for annual periods beginning on or after January 1, 2013, with early adoption permitted. This standard was amended to:

• eliminate the option to defer the recognition of gains and losses arising in defined benefit plans;

• require gains and losses relating to those plans to be presented in other comprehensive income; and

• improve the disclosure requirements concerning the characteristics of defined benefit plans and the risks arising from those plans.

The amended standard also incorporates changes to the accounting for termination benefits. The amendment is generally applied retrospectively with certain exceptions. The Company is still in the process of assessing the full impact that the new standard will have on its financial statements and does not plan to early adopt the new requirement.

- 17 -

TEMBEC INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(unaudited) (in millions of Canadian dollars, unless otherwise noted)

3.	Significant accounting policies (continued)
	New standards and interpretation not yet adopted (continued)
	IAS 32 Financial Instruments – Presentation
	In December 2011, the IASB amended the standard IAS 32, Financial Instruments – Presentation, to address inconsistencies identified in applying some of the offsetting criteria. IAS 32 clarifies the meaning of the offsetting criterion “currently has a legally enforceable right to set off” and the principle behind net settlement, including identifying when some gross settlement systems may be considered equivalent to net settlement.
	These amendments are effective for annual periods beginning on or after January 1, 2014. This new standard is not expected to have an impact on the amounts recorded in the financial statements. The Company does not plan to early adopt the standard.
4.	Inventories

		Sept. 29,		Sept. 24,		Sept. 26,
		2012		2011		2010
Finished goods	$	118	$	112	$	111
Logs and wood chips		61		66		64
Supplies and materials		76		83		80
	$	255	$	261	$	255
Inventories carried at net realizable value	$	48	$	32	$	30

	For the years ended in September 2012 and 2011, cost of sales consists primarily of inventories recognized as an expense. Inventories at September 29, 2012, were written down by $6 million (September 24, 2011 - $4 million; September 26, 2010 - $4 million) to reflect net realizable value being lower than cost. The write-down and reversal, if any, are included in cost of sales.
5.	Property, plant and equipment

		Net book value
		Sept. 29,		Sept. 24,		Sept. 26,
		2012		2011		2010
Land	$	11	$	12	$	12
Buildings		53		60		63
Production equipment:
Pulp and paper		300		335		359
Sawmill		19		31		40
Forest access roads		6		16		11
Assets under construction		96		37		11
	$	485	$	491	$	496

As at the end of September 2012, assets under construction include $59 million of the $190 million capital investment to upgrade the specialty cellulose manufacturing facility at Temiscaming, Quebec (see note 10).

- 18 -

TEMBEC INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(unaudited) (in millions of Canadian dollars, unless otherwise noted)

6.	Operating bank loans
	On March 4, 2011, the Company entered into a new $200 million asset-based revolving five-year working capital facility (ABL) expiring in February 2016. The facility has a first priority charge over the receivables and inventories of the Company’s Canadian operations. As at September 29, 2012, the amount available, based on eligible receivables and inventories, was $144 million of which $65 million was drawn and $48 million was reserved for letters of credit. Interest is calculated based either on the BA Rate, the LIBOR, the Canadian Prime Rate or the U.S. Base Rate, as the case may be, plus an applicable margin.
	In April 2011, the Ontario Court of Appeal rendered a decision in the restructuring proceedings involving Indalex Limited under the Companies’ Creditors Arrangement Act (CCAA). The Court of Appeal held that defined benefit pension plan deficiency claims had priority over security held by debtor-in-possession (DIP) lenders in the context of a sale made under a CCAA proceeding. This decision is currently being appealed to the Supreme Court of Canada. In light of the uncertainty surrounding the Ontario Court of Appeal decision, the ABL agent requested that the Company refrain from making any further draws or utilization of the ABL facility until such priority issue is dealt with by the Supreme Court of Canada. The Company is currently under discussions with the ABL agent regarding this request as it considers the risk to be minimal and the position of the ABL agent to be unwarranted.
	The French operations are supported by “receivable factoring” agreements. As such, the borrowing base fluctuates periodically, depending on shipments and cash receipts. At the end of September 2012, the amount available was $20 million of which $3 million was drawn.
	The Company’s exposure to interest rate risk, foreign currency and liquidity risk is disclosed in note 15.
7.	Long-term debt
	This note provides information about the contractual terms of the Company’s long-term interest-bearing loans and borrowings, which are measured at amortized cost.

			Sept. 29,		Sept. 24,		Sept. 26,
	Maturity		2012		2011		2010
Tembec Industries Inc. - US $305 million (September 24, 2011 and September 26, 2010 - US $255 million), 11.25% senior secured notes	12/2018	$	300	$	262	$	261
Tembec French operations	Various		22		25		21
Tembec Energy LP - 6.35% secured term loan	07/2022		20		-		-
Kirkland Lake Engineered Wood Products Inc.	Various		8		8		8
Other	Various		2		2		2
Tembec Inc. - 6% unsecured notes	09/2012		-		5		9
		$	352	$	302	$	301
Less current portion			16		18		17
Less net unamortized financing costs			13		13		13
		$	323	$	271	$	271

On February 23, 2012, the Company completed an add-on offering of US $50 million in aggregate principal amount of 11.25% senior secured notes due December 15, 2018. The add-on offering notes were offered as additional notes under the indenture dated as of August 17, 2010, pursuant to which the Company had previously issued US $255 million in aggregate principal amount of 11.25% senior secured notes due December 15, 2018. The notes are senior obligations secured by a first priority lien on certain of the property and assets of the Company and the guarantors of the notes, other than receivables, inventory and certain intangibles upon which the note holders have a second priority lien. The notes are guaranteed by the Company and certain of its subsidiaries.

The previously issued notes were registered following an exchange offer and registration with the Securities and Exchange Commission (SEC) completed on March 31, 2011. The add-on offering notes were registered following an exchange offer and registration with the SEC completed on September 28, 2012. Since registration, the add-on offering notes are trading fungibly with the previously issued notes.

- 19 -

TEMBEC INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(unaudited) (in millions of Canadian dollars, unless otherwise noted)

7.	Long-term debt (continued)
	In addition, the Company must maintain their registration with the SEC throughout the life of the notes. If the obligations under the registration rights agreement are not satisfied, the Company will be required to pay additional interest to the holders of the notes up to a maximum annual amount of US $3 million.
	On June 29, 2012, the Company entered into a $30 million term loan facility to assist with the financing of the specialty cellulose project in Temiscaming, Quebec, which is described in more detail in note 10. The interest rate on this loan will be the greater of 6.35% and the yield on equivalent term Government of Canada bonds plus 4.25% at the date the funds are advanced. The loan will be reimbursed in blended monthly instalments over a period of eight years beginning approximately 24 months after the initial advance, with a “balloon” payment of $18 million to be repaid at the end of the ten-year term period. The loan is secured by the project assets. On July 12, 2012, the Company drew a first tranche of $20 million bearing interest at 6.35%.
	The Company’s credit agreements contain covenants that could in certain circumstances restrict the ability of the Company to incur or guarantee additional indebtedness, to encumber or dispose of its assets or make certain payments or distributions.
	The Company’s exposure to interest rate risk, foreign currency and liquidity risk is disclosed in note 15.
8.	Provisions

		Sept. 29,		Sept. 24,		Sept. 26,
		2012		2011		2010
Reforestation obligation	$	2	$	15	$	13
Site restoration		13		4		4
Other		5		5		5
	$	20	$	24	$	22
Current	$	3	$	8	$	5
Non-current		17		16		17
	$	20	$	24	$	22

9.	Share capital
	Authorized
	Unlimited number of common voting shares, without par value.
	Unlimited number of non-voting Class A preferred shares issuable in series without par value, with other attributes to be determined at time of issuance.
	Nil warrants (September 24, 2011 and September 26, 2010 – 11,111,111) convertible in equal amount of common shares that expired unexercised on February 29, 2012.
	Issued and fully paid

		Sept. 29,		Sept. 24,		Sept. 26,
		2012		2011		2010
100,000,000 common shares	$	564	$	564	$	564
Nil warrants (September 24, 2011 and September 26, 2010 - 11,093,943) (included in other long-term liabilities)	$	-	$	-	$	5

- 20 -

TEMBEC INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(unaudited) (in millions of Canadian dollars, unless otherwise noted)

9.	Share capital (continued)
	Net loss per share
	The following table provides the reconciliation between basic and diluted net loss per share:

		Quarters						Years
		2012			2011			2012			2011
Net loss	$	(47	)	$	(17	)	$	(82	)	$	(5	)
Weighted average number of common shares outstanding		100,000,000			100,000,000			100,000,000			100,000,000
Dilutive effect of employees share options and warrants		-			-			-			-
Weighted average number of diluted common shares outstanding		100,000,000			100,000,000			100,000,000			100,000,000
Basic and diluted net loss in dollars per share	$	(0.47	)	$	(0.17	)	$	(0.82	)	$	(0.05	)

The warrants and employees share options had no dilutive effect for the above periods; however, these securities could potentially dilute earnings per share in future periods.

Warrants

Concurrently with the first drawdown on the $75 million term loan facility to assist with the $190 million capital investment to upgrade its specialty cellulose manufacturing facility at Temiscaming, Quebec, the Company has granted the lender an option to acquire 3 million common shares of the Corporation at a price of $7 per share. These warrants vest on the first loan disbursement date and expire on August 30, 2017. The Company received, on October 19, 2012, its first draw of $9 million on the term loan (see note 10).

Share-based compensation

Under the prior Long-Term Incentive Plan, the Company had, from time to time, granted options to its employees. The plan provided for the issuance of common shares at an exercise price equal to the market price of the Company’s common shares on the date of the grant. These options vest over a five-year period and expire ten years from the date of issue.

The following table summarizes the changes in options outstanding and the impact on weighted average per share exercise price during the period:

	September 29, 2012
			Weighted average
	Options		exercise price
Balance, beginning of year, September 24, 2011	122,020	$	75.01
Options cancelled	4,905		180.31
Balance, end of period, December 24, 2011	117,115	$	70.60
Options cancelled	8,857		108.81
Balance, end of period, March 24, 2012	108,258	$	67.48
Options cancelled	584		248.29
Balance, end of period, June 23, 2012	107,674	$	66.50
Options cancelled	2,687		80.64
Balance, end of period, September 29, 2012	104,987	$	66.13

Of the total 17,033 options cancelled, 5,791 expired and 11,242 were forfeited.

- 21 -

TEMBEC INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(unaudited) (in millions of Canadian dollars, unless otherwise noted)

9.	Share capital (continued)
	During fiscal 2009, the Company established a Performance-Conditioned Restricted Share Units (PCRSU) plan for designated senior executives. During the December 2011 quarter, 880,968 PCRSUs were forfeited as performance conditions attached to it were not achieved, and the remaining 1,143,039 PCRSUs were paid for a total consideration of $3 million. There are no PCRSUs outstanding and this plan was terminated.
	On November 17, 2010, under the Directors’ Share Award plan, non-executive members of the Board were granted 655,175 Deferred Share Units (DSU), and on January 27, 2011, 95,824 additional DSUs were granted. These DSUs vest in three equal amounts over the next three Annual General Shareholders' meetings beginning on January 27, 2011.
	On November 15, 2011, the Board approved the establishment of a Performance-Conditioned Share Unit (PCSU) plan. Under the PCSU plan, designated senior executives will be granted a specified number of DSUs or PCSUs annually, which vest over successive three-year periods, based on total shareholder return over the performance period as determined relative to a peer group and the increase in value of the Company’s weighted average share price over the performance period. On January 26, 2012, 373,147 DSUs were granted of which 5,564 were forfeited during the June 2012 quarter.
	The following table summarizes the details of share-based compensation expenses (credits) relating to its different plans:

		Quarters						Years
		2012			2011			2012			2011
Performance-conditioned restricted share unit plan	$	-		$	(4	)	$	-		$	2
Directors' share award plan		(1	)		(2	)		(1	)		-
Performance-conditioned share unit plan		-			-			-			-
	$	(1	)	$	(6	)	$	(1	)	$	2

10.	Commitments
	On March 16, 2012, the Company announced a $190 million capital investment to upgrade its specialty cellulose manufacturing facility at Temiscaming, Quebec. The project involves the replacement of three old boilers with a new high-pressure boiler designed to burn waste sulphite liquor, a co-product of the specialty cellulose manufacturing process, producing steam for use at the facility. The project also calls for the installation of a new electrical turbine that will increase the Temiscaming facility's electricity production capacity from its current 10 megawatts to 60 megawatts. As at the end of September 2012, the Company had incurred $59 million of capital expenditures for this project and had $51 million of outstanding commitments.
	The Company has entered into a 25-year power purchase contract with Hydro-Quebec that will allow the Company to sell to Hydro-Quebec up to 50 megawatts of the incremental electricity generated by the new turbine at green energy rates of $106 per MW/hour, indexed annually to the consumer price index.
	In connection with the project, the Company entered into the following term loan facilities to assist with the financing:

• a $75 million term loan facility, bearing interest at 5.5%. The loan has a 15-year term consisting of a three-year construction or drawdown period followed by a 12-year amortization period. The term of the loan will be shortened by three years if the Company does not complete certain future capital expenditures at the Temiscaming specialty cellulose mill. The loan will be secured by the project assets. The Company has also granted the lender a five-year option expiring on August 30, 2017, to acquire 3 million common shares of the Corporation at a price of $7 per share. On October 19, 2012, the Company received its first draw of $9 million on the term loan.

• a $30 million term loan facility, which the Company drew a first tranche of $20 million on July 12, 2012. Details related to this new facility are disclosed in note 7.

- 22 -

TEMBEC INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(unaudited) (in millions of Canadian dollars, unless otherwise noted)

11.	Other items
	The following table provides a summary of the other items by business segment of the Company:

		Quarters				Years
		2012		2011		2012			2011
High-Yield Pulp:
Impairment loss - Chetwynd, British Columbia, pulp mill	$	50	$	-	$	50		$	-
		50		-		50			-
Forest Products:
Gain on sale of British Columbia sawmills		-		-		(24	)		-
Loss on sale/closure of hardwood flooring plants		-		-		2			-
Cranbrook planer mill closure charge		-		-		-			1
Taschereau sawmill closure charge		-		-		-			2
		-		-		(22	)		3
Corporate:
Costs for permanently idled facilities		1		2		10			7
Impairment loss - Temlam loan receivable		-		-		16			-
Gain on sale of minority equity investment		-		-		(4	)		-
Gain on sale of Smooth Rock Falls, Ontario, assets		-		-		-			(3	)
Gain on deconsolidation of Tembec USA LLC		-		-		-			(4	)
		1		2		22			-
Other items	$	51	$	2	$	50		$	3

2012

During the September 2012 quarter, the Company recorded an impairment loss of $50 million related to property, plant and equipment, including the related supplies and materials of the Chetwynd, British Columbia, high-yield pulp mill. Subsequent to the announced indefinite idling of the pulp mill and following a review of its business plan, the Company undertook an impairment review and found that the carrying value of its assets exceeded their recoverable amount being their fair value less costs to sell. The recoverable amount was determined to be nominal.

During the September 2012 quarter, the Company recorded a charge of $1 million relating to several permanently idled facilities. The costs relate to custodial, site security, legal and remediation activities. For the year ended September 29, 2012, these charges amount to $10 million.

On March 23, 2012, the Company sold its British Columbia Southern Interior wood products assets for proceeds of $66 million. The sale included the Elko and Canal Flats sawmills and approximately 1.1 million cubic meters of combined Crown tenures, private land and contract annual allowable cut. As a result of the sale, the Company recorded a gain of $24 million in the March 2012 quarter. The following table provides information related to balance sheet items of the two sawmills at the time of sale:

Current assets	$	35
Long-term assets		28
Current liabilities		(10	)
Long-term reforestation obligations		(9	)
Employee future benefits and other		(2	)
	$	42

- 23 -

TEMBEC INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(unaudited) (in millions of Canadian dollars, unless otherwise noted)

11.	Other items (continued)
	2012 (continued)
	During the March 2012 quarter, the Company recorded an impairment loss of $16 million related to the loan receivable from Temlam Inc. The latter is currently under creditor protection and owns an idled laminated veneer lumber (LVL) facility located in Amos, Quebec. The Company has a 50% secured interest in the facility. The cutting rights that were previously attached to the LVL facility were granted to another company. In the absence of a guaranteed fiber supply, the Company has concluded that the re-start of the facility is unlikely and has adjusted its carrying value to the amount anticipated to be realized upon liquidation or sale.
	On December 22, 2011, the Company recorded a gain of $4 million relating to the sale of a minority equity position in two dissolving pulp mills located in the Province of New Brunswick.
	On November 25, 2011, the Company sold its Toronto, Ontario, flooring plant for proceeds of $13 million. Concurrently, the Company also announced the closure of its Huntsville, Ontario, hardwood flooring plant. The sale of the Toronto plant and the closure of the Huntsville plant resulted in a charge of $2 million that has been recorded in the December 2011 quarter.
	2011
	During the September 2011 quarter, the Company recorded a charge of $2 million relating to several permanently idled facilities. The costs relate to pension and healthcare benefits, legal costs, site security and custodial costs. For the year ended September 24, 2011, these charges amount to $7 million.
	During the June 2011 quarter, the Company finalized the sale of its hydro-electric generating assets located in Smooth Rock Falls, Ontario, and recorded a gain of $3 million. Total consideration for the assets, which had a capacity of 7.4 megawatts, was $16 million paid in cash.
	During the June 2011 quarter, the Company announced that its non-operating U.S. subsidiary, Tembec USA LLC, had filed a petition seeking relief under Chapter 7 of the Bankruptcy Code of the United States. As a result of the filing, the Company determined that it no longer exercised control over this investment. The Company recorded a gain of $4 million relating to the deconsolidation of this subsidiary, arising primarily from the reduction in its consolidated accrued benefit obligation.
	During the March 2011 quarter, the Company announced the permanent closure of the Taschereau, Quebec sawmill. The facility had been idled since October 2009. The Company recorded a charge of $2 million relating to severance and other items.
	During the March 2011 quarter, the Company recorded a charge of $1 million for severance relating to the Cranbrook, British Columbia planer mill operation. The mill has been indefinitely idled since November 2007.

- 24 -

TEMBEC INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(unaudited) (in millions of Canadian dollars, unless otherwise noted)

12. Net finance costs

		Quarters						Years
		2012			2011			2012			2011
Interest on long-term debt	$	10		$	7		$	36		$	31
Interest on short-term debt		1			1			2			1
Bank charges and other financing expenses		-			2			2			6
Net foreign exchange loss (gain), excluding exchange on long-term debt		4			(4	)		4			-
Derivative financial instruments		-			-			-			(1	)
Interest income		-			(1	)		(1	)		(1	)
Exchange loss (gain) on long-term debt		(13	)		11			(13	)		1
Net change in fair value of warrants		-			(2	)		-			(5	)
Interest capitalized on assets under construction		(1	)		-			(2	)		-
	$	1		$	14		$	28		$	32
Finance costs	$	14		$	21		$	42		$	39
Finance income		(13	)		(7	)		(14	)		(7	)
Net finance costs	$	1		$	14		$	28		$	32

13.	Income taxes
	The reconciliation of income taxes calculated at the statutory rate to the actual tax provision is as follows:

		Quarters						Years
		2012			2011			2012			2011
Earnings (loss) before income taxes	$	(42	)	$	(9	)	$	(60	)	$	15
Income tax expense (recovery) based on combined federal and provincial income tax rates of 26.3% (2011 - 27.8%)	$	(11	)	$	(3	)	$	(16	)	$	4
Increase (decrease) resulting from:
Unrecognized tax asset arising from current losses		16			7			32			10
Difference in statutory income tax rate		2			2			6			6
Non-deductible (taxable) portion of exchange loss (gain) on long-term debt		(2	)		2			(2	)		-
Other permanent differences		-			-			2			-
		16			11			38			16
Income tax expense	$	5		$	8		$	22		$	20
Income taxes:
Current	$	2		$	8		$	11		$	8
Deferred		3			-			11			12
Income tax expense	$	5		$	8		$	22		$	20

- 25 -

TEMBEC INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(unaudited) (in millions of Canadian dollars, unless otherwise noted)

14.	Employee future benefits
	The following table presents the Company’s employee future benefit costs:

		Quarters				Years
		2012		2011		2012		2011
Defined benefit pension plans	$	2	$	2	$	9	$	9
Other benefit plans		-		-		1		1
Defined contribution and other retirement plans		2		3		9		11
	$	4	$	5	$	19	$	21

15.	Financial instruments
	Fair value
	The carrying amount of cash and cash equivalents, cash held in trust, trade and other receivables, bank indebtedness, operating bank loans, trade, other payables and accrued charges, and interest payable approximates their fair values because of the near-term maturity of those instruments. The carrying values of the long-term loans receivable and other long-term liabilities also approximate their fair values.
	The carrying value and the fair value of long-term debt are as follows:

		Sept. 29,		Sept. 24,		Sept. 26,
		2012		2011		2010
Carrying value	$	339	$	289	$	288
Fair value	$	369	$	294	$	301

The fair value of the senior secured notes was estimated using quoted market prices; the fair value of the other long-term debt was estimated based on discounted cash flows using year-end market yields of similar instruments having the same maturity.

Derivative financial instruments are the only financial instruments of the Company measured at fair value on a recurring basis and have been valued in accordance with Level 1 of the fair value hierarchy, which is based on unadjusted quoted prices in an active market. The Company had no derivative financial instruments at September 29, 2012 (September 24, 2011 – negligible amount; September 26, 2010 – nil).

Financial risk management

The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was:

		Sept. 29,		Sept. 24,		Sept. 26,
		2012		2011		2010
Loans and receivables, other than cash, cash equivalents and cash held in trust	$	212	$	206	$	236
Cash, cash equivalents and cash held in trust	$	92	$	105	$	74

Exposure to liquidity risk

Liquidity risk arises from the possibility that the Company will not be able to meet its financial obligations as they fall due. The Company has an objective of maintaining liquidity equal to 12 months of maintenance capital expenditures, interest and principal repayments and seasonal working capital requirements, which would require approximately $135 million to $150 million of liquidity.

A liquidity reserve in the form of cash, cash equivalents and undrawn revolving credit facilities is maintained to assist in the solvency and financial flexibility of the Company. Liquidity reserves as at September 29, 2012, totalled $140 million. Repayment of amounts due within one year may also be funded by normal collection of current trade accounts receivable and cash on hand.

- 26 -

TEMBEC INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(unaudited) (in millions of Canadian dollars, unless otherwise noted)

15.	Financial instruments (continued)
	Financial risk management (continued)
	In April 2011, the Ontario Court of Appeal rendered a decision in the restructuring proceedings involving Indalex Limited under the Companies’ Creditors Arrangement Act (CCAA). The Court of Appeal held that defined benefit pension plan deficiency claims had priority over security held by debtor-in-possession (DIP) lenders in the context of a sale made under a CCAA proceeding. This decision is currently being appealed to the Supreme Court of Canada. The agent for the asset-based loan (ABL) lenders’ syndicate recently expressed concern regarding the solvency deficits of the Company’s Ontario defined benefit pension plans. In light of the uncertainty surrounding the Ontario Court of Appeal decision, the ABL agent requested that the Company refrain from making any further draws or utilization of the ABL facility until such priority issue is dealt with by the Supreme Court of Canada.
	The Company is currently under discussions with the ABL agent regarding this request as it considers the risk to be minimal and the position of the ABL agent to be unwarranted. The Company’s liquidity position at September 29, 2012, includes $31 million related to the unutilized portion of the ABL. If the unutilized ABL portion was to remain unavailable for an extended period of time, the Company’s liquidity would fall below its stated objective of $135 million to $150 million. In order to address this risk, the Company is assessing other liquidity enhancing alternatives such as limiting capital expenditures and seeking other sources of financing or funding.
	The following are the contractual maturities of financial liabilities, including interest payments:

		Carrying		Contractual								After
		amount		cash flows		Year 1		Years 2-3		Years 4-5		5 years
Secured bank loans	$	336	$	561	$	37	$	79	$	79	$	366
Unsecured loans		16		18		7		7		3		1
Operating bank loans		68		68		68		-		-		-
Trade and others		243		243		243		-		-		-
	$	663	$	890	$	355	$	86	$	82	$	367

	Foreign currency rate risk management
	The Company is exposed to currency risk on sales, purchases and long-term debt that are denominated in a currency other than the Canadian dollar. The currencies in which these transactions are primarily denominated are Canadian dollar, US dollar and euro.
	To reduce the impact of fluctuations in the value of the US dollar, the Company has adopted a policy, which allows for hedging up to 50% of its anticipated US $ receipts for up to 36 months in duration. As at September 29, 2012, the Company does not hold any foreign exchange contracts.
16.	Capital management
	It is the Company’s objective to manage its capital to ensure adequate capital resources exist to support operations while maintaining its business growth. The Company sets the amount of capital in proportion to risk. The Company manages the capital structure and makes adjustments to it in light of changes in economic conditions and the risk of characteristics of the underlying assets.
	The Company monitors capital on the basis of net debt to total capitalization ratio. Net debt is calculated as a total debt (long-term debt plus bank indebtedness and operating bank loans) less cash, cash equivalents, and cash held in trust.
	Total capitalization includes net debt plus provisions, accrued benefit liability, deferred income taxes, other long-term liabilities, and shareholders’ equity.
	The Company’s strategy is to maintain the net debt to total capitalization ratio at 40% or less. The objective is to keep a strong balance sheet and maintain the ability of the Company to access capital markets at favourable rates. The net debt to total capitalization ratio for the Company was 45% as at September 29, 2012 (September 24, 2011 – 27%, September 26, 2010 – 28%). The increase was due to fiscal 2012 losses, which reduced shareholders’ equity, combined with higher net debt due primarily to finance the Temiscaming specialty cellulose project. The Company anticipates that the net debt to total capitalization ratio will remain in excess of its target until the Temiscaming project is completed and begins to generate the projected incremental adjusted EBITDA.
	There were no changes in the Company’s approach to capital management during the period.

- 27 -

TEMBEC INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(unaudited) (in millions of Canadian dollars, unless otherwise noted)

17.	Explanation of transition to IFRS
	The accounting policies set out in note 3 have been applied in preparing the financial statements for the quarters and years ended September 29, 2012 and September 24, 2011.
	In preparing its opening IFRS balance sheet, the Company has adjusted amounts reported previously in financial statements prepared in accordance with previous Canadian GAAP. An explanation of how the transition from previous GAAP to IFRS has affected the Company’s financial position, financial performance and cash flows is set out in the following tables and the notes that accompany the tables.
	In such tables, reclassification has been made to conform to IAS 1 – Presentation of Financial Statements, minimum disclosure requirements. Additionally, in preparing its interim consolidated financial statements in accordance with IFRS 1 - First-time Adoption of International Financial Reporting Standards, the Company applied the mandatory exemptions and elected to apply the following optional exemptions from full retrospective application:
	Employee benefits exemption
	IFRS 1 provides the option to retrospectively apply IAS 19, Employee Benefits, for the recognition of unamortized actuarial gains and losses, past service costs and transitional obligations and assets or to recognize these balances previously deferred under previous Canadian GAAP in opening retained earnings at the Transition Date. The Company has elected to recognize all unamortized cumulative actuarial losses and past service costs at the Transition Date as an adjustment to opening retained earnings for all of its employee future benefit plans.
	Foreign currency translation differences
	Retrospective application of IFRS would require the Company to determine cumulative currency translation differences in accordance with IAS 21, The Effects of Changes in Foreign Exchange Rates, from the date a subsidiary or equity method investee was formed or acquired. IFRS 1 permits cumulative translation gains and losses to be reset to zero at the Transition Date. The Company elected to reset all cumulative translation gains and losses to zero in opening retained earnings at its Transition Date.
	Event driven fair value of property, plant and equipment as deemed cost
	IFRS 1 provides the choice of recording assets and liabilities based on a deemed cost, which can be an event driven valuation where some or all of the assets and liabilities were valued and recognized at fair value under previous Canadian GAAP. As a result of the recapitalization transaction that occurred within the Company in 2008, the Company has elected to apply this exemption to property, plant and equipment and used such event driven fair value measurements as deemed cost for IFRS at the date of that measurement.
	Business combinations exemption
	IFRS 1 provides the option to apply IFRS 3, Business Combinations, retrospectively or prospectively - either from the Transition Date or a particular date prior to the Transition Date. The Company has elected to apply IFRS 3 prospectively to business combinations that occur after the Transition Date. Accordingly, business combinations prior to this date have not been restated.
	Share-based payment transaction exemption
	IFRS 1 provides an optional exemption to the application of IFRS 2, Share-based Payment, for those share options granted subsequent to November 7, 2002, that have fully vested as at the Transition Date and to liabilities arising from share-based payment transactions that were settled before the Transition Date. The Company has elected this exemption.
	Borrowing costs
	IFRS 1 provides the option to apply IAS 23, Borrowing Costs, retrospectively or prospectively from the Transition Date. IAS 23 requires an entity to capitalize borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset. A qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its intended use or sale. The Company elected to apply this exemption prospectively in respect of qualifying assets for which the commencement date for capitalization was on or after the Transition Date.

- 28 -

TEMBEC INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(unaudited) (in millions of Canadian dollars, unless otherwise noted)

17.	Explanation of transition to IFRS (continued)
	Reconciliation of Consolidated Balance Sheets

	September 24, 2011
			Previous						Effect of
			Canadian			Reclassi-			transition
	Note		GAAP			fication			to IFRS			IFRS
ASSETS
Current assets:
Cash and cash equivalents		$	99		$	-		$	-		$	99
Cash held in trust			6			-			-			6
Trade and other receivables			182			-			-			182
Inventories			261			-			-			261
Prepaid expenses			6			-			-			6
			554			-			-			554
Property, plant and equipment	(b)(c)(d)		493			-			(2	)		491
Biological assets	(a)		-			-			4			4
Employee future benefits	(e)		-			16			(15	)		1
Other long-term receivables			-			28			-			28
Other assets			44			(44	)		-			-
Deferred tax assets	(e)		16			-			(1	)		15
		$	1,107		$	-		$	(14	)	$	1,093
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Operating bank loans		$	6		$	-		$	-		$	6
Trade, other payables and accrued charges	(g)		248			(8	)		-			240
Interest payable			8			-			-			8
Income tax payable			6			-			-			6
Provisions	(g)		-			8			-			8
Current portion of long-term debt			18			-			-			18
			286			-			-			286
Long-term debt			271			-			-			271
Provisions	(g)		-			18			(2	)		16
Employee future benefits	(e)		-			168			117			285
Other long-term liabilities	(e)(f)(g)		188			(186	)		-			2
			745			-			115			860
Shareholders' equity:
Share capital	(f)		570			-			(6	)		564
Contributed surplus	(h)		5			-			(5	)		-
Deficit			(213	)		-			(120	)		(333	)
Accumulated other comprehensive earnings (loss)	(c)		-			-			2			2
			362			-			(129	)		233
		$	1,107		$	-		$	(14	)	$	1,093

- 29 -

TEMBEC INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(unaudited) (in millions of Canadian dollars, unless otherwise noted)

17.	Explanation of transition to IFRS (continued)
	Reconciliation of Consolidated Statements of Comprehensive Earnings (Loss)

	Quarter ended September 24, 2011
			Previous			Effect of
			Canadian			transition
	Note		GAAP			to IFRS			IFRS
Sales		$	421		$	-		$	421
Freight and other deductions			57			-			57
Lumber export taxes			3			-			3
Cost of sales (excluding depreciation and amortization)	(a)(b)(e)		331			-			331
Selling, general and administrative			17			-			17
Share-based compensation			(6	)		-			(6	)
Depreciation and amortization	(b)		11			1			12
Other items	(e)		2			-			2
Operating earnings (loss)			6			(1	)		5
Interest, foreign exchange and other	(c)(d)(e)(f)(g)		5			(2	)		3
Exchange loss (gain) on long-term debt	(c)		11			-			11
Net finance costs			16			(2	)		14
Earnings (loss) before income taxes			(10	)		1			(9	)
Income tax expense			7			1			8
Net loss			(17	)		-			(17	)
Other comprehensive earnings (loss), net of income taxes:
Defined benefit pension plans	(e)		-			(64	)		(64	)
Other benefit plans			-			-			-
Foreign currency translation differences for foreign operations	(c)		-			(2	)		(2	)
Total comprehensive loss		$	(17	)	$	(66	)	$	(83	)
Basic and diluted net loss in dollars per share		$	(0.17	)				$	(0.17	)

- 30 -

TEMBEC INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(unaudited) (in millions of Canadian dollars, unless otherwise noted)

17.	Explanation of transition to IFRS (continued)
	Reconciliation of Consolidated Statements of Comprehensive Earnings (Loss) (continued)

	Year ended September 24, 2011
			Previous			Effect of
			Canadian			transition
	Note		GAAP			to IFRS			IFRS
Sales		$	1,743		$	-		$	1,743
Freight and sales deductions			237			-			237
Lumber export taxes			13			-			13
Cost of sales (excluding depreciation and amortization)	(a)(b)(e)		1,324			(3	)		1,321
Selling, general and administrative			72			-			72
Share-based compensation			2			-			2
Depreciation and amortization	(b)		45			3			48
Other items	(e)		1			2			3
Operating earnings (loss)			49			(2	)		47
Interest, foreign exchange and other	(c)(d)(e)(f)(g)		32			(1	)		31
Exchange loss (gain) on long-term debt	(c)		1			-			1
Net finance costs			33			(1	)		32
Earnings (loss) before income taxes			16			(1	)		15
Income tax expense	(e)		19			1			20
Net loss			(3	)		(2	)		(5	)
Other comprehensive earnings (loss), net of income taxes:
Defined benefit pension plans	(e)		-			(64	)		(64	)
Other benefit plans			-			-			-
Foreign currency translation differences for foreign operations	(c)		-			2			2
Total comprehensive loss		$	(3	)	$	(64	)	$	(67	)
Basic and diluted net loss in dollars per share		$	(0.03	)				$	(0.05	)

- 31 -

TEMBEC INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(unaudited) (in millions of Canadian dollars, unless otherwise noted)

17.	Explanation of transition to IFRS (continued)
	Notes to the reconciliation of equity and statement of comprehensive earnings (loss)
	(a)	Biological assets
		In accordance with IAS 41, Agriculture, the Company’s standing timber on its private timberlands is considered to be a biological asset that is measured at fair value less costs to sell at each reporting date, with changes in fair value less costs to sell recognized in net earnings (loss) at each period. As a result of this IFRS guidance, the Company’s standing timber on its private timberlands has been separately identified on the consolidated balance sheet as biological assets and recorded at fair value less costs to sell.
		The effect of the above on the Company’s balance sheet as at September 24, 2011, resulted in an increase in biological assets of $4 million and in a decrease of the deficit of $4 million.
		Total comprehensive loss for the quarter and the year ended September 24, 2011, increased by $3 million.
	(b)	Component accounting
		Under previous Canadian GAAP, the Company did not apply component accounting to the significant separable component parts of an item of property, plant and equipment since no guidance was provided on evaluating the cost of a component, replacement of a component and the level at which component accounting was required. Under IFRS, the major assets must be separated into components and the cost of replacement or overhaul of these components are considered to be a part of property, plant and equipment, and are amortized over their individual estimated useful lives.
		The effect of the above on the Company’s balance sheet as at September 24, 2011, resulted in an increase in property, plant and equipment of $6 million and in a decrease of the deficit of $6 million.
		The impact on total comprehensive loss for the quarter and the year ended September 24, 2011, was negligible.
	(c)	Translation of foreign operations
		Under previous Canadian GAAP, non-monetary assets and liabilities of the foreign operations were translated to Canadian dollars at the historical rate relevant to the particular transaction date at which such assets or liabilities were originated. Under IFRS, all assets and liabilities of the foreign operations with functional currencies other than the Canadian dollar are translated to Canadian dollar at the exchange rate prevailing at period-end and are recognized in other comprehensive loss. In accordance with IFRS 1, the Company elected to reset all cumulative translation gains and losses to zero in opening deficit at its Transition Date.
		The effect of the above on the Company’s balance sheet as at September 24, 2011, resulted in a decrease in property, plant and equipment of $7 million, an increase of the deficit of $9 million and an increase of accumulated other comprehensive earnings of $2 million.
		Total comprehensive loss for the quarter ended September 24, 2011, increased by $2 million. For the year ended September 24, 2011, total comprehensive loss decreased by $2 million.
	(d)	Site restoration
		Under previous Canadian GAAP, the cost of decommissioning and restoration of landfill sites were part of property, plant and equipment and depreciated over the estimated useful life of the landfill site. Under IFRS, decommissioning and restoration costs incurred through the production of inventory are included as part of inventory costs.
		The effect of the above on the Company’s balance sheet as at September 24, 2011, resulted in a decrease in property, plant and equipment of $1 million and in an increase of the deficit of $1 million.
		The impact on total comprehensive loss for the quarter and the year ended September 24, 2011, was negligible.

- 32 -

TEMBEC INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(unaudited) (in millions of Canadian dollars, unless otherwise noted)

17.	Explanation of transition to IFRS (continued)
	Notes to the reconciliation of equity and statement of comprehensive earnings (loss) (continued)
	(e)	Recognition of unamortized actuarial losses at date of transition to IFRS into equity
		As permitted by previous Canadian GAAP, the Company measured its employee future benefits obligation for accounting purposes as at June 30 of each fiscal year. This was often referred as the early measurement date accounting policy choice. Under IAS 19 - Employee Benefit, the measurement date of the employee future benefits obligation must coincide with the fiscal year-end of the Company. Therefore, upon transition to IFRS, the Company measured its employee future benefits obligation at the date of the opening balance sheet in accordance with IAS 19.
		In addition, as permitted by IFRS 1 - First-time Adoption of International Financial Reporting Standards, management elected the optional exemption to recognize all unamortized cumulative actuarial losses at the Transition Date as an adjustment to opening retained earnings for all of its employee future benefit plans.
		Under IFRS, the Company’s accounting policy is to recognize all actuarial gains and losses, arising on its defined benefit pension and other non-pension post retirement plans, immediately in other comprehensive earnings (loss).
		The cumulative effect of the above on the Company's balance sheet as at September 24, 2011, was to decrease employee future benefits assets by $15 million and increase the employee future benefits liabilities by $117 million, which resulted in a corresponding increase to deficit of $132 million.
		Total comprehensive loss for the quarter ended September 24, 2011, increased by $64 million. Total comprehensive loss increased by $65 million for the year ended September 24, 2011.
	(f)	Warrants
		Under IFRS, the warrants have been classified as a liability because of the possibility that they may be settled in cash in the event of a change of control. They are recorded at fair value with value being adjusted every quarter.
		The effect of the above on the Company’s balance sheet as at September 24, 2011, resulted in a decrease in share capital of $6 million, an increase of the other long-term liabilities by a negligible amount, and a decrease of the deficit of $6 million.
		Total comprehensive loss for the quarter ended September 24, 2011, decreased by $2 million. Total comprehensive loss decreased by $5 million for the year ended September 24, 2011.
	(g)	Provisions
		IAS 37 - Provisions, Contingent Liabilities and Contingent Assets, has measurement differences when compared to previous Canadian GAAP. These measurement differences include the requirement to reflect the risks associated with the Company’s provisions in either the cash flows or the discount rate.
		The effect of the above on the Company’s balance sheet as at September 24, 2011, resulted in a decrease in long- term provisions of $2 million and in a decrease of the deficit of $2 million.
		Total comprehensive loss for the quarter ended September 24, 2011, decreased by $1 million. For the year ended September 24, 2011, the impact on total comprehensive loss was negligible.
	(h)	Contributed surplus
		The previous Canadian GAAP requires that a future income tax asset that was not recognized at the date of a comprehensive revaluation as a result of a financial reorganization be subsequently recognized first as a reduction of any unamortized intangible asset and then in a manner consistent with the revaluation adjustment recorded at the date of the comprehensive revaluation. Under IFRS, this recognition of a future income tax asset is recorded to profit and loss.
		The effect of the above on the Company’s balance sheet as at September 24, 2011, resulted in a decrease in contributed surplus of $5 million and in a decrease of the deficit of $5 million.
		The impact on total comprehensive loss for the quarter and year ended September 24, 2011, was nil.

- 33 -

TEMBEC INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(unaudited) (in millions of Canadian dollars, unless otherwise noted)

17.	Explanation of transition to IFRS (continued)
	Explanation of material adjustments to the cash flow statements for fiscal 2011
	The adoption of IFRS has had no impact on the net cash flows of the Company. The changes made to the consolidated balance sheet and to the consolidated statements of net earnings (loss) have resulted in reclassifications of various amounts on the consolidated statements of cash flows. There have been no significant changes to the net cash flows, other than the Company’s accounting policy choice to classify interest paid as financing activity under IFRS compared to operating activity under previous Canadian GAAP.

		Quarter ended September 24, 2011
		Cash flow from
		operating			investing			financing
		activities			activities			activities
Previous Canadian GAAP	$	63		$	(34	)	$	4
Reclassification for interest paid		1			-			(1	)
Other		(3	)		-			3
IFRS	$	61		$	(34	)	$	6

		Year ended September 24, 2011
		Cash flow from
		operating		investing			financing
		activities		activities			activities
Previous Canadian GAAP	$	69	$	(43	)	$	5
Reclassification for interest paid		25		-			(25	)
Other		5		(3	)		(2	)
IFRS	$	99	$	(46	)	$	(22	)

- 34 -

EX-99.2

Exhibit 99.2

Management’s Discussion and Analysis
for the quarter ended September 29, 2012

The following interim Management Discussion and Analysis (MD&A) provides a review of the significant developments and issues that impacted Tembec’s financial performance during its fourth fiscal quarter ended September 29, 2012. The MD&A should be read in conjunction with the interim consolidated financial statements for the period ended September 29, 2012, and the audited consolidated financial statements and annual MD&A for the fiscal year ended September 24, 2011, included in the Company’s Financial Report. Financial data has been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). Effective September 25, 2011, Tembec adopted IFRS as the Company’s basis for financial reporting commencing with the interim financial statements for the three-month period ended December 24, 2011, and using September 26, 2010, as the transition date. Except where otherwise noted, all prior period comparative figures have been restated for IFRS. 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, 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 Definitions section on the last page of the MD&A.

The interim MD&A includes “forward-looking statements” within the meaning of securities laws. Such statements relate, without limitation, to the Company’s or management’s objectives, projections, estimates, expectations or predictions of the future and can be identified by words such as “may”, “will”, “could”, “anticipate”, “estimate”, “expect” and “project”, the negative or variations thereof, and expressions of similar nature. Forward-looking statements are based on certain assumptions and analyses made by the Company in light of its experience, information available to it and its perception of future developments. Such statements are subject to a number of risks and uncertainties, including, but not limited to, changes in foreign exchange rates, product selling prices, raw material and operating costs and other factors identified in the Company’s periodic filings with securities regulatory authorities. Many of these risks are beyond the control of the Company and, therefore, may cause actual actions or results to materially differ from those expressed or implied herein. The forward-looking statements contained herein reflect the Company’s expectations as of the date hereof and are subject to change after such date. The Company disclaims any intention to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by applicable securities legislation. The information in the MD&A is as at November 15, 2012, the date of filing in conjunction with the Company’s press release announcing its results for the fourth fiscal quarter. Disclosure contained in this document is current to that date, unless otherwise stated.

CONSOLIDATED RESULTS

	Quarterly Results ($ millions)
	Fiscal 2011								Fiscal 2012
	Dec 10		Mar 11		Jun 11		Sep 11		Dec 11		Mar 12		Jun 12		Sep 12
Sales	422		452		448		421		401		407		415		443
Freight and other deductions	57		62		61		57		53		57		59		63
Lumber export taxes	3		4		3		3		2		3		1		1
Cost of sales	328		327		335		331		316		326		311		337
SG&A	18		19		18		17		18		18		18		20
Share-based compensation	4		6		(2	)	(6	)	-		1		(1	)	(1	)
Adjusted EBITDA	12		34		33		19		12		2		27		23
Depreciation & amortization	13		11		12		12		12		10		11		13
Other items	2		6		(7	)	2		2		(5	)	2		51
Operating earnings (loss)	(3	)	17		28		5		(2	)	(3	)	14		(41	)
Interest, foreign exchange & other	12		12		4		3		10		10		7		14
Exchange loss (gain) on long-term debt	(5	)	(6	)	1		11		(2	)	(6	)	8		(13	)
Pre-tax earnings (loss)	(10	)	11		23		(9	)	(10	)	(7	)	(1	)	(42	)
Income tax expense	1		5		6		8		6		7		4		5
Net earnings (loss)	(11	)	6		17		(17	)	(16	)	(14	)	(5	)	(47	)

-1-

CONSOLIDATED RESULTS

On February 21, 2011, the Company announced the permanent closure of its Taschereau, Quebec, SPF sawmill. As a result, a charge of $2 million was recorded in the March 2011 financial results.

On March 29, 2011, the Company announced the sale of its hydro-electric generating assets located in Smooth Rock Falls, Ontario. The purchaser paid $16 million in cash for the assets. As a result, the Company recorded a gain of $3 million in the June 2011 financial results.

On April 25, 2011, the Company announced that its non-operating U.S. subsidiary, Tembec USA LLC, had filed a petition seeking relief under Chapter 7 of the Bankruptcy Code of the United States. As a result of the filing, the Company recorded a gain of $4 million relating to the reduction in its consolidated accrued benefit obligation in the June 2011 financial results.

On November 25, 2011, the Company sold its Toronto, Ontario, flooring plant for proceeds of $13 million. Concurrently, the Company also announced the closure of its Huntsville, Ontario, hardwood flooring plant. The sale of the Toronto plant and the closure of the Huntsville plant resulted in a charge of $2 million that was recorded in the Company’s December 2011 quarterly financial results.

On March 23, 2012, the Company sold its British Columbia (B.C.) Southern Interior wood products assets for proceeds of $66 million. The sale included the Elko and Canal Flats sawmills and approximately 1.1 million cubic meters of combined Crown tenures, private land and contract annual allowable cut. As a result of the sale, the Company recorded a gain of $24 million in the March 2012 quarter.

TRANSITION TO IFRS

All financial information in this interim MD&A, including comparative figures pertaining to Tembec’s fiscal 2011 quarterly results have been prepared in accordance with IFRS. In the prior year, the Company had prepared its annual and interim financial statements in accordance with Canadian Generally Accepted Accounting Principles (GAAP). The change in certain comparative figures from previous Canadian GAAP to IFRS is provided in the table below. For more details on IFRS adjustments at the transition date, refer to note 17 of the interim financial statements.

	$ millions
									Total
	Dec 10		Mar 11		Jun 11		Sep 11		Fiscal 11
Sales
Per IFRS	422		452		448		421		1,743
Per Canadian GAAP	422		452		448		421		1,743
Difference	-		-		-		-		-
Adjusted EBITDA
Per IFRS	12		34		33		19		98
Per Canadian GAAP	11		33		32		19		95
Difference	1		1		1		-		3
Operating earnings (loss)
Per IFRS	(3	)	17		28		5		47
Per Canadian GAAP	(4	)	16		31		6		49
Difference	1		1		(3	)	(1	)	(2	)
Net earnings (loss)
Per IFRS	(11	)	6		17		(17	)	(5	)
Per Canadian GAAP	(12	)	7		19		(17	)	(3	)
Difference	1		(1	)	(2	)	-		(2	)

-2-

SEPTEMBER 2012 QUARTER VS JUNE 2012 QUARTER

CONSOLIDATED SUMMARY

SALES
$ millions	June		September		Total		Price		Volume & Mix
	2012		2012		Variance		Variance		Variance
Forest Products	86		108		22		3		19
Specialty Cellulose and Chemical Pulp	167		167		-		(7	)	7
High-Yield Pulp	101		100		(1	)	(1	)	-
Paper	86		96		10		(3	)	13
Corporate	4		5		1		-		1
	444		476		32		(8	)	40
Less: Intersegment Sales	(29	)	(33	)	(4	)
Sales	415		443		28

Sales increased by $28 million as compared to the prior quarter. Currency had a small negative effect on pricing as the Canadian dollar averaged US $1.003, a 1.2% increase from US $0.991 in the prior quarter. Forest Products segment sales increased by $22 million on higher SPF lumber shipments and prices. Specialty Cellulose and Chemical Pulp segment sales were unchanged with higher shipments offsetting lower prices. High-Yield Pulp segment sales decreased by $1 million due to lower prices. Paper segment sales increased by $10 million due to higher shipments, partially offset by lower prices.

ADJUSTED EBITDA
$ millions	June		September		Total		Price		Cost & Volume
	2012		2012		Variance		Variance		Variance
Forest Products	(2	)	8		10		3		7
Specialty Cellulose and Chemical Pulp	18		16		(2	)	(7	)	5
High-Yield Pulp	5		(9	)	(14	)	(1	)	(13	)
Paper	9		14		5		(3	)	8
Corporate	(3	)	(6	)	(3	)	-		(3	)
	27		23		(4	)	(8	)	4

Adjusted EBITDA decreased by $4 million as compared to the prior quarter. The Forest Products segment adjusted EBITDA improved by $10 million as a result of better prices and lower costs. Specialty Cellulose and Chemical Pulp segment adjusted EBITDA declined by $2 million due to lower prices. High-Yield Pulp segment adjusted EBITDA decreased by $14 million due to higher costs. Paper segment adjusted EBITDA increased by $5 million as a result of lower costs.

OPERATING EARNINGS (LOSS)
$ millions							Adjusted
	June		September		Total		EBITDA		Depreciation		Other Items
	2012		2012		Variance		Variance		Variance		Variance
Forest Products	(4	)	6		10		10		-		-
Specialty Cellulose and Chemical Pulp	13		9		(4	)	(2	)	(2	)	-
High-Yield Pulp	1		(62	)	(63	)	(14	)	1		(50	)
Paper	9		13		4		5		(1	)	-
Corporate	(5	)	(7	)	(2	)	(3	)	-		1
	14		(41	)	(55	)	(4	)	(2	)	(49	)

The Company generated an operating loss of $41 million compared to operating earnings of $14 million in the prior quarter. In addition to the previously noted decline in adjusted EBITDA, the financial results were negatively impacted by other items, which included an impairment charge of $50 million relating to the property, plant and equipment of the Chetwynd, BC, high-yield pulp mill. A more detailed explanation of segment variances is included in the analysis that follows.

-3-

SEPTEMBER 2012 QUARTER VS JUNE 2012 QUARTER

SEGMENT RESULTS – FOREST PRODUCTS

	June		September
	2012		2012	Variance
Financial ($ millions)
Sales (1)	86		108	22
Freight and other deductions	8		9	(1	)
Lumber export taxes	1		1	-
Cost of sales (1)	76		86	(10	)
SG&A	3		4	(1	)
Adjusted EBITDA	(2	)	8	10
Depreciation and amortization	2		2	-
Operating earnings (loss)	(4	)	6	10
Shipments
SPF lumber (mmbf)	165		195	30
Reference Prices
Western SPF KD #2 & better (US $ per mbf)	295		300	5
KD #2 & better delivered G.L. (US $ per mbf)	392		403	11
KD stud delivered G.L. (US $ per mbf)	387		394	7
(1) Includes intersegment sales eliminated on consolidation

The Forest Products segment generated adjusted EBITDA of $8 million on sales of $108 million for the quarter ended September 29, 2012, compared to negative adjusted EBITDA of $2 million on sales of $86 million in the prior quarter. Sales increased by $22 million due primarily to higher shipments of lumber and sawmill by-products.

Demand for SPF lumber improved with shipments equal to 70% of capacity, as compared to 59% in the prior quarter. US $ reference prices for random lumber increased by US $8 per mbf on average while stud lumber increased by US $7 per mbf. Currency was slightly negative as the Canadian dollar averaged US $1.003, a 1.2% increase from US $0.991 in the prior quarter. When combined with a higher sales mix factor, the net price effect was an increase in adjusted EBITDA of $3 million or $15 per mbf. Mill level manufacturing costs improved by $5 million. Costs are normally lower in the summer months and the sawmills also benefited from more continuous operations in the most recent quarter.

During the September quarter, the Company incurred $1 million of lumber export taxes, on shipments of lumber from its Eastern sawmills to the United States, unchanged from the prior quarter. Lumber export taxes are payable based on the 2006 Softwood Lumber Agreement (SLA) between Canada and the United States. Applicable export tax rates may vary based on selling prices. During the September quarter, the Company incurred a tax of 3.6% on its lumber shipments as compared to 5.1% in the prior quarter.

The Forest Products segment generated operating earnings of $6 million as compared to an operating loss of $4 million in the prior quarter. The previously noted improvement in adjusted EBITDA accounted for the stronger operating results.

-4-

SEPTEMBER 2012 QUARTER VS JUNE 2012 QUARTER

SEGMENT RESULTS – SPECIALTY CELLULOSE AND CHEMICAL PULP

	June	September
	2012	2012	Variance
Financial ($ millions)
Sales - Pulp (1)	141	140	(1	)
Sales - Chemicals	26	27	1
	167	167	-
Freight and other deductions	19	18	1
Cost of sales (1)	124	127	(3	)
SG&A	6	6	-
Adjusted EBITDA	18	16	(2	)
Depreciation and amortization	5	7	(2	)
Operating earnings	13	9	(4	)
Shipments
Specialty cellulose pulp (000's tonnes)	62	66	4
Chemical pulp (000's tonnes)	56	57	1
Internal (000's tonnes)	5	3	(2	)
Total	123	126	3
Reference Prices
NBSK - delivered China (US $ per tonne)	690	630	(60	)
NBSK - delivered U.S. (US $ per tonne)	900	853	(47	)
(1) Includes intersegment sales eliminated on consolidation

The Specialty Cellulose and Chemical Pulp segment generated adjusted EBITDA of $16 million on sales of $167 million for the quarter ended September 29, 2012, compared to adjusted EBITDA of $18 million on sales of $167 million in the prior quarter. Sales were relatively unchanged with lower prices offset by higher shipments. US dollar and euro prices for specialty grades and commodity viscose grades were relatively unchanged quarter-over-quarter. However, with the Canadian dollar strengthening by 1.2% versus the US dollar and by 4.0% versus the euro, Canadian dollar equivalent pricing declined by $4 million or $60 per tonne sold.

The specialty cellulose market conditions remained favourable. Specialty cellulose shipments were equal to 84% of capacity as compared to 80% in the prior quarter. The relatively low level of shipments in the June 2012 quarter was due to the annual maintenance shutdown at the Tartas mill, which lasted 11 days. A shorter four day planned maintenance outage also occurred at the Temiscaming facility. During the most recent quarter, the two specialty pulp mills had only 3.5 days of scheduled maintenance, including one day at the Tartas mill. The higher productivity at the latter facility reduced mill level cash costs, including the positive impact of the weaker euro, by $10 million. Overall, the two mills generated $7 million more of adjusted EBITDA than in the prior quarter.

The market conditions for Northern Bleached Softwood Kraft (NBSK) pulp remained relatively weak. The benchmark price (delivered China) decreased by US $60 per tonne. Overall, realized Canadian dollar prices decreased by $50 per tonne, reducing adjusted EBITDA by $3 million. NBSK shipments were equal to 89% of capacity as compared to 91% in the prior quarter. During the most recent quarter, the Skookumchuck pulp mill proceeded with its planned annual maintenance shutdown, which lasted seven days. As a result, mill level costs increased by $7 million. Overall, adjusted EBITDA declined by $11 million.

Finished goods inventories were at approximately 19 days of supply at the end of September 2012, down from 22 days at the end of the prior quarter.

The Specialty Cellulose and Chemical Pulp segment generated operating earnings of $9 million compared to operating earnings of $13 million in the prior quarter. The previously noted decrease in adjusted EBITDA, combined with higher depreciation expense, accounted for the lower operating earnings.

-5-

SEPTEMBER 2012 QUARTER VS JUNE 2012 QUARTER

SEGMENT RESULTS – HIGH-YIELD PULP

	June	September
	2012	2012		Variance
Financial ($ millions)
Sales (1)	101	100		(1	)
Freight and other deductions	21	23		(2	)
Cost of sales (1)	73	85		(12	)
SG&A	2	1		1
Adjusted EBITDA	5	(9	)	(14	)
Depreciation and amortization	4	3		1
Other item - impairment of Chetwynd pulp mill	-	50		(50	)
Operating earnings (loss)	1	(62	)	(63	)
Shipments
External (000's tonnes)	165	165		-
Internal (000's tonnes)	14	17		3
Total	179	182		3
Reference Prices
BEK - delivered China (US $ per tonne)	667	635		(32	)
(1) Includes intersegment sales eliminated on consolidation

The High-Yield Pulp segment generated negative adjusted EBITDA of $9 million on sales of $100 million for the quarter ended September 29, 2012, compared to adjusted EBITDA of $5 million on sales of $101 million in the prior quarter.

Market conditions for high-yield pulp remained weak in the most recent quarter. The US $ reference price for bleached eucalyptus kraft (BEK) decreased over the prior quarter by US $32 per tonne. Currency was also negative as the Canadian dollar averaged US $1.003, a 1.2% increase from US $0.991 in the prior quarter. When combined with a higher sales mix factor, high-yield pulp prices declined by $5 per tonne, reducing adjusted EBITDA by $1 million. High-yield pulp shipments were equal to 91% of capacity as compared to 89% in the prior quarter. During the most recent quarter, weak market conditions led to a production curtailment at the Chetwynd pulp mill for the last 30 days of the fiscal quarter. The mill remains indefinitely idled at time of writing and the Company has incurred a $50 million asset impairment charge to reduce the carrying values of the mill assets to estimated net recoverable amounts. The reduced productivity increased mill costs by $2 million over the prior quarter. In the September 2012 quarter, the lower selling prices led to a decrease of $3 million in the carrying values of finished goods and raw material inventories, decreasing adjusted EBITDA. This is the opposite of what occurred in the prior quarter when increased selling prices had led to an $8 million increase in the carrying values of finished goods and raw materials. Pulp inventories were at 35 days of supply at the end of September 2012, as compared to 38 days at the end of June 2012.

The High-Yield Pulp segment generated an operating loss of $62 million compared to operating earnings of $1 million in the prior quarter. In addition to the previously noted decline in adjusted EBITDA, the segment absorbed an impairment charge of $50 million relating to the property, plant and equipment, including supplies and materials, of the Chetwynd, BC, pulp mill.

-6-

SEPTEMBER 2012 QUARTER VS JUNE 2012 QUARTER

SEGMENT RESULTS – PAPER

	June	September
	2012	2012	Variance
Financial ($ millions)
Sales	86	96	10
Freight and other deductions	11	13	(2	)
Cost of sales	63	67	(4	)
SG&A	3	2	1
Adjusted EBITDA	9	14	5
Depreciation and amortization	-	1	(1	)
Operating earnings	9	13	4
Shipments
Coated bleached board (000's tonnes)	43	50	7
Newsprint (000's tonnes)	53	62	9
Total	96	112	16
Reference Prices
16 pt. Coated bleached board (US $ per short ton)	1,130	1,117	(13	)
Newsprint - 48.8 gram East Coast (US $ per tonne)	640	640	-

The Paper segment generated adjusted EBITDA of $14 million on sales of $96 million for the quarter ended September 2012, compared to adjusted EBITDA of $9 million on sales of $86 million in the prior quarter. Higher coated bleached board and newsprint shipments caused the $10 million increase in sales.

In terms of markets, coated bleached board was stable. Newsprint also remained stable despite continued weaker North American demand statistics. The US $ reference prices for coated bleached board declined by US $13 per short ton while the US $ reference price for newsprint was unchanged. Currency was slightly negative as the Canadian dollar averaged US $1.003, a 1.2% increase from US $0.991 in the prior quarter. The combined effect was a decrease of $3 million of adjusted EBITDA due to price. Coated bleached board shipments were equal to 111% of capacity as compared to 96% in the prior quarter. The shipment to capacity percentage for newsprint was 103%, compared to 87% in the prior quarter. Both mills saw improved productivity and also sold from inventory. The improved productivity led to a reduction in mill level costs of $5 million, primarily for energy and fixed cost absorption. The higher sales volume also led to higher adjusted EBITDA.

The Paper segment generated operating earnings of $13 million, compared to operating earnings of $9 million in the prior quarter. The previously noted increase in adjusted EBITDA led to the higher operating earnings.

-7-

SEPTEMBER 2012 QUARTER VS JUNE 2012 QUARTER

SEGMENT RESULTS – CORPORATE

	June		September
	2012		2012
Financial ($ millions)
General and administrative expenses	4		7
Share-based compensation	(1	)	(1	)
Other items:
Custodial - idled facilities	2		1
Operating expenses	5		7

The Company recorded a $1 million credit for share-based compensation in the current quarter unchanged from the prior quarter. Senior executives currently participate in a long-term incentive plan which entitles participants to potentially receive units that are equal in value to one common share. The units have a defined vesting period and are subject to performance conditions that ultimately determine the amount of units that vest and are earned by plan participants. Non-executive members of the board of directors receive a portion of their fees in the form of “Deferred Share Units” (DSU). The DSUs vest at specified dates. The period credit/expense for the share-based compensation plans consists of normal periodic variation in the number of units based on anticipated or normal vesting and the change in the value of the Company’s share price. The $1 million credit in the September 2012 quarter relates primarily to a decrease in share price as the value of the Company’s common shares declined from $2.39 to $2.08.

The Corporate segment’s “other items” include expenses relating to several permanently idled facilities. The costs relate to custodial, site security, legal and remediation activities. These “legacy” costs totalled $1 million in the most recent quarter compared to $2 million in the prior quarter.

-8-

SEPTEMBER 2012 QUARTER VS JUNE 2012 QUARTER

INTEREST, FOREIGN EXCHANGE AND OTHER

The following table summarizes interest, foreign exchange and other expenses by component:

	$ millions
	June		September
	2012		2012
Interest on debt	10		11
Foreign exchange items	(2	)	4
Interest income	(1	)	-
Capitalized interest	-		(1	)
	7		14

There were no significant interest variances quarter-over-quarter. The expense relates primarily to interest on the US $305 million 11.25% senior secured notes maturing in December 2018. Foreign exchange items relate primarily to gains or losses on the translation of US $ net monetary assets. When the Canadian dollar strengthens versus the US dollar, as in the current quarter, losses are generated. When the Canadian dollar weakens versus the US dollar, as was the case in the June quarter, gains are generated.

TRANSLATION OF FOREIGN DEBT

During the September 2012 quarter, the Company recorded a gain of $13 million on the translation of its US $ denominated debt as the relative value of the Canadian dollar increased from US $0.976 to US $1.017.

During the June 2012 quarter, the Company recorded a loss of $8 million on the translation of its US $ denominated debt as the relative value of the Canadian dollar decreased from US $1.001 to US $0.976.

INCOME TAXES

During the September 2012 quarter, the Company recorded an income tax expense of $5 million on a loss before income taxes of $42 million. The income tax expense reflected a $16 million unfavourable variance versus an anticipated income tax recovery of $11 million based on the Company’s effective tax rate of 26.3% . The September 2012 quarter absorbed a $16 million unfavourable variance related to period losses for which no deferred tax asset was recognized. Based on past financial performance, deferred income tax assets of the Company’s Canadian operations have not been recognized as it has not been determined that future realization of these assets is probable.

During the June 2012 quarter, the Company recorded an income tax expense of $4 million on a loss before income taxes of $1 million. The income tax expense reflected a $4 million unfavourable variance versus an anticipated nil income tax expense based on the Company’s effective tax rate of 26.3% . The June 2012 quarter absorbed a $4 million unfavourable variance related to period losses for which no deferred tax asset was recognized.

-9-

SEPTEMBER 2012 QUARTER VS JUNE 2012 QUARTER

NET LOSS

The Company generated a net loss of $47 million or $0.47 per share for the quarter ended September 29, 2012. This compares to a net loss of $5 million or $0.05 per share for the quarter ended June 23, 2012. As noted previously, the Company’s financial results were impacted by certain specific items. The following table summarizes the impact of these items on the reported financial results. The Company believes it is useful supplemental information as it provides an indication of results excluding the specific items. This supplemental information is not intended as an alternative measure for net earnings as determined by IFRS. The table below contains the gain or loss on translation of foreign debt, which is a recurring item. Because the Company has a substantial amount of US $ denominated debt, relatively minor changes in the value of the Canadian dollar versus the US dollar can lead to large unrealized periodic gains or losses. As well, this item receives capital gain/loss tax treatment and is not tax-affected at regular business income rates.

	Quarter ended				Quarter ended
	June 23, 2012				September 29, 2012
	$ millions		$ per share		$ millions		$ per share
Net loss as reported - in accordance with IFRS	(5	)	(0.05	)	(47	)	(0.47	)
Specific items (after-tax):
Loss (gain) on translation of foreign debt	7		0.07		(11	)	(0.11	)
Asset impairment - Chetwynd pulp mill	-		-		37		0.37
Costs for permanently idled facilities	2		0.02		1		0.01
Net earnings (loss) excluding specific items - not in accordance with IFRS	4		0.04		(20	)	(0.20	)

COMPREHENSIVE LOSS

The following table summarizes the impact of items affecting the reported total comprehensive loss during the last two quarters:

	$ millions
	June		September
	2012		2012
Net loss	(5	)	(47	)
Defined benefit pension plans loss	-		(42	)
Other benefit plans gain	-		4
Foreign currency translation loss on foreign operations	(5	)	(1	)
Total comprehensive loss	(10	)	(86	)

During the September 2012 quarter, the Company recognized a charge of $42 million relating to the net increase in defined pension plan liabilities. This was the result of several items. A decline in the discount rate used to calculate the pension obligation generated an actuarial loss of $77 million. This unfavourable item was partially offset by a higher than expected return on plan assets, which generated a gain of $31 million. The Company also generated an experience gain of $4 million on its defined benefit pension plans. An experience gain of $6 million, partially offset by a $2 million increase in obligations due to a decline in discount rate, led to a reduction in the Company’s obligations for other benefit plans. No adjustments were recorded in the prior quarter.

Comprehensive items also include gains or losses related to the currency translation of the assets and liabilities of the Company’s French and U.S. operations. The gains or losses are generated by the changes in the end of period exchange rates. During the September 2012 quarter, the currency translation of the French operations generated a loss of $2 million, partially offset by a gain of $1 million relating to the U.S. operations. In the prior quarter, the currency translation of French operations had generated a loss of $4 million, while the U.S. operations added a loss of $1 million.

-10-

SEPTEMBER 2012 QUARTER VS SEPTEMBER 2011 QUARTER

CONSOLIDATED SUMMARY

SALES
$ millions	September		September		Total		Price		Volume & Mix
	2011		2012		Variance		Variance		Variance
Forest Products	121		108		(13	)	15		(28	)
Specialty Cellulose and Chemical Pulp	180		167		(13	)	(13	)	-
High-Yield Pulp	76		100		24		(3	)	27
Paper	84		96		12		-		12
Corporate	2		5		3		-		3
	463		476		13		(1	)	14
Less: Intersegment Sales	(42	)	(33	)	9
Sales	421		443		22

Sales increased by $22 million as compared to the same quarter a year ago. Currency was favourable as the Canadian dollar averaged US $1.003, a 2.0% decrease from US $1.023 in the prior year quarter. Forest Products segment sales decreased by $13 million as a result of lower shipments, partially offset by higher prices. Specialty Cellulose and Chemical Pulp segment sales decreased by $13 million due to lower prices. High-Yield Pulp segment sales increased by $24 million due to higher shipments. Paper segment sales increased by $12 million due to higher shipments.

ADJUSTED EBITDA
$ millions	September		September		Total		Price		Cost & Volume
	2011		2012		Variance		Variance		Variance
Forest Products	(10	)	8		18		15		3
Specialty Cellulose and Chemical Pulp	30		16		(14	)	(13	)	(1	)
High-Yield Pulp	(8	)	(9	)	(1	)	(3	)	2
Paper	6		14		8		-		8
Corporate	1		(6	)	(7	)	-		(7	)
	19		23		4		(1	)	5

Adjusted EBITDA increased by $4 million from the prior year quarter. Forest Products segment adjusted EBITDA improved by $18 million from the prior year quarter due to higher prices and lower costs. Specialty Cellulose and Chemical Pulp segment adjusted EBITDA decreased by $14 million due primarily to lower prices. High-Yield Pulp segment adjusted EBITDA decreased by $1 million due to lower prices, partially offset by lower costs. Paper segment adjusted EBITDA increased by $8 million because of lower costs.

OPERATING EARNINGS (LOSS)
$ millions							Adjusted
	September		September		Total		EBITDA		Depreciation		Other Items
	2011		2012		Variance		Variance		Variance		Variance
Forest Products	(12	)	6		18		18		-		-
Specialty Cellulose and Chemical Pulp	25		9		(16	)	(14	)	(2	)	-
High-Yield Pulp	(11	)	(62	)	(51	)	(1	)	-		(50	)
Paper	5		13		8		8		-		-
Corporate	(2	)	(7	)	(5	)	(7	)	1		1
	5		(41	)	(46	)	4		(1	)	(49	)

The Company generated an operating loss of $41 million compared to operating earnings of $5 million in the same quarter a year ago. The previously noted improvement in adjusted EBITDA was more than offset by the impact of other items. A more detailed explanation of segment variances is included in the analysis that follows.

-11-

SEPTEMBER 2012 QUARTER VS SEPTEMBER 2011 QUARTER

SEGMENT RESULTS – FOREST PRODUCTS

	September		September
	2011		2012	Variance
Financial ($ millions)
Sales (1)	121		108	(13	)
Freight and other deductions	12		9	3
Lumber export taxes	3		1	2
Cost of sales (1)	112		86	26
SG&A	4		4	-
Adjusted EBITDA	(10	)	8	18
Depreciation and amortization	2		2	-
Operating earnings (loss)	(12	)	6	18
Shipments
SPF lumber (mmbf)	236		195	(41	)
Reference Prices
Western SPF KD #2 & better (US $ per mbf)	245		300	55
KD #2 & better delivered G.L. (US $ per mbf)	332		403	71
KD stud delivered G.L. (US $ per mbf)	318		394	76
(1) Includes intersegment sales eliminated on consolidation

The Forest Products segment generated adjusted EBITDA of $8 million on sales of $108 million. This compares to negative adjusted EBITDA of $10 million on sales of $121 million in the comparable quarter of the prior year. The sale of the Company’s two B.C. sawmills at the end of the March 2012 quarter had a significant impact on sales. The sawmills had shipped 88 million board feet of lumber in the prior year quarter and had generated lumber, chip and by-product revenues of $38 million. Sales also decreased by $11 million due to the divestiture of the hardwood flooring operations in November 2011. Higher prices and shipments from the Company’s Eastern sawmills increased sales by $29 million, partially offsetting the previously noted decreases.

Demand for SPF lumber improved with shipments equal to 70% of capacity, as compared to 59% in the year ago quarter. US $ reference prices for random lumber increased by US $63 per mbf on average while the reference price for stud lumber was up US $76 per mbf. Currency was favourable as the Canadian dollar averaged US $1.003, a 2.0% decrease from US $1.023 in the prior year quarter. As a result of the combined effect, the average selling price of SPF lumber increased by $77 per mbf, increasing adjusted EBITDA by $15 million. Manufacturing costs in the Eastern sawmills were relatively unchanged from those of the prior year quarter. The balance of the improvement in adjusted EBITDA relates to the divestiture of the two B.C. sawmills, which had generated negative $3 million of adjusted EBITDA in the prior year quarter.

During the September 2012 quarter, the Company incurred $1 million of lumber export taxes on shipments of lumber from its Eastern sawmills to the United States, unchanged from the prior year quarter. The effective tax rate was 3.6% versus 5.9% in the year ago quarter. The prior year quarter included $2 million of export taxes for Western sawmill lumber shipments to the United States.

The Forest Products segment generated operating earnings of $6 million, as compared to an operating loss of $12 million in the prior year quarter. The previously noted improvement in adjusted EBITDA accounted for the stronger operating results.

-12-

SEPTEMBER 2012 QUARTER VS SEPTEMBER 2011 QUARTER

SEGMENT RESULTS – SPECIALTY CELLULOSE AND CHEMICAL PULP

	September	September
	2011	2012	Variance
Financial ($ millions)
Sales - Pulp (1)	157	140	(17	)
Sales - Chemicals	23	27	4
	180	167	(13	)
Freight and other deductions	17	18	(1	)
Cost of sales (1)	128	127	1
SG&A	5	6	(1	)
Adjusted EBITDA	30	16	(14	)
Depreciation and amortization	5	7	(2	)
Operating earnings	25	9	(16	)
Shipments
Specialty cellulose pulp (000's tonnes)	71	66	(5	)
Chemical pulp (000's tonnes)	44	57	13
Internal (000's tonnes)	8	3	(5	)
Total	123	126	3
Reference Prices
NBSK - delivered China (US $ per tonne)	840	630	(210	)
NBSK - delivered U.S. (US $ per tonne)	993	853	(140	)
(1) Includes intersegment sales eliminated on consolidation

The Specialty Cellulose and Chemical Pulp segment generated adjusted EBITDA of $16 million on sales of $167 million. This compares to adjusted EBITDA of $30 million on sales of $180 million in the year ago quarter. The $17 million decline in pulp sales was due primarily to lower chemical and specialty cellulose viscose grade pulp prices.

The specialty cellulose market conditions were generally favourable in the most recent quarter. An increase in specialty grade prices was offset by a decline in viscose grade prices. However, with the Canadian dollar strengthening by 11.2% versus the euro, the Canadian dollar equivalent sales of the Tartas mill were negatively affected by $2 million. Overall, pricing was down by $61 per tonne, reducing adjusted EBITDA by $4 million. Specialty cellulose shipments were equal to 84% of capacity as compared to 92% in the year ago quarter. During the most recent quarter, the two pulp mills incurred 3.5 days of maintenance downtime as compared to 4.4 days in the prior year period. Mill level costs increased by $5 million, primarily for chemicals and labour. The weaker euro provided a partial offset, reducing Tartas’ reported costs by $3 million. When combined with the lower shipments, adjusted EBITDA declined by $8 million.

Market conditions for NBSK pulp were significantly weaker during the most recent quarter. The benchmark price (delivered China) declined by US $210 per tonne. With a weaker Canadian dollar and a higher sales mix factor providing a partial offset, the net effect was a reduction in adjusted EBITDA of $10 million or $166 per tonne. NBSK shipments were equal to 89% of capacity as compared to 76% in the year ago quarter. In the prior year quarter, the Skookumchuck pulp mill had undergone an extended 17-day annual maintenance outage as compared to a 7-day outage in the most recent quarter. On a relative basis, the shorter outage resulted in lower costs. Overall, the adjusted EBITDA of the facility declined by $5 million.

The Specialty Cellulose and Chemical Pulp segment generated operating earnings of $9 million compared to operating earnings of $25 million in the comparable quarter of the prior year. The previously noted decline in adjusted EBITDA, as well as an increase in depreciation expense, led to the lower operating earnings.

-13-

SEPTEMBER 2012 QUARTER VS SEPTEMBER 2011 QUARTER

SEGMENT RESULTS – HIGH-YIELD PULP

	September		September
	2011		2012		Variance
Financial ($ millions)
Sales (1)	76		100		24
Freight and other deductions	17		23		(6	)
Cost of sales (1)	66		85		(19	)
SG&A	1		1		-
Adjusted EBITDA	(8	)	(9	)	(1	)
Depreciation and amortization	3		3		-
Other item - impairment of Chetwynd pulp mill	-		50		(50	)
Operating loss	(11	)	(62	)	(51	)
Shipments
External (000's tonnes)	120		165		45
Internal (000's tonnes)	15		17		2
Total	135		182		47
Reference Prices
BEK - delivered China (US $ per tonne)	690		635		(55	)
(1) Includes intersegment sales eliminated on consolidation

The High-Yield Pulp segment generated negative adjusted EBITDA of $9 million on sales of $100 million. This compares to negative adjusted EBITDA of $8 million on sales of $76 million in the year ago quarter. The $24 million increase in sales was caused by higher shipments.

Market conditions for high-yield pulp were weaker than the comparable quarter a year ago. While the US $ reference price for BEK decreased by US $55 per tonne, the decline in the Company’s average US $ selling price for high-yield pulp was lower due to a higher mix factor versus the published price. Overall, Canadian dollar prices declined by $16 per tonne reducing adjusted EBITDA by $3 million. High-yield pulp shipments were equal to 91% of capacity as compared to 67% in the prior year quarter. In the prior year quarter, the segment had lost 80 days of production due to a strike at the Matane, Quebec, facility. During the most recent quarter, weak market conditions led to a 30-day production curtailment at the Chetwynd, BC, pulp mill. The higher productivity led to reduced costs of $6 million. However, this was partially offset by a $3 million decrease in the carrying values of finished goods and raw material inventories caused by the relatively low selling prices. There were no inventory adjustments in the prior year quarter.

The High-Yield Pulp segment generated an operating loss of $62 million compared to an operating loss of $11 million in the comparable quarter of the prior year. The segment absorbed an impairment charge of $50 million relating to the property, plant and equipment, including supplies and materials, of the Chetwynd, BC, pulp mill.

-14-

SEPTEMBER 2012 QUARTER VS SEPTEMBER 2011 QUARTER

SEGMENT RESULTS – PAPER

	September	September
	2011	2012	Variance
Financial ($ millions)
Sales	84	96	12
Freight and other deductions	11	13	(2	)
Cost of sales	65	67	(2	)
SG&A	2	2	-
Adjusted EBITDA	6	14	8
Depreciation and amortization	1	1	-
Operating earnings	5	13	8
Shipments
Coated bleached board (000's tonnes)	44	50	6
Newsprint (000's tonnes)	54	62	8
Total	98	112	14
Reference Prices
16 pt. Coated bleached board (US $ per short ton)	1,150	1,117	(33	)
Newsprint - 48.8 gram East Coast (US $ per tonne)	640	640	-

The Paper segment generated adjusted EBITDA of $14 million on sales of $96 million. This compares to adjusted EBITDA of $6 million on sales of $84 million in the same quarter a year ago. Sales increased by $12 million due to higher shipments of coated bleached board and newsprint.

In terms of markets, coated bleached board was stable. Newsprint was also stable despite lower North American demand statistics. The US $ reference price for coated bleached board declined by US $33 per short ton while the reference price for newsprint was unchanged. Currency was favourable as the Canadian dollar averaged US $1.003, a 2.0% decrease from US $1.023 in the prior year quarter. The combined effect was that overall pricing remain unchanged and did not impact adjusted EBITDA. Coated bleached board shipments were equal to 111% of capacity as compared to 97% in the year ago quarter. Newsprint shipment to capacity was 103% compared to 90% in the prior year quarter. Both mills saw improved productivity in the most recent quarter and were also able to reduce finished goods inventories. The higher productivity, combined with lower fiber and energy costs, resulted in an $8 million decrease in manufacturing costs.

The Paper segment generated operating earnings of $13 million compared to operating earnings of $5 million in the prior year quarter. The previously noted increase in adjusted EBITDA led to the higher operating earnings.

-15-

SEPTEMBER 2012 QUARTER VS SEPTEMBER 2011 QUARTER

SEGMENT RESULTS – CORPORATE

	September		September
	2011		2012
Financial ($ millions)
General and administrative expenses	5		7
Share-based compensation	(6	)	(1	)
Depreciation	1		-
Other items:
Custodial - idled facilities	2		1
Operating expenses	2		7

The Company recorded a $1 million credit for share-based compensation in the current quarter, compared to a $6 million credit in the year ago quarter. Senior executives currently participate in a long-term incentive plan which entitles participants to potentially receive units that are equal in value to one common share. The units have a defined vesting period and are subject to performance conditions that ultimately determine the amount of units that vest and are earned by plan participants. Non-executive members of the board of directors receive a portion of their fees in the form of “Deferred Share Units” (DSU). The DSUs vest at specified dates. The period credit/expense consists of normal periodic variation in the number of units based on anticipated or normal vesting and the changes in the value of the Company’s share price. The $1 million credit in the September 2012 quarter relates to a decrease in the share price as the value of the Company’s common shares declined from $2.39 to $2.08.

The Corporate segment’s “other items” include expenses relating to several permanently idled facilities. The costs relate to custodial, site security, legal and remediation activities. These “legacy” costs totalled $1 million in the most recent quarter, compared to $2 million in the year ago quarter.

-16-

SEPTEMBER 2012 QUARTER VS SEPTEMBER 2011 QUARTER

INTEREST, FOREIGN EXCHANGE AND OTHER

The following table summarizes interest, foreign exchange and other expenses by component:

	$ millions
	September		September
	2011		2012
Interest on debt	8		11
Interest income	(1	)	-
Capitalized interest	-		(1	)
Foreign exchange items	(4	)	4
Change in fair value of warrants	(2	)	-
Bank charges and other	2		-
	3		14

The interest expense relates primarily to interest on the 11.25% senior secured notes maturing in December 2018. In the prior year quarter, the amount of outstanding notes was US $255 million as compared to US $305 million during the most recent quarter. Foreign exchange items relate primarily to gains or losses on the translation of US $ net monetary assets. When the Canadian dollar weakens versus the US dollar, as was the case in the prior year quarter, gains are generated. When the Canadian dollar strengthens versus the US dollar, as was the case in the most recent quarter, losses are generated.

TRANSLATION OF FOREIGN DEBT

During the September 2012 quarter, the Company recorded a gain of $13 million on the translation of its US $ denominated debt as the relative value of the Canadian dollar increased from US $0.976 to US $1.017.

During the September 2011 quarter, the Company recorded a loss of $11 million on the translation of its US $ denominated debt as the relative value of the Canadian dollar decreased from US $1.013 to US $0.971.

INCOME TAXES

During the September 2012 quarter, the Company recorded an income tax expense of $5 million on a loss before income taxes of $42 million. The income tax expense reflected a $16 million unfavourable variance versus an anticipated income tax recovery of $11 million based on the Company’s effective tax rate of 26.3% . The September 2012 quarter absorbed a $16 million unfavourable variance related to period losses for which no deferred tax asset was recognized. Based on past financial performance, deferred income tax assets of the Company’s Canadian operations have not been recognized as it has not been determined that future realization of these assets is probable.

During the September 2011 quarter, the Company recorded an income tax expense of $8 million on a loss before income taxes of $9 million. The income tax expense reflected an $11 million unfavourable variance versus an anticipated income tax recovery of $3 million based on the Company’s effective tax rate of 27.8% . The September 2011 quarter absorbed a $7 million unfavourable variance related to period losses for which no deferred tax asset was recognized.

-17-

SEPTEMBER 2012 QUARTER VS SEPTEMBER 2011 QUARTER

NET LOSS

The Company generated a net loss of $47 million or $0.47 per share for the quarter ended September 29, 2012, compared to a net loss of $17 million or $0.17 per share for the quarter ended September 24, 2011. As noted previously, the Company’s financial results were impacted by certain specific items. The following table summarizes the impact of these items on the reported financial results. The Company believes it is useful supplemental information as it provides an indication of results excluding the specific items. This supplemental information is not intended as an alternative measure for net earnings as determined by IFRS. The table below contains the gain or loss on translation of foreign debt, which is a recurring item. Because the Company has a substantial amount of US $ denominated debt, relatively minor changes in the value of the Canadian dollar versus the US dollar can lead to large unrealized periodic gains or losses. As well, this item receives capital gain/loss tax treatment and is not tax-affected at regular business income rates.

	Quarter ended				Quarter ended
	September 24, 2011				September 29, 2012
	$ millions		$ per share		$ millions		$ per share
Net loss as reported - in accordance with IFRS	(17	)	(0.17	)	(47	)	(0.47	)
Specific items (after-tax):
Loss (gain) on translation of foreign debt	9		0.09		(11	)	(0.11	)
Asset impairment - Chetwynd pulp mill	-		-		37		0.37
Costs for permanently idled facilities	2		0.02		1		0.01
Net loss excluding specific items - not in accordance with IFRS	(6	)	(0.06	)	(20	)	(0.20	)

COMPREHENSIVE LOSS

The following table summarizes the impact of items affecting the reported total comprehensive loss during the September quarter and the comparable period a year ago:

	$ millions
	September		September
	2011		2012
Net loss	(17	)	(47	)
Defined benefit pension plans loss	(64	)	(42	)
Other benefit plans gain	-		4
Foreign currency translation loss on foreign operations	(2	)	(1	)
Total comprehensive loss	(83	)	(86	)

During the September 2012 quarter, the Company recognized a charge of $42 million relating to the net increase in defined pension plan liabilities. This was the result of several items. A decline in the discount rate used to calculate the pension obligation generated an actuarial loss of $77 million. This unfavourable item was partially offset by a higher than expected return on plan assets, which generated a gain of $31 million. The Company also generated an experience gain of $4 million on its defined benefit pension plans. In the prior year quarter, the Company had recognized a charge of $64 million relating to the net increase in defined benefit plan liabilities. A decline in the discount rate used to calculate the pension obligation generated an actuarial loss of $44 million. A lower than expected return on plan assets added a further $27 million to net liability. Several other favourable items totalling $7 million provided a partial offset. During the most recent quarter, the Company generated an experience gain of $6 million, partially offset by a $2 million increase in obligations due to a decline in discount rate, on its other benefit plan obligations. There was no comparable gain or loss in the year ago period.

Comprehensive items also include gains or losses related to the currency translation of the assets and liabilities of the Company’s French and U.S. operations. The gains or losses are generated by the changes in the end of period exchange rates. During the September 2012 quarter, the currency translation of the French operations generated a loss of $2 million, partially offset by a gain of $1 million relating to the U.S. operations. In the prior year quarter, the currency translation of the U.S. operations generated a loss of $2 million.

-18-

YEAR ENDED SEPTEMBER 2012 VS YEAR ENDED SEPTEMBER 2011

CONSOLIDATED SUMMARY

SALES
$ millions	September		September		Total		Price		Volume & Mix
	2011		2012		Variance		Variance		Variance
Forest Products	471		432		(39	)	26		(65	)
Specialty Cellulose and Chemical Pulp	693		662		(31	)	(6	)	(25	)
High-Yield Pulp	378		352		(26	)	(12	)	(14	)
Paper	339		346		7		6		1
Corporate	7		13		6		-		6
	1,888		1,805		(83	)	14		(97	)
Less: Intersegment Sales	(145	)	(139	)	6
Sales	1,743		1,666		(77	)

Sales decreased by $77 million as compared to fiscal 2011. Currency was favourable as the Canadian dollar averaged US $0.992, a 2.1% decrease from US $1.013 in the prior year. Forest Products segment sales decreased by $39 million as a result of lower shipments, partially offset by higher prices. Specialty Cellulose and Chemical Pulp segment sales decreased by $31 million due to lower shipments and prices. High-Yield Pulp segment sales decreased by $26 million due to lower shipments and prices. Paper segment sales increased by $7 million due primarily to higher prices.

ADJUSTED EBITDA
$ millions	September		September		Total		Price		Cost & Volume
	2011		2012		Variance		Variance		Variance
Forest Products	(47	)	(16	)	31		26		5
Specialty Cellulose and Chemical Pulp	140		92		(48	)	(6	)	(42	)
High-Yield Pulp	(3	)	(29	)	(26	)	(12	)	(14	)
Paper	29		37		8		6		2
Corporate	(21	)	(20	)	1		-		1
	98		64		(34	)	14		(48	)

Adjusted EBITDA of $64 million was $34 million lower than the prior year. Forest Products segment adjusted EBITDA was up $31 million from the prior year primarily as a result of higher prices. Specialty Cellulose and Chemical Pulp segment adjusted EBITDA declined by $48 million due to higher costs and lower prices. High-Yield Pulp segment adjusted EBITDA declined by $26 million due to higher costs and lower prices. Paper segment adjusted EBITDA improved by $8 million due to higher prices and lower costs.

OPERATING EARNINGS (LOSS)
$ millions							Adjusted
	September		September		Total		EBITDA		Depreciation		Other Items
	2011		2012		Variance		Variance		Variance		Variance
Forest Products	(64	)	(4	)	60		31		4		25
Specialty Cellulose and Chemical Pulp	121		71		(50	)	(48	)	(2	)	-
High-Yield Pulp	(14	)	(92	)	(78	)	(26	)	(2	)	(50	)
Paper	26		35		9		8		1		-
Corporate	(22	)	(42	)	(20	)	1		1		(22	)
	47		(32	)	(79	)	(34	)	2		(47	)

The Company generated an operating loss of $32 million compared to operating earnings of $47 million in the prior year. The previously noted decline in adjusted EBITDA contributed to the decrease. Other items also negatively impacted the operating results of the Company. A more detailed explanation of segment variances is included in the analysis that follows.

-19-

YEAR ENDED SEPTEMBER 2012 VS YEAR ENDED SEPTEMBER 2011

SEGMENT RESULTS – FOREST PRODUCTS

	September		September
	2011		2012		Variance
Financial ($ millions)
Sales (1)	471		432		(39	)
Freight and other deductions	47		41		6
Lumber export taxes	13		7		6
Cost of sales (1)	441		385		56
SG&A	17		15		2
Adjusted EBITDA	(47	)	(16	)	31
Depreciation and amortization	14		10		4
Other items:
Gain on sale of B.C. sawmills	-		(24	)	24
Loss on sale/closure of flooring assets	-		2		(2	)
Taschereau sawmill closure charge	2		-		2
Cranbrook planer mill closure charge	1		-		1
Operating loss	(64	)	(4	)	60
Shipments
SPF lumber (mmbf)	908		836		(72	)
Reference Prices
Western SPF KD #2 & better (US $ per mbf)	263		275		12
KD #2 & better delivered G.L. (US $ per mbf)	350		370		20
KD stud delivered G.L. (US $ per mbf)	314		353		39
(1) Includes intersegment sales eliminated on consolidation

The Forest Products segment generated negative adjusted EBITDA of $16 million on sales of $432 million. This compares to negative adjusted EBITDA of $47 million on sales of $471 million in the prior year. The sale of the Company’s two B.C. sawmills at the end of the March 2012 quarter had a significant impact on sales. The Western sawmills generated $75 million less in revenues during the first six months of fiscal 2012 versus a full twelve months of fiscal 2011. Shipments of lumber from the two sawmills was 172 million board feet versus 343 million in the prior year. Sales also decreased by $36 million due to the divestiture of the hardwood flooring operations in November 2011. Higher prices and shipments of lumber from the Company’s Eastern sawmills increased sales by $55 million, partially offsetting the previously noted decreases.

Demand for SPF lumber improved with shipments equal to 62% of capacity, as compared to 57% a year ago. US $ reference prices for random lumber increased by US $16 per mbf on average while the reference price for stud lumber was up US $39 per mbf. Currency was favourable as the Canadian dollar averaged US $0.992, a 2.1% decrease from US $1.013 in the prior year. As a result of the combined effect, the average selling price of SPF lumber increased by $32 per mbf, increasing adjusted EBITDA by $27 million. Sawmill manufacturing costs were relatively unchanged year-over-year.

During the year ended September 2012, the Company incurred $4 million of export taxes on lumber shipped from its Eastern sawmills as compared to $6 million in the prior year. The effective rate in the most recent year was 4.8% versus 11.7% in the prior year, which included a temporary surcharge. The decline in the export tax rate was partially offset by higher prices and shipments from the Eastern sawmills to the United States. As to the two B.C. sawmills, the Company incurred $3 million of export taxes in the first six-months of the current year. This compares to $7 million in the twelve-month period a year ago. The decrease was due solely to the shorter ownership period, as export tax rates were 15% in both years.

-20-

YEAR ENDED SEPTEMBER 2012 VS YEAR ENDED SEPTEMBER 2011

The Forest Products segment generated an operating loss of $4 million, as compared to an operating loss of $64 million in fiscal 2011. In addition to the previously noted improvement in adjusted EBITDA, the sale of the B.C. sawmills and the hardwood flooring operations led to lower depreciation expense. During the most recent fiscal year, the Company recorded a gain of $24 million related to the sale of the B.C. sawmills. The Company sold its Toronto, Ontario, flooring plant and concurrently closed its Huntsville, Ontario, flooring plant. The combined effect was a charge of $2 million. In the prior year, the segment recorded a charge of $2 million relating to the permanent closure of the Taschereau, Quebec, sawmill. The charge was for severance and other closure costs. The Company also absorbed a charge of $1 million related to severance payments at an idled planer mill in Cranbrook, B.C.

-21-

YEAR ENDED SEPTEMBER 2012 VS YEAR ENDED SEPTEMBER 2011

SEGMENT RESULTS – SPECIALTY CELLULOSE AND CHEMICAL PULP

	September	September
	2011	2012	Variance
Financial ($ millions)
Sales - Pulp (1)	600	562	(38	)
Sales - Chemicals	93	100	7
	693	662	(31	)
Freight and other deductions	66	68	(2	)
Cost of sales (1)	464	481	(17	)
SG&A	23	21	2
Adjusted EBITDA	140	92	(48	)
Depreciation and amortization	19	21	(2	)
Operating earnings	121	71	(50	)
Shipments
Specialty cellulose pulp (000's tonnes)	270	258	(12	)
Chemical pulp (000's tonnes)	222	205	(17	)
Internal (000's tonnes)	15	17	2
Total	507	480	(27	)
Reference Prices
NBSK - delivered China (US $ per tonne)	863	680	(183	)
NBSK - delivered U.S. (US $ per tonne)	989	886	(103	)
(1) Includes intersegment sales eliminated on consolidation

The Specialty Cellulose and Chemical Pulp segment generated adjusted EBITDA of $92 million on sales of $662 million. This compares to adjusted EBITDA of $140 million on sales of $693 million in fiscal 2011. The $38 million decrease in pulp sales was due to lower prices and volumes of chemical pulp and lower prices for viscose grade pulp, partially offset by higher prices for specialty grades.

The specialty cellulose market conditions were generally favourable in fiscal 2012. An increase in specialty grade prices was partially offset by a decline in viscose grade prices. Overall, prices were up by an average $156 per tonne for specialty grades and down by $360 per tonne for viscose grades. As viscose grades represented only 16% of shipments, the overall effect on pricing was favourable, increasing adjusted EBITDA by $18 million. Specialty cellulose shipments were equal to 83% of capacity as compared to 87% in the year ago period. Total costs increased by $28 million, primarily for chemicals, supplies and fiber. The Company’s strategy to produce more specialty grades has contributed to the increase in costs. The weaker euro provided a partial offset, reducing Tartas’ reported costs by $7 million. Combined with the lower sales volumes, adjusted EBITDA declined by $8 million.

Market conditions for NBSK pulp were significantly weaker during the most recent year. The benchmark price (delivered China) declined by US $183 per tonne. With a weaker Canadian dollar and a higher sales mix factor providing a partial offset, the net effect was a reduction in adjusted EBITDA of $28 million or $126 per tonne. NBSK shipments were equal to 82% of capacity as compared to 87% in the year ago period. During the most recent fiscal year, the Skookumchuck pulp mill incurred 24 days of maintenance downtime, including 17 days of unplanned downtime due to problems with the mill’s recovery boiler. In the prior year, the mill had incurred 26 days of planned maintenance downtime. Mill level costs increased by $6 million, primarily for fiber and chemicals. Overall, adjusted EBITDA declined by $35 million.

The Specialty Cellulose and Chemical Pulp segment generated operating earnings of $71 million compared to operating earnings of $121 million in the prior year. The previously noted decline in adjusted EBITDA led to the lower operating earnings.

-22-

YEAR ENDED SEPTEMBER 2012 VS YEAR ENDED SEPTEMBER 2011

SEGMENT RESULTS – HIGH-YIELD PULP

	September		September
	2011		2012		Variance
Financial ($ millions)
Sales (1)	378		352		(26	)
Freight and other deductions	79		77		2
Cost of sales (1)	299		298		1
SG&A	3		6		(3	)
Adjusted EBITDA	(3	)	(29	)	(26	)
Depreciation and amortization	11		13		(2	)
Other item - impairment of Chetwynd pulp mill	-		50		(50	)
Operating loss	(14	)	(92	)	(78	)
Shipments
External (000's tonnes)	607		581		(26	)
Internal (000's tonnes)	57		60		3
Total	664		641		(23	)
Reference Prices
BEK - delivered China (US $ per tonne)	734		614		(120	)
(1) Includes intersegment sales eliminated on consolidation

The High-Yield Pulp segment generated negative adjusted EBITDA of $29 million on sales of $352 million. This compares to negative adjusted EBITDA of $3 million on sales of $378 million in fiscal 2011. The $26 million decrease in sales was caused by lower shipments and prices.

Market conditions for high-yield pulp were weaker than the prior year. The US $ reference price for BEK decreased by US $120 per tonne compared to the prior year. However, the drop in US $ pricing for high-yield pulp was less pronounced. Currency was slightly favourable as the Canadian dollar averaged US $0.992, a 2.1% decrease from US $1.013 in the prior year period. Overall, lower high-yield pulp prices reduced adjusted EBITDA by $12 million or $19 per tonne. High-yield pulp shipments were equal to 80% of capacity as compared to 83% in the prior year. During the most recent year, weak market conditions led to 68 days of market related downtime. In the prior year, the Company incurred 127 days of downtime due to a strike at the Matane, Quebec, facility. Total costs for the three mills increased by $12 million, primarily for fiber and chemicals. The current year costs include a charge of $3 million relating to the decrease in the carrying values of finished goods and raw material inventory as compared to a charge of $1 million in the prior year.

The High-Yield Pulp segment generated an operating loss of $92 million compared to an operating loss of $14 million in the prior year. In addition to the previously noted decline in adjusted EBITDA, the segment absorbed an impairment charge of $50 million relating to the property, plant and equipment, including supplies and materials, of the Chetwynd, BC, pulp mill.

-23-

YEAR ENDED SEPTEMBER 2012 VS YEAR ENDED SEPTEMBER 2011

SEGMENT RESULTS – PAPER

	September	September
	2011	2012	Variance
Financial ($ millions)
Sales	339	346	7
Freight and other deductions	45	46	(1	)
Cost of sales	255	252	3
SG&A	10	11	(1	)
Adjusted EBITDA	29	37	8
Depreciation and amortization	3	2	1
Operating earnings	26	35	9
Shipments
Coated bleached board (000's tonnes)	165	171	6
Newsprint (000's tonnes)	229	222	(7	)
Total	394	393	(1	)
Reference Prices
16 pt. Coated bleached board (US $ per short ton)	1,150	1,132	(18	)
Newsprint - 48.8 gram East Coast (US $ per tonne)	640	640	-

The Paper segment generated adjusted EBITDA of $37 million on sales of $346 million. This compares to adjusted EBITDA of $29 million on sales of $339 million in fiscal 2011. The $7 million increase in sales results primarily from higher coated bleached board shipments and prices, partially offset by lower newsprint shipments.

In terms of markets, coated bleached board weakened slightly while newsprint remained stable despite lower North American demand statistics. The US $ reference price for coated bleached board declined by US $18 per short ton while the reference price for newsprint was unchanged. Currency was favourable as the Canadian dollar averaged $0.992, a 2.1% decrease from US $1.013 in the prior year. The combined effect was an increase in adjusted EBITDA of $6 million due to selling prices. Coated bleached board shipments were equal to 95% of capacity, compare to 92% in the prior year. Newsprint shipment to capacity was 92% compared to 95% in the prior year period. Costs at the coated bleached board mill declined by $1 million, with lower fiber costs offsetting increases in several other elements. Costs at the newsprint mill declined by $2 million, with lower energy costs offsetting increases in other areas.

The Paper segment generated operating earnings of $35 million compared to operating earnings of $26 million in the prior year. The previously noted improvement in adjusted EBITDA led to the higher operating earnings.

-24-

YEAR ENDED SEPTEMBER 2012 VS YEAR ENDED SEPTEMBER 2011

SEGMENT RESULTS – CORPORATE

	September		September
	2011		2012
Financial ($ millions)
General and administrative expenses	19		21
Share-based compensation	2		(1	)
Depreciation	1		-
Other items:
Custodial - idled facilities	7		10
Write-down of Temlam loan receivable	-		16
Gain on sale of minority equity interest	-		(4	)
Gain on Tembec USA LLC filing	(4	)	-
Gain on sale of Smooth Rock Falls hydro dam	(3	)	-
Operating expenses	22		42

The Company recorded a $1 million credit for share-based compensation in the current year, compared to a $2 million charge last year. Senior executives currently participate in a long-term incentive plan which entitles participants to potentially receive units that are equal in value to one common share. The units have a defined vesting period and are subject to performance conditions that ultimately determine the amount of units that vest and are earned by plan participants. Non-executive members of the board of directors receive a portion of their fees in the form of “Deferred Share Units” (DSU). The DSUs vest at specified dates. The period credit/expense consists of normal periodic variation in the number of units based on anticipated or normal vesting and the changes in the value of the Company’s share price.

The Corporate segment’s “other items” include expenses relating to several permanently idled facilities. The costs relate to custodial, site security, legal and remediation activities. These “legacy” costs totalled $10 million in the most recent period, as compared to $7 million in the prior year.

The current year includes a $16 million charge relating to the write-down of the loan receivable from Temlam Inc. The latter is currently under creditor protection and owns an idled laminated veneer lumber (LVL) facility located in Amos, Quebec. The Company has a 50% secured interest in the facility. The cutting rights that were previously attached to the LVL facility were granted to another company. In the absence of a guaranteed fibre supply, the Company concluded that the re-start of the facility is unlikely and has adjusted its carrying value to the amount anticipated to be realized upon liquidation or sale. The current year also includes a gain of $4 million relating to the sale of a minority equity interest in two dissolving pulp mills.

The prior year includes a gain of $4 million related to the filing of Tembec USA LLC under Chapter 7 of the Bankruptcy Code of the United States. The gain was generated by a reduction in the Company’s accrued benefit obligation. The period also included a gain of $3 million related to the sale of hydro-electric generating assets located in Smooth Rock Falls, Ontario.

-25-

YEAR ENDED SEPTEMBER 2012 VS YEAR ENDED SEPTEMBER 2011

INTEREST, FOREIGN EXCHANGE AND OTHER

The following table summarizes interest, foreign exchange and other expenses by component:

	$ millions
	September		September
	2011		2012
Interest on debt	32		38
Interest income	(1	)	(1	)
Capitalized interest	-		(2	)
Fees - new working capital facility	2		-
Foreign exchange items	-		4
Gain on derivatives	(1	)	-
Change in fair value of warrants	(5	)	-
Bank charges and other	4		2
	31		41

The increase in the interest expense relates primarily to the issue of a US $50 million additional tranche of 11.25% senior secured notes in February 2012. This brought the total amount outstanding of 11.25% senior secured notes to US $305 million, which constitutes the bulk of the Company’s annual interest expense. Foreign exchange items relate primarily to gains or losses on the translation of US $ monetary assets. When the Canadian dollar strengthens versus the US dollar, losses are generated. This was the case in the current year.

TRANSLATION OF FOREIGN DEBT

During fiscal 2012, the Company recorded a gain of $13 million on the translation of its US $ denominated debt as the relative value of the Canadian dollar increased from US $0.971 to US $1.017.

During fiscal 2011, the Company recorded a loss of $1 million on the translation of its US $ denominated debt as the relative value of the Canadian dollar decreased from US $0.975 to US $0.971.

INCOME TAXES

During fiscal 2012, the Company recorded an income tax expense of $22 million on a loss before income taxes of $60 million. The income tax expense reflected a $38 million unfavourable variance versus an anticipated income tax recovery of $16 million based on the Company’s effective tax rate of 26.3% . The current year absorbed $32 million unfavourable variance related to period losses for which no deferred tax asset was recognized. Based on past financial performance, deferred income tax assets of the Company’s Canadian operations have not been recognized as it has not been determined that future realization of these assets is probable. The expense was also increased by $6 million due to higher statutory income tax rates in France.

During fiscal 2011, the Company recorded an income tax expense of $20 million on earnings before income taxes of $15 million. The income tax expense reflected a $16 million unfavourable variance versus an anticipated tax expense of $4 million based on the Company’s effective tax rate of 27.8% . The prior year absorbed a $10 million unfavourable variance related to period losses for which no deferred tax asset was recognized. The expense was also increased by $6 million due to higher statutory income tax rates in France.

-26-

YEAR ENDED SEPTEMBER 2012 VS YEAR ENDED SEPTEMBER 2011

NET LOSS

The Company generated a net loss of $82 million or $0.82 per share for the year ended September 29, 2012, compared to a net loss of $5 million or $0.05 per share for the year ended September 24, 2011. As noted previously, the Company’s financial results were impacted by certain specific items. The following table summarizes the impact of these items on the reported financial results. The Company believes it is useful supplemental information as it provides an indication of results excluding the specific items. This supplemental information is not intended as an alternative measure for net earnings as determined by IFRS. The table below contains the gain or loss on translation of foreign debt, which is a recurring item. Because the Company has a substantial amount of US $ denominated debt, relatively minor changes in the value of the Canadian dollar versus the US dollar can lead to large unrealized periodic gains or losses. As well, this item receives capital gain/loss tax treatment and is not tax-affected at regular business income rates.

	Year ended				Year ended
	September 24, 2011				September 29, 2012
	$ millions		$ per share		$ millions		$ per share
Net loss as reported - in accordance with IFRS	(5	)	(0.05	)	(82	)	(0.82	)
Specific items (after-tax):
Loss (gain) on translation of foreign debt	1		0.01		(11	)	(0.11	)
Gain on financial instruments	(1	)	(0.01	)	-		-
Gain on sale of B.C. sawmills	-		-		(18	)	(0.18	)
Loss on sale/closure of flooring assets	-		-		2		0.02
Write-down of Temlam loan receivable	-		-		14		0.14
Gain on sale of minority interest	-		-		(4	)	(0.04	)
Asset impairment - Chetwynd pulp mill	-		-		37		0.37
Taschereau sawmill closure charge	2		0.02		-		-
Cranbrook planer mill closure charge	1		0.01		-		-
Gain on Tembec USA LLC filing	(4	)	(0.04	)	-		-
Gain on sale of Smooth Rock Falls hydro dam	(2	)	(0.02	)	-		-
Costs for permanently idled facilities	5		0.05		7		0.07
Net loss excluding specific items - not in accordance with IFRS	(3	)	(0.03	)	(55	)	(0.55	)

COMPREHENSIVE LOSS

The following table summarizes the impact of items affecting the reported total comprehensive loss during the last two fiscal years:

	$ millions
	September		September
	2011		2012
Net loss	(5	)	(82	)
Defined benefit pension plans loss	(64	)	(42	)
Other benefit plans gain	-		4
Foreign currency translation gain (loss) on foreign operations	2		(11	)
Total comprehensive loss	(67	)	(131	)

-27-

YEAR ENDED SEPTEMBER 2012 VS YEAR ENDED SEPTEMBER 2011

During fiscal 2012, the Company recognized a charge of $42 million relating to the net increase in defined pension plan liabilities. This was the result of several items. A decline in the discount rate used to calculate the pension obligation generated an actuarial loss of $77 million. This unfavourable item was partially offset by a higher than expected return on plan assets, which generated a gain of $31 million. The Company also generated an experience gain of $4 million on its defined benefit pension plans. In the prior year, the Company had recognized a charge of $64 million relating to the net increase in defined benefit plan liabilities. A decline in the discount rate used to calculate the pension obligation generated an actuarial loss of $44 million. A lower than expected return on plan assets added a further $27 million to net liability. Several other favourable items totalling $7 million provided a partial offset. During the most recent year, the Company generated an experience gain of $6 million, partially offset by a $2 million increase in obligations due to a decline in discount rate, on its other benefit plans obligations. There was no comparable gain or loss in the prior year.

Comprehensive items also include gains or losses related to the currency translation of the assets and liabilities of the Company’s French and U.S. operations. The gains or losses are generated by the changes in the end of period exchange rates. During fiscal 2012, the currency translation of the French operations generated a loss of $12 million, partially offset by a gain of $1 million relating to the U.S. operations. In the prior year, the currency translation of the French and U.S. operations generated a gain of $1 million each.

-28-

SELECTED QUARTERLY INFORMATION

Selected quarterly information for the eight most recently completed fiscal quarters is disclosed below.

	$ millions (except as otherwise noted)
	Dec 10		Mar 11	Jun 11	Sept 11		Dec 11		Mar 12		Jun 12		Sept 12
Sales	422		452	448	421		401		407		415		443
Adjusted EBITDA	12		34	33	19		12		2		27		23
Operating earnings (loss)	(3	)	17	28	5		(2	)	(3	)	14		(41	)
Net earnings (loss)	(11	)	6	17	(17	)	(16	)	(14	)	(5	)	(47	)
Basic and fully diluted net earnings (loss) per share ($)	(0.11	)	0.06	0.17	(0.17	)	(0.16	)	(0.14	)	(0.05	)	(0.47	)

FINANCIAL POSITION

	($ millions)
	Fiscal 2011						Fiscal 2012
	Dec 10		Mar 11	Jun 11	Sept 11		Dec 11		Mar 12		Jun 12		Sept 12
Cash flow from operations before working capital changes	3		21	27	13		2		(16	)	16		11
Less:
Fixed asset additions	8		7	14	29		23		28		24		45
Interest on debt	8		8	8	8		8		9		10		11
Current income tax expense	1		-	-	7		3		4		2		2
Free cash flow (negative)	(14	)	6	5	(31	)	(32	)	(57	)	(20	)	(47	)

Cash Flow – Operations

Cash flow from operations before working capital changes in fiscal 2012 was $13 million, compared to $64 million in the prior year. The decline in cash flow was due to lower adjusted EBITDA, income taxes paid relating to the French operations and an increase in excess cash contributions for employee future benefit plans. After allowing for fixed asset additions of $120 million, interest on debt of $38 million and current income tax expense of $11 million, free cash flow in fiscal 2012 was negative $156 million compared to negative $34 million in the prior year. In fiscal 2012, non-cash working capital items used $85 million. The majority of the increase in working capital was related to increased trade receivables in the Forest Products and High-Yield Pulp segments as well as higher inventories in the Specialty Cellulose and Chemical Pulp and the High-Yield Pulp segments.

Fixed Asset Additions

During fiscal 2012, fixed asset additions totalled $120 million compared to $58 million in the prior year. The Company estimates that annual capital expenditures of $35 million to $40 million are required to adequately maintain its facilities. The increase in capital expenditures in fiscal 2012 relates to one relatively large capital project. In March 2012, the Company announced a $190 million capital investment to upgrade its specialty cellulose mill in Temiscaming, Quebec. The project involves the replacement of three low-pressure boilers with a single new high-pressure boiler designed to burn waste sulphite liquor generated by the specialty cellulose manufacturing process. The project also includes the installation of a new 50 megawatt electrical turbine. During the quarter, $28 million was spent on the project, bringing total annual capital expenditures to $56 million and total cumulative project expenditures to $59 million. It is currently estimated that the project will increase annual adjusted EBITDA by $40 million to $45 million once it becomes fully operational.

-29-

FINANCIAL POSITION

While the cost of major equipment purchases related to the Temiscaming Specialty Cellulose project have been in line with expectations, recent quotes provided by potential vendors for construction labour have significantly exceeded the budgeted amounts. The Company is currently reviewing quotes to assess the underlying causes of these discrepancies. Preliminary indications are that the high quotes are due in large part to the overheated construction market in the Province of Quebec and the resulting scarcity of qualified contractors and related labour. The Company’s desire to complete certain elements prior to the onset of the winter months is likely contributing to the cost pressures. Given these circumstances, the Company has decided to reduce construction activity over the winter months.

As a result, the boiler start-up, initially scheduled for December 2013, will likely be delayed by approximately three months. The impact on the start-up of the turbine, scheduled for May 2014, is still under review. The Company’s view is that these actions are necessary and prudent under the circumstances.

The following table summarizes fiscal 2012 fixed asset additions by segment:

Quarter ended September 2012
$ millions	Quarter	Year-to-date
Forest Products	4	12
Specialty Cellulose and Chemical Pulp	36	91
High-Yield Pulp	2	8
Paper	2	7
Corporate	1	2
	45	120

The Company completed the installation of a new electrical turbine at the Tartas specialty cellulose mill at a total estimated cost of $21 million. During the quarter, $2 million was spent to complete the project. The turbine was commissioned in June 2012 and became operational in the September 2012 quarter. Current forecasts are that the turbine will increase mill adjusted EBITDA by $8 million per year.

On October 9, 2009, the Company was advised that it had qualified for $24 million of credits under the federal government’s Pulp and Paper Green Transformation Program. The credits were to be used to finance capital projects that generate environmental benefits, including investments in energy efficiency or the production of renewable energy from forest biomass. The Company has now utilized its full allotment of credits.

Liquidity

At the end of September 2012, the Company had total cash (including cash held in trust) of $92 million plus unused operating lines of $48 million, for total liquidity of $140 million. At September 2011, the date of the last audited financial statements, the Company had net cash of $105 million and unused operating lines of $124 million. The Company has set an objective of maintaining a minimum liquidity of $135 million to $150 million.

The following table summarizes operating line availability and utilization:

Operating Lines
$ millions	September		December		March		June		September
	2011		2011		2012		2012		2012
Borrowing base	186		180		199		192		187
Less: availability reserve	(22	)	(23	)	(23	)	(23	)	(23	)
Net availability	164		157		176		169		164
Outstanding letters of credit	(34	)	(38	)	(45	)	(46	)	(48	)
Amount drawn	(6	)	(48	)	(69	)	(68	)	(68	)
Unused amount	124		71		62		55		48

-30-

FINANCIAL POSITION

In March 2011, the Company entered into a five-year $200 million ABL (asset-based loan) facility expiring in February 2016. The ABL has a first priority charge over the receivables and inventories of the Company’s Canadian operations. The facility is subject to a permanent availability reserve of $15 million. This amount is increased to $25 million if the Company’s trailing 12-month adjusted EBITDA falls below $60 million. There is also a variable reserve, which totalled $8 million at the end of the September 2012 quarter.

In April 2011, the Ontario Court of Appeal rendered a decision in the restructuring proceedings involving Indalex Limited under the Companies’ Creditors Arrangement Act (CCAA). The Court of Appeal held that defined benefit pension plan deficiency claims had priority over security held by debtor-in-possession (DIP) lenders in the context of a sale made under a CCAA proceeding. This decision is currently being appealed to the Supreme Court of Canada. The agent for the ABL lenders’ syndicate recently expressed concern regarding the solvency deficits of the Company’s Ontario defined benefit pension plans. In light of the uncertainty surrounding the Ontario Court of Appeal decision, the ABL agent requested that the Company refrain from making any further draws or utilization of the ABL facility until such priority issue is dealt with by the Supreme Court of Canada.

The Company is currently under discussions with the ABL agent regarding this request as it considers the risk to be minimal and the position of the ABL agent to be unwarranted. The ruling of the Supreme Court of Canada is expected in the near term and the Company anticipates it will resolve the situation. However, there can be no assurance at this time that the decision of the Ontario Court of Appeal will not be maintained by the Supreme Court of Canada, nor that a decision will be rendered in a timely manner. The Company’s liquidity position at September 29, 2012, was $140 million, including $31 million related to the unutilized portion of the ABL. If the unutilized ABL portion was to remain unavailable for an extended period of time, the Company’s liquidity would fall below its stated objective of $135 million to $150 million. In order to address this risk, the Company is assessing other liquidity enhancing alternatives such as limiting capital expenditures and seeking other sources of financing or funding.

The outstanding letters of credit constitute security for various operating items, principally the unfunded portion of supplementary retirement plans, future landfill closure liabilities and performance guarantees related to electricity generation agreements.

Long-term debt

	Fiscal 2011				Fiscal 2012
	Dec 10	Mar 11	Jun 11	Sept 11	Dec 11	Mar 12	Jun 12	Sept 12
Net debt / total capitalization	30%	32%	28%	27%	34%	37%	40%	45%
Adjusted EBITDA / interest on indebtedness (times)	1.6	4.7	4.5	2.7	1.5	0.4	2.9	2.2

In August 2010, the Company completed a private offering of US $255 million of 11.25% senior secured notes maturing in December 2018. In February 2012, the Company issued a further US $50 million of senior secured notes with the same terms and conditions as the original US $255 million notes. The notes are senior secured obligations of the Company, secured by a first priority lien on the majority of the property and fixed assets of the Company. They are secured by a second priority lien on accounts receivable, inventories and certain intangibles.

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FINANCIAL POSITION

During the March 2012 quarter, the Company entered into a $75 million term loan facility to assist with the financing of the previously mentioned Temiscaming, Quebec, specialty cellulose project. The interest rate on the facility is 5.5% . The loan has a 15-year term consisting of a three-year construction or drawdown period followed by a 12-year amortization period. The term of the loan will be shortened by three years if the Company does not complete certain future capital expenditures at the Temiscaming specialty cellulose mill. The loan is secured by a second ranking charge on the project assets. The Company has also granted the lender a five-year option starting on the first loan disbursement date to acquire three million common shares of Tembec at a price of $7 per share. As at the end of September 2012, the Company had not drawn on the facility. On October 19, 2012, the Company received its first draw of $9 million on the term loan.

On June 29, 2012, the Company entered into a $30 million term loan facility to assist with the financing of the previously noted specialty cellulose project in Temiscaming, Quebec. The interest rate on this loan will be the greater of 6.35% and the yield on equivalent terms Government of Canada bonds plus 4.25% at the date the funds are advanced. The loan will be reimbursed in blended monthly instalments over a period of eight years beginning approximately 24 months after the initial advance, with a “balloon” payment of $18 million to be repaid at the end of the ten-year term period. The loan is secured by a first ranking charge on the project assets. On July 12, 2012, the Company received $20 million representing the first tranche advanced under the facility. The interest rate on this tranche was set at 6.35% . The final $10 million tranche will be advanced by June 2013 at the latest.

The two previously noted facilities will fund $105 million of the $190 million required to complete the Temiscaming, Quebec, specialty cellulose project.

The Company’s strategy is to maintain the net debt to total capitalization ratio at 40% or less. The objective is to keep a relatively strong balance sheet and maintain the ability of the Company to access capital markets at favourable rates. The net debt to total capitalization ratio of the Company was 45% as at September 29, 2012, as compared to 27% at the end of the prior fiscal year. The increase was due to fiscal 2012 losses, which reduced shareholders’ equity, combined with higher net debt due primarily to finance the previously noted Temiscaming specialty cellulose project. The Company anticipates that the net debt to total capitalization ratio will remain in excess of its target until the Temiscaming project is completed and begins to generate the projected incremental adjusted EBITDA.

Credit Ratings

Pursuant to the previously noted issuance of the 2018 senior secured notes, Moody’s Investors Service (Moody’s) assigned a B3 rating to the new long-term debt and the same level for the Company’s corporate credit rating. Standard and Poor’s (S&P) assigned a B- rating to the senior secured notes as well as the Company’s corporate credit rating. Moody’s has a “stable” outlook with respect to its ratings. S&P has a “negative” outlook with respect to its rating.

CAPITAL STOCK INFORMATION

As at November 15, 2012, issued and outstanding capital shares consisted of 100,000,000 common shares (100,000,000 as at September 24, 2011).

INTERNAL CONTROLS OVER FINANCIAL REPORTING

During the quarter ended September 29, 2012, the Company did not make any changes to its internal controls over financial reporting that would have materially affected, or would likely materially affect, such controls.

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OUTLOOK

Overall, the September 2012 quarterly results were in line with expectations, with improving lumber profitability offsetting the negative impact of difficult paper pulp markets. The Forest Products segment had its best quarter in several years, both in terms of lumber demand and prices. The summer months are also seasonally more productive and lower cost as well. Looking ahead, the normal seasonal decline in prices is anticipated in the December quarter. While the recent housing statistics in the United States are encouraging, we continue to forecast a slow and gradual recovery in housing, with lumber demand and prices following a similar pattern. The Specialty Cellulose and Chemical Pulp segment results were negatively impacted by currency as the Canadian dollar strengthened versus the US dollar and the euro. Market conditions for specialty cellulose were stable while those for NBSK pulp were very weak, with US $ pricing reaching “trough” levels. The annual mill-wide maintenance outage at the Skookumchuck pulp mill, which is the Company’s most expensive outage, also impacted the segment’s quarterly results. We anticipate a stable market for specialty and viscose pulps in the coming quarters. There are price increases announced for NBSK and they should be implemented. The adjusted EBITDA decline in the High-Yield Pulp segment was somewhat distorted by inventory adjustments. The prior quarter had benefited from an $8 million favourable adjustment to net realizable value inventory reserves as compared to a $3 million unfavourable adjustment in the September 2012 quarter. Absent the aforementioned adjustments, the decline in profitability was relatively modest and in line with expectations. Lower prices and the additional costs of idling the 240,000 tonnes per year Chetwynd, BC, mill led to the decline in High-Yield Pulp segment profitability. While price increases are being implemented, we expect market conditions for high-yield pulp to remain relatively weak. As well, future profitability will be enhanced as the Company will be operating its two lowest cost facilities going forward. The Paper segment had improved results due to good productivity and higher shipments. Stable paper markets are anticipated. However, profitability will be lower as the September 2012 quarter level of shipments is not sustainable. The Company continues with its capital expenditure program, with a strong emphasis on its two specialty cellulose mills. The cornerstone of the program is a $190 million high-pressure boiler and turbine to be installed at the Temiscaming, Quebec, site. The project will materially improve the mill’s cost structure and margins. A total of $59 million has been spent on the Temiscaming specialty cellulose project to the end of the September 2012 quarter. The Company also has several other smaller capital projects, which are either in start-up mode or nearing completion. These projects will begin to positively impact adjusted EBITDA in the coming quarters.

FINANCIAL PERFORMANCE & OTHER DATA

		Fiscal 2011				Fiscal 2012
		Dec 10	Mar 11	Jun 11	Sep 11	Dec 11	Mar 12	Jun 12	Sep 12
Shares outstanding - end of quarter (millions)		100	100	100	100	100	100	100	100
Book value per share ($)		2.87	2.97	3.16	2.33	2.12	1.98	1.88	1.02
Foreign exchange:
1 C $ = US $	- average	0.986	1.014	1.033	1.023	0.977	0.998	0.991	1.003
	- period end	0.994	1.019	1.013	0.971	0.980	1.001	0.976	1.017
1 euro = US $	- average	1.359	1.367	1.438	1.418	1.350	1.309	1.286	1.250
	- period end	1.312	1.408	1.418	1.352	1.304	1.326	1.256	1.284
1 euro = C $	- average	1.378	1.348	1.392	1.386	1.382	1.312	1.298	1.246
	- period end	1.320	1.382	1.399	1.392	1.331	1.325	1.287	1.263

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DEFINITIONS – NON-IFRS FINANCIAL MEASURES

The following summarizes non-IFRS financial measures utilized in the MD&A. As there is no generally accepted method of calculating these financial measures, they may not be comparable to similar measures reported by other companies.

Adjusted EBITDA refers to earnings before interest, income taxes, depreciation, amortization and other items. Since the Company excludes “other items” such as gains and losses on significant asset disposals, restructuring charges and custodial costs for permanently idled facilities, it differs from EBITDA. Adjusted EBITDA does not have any standardized meaning according to IFRS. The Company defines adjusted EBITDA as sales less cost of sales and selling, general and administrative expenses, meaning it represents operating earnings before depreciation, amortization and other items. The Company considers adjusted EBITDA to be a useful indicator of the financial performance of the Company, the business segments and the individual business units. The most comparable financial measure is operating earnings or loss. The following table is a reconciliation of quarterly operating earnings to the Company’s definition of adjusted EBITDA:

	$ millions
	Fiscal 2011						Fiscal 2012
	Dec 10		Mar 11	Jun 11		Sep 11	Dec 11		Mar 12		Jun 12	Sep 12
Operating earnings (loss)	(3	)	17	28		5	(2	)	(3	)	14	(41	)
Depreciation and amortization	13		11	12		12	12		10		11	13
Other items	2		6	(7	)	2	2		(5	)	2	51
Adjusted EBITDA	12		34	33		19	12		2		27	23

Free cash flow refers to cash provided by operating activities before changes in non-cash working capital balances less interest expense, current income tax expense and net fixed asset additions. Working capital changes are excluded as they are often seasonal and temporary in nature. The Company considers free cash flow to be a useful indicator of its ability to generate discretionary cash flow, thereby improving its overall liquidity position.

Net debt refers to debt less cash, cash equivalents, and cash held in trust.

Total capitalization refers to net debt plus future income taxes, other long-term liabilities and credits, and shareholders’ equity.

Net debt to total capitalization is used by the Company to measure its financial leverage.

	$ millions
	Fiscal 2011								Fiscal 2012
	Dec 10		Mar 11		Jun 11		Sep 11		Dec 11		Mar 12		Jun 12		Sep 12
Long-term debt	263		258		260		271		269		314		318		323
Net unamortized financing costs	13		13		13		13		13		11		12		13
Current portion of long-term debt	17		17		17		18		18		19		16		16
Operating bank loans / Bank indebtedness	3		5		2		6		48		69		68		68
Less: total cash	(61	)	(32	)	(72	)	(105	)	(86	)	(127	)	(101	)	(92	)
Net debt	235		261		220		203		262		286		313		328
Other long-term liabilities and credits	266		264		249		303		292		282		277		304
Shareholders' equity	287		297		316		233		212		198		188		102
Total capitalization	788		822		785		739		766		766		778		734
Net debt to total capitalization ratio	30%		32%		28%		27%		34%		37%		40%		45%

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EX-99.3

Exhibit 99.3

Form 52-109F2 - Certification of Interim Filings – Full Certificate

I, James Lopez, President and Chief Executive Officer of Tembec Inc., certify the following:

1.	Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of Tembec Inc. (the “issuer”) for the interim period ended September 29, 2012.
2.	No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.
3.	Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.
4.	Responsibility: The issuer’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 - Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer.
5.	Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer and I have, as at the end of the period covered by the interim filings
	(a)	designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that
		(i)	material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and
		(ii)	information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and
	(b)	designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP.

- 2 -

5.1	Control framework: The control framework the issuer’s other certifying officer and I used to design the issuer’s ICFR is the Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
5.2	N/A
5.3	N/A

6. Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on June 24, 2012 and ended on September 29, 2012 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.

Date: November 15, 2012

(s) James Lopez                                            
James Lopez
President and Chief Executive Officer

EX-99.4

Exhibit 99.4

Form 52-109F2 - Certification of Interim Filings – Full Certificate

I, Michel Dumas, Executive Vice President, Finance and Chief Financial Officer of Tembec Inc., certify the following:

1.	Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of Tembec Inc. (the “issuer”) for the interim period ended September 29, 2012.
2.	No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.
3.	Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.
4.	Responsibility: The issuer’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 - Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer.
5.	Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer and I have, as at the end of the period covered by the interim filings
	(a)	designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that
		(i)	material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and
		(ii)	information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and
	(b)	designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP.

- 2 -

5.1	Control framework: The control framework the issuer’s other certifying officer and I used to design the issuer’s ICFR is the Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
5.2	N/A
5.3	N/A

6. Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on June 24, 2012 and ended on September 29, 2012 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.

Date: November 15, 2012

(s) Michel Dumas                                      
Michel Dumas
Executive Vice President, Finance and
Chief Financial Officer

EX-99.5

Exhibit 99.5

PRESS RELEASE

TEMBEC REPORTS FINANCIAL RESULTS FOR ITS FOURTH QUARTER ENDED SEPTEMBER 29, 2012

Montreal, Quebec, November 15, 2012: Consolidated sales for the three-month period ended September 29, 2012, were $443 million, as compared to $421 million in the comparable period of the prior year. The Company generated a net loss of $47 million or $0.47 per share in the September 2012 quarter compared to a net loss of $17 million or $0.17 per share in the September 2011 quarter. The most recent quarter results include a non-cash asset impairment charge of $50 million relating to the recently idled Chetwynd, British Columbia, pulp mill. Operating earnings before depreciation, amortization and other items (adjusted EBITDA) was $23 million for the three-month period ended September 29, 2012, as compared to adjusted EBITDA of $19 million a year ago and adjusted EBITDA of $27 million in the prior quarter.

For the fiscal year ended September 29, 2012, consolidated sales were $1.7 billion, unchanged from the prior year. The Company generated a net loss of $82 million or $0.82 per share compared to a net loss of $5 million or $0.05 per share in fiscal 2011. Adjusted EBITDA was $64 million compared to $98 million in the prior year.

Transition to IFRS

All financial information in this press release, including comparative figures pertaining to Tembec’s fiscal 2011 quarterly results, have been prepared in accordance with International Financial Reporting Standards (IFRS).

Business Segment Results

The Specialty Cellulose and Chemical Pulp segment generated adjusted EBITDA of $16 million on sales of $167 million for the quarter ended September 29, 2012, compared to adjusted EBITDA of $18 million on sales of $167 million in the prior quarter. Sales were relatively unchanged with lower prices offset by higher shipments. US dollar and euro prices for specialty grades and commodity viscose grades were relatively unchanged quarter-over-quarter. However, with the Canadian dollar strengthening by 1.2% versus the US dollar and by 4.0% versus the euro, Canadian dollar equivalent pricing declined by $4 million or $60 per tonne sold.

The specialty cellulose market conditions remained favourable. Specialty cellulose shipments were equal to 84% of capacity as compared to 80% in the prior quarter. The relatively low level of shipments in the June 2012 quarter was due to the annual maintenance shutdown at the Tartas mill, which lasted 11 days. A shorter four day planned maintenance outage also occurred at the Temiscaming facility. During the most recent quarter, the two specialty pulp mills had only 3.5 days of scheduled maintenance, including one day at the Tartas mill. The higher productivity at the latter facility reduced mill level cash costs, including the positive impact of the weaker euro, by $10 million. Overall, the two pulp mills generated $7 million more of adjusted EBITDA than in the prior quarter.

The market conditions for Northern Bleached Softwood Kraft (NBSK) pulp remained relatively weak. The benchmark price (delivered China) decreased by US $60 per tonne. Overall, realized Canadian dollar prices decreased by $50 per tonne, reducing adjusted EBITDA by $3 million. NBSK shipments were equal to 89% of capacity as compared to 91% in the prior quarter. During the most recent quarter, the Skookumchuck pulp mill proceeded with its planned annual maintenance shutdown, which lasted seven days. As a result, mill level costs increased by $7 million. Overall, adjusted EBITDA declined by $11 million.

The Paper segment generated adjusted EBITDA of $14 million on sales of $96 million for the quarter ended September 2012, compared to adjusted EBITDA of $9 million on sales of $86 million in the prior quarter. Higher coated bleached board and newsprint shipments caused the $10 million increase in sales. In terms of markets, coated bleached board was stable. Newsprint also remained stable despite continued weaker North American demand statistics. The US $ reference prices for coated bleached board declined by US $13 per short ton while the US $ reference price for newsprint was unchanged. Currency was slightly negative as the Canadian dollar averaged US $1.003, a 1.2% increase from US $0.991 in the prior quarter. The combined effect was a decrease of $3 million of adjusted EBITDA due to price. Coated bleached board shipments were equal to 111% of capacity as compared to 96% in the prior quarter. The shipment to capacity percentage for newsprint was 103%, compared to 87% in the prior quarter. Both mills saw improved productivity and also sold from inventory. The improved productivity led to a reduction in mill level costs of $5 million, primarily for energy and fixed cost absorption. The higher sales volume also led to higher adjusted EBITDA.

The High-Yield Pulp segment generated negative adjusted EBITDA of $9 million on sales of $100 million for the quarter ended September 29, 2012, compared to adjusted EBITDA of $5 million on sales of $101 million in the prior quarter. Market conditions for high-yield pulp remained weak in the most recent quarter. The US $ reference price for bleached eucalyptus kraft (BEK) decreased over the prior quarter by US $32 per tonne. When combined with a higher sales mix factor, high-yield pulp prices declined by $5 per tonne, reducing adjusted EBITDA by $1 million. High-yield pulp shipments were equal to 91% of capacity as compared to 89% in the prior quarter. During the most recent quarter, weak market conditions led to a production curtailment at the Chetwynd pulp mill for the last 30 days of the fiscal quarter. The mill remains indefinitely idled at time of writing and the Company has incurred a $50 million asset impairment charge to reduce the carrying values of the mill assets to estimated net recoverable amounts. The reduced productivity increased mill costs by $2 million over the prior quarter. In the September 2012 quarter, the lower selling prices led to a decrease of $3 million in the carrying values of finished goods and raw material inventories, decreasing adjusted EBITDA. This is the opposite of what occurred in the prior quarter when increased selling prices had led to an $8 million increase in the carrying values of finished goods and raw materials.

The Forest Products segment generated adjusted EBITDA of $8 million on sales of $108 million for the quarter ended September 29, 2012, compared to negative adjusted EBITDA of $2 million on sales of $86 million in the prior quarter. Sales increased by $22 million due primarily to higher shipments of lumber and sawmill by-products. Demand for SPF lumber improved with shipments equal to 70% of capacity, as compared to 59% in the prior quarter. US $ reference prices for random lumber increased by US $8 per mbf on average while stud lumber increased by US $7 per mbf. When combined with a higher sales mix factor, the net price effect was an increase in adjusted EBITDA of $3 million or $15 per mbf. Mill level manufacturing costs improved by $5 million. Costs are normally lower in the summer months and the sawmills also benefited from more continuous operations in the most recent quarter.

Outlook

Overall, the September 2012 quarterly results were in line with expectations, with improving lumber profitability offsetting the negative impact of difficult paper pulp markets. The Forest Products segment had its best quarter in several years, both in terms of lumber demand and prices. The summer months are also seasonally more productive and lower cost as well. Looking ahead, the normal seasonal decline in prices is anticipated in the December quarter. While the recent housing statistics in the United States are encouraging, we continue to forecast a slow and gradual recovery in housing, with lumber demand and prices following a similar pattern. The Specialty Cellulose and Chemical Pulp segment results were negatively impacted by currency as the Canadian dollar strengthened versus the US dollar and the euro. Market conditions for specialty cellulose were stable while those for NBSK pulp were very weak, with US $ pricing reaching “trough” levels. The annual mill-wide maintenance outage at the Skookumchuck pulp mill, which is the Company’s most expensive outage, also impacted the segment’s quarterly results. We anticipate a stable market for specialty and viscose pulps in the coming quarters. There are price increases announced for NBSK and they should be implemented. The adjusted EBITDA decline in the High-Yield Pulp segment was somewhat distorted by inventory adjustments. The prior quarter had benefited from an $8 million favourable adjustment to net realizable value inventory reserves as compared to a $3 million unfavourable adjustment in the September 2012 quarter. Absent the aforementioned adjustments, the decline in profitability was relatively modest and in line with expectations. Lower prices and the additional costs of idling the 240,000 tonnes per year Chetwynd, BC, mill led to the decline in High-Yield Pulp segment profitability. While price increases are being implemented, we expect market conditions for high-yield pulp to remain relatively weak. As well, future profitability will be enhanced as the Company will be operating its two lowest cost facilities going forward. The Paper segment had improved results due to good productivity and higher shipments. Stable paper markets are anticipated. However, profitability will be lower as the September 2012 quarter level of shipments is not sustainable. The Company continues with its capital expenditure program, with a strong emphasis on its two specialty cellulose mills. The cornerstone of the program is a $190 million high-pressure boiler and turbine to be installed at the Temiscaming, Quebec, site. The project will materially improve the mill’s cost structure and margins. A total of $59 million has been spent on the Temiscaming specialty cellulose project to the end of the September 2012 quarter. The Company also has several other smaller capital projects, which are either in start-up mode or nearing completion. These projects will begin to positively impact adjusted EBITDA in the coming quarters.

Tembec is a manufacturer of forest products – lumber, pulp, paper and specialty cellulose – and a global leader in sustainable forest management practices. Principal operations are in Canada and France. With annual sales of approximately $2 billion, Tembec has 4,000 employees and is listed on the TSX (TMB). The full quarterly report, including the interim Management Discussion and Analysis, the interim financial statements and the accompanying notes for the quarter ended September 29, 2012, can be obtained on Tembec’s website at www.tembec.com or on SEDAR at www.sedar.com.

This press release includes “forward-looking statements” within the meaning of securities laws. Such statements relate, without limitation, to the Company’s or management’s objectives, projections, estimates, expectations or predictions of the future and can be identified by words such as “may”, “will”, “could”, “anticipate”, “estimate”, “expect” and “project”, the negative or variations thereof, and expressions of similar nature. Forward-looking statements are based on certain assumptions and analyses made by the Company in light of its experience, information available to it and its perception of future developments. Such statements are subject to a number of risks and uncertainties, including, but not limited to, changes in foreign exchange rates, product selling prices, raw material and operating costs and other factors identified in the Company’s periodic filings with securities regulatory authorities. Many of these risks are beyond the control of the Company and, therefore, may cause actual actions or results to materially differ from those expressed or implied herein. The forward-looking statements contained herein reflect the Company’s expectations as of the date hereof and are subject to change after such date. The Company disclaims any intention to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by applicable securities legislation.

- 30 -

Investor Contact:	Michel J. Dumas
	Executive Vice President, Finance and CFO
	Tel: 819 627-4268
	E-mail: michel.dumas@tembec.com
Media Contact:	Linda Coates
	Vice President, Human Resources and Corporate Affairs
	Tel.: 416 775-2819
	E-mail: linda.coates@tembec.com

EX-99.6

Exhibit 99.6

Unaudited supplemental condensed consolidating financial information of

TEMBEC INC.

Years ended September 29, 2012 and September 24, 2011

TEMBEC INC.

SUPPLEMENTAL INFORMATION

September 29, 2012

Supplemental condensed consolidating financial information

The following condensed consolidating financial information is prepared in compliance with National Instrument 51-102 – Continuous Disclosure Obligations, under Canadian securities laws.

The senior secured notes (the “Notes”) of Tembec Industries Inc. (the "Subsidiary Issuer") are fully and unconditionally guaranteed on a joint and several basis by Tembec Inc. (the "Parent Company") and most of the Subsidiary Issuer’s subsidiaries located in Canada (the “Guarantor Subsidiaries”). The Subsidiary Issuer and each of the Guarantor Subsidiaries are 100% owned by the Parent Company. The Notes are not guaranteed by the Company’s other subsidiaries (the “Other Subsidiaries”).

The following supplemental condensed consolidating financial information sets forth, on an unconsolidated basis, the balance sheets as at September 29, 2012, September 24, 2011 and September 26, 2010, the statements of comprehensive earnings (loss) and the statements of cash flows for the years ended September 29, 2012 and September 24, 2011, for the Parent Company and for the Subsidiary Issuer. It also provides the same information on a combined basis for the Guarantor Subsidiaries and the Other Subsidiaries.

The supplemental condensed consolidating financial information, which has been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB), reflects the investments of the Parent Company in the Subsidiary Issuer using the equity method. Investments of the Subsidiary Issuer in the Guarantor Subsidiaries and Other Subsidiaries are also accounted for using this method. An explanation of how the transition to IFRS has affected the reported financial position, financial performance and cash flows of the Company is provided on pages 9 to 14. The explanation of transition to IFRS includes reconciliations of equity, net earnings (loss), comprehensive earnings (loss) and cash flows for prior years reported under the previous Canadian Generally Accepted Accounting Principles (GAAP) to those reported for those years under IFRS.

More information on the Company and its significant accounting policies are included in the audited consolidated financial statements for the year ended September 29, 2012.

TEMBEC Supplemental Information for fourth quarter 2012 1

TEMBEC INC.

SUPPLEMENTAL INFORMATION

September 29, 2012

Supplemental condensed consolidating financial information

Condensed Consolidated Balance Sheets
(unaudited)(in millions of Canadian dollars)
		September 29, 2012
		Parent			Subsidiary			Guarantor			Other			Consolidation
		Company			Issuer			Subsidiaries			Subsidiaries			Adjustments			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	-		$	1		$	29		$	57		$	-		$	87
Cash held in trust		-			-			5			-			-			5
Trade and other receivables		36			307			210			65			(418	)		200
Inventories		-			-			228			27			-			255
Prepaid expenses		-			1			5			1			-			7
		36			309			477			150			(418	)		554
Investments		102			372			-			-			(474	)		-
Property, plant and equipment		-			6			379			100			-			485
Biological assets		-			-			4			-			-			4
Employee future benefits		-			-			-			-			-			-
Other long-term receivables		-			10			-			2			-			12
Deferred tax assets		-			(1	)		-			5			-			4
	$	138		$	696		$	860		$	257		$	(892	)	$	1,059
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Operating bank loans	$	-		$	-		$	65		$	3		$	-		$	68
Trade, other payables and accrued charges		34			113			442			59			(418	)		230
Interest payable		-			10			-			-			-			10
Income tax payable		-			-			-			3			-			3
Provisions		-			1			2			-			-			3
Current portion of long-term debt		1			-			-			15			-			16
		35			124			509			80			(418	)		330
Long-term debt		1			289			18			23			(8	)		323
Provisions		-			5			12			-			-			17
Employee future benefits		-			195			52			38			-			285
Other long-term liabilities		-			-			2			-			-			2
		36			613			593			141			(426	)		957
Shareholders' equity:
Share capital		564			555			696			40			(1,291	)		564
Retained earnings (deficit)		(453	)		(463	)		(429	)		85			807			(453	)
Accumulated other comprehensive earnings (loss)		(9	)		(9	)		-			(9	)		18			(9	)
		102			83			267			116			(466	)		102
	$	138		$	696		$	860		$	257		$	(892	)	$	1,059

TEMBEC Supplemental Information for fourth quarter 2012 2

TEMBEC INC.

SUPPLEMENTAL INFORMATION

September 29, 2012

Supplemental condensed consolidating financial information

Condensed Consolidated Balance Sheets (continued)
(unaudited)(in millions of Canadian dollars)
		September 24, 2011
		Parent			Subsidiary			Guarantor			Other		Consolidation
		Company			Issuer			Subsidiaries			Subsidiaries		Adjustments			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	-		$	-		$	40		$	59	$	-		$	99
Cash held in trust		-			-			-			6		-			6
Trade and other receivables		35			339			100			49		(341	)		182
Inventories		-			-			232			29		-			261
Prepaid expenses		-			1			5			-		-			6
		35			340			377			143		(341	)		554
Investments		205			473			-			-		(678	)		-
Property, plant and equipment		-			5			393			93		-			491
Biological assets		-			-			4			-		-			4
Employee future benefits		-			-			-			1		-			1
Other long-term receivables		-			25			1			2		-			28
Deferred tax assets		-			-			-			15		-			15
	$	240		$	843		$	775		$	254	$	(1,019	)	$	1,093
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Operating bank loans	$	-		$	-		$	-		$	6	$	-		$	6
Trade, other payables and accrued charges		-			191			313			77		(341	)		240
Interest payable		-			8			-			-		-			8
Income tax payable		-			-			-			6		-			6
Provisions		-			-			8			-		-			8
Current portion of long-term debt		5			-			-			13		-			18
		5			199			321			102		(341	)		286
Long-term debt		2			249			-			26		(6	)		271
Provisions		-			-			16			-		-			16
Employee future benefits		-			181			62			42		-			285
Other long-term liabilities		-			-			2			-		-			2
		7			629			401			170		(347	)		860
Shareholders' equity:
Share capital		564			555			668			40		(1,263	)		564
Retained earnings (deficit)		(333	)		(343	)		(294	)		42		595			(333	)
Accumulated other comprehensive earnings (loss)		2			2			-			2		(4	)		2
		233			214			374			84		(672	)		233
	$	240		$	843		$	775		$	254	$	(1,019	)	$	1,093

TEMBEC Supplemental Information for fourth quarter 2012 3

TEMBEC INC.

SUPPLEMENTAL INFORMATION

September 29, 2012

Supplemental condensed consolidating financial information

Condensed Consolidated Balance Sheets (continued)
(unaudited)(in millions of Canadian dollars)
		September 26, 2010
		Parent			Subsidiary			Guarantor			Other			Consolidation
		Company			Issuer			Subsidiaries			Subsidiaries			Adjustments			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	-		$	1		$	24		$	43		$	-		$	68
Cash held in trust		-			-			-			6			-			6
Trade and other receivables		38			350			175			41			(395	)		209
Inventories		-			-			231			24			-			255
Prepaid expenses		-			1			5			1			-			7
		38			352			435			115			(395	)		545
Investments		277			453			-			-			(730	)		-
Property, plant and equipment		-			5			409			82			-			496
Biological assets		-			-			7			-			-			7
Employee future benefits		-			-			-			-			-			-
Other long-term receivables		-			25			2			1			-			28
Deferred tax assets		1			-			-			26			-			27
	$	316		$	835		$	853		$	224		$	(1,125	)	$	1,103
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Operating bank loans	$	-		$	-		$	-		$	1		$	-		$	1
Trade, other payables and accrued charges		-			154			317			157			(395	)		233
Interest payable		-			3			-			-			-			3
Income tax payable		-			-			-			-			-			-
Provisions		-			-			5			-			-			5
Current portion of long-term debt		5			-			-			12			-			17
		5			157			322			170			(395	)		259
Long-term debt		6			248			-			23			(6	)		271
Provisions		-			-			17			-			-			17
Employee future benefits		-			146			57			45			-			248
Other long-term liabilities		5			2			1			-			-			8
		16			553			397			238			(401	)		803
Shareholders' equity:
Share capital		564			551			668			(27	)		(1,192	)		564
Retained earnings (deficit)		(264	)		(269	)		(212	)		13			468			(264	)
Accumulated other comprehensive earnings (loss)		-			-			-			-			-			-
		300			282			456			(14	)		(724	)		300
	$	316		$	835		$	853		$	224		$	(1,125	)	$	1,103

TEMBEC Supplemental Information for fourth quarter 2012 4

TEMBEC INC.

SUPPLEMENTAL INFORMATION

September 29, 2012

Supplemental condensed consolidating financial information

Condensed Consolidated Statements of Comprehensive Earnings (Loss)
(unaudited)(in millions of Canadian dollars, unless otherwise noted)
		Year ended September 29, 2012
		Parent			Subsidiary			Guarantor			Other			Consolidation
		Company			Issuer			Subsidiaries			Subsidiaries			Adjustments			Consolidated
Sales	$	-		$	1		$	1,409		$	279		$	(23	)	$	1,666
Freight and other deductions		-			-			217			20			(5	)		232
Lumber export taxes		-			-			7			-			-			7
Cost of sales (excluding depreciation and amortization)		-			-			1,132			176			(18	)		1,290
Selling, general and administrative		-			8			59			7			-			74
Share-based compensation		-			(1	)		-			-			-			(1	)
Depreciation and amortization		-			1			39			6			-			46
Other items		(1	)		19			32			-			-			50
Operating earnings (loss)		1			(26	)		(77	)		70			-			(32	)
Interest, foreign exchange and other		-			3			38			-			-			41
Exchange loss (gain) on long-term debt		-			(13	)		-			-			-			(13	)
Net finance costs (income)		-			(10	)		38			-			-			28
Earnings (loss) before income taxes and share of results for equity accounting		1			(16	)		(115	)		70			-			(60	)
Income tax expense (recovery)		1			(1	)		-			22			-			22
Share of results for equity accounting		(82	)		(67	)		-			-			149			-
Net earnings (loss)		(82	)		(82	)		(115	)		48			149			(82	)
Other comprehensive earnings (loss), net of income taxes:
Defined benefit pension plans		(42	)		(42	)		(24	)		(5	)		71			(42	)
Other benefit plans		4			4			4						(8	)		4
Foreign currency translation differences for foreign operations		(11	)		(11	)		-			(11	)		22			(11	)
Total comprehensive earnings (loss)	$	(131	)	$	(131	)	$	(135	)	$	32		$	234		$	(131	)
Basic and diluted net loss in dollars per share																$	(0.82	)

TEMBEC Supplemental Information for fourth quarter 2012 5

TEMBEC INC.

SUPPLEMENTAL INFORMATION

September 29, 2012

Supplemental condensed consolidating financial information

Condensed Consolidated Statements of Comprehensive Earnings (Loss) (continued)
(unaudited)(in millions of Canadian dollars, unless otherwise noted)
		Year ended September 24, 2011
		Parent			Subsidiary			Guarantor			Other			Consolidation
		Company			Issuer			Subsidiaries			Subsidiaries			Adjustments			Consolidated
Sales	$	-		$	3		$	1,503		$	255		$	(18	)	$	1,743
Freight and other deductions		-			-			224			19			(6	)		237
Lumber export taxes		-			-			13			-			-			13
Cost of sales (excluding depreciation and amortization)		-			-			1,173			160			(12	)		1,321
Selling, general and administrative		(1	)		10			56			7			-			72
Share-based compensation		-			2			-			-			-			2
Depreciation and amortization		-			1			41			6			-			48
Other items		-			3			4			(4	)		-			3
Operating earnings (loss)		1			(13	)		(8	)		67			-			47
Interest, foreign exchange and other		(4	)		1			31			3			-			31
Exchange loss (gain) on long-term debt		-			1			-			-			-			1
Net finance costs (income)		(4	)		2			31			3			-			32
Earnings (loss) before income taxes and share of results for equity accounting		5			(15	)		(39	)		64			-			15
Income tax expense (recovery)		-			-			-			20			-			20
Share of results for equity accounting		(10	)		4			-			-			6			-
Net earnings (loss)		(5	)		(11	)		(39	)		44			6			(5	)
Other comprehensive earnings (loss), net of income taxes:
Defined benefit pension plans		(64	)		(63	)		(43	)		(6	)		112			(64	)
Other benefit plans		-			-			-			-			-			-
Foreign currency translation differences for foreign operations		2			2			-			2			(4	)		2
Total comprehensive earnings (loss)	$	(67	)	$	(72	)	$	(82	)	$	40		$	114		$	(67	)
Basic and diluted net loss in dollars per share																$	(0.05	)

TEMBEC Supplemental Information for fourth quarter 2012 6

TEMBEC INC.

SUPPLEMENTAL INFORMATION

September 29, 2012

Supplemental condensed consolidating financial information

Condensed Consolidated Statements of Cash Flows
(unaudited)(in millions of Canadian dollars)
		Year ended September 29, 2012
		Parent			Subsidiary			Guarantor			Other			Consolidation
		Company			Issuer			Subsidiaries			Subsidiaries			Adjustments			Consolidated
Cash flows from operating activities:
Net earnings (loss)	$	(82	)	$	(82	)	$	(115	)	$	48		$	149		$	(82	)
Adjustments for:
Depreciation and amortization		-			1			39			6			-			46
Net finance costs		-			(10	)		38			-			-			28
Income tax expense (recovery)		1			(1	)		-			22			-			22
Income tax paid		-			-			-			(14	)		-			(14	)
Excess cash contributions over employee future benefits expense		-			(15	)		(12	)		(7	)		-			(34	)
Provisions		-			6			6			-			-			12
Share of results for equity accounting		82			67			-			-			(149	)		-
Impairment loss		-			16			51			-			-			67
Gain on sale of assets and deconsolidation of a subsidiary		(1	)		(3	)		(26	)		-			-			(30	)
Other		(1	)		2			(3	)		-			-			(2	)
		(1	)		(19	)		(22	)		55			-			13
Change in non-cash working capital:
Trade and other receivables		-			29			19			(20	)		(58	)		(30	)
Inventories		-			-			(40	)		-			-			(40	)
Prepaid expenses		-			-			-			(1	)		-			(1	)
Trade, other payables and accrued charges		33			(62	)		(33	)		(10	)		58			(14	)
		33			(33	)		(54	)		(31	)		-			(85	)
		32			(52	)		(76	)		24			-			(72	)
Cash flows from investing activities:
Additions to property, plant and equipment		-			(2	)		(86	)		(20	)		-			(108	)
Proceeds from sale of net assets		1			3			80			-			-			84
Investments in a subsidiary		(28	)		-			-			-			28			-
Interest received		-			34			-			-			(34	)		-
Other		-			(1	)		-			-			-			(1	)
		(27	)		34			(6	)		(20	)		(6	)		(25	)
Cash flow from financing activities:
Change in operating bank loans		-			-			65			(3	)		-			62
Cash held in trust		-			-			(5	)		5			-			-
Increase in long-term debt		-			50			18			6			-			74
Repayments of long-term debt		(5	)		-			-			(6	)		-			(11	)
Proceeds from issue of share capital		-			-			28			-			(28	)		-
Interest paid		-			(31	)		(35	)		(2	)		34			(34	)
Other		-			-			-			-			-			-
		(5	)		19			71			-			6			91
		-			1			(11	)		4			-			(6	)
Foreign exchange loss on cash and cash equivalents held in foreign currencies		-			-			-			(6	)		-			(6	)
Net increase (decrease) in cash and cash equivalents		-			1			(11	)		(2	)		-			(12	)
Cash and cash equivalents, beginning of period		-			-			40			59			-			99
Cash and cash equivalents, end of period	$	-		$	1		$	29		$	57		$	-		$	87

TEMBEC Supplemental Information for fourth quarter 2012 7

TEMBEC INC.

SUPPLEMENTAL INFORMATION

September 29, 2012

Supplemental condensed consolidating financial information

Condensed Consolidated Statements of Cash Flows (continued)
(unaudited)(in millions of Canadian dollars)
		Year ended September 24, 2011
		Parent			Subsidiary			Guarantor			Other			Consolidation
		Company			Issuer			Subsidiaries			Subsidiaries			Adjustments			Consolidated
Cash flows from operating activities:
Net earnings (loss)	$	(5	)	$	(11	)	$	(39	)	$	44		$	6		$	(5	)
Adjustments for:
Depreciation and amortization		-			1			41			6			-			48
Net finance costs		(4	)		2			31			3			-			32
Income tax expense (recovery)		-			-			-			20			-			20
Income tax paid		-			-			-			(1	)		-			(1	)
Excess cash contributions over employee future benefits expense		-			(6	)		(11	)		(5	)		-			(22	)
Provisions		-			-			1			-			-			1
Share of results for equity accounting		10			(4	)		-			-			(6	)		-
Impairment loss		-			-			-			-			-			-
Gain on sale of assets and deconsolidation of a subsidiary		-			-			(3	)		(4	)		-			(7	)
Other		-			-			(3	)		1			-			(2	)
		1			(18	)		17			64			-			64
Change in non-cash working capital:
Trade and other receivables		3			11			43			(9	)		(15	)		33
Inventories		-			-			(2	)		(5	)		-			(7	)
Prepaid expenses		-			-			-			1			-			1
Trade, other payables and accrued charges		-			-			11			(18	)		15			8
		3			11			52			(31	)		-			35
		4			(7	)		69			33			-			99
Cash flows from investing activities:
Additions to property, plant and equipment		-			-			(46	)		(19	)		-			(65	)
Proceeds from sale of net assets		-			-			17			-			-			17
Investments in subsidiary		-			-			-			-			-			-
Interest received		-			27			-			-			(27	)		-
Other		-			4			2			(4	)		-			2
		-			31			(27	)		(23	)		(27	)		(46	)
Cash flow from financing activities:
Change in operating bank loans		-			-			-			5			-			5
Cash held in trust		-			-			-			-			-			-
Increase in long-term debt		-			-			-			8			-			8
Repayments of long-term debt		(4	)		-			-			(4	)		-			(8	)
Proceeds from issue of share capital		-			-			-			-			-			-
Interest paid		-			(23	)		(26	)		(3	)		27			(25	)
Other		-			(2	)		-			-			-			(2	)
		(4	)		(25	)		(26	)		6			27			(22	)
		-			(1	)		16			16			-			31
Foreign exchange loss on cash and cash equivalents held in foreign currencies		-			-			-			-			-			-
Net increase (decrease) in cash and cash equivalents		-			(1	)		16			16			-			31
Cash and cash equivalents, beginning of period		-			1			24			43			-			68
Cash and cash equivalents, end of period	$	-		$	-		$	40		$	59		$	-		$	99

TEMBEC Supplemental Information for fourth quarter 2012 8

TEMBEC INC.

SUPPLEMENTAL INFORMATION

September 29, 2012

Supplemental condensed consolidating financial information

Explanation of transition to IFRS

The accounting policies set out in note 3 of the Company’s audited consolidated financial statements for the year ended September 29, 2012, have been applied in preparing supplemental condensed consolidating financial information for the same date and for the comparative figures, except for the use of the equity method as explain on page 1.

In preparing its opening IFRS balance sheet, the Company has adjusted amounts reported previously in financial statements prepared in accordance with previous Canadian GAAP. An explanation of how the transition from previous GAAP to IFRS has affected the Company’s financial position, financial performance and cash flows is set out in the following tables and the notes that accompany the tables.

In such tables, reclassification has been made to conform to IAS 1 – Presentation of Financial Statements, minimum disclosure requirements. Additionally, in preparing its consolidated financial statements in accordance with IFRS 1 - First-time Adoption of International Financial Reporting Standards, the Company applied the mandatory exemptions and elected to apply the following optional exemptions from full retrospective application:

Employee benefits exemption

IFRS 1 provides the option to retrospectively apply IAS 19, Employee Benefits, for the recognition of unamortized actuarial gains and losses, past service costs and transitional obligations and assets or to recognize these balances previously deferred under previous Canadian GAAP in opening retained earnings as at September 26, 2010 (the “Transition Date”). The Company has elected to recognize all unamortized cumulative actuarial losses and past service costs at the Transition Date as an adjustment to opening retained earnings for all of its employee future benefit plans.

Foreign currency translation differences

Retrospective application of IFRS would require the Company to determine cumulative currency translation differences in accordance with IAS 21, The Effects of Changes in Foreign Exchange Rates, from the date a subsidiary or equity method investee was formed or acquired. IFRS 1 permits cumulative translation gains and losses to be reset to zero at the Transition Date. The Company elected to reset all cumulative translation gains and losses to zero in opening retained earnings at its Transition Date.

Event driven fair value of property, plant and equipment as deemed cost

IFRS 1 provides the choice of recording assets and liabilities based on a deemed cost, which can be an event driven valuation where some or all of the assets and liabilities were valued and recognized at fair value under previous Canadian GAAP. As a result of the recapitalization transaction that occurred within the Company in 2008, the Company has elected to apply this exemption to property, plant and equipment and used such event driven fair value measurements as deemed cost for IFRS at the date of that measurement.

Business combinations exemption

IFRS 1 provides the option to apply IFRS 3, Business Combinations, retrospectively or prospectively - either from the Transition Date or a particular date prior to the Transition Date. The Company has elected to apply IFRS 3 prospectively to business combinations that occur after the Transition Date. Accordingly, business combinations prior to this date have not been restated.

Share-based payment transaction exemption

IFRS 1 provides an optional exemption to the application of IFRS 2, Share-based Payment, for those share options granted subsequent to November 7, 2002, that have fully vested as at the Transition Date and to liabilities arising from share-based payment transactions that were settled before the Transition Date. The Company has elected this exemption.

Borrowing costs

IFRS 1 provides the option to apply IAS 23, Borrowing Costs, retrospectively or prospectively from the Transition Date. IAS 23 requires an entity to capitalize borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset. A qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its intended use or sale. The Company elected to apply this exemption prospectively in respect of qualifying assets for which the commencement date for capitalization was on or after the Transition Date.

TEMBEC Supplemental Information for fourth quarter 2012 9

TEMBEC INC.

SUPPLEMENTAL INFORMATION

September 29, 2012

Supplemental condensed consolidating financial information

Changes in Condensed Consolidated Shareholders’ Equity under IFRS
The effect of the IFRS adjustments on the condensed consolidated shareholders’ equity is as follows:
	September 24, 2011
			Parent			Subsidiary			Guarantor			Other			Consolidated
	Notes		Company			Issuer			Subsidiaries			Subsidiaries			Adjustment			Consolidated
Shareholders' equity as per previous Canadian GAAP		$	362		$	342		$	514		$	112		$	(968	)	$	362
Biological assets	(a)		-			-			4			-			-			4
Component accounting	(b)		-			-			6			-			-			6
Translation of foreign operations	(c)		-			-			-			(7	)		-			(7	)
Site restoration	(d)		-			-			(1	)		-			-			(1	)
Recognition of unamortized actuarial balances into equity	(e)		(1	)		40			(151	)		(20	)		-			(132	)
Warrants	(f)		-			-			-			-			-			-
Provisions	(g)		-			-			2			-			-			2
Deferred tax liabilities	(e)		-			-			-			(1	)		-			(1	)
Share of results for equity accounting			(128	)		(168	)		-			-			296			-
Shareholders' equity as per IFRS		$	233		$	214		$	374		$	84		$	(672	)	$	233

	September 26, 2010
			Parent			Subsidiary			Guarantor			Other			Consolidated
	Notes		Company			Issuer			Subsidiaries			Subsidiaries			Adjustment			Consolidated
Shareholders' equity as per previous Canadian GAAP		$	365		$	341		$	545		$	11		$	(897	)	$	365
Biological assets	(a)		-			-			7			-			-			7
Component accounting	(b)		-			-			6			-			-			6
Translation of foreign operations	(c)		-			-			-			(7	)		-			(7	)
Site restoration	(d)		-			-			(1	)		-			-			(1	)
Recognition of unamortized actuarial balances into equity	(e)		-			54			(103	)		(18	)		-			(67	)
Warrants	(f)		(5	)		-			-			-			-			(5	)
Provisions	(g)		-			-			2			-			-			2
Deferred tax liabilities			-			-			-			-			-			-
Share of results for equity accounting			(60	)		(113	)		-			-			173			-
Shareholders' equity as per IFRS		$	300		$	282		$	456		$	(14	)	$	(724	)	$	300

TEMBEC Supplemental Information for fourth quarter 2012 10

TEMBEC INC.

SUPPLEMENTAL INFORMATION

September 29, 2012

Supplemental condensed consolidating financial information

Changes in Condensed Consolidated Statements of Comprehensive Earnings (Loss) under IFRS
The effect of the IFRS adjustments on the condensed consolidated statement of comprehensive earnings (loss) is as follows:
	Year ended September 24, 2011
			Parent			Subsidiary			Guarantor			Other			Consolidated
	Notes		Company			Issuer			Subsidiaries			Subsidiaries			Adjustment			Consolidated
Net earnings (loss) as per previous Canadian GAAP		$	(3	)	$	(3	)	$	(30	)	$	49		$	(16	)	$	(3	)
Cost of sales	(a)(b)(e)		-			-			3			-			-			3
Depreciation and amortization	(b)		-			-			(3	)		-			-			(3	)
Other items	(e)		-			1			-			(3	)		-			(2	)
Interest, foreign exchange and other	(c)(d)(e)(f)(g)		4			7			(9	)		(1	)		-			1
Deferred income tax expense	(e)		-			-			-			(1	)		-			(1	)
Share of results for equity accounting			(6	)		(16	)		-			-			22			-
Net earnings (loss) as per IFRS		$	(5	)	$	(11	)	$	(39	)	$	44		$	6		$	(5	)
Basic and diluted net loss in dollars per share as per IFRS																	$	(0.05	)
Other comprehensive earnings (loss) as per previous Canadian GAAP		$	-		$	-		$	-		$	-		$	-		$	-
Pension and other benefits plans, net of income taxes	(e)		(64	)		(63	)		(43	)		(6	)		112			(64	)
Translation of foreign operations	(c)		2			2			-			2			(4	)		2
Other comprehensive earnings (loss) as per IFRS		$	(62	)	$	(61	)	$	(43	)	$	(4	)	$	108		$	(62	)
Total comprehensive earnings (loss) as per IFRS		$	(67	)	$	(72	)	$	(82	)	$	40		$	114		$	(67	)

TEMBEC Supplemental Information for fourth quarter 2012 11

TEMBEC INC.

SUPPLEMENTAL INFORMATION

September 29, 2012

Supplemental condensed consolidating financial information

Changes in Condensed Consolidated Statements of Cash Flows

The adoption of IFRS has had no impact on the net cash flows of the Company. The changes made to the consolidated balance sheet and to the consolidated statements of net earnings (loss) have resulted in reclassifications of various amounts on the consolidated statements of cash flows. There have been no significant changes to the net cash flows, other than the Company’s accounting policy choice to classify interest paid as financing activity and interest received as investing activity under IFRS compared to operating activity under previous Canadian GAAP.

		Year ended September 24, 2011
		Parent			Subsidiary			Guarantor			Other			Consolidated
		Company			Issuer			Subsidiaries			Subsidiaries			Adjustment			Consolidated
Cash flow from operating activities as per previous Canadian GAAP	$	4		$	(4	)	$	41		$	28		$	-		$	69
Reclassification for interest		-			(4	)		26			3			-			25
Other		-			1			2			2			-			5
As per IFRS	$	4		$	(7	)	$	69		$	33		$	-		$	99
Cash flow from investing activities as per previous Canadian GAAP		-			4			(25	)		(22	)		-			(43	)
Reclassification for interest received		-			27			-			-			(27	)		-
Other		-			-			(2	)		(1	)		-			(3	)
As per IFRS	$	-		$	31		$	(27	)	$	(23	)	$	(27	)	$	(46	)
Cash flow from financing activities as per previous Canadian GAAP		(4	)		(1	)		-			10			-			5
Reclassification for interest paid		-			(23	)		(26	)		(3	)		27			(25	)
Other		-			(1	)		-			(1	)		-			(2	)
As per IFRS	$	(4	)	$	(25	)	$	(26	)	$	6		$	27		$	(22	)

TEMBEC Supplemental Information for fourth quarter 2012 12

TEMBEC INC.

SUPPLEMENTAL INFORMATION

September 29, 2012

Supplemental condensed consolidating financial information

Notes to the reconciliation of equity and statement of comprehensive earnings (loss)

The numbers provided in the following notes are presented on a consolidated basis. The allocation of these adjustments between the Parent Company, the Subsidiary Issuer, the Guarantor Subsidiaries and the Other Subsidiaries are provided in the respective tables on page 10 and 11.

(a)	Biological assets
	In accordance with IAS 41, Agriculture , the Company’s standing timber on its private timberlands is considered to be a biological asset that is measured at fair value less costs to sell at each reporting date, with changes in fair value less costs to sell recognized in net earnings (loss) at each period. As a result of this IFRS guidance, the Company’s standing timber on its private timberlands has been separately identified on the consolidated balance sheet as biological assets and recorded at fair value less costs to sell.
	The effect of the above on the Company’s balance sheet resulted in an increase in biological assets of $4 million at September 24, 2011 (September 26, 2010 - $7 million), and resulted in a decrease of the deficit of $4 million (September 26, 2010 - $7 million).
	The impact on total comprehensive loss for the year ended September 24, 2011, increased by $3 million.
(b)	Component accounting
	Under previous Canadian GAAP, the Company did not apply component accounting to the significant separable component parts of an item of property, plant and equipment since no guidance was provided on evaluating the cost of a component, replacement of a component and the level at which component accounting was required. Under IFRS, the major assets must be separated into components and the cost of replacement or overhaul of these components are considered to be a part of property, plant and equipment, and are amortized over their individual estimated useful lives.
	The effect of the above on the Company’s balance sheet resulted in an increase in property, plant and equipment of $6 million at September 24, 2011 (September 26, 2010 - $6 million), and resulted in a decrease of the deficit of $6 million (September 26, 2010 - $6 million).
	The impact on total comprehensive loss for the year ended September 24, 2011, was negligible.
(c)	Translation of foreign operations
	Under previous Canadian GAAP, non-monetary assets and liabilities of the foreign operations were translated to Canadian dollars at the historical rate relevant to the particular transaction date at which such assets or liabilities were originated. Under IFRS, all assets and liabilities of the foreign operations with functional currencies other than the Canadian dollar are translated to Canadian dollar at the exchange rate prevailing at period-end and are recognized in other comprehensive loss. In accordance with IFRS 1, the Company elected to reset all cumulative translation gains and losses to zero in opening deficit at its Transition Date.
	The effect of the above on the Company’s balance sheet resulted in a decrease in property, plant and equipment of $7 million at September 24, 2011 (September 26, 2010 - $7 million), and resulted in an increase of the deficit of $9 million (September 26, 2010 - $7 million) and an increase of accumulated other comprehensive earnings of $2 million (September 26, 2010 - nil).
	The impact on total comprehensive loss for the year ended September 24, 2011, decreased by $2 million.
(d)	Site restoration
	Under previous Canadian GAAP, the cost of decommissioning and restoration of landfill sites were part of property, plant and equipment and depreciated over the estimated useful life of the landfill site. Under IFRS, decommissioning and restoration costs incurred through the production of inventory are included as part of inventory costs.
	The effect of the above on the Company’s balance sheet resulted in a decrease in property, plant and equipment of $1 million at September 24, 2011 (September 26, 2010 - $1 million), and resulted in an increase of the deficit of $1 million (September 26, 2010 - $1 million).
	For the year ended September 24, 2011, the impact on total comprehensive loss was negligible.

TEMBEC Supplemental Information for fourth quarter 2012 13

TEMBEC INC.

SUPPLEMENTAL INFORMATION

September 29, 2012

Supplemental condensed consolidating financial information

Notes to the reconciliation of equity and statement of comprehensive earnings (loss) (continued)

(e)	Recognition of unamortized actuarial losses at date of transition to IFRS into equity
	As permitted by previous Canadian GAAP, the Company measured its employee future benefits obligation for accounting purposes as at June 30 of each fiscal year. This was often referred as the early measurement date accounting policy choice. Under IAS 19 - Employee Benefit, the measurement date of the employee future benefits obligation must coincide with the fiscal year-end of the Company. Therefore, upon transition to IFRS, the Company measured its employee future benefits obligation at the date of the opening balance sheet in accordance with IAS 19.
	In addition, as permitted by IFRS 1 - First-time Adoption of International Financial Reporting Standards, management elected the optional exemption to recognize all unamortized cumulative actuarial losses at the Transition Date as an adjustment to opening retained earnings for all of its employee future benefit plans.
	Under IFRS, the Company’s accounting policy is to recognize all actuarial gains and losses, arising on its defined benefit pension and other non-pension post retirement plans, immediately in other comprehensive earnings (loss).
	The cumulative effect of the above on the Company's balance sheet was to decrease employee future benefits assets by $15 million at September 24, 2011 (September 26, 2010 - $6 million), and increase the employee future benefits liabilities by $117 million (September 26, 2010 - $61 million), which resulted in a corresponding increase to deficit of $132 million (September 26, 2010 - $67 million).
	The impact on total comprehensive loss for the year ended September 24, 2011 increased by $65 million.
(f)	Warrants
	Under IFRS, the warrants have been classified as a liability because of the possibility that they may be settled in cash in the event of a change of control. They are recorded at fair value with value being adjusted every quarter.
	The effect of the above on the Company’s balance sheet resulted in a decrease in share capital of $6 million at September 24, 2011 (September 26, 2010 - $6 million), and resulted in an increase of the other long-term liabilities by a negligible amount (September 26, 2010 - $5 million), and a decrease of the deficit of $6 million (September 26, 2010 - $1 million).
	Total comprehensive loss decreased by $5 million for the year ended September 24, 2011.
(g)	Provisions
	IAS 37 – Provisions, Contingent Liabilities and Contingent Assets, has measurement differences when compared to previous Canadian GAAP. These measurement differences include the requirement to reflect the risks associated with the Company’s provisions in either the cash flows or the discount rate.
	The effect of the above on the Company’s balance sheet resulted in a decrease in long-term provisions of $2 million at September 24, 2011 (September 26, 2010 - $2 million), and resulted in a decrease of the deficit of $2 million (September 26, 2010 - $2 million).
	For the year ended September 24, 2011, the impact on total comprehensive loss was negligible.
(h)	Contributed surplus
	The previous Canadian GAAP requires that a future income tax asset that was not recognized at the date of a comprehensive revaluation as a result of a financial reorganization be subsequently recognized first as a reduction of any unamortized intangible asset and then in a manner consistent with the revaluation adjustment recorded at the date of the comprehensive revaluation. Under IFRS, this recognition of a future income tax asset is recorded to profit and loss.
	The effect of the above on the Company’s balance sheet resulted in a decrease in contributed surplus of $5 million at September 24, 2011 (September 26, 2010 - $5 million), and resulted in a decrease of the deficit of $5 million (September 26, 2010 - $5 million).
	For the year ended September 24, 2011, the impact on total comprehensive loss was nil.

TEMBEC Supplemental Information for fourth quarter 2012 14